Interim Results 2011

RNS Number : 9158M

Carillion PLC

24 August 2011

Half-year results for the six months ended 30 June 2011

Carillion, a leading integrated support services company, delivers another strong performance

	Six months ended 30 June 2011	Six months ended 30 June 2010	Change
Revenue	£2,453.5m	£2,507.1m	-2%
Underlying operating margin	3.3%	3.1%	n/a
Underlying profit before taxation⁽¹⁾	£72.5m	£65.7m	+10%
Underlying earnings per share⁽²⁾	14.3p	13.0p	+10%
Profit before taxation	£38.2m	£58.8m	-35%
Basic earnings per share	7.9p	12.9p	-39%
Net (borrowing)/cash	£(93.7)m	£68.0m	n/a
Interim dividend per share	5.3p	4.8p	+10%

· Strong financial performance in line with market expectations

o Revenue broadly unchanged, with growth largely offset by planned re-scaling of UK construction business

o 10% increase in underlying profit before taxation and underlying earnings per share (eps) reflects improved operating margin, with support services operating margin up from 3.9% to 4.1%

o Reductions in reported profit before taxation and basic eps due to a total of £28.0m of one-off costs relating to the acquisition and integration of Carillion Energy Services

· Strong balance sheet

o Net debt £93.7m, substantially better than expectations, following the £298.4m acquisition of Carillion Energy Services

o Strong cash flow from operations of £110.0m, equal to 148% of profit from operations

o New £100.0m private placement debt facility

· High revenue visibility: improved order book plus probable orders; record pipeline of opportunities

o 2011 visibility⁽³⁾ 96%

o Order book plus probable orders worth £19.4bn (31 December 2010: £19.1bn): order book £17.7bn (31 December 2010: £18.2bn); probable orders £1.7bn (31 December 2010: £0.9bn)

o Pipeline of contract opportunities up 25% to £32bn, includes major public sector outsourcing opportunities

· Interim dividend up 10% reflecting strong performance and positive outlook

(1) After Joint Ventures taxation credit of £0.8 million (2010: nil) and before intangible amortisation, non-recurring operating items and non-operating items (see note 3).

(2) Before intangible amortisation, non-recurring operating items and non-operating items (see note 3).

(3) At 30 June 2011, based on expected revenue and secure and probable orders, which exclude variable work and re-bids.

Carillion Chairman, Philip Rogerson, commented:

"I am pleased to report that Carillion performed strongly in the first half of 2011, despite market conditions remaining challenging, particularly in the UK. The Group's strong track record of profitable growth continues to reflect its well-balanced and resilient UK and international business mix and good revenue visibility. We expect to make further progress in the second half of 2011 to deliver earnings growth in line with market expectations. Furthermore, with strong market positions and a record pipeline of contract opportunities, the Group continues to target strong international growth and substantial growth in UK support services over the medium term.

"Our Group Chief Executive, John McDonough CBE, will be retiring from the Board and from the company on 31 December 2011, having reached the age of 60. He will be succeeded as Group Chief Executive by Richard Howson who is currently our Chief Operating Officer. John will leave the Board and the company with our grateful thanks and very best wishes for his retirement."

There will be a presentation for analysts and investors today at 08.15am. A telephone dial in facility (+44 (0) 207 365 3966) will be available for analysts and investors who are unable to attend the presentation. The presentation can be viewed on Carillion's website at www.carillionplc.com/investors/investors_presentations.asp. A replay facility is also available following the call on Toll Free UK: 0800 358 3474 - Access Code: 4459412# and Toll Free US: 1 800 406 7325 - Access Code: 4459412#

For further information contact:

Richard Adam, Group Finance Director

John Denning, Group Corporate Affairs Director

Finsbury - James Murgatroyd and Gordon Simpson

tel: +44 (0) 1902 422431

tel: +44 (0) 1902 316426

tel: +44 (0) 20 7251 3801

24 August 2011

Notes to Editors:

Carillion is one of the UK's leading support services companies with a substantial portfolio of Public Private Partnership projects and extensive construction capabilities. The Group had annual revenue in 2010 of £5.1 billion, employs around 50,000 people and operates across the UK, the Middle East and Canada.

The Group has four business segments:

Support services - this includes facilities management, facilities services, energy services, utility services, road maintenance, rail services and consultancy businesses.

Public Private Partnership (PPP) projects - this includes our investing activities in PPP projects in our chosen sectors of Defence, Health, Education, Transport, Secure energy services and other Government accommodation.

Middle East construction services - this includes our building and civil engineering activities in the Middle East.

Construction services (excluding the Middle East) - this includes our building, civil engineering and developments activities in the UK and our construction activities in Canada.

This and other Carillion news releases can be found at www.carillionplc.com

Photographs:

High resolution photographs are available free of charge to the media at www.newscast.co.uk telephone

+ 44 (0) 208 886 5895.

Cautionary statement

This announcement may contain indications of likely future developments and other forward-looking statements that are subject to risk factors associated with, among other things, the economic and business circumstances occurring from time to time in the countries, sectors and business segments in which the Group operates. These and other factors could adversely affect the Group's results, strategy and prospects. Forward-looking statements involve risks, uncertainties and assumptions. They relate to events and/or depend on circumstances in the future which could cause actual results and outcomes to differ materially from those currently anticipated. No obligation is assumed to update any forward-looking statements, whether as a result of new information, future events or otherwise.

Key financial figures

		2011	2010	Change
Income statement
Total revenue	£m	2,453.5	2,507.1	-2%
Total Group underlying operating margin⁽¹⁾	Percentage	3.3	3.1	n/a
Support services underlying operating margin⁽¹⁾	Percentage	4.1	3.9	n/a
Middle East construction services underlying operating margin⁽¹⁾	Percentage	7.4	8.5	n/a
Construction services (excluding the Middle East) underlying operating margin⁽¹⁾	Percentage	1.6	1.1	n/a
Underlying profit from operations⁽²⁾	£m	74.4	69.8	+7%
Underlying profit before taxation⁽³⁾	£m	72.5	65.7	+10%
Profit before taxation	£m	38.2	58.8	-35%
Underlying earnings per share⁽⁴⁾	Pence	14.3	13.0	+10%
Basic earnings per share	Pence	7.9	12.9	-39%
Dividends
Proposed interim dividend per share	Pence	5.3	4.8	+10%
Underlying proposed dividend cover⁽⁴⁾	Times	2.7	2.7	n/a
Basic proposed dividend cover	Times	1.5	2.7	n/a
Cash flow statement
Cash generated from operations⁽⁵⁾	£m	110.0	104.8	+5%
Underlying profit from operations cash conversion	Percentage	147.8	150.0	n/a
Deficit pension contributions	£m	13.4	14.7	-9%
Balance sheet
Net (borrowing)/cash	£m	(93.7)	68.0	n/a
Committed borrowing facility to 2016	£m	737.5	640.0	n/a
Net retirement benefit liability (net of taxation)	£m	150.6	257.1	-41%
Net assets	£m	997.9	744.0	+34%

(1) Before Joint Ventures net financial expense and taxation, intangible amortisation and non-recurring operating items (see note 3).

(2) After Joint Ventures net finance expense of £7.0 million (2010: £6.8 million) and taxation credit of £0.8 million (2010: nil) and before intangible amortisation, non-recurring operating items and non-operating items (see note 3).

(3) After Joint Ventures taxation credit of £0.8 million (2010: nil) and before intangible amortisation, non-recurring operating items and non-operating items (see note 3).

(4) Before intangible amortisation, non-recurring operating items and non-operating items.

(5) Before pension deficit recovery payments and non-recurring operating items and after dividends received from Joint Ventures.

Summary results

Carillion performed strongly in the first half of 2011, continuing the Group's strong track record of profitable growth, despite market conditions remaining challenging, particularly in the UK.

Underlying profit before taxation⁽¹⁾ increased by 10 per cent to £72.5 million (2010: £65.7 million), which reflected an improvement in the Group's total first-half operating margin to 3.3 per cent (2010: 3.1 per cent) in line with our focus on margins and a reduction in the Group's net financial expense. Compared with the corresponding period in 2010, underlying earnings per share⁽²⁾ increased by 10 per cent to 14.3 pence (2010: 13.0 pence).

Total revenue remained broadly stable at just below £2.5 billion (2010: £2.5 billion), with the contribution from Carillion Energy Services primarily offset by a 15 per cent reduction in UK construction revenue, in line with the planned re-scaling of this business announced in August 2010.

Cash flow from operations remained strong at £110.0 million (2010: £104.8 million) and represented 148 per cent of profit from operations. Net borrowing at 30 June 2011 was £93.7 million (31 December 2010: £120.2 million net cash). This is substantially better than the target we set when we acquired Carillion Energy Services of reducing net borrowing to below £150 million by 31 December 2011. The integration of this new business continues to go well. We are also on track to deliver the synergy cost savings that we announced in our trading update on 7 July 2011, of £15 million per annum by the end of 2013 at a one-off cost of £20 million.

The Group's order book, which excludes variable work and re-bids, continues to provide good visibility of future revenue and at 30 June 2011 this was 96 per cent for 2011, based on expected revenue and secure and probable orders. At 30 June 2011, the combined value of the Group's order book and probable orders increased to £19.4 billion (31 December 2010: £19.1 billion). Within this total, the order book reduced to £17.7 billion (31 December 2010: £18.2 billion), due to the planned re-scaling of UK construction, and probable orders increased to some £1.7 billion (31 December 2010: £0.9 billion). At 30 June 2011, our pipeline of contract opportunities had increased by 25 per cent to a record level of some £32 billion (31 December 2010: £26 billion).

In view of the Group's first-half performance and positive prospects the Board has increased the interim dividend by 10 per cent to 5.3 pence per share (2010: 4.8 pence) in line with our progressive dividend policy.

(1) After Joint Ventures taxation credit of £0.8 million (2010: nil) and before intangible amortisation, non-recurring operating items and non-operating items.

(2) Before intangible amortisation, non-recurring operating items and non-operating items.

Business performance

First-half revenue of just below £2.5 billion (2010: £2.5 billion) primarily reflected the planned reduction in UK construction revenue and the benefit of revenue from Carillion Energy Services, which was acquired on 21 April 2011.

