COSTAIN GROUP PLC — M&A Activity 2013

Mar 26, 2013

THIS DOCUMENT AND THE ACCOMPANYING BLUE FORM OF PROXY ARE IMPORTANT AND REQUIRE YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you are recommended to seek your own personal financial advice immediately from your stockbroker, bank, solicitor, accountant, fund manager or other appropriate independent financial adviser, who is authorised under the Financial Services and Markets Act 2000 (the 'FSMA') if you are resident in the United Kingdom, or, if not, from another appropriately authorised independent financial adviser.

This document, which comprises a prospectus relating to Costain Group PLC ('Costain' or the 'Company') and a circular relating to the Merger, has been prepared in accordance with the Prospectus Rules of the Financial Services Authority (the 'FSA') made under section 84 of FSMA and approved by the FSA under section 87A of FSMA. This prospectus has been filed with the FSA and made available to the public in accordance with Rule 3.2.1 of the Prospectus Rules.

Costain, the Costain Directors and the Proposed Directors accept responsibility for the information contained in this document. To the best of the knowledge of Costain, the Costain Directors and the Proposed Directors, who have taken all reasonable care to ensure that such is the case, the information contained in this document is in accordance with the facts and contains no omission likely to affect its import.

If you have sold or otherwise transferred all of your Costain Shares, you should send this document and the accompanying documents as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agent through whom the sale or transfer was effected for delivery to the purchaser or the transferee. However, the distribution of this document and any accompanying documents into jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this document and any accompanying documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. In particular, such documents should not be distributed in, forwarded to or transmitted in or into any Restricted Jurisdiction.

YOU SHOULD READ THE WHOLE OF THIS PROSPECTUS AND ALL DOCUMENTS INCORPORATED INTO IT BY REFERENCE, IN THEIR ENTIRETY. IN PARTICULAR, YOU SHOULD TAKE ACCOUNT OF THE SECTION ENTITLED RISK FACTORS ON PAGES 18-25 (INCLUSIVE) OF THIS DOCUMENT FOR A DISCUSSION OF THE RISKS THAT MIGHT AFFECT THE VALUE OF YOUR SHAREHOLDING IN COSTAIN GROUP PLC. YOU SHOULD NOT RELY SOLELY ON INFORMATION SUMMARISED IN THE SUMMARY.

Investors should only rely on the information contained in this document and contained in any documents incorporated into this document by reference. No person has been authorised to give any information or make any representations other than those contained in this document and any document incorporated by reference and, if given or made, such information or representation must not be relied upon as having been so authorised by Costain, the Costain Board or the Financial Adviser. Costain will comply with its obligation to publish supplementary prospectuses containing further updated information required by law or by any regulatory authority but assumes no further obligation to publish additional information.

(proposed to be renamed Costain May Gurney PLC)

(incorporated and registered in England and Wales with registered number 01393773)

Proposed issue of 58,120,303 new ordinary shares in Costain to May Gurney Shareholders in connection with the proposed acquisition of May Gurney by means of a scheme of arrangement under Part 26 of the Companies Act 2006 and application for admission of 58,120,303 new ordinary shares in Costain to the premium listing segment of the Official List and to trading on the London Stock Exchange's main market for listed securities and Notice of General Meeting

A notice convening the Costain General Meeting to be held at More Suite, 2nd Floor, Dexter House, No 2 Royal Mint Court, Tower Hill, London EC3N 4QN on 8 May 2013 at 10.00 a.m. is set out at the end of this document. A blue Form of Proxy for use in connection with the Costain General Meeting is enclosed with this document. Whether or not you intend to attend the Costain General Meeting in person, to be valid, the blue Form of Proxy should be completed, signed and returned in accordance with the instructions printed on it so as to be received by Costain's registrar, Equiniti, as soon as possible, and in any event, by no later than 10.00 a.m. on Monday 6 May 2013. If you hold Costain Shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to Costain's registrar, Equiniti (CREST participant ID RA19), so that it is received by no later than 10.00 a.m. on Monday 6 May 2013. The completion and return of a blue Form of Proxy (or the electronic appointment of a proxy) will not preclude you from attending and voting in person at the Costain General Meeting or any adjournment thereof, if you wish to do so and are so entitled.

Your attention is drawn to the letter from the Chairman of Costain which is set out on pages 31-42 (inclusive) of this document and which contains the unanimous recommendation of the Costain Directors that you vote in favour of the Resolutions to be proposed at the Costain General Meeting referred to below.

Application will be made to the FSA for the New Costain Shares to be admitted to the premium listing segment of the Official List and will be made to the London Stock Exchange for the New Costain Shares to be admitted to trading on the London Stock Exchange's main market for listed securities (together the 'Admission'). It is expected that Admission will become effective, and that dealings in the New Costain Shares will commence, on the Effective Date which, subject to the satisfaction of certain conditions, including the sanction of the Scheme by the Court, is expected to be on 6 June 2013.

The New Costain Shares have not been, and will not be, registered under the US Securities Act or under the securities laws of any state, district or other jurisdiction of the United States. Accordingly, the New Costain Shares may not be offered, sold, resold, delivered, distributed or otherwise transferred, directly or indirectly, in, into or from the United States absent registration under the US Securities Act or an exemption therefrom. The New Costain Shares to be issued to existing May Gurney Shareholders pursuant to the Scheme are expected to be issued in reliance upon an exemption from the registration requirements of the US Securities Act afforded by Section 3(a)(10) thereof and exemption from registration and qualification under applicable state securities laws. May Gurney Shareholders (whether or not US persons) who are or will be affiliates (within the meaning of the US Securities Act) of Costain prior to, or of the Combined Group after, the Effective Date will be subject to certain US transfer restrictions relating to the New Costain Shares received pursuant to the Scheme.

None of the securities referred to in this document have been approved or disapproved by the US Securities and Exchange Commission (the 'SEC'), any state securities commission in the United States or any other US regulatory authority, nor have such authorities passed upon or determined the adequacy or accuracy of this document. Any representation to the contrary is a criminal offence in the United States.

The release, publication or distribution of this document in jurisdictions other than the United Kingdom may be restricted by law and, therefore, any persons who are subject to the laws of any jurisdiction other than the United Kingdom should inform themselves about, and observe, any applicable requirements. Failure to comply with any such restrictions may constitute a violation of the securities laws of any jurisdiction. This document has been prepared to comply with requirements of English law, the Listing Rules, the Prospectus Rules and the rules of the LSE and information disclosed may not be the same as that which would have been disclosed if this document had been prepared in accordance with the laws of jurisdictions outside England.

Rothschild, which is authorised and regulated by the FSA in the United Kingdom, is acting for Costain and no-one else in connection with the Merger and the Admission and will not regard any other person (whether or not a recipient of this document) as clients of Rothschild in relation to the Merger and will not be responsible for providing the protections afforded to Rothschild clients nor for giving advice in relation to the Merger, the Admission or any acquisition or arrangement referred to, or information contained in, this document. Neither the Financial Adviser nor any of their subsidiaries, branches or affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Rothschild in connection with this prospectus, any statements contained herein or otherwise.

THE CONTENTS OF THIS DOCUMENT OR ANY SUBSEQUENT COMMUNICATION FROM COSTAIN OR THE FINANCIAL ADVISER OR ANY OF THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS ARE NOT TO BE CONSTRUED AS LEGAL, FINANCIAL OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS, HER OR ITS OWN SOLICITOR, INDEPENDENT FINANCIAL ADVISER OR TAX ADVISER FOR LEGAL, FINANCIAL OR TAX ADVICE.

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER OF AND MAY NOT BE USED FOR THE PURPOSES OF, AN OFFER TO SELL OR AN INVITATION, OR THE SOLICITATION OF AN OFFER TO SUBSCRIBE FOR OR BUY, ANY SECURITIES. NONE OF THE SECURITIES REFERRED TO IN THIS DOCUMENT SHALL BE SOLD, ISSUED OR TRANSFERRED IN ANY JURISDICTION IN CONTRAVENTION OF APPLICABLE LAW.

No New Costain Shares have been marketed to, nor are any available for purchase by, the public in the UK or elsewhere in connection with the Admission of New Costain Shares to the Official List and to trading on the London Stock Exchange.

Notice to US Investors

The financial information included in this document has been prepared in accordance with International Financial Reporting Standards ('IFRS'). US generally accepted accounting principles ('US GAAP') differ in certain significant respects from IFRS. None of the financial information in this document has been audited in accordance with auditing standards generally accepted in the United States or the auditing standards of the Public Company Accounting Oversight Board (United States).

Notice to New Hampshire residents only

NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ('RSA') WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE OF NEW HAMPSHIRE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR A TRANSACTION MEANS THAT THE SECRETARY OF STATE OF NEW HAMPSHIRE HAS PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT, ANY REPRESENTATION INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.

Enforceability of judgments

Costain is a public limited company incorporated under the laws of England and Wales. All of the Costain Directors, the Proposed Directors and the executive officers of Costain are citizens or residents of countries other than the United States. All or substantially all of the assets of such persons may be, and substantially all the assets of the Costain Group are, located outside the United States. As a result, it may not be possible for investors to effect service of process within the United States upon such persons or Costain, or to enforce against them judgments of US courts, including judgments predicated upon civil liabilities under the securities laws of the United States or any state or territory within the United States. There is substantial doubt as to the enforceability in the United Kingdom in original actions or in actions for enforcement of judgments of US courts, based on the civil liability provisions of US federal securities laws.

TABLE OF CONTENTS

	Page
SUMMARY	4
RISK FACTORS	18
FORWARD LOOKING STATEMENTS	26
EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND MERGER STATISTICS	27
INFORMATION INCORPORATED BY REFERENCE	28
DIRECTORS, PROPOSED DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS	30
PART I LETTER FROM CHAIRMAN OF COSTAIN	31
PART II INFORMATION ON COSTAIN	43
PART III INFORMATION ON MAY GURNEY	55
PART IV OPERATING AND FINANCIAL REVIEW OF COSTAIN	61
PART V HISTORICAL FINANCIAL INFORMATION RELATING TO COSTAIN	66
PART VI OPERATING AND FINANCIAL REVIEW OF MAY GURNEY	68
PART VII HISTORICAL FINANCIAL INFORMATION RELATING TO MAY GURNEY	105
PART VIII INFORMATION ON THE EXPECTED IMPACT OF THE TRANSACTION ON THE ASSETS AND LIABILITIES OF THE COSTAIN GROUP	245
PART IX UNITED KINGDOM TAXATION CONSIDERATIONS	249
PART X DIRECTORS, RESPONSIBLE PERSONS, SENIOR MANAGEMENT, CORPORATE GOVERNANCE AND EMPLOYEES	251
PART XI ADDITIONAL INFORMATION	278
APPENDIX I DEFINITIONS	298
APPENDIX II RELEVANT DOCUMENTATION	306
NOTICE OF GENERAL MEETING	307

SUMMARY

Summaries are made up of disclosure requirements known as 'Elements'. These elements are numbered in Sections A – E (A.1 – E.7). This summary contains all the Elements required to be included in a summary for this type of securities and issuer. Because some Elements are not required to be addressed, there may be gaps in the numbering sequence of the Elements. Even though an Element may be required to be inserted in the summary because of the type of securities and issuer, it is possible that no relevant information can be given regarding the Element. In this case a short description of the Element is included in the summary with the mention of 'not applicable'.

	Section A – Introductions and warnings
Element	Disclosure Requirement	Disclosure
A.1	Warning	This summary should be read as an introduction to this document. Any decision to invest in the New Costain Shares should be based on consideration of this document as a whole. Where a claim relating to the information contained in this document is brought before a court, the plaintiff investor might, under the national legislation of the member states of the EEA, have to bear the costs of translating this document before the legal proceedings are initiated. Civil liability attaches only to those persons who have tabled the summary including any translation thereof, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of this document or it does not provide, when read together with the other parts of this document, key information in order to aid investors when considering whether to invest in such securities.
A.2	Resale or final placement of securities through financial intermediaries	Not applicable. Costain is not engaging any financial intermediaries for any resale of securities or final placement of securities after publication of this document.

Section B – Issuer
Element	Disclosure Requirement	Disclosure
B.1	Legal and commercial name	Costain Group PLC.
B.2	Domicile / legal form / legislation under which the issuer operates / country of incorporation	The Company is incorporated in England as a public limited company, limited by shares. Its registered office is situated in England and its registered number is 01393773. The principal legislation under which the Company operates is the Companies Act 2006.
B.3	Current operations / principal activities / principal markets	Costain is one of the UK's leading tier one engineering solutions providers. Costain delivers integrated consulting, project delivery and operations and maintenance services, focused on meeting its customers' needs in the following areas: • Infrastructure – incorporates activities in the highways, rail, airports and power sectors; and

		• Natural Resources – services the water, hydrocarbons and chemicals, nuclear process and waste sectors.
		In addition to the two divisions listed above, Costain has a non-core 50% participation in a land development joint venture in Spain whose assets include land held for development, two golf courses and a 600-berth marina.
		For the year ended 31 December 2012, Costain reported revenues of £934.5 million, a profit from operations of £28.0 million and basic earnings per share of 37.1 pence. Costain's adjusted (before amortisation of acquired intangible assets and employment related acquisition consideration) profit from operations for the year ended 31 December 2012 was £31.4 million and adjusted basic earnings per share was 41.4 pence.
B.4a	Most significant recent trends of	Costain
	the Company and its industry	Following its strong performance in the first half of 2012, Costain continued to perform well during the second half of 2012 and in line with the Costain Board's expectations.
		Costain continues to foster long-term relationships with its customers, as indicated by the fact that over 90% of Costain's forward order book is made up of repeat orders.
		29% of revenues secured for 2012 comprised support service activities and it is expected that this sector will continue to grow. Costain therefore continues to expand its support service related activities, both organically and through acquisitions.
		May Gurney
		In HY2013 May Gurney secured £314 million of work, including more than £164 million in new contracts, primarily from its Waterways and Fleet & Passenger Services operations, and a seven-year extension to its environmental services contract with the Somerset Waste Partnership, valued at £100 million and its forward order book was maintained at £1.5 billion, with a further £1.7 billion in potential contract extensions, and a bidding pipeline which stood at approximately £4 billion.
		Industry
		The markets in which both Costain and May Gurney operate are changing rapidly with the ongoing consolidation of consultancy, programme management and service delivery providers. Customers increasingly require their partners to have the combined capabilities to deliver solutions through a broader range of services under ever larger, more output based and complex contracts.

		Whilst economic conditions are expected to remain challenging in the medium term, the Combined Group will focus on delivering innovative and cost effective solutions to address essential national needs, which are expected to be impacted less than discretionary projects by the potential spending central and local government and private clients.	constraints of sector
B.5	Group structure	Costain is the parent company of the Costain Group. The following table contains a list of the subsidiaries of Costain and of May Gurney as at the date of this document (each of which is considered by Costain to be likely to have a significant effect on the assessment of the assets, liabilities, financial position and/or profits and losses of the Combined Group).	principal Percentage
		Name	ownership interest
		Principal Costain subsidiaries
		ClerkMaxwell Limited	100
		Costain Abu Dhabi Co WLL	49
		Costain Limited	100
		Costain Building & Civil Engineering Limited	100
		Costain Engineering & Construction Limited	100
		Costain Oil, Gas & Process Limited	100
		Promanex (Civils & Industrial Services) Limited	100
		Promanex (Construction & Maintenance Services) Limited	100
		Promanex (Total FM & Environmental Services) Limited	100
		Richard Costain Limited	100
		Principal May Gurney subsidiaries
		May Gurney Limited	100
		May Gurney Estates Limited	100
		May Gurney Recycling CIC	100
		Turriff Group Limited	100
		Turriff Contractors Limited	100
		TOR2 Limited	80
		May Gurney Fleet and Passenger Services Limited	100

B.6	Notifiable interests	As at 25 March 2013 (being the latest practicable date prior to the publication of this document), the Company had been notified in accordance with DTR5 of the Disclosure and Transparency Rules of the following interests in its Ordinary Shares:
				Number of Shares		Percentage interest of issued ordinary share capital
		UEM Builders Berhad		13,810,850		21.07
		Mohammed Abdulmohsin Al-Kharafi & Sons WLL Henderson Global Investors		13,789,490		21.04
		Limited Legal & General Group PLC		3,642,742		5.56
				2,564,056		3.91
		Save as disclosed in this section, Costain is not aware of any person who, as at 25 March 2013 (being the latest practicable date prior to the publication of this document), directly or indirectly, has a holding which is notifiable under English law.
		Costain, the Directors are not aware of any persons who, as at 25 March 2013 (being the latest practicable date prior to the publication indirectly, jointly exercise control over Costain nor are they aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.	Costain of or	Directors and this document), severally,	the exercise	Proposed directly or or could
	Different voting rights / controlling interests	Not applicable; shareholders have different voting rights.	none	of the	Company's	major
		Not applicable; to the extent known to the Company, the Company is not directly or indirectly owned or controlled by any person or any group of persons.
B.7	Historical key financial	Costain
	information for the Company	Selected historical Costain which summarises the financial condition of Costain for December 2012 is set out in the following table.	financial the four	information financial	years	relating to ended 31
	Statement of financial position
		Audited financial results for the year ended 31 December 2009	Audited financial results for the year ended 31 December 2010	Audited financial results for the year ended 31 December 2011		Unaudited preliminary financial results for the year ended 31 December 2012
	Total non-current assets	(£m) 103.9	(£m) 87.0	(£m) 108.4		(£m) 103.1
	Total current assets	325.1	309.3	332.0		290.6
	Total assets	429.0	396.3	440.4		393.7
	Total liabilities	(432.8)	(358.7)	(409.6)		(361.9)
	Total net assets/(liabilities)	(3.8)	37.6		30.8	31.8

Consolidated income statement
	Audited financial results for the year ended 31 December 2009	Audited financial results for the year ended 31 December 2010	Audited financial results for the year ended 31 December 2011	Unaudited financial results for the year ended 31 December 2012
	(£m)	(£m)	(£m)	(£m)
Revenue	1,061.1	1,022.5	986.3	934.5
Less: Share of revenue of joint ventures and associates	(67.7)	(98.0)	(117.8)	(86.1)
Group Revenue	993.4	924.5	868.5	848.4
Cost of sales	(949.2)	(883.9)	(818.8)	(794.2)
Gross profit	44.2	40.6	49.7	54.2
Administrative costs	(22.2)	(23.2)	(25.6)	(29.1)
Amortisation of acquired intangibles Employment related consideration Operating profit before exceptional	— —	— —	(0.9) (0.7)	(1.7) (1.7)
items	22.0	17.4	22.5	18.9
Share of results of joint ventures and
associates Profit on sales of interests in joint	(3.2)	(0.5)	(1.3)	(1.4)
ventures and associates	2.0	12.5	0.8	10.5
Finance income	26.0	30.7	34.1	27.3
Finance costs	(28.7)	(32.2)	(32.2)	(29.2)
Profit before tax Tax on profit	18.1 (3.5)	27.9 (4.8)	23.9 (5.2)	26.1 (1.9)
Profit attributable to equity holders	14.6	23.1	18.7	24.2
Basic earnings per share (p)	23.0p	36.4p	29.2p	37.1p
Diluted earnings per share (p)	22.6p	35.4p	28.2p	35.8p
	2011 and 2012, £934.5 million respectively. Adjusted profit 2011 and 2012 £29.4 million, respectively. 2010.	In the financial years ending 31 December 2009, 2010, the Costain £1,061.1 million, £1,022.5 million, £986.3 million and from operations financial £23.6 million The Costain operations in 2012 increased compared to 2011 due to a profit of £10.5 million from the transfer of assets in to the Costain Pension Scheme in 2012 and a focus on higher margin work. The Costain Group's profit from operations in 2011 decreased compared to 2010 due to a profit of £11.2 million in 2010 from the transfer of assets into the Costain Pension Scheme. Excluding this item, the profit from operations increased on a like-for-like basis from £18.2 million to £23.6 million from 2010 to 2011. This transfer was also reflected in the rise in profit from operations between 2009 and	Group's in the years was and Group's	revenue was 2009, 2010, £20.8 million, £31.4 million profit from
	The net cash £120.5 million, cash balance	The order book for the Costain Group in the 2009, 2010, 2011 and 2012 financial years was £2.6 billion, £2.4 billion, £2.5 billion and £2.4 billion respectively. balance for £144.3 million, £105.7 million, with the reduction in the 2012 year-end compared to transition to target cost based contracts, resulting in lower levels of customer advanced payments.	the same £140.1 2011	periods was million and reflecting the

	out in this section.	Save as set out above, there has been no significant change to Costain's financial condition and operating results during or subsequent to the period covered by the historical key financial information on Costain set
	May Gurney
	May Gurney 31 March 2012	Selected historical financial information relating to May Gurney which summarises the financial condition of for the three and for the 30 September 2012 is set out in the following table.	financial six	years ended months ended
Consolidated statement of financial position
	Audited financial results for the year ended 31 March 2010	Audited financial results for the year ended 31 March 2011	Audited financial results for the year ended 31 March 2012	Unaudited financial results for the six months ended 30 September 2012
	(£m)	(£m)	(£m)	(£m)
Total non-current assets	67.6	93.6	171.5	186.2
Total current assets	127.5	151.0	147.7	146.7
Total assets Total liabilities	195.1 (121.7)	244.6 (160.5)	319.2 (226.6)	332.9 (248.9)
Total net assets	73.4	84.1	92.6	84.0
Consolidated income statement Revenue Cost of sales Gross profit Operating expenses Operating profit before exceptional items Exceptional items Finance income Finance costs Profit before tax Tax on profit Profit attributable to equity holders Basic earnings per share (p)	Audited financial results for the year ended 31 March 2010 (£m) 483.1 (434.0) 49.1 (30.2) 18.9 — 0.4 (0.9) 18.4 (5.3) 13.1 19.58p	Audited financial results for the year ended 31 March 2011 (£m) 571.4 (513.4) 58.0 (35.0) 23.0 (3.4) 0.4 (1.2) 18.8 (5.5) 13.3 19.82p	Audited financial results for the year ended 31 March 2012 (£m) 695.3 (625.2) 70.1 (44.2) 25.9 (4.9) 0.3 (2.0) 19.3 (5.5) 13.8 20.52p	Unaudited financial results for the six months ended 30 September 2012 (£m) 353.5 (336.4) 17.1 (20.2) (3.1) — 0.1 (1.6) (4.6) 1.0 (3.6) (5.53p)
Diluted earnings per share (p)	19.25p	19.34p	19.91p	(5.53p)
	EBITA of £12.6 Scotia Gas services. May business with	During HY2013, May Gurney generated revenues of £338.9 million (HY2012 £324.7 million) and underlying million achieving an EBITA margin of 3.7%. Revenues and the operating margin were impacted by bad weather during the summer 2012, provisions for Networks' discontinuing May Gurney's Facility Services business, the poor performance of two MaGOS™ environmental services contracts and a short-term downturn in rail Gurney remained cash from £15.4 million (HY2012: £17.7 million).	(HY2012: reduction in a cash continuing	£14.7 million), outsourcing, generative operations of

	Since 4 December 2012, when the results for HY2013 were announced, May Gurney has continued to take actions to drive operational efficiencies and profitability on the MaGOS™ contracts and has remained in close dialogue with the relevant contract counterparties with the aim of improving the financial performance of those contracts. Whilst progress has been made, the MaGOS™ contracts as a whole will, as expected, incur a significant loss for the year ending 31 March 2013 and much remains to be achieved in order to return the financial performance of the underperforming contracts to an acceptable level.
	During FY2012, total revenues were £695.3 million (FY2011: £571.4m, FY2010: £483.1m) with EBITA of £30.1 million (FY2011: £25.1m, FY2010: £29.2m) and an EBITA margin of 4.3% (FY2011: 4.4%, FY2010: 4.6%). The growth in revenue between FY2012 and FY 2011 was primarily driven by the full year effect of the acquisition of Turriff, strong performances in May Gurney's long-term utility contracts, the ramp-up of new Environmental Services contracts and increased local authority highways maintenance. The operating margin for the same period was affected by newly won Environmental Services contracts taking longer to reach their expected margins, a disappointing performance from Facility Services and a small number of under-performing contracts in Scotland (which have been discontinued). The growth in revenue between FY2010 and FY2011 was primarily driven by the Public Sector business, with growth in all three services sectors. The Public Sector operating margin over the same period decreased due to a high level of bidding and mobilisation costs incurred in the year and a higher proportion of new contracts, but this was largely set off by a growth in the Regulated Sector operating margin due to strong operational performance.
	May Gurney had net debt (cash less borrowings and finance lease obligations) of £76.9 million, including finance leases as at 30 September 2012 (30 September 2011: £15.2m net funds). May Gurney's net debt at the end of FY2012 was £49.2 million, including finance leases (FY2011: £10.9m net funds, FY2010: £29.2m net funds). The increase in net debt over the period covered by the key historical financial information was due to an increase in finance leases. The obligation to repay the capital and interest related to these finance leases is contained within the contracts where the assets are utilised. May Gurney's order book was £1.5 billion for HY2013, £1.5 billion in FY2012, £1.4 billion in FY2011 and £1.7 billion in FY2010.
	Save as set out above, there has been no significant change to May Gurney's financial condition and operating results during or subsequent to the period covered by the historical key financial information on May Gurney set out in this section.

B.8	Selected key pro forma financial information	Selected pro illustrates the Group's net Group's actual financial position or results.	forma effect of the assets as	financial Merger on if it had	information which the Costain occurred on 31 December 2012 is set out below. The unaudited pro forma financial information has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and therefore does not represent the Costain Group's or the Combined
		Costain as at 31 December 2012 (unaudited)	May Gurney as at 30 September 2012 (unaudited)	Adjustments (unaudited)	Pro forma as at 31 December 2012 (unaudited)
		£m	£m	£m	£m
	Total non-current assets	103.1	186.2	93.8	383.1
	Total current assets	290.6	144.5	(15.0)	420.1
	Assets included in discontinued
	operations		2.2		2.2
	Total assets	393.7	332.9	78.8	805.4
	Total current liabilities	(303.1)	(178.4)	—	(481.5)
	Total non-current liabilities	(58.8)	(56.5)	—	(115.3)
	Liabilities included in discontinued
	operations		(14.0)		(14.0)
	Total liabilities	(361.9)	(248.9)	—	(610.8)
	Total net assets	31.8	84.0	78.8	194.6
B.9	Profit forecast and estimate	made a profit forecast or estimate.			Not applicable; neither Costain nor May Gurney has
B.10	Qualifications in the audit reports	Not applicable; reference into, this document are not qualified.	the audit	reports on	the historical financial information contained in, or incorporated by
B.11	Working capital explanation	taking into working capital of this document.	account existing available	available to the Costain	Not applicable; Costain is of the opinion that, after facilities, the Group is sufficient for its present requirements, that is for at least the next 12 months from the date of publication Costain is of the opinion that, after taking into account
		existing months from the date of publication of this document.	available facilities,	the	working capital available to the Combined Group is sufficient for its present requirements, that is for at least the next 12

Section C – Securities
Element	Disclosure Requirement	Disclosure
C.1	Type and the class of the securities	Costain will issue 58,120,303 ordinary shares of 50 pence each in the capital of Costain pursuant to the Merger. The ISIN the New Costain Shares will trade under is GB00B64NSP76.
C.2	Currency of the securities issue	The Costain Shares are priced in Pound sterling, and will be quoted and traded in Pound sterling.
C.3	Shares issued / value per share	As at 25 March 2013 the Company has in issue 65,544,306 fully paid ordinary shares of 50 pence each.

C.4	Description of the rights attaching to the securities	The New Costain Shares will be issued credited as fully paid and will rank pari passu in all respects with the Costain Shares in issue at the time the New Costain Shares are issued pursuant to the Merger, including in relation to any dividends or other distributions with a record date falling after the Effective Date.
		Subject to any special rights, restrictions or prohibitions as regards voting for the time being attached to any Costain Shares (for example, in the case of joint holders of a share, the only vote which will count is the vote of the person whose name is listed before the other voters on the register for the share), Costain Shareholders shall have the right to receive notice of and to attend and vote at general meetings of Costain. Subject to the provisions of the Companies Act, Costain may from time to time declare dividends and make other distributions on the Costain Shares. Costain Shareholders are entitled to participate in the assets of Costain attributable to their shares in a winding-up of Costain or other return of capital, but they have no rights of redemption.
C.5	Restrictions on free transferability of the securities	Not applicable; there are no restrictions on the free transferability of the Costain Shares.
C.6	Admission / regulated markets where the securities are traded	Application will be made to the UK Listing Authority and to the London Stock Exchange for the New Costain Shares to be admitted to trading on the London Stock Exchange's main market for listed securities. It is expected that Admission of the New Costain Shares will become effective, and that dealings in the New Costain Shares will commence, on the Effective Date which, subject to the satisfaction of certain conditions, including the sanction of the Scheme by the Court, is expected to be on 6 June 2013.
C.7	Dividend policy	Reflecting another successful year and Costain's continuing confidence in the long-term prospects for the Group, the Costain Board has recommended a 7.4% increase in the final dividend, the sixth successive year of increase. If approved, the 7.25 pence per share (2011: 6.75 pence) final dividend will be paid on 24 May 2013 to shareholders on the register as at the close of business on 19 April 2013. This would bring the total dividend for the full year to 10.75 pence per share (2011: 10.00 pence), an increase of 7.5% over the prior year.
		However, there can be no assurance as to whether cash dividends or similar payments will be paid out in the foreseeable future or of their amount.

Section D – Risks
Element	Disclosure Requirement	Disclosure
D.1	Key information on the key risks that are specific to the Company	Key information on the key risks specific to Costain, May Gurney and their industry are:
	or its industry	• The global economy has significantly deteriorated in recent years and the outlook remains uncertain. If either or both of the United Kingdom's and the world's economy continue to deteriorate, there may be volatility in exchange rates, increases in exchange rates or inflation and the business, financial condition and results of the Costain Group, the May Gurney Group or the Combined Group may be adversely affected. The current uncertainty about economic recovery and the pace of growth may also negatively affect the level of demand from existing and prospective customers.
		• The Combined Group would compete with international, national and local support services and construction groups. Some of these groups are larger than the Combined Group would be and may have greater financial, technical and operating capabilities. There are no assurances that the competitiveness of the Combined Group will improve compared with the competitiveness of the Costain Group and the May Gurney Group individually, or that the Combined Group will win any additional market share from any of its competitors or maintain the aggregate current market share of the Costain Group and the May Gurney Group.
		• The Costain Group's business derived more than 10% of its turnover from a single customer in the financial year ended 31 December 2012. The May Gurney Group's business derived more than 10% of its turnover from a single customer in the financial half year ended 30 September 2012. If these contracts are not renewed or terminated, or if contract negotiations, amendments or documentation are not satisfactorily resolved, or if the Combined Group's business is not able to replace lost turnover with profitable new contracts in a timely manner, the Combined Group's business, results of operations or financial condition could be materially adversely affected.

	•	Certain of the Costain Group's and the May Gurney Group's operations are dependent on government policy with regard to improving public infrastructure, buildings and services, notably in the education, roads, health, secure establishments and defence sectors. The UK Government, or any other government, may decide in future to change its priorities and programmes, including reducing present or future investment in transport, health or defence projects or other areas in which the Combined Group would expect to compete for work. Any reduction in such government investment and funding may adversely affect the Combined Group's future revenues and profitability in the relevant sectors.
	•	The Combined Group will be reliant on its supply chain. If a sub-contractor or supplier of goods or services fails financially or is responsible for late or inadequate delivery or poor quality of work on a project then it could damage the Combined Group's reputation and/or cause it to suffer financial losses. Any sub-contractor employed by the Combined Group would be likely to be subject to the same challenging market conditions as the Combined Group, probably increasing the risk of its financial failure compared with the risk during more favourable conditions.
	•	Failure to follow best practice guidelines could mean that projects are not delivered to time, cost, quality or appropriate health and safety and environmental standards and therefore do not meet customers' expectations. Failure to follow Company standards, policies, procedures and guidelines could adversely affect the Combined Group's reputation and/or expose the Combined Group to financial liabilities and adversely affect the operational, financial and share price performance.
	•	Integration of the May Gurney Group into the Costain Group may be more time consuming and costly than expected and unforeseen difficulties may arise. In particular, if the integration process proves more difficult than is being anticipated, there is a risk to the operations of the Combined Group.
	•	Over a number of years, the Costain Board has sought to address the deficit of the Costain Pension Scheme, a defined benefit pension scheme. The regulatory environment and funding requirement principles may lead to increased funding requirements. This could have an adverse impact on the Combined Group's operational results and cash flow.

D.3	Key information on the key risks that are specific to the securities	Key information on the key risks specific to the New Costain Shares are:
		The projected merger synergy benefits may fail to materialise or be materially lower than have been estimated, which would have a significant impact on the profitability of the Combined Group in the future.
		The Merger is subject to the UK merger control process. Costain and May Gurney intend to make a notification to the Office of Fair Trading ('OFT') by way of informal submission. At the end of the OFT review period the OFT may Merger unconditionally or subject to undertakings in lieu of a reference, or may refer the Merger or any matter arising from it to Commission.	approve the the Competition
		Even if a material adverse Gurney's business or prospects was to occur prior to completion of the Merger, circumstances Costain may not be able to invoke the Conditions and terminate the Merger, which could reduce the market price Shares or negatively impact Group's results of operation.	change to May in certain of the Costain the Combined
		Prospective investors should be aware that the value of an investment in Costain Shares may go down as well as up and any fluctuations may be material and may not reflect the underlying asset value. For example, following operating results and prospects from time to time may be below expectations of market analysts and investors, which could result in a decline in the market price of the Costain Shares.	the Merger,
		Any future issue of shares will further dilute the holdings of current Costain could adversely affect the market price of Costain Shares. For example, an additional offering, or significant sales of Costain shareholders, could have a effect on the market price of Costain Shares as a whole.	Shareholders and Shares by major material adverse
		Costain Shareholders and Shareholders will own a smaller percentage of the Combined Group than they Costain and May Gurney, consequence, the number of voting rights which can be exercised and the influence which may be exerted by the shareholders in Combined Group will be less.	May Gurney currently own of respectively. As a respect of the

	Section E – Offer
Element	Disclosure Requirement	Disclosure
E.1	Total net proceeds and costs of the issue	The total costs, charges and expenses (including fees and commissions) (exclusive of recoverable VAT) payable by the Company in connection with the Merger are estimated to amount to approximately £15 million.
		As set out below, the Company is not receiving any proceeds.
E.2a	Reasons for the offer / use of the proceeds	Not applicable; neither this document nor the Merger constitutes an offer or invitation to any person to subscribe for or purchase any shares in Costain or May Gurney. Costain and May Gurney will not receive any proceeds as a result of the proposed Merger.
		It is intended that the Merger will be effected by way of a Court sanctioned scheme of arrangement of May Gurney under Part 26 of the Companies Act pursuant to which Costain will acquire the entire issued and to be issued ordinary share capital of May Gurney.
		The Merger will bring together two businesses with complementary service offerings to create one of the UK's leading integrated service providers to the natural resources, infrastructure and public sector markets.
	Net amount of the proceeds	Not applicable; the Company is not receiving any proceeds save for the May Gurney Shares which it will acquire as a result of the Merger.
E.3	Terms and conditions of the offer	Not applicable; neither this document nor the Merger constitutes an offer or invitation to any person to subscribe for or purchase any shares in Costain or May Gurney. Costain and May Gurney will not receive any proceeds as a result of the proposed Merger.
		On 26 March 2013, the Costain Directors and May Gurney Directors announced that they had reached agreement on the terms of a recommended all-share merger of Costain and May Gurney, which is to be implemented by way of a scheme of arrangement under Part 26 of the Companies Act pursuant to which Costain will acquire the entire issued and to be issued ordinary share capital of May Gurney. It is proposed that the Combined Group will be called Costain May Gurney PLC.
		Under the terms of the Merger, May Gurney Shareholders will be entitled to receive:
		for each Scheme Share 0.8275 New Costain Shares
		May Gurney Shareholders will also be entitled to receive a second interim dividend of 5.6 pence per May Gurney Share (the 'May Gurney Second Interim Dividend'). The May Gurney Second Interim Dividend, which will be conditional upon the Merger becoming Effective, will be payable after the Effective Date to May Gurney Shareholders on the register of members at the Scheme Record Time. In the event that the Merger becomes Effective, no final dividend will be paid in respect of May Gurney's financial year ending 31 March 2013.

		The Merger is conditional upon, among other things:
		• approval of the Scheme and related resolutions by the requisite majorities of May Gurney Shareholders at the Scheme Meeting and the May Gurney General Meeting;
		• the sanction of the Scheme and confirmation of the associated Capital Reduction by the Court at the Court Hearings;
		• the approval of the Merger by the Costain Shareholders at the Costain General Meeting; and
		• the Office of Fair Trading in the United Kingdom indicating, in terms reasonably satisfactory to Costain, that the Merger or any matter arising therefrom or related thereto will not be referred to the Competition Commission.
		Costain has received irrevocable undertakings from May Gurney Shareholders and Directors holding approximately 27.37% of May Gurney's existing issued share capital to vote, or procure the vote, in favour of and letters of intent from May Gurney Shareholders holding approximately 5.16% of May Gurney's existing issued share capital to vote in favour of the resolutions relating to the Merger to be proposed at the Scheme Meeting and the May Gurney General Meeting, and from Costain Shareholders and Directors holding approximately 42.67% of Costain's existing issued share capital to vote in favour of the resolutions to be proposed at the Costain General Meeting relating to the Merger.
E.4	Interests that are material to the issue / conflicting interests	Not applicable; there are no interests, known to the Company, material to the issue of New Costain Shares or which are conflicting interests.
E.5	Name of the offeror / lock-up agreements	Not applicable; there are no entities or persons offering to sell the New Costain Shares, and there are no lock-up agreements.
E.6	Dilution	If the Scheme becomes Effective, it will result in the issue of 58,120,303 New Costain Shares to May Gurney Shareholders, which would result in May Gurney Shareholders holding approximately 47% of the Combined Group. This will result in Costain's issued share capital increasing by approximately 89%. If the Merger becomes Effective, Costain Shareholders will suffer an immediate dilution as a result of the Merger following which they will hold approximately 53% of the issued share capital of Costain.
E.7	Estimated expenses charged to the investor	Not applicable; no expenses will be directly charged to the investor by Costain.

RISK FACTORS

Any investment in Costain and the New Costain Shares carries a number of risks. Prospective investors should review this prospectus carefully and in its entirety (together with any documents incorporated by reference into it) and consult with their professional advisers before acquiring any New Costain Shares. You should carefully consider the risks and uncertainties described below, together with all other information in this document and the information incorporated into this document by reference, before making any investment decision. Prospective investors should note that the risks relating to the Costain Group, its identity and the New Costain Shares summarised in the section of this document headed 'Summary' are the risks that the Costain Directors believe to be most essential to an assessment by a prospective investor of whether to consider an investment in the New Costain Shares.

A number of factors affect the operating results, financial condition and prospects of each of the Costain Group and the May Gurney Group and, following the Effective Date, will affect the Combined Group. This section describes risk factors considered by the Costain Directors to be material in relation to the Costain Group and the May Gurney Group as discrete groups. These risks will, following the Effective Date, be equally relevant to the Combined Group.

However, these should not be regarded as a complete and comprehensive statement of all potential risks and uncertainties. Additional risks and uncertainties that are not presently known to the Costain Directors or the Proposed Directors, or which they currently deem immaterial, may also have an adverse effect on the Costain Group's and May Gurney Group's and, following completion of the Merger, the Combined Group's operating results, financial condition or prospects. If any such risks were to materialise the price of Costain Shares could decline as a consequence and investors could lose all or part of their investment.

The information given is as of the date of this document and, except as required by the FSA, the London Stock Exchange, the Listing Rules, the Prospectus Rules or any other applicable law, will not be updated. Any forward looking statements are made subject to the reservations specified under 'Forward Looking Statements' on page 26 of this document.

Risks relating to the Costain Group and/or the May Gurney Group, and, if the Merger becomes Effective, the Combined Group

1. Adverse economic conditions

The global economy has deteriorated in recent years and the outlook remains uncertain. This deterioration has affected countries worldwide, including the United Kingdom and other countries in which the Costain Group currently operates, and in which, following the Merger, the Combined Group will operate. Global concerns over issues such as inflation, geopolitical issues, terrorism, energy costs, the availability and cost of credit, sovereign debt levels, and the possible break-up of the Eurozone, have contributed to and diminished expectations for national and global economies in the medium to long-term.

If either or both of the United Kingdom's and the world's economy continue to deteriorate, there may be volatility in exchange rates, increases in exchange rates or inflation and the business, financial condition and results of the Costain Group, the May Gurney Group or the Combined Group may be adversely affected.

The current uncertainty about economic recovery and the pace of growth may also negatively affect the level of demand from existing and prospective customers. Additional factors that could influence customer demand include access to credit, budgetary constraints, unemployment rates, affordability concerns and consumer confidence. These factors affect customers' ability and confidence to place orders and may lead to a rise in the number of customers who are not able to pay for the services, which, in turn, may affect the revenue streams of the Costain Group, the May Gurney Group and/or the Combined Group. Costain intends to adopt the existing method of risk and opportunity management currently used by the Costain Group across the entire Combined Group, in order to maintain or increase its success rate and generate higher margins, whilst meeting its selectivity and risk management criteria. Costain also intends to review the risk management systems of May Gurney to ensure the best approach is secured. However, the success of this approach cannot be guaranteed.

2. Competition

Contractors are required to compete for new work, which is won through a process of competitive tendering or bilateral negotiation. The contractor's reputation, prior experience with the client and pricing will all have a bearing on gaining new work. The failure by the Costain Group, the May Gurney Group or, following the Merger, the Combined Group to compete effectively on these criteria could reduce their revenue, profitability and cash flow.

The Combined Group would compete with international, national and local support services and construction groups. Some of these groups are larger than the Combined Group would be and may have greater financial, technical and operating capabilities. The sectors in which the Combined Group would operate are highly competitive on the basis of both price and service. There are no assurances that the competitiveness of the Combined Group will improve compared with the competitiveness of the Costain Group and the May Gurney Group individually, or that the Combined Group will win any additional market share from any of its competitors or maintain the aggregate current market share of the Costain Group and the May Gurney Group. As a result of this competition, the Combined Group would suffer the risk that it may fail to win new contracts in its chosen growth markets or may fail to win contracts which are sufficiently profitable to maintain and improve the financial condition of the Combined Group.

3. Environmental, health and safety laws, regulations and standards

Each of the Costain Group, the May Gurney Group and, following the Merger, the Combined Group is, and will be, subject to a broad range of laws, regulations and standards, including those relating to pollution, the health and safety of employees, protection of the public, protection of the environment and the storage and handling of hazardous substances and waste materials. These regulations and standards are becoming increasingly stringent.

It is the policy of the Costain Group, the May Gurney Group and, following the Merger, will be the policy of the Combined Group to require that all subsidiaries, employees, suppliers and sub-contractors comply with applicable laws, regulations and standards. However, violations of such laws, regulations and standards, in particular, environmental and health and safety laws could result in restrictions on the operations of the Costain Group's, May Gurney Group's or Combined Group's sites, damages, fines or other sanctions, increased costs of compliance, potential reputational damage and potential loss of future contracts.

4. Major incident exposing an inadequate safety regime

The nature of the business which would be conducted by the Combined Group requires the adoption and maintenance of a rigorous health and safety programme. The Combined Group would work on a number of significant and high profile projects and therefore its health and safety performance would be critical to the success of all areas of the Combined Group's business. The Costain Group and the May Gurney Group take the management of both operational and occupational safety seriously. Any failure in health and safety performance which results in a major or significant health and safety incident is likely to be costly for the relevant business in terms of potential liabilities incurred as a result. If the Combined Group's disaster recovery procedures are not sufficient to mitigate the harm that may result from such a disaster or disruption, it could have an adverse effect on the Combined Group's future prospects, financial condition and results of operations. Furthermore, such a failure could generate significant adverse publicity and have a negative impact on the Combined Group's reputation and its ability to win new business, which in turn could adversely affect its operating, financial and share price performance.

5. Interruption or failure of information technology ('IT') systems

The efficient operation and management of the Costain Group's, the May Gurney Group's and, following the Merger, the Combined Group's businesses depends in part on the proper operation, performance and development of their IT systems and processes. New IT systems and change management systems may not be successfully implemented and managed and, following the Merger, Costain's and May Gurney's existing IT systems may not be successfully integrated. Either of these factors may lead to an IT environment that is inadequate to support the needs and objectives of the Combined Group's business. A significant performance failure of the Costain Group's, the May Gurney Group's or, following the Merger, the Combined Group's IT systems could lead to loss of control over critical business information and/or systems (such as contract costs, invoicing, payroll management and/or internal porting), resulting in an adverse impact on the ability of the business affected to operate effectively or to fulfil its contractual obligations which may in turn lead to a loss of custom, revenue and profitability and the incurring of significant consequential and remedial costs.

6. Failure to attract, develop and retain appropriately skilled management or personnel

The success of both the Costain Group and the May Gurney Group is dependent on recruiting, retaining, motivating and developing sufficient appropriately skilled and competent people at all levels of its organisation. The Costain Group and the May Gurney Group face intense competition for personnel from other companies and organisations. There may at any time be shortages in the availability of appropriately skilled people at all levels within the Costain Group, the May Gurney Group or, following the Merger, the Combined Group, and these shortages may have a negative effect on their businesses. Each Group's success depends, to a significant extent, on the continued services of its senior management team, which has substantial knowledge of, and experience and expertise in, the industry. The members of the senior management team contribute to each Group's ability to obtain, generate, manage and develop opportunities. If the Costain Group, May Gurney Group or, following the Merger, the Combined Group is unable successfully to attract and retain such personnel, they may not be able to maintain standards of service or continue to grow their businesses as anticipated. The loss of such personnel, or the inability to attract and retain additional appropriately skilled employees required for their activities, could have an adverse effect on the Costain Group's, May Gurney Group's and, following the Merger, the Combined Group's business and prospects. There is no guarantee that any of the senior management team will remain employed by the Costain Group, the May Gurney Group or, following the Merger, the Combined Group. The loss of services of key members of the senior management team and the failure to maintain a robust management reporting process may lead to a lack of, or inadequate, information being provided to decision makers in the Costain Group, the May Gurney Group or, following the Merger, the Combined Group's businesses which could have an adverse effect on the future prospects, financial conditions or results of operations of such Groups.

7. Dividends

Both Costain and May Gurney are holding companies and, following the Merger, Costain will be the ultimate holding company of the Combined Group. These companies will therefore be entirely dependent on the cash flows from their subsidiaries to pay dividends to their shareholders (to the extent the boards of those companies consider it appropriate so to do). The future prospects, financial condition and results of operations of Costain and May Gurney are primarily dependent on the respective trading performance of members of their individual Groups and, following the Merger, the Combined Group, and upon the level of distributions, interest payments and loan repayments, if any, received from them and upon any amounts received on asset disposals and the level of their respective cash balances. The failure of the Costain Group's or the May Gurney Group's or, following the Merger, the Combined Group's subsidiaries to generate profits and cash may result in either Costain or May Gurney or, following the Merger, Costain having insufficient funds to make dividend payments to their shareholders.

8. Loss of material contracts

The Costain Group's business derived more than 10% of its turnover from a single customer in the financial year ended 31 December 2012. The May Gurney Group's business derived more than 10% of its turnover from a single customer in the financial half year ended 30 September 2012. Following the Merger, the Combined Group will continue to derive a significant portion of its turnover from these two customers. If the contracts with either of these two customers are not renewed or are terminated, or if contract negotiations, amendments or documentation are not satisfactorily resolved or if the Combined Group's business is not able to replace lost turnover with profitable new contracts in a timely manner, the Combined Group's business, results of operations or financial condition could be materially adversely affected.

9. Change of Government policy

Certain of the Costain Group's and May Gurney Group's operations are dependent on government policy with regard to improving public infrastructure, buildings and services, notably in the education, roads, health, secure establishments and defence sectors. The UK Government may decide in future to change its priorities and programmes, including reducing present or future investment in transport, health or defence projects or other areas in which each Group would expect to compete for work. Any reduction in such Government investment and funding may adversely affect the Combined Group's future revenues and profitability in the relevant sectors.

10. Failure in contract mobilisation

If Costain, May Gurney or, following the Merger, the Combined Group is unable to estimate accurately the overall risks, revenues or costs on a particular contract, then a lower than anticipated profit may be achieved or a loss incurred on such contract. The Costain Group generally enters into four principal types of contracts with clients: fixed price contracts; 'cost plus' or 'target cost' contracts; framework contracts with clients that span a number of years and incorporate an agreed mechanism for bearing costs and sharing profits; and long-term PFl projects. The Combined Group will continue to adopt this contract model. May Gurney enters into three of the four principal types of contracts with clients: (i) fixed price contracts; (ii) 'target cost' contracts; and (iii) framework contracts. May Gurney does not generally enter into long-term PFI contracts.

A significant proportion of the Combined Group's business will depend for its profit on costs being controlled and projects being completed on time, such that costs are contained within the pricing structure of the relevant contract.

'Target cost' contracts provide for reimbursement of the costs required to complete a project, but generally have a lower base fee and an incentive fee based on cost and/or scheduled performance. If actual costs exceed the revenues available under such a contract or are not allowable under the provisions of the contract, the Combined Group may not receive reimbursement for all of these costs.

Cost overruns, whether due to inefficiency, poor design where the contractor has design responsibilities, faulty estimates, cost escalation, and/or cost overruns by sub-contractors or other factors, result in lower profit or a loss on a project. A significant number of contracts are based in part on cost estimates that are subject to a number of assumptions. If estimates of the overall risks, revenues or costs prove inaccurate or circumstances change, then a lower profit or a loss on the contract may result.

Moreover, if the Combined Group fails to win major work from a key client, this could cause short-term turnover and profitability issues.

The Combined Group's contracts may require extra or change order work as directed by the customer even if the customer has agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, the Combined Group may be required to fund the cost of such work for a period of time until the change order is approved and funded by the customer.

11. Sub-contractor and supplier failure

The Combined Group will be reliant on its supply chain. If a sub-contractor or supplier of goods or services fails financially or is responsible for late or inadequate delivery or poor quality of work on a project then it could damage the Combined Group's reputation and/or cause it to suffer financial losses. Any sub-contractor employed by the Combined Group would be likely to be subject to the same challenging market conditions as the Combined Group, probably increasing the risk of its financial failure compared with the risk during more favourable conditions.

12. Procurement delay or failure

Certain Government-related projects on which the Combined Group may work may require relevant approvals from Government ministers or senior civil servants. It is possible that, due to difficulties obtaining such approvals, projects may be delayed before procurement has started, during the tender stage or during the period between the appointment of a preferred bidder and the exchange of contracts. These matters are likely to be beyond the control of the Combined Group and any resulting delays could affect future revenue streams of the Combined Group and have an adverse impact on the Combined Group's businesses, results of operations and financial condition.

13. Operational delivery

Failure to follow best practice guidelines could mean that projects are not delivered to time, cost, quality or appropriate health and safety and environmental standards and therefore do not meet customers' expectations. Failure to follow Company standards, policies, procedures and guidelines could adversely affect the Combined Group's reputation and/or expose the Combined Group to financial liabilities and adversely affect the operational, financial and share price performance.

14. Pension liabilities

Costain

Over a number of years, the Costain Board has sought to address the deficit of the Costain Pension Scheme, a defined benefit pension scheme which has been closed to new members since 1 June 2005 and to future accrual since 1 October 2009.

Updated valuations under IAS 19 for the scheme's assets and liabilities as at 31 December 2012 show a gross deficit in the scheme which, when subjected to related deferred tax at 23%, results in a net pension deficit under IAS 19 of £40.0 million.

Pensions legislation requires the Costain Pension Trustee, having taken actuarial advice, to determine appropriately prudent assumptions to value the liabilities of the Costain Pension Scheme. Those assumptions must be agreed with the sponsoring employer or, in default of such agreement, determined by the Pensions Regulator. This process determines the value of the Costain Pension Scheme's liabilities for statutory ongoing funding purposes and, to the extent there is a shortfall in the Costain Pension Scheme's assets as against that value, the Costain Pension Trustee must agree with the employer (or have set by the Pensions Regulator) a recovery plan setting out a programme for clearing the deficit.

In February 2012, the Costain Group announced two further actions being taken to manage the obligations in the Costain Pension Scheme. The first of these was the transfer of the Costain Group's interest in two PFI investments into the Costain Pension Scheme at an agreed value of £20.3 million which was completed on 22 February 2012 and resulted in an accounting profit on the transfer of £10.5 million. The second action was the implementation of Enhanced Transfer Value ('ETV') and Pension Increase Exchange ('PIE') offers to the members of the Costain Pension Scheme. The ETV and PIE exercises have now been completed and resulted in a reduction in the scheme liabilities and assets of approximately £35 million and has resulted in a one-off accounting cost of £2.8 million expensed in 2012.

In accordance with the requirement for a triennial review, a full actuarial valuation of the Costain Pension Scheme will be carried out as at 31 March 2013.

The value of the deficit recognised in the Costain Group's balance sheet pursuant to IAS 19 is dependent on the market value of the assets of the Costain Pension Scheme and certain critical assumptions in relation to the value of the liabilities of the Costain Pension Scheme including mortality rates, inflation levels and investment returns and is likely to vary from year to year. Recent and prospective changes in the regulatory environment and funding requirement principles may lead to requirements to increase funding in respect of the scheme in future years (possibly to a level in excess of that needed to achieve solvency on an IAS 19 basis). The powers of the Pensions Regulator may also impact on any plans to make returns of capital from the Combined Group to Costain Shareholders. For example, the Pensions Regulator has powers to levy contribution notices and financial support directions in certain circumstances in order to ensure that additional contributions are paid into a pension scheme or that other financial support is put in place to the benefit of a pension scheme. In the event that the market value of the scheme's assets declines in relation to its assessed liabilities, the Combined Group may be required to increase its contributions to cover any further funding shortfalls. This could have an adverse impact on the Combined Group's operational results and cash flow.

May Gurney

May Gurney operates two defined benefit pension schemes: the May Gurney Pensions Scheme and the TransLinc Pensions Scheme. The May Gurney Pensions Scheme closed to new employees in April 2006 and to future accrual in September 2012. The TransLinc Pensions Scheme closed to future accrual in September 2008.

The most recent full triennial valuation of the May Gurney Pensions Scheme was carried out as at 31 March 2011. The May Gurney Pensions Scheme's assets were less than the May Gurney Pensions Scheme's technical provisions (liabilities) at the valuation date and a recovery plan was agreed which was expected to remove the shortfall by 31 March 2018, if assumptions were borne out in practice. As at 31 March 2012, the May Gurney Pensions Scheme had a deficit of £0.4 million on an IAS 19 basis.

The most recent full triennial valuation of the TransLinc Pensions Scheme was carried out as at 28 February 2011. The TransLinc Pensions Scheme's assets were greater than the TransLinc Pensions Scheme's technical provisions (liabilities) at the valuation date, and therefore a recovery plan was not required. As at 31 March 2012, the TransLinc Pensions Scheme was fully funded on an IAS 19 basis.

In the event that the market values of the assets of the May Gurney Pensions Scheme and the TransLinc Pensions Scheme decline or the value of the assessed liabilities of the schemes increases, the May Gurney Group may be required to increase its contributions. Changes in the investment strategy of the schemes may also result in a requirement to increase the May Gurney Group's contributions. Moreover, the cost of funding benefits depends on a number of factors, including the real returns that can be obtained on the assets, life expectancy and inflation rates. As noted above, the Pensions Regulator has powers, the exercise of which could require the May Gurney Group to make additional contributions or put in place other financial support. Increases to the May Gurney Group's contributions or other forms of financial support could have a material adverse impact on the May Gurney Group's operating results, business prospects and financial condition.

15. Major shareholders

As at the date of this document, UEM Builders Berhad ('UEM') and Mohammed Abdulmohsin Al-Kharafi & Sons WLL ('MAA') hold approximately 21.07% and 21.04%, respectively, of the issued ordinary share capital of Costain Group PLC. In addition, MAA currently has, and following the Merger will continue to have, a nominee on the Costain Board. Following completion of the Merger, UEM and MAA are expected to hold approximately 11.17% and 11.15%, respectively, of the issued ordinary share capital of the Combined Group. Each of UEM and MAA are currently able to, and following the Merger will continue to be able to, exercise a significant degree of influence over matters requiring Costain Shareholder approval, including the approval of significant corporate transactions, and this may have the effect of delaying, preventing or deterring a change in control of the Combined Group, could deprive Costain Shareholders of an opportunity to receive a premium for their Costain Shares as part of a sale of the Combined Group and might affect the market price of the Costain Shares. In addition, any decision by either of UEM or MAA to sell all or a portion of the Costain Shares held by it could adversely affect the market price of the Costain Shares.

16. Costain is exposed to geopolitical risk

Costain's operations may also be affected by political or economical instability in the countries in which it operates. Such instability could be caused by, among other things, terrorism, civil war, civil disorder, crime, workforce instability, change in government policy or the ruling party, extreme fluctuations in currency exchange rates or high inflation.

Risks relating to the Merger and the New Costain Shares

1. Merger synergy benefits may fail to materialise or be materially lower than have been estimated

Costain believes the combination of the businesses of Costain and May Gurney will achieve significant operational cost savings for the Combined Group. However, there is a risk that the projected synergy benefits will fail to materialise, or that they may be materially lower than have been estimated, which would have a significant impact on the profitability of the Combined Group in the future.

2. A regulatory body may refuse the clearance required to complete the Merger

The Merger is subject to the UK merger control process. Costain and May Gurney intend to make a notification to the Office of Fair Trading ('OFT') by way of informal submission. At the end of the OFT review period the OFT may approve the Merger unconditionally or subject to undertakings in lieu of a reference, or may refer the Merger or any matter arising from it to the Competition Commission.

3. Even if a material adverse change to May Gurney's business or prospects was to occur, in certain circumstances, Costain may not be able to invoke the Conditions and terminate the Merger, which could reduce the value of Costain Shares

Completion of the Merger is subject to a number of Conditions, including that there is no material adverse change affecting May Gurney before the Scheme is sanctioned by the Court. Under the City Code, and except for certain antitrust clearance and Scheme-related conditions, Costain may invoke a Condition to the Merger to cause the Merger not to proceed only if the Panel is satisfied that the circumstances giving rise to that Condition not being satisfied are of material significance to Costain in the context of the Merger.

If a material adverse change affecting May Gurney were to occur prior to completion of the Merger and the Panel did not allow Costain to invoke a Condition to cause the Merger not to proceed, the market price of Costain Shares or the Combined Group's results of operations, financial condition and/or prospects may be materially adversely affected.

4. Prospective investors should be aware that the value of an investment in Costain Shares may go down as well as up and any fluctuations may be material and may not reflect the underlying asset value

The market price of the Costain Shares could be subject to significant fluctuations due to a change in sentiment in the market regarding the Costain Shares. The fluctuations could result from national and global economic and financial conditions, the market's response to the Merger, market perceptions of Costain, including when it might recommence payment of dividends on the Costain Shares and various other factors and events, including but not limited to regulatory changes affecting the Combined Group's operations, variations in the Combined Group's operating results, business developments of the Combined Group and/or its competitors and the liquidity of the financial markets. Furthermore, the Costain Group's, or, following the Merger, the Combined Group's, operating results and prospects from time to time may be below the expectations of market analysts and investors. Any of these events could result in a decline in the market price of the Costain Shares.

5. Any future issue of shares will further dilute the holdings of shareholders of the Combined Group and could adversely affect the market price of Costain Shares

Other than pursuant to the Merger, Costain has no current plans for an offering of shares apart from possible offerings in relation to employee share plans or script dividend schemes. However, it is possible that Costain or, after the Merger, the Combined Group may decide to offer additional shares in the future either to raise capital or for other purposes. If shareholders of the Combined Group did not take up such offer of shares or were not eligible to participate in such offering, their proportionate ownership and voting interests in the Combined Group would be reduced and the percentage that their Costain Shares would represent of the total share capital of the Combined Group would be reduced accordingly. An additional offering, or significant sales of shares by major shareholders, could have a material adverse effect on the market price of Costain Shares as a whole.

6. Integration of the May Gurney Group into the Costain Group may be more time consuming and costly than expected and unforeseen difficulties may arise

The integration process following the completion of the Merger may be complex. Successful integration will require a significant amount of management time and thus may affect or impair the ability of the management team of the Combined Group to run the business effectively during the period of implementation. If the integration process proves more difficult than is being anticipated, there is also a risk to the operations of the Combined Group. This integration may take longer than is expected, or difficulties relating to the integration, of which the Costain Directors are not yet aware, may arise, including if any significant May Gurney contracts are terminated owing to the change of control of May Gurney. In addition, there can be no assurance that the actual cost of the expected savings programme will not exceed the cost estimated by Costain. Furthermore, Costain may not be able to retain personnel with the appropriate skill set for the tasks associated with the implementation programme. This could adversely affect implementation of Costain's plans. In such circumstances, the profitability of the Combined Group might be detrimentally affected, which could have a negative impact on the price of Costain Shares.

7. Costain Shareholders and May Gurney Shareholders will own a smaller percentage of the Combined Group than they currently own of Costain and May Gurney, respectively

After the Merger becomes Effective, Costain Shareholders and May Gurney Shareholders will own a smaller percentage of the Combined Group than they currently own of Costain and May Gurney, respectively. Based on the number of May Gurney Shares in issue as at the close of business on 25 March 2013 and assuming there are no other issues of May Gurney Shares or Costain Shares (including under the May Gurney Share Schemes and the Costain Share Schemes) between 25 March 2013 and the Effective Date, current Costain Shareholders and former May Gurney Shareholders will own approximately 53% and approximately 47%, respectively, of the issued shares of the Combined Group. As a consequence, voting power which can be exercised and the influence which may be exerted by shareholders in respect of the Combined Group will be reduced.

8. The ability of Overseas Shareholders to bring actions, or to enforce judgments, against Costain, the Combined Group or the directors or officers of either may be limited

The ability of an Overseas Shareholder to bring an action against Costain may be limited under law. Costain is a public limited company incorporated in England and Wales. The rights of holders of Costain Shares are governed by English law and the Costain Articles. These rights differ from the rights of shareholders in typical US corporations and some other non-UK corporations. An Overseas Shareholder may not be able to enforce a judgment against some or all of the Combined Group Board Members and executive officers. The majority of the Combined Group Board Members and executive officers are residents of the UK and none are citizens or residents of the United States. Consequently, it may not be possible for an Overseas Shareholder to effect service of process upon the Combined Group Board Members and the Combined Group's executive officers within the Overseas Shareholder's country of residence or to enforce against the Combined Group Board Members and the Combined Group's executive officers judgments of courts of the Overseas Shareholder's country of residence based on civil liabilities under that country's securities laws. There can be no assurance that an Overseas Shareholder will be able to enforce any judgments in civil and commercial matters or any judgments under the securities laws of countries other than the UK against the Combined Group Board Members or the Combined Group's executive officers who are residents of the UK or countries other than those in which judgment is made. In addition, English or other courts may not impose civil liability on the Combined Group Board Members or the Combined Group's executive officers in any original action based solely on foreign securities laws brought against the Combined Group or the Combined Group Board Members or the Combined Group's executive officers in a court of competent jurisdiction in England or other countries. Please refer to the section headed 'Enforceability of judgments' on page 2 of this document for further information.

9. Overseas Shareholders may be subject to exchange rate risks

The Costain Shares are priced in Pound sterling, and will be quoted and traded in Pound sterling. In addition, any dividends Costain may pay will be declared and paid in Pound sterling. Accordingly, holders of Costain Shares resident outside the UK jurisdictions are subject to risks arising from adverse movements in the value of their local currencies against the Pound sterling, which may reduce the value of the New Costain Shares, as well as that of any dividends paid.

10. Admission of the New Costain Shares may not occur when expected

Application for Admission of the New Costain Shares will be made close to the Effective Date. If the Effective Date of the Merger is delayed, the application for Admission will be delayed. Admission is subject to the approval (subject to satisfaction of any conditions which such approval is expressed) of the UK Listing Authority and Admission will become effective as soon as a dealing notice has been issued by the UK Listing Authority and the London Stock Exchange has acknowledged that the New Costain Shares will be admitted to trading. There can be no guarantee that any conditions to which Admission is subject will be met or the UK Listing Authority will issue a dealing notice. See the 'Expected Timetable of Principal Events' on page 27 of this document for further information on the expected dates of these events.

FORWARD LOOKING STATEMENTS

Certain statements contained in this document, including those in the Parts headed 'Summary', 'Risk Factors', 'Letter from Chairman of Costain', 'Information on Costain', 'Information on May Gurney' and 'Operating and Financial Review of Costain', constitute 'forward looking statements'. In some cases, these forward looking statements can be identified by the use of forward looking terminology, including the terms 'believes', 'estimates', 'plans', 'prepares', 'anticipates', 'expects', 'intends', 'may', 'will' or 'should' or, in each case, their negative or other variations or comparable terminology. Investors should specifically consider the factors identified in this document, which could cause actual results to differ, before making an investment decision. Such forward looking statements involve known and unknown risks, uncertainties and other factors, which may cause the actual results, performance or achievements of Costain, May Gurney and/or the Combined Group, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. Such forward looking statements are based on numerous assumptions regarding Costain's present and future business strategies and the environment in which Costain, May Gurney and/or the Combined Group will operate in the future. Such risks, uncertainties and other factors are set out more fully in the section of this document headed 'Risk Factors' and include, among others: risks relating to 'Adverse economic conditions'; 'Competition'; 'Environmental, health and safety laws, regulations and standards'; 'Major incident exposing an inadequate safety regime'; 'Failure to attract, develop and retain highly skilled management and personnel'; 'Dividends'; 'Loss of material contracts'; 'Change of Government policy'; 'Failure in contract mobilisation'; 'Sub-contractor and supplier failure'; 'Procurement delay and failure'; 'Pension liabilities'; and 'Major shareholders'. These forward looking statements speak only as at the date of this document. Except as required by the FSA, the London Stock Exchange or applicable law (including as may be required by the FSA's Listing Rules and the Disclosure and Transparency Rules), Costain expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward looking statements contained in this document to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND MERGER STATISTICS

2.7 Announcement released/combined circular and prospectus
published	26 March 2013
Filing of draft Scheme Document and Forms of Proxy in substantially
final form	28 March 2013
First directions hearing	9 April 2013
Scheme Document posted	12 April 2013
Last time and date for receipt of Forms of Proxy for the Costain
General Meeting	6:00 p.m. 6 May 2013
May Gurney Court Meeting	7 May 2013
May Gurney General Meeting	7 May 2013
Costain General Meeting	8 May 2013
Second directions hearing	15 May 2013
Scheme Court Hearing (to sanction the Scheme)	4 June 2013
Last day of dealings in, and for registration of transfers and
disablement in CREST of, May Gurney Shares	5 June 20131
Suspension of dealings in May Gurney Shares	5:00 p.m. 5 June 20131
Scheme Record Time/Record Time for May Gurney Second Interim
Dividend	6:00 p.m. 5 June 20131
Reduction Court Hearing (to sanction the Capital Reduction). Court
order filed with the Registrar of Companies.	6 June 20131
Effective Date of the Scheme	6 June 20131
Issue of the New Costain Shares and crediting of the New Costain
Shares in uncertified form to CREST accounts (and cancellation of
admission to trading on AIM of May Gurney Shares)	by 8:00 a.m. on 7 June 20131
Admission and commencement of dealing on the London Stock
Exchange of the New Costain Shares	7 June 20131
Posting of share certificates for the New Costain Shares (where
applicable)	by no later than 20 June 20131
Long stop date, being the date by which the Scheme must be
implemented	27 September 20131

All references in this document to times are to UK time unless otherwise stated.

MERGER STATISTICS

Number of Existing Costain Shares (as at 25 March 2013)	65,544,306
Number of New Costain Shares to be issued pursuant to the Scheme	58,120,303
Number of Costain Shares in issue upon completion of the Merger	123,664,609
New Costain Shares as a percentage of the enlarged issued share
capital of Costain	47%

¹ These dates are indicative only and will depend, among other things, on the date upon which the Court sanctions the Scheme. If any of the times and/or dates above will change, the revised times and/or dates will be announced through the Regulatory News Service of the London Stock Exchange.

INFORMATION INCORPORATED BY REFERENCE

The following documents, which have been approved by, filed with or notified to the FSA, and which are available for inspection in accordance with section 17 of Part XI (Additional Information), contain information about Costain and the Costain Group which is relevant to this document:

• Costain's Preliminary Results 2012, containing Costain's unaudited consolidated preliminary financial statements for the financial year ended 31 December 2012;
• Costain's Annual Report and Accounts 2011, containing Costain's audited consolidated financial statement in respect of the financial year ended 31 December 2011, together with the audit report in respect of that period and a discussion of Costain's financial performance;
• Costain's Annual Report and Accounts 2010, containing Costain's audited consolidated financial statement in respect of the financial year ended 31 December 2010, together with the audit report in respect of that period and a discussion of Costain's financial performance; and
• Costain's Annual Report and Accounts 2009, containing Costain's audited consolidated financial statement in respect of the financial year ended 31 December 2009, together with the audit report in respect of that period and a discussion of Costain's financial performance.

The table below sets out the sections of these documents which are incorporated by reference into, and form part of, this document, and only the parts of the documents indentified in the table below are incorporated into, and form part of, this document. The parts of these documents which are not incorporated by reference are either not relevant for investors or are covered elsewhere in this document. To the extent that any part of any information referred to below itself contains information which is incorporated by reference, such information shall not form part of this document.

Reference Document	Information incorporated by reference into this document	Page number(s) in reference document
For the year ended 31 December 2012
Preliminary Results for the year ended 31 December 2012	Chairman's Statement	3-4
Preliminary Results for the year ended 31 December 2012	Chief Executive's Review	6-7
Preliminary Results for the year ended 31 December 2012	Operational Review	9-10
Preliminary Results for the year ended 31 December 2012	Finance Director's Review	10-12
Preliminary Results for the year ended 31 December 2012	Consolidated Income Statement	13
Preliminary Results for the year ended 31 December 2012	Consolidated Statement of Comprehensive Income and Expense	14
Preliminary Results for the year ended 31 December 2012	Consolidated Statement of Changes in Equity	14
Preliminary Results for the year ended 31 December 2012	Consolidated Statement of Financial Position	14
Preliminary Results for the year ended 31 December 2012	Consolidated Cash Flow Statement	15
For the year ended 31 December 2011
Costain Annual Report and Accounts 2011	Overview	2-5
Costain Annual Report and Accounts 2011	Chairman's Statement	6-7
Costain Annual Report and Accounts 2011	Group CEO's Review	10-13
Costain Annual Report and Accounts 2011	Group Strategy	16
Costain Annual Report and Accounts 2011	Corporate Responsibility	26-37
Costain Annual Report and Accounts 2011	Business Review	27-30
Costain Annual Report and Accounts 2011	Risk Framework	38-40
Costain Annual Report and Accounts 2011	Financial Review	42-44
Costain Annual Report and Accounts 2011	Auditor's Report	72
Costain Annual Report and Accounts 2011	Consolidated Income Statement	74

Reference Document	Information incorporated by reference into this document	Page number(s) in reference document
Costain Annual Report and Accounts 2011	Consolidated Balance Sheet	76
Costain Annual Report and Accounts 2011	Consolidated Statement of Changes in Equity	78
Costain Annual Report and Accounts 2011	Consolidated Cash Flow Statement	79
Costain Annual Report and Accounts 2011	Notes to the Accounts	81-116
Costain Annual Report and Accounts 2011	Five Year Record as at 31 December 2011	117
For the year ended 31 December 2010
Costain Annual Report and Accounts 2010	Group Strategy	8-9
Costain Annual Report and Accounts 2010	Group CEO's Review	18-21
Costain Annual Report and Accounts 2010	Business Review	26-33
Costain Annual Report and Accounts 2010	Financial Review	43-45
Costain Annual Report and Accounts 2010	Auditor's Report	71
Costain Annual Report and Accounts 2010	Consolidated Income Statement	74
Costain Annual Report and Accounts 2010	Consolidated Balance Sheet	76
Costain Annual Report and Accounts 2010	Consolidated Statement of Changes in Equity	78
Costain Annual Report and Accounts 2010	Consolidated Cash Flow Statement	79
Costain Annual Report and Accounts 2010	Notes to the Accounts	81-114
Costain Annual Report and Accounts 2010	Five Year Record as at 31 December 2010	115
For the year ended 31 December 2009
Costain Annual Report and Accounts 2009	Group CEO's Review	32-34
Costain Annual Report and Accounts 2009	Business and Operational Review	36-39
Costain Annual Report and Accounts 2009	Financial Review	44
Costain Annual Report and Accounts 2009	Auditor's Report	71
Costain Annual Report and Accounts 2009	Consolidated Income Statement	72
Costain Annual Report and Accounts 2009	Consolidated Balance Sheet	74
Costain Annual Report and Accounts 2009	Consolidated Statement of Changes in Equity	76

Costain Annual Report and Accounts 2009 Consolidated Cash Flow Statement 77 Costain Annual Report and Accounts 2009 Notes to the Accounts 79-111 Costain Annual Report and Accounts 2009 Five Year Record as at 31 December 2009 112

DIRECTORS, PROPOSED DIRECTORS, COMPANY SECRETARY, REGISTERED OFFICE AND ADVISERS

DIRECTORS

David Allvey	Non-Executive Chairman
Andrew Wyllie	Chief Executive
Anthony Bickerstaff	Group Finance Director
James Morley	Independent Non-Executive Director
Michael Alexander	Independent Non-Executive Director
Jane Lodge	Independent Non-Executive Director
Samer Younis	Non-Executive Director

The business address of each of the Directors is the Company's registered address at Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB.

