Final Results

Carillion PLC 12 March 2003 Carillion plc 2002 preliminary results UK Business and Construction Services company Carillion plc announces its preliminary results for the year ended 31 December 2002. Highlights • Pre-tax profit* up 11 % to £50.2 million • Earnings per share* up 19% to 16.6 pence • Full year dividend up 9% to 4.8 pence • Over two thirds of pre-tax profit from Business Services and Investments • Order book and framework contracts of £5.0 billion Commenting, Carillion Chairman Sir Neville Simms, said, 'Carillion made good progress in 2002 and the delivery of substantial earnings growth is a significant achievement. Carillion has made a good start to 2003, winning new work to add to its strong order book. We therefore believe that the Group's strategy remains sound and that despite the global uncertainty we will make further progress in 2003.' For further information contact Chris Girling Finance Director 01902 422431 John Denning Director Group Corporate Affairs 01902 316426 * Before goodwill amortisation of £2.7 m and exceptional charges of £5.3 m Chairman's Statement I am pleased to report that Carillion made good progress in 2002, with an 11 per cent increase in profit before tax, goodwill and exceptional items. Earnings per share before goodwill and exceptional items grew by 19 per cent. The delivery of substantial earnings growth in 2002 is a significant achievement, especially as the general business climate became less certain during the year. This success reflects not only the Group's good overall operating performance, but the progress being made with implementation of the strategy we have developed and pursued since Carillion was launched as an independent company in 1999, namely to develop our Business Services and PPP Investment activities alongside a well positioned Construction Services business. The Group has again delivered substantial growth in its Business Services and PPP Investment activities, both organically and through acquisitions, including Citex Management Services in 2002 together with the full year effect of the successful acquisition of GT Railway Maintenance and additional PPP project equity in the second half of 2001. This growth has more than offset a reduction in activity in Construction Services, resulting largely from our strategy to focus on higher added value contracts with long-term customers. This has involved downsizing in some markets and exiting others, including the disposal of our social housing business in the second half of 2001 and Maxxiom, our joint venture plant hire business, in 2002. The Group's Business Improvement Programme is also playing a key part in the successful delivery of our strategy. By helping all our people to live up to our core values and deliver continuous improvement in the efficiency and quality of the services we provide for our customers, we are creating a culture for success. We owe our success therefore not only to the skills and commitment of our people, but to also their ability to embrace change and continually strive to exceed the expectations of our customers. The Board is recommending the payment of a final dividend of 3.3 pence per share, making the total for the year 4.8 pence per share, an increase of 9 per cent on 2001. The final dividend will be paid on 27 June 2003 to shareholders on the register at the close of business on 2 May 2003. The year saw significant developments in corporate governance with the publication of the Higgs Review of the role of non-executive directors and the Smith report on audit committee governance. The lead Carillion has taken within its sector on Sustainability shows the Board's commitment to taking a broadly based view of the effects of our business activities on society and the environment. In the same way, the Board looks to adopt a balanced and forward thinking approach to all other aspects of corporate governance. We have carried out an initial review of compliance with the key recommendations of the Higgs and Smith reports and we believe that we are largely in compliance with their major procedural recommendations. Before these reports were published, we conducted our own detailed examination of the effectiveness of our Board and changed our working practices where it was judged appropriate to do so. We now propose to repeat this review annually. At the time of writing, it seems that many of the recommendations of the Higgs review will be adopted into the Combined Code and will apply to Carillion from the 2004 financial year. However, we are confident of being in a position to report in our Report and Accounts for the year ending 2003 as if the revisions to the Code were in place. Carillion works hard to maintain its position as an industry leader in Health and Safety and in managing and improving the environmental and social aspects of our business. We believe that the model we have developed to link our improvement programmes in each of these areas to the Group's business strategy and financial performance has further differentiated us from our competitors and underlined our industry leadership in the development of a successful and sustainable business. This work will be described