Underlying profit from operations⁽¹⁾ increased by seven per cent to £74.4 million (2010: £69.8 million) reflecting an improved operating margin. In support services, the underlying operating margin increased to 4.1 per cent (2010: 3.9 per cent) and in construction services (excluding the Middle East) the underlying operating margin increased to 1.6 per cent (2010: 1.1 per cent). As a result, the total Group underlying operating margin increased to 3.3 per cent (2010: 3.1 per cent), despite the expected reduction in underlying operating margin in Middle East construction services to 7.4 per cent (2010: 8.5 per cent), in line with our previously announced expectation that the margin in this business segment will ease back to around six per cent by 2013.

After a net financial expense of £1.9 million (2010: £4.1 million), underlying profit before taxation⁽²⁾ increased by 10 per cent to £72.5 million (2010: £65.7 million). The Group's net financial expense reduced, because the benefit of the pension scheme interest credit of £1.5 million (2010: £1.7 million charge) more than offset the increase in interest payable on net borrowing following the acquisition of Carillion Energy Services.

After underlying Group taxation of £12.4 million (2010: £11.2 million) and profit attributable to non-controlling interests of £1.4 million (2010: £2.6 million), underlying profit attributable to shareholders increased by 13 per cent to £58.7 million (2010: £51.9 million) and underlying earnings per share⁽³⁾ increased by 10 per cent to 14.3 pence (2010: 13.0 pence).

The underlying Group taxation charge of £12.4 million when combined with a taxation credit on Joint Ventures of £0.8 million (2010: nil), represented an underlying effective tax rate⁽³⁾ of 16 per cent (31 December 2010: 16 per cent).

Intangible amortisation amounted to £14.2 million (2010: £13.8 million) and included £3.6 million in relation to Carillion Energy Services. The non-recurring operating charge of £20.0 million (2010: £9.4 million) includes integration and rationalisation costs relating to the acquisition of Carillion Energy Services. The non-operating loss of £0.1 million (2010: £16.3 million profit) comprised a profit of £6.1 million on the disposal of two Public Private Partnership equity investments and a profit of £1.8 million on the sale of a small joint venture in the Netherlands, together with the acquisition costs relating to Carillion Energy Services of £8.0 million.

(1) After Joint Ventures net financial expense of £7.0 million (2010: £6.8 million) and taxation credit of £0.8 million (2010: nil) and before intangible amortisation, non-recurring operating items and non-operating items.

(2) After Joint Ventures taxation credit of £0.8 million (2010: nil) and before intangible amortisation, non-recurring items and non-operating items.

(3) Before intangible amortisation, non-recurring operating items and non-operating items.

After intangible amortisation, non-recurring operating items and the non-operating loss, reported profit before taxation amounted to £38.2 million (2010: £58.8 million). A Group taxation charge of £4.1 million (2010: £4.7 million) resulted in reported profit after taxation of £34.1 million (2010: £54.1 million). Non-controlling interests amounted to £1.4 million (2010: £2.6 million), leaving profit attributable to Carillion shareholders of £32.7 million (2010: £51.5 million) and basic earnings per share of 7.9 pence per share (2010: 12.9 pence).

Pensions

The Group's ongoing pensions charge against profit in the first half of 2011 amounted to £14.2 million (2010: £14.6 million). The net credit to interest relating to pensions of £1.5 million (2010: £1.7 million charge), largely reflected a reduction in bond yields. At 30 June 2011, the total pension scheme deficit net of taxation amounted to £150.6 million (31 December 2010: £182.1 million).

Cash flow

Strong cash management is a priority and this is reflected in the Group's track record of consistently delivering cash-backed profit. In the first half of 2011, underlying cash flow from operations⁽¹⁾ of £110.0 million once again exceeded underlying profit from operations of £74.4 million. Deficit recovery payments to the Group's pension funds in the first half of 2011 amounted to £13.4 million, in line with the agreement reached last year with the Trustees of the Group's main defined benefit schemes. The cash costs of rationalisation of £17.0 million primarily related to the integration of Carillion Energy Services and the re-scaling of UK construction. Net income in respect of capital items of £11.3 million included proceeds of £16.9 million from the disposal of surplus assets. Net payments in respect of acquisitions and disposals amounted to £250.2 million. This comprised £249.3 million relating to the cash element of the consideration, acquisition costs and net debt acquired in respect of Carillion Energy Services, plus net equity investments in joint ventures of £14.9 million, less proceeds of £7.5 million from the sale of equity in the South Ayrshire Schools PPP project and £6.5 million (net of expenses) from the sale of a small joint venture in the Netherlands. Interest, tax and dividend payments amounted to £50.8 million. The above items, together with other payments of £3.8 million, resulted in a change in net borrowing of £213.9 million, leaving the Group with net borrowing at 30 June 2011 of £93.7 million (31 December 2010: £120.2 million net cash).

Committed bank facilities

In February 2011, we put in place new committed bank facilities of £752.5 million, which comprise a £737.5 million syndicated five-year facility maturing in March 2016 and a £15.0 million 364-day facility. In August 2011, we also completed a £100 million private placement which comprised a £49 million seven-year facility at 4.38 per cent per annum and a £51 million 10-year facility at 5.1 per cent per annum. Securing these facilities reflects the Group's positive prospects and gives the Group the financial strength to support its strategy for sustainable profitable growth.

(1) Before pension deficit recovery payments and non-recurring operating items after dividends received from Joint Ventures.

Acquisiton of Eaga plc

The Group acquired the entire share capital of Eaga plc on 21 April 2011 for a total consideration of £298.4 million, satisfied by the issue of 30.6 million Carillion plc shares and £180.7 million in cash. Based on the provisional assessment of fair values, goodwill is expected to be £304.1 million.

Financial reporting segments and analysis

Operating profit by financial reporting segment

			Change from
	2011	2010	2010
	£m	£m	%
Support services	45.6	43.2	+6
Public Private Partnership projects	8.8	14.7	-40
Middle East construction services	18.7	15.4	+21
Construction services (excluding the Middle East)	15.3	12.1	+26
	88.4	85.4	+4
Group eliminations and unallocated items	(7.8)	(8.8)	+11
Profit from operations before Joint Ventures
net financial expense and taxation	80.6	76.6	+5
Share of Joint Ventures net financial expense	(7.0)	(6.8)	-3
Share of Joint Ventures taxation	0.8	-	+100
Underlying profit from operations⁽¹⁾	74.4	69.8	+7
Intangible amortisation	(14.2)	(13.8)	-3
Non-recurring operating items	(20.0)	(9.4)	-113

Reported profit from operations	40.2	46.6	-14

(1) After Joint Ventures net financial expense of £7.0 million (2010: £6.8 million) and taxation credit of £0.8 million (2010: nil) and before intangible amortisation and non-recurring operating items.

Support services

2011

£m

2010

£m

Change from 2010

Revenue

- Group

- Share of Joint Ventures

980.2

130.1

977.1

140.5

1,110.3

1,117.6

-1

Underlying operating profit⁽²⁾

- Group

- Share of Joint Ventures

38.1

7.5

35.5

7.7

45.6

43.2

(2) Before intangible amortisation and non-recurring operating items.

In this segment we report the results of our facilities management, facilities services, energy services, rail services, road maintenance, utility services and consultancy businesses.

Revenue remained at a similar level to 2010, with the contribution from Carillion Energy Services following its acquisition on 21 April 2011 broadly offset by the reductions in contract revenues primarily arising from the demobilisation of the Aviva and Highways Agency Maintenance Area 5 contracts during 2010. Underlying operating profit increased by six per cent to £45.6 million, with the operating margin increasing from 3.9 per cent to 4.1 per cent. This reflected lower mobilisation costs in the first half of 2011 together with our focus on margins through contract selectivity and financial discipline.

At 30 June 2011, we continued to have a strong forward order book for support services worth £12.2 billion (31 December 2010: £11.7 billion) in addition to which we had probable orders worth £0.9 billion (2010: £0.5 billion). Furthermore, our pipeline of contract opportunities had increased significantly to £11.2 billion (2010: £8.3 billion).

Our high-quality order book of long-term contracts, together with probable orders, continues to provide good revenue visibility, which at 30 June 2011 stood at 92 per cent of expected revenue for 2011⁽¹⁾. Our top 10 contracts continue to account for around 30 per cent of our revenue in this segment and having already negotiated the renewal of the only top 10 contract due to expire in 2011, and with no more top 10 contracts due to expire before 2013, we have a solid revenue platform for the medium term.

Since the half year, we have had a number of significant successes, including a contract and a preferred bidder position for highways maintenance work in Canada worth some £200 million over 11 years and preferred bidder positions for facilities management contracts for UK local authorities worth approximately £50 million over four years.

In 2011 we remain confident of increasing revenue following the acquisition of Carillion Energy Services. We expect our operating margin to remain strong and we continue to target a full-year margin at least equal to the 5.2 per cent we achieved in 2010, by remaining focused on contract selectivity and financial discipline.

Our pipeline of contract opportunities continues to increase, notably as a result of public sector organisations seeking to reduce operating costs through outsourcing more non-core services. For example, we are currently shortlisted for a number of major, complex outsourcing contracts for central and local Government, notably for Edinburgh City Council, Sheffield City Council, Oxfordshire County Council and the Ministry of Defence, which together are worth approximately £3.0 billion. Therefore, the medium-term outlook for support services remains positive and we continue to target substantial organic revenue growth in this segment from 2012 onwards.

(1) Based on expected revenue and secure and probable orders, which exclude variable work and re-bids.

Public Private Partnership (PPP) projects

	2011 £m	2010 £m	Change from 2010 %
Revenue - Group - Share of Joint Ventures	0.5 138.9	0.5 155.0
Revenue - Group - Share of Joint Ventures	139.4	155.5	-10
Underlying operating profit⁽¹⁾ - Group - Share of Joint Ventures	1.4 7.4	9.1 5.6
	8.8	14.7	-40

(1) Before intangible amortisation and non-recurring operating items.

In this segment we report the equity returns on investments in Public Private Partnership (PPP) projects in the UK and Canada.

We use our capabilities to provide fully integrated solutions to win and deliver PPP projects in which we can not only make equity investments, but also secure long-term support services contracts and good quality construction contracts. The support services and construction services we provide as part of delivering PPP projects are reported in our support services and construction services (excluding the Middle East) segments, respectively. Once a project is mature, namely it has passed from construction into the operational phase, we have the option of selling our equity and reinvesting the proceeds in new projects.