PROPOSED DIRECTORS

William MacDiarmid Non-Executive Director Andrew Walker Non-Executive Director

Baroness Margaret Ford Non-Executive Deputy Chairman Ishbel Macpherson Senior Independent Director

JOINT COMPANY SECRETARIES

Tracey Wood Paul Starkey

REGISTERED OFFICE

Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB Registered in England and Wales with number 01393773 +44(0) 1628 842444

SPONSOR AND FINANCIAL ADVISER

Rothschild New Court St Swithin's Lane London EC4N 8AL BROKER

Investec Investment Banking 2 Gresham Street London EC2V 7QP

LEGAL ADVISER TO THE COMPANY

AS TO ENGLISH LAW Slaughter and May One Bunhill Row London EC1Y 8YY

AUDITORS AND REPORTING ACCOUNTANTS KPMG Audit Plc 15 Canada Square

London E14 5GL

REGISTRARS

Equiniti Aspect House Spencer Road Lancing West Sussex BN99 6DA

PART I LETTER FROM CHAIRMAN OF COSTAIN

To the holders of Ordinary Shares 26 March 2013

Dear Shareholder,

RECOMMENDED ALL-SHARE MERGER OF COSTAIN GROUP PLC AND MAY GURNEY INTEGRATED SERVICES PLC

1. Introduction to the Merger

On 26 March 2013, the Boards of Costain and May Gurney announced that they had reached agreement on the terms of a recommended all-share merger of Costain and May Gurney to be implemented by way of a Court-sanctioned scheme of arrangement under Part 26 of the Companies Act 2006 (the 'Merger') pursuant to which Costain will acquire the entire issued and to be issued ordinary share capital of May Gurney. Upon the Merger becoming Effective, current Costain Shareholders will own approximately 53% of the Combined Group and former May Gurney Shareholders will hold approximately 47% of the Combined Group.

Upon the Merger becoming Effective, Costain, which will continue to be traded on the London Stock Exchange's main market for listed securities, will be renamed 'Costain May Gurney PLC'.

Subject to satisfaction or, where appropriate, waiver of the Conditions, it is expected that the Merger will become Effective on 6 June 2013.

Owing to its size, the Merger constitutes a class one transaction for the purposes of the Listing Rules and therefore requires the approval of Costain Shareholders. Accordingly, the Costain General Meeting has been convened for 10.00 a.m. on 8 May at More Suite, 2nd Floor, Dexter House, No 2 Royal Mint Court, Tower Hill, London EC3N 4QN. Costain Shareholders will also be asked to approve the allotment of New Costain Shares in connection with the Merger. An explanation of the Resolutions to be proposed at the meeting is set out in section 19 below. The Costain Directors consider the Merger and the Resolutions to be in the best interests of Costain and Costain Shareholders as a whole and unanimously recommend that Costain Shareholders vote in favour of the Resolutions.

I am writing to give you further details of the Merger, including the background to and reasons for it, to explain why the Costain Board considers it to be in the best interests of Costain and Costain Shareholders as a whole and to seek your approval of the Resolutions.

The Merger has been unanimously recommended by the Costain Board and the May Gurney Board.

In addition, Costain has received irrevocable undertakings from May Gurney Shareholders and Directors in respect of approximately 27.37% of May Gurney's existing issued share capital to vote, or procure the vote, in favour of (or to return, or procure the return of, Forms of Proxy voting in favour of) and letters of intent from May Gurney Shareholders holding approximately 5.16% of May Gurney's existing issued share capital to vote in favour of the resolutions relating to the Merger to be proposed at the Scheme Meeting and the May Gurney General Meeting, and from Costain Shareholders and Directors in respect of approximately 42.67% of Costain's existing issued share capital to vote in favour of the resolutions to be proposed at the Costain General Meeting relating to the Merger.

2. Terms of the Merger

Under the terms of the Merger, which will be subject to the Conditions summarised below and set out in the Scheme Document, May Gurney Shareholders will be entitled to receive:

for each Scheme Share 0.8275 New Costain Share(s)

May Gurney Shareholders will also be entitled to receive a second interim dividend of 5.6 pence per May Gurney Share (the 'May Gurney Second Interim Dividend'). The May Gurney Second Interim Dividend, which will be conditional upon the Merger becoming Effective, will be payable after the Effective Date to May Gurney Shareholders on the register of members at the Scheme Record Time. In the event that the Merger becomes Effective, no final dividend will be paid in respect of May Gurney's financial year ending 31 March 2013.

On 6 March 2013, the Board of Costain announced that it was recommending, subject to Costain Shareholder approval, a final dividend of 7.25 pence per share in respect of the financial year ended 31 December 2012. If approved, the final dividend will be paid on 24 May 2013 to Costain Shareholders on the register of members as at the close of business on 19 April 2013. The New Costain Shares to be issued pursuant to the Merger will not carry any entitlement to the Costain final dividend in respect of the financial year ended 31 December 2012.

The Merger values each May Gurney Share at 253.22 pence, and May Gurney's existing issued share capital at approximately £178 million, based on the closing price of a Costain Share on the last practicable date prior to the publication of this document.

If the Scheme becomes effective, it will result in the issue of 58,120,303 New Costain Shares to May Gurney Shareholders, which would result in former May Gurney Shareholders holding approximately 47% of the Combined Group and Costain's issued share capital increasing by approximately 89%. If the Merger becomes effective and New Costain Shares are issued to May Gurney Shareholders, the holdings of current Costain Shareholders will be diluted such that they will hold approximately 53% of the issued share capital of Costain.

3. Background to, and reasons for, the Merger

The markets in which both Costain and May Gurney operate are changing rapidly with the ongoing consolidation of consultancy, programme management and service delivery providers. Customers increasingly require their partners to have the ability to deliver solutions through a broader range of services under larger, more output-based and complex contracts.

The Merger will bring together two businesses with complementary service offerings to create one of the UK's leading integrated services providers to the rail, highways, water, waste, airports, hydrocarbons, power, nuclear, local government and fleet management markets.

The Board of Costain and the Proposed Directors believe that the Combined Group will have:

• a focus on delivering innovative and cost-effective solutions to address essential national needs in the markets in which Costain and May Gurney operate;
• a larger addressable market, with a combined client base across the private sector, central and local government and regulated industries;
• an enhanced range of capabilities to meet customers' changing demands;
• the ability to benefit from the respective strengths of the Costain and May Gurney brands which will continue to be used as required by customers;
• greater financial strength and scale, increasing the opportunity to bid for larger, more complex and multi-disciplinary contracts;
• the opportunity to leverage the best talent of the Costain Group and the May Gurney Group; and
• significant earnings visibility underpinned by long-term contracts with Costain's order book in the 2012 financial year of £2.4 billion and May Gurney's order book of £1.5 billion for HY2013.

The Costain Board and the Proposed Directors believe that the combination of the Costain Group and the May Gurney Group will allow both to grow and to meet the challenges that lie ahead.

4. Synergies and integration

Following preliminary analysis, the Board of Costain and the Proposed Directors believe that the Merger presents opportunities for significant cost synergies. The Costain Directors and the Proposed Directors believe that the Combined Group should be able to achieve recurring annual pre-tax cost synergies of approximately £10 million with effect from the financial year ending 31 December 2015.

The synergies identified below reflect both beneficial elements and relevant costs and could not be achieved independently.

Overhead cost savings are expected to arise from the reduction of corporate overheads (including administrative and governance costs and professional and finance fees), combining corporate support functions, combining the management structure of the operating divisions of Costain and May Gurney and achieving procurement savings. A central objective of the integration will be the retention of the customer focus and capabilities of the Costain and May Gurney businesses.

The Costain Directors and the Proposed Directors currently anticipate that the integration of the Costain and May Gurney businesses will result in a net reduction in the number of Combined Group full-time equivalent employee roles of fewer than 150 (primarily from overhead roles). The number of employees, specific operating functions and locations affected by the integration will depend on the outcome of the ongoing integration planning and these changes will only come into effect as synergies are realised.

The Board of Costain and the Proposed Directors expect that approximately £2.5 million of synergies will be realised in the financial year ending 31 December 2013, approximately £7.5 million of synergies will be realised in the financial year ending 31 December 2014 and approximately £10.0 million of synergies will be realised in the financial year ending 31 December 2015. The Board of Costain and the Proposed Directors expect that the integration process and the realisation of these synergies will result in one-off exceptional costs of approximately £14 million together with one-off capital expenditure costs of approximately £6 million relating to investment in IT.

The Board of Costain and the Proposed Directors are confident that the integration of the two businesses can be achieved without undue disruption to the underlying operations of each business.

As at the date of this document, an outline integration plan has been developed. The output of that plan will be the agreement of the scope of integration, quantified objectives and proposed organisation structure and processes to be reviewed and subsequently implemented, together with a stakeholder communication timetable.

As soon as practicable following the Effective Date, the Combined Group will aim to have validated fully the initial synergy assumptions, agreed the target operating model of the Combined Group, completed a detailed integration plan across the Combined Group's business, and completed the principal elements of the restructuring of the Combined Group which will include all senior management appointments, reporting structures and operational and executive authority limits, as well as changes to key Combined Group policies and processes. The latter will include financial reporting, planning and budgetary processes, compensation, treasury and liquidity management policies, sustainability practices and reviewing the scope of internal audit and risk registers.

The Costain Directors and the Proposed Directors have reviewed carefully the business and prospects of, and the consequent investment required in, the Combined Group following the Merger becoming Effective, as well as the expected synergy benefits and associated costs of achieving the same. After taking into account the envisaged synergy benefits, the Merger is expected to be double digit earnings enhancing1 for Costain for the financial year ending 31 December 2014.

5. Information relating to Costain

Costain is one of the UK's leading tier one engineering solutions providers. Costain delivers integrated consulting, project delivery and operations and maintenance services, focused on meeting its customers' needs in the following areas:

• Infrastructure incorporates activities in the highways, rail, airports and power sectors; and
• Natural Resources services the water, hydrocarbons and chemicals, nuclear process and waste sectors.

In addition to the two divisions listed above, Costain has a non-core 50% participation in a land development joint venture in Spain whose assets include land held for development, two golf courses and a 600-berth marina.

¹ Before amortisation of acquired intangibles, employment related deferred consideration and integration costs.

Current trading, trends and prospects

On 6 March 2013, Costain announced its preliminary results for the financial year ended 31 December 2012. The highlights of the preliminary results are summarised below:

• Underlying profit from operations up 4% to £25.1 million (2011: £24.1 million)
• Increase of 16% in adjusted profit before tax to £29.5 million (2011: £25.5 million)
• Adjusted basic earnings per share up 33% to 41.4 pence (2011: 31.1 pence), reflecting increased profits and a non-recurring tax timing benefit
• £105.7 million year-end net cash balance and average month-end cash balance of £103.4 million
• High quality forward order book of £2.4 billion, in excess of 90% from repeat orders including new awards and extensions to existing contracts (2011: £2.5 billion)
• Increase to over £700 million of revenue secured for 2013 as at 31 December 2012 (2011: over £650 million secured for 2012)
• Recommended increase in dividend for the sixth successive year, by 7.5% to 10.75 pence (2011: 10.0 pence)

There has been no significant change in the financial or trading position of Costain since 31 December 2012.

6. Information on May Gurney

May Gurney is a support services company headquartered in Norwich, United Kingdom. May Gurney works with its clients in the public and regulated sectors to design and deliver a wide range of essential front-line services.

The principal activities of the May Gurney Group are:

Public Sector Services:

• Highways Services May Gurney is a leading highways maintenance services provider for local authorities, maintaining, through long-term contracts, almost 31,500 kilometres of roads and more than 500,000 street lights and illuminated road signs across the UK;
• Environmental Services May Gurney is the fourth largest provider of municipal waste collection services in the UK covering 2.4 million households across more than 15 local authorities; and
• Fleet & Passenger Services May Gurney is one of the UK's leading providers of end-to-end fleet management and passenger services to local authorities, managing over 6,000 specialist vehicles.

Regulated Sector Services:

• Utility Services May Gurney delivers utility maintenance and asset enhancement services in water, gas, power and telecommunications across the UK;
• Rail Services May Gurney works in long-term partnerships with its client, Network Rail, to deliver maintenance and refurbishment works on rail structures, rail property and in signalling, and it also works with Nexus, the Tyne and Wear Metro; and
• Waterways Services May Gurney plays an important role in the regeneration, maintenance and renaissance of the UK's waterways network.

Current trading, trends and prospects

For the year ended 31 March 2012, May Gurney reported revenues of £695.3 million, operating profit of £21.0 million, profit before tax of £19.3 million and basic earnings per share of 20.52 pence. May Gurney's operating profit before amortisation and non-recurring items for the year ended 31 March 2012 was £30.1 million and underlying earnings per share was 29.47 pence. As at 30 September 2012, May Gurney had gross assets of £332.9 million.

On 4 December 2012, May Gurney announced its results for the half year ended 30 September 2012, which contained the following statement from the Chairman of May Gurney with regard to current trading, trends and prospects:

"May Gurney's first-half performance was in line with our revised expectations. We have taken steps to reinforce commercial disciplines and the plans we put in place to address the operational issues we announced in September are on track. As expected, the process to resolve the two MaGOSTM environmental services contracts is complex, and will continue well into next year.

We continue to target resilient, maintenance-focused revenue streams for essential services by developing long-term relationships with our clients and local communities. Our strong commercial market positions are reflected by the fact that we have secured more than £314 million of business in the first-half. Our forward order book has been maintained at £1.5 billion, with a further £1.7 billion in potential contract extensions, and our bidding pipeline stands at approximately £4 billion.

May Gurney is focused on delivering a solid future performance. Whilst mindful of the challenging market, we look forward to further progress in the second half and remain on course to meet our revised expectations for the full year".

On 19 February 2013, May Gurney announced that MSWSP, a partnership between May Gurney and WSP, had been selected as preferred bidder for Suffolk County Council's Highway Services contract valued at up to £200 million over five years, with the possibility of extension to ten years.

There has been no significant change in the financial or trading position of May Gurney since 30 September 2012, being the end of the last financial period for which interim financial information on May Gurney has been published.

In May Gurney's interim results announcement for HY2013, made on 4 December 2012, May Gurney set out details regarding underperforming MaGOSTM contracts. Since that date, May Gurney has continued to take actions to drive operational efficiencies and profitability on those MaGOSTM contracts and has remained in close dialogue with the relevant contract counterparties with the aim of improving the financial performance of those contracts. Whilst progress has been made, the MaGOSTM contracts as a whole will, as expected, incur a significant loss for the year ending 31 March 2013 and much remains to be achieved in order to return the financial performance of the underperforming contracts to an acceptable level. The Board of May Gurney, in its assessment of the MaGOSTM contracts as part of the ongoing May Gurney business, does not consider that a provision for future losses on those contracts is required at this time. As previously stated by May Gurney, this is a matter that is reviewed regularly by the Board of May Gurney.

The terms of Costain's offer for May Gurney allow for the possibility that a significant provision may be required to be taken by the Combined Group and, if so, recorded as a purchase price accounting adjustment.

7. Financial effects of the Merger

Post synergies, the Merger is expected to be double digit earnings enhancing1 for Costain for the financial year ending 31 December 2014.

On a pro forma basis and assuming the Merger becomes Effective on 6 June 2013, the Combined Group will have net assets of approximately £195 million (based on the net assets of Costain as at 31 December 2012 and May Gurney as at 30 September 2012) as more fully described in Part VIII of this document.

Following completion of the Merger, the Board of the Combined Group will consider carefully the fair value of the net assets acquired. The terms of Costain's offer for May Gurney allow for the possibility that a significant provision may be required to be taken by the Combined Group and, if so, recorded as a purchase price accounting adjustment. Costain believes that any such purchase price accounting adjustment could be up to approximately £30 million.

As at the close of business on 25 March 2013, the last Business Day prior to the publication of this document, the Combined Group would have had a combined market capitalisation of approximately £378 million.

¹ Before amortisation of acquired intangibles, employment-related deferred consideration and integration costs.

8. Irrevocable undertakings

Irrevocable undertakings from May Gurney Shareholders

The May Gurney Directors who hold interests in May Gurney Shares have irrevocably undertaken to vote, or procure the vote, in favour of the Scheme at the Court Meeting and the Special Resolution to be proposed at the May Gurney General Meeting (or, in the event that the Merger is implemented by way of a Merger Offer, to accept, or procure the acceptance of, the Merger Offer) in respect of a total of 61,865 May Gurney Shares, representing, in aggregate, approximately 0.09% of May Gurney's issued share capital.

Costain has also received irrevocable undertakings to vote in favour of (or to return Forms of Proxy voting in favour of) the Merger at the Court Meeting and the Special Resolution to be proposed at the May Gurney General Meeting (or, in the event that the Merger is implemented by way of a Merger Offer, to accept the Merger Offer) from David and Wendy Sterry (acting as trustees of various trusts), Artemis Investment Management LLP, Polar Capital LLP, Invesco Asset Management Limited and May Gurney Group Trustees Limited (acting as trustee of the May Gurney Group Limited Employee Share Ownership Trust) in respect of a total of 19,163,816 May Gurney Shares, representing, in aggregate, approximately 27.28% of May Gurney's issued share capital.

In addition, Costain has received a letter from Aviva Investors Global Services Limited (in its capacity as investment manager for certain clients who hold May Gurney Shares) confirming its intention to vote, or to procure the vote, in favour of the Scheme or accept, or procure the acceptance of, the Merger Offer, as the case may be, in respect of 3,623,051 May Gurney Shares, representing, in aggregate, approximately 5.16% of May Gurney's issued share capital.

Costain has therefore received irrevocable undertakings and a letter of intent in respect of a total of 22,848,732 May Gurney Shares, representing, in aggregate, approximately 32.53% of May Gurney's issued share capital.

Irrevocable undertakings from Costain Shareholders

The Costain Directors who hold interests in Costain Shares have irrevocably undertaken to vote in favour of the resolutions to be proposed at the Costain General Meeting to approve the Merger and related matters in respect of a total of 368,264 Costain Shares, representing, in aggregate, approximately 0.56% of Costain's issued share capital.

In addition, Costain has also received irrevocable undertakings to vote in favour of the resolutions to be proposed at the Costain General Meeting to approve the Merger and related matters from UEM Builders Berhad and Mohammed Adbulmohsin Al Kharafi & Sons For General Trading, General Contracting and Industrial Structures W.L.L. in respect of a total of 27,600,340 Costain Shares, representing, in aggregate, approximately 42.11% of Costain's issued share capital.

Costain has therefore received irrevocable undertakings, inter alia, to vote in favour of the resolutions to be proposed at the Costain General Meeting to approve the Merger and related matters in respect of a total of 27,968,604 Costain Shares, representing, in aggregate, approximately 42.67% of Costain's issued share capital.

9. Financing arrangements of the Combined Group

The Company has reached agreements with Abbey National Treasury Services PLC, HSBC Bank Plc, The Royal Bank of Scotland plc, and Lloyds TSB Bank plc to provide £140 million by way of debt facilities to the Combined Group conditional upon the Merger becoming Effective.

10. Management, employees and locations of business

It is proposed that the Board of the Combined Group, Costain May Gurney PLC, following the Merger becoming effective would comprise:

• David Allvey, the current chairman of Costain, who would be the Chairman;
• Baroness Margaret Ford, the current chairman of May Gurney, who would be the Deputy Chairman;

• Andrew Wyllie, the current CEO of Costain, who would continue in that role;

• Tony Bickerstaff, the current Finance Director of Costain, who would continue in that role;

• Ishbel Macpherson, currently the senior independent director of May Gurney, who would be the Senior Independent Director; and
• Mike Alexander, Jane Lodge, James Morley, and Samer Younis, all current Directors of Costain, and Willie MacDiarmid and Andrew Walker, both current Directors of May Gurney, who would be Non-executive Directors.

The Combined Group will have a proven management team to be led by Andrew Wyllie and Tony Bickerstaff. The Executive Committee of the Combined Group will be drawn from the management teams of both Costain and May Gurney. The senior management structure of the Combined Group will be established with a view to ensuring that the Combined Group benefits from the best skills and experience of both companies.

Costain and the Proposed Directors attach great importance to the skills and experience of the existing management and employees of Costain and May Gurney and believe that there will be greater opportunities within the Combined Group.

The Combined Group's headquarters and registered office will be located at Costain's office in Maidenhead. May Gurney's office in Trowse in Norfolk will be retained as a shared services centre and the operational office for the Combined Group's hub in East Anglia.

Costain has given assurances to the May Gurney Directors that, following completion of the Merger, the existing employment rights of May Gurney's employees will be fully safeguarded.

11. Further details of the Merger

It is intended that the Merger will be effected by a Court-sanctioned scheme of arrangement between May Gurney and the Scheme Shareholders under Part 26 of the Companies Act. The Scheme will result in Costain becoming the owner of the whole of the issued and to be issued share capital of May Gurney.

Under the Scheme, the Merger is to be achieved by the cancellation of the Scheme Shares held by Scheme Shareholders and the application of the reserve arising from such cancellation in paying up in full a number of new May Gurney Shares (which is equal to the number of Scheme Shares cancelled) and issuing the same to Costain in consideration for which Scheme Shareholders will receive consideration on the basis set out in paragraph 2 of this letter.

The implementation of the Scheme will be subject to the Conditions referred to below and to be included in the Scheme Document.

To become effective, the Scheme requires (i) the approval at the Court Meeting by a majority in number of the Scheme Shareholders present and voting (and entitled to vote), either in person or by proxy, representing not less than 75% of the Scheme Shares held by such Scheme Shareholders and (ii) the passing of the Special Resolution at the May Gurney General Meeting by May Gurney Shareholders representing at least 75% of the votes cast at the May Gurney General Meeting (either in person or by proxy). The May Gurney General Meeting will be held immediately after the Court Meeting. In respect of the Special Resolution at the May Gurney General Meeting, May Gurney Shareholders will be entitled to cast one vote for each May Gurney Share held.

Following the Court Meeting and the May Gurney General Meeting, the Scheme must be sanctioned by the Court at the Scheme Court Hearing and the associated Capital Reduction must be confirmed by the Court. The Scheme will only become effective once an office copy of the Scheme Court Order, an office copy of the Reduction Court Order and the Statement of Capital are delivered to the Registrar of Companies.

Upon the Scheme becoming Effective, it will be binding on all Scheme Shareholders, irrespective of whether or not they attended or voted at the Court Meeting and the May Gurney General Meeting and the CREST accounts of May Gurney Shareholders who hold their May Gurney Shares in uncertificated form will be credited with the New Costain Shares they will receive in consideration on the Effective Date and share certificates in respect of the New Costain Shares that May Gurney Shareholders who hold their May Gurney Shares in certificated form will receive in consideration will be despatched by Costain to Scheme Shareholders no later than 14 days after the Effective Date.

The Scheme Document will include full details of the Scheme, together with notices of the Court Meeting and the May Gurney General Meeting and the expected timetable, and will specify the actions to be taken by Scheme Shareholders. The Scheme Document, including the Scheme and notices of the Court Meeting and the May Gurney General Meeting, will be sent to May Gurney Shareholders as soon as reasonably practicable.

The Scheme will be governed by English law. The Scheme will be subject to the applicable requirements of the City Code, the Panel, the London Stock Exchange, the AIM Rules and the UK Listing Authority.

12. Fractional entitlements

Fractions of New Costain Shares will not be allotted or issued pursuant to the Scheme. Fractional entitlements to New Costain Shares will be aggregated and sold in the market and the net proceeds of sale distributed pro rata to persons entitled thereto.

However, individual entitlements to amounts of less than £5 will not be paid to persons accepting the Merger but will be retained for the benefit of Costain.

13. Conditions of the Merger

The Merger is conditional, amongst other things, upon:

• 13.1 a resolution to approve the Scheme being passed by a majority in number of the Scheme Shareholders who are present and voting at the Court Meeting, either in person or by proxy, representing not less than three-fourths in value of the Scheme Shares voted by those Scheme Shareholders;
• 13.2 the Special Resolution necessary to implement the Scheme and to approve the related Reduction of Capital being passed by the requisite majority of May Gurney Shareholders at the May Gurney General Meeting;
• 13.3 the Scheme being sanctioned (with or without modification, on terms agreed by Costain and May Gurney), and the related Capital Reduction being confirmed, by the Court;
• 13.4 copies of each of the Court Orders (together with the Statement of Capital) having been delivered to the Registrar of Companies and, if so ordered by the Court, the Reduction Court Order having been registered by the Registrar of Companies together with the Statement of Capital;
• 13.5 the OFT having indicated, in terms reasonably satisfactory to Costain, that it does not intend to refer the Merger (or any matter arising from or relating to the Merger) to the Competition Commission;
• 13.6 the resolutions to be proposed at the Costain General Meeting: (i) to approve the transaction as a 'class 1 transaction' under the Listing Rules; (ii) to grant authority to the Costain Directors to allot the New Costain Shares; (iii) to increase the fees permitted to be paid to directors under Costain's articles of association; and (iv) to permit Costain and its subsidiaries to incur borrowings in excess of the borrowing limit set out in Costain's articles of association having been passed, in each case, by the requisite majority of Costain Shareholders; and
• 13.7 the UK Listing Authority having acknowledged to Costain or its agent (and such acknowledgement not having been withdrawn) that the application for the admission of the New Costain Shares to the Official List has been approved and (subject to satisfaction of any conditions to which such approval is expressed) will become effective as soon as a dealing notice has been issued by the UK Listing Authority and the London Stock Exchange having acknowledged to Costain or its agent (and such acknowledgement not having been withdrawn) that the New Costain Shares will be admitted to trading.

Costain reserves the right to waive in whole or in part, the Condition summarised in paragraph 13.5 above.

The notice convening the Costain General Meeting, is located at the end of this document on page 307. The Costain General Meeting is scheduled for 8 May 2013 at which the approval of Existing Costain Shareholders will be sought.

14. Cancellation of admission to trading of May Gurney Shares on AIM and re-registration

On the Effective Date, May Gurney will become a wholly owned subsidiary of Costain (to be renamed 'Costain May Gurney PLC').

Prior to the Scheme becoming effective, a request will be made to the London Stock Exchange to cancel trading in May Gurney Shares on AIM on the first Business Day following the Effective Date.

Share certificates in respect of May Gurney Shares will cease to be valid and should be destroyed on the first Business Day following the Effective Date.

In addition, entitlements held within the CREST system to May Gurney Shares will be cancelled on the first Business Day following the Effective Date.

As soon as possible after the Effective Date, it is intended that May Gurney will be re-registered as a private limited company.

15. Overseas Shareholders

United States

The New Costain Shares have not been, and will not be, registered under the US Securities Act and will be issued in reliance on the exemption from the registration requirements of the US Securities Act provided by section 3(a)(10) of that Act. To qualify for the exemption from the registration requirements of the US Securities Act provided by section 3(a)(10) of that Act with respect to the New Costain Shares issued pursuant to the Scheme, Costain and May Gurney will advise the Court that Costain will rely on the section 3(a)(10) exemption based on the Court's sanctioning of the Scheme, which will be relied upon by Costain as an approval of the Scheme following a hearing on its fairness to Scheme Shareholders at which hearing all such shareholders will be entitled to attend in person or through counsel to support or oppose the sanctioning of the Scheme and with respect to which notification has been or will be given to all such May Gurney Shareholders.

In certain circumstances, the US Securities Act imposes restrictions on the resale in the United States of New Costain Shares received pursuant to the Scheme. The restrictions on resale imposed by the US Securities Act will depend on whether the recipients of New Costain Shares are "affiliates" of Costain or the Combined Group. For purposes of the US Securities Act, an "affiliate" is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, Costain or the Combined Group. "Control" means the possession, direct or indirect, of the power to direct or cause direction of the management and policies of an issuer, whether through the ownership of voting securities, by contract or otherwise. Whether a person is an affiliate of a company for purposes of the US Securities Act depends on the circumstances. Scheme Shareholders who are not affiliates of Costain or the Combined Group after completion of the Scheme and were not affiliates of Costain during the 90 days prior to the completion of the Scheme may freely resell in the United States the New Costain Shares received pursuant to the Scheme. Any Scheme Shareholder who is or becomes an affiliate of Costain or the Combined Group may not resell in the United States the New Costain Shares received pursuant to the Scheme except in transactions permitted by the resale provisions of Rule 144 promulgated under the US Securities Act.

The New Costain Shares will not be registered under the securities laws of any state of the United States, and will be issued in the United States pursuant to the Scheme in reliance on available exemptions from such state law registration requirements.

The New Costain Shares have not been, and will not be, listed on a US securities exchange or quoted on any inter-dealer quotation system in the United States. Costain does not intend to take any action to facilitate a market in New Costain Shares in the United States. Consequently, Costain believes that it is unlikely that an active trading market in the United States will develop for the New Costain Shares.

Costain does not intend to register any such New Costain Shares or part thereof in the United States or to conduct a public offering of the New Costain Shares in the United States.

Neither the SEC nor any other US federal or state securities commission or regulatory authority has approved or disapproved of the New Costain Shares or passed an opinion upon the accuracy or adequacy of this document. Any representation to the contrary is a criminal offence in the United States.

Other jurisdictions

This document and any accompanying documents are not being made available to Overseas Shareholders with registered addresses in any Restricted Jurisdiction and may not be treated as an invitation to subscribe for any New Costain Shares by any person resident or located in such jurisdictions or any other Restricted Jurisdiction.

The New Costain Shares have not been, and will not be, registered under the applicable securities laws of any Restricted Jurisdiction. Accordingly, the New Costain Shares may not be offered, sold, delivered or transferred, directly or indirectly, in or into any Restricted Jurisdiction to or for the account or benefit of any national, resident or citizen of any Restricted Jurisdiction. The implications of the Scheme for Overseas Shareholders may be affected by the laws of relevant jurisdictions. Such Overseas Shareholders should inform themselves about and observe any applicable legal requirements. Any person outside the UK who is resident in, or who has a registered address in, or is a citizen of, an overseas jurisdiction and who is to receive New Costain Shares pursuant to the Scheme should consult his or her professional advisers and satisfy himself or herself as to the full observance of the laws of the relevant jurisdiction in connection with the Scheme, including obtaining any requisite governmental or other consents, observing any other requisite formalities and paying any issue, transfer or other taxes due in such jurisdiction.

This document has been prepared to comply with English law and the Listing Rules, and the information disclosed may not be the same as that which could have been disclosed if this document had been prepared in accordance with the laws of jurisdictions outside the United Kingdom.

THIS DOCUMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY. NONE OF THE SECURITIES REFERRED TO IN THIS DOCUMENT SHALL BE SOLD, ISSUED OR TRANSFERRED IN ANY JURISDICTION IN CONTRAVENTION OF APPLICABLE LAW.

Overseas Shareholders should consult their own legal and tax advisers with respect to the legal and tax consequences of the Scheme in their particular circumstances.

16. Dividends

Conditional upon the Merger becoming Effective, May Gurney Shareholders will be entitled to receive a second interim dividend of 5.6 pence per May Gurney Share. The May Gurney Second Interim Dividend will be payable after the Effective Date to May Gurney Shareholders on the register of members of May Gurney at the Scheme Record Time. In the event that the Merger becomes Effective, no final dividend will be paid in respect of the May Gurney financial year ending 31 March 2013.

Reflecting another successful year and Costain's continuing confidence in the long-term prospects for the Costain Group, the Board of Costain has recommended, subject to Costain Shareholder approval, a final dividend of 7.25 pence per share (2011: 6.75 pence) in respect of the year ended 31 December 2012, a 7.4% increase in the final dividend over the prior year and the sixth successive year of increase. If approved, the final dividend will be paid on 24 May 2013 to Costain Shareholders on the register of members as at the close of business on 19 April 2013. This would bring the total for the full year to 10.75 pence per share (2011: 10.00 pence), an increase of 7.5% over the prior year. New Costain Shares to be issued to May Gurney Shareholders pursuant to the Merger will not carry any entitlement to the Costain final dividend in respect of the year ended 31 December 2012.

It is expected that interim dividends of the Combined Group for the period to June will be declared in August and paid in October and final dividends for the period to December will be declared in March and paid in May of the following year. Assuming that the Merger will be completed in early June 2013, as currently anticipated, the first dividend in relation to the Combined Group is expected to be declared at the time of the interim results for the half year ending 30 June 2013.

The Board of the Combined Group will decide the absolute level of any future dividends taking into account the Combined Group's underlying earnings, cash flows, capital investment plans and the prevailing market outlook.

It is also intended that the Combined Group will offer a scrip dividend scheme for both annual and interim dividends, allowing for the allotment of ordinary shares in lieu of cash dividends to those shareholders who elect to participate.

Costain has an existing dividend-matching arrangement with the Costain Pension Scheme. Following completion of the Merger as currently envisaged, Costain has agreed with the Costain Pension Trustee to match 53% of any dividends paid by Costain May Gurney PLC to shareholders with an equivalent cash contribution to the Costain Pension Scheme, provided that the minimum such annual dividend matching payment to the scheme is at least £5.4 million, pending finalisation of the full actuarial valuation of the Costain Pension Scheme as at 31 March 2013.

17. The New Costain Shares

The New Costain Shares will be issued credited as fully paid and will rank pari passu in all respects with the Existing Costain Shares, save that they will not carry the right to receive any dividend declared in respect of the financial year ended 31 December 2012. The New Costain Shares will be created under the Companies Act and the legislation made thereunder, will be issued in registered form and will be capable of being held in both certificated and uncertificated form.

The other rights attached to the New Costain Shares are set out in section 3 of Part XI (Additional Information) of this document. Approval of the creation and issue of the New Costain Shares will be sought at the Costain General Meeting. A summary of the resolutions to be proposed at the Costain General Meeting in connection with the creation and issue of New Costain Shares is set out in section 19 below.

18. Settlement, listing and dealings of New Costain Shares

Applications will be made to the UK Listing Authority for the New Costain Shares to be admitted to the Official List with a premium listing and to the London Stock Exchange for the New Costain Shares to be admitted to trading on the London Stock Exchange's main market for listed securities ('Admission'). It is expected that Admission will become effective and that dealings for normal settlement in the New Costain Shares will commence on the London Stock Exchange at or shortly after 8.00am on the Effective Date.

The Existing Costain Shares are already admitted to the premium listing segment of the Official List and to trading on the London Stock Exchange's main market for listed securities and to CREST. It is expected that all of the New Costain Shares, when issued and fully paid, will be capable of being held and transferred by means of CREST. The New Costain Shares will trade under ISIN GB00B64NSP76.

19. General Meeting

The notice convening the Costain General Meeting, at which the Resolutions will be proposed, is set out at the end of this document, at page 307. The full text of the Resolutions is set out in the Notice of General Meeting found at the end of this document, at page 307.

In addition to the Conditions to the Scheme described above, the implementation of the Merger is conditional upon the passing of the Resolutions.

The Resolutions

All four Resolutions will be proposed as ordinary resolutions requiring a simple majority of votes in favour. The Merger will not proceed if the Resolutions are not passed.

Resolution 1

Resolution 1 proposes that, subject to resolutions 2, 3 and 4 being passed, the Merger be approved and the Costain Directors be authorised to implement the Merger.

Resolution 2

Resolution 2 proposes that the Costain Directors be authorised to allot the New Costain Shares in connection with the Merger up to an aggregate nominal amount of £30,000,000.

The allotment authority represents approximately 91.54% of the total issued ordinary share capital of Costain as at 25 March 2013 (being the latest practicable date prior to the publication of this document). This authority will expire on the fifth anniversary of the date of the resolution and is in addition to any subsisting authorities to allot shares in Costain. As at 25 March 2013 (being the latest practicable date prior to the publication of this document), Costain held no treasury shares.

Resolution 3

Currently, the total fees paid to all of the Costain Directors must not exceed £500,000 as set out in article 86 of the Costain Articles. Resolution 3, if approved, will sanction an increase in permitted fees to an appropriate level taking into account the overall fees payable to the Proposed Directors joining the board of the Combined Group following the Merger becoming Effective.

Resolution 3 proposes that the limit on the total fees paid to all Costain Directors be increased from £500,000 a year to £650,000 a year.

Resolution 4

Currently, under the Costain Articles, the Costain Group has the power to borrow up to an amount of £90,000,000 although borrowings above that amount are permitted if sanctioned in advance by an ordinary resolution of the Costain Shareholders. Resolution 4, if approved, will sanction by such ordinary resolution an increase in permitted borrowings of up to £210,000,000 above the £90,000,000 threshold, which is considered by the Costain Board to be an appropriate threshold for the Combined Group taking into account the current borrowings of the May Gurney Group. The borrowing limit in the Costain Articles does not include bonding facilities of the Costain Group and, from the Effective Date, the Combined Group.

20. Actions to be taken

Existing Costain Shareholders will find enclosed with this document a blue Form of Proxy for use at the Costain General Meeting. You are requested to complete and sign the blue Form of Proxy whether or not you propose to attend the Costain General Meeting in person in accordance with the instructions printed on it so as to be received by Costain's registrar, Equiniti, at the return address on the enclosed envelope, as soon as possible, and in any event no later than 10.00 am on Monday 6 May 2013.

If you hold Existing Costain Shares in CREST you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to Costain's agent (ID RA19) in accordance with the procedures set out in the notice convening the Costain General Meeting at the end of this document at page 309. The completion and return of a blue Form of Proxy (or the electronic appointment of a proxy) will not preclude you from attending and voting in person at the Costain General meeting or any adjournment thereof, if you wish to do so and are so entitled.

21. Further information

Your attention is drawn to the further information set out in Part II to Part XI (inclusive) of this document and, in particular, to the risk factors on pages 18 to 25 of this document.

22. Recommendation and voting intentions

The Costain Directors, who have received financial advice from Rothschild, consider the terms of the Merger to be fair and reasonable. In providing its advice, Rothschild has taken into account the commercial assessments of the Costain Directors.

The Costain Board believes the Merger and the Resolutions to be in the best interest of Costain and Costain Shareholders as a whole. Accordingly, the Costain Board unanimously recommends that Costain Shareholders vote in favour of the resolutions to be proposed at the Costain General Meeting to approve the Merger and related matters, as the Costain Directors who hold or are beneficially entitled to Costain Shares have irrevocably undertaken to do in respect of Costain Shares representing in aggregate approximately 0.56% of Costain's issued share capital in issue on 25 March 2013 (being the latest practicable date prior to the publication of this document).

Yours faithfully,

David Allvey Chairman

PART II INFORMATION ON COSTAIN

The selected historical financial information and other historical financial information in relation to the Company referred to in this Part II has, unless otherwise stated, been extracted without material adjustment from the audited historical financial information of the Company for the financial years ended 31 December 2009, 31 December 2010 and 31 December 2011 which has been prepared in accordance with IFRS as well as the unaudited preliminary report for the financial year ended 31 December 2012 and is set out in Part V of this document.

Investors should read the whole of this document and the documents incorporated herein by reference and should not just rely on the financial information set out in this Part II.

1. Introduction

Costain is one of the UK's leading engineering solutions providers, delivering 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, Power and Airports) and Natural Resources (Water, Hydrocarbons & Chemicals, Nuclear Process and Waste).

The Group's 'Choosing Costain' 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.

2. History

The Costain business was founded in 1865 in Liverpool. The business was originally involved in construction and later expanded into housing development, building houses throughout South East England during the 1920s and 1930s. It later expanded into civil engineering and international work in the Middle East in the 1930s and after the Second World War in central and southern Africa. The Company expanded rapidly in the 1960s and into the 1970s through its presence in the Middle East; and during the same period diversified into coal-mining and property in the UK, Australia and the US. In 1971, the Company became the first UK contractor to win the Queen's Award for Export Achievement. The Costain Group has been involved in the construction of some of the world's major infrastructure projects including the Thames Barrier, the Channel Tunnel, the airport platform in Hong Kong, Tsing Ma Bridge and the St Pancras Station redevelopment.

In recent years, the Company has refocused on the UK market and on meeting national needs for improved highways, railways and airports and improvements in the water, hydrocarbon, chemicals, nuclear process and waste sectors.

Costain Group PLC, the ultimate holding company of the Costain Group, was incorporated and registered in England and Wales on 12 October 1978 as a company limited by shares under the original name Trushelfco (No. 192) Limited, which was subsequently changed to Costain Group Limited and eventually to Costain Group PLC. It is headquartered in Maidenhead, Berkshire.

3. Business Overview

As a result of the implementation of its 'Choosing Costain' strategy, the Group is one of the UK's leading engineering solutions providers, delivering integrated consulting, project delivery and operations and maintenance services to major blue-chip customers in targeted market sectors.

Costain focuses on major customers who are continuing to invest billions of pounds in capital, operations and maintenance contracts to address essential national infrastructure requirements across the transport, energy, water and waste sectors.

For further information on the risks relating to the Company's existing business your attention is drawn to the 'Risk Factors" section of this document.

Until November 2012, the Company was organised into three core business divisions (Environment, Infrastructure and Energy & Process) and one non-core business division (Land Development). The operations of the three core divisions are predominantly based in the UK, with some operations in the rest of the world, whereas the activities of Land Development are based in Spain.

In November 2012, the Group announced the formation of the new Natural Resources operating division, encompassing the Water, Hydrocarbons & Chemicals, Nuclear Process and Waste sectors, combining most of the existing Energy & Process and Environment Divisions and some support service activities previously in Infrastructure. The Natural Resources division operates alongside the Infrastructure division which now also includes all power activities as well as the Group's activities in the highways, rail, and airports sectors. The new divisional structure took effect from 1 January 2013. This new divisional structure is intended to enable the Group to align itself more closely with its customers' evolving requirements and to combine further its front end process engineering, project delivery, and operations capability into an integrated service for customers.

In the year ended 31 December 2012, revenue, including the Group's share of joint ventures and associates, for the year was £934.5 million (2011: £986.3 million). Costain's focus on higher margin activities led to an increase of 4% in Group underlying profit from operations of £25.1 million (2011: £24.1 million). Adjusted profit before tax increased by 16 % to £29.5 million (2011: £25.5 million). Adjusted basic earnings per share were up 33% to 41.4 pence (2011: 31.1 pence), reflecting increased profits and a non-recurring tax timing benefit.

4. Operating divisions

4.1 Environment

The Environment division now forms part of the Natural Resources division and focuses on the water and waste markets as well as the specific requirements of a number of long-term customers. Customer spending in this market is underpinned by regulatory and legislative requirements and is expected to grow over the medium and long-term as the market in the UK undergoes major change.

In the water sector, the Costain Group is engaged in a number of AMP5 framework contracts with Northumbrian Water, Severn Trent, Southern Water, United Utilities and Welsh Water. In 2012, the Group was also awarded a contract by Severn Trent Water to replace its largest covered service reservoir sited near Ambergate in Derbyshire.

In the waste sector, the Company is currently completing the PFI contract for the Greater Manchester Waste Disposal Authority. The majority of the facilities on the scheme, which utilises a range of sophisticated waste management technologies, have been handed over, with the remainder still in an extended commissioning phase and commercial discussions regarding completion continuing.

Revenue (including share of joint ventures and associates) in the division for the year ended 31 December 2012 was £232.6 million (2011: £375.4 million), with profit from operations, including the profit on PFI transfers, of £15.0 million (2011: £17.5 million). The reduction in revenue has been influenced by Costain's strategic priority on other activities in the Group. Profit from operations in this division declined significantly in the period following the one-off margin benefits from the successful close-out of a number of legacy issues within Costain's allowances in the comparative period and as a result of additional costs to complete a project. The division finished the year ended 31 December 2012 with a forward order book of £0.6 billion (2011 £0.8 billion), with the reduction again reflecting the Group's strategic focus on other opportunities.

4.2 Energy & Process

The Energy & Process division now forms part of the Natural Resources division and undertakes work in the hydrocarbons and chemicals and nuclear process sectors. The division previously undertook work in the power sector but, as set out above, these now form part of the Infrastructure division.

In the hydrocarbons and chemicals sector, the Company is continuing to carry out projects for a number of customers both in the UK and overseas. The Company has benefitted greatly from ClerkMaxwell, acquired in 2011, which is enabling it to take advantage of a number of exciting opportunities in the upstream oil and gas service sector.

In 2012, the Costain Group also secured a three-year £60 million asset support contract, awarded by the Oil and Pipelines Agency, for the operation and maintenance of the Government Pipeline and Storage System. The additional support services capabilities afforded to the Costain Group by the acquisition of Promanex in August 2011, were instrumental in securing this contract.

In the nuclear process sector, Costain continued to make good progress during 2012 in its various projects across the UK, including Evaporator D at Sellafield, one of the UK's largest nuclear decommissioning projects, which has seen the delivery of further modules to site during 2012. The Group was also appointed, as one of two suppliers, to the Magnox framework contract, for the delivery of construction, infrastructure and maintenance projects across all ten sites which are operated by Magnox on behalf of the Nuclear Decommissioning Authority. The project work which Costain will deliver includes the design, construction and maintenance of permanent buildings and structures, infrastructure maintenance and extension works incorporating construction, civil engineering structures and ground works projects.

Revenue (including share of joint ventures and associates) in the division for the year ended 31 December 2012 was £137.7 million (2011: £143.4 million) with adjusted profit from operations of £2.5 million (2011: £4.7 million). During 2012, profits in the division were impacted by the reduced revenue, higher business development costs, restructuring costs and additional costs to complete on two projects. The division finished 2012 with a forward order book of £178 million (2011: £215 million).

4.3 Infrastructure

The Infrastructure division incorporates activities in the highways, rail and airports sectors. Since January 2013, it also includes the power sector activities of the Company.

In Rail, during 2012, the Group, in joint venture, secured its sixth contract with Crossrail for the construction and fit out of the intermediate shafts and headhouses at Eleanor Street and Mile End Park in London, along with the connecting adits to the main running tunnels. Work is also progressing well on the major London Bridge Station redevelopment project for Network Rail, in which Costain is providing integrated services including design, construction, logistical and environmental operations whilst ensuring the station remains open throughout.

Costain continues to be a leading supplier to the Highways Agency and significant progress is being made with the large portfolio of professional services, construction and maintenance contracts in which it is engaged for this customer. New contract awards during 2012 included the upgrade of the A8 Belfast to Larne carriageway for the Northern Ireland Roads Service, appointment to both lots of the Highways Agency Asset Support Framework and a four-year technology contract awarded by the Welsh Government for the maintenance of Road Network Communications and Tunnel Systems across Wales, involving the maintenance and fault repair of complex technology systems such as CCTV cameras, variable messaging signs (VMS), emergency telephones and traffic signals along major strategic routes. In February 2013, Costain was awarded, in joint venture with Skanska, the Crossrail contract to construct the main station works at Bond Street station, worth approximately £110 million.

The Riverside Resource Recovery Energy from Waste facility at Belvedere is now fully operational and the final account has been agreed.

The creation of the combined Natural Resources division in November 2012, which took effect from 1 January 2013, led to the power division being moved into the Infrastructure division. In the power division, the Group continues its work with the Energy Technologies Institute, developing carbon dioxide reduction technology for use in coal fired power stations, a critical factor in the UK's ability to meet its stated climate change targets.

Revenue (including share of joint ventures and associates) increased to £562.3 million (2011: £466.0 million) as investment in business development enabled the Group to take advantage of a number of major opportunities in the market. As a result, adjusted profit from operations rose to £26.1 million (2011: £10.2 million). The significantly improved profit performance reflects strong operating returns and additional gains on successfully completed and final accounted projects. The order book for the division has grown to £1.6 billion (2011: £1.5 billion) and the level of tendering activity remains high.

4.4 Land Development

Costain's non-core Land Development activity in Spain continued to be subject to challenging market conditions. Revenue was £1.9 million (2011: £1.5 million) and the loss after tax was £2.3 million (2011 £2.0 million). As anticipated, no significant land sales were completed in the year and Costain intends to continue its moratorium on development activity on its land-bank until the market improves and maximum shareholder value can be secured for the assets. Costain's activities during 2012 have been focused on its leisure businesses of golf courses and its 600 berth yacht marina adjacent to Gibraltar which has reported increased levels of activity during the year.

5. Key strengths

The Costain Directors believe that the key strengths of the Costain Group are:

5.1 Business model

The Costain Group's business is focused on targeting and working with blue chip customers in sectors whose spending activity is underpinned by strategic national needs, regulatory commitments or essential maintenance requirements. The Costain Directors continue to believe that, over the next decade, increased infrastructure investment will be primarily in the critical areas of transport, energy, water and waste where national needs are being addressed.

The Costain Group places strong strategic importance to the development of close partnerships with its customers. Sustaining this customer focus remains at the heart of the business and strategy.

5.2 'One Costain' approach

The Costain Directors believe that the operational model for Costain provides the business with sufficient agility to respond to and address changing market conditions. The Costain Group's 'one company' focus ensures that the business focuses on the opportunities which best meet the overall ambitions of the Costain Group thereby maximising the Costain Group's return on investment.

5.3 Broadened capabilities

The Costain Group is continuing to transform itself through the implementation of its 'Choosing Costain' strategy and is reinforcing its position as one of the UK's top tier one engineering solutions providers, with well-established positions in sectors such as highways, water and rail. The Costain Group is developing the skills, capabilities and service offering necessary to meet the changing needs of its major customers. These customers are increasingly expecting tier one suppliers to provide broad and bespoke solutions to meet their specific requirements by delivering an innovative service through larger and longer-term bundled contracts across engineering consultancy, construction, operations and maintenance.

5.4 Strong brand

The Costain Directors believe that the Costain brand is among the best known in its market place. The construction brand is known for its historical pedigree through delivery of complex construction projects and the involvement in the construction of some of the world's major infrastructure projects, including the Thames Barrier, the Channel Tunnel, the airport platform in Hong Kong, Tsing Ma Bridge and the St Pancras Station redevelopment.

5.5 Management

The Costain Group's management team is highly experienced and the Costain Directors believe its management team to be well regarded in the industry. Collectively, the Group's executive committee has over 241 years of experience in the industry. The core management team has formulated, executed and delivered a strategic plan that has helped the business into its current market position.

The Costain Group operates a management training programme, the intake of which have become some of the best managers working for the Costain Group today. Five members, representing 50% of the executive committee are alumni of the Costain Group's management training programme.

5.6 Responsible business

Core to the Costain Group's transformation and the value proposition to customers is the 'Costain Cares' initiative which places responsible, effective and collaborative stakeholder relationships at the core of the Costain Group's business operations.

For its people, customers, supply chain and local communities, the Costain Group encourages open, honest and respectful communication. The Costain Group believes in strong and long-lasting relationships that are mutually beneficial. The Costain Group also works with its stakeholders to protect and, where possible, enhance the natural environment, as well as developing skills for the future, delivering innovation, and supporting the growth of SMEs.

5.7 Innovation

The Costain Directors believe that by providing innovative solutions, the Costain Group is able to help its customers solve the problems they face. Key progress in the Costain Group's innovation include:

• 36 patents and patents pending (20 technology areas)
• Over £2 million deployed annually to support research and development
• Over £8 million directed Government investment in progress

6. Current strategic priorities

The Costain Group's current strategic aims are to seek to build on its market position as one of the UK's leading engineering solutions providers and to seek to deliver significant growth in its operational profit in the medium term. To achieve these aims, the Costain Group has built a strategy around developing strong customer relationships, greater scale and capability, underpinned by strong performance, cost competitiveness and innovation. Accordingly, the Costain Group's key current strategic priorities are:

• Customer focus Broadening services across the asset life-cycle, enhancing the quality of Costain's earnings and the value to its customers and the end user.
• Developing a management team Providing new solutions through insight and innovation requires a leadership team at all levels of the business closely aligned to the Company's customers needs and its ability to deliver these solutions.
• Operational efficiency To meet Costain's customers' needs it continues to focus on its cost base, ensuring that it is providing best value through implementing a 'lean' strategy throughout the business.
• Innovation The Company continues to invest significantly in innovation, research and technology that will provide new services to customers and address national needs where new markets are emerging.
• Operating responsibly Corporate responsibility is core to Costain's business. The Company is committed to delivering projects and services responsibly and sustainably, ensuring that it meets its customers' and society's needs while managing the social, environmental and economic impacts of its business.
• Partnerships Costain focuses on developing strategic partnerships to support the development of broader services and technology.

7. Long-term strategy

Costain continues to develop its 'Choosing Costain' strategy by broadening its offer and focusing on its customers by providing innovative and cost effective solutions to meet increasingly complex and large scale national needs. This strategy involves a drive, both organically and through acquisitions, to grow the business and to broaden the Company's services across engineering, consultancy, construction and operations and maintenance, delivering integrated consulting, project delivery and operations and maintenance services demanded by its customers. As part of this strategy, the Company announced the acquisitions of ClerkMaxwell in 2011, a front-end engineering and operations support services provider operating in the upstream oil and gas sector, and Promanex, an industrial support services business providing facilities management, installation, repair and maintenance and general asset management. Both companies have been successfully integrated and provide the Company with a broader range of services to offer its customers.

The 'Choosing Costain' strategy targets building new and extending existing long-term relationships with a range of major customers. These customers typically have committed long-term capital and operational spending plans. The Costain Board continues to believe that, over the next decade, expenditure will be primarily in the critical areas of transport, energy, water and waste, where ongoing national needs are being addressed. These areas provide a strong and sustainable pipeline of future investment to ensure energy security, the provision of a sustainable water supply, and creating key transport infrastructure capable of supporting vital economic growth. The Company's long-term strategy aims to ensure that Costain is best placed to take advantage of the significant opportunities provided by major customers who are continuing to invest in capital, operations and maintenance contracts to address essential national infrastructure requirements across the transport, energy, water and waste sectors.

8. Suppliers and Global Sourcing

Costain has focused on strengthening its supply chain, ensuring that the identified companies were sustainable businesses procured in a uniform and responsible manner, particularly in relation to industry recognised social and ethical trading standards/initiatives. Costain has also implemented an accreditation scheme for assessing the capabilities and values of a supplier. During 2012, the percentage of its strategic and preferred supplier base accredited to the scheme increased to 90%. An added benefit of implementing the scheme is the facility to track and analyse the percentage of suppliers that have achieved specific standards.

Costain monitors and measures its own performance biannually via 360-degree feedback reviews requested from the elected top 100 supply chain. The results are analysed to identify the formation of trends or cultures, which are addressed accordingly. In 2012, 203 reviews were received, which collectively gave Costain a performance review score of 79.7%.

Costain undertakes regular performance reviews with its supply chain, discussing issues such as supervision, competency, communication, teamwork, cost, quality, innovation, safety and environmental performance. Suppliers and project management are encouraged to conduct the performance review jointly to ensure the performance of Costain's supply chain is an accurate representation. This allows both parties to have an input. During 2012, 1,160 performance reviews were conducted on Costain's top 100 and other business critical supply chain members, resulting in an average score across the Group of 70% (2011: 64%). The number of suppliers achieving the 'Costain Blue' standard (a minimum score of 80% in an individual performance review) increased to 171 from 115 in 2011.

9. Employees

The average number of employees of the Costain Group for each of the previous four financial years was as follows:

Year ending
31 December 2009	4,003
31 December 2010	4,349
31 December 2011	4,159
31 December 2012	4,282

The figures above also included a number of employees in the Middle East, and the number of such employees at the year end of each of the previous four financial years was as follows:

Year ending
31 December 2009	1,281
31 December 2010	1,359
31 December 2011	1,366
31 December 2012	1,194

10. Property

The Costain Group operates from a number of freehold and leasehold properties in the United Kingdom. The Costain Group's principal properties are as follows:

Property location	Approximate area (sq. ft)	Property use	Tenure and approximate unexpired term (if applicable)	Lease rate (£) per annum
Block A, Costain House, Styal Road, Wythenshaw, Manchester	28267	Group offices	Leasehold1 (1 year)	410,000
Block B, Costain House, Styal Road, Wythenshaw, Manchester	28485	Group offices	Leasehold (1 year)	414,550
Block C, Costain House, Styal Road, Wythenshaw, Manchester	27731	Group offices	Leasehold (1 year)	393,100
Costain House, Vanwall Business Park, Maidenhead	37300	Group Head Office	Leasehold (12 years)	1,089,105
5th Floor, Salveson House, Blakies Quay, Aberdeen	3,470	Offices for Clerk Maxwell	Leasehold (3 years)	64,195
7th Floor, Salveson House, Blakies Quay, Aberdeen	3,470	Offices for Clerk Maxwell	Leasehold (3 years)	64,190
1st Floor and Basement, 10 Foster Lane, London, EC2	N/A	Offices and storage	Leasehold (9 years)	114,355

11. Environment

Costain's Environmental Management System ('EMS') is accredited to the international standard of environmental management ISO 14001:2004. The Group Environmental Policy Statement outlines Costain's intention to ensure it manages all its work and its impacts effectively, prevents pollution and continuously improves the operation and environmental management of its activities. Costain's commitment is to work with its customers and supply chain to, where possible: reduce its impact on climate change; conserve natural resources through effective waste management, minimising water consumption and sustainably sourcing materials; and protect and enhance the environment.

Costain remains committed to reducing its measured carbon emissions and, in 2012, demonstrated significant improvements in the management of climate change and its overall performance. The Company achieved external accreditation to the Achilles Certified Emissions Measurement and Reduction Scheme ('CEMARS'), accrediting its data from 2009-2011. This highlights Costain's ongoing dedication to accurate carbon emission reporting and disclosure, in addition to reducing its emissions. The CEMARS standard includes independent verification of the Company's data and a yearly review to ensure it continues to deliver reductions in emissions. Costain's method of reporting is in accordance with, and certified against, ISO 14064-1:2006 and is also in line with the Carbon Reduction Commitment Energy Efficiency Scheme reporting guidelines. As a result of this verification and increased accuracy in data the Company has reviewed and updated its climate change strategy and associated targets. Costain's restated target is to achieve a 55% reduction in carbon emission intensity by 2020, compared to 2009, and to work with its customers to provide them with low-cost low-carbon solutions.

Costain continues to focus on waste management and the reduction of waste produced from all its activities. Costain successfully met its 2012 target increasing the waste diverted from landfill to 93%. In 2008, the Company pledged its support to the Waste & Resources Action Programme ('WRAP') 'Halving Waste to Landfill' commitment, setting a target to achieve a 50% reduction in the total tonnes of construction, demolition and excavation waste the Company sends to landfill by 2012. In 2012, Costain achieved this target by reducing the total tonnes of waste it sent to landfill by 92% compared to 2008.

¹ This property is currently sub-let to MWB Business Exchange Ltd ("MWB"). MWB are paying a rent of £307,500 per annum and the sublease expires on 31 January 2014.

Costain is committed to minimising its impact on the environment by ensuring, where possible, that its activities do not result in damage and that it reduces its overall environmental incidents year on year. Costain ensures that all environmental incidents are reported and investigated to capture lessons learnt and prevent recurrence. Costain's reported environmental incidents and the associated environmental incident frequency rate ('EIFR') increased in 2012. In 2011, Costain reviewed its definition of environmental incidents to align its reporting procedure with that of its customers and the regulator and has continued to strongly promote the reporting of incidents. Whilst Costain's reported EIFR also increased in 2012 compared to 2011, this can be attributed to an increased awareness and reporting of incidents. No major incidents were reported in 2012 compared to one in 2011 and no environmental prosecutions, cautions or notices were received.

12. Health and Safety

The Health and Safety of the Costain workforce is of fundamental importance to the Company. The Company's aim is to provide an environment free from harm by promoting a positive safety culture and improving the health and wellbeing of its workforce. This commitment is demonstrated by the Company's management of Health and Safety and the continual drive towards zero accidents and incidents.

The Costain Group's operations are subject to numerous laws and regulations governing environmental and occupational health and safety matters. Under these laws and regulations, the Costain Group may be liable for, amongst other things, the costs of investigating and remedying contamination at the Costain Group's sites as well as sites to which it sends hazardous wastes for disposal or treatment regardless of fault, and also fines and penalties for non-compliance.

In March 2011, the Company launched the Costain Cares Programme, implementing the Company's vision for Safety, Health and Environment ('SHE') in Costain. The goal of SHE is to provide an environment free from harm. The Company will achieve this vision by focusing on the following three key areas:

12.1 Compliance

The Company's robust SHE Management System is accredited to both BS OHSAS 18001 and ISO 14001, ensuring that it meets and exceeds the requirements of all relevant health, safety and environmental legislation, codes of practice and guidelines. The Company continually monitors compliance to systems and benchmarks performance through an established audit and inspection regime.

12.2 Competence

A safe site is one where all workers are confident and qualified to carry out the tasks to which they are assigned. For this reason Costain insists on a fully qualified workforce and provides ongoing training and development for both its own employees and those of its supply chain partners.

The role of front-line supervisors is a key factor in improving Health and Safety performance, and in September 2012 Costain dedicated a week-long campaign to supervision in the workplace. The aim of the initiative was to achieve a premier standard of front-line supervision performance through the use of a number of techniques including workshops, assessments and feedback sessions.

12.3 Culture

The Company is constantly looking for new ways in which can SHE performance can be improved. In 2007, the Company introduced the Costain Behavioural Safety ('CBS') programme which it continued to promote during 2012. The aim is to significantly influence the delivery of sustained safety improvements which focus on safety leadership and the development of a culture where the people who work for Costain do the right things 'because they want to'.

In December 2011, the Company received international third-party accreditation from the Cambridge Centre for Behavioural Studies, Massachusetts USA, for its CBS Programme, making it the first company in the UK to have a third-party accredited Behavioural Safety Programme. Costain places the highest priority on the effective management of Safety, Health and Environment. Further progress was made in 2012 and Costain again recorded an improved Group Accident Frequency Rate ('AFR') reducing from 0.11 to 0.09, which continues to compare favourably with its major Tier One peer group. Costain also received 19 Gold Awards from The Royal Society for the Prevention of Accidents and two prestigious Orders of Distinction.

13. Insurance

The Costain Group maintains policies of insurance in respect of major risks associated with its operations, including, but not limited to, theft of, or damage to, the Costain Group's property, plant and equipment, theft of, or damage to, the Costain Group's motor vehicles, theft of, or damage to marine cargo, claims arising from employers liability, claims arising from professional liability, claims arising from the directors' and officers' liability and claims arising from damage caused by the services the Costain Group provides. The Company believes it has robust, comprehensive and adequate insurance cover but recognises that a claim could be made against it, which exceeds the limits of insurance cover or is in respect of a matter that is uninsurable or the insured incident is subject to a large deductible. Insurance deductibles and any difference in cover are considered at tender stage. Through following the Company's best practice processes, insurable incidents should be reduced. Procedures are in place to ensure potential claims are reported quickly for assessment. Management regularly reviews the role of insurance in managing risks across the Company and brings any important issues to the attention of the Costain Board.

14. Dividend policy

The Company may by ordinary resolution from time to time declare dividends not exceeding the amount recommended by the Costain Board. Subject to the Companies Act 2006, the Costain Board may pay interim dividends, and also any fixed rate dividend, whenever the financial position of the Company, in the opinion of the Costain Board, justifies its payment.

Reflecting another successful year and Costain's continuing confidence in the long-term prospects for the Group, the Costain Board has recommended a 7.4% increase in the final dividend, the sixth successive year of increase. If approved, the 7.25 pence per share (2011: 6.75 pence) final dividend will be paid on 24 May 2013 to shareholders on the register as at the close of business on 19 April 2013. This would bring the total dividend for the full year to 10.75 pence per share (2011: 10.00 pence), an increase of 7.5% over the prior year.

The Company also intends to continue to offer a scrip dividend scheme for both annual and interim dividends, allowing for the allotment of ordinary shares in lieu of cash dividends to those shareholders who elect to participate.

Costain has an existing dividend-matching arrangement with the Costain Pension Scheme. Following completion of the Merger as currently envisaged, Costain has agreed with the Costain Pension Trustee to match 53% of any dividends paid by Costain May Gurney PLC to shareholders with an equivalent cash contribution to the Costain Pension Scheme, provided that the minimum such annual dividend matching payment to the scheme is at least £5.4 million, pending finalisation of the full actuarial valuation of the Costain Pension Scheme as at 31 March 2013.

15. Investments

In the financial year ended 31 December 2009, the Group invested by way of equity or loan:

• £40,000 in Integrated Bradford Hold Co Two Ltd which is a joint venture among Costain, Amey Ventures Investments Ltd, HSBC Infrastructure Fund Management Ltd, Buildings Schools for the Future Investments LLP and Bradford Metropolitan District Council for construction and operation of schools;

• £3,600 in Lewisham Schools for the Future Holdings 2 Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd)), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools;

• £1,318,872 in Prime Care Solutions (Kingston) Holdings Ltd which is a joint venture between Costain and John Laing Social Infrastructure Ltd, for the construction and operation of a hospital in Kingston;

• £7,555 in Severn Trent Costain Holdings Limited (formerly Coast to Coast Holdings Ltd) which is a joint venture between Costain and Severn Trent Water Services plc for the provision of water services;
• £263,330 in L21 Lewisham PSP Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools;
• £2,369,966 in Lewisham Schools for the FutureHoldings Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools; and
• £5,704,453 in Alcaidesa Holding SA which is a property holding joint venture with Santander SA comprising two golf courses, land assets for development and a 30 year marina concession.

In the financial year ended 31 December 2010, the Group invested by way of equity or loan:

• £26,958 in Integrated Bradford Hold Co Two Ltd which is a joint venture among Costain, Amey Ventures Investments Ltd, HSBC Infrastructure Fund Management Ltd, Buildings Schools for the Future Investments LLP and Bradford Metropolitan District Council for construction and operation of schools;
• £3,600 in Lewisham Schools for the Future Holdings 3 Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools;
• £3,600 in Lewisham Schools for the Future Holdings 4 Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools;
• £14,051 in Severn Trent Costain Holdings Limited (formerly Coast to Coast Holdings Ltd) which is a joint venture between Costain and Severn Trent Water Services plc for the provision of water services;
• £1,384,786 in Arden Partnerships (Lincolnshire) Ltd which is a joint venture between Costain and Carillion Project Investments Ltd (formerly Alfred McAlpine Project Investments Ltd) for construction and services in respect of the South Holland Community Hospital;
• £484,631 in Arden Partnerships (Leicester) Ltd which is a joint venture between Costain and Carillion Project Investments Ltd (formerly Alfred McAlpine Project Investments Ltd) for construction and services in respect of the Leicester Learning Disabilities Unit;
• £1,665,025 in Arden Partnerships (Derby) Ltd which is a joint which is a joint venture between Costain and Carillion Project Investments Ltd (formerly Alfred McAlpine Project Investments Ltd) for construction and services to the Derbyshire Mental Health Services Trust; and
• £2,441,673 in Alcaidesa Holding SA which is a property holding joint venture with Santander SA comprising two golf courses, land assets for development and a 30 year marina concession.

In the financial year ended 31 December 2011, the Group invested by way of equity or loan:

• £8,486,800 in Integrated Bradford SPV Two Ltd which is a joint venture among Costain, Amey Ventures Investments Ltd, HSBC Infrastructure Fund Management Ltd, Buildings Schools for the Future Investments LLP and Bradford Metropolitan District Council for construction and operation of schools;

• £848,680 in Integrated Bradford PSP Ltd which is a joint venture among Costain, Amey Ventures Ltd, HSBC Infrastructure Fund Management Ltd, Buildings Schools for the Future Investments LLP and Bradford Metropolitan District Council for construction and operation of schools;

• £853,972 in Lewisham Schools for the Future Holdings 2 Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools;

• £94,886 in L21 Lewisham PSP Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools; and
• £3,192,000 in Alcaidesa Holding SA which is a property holding joint venture with Santander SA comprising two golf courses, land assets for development and a 30 year marina concession.

In the financial year ended 31 December 2012, the Group invested by way of equity or loan:

• £3,255,304 in Alcaidesa Holding SA which is a property holding joint venture with Santander SA comprising two golf courses, land assets for development and a 30 year marina concession;
• £1,149,980 in Lewisham Schools for the Future Holdings 3 Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools; and
• £127,776 in L21 Lewisham PSP Ltd which is a joint venture among Costain, Babcock Project Investment Ltd (formerly VT Investments Ltd), Building Schools for the Future Investments LLP and the Mayor and Burgesses of the London Borough of Lewisham for the construction and operation of schools.

In the period from 1 January 2013 to the date of this document, the group has invested by way of equity or loan:

• £1,094,193 in Alcaidesa Holding SA which is a property holding joint venture with Santander SA comprising two golf courses, land assets for development and a 30 year marina concession.

In the financial year ended 31 December 2010, the Group transferred to the Costain Pension Scheme its equity and loan assets in:

• Integrated Bradford Hold Co One Ltd;
• Prime Care Solutions (Kingston) Holdings Ltd;
• Lewisham Schools for the Future Holdings Ltd;
• Arden Partnerships (Lincolnshire) Ltd;
• Arden Partnerships (Leicester) Ltd; and
• Arden Partnerships (Derby) Ltd.

In the financial year ended 31 December 2012, the Group transferred to the Costain Pension Scheme its equity and loan assets in:

• Integrated Bradford Hold Co Two Ltd; and
• Lewisham Schools for the Future Holdings 2 Ltd.

16. Current trends and prospects

The following description of trends and prospects has been incorporated without material adjustment from the preliminary results for the financial year ended 31 December 2012 published by Costain on 6 March 2013 as incorporated by reference in this document.

During the year the Company saw a continuing trend amongst its major customers to consolidate their supply chains, as they seek to derive business benefits by working in a much more strategic and collaborative manner with a reduced number of preferred "Tier One" service providers who have the ability to deliver the entirety of their service needs.

As a consequence, the Company's customers are rapidly changing their procurement approach, consolidating a broader range of services across consulting, project delivery and operations activities into larger, longer term contracts. As examples of this trend, in 2012 the Company was appointed by Magnox as one of two service providers under a 10-year framework contract that now covers all ten of their UK nuclear sites, and the Company was appointed by the Oil & Pipelines Agency on a 3-year operations and maintenance contract that now covers the whole of their estate.

In this changing and competitive environment, it is essential that the Company is able to demonstrate that it has the scale, skills, experience and financial strength necessary to secure, and then deliver, a strong performance on these increasingly large and complex contracts. To meet its customers' evolving requirements, the Company has been transformed in recent times. It now delivers engineering services across the full asset life-cycle, from advisory and design to operations and maintenance.

Developed both organically and by acquisition, over 29% of Costain's revenue in 2012 was derived from support service activities.

The Company has also secured large, integrated and complex projects, for example the contract from Network Rail for the London Bridge Redevelopment, a key part of the Thameslink programme and their largest single investment project; the Evaporator D project, one of the largest nuclear decommissioning projects in the UK; the Greater Manchester Waste project, one of Western Europe's largest waste PFI contracts; and with the Highway Agency, whose own assessment rates Costain as a leading supply chain partner.

