Final Results

Carillion PLC 09 March 2005 9 March 2005 Carillion plc 2004 Preliminary Results UK support services and construction company Carillion plc announces its preliminary results for the year ended 31 December 2004. Highlights • Pre-tax profit up 8% to £54.7m (2003: £50.8m) pre exceptionals and goodwill • Earnings per share up 18% to 19.9p (2003: 16.8p) pre exceptionals and goodwill • Pre-tax loss of £6.4m (2003: £23.8m profit) post exceptionals and goodwill of £61.1m • Strong cash flow and net cash of £153.6m • Final ordinary dividend 4.825p making 2004 total 7.5p • Ordinary dividend to be rebased at 7.5p per share • Order book and frameworks £5.0bn plus probable orders of over £2bn Note: Exceptional items and goodwill amortisation are explained in the Operating and Financial Review on page 11 of this announcement. Commenting, Chairman Sir Neville Simms, said, 'In this, my last statement to shareholders before I stand down as chairman, I am pleased to report that Carillion made good progress in 2004. This reflects the strength of our business, which comes from the clear vision and consistent strategy that have made Carillion a very different company from the one we launched over five years ago. Carillion has already made a good start to 2005, which supports the Board's view that the outlook for the Group continues to be positive and that we will make further progress in 2005. In view of the Group's financial performance and prospects for further growth, the Board is recommending a substantial increase in the dividend. It is also recommending that the 2004 ordinary and additional dividends should be consolidated. On that basis the ordinary 2004 dividend would be rebased at 7.5 pence per share and this will become the starting point for determining future dividend payments'. For further information contact Chris Girling Finance Director 01902 422431 John Denning Director Corporate Affairs 01902 316426 High resolution photographs are available free of charge to the media at www.newscast.co.uk telephone 0207 608 1000 CHAIRMAN'S STATEMENT In this, my last statement to shareholders before I stand down as chairman, I am pleased to report that Carillion made good progress in 2004. Profit before tax, goodwill and exceptional items increased by eight per cent and was again backed by strong cash generation. Earnings per share before goodwill and exceptional items increased by 18 per cent. Our programme of PPP equity disposals continued with two further sales in 2004, generating an exceptional profit of £7.7 million. One third of this profit has already been returned to shareholders by way of an additional dividend of one penny per share, paid with the 2004 interim dividend. Our equity sales have consistently supported the directors' valuation of our PPP equity portfolio, which is currently some £83 million, based on discounting the cash flows from our equity investments at 10 per cent. The value we have created is increasingly being recognised by the market and our future policy will be to sell equity investments only when this achieves returns in excess of those we would expect if we retained them over the life of our concession contracts. Delivering healthy earnings growth in 2004 despite the impact of transferring rail maintenance to Network Rail, reflects the resilience and strength of our business. This comes from our clear vision and consistent strategy, which have made Carillion a very different company from the one we launched in 1999. Then, we were predominantly a construction company. Today, we generate nearly half our turnover and over two thirds of our profit from support services and equity investments in Public Private Partnership projects. Changing our business mix and establishing strong well-balanced positions in all our key markets has significantly improved the risk profile of our activities and the predictability of our earnings. These changes are also clearly reflected in our order book, which has grown and lengthened considerably since 1999. It is not only what we do that has changed, but also how we do it. Our values guide the way we work together with all our supply chain partners to provide high quality services for our customers. In addition, our focus on sustainable profitable growth by continually seeking to improve our impacts on the environment and on the communities in which we operate, has made Carillion a recognised leader in corporate social responsibility. To one area of corporate responsibility, Health and Safety, we give absolute priority so that all our people can expect to work safely wherever they are. Carillion's transformation over the past five years owes most to the leadership of our senior management team and to the skills and commitment of all our people. I should like to offer my personal thanks and those of the Board to everyone in Carillion for the contributions they have made to our success. As previously announced, the Board has been reviewing its independent director structure to reflect the strategic direction of our business and has made a number of changes. Two new non-executives joined the Board in 2004, David Garman and Philip Rogerson, who is also deputy chairman. Jean-Paul Parayre, who was a founder member of the Board and latterly our senior independent director, left the Board at the end of 2004. I would like to thank him for his personal support and wise counsel to the Board. Andrew Parrish, who has been a member of the Board since 2000 and has acted as Chairman of the Remuneration Committee since 2001, will not be seeking re-election at the AGM. I should like to thank him for his significant contribution to Carillion's development. As I have already indicated, now that the new appointments have settled in, I propose to stand down as chairman and as a director of Carillion on 11 May 2005, at which point Philip Rogerson will succeed me as chairman. I have greatly enjoyed leading the business and I am proud to have played a part in what has been achieved. I leave Carillion in good shape and in the capable hands of a restructured and refreshed Board that I am confident will build on the success that has been achieved during our first five years. Carillion has already made a good start to 2005, winning a number of significant new contracts to add to its strong order book. This supports the Board's view that the outlook for the Group continues to be positive and that we will make further progress in 2005. In view of the Group's financial performance and its prospects for further growth, the Board is making a number of recommendations regarding dividends. It is recommending a final ordinary dividend of 4.825 pence per share, which will be paid on 24 June 2005 to shareholders on the register at close of business on 24 April 2005. The total dividend for 2004 would therefore be 7.5 pence per share, including the additional dividend of one penny per share. This represents an increase of 11 per cent on the total dividend paid in 2003, 56 per cent on 2002 and 88 per cent since Carillion was launched in 1999. The Board no longer intends to pay additional dividends in respect of any future PPP equity sales, but is recommending that the additional dividend paid in 2004 should be consolidated into the ordinary dividend. This would rebase the 2004 ordinary dividend at 7.5 pence per share, which would become the starting point for determining future dividend payments in line with our progressive dividend policy. Sir Neville Simms Chairman OPERATING AND FINANCIAL REVIEW CHIEF EXECUTIVE'S REVIEW In 2004, we achieved our key financial objectives and made good strategic progress. We have substantial net cash, a large order book and strong positions in all our key growth markets. The Group is now ready to move forward into our next phase of growth, building on the strong platform we have created over the last five years. Strategic progress Implementing our consistent strategy has created a well-balanced business, which is focused on selected growth markets and with UK sales divided broadly equally between public and private sector customers. In 2004, we completed our programme