Revenue reduced in the first half of 2011 by 10 per cent, primarily due to the sale of our equity investment in the Queen Alexandra Hospital project in June 2010. Operating profit reduced by 40 per cent, primarily because profit in the first half of 2010 benefited from fees received upon achieving financial close on four projects.

Following our appointment in June 2011 as preferred bidder for the £1.7 billion New Oakville Hospital PPP project in Ontario, Canada, we successfully achieved financial close at the end of July 2011. We expect to invest some £28 million of equity in this 30-year project, which is Carillion's sixth PPP hospital in Canada.

In June 2011, we sold our equity investments in two more mature projects, namely South Ayrshire Schools and Three Shires Hospitals. These sales generated total gross proceeds of £14.8 million, of which £7.5 million in respect of South Ayrshire Schools was received in the first half of the year. These sales reflected an average discount rate of some seven per cent and generated a first-half non-operating profit of £6.1 million.

At 30 June 2011, we had a portfolio of 25 financially closed projects in which we had invested some £81 million of equity and in which we had commitments to invest a further £106 million of equity in projects still in the construction phase. The Directors' valuation of this portfolio at 30 June 2011 increased to £144 million (31 December 2010: £135 million), based on a discount rate of nine per cent, despite the sale of two further investments.

Our forward order book at 30 June 2011 was £2.5 billion (31 December 2010: £2.7 billion) and we had probable orders worth £0.3 billion (2010: nil), the latter due to our appointment as preferred bidder for the New Oakville Hospital. We are also currently short-listed for three PPP projects in which we could potentially invest up to £77 million, which includes the Royal Liverpool Hospital for which the shortlist has been reduced to two bidders since the half year.

The positive outlook for PPP projects has been further underpinned by recent Government announcements. In Canada, Infrastructure Ontario announced a new 10-year PPP programme in June 2011, involving some CA$35 billion of investment over the first three years. In the UK, a new £2 billion privately financed school building programme was announced in July 2011, demonstrating the Government's ongoing commitment to private finance. Furthermore, we continue to expect private finance to play a significant role in delivering the UK Government's £200 billion five-year National Infrastructure Plan.

Middle East construction services

	2011 £m	2010 £m	Change from 2010 %
Revenue - Group - Share of Joint Ventures	101.6 152.0	68.4 112.1
Revenue - Group - Share of Joint Ventures	253.6	180.5	+40
Underlying operating profit⁽¹⁾ - Group - Share of Joint Ventures	5.3 13.4	2.2 13.2
	18.7	15.4	+21

(1) Before intangible amortisation and non-recurring operating items.

In this segment we report the results of our building and civil engineering activities in the Middle East and North Africa.

The timing of contract starts in 2010 resulted in a very strong second-half performance and this growth continued into 2011 with revenue increasing by 40 per cent compared with the first half of 2010. Operating profit increased by 21 per cent to £18.7 million (2010: £15.4 million). The operating margin reduced to 7.4 per cent (2010: 8.5 per cent), in line with the expectation we announced in 2010 that margins in this segment would ease back to around six per cent by 2013, as all contracts in the region are now competitively tendered rather than negotiated.

Our strong track record in the Middle East continues to be based on our reputation for high quality and delivery, the strength of our partners and long-term relationships with a small number of financially robust customers. At 30 June 2011, revenue visibility for 2011 was 90 per cent⁽²⁾ and Carillion's share of the forward order book of our Middle East businesses was some £0.7 billion (31 December 2010: £1.0 billion). However, our pipeline of contract opportunities had increased substantially to some £11.8 billion (31 December 2010: £8.8 billion).

Our growing pipeline reflects the major opportunities we have in the region, where we are targeting major infrastructure investment programmes, notably in Abu Dhabi, Oman and Qatar. Consequently, in 2011 we continue to target growth in full-year revenue and operating profit, despite margins easing back in line with expectations.

We also remain confident about the medium-term outlook and the target we announced in 2010 of doubling our revenue in the region to around £1 billion over three to five years remains unchanged.

(2) Based on expected revenue and secure and probable orders, which exclude variable work and re-bids.

Construction services (excluding the Middle East)

	2011 £m	2010 £m	Change from 2010 %
Revenue - Group - Share of Joint Ventures	943.1 7.1	1,051.9 1.6
Revenue - Group - Share of Joint Ventures	950.2	1,053.5	-10
Underlying operating profit⁽¹⁾ - Group - Share of Joint Ventures	15.2 0.1	11.8 0.3
	15.3	12.1	+26

(1) Before intangible amortisation and non-recurring operating items.

In this segment we report the results of our UK building, civil engineering and developments businesses, together with those of our construction activities in Canada.

First-half revenue reduced by 10 per cent, in line with expectations, as we are making good progress with the re-scaling of our UK construction capability in line with the strategy we announced in August 2010. Re-scaling is being achieved through tightening contract selectivity to progressively base our activities around the delivery of integrated solutions for PPP projects and support services customers. In Canada, our markets remain strong, particularly the PPP market, which we continue to expect to be a significant driver of growth.

This tightening of our already selective approach to UK construction, together with strong cost management, is also helping to support margins. Our ability to be selective and avoid bidding for low margin work is particularly important at a time when the UK market is becoming increasingly competitive as the Government progressively implements substantial cuts in public spending on construction. As a result, our first-half operating margin improved to 1.6 per cent (2010: 1.1 per cent) with operating profit up 26 per cent to £15.3 million.

At 30 June 2011, revenue visibility in this segment was 100 per cent⁽²⁾, based on secure and probable orders. At the same date, the forward order book stood at £2.3 billion (31 December 2010: £2.8 billion) and we had probable new orders worth £0.5 billion (31 December 2010: £0.4 billion). Probable new orders included £0.2 billion of construction revenue relating to the New Oakville Hospital, Ontario, Canada for which we were appointed preferred bidder in June 2011. Our pipeline of contract opportunities at 30 June 2011 was worth £7.4 billion (31 December 2010: £7.7 billion).

In the second half of 2011, we expect revenue in this segment to reduce further as we continue to re-scale our UK capability. In Canada, full-year construction revenue in 2011 is likely to be broadly similar to that in 2010, due to the timing of project starts.

(2) Based on expected revenue and secure and probable orders, which exclude variable work and re-bids.

Given the strength of our markets in Canada we continue to expect growth in construction to support the objective we set in 2010 of doubling total revenue in Canada to around £1 billion over three to five years.

As a result of tightening our selective approach in the UK, in 2011 we expect to see a further improvement in the full-year operating margin, which was 1.9 per cent in 2010, and to deliver growth in operating profit, despite the expected reduction in overall revenue.

Operational and financial risk management

Carillion has rigorous policies and processes in place to identify, mitigate and manage strategic risks and those specific to individual businesses and contracts, including economic, social, environmental and ethical risks. The Group's risk management policies and processes, together with the Group's principal operational and financial risks and the measures being taken to mitigate and manage these risks, are described on page 17 of our 2010 Annual Report and Accounts, which was published in March 2011. The principal operational risks summarised in that report include managing our pension schemes, winning work in competitive markets, maintaining high standards of performance in Health and Safety, managing major contracts, maintaining financial discipline and being able to recruit and retain excellent people.

Board changes

Our Group Chief Executive, John McDonough CBE, will be retiring from the Board and from the company on 31 December 2011, having reached the age of 60. He will be succeeded as Group Chief Executive by Richard Howson who is currently our Chief Operating Officer. Richard has worked for the Company for 16 years and at various times he has successfully led the UK construction, Middle East and Rail businesses.

John joined the Board as Chief Executive in January 2001 and has made a major contribution to Carillion's success. Under his leadership, Carillion's earnings and dividends per share have broadly trebled as the company has been transformed from being largely focused on UK construction into an international support services company with a strong, selective construction capability. John's contribution to the UK construction industry was recently recognised by the award of a CBE in Her Majesty the Queen's 2011 Birthday Honours list. John will leave the Board and the company with our grateful thanks and very best wishes for his retirement.

Outlook and prospects

We expect to build on our strong first-half performance to deliver earnings growth in the full year in line with market expectations, despite the planned re-scaling of UK construction and the fact that market conditions are expected to remain challenging.

The Group also remains well positioned to deliver the medium-term targets for growth that we announced in 2010, namely

o to double revenue in the Middle East and in Canada, in each case to around £1 billion over three to five years

o to deliver substantial organic growth in UK support services from 2012 onwards

o to re-scale UK construction, reducing revenue from the 2009 level of £1.8 billion to around £1.2 billion by 2013

These targets have been set to achieve substantial earnings growth, with the reduction in UK construction revenue more than outweighed by growth in support services, the Middle East and Canada, and with margins increasing as a result of reducing our lowest margin activity, UK construction, and growing our higher margin businesses.

In addition, the acquisition of Carillion Energy Services in April 2011 immediately enhanced the Group's prospects for growth in 2011 and over the medium term.

Unaudited condensed consolidated income statement for the six months ended 30 June
	Note	2011 £m	2010 £m	Year ended 31 December 2010 £m
Total revenue		2,453.5	2,507.1	5,139.0
Less: Share of jointly controlled entities' revenue		(428.1)	(409.2)	(902.5)
Group revenue	2	2,025.4	2,097.9	4,236.5
Cost of sales		(1,860.6)	(1,947.3)	(3,885.3)
Gross profit		164.8	150.6	351.2
Administrative expenses		(146.8)	(124.0)	(239.3)
Group operating profit		18.0	26.6	111.9
Analysed between:
Group operating profit before intangible amortisation and integration and rationalisation costs		52.2	49.8	148.9
Intangible amortisation		(14.2)	(13.8)	(27.6)
Integration and rationalisation costs	3	(20.0)	(9.4)	(9.4)

Share of results of jointly controlled entities	2	22.2	20.0	46.0
Analysed between:
Operating profit		28.4	26.8	64.6
Net financial expense		(7.0)	(6.8)	(13.9)
Taxation		0.8	-	(4.7)

Profit from operations		40.2	46.6	157.9
Analysed between:
Profit from operations before intangible amortisation and integration and rationalisation costs		74.4	69.8	194.9
Intangible amortisation		(14.2)	(13.8)	(27.6)
Integration and rationalisation costs	3	(20.0)	(9.4)	(9.4)

Non-operating items	3	(0.1)	16.3	16.8
Net financial expense	4	(1.9)	(4.1)	(6.8)
Analysed between:
Financial income		64.3	61.0	123.6
Financial expense		(66.2)	(65.1)	(130.4)

