Final Results
Carillion PLC
08 March 2006
8 March 2006
Carillion plc 2005 Preliminary Results
UK support services and construction company Carillion plc announces its
preliminary results for the year ended 31 December 2005. These full-year
financial results are presented for the first time under International Financial
Reporting Standards (IFRS).
Highlights
• Revenue (including joint ventures) up 15% to £2,284m
• Underlying profit before tax* up 15% to £55.5m
• Underlying earnings per share up 10% to 20.4p
• Strong operating cash flow - net cash at 31 December £90.8m
• Final dividend 5.2p per share - total 2005 dividend up 7% to 8p per
share
• Order book and framework contracts up 40% to £7 billion
Financial summary 2005 2004
Revenue
- including joint ventures £2,284m £1,985m
- excluding joint ventures £2,025m £1,859m
Underlying profit before tax* £55.5m £48.1m
Underlying earnings per share 20.4 p 18.6 p
Profit before tax £51.9m £66.8m
Basic earnings per share 18.7p 27.1 p
* Underlying profit is net of tax on profit from joint ventures (2005: £5.0m;
2004: £2.0m) and excludes
- non-operating items, amortisation of intangible assets and goodwill impairment
(2005: £3.6m charge; 2004: £11.5m profit)
- a one-off increase in 2004 profit of £7.2m relating to the transfer of rail
maintenance to Network Rail
Commenting, Chairman Philip Rogerson said, 'I am pleased to report that in 2005
Carillion achieved all its key financial targets and made substantial strategic
progress to deliver further profitable growth, both organically and through the
acquisition of mechanical and electrical engineering maintenance company, PME.
'In December 2005, we announced the terms of a recommended cash and shares offer
for the acquisition of Mowlem plc. This acquisition, which received the
overwhelming support of Carillion and Mowlem shareholders, was completed in
February 2006 and, in line with our strategy, represents a step change in
Carillion's transformation.
'In view of the financial performance in 2005 and enhanced prospects for future
growth, the Board is recommending a final ordinary dividend for 2005 of 5.2
pence per share, making the total full year dividend 8 pence per share, an
increase of some 7 per cent on the total dividend paid in respect of 2004 (7.5
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 0207 608 1000
Chairman's statement
I am pleased to report that in 2005 Carillion achieved all its key financial
targets and made substantial strategic progress to deliver further profitable
growth, both organically and through the acquisition of mechanical and
electrical engineering maintenance company, PME.
In December 2005, we announced the terms of recommended cash and shares offer
for the acquisition of Mowlem plc. This acquisition, which received the
overwhelming support of Carillion and Mowlem shareholders, was completed in
February 2006 and, in line with our strategy, represents a step change in
Carillion's transformation.
In this report, Carillion has presented for the first time its full-year
financial results under International Financial Reporting Standards. In 2005,
revenue increased by 15 per cent to £2,284 million, including joint ventures,
(2004: £1,985 million), despite the impact of transferring to Network Rail
maintenance contracts that generated £150 million of revenue in 2004. Underlying
* profit before tax also increased by 15 per cent to £55.5 million (2004: £48.1
million). Operating cash flow remained strong and at 31 December 2005 net cash
amounted to £90.8 million (2004: £128.8 million).
The intake of new orders in 2005 was particularly strong and by the year end the
value of the Group's order book and framework contracts had increased by 40 per
cent to £7 billion (2004: £5 billion).
The integration of PME, which we acquired in March 2005, has been completed
successfully. This has significantly strengthened our building management and
support services capability and enhanced our earnings in 2005.
Three non-executive directors, Sir Neville Simms, our previous chairman, Andrew
Parrish and Roger Dickens, retired from the Board in 2005. I should like to
record the Board's thanks and recognition for their contributions to the
development and success of Carillion and in particular to record the Board's
deep sadness at the death of Roger Dickens early in 2006. During 2005, we were
pleased to welcome to the Board two new non-executive directors. The appointment
of Vanda Murray OBE in June, which I reported to shareholders in my Interim
Report, was followed by the appointment in November of David Maloney, who brings
to the Board considerable experience in a number of service industry sectors.
With a record order book and strong presence in our key growth markets, the
outlook was already positive for Carillion to deliver sustainable growth.
However, the acquisition of Mowlem will accelerate growth substantially and
create significant value for shareholders. It brings together two companies of a
similar size with an excellent strategic fit, complementary skills and market
strengths, to create one of the largest support services and construction
companies in the UK and with substantial international businesses. Combining the
two companies will generate opportunities for cost savings and strengthen
Carillion's ability to compete successfully in its chosen markets. As a result,
we expect the acquisition of Mowlem to enhance earnings materially in 2007, the
first full year of operation following the acquisition.
The strong platform that has enabled us to acquire Mowlem and move forward into
2006 with considerable confidence is due to the leadership of Carillion's senior
management team and the commitment and professionalism of all its people. On
behalf of the Board I should like to offer our thanks to everyone in Carillion
for the contributions they have made to our success.
In view of the financial performance in 2005 and enhanced prospects for future
growth, the Board is recommending a final ordinary dividend for 2005 of 5.2
pence per share, making the total full year dividend 8 pence per share, an
increase of some 7 per cent on the total dividend paid in respect of 2004 (7.5
pence per share). The final ordinary dividend for 2005 will be paid on 23 June
2006 to shareholders on the register at close of business on 28 April 2006.
Philip Rogerson
Chairman
* Underlying profit is net of tax on profit from joint ventures and excludes
- non-operating items, amortisation of intangible assets relating to business
combinations and goodwill impairment (for details see Note 4 on page 26)
- a one-off increase in 2004 profit of £7.2 m relating to the transfer of rail
maintenance to Network Rail
Operating and Financial Review
Chief Executive's statement
In our 2004 annual report, I said that 2005 marked the beginning of a new phase
of growth for Carillion. Having completed our programme of major disposals and
built a well-balanced, customer-focused business, delivering good quality
earnings backed by strong operating cash flows, we were ready to accelerate the
development and growth of our business. That growth will continue to be driven
by implementing our consistent and effective strategy through customer-focused
businesses, supported by a culture based on 'living' our core values in
everything we do.
Strategic development
Over the past few years we have been seeking acquisitions to fill capability
gaps in order to improve the scope and quality of our integrated services
solutions and also to deliver a step change in the development of our business.
We apply the same criteria to all potential acquisitions, namely that they must
be consistent with our strategy for delivering sustainable, profitable growth
and deliver financial returns equivalent to those we expect from other
investments.
Acquisition of PME
The acquisition of PME, one of the largest privately owned mechanical and
electrical (M&E) engineering maintenance businesses in the UK, for approximately
£47 million (including a £10 million payment to the PME pension fund) in March
2005 filled an important capability gap. M&E maintenance accounts for up to 40
per cent of a typical building management and support services contract. Having
an in-house M&E maintenance capability has therefore considerably strengthened
our integrated service offering for both new and existing customers. PME is
performing well as an integral part of our business, with cost synergies now
expected to reach approximately £3 million by the end of 2006, exceeding the £2
million originally identified.
Acquisition of Mowlem plc
Carillion announced its cash and shares offer for the acquisition of Mowlem in
December 2005. It was recommended by the Mowlem Board and received the
overwhelming support of Carillion and Mowlem shareholders. The acquisition
valued Mowlem's share capital at £313 million and was completed successfully on
23 February 2006. 65.8 million new Carillion shares were issued on 23 February
2006 as a result of the acquisition.
Mowlem is an outstanding strategic fit, particularly in support services and
private finance, and we are confident that it will deliver a step change in the
development of our business and materially enhance our earnings in 2007, the
first full year after acquisition.
