Interim Results
Costain Group PLC
31 August 2000
31 August 2000
Interim Results for the six months ended 30 June 2000
Key Points:
* Profit before tax £2.1m (1999: £0.2m)
* Cash balances £34.4m (1999: £24.3m)
* Work intake 70 per cent up on same period last year
* Second major long-term water contract awarded
* Pursuing road and rail contracts worth approximately £1bn
John Armitt, Chief Executive of Costain Group PLC, said:
'The UK construction industry offers significant growth opportunities
especially in the civil engineering sector and we are confident of securing a
number of contracts in the coming months. We also have an improved cash
situation and increase in work in-take. They are good reasons for being
confident about Costain's future and its ability to achieve considerable
success in the immediate future.'
Enquiries: John Armitt, Chief Executive 020 7 705 8444
Graham Read, Public Relations
Brunswick Group Tom Kyte 020 7 404 5331
INTERIM STATEMENT
INTRODUCTION
During the first half of the year Costain has continued to focus on key
markets and improve its business processes. This work will continue as we
seek to further enhance our performance and profitability in what continues to
be a very competitive market.
Costain welcomes the recent announcement by the Government to invest some
£180bn of public and private money during the next ten years, in order to
improve the nation's transportation system. There will be a major investment
programme for rail and a real increase in the spending on roads. It is
reported that some 360 miles of motorway and trunk road widening and 100
bypasses will be constructed. Transport has always represented one of the
Company's key market sectors with our extensive involvement in major road and
rail related projects.
RESULTS
The results for the six months ended 30 June 2000 show a profit before tax of
£2.1m (1999: £0.2m) on a turnover for the period of £195.6m (1999: £199.6m).
Earnings per share rose to 0.6p (1999: 0.1p).
FINANCE
The Company has no significant borrowings and net cash balances at the half-
year end totalled £34.4m (1999: £24.3m) including the Group's share of cash
held by joint arrangements (construction joint ventures) of £26.3m. This
represents a cash inflow during the first half of the year of £4.1m (1999:
£12.6m outflow) which was ahead of forecast, largely due to some earlier than
expected receipts.
TRADING AND PROSPECTS
As at 30 June 2000 the Company was on tender lists which in value terms were
significantly greater than at the same time last year, although lead times are
lengthening as more work is secured on a negotiated basis. Work intake at the
half-year was in excess of £180m, which was 70 per cent more than at 30 June
1999, although it is currently expected that turnover for 2000 will remain in
line with that achieved in 1999.
The transport sector has shown signs of growth throughout the year and
following the Government's recent announcement referred to above, this growth
should continue. The Company is currently preparing or awaiting the outcome
of tenders for major road projects to a value of £750m, the majority of which
are in joint venture. On rail related projects the Company is preparing or
awaiting the outcome of tenders to the value of £220m, which are also in joint
venture and the Company's share is 33.3 per cent. Work is progressing well on
major projects such as the £124m A2/M2 Road Contract in Kent being undertaken
in joint venture with Skanska and Mowlem and the M5 Avonmouth Bridge
Strengthening Project.
Following on the announcement at the end of last year of the new five-year
alliancing agreement with Thames Water, the Company is delighted to report
that it has won a five-year award from Yorkshire Water under their AMP3
Delivery Programme. This is worth approximately £65m and includes the
delivery of all sewerage and sewage treatment works within the East Yorkshire
Region up to a value of £2m from outline feasibility stage to
commissioning/handover. These projects will be delivered under a fully
integrated Yorkshire Water/Costain partnership.
The Company has recently completed two major marine projects. First, in the
Bahamas, the completion of the Freeport Container Port's Phase II Terminal for
Freeport Container Port Limited, a member of the Hutchinson Port Holdings
Group for which Costain has undertaken a number of projects. We were
responsible for both design and construction of this project. Secondly, in
the UK, Costain with its joint venture partner Balfour Beatty completed the
Cardiff Bay Barrage. In constructing these major civil engineering works the
joint venture had to contend with difficult and uncertain physical conditions
and face, in Cardiff Bay, a tidal range of up to 14 metres - the second
largest in the world.