Profit before taxation		38.2	58.8	167.9
Analysed between:
Profit before taxation, intangible amortisation, integration and rationalisation costs and non-operating items		72.5	65.7	188.1
Intangible amortisation		(14.2)	(13.8)	(27.6)
Integration and rationalisation costs	3	(20.0)	(9.4)	(9.4)
Non-operating items	3	(0.1)	16.3	16.8

Taxation	5	(4.1)	(4.7)	(15.1)
Profit for the period		34.1	54.1	152.8

Profit attributable to:
Equity holders of the parent		32.7	51.5	147.2
Non-controlling interests		1.4	2.6	5.6
Profit for the period		34.1	54.1	152.8

Earnings per share	6
Basic		7.9p	12.9p	36.9p
Diluted		7.9p	12.9p	36.7p

Unaudited condensed consolidated statement of comprehensive income for the six months ended 30 June
		2011		2010		Year ended 31 December 2010
	£m	£m	£m	£m	£m	£m
Profit for the period		34.1		54.1		152.8
Net loss on hedge of net investment in foreign operations	(0.2)		(4.2)		(3.8)
Currency translation differences on foreign operations	0.9		9.6		4.7
Increase in fair value of available for sale assets	1.8		9.5		5.9
Actuarial gains/(losses) on defined benefit pension schemes	31.5		(77.0)		11.9
	34.0		(62.1)		18.7
Taxation in respect of the above	(10.7)		22.7		(4.7)
Share of recycled cash flow hedges within jointly controlled entities (net of taxation)	8.3		0.1		0.2
Share of change in fair value of effective cash flow hedges within jointly controlled entities (net of taxation)	(3.8)		(5.1)		(13.4)

Other comprehensive income/(expense) for the period		27.8		(44.4)		0.8
Total comprehensive income for the period		61.9		9.7		153.6

Attributable to:
Equity holders of the parent		60.5		7.1		148.0
Non-controlling interests		1.4		2.6		5.6
		61.9		9.7		153.6

Unaudited condensed consolidated statement of changes in equity

for the six months ended 30 June 2011

	Share capital £m	Share premium £m	Translation reserve £m	Hedging reserve £m	Fair value reserve £m	Merger reserve £m	Retained earnings £m	Equity shareholders' funds £m	Non-controlling interests £m	Total equity £m

At 1 January 2011	199.8	21.2	(18.1)	(23.8)	5.9	393.1	277.5	855.6	9.6	865.2
Comprehensive income
Profit for the period	-	-	-	-	-	-	32.7	32.7	1.4	34.1
Other comprehensive income
Net loss on hedge of net investment in foreign operations	-	-	(0.2)	-	-	-	-	(0.2)	-	(0.2)
Currency translation differences on foreign operations	-	-	0.9	-	-	-	-	0.9	-	0.9
Increase in fair value of available for sale assets	-	-	-	-	1.8	-	-	1.8	-	1.8
Actuarial gains on defined benefit pension schemes	-	-	-	-	-	-	31.5	31.5	-	31.5
Taxation	-	-	-	-	-	-	(10.7)	(10.7)	-	(10.7)
Share of recycled cash flow hedges within jointly controlled entities (net of taxation)	-	-	-	8.3	-	-	-	8.3	-	8.3
Share of change in fair value of effective cash flow hedges within jointly controlled entities (net of taxation)	-	-	-	(3.8)	-	-	-	(3.8)	-	(3.8)
Transfer between reserves	-	-	-	-	-	(14.1)	14.1	-	-	-
Total comprehensive income/(expense)	-	-	0.7	4.5	1.8	(14.1)	67.6	60.5	1.4	61.9
Transactions with owners
Contributions by and distributions to owners
Share capital issued on acquisition of Eaga plc	15.3	-	-	-	-	102.4	-	117.7	-	117.7
Acquisition of own shares	-	-	-	-	-	-	(4.2)	(4.2)	-	(4.2)
Equity settled transactions (net of deferred taxation)	-	-	-	-	-	-	2.1	2.1	-	2.1
Dividends paid	-	-	-	-	-	-	(43.0)	(43.0)	(1.8)	(44.8)
Total transactions with owners	15.3	-	-	-	-	102.4	(45.1)	72.6	(1.8)	70.8

At 30 June 2011	215.1	21.2	(17.4)	(19.3)	7.7	481.4	300.0	988.7	9.2	997.9

Unaudited condensed consolidated statement of changes in equity

for the six months ended 30 June 2010

	Share capital £m	Share premium £m	Translation reserve £m	Hedging reserve £m	Fair value reserve £m	Merger reserve £m	Retained earnings £m	Equity shareholders' funds £m	Non-controlling interests £m	Total equity £m

At 1 January 2010	198.6	16.8	(20.1)	(10.6)	-	419.4	161.7	765.8	6.3	772.1
Comprehensive income
Profit for the period	-	-	-	-	-	-	51.5	51.5	2.6	54.1
Other comprehensive income
Net loss on hedge of net investment in foreign operations	-	-	(4.2)	-	-	-	-	(4.2)	-	(4.2)
Currency translation differences on foreign operations	-	-	9.6	-	-	-	-	9.6	-	9.6
Increase in fair value of available for sale assets	-	-	-	-	9.5	-	-	9.5	-	9.5
Actuarial losses on defined benefit pension schemes	-	-	-	-	-	-	(77.0)	(77.0)	-	(77.0)
Taxation	-	-	1.2	-	-	-	21.5	22.7	-	22.7
Share of recycled cash flow hedges within jointly controlled entities (net of taxation)	-	-	-	0.1	-	-	-	0.1	-	0.1
Share of change in fair value of effective cash flow hedges within jointly controlled entities (net of taxation)	-	-	-	(5.1)	-	-	-	(5.1)	-	(5.1)
Transfer between reserves	-	-	-	-	-	(13.2)	13.2	-	-	-
Total comprehensive income/(expense)	-	-	6.6	(5.0)	9.5	(13.2)	9.2	7.1	2.6	9.7
Transactions with owners
Contributions by and distributions to owners
New share capital issued	1.2	4.4	-	-	-	-	-	5.6	-	5.6
Acquisition of own shares	-	-	-	-	-	-	(5.6)	(5.6)	-	(5.6)
Share options exercised by employees	-	-	-	-	-	-	3.7	3.7	-	3.7
Equity settled transactions (net of deferred taxation)	-	-	-	-	-	-	(1.1)	(1.1)	-	(1.1)
Dividends paid	-	-	-	-	-	-	(39.9)	(39.9)	(0.5)	(40.4)
Total transactions with owners	1.2	4.4	-	-	-	-	(42.9)	(37.3)	(0.5)	(37.8)

At 30 June 2010	199.8	21.2	(13.5)	(15.6)	9.5	406.2	128.0	735.6	8.4	744.0

Unaudited condensed consolidated statement of changes in equity

for the year ended 31 December 2010

	Share capital £m	Share premium £m	Translation reserve £m	Hedging reserve £m	Fair value reserve £m	Merger reserve £m	Retained earnings £m	Equity shareholders' funds £m	Non-controlling interests £m	Total equity £m

At 1 January 2010	198.6	16.8	(20.1)	(10.6)	-	419.4	161.7	765.8	6.3	772.1
Comprehensive income
Profit for the period	-	-	-	-	-	-	147.2	147.2	5.6	152.8
Other comprehensive income
Net loss on hedge of net investment in foreign operations	-	-	(3.8)	-	-	-	-	(3.8)	-	(3.8)
Currency translation differences on foreign operations	-	-	4.7	-	-	-	-	4.7	-	4.7
Increase in the fair value of available for sale assets	-	-	-	-	5.9	-	-	5.9	-	5.9
Actuarial gains on defined benefit pension schemes	-	-	-	-	-	-	11.9	11.9	-	11.9
Taxation	-	-	1.1	-	-	-	(5.8)	(4.7)	-	(4.7)
Share of recycled cash flow hedges within jointly controlled entities (net of taxation)	-	-	-	0.2	-	-	-	0.2	-	0.2
Share of change in fair value of effective cash flow hedges within jointly controlled entities (net of taxation)	-	-	-	(13.4)	-	-	-	(13.4)	-	(13.4)
Transfer between reserves	-	-	-	-	-	(26.3)	26.3	-	-	-
Total comprehensive income/(expense)	-	-	2.0	(13.2)	5.9	(26.3)	179.6	148.0	5.6	153.6
Transactions with owners
Contributions by and distributions to owners
New share capital issued	1.2	4.4	-	-	-	-	-	5.6	-	5.6
Acquisition of own shares	-	-	-	-	-	-	(5.6)	(5.6)	-	(5.6)
Share options exercised by employees	-	-	-	-	-	-	3.7	3.7	-	3.7
Equity settled transactions (net of deferred taxation)	-	-	-	-	-	-	(2.8)	(2.8)	-	(2.8)
Dividends paid	-	-	-	-	-	-	(59.1)	(59.1)	(2.3)	(61.4)
Total transactions with owners	1.2	4.4	-	-	-	-	(63.8)	(58.2)	(2.3)	(60.5)

At 31 December 2010	199.8	21.2	(18.1)	(23.8)	5.9	393.1	277.5	855.6	9.6	865.2

Unaudited condensed consolidated balance sheet

as at 30 June

	Note	2011 £m	2010 £m	At 31 December 2010 £m
Non-current assets
Property, plant and equipment		145.8	162.5	157.2
Intangible assets		1,550.3	1,230.7	1,221.2
Retirement benefit assets		0.9	2.6	0.9
Investments in jointly controlled entities		142.4	128.5	134.8
Other investments		45.4	56.7	41.9
Deferred tax assets		101.7	144.8	101.7

Total non-current assets		1,986.5	1,725.8	1,657.7

Current assets
Inventories		71.8	37.9	40.6
Trade and other receivables		1,169.9	1,114.5	1,052.4
Cash and cash equivalents	9	324.2	327.5	396.7
Current asset investments		7.5	-	-
Income tax receivable		4.7	2.7	3.9
Derivative financial instruments		3.4	0.1	-

Total current assets		1,581.5	1,482.7	1,493.6

Total assets		3,568.0	3,208.5	3,151.3

Current liabilities
Borrowing		(64.6)	(42.4)	(52.0)
Derivative financial instruments		-	-	(0.2)
Trade and other payables		(1,857.1)	(1,779.1)	(1,706.8)
Provisions		(26.8)	(14.0)	(13.5)
Income tax payable		(2.2)	(9.0)	(5.1)

