Interims & Rights Issue

14th Sep 2007 07:53

Costain Group PLC14 September 2007 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY ORINDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, FRANCE, JAPAN, MALAYSIA, NEWZEALAND, SOUTH AFRICA OR SWITZERLAND OR INTO ANY JURISDICTION WHERE TO DO SOWOULD BREACH ANY APPLICABLE LAW. Costain Group PLC ("Costain" or the "Group") Announcement of interim results for the half-year ended 30 June 2007 and a £60mequity fund raising (net of expenses) Costain, the engineering, construction and land development group, announcesresults for the half year ended 30 June 2007, which confirm that the business isperforming in-line with expectations, together with a £60m equity fund raising(net of expenses) to strengthen the balance sheet which combined with extendedand enhanced banking and bonding facilities, the Directors believe, will leavethe Group well placed to capitalise on the opportunities available to it in itschosen market sectors. Results confirm Board's expectations that Costain should see a significantrecovery in 2007 Six months ended 30 June 2007 2006Revenue £430.0m £436.2mProfit /(loss) from operations £6.6m £(21.9)mProfit/(loss) before tax £8.0m £(20.7)mEarnings/(loss) per share 1.7p (5.1)pNet cash £42.1m £49.9m • Profit recovery at both operational and pre-tax levels o Strong performance from Civil Engineering division o Progress in Building division and return to profitability at COGAP • Higher quality order book (£1.6bn at 30 June 2007): more than 80% of orders in Civil Engineering division o 78% repeat business (up from 67% at 30 June 2006) o Long-term frameworks with blue chip customers • Significant momentum: high tendering activity plus opportunity pipeline o £416m of 2008 revenue secured at 30 June 2007 o Preferred bidder positions in excess of £500m Business refocused under new management team. Directors believe significantbenefits being realised from 'Being Number One' strategy • Decisive actions taken over last 18 months to strengthen business o Focus on fewer market sectors o Stronger operational controls, business processes and management structures in place o Plans of action to manage out legacy issues Significant opportunities presented by market dynamics • Costain's customers moving towards larger-scale contracts and frameworks whilst consolidation creating fewer large service providers Directors believe Costain well placed to leverage opportunities followingstrengthening of balance sheet and extending and enhancing banking and bondingfacilities • Rights issue to raise £60m (net of expenses)...support from major shareholders o Kharafi taking up entitlement in full o UEM taking up part of its entitlement with the remainder to be placed with existing and/or new shareholders • Extended and enhanced banking and bonding facilities of £200 million negotiated subject to rights issue • Independent valuation of Spanish property assets which directors believe represents significant potential upside • Exploring PFI options including strategic partnership opportunity • New agreement with Trustee to address pension funding deficit Return to dividend of 0.5p in respect of this financial year, subject toPensions Regulator approval, expected on back of successful Rights Issue David Jefferies, Chairman, commented: "Following a number of decisive management actions, Costain has been refocused.We believe we are seeing significant benefits accruing from the ongoingimplementation of our 'Being Number One' strategy. A platform for the next phase of growth has been established and, following therights issue with a much strengthened balance sheet and additional financialresources, the Directors believe that the Group will be well placed tocapitalise on the opportunities available in its chosen market sectors. The first half results confirm the Board's expectations that the Group shouldsee a significant recovery in performance this year and, following the rightsissue and with the consent of the Pensions Regulator, a return to the dividendlist." 14 September 2007 Enquires: Costain Tel: 01628 842 444Andrew Wyllie, Chief ExecutiveTony Bickerstaff, Finance DirectorGraham Read, Public Relations Hawkpoint Partners Tel: 020 7665 4500 (Sponsor to Costain)Christopher Kemball Chris Robinson Dresdner Kleinwort Tel: 020 7623 8000 (Joint broker to Costain)Charles Batten Michael Covington Arbuthnot Securities Tel: 020 7210 2000 (Joint broker to Costain)James Steel Richard Dunn College Hill Tel: 020 7457 2020Mark Garraway Matthew Gregorowski This summary should be read in conjunction with the full text of the followingannouncement. Appendix I sets out the expected timetable of principal events. Appendix II sets out the risk factors to be considered carefully by shareholdersand other investors. Appendix III sets out the terms and conditions of the sub-underwriting of theRights Issue. Appendix IV sets out the terms and conditions of the Placing. Appendix V sets out definitions of terms used in this announcement. This announcement has been issued by and is the sole responsibility of Costain Hawkpoint Partners Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as financial adviser andsponsor to Costain and is acting for no one else in connection with the RightsIssue and will not be responsible to anyone other than Costain for providing theprotections afforded to clients of Hawkpoint, nor for providing advice inconnection with the Rights Issue or any other matter referred to herein. Arbuthnot Securities Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting as Joint UK Broker andjoint underwriter to Costain and is acting for no one else in connection withthe Rights Issue and will not be responsible to anyone other than Costain forproviding the protections afforded to clients of Arbuthnot, nor for providingadvice in connection with the Rights Issue or any other matter referred toherein. Dresdner Kleinwort Limited, which is authorised and regulated by the FinancialServices Authority, is acting as Joint UK Broker for Costain and for no-one elsein connection with the contents of this document and will not be responsible toanyone other than Costain for providing the protections afforded to customers ofDresdner Kleinwort Limited, or for affording advice in relation to the contentsof this document or any matters referred to herein. Dresdner Bank AG, London Branch which is authorised by BAFin and by theFinancial Services Authority and which is regulated by the Financial ServicesAuthority for the conduct of designated investment business in the UnitedKingdom, is acting as joint underwriter for Costain and for no-one else inconnection with the contents of this document and will not be responsible toanyone other than Costain for providing the protections afforded to customers ofDresdner Bank AG, London Branch, or for affording advice in relation to thecontents of this document or any other matters referred to herein. This announcement does not constitute an offer to sell or the solicitation of anoffer to acquire or subscribe for New Ordinary Shares, Provisional AllotmentLetters, Nil Paid Rights and/or Fully Paid Rights and/or to take up anyentitlements. The offer to acquire New Ordinary Shares pursuant to the proposedRights Issue will be made solely on the basis of the information contained inthe Prospectus to be published in connection with the proposed Rights Issue. The information contained in this announcement is not for release, publicationor distribution to persons in the United States, Canada, France, Japan,Malaysia, New Zealand, South Africa or Switzerland or in any jurisdiction whereto do so would breach any applicable law. This announcement is not an offer of securities for sale in, into or from theUnited States, Canada, France, Japan, Malaysia, New Zealand, South Africa orSwitzerland. The New Ordinary Shares, Provisional Allotment Letters, Nil PaidRights and Fully Paid Rights have not been and will not be registered under theUS Securities Act of 1933 (as amended) or under any relevant securities laws ofany state or other jurisdiction of the United States, and will not qualify fordistribution under any of the relevant securities laws of Canada, France, Japan,Malaysia, New Zealand, South Africa or Switzerland. Accordingly, the NewOrdinary Shares, Provisional Allotment Letters, Nil Paid Rights and/or FullyPaid Rights may not be offered, sold, taken up, exercised, resold, renounced,transferred or delivered, directly or indirectly, within the United States(absent registration or an applicable exemption from registration) or withinCanada, France, Japan, Malaysia, New Zealand, South Africa or Switzerland. The availability of the Rights Issue to persons who are not resident in theUnited Kingdom may be affected by the laws of the relevant jurisdictions inwhich they are located. Persons who are not resident in the United Kingdomshould inform themselves of, and observe, any applicable requirements. Certain statements in this announcement are forward-looking statements. Suchstatements speak only as at the date of this announcement, are based on currentexpectations and beliefs and, by their nature, are subject to a number of knownand unknown risks and uncertainties that could cause actual results andperformance to differ materially from any expected future results or performanceexpressed or implied by the forward-looking statement. The informationcontained in this announcement is subject to change without notice and (exceptas required by the Listing Rules, the Disclosure Rules and Transparency Rules,the Prospectus Rules, the London Stock Exchange or otherwise by law) none of theCompany, Hawkpoint Partners Limited, Arbuthnot Securities Limited, DresdnerKleinwort Limited, Dresdner Bank AG, London Branch assumes any responsibility orobligation to update publicly or review any of the forward-looking statementscontained herein. No statement in this announcement is intended to be a profit forecast or toimply that the earnings of Costain for the current year or future years willnecessarily match or exceed the historical or published earnings of Costain. NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY ORINDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, FRANCE, JAPAN, MALAYSIA, NEWZEALAND, SOUTH AFRICA OR SWITZERLAND. CHAIRMAN AND CHIEF EXECUTIVE'S STATEMENT OVERVIEW The first half of the year was a period of further implementation of our 'BeingNumber One' strategy. Our focus is on deploying resources only in those areaswhere we believe we can maintain or build strong market positions and we havehad a number of contract wins both during the period and since the half-yearend. We have a high quality order book of £1.6 billion as at 30 June 2007 of which£416 million relates to 2008. As a result of our deliberate focus on qualityrather than quantity, the order book is slightly lower than this time last yearat £1.6 billion (2006: £1.9 billion). Our Civil Engineering division, which accounts for more than 80% of the forwardorder book, has continued its strong performance in the first half and hasfurther consolidated its market positions, in particular in Water and Highways.The Group has also made significant in-roads in Nuclear where it is establishinga solid presence at Sellafield. Following the remedial actions implemented in Building, including a re-alignmentinto key sectors and a restructuring of the management team, the division madeprogress during the period. New management controls have been put in place toensure more selective bidding for higher margin work in its targeted sectors. The performance of the Alcaidesa land development division in southern Spain issignificantly weighted towards the second half of the year and the Directorsbelieve current residential market conditions will not impact our long-termstrategic land bank development plan. With our joint venture partners, wecontinue to pursue new opportunities. The Group's oil & gas division, COGAP, has benefitted from the much greaterfocus on front-end engineering design and project management services and, as aresult, returned to profitability during the period. We continue to monitorprogress closely and the Board keeps under regular review its options in respectof this division. As previously disclosed, the Group continues to manage out certain legacycontracts which resulted in contract write-downs reflected in full in the 2006financial year. We continue to actively pursue our entitlements on thosecontracts subject to dispute. The effective management of Health and Safety is a key priority for Costain andthis year Costain received the Sir George Earl trophy, the premier award fromRoSPA. Subject to Pensions Regulator approval, a return to a dividend of 0.5p perOrdinary Share in respect of this financial year is expected on the back of asuccessful Rights Issue. BALANCE SHEET INITIATIVES In recent years, the Company has experienced changing dynamics within the UKconstruction market reflecting a move towards larger scale opportunities andfewer large service providers. Costain's public sector and private blue-chipcustomers are entering into new relationships with contractors involving bigger,multi-year framework contracts and integrated full life-cycle services. Thistrend is likely to result in greater earnings visibility. The Company expectsthat consolidation within the UK construction market will continue and a smallnumber of large firms will dominate the market. The Board has put in place a clear strategy to enhance Costain's position overtime as a leading prime contractor in selected markets. Costain's strategy isto focus its efforts and develop stronger positions in its key targeted markets. The Group's ongoing success is demonstrated by its high quality order book of£1.6 billion as at 30 June 2007 of which £416 million relates to 2008. Inaddition, the Group has preferred bidder positions in excess of £500 million anda significant pipeline of tendering activity. The Group is therefore undertaking certain initiatives for the specific purposeof strengthening its balance sheet and financial resources. These are outlinedbelow. Rights Issue The Company proposes to raise £60 million (net of expenses) by wayof a Rights Issue of 267,923,469 New Ordinary Shares at 24 pence per share onthe basis of 3 New Ordinary Shares for every 4 Existing Ordinary Shares.Completion of the proposed