Final Results

RNS Number : 6552O

Costain Group PLC

11 March 2009

 



Costain Group PLC

('Costain' or the 'Group')

Results for the year ended 31 December 2008

Costain announces a strong performance for 2008 and an increased dividend for the year

Year ended 31 December	2008	2007	Change
Revenue*	£996.0m	£877.9m	+13%
Profit from operations	£18.3m	£16.5m	+11%
Profit before tax	£23.1m	£19.8m	+17%
Net cash	£146.6m	£132.8m	+10%
Earnings per share	2.9p**	3.6p	- 19%
Full year dividend	0.75p	0.5p	+50%

* Including share of joint ventures & associates

**  2008 EPS reflects the full annualised impact of the September 2007 rights issue

Strategy has delivered profitable growth, a strong net cash balance and a record order book by focusing on blue-chip customers with committed long-term investment programmes

• Profit before tax up 17% to £23.1 million (2007: £19.8 million) 

• Strong net cash position increased to £146.6 million (2007: £132.8 million)

• Record year-end forward order book, up 25% at £2.0 billion (2007: £1.6 billion)
  -    repeat order customers account for 87%
  -    includes £777 million of secured work for 2009

• Preferred bidder positions over £1 billion (2007: over £800 million)

• Banking and bonding facilities extended to September 2011 and increased by 42% to £285 million

• Recommended final dividend of 0.5p, increasing total payout for the year by 50% to 0.75p (2007: 0.5p) 

David Allvey, Chairman, commented:

'These very good results reinforce Costain's position as one of the most successful businesses in the UK's construction and engineering industry.

'Our increasing momentum is underlined by over £500 million of significant new contract wins already secured in 2009. We have more work secured for 2009 at this point in the year than we did for 2008 at the comparable time last year. 

'Whilst external macro economic events, including the fall in equity markets and interest rates, will have an impact on net interest, the business continues to perform strongly and we are on course to deliver the Board's expected operating result in 2009.

'We remain focused on markets where there are significant spend commitments and, with a net cash balance approaching £150 million, we have the resources to continue to develop the business.

'Our confidence in the future is reflected in the Board's recommendation to increase the total dividend for the year.'

11 March 2009

Enquiries:

Costain	Tel: [phone]
Andrew Wyllie, Chief Executive
Tony Bickerstaff, Finance Director
Graham Read, Communications Director
College Hill	Tel: [phone]
Mark Garraway
Adam Aljewicz

Chairman's statement

Overview

I am pleased to report another year of significant progress. 

Our 'Being Number One' strategy is driving the Group's success and is providing resilience in these challenging times. To finish the year with higher revenues and profits, a robust balance sheet, increased banking and bonding facilities, a record order book and a growing reputation for delivery is a major achievement and one that stands us in good stead for the year ahead.

Our clear and focused strategy is ensuring that the Group continues to win new business in sectors where there is a commitment to expenditure. Our established market positions in areas such as infrastructure, water, waste, energy, health and education are of critical importance and will ensure that we continue to deliver operational progress in 2009.

To take full advantage of market opportunities, the Group has been operationally realigned into five divisions: Infrastructure, Environmental, Oil, Gas & Process, Community and Property Development. As Andrew Wyllie highlights in his Chief Executive's Review, this will also allow the business to broaden its offering within the markets where we have identified real potential.

Results

Revenue for the year was £996.0 million (2007: £877.9 million).  Profit from operations was £18.3 million (2007: £16.5 million), an increase of 11%.

Net financing income amounted to £4.8 million (2007: £3.3 million) which incorporated net interest income of £5.8 million (2007: £2.4 million) and a pension scheme related net interest cost of £1.0 million (2007: £0.9 million income).

Profit before tax was up 17% at £23.1 million (2007: £19.8 million).  

Basic earnings per share amounted to 2.9p (2007: 3.6p). The 2008 earnings per share reflects the full annualised impact of the September 2007 rights issue, when the Group raised £60 million. 

The Group has no significant borrowings and net cash balances at the year-end totalled £146.6 million (2007: £132.8 million), including the Group's share of cash held by construction joint venture arrangements of £34.2 million (2007: £28.8 million).  The average month-end net cash balance during the year was   £117.4 million.

Dividend

The Board is recommending the payment of a final dividend for the year of 0.5p per share. If approved at the forthcoming Annual General Meeting, the dividend, which will be paid on 22 May 2009 to shareholders on the register as at 24 April 2009, would take the payment for the full year to 0.75p (2007: 0.5p), an increase of 50% over the prior year.

Pension

As at 31 December 2008, the deficit in the UK Pension Scheme recorded in the Group's balance sheet in accordance with IAS 19 was £36.1 million, net of deferred tax, an improvement of £0.3 million from the position as at 31 December 2007.

 Board and Staff

Mr F W Ballard and Mr Azman Sulaiman stepped down from the Board during the year. I thank them for their contribution and we wish them well for the future.

On behalf of the Board, I would also like to thank the management and staff at Costain for their continued hard work, dedication and loyalty. They can all be very proud of what has been achieved over the last year. 

Outlook

These very good results reinforce Costain's position as one of the most successful businesses in the UK's construction and engineering industry.

Our increasing momentum is underlined by over £500 million of significant new contract wins already secured in 2009. We have more work secured for 2009 at this point in the year than we did for 2008 at the comparable time last year. 

Whilst external macro economic events, including the fall in equity markets and interest rates, will have an impact on net interest, the business continues to perform strongly and we are on course to deliver the Board's expected operating result in 2009.

We remain focused on markets where there are significant spend commitments and, with a net cash balance approaching £150 million, we have the resources to continue to develop the business.

Our confidence in the future is reflected in the Board's recommendation to increase the total dividend for the year.

DAVID ALLVEY

Chairman

11 March 2009

Chief Executive's Review

Costain is now established as one of the UK's premier construction and engineering businesses.

Clear Strategy 

We have benefited from the continued implementation of our 'Being Number One' strategy that deliberately focuses the business on major blue-chip customers. As anticipated, these large sophisticated organisations, which include a range of public, private and regulated enterprises, are seeking to work with fewer contractors on a longer term or partnership basis.