Total current liabilities		(1,950.7)	(1,844.5)	(1,777.6)

Non-current liabilities
Borrowing		(353.3)	(217.1)	(224.5)
Retirement benefit liabilities		(204.8)	(360.0)	(250.3)
Deferred tax liabilities		(34.3)	(33.4)	(28.0)
Provisions		(27.0)	(9.5)	(5.7)

Total non-current liabilities		(619.4)	(620.0)	(508.5)

Total liabilities		(2,570.1)	(2,464.5)	(2,286.1)

Net assets	2	997.9	744.0	865.2

Equity
Share capital	12	215.1	199.8	199.8
Share premium		21.2	21.2	21.2
Translation reserve		(17.4)	(13.5)	(18.1)
Hedging reserve		(19.3)	(15.6)	(23.8)
Fair value reserve		7.7	9.5	5.9
Merger reserve		481.4	406.2	393.1
Retained earnings		300.0	128.0	277.5

Equity attributable to shareholders of the parent		988.7	735.6	855.6
Non-controlling interests		9.2	8.4	9.6
Total equity		997.9	744.0	865.2

Unaudited condensed consolidated cash flow statement for the six months ended 30 June
	Note	2011 £m	2010 £m	Year ended 31 December 2010 £m
Cash flows from operating activities
Group operating profit		18.0	26.6	111.9
Depreciation and amortisation		29.8	31.8	63.4
Loss/(profit) on disposal of property, plant and equipment		0.7	0.1	(1.3)
Share-based payment expense/(income)		1.2	(1.5)	(3.9)
Other non-cash movements		(0.1)	(0.3)	1.4
Non-recurring operating items		20.0	9.4	9.4

Operating profit before changes in working capital		69.6	66.1	180.9
Decrease /(increase) in inventories		1.5	(0.7)	(3.4)
Increase in trade and other receivables		(0.9)	(64.6)	(8.3)
Increase in trade and other payables		15.1	78.7	12.9

Cash generated from operations before pension deficit recovery payments and rationalisation costs		85.3	79.5	182.1
Deficit recovery payments to pension schemes		(13.4)	(14.7)	(35.2)
Integration and rationalisation costs		(17.0)	(8.6)	(15.6)

Cash generated from operations		54.9	56.2	131.3
Financial income		6.8	5.1	11.7
Financial expense		(9.5)	(6.8)	(13.5)
Acquisition costs		(6.6)	-	-
Taxation		(3.3)	0.4	(2.7)

Net cash flows from operating activities		42.3	54.9	126.8

Cash flows from investing activities
Disposal of property, plant and equipment		16.9	2.0	5.5
Disposal of jointly controlled entities and other investments		14.0	31.3	45.8
Dividends received from jointly controlled entities		24.7	25.3	48.1
Disposal of businesses, net of cash disposed of		-	1.6	(4.7)
Decrease in current asset investments		0.5	-	-
Acquisition of subsidiaries, net of cash acquired	11	(182.7)	-	-
Acquisition of intangible assets		(2.3)	(1.3)	(7.5)
Acquisition of property, plant and equipment		(3.3)	(7.5)	(17.1)
Acquisition of equity in and loan advances to jointly controlled entities		(14.2)	(20.0)	(34.5)
Acquisition of other non-current asset investments		(0.7)	(1.0)	(3.9)

Net cash flows from investing activities		(147.1)	30.4	31.7

Cash flows from financing activities
Proceeds from exercise of employee share options		-	2.3	2.3
Draw down of bank and other loans		58.0	21.6	50.2
Proceeds from finance leaseback		-	3.8	3.8
Payment of finance lease liabilities		(8.3)	(9.3)	(17.3)
Acquisition of own shares		(4.2)	-	-
Dividends paid to equity holders of the parent		(43.0)	(39.9)	(59.1)
Dividends paid to non-controlling interests		(1.8)	(0.3)	(2.3)

Net cash flows from financing activities		0.7	(21.8)	(22.4)

(Decrease)/increase in net cash and cash equivalents for the period		(104.1)	63.5	136.1
Net cash and cash equivalents at 1 January		391.1	252.4	252.4
Effect of exchange rate fluctuations on net cash and cash equivalents		0.3	2.2	2.6

Net cash and cash equivalents at period end	9	287.3	318.1	391.1

Notes to the unaudited condensed interim financial statements

1 Basis of preparation

Carillion plc (the 'Company') is a company domiciled in the United Kingdom (UK). The condensed consolidated interim financial statements of the Company for the six months ended 30 June 2011 comprise the Company and its subsidiaries (together referred to as the 'Group') and the Group's interest in jointly controlled entities.

The condensed consolidated interim financial statements for the six months ended 30 June 2011 have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with International Accounting

Standard 34 'Interim Financial Reporting' as adopted by the European Union.

This interim financial information has been prepared applying the accounting policies and presentation which were applied in the preparation of the Company's published consolidated financial statements for the year ended 31 December 2010, which were prepared in accordance with International Financial Reporting Standards as adopted by the European Union, except for the following accounting standards and interpretations which are effective for the Group from 1 January 2011:

· Amendments to International Financial Reporting Interpretations Committee (IFRIC) 14 'Prepayment of a minimum funding requirement'

· International Financial Reporting Interpretations Committee (IFRIC) 19 'Extinguishing financial liabilities with equity instruments'

· International Accounting Standard (IAS) 24 'Related party disclosures (revised 2009)'

· Amendment to International Accounting Standard (IAS) 32 'Classification of rights issue'

· Amendment to International Financial Reporting Standard (IFRS) 7 'Improving disclosures about financial instruments'

The amendment to IFRIC 14 'Prepayment of a minimum funding requirement' removes the unintended consequence of when an entity is subject to minimum funding requirement (MFR) and makes an early payment of contributions to cover those requirements. The amendment results in a prepayment of contributions in certain circumstances being recognised as an asset rather than an expense. This amendment has had no impact on profit, earnings per share or net assets in the six months ended 30 June 2011.

IFRIC 19 'Extinguishing financial liabilities with equity instruments' clarifies the accounting treatment for when an entity renegotiates the terms of its debt, such that the liability is extinguished, in whole or in part, by the entity issuing its own equity instruments to the lender (referred to as a 'debt for equity swap'). The adoption of IFRIC 19 has had no impact on the profit, earnings per share or net assets in the six months ended 30 June 2011.

The amendment to IAS 24 'Related party disclosures (revised 2009)' clarifies disclosure requirements for government-related entities and amends the definition of a related party. The amendment to IAS 24 has had no impact on profit, earnings per share or net assets in the six months ended 30 June 2011.

The amendment to IAS 32 'Classification of rights issues' states that if such rights are issued pro rata to all of an entity's existing shareholders in the same class for a fixed amount of currency, they should be classified as equity regardless of the currency in which the exercise price is denominated. The amendment to IAS 32 has had no impact on profit, earnings per share or net assets in the six months ended 30 June 2011.

The amendment to IFRS 7 'Improving disclosures about financial instruments' makes changes to the disclosure requirements for financial instruments. This amendment has had no impact on profit, earnings per share or net assets in the six months ended 30 June 2011.

In addition to the above, amendments to a number of standards under the annual improvements project to IFRS, which are mandatory for the period ending 30 June 2011, have been adopted in 2011. None of these amendments have had a material impact on the Group's financial statements.

The comparative financial information for the year ended 31 December 2010 does not constitute the Company's statutory accounts for the purposes of section 434 of the Companies Act 2006 for that financial year. The statutory accounts for the year ended 31 December 2010 have been reported on by the Company's auditors and delivered to the Registrar of Companies. The auditors have reported on those accounts; their report was unqualified, did not include references to any matter which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 498(2) or (3) of the Companies Act 2006.

The Group's business activities, together with the factors likely to affect its future development, performance and position are described in the interim management review. The Group has considerable financial resources, including a £737.5 million committed syndicated facility expiring in March 2016. The Group has long-term contracts with a number of customers and suppliers across different geographic areas and industries. As a consequence, the Directors believe that the Group is well placed to manage its business risks successfully despite the current uncertain economic outlook. The Directors confirm that, after making enquiries, they have a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the condensed interim financial statements.

2 Segmental reporting

Segment information is presented in respect of the Group's strategic operating segments. The operating segment reporting format reflects the differing economic characteristics and nature of the services provided by the Group and is the basis on which strategic operating decisions are made by the Group Chief Executive, who is the Group's chief operating decision maker.

Inter-segment pricing is determined on an arm's length basis. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, expect finance items and income tax.

Operating segments

The Group comprises the following main operating segments:

Support services

In this segment we report the results of our facilities management, facilities services, energy services, road maintenance, rail services, utility services and consultancy businesses.

Public Private Partnership projects

In this segment we report the equity returns on our investments in Public Private Partnership projects in our chosen sectors of Defence, Health, Education, Transport, Secure, Energy Services and other Government accommodation.

Middle East construction services

In this segment we report the results of our building and civil engineering activities in the Middle East and North Africa.

Construction services (excluding the Middle East)

In this segment we report the results of our UK building, civil engineering and developments businesses and our construction activities in Canada.

