Half Yearly Report

RNS Number : 5806R

Costain Group PLC

25 August 2010

 



Costain Group PLC

("Costain" or the "Group")

Interim results for the half-year ended 30 June 2010

Costain, one of the UK's leading construction and engineering solutions providers, announces a strong performance for the first half of the year with increased revenues, profit from operations and profit before tax.

	H1 2010	H1 2009	FY 2009
Revenue*	£533.4m	£508.2m	£1,061.1m
Profit from operations	£8.8m	£8.3m	£20.8m
Profit before tax	£8.2m	£6.9m	£18.1m
Net cash	£133.9m	£119.2m	£120.5m
Basic earnings per share	10.0p	8.7p**	23.1p**
Dividend per share	3.00p	2.75p**	8.25p**

*   Including share of joint ventures & associates

**  Restated following 1 for 10 share consolidation in 2010

·      Profit from operations increased to £8.8 million (June 2009: £8.3 million)

·      Profit before tax up 19% to £8.2 million (June 2009: £6.9 million)

·      Over £400 million of new work secured during the six month period ended 30 June 2010 including:

o  A five-year AMP5 contract with Welsh Water

o  A five-year £115 million joint venture maintenance Managing Agent Contract ('MAC') for the Highways Agency

o  Appointed as one of Delivery Partners for Highways Agency National Framework Contract

o  Appointed to construct tunnel portals for Crossrail as part of enabling works contract

·      Maintained a high quality order book of £2.5 billion (June 2009: £2.5 billion), giving longer-term revenue visibility

·      Further contract awards since 30 June including:

o  Appointed by Severn Trent for facilities at Frankley in addition to AMP5 contract

o  Deptford Green PFI, part of the Lewisham BSF framework

o  Appointed, in joint venture, by London Underground for Bond Street station upgrade

·      No significant debt and a strong net cash position of £133.9 million (June 2009: £119.2 million)

·      Interim dividend increased by 9% to 3.00 pence  (2009: 2.75 pence **) 

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

"Costain has again delivered a good result for the first half of the year. It is testimony to the Group's strategic focus and leading market positions that, in one of the most testing economic environments, Costain continues to deliver a strong operational and financial performance.

"We are successfully implementing the 'Choosing Costain' strategy, focusing on major customers with spending plans that are underpinned by strategic needs, regulatory commitments or essential maintenance requirements.

"As a consequence, the Group entered the second half of the year with a good order book, robust finances and a net cash balance in excess of £100 million.  Whilst challenging market conditions are set to continue for the foreseeable future, the Board expects to report continued progress at the year-end in line with its expectations."

25 August 2010

ENQUIRIES:

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

* Notes to Editors

Costain is one of the UK's leading construction and engineering companies and is currently at the forefront of the drive to develop and improve the nation's infrastructure.

In its targeted sectors, Costain is playing a major role in the provision of new facilities for a range of sectors ranging from waste to transport. The Company's strategy is entitled 'Choosing Costain'  and everyone in the organisation is committed to making Costain the automatic choice in terms of both business and technical excellence.

Costain's origins date back to 1865. Since then the Company has featured in some of the world's major construction projects including the Channel Tunnel. Now the Company focuses on specific sectors within three divisions: Infrastructure - Highways, Rail, Airports and Nuclear sectors;  Environment - Water, Waste, Marine and Education sectors;  Energy & Process - Nuclear Process, Power and Hydrocarbons & Chemicals sectors.

Costain has a strong order book. Significant contract awards include the £397 million contract (design, construction and commissioning of 44 different facilities) for the Greater Manchester Waste Disposal Authority. In addition, Costain has won (as part of the 4D consortium) a £225 million contract with Southern Water to manage the design and build of a new waste water treatment works in the Brighton and Hove area. Costain is also heavily involved in the Nuclear sector and, in the Summer of 2009, announced the award of a £297 million contract for full Engineering, Procurement, Construction and Inactive Commissioning of the Evaporator D project at Sellafield.

The Company's status was underlined at the Construction News 2009 Quality Awards when Costain won the Supreme Award for best overall performance. More recently, the Company was named 'Contractor of the Decade' by New Civil Engineer at the magazine's annual awards in London in August 2010.

Chairman's and Chief Executive's Statement

Overview

Costain has delivered a strong operational and financial performance in a continuing difficult economic environment. In the first half of the year, we have achieved growth in revenue, profit from operations and profit before tax.

