2017 INTERIM RESULTS and UPDATE ON STRATEGIC REVIEW

Transcription

1 2017 INTERIM RESULTS and UPDATE ON STRATEGIC REVIEW 29 September

2 2 Disclaimer This presentation has been prepared by Carillion plc (the Company ) and contains certain forwardlooking statements with respect to certain of the Company s current expectations and projections about future performance, anticipated events or trends and other matters that are not historical facts. These forwardlooking statements, which sometimes use words such as "aim", "anticipate", "believe", "intend", "plan", "estimate", "expect" and words of similar meaning, include all matters that are not historical facts and reflect the directors' beliefs and expectations and involve a number of risks, uncertainties and assumptions that could cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forwardlooking statements. These statements are subject to unknown risks, uncertainties and other factors that could cause actual results to differ materially from those expressed or implied by such forwardlooking statements. Statements contained in this presentation regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. The Company obtained certain industry and market data used in this presentation from publications and studies conducted by third parties and estimates prepared by the Company based on certain assumptions. While the Company believes that the industry and market data from external sources is accurate and correct, the Company has not independently verified such data or sought to verify that the information remains accurate as of the date of this presentation and the Company does not make any representation as to the accuracy of such information. Similarly, the Company believes that its internal estimates are reliable, but these estimates have not been verified by any independent sources.

3 3 Summary Weak H1 performance PPP equity disposal phasing and contracts traded at zero margin Contract review completed 845m construction provision confirmed; further 200m services provision Revised full year outlook: Group revenue (including joint ventures) between 4.6bn and 4.8bn Full year to be lower than current market expectations Full year average net debt expected to be higher at between 825m and 850m Balance sheet: Additional liquidity: 140m committed facility Pension: 80m net deficit reduction, discussions ongoing with a view to a further 120m reduction Disposals: raising target to 300m by end 2018; ongoing discussions on Canada/UK Healthcare Strategic review completed: Business reshaped to focus on core strengths and markets New operating model creates 75m per annum cost saving opportunity

4 H1 financial summary and full year outlook UNDERLYING TOTAL REVENUE 2,497.9m UNDERLYING PRETAX PROFIT m 2016: 2,487.1m 40% 2016: 84.5m UNDERLYING OPERATING PROFIT m UNDERLYING EARNINGS PER SHARE 4,5 9.6p 27% 2016: 121.3m 40% 2016: 16.0p H1 results Underlying pretax profit down 40% yoy to 50.3m Average net debt 694m in line with July guidance H1 contracts provision 1,045m 845m on construction contracts confirmed 200m on services contracts Goodwill impairment 134m AVERAGE BORROWING NET BORROWING AT 30 June m 28% 571m UNDERLYING CASH FLOW FROM OPERATIONS (228)m 2016: 541m 2016: (4.5)m H1 CONTRACT PROVISION 1,045m 161% At 31 Dec 2016: 219m Revised full year outlook Group revenue (inc joint ventures) range 4.6bn to 4.8bn H1/H2 split to be similar to recent years before factoring in disposals and 10m cost savings 387m revenue at zero margin in H1, around 550m for full year Estimated further restructuring costs 75100m 1 Before joint ventures net financial expense of 4.6m (2016: 6.9m) and taxation charge of 1.2m (2016: 1.7m), intangible amortisation of 7.4m (2016: 6.8m) and nonrecurring operating items of 1,189.5m (2016: 10.5m) 2 After joint ventures taxation charge and before intangible amortisation, nonrecurring operating items, nonoperating items of 8.7m (2015: nil) and a credit relating to fair value movements in derivative financial instruments 2.0m (2016: 9.9m) 3 Before intangible amortisation, nonrecurring operating items, nonrecurring operating items and fair value movements in derivative financial instruments 4 Based on a weighted average number of shares of 430.2m (2016: 430.2m). Half year number of shares 430.3m (2016: 430.3m) 4

