Interim Results

Costain Group PLC 01 September 2004 Costain Group PLC ('Costain' or the 'Group') Interim results for the six months ended 30 June 2004 Costain, the international engineering and construction group, announces increases in turnover and profit before tax for the six months ended 30 June 2004. Following the success of its AMP3 water contracts, Costain has recently been awarded further frameworks from Thames Water and Yorkshire Water in respect of the forthcoming AMP4 programme and has £350 million of work under negotiation in the Building Division. Financial highlights • Group turnover up 15% to £339.9m (2003: £296.4m) • Profit before tax up 33% to £8.1m (2003: £6.1m) • Earnings per share up 20% to 1.8p (2003: 1.5p) • UK operating profit of £5.1m (2003: £3.9m) • Forward order book at 30 June of £845m Operational highlights • COGAP - successful completion of ADGAS shutdown in Abu Dhabi with unblemished safety record • Alliance Agreement signed between Costain and China Harbour • Land deal concluded between Alcaidesa Inmobiliaria S.A. and major Spanish housing developer Ros y Falcon Recent Events • Two frameworks awarded from Yorkshire Water totalling c. £35m per year for five years with an option to go to ten • Major framework awarded from Thames Water for whole of London area clean water worth c. £40m per year for five years also with an option to go ten • £350m of work in negotiation in the Building Division, all with key blue chip clients Commenting on the announcement, the Chairman, David Jefferies, said: 'We have had a very good first six months and are pleased with the continuing progress of the Group. We are especially delighted with the news post the period end of framework wins from Thames Water and Yorkshire Water. These are significant awards in a very important sector for Costain. We have had a good start to the second half and the forward order book now stands in excess of £1bn. I look forward to reporting on further progress at the year end.' 1 September 2004 ENQUIRIES: Costain Group PLC Tel: 01628 842 444 Stuart Doughty, Chief Executive Charles McCole, Finance Director Graham Read, Public Relations College Hill Tel: 020 7457 2020 Mark Garraway Matthew Gregorowski Overview We have had a successful first half recording a strong financial performance as well as securing some notable contract successes. In August we were pleased to be awarded contracts from Yorkshire Water and Thames Water in respect of their forthcoming Asset Management Programmes, AMP4. These contracts, totalling some £350m over 5 years, consolidate Costain's leading market position in the UK water sector. With water business currently accounting for some 35% of the Group's contracting business, this is a key strategic sector for Costain and we are delighted that our customers continue to recognise our outstanding capabilities and skills in this arena. We are confident that we will achieve our target of deriving 50% of contracting business turnover from asset management contracts by 2006. Progress made across the business is covered in the review below. It is worth highlighting here, two achievements. First, the landmark agreement in April between Costain and China Harbour ('the Alliance'). Since this agreement was signed, the Alliance has submitted five pre-qualifications for major marine works of which four (in Morocco, Mexico, Qatar and Nigeria) have successfully progressed to full tendering. This is an excellent achievement and is a good example of how far Costain has progressed both in terms of how it operates and the type of work it undertakes. Secondly, in the Building Division, we have achieved preferred bidder status on £230m of new work and in total there are £350m of contracts under negotiation, further evidence of our success in pursuing a strategy of negotiating contracts to avoid the risks inherent in lump sum contracts. We have said previously that we continue with the reconstruction of the Company's balance sheet and the process is well underway. Results The results for the six months ended 30 June 2004 show a profit before tax of £8.1m (2003: £6.1m) up 33% on turnover up 15% at £339.9m (2003: £296.4m). Earnings per share rose to 1.8p (2003: 1.5p), up 20%. Profit on ordinary activities before interest grew to £7.9m (2003: £5.9m) with the UK operations providing £5.1m against £3.9m in the comparable period last year. Operating profit from overseas activities (including Alcaidesa) was £2.8m compared to £2.0m in the first half of 2003. At the half-year, the forward order book was £845m (2003: £820m). The Group has no significant borrowings