The Group's operations continue to benefit from its 'Choosing Costain' strategy to focus on targeted blue chip customers in chosen sectors whose major spending plans are underpinned to a degree by strategic national needs, regulatory commitments or essential maintenance requirements. Costain has a proven scale and capability to successfully deliver complex solutions in markets with significant potential including power, waste, rail and nuclear. We will continue to broaden our capability in providing a range of lifecycle solutions to our customers.

The Company was named 'Contractor of the Decade' by New Civil Engineer at the magazine's annual awards in London in August 2010, underlining Costain's status as a leading player in the construction market.

Results

Revenue, including the Group's share of joint ventures and associates, for the half year ended 30 June 2010 was up 5% at £533.4 million (2009: £508.2 million).  Profit from operations was £8.8 million (2009: £8.3 million), an increase of 6%.  Profit before tax increased by 19% to £8.2 million (2009: £6.9 million).  Basic earnings per share increased to 10.0 pence (2009: 8.7 pence - restated following the 1 for 10 share consolidation in 2010).

Net cash at 30 June 2010 stood at £133.9 million (2009: £119.2 million), while our average month end cash balance during the first six months of the year was £114.1 million (2009: £125.9 million) reflecting the variable timing of receipts and payments.

As a result of a number of further significant contract awards since the beginning of the year, the order book at 30 June 2010 has been maintained at £2.5 billion (2009: £2.5 billion). Approximately £1.0 billion of work has been secured for 2010. We also had in excess of a further £500 million in preferred bidder positions (2009: over £700 million) and the Group has so far secured £570 million of revenue for 2011 (2009: £690 million for 2010).

Dividend

The Board has declared an increased interim dividend of 3.00 pence per share (2009: 2.75 pence - restated following the 1 for 10 share consolidation in 2010).  The dividend will be paid on 29 October 2010 to those shareholders on the register as at the close of business on 24 September 2010.

Pension

The deficit in the Group's legacy defined benefit pension scheme as at 30 June 2010 was £56.3 million net of deferred tax, a reduction of £19.1 million from the position as at 31 December 2009.  The assumptions and sensitivities used in the valuation of the pension scheme are set out in the notes to the interim financial statements.

We are in the process of finalising the formal actuarial valuation of the scheme as at 31 March 2010, together with the associated recovery plan. 

Operational Review 

In line with Costain's strategy, we recently amalgamated the Environment and Community activities into a single enlarged Environment division which, together with the Infrastructure and Energy & Process divisions, form the core focus for the development of the Group's operations.

Environment

Revenue, including share of joint ventures and associates, during the period was £246.7 million (2009: £301.1 million), with a profit from operations of £1.2 million (2009: £2.6 million). 

In line with strategy, the enlarged Environment division will focus on new opportunities particularly in the water and waste markets and meeting the needs of existing long-term customers.

The profit in the division has been impacted by costs associated with the amalgamation of the enlarged division, bidding activity particularly for waste PFI opportunities, and for a provision taken for anticipated additional costs on a marine project.

The division had an order book of £1.3 billion at 30 June 2010.

Costain is one of the UK's leading providers of water infrastructure solutions. During the period, the Group secured an AMP5 extension to its existing relationship with Dwr Cymru Welsh Water. This appointment is in addition to the AMP5 relationships previously secured with Severn Trent, Southern Water and United Utilities.

Work has also continued, in joint venture, on the £225 million Brighton and Hove waste water treatment works contract for Southern Water.

Since the period end, the Group has also been awarded a contract by Severn Trent to undertake work outside of the AMP5 framework on its Frankley facility.

Good progress continues to be made in the delivery of the £397 million Greater Manchester Waste Authority contract, the largest waste services contract in Europe. Costain is actively engaged in submission of PFI proposals for major waste facilities and further opportunities in this growing sector. 

In order to continue to reduce costs and to focus resources in line with its strategy, the Group has closed and disposed of a facility at Erith, previously part of the marine sector activities.  The land and property sale generated a net profit of £1.3 million.  In addition, the Group closed a small regional office in Birmingham.

Since the period end, Financial Close has been achieved on the Deptford Green PFI school contract, part of the Group's existing Lewisham Building Schools for the Future ('BSF') concession. The Lewisham programme is one of the BSF schemes that will continue.  

Infrastructure

Revenue, including share of joint ventures and associates, during the period was £223.8 million (2009: £164.0 million), with a profit from operations of £8.0 million (2009: £6.8 million).

Our Infrastructure division, which undertakes the Group's activities in the highways, rail and airports sectors, continues to perform well.

The increase in revenue and profit reflects our focus on this activity and the market opportunities that are available for organisations with the scale, capability and track record to successfully deliver major complex projects for customers.