Work on the Chimes Shopping Centre, Uxbridge, West London for Capital Shopping
Centre is proceeding well. The Company won a second major retail
redevelopment project earlier this year when Arrowcroft Limited awarded a £21m
contract to expand and renovate some 20,000m2 of retail space at the Lower
Shopping Precinct in Coventry. The Company has also been awarded a number of
other retail projects by Tesco and Waitrose.
Costain continues to be active in the hotel and commercial development
sectors.
As we have previously advised, our approach to the private finance initiative
market is based on selective targeting of opportunities and through the
development of key strategic alliances with operators, facilities management
providers and other specialists in the PFI market. This approach has resulted
in the Company concentrating on four key sectors in PFI namely Custodial,
Health, Road and projects for the Ministry of Defence. Costain continues as a
member of the Securicor-led consortium which built and is now operating one of
the first major PFI Prison projects. This Consortium is pursuing
opportunities in the custodial sector where it is bidding for two new prisons.
Following on from the success at the end of last year in achieving the
financial close on King's College Hospital, the Company has formed an alliance
with United Medical Enterprises Limited, Group 4 Management Services Limited
and Skanska BOT AB to bid for other major PFI Hospitals.
We reported at the end of last year that in International we had focused on
reducing our overall presence abroad and would concentrate on specific
opportunities as and when they arose. This strategy continues and a recent
success has been the appointment of the Company as construction manager for
the completion and fit out of the local headquarters in Cairo for Edge, a
subsidiary of the UK retailer J Sainsbury. In Lagos, Nigeria, the Company has
also been appointed construction manager for Phase I of the Lagos Hilton.
Work is proceeding satisfactorily on existing projects in Egypt and Hong Kong.
Recent events in Zimbabwe have meant a reduction in our activities but our
exposure there remains contained. Elsewhere in Africa our projects in
Tanzania and Botswana proceed with our joint venture partner Kharafi.
Discussions are continuing regarding the final valuation of the Landside
Infrastructure project and the arbitration proceedings for the Tsing Ma
Suspension Bridge are ongoing.
Following the rationalisation last year Costain Oil, Gas & Process Limited
('COGAP') adopted a more focused strategy concentrating on the UK and
hydrocarbon gas processing. As part of this approach COGAP has opened a
project office on Teesside, the location of one of the largest petro-chemical
complexes in Europe. COGAP will be seeking projects to extend and upgrade
existing facilities through this new office.
The sustained increase in the oil price and the lifting of the UK Government's
moratorium on gas fuelled power stations should increase the level of
opportunities for COGAP both in the UK and overseas.
The two projects that were awarded towards the end of last year by BG Transco
for natural gas compression stations at Churchover and Alrewas are proceeding
well, with the first site moving into the construction phase. They have been
followed by two further awards by BG Transco for natural gas compression
stations at Nether Kellet and Cambridge. A US$9.1m contract for the design
and supply of an NGL polishing unit was awarded by the Iranian State Oil
Company, NIOC.
COGAP has also been awarded a year-long extension to its existing contract
with ADGAS for the annual overhaul of that company's Das Island LNG Facility.
This will be the seventh year in which COGAP has undertaken the annual
overhaul and the contract is worth US$10.5m.
In Southern Spain where the Group continues to hold a 50% interest in a
residential and leisure development at Alcaidesa, progress has been made with
land disposal to other developers. In addition, the joint company has started
construction on a development of 43 houses and villas for completion in 2001
and some early sales have already been secured. In the 1999 Annual Report and
Accounts the Company advised of a significant disposal in Alcaidesa for the
development of a 600 bed hotel and leisure complex. We are pleased to report
that recently the joint company has entered into a conditional contract for
the disposal of land to construct a further hotel of 350 bed capacity.
HEALTH, SAFETY & ENVIRONMENT
We also advised in the 1999 Annual Report and Accounts that the Company had
engaged an external safety consultant to review the Company's safety culture
together with the policies, structures and procedures relating to safety, to
ensure that appropriate measures could be put in place in order to achieve the
highest standards of safety. This report has been completed and its
recommendations are being implemented. The external safety consultant was
Stuart Nattrass who was, before his retirement, HM Chief Inspector of
Construction and Chairman of the Health & Safety Commissions Construction
Industry Advisory Committee. We are delighted to report that Stuart Nattrass
has accepted an appointment as a Non-executive Advisor to the Executive Board
and also Advisor to the Costain Executive Safety, Health & Environment
Committee.