and net cash balances at the half-year totalled £65.7m (2003: £65.1m) including the Group share of cash held by joint arrangements (construction joint ventures) of £25.1m (2003: £34.2m). This represents a cash outflow during the first half of the year of £5.1m. Cash balances have been sustained, despite the move from lump sum fixed price contracts to framework/partnered arrangements which do have a more evenly phased cash flow profile. Asset Management The Asset Management operations have successfully delivered on schedule a programme of AMP3 contracts to the Company's key Water Utility customer's satisfaction. All regulatory targets for Quality and Safety were achieved for Year 4 up to March 31 2004 and over £225m of work was delivered during the period, meeting the outputs set by the Regulator and Environment Agency. This was a demanding programme without a single environmental incident. Highlights included opening the new £31m 140 Mega Litres clean water treatment plant at Lostock Bolton for United Utilities in April, which improves the quality of Lakeland Water supplied to Manchester customers; and also completing all deep shafts and tunnel drives on Bath's city centre waste water treatment for Wessex Water. This £24m scheme will be delivered on time later this year. In the ancient market town of Lewes, Sussex we gained planning consent in February for our designs for installing a new underground storm water storage network for Southern Water. This will remove the risk of flooding from the town centre. Again, the shafts and tunnels are well underway for delivering the project in early 2005. Good progress has been made for Thames Water in providing increased supply from underground sources at Battersea, Waltham Abbey and East Ham. As part of BAA's Heathrow Terminal Five development, our works for TWUL/BAA to provide a new wastewater treatment plant at Iver South and provide transfer lines and upgrade process treatment at Twickenham some seven miles away is projected to finish four months early in 2005. The project, at £106m our largest individual contract, releases vital land to allow the further development of Terminal Five whilst providing upgraded capacity to meet the demands of Heathrow Airport in the twenty-first century. Costain is now in the final year of delivering an overall 5 Year programme valued at £106m for upgraded waste treatment facilities for Yorkshire Water in the market towns and hamlets of the East Riding of Yorkshire. During the last nine months we have committed extensive resource to securing water asset work for the AMP4 regulatory period programme as well as developing a wider asset management market with the Ministry of Defence (MoD) in outsourcing their water assets. We are preferred bidder with Severn Trent Water for a 25-year concession valued at approximately £1bn. Following our success with Thames Water and the two frameworks with Yorkshire Water we are now focusing our attention on securing frameworks with Southern Water, Dwr Cymru, United Utilities in the North West, Northumbrian Water and Severn Trent Water. UK Construction Building In May 2004 we appointed a new Director to lead the Southern Region and a new General Manager has been recruited for the Amec/Costain/Mowlem joint venture for ProCure 21 Health contracts. The Diamond Synchrotron Project - £80m - is proceeding well with most of the structural engineering work now complete. The Met Office was also successfully opened, with all facilities transferred, in the early part of the year, as was the final stage of Kings College Hospital - the Ruskin Wing. We also saw the substantial completion of Ormskirk Hospital, Shrewsbury Phase I and Barts. As previously mentioned the Division has achieved preferred bidder status on £230m of new work and in total there are £350m of contracts under negotiation. Our philosophy of avoiding high-risk contracts continues to pay off, however, the tender process inevitably becomes protracted as a result. New orders in the first half of the year include residential schemes for David Wilson Homes, Merrywalks Shopping Centre in Stroud, a large number of Tesco schemes, student accommodation at Canterbury and a commercial office and retail development at Saville Row, London. As the negotiated contracts conclude during the second half of 2004 it is expected that the Division will achieve new orders of £315m, an increase of 50% over 2003 new orders. The Division is continuing its focus on key sectors and key clients and 75% of new orders will be derived from a handful of client relationships in the retail, residential and healthcare