Costain Regulatory News (COST)

Costain Group PLC

("Costain" or "the Group" or "the Company")

Results for the half-year ended 30 June 2014

Costain, the engineering solutions provider, announces a record order book along with an increase in underlying operating profit2 and an interim dividend of 3.25 pence per share for the first six months of 2014.

1. Including share of joint ventures and associates

2. Underlying operating profit before Other items; amortisation of acquired intangible assets and employment related and other deferred consideration and in 2013 £3.7m one-off costs associated with the offer for May Gurney Integrated Services plc.

3. Results stated before other items; amortisation of acquired intangible assets and employment related and other deferred consideration and in 2013 £3.7m one-off costs associated with the offer for May Gurney Integrated Services plc and in full year non-cash impairment of £9.8m on carrying value of assets in non-core Land Development activity in Spain

4. On the enlarged capital base following the capital raise completed in March 2014

5. Restated for the bonus element only of the capital raise completed in March 2014.

Highlights

· Underlying operating profit2 up 5% to £11.2 million (2013: £10.7 million)

· Increase of 8% in adjusted profit before tax3 to £9.1 million (2013: £8.4 million)

· Record forward order book up 10% to £3.2 billion (2013: £2.9 billion) with over £700 million of new contracts and extensions secured in the first half. Over £950 million of revenue secured for FY 2014 by 30 June (2013: over £850 million secured for FY 2013)

· New contracts in the period include:

o Appointment to Network Rail's £2bn National Electrification Programme

o Further Barrow Gas Terminals commission with Centrica

o Crossrail North East Spur appointment by Network Rail

o Appointment by National Grid to three transmission frameworks

· Nature of new contract awards reflect Costain's position as the engineering solutions provider with an established reputation for innovation

· Over 90% of high quality order book comprises repeat orders and over 90% lower risk, target cost, cost reimbursable forms of contract

· Successful capital raise of£70.3 million (net of expenses) to take advantage of the growing number of opportunities available to accelerate the Group's development

· Net cash balance of £133.8 million (2013: £64.3 million)

· Interim dividend of 3.25 pence per share on enlarged capital base (2013: 3.75 pence)

David Allvey, Chairman, commented:

"We have delivered a strong performance in the first half of the year. As well as increases in revenue and underlying operating profit, our order book continued to grow and now stands at a record £3.2 billion.

"Costain has an established reputation for innovation that enables the Group to win large, long term contracts addressing the UK's essential energy, water and transportation needs.

"The successful capital raise earlier this year is enabling us to take advantage of a growing number of opportunities to accelerate the Group's development.

"Costain remains on course to deliver a result for the year in line with the Board's expectations."

 21 August 2014

Notes to Editors (for further information please visit the company website: www.costain.com)

Costain, the engineering solutions provider, delivers integrated consulting, project delivery and operations and maintenance services, with a portfolio spanning almost 150 years of innovation and technical excellence. The Group's core business segments are in Infrastructure (Highways, Rail and Power) and Natural Resources (Water, Oil & Gas, and Nuclear Process).

The Group's 'Engineering Tomorrow' strategy involves focusing on blue chip customers in chosen sectors whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.

Costain has worked on a number of high profile infrastructure projects in the UK, including the St Pancras Station redevelopment and the Channel Tunnel Rail Link. The Group's current major contracts include EVAP D at Sellafield, one of the largest decommissioning nuclear projects in the UK; the redevelopment of London Bridge Station for Network Rail; the design, installation and commissioning of railway systems for Crossrail; and the design and delivery of the water cooling systems for the new nuclear power station at Hinkley for EDF.

There will be a presentation to analysts today at Instinctif Partners, 65 Gresham Street, EC2V 7NQ. To register your attendance please contact helen.tarbet@instinctif.com

Chairman's and Chief Executive's statement

We are pleased to report a strong first half performance with increases in revenue, underlying operating profit and an order book at a record level of £3.2 billion.

