Carillion is one of the UK’s leading integrated support services companies, with a substantial portfolio of Public Private Partnership projects, extensive construction capabilities and a sector-leading ability to deliver sustainable solutions.
Our vision is to be the trusted partner for providing services, delivering infrastructure and creating places that bring lasting benefits to our customers and the communities in which we live and work.
Our Values shape the way we do business, how we work with each other, our customers, our suppliers, our partners and all those with whom we interact when delivering our services.
We have three core capabilities – support services, project finance and construction services – and we use these individually or in combinations to design and deliver sustainable services to meet the specific needs of our customers.
Support services – this includes the provision of maintenance, facilities management and energy services for major buildings and large property estates, for both public and private sector customers, infrastructure services for roads, railways and utility networks, notably telecommunications and power transmission and distribution, and remote site accommodation services.
Project finance – this includes arranging the funding for Public Private Partnership projects, to deliver public sector buildings and infrastructure, in which we invest equity and for which we win construction and long-term support services contracts.
Construction services – this includes the delivery of a wide range of buildings and infrastructure, focused on large contracts for long-term public and private sector customers for whom quality and reliability are paramount.
In this segment we report the results of our facilities management, facilities services, energy services, rail services, road maintenance services, utilities services, remote site accommodation services and consultancy businesses in the UK, Canada and the Middle East.
In this segment we report the financial returns generated by the investments we make in Public Private Partnership projects in the UK and Canada, including those from the sale of investments.
In this segment we report the results of our building and civil engineering activities in the Middle East and North Africa.
In this segment we report the results of our UK building, civil engineering and developments businesses, together with our construction activities in Canada.
We have a high-quality order book (including probable orders) worth £16.0 billion, framework contracts that are expected to generate up to £1.5 billion of revenue and a substantial pipeline of specific contract opportunities potentially worth £41.6 billion. In 2016, we won £4.8 billion of new orders and probable orders in our chosen markets, despite tougher conditions in some of our markets, demonstrating our skills in winning work, consistent with our rigorous approach to selecting the contracts for which we bid.
Importantly, many of these contract wins were successful re-bids, contract extensions or repeat business with long-term customers, demonstrating the strength of our customer relationships. In 2016, 89 per cent by value of new orders and probable orders won in Support services was for existing customers and in Construction services 70 per cent was for existing customers.
We have established strong positions in a number of markets where we can use our core skills in providing support services, project finance and construction for infrastructure and buildings, across our three geographies – the UK, Canada and the Middle East. In the UK, we have a high-quality, competitive offering for a range of infrastructure services, notably in the rail, roads, digital communications and power transmission and distribution sectors, which feature major areas of investment in the Government’s National Infrastructure Delivery Plan.
Canada has major investment programmes in markets where we have strong positions, such as power transmission and distribution. We are also strong in our facilities management markets in each of the three geographies, where we differentiate our offering by using the breadth and scale of our resources.
Using our three core skills, we offer a broad range of services, which we can combine and tailor to the specific needs of our customers. This means we can respond to changing customer demands and market trends.
The breadth and depth of our expertise and our commitment to high standards provides customers with confidence and, in turn, leads to long-term customer and supplier relationships and the high proportion of our work coming from contract extensions, retentions and repeat business, referred to above. This supports our objectives for maintaining the leadership positions we have in good markets.
We have implemented a consistent and successful strategy of focusing selectively on winning contracts where we can achieve our objectives for revenue, margins and earnings. We also have a strong track record in reducing our cost base and improving efficiency through a number of ongoing programmes.
This strategic focus and our ability to reduce costs and improve efficiency has enabled Carillion to deliver strong margins and maintain earnings, despite challenging conditions in some of our markets, and to continue our policy of increasing the dividend broadly in line with earnings growth, subject to the development needs of the business.
Supporting our performance is an integrated business model and centralised operating platform, which are key differentiators that support our objectives of delivering services safely, sustainably and to best-in-class standards. The Health and Safety of all our employees and everyone affected by our operations remains paramount. Similarly, we embed sustainability into everything we do in order to create positive outcomes for all our stakeholders.
We have a strong and experienced leadership team that leads by example and provides clear direction for the business. Our values-based culture and rigorous approach to maintaining high-standards of corporate governance is a major part of our robust risk management process, which in turn supports our objectives for delivering high-quality, value for money services, while also achieving our targets for revenue, profit and cash flow.
