Final Results

Costain Group PLC
17 March 2004

Costain Group PLC

('Costain' or the 'Group')

Preliminary results for the year ended 31 December 2003


Costain, the international engineering and construction group, announces
increases in turnover and profit before tax for the year to 31 December 2003
reflecting the success of its recovery strategy.

HIGHLIGHTS


•    Group turnover up 20% to £650.2m (2002: £543.4m)

•    Profit before tax up 42% to £16.1m (2002: £11.3m)

•    Earnings per share up 36% to 3.8p (2002: 2.8p)

•    Cash balances of £70.6m (2002: £71.3m)

•    Strengthened operational management team

•    Further contract success across the business

•    Near target of 50% of longer-term framework type contracts

•    Forward order book of £805m (2002: £703m)


Commenting on the results, David Jefferies, Chairman, said:


'This has been an excellent year for Costain culminating in a very strong
performance. The result reflects the success of the strategy we have been
implementing since 2001 and there is a recognition that Costain has undergone a
major recovery.

The strength of the business now allows us to take a more expansive look at the
opportunities ahead and how we can best leverage these in the years to come.'


                                                                   17 March 2004


ENQUIRIES:
Costain Group PLC                                    Tel: [phone]
Stuart Doughty, Chief Executive
Charles McCole, Finance Director
Graham Read, Public Relations

College Hill                                         Tel: [phone]
Mark Garraway
Matthew Gregorowski




Chairman's Statement

Overview

We have produced an excellent set of results.

During 2003, we have continued to implement the strategy which the Board
established in 2001. The result is a significant de-risked business,
continuously improving relationships with key customers and greater support from
all our stakeholders including our core investors.

There is recognition in the sector that Costain has undergone a major recovery.
We are now in a position to take a more expansive look at the Company and
determine how we can further leverage its position in the coming years.

The Costain name is highly regarded both in the UK and internationally and the
strength of our brand has significantly aided the Company's recovery.  Combined
with a much strengthened financial position, this gives the Board enormous
confidence going forwards, particularly as we look to new markets and
opportunities.


Results and Dividend

Group turnover of £650.2 million (2002: £543.4m) was up 20% on the previous year
with profit on ordinary activities before taxation of £16.1 million (2002:
£11.3m) which is a 42% increase on last year's profit.

Earnings per share were 3.8p (2002: 2.8p) which is an increase of 36% on last
year.

Following the progress made over the last two years, the Board is looking at
proposals to reconstruct the Company's balance sheet and facilitate a resumption
of dividend payments. The proposals centre on rationalising the Group's share
capital and eliminating the historic deficit on the profit and loss account.
There are a number of legal and technical obstacles to be overcome but it
remains our intention to conclude such proposals as soon as is practicable.

The Group has no significant borrowings and the net cash balances at the end of
the year totalled £70.6 million (2002: £71.3m), including the Group's share of
cash held by joint arrangements (construction joint ventures) of £29.3 million
(2002: £27.6m). There was a cash outflow during the year of £0.7 million (2002:
£3.5m inflow).


Board and Corporate Governance

There were no changes to the Board during 2003.

With regard to the revised Combined Code which will apply to the Company in
2004, I confirm that your Board has taken steps to ensure compliance with the
revised Combined Code wherever possible and where it is in the Company's best
interests.


Our People

Without the commitment of our staff the changes we have implemented would not
have been possible. They have understood that for Costain to succeed we have to
change and have accepted the challenge.

Costain's people take tremendous pride in the corporate brand and culture. They
have embraced the requirement to understand and meet customer needs and provide
a high quality product which has become synonymous with the Group's reputation.
On behalf of the Board, I would like to express my gratitude to everyone
involved.

Costain's recovery has not gone unnoticed among graduates and construction staff
from other companies who are increasingly keen to join our ranks and share our
success. They welcome the fact that Costain is being run as a coherent business
with a proper understanding of the risks inherent in the sector. This makes our
recruitment task easier and gives us confidence that our skills base will remain
strong.


Outlook

We made significant progress during 2003 and the current year has started well.

Whilst we have seen some evidence of a marginal slowing in the release of both
private and public funds for infrastructure projects, we believe that our core
strengths combined with our recovered position in the market give us a
competitive edge when tendering for new contracts.  At the year-end our forward
order book stood at £805 million.

To ensure continuing success we are focused on further strengthening our
relationships in targeted sectors such as asset management, transport and health
and investigating opportunities in other sectors such as education, nuclear and
utilities.  Entering these sectors will be a natural progression following our
success with framework/partnering type arrangements which have provided
additional stability to our contracting base.

There are also clear indications that our closer working arrangements with our
key shareholders are opening up opportunities in overseas markets.

I look forward to reporting on further progress in the future.



