6th Sep 2006 07:03
Carillion PLC06 September 2006 6 September 2006 Carillion plc 2006 Interim Results Highlights • Mowlem integration progressing well • Revenue up 71% to £1,726m • Profit before tax and exceptionals* up 23% to £24.7m • Adjusted earnings per share up 11% to 7.9p • Strong operating cash flow - net debt of £118m at 30 June 2006 • Dividend increased by 10% to 3.1 pence • Order book more than doubled to £14.5bn • PPP equity sales announced today - Directors' valuation of PPP equity portfolio increased to £216m Financial Summary 2006 2005 Revenue including joint ventures £1,726m £1,011mProfit before tax • before exceptional items* and tax on joint ventures £29.6m £21.6m • before exceptional items* £24.7m £20.1m • after exceptional items £11.7m £18.4mEarnings per share • adjusted* 7.9p 7.1p • basic 3.5p 6.3p * Exceptional and non-operating items, amortisation of intangible assets andgoodwill impairment: a £13m charge in 2006, £1.7m charge in 2005 Commenting, Chairman Philip Rogerson said, "Carillion made good progress in thefirst six months of 2006. The integration of Mowlem, acquired in February 2006,has gone well, overall trading has remained positive and we have delivered astrong financial performance. With a large order book and positive outlook in the Group's key markets, theBoard expects Carillion to make further progress in the second half of 2006 andslightly exceed our original expectations in the full year. The announcementtoday of the disposal of some PPP equity holdings is also a clear demonstrationof the value being created from Carillion's portfolio of PPP investments." For further information contact Chris Girling Finance Director 01902 422431John Denning Director Corporate Affairs 01902 316426 CHAIRMAN'S STATEMENT Carillion made good progress in the first six months of 2006. The integration ofMowlem, acquired in February 2006, has gone well, overall trading has remainedpositive and we have delivered a strong financial performance. Revenue, including joint ventures, increased by 71 per cent to £1,725.7 million(2005: £1,011.1 million), reflecting the acquisition of Mowlem and substantialorganic growth in a number of key market sectors. Profit before tax and exceptional items rose by 23 per cent to £24.7 million(2005: £20.1 million) and earnings per share increased by 11 per cent to 7.9pence (2005: 7.1 pence), both slightly ahead of our expectations. Operating cash flow continues to be strong and net debt at 30 June 2006 was £118million. Average debt in 2006 is now expected to be well below £150 million,substantially less than the £200 million anticipated at the time of acquiringMowlem. The value of the Group's order book has more than doubled to £14.5 billion (31December 2005: £7 billion), reflecting the acquisition of Mowlem and continuingsuccess in winning substantial new orders in key growth markets. We have alsomaintained a substantial pipeline of probable new orders worth around £1.9billion. In view of our progress in the first six months of 2006 and prospects for thesecond half, the Board has declared an interim dividend of 3.1 pence per share,an increase of 10 per cent on the dividend paid in respect of the correspondingperiod in 2005. Our finance director, Chris Girling, has decided to retire from Carillion inorder to focus on non-executive directorships. The precise timing will depend onthe appointment of a successor and will follow a suitable handover period, butis expected to be in the first half of 2007. It had been Chris's intention toleave his executive role a little sooner, but he wished to stay on until theacquisition and integration of Mowlem had been successfully completed. Chriswill leave the Group with the Board's grateful thanks for the outstandingcontribution he has made over the last seven years to Carillion's success. Don Kenny, the managing director responsible for six Carillion business units,has been appointed as an executive director with immediate effect. Don joinedCarillion from Johnson Controls in 2002, having held a number of seniorpositions in Johnson Controls and prior to that in Mowlem. With extensiveexperience of our key market sectors, he will make a valuable contribution toCarillion's development and we are delighted to welcome him to the Board. Donwill continue to be responsible for our National Building, Health, IntegratedSolutions, Facilities Management, Facilities Services and TPS businesses. I am also delighted to announce the appointment of Steve Mogford as anon-executive director. Steve has been a main board director of BAE Systems forover six years and is currently the Chief Operating Officer responsible forProgrammes. Steve joined BAE Systems in 1977 and held a number of seniormanaging director roles before taking up his current position in 2000. Stevebrings to the Board considerable experience as a senior business leader who hasmanaged major capital projects in a FTSE 50 company. In line with our policy of maximising the value we generate through investingequity in PPP projects, we have announced today the proposed sale of a number ofequity investments to secondary market funds. The sale of these investments,which is expected to generate cash proceeds of £46 million and an exceptionalprofit of £22 million, is at an implied net present value based on an averagediscount rate of less than five per cent. The directors' valuation of Carillion's portfolio of PPP equity investments nowstands at £216 million, (December 2005: £89 million). This valuation hasincreased due to the combined effects of acquiring Mowlem's equity portfolio,reaching financial close on two new PPP projects and higher secondary marketprices for PPP equity. With a large order book and positive outlook in the Group's key markets, theBoard expects Carillion to make further progress in the second half of 2006 andslightly exceed its original expectations for the full year. Philip Rogerson Chairman CHIEF EXECUTIVES'S REVIEW Business performance-------------------- When we acquired Mowlem in February 2006, we said it was an outstandingstrategic fit that would deliver a step change in the development of ourbusiness. I am pleased to report that we have made good progress with theintegration of Carillion and Mowlem and are firmly on track to deliver thebenefits expected from this acquisition. Our first-half profit, which was slightly ahead of our expectations, includes