12th Mar 2008 07:01
Costain Group PLC12 March 2008 Costain Group PLC ("Costain" or the "Group") Announcement of preliminary results for the year ended 31 December 2007 Year ended 31 December 2007 2006Revenue* £877.9m £886.3mProfit/(loss) before tax £19.8m £(61.7)mNet cash £132.8m £53.3mEarnings/(loss) per share 3.6p (13.2)p**Recommended dividend 0.5p nil * Including share of joint ventures & associates ** Restated following rights issue bonus element Costain, the engineering, construction and land development group, announces astrong performance, which saw all of the Group's operations in profit for thefirst time since 1990, and a recommendation for the payment of a dividend forthe first time in 17 years. - Delivery on clear strategic objectives for 2007 • Significant growth in profits in the Civil Engineering operations • Delivered a return to profit in Building • Achieved a profit in the Oil, Gas & Process operations for the first time in six years • Actively traded the PFI portfolio to re-invest in bidding for new projects • Cash position significantly strengthened to £133m • Further improved operational efficiency and reduced costs across the Group • Secured a higher quality order book of £1.6bn; repeat orders increased to 80% • Increased the level of preferred bidder positions to over £800m - Financing in place for next phase of Group's development • Significantly strengthened balance sheet following £60 million Rights Issue • Operational capability given added firepower through increased banking and bonding facilities of £200 million - Business in strong position to seize opportunities presented by markets in which it operates • Clear 'Being Number One' strategy for future development • Growth in our chosen markets underpinned by major long-term spend commitments by our target blue-chip customers David Allvey, Chairman, commented: "We set clear objectives for 2007 and I am delighted to report that we havedelivered on all of them. The year's achievements have been reflected in thestrong recovery in performance and the Board is especially delighted to announcea recommendation to return to the dividend list for the first time in 17 years. "The successful Rights Issue along with our strengthened banking and bondingfacilities are enabling us to expedite the implementation of our 'Being NumberOne' strategy. The Group is capitalising on the opportunities available to itin its chosen market sectors and is strongly positioned to move into the nextphase of growth. In as far as 2007 was a landmark year for Costain, we expect2008 will be a year of further growth and I look forward to reporting on ourprogress." 12 March 2008 Enquiries: Costain Tel: 01628 842 444Andrew Wyllie, Chief ExecutiveTony Bickerstaff, Finance DirectorGraham Read, Public Relations College Hill Tel: 020 7457 2020Mark Garraway Adam Aljewicz CHAIRMAN'S STATEMENT 2007: A Year of Delivery Last year was one of major achievement for Costain with delivery on clearoperational and financial objectives which Andrew Wyllie, our Chief Executive,reports on in detail in his review of the year. For me, it was especiallyencouraging to see a return to profit in our Building Division and a profitdelivered in our Oil, Gas & Process Division for the first time since 2001. On the back of a strong performance, a successful rights issue and increasedbanking and bonding facilities, we now have the opportunity to expedite theimplementation of our 'Being Number One' strategy. The Group finished the yearwith both its financial and operational reputation significantly strengthened. The Rights Issue, which raised £60 million (net of expenses) and the extendedand enhanced banking and bonding facilities of £200 million give us thefinancial strength to support our operational resource in delivering ourstrategic goals. We have already started to capitalise on the opportunitiesavailable: we are entering a new phase of the Costain story, one which I feelsure will underline our status as one of the leading names in UK construction. There were also many significant operational achievements. One, above all,stood out as a great example of what Costain is all about: the completion of StPancras International, the new terminus for Eurostar trains to Paris andBrussels. The completion of this project has enabled the UK to take a majorstep forward in terms of transport infrastructure. The building has attractedpraise from around the world and Costain played a central role in deliveringsuccessfully a highly technical major project. It was a feat that furtherenhanced Costain's reputation and was one of the highlights of the UKconstruction year. Our strategy, with its focus on excellence and expertise in markets such asWater, Highways and Nuclear, is reaping major benefits as we focus increasinglythrough longer-term planning on securing more multi-year framework contractsthrough the provision of integrated full life-cycle services. In keeping with this theme, it is encouraging that the Government has given thego-ahead for a new generation of nuclear power stations. We have establishedgood relationships with a number of customers in the nuclear industry and wehave the specialist skills to ensure that we play a central role in its futuredevelopment. RESULTS Following the decisive management actions in the prior year, including taking anumber of write-downs in respect of the closure of the International Divisionand certain disputed contracts, the Board set a significant recovery inperformance as a key objective for 2007. This was achieved. Revenue for the year was £877.9 million (2006: £886.3 million). Profit beforetax was £19.8 million (2006: loss of £61.7 million) and earnings per share were3.6p (2006: loss per share of 13.2p (restated)). The Group has no significant borrowings and net cash balances at the year endtotalled £132.8 million (2006: £53.3 million), including the Group's share ofcash held by construction joint venture arrangements of £28.8 million (2006:£22.0 million). DIVIDEND The Board is recommending the payment of a dividend for the full year of 0.5pper share, the first dividend declared since 1991. If approved at theforthcoming Annual General Meeting, the dividend will be paid on 23 May 2008 toshareholders on the register as at 25 April 2008. Subject