of major disposals by selling Crown House and Carillion BTP, our contracting business in France. Over the last five years we have sold businesses and withdrawn from non-core markets that previously generated around £700 million of Construction Services turnover per annum. Over the same period we have grown our support services and PPP investment businesses at a compound annual growth rate of over 12 per cent, which has maintained Group turnover at around £2 billion per annum. These activities now account for around half our turnover and over two thirds of our profit. Acquisition of Planned Maintenance Group (PMG) In line with our strategy for growing our Support Services activities, we announced today the acquisition of Planned Maintenance Group for a cash consideration of £40 million. This acquisition will immediately enhance the Group's earnings. PMG, operating through its principal subsidiary, Planned Maintenance Engineering (PME), is one of the UK's foremost independent building services and maintenance companies with a strong reputation for high quality services and customer care. PMG employs over 2,300 people and provides a range of services, including mechanical and electrical engineering (M&E) maintenance, building fabric maintenance and repair, facilities management and environmental services. It has over 400 customers, including a number of 'blue chip' companies, central Government and Local Authorities, and provides services to some 40,000 properties throughout the UK and in Eire. In 2004, PMG's turnover and profit before tax were £162 million and £4.15 million, after non-recurring management fees, respectively. Earnings before interest, tax, depreciation and goodwill amortisation were £4.85 million. The value of net assets acquired was £10.6 million. The PMG pension fund has a net deficit of approximately £10 million, which Carillion will eliminate by making a one-off cash contribution to the fund. This will be in addition to the £40 million consideration and will produce a commensurate reduction in PMG's future contribution to its pension scheme. PMG is an excellent strategic fit and will add good quality earnings to the Group. It will significantly strengthen our support services offering in our Health and Business Services markets. In particular, having a strong in-house M& E maintenance capability will bring considerable benefits to new and existing Carillion customers, as this is a major element in providing fully integrated service solutions for buildings. PMG has a strong order book with good forward visibility and well-established positions in growing markets. This, together with the significant synergy benefits we expect to generate, will enhance our prospects for growth. PMG's long and successful track record is based on its customer-focused strategy, which fits well with Carillion's values and culture. Business performance Profit before tax, goodwill and exceptional items increased by around eight per cent to £54.7 million, with earnings per share up by 18 per cent to 19.9 pence. This was achieved despite the impact of Network Rail's decision to take rail maintenance in-house during 2004. Underlying growth has therefore been encouraging. Our continuing focus on strong cash management again resulted in a substantial cash inflow during the year of around £78 million and we had net cash at 31 December 2004 of £153.6 million, before finance lease liabilities of £24.2 million. Average weekly net cash was £66 million. After a net exceptional charge of £57.2 million and goodwill amortisation of £3.9 million, the Group made a loss of £6.4 million before tax and a loss per share of 8.5 pence. Details of exceptional items are given on page 11 of this statement. The largest of these was a non-cash goodwill write back of £69.9 million associated with the sale of Crown House and Carillion BTP, of which £68.7 million had previously been written off to reserves. Order book The radical change we have made to our business mix is reflected in the size, quality and length of our order book. In 2004, we continued to win significant work in all our chosen markets. We maintained the value of our year-end order book and framework contracts at £5 billion, despite the effects of selling Crown House, Carillion BTP and two PPP equity investments, which together had an order book of approximately £800 million. Our order book for continuing businesses has therefore increased substantially. We have also maintained our healthy pipeline of probable new orders at around £2.2 billion. Support Services and PPP concession contracts account for 78 per cent of our total order book. These long-term contracts have greatly increased the quality and length of our order book with 75 per cent for 2006 and beyond. We have also improved the quality of our construction order book through our selective approach and focus on developing long-term relationships with key customers. Consequently, our UK Building business now generates around 80 per cent of its turnover from 20 key customers. Risk management Risk is inherent in any business. Success depends on understanding the risks we take and our ability to manage them effectively. Changing our business mix has significantly improved the risk profile of our activities. Alongside this we have also developed rigorous, ongoing management processes, which address both our strategic and business specific risks, including social, environmental and ethical risks. They apply to every stage of all our activities, from inception to completion. Our choice of markets, the projects or services we bid for and how we deliver them, are all based on identifying and evaluating the attendant risks and our ability to manage them. These processes are supported by regular reports to managers at all levels up to and including our main board. Decisions on all major projects are taken by a sub-committee of the main board, which also monitors their performance and progress. Our people Many factors are important to our success, but the quality of our people is paramount. Therefore, we are totally committed to achieving our prime objective of attracting, developing and retaining excellent people by becoming an employer of choice. We continually strive to improve communication with all our people and to listen to what they tell us. We do this through individual performance development reviews, team talks and regular surveys, in which we encourage everyone to live our core value of 'Openness' across all our businesses. Our determination to make the Carillion brand synonymous not only with the services we provide, but also with the way in which we provide them, is helping us create a customer focused culture. This is vital to our strategy of providing integrated solutions tailored to the needs of our customers. Therefore, I am greatly encouraged by research that shows our core values and reputation as a socially responsible business are increasingly important factors in making Carillion an employer of choice. A more sustainable business Our core value of focusing on sustainable profitable growth means we are committed to improving our impacts on the environment, the communities in which we operate and society generally. In 2004, we continued to develop the strategy model we first published in 2001 to help us understand how improving these impacts can assist us in delivering our business objectives. We still have a long way to go to integrate sustainability into everything we do, but our achievements have made Carillion a recognised leader in developing and adopting socially responsible business practices. Detailed information will be published in our 2004 Sustainability Report in April 2005. Health and safety In 2004, Carillion's Accident Frequency Rate (AFR) increased to 0.37 compared to 0.34 in 2003, its lowest ever level after a number of years of successive improvements. Even though our 2004 AFR compares favourably with those of our peers, it was nevertheless disappointing. Consequently, we have reviewed our approach to improving Health and Safety and launched a radical new initiative, Target Zero, aimed at eliminating