Interim Management Statement and PFI Asset Transfer to the Costain Pension Scheme ('CPS')
8 November 2010
Costain, one of the UK's leading construction and engineering solutions providers, is issuing its Interim Management Statement covering the period from 1 July 2010 to the current date.
On 25 August, the Group reported a strong performance for the first half of 2010 and that it had entered the second half of the year with a good order book, robust finances and a net cash balance in excess of £100 million.
Since then, the Group has delivered a strong operational and financial performance in line with the Board's expectations.
Costain continues to benefit from its 'Choosing Costain' strategy of focussing on targeted blue chip customers in chosen sectors whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.
The Group has a proven scale and capability to deliver successfully complex solutions in markets with significant potential including power, waste, rail and nuclear and will continue to broaden its capability in providing a range of lifecycle solutions to its customers.
Since the half year, the Group has secured a number of additional major contract awards and has a forward order book of £2.4 billion.
The major contract awards since 30 June include:
- Bond Street station upgrade,
in joint venture, for London Underground
- Severn Trent facility at Frankley in addition to the AMP5 contract
- A 10-year nuclear framework contract for Magnox South
- A cable tunnel contract for National Grid
As a consequence, the Group already has secured revenue of circa £700 million for 2011.
In addition, the Group is currently preferred bidder on contracts with an aggregate value of more than £400 million and the level of tendering activity for the Group's target customers remains very high.
The Group welcome the commitment by the Government in its recent
Comprehensive Spending Review, and endorsed in the National
Infrastructure Plan, to prioritise £200 billion of investment over
the next five years in key energy and infrastructure projects, such
The Board has agreed with the Trustee of the Costain Pension Scheme ('CPS') a transaction to reduce significantly the Group's pension deficit by £22.0 million.
This has been achieved by the transfer of the Group's interest in a portfolio of six PFI investments into the CPS at an agreed valuation of £22.0 million. This is higher than the estimated value for these equity positions as at 30 June 2010, and represents an effective discount rate below 7%.
The transaction also brings forward and realises the profit from the sale of the six PFI investments.
As a result of the transaction, the accounting profit realised on the transfer of the assets is £10.5 million. After discounting for expected profit from PFI equity sales that would ordinarily have taken place in 2010 and a consequential additional accrual for potential share-based payments, it is expected that Group profit before tax for the year will be increased by £7.5 million.
Furthermore, an agreement has now been finalised with the Trustee of the CPS regarding the actuarial valuation as at 31 March 2010, and the associated deficit recovery plan. This agreement, which incorporates the £22.0 million transfer of the PFI investments, will result in a corresponding reduction in the Group's future annual cash contributions into the CPS over a thirty-nine month period starting with effect from 1 January 2011.
Costain has a strong cash position in excess of £100 million and no significant borrowings. The further improvement of the Group's future cash flows as a result of the PFI transfer will also strengthen the Group's financial position going forward.
Following the transaction to significantly reduce the pension deficit, the Group's profit before tax for the year ended 31 December 2010 will benefit from an additional £7.5 million, as indicated above.
Whilst challenging market conditions are set to continue for the foreseeable future, the Board expects to report continued progress at the year-end in line with its expectations.
1. The six PFI assets transferred into the CPS are:
Prime Care Solutions (Kingston) Holdings Limited
Arden Partnership (Derby) Holdings Limited
Arden Partnership (Leicester) Holdings Limited
Arden Partnership (Lincolnshire) Holdings Limited
Integrated Bradford Holdco One Limited
Lewisham Schools For The Future Holdings Limited
2. The gross asset value of the six PFI investments transferred as at 30 June 2010 was £0.3 million (31 December 2009: £1.5 million) after the IAS 39 mark-to-market swap adjustment and £9.9 million (31 December 2009: £9.6 million) excluding this adjustment.
3. The profits attributable to the six PFI assets for the six months to 30 June 2010 were £0.2 million (for the twelve months to 31 December 2009: £0.7 million).
4. The IAS19 deficit in the 'CPS' as at 30th June 2010 was £56.3 million net of deferred tax.
NOTE: THERE WILL BE A CONFERENCE CALL FOR ANALYSTS AT 08.30 THIS MORNING. PLEASE CALL ADAM ALJEWICZ ON +44 20 7457 2020 FOR DIAL-IN DETAILS