equity issue will represent a further step in thestrengthening of the Group's balance sheet for its medium-term requirement. Itwill provide access to the enlarged bonding facilities and give the Group theopportunity to take advantage of the larger contracts available to it and toimplement its chosen strategy. The Rights Issue is conditional on, amongstother things, Shareholders granting the Directors authority to allot the NewOrdinary Shares. The Prospectus giving details of the Rights Issue andcontaining, amongst other things, a notice of the Extraordinary General Meetingof the Company to be held on 2 October 2007 will be sent to Shareholdersshortly. Both major shareholders are supportive of the Rights Issue, withKharafi also taking up its entitlement in full. Increased banking and bonding facilities Subject in each case to Admission, the Company has negotiatedextended and enhanced banking and bonding facilities from the bank and suretyproviders to a total of £200 million compared with approximately £125 million ofsuch facilities as at 31 December 2006. As stated above, these will provideaccess for Costain to these additional bonding facilities which will enhance theGroup's ability to secure the larger framework contracts now available andmaintain growth. Land Development The Board has also commissioned an independent valuation of certainof the land and property assets in its Spanish joint venture. The land andproperty assets were valued at approximately €151 million. Costain has a 50 percent. interest in the joint venture and Costain's share of those land andproperty assets is therefore valued at £50 million (based on current exchangerates). The book value of Costain's share in those land and property assets is£30 million indicating that there is significant potential upside. Spanish taxwould be payable on any realized gains above book value. The independentvaluation was carried out before the award of the 30 year concession for the 800berth marina. With our joint venture partners, we continue to pursue newopportunities. PFI Investments Costain regards its investments in PFI projects in a portfolioincluding water, health, education and highways projects, as a strategicallyimportant activity. PFI is an important procurement route for securing majorpublic sector projects and the Board, which considers that it will remain so forthe forseeable future, is exploring options, including the possibility of astrategic partnership, to recognise portfolio valuation and to enhance theCompany's investment capacity and capability. The costs and returns associatedwith PFI activities are reported within the relevant operating division. RESULTS Revenue for the half year ended 30 June 2007 was £430 million (2006: £436.2million) with a profit from operations of £6.6 million (2006: loss of £21.9million). Profit before tax was £8.0 million (2006: loss of £20.7 million) andearnings per share were 1.7p (2006: loss per share of 5.1p). The Group has no significant borrowings and net cash balances at the half yeartotalled £42.1 million (2006: £49.9 million), including the Group's share ofcash held by construction joint venture arrangements of £20.2 million (2006:£22.1 million). REVIEW OF OPERATIONS Civil Engineering Revenue during the period was £280.4 million (2006: £217.0 million), with aprofit from operations of £10.1 million (2006: £7.9 million). In Water, we have AMP4 framework agreements with six water companies. We,together with our joint venture partners, are making good progress on the twoyear £80 million contract to provide major water treatment works for the Margate& Broadstairs wastewater treatment scheme. In recognition of our excellence in this sector, our Southern Water/SEC(4D)joint venture won Partnership Initiative of the Year Award at the inauguralWater Industry Achievement Awards and a RoSPA Gold safety award for the secondtime, and we secured Yorkshire Water's Community Contract Partner of the YearAward. In Highways, we delivered the Porth Relief Road project in South Wales forRhondda Cynon Taf County Borough Council, following which we were appointed bythe same client for the £76 million development of the Church Village by-pass.As part of the Aone+ consortium we were also awarded the 5 year Area 10 MACcontract which heralded our strategic entry into the highways maintenancemarket. A number of M25 schemes were completed and new highways projects won. Wedelivered certain stages of the M25 Holmesdale tunnel early, constructioncommenced on junctions 1b to 3 as part of the ECI scheme and we are delighted tohave been shortlisted for the M25 PFI DBFO as part of the FLOW consortium. We have been selected as preferred bidder on the M27 project between junctions11 and 12 and delivery of the A2/A282/M25 project is running ahead of programmeand budget. In Rail, the redevelopment of the Grade one listed St Pancras Station is nearingcompletion. The platform extension and much of the magnificent Barlow Shed havealready been handed over in preparation for the Eurostar service to commence ontime in November. We, together with our joint venture partners, have beenawarded the £30 million Kings Cross Eastern Ranges contract, which includes therefurbishment of the existing Grade One listed offices and the provision of anew platform. In February, at London's Waterloo Station, we completed new lift shaftfoundation works for Tube Lines in a congested area. This contributes toimproved access to the Waterloo and City Lines as part of a major new programmeby London Underground to cater for mobility impaired people. The Group was alsoawarded a contract for London Underground's Tube Cooling Programme to develop anAir Handling Unit. Progress has been good and the unit will be ready for trialslater this year. Costain has been developing a design for Tesco at the site of the tunnel failureat Gerrards Cross. Technical approval has been granted by Network Rail anddetailed design is well underway. We are also managing the construction of anew station for the DLR at Langdon Park and working with Westfield to manage theconstruction of the new Wood Lane Station on the Hammersmith & City Line. In Nuclear, we were awarded the Hunterston SAWBE concept design project. TheGroup was also confirmed as preferred bidder for the £10 million TrawsfynyddSafe Store Capping Roof project and the £11 million AWVR project for Berkeley. At Sellafield, we have incorporated the Oil & Gas modular design approach to the£90 million Evaporator D project. In Marine, we completed the winter maintenance of the major coastal protectionscheme at Whitstable, Kent for Canterbury County Council on time. Constructionstarted on the Aire Navigation Suspended Footbridge at Castleford, and wecompleted a major Container Park expansion at Thamesport Container Dock forHutchison Whampoa. Building Revenue during the period was £108.5 million (2006: £158.3 million) with a lossfrom operations significantly reduced to £0.4 million (2006: loss of £7.9million). The division has been restructured around target market sectors andtighter tendering and operational controls have been introduced. The Group continues to play an active part in the Government's PFI procurementprogramme. The Group incurs considerable costs in bidding new PFI projects and,as part of its ongoing overall re-investment and return from PFI, has sold itsequity share in Bridgend Custodial Services Ltd for a profit of £2.7 million inthe first half of 2007. In Health, we reached financial close on the South Holland Community Hospitalproject and the Leicester Learning Disabilities Unit project, the first two outof three phases of the 3 Shires Batch PFI. Through 'ProCure21', one of the Government's major health sector initiatives,the Group completed both the Mental Health Unit at Fairfield Hospital and thenew facilities at Bridgenorth Hospital, and was awarded a second scheme atCheltenham Hospital. During the period, the Group was also awarded a third project for the Cheltenhamand Gloucester NHS Trust to build the Gloucester Hospital site a new Women'sUnit. In Education, we delivered three new PFI secondary schools in Kent into servicealong with the remaining two PFI schools at Greenford and Acton as part of theEaling II PFI scheme. We have completed Phase 2 of the Reading City Academy andhave commenced on site with the University of Reading's new £21m business schooland extension to the existing ICMA. During the period we have significantly expanded our presence in theGovernment's Building Schools for the Future programme ("BSF"). With our JVpartners we have commenced on site with three new secondary schools worth £70million in Bradford and entered exclusive negotiations and design developmentwith Bradford City Council on its £150 million Phase 2 BSF programme, expectedto reach financial close in early 2008. As part of our Learning 21 joint venture with VT Group we have been awardedpreferred bidder status on Sedgehill and Catford schools worth £56 million aspart of the London Borough of Lewisham's £210m BSF programme In Retail, we strengthened our relationship with Tesco by being appointed tojoin its new Strategic Partnership forum. We were one of six main contractors to be appointed a framework contractor bySainsbury's. Land Development Our development activities in southern Spain were in line with expectations. Aspreviously mentioned, the weighting of earnings is significantly towards thesecond half of the year. Revenue for the period was £1.9 million (2006: £7.2million) with a loss after tax of £0.5 million (2006: profit of £2.1 million). During the period, we completed the new club house at Alcaidesa and the secondgolf course has been completed and will open for public use in September thisyear. Subsequent to the half year end, we were granted a 30-year concession over a286,000 sq m area at La Linea, adjacent to Gibraltar, to develop an 800-berthmarina and a 14,000 sq m retail zone and other ancillary services. The Board has also commissioned an independent valuation of certain of the landand property assets in its Spanish joint venture. The land and property assetswere valued at approximately €151 million. Costain has a 50 per cent. interestin the joint venture and Costain's share of those land and property assets istherefore valued at approximately £50 million (based on current exchange rates). The book value of Costain's share in those land and property assets is £30million, indicating that there is significant potential upside. Spanish taxwould be payable on any realized gains above book value. The independentvaluation was carried out before the award of the 30 year concession for the 800berth marina. With our joint venture partners, we continue to pursue newopportunities. Costain Oil, Gas & Process ("COGAP") Following progress at COGAP, the division has returned to profitability with anoperating profit for the first six months of £0.2 million (2006: loss of £1.1million) on revenue of £26.2 million (2006: £30.8 million). The division has implemented a new strategic approach focused on front-endengineering design and project management services. The Board continues tomonitor its progress and keeps options under regular review. Following the significant delays incurred by technical and contractualdifficulties to our PEMEX sub-contract, for a nitrogen recovery plant in Mexico,we have reached agreement with the main contractor on how in principle tocomplete the project. Whilst protracted legal action is possible if thecontract is not completed to the new schedule, the Board considers that thecurrent provisions taken against the contract are adequate. International Following the decision to close the International division, we continue towork-out a number of contracts. One of these is the Costa Azul contract, ajoint-venture with China Harbour, awarded in December 2004. We are workingtowards handover of the breakwater, subject to weather conditions, by 1 January2008 in line with contract. Whilst there could potentially be substantialpenalties and additional costs of up to £10m if the due date is missed, theBoard considers that the current provisions taken against the contract areadequate. RIGHTS ISSUE Terms and conditions The Board intends to offer the New Ordinary Shares by way of rights to allQualifying Shareholders (other than, subject to certain exceptions, QualifyingShareholders with a registered address in the United States, Canada, France,Japan, Malaysia, New Zealand, South Africa or Switzerland) on the followingbasis: 3 New Ordinary Shares at 24 pence per New Ordinary Share for every 4 ExistingOrdinary Shares held and registered in their name at the close of business on the Record Date.Fractions of New Ordinary Shares will not be allotted to any QualifyingShareholders, but will be aggregated and sold in the market ultimately for thebenefit of the Company. Qualifying Shareholders with fewer than 4 ExistingOrdinary Shares will not be entitled to any New Ordinary Shares. The NewOrdinary Shares will, when issued and fully paid, rank in full for all dividendsor other distributions mae, paid or declared after the Record Date and otherwisepari passu with the Existing Ordinary Shares in all respects. The Nil Paid Rights or Fully Paid Rights represented by a Provisional AllotmentLetter may be converted into uncertificated form, that is, deposited into CREST(whether such conversion arises as a result of a renunciation of those rights orotherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST maybe converted into certificated form, that is, withdrawn from CREST. The Rights Issue Price of 24 pence per New Ordinary Share represents a 36 percent. discount to the Closing Price of an Existing Ordinary Share of 37.25 penceon 13 September 2007 (being the latest practicable date prior to thisannouncement). Daedalus and Kharafi, the Company's major shareholders together holdingapproximately 57 per cent. of the issued share capital of the Company, aresupportive of the Rights Issue and have committed to vote in favour of theresolutions to be proposed at the EGM. In addition, Kharafi has committed tosubscribe in full for its entitlement of 59,376,392 New Ordinary Shares underthe Rights Issue and Daedalus has committed to sell rights over 81,261,941 NewOrdinary Shares and apply the proceeds of sale in subscribing for 12,753,964 NewOrdinary Shares, being the remainder of its