5 5 Initial observations Short term focus Too much complexity Insufficient transparency Too much data and a lack of meaningful information Large Group overhead MANIFESTATIONS Unprofitable contracts Over reliance on oneoffs Too many layers Lack of accountability Proliferation of reporting Lack of professionalisation Culture Radical transformation required to create a lower risk, higher quality business with sustainable cash backed earnings

6 6 Initial observations illustrated Historically underlying earnings have not been cashbacked SERVICES Risk transfer Increasing size and complexity of contracts not matched by our capability Compounded by growth (revenue +17% ) CONSTRUCTION Contracts accepted where: High degree of uncertainty around key assumptions Success dependent on performance of others not under our control Design changes agreed without agreeing incremental cost Geographic risk CASH PROFILE OF A LARGE COMPLEX FM CONTRACT +ve Cash ve Bid Mobilisation Margin & cash improvement Demobilisation Good contract Shape of curve varies by contract Balanced portfolio critical CASH PROFILE OF A CONSTRUCTION CONTRACT +ve Cash ve Bid Mobilisation Margin & cash improvement Demobilisation Good contract Difficult contract Difficult contract Final settlement cash equals profit Variations/claims settled in a timely way Cash generation will benefit from: Slower growth Stronger controls & governance Greater focus on portfolio mix Potential time to settlement

7 7 Strategic review Stabilise & refocus Since 10 July Recovery Short/midterm Priorities Balance sheet & cash Principles Shape of the Group Leadership & operating model SIMPLE TRANSPARENT FIT FOR PROFESSIONAL FLEXIBLE SELECTIVE PURPOSE

8 8 Strategic review selfhelp actions Stabilise & refocus Recovery Since 10 July Short/midterm BALANCE SHEET & CASH Contracts review 75m cost out Business disposals Complete Discretionary spend Two ongoing 10m in year 50m in year In excess of 300m by end Pension 80m net deficit reduction Ongoing discussions SHAPE OF BUSINESS Align to core markets Review complete Noncore exits & sharpen focus on markets LEADERSHIP & OPERATING MODEL New management Executive team refreshed CEO search progressing New operating model Model established Embed in new approach to doing business Delayering Top 2 layers addressed Cascade down the organisation

9 9 Balance sheet Covenants: H1 compliant H2 forecast compliance Canada disposal significantly improves headroom Substantial deleveraging required: Target average net debt/ebitda of x by end 2018 Disposal target raised to > 300m by end 2018 (from 125m) Canada/UK Healthcare EPF to be retained but with intent to normalise over time Other options under review, including potential equity raise IFRS 15 likely impact m: positive impact on 2018 profit onwards

10 10 Contracts review Thorough review of the entire contracts portfolio completed Review to 10 July: Sift applied to focus on most material exposures Subsequent work confirms 845m construction provision Review post10 July: Extended to cover all ongoing contracts and receivables Order book and pipeline also reviewed 845m construction contracts provision 200m services contracts provision 845m in respect of all construction contracts Expected net cash outflow towards top end of m range No prior year adjustment m UK Canada Middle East Provision m H1 provision in respect of all services contracts Provision relates to underperforming contracts: Contracts to be exited Contracts where expectations have been rebased Contracts where a more prudent view on receivables has been taken Expected net cash outflow 1015m (2017/18) No prior year adjustment m Rest of portfolio performing well provision relates to 23 contracts out a portfolio of over

11 75m initial cost savings programme Current Group overhead* 336m ( 267m in the UK) Short term cost actions Immediate reductions in discretionary and third party spend More rigorous procurement controls Removal of management layers Longer term initiatives Outsourcing versus insourcing Supply chain initiatives ITenabled cost reduction Business simplification Property rationalisation MAKE UP OF COST OUT 13% 18% 10% 25% Other (property rationalisation, overtime) IT & Outsourcing Procurement Contract delivery efficiency 10m in year m related cash cost in year 50m in year 60m related cash cost in year 65m in year 5m related cash cost in year 35% Delayering & overhead right sizing Full 75m run rate from midyear * Total addressable cost base twelve months to June

