Costain Regulatory News (COST)

30 Aug 2006 07:02

Costain Group PLC30 August 2006 Costain Group PLC ("Costain" or the "Group") Interim results for the half year ended 30 June 2006 Costain, the engineering and construction group, today provides an update on thedecisive actions taken to implement its new 'Being Number One' strategy andreports that the majority of its core operations performed well during the firsthalf of the year. H1 2006 H1 2005Revenue £436.2m £345.4m(Loss)/profit from operations £(21.9)m £7.8m(Loss)/profit before tax £(20.7)m £7.5m(Loss)/earnings per share (5.1)p 1.8p • Robust actions taken by the management team in implementing the 'Being Number One' strategy: - Reposition resource behind core businesses - Drive performance improvement - Exit non-core activities • Results impacted by contract claims write-downs in Building Division, poor performance of COGAP and closure costs and contract write-downs in the International Division • Underlying profit of £10.1m (2005: £7.7m)* • Strong performance from Civil Engineering • Further key executive management appointments to enhance presence in target sectors • Forward order book up 19% on same period last year to £1.9bn and maintains the record level achieved at the year-end • £850m of revenue secured for the current year • Pension deficit reduced by 30% since December 2005 following latest actuarial review • Net cash balance of £49.9m (2005: £44.4m) * Profit from operations excluding write-downs of contract claims in theBuilding Division, the International Division and before IFRS restatements inrespect of 2005 in relation to Spanish property - (see reconciliation in resultssection on page 4) Commenting, the Chairman, David Jefferies, said: "The new management team, under the leadership of Andrew Wyllie, has takenrobust action to deal with those activities within the Group which areunderperforming and to ensure the successful operating approach, already inplace within the majority of our sectors, is adopted across the whole business. The implementation of our strategy - 'Being Number One' - is producing a muchsharper focus on performance and delivery. The Group continues to concentrate on developing strategic partnering agreementsand long term frameworks through which we can build market leading positions.The overall underlying performance from the majority of our core activitiesremains encouraging for the second half of the year. Whilst we have incurred significant write-downs in the first half of this year,the Board remains committed to the resumption of dividend payments as soon as isfinancially sensible and will consider the position at the year-end in the lightof the Group's performance and prevailing trading conditions." 30 August 2006 ENQUIRIES: Costain Group PLC Tel: 01628 842 444 Andrew Wyllie, Chief Executive Tony Bickerstaff, Finance Director Graham Read, Group Communications College Hill Tel: 020 7457 2020 Mark Garraway Matthew Gregorowski CHAIRMAN'S AND CHIEF EXECUTIVE'S STATEMENT Overview and Strategic Update Implementation of the Group's 'Being Number One' strategy announced in March iswell underway and has led to a number of decisive actions by the new executivemanagement team to deliver a stronger performance within its core activities. As a result of this focus on targeted sectors in which we can achieve marketleading positions and on performance across all the Group's activities, astrategic decision, as already announced, was taken to close the Group'sInternational Division and run several of its projects through the Group's corebusinesses with the remainder to be worked through by the existing projectteams. It was also decided to bring a greater degree of focus to the operations ofCostain Oil, Gas & Process ("COGAP") and in future the business will concentrateon niche areas within the oil & gas sector where Costain can achieve a strongermarket position and establish a platform from which to grow. COGAP's futureperformance will be closely monitored and further decisive actions taken asrequired. The latest regular business review and certain developments in the last fewmonths has resulted in a greater level of uncertainty in relation to recovery ofcertain contract claims within the Building Division. Therefore we consider thatit is appropriate to write-down £11.9m against these contract claims to theextent they may be irrecoverable. There is no impact on the Group's cashposition. We have recently made a number of executive management appointments which havesignificantly strengthened the Group's leadership team and which will enhanceour position within the respective market sectors in which we operate. Newdirectors were appointed for our Highways, Rail and Nuclear