reportable accidents. This is an ambitious target, but as there is no such thing as an acceptable accident, we are determined to reduce them to zero. For Target Zero to be successful, we need the support and participation of all our stakeholders, including our customers, suppliers and partners, as well as our own people. We are therefore actively engaging them in Target Zero and their response has been very encouraging. More detailed information on Health and Safety will be published in our 2004 Sustainability Report in April 2005. Markets and business outlook Transport In 2004, Carillion Transport won new orders and framework contracts in the heavy rail and road infrastructure markets, worth £1.0 billion. The value of its order book and framework contracts at 31 December 2004 was £888 million. We made good progress in our UK and Scandinavian rail markets towards our goal of replacing within three years the turnover we have lost as a result of transferring rail maintenance work to Network Rail. In the UK, we won a five-year framework contract for renewing track and switches and crossings and contracts for rail enhancement projects together worth a total of £763 million. These included the UK's first privately financed rail enhancement project, for Chiltern Railways, worth £50 million. Our UK roads business had a particularly successful year, winning new long-term maintenance contracts for Warwickshire County Council and Wolverhampton City Council, worth up to £94 million, and reaching financial close on the A249 PPP road project in Kent, worth in total some £120 million to Carillion, including construction, maintenance and concession company turnover. In 2005, we expect continuing opportunities to grow our rail business and make further progress with rebuilding turnover in this area. UK investment in rail enhancement projects and renewals is expected to be £3.3 billion in 2005 and we expect growing opportunities to increase our share of this market from its current level of around 10 per cent. In Scandinavia, we are well placed to benefit from the outsourcing of rail infrastructure work, which is expected to grow at 10 per cent per annum over the next three years. The outlook for our roads business is positive, particularly in the Local Authority road maintenance market. Annual expenditure on local road maintenance is some £2 billion and the proportion that is currently outsourced to the public sector is expected to increase significantly from its current level of around 40 per cent. We also continue to target road construction projects selectively, focusing primarily on projects being procured under the Government's Early Contractor Involvement programme, in which planned investment is some £6 billion. Health In 2004, Carillion Health won new contracts worth £161 million increasing the value of its year end order book and framework contracts to £592 million. New contracts in 2004 included the Birmingham and Solihull LIFT project and an extension to Darent Valley Hospital in Dartford, Kent. We are also building new facilities at Rampton Hospital under the ProCure 21 programme, for which we are a framework contractor to the NHS. Together with our clinical partner, we were appointed as the preferred bidder for our first Independent Sector Treatment Centre (ISTC), in Basildon, where we will provide a fully integrated service including the provision and management of the new centre and all clinical services, potentially worth around £60 million over five years. We also successfully renewed our contract to provide FM services to five hospitals in Essex worth £50 million over five years. The outlook for our Health business continues to be very positive. We expect to reach financial close on the Queen Alexandra Hospital, Portsmouth, worth approximately £1.0 billion, in the first half of 2005. We are also bidding for two more major PPP hospitals, Pembury in Kent and Walsall, which together have an estimated capital value in the region of £400 million and form part of the Government's PPP hospital programme, for which planned capital expenditure over the next three years is around £5 billion. In addition, we also expect further opportunities to bid for ISTCs in which the Government is investing some £2.5 billion over the next five years, and for publicly funded infrastructure work under the £8 billion ProCure 21 programme. Business Services In 2004, Carillion Business Services won new orders worth £640 million and its order book and framework contracts at 31 December 2004 were worth some £821 million. Our UK Building business had a successful year winning new orders in its key sectors. These included contracts in the retail sector worth £170 million, in the high-rise residential sector worth £180 million and in the offices and other developments sectors worth around £130 million. By December 2004 our UK Building order book for 2005 was largely secure and we were firmly focused on winning work for 2006 and beyond. We have also continued to concentrate on developing long-term relationships with key customers. In 2005, we expect around 80 per cent of the turnover in our UK Building business to be generated from 20 key customers. Our UK Building business has also been successful in the growing education sector, winning construction contracts in 2004 worth around £134 million. In addition, we expect to reach financial close in the near future on the £150 million PPP schools project for Renfrewshire. With further opportunities expected for both PPP and non-PPP projects under the Government's £25 billion 'Building Schools for the Future' programme, the outlook in the education sector continues to be encouraging. The UK private sector facilities management market continued to be very competitive in 2004, with fewer opportunities for Carillion Services to bid for contracts that met its selectivity criteria. In contrast, the outlook in the public sector facilities management market has become increasingly positive during 2004, with a number of Local Authorities seeking strategic partnerships to deliver integrated asset and facilities management solutions. We are currently shortlisted for one such project in Bradford and we are targeting a number of similar projects for other Local Authorities. These projects demand the combination of a wide range of skills, including project finance, design, construction, maintenance, facilities management and property development. Given our capabilities and experience in providing similar solutions for other public sector customers, we believe we are well positioned in this emerging market. International Regions 2004 was a very successful year for our International Regional Businesses, which won new orders worth £1.0 billion, increasing their year-end order book to £1.1 billion. This was despite the effect of selling Carillion BTP, which had an order book of £150 million. A Carillion-led consortium reached financial close on two of the first three PPP hospital concession contracts to be let in Canada - the William Osler in Toronto and the Royal Ottawa - together worth over £650 million to Carillion. Our highways maintenance business in Canada won new contracts worth £180 million. Our businesses in the Middle East were awarded construction contracts worth £216 million, including a £175 million contract for our joint venture business in Dubai for a major phase of the multi-billion pound Festival City development, which is being developed by our partner in the UAE, the Al Futtaim Group. In 2005, our focus in Canada is on delivering our two PPP hospitals and extending our success in the Ontario road maintenance market to other Provinces. In the Middle East, we have already had further success in 2005. We have been selected by the Al Futtaim Group to manage the design and construction of the whole of its Festival City development and we have reached agreement on further construction contracts worth up to £400 million. Our joint venture support services business with Emaar Properties is expected to achieve significant growth in 2005 and beyond as it extends its portfolio of property under management, including