Carillion Results 1 of 2

Carillion PLC
07 March 2007










March 7 2007

                     Carillion plc 2006 Preliminary Results

UK support services and construction company Carillion plc announces its
preliminary results for the year ended 31 December 2006.

Highlights

   • Revenue (including joint ventures) up 57% to £3,593m
   • Profit before tax* up 48% to £82.1m
   • Earnings per share up 15% to 23.5p
   • Strong operating cash flow - net debt 31 December £108m
   • Final dividend 5.9p per share - total 2006 dividend up 12.5% to 9p per
    share
   • Mowlem integration substantially complete - cost savings of £15m p.a.
    delivered
   • Order book more than doubled - up from £7bn to £16bn

Financial summary                                        2006             2005
Revenue
- including joint ventures                             £3,593m          £2,284m
- excluding joint ventures                             £3,065m          £2,025m
Profit before tax*                                      £82.1m           £55.5m
Earnings per share                                       23.5p            20.4p
Profit before tax                                       £67.6m           £51.5m
Basic earnings per share                                 21.6p            18.7p
* Net of tax on profit from joint ventures (2006: £8.1m; 2005: £5.0m) and
excluding restructuring costs, non-operating
items and amortisation of intangible assets related to acquisitions (2006:
£14.5m charge; 2005: £3.6m charge)

Commenting, Chairman Philip Rogerson said, 'I am pleased to report that
Carillion made good progress in 2006 and either achieved or exceeded all our key
financial and strategic objectives. In particular, the benefits of acquiring
Mowlem plc in February 2006 have been greater than expected at the time of
acquisition: integration cost savings have increased, new order intake has moved
strongly ahead and the acquisition has been significantly earnings enhancing in
2006, rather than earnings neutral.

'With an order book of £16 billion and strong positions in a wider range of
growth markets, we have created a more resilient business, capable of
accelerating our strategy for growth. This positive outlook for the Group
confirms the Board's view that Carillion is firmly on track to deliver
materially enhanced earnings in 2007.

'In view of the Group's performance in 2006 and prospects for 2007, the Board is
recommending a final ordinary dividend for 2006 of 5.9 pence per share, making
the total full-year dividend 9 pence per share, an increase of 12.5 per cent on
the total paid in respect of 2005 (8 pence per share).'

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 [phone]

Chairman's statement

I am pleased to report that Carillion made good progress in 2006 and either
achieved or exceeded all our key financial and strategic objectives. In
particular, the benefits of acquiring Mowlem plc in February 2006 have been
greater than expected at the time of acquisition: integration cost savings have
increased, new order intake has moved strongly ahead and the acquisition has
been significantly earnings enhancing in 2006, rather than earnings neutral.

In 2006, revenue increased by some 57 per cent to £3,593 million, including
joint ventures (2005: £2,284 million), which reflects both organic growth and
the acquisition of Mowlem. Profit before tax, non-operating items and
amortisation increased by 48 per cent to £82.1 million (2005: £55.5 million).
Earnings per share on the same measure rose by 15 per cent to 23.5 pence per
share (2005: 20.4 pence).

Cash flow from operations was again strong and average net debt in 2006 was £110
million, well below the £200 million we expected at the time of acquiring
Mowlem. At 31 December 2006 the Group had net debt of £108 million.

The strength of the enlarged Group is also clearly evident in the value of its
order book, which more than doubled to £16 billion at the year end (2005: £7
billion). Mowlem's order book at acquisition was approximately £2.5 billion;
therefore most of this increase came from new orders won during the year.

The good progress we have made in 2006, particularly with the integration of the
Carillion and Mowlem businesses, is due to the leadership of our management team
and the commitment and professionalism of our people. On behalf of the Board I
should like to thank all our employees for the contributions they have made to
the integration process and to Carillion's success in 2006.

With an order book of £16 billion and strong positions in a wider range of
growth markets, we have created a more resilient business, capable of
accelerating our strategy for growth. This positive outlook for the Group
confirms the Board's view that Carillion is firmly on track to deliver
materially enhanced earnings in 2007.

In view of the Group's performance in 2006 and prospects for 2007, the Board is
recommending a final ordinary dividend for 2006 of 5.9 pence per share, making
the total full-year dividend 9.0 pence per share, an increase of 12.5 per cent
on the total paid in respect of 2005 (8 pence per share). The final dividend for
2006 will be paid on 22 June 2007 to shareholders on the register at close of
business on 27 April 2007.


Philip Rogerson

Chairman

Chief Executives Review

The acquisition of Mowlem in February 2006 marked a step change in Carillion's
development as a leading support services and construction company. Greater than
expected benefits from this acquisition, combined with continuing organic
growth, enabled us to deliver profit and earnings per share ahead of our
original expectations, backed by strong cash flow from operations.