acontribution from equity returns on PPP investments acquired with Mowlem, but noprofit on the revenue contributions to our Support Services and ConstructionServices segments from business acquired with Mowlem. However, we expect thesebusinesses to make a significant contribution to profit in the second half ofthe year and the Group's full-year performance to be slightly ahead of ouroriginal expectations. As announced in April 2006, integration cost savings are substantially ahead ofour original forecasts and we are confident that we will deliver savings at arunning rate of £15 million per annum by the end of 2006 and £23 million perannum by the end of 2007. The contracts for which we announced revised fairvalue adjustments on 24 April 2006 are progressing in line with expectations.While there have been a number of movements in the carrying values of assetsacquired with Mowlem, the revised total fair value of assets acquired isunchanged. In line with our strategy, we have disposed of a number of non-core businessesacquired with Mowlem. Disposals in the first half of 2006 included Charter, a USconstruction management business, Edgar Allen, a UK rail products manufacturer,MESG, an environmental services business, and Barclay Mowlem, a constructionbusiness in Australia, with the cash proceeds for the latter received in July2006. Mowlem's complementary skills and market strengths in private finance, supportservices and construction have significantly enhanced our ability to providecustomers with high quality, integrated solutions in our key market sectors.This has been evident in a number of significant new contract wins in the firstsix months of 2006 and helped us to more than double the value of our order bookto £14.5 billion (December 2005: £7 billion). Our consistent and successful strategy for growth remains unchanged. We willtherefore continue to grow support services and PPP investment activitiesalongside a strong and selective construction capability and seek opportunitiesto provide customers with integrated solutions by using our wide range of skillsand extensive resources. In addition to revenue growth, we are also firmlyfocused on improving margins, particularly in the businesses acquired withMowlem, to bring them, over time, into line with those of Carillion. We are continuing to implement our strategy through market-focused businessunits: the 14 business units established immediately after acquisition are nowwell established and operating in accordance with Carillion's rigorous riskmanagement procedures. The cultural fit between Carillion and Mowlem is also an important factor in thesuccessful integration of the two businesses. The focus we have on living ourvalues in everything we do has been welcomed by those who joined us from Mowlemand we have made substantial progress in this area. Private Finance The acquisition of Mowlem substantially increased our portfolio of equityinvestments in Public Private Partnership (PPP) projects and strengthened ourpipeline of projects for which we were either the preferred bidder orshortlisted. Having achieved financial close in April 2006 on the £12 billionAllenby Connaught project for the Ministry of Defence, at 30 June 2006 we had aportfolio of 31 financially closed projects in which we had invested, orcommitments to invest, some £173 million of equity. Since the half-year, we haveachieved financial close on the £880 million Joint Permanent Headquarters,Northwood project, also for the Ministry of Defence, in which we are committedto invest a further £10 million of equity. We have announced today the proposed sale of eight equity investments in PPPprojects with a total book value of £24 million. The sale is expected togenerate cash proceeds of £46 million and an exceptional profit of £22 million.The proceeds we expect from this sale reflect an average discount rate of under5 per cent. This confirms our view that the Directors' valuation should now bebased on discounting the cash flows from our portfolio of investments at anaverage discount rate of 8 per cent rather than the 10 per cent we have usedpreviously. On that basis, the Directors' valuation of our current portfolio,net of the equity sales announced today, is £216 million. At 31 December 2005the Directors' valuation was £89 million, based on a 10 per cent discount rate. Financial reporting segments Investments In this segment we report the equity returns on our investments in PublicPrivate Partnership (PPP) projects £m H1 2006 H1 2005 Revenue Group 7.2 0.3 JVs 72.3 28.2 ------- ------- 79.5 28.5 ------- ------- Operating profit* 13.2 3.4 JV Interest & tax (3.7) 0.1 ------- -------Profit from operations* 9.5 3.5 ------- ------- * Before goodwill impairment of £0.1m in both years. The substantial increase in profit from operations in this segment reflectsgrowing returns from Carillion's investment portfolio as well as contributionsfrom the investments acquired with Mowlem. The Allenby Connaught project for theMinistry of Defence, on which we achieved financial close in April 2006, alsomade a significant contribution to first half profit. Increasing profitabilityin this segment, together with the £22 million exceptional profit we expect toachieve following today's announcement of the sale of a number of PPP equityinvestments, demonstrates the value being generated for the Group through theseinvestments. We expect to continue to create substantial value through investing in PPPprojects. In the UK, we have a good pipeline of PPP projects for which we arethe preferred bidder or shortlisted and expect to add further projects to thispipeline as the Government remains committed to major PPP programmes in our keysectors. In Canada, where we are providing two of the first PPP hospitals, thePPP market continues to grow as the Government is increasingly using PPPs forthe provision of new hospitals and roads. Support Services In this segment we report the results of our rail infrastructure, roadmaintenance, facilities management, facilities services and consultancybusinesses. £m H1 2006 H1 2005 Revenue Group 638.9 460.1 JVs 48.5 3.5 ------- ------- 687.4 463.6 ------- ------- Operating profit* 15.2 19.8 JV Interest & tax (0.6) (0.1) ------- -------Profit from operations 14.6 19.7 ------- ------- * Before amortisation of intangible assets of £1.2 m (2005: £1.0 m) Revenue in Support