entitlement of 94,015,905 NewOrdinary Shares. The Underwriters intend initially to acquire the Nil PaidRights to the 81,261,941 New Ordinary Shares to be sold by Daedalus, pay upthese rights and then seek to procure institutional investors to purchase theresultant Fully Paid Rights. Following the Rights Issue, Kharafi is expected tohold 138,544,915 Ordinary Shares (representing 22.16 per cent of the EnlargedShare Capital) and Daedalus is expected to hold 138,108,505 Ordinary Shares(representing 22.09 per cent of the Enlarged Share Capital). Other than in relation to those New Ordinary Shares which Kharafi and Daedalushave agreed to take up or procure that their nominees take up and which theDirectors have indicated their intention to take up or procure that theirnominees take up, the Company has arranged for the Rights Issue to beunderwritten by Arbuthnot and DBAG in full in order to give greater certainty asto the amount of capital to be raised. The Rights Issue is conditional, amongst other things, upon: (a) the passing atthe EGM of the resolution authorising the Directors to allot New OrdinaryShares; (b) Admission becoming effective by not later than 8.00 a.m. on 3October 2007 (as the Dealing Day immediately after the date of the ExtraordinaryGeneral Meeting) or such later time and/or date, being no later than 10 October2007, as the Company and the Underwriters may agree; and (c) the UnderwritingAgreement otherwise becoming unconditional in all respects and not having beenterminated in accordance with its terms prior to Admission. Prior to Admission, the Underwriters may terminate the Underwriting Agreement incertain circumstances, the likelihood of which the Directors consider to beremote. After Admission, however, the Underwriting Agreement will not besubject to any right of termination (including in respect of any statutorywithdrawal rights). Application has been made to the UK Listing Authority for the New OrdinaryShares (nil and fully paid) to be admitted to the Official List and to theLondon Stock Exchange for the New Ordinary Shares (nil and fully paid) to beadmitted to trading on the London Stock Exchange's main market for listedsecurities. It is expected that Admission will become effective and thatdealings in the New Ordinary Shares will commence on the London Stock Exchange,nil paid, at 8.00 a.m. on 3 October 2007. It is expected that dealings in theNew Ordinary Shares, fully paid, will commence on the London Stock Exchange atthe same time. The Rights Issue will result in the issue of 267,923,469 New Ordinary Shares(representing approximately 43 per cent. of the Enlarged Share Capital). Use of proceeds Costain is experiencing changing dynamics within the UK construction marketreflecting a move towards larger scale opportunities. As Costain's customersseek to enter into new relationships with contractors involving larger,multi-year framework contracts and integrated full life-cycle services, Costainmust demonstrate to its customers that it has the necessary financial resources,including bonding capabilities, to meet their ongoing needs. The proceeds of the Rights Issue, amounting to approximately £60 million (net ofexpenses), will strengthen Costain's balance sheet. Costain's enhanced capitalbase of permanent equity, together with the resultant increase in cashresources, will enable Costain to access additional bank and bonding facilitiesas described above. These increased facilities and strengthened balance sheetwill enable Costain to maintain and develop its business in line with itsstrategy. In addition, the proceeds will be available for working capitalrequirements, including those resulting from the Company entering into larger,multi-year framework contracts in its ordinary course of business and the costsassociated with the increased banking and bonding facilities. PENSIONS As at 30 June 2007, the deficit in the UK Pension Fund recorded in the Group'sunaudited balance sheet in accordance with IAS 19 was £38.4 million, a reductionof £30.3 million from the position recorded in the Group's audited balance sheetas at 31 December 2006. The actuarial report in respect of the latest valuation as at 31 March 2007 isbeing finalised for the Trustee. The provisional figures show the deficit inthe scheme has reduced to £44.6 million from £60.8 million recorded in theactuarial report as at 31 March 2005. Following discussions with the Trustee,the Company has agreed with the Trustee to a new contribution plan that is nowexpected to eliminate the deficit over a shorter period of ten years under thevaluation assumptions agreed with the Trustee. As a result the Companycontribution rate will increase marginally. In the year to December 2007, thetotal contributions by the Company to the defined benefit scheme are expected toamount to approximately £12m. In early 2006, Costain approached the Pensions Regulator regarding resumption ofdividend payments and the Company proposed that it would match any dividends toShareholders pound for pound by a payment into the UK Pension Fund. Theprinciple of this proposal was accepted by the Pensions Regulator, subject tothe approval of the Trustee and formal clearance from the Pensions Regulator atthe time of the proposed resumption. The Company has agreed this proposal withthe Trustee and, whilst it has not had further discussions with the PensionsRegulator, has no reason to believe that this agreement would not be ratified bythe Pensions Regulator. DIVIDEND The Board of Costain remains fully committed to the resumption of dividends assoon as practicable. The Company can only pay dividends to the extent that it has distributablereserves available for this purpose. The Rights Issue has been structured in away that is expected to have the effect of creating distributable reserves equalto the net proceeds of the Rights Issue less the par value of the New OrdinaryShares issued by the Company. It should be possible for the Company to declaredividends from the aggregate distributable reserves created by the Rights Issueand any created by future business activity (to the extent the aggregate ofthose reserves exceeds the amount of the current negative distributable reservesposition), provided that the Company has sufficient cash resources to fund suchdividends, the distributable reserves have not otherwise been reduced, amatching payment is made to the UK Pension Fund, the Pensions Regulator givesits consent and the Directors consider it appropriate to declare such dividends. The Board expects to adopt a progressive dividend policy with a small dividendinitially, bearing in mind the need (subject to getting the formal approval ofthe Pensions Regulator) to make matching payments to the UK Pension Fund and toretain sufficient funds to fund the further development of the Group's business,but capable of increasing over time in line with underlying earnings. In the absence of unforeseen circumstances and subject to the success of theRights Issue, approval from the Pensions Regulator and to no significant adverseor anticipated significant adverse movement on the pension fund deficit, theDirectors currently expect to pay a dividend of 0.5p per share in respect of theyear to 31 December 2007 (such a dividend will be payable in 2008). Thisdividend would be paid on both the Existing Shares and the New Ordinary Shares.This statement is not intended to be, and should not be considered as, a profitforecast for the Company. BOARD At the beginning of the year, it was announced that Dato'Ahmed Pardas Bin Senin,a nominee of UEM Builders Berhad, had resigned as Deputy Chairman and aNon-Executive Director of the Company with effect from 25 January 2007 and thatMr Mohd Hussein Bin Abdul Hamid, also a nominee of UEM Builders Berhad, had beenappointed to the Board as Non-Executive Director with effect from the same date. In July, it was announced that Mike Alexander had been appointed to the Board asan independent non-executive director. Mr Alexander was Chief Executive ofBritish Energy plc between 2003 and 2005 and prior to that Chief OperatingOfficer of Centrica plc, having held a number of senior positions within BritishGas plc including Managing Director, British Gas Trading and CommercialDirector, British Gas Exploration & Production. Before joining British Gas in1991, he spent 25 years at BP plc in various roles. Finally, it was also announced in July, that David Allvey and Mohd Hussein Hamidhad been appointed joint Deputy Chairmen. OUTLOOK Following a number of decisive management actions, Costain has been refocused.The Group believes it is seeing significant benefits accruing from the ongoingimplementation of the 'Being Number One' strategy. A platform for the next phase of growth has been established and, following theRights Issue with a much strengthened balance sheet and additional financialresources, the Directors believe that the Group will be well placed tocapitalise on the opportunities available in its chosen market sectors. The first half results confirm the Board's expectations that the Group shouldsee, following the Rights Issue and with the consent of the Pensions Regulator,a return to a dividend of 0.5p per Ordinary Share in respect of this financialyear. Now that the recovery is well established and with the benefit of theproceeds from the Rights Issue and the new facilities, the Company expectssteady progress from its new base. David Jefferies - ChairmanAndrew Wyllie - Chief Executive 14 September 2007 APPENDIX I EXPECTED TIMETABLE OF PRINCIPAL EVENTS 2007Announcement and Prospectus published Friday 14 September Record Date for entitlements under the Rights Issue the close of business Friday 28 September onLatest time and date for receipt of Forms of Proxy 10.30 a.m. on Sunday 30 September Extraordinary General Meeting 10.30 a.m. on Tuesday 2 OctoberDespatch of Provisional Allotment Letters (to Tuesday 2 OctoberQualifying Non-CREST Shareholders only)Admission 8.00 a.m. on Wednesday 3 October Dealings in Nil Paid Rights and Fully Paid Rights 8.00 a.m. on Wednesday 3 Octobercommence on the London Stock Exchange Existing Ordinary Shares marked "ex-rights" by the 8.00 a.m. on Wednesday 3 OctoberLondon Stock Exchange Nil Paid Rights credited to stock accounts in CREST as soon as Wednesday 3 October(Qualifying CREST Shareholders only) practicable after 8.00 a.m. on Nil Paid Rights and Fully Paid Rights enabled in as soon as Wednesday 3 OctoberCREST practicable after 8.00 a.m. on Recommended latest time for requesting withdrawal of 4.30 p.m. on Friday 19 OctoberNil Paid Rights or Fully Paid Rights from CREST(i.e. if your Nil Paid Rights or Fully Paid Rightsare in CREST and you wish to convert them intoProvisional Allotment Letters) Recommended latest time and date for depositing 2.00 p.m. on Monday 22 Octoberrenounced Provisional Allotment Letters, nil paid orfully paid, into CREST or for dematerialising NilPaid Rights or Fully Paid Rights into a CREST stockaccount Latest time and date for splitting Provisional 3.00 p.m. on Tuesday 23 OctoberAllotment Letters, nil paid or fully paid Latest time and date for acceptance and payment in 11.00 a.m. on Thursday 25 Octoberfull and registration of renounced Provisional Allotment LettersDealings in New Ordinary Shares, fully paid, 8.00 a.m. on Friday 26 Octobercommence on the London Stock Exchange and NewOrdinary Shares credited to CREST stock accounts(uncertificated holders only)Expected date of despatch of definitive share By Friday 9 Novembercertificates for New Ordinary Shares in certificatedform Notes: (i) Each of the times and dates set out in the above timetable andmentioned in this document and the Provisional Allotment Letter is subject tochange by the Company (with the agreement of Hawkpoint and the Underwriters), inwhich event details of the new times and dates will be notified to the UKListing Authority and, where appropriate, to Shareholders. (ii) References to times in this document are to London times. APPENDIX II RISK FACTORS 1. General risk factors Forward-looking statements (risks associated with them) This document includes statements that are, or may be, "forward-lookingstatements". These forward-looking statements can be identified by the use offorward-looking terminology, including the terms "believes", "estimates", "plans", "anticipates", "targets", "aims", "continues", "expects", "intends", "may", "will", "would" or "should" or, in each case, their negative or other variationsor comparable terminology. These forward-looking statements include all mattersthat are not historical facts. They appear in a number of places throughoutthis document and include statements regarding the Group's intentions, beliefsor current expectations concerning, among other things, the Group's results ofoperations, financial condition, liquidity, prospects, growth strategies and themarkets in which the Group operates. By their nature, forward-lookingstatements involve risk and uncertainty because they relate to future events andcircumstances. A number of factors could cause actual results and developmentsto differ materially from those expressed or implied by the forward-lookingstatements, including without limitation: market position of the Group,earnings, financial position, cash flows, return on capital, anticipatedinvestments and capital expenditures, changing business or other marketconditions and general economic conditions. These and other factors couldadversely affect the outcome and financial effects of the events describedherein and the Group. Forward-looking statements contained in this documentbased on these trends or activities should not be taken as a representation thatsuch trends or activities will continue in the future. Economic and market cycles and volatility The Group's business may be affected by the general risks associated with allcompanies operating in the same markets as the Group. The construction marketsin which the Group operates depend on numerous factors, many of which are beyondits control and the exact effect of which cannot be accurately predicted. Suchfactors include general economic and political activities, including the extentof any governmental regulation and taxation. An investment could be affected adversely by changes in economic, political,administrative, taxation or other regulatory factors, in any jurisdiction inwhich the Group may operate