activities which arefurther positive steps towards creating leading positions within these importantmarket sectors. We have a new Group commercial director in place and have alsoappointed new directors of Legal and HR. We are significantly rationalising our supply chain, bringing it more into linewith our business practice of working under longer term partnering agreementswith our clients. For example, we have established key strategic relationshipswith three major mechanical and electrical contractors to improve supply chaindelivery across the Group. These partners will deliver coordinated workingpractices and processes with increased delivery performance. Costain is pursuing Business Excellence as a driver for change, leading towards'Being Number One' in its chosen sectors, and has joined the British QualityFoundation ("BQF"). The BQF helps organisations improve their performance andachieve sustainable excellence, and each of Costain's core operations willcomplete a gap analysis on current business capability in relation to the EFQMExcellence Model, Europe's leading performance improvement methodology. Results The majority of the Group's core activities have performed well. We arebenefiting from continued strong levels of customer spend within our targetedmarket sectors, and our forward order position has increased by more than 19% to£1.9bn from the equivalent position in 2005 and which maintains the record levelachieved at the end of the year. This includes work secured for the next fiveyears of which the majority is repeat business from key clients, providingexcellent quality and visibility of earnings. £850m of revenue is alreadysecured for the current year. Revenue for the half year ended 30 June 2006 was £436.2m (2005: £345.4m) with aloss from operations of £21.9m (2005: £7.8m profit). Loss before tax was £20.7m(2005: £7.5m profit) and loss per share was 5.1p (2005: earnings of 1.8p). These results include £11.9m of provisions in respect of contract claims in theGroup's Building Division for which there is no cash effect. They also include£18.0m of provisions from the closure costs and contract write-downs in theGroup's International Division, of which the future cash impact is £7.0m. Underlying profit from operations was £10.1m for the period. This is reconciledto the £21.9m loss from operations by deducting the provision of £11.9m inrespect of contract claims in the Building Division and the £20.1m loss from theInternational Division which we are now in the process of closing. These results include £3.5m of profit from the sale of the Group's remainingstake in Kings College PFI during the period. The performance of our COGAP Division for the first six months was again verydisappointing, producing a loss from operations of £1.1m on revenue of £30.8m. As previously reported, whilst the adoption of IFRS had no impact upon theunderlying cash flows or trading activities of the Group, the 2005 interim andfull year results included certain adjustments to revenue and profits as aresult of timing differences from the Group's property development activities inSouthern Spain. This resulted in an additional £1.3m of profit previouslyrecognised under UK GAAP being included in the first half of 2005. The Group has no significant borrowings and net cash balances at the half yeartotalled £49.9m (2005: £44.4m), including the Group's share of cash held byjoint arrangements (construction joint ventures) of £22.1m (2005: £18.7m). Thecontinuing changing profile of the business into framework/partnered clientrelationships is resulting in a more even cash flow profile. The Group's pension deficit as at 30 June 2006 was £48.7m net of deferred tax, areduction of 30% since the year-end. This is derived from the Group's mostrecent actuarial review and reflects current market conditions. Civil Engineering Revenue during the period was £217.0m (2005: £145.7m), with a profit from operations of £7.9m (2005: £6.8m). In Water, where we are market leaders, we are making considerable progress indelivering our customers' AMP4 programmes and, as expected, are seeing goodvolumes of work coming through. Our customers are delighted that we havedelivered all their first year regulatory targets. In Rail, the Western Ticket Hall at Kings Cross was opened on schedule on 31May, and a major milestone was reached at CTRL Project 105 at St Pancras whenthe new Midlands Mainline platforms were handed over on the 17 July target date.Midlands Mainline trains are now fully operational from these platforms. In Highways, the £66m M25 Holmesdale Tunnel Refurbishment works commenced onsite on 9 May, and the A2/M25 Early Contractor Involvement ("ECI") scheme isnow underway. We were also awarded