Although 2016 results were in line, with increased revenues and positive cash flow, Carillion's (LON:CLLN) share performance reflects the challenges still evident in the balance sheet. Average net debt last year was £587m, the pension deficit at the end of 2016 was £663m (post tax) and there was an early payment facility (EPF) for suppliers of £498m at the year end. Management is tackling these with business rebalancing and ongoing cost reduction programmes. Meanwhile, the dividend was nudged up, currently yielding over 8%.
2016 results mixed but meet expectations
Carillion’s numbers for last year were in line with expectations. Revenue rose by 14% to £5.2bn, mostly organic and underlying operating profit, as signalled, was up 1% to £254m. Revenue in Support Services rose 7% to £2.7bn and underlying operating profit was up 25% to £183m The company hinted at impending announcements about new contract wins and a shift in focus towards the UK. The former is evident in the announcement of a £490m JV contract win on 3 March in the Middle East. The UK successes have yet to emerge.
FD committed to balance sheet improvement
Carillion’s new FD, Zafar Khan, has made a commitment to reduce net debt, reversing the five-year trend. Management is incentivised to reduce year-end debt (£219m at Dec 2016) by up to £50m. New ways are being sought to handle the £50m pa of pension deficit payments. We expect the EPF will be sustained at the current level and not increased; reducing it will have no impact on working capital.
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