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Carillion PLC04 March 2008 EMBARGO: NOT FOR PUBLICATION OR BROADCASTBEFORE 7.00am ON WEDNESDAY 5 MARCH 2008 CARILLION PLC Annual Results for the year ended 31 December 2007 22% growth in underlying earnings per share Underlying results(1) • Total revenue up 13% to £3,951.7m (2006: £3,512.4m)(2) • Underlying profit before taxation up 23% to £101.8m (2006: £82.6m)(2) • Underlying earnings per share up 22% to 28.9p (2006: 23.7p)(2) Reported results • Profit before taxation up 39% to £94.4m (2006: £68.1m)(2) • Basic earnings per share up 25% to 27.1p (2006: 21.6p)(3) • Proposed dividend up 22% to 11.0p (2006: 9.0p) • Net borrowing at 31 December 2007 of £44.9m (2006: £108.0m) Strategic highlights • Successful integration of Mowlem earlier than expected - integration savings of at least £26m per year achieved, 73% above original expectation • Strong growth in support services - revenue up 23% • Construction margins improving - total underlying construction margin up to 2.1% (2006: 1.7%)(4) • £16.0bn order book (2006: £16.0bn) - pipeline of probable orders increased to £3.6bn (2006: £1.6bn) • Opportunities to increase Middle East revenue substantially - from the 2007 level of £337.0m to more than £600m over the next two years • Alfred McAlpine acquisition completed in February 2008 - integration underway • Overall outlook in main markets remains positive - Support services, Public Private Partnership projects and Middle East activities now represent 89% of the Group's underlying operating profit (1) After Joint Ventures taxation of £9.0m (2006: £8.1m) and before intangible amortisation, impairment, restructuring costs and non-operating items (see note 3)(2) Continuing operations(3) Continuing and discontinued operations(4) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items (see note 3) Philip Rogerson, Chairman, commented: "2007 was another strong year for Carillion. The Group delivered record profitsand continued its strategic development to support sustainable profitablegrowth. The acquisition of Alfred McAlpine in February 2008 has furtherstrengthened Carillion's position as a leading support services and integratedsolutions business and the Board expects the Group to make further strongprogress in 2008 and deliver materially enhanced earnings in 2009." A telephone dial in facility (+44 (0) 208 515 2301) will be available from 08:45am for analysts and investors who are unable to attend the presentation. Thepresentation can be viewed on Carillion's website at www.carillionplc.com/investors/investors_presentations.asp. For further information contact:Richard Adam, Group Finance Director tel: +44 (0) 1902 422431John Denning, Group Corporate Affairs Director tel: +44 (0) 1902 316426 5 March 2008 Notes to Editors:Carillion plc is one of the UK's leading support services, Public PrivatePartnership project and construction companies. The Group has annual revenue of around £4bn and employs some 50,000 people. The Group operates across the UK, in the Middle East and in Canada and theCaribbean. In the UK, the Group has eight principal market sectors - Defence, Education,Health, Building, Facilities Management and Services, Roads, Rail and CivilEngineering. In the Middle East, the Group's two principal market sectors are Constructionand Facilities Management. In Canada and the Caribbean the Group's main sectors are Health, RoadsMaintenance and Construction. The Group is a leader in Public Private Partnership projects, particularly inthe Defence, Education and Health sectors in the UK and in the Health sector inCanada. On 12 February 2008, the Company acquired Alfred McAlpine plc for a totalconsideration of £554.5m, satisfied by the issue of 112.9m Carillion plc shares,£171.7m of cash and £1.3m of loan notes. This, and other news releases relating to the Group, can be found atwww.carillionplc.com. Photographs:High resolution photographs are available free of charge to the media atwww.newscast.co.uk telephone 0207 608 1000. Key financial figures 2007 2006 Change_______________________________________________________________________________Income statement(1)Total revenue £m 3,951.7 3,512.4 +13%Support services underlying operatingmargin(2) Percentage 4.1% 4.0% n/aTotal construction services underlyingoperating margin(2) Percentage 2.1% 1.7% n/aUnderlying profit from operations(3) £m 101.2 81.3 +24%Underlying profit before taxation(3) £m 101.8 82.6 +23%Profit before taxation £m 94.4 68.1 +39%Underlying earnings per share (2) Pence 28.9 23.7 +22%Basic earnings per share - continuingand discontinued operations Pence 27.1 21.6 +25%DividendsProposed full year dividend per share Pence 11.0 9.0 +22%Underlying proposed dividend cover (2) Times 2.6 2.6 n/aBasic proposed dividend cover -continuing and discontinued operations Times 2.5 2.4 n/aCash flow statement(1)Cash generated from operations beforepension deficit recovery payments andrestructuring costs and afterdividends £m 135.7 99.1 +37%received from Joint VenturesUnderlying profit from operations cashconversion Percentage 134.1 121.9 n/aDeficit pension contributions £m 46.3 31.8 +46%Balance sheet Net borrowing £m 44.9 108.0 -58%Net retirement benefit liability(gross of taxation) £m 24.3 112.9 -78% Net assets £m 502.9 433.7 +16%_______________________________________________________________________________ (1) Continuing operations unless otherwise stated(2) Before intangible amortisation, impairment, restructuring costs and non-operating items (see note 3)(3) After Joint Ventures taxation of £9.0m (2006 £8.1m) and before intangible amortisation, impairment, restructuring costs and non-operating items (see note 3) Results 2007 was another strong year for Carillion. The Group delivered record profitsand continued its strategic development to support sustainable, profitablegrowth. In particular, the successful integration of the Carillion and Mowlembusinesses has created a stronger, more resilient business, with enhancedpositions in selected growth markets. Total revenue, including Joint Ventures, increased by 13 per cent to nearly £4billion (2006: £3.5 billion), primarily due to organic growth in supportservices and Middle East construction services together with and a full twelvemonths revenue contribution from the businesses acquired with Mowlem in February2006. Underlying profit before tax from continuing operations increased by 23 per centto £101.8 million (2006: £82.6 million) and underlying earnings per share fromcontinuing operations on the same basis rose by 22 per cent to 28.9 pence pershare (2006: 23.7 pence). Underlying cash flow from operations of £135.7 million (2006: £99.1 million)comfortably exceeded underlying operating profit. Net borrowing at 31 December2007 was £44.9 million (2006: £108.0 million) and average net borrowing in 2007was £130.3 million (2006: £148.0 million post the acquisition of Mowlem). The Group has continued to develop the strong positions it holds in a wide rangeof growth markets, winning new orders during the year worth £4.0 billion. At 31December 2007 the Group's forward order book stood at £16.0 billion (2006: £16.0billion) and its pipeline of probable new orders has increased significantly to£3.6 billion (2006: £1.6 billion). Given the strength of the Group's performance in 2007 and prospects for 2008 andthe medium term, the Board is recommending a final ordinary dividend for 2007 of7.5 pence per share, making the total full-year dividend for 2007 11.0 pence pershare, an increase of 22 per cent on the total paid in respect of 2006 (9.0pence). The final dividend will be paid on 20 June 2008 to shareholders on theregister at close of business on 25 April 2008. Strategy Carillion's success continues to be based on implementing our consistent andsuccessful strategy for sustainable, profitable growth of: • growing support services and Public Private Partnership (PPP) projects organically and by acquisition • developing and marketing integrated solutions tailored to the needs of customers, including project finance, design and construction, maintenance and lifetime asset management; and • maintaining a strong and selective construction capability focused on higher added-value contracts for long term customers. More specifically, in 2007 we said that going forward we will focus on: • growing revenue in support services at stable margins of between 4 and 5 per cent • using the strong positions we have established in our chosen sectors of the Private Finance market in the UK and Canada to win projects in which equity investments will create significant value for the Group • more than doubling Carillion's share of revenues from our Joint Venture businesses in the Middle East from £274 million in 2006 to over £600 million within the next three years, at margins of some 6 per cent • improving the combined margins of our construction activities in the UK, Canada and the Caribbean and the Middle East towards 3 per cent over the next three years. We also set seven key performance indicators for 2007 in respect of whichCarillion has performed strongly, as we continued to build on the step change inCarillion's development that we achieved in 2006 through the acquisition andsuccessful integration of Mowlem. Our performance against these key objectivesis set out below. _______________________________ _______________________________________________Key performance indicators in What we have achieved2007_______________________________ _______________________________________________Attract, develop and retain Leadership, personal development and employeeexcellent people by becoming an engagement programmesemployer of choice._______________________________ _______________________________________________Be a recognised leader in the Accident Frequency Rate in 2007 of 0.14 (2006:delivery of safety and 0.18) ranks with the best in our sector. "Gold"sustainability ranking in Business in the Community's 2006 Corporate Responsibility Index topped our sector_______________________________ _______________________________________________Deliver revenue growth of a 2007 revenue increased by 13%minimum of 5 per cent throughexceeding our customers'expectations_______________________________ _______________________________________________Deliver Mowlem integration cost Achievedsavings at a running rate of £26million per annum by the end of2007_______________________________ _______________________________________________Deliver materially enhanced Underlying earnings per share(1) in 2007earnings in 2007 increased by 22%_______________________________ _______________________________________________Generate cash-backed operating Underlying cash flow in 2007 represented 134%profit of underlying operating profit_______________________________ _______________________________________________Achieve average net borrowing in Average net borrowing in 2007 was £130mthe full year of around £150million_______________________________ _______________________________________________ (1) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items Key performance indicators in 2007 1. Attract, develop and retain excellent people by becoming an employer ofchoice Delighting our customers by meeting or exceeding their expectations dependsprimarily on the quality of our people. Therefore, our ability to attract,develop and retain excellent people by becoming an employer of choice continuesto be our top priority. In 2007, we made further good progress towards this objective through theleadership, personal development and employee engagement programmes we haveintroduced across the Group to help all our people fulfil their potential andcontribute to Carillion's success. Creating a culture of trust and open communication is essential to the successof our people policies and programmes. Our managers and supervisors seek toengage with all our people through regular one-to-one meetings, individualperformance and development reviews and monthly team talks, supported bynewsletters and our company newspaper, Spectrum that once again received the topnational award in 2007 from "Communicators in Business" as the best UK companynewspaper. Listening to what our people tell us and acting upon it is vital to goodcommunication. To that end and to help us monitor and measure our progress, weconduct employee surveys. For example, every year we hold "The Great Debate", aninteractive survey in which our people, selected randomly from across the Group,share their views on a wide range of issues, which are important to theirdevelopment and satisfaction and to the success of Carillion. In 2007, around2,500 people took part in "The Great Debate", the results of which showed thatwe are making good overall progress on these issues and that our average scorescompared favourably with those of other top UK companies. 