Services increased due to the acquisition of Mowlem, whichcontributed £155 million in the first half, and organic growth in Carillion. Asexplained earlier in this statement, there is no contribution to profit in thissegment from the businesses acquired with Mowlem. The reduction in profit fromoperations was due to lower revenues and margins in rail infrastructure, onwhich we have commented previously. We have taken action to reduce overheads andimprove margins in our rail business through restructuring and refocusing it onsustainable areas of the UK market, the benefits of which will begin to comethrough in the second half of 2006. As a result of this action and thesignificant contributions to profit expected in the second half from thebusinesses acquired with Mowlem, in which we are also targeting marginimprovements, we expect full-year profit margins in this segment to besignificantly ahead of the half year. New order intake has remained strong in our support services markets, with theexception of UK rail infrastructure, where activity levels have continued todecline as expected. In the UK, we had significant first half successes in thedefence, health and private sector facilities management sectors and also in theroads maintenance market in Canada. These included the £12 billion AllenbyConnaught PPP project for the Ministry of Defence, which will generate around £3billion of support services revenue for Carillion, a £330 million facilitiesmanagement contract for Barts and The London Hospital (as part of the PPPproject to redevelop the hospital) and a £137 million highways maintenancecontract in Alberta, Canada. In the first half we also mobilised the HousingPrime and Regional Prime Central contracts for the Ministry of Defence, togetherworth some £60 million per annum. Since the half-year, we have also achievedfinancial close on an £880 million PPP project for the Ministry of Defence toredevelop, manage and operate the Northwood Headquarters, home of the Chief ofJoint Operations. This is expected to generate around £440 million of supportservices for Carillion. The outlook in this segment continues to be positive. Overall, the UK supportservices market is forecast to continue growing at around 5 per cent per annum.In a number of our key market sectors we expect significant opportunities forfurther growth particularly in defence, education, health and private sectorfacilities management. We remain cautious on the outlook for the UK rail market,which we expect to continue declining, albeit it at a more modest rate. InCanada, the outsourcing of roads maintenance remains a growth market and ourfacilities management activities will increase as service delivery in our twoPPP hospitals comes on stream in the second half of 2006. We also expect to bebidding for two further PPP hospitals and our first PPP road project in Canada,in the second half. Our joint venture facilities management business in theMiddle East is also expected to grow strongly. Construction Services In this segment, we report the results of our UK building, civil engineering anddevelopments businesses and the construction activities of InternationalRegional businesses. £m H1 2006 H1 2005 Revenue Group 843.0 478.4 JVs 115.8 40.6 ------- ------- 958.8 519.0 ------- ------- Operating profit 7.8 2.3 JV Interest & tax (2.2) (1.2) ------- -------Profit from operations* 5.6 1.1 ------- ------- * Before a JV exceptional charge of £0.6 m in 2005 Revenue and profit from operations increased substantially in this segment, duelargely to growth in our Middle East joint venture business, supplemented bysubstantial organic growth in our UK markets, particularly in our National andRegional Building businesses. As explained earlier in this statement, there isno contribution to profit in this segment from businesses acquired with Mowlem.However, these businesses are expected to make a significant contribution toprofit in the second half. Consequently, we expect full-year profit margins inthis segment to be ahead of those for 2005. Beyond that, we shall continue totarget opportunities for margin growth, particularly in the businesses acquiredwith Mowlem. New order intake has also been strong in most of our construction markets, inparticular UK building, UK roads civil engineering and the Middle East. Theregional civil engineering business acquired with Mowlem is going through aperiod of consolidation in line with our strategy and risk management criteria,but is expected to begin growing from its new base in 2007. In addition to theAllenby Connaught project for the Ministry of Defence, which will generate £600million of building revenue for Carillion, we continued to make good progress inthe retail, offices and mixed-use developments sectors of the commercialbuilding market and in education, health and prisons, where we have frameworkcontracts in both England and Scotland. In the first half, we also signed the£122 million Early Contractor Involvement contract to upgrade the A74 betweenCarlisle and Guardsmill to motorway standard. Since the half-year, we haveachieved financial close on the Northwood Headquarters PPP project for theMinistry of Defence, adding a further £150 million to our construction orderbook. The outlook in this segment is for continuing growth. Overall, the UKconstruction market is forecast to grow in line with GDP or better over the nextthree years. Against this background, we expect particular opportunities forgrowth in a number of our key market sectors, most notably defence, educationand health. In the Middle East, we expect further growth, driven by the FestivalCity project in Dubai and emerging opportunities in other countries,particularly Abu Dhabi. We also have good opportunities for growth in the mediumto longer term in Canada, where we are well positioned to bid for further PPPprojects. John McDonoughChief Executive Consolidated income statementfor the 6 months to 30 June 2006 Note Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £m Total revenue 1,725.7 1,011.1 2,284.2Less: Share of jointlycontrolled entities revenue (236.6) (72.3) (258.7) --------- -------- ---------Revenue 1,489.1 938.8 2,025.5Cost of sales (1,403.4) (869.1) (1,888.6) --------- -------- ---------Gross profit 85.7 69.7 136.9Administrative expenses (87.7) (56.2) (104.6) --------- -------- ---------Group operating (loss)/profit before exceptional