The addition of Mowlem's complementary skills and market strengths in support
services makes Carillion one of the largest support services businesses in the
UK and significantly enhances our ability to provide customers with high
quality, integrated solutions in our key market sectors.
The addition of Mowlem's portfolio of Public Private Partnership (PPP) projects
to Carillion's own substantial portfolio will create a very large and valuable
portfolio of equity investments. Mowlem also has a large pipeline of new PPP
projects for which it is the preferred bidder or shortlisted, with the potential
to add considerable further value to our investment portfolio. Furthermore, the
acquisition of Mowlem will increase the number of specialist people we have with
private finance skills, which has been the main constraint to our growth in this
market.
Mowlem's considerable strengths in construction services will add to the breadth
and scale of our own construction capabilities. Going forward, Mowlem's approach
to construction will be subject to the same selectivity criteria that we have
consistently applied to our own construction activities. Furthermore, our
rigorous and proven risk management policies and processes will underpin every
aspect of the enlarged group's operations.
On 18 January 2006, Carillion announced that it had agreed to sell two Mowlem
businesses, Charter, the US construction management company and Edgar Allen, the
UK rail track products manufacturer to Balfour Beatty plc for a total
consideration of approximately £20.5 million, subject to due diligence by
Balfour Beatty. Completion of these sales is expected in the second quarter of
2006.
Within the last few days, the Office of Fair Trading (OFT) visited two Mowlem
offices. We have fully co-operated with the OFT and will continue to do so as
appropriate.
The integration of Carillion and Mowlem is being led by a dedicated team
comprising senior people from both companies to ensure we achieve the synergy
benefits we have identified and create a business that will deliver accelerated
growth, materially enhanced earnings and strong cash generation. We expect to
deliver cost savings at a running rate of £10 million per annum by the end of
2006, rising to £15 million per annum by the end of 2007. The one-off cost of
delivering these savings is expected to be £10 million in 2006.
Our business model for the enlarged group will continue to be based on
delivering our existing strategy through market focused business units, each
equipped with the skills and resources necessary to provide customers with
solutions tailored to meet their specific needs.
Business performance
Total revenue in 2005 increased by 15 per cent to £2,284 million (2004: £1,985
million), including revenue from joint ventures of £259 million (2004: £126
million).
Underlying* profit before tax also increased by 15 per cent to £55.5 million
(2004: £48.1 million), with underlying earnings per share of 20.4 pence (2004:
18.6 pence). Underlying earnings per share grew by 10 per cent, after the
Group's effective tax rate returned to a more normal level of 27 per cent,
having reduced temporarily in 2004 to 21 per cent, due to a number of one-off
tax settlements.
Our relentless focus on cash management has again resulted in a strong cash flow
from operations of £84 million. Average weekly net cash was £37 million, net of
finance lease liabilities of £31 million. At 31 December 2005 Carillion had net
cash of £90.8 million, net of finance leases of £37.7 million (2004: £128.8
million net of finance leases of £24.2 million), having invested approximately
£47 million in the acquisition of PME.
Delivering improved results in 2005 was a particularly significant achievement,
given the impact of transferring to Network Rail during 2004 profitable
maintenance contracts that contributed around £150 million of revenue in 2004.
We continue to report our financial results in three segments - Support
Services, Construction Services and Investments - in which we group together
activities of a similar type and risk profile to make it easier for the Market
to value our earnings on a consistent basis. Our performance in each of these
segments is summarised below and a more detailed explanation follows later in
this review.
In Support Services, revenue (including joint ventures) increased by over seven
per cent to £989 million, with the effect of losing £150 million of rail
maintenance revenue more than offset by the acquisition of PME and organic
growth. An increase in operating profit of two per cent, to £40.6 million,
lagged growth in revenue, reflecting the loss of rail maintenance contracts,
which had higher than average margins in this segment.
In Construction Services, revenue (including joint ventures) increased by 22 per
cent to £1,230 million, driven mainly by growth in our International Regions,
particularly the Middle East and Canada, UK Building and our Developments
business. Operating profit in this segment increased by 35 per cent to £16.9
million.
Investments, contributed revenue of £65.4 million. Operating profit increased by
36 per cent to £8.3 million, due to an improved performance across our portfolio
of equity investments in PPP projects and reductions in bid costs and overheads.
As explained later in this review, we are also creating long-term value by
investing in these projects and the Directors' current valuation of our
portfolio is £89 million, based on discounting at 10 per cent the cash flows
that will be generated by these investments over the next thirty years or more.
Total operating profit from our three financial reporting segments was £65.8
million, including joint ventures. After Corporate Centre costs of £10.4
million, net financing income of £5.1 million and tax on joint venture profits
of £5.0 million, underlying profit before tax was £55.5 million. Non-operating
items, amortisation of intangible assets and goodwill impairment amounted to
£3.6 million, leaving profit before tax of £51.9 million. Profit after tax was
£40.8 million and basic earnings per share were 18.7 pence.
2005 was an outstanding year for new orders, which increased the value of the
Group's order book and framework contracts at the year-end by some 40 per cent
to around £7 billion (2004: £5 billion). Despite converting a high proportion of
potential new orders into contracts in 2005, we also maintained a healthy
pipeline of probable orders, worth up to £1.6 billion at the year-end (2004:
£2.2 billion).
Our strategy for growth continues to be reflected in our order book, with
Support Services and PPP concession contracts accounting for some 84 per cent of
order book value (2004: 78 per cent). The longer-term nature of these contracts
also significantly improves the visibility of future revenues, with around 74
per cent of our order book expected to generate revenues in 2007 and beyond. At
the same time, through our selective approach, we have continued to improve the
quality of our construction order book and focused on long-term relationships
with key customers. For example, in 2005 our UK building business generated
around 84 per cent (2004: 80 per cent) of its revenue from 20 key customers.
* Underlying profit is net of tax on profit from joint ventures and excludes
- non-operating items, amortisation of intangible assets relating to business
combinations and goodwill impairment (for details see Note 4 on page 26)
- a one-off increase in 2004 profit of £7.2 m relating to the transfer of rail
maintenance to Network Rail
Risk Management
The rigorous policies and processes we have established to identify, mitigate
and manage risk are a cornerstone of our business. Our Group Head of Risk is
responsible for advising on all risk issues, including our policies and
processes and their application to all our business activities.
We address strategic risks and risks specific to individual businesses and
contracts, including social, environmental and ethical risks. Our risk
management processes apply to every aspect of our business, from choosing the
markets in which we operate to the contracts we bid for and the selection of our
suppliers and sub-contractors. They 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 meets or exceeds the expectations of our customers.
The more significant areas of risk, where our failure to perform well or changes
to macro economic or market specific environments would adversely affect our
business, are summarised below.
• Integration of Mowlem. The efficient and professional integration of
Carillion and Mowlem is essential to the success of this acquisition and to
the delivery of cost synergies, sustainable, profitable growth and materially
enhanced earnings
• Attracting, developing and retaining excellent people. The success of
our business depends primarily on the quality of our people
• Management of major contracts. Completing contracts on time and to the
required standards, avoids 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
• Pension scheme management. The cost to Carillion of funding its pension
schemes depends on the macro-economic environment, equity market stability and
regulatory requirements
• Government investment and outsourcing. With a substantial proportion of
our business and future growth dependent on planned investment and outsourcing
of services, it is important to maintain an effective presence in a number of
growth sectors to support the resilience of our business
Our people
Our people are the key source of competitive advantage and it is through their
efforts each day that we meet or exceed our customers' expectations.