two further ECI projects by the HighwaysAgency, namely the £25m A34 Wolvercote Viaduct Replacement and the £46m NorthEast Roads Package B, which includes improvements to the A19 at two separatelocations. In Nuclear, we continue to be active on a number of projects, and have made anumber of key appointments, including a new Director of Nuclear who has morethan 20 years experience in the sector, and the Group now has a strong platformin place from which to build this business. Building Revenue was £158.3m (2005: £155.6m) with a loss from operations of £7.9m (2005:£0.4m) including a provision of £11.9m resulting from the write down of contractclaims. The results also include £3.5m profit from the sale of the remainingequity stake in Kings College PFI. Whilst we continue to vigorously pursue our entitlement on contract claims,indications from legal opinions and the outcomes from resolution processes inthe last few months have led us to make appropriate write-downs against theanticipated value of certain contract claims to reflect the position at 30 June2006. As we highlighted in our 2005 annual report, following rapid growth in 2005which stretched resources across the Division, the operational team has beenconsiderably strengthened in early 2006 with additional high quality andexperienced people. Key management changes are being made and robust actionshave been taken to strengthen procurement and operational controls but therestill remains much work to do in order to deliver acceptable returns. Thisbusiness is also now tendering for work on a more selective basis targeting bluechip clients with potential for repeat order business to improve futureprofitability. We are reorganizing the Division in line with our focus on strengthening ourpresence in the key sectors of Health, Education and Retail in order to increaseour commitment to sector expertise and customer delivery. In Health, the first phases of the Shropshire Community Services PFI werecompleted, as were two schemes at Sheffield and Alderhey as part of theGovernment's Procure21 initiative. We reached an agreement with Amec and Mowlemthat we will proceed on our Procure21 framework with the Department of Health onour own and are confident of taking a leading position in the healthcare sector. In Education, as part of the Integrated Bradford consortium, we were selected byBradford Council to deliver its Building Schools for the Future ("BSF")programme, worth approximately £400m to the consortium over a 30-year period. We were also awarded a £34m contract to build student accommodation for theLondon School of Economics at Northumberland House in Westminster, due to becompleted in the spring of 2007. In Retail, we have significantly strengthened our working relationship withTesco during the first half, completing three projects at Roneo Corner,Martlesham, and Ilfracombe, and commenced work on a further six projects atSouthend, Beckton, Chelmsford, Royston, Borehamwood and Exeter. Property Development Our development activities in Southern Spain were in line with expectations withour share of the Spanish property joint venture generating a profit after tax of£2.1m (2005: £3.6m). At Alcaidesa, major land sales were completed, with further disposals contractedand due for completion in the second half of the year. Construction of thesecond golf course should be completed by November. The new club house, whichwill serve both golf courses, is under construction and is on track to meet itsJuly 2007 completion date. At Granada, further land was purchased at Salobrena to add to our existingholdings. Good progress was made towards achieving planning consent on theexisting site, which will significantly enhance its value. We also opened a newoffice in March in Motril, from which we will expand and manage new operationsin this province. Further land opportunities in the area have been identifiedand are being pursued. Costain Oil, Gas & Process ("COGAP") COGAP had a disappointing performance. Revenue during the first six months was£30.8m (2005: £25.3m) with an operating loss of £1.1m (2005: profit of £0.3m) The management team has taken action to more closely align COGAP's operations tothose niche areas where we have specific expertise and can grow our marketpresence. In line with this increased focus, COGAP has been awarded a £6mcontract by Eni Pakistan Limited to provide engineering, procurement servicesand construction management support services. COGAP's progress will be closely monitored and further action taken in future if necessary. International Following persistent underperformance, management took the strategic decision toclose the International Division and following detailed analysis regarding