to shareholder approval, the Company proposes to introduce a scripdividend alternative for the dividend payable on 23 May 2008 and all futuredividends. Further details in relation to the scrip dividend alternative willbe provided to Shareholders in due course. PENSION As at 31 December 2007, the deficit in the UK Pension Fund recorded in theGroup's balance sheet in accordance with IAS 19 was £36.4 million, net ofdeferred tax, a reduction of £11.7 million from the position as at 31 December2006. As previously reported, we have agreed with the Trustee a new contribution planthat is expected to eliminate the deficit over a shorter period of ten yearsunder the valuation assumptions agreed with the Trustee. Following an in-principle agreement in 2006 with the Pensions Regulator - andsubsequently with the Trustee - that on resumption of dividend payments theGroup would match any dividends pound for pound by a payment into the UK PensionFund, we have now confirmed with the Pensions Regulator that a payment to thefund of c. £3.1 million will be made in the event that shareholders approve thedividend recommendation at the Annual General Meeting. BOARD I became Chairman at the start of 2008 as successor to David Jefferies whoretired from the Board. On behalf of everyone at Costain, I would like to thankDavid for his contribution over six years to the Group. His leadership skillscoupled with his experience and knowledge served Costain well. We have recently welcomed two valuable additions to the Board, Mike Alexanderand James Morley, as Non-Executive Directors. Both individuals are seniorindustry figures and have enjoyed considerable success in a number of sectors.Separately, Mike has been appointed Chairman of the Remuneration Committee andJames as Chairman of the Audit Committee. I am also pleased to note that John Bryant has become the Group's first SeniorIndependent Director, a role that will enhance the Board's compliance with thebest standards of corporate governance. OUTLOOK We set clear objectives for 2007 and I am delighted to report that we havedelivered on all of them. The year's achievements have been reflected in thestrong recovery in performance and the Board is especially delighted to announcea recommendation to return to the dividend list for the first time in 17 years. The successful Rights Issue along with our strengthened banking and bondingfacilities are enabling us to expedite the implementation of our 'Being NumberOne' strategy. The Group is capitalising on the opportunities available to itin its chosen market sectors and is strongly positioned to move into the nextphase of growth. In as far as 2007 was a landmark year for Costain, we expect2008 will be a year of further growth and I look forward to reporting on ourprogress. David Allvey Chairman CHIEF EXECUTIVE'S REVIEW STRATEGY We have continued to implement successfully our 'Being Number One' strategywhich is centred on leadership through focus and excellence and which leveragesCostain's core brand values. There is tremendous inherent value in the Costain brand, the result of a longtradition of professionalism, quality and engineering expertise. That brandreputation was further enhanced during the year with the completion of variousprojects to time and budget, in particular the new Eurostar terminus at StPancras. Our brand values and reputation are hugely important in attracting keycustomers, suppliers and people in a market where quality resources are scarceand good people have plenty of choices. Across our business, we are targeting larger, blue-chip customers whoincreasingly are looking to work with fewer contracting organisations on alonger-term framework or partnership basis. As an example of this, we weredelighted recently to be appointed by BAA to their 'Complex Building Framework'.This Framework is worth some £4 billion over ten years. We also continue to focus on market sectors, for example Water, Highways andNuclear where we have, or can grow, a strong market position as a route tosustainable profit. Our strategic focus has significantly lessened our exposureto sectors particularly susceptible to the macro-economic climate and interestrate fluctuations. Our customers are also increasingly looking for contractors to provide anintegrated whole life-cycle service offering and we were delighted to win ourfirst such contract, a five-year highways maintenance contract in joint ventureduring the year. Partly as a result of these trends in procurement, the construction market hascontinued to consolidate and polarise towards a smaller number of largercontractors. Our strategy will ensure that Costain is one of those largercontractors. We are now in a stronger position to achieve that ambition. DELIVERING ON OUR OBJECTIVES Following the decisive management actions taken during the latter half of 2006,we set ourselves a number of demanding strategic objectives for 2007 to ensurethat we delivered a significant and sustainable recovery in Group profitability. I am pleased to report that we have delivered on all of those objectives.During the year, we: • Achieved significant growth in profit in the Civil Engineering operations • Delivered a profit from Building operations • Produced a profit in the Oil, Gas & Process operations for the first time in 6 years • Actively traded the PFI portfolio to re-invest in bidding for new projects • Significantly strengthened our cash position to £133m • Further improved operational efficiency and reduced costs across the Group • Secured a higher quality order book of £1.6bn; repeat orders increased to 80% • Increased the level of preferred bidder positions to over £800m The Group also continued to manage out certain legacy contracts and goodprogress has been made during the year, in particular at Costa Azul and Pemex.The projects are nearing completion and commercial discussions are ongoingregarding the final handover of both contracts. FINANCING THE NEXT PHASE OF THE GROUP'S DEVELOPMENT We were successful in achieving our key financial objectives in the year. Weenhanced the Group's financial position by strengthening the balance sheet andgiving the Group's operational capability added firepower through a 60% increasein the level of banking and bonding facilities. The Rights Issue, which raised £60 million (net of expenses), and the £200million of banking and bonding facilities give Costain the additional resourceswith which to take full advantage of the many opportunities available to it inthe marketplace. OPERATIONS AND ORDER BOOK As a result of our strict new business criteria, which places long-term qualityahead of short-term quantity, our order book at £1.6 billion (2006: £1.8billion) reflects a greater proportion of blue-chip customer work in ourtargeted sectors, 80% of which is repeat order work. Additionally, we havegrown the preferred bidder position to in excess of £800 million (2006: £500million) and started the year with c.