now or in the future. Senior management and skilled personnel. The Group is dependent on members of its senior management team and a flexible,highly skilled and well-motivated work force and believes its future successwill depend in part on its ability to attract, develop and retain highly skilledmanagement and personnel. If the Group does not succeed in attracting,developing and retaining skilled personnel, it may not be able to grow itsbusiness as anticipated. Further, the departure from the Group of any of theExecutive Directors or certain senior employees could, in the short term, have amaterial adverse effect on the Group's business. Environmental, health and safety laws, regulations and standards The Group is subject to a broad range of laws, regulations and standards,including those relating to pollution, the health and safety of employees,protection of the public, protection of the environment and the storage andhandling of hazardous substances and waste materials. These regulations andstandards are becoming increasingly stringent. It is the Group's policy to require that all of its subsidiaries, employees,suppliers and sub-contractors comply with applicable laws, regulations andstandards. However, violations of such laws, regulations and standards, inparticular, environmental and health and safety laws could result inrestrictions on the operations of the Group's sites, damages, fines or othersanctions, increased costs of compliance, potential reputational damage andpotential loss of future contracts. Major incident exposing an inadequate safety regime The nature of the business conducted by the Group requires the adoption andmaintenance of a rigorous health and safety programme. The Group works on anumber of significant and high profile projects and therefore the health andsafety performance is critical to the success of all areas of the Group'sbusiness. The Group takes the management of both operational and occupationalsafety extremely seriously. Any failure in health and safety performance whichresults in a major or significant health and safety incident is likely to becostly for the relevant business in terms of potential liabilities incurred as aresult. Furthermore, such a failure could generate significant adversepublicity and have a negative impact on the Group's reputation and its abilityto win new business, which in turn could adversely affect the operating,financial and share price performance. Terrorist incidents The Group and its employees work in various locations where there is a risk ofterrorist activity. A major terrorist incident in any of these locations couldaffect ongoing work carried out there, causing such work to be delayed orcancelled. Any such delays or cancellations would affect future revenue-streamsof the Group and could have an adverse impact on the Group's business,operational results or financial condition. A major terrorist incident couldalso result in a reduced demand for the Group's services if, as a result of suchan incident, there is a reduction in new works and projects commissioned inthose locations in which the Group might expect to work. Such an incident mightalso result in the Group reducing its activities in such locations, or possiblywithdrawing from that location altogether. Whilst the Group always take advicefrom specialist security consultants before carrying out work in any locationwhich the Group identifies as liable to terrorist attack to ensure that therisks from possible acts of terrorism are mitigated, due to the unpredictabilityof terrorist activity, there is no guarantee that such steps will be sufficientto safeguard the interests of the Group and its employees in those locations. Pension liabilities The Group operates a defined benefit pension scheme, being the Costain PensionScheme, which has been closed to new members since 1 June 2005. As at 30 June2007, there were 1009 active members accruing pensionable service. Updated valuations under IAS 19 for the schemes as at 30 June 2007 value thescheme's assets at £456.6 million, and liabilities at £495.0 million. Thisleaves a gross deficit in the scheme of £38.4 million, which, when subjected torelated deferred tax at 28 per cent., results in a net pension liability underIAS 19 of £27.6 million. Costain has reached an agreement with the Trustee thatthe deficit is reduced over a period of ten years. The introduction of thePension Protection Fund increases the costs borne by Costain. The value of the deficit recognised in the Group's balance sheet pursuant to IAS19 is dependent on certain critical assumptions including mortality rates,future salary levels and investment returns and is likely to vary from year toyear. Recent and prospective changes in the regulatory environment and fundingrequirement principles may lead to requirements to increase funding in respectof the scheme in future years (possibly to a level in excess of that needed toachieve solvency on an IAS 19 basis). The powers of the Pensions Regulator mayalso impact on any plans to make returns of capital from the Group toShareholders. For example, the Pensions Regulator has powers to levycontribution notices and financial support directions in certain circumstancesin order to ensure that additional contributions are paid into a pension schemeor that other financial support is put in place to the benefit of a pensionscheme. In the event that the market value of the scheme's assets declines inrelation to its assessed liabilities, the Group may be required to increase itscontributions to cover any further funding shortfalls. This could have anadverse impact on the Group's operational results and cash flow. Following the agreement with the Trustee regarding reducing the deficit(including the agreement that, subject to Pensions Regulator consent, anydividends will only be paid by the Company if a matching payment is made intothe UK Pension Fund), the Trustee has agreed that none of the proceeds of theRights Issue need be applied to the UK Pension Fund. Major Shareholders As at the date of this document as far as the Company is aware, Daedalus andKharafi hold approximately 35.09 per cent. and 22.16 per cent., respectively, ofthe issued ordinary share capital of the Company. Following completion of theRights Issue, Daedalus and Kharafi are expected to hold approximately 22.09 percent. and 22.16 per cent., respectively, of the issued ordinary share capital ofthe Company. Each of Daedalus and Kharafi are currently able to, and followingthe Rights Issue will continue to be able to, exercise a significant degree ofinfluence over matters requiring Shareholder approval, including the approval ofsignificant corporate transactions, and this may have the effect of delaying,preventing or deterring a change in control of the Group, could depriveShareholders of an opportunity to receive a premium for their Ordinary Shares aspart of a sale of the Group and might affect the market price of the OrdinaryShares. In addition, any decision by either of Daedalus or Kharafi to sell allor a portion of the Ordinary Shares held by it could adversely affect the marketprice of the Ordinary Shares. 2. Risks relating to the Group's existing business Risk of incorrectly budgeting/costing long term contracts If the Group is unable to accurately estimate the overall risks, revenues orcosts on a particular contract, then a lower than anticipated profit may beachieved or a loss incurred on such contract. The Group generally enters intofour principal types of contracts with clients: fixed price contracts, "costplus" contracts; framework contracts with clients that span a number of yearsand incorporate an agreed mechanism for bearing costs and sharing profits; andlong term PFI projects. A significant proportion of the Group's business depends for its profit on costsbeing controlled and projects being completed on time, such that costs arecontained within the pricing structure of the relevant contract. "Cost plus" contracts provide for reimbursement of the costs required tocomplete a project, but generally have a lower base fee and an incentive feebased on cost and/or scheduled performance. If actual costs exceed the revenuesavailable under such a contract or are not allowable under the provisions of thecontract, Costain may not receive reimbursement for all of these costs. Cost overruns, whether due to inefficiency, poor design where the contractor hasdesign responsibilities, faulty estimates, cost escalation, and/or cost overrunsby sub-contractors or other factors, result in lower profit or a loss on aproject. A significant number of contracts are based in part on cost estimatesthat are subject to a number of assumptions. If estimates of the overall risks,revenues or costs prove inaccurate or circumstances change, then a lower profitor a loss on the contract may result. Failing to win contracts If the Group failed to win major work from a key client this could cause shortterm turnover and profitability issues. The Group is always aware of this andseeks a balanced client base. Contract disputes The Group's contracts may require extra or change order work as directed by thecustomer even if the customer has agreed in advance on the scope or price of thework to be performed. This process may result in disputes over whether the workperformed is beyond the scope of the work included in the original project plansand specifications or, if the customer agrees that the work performed qualifiesas extra work, the price the customer is willing to pay for the extra work.Even when the customer agrees to pay for the extra work, the Group may berequired to fund the cost of such work for a period of time until the changeorder is approved and funded by the customer. Risk of missing deadlines The construction industry is highly schedule driven, and failure to meetschedule requirements within contracts could adversely affect the Group'sreputation and/or exposure to financial liability. Many of the Group'scontracts are subject to specific completion schedule requirements withliquidated damages charged in the event the construction schedules are notachieved. Failure to meet any such schedule requirements could damage theGroup's reputation within the industry and client base, as well as incurringsignificant liquidated damages. In particular, and as reported in the 2006 results, two significant legacycontracts represent potential risks: (A) Costa Azul Breakwater, Mexico The hand-over of this complex project is scheduled at the end of the year.Given the nature of this project, should there be a delay, Costain could faceadditional costs and could be liable for financial penalties under the terms ofthe contract. The Directors estimate that Costain's liability could be up to amaximum of £10 million. In conjunction with the joint venture partner, ChinaHarbour Engineering Company, a number of actions to mitigate the risks have beentaken and a very experienced team is working on the completion. In addition,there may be contractual issues that mean Costain is entitled to an extension oftime in which to complete the project. However, the ability of Costain tocomplete the project may be adversely affected by sea conditions and weatherfactors beyond its control. (B) COGAP - PEMEX, Mexico As has previously been reported, this contract, on which Costain is asub-contractor, has suffered delays and cost overruns. Costain and the maincontractor, Techint SA de CV have reached agreement on how in principle tocomplete the project. However, if either party fails to meet their revisedrespective obligations, the matter may be subject to protracted legal disputeand Techint may call the bond money it holds in respect of the project which inaggregate amounts to approximately US$6.7 million. Competition Contractors are required to compete for new work, which is won through a processof competitive tendering or bilateral negotiation. The contractors' reputation,prior experience with the client and pricing will all have a bearing on gainingnew work. The failure by the Group to compete effectively on these criteriacould reduce the Group's profitability. The Group competes with international, national and local support services andconstruction groups. Some of these groups are larger than the Group and mayhave greater financial, technical and operating capabilities. The sectors inwhich the Group operates are highly competitive on the basis of both price andservice. As a result of this competition, the Group suffers the risk that itwill fail to win new contracts in its chosen growth markets or will fail to wincontracts which are sufficiently profitable to maintain and improve thefinancial condition of the Group. The Group is seeking to introduce new methodsof risk management and contract selection, which will maintain or increase itssuccess rate and generate higher margins, whilst meeting its selectivity andrisk management criteria, but the success of this approach cannot be guaranteed. Contract bonds It is common practice for contractors to issue performance bonds, generally atten per cent. of the contract value, advance payment bonds to secure upfrontpayments on contracts and/or retention bonds to secure the release of retainedmonies, usually to a maximum of ten per cent. of the contract value. Thesebonds are at risk of being called if a contractor defaults on its contractualobligations on a construction project. The bonds are issued by specialistfinancial institutions and banks on behalf of the Group. In the normal courseof business, as at 13 September 2007 (the latest practicable date prior topublication of this document), the Company had contract bonds of £81.8 millionissued in connection with a number of different contracts. In the event thatCostain is unable to meet its commitments in relation to these contracts, thesecontract bonds could become payable, leading to a significant call upon theGroup's financial resources and the Group could have difficulty obtainingadditional performance bonds on satisfactory terms, or at all. If the Groupcould not obtain new performance bonds it would have a significant impact on itsability to win new business and maintain its current operations. Sub-contractor and supplier failure The Group is reliant on its supply chain. If a sub-contractor or supplier ofgoods or services failed financially or was responsible for late or