More specifically, we have achieved or exceeded each of the six key objectives
we set for 2006, namely to

-          attract and retain excellent people, by becoming an employer of
           choice
-          integrate Carillion and Mowlem successfully
-          achieve cost synergy savings at a minimum running rate of £10 million
           per annum by the end of 2006 and be on course to achieve a minimum 
           running rate of £15 million per annum by the end of 2007
-          reduce net debt to circa £200 million by the end of 2006 and be on
           course to reduce it to below £100 million by the end of 2007
-          be on track to deliver materially enhanced earnings for the enlarged
           Group in 2007
-          be a recognised leader in the delivery of safety and sustainability

Our performance against each of these objectives is discussed in the following
sections of this review.


Acquisition of Mowlem

When we acquired Mowlem, we said it was an outstanding strategic fit and that
integrating Carillion and Mowlem would deliver substantial cost savings, create
a stronger, more resilient business and accelerate our strategy for growth.

Immediately after acquisition, we restructured the group to create 14 business
units, each aligned with key growth markets and supported by lean and effective
shared central services. By the end of 2006 the integration process was
substantially complete. When we acquired Mowlem we announced that we expected to
deliver integration cost savings at a running rate of £15 million per annum by
the end of 2007, for a one-off implementation cost of £10 million. We now expect
to achieve cost savings at a running rate of £26 million per annum by the end of
2007, for a one-off cost of up to £28 million.

Carillion is now one of the largest support services' businesses in the UK with
enhanced positions in its key market sectors and a greater ability to meet the
needs of its customers, whether this involves a single service or fully
integrated solution.

Combining the PPP investment activities of Carillion and Mowlem has delivered
significant benefits, including a larger, more valuable portfolio of equity
investments, a stronger pipeline of new projects and a considerable increase in
our capacity to win and deliver PPP projects.

Mowlem's strengths in construction, particularly in the regional building and
civil engineering markets where previously Carillion had relatively little
presence, have broadened Carillion's construction base and given us the
capability to provide integrated solutions for customers in these markets.

The good progress we have made with integration resulted in the acquisition
being significantly earnings enhancing in 2006, rather than earnings neutral as
expected at the time of acquisition. Furthermore, we remain firmly on track to
deliver materially enhanced earnings in 2007 through both revenue and margin
growth.

Business performance

Total revenue in 2006 increased by 57 per cent to £3,593 million (2005: £2,284
million) including revenue from joint ventures of £528 million (2005: £259
million).

Total operating profit increased by 78 per cent to £117.1 million (2005: £65.8
million), including profit from joint ventures of £47.7 million (2005: £21.4
million). After central costs of £20.3 million, a net interest charge of £6.6
million and tax on joint ventures of £8.1 million, profit before tax,
non-operating items, restructuring costs and amortisation was £82.1 million, an
increase of 48 per cent (2005: £55.5 million). Earnings per share on the same
measure increased by 15 per cent to 23.5 pence per share (2005: 20.4 pence).

Non-operating items, restructuring costs and amortisation amounted to £14.5
million, leaving profit before tax of £67.6 million (2005: £51.9 million).
Profit after tax was £60.4 million (2005: £40.8 million) and basic earnings per
share were 21.6 pence (2005: 18.7 pence).

Our pre-tax profit margin was broadly unchanged at 2.3 per cent despite the
effect of lower margins in the businesses acquired with Mowlem, as we continue
to implement our Group-wide cost reduction and margin improvement programme. As
previously indicated, the potential to drive profit growth through improving
margins in the businesses acquired with Mowlem remains a significant
opportunity.

Our continuing focus on cash management has again delivered strong cash flow
from operations of £91 million. Average net debt in 2006 post the acquisition of
Mowlem was £148 million, including finance leases of £47.9 million.

Financial reporting segments

We continue to report our financial results in three segments - Investments,
Support Services and Construction Services - in which we group together
activities of a similar type and risk profile to make it easier to value our
earnings on a consistent basis.

The businesses acquired with Mowlem made no contributions to profit in Support
Services or Construction Services in the first half. However, as expected, all
these businesses made good second-half contributions in all three reporting
segments, as summarised below. A more detailed analysis of these segments
follows in the Finance Director's review.

Investments generated revenue of £148 million in 2006. Operating profit
increased by over 200 per cent to £26.5 million, due to the addition of Mowlem's
substantial portfolio of investments in Public Private Partnerships (PPP),
achieving financial close on a number of major new projects during the year and
the effect of projects moving from construction into operation.

In September 2006, we sold equity investments in eight projects with a total
book value of £21.1 million. The net proceeds from this sale of £46.7 million
generated an exceptional profit of £25.6 million and reflected a net present
value of the cash flows from these investments based on a discount rate of less
than five per cent. Given that we target an overall internal rate of return of
15 per cent from PPP equity investments, an equity sale has once again
demonstrated the considerable long-term value we are creating for shareholders
through our ability to win and deliver PPP projects successfully.

The Directors' valuation of our equity portfolio at 31 December 2006 was
approximately £238 million, based on discounting the cash flows from investments
in financially closed projects at an average of 8 per cent (December 2005: £89
million, based on a 10 per cent discount rate).

