Interim Results
Costain Group PLC
31 August 2005
Costain Group PLC
('Costain' or the 'Group')
Interim results for the six months ended 30 June 2005
Costain, the international engineering and construction group, announces
significant contract successes across all its divisions and a record forward
order book of £1.6bn.
Financial highlights
• Total turnover of £345.4 million (2004: £337.7* million)
• Operating profit of £7.8 million (2004: £4.7* million)
• Profit before tax of £7.5 million (2004: £5.4* million)
• Earnings per share of 1.8p (2004: 1.3*p)
• Forward order book at 30 June in excess of £1.6 billion; over
50% is repeat business
• £700m of turnover secured for 2006
* includes the impact of IFRS
Operational highlights
• Market leading position in water sector cemented with major AMP4
contracts for Southern Water and United Utilities
• $1.67bn Iranian gas contract award
• £190m of major road projects secured and preferred bidder on
additional projects
• Building turnover up 55% on same period last year
• Success in new market sectors including nuclear
Commenting, the Chairman, David Jefferies, said:
'Operationally, the Group made steady progress in the first half of 2005 and
will benefit from significant contract wins across all divisions. Equally
significant is the profile of this work, which has resulted in £700m of turnover
for 2006 and £340m for 2007 having been secured. Costain has now firmly
re-established its reputation in the industry and is gaining a high level of
repeat business from key clients in strong market sectors.'
31 August 2005
ENQUIRIES:
Costain Group PLC Tel: 01628 842 444
Stuart Doughty, Chief Executive
Charles McCole, Finance Director
Graham Read, Public Relations
College Hill Tel: 020 7457 2020
Mark Garraway
Matthew Gregorowski
CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT
The first six months saw significant contract wins across the Group, producing a
strong forward order book which stood at a record £1.6bn at 30 June 2005. Since
then it has increased by £300m, securing £700m of turnover for 2006 and a
further £340m turnover for 2007. Moreover, a number of the Group's five year
framework contracts in the water sector, have the option of being extended by a
further five years; this is not reflected in the order book value. This long
term sustainable earnings stream gives the Group greater visibility and better
quality of earnings going forward.
Costain has firmly established market leading positions, and its strategic goals
of establishing partnering relationships with key selected clients and
developing long-term framework agreements have been achieved. This approach has
also led to early success in other sectors, which was demonstrated by the recent
award of a £50m framework agreement in the nuclear sector.
RESULTS
With effect from 1 January 2005 European Union listed companies are required to
prepare consolidated financial statements in accordance with International
Financial Reporting Standards ('IFRS'). The Group issued a report to the London
Stock Exchange on 17 August 2005 (the 'Announcement'), which provided financial
information showing the impact of the Group's transition from a UK Generally
Accepted Accounting Principles ('UK GAAP') basis to an IFRS basis. The adoption
of IFRS will have no impact upon the underlying cash flows or trading activities
of the Group but it will impact on the timing of both revenue and profit
recognition from its property development in Southern Spain.
Under IFRS, revenue can now only be recognised when risk associated with
ownership of the land is transferred and all significant acts (such as
infrastructure works) are complete. The impact of this change is to defer sales
recognised by the joint venture. As we explained in the Announcement, this has
reduced the Group's earnings for the year ended 31 December 2004 by £6.4m and
for the six months ended 30 June 2004 by £1.9m. It is anticipated that the
majority of these infrastructure works will be completed in 2005 and the
corresponding profit recognised accordingly.
This is the first set of results that the Group is reporting under IFRS. The
results for the six months ended 30 June 2005 show a profit before tax of £7.5m
(2004: £5.4m*). Turnover for the first six months was £345.4m (2004: £337.7m*).
Earnings per share were 1.8p (2004: 1.3p*).
Profit from operations was £7.8m (2004: £4.7m*).
At the half-year, the forward order book was £1.6bn (2004: £845m) up 90%. Work
secured since the half-year together with projects at preferred bidder status
takes the Group's potential forward order book to £2.3bn.
The Group has no significant borrowings and net cash balances at the half-year
totalled £44.4m (2004: £65.7m), including the Group's share of cash held by
joint arrangements (construction joint ventures) of £18.7m (2004: £25.1m). The
continuing changing profile of the business into framework/partnered client
relationships will result in a more evenly balanced cash flow profile going
forward.
* includes the impact of IFRS
RESTRUCTURING
At the Extraordinary General Meeting held on 28 April 2005, shareholders
approved the reduction of share capital and cancellation of the share premium
account. The reduction of share capital was subsequently approved by the Court
on 18 May 2005 and became effective on 20 May 2005. From this date the
distributable reserves were re-set at nil and therefore on this basis the Board
does not feel able to consider paying a dividend at this time.
BANKING
The Group recently negotiated increased borrowing and bonding facilities with
its relationship banks and increased bonding facilities with the surety
companies. These facilities subsist until 30 June 2007.
BOARD
On 25 April 2005, the Company announced that Andrew Wyllie, the former Managing
Director of Taylor Woodrow Construction Limited, would succeed Stuart Doughty as
Chief Executive of the Company. Andrew joined the Company on 22 August 2005 and
will formally join the Board and take over the role of CEO on 12 September.
Stuart will stand down from the Board on the same date.
Stuart Doughty became Chief Executive on 1 July 2001 and has presided over a
period of significant growth in turnover and profit, seeing a share price rise
from 9.5p to over 50p, all of which was driven by achieving the strategic
objectives Stuart set upon his arrival. The Company has an extremely strong
forward order book stretching over some five years, which will provide
sustainable profits for the future - a key element of that strategy. The Board
is indebted to Stuart for his dedicated effort to improve the fortunes of the
Company and feels extremely fortunate to have had him at the helm of the Company
for the last four years.