inadequatedelivery or poor quality of work on a project then it could damage the Group'sreputation and/or cause it to suffer financial losses. Loss of IT systems The Group is dependent on IT systems for the delivery of its business. TheGroup believes that its IT systems are reliable and well protected butrecognises that such systems need constant updating and maintenance becausetheir failure could cause financial loss to the Group as well as damage to itsbrand and reputation. Insurance The Group believes it has robust, comprehensive and adequate insurance cover butrecognises that a claim could be made against it which exceeds the limits ofinsurance cover or is in respect of a matter that is uninsurable. In thosecircumstances the Group could suffer financial loss. Change of Government policy Certain of the Group's divisions are dependent on the current UK Government'spolicy with regard to improving public infrastructure, buildings and services,notably in the education, roads, health, secure establishments and defencesectors. The UK Government may decide in future to change its priorities andprogrammes, including reducing present or future investment in transport, healthor defence projects or other areas in which the Group would expect to competefor work. Any reduction in such government investment and funding would belikely to adversely affect the Group's future revenues and profitability in therelevant sectors. Underwriting and Financing The Group's ability to conduct its businesses profitably is substantiallydependent upon its ability to generate or obtain capital. The Company's currentfacility agreements, which were due to expire in June 2008, have been extendedto December 2008. The Company has also negotiated a further extension andenhancement of those facilities which will be conditional on Admission. TheRights Issue is underwritten (save in relation to the New Ordinary Shares agreedto be taken up by Kharafi, Daedalus and the Directors) pursuant to theUnderwriting Agreement, the scope and principal terms (including conditions andtermination rights) of which are set out in paragraph 6.1(a) of Part X of theProspectus. The underwriting of the Rights Issue will become fully effective on3 October, provided that all of the conditions are satisfied or waived and noneof the termination rights is exercised. Failure to complete the Rights Issueand to successfully extend and enhance these facilities would mean that theDirectors might have to take alternative steps to manage the Group's workingcapital resources, trading activities and related bonding commitments such thatit remains within the existing bank covenants and facility levels. Theseactions would adversely impact on the Group's performance, and in particular itsability to win future business, make and retain investments, take advantage ofacquisitions or other opportunities or otherwise respond to competitivechallenges. Additional risks associated with PFI projects The market for PFI projects is becoming increasingly competitive and there is noguarantee that current margins can be maintained in the future. PFI construction projects usually carry additional risks compared to standardconstruction projects. These additional risks are often borne, or partlyborne, by the construction company. The bidding process is considerably longer than standard construction projects,with more onerous and detailed requirements demanded within bidding submissions. As such, bid costs are typically higher than standard construction projects.There is a risk that unsuccessful bids may adversely impact the operatingresults of the Group. The debt repayment profile is fixed at the point that revenue streams areexpected to commence from the customer. If the project is delivered late, thenthe debt repayment has to be satisfied without the corresponding income stream. The Group is dependent upon construction and service sub-contractors for thedelivery of PFI projects. The Group's ability to invest in, develop and operatePFI projects could be adversely affected if the construction and servicesub-contractors with whom the Group wishes to work do not have sufficientcapacity to work with the Group on its chosen projects. In addition, if asub-contractor's work was not of the requisite quality or a sub-contractorbecame insolvent, this could have a material adverse affect on projects managedby the Group and might not only reduce financial returns but could adverselyaffect the Group's reputation and reduce its ability to win business in thefuture. To the extent that the Group uses a single sub-contractor on a numberof projects, these risks would be increased. There are also a number of additional risks that are typically allocated to theconstruction company in a PFI contract. These risks vary from contract tocontract, but typical examples include meeting a building's energy targets,taking responsibility for difficult ground conditions and/or groundcontamination and assuming the risk that a change in law will adversely affectthe project. Procurement delays Certain government-related projects on which the Group may work may requirerelevant approvals from Government ministers or senior civil servants. It ispossible that, due to difficulties obtaining such approvals, projects may bedelayed before procurement has started, during the tender stage or during theperiod between the appointment of a preferred bidder and the exchange ofcontracts. These matters are likely to be beyond the control of the Group andany resulting delays could affect future revenue streams of the Group and havean adverse impact on the Group's businesses, results of operations and financialcondition. 3. Risks relating to the Rights Issue and the New Ordinary Shares Fluctuation of share price The Company's share price has fluctuated, and may continue to fluctuate. Thefactors which may affect the Company's share price include but are not limitedto: • the Group's expected and actual performance and the performance of theconstruction industry in general; • the level of activity amongst its customers in the sectors in theterritories in which the Group operates; • speculation regarding mergers or acquisitions involving the Group and/or major divestments by the Group; • speculation regarding the intentions of the Company's majorshareholders or significant sales of shares by such shareholders; • the status of the Group's financing or re-financing activities,including its future compliance with any financial covenants in its facilities;and • announcements of changes in the Company's credit rating. Furthermore, the Company's share price may fall in response to market appraisalof its current strategy or if the Group's operating results and/or prospectsfrom time to time are below the prior expectations of market analysts andinvestors. In addition, stock markets have, from time to time, experiencedsignificant price and volume fluctuations that have affected the market price ofsecurities and which may be unrelated to the Group's operating performance andprospects. Ability to pay dividends The Company's ability to pay dividends in the future is uncertain. Futuredividends to be received by Shareholders will depend on the progress of thebusinesses in the territories in which the Group operates and the Company'scontinuing ability to be profitable. Under the Companies Act 1985, the Companycan only pay dividends to the extent that it has distributable reserves and cashavailable for this purpose. The Company currently has no distributablereserves. The Rights Issue has been structured in a way that is expected tohave the effect of creating distributable reserves equal to the net proceeds ofthe Rights Issue less the par value of the New Ordinary Shares issued by theCompany. The Company will need to earn profits in order to generate furtherdistributable reserves in the future. The Company has agreed with the Trusteethat a dividend may be paid if a matching payment is made into the UK PensionFund and has also committed to seeking Pensions Regulator clearance beforeresuming the payment of dividends. The Company's existing financingarrangements currently contain restrictions on the ability of the Company to paydividends but such restrictions will be removed following the extension andenhancement of those facilities as negotiated by the Company. Such extensionand enhancement is conditional on Admission. The Company can give no assuranceto Shareholders that it will actually be able to pay a dividend going forward. Possible issue of additional shares The Company may issue additional shares in the future, which may adverselyaffect the market price of the outstanding Ordinary Shares. The Company has nocurrent plans for a subsequent offering of its shares or of rights orinvitations to subscribe for shares. However, it is possible that the Companymay decide to issue additional shares in the future. An additional offering ofshares by the Company or the public perception that an offering may occur, couldhave an adverse effect on the market price of the Company's outstanding OrdinaryShares. Dilution of ownership of Ordinary Shares If Qualifying Shareholders do not take up the offer of New Ordinary Shares underthe Rights Issue, their proportionate ownership and voting interests in theOrdinary Shares will be reduced, and the percentage that their Existing OrdinaryShares represents of the Enlarged Share Capital will be reduced accordingly. An active trading market in Nil Paid Rights may not develop An active trading market in the Nil Paid Rights may not develop on the LondonStock Exchange during the trading period. In addition, because the tradingprice of the Nil Paid Rights depends on the trading price of the New OrdinaryShares, the Nil Paid Rights price may be volatile and subject to the same risksas noted in the paragraph above entitled "Fluctuation of share price". Theexisting volatility of the New Ordinary Shares may also magnify the volatilityof the Nil Paid Rights. APPENDIX III APPENDIX III SUB-UNDERWRITING TERMS AND CONDITIONS IMPORTANT INFORMATION FOR SUB-UNDERWRITERS ONLY MEMBERS OF THE PUBLIC ARE NOT ELIGIBLE TO TAKE PART IN THE SUB-UNDERWRITING OFTHE RIGHTS ISSUE. THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT ANDREFERRED TO HEREIN ARE DIRECTED ONLY AT PERSONS SELECTED BY DRESDNER BANK AG,LONDON BRANCH ("DBAG") AND/OR DRESDNER KLEINWORT SECURITIES LIMITED ("DKS") AND/OR ARBUTHNOT SECURITIES LIMITED ("ARBUTHNOT") WHO ARE "INVESTMENT PROFESSIONALS"AS DESCRIBED IN ARTICLE 19(5) OF THE FINANCIAL SERVICES AND MARKETS 2000(FINANCIAL PROMOTION) ORDER 2001 (AS AMENDED) (THE "ORDER"), ARE PERSONS FALLINGWITHIN ARTICLE 49(2)(a) TO (d) ("HIGH NET WORTH COMPANIES, UNINCORPORATEDASSOCIATIONS, ETC.") OF THE ORDER OR TO WHOM IT MAY OTHERWISE LAWFULLY BECOMMUNICATED (ALL SUCH PERSONS TOGETHER BEING REFERRED TO AS "RELEVANTPERSONS"). THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUT HEREIN MUST NOTBE ACTED ON OR RELIED ON BY PERSONS WHO ARE NOT RELEVANT PERSONS. ANYINVESTMENT ACTIVITY TO WHICH THIS APPENDIX AND THE TERMS AND CONDITIONS SET OUTHEREIN RELATES IS AVAILABLE ONLY TO RELEVANT PERSONS AND WILL BE ENGAGED IN ONLYWITH RELEVANT PERSONS. This announcement and the information contained herein are not for publicationor distribution, directly or indirectly, to persons in the United States,Canada, France, Japan, Malaysia, New Zealand, South Africa or Switzerland or inor into any other jurisdiction in which such publication or distribution isunlawful (a "Prohibited Jurisdiction"). This document and the information contained herein are not for publication ordistribution, directly or indirectly, to person in a Prohibited Jurisdictionunless permitted pursuant to an exemption under the relevant local law orregulation in any such jurisdiction. Unless otherwise defined in this Appendix, definitions used in this Appendixshall have the same meanings set out in Appendix V. Terms and Conditions of the Sub-underwriting of the Rights Issue If a Relevant Person chooses to participate in the sub-underwriting by DBAG andArbuthnot of the Rights Issue (the "Sub-underwriting") by making or accepting anoffer for a sub-underwriting participation (each such Relevant Person beinghereinafter referred to as a "Sub-underwriter") it will be deemed to have readand understood this Appendix in its entirety and to be making or accepting suchoffer on the terms and conditions, and to be providing the representations,warranties and acknowledgements, contained in this Appendix. In particular,each Sub-underwriter represents, warrants and acknowledges to each of DBAG andArbuthnot for themselves and as agents for the Company that it: 1. is, and at the time it agrees to sub-underwrite the UnderwrittenShares will be, outside the United States and it will acquire any UnderwrittenShares pursuant to its sub-underwriting participation in an "offshoretransaction" in reliance on Regulation S of the Securities Act; or 2. (i) is a qualified institutional buyer ("QIB") (as defined in Rule144A of the Securities Act) and (ii) has duly executed a US investorrepresentation letter in the form provided to it (or otherwise agreed by DKS andArbuthnot) and has delivered the same to Dresdner Kleinwort Securities LLC. The New Ordinary Shares referred to in this announcement (including theUnderwritten Shares) have not been and will not be registered under the USSecurities Act, and may not be offered or sold within the United States absentregistration or an exemption from registration. The New Ordinary Shares (including the Underwritten Shares), the Nil PaidRights, the Fully Paid Rights and the Provisional Allotment Letters have notbeen approved or disapproved by the SEC, any state securities commission in theUnited States or any other US regulatory authority, nor have any of theforegoing authorities passed upon or endorsed the merits of the offering of theNew Ordinary Shares (including the Underwritten Shares), the Nil Paid Rights,the Fully Paid Rights or the Provisional Allotment Letters or the accuracy oradequacy of this document. Any representation to the contrary is a criminaloffence in the United States. This announcement and Appendix do not constitute an offer to sell or issue or asolicitation of an offer to buy or subscribe for New Ordinary Shares in anyjurisdiction including, without limitation, the United States, Canada, France,Japan, Malaysia, New