David G Jefferies
Chairman
16 March 2004



Chief Executive's statement 2003

Overview

In 2003, the Costain Group continued to achieve its stated growth targets whilst
ensuring the foundation of the business remained strong and stable. In our
strategy, which we produced in 2001, we stated our intention to de-risk the
business by adopting a different approach to contracting and by moving away from
lump sum fixed price contracts, whilst also attempting to secure longer-term
frameworks generally in the field of managing the assets of major infrastructure
providers.  We envisaged this should comprise up to 50% of the turnover and we
are now close to achieving that goal ahead of target.  As the proportion of
high-risk contracts has reduced so we are able to be more confident of margin
generation, coupled with a longer and more sustainable forward order book.

The evidence, during 2003, for this strengthening of the client base is clear.

The large proportion of this work is concentrated on managing the capital
programme for the UK Water sector on a five-year framework basis and we have
secured and carried out over £200 million of turnover spread across six
different Utilities during the course of the year, amounting to some 15% of the
Water market in Asset Management.   The majority of the work involved projects
for the AMP 3 capital programme and we are now involved in preparations for AMP
4.

Further evidence of this changing relationship can be found in our dealings with
the Highways Agency. As one of the UK's major road builders, we have maintained
our strong relationship with the Highways Agency as the Government has committed
itself to improvements in UK roads.  In 2003, the Highways Agency introduced its
Capability Assessment Toolkit (CAT) to measure a company's suitability for roads
contracts.  Contractors were assessed using six criteria, which were: the
Company's leadership, direction and management, strategy and planning, people
issues, internal resources, sustainability and processes, and a complete review
of the Company's supply chain.   I am delighted to report that Costain was one
of the top five contractors in the CAT results.

The Highways Agency is very much at the forefront of new procurement methods, at
all times looking for continuous improvement and ensuring best quality and that
highest value is achieved in moving away from lowest cost parameters.

I have highlighted our dealings with the Water Utilities and the Highways Agency
because Costain will always be involved in playing a major part in improvements
in UK infrastructure. Already, we have a 15% share of the Water Utilities market
which is targeted to spend more than £2 billion in 2004. In the roads sector,
the spend is predicted to exceed £2 billion for the same period.

Adopting the same collaborative approach, we have continued to develop St
Pancras, and the Stratford Tunnels for the Channel Tunnel Rail Link and Kings
Cross Underground Station for London Underground Limited.  In total, this
amounts to some £700 million of joint venture work, with all contracts conducted
on the basis of an alliance between the contractor and the client.

The same philosophy applies to other sectors such as Health which will also be
spending in the region of £2 billion annually on improvements in the provision
of healthcare facilities across the UK.  Following our success in securing the
ProCure 21 pilot scheme, the procurement mechanism launched last year by the NHS
Estates accelerated the delivery of key infrastructure improvements for the
benefit of the National Health Trusts. We then joined with Mowlem and Amec to
address the much larger programme being released in the course of this and
subsequent years.  We prepared the ground as regards health and we have a
specialist in-house team focused on the delivery of best quality service and
enhanced value to the various Trusts.

Using a similar model, we are currently developing our presence in the Education
market, where there are other opportunities for Costain's service to bring added
value. Education is an exciting growth market and, like Health, we have
established a specialist team with an in-depth understanding the client's needs.
Nuclear decommissioning is a long-term market which may provide us with a
reasonable opportunity for our process and civils businesses, providing that
Government ratification is achieved within the current parliamentary timetable.

In Retail, we continue to develop our relationship with Tesco. In the last three
years, having significantly de-risked the business, we have established a secure
client base in the Retail sector and provided sector-specific teams that
understand client needs and the benefits of long-term partnering. This has
proved a successful recipe and will become the accepted formula as we look to
increase market share and pursue new opportunities.

Regarding our activities internationally, we have spent a considerable amount of
time and effort during the last year renegotiating our position in existing
businesses and re-establishing our staff in parts of Africa and the Middle East,
including further development with our two principal shareholders.  Whilst it
has been a relatively quiet year in terms of trading results, I am convinced
that this is now the correct platform to generate good returns going forward.

In terms of the oil and gas business, we have maintained our position in terms
of shutdown and maintenance in the Middle East and are now looking to extend
that facility in other areas.  New management, under the leadership of Charles
Sweeney, is making a very effective contribution to driving the business
forward.


Current Trading and Prospects

Asset Management

The Water sector has remained buoyant as work has accelerated to complete the
Utilities' obligations for the AMP 3 programme.  In many instances in 2003, we
outperformed the regulatory targets and further cemented relationships with the
water utilities companies. This has been achieved by the formation of an overall
team approach and not simply by adhering to the traditional contractor/client
relationship.  Our clients demand a single point of service with each party -
designers, sub-contractors and service providers - working together for the
benefit of the ultimate user. Costain clients understand that this philosophy is
at the forefront of our Company culture and differentiates us from much of the
competition, whilst enabling us to provide margin levels more closely reflecting
that shared commitment.  Negotiations now proceed with regard to the next stage
of their programme, AMP 4, as the Regulator completes his recommendation.