costsof closure and ongoing contractual obligations, this provision has been assessedat £18m. This provision includes the write-down of contractual values, historicclaims, potentially irrecoverable funding together with the cost of closure. Costain will continue to pursue international opportunities but now only withineach of its core activities, providing they complement the Group's strategy offocusing on key targeted sectors. Health, Safety & Environment Health & Safety is an utmost priority as we strive to maintain a zero toleranceapproach towards accidents. Our performance in this area was recognised duringthe period at the 2006 RoSPA Awards when Costain received no fewer than 28awards, comprising one Commendation in the Construction Industry Sector Award,20 Golds including five Gold Project Achievement awards in recognition ofexcellence in project delivery, six Silvers and one Bronze Award. Six of theseawards were received through our COGAP Division, including the prestigious Orderof Distinction. As part of the 4Delivery consortium, Costain was awarded a RoSPA Gold Award forproject delivery for Southern Water in its first year of operation. The Groupalso won two further client awards for Yorkshire Water and were short listed foran additional three. Of particular note is the People Award which underpins ourcommitment and success in developing and maintaining integrated, collaborativeteams with our clients. We were also awarded the George Gibby Award for 2006for an outstanding Civil Engineering Project, for Sirhowy Enterprise Way. As part of our drive to reduce waste and achieve further cost savings, in Junewe officially launched our new 'Save It' initiative in order to promote thereduction of waste through improved material and resource management and therecycling and re-use of material. This is an essential part of a much biggersustainability campaign which has seen the implementation of sustainableconstruction best practices and techniques across the business. We will reporton this in more detail at the end of the year. Board Tony Bickerstaff joined the Board as Group finance director on 5 June 2006following Charles McCole's decision to step down. Outlook The new management team, under the leadership of Andrew Wyllie, has taken robustaction to deal with those activities within the Group which are underperformingand to ensure the successful operating approach, already in place within themajority of our sectors, is adopted across the whole business. Theimplementation of our strategy - 'Being Number One' - is producing a muchsharper focus on performance and delivery. The Group continues to concentrate on developing strategic partnering agreementsand long term frameworks through which we can build market leading positions.The overall underlying performance from the majority of our core activitiesremains encouraging for the second half of the year. The Board remains committed to the resumption of dividend payments as soon as isfinancially sensible and will consider the position at the year-end in the lightof the Group's performance and prevailing trading conditions. David G Jefferies - ChairmanAndrew Wyllie - Chief Executive Consolidated Income Statement Half-year ended 30 June, Notes 2006 2005 2005year ended 31 December Half-year Half-year Year £m £m £m +--------+ +--------+ +--------+Revenue (Group and share of joint ventures | | | | | |and associates) 2 | 436.2| | 345.4| | 773.2|Share of joint ventures and associates 5 | (63.9)| | (21.9)| | (95.1)| +--------+ +--------+ +--------+Group revenue 372.3 323.5 678.1 -------- -------- --------Group operating (loss)/profit (22.6) 4.5 8.7 Sale of interest in joint venture 3.5 - 3.5Share of results of joint ventures and associates 5 (2.8) 3.3 13.4 -------- -------- --------(Loss)/profit from operations 2 (21.9) 7.8 25.6 Finance income 3 13.2 12.0 23.5Finance costs 3 (12.0) (12.3) (24.1) -------- -------- --------Net financing income/(costs) 1.2 (0.3) (0.6) -------- -------- --------(Loss)/profit before tax (20.7) 7.5 25.0 Income tax 2.6 (1.1) (1.4) -------- -------- --------(Loss)/profit for the period 2 (18.1) 6.4 23.6 -------- -------- -------- Attributable to:Equity holders of the parent (18.1) 6.4 23.6Minority interests - - - -------- -------- -------- (Loss)/earnings per share - basic 4 (5.1)p 1.8p 6.7p(Loss)/earnings per share - diluted 4 (5.0)p 1.8p 6.5p Consolidated Statement of Recognised Income and Expense Half-year ended 30 June, 2006 2005 2005year ended 31 December Half-year Half-year Year £m £m £m Exchange differences on translation of foreign operations 0.3 (0.8) (0.9)Cash flow hedges: Effective portion of changes in fair value (net of tax) during period - Group 0.1 - (0.6) Effective