2. Be the recognised leader in the delivery of safety and sustainability The Health and Safety of our people and everyone who works with us or isaffected by our operations is paramount. In 2005, we set the demanding objectiveof eliminating reportable accidents by 2010. Known as "Target Zero", this objective is led by our Board and requires constantvigilance and commitment of everyone in Carillion to ensure that safe workingpractices are consistently adopted and supported by rigorous reviews, audits andtraining. We are pleased to report that in 2007 we made further progress towards "TargetZero". The Group's Accident Frequency Rate (AFR) reduced by 22 per cent to 0.14reportable accidents per 100,000 man hours worked (2006 AFR: 0.18), which rankswith the best in our sector. This follows year on year reductions in our AFR of25 per cent in 2006 and 35 per cent in 2005. Despite a nine per cent increase in the total number of hours worked in 2007 toover 210 million, the total number of reportable accidents under RIDDOR(Reporting of Injuries, Diseases and Dangerous Occurrences Regulations 1995)reduced by 15 per cent to 295 (2006: 347) and also follows year on yearreductions of 24 per cent in 2006 and 27 per cent in 2005. We deeply regret that one fatal traffic accident, involving a Joint Ventureemployee, occurred on one of our international project sites in 2007. Oneprosecution of Carillion and one of its sub-contractors by the Health and SafetyExecutive, relating to incidents that occurred in 2004, was concluded in 2007.No other enforcement notices were received by Carillion or any of itssub-contractors in 2007 in respect of work being carried out by Carillion or onthe company's behalf. In 2007, Carillion once again submitted information on the Health and Safetyperformance of all its UK business units to the Corporate Health and SafetyPerformance Index, having been the first and only major construction company todo so in 2006. This Index, which is sponsored by the Health and SafetyCommission, covers all aspects of Health and Safety management and performance.A wide range of industries participate in the Index, which enables us tobenchmark our performance beyond our own industry sector. In 2007, we improvedour Index score to 7.4 (2006: 6.4), which was well above the mean score of 6.7. Our commitment to sustainability has made Carillion the recognised leader in thedevelopment and adoption of responsible business practices, as we demonstratedby topping our sector with a Gold performance ranking in Business in theCommunity's 2006 Corporate Responsibility Index. More detailed information on Health and Safety and sustainability will bepublished in our 2007 Sustainability Report on our website atwww.carillionplc.com/sustainability in April 2008. 3. Deliver revenue growth of a minimum of five per cent through exceedingour customers' expectations In 2007, revenue increased by 13 per cent, which after allowing for a full yearcontribution from the businesses acquired with Mowlem in February 2006, means wehave achieved organic growth of 8 per cent and ahead of our objective of 5 percent. Organic growth was driven mainly by a 20 per cent increase in UK supportservices revenue, particularly in the defence and private sector facilitiesmanagement sectors, and a 25 per cent increase in Middle East constructionservices revenue, reflecting our strong markets in both Dubai and Oman. 4. Deliver Mowlem integration cost savings at a run rate of £26 million perannum by the end of 2007 We delivered integration cost savings at a run rate of £26 million a year, inline with our objective and significantly above the original target run rate of£15 million a year, which we announced at the time of the acquisition. Thesehard, measurable savings were achieved in a number of areas, includingeliminating management duplication, the adoption of Carillion's shared servicesmodel for central and back office functions, property rationalisation and moreefficient and effective supply chain management. 5. Deliver materially enhanced earnings in 2007 Revenue and margin growth resulted in a 23 and 22 per cent increase inunderlying profit before tax and underlying earnings per share respectively.Increasing margins, particularly in the businesses acquired with Mowlem, throughapplying Carillion's strict project selectivity criteria and risk managementprocesses was identified at the time of acquisition as an important opportunityfor earnings growth. Overall operating margins increased to 2.6 per cent (2006:2.3 per cent) with increases in group construction services (excluding theMiddle East) to 0.7 per cent (2006: 0.6 per cent) and in Middle Eastconstruction services to 7.5 per cent (2006: 5.2 per cent). 6. Generate cash-backed operating profit Underlying cash flow from operations of £135.7 million comfortably exceededunderlying profit from operations of £101.2 million. Strong cash management isfundamental to delivering sustainable profitable growth and the consistentdelivery of cash-backed profit remains a key performance indicator for theGroup. 7. Achieve average net borrowing in the full-year of around £150 million Average net borrowing was £130.3 million and well below our full-year target.Achieving this objective and reducing net borrowing at 31 December to £44.9million (2006: £108.0 million) follows our success in delivering a strong cashflow from operations, in line with our continuing focus on cash management. Key performance indicators in 2008 In order to maintain the Group's strong momentum we have set the following keyperformance indicators for 2008 • continue to attract, develop and retain excellent people by being an employer of choice • be the recognised leader in the delivery of safety and sustainability • deliver revenue growth of a minimum of 5 per cent • successfully integrate Alfred McAlpine and deliver integration cost savings that put us on track to achieve savings at a run rate of £30 million by the end of 2009 • achieve earnings per share growth that puts us on track to deliver materially enhanced earnings per share in 2009 following the Alfred McAlpine acquisition • generate cash-backed operating profit • achieve year-end net borrowing in the region of £300 million. Acquisition of Alfred McAlpine In December 2007, we announced the terms of a recommended shares and cash offerfor the acquisition of Alfred McAlpine plc. The acquisition, which received theoverwhelming support of Carillion and Alfred McAlpine shareholders, wascompleted on 12 February 2008 and valued Alfred McAlpine's share capital at£554.5 million. The acquisition was funded by the issue of 112.9 million newCarillion shares, £171.7 million of cash and £1.3 million of loan notes. Alfred McAlpine is an excellent strategic fit and the acquisition is expected todeliver significant value for shareholders by generating substantial synergycost savings and enhanced operational performance. Combining the complementaryskills and market strengths of Carillion and Alfred McAlpine will create • a leading UK support services business with annual support services revenues of some £2.6 billion (based on 2007 revenues) • an enhanced capability to provide integrated solutions, including design, construction, maintenance, facilities management and private finance • a strong and selective construction business that will continue to target margin improvement through the application of Carillion's project selectivity and risk management processes • synergy cost savings at a run rate of £30 million per annum by the end of 2009 for a one-off cost of £30 million • financial returns well ahead of Carillion's weighted average cost of capital • materially enhanced earnings in 2009. The integration of the Carillion and Alfred McAlpine businesses has alreadycommenced and is progressing very well. We look forward to working with our8,500 new colleagues during 2008 and beyond in order to create an even strongerbusiness from which all stakeholders can benefit. Segmental reporting and analysis We have made two changes to the way we report our financial results and how wegroup together activities of a similar type and risk profile in order to make iteasier to value our earnings on a consistent basis. Previously we reported ourresults in three segments - support services, investments and constructionservices. We now report our activities in four segments - support services,Public Private Partnership projects, Middle East construction services andconstruction services (excluding the Middle East). Our Middle East constructionactivities, which were previously included within construction services, are nowbeing reported separately, because of their higher margins and lower riskprofile compared with construction services in the UK. In addition, to providegreater clarity, the investments segment has been re-named Public PrivatePartnership projects, but there has been no change to the results we report inthis segment, namely the equity returns on our investments in Public PrivatePartnership projects. A summary of operating profit by financial reporting segment is set out in thetable below. _______________________________________________________________________________ 2007 2006 Change from 2006 £m £m %_______________________________________________________________________________Support services 73.9 58.8 26Public Private Partnership projects 25.4 26.5 (4)Middle East construction services 25.4 13.9 83Construction services (excluding the MiddleEast) 16.0 18.5 (14) ______________________________ 140.7 117.7 20Group eliminations and unallocated items (20.6) (20.3) (1) ______________________________Profit from operations before Joint Venturesnet financial expense and taxation 120.1 97.4 23Share of Joint Ventures net financialexpense (9.9) (8.0) (24)Share of Joint Ventures taxation (9.0) (8.1) (11) ______________________________Underlying operating profit(1) 101.2 81.3 24Intangible amortisation and impairment ofgoodwill and other investments (21.5) (17.2) (25)Restructuring costs (14.2) (22.6) 37 ______________________________Reported profit from operations(2) 65.5 41.5 58_______________________________________________________________________________ (1) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items(2) Continuing operations Support services In this segment we report the results of our facilities