We continue with our programme for Thames Water of improving water quality for
London and the South East. Costain is outperforming both regulatory targets and
Thames Water's business plan.

Costain is, in addition, giving Thames Water value engineering support for its
AMP 4 submissions. With regard to environmental issues, it is also pleasing to
note that there were no pollution incidents in any of these operations.

The Company's largest single contract (£106 million) is for Thames Water and BAA
at Heathrow Airport Terminal 5, where Costain is laying a 13km pipeline and
moving an existing sludge dewatering plant. As an incentive, Costain will
receive 40% of any savings made on the contract up to the value of its
management fee.

For Southern Water, 40% of the AMP 3 programme has been completed and budgetary
plans are being outperformed. In the spring of this year, Costain begins a major
drainage scheme and improvements to the wastewater transfer at Lewes.

In Bath, Costain continues with the main drainage and flooding improvements
(contract value £23 million) for Wessex Water. This will involve tunnels and
shafts constructed in rock and the transfer of mains to a new out-of-town
wastewater treatment plant. The construction of this is approximately 30%
complete.

In the North-West, the Costain joint venture contract with Galliford for United
Utilities progresses well. The work is varied and involves a completely new
clean water treatment works to discharge works from combined sewage outfalls. By
the end of 2003, the joint venture had delivered £100 million of work on
programme, meeting regulatory output throughout.  Costain is entering year 4 of
its 5-year programme for United Utilities.

Similarly, outputs are being achieved on Costain's 5-year agreement, with
Yorkshire Water. The operation covers waste water both above-ground projects
(mainly treatment works and inland waterway outfalls) and below-ground assets
such as unsatisfactory combined sewage outfalls and storage tanks. We are in
year 4 of this contract and have successfully delivered over £70 million of work
by the end of the year.

A recent major highlight for the Costain Group was the appointment as Preferred
Bidder for the Ministry of Defence's Project Aquatrine. Costain, as part of the
C2C Consortium with Severn Trent and Arup, has been selected for Package C and
this 25-year contract will involve the delivery of water and wastewater services
to approximately 1,600 sites throughout the South-East, East and North of
England and it is worth approximately £1 billion in revenues to the Consortium.
The contract is scheduled to start in 2004.

Project Aquatrine is the first major Public Private Partnership in the UK water
sector to provide services to a diverse and widely dispersed estate outside of
the regulated water industry. It involves the transfer of responsibility for
maintenance and operation of the Ministry of Defence's water and wastewater
assets to the private sector.

Costain's experience of executing asset management investment programmes in the
Water sector and expertise in winning and delivering PFI/PPP projects will make
the Company key to the project's success. It is high profile work with a major
Government client and further proof that the order book will contain, in the
future, projects of the right shape and substance.


Civil Engineering

The A2/M2 Project was opened in July by David Jamieson, the Parliamentary
Under-Secretary for Transport. Works on the major junction improvement scheme,
A34 Chieveley - Junction 13 M4 commenced in 2003 and are progressing well and
targeted for completion in autumn 2004.  Our early contractor involvement scheme
for the realignment of the A303 at Stonehenge is now in the final enquiry stage.

A major maintenance contract was carried out on the M4. All work was at night
with a seven days per week work programme over six months. The project was
delivered ahead of time and safely with no road accidents.

Our works at Kings Cross and St Pancras are progressing well.  At St Pancras we
met first milestones and the interim Station is on programme for completion in
April 2004. At Stratford, East London, both tunnel drives for CTRL were
completed successfully despite minor ground settlement incidences and the
remaining works are scheduled for completion in autumn 2004.

In total, some £700 million of joint venture work is being conducted on a pain/
gain share basis in alliance with our clients in this sector.

Future opportunities for major works remain predominantly dependent on public
expenditure.  However, we remain confident that our forecast for turnover in
2004 will be met.

In Marine operations, the coastal defence and harbour improvements scheme for
West Bay, Dorset progresses well and is due for completion in 2004. Work
includes a new pier being built on a different alignment to provide a safer and
wider access into the harbour to enable it to be used most of the year and to
provide a safe haven for boats.  Despite considerable adverse weather, this
scheme is due to be handed over on time.

At Felixstowe, we are providing a new extension of the Port of Felixstowe's
Trinity Terminal for Hutchison.   During the placing of hydraulic fill with our
major sub-contractors, a major slippage of material occurred necessitating
redesign.  However, after extended working, the integrity of the wall has been
secured and work is progressing to retrieve the delays.  New paved container
yard areas outside the reclamation area have been unaffected and have been
handed over to the client.


Building

During 2003, the Building Division continued the process of developing its staff
base, client base and delivery systems.  New orders in 2003 totalled £208
million spread across the Health, Education, Retail and Laboratory sectors.  The
majority of orders were developed on a two-stage negotiated basis and provide an
excellent platform of workload for 2004.  Considerable emphasis has been placed
upon the training and development of the staff in terms of leadership, teamwork
and developing client delivery capability.  During the year, two new members
were welcomed on the Senior Management Team with Peter Mason joining to run the
Northern Region and Simon Burton to lead the Midlands Region.  Changes to the
management team over the last two years have provided the business with a very
high quality team of directors with a clear focus on delivering the Group's
strategy.