in detail in our separate Sustainability Report, which will be published in April on our website. Carillion has made a good start to 2003 by winning a number of significant new contracts, particularly in our growth segments, adding to our substantial year end order book. We therefore believe that our strategy remains sound and that despite the global uncertainty the Group will make further progress in 2003. Chief Executive's Review In 2002, we built upon our success in 2001 by continuing to implement our strategy for growth, supported by our Business Improvement Programme, which is continuously improving the efficiency and quality of service delivery to our customers. Our well balanced market and geographical positions enable us to target growth areas, particularly transport, health and defence in the UK and our International Regional businesses where there are increasing opportunities to export our PPP and Business Services skills. These four strategic growth areas are described in more detail later in this report. Strategic overview The key elements of our strategy remain unchanged, namely to grow our Business Services and PPP Investment activities, organically and by acquisition, alongside a well positioned Construction Services business focused selectively on higher added value contracts for long-term customers. We have again delivered profitable growth in Business Services and PPP Investments, which generated over two thirds of the Group's pre-tax profit. By targeting growth markets in which we can use the strong positions we hold to promote our full range of services, we secured a number of significant new orders in 2002. We have also benefited from our maturing PPP portfolio and the acquisition of the remaining 51 per cent of GT Railway Maintenance in September 2001, which enabled us to integrate all our rail activities into one business, Carillion Rail, launched in March 2002. The acquisition of Citex Management Services in August 2002 brought to the Group a portfolio of contracts with blue chip corporate customers and a successful management team that complements our existing facilities management business, which has an extensive portfolio of public sector contracts. In line with our more selective approach in Construction Services, we disposed of three more non-core business - the hoists, accommodation and general plant businesses of our joint venture company Maxxiom, London Paving, which carried out minor civil engineering projects, and Neslo, an office fit-out and partitioning company. We continue to target higher added value contracts for long-term customers: over 80 per cent of our UK turnover in building and infrastructure projects comes from 20 key customers. Financial Performance The operational and strategic progress we made in 2002 is reflected in our strong financial performance. Profit before tax, goodwill and exceptional items increased by 11 per cent to £50.2 million, on turnover some 4 per cent higher at £1.97 billion. Earnings per share before goodwill and exceptional items increased by 19 per cent to 16.6 pence. Our underlying tax rate reduced to 29 per cent before exceptional items (2001, 30 per cent) as we began to access available tax losses. Earnings per share after goodwill and exceptional items increased by 26% to 13.2 pence. Net cash at the year-end was £5.3 million, which reflects a net cash outflow in the year of some £46 million. This was largely due to the unwinding of positive cash flow on several major construction contracts, including a number of large PPP projects, which reached or were nearing completion during the year. Despite this cash outflow and net investments of £72 million over the past eighteen months in acquisitions, plant and equipment, Group net interest remained positive for a second year, as a result of our continuing focus on cash management. The development of our PPP portfolio continues to deliver long-term, high quality and cash-backed earnings growth. Our total committed equity investment in our 16 financially closed projects, increased from £45 million to £48 million during 2002. In the light of recent transactions involving the sale of project equity, the Directors believe that Carillion's equity investments in PPP projects have a net present value in the region of £115 million. The net cost of bidding for PPP projects in 2002 was £15.8 million (2001, £13.9 million) and we have continued to work with Government and other leaders in our industry to reduce these costs. The good progress we have made with our Business Improvement Programme delivered £2 million of savings in 2002, as previously indicated. As a result of actions already taken we will deliver the £5 million of savings targeted for 2003. In addition, we have identified a further £3 million of cost savings in 2003. Pensions At December 2002, the various defined benefit schemes operated by Carillion had assets of £704 million (December 2001, £881 million), with a net deficit of £51 million (December 2001, £59 million surplus), calculated on an FRS 17 basis. The Group recommenced pension scheme contributions in December 2002, the full year cash effect of which is expected to be around £15 million in 2003. A