Carillion Eaga Presentation Feb 2011

MAKING TOMORROW A BETTER PLACE


This presentation is directed only at: (i) persons who fall within the definition of “Investment professionals” under Article 19(5) of the Financial Services and Markets Act (Financial Promotions) Order 2005 (the “Order”); and (ii) any persons to whom it may lawfully be communicated pursuant to the Order or otherwise (all such persons being “Relevant Persons”). Any person who is not a Relevant Person should not act or rely in this presentation or any of its contents.This presentation is not a prospectus. It does not constitute or form part of an offer to sell or any invitation to purchase or subscribe for any securities or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the Acquisition or otherwise. Any acceptance or response to the Acquisition should only be made on the basis of the information referred to in the scheme document and the prospectus to be prepared in connection with the Acquisition.This presentation contains ‘forward-looking statements’ concerning Carillion and Eaga that are subject to risks and uncertainties. Generally, the words ‘will’, ‘may’, ‘should’, ‘continue’, ‘believes’, ‘targets’, ‘plans’, ‘expects’, ‘aims’, ‘intends’, ‘anticipates’ or similar expressions or negatives thereof identify forward-looking statements. Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth ofCarillion’s or Eaga’s operations and potential synergies resulting from the Acquisition; and (iii) the effects of government regulation on Carillion’s or Eaga’s business.These forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Many of these risks and uncertainties relate to factors that are beyond Carillion’s and Eaga’s ability to control or estimate precisely, such as future market conditions, changes in regulatory environment and the behaviour of other market participants. Neither Carillion nor Eaga can give any assurance that such forward-looking statements will prove to have been correct. The reader is cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. Neither Carillion nor Eaga undertakes any obligation to update or revise publicly any of the forward-looking statements set out herein, whether as a result of new information, future events or otherwise, except to the extent legally required. The statements in this presentation that the Acquisition is expected to be immediately earnings enhancing for Carillion before synergies relates to future actions and circumstances, which, by their very nature, involve risks, uncertainties and other factors.Nothing contained herein shall be deemed to be a forecast, projection or estimate of the future financial performance of Carillion, Eaga or any other person following the implementation of the Acquisition or otherwise. The expected operational cost savings described in this presentation have been calculated on the basis of the existing cost and operating structures of the Carillion Group and the Eaga Group respectively. These statements of estimated cost savings and one-off costs for achieving them relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated.The release, publication or distribution of this presentation in jurisdictions other than the United Kingdom may be restricted by the laws of those jurisdictions and therefore persons into whose possession this presentation comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

Important Legal Notice

2

MAKING TOMORROW A BETTER PLACE3

Agenda

Introduction & strategic rationale John McDonoughGroup Chief Executive

Financial overview Richard AdamGroup Finance Director

Enhanced accelerated growth prospects John McDonough

Summary & conclusions John McDonough


Introduction

• Carillion - delivered strong performance in 2010- well positioned for short and medium term organic growth - made a positive start to 2011 - in excess of £100m of cash at 31 December 2010

• Eaga- a leading UK provider of domestic energy efficiency solutions- strong position in growing low carbon market

• Low carbon market is a key area of focus for Carillion’s customers

• Carillion provides scalable platform for enhancing Eaga’s growth


Introduction

• Recommended cash acquisition - values Eaga at 120p(1) per share- values issued and to be issued share capital of Eaga at £306.5m(1)

• Limited share alternative up to a maximum of 40% of consideration, reflecting the Eaga Partnership Trusts’(2) objective of holding significant equity in the enlarged Group

• 40.8% irrevocable commitments received

• Follows positive discussions between Eaga and Carillion to explore ways of working together

• Extensive due diligence

• Acquisition has compelling financial and strategic rationale

• Enhances Carillion’s organic growth

(1) Includes Eaga’s interim dividend(2) The Eaga Partnership Trusts hold 36.7% of Eaga’s issued share capital


Strategic rationale

• Brings together two complementary companies

• Enhances Carillion’s position as one of the UK’s leading support services companies

• Creates scalable platform to build the UK’s largest independent energy services provider

• Increases Carillion’s capabilities to provide integrated solutions

• Attractive cross-selling opportunities between Carillion’s and Eaga’s customers