We have targeted market sectors where we believe work will be undertaken because of its strategic significance to the nation. Consequently, we have been working successfully towards developing leading positions in markets such as highways, water, waste, energy, health and education.

Our strategic focus and high quality customer base has significantly lessened our exposure to sectors particularly susceptible to the macroeconomic climate and has allowed us to secure a record high quality order book.  

In order to provide even greater emphasis on our customers' needs, we have realigned our operational structure into five divisions: Infrastructure, Environmental, Oil, Gas & Process, Community and Property Development. This will allow us to respond quickly to the changing requirements of our customers, and ensure that Costain continues to allocate its resources effectively towards markets with the greatest potential.

Our brand, corporate values and reputation are hugely important to us. They set the standards by which we do business and have allowed us to attract quality customers, suppliers and people to enable us to achieve our growth. 

Delivering a strong performance 

There have been a number of key achievements during the year: 

• Delivered 17% growth in Group profits and 13% growth in revenues  

• Strengthened the balance sheet and enhanced the net cash position to £146.6 million

• Increased the profits and revenues from our civil engineering operations

• Profit from Oil, Gas & Process operations increased, with net margins in excess of 6%

• Actively traded our PFI portfolio to re-invest in bidding for new projects  

• Reduced our overheads and central costs

• Made key appointments across our executive team as part of our succession planning

• Secured a record high quality order book of £2.0 billion

• Paid an interim dividend for the first time in 17 years 

• Recommended a 50% increase in the total dividend payout for the year

However, the Building and Property Development divisions are not providing the required level of returns and a number of initiatives are in place to improve performance.  Further details of these are set out in the Business Review.

Robust finances

We were successful in achieving our financial objectives for the year.

The year-end net cash position increased to £146.6 million (2007: £132.8 million). The Group has no significant borrowings, which is important given the prevailing macro economic conditions. 

During 2008, banking and contract bonding facilities were increased by 42% to £285 million and extended to September 2011. These facilities provide the headroom needed for us to continue to develop the business. 

Record order book

As a direct result of the implementation of our customer focused strategy, we have been greatly encouraged by the growth in our high quality order book, which increased by 25% to a record £2.0 billion at the year-end (2007: £1.6 billion).

Despite the more difficult market conditions, we were successful in securing over £1.4 billion of quality new orders during the year from a range of blue-chip customers. We also ended the year with over £1.0 billion preferred bidder positions (2007: over £800m) including preferred contractor for the Special Purpose Vehicle (SPV) on the Greater Manchester Waste Disposal Authority's PFI contract.

Reflecting the strategic focus by Costain on large customers who favour the long-term framework or partnership approach, the level of repeat business in the order book has increased to 87%.

The year-end Order Book included £777 million for work to be carried out in 2009.

During the year, we saw a number of high profile contract wins across the business reflecting the breadth of our operations. Of particular note was the award by the Highways Agency of their MAC Area 7 five-year maintenance contract, the early extension of our AMP4 contract at Southern Water into the AMP5 2010-2015 period, the redevelopment of Felixstowe port for Hutchison and the major Riverside waste facility for VonRoll.  

These are all examples of work awarded on the basis of excellent customer relationships and our growing reputation for delivery.

Since the year-end, Costain has continued to win a number of major contract awards, including Severn Trent AMP 5, the M53 Bidston Moss viaduct refurbishment and the Port Talbot Relief Road.  

The level of tendering and estimating activity remains high supporting our belief that our customers remain committed to their expenditure plans.

Operations 

Our ability to secure high levels of repeat order business reflects our proven track record in delivering projects safely to quality, time and budget, often exceeding our customers' expectations.

Our Civil Engineering operations had an exceptional year, increasing profits, revenues, margins and order book. A number of projects were completed ahead of schedule generating early completion bonuses. Major new contract awards also ensured that we have strengthened our position in each of our key target market sectors and as a result the order book in the division has increased by over 30% in the year. We are well placed to seize the opportunities that will be presented by the anticipated future investment in major infrastructure and environmental related projects; examples include Crossrail, high-speed rail links, new nuclear power, waste schemes and airport expansion.  

The Building division's trading performance was disappointing in the year and further actions have been taken to address a number of operational issues.  This division now accounts for just 9% of the order book and we are concentrating on the health and education sectors where we expect there to be significant spend over the next few years.  

PFI remains a strategically important activity given its prominence as a procurement route for major public projects. We continued with our policy of trading our PFI equity portfolio to reinvest in bidding for new projects and disposed of two equity stakes in the year. 

Our Oil, Gas & Process operations made excellent progress with increases in profit, revenue and margin. The order book is also up and we benefit from specialist expertise in the areas of nuclear design, underground gas storage and process modularisation. This division is a core part of the Group and is well placed to capitalise on the demand for energy related projects in the future.

Further progress has been made in closing out the legacy projects from our International division.  During the year, we achieved substantial completion on the Costa Azul project in Mexico and the customer has operational use of the facility.  The results for the year reflect an additional provision for the project which is expected to be completed by mid-2009 following the extension of the project's scope by the customer. 

Market conditions in Spain remained very difficult as a result of the global economic downturn and, as anticipated Alcaidesa, our Spanish strategic land development operation in joint venture with Santander Bank, did not complete any land sales in the year.  Construction of the 800-berth marina is progressing well and is scheduled for completion in 2010.  There has been a good level of interest from potential customers seeking to secure berths.  

There is a more detailed review of each operating division in the Business Review.

Health, Safety and Environment

The effective management of Health, Safety and Environment remains our top priority. 

Further progress was made in the year and we recorded an improved Group Accident Frequency Ratio (AFR) of 0.17, once again making us the best performing company in the Major Contractors Group (MCG) peer group.  

We received a total of 46 RoSPA safety awards including the prestigious Order of Distinction for our Oil, Gas & Process operations recognising 15 consecutive annual gold awards. The consideration we show for the local communities in which we work was recognised by the receipt of 11 awards from the Considerate Constructors scheme. 

