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Costain Group PLC (COST)

  Print      Mail a friend       Annual reports

Friday 31 August, 2001

Costain Group PLC

Interim Results

Costain Group PLC
31 August 2001


                              COSTAIN GROUP PLC

            Interim Results for the six months ended 30 June 2001


                                  HIGHLIGHTS


*        New Chairman and Chief Executive appointed


*        Profit before tax £3.8m (2000: £4.8m restated)


*        Strong cash balances - net cash £45.5m (2000: £34m)


*        All term debt extinguished


*        Greater focus on business streams


*        Two Channel Tunnel Rail Link contracts awarded in partnering
         arrangement worth total of £259m


Commenting on the announcement, Stuart Doughty, Chief Executive of Costain
Group PLC, said:

'We have secured high-profile prestigious work but, more importantly, they are
contracts with specific clients in key market areas. These are projects where
our knowledge of the client and the work is considerable. Our order book
contains solid, commercially sensible contracts that give confidence for the
future. We have turned away work which does not meet our strategy of working
in association with existing or new customers who recognise the benefits of
partnering.

'We are poised to capitalise on our ability to perform complex building and
civil engineering contracts but with innovative contractual arrangements which
unite the client and the contractor to achieve a common goal.

'Our objective is to become contractor of choice in both asset management and
contracting.  This will allow the interchange of highly experienced staff in a
market which is increasingly short of construction ability and resource.'

                                                                31 August 2001


Costain Group PLC                                            Tel: 020 7705 8444
Stuart Doughty, Chief Executive
Miles Roberts, Finance Director
Graham Read, Public Relations

College Hill                                                 Tel: 020 7457 2020
Richard Pearson                          Email: richard.pearson@collegehill.com
Lisa Pearson                                Email: lisa.pearson@collegehill.com


                   CHAIRMAN'S & CHIEF EXECUTIVE'S STATEMENT

Introduction

On the 6 June 2001 the Board of Costain appointed myself as Chairman and on
the 1 July 2001 Stuart Doughty joined as Chief Executive.  We are both
delighted to join a company with such a strong brand, a great building and
engineering history and a company which continues to demonstrate abundant
ability, resourcefulness and skill.  However, we are aware that markets change
quickly and so we are undertaking a strategic review of the Group's
activities.

During the last six months we have continued to develop strong relationships
with major clients in certain business streams and, as a consequence, our
customer base is more focused and becoming increasingly specialised.  Costain
is developing key market knowledge in specific fields and tailoring its
service to those areas.  We believe this approach will lead to greater
consistency in performance, improve risk management, enhance efficiency and
services to customers. This will ultimately result in higher and less volatile
profitability.  We have been turning away work which does not meet our
strategic criteria.

Costain's engineering reputation has been enhanced with the award of two
packages on the UK's largest current civil engineering project, the Channel
Tunnel Rail Link (CTRL).  Our success has been achieved by focusing on the
need to generate a harmonious relationship with our client coupled with our
engineering skill and the bringing together of other premier industry names in
a complementary manner.  This high-profile work places the Company towards the
forefront of the industry and underlines the importance of our role in
developing the nation's transport infrastructure.  Another development, also
key to the UK's future, is the upgrading and major investment taking place in
the water industry.  The water companies are involved in the Asset Management
Programme for the third five-year period set by the water industry regulator
Ofwat.  Costain, as a service provider, has five-year contracts with Thames
Water and Yorkshire Water and those contracts are providing Costain with a
constant programme of work.

The Company has always undertaken an element of facilities management although
it has never sought to identify it as a separate business stream or division.
However, the changing nature of the Company's work intake with the move to
longer term maintenance work has caused us to review and analyse in more
detail the Company's work intake.  As at the end of June 2001, more than 30
per cent of the Company's current order book comprises work in the support
services sector with limited contract risk.  This type of work provides the
Company with longer-term contracts with a better quality profit stream.  The
Company will continue to grow this part of the business.

Results

The results for the six months ended 30 June 2001 show a profit before tax of
£3.8m    2000: restated £4.8m) on a turnover for the period of £205.5m
(2000: £195.6 m).  The interim results for the year 2000 have been restated
because the Board decided to comply, at the first opportunity, with Financial
Reporting Standard 17 which changes the way the Company accounts for
retirement benefits.  The interim results for last year included a £1 million
profit from the sale of fixed assets.