management, facilitiesservices, rail infrastructure, road maintenance and consultancy businesses. _______________________________________________________________________________ 2007 2006 Change from 2006 £m £m %_______________________________________________________________________________Revenue(1) - Group 1,569.4 1,314.8 - Share of Joint Ventures 224.2 143.9 ________________________________ 1,793.6 1,458.7 23_______________________________________________________________________________Underlying operating profit(2) - Group 62.4 51.5- Share of Joint Ventures 11.5 7.3 ________________________________ 73.9 58.8 26_______________________________________________________________________________ (1) Continuing operations(2) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items. Revenue in support services increased by 23 per cent to £1,793.6 million ofwhich some 20 per cent was due to organic growth, with the remainderattributable to having a full 12 months' contribution from the businessesacquired with Mowlem in February 2006. Organic growth was due primarily toincreased revenues from facilities management and services, both for public andprivate sector customers, notably the Ministry of Defence, BT, Virgin Media andNorwich Union, and from highways maintenance in the UK and Canada, partiallyoffset by lower volumes in rail infrastructure. Underlying operating profit increased by approximately 26 per cent to £73.9million, reflecting 23 per cent revenue growth, particularly in the Defencesector, including Joint Venture contracts, and in the facilities management androads maintenance sectors. Overall, new order intake in support services has remained healthy and the valueof our order book for this segment at 31 December 2007 was £8.4 billion (2006:£8.4 billion). The outlook in this segment continues to be very positive with forecast realgrowth in the UK support services market of between two and three per cent perannum over the next five years. Outsourcing by public and private sectorcustomers is expected to continue to provide significant opportunities forgrowth in facilities management and services and roads maintenance. This isalready evident in the number of major new orders won by Carillion and its JointVenture partners in the first two months of 2008 for established "blue chip"customers, including BT, AXA and Phillips, worth around £0.9 billion. We also expect modest growth in our UK rail infrastructure activities as aresult of planned increases in expenditure on network and station enhancementprojects. We expect to achieve growth despite the effects of ceasing to providetrack renewal services to Network Rail from the beginning of 2008 and the saleof our rail operations in Scandinavia, which together generated around £100million of revenue in 2007. In addition, growth in the outsourcing of roads maintenance in Canada and in ourfacilities management markets in the Middle East and in Canada continue to offeropportunities for our businesses in these regions to increase the contributionsthey make to this segment. Public Private Partnership projects In this segment we report the equity returns on our investments in PublicPrivate Partnership (PPP) projects in our chosen sectors of Defence, Health,Education, Transport, Secure and other Government accommodation. _______________________________________________________________________________ 2007 2006 Change from 2006 £m £m %_______________________________________________________________________________Revenue(1) - Group 0.9 1.3- Share of Joint Ventures 153.2 146.7 ________________________________ 154.1 148.0 4_______________________________________________________________________________Underlying operating profit(2) - Group 0.7 7.1- Share of Joint Ventures 24.7 19.4 ________________________________ 25.4 26.5 (4)_______________________________________________________________________________ (1) Continuing operations(2) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items. At 31 December 2007, we had a portfolio of 23 equity investments (2006: 24) infinancially closed PPP projects in which we had already invested some £78million of equity and commitments to invest a further £97 million, which willbring our total equity investment in these projects to £175 million. TheDirectors' valuation of our portfolio at 31 December 2007 increased by 12 percent to £266 million (2006: £238 million), based on discounting the cash flowsfrom these investments and commitments at 8 per cent. As expected, underlying operating profit in this segment reduced slightly to£25.4 million, with growing returns from our maturing portfolio of investmentsoffset by two principal factors. First, the sale of eight equity investments inSeptember 2006 at an exceptional profit of £25.6 million, reduced operatingprofit in 2007 by some £7 million. Second, Group operating profit in 2006benefited from a one-off fee as a result of achieving financial close on the £12billion Allenby Connaught project for the Ministry of Defence in April 2006. We also sold investments in a further three mature PPP projects, namely theGreat Western Hospital, Swindon, Harplands Hospital, North Staffordshire andGlasgow Southern General Hospital, in December 2007. The sale generated proceedsof £21.5 million and an exceptional profit of £23.6 million. The proceedsreflected a net present value for the cash flows from these investments based ona discount rate of under 5.5 per cent. Once again the sale of equity in matureprojects has demonstrated the substantial value being generated for the Groupthrough our ability to win and deliver PPP projects successfully throughintegration of our skills in project finance, design, construction, maintenanceand facilities management. During the year, Carillion Joint Ventures achieved financial close on the £200million Sault Area Hospital in Ontario, Canada in which we will invest £3.5million of equity, and on the £175 million South Tyneside and Gateshead BuildingSchools for the Future (BSF) project, in which we will invest £0.9 million ofequity. Since the year end, a Carillion Joint Venture has been appointed preferredbidder for the £208 million Nottingham BSF project, in which we expect to investapproximately £2.0 million of equity. We are also the preferred bidder for twoNHS Independent Sector Treatment Centre projects - London North andHertfordshire - in which we expect to invest up to £6 million of equity. Inaddition, we are shortlisted for a further 10 projects with a potential equityrequirement of up to £96 million. Beyond that we expect continuing opportunitiesto bid for further PPP projects in the UK and in Canada. Overall, the outlook in our chosen sectors of the PPP market, both in the UK andCanada remains positive and we expect further opportunities in 2008 and over themedium term to continue to build a portfolio of good quality investments thatwill generate significant value for the Group. Middle East construction services In this segment, we report the results of our building and civil engineeringactivities in the Middle East. _______________________________________________________________________________ 2007 2006 Change from 2006 £m £m %_______________________________________________________________________________Revenue(1) - Group 100.0 42.3- Share of Joint Ventures 237.0 226.4 ________________________________ 337.0 268.7 25 (3)_______________________________________________________________________________Underlying operating profit(2) - Group 9.6 1.3- Share of Joint Ventures 15.8 12.6 ________________________________ 25.4 13.9 83 (3)_______________________________________________________________________________ (1) Continuing operations(2) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items.(3) Like for like growth rates in local currency for revenue and profit of 36% and 98%, respectively Revenue from our businesses in the Middle East increased by 25 per cent andunderlying operating profit by 83 per cent as a result of continuing strongorganic growth in our existing markets in Dubai and Oman, with operating marginsimproving from 5.2 per cent to 7.5 per cent. Carillion and its Joint Venture partners have continued to use their strongmarket positions and reputation for high quality services to negotiatesubstantial new work in our existing markets in Dubai and Oman and also in AbuDhabi and Egypt, where we will begin construction work on major new projects in2008. At 31 December 2007, our Middle East order book stood at £0.7 billion(2006: £0.3 billion) and we had a pipeline of probable new orders worth over£1.0 billion (2006: £0.1 billion). There were a number of notable successes in 2007. These included a £120 millioncontract for Carillion Alawi to build the House of Musical Arts for the OmanRoyal Court Affairs and the appointment of Al Futtaim Carillion as the preferredbidder for two major contracts - a £250 million, 24-month contract for the firstphase of the £10 billion Al Raha Beach development in Abu Dhabi and a £220million, 30-month contract for the first phase of the £2 billion Cairo FestivalCity development. Al Futtaim Carillion also signed a six-year frameworkagreement for a further £3.5 billion of work on the Dubai Festival Citydevelopment. The outlook in our markets in the Middle East is for continuing strong growth.Current opportunities include the remainder of the Cairo Festival Citydevelopment, worth around £1.8 billion, further contracts in Dubai worth up to£700 million, a £250 million contract for the Racetrack Hotel on Yas Island inAbu Dhabi and contracts in Qatar worth in the region of £300 million. Given the major contracts, preferred bidder positions and framework agreementsalready secured, together with numerous opportunities for further work in thisregion, we remain confident that we will substantially increase our share ofrevenues from the Middle East from £337 million in 2007 to over £600 millionover the next two years, at margins of around 6 per cent. Construction services (excluding the Middle East) In this segment, we report the results of our UK building, civil engineering anddevelopments businesses and our construction activities in Canada and theCaribbean. _______________________________________________________________________________ 2007 2006 Change from 2006 £m £m %_______________________________________________________________________________Revenue(1) - Group 1,660.4 1,625.5 - Share of Joint Ventures 6.6 11.5 ________________________________ 1,667.0 1,637.0 2_______________________________________________________________________________Underlying operating profit(2) - Group 12.3 10.1 - Share of Joint Ventures 3.7 8.4 ________________________________ 16.0 18.5 (14)_______________________________________________________________________________ (1) Continuing operations(2) Continuing operations before intangible amortisation, impairment, restructuring costs and non-operating items. Revenue in construction services increased by 2 per cent to £1,667 million, dueprimarily to having a full 12 month's contribution from the businesses acquiredwith Mowlem in February 2006. The substantial organic growth we achieved in theUK defence and roads sectors was offset by the reduced activity in UK building,where our focus is on increasing margins ahead of revenue. Underlying operating profit reduced by 14 per cent, because the contributionfrom Joint Ventures was substantially lower than in 2006, which benefited from anumber of contract settlements not repeated in 2007. Underlying Group operatingprofit increased by 22 per cent reflecting revenue growth and improved margins,in line with our selective approach to the projects we undertake. While overall opportunities for new orders in this segment have remained strong,we have maintained our focus on long term customers and projects that enable usto improve margins rather than simply growing revenue. Notable new contracts in2007 included a pre-construction contract for the £300 million second satelliteat Heathrow Terminal 5 and a £90 million contract for the first phase of theKings Cross Central regeneration project. This disciplined approach to projectselectivity was reflected in our order book for construction services (excludingthe Middle East), which stood at £1.8 billion at 31 December 2007 (2006: £2.6billion). The outlook in our construction markets is for continuing growth. In the UK thenon-housing new build market is forecast to grow in real terms by over two percent per annum over the next three years. However, we shall continue to focus onusing these buoyant market conditions to improve margins, ahead of revenues. InCanada, there are also prospects for further healthy growth, primarily from theconstruction of PPP projects, particularly hospitals. Intangible amortisation and impairment of goodwill and other investments Intangible amortisation and impairment of £21.5 million (2006: £17.2 millionincluding goodwill impairment) continues to predominantly reflect theacquisition of Mowlem in 2006. Restructuring costs A summary of restructuring costs is provided in the table below. 