Notwithstanding our industry leading safety performance, there was a fatal accident on the M25/A2 motorway project. This devastating event reinforced the need for continuous vigilance and improvement in our safety performance.

As part of our commitment to ensuring the health and welfare of our workforce, medical screening was provided to over 700 employees during the year.

Our efforts to mitigate the environmental impact of our operations were rewarded by the receipt of our first Silver award following an external assessment by Business in the Community (BiTC).  

A series of challenging objectives have been set for 2009, which include enhanced performance targets for all activities. 

People

We have achieved our strong business performance by ensuring that we employ and retain a highly talented and motivated team of people. There was a net increase of over 200 people in the business during the year and we have made a significant level of investment in training and development at all levels.  

A growing business provides plenty of opportunity for our people to develop their careers and achieve their full potential. Our management development programmes have enabled many people to take on new and enhanced responsibilities. 

There were changes of responsibilities and new appointments to strengthen the Executive Board, which is the Group's operational Board. These included Alan Kay's appointment in the new role of Chief Operating Officer; Darren James, Alex Vaughan and David Jenkins appointments as Managing Directors for respectively the new Infrastructure, Community and Environmental divisions; and the promotion of Tracey Wood to HR and Legal Director.  

Our management strength in depth allows us to develop succession planning across the whole business.

Supply Chain

Progress has been made in further rationalising our supply chain as we focus on developing more strategic longer-term relationships and the number of suppliers used has reduced to around 3,000, a sixth of the level on the Group's database three years ago. 

Developing supplier relationships in this mutually beneficial way enables us to enhance the service we provide to our customers, increase innovation, access the best project teams, improve safety and drive out cost from the production process.

We recently hosted an annual supply chain conference which was attended by the top-100 supply chain partners. During the event we set out our objectives, discussed areas for collaboration and agreed clear performance targets.

Managing costs

We continue to manage costs robustly and notwithstanding the very significant increase in revenue and order book, overhead costs in 2008 were held at the same level as the previous year. 

The move to the Group's new open plan headquarters in Maidenhead was successful and has provided the anticipated improvements in efficiency and working environment. The regional office in Chelmsford has been closed, as it was no longer required to support our strategy.  

In addition we outsourced part of the Group's IT function and, as a result, an enhanced service is provided to the business at a lower cost.

Summary

We have achieved a great deal in the last year and delivered a strong business performance, despite the very significant economic downturn. 

We have a clear strategy, robust finances, a record order book and a motivated management team. The Group is benefiting from the focus our strategy is bringing to everything we do. We are deliberately targeting the key market sectors that we believe will be of strategic importance to the nation and that will receive significant investment over the next few years. 

No company can be immune from the current uncertain environment, but Costain is demonstrating resilience in these turbulent times. 

We are expecting to deliver further progress in operating performance during 2009. We are confident about Costain's future, which I look forward to reporting on during the year.

ANDREW WYLLIE

Chief Executive

11 March 2009

Business Review

CIVIL ENGINEERING

The Group's Civil Engineering division, which accounts for 85% of the Group's order book, includes our Infrastructure (highways, rail, airports and nuclear) and Environment (waste, water and marine) activities.

Revenue (including share of joint ventures and associates) for the year was £620.0 million (2007: £539.3 million), with an operating profit of £28.0 million (2007: £20.0 million). The division's year-end order book was £1.67 billion (2007: £1.24 billion), an increase of 34%.

This strong performance reflects Costain's position as a leader in the delivery of the UK's infrastructure and environmental projects.

Highways 

In 2008, Costain delivered a number of major schemes for its customers and significantly strengthened its position in the provision of maintenance services.

A strong operational performance was underpinned by early deliveries for the Highways Agency on M25 Junctions 1b to 3 and M27 Junctions 11 to 12 and strong starts on the M25 Bell Common Tunnel, A34 Wolvercote Viaduct and the Rhondda Cynon Taf Church Village by-pass projects.

Our high level of service delivery on the Highways Agency's MAC Area 10 five-year maintenance contract by our A one+ joint venture team was rewarded with the award of the Area 7 MAC contract, further reinforcing our growing position in this area.

In conjunction with joint venture partners, Costain is supporting the Highways Agency in developing two of its largest Early Contractor Involvement schemes on the M1 Junctions 10 to 13 and on the A14 Ellington to Fen Ditton.

Rail

Following the completion and acclaimed opening of St Pancras International, Costain completed on programme the Kings Cross Eastern Range contract for Network Rail. We have also been awarded and have commenced work on the first stage of the Thameslink upgrade at Farringdon, which will be a key hub for Network Rail, London Underground and the future Cross Rail scheme. 

During 2008, Costain has continued to support London Underground on the early stages of its important 'Cooling The Tube' programme and we also delivered the first new underground station on an existing line for over 60 years at Wood Lane.  

The receipt of a British Construction Industry Award ('BCIA') for our work on the Langdon Park Docklands Light Railway station has further enhanced Costain's reputation in the rail sector.

Airports

Following Costain's appointment to the BAA Complex Build Integrator Framework, we commenced work on the early stages of the planned redevelopment of the North Terminal at Gatwick. 

The Group also secured a contract for the delivery of ground investigation work at Stansted and undertaken further work for Manchester Airport Group, delivering airside pavements at both Manchester and Bournemouth airports during the year. 

Nuclear 

Costain is continuing to build its presence in the nuclear sector and is focused on decommissioning opportunities and ultimately on securing work on the future new build programme.

During the year, there was good progress on major contracts including the Evaporator 'D' project at Sellafield and the Solid Active Waste Bunker Retrieval project at Hunterston. Costain's coverage of the UK nuclear sites continues to strengthen with our framework contract at Trawsfynydd being supplemented with the award of the Magnox South framework at Berkeley and preparatory work at Hinkley.

Water

Costain reinforced its position as the UK's leading asset management contractor in the water sector where we delivered an excellent performance across all our frameworks.

As a result of our exceptional delivery, Southern Water awarded our 4D joint venture with an early extension of our contract through the AMP5 period to 2015, providing the Group with visibility of a major earnings stream. 

