Loss leaves Costain in a precarious position.
Civil engineering, construction and infrastructure group Costain has admitted breaching its banking covenants following a pretax loss of pounds 20.7 million in the first half of the year.
The group - which has a Birmingham office and is undertaking a number of projects in the region, including the Belgrade Plaza in Coventry - said in a note to its interim results that it was in breach of agreements with its lenders, which meant they could technically demand immediate repayment.
"The interim results include pounds 11.9 million of write downs and provisions in respect of contract claims in the group's Building division," it said.
"They also include pounds 18 million of provisions from the closure costs and contract write-downs in the group's International division.
"As a result the group is in breach of its banking and surety covenants and the facilities are now technically repayable on demand."
However, chief executive Andrew Wyllie said the breach was a "technicality" and that Costain had already secured agreements with its lenders to solve the problem.
He said their requirements had been waived, although Costain's auditors KPMG said the note "discloses uncertainty as to the continuation and adequacy of the group's banking and surety facilities, which indicates the existence of a material uncertainty which may cast significant doubt over its ability so to continue".
In the first half of 2005, Costain recorded a pretax profit of pounds 7.5 million.
Operating profits showed a loss of pounds 21.9 million from a 2005 profit of pounds 7.8 million. Revenues grew from pounds 345.4 million in 2005 to pounds 436.2 million for the half-year ended June 30.
The company asserted that it had made an underlying profit of pounds 10.1 million before exceptional write-downs in its Building and International divisions, as well as IFRS restatements over its Spanish property portfolio.
It added there had been "poor performance" from COGAP - its oil and gas arm.
Mr Wyllie insisted the group was sticking with its $1.67 billion (pounds 882.3 million) Bid Boland-2 gas facility project in Iran, despite the project being stalled for over a year due to funding delays.
Mr Wyllie also said that Costain would be withdrawing from working in Iraq, though this was driven by reducing international business more than security fears.
The company had been providing project management and master planning services in the comparatively safe Kurdistan region.
"We've brought our people back, job done, paid up, all done very safely in a challenging environment," Mr Wyllie said.
He added that Costain had suffered in the past from not being focused enough on its overseas markets.
"The issue was with one-off projects in one-off countries where you lay one risk on top of another," he said.
"Our approach is to manage risk pro-actively and reduce it where possible: therefore it's repeat order customers, working in markets we know with people who know what they're doing.
"That's not to say that we're not going to pursue international opportunities going forward but where we do it will be in line with our strategy."
Costain's forward order book was up 19 per cent on same period last year to pounds 1.9 billion, with an pounds 850 million revenue secured for the current year.
The group also reduced its pension deficit by around 30 per cent since December 2005.
Mr Wyllie's strategy is to exit the international business and focus on core areas such as oil and gas as part of the group's "Being Number One" plan.
Chairman, David Jefferies, said the group's new management team had taken "robust action" to deal with underperforming sections of the business.
"The implementation of our strategy - 'Being Number One' - is producing a much sharper focus on performance and delivery," he added.
"The group continues to concentrate on developing strategic partnering agreements and long-term frameworks through which we can build market leading positions. The overall underlying performance from the majority of our core activities remains encouraging for the second half of the year."
The group said it remained committed to offering shareholders a dividend "as soon as is financially sensible".
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|Publication:||The Birmingham Post (England)|
|Date:||Aug 31, 2006|
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