the first phases of Dubai Festival City. John McDonough Chief Executive FINANCIAL REVIEW Accounting policies The Group made one change to its accounting policies in 2004, with the adoption of Urgent Issues Task Force (UITF) Abstract 38 'Accounting for ESOP trusts'. As a result, we recognise the cumulative value of shares held by the Group's ESOP trust as a deduction in shareholders' funds rather than as a fixed asset investment. This has reduced both fixed asset investments and equity shareholders funds by £6.2 million. We have restated the comparative balance sheet and cash flow statement accordingly. We also changed the method by which we allocate attributable profits on incomplete major construction contracts. Previously, profit was recognised broadly in proportion to turnover after taking into account the remaining risks and uncertainties. In addition, we now take no profit on the first 20 per cent of turnover and this profit is deferred until contracts are completed. This method, which better reflects the risk profile of our construction activities, reduced reported profit in Construction Services by £3.3 million in 2004. Interest and cash The Group net interest credit of £3.4 million (2003: a net charge of £0.5 million) reflected our strong operating cash inflow of £92.8 million and proceeds of £34.6 million from the sale of businesses and PPP equity investments. Net cash at 31 December 2004 was £153.6 million (December 2003: £75.8 million), excluding finance lease liabilities of £24.2 million (2003: £15.6 million). Capital expenditure was £15.0 million. Corporate tax paid was £13.0 million. Dividend payments were £16.4 million. The Group's share of net interest payable arising in joint ventures reduced to £3.4 million in 2004 (2003: £4.9 million), largely as a result of the disposal of equity investments in PPP joint ventures in November 2003 and June 2004. Disposals The Group continued to dispose of non-core businesses during 2004. In May 2004, we sold Crown House, a mechanical and electrical engineering contracting business. The sale of this business, which had net liabilities of £10.3 million, generated proceeds of £3.2 million and a net profit of £8.1 million, after providing for retained contract liabilities. Goodwill relating to Crown House of £55.2 million had previously been written off to reserves. In November 2004, the sale of Carillion BTP, a contracting business in France, generated proceeds of £10.9 million and net loss of £0.4 million before writing off goodwill. The goodwill associated with Carillion BTP was £14.7 million, of which £1.2 million was capitalised in the Group balance sheet and £13.5 million had previously been written off to reserves. The costs associated with the closure of a number of small non-core businesses amounted to £5.6 million. Exceptional items The net exceptional charge in 2004 of £57.2 million before tax comprised the following items - £7.7 million net profit from the sale of Crown House and Carillion BTP - £69.9 million goodwill write back associated with the sale of Crown House and Carillion BTP of which £68.7m had previously been written off to reserves - £7.7 million profit on the sale of two PPP equity investments - £2.9 million profit on the sale of fixed assets to Network Rail - £5.6 million of costs associated with closure of a number of small non-core businesses. Goodwill amortisation Goodwill amortisation in 2004 was £3.9m (2003: £3.8m). Taxation The Group's effective rate of tax on profit before exceptional items and goodwill amortisation fell to 21 per cent in 2004 from 28 per cent in 2003. This was due to a number of one-off tax settlements relating to prior years. We have £61 million of corporate tax losses in the UK, only some of which are recognised as deferred a tax asset, that are potentially available to reduce future tax liabilities. In 2005, we expect our tax rate to move closer to its 2003 level and remain there for the next few years. Pensions The pensions charge to the profit and loss account, calculated on the basis of SSAP 24, amounted to £29.5m in 2004, compared with £22.1m in 2003. However, the 2004 charge included the cost of writing off a £7.2 million prepayment relating to the Railway Pension Scheme, following the transfer of rail maintenance contracts and our rail maintenance employees to Network Rail. On an FRS 17 basis, the Group's pensions schemes had a net deficit of £59.6 million at the end of 2004, compared with a net deficit of £76.6m in December 2003. Subsequent to the closure of a number of our pension schemes to new entrants, the trustees revised their investment policy in 2004 to increase progressively the proportion of our pension fund assets that is invested in bonds with a corresponding reduction in the proportion invested in equities. FINANCIAL REPORTING SEGMENTS INVESTMENTS In this segment we report the equity returns on our investments in Public Private Partnership (PPP) projects. 2004 2003 Turnover £62.5m £67.5m Operating profit* £6.3m £8.6m Pre-tax profit** £3.7m £3.5m * Before goodwill amortisation of £0.3m (2003: £0.1m) ** Before exceptional profit of £7.7m (2003: £11.2m) Operating profit in this segment reduced as a result of our planned programme of equity sales. However, this was offset by a reduction in the interest charge on debt in our joint venture PPP concession companies, to leave pre-tax profit some six percent higher than in 2003. In our first equity sale in November 2003, we disposed of our £4.1 million investment in the Darent Valley Hospital concession, generating a net exceptional profit of £11.2 million. In 2004, we sold a further £13 million of equity investments - our holding in the M40 motorway concession and 50 per cent of our holding in the A249 road concession - generating a net exceptional profit of £7.7 million. The proceeds generated by all these sales have consistently supported the directors' valuation of our portfolio of equity investments. The directors' valuation is currently £83 million, based on discounting the cash flows expected from our remaining £29 million of equity investments over their respective concession periods, at 10 per cent. In 2004, we continued to build a strong pipeline of future investments. We reached financial close on four projects in 2004 - the William Osler and Royal Ottawa Hospitals in Canada, the Birmingham and Solihull LIFT (Local Improvement Finance Trust) project and the A249 road project in Kent - increasing the number of financially closed projects in our portfolio to 18. We are also the preferred bidder for another four projects, which includes our first Independent Sector Treatment Centre in Basildon for which we were appointed preferred bidder in September 2004. As a result, we now have commitments to invest a further £18 million in projects already financially closed. In addition, we plan to invest around another £20 million in projects for which we are preferred bidder. These committed and planned equity investments will increase the equity invested in our portfolio from £29 million to some £67 million over the next three or four years. We are also shortlisted for a further three PPP projects with a total potential equity requirement of up to £30 million. SUPPORT SERVICES In this segment we report the results of our activities in rail infrastructure, roads maintenance and facilities management and other support services. 