The underperforming projects referred to in the 2000 Annual Report and
Accounts have overall performed inline with the expectations at the end of
2000.  A thorough review of the operational and financial performance of all
other significant contracts has recently been undertaken.  The results of this
exercise, were consistent with management's expectations.

Earnings per share were 0.9p (2000: restated 1.2p).


Finance

During the first half, the Company received the final receipts from our
long-standing claim which arose on the Tsing Ma Bridge Hong Kong.  This
enabled the Company to extinguish the remnants of its term debt. Net cash
balances at the half-year end totalled £45.4m      (2000: £34.4m) including
the Group's share of cash held by joint arrangements (construction joint
ventures) of £30.0m (2000: £26.3 m).  This represents a cash inflow during the
first half of the year of £2.8m (2000: £4.1 m).


Trading and Prospects

The activity and spend in both the road and rail sectors have impacted
positively on Costain's operations in the transport sector.  We have secured,
in joint venture with Skanska and Bachy Soletanche, the £118 million contract
240 on the highly prestigious Channel Tunnel Rail Link (CTRL).  The contract,
for the client Union Railways, is for the construction of the running tunnels
with associated shafts and cross passages from Stratford to Barrington Road.
Major construction works are due to commence in 2002 and the pre-construction
phase is well underway.

Costain has also recently secured, in joint venture with O'Rourke Civil
Engineering and Bachy Soletanche, in partnership with CTRL the £141 million
contract 105 - St Pancras Station Refurbishment and Extension, civil
engineering and building works associated with the Deck Extension and
Thameslink Midland Road Station.  This approach of joint venturing with major
parts of our supply chain will produce further opportunities to improve risk
management and efficiency.

Costain in joint venture with Taylor Woodrow is working in another partnering
arrangement with London Underground, on the redevelopment of King's Cross St
Pancras which will take six years to complete.

Costain was earlier this year awarded the £19.4 million contract by English
Partnerships for the construction of a new Junction 8 and associated
improvements on the M62 near Warrington.  Work has started and is expected to
take two years to complete.  The contract also includes the widening of the
motorway to Junction 9 and includes a motorway main link road into the new 
£500 million Omega and Gemini Business Park Development on the old Burtonwood
airfield being developed by English Partnerships.

Work is well underway on the A43 dualling, a £57 million upgrading of the A43
from Junction 10 on the M40 to Towcester.  The scheme was won in joint venture
with Skanska. The major earthworks are to be completed this summer with final
completion due in summer 2002.  The A2/M2 road contract in Kent - a joint
venture with Mowlem and Skanska - is progressing to plan.

Our position as a service provider in the water sector has been maintained
with the Thames Water and Yorkshire Water contracts providing a continual and
valuable work base.  We are currently negotiating major programme and facility
opportunities with other water companies and recently we were named as
preferred contractor for Wessex Water's Bath Combined Sewer Overflow project.
The purpose of the project is to reduce storm sewage discharges in the Bath
sewerage area and to enhance water quality in the River Avon.

The strength of our retail sector operations continues with excellent
relationships with leading names such as Tesco and Waitrose.  We have gained,
through several years of retail operation, a considerable knowledge of our
customers' needs and we have been able to focus on providing the right service
in terms of resource and process.

The commercial sector remains very competitive.  We are currently working with
certain clients towards securing framework agreements that cover a series of
projects.

In PFI, the construction of the £76 million Kings College Hospital project by
Costain-Skanska continues to progress well.  The facility remains on target to
be operational by December 2002.  The design, build, funding and operation are
controlled by the Hospital Partnership Consortium (Costain, Skanska, Sodexho
and Noble).

Progress is being made through the bid process on a number of selected
projects and we are confident that PFI will continue to be a growth area for
Costain.

International work has performed strongly across a number of sectors.  The
Board is reviewing as part of its strategy exercise Costain's role in these
selected markets which could provide future profitable business using the
strong contacts available to the Company.

Progress continues at Alcaidesa, Spain, where the Company holds a 50 per cent
interest in Alcaidesa Holding SA.  Our own residential house promotions have
proved popular and generally sales have been secured in advance of completion
of the construction activity.  We are seeking to obtain permission to develop
further areas which will include a new golf course.

In the international markets, the Costain-China Harbour JV in Hong Kong
continues satisfactorily on the £57 million rail depot building for the
Kowloon Canton Railway Corporation (West Rail).  Costain assists China Harbour
by providing management, technical and commercial skills.

