2nd UPDATE: Carillion Says Its On Track To Make Progress

7th Jul 2010 09:17

(Adds detail and comment.) By Jonathan Buck Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Support services and construction group Carillion PLC (CLLN.LN) Wednesday said it expected to post an increase in first-half earnings despite challenging market conditions, and that it remains on track to make further progress in the second half of 2010. The company in a trading update said that future revenue visibility remained strong, with some 97% of expected full-year revenue in 2010 covered by the order book and probable orders. At the end of the first half, the value of Carillion's order book and probable orders was expected to be similar to the level at Dec. 31, 2009, of GBP19.7 billion despite the GBP500 million sale of its equity investment in the Queen Alexandra Hospital, Portsmouth, England, public private partnership project. Finance Director Richard Adam told Dow Jones Newswires in an interview that the company was looking to hold the value of its order book and probable orders "at that sort of level" at the end of 2010. Only GBP500 million of that current total amount is expected to relate to probable orders from the public sector, Carillion said, making it resilient to any potential U.K. government cuts in this area. "We anticipate that the U.K. government's recent announcement concerning the Building Schools for the Future program will not have a material impact on the group's order book and probable orders," it said, adding that the lower level of spending was in line with its expectations. Carillion has been reducing the size of its U.K. construction business to focus on opportunities in support services, which now generate more than half of the group's operating profit. The company said it continues to have a large pipeline of contract opportunities in support services as public and private sector organizations seek to reduce costs by outsourcing facilities management and other non-core services. It expects to benefit from an acceleration in outsourcing by U.K. central and local government organizations in 2011 and 2012 as they come under increasing pressure to achieve the 25% reduction in spending announced in the emergency budget June 22. Carillion continues to target a full-year operating margin of about 5% in support services to offset the impact of the disposal last year of two non-core businesses. Operating margin at its Middle East construction services business is expected to be similar to the 7.7% achieved in the first half of 2009, significantly ahead of its original target of at least 6%. The business continues to benefit from contracts that were secured on negotiated terms. First-half earnings per share are expected to increase, the company said, more than offsetting the effects of the disposals of businesses that contributed some GBP14 million of profit in the same period a year ago. Revenue is expected to be lower, primarily as a result of the disposals and equity sales in 2009, the timing of project starts and completions in the Middle East, and the effect of focusing on margins rather than revenue. "We want to be in organic growth mode, sticking to the knitting at this time," said Chief Executive Officer John McDonough in an interview. He said the company had the core businesses that it needed to grow, but added that Carillion had the "fire power" to make bolt-on acquisitions in the right opportunities arise. Carillion said it expects to maintain a positive net cash position at June 30. It will report interim results Aug. 26. At 0802 GMT, its shares traded down 4 pence, or 1.2%, at 310 pence while the FTSE 250 index traded down 0.9%. The stock has gained 6.2% in value since the start of 2010. -By Jonathan Buck, Dow Jones Newswires; +44 (0)207 842 9237; [email protected] (END) Dow Jones Newswires July 07, 2010 04:17 ET (08:17 GMT)