2007 2006 £m £m______________________________________________________________________________Mowlem integration costs 9.5 18.4Operational structure review costs 4.5 -Rail activities review costs 0.2 4.2 _________________________ 14.2 22.6______________________________________________________________________________ The integration of the Carillion and Mowlem businesses was completed earlierthat expected in 2007, at a total one off cost of £27.9 million, of which £18.4million was incurred in 2006 and £9.5 million in 2007. This will generate annualsavings of at least £26 million per year from the beginning of 2008 -substantially more than the £15 million that was originally envisaged at thetime of the Mowlem acquisition. Following the Group's rapid growth, both organically and by acquisition wereviewed and rationalised our operational structure at the end of 2007 at a costof £4.5 million. This will produce further operational efficiencies and increasethe Group's profitability in 2008 and beyond. Non-operational items Non-operational items amounted to £28.3 million in 2007 (2006: £25.3 million)and primarily related to the disposal of investments in mature PPP projects. Net financial income The Group had a net financial income of £0.6 million (2006: £1.3 million). Thiscomprised a net expense of £11.1 million in respect of borrowings, interestreceived in respect of loans to Special Purpose Companies for Public PrivatePartnership projects of £4.9 million and a net interest credit from retirementbenefit schemes of £6.8 million. Taxation The effective tax rate on the Group's and Joint Venture's underlying profit was25 per cent and we currently expect to maintain this rate over the medium term.Our effective tax rate reflects the agreement of certain prior year tax issueswith the tax authorities, together with a mechanism for the use of certain taxlosses acquired with Mowlem plc, both in 2007 and in future years. At 31December the Group had £232 million of corporate tax losses in the UK that areavailable to reduce future tax liabilities. Earnings per share Underlying earnings per share from continuing operations increased by 22 percent to 28.9 pence (2006: 23.7 pence). This substantial increase reflectedstrong organic growth in the Group's operations and the benefits of successfullyintegrating the Carillion and Mowlem businesses earlier than originallyexpected, in particular the delivery of integration cost savings at a run rateof £26 million by the end of 2007. The 22 per cent increase in underlyingearnings per share from continuing operations achieved in 2007 also comfortablyexceeded the profit forecast made by the Group on 21 December 2007, as part ofthe process of acquiring Alfred McAlpine plc, when the Group forecast that its2007 growth in underlying earnings per share from continuing operations would beat least 20 per cent compared to 2006. Discontinued operations Three non-core businesses were sold in 2007 and treated as discontinued namelyPall Mall, Sovereign Soft Services and the Group's rail activities in Sweden andDenmark. These sales generated a net loss of £6.2 million together with £1.4million of trading losses in 2007 up to the dates of sale. Dividend Carillion has a progressive dividend policy of increasing the dividend paid toshareholders broadly in line with earnings growth, after taking account of theinvestment needs of the business. Consistent with the policy, the Board hasrecommended a final dividend in respect of 2007 of 7.5 pence, making the fullyear dividend 11.0 pence, an increase of 22 per cent on the total paid inrespect of 2006 (9.0 pence). Underlying dividend cover was 2.6 times and similarto that in 2006. Cash flow A summary of the Group's cash flows is provided in the table below. 2007 2006 £m £m______________________________________________________________________________Underlying Group operating profit 64.4 49.7Depreciation and other non-cash items 15.9 18.5Working capital 31.7 15.2Dividends received from Joint Ventures 23.7 15.7 ____________________Total underlying cash inflow from operations 135.7 99.1Deficit pension contributions (46.3) (31.8)Restructuring costs (6.5) (18.2)Interest, tax and dividends (30.4) (25.7)Net inflow/(outflow) from assets/capital expenditure 4.4 (28.2)Acquisitions and disposals 9.6 (190.9)Other - including discontinued operations (3.4) (3.1) ____________________Change in net borrowing 63.1 (198.8)Net (borrowing)/cash at 1 January (108.0) 90.8 ____________________Net borrowing at 31 December (44.9) (108.0)______________________________________________________________________________ ______________________________________________________________________________Average net borrowing (130.3) (148.0)______________________________________________________________________________ (1) Restated to exclude discontinued operations(2) Post acquisition of Mowlem plc Carillion's focus on cash management and the delivery of cash-backed profit wasagain reflected in our underlying cash flow from operations of £135.7 million,which was significantly ahead of underlying profit from operations of £101.2million. Additional cash payments to the Group's pension schemes increased to £46.3million in line with our pension deficit recovery plan. There was a net cashinflow from assets of £4.4 million, because capital expenditure of £25.1 millionwas more than offset by income from the sale of assets, including rail plant andproperty. The substantial cash outflow in respect of acquisitions and disposalsin 2006 was due to the acquisition of Mowlem; the net inflow in 2007 reflectedproceeds from the disposal of businesses, including the three mature PublicPrivate Partnership projects disposed of during the year, partially offset byinvestments in Public Private Partnership projects and a Joint Venture businessin Canada. Balance sheet Carillion's balance sheet remains strong and is summarised below. December December 2007 2006 £m £m______________________________________________________________________________Property, plant and equipment 131.5 146.6Intangible assets 555.8 596.1Investments in Joint Ventures 185.9 178.8 ____________________ 873.2 921.5Inventories, receivables and payables (286.5) (282.0)Net retirement benefits liability (net of tax) (13.8) (75.8)Other (25.1) (22.0) ____________________Net operating assets 547.8 541.7Net borrowing (44.9) (108.0) ____________________Net assets 502.9 433.7______________________________________________________________________________ The reduction in property, plant and equipment was due to asset disposals,including rail plant and property. Intangible assets reduced, reflectingamortisation and the disposal of Pall Mall. The increase in investments in JointVentures reflected an increase in the Group's investments in Public PrivatePartnership projects. The substantial reduction in the Group's net retirement benefits liability,reflected the substantial improvement in equity values during the year, togetherwith the additional cash payments made to our pensions schemes under our deficitrecovery plan. Retirement benefits The Group's ongoing pensions charge against profit in 2007 was £29.3 million(2006: £35.1 million) calculated on the basis of International AccountingStandard 19. After the additional cash payments of £46.3 million that were madeto the Group's pensions schemes in line with our pension deficit recovery plan,the Group's pension schemes had a deficit net of tax at 31 December 2007 of£13.8 million (2006: £75.8 million). Committed bank facilities In September 2007, Carillion renegotiated and increased its main corporateborrowing facility from £239 million to £590 million to support the ongoingdevelopment of the Group. This new five year facility, which is repayable on 30September 2012, was over-subscribed and secured on attractive terms. Syndicationof the new facilities was led by four core banks; The Royal Bank of Scotland,Bank of Scotland plc, Bayerische Landesbank, London Branch, and Lloyds TSB Bankplc. It was particularly pleasing to secure these facilities during thechallenging conditions of the global debt markets, which demonstrated thebanking community's strong support for, and confidence in, the Carillion Group.These new facilities also proved to be more than adequate to finance the £171.7million cash element of the total £554.5 million consideration for theacquisition of Alfred McAlpine plc that completed in February 2008. Outlook and prospects Through the acquisition of Mowlem we have created a stronger, more resilientbusiness, with enhanced positions in a wide range of growth markets. At 31 December 2007 we had a £16 billion order book, of which £13.5 billion isfor support services and Public Private Partnership projects, and a pipeline ofprobable new orders worth £3.6 billion. The overall outlook in our principal market sectors in the UK and internationalregions is expected to remain positive. In summary • the UK support services market is forecast to grow in real terms by between two and three per cent per annum over the next five years from £115 billion in 2007 to £130 billion by 2012. • we expect continuing opportunities for Public Private Partnership projects in 2008 and over the medium term in both the UK and Canada and to continue to build a portfolio of good quality investments • the UK non-housing new-build construction market is forecast to grow in real terms by over two per cent per annum over the next three years • in the Middle East we expect our markets to remain very strong and we are confident of growing revenues from this region to over £600 million, from the 2007 level of £337 million within the next two years at margins of some 6 per cent • in Canada and the Caribbean we expect continuing healthy growth driven by Public Private Partnership projects and roads maintenance services. The acquisition of Alfred McAlpine in February 2008 has further strengthenedCarillion's position as a leading support services and integrated solutionsbusiness and the Board expects the Group to make further strong progress in 2008and deliver materially enhanced earnings in 2009. Carillion plcConsolidated income statementfor