In Zimbabwe, despite the current political unrest, Costain is working
successfully with local contractors on the Ngezi Road project which involves
constructing 80 kilometres of road plus three bridges for a contract worth US
$20 million.  Completion is due in Autumn 2001.  The joint ventures with our
shareholder Kharafi in Botswana and Tanzania have progressed well throughout
the period.

Costain Oil, Gas & Process (COGAP) order intake during the first six months
included gas plant consultancy services for BP in Egypt, a new nitrogen
rejection from Natural Gas plant for Lasmo in Pakistan, as well as a number of
feasibility studies for Statoil in Norway and Rolls Royce Power Ventures in
Poland.

The first of the four gas compression stations was handed over to Transco with
the remaining three on schedule for later this year.  The gas plant upgrade
projects for BG International in Tunisia were mechanically completed and are
in the final stages of commissioning.


In Abu Dhabi, the LNG shutdown work was completed two days ahead of schedule,
representing a major achievement in labour mobilisation, planning and control.
This in turn has led to additional maintenance and construction projects in
the region.


Health, Safety
& Environment

Safety is of prime importance to the Company and stringent targets have been
set aimed at improving safety performance.  In connection with this, Costain
Limited was awarded Supreme Winner in the Training Achievement Awards 2000
presented by the Construction Health & Safety Group in March 2001.  However,
despite our stringent efforts, on 7 October 1999 there was a fatality at our
Llynfi Site in Wales.

As a result of the fatality Costain Limited was prosecuted under Section 3(1)
of the Health & Safety at Work etc Act 1974.  Costain Limited pleaded guilty
and was fined £200,000 with costs.  Management express deep regret for this
occurrence.

On the environmental front, the registration of the Environmental Management
System (ISO 14001) has continued and most of our regional offices have
achieved this status.


The Board

We referred earlier to our respective appointments as Chairman and Chief
Executive. Michael Beckett, who joined the Company as Chairman on the 16
February 2001 resigned for personal reasons on the 25 May 2001.  John Armitt
resigned as Chief Executive on the 30 June 2001 having announced earlier in
the year that he wished, after four years with the Company, to pursue other
interests.

The Company has always sought to fully comply with the Combined Code and in
consequence the Company announced at its Annual General Meeting in May to
appoint, in addition to an independent non-executive Chairman, three
independent non-executive directors to the Board.  The selection process is
well underway and we hope to make an announcement in the Autumn.


Conclusion

We have already seen contracts being won which reflect the changing nature of
the construction process and the way in which many clients now realise the
advantages of working in association with their contractors to maximise the
benefit for both parties.  We believe it is upon this procurement route that
the confidence and commitment of our resources can best serve both Client and
the Company.

We are, subject to unforeseen circumstances, optimistic regarding the future
performance of the Company.  We believe that the Company's core skills,
competence and considerable commitment, harnessed in a structure which
provides clear lines of accountability, discipline and control can achieve
acceptable results.

Whilst, we are beginning to experience the impact of a recession in the
manufacturing market, the need for capital expenditure on the infrastructure
in terms of transport, health care, education and basic utilities is
considerable.  We believe there is significant potential to be realised by
focusing on a smaller customer base and directing our energy into client.


                 DAVID JEFFERIES                              STUART DOUGHTY
                 Chairman                                     Chief Executive

                                                               31 August 2001


Consolidated Profit and Loss Account

Half year ended 30 June,                       2001            2000        2000
year ended 31 December                         Half       Half year        Year
                                               Year      (restated)
                                      Notes      £m              £m          £m

Turnover
Group and share of joint ventures         1   205.5           195.6       386.3
Less: share of joint ventures                 (1.1)           (1.0)       (5.1)
turnover
Group undertakings                            204.4           194.6       381.2


Group operating profit/(loss)
Group undertakings                              0.4             1.2       (2.8)
Share of operating profit/(loss) of             0.1           (0.1)         1.3
joint ventures
                                          1     0.5             1.1       (1.5)


Profit on sale of fixed assets                    -             1.0         1.9
Profit on ordinary activities before            0.5             2.1         0.4
interest