The success of our business and the value of the Carillion brand depend
primarily upon the performance of our people. We therefore remain totally
committed to attracting, developing and retaining excellent people by becoming
an employer of choice and have a wide range of measures in place to make this a
reality across all our businesses.
Above all we strive to communicate well with all our people and to listen to and
act upon what they tell us. We do this through a structured approach to
communication, including individual performance and development reviews, monthly
Team Talks and regular surveys through which everyone can share their views
openly and frankly, in line with our core value of 'Openness'. These surveys
culminate annually in 'The Great Debate' in which around 1,400 people from
across the Group took part in 2005. This enables us to monitor and measure our
progress on a wide range of issues, including how well we engage with our people
to recognise and value the contributions they make to our business, to help them
develop and fulfil their potential.
Specifically in response to feedback from the Great Debate, in 2005 we redoubled
our efforts to improve the way we communicate, beginning with around 250 of our
senior managers attending workshops designed to demonstrate the 'Power of
Engagement'. By the end of 2005 around 2,000 managers and supervisors had
attended these workshops. Good two-way communication must be the hallmark of our
business leaders and the benefits of this are increasingly evident in the
satisfaction and performance of our people.
Health and Safety
Carillion has an absolute commitment to ensuring that all our people can work
safely at all times, wherever they are. This commitment extends to those who
work with us and those who could be affected by our activities, including
members of the public. This requires the continual vigilance and commitment of
everyone involved in our activities to ensure that safe working practices are
always used. This is supported by rigorous reviews, inspections, training and
education, all of which are actively promoted and led by the Board.
At the end of 2004, we launched a radical new initiative, Target Zero, aimed at
eliminating reportable accidents by 2010. This is an ambitious target, but we
are determined to create a culture of zero tolerance to accidents, not only
within Carillion, but also within all our stakeholders, including customers,
suppliers and partners. Tragically, five people were killed while working on
projects under Carillion's management control during 2005. These accidents
reinforce our commitment to make Target Zero a reality and its benefits are
already evident. Our Accident Frequency Rate (AFR), reduced by 35 per cent in
2005 to 0.24 (2004: 0.37). The number of RIDDOR2 accidents (Reporting of
Injuries Diseases and Dangerous Occurrences Regulations 1995) for the Group
reduced by 27 per cent in 2005 to 255 (2004:348).
Sustainability
We believe that our commitment to responsible business practices that create
positive impacts on the environment and on the communities in which we operate,
is not only good for our own people and for society in general, but also makes
good business sense. It is fundamental to delivering sustainable, profitable
growth.
Our commitment to becoming a more sustainable company began over ten years ago.
Today, we are one of the recognised leaders in developing and adopting socially
responsible business practices and for demonstrating that these practices can
have measurable business benefits. We benchmark our performance in a number of
ways, including participating in Business in the Community's Corporate
Responsibility Index, an independent annual survey of sustainability
performance. Since its inception in 2003, Carillion has each year been ranked
first in its sector and in the top quartile of all companies participating in
the Index.
Our strategy model, which helps us to map and quantify the links between our
business objectives and our impacts on the environment and society, continues to
form the basis for our sustainability programme by identifying the areas where
we need to improve our performance.
Strategic objectives
In order to build on our success in 2005, we have set the following strategic
objectives for 2006.
• Attract, develop and retain excellent people, by becoming an employer of
choice
• Successfully integrate Carillion and Mowlem
• Achieve cost synergies 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 the recognised leader in the delivery of safety and sustainability
Markets and Outlook
Business Services
Carillion Business Services comprises our UK building, facilities management
(FM) and other Support Services activities.
These activities generated approximately £1.2 billion of revenue (including
joint ventures) in 2005 (2004: £769 million), a 56 per cent increase on 2004,
driven mainly by a strong performance in UK building and the acquisition of PME.
Business Services had a very successful year, more than doubling the value of
its order book at the year-end to £1.8 billion (2004: £821 million), as a result
of winning a number of significant new orders and the acquisition of PME, which
contributed some £180 million to our year-end order book. In the Defence sector,
we made a major breakthrough by winning, with our joint venture partners, two
support services contracts for Defence Estates, together worth around £1.2
billion over a period of up to 10 years. In addition, Carillion's joint venture,
Monteray, won a three-year extension to its contract with BT to provide
integrated facilities management services, worth some £350 million.
In UK building, we won substantial new orders in our chosen sectors, worth some
£1.1 billion. We were particularly successful in the education sector: we
reached financial close on a PPP project to build nine new schools in
Renfrewshire, with a construction value of £100 million and in which we expect
to invest £4 million of equity; we secured a £100 million contract to provide
design and construction services for six new schools in Leeds; and a Carillion
joint venture was appointed preferred bidder for a PPP project to build six new
schools in South Ayrshire. We expect to invest around £4.5 million of equity in
the latter project, which will also add over £73 million to our construction
order book when it reaches financial close in 2006.
In addition, our UK building business was awarded a £230 million contract to
provide three new printing plants for News International and a £118 million
contract for the British Nuclear Group to construct a store for materials
arising from decommissioning at Sellafield.
In 2005, our building business generated some 84 per cent of its revenue from 20
customers, reflecting our focus on long-term key customers. With around 80 per
cent of our UK building order book for 2006 already secure, we expect a
similarly high percentage of revenue to come from our top 20 customers in 2006.
Business Services entered 2006 in a strong position to deliver further growth,
particularly from integrated solutions for public sector customers in the
Defence, Education and Health markets, as well as from the retail, offices and
mixed use developments sectors of the commercial building market. Notable new
opportunities in 2006 include reaching financial close on two major PPP projects
for which Mowlem is the preferred bidder - the £7 billion Allenby Connaught
project to provide Army accommodation in the South of England and a £1.1 billion
project to provide a new Permanent Joint Headquarters for the Ministry of
Defence - for which the concession periods are 35 years and 25 years,
respectively. We also expect new opportunities in the growing nuclear market,
following the creation of the Nuclear Decommissioning Authority. Carillion has
considerable experience as a supplier of construction and support services in
this market and Mowlem also has useful skills and experience, which complement
those of Carillion.
With the acquisition of Mowlem enhancing the strong positions we already hold in
our existing UK building and support services markets, and creating a strong
presence in other markets, such as Defence and UK regional building, the outlook
for Business Services is positive.
Health
In the health market, we provide a range of construction and facilities
management services, including integrated solutions focused primarily on PPP
hospitals and Independent Sector Treatment Centres (ISTC).
These activities generated £146 million of revenue (including joint ventures) in
2005 (2004: £119 million), with the increased contributions from both
construction and support services.
Carillion Health made good progress in 2005, winning new orders that nearly
doubled the value of its order book to £1.1 billion at the year end (2004: £592
million), including two particularly notable successes. In November 2005, we
reached financial close on the Queen Alexandra Hospital PPP project in
Portsmouth, worth approximately £1.1 billion to Carillion over the 33-year
concession period, of which some £470 million is included in our Health order
book. In addition, Carillion will invest some £12 million of equity in this
project, on which we expect to make financial returns in-line with our normal
PPP investment criteria. A Carillion joint venture was also appointed the
preferred bidder by the Bedfordshire and Hertfordshire Primary Care Trust for
new ISTC facilities, involving some £48 million of construction and operational
services worth around £119 million over a five-year period.
The outlook for our Health business continues to be positive, particularly in
our two key market sectors of PPP acute hospitals and Independent Sector
Treatment Centres (ISTCs). The UK Government has reaffirmed its commitment to a
substantial programme of PPP hospitals, worth between £7 billion and £9 billion.