The Group remains committed to continuous improvement in health, safety and
environmental performance, so earlier this year steps were taken to formalise
the safety training of members of staff by recording the appropriate training
for each job designation, to ensure that all staff receive the necessary
safety training.
The Accident Frequency Ratio of Costain Limited has consistently remained
below the average recorded by other major contractors. It was also
encouraging to see this effort recognised, with all operating areas within the
Group successfully obtaining awards at the Royal Society for the Prevention of
Accidents Occupational Safety Awards 2000.
CORPORATE DEVELOPMENTS
On 31 May 2000 the Group completed the sale to the Fugro Group of the Overseas
Division of the Group's Geotechnical Services Business, in line with the
Group's strategy of disposing of non-core businesses. The transaction
comprised the sale of assets and liabilities of the Geotechnical businesses
undertaken by Group companies in the Middle East.
CONCLUSION
The first half of the year has seen the successful development of various key
strategies in relation to our markets both in the UK and overseas.
The Government's commitment to a long-term transport programme is good news
for the construction sector, as is the commitment to increased expenditure on
health and education.
The industry's safety record continues to be a cause for concern. Costain is
committed to improving safety on all its sites.
Dato' Jaafar bin Dato' Abdul Hamid, Chairman
John Armitt, Chief Executive
30 August 2000
Consolidated Profit and Loss Account
Half year ended 30 June, Notes 2000 1999 1999
year ended 31 December Half Half Year
year year
£m £m £m
Turnover
Group and share of joint ventures 1 195.6 199.6 378.1
Less: share of joint ventures turnover (1.0) (2.3) (5.0)
______ ______ ______
Group undertakings 194.6 197.3 373.1
______ ______ ______
Group operating profit/(loss)
Group undertakings 0.6 (0.9) 1.0
Share of operating loss of joint
ventures (0.1) (0.3) (0.9)
______ ______ ______
1 0.5 (1.2) 0.1
Profit on sale of fixed assets 1.0 1.2 1.2
______ ______ ______
Profit on ordinary activities before
interest 1.5 - 1.3
Net interest receivable/(payable) and
similar charges
Group undertakings 0.7 0.4 1.2
Joint ventures (0.1) (0.2) (0.4)
______ ______ ______
Profit on ordinary activities before
taxation 2.1 0.2 2.1
Taxation (0.1) - (0.2)
______ ______ ______
Profit on ordinary activities after
taxation 2.0 0.2 1.9
Minority interests - - -
______ ______ ______
Retained for the period 2.0 0.2 1.9
====== ====== ======
Earnings per share 2 0.6p 0.1p 0.6p
All results derive from continuing operations
Consolidated Cashflow Statement
Half year ended 30 June, 2000 1999 1999
year ended 31 December Half Half Year
year year
£m £m £m £m £m
Net cash inflow/(outflow) from
operating activities 1.6 (13.6) (6.0)
Net cash inflow from returns on
investments and servicing of
finance 0.7 0.4 1.2
Tax paid (0.1) (0.4) (0.8)
Capital expenditure and
financial investment
Sales of tangible fixed assets
less capital expenditure 3.6 1.7 0.9
Funding of investments (2.0) (0.1) (1.7)
_____ _____ _____
Net cash inflow/(outflow) from
capital expenditure and
financial investment 1.6 1.6 (0.8)
_____ ______ _____
Net cash inflow/(outflow) before
financing 3.8 (12.0) (6.4)
Financing
Net loan repayments (3.2) (1.1) (2.8)
_____ ______ _____
Increase/(decrease) in cash 0.6 (13.1) (9.2)
Cash outflow from reduction in
loan financing 3.2 1.1 2.8
Exchange differences 0.3 (0.6) (0.2)
_____ ______ _____
Movement in net cash 4.1 (12.6) (6.6)
Opening net cash 30.3 36.9 36.9
_____ ______ _____
Closing net cash 34.4 24.3 30.3
===== ====== =====
Consolidated Balance Sheet
Half year as at 30 June, Note 2000 1999 1999
year as at 31 December Half Half Year