Costain is established as a leading engineering solutions provider. We have achieved this through building a reputation for innovation that enables us to address national needs across some of the UK's most essential infrastructure requirements.

Moreover, Costain is one of a select group of companies with the integrated consulting, project delivery and operational capability required to meet the increasingly complex and challenging needs of major blue chip customers.

Those major customers are continuing to invest billions of pounds in capital, operations and maintenance contracts across the transport, water and energy markets where we have focused our resources.

The nature and scale of the contract awards in the period increasingly reflect Costain's breadth and depth of capability and include:

· Appointment to Network Rail's £2 billion National Electrification Programme, secured in joint venture;

· Engineering, Procurement and Construction contract for Centrica's Barrow Gas Terminals;

· Crossrail North East Spur appointment for Network Rail;

· Appointment by National Grid to three frameworks for overhead lines, underground cables and front end engineering for gas compressor stations.

Our collaborative approach and reputation for excellent delivery are key factors behind our success in securing an order book which comprises over 90% repeat business.

Furthermore, the increasingly strategic nature of our long-term customer relationships has ensured that over 90% of the order book comprises target cost, cost reimbursable, collaborative forms of contract. Although the transition to this form of contract has altered the cash flow dynamics, it has substantially improved the risk profile of the Group and provides increased visibility over long term margins for the projects in our order book.

The opportunities across all our markets are substantial as investment by our customers in transportation, energy and water resources is expected to grow significantly and, as anticipated, supplier consolidation is continuing. As a consequence, the level of tendering activity across the Group's targeted markets remains high.

The successful capital raise of £70.3 million (net of expenses) completed earlier this year is enabling Costain to capitalise on these opportunities.

Order Book

During the first half, we were successful in securing a number of major new contract awards and extensions to existing contracts. Consequently, the order book, as at 30 June 2014, was up 10% to a record £3.2 billion (2013: £2.9 billion) and we have increased the revenue secured for 2014 to over £950 million (2013: over £850 million secured for 2013).

The order book also provides good long-term visibility with over £800 million of revenue secured for 2015 (2013: over £700 million secured for 2014), and in excess of a further £1.8 billion of revenue secured for 2016 and beyond.

In addition, the Group has maintained a strong preferred bidder position of over £400 million.

Results

Revenue, including the Group's share of joint ventures and associates, for the half-year ended 30 June 2014 increased to £529.1 million (2013: £462.9 million), and Group underlying operating profit was up to £11.2 million (2013: £10.7 million).

The adjusted profit before tax increased by 8% to £9.1 million (2013: £8.4 million).

The Infrastructure division had a strong first half of the year with increases in revenue, operating profit and order book. The Natural Resources division saw a return to profit from operations excluding the impact of a provision taken to complete the legacy Greater Manchester Waste PFI contract awarded in 2007.

Net finance expense amounted to £2.0 million in the period (2013: £1.6 million).

The Group's effective rate of tax was 12.1%, owing to the reversal of timing differences, not previously recognised as deferred tax assets, and the effect on the brought-forward deferred tax balances of the reduced rate of corporation tax.

Adjusted basic earnings per share were 9.2 pence on the enlarged capital base following the capital raise (2013: 9.8 pence).

Capital Raising

In March, we successfully completed a capital raise of £70.3 million (net of expenses) to enable the business to take greater advantage of the opportunities in its chosen markets and thereby accelerate the Group's medium and long term growth prospects.

The proceeds are being, and will be, utilised:

· to demonstrate to customers the Group's financial capacity to support the anticipated further increases in contract size and duration;

· to invest in innovation and technology necessary to enhance the service offering to customers;

· to finance bid costs associated with a greater number of large scale projects for which the Company is in a position to tender;

· to fund likely increased working capital requirements arising from the move in the market towards target cost, cost reimbursable contracts;

· to provide flexibility to make selected in-fill acquisitions to complement Costain's existing capabilities as opportunities arise; and

· for general corporate purposes.

Cash Flow

The Group's net cash position at 30 June 2014 was £133.8 million (2013: £64.3 million), with no significant debt.