portion of changes in fair value (net of tax) during period - joint ventures and associates 3.2 (1.8) (2.7)Fair value adjustment of asset held for sale (3.4) - 3.4 Actuarial gains/(losses) on defined benefit pensionschemes 30.0 (7.5) 0.2Tax recognised on actuarial (gains)/losses recogniseddirectly in equity (9.0) 2.3 - -------- -------- --------Net income/(expense) recognised directly in equity 21.2 (7.8) (0.6) (Loss)/profit for the period (18.1) 6.4 23.6 -------- -------- --------Total recognised income and expense for the period 3.1 (1.4) 23.0 -------- -------- --------Effect of change in accounting policy:Effect of adoption of IAS 32 and IAS 39 (net of tax) on 1January 2005 (with 2004 not restated) on hedging reserve- Group - 0.2 0.2 Effect of adoption of IAS 32 and IAS 39 (net of tax) on 1January 2005 (with 2004 not restated) on hedging reserve- joint ventures and associates - (1.9) (1.9) -------- -------- -------- 3.1 (3.1) 21.3 -------- -------- -------- Attributable to:Equity holders of the parent 3.1 (3.1) 21.4Minority interests - - (0.1) -------- -------- -------- 3.1 (3.1) 21.3 -------- -------- -------- Consolidated Balance Sheet Half-year ended 30 June, Notes 2006 2005 2005 year ended 31 December Half-year Half-year Year £m £m £mASSETSNon-current assetsProperty, plant & equipment 5.8 4.6 5.9Intangible assets 3.9 2.1 3.5Investments in joint ventures 5 27.1 16.1 27.6Investments in associates 5 1.0 0.2 0.2Loans to joint ventures 2.6 0.4 0.2Loans to associates 0.4 3.0 3.0Other investments 1.0 1.0 4.4Other debtors 7.3 9.8 10.2Deferred tax assets 24.6 33.4 31.1 -------- -------- --------Total non-current assets 73.7 70.6 86.1 -------- -------- --------Current assetsInventories 2.0 1.9 2.0Trade and other receivables 184.3 179.9 166.5Cash and cash equivalents 51.2 45.3 75.2 -------- -------- --------Total current assets 237.5 227.1 243.7 -------- -------- --------Total assets 311.2 297.7 329.8 ======== ======== ========EQUITYShare capital 17.9 17.7 17.8Share premium 0.5 - 0.4Special reserve 12.9 13.6 13.1Fair value reserve - - 3.4Foreign currency translation reserve (0.9) (1.1) (1.2)Hedging reserve (1.7) (3.5) (5.0)Retained earnings (47.8) (74.3) (51.0) -------- -------- --------Total equity attributable to equity holders of the parent (19.1) (47.6) (22.5) -------- -------- --------Minority interests - 0.1 - -------- -------- --------Total equity (19.1) (47.5) (22.5) -------- -------- -------- LIABILITIESNon-current liabilitiesInterest bearing loans and borrowings 0.1 0.3 0.2Retirement benefit obligations 69.5 107.2 99.3Other payables 2.4 2.0 7.2Long-term provisions 4.9 3.1 6.8 -------- -------- --------Total non-current liabilities 76.9 112.6 113.5 -------- -------- -------- Current liabilitiesTrade and other payables 243.4 226.4 233.3Current tax liabilities 3.2 2.8 3.2Overdrafts 0.2 0.5 0.2Interest bearing loans and borrowings 1.0 0.1 0.8Provisions 5.6 2.8 1.3 -------- -------- --------Total current liabilities 253.4 232.6 238.8 -------- -------- --------Total liabilities 330.3 345.2 352.3 -------- -------- --------Total equity and liabilities 311.2 297.7 329.8 ======== ======== ======== Consolidated Cash Flow Statement Half-year ended 30 June, 2006 2005 2005year ended 31 December Half-year Half-year Year £m £m £mCash flows from operating activities (Loss)/profit for the period (18.1) 6.4 23.6Adjustments for:Depreciation and amortisation 1.2 0.5 1.5Finance income (13.2) (12.0) (23.5)Finance costs 12.0 12.3 24.1Share based payments expense 0.2 0.1 0.2Income tax (2.6) 1.1 1.4Sale of interest in joint venture (3.5) - (3.5)Share of results of joint ventures and associates 2.8 (3.3) (13.4)Release of provision against investment - - (0.3) -------- -------- -------- Operating (loss)/profit before changes in working capital and provisions (21.2) 5.1 10.1 Increase in inventories - (0.9) (1.1)Increase in receivables (14.2) (33.0) (15.1)Increase in payables 5.3 13.0 24.2Movement in provisions and employee benefits (1.4) (0.2) (3.0) -------- -------- -------- Cash (used by)/from operations (31.5) (16.0) 15.1 Interest paid (0.2) (0.2) (0.1)Income taxes paid - - - -------- -------- -------- Net cash (used by)/from operating activities (31.7) (16.2) 15.0 -------- -------- -------- Cash flows from investing activitiesInterest received 1.2 1.3 2.4Additions to property, plant & equipment (0.7) (1.8) (2.4)Additions to intangible assets (0.8) - (3.1)Additions to investments (2.0) (0.2) (0.2)Sale of interest in joint venture 7.1 - -Capital repayments by investments - - 1.3Dividend received from joint venture 2.6 - -Loans to joint ventures and associates 0.2 (1.2) (2.6) -------- -------- -------- Net cash from/(used by) investing activities 7.6 (1.9) (4.6) -------- -------- -------- Cash flows from financing activitiesIssue of ordinary share capital 0.2 - 0.5New loans 0.2 - 0.4Payment of loans and finance lease liabilities (0.1) (0.5) (0.3) -------- -------- -------- Net cash from/(used by) financing activities 0.3 (0.5) 0.6 -------- -------- -------- Net (decrease)/increase in cash and cash equivalents (23.8) (18.6) 11.0 Cash and cash equivalents at beginning of period 75.0 63.5 63.5Effect of foreign exchange rate changes (0.2) (0.1) 0.5 -------- -------- -------- Cash and cash equivalents at end of period 51.0 44.8 75.0 -------- -------- -------- Notes to the Interim Financial Statements These interim financial statements do not constitute statutory accounts withinthe meaning of the Companies Act 1985 and are unaudited. The Board approved theunaudited interim financial statements on 30 August 2006. 1. Basis of preparation This interim financial information has been prepared applying the accountingpolicies and presentation that were applied in the preparation of the company'spublished consolidated financial statements for the year ended 31 December 2005. The interim financial information is prepared on a going concern basis which thedirectors believe to be appropriate for the following reasons. The group meetsits day to day working capital and bonding requirements through banking andsurety company facilities. The interim results include £11.9m of write downs andprovisions in respect of contract claims in the Group's Building division. Theyalso include £18.0m of provisions from the closure costs and contractwrite-downs in the Group's International division. As a result of theseprovisions, the Group is in breach of its banking and surety covenants inrespect of the rolling 12 month EBITDA clause at 30 June 2006 and therefore thefacilities are now technically repayable on demand. However, the Group continues to meet all other covenants and immediateindications from the Group's facility providers are that the breach will bewaived. Given that discussions with the facility providers are on-going at thetime of the Board's approval of the interim financial statements, there can beno certainty in relation to these matters. The financial statements do notinclude any adjustments that would result from a withdrawal of the facilities bythe Group's bankers or surety providers or those facilities provinginsufficient. The directors have prepared projected cash flow information for the periodending twelve months from the date of their approval of this interim financialinformation. On the basis of this cash flow information and discussions with theGroup's facility providers, the directors are confident that the facilities willcontinue to be provided and that the Group will continue to operate within itsnon EBITDA covenants. The directors are also confident that formal waiver of theEBITDA breach at 30 June 2006 and any future breaches given the rolling 12 monthbasis, will be received and that this clause will be re-negotiated in theGroup's favour. 2. Business and geographical segment information by origin In the opinion of the Directors, the business segments are Civil Engineering,Building, Oil Gas & Process and International, which undertake engineering andconstruction projects, the Group's property development operation in Spain andcentral costs. These represent the Group's primary segments. Secondary segmentsare presented geographically. * Revenue in the tables below includes the Group's share of joint ventures andassociates. For the half-year Civil Building Oil, Gas & International Property Central Totalended Engineering Process Development costs30 June 2006 £m £m £m £m £m £m £m Revenue * 217.0 158.3 30.8 22.9 7.2 - 436.2 -------------------------------------------------------------------------------------Group operating profit/(loss) (loss) 7.5 (11.5) (1.2) (14.6) - (2.8) (22.6)Sale of interest in joint venture - 3.5 - - - - 3.5Share of results of joint ventures andassociates 0.4 0.1 0.1 (5. 5) 2.1 - (2.8) -------------------------------------------------------------------------------------Segment result 7.9 (7.9) (1.1) (20.1) 2.1 (2.8) (21.9) ----------------------------------------------------------------------------Net financing income 1.2Income tax 2.6 ---------Loss for the period (18.1) --------- For the half-year ended Civil Building Oil, Gas & International Property Central Total30 June 2005 Engineering Process Development costs £m £m £m £m £m £m £m Revenue * 145.7 155.6 25.3 8.4 10.4 - 345.4 -------------------------------------------------------------------------------------Group operating profit /(loss) 6.8 0.4 0.2 (0.8) - (2.1) 4.5Share of results of joint ventures andassociates - - 0.1 (0.4) 3.6 - 3.3 -------------------------------------------------------------------------------------Segment result 6.8 0.4 0.3 (1.2) 3.6 (2.1) 7.8 ----------------------------------------------------------------------------Net financing costs (0.3)Income tax (1.1) ---------Profit for the period 6.4 --------- 2. Business and geographical segment information by origin continuedFor the year ended Civil Building Oil, Gas & International Property Central Total31 December 2005 Engineering Process Development costs £m £m £m £m £m £m £m Revenue * 329.8 321.6 52.1 24.7 45.0 - 773.2 -------------------------------------------------------------------------------------Group operating profit/(loss) 16.0 1.2 (1.2) (2.5) - (4.8) 8.7Sale of interest in joint venture - 3.5 - - - - 3.5Share of results of joint ventures andassociates - (0.4) 0.2 (0.4) 14.0 - 13.4 -------------------------------------------------------------------------------------Segment result 16.0 4.3 (1.0) (2.9) 14.0 (4.8) 25.6 ---------------------------------------------------------------------------Net financing costs (0.6)Income tax (1.4) ----------Profit for the period 23.6 ---------- Revenue * (Loss)/ profit from operations 2006 2005 2005 2006 2005 2005 Half-year Half-year Year Half-year Half-year Year £m £m £m £m £m £m United Kingdom 390.6 310.9 673.4 (4.4) 5.7 16.3Spain 7.2 10.4 45.0 2.1 3.6 14.0Rest of the world 38.4 24.1 54.8 (19.6) (1.5) (4.7) -------------------------------------------------------------------------------------------- 436.2 345.4 773.2 (21.9) 7.8 25.6 -------------------------------------------------------------------------------------------- 3. Finance income and costs Finance income includes the expected return on the assets of the pension schemeof £12.0m (2005 half-year £10.7m, 2005 year £21.1m) and finance costs includethe expected increase in the present value of the scheme liabilities of £11.9m(2005 half-year £12.1m, 2005 year £23.9m). The expected return and the increasein present value are based on the value of assets and liabilities of the pensionscheme at the start of the period. 4. Earnings per share The calculation of earnings per share is based on loss for theperiod of £18.1m (2005 half-year profit £6.4m, 2005 year profit £23.6m) and thenumber of shares set out below: 2006 2005 2005 Half-year Half-year Year Weighted average number of shares for basic earnings per 356,875,207 353,136,352 353,355,346share calculationDilutive potential ordinary shares:SAYE Scheme 6,567,096 8,578,793 7,945,390 ----------- ----------- -----------Weighted average number of shares for fully diluted earnings per share calculation 363,442,303 361,715,145 361,300,736 ----------- ----------- ----------- The nominal value of share capital was reduced and the share premium accountwritten off during the first half of 2005 following the shareholder andsubsequent court approval of the capital reduction. The excess aftereliminating the accumulated deficit of the Company was transferred to a specialreserve. 5. Joint ventures and associates The analysis of the Group's share of joint ventures (JVs) and associates is setout below: 2006 Half-year Alcaidesa Other JVs Associates Total £m £m £m £mRevenue 7.2 52.6 4.1 63.9 -------- -------- -------- --------Profit before tax 3.1 (4.4) (0.5) (1.8)Income tax expense (1.0) - - (1.0) -------- -------- -------- --------Profit for the period 2.1 (4.4) (0.5) (2.8) -------- -------- -------- --------Non-current assets 6.5 5.2 1.9 13.6Current assets 41.3 62.6 48.6 152.5Current liabilities (18.1) (26.6) (7.4) (52.1)Non-current liabilities (3.5) (40.3) (42.1) (85.9) -------- -------- -------- --------Investments in joint ventures andassociates 26.2 0.9 1.0 28.1 -------- -------- -------- -------- Presentation in the balance sheet in respect of joint ventures and associatesrestricts the minimum carrying value of "other joint ventures" and "associates"(above) to £nil. Where the carrying value is negative, the corresponding loanvalue to those investments has been reduced or, where future funding obligationsexist, a provision made. 2005 Half-year Alcaidesa Other JVs Associates Total £m £m £m £m Revenue 10.4 8.5 3.0 21.9 ------------------------------------------------------------Profit before tax 5.7 0.3 (0.6) 5.4Income tax expense (2.1) - - (2.1) ------------------------------------------------------------Profit for the period 3.6 0.3 (0.6) 3.3 ------------------------------------------------------------Non-current assets 9.6 0.2 5.4 15.2Current assets 42.6 68.1 9.1 119.8Current liabilities (32.2) (9.1) (4.5) (45.8)Non-current liabilities (4.0) (59.1) (9.8) (72.9) ------------------------------------------------------------Investments in joint ventures andassociates 16.0 0.1 0.2 