Zealand, South Africa or Switzerland or any otherjurisdiction in which other such offer or solicitation is or may be unlawful.The distribution of this announcement and the Sub-underwriting and issue of theNew Ordinary Shares in certain jurisdictions may be restricted by law. Personsto whose attention this announcement has been drawn are required by the Company,DKS, DBAG and Arbuthnot to inform themselves about and to observe any suchrestrictions. Details of the Underwriting Agreement and the New Ordinary Shares The Company has today entered into an underwriting agreement with, inter alia,DBAG and Arbuthnot (the "Underwriting Agreement") under which DKS, as anaffiliate of DBAG, and Arbuthnot, each as agent of the Company, has, subject tothe terms set out therein, agreed to use their reasonable endeavours to procurepersons to acquire on the terms and subject to the conditions set out thereinany of the 195,437,618 New Ordinary Shares in aggregate which they have agreed,severally, to underwrite ("Underwritten Shares") that are not taken up pursuantto the Rights Issue (the "Rump"). For the avoidance of doubt, the number ofUnderwritten Shares excludes the 72,485,851 New Ordinary Shares in respect ofwhich the Company has received irrevocable undertakings to take up rights inrespect of such New Ordinary Shares and in respect of which the Directors haveindicated their intention to take up rights in respect of such New OrdinaryShares. To the extent that DKS and Arbuthnot do not procure persons to take upthe Rump, DBAG and/or Arbuthnot and/or the Sub-underwriters (as the case may be)shall acquire the Stick at the Rights Issue Price. The Stick, if any, shall be allocated by DBAG and Arbuthnot, in theirdiscretion, to the Sub-underwriters, subject to the terms set out below. The New Ordinary Shares will, when issued and fully paid, rank in full for alldividends declared after the Record Date and otherwise pari passu in allrespects with the Existing Shares. Application for Listing and Admission to Trading Application will be made to the UKLA for admission of the Nil Paid Rights, theFully Paid Rights and the New Ordinary Shares to the Official List of the UKLA(the "Official List") and to the London Stock Exchange for admission to tradingof the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares on theLondon Stock Exchange's market for listed securities. It is expected thatAdmission will take place at 8.00am on 3 October 2007. Principal Terms of the Sub-underwriting This Appendix gives details of the terms and conditions of, and the mechanics ofparticipation in, the Sub-underwriting. 1. DBAG (through DKS) and Arbuthnot will arrange theSub-underwriting and participation will only be available to persons invited toparticipate by DBAG and/or DKS and/or Arbuthnot. 2. The price payable per New Ordinary Share shall be the RightsIssue Price. 3. A Sub-underwriter's commitment to sub-underwrite and subscribefor up to a fixed number of Underwritten Shares will be agreed with andconfirmed to it orally (the "Sub-underwriting Commitment") and a writtenconfirmation (a "Confirmed Commitment Letter") will be dispatched as soon aspossible thereafter. The oral confirmation to the Sub-underwriter by DKS (as anaffiliate of DBAG) or by Arbuthnot (as appropriate) (the "Oral Confirmation")constitutes an irrevocable, legally binding contractual commitment to DBAG orArbuthnot (as the case may be) (each as agent for the Company) to sub-underwriteup to a fixed number of Underwritten Shares allocated to it on the terms andconditions set out in this Appendix (the "Contract"). 4. You have accepted that in consideration of your sub-underwritingparticipation, you will be entitled to (subject to paragraphs 5 and 6 below): (a) a commitment commission of 0.5 per cent of the aggregate value atthe Rights Issue Price of your Sub-underwriting participation (the "AggregateSubscription Price") in respect of the period from (and including) the date ofthe Underwriting Agreement to the date falling 30 days thereafter; (b) a further commitment commission of 0.125 per cent. of theAggregate Subscription Price in respect of each period of 7 days (or any partthereof) of the Commitment Period commencing from and including the date 30 daysafter the date of the Underwriting Agreement; and (c) if Admission occurs, a further commitment commission of 0.75 percent. of the Aggregate Subscription Price. 5. If the conditions set out in the Underwriting Agreement are notsatisfied in accordance with their terms or waived or if DBAG and Arbuthnotexercise their right to terminate the Underwriting Agreement (other than forforce majeure), you will receive an aggregate Sub-underwriting commission of 0.5per cent. of the Aggregate Subscription Price. 6. If DBAG and Arbuthnot exercise their right to terminate theUnderwriting Agreement for force majeure, your sub-underwriting participationwill cease but no commissions will be payable to you. A Form of Confirmation will be included with each Confirmed Commitment Letterand this should be completed and returned by fax by 3.00 p.m. on the businessday following the giving of the Oral Confirmation. If the Oral Confirmation wasgiven by DKS, the Confirmed Commitment Letter should be completed and returnedby fax to Simon Green at DKS. If the Oral Confirmation was given by Arbuthnot,the Confirmed Commitment Letter should be completed and returned by fax toRichard Johnson at Arbuthnot. On the basis that Provisional Allotment Letters are posted to Qualifyingnon-CREST Shareholders on 2 October 2007 and Nil Paid Rights in respect of NewOrdinary Shares are credited to accounts maintained by Qualifying CRESTShareholders within CREST with effect from 3 October 2007, any UnderwrittenShares allotted pursuant to the Rights Issue, to the extent not taken up ortreated as taken up under the terms of the Rights Issue by 11.00 a.m. on 25October 2007 will be deemed to have been declined and the provisional allotmentsin respect of such shares will lapse. DKS, as an affiliate of DBAG, andArbuthnot, each as agent for the Company, will seek to procure persons toacquire such Underwritten Shares by not later than 3.00 p.m. on 29 October 2007,if placees can be found to acquire such shares for a consideration at leastequal to the Rights Issue Price and the expenses of such placing. Sub-underwriters will be called upon to acquire some or all (as the case may be)of such Underwritten Shares only if placees for any of such Underwritten Sharescannot be (or, in the opinion of DKS and/or DBAG and/or Arbuthnot, would not beable to be) procured on such basis. Any allocation to Sub-underwriters will benotified as soon as possible thereafter but, on the basis set out above, notlater than the close of business on 29 October 2007, for settlement in clearedfunds by 11.00 am on 31 October 2007 or by the Sub-underwriter ensuring that itsCREST account enables delivery of such Underwritten Shares to be made to it on 1November 2007 against payment of the settlement price. DBAG, DKS and Arbuthnot shall be entitled to effect the Rights Issue and/or theSub-underwriting by such method as they shall in their sole discretiondetermine. To the fullest extent permissible by law, none of DBAG, DKS orArbuthnot, any holding company thereof, not any subsidiary, branch or affiliateof any of them (each an "Affiliate") nor any person acting on behalf of any ofthem shall have any liability to Sub-underwriters (or to any other personwhether acting on behalf of a Sub-underwriter or otherwise). In particular,none of DBAG, DKS and Arbuthnot, any Affiliate thereof nor any person acting ontheir behalf shall have any liability in respect of its conduct of the RightsIssue (including the Sub-underwriting) or of such alternative method ofeffecting the Rights Issue and/or the Sub-underwriting as it may determine. Conditions of the Rights Issue The obligations of DBAG and Arbuthnot under the Underwriting Agreement areconditional, inter alia, on: 1. the passing of the Resolutions at the Extraordinary GeneralMeeting on the EGM Date (and not, without the prior written consent of DBAG andArbuthnot, at any adjournment thereof) without any amendment not previouslyapproved in writing by the DBAG and Arbuthnot; 2. none of the warranties given by the Company in the UnderwritingAgreement being untrue, inaccurate or misleading at the date of the UnderwritingAgreement and there being no change of circumstances such that, if suchwarranties were to be repeated at any time before Admission by reference to thefacts and circumstances then subsisting, any such warranty would be untrue,inaccurate or misleading, in each case in a manner which is material in thecontext of the Admission or the Rights Issue; 3. there not having occurred or arisen prior to Admission anysignificant change or new matter as is referred to in section 87G of the FSMAwhich requires a supplementary prospectus to be published; 4. each condition to enable the Nil Paid Rights and the Fully PaidRights to be admitted as a participating security (as defined in theRegulations) in CREST (other than Admission) being satisfied on or before theEGM Date; 5. the FSA agreeing to admit the Rights Shares (nil paid and fullypaid) to the Official List and the London Stock Exchange agreeing to admit theRights Shares to trading on its market for listed securities (both subject onlyto allotment of the Rights Shares) by no later than the EGM Date and Admissionoccurring at 8.00 a.m. on the first Dealing Day following the EGM Date; 6. the Existing Facilities Agreements remaining in full force andeffect between the publication of the Prospectus and Admission, allrepresentations and all warranties repeated or given by the Company under theFacilities Amendment Agreements being, or when given being, correct and accuratein all respects, all conditions precedent to the New Facilities Agreements andthe Facilities Amendment Agreements (other than those conditions relating toAdmission and the Underwriting Agreement becoming unconditional) having beensatisfied or waived in accordance with the terms of such agreements beforeAdmission and the Company having confirmed to DBAG and Arbuthnot (afterconsulting with the Existing Facilities Agreements and New Facilities Agreementslead arrangers) in writing following the EGM and in any event no later than 5.00p.m. on the EGM Date that: so far as it is aware (i) there is no reason why (A) all of the conditionsprecedent to the Facilities Amendment Agreements and the New FacilitiesAgreements will not be satisfied as at Admission and (B) any representations orwarranties required to be given or repeated pursuant to the Facilities AmendmentAgreements or the New Facilities Agreements will not be capable of being givenor repeated as required by such agreements; and (ii) no fact, matter orcircumstance exists which is likely to result in any of the Existing Facilities(as amended and restated by the Facilities Amendment Agreements) or the NewFacilities being withdrawn or otherwise not being available for draw-down by theCompany in full; and there has been no material breach of the terms of the Existing FacilitiesAgreements or the Facilities Amendment Agreements which has not been remedied orwaived and, so far as it is aware, no fact, matter or circumstance exists whichis likely to result in any material breach of the terms of the ExistingFacilities Agreements, the Facilities Amendment Agreements or the New FacilitiesAgreements occurring; 7. each of the Undertakings having been complied with in full beforeAdmission (to the extent that they fall to be complied with before such time);and 8. the UEM Instruction Letter having been duly signed and delivered by UEMand Rood Nominees Limited to DBAG and having not been revoked, in each casebefore Admission. If (a) the conditions set out in the Underwriting Agreement are not satisfied or(to the extent permitted under the Underwriting Agreement) waived by DBAG andArbuthnot by the required time (or before such later time and/or date as theCompany, DBAG and Arbuthnot may agree) or (b) the Underwriting Agreement isterminated in the circumstances specified below, the Rights Issue will lapse andthe rights and obligations of the Sub-underwriters hereunder shall cease anddetermine at such time and no claim can be made by any Sub-underwriter inrespect thereof. Rights of Termination DBAG and Arbuthnot may, following discussion with the Company where thecircumstances permit at any time prior to Admission, terminate their respectiveobligations under the Underwriting Agreement by giving notice to the Company ifinter alia: 1. in the opinion of DBAG and Arbuthnot (acting in good faith), thewarranties in the Underwriting Agreement are not true and accurate or havebecome misleading (or would not be true and accurate or would be misleading ifthey were repeated at any time before Admission) by reference to the factssubsisting at the and in the opinion of DBAG and Arbuthnot (acting in goodfaith) such breach is material and adverse in the context of Admission or theRights Issue; or 2. in the opinion of DBAG and Arbuthnot (acting in good faith), there hasbeen a breach by the Company of any of its obligations under the UnderwritingAgreement or certain related agreements which is in the opinion of DBAG andArbuthnot (acting in good faith) material in the context of Admission or theRights Issue; or 3. in the opinion of DBAG and Arbuthnot (acting in good faith), there hasbeen a material adverse change in the financial or trading position or prospectsof the Group as a result of which DBAG and Arbuthnot consider (acting in goodfaith) it is impracticable or inadvisable to proceed with Admission or theRights Issue; or 4. any new matter or circumstance arises, and as a result of such matteror circumstance, it is necessary, in the opinion of DBAG and Arbuthnot (actingin good faith), to amend or supplement the Prospectus in the approved terms, inorder that the Prospectus will not contain an untrue statement of a materialfact or omit to state a material fact necessary to make the statements thereinnot misleading or in order to ensure the Prospectus complies with the ProspectusRules, the Companies Act, the FSMA, the Listing Rules and all other statutes andgovernmental and regulatory authority regulations applicable to the Rights Issueand which, in any case, in the opinion of DBAG and Arbuthnot (acting