£700 million of 2008 revenue secured. Our Civil Engineering operations recorded an excellent performance in the yearwith increases in both profit and revenue. It was encouraging to see that thedivision, which encompasses a range of infrastructure and environment-relatedactivities, also further consolidated its market-leading positions, inparticular in Water and Highways. The division has been successful indeveloping a platform for future growth in the Nuclear industry, includingundertaking a major contract at Sellafield. We delivered a profit from our Building operations following the implementationof remedial actions, including a re-alignment into key sectors, cost reductionsand a restructuring of the management team. We expect that under closesupervision, and with new management controls in place, we will see furtherprogress through more selective bidding for higher margin work in its targetedsectors across the built community including Education, Health and Retail. Costain regards its investments in PFI projects in a portfolio including Water,Health, Education and Highways projects as a strategically core activity, notleast because PFI is an important procurement route for securing major publicsector projects. In line with our strategy of actively trading the PFIportfolio to re-invest in bidding for new projects, including during the yearthe M25 consortium bid, we disposed of two equity positions in the year. As previously reported, the result at our Property Development operations ('Alcaidesa') was impacted by the delay to a major land sale expected during thesecond half. However, a number of small transactions were completed and theBoard remains confident in the medium to longer-term outlook, a sentimentreinforced by our securing a concession for a major 800-berth marina developmentproject near Gibraltar. The Group's Oil, Gas and Process operations performed ahead of expectations,benefiting from our much greater focus on front-end engineering design andproject management services. We were delighted to see the delivery of a profitfor the first time in six years and we will continue to drive the division'sprofitability. Since the year-end, Costain won a number of contract and preferred bidder awardsincluding as preferred contractor for the SPV on the Greater Manchester WasteDisposal Authority's PFI Contract (capital works programme valued in the regionof £300 million), as preferred bidder to build a new campus for the Universityof Worcester (worth c. £70 million) and the contract, in joint venture, for theA14 in Cambridgeshire. HEALTH AND SAFETY The proper management of Health and Safety remains our number one priority. We demonstrated further improvements in our health and safety performance in2007, and were delighted to receive RoSPA's most prestigious award, the SirGeorge Earle trophy. This was the first time for many years that the award hasbeen made to a construction company. Our performance was also recognised by afurther 34 RoSPA awards. As a result of a number of initiatives and management actions we have continuedto reduce our Accident Frequency Ratio ('AFR'), and we now have the bestperformance in the Major Contractors Group of peer companies. Furthermore our consideration for the local community was acknowledged by theachievement of 18 awards from the Considerate Constructors Scheme. We continued to focus on the health and safety of our employees and othersaffected by our operations and activities. We take all precautions possible toprevent environmental harm being caused as a result of our activities and areimproving the environmental performance on both our sites and in our offices aspart of our drive towards becoming an environmentally conscious company. There is no room for complacency when it comes to Health, Safety and theEnvironment and so we have set a series of challenging objectives for 2008.These include a focus on Behavioural Safety as a way of influencing culture andindividual actions to avoid accidents. PEOPLE We are recruiting talented people to Costain and continue to increase investmentin training and development programmes at all levels. We have a first-rate operational management team at Costain and I am proud tolead them. Having revamped the Executive Board in 2006, and ensured that wehave the right people in the right positions, there is a new confidence atCostain. This is evident in everything we do but particularly when tenderingfor new contracts, whether working alongside major partners in joint venture orcompeting successfully against fellow premier-league companies. A major benefit of such strength and depth is that we also have a deep pool oftalent from which to promote people and develop succession planning across thebusiness. SUPPLY CHAIN A key element in making Costain more efficient and productive is our focus onreducing the number of suppliers we work with and working with them on alonger-term more strategic basis. This also enhances the service we provide andreduces the cost of project delivery, key ingredients in securing business fromcustomers who are consistently expecting us to deliver 'more for less'. We have continued to reduce our supplier base and now work with a limited numberof preferred suppliers for each of the key trades. We are now starting to seethe benefit of these more collaborative relationships, be it through improvedmarket intelligence, greater innovation, access to the best people or enhancedoperational performance. A very successful first conference for our strategic supply chain partners washeld at the end of the year at Warwick University, and focused on