full valuation of all the Group's pension schemes will be available in 2003. As part of a continuing review of the various options for ensuring that the Group can continue to offer all our employees good quality pension schemes, we have decided to close two of our defined benefit schemes to new employees from 1 April 2003 and to offer instead membership of competitive defined contribution schemes that rank in the upper quartile of such schemes in the UK. Health and Safety Achieving the highest standards of Health and Safety is a key priority of the Board and the whole of the Group's management team. Although our Health and Safety record is amongst the best in the industry sectors in which we work, we continually strive to improve our own performance, measured against key performance indicators, and work with our partners, suppliers and other stakeholders to help improve the performance of our industry as a whole. The Board sets our safety policies and targets and the Group's Safety Committee through our Integrated Management System, manages implementation and delivery. In 2002, we also embarked upon a number of innovative behavioural safety programmes to complement our policies and procedures. These programmes are aimed at embedding Health and Safety into our culture so that all our people fully appreciate the importance and absolute priority that must be given to this key area. Sustainability We continue to take the lead in our sector on Sustainability, because we believe it creates clear benefits for Carillion, our customers, our partners, our suppliers and our stakeholder communities. In 2002, we further developed our ability to offer sustainable solutions that not only incorporate best environmental and social practice, but also reduce whole life costs and improve value for money for our customers. We have done this by using the model we published in our 2001 Sustainability Report that links our sustainability targets to our strategic business and financial objectives, supported by analysis of the costs and benefits of Sustainability solutions. PPP projects provide a major opportunity to demonstrates the business case for Sustainability. For example, at the Great Western Hospital, Swindon, our latest PPP hospital, which received top marks from the Building Research Establishment as one of the UK's most sustainable buildings, we identified tangible and quantifiable savings of £1.8 million as a result of adopting a sustainable approach to its design, construction, maintenance and operation. Outlook We entered 2003 with a strong order book and long term framework contracts together worth around £5.0 billion, of which 75 percent is for 2004 and beyond and 60 per cent is for 2005 and beyond. We also have a large pipeline of potential contracts, which we believe we are well positioned to secure in 2003. In the first two months of the year we have already secured contracts and preferred bidder positions for over £350 million of commercial building work and £350 million of road maintenance and construction. Despite the global uncertainty, the overall outlook in all our main markets, both in the UK and our International Regions, remains positive with opportunities for further growth. In the UK, three sectors - health, transport and defence - in particular offer good prospects for growth, with confirmed Government investment in these sectors of some £75 billion over the next 10 years. In order to take full advantage of the opportunities arising from this investment, we have created new Health and Defence business units alongside our existing Transport infrastructure businesses. Our fourth key growth opportunity lies in exporting our PPP Investment and Business Services skills to our International Regions, where we have had well-established businesses for over 30 years. In Canada, for example, where we have developed a substantial highway maintenance business and been shortlisted for two large PPP hospitals in 2002, we expect increasing opportunities. In the Middle East and Caribbean we signed joint venture agreements in 2002 to provide extensive facilities management services to long-term key customers, worth up to £500 million over 10 years. We therefore expect to make further progress in our growth areas in 2003 as a result of our well balanced geographical and market positions and our focus on working with long term key customers. Operating Review Investments 2002 2001 Turnover £61.6 m £43.9 m Operating profit £7.8 m £5.5 m Pre-tax profit £2.5 m £1.7 m Pre-tax profit from our PPP Investments increased by 47 per cent, reflecting the maturing nature of our portfolio of 16 financially closed projects. 