In 2016, Carillion’s performance was led by revenue growth and an increased margin in support services.
In 2016, we made good progress in a number of our markets, while managing and mitigating the effects of more difficult trading conditions in others. Importantly, the Board maintained its focus on overseeing and developing the Group’s strong governance and management framework, on scrutinising the Group’s performance, on assessing the Group’s risk management and control processes and on constructively challenging the Executive Directors. In the Group’s 2015 Annual Report, the Board set three priorities for 2016, namely to oversee the development of the Group’s strategy for growth, to develop the Board’s effectiveness and to manage Board membership succession, alongside the development of the Group’s senior management team. We report in detail on the progress we have made with these priorities in subsequent sections of this report, but in my statement I summarise our main achievements in 2016, including key aspects of the Group’s performance.
Given the size and quality of our order book and pipeline of contract opportunities, our customer-focused culture and integrated business model, we have a good platform from which to develop the business in 2017. We will accelerate the rebalancing of our business into markets and sectors where we can win high-quality contracts and achieve our targets for margin and cash flows, while actively managing the positions we have in challenging markets. We will also begin reducing average net borrowing by stepping up our ongoing cost reduction programmes and our focus on managing working capital.
1 March 2017
Building trusted relationships with customers and using all our resources and skills in an integrated way helps us to win high-quality contracts and deliver services safely, sustainably and to best-in-class standards.
As one of the UK’s leading support services companies with a substantial portfolio of Public Private Partnership projects, extensive construction capabilities and a sector-leading ability to deliver sustainable solutions, Carillion offers a wide range of services across markets in the UK, Canada and the Middle East.
This wide range of expertise enables the Group to provide bespoke, integrated solutions for buildings and infrastructure, from project finance through design and construction to life-time asset management, together with business support services that add value for our customers and the communities in which we operate.
In several key markets the Group performed well, notably in a number of our support services sectors in each of our geographies, while trading conditions in construction markets in the Middle East and in Canada, continue to be challenging.
In order to continue building a business that delivers sustainable, profitable growth, we have refined our strategy to focus on
Our priorities for 2017 are to accelerate the rebalancing of our business into markets and sectors where we can win high-quality contracts and achieve our objectives for margins and cash flows, to manage the positions we have in challenging markets and to begin reducing full-year average net borrowing.
To accelerate the rebalancing of our business, we will become even more selective when choosing the contracts for which we bid and continue adapting to trends in our geographies and markets in order to focus on new and growing opportunities, such as those we expect in our infrastructure markets in the UK and Canada. To reduce full-year average net borrowing we will maintain strong cash generation, with an increased focus on managing working capital, and review the allocation of capital and other resources across the Group, which will also support the rebalancing of the business.
As always, there are risks and uncertainties, details of which are set out on pages 32 to 37, that may affect our ability to deliver these priorities. However, we have a strong and committed management team whose personal objectives and performance related remuneration have been specifically set to support the delivery of the Group’s priorities for 2017.
Group Chief Executive
1 March 2017
We have been working in partnership with Nationwide Building Society for eight years, providing facilities management services for Nationwide’s property estate.
In 2016, the contract for these services was re-bid and Carillion was awarded a new seven-year contract, which is expected to generate approximately £350 million of revenue. The contract, which began on 1 October 2016, also includes a provision for its potential extension by a further three years to a total of 10 years.
Under this new contract, Carillion is providing a wide range of hard and soft facilities management and workplace services for Nationwide’s Headquarters in Swindon, its 15 corporate offices, critical data centres and 700 retail branches throughout the UK.
These services, which are specifically aligned to Nationwide’s sustainability strategy, include energy management, risk assurance, asset maintenance, capital works, front-of-house, security, grounds maintenance, mailroom management, porterage and cleaning.
Carillion’s success in re-winning this contract reflects our expertise in whole-life property management and services, our sector-leading ability to provide sustainable solutions, our focus on delivering a first-class customer experience and our ability to develop operational and technological enhancements that continually raise service standards and set new benchmarks for quality and reliability, all backed by a dedicated helpdesk located in our award winning Customer Experience Centre.
Our joint venture framework agreement with Openreach has been extended with a potential value to Carillion of up to £900 million.
Carillion telent, a 60:40 Joint Venture, has been Openreach’s main delivery partner for maintaining and extending the telephone and data network, together with providing asset assurance services, notably poling and related activities, for the past eight years to support Openreach in delivering high-quality services for its customers.
