Group Chief Executive’s statement

Through the passion of our people and the strength of our leadership teams, Carillion has maintained its position as a recognised leader in sustainability. I should therefore like to take this opportunity to thank all our people for their continuing commitment to making Carillion a more sustainable business.

In particular, I should like to thank Don Kenny, who had executive responsibility for our sustainability programme until he stepped down from our Board in August 2010. This responsibility has passed to Richard Howson, our Chief Operating Officer, who is also responsible for Health and Safety across the Group.

Our performance in 2010

I am pleased to report that Carillion remains totally committed to becoming a more sustainable business and that this continues to play an important role in our development and ability to deliver good earnings growth, despite challenging market conditions. Our strength and resilience enabled us to deliver an eighth successive year of earnings and dividend growth in 2010. Total revenue reduced by 9% to £5.1 billion, primarily due to the sale of non-core businesses and of equity investments in Public Private Partnership (PPP) projects in 2009, together with the effects of maintaining strict contract selectivity and financial discipline. Our underlying operating margin ¹ increased from 3.8% in 2009 to 4.2% in 2010, with underlying profit before tax ² up 7% to £187.9 million and underlying earnings per share ³ up 6% to 39.4 pence.

In 2010, we announced a strategic restructuring of our UK construction business, through using contract selectivity to focus our UK construction capability primarily on providing integrated solutions for PPP projects and support services for customers, together with higher added value contracts for other long-term customers. This re-scaling will also help us to support margins in UK construction by enabling us to avoid lower margin work at a time when the UK market is expected to become increasingly competitive, as a result of the UK Government cutting capital investment by around one third over the next four years.

I am delighted with our progress and performance in respect of our sustainability programme, and how this continues to contribute to the performance of our business. A few of the year’s many highlights include: holding another successful Sustainability Week; working closely with the Wildlife Trusts to enhance biodiversity in our communities: launching more carbon reduction initiatives across our international operations; and establishing a Sustainability Committee in Canada.

Once again we demonstrated our sector leadership in sustainability. In 2010, we achieved 8th place overall and 4th in our category in The Sunday Times Best Green Companies list for large and medium-sized companies. We retained our ‘Platinum’ ranking in Business in the Community’s (BITC) Corporate Responsibility Index, and our score was higher than any other support services company. We also continue to be a member of the FTSE4Good Index, and our Middle East businesses won the Construction Week Corporate Social Responsibility Award for the second year in a row.

In 2010, Carillion submitted a full response to the Carbon Disclosure Project, having done so for the first time in 2009. During the year, we focused our efforts on our carbon reduction strategy and set challenging carbon emissions targets for our Middle East and North Africa businesses against a 2009 baseline. We also established a carbon emissions baseline for our business in Canada. In the UK, we achieved a 35% reduction in our carbon emissions compared to 2006 levels and while we are disappointed that we did not meet our UK target of 50%, we are committed to making further progress in 2011 and beyond.

We made good progress on our commitment to halve the volume of UK construction waste sent to landfill by 2012, compared to 2008 levels. We diverted 84% of our UK waste from landfill, against our target of 70%.

As part of our engagement with the communities in which we operate, we enabled 111 homeless people to gain valuable two-week work placements in our businesses and supported their re-introduction to employment, through BITC’s Business Action on Homelessness programme. In 2010, we also committed to support the Defence Career Partnering, helping service personnel get back into work after leaving the Army.

The health and safety of our people – and of everyone who works with us or is affected by our operations – remains paramount, together with our objective, known as Target Zero, of eliminating all reportable accidents. To achieve this challenging objective, we continue to use a wide range of measures, including training, audits, Safety Action Groups, strong visible leadership, such as Directors’ Safety Tours and employee engagement tools, notably our hazard reporting programme, ‘Don’t Walk By’, which encourages our people to report for immediate action anything they believe to be unsafe.

In 2010, we renewed our focus on ‘Don’t Walk By’, which resulted in a 60% increase in the number of reports per employee and a 23% reduction in our accident frequency rate (AFR) to 0.1 reportable accidents per 100,000 employee hours worked (2009: 0.13), with three out of four of our projects achieving zero reportable accidents during 2010. We sincerely regret that, despite this further improvement in our overall safety performance, five fatal accidents occurred at Carillion work sites during 2010 in which six people tragically lost their lives.

An employee of a sub-contractor was fatally injured while clearing vegetation on a Carillion project at Barrow-in-Furness. In Alberta, Canada, a Carillion Canada employee, died while carrying out highway maintenance work, after being struck by a vehicle driven by a member of the public. In Egypt, an employee of our Joint Venture partner, Orascom, was fatally injured by a fall, after being struck by a prop being used for construction work at the Cairo Festival City project. In Abu Dhabi, two employees of Al Futtaim Carillion, died when they were struck by a pre-cast concrete floor section, which had been in place for several days before suddenly collapsing without warning. In Oman, a Carillion Alawi employee, was fatally injured when he fell and was run over by a water tanker.

Every accident is a personal tragedy and our thoughts are with the families and friends of those who died.

In 2010, one prosecution of a Carillion company was completed by the Health & Safety Executive.

Looking to 2011 and beyond

We have engaged with Forum for the Future, our customers, and employees to establish our future sustainability strategy and set six positive outcomes to be achieved by 2020. These affect all areas of our business and will benefit all our stakeholders.

As our markets become more competitive and our stakeholders’ expectations increase, we believe that our leadership in sustainability will continue to be a key differentiator for Carillion. The economic climate is expected to continue to make market conditions challenging. We must therefore continue to use all our skills and resources, including our new sustainability strategy, to stay ahead of our competitors.

In 2011, we are working towards our new 2020 goals and embedding sustainability further into our business operations. We will engage all our employees in our new strategy, so that they can share the responsibility and the satisfaction of making Carillion a more sustainable business. We have also announced a recommended £306.5 million offer for the acquisition of Eaga plc. The Board believes the acquisition would be immediately earnings enhancing and would build on the Group’s previously announced objectives for growth and sector leadership in sustainability.

I would welcome any feedback you may have on any aspect of this report or our sustainability performance. Please send your comments to sustainability@carillionplc.com.

John McDonough
Group Chief Executive