The order book has been maintained at £1.0 billion and the level of tendering activity remains high.

Costain, in joint venture, has been awarded a five-year £115 million Managing Agent Contractor ('MAC') contract by the Highways Agency to carry out routine operational and maintenance services in Area 14, which covers the North-East of England. This fourth MAC contract has helped establish Costain as a major player in the highways maintenance market. We are now pursuing a number of local authority highways maintenance opportunities.

The Group has also been appointed, in joint venture, as one of the Delivery Partners to the Highways Agency's National Framework Contract involving the delivery, subject to budgetary review, of up to £2 billion early schemes in the Managed Motorway Programme.

In rail, Costain, in joint venture, has been appointed to construct tunnel portals for Crossrail as part of the enabling works framework contract for this important infrastructure project.

Since the period end, we have been appointed, in joint venture, by London Underground Limited preferred bidder for the redevelopment of Bond Street station.

Good progress continues to be made on the delivery of the major 66MW waste to energy plant for AE&E at Belvedere. 

We continued work on the long-term contract for Manchester Airport Group and are also delivering a number of projects at Gatwick airport.

Energy & Process

Revenue, including share of joint ventures and associates, during the period was £62.4 million (2009: £42.5 million), with a profit from operations of £3.1 million (2009: £2.7 million).

The division, which comprises activities in hydrocarbons & chemicals, nuclear process and power, has delivered a good first half performance with growth in revenue and profit. The level of business development cost has been increased in the period and additional key resources have been added to the team in line with potential growth opportunities in this area.

The order book was £0.15 billion.

In nuclear process, progress continues to be made on the engineering and construction of the Evaporator D project at Sellafield, one of the UK's largest nuclear decommissioning projects.

The Group continues to build its capability in the power sector and business development activities are progressing, including for the UK's nuclear new build programme which is gathering pace.

Further orders have been received from E.ON for the gas plant for the underground storage facility being constructed at Holford in Cheshire.  In addition, the operation in Abu Dhabi continues to undertake a number of contracts on the Das Island oil and gas facility. 

Land Development

Revenue for the period was £0.5 million (2009: £0.6 million) with a loss after tax of £0.5 million (2009: loss of £0.7 million). The loss in the period reflects running costs similar to those in the prior period.

The Alcaidesa joint venture 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.

As previously announced, activity has been scaled back until the Spanish development market improves and maximum shareholder value can be secured for the assets.

Work on the construction of the 600-berth yacht marina and associated commercial development at La Linea de la Concepcion is progressing well. The first phase of the project, which is immediately adjacent to the Spanish border with Gibraltar, opened on 2 August 2010 and the first berth sales and rentals have been achieved.

Risks and uncertainties

The Board continuously assesses and monitors the key risks of the business.  Despite the current uncertainty in the global economy, the key risks that could affect the Group's medium term performance, and the factors which mitigate these risks, have not significantly changed from those set out on pages 40 to 42 of the Group's Annual Report for 2009, a copy of which is available from our website www.costain.com.

The Business Review and the notes to these interim financial statements include consideration of uncertainties affecting the Group in the remaining six months of the year.

Outlook

Costain has again delivered a good result for the first half of the year. It is testimony to the Group's strategic focus and leading market positions that, in one of the most testing economic environments, Costain continues to deliver a strong operational and financial performance.

We are successfully implementing the 'Choosing Costain' strategy, focusing on major customers with spending plans that are underpinned by strategic needs, regulatory commitments or essential maintenance requirements.

As a consequence, the Group entered the second half of the year with a good order book, robust finances and a net cash balance in excess of £100 million.  Whilst challenging market conditions are set to continue for the foreseeable future, the Board expects to report continued progress at the year-end in line with its expectations.