Early in 2017, we built on the strength of this partnership when Carillion telent signed a three-year extension (extendable to five years), to its framework agreement with Openreach under which Carillion telent will continue to deliver maintenance and network extension services for Openreach in the North East, South West and London & North Home Counties of England and in the Midlands and Wales. The extension also includes the delivery of asset assurance works, notably poling and related activities, in England and Wales.
The new framework is expected to generate up to £900 million of revenue over three years (Carillion’s share over £500 million) and potentially up to £1.5 billion over five years (Carillion’s share up to £900 million), as the agreement provides for a further two-year extension, subject to performance.
Many of the supply chain partners Carillion telent engage with in the delivery of this contract are both local to their work areas and Small to Medium-sized Enterprises taking their workforces from the local community. The use of Carillion’s sector leading supply chain finance offering, our Early Payment Facility, allows our supply chain partners access to their payments ahead of their contractual terms, reducing their need for working capital and helping them grow and sustain local communities.
In 2016, we built on the strong and successful relationship we have established with the UK Ministry of Defence, when Carillion/KBR (50:50) joint ventures were awarded contracts to support the Army Basing Programme under which UK troops are returning from Germany by 2019. These latest contracts for the Ministry of Defence involve the provision of design, construction and facilities management services across the Salisbury Plain Training Area and at Aldershot, together worth over £1.1 billion.
The design and construction contract, which will deliver 130 new buildings, together with extensions and alterations to existing buildings and associated infrastructure, has an estimated value of £680 million of which Carillion’s share will be £340 million over the period 2016 to 2020. Facilities management and maintenance services for these new assets and for the increased population across the Salisbury Plain Training Area and Aldershot are being provided under a variation to the existing Project Allenby Connaught contract and is expected to generate a further £430 million of support services revenue over the remaining life of this contract, of which Carillion’s share will be approximately £215 million.
In 2006, a 50:50 joint venture between Carillion and KBR, Aspire Defence Limited, was awarded a 35-year concession contract for Project Allenby Connaught, the largest infrastructure Public Private Partnership project ever let by the UK Ministry of Defence, worth approximately £8 billion at 2006 prices. Since 2006, Carillion/KBR joint ventures have delivered approximately 550 new and refurbished buildings to date, on time, safely and to budget, enhancing soldiers’ living and working accommodation at Tidworth, Perham Down, Bulford, Larkhill, Warminster and Aldershot, as well as successfully delivering hard and soft facilities management and maintenance services for these assets under a 35-year contract that ends in 2041.
Carillion is one of the leading suppliers of rail infrastructure services in the UK. With rail revenue in excess of £350 million, we are the only supplier to have consistently featured in Network Rail’s top two suppliers over the last few years and we expect to maintain our position as a lead supplier to Network Rail when it publishes supplier data for 2016.
We work in partnership with Network Rail under framework agreements. Carillion currently has frameworks under which we deliver a wide range of infrastructure services in England, Scotland and Wales, including track renewal, electrification, multi-disciplinary engineering and remodelling works to accommodate increased traffic and to upgrade stations and the construction of new railway routes.
The success of our long-term partnership with Network Rail is based on our knowledge and expertise, the quality and reliability of the services we deliver and, importantly, our sector-leading focus on Health and Safety, which is of paramount importance in everything we do, particularly our operations on the rail network.
We also support Network Rail directly in their key sustainability ambitions, managing Embodied Carbon, improving biodiversity, developing the Supply Chain Sustainability School, and supporting the development of the future workforce through technical apprenticeship programmes.
Our market leading business in Oman, Carillion Alawi, has been working in partnership with Petroleum Development Oman (PDO) to provide integrated facilities management services for 12 locations across Oman since 2013. PDO, which is owned by the Government of Oman (60 per cent), Royal Dutch Shell (34 per cent), Total (4 per cent) and Partex (2 per cent), is the foremost exploration and production company in Oman and accounts for more than 70 per cent of Oman’s crude oil production and nearly all of its natural gas supply.
In 2016, Carillion Alawi signed a 4.5-year extension to its contract for PDO under which it will continue providing integrated facilities management services that are expected to generate some £240 million of revenue for Carillion over the contract period. The services being delivered include engineering maintenance, projects, catering and environmental services, notably cleaning, housekeeping, pest control, landscaping and laundry services across the PDO estate, which includes PDO’s main coastal estate, and covers an area of approximately 100,000 square kilometres.