2004 2003 Turnover £944.9m £933.5m Operating profit* £45.6m £51.1m Margin % 4.8 5.5 * Before exceptional operating charges of £nil (2003: £33.1m) and goodwill amortisation of £3.5 m (2003: £3.6m). Turnover in this segment remained broadly unchanged despite the loss of around £100 million of turnover in 2004 as a result of transferring rail maintenance contracts to Network Rail during the year. This loss has been offset largely by growth in other rail infrastructure activities and road maintenance. Also, some £20 million of turnover from our consultancy business, TPS, that was previously reported in Construction Services, is now included in this segment. The overall margin in Support Services returned to a more normal level after an increase in 2003 due to favourable settlements on a number of old Railtrack contracts. The progress made by our rail business in 2004, which included new contracts for enhancement projects and for the renewal of track and switches and crossings, enabled it to contribute nearly £550 million of turnover to this segment (2003: £567 million). It also continued to perform well on existing contracts, including West Coast Route Modernisation projects, a wide range of regional projects and the construction and maintenance of the Channel Tunnel Rail Link. As we transferred our rail maintenance contracts to Network Rail in stages over the first seven months of 2004, the full effect of this will be felt in 2005. As previously indicated, total turnover from the contracts transferred was around £250 million. However, we expect to continue rebuilding turnover in rail through further opportunities to increase our share of the UK and Scandinavian rail infrastructure markets. Our roads maintenance business also made good progress in 2004, increasing its turnover to some £141 million (2003: £115 million). This increase reflects a full year contribution from the contract won in 2003 to maintain approximately half of Surrey County Council's road network, worth up to £160 million over 10 years, and two new long-term maintenance contracts won in 2004 - one for Warwickshire County Council and one for Wolverhampton City Council, with an estimated total value of up to £94 million. We believe we can continue this progress in 2005, as we expect more opportunities to bid for local authority road maintenance contracts during the year. Overall, turnover from facilities management and support services in 2004 was broadly flat at £257 million (2003: £252 million). This reflects the increasingly competitive private sector market, which offered fewer opportunities to bid for contracts consistent with our selectivity criteria. However, the outlook in public sector facilities management market is much more positive, particularly as Local Authorities are increasingly seeking to outsource activities for which Carillion is well placed to provide integrated service solutions. The acquisition of Planned Maintenance Group will add substantially to turnover and profit in this segment. It will also considerably strengthen the breadth and quality of our service offering and create new opportunities to cross sell our services in both the public and private sector markets. CONSTRUCTION SERVICES In this segment we report the results of our UK building and civil engineering activities and the construction activities of our International Regional businesses. 2004 2003 Turnover £1,010.8m £1,001.8m Operating profit* £11.6m £5.6m Margin % 1.1 0.6 * Before goodwill amortisation of £0.1m (2003: £0.1m) Turnover in Construction Services was broadly unchanged, with increased contributions to turnover from our UK Building and our International Regional businesses offsetting reductions in UK civil engineering and in mechanical and electrical contracting due to the sale of Crown House. The sale of Carillion BTP, our contracting business in France, late in 2004 had little impact on our 2004 results. Reported operating profit in this segment was reduced by some £3.3 million as a result of changing the method by which we allocate profit on major construction contracts (see Accounting Policies on page 10), under which profit on the first 20 per cent of turnover is deferred until contract completion. Therefore, operating profit would have been approximately £15 million if it had been reported on the same basis as profit in 2003. Overall performance in this segment has returned to a satisfactory level. The sound performance we reported for our UK Building business in the first half of the year continued in the second half. This business, which accounted for some £507 million of 2004 turnover in this segment (2003: £444 million), has remained focused on its three main market sectors of retail, office and high-rise residential developments. By the end of 2004 its order book for 2005 was largely secure and around half its order book for 2006 was secure or probable. We therefore expect turnover in our UK Building business to grow in 2005, including an increased contribution from PPP construction. Turnover from UK civil engineering was some £25 million in 2004 (2003: £68 million). This declined as expected, in line with our selective approach to this market. Turnover in 2005 is likely to remain at broadly the same level as in 2004. We will continue to focus on the UK road construction sector and particularly on Highways Agency contracts procured under the Early Contractor Involvement programme, which offers acceptable levels of risk and reward. The contribution to turnover from our International Regional businesses increased to £355 million in 2004 (2003: £324 million), reflecting our successes in the highways maintenance market in Canada and in our Middle East construction market. In 2005, we expect further opportunities for growth in these markets and also in the facilities management market in the Middle East. Construction work on our two PPP hospitals in Canada, on which we reached financial close late in 2004, will also contribute to growth in 2005. Our Building Developments business continues to perform well, pursuing its strategy of specialising in the regeneration of brown field sites and developments where risk is minimised through pre-letting or sale to occupiers in sectors where there is continuing demand. International Financial Reporting Standards (IFRS) In accordance with the requirement for all listed European companies, the Group's financial statements for 2005 will be prepared under EU endorsed International Financial Reporting Standards (IFRS). The adoption of IFRS will have no impact upon the underlying cash flows or trading activities of the Group. In addition the ability of the Group to pay dividends to shareholders will be unaffected by IFRS. Had IFRS been adopted for reporting the Group's 2004 financial results, our best estimates of the main effects are set out in the table below and described in the notes that follow it. These estimates and comments are based on published standards and interpretations issued by the IASB to date and may therefore change as the implementation of IFRS evolves. £m (unaudited) Profit before Profit before Net Assets tax tax* 2004 Actuals UK GAAP (6) 55 187 IAS 19 Pensions 3 3 (71) IFRS 2 Share options - - - IFRS 3 Goodwill amortisation 73 - 4 IAS 1 Presentation of JV tax (2) (2) - IAS 12 Deferred tax - - (3) IAS 10 Dividends - - 10 Revised under IFRS GAAP 68 56 127 EPS UK GAAP basis (8)p 20p EPS IFRS GAAP basis 28p 21p *Before goodwill amortisation and exceptional items IAS 19 This standard replaces SSAP 24 with an FRS 17 approach, under which pension scheme deficits are included on the balance sheet. Going forward, the annual charge to our profit and loss account under IAS 19 is expected to be similar to that under SSAP 24. The positive impact on profit in 2004 reflects the reversal of the £7.2 million charge under SSAP 24 for writing off the pension prepayment relating to the Railway Pension Scheme, as a result of transferring our rail maintenance employees to Network Rail. The impact on net assets includes the elimination of existing SSAP 24 prepayments and is net of a deferred tax asset of £26 million on our pension deficit. IFRS 2 This standard requires the fair value cost of providing share option schemes to employees to be expensed. It applies only to schemes that started after 7 November 2002 and the effect in 2004 is less than £0.5 million. In 2005, the cost of providing such schemes is expected to be up to £1 million. IFRS 3 This standard will reverse goodwill amortisation in 2004 and replaces amortisation with annual impairment testing. Goodwill previously written off to reserves as at 1 January 2004 will no longer be included in the profit and loss account when the businesses to which it relates are sold. IAS 1 This standard requires the Group's share of joint venture profits to be reported on an after tax