achievingmutual benefit through greater integrated working. MANAGING COSTS One of the drivers for achieving our significant recovery in profitability thisyear has been a robust management of costs in the business. The Executive Boardreviews the costs in detail every month and actions are taken to further improveefficiency or reduce expenditure. In early 2008, the Group's head office will be moving to a new open plan modernbuilding on the outskirts of Maidenhead, which should further improveoperational efficiency. SUMMARY We have achieved a great deal over the past year at Costain with a lean andfocused business delivering a strong performance. Growth in our chosen markets is underpinned by the major long-term spendcommitments of our targeted blue-chip customers. We have a focused strategy, a strengthened balance sheet and an ambitiousmanagement team determined to see Costain build on its position as one of theUK's premier contractors. These are exciting times at Costain and we are looking to the future with greatconfidence. I believe that we will see further progress during this year,building on the strong performance in 2007, and we are on course to deliver inline with our expectations. Andrew Wyllie Chief Executive BUSINESS & OPERATIONAL REVIEW Civil Engineering Revenue (including share of joint ventures and associates) for the period was£539.3 million (2006: £488.1 million), with a profit of £20.0 million (2006:£10.3 million). Costain is a leader in UK Environmental and Infrastructure projects. Water During 2007, Costain's position was reinforced as the UK's leading assetmanagement contractor with excellent performance on all of our frameworks:Bristol Water, Southern Water, Thames Water, United Utilities, Welsh Water andYorkshire Water. At Southern Water, in a joint venture, Costain has successfully commissioned the£85 million Margate and Broadstairs Waste Water Treatment Plant, with overallcompletion achieved two months ahead of programme and final handover in March2008 some three months early. We secured, in joint venture, a £100 million contract from United Utilities forthe construction of the Shell Green sludge treatment project. Costain, in joint venture, is also preferred bidder for the £200 millionBrighton and Hove Waste Water Treatment Works, which is currently going throughthe planning approvals process. Costain was recently awarded an Advance Contractfor design and procurement work in anticipation of a full order during 2008. Among a number of awards in recognition of our excellence in this sector, ourSouthern Water/SEC(4D) joint venture won Partnership Initiative of the YearAward at the inaugural Water Industry Achievement Awards and a RoSPA Gold safetyaward for the second year running, and we secured Yorkshire Water's CommunityContract Partner of the Year Award. Waste Costain has expanded its operations into the Waste sector, where the Group hasthe opportunity to use complementary process engineering skills and expertisefrom its water operations to build a presence in the rapidly expanding UK andEuropean regulated marketplace. Costain was recently awarded an advance design and construction contract for theGreater Manchester Waste Disposal Authority's PFI contract for a capital workspackage valued at some £300 million and we expect full award soon with fouryears of work. Towards the end of the year, Costain was named as Preferred Bidder for theRiverside Energy-from-Waste Plant at Belvedere in Kent. Nuclear Costain has made steady progress in the Nuclear sector with the successfuldelivery of the Hunterston MAETP contract, framework contracts for AWE andTrawsfynydd and completion of the UKAEA Winfrith Dragon Phase 1 decommissioningcontract. At Sellafield, we have delivered successfully our process andmodularisation expertise into the sector-critical Evaporator D project and aremaking good progress on the site construction phase. Contract awards in the year have included Hunterston's Solid Active Waste BunkerRetrieval, Solid Intermediate Level Waste Encapsulation and Storage PondsDecommissioning projects, with preferred contractor status confirmed for theTrawsfynydd Capping Roof project and Berkeley Active Waste Vault Retrievalproject. Highways Costain strengthened its leading position in the Highways sector, with thedelivery of major schemes including the M25 Holmesdale Tunnel, ahead of scheduleand under budget, and the A2/A282, a £120 million scheme completed five monthsearly and within budget. Costain also received a number of contract awards including the £40 million M27(J3 to J4 and J11 to J12) in addition to being Preferred Bidder for the £93million Church Village by-pass with repeat customers Highways Agency and RhonddaCynon Taf. The Company has a strong forward order book in Highways with Early ContractorInvolvement schemes including the A19, the A34 Wolvercote and the M1 (J10 toJ13) with the Highways Agency, the A40 Penblewyn with the Welsh AssemblyGovernment and the recent award in joint venture of the Highways Agency'slargest-to-date scheme, the A14 project. We were also pleased to secure in jointventure our first five-year MAC maintenance contract. In line with our strategy of actively trading the PFI portfolio to re-invest inbidding for new projects, including during the year the M25 consortium bid, theGroup sold its 50% investment in the Sirhowy Enterprise Way PFI concession. Costain is part of the FLOW consortium, which has been short-listed for theHighways Agency's £5 billion M25 programme. The preferred bidder is expected tobe announced in the first half of 2008. Rail The highlight of 2007 was the successful completion, in joint venture, of the£800 million St Pancras International Station. Completion of the Station wasthe final stage in the new Channel Tunnel Rail Link and has been described asthe 'jewel in the crown' of the new High Speed 1 Eurostar service connectingLondon to mainland Europe. In line with our Rail strategy, and building on our St. Pancras success, Costainsecured the first element, in joint venture, of the £400 million Kings CrossStation redevelopment for Network Rail and we are actively bidding for theremaining major elements of the works. We are also tendering for the major redevelopments of both Blackfriars andFarringdon stations