markets. Overall the Division is progressing well and on track to continue its growth targets in line with the Costain Group Strategy. Major Civil Engineering The year started well at Channel Tunnel Rail Link 240 with the successful breakthrough ahead of programme of the second tunnel drive (the first completed in December 2003). The redevelopment of Kings Cross Underground Station and the St Pancras Station redevelopment and extension are both progressing well. At St Pancras the interim station was completed on programme and opened for use at Easter thus releasing the western section for construction. At Chieveley, junction 13 of the M4 with the north/south A34, a major milestone was achieved in March when during a weekend closure of the M4 the successful demolition of an existing three span overbridge was accomplished. The project is due for completion late summer 2004, well ahead of programme. The Sirhowy Enterprise Way Project, a £38m PFI scheme to build and improve roads in the heart of South Wales for Caerphilly County Borough Council, has commenced and is proceeding well despite minor initial protester action. Our Early Contractor Involvement with the Highways Agency's A303 Stonehenge project has completed the Public Inquiry stage with the Inspector's report anticipated soon. We have recently been awarded the £37m Porth road contract in South Wales and still remain optimistic with regard to future opportunities despite the Chancellor's rather cautious view of increased spending in transportation. Much of the work we have currently secured runs on to 2007. Regional Civil Engineering The West Bay Harbour reconstruction project in Dorset is progressing well and is due for completion at the end of 2004. We have an excellent relationship with the client, West Dorset District Council, and indeed with local residents, and we will be pursuing a further scheme in the area at Lyme Regis. Another major marine engineering scheme for an extension to the container terminal at Felixstowe has been delayed due to slippage of materials during the initial works. However, this contract is now progressing well and completes before the end of the year. We are also tendering for the next phase, in excess of £100m, all for the client Hutchison Whampoa. In the Airports sector, the Company has completed its third contract at John Lennon Airport, Liverpool and has been awarded a £7m contract for new taxiway and stands - one of a series of contracts - at the Robin Hood Airport, Doncaster. The client for both airports is Peel Holdings. At Manchester Airport, Costain has been responsible for routine maintenance work and is shortlisted for long-term pavement frameworks. Costain regional roads work has included design and planning in both Cornwall and South Wales and the construction of a new river bridge at Monmouth, which was recently officially opened. Property Good progress has been achieved in this half year at our property development in Southern Spain, Alcaidesa, where we hold a 50% interest in Alcaidesa Holding SA, with our joint shareholder Banesto Bank. A significant amount of infrastructure - roads, utilities, including a water treatment plant to service the second phase of development known as San Roque 1 & 2 - is underway and due for completion in the Autumn. Infrastructure to service phase three known as La Linea 2, has also started and Alcaidesa Holding has commenced placing orders for the construction of its second golf course and a new golf club house facility. Two sales of large residential development enclaves were completed with developer Ros y Falcon in the half-year along with the majority of the one remaining Alcaidesa housing scheme called Jardines de Alcaidesa. These sales ensured the company met its expected profit forecast for the year to date. Detailed negotiations have led to terms being agreed for the sale of a large plot of land to a major international hotel chain, subject to some minor planning matters being resolved and it is hoped this sale will be successfully completed by the year-end giving a significant boost to the reputation of the area. Alcaidesa is committed to expanding its operations in the area and is in final negotiations to make several land acquisitions ensuring a long-term future for this business. International The last six months have seen Costain awarded the Construction Management contract for the Port Ghalib (Masa Allam) leisure development on the Red Sea in Egypt, a Kharafi project valued at US$150m. We now have operations in Egypt, Nigeria, Tanzania, Botswana, and Zimbabwe. We also have significant new opportunities