Trading Statement

Costain Group PLC
18 December 2006




Costain Group PLC
('Costain' or the 'Group')


Trading update and comprehensive review of contract book


The primary focus of the new management team during the year has been the
implementation of the 'Being Number One' strategy for the future development of
Costain. This has already introduced a greater focus on the Group's key markets
and resulted in the closure of the International division.  Furthermore, as part
of the implementation of our strategy, the management team has completed a
comprehensive review of the Group's contract book including an assessment of
disputed contracts and claims previously taken to value.


The review has confirmed the underlying strength of Civil Engineering, which
accounts for some 80% of the forward order book, and Property Development.


However, the nitrogen rejection plant project for Pemex in Mexico, where COGAP
is a subcontractor, has suffered cost over-runs and these will impact the result
for the current year by £3 million.  Actions are in train to improve the future
performance of COGAP and the Board is reviewing a range of options in respect of
this division.


The Building division has continued to under-perform during the second half of
the year. Further cost overruns and re-assessments of contract values and risks
will impact the current year by a further £5 million. As a consequence the
Building management team has been substantially restructured and a new Managing
Director has been appointed.


Recent developments regarding a number of contracts currently subject to
dispute, combined with a review of recent claim recovery history, has led the
Board to conclude that where recovery is now no longer probable, or the outcome
can no longer be measured reliably, it is appropriate to write down a
significant amount of the disputed contract values.  As a result the Board has
determined that a further £36 million provision in respect of these disputed
contracts will be made in the accounts for the year ended 31 December 2006.
However, the Group will continue to pursue rigorously our entitlements on these
contracts.


In addition, a further £6 million provision is now necessary relating to a
contract being completed following the closure of the International Division.


The Board is confident that these very difficult though necessary decisions will
provide a platform on which to deliver its stated strategy.


The charge to the Profit & Loss Account is expected to result in the Group being
in breach of certain of its banking covenants.  The Group's bankers have been
made aware of the Board's decision regarding the provisions being taken on
disputed contracts and have indicated that it is their intention to negotiate
appropriate waivers for any financial covenant breaches of the banking
facilities which may arise as a result.


The Board has concluded that it will not be in a position to recommend a
dividend for the year ended 31 December 2006.  The Board remains committed to
resumption of dividend payments as soon as it is financially sensible to do so.


Looking to 2007, and following the write-down of the disputed contract values,
the Board believes that the Group will enter the year with greater certainty.
Having reviewed the Group's trading prospects in detail, the Board's
expectations for the year are that the Group will see a significant recovery in
underlying performance next year.



Separate to the other issues addressed in this announcement, the Group will
shortly post a Circular to Shareholders regarding a technical issue which
requires an amendment to the Group's Articles of Association.  As a result of
the pension deficit being recorded on the balance sheet in accordance with FRS17
and its successor IAS19, the Group's borrowings have, since 2002, exceeded the
aggregate amount of borrowings permitted by the Group's Articles of Association.
 The Circular will set out proposals to rectify the position.  The Group's two
largest shareholders, who account for 57.32% of the issued share capital, have
confirmed their support for this rectification.



Andrew Wyllie, Group Chief Executive, commented:



'These decisions underline our commitment to take robust management action to
de-risk the business and provide the necessary transparency going forward.



Taking the appropriate action now, on contracts where recovery is less likely,
will enable us next year to build upon the strong underlying performance of
Civil Engineering and Property Development.  We remain committed to the
objectives set out in our 'Being Number One' strategy.'



                                                                18 December 2006




ENQUIRIES:
Costain Group PLC                                           Tel: [phone]
Andrew Wyllie, Chief Executive
Tony Bickerstaff, Finance Director
Graham Read, Public Relations

College Hill                                                Tel: [phone]
Mark Garraway
Matthew Gregorowski





NOTE: THE COMPANY WILL HOST A CONFERENCE CALL FOR ANALYSTS AT 08:30 THIS
MORNING.  PLEASE CONTACT COLLEGE HILL ON 020 7457 2020 FOR THE DIAL-IN DETAILS


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