The increase in the net cash position reflects the successful £70.3 million (net of expenses) capital raise in March, and benefitted from positive contract cash flows at the period end. As previously highlighted, we anticipate some further impact on the Group's net cash position as a result of our strategic focus on major customers who utilise lower-risk target cost, cost reimbursable contracts which now account for over 90% of the order book.

The Group has flexible financing in place to support its future growth and has total banking and bonding facilities of £495 million with a maturity date of 30 June 2017.

Dividend

At the time of the capital raise, the Group confirmed that it intended to implement a progressive dividend policy, targeting an ongoing dividend cover of around two times underlying earnings.

In light of our continuing successful performance and our confidence in the long-term prospects for the Group, the Board has declared an interim dividend of 3.25 pence per share on the enlarged share capital base of the Group (2013: 3.75 pence per share). On the basis of the enlarged share capital, this represents an increase of 32% in the total amount of dividend paid to shareholders as compared to the 2013 interim dividend.

The dividend will be paid on 24 October 2014 to shareholders on the register as at the close of business on 19 September 2014.

Group Pension Scheme

The deficit on the Group's legacy Costain Pension Scheme ('CPS') at 30 June 2014 in accordance with IAS 19, net of deferred tax, was £40.7 million (June 2013: £31.6 million). The increase in the deficit is due primarily to the impact of a lower discount rate used to calculate the long term liabilities.

Agreement has been reached with the Trustee of the CPS regarding the triennial actuarial review as at March 2013 and the associated deficit recovery plan. As anticipated, the annual cash contributions to the scheme deficit have been agreed at £7 million per annum (increasing annually with inflation) plus an additional contribution to bring the total contribution to match the total dividend amount paid by the company over the next 3 years.

Board

Alison Wood joined Costain as a non-executive Director in February 2014, succeeding Mike Alexander as Chair of the Remuneration Committee when he retired from the Board in March.

We were also pleased to announce the appointment of David McManus as a non-executive Director in May 2014.

Operational Review

We have two core operating and reporting divisions within our business; Infrastructure and Natural Resources.

We continue to focus and prioritise our resources on a group-wide basis and through our customer-aligned divisional structure, on identifying the most attractive new opportunities for the Company as a whole.

Infrastructure Division

The division, which incorporates the Group's activities in the highways, rail and power sectors, has had a strong first half with an increase in revenue, operating profit and order book.

Revenue increased to £358.7 million (2013: £262.8 million) whilst operating profit rose to £16.9 million (2013: £14.4 million) as we delivered an excellent performance across the division including the award of gain-share on a number of contracts and with margins in the period in-line with our expectations.

The forward order book for the division has grown to £2.2 billion (2013: £1.7 billion) and the level of tendering activity remains high with a significant opportunity pipeline.

In Highways, having completed the professional services commission, we have commenced the delivery phase on the M6 Heysham Link Road for Lancashire County Council, which is the first scheme to be taken through the Government's new planning process for significant infrastructure. We have continued to be a leading supplier to the Highways Agency delivering a broad range of Technology, Asset Management and Construction Delivery services across a wide range of contracts. We have commenced work on the M1 junction 28-35 Managed Motorway scheme utilising the latest technology in smart motorways and our AOne+ joint venture is performing well on Managing Agent Contracts in Areas 7, 12 and 14. For the Welsh Government we are delivering the All Wales Technology framework and taking the A465 Heads of the Valley's upgrade through the statutory approval processes. Work also continues to progress well on strengthening the Hammersmith Flyover, one of Transport for London's highest profile projects.

In Rail we have secured significant additional contracts with Crossrail and Network Rail. Our joint venture with Alstom and Babcock has been successful in securing from Network Rail over £1 billion of electrification work for the London North West (South) region, the Welsh Valley's Line, and the Edinburgh to Glasgow Improvement Project. Progress has been good on our major Network Rail projects at London Bridge and Reading. We have commenced the North East Spur contract for Network Rail incorporating Crossrail related work on the network between Stratford and Shenfield. We are well into the engineering services phase of Crossrail's system-wide design, install and commission railway engineering and power supply contracts. Further progress has also been made on our other Crossrail contracts including the stations at Paddington and Bond Street. We continue to provide engineering consultancy services on HS2. Significant progress has also been made for London Underground on the Bond Street Station Upgrade.