reorganisation costs 2 (2.0) 13.5 32.3Exceptional reorganisationcosts 4 (5.7) - - --------- -------- ---------Group operating (loss)/ profit (7.7) 13.5 32.3--------------------------------------------------------------------------------Jointly controlled entities 2,3 Operating profit 21.1 5.4 20.3Net financing income/ (expenses) (1.6) 0.3 1.1Exceptional items 4 - (0.8) (0.8)Income tax (4.9) (1.3) (5.0)--------------------------------------------------------------------------------Share of results of jointly controlled entities 14.6 3.6 15.6 --------- -------- ---------Profit from operations 2 6.9 17.1 47.9 ---------------------------------------------Financial income 5 51.4 27.7 54.4Financial expenses 5 (46.6) (26.4) (50.4) --------------------------------------------- --------- -------- ---------Net financing income 5 4.8 1.3 4.0 --------- -------- ---------Profit before tax 11.7 18.4 51.9Income tax expense 6 (1.6) (4.3) (11.1) --------- -------- ---------Profit for the period 10.1 14.1 40.8 ========= ======== =========Attributable to: Equity holders of the parent 9.0 13.3 39.3 Minority interests 1.1 0.8 1.5 --------- -------- ---------Profit for the period 10.1 14.1 40.8 ========= ======== =========Earnings per share 7Basic 3.5p 6.3p 18.7pDiluted 3.5p 6.2p 18.4p ========= ======== =========Total dividend declaredfor the period 8 3.1p 2.8p 8.0p ========= ======== ========= Consolidated statement of recognised income and expensefor the 6 months to 30 June 2006 Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £m Foreign exchange translationadjustments 0.3 1.5 1.6Actuarial gains and losses ondefined benefit pension schemes (5.8) (12.1) 6.7Group share of change in fairvalue of cash flow hedges within jointly controlled entities (net of tax) 5.4 (2.2) (1.3) --------- -------- --------- (0.1) (12.8) 7.0Tax in respect of above 1.7 3.7 (1.5) --------- -------- ---------Income and expense recogniseddirectly in equity 1.6 (9.1) 5.5Profit for the period 10.1 14.1 40.8 --------- -------- ---------Total recognised income andexpense for the period 11.7 5.0 46.3 ========= ======== =========Attributable to: Equity holders of the parent 10.6 4.2 44.8 Minority interests 1.1 0.8 1.5 --------- -------- ---------Total recognised income andexpense for the period 11.7 5.0 46.3 ========= ======== ========= Consolidated balance sheetat 30 June 2006 Notes At 30 June 2006 At 30 June 2005 At 31 December (unaudited) (unaudited) 2005 (audited) £m £m £mAssetsNon-current assetsProperty, plantand equipment 134.4 79.7 100.9Intangibleassets 9 569.0 62.6 62.3Retirementbenefit assets 5.4 5.3 6.4Investments injointlycontrolledentities 162.4 52.7 62.7Otherinvestments 19.6 4.7 4.7Deferred taxassets 88.2 40.3 35.2 -------- -------- ---------Total non-currentassets 979.0 245.3 272.2 -------- -------- ---------Current assetsInventories 25.9 18.9 21.2Income taxreceivable 0.5 1.4 0.2Trade and otherreceivables 997.2 493.2 459.7Cash and cashequivalents 214.1 147.0 180.9Assetsclassified asheld for sale 4.5 - - -------- -------- ---------Total currentassets 1,242.2 660.5 662.0 -------- -------- ---------Total assets 2,221.2 905.8 934.2 -------- -------- ---------LiabilitiesCurrent liabilitiesBorrowings (31.1) (23.3) (17.0)Derivativefinancialinstruments (0.1) (0.5) (0.3)Trade and otherpayables (1,313.2) (571.4) (600.4)Provisions - (1.5) -Income taxpayable (15.3) (17.7) (13.3)Liabilitiesclassified asheld for sale (9.5) - - -------- -------- ---------Total currentliabilities (1,369.2) (614.4) (631.0) -------- -------- ---------Non current liabilitiesBorrowings (301.4) (62.7) (73.1)Retirementbenefitliabilities (170.1) (103.5) (74.3)Deferred taxliabilities (7.0) (11.3) (6.0)Provisions (1.7) (0.4) - -------- -------- ---------Non currentliabilities (480.2) (177.9) (153.4) -------- -------- ---------Totalliabilities (1,849.4) (792.3) (784.4) -------- -------- ---------Net assets 371.8 113.5 149.8 ======== ======== =========EquityIssued sharecapital 140.4 107.3 107.4Share premium 8.5 7.3 8.2Merger reserve 192.4 8.2 8.2Other reserves (6.2) (16.8) (9.2)Retainedearnings 35.7 6.3 34.1 -------- -------- ---------Equityattributable toequity holdersof the parent 370.8 112.3 148.7Minorityinterests 1.0 1.2 1.1 -------- -------- ---------Total equity 371.8 113.5 149.8 ======== ======== ========= Consolidated statement of cash flowsfor the six months to 30 June 2006 Note At 30 June 2006 At 30 June 2005 At 31 December (unaudited) (unaudited) 2005 (audited) £m £m £mCash flows from operatingactivitiesCash generatedfrom operations -continuing 11 49.3 5.0 73.8Financialexpenses paid (7.2) (2.1) (4.6)Income taxes paid (1.2) (10.4) (19.5) -------- -------- ---------Net cash flowsfrom operatingactivities 40.9 (7.5) 49.7 -------- -------- ---------Cash flows from investingactivitiesDisposal ofproperty, plantand equipment 0.8 5.5 7.3Disposal ofinvestments injointlycontrolledentities - 0.1 0.6Disposal of othernon-currentinvestments - 3.4 3.4Financial incomereceived 6.2 4.1 7.4Dividendsreceived fromjointlycontrolledentities 7.4 3.3 8.4Disposal ofbusinesses, netof cash disposedof 10 26.7 - -Acquisition ofsubsidiary, netof cash acquired 10 (122.1) (43.6) (37.1)Acquisition ofproperty, plantand equipment (22.1) (15.1) (34.2)Acquisition ofintangible assets (0.3) (2.2) (4.3)Acquisition ofinvestments injointlycontrolledentities (2.5) - (2.3)Acquisition ofother non-currentinvestment (1.4) - - -------- -------- ---------Net cash flowsfrom investingactivities (107.3) (44.5) (50.8) -------- -------- ---------Cash flows from financingactivitiesProceeds from theissue of sharecapital 0.4 0.7 1.7Draw down ofborrowings 107.1 2.2 3.4Repayment ofborrowings - - (2.8)Payment offinance leaseliabilities (2.5) (1.8) (3.7)Dividends paid toequity holders ofthe parent (14.5) (10.2) (16.1)Dividends paid tominorityinterests (1.2) (1.7) (2.5) -------- -------- ---------Net cash flowsfrom financingactivities 89.3 (10.8) (20.0) -------- -------- ---------Netincrease/(decrease) in cash andcash equivalents 22.9 (62.8) (21.1)Cash and cashequivalents atbeginning ofperiod 169.7 189.6 189.6Effect ofexchange ratefluctuations oncash held (1.1) 1.4 1.2 -------- -------- ---------Cash and cashequivalents atend of period 191.5 128.2 169.7 -------- -------- ---------Cash and cash equivalentscomprise:Cash and cashequivalents 214.1 147.0 180.9Bank overdrafts (22.6) (18.8) (11.2) -------- -------- --------- 