in both our existing businesses and in new countries within the region. The Group is in the advanced stages of restructuring Costain (West Africa) Plc, after increasing its shareholding to 36% of the issued share capital. This will allow us to take advantage of the significant opportunities within Nigeria giving Costain real strength across its business streams in West Africa. In the Middle East, Costain has recently appointed a new Regional Director to restructure the regional businesses and progress its operations in Iraq. As part of the regional strategy, a new hub support business is being set up in Dubai to provide support for the regions. Although business in Iraq continues to be hindered by security issues, Costain has benefited from its strategy of focusing on the North of the country and has secured three contracts. These contracts are for the provision of Master Planning across the Kurdish region; the complete design, construction and equipping of a medical laboratory; and provision of commercial support for the new Erbil Airport. Costain is also in the process of signing three further contracts for supply of Project Management and Engineering services to the Kurdish Regional Government. The relationship between Costain and China Harbour, which has been evolving over the last 12 years in Hong Kong, took a definitive step forward with the signing, in April, of an Alliance Agreement between the two companies. The purpose of the Alliance is to combine the extensive marine resources of China Harbour with the international experience of Costain, to target marine related projects on a worldwide basis. The Alliance has appointed two Business Development Managers - Bob Aylmer from Costain, and Victor Wu from China Harbour - to develop these opportunities. Since April, the Alliance has submitted five prequalifications for major marine works, and has been successful on four projects, with the result of one prequalification pending. These four projects, which are currently being tendered, are situated in Morocco, Mexico, Qatar and Nigeria. We are currently in discussion with our shareholders - United Engineers and Kharafi - to establish formal joint businesses to take advantage of our combined strengths in new and emerging markets. Costain Oil, Gas & Process (COGAP) The new COGAP management team began the year by outlining the plan for the oil, gas & process business based on two principal areas of focus: the UK nuclear decommissioning market and the international market for gas treatment processing and transportation. Over the last six months, COGAP has made considerable effort in marketing and business development particularly in North Africa and the Middle East and the results of this are encouraging. In March, one month ahead of schedule, we completed for Ferrostaal, Trinidad the shipment of the Purge Gas Recovery Unit, a specific technology where COGAP has considerable experience. The latest overhaul project for the Abu Dhabi Gas Liquefaction Company (ADGAS) at Das Island, Abu Dhabi was successfully completed at the end of April. The 38 day project was completed two days early and with no lost time for safety incidents. In total, the project involved over 670,000 man hours with a peak day labour force of over 2,000. Our strategy to re-enter the nuclear market has borne fruit in the shape of some early study work from UKAEA at Dounreay and a modularised active effluent treatment plant for BNFL, Hunterston. PFI The Sirhowy Enterprise Way project reached Financial Close in January 2004. This 50:50 JV partnership with Laing Roads Ltd includes a landmark cable-stayed bridge and has a capex value of £35m. We anticipate reaching Financial Close on the MoD's £1bn Aquatrine C water asset management PFI project shortly with our partners Severn Trent Water and Arup (Costain share 22%). Financial close on the Kingston Hospital Project should occur in October 2004 after a year of negotiation. Construction of the Intermediate Care Facilities for Kent County Council is proceeding satisfactorily. As part of the same Consortium, we have recently been appointed Preferred Bidder for the Shropshire Quality In Community Service PFI Project. We are pleased to have prequalified in partnership with Alfred McAlpine against stiff competition as one of three for the Three Shires project for the NHS, comprising a number of mental health projects, requiring partnering skills. The capex value will be between £60 and £140m depending on how many projects are finally included. Alfred McAlpine will provide the facilities management. Also in the bidding phase are two projects, in