basis, but within pre-tax profit. However, as the Group's tax charge will no longer include tax on joint venture profits, there is no affect on earnings per share. IAS 12 The effect of this standard reflects an additional deferred tax provision required for un-remitted profits of overseas entities. IAS 10 This standard requires the Group to account for dividends to shareholders in the period in which they are approved rather than accruing for them in the period to which they relate. Carillion has decided to take the available exemption from applying IAS 39 (Financial instruments) to its 2004 comparative information. At present, the application of IAS 39 from 1 January 2005 could potentially reduce the Group's net assets at that date by approximately £22 million, net of deferred tax. This reflects the Group's share of the fair value liability of interest rate derivatives within a number of joint venture PPP concession companies. On 3 March 2005, the International Financial Reporting Interpretations Committee (IFRIC) issued draft guidance on accounting for service concession arrangements. The Group is in the process of determining the implications of this draft guidance and consequently the impact of IFRS on PPP concession companies remains uncertain at this time. In addition to the effects on financial reporting outlined above, there are a number of other areas where presentation and disclosures in financial statements will change under IFRS. The significant areas are as follows. • The Group's share of turnover in joint ventures will be excluded from total Group turnover and its share of profits from joint ventures will be excluded from the segmentation of profit from operations. • Acquisitions may give rise both to goodwill and intangible assets, such as customer contracts or customer lists, which must be disclosed separately on the balance sheet. Unlike goodwill, intangible assets with a finite life will be amortised. • The cash flow statement will contain three main categories compared with nine under UK GAAP. The definition of cash and cash equivalents is wider under IFRS and includes cash on deposit. • Other specific areas requiring increased disclosure include segmental results, leases, construction contracts, financial instruments and related parties. The International Accounting Standards Board is still in the process of reviewing existing standards and some have yet to be endorsed by the European Union. Carillion's IFRS project team will continue to monitor developments and their potential effects on the Group. Overall, we do not expect these to have a significant effect on the Group's annual earnings. The Group's interim results for the period ending 30 June 2005 will be the first period for which the Group will report its results under IFRS. Prior to reporting those results, the Group will publish fully restated comparative information for its 2004 interim and full-year results. Chris Girling Finance Director Consolidated Profit and Loss Account for the year ended 31 December 2004 2004 2003 Note Before Exceptional Total Before Exceptional Total exceptional items items Items £m exceptional (see Note 3) £m items £m (see Note 3) £m £m £m Total turnover 2 1,991.8 - 1,991.8 1,977.6 - 1,977.6 Less: share of joint ventures' turnover 2 (121.8) - (121.8) (116.7) - (116.7) ------- ------ ------ ------- ------- ------ Group turnover 1,870.0 - 1,870.0 1,860.9 - 1,860.9 Cost of (1,709.1) - (1,709.1) (1,693.2) - (1,693.2) sales ------- ------ ------ ------- ------- ------ Gross profit 160.9 - 160.9 167.7 - 167.7 Administrative expenses (127.0) - (127.0) (129.6) (33.1) (162.7) ------- ------ ------ ------- ------- ------ Group operating profit 33.9 - 33.9 38.1 (33.1) 5.0 Share of operating profit in joint ventures 2 16.9 - 16.9 14.3 - 14.3 ------- ------ ------ ------- ------- ------ Total operating profit 50.8 - 50.8 52.4 (33.1) 19.3 Profit on sale of tangible fixed assets 3 - 2.9 2.9 - - - Profit on sale of fixed asset investments 3 - 7.7 7.7 - 11.8 11.8 Profit/(loss) on sale of ------- ------ ------ ------- ------- ------ businesses Group 3 - (69.3) (69.3) - (1.5) (1.5) Joint ventures 3 - 1.5 1.5 - 0.2 0.2 ------- ------ ------ ------- ------- ------ - (67.8) (67.8) - (1.3) (1.3) ------- ------ ------ ------- ------- ------ (Loss)/profit on ordinary activities before interest 2 50.8 (57.2) (6.4) 52.4 (22.6) 29.8 Net interest receivable/ ------- ------ ------ ------- ------- ------ (payable) Group 3.4 - 3.4 (0.5) - (0.5) Joint ventures (3.4) - (3.4) (4.9) (0.6) (5.5) ------- ------ ------ ------- ------- ------ - - - (5.4) (0.6) (6.0) ------- ------ ------ ------- ------- ------ (Loss)/profit on ordinary activities before taxation 50.8 (57.2) (6.4) 47.0 (23.2) 23.8 Taxation (11.0) 1.4 (9.6) (13.8) - (13.8) ------- ------ ------ ------- ------- ------ (Loss)/profit on ordinary activities after taxation 39.8 (55.8) (16.0) 33.2 (23.2) 10.0 Equity minority interests (1.8) - (1.8) (1.7) - (1.7) ------- ------ ------ ------- ------- ------ (Loss)/profit for the financial year 38.0 (55.8) (17.8) 31.5 (23.2) 8.3 Equity dividends 4 (15.7) - (15.7) (14.1) - (14.1) ------- ------ ------ ------- ------- ------ Retained loss for the Group and its share of joint ventures 22.3 (55.8) (33.5) 17.4 (23.2) (5.8) ======= ====== ====== ======= ======= ====== Earnings per ordinary share 5 Basic 18.2p (26.7p) (8.5p) 15.2p (11.2p) 4.0p ------- ------ ------ ------- ------- ------ Diluted 18.0p (26.4p) (8.4p) 15.1p (11.1p) 4.0p ------- ------ ------ ------- ------- ------ Basic before all exceptional items and goodwill amortisation 19.9p 16.8p ------- ------- Dividends per ordinary share 4 7.5p 6.75p ------ ------ The above results are wholly derived from continuing operations. Consolidated Balance Sheet At At 31 December 31 December 2004 2003 £m restated £m Fixed assets Intangible assets 16.2 21.3 Tangible assets 71.2 68.1 Investments in joint ventures: ---------- ---------- Share of gross assets 620.6 639.7 Share of gross liabilities (580.6) (599.7) ---------- ---------- 40.0 40.0 Loan advances 24.1 33.1 ---------- ---------- 64.1 73.1 Other investments 3.2 0.1 ---------- ---------- Total investments 67.3 73.2 ---------- ---------- 154.7 162.6 ---------- ---------- Current assets Stocks 54.8 46.3 Debtors 371.0 511.3 Investments 3.6 4.7 Cash at bank and in hand 203.3 128.1 ---------- ---------- 632.7 690.4 Creditors: amounts falling due within one year Borrowings (17.4) (14.0) Other creditors (514.8) (621.2) ---------- ---------- (532.2) (635.2) Net current assets ---------- ---------- Due within one year 74.4 26.1 Debtors due after more than one year 26.1 29.1 ---------- ---------- 100.5 55.2 ---------- ---------- Total assets less current liabilities 255.2 217.8 Creditors: amounts falling due after more than one year Borrowings (56.5) (53.9) Other creditors (9.6) (7.6) ---------- ---------- (66.1) (61.5) Provisions for liabilities and charges (2.2) (4.7) ---------- ---------- Net assets 186.9 151.6 ========== ========== Financed by: Capital and reserves Called up share capital 107.1 107.0 Share premium account 6.8 6.5 Merger reserve 8.2 8.2 Profit and loss account 62.7 27.6 ---------- ---------- Equity shareholders' funds 184.8 149.3 Equity minority interests 2.1 2.3 ---------- ---------- 186.9 151.6 ========== ========== Consolidated Cash Flow Statement Note Year ended Year ended 31 December 31 December 2004 2003 £m restated £m Net cash inflow from operating activities 6(a) 92.8 84.2 Distributions received from joint ventures 6.7 14.7 Returns on investments and servicing of finance ---------- ---------- Dividend paid to minority interests (2.0) (1.6) Interest paid (2.5) (5.6) Finance lease charges (1.0) (0.4) Interest received 7.2 5.5 ---------- ---------- Net cash inflow / (outflow) from returns on investments and servicing of finance 1.7 (2.1) Corporate taxation (paid) / received (13.0) 0.5 Capital expenditure and financial investment ---------- ---------- Payments to acquire tangible fixed assets (15.0) (15.6) Sale of current asset investments 0.9 3.5 Sale of tangible fixed assets 6.9 1.5 ---------- ---------- Net cash outflow from