Costain, in joint venture, was responsible for the design and construction of
the new Met Office headquarters and operations centre in Devon. Costain was also
part of the Stratus consortium that has overall responsibility for the design/
construction and the maintenance and operation of the building for the next 15
years. The contract, worth a total of £150 million, set tough construction
deadlines.

The project was completed on time and on budget. The performance, which was led
by a Costain project manager, received Government praise for the 'splendid'
building. This is exactly the level of quality that ensures the Costain brand,
our most valuable commodity, remains an industry leader.  The relationships,
quality of product, supply chain communication - all these key ingredients were
involved in what was for everyone a flagship project.  The King's College
Hospital Golden Jubilee Wing, a PFI project of a similar value, was opened
during the year by Her Majesty The Queen and received notable accolades.  The
second phase of this development, The Ruskin Wing, is proceeding to programme
and will be completed mid-2004.

The foundation phase of the Diamond Synchrotron project, the UK's largest
scientific facility to be built in the last thirty years, was also completed
with work now continuing on the main structure.

These projects, along with others, will ensure we have the commercial strength,
the right relationships with clients and joint venture partners and the profile
to move Costain forward to future success.


PFI

A special purpose vehicle in which John Laing Plc and Costain are shareholders,
has signed a £38 million contract with Caerphilly County Borough Council to
build and improve roads in South Wales. The 30-year concession covers the
design, build, finance and operation of improvements to the local strategic
highway network and providing a new direct access route to the local business
park. The construction will be crucial to the development of business and will
help create thousands of new jobs.

Financial Close was achieved on the two intermediate Care Homes projects in Kent
in December.   Also in the Health sector, we were appointed Preferred Bidder
with Equion for Kingston Hospital, a £23 million expansion project.

We also remain as shareholders in Bridgend Custodial Services (H M Parc Prison,
Bridgend).   This business continues to perform well with returns in excess of
£300k per annum.

We are bidding selected PFI projects and anticipate continued success.


Costain Oil, Gas & Process (COGAP)

November 2003 saw the appointment of our new Managing Director, Charles Sweeney,
who joined us from Foster Wheeler USA.

The annual LNG outage for ADGAS at Das Island, Abu Dhabi, which this year was
delayed until September, was completed without any lost time incidents and to a
revised programme. Planning for the March 2004 outage, which is significantly
larger, commenced immediately following completion.

The Rivers Field project for Burlington Resources at Barrow is now in the
mechanical completion, handover and commissioning phase.

Work has commenced on the detailed engineering, procurement and construction of
the Clean Fuels project at the TotalFinaElf Refinery, Milford Haven.

In October, we formed a joint venture with Petrofac and have now been awarded
the seven year ECAPS contract from Hydrocarbon Resources Limited (Centrica),
with a further option for five, one-year extensions. This allows us to
demonstrate our total capability in operations, maintenance and engineering
services for both on and offshore facilities and supports the Company's move
towards partnering arrangements. We see this as the vehicle to access other
owners of major UK on and offshore assets.

We continue to serve our long-term client, px Teesside, with shut-down and
general services capabilities.


International

Our international business strategy has increased focus on Africa with the
recent appointment of a director responsible for the whole region who will
co-ordinate our operations from a newly opened office in Pretoria. We continue
to grow our long-established business in Zimbabwe with considerable caution.
Whereas in Botswana and Nigeria, where we have re-established our presence,
there are significant opportunities in both infrastructure and oil and gas
related projects which are being identified through detailed country studies now
being undertaken. Our close relationship with Kharafi in the region sees us
working together in Botswana and Tanzania, while other opportunities are being
pursued jointly in a number of African countries, particularly where Arab funds
are available.

In Hong Kong, we have won and commenced work on a water rehabilitation project
and have recently secured a further scheme, being the first two of a number of
framework agreements to be let by the government. Our bid for the Stonecutters
Bridge project was submitted in the course of the year and, as with the previous
case, we are in joint venture with our local strategic partner, China Harbour
Engineering Company and intend to expand this relationship into other
international markets.

A considerable amount of effort has been put in over the last year to bring the
Company to a better position to enable it to generate quality returns going
forward. We continue to develop relationships with our shareholders, United
Engineers, particularly in the Water sector in Malaysia and oil and gas in the
Middle East.

Finally, opportunities in Iraq have been particularly affected by the security
situation and difficulties in obtaining US funded work in the central and
southern parts of the country. However, we have been able to establish an
operation in the Kurdish region providing project management services to the
regional government at the same time as drawing on our relationships in
neighbouring Turkey.