We also have a good pipeline of new PPP projects, including three projects for
which we are the preferred bidder, in which we expect to invest some £11 million
of equity, and eight projects for which we are shortlisted, with a potential
equity requirement of up to £69 million.

In Support Services, revenue including joint ventures increased by 56 per cent
to £1,539.7 million, due to further healthy organic growth and the acquisition
of Mowlem. Operating profit increased by almost 43 per cent to £58.2 million.

The operating margin in this segment reduced from 4.1 per cent to 3.8 per cent
due to lower margins in the businesses acquired with Mowlem and also in rail
infrastructure, as expected. As previously announced, we took action in the
second half of 2006 to downsize our rail business to reduce its overheads and
focus the business on sustainable areas of the rail infrastructure market. This,
together with our drive to improve margins in the businesses acquired with
Mowlem, is expected to improve operating performance in this segment in 2007.
In Construction Services revenue including joint ventures increased by 55 per
cent to £1,902.4 million, due primarily to the acquisition of Mowlem. Operating
profit almost doubled to £32.4 million and the operating margin increased from
1.4 per cent to 1.7 per cent, as the effect of lower margins in the businesses
acquired with Mowlem were more than offset by margin growth in other businesses,
particularly in the Middle East.

Order book

The value of our order book more than doubled to £16 billion at 31 December 2006
(December 2005: £7 billion). Mowlem's order book at acquisition was
approximately £2.5 billion; therefore most of this increase is due to new orders
won during the year. This outstanding performance reflects the strength of the
enlarged Group and our ability to accelerate our strategy for growth. Some 86
per cent of the order book is for Support Services and PPP concession contracts.
This continues to provide long-term visibility, with over 70 per cent of our
2007 order book for support services already secure. We have also strengthened
our Construction Services order book, with some 60 per cent of orders for 2007
already secure. Furthermore, we have maintained a healthy pipeline of probable
new orders worth around £1.6 billion at 31 December 2006.

Our people

As a services business, our success depends primarily on the quality of our
people. Only through their efforts every day can we meet or exceed the
expectations of customers and maintain our competitive advantage. In order to
attract, develop and retain excellent people by becoming an employer of choice,
we have a wide range of policies and programmes in place across the Group, the
success of which rests on how well we communicate with all our people, including
listening to what they tell us and acting upon it.

We have a structured approach to communication, from one-to-one individual
performance and development reviews to monthly team talks and an award winning
group-wide newspaper. We also conduct regular surveys through which our people
can share their views openly and frankly. These surveys culminate annually in
'The Great Debate' in which over 2,500 people from across the Group took part in
2006, including around 1,000 people who joined us from Mowlem. This enables us
to monitor and measure our progress on a wide range of issues, such as how well
we engage with our people to recognise and value the contributions they make to
our business and to help them fulfil their potential.

The acquisition of Mowlem and its integration with Carillion was the main focus
of internal communications in 2006. It will naturally take time for the large
number of people who joined us from Mowlem to identify fully with Carillion and,
in particular, the importance we place upon living our values. We know we have
much to do to build a culture of excellent communication across the enlarged
Group, but the results of surveys carried out in 2006 were encouraging and we
shall continue to drive this forward in 2007. Good two-way communication starts
with our business leaders and the 'Power of Engagement' workshops, attended by
around 2,000 Carillion managers and supervisors in 2005, were extended in 2006
to include some 230 business leaders who joined us from Mowlem.

Health and Safety

Our absolute commitment to Health and Safety is being translated into positive
results through 'Target Zero', the initiative we launched throughout Carillion
at the end of 2004 aimed at eliminating reportable accidents by 2010.

Target Zero, which is being led by our Board, applies to all our people, those
who work with us and those who are affected by Carillion's activities. It
requires the continual vigilance and commitment of everyone in Carillion to
ensure that safe working practices are always used and is supported by regular
and rigorous reviews, audits and training.

Target Zero is an extremely ambitious target that will be achieved only if we
can create a culture of zero tolerance to accidents within Carillion, our
customers, suppliers and partners. I am delighted to report that we have made
good further progress towards this target. In 2006, the Group's Accident
Frequency Rate (AFR) reduced by 25 per cent to 0.18 reportable accidents per
100,000 hours worked compared with an AFR of 0.24 in 2005, itself a 35 per cent
reduction on our AFR in 2004 of 0.37. This performance ranks Carillion among the
very best in our industry.

The total number of reportable accidents under RIDDOR (Reporting of Injuries
Diseases and Dangerous Occurrences Regulations 1995) reduced by 24 per cent to
346, after taking account of the increase in our workforce resulting from the
acquisition of Mowlem, and follows a reduction of 27 per cent in 2005.

2006 was free of fatal accidents to our own people and to those who work on our
project sites and contracts. We were the subject of one prosecution by the
Health and Safety Executive, which related to an incident in 2005, and one of
our subcontractors received an enforcement notice in respect of work being
carried out on Carillion's behalf.

In April 2006, around 200 people from across the Group attended our first
'Safety Action Group' conference, focused on delivering Target Zero. Similar
events will be held in 2007 to ensure we maintain this focus and the momentum we
have created towards achieving this challenging target.