During the year, the Company secured its first highways technology framework contract for the Welsh Government, an important contract given the increased levels of investment in technology expected in the highways sector. The Company also recently secured, in joint venture, its first rail electrification contract for Network Rail, with electrification forming a key part of their £37 billion investment programme.

Costain's growing in-house ability to design, procure and deliver projects is being utilised by Centrica for the delivery of its gas plant at Easington to serve the York field in the North Sea. As a result of successful delivery on the new plant, the Company has just been appointed by Centrica to develop the Front End Engineering design ('FEED') for a similar project at Barrow. The Aberdeen based ClerkMaxwell specialist oil and gas FEED consultancy, acquired by the Company in 2011, has almost doubled in size since acquisition.

PART III INFORMATION ON MAY GURNEY

The selected historical financial information in relation to May Gurney referred to in this Part III has been extracted without material adjustment from the historical financial information of May Gurney for the financial years ended 31 March 2012, 31 March 2011 and 31 March 2010 which were prepared in accordance with IFRS as well as the unaudited interim financial information for the half year ended 30 September 2012 and is set out in Part VII of this document.

Investors should read the whole of this document and the documents incorporated herein by reference and should not just rely on the financial information set out in this Part III.

1. Background and history

May Gurney Limited was founded in 1926, its initial business activities involving water and sewerage, sea defence and flood protection works and works for local authorities on the road network. Later, it began to provide pile driving services and these civil engineering activities formed the basis of the May Gurney Group's development over the next 30 years.

In the late 1950s, a policy of controlled growth resulted in the foundation of the May Gurney Group and over the following 30 years it established itself as a major regional (primarily Norfolk-based) construction company for projects including airfield runways, roadways, dredging, piling, bridge building, sewage treatment, road surfacing and surface dressing.

In 1989, the management team at the time effected an MBO and, during the mid-nineties, May Gurney became involved in partnering contracts in the public sector for the first time.

In June 2004, May Gurney acquired TJ Brent, a specialist services provider to the utilities sector. TJ Brent was a complementary acquisition, enabling the May Gurney Group to focus on long-term relationships based on partnered framework contracts.

May Gurney also added additional specialist expertise in railway signalling, design and testing via the acquisition of the trade and assets of Hawthorns Project Management Limited in June 2005.

May Gurney's share capital was admitted to trading on AIM, a market of the London Stock Exchange, in June 2006.

In March 2007, May Gurney acquired AC Chesters Limited, a mechanical and electrical (M&E) contractor with customers in the water sector.

In July 2007, May Gurney acquired FDT (Holdings) Limited. FDT's principal activity was the provision of inspection and maintenance services in relation to assets in the mobile telecommunications industry and highways engineering sectors.

In February 2008, May Gurney acquired the trade and assets of the Southern Household Recycling Centre business from Environmental Waste Controls Limited. This was followed, in June 2008, by the acquisition of ECT Recycling CIC and ECT Engineering Limited, a leading operator in the municipal waste recycling market. These businesses were combined to create May Gurney's Environmental Services operations.

In January 2011, May Gurney acquired Turriff Group Limited ('Turriff'), one of Scotland's largest utility infrastructure maintenance companies.

In November 2011, May Gurney acquired the entire issued share capital of Senturion Group Limited, trading as TransLinc, a leading provider of specialist fleet and passenger services in the UK to local authorities.

As at the date of this document, May Gurney's principal activities are highway services, environmental services and fleet and passenger services for the public sector, and utility services, rail services and waterways services for the regulated sector.

2. Nature of operations and principal activities

May Gurney is headquartered in Norwich and had over 60 offices and approximately 6,000 employees working at over 230 locations across the UK as at 31 March 2012. May Gurney is a support services company, committed to helping its clients in the public and regulated sectors deliver sustainable improvements to front-line services, including maintaining road, utility, rail and waterways networks and public buildings and ensuring that household refuse is collected, managed and recycled.

May Gurney delivers its services through two client-aligned divisions: Public Sector Services and Regulated Sector Services. All of May Gurney's contracts are long-term and are delivered locally, in a 'place-based' approach to integrated service delivery.

2.1 Public Sector Services

May Gurney's Public Sector Services division operates across three main areas, each with a number of service lines: Highways Maintenance, Environmental Services and Fleet & Passenger Services.

Highway Services

May Gurney is a leading highways maintenance services provider to local authorities. May Gurney maintains almost 31,500 kilometres of roads and more than 330,000 street lights and illuminated road signs across the UK. May Gurney delivers highway services to local authorities under long-term contracts. May Gurney's core highway services include highways maintenance, street lighting and road surface dressing.

Environmental Services

May Gurney is the fourth largest provider of municipal waste collection services in the UK, covering 2.1 million households. May Gurney works with local authorities to develop better waste collection strategies to extract the maximum value from recycled materials and to reduce the amount of waste going to landfills. May Gurney's core environmental services include kerbside recycling (MaGOSTM), refuse collections, street cleansing and the management of household waste recycling centres.

Fleet & Passenger Services

Following May Gurney's acquisition of TransLinc in 2011, May Gurney is one of the UK's leading providers of end-to-end fleet management and passenger services to local authorities. May Gurney manages over 6,000 specialist vehicles across over 100 locations and carries several thousand passengers a day (home-to-school, social services, demand response and corporate shuttle). The specialist vehicles May Gurney supplies and manages include waste and recycling trucks, snowploughs/gritters, street sweeping and cleaning vehicles and HGVs. TransLinc's operations have been integrated with May Gurney's existing plant and transport operations and renamed 'Fleet & Passenger Services'.

Facility Services

May Gurney has historically built schools under long-term contracts for local authorities. May Gurney has announced that this is a non-core activity and that it is planning to fulfil its existing client obligations.

2.2 Regulated Sector Services

May Gurney's Regulated Sector Services division operates across three main areas: utility services, rail services and waterways services.

Utility Services

May Gurney delivers utility maintenance and asset enhancement services in water, gas, power and telecommunications across the UK. May Gurney's core utility services include clean and waste water improvements, asset and infrastructure maintenance, multi-utility services, mechanical and electrical design and maintenance, inspection and maintenance for bridges and masts and design.

Rail Services

May Gurney works in long-term partnership with its principal client, Network Rail, to deliver maintenance and refurbishment works on rail structures, rail property and in signalling. May Gurney is currently engaged in several key projects, including an element of the high profile collaborative Network Rail project on the Great Northern/Great Eastern Joint Line between Peterborough and Doncaster. May Gurney is also working on the Major A Minor Works framework contract with BRB Residuary, which covers works north of the Humber and the Mersey, including Scotland. May Gurney has won numerous awards for the quality of its rail services work and its solid safety record.

Waterways Services

May Gurney delivers projects for the regeneration, maintenance and renaissance of the UK's waterways network. May Gurney provides maintenance services, including mechanical, civil and electrical engineering for the Canal & River Trust (formerly British Waterways) across the national canal and river network infrastructure and is the Canal & River Trust's sole contractor. May Gurney also works closely with the Environment Agency in order to protect communities from coastal and river flooding by constructing and maintaining flood protection assets.

3. Principal markets

The overall total annual value of the public and regulated sector markets in which May Gurney is active amounts to approximately £23.1 billion. This figure is the aggregate value of the markets which May Gurney's Public Sector Services division services (approximately, £12.5 billion) and the markets which May Gurney's Regulated Sector Services division services (approximately, £10.6 billion). These values have been calculated by reference to information provided by the Association of Directors of Environment, Economy, Planning and Transport, the Highways Agency, the Department of Transport, the UK National Statistics Publication Hub, OFWAT, and the HM Treasury website on Public Spending review breakdowns.

3.1 Public sector

In the financial years ended 31 March 2010, 2011 and 2012, May Gurney's Public Sector Services division contributed approximately £283.7 million, £376.3 million and £418.2 million, respectively, to May Gurney's total revenue.

Highway Services

The market for local authority highways maintenance in England was worth approximately £2.6 billion per annum in 2011 (the year for which the most recent data is available) and May Gurney's estimated share is 11%. May Gurney maintains nearly 31,500 kilometres of the 285,000 kilometres of road across England. The local authority street lighting market was worth around £780 million per annum, in 2011 (the year for which the most recent data is available) of which May Gurney had an estimated market share of 6% in England and 27% in London.

Environmental Services

The environmental services market was worth in the region of £3.1 billion per annum in 2011 (the year for which the most recent data is available). In addition, the market for street cleaning, which is often included within environmental services contracts, was worth around £900 million per annum. May Gurney has estimated market shares of 5% of the outsourced municipal collections market, making it the fourth largest operator in this area, and 9% of the household waste recycling centre market. Key market drivers are the increase in landfill tax and local authority recycling targets.

Fleet & Passenger Services

May Gurney is the UK leader in the local authority outsourced fleet services market with an estimated share of 8%. This market was worth £730 million per annum in 2010 (the year for which the most recent data is available) and remains highly fragmented. May Gurney's leading position was most pronounced in the fully outsourced market, where May Gurney takes on the hire and full maintenance of a client's entire fleet.

In the highly fragmented £3.0 billion local authority outsourced passenger services market, May Gurney was the fifth largest supplier in the UK in 2010 (the year for which the most recent data is available) with a market share of 0.5%. Outsourcing rates in this immature market currently stand at 50% to 60%, offering good opportunities for growth.

3.2 Regulated sector

In the financial years ended 31 March 2010, 2011 and 2012, May Gurney's Regulated Sector Services division contributed approximately £199.4 million, £195.1 million and £277.1 million, respectively, to May Gurney's total revenue.

Utility Services

The recent transfer of private drains and sewers to the water companies is creating additional opportunities to benefit from the water companies' spending on capital maintenance. In addition, the projected investment by the water industry for the current AMP5 is set to exceed the industry's investment during AMP4.

The new regulatory period for the gas industry, RIIO-GD1, starts in April 2013 and will be eight years long, with Ofgem putting new focus on efficiency, safety, customer satisfaction and environmental issues. This mirrors the recent developments in the water market and means May Gurney's experience in delivering on these issues for existing clients should place May Gurney in a strong position to secure additional work in the new regulatory period.

Rail Services

There has been a move towards a route-orientated industry and a greater degree of collaboration and partnering, driven both by the appointment of the new leadership of Network Rail and the Value for Money Study by Sir Roy McNulty. This plays to May Gurney's core strengths.

Planned maintenance expenditure by Network Rail over Control Period 4 (2009 to 2014) is worth on average over £1 billion per annum. This is supplemented by enhancements expenditure, worth on average approximately £1.5 billion per annum.

Waterways Services

May Gurney delivers over £20 million of work per annum for Canal & River Trust (and its private partners). Total UK Government expenditure for flooding and coastal erosion risk management is budgeted at £2.45 billion for the four year spending period which began in 2011.

4. Current trends and prospects

6 September 2012 trading update

On 6 September 2012, May Gurney released a trading update in which it stated that serious operational issues with respect to two long-term MaGOSTM contracts and the planned run-down of its Facility Services division, combined with the on-going difficulties within May Gurney's Scottish Utilities business, had led May Gurney's Board to conclude that the May Gurney Group would significantly underperform its original expectations for the year ending 31 March 2013. The 6 September 2012 trading update is summarised below:

MaGOSTM

• With regard to MaGOSTM, May Gurney stated that despite delivering a quality service, targeted margins had not been achieved, and May Gurney was taking stringent actions to drive operational efficiencies and profitability. These contracts represent 3% of May Gurney's historic revenues per annum and are spread over terms of 7 to 14 years. The other contracts within Environmental Services were performing in line with expectations.

Facility Services

• In March 2012, May Gurney announced that it planned to run down its Facility Services business. It was stated that this process was continuing but significant exiting costs were now anticipated to be incurred. May Gurney expected to make a final closure provision in the order of £10 million for 2012.

Scottish Utilities

• The utilities business in Scotland faced challenges. In particular, Scotia Gas Networks indicated that it planned to reduce its outsourcing, in line with its submission to the Regulator. Accordingly, May Gurney took the prudent action of reducing its related revenue forecasts.

Board changes

• The May Gurney CEO, Philip Fellowes-Prynne left May Gurney by mutual consent with immediate effect. Willie MacDiarmid, a non-executive director of the May Gurney Group, took on the role of CEO on an interim basis.

Underlying performance and order book

• The underlying performance of the rest of the May Gurney business was sound, in line with previous announcements, and May Gurney continued to actively bid for new business on a disciplined basis. Momentum was maintained as regards the order book of £1.5 billion. In addition £86 million of new work as well as £50 million of contract extensions had been won since year-end, which gave the May Gurney Group good forward visibility of revenues.

TransLinc

• May Gurney stated that the acquisition of TransLinc, which delivered a portfolio of highly complementary fleet management and passenger services to penetrate the £730 million per annum local authority specialist fleet services and £3 billion local authority passenger services markets, was on track to deliver the earnings enhancement cited at the time of its acquisition in November 2011.

Interim Results announced 4 December 2012

On 4 December 2012, May Gurney announced its interim results for the six months ended 30 September 2012. These are summarised below:

• May Gurney delivered a performance in line with its revised expectations during the six months ended 30 September 2012. It generated revenues of £338.9 million (six months ended 30 September 2011: £324.7m) and underlying EBITA of £12.6 million (six months ended 30 September 2011: £14.7m), achieving an operating margin of 3.7% (six months ended 30 September 2011: 4.5%) after bidding and mobilisation costs which, in line with May Gurney's prudent accounting policy, were written off as incurred.
• May Gurney remained a cash generative business with cash generated from continuing operations of £15.4 million (six months ended 30 September 2011: £17.7m), representing more than 100% of underlying EBITA.
• The plans May Gurney put in place to address the three ring fenced issues it highlighted on 6 September 2012 were stated to be on track. Specifically, May Gurney has significantly reduced those operations in Scotland supporting Scotia Gas Networks ('SGN'); is discontinuing its Facility Services business (a £10 million charge was taken in relation to the closure); and is continuing to work with clients on the two MaGOSTM environmental services contracts – these are complex contracts and May Gurney expects this process to continue during the first half of 2013. May Gurney continues to target resilient, maintenance focused revenue streams for essential services by developing long-term relationships with its clients and local communities. Its strong commercial market positions are reflected by the fact that it secured more than £314 million of business in the six months ended 30 September 2012, including more than £164 million in new contracts, primarily from its Waterways and Fleet & Passenger Services operations, and a seven year extension to its environmental services contract with Somerset Waste Partnership (SWP), valued at £100 million. May Gurney's forward order book has been maintained at £1.5 billion, with a further £1.7 billion in potential contract extensions, and its bidding pipeline at 30 September 2012 stood at approximately £4 billion.

In the interim results announcement summarised above, May Gurney set out details regarding underperforming MaGOSTM contracts. Since that date, May Gurney has continued to take actions to drive operational efficiencies and profitability on those MaGOSTM contracts and has remained in close dialogue with the relevant contract counterparties with the aim of improving the financial performance of those contracts. Whilst progress has been made, the MaGOSTM contracts as a whole will, as expected, incur a significant loss for the year ending 31 March 2013 and much remains to be achieved in order to return the financial performance of the underperforming contracts to an acceptable level.

PART IV OPERATING AND FINANCIAL REVIEW OF COSTAIN

The following discussion of Costain's financial condition and results of operations should be read in conjunction with the historical financial information on Costain and the notes related thereto set out in Part V: (Historical Financial Information on Costain) (which has been incorporated by reference into this document). Except as otherwise stated, the financial information included in this Part IV has been extracted without material adjustment from the financial information referred to in Part V (Historical Financial Information on Costain) which has been incorporated into this document by reference. The historical financial information referred to in this discussion has been prepared in accordance with IFRS as explained in Part V (Historical Financial Information on Costain).

The following discussion of Costain's results of operations and financial condition contains forwardlooking statements. Costain's actual results could differ materially from those discussed in the forwardlooking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this document, particularly in the Parts headed 'Risk Factors' and 'Forward Looking Statements'.

1. Documents incorporated by reference

The operating and financial reviews included in the following documents are incorporated by reference into this document:

• the Group's 2009 Annual Report and Accounts;
• the Group's 2010 Annual Report and Accounts;
• the Group's 2011 Annual Report and Accounts; and
• the Group's 2012 Year End Preliminary Results.

2. Cross-reference list

The following list is intended to enable investors to identify easily specific items of information which have been incorporated by reference into this document.

2.1 the Costain Group's 2009 Annual Report and Accounts

The page numbers below refer to the relevant pages of the Annual Report and Accounts of Costain for the financial year ended 31 December 2009:

•	Auditor's report	–	71
•	Income statement	–	72
•	Balance sheet	–	74
•	Statement of changes in equity	–	76
•	Cash flow statement	–	77
•	Notes to the accounts	–	79-111
•	Five year record as at 31 December 2009	–	112

2.2 the Costain Group's 2010 Annual Report and Accounts

The page numbers below refer to the relevant pages of the Group's 2010 Annual Report and Accounts:

•	Group Strategy	–	8-9;
•	Group CEO's review	–	18-21;
•	Divisional Performance	–	26-33; and
•	Financial Review	–	43-45.

2.3 the Costain Group's 2011 Annual Report and Accounts

The page numbers below refer to the relevant pages of the Group's 2011 Annual Report and Accounts:

•	Overview	–	2-5;
•	Chairman's statement	–	6-7;
•	Group CEO's review	–	10-13;
•	Group Strategy	–	16;
•	Divisional Performance	–	27-30;
•	Corporate Responsibility	–	31-37
•	Risk Framework	–	38-39; and
•	Financial Review	–	42-44.

2.4 the Costain Group's 2012 Year End Preliminary Results

The page numbers below refer to the relevant pages of the Group's 2012 Year End Preliminary Results:

•	Chairman's Statement	–	3-4;
•	Chief Executive's Review	–	6-7;
•	Operational Review	–	9-10;
•	Finance Director's Review	–	10-12;
•	Consolidated Income Statement	–	13;
•	Consolidated Statement of Comprehensive Income and Expense	–	14;
•	Consolidated Statement of Changes in Equity	–	14;
•	Consolidated Statement of Financial Position	–	14; and
•	Consolidated Cash Flow Statement	–	15.

3. Capitalisation and indebtedness

3.1 Capitalisation

The following table sets out the consolidated capitalisation and indebtedness of the Group as at 31 December 2012:

	Notes	31 December 2012 £m
Total Current Debt
Guaranteed		1.7
Secured		—
Unguaranteed / Unsecured		—
		1.7
Total Non-Current Debt (excluding current portion of long-term debt) Guaranteed Subordinated Loan Capital
Guaranteed		—
Secured		—
Unguaranteed / Unsecured		—
		—
Shareholders' Equity
65.5 million issued and fully paid ordinary shares of 50p each		32.8
Share Capital		32.8
Share Premium		3.7
Retained Earnings		8.5
Other Reserves		3.8
Total Shareholders' Equity		31.8
Total capitalisation and indebtedness		33.5

3.2 Indebtedness

The following table shows the net indebtedness of Costain as at 31 December 2012.

		Notes	31 December 2012 £m
A.	Cash	1	107.4
B.	Cash equivalent		—
C.	Trading securities		—
D.	Liquidity (A) + (B) + (C)		107.4
E.	Current financial receivable
F.	Current bank debt		(1.7)
G.	Current portion of non current debt		—
H.	Other financial debt		—
I.	Current financial Debt (F) + (G) + (H)		(1.7)
J.	Net current financial indebtedness (I) – (E) – (D)		105.7
K.	Non current bank loans		—
L.	Bond issued		—
M.	Other non current loans		—
N.	Non current financial indebtedness (K) + (L) + (M)		—
O.	Net funds (J) + (N)		105.7

Notes:

1. Cash includes the Costain Group's share of cash held by jointly-controlled operations of £29.6 million

4. Liquidity and capital resources

	Notes	31 December 2012 £m
Total Current Debt
Guaranteed		1.7
Secured		—
Unguaranteed/Unsecured		—
		1.7
Shareholders' Equity 65.5m issued and fully paid ordinary shares of 50p each
Share Capital		32.8
Legal Reserve		3.7
Other Reserves		(4.7)
Total Shareholders' Equity		31.8
Total capitalisation and indebtedness		33.5

Net cash (used by)/from operating activities

Cash from operations before changes in working capital and provisions was £27.6m in 2012, £27.9m in 2011, £23.3m in 2010 and £26.7m in 2009. Net interest and tax amounted to an outflow of £0.8m in 2012 and inflows of £0.1m in 2011, £0.3m in 2010 and £2.2m in 2009.

Changes in working capital and provisions produced outflows of £49.9m in 2012 and £42.8m in 2009 and inflows of £6.8m and £8.1m in 2011 and 2010 respectively. The figures include pension contributions to the defined benefit Costain Pension Scheme (including amounts matching the payments in dividends to shareholders, in line with the commitment made by the Company in 2007) of £8.1m in 2012, £7.0m in 2011, £20.1m in 2010 and £19.4m in 2009.

As a result of the Costain Group's ongoing strategic focus on major blue chip customers who increasingly utilised a target cost based form of contract in 2012, its net cash position included a lower level of advanced payments typically paid on lump sum contracts. Additionally, Costain's increasing emphasis on support service related activities and changing industry cash flow trends, together with the cash flow timing implication of a delayed contract completion, accounted for the reduction in net cash to £105.7 million in 2012.

Net cash used by investing activities

Net capital expenditure on property, plant and equipment and intangible assets amounted to £0.3m in 2012, £2.8m in 2011 and £6.9m in 2009. In 2010, there were net disposals of £2.7m. Loans to joint ventures and associates less repayments amounted to £5.4m in 2012, £13.1m in 2011, £5.4m in 2010 and £9.0m in 2009, £0.2m was also invested by way of equity in joint ventures and associates in 2009.

Dividends from joint ventures and associates generated £0.6m in 2012, £1.4m in 2011, £0.1m in 2010 and £0.6m in 2009.

The sale of a subsidiary generated £0.5m in 2011 and sales of investments in joint ventures and associates generated £0.3m in 2011 and £8.7m in 2009.

In 2011, £21.1m was spent on acquisitions of subsidiaries.

Net cash used by financing activities

Equity dividend payments were £6.2m in 2012, £5.8m in 2011, £5.4m in 2010 and £4.7m in 2009 and, in addition, in 2009 borrowings of £0.3m were repaid. In 2011, the exercise of options under employee share schemes generated £1.5m.

Future liquidity, financing arrangements and commitments

Costain's working capital requirements are funded by shareholders' equity, operating cash flow and existing borrowing facilities. The Costain Group's ongoing strategic focus on, and targeting of, major blue chip customers who predominantly utilise a target cost based form of contract, changes the working capital of the business because the net cash position no longer includes advanced payments typically paid on lump sum contracts. The increasing emphasis on support service related activities will also continue to be reflected in an increased working capital requirement.

Liquidity risk is managed by monitoring actual and forecast short and medium term cash flows and the maturity profile of financial assets and liabilities, and by maintaining adequate cash reserves. The nature and timing of the contract cash flows causes the working capital to vary over the month with the figure usually lowest at the month end.

The Costain Group's centralised treasury function manages financial risk, principally arising from movements in foreign currency rates, interest rates and inflation rates, in accordance with policies agreed by the Costain Directors. To manage these risks, forward foreign currency sale and purchase contracts are used in respect of foreign currency requirements and interest rate swaps are used for PFI investments. The Costain Group does not enter into speculative transactions.

Customers awarding long-term contracting work may, as a condition of the award, require the contractor to provide performance and other bonds. Consequently, the Costain Group is reliant on its ability to secure bank and surety bonds. It has facilities in place to provide these bonds and monitors the usage and regularly updates the forecast usage of these facilities.

The Costain Group has banking and bonding facilities totalling £465 million, including a £45 million Revolving Credit Facility, extending to 30 September 2015. The facilities have identical financial covenants based on profit, interest cover and leverage measured quarterly.

PART V HISTORICAL FINANCIAL INFORMATION RELATING TO COSTAIN

5. Basis of Financial Information

The financial statements of Costain included in the consolidated audited Annual Reports and Accounts of Costain for the financial years ended 31 December 2009, 31 December 2010, and 31 December 2011 were unqualified. The financial statements for the years 31 December 2009, 31 December 2010, and 31 December 2011 were prepared in accordance with IFRS.

The unaudited consolidated preliminary report of Costain for the year ended 31 December 2012 is incorporated by reference into this document.

6. Cross reference list

The following list is intended to enable investors to identify easily specific items of information which have been incorporated by reference into this document.

6.1 Financial statements for the year ended 31 December 2009 and independent Audit Report thereon

The page numbers below refer to the relevant pages of the Annual Report and Accounts of Costain for the financial year ended 31 December 2009:

•	Auditor's report	–	71
•	Income statement	–	72
•	Balance sheet	–	74
•	Statement of changes in equity	–	76
•	Cash flow statement	–	77
•	Notes to the accounts	–	79-111
•	Five year record as at 31 December 2009	–	112

6.2 Financial statements for the year ended 31 December 2010 and independent Audit Report thereon

The page numbers below refer to the relevant pages of the Annual Report and Accounts of Costain for the financial year ended 31 December 2010:

•	Auditor's report	–	71
•	Income statement	–	74
•	Balance sheet	–	76
•	Statement of changes in equity	–	78
•	Cash flow statement	–	79
•	Notes to the accounts	–	81-114
•	Five year record as at 31 December 2010	–	115

6.3 Financial statements for the year ended 31 December 2011 and independent Audit Report thereon

The page numbers below refer to the relevant pages of the Annual Report and Accounts of Costain for the financial year ended 31 December 2011:

•	Auditor's report	–	72
•	Income statement	–	74
•	Balance sheet	–	76
•	Statement of changes in equity	–	78
•	Cash flow statement	–	79
•	Notes to the accounts	–	81-116
•	Five year record as at 31 December 2011	–	117

6.4 Preliminary results for the year ended 31 December 2012

The page numbers below refer to the relevant pages of the preliminary results of Costain for the financial year ended 31 December 2012:

•	Income statement	–	13
•	Balance sheet	–	14
•	Statement of changes in equity	–	14
•	Cash flow statement	–	15
•	Notes to the accounts	–	16-24

KPMG Audit Plc has agreed that the unaudited preliminary results for the year ended 31 December 2012 referred to in this paragraph 2.4 are substantially consistent with the final figures to be published in the audited financial statements for the year ended 31 December 2012 which will be published in the 2012 Annual Report. The financial information referred to in this paragraph 2.4 has not been audited.

PART VI OPERATING AND FINANCIAL REVIEW OF MAY GURNEY

The following information should be read in conjunction with the historical financial information on May Gurney set out in Part VII: Historical Financial information relating to May Gurney. The financial information included in this Part VI (Operating and Financial Review of May Gurney) has been extracted without material adjustment from the financial information set out in Part VII: Historical Financial Information relating to May Gurney or has been extracted without material adjustment from May Gurney's accounting records, which formed the underlying basis of the financial information set out in Part VII (Historical Financial Information relating to May Gurney).

Some of the information contained in this Part VI Operating and Financial Review of May Gurney, including information in respect of May Gurney's plans and strategies for its business and expected sources of financing, contains forward-looking statements that involve risk and uncertainties. Costain Shareholders, May Gurney Shareholders and potential investors should read the section of this document headed 'Important Information — Forward-looking Statements' for a discussion of the risks and uncertainties related to those statements and should also read the section of this document headed 'Risk Factors' for a discussion of certain factors that may affect the business, results of operations or financial condition of the May Gurney Group or the Combined Group.

The discussion and analysis below compares the May Gurney Group's consolidated results of operations for HY2013 against HY2012, for FY2012 with FY2011 and for FY2011 with FY2010.

1. Description of May Gurney

May Gurney is a support services company headquartered in Norwich, United Kingdom. The principal activities of the May Gurney Group are the provision of highway services, environmental services, fleet and passenger services, utility services and rail and waterways services. These services are delivered through two business divisions, namely Public Sector Services and Regulated Sector Services.

1.1 Public Sector Services

May Gurney's Public Sector Services division includes Highway Services, Environmental Services and Fleet & Passenger Services. The addressable market is worth £12.5 billion per annum. Across the public sector services markets in which May Gurney operates, a significant proportion of each is currently delivered in-house. Recent pressures on public spending are seen as offering good opportunities for outsourcing. May Gurney is a leading player across the public sector, working with more than 50 local authorities.

Highway Services

May Gurney is a leading highways maintenance services provider for local authorities. It maintains almost 31,500 kilometres of roads and more than 330,000 street lights and illuminated road signs across the UK. May Gurney delivers highway services to local authorities, all under long-term contracts. May Gurney's core services include highways maintenance, street lighting and road surface dressing.

The market for local authority highways maintenance in England is worth approximately £2.6 billion per annum and May Gurney's estimated share is 11%. The markets in Scotland and Wales are worth an additional £570 million per annum. The local authority street lighting market is worth around £780 million per annum, of which May Gurney has an estimated market share of 6% in England and 27% in London.

Environmental Services

May Gurney is the fourth largest provider of municipal waste collection services in the UK, covering 2.1 million households. May Gurney works with local authorities to develop better waste collection strategies to extract the maximum value from recycled materials and reduce the amount of waste going to landfill. May Gurney's core services include kerbside recycling (MaGOS™), refuse collections, street cleansing and the management of household waste recycling centres ('HWRCs').

The environmental services market is worth in the region of £3.1 billion per annum, complemented by the street cleansing market at approximately £900 million per annum, which is becoming increasingly integrated within collection contracts. May Gurney has estimated market shares of 5% of the outsourced municipal collections market and 9% of the HWRC market. Key market drivers are the increase in landfill tax and local authority recycling targets.

Fleet & Passenger Services

May Gurney is one of the UK's leading providers of end-to-end fleet management and passenger services to local authorities. May Gurney manages over 6,000 specialist vehicles across 100 locations and carries more than several thousand passengers a day (home to school, social services, demand response and corporate shuttle). The specialist vehicles May Gurney supplies and manages include waste and recycling trucks, snow ploughs/gritters, street sweeping and cleaning vehicles and HGVs. TransLinc's operations have been integrated with May Gurney's existing plant and transport operations and renamed 'Fleet & Passenger Services'.

May Gurney is the UK leader in the local authority outsourced fleet services market with a share of 8%. This market is worth approximately £730 million per annum and remains highly fragmented. In the £3.1 billion local authority outsourced passenger services market, May Gurney is number five in the UK with a 0.5% share. Outsourcing rates in these markets currently stand at 50% to 60%, respectively, offering good opportunities for growth.

Facility Services

In September 2012, May Gurney announced its intention to withdraw from the facility services market in which it built schools under long-term contracts for local authorities. May Gurney's Facility Services business is currently in the process of being wound down.

1.2 Regulated Sector Services

May Gurney's Regulated Sector Services division has operations covering three main areas: utility services, rail services and waterways services. The regulated services market is worth approximately £10.6 billion per annum, with periodic spending reviews in the rail and water sectors securing significant increases in expenditure. The primary market drivers are twofold: ambitious targets for excellent customer service and the need for increased operational efficiencies.

Utility Services

May Gurney delivers utility maintenance and asset enhancement services in water, gas, power and telecommunications across the UK. May Gurney's core services include clean and waste water improvements, asset and infrastructure maintenance, multi-utility services, mechanical and electrical ('M&E') design and maintenance, inspection and maintenance for bridges and masts and design.

Ofwat's Final Determinations for the AMP5 period (2010 to 2015) allows for average expenditure of £4.4 billion per annum across England and Wales, an increase of 32% on AMP4 levels, and there is a further £1.2 billion per annum in Scotland. There is a continued emphasis on capital maintenance, especially with the recent transfer of private drains and sewers ('PdaS') to the water companies. The gas distribution market is worth £1.8 billion per annum. The new regulatory period, RIIO-GD1, starts in April 2013 and will be eight years long with Ofgem's focus on efficiency, safety, customer satisfaction and environmental issues.

Rail Services

May Gurney operates in long-term partnership with its principal client, Network Rail, to deliver maintenance and refurbishment works on rail structures, rail property and in signalling. May Gurney is currently engaged in several key projects, including an element of the high profile collaborative Network Rail project on the Great Northern/Great Eastern Joint Line between Peterborough and Doncaster. May Gurney is also working on the Major & Minor Works framework contract with BRB Residuary, which covers works north of the Humber and the Mersey, including Scotland.

Planned maintenance expenditure by Network Rail over Control Period 4 (2009 to 2014) is worth on average over £1 billion per annum. This is supplemented by enhancements expenditure, worth on average £1.5 billion per annum. Following the appointment of the new leadership of Network Rail, the release of the Value for Money Study by Sir Roy McNulty and the subsequent Command Paper, May Gurney continues to change to meet new demands. The industry drivers of increased collaboration, greater passenger influence and whole-life asset management play to its core strengths. May Gurney's rail capability will continue to evolve in this changing environment, founded on its core values and reputation.

Waterways Services

May Gurney plays a key role in the regeneration, maintenance and renaissance of the UK's waterways network. May Gurney delivers maintenance services, including mechanical, civil and electrical engineering for Canal & River Trust (formerly British Waterways) across the national canal and river network infrastructure and is the Canal & River Trust's sole contractor. May Gurney also works closely with the Environment Agency in order to protect communities from coastal and river flooding by constructing and maintaining flood protection assets.

May Gurney delivers over £20 million of work per annum for Canal & River Trust (and its private partners). Total UK Government expenditure for flooding and coastal erosion management is budgeted at £2.45 billion for the four year spending period which began in 2011.

2. Summary of May Gurney's trading results

A summary of the consolidated trading results and summary balance sheets of the May Gurney Group for HY2013 against HY2012 and for FY2012, FY2011 and FY2010, each of which has been extracted without material adjustment from the financial records of the May Gurney Group in respect of the relevant period, is set out below:

2.1 Consolidated trading results

The tables below show summary consolidated income statements for the May Gurney Group for HY2013 and HY2012 and also for FY2012, FY2011 and FY2010.

ment
me state
Condensed consolidated inco

					31 March 2012	31 March 2012	31 March 2012	31 March 2011	31 March 2011	31 March 2011	31 March 2010	31 March 2010	31 March 2010
	30 September 6 months to Continuing operations Unaudited 2012 £m	30 September Discontinued 6 months to operations Unaudited 2012 £m	30 September 6 months to Unaudited 2012 £m	30 September 6 months to Unaudited 2011 £m	Before non amortisation items and recurring £m	Non-recurring amortisation items and £m	Total £m	Before non amortisation items and recurring £m	Non-recurring amortisation items and £m	Total £m	Before non amortisation items and recurring £m	Non-recurring amortisation items and £m	Total £m
Group revenue	338.9	14.6	353.5	351.0	695.3	—	695.3	571.4	—	571.4	483.1	—	483.1
Cost of sales	(313.0)	(23.4)	(336.4)	(314.8)	(625.2)	—	(625.2)	(513.4)	—	(513.4)	(434.0)	—	(434.0)
Gross profit/(loss)	25.9	(8.8)	17.1	36.2	70.1	—	70.1	58.0	—	58.0	49.1	—	49.1
Administrative expenses	(13.3)	(1.2)	(14.5)	(21.2)	(40.0)	—	(40.0)	(32.9)	—	(32.9)	(27.0)	—	(27.0)
Group operating profit/(loss) other non-recurring costs before amortisation and	12.6	(10.0)	2.6	15.0	30.1	—	30.1	25.1	—	25.1	22.1	—	22.1
– Intangible assets amortisation and impairment Other expenses	(5.7)	—	(5.7)	(1.4)	—	(4.2)	(4.2)	—	(2.1)	(2.1)	—	(3.2)	(3.2)
– Other non-recurring costs	—	—	—	—	—	(4.9)	(4.9)	—	(3.4)	(3.4)	—	—	—
Operating profit/(loss)	6.9	(10.0)	(3.1)	13.6	30.1	(9.1)	21.0	25.1	(5.5)	19.6	22.1	(3.2)	18.9
Finance income Finance costs	(1.6) 0.1	— —	(1.6) 0.1	(0.7) 0.2	(2.0) 0.3	— —	(2.0) 0.3	(1.2) 0.4	— —	(1.2) 0.4	(0.9) 0.4	— —	(0.9)
Profit/(loss) before taxation Taxation	(1.4) 5.4	(10.0) 2.4	(4.6) 1.0	(3.5) 13.1	(7.7) 28.4	(9.1) 2.2	(5.5) 19.3	(6.9) 24.3	(5.5) 1.4	(5.5) 18.8	(6.2) 21.6	(3.2) 0.9	(5.3) 18.4
operations attributable to Profit/(loss) for the period/ year from continuing
equity holders of the parent	4.0	(7.6)	(3.6)	9.6 1	20.7	(6.9)	13.8 2	17.4	(4.1)	13.3	15.4	(2.3)	13.1

Notes: 1) Profit of £0.2 million arising from discontinued operations for 6 months to 30 September 2011. 2) Loss of £1.5 million arising from discontinued operations for 12 months to 31 March 2012. First-half underlying continuing operations revenues increased by 4% to £338.9 million (HY2011: £324.7 million).

Underlying continuing operations EBITA was £12.6 million (HY2012: £14.7 million) with an overall operating margin of 3.7% (HY2012: 4.5%). The margin was affected by four key factors: the poor weather over the summer that impacted May Gurney's surface dressing operations, a short-term downturn in rail services, provisions for Scotia Gas Networks ('SGN') reduction in outsourcing, and the poor performance of two MaGOS™ environmental services contracts.

The May Gurney Group has taken a £10 million charge for the closure of its Facility Services business. Of this, £2.0 million has been incurred at the half-year and accordingly, the provision at 30 September 2012 was £8 million.

The May Gurney Group has continued to build upon its performance in HY2013. In HY2013, the May Gurney Group secured £314 million of work, including more than £164 million in new contracts, primarily from its Waterways and Fleet & Passenger Services operations, and a seven-year extension to its environmental services contract with the Somerset Waste Partnership ('SWP'), valued at £100 million. May Gurney's order book has been maintained at £1.5 billion, with a further £1.7 billion in potential contract extensions, and its bidding pipeline stands at approximately £4 billion. The integration of TransLinc has been completed and the business has been renamed 'Fleet & Passenger Services'. The operation continues to perform in line with May Gurney's expectations.

The May Gurney Group underlying profit before tax and amortisation was £1.1 million (HY2012: £14.5 million). The May Gurney Group had a net interest charge for the half-year of £1.5 million (HY2012 £0.5 million). The increase largely reflects interest charges on additional finance leased assets used within the business.

During FY2012 revenue grew by 22% to £695.3 million (FY2011: £571.4 million). Underlying EBITA increased by 20% to £30.1 million (FY2011: £25.1 million) representing an underlying EBITA margin of 4.3% (FY2011: 4.4%). The Public Sector Services Division increased revenues and EBITA by 11% and 3% respectively. Highways growth was driven by the new Surrey contract and additional pothole funding but offset by the West Sussex contract which ceased. Environmental Service growth was largely driven by the new contract with Bristol as well as year on year run rate growth in other areas such as Bridgend. TransLinc turned over £13 million in the period post acquisition. The Regulated Sector Services Division delivered revenue and EBITA growth of 42% and 58% respectively. This growth resulted primarily from the first full year of Turriff (post acquisition) contributed an additional £44 million year on year; repair and maintenance contracts with customers such as Severn Trent and Anglian Water achieved annualised run rates; and growth in May Gurney's presence in the mechanical & Electrical service delivery.

During FY2011 revenue grew by 18% to £571.4 million (FY2010: £483.1 million). Underlying EBITA increased by 14% to £25.1 million (FY2010: £22.1 million), representing an underlying EBITA margin of 4.4% (FY2010: 4.6%). The Public Sector Services Division increased revenues and EBITA by 33% and 18% respectively, due to significant Highways and Environmental Services contract wins in the prior year that were mobilised. The Regulated Sector Services Division revenues were broadly flat compared to the prior year, reflecting the transition between AMP 4 and AMP 5 investment periods by clients. The Regulated Sector Services Division delivered EBITA growth of 5%, principally due to a strong performance in rail.

2.2 Summary balance sheets

The tables below show summary balance sheets for the May Gurney Group as at 30 September 2012 and 30 September 2011 and as at FY2012, FY2011 and FY2010.

	30 September 2012 unaudited £m	31 March 2012 £m	30 September 2011 unaudited £m	31 March 2011 £m	31 March 2010 £m
Non-current assets
Property, plant & equipment	112.2	92.4	40.2	39.2	25.7
Goodwill	60.3	60.3	42.1	42.1	35.2
Other intangible assets	13.7	18.8	10.2	11.4	5.6
Deferred tax asset	—	—	1.7	0.9	1.1
	186.2	171.5	94.2	93.6	67.7
Current assets
Inventories	4.8	4.5	4.4	4.4	2.7
Trade and other receivables	119.7	112.2	134.1	110.4	81.4
Cash and cash equivalents	20.0	31.0	36.6	36.2	43.4
	144.5	147.7	175.1	151.0	127.5
Assets included in discontinued operation	2.2	—	—	—	—
Total assets	332.9	319.2	269.3	244.6	195.1
Current liabilities
Trade and other payables	(135.7)	(141.2)	(152.4)	(132.7)	(105.2)
Current tax liabilities	(0.5)	(3.1)	(3.6)	(2.0)	(1.1)
Borrowings	(23.0)	(20.0)	—	—	—
Obligations under finance leases	(19.2)	(16.9)	(6.4)	(7.3)	(5.6)
	(178.4)	(181.2)	(162.4)	(142.1)	(111.9)
Liabilities included in discontinued operation Non-current liabilities	(14.0)	—	—	—	—
Retirement benefit obligations	(0.4)	(0.4)	(0.4)	(0.4)	(1.1)
Obligations under finance leases	(54.7)	(43.3)	(15.0)	(18.0)	(8.6)
Deferred tax liability	(1.4)	(1.7)	—	—	—
Provisions	0	—	—	(0.1)	(0.1)
	(56.5)	(45.4)	(30.8)	(18.5)	(9.8)
Total liabilities	(248.9)	(226.6)	(177.8)	(160.5)	(121.7)
Net assets	84.0	92.6	91.5	84.1	73.4
Equity
Share capital	3.5	3.5	3.5	3.5	3.5
Share premium account	13.2	13.2	13.2	13.2	13.2
Merger relief reserve	1.9	1.9	1.9	1.9	1.9
Other reserves	1.4	1.4	1.4	1.4	1.4
Retained earnings	64.0	72.6	71.5	64.1	53.4
Total equity	84.0	92.6	91.5	84.1	73.4

The May Gurney Group's balance sheet remained strong at the half-year, with net assets of £84 million (FY2012: £92.6 million). The intangible assets of £2.9 million associated with SGN in Turriff have been written off in full. The May Gurney Group has concluded that no impairment is required for the goodwill which arose on the Turriff acquisition. Investment in fixed assets in the first-half was £35 million, primarily in its Environmental Services business reflecting the mobilisation of new long-term contracts and in the Fleet & Passenger Services business. Investment in these assets is secured against longterm contract revenue streams and the assets are matched with appropriate finance leases.

The May Gurney Group's IAS 19 pension fund deficit was maintained at the half-year at £0.4 million (FY2012: £0.4 million). May Gurney's defined benefit pension scheme is closed to future accruals. The defined benefit pension scheme acquired with the TransLinc acquisition shows an IAS 19 accounting surplus of £2.9 million as at March 2012. This surplus has not been consolidated onto the May Gurney Group's balance sheet.

The May Gurney Group's cash generation remained strong, with cash generated in the half-year from continuing operations of £15.4 million (HY2012: £17.7 million), representing a conversion of more than 100% of EBITA. The May Gurney Group ended the half-year with gross cash of £20 million (31 March 2012: £31 million).

Short-term borrowings were £23.0 million, resulting in a net deficit (cash less short term borrowings excluding finance lease obligations) of £3.0 million (31 March 2012 net cash: £11 million). The May Gurney Group has a revolving debt facility in place, until November 2014, of £33 million and it also has a £15 million overdraft facility.

As at 31 March 2012, May Gurney Group's net assets had increased to £92.6 million (31 March 2011: £84.1 million). Fixed assets had increased to £92.4 million, primarily due to the £47.6 million of assets acquired as part of the acquisition of TransLinc in November 2011. This acquisition also accounted for the growth in goodwill and intangible assets

As at 31 March 2012, cash on the balance sheet stood at £31.0 million, which was offset by £20.0 million of short term borrowings under a revolving credit facility (the latter having been used to help finance the TransLinc acquisition). This resulted in a "net" cash position of £11.0 million as at 31 March 2012.

As at 31 March 2011, May Gurney Group's net assets had increased to £84.1 million (31 March 2010: £73 million). Fixed assets had increased to £39.2 million due to investment in new vehicles for Environmental Services contracts and investment in IT (particularly May Gurney's operational IT platform, MGConnect™). The increase in goodwill and intangible assets was primarily as a result of the acquisition of Turriff in January 2011.

As at 31 March 2011, cash on the balance sheet stood at £36.2 million with no short term borrowings, which resulted in a "net" cash position of £36.2 million (31 March 2010: £43.4 million). The business also utilises finance leases to fund vehicles and plant dedicated for use within client contracts. The obligation to repay the capital and interest related to this asset financing is matched within the contracts where the assets are utilised. As at 30 September 2012, the total outstanding obligations under finance leases were £74 million (31 March 2012: £60.2 million). At 31 March 2011, finance lease obligations totalled £25.3 million, compared with £14.2 million at the end of 31 March 2010.

2.3 Consolidated statements of changes in equity

The table below shows the changes in consolidated shareholders' equity for HY2013 and HY2012 and also for FY2012, FY2011 and FY2010.

Consolidated statement of changes in equity for the six months ended 30 September 2012 and 30 September 2011 (unaudited) and consolidated statement of changes in equity for Full Year Ended 31 March 2012, 2011 and 2010 (audited):

Condensed consolidated statement of changes in equity

	Share Capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
Balance at 31 March and 1 April 2009	3.5	13.2	1.9	1.4	43.5	63.5
Profit for the period	—	—	—	—	6.1	6.1
Other comprehensive income:	—	—	—	—	—	—
Actuarial losses on defined benefit pension schemes Tax on actuarial losses on defined benefit pension schemes	— —	— —	— —	— —	— —	— —
Total comprehensive income for the period	—	—	—	—	6.1	6.1
Proceeds from disposal of own shares	—	—	—	0.1	—	0.1
Share based payments – income statement credit Dividend paid	— —	— —	— —	— —	1.1 (2.3)	1.1 (2.3)
Balance at 30 September 2009	3.5	13.2	1.9	1.5	48.4	68.5

	Share Capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
Profit for the period	—	—	—	—	7.0	7.0
Other comprehensive income: Actuarial losses on defined benefit pension	—	—	—	—	—	—
schemes Tax on actuarial losses on defined benefit	—	—	—	—	(1.3)	(1.3)
pension schemes	—	—	—	—	0.4	0.4
Total comprehensive income for the period	—	—	—	—	6.1	6.1
Proceeds from disposal of own shares Taxation on share sales Share based payments – income statement	— —	— —	— —	— (0.1)	— —	— (0.1)
charge Share based payments – deferred tax relief on	—	—	—	—	(0.7)	(0.7)
future exercise Dividend paid	— —	— —	— —	— —	0.8 (1.2)	0.8 (1.2)
Balance at 31 March and 1 April 2010 Profit for the period	3.5 —	13.2 —	1.9 —	1.4 —	53.4 7.9	73.4 7.9
Other comprehensive income:	—	—	—	—	—	—
Actuarial losses on defined benefit pension
schemes Tax on actuarial losses on defined benefit pension schemes	— —	— —	— —	— —	— —	— —
Total comprehensive income for the period	—	—	—	—	7.9	7.9
Transactions with owners: Share based payments – income statement	—	—	—	—	—	—
charge	—	—	—	—	0.4	0.4
Share based payments – deferred tax relief on future exercise Dividends paid	— —	— —	— —	— —	(0.1) (2.5)	(0.1) (2.5)
Balance at 30 September 2010 Profit for the period Other comprehensive income:	3.5	13.2	1.9	1.4	59.1 5.4	79.1 5.4
Actuarial losses on defined benefit pension schemes					0.9	0.9
Tax on actuarial losses on defined benefit pension schemes					(0.2)	(0.2)
Total comprehensive income for the period Transactions with owners: Share based payments – income statement	— —	— —	— —	— —	6.1 —	6.1 —
credit	—	—	—	—	(0.1)	(0.1)
Share based payments – deferred tax relief on future exercise	—	—	—	—	0.4	0.4
Dividends paid	—	—	—	—	(1.4)	(1.4)
Balance at 31 March and 1 April 2011	3.5	13.2	1.9	1.4	64.1	84.1
Profit for the period	—	—	—	—	9.6	9.6
Total comprehensive income for the period Transactions with owners:	— —	— —	— —	— —	9.6 —	9.6 —
Share based payments – income statement credit	—	—	—	—	0.4	0.4
Share based payments – deferred tax relief on future exercise	—	—	—	—	0.4	0.4
Dividends paid	—	—	—	—	(3.0)	(3.0)
Balance at 30 September 2011 (unaudited) Profit for the period Other comprehensive income	3.5 — —	13.2 — —	1.9 — —	1.4 — —	71.5 4.2 —	91.5 4.2 —
Total comprehensive income for the period	—	—	—	—	4.2	4.2
Transactions with owners: Share based payments – income statement	—	—	—	—	—	—
credit	—	—	—	—	(0.4)	(0.4)

Share Capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
—	—	—	—	(0.8)	(0.8)
					(1.9)
3.5	13.2	1.9	1.4	72.6	92.6
					(3.6)
					—
—	—	—	—	(3.6)	(3.6)
					—
—	—	—	—	(0.3)	(0.3)
					(0.9)
—	—	—	—	(3.8)	(3.8)
3.5	13.2	1.9	1.4	64.0	84.0
	— — — — —	— — — — —	— — — — —	— — — — —	(1.9) (3.6) — — (0.9)

The total equity of the May Gurney Group has remained relatively stable over the last three years, reflecting profit generation and a progressive dividend policy over that period. The pension scheme deficit has also been stable at £0.4m for the last two year ends.

3. Review of operating performance and financial review of consolidated results of operations – review of May Gurney Group performance against key performance indicators for FY2012, FY2011, FY2010, HY2013 and HY2012.

May Gurney measures its business performance against seven key performance indicators ('KPIs') at the end of each financial period. These KPIs are reviewed each month by the May Gurney Board against targets established at the beginning of the relevant financial period.

3.1 Group profit margin

Profitability of the May Gurney Group and of each delivery sector is a key measure of overall performance. May Gurney measures EBITA as a percentage of external turnover year-to-date, as a variance to the budget. The May Gurney Group's target is budget or better.

	FY2012	FY2011	FY2010	HY2013	HY2012
Key Performance Indicator	%	%	%	%	%
Group Profit Margin	4.3	4.4	4.6	3.7	4.5

3.2 Value of long-term public sector and regulated sector work

May Gurney's business strategy is focused on developing long-term client relationships. It measures the value of long-term public and regulated sector work as a percentage of its total revenues. May Gurney's target is 90% or more.

	FY2012	FY2011	FY2010
Key Performance Indicator	%	%	%
Value of Long-term Public Sector and Regulated Sector Work	95	95	95

3.3 Employee satisfaction

May Gurney's workforce is essential to the delivery of its services which means that its employees' overall levels of satisfaction and engagement are a key factor in May Gurney's ability to deliver a high standard of service for its clients. May Gurney measures employee satisfaction through an annual employee survey.

	FY2012	FY2011	FY2010
Key Performance Indicator	%	%	%
Employee Satisfaction	67	65	65

3.4 Group net cash

Cash collection and cash balances are key indicators of financial stability and performance.

Key Performance Indicator	FY2012	FY2011	FY2010	HY2013	HY2012
	£m	£m	£m	£m	£m
Group Net Cash / Deficit1	11.0	36.2	43.3	(3.0)	36.6

The movement to a £3.0 million net debt position as at 30 September 2012 resulted from a high level of capital expenditure in the six months to this date, a significant proportion of which was not financed with finance leases.

3.5 Group order book

The order book measure is impacted by the full value of contract wins, losses and delays, reflects the deferral of some client procurement processes and provides May Gurney with a long-term perspective. It is measured as a variance to the business plan.

Key Performance Indicator	FY2012	FY2011	FY2010	HY2013	HY2012
	£bn	£bn	£bn	£bn	£bn
Group Order Book	1.5	1.4	1.7	1.5	1.4

3.6 Employee retention

May Gurney's goal is to reduce employee turnover in order to maintain appropriate levels of competence, experience, service delivery, cultural alignment, teamwork and stability. It is calculated using the employee turnover figure less redundancies, TUPE, seasonal workers, fixed-term contracts, retirements and dismissals. May Gurney's target is 17% or less.

	FY2012	FY2011	FY2010
Key Performance Indicator	%	%	%
Employee Retention	9	7	9

3.7 Safety

May Gurney's goal is to reduce accidents and injuries at work. It is measured using the Accident Frequency Rate ('AFR') defined by the Health and Safety Executive ('HSE') as the number of RIDDOR accidents in a 12-month period x 100,000, divided by the total hours worked in that same 12-month period. May Gurney's target is 0.43 or less.

Key Performance Indicator	FY2012	FY2011	FY2010	HY2013	HY2012
Safety	0.53	0.62	0.31	0.48	0.68

4. Review of operating performance and financial review of consolidated results of operations – half year ended 30 September 2012 against half year ended 30 September 2011

4.1 Public Sector Services division

Highway Services

May Gurney's new highways maintenance contracts with Surrey County Council and the London Borough of Harrow performed well operationally. However, the poor weather over the summer of 2012 impacted May Gurney's surface dressing operations.

Environmental Services

Targeted margins on two of May Gurney's long-term MaGOS™ contracts were not achieved. May Gurney is taking stringent actions to drive operational efficiencies and profitability and is in close dialogue with its clients to bring these contracts back into line. These contracts represent 4% of HY2013 revenues and are spread over terms of 7 to 14 years.

In September 2012, May Gurney announced that it had been awarded a seven year contract extension with the Somerset Waste Partnership (SWP) for the on-going provision of recycling and refuse collection services, valued at £100 million.

¹ Cash less borrowings excluding finance lease obligations.

Fleet & Passenger Services

The integration of TransLinc, acquired in November 2011, was completed and the operation was renamed 'Fleet & Passenger Services'. May Gurney is benefiting from the integration of TransLinc's operations with its existing plant and transport operations, specifically through the use of acquired fleet management systems. The business is performing well and providing a positive contribution to May Gurney Group's earnings. In addition, in HY2013, May Gurney secured a new six-year contract with West Lancashire Borough Council for fully outsourced fleet management services valued at £4 million.

4.2 Regulated Sector Services division

Utility Services

A strong operational performance in England and Wales was driven by an increase in work from May Gurney's ability to deliver a wider range of different services to its clients, integrating these services to bring efficiencies and working closer with its clients to develop preventative maintenance programming in conjunction with reactive activities. In addition, May Gurney saw an uplift on its reactive clean and waste water contracts caused by the poor summer weather, and more work associated with the maintenance of private drains and sewers. This was offset by the issues with SGN in Scotland.

Rail Services

There was a short-term downturn in May Gurney's rail services business due to restructuring within Network Rail Infrastructure Projects. This was specifically in small to medium sized capital projects which is May Gurney's area of expertise in this market. May Gurney continued to work on several key projects, including an element of the high profile collaborative Network Rail project on the Great Northern/Great Eastern Joint Line between Peterborough and Doncaster.

May Gurney also started work on the Major & Minor Works framework contract with BRB Residuary, which covers works north of a line drawn between the Humber and the Mersey, including Scotland.

Waterways Services

During HY2013, May Gurney secured a two-year extension to its Omnibus Contract with the Canal & River Trust, valued at up to £40 million.

In addition, May Gurney completed a flood defence scheme in the village of Braunton in North Devon on behalf of the Environment Agency and is currently working on the high-profile River Stert flood protection scheme in Somerset.

Facility Services

The Facility Services business remained in the process of being wound down.

4.3 Financial review of consolidated results of operations

(A) May Gurney group analysis

Overview

May Gurney delivered a performance in line with its revised expectations during HY2013. It generated revenues from continuing operations of £338.9 million (HY2012: £324.7 million) and underlying EBITA of £12.6 million (HY2012: £14.7 million), achieving an operating margin of 3.7% (HY2012: 4.5%) after bidding and mobilisation costs which, in line with May Gurney's prudent accounting policy, were written off as incurred.

May Gurney remained a cash generative business with cash generated from continuing operations of £15.4 million (HY2012: £17.7 million), representing more than 100% of underlying EBITA.

May Gurney continued to build upon its performance in HY2013. In HY2013, May Gurney secured £314 million of work, including more than £164 million in new contracts, primarily from its Waterways and Fleet & Passenger Services operations, and a seven-year extension to its environmental services contract with the SWP, valued at £100 million. May Gurney's order book was maintained at £1.5 billion, with a further £1.7 billion in potential contract extensions, and its bidding pipeline stood at approximately £4 billion as at 30 September 2012.

The plans May Gurney put in place to address the three ring-fenced issues it highlighted on 6 September 2012 are on track. Specifically, May Gurney has significantly reduced those operations in Scotland supporting Scotia Gas Networks ('SGN'); is discontinuing its Facility Services business (a £10 million charge was taken in relation to the closure); and is continuing to work with clients on the two MaGOS™ environmental services contracts – these are complex contracts and May Gurney expects this process to continue well into 2013. In addition, an external review has been carried out on 13 of May Gurney's key contracts, resulting in no major issues being found.

Revenues

HY2013 underlying revenues from continuing, which increased by 4% to £338.9 million (HY2012: £324.7 million), were impacted by bad weather during the summer 2012 and the operational issues May Gurney highlighted in September 2012.

Margins

Underlying EBITA from continuing operations was £12.6 million (HY2012: £14.7 million) with an overall operating margin of 3.7% (HY2012: 4.5%).

The margin was affected by four key factors: the poor weather over the summer 2012 that impacted May Gurney's surface dressing operations, a short-term downturn in rail services, provisions for SGN's reduction in outsourcing, and the poor performance of two MaGOS™ environmental services contracts. May Gurney continued prudently to write off bidding and contract mobilisation costs as they were incurred. As at 30 September 2012, no provision for future losses had been made in respect of the two MaGOS™ contracts referred to above and this will be reviewed again by the May Gurney Board at the year end.

Profit before tax

May Gurney's underlying profit before tax was £1.1 million (HY2012: £14.5 million). May Gurney had a net interest charge for HY2013 of £1.5 million (HY2012: £0.5 million). The increase largely reflected interest charges on additional finance leased assets used within the business.

Earnings per share

Underlying earnings per share ('EPS') was 11.82 pence (HY2012: 14.81 pence). Underlying EPS is calculated by adding back shares held by employee trusts to the weighted average number of shares and by excluding amortisation and non-recurring costs.

Cash

May Gurney's cash generation remains strong, with cash generated in HY2013 from continuing operations of £15.4 million (HY2012: £17.7 million), representing a conversion of more than 100% of EBITA.

May Gurney ended HY2013 with gross cash of £20.0 million (31 March 2012: £31.0 million). Shortterm borrowings were £23.0 million, resulting in a net debt of £3.0 million (31 March 2012 net cash: £11.0 million). May Gurney has a revolving debt facility in place until November 2014 of £33 million. May Gurney also has a £15 million overdraft facility.

The business also utilises finance leases to fund vehicles and plant dedicated for use within client contracts. The obligation to repay the capital and interest related to this asset financing is matched within the contracts where the assets are utilised. As at 30 September 2012, the total outstanding obligations under finance leases were £74.0 million (31 March 2012: £60.2 million).

Balance sheet

May Gurney's balance sheet remained strong as at 30 September 2012, with net assets of £84.0 million (31 March 2012: £92.6 million). The intangible assets of £2.9 million associated with SGN in Turriff were written off in full. May Gurney has concluded that no impairment is required for the goodwill which arose on the Turriff acquisition.

Investment in fixed assets in HY2013 was £35.0 million, primarily in May Gurney's Environmental Services business reflecting the mobilisation of new long-term contracts and in the Fleet & Passenger Services business. Investment in these assets is secured against long-term contract revenue streams and the assets are matched with appropriate finance leases.

May Gurney's IAS 19 pension fund deficit has been maintained as at 30 September 2012 at £0.4 million (31 March 2012: £0.4 million). The May Gurney defined benefit pension scheme is closed to future accruals. The defined benefit pension scheme acquired with the TransLinc acquisition showed an IAS 19 accounting surplus of £2.9 million as at 31 March 2012. This surplus has not been consolidated onto the May Gurney Group's balance sheet.

Dividends

May Gurney declared an interim dividend of 2.79 pence per share, reflecting its confidence in the May Gurney Group's continued cash generation and future prospects. The dividend was paid on 7 January 2013.

Provision for discontinued activities

May Gurney has taken a £10 million charge for the closure of its Facility Services business. Of this, £2.0 million had been incurred as at 30 September 2012 and, accordingly, the provision at 30 September 2012 was £8 million.

(B) Segmental analysis

Revenues

The Public Sector Services division generated 58% of May Gurney's revenues (HY2012: 62%) and the Regulated Sector Services division contributed 42% (HY2012: 38%).

Margins

The Public Sector Services underlying EBITA margin was 4.3% (HY2012: 5.1%) and the Regulated Sector Services underlying EBITA margin was 3.0% (HY2012: 3.7%), assisted by a strong operational performance from the Mechanical & Electrical ('M&E') and Repair & Maintenance ('R&M') activities in England, a good performance on May Gurney's contracts with the Canal & River Trust (formerly British Waterways), and public sector services also benefited from the acquisition of TransLinc.

5. Review of operating performance and financial review of consolidated results of operations – full year ended 30 March 2012 against full year ended 30 March 2011

5.1 Public Sector Services division

Highway Services

Highway Services delivered a good performance during the year, underpinned by its essential maintenance-based income streams, primarily driven by an increase in highways maintenance on the back of extra Government funding, a higher than anticipated additional spend by local authority clients and May Gurney's clients' need to maintain existing assets due to reduced availability of capital.

May Gurney successfully completed the mobilisation of its new highways maintenance contracts with Surrey County Council, which have a combined value of up to £93 million over a six-year period (plus a possible four-year extension). East Sussex County Council awarded an extension to its contract with May Gurney for a further three years, to August 2015, valued at up to £60 million. The contract was remodelled, using new technology and working practices, to provide further cost savings and boost efficiency.

Also during the year, May Gurney was awarded Harrow Council's highways maintenance contract, valued at up to £50 million. Starting in April 2012, the initial contract period is for five years with an option to extend for a further two years. The contract was awarded in three 'bundled services' lots and includes maintenance of the council's key infrastructure assets – highways, carriageways, footways, streetlights, gullies and watercourses. As part of the contract, May Gurney is also undertaking maintenance of highways infrastructure assets belonging to London Underground and Overground, as well as watercourses belonging to the Environment Agency.

In Lincolnshire, May Gurney carried out a range of trials to help improve the efficiency and effectiveness of network repairs. In addition, May Gurney's established Lincolnshire highways operations supported a highways improvement scheme being delivered under the Lincolnshire Major Projects Framework, helping to create employment and business opportunities through improving access to Teal Business Park. The scheme also covers improvements to the A46.

May Gurney's specialist street lighting business, Cartledge, was awarded a new long-term maintenance contract by its existing long-term client, Torbay Council. The contract with Torbay Council started on 1 April 2012 and is for an initial period of five years with a possible three-year extension. It covers 17,000 street lighting units and is valued at between £4 million and £5 million.

During the year, May Gurney de-mobilised its contracts with Essex County Council and West Sussex County Council. The effect of this was largely offset by increased activity in other areas, specifically, in Lincolnshire, Surrey and Harrow.

Environmental Services

May Gurney's senior management and operational teams moved swiftly to address the operational challenges on some of its newly-won contracts with plans put in place to address the issues identified. As with other long-term contracts, mobilisation costs are written off as incurred and the impact of this, together with the fact that May Gurney continues to implement transformational service change, means that margins should improve as contracts mature.

In September 2011, May Gurney secured Cheshire West & Chester Council's new waste and recycling contract, which is valued at up to £126 million for a 14-year period, with the potential for an extension of a further seven years.

May Gurney's contract for Bristol City Council's waste collection, street cleansing and winter maintenance contract, valued at around £96 million over seven years, with a potential seven-year extension, has now been fully rolled out. The new service is expected to save the council around £2.5 million a year and help contribute towards the council's goal of sending zero untreated waste to landfill within three years.

Fleet & Passenger Services

In November 2011, acquired May Gurney the TransLinc group of companies, the UK's largest specialist fleet provider to local authorities. The acquisition of TransLinc gave May Gurney entry into the passenger services market, with a client base of both local authorities and Primary Care Trusts. During the year, May Gurney continued to integrate TransLinc and also secured three significant contract extensions with a combined value of £8 million with Solutions SK, Trafford and Rotherham. Since the year end, May Gurney has secured a new six-year contract with West Lancashire Borough Council for fully outsourced fleet management services valued at £4 million.

Facility Services

The performance within the Facility Services business, which, in FY2012 represented £46.6 million (7%) of the May Gurney Group's turnover, proved disappointing. The business suffered certain supplier issues and steps were, and continue to be, taken to rectify this. This is a non-core activity and May Gurney is closing the business after fulfilling its existing client obligations with the Smarte East framework, North Lincolnshire County Council and the London Borough of Lambeth.

5.2 Regulated Sector Services division

Utility Services

May Gurney continued to see excellent performance from its core water network and M&E teams, driven by the shift towards on-going R&M activities.

The first half of FY2012 saw an increased workflow from AMP5 contracts and the successful mobilisation of the Sewerage Services East Region maintenance contract for Severn Trent Water.

The integration of Turriff was completed, consolidating May Gurney's position in water and gaining it entry to the UK's gas market and Scotland's support services market. May Gurney also completed the mobilisation of the Scottish Water contract and, in England, undertook work for Southern Gas Networks, leveraging the resources of its utility services and highway services teams.

Also in the year, May Gurney successfully completed a high profile gas mains replacement project in the heart of Edinburgh. The project was part of Scotia Gas Networks' policy replacement programme to replace all metallic gas pipes within 30 metres of property over 30 years. The project team utilised specialist equipment and techniques (provided by May Gurney's underground moling services) including suction excavators, horizontal directional drilling and under-pressure drilling.

May Gurney undertook work under its first gas contract in England, for Southern Gas Networks. Working in East Sussex, May Gurney was able to leverage its existing highways presence in the county to ensure better use of resources and more effective delivery on the ground.

The May Gurney Group also became increasingly involved in the development of hydro-power generation for its clients in the water sector, where there are significant targets for generating renewable electricity. It designed and installed hydro-generation turbines at five South West Water sites and is currently looking at additional sites. These were the first of many hydro-generation sites which will be released for tendering by UK water utility companies.

Also during the year, May Gurney was one of two framework partners delivering civil and MEICA (mechanical, electrical, instrumentation, control and automation) works for the £180 million Water Supply Grid, the largest project Wessex Water has ever undertaken. The reservoir will provide additional storage to allow for effective maintenance of Wessex Water's existing assets without risk to supply and will support the operation of the new Grid Network.

In addition, May Gurney was appointed to Welsh Water's (Dwˆ r Cymru's) £170 million major civil engineering framework. The contract started on 1 February 2012 and is for a period of four years with the option to extend annually for a further two years. A number of outsourcing partners are included within the framework, with work awarded subject to mini-tender processes amongst the framework participants. The work will comprise civil engineering works, maintenance, improvement and design services across Welsh Water's clean water and waste water assets.

Rail Services

May Gurney's long-term commitment to the Rail Industry is delivered through zero-value frameworks: Network Rail (NR) Building and Civil Delivery Partnerships; NR Type C Signalling Framework; Nexus Frameworks; and the British Railways Board (BRB) Frameworks. By forecasting changes in the client, May Gurney has successfully developed a competitive tendering capability and won several key projects, including an element of the high-profile collaborative Network Rail project on the GN/GE (Great Northern/Great Eastern) Joint Line between Peterborough and Doncaster.

During the year, the refurbishment and replacement of the roof at Victoria Station in central London was completed. In addition, May Gurney successfully completed a project to provide step-free access to all platforms at Haymarket Station, Scotland's third busiest railway station and the refurbishment of the Arnside Viaduct, a 52-span viaduct that was replaced in half the time of an identical project five years ago.

May Gurney also started work under a new £6.5 million contract to replace 12 rail bridges located in the LNE region between Peterborough and Doncaster, on behalf of Network Rail, due for completion by the end of 2013. There is also the possibility of a number of additional structures being added to the contract.

Working on behalf of Network Rail, May Gurney completed a major scheme of works to extend the life of the existing structural steel platform canopies at Finsbury Park station in North London. Finsbury Park is a major interchange with the London Underground and has an annual footfall in excess of two million people, with thousands of passengers passing through at peak times. The station remained fully operational throughout the works. The £3 million project, which started in January 2011, comprised the renewal of all existing canopy cladding systems, including waterproofing, drainage and lighting.

May Gurney was also awarded a new framework contract to maintain redundant structures across the rail network in northern England and Scotland. The Major & Minor Works contract was awarded by BRB Residuary Ltd, which is Government-owned and falls under the jurisdiction of the Department for Transport. The framework is for a three-year period starting from April 2012, and is likely to be worth in the region of £3 million per annum. It covers all works north of a line drawn between the Humber and the Mersey, including Scotland.

At the end of FY2012, May Gurney was mid-way through a £4.1 million project to refurbish one of the busiest stations on the Tyne & Wear Metro. It was appointed to the three-year Surface Stations' Refurbishment Framework in 2010, by Nexus, the Tyne and Wear Passenger Transport Executive. The current project involves the demolition and rebuilding of North Shields Metro Station, an important interchange providing bus, ferry and taxi links to other parts of the region. It is the sixth busiest commuter station in the north east, with more than two million people passing through every year.

Waterways Services

During FY2012, May Gurney was awarded the MEICA framework for the northern and southern regions of England and Wales by the Canal and River Trust (formerly British Waterways). This new contract was in addition to the May Gurney Group's existing £25 million per annum Omnibus contract with the same client. The framework, which started on 1 April 2012, will run for three years and is worth approximately £1 million per annum. It covers the maintenance, repair and emergency repair of MEICA equipment on mechanised and manually operated assets located throughout the British Waterways network. These are typically powered or manually operated bridges and locks, although a number of bespoke assets and overhead cranes are included.

Since the end of FY2012, May Gurney has secured a two-year extension to its Omnibus contract with the Canal & River Trust, valued at up to £40 million.

Working on behalf of the Environment Agency, May Gurney successfully completed a £1.9 million refurbishment project at King's Lynn in Norfolk. The 'Tail Sluice' project started in April 2009 and ran for three years during non-flooding times. The works, carried out in three annual phases, comprised refurbishment of a major tidal sluice structure. All three phases were completed on budget and years two and three were completed ahead of programme.

5.3 Financial review of consolidated results of operations

(A) May Gurney Group analysis

Overview

Total revenues grew by 22% to £695.3 million (FY2011: £571.4 million), with EBITA up 20% to £30.1 million (FY2011: £25.1 million) and underlying earnings per share (EPS) increasing by 19% to 29.47 pence (FY2011: 24.77 pence). Adjusting for the acquisition of TransLinc in November 2011, underlying revenue and EBITA increased year-on-year by 19% and 12%, respectively.

The May Gurney Group continued its track record of delivering solid cash generation, with £42.4 million of cash generated from operations, equivalent to more than 100% of EBITA. The May Gurney Group ended FY2012 with gross cash of £31.0 million (FY2011: £36.2 million), short-term debt of £20.0 million and contract-backed finance leases of £60.2 million (FY2011: £25.3 million). As at 30 March 2012, the May Gurney Group had no long-term debt.

FY2012 saw substantial bid levels across the May Gurney Group and it increased the order book to £1.5 billion (including framework agreements) with potential contract extensions of a further £1.1 billion.

The May Gurney Group continued to enjoy long-term revenue visibility, with 76% of consensus FY2013 revenues covered by the order book. This fell from 90% at the same time in FY2011, reflecting Network Rail's change in procurement policy to mini-bids and the growth of M&E zero-value frameworks.

The May Gurney Group recommended a final dividend for the year of 5.63 pence per share, resulting in a total for the year of 8.42 pence per share, up 28% compared to FY2011.