TRADING AND PROSPECTS
CIVIL ENGINEERING
Water
During the first six months of 2005, Costain secured yet further and indeed
enhanced contracts with existing clients United Utilities and Yorkshire Water to
add to those contracts already secured with Thames Water and Welsh Water at the
end of last year. The Group was also awarded the £60m five year framework
contract to provide clean water process and distribution for Bristol Water.
The £700m five year contract award from Southern Water to Costain and its
partners, United Utilities and Montgomery Watson Harza is the largest individual
framework secured in the water sector to date. To meet stringent regulatory and
environmental demands in the most efficient and effective manner, Southern Water
has outsourced full scheme creation and operational delivery to Costain and its
partners. This also demonstrates the confidence the client has in Costain to
meet their requirements and provide operational certainty.
Aquatrine C, in joint venture with Severn Trent to provide water services for
the MoD in the whole of the east of England, also commenced this year with a
small level of capital works.
The Group's success in the Water sector during the first half gave Costain in
excess of 20% of the UK's addressable AMP4 capital expenditure programme over
the next five to ten years. In addition, it gives us the opportunity to carry
out further major schemes falling outside the current programme. As an example,
Costain was awarded a contract in joint venture for the £66m major coastal
sewerage upgrade at Margate and Broadstairs, Kent for Southern Water.
Nuclear Decommissioning
Costain has also been highly successful in entering the Nuclear Decommissioning
market by applying a similar philosophy to that used by the Company in Water.
During the first six months, the Group has delivered a series of small
decommissioning projects at AWE Aldermaston, Burghfield and Harwell facilities
in addition to ongoing work at Hunterston, and has been awarded preferred bidder
position on a long term framework for the AWE at Aldermaston.
Costain was also awarded the first-phase contract to dismantle and remove plant
and equipment from the Dragon Reactor at Winfrith, Dorset which builds on other
projects for UKAEA and BNG. In North Wales, we have secured a five year major
civils works framework for decommissioning work at the Trawsfynydd Power Station
estimated at £50m over the five year contract.
Regional Infrastructure
In addition to our projects at Stratford, Kings Cross and St Pancras, Costain is
delivering the major rail infrastructure to allow the full retail development at
White City to proceed. Costain is constructing viaducts and retaining walls on
the LUL Hammersmith and City Line and demolishing redundant infrastructure. The
Company sees good strategic growth in this market, especially with the recent
award to London of the 2012 Olympics.
In March 2005, Costain delivered the new £17m harbour and arm at West Bay,
Dorset on some of the most exposed coastline in the South West, and in the North
completed an arduous coastal defence scheme for DEFRA at Withensea on Spurn Head
Humberside, both receiving considerable commendation from local inhabitants and
DEFRA alike.
As a leading contractor in container ports, we have recently completed the
Felixstowe Stage Two development, the final settlement of which is in part the
subject of an insurance claim, as a result of ground movement in the early
stages of the contract. The Group is also in the final stages of bidding for
the next major contract at Felixstowe for Hutchison Whampoa (value approximately
£250m). Costain is also a member of the consortium bidding for P&O's London
Gateway Major Port Development and approach channel dredging work, which will be
of similar overall value.
The Road and Bridge market has been the backbone of the regional contracting
business and in 2005, despite the slow down in Regional Government procurement
due to the General Election, we have been successful in winning the new Walton
Bridge over the Thames for Surrey County Council and an upgrade of Junction 9
Interchange on the M62 at Rochdale, together with an adjoining major land
remediation and infrastructure to a business park for Wilson Bowden PLC and the
Highways Agency.
Costain handed over aircraft stands and taxiways built in less than six months
at the new Robin Hood Airport at Doncaster, its fifth consecutive successful
project delivery for Peel Holdings. The Company was also awarded a three year
aircraft pavement framework by MAN-AIR for all their airports with a value
upwards of £50m. It is halfway through the delivery of the new charter stands at
Manchester Airport and taxiway widening at East Midlands Airport.
Capital Projects
Current work on major civil engineering projects has continued as forecast.
Very few new schemes were awarded throughout last year, however, we have now
been successful in securing a number of major prestigious schemes, all enjoying
the benefit of contract mechanisms giving long-term sustainability and security
of margin. The awards announced to date were in the South East, the A2/A282
Junction Improvement and M25 Junction 1b-3 widening, together worth £138m, and
the M25 Holmesdale Tunnel Refurbishment valued at £57m.
In South Wales, Costain has commenced work on the £60m project at Porth where it
successfully engineered the value of the scheme to save some 20% of the initial
target price, and expects to complete the PFI project at Sirhowy Way within the
budgeted £34m before Christmas, ahead of programme.
In Rail, CTRL St Pancras achieved another major milestone with the successful
completion of the new Thameslink Station Box on programme and achieved in excess
of 2.7 million man-hours with no time lost due to accidents. Work at Kings
Cross Underground Station has also progressed satisfactorily. Costain has also
been awarded the Stage 1 contract for Battersea Park Station with a total value
of approximately £25m.
BUILDING
The first half of 2005 has seen continued growth in this segment with turnover
rising to £152m compared to £91m in 2004. A small profit has been posted after
significant expenditure on business development in the Healthcare and Education
sectors. New orders for the first half-year totalled £176 million with a
further £80m in July. The Group is now in a position to benefit from its focus
on selected market sectors, where it is building strong relationships with low
risk contracting.
In Healthcare, Costain has been selected as preferred contractor on the Three
Shires PFI (£180m capital value) and is also participating in the Government's
Independent Sector Treatment Centre programme working for Nations Healthcare on
the Queens Medical Centre, Nottingham Project. In the early part of the year,
Kent Care Homes PFI reached completion as well as £21m of ProCure21 schemes.