191.5 128.2 169.7 ======== ======== ========= Notes 1 Basis of preparation This interim financial information has been prepared applying the accountingpolicies and presentation which were applied in the preparation of the company'spublished consolidated financial statements for the year ended 31 December 2005.No new accounting policies have been adopted in the six months to 30 June 2006. Carillion plc (the "Company") is a company domiciled in the United Kingdom (UK).The consolidated interim financial statements of the Company for the six monthsto 30 June 2006 comprise the Company and its subsidiaries (together referred toas the "Group") and the Group's interest in jointly controlled entities. The comparative financial information for the year ended 31 December 2005 doesnot constitute the company's statutory accounts for that financial year. Thestatutory accounts for the year ended 31 December 2005 have been reported on bythe company's auditors and delivered to the registrar of companies. The auditorshave reported on those accounts; their report was unqualified, did not includereferences to any matter which the auditors drew attention by way of emphasiswithout qualifying their report and did not contain statements under section 237(2) or (3) of the Companies Act 1985. 2 Segment reporting Segment information is presented in the consolidated interim financialstatements in respect of the Group's business segments, which are the primarybasis of segment reporting. The business segment reporting format reflects theGroup's management and internal reporting structure. Inter-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well asthose that can be allocated on a reasonable basis. Business segments The Group is comprised of the following main business segments: • Construction Services: UK building, development and civil engineering activities and international regional construction activities. • Support Services: Rail infrastructure, roads maintenance, facilities management and other support services. • Investments: Equity returns on investments in Public Private Partnership (PPP) projects. Notes (continued) 2 Segment reporting (continued) Half year to Construction Support Investments Eliminations Consolidated30 June 2006 Services Services and unallocated head office £m £m £m £m £mRevenue from externalcustomers 843.0 638.9 7.2 - 1,489.1Inter-segmentrevenue - 14.8 - (14.8) - ----- ------ ---- ------ -------Segmentrevenue 843.0 653.7 7.2 (14.8) 1,489.1 ----- ------ ---- ------ -------Segmenttrading result (2.3) 12.8 4.6 - 15.1Amortisation/impair-ment ofintangibleassets - (1.2) (0.1) (6.0) (7.3)Unallocatedexpenses - - - (9.8) (9.8) ----- ------ ---- ------ -------Groupoperatingprofit beforeexceptionalre-organisationcosts (2.3) 11.6 4.5 (15.8) (2.0)Exceptionalreorganisationcosts - - - (5.7) (5.7)Share ofprofit ofassociates andjointlycontrolledentities 7.9 1.8 4.9 - 14.6 ----- ------ ---- ------ -------Profit fromoperations 5.6 13.4 9.4 (21.5) 6.9 ----- ------ ---- ------Net financingincome 4.8Income taxexpense (1.6) ------Profit for theperiod 10.1 ====== Notes (continued)2 Segment reporting (continued) Half year to Construction Support Investments Eliminations Consolidated30 June 2005 Services Services and unallocated head office £m £m £m £m £mRevenue from externalcustomers 478.4 460.1 0.3 - 938.8Inter-segmentrevenue - 10.9 - (10.9) - ----- ------ ---- ------ -------Segmentrevenue 478.4 471.0 0.3 (10.9) 938.8 ----- ------ ---- ------ -------Segmenttrading result 0.1 19.6 0.4 - 20.1Amortisation/impair-ment ofintangibleassets - (1.0) (0.1) - (1.1)Unallocatedexpenses - - - (5.5) (5.5) ----- ------ ---- ------ -------Groupoperatingprofit beforeexceptionalre-organisationcosts 0.1 18.6 0.3 (5.5) 13.5Exceptional reorganisationcosts - - - - -Share ofprofit ofassociates andjointlycontrolledentities 0.4 0.1 3.1 - 3.6 ----- ------ ---- ------ -------Profit fromoperations 0.5 18.7 3.4 (5.5) 17.1 ----- ------ ---- ------Net financingincome 1.3Income taxexpense (4.3) ----- ------ ---- ------ -------Profit for theperiod 14.1 ======= Notes (continued)2 Segment reporting (continued) Year to 31 Construction Support Investments Eliminations ConsolidatedDecember Services Services and unallocated2005 head office £m £m £m £m £mRevenue from externalcustomers 1,050.1 974.6 0.8 - 2,025.5Inter-segmentrevenue 0.3 28.6 - (28.9) - ----- ------ ---- ------ -------Segmentrevenue 1,050.4 1,003.2 0.8 (28.9) 2,025.5 ----- ------ ---- ------ -------Segmenttrading result 4.8 39.9 0.8 - 45.5Amortisation/impair-ment ofintangibleassets - (2.5) (0.3) - (2.8)Unallocatedexpenses - - - (10.4) (10.4) ----- ------ ---- ------ -------Groupoperatingprofit beforeexceptionalre-organisationcosts 4.8 37.4 0.5 (10.4) 32.3Exceptional reorganisationcosts - - - - -Share ofprofit ofassociates andjointlycontrolledentities 8.2 0.5 6.9 - 15.6 ----- ------ ---- ------ -------Profit fromoperations 13.0 37.9 7.4 (10.4) 47.9 ----- ------ ---- ------Net financingincome 4.0Income taxexpense (11.1) ----- ------ ---- ------ -------Profit for theperiod 40.8 ======= 2 Segment reporting (continued) Half year Construction Support Investments Eliminations Consolidatedto Services Services and unallocated30 June head office2006 £m £m £m £m £m Segment assets 705.9 448.2 7.2 - 1,161.3Investmentsin jointlycontrolled entities 35.4 4.6 122.4 - 162.4Unallocatedassets - - - 897.5 897.5 ------- ----------- ----------- ----------- -----------Total assets 741.3 452.8 129.6 897.5 2,221.2 ------- ----------- ----------- ----------- -----------Segmentliabilities (890.0) (333.3) (18.0) - (1,241.3)Unallocatedliabilities - - - (608.1) (608.1) ------- ----------- ----------- ----------- -----------Totalliabilities (890.0) (333.3) (18.0) (608.1) (1,849.4) ------- ----------- ----------- ----------- -----------Net assets/liabilities) (148.7) 119.5 111.6 289.4 371.8 ======= ========= ========= ========= =========Capitalexpenditure 2.3 7.9 - 10.8 21.0Depreciationandamortisation 1.9 7.2 - 7.9 17.0Impairmentlosses - - 0.1 - 0.1 ======= ========= ========= ========= ========= 2 Segment reporting (continued) Half year Construction Support Investments Eliminations Consolidatedto Services Services and unallocated30 June head office2005 £m £m £m £m £m Segment assets 371.4 286.0 6.8 - 664.2Investmentsin jointlycontrolled entities 24.2 0.8 27.7 - 52.7Unallocatedassets - - 188.9 188.9 ------- ----------- ----------- ----------- ------------Total assets 395.6 286.8 34.5 188.9 905.8 ------- ----------- ----------- ----------- ------------Segmentliabilities (348.1) (240.7) (5.2) - (594.0)Unallocatedliabilities - - - (198.3) (198.3) ------- ----------- ----------- ----------- ------------Totalliabilities (348.1) (240.7) (5.2) (198.3) (792.3) ------- ----------- ----------- ----------- ------------Net assets/liabilities) 47.5 46.1 29.3 (9.4) 113.5 ======= ========= ========= ========= =========Capitalexpenditure 5.8 6.0 - 9.3 21.1Depreciationandamortisation 1.6 5.1 - 2.0 8.7Impairmentlosses - - 0.1 - 0.1 ======= ========= ========= ========= ========= 2 Segment reporting (continued) Year to 31 Construction Support Investments Eliminations ConsolidatedDecember Services Services and unallocated2005 head office £m £m £m £m £m Segment assets 306.3 323.0 5.3 - 634.6Investmentsin jointlycontrolled entities 33.6 1.2 28.3 (0.4) 62.7Unallocatedassets - - - 236.9 236.9 ------- ----------- ----------- ----------- ------------Total assets 339.9 324.2 33.6 236.5 934.2 ------- ----------- ----------- ----------- ------------Segmentliabilities (340.7) (229.0) (4.3) - (574.0)Unallocatedliabilities - - - (210.4) (210.4) ------- ----------- ----------- ----------- ------------Totalliabilities (340.7) (229.0) (4.3) (210.4) (784.4) ------- ----------- ----------- ----------- ------------Net assets/liabilities) (0.8) 95.2 29.3 26.1 149.8 ======= ========= ========= ========= =========Capitalexpenditure 4.0 29.9 - 20.1 54.0Depreciationandamortisation 2.4 12.7 - 4.1 19.2Impairmentlosses - 1.0 0.3 - 1.3 ======= ========= ========= ========= ========= Geographic segmentsHalf year to United Kingdom Europe Rest of World Consolidated30 June 2006 £m £m £m £m Revenue from externalcustomers 1,354.8 45.0 89.3 1,489.1 ========= ========= ========= =========Segment assets 2,033.5 65.6 122.1 2,221.2 ========= ========= ========= =========Capital expenditure 17.2 0.1 3.7 21.0 ========= ========= ========= ========= Geographic segmentsHalf year to United Kingdom Europe Rest of World Consolidated30 June 2005 £m £m £m £m Revenue from externalcustomers 841.3 15.5 82.0 938.8 ========= ========= ========= =========Segment assets 763.6 18.3 123.9 905.8 ========= ========= ========= =========Capital expenditure 15.2 0.4 5.5 21.1 ========= ========= ========= ========= Geographic segmentsYear to 31 United Kingdom Europe Rest of World ConsolidatedDecember 2005 £m £m £m £m Revenue from externalcustomers 1,796.7 40.2 188.6 2,025.5 ========= ========= ========= =========Segment assets 780.4 15.1 138.7 934.2 ========= ========= ========= =========Capital expenditure 32.7 0.6 20.7 54.0 ========= ========= ========= ========= Notes (continued) 3 Share of results of jointly controlled entities The group's share of the results of jointly controlled entities is analysedbelow: Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £m Revenue 236.6 72.3 258.7 ----- --- ---Operating profit 21.1 5.4 20.3Net finance (expense)/income (1.6) 0.3 1.1 ----- --- ---Profit before tax andnon-operating items 19.5 5.7 21.4Exceptional items (see note 4) - (0.8) (0.8) ----- --- ---Profit before tax 19.5 4.9 20.6Income tax (4.9) (1.3) (5.0) ----- --- ---Profit after tax 14.6 3.6 15.6 ===== === ===The Group's share of the operating profit of jointly controlled entities arisesin the following business segments: Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £m Construction Services 10.1 2.2 12.1Support Services 2.4 0.2 0.7Investments 8.6 3.0 7.5 --- --- --- 21.1 5.4 20.3 === === === Notes (continued) 4 Exceptional items Reorganisation costs of £5.7m primarily include redundancy and associated costsfollowing a review of the Group's structure on the acquisition of Mowlem plc on23 February 2006. The exceptional item in jointly controlled entities of £0.8m in 2005 relates tothe sale of a small non-core plant hire business. 5 Financial income and expenses Half year to Half year to Year ended 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £mFinancial incomeBank interest receivable 3.9 1.9 4.3Other interest receivable 5.3 2.0 3.1Expected return on retirement planassets 42.2 23.8 47.0 --- --- --- 51.4 27.7 54.4 --- --- ---Financial expensesInterest payable on bank loans andoverdrafts (5.7) (0.9) (1.7)Other interest payable and similarcharges (1.5) (1.2) (2.9)Interest cost on retirement planobligations (39.4) (24.3) (45.8) --- --- --- (46.6) (26.4) (50.4) === === ===Net financing income 4.8 1.3 4.0 === === === 6 Income taxes Reconciliation of effective tax rate The current tax expense (including the Group's share of joint ventures tax) forthe six months to 30 June 2006 is calculated based on the estimated averageannual effective income tax rate of 27% (six months to 30 June 2005: 27%), ascompared to the tax rates expected to be enacted or substantively enacted at theannual balance sheet date of 30% (six months to 30 June 2005: 30% ). Differencesbetween the estimated average annual effective income tax rate and statutoryrate include but are not limited to the effect of tax rates in foreignjurisdictions, non-deductible expenses, tax incentives not recognised in profitor loss, the effect of tax losses utilised and under/over provisions in previousyears. Notes (continued) 7 Earnings per share (a) Basic The calculation of basic earnings per share for the six months to 30 June 2006is based on the profit for the period of £9.0 million (six months to 30 June2005: £13.3 million; year to 31 December 2005: £39.3 million) and a weightedaverage number of ordinary shares outstanding during the six months to 30 June2006 of 257.7 million (six months to 30 June 2005: 210.4 million; year to 31December 2005: 210.5 million). The weighted average number of shares excludesshares held by the Employee Share Ownership Plan and the QUEST, which togetheramount to 3.8 million shares in total (six months to 30 June 2005: 4.1 million;year to 31 December 2005: 4.1 million). (b) Underlying performance A reconciliation of profit before tax and basic earnings per share, as reportedin the income statement, to adjusted profit before tax and basic earnings pershare, is set out below: Profit before Half year to 30 June Half year to 30 June Year to 31 Decembertax 2006 2005 2005 £m £m £mProfit beforetax asreported inthe incomestatement 11.7 18.4 51.9Amortisationof intangibleassets arisingfrom