Elsewhere, the Group delivered 500 waste and water schemes for Yorkshire Water, achieved all of the delivery targets for Welsh Water, completed major schemes at Hornsey, Lane End, Wanstead and Beddington for Thames Water and provided a diverse range of clean and waste water schemes for United Utilities. 

Waste

Costain has significantly expanded its operations in the growing waste sector and is focused on leveraging its complementary process engineering skills and expertise from its water operations to build a major presence in the rapidly expanding UK and European regulated marketplace.

Costain was awarded the Riverside energy-from-waste plant project at Belvedere in Kent, a milestone in the division's expansion. We are also preferred bidder for the design and build element of the Greater Manchester Waste Authority contract, the largest waste services contract in Europe.

We are seeking to build on our success on waste PFI projects by bidding in consortium for a number of future contracts. We have pre-qualified on the Bradford and Calderdale project and will bid for others selectively in 2009.

Marine

A major achievement during the year was the award by Hutchison Port Holdings of the Felixstowe South Reconfiguration contract where work commenced in May 2008 and will last for two and a half years. In addition, Costain's established relationship with Canary Wharf Contractors was extended with further works secured in joint venture for the development at Westferry Circus.

BUILDING

Revenue (including share of joint ventures and associates) for the year was £285.6 million (2007: £254.7 million), with an operating loss of £5.2 million (2007: profit of £0.8 million).  

In line with our stated strategy of actively trading our PFI portfolio in order to invest in future opportunities, we disposed of our equity stakes in two PFIs during the year resulting in a combined profit of £2.7 million.

The disappointing divisional performance reflected provisions made for additional costs on a small number of projects, in particular on one non-core residential project.  We have taken decisive actions to improve the performance of the division including management changes, reducing overheads, strengthening and focusing relationships with the supply chain and improving business process implementation. We anticipate an improvement in performance in 2009. 

The division's year-end order book was reduced by 26% to £181 million (2007: £243 million) reflecting the primary focus on health, education and retail opportunities.

Health 

A number of healthcare projects were successfully completed including the first of Costain's Three Shires PFI batch of hospitals. Good progress is being made on the two other batch hospitals, together with the ProCure 21 schemes in Chertsey, Sheffield and Cheltenham.

Following the recent award, Costain has commenced work on a redevelopment scheme at Gloucestershire Royal Hospital and a number of additional projects have also been progressed within the ProCure 21 framework.

Education

Costain, in joint venture partnership, completed on time the first three schools in Bradford under the Government's Building Schools for the Future ('BSF') programme despite facing a number of operational challenges. The joint venture has now commenced delivery of a further three new primary schools under Phase 2 of the programme and is finalising the design development of four secondary schools for commencement in the first quarter of 2009.

Of the two schools being delivered under the Lewisham BSF, one has been completed and the second is scheduled to be occupied in April 2009. Three further schemes, under Phase 2 of this programme, are currently being developed.

Costain also successfully completed a number of school and university projects elsewhere around the country including the DACI at Shrivenham and the ICMA extension at the University of Reading.

Retail

Costain completed a total of seven projects for Tesco and Sainsbury's. 

Following the award of the Newbury Parkway project, we have commenced the construction of this retail mixed-use re-development, part of an extensive re-generation of Newbury town centre which is expected to be completed in 2010.

OIL, GAS & PROCESS

Revenue (including share of joint ventures and associates) for the year was £83.6 million (2007: £62.3 million) with an operating profit of £5.5million (2007: £1.9 million). The division's order book increased 14% to £115 million (2007: £101 million).

Building on the successful results achieved in 2007, the division performed very well during 2008 and continues to offer significant opportunities for future growth.

Our nuclear engineering and design activity has delivered good results and we continue to develop this area of expertise as part of Costain's overall approach to this important market. 

Costain secured two significant awards in the important underground gas storage sector: firstly, the Brine & Water Plant at Gaz de France's Stublach Underground Gas Storage Facility and, secondly, the gas plant for the E.ON Holford Underground Gas Storage Facility.  

In International Gas Processing, the division is providing project management, engineering and procurement services to a number of overseas customers. During 2008, projects were successfully completed for BG in Tunisia and Eni in Pakistan.

In the Middle East, where Costain has been active for a number of years, the Company is one of only four construction contractors based permanently on Abu Dhabi's Das Island oil and gas refinery complex. 

PROPERTY DEVELOPMENT

Revenue (including share of joint ventures and associates) for the year was £1.1 million (2007: £3.6 million) with a loss of £2.3 million (2007: profit £0.2 million).

The Spanish real estate market had a difficult year and Alcaidesa Holding, Costain's 50% joint venture with a division of Santander Bank, has not been immune to the economic problems impacting the market.

Alcaidesa Holding does not undertake direct residential development in Spain but has acquired over time a land bank for which it seeks to secure Master Plan approval and build infrastructure prior to selling on developable land to third parties. No significant land sales were achieved in the year.

It is not expected that the market will improve in 2009 and, consequently, action has been taken to reduce costs.

Work started in August 2008 on the construction of the 800 berth yacht marina and associated commercial development at La Linea de la Concepcion immediately adjacent to the Spanish border with Gibraltar. The project is progressing and the first phase will be completed in 2010.  

INTERNATIONAL

Revenue (including share of joint ventures and associates) for the year was £5.7 million (2007: £18.0 million) with an operating loss of £2.0 million (2007: £Nil).

Following the decision in 2006 to close the International division, we continue to workout the two last remaining contracts. During the year, we achieved substantial completion on the Costa Azul project in Mexico and the customer has operational use of the facility. Agreement has been reached with the customer regarding the final value and scope of the project and we have taken an additional provision of   £2 million accordingly. The remaining outstanding works will be completed in 2009.

All future international projects will be undertaken by the appropriate specialist sector teams. 

ORDER BOOK

We have a high quality order book, standing at £2.0 billion as at 31 December 2008, of which over £777 million relates to 2009 and 87% of which is repeat business. We have also grown our preferred bidder positions to in excess of £1 billion.

We will maintain our focus on quality of work rather than quantity. This approach has resulted in an order book that extends through 2015, contains a range of excellent contracts and provides a stream of high-quality earnings for the Group.  