Kings College Hospital continues to perform well. At Kingston Hospital,
construction and infrastructure services are underway.
In Education, the Company was selected as preferred contractor for the Madejski
Academy in Reading, (value £20m), preferred bidder on Kent Schools PFI (value
£46m) which we anticipate closing in September, and in July reached financial
close with Ealing Schools worth £51m. The Government's Building Schools For the
Future initiative is now well under way and we have submitted our first bid for
Bradford on the basis of a 10 to 15 year contracting relationship with the local
Education Authority.
In Retail, work continues successfully with Tesco. A new retail scheme for
Streetlands Limited at Stroud was successfully completed in June and ING's
PalaceXchange development at Enfield is progressing well, and , construction has
also started well on the Shropshire Quality in the Community project.
In April, Costain received Building Magazine's Major Contractor of the Year
Award in recognition of the significant progress the business has made.
PROPERTY DEVELOPMENT
With regard to our development at Alcaidesa in Southern Spain, the year has
progressed well with the sale of further development land. Infrastructure works
to the third development phase are on schedule and will be completed before the
year-end. The completion of the infrastructure work will enable Alcaidesa
Holding to complete the sale of several large enclaves of land which were
contracted for sale in 2003 and 2004. Works on Alcaidesa's second golf course
are also proceeding well and due for completion next year.
With the help of our joint venture partner, Banesto, further efforts have been
made to increase the land holdings of the company to ensure a good supply of
development opportunities for the years ahead. The company has acquired a
further 15 hectares of developable land in the Province of Granada to add to the
holdings purchased last year and value will be added by improving the planning
status and building densities permitted, for which proposals have so far been
well received. The company has secured a number of options to purchase in excess
of 200 hectares of land also in Granada Province. These options will be
exercised once we are satisfied that appropriate planning consents can be
secured which will add to the value of the land holdings.
The joint venture is also pursuing a number of other opportunities at another
site near Gibraltar which includes marina facilities.
INTERNATIONAL
In Mexico, we are underway with the contract to build one of the world's largest
breakwaters as advanced works for new jetties to feed the Sempra petro-chem
terminal at Baja California. This project is being undertaken in joint venture
with China Harbour and despite initial delays is now proceeding well with
dredging and reclamation underway.
In Iraq, work continues with developing the Master Plan with the Kurdistan
Authorities, in parallel to overseeing refurbishment of Erbil Airport and a
selection of building infrastructure.
The award of the Kano Water Treatment project in Nigeria saw Costain capitalise
on its strong UK water business relationships. The Group was also invited by
both the Malaysian Government and Defra to attend and speak at the Bilateral
talks on Water Privatisation in Malaysia in March 2005. We have agreed a
Memorandum of Understanding with our Malaysian major shareholder, UEM, to pursue
a long term asset management programme, which is based largely on the UK Water
Privatisation model. Enabling legislation in Malaysia for privatisation is
proceeding with the final remaining two statutes awaiting Government approval.
Programme delays in Mexico, Nigeria and on the drainage works in Hong Kong have
adversely affected results in the period; however, it is anticipated this
position will ultimately be recovered.
COSTAIN OIL, GAS & PROCESS LIMITED (COGAP)
In the UK, Costain was awarded a £30m contract by ConocoPhillips for the
engineering, procurement and construction of a recovery facility to be installed
at the North Sea Petroleum Terminal, Seal Sands, Middlesbrough, and was awarded
the Front End Engineering Design of an underground gas storage facility by
WINGAS that will be located in the east of England.
In the Middle East, COGAP executed the shutdown and overhaul of the ADGAS LNG
Train II located on Das Island, Abu Dhabi. The project was completed, within
budget and ahead of schedule with over 600,000 man hours with no accidents.
In Iran, Costain led a consortium of four companies in the bidding and ultimate
award by the National Iranian Gas Company of the Bid Boland II Gas Treatment
Plant Project, valued at $1.67bn and financial negotiations are continuing.
In cryogenics and gas processing, COGAP is executing a project for the
engineering, procurement and construction of the world's largest nitrogen
rejection plant for Pemex in Mexico. In addition, COGAP has bid for a number of
other similar projects located in other countries and award decisions are
expected in the short-term. Each of these facilities will use Costain
proprietary technology.
OUTLOOK
As a consequence of the slow down in the release of capital works brought on by
the General Election, coupled with the protracted nature of negotiations with
water utilities moving from AMP 3 to AMP4, the balance of earnings for the year
will be more weighted towards the second half. The continuing success of our
partnering philosophy and framework agreements provide an excellent platform for
growth in the future.
Operationally the Group has made steady progress in the first half of 2005 and
will start to enjoy the benefits of significant contract wins across all of the
Group's divisions giving rise to a secure order book of £1.6bn at the half year
and with subsequent awards and projects already in preferred bidder status
taking this to £2.3bn. Equally significant is the profile of this work, which
has resulted in £700m of turnover for 2006 and £340m for 2007 having been
secured. Costain has now firmly re-established its reputation in the industry
and is gaining a high level of repeat business from key clients in strong market
sectors.