DAVID ALLVEY

Chairman

ANDREW WYLLIE

Chief Executive

24 August 2010

Condensed consolidated income statement

Half-year ended 30 June,			2010		2009		2009
year ended 31 December			Half-year		Half-year		Year
	Notes		£m		£m		£m
Revenue (Group and share of joint ventures and associates)	3		533.4		508.2		1,061.1
Less: Share of joint ventures and associates revenue			(43.5)		(31.8)		(67.7)
Group revenue			489.9		476.4		993.4
Cost of sales			(470.6)		(457.3)		(949.2)
Gross profit			19.3		19.1		44.2
Administrative expenses			(11.6)		(11.6)		(22.2)
Group operating profit			7.7		7.5		22.0
Profit on sale of interests in joint ventures and associates			-		1.1		2.0
Profit on sale of land and property	8		1.3		-		-
Share of results of equity accounted joint ventures and associates			(0.2)		(0.3)		(3.2)
Profit from operations	3		8.8		8.3		20.8
Finance income	4		15.6		13.1		26.0
Finance expense	4		(16.2)		(14.5)		(28.7)
Net finance expense			(0.6)		(1.4)		(2.7)
Profit before tax			8.2		6.9		18.1
Income tax expense	5		(1.8)		(1.4)		(3.5)
Profit for the period attributable to equity holders of the parent			6.4		5.5		14.6
Earnings per share Basic    (2009 restated)	6		10.0p		8.7p		23.1p
Diluted (2009 restated)	6		9.9p		8.6p		22.6p

Share numbers included in the earnings per share calculation have been restated for the 1 for 10 share consolidation (Note 10).

During the period and the previous period and year, no businesses were acquired or disposed of and, therefore, all results are classified as arising from continuing operations.

 

Condensed consolidated statement of comprehensive income

Half-year ended 30 June, year ended 31 December	2010 Half-year	2009 Half-year		2009 Year
	£m	£m		£m
Profit for the period	6.4		5.5	14.6
Exchange differences on translation of foreign operations	(2.1)		(5.1)	(3.6)
Cash flow hedges
Group: Effective portion of changes in fair value during period	(3.5)		(4.9)	(0.4)
Net change in fair value of cash flow hedges transferred to retained earnings	0.4		(0.9)	(0.9)
Tax recognised on changes in fair value	0.9		1.6	0.4
Joint ventures and associates:
Effective portion of changes in fair value (net of tax) during period	(3.1)		5.1	2.7
Disposed of during period (net of tax)	-		(0.7)	1.9
Actuarial gains/(losses) on defined benefit pension scheme	18.3		(60.3)	(67.4)
Tax recognised on actuarial gains/(losses) recognised directly in equity	(5.1)		16.9	18.9
Other comprehensive income/(expense) for the period	5.8		(48.3)	(48.4)
Total comprehensive income/(expense) for the period attributable to equity holders of the parent	12.2		(42.8)	(33.8)

 

Condensed consolidated statement of changes in equity

	Share capital £m	Share premium £m	Translation reserve £m	Hedging reserve £m	Retained earnings £m	Total equity £m
At 1 January 2009	31.7	1.7	10.6	(12.7)	2.3	33.6
Comprehensive (expense)/income	-	-	(5.1)	0.2	(37.9)	(42.8)
Equity-settled share-based payments	-	-	-	-	0.7	0.7
Dividend paid	-	0.1	-	-	(3.2)	(3.1)
At 30 June 2009	31.7	1.8	5.5	(12.5)	(38.1)	(11.6)
Comprehensive income	-	-	1.5	3.5	4.0	9.0
Equity-settled share-based payments	-	-	-	-	0.4	0.4
Dividend paid	-	0.1	-	-	(1.7)	(1.6)
At 31 December 2009	31.7	1.9	7.0	(9.0)	(35.4)	(3.8)
Comprehensive income/(expense)	-	-	(2.1)	(5.3)	19.6	12.2
Equity-settled share-based payments	-	-	-	-	0.6	0.6
Dividend paid	-	0.1	-	-	(3.5)	(3.4)
At 30 June 2010	31.7	2.0	4.9	(14.3)	(18.7)	5.6

 

 

Condensed consolidated statement of financial position

Half-year as at 30 June, year as at 31 December	Notes	2010 Half-year	2009 Half-year	2009 Year
		£m	£m	£m
Assets
Non-current assets
Property, plant and equipment	8	9.9	11.5	11.5
Intangible assets		0.5	1.7	1.0
Investments in equity accounted joint ventures		24.7	27.8	27.2
Investments in equity accounted associates		1.7	1.9	1.6
Loans to equity accounted joint ventures		14.3	8.7	12.8
Loans to equity accounted associates		1.2	2.7	2.5
Other receivables		14.5	8.3	12.7
Deferred tax	5	28.3	36.0	34.6
Total non-current assets		95.1	98.6	103.9
Current assets
Inventories		2.8	1.8	2.4
Trade and other receivables		193.8	174.6	201.9
Cash and cash equivalents		134.7	119.8	120.8
Total current assets		331.3	296.2	325.1
Total assets		426.4	394.8	429.0
Equity
Share capital	10	31.7	31.7	31.7
Share premium		2.0	1.8	1.9
Foreign currency translation reserve		4.9	5.5	7.0
Hedging reserve		(14.3)	(12.5)	(9.0)
Retained earnings		(18.7)	(38.1)	(35.4)
Total equity attributable to equity holders of the parent		5.6	(11.6)	(3.8)
Liabilities
Non-current liabilities
Retirement benefit obligations	9	78.2	105.2	104.7
Other payables		5.1	4.8	4.5
Provisions for other liabilities and charges		2.8	5.8	3.1
Total non-current liabilities		86.1	115.8	112.3
Current liabilities
Trade and other payables		328.4	285.8	313.3
Income tax liabilities		1.5	1.7	1.7
Bank overdrafts		0.8	0.4	0.3
Interest bearing loans and borrowings		-	0.2	-
Provisions for other liabilities and charges		4.0	2.5	5.2
Total current liabilities		334.7	290.6	320.5
Total liabilities		420.8	406.4	432.8
Total equity and liabilities		426.4	394.8	429.0