in goodfaith) is material and adverse in the context of Admission or the Rights Issue,or 5. any sub-underwriter terminates its sub-underwriting commitmentfollowing publication of any supplementary prospectus or the announcement of anyintention to publish such a supplementary prospectus; or 6. any press or public announcement concerning the Group or the RightsIssue has been made by or on behalf of the Group which has not been sanctionedby the Underwriters prior to its release (such sanction not to be unreasonablywithheld or delayed) and which in the opinion of DBAG and Arbuthnot (acting ingood faith) is detrimental to the Group and material and adverse in the contextof Admission or the Rights Issue; or 7. in the opinion of DBAG and Arbuthnot (acting in good faith), therehas been after today's date: (a) a change in national or international, financial, political, economicor stock market conditions (primary or secondary); or (b) an incident of terrorism, outbreak or escalation of hostilities, war,declaration of martial law or any other calamity or crisis; or (c) a suspension or material limitation in trading of securitiesgenerally on any major stock exchange in the United Kingdom; or (d) a change in currency exchange rates or exchange controls in theUnited Kingdom, or a disruption of settlement systems in the United Kingdom, ora material disruption in commercial banking in the United Kingdom, in each case as would be likely to prejudice materially the success of theRights Issue, Each Sub-underwriter agrees with DKS, DBAG and Arbuthnot that the waiver by DBAGand Arbuthnot, or the agreement by DBAG and Arbuthnot to the extension of timefor the satisfaction, of any condition of the Underwriting Agreement or theexercise by DBAG and Arbuthnot of their right of termination of the UnderwritingAgreement, or any other discretion under such agreement, shall be within theabsolute discretion of DBAG and Arbuthnot and that none of DKS, DBAG norArbuthnot shall have any liability to any Sub-underwriter whatsoever inconnection with any decision to waive any such condition, agree to any suchextension or to exercise or not to exercise any such right or discretion. By participating in the Sub-underwriting, each Sub-underwriter agrees that itsrights and obligations hereunder terminate only in the circumstances describedabove and will not be capable of rescission or termination by anySub-underwriter. Information for Sub-underwriters A Prospectus will be published in connection with the Rights Issue and Admissionand will be approved by the UKLA. Sub-underwriters have been sent anunderwriting proof of the draft Prospectus (the "U Proof"). A Sub-underwritermay only rely on the information contained in the U Proof in deciding whether ornot to participate in the sub-underwriting. Each Sub-underwriter, by acceptinga participation in the Sub-underwriting, agrees that the content of thisannouncement and the U Proof are exclusively the responsibility of the Companyand confirms to DBAG, DKS, Arbuthnot and the Company that it has neitherreceived nor relied on any other information, representation, warranty orstatement made by or on behalf of DKS, DBAG or Arbuthnot or any of theirrespective affiliates or the Company (other than the amount of the relevantsub-underwriting participation and amount of sub-underwriting commissionscommunicated by DKS or Arbuthnot (as appropriate) in the Oral Confirmation), andnone of DKS, DBAG, Arbuthnot or any of their respective affiliates or theCompany will be liable for the decision of any Sub-underwriter to accept aninvitation to participate in the Sub-underwriting based on any otherinformation, representation, warranty or statement which the Sub-underwriter mayhave obtained or received. Each Sub-underwriter acknowledges to and agrees witheach of DKS, DBAG and Arbuthnot for themselves and as agents for the Company,that it has relied only on the information in the U Proof and this announcementin making its decision to participate in the sub-underwriting. Nothing in thisparagraph shall exclude the liability of any person for fraudulentmisrepresentation. Registration and Settlement Settlement of transactions in the New Ordinary Shares following Admission willtake place within CREST, subject to certain exceptions. DKS, DBAG and Arbuthnotreserve the right to require settlement for and delivery of the UnderwrittenShares to any Sub-underwriter by such other means as they respectively deemnecessary if delivery or settlement is not possible within CREST within thetimetable set out in this announcement or would not be consistent with theregulatory requirements in the jurisdictions of such Sub-underwriter. Following the results of the Rights Issue and completion of the placing of anyRump, (i) if DKS and Arbuthnot have procured persons to acquire the whole of theRump, each Sub-underwriter shall be notified of such fact through publication ofan announcement on a Regulatory Information Service or (ii) if there is a Stickremaining, each Sub-underwriter shall be sent a confirmed allocation letter thatwill state the number of Underwritten Shares, if any, which it is required toacquire and the aggregate amount owed by it. It is expected that settlement of the Stick will be on 1 November 2007. Interest is chargeable daily on payments not received from Sub-underwriters onthe due date in accordance with the arrangements set out in this Appendix at therate of 2 per cent. above the base rate from time to time of Barclays Bank Plc. If a Sub-underwriter does not comply with these obligations, DKS and/or DBAG and/or Arbuthnot may sell the Underwritten Shares allocated to such Sub-underwriterand retain for their own benefit from the proceeds, an amount equal to theRights Issue Price multiplied by the number of Underwritten Shares comprised inits Sub-underwriting Commitment plus any interest due. The relevantSub-underwriter will, however, remain liable, inter alia, for any shortfallbelow the Rights Issue Price and it may be required to bear any stamp duty orstamp duty reserve tax (together with any interest or penalties) which may ariseupon the sale of its Underwritten Shares on its behalf. If Underwritten Shares are to be delivered to a custodian or settlement agent ofa Sub-underwriter, the relevant Sub-underwriter should ensure that its ConfirmedCommitment Letter is copied and delivered immediately to the relevant personwithin that organisation. Insofar as Underwritten Shares are registered in the name of a Sub-underwriteror that of its nominee or in the name of any person for whom the Sub-underwriteris contracting as agent or that of a nominee for such person, such UnderwrittenShares will, subject as provided below, be so registered free from any liabilityto UK stamp duty or stamp duty reserve tax. Representations and Warranties by Sub-underwriters By participating in the Sub-underwriting, each Sub-underwriter (and any personsacting on its behalf): 1. represents and warrants that it is entitled to subscribe for andpurchase Underwritten Shares under the laws of all relevant jurisdictions whichapply to it and that it has fully observed such laws and obtained all suchgovernmental and other guarantees and other consents which may be required thereunder and complied with all necessary formalities; 2. represents and warrants that the issue to the Sub-underwriter, orthe person specified by such Sub-underwriter for registration as holder ofUnderwritten Shares will not give rise to a liability under any of sections 67,70, 93 or 96 of the Finance Act 1986 (depositary receipts and clearanceservices); 3. represents and warrants that it has complied with its obligationsin connection with money laundering under the Criminal Justice Act 1993, theMoney Laundering Regulations 1993 and the Money Laundering Regulations 2003(together, the "Regulations") and, if it is making payment on behalf of a thirdparty, that satisfactory evidence has been obtained and recorded by it to verifythe identity of the third party as required by the Regulations; 4. represents and warrants that it is a person falling within Article19 (5) or Article 49(2) (a) to (d) of the Order and undertakes that it willacquire, hold, manage or dispose of any Underwritten Shares that are allocatedto it for the purposes of its business; 5. represents and warrants that it has complied and will comply withall applicable provisions of FSMA with respect to anything done by it inrelation to the Underwritten Shares in, from or otherwise involving the UnitedKingdom; 6. represents and warrants that it has all necessary capacity andauthority and has obtained all necessary consents and authorities to enable itto commit to participation in the Sub-underwriting and to perform itsobligations in relation thereto and will honour its obligations (including,without limitation, in the case of any person on whose behalf it is acting, allnecessary consents and authorities to agree to the terms set out or referred toin this announcement); 7. undertakes that it will pay for the Underwritten Shares acquiredby it in accordance with this Appendix on the due time and date set out herein,failing which the relevant Underwritten Shares may be placed with othersubscribers or sold as DKS and/or DBAG and/or Arbuthnot determine without themincurring liability to such Sub-underwriter; 8. acknowledges that participation in the Sub-underwriting is on thebasis that it is not and will not be a client or customer of DKS, DBAG orArbuthnot and that DKS, DBAG and Arbuthnot have no duties or responsibilities toit for providing the protections afforded to their respective clients orcustomers or for providing advice in relation to the Sub-underwriting or inrespect of any representations, warranties, undertakings or indemnitiescontained in the Underwriting Agreement nor for the exercise or performance ofany of DBAG's or Arbuthnot's rights and obligations thereunder, including anyright to waive or vary conditions or exercise any termination right; 9. undertakes and agrees that (i) the person whom it specifies forregistration as holder of the Underwritten Shares will be (a) theSub-underwriter or (b) a nominee of the Sub-underwriter, (ii) none of DKS, DBAG,Arbuthnot nor the Company will be responsible for any liability to stamp duty orstamp duty reserve tax resulting from a failure to observe this requirement and(iii) the Sub-underwriter and any person acting on its behalf agrees to acquireUnderwritten Shares on the basis that such Underwritten Shares will be allottedto the CREST stock account of DKS who, in respect of Sub-underwriters procuredby DKS, will hold them as nominee on its behalf until settlement in accordancewith its standing settlement instructions and, in respect of Sub-underwritersprocured by Arbuthnot, will hold them as nominee and then transfer them toArbuthnot on its behalf until Arbuthnot undertakes settlement in accordance withits standing settlement instructions; 10. acknowledges that any agreements entered into by it pursuant tothese terms and conditions shall be governed by and construed in accordance withthe laws of England and that it submits (on behalf of itself and on behalf ofany person on whose behalf it is acting) to the exclusive jurisdiction of theEnglish courts as regards any claim, dispute or matter arising out of any suchcontract; 11. acknowledges that the Underwritten Shares, the ProvisionalAllotment Letters and the Nil Paid and Fully Paid Rights in respect of theUnderwritten Shares have not been and will not be registered under thesecurities legislation of any state of the United States, Canada, France, Japan,Malaysia, New Zealand, South Africa or Switzerland and, subject to certainexceptions, may not be offered, sold, delivered or transferred, directly orindirectly, within those jurisdictions; 12. undertakes and agrees that neither it nor any of its affiliates (asdefined in Rule 501(b) of the Securities Act) nor any person acting on its ortheir behalf will offer or sell any Underwritten Shares within the United Statesexcept in accordance with Rule 903 of Regulation S of the Securities Act or toQIBs pursuant to the exemption from the registration requirements of theSecurities Act provided by Rule 144A; 13. undertakes and agrees that neither it nor its affiliates (asdefined in Rule 501(b) of the Securities Act) nor any person acting on its ortheir behalf have engaged in or will engage in any "general solicitation orgeneral advertising" (within the meaning of Regulation D under the SecuritiesAct) or "directed selling efforts" (as defined in Regulation S under theSecurities Act) in connection with any offer or sale of the Underwritten Shares; 14. acknowledges that the agreement to settle each Sub-underwriter'scommitment (and/or the commitment of a person for whom it is contracting asagent) free of stamp duty and stamp duty reserve tax depends on the settlementrelating only to an acquisition by it and/or such person direct from DKS orArbuthnot (as appropriate) for the Underwritten Shares in question. Suchagreement assumes that the Underwritten Shares are not being acquired inconnection with arrangements to issue depositary receipts or to transfer theUnderwritten Shares into a clearance service. If there were any sucharrangements, or the settlement related to other dealing in the UnderwrittenShares, stamp duty or stamp duty reserve tax may be payable, for which none ofthe Company, DKS, DBAG and Arbuthnot will be responsible. If this is the case,the relevant Sub-underwriter should take its own advice and notify either (i)DKS or DBAG or (ii) Arbuthnot (as appropriate) accordingly. In addition,Sub-underwriters should note that they will be liable for any capital duty,stamp duty and all other stamp, issue, securities, transfer, registration,documentary or other duties or taxes (including any interest, fines or penaltiesrelating thereto) payable outside the UK by them or any other person on theacquisition by them of any Underwritten Shares or the agreement by them toacquire any Underwritten Shares; 15. acknowledges that any monies of any Sub-underwriter or any personacting on behalf of the Sub-underwriter held or received by DKS or Arbuthnotwill be held by them for their own account and benefit and will not be subjectto the protections conferred by the FSA's Client Money Rules. As a consequence,these monies will not be segregated from the monies of DKS or Arbuthnot and maybe used by DKS and/or Arbuthnot (as appropriate) in the course of theirrespective businesses, and the relevant Sub-underwriter or any person acting onits behalf will therefore, to the extent it has a claim against DKS and/orArbuthnot, rank as a general creditor of DKS and/or Arbuthnot (as appropriate);and 16. (i) acknowledges that its acceptance of such participationis not by way of acceptance of the public offer to be made in the Prospectus andProvisional Allotment Letters but is by way of a collateral contract and as suchsection 87Q of the FSMA does not entitle it to withdraw if the Company publishesa supplementary prospectus in connection with the Rights Issue; and (ii)irrevocably undertakes to each of DKS, DBAG, Arbuthnot and the Company that ifat any time it becomes entitled pursuant to section 87Q of the FSMA to withdrawits Sub-underwriting Commitment or otherwise not to sub-underwrite the RightsIssue upon the terms and conditions of this Appendix, it will forthwithre-confirm to both DKS and Arbuthnot its Sub-underwriting Commitment on theterms in this Appendix by completing and returning to DKS or Arbuthnot (asappropriate, depending upon to which of DKS or Arbuthnot it previously returneda Form of Confirmation) a further Form of Commitment in respect of the fullSub-underwriting Commitment referred to in the Form(s) of Commitment returned byit before such withdrawal rights arose. 