Segmental revenue and profit

	2011		2010		Year ended 31 December 2010
	Revenue	Operating profit before intangible amortisation and integration and rationalisation costs	Revenue	Operating profit before intangible amortisation and integration and rationalisation costs	Revenue	Operating profit before intangible amortisation and integration and rationalisation costs
	£m	£m	£m	£m	£m	£m
Support services
Group	980.2	38.1	977.1	35.5	1,842.1	92.3
Share of jointly controlled entities	130.1	7.5	140.5	7.7	266.5	18.1
	1,110.3	45.6	1,117.6	43.2	2,108.6	110.4
Inter-segment	44.7	-	53.3	-	107.3	-

Total	1,155.0	45.6	1,170.9	43.2	2,215.9	110.4

Public Private Partnership projects
Group	0.5	1.4	0.5	9.1	1.2	10.7
Share of jointly controlled entities	138.9	7.4	155.0	5.6	310.7	12.7
	139.4	8.8	155.5	14.7	311.9	23.4
Inter-segment	-	-	-	-	-	-

Total	139.4	8.8	155.5	14.7	311.9	23.4

Middle East construction services
Group	101.6	5.3	68.4	2.2	190.9	14.0
Share of jointly controlled entities	152.0	13.4	112.1	13.2	302.1	33.5
	253.6	18.7	180.5	15.4	493.0	47.5
Inter-segment	-	-	-	-	-	-

Total	253.6	18.7	180.5	15.4	493.0	47.5

Construction services (excluding the Middle East)
Group	943.1	15.2	1,051.9	11.8	2,202.3	40.9
Share of jointly controlled entities	7.1	0.1	1.6	0.3	23.2	0.3
	950.2	15.3	1,053.5	12.1	2,225.5	41.2
Inter-segment	0.3	-	0.7	-	4.2	-

Total	950.5	15.3	1,054.2	12.1	2,229.7	41.2

Group eliminations and unallocated items	(45.0)	(7.8)	(54.0)	(8.8)	(111.5)	(9.0)

Consolidated
Group	2,025.4	52.2	2,097.9	49.8	4,236.5	148.9
Share of jointly controlled entities	428.1	28.4	409.2	26.8	902.5	64.6

Total	2,453.5	80.6	2,507.1	76.6	5,139.0	213.5

Reconciliation of operating segment results to reported results

	2011 £m	2010 £m	Year ended 31 December 2010 £m
Group and share of jointly controlled entities' operating
profit before intangible amortisation and integration and rationalisation costs	80.6	76.6	213.5

Net financial expense
- Group	(1.9)	(4.1)	(6.8)
- Share of jointly controlled entities	(7.0)	(6.8)	(13.9)
Share of jointly controlled entities' taxation	0.8	-	(4.7)
Underlying profit before taxation	72.5	65.7	188.1
Intangible amortisation	(14.2)	(13.8)	(27.6)
Integration and rationalisation costs	(20.0)	(9.4)	(9.4)
Non-operating items	(0.1)	16.3	16.8
Profit before taxation	38.2	58.8	167.9
Taxation	(4.1)	(4.7)	(15.1)
Profit for the period	34.1	54.1	152.8

Additional segmental information on intangible amortisation, integration and rationalisation costs and non-operating items is set out below:

			2011				2010	Year ended 31 December 2010
	Intangible amortisation £m	Integration and rationalisation costs £m	Non-operating items £m	Intangible amortisation £m	Integration and rationalisation costs £m	Non-operating items £m			Intangible amortisation £m	Integration and rationalisation costs £m	Non-operating items £m




Support services	(11.7)	(17.2)	(6.2)	(9.8)	(0.4)	-			(19.8)	(0.4)	-
Public Private Partnership projects	-	-	6.1	-	-	16.3			-	-	16.8
Construction services (excluding the Middle East)	(2.5)	(2.8)	-	(4.0)	(6.4)	-			(7.8)	(6.1)	-
Unallocated group items	-	-	-	-	(2.6)	-			-	(2.9)	-

Total	(14.2)	(20.0)	(0.1)	(13.8)	(9.4)	16.3			(27.6)	(9.4)	16.8

Depreciation and amortisation and capital expenditure arise in the following segments:

	2011		2010		Year ended 31 December 2010
	Depreciation and amortisation £m	Capital expenditure £m	Depreciation and amortisation £m	Capital expenditure £m	Depreciation and amortisation £m	Capital expenditure £m
Support services	(18.3)	(1.0)	(18.4)	(6.1)	(37.0)	(10.8)
Middle East construction services	(1.0)	(2.0)	(1.0)	(1.1)	(2.1)	(2.1)
Construction services (excluding the Middle East)	(3.3)	(0.3)	(5.2)	(0.1)	(11.2)	(1.9)
Unallocated group items	(7.2)	(5.9)	(7.2)	(4.0)	(13.1)	(14.5)

Total	(29.8)	(9.2)	(31.8)	(11.3)	(63.4)	(29.3)

Segmental net assets

	2011					2010	Year ended 31 December 2010
	Operating assets £m	Operating liabilities £m	Net operating assets/ (liabilities) £m	Operating assets £m	Operating liabilities £m	Net operating assets/ (liabilities) £m	Operating assets £m	Operating liabilities £m	Net operating assets/ (liabilities) £m
Support services
Intangible assets ⁽¹⁾	1,267.7	-	1,267.7	946.7	-	946.7	936.5	-	936.5
Operating assets	611.8	-	611.8	442.1	-	442.1	486.4	-	486.4
Investments	11.1	-	11.1	11.4	-	11.4	9.6	-	9.6
Total operating assets	1,890.6	-	1,890.6	1,400.2	-	1,400.2	1,432.5	-	1,432.5
Total operating liabilities	-	(630.8)	(630.8)	-	(513.2)	(513.2)	-	(475.7)	(475.7)
Net operating assets/(liabilities)	1,890.6	(630.8)	1,259.8	1,400.2	(513.2)	887.0	1,432.5	(475.7)	956.8
Public Private Partnership projects
Operating assets	14.2	-	14.2	7.4	-	7.4	5.5	-	5.5
Investments	87.7	-	87.7	79.7	-	79.7	74.5	-	74.5
Total operating assets	101.9	-	101.9	87.1	-	87.1	80.0	-	80.0
Total operating liabilities	-	(11.1)	(11.1)	-	(15.6)	(15.6)	-	(11.6)	(11.6)
Net operating assets/(liabilities)	101.9	(11.1)	90.8	87.1	(15.6)	71.5	80.0	(11.6)	68.4
Middle East construction services
Operating assets	201.8	-	201.8	129.3	-	129.3	172.2	-	172.2
Investments	41.8	-	41.8	44.0	-	44.0	48.9	-	48.9
Total operating assets	243.6	-	243.6	173.3	-	173.3	221.1	-	221.1
Total operating liabilities	-	(214.8)	(214.8)	-	(155.0)	(155.0)	-	(192.4)	(192.4)
Net operating assets/(liabilities)	243.6	(214.8)	28.8	173.3	(155.0)	18.3	221.1	(192.4)	28.7
Construction services (excluding the Middle East)
Intangible assets ⁽¹⁾	267.2	-	267.2	272.7	-	272.7	269.4	-	269.4
Operating assets	535.0	-	535.0	622.8	-	622.8	548.2	-	548.2
Investments	47.2	-	47.2	50.1	-	50.1	43.7	-	43.7
Total operating assets	849.4	-	849.4	945.6	-	945.6	861.3	-	861.3
Total operating liabilities	-	(1,049.7)	(1,049.7)	-	(1,031.1)	(1,031.1)	-	(1,022.7)	(1,022.7)
Net operating assets/(liabilities)	849.4	(1,049.7)	(200.3)	945.6	(1,031.1)	(85.5)	861.3	(1,022.7)	(161.4)
Consolidated before Group items
Intangible assets ⁽¹⁾	1,534.9	-	1,534.9	1,219.4	-	1,219.4	1,205.9	-	1,205.9
Operating assets	1,362.8	-	1,362.8	1,201.6	-	1,201.6	1,212.3	-	1,212.3
Investments	187.8	-	187.8	185.2	-	185.2	176.7	-	176.7
Total operating assets	3,085.5	-	3,085.5	2,606.2	-	2,606.2	2,594.9	-	2,594.9
Total operating liabilities	-	(1,906.4)	(1,906.4)	-	(1,714.9)	(1,714.9)	-	(1,702.4)	(1,702.4)
Net operating assets/(liabilities) before Group items	3,085.5	(1,906.4)	1,179.1	2,606.2	(1,714.9)	891.3	2,594.9	(1,702.4)	892.5

Group items
Deferred tax	101.7	(34.3)	67.4	144.8	(33.4)	111.4	101.7	(28.0)	73.7
Net cash/(borrowing)	324.2	(417.9)	(93.7)	327.5	(259.5)	68.0	396.7	(276.5)	120.2
Retirement benefits (gross of taxation)	0.9	(204.8)	(203.9)	2.6	(360.0)	(357.4)	0.9	(250.3)	(249.4)
Income tax	4.7	(2.2)	2.5	2.7	(9.0)	(6.3)	3.9	(5.1)	(1.2)
Other	51.0	(4.5)	46.5	124.7	(87.7)	37.0	53.2	(23.8)	29.4

Net assets/(liabilities)	3,568.0	(2,570.1)	997.9	3,208.5	(2,464.5)	744.0	3,151.3	(2,286.1)	865.2

(1) Arising from business combinations

Geographic information - by origin

	2011 £m	2010 £m	Year ended 31 December 2010 £m
United Kingdom
Total revenue from external customers	1,861.9	2,015.2	3,848.6
Less: share of jointly controlled entities' revenue	(246.4)	(267.7)	(469.6)
Group revenue from external customers	1,615.5	1,747.5	3,379.0

Non-current assets	1,647.4	1,348.7	1,317.1

Middle East
Total revenue from external customers	259.4	185.9	504.2
Less: share of jointly controlled entities' revenue	(157.8)	(117.5)	(313.3)
Group revenue from external customers	101.6	68.4	190.9

Non-current assets	53.7	53.1	56.3

Canada
Total revenue from external customers	300.5	271.9	709.8
Less: share of jointly controlled entities' revenue	(2.4)	(1.2)	(70.5)
Group revenue from external customers	298.1	270.7	639.3

Non-current assets	137.2	118.1	137.9

Rest of the World
Total revenue from external customers	31.7	34.1	76.4
Less: share of jointly controlled entities' revenue	(21.5)	(22.8)	(49.1)
Group revenue from external customers	10.2	11.3	27.3

Non-current assets	0.2	1.8	1.9

Consolidated
Total revenue from external customers	2,453.5	2,507.1	5,139.0
Less: share of jointly controlled entities' revenue	(428.1)	(409.2)	(902.5)
Group revenue from external customers	2,025.4	2,097.9	4,236.5

Non-current assets

Total of geographic analysis above	1,838.5	1,521.7	1,513.2
Retirement benefit assets	0.9	2.6	0.9
Other investments	45.4	56.7	41.9
Deferred tax assets	101.7	144.8	101.7
Total non-current assets	1,986.5	1,725.8	1,657.7

Revenue from the Group's major customer, the UK Government, is shown below:

	Support services £m	Public Private Partnership projects £m	Construction services (excluding the Middle East) £m	Total £m
Six months ended 30 June 2011	392.2	95.1	616.9	1,104.2
Six months ended 30 June 2010	371.8	135.9	603.2	1,110.9
Year ended 31 December 2010	782.5	222.7	1,263.0	2,268.2

3 Integration and rationalisation cost and non-operating items

Non-recurring operating items

2011

£m

2010

£m

Year ended

31 December 2010

£m

Integration and rationalisation costs

(20.0)

(9.4)

Integration and rationalisation costs of £20.0 million primarily relates to redundancy and property exit costs arising from a review of the Group's requirements following the acquisition of Carillion Energy Services including relatively modest costs associated with focusing the Canadian construction services business on the growing Public Private Partnership market in the region.