  Consolidated income statement

Year ended 31 December

	Notes	2008		2007
		£m		£m
Revenue (Group and share of joint ventures and associates)	2	996.0		877.9
Share of joint ventures and associates	7	(93.4)		(130.3)
Group revenue		902.6		747.6
Cost of sales		(861.3)		(716.2)
Gross profit		41.3		31.4
Administrative expenses		(21.8)		(21.7)
Group operating profit		19.5		9.7
Profit on sales of investments		-		2.7
Profit on sales of interests in joint ventures and associates		2.7		3.2
Share of results of joint ventures and associates	7	(3.9)		0.9
Profit from operations	2	18.3		16.5
Financial income	3	34.8		29.6
Finance costs	3	(30.0)		(26.3)
Net financing income		4.8		3.3
Profit before tax		23.1		19.8
Income tax expense	5	(4.9)		(3.8)
Profit for the year attributable to equity holders of the parent		18.2		16.0
Earnings per share - basic	4	2.9p		3.6p
Earnings per share - diluted	4	2.9p		3.5p

During the year and the previous year, no businesses were acquired. In the previous year, the impact on the results of the businesses disposed was not material and, therefore, all results are classified as arising from continuing operations.

		2008		2007
Dividends per ordinary share:	6
Final 2007 - paid 2008		-		0.50p
Interim 2008 - paid 2008		0.25p		-
Final 2008 - proposed		0.50p		-

Consolidated statement of recognised income and expense

Year ended 31 December

		Notes	2008		2007
			£m		£m
Exchange differences on translation of foreign operations			9.7		2.0
Cash flow hedges:
	Effective portion of changes in fair value (net of tax)  during year - Group		0.7		(0.1)
	Effective portion of changes in fair value (net of tax) during year - joint ventures and associates		(10.9)		(0.3)
	Joint ventures and associates disposed during year		(0.7)		0.2
Change in fair value of assets classified as available for sale			-		(2.6)
Actuarial (losses)/gains on defined benefit pension scheme			(10.5)		11.7
Tax recognised on actuarial (losses)/gains recognised directly in equity			3.0		(3.3)
Tax rate adjustment to brought forward actuarial losses recognised directly in equity			-		(1.7)
Net (loss)/income recognised directly in equity			(8.7)		5.9
Profit for the year			18.2		16.0
Total recognised income and expense for the year attributable to equity holders of the parent		10	9.5		21.9

  Consolidated balance sheet

As at 31 December

	Notes	2008		2007
		£m		£m
ASSETS
Non-current assets
Property, plant & equipment		7.7		3.5
Intangible assets		1.8		2.7
Investments in joint ventures		32.2		29.0
Investments in associates		0.1		2.2
Loans to joint ventures		9.5		7.3
Loans to associates		0.9		1.6
Other receivables		6.0		6.7
Deferred income tax assets		18.9		21.2
Total non-current assets		77.1		74.2
Current assets
Inventories		1.6		2.0
Trade and other receivables		180.3		150.3
Cash and cash equivalents	8	147.3		133.4
Total current assets		329.2		285.7
Total assets		406.3		359.9
EQUITY
Share capital		31.7		31.4
Share premium		1.7		1.1
Foreign currency translation reserve		10.6		0.9
Hedging reserve		(12.7)		(1.8)
Retained earnings		2.3		(4.2)
Total equity attributable to equity holders of the parent	10	33.6		27.4
LIABILITIES
Non-current liabilities
Retirement benefit obligations	9	50.2		50.6
Other payables		2.4		3.7
Provisions for other liabilities and charges		8.0		5.0
Total non-current liabilities		60.6		59.3
Current liabilities
Trade and other payables		305.0		268.1
Income tax liabilities		1.7		1.8
Overdrafts	8	0.4		-
Interest bearing loans and borrowings		0.3		0.6
Provisions for other liabilities and charges		4.7		2.7
Total current liabilities		312.1		273.2
Total liabilities		372.7		332.5
Total equity and liabilities		406.3		359.9

  Consolidated cash flow statement 

Year ended 31 December

	Notes	2008		2007
		£m		£m
Cash flows from operating activities
Profit for the year		18.2		16.0
Adjustments for:
Depreciation and amortisation		3.1		2.8
Financial income	3	(34.8)		(29.6)
Finance costs	3	30.0		26.3
Share-based payments expense		0.6		0.2
Income tax	5	4.9		3.8
Profit on sales of investments		-		(2.7)
Profit on sales of interests in joint ventures and associates		(2.7)		(3.2)
Share of results of joint ventures and associates	7	3.9		(0.9)
Amounts written off equity and loan to associate	7	0.4		-
Cash from operations before changes in working capital and provisions		23.6		12.7
Decrease in inventories		0.4		0.4
(Increase)/decrease in receivables		(24.7)		13.3
Increase in payables		35.5		1.9
Movement in provisions and employee benefits		(11.5)		(8.0)
Cash from operations		23.3		20.3
Interest paid		(0.7)		(0.5)
Income tax paid		-		(0.3)
Net cash from operating activities		22.6		19.5
Cash flows used by investing activities
Interest received		6.5		2.8
Dividends received from joint ventures		0.7		-
Additions to property, plant & equipment		(5.8)		(0.8)
Additions to intangible assets		(0.1)		(0.2)
Additions to investments		-		(0.2)
Disposal of subsidiary, net of cash disposed		-		(1.4)
Proceeds from sales of investments and interests in joint ventures and associates		5.0		9.4
Loans to joint ventures and associates		(11.7)		(10.1)
Net cash used by investing activities		(5.4)		(0.5)
Cash flows (used by)/from financing activities
Issue of ordinary share capital		0.7		65.0
Share issue costs		-		(4.5)
Ordinary dividends paid		(4.5)		-
Repayment of borrowings		(0.3)		(1.0)
Payment of finance lease liabilities		-		(0.1)
Net cash (used by)/from financing activities		(4.1)		59.4
Net increase in cash, cash equivalents and overdrafts		13.1		78.4
Cash, cash equivalents and overdrafts at beginning of the year	8	133.4		55.0
Effect of foreign exchange rate changes		0.4		-
Cash, cash equivalents and overdrafts at end of the year	8	146.9		133.4

Notes to the financial statements

1    Basis of preparation

Costain Group PLC (the Company) is a public limited company incorporated in the United Kingdom. The consolidated financial statements of the Company for the year ended 31 December 2008 comprise the Group and the Group's interests in associates and jointly controlled entities and have been prepared and approved by the directors in accordance with International Financial Reporting Standards as adopted for use in the EU in accordance with EU law (IAS Regulation EC 1606/2002). 