12 of these projects are operating successfully with the remaining four currently in construction. Committed PPP equity increased from £45 million to £48 million during the year. In November 2002, our fifth PPP hospital, the Great Western Hospital, Swindon, was handed over successfully and on time. This 490 bed acute general hospital was built at a cost of some £100 million under a 27-year concession, during which Carillion will also provide non-clinical support services. The Great Western not only set new standards in hospital design, but also in Sustainable Development. Working in conjunction with The Natural Step, we have designed and constructed one of the UK's most sustainable buildings, which gained top marks for Sustainability in a recent Building Research Establishment report. We were equally delighted to underline our position as a PPP market leader with five top PFI Awards in 2002, including the premier award of PFI Project of the Year, for our New Accommodation Project for GCHQ, Cheltenham. Although the flow of PPP projects reaching preferred bidder and financial close in all sectors of the UK market slowed considerably over the last eighteen months, we believe that this was temporary. With confirmed Government plans for over £75 billion of investment in our chosen PPP sectors of Health, Transport, Defence and Secure Establishments over the next 10 years, we expect the flow of projects to increase significantly in 2003 and beyond. In December 2002, we were selected as the preferred bidder for the John Radcliffe PPP hospital project, in Oxford, adding to our successful appointment as preferred bidder for the North East Derbyshire social housing project in November 2002. The John Radcliffe project, which is expected to generate around £600 million of turnover for Carillion, including construction, support services and our share of the Special Purpose Company's turnover, represents a further significant step in the development of our Healthcare Business. Carillion is currently shortlisted for a further 14 projects with an estimated total construction and support services value of around £2.4 billion, including two major hospitals in Canada, where there is a growing PPP market from which our long established Canadian business is well placed to benefit. Business Services 2002 2001* Turnover £821.7 m £609.3 m Operating profit** £39.0 m £30.2 m Margin 4.7 % 5.0 % * Before exceptional operating charges of £0.4m ** Before goodwill of £2.6m (2001:£0.4m) Turnover increased by 35 per cent primarily as a result of growth in Carillion Rail and Carillion Services, our facilities management business. Around half this growth was organic, maintaining the average compound annual growth rate in this segment at over 10 per cent during the last five years. The remaining growth resulted from the acquisition of GT Railway Maintenance in September 2001 and Citex Management Services in August 2002. Operating profit increased by 29 per cent. The slightly lower margin in 2002 reflects a revised method of extracting profit from Monteray, the effect of which is to reduce operating profit and the minority interest charge by similar amounts. Rail Carillion Rail performed well in 2002. It was voted the UK's best rail maintenance operator for the second year running in the 2002 National Rail Awards and recently won the 2003 Network Rail Security and Safety Award. Carillion Rail is now an established market leader with maintenance contracts for over 20 per cent of the UK's heavy rail network. It is also a leading provider of rail renewal and enhancement projects, together with a comprehensive range of design and consultancy services spanning all aspects of rail construction and maintenance. Carillion Rail's success is based on its absolute commitment to safety, compliance and performance through the delivery of high-quality value for money services. Securing a £200 million IMC 2000 maintenance contract for South Wales and Marches and £130 million of construction and maintenance contracts for the Channel Tunnel Rail Link (CTRL), were notable contract wins in 2002. The CTRL contracts were particularly significant as they substantially increased Carillion Rail's presence in South East England, one of the areas due to benefit from increased investment. A further important initiative was the development of Eurailscout GB, a Carillion Rail joint venture that will offer vehicle-mounted high-speed track inspection services throughout the UK. Services are expected to start by mid 2003 and will further improve the safety and quality of track inspection and maintenance. Carillion Rail therefore remains well positioned to benefit from continuing high levels of expenditure on maintenance and from planned investment to upgrade the UK rail network, particularly the £7.0 billion programme for the West Coast Mainline, and in due course Public Private Partnership projects. Facilities Management The acquisition of Citex Management Services in August 2002 brought to the Group a portfolio of contracts with blue-chip corporate customers and an entrepreneurial management team with a successful track record. It therefore complements our well-established facilities management business, which has an extensive portfolio of public sector contracts, and strengthens our ability in the UK and overseas to deliver further growth in this sector. In 2002 there were also a number of contract successes, including signing joint venture agreements to undertake facilities management in the Middle East and Caribbean, worth up to £500 million over 10 years, and a seven-year contract to provide non-clinical services to the North Lincolnshire and Goole Hospitals NHS Trust worth some £50 million. Highways Our highways maintenance