in the Network Rail Thameslink programme with a combinedpotential value of more than £350 million. Costain also completed in just twelve months the design, build and commission onthe new Langdon Park station on the Docklands Light Railway, the first newstation build on a live DLR line. Marine Costain completed the winter maintenance of the major coastal protection schemeat Whitstable, Kent for Canterbury County Council. Two major Container Port developments, Felixstowe South Reconfiguration andLondon Gateway Port, have been given final planning consent. Costain iscurrently in negotiations with Hutchison Port Holdings regarding the Felixstoweproject whilst London Gateway Port, for Dubai Ports, is being re-bid forsubmission in the first half of 2008. Airports Costain has been appointed by BAA as one of the approved contractors for their 'Complex Building Framework'. This Framework is worth some £4 billion over tenyears. We continue to deliver projects for Manchester Airport Group under theircurrent framework agreement. Building Revenue (including share of joint ventures and associates) for the period was£254.7 million (2006: 298.0 million), with a profit of £0.8 million (2006 loss:£25.9 million). Health Costain successfully delivered three projects during the year: the KingstonHospital Phase V PFI scheme, a new unit providing additional wards and teachingfacilities on the Kingston Hospital site; Bridgnorth Hospital extension, aProCure 21 project providing community hospital facilities; and Finch RoadCommunity Unit, the first health centre of its kind in this area. During the year, two ProCure 21 projects were awarded to Costain at Cheltenhamand Gloucester Hospitals. We reached Financial Close on all three 3 Shires PFIcontracts in 2007 and we were appointed as one of two contractors on a frameworkfor Circle to build approximately 30 private healthcare facilities around thecountry over five years. Education Costain delivered three new PFI secondary schools in Kent along with theremaining two PFI schools at Greenford and Acton as part of the Ealing II PFIscheme. Phase 2 of the John Madejski Academy in Reading was also completed andwork has commenced on the University of Reading's new Business School andextension. Costain made good progress with the construction, in joint venture, of Phase 1of Bradford's £400m Building Schools for the Future ('BSF') programme. Thefirst three schools are due for delivery in early summer 2008. Negotiations forPhase 2, valued at approximately £160 million, continue with contracts due to besigned before the end of 2008. During the year, Costain was named as preferred bidder on Lewisham's £210million BSF programme. The Company achieved Financial Close on the Phase 1schools with construction starting on Sedgehill and Catford and Phase 2 isunderway. At the close of the year, Costain was confirmed as preferred bidderon the University of Worcester's new £70 million Castle Street campus. In order to finance the above PFI bidding activity, and in line with our ongoingstrategy of actively trading our PFI equity portfolio, the Group sold itsshareholding in Bridgend Prison PFI project during the year. Retail During the year we continued to work closely with Tesco and were appointed totheir Strategic Partners Group. We are currently in discussion to formalise theCompany's appointment under a three year framework agreement which will resultin contracts for new stores during 2008. This significantly strengthens ourrelationship with Tesco as does the work at Gerrards Cross, Bucks where the twocompanies are working to progress that scheme. We were one of six main contractors to be appointed a framework contractor by JSainsbury and also successfully pre-qualified as a contractor on the Marks &Spencer Register of Approved Suppliers. Property Development Revenue (including share of joint ventures and associates) for the period was£3.6 million (2006: 13.2 million), with a profit of £0.2 million (2006: £3.9million). The Group's Property Development business in Southern Spain ('Alcaidesa')completed a number of small transactions although, as previously reported, amajor land sale expected during the second half has been delayed. Consequently,the result for the year was below expectations. Alcaidesa, a joint venture business, does not build property for sale direct tothe public. Its principal activity is the purchase of land, securing enhancedplanning consents and selling enclaves of consented land to developers.Consequently, Alcaidesa has seen a degree of resilience in its market andmaintains a long-term high quality land bank. A large disposal is expected in2008. The Board therefore remains confident in the medium- to longer-term outlook forthe division and this view has been reinforced during the year by securing the30-year concession for the 800-berth marina near Gibraltar. Oil, Gas & Process Revenue (including share of joint ventures and associates) for the period was£62.3 million (2006: 57.2 million), with a profit of £1.9 million (2006: loss£19.5 million). The Company performed ahead of expectations in this sector as a result of arefocused strategy, a strong order book and much improved productivity levels. Within the UK, Costain has been pursuing a number of natural gas undergroundstorage projects and is currently performing the front-end engineering design ofa plant for the Gaz de France's Stublach (Cheshire) Gas Storage Facility. Adesign verification study for another underground gas storage project with E.ONhas seen Costain well placed to secure further business in this sector in 2008. In addition, the division is delivering the process engineering design for theEvaporator D nuclear project at Sellafield. Costain's operation in Abu Dhabi continued to perform well. As one of theprincipal construction contractors on Das Island for more than 30 years, Costainhas been involved in almost every aspect of the island's oil and gas processingcomplex. With regard to the Pemex contract in Mexico, where good progress hasbeen made during the year, Costain is working with the main contractor towardsthe completion of the project. International Following the decision in 2006 to close the International Division, we continueto work-out the remaining contracts, in particular Costa Azul, where