17. represents and warrants that it has read and understood thisAppendix in its entirety and acknowledges that its participation in theSub-underwriting will be governed by the terms of this document and the U Proof. 18. agrees to indemnify on an after-tax basis and hold harmless the Company,DKS, DBAG and Arbuthnot, any of their respective Affiliates and any personacting on their behalf from any and all costs, claims, liabilities and expenses(including legal fees and expenses) arising out of or in connection with anybreach of the representations, warranties, acknowledgements, agreements andundertakings in this Appendix and further agrees that the provisions of thisAppendix shall survive after completion of the Rights Issue and theSub-underwriting; 19. acknowledges that the Existing Ordinary Shares are listed on the LondonStock Exchange/Official List of the UK Listing Authority, and the Company istherefore required to publish certain business and financial information inaccordance with the rules and practices of the London Stock Exchange/FSA(collectively, the "Exchange Information"), which includes a description of thenature of the Company's business and the Company's most recent balance sheet andprofit and loss account, and similar statements for preceding financial years,and that the Sub-underwriter is able to obtain or access the ExchangeInformation without undue difficulty; 20. acknowledges that none of DBAG, DKS or Arbuthnot, nor any of theirAffiliates nor any person acting on their behalf has provided, and will notprovide it with any material or information regarding the Underwritten Shares orthe Company; nor has it requested DBAB, DKS or Arbuthnot, nor any of theirAffiliates or any person acting on their behalf to provide it with any suchmaterial or information; 21. acknowledges that the content of this document is exclusively theresponsibility of the Company and that none of DKS, DBAG nor Arbuthnot, nor anyof their respective Affiliates nor any person acting on their behalf will beresponsible for or shall have any liability for any information, representationor statement relating to the Company contained in the U Proof or this Appendixor any information previously published by or on behalf of the Company and noneof DKS, DBAG or Arbuthnot any of their respective Affiliates nor any personacting on their behalf will be liable for any Sub-underwriter's decision toparticipate in the Sub-underwriting based on any information, representation orstatement contained in the U Proof or this Appendix or otherwise. EachSub-underwriter further represents, warrants and agrees that the onlyinformation on which it is entitled to rely and on which such Sub-underwriterhas relied in committing to subscribe for the Underwritten Shares is containedin this Appendix, the U Proof and any Exchange Information, such informationbeing all that it deems necessary to make an investment decision in respect ofthe Underwritten Shares, and that it has relied on its own investigation withrespect to the Underwritten Shares and the Company in connection with itsdecision to subscribe for the Underwritten Shares and acknowledges that it isnot relying on any investigation that DKS, DBAG, Arbuthnot any of theirrespective Affiliates or any person acting on their behalf may have conductedwith respect to the Underwritten Shares or the Company and none of such personshas made any representations to it, express or implied, with respect thereto; 22. acknowledges that it has not relied on any information relating to theCompany contained in any research reports prepared by DKS, DGAB, Arbuthnot, anyof their Affiliates or any person acting on DKS's, DBAG, Arbuthnot or any oftheir Affiliates' behalf and understands that (i) none of DKS, DGAB, Arbuthnot,any of their Affiliates nor any person acting on their behalf has or shall haveany liability for public information or any representation; (ii) none of DKS,DGAB, Arbuthnot, any of their Affiliates nor any person acting on their behalfhas or shall have any liability for any additional information that hasotherwise been made available to such Sub-underwriter, whether at the date ofpublication, the date of this document or otherwise; and that (iii) none of DKS,DGAB, Arbuthnot, any of their Affiliates nor any person acting on their behalfmakes any representation or warranty, express or implied, as to the truth,accuracy or completeness of such information, whether at the date ofpublication, the date of this document or otherwise; 23. represents and warrants that it understands that the Underwritten Shareshave not been and will not be registered under the Securities Act or under thesecurities laws of any state or other jurisdiction of the United States and thatthe Company has not been registered as an "investment company" under the UnitedStates Investment Company Act of 1940, as amended; 24. represents and warrants that it has not offered or sold and will notoffer or sell any Underwritten Shares to persons in the United Kingdom prior toAdmission except to qualified investors as defined in section 86(7) of FSMA,being persons falling within Article 2.1(e)(i), (ii) or (iii) of the ProspectusDirective; 25. represents and warrants that it has only communicated or caused to becommunicated and will only communicate or cause to be communicated anyinvitation or inducement to engage in investment activity (within the meaning ofsection 21 of FSMA) relating to the Underwritten Shares in circumstances inwhich section 21(1) of FSMA does not require approval of the communication by anauthorised person; 26. represents and warrants that it is a qualified investor as defined insection 86(7) of FSMA, being a person falling within Article 2.1(e)(i), (ii) or(iii) of the Prospectus Directive; 27. acknowledges that any of DKS, DBAG or Arbuthnot may itself become aSub-underwriter in respect of some or all of the Underwritten Shares or nominateany connected or associated person to do so; 28. acknowledges that until 40 days after the Acceptance Date an offer orsale of Underwritten Shares within the United States by any dealer (whether ornot participating in the Sub-underwriting) may violate the registrationrequirements of the Securities Act if such offer or sale is made otherwise thanin accordance with Rule 144A or pursuant to another exemption from registrationunder the Securities Act to a person that is a QP (as defined below); 29. that (a) it is a qualified institutional buyer within the meaning ofRule 144A of the Securities Act; (b) it is a "qualified purchaser" within themeaning of Section 2(a)(51) of the United States Investment Company Act of 1940,as amended ("QP"), and is not (i) a broker or dealer which owns or invests lessthan US$25 million in securities of unaffiliated issuers; (ii) aparticipant-directed employee plan or (iii) formed for the purposes of investingin the Underwritten Shares or the Company; (c) it has duly executed, or willduly execute, an investor letter in the form provided to it by DKS, DGAB orArbuthnot in which it will make certain undertakings, representations andwarranties in addition to those contained herein; and (d) it is subscribing forthe Underwritten Shares for its own account, or for the account managed onbehalf of another QIB that is also a QP, and not with a view to any distributionwithin the meaning of the Securities Act or applicable state law except as setforth below; 30. it acknowledges and agrees that it has, or to the extent it is acquiringUnderwritten Shares for the account of another QIB, such other QIB (a) has,sufficient knowledge, sophistication and experience in financial and businessmatters so as to be capable of evaluating the merits and risks of the purchaseof the Underwritten Shares; (b) is able to bear the economic and financial risk(including a complete loss) of such a purchase; (c) has had sufficient time toconsider and conduct its own investigation with respect to the offer andpurchase of the Underwritten Shares, including the tax, legal, currency andother economic considerations relevant to such investment and (d) will not lookto the Company, DKS, DBAG, Arbuthnot any of their respective Affiliates or anyperson acting on their behalf for all or part of any such loss or losses it orthey may suffer; 31. it acknowledges and agrees that the Company, DKS, DBAG and Arbuthnot,their respective Affiliates and any person acting on their behalf will rely uponits representations, warranties, undertakings, agreements and acknowledgementsset forth herein and in the investor letter, and agrees to notify the Company,DKS, DBAG and Arbuthnot promptly in writing if any of its representations,warranties, undertakings, agreements or acknowledgements cease to be accurateand complete. The acknowledgements, undertakings, representations and warranties referred toabove are given to each of the Company, DKS, DBAG and Arbuthnot (for their ownbenefit and, where relevant, the benefit of their respective Affiliates and anyperson acting on their behalf) and are irrevocable. No UK stamp duty or stamp duty reserve tax should be payable to the extent thatthe Underwritten Shares are issued or transferred (as the case may be) intoCREST to, or to the nominee of, a Sub-underwriter who holds those sharesbeneficially (and not as agent or nominee for any other person) within CREST andregistered in the name of such Sub-underwriter or such Sub-underwriter'snominee. Any arrangements to issue or transfer the Underwritten Shares into a depositaryreceipts system or a clearance service or to hold the Underwritten Shares asagent or nominee of a person to whom a depositary receipt may be issued or whowill hold the Underwritten Shares in a clearance service, or any arrangementssubsequently to transfer the Underwritten Shares, may give rise to stamp dutyand/or stamp duty reserve tax, for which none of the Company, DKS, DBAG orArbuthnot will be responsible and the Sub-underwriter to whom (or on behalf ofwhom, or in respect of the person for whom it is participating in theSub-underwriting as an agent or nominee) the allocation, allotment, issue ordelivery of Underwritten Shares has given rise to such stamp duty or stamp dutyreserve tax undertakes to pay such stamp duty or stamp duty reserve taxforthwith and to indemnify on an after-tax basis and to hold harmless theCompany, DKS, DBAG and Arbuthnot in the event that any of the Company and/or DKSand/or DBAG and/or Arbuthnot has incurred any such liability to stamp duty orstamp duty reserve tax. In addition, Sub-underwriters should note that they will be liable for anycapital duty, stamp duty and all other stamp, issue, securities, transfer,registration, documentary or other duties or taxes (including any interest,fines or penalties relating thereto) payable outside the UK by them or any otherperson on the acquisition by them of any Underwritten Shares or the agreement bythem to acquire any Underwritten Shares. All times and dates in this document may be subject to amendment. DKS orArbuthnot will notify the Sub-underwriters and any person acting on behalf ofthe Sub-underwriters of any such changes. This document has been issued by the Company and is the sole responsibility ofthe Company. The rights and remedies of DKS, DBAG, Arbuthnot and the Company under theseterms and conditions are in addition to any rights and remedies which wouldotherwise be available to each of them and the exercise or partial exercise orpartial exercise of one will not prevent the exercise of others. Each Sub-underwriter may be asked to disclose in writing or orally to DKS and/orArbuthnot: (a) if he is an individual, his nationality; or (b) if he is a discretionary fund manager, the jurisdiction in which thefunds are managed or owned. Dresdner Kleinwort Securities Limited, which is authorised and regulated by theFinancial Services Authority, and Dresdner Bank AG, London Branch, which isauthorised by BAFin and by the Financial Services Authority for the conduct ofdesignated investment business in the United Kingdom, are acting for the Companyand for no one else in connection with the Rights Issue and will not beresponsible to anyone other than the Company for providing the protectionsafforded to customers of Dresdner Bank AG, London Branch and Dresdner KleinwortSecurities Limited or for providing advice in relation to the Rights Issue, orany other matters referred to herein. Arbuthnot Securities Limited, which is authorised and regulated by the FinancialServices Authority, is acting for the Company and for no one else in connectionwith the Rights Issue and will not be responsible to anyone other than theCompany for providing the protections afforded to customers of ArbuthnotSecurities Limited or for providing advice in relation to the Rights Issue, orany other matters referred to herein. MORE TO FOLLOW This information is provided by RNS The company news service from the London Stock Exchange

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