• Historic proforma combined support services revenue circa £3bn

• Expected to be immediately earnings enhancing even before synergies

• Builds on Carillion’s previously announced objectives for growth


Offer terms and structure

(1) Includes Eaga’s interim dividend(2) Based on Carillion share price at close of business on 10 February 2011 of 385.2 pence and 3.24 Eaga shares per Carillion share(3) 118.8p consideration per share (excluding dividend) and assumes equity take up of 36.6%

• Recommended cash offer with limited share alternative

• Values each Eaga share at 120p(1)

• Eaga’s ownership structure includes an Employee Trust (EPT) which holds 36.7% of Eaga equity

• Limited share alternative meets EPT’s objective of having a significant holding in Carillion post acquisition

• Up to 31.5m(2) Carillion ordinary shares to be issued – 7.3% of enlarged share capital

• Cash element of £192m(3) will be funded from new borrowing facilities

• Documents posted to shareholders – by 4th March 2011

• Expected completion - April 2011


Strong financial returns

• Extensive due diligence including run down of Warm Front• Immediately earnings enhancing even before synergies(1)

• Enhances Carillion’s growth potential• Eaga margin consistent with Carillion’s existing support services margin• Synergy cost savings from Carillion and Eaga totalling £9m by end 2013,

at a one-off cost of £15m, in addition to Eaga’s previously announced cost savings programme(1)

(1) See slide 2


Robust capital structure

• Carillion expects net cash at 31 December 2010 to be well in excess of £100m

• Eaga net cash at 30 November of £20m

• Eaga has no significant pension deficit

• Carillion’s new 5-year borrowing facilities of £737m will comfortably cover- £192m(1) cash element of consideration- working capital and investment requirements- £15m cost of delivering synergy savings- more than adequate headroom

• Combined Group will have robust capital structure

(1) 118.8p consideration per share (excluding dividend) and assumes equity take up of 36.6%


Eaga overview

• A leading UK energy services company

• Established in 1990

• Listed June 2007

• Strong operational management team and reputation for quality services

• Strong growth track record- leading provider of residential energy efficiency solutions- one of the UK’s largest national suppliers of heating and renewable energy- at forefront of low carbon economy in the UK- managing end-to-end solutions for Government and other organisations

• Core focus is working with central and local Government, their agencies, housing associations and with utility companies to

- lower carbon emissions - combat fuel poverty - improve living conditions- reduce energy consumption

• Specialist knowledge, skills and delivery capabilities

General


Group Revenue (£m)2006 2007 2008 2009 2010

0

200

400

600

800

1,000

Group EBITA (£m)2006 2007 2008 2009 2010

0

10

20

30

50

60

40

Eaga overview

Five-year(1) history

13

(1) Financial years ending 31 May


Eaga overview

Heating & Renewables• National installer of domestic heating and renewable energy solutions for

Central and Local Government and private households

£223m(29%)

£429m(56%)

£110m(15%)

Carbon Services• Leading provider of energy efficient, green technology and renewable

energy solutions under Carbon Emissions Reduction Target (CERT) and Community Energy Savings Programme (CESP)

Managed Services• Provision of energy efficiency solutions to a wide range of environments

and able-to-pay markets including Warm Front• Digital Switch Over (DSO) for BBC

Total Annual Revenue £762m(1)

(% of Group revenue)

(1) Year ended 31 May 2010

Principal activities and markets


Eaga’s market sectorsEstablished position in a stable market

First mover advantage.Strong growth potential

Market leader.Strong growth potential

Market leader for Warm Front & Digital Switch Over as sole provider.‘Warm Front’ being replaced by ‘Pay-as-you-Save’ and ‘Green Deal’

Social Housing

AnnualMarketSize

CarbonServices

(CERT, CESP & ECO)

ManagedServices

(Warm Front& DSO)

Micro-generation

(1) Estimated market sizes based on historic and/or prospective financial information(2) FM Central and Local Government 2009-2013 (AMA Research Ltd, Jan, 2009) & Facilities Management Market (MTW Research, Jan 2010) (3) Estimates based on funding from Feed-in-Tariffs and the Renewable Heat Incentive(4) Sustainable Refurbishment (Energy Savings Trust, 2010 Edition)(5) Funding for Warm Front published by DECC; DSO contract £80m p.a. (6) Child Maintenance” and “Back to Work” Frameworks only – Department for Work & Pensions website(7) Estimate based on British Gas 2009 Annual Report(8) Estimate based on “Solid wall insulation – supply chain review (Energy Savings Trust & Energy Efficiency Partnership for Homes) May 2009”