David G Jefferies
Chairman
Stuart J Doughty
Chief Executive
30 August 2005
Consolidated Income Statement
Half-year ended 30 June, Notes 2005 2004 2004
year ended 31 December Half-year Half-year Year
£m £m £m
Revenue (Group and share of joint ventures 2 345.4 337.7 695.2
and associates)
Share of joint ventures and associates 5 (21.9) (13.5) (22.0)
Group revenue 323.5 324.2 673.2
Group operating profit 4.5 4.5 10.2
Share of profit of joint ventures and
associates 5 3.3 0.2 (0.9)
Profit from operations 2 7.8 4.7 9.3
Finance income 3 12.0 11.9 22.9
Finance costs 3 (12.3) (11.2) (21.7)
Profit before tax 7.5 5.4 10.5
Taxation (1.1) (0.9) (1.7)
Profit for the period 6.4 4.5 8.8
Attributable to:
Equity holders of the parent 6.4 4.5 8.8
Minority interests - - -
Earnings per share - basic 4 1.8p 1.3p 2.5p
Earnings per share - diluted 4 1.8p 1.3p 2.5p
All results derive from continuing operations
Consolidated Statement of Recognised Income and Expense
Half-year ended 30 June, 2005 2004 2004
year ended 31 December Half-year Half-year Year
£m £m £m
Exchange differences on translation of
foreign operations (0.8) (1.2) (0.4)
Losses on cash flow hedges (1.9) - -
Actuarial losses on defined benefit
pension schemes (7.5) - (22.8)
Tax on items taken directly to equity 2.4 - 6.8
Net expense recognised directly in
equity (7.8) (1.2) (16.4)
Profit for the period 6.4 4.5 8.8
Total recognised income and expense in
the period (1.4) 3.3 (7.6)
Consolidated Statement of Changes in Equity
Half-year ended 30 June, 2005 2004 2004
year ended 31 December Half-year Half-year Year
£m £m £m
Total recognised income and expense in the
period attributable to equity shareholders (1.4) 3.3 (7.6)
Issue of ordinary shares - 0.9 0.9
Share based payments 0.1 - -
(1.3) 4.2 (6.7)
Equity at beginning of period (44.5) (37.8) (37.8)
Implementation of IAS 39 * (1.7) - -
Equity at end of period (47.5) (33.6) (44.5)
* The impact of implementing IAS 32 and IAS 39 at 1 January 2005 is to increase
net liabilities by £1.7m. The adjustment relates to interest rate swaps in the
Group's PFI investments and to forward sales contracts of foreign currency.
Consolidated Balance Sheet
Half-year ended 30 June, Notes 2005 2004 2004
year ended 31 December Half-year Half-year Year
£m £m £m
ASSETS
Non-current assets
Property, plant & equipment 4.6 4.3 4.9
Intangible assets 2.1 0.2 0.5
Other debtors 9.8 5.9 5.7
Deferred tax assets 33.4 25.5 31.6
Investments in associates 5 0.2 - -
Investments in joint ventures 5 16.1 16.4 11.6
Loans to joint ventures 0.4 2.5 2.6
Loans to associates 3.0 - 2.7
Other investments 1.0 1.0 1.0
Total non-current assets 70.6 55.8 60.6
Current assets
Inventories 1.9 4.4 1.0
Trade and other receivables 179.9 138.1 152.3
Cash and short term deposits 45.3 66.8 64.1
Total current assets 227.1 209.3 217.4
Total assets 297.7 265.1 278.0
EQUITY
Share capital 4 17.7 35.3 35.3
Share premium 4 - 119.5 119.5
Special reserve 4 13.6 - -
Foreign currency translation reserve (1.1) (1.2) (0.4)
Retained earnings (77.8) (187.3) (199.0)
(47.6) (33.7) (44.6)
Minority interest 0.1 0.1 0.1
Total equity (47.5) (33.6) (44.5)
LIABILITIES
Non-current liabilities
Interest bearing loans and borrowings 0.3 0.7 0.5
Retirement benefit obligations 107.2 78.0 99.5
Other payables 2.0 1.6 3.0
Long term provisions 3.1 2.6 3.1
Total non-current liabilities 112.6 82.9 106.1
Current liabilities
Trade and other payables 226.4 208.4 212.1
Current tax liabilities 2.8 3.4 2.2
Interest bearing loans and borrowings 0.6 0.4 1.0
Provisions and other liabilities 2.8 3.6 1.1
Total current liabilities 232.6 215.8 216.4
Total liabilities 345.2 298.7 322.5
Total equity and liabilities 297.7 265.1 278.0
Consolidated Cash Flow Statement
Half-year ended 30 June, 2005 2004 2004
year ended 31 December Half-year Half-year Year
£m £m £m
Cash flows from operating activities
Profit from operations 7.8 4.7 9.3
Adjustments for:
Depreciation 0.5 0.3 1.1
Share based payments expense 0.1 - -
Share of profit of joint ventures and associates (3.3) (0.2) 0.9
Operating profit before changes in working capital and 5.1 4.8 11.3
provisions
(Increase)/decrease in inventories (0.9) (4.4) 0.6
Increase in receivables (33.0) (22.3) (38.3)
Increase in payables 13.0 15.3 18.8
Decrease in provisions (0.2) (0.8) (2.9)
Cash generated from operations (16.0) (7.4) (10.5)
Interest paid (0.2) - (0.3)
Net cash from operating activities (16.2) (7.4) (10.8)
Cash flows from investing activities
Interest received 1.3 1.2 2.6
Additions to plant and intangible assets (1.8) 0.1 (1.7)
Additions to investments (0.2) - (0.4)
Capital repayments by investments - 0.2 0.2
Dividends received - - 4.4
Loans to joint ventures and associates (net) (1.2) - (2.8)
Net cash from investing activities (1.9) 1.5 2.3
Cash flows from financing activities
Issue of ordinary share capital - 0.9 0.9
Payment of loans and finance lease liabilities (0.5) (0.1) (0.2)
Net cash from financing activities (0.5) 0.8 0.7
Net decrease in cash and cash equivalents (18.6) (5.1) (7.8)
Cash and cash equivalents at beginning of period 62.6 70.6 70.6
Cash outflow from loan payments and finance lease 0.5 0.1 0.2
capital payments
Effect of foreign exchange rate changes (0.1) 0.1 (0.4)
Cash and cash equivalents at end of period 44.4 65.7 62.6
Notes to the Accounts
These interim financial statements do not constitute statutory accounts within
the meaning of the Companies Act 1985 and are unaudited. The Board approved the
unaudited interim financial statements on 30 August 2005. The figures for the
half-year ended 30 June 2004 and the year ended 31 December 2004 have been
extracted from the unaudited restatement of the Group's results announced on 17
August 2005 prepared under International Financial Reporting Standards (IFRSs).