the year ended 31 December 2007 Note 2007 2006(1) £m £m______________________________________________________________________________Continuing operationsTotal revenue 2 3,951.7 3,512.4Less: Share of jointly controlled entities revenue 2 (621.0) (528.5)______________________________________________________________________________Group revenue 2 3,330.7 2,983.9Cost of sales (3,092.0) (2,789.3)______________________________________________________________________________Gross profit 238.7 194.6Administrative expenses (219.5) (186.6)Other operating income 9.5 1.9______________________________________________________________________________Group operating profit 28.7 9.9______________________________________________________________________________Analysed between:Group operating profit before intangibleamortisation, impairment of goodwill and otherinvestments and restructuring costs 2 64.4 49.7Intangible amortisation and impairment of goodwilland other investments (21.5) (17.2)Restructuring costs 3 (14.2) (22.6)______________________________________________________________________________ Share of results of jointly controlled entities 2 36.8 31.6______________________________________________________________________________Analysed between:Operating profit 55.7 47.7Net financial expense (9.9) (8.0)Taxation (9.0) (8.1)______________________________________________________________________________ Profit from operations 65.5 41.5______________________________________________________________________________ Analysed between:Profit from operations before intangibleamortisation, impairment of goodwill and otherinvestments and restructuring costs 101.2 81.3Intangible amortisation and impairment of goodwilland other investments (21.5) (17.2)Restructuring costs 3 (14.2) (22.6)______________________________________________________________________________ Non-operating items 3 28.3 25.3Net financial income 4 0.6 1.3______________________________________________________________________________ Analysed between:Financial income 99.8 87.0Financial expense (99.2) (85.7)______________________________________________________________________________ Profit before taxation 94.4 68.1______________________________________________________________________________ Analysed between:Profit before tax, intangible amortisation,impairment of goodwill and other investments,restructuring costs and non-operating items 101.8 82.6Intangible amortisation and impairment of goodwilland other investments (21.5) (17.2)Restructuring costs 3 (14.2) (22.6)Non-operating items 3 28.3 25.3______________________________________________________________________________ Taxation 5 (8.3) (7.2)______________________________________________________________________________ Profit from continuing operations 86.1 60.9Discontinued operations (7.6) (0.5)______________________________________________________________________________ Analysed between:Trading loss from discontinued operations 6 (1.4) (0.5)Loss on disposal of discontinued operations 6 (6.2) -______________________________________________________________________________ Profit for the year 78.5 60.4============================================================================== Profit attributable to:Equity holders of the parent 76.0 58.2Minority interests 2.5 2.2______________________________________________________________________________ Profit for the year 78.5 60.4============================================================================== Earnings per share 7From continuing operationsBasic 29.8p 21.8pDiluted 29.5p 21.5p______________________________________________________________________________From continuing and discontinued operationsBasic 27.1p 21.6pDiluted 26.8p 21.3p============================================================================== Total dividend declared for the year 8 11.0p 9.0p (1) Restated in respect of discontinued operations (see note 6) Carillion plcConsolidated balance sheetas at 31 December 2007 2007 2006 Note £m £m______________________________________________________________________________AssetsNon-current assetsProperty, plant and equipment 131.5 146.6Intangible assets 555.8 596.1Retirement benefit assets 17.3 10.9Investments in jointly controlled entities 185.9 178.8Other investments 14.5 15.0Deferred tax assets 9.3 55.4______________________________________________________________________________Total non-current assets 914.3 1,002.8============================================================================== Current assetsInventories 30.5 38.5Trade and other receivables 858.7 875.3Cash and cash equivalents 327.5 144.5Income tax receivable 2.2 0.2Derivative financial instruments - 0.8______________________________________________________________________________Total current assets 1,218.9 1,059.3==============================================================================Total assets 2,133.2 2,062.1==============================================================================LiabilitiesCurrent liabilitiesBorrowing (13.9) (12.6)Derivative financial instruments (0.7) -Trade and other payables (1,175.7) (1,195.8)Provisions (6.9) (2.4)Income tax payable (2.3) (13.0)______________________________________________________________________________ Total current liabilities (1,199.5) (1,223.8)============================================================================== Non-current liabilitiesBorrowing (358.5) (239.9)Retirement benefit liabilities (41.6) (123.8)Deferred tax liabilities (24.0) (37.4)Provisions (6.7) (3.5)______________________________________________________________________________ Total non-current liabilities (430.8) (404.6)============================================================================== Total liabilities (1,630.3) (1,628.4)============================================================================== Net assets 2 502.9 433.7============================================================================== EquityIssued share capital 11 140.6 140.6Share premium 11 8.6 8.6Reserves 11 150.0 172.7Retained earnings 11 202.4 110.8______________________________________________________________________________ Equity attributable to shareholders of the parent 501.6 432.7Minority interests 11 1.3 1.0______________________________________________________________________________ Total equity 502.9 433.7============================================================================== Carillion plcConsolidated cash flow statementfor the year ended 31 December 2007 Note 2007 2006(1) £m £m______________________________________________________________________________ Continuing operationsCash flows from operating activitiesGroup operating profit 28.7 9.9Depreciation, amortisation and impairment 46.8 36.4Profit on disposal of property, plant and equipment (9.5) (1.9)Share-based payment expense 2.8 1.3Other non-cash movements (2.7) (0.2)Restructuring costs 14.2 22.6______________________________________________________________________________Operating profit before changes in working capital andprovisions 80.3 68.1Decrease in inventories 7.2 -Increase in trade and other receivables (2.9) (58.0)Increase in trade and other payables 27.4 73.2Increase in provisions - 0.1______________________________________________________________________________Cash generated from operations before pension deficitrecovery payments and restructuring costs 112.0 83.4Deficit recovery payments to pension schemes (46.3) (31.8)Restructuring costs (6.5) (18.2)______________________________________________________________________________Cash generated from operations 59.2 33.4Financial income received 13.7 15.3Financial expense paid (19.9) (17.4)Taxation 4.4 1.9______________________________________________________________________________Net cash flows from operating activities 57.4 33.2============================================================================== Cash flows from investing activitiesDisposal of property, plant and equipment 29.5 12.1Disposal of investments in jointly controlled entities 22.0 47.3Dividends received from jointly controlled entities 23.7 15.7Disposal of businesses, net of cash disposed of 8.2 30.4Acquisition of subsidiary, net of cash acquired - (122.3)Acquisition of intangible assets (1.6) (1.8)Acquisition of property, plant and equipment (23.5) (38.5)Acquisition of equity in, and loan advances to, jointlycontrolled entities (19.6) (19.7)Acquisition of other non-current asset investments (1.0) (0.5)______________________________________________________________________________Net cash flows from investing activities 37.7 (77.3)============================================================================== Cash flows from financing activitiesProceeds from the issue of share capital - 0.4Draw down of bank and other loans 309.8 321.3Repayment of bank loans (193.3) (276.6)Payment of finance lease liabilities (10.9) (9.6)Dividends paid to equity holders of the parent (26.4) (23.2)Dividends paid to minority interests (2.2) (2.3)______________________________________________________________________________Net cash flows from financing activities 77.0 10.0============================================================================== Net increase/(decrease) in cash and cash equivalents 172.1 (34.1) Discontinued operationsIncrease in cash and cash equivalents from discontinuedoperations 6 12.4 6.9______________________________________________________________________________Net increase/(decrease) in cash and cash equivalents 184.5 (27.2)Cash and cash equivalents at 1 January 141.4 169.7Effect of exchange rate fluctuations on cash held (2.1) (1.1)______________________________________________________________________________Cash and cash equivalents at 31 December 9 323.8 141.4============================================================================== (1) Restated in respect of discontinued operations (see note 6) Carillion plcReconciliation of net cash flow to movement in net borrowingfor the year ended 31 December 2007 2007 2006(1) £m £m______________________________________________________________________________Increase/(decrease) in cash and cash equivalents 184.5 (27.2)Drawdown of bank and other loans (309.8) (321.3)Repayment of bank loans 193.3 276.6Payment of finance lease liabilities 10.9 9.6______________________________________________________________________________ Decrease/(increase) in net borrowing resulting from cashflows 78.9 (62.3)Net borrowing in subsidiaries acquired - (126.1)Finance lease additions (5.5) (13.3)Currency translation differences (10.3) 2.9______________________________________________________________________________ Change in net borrowing during the year 63.1 (198.8)Net (borrowing)/cash at 1 January (108.0) 90.8______________________________________________________________________________ Net borrowing at 31 December (44.9) (108.0)============================================================================== (1) Restated in respect of discontinued operations (see note 6) Statement of recognised income and expensefor the year ended 31 December 2007 2007 2006 Note £m £m______________________________________________________________________________Net (loss)/gain on hedge of net investment in foreignoperations (2.7) 4.1Currency translation differences for foreign operations 2.6 (7.0)Actuarial gains on defined benefit pension schemes 30.2 34.6______________________________________________________________________________ 30.1 31.7Taxation in respect of the above (8.3) (11.5)Share of change in fair value of effective cash flowhedges within jointly controlled entities (net of taxation) 11 (5.3) 0.2______________________________________________________________________________Income and expense recognised directly in equity 16.5 20.4 Profit for the year 78.5 60.4______________________________________________________________________________ Total recognised income and expense for the year 95.0 80.8============================================================================== Attributable to:Equity holders of the parent 92.5 78.6Minority interests 2.5 2.2______________________________________________________________________________ 95.0 80.8============================================================================== Carillion plcNotes to the preliminary announcement 1 Basis of preparation Carillion plc (the "Company") is a Company domiciled in the United Kingdom (UK).The consolidated financial statements of the Company for the year ended 31December 2007 comprise the Company and its subsidiaries (together referred to asthe "Group") and the Group's interest in jointly controlled entities and havebeen prepared in accordance with International Financial Reporting Standards.The financial information set out herein (which was approved by the Board on 5March 2008) does not constitute the Company's statutory accounts for the yearsended 31 December 2007 and 2006 but is derived from the 2007 statutory accounts.The statutory accounts for the year ended 31 December 2006 have been reported onby the Company's auditors and delivered to the Registrar of Companies. Thestatutory accounts for the year ended 31 December 2007 will be deliveredfollowing the Company's Annual General Meeting. The auditors have reported onthose accounts; their report was unqualified, did not include references to anymatter which the auditors drew attention by way of emphasis without qualifyingtheir report and did not contain statements under section 237(2) or (3) of theCompanies Act 1985.Presentational changes have been made to the income statement, cash flowstatement and segmental reporting note compared to the presentation in theannual report for the year ended 31 December 2006, in order to facilitate agreater understanding and improve the transparency of the Group's reportedresults. 2 Segmental reporting Segment information is presented in respect of the Group's business segments,which are the primary basis of segment reporting. The business segment reportingformat reflects the Group's management and internal reporting structure.Inter-segment pricing is determined on an arm's length basis. Segment resultsinclude items directly attributable to a segment as well as those that can beallocated on a reasonable basis. Business segments The Group is comprised of the following main business segments: • Support services: Rail infrastructure, roads maintenance, facilities management and other support services• Public Private Partnership projects: Equity returns on investments in Public Private Partnership (PPP) projects• Construction services: UK building, development and civil engineering activities and international regional construction. Segmental revenue and profit Year ended 31 December 2007 Operating profit before intangible amortisation, impairment and restructuring Revenue costs UK, Canada and Middle East Total UK, Canada and Middle East Total the the Caribbean(1) Caribbean(1) £m £m £m £m £m £mSupport services(2)Group 1,569.4 - 1,569.4 62.4 - 62.4Share of jointlycontrolled entities 218.8 5.4 224.2 11.0 0.5 11.5 ____________________________________________________________________________________________ 1,788.2 5.4 1,793.6 73.4 0.5 73.9Inter-segment 64.7 - 64.7 - - - ____________________________________________________________________________________________Total 1,852.9 5.4 1,858.3 73.4 0.5 73.9 ============================================================================================Public PrivatePartnership projectsGroup 0.9 - 0.9 0.7 - 0.7Share of jointlycontrolled entities 153.2 - 153.2 24.7 - 24.7 ____________________________________________________________________________________________ 154.1 - 154.1 25.4 - 25.4Inter-segment - - - - - - - ____________________________________________________________________________________________Total 154.1 - 154.1 25.4 - 25.4 ============================================================================================Construction servicesGroup 1,660.4 100.0 1,760.4 12.3 9.6 21.9Share of jointlycontrolled entities 6.6 237.0 243.6 3.7 15.8 19.5 ____________________________________________________________________________________________ 1,667.0 337.0 2,004.0 16.0 25.4 41.4Inter-segment 32.0 - 32.0 - - - ____________________________________________________________________________________________Total 1,699.0 337.0 2,036.0 16.0 25.4 41.4 ============================================================================================Group eliminationsand unallocateditems (96.7) - (96.7) (20.6) - (20.6) ============================================================================================ConsolidatedGroup 3,230.7 100.0 3,330.7 54.8 9.6 64.4Share of jointlycontrolled entities 378.6 242.4 621.0 39.4 16.3 55.7 ____________________________________________________________________________________________Total 3,609.3 342.4 3,951.7 94.2 25.9 120.1 ============================================================================================ Year ended 31 December 2006 Operating profit before intangible amortisation, impairment and restructuring Revenue costs UK, Canada and Middle East Total UK, Canada and Middle East Total the the Caribbean(1) Caribbean(1) £m £m £m £m £m £m Support services(2)Group 1,314.8 - 1,314.8 51.5 - 51.5Share of jointlycontrolled entities 138.3 5.6 143.9 7.1 0.2 7.3 ____________________________________________________________________________________________ 1,453.1 5.6 1,458.7 58.6 0.2 58.8Inter-segment 30.2 - 30.2 - - - ____________________________________________________________________________________________Total 1,483.3 5.6 1,488.9 58.6 0.2 58.8 ============================================================================================Public PrivatePartnership projectsGroup 1.3 - 1.3 7.1 - 7.1Share of jointlycontrolled entities 146.7 - 146.7 19.4 - 19.4 ____________________________________________________________________________________________ 148.0 - 148.0 26.5 - 26.5Inter-segment - - - - - - - ____________________________________________________________________________________________Total 148.0 - 148.0 26.5 - 26.5 ============================================================================================Constructionservices Group 1,625.5 42.3 1,667.8 10.1 1.3 11.4Share of jointlycontrolled entities 11.5 226.4 237.9 8.4 12.6 21.0 ____________________________________________________________________________________________ 1,637.0 268.7 1,905.7 18.5 13.9 32.4Inter-segment 4.0 - 4.0 - - - ____________________________________________________________________________________________Total 1,641.0 268.7 1,909.7 18.5 13.9 32.4 ============================================================================================Group eliminationsand unallocateditems (34.2) - (34.2) (20.3) - (20.3) ============================================================================================ConsolidatedGroup 2,941.6 42.3 2,983.9 48.4 1.3 49.7Share of jointlycontrolled entities 296.5 232.0 528.5 34.9 12.8 47.7 ____________________________________________________________________________________________Total 3,238.1 274.3 3,512.4 83.3 14.1 97.4 ============================================================================================ (1) Includes Rest of the World(2) Support services for 2007 and 2006 excludes the results of discontinued operations as disclosed in note 6. 2007 2006 £m £m______________________________________________________________________________Group and share of jointly controlled entities operatingprofit before intangible amortisation, impairment of goodwill and other investments and restructuring costs 120.1 97.4Net financial income/(expense)- Group 0.6 1.3- Share of jointly controlled entities (9.9) (8.0) Share of jointly controlled entities taxation (9.0) (8.1)______________________________________________________________________________Underlying profit before taxation from continuing operations 101.8 82.6Intangible amortisation and impairment of goodwill and otherinvestments (1) (21.5) (17.2)Restructuring costs (1) (14.2) (22.6)Non-operating items (1) 28.3 25.3______________________________________________________________________________ Profit before taxation from continuing operations 94.4 68.1Taxation (8.3) (7.2)______________________________________________________________________________ Profit from continuing operations 86.1 60.9 Discontinued operationsLoss from discontinued operations (7.6) (0.5)______________________________________________________________________________ Analysed between:Trading loss from discontinued operations (1.4) (0.5)Loss on disposal of discontinued operations (6.2) -______________________________________________________________________________ Profit for the year 78.5 60.4============================================================================== (1) Intangible amortisation and impairment, restructuring costs and non-operating items arise in the following segments: 2007 2006 _____________________________________ ___________________________________________ Intangible Intangible amortisation Non- amortisation Non- and Restructuring operating and Restructuring operating impairment costs items impairment costs items £m £m £m £m £m £m _____________________________________ ___________________________________________ Support services (13.9) (0.5) - (11.9) (6.0) (0.3)Public PrivatePartnership projects (1.9) - 24.1 (0.4) (0.2) 25.6Construction services (4.2) - 4.2 (3.6) (1.5) -Unallocated Group items (1.5) (13.7) - (1.3) (14.9) -_________________________________________________________ ___________________________________________Total (21.5) (14.2) 28.3 (17.2) (22.6) 25.3========================================================= =========================================== Depreciation, amortisation and impairment and capital expenditure arise in thefollowing segments: 2007 2006 _____________________________________ ___________________________________________ Depreciation, Depreciation, amortisation Capital amortisation Capital and impairment(2) expenditure and impairment(2) expenditure £m £m £m £m _____________________________________ ___________________________________________ Support services 28.3 15.0 23.5 28.9Public PrivatePartnership projects 1.9 - 0.4 -Construction services 7.5 4.2 7.0 4.7Unallocated Group items 9.1 11.2 5.5 19.7_________________________________________________________ ___________________________________________Total 46.8 30.4 36.4 53.3========================================================= =========================================== (2) Includes impairment of goodwill and other investments within Public Private Partnership projects of £1.9 million (2006: £0.4 million). Carillion plc The share of results of jointly controlled entities arises in the followingsegments: 2007 2006 £m £m______________________________________________________________________________Support services 8.5 5.2Public Private Partnership projects 9.4 7.3Construction services 18.9 19.1______________________________________________________________________________ 36.8 31.6============================================================================== Segmental net assets 2007 2006 _________________________________________ ________________________________________ Operating Operating Net operating Operating Operating Net operating assets liabilities assets/ assets liabilities assets/ (liabilities) (liabilities) £m £m £m £m £m £m _________________________________________ ________________________________________ Support servicesOperating assets 716.3 - 716.3 761.5 - 761.5Investments injointly controlledentities 4.4 - 4.4 2.1 - 2.1______________________________________________________________ ________________________________________Total operatingassets 720.7 - 720.7 763.6 - 763.6Total operatingliabilities - (392.4) (392.4) - (420.2) (420.2)______________________________________________________________ ________________________________________Net operatingassets 720.7 (392.4) 328.3 763.6 (420.2) 343.4============================================================== ======================================== Public PrivatePartnership projectsOperating assets 7.8 - 7.8 7.0 - 7.0Investments injointly controlledentities 134.9 - 134.9 130.9 - 130.9______________________________________________________________ ________________________________________Total operatingassets 142.7 - 142.7 137.9 - 137.9Total operatingliabilities - (10.0) (10.0) - (22.0) (22.0)______________________________________________________________ ________________________________________Net operating assets 142.7 (10.0) 132.7 137.9 (22.0) 115.9============================================================== ======================================== Construction servicesOperating assets 750.4 - 750.4 832.0 - 832.0Investments in jointlycontrolled entities 46.6 - 46.6 45.8 - 45.8______________________________________________________________ ________________________________________Total operating assets 797.0 - 797.0 877.8 - 877.8Total operatingliabilities - (678.2) (678.2) - (709.9) (709.9)______________________________________________________________ ________________________________________Net operating assets 797.0 (678.2) 118.8 877.8 (709.9) 167.9============================================================== ======================================== Consolidated Operating assets 1,474.5 - 1,474.5 1,600.5 - 1,600.5Investments injointly controlledentities 185.9 - 185.9 178.8 - 178.8______________________________________________________________ ________________________________________Total operating assets 1,660.4 - 1,660.4 1,779.3 - 1,779.3Total operatingliabilities - (1,080.6) (1,080.6) - (1,152.1) (1,152.1)______________________________________________________________ ________________________________________Net operating assets/(liabilities) beforeGroup items 1,660.4 (1,080.6) 579.8 1,779.3 (1,152.1) 627.2 Group items Deferred tax assets/(liabilities) 9.3 (24.0) (14.7) 55.4 (37.4) 18.0Net borrowing 327.5 (372.4) (44.9) 144.5 (252.5) (108.0)Retirement benefitassets/(liabilities)(gross of taxation) 17.3 (41.6) (24.3) 10.9 (123.8) (112.9)Income tax payable 2.2 (2.3) (0.1) 0.2 (13.0) (12.8)Other net assets/(liabilities) 116.5 (109.4) 7.1 71.8 (49.6) 22.2______________________________________________________________ ________________________________________Net assets 2,133.2 (1,630.3) 502.9 2,062.1 (1,628.4) 433.7============================================================== ======================================== Geographic segments 2007 2006 £m £m______________________________________________________________________________United KingdomTotal revenue from external customers 3,385.4 2,991.6Less: share of jointly controlled entities revenue (334.7) (260.6)______________________________________________________________________________Revenue from external customers 3,050.7 2,731.0==============================================================================Total operating assets 1,361.9 1,515.5==============================================================================Capital expenditure 22.1 31.7============================================================================== Middle EastTotal revenue from external customers 342.4 274.3Less: share of jointly controlled entities revenue (242.4) (232.0)______________________________________________________________________________ Revenue from external customers 100.0 42.3==============================================================================Total operating assets 75.6 38.9==============================================================================Capital expenditure 2.2 1.3============================================================================== Canada and the CaribbeanTotal revenue from external customers 186.0 163.5Less: share of jointly controlled entities revenue (7.5) (7.3)______________________________________________________________________________ Revenue from external customers 178.5 156.2==============================================================================Total operating assets 146.9 117.2==============================================================================Capital expenditure 5.9 20.2==============================================================================Rest of the WorldTotal revenue from external customers 37.9 83.0Less: share of jointly controlled entities revenue (36.4) (28.6)______________________________________________________________________________ Revenue from external customers 1.5 54.4==============================================================================Total operating assets 76.0 107.7==============================================================================Capital expenditure 0.2 0.1==============================================================================ConsolidatedTotal revenue from external customers 3,951.7 3,512.4Less: share of jointly controlled entities revenue (621.0) (528.5)______________________________________________________________________________Revenue from external customers 3,330.7 2,983.9==============================================================================Total operating assets 1,660.4 1,779.3==============================================================================Capital expenditure 30.4 53.3============================================================================== 3 Restructuring costs and non-operating items Restructuring costs 2007 2006 £m £m______________________________________________________________________________Mowlem integration costs (9.5) (18.4)Operational structure review costs (4.5) -Rail activities review costs (0.2) (4.2)______________________________________________________________________________ (14.2) (22.6)============================================================================== Mowlem integration costs in 2007 primarily relate to property exit costs arisingfrom a review of the Group's requirements following the acquisition of Mowlemplc in 2006. Following a period of rapid growth, the Group undertook a rationalisation of itsoperating structure at the end of 2007 at a cost of £4.5 million. An income tax credit of £2.7m (2006: £5.0m) relating to the above restructuringcosts has been included within income tax in the income statement. Non-operating items 2007 2006 £m £m______________________________________________________________________________ Profit on disposal of investments in jointly controlled 24.5 26.0entitiesProfit/(loss) on disposal of businesses 3.7 (0.7)Other 0.1 -______________________________________________________________________________ 28.3 25.3============================================================================== In December 2007 the Group disposed of equity investments in three PublicPrivate Partnership jointly controlled entities. The disposal generated a cashconsideration of £21.5m and a non-operating profit of £23.6m. Other investmentdisposals during 2007 generated a non-operating profit of £0.9m. In September2007 the Group also disposed of Sovereign Harbour Marina Limited, generatingcash consideration of £10.7m and a non-operating profit of £3.7m. The loss ondisposal of businesses in 2006 of £0.7 million relates to the closure of a smallrail business in Norway. There is no income tax associated with any of the non-operating items in either2007 or 2006. 4 Financial income and expense 2007 2006 £m £m______________________________________________________________________________Financial incomeBank interest receivable 5.1 8.0Other interest receivable 8.6 7.3Expected return on pension scheme assets 86.1 71.7______________________________________________________________________________ 99.8 87.0==============================================================================Financial expenseInterest payable on bank loans and overdrafts (15.4) (13.3)Other interest payable and similar charges (4.5) (4.2)Interest cost on pension scheme liabilities (79.3) (68.2)______________________________________________________________________________ (99.2) (85.7)==============================================================================Net financial income 0.6 1.3============================================================================== 5 Income tax The Group's underlying income tax rate (including the Group's share of jointlycontrolled entities income tax) for the year ended 31 December 2007 is 25%(2006: 27%). This underlying rate differs to the UK standard corporation taxrate of 30% (2006: 30%) due to items such as the effect of tax rates in foreignjurisdictions, non-deductible expenses, the effect of tax losses utilised andover provisions in previous years. 6 Discontinued operations The Group disposed of non-core rail activities in Sweden and Denmark in July2007 and Pall Mall Holdings Limited and Sovereign Soft Services Limited inSeptember 2007. The disposal of rail businesses in Sweden and Denmark marks theGroup's exit from activities in the region. The disposal of Pall Mall HoldingsLimited and Sovereign Soft Services Limited reflects the divestment of non-coreactivities acquired with Mowlem plc in 2006. On this basis, these operationshave been classified as discontinued and the income statement and cash flowstatement for 2006 have been restated accordingly. The results of these operations in total, which were previously reported in thesupport services segment were as follows: 2007 2006 £m £m______________________________________________________________________________ Revenue 64.9 81.0Cost of sales (59.5) (72.9)______________________________________________________________________________Gross profit 5.4 8.1Administrative expenses (6.6) (8.7)______________________________________________________________________________ Operating loss (1.2) (0.6)Net financial income - 0.1______________________________________________________________________________Loss before tax (1.2) (0.5)Taxation (0.2) -______________________________________________________________________________Trading loss for the year (1.4) (0.5)Loss on disposal (6.2) -______________________________________________________________________________Loss from discontinued operations (7.6) (0.5)============================================================================== The disposal of discontinued operations had the following effect on thefinancial position of the Group: Net assets and liabilities disposed Carrying value 2007 £m______________________________________________________________________________Property, plant and equipment (1.3)Intangible assets (19.6)Deferred tax assets (0.3)Inventories (0.3)Trade and other receivables (18.2)Cash and cash equivalents (2.9)Current borrowing 1.2Trade and other payables 15.0Income tax payable 0.4______________________________________________________________________________Net assets disposed of (26.0)Consideration receivable (net of disposal