In September 2006, Carillion Rail was suspended by Network Rail from bidding for
new projects, following an increase in  less serious workplace accidents over an
approximate four-week period.  We believed this increase was temporary and not 
representative of our overall performance.  However, we entirely share Network
Rail's objective of improving workforce  safety and regard any accident as
unacceptable.  Since September 2006, our AFR has reduced significantly and
Network  Rail lifted the suspension in February 2007.

In December 2006, Carillion was the first and only major construction company to
submit information on its Health and  Safety performance to the benchmarking
process sponsored by the Health and Safety Commission.  The 'Corporate Health 
and Safety Performance Index' resulting from this process will enable us to
benchmark our performance against all  participating companies and help us to
deliver continuous improvement.

More detailed information on Health and Safety will be included in our 2006
Sustainability Report that will be published on our website at
www.Carillionplc.com/sustainability, in April 2007.


Sustainability

Our commitment to becoming a more sustainable business has made Carillion a
recognised leader in developing and adopting socially responsible business
practices.

We continue to believe that this commitment not only creates positive impacts on
the environment and the communities in which we operate, but also delivers
measurable business benefits. We systematically quantify the links between our
business objectives and our impacts on the environment and society and set
specific targets for performance improvement. The targets we set and our
performance against them are externally audited and the results published in our
annual sustainability report.

We also benchmark our performance externally. For example, we participate in
Business in the Community's Corporate Responsibility Index. Since the inception
of this independent annual survey in 2003, Carillion has been ranked in the top
quartile of all companies participating in the Index. Carillion is also a member
of the FTSE4Good index.

Our 2006 Sustainability Report containing detailed information on our
sustainability programme and performance will be published on our website at
www.carillionplc.com/sustainability in April 2007.

Risk management

The rigorous policies and processes we use to identify, mitigate and manage risk
continue to be a cornerstone of our business. They enable us to address
strategic risks and those specific to individual businesses and contracts,
including social, environmental and ethical risks.

Our risk management processes apply to every aspect of our operations, from
choosing our market sectors to the contracts we bid for and the selection of our
suppliers and sub-contractors. They also apply to every stage of a contract from
inception to completion, in order to deliver the cash-backed profit we expect
and a service that delights our customers.

The more significant areas of risk where our failure to perform well or changes
to macro-economic or market specific environments would affect our business, are
summarised below.

•       Attracting, developing and retaining excellent people: the success of
        our business depends primarily on the quality of our people.
•       Managing major contracts: completing contracts on time and to the
        required standards avoid financial penalties and damage to our brand and
        reputation.
•       Closing out existing contracts: settling completed contracts and
        collecting the cash we are owed is essential to reducing debt and 
        delivering the earnings growth we expect.
•       Winning new work: our ability to remain competitive by adapting our
        strategy and service offering to the changing needs of our markets and 
        customers is essential to the continuing success of our business.
•       Managing our pension schemes: the cost to Carillion of funding its
        pension schemes depends on the macro-economic environment, equity market
        stability and regulatory requirements.
•       Process and systems: doubling the size of our business through the
        acquisition of Mowlem has increased our dependence on having efficient 
        and effective integrated project, financial accounting, internal audit 
        and HR systems.

2007 key objectives

In order to build on the substantial progress made in 2006, we have set the
following key objectives for 2007.

•       Attract, develop and retain excellent people by becoming an employer of
        choice.
•       Be a recognised leader in the delivery of safety and sustainability.
•       Deliver revenue growth of a minimum of 5 per cent through exceeding our
        customers' expectations.
•       Deliver Mowlem integration cost savings at a running rate of £26 million
        per annum by the end of 2007.
•       Generate cash-backed operating profit.
•       Achieve average net debt of around £150 million.
•       Deliver materially enhanced earnings.

Markets and outlook

In the UK, Carillion has eight principal market sectors - Defence, Education,
Health, Building, Facilities Management and Services, Roads, Rail and Civil
Engineering.

In the Middle East, our two principal market sectors are construction and
facilities management. In Canada and the Caribbean, our main market sectors are
PPP projects and roads maintenance.

With the exception of rail infrastructure, where volumes have declined as
expected, we have made progress in all our market sectors in 2006. In 2007, we
again expect opportunities for growth in our UK and International markets.

Defence, Education and Health
In the defence, education and health sectors we provide a wide range of design,
construction, facilities management and integrated service solutions, including
private finance.

Defence
We made further outstanding progress in this sector in 2006, winning new orders
worth nearly £6 billion. This followed the major breakthrough we achieved in
this sector in 2005 when Carillion joint ventures won two major support services
contracts - Housing Prime and Regional Prime Central - for Defence Estates,
together worth around £600 million to Carillion.