Rationalisation costs of £9.4 million in 2010 relate to non-recurring redundancy and other associated costs incurred to ensure that the Group's cost base reflects the expected reduction in our UK construction market as indicated in the UK Government's Emergency Budget on 22 June 2010 and confirmed in the Comprehensive Spending Review in October 2010.

An income tax credit in respect of the half year ended 30 June 2011 of £4.1 million (30 June 2010: £2.6 million; 31 December 2010: £1.6 million) relating to the above has been included within taxation in the income statement.

Non-operating items	2011 £m	2010 £m	Year ended 31 December 2010 £m
Profit on disposal of jointly controlled entity and other investments	7.9	16.3	16.8
Acquisition costs	(8.0)	-	-
	(0.1)	16.3	16.8

In the six months ended 30 June 2011, the Group disposed of it's equity investment in two Public Private Partnership jointly controlled entities. The disposals generated cash consideration of £14.8 million (before disposal costs of £0.4 million), of which £7.5 million was received in June 2011 and £7.3 million in July 2011, and a non-operating profit of £6.1 million.

In addition, the Group disposed of a small joint venture in the Netherlands. The disposal generated a cash consideration of £6.9 million (before disposal costs of £0.6 million) and a non-operating profit of £1.8 million.

Acquisition costs in 2011 of £8.0 million relate to adviser costs incurred in relation to the Carillion Energy Services acquisition contracts and due diligence procedures. An income tax credit of £0.5 million has been included in the income statement in respect of these costs.

In the year ended 31 December 2010, the Group disposed if its equity interest in two Public Private Partnership investments. The disposals generated cash consideration of £45.8 million and a non-operating profit of £16.8 million.

4 Financial income and expense

	2011 £m	2010 £m	Year ended 31 December 2010 £m
Financial income
Bank interest receivable	0.9	0.7	1.1
Other interest receivable	5.9	4.4	10.6
Expected return on retirement plan assets	57.5	55.9	111.9
	64.3	61.0	123.6
Financial expense
Interest payable on bank loans and overdrafts	(4.4)	(2.1)	(3.3)
Other interest payable and similar charges	(5.8)	(5.4)	(11.6)
Interest cost on retirement plan obligations	(56.0)	(57.6)	(115.5)
	(66.2)	(65.1)	(130.4)
Net financial expense	(1.9)	(4.1)	(6.8)

No borrowing costs have been capitalised in any of the above periods.

5 Income tax

The Group's income tax expense (including the Group's share of jointly controlled entities' income tax) for the six months ended 30 June 2011 is calculated based on the estimated average annual effective underlying income tax rate of 16% (six months ended 30 June 2010: 17%; 31 December 2010: 16%). This effective rate differs to the UK standard corporation tax rate of 26.5% (six months ended 30 June 2010: 28%; 31 December 2010: 28%) primarily due to items such as the effect of tax rates in foreign jurisdictions and the recognition of deferred tax on trading losses. An income tax credit arises on jointly controlled entities' profits due to the combination of non-taxable profits arising in the Middle East and the resolution of certain issues with the tax authorities in relation to PPP jointly controlled entities.

The UK Government's Budget on 23 March 2011 announced new phased reductions in the main corporation tax rate over the next three years. The reduction in rate to 25% with effect from 1 April 2012, which became substantively enacted on 5 July 2011, would not have had a material impact on the Group's effective underlying tax rate of 16% if the change had been substantively enacted at the balance sheet date.

6 Earnings per share

(a) Basic earnings per share

The calculation of earnings per share for the six months ended 30 June 2011 is based on the profit attributable to equity holders of the parent of £32.7 million (six months ended 30 June 2010: £51.5 million; year ended 31 December 2010: £147.2 million) and a weighted average number of ordinary shares in issue of 411.3 million (six months ended 30 June 2010: 398.5 million; year ended 31 December 2010: 399.0 million), calculated as follows:

In millions of shares	2011	2010	Year ended 31 December 2010
Issued ordinary shares at beginning of period	399.7	397.3	397.3
Effect of shares issued in the period	11.8	1.5	1.9
Effect of own shares held by Employee Share Ownership Plan and Qualifying Employee Share Ownership Trust	(0.2)	(0.3)	(0.2)

Weighted average number of ordinary shares	411.3	398.5	399.0

(b) Underlying performance

A reconciliation of profit before taxation and basic earnings per share, as reported in the income statement, to underlying profit before taxation and earnings per share is set out below. The adjustments made in arriving at the underlying performance measures are made to illustrate the impact of non-trading and non-recurring items.

	2011		2010		Year ended 31 December 2010
	Profit before tax £m	Tax £m	Profit before tax £m	Tax £m	Profit before tax £m	Tax £m
Profit before taxation
Profit before taxation as reported in the income statement	38.2	4.1	58.8	4.7	167.9	15.1
Amortisation of intangible assets arising from business combinations	14.2	3.7	13.8	3.9	27.6	8.7
Integration and rationalisation costs	20.0	4.1	9.4	2.6	9.4	1.6
Acquisition costs	8.0	0.5	-	-	-	-
Profit on disposal of investments	(7.9)	-	(16.3)	-	(16.8)	-
Underlying profit before taxation	72.5	12.4	65.7	11.2	188.1	25.4
Underlying taxation	(12.4)		(11.2)		(25.4)
Underlying profit attributable to non-controlling interests	(1.4)		(2.6)		(5.6)
Underlying profit attributable to shareholders	58.7		51.9		157.1

	2011 Pence per share	2010 Pence per share	Year ended 31 December 2010 Pence per share
Earnings per share
Basic earnings per share	7.9	12.9	36.9
Amortisation of intangible assets arising from business combinations	2.6	2.5	4.7
Integration and rationalisation costs	3.9	1.7	2.0
Acquisition costs	1.8	-	-
Profit on disposal of investments	(1.9)	(4.1)	(4.2)
Underlying basic earnings per share	14.3	13.0	39.4
Underlying diluted earnings per share (post-tax basis)	14.3	13.0	39.2

The calculation of diluted earnings per share is based on profit as shown in note 6 (a) and (b) and a weighted average number of ordinary shares outstanding calculated as follows:

In millions of shares	2011	2010	Year ended 31 December 2010
Weighted average number of ordinary shares	411.3	398.5	399.0
Effect of share options in issue	0.6	1.7	1.7

Weighted average number of ordinary shares (diluted)	411.9	400.2	400.7

7 Dividends

The following dividends were paid by the Company:

		2011		2010		Year ended 31 December 2010
	£m	Pence per share	£m	Pence per share	£m	Pence per share
Previous period final dividend	43.0	10.7	39.9	10.0	39.9	10.0
Current period interim dividend	-	-	-	-	19.2	4.8

Total	43.0	10.7	39.9	10.0	59.1	14.8

The following dividends were proposed by the Company:

		2011		2010		Year ended 31 December 2010
	£m	Pence per share	£m	Pence per share	£m	Pence per share
Interim	21.3	5.3	19.2	4.8	19.2	4.8
Final	-	-	-	-	42.8	10.7

Total	21.3	5.3	19.2	4.8	62.0	15.5

The interim dividend for 2011 of 5.3 pence per share was approved by the Board on 24 August 2011 and will be paid on
9 November 2011 to shareholders on the register on 9 September 2011.

8 Pension commitments

The following expense was recognised in the income statement in respect of pension commitments:

	2011 £m	2010 £m	Year ended 31 December 2010 £m
(Charge)/credit to operating profit
Current service cost relating to defined benefit schemes	(3.3)	(3.5)	(7.1)
Curtailments	-	-	0.4
Defined contribution schemes	(10.9)	(11.1)	(22.8)

Total	(14.2)	(14.6)	(29.5)

Credit/(charge) to other financial income and expense
Expected return on retirement plan assets	57.5	55.9	111.9
Interest cost on retirement plan obligations	(56.0)	(57.6)	(115.5)

Net financial income/(expense)	1.5	(1.7)	(3.6)

The valuation of the Group's main defined benefit pension schemes were reviewed by the schemes' actuary at 30 June 2011.

A summary of defined benefit obligations and scheme assets is given below:

	2011 £m	2010 £m	31 December 2010 £m
Present value of defined benefit obligation	(2,111.4)	(2,095.8)	(2,128.6)
Fair value of scheme assets	1,921.1	1,738.4	1,888.6
Minimum funding requirement	(13.6)	-	(9.4)

Net pension liability	(203.9)	(357.4)	(249.4)
Deferred tax on the above	53.3	100.3	67.3
Net pension liability after tax	(150.6)	(257.1)	(182.1)

The principal assumptions used by the independent qualified actuaries in providing the IAS 19 position were:

	30 June 2011	31 December 2010
Rate of increase in salaries	4.5%	4.4%
Rate of increase in pensions	3.5%	3.4%
Inflation rate - Retail Price Index	3.5%	3.4%
Inflation rate - Consumer Price Index	2.9%	2.8%
Discount rate	5.6%	5.4%

9 Cash and cash equivalents and net (borrowing)/cash

Cash and cash equivalents and net (borrowing)/cash comprise:

	2011 £m	2010 £m	31 December 2010 £m
Cash and cash equivalents	324.2	327.5	396.7
Bank overdrafts	(36.9)	(9.4)	(5.6)
Net cash and cash equivalents	287.3	318.1	391.1
Bank loans	(334.9)	(173.4)	(201.4)
Finance lease obligations	(45.8)	(61.4)	(53.8)
Other loans	(0.3)	(15.3)	(15.7)

Net (borrowing)/cash	(93.7)	68.0	120.2

Reconciliation of cash flow to movement in net (borrowing)/cash:
	2011 £m	2010 £m	Year ended 31 December 2010 £m
(Decrease)/increase in net cash and cash equivalents	(104.1)	63.5	136.1
Net cash and cash equivalents in subsidiaries acquired	1.5	-	-
Draw down of bank and other loans	(58.0)	(21.6)	(50.2)
Proceeds from finance leaseback	-	(3.8)	(3.8)
Payment of finance lease liabilities	8.3	9.3	17.3
Change in net (borrowing)/cash resulting from cash flows	(152.3)	47.4	99.4
Net borrowing in subsidiaries acquired	(61.5)	-	-
Finance lease additions	-	-	(0.4)
Currency translation differences	(0.1)	(4.3)	(3.7)
Change in net (borrowing)/cash	(213.9)	43.1	95.3
Net cash at 1 January	120.2	24.9	24.9

Net (borrowing)/cash	(93.7)	68.0	120.2

10 Related party transactions

The Group has made sales to the Group's jointly controlled entities, which are in the normal course of business and on commercial terms, amounting to £529.7 million in the six months ended 30 June 2011 (six months ended 30 June 2010: £372.4 million; year ended 31 December 2010: £1,043.7 million). Amounts receivable from jointly controlled entities amounted to £122.7 million (31 December 2010: £108.5 million) and amounts payable to jointly controlled entities amounted to £24.0 million (31 December 2010: £25.5 million).