Revenues

Details of how the May Gurney Group recognises revenues in its consolidated financial statements can be found on page 99 below.

The May Gurney Group's revenue for FY2012 was £695.3 million (FY2011: £571.4 million), an increase of 22%. Revenue before the inclusion of the acquired TransLinc revenues was £681.7 million, giving an underlying increase of 19%.

This growth was primarily driven by the full year effect of the acquisition of Turriff (completed in January 2011); strong performances in May Gurney's long-term utility contracts, notably in M&E and R&M activities; the ramp-up of new Environmental Services contracts; and increased local authority highways maintenance.

Margins

EBITA increased by 20% to £30.1 million (FY2011: £25.1 million) at a margin of 4.3% (FY2011: 4.4%). EBITA before the inclusion of TransLinc was £28 million, an underlying increase of 12% and a margin of 4.0%.

The margin was affected in FY2012 by the newly won Environmental Services contracts taking longer to reach their expected margins, a disappointing performance from Facility Services and a small number of under-performing contracts in Scotland (which have been discontinued).

May Gurney maintained its level of spend on bidding and contract mobilisations and continue to write off these costs as they were incurred.

Profit before tax

Underlying profit before tax rose by 17% to £28.4 million (FY2011: £24.3 million). Underlying profit before tax and before the inclusion of TransLinc was £26.7 million.

The May Gurney Group had a net interest charge for the year of £1.7 million (FY2011: £0.8 million), primarily representing the cost of borrowings to complete the TransLinc acquisition and interest charges on additional finance leased assets used within the business.

Profit before tax for the year increased by 3% to £19.3 million (FY2011: £18.8 million).

Earnings per share

Underlying EPS increased by 19% to 29.47 pence (FY2011: 24.77 pence). Underlying EPS is calculated by adding back shares held by employee trusts to the weighted average number of shares and by excluding amortisation and non-recurring costs.

Cash

May Gurney's cash generation remained strong in FY2012 with cash generated in the year from operations of £42.4 million (FY2011: £28.6 million), representing a conversion of more than 100% of EBITA.

May Gurney ended the year with gross cash of £31.0 million (FY2011: £36.2 million) after funding the acquisition of TransLinc. Set against this was short-term debt of £20 million, giving a net cash balance of £11.0 million (FY2011: £36.2 million).

In FY2012, the business also employed finance leases to fund vehicles and plant dedicated for use within client contracts. The cost of funding these finance leases was factored into May Gurney's tenders and, as such, May Gurney did not carry significant asset risk. As at 31 March 2012, the total outstanding obligations under finance leases were £60.2 million, of which £28.3 million related to assets within the acquired TransLinc business.

Balance sheet

May Gurney's balance sheet remained strong at the year end, with net assets of £93 million (FY2011: £84 million). At the year end, May Gurney had short-term borrowings of £20 million, which were used to part-fund the acquisition of TransLinc.

Investment in fixed assets in the year was £22.8 million, primarily in May Gurney's Environmental Services business on the back of the implementation of new long-term contracts. Investment in these assets was secured against long-term contract revenue streams and the assets were matched with appropriate finance leases.

At the time of the TransLinc acquisition, May Gurney increased its debt facilities to provide additional headroom and flexibility. In line with its strategy, May Gurney had no long-term debt.

May Gurney's IAS 19 pension fund deficit was maintained at £0.4 million at 31 March 2012 (31 March 2011: £0.4 million). A full (triennial) actuarial valuation as at 31 March 2011 was completed. The defined benefit pension scheme acquired with the TransLinc acquisition showed an IAS 19 accounting surplus of £2.9 million as at March 2012. This surplus was not consolidated onto the May Gurney Group's balance sheet.

Dividends

May Gurney's progressive dividend policy, adopted in 2010, was maintained in FY2012 and a final dividend of 5.63 pence per share (FY2011: 4.52 pence per share) was paid. This brought the total dividend for the year to 8.42 pence (FY2011: 6.60 pence), up 28% on FY2011.

Exceptional costs

In FY2012, £4.9 million of exceptional costs were incurred. This included the £2.9 million invested in reorganising May Gurney's business into two public-facing divisions (Public Sector Services and Regulated Sector Services), comprising largely of redundancy and termination costs. At the year end, £1.5 million of this had been paid in cash. The majority of the benefit derived from this was reinvested in the business. A further £2 million in exceptional costs was expensed for fees and integration costs associated with the TransLinc acquisition.

(B) Segmental analysis

Revenues

Public Sector Services generated 60% of May Gurney Group revenues and 59% of EBITA in FY2012 (FY2011: 66% of revenues and 69% of EBITA). Revenues increased to £418.2 million (FY2011: £376.3 million), representing growth of 11.1%.

The Regulated Sector Services division generated 40% of May Gurney Group revenues and 41% of EBITA in FY2012 (FY2011: 34% of revenues and 31% of EBITA). Divisional revenues increased by 42% to £277.1 million (FY2011: £195.1 million).

Margins

Public Sector Services EBITA stood at £17.8 million (FY2011: £17.3 million) with EBITA margin at 4.3% (FY2011: 4.6%), the reduction being due to the high level of bidding and mobilisation costs incurred in the year, a higher proportion of new contracts and the challenges on Environmental Services contracts. Public Sector Services also included the Facility Services business activity, which is no longer core to May Gurney, and where the financial performance was disappointing.

The Regulated Sector Services division delivered a 58% increase in EBITA to £12.3 million (FY2011: £7.8 million) with Regulated Sector Services EBITA margin at 4.4% (FY2011: 4.0%) due to a strong operational performance, particularly in M&E and R&M activities, which was slightly offset by a small number of under-performing contracts in Scotland which have been discontinued.

6. Review of operating performance and financial review of consolidated results of operations – full year ended 31 March 2011 against full year ended 31 March 2010

6.1 Public Sector Services division

Highway Services

Highway Services delivered a strong performance during the year, underpinned by essential maintenance-based income streams, such as highways drainage, winter maintenance and street lighting. May Gurney was also engaged in significant bidding activity.

The first half of the year saw a stronger performance than previous periods due to the positive impact of good early summer weather and a severe winter. In addition, the second half was better than expected due to extra Government funding for pothole repairs and clients continuing to spend at existing levels ahead of the impact of the comprehensive spending review.

Mobilisation of new highways maintenance contracts with Surrey County Council, with a combined value of up to £93 million over a six-year period (plus a possible four year extension), progressed to plan with related costs written off as they occurred, in line with May Gurney's accounting policy. The contract includes highways maintenance, winter maintenance, the upkeep of bridges, road resurfacing works, drainage and the establishment of an automated asset management system. The deployment of MGConnect™ is a key feature of this contract.

The Surrey and East Sussex contracts will also see May Gurney working with other local authorities across the south east to identify economies of scale that can be achieved through joint purchasing or sharing of facilities, with the aim of delivering additional savings through the SE7 consortia of local authorities.

May Gurney's existing contract with Norfolk County Council was extended by 18 months, with a value of up to £50 million, achieving its maximum extension term until April 2014. The long-term contract (known as the Norfolk Strategic Partnership, which started in 2004) includes a complex range of services including programme management, highway operations, infrastructure maintenance and new schemes. There is also scope within the arrangement for the potential transfer of additional work to May Gurney.

Northamptonshire Highways continued to operate at the forefront of service innovation. This contract is outcome driven, where the client gives May Gurney the responsibility for designing, developing and implementing service delivery for residents. Specifically, May Gurney introduced a centralised 'Control Hub' which coordinates all highways works for the Northamptonshire County Council, including utilities, resulting in better use of resources, increased efficiencies and improved delivery of services on the front-line.

In addition, the London Borough of Waltham Forest awarded a three-year contract extension to Cartledge to maintain 19,000 units, with a value of up to £3 million. Earlier in the year, the London Borough of Bromley awarded Cartledge a two-year extension to its street lighting contract, with a value of up to £3 million. The contract covers maintenance and improvement of the borough's 32,000 street lighting units and runs until April 2013. May Gurney was also awarded a long-term street contract with Medway Council, valued at up to £5 million.

Also during the year, the mobilisation of May Gurney's long-term bundled services contract with Torbay Council was completed. This included the introduction of new waste and recycling services to Torbay's 60,000 households, aiming to deliver potential cost savings to the Council of more than £14 million over the lifetime of the contract. Since the service introduction in September 2010 to the end of FY2011, there was a 44% increase in recycling rates. Other front-line services delivered included the maintenance of highways, grounds, parks, car parks, buildings and the Council's vehicle fleet, street and beach cleansing and out of hours call centre support.

Environmental Services

May Gurney mobilised five long-term contracts in FY2011 and engaged in significant new business bidding activity.

During the year, in addition to Torbay, May Gurney mobilised long-term contracts with North Somerset Council, Bridgend County Borough Council, the Somerset Waste Partnership and West Oxfordshire District Council. By deploying MaGOS™, it achieved good recycling rates, helping its clients to meet their carbon reduction and recycling targets.

In addition, May Gurney mobilised the £75 million 14-year contract for Bridgend County Borough Council, which includes recycling, food and refuse collections and the management of the Council's HWRCs. Just six months into the new MaGOS™ service, which began in June 2010, the Council was named as the most improved area in Wales for recycling.

May Gurney also mobilised a contract with North Yorkshire County Council for its 17 HWRCs, valued at up to £24 million over seven years (with a possible extension of a further three years).

6.2 Regulated Sector Services division

Utility Services

During FY2011, May Gurney saw a solid performance from its core water network and M&E teams, driven by a shift towards ongoing repair and maintenance activities. The AMP5 re-bidding process, which was ongoing throughout the year, consolidated May Gurney's position in the water market. The AMP5 bidding process was slower than expected as May Gurney's water clients continued to assess the implications of Ofwat's Final Determinations regarding efficiency and customer service targets.

May Gurney secured new contracts and extensions during the year with a combined value of £155 million and incorporating a 41% growth in ongoing repair and maintenance activities.

These included two new contracts with Essex & Suffolk Water (Northumbrian Water), covering water mains (worth up to £30 million over 33 months plus possible extensions of two and five years) and design and build (worth up to £8 million over four years, plus possible extensions of four and two years) and a new contract with Bristol Water (worth up to £12 million over four years to March 2015).

May Gurney was also awarded the Sewerage Services East Region maintenance contract by Severn Trent Water. The contract is valued at up to £62 million over five years with an option to extend for a further five years.

Beginning in March 2011, May Gurney's contracts on Anglian Water's Programme Partner Civil and MEICA cover the whole Anglian Water region and will run for an initial period of three years. With an anticipated combined value of £20 million, the contracts include activities associated with asset upgrade and the maintenance and enhancement of water treatment and waste water treatment facilities.

During FY2011, May Gurney also expanded its long-term relationship with South West Water to be the sole contractor for developer services, mains laying and water rehabilitation. The initial contract period of four years is valued at up to £23 million, with a possible extension of a further six years.

In January 2011, May Gurney acquired the Turriff Group, one of Scotland's largest utility infrastructure maintenance companies, for a cash consideration of up to £13.6 million. The acquisition strengthened May Gurney's position in the utilities maintenance market.

Rail Services

May Gurney's long-term structures and property frameworks with Network Rail performed well throughout FY2011, particularly during the first half. This was largely the result of the accelerated delivery of programmes due to the shift away from 'frameworks' towards a 'tendering' purchasing strategy.

The refurbishment and replacement of the roof at Victoria Station in central London, London's busiest, with more than 385,000 customers each day, was due for completion in the summer of 2011.

May Gurney was also successful in securing Network Rail's new combined BCDP contract to deliver property and structures maintenance services in Scotland and North East England. The BCDP has a term of three years with a year-on-year extension provision of a further two years.

Waterways Services

May Gurney's long-term framework contract with British Waterways for the maintenance and improvement of the national canal and river network continued to perform well in FY2011. Several high profile maintenance programmes were also completed during the year, including the upgrading and restoration of City Mill Lock at the Olympic Park in Stratford, the restoration of the sea gates and pier at Sharpness North, the restoration of the embankment and towpath at Purton in Gloucestershire and the restoration of bridge 71 near Knowle in Warwickshire and Hicklin bridge in South Derbyshire.

6.3 Financial review of consolidated results of operations

(A) May Gurney Group analysis

Overview

Revenues for FY2011 grew by 18% to £571.4 million (FY2010: £483.1 million), with EBITA up 14% to £25.1 million (FY2010: £22.1 million) and underlying earnings per share increasing by 13% to 24.77 pence. May Gurney continued its track record of delivering strong cash generation, with £28.6 million of cash generated from operations, and May Gurney ended the year with net cash of £10.9 million (FY2010: £29.2 million) after funding the initial payment for the acquisition of Turriff in January 2011.

FY2011 saw substantial bid levels across the May Gurney Group with significant activity in both the public and regulated sectors. AMP 5 bids within the Utilities Sector continued for most the year and Network Rail changed its approach away from framework contracts towards tendered awards. Success in bidding maintained the May Gurney Group's order book at £1.4 billion (including framework agreements, but excluding extensions).

May Gurney acted swiftly to scale-back its non-core operations and, in line with its stated strategy, May Gurney completed the closure of its geotechnical and piling businesses, resulting in a non-recurring cost of £1.9 million in FY2011. This move further enhanced May Gurney's focus on more resilient service streams through long-term and stable relationships in the public and regulated sectors.

The continued strong performance of the May Gurney Group enabled the May Gurney Board to continue its progressive dividend policy and to pay a final dividend for the year of 4.52 pence per share, resulting in a total dividend for the year of 6.6 pence per share, up 20% compared to FY2010.

Revenues

The May Gurney Group's revenue for FY2011 was £571.4 million (FY2010: £483.1 million), an increase of 18%. Revenue before the inclusion of acquired Turriff revenues was £562.4 million, giving an organic growth increase of 16%.

This organic growth was primarily driven by the Public Sector business, with growth in all three service sectors reflecting success in winning contracts in the previous year. Utilities revenues performed well in FY2011 given the transition between AMP4 and AMP5 and the extended bidding process.

Margins

EBITA increased in FY2011 by 14% to £25.1 million (FY2010: £22.1 million), a margin of 4.4% (FY2010: 4.6%). EBITA before the inclusion of Turriff was £24.6 million.

Public Sector EBITA margin was 4.6% (FY2010: 5.2%), the reduction being due to the high level of bidding and mobilisation costs incurred in the year and a higher proportion of new contracts. Regulated Sector EBITA margin was 4.0% (FY2010: 3.7%) due to strong operational performance from the business across all services.

Profit before tax

Underlying profit before tax in FY2011 rose by 13% to £24.3 million (FY2010: £21.6 million). Underlying profit before tax before the inclusion of Turriff was £23.9 million.

The May Gurney Group had a net interest charge for the year of £0.8 million (FY2010: £0.5 million), with the interest cost of finance leased assets used within the business outweighing the low interest received on May Gurney's cash balances.

Profit before tax for the year increased by 2% to £18.8 million (FY2010: £18.4 million).

Earnings per share

Underlying EPS increased by 13% in FY2011 to 24.77 pence (FY2010: 21.92 pence). Underlying EPS is calculated by adding back shares held by employee trusts to the weighted average number of shares and by excluding amortisation and non-recurring costs.

Cash

The May Gurney Group's cash generation remained strong in FY2011 with cash generated in the year from operations of £28.6 million (FY2010: £30.7 million), representing a conversion of more than 100% of EBITA. The lower generation compared to the prior year was due to the greater number of contract starts driving a working capital outflow, together with the acquired Turriff business having an expected lower cash generation profile than May Gurney.

The May Gurney Group ended FY2011 with gross cash of £36.2 million (FY2010: £43.4 million) after funding the acquisition of Turriff and its debt.

Net cash (cash less finance lease obligations) at the year end stood at £10.9 million (FY2010: £29.2 million). The cost of funding these finance leases was factored into May Gurney's tenders and, as such, May Gurney did not carry significant asset risk.

Balance sheet

The May Gurney Group's balance sheet remained strong at 31 March 2011, enabling May Gurney to acquire Turriff in the year from its own cash resources.

Investment in fixed assets in the year continued to grow, primarily in May Gurney's Environmental Services business, on the back of the implementation of new contracts. Investment in these assets was secured against long-term contract revenue streams that provide confidence in the repayment of the obligation.

The May Gurney Group also continued to invest in its operational IS platform, MGConnect™, in FY2011.

The May Gurney Group's IAS 19 pension fund deficit improved in FY2011 by £0.7 million to £0.4 million at 31 March 2011 (31 March 2010: £1.1 million). The funding position improved principally due to the impact of lower bond yields and lower inflation assumptions.

Dividends

The May Gurney Group adopted a more progressive dividend policy at the half-year, moving from four times cover of underlying earnings to 3.75 times cover. Following the continued performance of the business in the second half of the year, a final dividend of 4.52 pence per share (FY2010: 3.7 pence per share) was paid on 11 July 2011.

Exceptional costs

May Gurney's shared service approach to finance, plant and transport and procurement services continued to yield benefits in FY2011 as it leveraged these functions to support the growth in the May Gurney Group without incurring a significant rise in headcount.

May Gurney's investment in MGConnect™ continued in the year and it successfully deployed the technology and methodology on its contract wins within the Highways and Utilities businesses. This enabled more efficient delivery of services to May Gurney's clients through improved planning, management of resources and client reporting.

Lastly, the May Gurney Group continued its investment in embedding business improvement principles to drive the development of more efficient processes of working. This work focused both on client and May Gurney Group processes.

(B) Segmental analysis

Revenues

Public Sector Services generated 66% of May Gurney's revenues and 69% of EBITA in FY2011 (FY2010: 59% of revenues and 67% of EBITA). Revenues increased to £376.3 million (FY2010: £283.7 million), representing growth of 32.6%, driven by a strong performance across all areas.

The Regulated Sector Services segment generated 34% of May Gurney's revenues and 31% of EBITA in FY2011 (FY2010: 41% of revenues and 33% of EBITA), although segmental revenues remained broadly flat at £195.1 million (FY2010: £199.4 million).

Margins

Public Sector Services EBITA grew by 17.7% to £17.3 million (FY2010: £14.7 million) with margins at 4.6% (FY2010: 5.2%) due to higher bidding and mobilisation costs and a higher proportion of new contracts. In FY2011, May Gurney's Public Sector Services segment included Highway Services, Environmental Services and Facility Services.

A strong operational performance in the Regulated Sector Services division delivered a 5.4% increase in EBITA to £7.8 million (FY2010: £7.4 million), with margins increased to 4.0% (FY2010: 3.7%).

7. Shareholders' equity

The total equity of the May Gurney Group has remained relatively stable over the last three years, reflecting profit generation and a progressive dividend policy over that period. The pension scheme deficit has also been stable at £0.4 million for the last two year ends.

8. Cashflow analysis

Summarised information and brief commentary on May Gurney's consolidated cash inflows and outflows over the three-year period ended 31 March 2012 and for HY2013 and HY2012, is set out below:

Condensed consolidated statement of cash flows

	6 months to 30 September 2012 unaudited £m	6 months to 30 September 2011 unaudited £m	12 months to 31 March 2012 £m	12 months to 31 March 2011 £m	12 months to 31 March 2010 £m
Cash flows from operating activities
Group operating profit before
amortisation and non-recurring costs Non cash items	2.6 11.1	15.0 6.0	30.1 16.0	25.1 9.2	22.1 6.8
Working capital movement	(8.3)	(3.3)	(3.7)	(5.7)	1.8
Discontinued operations	10.0	—	—	—	—
Cash generated from continuing
operations	15.4	17.7	42.4	28.6	30.7
Cash used in discontinued operations	(2.0)	—	—	—	—
Cash generated from operations Non-recurring business closure costs	13.4	17.7	42.4	28.6	30.7
paid	(1.1)	(0.3)	(3.5)	(1.5)	—
Corporation tax paid	(3.1)	(2.6)	(6.4)	(5.2)	(5.3)
Finance income	0.1	0.2	0.3	0.4	0.4
Finance costs	(1.6)	(0.7)	(2.0)	(1.2)	(0.9)
Net cash from operating activities	7.7	14.3	30.8	21.1	24.9
Cash flows from investing activities
Purchase of property, plant and equipment	(34.3)	(6.4)	(22.8)	(16.8)	(12.3)
Proceeds from sale of property, plant
and equipment	3.2	0.1	1.4	1.4	2.0
Payments to acquire intangible assets Acquisition of subsidiaries and overdraft	(0.6)	(0.3)	(0.5)	(2.9)	—
acquired	—	(0.4)	(18.6)	(15.9)	—
Net cash used in investing activities	(31.7)	(7.0)	(40.5)	(34.2)	(10.3)
Cash flows from financing activities
Proceeds from sales of own shares by
ESOT	—	—	—	—	0.1
Ordinary dividends paid New finance leases	(3.8) 23.8	(3.0) —	(4.9) 17.6	(3.9) 16.7	(3.5) 4.1
Payment of finance lease obligations	(10.0)	(3.9)	(11.0)	(6.9)	(5.5)
Loan received	23.0	—	20.0	—	—
Loans repaid	(20.0)	—	(17.2)	—	(0.6)
Net cash received from/(used in)
financing activities	13.0	(6.9)	4.5	5.9	(5.4)
(Decrease)/increase in cash and cash
equivalents Opening cash and cash equivalents	(11.0) 31.0	0.4 36.2	(5.2) 36.2	(7.2) 43.4	9.2 34.2
Closing cash and cash equivalents	20.0	36.6	31.0	36.2	43.4
Reconciliation of net cash flow to
movement in net funds
(Decrease)/increase in cash and cash
equivalents	(11.0)	0.4	(5.2)	(7.2)	9.2
(Increase)/decrease in finance leases	(13.8)	3.9	(6.6)	(9.8)	1.4
Acquired debt	—	—	(28.3)	(1.3)	—
(Decrease)/Increase in net funds in the period	(24.8)	4.3	(40.1)	(18.3)	10.6
Opening net (debt)/funds	(29.2)	10.9	10.9	29.2	18.6
Closing net (debt)/funds	54.0	15.2	(29.2)	10.9	29.2

Net funds represent cash and cash equivalents less obligations under finance leases, borrowings and loans.

In HY2013, May Gurney generated cash from continuing operations of £15.4 million (HY2012: £17.7 million), representing a conversion of more than 100% of EBITA.

May Gurney ended HY2013 with gross cash of £20.0 million (31 March 2012: £31.0 million). Shortterm borrowings were £23.0 million, resulting in a net debt of £3.0 million (31 March 2012 net cash: £11.0 million). As at 30 September 2012, May Gurney had a revolving debt facility in place until November 2014 of £33 million. The May Gurney Group also had a £15 million overdraft facility.

May Gurney's business also utilises finance leases to fund vehicles and plant dedicated for use within client contracts. The obligation to repay the capital and interest related to this asset financing is matched within the contracts where the assets are utilised. As at 30 September 2012, the total outstanding obligations under finance leases were £74.0 million (FY2012: £60.2 million).

In FY2012, May Gurney generated cash from operations of £42.4 million (FY2011: £28.6 million), representing a conversion of more than 100% of EBITA. May Gurney ended FY2012 with gross cash of £31.0 million (31 March 2011: £36.2 million) after funding the acquisition of TransLinc. Set against this was short-term debt of £20 million, and finance lease obligations of £60.2 million (FY2011: £25.3 million), giving net debt (cash less finance lease obligations) of £49.2 million (FY2011: net cash of £10.9 million).

In FY2012, the business also employed finance leases to fund vehicles and plant dedicated for use within client contracts. The obligation to repay the capital and interest related to this asset financing was contained within the contracts where the assets were utilised. As at March 2012, the total outstanding obligations under finance leases were £60.2 million, of which £28.3 million related to assets within the acquired TransLinc business.

In FY2011, May Gurney generated cash from operations of £28.6 million (FY2010: £30.7 million), representing a conversion of more than 100% of EBITA. The lower generation compared to the prior year was due to the greater number of contract starts driving a working capital outflow, together with the acquired Turriff business having an expected lower cash generation profile than May Gurney. The May Gurney Group ended FY2011 with gross cash of £36.2 million (31 March 2010: £43.4 million) after funding the acquisition of Turriff and its debt.

Net debt (cash less borrowings and finance lease obligations) at the year end FY2011 stood at £10.9 million (FY2010: £29.2 million). The cost of funding finance leases in FY2011 was factored into May Gurney's tenders and, as such, May Gurney did not carry significant asset risk.

In FY2010, the May Gurney Group generated cash from operations of £30.7 million, representing more than 120% of EBITA, this was assisted by a net gain in working capital in the year.

The interest cost was flat year, finance lease interest charges increased in line with Environmental Services Capex investment, but was modestly offset by the low returns earned on May Gurney's cash balances.

Gross capital investment increased to £12.3 million in FY2010, the largest proportion of which was the Environmental Services business. The May Gurney Group also invested in IT platforms. This was offset from proceeds on disposals of £2.0 million.

9. Capital resources and liquidity

The May Gurney Group's principal sources of liquidity to finance its operations are cash generated from operating activities, finance lease arrangements and short-term borrowings. The May Gurney Group's primary uses of cash are to fund acquisitions, capital expenditure, financing working capital, financing contracts through the mobilisation phase and debt servicing. May Gurney's cash and liquid assets are held in GBP. As at 25 March 2013, being the latest practicable date prior to the date of this document, May Gurney had a net debt (cash less finance lease obligations) balance of approximately £67.2 million.

There are no practical or legislative restrictions inhibiting the transfer of funds between May Gurney Group companies. May Gurney is not currently aware of any significant risks of default. Other than as set out below, May Gurney also has no significant commitments in relation to capital expenditure. May Gurney has no unused sources of capital and no restriction exists on any of its sources of capital other than in relation to finance leases (described below), which are secured against the relevant assets which are the subject of leases.

As at 30 September 2012, the May Gurney Group had the following contractual obligations:

Finance leases

	30 September 2012 £m
Finance lease and hire purchase obligations Repayable: within one year Repayable: between two and five years Repayable: after more than five years	19.2 54.7 —
	73.9 30 September 2012 £m
(i) Operating lease commitments Total commitments due under operating leases: Land and buildings
Within one year	2.6
Between two and five years	6.4
More than five years	1.4
	10.4
Other Within one year	4.2
Between two and five years	4.0
More than five years	—
	8.2
(ii) Property, plant and equipment Future capital expenditure authorised by the Directors but not provided for in these financial statements is as follows:
Contracts placed	7.3

Principal sources of borrowings

The May Gurney Group has historically financed its operations from a range of borrowings including short-term loans, finance leasing arrangements and other credit facilities, such as overdrafts. Currently, the May Gurney Group has no outstanding debt instruments or long-term borrowings, with its activities being financed from its existing cash resources, finance lease arrangements and short-term loans. The May Gurney Group is not subject to any seasonal borrowing requirements.

Short-term loans

The May Gurney Group currently has a revolving credit facility with the Lloyds Banking Group in connection with its acquisition of the Senturion Group and an overdraft.

Finance lease liabilities

The May Gurney Group employs finance leases to fund vehicles and plant dedicated for use within client contracts. The cost of funding these finance leases was factored into May Gurney's tenders and, as such, May Gurney did not carry significant asset risk.

10. Capitalisation and indebtedness

10.1 Statement of capitalisation and net indebtedness

The table below shows the May Gurney Group's unaudited consolidated capitalisation and net indebtedness as at 31 December 2012:

£000	Unaudited 31 December 2012
Shareholders' equity (A) Current debt	(84.8)
Guaranteed	—
Secured Unguaranteed/unsecured Total current debt	(52.8) — (52.8)
Non-current debt Guaranteed	—
Secured Unguaranteed/unsecured	(51.8) —
Total non-current debt	(51.8)
Total indebtedness (B)	(104.6)
Total capitalisation (A + B)	(189.4)
Cash Short-term investments and marketable securities	15.4 —
Liquidity (C)	15.4
Current financial receivables (D) Current debt	—
Finance leases Short-term loans	(19.8) (33.0)
Current financial debt (E)	(52.8)
Net current financial indebtedness (C + D – E) (F)	(37.4)
Non-current debt Finance leases	(51.8)
Short-term loans	—
Non-current financial debt (G)	(51.8)
Net current financial indebtedness (F – G)	(89.2)

10.2 Dividend policy

The May Gurney Group has a progressive dividend policy, adopted in 2010. An interim dividend of 2.79 pence per share, reflecting the May Gurney Directors' confidence in the May Gurney Group's continued cash generation and future prospects, was paid on 7 January 2013. A final dividend of 5.63 pence per share was paid for FY2012 (FY2011: 4.52 pence per share). The total dividend paid for FY2012 was 8.42 pence (FY2011: 6.60 pence), up 28% on FY2011.

10.3 Capital resources and liquidity management

The May Gurney Board's policy is to manage its capital base with a view to ensuring its ability to continue as a going concern, to maintain an optimal capital structure to reduce the cost of capital and to maintain investor, other stakeholder and market confidence with a view to sustaining the future development of the business. The May Gurney Group's policy is to carry no significant long-term debt, other than finance leases.

The May Gurney Group does not monitor the debt:equity ratio on a regular basis and does not have an agreed capital target. May Gurney reviews the balance sheet capital structure on a periodic basis as required by significant events. The last such review was in November 2011 following the acquisition of Senturion Limited, trading as TransLinc. This review focuses primarily on the amount of borrowings on the balance sheet, including bank borrowings and overdrafts and total outstanding obligations under finance leases. These figures are reported to the market at each half year.

May Gurney places a high priority on the monitoring of liquidity risk. Its cash and liquid investments comprise cash and term deposits. Surplus cash resources are placed on deposit to maximise returns to May Gurney, whilst maintaining flexibility to meet day-to-day working capital requirements.

11. Quantitative and qualitative disclosures about market risk

The May Gurney Directors bear ultimate responsibility for risk management. May Gurney recognises that the identification, assessment, monitoring and response to business risks is essential in the delivery of the May Gurney Group's objectives. May Gurney has policies and processes in place which are designed to enable the business to manage and mitigate its corporate, operational and financial risks. This is reinforced through a programme of training to promote a corporate culture, that seeks to reduce risks in the business.

The May Gurney Group's financial instruments, other than derivatives, comprise cash and liquid investments and borrowings. The May Gurney Group enters into derivatives transactions, namely forward foreign currency contracts, albeit infrequently, to manage the currency risks arising from the May Gurney Group's operations and its sources of finance. The May Gurney Group's foreign currency risk is minimal as the volume of foreign currency transactions is not significant. The May Gurney Group currently has no derivative instruments and sees no immediate requirement for any.

It is the May Gurney Group's policy that no speculative trading in financial instruments shall be undertaken. The use of financial instruments exposes the May Gurney Group to a number of risks, the main ones being credit risk, finance and liquidity risk and interest rate risk. The May Gurney Board reviews and agrees policies for managing each of these risks and they are summarised below.

11.1 Credit risk

Credit risk is the risk of financial loss to the May Gurney Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Exposure to credit risk is limited to the carrying amount of financial assets recognised at the relevant reporting date, namely cash and cash equivalents and trade and other receivables. The May Gurney Group monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The May Gurney Group's policy is to deal only with creditworthy counterparties.

The May Gurney Group's management considers that all financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. None of the May Gurney Group's financial assets are secured by collateral or other credit enhancements.

The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The May Gurney Group's principal credit risk relates to recovery of amounts due under trade contracts. This risk is mitigated by regular application for, and certification of, works completed under contracted arrangements. However, the May Gurney Group has historically had no significant concentration of credit risk in respect of amounts due from contract customers or trade receivable balances, with exposure generally spread over a number of customers and across the May Gurney Group's operating segments.

11.2 Finance and liquidity risk

Finance and liquidity risk is the risk that the May Gurney Group will not be able to meet its financial obligations as they fall due. A shortage of liquid assets can occur at any point in time due to an unfavourable development in the operation of the business. The May Gurney Group places a high priority on the monitoring of liquidity risk and takes corrective action at an early stage to ensure financial obligations can be met as they arise. The appropriate level of liquidity is maintained through the May Gurney Group's own cash resources, finance lease arrangements, credit lines/debt instruments or further financing, where required, through major stakeholders and shareholders.

The May Gurney Group's cash and liquid investments comprise cash and term deposits. Surplus cash resources are placed on deposit to maximise returns to the May Gurney Group, whilst maintaining flexibility to meet day-to-day working capital requirements.

The May Gurney Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.

The May Gurney Group maintains cash to meet its liquidity requirements for up to 30-day periods. Funding in regards to long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities.

11.3 Interest rate risk

The May Gurney Group has fixed and floating rate finance lease commitments. A 1% increase/ decrease in the floating rate would lead to a £0.3 million increase/decrease in the May Gurney Group's finance costs for FY2012.

In addition, interest rate risk arises on the May Gurney Group's cash and cash equivalents. A 1% increase/decrease in the Bank of England's base rate would lead to a £0.3 million (FY2011: £0.4 million; FY2010: £0.4 million; HY2013: £0.2 million: HY2012: £0.3 million) increase/decrease in the May Gurney Group's finance income for FY2012.

In addition, the May Gurney Group has a revolving credit facility with Lloyds Banking Group which was put in place at the time of May Gurney's acquisition of Senturion Group Limited.

11.4 Commodity price risk

Through its environmental services contracts, the May Gurney Group has some exposure to fluctuations in recyclable commodity prices. Where possible, the May Gurney Group seeks to mitigate this risk by passing on the risk and reward of price fluctuations to clients and through the use of cap and collar agreements with buyers of recyclable commodities. The fair value of such contracts is not considered material as a limited amount of recyclable material is held at the end of the year and as such is not recognised in the statement of financial position.

11.5 Foreign currency risk

The May Gurney Group does not have significant foreign currency transactions and exposure to foreign currency risk is therefore minimal.

12. Summary of significant accounting policies

The principal accounting policies applied in the preparation of the consolidated financial statements taken from May Gurney's annual report and accounts for FY2012 are set out below. These policies have been consistently applied to all the years and periods presented, unless otherwise stated.

12.1 Basis of preparation

The May Gurney Group's financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on the historical cost basis, with the exception of certain financial instruments, which are recognised using accounting policies as set out below and applied consistently.

12.2 Adoption of new and revised International Financial Reporting Standards

In FY2012, the May Gurney Group adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board ('IASB') and the International Financial Reporting Interpretations Committee ('IFRIC') of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 April 2011.

12.3 Changes in accounting policy

The following standards and interpretations came into effect and were adopted in FY2012 but had no effect on the May Gurney Group's financial statements:

• IFRS 1 (amended) First-time adoption of IFRS limited exemption from comparative IFRS 7 disclosures;
• IAS 24 Related party disclosures (revised 2009);
• IAS 32 (amendment) Financial instruments: Presentation;
• IAS 34 (amendment) Interim financial reporting; and
• IFRIC 19 Extinguishing financial liabilities with equity instruments.

At the date of authorisation of the May Gurney Group's financial statements for FY2012, the following standards and interpretations were in issue but not yet effective and therefore were not applied in those financial statements:

• IFRS 1 (amended) Severe hyperinflation and Removal of fixed dates for first-time adopters;
• IFRS 7 (amended) Financial instruments: disclosures;
• IFRS 9 Financial instruments classification and measurement;
• IFRS 10 Consolidated financial statements;
• IFRS 11 Joint arrangements;
• IFRS 12 Disclosure of interests in other entities;
• IFRS 13 Fair value measurement;
• IAS 1 Presentation of financial statements items in other comprehensive income;
• IAS 12 (amended) Income taxes deferred tax recovery of underlying assets;
• IAS 19 (amended) Employee benefits;
• IAS 27 Separate financial statements; and
• IAS 28 Investments in associates and joint ventures.

The May Gurney Directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the May Gurney Group.

12.4 Consolidation

(a) Subsidiaries

Subsidiaries are consolidated from the date on which control is transferred to the May Gurney Group and deconsolidated from the date at which control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the May Gurney Group. The cost of an acquisition is measured at the fair value of the consideration. The assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities acquired is recognised as goodwill.

The May Gurney Group financial statements consolidate those of the parent company, May Gurney (the 'Parent Company'), and all of its subsidiary undertakings drawn up to the relevant accounting reference date. Subsidiaries are all entities over which the May Gurney Group has the power to control the financial and operating policies. The May Gurney Group obtains and exercises control through more than half of the voting rights.

All transactions and balances between May Gurney Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between May Gurney Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a May Gurney Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the May Gurney Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the May Gurney Group. The May Gurney Group attributes total comprehensive income or loss of subsidiaries between the owners of the Parent Company and the non-controlling interests based on their respective ownership interests.

(b) Jointly-controlled operations

The May Gurney Group has certain contractual operations with other participants to engage in joint operations that do not create an entity carrying on a trade or business of its own. The May Gurney Group includes its share of assets, liabilities and cash flows in such jointly-controlled operations, measured in accordance with the terms of each operation, which is usually pro rata to the May Gurney Group's interest in the risks in the jointly-controlled operation.

(c) Jointly-controlled entities

A jointly-controlled entity is an entity in which the May Gurney Group holds a long-term interest and which is jointly-controlled by the May Gurney Group and one or more other venturers under a contractual arrangement. Investments in jointly-controlled entities are accounted for using the equity method of accounting and are initially recognised at cost.

The May Gurney Group's share of post-acquisition profits or losses is recognised in the income statement. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Due to the amounts involved not being significant, they are not separately disclosed. Intercompany transactions, balances and unrealised gains on transactions between May Gurney Group companies are eliminated on consolidation. A separate income statement is not presented for May Gurney as it is exempted by section 408 of the Companies Act 2006.

The May Gurney Group has taken advantage of the exemption under regulation 7 of the Partnerships (Accounts) Regulations 2008 that members of a qualifying partnership do not have to publish partnership accounts if the partnership is dealt with on a consolidated basis in group accounts prepared by a parent undertaking of the member. May Gurney WSP JV partnership is consolidated within the May Gurney Group accounts.

12.5 Goodwill and other intangible assets

Goodwill arising on consolidation represents the excess of the fair value of the cost of acquisition over the May Gurney Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary or jointly-controlled entity at the date of acquisition.

Goodwill is recognised as an intangible asset and is reviewed for impairment annually. It is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing along the lines of the May Gurney Group's operating segments. Any impairment is recognised immediately in the income statement.

Other intangible assets, which consist of an acquired order book, customer relationships, trademarks and software development costs, are stated at cost less accumulated amortisation and impairment losses. Amortisation is based on cost and the useful economic lives of these assets.

Costs associated with developing or maintaining computer software are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the May Gurney Group, and that will probably generate economic benefits beyond one year, are recognised as intangible assets. Computer software development costs recognised as assets are amortised over their estimated useful life. MGConnectTM costs capitalised in the relevant year are amortised over a period of four years.

12.6 Impairment

Assets that have an indefinite useful life are not subject to amortisation and are reviewed for impairment annually and when there are indications that the carrying value may not be recoverable. Assets that are subject to amortisation are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units)

12.7 Company investments in subsidiary undertakings

Company investments are included at cost. Provision is made for any impairment in value.

12.8 Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business net of VAT. Sales of goods are recognised when goods are delivered and title has passed.

Contract revenue reflects the contract activity during the relevant year and is measured at the fair value of consideration received or receivable. When the outcome can be assessed reliably, contract revenue and associated costs are recognised as revenue and expenses, respectively, by reference to the stage of completion of the contract activity at the relevant reporting date. The stage of completion is measured by reference to the contract costs incurred up to the relevant reporting date as a percentage of total estimated costs for each contract.

Provision is made in full for estimated losses if the costs of fulfilling the contract exceed the recoverable amount. Revenue is only recognised to the extent that it is probable that it will be recoverable. Where the outcome of a long-term contract cannot be estimated reliably, revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable and contract costs are recognised as an expense in the period in which they are incurred.

In the case of a cost plus contract, the outcome of a contract can be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the May Gurney Group and the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.

Revenue from the provision of fleet and passenger services represents amounts receivable for vehicle hire, maintenance work and passenger services (excluding VAT) carried out in the relevant accounting period. Income received in respect of future periods is deferred until the service is provided.

Maintenance-related income in primary lease periods is recognised so as to match the revenue against the expected cost of maintenance based on estimation techniques which use current experience.

12.9 Property, plant and equipment

Property, plant and equipment is stated at historic cost to the May Gurney Group, being its purchase cost together with any incidental expenses of acquisition.

Depreciation of property, plant and equipment is calculated so as to write off their cost over their expected economic lives, residual values are reassessed on an annual basis. The principal annual rates of depreciation are as follows:

• Freehold land – not depreciated;

• Freehold buildings between 5 and 50 years, straight line;
• Short leasehold 10% straight line property or life of lease if shorter; and
• Plant, vehicles between 10% and 33% and equipment straight line.

12.10 Inventories and work-in-progress on construction contracts

Inventories are valued at the lower of cost and net realisable value. The cost of purchase is determined by means of the weighted average cost formula.

Contract work-in-progress is valued at cost plus attributable profit less foreseeable losses. Attributable profit is included when the outcome of a contract can be assessed with reasonable certainty. The excess of book value over amounts received on individual contracts is included in current trade receivables and payments received in excess of book value are included in current trade payables.

12.11 Non-recurring items

Material and non-recurring items of income and expense are disclosed in the income statement as 'Non-recurring items'. Examples of items which may give rise to disclosure as 'Non-recurring' include, inter alia, gains or losses on the disposal of businesses, investments and property, plant and equipment, costs of restructuring and reorganisation of existing businesses and asset impairments.

12.12 Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax payable in respect of the year is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The May Gurney Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantially enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from initial recognition of goodwill or from the initial recognition of other assets and liabilities (other than in a business combination) in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates, and interests in joint ventures, except where the May Gurney Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date.

Deferred tax is calculated based on the laws enacted or substantially enacted by the reporting date and at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

12.13 Financial instruments

The financial instruments used by the May Gurney Group comprise net funds, trade receivables and trade payables.

(a) Loans and receivables do not carry any interest and are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts.

• (b) Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly-liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
• (c) Trade payables are not interest bearing and are initially stated at their fair value and subsequently measured at amortised cost.
• (d) Loans are raised for support of long-term funding of the May Gurney Group's operations. They are recognised at fair value on inception. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement using an effective interest method.
• (e) Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the May Gurney Group after deducting all its liabilities.
• (f) Equity instruments issued by May Gurney are recorded at the proceeds received, net of direct issue costs.
• (g) The May Gurney Group has a policy of not trading in financial instruments and thus the only risks arising, in the normal course of business, are interest rates and liquidity. The May Gurney Group's foreign currency risk is minimal as the volume of foreign currency transactions is not significant. The May Gurney Group currently has no derivative instruments and sees no immediate requirement for any.

12.14 Accounting for financial assets

Financial assets consist of receivables, along with cash and cash equivalents.

An assessment of whether a financial asset is impaired is made at least at each reporting date. For receivables, this is based on the latest credit information available, i.e. recent counterparty defaults and external credit ratings. Financial assets that are substantially past due are also considered for impairment. All income and expense relating to financial assets are recognised in the income statement line item 'Finance costs' or 'Finance income,' respectively.

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. The May Gurney Group's trade and other receivables fall into this category of financial instruments.

Individual receivables are considered for impairment when they are past due at the relevant reporting date or when objective evidence is received that a specific counterparty will default. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry of a counterparty. The percentage of the write down is then based on recent historical counterparty default rates for each identified group.

12.15 Accounting for financial liabilities

The May Gurney Group's financial liabilities include borrowings, trade and other payables (including finance lease liabilities), which are measured at amortised cost using the effective interest rate method.

Financial liabilities are recognised when the May Gurney Group becomes a party to the contractual agreements of the instrument. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included in the income statement line items 'Finance costs' or 'Finance income'.

For business combinations, any changes to the consideration transferred, including contingent consideration, resulting from events after the date of the acquisition are recognised in the income statement.

12.16 Leases

In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. Assets held under finance leases are recognised as assets of the May Gurney Group at the lower of their fair value or the present value of the minimum lease payments and the capital elements of the commitments are shown as obligations under finance leases. Payments are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease terms and their useful lives.

All other leases are regarded as operating leases and the related payments are charged to the income statement on a straight-line basis over the lease term.

12.17 Share-based payments

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of certain nonmarket vesting conditions (for example, profitability and sales growth targets).

All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to equity.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period.

No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

12.18 Employee benefits

The May Gurney Group and May Gurney contribute to eight defined contribution pension schemes and two defined benefit pension schemes, the assets of which are held separately from those of the May Gurney Group and are invested in managed funds.

In respect of the defined benefit pension schemes, the cost of providing benefits is determined using the projected unit method, with actuarial valuations being carried out at each relevant reporting date. Hence, actuarial gains and losses are recognised in full in the period in which they occur through the statement of comprehensive income. The liability recognised in the statement of financial position is the present value of the defined benefit obligations less the fair value of plan assets. Associated interest credits are included within finance income and charges within finance costs. The current service cost incurred during the relevant year to provide retirement benefits to employees is charged to operating profit. Pension scheme surpluses, to the extent that they are recoverable from future contributions, or deficits are recognised in full and presented on the face of the Statement of Financial Position net of related deferred tax.

In respect of the defined contribution pension schemes, the contributions paid by the May Gurney Group, May Gurney and the employees are invested within the individual funds in the month following the month of deduction. The employer contribution rates are determined by reference to an age, service or grade-related scale or are at a fixed, level percentage. The amounts contributed by the May Gurney Group and May Gurney are charged to the income statement as the contributions fall due. Certain contracts require that employees transfer with protected pension rights and the May Gurney Group and May Gurney are responsible for the pension liability that exists.

12.19 May Gurney Group Limited Employee Share Ownership Trust ('ESOT') and May Gurney Integrated Services plc Employee Benefit Trust

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT, transferred 1,783,324 ordinary shares by way of a gift for £nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust ('EBT'), an offshore trust.

Shares in May Gurney held by the ESOT and EBT are shown as a deduction in arriving at equity funds. Where the purchase of shares by the ESOT/EBT is financed by external bank loans, these loans are shown within current trade and other payables. Other current assets, liabilities and reserves of the ESOT/EBT are included within the statutory headings to which they relate. The ESOT/EBT are included within the May Gurney financial statements. The ESOT/EBT are accounted for in line with the requirements of SIC 12 which states that May Gurney should consolidate all special purpose entities of which the ESOT/EBT are classified as such.

12.20 Dividends

Dividends are recognised in the financial statements in the period in which they are approved by May Gurney's shareholders. Interim dividends are recognised in the period in which they are approved and paid.

12.21 Provisions

A provision is recognised in the statement of financial position when the May Gurney Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. When recognising and measuring a provision, events occurring after the reporting date and before authorisation for issue are considered to determine whether such events provide additional evidence of conditions that existed at the relevant reporting date and should therefore be adjusted for.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

12.22 Significant accounting estimates and judgments

To be able to prepare accounts according to generally accepted accounting principles, May Gurney's management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial statements. These estimates are based on historical experience and various other assumptions that management and the May Gurney Directors believe are reasonable under the circumstances. The results of this form the basis for making judgments about the carrying value of assets and liabilities that are not readily available from other sources.

Areas requiring estimates that may significantly impact on the May Gurney Group's earnings and financial position are as follows:

12.23 Estimated impairment of goodwill

The May Gurney Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy previously stated. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates.

Areas requiring critical judgement that may significantly impact on the May Gurney Group's earnings and financial position are as follows:

(a) Revenue recognition

The May Gurney Group uses the percentage-of-completion method to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the relevant reporting date as a percentage of total estimated costs for each contract.

(b) Pension benefits

The present value of pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/ income for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The May Gurney Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash flows expected to be required to settle the May Gurney Group's pension obligations. In determining the appropriate discount rate, the May Gurney Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.

Other key assumptions for pension obligations are based in part on current market conditions.

(c) Share-based payments

The weighted average fair value of options granted during the relevant period is determined using the Trinomial pricing model.

(d) Intangible assets

The May Gurney Group recognises certain intangible assets on acquisition. Judgments in respect of useful lives, discount rates and valuation methods affect the carrying value and amortisation charges in respect of these assets.

(e) Impairment of work-in-progress

In assessing whether work in progress is impaired, estimates are made of future sales revenue, timing and build costs. The May Gurney Group has controls in place to ensure that estimates of sales revenue are consistent, and external valuations are used where appropriate.

PART VII HISTORICAL FINANCIAL INFORMATION RELATING TO MAY GURNEY

Basis of financial information

The following pages set out the audited consolidated financial information of May Gurney for the years ended 31 March 2010, 31 March 2011 and 31 March 2012, together with the unaudited consolidated financial information of May Gurney for the half year ended 30 September 2012.

The unaudited consolidated financial information for the half year ended 30 September 2012 has been extracted without material adjustment from the financial statements for the half year ended 30 September 2012, as set out in May Gurney's interim results for the half year ended 30 September 2012.

The audited consolidated financial information for the years ended 31 March 2010, 31 March 2011 and 31 March 2012, including the relevant audit opinions, has been extracted without material adjustment from the financial statements for the year ended 31 March 2010, as set out in May Gurney's annual report and accounts for 2010, the financial statements for the year ended 31 March 2011, as set out in May Gurney's annual report and accounts for 2011, and the financial statements for the year ended 31 March 2012, as set out in May Gurney's annual report and accounts for 2012.

For the three years ended 31 March 2012, no material adjustment to the financial statements of the May Gurney Group is required to achieve consistency with the accounting policies of the Costain Group.

PART A: MAY GURNEY AUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 MARCH 2010

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MAY GURNEY INTEGRATED SERVICES PLC

We have audited the financial statements of May Gurney Integrated Services plc for the year ended 31 March 2010 which comprise the group income statement, the group statement of comprehensive income, the group and parent company statements of financial position, the group and parent company statements of cash flow, the group and parent company statements of changes in equity, the principal accounting policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regard the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 46, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/UKNP.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the group's affairs as at 31 March 2010 and of the group's and the parent company's profit for the year then ended;
• the financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Philip Westerman Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London 1 June 2010

Consolidated income statement of the May Gurney Group for the year ended 31 March 2010

	Note	2010 £m	2009 £m
Group revenue Cost of sales	4	483.1 (434.0)	470.3 (423.4)
Gross Profit Administrative expenses		49.1 (27.0)	46.9 (26.4)
Group operating profit before amortisation and non-recurring items Other expenses	2	22.1	20.5
– Intangible assets amortisation – Other non-recurring costs Other income	13 3	(3.2) —	(3.4) (14.4)
– Profit on disposal of property, plant and equipment Operating profit Finance income Finance costs	3 5 5	— 18.9 0.4 (0.9)	2.8 5.5 0.8 (1.1)
Profit before taxation Taxation	8	18.4 (5.3)	5.2 (2.6)
Profit for the year from continuing operations attributable to the equity holders of the parent		13.1	2.6
Earnings per share (in pence) Total and from continuing operations Basic earnings per share Diluted earnings per share	10	19.58p 19.25p	3.93p 3.89p

Consolidated statement of comprehensive income of the May Gurney Group for the year ended 31 March 2010

	Note	2010 £m	2009 £m
Profit for the year		13.1	2.6
Actuarial losses on defined benefit pension schemes Tax on actuarial losses on defined benefit pension schemes	27	(1.3) 0.4	(1.0) 0.3
Other comprehensive loss for the year		(0.9)	(0.7)
Total comprehensive income for the year attributable to equity holders of the
parent		12.2	1.9

Consolidated statement of changes in equity of the May Gurney Group for the year ended 31 March 2010

	Share capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
Balance at 31 March and 1 April 2008	3.5	13.2	1.9	1.5	45.8	65.9
Profit for the year	—	—	—	—	2.6	2.6
Other comprehensive income:
Actuarial losses on defined benefit pension
schemes Tax on actuarial losses on defined benefit	—	—	—	—	(1.0)	(1.0)
pension schemes	—	—	—	—	0.3	0.3
Total comprehensive income for the year Proceeds from disposal of own shares	— —	— —	— —	— 0.4	1.9 —	1.9 0.4
Taxation on share sales	—	—	—	(0.5)	—	(0.5)
Share based payments income statement
charge	—	—	—	—	0.4	0.4
Share based payments – deferred tax relief on
future exercise	—	—	—	—	(1.4)	(1.4)
Dividend paid	—	—	—	—	(3.2)	(3.2)
Balance at 31 March and 1 April 2009	3.5	13.2	1.9	1.4	43.5	63.5
Profit for the year	—	—	—	—	13.1	13.1
Other comprehensive income:
Actuarial losses on defined benefit pension schemes	—	—	—	—	(1.3)	(1.3)
Tax on actuarial losses on defined benefit
pension schemes	—	—	—	—	0.4	0.4
Total comprehensive income for the year	—	—	—	—	12.2	12.2
Proceeds from disposal of own shares	—	—	—	0.1	—	0.1
Taxation on share sales	—	—	—	(0.1)	—	(0.1)
Share based payments income statement
charge	—	—	—	—	0.4	0.4
Share based payments – deferred tax relief on
future exercise Dividend paid	— —	— —	— —	— —	0.8 (3.5)	0.8 (3.5)
Balance at 31 March 2010	3.5	13.2	1.9	1.4	53.4	73.4

Consolidated Balance Sheet of the May Gurney Group at 31 March 2010

	Note	2010 £m	2009 £m
Non current assets
Property, plant & equipment	11	25.7	21.9
Goodwill	12	35.2	35.2
Other intangible assets	13	5.6	8.8
Deferred tax asset	15	1.1	—
Retirement benefit surplus	27	—	0.1
		67.6	66.0
Current assets
Inventories	16	2.7	2.4
Trade and other receivables	17	81.4	78.4
Cash and cash equivalents	18	43.4	34.2
		127.5	115.0
Total assets		195.1	181.0
Current liabilities
Trade and other payables	19	(105.2)	(100.6)
Current tax liabilities		(1.1)	(1.0)
Obligations under finance leases	21	(5.6)	(5.0)
		(111.9)	(106.6)
Non-current liabilities
Retirement benefit obligations	27	(1.1)	—
Obligations under finance leases	21	(8.6)	(10.6)
Deferred tax liability	15	—	(0.2)
Provisions	22	(0.1)	(0.1)
		(9.8)	(10.9)
Total Liabilities		(121.7)	(117.5)
Net Assets		73.4	63.5
Equity
Share capital	23	3.5	3.5
Share premium account	25	13.2	13.2
Merger relief reserve	25	1.9	1.9
Other reserves	25	1.4	1.4
Retained earnings	25	53.4	43.5
Total equity		73.4	63.5

These financial statements were approved by the board of directors on 1 June 2010.

Philip Fellowes-Prynne Director

Consolidated Cash flow statement for the May Gurney Group for the year ended 31 March 2010

	Note	2010 £m	2009 £m
Cash flows from operating activities Group operating profit before amortisation and non-recurring items Non cash items Working capital movement		22.1 6.8 1.8	20.5 6.5 (2.1)
Cash generated from operations Corporation tax paid Interest received Interest paid	30	30.7 (5.3) 0.4 (0.9)	24.9 (4.0) 0.5 (1.0)
Net cash from operating activities		24.9	20.4
Cash flows from investing activities Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment Acquisition of subsidiaries, net of cash acquired	11	(12.3) 2.0 —	(8.2) 5.7 (9.7)
Net cash used in investing activities		(10.3)	(12.2)
Cash flows from financing activities Non-recurring costs Proceeds from sale of own shares by ESOT Ordinary dividends paid New finance leases Payment of finance lease obligations Loan notes received Loan notes paid	25 9	— 0.1 (3.5) 4.1 (5.5) — (0.6)	(3.0) 0.3 (3.2) 7.2 (3.7) 0.5 —
Net cash used in financing activities		(5.4)	(1.9)
Increase in cash and cash equivalents Opening cash and cash equivalents		9.2 34.2	6.3 27.9
Closing cash and cash equivalents		43.4	34.2
Reconciliation of net cash flow to movement in net funds Increase in cash and cash equivalents Decrease/(increase) in finance leases Acquired debt		9.2 1.4 —	6.3 (3.5) (5.2)
Increase/(decrease) in net funds in the year Opening net funds		10.6 18.6	(2.4) 21.0
Closing net funds		29.2	18.6

Accounting policies

Nature of operations

The principal activities of the Group during the year were infrastructure support services. The Group is incorporated and domiciled in the United Kingdom and is listed on the Alternative Investment Market. The registered office is at the Group office in Trowse, Norwich, UK. The presentation currency used is GB Pound sterling and figures are quoted in millions, rounded to the nearest £100,000.

The principal accounting policies adopted in the presentation of these consolidated and Company financial statements are set out below. These policies have been consistently applied to the periods presented unless otherwise stated.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on the historical cost basis, with the exception of intangible assets, certain financial instruments and share based payments, which are recognised using accounting policies as set out below and applied consistently.

Adoption of new and revised International Financial Reporting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 April 2009.

At the date of authorisation of these financial statements, the following new Standard was in issue but not yet effective for accounting periods commencing 1 April 2009 and is anticipated to have a material impact on the financial statements of the Group.

IFRS 3 Business Combinations (revised 2008) (effective periods starting after 1 July 2009)

In January 2008, the IASB issued a revised version of IFRS3 'Business Combinations'. The revised standard will introduce some changes to the existing accounting treatment of business combinations. For example, all transaction costs will be expensed. The standard is applicable to business combinations occurring in accounting periods beginning on or after 1 July 2009. Assets and liabilities arising from business combinations occurring before the date of adoption by the Group will not be restated and thus there will be no effect on the Group's reported income or net assets on adoption.

The Directors anticipate that the adoption of the other Standards and Interpretations in issue but not yet effective will have no material impact on the financial statements of the Group.

Changes in accounting policy

IAS 1 'Presentation of financial statements (revised 2007)' requires the presentation of a statement of changes in equity as a primary statement rather than as a note. In accordance with the new standard the Group does not present a 'Statement of recognised income and expense', as was presented in the 2009 Annual Report and Accounts, and instead introduces a 'Statement of comprehensive income'. Since this change is presentational only, there is no impact on net earnings, earnings per share or net assets.

IFRS 8 'Operating segments' requires operating segments to be identified on the basis of information that internally is provided to the Group Chief Executive, who is the Group's chief operating decision maker. The Group has assessed the revised requirements of IFRS 8 and concluded that no amendments are required to the segmental disclosures previously provided.

The amendment to IFRS 2 'Share-based payment' has been adopted by the Group during the year. The amendment clarifies that the only vesting conditions are service conditions and performance conditions and that any other features, such as the requirement to make regular saving contributions under the Group's Save As You Earn scheme, are non-vesting conditions. The amendment also clarifies that when an employee can choose whether to meet a non-vesting condition and fails to do so, such a failure must be treated as a cancellation and therefore an acceleration of the share-based payment charge. The adoption of this amendment has not had a material impact on net earnings, earnings per share or net assets during the year.

Consolidation

Subsidiaries

Subsidiaries are consolidated from the date on which control is transferred to the Group and deconsolidated from the date at which control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured at the fair value of the consideration plus costs directly attributable to the acquisition. The assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities acquired is recognised as goodwill.

Jointly controlled operations

The Group has certain contractual operations with other participants to engage in joint operations that do not create an entity carrying on a trade or business of its own. The Group includes its share of assets, liabilities and cash flows in such jointly-controlled operations, measured in accordance with the terms of each operation, which is usually pro rata to the Group's interest in the risks in the jointlycontrolled operation.

Jointly controlled entities

A jointly-controlled entity is an entity in which the Group holds a long-term interest and which is jointlycontrolled by the Group and one or more other venturers under a contractual arrangement. Investments in jointly-controlled entities are accounted for using the equity method of accounting and are initially recognised at cost.

The Group's share of post acquisition profits or losses is recognised in the income statement. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. Due to the amounts involved not being significant, they are not separately disclosed.

Inter-company transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation.

A separate income statement has not been presented for May Gurney Integrated Services plc as exempted by Section 408 of the Companies Act 2006. The profit after tax of the Company in the year was £8.5m (2009: £0.4m loss).

Goodwill and other intangible assets

Goodwill arising on consolidation represents the excess of the fair value of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary or jointlycontrolled entity at the date of acquisition.

Goodwill is recognised as an intangible asset and is reviewed for impairment annually. It is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing along the lines of the Group's operating segments. Any impairment is recognised immediately in the income statement.

Other intangible assets, which consist of acquired order book and customer relationships, are stated at cost less accumulated amortisation and impairment losses. Amortisation is based on cost and the useful economic lives of these assets. Details of these useful economic lives are included in Note 13.

Impairment

Assets that have an indefinite useful life are not subject to amortisation and are reviewed for impairment annually and when there are indications that the carrying value may not be recoverable. Assets that are subject to amortisation are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Company investments in subsidiary undertakings

Company investments are included at cost. Provision is made for any impairment in value.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business net of Value Added Tax.

Sales of goods are recognised when goods are delivered and title has passed.

Contract revenue reflects the contract activity during the year and is measured at the fair value of consideration received or receivable. When the outcome can be assessed reliably, contract revenue and associated costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract.

Where the outcome of a long-term contract cannot be estimated reliably revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable, and contract costs are recognised as an expense in the period in which they are incurred.

In the case of a cost plus contract, the outcome of a contract can be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the Group, and the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.

Property, plant and equipment

Property, plant and equipment is stated at historic cost to the Group, being its purchase cost together with any incidental expenses of acquisition.

Depreciation of property, plant and equipment is calculated so as to write off their cost over their expected economic lives, residual values are reassessed on an annual basis. The principal annual rates of depreciation are as follows:

•	Freehold land	–	not depreciated
•	Freehold buildings	–	between 5 and 50 years straight line
•	Short leasehold property	–	10% straight line or life of lease if shorter
•	Plant, vehicles and equipment	–	between 10% and 33% straight line

Inventories and work in progress on construction contracts

Inventories are valued at the lower of cost and net realisable value. The cost of purchase is determined by means of the weighted average cost formula.

Contract work in progress is valued at cost plus attributable profit less foreseeable losses. Attributable profit is included when the outcome of a contract can be assessed with reasonable certainty. The excess of book value over amounts received on individual contracts is included in current trade receivables and payments received in excess of book value are included in current trade payables.

Non-recurring items

Material and non-recurring items of income and expense are disclosed in the income statement as 'Non-recurring items'. Examples of items which may give rise to disclosure as 'Non-recurring' include inter alia gains or losses on the disposal of businesses, investments and property, plant and equipment, costs of restructuring and reorganisation of existing businesses and asset impairments.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax payable in respect of the year is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantially enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from initial recognition of goodwill or from the initial recognition of other assets and liabilities (other than in a business combination) in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date.

Deferred tax is calculated based on the laws enacted or substantially enacted by the reporting date and at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Financial instruments

The financial instruments used by the Group comprise net funds, trade receivables and trade payables.

• (a) Loans and receivables do not carry any interest and are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts.
• (b) Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
• (c) Trade payables are not interest bearing and are initially stated at their fair value and subsequently measured at amortised cost.

• (d) Loans are raised for support of long-term funding of the Group's operations. They are recognised at fair value on inception. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement using an effective interest method.

• (e) Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities.

• (f) Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
• (g) The Group has a policy of not trading in financial instruments and thus the only risks arising, in the normal course of business, are interest rates and liquidity. The Group's foreign currency risk is minimal as the volume of foreign currency transactions is not significant. The Group currently has no derivative instruments and sees no immediate requirement for any.

Accounting for financial assets

Financial assets consist of receivables, along with cash and cash equivalents.

An assessment of whether a financial asset is impaired is made at least at each reporting date. For receivables, this is based on the latest credit information available, i.e. recent counterparty defaults and external credit ratings. Financial assets that are substantially past due are also considered for impairment. All income and expense relating to financial assets are recognised in the income statement line item 'finance costs' or 'finance income', respectively.

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. The Group's trade and other receivables fall into this category of financial instruments.

Individual receivables are considered for impairment when they are past due at the reporting date or when objective evidence is received that a specific counterparty will default. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry of a counterparty. The percentage of the write down is then based on recent historical counterparty default rates for each identified group.

Accounting for financial liabilities

The Group's financial liabilities include borrowings, trade and other payables (including finance lease liabilities), which are measured at amortised cost using the effective interest rate method.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included in the income statement line items 'finance costs' or 'finance income'.

Leases

In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. Assets held under finance leases are recognised as assets of the Group at the lower of their fair value or the present value of the minimum lease payments and the capital elements of the commitments are shown as obligations under finance leases. Payments are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease terms and their useful lives.

All other leases are regarded as operating leases and the related payments are charged to the income statement on a straight-line basis over the lease term.

Share-based payments

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).

All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to equity.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

Employee benefits

The Group and Company contribute to eight defined contribution pension schemes and a defined benefit pension scheme, the assets of which are held separately from those of the Group and are invested in managed funds.

In respect of the defined benefit pension scheme, the cost of providing benefits is determined using the projected unit method, with actuarial valuations being carried out at each reporting date. Hence actuarial gains and losses are recognised in full in the period in which they occur through the statement of comprehensive income. The liability recognised in the statement of financial position is the present value of the defined benefit obligations less the fair value of plan assets. Associated interest credits are included within finance income and charges within finance costs. The current service cost incurred during the year to provide retirement benefits to employees is charged to operating profit.

In respect of the defined contribution pension schemes, the contributions paid by the Group, Company and the employees are invested within the individual funds in the month following the month of deduction. The employer contribution rates are determined by reference to an age, service or grade related scale or are at a fixed, level percentage. The amounts contributed by the Group and Company are charged to the income statement as the contributions fall due. Certain contracts require that employees transfer with protected pension rights and the Group and Company are responsible for the pension liability that exists.

May Gurney Group Limited Employee Share Ownership Trust ('ESOT') and Employee Benefit Trust ('EBT')

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT transferred 1,783,324 ordinary shares by way of a gift for £nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust (EBT), an offshore trust.

Shares in the Company held by the ESOT and EBT are shown as a deduction in arriving at equity funds.

Where the purchase of shares by the ESOT/EBT is financed by external bank loans, these loans are shown within current trade and other payables. Other current assets, liabilities and reserves of the ESOT/EBT are included within the statutory headings to which they relate. The ESOT/EBT are included within the Company financial statements. The ESOT/EBT have been accounted for in line with the requirements of SIC 12 which states that the Company should consolidate all Special Purpose Entities of which the ESOT/EBT are classified as such.

Accounting estimates and judgements

To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial statements. These estimates are based on historical experience and various other assumptions that management and the Board of directors believe are reasonable under the circumstances. The results of this form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources.

Areas requiring estimates that may significantly impact on the Group's earnings and financial position are as follows:

(a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy previously stated. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Further details of the estimates used are set out in Note 12.

Areas requiring critical judgement that may significantly impact on the Group's earnings and financial position are as follows:

(b) Revenue recognition

The Group uses the percentage-of-completion method to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract.

(c) Pension benefits

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/ income for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash flows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 27.

(d) Share-based payments

The weighted average fair value of options granted during the period was determined using the Trinomial pricing model. The assumptions used are detailed in Note 24.

(e) Intangible assets

The Group recognises certain intangible assets on acquisition. Judgements in respect of useful lives, discount rates and valuation methods affect the carrying value and amortisation charges in respect of these assets. These judgements are shown in Note 13.

(f) Impairment of work in progress

In assessing whether work in progress is impaired, estimates are made of future sales revenue, timing and build costs. The Group has controls in place to ensure that estimates of sales revenue are consistent, and external valuations are used where appropriate.

Dividends

Dividends are recognised in the financial statements in the period in which they are approved by the Company's shareholders. Interim dividends are recognised in the period in which they are approved and paid.

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. When recognising and measuring a provision, events occurring after the reporting date, and before authorisation for issue, are considered to determine whether such events provide additional evidence of conditions that existed at the reporting date and should therefore be adjusted for.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Notes to the Accounts

1. Segmental analysis

For management purposes, the Group is currently organised into three segments – Public Sector Services (Highways Services, Environmental Services and Facility Services), Regulated Sector Services (Utility Services, Rail Services and Waterways Services) and Property. The three segments noted are those that are regularly reviewed by the Group's Chief Operating Decision Maker (CODM). Revenue is mostly derived from contract work.

The identification of these reportable segments has come about due to the Group's aim of aligning services more closely with the needs of its long-term clients and the nature of the work the Group delivers for them, namely delivering essential front-line maintenance and enhancement services.

	Public Sector Services	Regulated Sector Services	Property	Group
For the year ended 31 March 2010	£m	£m	£m	£m
Revenue Total revenue	285.3	200.8	—	486.1
Less: between segments	(1.6)	(1.4)	—	(3.0)
External revenue	283.7	199.4	—	483.1
Sales between segments are charged at prevailing market prices. Result per management information reviewed by the CODM Group operating profit before amortisation and non-recurring
items	14.7	7.4	—	22.1
Intangible assets amortisation Non-recurring items Finance income	(1.7)	(1.5)	—	(3.2) — 0.4
Finance costs				(0.9)
Profit before taxation				18.4
Taxation				(5.7)
Profit for the year per management information				12.7
Taxation adjustment				0.4
Profit for the year per statutory accounts				13.1
Segment assets and liabilities Total assets
Segments	98.6	77.1	11.8	187.5
Not allocated to segments				7.6 195.1
Total liabilities
Segments	(69.3)	(47.9)	(1.0)	(118.2)
Not allocated to segments				(3.5) (121.7)
Other Information
Capital expenditure	9.9	2.4	—	12.3
Depreciation	4.0	2.6	0.1	6.7

As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

One customer (2009: one) in the Regulated Sector Services segment accounted for 13% of total revenue (2009: 11%) and in 2009 one customer in the Public Sector Services segment accounted for 11% of total revenue.

For the year ended 31 March 2009	Public Sector Services £m	Regulated Sector Services £m	Property £m	Group £m
Revenue Total revenue Less: between segments	271.3 (1.9)	203.5 (2.6)	— —	478.8 (4.5)
External revenue	269.4	200.9	—	470.3
Sales between segments are charged at prevailing market prices.
Result Group operating profit before amortisation and non-recurring items Intangible assets amortisation Non-recurring items Finance income Finance costs	13.4 (1.6) (2.5)	7.0 (1.8) (11.9)	0.1 — 2.8	20.5 (3.4) (11.6) 0.8 (1.1)
Profit before taxation				5.2
Taxation				(2.6)
Profit for the year				2.6
Segment assets and liabilities Total assets Segments Not allocated to segments	86.4	78.6	11.6	176.6 4.4 181.0
Total liabilities Segments Not allocated to segments	(59.6)	(57.0)	(0.4)	(117.0) (0.5) (117.5)
Other information Capital expenditure including acquisitions Depreciation	11.8 3.5	4.6 3.0	1.3 0.2	17.7 6.7

As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

2. Group operating profit before amortisation and non-recurring items

Group operating profit before amortisation and non-recurring items is stated after charging/(crediting):

For the year ended 31 March	2010 £m	2009 £m
Depreciation (Note 11) – owned	3.1	3.9
– finance lease and hire purchase	3.6	2.8
Profit on sale of plant and machinery	(0.3)	(0.2)
Loss on sale of freehold land and buildings	0.1	—
Directors' emoluments (Note 7)	1.1	1.3
Share based payments	(0.4)	(0.4)
Fees payable to the Company's auditor for the audit of the
annual accounts	—	—
Fees payable to the Company's auditor and its associates for other services
– audit of the Company's subsidiaries	0.1	0.1
– tax advisory and compliance services	—	0.1
– corporate finance services	—	0.1
Amounts payable under operating leases
– land and buildings	2.2	2.2
– plant and machinery	5.6	6.6

3. Other non-recurring costs and other income

For the year ended 31 March	2010 £m	2009 £m
Shared Services restructuring costs	—	(1.8)
Redundancy and associated costs in relation to the reduction in scale of the geotechnical and landfill
remediation businesses	—	(1.6)
Impairment of goodwill and intangible assets related to the conclusion of the National Grid gas contract Contract cessation and costs related to the conclusion of	—	(9.0)
the National Grid gas contract	—	(2.0)
	—	(14.4)
Profit on disposal of group office site at Trowse, Norwich	—	2.8
	—	(11.6)

On 28 November 2008, the Group disposed of its interest in the freehold property at Trowse for consideration of £5.1 million. The net book value at date of disposal was £1.9 million and costs of disposal were £0.4 million.

4. Revenue

The following significant categories of revenue were recognised in the year.