Carillion Health is currently shortlisted for one new PPP hospital and will be
bidding for further hospitals in this programme as they come to market. The
Government is also committed to a second wave of ISTCs, including 24 surgical
centres, plus eight regional contracts and one national contract for diagnostic
services, with a combined value of some £3 billion over the next 5 years. We
expect to bid for a number of these new centres and contracts in 2006.
Carillion's strong presence and successful track record will be further enhanced
by the acquisition of Mowlem, which has six Local Improvement Finance Trust
(LIFT) contracts. The acquisition of Mowlem will also increase the number of
people we have with specialist private finance skills and therefore our capacity
to bid for PPP hospitals and ISTCs. Consequently, the outlook for our Health
business also remains positive.
Transport
Carillion Transport is focused on the provision and maintenance of rail and road
infrastructure. These activities contributed some £580 million of revenue
(including joint ventures) to the Group in 2005 (2004: £713 million), with the
reduction on 2004 due to the effect of transferring to Network Rail maintenance
contracts that generated around £150 million of revenue in 2004.
At 31 December 2005, the value of our Transport order book and framework
contracts was £817 million (December 2004: £888 million). The reduction in order
book reflects the expected trend in the UK rail infrastructure market,
particularly for major projects, as we indicated in our 2005 interim results
announcement. Nevertheless, during 2005 a joint venture, in which Carillion has
a 50 per cent interest, was awarded a £110 million contract for rail
electrification on the West Coast Mainline and orders for smaller regional rail
projects and track renewals have remained at a satisfactory level.
While the outlook in the UK rail market is expected to remain challenging,
planned investment by Network Rail is still substantial at approximately £11
billion over the period 2006 to 2008. The acquisition of Mowlem will increase
Carillion's already strong presence in this market, where we remain focused on
increasing our market share and on reducing costs to protect margins. After a
slower than expected start to the outsourcing of rail infrastructure work in
Scandinavia, we are now making progress in this market. We expect this to
continue in 2006, as the market is forecast to double in size over the next two
years to around £600 million per annum.
In highways maintenance, we expect to maintain our 10 per cent share of the £1.0
billion per annum Highways Agency market and to target opportunities for further
growth in the Local Authority market, worth around £750 million per annum.
In road construction, the £122 million Early Contractor Involvement (ECI)
project to upgrade the A74 between Carlisle and Guardsmill to motorway standard
is expected to move into the construction phase during the second quarter of
2006. The acquisition of Mowlem, which has been particularly successful in
winning six ECI road contracts to date with a total value of over £350 million,
will significantly strengthen our presence in this market.
Overall, the outlook in Transport remains stable.
International Regions
Our international regional businesses in the Middle East, Canada and the
Caribbean are focused on selected construction markets and on their growing
support services activities. These businesses contributed £299 million of
revenue to the Group in 2005 (2004: £349 million). The reduction in revenue was
due to the sale in November 2004 of our contracting business in France, which
contributed some £160 million of revenue in that year. However, this reduction
was offset by substantial growth in our remaining international regions, notably
in the Middle East and Canada.
2005 was another successful year for new orders. The value of our international
order book increased by over 11 per cent to £1.23 billion at 31 December 2005
(2004: £1.1 billion) and more than treble its value at December 2003. Notable
successes in 2005 included construction orders for Dubai Festival City worth
around £150 million and new highways maintenance contracts in Ontario, Canada
worth £130 million. This was followed early in 2006 by our appointment as
preferred bidder for a further highway maintenance contract in Canada worth £137
million, which will extend our operations to Alberta.
With a strong order book, our international regional businesses are already on
track to deliver further growth in 2006. They also remain well positioned in
good growth markets, especially in Canada and the Middle East. In Canada, where
construction of our two PPP hospitals - the William Osler in Toronto and the
Royal Ottawa - is progressing well, we expect to bid for further PPP hospitals
as the next wave of projects comes to market in 2006. Our highways maintenance
business in Canada will also be targeting further contracts in Alberta and in
British Columbia as these Provinces progressively outsource highways maintenance
work to the private sector.
In the Middle East, growth in construction activity is forecast to continue,
with much of this being generated by the Dubai Festival City development for
which our joint venture business is well positioned. In addition, we shall be
targeting opportunities in other countries in the region, such as Abu Dhabi,
where construction activity is also forecast to grow.
The acquisition of Mowlem brings new international businesses to the Group in
Australia and South East Asia. The sale of Charter, Mowlem's US construction
business, to Balfour Beatty was announced on 18 January 2006 and we expect this
to be completed in the second quarter of 2006, subject to due diligence by
Balfour Beatty.
FINANCIAL REVIEW
Accounting policies
These are the Group's first annual consolidated financial statements prepared in
accordance with IFRS.
The Group's IFRS accounting policies have been applied in preparing the
consolidated financial statements for the year to 31 December 2005, the
comparative information for the year to 31 December 2004 and the preparation of
an opening IFRS balance sheet at 1 January 2004 (the date of transition from UK
GAAP to IFRS).
Profit allocation
On construction contracts profit is recognised broadly in proportion to turnover
after taking into account the remaining risks and uncertainties. In addition, on
major construction contracts we take no profit on the first 20 per cent of
turnover and this profit is deferred until contracts are completed. This method,
which better reflects the risk profile of our construction activities, reduced
reported profit in Construction Services by £5.4 million in 2005 (2004: £3.3
million). The total provision of £8.7 million is carried forward at 31 December
2005.
Interest and cash
The Group net interest credit of £4.0 million (2004: £4.1 million) reflects an
average net cash position of £37 million, net of average finance leases of £31
million.
Net cash at 31 December 2005 was £90.8 million after finance lease liabilities
of £37.7 million (31 December 2004: net cash £128.8 million, after finance
leases of £24.2 million).
Strong cash generation from operations of £84 million and dividends received
from jointly controlled businesses of £8 million continue to demonstrate our
focus on cash management and the resilience of our business. Capital expenditure
of £38 million included £13 million of investment in our previously announced
project to outsource business processes in Human Resources and Finance, which is
progressing well and on schedule for completion in 2006.
Dividend payments in 2005 were £16 million and corporate tax paid was £19
million.
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. Our share of these businesses generated £259 million
of turnover and £20.3 million of operating profit during 2005. The interest
credit relating to joint ventures of £1.1 million is £4.5 million ahead of 2004
and reflects the effects of selling our equity interest in the M40 project in
June 2004 and of reclassifying our joint venture interest in the Nottingham
Express Transit project as a trade investment.
Growth in our construction joint ventures, notably that responsible for our
Dubai Festival City projects, and in profit from PPP projects, resulted in
profit before tax of £21.4 million (2004: £9.6 million) and profit after tax of
£16.4 million (2004: £7.4 million).
Taxation
The Group's effective rate of tax on underlying profit returned to a more normal
level of 27 per cent in 2005, having reduced to 21 per cent in 2004 due to a
number of one-off tax settlements in 2004 relating to prior years. We have £65
million of corporate tax losses in the UK, none of which are recognised as a
deferred tax asset, that are potentially available to reduce future tax
liabilities.
Amortisation of intangible assets
Amortisation of intangible assets relating to business acquisitions was £2.5
million, which relates to the £6.2 million of intangible assets arising from the
acquisition of PME.
Non-operating items
The Group's share of results of jointly controlled entities includes an
exceptional loss of £0.8 million relating to the disposal of the remainder of
our joint venture plant hire business (2004: profit of £1.7 million, which
included a related tax credit of £0.2million).
Pensions
The Group's ongoing pensions charge in 2005, calculated on the basis of IAS19,
was £21.3 million (2004: £27.0 million). The reduction on 2004 mainly reflects a
reduction in number of active scheme members. The Group's pension schemes had a
net deficit of £47.5 million at 31 December 2005 (2004: £59.7 million) and we
propose to discuss with the trustees proposals to reduce this deficit.
