H Trading Update

Transcription

1 H Trading Update 10 July 2017 CARILLION PLC H TRADING UPDATE - JULY

2 Disclaimer This presentation has been prepared by Carillion plc (the Company ) contains certain forward-looking 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 forward-looking 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 forward-looking 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 forward-looking 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. CARILLION PLC H TRADING UPDATE - JULY

3 Agenda Philip Green, Non-Executive Chairman Keith Cochrane, Interim Group Chief Executive Zafar Khan, Group Finance Director Keith Cochrane, Interim Group Chief Executive Introduction Overview and Strategy Financial Review Conclusions Q&A CARILLION PLC H TRADING UPDATE - JULY

4 Overview & strategy Keith Cochrane Interim Group Chief Executive

5 H1 trading and management actions H1 trading: Strong work winning performance - 2.6bn of work won Support Services - 2.1bn of new wins in H1, 555m for MoD Construction trading difficult in the UK and Middle East Lower full year guidance - expect FY17 Group revenue between 4.8bn and 5.0bn Progressing with March 2017 actions to reduce net borrowing: Cost reduction programme well underway Disposals - sale of 50% of our economic interest in Oman announced today, three more in process Significant deterioration in cashflows on a small number of construction contracts Impact of a number of UK construction contracts reaching completion not replaced by material new starts H1 average net debt 695m, higher than expected Expected H1 provision: Enhanced review of balance sheet and material contracts (supported by KPMG contracts specialists) 375m provision expected at 30 June 2017 relating to the UK (majority 3 PPP construction projects) 470m provision expected for overseas markets, majority relating to exits Expected m net cash costs mainly in 2017 and 2018 CARILLION PLC H TRADING UPDATE - JULY

6 Strategic and operational review Strategic and operational review: A thorough review of the business and its capital structure with all options being given appropriate consideration Decisions already taken Exit PPP construction Exit Egypt, Saudi Arabia and Qatar construction Sale of 50% of Oman business for up to 42m ( 12m upfront) Bid only lower risk procurement routes on construction contracts Leadership and management changes CARILLION PLC H TRADING UPDATE - JULY

7 Actions to reduce net debt Substantial programme of action to reduce net debt also underway: Scope for significant further cost efficiencies to be quantified as part of the strategic and operational review Non-core disposals targeting proceeds of 125m (1) within 12 months Targeting significant receivable recoveries Improved contract execution 2017 dividends suspended (saving c 80m pa), Board to review dividend policy in 2018 (1) Includes 12.8m upfront consideration from sale of Carillion Alawi but not the deferred consideration CARILLION PLC H TRADING UPDATE - JULY

8 Enhanced balance sheet and contracts review Since March 2017 UK: Majority 3 PPP construction contracts Overseas: Majority related to exits (Canada & Middle East) Impairment 375m 470m TOTAL EXPECTED H1 PROVISION 845m Anticipated total net cash outflow m mainly in 2017 and 2018 Four large contracts (3 in UK, 1 in Middle East) account for around half the provision All four complete within the next 18 months CARILLION PLC H TRADING UPDATE - JULY

9 Lessons learned and actions Key Issues Acceptance of a high degree of uncertainty around key assumptions Success contingent on performance of others not under our control Design changes agreed without agreeing incremental cost and value Geographic risk Key Actions Exit non-core countries and markets Strengthen governance Leadership & management changes: New CEO UK Building MD exited Construction Services team strengthened and refreshed Changed 3 BU FDs Incentives to be linked to de-leveraging Two clear root causes are international construction and PPP construction which we have addressed CARILLION PLC H TRADING UPDATE - JULY

10 Why we believe in this business We are a market leading Support Services business Focused on infrastructure and property services A strong reputation for service excellence Outlook underpinned by more than 90% of work won in H1 for repeat customers with long-term contracts High revenue visibility in Support Services 94% for 2017, 58% for 2018 and 44% for 2019 No significant renewals until end 2019 Selected on frameworks worth 23bn in total Key differentiators Our People and Culture Use of Technology Health & Safety Excellence Approach to Sustainability CARILLION PLC H TRADING UPDATE - JULY

11 Leading positions in growth markets INFRASTRUCTURE SERVICES Market Growth PROPERTY SERVICES Market Growth Rail No. 2 in UK Defence No. 1 in UK Highways No. 2 in Framework Central Gov CCS Framework Transmission No. 3 in Canada Communities LA Partnerships Telecoms No.1 in Broadband Corporate Oil & Gas Health CARILLION PLC H TRADING UPDATE - JULY