Condensed consolidated cash flow statement

Half-year ended 30 June, year ended 31 December		2010 Half-year		2009 Half-year		2009 Year
		£m		£m		£m
Cash flows from operating activities
Profit for the period		6.4		5.5		14.6
Adjustments for:
Depreciation of property, plant and equipment		1.0		0.9		2.7
Amortisation of intangible assets		0.4		0.4		0.9
Finance income		(15.6)		(13.1)		(26.0)
Finance expense		16.2		14.5		28.7
Share-based payments expense		1.3		0.7		1.1
Income tax		1.8		1.4		3.5
Profit on sales of interests in joint ventures and associates		-		(1.1)		(2.0)
Share of results of joint ventures and associates		0.2		0.3		3.2
Profit on sale of plant and equipment		(1.2)		-		-
Profit on sale of land and property		(1.3)		-		-
Cash from operations before changes in working capital and provisions		9.2		9.5		26.7
Increase in inventories		(0.4)		(0.2)		(0.8)
Decrease/(increase) in receivables		6.2		2.4		(32.7)
Increase/(decrease) in payables		12.8		(22.0)		9.1
Movement in provisions and employee benefits		(8.7)		(8.1)		(18.4)
Cash from/(used by) operations		19.1		(18.4)		(16.1)
Interest paid		(0.4)		(0.2)		(0.5)
Income tax received		-		-		0.1
Net cash from/(used by) operating activities		18.7		(18.6)		(16.5)
Cash flows from investing activities
Interest received		0.6		1.0		2.6
Dividends received from joint ventures and associates		-		-		0.6
Additions to property, plant and equipment		(0.5)		(5.5)		(7.2)
Additions to intangible assets		-		-		(0.1)
Proceeds of disposal of plant and equipment		1.1		-		0.4
Proceeds of disposal of land and property		2.5		-		-
Proceeds from sales of interests in joint ventures and associates		-		4.2		8.7
Additions to investments in joint ventures and associates		-		-		(0.2)
Loan repayments by joint ventures and associates		0.2		-		0.7
Additions to loans to joint ventures and associates		(5.8)		(5.4)		(9.7)
Net cash used by investing activities		(1.9)		(5.7)		(4.2)
Cash flows from financing activities
Ordinary dividends paid		(3.4)		(3.1)		(4.7)
Proceeds from/(repayment of) borrowings		-		0.1		(0.3)
Net cash used by financing activities		(3.4)		(3.0)		(5.0)
Net increase/(decrease) in cash, cash equivalents and overdrafts		13.4		(27.3)		(25.7)
Cash, cash equivalents and overdrafts at beginning of the period		120.5		146.9		146.9
Effect of foreign exchange rate changes		-		(0.2)		(0.7)
Cash, cash equivalents and overdrafts at end of the period		133.9		119.4		120.5

Notes to the interim financial statements

1.       General information

Costain Group PLC (the Company) is a public limited company incorporated in the United Kingdom.  The address of its registered office and principal place of business is Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB. 

The condensed consolidated interim financial statements are presented in pounds sterling, rounded to the nearest hundred thousand.

The comparative figures for the financial year ended 31 December 2009 are not the Company's full statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

After making enquiries and reviewing the latest forecasts, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

          2.       Statement of compliance

This interim financial information for the half-year ended 30 June 2010 has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and with the Disclosure and Transparency Rules of the Financial Services Authority.  The interim financial information should be read in conjunction with the Annual Report for the year ended 31 December 2009.

Except as described below, the accounting policies and presentation applied in this condensed set of financial statements are consistent with those described in the Annual Report for the year ended 31 December 2009.