Acquisitions
On 8 March 2005 we acquired the entire share capital of PME for approximately
£47 million, which included a one-off contribution to the PME pension scheme of
£10.0 million. Since acquisition, the performance of PME has met our
expectations, contributing £3.5 million towards Group Operating Profit on
turnover of £148.7 million.
Following the acquisition of Mowlem plc on 23 February 2006 for a total
consideration of approximately £341 million, comprising £117 million in cash and
65.8 million new ordinary Carillion shares, we are in the process of evaluating
the fair value of net assets acquired. This process is progressing
satisfactorily.
Segmental results
The table below shows revenue by business activity and the segments in which it
is reported.
Business activities Financial Reporting Segments
Support Investments Construction
Services Services
Transport
Rail 408.7 - -
Roads 147.7 - 24.3
Health 56.8 - 89.2
Business Services
UK building - - 813.1
FM & Services 369.5 - 39.2
International Regions 34.6 - 264.3
Private Finance - 65.4 -
Total* 1,017.3 65.4 1,230.1
* Includes internal trading of £28.9 million
Investments
£ million 2005 2004
Revenue
Group 0.8 0.8
JVs 64.6 61.7
------- ------
65.4 62.5
------- ------
Operating profit* 8.3 6.1
JV Interest & tax (0.6) (4.9)
------- ------
Profit from operations* 7.7 1.2
------- ------
* Before goodwill impairment of £0.3 million in both years and after tax on
joint ventures of £3.1m (2004: £2.7m)
In this segment we report the equity returns on our investments in Public
Private Partnership (PPP) projects.
At 31 December 2005, we had 19 financially closed projects in our portfolio,
having added two new projects during the year - Renfrewshire schools and Queen
Alexandra Hospital, Portsmouth - in which we will invest a total approximately
£16 million of equity.
Our portfolio of equity investments continues to generate significant value for
the Group. The increase in operating profit reflects an improved performance
across our portfolio, together with a reduction in overheads and bid costs. This
improvement more than offset the effect on operating profit of selling our
investment in the M40 motorway project in 2004. Due to this sale, the interest
charge relating to joint ventures also reduced, resulting in a substantial
increase in profit from operations.
Equity investments in PPP projects are typically valued by discounting the cash
flows they will generate over the lives of concession contracts. Based on
discounting cash flows at 10 per cent and 8 per cent, our portfolio of
investments in financially closed projects had valuations at December 2005 of
£89 million and £115 million, respectively. These valuations have increased
(2004: £83 million and £103 million) as a result of reaching financial close on
the Renfrewshire schools and Queen Alexandra Hospital projects. The value we are
creating through our PPP equity portfolio will continue to increase, because we
are committed to invest a further £31 million of equity in our financially
closed projects, in addition to the £29 million already invested. Beyond this,
we have a good pipeline of new projects, including two for which we are the
preferred bidder, in which we expect to invest around £7 million of equity, and
five for which we are shortlisted, with a potential equity requirement of up to
£33 million.
The acquisition of Mowlem also adds substantial value to our PPP portfolio.
Mowlem has 10 financially closed PPP projects in which it has either already
invested, or commitments to invest, some £51 million. It also has three projects
for which it is the preferred bidder, in which it expects to invest around £77
million of equity and is shortlisted for two projects with a potential equity
requirement of up to £29 million.
Construction Services
£ million 2005 2004
Revenue
Group 1,050.1 949.3
JVs 180.0 56.1
------- ------
1,230.1 1,005.4
------- ------
Operating profit* 16.9 12.5
JV Interest & tax (3.1) (0.3)
------- ------
Profit from operations* 13.8 12.2
------- ------
* Before a JV non operating loss of £0.8m (2004 non-operating profit £1.7m) and
after tax on joint ventures of £1.8m (2004: £0.7m credit)
In this segment we report the results of our UK building and construction
activities and International Regional businesses.
Revenue in Construction Services increased by 22 per cent, despite the disposals
in 2004 of Crown House and our contracting business in France, which together
contributed over £200 million of revenue in 2004. Progress in this segment is
due to healthy growth in the Middle East and Canada, continuing success in our
chosen sectors of the UK commercial building market and a strong performance by
our Developments business.
Operating profit increased by 35 per cent and the operating margin rose from 1.2
per cent to 1.4 per cent. This was achieved despite the effect of introducing,
in the second half of 2004, a new method by which we recognise profit on major
construction contracts. Previously, profit was recognised broadly in proportion
to turnover after taking account of risks and uncertainties. In addition, we now
take no profit on the first 20 per cent of turnover and this profit is deferred
until contracts are completed. The effect of this in 2005 has been to reduce
reported operating profit by £5.4 million (2004: £3.3 million). Total deferred
profit relating to this change at 31 December was £8.7 million, which we expect
to begin releasing to profit in 2007 as contracts reach completion.
Support Services
£ million 2005 2004
Revenue
Group 974.6 908.9
JVs 14.1 8.3
------- ------
988.7 917.2
------- ------
Operating profit* 40.6 39.7+
JV Interest & tax (0.2) (0.2)
------- ------
Profit from operations* 40.4 39.5
------- ------
* Before amortisation of intangible assets of £2.5 m (2004: nil) and after tax
on joint ventures of £0.1m (2004: nil)
+ Excluding a one-off increase of £7.2m relating to the transfer of rail
maintenance to Network Rail
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 8 per cent, as the acquisition
of PME and organic growth more than offset a reduction in revenue from our rail
infrastructure activities. The latter was largely due to transferring to Network
Rail maintenance contracts that generated around £150 million in 2004. Organic
growth was driven primarily by road maintenance in Canada and the UK. Growth in
Canada has been particularly strong following our success in winning contracts
in Ontario, where we have established a market leading position. Since the
year-end, we have built on that success by winning a further contract that will
extend our operations to Alberta.
Operating profit increased by £0.9 million (excluding the £7.2 million one-off
increase in profit in 2004, relating to the transfer of rail maintenance to
Network Rail) and the operating margin reduced from 4.3 per cent to 4.1 per
cent, reflecting the loss of rail maintenance contracts, which had higher than
average margins in this segment.
PME performed in line with our expectations, contributing £149 million of
revenue and £3.5 million of operating profit in the year, following its
acquisition in March 2005.
New Bank Facility
In connection with the acquisition of Mowlem plc, a new committed bank facility
totalling £490 million has been arranged. Of this amount, £190 million is
repayable at the end of five years, £250 million is repayable over five years
and £50 million is available for 364 days with a six month term-out option.
Consolidated income statement
For the year ended 31 December 2005
2005 2004
£m £m
-----------------------------------------------------------------------------------------
|Total revenue 2,284.2 1,985.1 |
|Less: Share of jointly controlled entities revenue (258.7) (126.1)|
-----------------------------------------------------------------------------------------
Revenue 2,025.5 1,859.0
Cost of sales (1,888.6) (1,698.9)
--------------------------------------- ------- -------
Gross profit 136.9 160.1
Administrative expenses (104.6) (116.6)
--------------------------------------- ------- -------
Group operating profit 32.3 43.5
------------------------------------------------------------------------------------------
|Jointly controlled entities |
|Operating profit 20.3 13.0 |
|Net financing income/(expense) 1.1 (3.4) |
|Non-operating items (0.8) 1.5 |
|Income tax (5.0) (2.0) |
------------------------------------------------------------------------------------------
Share of results of jointly controlled entities 15.6 9.1
--------------------------------------- ------- -------
Profit from operations 47.9 52.6
Non-operating items - 10.1
------------------------------------------------------------------------------------------
|Financial income 54.4 52.3 |
|Financial expenses (50.4) (48.2) |
------------------------------------------------------------------------------------------
Net financing income 4.0 4.1
--------------------------------------- ------- -------
Profit before tax* 51.9 66.8
Income tax (11.1) (8.6)
--------------------------------------- ------- -------
Profit for the year 40.8 58.2
------- -------
Attributable to:
Equity holders of the parent 39.3 56.4
Minority interests 1.5 1.8
------- -------
Profit for the year 40.8 58.2
------- -------
Earnings per share*
Basic 18.7p 27.1p
Diluted 18.4p 26.7p
Total dividend declared for the year 8.0p 7.5p
------- -------
The above results for both years derive from continuing operations.