12 12 Pension m June 2017 Dec 2016 Assets Liabilities Deficit Deferred tax Net Pension deficit 2,621.3 (3,332.7) (711.4) (587.0) 2,572.7 (3,377.5) (804.8) (663.2) Net deficit down in H1 to 587m driven by: Movement in bond yields Constructive dialogue with pension trustees: Potential to reduce net deficit by c 200m: Notice given of withdrawal of discretionary increases c 80m reduction to net deficit Positive ongoing discussions on move from RPI to CPI

13 Future shape of the Group Key objective of the review is to refocus the Group on core strengths and markets INFRASTRUCTURE 800m PROFORMA REVENUE % MIDTERM MARGIN TARGET 1 CENTRAL GOVERNMENT 800m PROFORMA REVENUE % MIDTERM MARGIN TARGET 1 CORPORATE & REGIONS 800m PROFORMA REVENUE % MIDTERM MARGIN TARGET 1 BUILDING 600m PROFORMA REVENUE % MIDTERM MARGIN TARGET 1 WHAT WE DO Support services and construction primarily for rail and highways WHAT WE DO Support services for the MoD and other central government departments under the CCS framework WHAT WE DO Support services for corporate customers and regional public authorities WHAT WE DO Construction for public and private sector customers OLD REVENUE SUPPORT SERVICES Diverse, broad portfolio CONSTRUCTION EX MIDDLE EAST MIDDLE EAST CONSTRUCTION PPP PROJECTS Limited transparency externally Internal and external reporting not aligned Inefficiency in terms of selectivity across markets and geographies NEW REVENUE Focused on core strengths and markets Improved visibility of performance INFRASTRUCTURE CENTRAL GOVERNMENT CORPORATE & REGIONS BUILDING INTERNATIONAL Similar reporting internally and externally Selectivity in everything we do 1 Midterm margin targets are fully loaded with benefits of the 75m cost savings programme and adjusted for the impact of IFRS15 on future years 13

14 14 New operating model overview Interim CEO GROUP EXECUTIVE COO CFO CHRO Legal & Co Sec CTO MD, Infrastructure Centres of Excellence: MD, Central Government Bid management Mobilisation MD, Corporate & Regions Margin & cash improvement MD, Building Claims management MD, International Shared services Finance, HR, ICT, IMS, Legal, Communications Two new roles: Chief Operating Officer ( COO ): responsible for our new Centres of Excellence, Supply Chain, IT and IMS Chief Transformation Officer ( CTO ): evaluation and implementation of strategic options, including financial stakeholder management New model: Creates a simpler, delayered organisation Led by a smaller, more effective Group Executive Implements a new way of doing business Increases efficiency and reduces cost Checks and balances

15 Risk management contract lifecycle New operating model fundamentally changes our approach to managing contracts Centres of Excellence consistency end to end across the contract lifecycle Go to Market Mobilise Deliver Demobilise Bid Management Mobilisation Margin & Cash Claims Management Decision authority on thresholds (eg ROI) Governance over origination process Best practice capability build Create requirements and standards Build and implement project/contract setup expertise Systems expertise Best practice & standards on driving better economic benefits within T&Cs Tools & techniques to improve profit Standard operating processes Expertise for claims management Monitor cash collection; track ongoing claims Develop/maintain standard ways of managing claims Manage escalation 15

16 16 Risk management progress with July actions July ACTIONS Exit of PPP construction Exit construction in Egypt, Saudi Arabia and Qatar Construction low risk procurement routes only: Cost reimbursable Early Contractor Involvement Target Cost Two Stage Design & Build Frameworks Progress REPORT c15% of construction revenue in 2017 and expected to fall to zero by mid live projects, expected completion by mid2018 Work on recoveries ongoing Pipeline cleansed > 10bn removed Order book 846m relates to projects not considered to align to our selectivity criteria 522m relates to Middle East Construction Remainder majority relates to UK PPP construction projects