In 2006, we generated some £232 million of revenue from the Defence sector,
almost a ten-fold increase on 2005 (£24 million). Growth has been driven by
mobilising the two support services contracts won in 2005 and by achieving
financial close in 2006 on two major PPP contracts for the Ministry of Defence -
the £12 billion Allenby Connaught project and the £880 million Permanent Joint
Headquarters, Northwood, project. We will invest some £70 million of equity in
these projects, on which we also commenced construction and the provision of
facilities management services in 2006.

The outlook in this sector in 2007 is for continuing growth as construction and
facilities management services reach full-year volumes on the Allenby Connaught
and Northwood projects. In addition, we are the preferred bidder for the £250
million Royal School of Military Engineering project and there are good
prospects for further substantial construction work associated with the Regional
Prime Central contract.

Education

In 2006, we reached financial close on the £76 million South Ayrshire PPP
schools project, our sixth such project, and we were appointed as a framework
contractor for Academies to be built under the Government's Building Schools for
the Future programme.

The education sector contributed around £162 million of revenue in 2006 (2005:
£141 million), with growth driven primarily by full-year contributions from the
£100 million Renfrewshire Schools PPP project and the £100 million Leeds schools
project.
The outlook in the education sector continues to be very positive. Although the
Building Schools for the Future programme has made a slower than expected start,
the Government remains committed to this programme under which it plans to
invest up to £60 billion over the next 15 years in replacing secondary schools
and some £1.6 billion over the next five years in building Academy Schools. In
Scotland, investment continues to be made in new PPP schools and Carillion has
been shortlisted for a further project in West Dunbartonshire, worth
approximately £130 million.

Health

In 2006, our activities in the health sector generated revenue of £229 million
(2005: £146 million). We made good progress in facilities management in this
sector, winning and mobilising a £330 million contract for Barts and The London
Hospital and mobilising services at two of our UK PPP hospitals - the John
Radcliffe, Oxford, and the Queen Alexandra, Portsmouth.

Our Clinicenta joint venture also made further substantial progress in 2006,
winning preferred bidder positions on two more Independent Sector Treatment
Centre (ISTC) contracts - London South and London North - to add to the
preferred bidder position it already has on a similar contract for ISTCs in
Bedfordshire and Hertfordshire. Since the year-end, Clinicenta has also been
appointed as the preferred bidder for a fourth ISTC contract to provide
diagnostic services in South East England. These four contracts, which involve
fully integrated solutions including clinical services, are expected to generate
around £450 million of revenue for Carillion over five years. Clinicenta is
therefore on course to become a key supplier of community based clinical
services.

Looking forward, we expect continuing opportunities for growth in the health
sector. In 2006, the Government reviewed its PPP programme for acute hospitals
and confirmed its commitment to this programme and to investing between £7
billion and £9 billion in 20 new hospitals. In addition, the Government plans to
invest around £150 million per annum over the next five years in community
hospitals.

Facilities management and services

We provide a wide range of facilities management and other support services to
public and private sector customers, with large, integrated FM solutions as one
of our key strengths.

In 2006, we generated some £656 million of revenue from this sector (2005: £370
million), reflecting the acquisition of Mowlem and further organic growth.

As we indicated at the half-year, we are now much more positive than we were in
2005 about the outlook for this sector in which there is a growing number of
opportunities, particularly for larger integrated solutions. We won new orders
in 2006 worth some £700 million, including a £100 million, five-year extension
to our contract with ntl TeleWest (now Virgin) and a £360 million, three-year
claims management contract for Norwich Union. Carillion has also been appointed
by the Office of Government Commerce as a framework supplier of facilities
management services to the public sector.

Currently we are bidding for further contracts worth approximately £100 million
per annum for public and private sector customers and we believe the positive
outlook is this sector is set to continue. Overall, the UK outsourcing market
grew by around 5 per cent to £110 billion in 2006 and growth is forecast to
continue at this level over the next five years. About 60 per cent of the market
is forecast to be contracted out by the end of this period. With building fabric
maintenance and facilities management expected to be among the areas of
strongest growth, we are well positioned to take advantage of growth in this
sector.

Building

Our National and Regional UK building businesses provide construction services
to a wide range of public and private sector customers for projects with values
typically between £1 million and £300 million.

In 2006, UK building contributed £848 million of revenue (2005: £528 million)
with the increase primarily due to the acquisition of Mowlem. New orders
totalling £885 million in 2006 reflected positive trading conditions in our
target sectors of the UK building market.

The UK building sector is expected to remain buoyant in 2007, with non-housing
new build forecast to grow by around 6 per cent per annum over the next five
years. Although we propose to bid only selectively for projects let by the
Olympic Delivery Authority (ODA), the ODA investment programme should help
maintain buoyant trading conditions across the UK market by attracting suppliers
from regions beyond the South East. Furthermore, as well as the facilities
needed for the Games themselves, substantial regeneration investment is planned
for London over the next 10 to 15 years and this represents an important
opportunity for us, given our strength in providing integrated solutions for
urban regeneration.