For the year ended 31 March	2010 £m	2009 £m
Revenue arising from:
Sale of goods	4.7	4.3
Contract revenue	478.4	466.0
	483.1	470.3

5. Finance income and costs

For the year ended 31 March	2010 £m	2009 £m
Finance income
Interest receivable from short-term bank deposits	0.2	0.4
Other interest	0.2	0.1
Finance income in relation to the change in value of financial
assets	—	0.3
	0.4	0.8
Finance costs
Finance charges payable under finance leases	(0.9)	(0.8)
Finance cost in relation to defined benefit pension scheme	—	(0.1)
Other interest	—	(0.2)
	(0.9)	(1.1)

6. Staff numbers and costs

The average number of people (including directors) employed by the Group during the year, categorised by segment, was as follows:

	No employees
For the year ended 31 March	2010 £m	2009 £m
Public Sector Services	2,350	2,214
Regulated Sector Services	1,309	1,680
Group and Shared Services	214	209
	3,873	4,103

The aggregate payroll costs of these employees were:

For the year ended 31 March	2010 £m	2009 £m
Wages and salaries	107.9	117.3
Social security costs	10.5	11.8
Group pension costs (Note 27)	0.9	1.4
Other pension costs (Note 27)	3.1	2.4
	122.4	132.9

The average number of people (including directors) employed by the Company during the year was 8 (2009: 8), with an aggregate payroll cost of £1.4 million (2009: £1.5m).

Key management remuneration has been disclosed per Note 31.

7. Emoluments of directors

For the year ended 31 March	2010 £m	2009 £m
Directors' emoluments	1.1	1.3

An analysis of directors' emoluments and pension entitlements (including those of the highest paid director) and their interests in the share capital of the Company is contained in the Directors' remuneration report on pages 50 to 54 of the 2010 May Gurney Annual Report and Accounts.

8. Taxation

(A) Analysis of tax charge:

For the year ended 31 March	2010 £m	2009 £m
Current tax Corporation tax on profits for the year Under/(over) provision in respect of prior years	4.6 0.9	3.8 (0.1)
Total current tax	5.5	3.7
Deferred tax Origination and reversal of temporary differences Tax effect of intangible assets amortisation Retirement benefit obligation Over provision in respect of prior years	1.8 (0.9) — (1.1)	0.1 (1.3) 0.1 —
Total deferred tax	(0.2)	(1.1)
Total tax charge for the year	5.3	2.6

(B) Factors affecting the tax charge:

The taxation assessed for the year is higher than the standard rate of corporation tax in the UK (28%).

The charge is affected by a number of factors in addition to the standard UK rate. The differences are explained as follows:

For the year ended 31 March	2010 £m	2009 £m
Profit before tax	18.4	5.2
Profit before tax multiplied by standard rate of corporation tax in the UK of 28%
– expected charge	5.2	1.4
Effects of:
Expenses not deductible for tax purposes	0.3	1.6
Profit on disposal of land and buildings	—	(0.3)
Adjustments to tax charge in respect of previous year
(current and deferred)	(0.2)	(0.1)
Total tax charge for year (Note 8(a))	5.3	2.6

The effective tax rate, excluding the impact of non-recurring items, for the year is 28.8% (2009: 28.7%).

The corporation tax liability in the year has been affected by tax relief of £0.1 million on the exercise of share options in the year. This is offset by a corresponding reduction in the associated deferred tax asset.

9. Dividends

For the year ended 31 March	2010 £m	2009 £m
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 March 2009 of 3.4 pence per share	2.3	2.0
Interim dividend paid for the year ended 31 March 2010 of 1.8 pence per share	1.2 3.5	1.2 3.2

The proposed final dividend of 3.7 pence per share had not been approved at the reporting date and so has not been included as a liability in these financial statements. The dividend will be paid on 13 July 2010 to holders of ordinary shares on the register at the close of business on 11 June 2010.

The Trustee of the May Gurney Group Limited Employee Share Ownership Trust has waived its right to receive any dividends in respect of shares held in the Trust.

10. Earnings per share

For the year ended 31 March	2010 £m	2009 £m
Profit for the year	13.1	2.6
Basic/diluted earnings	13.1	2.6
Adjustments to basic earnings
Intangible assets amortisation	3.2	3.4
Non-recurring profit on disposal of property, plant &
equipment	—	(2.8)
Other non-recurring costs	—	14.4
Tax on non-recurring items	(0.9)	(3.2)
Underlying earnings	15.4	14.4
Number of shares	Number	Number
Weighted average number of ordinary shares for the
purposes of basic earnings per share	66,993,564	66,191,939
Effect of dilutive potential ordinary shares	1,152,022	656,873
Weighted average number of ordinary shares for the
purposes of diluted earnings per share	68,145,586	66,848,812
Weighted average number of ordinary shares for the
purposes of underlying earnings per share	70,236,016	70,236,016
	pence	pence
Underlying earnings per share	21.92	20.50
Basic earnings per share	19.58	3.93
Diluted earnings per share	19.25	3.89

Underlying earnings per share, before non-recurring items, has been disclosed to give a clearer understanding of the Group's underlying trading performance. It has been calculated using the underlying earnings figures above and an adjusted weighted average number of ordinary shares which includes those shares held by the Group Employee Share Ownership Trust.

Diluted earnings per share is the basic earnings per share after allowing for the dilutive effect of the conversion into ordinary shares of the number of options outstanding during the year (see Note 24).

11. Property, plant and equipment

For the year ended 31 March 2010	Freehold land and buildings £m	Short leasehold property £m	Plant, vehicles and equipment £m	Total £m
Group
Cost
At 1 April 2008	4.9	0.4	27.1	32.4
Acquisition of subsidiary undertakings	1.2	0.1	7.9	9.2
Additions	0.1	—	8.4	8.5
Disposals	(3.1)	—	(2.7)	(5.8)
At 1 April 2009	3.1	0.5	40.7	44.3
Additions	—	—	12.3	12.3
Disposals	(0.6)	—	(4.3)	(4.9)
At 31 March 2010	2.5	0.5	48.7	51.7
Depreciation
At 1 April 2008	1.3	0.3	16.9	18.5
Charge for year	0.2	0.1	6.4	6.7
Disposals	(0.7)	—	(2.1)	(2.8)
At 1 April 2009	0.8	0.4	21.2	22.4
Charge for year	0.1	—	6.6	6.7
Disposals	—	—	(3.1)	(3.1)
At 31 March 2010	0.9	0.4	24.7	26.0
Net book value at 31 March 2010	1.6	0.1	24.0	25.7
Net book value at 1 April 2009	2.3	0.1	19.5	21.9

Included in the total net book value of plant, vehicles and equipment is £13.4 million (2009: £13.9 million) in respect of assets acquired under finance leases and hire purchase agreements. Depreciation for the year on these assets was £3.6 million (2009: £2.8 million).

12. Goodwill

For the year ended 31 March 2010	Total £m
Group
Cost and net book value
At 1 April 2008	35.3
Impairment		(7.9)
Acquisition of subsidiaries		7.8
At 1 April 2009 and 31 March 2010	35.2
For the year ended 31 March	2010 £m	2009 £m
Group
May Gurney Group Limited	5.4	5.4
May Gurney Limited – dormant companies *	25.0	25.0
May Gurney Recycling CIC	4.8	4.8
	35.2	35.2

* The assets and trade of TJ Brent Limited, T Cartledge Limited, AC Chesters & Son Limited, FDT Holdings Limited and Southern Household Waste Recycling Centre Business (SHWRC) have all been hived up into May Gurney Limited. These companies are now dormant.

The carrying values of the Group's goodwill are reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If analysis indicates that the carrying value is too high, then this is reduced to its recoverable amount which is the higher of fair value less costs to sell and its value in use.

Value in use is calculated using pre-tax cash flow projections based on financial budgets and business plans covering a four year period, which take into account historical trends and market conditions, and which have been approved by the Board. The cash flow forecasts are adjusted by an appropriate discount rate derived from our cost of capital plus a reasonable risk premium at the date of valuation.

The key assumptions are: operating margin (4-5%); average annual growth rate (0-7%); and pre-tax discount rate (10%). The average growth rates used are consistent with forecasts included in industry reports.

The Group's impairment review is sensitive to changes in the key assumptions used, in particular the growth rate and discount rate. However, based on the Group's sensitivity analysis, a reasonable change in a single assumption will not cause impairment in any of the Group's cash generating units.

The impairment charge in the prior year in respect of Willows Plant Limited arose following the cessation of the National Grid Gas contract within the Regulated Sector Services segment.

13. Other intangible assets

For the year ended 31 March 2010

Group	Total £m
Valuation
At 1 April 2008	16.1
Additions	3.8
At 1 April 2009 and 31 March 2010	19.9
Amortisation
At 1 April 2008	6.6
Impairment	1.1
Charge for year	3.4
At 1 April 2009	11.1
Charge for year	3.2
At 31 March 2010	14.3
Net book value at 31 March 2010	5.6
Net book value at 1 April 2009	8.8

Other intangible assets valuation comprises:

	Year acquired	Carrying value £m	Valuation £m	UEL* years
TJ Brent Order book(1)	2005	—	2.1	2
TJ Brent Customer relationships(1)	2005	0.8	6.4	10
AC Chesters Order book(1)	2007	—	1.2	3
AC Chesters Customer relationships(1)	2007	0.3	0.3	8
FDT Order book(1)	2008	—	0.6	3
FDT Customer relationships(1)	2008	0.3	0.5	5
Willows Order book(1)	2008	—	0.3	1.5
Willows Customer relationships(1)	2008	—	1.0	4
SHWRC Business Order book(2)	2008	2.1	3.7	8.5
ECT Order book(2)	2009	2.0	3.3	7
ECT Customer relationships(2)	2009	0.1	0.5	7
		5.6	19.9

For the valuations above the purchase price allocation method was used, which required identification and fair value estimation of the individual intangible assets acquired. In order to arrive at an estimate of fair value, the income approach was used which values the cash flows that the asset might reasonably be expected to generate.

The impairment charge in the prior year in respect of Willows Plant Limited arose following the cessation of the National Grid Gas contract within the Regulated Sector Services segment.

• (1) Regulated Sector Services operating segment
• (2) Public Sector Services operating segment
• * UEL = Original Useful Economic Life

14. Investments

undertakings £m	Total £m	2009 Total £m
20.3	20.3	20.3
		subsidiary 2010

Refer to Note 29 for the list of subsidiary entities.

15. Deferred tax asset/(liability)

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
At beginning of year	(0.2)	0.3	0.6	0.9
Acquisition of subsidiaries	—	—	0.1	—
Credited direct to equity	1.2	0.6	(1.2)	(0.6)
Relief on exercise of share options	(0.1)	—	(0.8)	—
Income statement credit	0.2	—	1.1	—
At end of year	1.1	0.9	(0.2)	0.3

Deferred taxation at 28% (2009: 28%) is in respect of:

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Depreciation in excess of capital allowances	0.2	—	0.9	—
Other temporary differences	1.0	—	1.0	—
Intangible assets acquired	(1.6)	—	(2.5)	—
Share based payments	1.2	0.6	0.4	0.3
Defined benefit pension scheme	0.3	0.3	—	—
Deferred tax asset/(liability)	1.1	0.9	(0.2)	0.3

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.

16. Inventories and short-term contracts

For the year ended 31 March	2010 Group £m	2009 Group £m
Raw materials and consumables	0.3	0.4
Finished goods and goods for resale	2.4	2.0
	2.7	2.4

The amount of inventories recognised as an expense during the year was £6.5 million (2009: £6.2m).

17. Trade and other receivables

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Trade receivables	67.9	—	65.2	—
Amounts due from contract customers	7.0	—	7.6	—
Other receivables	5.4	—	4.5	—
Prepayments and accrued income	1.1	0.2	1.1	0.2
	81.4	0.2	78.4	0.2

Trade and other receivables are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts. The directors consider that the carrying values of current trade and other receivables approximate their fair values.

Amounts due from contract customers relates to value in excess of cash received recognised on longterm contracts. At 31 March 2010 there was one contract being accounted for as a long-term contract (2009: one).

Trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be potentially impaired and a provision of £0.4 million (2009: £0.3m) has been recorded accordingly.

In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Not more than 3 months	8.9	—	5.5	—
More than 3 months but not more than 6 months	0.8	—	1.0	—
	9.7	—	6.5	—

The movement in the provision for impairment of trade receivables is as follows:

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Balance at 1 April 2009	0.3	—	0.5	—
Credited to the income statement
– additional provisions	0.3	—	0.2	—
– unused amounts reversed	(0.2)	—	(0.4)	—
Balance at 31 March 2010	0.4	—	0.3	—

The ageing of the impaired receivables is as follows:

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Six to nine months	0.1	—	0.1	—
Nine to twelve months	0.1	—	0.1	—
Over 12 months	0.2	—	0.1	—
	0.4	—	0.3	—

Credit risk

Exposure to credit risk is disclosed in Note 20.

18. Cash and cash equivalents

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Cash at bank and in hand	28.4	20.7	34.2	38.5
Short-term bank deposits	15.0	5.0	—	—
	43.4	25.7	34.2	38.5

The carrying amount of cash and cash equivalents approximates their fair value.

19. Trade and other payables

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Amounts due to contract customers	0.8	—	1.9	—
Trade payables	76.5	0.1	69.1	0.1
Contingent consideration	—	—	0.6	—
Amounts owed to subsidiary undertakings	—	14.9	—	33.3
Other tax and social security	9.3	1.0	10.4	0.6
Other payables	7.0	0.2	10.8	0.5
Accruals and deferred income	11.6	0.2	7.8	—
	105.2	16.4	100.6	34.5

Trade and other payables are initially stated at their fair value and subsequently measured at amortised cost. The directors consider that the carrying values of current trade and other payables approximate their fair values.

Amounts due to contract customers relates to cash received in excess of value recognised.

20. Financial instruments

Capital risk management

The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group comprises equity attributable to equity holders of May Gurney Integrated Services plc consisting of issued ordinary share capital, reserves and retained earnings as disclosed in Notes 23 and 25 and cash and cash equivalents as disclosed in Note 18.

The Group maintains or adjusts its capital structure through the payment of dividends to shareholders. The Group's policy is to carry no significant debt, other than finance leases.

The Group's overall capital risk management strategy remains unchanged from 2009.

Financial risk management

Financial risk management is an integral part of the way the Group is managed. In the course of its business, the Group is exposed primarily to interest rate risk, credit risk and liquidity risk. The overall aim of the Group's financial risk management policies is to minimise potential adverse effects on financial performance and net assets.

The Group's finance department manages the principal financial risks within policies and operating parameters approved by the Board of directors.

Commodity price risk

Through its environmental services contracts the group has some exposure to fluctuations in recyclable commodity prices. Where possible the group seeks to mitigate the risk by passing on the risk and reward of price fluctuations to clients and through the use of cap and collar agreements with buyers of recyclables commodities.

Foreign currency risk

The Group does not have significant foreign currency transactions and exposure to foreign currency risk is therefore minimal. Accordingly, these financial statements do not include any sensitivity analysis in respect of currency risk.

Interest rate risk

Interest rate risk does not arise on the Group's obligations under finance leases as interest rates are fixed at the start of the lease.

Interest rate risk arises on the Group's cash and cash equivalents. A 1% increase/decrease in the Bank of England base rate would lead to a £0.4 million (2009: £0.3m) increase/decrease in the Group's finance income.

Price risk

The directors do not consider there to be any price risk relating to equity instruments and hence no need for any related disclosures.

Credit risk

Exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, namely cash and cash equivalents and trade and other receivables.

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group's policy is to deal only with creditworthy counterparties.

The Group's management considers that all financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. An analysis of amounts that are past due but not impaired is shown in Note 17.

None of the Group's financial assets are secured by collateral or other credit enhancements.

The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The Group has no significant concentration of credit risk in respect of amounts due from contract customers or trade receivable balances at the reporting date, with exposure spread over a number of customers and across the Group's operating segments.

Liquidity risk

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.

The Group maintains cash to meet its liquidity requirements for up to 30-day periods. Funding in regards to long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities.

Categories of financial instruments

Group	2010 Loans and receivables £m	2010 Non financial assets £m	2010 Financial liabilities at amortised cost £m	2010 Non financial liabilities £m	2009 Loans and receivables £m	2009 Non financial assets £m	2009 Financial liabilities at amortised cost £m	2009 Non financial liabilities £m
Financial assets
Cash at bank	43.4	—	—	—	34.2	—	—	—
Trade receivables – current	67.9	—	—	—	65.2	—	—	—
Other receivables –
current	12.4	—	—	—	12.2	—	—	—
Prepayments	1.1	—	—	—	1.1	—	—	—
Total	124.8	—	—	—	112.7	—	—	—
Financial liabilities Trade payables Other liabilities –	—	—	(76.5)	—	—	—	(69.1)	—
current Other liabilities –	—	—	(7.8)	—	—	—	(12.7)	—
non current	—	—	—	(0.1)	—	—	—	(0.1)
Accruals	—	—	(11.6)	—	—	—	(7.8)	—
VAT and taxation payables	—	—	—	(10.4)	—	—	—	(11.4)
Contingent consideration	—	—	—	—	—	—	—	(0.6)
Total	—	—	(95.9)	(10.5)	—	—	(89.6)	(12.1)
Net	124.8	—	(95.9)	(10.5)	112.7	—	(89.6)	(12.1)
Company	2010 Loans and receivables £m	2010 Non financial assets £m	2010 Financial liabilities at amortised cost £m	2010 Non financial liabilities £m	2009 Loans and receivables £m	2009 Non financial assets £m	2009 Financial liabilities at amortised cost £m	2009 Non financial liabilities £m
Financial assets
Cash at bank	25.7	—	—	—	38.5	—	—	—
Other receivables	—	—	—	—	—	—	—	—
Prepayments VAT and taxation	0.2	—	—	—	0.2	—	—	—
receivables Investments in	—	1.1	—	—	—	1.5	—	—
subsidiaries	—	20.3	—	—	—	20.3	—	—
Total	25.9	21.4	—	—	38.7	21.8	—	—
Financial liabilities Trade payables	—	—	(0.1)	—	—	—	(0.1)	—
Other liabilities –
current	—	—	(15.0)	—	—	—	(33.7)	—

Accruals — — (0.2) — — — —— VAT and taxation payables — — — (1.0) — — — (0.7) Total — — (15.3) (1.0) — — (33.8) (0.7) Net 25.9 21.4 (15.3) (1.0) 38.7 21.8 (33.8) (0.7) Maturity of the Group's financial liabilities

	2010 Trade and other payables £m	2010 Finance leases £m	2010 Total £m	2009 Trade and other payables £m	2009 Finance leases £m	2009 Total £m
Due within one year	95.9	6.3	102.2	89.6	6.0	95.6
Due within one to two years	—	5.0	5.0	—	5.1	5.1
Due within two to five years	—	4.3	4.3	—	6.7	6.7
	95.9	15.6	111.5	89.6	17.8	107.4

The above contractual maturities reflect the gross cash flows which may differ to the carrying values of the liabilities at the reporting date.

21. Obligations under finance leases

For the year ended 31 March 2010	2010 Group £m	2009 Group £m
Finance lease and hire purchase obligations
Repayable: Within one year	5.6	5.0
Repayable: Between two and five years	8.6	10.6
	14.2	15.6

The net obligations under finance lease and hire purchase agreements of £14.2 million (2009: £15.6m) are secured on the assets acquired. The directors consider that there is no material difference between the carrying value and the fair value of finance lease obligations.

The gross obligations under finance lease and hire purchase agreements are £15.6 million (2009: £17.8m).

During the year, obligations totalling £nil (2009: £5.2m) were taken on through acquisitions.

22. Provisions and other liabilities

For the year ended 31 March 2010	2010 Group £m	2009 Group £m
At beginning of year	0.1	0.3
Credit for the year	—	(0.2)
At end of year	0.1	0.1

The above provisions comprise £0.1 million (2009: £0.1m) in respect of site reinstatement obligations where the Group was formerly engaged in the excavation of sand and aggregates and other site reinstatement obligations.

23. Share capital

For the year ended 31 March	2010 £m	2009 £m
Authorised Equity shares Ordinary 5 pence shares	6.8	6.8
Issued and fully paid Equity shares Ordinary 5 pence shares	3.5	3.5

	Number	Number
Authorised ordinary 5 pence shares	135,000,000	135,000,000
Issued ordinary 5 pence shares	70,236,016	70,236,016

24. Share-based payments

The following expense was charged in respect of the Group's share-based incentive schemes:

	2010 Group £m	2009 Group £m
LTIP	0.2	—
Sharesave	0.2	0.2
CSOP and other schemes	—	0.2
Total	0.4	0.4

For options granted post flotation (June 2006), independent valuations have been used to determine the fair values for share-based payments.

The fair values and assumptions used were as follows:

						CSOP	CSOP	Sharesave	Sharesave	Sharesave	Stand alone	alone
	LTIP 06	LTIP 07	LTIP 08	LTIP 09	CSOP 07	08	09	07	08	09	option 06	option 07
Price model	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial
Grant date	21 June 06	5 June 07	8 July 08	8 July 09	25 July 07	8 July 08	8 July 09	21 August 07	8 August 08	12 August 09	12 March 07	25 July 07
Share price at grant	186.00p	311.00p	236.00p	161.00p	335.50p	236.00p	161.00p	315.50p	241.00p	175.00p	330.00p	335.50p
Exercise price	nil	nil	nil	nil	335.50p	236.00p	161.00p	254.00p	196.00p	139.00p	330.00p	335.50p
Option life	10 years	10 years	10 years	10 years	10 years	10 years	10 years	3 years	3.6 years	3.6 years	10 years	10 years
Expected vesting life	3 years	3 years	3 years	3 years	3 years	3 years	3 years	3 years	3.1 years	3.1 years	2 years	3 years
Risk free rate	4.73%	5.32%	5.03%	3.73%	5.30%	5.03%	3.73%	5.17%	4.68%	3.03%	4.80%	5.30%
Expected volatility	25%	25%	30%	40%	25%	30%	40%	25%	30%	40%	25%	25%
Expected dividend yield	2%	2%	2%	3%	2%	2%	3%	2%	2%	3%	2%	2%
Value per option	186.00p	292.30p	222.00p	147.00p	95.40p	72.00p	52.00p	99.80p	79.00p	36.00p	87.06p	95.40p

Stand

For 2003 Scheme options, which were granted prior to flotation, the fair values of services received in return for, share-based payments were measured by the fair value of shares received and options granted. Owing to the absence of a market for the Company's shares at the time of grant, the Company used share valuation methodology which looks at comparator listed companies and adjusts for the lack of an active market by means of discounting their quoted price earnings ratios. The risk free rate of return was assumed to be 5%.

May Gurney Integrated Services Unapproved Share Option Scheme (the '2003 Scheme')

The 2003 Scheme was adopted in 2003 and ceased issuing new options on the flotation of the Company. Under the Scheme, options were granted to executive directors and to senior and middle management. The exercise of some of the options granted under the 2003 Scheme was conditional upon the achievement of objective performance targets set by the Trustee of the ESOT at the time of grant. Options granted under the 2003 Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the scheme are included in the Directors' remuneration report.

Options granted, exercised and forfeited under the scheme were as follows:

		2010		2009
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	837,500	25.03p	2,633,000	26.34p
Granted	—	—	—	—
Exercised	(241,000)	22.62p	(1,470,500)	25.63p
Lapsed	—	—	(325,000)	32.96p
Outstanding at end of year	596,500	26.01p	837,500	25.03p
Exercisable at the end of the year	396,500	13.58p	587,500	15.56p

The weighted average share price at date of exercise was 179 pence (2009: 208 pence).

The May Gurney Long Term Incentive Plan ('LTIP')

The LTIP scheme is a long-term incentive plan for executive directors and senior managers. The exercise of awards granted under the LTIP will in normal circumstances be conditional upon the achievement of objective performance targets set at the time of grant. Such performance targets shall be measured over a performance period. Options granted under the LTIP Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the scheme are included in the Directors' remuneration report. Options granted, exercised and forfeited under the scheme were as follows:

		2010		2009
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	585,698	—	441,878	—
Granted	674,143	—	514,978	—
Exercised	—	—	—	—
Lapsed	(310,015)	—	(371,158)	—
Outstanding at end of year	949,826	—	585,698	—
Exercisable at the end of the year	—	—	—	—

The May Gurney Savings Related Share Option Scheme ('Sharesave')

The Sharesave scheme was established in July 2007. Participation is offered to al employees of the Group who have been employed for a continuous period which is determined by the Board of directors. Under the Sharesave contract participating employees save a regular sum each month for three years of not less than £5 nor more than £250 per month.

Options to acquire ordinary shares in the capital of the Company will be granted to eligible employees who enter into a Sharesave contract. The number of options will be that number of shares which have an aggregate option price not exceeding the projected proceeds of the Sharesave contract including any bonus. The option price per share will not be less than 80% of the market value of an ordinary share on the day on which invitations to apply for options are issued.

Options granted under the Sharesave scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the scheme are included in the Directors' remuneration report. Options granted, exercised and forfeited under the scheme were as follows:

		2010		2009
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	1,644,511	221.26p	987,548	254.00p
Granted	1,048,312	139.00p	1,041,641	196.00p
Exercised	(1,618)	254.00p	—	—
Lapsed	(799,644)	211.86p	(384,678)	238.35p
Outstanding at end of year	1,891,561	179.05p	1,644,511	221.26p
Exercisable at the end of the year	—	—	—	—

The May Gurney Company Share Ownership Plan ('CSOP')

The CSOP scheme is a long-term incentive plan for senior managers. The exercise of awards granted under the CSOP will in normal circumstances be conditional upon the achievement of objective performance targets set at the time of grant. Such performance targets shall be measured over a performance period. Options granted under the CSOP scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Options granted, exercised and forfeited under the scheme were as follows:

		2010		2009
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	316,633	261.24p	92,387	335.50p
Granted	77,875	161.00p	258,194	236.25p
Exercised	—	—	—	—
Forfeited	(134,627)	253.38p	(33,948)	274.45p
Outstanding at end of year	259,881	257.46p	316,633	261.24p
Exercisable at the end of the year	—	—	—	—

Other schemes

Options granted, exercised and forfeited under other schemes were as follows:

Date of award	Market value at date of award	Earliest vesting date	Awarded at 1 Apr 09	Granted in year	Vested in year	Lapsed in year	Awarded at 31 Mar 2010
12 March 2007	330.0p	12 Mar 09	151,515	—	—	—	151,515
25 July 2007	335.5p	25 Jul 10	113,311	—	—	(2,952)	110,379

25. Reserves

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Share premium account At beginning and end of year	13.2	13.2	13.2	13.2
Merger relief reserve At beginning and end of year	1.9	1.9	1.9	1.9
Retained earnings At beginning of year	43.5	6.3	45.8	11.4
Retained profit/(loss) for the year Dividends	13.1 (3.5)	8.5 (3.5)	2.6 (3.2)	(0.4) (3.2)
Items charged direct to equity Movements relating to share-based payments	(0.9) 1.2	(0.9) 0.3	(0.7) (1.0)	(0.7) (0.8)
At end of year	53.4	10.7	43.5	6.3

Merger relief reserve

On 8 June 2004, the Company issued 21,715 ordinary shares of £1 each at a premium amounting to £1.9 million. The shares were issued as part consideration for the acquisition of the whole of the issued share capital of TJ Brent Limited, accounted for using the purchase method of accounting. The premium over the nominal value of the shares issued was previously credited to a merger relief reserve as allowed under Section 612 of the Companies Act 2006.

Other reserves

Other reserves in the Group and Company statements of financial position are made up as follows:

For the year ended 31 March	Capital redemption reserve	ESOT reserve	2010 Total	2009 Total
Group and Company	£m	£m	£m	£m
At beginning of year	2.9	(1.5)	1.4	1.5
Proceeds from disposal of own shares	—	0.1	0.1	0.3
Taxation on share sales	—	(0.1)	(0.1)	(0.4)
At end of year	2.9	(1.5)	1.4	1.4

Capital redemption reserve

The capital redemption reserve arose on the redemption of the May Gurney Integrated Services plc cumulative convertible redeemable £1 preference shares in September 2004.

ESOT reserve

As at 31 March 2010 the ESOT held 1,434,378 (2009: 1,604,378) ordinary 5 pence shares in the Company.

The maximum number of 5 pence ordinary shares held in the Company by the ESOT during the year was 1,604,378 (2009: 3,074,878).

The ordinary shares in the Company held by the ESOT represent 2.0% (2009: 2.3%) of the ordinary share capital of the Company.

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT transferred 1,783,324 ordinary shares by way of a gift for nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust (EBT), an offshore trust. The ordinary shares in the Company held by the EBT represent 2.5% of the ordinary share capital of the Company. At 31 March 2010 the EBT held 1,710,347 (2009: 1,783,324) ordinary shares.

26. Commitments

For the year ended 31 March	2010 Group £m	2009 Group £m
(i) Operating lease commitments Total commitments due under operating leases:
Land and buildings Within one year Between two and five years More than five years	2.2 4.6 1.6 8.4	2.1 4.1 2.2 8.4
Other Within one year Between two and five years More than five years	5.6 8.5 1.0 15.1	6.6 12.2 1.2 20.0
(ii) Property, plant and equipment Future capital expenditure authorised by the directors but not provided for in these financial statements is as
follows: Contracts placed	7.1	1.5

27. Employee benefits

Defined contribution pension schemes

The Group operates eight defined contribution pension schemes (2009: nine) and contributions during the year amounted to £3.1 million (2009: £2.4m). The schemes are the May Gurney Defined Contribution Pension Scheme, TJ Brent Limited Group Personal Pension Plan, T Cartledge Limited Group Personal Pension Plan, AC Chesters & Son Limited Staff Pension Scheme, FDT Executive Pension Plan, FDT Group Personal Pension Plan, FDT Stakeholder Pension and Willows Plant Limited Group Personal Pension Plan.

The Group also makes contributions to local government defined benefit pension schemes in respect of certain employees who have transferred to the Group under TUPE transfer arrangements. The Group is unable to identify its share of the underlying assets and liabilities in the scheme on a consistent and reasonable basis and consequently the pension costs for these schemes are treated as if they were defined contribution schemes.

Defined benefit pension scheme

The Group operates a defined benefit pension scheme (May Gurney Defined Benefit Pension Scheme) for some salaried employees and supervisory foremen. The assets of the scheme are held separately from those of the Group and are invested in managed funds.

The pension cost relating to the scheme is assessed in accordance with the advice of a qualified actuary on the basis of valuations at each reporting date using the projected unit method. The pension charge for the year was £0.9 million (2009: £1.4m).

The most recent full triennial valuation was carried out at 1 April 2008. The ongoing valuation assumed, in assessing pension costs, that the return on the scheme's pre-retirement investments would exceed by 2.85% the rate at which wages and salaries would increase. Future pensions that are due to increase by the maximum of RPI and 5% each year were assumed to increase at the rate of 3.3% per annum. The employer's contribution rate as recommended by the actuary was 10.9% of Pensionable Salary per annum in respect of future accrual of benefits, 1.0% of Pensionable Salary per annum in respect of death in service benefits, plus Scheme expenses (including levies). The scheme's assets were greater than the scheme's technical provisions at the valuation date, and therefore there was no need to establish a recovery plan to make up any shortfall. The average contribution rate by the employees is 6.7%.

The Company has opted to recognise all actuarial gains and losses immediately as Other Comprehensive Income (formerly known as the Statement of Recognised Income and Expense, SORIE).

A full actuarial valuation was carried out as at 31 March 2008, and this was updated to 31 March 2010 by a qualified independent actuary on an IAS 19 basis. The major assumptions used by the actuary were as follows:

	2010 %	2009 %
Discount rate	5.61	6.34
Inflation assumption	3.60	2.90
Rate of increase in salaries	4.35	3.65
Rate of increase in pensions in payment – pre 1997	Nil	Nil
– post 1997	3.30	2.90
– post 2006	2.15	2.30
Overall expected return on plan assets	5.72	5.49

The mortality assumptions used as at 31 March 2010 are based on standard tables produced by the actuarial profession, adjusted for scheme experience.

	2010
Death in service / deferment	AXC00	AXC00
Death after retirement – Non Pensioners	PXCA00 qx 110%(m) 112%(f). MC projections
	from 2002 s.t. floors of 0.5%pa	PXCA00
– Pensioners	PXCA00 qx 110%(m) 112%(f). MC projections
	from 2002 s.t. floors of 0.5%pa	PXCA00
Life expectancy at 65:
Male currently 65	21	21
Male currently 45	22	22
Female currently 65	23	23
Female currently 45	24	24

The Scheme's net pension liability and expected rate of return on its investments as at 31 March 2010 and as at 31 March 2009 are as follows:

The assets in the scheme and the expected rates of return were:

	Long-term expected rate of return (pa)%	2010 Fair value £m	Long-term expected rate of return (pa)%	2009 Fair value £m
Equities	7.25	15.7	7.25	10.2
Bonds – Corporate	5.61	12.1	6.34	9.4
Bonds – Government	4.50	16.5	4.20	15.5
Cash and Other	0.50	0.6	0.50	1.6
Property	6.00	3.3	6.00	2.9
Annuities	5.61	0.8	6.34	0.8
Total market value of assets		49.0		40.4
Present value of funded retirement benefit obligations		(50.1)		(40.3)
(Deficit)/surplus in the scheme		(1.1)		0.1
Less: Related deferred tax liability		0.3		—
Net pension (liability)/asset		(0.8)		0.1

The actual return on plan assets was £9.8 million (2009: £(4.5)m).

The expected rate of return on scheme assets was determined as the weighted average of the expected returns on the assets held by the scheme on 31 March 2010. The rates of return for each class were determined as follows:

• equities and property: the rate adopted is consistent with the median assumption used in the actuary's asset modelling work as at 31 March 2007.

• bonds: the overall rate has been set to reflect the yields available on the gilts and Grade AA corporate bond holdings held at 31 March 2010.

Reconciliation of opening and closing balances of the fair value of plan assets

Change in the fair value of scheme assets	2010 £m	2009 £m
Fair value at the beginning of the year	40.4	43.4
Expected return on scheme assets	2.2	2.6
Contributions by employers	1.0	1.8
Contributions by members	0.6	0.7
Benefits paid	(2.8)	(1.0)
Actuarial gain/(loss)	7.6	(7.1)
Fair value of plan assets at the end of the year	49.0	40.4

The Group expects to pay contributions of £1.0 million in the year to 31 March 2011, plus Scheme expenses and levies as they fall due.

Reconciliation of opening and closing balances of the present value of the defined benefit obligation

Change in the present value of the defined benefit obligation	2010 £m	2009 £m
Present value of the obligation at the beginning of the year	(40.3)	(42.6)
Company's service cost	(0.9)	(1.4)
Interest cost	(2.5)	(2.7)
Contributions by members	(0.6)	(0.7)
Benefits paid	2.8	1.0
Actuarial (loss)/gain	(8.9)	6.1
Curtailments and settlements	0.3	—
Present value of the obligation at the end of the year	(50.1)	(40.3)

The amount charged to earnings before interest and tax, and included within cost of sales and administration costs, is:

	2010 £m	2009 £m
Current service cost, less employee contributions	(0.9)	(1.4)
Total charge	(0.9)	(1.4)

Other finance costs are:

	2010 £m	2009 £m
Expected return on pension scheme assets	2.2	2.6
Interest on pension scheme liabilities	(2.5)	(2.7)
Curtailments and settlements	0.3	—
Net income	—	(0.1)

The amount recognised in the statement of comprehensive income is:

			2010 £m	2009 £m
Actual return less expected return on pension scheme assets			7.6	(7.1)
Experience losses arising on the scheme liabilities Changes in the assumptions underlying the present value of			—	(1.2)
the scheme liabilities			(8.9)	7.3
Actual loss recognised in comprehensive income			(1.3)	(1.0)
			2010 £m	2009 £m
Surplus in scheme at beginning of year Movement in year:			0.1	0.8
Current service cost			(0.9)	(1.4)
Contributions by employers			1.0	1.8
Other finance expense			(0.3)	(0.1)
Curtailments and settlements Net actuarial losses			0.3 (1.3)	— (1.0)
(Deficit)/surplus in scheme at end of year			(1.1)	0.1
History of experience gains and (losses) are:
	2010 £m	2009 £m	2008 £m	2007 £m	2006 £m
Present value of the defined benefit obligation Fair value of scheme assets	49.0 (50.1)	40.4 (40.3)	43.4 (42.6)	41.4 (41.4)	35.4 (38.9)
Net (deficit)/asset	(1.1)	0.1	0.8	—	(3.5)
Difference between expected and actual return on scheme assets
Amount (£m)	7.6	(7.1)	(1.9)	(1.1)	3.9
Percentage of scheme assets	15.5%	(17.6)%	(4.4)%	(2.7)%	11.1%
Experience gains/(losses) arising on liabilities Amount (£m)	—	(1.2)	1.8	(0.5)	(1.7)
Percentage of scheme liabilities	0%	(3.0)%	4.2%	(1.3)%	(4.3)%
Total actuarial losses recognised in comprehensive income
Amount (£m)	(1.3)	(1.0)	—	(0.9)	(2.1)
Percentage of scheme assets	(2.7)%	(2.5)%	0%	2.3%	5.3%

The cumulative actuarial gains and losses recognised in the statement of comprehensive income was a loss of £5.6 million (2009: a cumulative loss of £4.4m).

28. Contingent liabilities

• (a) The Company has given an unlimited guarantee, secured by fixed and floating charges over the Company's assets in respect of the facilities from Bank of Scotland, of all Group companies. At 31 March 2010, the net indebtedness of all other Group companies amounted to £nil (2009: £nil).
• (b) The Company has given joint and several guarantees securing indemnities given by other Group companies in respect of performance bonds which have been put in place to provide security for clients. These performance bonds are not exercisable on demand. At 31 March 2010, indemnities outstanding for other Group companies amounted to £3.9 million (2009: £4.6m).

29. Group undertakings

The Group undertakings, all of which are included within the Group financial statements, at 31 March 2010:

	Activity	Percentage of equity owned
Subsidiary undertakings
May Gurney Group Limited	– Dormant intermediate holding company	100
May Gurney Limited	– Infrastructure support services	+100
May Gurney Estates Limited	– Property holding and development	+100
May Gurney Recycling CIC	– Collection and sale of recyclable
	materials	*100
North Lincolnshire Learning Partnership
(PSP) Limited	– Dormant intermediate holding company	*52
Engage North Lincolnshire Limited	– Facility services for the education sector	****80
ECT Engineering Limited	– Dormant	*100
Recycle from Home Limited	– Dormant	***100
Lambeth Community Recycling Limited	– Dormant	***100
Materials Reuse and Recycling Limited	– Dormant	***100
May Gurney Building Limited	– Dormant	*100
AC Chesters & Sons Limited	– Dormant	*100
FDT (Holdings) Limited	– Dormant	*100
FDT Associates Limited	– Dormant	**100
FDT Contracts Limited	– Dormant	**100
Norfolk Community Recycling Services
Limited	– Dormant	*100
T Cartledge Limited	– Dormant	*100
TJ Brent Limited	– Dormant	*100
Ayton Asphalte Company Limited	– Dormant	+100
May Gurney Norfolk Limited	– Dormant	+100
May Gurney (Regional) Limited	– Dormant	+100
May Gurney (Technical Services) Limited	– Dormant	+100
May Gurney Group Trustees Limited	– Dormant	+100
Essex Highway Contracts Limited	– Dormant	*100
Michco 210 Limited	– Dormant	*100
Engineered Products Limited	– Dormant	*100
Hawthorns Project Management Limited	– Dormant	*100
Associated undertakings
Resource Environmental Limited	– Collection and sale of recyclable
	materials	*50
Jointly controlled entities
DAWN Environmental Limited	– Collection and sale of recyclable
	materials	*50
Monmouthshire Community Recycling	– Operation of a curb side recycling
Limited	scheme	*50
Jointly controlled operations
May Gurney WSO JV	– Highways maintenance	*50
Lafarge Contracting/May Gurney JV	– Civil Engineering	*50
+ held by May Gurney Group Limited

* held by May Gurney Limited

** held by FDT (Holdings) Limited

*** held by May Gurney Recycling CIC

**** held by North Lincolnshire Learning Partnership (PSP) Limited

The shareholdings in subsidiaries, associates and jointly-controlled entities all relate to ordinary share capital and are equivalent to the percentages of voting rights held by the Group.

The percentages quoted in respect of the jointly-controlled operations are the Group's interests under the joint operation contracts. The joint operations' principal places of business are:

MGWSP, Riverside House, Northampton, Northamptonshire;

Lafarge Contracting / May Gurney, Bradgate House, Groby, Leicester.

30. Reconciliation of operating profit before amortisation and non-recurring income to cash generated from operations

For the year ended 31 March	2010 Group £m	2010 Company £m	2009 Group £m	2009 Company £m
Operating profit/(loss) before amortisation and non-recurring items	22.1	(2.3)	20.5	(2.1)
Depreciation	6.7	—	6.7	—
Profit on sale of property, plant and equipment	(0.2)	—	(0.2)	—
Increase in inventories	(0.3)	—	(0.1)	—
Increase in trade and other receivables	(3.0)	—	(2.1)	—
Increase/(decrease) in trade and other payables	5.1	(11.7)	0.1	12.3
Credit in respect of retirement and benefit costs	(0.1)	(0.1)	(0.4)	(0.4)
Charges in respect of share-based payments in the period	0.4	—	0.4	—
Cash generated from operations	30.7	(14.1)	24.9	9.8

Cash and cash equivalents (which are presented as a single class of assets on the face of the statement of financial position) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

31. Related Party Transactions

Key management remuneration

For year ended 31 March 2010	2010 Group £m	2009 Group \$m
Short-term employee benefits	2.2	2.4
Post employment benefits	0.1	0.2
Share based payments	0.2	(0.2)
	2.5	2.4

Transactions with subsidiary undertakings

Transactions between the Company and its subsidiaries, which are related parties of the Company, are noted below.

Transactions with jointly-controlled entities and jointly-controlled operations

During the year the Group made sales to and purchases from its jointly-controlled entities and arrangements. These were normal trading transactions, conducted on an arms-length basis and on normal commercial terms. The amounts involved individually and in aggregate are not considered to be material either financially or generally to users of these financial statements.

Other related party transactions

David Galloway and Ishbel Macpherson, non-executive directors of the Company, were also nonexecutive directors of Speedy Hire plc (David Galloway until 31 May 2009). The Group makes purchases from Speedy Hire companies on an arms-length basis in the normal course of business. During the year, the value of purchases from Speedy Hire companies was £1.4 million (2009: £1.2m) and a balance of £0.1 million (2009: £0.2m) was owed at the end of the year.

Tim Ross, non-executive director of the Company, was also a non-executive director of Ennstone plc in the year to 31 March 2010. The Group makes purchases from Ennstone companies on an arms-length basis in the normal course of business. During the year, the value of purchases from Ennstone companies was £1.3 million (2009: £2.8m) and a balance of £0.5 million (2009: £0.2m) was owed at the end of the year.

Company

Included within trade and other payables are amounts owed to 100% subsidiary undertakings of the Company of £22.9 million (2009: £33.3m).

During the year ended 31 March 2010 there were transactions totalling £0.9 million between the Parent Company and its subsidiary undertakings (2009: £0.6m). All of these transactions, and the year end reporting amounts arising from these transactions were conducted on an arms-length basis and on normal commercial terms. In addition the Company received £4.5 million (2009: £4.6m) net from its subsidiary undertakings from investments in short-term bank deposits.

PART B: MAY GURNEY AUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 MARCH 2011

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MAY GURNEY INTEGRATED SERVICES PLC

We have audited the financial statements of May Gurney Integrated Services plc for the year ended 31 March 2011 which comprise the group income statement, the group statement of comprehensive income, the group and parent company statements of changes in equity, the group and parent company statements of financial position, the group and parent company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the parent company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 46, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the group's and of the parent company's affairs as at 31 March 2011 and of the group's profit for the year then ended;
• the group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• the parent company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from branches not visited by us; or

• the parent company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Philip Westerman Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London, United Kingdom 31 May 2011

Consolidated income statement of the May Gurney Group for the year ended 31 March 2011

for the year ended 31 March 2011	Note	2011 Before non-recurring items and amortisation £m	2011 Non-recurring items and amortisation £m	2011 Total £m	2010 Before non-recurring items and amortisation £m	2010 Non-recurring items and amortisation £m	2010 Total £m
Group revenue	4	571.4	—	571.4	483.1	—	483.1
Cost of sales		(513.4)	—	(513.4)	(434.0)	—	(434.0)
Gross Profit		58.0	—	58.0	49.1	—	49.1
Administrative expenses		(32.9)	—	(32.9)	(27.0)	—	(27.0)
Group operating profit before amortisation and non
recurring items Other expenses	2	25.1	—	25.1	22.1	—	22.1
– Intangible assets amortisation	13	—	(2.1)	(2.1)	—	(3.2)	(3.2)
– Other non-recurring costs	3	—	(3.4)	(3.4)	—	—	—
Operating profit		25.1	(5.5)	19.6	22.1	(3.2)	18.9
Finance income	5	0.4	—	0.4	0.4	—	0.4
Finance costs	5	(1.2)	—	(1.2)	(0.9)	—	(0.9)
Profit before taxation		24.3	(5.5)	18.8	21.6	(3.2)	18.4
Taxation	8	(6.9)	1.4	(5.5)	(6.2)	0.9	(5.3)
Profit for the year from continuing operations attributable to the equity holders of the parent		17.4	(4.1)	13.3	15.4	(2.3)	13.1
Earnings per share (in pence) Total and from continuing operations	10
Basic earnings per share				19.82p			19.58p
Diluted earnings per share				19.34p			19.25p

Consolidated statement of comprehensive income of the May Gurney Group for the year ended 31 March 2011

	Note	2011 £m	2010 £m
Profit for the year		13.3	13.1
Actuarial gains/(losses) on defined benefit pension schemes Tax on actuarial (gains)/losses on defined benefit pension schemes	28	0.9 (0.2)	(1.3) 0.4
Other comprehensive income/(loss) for the year		0.7	(0.9)
Total comprehensive income for the year attributable to equity holders of the parent		14.0	12.2

Consolidated Statement of Changes in Equity of the May Gurney Group for the year ended 31 March 2011

	Share capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
Balance at 31 March 2009 and 1 April 2009	3.5	13.2	1.9	1.4	43.5	63.5
Profit for the year	—	—	—	—	13.1	13.1
Other comprehensive income:
Actuarial losses on defined benefit pension schemes	—	—	—	—	(1.3)	(1.3)
Tax on actuarial losses on defined benefit pension schemes	—	—	—	—	0.4	0.4
Total comprehensive income for the year	—	—	—	—	12.2	12.2
Proceeds from disposal of own shares	—	—	—	0.1	—	0.1
Taxation on share sales	—	—	—	(0.1)	—	(0.1)
Share based payments – income statement charge Share based payments – deferred tax relief on	—	—	—	—	0.4	0.4
future exercise	—	—	—	—	0.8	0.8
Transactions with owners – dividends paid	—	—	—	—	(3.5)	(3.5)
Balance at 31 March 2010 and 1 April 2010 Profit for the year	3.5 —	13.2 —	1.9 —	1.4 —	53.4 13.3	73.4 13.3
Other comprehensive income: Actuarial gains on defined benefit pension schemes Tax on actuarial gains on defined benefit pension	—	—	—	—	0.9	0.9
schemes	—	—	—	—	(0.2)	(0.2)
Total comprehensive income for the year	—	—	—	—	14.0	14.0
Share based payments – income statement charge Share based payments – deferred tax relief on	—	—	—	—	0.3	0.3
future exercise	—	—	—	—	0.3	0.3
Transactions with owners – dividends paid	—	—	—	—	(3.9)	(3.9)
Balance at 31 March 2011	3.5	13.2	1.9	1.4	64.1	84.1

Consolidated Balance Sheet of the May Gurney Group as at 31 March 2011

	Note	2011 £m	2010 £m
Non current assets
Property, plant & equipment	11	39.2	25.7
Goodwill	12	42.1	35.2
Other intangible assets	13	11.4	5.6
Deferred tax asset	15	0.9	1.1
		93.6	67.6
Current assets
Inventories	16	4.4	2.7
Trade and other receivables	17	110.4	81.4
Cash and cash equivalents	18	36.2	43.4
		151.0	127.5
Total assets		244.6	195.1
Current liabilities
Trade and other payables	19	(132.7)	(105.2)
Current tax liabilities		(2.0)	(1.1)
Obligations under finance leases	21	(7.3)	(5.6)
		(142.0)	(111.9)
Non-current liabilities
Retirement benefit obligations	28	(0.4)	(1.1)
Obligations under finance leases	21	(18.0)	(8.6)
Provisions	22	(0.1)	(0.1)
		(18.5)	(9.8)
Total Liabilities		(160.5)	(121.7)
Net Assets		84.1	73.4
Equity
Share capital	23	3.5	3.5
Share premium account	25	13.2	13.2
Merger relief reserve	25	1.9	1.9
Other reserves	25	1.4	1.4
Retained earnings	25	64.1	53.4
Total equity		84.1	73.4

These financial statements were approved by the Board of directors on 31 May 2011.

Philip Fellowes-Prynne Director Company registration number 4321657

Consolidated Cash Flow Statement for the year ended 31 March 2011

	Note	2011 £m	2010 £m
Cash flows from operating activities
Group operating profit before amortisation and non-recurring costs		25.1	22.1
Non cash items		9.2	6.8
Working capital movement		(5.7)	1.8
Cash generated from operations	31	28.6	30.7
Non-recurring business closure costs		(1.5)	—
Corporation tax paid		(5.2)	(5.3)
Interest received		0.4	0.4
Interest paid		(1.2)	(0.9)
Net cash received from operating activities		21.1	24.9
Cash flows from investing activities
Purchase of property, plant and equipment	11	(16.8)	(12.3)
Proceeds from sale of property, plant and equipment		1.4	2.0
Payments to acquire intangible assets	13	(2.9)	—
Acquisition of subsidiaries and overdraft acquired	27	(15.9)	—
Net cash used in investing activities		(34.2)	(10.3)
Cash flows from financing activities
Proceeds from sale of own shares by ESOT	25	—	0.1
Ordinary dividends paid	9	(3.9)	(3.5)
New finance leases		16.7	4.1
Payment of finance lease obligations		(6.9)	(5.5)
Loan notes paid		—	(0.6)
Net cash received from/(used in) financing activities		5.9	(5.4)
(Decrease)/increase in cash and cash equivalents		(7.2)	9.2
Opening cash and cash equivalents		43.4	34.2
Closing cash and cash equivalents		36.2	43.4
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash and cash equivalents		(7.2)	9.2
(Increase)/decrease in finance leases		(9.8)	1.4
Acquired debt		(1.3)	—
(Decrease)/increase in net funds in the year		(18.3)	10.6
Opening net funds		29.2	18.6
Closing net funds		10.9	29.2

Statement of Accounting policies for the May Gurney Group accounts

Nature of operations

The principal activities of the Group during the year were infrastructure support services. The Group is incorporated and domiciled in the United Kingdom and is listed on the Alternative Investment Market. The registered office is at the Group office in Trowse, Norwich, UK. The presentation currency used is GB Pound sterling and figures are quoted in millions, rounded to the nearest £100,000.

The principal accounting policies adopted in the presentation of these consolidated and Company financial statements are set out below. These policies have been consistently applied to the periods presented unless otherwise stated.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on the historical cost basis, with the exception of certain financial instruments, which are recognised using accounting policies as set out below and applied consistently.

Adoption of new and revised International Financial Reporting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 April 2010.

Changes in accounting policy

IAS 27 'Consolidated and separate financial statements (revised 2008)' and IFRS 3 'Business combinations (revised 2008)' include revisions relating to the accounting for acquisitions. The principal change in accounting policy is that attributable transaction costs relating to business acquisitions which complete on or after 1 April 2010 are expensed in the income statement in the period incurred. Previously such costs would have been capitalised as part of goodwill relating to the acquisition. Any changes to the consideration transferred, including contingent consideration, resulting from events after the date of the acquisition are recognised in the income statement. In addition, the term 'noncontrolling interest' has been introduced to replace the term 'minority interest'. The revisions to IAS 27 and IFRS 3 have reduced profit for the year by £1.5 million being transaction costs relating to business acquisitions.

IFRIC 15 'Agreements for the construction of real estate'; IFRIC 17 'Distributions of non-cash assets to owners'; IFRIC 18 'Transfers of assets from customers'; IAS 39 (amendment) 'Financial instruments: Recognition and measurement: Eligible hedged items'; Amendments to IFRS 2 'Group cash-settled share-based payment transactions'; IAS 28 'Investment in associates (revised 2008)'; and IAS 31 'Interests in joint ventures' also came into effect and were adopted in the current period but had no effect on the financial statements.

At the date of authorisation of these financial statements the following standards and interpretations were in issue but not yet effective and therefore have not been applied in these financial statements:

IFRS 9 'Financial Instruments'; IAS 24 'Related party disclosures (revised 2009)'; IFRIC 19 'Extinguishing financial liabilities with equity instruments'; and IAS 32 (amendment) 'Financial instruments: Presentation'.

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group, with the exception of IFRS 9 which has not yet been finalised and so the directors are not able to fully assess the potential impact.

Consolidation

Subsidiaries

Subsidiaries are consolidated from the date on which control is transferred to the Group and deconsolidated from the date at which control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured at the fair value of the consideration. The assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities acquired is recognised as goodwill.

The Group financial statements consolidate those of the parent company and all of its subsidiary undertakings drawn up to 31 March 2011. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through more than half of the voting rights.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the parent and the non-controlling interests based on their respective ownership interests.

Jointly controlled operations

The Group has certain contractual operations with other participants to engage in joint operations that do not create an entity carrying on a trade or business of its own. The Group includes its share of assets, liabilities and cash flows in such jointly-controlled operations, measured in accordance with the terms of each operation, which is usually pro-rata to the Group's interest in the risks in the jointlycontrolled operation.

Jointly controlled entities

A jointly-controlled entity is an entity in which the Group holds a long-term interest and which is jointlycontrolled by the Group and one or more other venturers under a contractual arrangement. Investments in jointly-controlled entities are accounted for using the equity method of accounting and are initially recognised at cost.

The Group's share of post acquisition profits or losses is recognised in the income statement. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. Due to the amounts involved not being significant, they are not separately disclosed.

Inter-company transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation.

A separate income statement has not been presented for May Gurney Integrated Services plc as exempted by Section 408 of the Companies Act 2006. The profit after tax of the Company in the year was £3.6 million (2010: £8.5m).

The Group has taken advantage of the exemption under regulation 7 of the Partnerships (Accounts) Regulations 2008 that members of a qualifying partnership do not have to publish partnership accounts if the partnership is dealt with on a consolidated basis in group accounts prepared by a parent undertaking of the member. May Gurney WSP JV partnership has been consolidated within these group accounts.

Goodwill and other intangible assets

Goodwill arising on consolidation represents the excess of the fair value of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary or jointlycontrolled entity at the date of acquisition.

Goodwill is recognised as an intangible asset and is reviewed for impairment annually. It is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing along the lines of the Group's operating segments. Any impairment is recognised immediately in the income statement.

Other intangible assets, which consist of acquired order book, customer relationships, trademarks and software development costs, are stated at cost less accumulated amortisation and impairment losses. Amortisation is based on cost and the useful economic lives of these assets. Details of these useful economic lives are included in Note 13.

Costs associated with developing or maintaining computer software are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the group, and that will probably generate economic benefits beyond one year, are recognised as intangible assets. Computer software development costs recognised as assets are amortised over their estimated useful life. The MGConnectTM costs capitalised in the year are amortised over a period of four years.

Impairment

Assets that have an indefinite useful life are not subject to amortisation and are reviewed for impairment annually and when there are indications that the carrying value may not be recoverable. Assets that are subject to amortisation are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Company investments in subsidiary undertakings

Company investments are included at cost. Provision is made for any impairment in value.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business net of Value Added Tax.

Sales of goods are recognised when goods are delivered and title has passed.

Contract revenue reflects the contract activity during the year and is measured at the fair value of consideration received or receivable. When the outcome can be assessed reliably, contract revenue and associated costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract.

Where the outcome of a long-term contract cannot be estimated reliably revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable, and contract costs are recognised as an expense in the period in which they are incurred.

In the case of a cost plus contract, the outcome of a contract can be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the Group, and the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.

Property, plant and equipment

Property, plant and equipment is stated at historic cost to the Group, being its purchase cost together with any incidental expenses of acquisition.

Depreciation of property, plant and equipment is calculated so as to write off their cost over their expected economic lives, residual values are reassessed on an annual basis. The principal annual rates of depreciation are as follows:

Freehold land	–	not depreciated
Freehold buildings	–	between 5 and 50 years straight line
Short leasehold property	–	10% straight line or life of lease if shorter
Plant, vehicles and equipment	–	between 10% and 33% straight line

Inventories and work in progress on construction contracts

Inventories are valued at the lower of cost and net realisable value. The cost of purchase is determined by means of the weighted average cost formula.

Contract work in progress is valued at cost plus attributable profit less foreseeable losses. Attributable profit is included when the outcome of a contract can be assessed with reasonable certainty. The excess of book value over amounts received on individual contracts is included in current trade receivables and payments received in excess of book value are included in current trade payables.

Non-recurring items

Material and non-recurring items of income and expense are disclosed in the income statement as 'Non-recurring items'. Examples of items which may give rise to disclosure as 'Non-recurring' include inter alia gains or losses on the disposal of businesses, investments and property, plant and equipment, costs of restructuring and reorganisation of existing businesses and asset impairments.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax payable in respect of the year is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantially enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from initial recognition of goodwill or from the initial recognition of other assets and liabilities (other than in a business combination) in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date.

Deferred tax is calculated based on the laws enacted or substantially enacted by the reporting date and at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Financial instruments

The financial instruments used by the Group comprise net funds, trade receivables and trade payables.

• (a) Loans and receivables do not carry any interest and are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts.
• (b) Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
• (c) Trade payables are not interest bearing and are initially stated at their fair value and subsequently measured at amortised cost.
• (d) Loans are raised for support of long-term funding of the Group's operations. They are recognised at fair value on inception. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement using an effective interest method.
• (e) Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities.
• (f) Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
• (g) The Group has a policy of not trading in financial instruments and thus the only risks arising, in the normal course of business, are interest rates and liquidity. The Group's foreign currency risk is minimal as the volume of foreign currency transactions is not significant. The Group currently has no derivative instruments and sees no immediate requirement for any.

Accounting for financial assets

Financial assets consist of receivables, along with cash and cash equivalents.

An assessment of whether a financial asset is impaired is made at least at each reporting date. For receivables, this is based on the latest credit information available, i.e. recent counterparty defaults and external credit ratings. Financial assets that are substantially past due are also considered for impairment. All income and expense relating to financial assets are recognised in the income statement line item 'finance costs' or 'finance income', respectively.

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. The Group's trade and other receivables fall into this category of financial instruments.

Individual receivables are considered for impairment when they are past due at the reporting date or when objective evidence is received that a specific counterparty will default. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry of a counterparty. The percentage of the write down is then based on recent historical counterparty default rates for each identified group.

Accounting for financial liabilities

The Group's financial liabilities include borrowings, trade and other payables (including finance lease liabilities), which are measured at amortised cost using the effective interest rate method.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included in the income statement line items 'finance costs' or 'finance income'.

For business combinations, any changes to the consideration transferred, including contingent consideration, resulting from events after the date of the acquisition are recognised in the income statement.

Leases

In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. Assets held under finance leases are recognised as assets of the Group at the lower of their fair value or the present value of the minimum lease payments and the capital elements of the commitments are shown as obligations under finance leases. Payments are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease terms and their useful lives.

All other leases are regarded as operating leases and the related payments are charged to the income statement on a straight-line basis over the lease term.

Share-based payments

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of non-market vesting conditions (for example, profitability and sales growth targets).

All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to equity.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

Employee benefits

The Group and Company contribute to eight defined contribution pension schemes and a defined benefit pension scheme, the assets of which are held separately from those of the Group and are invested in managed funds.

In respect of the defined benefit pension scheme, the cost of providing benefits is determined using the projected unit method, with actuarial valuations being carried out at each reporting date. Hence actuarial gains and losses are recognised in full in the period in which they occur through the statement of comprehensive income. The liability recognised in the statement of financial position is the present value of the defined benefit obligations less the fair value of plan assets. Associated interest credits are included within finance income and charges within finance costs. The current service cost incurred during the year to provide retirement benefits to employees is charged to operating profit.

In respect of the defined contribution pension schemes, the contributions paid by the Group, Company and the employees are invested within the individual funds in the month following the month of deduction. The employer contribution rates are determined by reference to an age, service or grade related scale or are at a fixed, level percentage. The amounts contributed by the Group and Company are charged to the income statement as the contributions fall due. Certain contracts require that employees transfer with protected pension rights and the Group and Company are responsible for the pension liability that exists.

May Gurney Group Limited Employee Share Ownership Trust ('ESOT') and Employee Benefit Trust ('EBT')

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT transferred 1,783,324 ordinary shares by way of a gift for £nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust (EBT), an offshore trust.

Shares in the Company held by the ESOT and EBT are shown as a deduction in arriving at equity funds.

Where the purchase of shares by the ESOT/EBT is financed by external bank loans, these loans are shown within current trade and other payables. Other current assets, liabilities and reserves of the ESOT/EBT are included within the statutory headings to which they relate. The ESOT/EBT are included within the Company financial statements. The ESOT/EBT have been accounted for in line with the requirements of SIC 12 which states that the Company should consolidate all Special Purpose Entities of which the ESOT/EBT are classified as such.

Significant accounting estimates and judgements

To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial statements. These estimates are based on historical experience and various other assumptions that management and the Board of directors believe are reasonable under the circumstances. The results of this form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources.

Areas requiring estimates that may significantly impact on the Group's earnings and financial position are as follows:

(a) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy previously stated. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Further details of the estimates used are set out in Note 12.

Areas requiring critical judgement that may significantly impact on the Group's earnings and financial position are as follows:

(b) Revenue recognition

The Group uses the percentage-of-completion method to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract.

(c) Pension benefits

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost / income for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash flows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 28.

(d) Share-based payments

The weighted average fair value of options granted during the period was determined using the Trinomial pricing model. The assumptions used are detailed in Note 24.

(e) Intangible assets

The Group recognises certain intangible assets on acquisition. Judgements in respect of useful lives, discount rates and valuation methods affect the carrying value and amortisation charges in respect of these assets. These judgements are shown in Note 13.

(f) Impairment of work in progress

In assessing whether work in progress is impaired, estimates are made of future sales revenue, timing and build costs. The Group has controls in place to ensure that estimates of sales revenue are consistent, and external valuations are used where appropriate.

Dividends

Dividends are recognised in the financial statements in the period in which they are approved by the Company's shareholders. Interim dividends are recognised in the period in which they are approved and paid.

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. When recognising and measuring a provision, events occurring after the reporting date, and before authorisation for issue, are considered to determine whether such events provide additional evidence of conditions that existed at the reporting date and should therefore be adjusted for.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Notes to the report and accounts

1. Segmental analysis

For management purposes, the Group is currently organised into three segments – Public Sector Services (Highways Services, Environmental Services and Facility Services), Regulated Sector Services (Utility Services, Rail Services and Waterways Services) and Property. The three segments noted are those that are regularly reviewed by the Group's Chief Operating Decision Maker (CODM) Philip Fellowes-Prynne (Chief Executive). Revenue is mostly derived from contract work.

The identification of these reportable segments has come about due to the Group's aim of aligning services more closely with the needs of its long-term clients and the nature of the work the Group delivers for them, namely delivering essential front-line maintenance and enhancement services.

For the year ended 31 March 2011	Public Sector Services £m	Regulated Sector Services £m	Property £m	Group £m
Revenue
Total revenue	377.7	196.6	—	574.3
Less: between segments	(1.4)	(1.5)	—	(2.9)
External revenue	376.3	195.1	—	571.4
Sales between segments are charged at prevailing market prices. Result per management information reviewed by the CODM
Group operating profit before amortisation and non-recurring costs	17.3	7.8	—	25.1
Intangible assets amortisation	(1.4)	(0.7)	—	(2.1)
Non-recurring costs Finance income	—	(3.4)	—	(3.4) 0.4
Finance costs				(1.2)
Profit before taxation				18.8
Taxation				(5.7)
Profit for the year per management information				13.1
Taxation adjustment				0.2
Profit for the year per statutory accounts				13.3
Segment assets and liabilities Total assets
Segments	117.7	105.1	11.8	234.6
Not allocated to segments				10.0 244.6
Total liabilities
Segments	(86.7)	(63.6)	(0.6)	(150.9)
Not allocated to segments				(9.6) (160.5)
Other Information
Capital expenditure including acquisitions	15.8	7.8	—	23.6
Depreciation	7.2	1.6	—	8.8

As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

One customer (2010: one) in the Regulated Sector Services segment accounted for 12% of total revenue (2010: 13%).

	Public Sector Services	Regulated Sector Services	Property	Group
For the year ended 31 March 2010	£m	£m	£m	£m
Revenue Total revenue Less: between segments	285.3 (1.6)	200.8 (1.4)	— —	486.1 (3.0)
External revenue	283.7	199.4	—	483.1
Sales between segments are charged at prevailing market prices.
Result Group operating profit before amortisation Intangible assets amortisation Finance income Finance costs	14.7 (1.7)	7.4 (1.5)	— —	22.1 (3.2) 0.4 (0.9)
Profit before taxation				18.4
Taxation				(5.7)
Profit for the year per management information				12.7
Taxation adjustment				0.4
Profit for the year per statutory accounts				13.1
Segment assets and liabilities Total assets
Segments Not allocated to segments	98.6	77.1	11.8	187.5 7.6 195.1
Total liabilities Segments Not allocated to segments	(69.3)	(47.9)	(1.0)	(118.2) (3.5) (121.7)
Other Information Capital expenditure including acquisitions Depreciation	9.9 5.3	2.4 1.3	— 0.1	12.3 6.7

As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

2. Consolidated May Gurney Group operating profit before amortisation and non-recurring items

For the year ended 31 March	2011 £m	2010 £m
Depreciation (Note 11) – owned	3.9	3.1
– finance lease and hire purchase	4.9	3.6
Profit on sale of plant and machinery	(0.2)	(0.3)
Loss on sale of freehold land and buildings	0.1	0.1
Directors' emoluments (Note 7)	0.9	1.1
Share based payments	(0.3)	(0.4)
Fees payable to the Company's auditor for the audit of the annual accounts Fees payable to the Company's auditor and its associates for other services	—	—
– audit of the Company's subsidiaries	0.1	0.1
– tax advisory and compliance services	—	—
– corporate finance services	—	—
Amounts payable under operating leases
– land and buildings	2.5	2.2
– plant and machinery	6.2	5.6

3. Other non-recurring costs

For the year ended 31 March	2011 £m	2010 £m
Geotechnical business closure costs	1.6	—
Rail fabrication business closure costs	0.3	—
Turriff acquisition costs	1.5	—
	3.4	—

During the year, the Board reached a decision to close the Group's non-core geotechnical and rail fabrication businesses in line with its stated strategy to focus on long-term contracts with clients in the public and regulated sectors.

On 21 January 2011, the Group acquired 100% of the issued share capital of Turriff Group Limited, one of Scotland's largest utility infrastructure maintenance companies. Further details of the acquisition are disclosed in Note 27.

4. Revenue

The following significant categories of revenue were recognised in the year.

For the year ended 31 March	2011 £m	2010 £m
Revenue arising from:
Sale of goods	5.0	4.7
Contract revenue	566.4	478.4
	571.4	483.1

5. Finance income and costs

For the year ended 31 March	2011 £m	2010 £m
Finance income
Interest receivable from short-term bank deposits	0.3	0.2
Other interest	0.1	0.2
	0.4	0.4
Finance costs
Finance charges payable under finance leases Finance cost in relation to the change in value of financial	(1.0)	(0.9)
assets	(0.1)	—
Other interest	(0.1)	—
	(1.2)	(0.9)

6. Staff numbers and costs

The average number of people (including directors) employed by the Group during the year, categorised by segment, was as follows:

	No employees
For the year ended 31 March	2011	2010
Public Sector Services	3,045	2,350
Regulated Sector Services	1,443	1,309
Group and Shared Services	220	214
	4,708	3,873

The aggregate payroll costs of these employees were:

For the year ended 31 March	2011 £m	2010 £m
Wages and salaries	128.3	107.9
Social security costs	12.6	10.5
Group pension costs (Note 28)	1.1	0.9
Other pension costs (Note 28)	4.0	3.1
	146.0	122.4

The average number of people (including directors) employed by the Company during the year was 8 (2010: 8), with an aggregate payroll cost of £1.1 million (2010: £1.4m).

Key management remuneration has been disclosed per Note 32.

7. Emoluments of May Gurney directors

For the year ended 31 March	2011 £m	2010 £m
Directors' emoluments	0.9	1.1

An analysis of directors' emoluments and pension entitlements (including those of the highest paid director) and their interests in the share capital of the Company is contained in the Directors' remuneration report on pages 51 to 56 of the 2011 Annual Report and Accounts.

8. Taxation

(a) Analysis of tax charge:

For the year ended 31 March	2011 £m	2010 £m
Current tax
Corporation tax on profits for the year	6.2	4.6
Under provision in respect of prior years	0.1	0.9
Total current tax	6.3	5.5
Deferred tax
Origination and reversal of temporary differences	0.4	1.8
Tax effect of intangible assets amortisation	(0.6)	(0.9)
Over provision in respect of prior years	(0.6)	(1.1)
Total deferred tax	(0.8)	(0.2)
Total tax charge for the year	5.5	5.3

(b) Factors affecting the tax charge:

The taxation assessed for the year is higher than the standard rate of corporation tax in the UK (28%).

The charge is affected by a number of factors in addition to the standard UK rate. The differences are explained as follows:

For the year ended 31 March	2011 £m	2010 £m
Profit before tax	18.8	18.4
Profit before tax multiplied by standard rate of corporation tax in the UK of 28%
– expected charge	5.3	5.2
Effects of:
Expenses not deductible for tax purposes	0.6	0.3
Change in future tax rate	0.1	—
Adjustments to tax charge in respect of previous year
(current and deferred)	(0.5)	(0.2)
Total tax charge for year (Note 8(a))	5.5	5.3

The effective tax rate, excluding the impact of non-recurring items, for the year is 28.4% (2010: 28.8%).

A number of changes to the UK Corporation tax system were announced in the June 2010 Budget Statement. The Finance (No 2) Act 2010, which was substantively enacted on 20 July 2010, includes legislation reducing the main rate of corporation tax from 28% to 27% from 1 April 2011. Finance (No 3) Bill was subsequently published on 30 March 2011 which included changes to the corporation tax rates which were passed through a resolution passed on 29 March 2011 to have effect under the Provisional Collection of Taxes Act 1968 modifying the rate of corporation tax from 27% to 26%. The effect of this change was to reduce the net deferred tax asset provided at 31 March 2011 by £0.1 million, with a corresponding decrease in profit for the year but with no effect on other comprehensive income.

Proposed reductions to the main rate of corporation tax by 1% per annum to 23% by 1 April 2014 are expected to be enacted separately each year. As these had not been enacted at the balance sheet date they have not been included in these financial statements. The overall effect of the further proposed changes from 26% to 23%, if these applied to the net deferred tax balance at 31 March 2011, would be to reduce the net deferred tax asset by approximately £0.1 million.

9. Dividends

For the year ended 31 March	2011 £m	2010 £m
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 March 2010 of 3.7 pence per share	2.5	2.3
Interim dividend paid for the year ended 31 March 2011 of 2.08 pence per share	1.4	1.2
	3.9	3.5

The proposed final dividend of 4.52 pence per share had not been approved at the reporting date and so has not been included as a liability in these financial statements. The dividend will be paid on 11 July 2011 to holders of ordinary shares on the register at the close of business on 10 June 2011.

The Trustee of the May Gurney Group Limited Employee Share Ownership Trust has waived its right to receive any dividends in respect of shares held in the Trust.