the health and education sectors, for which we await announcement of the Preferred Bidder. Phase Two of the works at Kings College Hospital, the refurbishment of the Ruskin Wing followed our success in the Golden Jubilee Wing by being completed ahead of programme, also won the Award for Best Operational Design (All Sectors) at the 2004 PFI Awards Dinner. Parc Prison at Bridgend continues to operate well whilst the new Met Office (PPP project) has successfully passed through into the operational phase. We continue to bid PFI projects in a focused manner, with particular concentration on the health and education sectors. Health and Safety Early 2004 saw the Costain SHE Department embark upon a number of developments designed to further enhance the SHE performance of the Company, including: • Gaining recognition of Costain's effort on Health & Safety at the RoSPA Awards ceremony where the Company received no fewer than 28 awards. • Achieving OHSAS 18001 accreditation. Although a gap analysis conducted by the BSi auditors indicated that Costain's Health & Safety management system was already of a high standard, work has been progressed on the areas identified where some improvements were required. This has now seen Phase I of the assessment successfully completed and Phase 2 is scheduled to take place during the last week of September, following which we hope to have our accreditation confirmed. • Improving our performance and guidance relating to health issues where we have been working closely with the Health & Safety Executive (HSE), Employment Medical Advisory Service (EMAS) and industry experts such as Sypol, Institute of Occupational Safety and Health and Loughborough University. The HSE and EMAS representatives have commented on how pleased they are to have a major contractor like Costain taking a lead role in improving the health of the workforce. • Our Environmental guidance and procedures were upgraded significantly during 2003 with the focus of the department being concentrated on communicating the requirements of our Environmental Management System to the workforce. To that end a series of Environmental briefings and bespoke courses have been conducted at a number of sites across the U.K. • Leading the Company's drive towards Sustainable Construction. Sustainability The Costain Group remains committed to the effective management of our environmental risks. Through the hard work of project staff and ongoing support of the SHE Team, we continue to maintain our environmental management systems ISO14001 certification; whilst our continual improvement procedures will ensure our accreditation persists. The last six months has seen Costain embark on a drive to integrate the principle of sustainable construction within our business. Workshops with key individuals from across Costain helped formulate the type and structure of our strategy; these workshops also provided us with an understanding of our key client requirements enabling us to draft a strategy with the Costain business philosophy to the fore. To aid us in our drive for sustainable construction, a Sustainability Advisory Group has been established with champions nominated for the three key areas of Social, Economic and Environment. Sponsored by the Chief Executive and chaired by the Group SHE Director, the group also includes independent professional advisors from the Environment Agency, the CITB and an environmental consultant. Business Systems Costain continues to invest capital and energy with regard to the business systems strategy. Having completed the development of operational Best Practice, a skills transfer and awareness programme has been running with approximately 1,000 days of training already completed. The Company launched an Internet Business Portal, named iCosnet, which now supports over 3,500 employees, clients and members of the Supply Chain in the delivery of knowledge, best practice and contract documentation throughout our UK and international operations. The system received 1.2m document access hits during June. A project has been initiated to replace back office systems with a modern integrated set of commercial and financial systems, further streamlining the business and laying foundations for the delivery of e-procurement and trading capability for the future. Board Dato' Abdul Wahid Omar, a nominee of UEM Builders Berhad, our largest shareholder, resigned as Deputy Chairman and as a non-executive director of the Company with effect from 16 July 2004 following his departure from the UEM Group to take up his new appointment as the Chief Executive Officer