Our success in securing this contract extension reflects our focus on delivering safe, sustainable and cost effective services. It is also testimony to the strong partnership we have developed with PDO, based on our commitment to supporting PDO through the efficient management and operation of its critical infrastructure. We do this by using our sector leading ability to provide facilities management services to the oil and gas sector in the Middle East, including operating in the challenging desert environment where the vast majority of PDO’s assets are located.
In December 2014, Carillion acquired Rokstad Power Corporation (Rokstad) in Canada that provides infrastructure services to the power transmission and distribution sector. In line with our strategy of expanding our infrastructure services activities in Canada, this acquisition has significantly enhanced our capabilities and prospects in a growing market, where it is estimated that around £37 billion of investment will be made in power transmission and distribution infrastructure over the next 15 years.
Rokstad has won a number of significant contracts since its acquisition, including a £120 million contract for Manitoba Hydro in December 2016 to deliver the next phase of its Bipole lll high-voltage transmission line project. Work began in late 2016 and is scheduled for completion in 2018.
This contract involves clearing rights of way, installing access roads, building foundations and anchors, assembling towers and stringing cables for three packages of the Bipole lll project, which includes 1,384 kilometres of transmission lines and two converter stations, starting at Keewatinohk in Northern Manitoba and ending at Sandy Bay Ojibway First Nation in Southern Manitoba. When the whole Bipole lll project is completed it will deliver renewable energy to Southern Manitoba and to the United States.
Our business continues to benefit from strong positions in our chosen markets, and we believe that the long-term fundamentals for these markets remain sound.
This enables us to implement our policies and processes consistently across the Group, to manage our back-office functions efficiently, to deliver cost management and efficiency programmes effectively and provide senior management with visibility and control to support the successful delivery of individual contracts and the Group’s key objectives. This platform is also readily scalable, which means it can accommodate the new contracts we win and the businesses we acquire.
A sustainable business that creates value for all our stakeholders. We reinvest some of that value to continue growing our business.
Sustainability is a core strategic business model capability, making Carillion a better company to work for, to do business with and to invest in.
Rigorous risk management is critical to the attainment of our strategic objectives and it continues to remain a key part of our business model.
The Board continues to be responsible for determining the Group’s risk appetite in pursuit of its strategic objectives and for maintaining a robust system of risk management (including regular reviews of principal risks) to mitigate any potential impacts associated with these risks.
The Group delivered revenue growth and improved underlying profit from operations coupled with good cash flow conversion.
|2016 £m||2015 £m||Change from 2015 %|
|Public Private Partnership projects||313.0||192.8||+62|
|Middle East construction services||668.3||601.6||+11|
|Construction services (excluding the Middle East)||1,520.2||1,258.3||+21|
|Underlying operating profit|
|Public Private Partnership projects||28.3||49.3||-43|
|Middle East construction services||16.1||25.3||-36|
|Construction services (excluding the Middle East)||41.3||37.8||+9|
|Group unallocated items||(14.5)||(14.6)||+1|
|Underlying profit from operatiions before Joint Ventures net financial expense and taxation||253.9||244.4||+4|
|Share of Joint Ventures net financial expense||(13.2)||(7.1)||-86|
|Share of Joint Ventures taxation||(4.8)||(2.9)||-66|
|Underlying profit from operations||235.9||234.4||+1|
|Underlying Group net financial expense||(57.9)||(57.9)||–|
|Underlying profit before taxation||178.0||176.5||+1|
|Intangible amortisation arising from business combinations||(13.8)||(20.0)||+31|
|Non-recurring operating items||(40.2)||(5.0)||-704|
|Fair value movements in derivative financial instruments||8.2||6.1||+34|
|Changes in contingent consideration relating to acquisitions||15.6||–||+100|
|Reported profit before taxation||146.7||155.1||-5|
Carillion is one of the UK’s leading support services companies with a substantial portfolio of Public Private Partnership projects, extensive construction capabilities and a sector-leading ability to deliver sustainable solutions. This wide range of expertise enables the Group to provide bespoke, integrated solutions for buildings and infrastructure, from project finance through design and construction to life-time asset management, together with business support services that add value for our customers and the communities in which we operate.
Group Finance Director