The financial information set out herein (which was authorised for issue by the directors on 11 March 2009) does not constitute the Company's statutory accounts for the years ended 31 December 2008 or 2007 but is derived from those accounts. Statutory accounts for 2007 have been delivered to the Registrar of Companies, and those for 2008 will be delivered in advance of the Company's Annual General Meeting. The auditors have reported on those accounts; their reports were unqualified and did not include reference to any matters to which the auditors drew attention by way of emphasis without qualifying their reports and did not contain statements under section 237(2) or (3) of the Companies Act 1985.

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 and construction projects, Property Development operations in Spain and Central costs. PFI investments are allocated to the appropriate segment depending on the nature of the construction element within the concession. These represent the Group's primary segments. Secondary segments are presented geographically.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Central costs comprise mainly corporate expenses. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Year ended  31 December 2008	Civil Engineering	Building	Oil, Gas & Process	International	Property Development	Central costs	Total
	£m	£m	£m	£m	£m	£m	£m
Group revenue	554.5	267.7	79.7	0.7	-	-	902.6
Share of revenue of JVs and associates	65.5	17.9	3.9	5.0	1.1	-	93.4
Total revenue	620	285.6	83.6	5.7	1.1	-	996.0
Group operating profit/(loss)	28.2	(8.5)	5.5	-	-	(5.7)	19.5
Profit on sales of JVs and associates	-	2.7	-	-	-	-	2.7
Share of results of JVs and associates	(0.2)	0.6	-	(2.0)	(2.3)	-	(3.9)
Segment result	28.0	(5.2)	5.5	(2.0)	(2.3)	(5.7)	18.3
Net financing income							4.8
Income tax expense							(4.9)
Profit for the year							18.2
Group assets	141.4	27.4	26.0	2.5	0.1	-	197.4
Investments in and loans to JVs and associates	0.2	1.3	0.3	5.7	35.2	-	42.7
Segment assets	141.6	28.7	26.3	8.2	35.3	-	240.1
Unallocated assets							166.2
Total assets							406.3
Group liabilities	(208.3)	(63.6)	(35.0)	(4.9)	-	(0.5)	(312.3)
Provisions against JVs and associates	-	(7.8)	-	-	-	-	(7.8)
Segment liabilities	(208.3)	(71.4)	(35.0)	(4.9)	-	(0.5)	(320.1)
Unallocated liabilities							(52.6)
Total liabilities							(372.7)
Capital expenditure	3.7	1.0	1.2	-	-	-	5.9
Depreciation/amortisation	1.9	0.7	0.5	-	-	-	3.1

Business and geographical segment information by origin - continued

Year ended 31 December 2007	Civil Engineering	Building	Oil, Gas & Process	International	Property Development	Central costs	Total
	£m	£m	£m	£m	£m	£m	£m
Group revenue	441.4	249.7	53.8	2.7	-	-	747.6
Share of revenue of JVs and associates	97.9	5.0	8.5	15.3	3.6	-	130.3
Total revenue	539.3	254.7	62.3	18.0	3.6	-	877.9
Group operating profit/(loss)	16.9	(2.3)	1.7	(0.2)	-	(6.4)	9.7
Profit on sale of investment	-	2.7	-	-	-	-	2.7
Profit on sales of JVs and associates	3.0	-	-	0.2	-	-	3.2
Share of results of JVs and associates	0.1	0.4	0.2	-	0.2	-	0.9
Segment result	20.0	0.8	1.9	-	0.2	(6.4)	16.5
Net financing income							3.3
Income tax expense							(3.8)
Profit for the year							16.0
Group assets	115.0	29.4	17.9	2.9	-	-	165.2
Investments in and loans to JVs and associates	1.6	8.8	0.1	3.4	26.2	-	40.1
Segment assets	116.6	38.2	18.0	6.3	26.2	-	205.3
Unallocated assets							154.6
Total assets							359.9
Group liabilities	(168.5)	(77.3)	(24.4)	(5.0)	-	(0.6)	(275.8)
Provisions against JVs and associates	(0.8)	(2.7)	(0.2)	-	-	-	(3.7)
Segment liabilities	(169.3)	(80.0)	(24.6)	(5.0)	-	(0.6)	(279.5)
Unallocated liabilities							(53.0)
Total liabilities							(332.5)
Capital expenditure	0.3	0.1	0.5	0.1	-	-	1.0
Depreciation/amortisation	1.7	0.8	0.2	0.1	-	-	2.8

	Revenue			Segment result
	2008	2007		2008		2007
	£m	£m		£m		£m
United Kingdom	969.6	833.8		20.6		16.3
Spain	1.1	3.6		(2.3)		0.2
Rest of the world	25.3	40.5		-		-
	996.0	877.9		18.3		16.5
	Segment assets			Capital expenditure
	2008	2007		2008	2007
	£m	£m		£m	£m
United Kingdom	181.3	167.4		5.0	0.6
Spain	35.3	26.2		-	-
Rest of the world	23.5	11.7		0.9	0.4
	240.1	205.3		5.9	1.0

3    Net financing income

	2008		2007
	£m		£m
Interest income from bank deposits	5.6		2.4
Interest income on loans to related parties	0.9		0.5
Expected return on defined benefit pension scheme assets	28.3		26.7
Financial income	34.8		29.6
Interest expense	(0.7)		(0.5)
Interest cost on the present value of the defined benefit obligations	(29.3)		(25.8)
Finance costs	(30.0)		(26.3)
Net financing income	4.8		3.3

Interest income on loans to related parties relates to shareholder loan interest receivable from the Group's investments in joint ventures and associates.