the projectis nearing completion and commercial discussions are ongoing regarding the finalhandover. Any future international projects will be undertaken by theappropriate specialist sector teams. Order Book We have a high quality order book, standing at £1.6 billion as at 31 December2007, of which circa £700 million relates to 2008 and 80% of which is repeatbusiness. We have also grown our preferred bidder positions to in excess of£800 million. Our focus on quality rather than quantity has resulted in an order book thatcontains a range of excellent contracts and which provides a stream ofhigh-quality earnings for the Group. We will continue to manage our order bookon the basis of securing an increasing proportion of long-term frameworks withblue-chip customers. PRELIMINARY RESULTS ANNOUNCEMENT Consolidated income statement Year ended 31 December Notes 2007 2006 £m £m Revenue (Group and share of joint ventures and associates) 2 877.9 886.3Share of joint ventures and associates 6 (130.3) (137.9)Group revenue 747.6 748.4 Cost of sales (716.2) (785.9)Gross profit/ (loss) 31.4 (37.5) Administrative expenses (21.7) (20.9) Group operating profit/(loss) 9.7 (58.4) Profit on sale of investment 2.7 3.6Profit on sales of interests in joint ventures and associates 3.2 -Amounts written off loans to associate - (2.7)Share of results of joint ventures and associates 6 0.9 (7.0) Profit/(loss) from operations 16.5 (64.5) Financial income 3 29.6 26.7Finance costs 3 (26.3) (23.9)Net financing income 3.3 2.8 Profit/ (loss) before tax 19.8 (61.7) Income tax (expense)/credit 5 (3.8) 7.7 Profit/ (loss) for the period attributable to equity holders of theparent 2 16.0 (54.0) Earnings/(loss) per share - basic 4 3.6p (13.2)p*Earnings/(loss) per share - diluted 4 3.5p (13.2)p*(* 2006 figures restated) During the year and the previous year, no businesses were acquired. The impacton the results of businesses disposed was not material and therefore all resultsare classified as arising from continuing operations. Consolidated statement of recognised income and expense Year ended 31 December Notes 2007 2006 £m £m Exchange differences on translation of foreign operations 2.0 -Cash flow hedges:Effective portion of changes in fair value (net of tax) duringperiod - Group (0.1) 0.3Effective portion of changes in fair value (net of tax) duringperiod - joint ventures and associates (0.1) 3.1Change in fair value of assets classified as available for sale (2.6) (0.8)Actuarial gains on defined benefit pension schemes 11.7 26.0Tax recognised on actuarial gains recognised directly in equity (3.3) (7.8)Tax rate adjustment to brought forward actuarial losses recogniseddirectly in equity (1.7) -Net income recognised directly in equity 5.9 20.8 Profit/(loss) for the period 16.0 (54.0) Total recognised income and expense for the period attributable toequity holders of the parent 8 21.9 (33.2) Consolidated balance sheet Notes 2007 2006As at 31 December £m £m ASSETSNon-current assetsProperty, plant & equipment 3.5 5.7Intangible assets 2.7 3.4Investments in joint ventures 6 29.0 25.0Investments in associates 6 2.2 1.2Loans to joint ventures 7.3 3.3Loans to associates 1.6 2.0Other investments - 3.6Other debtors 6.7 10.1Deferred tax assets 21.2 30.6Total non-current assets 74.2 84.9Current assetsInventories 2.0 2.4Trade and other receivables 150.3 160.6Cash and cash equivalents 7 133.4 56.4Total current assets 285.7 219.4Total assets 359.9 304.3EQUITYShare capital 31.4 17.9Share premium 1.1 0.6Special reserve - 12.8Fair value reserve - 2.6Foreign currency translation reserve 0.9 (1.2)Hedging reserve (1.8) (1.6)Retained earnings (4.2) (86.3)Total equity attributable to equity holders of the parent 8 27.4 (55.2) LIABILITIESNon-current liabilitiesRetirement benefit obligations 50.6 68.7Other payables 3.7 6.6Provisions 5.0 4.1Total non-current liabilities 59.3 79.4 Current liabilitiesTrade and other payables 268.1 266.1Tax liabilities 1.8 2.7Overdrafts 7 - 1.4Interest bearing loans and borrowings 0.6 1.7Provisions 2.7 8.2Total current liabilities 273.2 280.1Total liabilities 332.5 359.5Total equity and liabilities 359.9 304.3 Consolidated cash flow statement Year ended 31 December Notes 2007 2006 £m £mCash flows from operating activities Profit/(loss) for the period 16.0 (54.0)Adjustments for:Depreciation and amortisation 2.8 2.7Financial income 3 (29.6) (26.7)Finance costs 3 26.3 23.9Share based payments expense 8 0.2 0.3Income tax 5 3.8 (7.7)Profit on sale of investment (2.7) (3.6)Profit on sales of interests in joint ventures and associates (3.2) -Share of results of joint ventures and associates 6 (0.9) 7.0Amounts written off loans to joint ventures and associates - 2.7Cash from/(used by) operations before changes in working capitaland provisions 12.7 (55.4)Decrease/(increase) in inventories 0.4 (0.4)Decrease in receivables 13.3 2.2Increase in payables 1.9 32.6Movement in provisions and employee benefits (8.0) (2.6)Cash from/(used by) operations 20.3 (23.6) Interest paid (0.5) (0.3)Income taxes paid (0.3) (0.2)Net cash from/(used by) operating activities 19.5 (24.1) Cash flows from investing activitiesInterest received 2.8 2.6Dividends received from joint venture - 6.1Additions to property, plant and equipment (0.8) (1.9)Additions to intangible assets (0.2) (0.9)Proceeds from sale of fixed assets - 0.2Additions to investments (0.2) (0.1)Disposal of subsidiary, net of cash disposed (1.4) -Proceeds from sale of investments 9.4 7.1Loans to joint ventures and associates (10.1) (10.2)Net cash (used by)/from investing activities (0.5) 2.9 Cash flows from financing activitiesIssue of ordinary share capital 8 65.0 0.3Share issue costs 8 (4.5) -(Payment of)/proceeds from borrowings (1.0) 0.9Payment of finance lease liabilities (0.1) (0.2)Net cash from financing activities 59.4 1.0 Net increase/(decrease) in cash and cash equivalents 78.4 (20.2) Cash and cash equivalents at beginning of period 55.0 75.0Effect of foreign exchange rate changes - 0.2Cash and cash equivalents at end of period 133.4 55.0 NOTES TO THE PRELIMARY FINANCIAL STATEMENTS 1 Basis of preparation These financial statements have been prepared and approved by the directors inaccordance with International Financial Reporting Standards as adopted for usein the EU in accordance with EU law (IAS Regulation EC 1606/2002). The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2007 or 2006 but is derivedfrom those accounts. Statutory accounts for 2006 have been delivered to theRegistrar of Companies, and those for 2007 will be delivered in advance of theCompany's Annual General Meeting. The auditors have reported on those accounts;their reports were unqualified and did not include reference to any matters towhich the auditors drew attention by way of emphasis without qualifying theirreports and did not contain statements under section 237(2) or (3) of theCompanies Act 1985. 