Net interest receivable/(payable) 
and similar Charges
Group undertakings                              1.2             0.7         2.2
Joint ventures                                (0.1)           (0.1)       (0.3)
Other finance income                            2.2             2.1         4.2
Profit on ordinary activities before            3.8             4.8         6.5
taxation
Taxation                                      (0.6)           (0.9)       (1.4)
Profit on ordinary activities after             3.2             3.9         5.1
taxation
Minority interests                                -               -           -
Retained for the period                         3.2             3.9         5.1

Earnings per share                        2    0.9p            1.2p        1.5p



All results derive from continuing operations



Consolidated Cashflow Statement

Half year ended 30 June,                          2001        2000        2000
year ended 31 December                            Half        Half
                                                  year        year        Year
                                              £m    £m    £m    £m    £m    £m

Net cash inflow from operating activities          0.8         1.6         9.0

Net cash inflow from returns on
investments and
servicing of finance                               1.2         0.7         2.2

Tax paid                                             -       (0.1)       (0.6)

Capital expenditure and financial
investment
Sales of tangible fixed assets less 
capital expenditure                          0.3         3.6         3.1
Funding of investments                         -       (2.0)       (2.1)
Net cash inflow from capital expenditure
and financial investment                           0.3         1.6         1.0

Net cash inflow before financing                   2.3         3.8        11.6

Financing
Net loan repayments                              (3.1)       (3.2)       (3.1)

(Decrease)/increase in cash                      (0.8)         0.6         8.5

Cash outflow from reduction in loan                3.1         3.2         3.1
financing
Exchange differences                               0.5         0.3         0.8

Movement in net cash                               2.8         4.1        12.4

Opening net cash                                  42.7        30.3        30.3

Closing net cash                                  45.5        34.4        42.7



Consolidated Balance Sheet

Half year as at 30 June,                     2001            2000          2000
year as at 31 December                       Half            Half          Year
                                             year            year
                                                       (restated)
                                               £m              £m            £m

Fixed assets                                  3.4             4.8           4.2
Investments                                   1.1             1.5           1.1
Investments in joint ventures
     Share of gross assets                   47.1            43.8          45.4
     Share of gross liabilities            (37.7)          (39.6)        (39.0)

                                             13.9            10.5          11.7

Current assets
Other debtors and stocks                     99.0           108.0          97.8
Cash at bank, monies on deposit and in       50.1            37.8          51.7
hand                                        
                                            149.1           145.8         149.5

Creditors: amounts falling due within
one year
Borrowings                                  (4.6)           (0.8)         (9.0)
Other creditors                           (152.0)         (149.1)       (143.0)
                                          (156.6)         (149.9)       (152.0)

Net current assets/(liabilities)
Due within one year                        (12.2)           (7.1)         (7.1)
Debtors due after more than one year          4.7             3.0           4.6
                                            (7.5)           (4.1)         (2.5)

Total assets less current liabilities         6.4             6.4           9.2

Borrowings falling due after more than          -           (2.6)             -
one year
Other creditors falling due after more
than one
year and provisions                        (13.0)          (11.5)        (18.0)
Net liabilities excluding pension asset     (6.6)           (7.7)         (8.8)
Pension asset                                35.8            40.9          34.6
Net assets including pension asset           29.2            33.2          25.8
Equity shareholders' funds                   28.8            32.8          25.4
Minority interests                            0.4             0.4           0.4
                                             29.2            33.2          25.8


                            Notes to the Accounts


1.     Geographical segment information

In the opinion of the directors the administering of engineering and
construction projects is the only material class of business.


                        Turnover                  Operating profit/(loss)
               2001        2000        2000        2001        2000        2000
               Half        Half        Full        Half        Half        Full
               year        year        year        year        year        year
                 £m          £m          £m          £m          £m          £m

United        178.8       166.3       327.1       (3.0)         1.4       (5.1)
Kingdom

Rest of the    26.7        29.3        59.2         3.5       (0.3)         3.6
world

              205.5       195.6       386.3         0.5         1.1       (1.5)


2.     Earnings per share

The calculation of earnings per share is based on profit after
taxation and minority interests of £3.2m (2000 half year £3.9m, 2000 full year
£5.1m) and 337,136,350 ordinary shares (2000 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 2001 and 30 June 2000
were prepared in accordance with the accounting policies stated in the
Company's 2000 statutory accounts and are unaudited.   The figures for 30 June
2000 have been restated as necessary, specifically, to comply with the
requirements of FRS17 'Retirement Benefits' and FRS 19 'Deferred Tax'.

The figures for the year ended 31 December 2000 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 2000 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.