In Power, we have added a commission at Longannet Power Station in Scotland to our portfolio of maintenance contracts on the UK's fleet of coal fired power stations. National Grid has appointed us to three new transmission frameworks for gas and high voltage overhead and underground cables. Progress is being made on the London Power Tunnel contract for National Grid with the successful completion of the 4 metre diameter tunnel drive. Work has continued on the framework contract for UK Power Networks with the completion of the overhead line works at Stowmarket. We continue to undertake engineering services related to our appointment by EdF for the cooling water systems on the new nuclear facility at Hinkley C.

In Airports, we have completed our contracts with Heathrow Ltd and continue to deliver infrastructure schemes for the Manchester Airport Group.

Natural Resources Division

The Natural Resources division is focused on the oil & gas, nuclear process and water markets.

Revenue (including share of joint ventures and associations) in the division for the year was £169.4 million (2013: £199.2 million), with a loss from operations of £ 2.6 million (2013: £0.1 million loss). The loss for the year to date includes additional costs for the completion of the waste PFI contract awarded in 2007 for the Greater Manchester Waste Disposal Authority as described below. The Group is not pursuing any further contracts in the Waste sector. Excluding these costs the division generated an operating profit and is trading in line with expectations.

The division has a forward order book of £1.0 billion (2013: £1.2 billion) and the level of estimating and tendering is high across all three of the division's sectors.

The Group has mobilised new Oil & Gas contracts for Centrica on the Barrow Terminal optimisation and for Perenco on the Freon replacement processes at Dimlington. The appointments include front-end engineering design, detailed design, project management and procurement. We continue to deliver support services for the Oil and Pipelines Agency (OPA) including operations, maintenance and upgrade services across the network of jet fuel pipelines and storage facilities; with a further one year extension to our contract being awarded since the period end. Costain Upstream has been successfully launched as a full lifecycle upstream oil & gas business based in Aberdeen.

In Nuclear Process, the delivery of the Evaporator-D at the Sellafield Nuclear Reprocessing Facility in West Cumbria continues with the commencement of the commissioning phase expected later this year. The Fuel Element Debris facility at the Magnox Bradwell plant is close to completion and has been handed over for active commissioning.

We continue to deliver successfully the Water AMP-5 frameworks for United Utilities, Southern Water, Severn Trent Water, Welsh Water and Northumbrian Water. We have also continued with the delivery of large waste water treatment plants at Liverpool and the award winning Brighton & Hove scheme. Good progress is also being made in the early mobilisation and development of AMP-6 appointments for Thames Water and Severn Trent Water.

The division is completing a legacy PFI contract awarded in 2007 for the Greater Manchester Waste Disposal Authority, which utilises a range of sophisticated waste management technologies. Of the forty-six waste facilities under the contract, thirty-six have reached final acceptance, three are seeking to obtain final acceptance, six are currently in the post-completion (warranty) period and one remains to be completed. Design faults have been identified at four sites, including the site that remains to be completed and remedial work and testing is on-going in respect of that site which is expected to be completed in the second half of 2014. Costain is in discussions with relevant contract counterparties and the Group's insurers regarding the issues that have arisen. Whilst the Board expects a successful outcome to these discussions it believes it is prudent to take a provision for additional costs to complete the project. It has been the Group's policy since 2009 not to pursue fixed price contracts of this nature.

Land Development

Our non-core Land Development activity in Spain, undertaken in joint venture with Santander Bank, continued to be subject to challenging market conditions although the Spanish economy is showing some early signs of improvement.