businesscombinations 7.2 1.0 2.5Impairment ofgoodwill 0.1 0.1 0.3Loss ondisposal ofbusiness - 0.6 0.8Reorganisationcosts 5.7 - - --- --- ---Adjustedprofit beforetax 24.7 20.1 55.5 === === === Half year to 30 June 2006 Half year to 30 June 2005 Year to 31 December 2005 £m Pence per share £m Pence per share £m Pence per shareProfitattributableto equity holders of theparent 9.0 3.5 13.3 6.3 39.3 18.7Reorganisationcosts 5.7 2.2 - - - -Group share ofjoint venturesnon-operatingitems (net oftax) - - 0.6 0.3 0.8 0.4Less taxationin respect ofabove (1.5) (0.6) - - - - --- --- --- --- --- ---Profit beforeexceptionalitems 13.2 5.1 13.9 6.6 40.1 19.1Amortisation/impairment of intangibleassets 7.3 2.8 1.1 0.5 2.8 1.3 --- --- --- --- --- ---Profit beforeexceptionalitems andamortisation/impairmentof intangibleassets 20.5 7.9 15.0 7.1 42.9 20.4 ==== ==== ==== === ==== ====Dilutedadjustedearnings pershare 7.9 7.0 20.1 Notes (continued) 7 Earnings per share (continued) (c) Diluted earnings per share Diluted earnings per share have been calculated using the same numerators as setout in (a) and (b) above and by reference to the following number of shares: Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) Million Million Million Number of ordinary shares perbasic earnings per sharecalculations 257.7 210.4 210.5Effect of shares under option 2.8 3.1 3.1 --- --- --- 260.5 213.5 213.6 === === === 8 Dividends The following dividends were paid by the company: Half year to 30 June 2006 Half year to 30 June 2005 Year to 31 December 2005 £m Pence per £m Pence per £m Pence per share share share Previousperiodfinal dividend 14.5 5.2 10.2 4.825 10.1 4.825Currentperiodinterim dividend - - - - 6.0 2.8 ------------- ------------- ------------- ------------- ------------- ------------- 14.5 5.2 10.2 4.825 16.1 7.625 ============= ============= ============= ============= ============= ============= The following dividends were declared by the company in respect of eachaccounting period presented: Half year to 30 June 2006 Half year to 30 June 2005 Year to 31 December 2005 £m Pence per £m Pence per £m Pence per share share share Interimdividend 8.7 3.1 6.0 2.8 6.0 2.8Final dividend - - - - 14.6 5.2 ------------- ------------- ------------- ------------- ------------- ------------- 8.7 3.1 6.0 2.8 20.6 8.0 ============= ============= ============= ============= ============= ============= The interim dividend for 2006 of 3.1 pence per share was approved by the Boardon 6 September 2006 and has not been included as a liability as at 30 June 2006.This interim dividend will be paid on 10 November 2006 to shareholders on theregister at the close of business on 15 September 2006.Notes (continued) 9 Intangible assets Goodwill Customer Total arising Computer Total contracts and from business software and lists combinations licences £m £m £m £m £mCostAt 1 January2006 53.6 6.2 59.8 8.7 68.5Acquisitions(see note 10) 396.1 100.0 496.1 - 496.1Goodwillacquired (seenote 10) 18.0 - 18.0 - 18.0Additions - - - 0.3 0.3Reclassification - - - 0.2 0.2 --------------- --------------- --------------- --------------- ---------------At 30 June2006 467.7 106.2 573.9 9.2 583.1 =============== =============== =============== =============== ===============Amortisationand impairmentlossesAt 1 January2006 - 2.5 2.5 3.7 6.2Amortisation - 7.2 7.2 0.5 7.7Reclassification - - - 0.2 0.2 --------------- --------------- --------------- --------------- ---------------At 30 June 2006 - 9.7 9.7 4.4 14.1 =============== =============== =============== =============== ===============Net bookvalueAt 31 December2005 53.6 3.7 57.3 5.0 62.3 =============== =============== =============== =============== ===============At 30 June2006 467.7 96.5 564.2 4.8 569.0 =============== =============== =============== =============== =============== 10 Acquisitions and disposals Acquisitions On 23 February 2006, the Group acquired the entire share capital of Mowlem plcfor total consideration of £348.7 million. The company and its subsidiariesoperate in a number of sectors and industries, particularly construction,facilities management and Public Private Partnerships. In the period fromacquisition to 30 June 2006 Mowlem plc contributed profit before tax of £2.7million to the consolidated profit for the interim period. If the acquisitionhad occurred on 1 January 2006, Group revenue would have been £1,738.5 millionand profit before tax would have been £4.0 million for the six months to 30 June2006. Effect of acquisitions The acquisition had the following effect on the Group's assets and liabilities. Notes (continued) 10 Acquisitions and disposals (continued) Net assets at the acquisition date Carrying Provisional Accounting Provisional amounts fair value policy recognised adjustments adjustment values £m £m £m £m Property,plant andequipment 25.9 (2.4) - 23.5Intangibleassets 18.0 - - 18.0Investments injointlycontrolledentities 24.5 72.7 (8.8) 88.4Otherinvestments 15.0 - - 15.0Deferred taxassets 30.9 15.3 6.3 52.5Inventories 17.9 (4.2) - 13.7Trade andotherreceivables 457.1 (20.0) - 437.1Assets heldfor sale 76.3 56.9 - 133.2Cash and cashequivalents 11.6 (8.1) - 3.5Borrowings (126.4) 0.4 - (126.0)Trades andother payables (560.2) 32.4 2.9 (524.9)Income tax (4.2) 1.3 - (2.9)Retirementbenefitliabilities (95.5) - (21.0) (116.5)Liabilitiesheld for sale (125.9) (34.4) - (160.3)Provisions (1.7) - - (1.7) --- --- --- ---Netidentifiableassets andliabilities (236.7) 109.9 (20.6) (147.4) --- --- --- ---Provisionalgoodwill andintangibleassetsrecognised onacquisition 496.1 ---Consideration 348.7 ===Of the provisional goodwill of £496.1m, £100.0m has provisionally beenidentified as relating to customer contracts and relationships that requireclassification as intangible assets. This review of intangible assets acquiredis still ongoing and will be completed by the year end. A charge of £6.0m hasbeen included the income statement in relation to the amortisation of theseintangible assets. Provisional goodwill of £396.1m has arisen on the acquisitionof Mowlem plc because of a large number of other customer contracts andrelationships that do not meet the criteria for recognition as an intangibleasset at the date of acquisition. The fair value adjustments made at acquisition relate to: - market value adjustments to the carrying value of investments in PPP jointly controlled entities - the reclassification