Building a good position in a growing market

Targeting growth in a stable market

Good capability in a growing market

InsuranceBacked

Aftercare

External WallInsulation

NewManagedServices

£10bn

15

(2)

£1bn(3)

£3.5bn(6)

£1.3bn(4)

£3bn(7)

£200m(5) £230m(8)

Targeted markets worth circa £20bn(1)

and growing


Carillion creates scalable platform for Eaga growth

• Operational and financial resource and capability to invest in existing and new market opportunities

• Private Finance experience and expertise- financially closed over 50 PFI concession contracts - will help with potential £300m Phase One privately financed project for

Photo-Voltaic systems

• Access to new market opportunities in the UK and internationally– both Middle East and Canada

• Access to a broad portfolio of public and private sector blue-chip customers who increasingly require energy solutions

• Supply chain scale and leverage

• Leading-edge technology to manage large workforces and workflows

• Opportunity to accelerate Eaga’s growth


Strong revenue growth prospects

WarmFront

Renewables(Photo-Voltaic

Systems)

GreenDeal

EnergyCompany

Obligations(ECO)

Managed Services/Business

Process Outsourcing

RevenueSynergies


New market opportunities

• Major new market opportunity

• UK Government encouraging and supporting local electricity generation from non-fossil fuels

• Government’s initial target is to install renewable energy systems, principally PV, in some 750,000 homes

• New market with Private Finance opportunities

• Eaga developing first UK large-scale (PV) solar investment vehicle

• Feed in Tariff (FIT) Regulation provides 25-year indexed revenue stream

• Proven capability to deliver integrated service solutions, including installation, maintenance and management of PV systems

• Contracts signed with social landlords for c120,000 homes, with negotiations for a further 200,000 at an advanced stage

• Phase One privately financed project – key objectives- up to £15m equity investment (20% share of £75m total equity) & £225m debt- up to £300m of installation and maintenance revenue- Carillion can provide strong support

Privately financed solar Photo-Voltaic (PV) systems



• Flag-ship Government policy for domestic energy efficiency

• Major market opportunity - 26 million UK houses to become energy efficient, of which approx. 8 million have disadvantaged occupants, a key focus and capability of Eaga

• Enables UK to fulfil a large part of its carbon reduction commitments, as residential sector is estimated to be responsible for 27% of CO2 emissions

• The main component of the Energy Security and Green Economy Bill 2010/11, currently going through Parliament

• Limited take-up of energy efficient opportunities to date

• Green Deal should force change- energy companies would become responsible for collecting revenue through

electricity and gas charges- creates revenue stream to support privately financed costs of making houses

energy efficient

• Carillion well positioned with integrated delivery model through selected channels

‘Green Deal’ - domestic energy efficiency


• Energy Security and Green Economy Bill, (Green Deal component), establishes new Energy Company Obligation (ECO)

• From January 2013, ECO includes new legal requirement for energy companies to reduce CO2 emissions, or face fines of up to 10% of global revenue

• ECO replaces the current Carbon Emissions Target (CERT) and Community Energy Savings Programme (CESP) obligations on energy suppliers and generators

• Both CERT and CESP will be subsumed into Green Deal at the end of 2012, with ECO applying from January 2013

• ECO will provide further support for low income, disadvantaged households

• ECO will also apply to homes more difficult or expensive to improve ie where financial savings cannot be achieved without additional financial support

• £1.3bn per annum market and growing


Energy Company Obligations (ECO)



• Government is engaging private sector through framework contracts for managed services/BPO to deliver priority welfare reforms

• Eaga key supplier in this market e.g. - Department of Energy and Climate change- BBC- Legal Services commission

• Potential to secure further contracts for other services where social welfare needs are central theme

• Combination with Carillion creates new opportunities- access to Carillion’s large customer base- ability to deliver wider integrated service offering including some BPO

Managed Services/Business Process Outsourcing (BPO)


Revenue synergies

• Carillion already receiving many requests from existing customers for energy efficiency/low carbon services