Revenue was £1.0 million (2013: £0.9 million) and the loss after tax was £0.5 million (2013: £0.7 million loss). The expected loss reflects the Group's share of the running and financing costs of the joint venture. Our current activities are focused on our leisure businesses of golf courses and a 600 berth marina, with a continued moratorium on development activity on the land-bank.

Risks and uncertainties

The Board continually assesses and monitors the key risks of the business. The key risks that could affect the Group's medium term performance, and the factors which mitigate these risks, are set out on pages 24 and 25 of the Group's Annual Report for 2013, a copy of which is available from our website www.costain.com.

The Chairman's and Chief Executive's Statement and the notes to these interim financial statements include consideration of uncertainties affecting the Group in the remaining six months of the year.

Summary & Outlook

We have delivered a strong performance in the first half of the year. As well as increases in revenue and underlying operating profit, our order book continued to grow and now stands at a record £3.2 billion.

Costain has an established reputation for innovation that enables the Group to win large, long term contracts addressing the UK's essential energy, water and transportation needs.

The successful capital raise earlier this year is enabling us to take advantage of a growing number of opportunities to accelerate the Group's development.

Costain remains on course to deliver a result for the year in line with the Board's expectations.

David Allvey, Chairman

Andrew Wyllie, Chief Executive

21 August 2014

Interim results for the half-year ended 30 June 2014

Condensed consolidated income statement

* 2013 interim and 2013 year have been restated for the bonus element in the 2014 capital raise

During the period, previous period and previous year the impact of business disposals was not material and, therefore all results are classified as arising from continuing operations.

Condensed consolidated statement of comprehensive income and expense

Condensed consolidated statement of changes in equity

Condensed consolidated statement of financial position

Condensed consolidated cash flow statement

Notes to the interim financial statements

1. General information

Costain Group PLC (the Company) is a public limited company incorporated in the United Kingdom. The address of its registered office and principal place of business is Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB.

The Condensed consolidated interim financial statements are presented in pounds sterling, rounded to the nearest hundred thousand.

The comparative figures for the financial year ended 31 December 2013 are not the Company's full statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

After making enquiries and reviewing the latest forecasts, the directors believe that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the interim financial statements.

2. Statement of compliance

This interim financial information for the half-year ended 30 June 2014 has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union and with the Disclosure and Transparency Rules of the Financial Conduct Authority. The interim financial information should be read in conjunction with the Annual Report for the year ended 31 December 2013.

In the current financial year, the Group has adopted the following new and revised standards, none of which has had a material impact on the Group's results. Otherwise, the same accounting policies, presentation and methods of computation are followed in the condensed consolidated financial statements as applied in the Group's latest annual audited financial statements.

IAS 27 (Revised) 'Separate Financial Statements'

IAS 28 (Revised) 'Investments in Associates and Joint Ventures'

IAS 32 amendment 'Financial Instruments: Presentation - Offsetting Financial Assets and Financial Liabilities'

IFRS 10 'Consolidated Financial Statements'

IFRS 12 'Disclosure of Interests in Other Entities'

IFRS 10, IFRS 11 and IFRS 12 amended 'Investment Entities'

Income statement presentation - Other items

In order to aid understanding of the underlying and overall performance of the Group, certain amounts are shown in the consolidated income statement in a separate column headed "Other items". Items are included under this heading where the Board considers them to be of a one-off and unusual nature or related to the accounting treatment of acquisitions.

The Board approved the unaudited interim financial statements on 21 August 2014.

The Group's principal risks and uncertainties are consistent with those noted in the Annual Report for the year ended 31 December 2013. The Directors consider that the significant areas of judgment made by management that have significant effect on the Group's performance and estimates with a significant risk of material adjustment in the second half of the year are unchanged from those identified on pages 99 and 100 of the Annual Report for the year ended 31 December 2013.

3. Business segment information

The Group has two core business segments: Natural Resources and Infrastructure plus the Land Development operations in Spain. The core segments are strategic business units with separate management and have different core customers or offer different services. This information is provided to the Chief Executive who is the chief operating decision maker.