1. Basis of preparation
EU law (IAS Regulation EC 1606/2002) requires that the next annual consolidated
financial statements of the Company, for the year ending 31 December 2005, be
prepared in accordance with IFRSs adopted for use in the EU (adopted IFRSs).
This interim financial information has been prepared on the basis of the
recognition and measurement requirements of IFRSs in issue that either are
endorsed by the EU and effective (or available for early adoption) at 31
December 2005 or are expected to be endorsed and effective (or available for
early adoption) at 31 December 2005, the Group's first annual reporting date at
which it is required to use adopted IFRSs. Based on these adopted and unadopted
IFRSs, the directors have made assumptions about the accounting policies
expected to be applied when the first annual IFRS financial statements are
prepared for the year ending 31 December 2005. These are as set out in Section
2 of the Transition to International Financial Reporting Standards Report
published by the Company on 17 August 2005 and available on its website
(www.costain.com) or from the Company Secretary at the Registered Office.
In particular, the Board has assumed that the International Accounting Standards
Board's amendment to IAS 19: Employee Benefits will be adopted by the EU in
sufficient time that it will be available for use in the annual IFRS financial
statements for the year ending 31 December 2005.
The adopted IFRSs that will be effective (or available for early adoption) in
the annual financial statements for the year ending 31 December 2005 are still
subject to change and to additional interpretations and therefore cannot be
determined with certainty. Accordingly, the accounting policies for that annual
period will be determined finally only when the annual financial statements are
prepared for the year ending 31 December 2005.
As permitted by IFRS 1: First time adoption of IFRS, the Group has adopted IAS
32 and IAS 39: Financial Instruments with effect from 1 January 2005;
comparative figures have not been restated.
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, the Group's property development operation in Spain and
central costs. These represent the Group's primary segments. Secondary
segments are presented geographically.
* Revenue in the tables below includes the Group share of joint ventures and
associates.
For the half-year Civil Building Oil, Gas & International Property Central Total
ended Engineering Process Development costs
30 June 2005
£m £m £m £m £m £m £m
Revenue* 145.7 155.6 25.3 8.4 10.4 - 345.4
Group operating
profit 6.8 0.4 0.2 (0.8) - (2.1) 4.5
Share of results of
joint ventures and
associates - - 0.1 (0.4) 3.6 - 3.3
Profit from
operations 6.8 0.4 0.3 (1.2) 3.6 (2.1) 7.8
Net financing costs (0.3)
Profit before tax 7.5
For the half-year Civil Building Oil, Gas & International Property Central Total
ended Engineering Process Development costs
30 June 2004
£m £m £m £m £m £m £m
Revenue* 197.5 100.5 29.7 7.1 2.9 - 337.7
Group operating
profit 8.6 (0.8) (0.6) (0.5) - (2.2) 4.5
Share of results
of joint ventures
and associates - (0.3) 0.1 - 0.4 - 0.2
Profit from
operations 8.6 (1.1) (0.5) (0.5) 0.4 (2.2) 4.7
Net financing
costs 0.7
Profit before tax 5.4
For the year Civil Building Oil, Gas & International Property Central Total
ended Engineering Process Development costs
31 December 2004
£m £m £m £m £m £m £m
Revenue* 392.1 236.0 46.0 16.0 5.1 - 695.2
Group operating
profit 18.4 0.2 (3.9) (0.4) - (4.1) 10.2
Share of results of
joint ventures and
associates - (0.3) 0.1 (0.2) (0.5) - (0.9)
Profit from
operations 18.4 (0.1) (3.8) (0.6) (0.5) (4.1) 9.3
Net financing costs 1.2
Profit before tax 10.5
Revenue Profit from operations
2005 2004 2004 2005 2004 2004
Half-year Half-year Year Half-year Half-year Year
£m £m £m £m £m £m
United Kingdom 310.9 317.2 661.4 5.7 4.7 9.8
Spain 10.4 2.9 5.1 3.6 0.4 (0.5)
Rest of the world 24.1 17.6 28.7 (1.5) (0.4) -
345.4 337.7 695.2 7.8 4.7 9.3
3. Finance income and costs
Finance income includes the expected return on the assets of the pension scheme
of £10.7m (2004 half-year £10.7m, 2004 year £20.3m) and finance costs include
the expected increase in the present value of the scheme liabilities of £12.1m
(2004 half-year £11.2m, 2004 year £21.4m). 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.
4. Earnings per share
The calculation of earnings per share is based on profit for the
period of £6.4m (2004 half-year £4.5m, 2004 year £8.8m) and the number of shares
set out below:
2005 2004 2004
Half-year Half-year Year
Weighted average number of shares for basic earnings per
share calculation 353,136,352 349,224,269 351,190,999
Dilutive potential ordinary shares:
SAYE Scheme 8,578,793 6,698,821 6,417,591
Weighted average number of shares for fully diluted
earnings per share calculation 361,715,145 355,923,090 357,608,590
The nominal value of share capital was reduced and the share premium account
written off during the period following the shareholder and subsequent court
approval of the capital reduction. The excess after eliminating the accumulated
deficit of the Company was transferred to a special reserve.