10. Earnings per share

For the year ended 31 March	2011 £m	2010 £m
Profit for the year	13.3	13.1
Basic/diluted earnings Adjustments to basic earnings	13.3	13.1
Intangible assets amortisation	2.1	3.2
Other non-recurring costs Tax on non-recurring items	3.4 (1.4)	— (0.9)
Underlying earnings	17.4	15.4
Number of shares Weighted average number of ordinary shares for the purposes of basic earnings per share	Number 67,114,100	Number 66,993,564
Effect of dilutive potential ordinary shares	1,652,921	1,152,022
Weighted average number of ordinary shares for the purposes of diluted earnings per share	68,767,021	68,145,586
Weighted average number of ordinary shares for the purposes of underlying earnings per share	70,236,016	70,236,016
Underlying earnings per share Basic earnings per share Diluted earnings per share	pence 24.77 19.82 19.34	pence 21.92 19.58 19.25

Underlying earnings per share, before non-recurring items, has been disclosed to give a clearer understanding of the Group's underlying trading performance. It has been calculated using the underlying earnings figures above and an adjusted weighted average number of ordinary shares which includes those shares held by the Group Employee Share Ownership Trust.

Diluted earnings per share is the basic earnings per share after allowing for the dilutive effect of the conversion into ordinary shares of the number of options outstanding during the year (see Note 24).

11. Property, plant and equipment

For the year ended 31 March	Freehold land and buildings £m	Short leasehold property £m	Plant, vehicles and equipment £m	Total £m
Group
Cost
At 1 April 2009 Additions	3.1 —	0.5 —	40.7 12.3	44.3 12.3
Disposals	(0.6)	—	(4.3)	(4.9)
At 1 April 2010	2.5	0.5	48.7	51.7
Acquisition of subsidiary undertakings
(Note 27)	—	—	6.7	6.7
Additions	—	1.2	15.7	16.9
Disposals	(0.2)	—	(5.6)	(5.8)
At 31 March 2011	2.3	1.7	65.5	69.5
Depreciation
At 1 April 2009	0.8	0.4	21.2	22.4
Charge for year	0.1	—	6.6	6.7
Disposals	—	—	(3.1)	(3.1)
At 1 April 2010	0.9	0.4	24.7	26.0
Charge for year	—	0.1	8.7	8.8
Disposals	—	—	(4.5)	(4.5)
At 31 March 2011	0.9	0.5	28.9	30.3
Net book value at 31 March 2011	1.4	1.2	36.6	39.2
Net book value at 31 March 2010	1.6	0.1	24.0	25.7

Included in the total net book value of plant, vehicles and equipment is £19.8 million (2010: £13.4m) in respect of assets acquired under finance leases and hire purchase agreements. Depreciation for the year on these assets was £4.9 million (2010: £3.6m).

12. Goodwill

For the year ended 31 March 2011		Total £m
Group
Cost and net book value At 1 April 2009 and 1 April 2010 Acquisition of subsidiary (Note 27)		35.2 6.9
At 31 March 2011		42.1
For the year ended 31 March 2011	2011 £m	2010 £m
Group
May Gurney Group Limited	5.4	5.4
May Gurney Limited	25.0	25.0
May Gurney Recycling CIC	4.8	4.8
Turriff Group Limited	6.9	—
	42.1	35.2

The carrying values of the Group's goodwill are reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If analysis indicates that the carrying value is too high, then this is reduced to its recoverable amount which is the higher of fair value less costs to sell and its value in use.

Value in use is calculated using pre-tax cash flow projections based on financial budgets and business plans covering a four year period, which take into account historical trends and market conditions, and which have been approved by the Board. The cash flow forecasts are adjusted by an appropriate discount rate derived from our cost of capital plus a reasonable risk premium at the date of valuation.

The key assumptions are: operating margin (4-5%); average annual growth rate (0-7%); and pre-tax discount rate (10%). The average growth rates used are consistent with forecasts included in industry reports.

The Group's impairment review is sensitive to changes in the key assumptions used, in particular the growth rate and discount rate. However, based on the Group's sensitivity analysis, a reasonable change in a single assumption will not cause impairment in any of the Group's cash generating units.

13. Other intangible assets

For the year ended 31 March 2011	Total £m
Group
Valuation
At 1 April 2009 and 1 April 2010 Internal development	19.9 2.9
Additions – acquisition of subsidiary (Note 27)	5.0
At 31 March 2011	27.8
Amortisation
At 1 April 2009	11.1
Charge for year	3.2
At 1 April 2010	14.3
Charge for year	2.1
At 31 March 2011	16.4
Net book value at 31 March 2011	11.4
Net book value at 1 April 2010	5.6

Other intangible assets valuation comprises:

	Year acquired	Carrying value £m	Valuation £m	UEL * years
TJ Brent Order book(1)	2005	—	2.1	2
TJ Brent Customer relationships(1)	2005	0.6	6.4	10
AC Chesters Order book(1)	2007	—	1.2	3
AC Chesters Customer relationships(1)	2007	0.2	0.3	8
FDT Order book(1)	2008	—	0.6	3
FDT Customer relationships(1)	2008	0.1	0.5	5
Willows Order book(1)	2008	—	0.3	1.5
Willows Customer relationships(1)	2008	—	1.0	4
SHWRC Business Order book(2)	2008	1.5	3.7	8.5
ECT Order book(2)	2009	1.4	3.3	7
ECT Customer relationships(2)	2009	—	0.5	7
MGConnectTM software development	2011	2.9	2.9	4
Turriff Order book(1)	2011	1.5	1.7	3
Turriff Customer relationships(1)	2011	3.0	3.1	5
Turriff Trademark(1)	2011	0.2	0.2	1
		11.4	27.8

In the year the group incurred costs in developing software for the MGConnect project which is the Group's integrated web enabled technology platform that covers all areas of the Group's activities.

For the valuations above the purchase price allocation method was used, which required identification and fair value estimation of the individual intangible assets acquired. In order to arrive at an estimate of fair value, the income approach was used which values the cash flows that the asset might reasonably be expected to generate. The Turriff valuations completed in the year were based on financial projections prepared at the time of acquisition and a weighted average cost of capital of 16.1%.

(1) Regulated Sector Services operating segment

(2) Public Sector Services operating segment

* UEL = Original Useful Economic Life

14. Investments

	Shares in subsidiary undertakings £m	2011 Total £m	2010 Total £m
Company
Cost and net book value At beginning and end of year	20.3	20.3	20.3

Refer to Note 30 for the list of subsidiary entities.

15. Deferred tax (liability)/asset

For the year ended 31 March	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
At beginning of year	1.1	0.9	(0.2)	0.3
Effect of reduction in future tax rate to 26%	(0.1)	—	—	—
Acquisition of subsidiaries	(1.0)	—	—	—
Credited direct to equity	—	(0.2)	1.2	0.6
Relief on exercise of share options	—	—	(0.1)	—
Income statement credit	0.9	—	0.2	—
At end of year	0.9	0.7	1.1	0.9

Deferred taxation at 26% (2010: 28%) is in respect of:

	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Depreciation in excess of capital allowances	0.1	—	0.2	—
Other temporary differences	0.9	—	1.0	—
Intangible assets acquired	(2.3)	—	(1.6)	—
Share based payments	2.1	0.6	1.2	0.6
Defined benefit pension scheme	0.1	0.1	0.3	0.3
Deferred tax asset	0.9	0.7	1.1	0.9

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.

16. Inventories

For the year ended 31 March	2011 Group £m	2010 Group £m
Raw materials and consumables	0.3	0.3
Finished goods and goods for resale	4.1	2.4
	4.4	2.7

During the year £9.1 million (2010: £6.5m) of inventories was recognised as an expense.

17. Trade and other receivables

For the year ended 31 March	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Trade receivables	91.0	—	67.9	—
Amounts due from contract customers	7.9	—	7.0	—
Amounts owed by subsidiary undertakings	—	2.8	—	—
Other receivables	4.6	—	5.4	—
Prepayments and accrued income	6.9	0.1	1.1	0.2
	110.4	2.9	81.4	0.2

Trade and other receivables are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts. The directors consider that the carrying values of current trade and other receivables approximate their fair values.

Amounts due from contract customers relates to value in excess of cash received recognised on longterm contracts. At 31 March 2011 there were three contracts being accounted for as a long-term contract (2010: one).

Trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be potentially impaired and a provision of £0.5 million (2010: £0.4m) has been recorded accordingly.

In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

For the year ended 31 March	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Not more than 3 months	3.9	—	8.9	—
More than 3 months but not more than 6 months	0.8	—	0.8	—
	4.7	—	9.7	—

The movement in the provision for impairment of trade receivables is as follows:

	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Balance at 1 April 2010	0.4	—	0.3	—
Credited to the income statement
– additional provisions	0.4	—	0.3	—
– unused amounts reversed	(0.3)	—	(0.2)	—
Balance at 31 March 2011	0.5	—	0.4	—

The ageing of the impaired receivables is as follows:

	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Six to nine months	0.2	—	0.1	—
Nine to twelve months	0.1	—	0.1	—
Over twelve months	0.2	—	0.2	—
	0.5	—	0.4	—

Credit risk

Exposure to credit risk is disclosed in Note 20.

18. Cash and cash equivalents

For the year ended 31 March	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Cash at bank and in hand	20.9	3.5	28.4	20.7
Short-term bank deposits	15.3	5.1	15.0	5.0
	36.2	8.6	43.4	25.7

The carrying amount of cash and cash equivalents approximates their fair value.

19. Trade and other payables

For the year ended 31 March	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Amounts due to contract customers	3.9	—	0.8	—
Trade payables	80.2	—	76.5	0.1
Contingent consideration (Note 27)	6.0	—	—	—
Amounts owed to subsidiary undertakings	—	—	—	14.9
Other tax and social security	14.8	1.0	9.3	1.0
Other payables	16.3	0.2	7.0	0.2
Accruals and deferred income	11.5	0.2	11.6	0.2
	132.7	1.4	105.2	16.4

Trade and other payables are initially stated at their fair value and subsequently measured at amortised cost. The directors consider that the carrying values of current trade and other payables approximate their fair values.

Amounts due to contract customers relates to cash received in excess of value recognised.

20. Financial instruments

Capital risk management

The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group comprises equity attributable to equity holders of May Gurney Integrated Services plc consisting of issued ordinary share capital, reserves and retained earnings as disclosed in Notes 23 and 25 and cash and cash equivalents as disclosed in Note 18.

The Group maintains or adjusts its capital structure through the payment of dividends to shareholders. The Group's policy is to carry no significant long-term debt, other than finance leases.

The Group's overall capital risk management strategy remains unchanged from 2010.

Financial risk management

Financial risk management is an integral part of the way the Group is managed. In the course of its business, the Group is exposed primarily to interest rate risk, credit risk and liquidity risk. The overall aim of the Group's financial risk management policies is to minimise potential adverse effects on financial performance and net assets.

The Group's finance department manages the principal financial risks within policies and operating parameters approved by the Board of directors.

Interest rate risk

Interest rate risk does not arise on the Group's obligations under finance leases as interest rates are fixed at the start of the lease.

Interest rate risk arises on the Group's cash and cash equivalents. A 1% increase/decrease in the Bank of England base rate would lead to a £0.4 million (2010: £0.4m) increase/decrease in the Group's finance income.

Credit risk

Exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, namely cash and cash equivalents and trade and other receivables.

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group's policy is to deal only with creditworthy counterparties.

The Group's management considers that all financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. An analysis of amounts that are past due but not impaired is shown in Note 17.

None of the Group's financial assets are secured by collateral or other credit enhancements.

The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The Group has no significant concentration of credit risk in respect of amounts due from contract customers or trade receivable balances at the reporting date, with exposure spread over a number of customers and across the Group's operating segments.

Liquidity risk

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.

The Group maintains cash to meet its liquidity requirements for up to 30-day periods. Funding in regards to long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities.

Commodity price Risk

Through its environmental services contracts the group has some exposure to fluctuations in recyclable commodity prices. Where possible the group seeks to mitigate the risk by passing on the risk and reward of price fluctuations to clients and through the use of cap and collar agreements with buyers of recyclables commodities.

Foreign currency risk

The Group does not have significant foreign currency transactions and exposure to foreign currency risk is therefore minimal. Accordingly, these financial statements do not include any sensitivity analysis in respect of currency risk.

Price risk

The directors do not consider there to be any price risk relating to equity instruments and hence no need for any related disclosures.

Categories of financial instruments

2011 Loans and receivables £m	2011 Non financial assets £m	2011 Financial liabilities at amortised cost £m	2011 Non financial liabilities £m	2010 Loans and receivables £m	2010 Non financial assets £m	2010 Financial liabilities at amortised cost £m	2010 Non financial liabilities £m
36.2	—	—	—	43.4	—	—	—
							—
12.5	—	—	—	12.4	—	—	—
—	6.9	—	—	—	1.1	—	—
139.7	6.9	—	—	123.7	1.1	—	—
—	—	(80.2)	—	—	—	(76.5)	—
—	—	(20.2)	—	—	—	(7.8)	—
—	—	—	(0.1)	—	—	—	(0.1)
							—
—	—	—	(16.8)	—	—	—	(10.4)
—	—	(6.0)	—	—	—	—	—
—	—	(117.9)	(16.9)	—	—	(95.9)	(10.5)
139.7	6.9	(117.9)	(16.9)	123.7	1.1	(95.9)	(10.5)
	91.0 —	— —	— (11.5)	— —	67.9 —	— —	— (11.6)

Company	2011 Loans and receivables £m	2011 Non financial assets £m	2011 Financial liabilities at amortised cost £m	2011 Non financial liabilities £m	2010 Loans and receivables £m	2010 Non financial assets £m	2010 Financial liabilities at amortised cost £m	2010 Non financial liabilities £m
Financial assets
Cash at bank	8.6	—	—	—	25.7	—	—	—
Other receivables	—	—	—	—	—	—	—	—
Prepayments	—	0.1	—	—	—	0.2	—	—
VAT and taxation receivables	—	0.4	—	—	—	1.1	—	—
Investments in subsidiaries	—	20.3	—	—	—	20.3	—	—
Total	8.6	20.8	—	—	25.7	21.6	—	—
Financial liabilities Trade payables Other liabilities –	—	—	—	—	—	—	(0.1)	—
current	—	—	(0.2)	—	—	—	(15.0)	—
Accruals	—	—	(0.2)	—	—	—	(0.2)	—
VAT and taxation payables	—	—	—	(1.0)	—	—	—	(1.0)
Total	—	—	(0.4)	(1.0)	—	—	(15.3)	(1.0)
Net	8.6	20.8	(0.4)	(1.0)	25.7	21.6	(15.3)	(1.0)

Maturity of the Group's financial liabilities

	2011 Trade and other payables £m	2011 Finance leases £m	2011 Total £m	2010 Trade and other payables £m	2010 Finance leases £m	2010 Total £m
Due within one year	111.9	8.3	120.2	95.9	6.3	102.2
Due within one to two years	—	5.9	5.9	—	5.0	5.0
Due within two to five years	—	13.8	13.8	—	4.3	4.3
	111.9	28.0	139.9	95.9	15.6	111.5

The above contractual maturities reflect the gross cash flows which may differ to the carrying values of the liabilities at the reporting date.

21. Obligations under finance leases

For the year ended 31 March	2011 Group £m	2010 Group £m
Finance lease and hire purchase obligations
Repayable: Within one year	7.3	5.6
Repayable: Between two and five years	18.0	8.6
	25.3	14.2

The net obligations under finance lease and hire purchase agreements of £25.3 million (2010: £14.2m) are secured on the assets acquired. The directors consider that there is no material difference between the carrying value and the fair value of finance lease obligations.

The gross obligations under finance lease and hire purchase agreements are £28.0 million (2010: £15.6m).

During the year, obligations totalling £1.3 million (2010: £nil) were acquired with the new subsidiary undertakings.

22. Provisions and other liabilities

For the year ended 31 March	2011 Group £m	2010 Group £m
At beginning of year	0.1	0.1
Credit for the year At end of year	— 0.1	— 0.1

The above provisions comprise £0.1 million (2010: £0.1m) in respect of site reinstatement obligations where the Group was formerly engaged in the excavation of sand and aggregates and other site reinstatement obligations.

23. Share capital

For the year ended 31 March	2011 Group £m		2010 Group £m
Authorised
Equity shares
Ordinary 5 pence shares	6.8		6.8
Issued and fully paid Equity shares
Ordinary 5 pence shares	3.5		3.5
	Number		Number
Authorised ordinary 5 pence shares	135,000,000		135,000,000
Issued ordinary 5 pence shares	70,236,016		70,236,016
24. Share-based payments
		2011 Group £m	2010 Group £m
LTIP		0.1	0.2
Sharesave		0.3	0.2

CSOP and other schemes (0.1) — Total 0.3 0.4 For options granted post flotation (June 2006), independent valuations have been used to determine the fair values for share-based payments. The fair values and assumptions used were as follows:

	LTIP 08	LTIP 09	LTIP 10	CSOP 08	CSOP 9	CSOP 10	Deferred bonus	Sharesave 08	Sharesave 09	Sharesave 10	Stand alone option 06	Stand alone option 07
Pricing model	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial
Grant date	8 July 08	8 July 09	8 July 10	8 July 08	8 July 09	8 July 10	8 July 10	8 August 08	12 August 09	6 August 10	12 March 07	25 July 07
Share price at grant	236.00p	161.00p	192.00p	236.00p	161.00p	192.00p	192.00p	241.00p	175.00p	198.00p	330.00p	335.00p
Exercise price	nil	nil	nil	236.00p	161.00p	192.00p	nil	196.00p	139.00p	159.00p	330.00p	335.50p
Option life	10 years	10 years	10 years	10 years	10 years	10 years	3 years	3.6 years	3.6 years	3.6 years	10 years	10 years
Expected vesting life	3 years	3 years	3 years	3 years	3 years	3 years	2 years	3.1 years	3.1 years	3.1 years	2 years	3 years
Risk free rate	5.03%	3.73%	3.22%	5.03%	3.73%	3.22%	1.16%	4.68%	3.03%	1.98%	4.80%	5.30%
Expected volatility	30%	40%	40%	30%	40%	40%	40%	30%	40%	40%	25%	25%
Expected dividend yield	2%	3%	3%	2%	3%	3%	3%	2%	3%	3%	2%	2%
Value per option	222.00p	147.00p	175.00p	72.00p	52.00p	63.00p	180.00p	79.00p	36.00p	39.00p	87.06p	95.40p

For 2003 Scheme options, which were granted prior to flotation, the fair value of services received in return for share-based payments were measured by the fair value of shares received and options granted. Owing to the absence of a market for the Company's shares at the time of grant, the Company used share valuation methodology which looks at comparator listed companies and adjusts for the lack of an active market by means of discounting their quoted price earnings ratios. The risk free rate of return was assumed to be 5%.

May Gurney Integrated Services Unapproved Share Option Scheme (the '2003 Scheme')

The 2003 Scheme was adopted in 2003 and ceased issuing new options on the flotation of the Company. Under the Scheme, options were granted to executive directors and to senior and middle management. The exercise of some of the options granted under the 2003 Scheme was conditional upon the achievement of objective performance targets set by the Trustee of the ESOT at the time of grant. Options granted under the 2003 Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the scheme are included in the Directors' remuneration report.

		2011		2010
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of
year	596,500	26.01p	837,500	25.03p
Granted	—	—	—	—
Exercised	(29,000)	13.58p	(241,000)	22.62p
Lapsed	(200,000)	50.64p	—	—
Outstanding at end of year	367,500	13.58p	596,500	26.01p
Exercisable at the end of the
year	367,500	13.58p	396,500	13.58p

The weighted average share price at the date of exercise was 203 pence (2010: 179 pence).

The May Gurney Long Term Incentive Plan ('LTIP')

The LTIP scheme is a long-term incentive plan for executive directors and senior managers. The exercise of awards granted under the LTIP will in normal circumstances be conditional upon the achievement of objective performance targets set at the time of grant. Such performance targets shall be measured over a performance period. Options granted under the LTIP Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the scheme are included in the Directors' remuneration report. Options granted, exercised and forfeited under the scheme were as follows:

		2011		2010
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	949,826	—	585,698	—
Granted	689,402	—	674,143	—
Exercised	—	—	—	—
Lapsed	(230,016)	—	(310,015)	—
Outstanding at end of year	1,409,212	—	949,826	—
Exercisable at the end of the
year	—	—	—	—

The May Gurney Savings Related Share Option Scheme ('Sharesave')

The Sharesave scheme was established in July 2007. Participation is offered to all employees of the Group who have been employed for a continuous period which is determined by the Board of directors. Under the Sharesave contract participating employees save a regular sum each month for three years of not less than £5 nor more than £250 per month.

Options to acquire ordinary shares in the capital of the Company will be granted to eligible employees who enter into a Sharesave contract. The number of options will be that number of shares which have an aggregate option price not exceeding the projected proceeds of the Sharesave contract including any bonus. The option price per share will not be less than 80% of the market value of an ordinary share on the day on which invitations to apply for options are issued.

The requirement to make regular saving contributions under the scheme are non-vesting conditions. When an employee chooses whether to meet a non-vesting condition, and fails to do so, such a failure is treated as a cancellation and therefore an acceleration of the share-based payment charge.

Options granted under the Sharesave Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the scheme are included in the Directors' remuneration report. Options granted, exercised and forfeited under the scheme were as follows:

	2011		2010
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	1,891,561	179.05p	1,644,511	221.26p
Granted	852,739	159.00p	1,048,312	139.00p
Exercised	(6,572)	155.90p	(1,618)	254.00p
Lapsed	(390,477)	169.23p	(799,644)	211.86p
Outstanding at end of year	2,347,251	173.51p	1,891,561	179.05p
Exercisable at end of year	—	—	—	—

The May Gurney Company Share Ownership Plan ('CSOP')

The CSOP scheme is a long-term incentive plan for senior managers. The exercise of awards granted under the CSOP will in normal circumstances be conditional upon the achievement of objective performance targets set at the time of grant. Such performance targets shall be measured over a performance period. Options granted under the CSOP Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Options granted, exercised and forfeited under the scheme were as follows:

		2011	2010
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	259,881	257.46p	316,633	261.24p
Granted	72,912	192.00p	77,875	161.00p
Exercised	—	—	—	—
Forfeited	(17,906)	223.38p	(134,627)	253.38p
Outstanding at end of year	314,887	208.13p	259,881	257.46p
Exercisable at end of year	—	—	—	—

The May Gurney Deferred Share Bonus Plan ('Deferred Bonus')

The Deferred Bonus scheme is a long-term incentive plan for executive director and senior managers whereby one-third of the option holders' profit share bonus in 2010 was converted into share options. Options granted under the Deferred Bonus Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Options granted, exercised and forfeited under the scheme were as follows:

	2011		2010
	Number	Weighted average exercise price	Number	Weighted average exercise price
Outstanding at beginning of year	—	—	—	—
Granted	45,500	—	—	—
Exercised	—	—	—	—
Forfeited	(7,389)	—	—	—
Outstanding at end of year	38,111	—	—	—
Exercisable at end of year	—	—	—	—

Other schemes

Option granted, exercised and forfeited under other scheme were as follows:

Date of award	Market value at date of award	Earliest vesting date	Awarded at 1 April 2010	Granted in year		Vested in year	Lapsed in year	Awarded at 31 March 2011
12 March 2007 25 July 2007	330.0p 335.5p	12 Mar 09 25 Jul 10	151,515 110,359	— —		— —	— (104,398)	151,515 5,961
25. Reserves
For the year ended 31 March					2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Share premium account
At beginning and end of year					13.2	13.2	13.2	13.2
Merger relief reserve
At beginning and end of year					1.9	1.9	1.9	1.9
Retained earnings At beginning of year					53.4	10.7	43.5	6.3
Retained profit for the year					13.3	3.6	13.1	8.5
Dividends					(3.9)	(3.9)	(3.5)	(3.5)
Items charged direct to equity					0.7	0.7	(0.9)	(0.9)
Movements relating to share-based payments					0.6	—	1.2	0.3

Merger relief reserve. On 8 June 2004, the Company issued 21,715 ordinary shares of £1 each at a premium amounting to £1.9 million. The shares were issued as part consideration for the acquisition of the whole of the issued share capital of TJ Brent Limited, accounted for using the purchase method of accounting. The premium over the nominal value of the shares issued was previously credited to a merger relief reserve as allowed under Section 612 of the Companies Act 2006.

At end of year 64.1 11.1 53.4 10.7

Other Reserves

Other reserves in the Group and Company statements of financial position are made up as follows:

For the year ended 31 March	Capital redemption	ESOT	2011	2010
Group and Company	reserve £m	reserve £m	Total £m	Total £m
At beginning of year	2.9	(1.5)	1.4	1.4
Proceeds from disposal of own shares	—	—	—	0.1
Taxation on share sales	—	—	—	(0.1)
At end of year	2.9	(1.5)	1.4	1.4

Capital redemption reserve. The capital redemption reserve arose on the redemption of the May Gurney Integrated Services plc cumulative convertible redeemable £1 preference shares in September 2004.

ESOT reserve. As at 31 March 2011 the ESOT held 1,434,378 (2010: 1,434,378) ordinary 5 pence shares in the Company.

The maximum number of 5 pence ordinary shares held in the Company by the ESOT during the year was 1,434,378 (2010: 1,604,378).

The ordinary shares in the Company held by the ESOT represent 2.0% (2010: 2.0%) of the ordinary share capital of the Company.

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT transferred 1,783,324 ordinary shares by way of a gift for nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust (EBT), an offshore trust. The ordinary shares in the Company held by the EBT represent 2.4% of the ordinary share capital of the Company. At 31 March 2011 the EBT held 1,675,134 (2010: 1,710,347) ordinary shares.

26. Commitments

For the year ended 31 March	2011 Group £m	2010 Group £m
(i) Operating lease commitments
Total commitments due under operating leases:
Land and buildings
Within one year	2.5	2.2
Between two and five years	4.5	4.6
More than five years	1.3	1.6
	8.3	8.4
Other
Within one year	6.2	5.6
Between two and five years	9.0	8.5
More than five years	—	1.0
	15.2	15.1
(ii) Property, plant and equipment
Future capital expenditure authorised by the directors but not provided for in these financial statements is as follows:
Contracts placed	2.3	7.1

27. Business combinations

(a) Turriff Group Limited

On 21 January 2011, the Group acquired 100% of the issued share capital of Turriff Group Limited, one of Scotland's largest utility infrastructure maintenance companies. This transaction has been accounted for by the purchase method of accounting.

The net assets acquired in the transaction, and the goodwill arising, are as follows:

	Acquiree's carrying amount before combination £m	Provisional fair value adjustments £m	Fair value £m
Net assets acquired:
Property, plant and equipment	6.9	(0.2)	6.7
Intangible assets	—	5.0	5.0
Inventories	0.1	—	0.1
Trade receivables	9.7	(1.0)	8.7
Taxation receivables	0.2	—	0.2
Bank overdraft	(5.8)	—	(5.8)
Trade payables	(3.5)	(1.0)	(4.5)
Debt	(1.4)	—	(1.4)
Finance leases	(1.3)	—	(1.3)
Deferred tax	(0.2)	(0.8)	(1.0)
	4.7	2.0	6.7
Goodwill			6.9
Total consideration			13.6
Purchase consideration:
Cash paid			7.6
Contingent consideration			6.0
			13.6
Net cash outflow arising on acquisition:
Cash consideration paid			(7.6)
Overdraft acquired			(5.8)
Acquisition and integration costs			(0.8)
Bank loans and loan notes repaid			(1.4)
			(15.6)

The fair value of contingent consideration has been estimated at £6.0 million:

• £3.0 million payable upon meeting revenue targets with certain key customers.
• £2.0 million payable upon retention of certain key employees for periods of up to 3 years.
• £1.0 million payable pending determination of the completion EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the year ended 31 December 2010 for Turriff Group.

The maximum undiscounted amount of future payments is £6.0 million, which based on financial projections prepared at the time of acquisition, we expect to be payable in full.

Provisional fair value adjustments have been made to Property, plant and equipment, Trade receivables and Trade payables in order to align the acquiree's accounting policies with those of the Group.

The intangible asset recognised on acquisition relates to the fair value of the order book, trademarks and customer relationships acquired. Further details are disclosed in Note 13.

The acquisition and integration costs of £0.8 million above have been paid during the year, with a further £0.7 million of costs included in Accruals and deferred income.

The goodwill arising on the acquisition of Turriff Group Limited is attributable to the anticipated profitability of the Group's services in the new markets and the anticipated future operating synergies from the combination.

Turriff Group Limited contributed £9.0 million revenue and £0.4 million profit to the Group's profit before tax for the period between the date of acquisition and the financial reporting date.

If the acquisition had been completed on 1 April 2010, total Group revenue for the year would have been £604.8 million, and profit for the period would have been £13.3 million.

(b) Nordis Signs

On 1 December 2010, the Group acquired the trade and assets of Nordis Signs for a consideration of £0.3 million. This purchase strengthens the Group's capability in the manufacture of road signage.

28. Employee benefits

Defined contribution pension schemes

The Group operates eight defined contribution pension schemes (2010: eight) and contributions during the year amounted to £4.0 million (2010: £3.1m). The schemes are the May Gurney Defined Contribution Pension Scheme, TJ Brent Limited Group Personal Pension Plan, T Cartledge Limited Group Personal Pension Plan, AC Chesters & Son Limited Staff Pension Scheme, FDT Executive Pension Plan, FDT Group Personal Pension Plan, FDT Stakeholder Pension and Willows Plant Limited Group Personal Pension Plan.

The Group also makes contributions to local government defined benefit pension schemes in respect of certain employees who have transferred to the Group under TUPE transfer arrangements. The Group is unable to identify its share of the underlying assets and liabilities in the scheme on a consistent and reasonable basis and consequently the pension costs for these schemes are treated as if they were defined contribution schemes.

Defined benefit pension scheme

The Group operates a defined benefit pension scheme (May Gurney Defined Benefit Pension Scheme) for some salaried employees and supervisory foremen. The assets of the scheme are held separately from those of the Group and are invested in managed funds.

The pension cost relating to the scheme is assessed in accordance with the advice of a qualified actuary on the basis of valuations at each reporting date using the projected unit costing method. The pension charge for the year was £1.1 million (2010: £0.9m).

The most recent full triennial valuation was carried out at 1 April 2008. The ongoing valuation assumed, in assessing pension costs, that the return on the scheme's pre-retirement investments would exceed by 2.85% the rate at which wages and salaries would increase. Future pensions that are due to increase by the maximum of RPI and 5% each year were assumed to increase at the rate of 3.3% per annum. The employer's contribution rate as recommended by the actuary was 10.9% of Pensionable Salary per annum in respect of future accrual of benefits, 1.0% of Pensionable Salary per annum in respect of death in service benefits, plus Scheme expenses (including levies). The scheme's assets were greater than the scheme's technical provisions at the valuation date, and therefore there was no need to establish a recovery plan to make up any shortfall. The average contribution rate by the employees is 6.7%.

The Company has opted to recognise all actuarial gains and losses immediately as Other Comprehensive Income.

A full actuarial valuation of the scheme was carried out as at 31 March 2008, and this was updated to 31 March 2011 by a qualified independent actuary on an IAS 19 basis. The major assumptions used by the actuary were (in nominal terms) as follows:

	2011 %	2010 %
Discount rate	5.55	5.61
Inflation assumption	3.40	3.60
Rate of increase in salaries	4.15	4.35
Rate of increase in pensions in payment – pre 1997	Nil	Nil
– post 1997	3.20	3.30
– post 2006	2.10	2.15
Overall expected return on plan assets	5.70	5.72

The mortality assumptions used as at 31 March 2011 are based on standard tables produced by the actuarial profession, adjusted for scheme experience.

	2011	2010
Death in service / deferment	AXC00	AXC00
Death after retirement – Non Pensioners	PSCA00 qx 100%(m) 112%(f). MC projections from 2002
	s.t. floors of 0.5% pa	PXCA00
– Pensioners	PSCA00 qx 100%(m) 112%(f). MC
	projections from 2002
	s.t. floors of 0.5% pa	PXCA00
Life expectancy at 65:
Male currently 65	21	21
Male currently 45	22	22
Female currently 65	23	23
Female currently 45	24	24

The Scheme's net pension liability and expected rate of return on its investments as at 31 March 2011 and as at 31 March 2010 are as follows:

The assets in the scheme and the expected rates of return were:

	Long-term expected rate of return (pa)%	2011 Fair value £m	Long-term expected rate of return (pa)%	2010 Fair value £m
Equities	7.25	16.9	7.25	15.7
Bonds – Corporate	5.55	12.9	5.61	12.1
Bonds – Government	4.35	17.4	4.50	16.5
Cash and Other	0.50	0.4	0.50	0.6
Property	6.00	3.6	6.00	3.3
Annuities	5.55	0.7	5.61	0.8
Total market value of assets		51.9		4.90
Present value of funded retirement benefit obligations		(52.3)		(50.1)
Deficit in the scheme		(0.4)		(1.1)
Less: Related deferred tax liability		0.1		0.3
Net personal liability		(0.3)		(0.8)

The actual return on plan assets was £3.1 million (2010: £9.8m).

The expected rate of return on scheme assets was determined as the weighted average of the expected returns on the assets held by the scheme on 31 March 2011. The rates of return for each class were determined as follows:

– equities and property: the rate adopted is consistent with the median assumption used in the actuary's asset modelling work as at 31 March 2007.

– bonds: the overall rate has been set to reflect the yields available on the gilts and Grade AA corporate bond holdings held at 31 March 2011.

Reconciliation of opening and closing balances of the fair value of plan assets

Change in the fair value of scheme assets	2011 £m	2010 £m
Fair value at the beginning of the year	49.0	40.4
Expected return on scheme assets	2.8	2.2
Contributions by employers	0.9	1.0
Contributions by members	0.5	0.6
Benefits paid	(1.6)	(2.8)
Actuarial gain	0.3	7.6
Fair value of plan assets at the end of the year	51.9	49.0

The Group expects to pay contributions of £0.9 million in the year to 31 March 2012, plus Scheme expenses and levies as they fall due.

Reconciliation of opening and closing balances of the present value of the defined benefit obligation

Change in the present value of the defined benefit obligation	2011 £m	2010 £m
Present value of the obligation at the beginning of the year	(50.1)	(40.3)
Company's service cost	(1.1)	(0.9)
Interest cost	(2.8)	(2.5)
Contributions by members	(0.5)	(0.6)
Benefits paid	1.6	2.8
Actuarial gain/(loss)	0.6	(8.9)
Curtailments and settlements	—	0.3
Present value of the obligation at the end of the year	(52.3)	(50.1)

The amount charged to earnings before interest and tax, and included within cost of sales and administration costs, is:

	2011 £m	2010 £m
Current service cost, less employee contributions Total charge Other finance costs are:	(1.1) (1.1)	(0.9) (0.9)
	2011 £m	2010 £m
Expected return on pension scheme assets	2.8	2.2
Interest on pension scheme liabilities	(2.8)	(2.5)
Curtailments and settlements	—	0.3
Net income	—	—

The amount recognised in the statement of comprehensive income is:

	2011 £m	2010 £m
Actual return less expected return on pension scheme
assets	0.3	7.6
Experience losses arising on the scheme liabilities Changes in the assumptions underlying the present value on	—	—
the scheme liabilities	0.6	(8.9)
Actual gain/(loss) recognised in comprehensive income	0.9	(1.3)

	2011 £m	2010 £m
(Deficit)/surplus in scheme at beginning of year	(1.1)	0.1
Movement in year:
Current service cost	(1.1)	(0.9)
Contributions by employers	0.9	1.0
Other finance expense	—	(0.3)
Curtailments and settlements	—	0.3
Net actuarial gains/(losses)	0.9	(1.3)
Deficit in scheme at end of year	(0.4)	(1.1)

History of experience gains and (losses) are:

	2011 £m	2010 £m	2009 £m	2008 £m	2007 £m
Fair value of scheme assets	51.9	49.0	40.4	43.4	41.4
Present value of the defined benefit obligation	(52.3)	(50.1)	(40.3)	(42.6)	(41.4)
Net (deficit)/surplus	(0.4)	(1.1)	0.1	0.8	—
Difference between expected and actual return on scheme assets
Amount (£m)	0.3	7.6	(7.1)	(1.9)	(1.1)
Percentage of scheme assets	0.6%	15.5%	(17.6)%	(4.4)%	(2.7)%
Experience (losses)/gains arising on liabilities
Amount (£m)	—	—	(1.2)	1.8	(0.5)
Percentage of scheme liabilities	0%	0%	(3.0)%	4.2%	(1.3)%
Total actuarial gains/(losses) recognised in comprehensive income
Amount (£m)	0.9	(1.3)	(1.0)	—	(0.9)
Percentage of scheme assets	1.7%	(2.7)%	(2.5)%	0%	2.3%

The cumulative actuarial gains and losses recognised in the statement of comprehensive income was a loss of £3.7 million (2010: £5.6m).

29. Contingent liabilities

• (a) The Company has given an unlimited guarantee, secured by fixed and floating charges over the Company's assets in respect of the facilities from Bank of Scotland, of all Group companies. At 31 March 2011, the net indebtedness of all other Group companies amounted to £nil (2010: £nil).
• (b) The Company has given joint and several guarantees securing indemnities given by other Group companies in respect of performance bonds which have been put in place to provide security for clients. These performance bonds are not exercisable on demand. At 31 March 2011, indemnities outstanding for other Group companies amounted to £8.8 million (2010: £3.9m).

30. Group undertakings

The Group undertakings, all of which are included within the Group financial statements, at 31 March 2011:

	Activity	Percentage of equity owned
Subsidiary undertakings
May Gurney Group Limited	– Dormant intermediate holding company	100
May Gurney Limited	– Infrastructure support services	+100
May Gurney Estates Limited	– Property holding and development	+100
May Gurney Recycling CIC	– Collection and sale of recyclable materials	*100
North Lincolnshire Learning Partnership (PSP) Limited	– Dormant intermediate holding company	*52
Engage North Lincolnshire Limited	– Facility services for the education sector	****80
Turriff Group Limited	– Provision of contracting services to utility markets	*100
Turriff Contractors Limited	– Provision of contracting services to utility markets	*100
Underground Moling Services Limited	– Provision of contracting services to utility markets	*90
Turriff Smart Services Limited	– Provision of contracting services to utility markets	*100
TOR2 Limited	– Waste, recycling collections & highways maintenance	*80
Lambeth Learning Partnership (PSP) Limited	– Dormant intermediate holding company	*65
Engage Lambeth Limited	– Facility services for the education sector	**80
MGWSP Essex Limited	– Dormant	*100
ECT Engineering Limited	– Dormant	*100
May Gurney Building Limited	– Dormant	*100
AC Chesters & Son Limited	– Dormant	*100
FDT (Holdings) Limited	– Dormant	*100
FDT Associates Limited	– Dormant	**100
FDT Contracts Limited	– Dormant	**100
Norfolk Community Recycling Services Limited	– Dormant	*100
T Cartledge Limited	– Dormant	*100
TJ Brent Limited	– Dormant	*100
Ayton Asphalte Company Limited	– Dormant	+100
May Gurney (Regional) Limited	– Dormant	+100
May Gurney (Technical Services) Limited	– Dormant	+100
May Gurney Group Trustees Limited	– Dormant	+100
Michco 210 Limited	– Dormant	*100
Engineered Products Limited	– Dormant	*100
Associated undertakings
Resource Environmental Limited	– Collection and sale of recyclable materials	*50
Jointly controlled entities
DAWN Environmental Limited	– Collection and sale of recyclable materials	*50
Monmouthshire Community Recycling Limited	– Operation of a curb side recycling scheme	*50
Jointly controlled operations
May Gurney WSP JV	– Highways maintenance	*50
Lafarge Contracting / May Gurney JV	– Civil Engineering	*50

• • held by May Gurney Group Limited
• * held by May Gurney Limited
• ** held by FDT (Holdings) Limited
• *** held by May Gurney Recycling CIC **** held by North Lincolnshire Learning Partnership (PSP) Limited
• ***** held by Turriff Group Limited
• ****** held by Lambeth Learning Partnership (PSP) Limited

The shareholdings in subsidiaries, associates and jointly-controlled entities all relate to ordinary share capital and are equivalent to the percentages of voting rights held by the Group.

The percentages quoted in respect of the jointly-controlled operations are the Group's interests under the joint operation contracts. The joint operations' principal places of business are:

MGWSP, Riverside House, Northampton, Northamptonshire;

Lafarge Contracting / May Gurney, Bradgate House, Groby, Leicester.

31. Reconciliation of operating profit before amortisation and non-recurring costs to cash generated from operations

For the year ended 31 March	2011 Group £m	2011 Company £m	2010 Group £m	2010 Company £m
Operating profit(loss) before amortisation and non-recurring costs	25.1	(2.2)	22.1	(2.3)
Depreciation	8.8	—	6.7	—
Profit on sale of property, plant and equipment	(0.1)	—	(0.2)	—
Debit/(credit) in respect of retirement and benefit costs	0.2	0.2	(0.1)	(0.1)
Charge in respect of share-based payments in the period	0.3	—	0.4	—
Increase in inventories	(1.6)	—	(0.3)	—
(Increase)/decrease in trade and other receivables	(20.1)	2.3	(3.0)	—
(Increase)/decrease in trade and other payables	16.0	(3.9)	5.1	(11.7)
Cash received by/(used in) operations	28.6	(3.6)	30.7	(14.1)

Cash and cash equivalents (which are presented as a single class of assets on the face of the statement of financial position) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

32. Related Party Transactions

Key management remuneration

For the year ended 31 March	2011 Group £m	2010 Group £m
Short-term employee benefits Post employment benefits	2.1 0.1	2.2 0.1
Share based payments	0.2	0.2
	2.4	2.5

Transactions with subsidiary undertakings

Included within trade and other payables are amounts owed by 100% subsidiary undertakings of the Company of £2.8 million (2010: £14.9m owed to).

During the year ended 31 March 2011 there were transactions totalling £0.9 million between the Parent Company and its subsidiary undertakings (2010: £0.9m). All of these transactions, and the year end reporting amounts arising from these transactions were conducted on an arms-length basis and on normal commercial terms. In addition the Company paid £9.8 million (2010: £4.5m received from) net to its subsidiary undertakings from investments in short-term bank deposits.

Transactions with jointly-controlled entities and jointly-controlled operations

During the year the Group made sales to and purchases from its jointly-controlled entities and arrangements. These were normal trading transactions, conducted on an arms-length basis and on normal commercial terms. The amounts involved individually and in aggregate are not considered to be material either financially or generally to users of these financial statements.

Other related party transactions

Ishbel Macpherson, non-executive director of the Company, was also a non-executive director of Speedy Hire plc. The Group makes purchases from Speedy Hire companies on an arms-length basis in the normal course of business. During the year, the value of purchases from Speedy Hire companies was £1.8 million (2010: £1.4m) and a balance of £0.1 million (2010: £0.1m) was owed at the end of the year.

Tim Ross, non-executive director of the Company, was also a non-executive director of Lavendon Group plc in the year to 31 March 2011. The Group makes purchases from Lavendon companies on an arms-length basis in the normal course of business. During the year, the value of purchases from Lavendon companies was £0.1 million (2010: £0.2m) and there were no balances owed at the end of the current or preceding years.

PART C: MAY GURNEY AUDITED CONSOLIDATED FINANCIAL INFORMATION FOR THE YEAR ENDED 31 MARCH 2012

INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF MAY GURNEY INTEGRATED SERVICES PLC

We have audited the financial statements of May Gurney Integrated Services plc for the year ended 31 March 2012 which comprise the Group income statement, the Group statement of comprehensive income, the Group and Parent Company statements of changes in equity, the Group and Parent Company statements of financial position, the Group and Parent Company statements of cash flows and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union and as regards the Parent Company financial statements, as applied in accordance with the provisions of the Companies Act 2006.

This report is made solely to the Company's members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of Directors and auditors

As explained more fully in the Directors' Responsibilities Statement set out on page 52, the Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board's (APB's) Ethical Standards for Auditors.

Scope of the audit of the financial statements

A description of the scope of an audit of financial statements is provided on the APB's website at www.frc.org.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion:

• the financial statements give a true and fair view of the state of the Group's and of the Parent Company's affairs as at 31 March 2012 and of the Group's profit for the year then ended;
• the Group financial statements have been properly prepared in accordance with IFRS as adopted by the European Union;
• the Parent Company financial statements have been properly prepared in accordance with IFRS as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006; and
• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

Opinion on other matter prescribed by the Companies Act 2006

In our opinion the information given in the Directors' Report for the financial year for which the financial statements are prepared is consistent with the financial statements.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept by the Parent Company, or returns adequate for our audit have not been received from branches not visited by us; or
• the Parent Company financial statements are not in agreement with the accounting records and returns; or
• certain disclosures of Directors' remuneration specified by law are not made; or
• we have not received all the information and explanations we require for our audit.

Philip Westerman Senior Statutory Auditor for and on behalf of Grant Thornton UK LLP Statutory Auditor, Chartered Accountants London, United Kingdom 11 June 2012

Consolidated income statement of the May Gurney Group for the year ended 31 March 2012

	Note	2012 Before non recurring items and amortisation £m	2012 Non recurring items and amortisation £m	2012 £m	2011 Before non recurring items and amortisation £m	2011 Non recurring items and amortisation £m	2011 £m
Group revenue Cost of sales	4	695.3 (625.2)	— —	695.3 (625.2)	571.4 (513.4)	— —	571.4 (513.4)
Gross profit		70.1	—	70.1	58.0	—	58.0
Administrative expenses		(40.0)	—	(40.0)	(32.9)	—	(32.9)
Group operating profit before amortisation	2	30.1	—	30.1	25.1	—	25.1
– Intangible assets amortisation – Other non-recurring	13	—	(4.2)	(4.2)	—	(2.1)	(2.1)
costs	3	—	(4.9)	(4.9)	—	(3.4)	3.4
Operating profit Finance income	5	30.1 0.3	(9.1) —	21.0 0.3	25.1 0.4	(5.5) —	19.6 0.4
Finance costs	5	(2.0)	—	(2.0)	(1.2)	—	(1.2)
Profit before taxation Taxation	8	28.4 (7.7)	(9.1) 2.2	19.3 (5.5)	24.3 (6.9)	(5.5) 1.4	18.8 (5.5)
Profit for the year from continuing operations attributable to the equity holders of the Parent Company		20.7	(6.9)	13.8	17.4	(4.1)	13.3
Earnings per share (in pence) Total and from continuing operations	10
Basic earnings per share				20.52p			19.82p
Diluted earnings per share Underlying earnings per				19.91p			19.34p
share				29.47p			24.77p

Consolidated Statement of Comprehensive income of the May Gurney Group for the year ended 31 March 2012

	Note	2012 £m	2011 £m
Profit for the year		13.8	13.3
Actuarial gains on defined benefit pension schemes Tax on actuarial gains on defined benefit pension schemes	28	— —	0.9 (0.2)
Other comprehensive income for the year		—	0.7
Total comprehensive income for the year attributable to equity holders of the Parent Company		13.8	14.0

Consolidated Statement of Changes in Equity of the May Gurney Group for the year ended 31 March 2012

Share capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
3.5 —	13.2 —	1.9 —	1.4 —	53.4 13.3	73.4 13.3
—	—	—	—	0.9	0.9
—	—	—	—	(0.2)	(0.2)
—	—	—	—	14.0	14.0
—	—	—	—	0.3	0.3
—	—	—	—	0.3	0.3
—	—	—	—	(3.9)	(3.9)
3.5	13.2	1.9	1.4	64.1	84.1
					13.8
					— —
—	—	—	—	13.8	13.8
—	—	—	—	—	—
—	—	—	—	(0.4)	(0.4)
					(4.9)
					92.6
	— — — — 3.5	— — — — 13.2	— — — — 1.9	— — — — 1.4	13.8 — — (4.9) 72.6

Consolidated Balance Sheet of the May Gurney Group for the year ended 31 March 2012
-------------------------------------------------------------------------------------

	Note	2012 £m	2011 £m
Non current assets
Property, plant and equipment	11	92.4	39.2
Goodwill	12	60.3	42.1
Other intangible assets	13	18.8	11.4
Deferred tax asset	15	—	0.9
		171.5	93.6
Current assets
Inventories	16	4.5	4.4
Trade and other receivables	17	112.2	110.4
Cash and cash equivalents	18	31.0	36.2
		147.7	151.0
Total assets		319.2	244.6
Current liabilities
Trade and other payables	19	(141.2)	(132.7)
Current tax liabilities		(3.1)	(2.0)
Borrowings	21	(20.0)	—
Obligations under finance leases	21	(16.9)	(7.3)
		(181.2)	(142.0)
Non-current liabilities
Retirement benefit obligations	28	(0.4)	(0.4)
Obligations funder finance leases	21	(43.3)	(18.0)
Deferred tax liability	15	(1.7)	—
Provisions	22	—	(0.1)
		(45.4)	(18.5)
Total liabilities		(226.6)	(160.5)
Net assets		92.6	84.1
Equity
Share capital	23	3.5	3.5
Share premium account	25	13.2	13.2
Merger relief reserve	25	1.9	1.9
Other reserves	25	1.4	1.4
Retained earnings	25	72.6	64.1
Total equity		92.6	84.1

These financial statements were approved by the Board of Directors on 11 June 2012.

Philip Fellowes-Prynne Director Company Registration number 4321657

Consolidated Cash Flow Statement for the year ended 31 March 2012

	Note	2012 £m	2011 £m
Cash flows from operating activities
Group operating profit before amortisation and non-recurring costs		30.1	25.1
Depreciation and non-cash items		16.0	9.2
Working capital movement		(3.7)	(5.7)
Cash generated from operations	31	42.4	28.6
Non-recurring costs		(3.5)	(1.5)
Corporation tax paid		(6.4)	(5.2)
Interest received		0.3	0.4
Interest paid		(2.0)	(1.2)
Net cash received from operating activities		30.8	21.1
Cash flows from investing activities
Purchase of property, plant and equipment	11	(22.8)	(16.8)
Proceeds from sale of property, plant and equipment		1.4	1.4
Payments to acquire intangible assets	13	(0.5)	(2.9)
Acquisition of subsidiaries and overdraft acquired		(18.6)	(15.9)
Net cash used in investing activities		(40.5)	(34.2)
Cash flows from financing activities
Ordinary dividends paid	9	(4.9)	(3.9)
New finance leases		17.6	16.7
Payment of finance lease obligations		(11.0)	(6.9)
Loan received		20.0	—
Loans repaid		(17.2)	—
Net cash received from financing activities		4.5	5.9
Decrease in cash and cash equivalents		(5.2)	(7.2)
Opening cash and cash equivalents		36.2	43.4
Closing cash and cash equivalents		31.0	36.2
Reconciliation of net cash flow to movement in net (debt)/funds
Decrease in cash and cash equivalents		(5.2)	(7.2)
Increase in finance leases		(6.6)	(9.8)
Acquired debt		(28.3)	(1.3)
Decrease in net funds in the year		(40.1)	(18.3)
Opening net funds		10.9	29.2
Closing net (debt)/funds		(29.2)	10.9

Statement of accounting policies for the May Gurney Group accounts

Nature of operations

The principal activities of the Group during the year were infrastructure support services. The Group is incorporated and domiciled in the United Kingdom and is listed on the Alternative Investment Market. The registered office is at the Group office in Trowse, Norwich, UK. The presentation currency used is GB Pound sterling and figures are quoted in millions, rounded to the nearest £100,000.

The principal accounting policies adopted in the presentation of these consolidated and Company financial statements are set out below. These policies have been consistently applied to the periods presented unless otherwise stated.

Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union and with parts of the Companies Act 2006 applicable to companies reporting under IFRS.

The financial statements have been prepared on the historical cost basis, with the exception of certain financial instruments, which are recognised using accounting policies as set out below and applied consistently.

Adoption of new and revised International Financial Reporting Standards

In the current year, the Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 April 2011.

Changes in accounting policy

The following standards and interpretations came into effect and were adopted in the current period but had no effect on the financial statements:

• IFRS 1 (amended) First-time adoption of IFRS limited exemption from comparative IFRS 7 disclosures;
• IAS 24 Related party disclosures (revised 2009);
• IAS 32 (amendment) Financial instruments: Presentation;
• IAS 34 (amendment) Interim financial reporting; and
• IFRIC 19 Extinguishing financial liabilities with equity instruments.

At the date of authorisation of these financial statements the following standards and interpretations were in issue but not yet effective and therefore have not been applied in these financial statements:

• IFRS 1 (amended) Severe hyperinflation and Removal of fixed dates for first-time adopters;
• IFRS 7 (amended) Financial instruments: disclosures;
• IFRS 9 Financial instruments classification and measurement;
• IFRS 10 Consolidated financial statements;
• IFRS 11 Joint arrangements;
• IFRS 12 Disclosure of interests in other entities;
• IFRS 13 Fair value measurement;
• IAS 1 Presentation of financial statements items in other comprehensive income;
• IAS 12 (amended) Income taxes deferred tax recovery of underlying assets;

• IAS 19 (amended) Employee benefits;

• IAS 27 Separate financial statements; and

• IAS 28 Investments in associates and joint ventures.

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the Group.

Consolidation

Subsidiaries

Subsidiaries are consolidated from the date on which control is transferred to the Group and deconsolidated from the date at which control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured at the fair value of the consideration. The assets and liabilities of a subsidiary are measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of the identifiable assets and liabilities acquired is recognised as goodwill.

The Group financial statements consolidate those of the Parent Company and all of its subsidiary undertakings drawn up to 31 March 2012. Subsidiaries are all entities over which the Group has the power to control the financial and operating policies. The Group obtains and exercises control through more than half of the voting rights.

All transactions and balances between Group companies are eliminated on consolidation, including unrealised gains and losses on transactions between Group companies. Where unrealised losses on intra-group asset sales are reversed on consolidation, the underlying asset is also tested for impairment from a Group perspective. Amounts reported in the financial statements of subsidiaries have been adjusted where necessary to ensure consistency with the accounting policies adopted by the Group. Profit or loss and other comprehensive income of subsidiaries acquired or disposed of during the year are recognised from the effective date of acquisition, or up to the effective date of disposal, as applicable.

Non-controlling interests, presented as part of equity, represent the portion of a subsidiary's profit or loss and net assets that is not held by the Group. The Group attributes total comprehensive income or loss of subsidiaries between the owners of the Parent Company and the non-controlling interests based on their respective ownership interests.

Jointly-controlled operations

The Group has certain contractual operations with other participants to engage in joint operations that do not create an entity carrying on a trade or business of its own. The Group includes its share of assets, liabilities and cash flows in such jointly-controlled operations, measured in accordance with the terms of each operation, which is usually pro rata to the Group's interest in the risks in the jointlycontrolled operation.

Jointly-controlled entities

A jointly-controlled entity is an entity in which the Group holds a long-term interest and which is jointlycontrolled by the Group and one or more other venturers under a contractual arrangement. Investments in jointly-controlled entities are accounted for using the equity method of accounting and are initially recognised at cost.

The Group's share of post acquisition profits or losses is recognised in the income statement. The cumulative post acquisition movements are adjusted against the carrying amount of the investment. Due to the amounts involved not being significant, they are not separately disclosed.

Inter-company transactions, balances and unrealised gains on transactions between Group companies have been eliminated on consolidation.

A separate income statement has not been presented for May Gurney Integrated Services plc as exempted by Section 408 of the Companies Act 2006. The profit after tax of the Company in the year was £8.3 million (2011: £3.6m).

The Group has taken advantage of the exemption under regulation 7 of the Partnerships (Accounts) Regulations 2008 that members of a qualifying partnership do not have to publish partnership accounts if the partnership is dealt with on a consolidated basis in Group accounts prepared by a parent undertaking of the member. May Gurney WSP JV partnership has been consolidated within these Group accounts.

Goodwill and other intangible assets

Goodwill arising on consolidation represents the excess of the fair value of the cost of acquisition over the Group's interest in the fair value of the identifiable assets and liabilities of a subsidiary or jointlycontrolled entity at the date of acquisition.

Goodwill is recognised as an intangible asset and is reviewed for impairment annually. It is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash generating units for the purpose of impairment testing along the lines of the Group's operating segments. Any impairment is recognised immediately in the income statement.

Other intangible assets, which consist of an acquired order book, customer relationships, trademarks and software development costs, are stated at cost less accumulated amortisation and impairment losses. Amortisation is based on cost and the useful economic lives of these assets. Details of these useful economic lives are included in Note 13.

Costs associated with developing or maintaining computer software are recognised as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the group, and that will probably generate economic benefits beyond one year, are recognised as intangible assets. Computer software development costs recognised as assets are amortised over their estimated useful life. The MGConnectTM costs capitalised in the year are amortised over a period of four years.

Impairment

Assets that have an indefinite useful life are not subject to amortisation and are reviewed for impairment annually and when there are indications that the carrying value may not be recoverable. Assets that are subject to amortisation are reviewed for impairment wherever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

Company investments in subsidiary undertakings

Company investments are included at cost. Provision is made for any impairment in value.

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business net of Value Added Tax.

Sales of goods are recognised when goods are delivered and title has passed.

Contract revenue reflects the contract activity during the year and is measured at the fair value of consideration received or receivable. When the outcome can be assessed reliably, contract revenue and associated costs are recognised as revenue and expenses respectively by reference to the stage of completion of the contract activity at the reporting date. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract.

Provision is made in full for estimated losses, if the costs of fulfilling the contract exceed the recoverable amount. Revenue is only recognised to the extent that it is probable that it will be recoverable. Where the outcome of a long-term contract cannot be estimated reliably revenue is recognised only to the extent of contract costs incurred that it is probable will be recoverable, and contract costs are recognised as an expense in the period in which they are incurred.

In the case of a cost plus contract, the outcome of a contract can be estimated reliably when it is probable that the economic benefits associated with the contract will flow to the Group, and the contract costs attributable to the contract, whether or not specifically reimbursable, can be clearly identified and measured reliably.

Revenue from the provision of fleet and passenger services represents amounts receivable for vehicle hire, maintenance work and passenger services (excluding VAT) carried out in the accounting period. Income received in respect of future periods is deferred until the service is provided.

Maintenance-related income in primary lease periods is recognised so as to match the revenue against the expected cost of maintenance based on estimation techniques which use current experience.

Property, plant and equipment

Property, plant and equipment is stated at historic cost to the Group, being its purchase cost together with any incidental expenses of acquisition.

Depreciation of property, plant and equipment is calculated so as to write off their cost over their expected economic lives, residual values are reassessed on an annual basis. The principal annual rates of depreciation are as follows:

Freehold land	–	not depreciated
Freehold buildings	–	between 5 and 50 years straight line
Short leasehold property	–	10% straight line or life of lease if shorter
Plant, vehicles and equipment	–	between 10% and 33% straight line

Inventories and work in progress on construction contracts

Inventories are valued at the lower of cost and net realisable value. The cost of purchase is determined by means of the weighted average cost formula.

Contract work in progress is valued at cost plus attributable profit less foreseeable losses. Attributable profit is included when the outcome of a contract can be assessed with reasonable certainty. The excess of book value over amounts received on individual contracts is included in current trade receivables and payments received in excess of book value are included in current trade payables.

Non-recurring items

Material and non-recurring items of income and expense are disclosed in the income statement as 'Non-recurring items'. Examples of items which may give rise to disclosure as 'Non-recurring' include inter alia gains or losses on the disposal of businesses, investments and property, plant and equipment, costs of restructuring and reorganisation of existing businesses and asset impairments.

Taxation

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax payable in respect of the year is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group's liability for current tax is calculated using tax rates and laws that have been enacted or substantially enacted by the reporting date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from initial recognition of goodwill or from the initial recognition of other assets and liabilities (other than in a business combination) in a transaction that affects neither the tax profit nor the accounting profit.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at each reporting date.

Deferred tax is calculated based on the laws enacted or substantially enacted by the reporting date and at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Financial instruments

The financial instruments used by the Group comprise net funds, trade receivables and trade payables.

• (a) Loans and receivables do not carry any interest and are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts.
• (b) Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly-liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value.
• (c) Trade payables are not interest bearing and are initially stated at their fair value and subsequently measured at amortised cost.
• (d) Loans are raised for support of long-term funding of the Group's operations. They are recognised at fair value on inception. Finance charges, including premiums payable on settlement or redemption, and direct issue costs are charged to the income statement using an effective interest method.
• (e) Financial liabilities and equity instruments are classified according to the substance of the contractual arrangements entered into. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all its liabilities.
• (f) Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.
• (g) The Group has a policy of not trading in financial instruments and thus the only risks arising, in the normal course of business, are interest rates and liquidity. The Group's foreign currency risk is minimal as the volume of foreign currency transactions is not significant. The Group currently has no derivative instruments and sees no immediate requirement for any.

Accounting for financial assets

Financial assets consist of receivables, along with cash and cash equivalents.

An assessment of whether a financial asset is impaired is made at least at each reporting date. For receivables, this is based on the latest credit information available, i.e. recent counterparty defaults and external credit ratings. Financial assets that are substantially past due are also considered for impairment. All income and expense relating to financial assets are recognised in the income statement line item 'Finance costs' or 'Finance income', respectively.

Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are subsequently measured at amortised cost using the effective interest method, less provision for impairment. Any change in their value is recognised in profit or loss. The Group's trade and other receivables fall into this category of financial instruments.

Individual receivables are considered for impairment when they are past due at the reporting date or when objective evidence is received that a specific counterparty will default. All other receivables are reviewed for impairment in groups, which are determined by reference to the industry of a counterparty. The percentage of the write down is then based on recent historical counterparty default rates for each identified group.

Accounting for financial liabilities

The Group's financial liabilities include borrowings, trade and other payables (including finance lease liabilities), which are measured at amortised cost using the effective interest rate method.

Financial liabilities are recognised when the Group becomes a party to the contractual agreements of the instrument. All interest-related charges and, if applicable, changes in an instrument's fair value that are reported in profit or loss are included in the income statement line items 'Finance costs' or 'Finance income'.

For business combinations, any changes to the consideration transferred, including contingent consideration, resulting from events after the date of the acquisition are recognised in the income statement.

Leases

In accordance with IAS 17, the economic ownership of a leased asset is transferred to the lessee if the lessee bears substantially all the risks and rewards related to the ownership of the leased asset. Assets held under finance leases are recognised as assets of the Group at the lower of their fair value or the present value of the minimum lease payments and the capital elements of the commitments are shown as obligations under finance leases. Payments are treated as consisting of capital and interest elements. The capital element is applied to reduce the outstanding obligations and the interest element is charged against profit in proportion to the reducing capital element outstanding. Assets held under finance leases are depreciated over the shorter of the lease terms and their useful lives.

All other leases are regarded as operating leases and the related payments are charged to the income statement on a straight-line basis over the lease term.

Share-based payments

All share-based payment arrangements granted after 7 November 2002 that had not vested prior to 1 January 2005 are recognised in the financial statements.

All goods and services received in exchange for the grant of any share-based payment are measured at their fair values. Where employees are rewarded using share-based payments, the fair value of employees' services are determined indirectly by reference to the fair value of the instrument granted to the employee. This fair value is appraised at the grant date and excludes the impact of certain nonmarket vesting conditions (for example, profitability and sales growth targets).

All equity-settled share-based payments are ultimately recognised as an expense in the income statement with a corresponding credit to equity.

If vesting periods or other non-market vesting conditions apply, the expense is allocated over the vesting period, based on the best available estimate of the number of share options expected to vest. Estimates are subsequently revised if there is any indication that the number of share options expected to vest differs from previous estimates. Any cumulative adjustment prior to vesting is recognised in the current period. No adjustment is made to any expense recognised in prior periods if share options ultimately exercised are different to that estimated on vesting.

Upon exercise of share options the proceeds received net of attributable transaction costs are credited to share capital, and where appropriate share premium.

Employee benefits

The Group and Company contribute to eight defined contribution pension schemes and two defined benefit pension schemes, the assets of which are held separately from those of the Group and are invested in managed funds.

In respect of the defined benefit pension scheme, the cost of providing benefits is determined using the projected unit method, with actuarial valuations being carried out at each reporting date. Hence actuarial gains and losses are recognised in full in the period in which they occur through the statement of comprehensive income. The liability recognised in the statement of financial position is the present value of the defined benefit obligations less the fair value of plan assets. Associated interest credits are included within finance income and charges within finance costs. The current service cost incurred during the year to provide retirement benefits to employees is charged to operating profit. Pension scheme surpluses, to the extent that they are recoverable from future contributions, or deficits are recognised in full and presented on the face of the Statement of Financial Position net of related deferred tax.

In respect of the defined contribution pension schemes, the contributions paid by the Group, Company and the employees are invested within the individual funds in the month following the month of deduction. The employer contribution rates are determined by reference to an age, service or grade related scale or are at a fixed, level percentage. The amounts contributed by the Group and Company are charged to the income statement as the contributions fall due. Certain contracts require that employees transfer with protected pension rights and the Group and Company are responsible for the pension liability that exists.

May Gurney Group Limited Employee Share Ownership Trust ('ESOT') and Employee Benefit Trust ('EBT')

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT transferred 1,783,324 ordinary shares by way of a gift for £nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust (EBT), an offshore trust.

Shares in the Company held by the ESOT and EBT are shown as a deduction in arriving at equity funds.

Where the purchase of shares by the ESOT/EBT is financed by external bank loans, these loans are shown within current trade and other payables. Other current assets, liabilities and reserves of the ESOT/EBT are included within the statutory headings to which they relate. The ESOT/EBT are included within the Company financial statements. The ESOT/EBT have been accounted for in line with the requirements of SIC 12 which states that the Company should consolidate all Special Purpose Entities of which the ESOT/EBT are classified as such.

Dividends

Dividends are recognised in the financial statements in the period in which they are approved by the Company's shareholders. Interim dividends are recognised in the period in which they are approved and paid.

Provisions

A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. When recognising and measuring a provision, events occurring after the reporting date, and before authorisation for issue, are considered to determine whether such events provide additional evidence of conditions that existed at the reporting date and should therefore be adjusted for.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Significant accounting estimates and judgements

To be able to prepare accounts according to generally accepted accounting principles, management must make estimates and assumptions that affect the asset and liability items and revenue and expense amounts recorded in the financial statements. These estimates are based on historical experience and various other assumptions that management and the Board of directors believe are reasonable under the circumstances. The results of this form the basis for making judgements about the carrying value of assets and liabilities that are not readily available from other sources.

Areas requiring estimates that may significantly impact on the Group's earnings and financial position are as follows:

Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy previously stated. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. Further details of the estimates used are set out in Note 12.

Areas requiring critical judgement that may significantly impact on the Group's earnings and financial position are as follows:

(a) Revenue recognition

The Group uses the percentage-of-completion method to determine the appropriate amount to recognise in a given period. The stage of completion is measured by reference to the contract costs incurred up to the reporting date as a percentage of total estimated costs for each contract.

(b) Pension benefits

The present value of the pension obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost/ income for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations.

The Group determines the appropriate discount rate at the end of each year. This is the interest rate that should be used to determine the present value of estimated future cash flows expected to be required to settle the pension obligations. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating the terms of the related pension liability.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in Note 28.

(c) Share-based payments

The weighted average fair value of options granted during the period was determined using the Trinomial pricing model. The assumptions used are detailed in Note 24.

(d) Intangible assets

The Group recognises certain intangible assets on acquisition. Judgements in respect of useful lives, discount rates and valuation methods affect the carrying value and amortisation charges in respect of these assets. These judgements are shown in Note 13.

(e) Impairment of work in progress

In assessing whether work in progress is impaired, estimates are made of future sales revenue, timing and build costs. The Group has controls in place to ensure that estimates of sales revenue are consistent, and external valuations are used where appropriate.

Notes to the accounts

1. Segmental analysis

For management purposes, the Group is currently organised into three segments – Public Sector Services (Highways Services, Environmental Services, Facility Services and Fleet & Passenger Services), Regulated Sector Services (Utility Services, Rail Services and Waterways Services) and Property. The three segments noted are those that are regularly reviewed by the Group's Chief Operating Decision Maker (CODM) Philip Fellowes-Prynne (Chief Executive). Revenue is mostly derived from contract work.

The identification of these reportable segments has come about due to the Group's aim of aligning services more closely with the needs of its long-term clients and the nature of the work the Group delivers for them, namely delivering essential front-line maintenance and enhancement services.

	Public Sector Services	Regulated Sector Services	Property	Group
For the year ended 31 March 2012	£m	£m	£m	£m
Revenue Total revenue Less: between segments	418.9 (0.7)	279.2 (2.1)	— —	698.1 (2.8)
External revenue	418.2	277.1	—	695.3
Sales between segments are charged at prevailing market prices
Results per management information reviewed by the CODM Group operating profit before amortisation and non-recurring costs Intangible assets amortisation	17.8 (2.3)	12.3 (1.9)	— —	30.1 (4.2)
Non-recurring costs Finance income Finance costs	(3.7)	(1.2)	—	(4.9) 0.3 (2.0)
Profit before taxation				19.3
Taxation				(5.7)
Profit for the year per management information				13.6
Taxation adjustment				0.2
Profit for the year per statutory accounts				13.8
Segment assets and liabilities Total assets
Segments Not allocated to segments	196.0	107.0	12.0	315.0 4.2 319.2
Total liabilities Segments	(146.9)	(73.0)	(0.5)	(220.4)
Not allocated to segments				(6.2) (226.6)
Other Information Capital expenditure including acquisitions Depreciation	68.0 12.3	2.4 4.0	— 0.1	70.4 16.4

As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

No customers (2011: one) in the Regulated Sector Services segment accounted for over 10% of total revenue (2011: 12%).

	Public Sector Services	Regulated Sector Services	Property	Group
For the year ended 31 March 2011 Revenue	£m	£m	£m	£m
Total revenue	377.7	196.6	—	574.3
Less: between segments	(1.4)	(1.5)	—	(2.9)
External revenue	376.3	195.1	—	571.4
Sales between segments are charged at prevailing market prices.
Result per management information reviewed by the CODM Group operating profit before amortisation and non-recurring
costs Intangible assets amortisation	17.3 (1.4)	7.8 (0.7)	— —	25.1 (2.1)
Non-recurring costs	—	(3.4)	—	(3.4)
Finance income				0.4
Finance costs				(1.2)
Profit before taxation				18.8
Taxation				(5.7)
Profit for the year per management information				13.1
Taxation adjustment				0.2
Profit for the year per statutory accounts				13.3
Segment assets and liabilities Total assets
Segments	117.7	105.1	11.8	234.6
Not allocated to segments				10.0
				244.6
Total liabilities
Segments	(86.7)	(63.6)	(0.6)	(150.9)
Not allocated to segments				(9.6)
				(160.5)
Other Information
Capital expenditure including acquisitions Depreciation	15.8 7.2	7.8 1.6	— —	23.6 8.8
As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

2. Consolidated May Gurney Group operating profit before amortisation and non-recurring items

For the year ended 31 March	2012 £m	2011 £m
Depreciation (Note 11) – owned	6.5	3.9
– finance lease and hire purchase	9.9	4.9
Profit on sale of plant and machinery	(0.5)	(0.2)
(Profit)/loss on sale of freehold land and buildings	(0.1)	0.1
Directors' emoluments (Note 7)	1.0	0.9
Share-based payments	0.1	(0.3)
Fees payable to the Company's auditor for the audit of the annual accounts Fees payable to the Company's auditor and its associates for other services	—	—
– audit of the Company's subsidiaries	0.1	0.1
– tax advisory and compliance services	—	—
– corporate finance services	—	—
Amounts payable under operating leases
– land and buildings	2.7	2.5
– plant and machinery	5.6	6.2

Included within 'other non-recurring costs' is an amount of £0.1 million which the Group paid to its auditors for vendor due diligence work for Senturion Group Limited, in connection with its acquisition by May Gurney Limited.

3. Other non-recurring costs

For the year ended 31 March	2012 £m	2011 £m
Internal reorganisation costs	2.9	—
Senturion acquisition and integration costs	2.0	—
Geotechnical business closure costs	—	1.6
Rail fabrication business closure costs	—	0.3
Turriff acquisition costs	—	1.5
	4.9	3.4

During the year, the Group consolidated its trading operations into two divisions, Public Sector Services and Regulated Services. Internal reorganisation costs of £2.9 million were incurred in the year in relation to redundancy and consultancy related expenditure.