We were pleased to announce that Alcaidesa Holding SA, the Spanish registered
company in which Costain holds a 50% interest with Banesto Bank, received
approval to proceed with its Masterplan for La Linea 2 - the third phase of
Alcaidesa's residential and leisure development on the Costa del Sol.

Alcaidesa has proven a valuable core business opportunity for Costain and has
contributed significantly to the Company's profits in recent times. Now this
third phase of the development - located in a 250-acre land enclave with views
over the Mediterranean and the Rock of Gibraltar - is set to add more
significant value. The approval permits the construction of 1,200 residential
homes, commercial facilities and part of the second golf course.  It will also
enable Alcaidesa to complete land sales to Spanish developers of 880 building
plots that were, until now, conditional on Masterplan approval.  Once the full
infrastructure is completed, a further 320 building plots will be developed by
Alcaidesa in 2005/6 still leaving phase 4, which comprises an additional
1,000-acres of adjoining land for which we are pursuing planning permission.

Considerable further opportunity exists in the area by further developing the
knowledge and relationships with our joint venture partner and the local
Administration.


Health, Safety and Environment


Costain's health & safety performance has been improving steadily on an annual
basis. This was recognised in early 2003 when the RoSPA adjudication panel
awarded to Costain 27 awards of either the Gold, Silver or Bronze category at
their ceremony at the NEC.

However, the Costain Executive Board set further tough targets for the various
divisions of the Company to meet during 2003. Now, having reviewed our
performance throughout the year, we are able to say that this year's results
have improved yet again.

We have managed to reduce the number of Major Injuries by 24%, lower our
Accident Frequency Rate (AFR) from 0.54 to 0.33, a percentage fall of 39%
following four consecutive years where our AFR has fallen steadily from 0.87 in
1999 to 0.54 in 2002 and have no pollution incidents to any watercourses on or
near our operations.

Additionally, during a year when the number of visits to our sites by the HSE
has increased in line with their recent inspections on construction sites, we
have not had works stopped, or Improvement or Prohibition Notices served on our
works. National figures indicate that work was stopped at almost a quarter of
the construction sites visited by HSE Inspectors.  Another 5% of the sites
visited were issued with Improvement Notices and a number of duty holders are
still being considered for possible prosecution.

To check and verify that our Environmental Management and Health & Safety
systems are functioning in accordance with Company statements, we were audited
throughout the year by various external bodies.  These included:


  • BSi for our ISO 14001 accreditation
  • Verify on behalf of Utilities work
  • Link-up on behalf of Rail
  • Network Rail on behalf of Rail
  • CAT on behalf of the Highways Agency


All of these produced favourable reports that culminated with the Highways
Agency's CAT report which stated that Costain Ltd's Health & Safety efforts were
a 'role model for our peers to follow'.


Awards

In terms of our success during the year, our different way of working has been
recognised by a number of Awards in various categories.

Examples of the quality of work being produced were shown by Costain achieving '
The Most Considerate Site' awarded by the Considerate Contractors Scheme, given
annually to only one contractor in the country, together with the Concrete
Society 'Building Category Winner' award.

The A2/M2 Project received many accolades and awards including the Concrete
Society's Gold Award for the Medway Viaduct.

Further evidence of high standards within the Costain Group was received at the
end of the year when it was announced that our Welsh office had won the
construction category in the Welsh Quality Awards. The award recognised business
excellence and complimented the Company's core values of quality, safety,
environmental care and customer focus. All our staff are aware and committed to
the Costain brand and the excellence it represents. Awards, such as these,
confirm our status and it is extremely pleasing to have such positive third
party assessment of our Company.

Our safety record in 2003 once again was significantly better than the industry
average and this was reflected in the receipt for the second year in succession
of the Royal Society for The Prevention of Accidents - President's Award.


Organisation

We must recognise the efforts the staff have put in, their total commitment to
the Company and sense of loyalty which have been considerable assets in
contributing so much to the changes we have made in Costain over the last two
years.  Also, the new staff at all levels who have joined the Company and who
have bought into the new strategy have applied themselves with considerable
vigour.  Without all of their contributions we would not have been able to
achieve the Results.

We continue to introduce new integrated management systems which have been
progressively rolled out in the course of the year.  This is the initial phase
of a two-year programme and we are now starting to realise the benefits of our
investment in terms of readily identifiable data.  As we have moved the business
profit to a more partnering and framework approach, so indeed we are now
reviewing the whole overhead structure and cost base of the Company with a view
to removing excess cost and duplication.

In terms of organisation, this has resulted in reductions in the overhead by
de-centralising all of the HR department and preserving one single database for
all personnel information.


Summary


This was a solid year of achievement with Civil Engineering and Asset Management
performing extremely well, the Building division completely restructured and now
showing good contract results coming through as the business re-establishes a
position in the construction market.  The new directors, Stephen Prendergast and
Charles Sweeney, in International and COGAP, provided additional impetus to both
businesses and have done much to cement relationships with our principal
shareholders.   Finally, the introduction of Stephen Wells as Group Business
Development Director has added considerable focus to the identification of new
opportunities and markets to enable Costain to continue with the strategy going
forward.