business also performed well in 2002. With Highways Agency contracts for maintenance of over 20 per cent of the motorways and trunk road network in England, it continues to be a market leader in this sector. Our focus on skills and innovation to provide high-quality value for money services were key factors in two further successes in the first few weeks of 2003 - being awarded our second Managing Agent Contractor contract by the Highways Agency, a five year contract for Area 12, extendable to seven years and worth up to £140 million, and being appointed preferred bidder by Surrey County Council for a long term highways maintenance contract worth up to £150 million. The latter is a major success in the Local Authority market, where we are targeting long-term contracts for larger networks where we can offer high quality, competitive services. Construction Services 2002 2001** Turnover £1,125.4 m £1,335.9 m Operating profit* £17.1 m £22.1 m Margin 1.5 % 1.7 % Margin before net PPP bid costs 2.5 % 2.4 % *Before exceptional operating charges, £nil (2001: £4.7m); and goodwill £0.1m (2001:£0.1m) **Restated for the effects of UITF 34 Turnover reduced by 16 per cent as a result of our strategy to focus on higher added value work for long-term key customers. Well over half of this reduction is specifically due to the full-year effect of disposing of our social housing business in July 2001, downsizing of Crown House Engineering and completing our exit from small-scale civil engineering projects. As a result of our strategy over 80 per cent of turnover in UK building and infrastructure projects was generated from some 20 key customers. Maintaining a strong but selective construction capability, broadly at its current level, remains a key part of our strategy, as it enables us to provide integrated solutions, spanning design, construction, maintenance and operation, that maximise value for money and minimise whole-life-cost. We believe that this capability is essential to the successful delivery of PPP projects. PPP construction accounted for some 24 per cent of turnover in this segment. Operating profit before exceptional items and goodwill reduced to £17.1 million, but margins before net PPP bid cost increased from 2.4 per cent to 2.5 per cent. As the detailed design of assets such as buildings or infrastructure, account for the majority of PPP bid costs, the greatest proportion of these costs, some £10.6 million in 2002 (2001, £9.5 million), continue to be taken in this segment. Building Carillion Building continues to be the UK market leader in commercial building, focused primarily on the office, retail and city centre residential sectors. Our Building Developments business is similarly selective, specialising primarily in the regeneration of brown field sites and developments where risk is minimised by pre-letting or sale to occupiers in sectors where there is continuing demand. In addition to maintaining successful relationships with a number of leading high street retailers and commercial and residential developers, new long-term contracts were secured with the Scottish Prison Service and the Ministry of Defence. The former is a framework agreement worth up to £90 million and the latter the largest PRIME contract let to date, worth around £43 million, for the reconstruction of Lucknow Barracks. Carillion Building has also made a good start to 2003, winning contracts and preferred supplier positions for over £350 million of work in the first eight weeks of the year. Therefore, with its good order book and well balanced geographical and market positions, the outlook for our building businesses remains positive. Capital Projects Capital Projects includes our UK civil engineering and our international businesses in Canada, the Middle East, the Caribbean, France and the Republic of Ireland. In the UK, we remain highly selective, targeting larger projects where our skills and resources enable us to offer higher added value services. We had two projects of this kind under construction in 2002 - the £485 million M6 Toll, which we are building with three joint venture partners, and the Nottingham Express Transit (NET), a Carillion PPP project with a construction value of some £80 million. Early in 2003, we were awarded a £65 million contract by the Highways Agency to upgrade the A74 to motorway standard and complete the 'missing M6 link' between Carlisle and Guardsmill. We expect an increasing number of similar opportunities in 2003 and beyond as the Government brings forward more transport schemes under its £185 billion 10-year Transport Plan. Our International Regions have continued to make progress with their strategy, which mirrors that of our UK business, namely to grow their PPP Investments and Business Services activities alongside their selective and well-established traditional construction businesses. In Canada, the Government is following the UK model for PPPs and increasingly outsourcing other public services. Our joint venture highways maintenance business secured a further contract in Ontario, making it the second largest maintenance contractor in the Province, with contracts for the maintenance of nearly 750 km of highway, worth