5. Joint ventures and associates
The analysis of the Group's share of joint ventures (JVs) and associates is set
out below:
2005 Half-year
Alcaidesa Other JVs Associates Total
£m £m £m £m
Revenue 10.4 8.5 3.0 21.9
Profit before taxation 5.7 0.3 (0.6) 5.4
Taxation (2.1) - - (2.1)
Profit for the period 3.6 0.3 (0.6) 3.3
Non-current assets 9.6 0.2 5.4 15.2
Current assets 42.6 68.1 9.1 119.8
Current liabilities (32.2) (10.4) (5.1) (47.7)
Non-current liabilities (4.0) (61.1) (10.9) (76.0)
Investments in joint ventures and
associates 16.0 (3.2) (1.5) 11.3
Presentation in the balance sheet in respect of investments in joint ventures
and associates restricts the minimum carrying value of investments of 'other
joint ventures' and 'associates' (above) to £nil. Where the carrying value is
negative, the corresponding loan value to those investments has been reduced or,
where future funding obligations exist, a provision made.
2004 Half-year
Alcaidesa Other JVs Associates Total
£m £m £m £m
Revenue 2.9 10.6 - 13.5
Profit before taxation 0.6 (0.2) - 0.4
Taxation (0.2) - - (0.2)
Profit for the period 0.4 (0.2) - 0.2
Non-current assets 11.6 0.3 - 11.9
Current assets 25.8 52.0 - 77.8
Current liabilities (19.7) (4.3) - (24.0)
Non-current liabilities - (49.3) - (49.3)
Investments in joint ventures 17.7 (1.3) - 16.4
2004 Year
Alcaidesa Other JVs Associates Total
£m £m £m £m
Revenue 4.5 14.8 2.7 22.0
Profit before taxation (0.8) (0.1) (0.2) (1.1)
Taxation 0.3 (0.1) - 0.2
Profit for the period (0.5) (0.2) (0.2) (0.9)
Non-current assets 11.3 0.2 1.5 13.0
Current assets 27.2 60.4 1.9 89.5
Current liabilities (21.7) (7.3) (2.0) (31.0)
Non-current liabilities (3.9) (54.6) (1.4) (59.9)
Investments in joint ventures and 12.9 (1.3) - 11.6
associates
2005 2004 2004
Half-year Half-year Year
£m £m £m
Financial commitments 5.4 3.0 4.3
Capital commitments 20.6 21.9 20.7
The commitments relate to joint ventures involved in Private Finance Initiative
schemes and the capital commitments to construction work being undertaken by the
Costain Group. All figures are the Group's share.
6. Explanation of transition to IFRS
The Group issued a document setting out the impact of the Transition to
International Financial Reporting Standards on 17 August 2005 (see note 1). A
summary of the impact on the primary statements is set out below. The
adjustments and the resulting IFRS numbers are unaudited.
CONSOLIDATED INCOME STATEMENT
Half-year ended 30 June 2004 Year ended 31 December 2004
UK Adjustments IFRS UK GAAP Adjustments IFRS
GAAP
£m £m £m £m £m £m
Group revenue 324.2 324.2 673.2 673.2
Group operating profit 4.5 4.5 10.2 10.2
Share of profit of joint ventures 3.4 (3.2) 0.2 8.7 (9.6) (0.9)
and associates
Profit from operations 7.9 (3.2) 4.7 18.9 (9.6) 9.3
Other finance charges (0.5) 0.5 (1.1) 1.1
Net interest 0.7 (0.7) 1.7 (1.7)
Finance income 11.9 11.9 22.9 22.9
Finance costs (11.2) (11.2) (21.7) (21.7)
Profit before tax 8.1 (2.7) 5.4 19.5 (9.0) 10.5
Taxation (1.7) 0.8 (0.9) (4.3) 2.6 (1.7)
Profit for the period 6.4 (1.9) 4.5 15.2 (6.4) 8.8
Attributable to:
Equity holders of the parent 6.4 (1.9) 4.5 15.2 (6.4) 8.8
Minority interests - - - - - -
Earnings per share - basic 1.8p (0.5p) 1.3p 4.3p (1.8p) 2.5p
Earnings per share - diluted 1.8p (0.5p) 1.3p 4.3p (1.8p) 2.5p
Explanatory notes on the impact of IFRS adjustments to the consolidated income
statement
IAS 18 Revenue Recognition
Alcaidesa, the Group's Spanish property development interest, has sold parcels
of land that were subject to the completion of certain infrastructure. Sales
and profits in respect of such developments were recognised on exchange of
contract with costs to complete on the infrastructure element recognised
accordingly.
Under IFRS, these developments fall within the scope of IAS 18, where reference
is specifically made to situations where the seller is obliged to perform
substantial acts to complete under the contract. Revenue and thus profit in
respect of such acts should be recognised only when the act is performed.
Given the specific circumstances existing within these developments we consider
that the appropriate treatment under IFRS is to view these arrangements, where
separable, as two transactions, firstly the sale of the land and secondly the
provision of the infrastructure. In such circumstances, revenue and profit are
recognised on the land sale element of each transaction on exchange of legal
title and when all conditions for revenue recognition under IAS 18 are met. In
respect of the infrastructure, the proportion of revenue and profit related to
the provision of these facilities is deferred until such works are complete.
The impact of IAS 18 has been to defer the amount of profit shown within the
Group's share of profits from joint ventures and associates. Profit after tax
for the half-year to 30 June 2004 and year to 31 December 2004 has reduced by
£1.9m and £6.4m respectively.
IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures
Under UK GAAP, the Group share of operating profits of associates was presented
on the face of the income statement after Group operating profit. The Group
share of interest and tax of associates was included within the relevant Group
totals. Under IFRS, the Group share of profit after tax of associates is
presented on the face of the income statement after Group operating profit.