costs of £5.4m) 19.8______________________________________________________________________________Loss on disposal (6.2)============================================================================== The consideration receivable of £19.8m was satisfied in cash and has beenreflected in the cash flow statement within net cash flows from investingactivities of discontinued operations as follows: 2007 £m______________________________________________________________________________Cash received 24.8Disposals costs paid (1.1)______________________________________________________________________________ 23.7Cash and cash equivalents disposed of (1.7)______________________________________________________________________________Net cash inflow on disposal of discontinued operations 22.0============================================================================== The net cash flows relating to discontinued operations during the year are asfollows: 2007 2006 £m £m______________________________________________________________________________Net cash (outflow)/inflow from operating activities (9.3) 7.5Net cash inflow/(outflow) from investing activities 21.7 (0.6)______________________________________________________________________________Increase in cash and cash equivalents from discontinuedoperations 12.4 6.9============================================================================= 7 Earnings per share (a) BasicThe calculation of earnings per share for the year ended 31 December 2007 isbased on the profit for the year of £76.0 million (2006 : £58.2 million) and aweighted average number of ordinary shares in issue of 280.6 million (2006:269.5 million), calculated as follows: In millions of shares 2007 2006______________________________________________________________________________Issued ordinary shares at 1 January 281.2 214.9Effect of own shares held by Employee Share Ownership Plan andQualifying Employee Share Ownership Trust (0.6) (1.9)Effect of shares issued in the year - 56.5______________________________________________________________________________ Weighted average number of shares 280.6 269.5============================================================================== (b) Underlying performance A reconciliation of profit before taxation and basic earnings per share, asreported in the income statement, to underlying profit before taxation andearnings per share is set out below. The adjustments made in arriving at theunderlying performance measures are made to illustrate the impact of non-tradingand non-recurring items. 2007 2006 _________________ ____________________ Profit Tax Profit Tax before £m before £m tax tax £m £m________________________________________________________ ___________________Profit before taxation - continuingoperationsProfit before taxation as reported inthe income statement 94.4 8.3 68.1 7.2Restructuring costs 14.2 2.7 22.6 5.0Amortisation of intangible assetsarising from business combinations 19.6 7.3 16.8 4.4Impairment of goodwill and otherinvestments 1.9 - 0.4 -Profit on disposal of investments andbusinesses (28.3) - (25.3) -________________________________________________________ ___________________Underlying profit before taxation -continuing operations 101.8 18.3 82.6 16.6 ======= ==========Underlying taxation (18.3) (16.6)Minority interests (2.5) (2.2)_______________________________________________ _______ Underlying profit attributable toshareholders - continuing operations 81.0 63.8Underlying loss attributable toshareholders - discontinued operations (7.6) (0.5)_______________________________________________ _______Underlying profit attributable toshareholders - continuing anddiscontinued operations 73.4 63.3=============================================== ======= 2007 2006 Pence per Pence per share share______________________________________________________________________________Earnings per shareBasic earnings per share - continuing and discontinuedoperations 27.1 21.6Restructuring costs 4.1 6.5Amortisation of intangible assets arising frombusiness combinations 4.4 4.6Impairment of goodwill and other investments 0.7 0.2Profit on disposal of investments and businesses (10.1) (9.4)______________________________________________________________________________Underlying basic earnings per share - continuing anddiscontinued operations 26.2 23.5Discontinued operations 2.7 0.2______________________________________________________________________________Underlying basic earnings per share - continuingoperations 28.9 23.7==============================================================================Diluted earnings per share - discontinued operations (2.7) (0.2)============================================================================== (c) Diluted earnings per share The calculation of diluted earnings per share is based on profit as shown innote 7(b) and a weighted average number of ordinary shares outstandingcalculated as follows: In millions of shares 2007 2006_____________________________________________________________________________ Weighted average number of ordinary shares 280.6 269.5Effect of share options in issue 3.0 3.1_____________________________________________________________________________ 283.6 272.6============================================================================= 8 Dividends The following dividends were paid by the Company: 2007 2006 _________________________ _________________________ £m Pence per share £m Pence per share _________________________ _________________________ Previous period finaldividend 16.6 5.9 14.5 5.2Current period interimdividend 9.8 3.5 8.7 3.1___________________________________________________ _________________________Total 26.4 9.4 23.2 8.3=================================================== ========================= The following dividends were proposed by the Company: 2007 2006 _________________________ _________________________ £m Pence per share £m Pence per share _________________________ _________________________Interim 9.8 3.5 8.7 3.1Final 29.6 7.5 16.6 5.9___________________________________________________ _________________________Total 39.4 11.0 25.3 9.0=================================================== ========================= The final dividend for 2007 of 7.5 pence per share was approved by the Board on5 March 2008 and will be paid on 20 June 2008 to shareholders on the register on25 April 2008. The amount expected to be paid in respect of the 2007 finaldividend of £29.6m includes the dividend payable on 112.9m new Carillion sharesissued following the acquisition of Alfred McAlpine plc on 12 February 2008. 9 Cash and cash equivalents and net borrowing Cash and cash equivalents and net borrowing comprise: 2007 2006 £m £m______________________________________________________________________________Cash and cash equivalents 327.5 144.5Bank overdrafts (3.7) (3.1)______________________________________________________________________________Cash and cash equivalents 323.8 141.4 Bank loans (306.6) (190.7)Finance lease obligations (48.1) (47.9)Other loans (14.0) (10.8)______________________________________________________________________________Net borrowing (44.9) (108.0)============================================================================== 10 Pension commitments The following expense was recognised in the income statement in respect ofpension commitments: 2007 2006 £m £m______________________________________________________________________________(Charge)/credit to operating profitCurrent service cost relating to defined benefit schemes (27.2) (29.1)Past service cost relating to defined benefit schemes (0.4) (0.5)Settlements and curtailments 3.7 -Defined contribution schemes (5.4) (5.5)______________________________________________________________________________Total (29.3) (35.1)============================================================================== Credit/(charge) to other finance incomeExpected return on pension scheme assets 86.1 71.7Interest cost on pension scheme liabilities (79.3) (68.2)______________________________________________________________________________Net finance return 6.8 3.5============================================================================== The actuarial valuation of the Group's main defined benefit pension schemes at31 December 2007 on an International Accounting Standard 19 basis produced a netdeficit (gross of taxation) for the schemes of £24.3m, representing a £88.6mreduction since 31 December 2006. 11 Reserves and statement of changes in total equity Equity Trans- Fair share- Share Share lation Hedging value Merger Retained holders Minority Total capital premium reserve reserve reserve reserve earnings funds interests equity £m £m £m £m £m £m £m £m £m £m________________________________________________________________________________________________________________At 1 January 2007 140.6 8.6 (3.4) (9.6) 0.9 184.8 110.8 432.7 1.0 433.7Total recognisedincome and expense - - 0.7 (5.3) - - 97.1 92.5 2.5 95.0Share options exercised byemployees - - - - - - 0.9 0.9 - 0.9Equity settledtransactions(net ofdeferred tax) - - - - - - 2.0 2.0 - 2.0Transfer to incomestatement - - (0.1) - - - - (0.1) - (0.1)Transfer betweenreserves - - - 0.6 - (18.6) 18.0 - - -Dividends paid - - - - - - (26.4) (26.4) (2.2) (28.6)________________________________________________________________________________________________________________At 31 December 2007 140.6 8.6 (2.8) (14.3) 0.9 166.2 202.4 501.6 1.3 502.9================================================================================================================ At 1 January 2006 107.4 8.2 0.7 (10.8) 0.9 8.2 34.1 148.7 1.1 149.8Total recognisedincome and expense - - (4.1) 0.2 - - 82.5 78.6 2.2 80.8New share capitalsubscribed 33.2 0.4 - - - 191.3 - 224.9 - 224.9Share optionsexercised byemployees - - - - - - 2.8 2.8 - 2.8Equity settledtransactions(net ofdeferred tax) - - - - - - 0.9 0.9 - 0.9Transfer betweenreserves - - - 1.0 - (14.7) 13.7 - - -Dividends paid - - - - - - (23.2) (23.2) (2.3) (25.5)________________________________________________________________________________________________________________At 31 December 2006 140.6 8.6 (3.4) (9.6) 0.9 184.8 110.8 432.7 1.0 433.7================================================================================================================ The merger reserve increased on the acquisition of Mowlem plc on 23 February2006 whereby the consideration included the issue of 66.2m Carillion shares. TheGroup has credited the merger reserve as permitted by the Companies Act 1985 andthe prior year information has been restated accordingly. 12 Post balance sheet event On 12 February 2008, the Company acquired 100 per cent of the issued sharecapital of Alfred McAlpine plc for a total consideration of £554.5m. The totalconsideration was satisfied by the issue of 112.9m Carillion plc shares valuedat the quoted mid-market price at the close of business on the day preceding theeffective date of acquisition of 337.75p and £171.7m in cash and £1.3m of loannotes. In addition, attributable costs are estimated to be £9.2m. 13 Company Information This preliminary announcement was approved by the Board of directors on 5 March2008. The 2007 Annual Report will be posted to shareholders on 1 April 2008 andboth this statement and the 2007 Annual Report will be available via theInternet at www.carillionplc.com or on request from the Company Secretary,Carillion plc, Birch Street, Wolverhampton, WV1 4HY. This information is provided by RNS The company news service from the London Stock Exchange
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