around £34 million per annum. We are also currently shortlisted for two major PPP hospitals in Canada. Other successes in 2002 include signing joint venture agreements for facilities management in the Middle East and Caribbean worth up to £500 million over the next 10 years and a prestigious 3-year construction contract for the first phase of the Dubai Festival City development worth around £350 million. Crown House Engineering The performance of Crown House Engineering (CHE), our specialist mechanical and electrical services business has continued to improve during 2002, following the strategic and operational changes begun in the second half of 2000 and fully implemented in 2001. In 2002, CHE had a number of notable successes, including a 10-year framework agreement with BAA worth up to £200 million, a 6-year framework with the Scottish Prison Service worth up to £30 million and its selection by BAA as a preferred supplier for the construction of Terminal 5 at Heathrow. Through the adoption of a highly selective approach to work winning CHE is on course to return to overall profitability in 2003. Consolidated Profit and Loss Account for the year ended 31 December 2002 2002 2001 Before Exceptional Before Exceptional exceptional items exceptional items Total items Total items as as restated restated £m £m £m (see Note 1) £m (see Note 1) £m £m Total turnover 1,974.4 - 1,974.4 1,889.8 - 1,889.8 Less: share of joint (127.1) - (127.1) (191.0) - (191.0) ventures' turnover Group turnover 1,847.3 - 1,847.3 1,698.8 - 1,698.8 Cost of sales (1,660.1) - (1,660.1) (1,556.7) - (1,556.7) Gross profit 187.2 - 187.2 142.1 - 142.1 Administrative expenses (149.4) - (149.4) (115.1) (8.9) (124.0) Group operating profit 37.8 - 37.8 27.0 (8.9) 18.1 Share of operating 14.3 - 14.3 21.1 (1.2) 19.9 profit in joint ventures Total operating profit 52.1 - 52.1 48.1 (10.1) 38.0 Loss on sale of businesses Group - (0.3) (0.3) - - - Joint ventures - (5.0) (5.0) - - - - (5.3) (5.3) - - - Profit on ordinary 52.1 (5.3) 46.8 48.1 (10.1) 38.0 activities before interest Net interest receivable/ (payable) Group 0.6 - 0.6 0.3 - 0.3 Joint ventures (5.2) - (5.2) (3.6) - (3.6) (4.6) - (4.6) (3.3) - (3.3) Profit on ordinary 47.5 (5.3) 42.2 44.8 (10.1) 34.7 activities before taxation Tax on profit on (13.8) 0.9 (12.9) (13.4) 3.3 (10.1) ordinary activities Profit on ordinary 33.7 (4.4) 29.3 31.4 (6.8) 24.6 activities after taxation Equity minority (2.1) - (2.1) (3.1) - (3.1) interests Profit for the financial 31.6 (4.4) 27.2 28.3 (6.8) 21.5 year Equity dividends (9.9) - (9.9) (8.9) - (8.9) Retained profit for the Group and its 21.7 (4.4) 17.3 19.4 (6.8) 12.6 share of joint ventures Earnings per ordinary share - Basic 15.3p (2.1p) 13.2p 13.8p (3.3p) 10.5p - Diluted 15.1p (2.1p) 13.0p 13.7p (3.3p) 10.4p - Basic before all 16.6p 14.0p exceptional items and goodwill amortisation Dividends per ordinary 4.8p 4.4p share The results for the current and preceding years are wholly derived from continuing operations. Consolidated Balance Sheet At 31 December 2001 At as restated 31 December 2002 (see Note 1) £m £m Fixed assets Intangible assets 49.0 42.8 Tangible assets 56.9 53.0 Investments in joint ventures: Share of gross assets 646.1 572.0 Share of gross liabilities (593.1) (516.7) 53.0 55.3 Loan advances 8.0 5.5 61.0 60.8 Other investments 6.1 2.7 Total investments 67.1 63.5 173.0 159.3 Current assets Stocks 43.7 53.7 Debtors 523.6 572.2 Investments 8.2 9.4 Cash at bank and in hand 85.1 94.5 660.6 729.8 Creditors: amounts falling due within one year Borrowings (20.4) (45.2) Other creditors (574.9) (680.0) (595.3) (725.2) Net current assets/(liabilities) Due within one year 42.3 (26.6) Debtors due after more than one year 23.0 31.2 65.3 4.6 Total assets less current liabilities 238.3 163.9 Creditors: amounts falling due after more than one year Borrowings (66.8) (4.6) Other creditors (13.7) (11.6) (80.5) (16.2) Provisions for liabilities and charges (8.1) (13.0) Net assets 149.7 134.7 Financed by: Capital and reserves Called up share capital 106.5 106.3 Share premium account 5.5 5.3 Merger reserve 8.2 8.2 Profit and loss account 27.3 11.6 Equity shareholders' funds 147.5 131.4 Equity minority interests 2.2 3.3 149.7 134.7 Consolidated Cash Flow Statement Year ended Year ended 31 December 31 December 2002 2001 £m £m Net cash inflow from operating activities 1.1 53.8 Dividends received from joint ventures 3.8 13.8 Returns on investments and servicing of finance Dividend paid to minority interests (3.2) (0.8) Interest paid (5.3) (4.5) Finance lease charges (0.1) (0.2) Interest received 5.9 5.0 Net cash outflow from returns on investments and servicing of finance (2.7) (0.5) Corporate taxation paid (9.0) (2.3) Capital expenditure and financial investment Payments to acquire fixed assets (21.0) (18.1) Sale of / (payments to acquire) current asset investments 0.9 (1.4) Payments to acquire fixed asset investments (0.1) (0.3) Purchase of own shares by ESOP - (3.0) Sale of tangible fixed assets 4.8 6.9 Net cash outflow from capital expenditure and financial investment (15.4) (15.9) Acquisitions and disposals Purchase of business (8.9) (31.3) Sale of businesses 0.3 5.1 Equity investment in