On 9 November 2011, the Group acquired 100% of the issued share capital of Senturion Group Limited, trading as TransLinc, a market leading provider of specialist fleet and passenger services to UK local authorities (Note 27).

During the prior year, the Board reached a decision to close the Group's non-core geotechnical and rail fabrication businesses in line with its stated strategy to focus on long-term contracts with clients in the public and regulated sectors.

On 21 January 2011, the Group acquired 100% of the issued share capital of Turriff Group Limited, one of Scotland's largest utility infrastructure maintenance companies.

4. Revenue

The following significant categories of revenue were recognised in the year.

For the year ended 31 March	2012 £m	2011 £m
Revenue arising from: Sale of goods	4.5	5.0
Contract revenue	690.8	566.4
	695.3	571.4

5. Finance income and costs

For the year ended 31 March	2012 £m	2011 £m
Finance income Interest receivable from short-term bank deposits	0.2	0.3
Other interest	—	0.1
Finance income in relation to defined benefit pension
scheme	0.1	—
	0.3	0.4
Finance costs
Finance charges payable under finance leases Finance cost in relation to the change in value of financial	(1.5)	(1.0)
assets	(0.1)	(0.1)
Other interest	(0.4)	(0.1)
	(2.0)	(1.2)

6. Staff numbers and costs

The average number of people (including Directors) employed by the Group during the year, categorised by segment, was as follows:

		No employees
For the year ended 31 March	2012	2011
Public Sector Services	3,684	3,045
Regulated Sector Services	1,978	1,443
Group and Shared Services	261	220
	5,923	4,708

The aggregate payroll costs of these employees were:

For the year ended 31 March	2012 £m	2011 £m
Wages and salaries	150.9	128.3
Social security costs	15.2	12.6
Group pension costs (Note 28)	1.0	1.1
Other pension costs (Note 28)	6.9	4.0
	174.0	146.0

The average number of people (including Directors) employed by the Company during the year was 13 (2011: 8), with an aggregate payroll cost of £1.3 million (2011: £1.1m).

Key management remuneration has been disclosed per Note 32.

7. Emoluments of May Gurney directors

For the year ended 31 March	2012 £m	2011 £m
Directors' emoluments	1.0	0.9

An analysis of Directors' emoluments and pension entitlements (including those of the highest paid Director) and their interests in the share capital of the Company is contained in the Directors' Remuneration Report on pages 56 to 61 of the 2012 May Gurney Annual Report and Accounts.

8. Taxation

(A) Analysis of tax charge:

For the year ended 31 March	2012 £m	2011 £m
Current tax
Corporation tax on profits for the year	6.1	6.2
Under provision in respect of prior years	0.6	0.1
Total current tax	6.7	6.3
Deferred tax
Origination and reversal of temporary differences	0.5	0.4
Tax effect of intangible assets amortisation	(1.0)	(0.6)
Over provision in respect of prior years	(0.7)	(0.6)
Total deferred tax	(1.2)	(0.8)
Total tax charge for the year	5.5	5.5

(B) Factors affecting the tax charge:

The taxation assessed for the year is higher than the standard rate of corporation tax in the UK (26%).

The charge is affected by a number of factors in addition to the standard UK rate. The differences are explained as follows:

For the year ended 31 March	2012 £m	2011 £m
Profit before tax	19.3	18.8
Profit before tax multiplied by standard rate of corporation tax in the UK of 26% – expected charge	5.0	5.3
Effects of:
Expenses not deductible for tax purposes	0.7	0.6
Change in future tax rate	(0.1)	0.1
Adjustments to tax charge in respect of previous year (current and deferred)	(0.1)	(0.5)
Total tax charge for year (Note 8(a))	5.5	5.5

The effective tax rate, excluding the impact of non-recurring items, for the year is 27.2% (2011: 28.4%).

The Finance Act 2011 included legislation reducing the main rate of corporation tax from 26% to 25% with effect from 1 April 2012. Subsequently, the Finance (No 4) Bill 2010-2012 published on 28 March 2012, included a further reduction in the corporation tax rate from 25% to 24% which was passed by a House of Commons resolution on 26 March 2012 (to have effect under the provisions of the Provisional Collection of Taxes Act 1968). The effect of the change in the rate of corporation tax was to reduce the net deferred tax liability provided at 31 March 2012 by £0.1 million, with a corresponding increase in profit for the year but with no effect on other comprehensive income.

Proposed further reductions to the main rate of corporation tax by 1% per annum to 22% by 1 April 2014 are expected to be enacted separately each year. As these had not been enacted at the balance sheet date, the effect of these proposed reductions has not been included in these financial statements. The overall effect of the proposed further rate changes from 24% to 22%, if applied to the net deferred tax balance at 31 March 2012, would be to reduce the net deferred tax liability by approximately £0.1 million.

9. Dividends

For the year ended 31 March	2012 £m	2011 £m
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 March 2011 of 4.52 pence per share	3.0	2.5
Interim dividend paid for the year ended 31 March 2012 of 2.79 pence per share	1.9	1.4
	4.9	3.9

The proposed final dividend of 5.63 pence per share had not been approved at the reporting date and so has not been included as a liability in these financial statements. If approved by the shareholders, the dividend will be paid on 31 July 2012 to holders of ordinary shares on the register at the close of business on 22 June 2012.

The Trustee of the May Gurney Group Limited Employee Share Ownership Trust has waived its right to receive any dividends in respect of shares held in the Trust.

10. Earnings per share

For the year ended 31 March	2012 £m	2011 £m
Profit for the year	13.8	13.3
Basic/diluted earnings	13.8	13.3
Adjustments to basic earnings Intangible assets amortisation	4.2	2.1
Other non-recurring costs Tax on non-recurring items	4.9 (2.2)	3.4 (1.4)
Underlying earnings	20l7	17.4
Number of shares Weighted average number of ordinary shares for the purposes of basic	Number	Number
earnings per share Effect of dilutive potential ordinary shares	67,246,350 2,050,704	67,114,100 1,652,921
Weighted average number of ordinary shares for the purposes of diluted earnings per share	69,297,054	68,767,021
Weighted average number of ordinary shares for the purposes of underlying earnings per share	70,236,016	70,236,016
	Pence	Pence
Underlying earnings per share	29.47	24.77
Basic earnings per share	20.52	19.82
Diluted earnings per share	19.91	19.34

Underlying earnings per share, before non-recurring items, has been disclosed to give a clearer understanding of the Group's underlying trading performance. It has been calculated using the underlying earnings figures above and an adjusted weighted average number of ordinary shares which includes those shares held by the Group Employee Share Ownership Trust.

Diluted earnings per share is the basic earnings per share after allowing for the dilutive effect of the conversion into ordinary shares of the number of options outstanding during the year (see Note 24).

11. Property, plant and equipment

For the year ended 31 March 2012

Group	Freehold land and buildings £m	Short leasehold property £m	Plant, vehicles and equipment £m	Total £m
Cost
At 1 April 2010	2.5	0.5	48.7	51.7
Acquisition of subsidiary undertakings	—	—	6.7	6.7
Additions	—	1.2	15.7	16.9
Disposals	(0.2)	—	(5.6)	(5.8)
At 1 April 2011	2.3	1.7	65.5	69.5
Acquisition of subsidiary undertakings (Note 27)	1.4	—	46.2	47.6
Inter-Group transfers	1.4	—	(1.4)	—
Additions	—	0.8	22.0	22.8
Disposals	—	—	(10.5)	(10.5)
At 31 March 2012	5.1	2.5	121.8	129.4
Depreciation
At 1 April 2010	0.9	0.4	24.7	26.0
Charge for year	—	0.1	8.7	8.8
Disposals	—	—	(4.5)	(4.5)
At 1 April 2011	0.9	0.5	28.9	30.3
Charge for year	0.1	0.1	16.2	16.4
Disposals	—	—	(9.7)	(9.7)
At 31 March 2012	1.0	0.6	35.4	37.0
Net book value at 31 March 2012	4.1	1.9	86.4	92.4
Net book value at 31 March 2011	1.4	1.2	36.6	39.2

Included in the total net book value of plant, vehicles and equipment is £54.9 million (2011: £19.8m) in respect of assets acquired under finance leases and hire purchase agreements. Depreciation for the year on these assets was £9.9 million (2011: £4.9m).

12. Goodwill

For the year ended 31 March 2012	Total £m
Group
Cost and net book value
At 1 April 2010	35.2
Acquisition of subsidiary	6.9
At 1 April 2011	42.1
Acquisition of subsidiary (Note 27)	18.2
At 31 March 2012	60.3

The carrying value of goodwill has been allocated by operating segment as follows:

For the year ended 31 March Group	2012 £m	2011 £m
Public Sector Services	35.2	17.0
Regulated Sector Services	25.1	25.1
	60.3	42.1

The carrying values of the Group's goodwill are reassessed at least annually or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If analysis indicates that the carrying value is too high, then this is reduced to its recoverable amount which is the higher of fair value less costs to sell and its value in use.

Value in use is calculated using pre-tax cash flow projections based on financial budgets and business plans covering a four year period, which take into account historical trends and market conditions, and which have been approved by the Board. The cash flow forecasts are adjusted by an appropriate discount rate derived from our cost of capital plus a reasonable risk premium at the date of valuation.

The key assumptions for both cash generating units are: operating margin (4-5%); average annual growth rate (0-7%); and pre-tax discount rate (10%). The average growth rates used are consistent with forecasts included in industry reports.

The Group's impairment review is sensitive to changes in the key assumptions used, in particular the growth rate and discount rate. However, based on the Group's sensitivity analysis, a reasonable change in a single assumption will not cause impairment in any of the Group's cash generating units.

13. Other intangible assets

Total £m
19.9
2.9
5.0
27.8
0.5
11.1
39.4
14.3
2.1
16.4
4.2
20.6
18.8
11.4

Other intangible assets valuation comprises:

	Year acquired	Carrying value £m	Valuation £m	UEL * years
TJ Brent Order book(1)	2005	—	2.1	2
TJ Brent Customer relationships(1)	2005	0.4	6.4	10
AC Chesters Order book(1)	2007	—	1.2	3
AC Chesters Customer relationships(1)	2007	0.1	0.3	8
FDT Order book(1)	2008	—	0.6	3
FDT Customer relationships(1)	2008	—	0.5	5
Willows Order book(1)	2008	—	0.3	1.5
Willows Customer relationships(1)	2008	—	1.0	4
SHWRC Business Order book(2)	2008	1.0	3.7	8.5
ECT Order book(2)	2009	0.8	3.3	7
ECT Customer relationships(2)	2009	—	0.5	7
MGConnectTM software development	2011	2.8	3.4	4
Turriff Order book(1)	2011	0.6	1.7	3
Turriff Customer relationships(1)	2011	2.7	3.1	5
Turriff Trademark(1)	2011	0.1	0.2	1
TransLinc Order book(2)	2012	5.0	5.7	7
TransLinc Customer relationships(2)	2012	5.3	5.4	12
		18.8	39.4

In the current and prior year the Group incurred costs in developing software for the MGConnectTM project which is the Group's integrated web-enabled technology platform that covers all areas of the Group's activities.

For the valuations above the purchase price allocation method was used, which required identification and fair value estimation of the individual intangible assets acquired. In order to arrive at an estimate of fair value, the income approach was used which values the cash flows that the asset might reasonably be expected to generate. The TransLinc valuations completed in the year were based on financial projections prepared at the time of acquisition and a weighted average cost of capital of 13.9%.

(1) Regulated Sector Services operating segment

(2) Public Sector Services operating segment

* UEL = Original Useful Economic Life

14. Investments

Company	Shares in subsidiary undertakings £m	2012 Total £m	2011 Total £m
Cost and net book value At beginning and end of year	20.3	20.3	20.3

Refer to Note 30 for the list of subsidiary entities.

15. Deferred tax (liability)/asset

For the year ended 31 March	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
At beginning of year	0.9	0.7	1.1	0.9
Effect of reduction in future tax rate to 24% (2011: 26%)	0.1	—	(0.1)	—
Acquisition of subsidiaries	(3.6)	—	(1.0)	—
Debited direct to equity	(0.3)	(0.3)	—	(0.2)
Income statement credit	1.2	0.1	0.9	—
At end of year	(1.7)	0.5	0.9	0.7

Deferred taxation at 24% (2011: 26%) is in respect of:

	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Depreciation in excess of capital allowances	0.2	—	0.1	—
Other temporary differences	—	—	0.9	—
Intangible assets acquired	(3.9)	—	(2.3)	—
Share based payments	1.8	0.3	2.1	0.6
Defined benefit pension scheme	0.2	0.2	0.1	0.1
Deferred tax (liability)/asset	(1.7)	0.5	0.9	0.7

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes relate to the same fiscal authority.

16. Inventories

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
Raw materials and consumables	0.4	0.3
Finished goods and goods for resale	4.1	4.1
	4.5	4.4

During the year £11.5 million (2011: £9.1m) of inventories was recognised as an expense.

17. Trade and other receivables

For the year ended 31 March	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Trade receivables	95.1	—	91.0	—
Amounts due from contract customers	5.9	—	7.9	—
Amounts owed by subsidiary undertakings	—	11.4	—	2.8
Other receivables	2.1	0.3	4.6	—
Prepayments and accrued income	9.1	0.1	6.9	0.1
	112.2	11.8	110.4	2.9

Trade and other receivables are initially stated at their fair value and subsequently measured at amortised cost as reduced by appropriate allowance for estimated irrecoverable amounts. The Directors consider that the carrying values of current trade and other receivables approximate their fair values.

Amounts due from contract customers relates to value in excess of cash received recognised on longterm contracts. At 31 March 2012 there were three contracts being accounted for as a long-term contract (2011: three).

Trade and other receivables have been reviewed for indicators of impairment. Certain trade receivables were found to be potentially impaired and a provision of £0.7 million (2011: £0.5m) has been recorded accordingly.

In addition, some of the unimpaired trade receivables are past due as at the reporting date. The age of financial assets past due but not impaired is as follows:

For the year ended 31 March	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Not more than 3 months	7.7	—	3.9	—
More than 3 months but not more than 6 months	0.8	—	0.8	—
	8.5	—	4.7	—

The movement in the provision for impairment of trade receivables is as follows:

For the year ended 31 March	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Balance at 1 April 2011	0.5	—	0.4	—
Charged to the income statement
– additional provisions	0.5	—	0.4	—
– unused amounts reversed	(0.3)	—	(0.3)	—
Balance at 31 March 2012	0.7	—	0.5	—

The ageing of the impaired receivables is as follows:

	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Six to nine months	0.3	—	0.2	—
Nine to twelve months	0.2	—	0.1	—
Over twelve months	0.2	—	0.2	—
	0.7	—	0.5	—

Exposure to credit risk is disclosed in Note 20.

18. Cash and case equivalents

for the year ended 31 March 2012	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Cash at bank and in hand	30.5	3.0	20.9	3.5
Short-term bank deposits	0.5	0.1	15.3	5.1
	31.0	3.1	36.2	8.6

The carrying amount of cash and cash equivalents approximates their fair value.

19. Trade and other payables

for the year ended 31 March 2012	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Amounts due to contract customers	6.0	—	3.9	—
Trade payables	89.7	0.1	80.2	—
Contingent consideration	5.0	—	6.0	—
Other tax and social security	17.8	0.8	14.8	1.0
Other payables	8.8	0.1	16.3	0.2
Accruals and deferred income	13.9	0.4	11.5	0.2
	141.2	1.4	132.7	1.4

Trade and other payables are initially stated at their fair value and subsequently measured at amortised cost. The Directors consider that the carrying values of current trade and other payables approximate their fair values.

Amounts due to contract customers relates to cash received in excess of value recognised.

During the year, the Group agreed with the vendor of Turriff Group Limited in respect of the £1 million contingent consideration which was payable on determination of the completion EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) for the year ended 31 December 2010 for Turriff Group.

20. Financial Instruments

Capital risk management

The Group manages its capital to ensure its ability to continue as a going concern and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group comprises equity attributable to equity holders of May Gurney Integrated Services plc consisting of issued ordinary share capital, reserves and retained earnings as disclosed in Notes 23 and 25 and cash and cash equivalents as disclosed in Note 18.

The Group maintains or adjusts its capital structure through the payment of dividends to shareholders. The Group's policy is to carry no significant long-term debt, other than finance leases.

The Group's overall capital risk management strategy remains unchanged from 2011.

Financial risk management

Financial risk management is an integral part of the way the Group is managed. In the course of its business, the Group is exposed primarily to interest rate risk, credit risk and liquidity risk. The overall aim of the Group's financial risk management policies is to minimise potential adverse effects on financial performance and net assets.

The Group's finance department manages the principal financial risks within policies and operating parameters approved by the Board of directors.

Interest rate risk

Interest rate risk arises on some of the Group's obligations under finance leases as some interest rates are fixed at the start of the lease and some are floating. A 1% increase/decrease in the floating rate would lead to a £0.3m increase/decrease in the Group's finance costs.

Interest rate risk arises on the Group's cash and cash equivalents. A 1% increase/decrease in the Bank of England base rate would lead to a £0.3 million (2011: £0.4m) increase/decrease in the Group's finance income.

Credit risk

Exposure to credit risk is limited to the carrying amount of financial assets recognised at the reporting date, namely cash and cash equivalents and trade and other receivables.

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group's policy is to deal only with creditworthy counterparties.

The Group's management considers that all financial assets that are not impaired for each of the reporting dates under review are of good credit quality, including those that are past due. An analysis of amounts that are past due but not impaired is shown in Note 17.

None of the Group's financial assets are secured by collateral or other credit enhancements.

The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

The Group has no significant concentration of credit risk in respect of amounts due from contract customers or trade receivable balances at the reporting date, with exposure spread over a number of customers and across the Group's operating segments.

Liquidity risk

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30-day projection.

The Group maintains cash to meet its liquidity requirements for up to 30-day periods. Funding in regards to long-term liquidity needs is additionally secured by an adequate amount of committed credit facilities.

Commodity price risk

Through its environmental services contracts the Group has some exposure to fluctuations in recyclable commodity prices. Where possible the Group seeks to mitigate the risk by passing on the risk and reward of price fluctuations to clients and through the use of cap and collar agreements with buyers of recyclable commodities. The fair value of such contracts is not considered material as a limited amount of recyclable material is held at the end of the year and as such is not recognised in the statement of financial position.

Foreign currency risk

The Group does not have significant foreign currency transactions and exposure to foreign currency risk is therefore minimal. Accordingly, these financial statements do not include any sensitivity analysis in respect of currency risk.

Price risk

The Directors do not consider there to be any price risk relating to equity instruments and hence no need for any related disclosures.

Categories of financial instruments

Group	2012 Loans and receivables £m	2012 Non financial assets £m	2012 Financial liabilities at amortised cost £m	2012 Non financial liabilities	2011 Loans and receivables £m	2011 Non financial assets £m	2011 Financial liabilities at amortised cost £m	2011 Non financial liabilities
Financial assets Cash at bank Trade receivables	31.0	—	—	—	36.2	—	—	—
– current Other receivables	95.1	—	—	—	91.0	—	—	—
– current Prepayments	8.0 —	— 9.1	— —	— —	12.5 —	— 6.9	— —	— —
Total	134.1	9.1	—	—	139.7	6.9	—	—
Financial liabilities
Trade payables Other liabilities –	—	—	(89.7)	—	—	—	(80.2)	—
current Other liabilities –	—	—	(14.8)	—	—	—	(20.2)	—
non-current Accruals VAT and taxation	— —	— —	— (13.9)	— —	— —	— —	— (11.5)	(0.1) —
payables Contingent	—	—	—	(20.9)	—	—	—	(16.8)
consideration Borrowings –	—	—	(5.0)	—	—	—	(6.0)	—
current	—	—	(20.0)	—	—	—	—	—
Total	—	—	(143.4)	(20.9)	—	—	(117.9)	(16.9)
Net	134.1	9.1	(143.4)	(20.9)	139.7	6.9	(117.9)	(16.9)
Company	2012 Loans and receivables £m	2012 Non financial assets £m	2012 Financial liabilities at amortised cost £m	2012 Non financial liabilities	2011 Loans and receivables £m	2011 Non financial assets £m	2011 Financial liabilities at amortised cost £m	2011 Non financial liabilities
Financial assets Cash at bank	3.1	—	—	—	8.6	—	—	—
Other receivables	0.3	—	—	—	—	—	—	—
Prepayments VAT and taxation	—	0.1	—	—	—	0.1	—	—
receivables Investments in	—	0.5	—	—	—	0.4	—	—
subsidiaries	—	20.3	—	—	—	20.3	—	—
Total Financial liabilities	3.4	20.9	—	—	8.6	20.8	—	—
Trade payables Other liabilities –	—	—	(0.1)	—	—	—	—	—
current	—	—	(0.1)	—	—	—	(0.2)	—
Accruals VAT and taxation payables	— —	— —	(0.4) —	— (0.8)	— —	— —	(0.2) —	— (1.0)
Total	—	—	(0.6)	(0.8)	—	—	(0.4)	(1.0)
Net	3.4	20.9	(0.6)	(0.8)	8.6	20.8	(0.4)	(1.0)

Maturity of the Group's financial liabilities

Group	2012 Trade and other payables £m	2012 Finance leases & borrowings £m	2012 Total £m	2011 Trade and other payables £m	2011 Finance leases £m	2011 Total £m
Due within one year	118.4	37.9	156.3	111.9	8.3	120.2
Due within one to two years	—	15.2	15.2	—	5.9	5.9
Due within two to five years	—	26.4	26.4	—	13.8	13.8
Due after five years	—	3.3	3.3	—	—	—
	118.4	82.8	201.2	111.9	28.0	139.9

The above contractual maturities reflect the gross cash flows which may differ to the carrying values of the liabilities at the reporting date.

21. Obligations under finance leases and borrowings

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
Finance lease and hire purchase obligations
Repayable: within one year	16.9	7.3
Repayable: between two and five years	40.0	18.0
Repayable: after more than five years	3.3	—
	60.2	25.3

The net obligations under finance lease and hire purchase agreements of £60.2 million (2011: £25.3m) are secured on the assets acquired. The Directors consider that there is no material difference between the carrying value and the fair value of finance lease obligations.

The gross obligations under finance lease4 and hire purchase agreements are £62.8 million (2011: £28.0m).

During the year, finance lease obligations totalling £28.3 million (2011: £1.3m) were acquired with the new subsidiary undertakings

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
Borrowings – bank loan
Repayable: within one year	20.0	—
Repayable: between two and five years	—	—
Repayable: after more than five years	—	—
	20.0	—

During the year the Group entered into a revolving-loan facility in connection with the acquisition of Senturion Group.

22. Provisions and other liabilities

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
At beginning of year	0.1	0.1
Credit for the year	(0.1)	—
At end of year	—	0.1

The above provisions comprise £nil (2011: £0.1m) in respect of site reinstatement obligations where the Group was formerly engaged in the excavation of sand and aggregates and other site reinstatement obligations.

23. Share capital

for the year ended 31 March 2012	2012 £m	2011 £m
Authorised
Equity shares
Ordinary 5 pence shares	6.8	6.8
Issued and fully paid
Equity shares
Ordinary 5 pence shares	3.5	3.5
Issued and fully paid
Equity shares
Ordinary 5 pence shares	3.5	3.5
	Number	Number
Authorised Ordinary 5 pence
shares	135,000,000	135,000,000
Issued ordinary 5 pence shares	70,236,016	70,236,016

24. Share-based payments

The following expense was charged in respect of the Group's share-based incentive schemes:

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
LTIP	—	0.1
Sharesave	—	0.3
CSOP & other schemes	0.1	(0.1)
Total	0.1	0.3

For options granted post-flotation (June 2006), independent valuations have been used to determine the fair values for share-based payments.

The fair values and assumptions used were as follows:

												Stand	Stand
	LTIP 09	LTIP 10	LTIP 11	CSOP 09	CSOP 10	CSOP 11	bonus 10 Deferred	Deferred bonus 11	Sharesave 09	Sharesave 10	Sharesave 11	option 06 alone	option 07 alone
Price model	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial	Trinomial
Grant date	8 Jul 09	8 Jul 10	7 Jul 11	8 Jul 09	8 Jul 10	7 Jul 11	8 Jul 10	7 Jul 11	12 Aug 09	6 Aug 10	6 Aug 11	12 Mar 07	25 Jul 07
Share price at grant	161.00p	192.00p	282.00p	161.00p	192.00p	282.00p	192.00p	282.00p	175.00p	198.00p	273.00p	330.00p	335.50p
Exercise price	Nil	Nil	Nil	161.00p	192.00p	282.00p	Nil	Nil	139.00p	159.00p	219.00p	330.00p	335.50p
Option life	10 years	10 years	10 years	10 years	10 years	10 years	3 years	3 years	3.6 years	3.6 years	3.6 years	10 years	10 years
Expected vesting life	3 years	3 years	3 years	3 years	3 years	3 years	2 years	2 years	3.1 years	3.1 years	3.1 years	2 years	3 years
Risk free rate	3.73%	3.22%	3.30%	3.73%	3.22%	3.30%	1.16%	1.13%	3.03%	1.98%	1.42%	4.80%	5.30%
Expected volatility	40%	40%	40%	40%	40%	40%	40%	40%	40%	40%	40%	25%	25%
Expected dividend yield	3%	3%	3%	3%	3%	3%	3%	3%	3%	3%	3%	2%	2%
Value per option	147.00p	175.00p	264.00p	52.00p	63.00p	103.00p	180.00p	272.00p	36.00p	39.00p	90.00p	87.06p	95.40p

For 2003 Scheme options, which were granted prior to flotation, the fair values of services received in return for share-based payments were measured by the fair value of shares received and options granted. Owing to the absence of a market for the Company's shares at the time of grant, the Company used share valuation methodology which looks at comparator listed companies and adjusts for the lack of an active market by means of discounting their quoted price earnings ratios. The risk free rate of return was assumed to be 5%.

May Gurney Integrated Services Unapproved Share Option Scheme (the '2003 Scheme')

The 2003 Scheme was adopted in 2003 and ceased issuing new options on the flotation of the Company. Under the Scheme, options were granted to Executive Directors and to senior and middle management. The exercise of some of the options granted under the 2003 Scheme was conditional upon the achievement of objective performance targets set by the Trustee of the ESOT at the time of grant. Options granted under the 2003 Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the Scheme are included in the Directors' Remuneration Report.

Options granted, exercised and forfeited under the Scheme were as follows:

	2012 Number	2012 Weighted average exercise price	2011 Number	2011 Weighted average exercise price
Outstanding at beginning of year	376,500	13.58p	596,500	26.01p
Granted	—	—	—	—
Exercised	—	—	(29,000)	13.58p
Lapsed	—	—	(200,000)	50.64p
Outstanding at end of year	367,500	13.58p	376,500	13.58p
Exercisable at the end of the year	367,500	13.58p	367,500	13.58p

No options were exercised in the year. The weighted average share price at date of exercise in 2011 was 203p.

The May Gurney Long-Term Incentive Plan ('LTIP')

The LTIP scheme is a long-term incentive plan for Executive Directors and senior managers. The exercise of awards granted under the LTIP will in normal circumstances be conditional upon the achievement of objective performance targets set at the time of grant. Such performance targets shall be measured over a performance period. Options granted under the LTIP Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries.

Further details of the Scheme are included in the Directors' Remuneration Report. Options granted, exercised and forfeited under the Scheme were as follows:

	2012 Number	2012 Weighted average exercise price	2011 Number	2011 Weighted average exercise price
Outstanding at beginning of year	1,409,212	—	949,826	—
Granted	446,146	—	689,402	—
Exercised	—	—	—	—
Lapsed	(1,053,957)	—	(230,016)	—
Outstanding at end of year	801,401	—	1,409,212	—
Exercisable at the end of the year	—	—	—	—

The May Gurney Savings Related Share Option Scheme ('Sharesave')

The Sharesave Scheme was established in July 2007. Participation is offered to all employees of the Group who have been employed for a continuous period which is determined by the Board of Directors. Under the Sharesave contract participating employees save a regular sum each month for three years of not less than £5 nor more than £250 per month.

Options to acquire ordinary shares in the capital of the Company will be granted to eligible employees who enter into a Sharesave contract. The number of options will be that number of shares which have an aggregate option price not exceeding the projected proceeds of the Sharesave contract including any bonus. The option price per share will not be less than 80% of the market value of an ordinary share on the day on which invitations to apply for options are issued.

The requirement to make regular saving contributions under the Scheme are non-vesting conditions. When an employee chooses whether to meet a non-vesting condition, and fails to do so, such a failure is treated as a cancellation and therefore an acceleration of the share-based payment charge.

Options granted under the Sharesave Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Further details of the Scheme are included in the Directors' Remuneration Report. Options granted, exercised and forfeited under the Scheme were as follows:

	2012 Number	2012 Weighted average exercise price	2011 Number	2011 Weighted average exercise price
Outstanding at beginning of year	2,347,251	173.51p	1,891,561	179.05p
Granted	688,673	219.00p	852,739	159.00p
Exercised	(391,950)	189.34p	(6,572)	155.90p
Lapsed	(717,815)	212.69p	(390,477)	169.23p
Outstanding at end of year	1,926,159	171.96p	2,347,251	173.51p
Exercisable at the end of the year	—	—	—	—

The May Gurney Company Share Ownership Plan ('CSOP')

The CSOP Scheme is a long-term incentive plan for senior managers. The exercise of awards granted under the CSOP will, in normal circumstances, be conditional upon the achievement of objective performance targets set at the time of grant. Such performance targets shall be measured over a performance period. Options granted under the CSOP Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Options granted, exercised and forfeited under the Scheme were as follows:

	2012 Number	2012 Weighted average exercise price	2011 Number	2011 Weighted average exercise price
Outstanding at beginning of year	314,887	208.13p	259,881	257.46p
Granted	63,828	282.00p	72,912	192.00p
Exercised	—	—	—	—
Forfeited	(121,288)	204.63p	(17,906)	223.38p
Outstanding at end of year	257,427	285.57p	314,887	208.13p
Exercisable at the end of the year	—	—	—	—

The May Gurney Deferred Share Bonus Plan ('Deferred Bonus')

The Deferred Bonus Scheme is a long-term incentive plan for Executive Directors and senior managers, whereby one third of the option holders' profit share bonus in 2010 and 2011 was converted into share options. Options granted under the Deferred Bonus Scheme will normally lapse in the event an option holder ceases to remain an employee or officer of the Company or any of the Company's subsidiaries. Options granted, exercised and forfeited under the Scheme were as follows:

	2012 Number	2012 Weighted average exercise price	2011 Number	2011 Weighted average exercise price
Outstanding at beginning of year	38,111	—	—	—
Granted	60,635	—	45,500	—
Exercised	—	—	—	—
Forfeited	(15,662)	—	(7,389)	—
Outstanding at end of year	83,084	—	38,111	—
Exercisable at the end of the year	—	—	—	—

Other schemes

Options granted, exercised and forfeited under other schemes were as follows:

Date of award	Market value at date of award	Earliest vesting date	Awarded at 1 Apr 11	Granted in year	Vested in year	Lapsed in year	Awarded at 31 Mar 12
12 Mar 07	330.0p	12 Mar 09	151,515	—	—	—	151,515
25 Jul 07	335.5p	25 Jul 10	5,961	—	—	—	5,961

25. Reserves

for the year ended 31 March 2012	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Share premium account At beginning and end of year	13.2	13.2	13.2	13.2
Merger relief reserve At beginning and end of year	1.9	1.9	1.9	1.9
Retained earnings At beginning of year	64.1	11.1	53.4	10.7
Retained profit for the year Dividends	13.8 (4.9)	8.3 (4.9)	13.3 (3.9)	3.6 (3.9)
Items charged direct to equity Movements relating to share-based payments	— (0.4)	— (0.1)	0.7 0.6	0.7 —
At end of year	72.6	14.4	64.1	11.1

Merger relief reserve. On 8 June 2004, the Company issued 21,715 ordinary shares of £1 each at a premium amounting to £1.9 million. The shares were issued as part consideration for the acquisition of the whole of the issued share capital of TJ Brent Limited, accounted for using the purchase method of accounting. The premium over the nominal value of the shares issued was previously credited to a merger relief reserve as allowed under Section 612 of the Companies Act 2006.

Other reserves

Other reserves in the Group and Company statements of financial position are made up as follows:

for the year ended 31 March 2012 Group and Company	Capital redemption reserve £m	ESOT reserve £m	2012 Total £m	2011 Total £m
At beginning and end of year	2.9	(1.5)	1.4	1.4

Capital redemption reserve. The capital redemption reserve arose on the redemption of the May Gurney Integrated Services plc cumulative convertible redeemable £1 preference shares in September 2004.

ESOT reserve. As at 31 March 2012 the ESOT held 1,434,378 (2011: 1,434,378) ordinary 5 pence shares in the Company.

The maximum number of 5 pence ordinary shares held in the Company by the ESOT during the year was 1,434,378 (2011: 1,434,378).

The ordinary shares in the Company held by the ESOT represent 2.0% (2011: 2.0%) of the ordinary share capital of the Company.

On 28 March 2008, May Gurney Group Trustees Limited acting in its capacity as trustee of the ESOT transferred 1,783,324 ordinary shares by way of a gift for nil consideration to Lloyds TSB Offshore Trust Company Limited acting in its capacity as trustee of the May Gurney Integrated Services plc Employee Benefit Trust (EBT), an offshore trust. The ordinary shares in the Company held by the EBT represent 2.4% of the ordinary share capital of the Company. At 31 March 2012 the EBT held 1,305,108 (2011: 1,675,134) ordinary shares.

26. Commitments

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
(i) Operating lease commitments Total commitments due under operating leases: Land and buildings
Within one year	2.5	2.5
Between two and five years	6.3	4.5
More than five years	1.4	1.3
	10.2	8.3
Other
Within one year	5.4	6.2
Between two and five years	6.3	9.0
More than five years	—	—
	11.7	15.2
(ii) Property, plant and equipment Future capital expenditure authorised by the Directors but not provided for in these financial statements is as follows:
Contracts placed	20.6	2.3

27. Business combinations

On 9 November 2011, the Group acquired 100% of the issued share capital of Senturion Group Limited, trading as TransLinc, a market leading provider of specialist fleet and passenger services to UK local authorities. This transaction has been accounted for by the acquisition method of accounting.

The net assets acquired in the transaction, and the goodwill arising, are as follows:

	Acquiree's carrying amount before combination £m	Provisional fair value adjustments £m	Fair value £m
Net assets acquired:
Property, plant and equipment	48.1	(0.5)	47.6
Intangible assets	—	11.1	11.1
Inventories	0.1	—	0.1
Trade receivables	4.9	—	4.9
Cash and cash equivalents	4.5	—	4.5
Trade payables	(13.9)	(0.6)	(14.5)
Taxation payables	(0.6)	—	(0.6)
Debt	(17.2)	—	(17.2)
Finance leases	(28.3)	—	(28.3)
Deferred tax	(1.1)	(2.5)	(3.6)
	(3.5)	7.5	4.0
Goodwill			18.2
Total consideration			22.2
Purchase consideration:
Cash paid			22.2
			22.2
Net cash outflow arising on acquisition:
Cash consideration paid			(22.2)
Bank balance acquired			4.5
Acquisition and integration costs			(1.2)
Bank loans and loan notes repaid			(17.2)
			(36.1)

Provisional fair value adjustments have been made to Property, plant and equipment and Trade payables in order to align the acquiree's accounting policies with those of the Group.

The intangible asset recognised on acquisition relates to the fair value of the order book and customer relationships acquired. Further details are disclosed in Note 13.

The acquisition and integration costs of £1.2 million above have been paid during the year, with a further £0.8 million of costs included in Accruals and deferred income.

The goodwill arising on the acquisition of Senturion Group Limited is attributable to the anticipated profitability of the Group's services in the new markets.

Senturion Group Limited contributed £13.6 million revenue and £1.7 million profit to the Group's profit before tax for the period between the date of acquisition and the financial reporting date.

If the acquisition had been completed on 1 April 2011, total Group revenue for the year would have been £729.4 million, and profit for the period would have been £16.3 million.

28. Employee benefits

Defined contribution pension schemes

The Group operates eight defined contribution pension schemes (2011: eight) and contributions during the year amounted to £6.9 million (2011: £4.0m). The schemes are the May Gurney Defined Contribution Pension Scheme, TJ Brent Limited Group Personal Pension Plan, T Cartledge Limited Group Personal Pension Plan, AC Chesters & Son Limited Staff Pension Scheme, FDT Executive Pension Plan, FDT Group Personal Pension Plan, FDT Stakeholder Pension and Willows Plant Limited Group Personal Pension Plan.

The Group also makes contributions to local government defined benefit pension schemes in respect of certain employees who have transferred to the Group under TUPE transfer arrangements. The Group is unable to identify its share of the underlying assets and liabilities in the scheme on a consistent and reasonable basis and consequently the pension costs for these schemes are treated as if they were defined contribution schemes.

Defined benefit pension scheme

The Group operates two defined benefit pension schemes, the May Gurney Defined Benefit Pension Scheme (the 'May Gurney Scheme') and the TransLinc Pensions Scheme (the 'TransLinc Scheme'). The assets of the schemes are held separately from those of the Group and are invested in managed funds.

The most recent full triennial valuation of the May Gurney Scheme was carried out at 31 March 2011. The ongoing valuation assumed, in assessing pension costs, that the return on the May Gurney Scheme's pre-retirement investments would exceed by 2.5% the rate at which wages and salaries would increase. Future pensions that are due to increase by the maximum of inflation and 5% each year were assumed to increase at the rate of 3.2% per annum. The employer's contribution rate as recommended by the actuary was 11.8% of Pensionable Salary per annum in respect of future accrual of benefits, 1.0% of Pensionable Salary per annum in respect of death in service benefits, plus May Gurney Scheme expenses (including levies). The May Gurney Scheme's assets were less than the May Gurney Scheme's technical provisions at the valuation date, and therefore a recovery plan was agreed which was expected to remove the shortfall by 31 March 2018, if assumptions were borne out in practice. The average contribution rate by the employees is 6.6%.

The most recent full triennial valuation of the TransLinc Scheme was carried out at 28 February 2011. The ongoing valuation assumed, in assessing pension costs, that the return on the Scheme's preretirement investments would exceed by 1.4% the rate of future expected Retail Prices Index ('RPI') inflation. Future pensions that are due to increase by the maximum of inflation and 5% each year were assumed to increase at the rate of 3.45% per annum. The TransLinc Scheme's assets were greater than the technical provisions at the valuation date, and therefore a recovery plan was not required, but annual Company contributions of £145,000 were agreed.

The pension cost relating to the schemes is assessed in accordance with the advice of a qualified actuary on the basis of valuations at each reporting date using the projected unit costing method. The pension charge for the year was £1.0 million (2011: £1.1m).

The schemes are both closed to new members. The Group expects to pay contributions of £1.1 million in the year to 31 March 2013, plus scheme expenses and levies as they fall due.

The Company has opted to recognise all actuarial gains and losses immediately as Other Comprehensive Income.

A full actuarial valuation of the May Gurney Scheme was carried out as at 31 March 2011 and the TransLinc Scheme as at 28 February 2011, and these have been updated to 31 March 2012 by a qualified independent actuary. The major assumptions used by the actuary were (in nominal terms) as follows:

	2012 %	2011 %
Discount rate	4.66	5.55
Inflation assumption (RPI)	3.00	3.40
Inflation assumption (CPI)	2.00	2.65
Rate of increase in salaries	3.75	4.15
Rate of increase in pensions in payment – pre-1997	Nil	Nil
– post-1997	2.90	3.20
– post-2006	2.00	2.10
– TransLinc	2.90	N/A

The mortality assumptions used as at 31 March 2012 are based on standard tables produced by the actuarial profession, adjusted for scheme experience.

	2012	2011
Death in service/deferment	AXC00	AXC00
Death after retirement	S1PXA qx 100%(m) 101%(f). CMI_2010_(0.5%)
	projections from 2004	PXCA00
Life expectancy at 65:
Male currently 65	21	21
Male currently 45	22	22
Female currently 65	23	23
Female currently 45	24	24

The schemes' net pension liabilities and expected rates of return on their investments as at 31 March 2012 and as at 31 March 2011 are as follows:

The assets in the schemes and the expected rates of return were:

	Long-term expected rate of return (pa)%	2012 Scheme fair value £m	2012 TransLinc Scheme fair value £m	2012 Consolidated fair value £m	Long-term expected rate of return (pa)%	2011 fair value £m
Equities	7.25	17.4	N/A	17.4	7.25	16.9
Bonds – Corporate	4.66	14.4	N/A	14.4	5.55	12.9
Bonds – Government	3.29	20.9	N/A	20.9	4.35	17.4
Cash and other	0.50	0.4	0.1	0.5	0.50	0.4
Property	6.00	3.8	N/A	3.8	6.00	3.6
Annuities	4.66	1.0	N/A	1.0	5.55	0.7
Investment fund	6.29	N/A	7.1	7.1	N/A	—
Matching fund	3.29	N/A	4.9	4.9	N/A	—
Total assets before adjustment for asset ceiling limitations Adjustment in respect of asset ceiling limitations		57.9 —	12.1 (2.9)	70.0 (2.9)		51.9 —
Total assets after adjustment for asset ceiling limitations Present value of funded retirement benefit		57.9	9.2	67.1		51.9
obligation		(58.3)	(9.2)	(67.5)		(52.3)
Deficit in the scheme Less: Related deferred tax		(0.4)	—	(0.4)		(0.4)
liability		0.1	—	0.1		0.1
Net pension liability		(0.3)	—	(0.3)		(0.3)
Actual return on plan assets over the period		6.8	0.6	7.4		3.1

The expected rate of return on the schemes' assets was determined as the weighted average of the expected returns on the assets held by the schemes on 31 March 2012. The rates of return for each class were determined as follows:

• equities and property: the rate adopted is consistent with the median assumption used in the actuary's asset modelling work as at 31 March 2007.
• bonds: the overall rate has been set to reflect the yields available on the gilts and Grade AA corporate bond holdings held at 31 March 2012.
• matching fund: the rate is set to reflect the yield on Government bonds.
• investment fund: the rate is set to reflect the yield on the matching fund, plus 3.0% per annum.

Reconciliation of opening and closing balances of the fair value of scheme assets

Change in the fair value of scheme assets	2012 £m	2011 £m
Fair value at the beginning of the year	51.9	49.0
Expected return on scheme assets	3.2	2.8
Contributions by employers	0.9	0.9
Contributions by members	0.4	0.5
Benefits paid	(2.2)	(1.6)
Actuarial gain	4.2	0.3
Business combinations	9.2	—
Adjustment in respect of asset ceiling limitations	(0.5)	—
Fair value of schemes' assets at the end of the year	67.1	51.9

Reconciliation of opening and closing balances of the present value of the defined benefit obligation

Change in the present value of the defined benefit obligation	2012 £m	2011 £m
Present value of the obligation at the beginning of the year	(52.3)	(50.1)
Company's service cost	(1.0)	(1.1)
Interest cost	(3.1)	(2.8)
Contributions by members	(0.4)	(0.5)
Benefits paid	2.2	1.6
Actuarial (loss)/gain	(3.7)	0.6
Business combinations	(9.2)	—
Present value of the obligation at the end of the year	(67.5)	(52.3)

The amount charged to earnings before interest and tax, and included within cost of sales and administration costs, is:

Current service cost, less employee contributions Total charge	2012 £m (1.0) (1.0)	2011 £m (1.1) (1.1)
Other finance costs are:
Expected return on pension scheme assets Interest on pension scheme liabilities Net income	2012 £m 3.2 (3.1) 0.1	2011 £m 2.8 (2.8) —
Actuarial gains and (losses) to be shown in Other Comprehensive Income:	2012 £m	2011 £m
Actual return less expected return on pension scheme assets Changes in the assumptions underlying the present value of the scheme liabilities	4.2 (3.7)	0.3 0.6
Actuarial gain recognised in comprehensive income	0.5	0.9

The cumulative actuarial losses recognised in the statement of comprehensive income were a loss of £4.2 million (2011: £4.7m).

Total gains to be shown in Other Comprehensive Income:	2012 £m	2011 £m
Actuarial gains Adjustment in respect of asset ceiling limitations	0.5 (0.5) —	0.9 — 0.9
Deficit in scheme at beginning of year	£m	£m
Movement in year:	(0.4)	(1.1)
Current service cost	(1.0)	(1.1)
Contributions by employers	0.9	0.9
Other finance expense	0.1	—
Net actuarial gains	0.5	0.9
Adjustment in respect of asset ceiling limitations	(0.5)	—
Deficit in scheme at end of year	(0.4)	(0.4)

History of experience gains and (losses) are:

	2012 £m	2011 £m	2010 £m	2009 £m	2008 £m
Fair value of scheme assets	67.1	51.9	49.0	40.4	43.4
Present value of the defined benefit obligation after asset ceiling adjustment	(67.5)	(52.3)	(50.1)	(40.3)	(42.6)
Net (deficit)/surplus	(0.4)	(0.4)	(1.1)	0.1	0.8
Difference between expected and actual return on scheme assets
Amount (£m)	4.2	0.3	7.6	(7.1)	(1.9)
Percentage of scheme assets	6.3%	0.6%	15.5%	(17.6)%	(4.4)%
Experience (losses)/gains arising on liabilities
Amount (£m)	—	—	—	(1.2)	1.8
Percentage of scheme liabilities	0%	0%	0%	(3.0)%	4.2%
Total actuarial gains/(losses) recognised in comprehensive income
Amount (£m)	—	0.9	(1.3)	(1.0)	—
Percentage of scheme assets	0%	1.7%	(2.7)%	(2.5)%	0%

29. Contingent liabilities

• (a) The Company has given an unlimited guarantee, secured by fixed and floating charges over the Company's assets in respect of the facilities from Bank of Scotland, of all Group companies. At 31 March 2012, the net indebtedness of all other Group companies amounted to £20.0 million (2011: £nil).
• (b) The Company has given joint and several guarantees securing indemnities given by other Group companies in respect of performance bonds which have been put in place to provide security for clients. These performance bonds are not exercisable on demand. At 31 March 2012, indemnities outstanding for other Group companies amounted to £11.1 million (2011: £8.8m).

30. Group undertakings

The Group undertakings, all of which are included within the Group financial statements, at 31 March 2012:

	Activity	Percentage of equity owned
Subsidiary undertakings
May Gurney Group Limited	– Dormant intermediate holding company	100
May Gurney Limited	– Infrastructure support services	+100
May Gurney Estates Limited	– Property holding and development	+100
May Gurney Recycling CIC	– Collection and sale of recyclable
	materials	*100
North Lincolnshire Learning Partnership
(PSP) Limited	– Dormant intermediate holding company	*52
Engage North Lincolnshire Limited	– Facility services for the education sector	****80
Turriff Group Limited	– Provision of contracting services to utility
	markets	*100
Turriff Contractors Limited	– Provision of contracting services to utility
	markets	*100
Underground Moling Services Limited	– Provision of contracting services to utility
	markets	*90
Turriff Smart Services Limited	– Provision of contracting services to utility
	markets	*100
TOR2 Limited	– Waste, recycling collections and
	highways maintenance	*80
Lambeth Learning Partnership (PSP) Limited	– Dormant intermediate holding company	*65
Engage Lambeth Limited	– Facility services for the education sector	**80
Senturion Group Limited	– Dormant	*100
Senturion (MidCo) Limited	– Dormant	/100
Senturion (BidCo) Limited	– Dormant	//100
Senturion Trustees Limited	– Dormant	/100
May Gurney Fleet and Passenger Services	Provider of specialist fleet and passenger
Limited	services	///100
MGWSP Essex Limited	– Dormant	* 100
ECT Engineering Limited	– Dormant	*100
May Gurney Building Limited	– Dormant	*100
AC Chesters & Son Limited	– Dormant	*100
FDT (Holdings) Limited	– Dormant	*100
FDT Associates Limited	– Dormant	**100
FDT Contracts Limited	– Dormant	**100
Norfolk Community Recycling Services
Limited	– Dormant	*100
T Cartledge Limited	– Dormant	*100
TJ Brent Limited	– Dormant	*100
Ayton Asphalte Company Limited	– Dormant	+100
May Gurney (Regional) Limited	– Dormant	+100
May Gurney (Technical Services) Limited	– Dormant	+100
May Gurney Group Trustees Limited	– Dormant	+100
Michco 210 Limited	– Dormant	*100
Engineered Products Limited	– Dormant	*100
Associated undertakings
Resource Environmental Limited	– Non trading	***50
Jointly controlled entities
DAWN Environmental Limited	– Non trading	***50
Monmouthshire Community Recycling
Limited	– Non trading	***50
Jointly controlled operations
May Gurney WSP JV	– Highways maintenance	*50
Lafarge Contracting/May Gurney JV	– Civil Engineering	*50

• • held by May Gurney Group Limited
• * held by May Gurney Limited
• ** held by FDT (Holdings) Limited
• *** held by May Gurney Recycling CIC **** held by North Lincolnshire Learning Partnership (PSP) Limited
• *****held by Turriff Group Limited
• ****** held by Lambeth Learning Partnership (PSP) Limited
• / held by Senturion Group Limited
• //held by Senturion (MidCo) Limited
• /// held by Senturion (BidCo) Limited

During the year TransLinc Limited changed its name to May Gurney Fleet and Passenger Services Limited.

The shareholdings in subsidiaries, associates and jointly-controlled entities all relate to ordinary share capital and are equivalent to the percentages of voting rights held by the Group.

The percentages quoted in respect of the jointly-controlled operations are the Group's interests under the joint operation contracts. The joint operations' principal places of business are:

MGWSP, Riverside House, Northampton, Northamptonshire;

Lafarge Contracting/May Gurney, Bradgate House, Groby, Leicester.

31. Reconciliation of operating profit before amortisation and non-recurring costs to cash generated from operations

for the year ended 31 March 2012	2012 Group £m	2012 Company £m	2011 Group £m	2011 Company £m
Operating profit/(loss) before amortisation and non-recurring costs	30.1	(2.3)	25.1	(2.2)
Depreciation	16.4	—	8.8	—
Profit on sale of property, plant and equipment	(0.6)	—	(0.1)	—
Debit in respect of retirement and benefit costs	0.1	0.1	0.2	0.2
Charge in respect of share-based payments in the period	0.1	—	0.3	—
Increase in inventories	(0.1)	—	(1.6)	—
Decrease/(increase) in trade and other receivables	3.1	1.0	(20.1)	2.3
(Decrease)/increase in trade and other payables	(6.7)	5.1	16.0	(3.9)
Cash received by/(used in) operations	42.4	3.9	28.6	(3.6)

Cash and cash equivalents (which are presented as a single class of assets on the face of the statement of financial position) comprise cash at bank and other short-term highly liquid investments with a maturity of three months or less.

32. Related party Transactions

Key management remuneration

for the year ended 31 March 2012	2012 Group £m	2011 Group £m
Short-term employee benefits	2.6	2.1
Post-employment benefits	0.1	0.1
Share-based payments	0.4	0.2
	3.1	2.4

Transactions with subsidiary undertakings

Included within trade and other receivables are amounts owed by 100% subsidiary undertakings of the Company of £11.4 million (2011: £2.8m).

During the year ended 31 March 2012 there were transactions totalling £0.9 million between the Parent Company and its subsidiary undertakings (2011: £0.9m). All of these transactions, and the year-end reporting amounts arising from these transactions were conducted on an arms-length basis and on normal commercial terms. In addition the Company paid £4.4 million (2011: £9.8m) net to its subsidiary undertakings from investments in short-term bank deposits.

Transactions with jointly-controlled entities and jointly-controlled operations

During the year the Group made sales to and purchases from its jointly-controlled entities and arrangements. These were normal trading transactions, conducted on an arms-length basis and on normal commercial terms. The amounts involved individually and in aggregate are not considered to be material either financially or generally to users of these financial statements.

Other related party transactions

Ishbel Macpherson, Non-Executive Director of the Company, was also a non-executive director of Speedy Hire plc. The Group makes purchases from Speedy Hire companies on an arms-length basis in the normal course of business. During the year, the value of purchases from Speedy Hire companies was £1.8 million (2011: £1.8m) and a balance of £0.2 million (2011: £0.1m) was owed at the end of the year.

PART D: MAY GURNEY UNAUDITED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION FOR THE HALF YEAR ENDED 30 SEPTEMBER 2012

Condensed consolidated income statement of the May Gurney Group for the half year ended 30 September 2012

for the 6 months ended 30 September 2012	Note	6 months to 30 September 2012 Continuing operations £m	6 months to 30 September 2012 Discontinued operations £m	6 months to 30 September 2012 (unaudited) £m	6 months to 30 September 2011 (unaudited) £m	12 months to 31 March 2012 £m
Group revenue Cost of sales	1	338.9 (313.0)	14.6 (23.4)	353.5 (336.4)	351.0 (314.8)	695.3 (625.2)
Gross profit/(loss)		25.9	(8.8)	17.1	36.2	70.1
Administrative expenses		(13.3)	(1.2)	(14.5)	(21.2)	(40.0)
Group operating profit/ (loss) before amortisation and other non-recurring costs Other expenses – Intangible assets		12.6	(10.0)	2.6	15.0	30.1
amortisation and impairment		(5.7)	—	(5.7)	(1.4)	(4.2)
– Other non-recurring costs		—	—	—	—	(4.9)
Operating profit/(loss)		6.9	(10.0)	(3.1)	13.6	21.0
Finance income	2	0.1	—	0.1	0.2	0.3
Finance costs	2	(1.6)	—	(1.6)	(0.7)	(2.0)
Profit/(loss) before
taxation Taxation	3	5.4 (1.4)	(10.0) 2.4	(4.6) 1.0	13.1 (3.5)	19.3 (5.5)
Profit/(loss) for the period/ year attributable to equity holders of the parent	1	4.0	(7.6)	(3.6)	9.61	13.82
Earnings/(loss) per share (in pence)	5
Basic earnings/(loss) per share		5.92p	(11.25p)	(5.33p)	14.30p	20.52p
Diluted earnings/(loss) per share		5.80p	(11.25p)	(5.33p)	13.81p	19.91p
Underlying earnings/(loss) per share		11.82p	(10.82p)	1.00p	15.09p	29.47p

¹ Profit of £0.2 million arising from discontinued operations for 6 months to 30 September 2011.

² Loss of £1.5 million arising from discontinued operations for 12 months to 31 March 2012.

Condensed consolidated statement of comprehensive income

for the 6 months ended 30 September 2012	6 months to 30 September 2012 (unaudited) £m	6 months to 30 September 2011 (unaudited) £m	12 months to 31 March 2012 £m
(Loss)/profit for the period/year	(3.6)	9.6	13.8
Other comprehensive income for the period/year	—	—	—
Total comprehensive income for the period/year attributable to equity holders of the parent	(3.6)	9.6	13.8

Condensed consolidated statement of changes in equity of the May Gurney Group for the half year ended 30 September 2012

for the period ended 30 September 2012	Share capital £m	Share premium account £m	Merger relief reserve £m	Other reserves £m	Retained earnings £m	Total equity £m
Balance at 31 March and 1 April 2011	3.5	13.2	1.9	1.4	64.1	84.1
Profit for the period	—	—	—	—	9.6	9.6
Total comprehensive income for the period Transactions with owners:	—	—	—	—	9.6	9.6
Share based payments – income statement charge Share based payments – deferred tax relief on	—	—	—	—	0.4	0.4
future exercise	—	—	—	—	0.4	0.4
Dividends paid	—	—	—	—	(3.0)	(3.0)
Balance at 30 September 2011	3.5	13.2	1.9	1.4	71.5	91.5
Profit for the period	—	—	—	—	4.2	4.2
Other comprehensive income	—	—	—	—	—	—
Total comprehensive income for the period Transactions with owners:	—	—	—	—	4.2	4.2
Share based payments – income statement credit Share based payments – deferred tax relief on	—	—	—	—	(0.4)	(0.4)
future exercise	—	—	—	—	(0.8)	(0.8)
Dividends paid	—	—	—	—	(1.9)	(1.9)
Balance at 31 March and 1 April 2012	3.5	13.2	1.9	1.4	72.6	92.6
Loss for the period	—	—	—	—	(3.6)	(3.6)
Other comprehensive income	—	—	—	—	—	—
Total comprehensive income for the period Transactions with owners:	—	—	—	—	(3.6)	(3.6)
Share based payments – income statement credit Share based payments – deferred tax relief on	—	—	—	—	(0.3)	(0.3)
future exercise	—	—	—	—	(0.9)	(0.9)
Dividends paid	—	—	—	—	(3.8)	(3.8)
Balance at 30 September 2012	3.5	13.2	1.9	1.4	64.0	84.0

Condensed consolidated statement of financial position of the May Gurney Group for the half year ended 30 September 2012

at 30 September 2012	Note	30 September 2012 £m	30 September 2011 £m	31 March 2012 £m
Non-current assets
Property, plant & equipment	7	112.2	40.2	92.4
Goodwill Other intangible assets	8	60.3 13.7	42.1 10.2	60.3 18.8
Deferred tax asset		—	1.7	—
		186.2	94.2	171.5
Current assets Inventories		4.8	4.4	4.5
Trade and other receivables		119.7	134.1	112.2
Cash and cash equivalents		20.0	36.6	31.0
		144.5	175.1	147.7
Assets included in discontinued operation		2.2	—	—
Total assets		332.9	269.3	319.2
Current liabilities
Trade and other payables		(135.7)	(152.4)	(141.2)
Current tax liabilities		(0.5)	(3.6)	(3.1)
Borrowings		(23.0)	—	(20.0)
Obligations under finance leases		(19.2)	(6.4)	(16.9)
		(178.4)	(162.4)	(181.2)
Liabilities included in discontinued operation		(14.0)	—	—
Non-current liabilities
Retirement benefit obligations	9	(0.4)	(0.4)	(0.4)
Obligations under finance leases		(54.7)	(15.0)	(43.3)
Deferred tax liability		(1.4)	—	(1.7)
		(56.5)	(15.4)	(45.4)
Total liabilities		(248.9)	(177.8)	(226.6)
Net assets		84.0	91.5	92.6
Equity
Share capital		3.5	3.5	3.5
Share premium account		13.2	13.2	13.2
Merger relief reserve		1.9	1.9	1.9
Other reserves		1.4	1.4	1.4
Retained earnings		64.0	71.5	72.6
Total equity		84.0	91.5	92.6

These financial statements were approved by the board of directors on 3 December 2012.

Willie MacDiarmid

Director

Condensed consolidated statement of cash flows of the May Gurney Group for the half year ended 30 September 2012

	6 months to 30 September 2012 (unaudited)	6 months to 30 September 2011 (unaudited)	12 months to 31 March 2012
for the 6 months ended 30 September 2012	£m	£m	£m
Cash flows from operating activities
Group operating profit before amortisation and non recurring costs	2.6	15.0	30.1
Non cash items	11.1	6.0	16.0
Working capital movement	(8.3)	(3.3)	(3.7)
Discontinued operations	10.0	—	—
Cash generated from continuing operations	15.4	17.7	42.4
Cash used in discontinued operations	(2.0)	—	—
Cash generated from operations	13.4	17.7	42.4
Non-recurring business closure costs paid	(1.1)	(0.3)	(3.5)
Corporation tax paid	(3.1)	(2.6)	(6.4)
Finance income	0.1	0.2	0.3
Finance costs	(1.6)	(0.7)	(2.0)
Net cash from operating activities	7.7	14.3	30.8
Cash flows from investing activities
Purchase of property, plant and equipment	(34.3)	(6.4)	(22.8)
Proceeds from sale of property, plant and equipment	3.2	0.1	1.4
Payments to acquire intangible assets	(0.6)	(0.3)	(0.5)
Acquisition of subsidiaries and overdraft acquired	—	(0.4)	(18.6)
Net cash used in investing activities	(31.7)	(7.0)	(40.5)
Cash flows from financing activities
Ordinary dividends paid	(3.8)	(3.0)	(4.9)
New finance leases	23.8	—	17.6
Payment of finance lease obligations	(10.0)	(3.9)	(11.0)
Loan received Loans repaid	23.0 (20.0)	— —	20.0 (17.2)
Net cash received from/(used in) financing activities	13.0	(6.9)	4.5
(Decrease)/increase in cash and cash equivalents	(11.0)	0.4	(5.2)
Opening cash and cash equivalents	31.0	36.2	36.2
Closing cash and cash equivalents	20.0	36.6	31.0
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash and cash equivalents	(11.0)	0.4	(5.2)
(Increase)/decrease in finance leases	(13.8)	3.9	(6.6)
Acquired debt	—	—	(28.3)
(Decrease)/increase in net funds in the period/year	(24.8)	4.3	(40.1)
Opening net (debt)/funds	(29.2)	10.9	10.9
Closing net (debt)/funds	(54.0)	15.2	(29.2)

Net funds represents cash and cash equivalents less obligations under finance leases, borrowings and loans.

Statement of Accounting Policies

Nature of operations

The principal activities of the Group during the period were infrastructure support services. The May Gurney Group is incorporated and domiciled in the United Kingdom and is listed on the Alternative Investment Market. The registered office is at the May Gurney Group office in Trowse, Norwich, UK. The presentation currency used is GB Pound Sterling and figures are quoted in millions, rounded to the nearest £100,000.

Basis of preparation

The information for the year ended 31 March 2012 does not constitute statutory accounts as defined in Section 434 of the Companies Act 2006. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain any statements under Section 498(2) or (3) of the Companies Act 2006.

The half-yearly financial statements are the unaudited, half-yearly, condensed consolidated financial statements. This half-yearly financial report has been prepared in accordance with International Accounting Standard 34 'Interim Financial Reporting'.

At 30 September 2012, the May Gurney Group had finance lease liabilities of £74 million, a bank loan of £23 million and cash in hand of £20 million. The May Gurney Group has a total banking facility of £48 million. The business is forecast to remain cash generative. The directors have a reasonable expectation that the May Gurney Group has adequate resources to continue operating for the foreseeable future. On these grounds the board has continued to adopt the going concern basis for the preparation of the half yearly condensed consolidated financial statements.

The financial statements have been prepared under the recognition and measurement principles of IFRS as adopted by the EU that are expected to be adopted and effective at 31 March 2013, using accounting policies and methods of computation, as set out in the 31 March 2012 May Gurney Integrated Services plc Annual Report and Accounts, except as set out below, and applied consistently.

No onerous contract provisions have been made in respect of the recently mobilised environmental services contracts.

Adoption of new and revised International Financial Reporting Standards

In the current period, the May Gurney Group has adopted all of the new and revised Standards and Interpretations issued by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are relevant to its operations and effective for accounting periods beginning on 1 April 2012.

Changes in accounting policy

The following standards and interpretations came into effect and were adopted in the current period but had no effect on the condensed consolidated financial statements:

• IFRS 1 (amended) Severe hyperinflation and Removal of fixed dates for first-time adopters;
• IFRS 7 (amended) Financial instruments: disclosures;
• IAS 12 (amended) Income taxes deferred tax recovery of underlying assets;

At the date of authorisation of these interim financial statements the following standards and interpretations were in issue but not yet effective and therefore have not been applied in these interim financial statements:

• IFRS 1 (amended) Government loan with a below-market rate of interest and Repeat application, Borrowing costs;

• IFRS 7 (amended) Offsetting of assets and liabilities and Deferral of mandatory effective date of IFRS 9;

• IFRS 9 Financial Instruments Classification and measurement and Deferral of mandatory effective date of IFRS 9;

• IFRS 10 Consolidated financial statements;
• IFRS 11 Joint arrangements;
• IFRS 12 Disclosure of interests in other entities;
• IFRS 13 Fair value measurement;
• IAS 1 Presentation of financial statements items in other comprehensive income and Comparative information;
• IAS 16 Property, Plant and Equipment Amendments re servicing equipment;
• IAS 19 (amended) Employee benefits;
• IAS 27 Separate financial statements;
• IAS 28 Investments in associates and joint ventures;
• IAS 32 Financial Instruments: Presentation Offsetting of assets and liabilities and Tax effect of equity distributions; and
• IAS 34 Interim Financial Reporting Amendments re interim reporting of segment assets.

The directors anticipate that the adoption of these standards and interpretations in future periods will have no material impact on the financial statements of the May Gurney Group.

Notes to the Accounts

1. Segmental analysis

For management purposes, the Group is currently organised into three segments – Public Sector Services (Highways Services, Environmental Services, Facility Services and Fleet & Passenger Services), Regulated Sector Services (Utility Services, Rail Services and Waterways Services) and Property. The three segments noted are those that are regularly reviewed by the Group's Chief Operating Decision Maker (CODM) Willie MacDiarmid (Interim Chief Executive). Revenue is mostly derived from contract work.

The identification of these reportable segments has come about due to the Group's aim of aligning services more closely with the needs of its long-term clients and the nature of the work the Group delivers for them, namely delivering essential front-line maintenance and enhancement services.

For the 6 months ended 30 September 2012 (unaudited)	Public Sector Services £m	Regulated Sector Services £m	Property £m	Continuing operations £m	Discontinued operations £m	Group £m
Revenue
Total revenue Less: between segments	197.7 (0.2)	142.6 (1.2)	— —	340.3 (1.4)	14.6 —	354.9 (1.4)
External revenue	197.5	141.4	—	338.9	14.6	353.5
Sales between segments are charged at prevailing market prices Result per management information reviewed by the CODM
Group operating profit before amortisation	8.4	4.2	—	12.6	(10.0)	2.6
Intangible assets amortisation	(1.9)	(3.8)	—	(5.7)	—	(5.7)
Non-recurring costs	—	—	—	—	—	—
Finance income				0.1	—	0.1
Finance costs				(1.6)	—	(1.6)
Profit before taxation				5.4	(10.0)	(4.6)
Taxation				(1.4)	2.4	1.0
Profit for the period per management information				4.0	(7.6)	(3.6)
Total assets
Segments Not allocated to segments	211.1	94.9	12.7	318.7	2.2	320.9 12.0
						332.9
Total liabilities
Segments Not allocated to segments	(156.0)	(63.1)	(0.4)	(219.5)	(14.0)	(233.5) (15.4) (248.9)
Other information
Capital expenditure Depreciation	34.1 8.4	0.2 3.2	— —	34.3 11.6	— 0.1	34.3 11.7

One customer in the Public Sector Services segment accounted for over 10% of total revenue. As the Group's activities are almost entirely domestic, no geographical segmental analysis is required.

For the 6 months ended 30 September 2011 (unaudited)	Public Sector Services £m	Regulated Sector Services £m	Property £m	Group £m
Revenue
Total revenue	216.8	136.0	—	352.8
Less: between segments	(0.4)	(1.4)	—	(1.8)
External revenue	216.4	134.6	—	351.0
Sales between segments are charged at prevailing market prices Result per management information reviewed by the CODM
Group operating profit before amortisation	10.0	5.0	—	15.0
Intangible assets amortisation	(0.6)	(0.8)	—	(1.4)
Non-recurring costs Finance income	—	—	—	— 0.2
Finance costs				(0.7)
Profit before taxation				13.1
Taxation				(3.5)
Profit for the period per management information				9.61
Total assets
Segments	133.7	109.3	11.9	254.9
Not allocated to segments				14.4
				269.3
Total liabilities
Segments	(101.8)	(70.7)	(0.7)	(173.2)
Not allocated to segments				(4.6)
				(177.8)
Other information
Capital expenditure	4.4	2.0	—	6.4
Depreciation	3.8	1.6	—	5.4

No customers accounted for over 10% of total revenue.

¹ Profit of £0.2 million arising from discontinued operations for 6 months to 30 September 2011.

	Public Sector Services	Regulated Sector Services	Property	Group
For the year ended 31 March 2012	£m	£m	£m	£m
Revenue
Total revenue	418.9	279.2	—	698.1
Less: between segments	(0.7)	(2.1)	—	(2.8)
External revenue	418.2	277.1	—	695.3
Sales between segments are charged at prevailing market prices Result per management information reviewed by the CODM
Group operating profit before amortisation	17.8	12.3	—	30.1
Intangible assets amortisation	(2.3)	(1.9)	—	(4.2)
Non-recurring costs	(3.7)	(1.2)	—	(4.9)
Finance income Finance costs				0.3 (2.0)
Profit before taxation				19.3
Taxation				(5.7)
Profit for the year per management information				13.6
Taxation adjustment				0.2
Profit for the year per statutory accounts				13.82
Total assets
Segments	196.0	107.0	12.0	315.0
Not allocated to segments				4.2
				319.2
Total liabilities
Segments	(146.9)	(73.0)	(0.5)	(220.4)
Not allocated to segments				(6.2)
				(226.6)
Other information
Capital expenditure	68.0	2.4	—	70.4
Depreciation	12.3	4.0	0.1	16.4

² Loss of £1.5 million arising from discontinued operations for 12 months to 31 March 2012

No customers accounted for over 10% of total revenue.

2. Finance income and costs

for the 6 months ended 30 September 2012	6 months to 30 September 2012 (unaudited) £m	6 months to 30 September 2011 (unaudited) £m	12 months to 31 March 2012 £m
Finance income
Income receivable from short-term bank deposits	0.1	0.2	0.2
Finance income in relation to defined benefit pension scheme	—	—	0.1
	0.1	0.2	0.3
Finance costs
Finance charges payable under finance leases	(1.3)	(0.5)	(1.5)
Finance cost in relation to the change in value of financial
assets	—	—	(0.1)
Intangible assets amortisation	—	—	—
Other interest	(0.3)	(0.2)	(0.4)
	(1.6)	(0.7)	(2.0)

3. Taxation

for the 6 months ended 30 September 2012	6 months to 30 September 2012 (unaudited) £m	6 months to 30 September 2011 (unaudited) £m	12 months to 31 March 2012 £m
Current tax
Corporation tax on profits for the period/year	0.3	4.0	6.1
Over provision in respect of prior periods	—	—	0.6
Total current tax	0.3	4.0	6.7
Deferred tax
Origination and reversal of temporary differences	0.1	(0.1)	0.5
Tax effect of intangible assets amortisation	(1.4)	(0.4)	(1.0)
Over provision in respect of prior years	—	—	(0.7)
Total deferred tax	(1.3)	(0.5)	(1.2)
Total tax (credit)/charge for the period/year	(1.0)	3.5	5.5

The taxation charge for the six months ended 30 September 2012 has been calculated at 25.9% (2011: 27%) of the Group's continuing operating profit before amortisation.

This represents the estimated effective rate of tax for the half year period.

4. Discontinued operations

The amounts presented in the income statement under discontinued operations relate to the Facility Services business unit, part of the Public Sector Services division. It is the Board's intention to discontinue this activity. At 30 September, discontinuation costs of £2.0 million have been incurred and a provision of £8.0 million has been recognised, representing management's best estimate of the remaining discontinuation costs.

5. Earnings per share

for the 6 months ended 30 September 2012	6 months to 30 September 2012 Continuing operations (unaudited) £m	6 months to 30 September 2012 Discontinued operations (unaudited) £m	6 months to 30 September 2012 (unaudited) £m	6 months to 30 September 2011 (unaudited) £m	12 months to 31 March 2012 £m
Profit/(loss) for the period/year	4.0	(7.6)	(3.6)	9.61	13.82
Basic/diluted earnings Adjustments to basic earnings Intangible assets amortisation and	4.0	(7.6)	(3.6)	9.6	13.8
impairment	5.7	—	5.7	1.4	4.2
Other non-recurring costs	—	—	—	—	4.9
Tax on non-recurring items	(1.4)	—	(1.4)	(0.4)	(2.2)
Underlying earnings/(loss)	8.3	(7.6)	0.7	10.6	20.7
Number of shares	Number	Number	Number	Number	Number
Weighted average number of ordinary shares for the purposes of basic earnings per share Effect of dilutive potential ordinary shares	67,557,055 1,367,843	67,557,055 —	67,557,055 —	67,153,843 2,368,725	67,246,350 2,050,704
Weighted average number of ordinary shares for the purposes of diluted earnings per share	68,924,898	67,557,055	67,557,055	69,522,568	69,297,054
Weighted average number of ordinary shares for the purposes of underlying earnings per share	70,236,016	70,236,016	70,236,016	70,236,016	70,236,016

	pence	pence	pence	pence	pence
Underlying earnings/(loss) per share	11.82	(10.82)	1.00	15.09	29.47
Basic earnings/(loss) per share	5.92	(11.25)	(5.33)	14.30	20.52
Diluted earnings/(loss) per share	5.80	(11.25)	(5.33)	13.81	19.91

Underlying earnings/(loss) per share, before amortisation, has been disclosed to give a clearer understanding of the Group's underlying trading performance. It has been calculated using the underlying earnings figures above and the weighted average number of ordinary shares above which includes those shares held by the Group Employee Share Ownership Trust.

