Interim Management Statement (2)
8 May 2013
Costain, one of the UK's leading tier one engineering solutions providers, delivering integrated consulting, project delivery and operations and maintenance services, announces its Interim Management Statement covering the period from 1 January 2013 to the current date. The Group is holding its Annual General Meeting later today.
Following its good performance in 2012, the Group has had a strong start to the current year and is performing in line with the Board's expectations.
Costain is continuing to secure new work from major blue-chip customers who are investing billions of pounds in capital, operations and maintenance contracts and who require increasingly innovative solutions to their complex requirements.
Costain’s success in identifying, developing and implementing innovative solutions to meet those customer requirements is demonstrated in the following examples of new work won since the start of the year:
- In anticipation of Network Rail’s £9.4 billion investment in electrifying Britain’s railways, Costain established a joint venture to develop a range of innovative solutions that would directly meet the customer’s requirements. As a result, the Group announced that it had won the West Coast Power Supply Upgrade contract, its first contract as part of a circa £300 million investment by Network Rail in power upgrade.
- As a consequence of an intense focus on understanding the customer’s specific needs, the Group secured, in joint venture, a further four contracts from Crossrail. The latest awards include the very important circa. £300m contract to design, fit-out and commission the railway systems across Crossrail’s tunnel network.
- By implementing new service attributes, innovation and performance enhancement into an existing contract, the Group was recently awarded by the Highways Agency a two-year extension to its Managing Agent Contractor Area 7 maintenance contract.
- Following the successful completion earlier this year of the engineering design, procurement and construction management at Centrica's Easington Gas Terminal, enabling the production of gas from the York field in the Southern North Sea, we have received a repeat order from Centrica for the front end engineering design (FEED) at the Barrow terminals which service the East Irish Sea gas fields.
As a result of new contract awards and extensions the Group’s quality forward order book has increased to £2.5 billion (31 December 2012: £2.4 billion), of which over 90% is repeat orders.
In addition, the Group has also increased its preferred bidder position to over £500 million (31 December 2012: over £400m).
To date, over £800 million of revenue has been secured for 2013.
The overall level of tendering activity across the Group's targeted markets remains high.
The Group continues to benefit from a robust financial position with a strong net cash position.
In its full-year results announcement the Group highlighted that net cash would trend lower as the Group benefits from its increased emphasis on support service related activities and on customers who increasingly utilise a target cost based form of contract, together with changing industry cash flow profiles.
Proposed all-share merger with May Gurney Integrated Services plc (‘May Gurney’)
The Boards of Costain and May Gurney announced on 26 March 2013 that they had reached agreement on the terms of a recommended all-share merger of Costain and May Gurney (the ‘Proposed Merger’).
On 24 April 2013, the Boards of Kier Group plc (‘Kier’) and May Gurney announced that they had reached agreement on the terms of a recommended offer for May Gurney by Kier (the ‘Kier Offer’). At the time of such announcement, the value of the Kier Offer represented a premium of approximately 35 per cent. to the then value of the Proposed Merger.
On 25 April 2013, Costain announced that, having undertaken several months of detailed due diligence, it did not believe that it would be in the best interests of Costain shareholders for Costain to amend the terms of the Proposed Merger, that it would not be making a revised offer for May Gurney and that it intended to lapse the Proposed Merger at the earliest opportunity.
Accordingly, the Proposed Merger is expected to lapse, in accordance with its terms, on 29 May 2013.
The Group incurred transaction costs of approximately £4m (pre-tax) associated with the May Gurney proposal and these will be expensed in the first half results and treated as a one-off non trading item.
Costain’s continuing progress, despite challenging economic conditions, is a reflection of the Group’s strategic focus on meeting the complex needs of customers by providing an integrated consulting, project delivery and operations and maintenance capability.
The Group believes that, driven by innovation, the strategic development of the business will be accelerated as we work with customers on their future programmes.
With strong financial resources and an increased order book, the Board remains confident of meeting its expectations in 2013.