capital expenditure and financial investment (7.2) (10.6) Acquisitions and disposals ---------- ---------- Sale of businesses 7(b) (4.3) 4.6 Purchase of equity investments in joint ventures 7(a) (1.1) (0.4) ---------- ---------- Sale of equity investment in joint ventures 7(b) 20.2 5.1 Loan repayments from / (advances to) joint ventures 0.1 (14.9) ---------- ---------- Net cash inflow / (outflow) from acquisitions and disposals 14.9 (5.6) Equity dividends paid (16.4) (10.1) ---------- ---------- Net cash inflow before management of liquid 79.5 71.0 resources and financing Management of liquid resources ---------- ---------- Increase in short term deposits (91.4) (25.4) ---------- ---------- Net cash outflow from management of liquid resources 6(c) (91.4) (25.4) Financing ---------- ---------- Net repayment of debt 6(c) (3.4) (20.9) Repayment of finance leases 6(c) (2.9) (2.2) Issue of share capital 0.4 1.5 Purchase of own shares by ESOP - (0.2) ---------- ---------- Net cash outflow from financing (5.9) (21.8) ---------- ---------- (Decrease)/increase in cash in the year 6(c) (17.8) 23.8 ========== ========== Consolidated Statement of Total Recognised Gains and Losses 2004 2003 £m £m (Loss)/profit for the financial year Group (30.8) 2.7 Joint ventures 13.0 5.6 -------- -------- (17.8) 8.3 Exchange rate movements (0.9) (1.3) -------- -------- Total recognised gains and losses for the year (18.7) 7.0 ======== ======== Reconciliation of Movements in Consolidated Equity Shareholders' Funds 2004 2003 £m £m (Loss)/profit for the financial year Group (30.8) 2.7 Joint ventures 13.0 5.6 -------- -------- (17.8) 8.3 Equity dividends (15.7) (14.1) -------- -------- Retained loss for the Group and its share of joint ventures (33.5) (5.8) Exchange rate movements (0.9) (1.3) New share capital subscribed by QUEST 0.1 1.5 Other new share capital subscribed 0.3 - Goodwill written back on disposal 68.7 5.5 Impairment of goodwill previously written off to reserves - 8.1 Issue/(purchase) of own shares 0.8 (0.2) -------- -------- Net addition to equity shareholders' funds 35.5 7.8 Opening equity shareholders' funds (restated) 149.3 141.5 -------- -------- Closing equity shareholders' funds 184.8 149.3 ======== ======== Opening equity shareholders' funds as previously reported 155.5 147.5 Prior year adjustments (see Note 1) (6.2) (6.0) -------- -------- Opening equity shareholders' funds as restated 149.3 141.5 ======== ======== Notes 1. Basis of preparation The financial information set out herein (which was approved by the Board on 9 March 2005) does not constitute the Company's statutory accounts for the years ended 31 December 2004 and 2003. The statutory accounts for the year ended 31 December 2003 have been delivered to the Registrar of Companies and those for the year ended 31 December 2004 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. The Group owns shares in Carillion plc via its Employee Share Ownership Plan (ESOP) trust. The purpose of this trust is to hold shares that may subsequently be awarded to Executive Directors and senior employees under share incentive schemes. In previous years the purchase costs of these shares were treated as fixed asset investments. During the year, the Group adopted UITF 38 'Accounting for ESOP trusts'. The affect of this has been to recognise the purchase cost of the shares as a deduction in shareholders' funds rather than as a fixed asset investment. For 2003 the impact of this change is to reduce both fixed asset investments and the profit and loss reserve by £6.2m. In the cashflow statement movements associated with the ESOP trust have been reclassified from capital expenditure and financial investment to financing. There is no impact on the profit and loss account. 2. Analysis of turnover, profit before interest and net assets Total turnover Net assets/(liabilities) Class of business: 2004 2003 2004 2003 £m £m £m restated £m Investments 62.5 67.5 36.5 46.5 Support services 944.9 933.5 (20.6) (22.4) Construction services 1,010.8 1,001.8 57.8 106.3 Internal trading (26.4) (25.2) - - Corporate centre - - (40.4) (54.6) Net cash - - 153.6 75.8 ------- ------- ------- ------- 1,991.8 1,977.6 186.9 151.6 ======= ======= ======= ======= Geographical origin: UK 1,600.3 1,633.2 26.4 79.7 Europe 197.7 212.3 (12.2) (17.5) Rest of the World 193.8 132.1 19.1 13.6 Net cash - - 153.6 75.8 ------- ------- ------- ------- 1,991.8 1,977.6 186.9 151.6 ======= ======= ======= ======= The analysis of turnover by geographical market served is not materially different from that by geographical origin. (Loss)/profit on ordinary activities before interest 2004 2003 Class of Before Exceptional Total Before Exceptional Total business: items items exceptional £m £m exceptional £m £m items items £m £m Investments 6.0 7.7 13.7 8.5 11.8 20.3 Support services 42.1 2.9 45.0 47.5 (32.8) 14.7 Construction services 11.5 (67.8) (56.3) 5.5 (1.6) 3.9 Corporate centre (8.8) - (8.8) (9.1) - (9.1) ------- ------- ------ ------- ------- ------ 50.8 (57.2) (6.4) 52.4 (22.6) 29.8 ======= ======= ====== ======= ======= ====== Geographical origin: UK 47.3 (41.5) 5.8 48.6 (23.0) 25.6 Europe 1.7 (13.5) (11.8) 3.9 - 3.9 Rest of the World 1.8 (2.2) (0.4) (0.1) 0.4 0.3 ------- ------- ------ ------- ------- ------ 50.8 (57.2) (6.4) 52.4 (22.6) 29.8 ======= ======= ====== ======= ======= ====== The Group's share of the turnover and net assets in joint ventures was as follows: Turnover Net assets/(liabilities) Class of business: 2004 2003 2004 2003 £m £m £m £m Investments 57.4 65.1 37.2 50.8 Support services 8.3 3.8 0.6 (1.6) Construction services 56.1 47.8 26.3 23.9 ------- ------- ------- ------- 121.8 116.7 64.1 73.1 ======= ======= ======= ======= Geographical origin: UK 69.5 71.7 56.0 68.1 Europe 0.3 2.3 (0.1) (2.8) Rest of the World 52.0 42.7 8.2 7.8 ------- ------- ------- ------- 121.8 116.7 64.1 73.1 ======= ======= ======= ======= The Group's share of the profit on ordinary activities before interest in joint ventures was as follows: 2004 2003 Class of Before Exceptional Total Before Exceptional Total business: items items exceptional £m £m exceptional £m £m items items £m £m Investments 9.7 - 9.7 11.5 - 11.5 Support services 2.5 - 2.5 (1.9) - (1.9) Construction services 4.7 1.5 6.2 4.7 0.2 4.9 ------- ------- ------ ------- ------- ------ 16.9 1.5 18.4 14.3 0.2 14.5 ======= ======= ====== ======= ======= ====== Geographical origin: UK 14.0 (0.8) 13.2 12.0 - 12.0 Europe 0.3 2.3 2.6 0.2 - 0.2 Rest of the World 2.6 - 2.6 2.1 0.2 2.3 ------- ------- ------ ------- ------- ------ 16.9 1.5 18.4 14.3 0.2 14.5 ======= ======= ====== ======= ======= ====== 3. Exceptional items 2004 2003 Gross Tax Gross Tax £m £m £m £m Operating items: Group: Impairment of goodwill - - (25.0) - Impairment of goodwill previously written off to reserves - - (8.1) - ------- ------- ------- ------- - - (33.1) - ------- ------- ------- ------- Non-operating items: Group: Profit on sale of tangible fixed 2.9 (0.9) - - assets Profit on sale of fixed asset 7.7 - 11.8 - investments Loss on sale of businesses (69.3) 2.1 (1.5) (0.2) ------- ------- ------- ------- (58.7) 1.2 10.3 (0.2) Joint ventures: Profit on sale of businesses 1.5 0.2 0.2 - Interest payable - - (0.6) 0.2 ------- ------- ------- ------- 1.5 0.2 9.9 - ------- ------- ------- ------- Total exceptional items (57.2) 1.4 (23.2) - ======= ======= ======= ======= Further disclosure on the Group's sale of businesses and fixed asset investments during 2004 can be found in Note 7. The profit on sale of tangible fixed assets arose on the transfer of rail maintenance contracts to Network Rail as disclosed in Note 8. The profit on sale of businesses in joint ventures relates to the closure of a small contracting business in the Republic of Ireland. 