The Board approved the unaudited interim financial statements on 24 August 2010.

The Group's principal risks and uncertainties are consistent with those noted in the Annual Report for the year ended 31 December 2009.  The Directors consider that the significant areas of judgement made by management that have significant effect on the Group's performance and estimates with a significant risk of material adjustment in the second half of the year are unchanged from those identified on page 111 of Annual Report for the year ended 31 December 2009.

(i)      Change in accounting policy  

IFRIC12 applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services, typically under PFI arrangements. The Group is a party to these arrangements through certain of its investments in joint ventures and associates. The adoption of IFRIC 12 has not resulted in any significant changes to the assets recorded within the Group's investments although there is a change in the timing of profit recognition over the lifetime of the contract.  Importantly, there is no change in the overall project cash flows arising, or on the directors' valuation.  IFRIC 12 has been adopted in the period with retrospective effect.  The effect of adoption on comparative amounts was immaterial and so comparative amounts have not been restated.

(ii)     Change in operating segments

During the period, the Group changed its internal management and reporting structure and combined the activities previously reported separately as its Environment and Community activities into a single enlarged Environment segment. Comparative segment information has been restated accordingly. 

          3.       Business segment information

The Group now has four business segments: Environment, Infrastructure, Energy & Process and Land Development operations in Spain. As noted above, the activities previously reported separately as Community have been combined into a single enlarged Environment segment and comparative segment information has been restated accordingly. The segments are   strategic business units with separate management and have different core customers or offer different services. 

Half-year ended 30 June 2010	Environment	Infrastructure	Energy & Process	Land Development	Central costs	Total
	£m	£m	£m	£m	£m	£m
Group revenue	206.1	223.8	60.0	-	-	489.9
Share of revenue of JVs and associates	40.6	-	2.4	0.5	-	43.5
Total revenue	246.7	223.8	62.4	0.5	-	533.4
Group operating profit/(loss)	(0.3)	8.0	3.0	-	(3.0)	7.7
Profit on sale of land and property	1.3	-	-	-	-	1.3
Share of results of JVs and associates	0.2	-	0.1	(0.5)	-	(0.2)
Profit/(loss) from operations	1.2	8.0	3.1	(0.5)	(3.0)	8.8
Net finance expense						(0.6)
Profit before tax						8.2

Half-year ended 30 June 2009	Environment	Infrastructure	Energy & Process	Land Development	Central costs	Total
	£m	£m	£m	£m	£m	£m
Group revenue	272.1	164.0	40.3	-	-	476.4
Share of revenue of JVs and associates	29.0	-	2.2	0.6	-	31.8
Total revenue	301.1	164.0	42.5	0.6	-	508.2
Group operating profit/(loss)	1.3	6.8	2.5	-	(3.1)	7.5
Profit on sales of JVs and associates	1.1	-	-	-	-	1.1
Share of results of JVs and associates	0.2	-	0.2	(0.7)	-	(0.3)
Profit/(loss) from operations	2.6	6.8	2.7	(0.7)	(3.1)	8.3
Net finance expense						(1.4)
Profit before tax						6.9

Year ended 31 December 2009	Environment	Infrastructure	Energy & Process	Land Development	Central costs	Total
	£m	£m	£m	£m	£m	£m
Group revenue	531.9	364.8	96.7	-	-	993.4
Share of revenue of JVs and associates	62.0	-	4.5	1.2	-	67.7
Total revenue	593.9	364.8	101.2	1.2	-	1,061.1
Group operating profit/(loss)	2.1	16.9	9.1	-	(6.1)	22.0
Profit on sales of JVs and associates	2.0	-	-	-	-	2.0
Share of results of JVs and associates	(0.8)	-	0.2	(2.6)	-	(3.2)
Profit/(loss) from operations	3.3	16.9	9.3	(2.6)	(6.1)	20.8
Net finance expense						(2.7)
Profit before tax						18.1

          4.       Net finance (expense)/income

Finance income includes the expected return on the assets of the pension scheme of £14.8 million (2009 half-year £11.7 million, 2009 year £23.4 million) and finance expense includes the expected increase in the present value of the pension scheme liabilities of £15.8 million (2009 half-year £14.2 million, 2009 year £28.2 million). The expected return and the increase in present value are based on the value of assets and liabilities of the pension scheme at the start of the period.