Roads and Civil Engineering

In these sectors we are focused primarily on long-term road maintenance
contracts, the design and construction of road projects under the Highways
Agency's Early Contractor Involvement (ECI) programme and civil engineering
projects for Local Highway Authorities, Network Rail and Water companies.
These activities contributed £465 million of revenue to the Group in 2006 (2005:
£172 million) with the increases due primarily to the acquisition of Mowlem's
regional civil engineering business whose portfolio included six ECI road
contracts.

In 2006, we won a steady flow of new orders in the roads sector, notably
construction of the £122 million ECI project to upgrade the A74 in Cumbria to
motorway standards (the 'M6 missing link') and two further ECI contracts, the
A5117/A530 improvement scheme on Deeside and the M25 junction 28 improvement
scheme. Since the year-end, we have also won £120 million contract for the
operation and maintenance of the M40 motorway between the M25 and Warwick. For
regional civil engineering, 2006 was a year of consolidation in which we
implemented a more selective approach to the projects for which we bid.

The outlook for the roads sector in 2007 is encouraging. We expect to bid for
Highways Agency maintenance contracts for Areas 6 and 8, potentially worth
around £500 million over seven years. Carillion is also an equity partner in a
consortium that has been shortlisted for the Design, Build, Finance and Operate
(DBFO) project to widen the M25, which has an estimated total value of around £5
billion. Carillion's interests in this project lie in being an equity investor
and the maintenance provider over the life of the concession. Carillion is
currently the maintenance contractor for the M25 and Area 8 and we believe we
are well positioned to bid for all these contracts. The outlook in our target
sectors for regional civil engineering is for modest growth in 2007.

Rail

In the UK rail infrastructure market we provide project services to upgrade and
improve the national heavy rail network, together with track renewal, signalling
and other specialist services, including welding and testing and the supply of
labour and plant.

Revenue from these activities was £368 million in 2006 (2005: £410 million) and
reflected the decline in the UK rail infrastructure market, on which we have
commented previously. Consequently, during the second half of 2006 we
restructured Carillion Rail to reduce overheads and focus the business on
sustainable areas of the rail infrastructure market.

Although the outlook in this sector is still uncertain, it has improved since we
reported at the half-year and is now expected to stabilise in 2007 rather than
decline further. In October 2006, a Carillion joint venture won the £363 million
contract for Transport for London for the East London Line. In December 2006,
Network Rail announced its intention to reduce the number of suppliers it uses
to provide track renewal services from six to four by July 2007. This represents
an opportunity to increase our market share and we believe Carillion Rail is
well positioned in this market, particularly in the more specialised area of
switches and crossings renewals.

The Middle East

Our operations in this region are based in Dubai and Oman and focused on two
sectors, construction and facilities management.

Revenue in the Middle East grew strongly in 2006 to £274 million (2005: £165
million), maintaining a compound annual growth rate of around 60 per cent over
the last three years. This reflects the strength of our market sectors and of
the relationship with our joint venture partner and main customer, the Al
Futtaim Group. During 2006, the Al Futtaim Group joined Carillion and Emaar
Properties as a third partner in our facilities management joint venture,
Emrill. This opens up significant new opportunities for growth, as Emrill is now
the preferred supplier for the property portfolios of both Emaar Properties and
the Al Futtaim Group.

In 2006, our joint ventures secured orders worth £360 million to Carillion of
which some £275 million were in Dubai with the balance in Oman. We also have a
strong pipeline of construction and FM opportunities in Dubai and for
construction in Oman. Consequently, we expect growth in the Middle East to
remain strong in 2007. Beyond that, the prospects for further healthy growth
continue to be encouraging in Dubai and Oman and there are emerging
opportunities in other territories and countries in the region, notably Abu
Dhabi and Egypt.

Canada and the Caribbean

In Canada, our key sectors are PPP hospitals and roads maintenance. In the
Caribbean, we provide construction services to public and private sector
customers.

In 2006, revenue in this region increased to £163 million (2005: £132 million).
New orders worth approximately £230 million were secured in 2006, the largest of
which was a seven-year road maintenance contract in Alberta, Canada, worth £137
million. Carillion is already established as the leading supplier of road
maintenance services in Ontario and the contract in Alberta extends our
operations to a new and growing market.

We have made good progress with construction of the first two PPP hospitals to
be built in Canada: the Royal Ottawa has been completed on time and to budget
and is now operational and the new William Osler Hospital in Ontario is nearing
completion, also on time and to budget. This has firmly established Carillion in
this growing sector of the Health market in Canada. Currently, we are
shortlisted for two more PPP hospitals - the Sault Sainte Marie and Niagara
Hospitals in Ontario - and there are prospects to bid for further PPP hospitals
in British Columbia over the next 12 to 18 months.

New order intake in the Caribbean improved significantly in 2006, the largest of
which was a £46 million building contract for the Viceroy Resort complex in
Anguilla and the prospects for further growth in 2007 are encouraging.

With an order book of nearly £1 billion, the outlook in this region is therefore
positive and we expect it to continue to deliver healthy growth.

John McDonough
Chief Executive



FINANCIAL REVIEW

Accounting policies

The Group's annual consolidated financial statements have been prepared in
accordance with International Financial Reporting Standards (IFRS) and there
have been no changes in accounting policies during the year.