12 A lower risk Construction business Construction Positioning Change in approach to Construction Exit PPP construction Reduced Middle East exposure Only bidding under lower risk forms of procurement Going forward: Highly selective approach Small number of customers Targeted at Support Services customers Focusing on the UK In H1 c70% of construction work won in the UK was for repeat customers and all is under lower risk procurement routes Only Lower Risk Procurement Routes Cost reimbursable Early Contractor Involvement Target Cost Two Stage - Design & Build Frameworks CARILLION PLC H TRADING UPDATE - JULY

13 Short-term priorities 2017 actions Leadership and management changes Non-core disposals - 50% of Oman sold, three more in process Enhanced contract review completed and lessons learnt Canada construction exited Strategic review - progress update with interims in September 2018 actions Non-core disposals substantially completed ( 125m) (1) Qatar/KSA/Egypt construction exits completed Challenging contracts completed Cost out programme Receivables recoveries well progressed (1) Includes 12.8m upfront consideration from sale of Carillion Alawi but not the deferred consideration CARILLION PLC H TRADING UPDATE - JULY

14 Financial review Zafar Khan Group Finance Director

15 Background Took over in January 2017 with key priorities of: reducing net debt increasing financial reporting transparency Subsequent adverse developments in H1 have increased net debt despite progress against actions outlined in March H1 average net debt 695m actions to reduce net debt already underway 50% of Oman business sold, raising up to 42m ( 13m upfront) cost savings programme stepped up 2017 dividends suspended planning to raise approximately 125m (1) from disposals in next twelve months three more businesses currently in a sale process Enhanced contracts review: as part of wider balance sheet review supported by KPMG contracts specialists (1) Includes 12.8m upfront consideration from sale of Carillion Alawi but not the deferred consideration CARILLION PLC H TRADING UPDATE - JULY

16 Enhanced contracts review - selection and scope Review covered all completed and ongoing services and construction contracts Selection process Contracts in the UK where there has been notable deterioration during 2017 that would indicate potential risk of impairment Contracts impacted by decision to exit construction in Canada and certain territories in the Middle East Any contracts with material contentious receivables All continuing contracts with revenues greater than 20m in the period to 31 May 2017 All contracts with receivable balances in excess of 20m as at 31 May 2017 Agreed scope with KPMG contracts specialists Scope of review Selection process identified 58 contracts for enhanced review: 20 completed contracts 38 continuing contracts comprising: 13 Support Services contracts 25 construction contracts (of a total of 83 continuing construction contracts) 38 continuing contracts account for 46% of total Group revenue at 31 May reviewed contracts accounted for 1.58bn or 73% of total receivables on the balance sheet as at 31 May 2017 CARILLION PLC H TRADING UPDATE - JULY

17 Enhanced contracts review - outcomes and financial impacts Outcomes Review identified a number of contracts with potential issues, relating to construction contracts (continuing and completed) Expected provision of 845m to be taken as an exceptional at 30 June 2017 Net cash outflow of m expected in relation to underperforming contracts, mainly in 2017 and 2018 No prior year adjustment The four most challenging contracts represent around half the total provision All four expected to complete in the next 18 months All other contracts identified will complete within 12 months Additional cash benefit of 110m relating to further tax losses 845m TOTAL EXPECTED PROVISION m UK Canada Middle East m Receivables Payables Remaining cash flow * Range of m Current position 927 (197) 730 Impairment provision (599) (246) (845) Expected provision Revised position (net) 328 (443) (115)* CARILLION PLC H TRADING UPDATE - JULY

18 Contracts portfolio SUPPORT SERVICES 12.8bn CONSTRUCTION 2.5bn PPP 0.7bn 80% 16% 4% Average contract period nine years No major contract renewals until end 2019 Approximately 90% for public and regulated sectors New work focused on lower risk procurement routes Reducing exposure to PPP construction 15% of construction revenue and tracking towards zero by 2018 Overseas exposure reducing as focused only on contracts supported by UK Export Finance PPP investment portfolio performing well CARILLION PLC H TRADING UPDATE - JULY