4    Earnings per share

The calculation of earnings per share is based on profit attributable to equity holders of the parent of £18.2 million (2007: £16.0 million) and the number of shares set out below: 

	2008		2007
Weighted average number of ordinary shares in issue for basic earnings per share calculation	631,910,512		449,535,401
Dilutive potential ordinary shares:
SAYE Scheme	2,123,412		5,404,067
Weighted average number of ordinary shares in issue for diluted earnings per share calculation	634,033,924		454,939,468

In 2007, the weighted average number of shares and the number of dilutive potential ordinary shares were adjusted to take account of the bonus element of the additional equity raised by way of a rights issue in that year. 

5    Income tax

	2008		2007
	£m		£m
On profit for the year:
United Kingdom corporation tax at 28.5% (2007: 30.0%)	-		0.1
Adjustments in respect of prior years	0.1		0.8
Overseas taxation	-		(0.3)
Current tax credit for the year	0.1		0.6
Deferred taxation	(5.0)		(4.0)
Adjustments in respect of prior years	-		(0.4)
Total income tax expense in the income statement	(4.9)		(3.8)

	2008		2007
	£m		£m
Tax reconciliation:
Profit before tax	23.1		19.8
Income tax at 28.5% (2007: 30.0%)	(6.6)		(5.9)
Rate adjustments relating to overseas profits	0.5		0.4
Share of results of joint ventures and associates at 28.5% (2007: 30.0%)	(1.1)		0.3
Disallowed provisions and expenses	(0.8)		(0.5)
Non-taxable gains and profits relieved by capital losses	0.8		1.8
Unrelieved overseas tax	-		(0.2)
Decrease/(increase) in temporary differences	2.1		(0.4)
Rate adjustment relating to deferred tax	0.1		0.3
Adjustments in respect of prior years	0.1		0.4
Total income tax expense in the income statement	(4.9)		(3.8)

The income tax above does not include any amounts for joint ventures and associates, whose results are disclosed in the income statement net of tax.

6    Dividends per share

During the period, the 2007 final dividend of 0.50 pence (2006: Nil pence) per share was paid to shareholders (£3.0 million in cash and £0.1 million via scrip alternative). The Company also paid an interim 2008 dividend of 0.25 pence (2007: nil pence) per share (£1.5 million in cash and £0.1million via scrip alternative).

A final dividend in respect of the year ended 31 December 2008 of £0.50p per share, amounting to a total dividend of £3.2 million, is to be proposed at the Annual General Meeting. If approved, the dividend is expected to be paid on 22 May 2009. These financial statements do not reflect this dividend payable. The payment will be matched by a contribution to the Group's defined benefit pension scheme.

7    Investments 

The analysis of the Group's share of joint ventures and associates is set out below:

	2008				2007
	Alcaidesa Holding SA	Other joint ventures	Associates	Total	Alcaidesa Holding SA	Other joint ventures	Associates	Total
	£m	£m	£m	£m	£m	£m	£m	£m
Revenue	1.1	71.8	20.5	93.4	3.6	118.7	8.0	130.3
(Loss)/profit before tax	(3.3)	(1.3)	(0.1)	(4.7)	0.4	0.6	0.6	1.6
Income tax	1.0	(0.1)	(0.1)	0.8	(0.2)	(0.2)	(0.3)	(0.7)
(Loss)/profit for the year	(2.3)	(1.4)	(0.2)	(3.9)	0.2	0.4	0.3	0.9
Non-current assets	13.3	75.0	72.6	160.9	7.7	45.0	72.9	125.6
Current assets	40.6	29.6	14.4	84.6	31.0	59.1	22.1	112.2
Current liabilities	(2.9)	(51.1)	(9.2)	(63.2)	(1.9)	(45.1)	(8.8)	(55.8)
Non-current liabilities	(19.2)	(53.1)	(77.7)	(150.0)	(10.6)	(57.5)	(82.7)	(150.8)
Investments in joint ventures and associates	31.8	0.4	0.1	32.3	26.2	1.5	3.5	31.2
Financial commitments	5.8	3.5	4.7	14.0	-	3.5	6.8	10.3
Capital commitments	-	0.2	10.5	10.7	-	23.5	27.3	50.8

Net interest payable by joint ventures and associates in 2008 was £2.6 million (2007: £0.3 million payable). 

The financial commitments relate to Alcaidesa and joint ventures involved in PFI schemes and the capital commitments to construction work being undertaken by the Costain Group. All figures are the Group's share.

8    Cash and cash equivalents

Cash and cash equivalents are analysed below, and include the Group's share of cash held by jointly controlled operations of £34.2 million (2007: £28.8 million).

	2008		2007
	£m		£m
Cash and cash equivalents	147.3		133.4
Bank overdrafts	(0.4)		-
Cash, cash equivalents and overdrafts in the cash flow statement	146.9		133.4

9    Employee benefits 

Pensions

The Group operates a defined benefit pension scheme in the United Kingdom and a number of defined contribution type pension plans in the United Kingdom and overseas. Contributions are paid by subsidiary undertakings and employees. The total pension charge for the Group in the Consolidated income statement was £8.4 million (2007: £7.2 million).  

Defined benefit scheme

The defined benefit scheme was closed to new members on 1 June 2005 and from 1 April 2006, future benefits were calculated on a Career Average Revalued Earnings basis. A full actuarial valuation of the scheme was carried out at 31 March 2007 and was updated to 31 December 2008 by a qualified independent actuary.