2 Business and geographical segment information by origin In the opinion of the directors, the business segments are Civil Engineering,Building, Oil Gas & Process and International, which undertake engineering andconstruction projects, Property Development operations in Spain and Centralcosts. These represent the Group's primary segments. Secondary segments arepresented geographically. Segment results, assets and liabilities include items directly attributable to asegment as well as those that can be allocated on a reasonable basis. Centralcosts comprise mainly corporate expenses. Segment capital expenditure is thetotal cost incurred during the period to acquire segment assets that areexpected to be used for more than one period. Year ended Civil Oil, Gas & Property Central31 December 2007 Engineering Building Process International Development Costs Total £m £m £m £m £m £m £m Group revenue 441.4 249.7 53.8 2.7 - - 747.6Share of revenue 97.9 5.0 8.5 15.3 3.6 - 130.3of JVs andassociatesTotal revenue 539.3 254.7 62.3 18.0 3.6 - 877.9 Group operating 16.9 (2.3) 1.7 (0.2) - (6.4) 9.7profitProfit on sale of - 2.7 - - - - 2.7investmentsProfit on sale of 3.0 - - 0.2 - - 3.2JVs andassociatesShare of results 0.1 0.4 0.2 - 0.2 - 0.9of JVs andassociatesSegment result 20.0 0.8 1.9 - 0.2 (6.4) 16.5Net financing 3.3incomeIncome tax (3.8)expenseProfit for the 16.0year Group assets 115.0 29.4 17.9 2.9 - - 165.2Investments in 1.6 8.8 0.1 3.4 26.2 - 40.1and loans to JVsand associatesSegment assets 116.6 38.2 18.0 6.3 26.2 - 205.3 Unallocated 154.6assetsTotal assets 359.9 Group liabilities (168.5) (77.3) (24.4) (5.0) - (0.6) (275.8)Provisions (0.8) (2.7) (0.2) - - - (3.7)against JVs andassociatesSegment (169.3) (80.0) (24.6) (5.0) - (0.6) (279.5)liabilitiesUnallocated (53.0)liabilitiesTotal liabilities (332.5) Capitalexpenditure 0.3 0.1 0.5 0.1 - - 1.0Depreciation/amortisation 1.7 0.8 0.2 0.1 - - 2.8 NOTES TO THE FINANCIAL STATEMENTS - continued Business and geographical segment information by origin - continued Year ended Civil Oil, Gas & Property Central31 December 2006 Engineering Building Process International Development Costs Total £m £m £m £m £m £m £m Group revenue 400.3 288.5 51.4 8.2 - - 748.4Share of revenue of 87.8 9.5 5.8 21.6 13.2 - 137.9JVs and associatesTotal revenue 488.1 298.0 57.2 29.8 13.2 - 886.3 Group operating 10.0 (29.6) (19.8) (13.0) - (6.0) (58.4)profit/ (loss)Profit on sale of - 3.6 - - - - 3.6investmentsAmounts written off - - - (2.7) - - (2.7)loans to associateShare of results of 0.3 0.1 0.3 (11.6) 3.9 - (7.0)JVs and associatesSegment result 10.3 (25.9) (19.5) (27.3) 3.9 (6.0) (64.5)Net financing 2.8incomeIncome tax credit 7.7Loss for the year (54.0) Group assets 106.4 52.1 19.0 8.3 - - 185.8Investments in and 3.9 2.3 (0.2) 1.6 23.9 - 31.5loans to JVs andassociatesSegment assets 110.3 54.4 18.8 9.9 23.9 - 217.3Unallocated assets 87.0Total assets 304.3 Group liabilities (147.9) (90.7) (26.7) (13.0) - (1.0) (279.3)Provisions against (0.6) (1.0) (0.2) (3.9) - - (5.7)JVs and associates Segment liabilities (148.5) (91.7) (26.9) (16.9) - (1.0) (285.0)Unallocated (74.5)liabilitiesTotal liabilities (359.5) Capital expenditure 1.0 1.0 0.1 0.7 - - 2.8Depreciation/amortisation 1.0 1.0 0.3 0.4 - - 2.7 Revenue Segment result 2007 2006 2007 2006 £m £m £m £mUnited Kingdom 833.8 816.9 16.3 (22.1)Spain 3.6 13.2 0.2 3.9Rest of the world 40.5 56.2 - (46.3) 877.9 886.3 16.5 (64.5) Segment assets Capital expenditure 2007 2006 2007 2006 £m £m £m £mUnited Kingdom 167.4 175.3 0.6 2.1Spain 26.2 25.6 - -Rest of the world 11.7 16.4 0.4 0.7 205.3 217.3 1.0 2.8 NOTES TO THE FINANCIAL STATEMENTS - continued 3 Net financing income 2007 2006 £m £mInterest income from bank deposits 2.4 2.1Interest income from other loans and receivables 0.5 0.5Expected return on the assets of the pension scheme 26.7 24.1Financial income 29.6 26.7 Interest expense (0.5) (0.3)Expected increase in the present value of the pension scheme liabilities (25.8) (23.6)Finance costs (26.3) (23.9) Net financing income 3.3 2.8 Interest income from other loans and receivables relates to shareholder loaninterest receivable from the Group's Private Finance Initiative (PFI)investments. 4 Earnings/ (loss) per share The calculation of earnings/(loss) per share is based on profit attributable toequity holders of the parent of £16.0m (2006: loss £54.0m) and the number ofshares set out below: 2007 2006 (restated)Weighted average number of shares for basic earnings per share calculation 449,535,401 409,582,962Dilutive potential ordinary shares:SAYE Scheme 5,404,067 7,131,715Weighted average number of shares for fully diluted earnings per share 454,939,468 416,714,677calculation The weighted average number of shares and the number of dilutive potentialordinary shares have been adjusted to take account of the bonus element of therights issue (see Note 8). The comparative figures have been restated. The anti-dilutive effect of the potential ordinary shares has been excluded forthe purposes of calculating the 2006 diluted earnings per share because thiswould decrease the diluted loss per share. NOTES TO THE FINANCIAL STATEMENTS - continued 5 Income tax 2007 2006 £m £mOn profit/(loss) for the year:United Kingdom corporation tax at 30% 0.1 0.1Adjustments in respect of prior years 0.8 0.2Overseas taxation (0.3) -Current tax credit for the year 0.6 0.3 Deferred taxation (4.0) 6.6Adjustments in respect of prior years (0.4) 0.8 Total income tax (expense)/credit in the income statement (3.8) 7.7 2007 2006 £m £mTax reconciliation:Profit/(loss) on ordinary activities before taxation 19.8 (61.7) Income tax at 30% (5.9) 18.5Rate adjustments relating to overseas