All in all, an excellent year maintaining our strategy of 15% growth in
turnover, preserving the cash despite the changing nature of the business and
delivering profit before tax levels of 2.5% in line with our plan.


Stuart J Doughty
Chief Executive
16 March 2004


Financial review

Profit before tax has improved by 42% to £16.1 million (2002: £11.3m) on a
turnover including joint arrangements (construction joint ventures) up 20% to
£650.1 million (2002: £543.4m).

Net interest receivable amounted to £1.4 million (2002: £1.4m) and a pension
finance cost of £0.8 million was recorded (2002: £1.9m income).

The tax charge on profits of £2.9 million (2002: £1.8m) is an effective tax rate
of 18% and reflects the utilisation of brought forward Group tax losses.

Basic earnings per share increased 36% to 3.8p (2002: 2.8p), while diluted
earnings per share increased 32% to 3.7p (2002: 2.8p).


Cash flow and borrowings

The Group incurred a cash outflow of £0.7 million (2002: £3.5m inflow),
reflecting the move to a more partnered framework style of client relationship,
reducing the level of advance cash.

The net cash position of £70.6 million (2002: £71.3m) includes £1.4 million of
borrowings.


Order intake

Order intake improved during the year with a work in hand position of £805
million (2002: £703m) at the end of the year

Awards since the year-end have included reaching financial close and preferred
bidder stage on two PFI contracts and continuing to secure work on a partnered
format.


Shareholder funds

The Group has positive net operating assets of £17.9 million (2002: £3.0m)
sustaining the trend set last year.  However, the impact of the deficit in the
pension scheme, which under FRS17 is included in the balance sheet, produced
negative shareholder funds of £36.7 million (2002: £21.2m).  The Group adopted
FRS17 in full in 2000 to give a clearer view of the pension position but the
volatility in financial markets has created significant fluctuations.


Shareholder return

The market price of the Group ordinary shares at the close of the financial year
was 37.25 pence, reflecting a 55% increase in the financial year. The Group's
share price outperformed the construction sector by 6% and the FTSE All share
index by 33% (source: Arbuthnot Securities).


International Accounting Standards

Early in 2003, the Group initiated a project to review and assess the impact of
the adoption of International Financial Reporting Standards (IFRS) on the
preparation of the Group's financial statements in 2005.  The project is
sponsored by the Group Finance Director and is overseen by the Audit Committee.

The review is progressing well in identifying and assessing the potential impact
of IFRS on accounting policies and systems as well as on wider business issues
such as treasury and taxation.

IFRS has been developing rapidly since the project began and current focus is on
considering the large number of final standards which have recently been issued.
Additional work will also be required to assess the implications of any
further standards that are expected to be issued in the period leading up to the
International Accounting Standards Board's deadline of 31 March 2004.


Treasury controls


Policy

The Group's treasury and funding activities are undertaken by a centralised
treasury function.  Its primary activities are to manage the Group's liquidity,
funding and financial risk, principally arising from movements in interest rates
and foreign currency exchange rates.  The Group's policy is to ensure that
adequate liquidity and financial resource are available to support the Group's
growth and development, while managing these risks.  The Group's policy is not
to engage in speculative transactions.  Group Treasury operates as a service
centre within clearly defined objectives and controls and is subject to periodic
review by Internal Audit.


Foreign currency exposure

Translation exposure: the results of the Group's overseas activities are
translated into sterling using the cumulative average exchange rates for the
period concerned.  The balance sheets of overseas subsidiaries are translated at
closing exchange rates.

Transaction exposure: the Group has transactional currency exposure arising from
subsidiaries' commercial activities overseas in currencies other than the
subsidiaries' operating currencies.  In such circumstances, the Group requires
its subsidiaries to use forward currency contracts to minimise the currency
exposure unless a natural hedge exists elsewhere within the Group.



Interest rates risks and exposure

The Group holds financial instruments for two main purposes: to finance its
operations and to manage the interest rate and currency risks arising from its
operations and its sources of finance.  Various financial instruments (for
example, trade debtors, trade creditors, accruals and prepayments) arise
directly from the Group's operations.  The Group finances its operations through
a mixture of working capital and bank borrowings.  With the Group's low level of
borrowings, the main exposure to interest rates fluctuations arises from surplus
cash, which is generally deposited with one of the Group's relationship banks.


Liquidity risk

Group policy is to ensure that projected financing needs are supported by
adequate committed facilities.

The Group has recently negotiated borrowing facilities with its relationship
banks to a maturity date of 31 December 2005.  In addition, to its borrowing
facilities, the Group has extended its contract bonding facilities with its
relationship banks, St Paul Surety Europe Limited, Euler Hermes, and DeMontfort
Surety, all of which facilities subsist until 31 December 2005.


