18th Dec 2006 07:02
Costain Group PLC18 December 2006 Costain Group PLC("Costain" or the "Group") Trading update and comprehensive review of contract book The primary focus of the new management team during the year has been theimplementation of the 'Being Number One' strategy for the future development ofCostain. This has already introduced a greater focus on the Group's key marketsand resulted in the closure of the International division. Furthermore, as partof the implementation of our strategy, the management team has completed acomprehensive review of the Group's contract book including an assessment ofdisputed contracts and claims previously taken to value. The review has confirmed the underlying strength of Civil Engineering, whichaccounts for some 80% of the forward order book, and Property Development. However, the nitrogen rejection plant project for Pemex in Mexico, where COGAPis a subcontractor, has suffered cost over-runs and these will impact the resultfor the current year by £3 million. Actions are in train to improve the futureperformance of COGAP and the Board is reviewing a range of options in respect ofthis division. The Building division has continued to under-perform during the second half ofthe year. Further cost overruns and re-assessments of contract values and riskswill impact the current year by a further £5 million. As a consequence theBuilding management team has been substantially restructured and a new ManagingDirector has been appointed. Recent developments regarding a number of contracts currently subject todispute, combined with a review of recent claim recovery history, has led theBoard to conclude that where recovery is now no longer probable, or the outcomecan no longer be measured reliably, it is appropriate to write down asignificant amount of the disputed contract values. As a result the Board hasdetermined that a further £36 million provision in respect of these disputedcontracts will be made in the accounts for the year ended 31 December 2006.However, the Group will continue to pursue rigorously our entitlements on thesecontracts. In addition, a further £6 million provision is now necessary relating to acontract being completed following the closure of the International Division. The Board is confident that these very difficult though necessary decisions willprovide a platform on which to deliver its stated strategy. The charge to the Profit & Loss Account is expected to result in the Group beingin breach of certain of its banking covenants. The Group's bankers have beenmade aware of the Board's decision regarding the provisions being taken ondisputed contracts and have indicated that it is their intention to negotiateappropriate waivers for any financial covenant breaches of the bankingfacilities which may arise as a result. The Board has concluded that it will not be in a position to recommend adividend for the year ended 31 December 2006. The Board remains committed toresumption of dividend payments as soon as it is financially sensible to do so. Looking to 2007, and following the write-down of the disputed contract values,the Board believes that the Group will enter the year with greater certainty.Having reviewed the Group's trading prospects in detail, the Board'sexpectations for the year are that the Group will see a significant recovery inunderlying performance next year. Separate to the other issues addressed in this announcement, the Group willshortly post a Circular to Shareholders regarding a technical issue whichrequires an amendment to the Group's Articles of Association. As a result ofthe pension deficit being recorded on the balance sheet in accordance with FRS17and its successor IAS19, the Group's borrowings have, since 2002, exceeded theaggregate amount of borrowings permitted by the Group's Articles of Association. The Circular will set out proposals to rectify the position. The Group's twolargest shareholders, who account for 57.32% of the issued share capital, haveconfirmed their support for this rectification. Andrew Wyllie, Group Chief Executive, commented: "These decisions underline our commitment to take robust management action tode-risk the business and provide the necessary transparency going forward. Taking the appropriate action now, on contracts where recovery is less likely,will enable us next year to build upon the strong underlying performance ofCivil Engineering and Property Development. We remain committed to theobjectives set out in our 'Being Number One' strategy." 18 December 2006 ENQUIRIES:Costain Group PLC Tel: 01628 842 444Andrew Wyllie, Chief ExecutiveTony Bickerstaff, Finance DirectorGraham Read, Public Relations College Hill Tel: 020 7457 2020Mark GarrawayMatthew Gregorowski NOTE: THE COMPANY WILL HOST A CONFERENCE CALL FOR ANALYSTS AT 08:30 THISMORNING. PLEASE CONTACT COLLEGE HILL ON 020 7457 2020 FOR THE DIAL-IN DETAILS This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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