Carillion is expecting strong revenue and profit for 2011 on the back of the acquisition of Carillion Energy Services, where it has just put 4,500 people on redundancy notice.
The support services and construction firm issued staff a 90-day statutory notice last week, saying government plans to cut Feed-in Tariffs subsidies will “reduce the size of the solar photovoltaic market significantly”. It has made a provision of up to £10 million for the solar PV restructuring.
In a pre-close update this morning, before full year results in February, Carillion said it expects total revenue for the year to December to be similar to 2010 – around £5.1 billion - thanks to a “well-balanced UK support services and international business mix”.
Underlying pre tax profit and operating margins are expected to increase, while cash flow remains strong with year-end net debt expected to be below £100m - lower than the £150m target set after the acquisition of CES, formerly Eaga, for £298.4m in April.
The company said: “We continue to expect the acquisition of CES to deliver strong returns as demand for energy efficiency services, particularly among our existing support services customers, remains high.”
It said it is now proposing to downsize solar PV operations on the back of the government announcement, and “extend the restructuring of CES to deliver a substantial further improvement in overall operational efficiency.”
Cost savings are expected to rise from £15m to £25m per year by the end of 2013, with a one off £40 restructuring cost.
The company welcomed an additional £200m of government funding to boost the early take-up of the Green Deal, which is expected to kick-start at least £14bn of investment over the next ten years. And it reported a high-quality order book and predicted a “significant number of opportunities” from central and local government outsourcing.
Carillion also said it is on track to reduce UK construction revenue by around one third to about £1.2 bn by 2013, as it shifts focus to support services and public private partnership investments in Canada and the UK.
It is on track to double construction revenue in Canada to £1 billion by 2013-15, while also doubling sales to £1bn in the Middle East. The firm has won £400m of work in Qatar recently, including a £316m contract with the Qatar Foundation for Education, Science and Community Development this week.
It added: “As a result of tightening our contract selectivity criteria, we also expect the operating margin in this segment to improve significantly this year, with operating profit also moving ahead strongly, despite a substantial reduction in overall revenue due to the re-scaling of UK construction.”
It added that the Treasury’s review of the private finance initiative confirms that private finance will continue to play a significant role in funding public sector projects. Carillion expects the £2b priority schools PPP programme and the £200 billion National Infrastructure Plan to generate new opportunities over the medium term.