profits 0.4 (0.2)Share of results of joint ventures and associates at 30% 0.3 (2.1)Disallowed provisions and expenses (0.5) (4.4)Profits relieved by capital losses or non-taxable gains 1.8 1.1Unrelieved overseas tax (0.2) -Increase of temporary differences (0.4) (6.2)Rate adjustment relating to deferred tax 0.3Adjustments in respect of prior years 0.4 1.0Total income tax (expense)/credit in the income statement (3.8) 7.7 The income tax above does not include any amounts for joint ventures andassociates, whose results are disclosed in the income statement net of tax. NOTES TO THE FINANCIAL STATEMENTS - continued 6 Investments The analysis of the Group's share of joint ventures and associates is set outbelow: 2007 2006 Alcaidesa 4Delivery Associates Total Alcaidesa Associates Total Holding SA Ltd Other Holding 4Delivery Other joint Ltd Ltd joint ventures ventures £m £m £m £m £m £m £m £m £m £mRevenue 3.6 93.8 25.1 7.8 130.3 13.2 84.6 26.5 13.6 137.9 Profit/(loss)before tax 0.4 - 0.3 0.9 1.6 6.1 - (10.9) 0.1 (4.7)Income taxexpense (0.2) - (0.1) (0.4) (0.7) (2.2) - (0.1) - (2.3)Profit/(loss) forthe period 0.2 - 0.2 0.5 0.9 3.9 - (11.0) 0.1 (7.0) Non-currentassets 7.7 - 4.2 0.5 12.4 5.7 - 7.2 2.4 15.3Current 31.0 21.5 114.3 58.6 225.4 33.6 25.1 82.1 51.4 192.2assetsCurrentliabilities (1.9) (21.5) (25.5) (6.9) (55.8) (8.1) (25.1) (20.0) (12.9) (66.1)Non-currentliabilities (10.6) - (90.2) (50.0) (150.8) (7.3) - (68.2) (39.7) (115.2)Investmentsin jointventures andassociates 26.2 - 2.8 2.2 31.2 23.9 - 1.1 1.2 26.2 Financialcommitments - - 10.3 - 10.3 - - 9.3 - 9.3 Capitalcommitments - - 50.8 - 50.8 - - 25.1 - 25.1 Net interest payable by joint ventures and associates in 2007 was £0.3m (2006:£1.8m receivable). The financial commitments relate to joint ventures involved in PFI schemes andthe capital commitments to construction work being undertaken by the CostainGroup. All figures are the Group's share. 7 Cash and cash equivalents Cash and cash equivalents are analysed below, and includes the Group's share ofcash held by jointly controlled operations of £28.8m (2006: £22.0m). 2007 2006 £m £mCash and cash equivalents 133.4 56.4Bank overdrafts - (1.4)Cash and cash equivalents in the statement of cash flows 133.4 55.0 NOTES TO THE FINANCIAL STATEMENTS - continued 8 Capital and reserves Share Fair Share premium Special value Translation Hedging Merger Retained Total capital account reserve reserve reserve reserve Reserve earnings Equity £m £m £m £m £m £m £m £m £m At 1 January 2006 17.8 0.4 13.1 3.4 (1.2) (5.0) - (51.0) (22.5)Total recognisedincome & expense - - - (0.8) - 3.4 - (35.8) (33.2)Share basedpayments - - - - - - - 0.2 0.2Shares issued 0.1 0.2 (0.3) - - - - 0.3 0.3At 31 December2006 17.9 0.6 12.8 2.6 (1.2) (1.6) - (86.3) (55.2) At 1 January 2007 17.9 0.6 12.8 2.6 (1.2) (1.6) - (86.3) (55.2)Total recognisedincome & expense - - - (2.6) 2.1 (0.2) - 22.6 21.9 Share basedpayments - - - - - - - 0.2 0.2Shares issued 13.5 0.5 (12.8) - - - 46.5 12.8 60.5Transfer - - - - - - (46.5) 46.5 -At 31 December2007 31.4 1.1 - - 0.9 (1.8) - (4.2) 27.4 On 14 September 2007, the Company announced a Rights Issue, which was approvedby shareholders on 2 October 2007. The Company raised £59.8m (net of expenses of£4.5m) by the issue of 267,923,469 new ordinary shares at 24 pence per share onthe basis of three new ordinary shares for every four existing ordinary shares.The Rights Issue was affected through a structure, which resulted in a mergerreserve arising under Section 131 of the Companies Act. Following the receiptof the cash proceeds through the structure, the excess of the net proceeds overthe nominal value of the share capital issued has been transferred to retainedearnings. The issued share capital of the Company as at 31 December 2007 was£31,443,432.50 consisting of 628,868,650 ordinary shares of 5p. All shares rankpari passu regarding entitlement to capital and dividends. The directors are proposing a dividend of 0.5p per share, which would have atotal cost of £3.1m. If approved by shareholders at the annual general meeting,the dividend is expected to be paid on 23 May 2008. The payment would be matchedby a contribution to the Group's defined benefit scheme. 9 Significant areas of judgement The Group undertakes construction contracts that may require it to perform extraor change order work. This can result in negotiations over the extent to whichthe work is outside the scope of the original contract or the price for theextra work. In addition, many contracts specify the completion schedulerequirements and allow liquidated damages to be charged in the event of failureto achieve that schedule; on these contracts, this could result in the Groupincurring liquidated damages. Two significant legacy contracts, in particular, represent potential risks: Costa Azul Breakwater, Mexico (joint venture between Costain and China HarbourEngineering Company): significant progress has been made during the year and thecontract is nearing completion. The final offshore works are weather related andmay be affected by sea conditions. Commercial discussions are ongoing and theGroup believes it is entitled to additional monies in respect of the worksperformed and commercial negotiations to this end have reached an advancedstage. Judgment as to the outcome of these negotiations is required at thebalance sheet date and a quantification of the probable recoveries has been madein establishing the anticipated loss on this contract. However, until theBreakwater has been handed over and the final account agreed, there will be someresidual risk. The Director's quantified this risk as being up to £10m in the 30June 2007 interim statements. Whilst this exposure remains, the Director'sremain confident that the current loss provisions taken on the contract areadequate. Pemex Nitrogen Rejection Unit, Mexico: Costain is a sub-contractor on thiscontract, which has suffered substantial delays and cost overruns. Costain andTechint SA de CV, the main contractor, are working together towards itsconclusion. Although, if either party fails to meet its respective obligations,the matter may be subject to protracted legal dispute: the directors believeappropriate provision has been made. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Costain