          5.       Income tax            

	2010 Half-year £m		2009 Half-year £m		2009 Year £m
UK taxation	(0.3)		-		(0.1)
Deferred taxation	2.1		1.4		3.6
Income tax expense in the consolidated income statement	1.8		1.4		3.5
Effective tax rate	22.0%		20.3%		19.3%

The effective corporation tax charged represents the estimate of the tax rate for the full year. No account has been taken in these interim financial statements of the reduction in corporation tax from 28% to 27% with effect from 1 April 2011.  If that 1% change had been applied to the deferred tax asset at 30 June 2010, a reduction of £1.0 million would have arisen (£1.4 million charged to reserves and £0.4 million credited to the interim tax expense above).

A further reduction to reflect the proposed corporation tax rate of 24% from 1 April 2014 would reduce the deferred tax asset by £3.0 million.

          6.       Earnings per share

            The calculation of earnings per share is based on profit for the period of £6.4 million (2009 half-year £5.5 million, 2009 year £14.6 million) and the number of shares set out below:

	2010 Half-year Number (m)		2009 Half-year Number (m) (Restated)		2009 Year Number (m) (Restated)
Weighted average number of shares for basic earnings per share calculation	63.4		63.3		63.4
Dilutive potential ordinary shares arising from employee share schemes	0.8		0.4		1.2
Weighted average number of shares for fully diluted earnings per share calculation	64.2		63.7		64.6

Share numbers included in the earnings per share calculation have been restated for the 1 for 10 share consolidation (Note 10).

7.       Dividends

		Dividend per share	Six months ended 30 June 2010	Six months ended 30 June 2009	Year ended 31 December 2009
		pence (restated)	£m	£m	£m
Final dividend for the year ended 31 December 2008		5.00	-	3.2	3.2
Interim dividend for the year ended 31 December 2009		2.75	-	-	1.7
Final dividend for the year ended 31 December 2009		5.50	3.5	-	-
Amount recognised as distributions to equity holders in the period			3.5	3.2	4.9
Dividends settled in shares			(0.1)	(0.1)	(0.2)
Dividends settled in cash			3.4	3.1	4.7

The proposed interim dividend of 3.00 pence (2009: 2.75 pence - restated following the 1 for 10 share consolidation in 2010) has not been included as a liability in these interim financial statements because it had not been approved at the period end date.  The dividend totalling £1.9 million will be paid on 29 October 2010 to shareholders on the register at the close of business on 24 September 2010.  A scrip dividend alternative will be offered.

          8.       Property, plant and equipment

During the interim period, the Group spent £0.6 million on plant and equipment (2009 half-year £5.5 million, 2009 year £7.0 million), and £Nil on leasehold property (2009 half-year £Nil, 2009 year £0.2 million).  During the period, the Group closed one of its offices and sold the adjacent land for net proceeds of £2.5 million (2009 half-year £Nil, 2009 year £Nil). The Group also sold plant and equipment during the period for net proceeds of £1.1 million (2009 half-year £Nil, 2009 year £0.4 million).

          9.       Retirement benefit obligations

	2010 Half-year £m			2009 Half-year £m			2009 Year £m
Present value of defined benefit obligations	(540.4)			(492.3)			(560.5)
Fair value of scheme assets	462.2			387.1			455.8
Recognised liability for defined benefit obligations	(78.2)			(105.2)			(104.7)
Movements in present value of defined benefit obligations:		2010 Half-year £m			2009 Half-year £m		2009 Year £m
Opening balance		560.5			435.8		435.8
Current service cost		-			1.2		1.7
Past service cost		1.1			0.6		1.2
Interest cost		15.8			14.2		28.2
Actuarial (gains)/losses		(24.2)			49.2		113.7
Benefits paid		(12.8)			(10.5)		(23.1)
Contributions by members		-			1.8		3.0
Closing balance		540.4			492.3		560.5

Movements in fair value of scheme assets:	2010 Half-year £m		2009 Half-year £m		2009 Year £m
Opening balance	455.8		385.6		385.6
Expected return on scheme assets	14.8		11.7		23.4
Actuarial (losses)/gains	(5.9)		(11.2)		46.3
Contributions by employer	10.3		9.7		20.6
Contributions by members	-		1.8		3.0
Benefits paid	(12.8)		(10.5)		(23.1)
Closing balance	462.2		387.1		455.8

The following actuarial assumptions have been used in the IAS 19 valuations of the Group's defined benefit pension scheme (expressed as weighted averages):

	2010 Half-year %		2009 Half-year %		2009 Year %
Discount rate	5.40		6.20		5.70
Future salary increases	3.20		3.20		3.50
Future pension increases	3.20		3.20		3.50
Inflation assumption	3.20		3.20		3.50
Expected rate of return on scheme assets	6.51		6.07		6.51

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
	£m
Decrease discount rate by 0.2%, increases pension liability by	17.3
Decrease inflation (and pension increases) by 0.2%, decreases pension liability by	16.2
Increase life expectancy by one year, increases pension liability by	15.0

10.     Share capital 

Issued capital as at 30 June 2010 amounted to £31.7 million (2009 half-year £31.7 million, 2009 year £31.7 million). 