of Telekom Malaysia. At the same time the Board warmly welcomed Mr Ahmad Pardas Senin, a nominee of UEM Builders Berhad, as a non-executive director. Mr Senin is the Managing Director/Chief Executive of United Engineers (Malaysia) Berhad, the Malaysian infrastructure development conglomerate. Concurrently, Mr Senin also serves as Managing Director/Chief Executive Officer of UEM World Berhad, Deputy Chairman of PLUS Expressways Berhad, and UEM Builders Berhad and non-executive director of Pharmaniaga Berhad, all of which are companies listed on the Malaysian Securities Exchange. Mr Senin was elected Deputy Chairman of the Company on 16 July 2004. Mrs Leslie Rogers, a non-executive director of the Company, advised that the relocation of her home overseas and family commitments were making it difficult for her to fulfil her role in the Company and accordingly she resigned as a non-executive director with effect from 15 July 2004. Mrs Rogers was a nominee of Raymond International WLL and is not being replaced on the board by that major shareholder. Mr Mohd Azman Sulaiman, a nominee of UEM Builders Berhad was welcomed as a non-executive director of the Company on 30 June 2004 following the resignation of Mr Aminuddin Yusof Lana on that day. Mr Sulaiman is a director responsible for business development for the UEM Group of companies. The Board are most grateful for the commitment and contribution made by Dato' Wahid Omar, Mrs Leslie Rogers and Mr Lana. The Company also announced on 21 July 2004 that it had appointed Hawkpoint Partners Limited as its financial advisors. Share Capital On 2 April 2004, the London Stock Exchange admitted to trading a further 7,999,990 ordinary shares of 10p each fully paid ranking pari passu with existing ordinary shares. The shares were issued pursuant to a Share Warrant Instrument by way of Deed Poll dated 29 March 2001 in which the Company's bankers were granted share warrants in return for refinancing the Company's existing term facilities at that time. A total of 1,600,000 warrants were issued and each warrant gave the recipient a right to subscribe for 10 ordinary shares in the Company. The exercise price was 112.25p per warrant. No warrants now remain in issue. Awards Following the Company's success at the RoSPA awards, there were two additional national achievements. The new Met Office headquarters in Exeter, a Costain joint venture, was voted 'Best Office Building of the Year' at the highly prestigious Building Services Awards. In addition, the Costain Group magazine, Blueprint, was voted by the International Building Press as the Best Commercial House Magazine in the UK construction industry. Outlook There has been a lot of comment recently on the availability of both public and private funds for infrastructure related projects and the impact this is having on the industry. Whilst there has undoubtedly been some cutbacks as Government expenditure has been constrained nonetheless there remains a significant amount of work available for tender. However, performance and the ability to add value are becoming more crucial issues in terms of clients' choice of appropriate contractors. In the more competitive environment, those companies that have reacted to these changes have considerable opportunities in the future, particularly in terms of pursuing long term relationships ensuring the stability of their business. Against this background we are pleased with our start to the second half. The forward order book has increased to over £1bn, with the award of the 5-year frameworks with an option of going to 10 years from Yorkshire and Thames, and a number of frameworks still to be awarded. We also have a considerable volume of work in the pipeline, which should ensure future levels of turnover and profitability in line with our strategy. Our philosophy over the last three years is delivering profitable business and we look forward to reporting on further progress in the future. David G Jefferies Chairman Stuart J Doughty Chief Executive 31 August 2004 COSTAIN GROUP PLC Interim results for the half-year ended 30 June 2004 Consolidated Profit and Loss Account Reviewed but Reviewed but unaudited unaudited Audited Half year ended 30 June, Notes 2004 2003 2003 year ended 31 December Half year Half year Year £m £m £m Turnover Group and share of joint ventures 1 339.9 296.4 650.2 Less: share of joint ventures turnover (15.7) (3.2) (26.7) Group undertakings 324.2 293.2 623.5 Group operating profit Group undertakings 4.5 3.9 5.4 Share of operating profit of joint ventures 3.4 2.0 10.1 Profit on ordinary activities before interest 