	2008		2007		2006
	£m		£m		£m
Present value of defined benefit obligations	(435.8)		(511.1)		(509.4)
Fair value of scheme assets	385.6		460.5		440.7
Recognised liability for defined benefit obligations	(50.2)		(50.6)		(68.7)

Movements in present value of defined benefit obligations:

	2008		2007
	£m		£m
At 1 January	511.1		509.4
Current service cost	4.7		5.8
Past service cost	1.2		1.2
Interest cost	29.3		25.8
Actuarial gains	(94.6)		(15.9)
Benefits paid	(19.8)		(19.5)
Contributions by members	3.9		4.3
At 31 December	435.8		511.1

Movements in fair value of scheme assets:

	2008		2007
	£m		£m
At 1 January	460.5		440.7
Expected return on scheme assets	28.3		26.7
Actuarial losses	(105.1)		(4.2)
Contributions by employer	17.8		12.5
Contributions by members	3.9		4.3
Benefits paid	(19.8)		(19.5)
At 31 December	385.6		460.5

Expense recognised in the income statement:

	2008		2007
	£m		£m
Current service cost	4.7		5.8
Past service cost	1.2		1.2
Interest cost on defined benefit obligations	29.3		25.8
Expected return on scheme assets	(28.3)		(26.7)
Total	6.9		6.1

The expense is recognised in the following line items in the income statement:

	2008		2007
	£m		£m
Cost of sales	5.2		6.2
Administrative expenses	0.7		0.8
Financial income	(28.3)		(26.7)
Finance costs	29.3		25.8
Total	6.9		6.1

Employee benefits - continued

Pensions - continued

Principal actuarial assumptions (expressed as weighted averages):

	2008		2007
	%		%
Discount rate	6.60		5.80
Expected rate of return on scheme assets	6.07		6.14
Future salary increases	2.85		3.40
Future pension increases	2.85		3.40
Inflation assumption	2.85		3.40

The expected rate of return on scheme assets is determined by reference to relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the scheme's investment portfolio.

Weighted average life expectancy from age 65 as per mortality tables used to determine benefits at 31 December 2008 and 31 December 2007 is:

	2008				2007
	Male (years)		Female (years)		Male (years)		Female (years)
Currently aged 65	20.3		23.1		20.2		23.0
Non-retirees	21.3		24.0		21.2		24.0

The scheme is closed to new entrants and with time the average age of the remaining members will increase. Under the projected unit method, the service cost will increase as the average age of members' increases.

The discount rate, inflation and pension increase and mortality assumptions have a significant effect on the amounts reported. Changes in these assumptions would have the following effects on the Group's defined benefit scheme:

	Pension liability		Pension cost
	£m		£m
Decrease discount rate by 0.25%, increases pension liability and pension cost by:	16.2		0.4
Decrease inflation (and pension increases) by 0.25%, decreases pension liability and pension cost by:	14.2		1.3
Increase life expectancy by one year, increases pension liability and pension cost by:	10.1		0.8

Defined contribution plans 

The Group operates a number of defined contribution pension plans. The total expense relating to these plans in the current year was £1.5 million (2007: £1.1 million).

10     Capital and reserves

	Share capital	Share premium	Special reserve	Fair value reserve	Translation reserve	Hedging reserve	Merger Reserve	Retained earnings	Total Equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 1 January 2007	17.9	0.6	12.8	2.6	(1.2)	(1.6)	-	(86.3)	(55.2)
Total recognised income & expense	-	-	-	(2.6)	2.1	(0.2)	-	22.6	21.9
Share-based payments	-	-	-	-	-	-	-	0.2	0.2
Shares issued	13.5	0.5	(12.8)	-	-	-	46.5	12.8	60.5
Transfer	-	-	-	-	-	-	(46.5)	46.5	-
At 31 December 2007	31.4	1.1	-	-	0.9	(1.8)	-	(4.2)	27.4
At 1 January 2008	31.4	1.1	-	-	0.9	(1.8)	-	(4.2)	27.4
Total recognised income & expense	-	-	-	-	9.7	(10.9)	-	10.7	9.5
Share-based payments	-	-	-	-	-	-	-	0.5	0.5
Shares issued	0.2	0.5	-	-	-	-	-	-	0.7
Dividend paid	0.1	0.1	-	-	-	-	-	(4.7)	(4.5)
At 31 December 2008	31.7	1.7	-	-	10.6	(12.7)	-	2.3	33.6

11    Related party transactions

The Group has related party relationships with its major shareholders, subsidiaries, joint ventures and associates and jointly controlled operations, in relation to the sales of construction services and materials and the provision of staff. The total value of these services in 2008 was £137.7 million (2007: £127.7 million).

12    Principal risks and uncertainties

There are a number of potential risks and uncertainties which could have a material impact on the Group's business, financial condition or results of operations. The Group has specific policies and procedures which are designed to identify, manage and mitigate business risks. The principal risks and uncertainties faced by the Group are detailed in the Annual Report 2008 and are included by reference in the Directors' Report. 

These risks and uncertainties include: general economic and political activity, including the extent of any governmental regulation, taxation and interest rates; the Group's ability to attract, develop and retain highly skilled management and personnel; the risk of non-compliance with laws, regulations and standards relating to health and safety and the environment; the pension deficit and the risk that contributions may have to be increased to cover funding shortfalls; change in the UK Government's policies with regard to improving public infrastructure, buildings and services specifically in areas where the Group would expect to compete for work; the risk of incorrectly budgeting/costing long-term contracts; failing to win contracts including the failure to close-out contracts because funding was not available for the project; a failure to meet schedule requirements within contracts which could adversely affect the Group's reputation and/or expose the Group to financial liability; financial failure within the supply chain or the supply chain being responsible for late or inadequate delivery or poor quality of work on a project which damages the Group's reputation and/or causes it to suffer financial loss; a loss of IT systems; claims that exceed the limits of insurance or are uninsurable and procurement delays.

13    Forward-looking statements

The announcement contains certain forward-looking statements. The forward-looking statements are not intended to be guarantees of future performance but are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors that may cause actual results to differ from any future results or developments expressed or implied from the forward-looking statements.  

14       Responsibility statements

The Company's statutory accounts for the year ended 31 December 2008 comply with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority in respect of the requirement to produce an annual financial report.

We confirm on behalf of the Board that to the best of our knowledge:

• the Company's financial statements for the year ended 31 December 2008 have been prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole; and

• the Business Review which is incorporated into the Directors' Report in those financial statements, includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties they face.

On behalf of the Board: 

D P ALLVEY

Chairman

ANDREW WYLLIE

Chief Executive 

 

END

 

 

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