17 17 Conclusions Transformation programme will reduce risk profile, enabling Carillion to focus on its strengths: Strong brand and leading positions in our core markets Impressive work ethic among our people Reputation for service excellence driven to deliver Experience and knowledge embedded in the business But there is a need to combine these strengths with: A much stronger commercial aptitude Effective line of sight accountability An overhead structure the business can afford Order book underpins the outlook H1 new and probable orders 2.6bn (2016: 2.5bn) UK 2.0bn Order book 16.0bn (Dec 2016: 16.0bn) UK 13.2bn Total revenue visibility 95% (30 June %) and 100% including frameworks Selected on frameworks worth 23bn UK H NEW & PROBABLE ORDERS 2.0bn 1,684m 277m 40.5m UK ORDER BOOK 13.2bn 10,579m 1,932m 703m SUPPORT SERVICES CONSTRUCTION PPP PROJECTS

18 18 Conclusions Strategic review process has given us: A clear grasp of the problems A route map to address them Transformation is a three to five year journey: Near term priorities Disposals Cost reduction Middle East derisking Address the balance sheet Embedding cultural change and a new approach to doing business will take time Early progress encouraging but much remains to be done

19 19 APPENDIX 1 Additional Financial Information

20 Summary H1 income statement m Group revenue Underlying Group operating profit 2017 before nonunderlying 2, Nonunderlying (251.0) 2017 total , , Revenue write down taken as an exceptional cost Share of results of Joint Ventures Underlying profit from operations 1 Group net interest Underlying profit before taxation (32.0) (32.0) (28.2) 84.5 Nonrecurring operating and nonoperating items 1,198.2m consists of: Intangible amortisation and derivative movements Nonrecurring operating and nonoperating items Profit/(loss) before taxation Group taxation Profit/(loss) for the period Noncontrolling interests Profit/(loss) attributable to Carillion shareholders 50.3 (6.5) 43.8 (2.4) 41.4 (5.4) (1,198.2) (1,203.6) 38.6 (1,165.0) (1,165.0) (5.4) (1,198.2) (1,153.3) 32.1 (1,121.2) (2.4) (1,123.6) 3.1 (3.7) 83.9 (12.2) 71.7 (3.9) 67.8 Construction contract provision: 845.3m Services contract provision: 200.2m Construction goodwill write off: 123.5m Vanbots goodwill write off: 10.5m Restructuring costs: 10.7m Total Group underlying operating margin 3 3.5% 4.9% Other: 8.0m 1 After Joint Ventures net financial expense and taxation charge of 4.6m and 1.2m (2016: 6.9m and 1.7m) respectively and before intangible amortisation of 7.4m (2016: 6.8m) and nonrecurring operating items of 1,189.5m (2016: 10.5m) 2 After Joint Ventures taxation charge and before intangible amortisation, nonrecurring operating items, nonoperating items of 8.7m (2016: Nil), a credit relating to fair value movements in derivative financial instruments of 2.0m (2016: credit of 9.9m) and a credit arising from changes in the contingent consideration relating to acquisitions of nil (2016: 6.8m) 3 Before intangible amortisation and nonrecurring operating items. 20

21 Segments m Support services Public Private Partnership (PPP) projects Middle East construction services Construction services (excluding the Middle East) Total Group costs and Joint Venture interest and tax Underlying profit from operations REVENUE UNDERLYING OPERATING PROFIT 1 OPERATING MARGIN % 1, , , , % 8% 17% 2% % (12.5) (15.3) % 68% 44% 49% 26% 18% 27% Before intangible amortisation of 7.4m (2016: 6.8m) and nonrecurring operating items of 1,189.5m (2016: 10.5m) 2 After Group unallocated costs of 6.7m (2016: 6.7m) 21

22 Revenue and profit summary m Support services Group Share of joint ventures Total Public Private Partnership projects Group Share of joint ventures Total Middle East construction services Group Share of joint ventures Total Construction services (excluding the Middle East) Group Share of joint ventures Total Total revenue and operating profit Group eliminations and unallocated items Operating profit (before Joint Ventures net financial expense and taxation) Share of Joint Ventures net financial expense Share of Joint Ventures taxation Underlying profit from operations 1, , ,497.9 REVENUE UNDERLYING OPERATING PROFIT 1 +7% 8% 17% 2% 1, , , (6.7) 88.1 (4.6) (1.2) % 68% 44% 49% 26% 27% (6.7) (6.9) (1.7) Before intangible amortisation and nonrecurring operating items 22