1 7.9 5.9 15.5 Net interest receivable/(payable) and similar charges Group undertakings 1.2 0.8 1.7 Joint ventures (0.5) (0.2) (0.3) Other finance charges 2 (0.5) (0.4) (0.8) Profit on ordinary activities before taxation 8.1 6.1 16.1 Taxation (1.7) (0.9) (2.9) Profit on ordinary activities after taxation 6.4 5.2 13.2 Minority interests - - - Retained for the period 6.4 5.2 13.2 Earnings per share - basic 3 1.8p 1.5p 3.8p Earnings per share - diluted 3 1.8p 1.5p 3.7p All results derive from continuing operations COSTAIN GROUP PLC Interim results for the half-year ended 30 June 2004 Consolidated Cash Flow Statement Reviewed Reviewed but but unaudited unaudited Audited Half year ended 30 June, 2004 2003 2003 year ended 31 December Half year Half year Year £m £m £m £m £m £m Net cash outflow from operating activities (7.4) (7.2) (5.8) Net cash inflow from returns on investments and servicing of finance 1.2 0.8 1.7 Tax paid - - (0.2) Capital expenditure and financial investment Capital expenditure less sales of tangible fixed assets 0.1 (0.1) (1.8) Repayments by joint ventures 0.2 - 6.2 Additions to investments - - (0.1) Net cash inflow/(outflow) from capital expenditure and financial investment 0.3 (0.1) 4.3 Net cash outflow before financing (5.9) (6.5) - Financing Loan (repayments)/drawdowns (0.1) - 0.3 Issue of ordinary share capital (Note 3) 0.9 0.9 0.9 0.8 0.9 1.2 (Decrease)/increase in cash (5.1) (5.6) 1.2 Reconciliation of Net Cash Flow to Movement in Net Cash £m £m £m (Decrease)/increase in cash (5.1) (5.6) 1.2 Cash outflow/(inflow) from loan financing 0.1 - (0.3) New finance leases - (0.6) (0.8) Currency realignment 0.1 - (0.8) Opening net cash 70.6 71.3 71.3 Closing net cash 65.7 65.1 70.6 COSTAIN GROUP PLC Interim results for the half-year ended 30 June 2004 Consolidated Balance Sheet Reviewed but Reviewed but Audited unaudited unaudited Half year as at 30 June, Notes 2004 2003 2003 year as at 31 December Half year Half year Year £m £m £m Fixed assets Tangible assets 4.5 3.7 4.9 Investments 1.0 1.1 1.0 Investments in joint ventures 5 Share of gross assets 92.4 60.1 75.7 Share of gross liabilities (70.8) (40.3) (55.6) 21.6 19.8 20.1 27.1 24.6 26.0 Current assets Other debtors and stocks 150.4 123.3 124.0 Cash at bank, monies on deposit and in hand 66.8 65.9 72.0 217.2 189.2 196.0 Creditors: amounts falling due within one year Borrowings (0.4) (0.3) (0.5) Other creditors (211.8) (190.6) (193.9) (212.2) (190.9) (194.4) Net current assets/(liabilities) Due within one year (2.9) (6.0) (4.2) Debtors due after more than one year 7.9 4.3 5.8 5.0 (1.7) 1.6 Total assets less current liabilities 32.1 22.9 27.6 Creditors: amounts falling due after more than one year Borrowings (0.7) (0.5) (0.9) Other creditors and provisions (7.8) (12.3) (8.8) Net assets excluding pension liability 23.6 10.1 17.9 Pension liability 4 (54.1) (23.7) (54.5) Net liabilities including pension liability (30.5) (13.6) (36.6) Equity shareholders' funds (30.6) (13.7) (36.7) Minority interests 0.1 0.1 0.1 (30.5) (13.6) (36.6) COSTAIN GROUP PLC Interim results for the half-year ended 30 June 2004 Notes to the Accounts 1. Business and geographical segment information by origin In the opinion of the Directors, the only material classes of business are the administering of the engineering and construction projects and property development in Spain. All items below are engineering and construction projects unless stated otherwise. Turnover Operating profit/(loss) 2004 2003 2003 2004 2003 2003 Half year Half year Year Half year Half year Year £m £m £m £m £m £m United Kingdom 317.1 280.5 587.7 5.1 3.9 7.6 Rest of the world - property development 5.1 1.6 21.0 3.2 1.1 9.5 Rest of the world - engineering & construction 17.7 14.3 41.5 (0.4) 0.9 (0.9) Reorganisation costs - - - - - (0.7) 339.9 296.4 650.2 7.9 5.9 15.5 2. Other finance charges The other finance charges comprise the expected return on the assets of the pension scheme less the expected increase in the present value of the scheme liabilities. The expected return and the increase in present value are based on the value of assets and liabilities of the pension scheme at the start of the period. 