11 Acquisitions and disposals

Acquisitions

On 14 February 2011, Carillion plc purchased 41,580,041 Eaga plc shares in the market at a cash cost of £49.9 million.

On 21 April 2011, the Group obtained control of the remaining issued share capital of Eaga plc, which when combined with a cost for acquiring shares on 14 February 2011, resulted in a total consideration of £298.4 million. The total consideration was satisfied by the issue of 30.6 million Carillion plc shares valued at the quoted mid-market price at the close of business on the day preceding the effective date of acquisition of 384.36 pence and £180.7 million in cash.

On acquisition Eaga plc was rebranded Carillion Energy Services. Carillion Energy Services is a leading provider of energy efficiency solutions. The Group believes that the acquisition represents a strategic move that will provide the Group with a strong position in a number of new and attractive markets and enhance its ability to provide existing and new customers with integrated support services solutions. The acquisition is expected to be immediately earnings enhancing even before synergies. The Group believes it can achieve synergies in the enlarged group of £15 million by the end of 2013 with one-off costs of delivering those savings in the region of £20 million.

The acquisition had the following effect on the Group's assets and liabilities:

Acquiree's net assets/(liabilities) at the acquisition date:

	Carrying amounts	Fair value adjustments re goodwill	Fair value adjustments other	Accounting policy adjustments	Acquired intangible assets	Recognised values
	£m	£m	£m	£m	£m	£m
Property, plant and equipment	12.8	-	-	-	-	12.8
Intangible assets	61.1	(61.1)	-	-	38.8	38.8
Investments	1.0	-	-	-	-	1.0
Deferred tax assets	12.5	-	-	1.7	-	14.2
Inventories	32.8	-	-	-	-	32.8
Trade and other receivables	129.0	-	-	(6.6)	-	122.4
Derivative financial instruments	1.7	-	-	-	-	1.7
Current asset investments	8.0	-	-	-	-	8.0
Income tax	3.2	-	-	-	-	3.2
Net cash and cash equivalents	(1.5)	-	-	-	-	(1.5)
Borrowing	(60.0)	-	-	-	-	(60.0)
Trade and other payables	(137.1)	-	-	-	-	(137.1)
Retirement benefit liabilities	(0.8)	-	-	-	-	(0.8)
Deferred tax liabilities	-	-	-	-	(10.1)	(10.1)
Provisions	(12.1)	-	(19.0)	-	-	(31.1)
Net identifiable assets and liabilities	50.6	(61.1)	(19.0)	(4.9)	28.7	(5.7)
Goodwill recognised on acquisition						304.1
Total consideration						298.4

Based on the provisional assessment of the recognised values of assets and liabilities, goodwill arising on the acquisition is expected to be £304.1 million. The assessments made are provisional due to the inherent uncertainty regarding the realisation of asset values and the completeness of liabilities and provisions arising from the relatively short period between when the acquisition was completed and the balance sheet date. The goodwill recognised represents the benefits of cost savings arising from the elimination of duplication and the potential for significant cross-selling opportunities within the enlarged Group, together with providing the enlarged Group with access to energy efficiency markets that have substantial growth prospects.

Fair value adjustments

The principal fair value adjustment relates to £61.1 million of goodwill on the Carillion Energy Services balance sheet at the date of acquisition which is reclassified at the same value as goodwill on Carillion's balance sheet under the requirements of International Financial Reporting Standards.

A contingent liability of £19.0 million has been recognised for the future distributions to employees from the Eaga Partnership Trust (EPT) which crystallises a National Insurance cost to the company. A full provision has been recognised at the current rate of 13.8% on the total assets currently held by the EPT which are available for potential distribution. The timings and quantum of these future distributions are determined by the EPT.

The £4.9 million accounting policy adjustment results from applying Carillion's policy in respect of expensing rather than capitalising certain bid costs associated with the securing of new contracts.

The £28.7 million of acquired intangible assets relates to the value ascribed to acquired customer lists and contracts, net of attributable deferred tax.

Total consideration for the acquisition comprises the following:

	£m
Cash paid to acquire shares in the market	49.9
Cash paid to acquire control	131.3
Total cash paid	181.2
Loss on re-measurement to fair value of shares acquired in the market	(0.5)
Element of consideration relating to cash	(180.7)
Equity shares issued	117.7
Total consideration	298.4

The value of equity shares issued is based on the mid-market price of Carillion plc shares at the close of business on 20 April 2011 of 384.36 pence and the total number of shares issued of 30,613,192.

At the point of obtaining control of Eaga plc on 21 April 2011, the shares purchased on 14 February 2011 had a fair value of £49.4 million. As a result of re-measuring these shares to fair value on acquisition, a loss of £0.5 million has been recognised within administrative expenses in the income statement. This has been offset by the Eaga plc 2011 interim dividend which was paid to Carillion plc in respect of the Eaga plc shares held.

Cash flows associated with acquisitions are included in the cash flow statement as follows:

	£m
Total cash paid	(181.2)
Net cash and cash equivalents acquired	(1.5)
Net cash outflow on acquisition	(182.7)

Acquisition costs of £8.0 million were incurred in relation to the acquisition contracts and due diligence procedures. These costs have been included as a non-operating item in the income statement (see note 3).

In the period from acquisition to 30 June 2011, Carillion Energy Services contributed revenue of £144.2 million and a reported loss after tax of £12.6 million (after rationalisation costs and intangible amortisation) to consolidated profit for the period. If the acquisition had occurred on 1 January 2011, Group revenue would have been £2,695.3 million and profit after tax would have been £16.9 million for the period ended 30 June 2011.

Disposals

In June 2011, the Group disposed of it's equity investments in two Public Private Partnership projects and a support services jointly controlled entity. The disposals generated a cash consideration of £21.3 million (net of expenses paid of £0.4 million), of which £14.0 million has been recognised in the cash flow statement. The remaining £7.3 million was received on 1 July 2011 and is recognised within trade and other receivables at 30 June 2011.

12 Share capital

On 21 April 2011, 30,613,192 shares were issued in relation to the acquisition of Eaga plc. The issued and fully paid share capital at 30 June 2011 was 430.3 million shares (30 June 2010: 399.6 million; 31 December 2010: 399.7 million).

13 Estimates

The preparation of interim financial information requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.

In preparing these condensed consolidated interim financial statements, the significant judgements made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were the same as those applied to the consolidated financial statements for the year ended 31 December 2010, except in relation to key assumptions used to determine defined benefit pension obligations as disclosed in note 8 and the provisional assessment of goodwill and intangible assets arising on the acquisition of Eaga plc as disclosed in note 11.

14 Guarantees and contingent liabilities

The Group has entered into guarantees in respect of letters of credit issued by banks in relation to deferred equity payments, interest payments in jointly controlled entities and performance contracts in Public Private Partnership jointly controlled entities. These guarantees in total amount to £155.6 million (31 December 2010: £144.7 million) with the increase since December 2010 reflecting increasing commitments during the construction phase in respect of Public Private Partnership projects. There has been no material change to the contingent liabilities of the Group in the six months ended 30 June 2011.

15 Company information

This preliminary announcement was approved by the Board of Directors on 24 August 2011. The 2011 interim results will be posted to all shareholders by 12 September 2011 and both this statement and the 2011 interim results will be available on the internet at www.carillionplc.com or on request from the Company Secretary, Carillion plc, Birch Street, Wolverhampton, WV1 4HY.

Forward-looking statements

This report may contain certain statements about the future outlook for Carillion plc. Although the Directors believe their expectations are based on reasonable assumptions, any statements about future outlook may be influenced by factors that could cause actual outcomes and results to be materially different.

Governing law

This report of Carillion plc for the six months ended 30 June 2011 has been drawn up and presented for the purposes of complying with English law. Any liability arising out of or in connection with the report for the six months ended 30 June 2011 will be determined in accordance with English law.

Directors' responsibilities

This interim report complies with the Disclosure and Transparency Rules (DTR) of the United Kingdom's Financial Services Authority in respect of the requirements to produce a half-yearly financial report. The interim report is the responsibility of, and has been approved by, the Directors of Carillion plc.

The Directors of Carillion plc confirm that to the best of their knowledge

· the condensed set of financial statements has been prepared in accordance with IAS 34 as adopted by the European Union

· the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months of 2011 and description of principal risks and uncertainties for the remaining six months)

· the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of any material related party transactions during the first six months of 2011 that have materially affected the financial position or performance of the Group and any changes in the related party transactions described in the 2010 Annual Report that could do so).

On behalf of the Board

Richard Adam

Group Finance Director

24 August 2011

Independent review report to Carillion plc

Introduction

We have been engaged by the Company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011, which comprises the condensed consolidated income statement, the condensed consolidated balance sheet, the condensed consolidated cash flow statement, the condensed consolidated statement of comprehensive income, the condensed consolidated statement of changes in equity and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Disclosure and Transparency Rules ('the DTR') of the UK's Financial Services Authority ('the UK FSA'). Our review has been undertaken so that we might state to the Company those matters we are required to state to it in 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 for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union (EU). The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34: 'Interim Financial Reporting' as adopted by the EU.

Our responsibility

Our responsibility is to express to the Company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410: 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

D K Turner

For and on behalf of KPMG Audit Plc

Chartered Accountants

One Snow Hill

Snow Hill Queensway

Birmingham

B4 6GH

24 August 2011

This information is provided by RNS

The company news service from the London Stock Exchange

END

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