Going concern

The Directors believe, after due and careful enquiry, that the Group has
sufficient resources for its present requirements and, therefore, consider it
appropriate to adopt the going concern basis in preparing the 2003 financial
statements.


Charles J McCole
Finance Director
16 March 2004

                                COSTAIN GROUP PLC

            Preliminary Results for the year ended 31 December 2003


CONSOLIDATED PROFIT AND LOSS ACCOUNT
Year ended 31 December                                                 
                                             Notes                 2003                          2002
                                                                Continuing                    Continuing
                                                                    £m                            £m

Turnover

Group undertakings and Group share of          1                   650.2                         543.4
joint ventures

Less: Group share of joint ventures                                (26.7)                        (21.6)

Group turnover                                                     623.5                         521.8

Cost of sales                                                     (600.9)                       (504.8)

Gross profit                                                        22.6                          17.0

Administration expenses                                            (17.2)                        (16.5)

Operating profit from Group undertakings                             5.4                           0.5

Group share of joint ventures operating                            
results                                                             10.1                           7.5

Operating profit - Group and Group share                           
of joint ventures                                                   15.5                           8.0
                                                                                                 

Net interest receivable/(payable) and
similar income/(charges)

Group undertakings                                                   1.7                           2.0

Joint ventures                                                      (0.3)                         (0.6)

Other finance (charges)/income - Group                            
undertakings                                                        (0.8)                          1.9
                                                                                                 

Profit on ordinary activities before                                
taxation                                       1                    16.1                          11.3                  
                                                         
Taxation                                                            (2.9)                         (1.8)



Profit for the financial year                                       13.2                           9.5


Earnings per share - basic                     2                     3.8p                          2.8p

Earnings per share - diluted                   2                     3.7p                          2.8p



During the year and the previous year, no businesses were acquired and therefore
all continuing results arise from existing operations.



                               COSTAIN GROUP PLC

            Preliminary Results for the year ended 31 December 2003


                        CONSOLIDATED CASH FLOW STATEMENT


Year ended 31 December                                Notes             2003                        2002
                                                                £m            £m             £m           £m

Net cash (outflow)/inflow from operating activities    4                   (5.8)                        3.9

Returns on investments and servicing of finance

Interest received                                               2.2                          2.4

Interest paid                                                  (0.5)                        (0.4)


Net cash inflow from returns on
investments and servicing of finance                                        1.7                         2.0


Taxation

Overseas tax paid                                                          (0.2)                       (0.4)


Capital expenditure and financial investment

Purchases of tangible fixed assets                             (1.8)                        (1.2)

Sales of tangible fixed assets                                    -                          0.1

Repayments of loans to other investments                          -                          0.1

Capital repayments by investments                               6.2                            -

Loans to joint ventures                                           -                         (0.5)

Additions to investments                                       (0.1)                           -


Net cash inflow/(outflow) from capital expenditure
and financial investment                                                    4.3                        (1.5)


Net cash inflow before financing                                              -                         4.0


Financing

New loans                                                       0.3                            -

Issue of ordinary shares                                        0.9                            -

Net cash inflow from financing                                              1.2                           -

Increase in cash in the year                                                1.2                         4.0



            Reconciliation of net cash flow to movement in net cash
                                                                                  2003            2002
                                                                                   £m              £m

Increase in cash in the year                                                       1.2            4.0

Cash inflow from loan financing                                                   (0.3)             -

                                                                                   0.9            4.0
Currency realignment                                                              (0.8)          (0.5)

Movement in net cash                                                               0.1            3.5

New finance leases                                                                (0.8)             -

                                                                                  (0.7)           3.5


Net cash at 1 January                                                             71.3           67.8

Net cash at 31 December                                                           70.6           71.3




                               COSTAIN GROUP PLC

            Preliminary Results for the year ended 31 December 2003


                           CONSOLIDATED BALANCE SHEET


As at 31 December                                                           2003                        2002
                                                        Notes        £m       £m               £m         £m

Fixed assets

Tangible assets                                                              4.9                         3.3

Investments                                                                  1.0                         1.0

Investments in joint ventures

     Share of gross assets                                         75.7                       59.7

     Share of gross liabilities                                   (55.6)                     (43.0)

                                                                             20.1                       16.7

                                                                             26.0                       21.0
Current assets

Stocks                                                                        1.6                        1.6

Debtors                                                                     122.4                      109.7

Cash at bank, monies on deposit and in hand                                  72.0                       71.8

                                                                            196.0                      183.1
Creditors: amounts falling due within one year

Borrowings                                                                   (0.5)                      (0.5)

Other creditors                                                            (193.9)                    (189.8)

                                                                           (194.4)                    (190.3)

Net current assets/(liabilities)

Due within one year                                                          (4.2)                     (11.5)

Due after more than one year                                                  5.8                        4.3

                                                                              1.6                       (7.2)

Total assets less current liabilities                                        27.6                       13.8