Acquisitions

On 23 February 2006 we acquired Mowlem plc for a total consideration of
approximately £350 million, comprising £117 million in cash and 66.2 million new
ordinary Carillion shares. At the point of acquisition, Mowlem had net debt of
£122.5 million.

Intangible assets of £550 million, comprised £532 million relating to Mowlem plc
and £18 million relating to Pall Mall previously recognised in the acquired
business. The increase of £36 million in intangible assets relating to the
acquisition of Mowlem since the half-year (30 June 2006: £496 million) is due
entirely to the application of IAS 12 'Income Taxes'. Of the original £496
million of intangible assets, £119 million will be amortised over its period of
consumption. Under IAS 12, a deferred tax provision equal to 30 per cent of the
value of assets to be amortised (£35.7 million) has been established with a
corresponding increase in the total value of intangible assets.

Amortisation of intangible assets

Amortisation of intangible assets relating to business acquisitions was £16.8
million, which relates to the £119 million of intangible assets arising from the
acquisition of Mowlem in 2006 and £6.2 million arising from the acquisition of
PME in 2005.

Interest and cash

The Group net interest credit of £1.4 million (2005: £4.0 million) reflects
average net debt in 2006 of £110 million (net of average finance leases of £42
million), offset by an interest credit from pensions of £3.5 million.

Net debt at 31 December 2006 was £108 million after finance lease liabilities of
£47.9 million (31 December 2005: net cash £90.8 million, after finance leases of
£37.7 million).

Strong cash generation from operations of £91 million and dividends received
from jointly controlled businesses of £15.7 million continue to demonstrate our
focus on cash management and the resilience of our business. Capital expenditure
was £41 million, the main components of which were investments in the previously
announced project to outsource business processes for Human Resources and
Finance and in highways maintenance plant.

Dividend payments in 2006 were £23.2 million and net corporate tax refunds of
£1.7 million were received.

Jointly controlled businesses

An important part of our strategy for Public Private Partnership (PPP) and large
construction projects is the development of jointly controlled businesses that
enable us to structure the resource and risk profiles of these activities to
generate reliable returns. In 2006, these businesses generated £528.5 million of
revenue (2005: £258.7 million) and £47.7 million of operating profit (2005:
£20.3 million) for Carillion. This reflected growth in joint venture activities
in PPP investments, in construction services, notably in the Middle East, and in
UK support services. After an interest charge of £8 million, profit before tax
from joint ventures was £39.7 million (2005: £21.4 million) and profit after tax
was £31.6 million (2005: £16.4 million).

Taxation

The Group's effective rate of tax on underlying profit remained at 27 per cent.
We have £242 million of corporate tax losses in the UK and overseas that are
potentially available to reduce future tax liabilities. Of these losses some £33
million, with a cash value of £10 million, have been recognised as a deferred
tax asset.

Non-operating items

The Group had a net exceptional profit of £2.7 million in 2006. This comprised
three main items, namely an exceptional profit of £25.6 million from the sale of
eight PPP equity investments, exceptional costs of £18.4 million in respect of
integrating the Carillion and Mowlem businesses and exceptional costs of £4.2
million in respect of restructuring Carillion Rail.

Pensions

The Group's ongoing pensions charge against profit in 2006, calculated on the
basis of IAS19, was £35.1 million (2005: £21.4 million), with the increase on
2005 due to the acquisition of Mowlem.
In addition, cash payments totalling £31.8 million were made in 2006 to the
Group's pension schemes to reduce funding deficits in line with plans agreed
with the trustees. The Group's pension schemes had a net deficit of £75.8
million at 31 December 2006 (2005: £47.5 million).

Financial reporting segments

The table below shows revenue by business activity and the segments in which it
is reported.


Business sector                   Financial reporting segments
£ million           Investments        Support           Construction Services
                                      Services
Defence                       -            176                              56
Education                     -              -                             151
Health                        -            110                             119
UK Building                   -              -                             848
FM & Services                 -            618                              38
Roads & Civils                -            181                             284
Rail                          -            368                               -
Middle East                   -              -                             274
Canada & Caribbean            -             46                             117
Private Finance             148              -                               -
Other                         -             41                              15
           Total            148          1,540                           1,902


Investments

£ million                                                 2006            2005
Revenue
                                                        -------          ------
Group                                                      1.3             0.8
JVs                                                      146.7            64.6
                                                        -------          ------
                                                         148.0            65.4
                                                        -------          ------
Operating profit*                                         26.5             8.3
JV Interest & tax                                        (12.1)           (0.6)
                                                        -------          ------
Profit from operations*                                   14.4             7.7
                                                        -------          ------
* Before restructuring costs of £0.2m (2005: Nil) goodwill impairment of £0.4 m
(2005: £0.3m) and after tax on joint ventures of £3.8m (2005: £3.1m)

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

Through our ability to win and deliver PPP projects successfully, we continue to
build a portfolio of good quality equity investments that is generating
significant value for the Group.