* A reconciliation of the reported result to the underlying result is given in
Note 4.
Consolidated statement of recognised income and expense
For the year ended 31 December 2005
2005 2004
£m £m
Foreign exchange translation adjustments 1.6 (1.1)
Actuarial gains and losses on defined benefit pension schemes 6.7 26.3
Group share of change in fair value of cash flow hedges within
jointly controlled entities (1.3) -
(net of tax)
------- --------
7.0 25.2
Tax in respect of the above (1.5) (8.3)
------- --------
Income and expense recognised directly in equity 5.5 16.9
Profit for the year 40.8 58.2
------- --------
Total recognised income and expense for the year 46.3 75.1
--------
Effect of adoption of IAS 32 and IAS 39 (net of tax) on 1
January 2005
Hedging reserve (9.7)
Fair value reserve 0.9
-------
37.5
-------
Attributable to:
Equity holders of the parent 44.8 73.3
Minority interests 1.5 1.8
------- --------
Total recognised income and expense for the year 46.3 75.1
------- --------
Reconciliation of movements in consolidated equity shareholders' funds
For the year ended 31 December 2005
2005 2004
£m £m
Recognised income and expense 44.8 73.3
Equity settled transactions (net of deferred tax) 0.9 0.4
New share capital subscribed 1.7 0.4
Share options exercised by employees 0.7 0.8
Dividends paid to equity holders of the parent (16.1) (16.4)
------- -------
Net addition to equity shareholders' funds 32.0 58.5
Opening equity shareholders' funds (as restated) 116.7 67.0
------- -------
Closing equity shareholders' funds 148.7 125.5
------- -------
Opening equity shareholders' funds (as previously reported) 125.5
Effect of adoption of IAS 32 and IAS 39 on 1 January 2005 (8.8)
------- -------
Opening equity shareholders' funds (as restated) 116.7
------- -------
Consolidated balance sheet
As at 31 December 2005 2005 2004
£m £m
Assets
Non-current assets
Property, plant and equipment 100.9 69.9
Intangible assets 62.3 20.3
Retirement benefit assets 6.4 4.6
Investments in jointly controlled entities 62.7 65.1
Other investments 4.7 6.8
Deferred tax assets 35.2 35.3
------- -------
Total non-current assets 272.2 202.0
------- -------
Current assets
Inventories 21.2 18.0
Income tax receivable 0.2 0.4
Trade and other receivables 459.7 389.1
Cash and cash equivalents 180.9 202.7
------- -------
Total current assets 662.0 610.2
------- -------
Total assets 934.2 812.2
------- -------
Liabilities
Current liabilities
Borrowings (17.0) (17.4)
Derivative financial instruments (0.3) -
Trade and other payables (600.4) (486.2)
Provisions - (1.8)
Income tax payable (13.3) (24.4)
------- -------
Total current liabilities (631.0) (529.8)
------- -------
Non-current liabilities
Borrowings (73.1) (56.5)
Retirement benefit liabilities (74.3) (89.8)
Deferred tax liabilities (6.0) (8.1)
Provisions - (0.4)
------- -------
Total non-current liabilities (153.4) (154.8)
------- -------
Total liabilities (784.4) (684.6)
------- -------
Net assets 149.8 127.6
------- -------
Equity
Issued share capital 107.4 107.1
Share premium 8.2 6.8
Reserves (1.0) 6.8
Retained earnings 34.1 4.8
------- -------
Equity attributable to equity holders of the parent 148.7 125.5
Minority interests 1.1 2.1
------- -------
Total equity 149.8 127.6
------- -------
Consolidated statement of cash flows
For the year ended 31 December 2005
2005 2004
£m £m
Cash flows from operating activities
Profit for the year 40.8 58.2
Depreciation, amortisation and impairment 20.5 16.8
Profit on disposal of property, plant & equipment (0.9) -
Share based payment expense 1.2 0.6
Other non-cash movements (3.2) 3.0
Share of results of associates and joint ventures (15.6) (9.1)
Non-operating profit on disposal of property, plant &
equipment - (2.9)
Profit on disposal of investments in associates and joint
ventures - (7.7)
Loss on disposal of businesses - 0.5
Net financing income (4.0) (4.1)
Income tax expense 11.1 8.6
------- -------
Operating profit before changes in working capital and
provisions 49.9 63.9
Increase in inventories (2.6) (1.9)
(Increase)/decrease in trade and other receivables (26.4) 16.5
Increase in trade and other payables 65.1 13.7
Decrease in provisions (2.2) (0.3)
------- -------
Cash generated from operations before pensions scheme
contribution 83.8 91.9
Contribution to PME pension scheme (10.0) -
------- -------
Cash generated from operations 73.8 91.9
Interest paid (4.6) (3.5)
Income taxes paid (19.5) (12.7)
------- ------
Net cash flows from operating activities 49.7 75.7
------- ------
Cash flows from investing activities
Disposal of property, plant and equipment 7.3 6.9
Disposal of investments in jointly controlled entities 0.6 20.2
Disposal of other non-current investments 3.4 0.9
Interest received 7.4 7.2
Dividends received from jointly controlled entities 8.4 7.3
Disposal of businesses, net of cash disposed of - (4.3)
Acquisition of subsidiary, net of cash acquired (37.1) -
Acquisition of property, plant and equipment (34.2) (14.8)
Acquisition of intangible assets (4.3) (0.2)
Acquisition of investments in and loan advances to
jointly (2.3) (1.0)
controlled entities ------- ------
Net cash flows from investing activities (50.8) 22.2
------- ------
Cash flows from financing activities
Proceeds from the issue of share capital 1.7 0.4
Draw down of other loans 3.4 2.2
Repayment of bank loans (2.8) (5.6)
Payment of finance lease liabilities (3.7) (2.9)
Dividends paid to equity holders of the parent (16.1) (16.4)
Dividends paid to minority interests (2.5) (2.0)
------- ------
Net cash flows from financing activities (20.0) (24.3)
------- ------
Net (decrease)/increase in cash and cash equivalents (21.1) 73.6
Cash and cash equivalents at beginning of period 189.6 116.2
Effect of exchange rate fluctuations on cash held 1.2 (0.2)
------- ------
Cash and cash equivalents at end of year 169.7 189.6
------- ------
Cash and cash equivalents comprise:
Cash and cash equivalents 180.9 202.7
Bank overdrafts (11.2) (13.1)
------- ------
169.7 189.6
------- ------
Notes
1. Basis of preparation
Carillion plc has previously prepared its financial statements in accordance
with UK generally accepted accounting principles. From 2005, the Group is
required to prepare its consolidated financial statements in accordance with
International Financial Reporting Standards (IFRS) as adopted by the European
Union.