23 Nonunderlying items Intangible amortisation and derivative movements m Fair value movement in derivatives Intangible amortisation 2.0 (7.4) (5.4) 9.9 (6.8) 3.1 Nonrecurring operating and nonoperating items m Change in fair value of contingent consideration Construction Workers Compensation Scheme Restructuring costs Construction contract provision Services contract provision Goodwill write off (UK Construction) Goodwill write off (Vanbots) Loss on disposal (Alawi) Asset impairments Other items (10.7) (845.3) (200.2) (123.5) (10.5) (0.8) (7.6) 0.4 (1,198.2) 6.8 (10.5) (3.7) 23

24 H1 Balance Sheet m June 2017 Dec 2016 Property, plant and equipment Intangible assets Investments , , , ,993.7 Inventories, receivables and payables Net retirement benefit liability (net of taxation) Other Net operating assets Net borrowing Net (liabilities)/assets (757.2) (587.0) (283.0) (570.8) (405.2) (347.3) (663.2) (34.4) (218.9) June , ,961.2 (232.3) (401.7) (66.8) 1,260.4 (290.6) Average net borrowing (694.3) (586.5) (541.4) 24

25 25 Liquidity and funding Maturity profile of Group s committed facilities and borrowings ( m) YEAR OF MATURITY

26 H1 cash flow m Underlying Group operating profit Depreciation and other noncash items Working capital 1 Dividends received from Joint Ventures Underlying cash flow from operations Pension deficit contributions Nonrecurring operating items Interest and taxation Net capital expenditure Other Foreign exchange movements Acquisitions and disposals Dividends Change in net borrowing Net borrowing at 1 January Net borrowing at 31 December Underlying operating cash conversion (323.4) 4.6 (228.4) (21.0) (9.8) (18.8) (19.0) (2.7) (299.7) 4.4 (1.6) (55.0) (351.9) (218.9) (570.8) (278)% (105.9) 5.7 (4.5) (22.3) (5.9) (24.2) (14.8) (4.5) (76.2) (19.4) 30.0 (55.2) (120.8) (169.8) (290.6) 26

27 Acquisitions and disposals m Acquisition of Compass Canada Acquisition of the Outland Group Acquisition of Ask Real Estate Limited Investments Proceeds on disposal of PPP equity Other Net debt disposed in Carillion Alawi Total acquisitions and disposals (11.1) (16.0) 1.4 (0.4) 24.5 (1.6) (15.0) (4.0) (0.6) 30.0 Acquisition of Compass Canada is the first instalment of the consideration payable Investments primarily relate to investment in Royal Liverpool Hospital PPP project 27

28 Directors valuation of equity in financially closed Public Private Partnership projects Net present value at 30 June m (2016: 31m) NET PRESENT VALUE ( m) m 1 46m % 6% 7% 8% 9% 10% 11% 12% DISCOUNT RATE Potential for approximately 52m of further equity investments 1 Average discount rate for disposals 2 Directors valuation 28

29 29 Financially closed PPP projects At 30 June 2017 PPP project Financial Close Date Status Concession Period Years Equity Invested to date ( m) Committed Equity ( m) Equity Share (%) Non Recourse Debt ( m) Roads A13 Aberdeen Western Peripheral Operational In Construction Health Royal Ottawa Hospital, Canada Stanton Hospital, Canada North Battleford Hospital, Canada Royal Liverpool Hospital Midland Metropolitan Hospital Operational In Construction In Construction In Construction In Construction Education University of Greenwich Midlands Private Finance Schools South Tyneside and Gateshead Schools BSF Nottingham Schools BSF Tameside Schools BSF Durham Schools BSF Rochdale Schools BSF Irish Schools Bundle Operational In construction Operational Operational Operational Operational Operational In Construction TOTAL