IAS 1 Income Statement Reclassifications and IAS 19 Employee Benefits
There are a number of reclassifications between income statement and balance
sheet captions that arise from the application of various IFRS. Under IFRS the
expected return on assets of the pension scheme and interest income are shown as
finance income and the interest on pension scheme liabilities and interest and
finance charges payable are shown as finance costs.
CONSOLIDATED STATEMENTS OF RECOGNISED INCOME AND EXPENSE
Half-year ended 30 June 2004 Year ended 31 December 2004
UK GAAP Adjust Under UK GAAP Adjust Under
-ments IFRS -ments IFRS
£m £m £m £m £m £m
Exchange differences on translation
of foreign operations (1.2) (1.2) (0.2) (0.2) (0.4)
Actuarial losses on defined benefit
pension schemes (net of tax) - - (16.0) (16.0)
Net expense recognised directly in
equity (1.2) (1.2) (16.2) (0.2) (16.4)
Profit for the period 6.4 (1.9) 4.5 15.2 (6.4) 8.8
Total recognised income and expense
in the period 5.2 (1.9) 3.3 (1.0) (6.6) (7.6)
Attributable to:
Equity holders of the company 5.2 (1.9) 3.3 (1.0) (6.6) (7.6)
Equity minority interests - - - - - -
CONSOLIDATED BALANCE SHEET
As at 1 January 2004
UK GAAP Adjustments IFRS
£m £m £m
ASSETS
Non-current assets
Property, plant & equipment 4.9 (0.2) 4.7
Intangible assets 0.2 0.2
Other debtors 3.2 3.2
Deferred tax assets 26.1 26.1
Investments in associates
Investments in joint ventures 17.6 (0.8) 16.8
Loans to joint ventures 2.5 2.5
Loans to associates
Other investments 1.0 1.0
Total non-current assets 26.0 28.5 54.5
Current assets
Inventories 1.6 1.6
Trade and other receivables 122.4 (5.8) 116.6
Cash & short term deposits 72.0 72.0
Total current assets 196.0 (5.8) 190.2
Total assets 222.0 22.7 244.7
EQUITY
Share capital 34.5 34.5
Share premium 119.4 119.4
Foreign currency translation
reserve
Retained earnings (190.6) (1.2) (191.8)
Minority interest 0.1 0.1
Total equity (36.6) (1.2) (37.8)
LIABILITIES
Non-current liabilities
Interest bearing loans and 0.9 0.9
borrowings
Retirement benefit 54.5 23.9 78.4
obligations
Other payables 1.7 1.7
Long term provisions 3.8 3.8
Total non-current liabilities 57.1 27.7 84.8
Current liabilities
Trade and other payables 191.8 191.8
Current tax liabilities 2.1 2.1
Interest bearing loans and 0.5 0.5
borrowings
Provisions and other 7.1 (3.8) 3.3
liabilities
Total current liabilities 201.5 (3.8) 197.7
Total liabilities 258.6 23.9 282.5
Total equity and liabilities 222.0 22.7 244.7
CONSOLIDATED BALANCE SHEET
As at 30 June 2004 As at 31 December 2004
UK Adjustments IFRS UK GAAP Adjustments IFRS
GAAP
£m £m £m £m £m £m
ASSETS
Non-current assets
Property, plant & equipment 4.5 (0.2) 4.3 5.4 (0.5) 4.9
Intangible assets 0.2 0.2 0.5 0.5
Other debtors 5.9 5.9 5.7 5.7
Deferred tax assets 25.5 25.5 31.6 31.6
Investments in associates
Investments in joint ventures 19.1 (2.7) 16.4 19.0 (7.4) 11.6
Loans to joint ventures 2.5 2.5 2.6 2.6
Loans to associates 2.7 2.7
Other investments 1.0 1.0 1.0 1.0
Total non-current assets 27.1 28.7 55.8 30.7 29.9 60.6
Current assets
Inventories 4.4 4.4 1.0 1.0
Trade and other receivables 146.0 (7.9) 138.1 159.7 (7.4) 152.3
Cash and short term deposits 66.8 66.8 64.1 64.1
Total current assets 217.2 (7.9) 209.3 224.8 (7.4) 217.4
Total assets 244.3 20.8 265.1 255.5 22.5 278.0
EQUITY
Share capital 35.3 35.3 35.3 35.3
Share premium 119.5 119.5 119.5 119.5
Foreign currency translation (1.2) (1.2) (0.4) (0.4)
reserve
Retained earnings (185.4) (1.9) (187.3) (191.6) (7.4) (199.0)
Minority interest 0.1 0.1 0.1 0.1
Total equity (30.5) (3.1) (33.6) (36.7) (7.8) (44.5)
LIABILITIES
Non-current liabilities
Interest bearing loans and 0.7 0.7 0.5 0.5
borrowings
Retirement benefit 54.1 23.9 78.0 69.2 30.3 99.5
obligations
Other payables 1.6 1.6 3.0 3.0
Long term provisions 2.6 2.6 3.1 3.1
Total non-current liabilities 56.4 26.5 82.9 72.7 33.4 106.1
Current liabilities
Trade and other payables 208.4 208.4 212.1 212.1
Current tax liabilities 3.4 3.4 2.2 2.2
Interest bearing loans and 0.4 0.4 1.0 1.0
borrowings
Provisions and other 6.2 (2.6) 3.6 4.2 (3.1) 1.1
liabilities
Total current liabilities 218.4 (2.6) 215.8 219.5 (3.1) 216.4
Total liabilities 274.8 23.9 298.7 292.2 30.3 322.5
Total equity and liabilities 244.3 20.8 265.1 255.5 22.5 278.0
Explanatory notes on the impact of IFRS adjustments to the consolidated balance
sheet
IAS 1 Current/Non-current Assets and Liabilities
An entity must present current and non-current assets and current and
non-current liabilities as separate classifications on the face of the balance
sheet in accordance with IAS 1. Non-current receivables have been reclassified
on the face of the balance sheet as non-current assets and provisions have been
reallocated to non-current liabilities.