• Adding a market-leading capability in energy efficiency/low carbon will create opportunities for Carillion to sell these services to new and existing customers

- for support services – Carillion manages over 100,000 properties for public, private sector

blue-chip and Regulated sector customers eg– 43,000 houses for Ministry of Defence – 7,000 properties for BT

– Carillion provides asset management and maintenance services forsubstantial sections of the road, rail and utility services networks

- for Public Private Partnership projects and other new buildings and infrastructure - in UK, Canada & Middle East e.g. Abu Dhabi building first ‘zero carbon’ city

Opportunities for cross-selling and accelerating growth


Business integration

• Thorough due diligence carried out to provide clear integration plan

• Full access to, and co-operation of, Eaga

• Experienced integration team with strong track record

• Integration team will include members of Eaga senior management team

• Eaga, based in North East, will become a Carillion business unit reporting directly to Carillion Chief Executive


Conclusions

• Creates scalable platform to build the UK’s largest independent energy services provider

• Creates leading positions in energy efficiency/low carbon markets with strong growth potential

• Increases Carillion’s capabilities to provide integrated support services solutions

• Attractive cross-selling opportunities

• Delivers substantial shareholder value

• Immediately earnings enhancing even before synergies(1)

• Builds on Carillion’s positive start to 2011 and previously announced targets for growth

(1) See slide 2


Facts about CarillionSupport services• We are one of the UK’s largest facilities management companies, with the skills

and resources to provide all the services needed to manage and maintain property, road, rail and utility infrastructure

• We provide facilities management and other support services for over a hundred thousand buildings, including 43,000 houses for the Ministry of Defence and 7,000 properties for BT

• We provide management and maintenance services for some 17,000 kilometres of road in the UK and Canada

• In the UK, we provide extensive services for public utility networks, including 120 million miles of copper telecommunications cable for Openreach

Public Private Partnership (PPP) projects• We have been a leader in PPP projects since the inception of the UK’s Private

Finance Initiative in the early 1990’s • Since then, we have won over 50 PPP contracts in the UK and Canada for

hospitals, schools, prisons, military accommodation, roads and railways• We have sold 30 PPP equity investments generating proceeds of some £327

million and a pre-tax profit of over £122 million


Facts about Carillion

Middle East• We have 40 years experience of operating in the Middle East, where we have built

an outstanding reputation for quality and reliability

• We have built many of the region’s iconic landmark projects, including Dubai Festival City, the Grand Mosque in Oman and the recently completed Yas Hotel, which is the centre piece of Abu Dhabi’s new Formula 1 Grand Prix circuit

Construction services (excluding the Middle East)

• Our history in construction spans almost two centuries, as Carillion brings together the heritage of Tarmac, Mowlem and Alfred McAlpine

• Carillion has continued to deliver outstanding projects, such as the new Government Communication Headquarters, Cheltenham, 15 major hospitals, some 150 new schools, several prisons and numerous motorway, trunk road and rail projects

• In Canada, where we have operated for nearly 50 years, we have also built a reputation for delivering high quality projects, particularly Public Private Partnerships


Facts about Eaga

• One of the UK’s leading green support services companies

• A 20-year track record of developing, marketing and delivering household energy efficiency solutions

• Employs around 4,000 people

• Working with central and devolved government, utility companies, local authorities and housing providers, delivering energy efficiency improvements in up to 2,300 households every working day

• Through its work to alleviate fuel poverty, Eaga has assisted more than 2.2 million households since 2000 – helping to make their homes warmer and more affordable to heat


Facts about Eaga

• Installs around 37,000 heating systems annually and provides 24/7 cover to more than 393,000 systems

• Made energy efficiency improvements, such as loft and cavity wall insulation, in 250,000 homes last year.

• As an installation specialist in solar photo-voltaic and other renewable energy systems, such as ground and air source heat pumps and solar thermal, Eaga is at the forefront of the drive toward low carbon living

• A leading provider of outsourced managed services, eg on behalf of the BBC, Eaga has assisted more than 343,000 households to switch from analogue to digital TV, under the Switchover Help Scheme

Carillion Eaga Presentation Feb 2011

Economy & Finance

Transcript of Carillion Eaga Presentation Feb 2011