Carillion H1 Profit Up, Modifies Offer For Balfour Beatty; Stock Rises

(RTTNews) - Carillion plc (CLLN.L) reported Thursday higher profit in its first half, despite lower revenues. The company also maintained its revenue growth outlook.

The British integrated support services company, which had made an unsuccessful takeover offer to UK-based infrastructure group Balfour Beatty Plc. (BBY.L), also said that the firm continues to believe in the powerful strategic logic and financial benefits of a merger with Balfour Beatty and is therefore continuing to consider its position.

Carillion has proposed that Balfour Beatty's shareholders receive an additional cash dividend or equivalent of 8.5 pence per Balfour Beatty share, with 59 million pounds in total, at the time Balfour Beatty's final 2014 dividend would have otherwise been paid in 2015. This would be in addition to the final 2014 dividend they would be entitled to receive as shareholders in the enlarged group. Regarding the financing, Carillion said it is highly confident that 3 billion pounds of available funding would be accessible to the combined group.

On Monday, Balfour Beatty had rejected a revised proposal from Carillion, with the sale of Balfour Beatty's New York-based engineering unit Parsons Brinckerhoff being the main reason for the disagreement between the two construction firms.

Carillion now said it has, since Monday morning, held meetings with a number of Balfour Beatty's major shareholders. Carillion said that its Board is confident that, as a direct result of the merger, the cost-base of the combined group could be reduced by at least 175 million pounds per annum by the end of 2016. It also said that earnings would consequently be significantly enhanced from that year. These cost savings would represent a capitalised value of over 1.5 billion pounds before any re-rating.

Meanwhile, responding to Carillion's statement about the merger, Balfour Beatty noted that the significant risks set out in its previous announcement were not addressed by Carillion.

In its statement, Balfour Beatty said, "The Board is confident that pursuing its strong independent strategy based around a recovering UK business, growing US market and significant investments business is more attractive than a merger on the terms proposed by Carillion with its associated execution risks and potential value loss from a terminated Parsons Brinckerhoff sale. As already indicated, the Board remains open to strategic value creating opportunities across the Group." In its six months, Carillion reported that profit before taxation increased 5 percent to 67.5 million pounds from 64.2 million pounds last year. Underlying profit before taxation, which excluded certain items, was 75.9 million pounds, 3 percent higher than last year, despite a higher net financial expense.

Profit attributable to equity holders of the parent grew to 56.6 million pounds from the prior year's 55.9 million pounds, with earnings per share improving to 13.1 pence from 13.0 pence in the previous year.

Underlying earnings per share was 14.7 pence, unchanged from last year. Underlying operating margin improved to 5.5 percent from 5.1 percent last year.

Total revenue for the period dropped 5 percent to 1.871 billion pounds from 1.965 billion pounds last year.

In the first half, the company recorded 3.2 billion pounds of new orders and probable orders.

The interim dividend has been increased by two percent to 5.6 pence per share.

The Board's 2014 expectations for revenue growth remains unchanged, despite markets remaining challenging. It expects to make further progress in the medium term.

Regarding its offer for Balfour Beatty, Carillion said its Board expects that it would deliver certain synergies progressively, anticipating that 40 percent of them would be achieved by the end of 2015 and the full 100 percent by the end of 2016, assuming that completion of the merger occurred by December 31.

It is expected that the realisation of the identified synergies would result in one-off exceptional cash costs of approximately 225 million pounds, largely incurred in financial years 2015 and 2016.

In London, Carillion shares were gaining 24.20 pence or 7.56 percent, and trading at 344.20 pence.

Balfour Beatty is currently trading at 237.80 pence, up 1.30 pence or 0.55 percent.