IAS 19 Employee Benefits
Costain Group PLC adopted early the amendments to FRS 17 for UK GAAP reporting
and has recognised the defined benefit pension plan liability (based on the
projected unit credit method) in full as at 31 December 2003. The Group has
nominated to recognise any actuarial gains or losses in the statement of
recognised income and expense. There are no significant accounting differences
between FRS 17 and IAS 19 in relation to accounting for defined benefit pension
liabilities where the company has nominated to recognise actuarial losses
directly in equity. However, the finance cost on the pension plan liabilities
will be shown separately as a finance cost and the expected return on plan
assets will be shown as finance income.
The Group intends to have actuarial updates at each half-year for the defined
benefit pension plan and a full actuarial review at least every 2 years as
required by the trust deed.
IAS 19 requires employee benefit schemes' financial assets to be valued at fair
value. For relevant financial assets this means the bid price whereas FRS 17
specifies using mid market price. This has the effect of reducing asset values
and thereby increasing the deficit by £0.6m.
IAS 12 Income Taxes
Costain Group has a significant defined benefit pension scheme liability. Under
UK GAAP this has given rise to a deferred tax asset based on the Company's UK
corporation tax rate, which has been netted against the defined benefit pension
scheme liability. IAS 12 requires that the deferred tax asset be grouped with
other deferred tax assets.
Deferred tax assets relating to retirement benefit obligations have been
reclassified from non-current liabilities to non-current assets.
IAS 21 The Effects of Changes in Foreign Exchange Rates
UK GAAP requires exchange differences on a monetary item forming part of a
reporting entity's net investment in a foreign operation to be taken to the
STRGL. Under IFRS, IAS 21 requires such exchange differences to be recognised in
a separate component of equity in the reporting entity's consolidated financial
statements. Cumulative translation differences on foreign operations are deemed
to be zero at 1 January 2004 (as per transitional options of IFRS 1). A £0.2m
exchange difference relating to 2004 has been moved from retained reserves to a
cumulative translation reserve.
IAS 38 Intangible Assets
Under UK GAAP, computer software costs attributable to major business systems
implementations and material software licenses were capitalised as property,
plant and equipment. Under IFRS, software development, purchased software and
software licences should be classified as an intangible asset. At 31 December
2004, under IFRS, computer software of £0.5m has been reclassified from
property, plant and equipment to intangible assets.
IAS 18 Revenue Recognition
The income statement IFRS adjustment required for Alcaidesa revenue recognition
(as explained above) causes a reduction in the carrying value of joint venture
net assets of £0.8m at 1 January 2004, £2.7m at 30 June 2004 and £7.4m at 31
December 2004.
The Interim Report and Accounts are unaudited but have been reviewed by the
Company's auditors and their Independent Review Report is set out below.
The Company's statutory accounts for 2004, which were prepared under UK
Generally Accepted Accounting Principles have been delivered to the Registrar of
Companies. The Company's auditors have reported on those accounts; their report
was unqualified and did not contain statements under Section 237 of the
Companies Act 1985.
INDEPENDENT REVIEW REPORT BY KPMG AUDIT PLC TO COSTAIN GROUP PLC
Introduction
We have been engaged by the Company to review the financial information set out
in the attached Consolidated Profit and Loss Account, Consolidated Cash Flow
Statement, Consolidated Balance Sheet and Notes to the Accounts and we have read
the other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.
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 Listing
Rules of the Financial Services Authority. 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 interim report, including the financial information contained therein, is
the responsibility of, and has been approved by, the directors. The directors
are responsible for preparing the interim report in accordance with the Listing
Rules which require that the accounting policies and presentation applied to the
interim figures should be consistent with those applied in preparing the
preceding annual financial statements except where any changes, and the reasons
for them, are disclosed.
As disclosed in note 1 to the financial information, the next annual financial
statements of the group will be prepared in accordance with IFRSs adopted for
use in the European Union.
The accounting policies that have been adopted in preparing the financial
information are consistent with those that the directors currently intend to use
in the next annual financial statements. There is, however, a possibility that
the directors may determine that some changes to these policies are necessary
when preparing the full annual financial statements for the first time in
accordance with those IFRSs adopted for use by the European Union. This is
because, as disclosed in note 1, the directors have anticipated that certain
standards, which have yet to be formally adopted for use in the EU, will be so
adopted in time to be applicable to the next annual financial statements.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/
4: Review of interim financial information issued by the Auditing Practices
Board for use in the United Kingdom. A review consists principally of making
enquiries of Group management and applying analytical procedures to the
financial information and underlying financial data and, based thereon,
assessing whether the accounting policies and presentation have been
consistently applied unless otherwise disclosed. A review is substantially less
in scope than an audit performed in accordance with Auditing Standards and
therefore provides a lower level of assurance than an audit. Accordingly we do
not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
KPMG Audit Plc
Chartered Accountants
London
30 August 2005
SHAREHOLDER INFORMATION
The Company's Registrar is Lloyds TSB Registrars, The Causeway, Worthing, West
Sussex BN99 6DA. Their web site address is www.lloydstsb-registrars.co.uk. For
enquiries regarding your shareholding, please telephone 0870 600 3984. You can
also view up-to-date information about your holdings by visiting the shareholder
web site at www.shareview.co.uk. Please ensure that you advise Lloyds TSB
Registrars 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. Lloyds TSB Registrars 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.
This information is provided by RNS
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