These results represent the first annual financial statements prepared in
accordance with IFRS. An explanation of how the transition to IFRS has affected
the reported financial position, financial performance and cash flows of the
Group was published on 30 June 2005 and is available on the Group's website at
www.carillionplc.com.
The financial information set out herein (which was approved by the Board on 8
March 2006) does not constitute the Company's statutory accounts for the years
ended 31 December 2005 and 2004 but is derived from the 2005 statutory accounts.
The statutory accounts for the year ended 31 December 2004, which were prepared
under UK GAAP, have been delivered to the Registrar of Companies. The statutory
accounts for the year ended 31 December 2005, prepared under International
Financial Reporting Standards adopted for use in the EU, will be delivered
following the Company's Annual General Meeting. The auditors have reported on
those accounts; their reports were unqualified, did not include references to
any matters to which the auditors drew attention by way of emphasis without
qualifying their reports and did not contain statements under section 237(2) or
(3) of the Companies Act 1985.
2. Segmental reporting
Segment information is presented in respect of the Group's business segments,
which are the primary basis of segment reporting. The business segment reporting
format reflects the Group's management and internal reporting structure. Inter-
segment pricing is determined on an arm's length basis. Segment trading results
include items directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
Business segments
The Group is comprised of the following main business segments:
• Construction Services: UK building, development and civil engineering
activities and international regional construction services.
• Support Services: Rail infrastructure, roads maintenance, facilities
management and other support services.
• Investments: Equity returns on investments in Public Private Partnership
(PPP) projects
Construction Support Investments Eliminations Consolidated
Services Services and unallocated
head office
2005 £m £m £m £m £m
Revenue from
external
customers 1,050.1 974.6 0.8 - 2,025.5
Inter-segment
revenue 0.3 28.6 - (28.9) -
--------- --------- --------- --------- ---------
Segment
revenue 1,050.4 1,003.2 0.8 (28.9) 2,025.5
--------- --------- --------- --------- ---------
Segment
trading 4.8 39.9 0.8 - 45.5
result
Amortisation/
i - (2.5) (0.3) - (2.8)
mpairment
of intangible
assets
Unallocated
expenses - - - (10.4) (10.4)
--------- --------- --------- --------- ---------
Group
operating
profit 4.8 37.4 0.5 (10.4) 32.3
--------- --------- --------- --------- ---------
Share of
profit of 8.2 0.5 6.9 - 15.6
jointly
controlled --------- --------- --------- --------- ---------
entities
Profit from
operations 13.0 37.9 7.4 (10.4) 47.9
--------- --------- --------- ---------
Non - -
operating
items
Net financing
income 4.0
Income tax
expense (11.1)
---------
Profit for
the 40.8
year ---------
Construction Support Investments Eliminations Consolidated
Services Services and unallocated
head office
2004 £m £m £m £m £m
Revenue from
external
customers 949.3 908.9 0.8 - 1,859.0
Inter-segment
revenue 0.5 25.9 - (26.4) -
--------- --------- --------- --------- ---------
Segment
revenue 949.8 934.8 0.8 (26.4) 1,859.0
--------- --------- --------- --------- ---------
Segment
trading 10.5 46.3 (4.3) - 52.5
result
Amortisation/
i - - (0.3) - (0.3)
mpairment
of intangible
assets
Unallocated
expenses - - - (8.7) (8.7)
--------- --------- --------- --------- ---------
Group
operating
profit 10.5 46.3 (4.6) (8.7) 43.5
--------- --------- --------- --------- ---------
Share of
profit of 3.2 0.4 5.5 - 9.1
jointly
controlled --------- --------- --------- --------- ---------
entities
Profit from
operations 13.7 46.7 0.9 (8.7) 52.6
--------- --------- --------- ---------
Non -
operating
items 10.1
Net financing
income 4.1
Income tax
expense (8.6)
---------
Profit for
the 58.2
year ---------
3. Dividends
The following dividends were paid by the Company:
2005 2004
£m Pence per £m Pence per
share share
Current year interim 6.0 2.8 5.6 2.675
Previous year final 10.1 4.825 10.8 5.175
------- ------- ------- -------
16.1 7.625 16.4 7.85
------- ------- ------- -------
The following dividends were proposed by the Company in respect of each
financial year:
2005 2004
£m Pence per £m Pence per
share share
Interim 6.0 2.8 5.6 2.675
Final 14.6 5.2 10.1 4.825
------- ------- ------- -------
20.6 8.0 15.7 7.5
------- ------- ------- -------
The interim dividend for 2004 includes 1.0 pence per share that represents a
return to shareholders of a proportion of the profit generated on the disposal
of PPP equity shareholdings.
The final dividend for 2005 of 5.2 pence per share was approved by the Board on
8 March 2006 and has not been included as a liability as at 31 December 2005.
The amount expected to be paid in respect of the 2005 final dividend of £14.6m
includes the dividend payable on 65.8 million new Carillion shares issued
following the acquisition of Mowlem plc on 23 February 2006.
4. Earnings per share
(a) Basic earnings per share
The calculation of basic earnings per share at 31 December 2005 is based on the
profit attributable to equity holders of the parent of £39.3m (2004: £56.4m) and
a weighted average number of ordinary shares outstanding during the year ended
31 December 2005 of 210.5m (2004: 208.4m), calculated as follows:
Weighted average number of ordinary shares
In millions of shares 2005 2004
Issued ordinary shares at 1 January 214.3 214.0
Effect of own shares held by ESOP and QUEST (4.1) (5.7)
Effect of shares issued in the year 0.3 0.1
------- -------
Weighted average number of ordinary shares at 31 December 210.5 208.4
------- -------
(b) Underlying
A reconciliation of profit before tax and basic earnings per share as reported
in the income statement to underlying profit before tax and basic earnings per
share is set out below. The adjustments made in arriving at the underlying
performance measures are made to illustrate the impact of non-trading and
non-recurring items.
2005 2004
£m £m
Profit before tax
Profit before tax as reported in the income statement 51.9 66.8
Amortisation of intangible assets arising from business
combinations 2.5 -
Impairment of goodwill 0.3 0.3
Loss/(profit) on disposal of investments and businesses 0.8 (11.8)
One-off impact of Network Rail transfer - (7.2)
------- -------
Underlying profit before tax 55.5 48.1
------- -------
2005 2004
Pence per share Pence per share
Basic earnings per share
Basic earnings per share as reported in
the income statement 18.7 27.1
Amortisation of intangible assets arising
from business combinations 1.2 -
Impairment of goodwill 0.1 0.1
Loss/(profit) on disposal of investments
and businesses 0.4 (6.2)
One-off impact of Network Rail transfer - (2.4)
------- -------
Underlying basic earnings per share 20.4 18.6
------- -------
c) Diluted earnings per share
The calculation of diluted earnings per share at 31 December 2005 is based on
profit as shown in note 4(b) and a weighted average number of ordinary shares
outstanding calculated as follows:
Weighted average number of ordinary shares (diluted)
In millions of shares 2005 2004
Weighted average number of ordinary shares at 31 December 210.5 208.4
Effect of share options in issue 3.1 2.8
------ -------
Weighted average number of ordinary shares (diluted) at 31
December 213.6 211.2
------ -------
5. Acquisitions
On 8 March 2005, the Group acquired the entire share capital of Planned
Maintenance Group Limited (PMG) on an adjusted price basis for £33m in cash
pursuant to the completion accounts process. The company and its subsidiaries
operate in the building services and maintenance industry and its results are
reported in the Support Services segment. In the period from acquisition to
31 December 2005 PMG contributed profit before tax of £3.5m to the consolidated
profit for the period. If the acquisition had occurred on 1 January 2005, Group
revenue would have been £2,054.1m and profit before tax would have been £52.4m
for the year ended 31 December 2005.