year year
£m £m £m
Fixed assets 4.8 6.7 6.3
Investments 1.5 1.3 1.5
Investments in joint ventures
Share of gross assets 43.8 16.0 12.3
Share of gross liabilities (39.6) (15.1) (9.7)
_______ ________ ______
10.5 8.9 10.4
======= ======== ======
Current assets
Debtors - pension fund prepayment 36.4 38.5 37.4
Other debtors and stocks 106.0 150.4 106.8
Cash at bank, monies on deposit
and in hand 37.8 33.0 38.0
_______ ________ ______
180.2 221.9 182.2
======= ======== ======
Creditors: amounts falling due
within one year
Borrowings (0.8) (2.6) (7.7)
Other creditors
(149.1) (186.9) (147.2)
_______ ________ _______
(149.9) (189.5) (154.9)
======= ======== =======
Net current assets/(liabilities)
Due within one year (5.0) (5.5) (9.4)
Debtors due after more than one
year 35.3 37.9 36.7
_______ ________ _______
30.3 32.4 27.3
======= ======== =======
Total assets less current
liabilities 40.8 41.3 37.7
Borrowings falling due after more
than one year (2.6) (6.1) -
Other creditors falling due after
more than one year and provisions (16.5) (16.7) (18.2)
_______ ________ _______
Net assets 21.7 18.5 19.5
======= ======== =======
Equity shareholders' funds 21.3 18.1 19.1
Minority interests 0.4 0.4 0.4
_______ ________ _______
21.7 18.5 19.5
======= ======== =======
Notes to the Accounts
1. Geographical segment information - continuing operations
In the opinion of the directors the administering of engineering and
construction projects is the only material class of business.
Turnover Operating profit/(loss)
2000 1999 1999 2000 1999 1999
Half Half Full Half Half Full
year year year year year Year
£m £m £m £m £m £m
United
Kingdom 166.3 150.8 310.1 0.8 - 1.0
Rest of
the world 29.3 48.8 68.0 (0.3) (1.2) (0.9)
________ ________ ________ ________ ________ ________
195.6 199.6 378.1 0.5 (1.2) 0.1
________ ________ ________ ________ ________ ________
2. Earnings per share
The calculation of earnings per share is based on profit after taxation and
minority interests of £2.0m (1999 half year £0.2m, 1999 full year £1.9m) and
337,136,350 ordinary shares (1999 half and full year 337,136,350) being the
number of shares in issue during the period.
The results of the Group for the six months to 30 June 2000 and 30 June 1999
were prepared in accordance with the accounting policies stated in the
Company's 1999 statutory accounts and are unaudited.
The figures for the year ended 31 December 1999 do not constitute the
Company's statutory accounts within the meaning of Section 240 of the
Companies Act 1985, but are extracted from them. The Company's statutory
accounts for 1999 were delivered to the Registrar of Companies. The Company's
auditors have reported on those accounts; their report was unqualified and did
not contain statements under Section 237 of the Companies Act 1985.
SHAREHOLDER INFORMATION
The Company's Registrar is Lloyds TSB Registrars, The Causeway, Worthing, West
Sussex BN99 6DA. Their web site address is www.lloydstsb-registrars.co.uk.
For enquiries regarding your shareholding, please telephone 0870 600 3984.
You can also view up-to-date information about your holdings by visiting the
shareholder web site at www.shareview.co.uk. Please ensure that you advise
Lloyds TSB Registrars promptly of a change of name or address.
ShareGIFT
The Orr Mackintosh Foundation (ShareGIFT) operates a charity share donation
scheme for shareholders with small parcels of shares whose value makes it
uneconomic to sell them. Details of the scheme are available on the ShareGIFT
Internet Site www.sharegift.org. Lloyds TSB Registrars can provide stock
transfer forms on request. Donating shares to charity in this way gives rise
neither to a gain nor a loss for Capital Gains Tax purposes. This service is
completely free of charge.
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