3. Earnings per share The calculation of earnings per share is based on profit after taxation and minority interests of £6.4m (2003 half year £5.2m, 2003 full year £13.2m) and the number of shares set out below: 2004 2003 2003 Half year Half year Full year Weighted average number of shares for basic earnings per 349,224,269 343,238,585 344,300,294 share calculation Dilutive potential ordinary shares: Warrants - 4,837,386 5,161,400 SAYE Scheme 6,698,821 3,967,466 4,710,920 Total dilutive potential ordinary shares 6,698,821 8,804,852 9,872,320 Weighted average number of shares for fully diluted 355,923,090 352,043,437 354,172,614 earnings per share calculation The number of shares has been adjusted for the issue of 7,999,990 ordinary shares following the exercise of warrants, which raised £0.9m. COSTAIN GROUP PLC Interim results for the half-year ended 30 June 2004 4. Pension liability The pension liability has not been revalued at the balance sheet date. This is in accordance with FRS17, which does not require revaluations for interim accounts. The change in the liability in the half-year resulted from the timing of contributions to the scheme. 5. Joint ventures The analysis of the Group's share of joint ventures is set out below: 2004 Half Year Alcaidesa Other Total £m £m £m Turnover 5.1 10.6 15.7 Profit on ordinary activities before taxation 3.1 (0.2) 2.9 Taxation (0.8) - (0.8) Profit on ordinary activities after taxation 2.3 (0.2) 2.1 Fixed assets 11.6 0.3 11.9 Current assets 28.5 52.0 80.5 Current liabilities (19.7) (4.3) (24.0) Creditors due after one year - (46.8) (46.8) Investments in joint ventures 20.4 1.2 21.6 2003 Half Year Alcaidesa Other Total £m £m £m Turnover 1.6 1.6 3.2 Profit on ordinary activities before taxation 1.0 0.8 1.8 Taxation - - - Profit on ordinary activities after taxation 1.0 0.8 1.8 Fixed assets 3.8 0.3 4.1 Current assets 22.8 33.2 56.0 Current liabilities (8.5) (1.1) (9.6) Creditors due after one year - (30.7) (30.7) Investments in joint ventures 18.1 1.7 19.8 2003 Year Alcaidesa Other Total £m £m £m Turnover 21.0 5.7 26.7 Profit on ordinary activities before taxation 9.3 0.5 9.8 Taxation (2.3) - (2.3) Profit on ordinary activities after taxation 7.0 0.5 7.5 Fixed assets 8.3 0.3 8.6 Current assets 31.2 35.9 67.1 Current liabilities (20.9) (3.4) (24.3) Creditors due after one year - (31.3) (31.3) Investments in joint ventures 18.6 1.5 20.1 COSTAIN GROUP PLC Interim results for the half-year ended 30 June 2004 5. Joint ventures (continued) 2004 2003 2003 Half year Half year Year £m £m £m Financial commitments 3.0 - - Capital commitments 21.9 2.2 7.3 The commitments relate to joint ventures involved in Private Finance Initiative schemes and the capital commitments to construction work being undertaken by the Costain Group. All figures are the Group's share. The results of the Group for the six months to 30 June 2004 and 30 June 2003 were prepared in accordance with the accounting policies stated in the Company's 2003 statutory accounts. The Interim Report and Accounts are unaudited but have been reviewed by the Company's auditors and their Independent Review Report is set out below. The figures for the year ended 31 December 2003 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 2003 have been 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. INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO COSTAIN GROUP PLC Introduction We have been engaged by the Company to review the financial information set out in the attached Consolidated Profit and Loss Account, Consolidated Cash Flow Statement, Consolidated Balance Sheet and Notes to the Accounts and we have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. This report is made solely to the Company in accordance with the terms of our engagement to assist the Company in meeting the requirements of the Listing Rules of the Financial Services Authority. Our review has been undertaken so that we might state to the Company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company for our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Listing Rules which require that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where they are to be changed in the next annual accounts in which case any changes, and the reasons for them, are to be disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/ 4: Review of interim financial information issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of Group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the accounting policies and presentation have been consistently applied unless otherwise disclosed. A review is substantially less in scope than an audit performed in accordance with Auditing Standards and therefore provides a lower level of assurance than an audit. Accordingly we do not express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the six months ended 30 June 2004. KPMG Audit Plc Chartered Accountants London 31 August 2004 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. 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