Effect of acquisitions
The acquisition had the following effect on the Group's assets and liabilities.
Acquiree's net assets at the acquisition date
Carrying Fair value Recognised
amounts adjustments values
£m £m £m
Property, plant and equipment 1.7 - 1.7
Intangible assets 1.0 6.2 7.2
Deferred tax asset 7.0 - 7.0
Inventories 0.2 - 0.2
Trade and other receivables 38.9 - 38.9
Cash and cash equivalents 0.1 - 0.1
Borrowings (3.0) - (3.0)
Trade and other payables (38.9) - (38.9)
Retirement benefit liabilities (13.5) - (13.5)
----------- ----------- -----------
Net identifiable assets and liabilities (6.5) 6.2 (0.3)
----------- -----------
Goodwill recognised on acquisition 34.5
-----------
Consideration paid, satisfied in cash* 34.2
Net debt acquired 2.9
-----------
Net cash outflow 37.1
-----------
* Includes costs associated with the acquisition of £1.2m
6. Explanation of transition to IFRS
These are the Group's first consolidated financial statements prepared in
accordance with IFRS.
The Group's IFRS accounting policies have been applied in preparing the
consolidated financial statements, including comparative information for the
year to 31 December 2004 and the preparation of an opening IFRS balance sheet at
1 January 2004 (the Group's date of transition).
In preparing its opening IFRS balance sheet and comparative information for the
year to 31 December 2004, the Group has adjusted amounts reported previously in
financial statements prepared in accordance with previous GAAP. In addition,
following the adoption of IAS 32 and IAS 39, the Group has adjusted previously
restated total equity at 1 January 2005.
The reconciliation of total equity at 1 January 2004 and 31 December 2004 is
given below:
31 December 2004 1 January 2004
£m £m
Total equity as previously reported under
UK GAAP 186.9 151.6
--------- --------
Adjustments on adoption of IFRS:
Employee benefits (69.3) (90.0)
Business combinations 3.2 -
Share-based payments 0.3 0.2
Deferred tax (2.9) (3.4)
Proposed dividends 10.1 10.8
Other (0.7) 0.1
--------- --------
Total IFRS adjustments (59.3) (82.3)
--------- --------
Total equity under IFRS 127.6 69.3
--------- --------
The reconciliation of total equity at 1 January 2005 following the adoption of
IAS 32 and IAS 39 is given below:
1 January 2005
£m
Total equity as reported under IFRS at 31 December 2004 127.6
--------
Adjustments on adoption of IAS 32 and IAS 39:
Group share of fair value of cash flow hedges in associates
and jointly controlled entities (9.7)
(net of deferred tax assets of £4.2m)
Fair value of available for sale investments 1.3
Deferred tax on the above (0.4)
--------
Total IAS 32 and IAS 39 adjustments (8.8)
--------
Total equity under IFRS at 1 January 2005 118.8
--------
The reconciliation of profit for the year to 31 December 2004 is given below:
Year to
31 December
2004
£m
Loss for the period under UK GAAP (16.0)
--------
Adjustments on adoption of IFRS:
Employee benefits 2.2
Business combinations 71.8
Share based payments (0.2)
Deferred tax 0.5
Other (0.1)
--------
Total IFRS adjustments 74.2
--------
Profit for the period under IFRS 58.2
--------
Employee benefits
IAS 19 replaces SSAP 24 'Accounting for pension costs' and is broadly similar to
the requirements of FRS 17 'Retirement benefits'. Disclosure of the potential
impact of FRS 17 has been included in the Group's annual report and accounts
since 2001. As permitted by IAS 19, the Group has opted to recognise immediately
and in full the actuarial gains and losses arising in each accounting period in
the Statement of Recognised Income and Expense. This treatment is similar to the
requirements of FRS 17.
Under IAS 19 the surplus or deficit relating to defined benefit schemes are
recognised on the balance sheet of the Group. Although the methodology for
determining the profit and loss account charge is similar to SSAP 24, the
actuarial assumptions are different. In particular, IAS 19 requires the discount
rate used in the evaluation of scheme liabilities to be based on market yields
on high quality corporate bonds at the balance sheet date. In contrast, SSAP 24
required the use of long-term investment return rate to discount liabilities.
The difference in approach to the discount rate used can lead to a more volatile
profit and loss account charge under IAS 19 compared to SSAP 24.
Business combinations
IFRS 3 'Business combinations' covers the accounting for acquisitions, which is
dealt with under UK GAAP by FRS 6 'Acquisitions and mergers', FRS 7 'Fair values
in acquisition accounting', and FRS 10 'Goodwill and intangible assets'.
IFRS 3 strictly prohibits the use of merger accounting that in certain
circumstances can be applied under UK GAAP. Although goodwill arising on
business combinations is recognised as an asset in the balance sheet under both
IFRS and UK GAAP, IFRS 3 prohibits the amortisation of goodwill. Instead, IFRS 3
requires goodwill to be subject to annual impairment reviews. In addition,
goodwill previously written off to reserves under UK GAAP remains in reserves
under IFRS and is not re-cycled through the income statement on disposal of the
business to which it relates.
The adjustment in the table above relates primarily to goodwill previously
written off to reserves on the original acquisitions of Crown House Engineering
and Carillion BTP, which were both disposed of in 2004. The impairment of
goodwill under IFRS relates to UK Highways Services Limited reflecting the
reduction in future cash flows as we move nearer to the end of it's maintenance
contract in 2007.
Share-based payments
IFRS 2 'Share based payments' replaces UITF 17 'Employee share schemes' under UK
GAAP.
IFRS 2 requires the fair value cost of providing employee share option schemes
to be charged to the income statement, and in respect of equity settled share
based payments, recognised directly in equity. This differs to the UITF 17
approach under which the charge to the income statement is based on the
intrinsic value of the share options. The scope of IFRS 2 is wider than UITF 17
as it relates to all share based payments. Consequently, Save as You Earn (SAYE)
schemes are within the scope of IFRS 2, whereas under UITF 17 they are
specifically exempt.
Deferred tax
IAS 12 'Income taxes' is the IFRS equivalent of FRS 16 'Current tax' and FRS 19
'Deferred taxation' under UK GAAP.
There is no change to the basis of calculating current income tax as a result of
adopting IAS 12. However, the basis of calculating deferred tax changes from an
income statement approach under FRS 19 to a balance sheet approach under IAS 12.
The balance sheet approach compares the tax value with the carrying value of
assets and liabilities at the balance sheet date. Of the additional requirements
of IAS 12, the most significant is the requirement to recognise a deferred tax
liability in respect of the unremitted earnings of overseas entities, where
their distribution cannot be controlled or planned by the Group.
Proposed dividends
IAS 10 (revised 2003) 'Events after the balance sheet date' is the FRS
equivalent of SSAP 17 'Accounting for post balance sheet events in the UK. Both
standards are similar except in respect of the accounting treatment of
dividends.
Under IAS 10, dividends declared and approved by shareholders after the balance
sheet date are not permitted to be recognised as a liability at the balance
sheet date. This differs from the UK GAAP treatment of proposed dividends, which
are accrued for the in the financial period to which they relate. The adjustment
reflects the reversal of the proposed dividend accrued in the 2004 financial
statements.
7. Posting of statutory accounts to shareholders
The Company's report and accounts will be posted to shareholders on 4 April 2006
. From that date copies will be available from the registered office, Carillion
plc, Birch Street, Wolverhampton, WV1 4HY.
8. Annual general meeting
A resolution will be put to shareholders at the AGM on 10 May 2006 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
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Friday, 10th January 2025
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