joint ventures (0.1) (17.6) Loan (advances to) / repayments by joint ventures (2.5) 2.6 Net cash outflow from acquisitions and disposals (11.2) (41.2) Equity dividends paid (9.3) (5.3) Net cash (outflow)/inflow before management of liquid resources and financing (42.7) 2.4 Management of liquid resources (Increase)/decrease in short term deposits (10.6) 4.2 Net cash (outflow)/inflow from management of liquid (10.6) 4.2 resources Financing Drawdown of debt 45.0 - Repayment of finance leases (2.5) (1.9) Issue of share capital 0.4 - Net cash inflow / (outflow) from financing 42.9 (1.9) (Decrease) / increase in cash in the year (10.4) 4.7 Cash flow notes Reconciliation of operating profit to net cash inflow from operating activities 2002 2001 as restated £m £m Group operating profit before exceptional items 37.8 27.0 Depreciation 14.6 12.5 Impairment of tangible fixed assets - 3.5 Profit on disposal of fixed assets (0.8) (1.1) Decrease in market value of listed current asset investments 0.3 - Amortisation of goodwill 2.7 0.5 Amortisation of own shares (3.3) 2.0 Provision against other fixed asset investments - 0.5 Decrease / (increase) in stocks 9.7 (0.4) Decrease / (increase) in debtors 41.9 (11.1) (Decrease) / increase in creditors due within one year (96.9) 25.8 Increase in creditors due after more than one year 2.1 0.8 (Decrease) / increase in bills of exchange (3.5) 0.6 Net cash inflow from operating activities before exceptional 4.6 60.6 items Exceptional operating cash spend (3.5) (6.8) Net cash inflow from operating activities 1.1 53.8 Analysis of changes in net funds/(debt) As at Cash flows Exchange rate Other non As at 31 1 January movements cash December 2002 movements 2002 £m £m £m £m £m Cash at bank and in hand 74.1 (18.4) (1.1) - 54.6 Bank overdrafts (25.7) 8.0 (0.6) - (18.3) 48.4 (10.4) (1.7) - 36.3 Short term deposits 20.4 10.6 (0.5) - 30.5 Bank loans (17.2) (45.0) 0.7 - (61.5) Finance leases (6.9) 2.5 - (3.0) (7.4) Net funds/(debt) 44.7 (42.3) (1.5) (3.0) (2.1) Reconciliation of net cash flow to movement in net funds/(debt) 2002 2001 £m £m (Decrease) / increase in cash in the year (10.4) 4.7 Increase / (decrease) in short term deposits 10.6 (4.2) Cash inflow from drawdown of debt (45.0) - Cash outflow from finance leases 2.5 1.9 Movement in net funds resulting from cash flows (42.3) 2.4 Finance leases of subsidiary undertakings acquired - (7.0) Exchange rate movements (1.5) 0.3 Capital value of new finance leases (3.0) - Movement in net funds in the year (46.8) (4.3) Net funds at 1 January 44.7 49.0 Net (debt)/funds at 31 December (2.1) 44.7 1. Basis of preparation The financial information set out herein (which was approved by the Board on 12 March 2003) does not constitute the Company's statutory accounts for the years ended 31 December 2002 and 2001. The statutory accounts for the year ended 31 December 2001 have been delivered to the Registrar of Companies and those for the year ended 31 December 2002 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985. With effect from 1 January 2002 the Group has adopted Financial Reporting Standard 19 'Deferred Tax' which requires full provision to be made for deferred tax arising from timing differences between the recognition of gains and losses in the financial statements and their recognition in the tax computation. As a result of the change in accounting policy the comparative figures for 2001 have been restated accordingly. During the period, Urgent Issues Task Force Abstract 34 'Pre-contract costs' came into effect. The abstract addresses the accounting treatment of pre-contract costs and represents best practice in accounting for these costs. Following adoption of the abstract, the Group has changed its accounting policy and the comparative figures for 2001 have been restated accordingly. Previously, all pre-contract costs that were estimated to be recovered on financial close were included in stocks provided the Group had been selected as preferred bidder and the contract was reasonably certain to achieve financial close in the next twelve months. Following adoption of the abstract, pre-contract costs are expensed as incurred until the Group is appointed as preferred bidder. Provided the contract is expected to generate sufficient net cash inflows to enable recovery and the award of the contract is virtually certain, pre-contract costs incurred post the appointment as preferred bidder are included in stocks. Where pre-contract bid costs that have been recognised as an asset are reimbursed at financial close, the proceeds are initially applied against this asset. Any excess recoveries will be carried forward as deferred income and released to profit over the period of the contact to which the pre-contract costs relate. The impact of the new accounting policies on the financial statements for the year ended 31 December 2002 and on the previous year is as follows: Total operating Profit before Taxation Retained Cumulative profit taxation profit impact on net assets £m £m £m £m £m Year ended 31 December 2002 As would have been reported under previous accounting 53.2 43.3 (13.2) 18.1 162.4 policies FRS 19 - - - - (9.1) UITF 34 (1.1) (1.1) 0.3 (0.8) (3.6) As presented 