Creditors: amounts falling due after more than one year

Borrowings                                                                   (0.9)                         -

Other creditors                                                              (1.7)                      (0.9)

                                                                             (2.6)                      (0.9)


Provisions for liabilities and charges                                       (7.1)                      (9.9)


Net assets excluding pension liability                                       17.9                        3.0

Pension liability                                                           (54.5)                     (24.1)

Net liabilities including pension liability                                 (36.6)                     (21.1)


Share capital and reserves

Called up ordinary share capital                                             34.5                       33.7

Share premium account                                                       119.4                      119.3

Profit and loss account                                                    (190.6)                    (174.2)


Equity shareholders' liabilities                            3               (36.7)                     (21.2)

Equity minority interests                                                     0.1                        0.1


                                                                            (36.6)                     (21.1)



                               COSTAIN GROUP PLC

            Preliminary Results for the year ended 31 December 2003


                             NOTES TO THE ACCOUNTS


1        Business and geographical segment information


          Business segment information


In the opinion of the directors, the only material classes of business are the 
administering of the engineering and construction (E&C) projects and property 
development in Spain.  All items below are E&C projects unless stated
otherwise.

Geographical segment                   Turnover                 Profit/(loss)         Net assets/(liabilities)
information by origin
                                 2003          2002          2003          2002          2003         2002
                                  £m            £m            £m            £m            £m           £m
Continuing operations
Group undertakings

United Kingdom                 583.9          484.6           7.8            2.2       (125.6)      (108.8)

Rest of the world               39.6           37.2          (1.7)          (1.0)        (1.7)        (0.3)

Reorganisation costs - UK          -              -          (0.7)          (0.7)           -            -

Turnover, operating profit and                                                        
net liabilities of Group
undertakings                   623.5          521.8           5.4            0.5       (127.3)       (109.1)


Joint ventures

United Kingdom                   3.8            3.6          (0.2)             -          1.4           1.7

Rest of the world - property    
development                     21.0           17.9           9.5            7.5         18.5          16.4

Rest of the world - E & C        1.9            0.1           0.8              -          0.2          (1.4)

                               650.2          543.4          15.5            8.0       (107.2)        (92.4)

Net interest receivable/
(payable)

and similar income/(charges)                                  1.4            1.4
                                                          
Other finance (charges)/income                               (0.8)           1.9

Net cash                                                                                 70.6           71.3

Profit on ordinary activities
before taxation and net                                
liabilities                                                  16.1           11.3        (36.6)         (21.1)


Turnover by destination is not materially different to turnover by origin.


                               COSTAIN GROUP PLC

            Preliminary Results for the year ended 31 December 2003



2             Earnings per share

The calculation of earnings per share is based on earnings of £13.2m (2002:
£9.5m) and 344,300,294 ordinary shares (2002: 341,885,027) being the weighted
average number of ordinary shares in issue during the year.  The weighted
average number of ordinary shares used for the calculation of the 2002 earnings
per share figure has been adjusted for the bonus element of the 8,000,010 shares
issued in March 2003.

Diluted earnings per share are based on the shares stated above adjusted to
include the dilutive shares under option and warrant.  These totalled 9,872,320
(2002: 2,500,156).


3        Reconciliation of movements in shareholders' funds

                                                                                 Group
                                                                     2003                   2002
                                                                       £m                     £m

Profit for the financial year                                         13.2                   9.5

Other recognised losses in the year                                  (29.6)                (34.8)

Total recognised losses relating to the year                         (16.4)                (25.3)

Share issue in year                                                    0.9                     -

Net reduction in shareholders' funds                                 (15.5)                (25.3)

Shareholders' (deficit)/funds at 1 January                           (21.2)                  4.1

Shareholders' (deficit)/funds at 31 December                         (36.7)                (21.2)





4        Notes to the cash flow statement


          Reconciliation of operating profit to net cash (outflow)/inflow from
          operating activities


                                                                            2003               2002

                                                                              £m                 £m

Operating profit                                                             15.5                8.0

Depreciation                                                                  0.9                0.5

Amounts written back to investments                                             -               (1.4)

Joint ventures                                                              (10.1)              (7.5)

Increase in stocks                                                              -               (0.5)

Increase in debtors                                                         (14.2)             (14.2)

Increase in creditors                                                         4.9               23.6

Decrease in provisions                                                       (2.8)              (4.6)


Net cash (outflow)/inflow from operating activities                          (5.8)               3.9





                               COSTAIN GROUP PLC

            Preliminary Results for the year ended 31 December 2003


The accounts and notes set out above do not constitute the Company's statutory
accounts for the years ended 31 December 2003 or 2002 but are derived from those
accounts.  Statutory accounts for 2002 have been delivered to the Registrar of
Companies and those for 2003 will be delivered in due course.

The auditors have reported on these accounts; their reports were unqualified and
did not contain a statement under section 237 (2) or (3) of the Companies Act
1985.

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