16.3 ------------------------------------------------------------ 5. Joint ventures and associates continued 2005 Year Alcaidesa Other JVs Associates Total £m £m £m £mRevenue 45.0 37.5 12.6 95.1 ------------------------------------------------------------Profit before tax 22.5 0.8 (1.1) 22.2Income tax expense (8.5) (0.3) - (8.8) ------------------------------------------------------------Profit for the period 14.0 0.5 (1.1) 13.4 ------------------------------------------------------------Non-current assets 7.4 0.7 2.0 10.1Current assets 40.2 68.0 20.5 128.7Current liabilities (15.6) (23.9) (7.5) (47.0)Non-current liabilities (5.5) (43.7) (14.8) (64.0) ------------------------------------------------------------Investments in joint ventures and associates 26.5 1.1 0.2 27.8 ------------------------------------------------------------ 2006 2005 2005 Half-year Half-year Year £m £m £m Financial commitments 10.3 5.4 9.5 ----------------------------------------Capital commitments 28.4 20.6 36.3 ---------------------------------------- The commitments relate to joint ventures involved in Private Finance Initiativeschemes and the capital commitments to construction work being undertaken by theCostain Group. All figures are the Group's share. The comparative figures for the financial year ended 31 December 2005 are notthe company's statutory accounts for that financial year. Those accounts havebeen reported on by the company's auditors and delivered to the registrar ofcompanies. The report of the auditors was (i) unqualified, (ii) did not includea reference to any matters to which the auditors drew attention by way ofemphasis without qualifying their report, and (iii) did not contain a statementunder section 237(2) or (3) of the Companies Act 1985. The Interim Report and Accounts are unaudited but have been reviewed by theCompany's auditors and their Independent Review Report is set out below. Independent review report to Costain Group PLC Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the Consolidated IncomeStatement, the Consolidated Balance Sheet, the Consolidated Statement ofRecognised Income and Expense, the Consolidated Cash Flow Statement and therelated notes. We have read the other information contained in the interimreport and considered whether it contains any apparent misstatements or materialinconsistencies with the financial information. This report is made solely to the company in accordance with the terms of ourengagement to assist the company in meeting the requirements of the ListingRules of the Financial Services Authority. Our review has been undertaken sothat we might state to the company those matters we are required to state to itin this report and for no other purpose. To the fullest extent permitted bylaw, we do not accept or assume responsibility to anyone other than the companyfor our review work, for this report, or for the conclusions we have reached. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by, the directors. The directorsare responsible for preparing the interim report in accordance with the ListingRules of the Financial Services Authority which require that the accountingpolicies and presentation applied to the interim figures should be consistentwith those applied in preparing the preceding annual accounts except where anychanges, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the UK. A review consistsprincipally of making enquiries of management and applying analytical proceduresto the financial information and underlying financial data and, based thereon,assessing whether the accounting policies and presentation have beenconsistently applied unless otherwise disclosed. A review excludes auditprocedures such as tests of controls and verification of assets, liabilities andtransactions. It is substantially less in scope than an audit performed inaccordance with International Statements on Auditing (UK and Ireland) andtherefore provides a lower level of assurance than an audit. Accordingly, we donot express an audit opinion on the financial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. Emphasis of matter - Going concern In forming our conclusion, which is not qualified, we have considered theadequacy of the disclosures made in note 1 to the financial informationconcerning the group's ability to continue as a going concern. That notediscloses uncertainty as to the continuation and adequacy of the group's bankingand surety facilities, which indicates the existence of a material uncertaintywhich may cast significant doubt over its ability so to continue. KPMG Audit PlcChartered accountantsLondon30 August 2006 This information is provided by RNS The company news service from the London Stock Exchange