of Edgar Allen Limited and Charter as available for sale assets and liabilities and the subsequent adjustment to their net realisable value following the decision to dispose of the businesses post acquisition - the recognition of a deferred tax asset on a proportion of corporation tax trading losses The accounting policy adjustments made relate to : - the reversal of the fair value uplift to finance debtors within PPP jointly controlled entities - the recognition of the full defined benefit pension scheme deficits on balance sheet following the reversal of the corridor approach to the recognition of actuarial gains and losses - a re-alignment of the treatment of investment related bid cost recoveries at financial close on PPP projects Consideration for the acquisition comprises the following: £m Cash 117.3Equity shares issued 223.1Attributable costs 8.3 ---------------- 348.7 ================ The value of equity shares issued is based on the quoted mid-market price ofCarillion plc shares at the close of business on the day preceding the effectivedate of acquisition of £3.39 and the total number of equity shares issued of65.8 million. Attributable costs include direct advisor costs incurred in relation to theacquisition contracts and due diligence procedures. Cash flows associated with the acquisition are included in the cash flowstatement as follows: £m Cash paid (117.3)Attributable costs paid (8.3) -------------- (125.6) Cash and cash equivalents acquired 3.5 --------------Net cash outflow on acquisition (122.1) ==============Disposals During the acquisition of Mowlem plc, certain businesses were identified asbeing non-core operations for disposal. In addition, there were a number ofbusinesses which had not been identified as available for sale by Mowlem plcprior to acquisition. In the post acquisition period the Group disposed of the following Mowlem plcbusinesses; Edgar Allen LimitedCharterMowlem Environmental Sciences GroupBarclay Mowlem Limited These businesses were included in the acquisition balance sheet of Mowlem Plc asassets and liabilities held for sale and are therefore carried at fair value,which represents proceeds on disposal less costs to sell. These fair values wererealised on subsequent disposal and consequently no profit or loss has arisen. The cash effect has been reflected in the Group cash flow statement as follows: £m Consideration received (net of disposal costs paid) 49.8Cash in businesses disposed of (23.1) ----------------Cash inflow from disposal of businesses 26.7 ================ Notes (continued) 11 Reconciliation of profit for the period to cash generated from operations Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £mCash flows from operatingactivitiesProfit for the period 10.1 14.1 40.8Depreciation, amortisation andimpairment 17.1 8.8 20.5(Profit)/loss on sale of property,plant and equipment 0.5 (0.5) (0.9)Share based payment expense 0.6 0.5 1.2Other non-cash movements 2.2 0.9 (3.2)Share of results of jointlycontrolled entities (14.6) (3.6) (15.6)Net financing income (4.8) (1.3) (4.0)Income tax expense 1.6 4.3 11.1Exceptional reorganisation costs 5.7 - - --- --- ---Operating profit before changes inworking capital and provisions 18.4 23.2 49.9Increase in inventories 8.8 (0.5) (2.6)(Increase)/decrease in trade andother receivables (147.0) (60.3) (26.4)Increase/(decrease) in trade andother payables 196.4 53.0 65.1Decrease in provisions - (0.4) (2.2) --- --- ---Cash generated from operationsbefore pension schemecontributions and exceptionalcosts 76.6 15.0 83.8Pension scheme contributions (23.0) (10.0) (10.0)Exceptional reorganisation costs (4.3) - - --- --- ---Cash generated from operations 49.3 5.0 73.8 === === === Pension scheme contributions of £23.0m in the half year to 30 June 2006 relateto lump sum contributions agreed with the trustees of the Carillion, Staff, "B"and Public Sector schemes in order to reduce the deficits in those schemes. The pension scheme contribution of £10.0 million in 2005 relates to a one-offpayment into the pension scheme of PMG following the acquisition of the companyin March 2005. 12 Reconciliation of Equity Shareholders' Funds Half year to Half year to Year to 30 June 2006 30 June 2005 31 December (unaudited) (unaudited) 2005 (audited) £m £m £m Recognised income and expense forthe period 10.6 4.2 44.8Equity settled transactions (netof tax) 0.4 0.5 0.9Share options exercised byemployees 2.1 0.4 0.7New share capital subscribed 223.5 0.7 1.7Dividends paid to equity holdersof the parent (14.5) (10.2) (16.1) --- --- ---Net movement in equityshareholders' funds 222.1 (4.4) 32.0Opening equity shareholders' funds 148.7 116.7 116.7 --- --- ---Closing equity shareholders' funds 370.8 112.3 148.7 === === === Independent review report to Carillion plc Introduction We have been instructed by the Company to review the financial information, forthe six months ended 30 June 2006 which comprises consolidated income statement,consolidated statement of recognised income and expense, consolidated balancesheet, consolidated statement of cash flows and the related notes. We have readthe other information contained in the interim report and considered whether itcontains any apparent misstatements or material inconsistencies with thefinancial information. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of The ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted by law,we do not accept or assume responsibility to anyone other than the company forour review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the Directors. The Directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority, which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of Group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the accounting policies and presentationhave been consistently applied unless otherwise disclosed. A review excludesaudit procedures such as tests of controls and verification of assets,liabilities and transactions. It is substantially less in scope than an auditperformed in accordance with International Statements on Auditing (UK andIreland) and therefore provides a lower level of assurance than an audit.Accordingly, we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. KPMG Audit PlcChartered Accountants2 Cornwall StreetBirminghamB3 2DL 6th September 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Carillion Plc