19 Actions to reduce average net borrowing Disposal of non-core businesses Approximately 125m (1) over next 12 months Further cost efficiencies Increased focus on managing working capital Recoveries Significant additional cost savings to be quantified as part of the operational review Cash collection remains key focus including for problem contracts Aim to reduce monthly swings in working capital Provision supported by dedicated team to facilitate cash settlements on key contracts Suspension of 2017 dividends The Board will review the dividend policy in 2018 Pension deficit payments c 50m deficit recovery payment in 2017 (1) Includes 12.8m upfront consideration from sale of Carillion Alawi but not the deferred consideration CARILLION PLC H TRADING UPDATE - JULY

20 H1 Summary financials Group H H Change (%) Healthy work winning and order book Net debt increase due to working capital outflows, mainly on onerous construction contracts Expected exceptional provision of 845m related to Middle East, exiting construction market in Canada and certain construction contracts in the UK New & probable orders (1) Order book plus probable orders (1) Total revenue (1) Average net debt (1) (1) (3) Adjusted spot net debt Average EPF utilisation Pension deficit (net of tax) (1) Carried forward tax losses (1) Net derivative asset (1) 2.6bn 16.0bn 2.5bn 695m 536m 412m 587m 810m 39m 2.5bn 16.0bn (2) 2.5bn 587m (2) 183m (2) 400m (2) 663m (2) 186m (2) 36m (2) +4% % -193% -3% +11% +335% +8% Support Services Good H1 work winning Construction Difficult H1 trading in construction, particularly in the UK with a deferral of a number of contract starts (1) Estimated (2) Vs. 31 December 2016 (3) Adjusted for net derivative asset CARILLION PLC H TRADING UPDATE - JULY

21 Revised guidance Reduced performance against management expectations for 2017 Group revenue (including joint ventures) between 4.8bn and 5.0bn Support Services revenue of 2.6bn to 2.8bn PPP revenue of 225m to 275m with underlying operating profit around 15-20% lower vs. previous year Middle East construction services revenue between 520m and 570m and maintained operating margin at around 4 per cent Construction services (ex Middle East) revenue of 1.2bn to 1.4bn and margins lower vs Net debt (excluding disposal proceeds) YE slightly below 30 June level FY average between 775m and 800m IFRS 15 review underway expect to provide an update with our H1 results CARILLION PLC H TRADING UPDATE - JULY

22 My philosophy Transparency a priority New key performance indicators Redefine cash conversion to exclude cash from PPP equity sales Analysis and commentary on total Days Sales Outstanding ROCE to be included in Group KPIs Focus on underlying cash generation and profitability Increased disclosure on movements in working capital and net debt CARILLION PLC H TRADING UPDATE - JULY

23 Summary Poor first-half cash performance reflects outflows on challenging contracts and phasing of new contract starts Enhanced contracts review addressed issues associated with ongoing and legacy contracts The actions we are taking should improve future cash generation and reduce contract risks Substantial liquidity with no short-term loan maturities No covenant issues Well within our 3.5x net debt to EBITDA covenant at the half year Ongoing de-leveraging supported by: Disposals Cost reduction Collection of legacy receivables and A greater focus on underlying working capital Increased financial reporting transparency CARILLION PLC H TRADING UPDATE - JULY

24 Conclusions Keith Cochrane Interim Group Chief Executive

25 A leading Support Services business Very difficult H1 Strengths in underlying business: Good positions in growth Support Services markets Excellent people, great capabilities Key priorities: Look afresh at how we operate Learn the lessons of recent challenges Simplify the business Ensure we deliver value to our shareholders CARILLION PLC H TRADING UPDATE - JULY

26 Appendix Additional Financial Information

27 Pensions m H Dec 2016 Assets Liabilities Deficit Deferred tax Net pension deficit 2,618 (3,329) (711) 124 (587) 2,573 (3,378) (805) 142 (663) Deficit very sensitive to movements in AA bond yield 10bps movement changes deficit by 60m Current contributions plus asset returns of 3% to 5% would be sufficient to cover liabilities Main schemes closed to future accrual and c.40% of mortality risk hedged by a longevity swap Triennial valuation date 31 December 2016 c 50m deficit recovery payment in 2017 CARILLION PLC H TRADING UPDATE - JULY

28 c. 1.5bn of available funding UK borrowing facilities maturity profile ( m) Year of maturity CARILLION PLC H TRADING UPDATE - JULY