4. Equity dividends £m 2004 £m 2003 pence per share pence per share Equity shares Ordinary shares: Interim 5.6 2.675 3.3 1.575 Final 10.1 4.825 10.8 5.175 ------ ------ ------ ------ Total equity dividends 15.7 7.5 14.1 6.75 ====== ====== ====== ====== The interim dividend for 2004 includes 1.0 pence per share that represents a return to shareholders of a proportion of the profit generated on the disposal of PPP equity shareholdings (see Note 7). Similarly, the final dividend for 2003 includes 1.7 pence per share relating to the profit on disposal of the Group's equity shareholding in the Darent Valley Hospital PPP joint venture in that year. 5. Earnings per share (a) Basic Earnings per share is calculated by dividing the loss attributable to ordinary shareholders, amounting to £17.8m (2003: profit £8.3m), by 208,426,740 (2003: 207,622,166) ordinary shares being the weighted average number of shares in issue during the year. The weighted average number of shares excludes shares held by the Employee Share Ownership Plan and the QUEST which amount to 5,057,396 shares in total (2003: 6,206,528). (b) Basic before all exceptional items and goodwill amortisation A reconciliation of the basic earnings per ordinary share to the adjusted amounts shown on the face of the profit and loss account is calculated below to show the impact of all exceptional items (as disclosed in Note 3) and the amortisation charge from goodwill: 2004 2003 £m Pence £m Pence per share per share (Loss)/profit attributable to ordinary (17.8) (8.5) 8.3 4.0 shareholders Exceptional items: Impairment of goodwill - - 33.1 15.9 Profit on sale of fixed asset investments (7.7) (3.7) (11.8) (5.6) Profit on sale of fixed assets (2.9) (1.4) - - Loss on sale of businesses 67.8 32.5 1.3 0.6 Interest payable - - 0.6 0.3 Less taxation in respect of the (1.4) (0.7) - - above ------- ------ ------- ------- Profit before all exceptional items 38.0 18.2 31.5 15.2 Amortisation of goodwill 3.9 1.9 3.8 1.8 Less taxation in respect of the (0.4) (0.2) (0.4) (0.2) above ------- ------ ------- ------- Profit before all exceptional items and 41.5 19.9 34.9 16.8 goodwill amortisation ======= ====== ======= ======= (c) Diluted Diluted earnings per ordinary share have been calculated on both profit before and after all exceptional items, using the same earnings numerators as set out in (a) and (b) above and by reference to the following number of shares: Number of ordinary shares 2004 2003 million million Number of ordinary shares per basic earnings per share calculations 208.4 207.6 Adjustments to reflect dilutive shares under option 2.8 1.7 ------- ------- Number of ordinary shares per diluted earnings per share calculations 211.2 209.3 ======= ======= 6. Cash flow notes (a) Reconciliation of operating profit to net cash inflow from operating activities 2004 2003 £m £m Group operating profit before exceptional items 33.9 38.1 Depreciation 16.3 15.0 Reversal of impairment in tangible fixed assets - (2.2) Loss on disposal of fixed assets - 0.1 Amount written off fixed asset investments 0.1 - Decrease in market value of listed current asset investments 0.2 - Amortisation of goodwill 3.9 3.8 (Increase) / decrease in stocks (15.6) 0.9 Decrease in debtors 39.8 22.6 Increase in creditors due within one year 12.4 10.4 Increase / (decrease) in creditors due after more than one year 2.1 (5.9) Decrease in provisions (0.3) (0.9) Increase in bills of exchange - 3.0 ------- ------- Net cash inflow from operating activities before exceptional items 92.8 84.9 Exceptional operating cash spend - (0.7) ------- ------- Net cash inflow from operating activities 92.8 84.2 ======= ======= (b) Analysis of changes in net funds At Cash flows Exchange Other non cash At 31 December movements 2004 1 January 2004 £m rate movements £m £m £m £m Cash at bank 70.7 (16.0) (0.2) - 54.5 and in hand Bank overdrafts (11.3) (1.8) - - (13.1) -------- -------- -------- -------- -------- 59.4 (17.8) (0.2) - 41.4 Short term deposits 57.4 91.4 - - 148.8 Bank (39.4) 5.6 1.0 - (32.8) loans Other (1.6) (2.2) - - (3.8) loans Finance (15.6) 2.9 - (11.5) (24.2) leases -------- -------- -------- -------- -------- Net 60.2 79.9 0.8 (11.5) 129.4 funds ======== ======== ======== ======== ======== (c) Reconciliation of net cash flow to movement in net funds 2004 2003 £m £m (Decrease) / increase in cash in the year (17.8) 23.8 Increase in short term deposits 91.4 25.4 Cashflow from repayment of debt 3.4 20.9 Cash outflow from finance leases 2.9 2.2 -------- -------- Movement in net funds resulting from cash flows 79.9 72.3 Exchange rate movements 0.8 0.4 Non cash movements from finance leases (11.5) (10.4) -------- -------- Movement in net funds in the year 69.2 62.3 Net funds/(debt) at 1 January 60.2 (2.1) -------- -------- Net funds at 31 December 129.4 60.2 ======== ======== 7. Acquisitions and disposals (a) Acquisitions The Group acquired a 50% interest in the share capital of WPL Estates Limited during the year. The acquisition cost of £1.1m was satisfied in cash. No goodwill arose on the acquisition. (b) Disposals During the year the Group disposed of its mechanical and electrical engineering business, Crown House Engineering, and Carillion BTP, a French subsidiary. In addition, the Group incurred costs associated with the closure of a number of non-core businesses. The movements that relate to these disposals are summarised below: Crown House Carillion BTP Total £m £m £m Tangible fixed assets (0.7) (2.8) (3.5) Stocks (0.1) (6.3) (6.4) Debtors due within one year (14.9) (67.2) (82.1) Cash - (14.4) (14.4) Creditors due within one year 26.0 81.4 107.4 -------- -------- --------- Net liabilities/(assets) disposed of 10.3 (9.3) 1.0 Fair value of consideration receivable 3.2 10.9 14.1 Disposal costs (0.9) (2.0) (2.9) Provision against retained contracts (4.5) - (4.5) Goodwill associated with disposals (55.2) (14.7) (69.9) -------- -------- --------- Loss on disposal (47.1) (15.1) (62.2) ======== ======== Closure costs of non-core businesses (7.1) --------- (69.3) ========= Consideration for Crown House Engineering includes £0.2m in debtors due within one year. The disposals have been reflected in the Group cash flow statement as follows: Crown House BTP Total £m £m £m Cash consideration received (net of disposal costs) 2.1 8.9 11.0 Cash in businesses disposed of - (14.4) (14.4) -------- -------- --------- Cash outflow in respect of disposals 2.1 (5.5) (3.4) ======== ======== Cash outflow in respect of closure costs (0.9) --------- Cash outflow from sale of businesses (4.3) ========= In June 2004, the Group disposed of its 50% equity shareholding and loan advance in UK Highways M40 (Holdings) Limited for consideration (net of disposal costs) of £19.0m. In addition, in June 2004 the Group disposed of 50% of its 100% equity shareholding in Sheppey Route (Holdings) Limited for £1.2m. The total profit on these disposals amounted to £7.7m. 8. Transfer of rail contracts to Network Rail In May 2004 a contractual agreement was reached with Network Rail to transfer the assets and undertakings relating to the Group's five rail maintenance contracts. Two contracts transferred on 29 May 2004 and the remaining three transferred on 24 July 2004. The assets transferred consisted primarily of plant, equipment, consumables and stocks. In addition, the Group wrote off a prepayment of pension contributions relating to transferring employees of £7.2m. The book value of assets at the date of the agreement was £13.8m. A profit of £2.9m arose on the transfer of tangible fixed assets as disclosed in Note 3. Other terms of the transfer agreement, which are subject to a confidentiality undertaking with Network Rail, dealt with the settlement of contract claims in the normal course of business, the costs of transfer and the separation terms. 9. Posting of statutory accounts to shareholders The Company's report and accounts will be posted to shareholders by 8 April 2005 . From that date copies will be available from the registered office, Carillion plc, Birch Street, Wolverhampton, WV1 4HY. 10. Annual general meeting A resolution will be put to shareholders at the AGM on 11 May 2005 for the Company to be authorised to purchase its own shares. The Board has no present intention of making any such purchase and the resolution is in keeping with the practice of other companies. This information is provided by RNS The company news service from the London Stock Exchange

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