52.1 42.2 (12.9) 17.3 149.7 Year ended 31 December 2001 As previously reported 38.3 35.0 (11.2) 11.8 146.6 FRS 19 - - 1.0 1.0 (9.1) UITF 34 (0.3) (0.3) 0.1 (0.2) (2.8) As restated 38.0 34.7 (10.1) 12.6 134.7 2. Analysis of turnover, profit before interest and net assets Total turnover Net assets/(liabilities) Class of business 2002 2001 2002 2001 as restated £m £m £m £m Investments 61.6 43.9 32.2 27.6 Business services 821.7 609.3 60.9 45.9 Construction services 1,125.4 1,335.9 64.2 26.5 Internal trading (34.3) (99.3) - - Corporate centre - - (12.9) (16.9) Net cash - - 5.3 51.6 1,974.4 1,889.8 149.7 134.7 Geographical origin: UK 1,694.4 1,573.7 153.4 95.0 Europe 146.9 150.9 (23.7) (23.8) Other 133.1 165.2 14.7 11.9 Net cash - - 5.3 51.6 1,974.4 1,889.8 149.7 134.7 The analysis of turnover by geographical market served is not materially different from that by geographical origin. Profit on ordinary activities before interest 2002 2001 Before Exceptional Total Before Exceptional Total exceptional items exceptional items as Class of business items items restated as restated £m £m £m £m £m £m Investments 7.8 - 7.8 5.5 - 5.5 Business services 36.4 - 36.4 29.8 (0.4) 29.4 Construction services 17.0 (5.3) 11.7 22.0 (4.7) 17.3 Corporate centre (9.1) - (9.1) (9.2) (5.0) (14.2) 52.1 (5.3) 46.8 48.1 (10.1) 38.0 Geographical origin: UK 50.1 (5.3) 44.8 40.9 (9.1) 31.8 Europe (0.9) - (0.9) 1.6 (1.0) 0.6 Other 2.9 - 2.9 5.6 - 5.6 52.1 (5.3) 46.8 48.1 (10.1) 38.0 The Group's share of the turnover and net assets in joint ventures was as follows: Turnover Net assets/(liabilities) Class of business 2002 2001 2002 2001 £m £m £m £m Investments 60.9 43.7 38.8 33.4 Business services 0.6 108.2 - - Construction services 65.6 46.1 22.2 27.4 Internal trading - (7.0) - - 127.1 191.0 61.0 60.8 Geographical origin: UK 89.4 167.4 56.7 56.2 Europe 3.6 9.1 (2.6) (2.3) Other 34.1 14.5 6.9 6.9 127.1 191.0 61.0 60.8 The Group's share of the profit on ordinary activities before interest in joint ventures was as follows: 2002 2001 Before Exceptional Total Before Exceptional Total exceptional items exceptional items Class of business items items £m £m £m £m £m £m Investments 12.5 - 12.5 10.4 - 10.4 Business services - - - 5.7 - 5.7 Construction services 1.8 (5.0) (3.2) 5.0 (1.2) 3.8 14.3 (5.0) 9.3 21.1 (1.2) 19.9 Geographical origin: UK 13.0 (5.0) 8.0 20.1 (1.2) 18.9 Europe - - - 0.3 - 0.3 Other 1.3 - 1.3 0.7 - 0.7 14.3 (5.0) 9.3 21.1 (1.2) 19.9 3. Dividends 2002 2001 £m pence per share £m pence per share Equity shares Ordinary shares: Interim 3.1 1.50 2.8 1.38 Final 6.8 3.30 6.2 3.02 Dividends waived - - (0.1) - Total dividend 9.9 4.8 8.9 4.4 4. Earnings per ordinary share (a) Basic Earnings per share is calculated by dividing the profit attributable to ordinary shareholders, amounting to £27.2 million (2001: £21.5 million as restated), by 206,450,536 (2001: 205,485,587) ordinary shares being the weighted average number of shares in issue during the year. The weighted average number of shares excludes shares held by the Employee Share Ownership Plan and the QUEST, which amount to 6,489,637 shares in total. (b) Basic before all exceptional items and goodwill amortisation A reconciliation of the basic earnings per ordinary share to the adjusted amounts shown on the face of the profit and loss account is calculated below to show the impact of all exceptional items and the amortisation charge from goodwill : 2002 2001 Pence Pence £m per share £m per share as restated as restated Profit attributable to ordinary shareholders 27.2 13.2 21.5 10.5 Exceptional items: Operating items - - 10.1 4.9 Loss/(profit) on sale of businesses 5.3 2.5 (5.3) (2.6) Provisions against retained contracts - - 5.3 2.6 Less taxation in respect of the above (0.9) (0.4) (3.3) (1.6) Profit before all exceptional items 31.6 15.3 28.3 13.8 Amortisation of goodwill 2.7 1.3 0.5 0.2 Less taxation in respect of the above (0.1) - - - Profit before all exceptional items and goodwill 34.2 16.6 28.8 14.0 amortisation (c) Diluted Diluted earnings per ordinary share have been calculated on both profit before and after all exceptional items, using the same earnings numerators as set out in (a) and (b) above and by reference to the following number of shares: Carillion plc Number of ordinary shares 2002 2001 million million Number of ordinary shares per basic earnings per share 206.5 205.5 calculations Adjustments to reflect dilutive shares under option 2.1 1.3 Number of ordinary shares per diluted earnings per share 208.6 206.8 calculations 5. Posting of statutory accounts to shareholders The Company's report and accounts will be posted to shareholders by 8 April 2003. From that date copies will be available from the registered office, Carillion plc, Birch Street, Wolverhampton, WV1 4HY. 6. Annual General Meeting A resolution will be put to shareholders at the AGM on 14 May 2003 for the Company to be authorised to purchase its own shares. The Board has no present intention of making any such purchase and the resolution is in keeping with the practice of other companies. This information is provided by RNS The company news service from the London Stock Exchange

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