At 31 December 2006, our portfolio comprised 24 financially closed projects
(December 2005: 19) in which we have invested or commitments to invest some £168
million. During 2006, the acquisition of Mowlem added 10 projects to our
portfolio, we sold our investments in eight projects and reached financial close
on three projects - the Allenby Connaught and Joint Permanent Headquarters
projects for the Ministry of Defence, and the South Ayrshire Schools project.

Profit in this segment increased substantially due to growing returns from our
maturing investment portfolio, contributions from the investments acquired with
Mowlem and reaching financial close on the three new projects.

The sale of equity investments in eight PPP projects in September 2006 generated
proceeds of £46.7 million and exceptional profit of £25.6 million. The proceeds
reflected a net present value for the cash flows from the investments sold based
on a discount rate of less than 5 per cent and further demonstrated the
substantial value being created from these investments. In a full-year, effect
of the sale will be to reduce operating profit by approximately £7 million.

In view of the value achieved from this sale and the continuing strength of the
secondary market for good quality equity, the directors now value the cash flows
from our equity investments using an average discount rate of eight per cent,
rather than the 10 per cent used previously. On this basis, the directors'
valuation at 31 December 2006 was £238 million (December 2005: £89 million),
reflecting the reduction in the valuation discount rate and the increase in
equity invested and committed.

Construction Services

£ million                                              2006                2005
Revenue
                                                     -------             -------
Group                                               1,667.8             1,050.1
JVs                                                   237.9               180.0
                                                     -------             -------
                                                    1,905.7             1,230.1
                                                     -------             -------
Operating profit*                                      32.4                16.9
JV Interest & tax                                      (1.9)               (3.1)
                                                     -------             -------
Profit from operations*                                30.5                13.8
                                                     -------             -------
* Before restructuring costs of £1.5m (2005: Nil), amortisation of intangible
assets £3.6m (2005: Nil) and a JV non operating loss of £0.8m in 2005 and after
tax on joint ventures of £2.0m in 2006 (2005: £1.8m)


In this segment we report the results of our UK building and construction
activities and International Regional businesses.

Revenue in Construction Services increased by 55 per cent, due primarily to the
acquisition of Mowlem. Operating profit increased by 92 per cent and the
operating margin increased from 1.4 per cent to 1.7 per cent. Margins improved
despite the effects of lower margins in the businesses acquired with Mowlem as
these were more than offset by margin improvements in other businesses, both in
the UK and our International Regions.

The approach Carillion takes to recognising profit on major construction
contracts has been extended to the enlarged Group. No profit is taken on the
first 20 per cent of revenue on such contracts and this profit is deferred until
contracts are completed. On revenues between 20 per cent and 100 per cent,
profit is recognised broadly in proportion to revenue after taking account of
risks and uncertainties. The effect of this approach in 2006 has been to reduce
reported operating profit by a net £2.2 million (2005: £5.4 million), comprising
£5.6 million of profit deferred and £3.4 million of profit released in respect
of contracts completed successfully during the year. Total deferred profit
carried forward at 31 December was £10.9 million.

Support Services

£ million                                                 2006             2005
Revenue
                                                        -------           ------
Group                                                  1,395.8            974.6
JVs                                                      143.9             14.1
                                                        -------           ------
                                                       1,539.7            988.7
                                                        -------           ------
Operating profit*                                         58.2             40.6
JV Interest & tax                                         (2.1)            (0.2)
                                                        -------           ------
Profit from operations*                                   56.1             40.4
                                                        -------           ------
* Before restructuring costs £6.0m (2005: Nil), amortisation of intangible
assets of £11.9m (2005: £2.5m) and after tax on joint ventures of £2.3m (2005:
£0.1m)

In this segment we report the results of our activities in rail infrastructure,
roads maintenance, facilities management and other support services.

Revenue in Support Services increased by nearly 56 per cent, reflecting the
acquisition of Mowlem and organic growth, partially offset by the expected
reduction in revenue from rail infrastructure. Organic growth was driven
primarily by facilities management, particularly in the Defence sector, our
mechanical and electrical engineering business, PME, and highways maintenance.

Operating profit increased by 43 per cent, but lagged revenue growth due to
lower revenues and margins in rail infrastructure services and lower margins in
the businesses acquired with Mowlem. Consequently, the overall operating margin
in this segment reduced from 4.1 per cent to 3.8 per cent.

As previously reported, in response to declining activity levels and margins in
the UK rail infrastructure market we restructured Carillion Rail in the second
half of 2006 to reduce overheads and focus the business on sustainable areas of
the rail infrastructure market. This, together with improving the margins in
businesses acquired with Mowlem, is expected to improve operating performance in
this segment in 2007.

Committed Bank Facility

As previously reported, a new committed bank facility, originally totalling £490
million, was arranged in connection with the acquisition of Mowlem. Of the
original amount, £331 million remained in place at the year-end of which £141
million is repayable over the four years up to December 2010 and £190 million is
repayable in December 2010.

Chris Girling
Finance Director






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