On 6 May 2010 at the Annual General Meeting of the Company, shareholders approved a share consolidation on the basis of one ordinary share in the Company with a nominal value of 50 pence each for every ten ordinary shares with a nominal value of 5 pence each held as at close of business on 7 May 2010.  The share consolidation became effective on 10 May 2010. Comparative information has been restated accordingly

Following the share consolidation, the Company's issued share capital comprised 63,424,871 ordinary shares of 50 pence each.  The Company announced on 20 May 2010 that shareholders had, pursuant to the Scrip Dividend Scheme, elected to receive 37,358 ordinary shares of 50 pence each in the Company in lieu of cash in respect of all or part of their final dividend for the year ended 31 December 2009.  Following admission of the shares issued pursuant to the Scrip Dividend Scheme, the Company's issued share capital comprised 63,462,229 ordinary shares of 50 pence each.

The Group has established a Long-Term Incentive Plan (LTIP) under which directors and senior employees can receive awards of shares subject to the Group achieving earnings per share growth targets, and a Defined Share Bonus Plan (DSBP) under which directors and senior employees can receive awards of shares subject to the Group achieving profit targets.  Full details of these plans are disclosed in the annual financial statements.

The following grants were made during the period to 30 June 2010:

Arrangement	LTIP 2010	DSBP 2010
Date of grant	19 April 2010	19 April 2010
Number of instruments granted	698,947	852,147
Share price at date of grant	250.0p	250.0p
Contractual life Vesting conditions	3 Years 3 year service period & EPS targets of between 21.0p and 27.5p in 2012	3 Years 3 year service period & profit from operations targets in 2010
Settlement	Shares	Shares
Fair value per granted instrument determined at the grant date	236.7p	201.0p

11.     Related party transactions

There have been no significant changes in the nature of related party transactions since the last annual financial statements as at, and for the year ended, 31 December 2009. 

Responsibility Statement of the Directors in respect of the interim financial report

We confirm that to the best of our knowledge:

·       the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU;

·       the interim management report includes a fair review of the information required by:

(a)      DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b)      DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so

On behalf of the Board

          David Allvey - Chairman                                                                                 

          Andrew Wyllie - Chief Executive

          24 August 2010

Independent review report to Costain Group PLC

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2010 which comprises the Condensed consolidated income statement, the Condensed consolidated statement of comprehensive income, the Condensed statement of changes in equity, the Condensed consolidated statement of financial position, the Condensed consolidated cash flow statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ("the DTR") of the UK's Financial Services Authority ("the UK FSA"). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company for our review work, for this report, or for the conclusions we have reached.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

The annual financial statements of the company are prepared in accordance with IFRSs as adopted by the EU. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410 Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the UK. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended  30 June 2010 is not prepared, in all material respects, in accordance with IAS 34 as adopted by the EU and the DTR of the UK FSA.

Stephen Bligh

for and on behalf of KPMG Audit Plc
Chartered Accountants 
London

24 August 2010

UNSOLICITED MAIL

The Company is legally obliged to make its share register available to the general public.  Consequently, some shareholders may receive unsolicited mail, including correspondence from unauthorised investment firms.  Shareholders who wish to limit the amount of unsolicited mail they receive can contact:

The Mailing Preference Service

Freepost (LON 20771)

London WE1 0ZT

 

SHAREHOLDER INFORMATION

The Company's Registrar is Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA.  For enquiries regarding your shareholding, please telephone [phone].  You can also view up-to-date information about your holdings by visiting the shareholder website at www.shareview.co.uk.  Please ensure that you advise Equiniti promptly of a change of name or address.

ShareGIFT

The Orr Mackintosh Foundation (ShareGIFT) operates a charity share donation scheme for shareholders with small parcels of shares whose value makes it uneconomic to sell them.  Details of the scheme are available on the ShareGIFT Internet Site www.sharegift.org.  Equiniti can provide stock transfer forms on request.  Donating shares to charity in this way gives rise neither to a gain nor a loss for Capital Gains Tax purposes.  This service is completely free of charge.

 

 

END

 

 

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