Diluted earnings/(loss) per share is the basic earnings per share after allowing for the dilutive effect of the conversion into ordinary shares of the number of options outstanding during the period.

The diluted earnings per share is the same as the basic earnings per share (except for continuing operations), due to the potential ordinary shares becoming anti-dilutive where a loss is shown.

¹ Profit of £0.2 million arising from discontinued operations for 6 months to 30 September 2011.

² Loss of £1.5 million arising from discontinued operations for 12 months to 31 March 2012.

6. Dividends

for the 6 months ended 30 September 2012	6 months to 30 September 2012 (unaudited) £m	6 months to 30 September 2011 (unaudited) £m	12 months to 31 March 2012 £m
Amounts recognised as distributions to equity holders in the period:
Final dividend paid for the year ended 31 March 2012 of 5.63 pence per share (2011: 4.52 pence) Interim dividend paid for the year ended 31 March 2012 of	3.8	3.0	3.0
2.79 pence per share	—	—	1.9
	3.8	3.0	4.9

An interim dividend of 2.79 pence per share has been declared since the financial reporting date and so has not been included as a liability in these financial statements. The dividend was paid on 7 January 2013 to holders of ordinary shares on the register at the close of business on 14 December 2012.

The trustees of the Group Limited Employee Share Ownership Trust and the May Gurney Integrated Services plc Employee Benefit Trust have both waived their rights to receive any dividends in respect of shares held in the Trusts.

7. Property, plant and equipment

Property, plant and equipment of £34.3 million were purchased in the period comprising £31.2 million plant and equipment and £3.1 million short leasehold property improvements. £23.8 million of assets were acquired on finance leases. There were disposals with a carrying value of £2.8 million in the period, comprising £0.8 million freehold property and £2.0 million plant and equipment. The depreciation charge for the period of £11.7 million was the only other significant movement on the book value of assets.

Future capital expenditure authorised by the directors but not provided for in these financial statements amounts to £7.3 million (31 March 2012: £20.6m, 30 September 2011: £5.2m).

8. Intangible assets

Intangible assets of £0.6m were recognised in the period comprising internal software development. The amortisation charge for the period of £5.7m (Sep 2011: £1.4m) was the only other significant movement on the book value of intangible assets. The amortisation charge consists of £1.5m amortisation on historic acquisitions, £1.3m amortisation relating to TransLinc and £2.9m impairment charge relating to the Scottish Utilities business.

9. Employee benefits

The Group operates two defined benefit pension schemes, the May Gurney Defined Benefit Pension Scheme and the TransLinc Pension Scheme. The May Gurney Defined Benefit Pension Scheme was closed to future accrual on 30 September 2012. The assets of the schemes are held separately from those of the Group and are invested in managed funds. Full details of the defined benefit obligation are disclosed in the Group's annual report and accounts.

The balance sheet position as presented at 31 March 2012 has not been remeasured at the interim reporting date as the level of actuarial gains and losses in the period is not considered to be material.

PART VIII INFORMATION ON THE EXPECTED IMPACT OF THE TRANSACTION ON THE ASSETS AND LIABILITIES OF THE COSTAIN GROUP

SECTION A: Unaudited pro forma financial information on the Combined Group

The unaudited pro forma statement of net assets set out below has been prepared to illustrate the effect of the acquisition of the May Gurney Group on the Costain Group's net assets as if it had occurred on 31 December 2012. It has been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and therefore does not represent the Costain Group's or Combined Group's actual financial position or results. The unaudited pro forma statement of net assets has been prepared on the basis set out in the notes below.

Unaudited pro forma statement of net assets of the Combined Group as at 31 December 2012

		Adjustments
	Note	Costain as at 31 December 2012 £m (2)	May Gurney as at 30 September 2012 £m (3)	Acquisition accounting adjustments £m (4, 5)	Pro forma as at 31 December 2012 £m
Non-current assets:
Property, plant and equipment		9.1	112.2		121.3
Goodwill		15.2	60.3	93.8	169.3
Other intangible assets		3.5	13.7		17.2
Interest in associates and joint ventures		40.4	—		40.4
Other receivables		17.5	—		17.5
Deferred tax asset		17.4	—		17.4
		103.1	186.2	93.8	383.1
Current assets:
Inventories		1.7	4.8		6.5
Trade and other receivables		181.5	119.7		301.2
Cash and cash equivalents		107.4	20.0	(15.0)	112.4
		290.6	144.5	(15.0)	420.1
Assets included in discontinued operations			2.2		2.2
Total assets		393.7	332.9	78.8	805.4
Current liabilities:
Interest bearing loans and borrowings		(1.7)	(42.2)		(43.9)
Trade and other payables		(297.6)	(135.7)		(433.3)
Tax liabilities		(1.7)	(0.5)		(2.2)
Short-term provisions		(2.1)	—		(2.1)
		(303.1)	(178.4)		(481.5)
Non – current liabilities:
Obligations under finance leases		—	(54.7)		(54.7)
Retirement benefit obligations		(51.9)	(0.4)		(52.3)
Long-term provisions		(1.9)	—		(1.9)
Deferred tax liabilities		—	(1.4)		(1.4)
Other payables		(5.0)			(5.0)
		(58.8)	(56.5)	—	(115.3)
Liabilities included in discontinued
operations			(14.0)		(14.0)
Total liabilities		(361.9)	(248.9)	—	(610.8)
Net assets		31.8	84.0	78.8	194.6

Notes:

1. The pro forma statement of combined assets and liabilities has been prepared in a manner consistent with the accounting policies adopted by the Company in the year ended 31 December 2012.

2. 1. Financial information in respect of the Company has been extracted without material adjustment from the preliminary unaudited results of the Company for the financial year ended 31 December 2012. No account has been taken of the performance of Costain since 31 December 2012.
3. 1. The financial information in respect of May Gurney has been extracted without material adjustment from the unaudited interim financial statements of May Gurney for the half year ended 30 September 2012, which are set out in Part VII. No account has been taken of the performance of May Gurney since 30 September 2012.
4. 1. For the purpose of the pro forma statement of net assets, the difference between the consideration payable, consisting of 58,120,303 New Costain Shares of 50 pence each issued by Costain to May Gurney Shareholders and the net assets of May Gurney is shown as goodwill within intangible assets:

	£m
Purchase consideration	177.8
Net assets of May Gurney as at 30 September 2012	(84.0)
Goodwill	93.8

The calculation of consideration is based on the closing price of Costain's ordinary shares of 306.0 pence on 25 March 2013.

• 1. Aggregate fees and expenses of £15.0 million are expected to be incurred in connection with the transaction.
• 1. The transaction has been accounted for as an acquisition in accordance with IFRS 3 Business Combinations. The pro forma net assets statement does not give effect to fair value adjustments to net assets arising from the purchase price. The fair value adjustments, when finalised post acquisition, may be material.

SECTION B: Accountant's Report on Pro Forma Financial Information

KPMG Audit plc 15 Canada Square London E14 5GL

The directors and proposed directors Costain Group PLC Costain House Vanwall Business Park Maidenhead Berkshire, SL6 4UB

26 March 2013

Dear Sirs

Costain Group PLC

We report on the pro forma financial information (the 'Pro forma financial information') set out in Section A of Part VIII of this document, which has been prepared on the basis described in notes 1 to 6, for illustrative purposes only, to provide information about how the transaction might have affected the financial information presented on the basis of the accounting policies adopted by Costain Group PLC in preparing the financial statements for the period ended 31 December 2012. This report is required by paragraph 13.3.3R of the Listing Rules of the Financial Services Authority and paragraph 20.2 of Annex 1 of the Prospectus Directive Regulation and is given for the purpose of complying with those paragraphs and for no other purpose.

Responsibilities

It is the responsibility of the directors of Costain Group PLC to prepare the Pro forma financial information in accordance with paragraph 13.3.3R of the Listing Rules of the Financial Services Authority and paragraph 20.2 of Annex I of the Prospectus Directive Regulation. The proposed directors of Costain Group PLC are also responsible for the Pro forma financial information.

It is our responsibility to form an opinion, as required by paragraph 7 of Annex II of the Prospectus Directive Regulation, as to the proper compilation of the Pro forma financial information and to report that opinion to you.

In providing this opinion we are not updating or refreshing any reports or opinions previously made by us on any financial information used in the compilation of the Pro forma financial information, nor do we accept responsibility for such reports or opinions beyond that owed to those to whom those reports or opinions were addressed by us at the dates of their issue.

Save for any responsibility arising under Prospectus Rule 5.5.3R(2)(f) to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with this report or our statement, required by and given solely for the purposes of complying with Listing Rule 13.4.1R(6) and paragraph 23.1 of Annex I of the Prospectus Directive Regulation, consenting to its inclusion in the combined circular and prospectus.

Basis of opinion

We conducted our work in accordance with the Standards for Investment Reporting issued by the Auditing Practices Board in the United Kingdom. The work that we performed for the purpose of making this report, which involved no independent examination of any of the underlying financial information, consisted primarily of comparing the unadjusted financial information with the source documents, considering the evidence supporting the adjustments and discussing the Pro forma financial information with the directors of Costain Group PLC.

We planned and performed our work so as to obtain the information and explanations we considered necessary in order to provide us with reasonable assurance that the Pro forma financial information has been properly compiled on the basis stated and that such basis is consistent with the accounting policies of Costain Group PLC.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in the United States of America or other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion

In our opinion:

• the Pro forma financial information has been properly compiled on the basis stated; and
• such basis is consistent with the accounting policies of Costain Group PLC.

Declaration

For the purposes of Prospectus Rule 5.5.3R(2)(f) we are responsible for this report as part of the prospectus and declare that we have taken all reasonable care to ensure that the information contained in this report is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. This declaration is included in the prospectus in compliance with paragraph 1.2 of Annex I of the Prospectus Directive Regulation.

Yours faithfully

KPMG Audit plc

PART IX UNITED KINGDOM TAXATION CONSIDERATIONS

The following summary is intended as a general guide only and relates solely to certain UK tax considerations relating to the New Costain Shares. The summary is not intended to be used as advice for any shareholder and, as such, is not a full description of all relevant tax considerations. It is based on UK law and HMRC practice currently in force, both of which are subject to change, possibly with retroactive effect. This summary may not apply to certain special categories of shareholder, such as dealers in securities or Scheme Shareholders who have (or are deemed to have) acquired their New Costain Shares by virtue of or in connection with an office or employment.

Holders of New Costain Shares who are in any doubt about their tax position, or who are resident or otherwise subject to taxation in a jurisdiction outside the United Kingdom, should consult their own professional advisers immediately.

1. General

There is no UK withholding tax on dividends.

2. Individual shareholders within the charge to United Kingdom income tax

When Costain pays a dividend to a Costain Shareholder who is an individual resident (for tax purposes) in the United Kingdom, the Costain Shareholder will be entitled to a tax credit equal to oneninth of the dividend received. The dividend received plus the related tax credit (the 'Gross Dividend') will be part of the Costain Shareholder's total income for United Kingdom income tax purposes and will be regarded as the top slice of that income. However, in calculating the Costain Shareholder's liability to income tax in respect of the Gross Dividend, the tax credit (which equates to 10% of the Gross Dividend) is set off against the tax chargeable on the Gross Dividend.

Basic rate taxpayers

In the case of a Costain Shareholder who is liable to income tax at the basic rate, the Costain Shareholder will be subject to tax on the Gross Dividend at the rate of 10%. The tax credit will, in consequence, satisfy in full the Costain Shareholder's liability to income tax on the Gross Dividend.

Higher rate taxpayers

To the extent that the Gross Dividend falls above the threshold for the higher rate of income tax but below the threshold for the additional rate of income tax, the Costain Shareholder will be subject to tax on the Gross Dividend at the rate of 32.5%. This means that the tax credit will satisfy only part of the Costain Shareholder's liability to income tax on the Gross Dividend, so that the Costain Shareholder will have to account for income tax equal to 22.5% of the Gross Dividend (which equates to 25% of the dividend received). For example, a dividend of £90 from Costain would represent a Gross Dividend of £100 (after the addition of the tax credit of £10) and the Costain Shareholder would be required to account for income tax of £22.50 on the dividend, being £32.50 (i.e. 32.5% of £100) less £10 (the amount of the tax credit).

Additional rate taxpayers

To the extent that the Gross Dividend falls above the threshold for the additional rate of income tax, the Costain Shareholder will be subject to tax on the gross dividend at the rate of 42.5%. This means that the tax credit will satisfy only part of the Costain Shareholder's liability to income tax on the Gross Dividend, so that the Costain Shareholder will have to account for income tax equal to 32.5% of the Gross Dividend (which equates to approximately 36.1% of the dividend received). For example, a dividend of £90 from Costain would represent a Gross Dividend of £100 (after the addition of the tax credit of £10) and the Costain Shareholder would be required to account for income tax of £32.50 on the dividend, being £42.50 (i.e. 42.5% of £100) less £10 (the amount of the tax credit). It should be noted that the additional rate of income tax chargeable on dividends is set to fall to 37.5% with effect from 6 April 2013. A Costain Shareholder would thereafter be required to account for income tax of £27.50 on a dividend of £90, being £37.50 (i.e. 37.5% of the £100 Gross Dividend) less £10 (the amount of the tax credit). This equates to an effective tax liability of approximately 30.6% of the dividend received.

3. Corporate shareholders within the charge to United Kingdom corporation tax

Costain Shareholders within the charge to United Kingdom corporation tax which are 'small companies' (for the purposes of United Kingdom taxation of dividends) will not generally be subject to tax on dividends from Costain.

Other Costain Shareholders within the charge to United Kingdom corporation tax will not be subject to tax on dividends (including dividends from Costain) so long as the dividends fall within an exempt class and certain conditions are met. In general, dividends paid on shares that are 'ordinary share capital' for United Kingdom tax purposes and are not redeemable and dividends paid to a person holding less than 10% of the issued share capital of the payer (or any class of that share capital) are examples of dividends that fall within an exempt class.

4. No payment of tax credit

A Costain Shareholder who is not liable to tax on dividends received from Costain in respect of his New Costain Shares will not be entitled to claim payment of the tax credit in respect of those dividends.

PART X DIRECTORS, RESPONSIBLE PERSONS, SENIOR MANAGEMENT, CORPORATE GOVERNANCE AND EMPLOYEES

1. Persons Responsible

The Company, the Costain Directors, whose names appear at section 2 below, and the Proposed Directors, whose names appear at section 4 below, accept responsibility for the information contained in this document. To the best of the knowledge of the Company, the Costain Directors, and the Proposed Directors (who have taken all reasonable care to ensure that such is the case), such information is in accordance with the facts and does not omit anything likely to affect the import of such information.

2. The Costain Directors

The following table sets out information relating to each of the Costain Directors:

Name	Current position in respect of Costain	Date of Birth
Executive Directors:
Andrew Wyllie	Chief Executive Officer	24 December 1962
Anthony Bickerstaff	Group Finance Director	2 June 1964
Non-Executive Directors:
David Allvey	Non-Executive Chairman	13 March 1945
James Morley	Senior Independent Director	15 February 1949
Michael Alexander	Independent Non-Executive Director	17 November 1947
Jane Lodge	Independent Non-Executive Director	1 April 1955
Samer Younis	Non-Executive Director	16 September 1961

The business address of each of the Costain Directors is Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB.

3. Costain Directors' profiles

The name, business experience and principal business activities outside the Costain Group of the current Costain Directors, as well as the date of their initial appointment as Costain Directors, are set out below.

David Allvey (Non-Executive Chairman)

David was appointed chairman in January 2008 prior to which he was chairman of the Audit Committee. With a career that started in civil engineering and subsequently as a chartered accountant, his previous roles include group finance director for BAT Industries plc, Barclays Bank plc and chief operating officer for Zurich Financial Services, member of the UK Accounting Standards Board, member of the International Accounting Standards Insurance Group, non-executive director of Thomas Cook plc (2007 to 2012), senior non-executive director of Intertek Group plc (2002 to 2011), senior non-executive director of William Hill plc (2002 to 2011), senior independent director of Friends Life FPG Limited (formerly Friends Provident Group plc) (2009 to 2011) and chairman of Arena Coventry Ltd (2006 to 2012). David is chairman of the nomination committee.

In addition to these directorships and those of the Costain Group, David holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.

Clydesdale Bank Plc Current National Australia Group Europe Limited Current

Company Status (Current/Previous)

Andrew Wyllie (Chief Executive Officer)

Andrew was appointed chief executive in September 2005. He was previously managing director of Taylor Woodrow Construction Ltd (2001 to 2005) and a member of the Taylor Woodrow plc executive committee. Andrew joined Taylor Woodrow in 1984 and worked on major contracts in Africa, the Middle East, the Far East and the UK.

In addition to these directorships and those of the Costain Group, Andrew holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.

Company	Status (Current/Previous)
Scottish Water Horizons Holdings Limited	Current
Scottish Water Business Stream Holdings Limited	Current

Anthony Bickerstaff (Group Finance Director)

Tony is group finance director of the Costain Group and has been since June 2006. Tony has extensive knowledge of the construction and support services sectors both in the UK and overseas. He is responsible for all aspects of the financial management of the Costain Group as well as playing a major role in the Costain Group's strategic and operational development. Previously, Tony was with the Taylor Woodrow Group, which he joined in 1982. He held a number of senior management and financial positions in Taylor Woodrow including finance director of Taylor Woodrow Construction Limited.

Save for directorships of members of the Costain Group, Tony has not held any other directorships or been a partner in any partnerships in the past five years.

James Morley (Senior Independent Director)

James served as chairman of the audit committee from January 2008 until the end of October 2012 and was appointed as the senior independent director at the start of January 2013. James is a chartered accountant with some 27 years' experience as a board member of both listed and private companies. Previous roles include chief operating officer of Primary Group Ltd (2006 to 2007), group finance director of Cox Insurance Holdings plc (2002 to 2005), group finance director of Arjo Wiggins Appleton plc (1999 to 2001), group executive director, finance of Guardian Royal Exchange plc (1990 to 1999), deputy chief executive and finance director of Avis Europe plc (1976-1989), non-executive director of the Bankers' Investment Trust plc (1994 to 2008), non-executive director of W S Atkins plc (2001-2009), and non-executive director of Trade Indemnity Group plc (1991-1996). James is a member of Costain's nomination, remuneration and audit committees.

In addition to these directorships and those of the Costain Group, James holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.

Company	Status (Current/Previous)
The Innovation Group plc	Current
Clarkson plc	Current
Speedy Hire plc	Current
BMS Associates Limited	Current
BMS Group Limited	Current
Acumus Limited	Previous

Michael Alexander (Independent Non-Executive Director)

Mike has extensive experience of the energy market. Previous roles include chief executive of British Energy plc (2003-2005), managing director of British Gas Trading, chief operating officer and executive director of Centrica plc (1994-2003), non-executive chairman of Goldfish Bank Ltd (2002-2003), chairman of TGE Marine AG (2007-2010), chairman of the Association of Train Operators (2008-2009) and non-executive director of the Energy Saving Trust Ltd (1994-2001). Mike is the chairman of Costain's remuneration committee and a member of the nomination committee.

In addition to these directorships and those of the Costain Group, Mike holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.

Company	Status (Current/Previous)
UK Payments Council Limited	Current
Lexican Limited	Current
Lexican Associates Limited	Current
Russian Platinum PLC	Current

Jane Lodge (Independent Non-Executive Director)

Jane was appointed as a non-executive director in August 2012 and was appointed chair of the audit committee with effect from the end of October 2012. Prior to this Jane spent 35 years at Deloitte LLP (UK), 25 as an audit partner advising global companies, particularly in the manufacturing, housebuilding and property and construction sectors. Jane was senior partner of the Birmingham office and the Deloitte UK Manufacturing Industry Sector. Jane is a member of the nomination committee.

In addition to these directorships and those of the Costain Group, Jane holds or has held in the past five years the following directorships. She has not been a partner in any partnerships during the past five years.

Company	Status (Current/Previous)
Black Country Living Museum Trust Ltd	Current
Devro plc	Current
DCC plc	Current
Bromsgrove School Foundation Trust	Current

Samer Younis (Non-Executive Director)

Samer was appointed as a non-executive director in June 2009. Samer is vice chairman and managing director of Kharafi National Group; board member of ABJ Engineering and Contracting Co KSCC (Kuwait), Utilities Development Company (Kuwait), Kuwait Jordanian Holding Company (Jordan), SSH Consultants (Kuwait), Global Clearing House Systems (Kuwait), Emirates Utilities Company Holding (UAE) and Heavy Engineering Industries & Shipbuilding Co (HEISCO) (Kuwait); and a trustee of the Arab Forum for Environment and Development. Samer is a member of the nomination committee.

Samer has not held any other directorships or been a partner in any partnerships in the past five years.

4. Proposed Directors

In addition to the Costain Directors, as at the Effective Date, the Proposed Directors will be directors of the Combined Group. The Proposed Directors are as follows:

Name	Position as from the Effective Date	Date of Birth
Baroness Margaret Ford Ishbel Macpherson William MacDiarmid	Non-Executive Deputy Chairman Senior Independent Director Non-Executive Director	16 December 1957 16 July 1960 26 February 1961
Andrew Walker	Non-Executive Director	27 September 1951

5. Profiles of the Proposed Directors

The names, business experience and principal business activities outside the Costain Group, or as the case may be, the May Gurney Group, of the Proposed Directors as well as (where relevant) the dates of their initial appointment as May Gurney Directors, are set out below.

Baroness Margaret Ford (Non-Executive Chairman of May Gurney)

Margaret, the Baroness Ford of Cunninghame, was appointed to the May Gurney Board as a nonexecutive director in May 2011. Margaret has significant experience of the support services sector. Prior to joining May Gurney, she was Senior Independent Director of Serco plc. Margaret was appointed a Working Peer in 2006 and has extensive public company and public sector experience. Margaret is also chairman of Barchester Healthcare Limited and is a non-executive director of Grainger plc. Margaret was formerly Chairman of the Olympic Park Legacy Company. Margaret is a member of May Gurney's nominations committee and was appointed as Chairman of May Gurney in July 2011. It is proposed that Baroness Ford joins the board of Taylor Wimpey plc at its AGM in April 2013.

In addition to these directorships and those of May Gurney, Baroness Margaret Ford holds or has held in the past five years the following directorships. She has not been a partner in any partnerships during the past five years.

Company	Status (Current/Previous)
Grove Limited (Jersey)	Current
Irvine Bay Regeneration Company Limited	Previous
Segro plc	Current
Serco plc	Previous
Trade Risks Limited	Previous

Willie MacDiarmid (Interim Chief Executive Officer of May Gurney)

Willie was appointed as Interim Chief Executive Officer in September 2012. Prior to his appointment as Interim CEO he joined May Gurney as a non-executive director on 1 June 2012. Willie has had a long and successful business career and has extensive experience of the regulated sector. From 2009 to 2011 he was chief operating officer at the energy services company Eaga Plc. Prior to that, from 1990, he held senior positions at Scottish Power where he successfully led the division through the deregulation of the energy market. Willie has also gained UK Government relations experience, spearheading the Warm Front programme at Eaga as well as the BBC Digital rollout. From 2007 to 2009 Willie was chairman of the Energy Retail Association.

In addition to these directorships and those of May Gurney, Willie holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.

Energy Retail Association Limited Previous Manweb Energy Consultants Limited Previous N.E.S.T. Makers Limited Previous Scottish Power Energy Retail Association Limited Previous Scottish Water Business Stream Limited Current SP Dataserve Limited Previous The Energy Saving Trust Limited Previous

Company Status (Current/Previous)

Ishbel Macpherson (Senior Independent Non-Executive Director of May Gurney)

Ishbel was appointed to the May Gurney Board as a non-executive director in April 2010. She was an investment banker for over 20 years, specialising in UK mid-market corporate finance and was Head of UK Emerging Companies Corporate Finance at Dresdner Kleinwort Wasserstein. Ishbel is nonexecutive chairman of Speedy Hire plc and non-executive director of Dignity plc. Ishbel is chairman of May Gurney's audit committee and a member of the nominations and remuneration committees.

In addition to these directorships and those of May Gurney, Ishbel holds or has held in the past five years the following directorships. She has not been a partner in any partnerships during the past five years.

Company	Status (Current/Previous)
Dechra Pharmaceuticals PLC Hydrogen Group plc MITIE Group plc Synthomer plc The GAME Group plc	Current Previous Previous Current Previous

Andrew Walker (Independent Non-Executive Director of May Gurney)

Andrew was appointed as a non-executive director of May Gurney in January 2009. He is an engineer with wide public company experience and was formerly Chief Executive of South Wales Electricity plc and McKechnie plc. Andrew is non-executive Chairman of Metalrax Group plc and holds non-executive directorships at API Group plc, Plastics Capital plc and Porvair plc. Andrew is chairman of May Gurney's remuneration committee and is a member of May Gurney's audit and nominations committees.

In addition to these directorships and those of May Gurney, Andrew holds or has held in the past five years the following directorships. He has not been a partner in any partnerships during the past five years.

Company Status (Current/Previous)

API Share Scheme Trustees Limited	Previous
Bioganix plc	Previous
Brintons Limited	Previous
Brintons (China) Limited	Previous
Brintons Overseas Holdings Limited	Previous
Delta Plc	Previous
Fountains Limited	Previous
Manganese Bronze Holdings plc	Previous
PLA4 Limited	Previous
Plastics Capital (Trustee) Limited	Current
Ultra Electronics Holdings plc	Previous

6. Interests of the Costain Directors and the Proposed Directors

As at 25 March 2013 (being the latest practicable date prior to the publication of this document), the interests (all of which are beneficial) of the Costain Directors and the Proposed Directors, their immediate families and (so far as is known to them or could with reasonable diligence be ascertained by them) persons connected (within the meaning of section 252 of the Companies Act) with the Costain Directors and the Proposed Directors in the issued share capital of Costain, including: (i) those arising pursuant to transactions notified to Costain pursuant to DTR 3.1.2R; or (ii) those of connected persons of the Costain Directors or the Proposed Directors, which would, if such connected person were a Costain Director or Proposed Director, be required to be disclosed under (i) above, together with such interests as are expected to subsist immediately following Admission are set out in the following table.

	As at 25 March 2013		Interests Immediately following Admission(1)
	Number of Costain Shares	Percentage of issued share capital of Costain	Number of Costain Shares	Percentage of issued share capital of Enlarged Group
Costain Directors
David Allvey	5,250	0.01	5,250	0.004
Andrew Wyllie	200,452	0.31	200,452	0.162
Anthony Bickerstaff	117,198	0.18	117,198	0.095
James Morley	27,000	0.04	27,000	0.022
Michael Alexander	18,364	0.03	18,364	0.015
Jane Lodge	0	0	0	0
Samer Younis	0	0	0	0
Proposed Directors
Baroness Ford	—	—	26,283	0.021
Willie MacDiarmid	—	—	0	0
Ishbel Macpherson	—	—	18,122	0.015
Andrew Walker	—	—	6,206	0.005

(1) Figures are calculated assuming that the interests in Costain of the Costain Directors and of the Proposed Directors as at close of business on 25 March 2013 do not change, that 58,120,303 Costain Shares are issued in connection with the Merger and that no further issues of Costain Shares occur between publication of this document and the Effective Date.

Taken together, the combined percentage interest of the Costain Directors in the issued ordinary share capital of Costain as at 25 March 2013 was approximately 0.56%. Taken together, the combined percentage interest in the issued ordinary share capital of Costain of the Costain Directors and the Proposed Directors immediately following Admission will be approximately 0.34%.

Details of options and awards over Costain Shares held by the Costain Directors and details of options and awards over Costain Shares held by the Proposed Directors are set out below. Those options and awards are not included in the interests of the Costain Directors and the Proposed Directors shown in the table above.

There are outstanding options/awards under all four of Costain's plans whose details are set out below. However, no new options/awards may be granted under the LTIP 2002 or the SAYE 2002 (both defined below). For future options/awards, the LTIP 2002 and the SAYE 2002 have been replaced by two new plans which were approved by Costain Shareholders at the Costain annual general meeting on 9 May 2012, as further set out in section 11 below: the LTIP 2012 and the SAYE 2012 (both defined below). Future options/awards may also be granted under the DSBP (defined below). Certain Costain Directors have already been granted options under the LTIP 2012 and so details of this plan are included below. To date, no options have been granted to Costain Directors under the SAYE 2012 and so details of this plan are not included below.

The Costain remuneration committee is committed to the concept of creating a genuine alignment of interests between Costain Shareholders and the Costain Board. The Costain remuneration committee has further aligned the interests of executives and Costain Shareholders by introducing a share ownership guideline under which executive directors will be encouraged to build up and maintain a shareholding worth not less than 100% of their base salary (50% in respect of senior managers). Executives and other senior managers will be encouraged to retain up to 50% of the net number of Costain Shares received under any option/award granted pursuant to the LTIP 2012 or the DSBP until this guideline is satisfied. Furthermore, to ensure a true alignment of interests across the entire Costain Board, a similar share ownership guideline has been introduced for non-executive directors who will be encouraged to build up and maintain a shareholding in Costain of not less than 100% of their annual fee.

6.1 2012 Costain Group PLC Long Term Incentive Plan ('LTIP 2012')

The LTIP 2012 was approved by Costain Shareholders at the Costain annual general meeting on 9 May 2012. It allows for the grant of conditional awards and options which may be subject to performance conditions. The Costain remuneration committee may also grant cash-based conditional awards. At the discretion of the Costain remuneration committee, all employees of the Costain Group are eligible to participate in the LTIP 2012, including executive directors. Full details of the LTIP 2012 are set out in section 11.1.

The first options/awards were made shortly following adoption of the LTIP 2012. The performance conditions applying to these initial options/awards depend on the quantum of the option/award – with an aggregate EPS performance condition applying to that portion of an option/award over Costain Shares worth up to 50% of salary, and an operating profit performance condition applying to the portion of an option/award (if any) granted over Costain Shares worth in excess of 50% of salary.

Portion of options/awards over Costain Shares worth up to and including 50% of salary

With respect to that portion of options/awards made over Costain Shares worth up to and including 50% of salary, the performance condition is based on aggregate EPS targets over a period of three financial years ending with the 2014 financial year. For the purposes of the performance conditions, EPS is calculated before pension interest.

The extent to which this portion of an option/award vests will be determined by applying the following sliding scale of aggregate EPS targets:

Aggregate EPS targets over the 2012-2014 financial years	Percentage of vesting of that portion of an option/award made over Costain Shares worth in excess of 50% of salary
Below 90 pence	0%
90 pence	15%
100 pence or more	100%
Between 90 pence and 100 pence	Between 15% and 100% vesting on a straight-line basis

Portion of options/awards over Costain Shares worth in excess of 50% of salary

With regard to the portion of options/awards made over Costain Shares worth more than 50% of salary, the performance condition was based on stretching operating profit targets for the 2014 financial year. 'Operating profit' is defined as underlying profit before interest, tax, amortisation and employment related acquisition consideration but excluding any PFI transfer into the pension and risk management costs.

The extent to which this portion of an option/award vests will be determined as follows:

Operating profit for the 2014 financial year	Percentage of vesting of that portion of an option/award made over Costain Shares worth in excess of 50% of salary
£29.6 million or below	0%
£37 million	50%
Between £29.6 million and £37 million	Between 0% and 50% on a straight-line basis
£44.4 million or more	100%
Between £37 million and £44.4 million	Between 50% and 100% on a straight-line basis

Consequently, for this portion of options/awards to vest in full, operating profit must have doubled over four years from 2010 levels. Irrespective of the extent to which the operating profit performance condition has been achieved, no part of this portion of an option/award will vest unless the following EPS underpins have been achieved:

• EPS for the 2014 financial year must be at least 35.5 pence; and
• aggregate EPS over three financial years ending with the 2014 financial year must equal 100 pence or more.

If these two EPS underpins have been met, the portion of the option/award subject to the operating profit performance condition will vest in accordance with the above table.

The Costain remuneration committee can set different performance conditions from those described above for future options/awards.

Details of the Executive Directors' participation in the LTIP 2012 in 2012 are as follows:

	Outstanding 31 December 2012	Exercise Period
Andrew Wyllie	207,044	From March 2015
Anthony Bickerstaff	137,167	From March 2015

6.2 Costain Deferred Share Bonus Plan ('DSBP')

All Costain Group employees, including executive directors, are eligible to participate in the DSBP, which promotes greater alignment with Costain Shareholders through the grant of options over Costain Shares and participation is determined by the Costain remuneration committee. Under the DSBP, options usually become exercisable on the second anniversary of grant and can usually be exercised up to the tenth anniversary of grant. Options may only be satisfied using Existing Costain Shares which are purchased by a trust on behalf of the Costain Group and so there is no dilution of Costain Shareholders' interests. Full details of the DSBP are set out in section 11.3.

For the year ended 31 December 2012, both executive Costain Directors had a maximum DSBP opportunity of 50% of base salary. The performance measure was EBITA (as defined below), as described in the table below:

Costain Group EBITA for 2012	Percentage of relevant maximum award
£21.2 million or less	0%
Between £21.2 million and £23.5 million	Between 0% and 60% on a straight-line basis
£23.5 million	60%
Between £23.5 million and £28.2 million	Between 60% and 100% on a straight-line basis
£28.2 million or more	100%

The EBITA for the year ended 31 December 2012 was £23.7 million and accordingly, 62% of the maximum DSBP award opportunity will vest if confirmed by the remuneration committee. The number of Costain Shares over which a participant in the DSBP may be granted an option will be calculated on the basis of the monetary value of the DSBP opportunity divided by the middle market quotation of a Costain Share at the date of grant. The grant of options for 2012 was made on 4 April 2012.

For the year ended 31 December 2012, the maximum DSBP opportunity for the executive Costain Directors remains unchanged. The Costain remuneration committee will disclose on a retrospective basis the EBITA measure (defined as underlying earnings before interest, tax, amortisation of acquired intangible assets and employment related acquisition consideration but excluding any PFI transfer into the pension scheme and pension risk management costs) for 2013 in the Annual Report 2013.

The DSBP includes a mechanism to allow the Company to deliver a combined arrangement at no additional cost to the Company by delivering to participants a combination of HMRC tax-approved market value share options (with an exercise price determined at the time of grant) over a fixed number of shares, together with non tax-approved combined deferred awards with a nil exercise price over a fixed value of shares. The tax-approved and non tax-approved options/awards are linked, in terms of value and exercise and mirror the same commercial terms as the deferred awards.

For certain grants made after 1 May 2012, the Costain remuneration committee have introduced clawback provisions with regard to any material misstatement to audited accounts due to fraud, wilful misconduct or negligence, a material error or inaccurate or misleading information or assumptions in the calculation of the number of Costain Shares under DSBP award. The clawback provisions can also be operated to effect clawback provisions in a linked bonus plan.

	Date granted	As at 01 Jan 2012	Granted during the year	Lapsed during the year	Exercisable during the year4	As at 31 Dec 2012	Exercise price	Exercisable from
Andrew Wyllie	19.04.10	25,8001	—	—	25,800	—	—	April 2012-2020
	19.04.10	12,377	—	—	12,377	—		April 2012-2020
		(29,999.91)2
	19.04.10	12,3773	—	12,377	—	—	£2.42p	April 2012-2020
	12.04.10	82,6441	—	—	—	82,644	—	April 2013-2021
	04.04.12	—	78,2581	—	—	78,258	—	April 2014-2022
Anthony Bickerstaff	19.04.10	12,1801	—	—	12,180	—	—	April 2012-2020
	19.04.10	12,377	—	—	12,377	—	—	April 2012-2020
		(29,999.91)2
	19.04.10	12,3773	—	12,377	—	—	£2.42p	April 2012-2020
	12.04.10	54,7521	—	—	—	54,752	—	April 2013-2021
	04.04.12	—	51,8461	—	—	51,846	—	April 2014-2022

Details of the executive Costain Directors' participation in the DSBP in 2012 are as follows:

Notes:

(2) Maximum number and value of Costain Shares under the Combined Deferred Award

(3) Number of Costain Shares under the Option

⁽¹⁾ Number of Costain Shares under the Deferred Award

⁽⁴⁾ On 27 April, Andrew Wyllie exercised a total of 38,177 DSBP share awards (and thereby also received 1,151 dividend shares) and Tony Bickerstaff exercised a total of 24,557 share awards (and thereby also received 543 dividend shares). The market price of the Company's shares on 27 April 2012 was £2.19. The gain (before tax and national insurance) received by these executive directors was £86,128 for Andrew Wyllie and £54,969 for Tony Bickerstaff.

6.3 Costain Group PLC Long-Term Incentive Plan ('LTIP 2002')

The LTIP 2002 was approved by Costain Shareholders at the Costain annual general meeting on 24 May 2002 and reached the end of its ten-year life in 2012. The LTIP 2002 continues to operate in respect of outstanding options/awards but no new options/awards may be granted under this plan.

The LTIP 2002 allowed for the grant of conditional awards and options, which are subject to performance conditions. Options/awards may be subject to a holding period following vesting, in which case participants may also receive matching options/awards (which are also subject to performance conditions). All employees of the Costain Group were eligible to participate in the LTIP 2002, including executive directors and participation was determined by the Costain remuneration committee. Full details of the LTIP 2002 are set out in section 11.4.

The EPS targets for the 2011 awards were:

Sum of the EPS for the financial years ending 31 December 2011, 2012 and 2013*	Vesting level for awards up to 50% of salary
102p	15%
113p	100%
Between 102p and 113p	Pro-rata between 15% and 100%
EPS for the financial year ending 31 December 2013	Vesting level for awards from 50% to 100% of salary
47p	0%
56p	100%
Between 47p and 56p	Pro-rata between 0% and 100%

* EPS targets rounded as appropriate.

The Costain remuneration committee believed that EPS was the most appropriate metric to use in the LTIP, as growth in EPS is one of the key drivers of the price of Costain Shares together with operating profit. For grants made in 2011, EPS should be calculated before pension interest (itself calculated under IAS 19).

Details of the executive Costain Directors' participation in the LTIP 2002 in 2011 are as follows:

Outstanding 1 January 2011	Vested during the year	Outstanding 31 December 2011	Exercise period
			From March 2011
			From March 2011
			From March 2012
			From March 2013
—	—	169,294	From March 2014
			From March 2011
			From March 2011
			From March 2012
			From March 2013
—	—	112,157	From March 2014
	77,599 154,639 82,417 81,632 43,410 90,721 52,747 54,081	68,287 154,639 — — 38,200 90,721 — —	— — 82,417 81,632 — — 52,747 54,081

6.4 Costain Group PLC Savings-Related Share Option Scheme ('SAYE 2002')

The SAYE 2002 was approved by Costain Shareholders at the Costain annual general meeting on 24 May 2002 and reached the end of its ten year life in 2012. The SAYE 2002 continues to operate in respect of outstanding options but no new options may be granted under this plan.

The SAYE 2002 allowed for the grant of tax-favoured options with an exercise price. All employees of the Costain Group were eligible to participate in the SAYE 2002, including executive directors subject to the rules of the scheme. Full details of the SAYE 2002 are set out in section 11.5.

Options granted under the SAYE 2002 on 1 July 2008 (a 3-year saving scheme) had an exercise price of 196p per Costain Share and options granted on 11 October 2011 had an exercise price of 205p per Costain Share for participants in the 3-year saving scheme and 182p per Costain Share for participants in the 5-year saving scheme.

Details of the executive Costain Directors' options under SAYE 2002 in 2011 are as follows:

	Outstanding 1 January 2011	Outstanding 31 December 2011	At exercised price	Exercise period
Andrew Wyllie	4,795	0	196p	Jul-Dec 2011
	0	1,633	205p	Nov 2014-May 2015
Anthony Bickerstaff	4,795	0	196p	Jul-Dec 2011
	0	1,633	205p	Nov 2014-May 2015

No Director has or has had any interest in any transaction which is or was unusual in its nature or conditions, or is or was significant to the business of the Company, and which was effected by any member of the Group in the current or immediately preceding financial year or which was effected during an earlier financial year and remains in any respect outstanding or unperformed.

There are no guarantees provided by any member of the Costain Group for the benefit of the Costain Directors.

6.5 Proposed Directors interests

As at 25 March 2013, the Proposed Directors held the following interests in May Gurney Shares:

Director	Interests in May Gurney Shares
Baroness Margaret Ford(1)	34,807
Ishbel Macpherson	21,900
Andrew Walker	7,500

(1) Baroness Margaret Ford's interest in May Gurney shares includes 3,045 May Gurney Shares held in the name of her husband.

7. Remuneration of the Costain Directors and the Proposed Directors

This section provides information on the remuneration arrangements for the Costain Directors and the Proposed Directors. It is expected that the remuneration for Costain Directors and the Proposed Directors will be reviewed by the remuneration committee of the Combined Group following the Effective Date but that, until such time, the remuneration arrangements of each Costain Director and Proposed Director described below will continue to apply.

7.1 Costain Directors' Remuneration for 2012

The aggregate remuneration for the Costain Directors for the year ended 31 December 2012 was £1,404,342 (2011: £1,584,800).

Base salaries for the executive Costain Directors are reviewed annually by the remuneration committee and take effect from 1 April. The remuneration committee also gives guidance to the Chief Executive as to the matters being taken into account in the salary review of other senior management and all other employees of the Costain Group. The Company's policy is to target broadly the median position in light of remuneration generally within the Company and other companies in the UK-based construction sector. Salaries are set with reference to individual performance, experience and responsibilities.

For 2013, the remuneration committee approved a 2.5% increase for executive directors (2% in 2012), resulting in the base salaries being payable as set out in the table. A 2% salary increase budget was also applied across the Company in 2012.

Details of the remuneration for Costain Directors for the year ended 31 December 2012 was as follows:

	Salary/ Fee £	Bonus £	Benefits £	2012 Total £	2011 Total £	2012 Pension £	2011 Pension(1) £
Executive Directors
Andrew Wyllie	414,120	216,403	13,394	643,917	766,310	91,106	89,320
Anthony Bickerstaff	274,354	140,610	11,894	426,858	510,740	60,358	59,175
Non-Executive
Directors
David Allvey	128,875	—	—	128,875	125,250	—	—
Michael Alexander	47,705	—	—	47,705	46,500	—	—
J.A. Lodge (2)	18,870	—	—	18,870	—	—	—
James Morley (3)	48,797	—	—	48,797	49,000	—	—
Samer Younis	41,615	—	—	41,615	40,500	—	—
J.M. Bryant (4)	47,705	—	—	47,705	46,500	—	—
Former Directors	—	—	—	—	—	—	—
Total	1,022,041	357,013	25,288	1,404,342	1,584,800	151,464	148,495

(1) Pension contributions in excess of £50,000 paid as a cash supplement.

(2) Jane Lodge was appointed a Non-Executive Director with effect from 01 August 2012 and became Chair of the audit committee at the end of October 2012, succeeding James Morley.

(3) James Morley became the Senior Independent Director at the end of December 2012.

(4) John Bryant retired as a Non-Executive Director with effect from 31 December 2012.

For the year ended 31 December 2012, 80% of the executive directors' annual bonus metrics were set as measurable key financial targets. These metrics included Costain Group earnings before interest and tax, Costain Group overhead costs, cash flow, order book and health and safety targets. The remaining 20% was linked to health and safety targets (10%), and personal goals (10%) relating to building and developing the executive team and the talent pool within the organisation.

The total bonus payment for the executive Costain Directors for the year ended 31 December 2011 was 85% of salary of which 75% related to measurable financial targets and 10% related to personal goals.

In addition, the executive directors receive further benefits, principally a company car allowance, life assurance, private medical insurance (BUPA) and PDS cover.

Costain Directors' remuneration, other than the Chairman, is determined by the Board, following consultation between the Chairman and the Chief Executive. The Chairman's fee is determined and recommended to the Costain Board following consultation between the remuneration committee and the Chief Executive. Fees are reviewed annually and any increase is effective from 1 April.

Remuneration for non-executive directors, other than the Chairman, comprise a basic annual fee for acting as a non-executive director of the Company and additional fees for the Senior Independent Director, and chairmanship of the audit and remuneration committees. As reported in 2012, following a review in 2012, it was decided to increase the basic annual fees and the additional fees, reflecting the increased time commitment expected of non-executive directors and the expertise that they bring to the Company. The annual fees are as follows:

Year	Annual Fee	Senior Independent Director	Audit Committee Chairman	Remuneration Committee Chairman
2013	£42,865	£6,273	£8,887	£6,273
2012	£41,820	£6,120	£8,670	£6,120
2011	£41,000	£6,000	£8,500	£6,000

During 2011, the Chairman was paid fees of £127,000. He does not receive any additional fees for committee memberships. With effect from 1 April 2013, he will receive a fee of £129,500.

7.2 Proposed Directors' Remuneration

Each of the Proposed Directors will be engaged pursuant to a letter of appointment with Costain. Details of the remuneration for the Proposed Directors are expected to be as follows:

Director	Salary/fees per annum £
Baroness Ford	75,000
Willie MacDiarmid	42,865
Ishbel Macpherson	49,138
Andrew Walker	42,865

8. Directors' service contracts and letters of appointment

8.1 Costain Directors' service contracts and letters of appointment

The executive Costain Directors have service contracts that can be terminated by either party on the giving of 12 months' notice. There is no provision for payment of predetermined compensation in case of wrongful termination by the Costain Group and the duty to mitigate loss applies.

Mr Wyllie's service agreement is dated 25 April 2005 and Mr Bickerstaff's 3 March 2006.

The independent non-executive Costain Directors have letters of appointment. The appointment of an independent non-executive director can be terminated by reasonable notice. David Allvey, Jane Lodge and James Morley are not entitled to compensation for loss of office.

The nominee non-executive Costain Directors hold office for as long as the shareholder nominating them holds a specific percentage of the issued share capital. The nominee non-executive Costain Directors are required to stand for re-election in the usual way and are not entitled to compensation for loss of office. Currently, only one of the two major shareholders has appointed a nominee to sit on the Costain Board.

The dates of each non-executive directors' original appointment are as follows:

Non-Executive Director	Date of Appointment	Expiry of Current Term(1)
David Allvey	01.11.2001	Close of the 2013 AGM
Michael Alexander	25.07.2007	Close of the 2014 AGM
James Morley	09.01.2008	Close of the 2014 AGM
Samer Younis	23.06.2009	Close of the 2013 AGM

Note:

(1) Subject to election at the AGM following their appointment and subsequent re-election at intervals of no more than three years in accordance with the Costain Articles.

8.2 Proposed Directors' service contracts and letters of appointment

Each of the Proposed Directors will be engaged pursuant to a letter of appointment with Costain, the particulars of which will be similar to those of the existing non-executive Costain Directors.

9. Corporate Governance

9.1 Board practices

The UK Corporate Governance Code recommends that at least half the members of the board of directors (excluding the chairman) of a public limited company incorporated in the UK should be independent in character and judgement and free from relationships or circumstances which are likely to affect, or could appear to affect, their judgement.

As at the date of this document, Costain is in full compliance with the provisions of the UK Corporate Governance Code (apart from provision B.2.3 of the Code which requires non-executive directors to be appointed for a specific term, because Costain's two major shareholders are entitled to appoint a nonexecutive director for so long as they each hold 7% of the then issued ordinary share capital of Costain) and does not believe that any of the provisions will be breached by the constitution of the Combined Group Board following the Merger becoming Effective.

9.2 Combined Group Board structure

Currently, the Costain Board is composed of seven members, consisting of the Non-executive Chairman and the Chief Executive, together with one other Executive Director and four other nonexecutive Directors. Once reconstituted as the Combined Group Board, there would be 11 members, consisting of the Non-executive Chairman and the Chief Executive, together with one other Executive Director and eight other non-executive Directors.

The roles of the Non-executive Chairman and the Chief Executive will continue to be distinct and separate under the Combined Group Board structure, with a clear division of responsibilities.

9.3 Board Committees

The following committees would be reconstituted under the Combined Group Board structure. Each would continue to have formally delegated duties and responsibilities with written terms of reference. From time to time, separate committees may be set up by the Combined Group Board to consider specific issues when the need arises.

9.4 Nomination Committee

The nomination committee will comprise David Allvey, Baroness Margaret Ford, Jane Lodge, Willie MacDiarmid, Ishbel Macpherson, James Morley, Michael Alexander, Samer Younis and Andrew Walker. The Chairman of the nomination committee will be David Allvey.

The principal role of the nomination committee is to identify, and nominate for Board approval, candidates to fill Board vacancies as and when they arise. It is required to prepare a description of the role, and capabilities required, for any appointment, and to maintain contact with major Costain Shareholders about appointments to the Costain Board.

It also reviews the induction process for newly appointed directors, reviews annually the time required of non-executive directors, keeps the structure, size and composition of the Costain Board under review, and considers succession planning for both executive and non-executive directors and for other senior executive posts.

9.5 Remuneration Committee

The remuneration committee will comprise Michael Alexander, Willie MacDiarmid, James Morley and Andrew Walker. The Chairman of the remuneration committee will be Michael Alexander.

The remuneration committee is responsible for the broad policy on directors' and senior management's remuneration. It determines all aspects of the total individual remuneration packages of the executive directors and in consultation with the Chief Executive recommends to the Board the annual fee for the Chairman and reviews with the Chief Executive the remuneration package of each of the Senior Managers. It approves the design of and determines targets for performance linked annual bonus schemes for the executive directors and the senior managers.

The remuneration committee also operates the Costain Share Schemes, including the determination of the levels of award and performance conditions.

In addition, the remuneration committee reports to shareholders in compliance with the London Stock Exchange and legal requirements and ensures that the Company maintains contact as required with its principal shareholders and with institutional shareholder bodies about remuneration policy and practice.

9.6 Audit Committee

The committee will comprise Jane Lodge, Willie MacDiarmid, Ishbel Macpherson and James Morley. The Chairman of the audit committee will be Jane Lodge.

The audit committee is responsible for:

• monitoring the integrity of the financial statements of the Company and any formal announcements relating to the Company's financial performance and reviewing significant financial reporting judgements contained in them;

• reviewing the Company's internal financial controls and risk management systems;
• monitoring and reviewing the effectiveness of the Company's internal audit function;
• making recommendations to the Costain Board in relation to the appointment of the external auditor and approving the remuneration and terms of engagement of the external auditor;
• reviewing and monitoring the external auditor's independence and objectivity and the effectiveness of the audit process; and
• developing and implementing policy on the engagement of the external auditor to supply non-audit services.

The audit committee is required to report its findings to the Costain Board, identifying any matters in respect of which it considers that action or improvement is needed, and make recommendations as to the steps to be taken.

10. Employees

10.1 Costain Group

The average number of staff employed by the Costain Group for the years ended 31 December 2009, 2010, 2011 and 2012 is set out below:

	2012	2011	2010	2009
Number of employees (excluding Costain Directors)	4,282	4,159	4,349	4,003

As at 25 March, the Costain Group employed 4,432 persons (excluding Costain Directors).

10.2 May Gurney Group

The average number of staff employed by the May Gurney Group for the years ended 31 March 2010, 2011 and 2012 is set out below:

	2012	2011	2010
Number of employees (excluding May Gurney Directors)	5,923	4,708	3,873

As at 25 March 2013, the May Gurney Group employed 5,943 persons (excluding May Gurney Directors).

11. Costain Share Schemes

At the Costain annual general meeting, held on 9 May 2012, a resolution was passed by Costain Shareholders to approve the rules of the SAYE 2012 (defined below) and the LTIP 2012.

Therefore, Costain operates the following Costain Share schemes:

• the LTIP 2012;
• the SAYE 2012 (defined below);
• the DSBP;
• the LTIP 2002; and
• the SAYE 2002,

(together the Costain Share Schemes). There are outstanding options/awards under all of the Costain Share Schemes other than the SAYE 2012. As explained in section 6, no new options/awards may be granted under the LTIP 2002 or the SAYE 2002. Future options/awards may be granted under the LTIP 2012, the SAYE 2012 and/or the DSBP.

The principal features of the LTIP 2012, the SAYE 2012, the DSBP, the LTIP 2002 and the SAYE 2002 are summarised below. See also section 6 above for details in relation to options/awards held by Costain Directors under the LTIP 2012, the SAYE 2012, the DSBP and the LTIP 2002.

11.1 LTIP 2012

(A) Outline

The LTIP 2012 was approved by Costain Shareholders at the Costain annual general meeting on 9 May 2012. It allows for the grant of conditional awards and options with a maximum total market value of up to 100% of annual base salary (or 200% of annual base salary in exceptional circumstances). The Costain remuneration committee may also grant cash-based conditional awards. Options and awards may be subject to performance conditions.

(B) Eligibility

Any employee (including an executive director) of Costain and its subsidiaries will be eligible to participate in the LTIP 2012 at the discretion of the Costain remuneration committee.

(C) Grant of options/awards

The Costain remuneration committee may grant options/awards to acquire Costain Shares within six weeks following Costain's announcement of its results for any period or at any other time when the Costain remuneration committee considers there are exceptional circumstances which justify the granting of options/awards. The Costain remuneration committee could also have granted options/ awards within six weeks of Costain Shareholder approval of the LTIP 2012. The first options/awards were made shortly following adoption of the LTIP 2012. No options/awards may be granted after 8 May 2022.

The Costain remuneration committee may grant awards as conditional awards or as options (either nil cost or with an exercise price). The Costain remuneration committee may also decide to grant cashbased conditional awards of an equivalent value to share-based conditional awards or to satisfy sharebased options/awards in cash.

(D) Individual limit

An employee may not receive options/awards in any financial year over Costain Shares having a total market value in excess of 100% of his annual base salary. In exceptional circumstances, such as recruitment or retention, this limit may be increased to 200% of an employee's annual base salary.

Options granted under the 2012 LTIP had a market value of not more than 100% of basic salary for the executive directors and between 30% to 40% of basic salary for the senior executives (and the level of vesting depends upon the satisfaction of performance targets).

(E) Vesting and exercise

Options and awards will usually vest at the later of the end of any applicable performance period and the third anniversary of the date of grant.

Options will usually be exercisable from vesting until the tenth anniversary of the date of grant.

(F) Performance conditions

The vesting of options/awards may be subject to performance conditions set by the Costain remuneration committee.

The Costain remuneration committee may also, in exceptional circumstances, vary the performance conditions applying to existing awards if the Costain remuneration committee considers it appropriate to do so and provided the Costain remuneration committee acts fairly and reasonably in making the alteration.

(G) Cessation of employment

Cessation within 18 months from grant

With the exception of an acquisition-related redundancy (see below), an option/award will lapse if a participant ceases to hold employment or be a director with the Costain Group for any reason within 18 months from the grant of the option/award.

Cessation on or after 18 months of grant

• If a participant ceases to be an employee or a director because of his injury or disability, his option/award will vest on the normal vesting date, subject to: (i) the extent to which any performance conditions have been satisfied at that time; and (ii) the pro-rating of the option/award to reflect the reduced period of time between its grant and the time of cessation. Options that so vest must usually be exercised within 12 months.
• If a participant dies, his option/award will vest at that time, subject to: (i) the extent to which any performance conditions have been satisfied by reference to the date of cessation; and (ii) the pro-rating of the option/award to reflect the reduced period of time between its grant and vesting. Options that so vest must usually be exercised within 12 months.
• If a participant ceases to be an employee or director in the Costain Group for any other reason (except an acquisition-related redundancy – see below), his option/award will lapse on cessation unless the Costain remuneration committee determines otherwise. If the Costain remuneration committee exercises its discretion in the participant's favour, then the option/award will vest on the normal vesting date, subject to (i) the extent to which any performance conditions have been satisfied at that time; and (ii) the pro-rating of the option/award to reflect the reduced period of time between its grant and the time of cessation. Options that so vest must usually be exercised within 12 months.

Cessation by reason of an acquisition-related redundancy before the normal vesting date

If a participant ceases to be an employee or a director in the Costain Group before the normal vesting date in circumstances where Costain or a Costain Group company has made an acquisition which results in the employee's or director's redundancy, his option/award will vest on the normal vesting date, subject to: (i) the extent to which any performance conditions have been satisfied at that time; and (ii) the pro-rating of the option/award to reflect the reduced period of time between its grant and the time of cessation. Options that so vest must usually be exercised within 12 months.

(H) Corporate events

In the event of a takeover or winding up of Costain or similar corporate event (not being an internal corporate reorganisation), all options/awards will vest early subject to: (i) the extent that any performance conditions have been satisfied at that time; and (ii) the pro-rating of the options/awards to reflect the reduced period of time between their grant and vesting, although the Costain remuneration committee can decide not to pro-rate an option/award if it regards it as inappropriate to do so in the particular circumstances.

In the event of an internal corporate reorganisation, options/awards will be replaced by equivalent new options/awards over shares in the new holding company unless the Costain remuneration committee decides that options/awards should vest on the basis which would apply in the case of a takeover.

(I) Variation of capital

In the event of any variation of Costain's share capital or in the event of a demerger, payment of a special dividend or similar event which materially affects the market price of the Costain Shares, the Costain remuneration committee may make such adjustment as it considers appropriate to the number of Costain Shares subject to an option/award and/or the exercise price payable (if any).

(J) Satisfaction of options/awards

LTIP 2012 options/awards may be satisfied using new issue Costain Shares, treasury Costain Shares or Costain Shares purchased in the market.

(K) Overall limit

In any ten calendar year period, Costain may not issue or transfer treasury Costain Shares (or grant rights to issue or to transfer treasury Costain Shares) in respect of more than:

• 10% of the issued ordinary Costain Share capital of Costain under the LTIP 2012 together with any other employee Costain Share plan adopted by Costain; and
• 5% of the issued ordinary Costain Share capital of Costain under the LTIP 2012 together with any other executive Costain Share plan adopted by Costain.

Treasury Costain Shares shall not count towards these limits if institutional investor guidelines cease to require them to be so counted.

(L) Alterations to the LTIP 2012

The Costain remuneration committee may, at any time, amend the LTIP 2012 in any respect, provided that the prior approval of Costain Shareholders is obtained for any amendments that are to the advantage of participants in respect of the rules governing eligibility, limits on participation, the overall limits on the issue of Costain Shares or the transfer of treasury Costain Shares, the basis for determining a participant's entitlement to, and the terms of, the Costain Shares or cash to be acquired, the adjustment of awards and the amendment provisions.

The requirement to obtain the prior approval of Costain Shareholders will not, however, apply to a change to a performance condition (made in accordance with the plan rules) or any minor alteration made to benefit the administration of the LTIP 2012, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or for any company in the Costain Group.

(M) Clawback

The number of Costain Shares under option/award may be reduced (including to zero) to give effect to clawback provisions in any other share-based or cash-based incentive plan operated by the Costain Group.

(N) General

No payment is required for the grant of an option/award under the LTIP 2012. LTIP 2012 options/ awards are not transferable, except on death, and shall lapse immediately on a participant's bankruptcy. LTIP 2012 options/awards are not pensionable.

LTIP 2012 awards/options may not be granted more than 10 years after Costain Shareholder approval of the plan.

(O) Participants' rights

LTIP 2012 options/awards will not confer any Costain Shareholder rights until awards have vested or options have been exercised and the participants have received the underlying Costain Shares.

(P) Rights attaching to underlying Costain Shares

Any Costain Shares allotted when an award vests or an option is exercised will rank equally with Costain Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

(Q) Overseas plans

The Costain Shareholder resolution (passed at Costain's 2012 AGM) to approve the LTIP 2012 allows the Costain Board, without further Costain Shareholder approval, to establish further plans for overseas territories, any such plan to be similar to the LTIP 2012, but modified to take account of local tax, exchange control or securities laws, provided that any Costain Shares made available under such further plans are treated as counting against the limits on individual and overall participation in the LTIP 2012.

11.2 Costain Group PLC Sharesave Plan ('SAYE 2012')

(A) Outline

The SAYE 2012 was approved by Costain Shareholders at the Costain annual general meeting on 9 May 2012 and has been approved by HMRC as a scheme which provides UK tax-favoured options to UK employees. It allows for the grant of options to all employees of the Costain Group (though only UK employees can receive UK tax-favoured options) within certain limits. If Costain decides to grant options under the SAYE 2012, all UK resident tax-paying employees and full time directors must be invited to participate on the same terms.

(B) Eligibility

Employees and full-time directors of the Company and any designated participating subsidiary who are UK resident taxpayers are eligible to participate. The Costain Board may require employees to have completed a qualifying period of employment of up to five years before the grant of options.

(C) Grant of options

Invitations to participate may be issued at any time but must take account of when the option price may be determined (see below). Options can only be granted to employees who enter into HMRC approved savings contracts, under which monthly savings are normally made over a period of three or five years. Options must be granted within 30 days (or 42 days if applications are scaled back) of the first day by reference to which the exercise price is set. The number of Costain Shares over which an option is granted will be such that the total exercise price payable for those Costain Shares will correspond to the proceeds on maturity of the related savings contract. No options may be granted after 8 May 2022.

(D) Savings limits

Monthly savings by an employee under all savings contracts linked to options granted under the SAYE 2012 and any other sharesave plan may not exceed the statutory maximum (currently £250). The Costain Board may set a lower limit in relation to any particular grant. The minimum monthly savings must not be less than the statutory minimum (currently £5) or more than £10.

(E) Exercise price

The exercise price per Costain Share payable upon the exercise of an option must be not manifestly less than 80% of the market value (defined in the plan rules) of a Costain Share on the day before invitations were sent to participants or on such later date set out in the invitation (which must be no later than the date of grant) and, if the option relates only to new issue Costain Shares, must also not be less than the nominal value of a Costain Share.

The exercise price will be determined by reference to dealing days which fall within the six week period starting on (i) the date of formal approval of the SAYE 2012 by HMRC, (ii) the dealing day following the announcement by Costain of its results for any period, or (iii) the date when a new savings contract prospectus is announced or comes into force, or at any other time when the Costain Board considers there to be exceptional circumstances which justify offering options under the SAYE 2012.

(F) Exercise of options

Options will normally be exercisable from the third, fifth or seventh anniversary of the commencement of the related savings contracts, after which the option will lapse. Early exercise of options is permitted for 6 months when an employee reaches 60.

(G) Cessation of employment

Early exercise is generally permitted in the following circumstances:

• following a participant's death;
• following cessation of employment by reason of injury, disability, redundancy, retirement on reaching age 60 (or any other age at which the employee is bound to retire under his contract of employment) or the business or company that the employee works for ceasing to be part of the Costain Group; or
• following cessation of employment where employment ceases more than three years from grant for any reason other than dismissal for misconduct.

Except where stated above, options will lapse on cessation of employment or directorship with the Costain Group.

(H) Corporate Events

In the event of a takeover, or voluntary winding-up of Costain, options may be exercised early. Alternatively, a participant may agree to exchange his options for an equivalent new option over shares in the new holding company.

(I) Variation of capital

If there is a variation in Costain's share capital then the Costain Board may, subject to prior HMRC approval, make such adjustments as it considers appropriate to the number of Costain Shares under option and the exercise price.

(J) Satisfaction of options

SAYE 2012 options may be satisfied using new issue Costain Shares, treasury Costain Shares or Costain Shares purchased in the market.

(K) Overall limit

In any ten calendar year period, Costain may not issue or transfer treasury Costain Shares (or grant rights to issue or to transfer treasury Costain Shares) more than 10% of the issued ordinary share capital of Costain under the SAYE 2012 and any other employee Costain Share plan adopted by Costain.

Treasury Costain Shares shall not count towards these limits if institutional investor guidelines cease to require them to be so counted.

(L) Alterations to the SAYE 2012

The Costain Board may, at any time, amend the provisions of the SAYE 2012 in any respect, provided that: (i) no alteration to the material disadvantage of a participant is made unless the Costain Board invites every relevant participant to indicate whether or not he approves the alteration and the alteration is approved by a majority of the participants who give such an indication; and (ii) the prior approval of Costain Shareholders is obtained for any amendments that are to the advantage of participants in respect of the rules governing eligibility, individual limits on participation, the overall limits on the issue of Costain Shares or the transfer of treasury Costain Shares, the basis for determining a participant's entitlement to, and the terms of, the Costain Shares to be acquired, the adjustment of options in the event of a rights issue or other variation of capital, or the amendment provisions.

The requirement to obtain the prior approval of Costain Shareholders will not, however, apply to any minor alteration made to benefit the administration of the SAYE 2012, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or for any company in the Costain Group.

No alteration to a key feature of the SAYE 2012 may be made without the approval of HMRC.

(M) General

No payment is required for the grant of an option under the SAYE 2012. SAYE 2012 options are not transferable, except on death, and shall lapse immediately on a participant's bankruptcy. SAYE 2012 options are not pensionable.

(N) Participants' rights

SAYE 2012 options will not confer any Costain Shareholder rights until options have been exercised and the participants have received the underlying Costain Shares.

(O) Rights attaching to underlying Costain Shares

Any Costain Shares allotted when an option is exercised will rank equally with Costain Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

(P) Overseas plans

The Costain Shareholder resolution (passed at Costain's 2012 AGM) to approve the SAYE 2012 allows the Costain Board, without further Costain Shareholder approval, to establish further plans for overseas territories, any such plan to be similar to the SAYE 2012, but modified to take account of local tax, exchange control or securities laws, provided that any Costain Shares made available under such further plans are treated as counting against the limits on individual and overall participation in the SAYE 2012.

11.3 DSBP

Unless otherwise specified, this summary relates to unapproved options granted under the DSBP. The rules relating to any HMRC-approved options are substantially similar but have been modified so as to comply with schedule 4 to the Income Tax (Earnings and Pensions) Act 2003.

(A) Outline

The DSBP was approved by the Costain Board on 7 April 2009 and a tax-favoured schedule was approved on 3 March 2010. It allows for the grant of options with a maximum total market value of up to 50% of annual base salary after taking account of the market value of any Costain Shares under option where a linked HMRC-approved option is also granted on the same day.

(B) Eligibility

All employees of the Costain Group are eligible to participate in the DSBP on a discretionary basis.

(C) Grant of options

The Costain remuneration committee may only grant unapproved options to acquire Costain Shares as soon as reasonably practicable after Costain announces its annual results. For tax-approved options, the Costain remuneration committee may make grants within six weeks following Costain's announcement of its results for any period or at any other time if there are exceptional circumstances. No options may be granted after 31 December 2018.

The Costain remuneration committee may grant options on an unapproved basis or on an unapproved basis with a linked HMRC-approved option. See section 6.2 for further details.

(D) Individual limit

An employee may not receive options over Costain Shares having a total market value in excess of 50% of his annual base salary after taking account of the market value of any Costain Shares under option where an HMRC-approved option is also granted on the same day.

The market value of the Costain Shares subject to awards made under the DSBP for the executive directors was 50% of annual base salary and 30% to 40% of annual base salary for other senior executives. The DSBP awards are subject to the satisfaction of performance targets. The performance measure in respect of the 2012 DSBP grants (measured on the 2011 financial year end) seems likely to achieve 89% vesting and 62% vesting for the 2013 DSBP grant (measured on the 2012 financial year end).

(E) Exercise of options

Under the DSBP, options usually become exercisable on the second anniversary of grant and can usually be exercised up to the tenth anniversary of grant.

A participant may usually only exercise an unapproved option which is linked to an HMRC-approved option at the same time as he exercises the related HMRC-approved option.

(F) Cessation of employment

If a participant ceases to be an employee within the Costain Group (or receives or serves notice to so cease employment) because of death, permanent ill-health, permanent injury, permanent disability, redundancy, the company or business for which he works ceasing to be part of the Costain Group, or any other reason at the discretion of the Costain remuneration committee, any vested options will have their exercise periods curtailed to 12 months and any unvested options will become immediately exercisable for 12 months (or, where a linked HMRC-approved option has also been granted, a period of not more than 42 months from the date of grant, as determined by the Costain remuneration committee), in both cases following the date of such cessation (or receipt or serving of notice).

If a participant ceases employment within the Costain Group or receives or serves notice to cease employment for any other reason, that participant's options will lapse immediately, unless the Costain remuneration committee determines otherwise.

(G) Corporate events

In the event of a takeover or winding up of Costain, all options will become exercisable early unless (for unapproved options) the Costain remuneration committee decides that it is fair and reasonable for the options to be exchanged for equivalent new options over shares in another company or (for taxapproved options) participants consent to exchange their options for equivalent new options over shares in the acquiring company.

(H) Variation of capital

In the event of any variation of Costain's share capital, the Costain remuneration committee may adjust the options as it deems appropriate, subject (for tax-approved options) to HMRC approval.

(I) Satisfaction of options

Options may only be satisfied using Existing Costain Shares which are purchased by a trust on behalf of the Costain Group and so there is no dilution of Costain Shareholders' interests.

(J) Alterations to the DSBP

The Costain remuneration committee may amend the rules of the DSBP in any way provided that no change is made which would adversely affect any subsisting rights of a participant without his written consent or, for unapproved options, the consent of the majority of participants affected by the change or, for tax-approved options, unless every affected participant has been limited to approve the change and a majority who reply approve the change.

The requirement to obtain participant approval will not, however, apply to any amendment made to take account of any amendments to any relevant law or to get or to keep favourable tax, exchange control or regulatory treatment for participants or any member of the Costain Group, or to any minor changes made to benefit the administration of the plan.

For tax-approved options, prior HMRC approval is required for an amendment to a "key feature" of the tax-approved part of the DSBP.

(K) Clawback

For grants made after 1 May 2012, the Costain remuneration committee have introduced clawback provisions with regard to any material misstatement to audited accounts due to fraud, wilful misconduct or negligence, a material error or inaccurate or misleading information or assumptions in the calculation of the number of Costain Shares under DSBP award. The clawback provisions can also be operated to effect clawback provisions in a linked cash bonus plan.

(L) General

No payment is required for the grant of an option under the DSBP. DSBP options are not transferable except on death, and shall lapse immediately on the participant's bankruptcy. DSBP options are not pensionable.

(M) Participant's rights

DSBP options will not confer any Costain Shareholder rights until options have been exercised and the participants have received the underlying Costain Shares.

(N) Rights attaching to underlying Costain Shares

Any Costain Shares allotted when an option is exercised will rank equally with Costain Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

11.4 LTIP 2002

(A) Outline

The LTIP 2002 was approved by Costain Shareholders at the Costain annual general meeting on 24 May 2002 and reached the end of its ten year life in 2012. The LTIP 2002 continues to operate in respect of outstanding options/awards but no new options/awards may be granted under this plan.

It allows for the grant of conditional awards and options with a maximum total market value of up to 100% of annual base salary. Options and awards will be subject to performance conditions. Options/ awards may be subject to a holding period following vesting, in which case participants may also receive matching options/awards (which are also subject to performance conditions).

(B) Eligibility

Any employee (including an executive director) of Costain and its subsidiaries will be eligible to participate in the LTIP 2012 on a discretionary basis provided that they are not within 6 months of their normal retirement date.

(C) Grant of options/awards

Grants under the LTIP 2002 were made by the trustee of an employee share ownership trust. As such, the consent of the trustee will be required before the Costain remuneration committee can exercise certain discretions.

Options/awards to acquire Costain Shares could have been granted within 42 days following 24 May 2002, Costain's announcement of its results for any period or at any other time when the Costain remuneration committee considers there are exceptional circumstances which justify the granting of options/awards. No further options/awards may be granted under this plan.

Awards may be granted as conditional awards or as nominal cost options. Share-based options/ awards may also, by prior agreement with participants, be satisfied in cash.

Options/awards may be subject to a holding period following vesting. If a holding period applies matching options/awards maybe granted in respect of 25% of the related option/award on a one-to-one ratio.

(D) Individual limit

An employee may not receive options/awards (including options/awards granted under any other executive share plan) in any calendar year over Costain Shares having a total market value in excess of 100% of his annual base salary.

(E) Vesting and exercise

Options and awards will usually vest at the end of any applicable performance period (which will usually be 31 December in the calendar year in which the third anniversary of the date of grant falls). Options/awards may be subject to a holding period following vesting.

Options will usually be exercisable from vesting (or the end of any applicable holding period) until the tenth anniversary of the date of grant.

(F) Performance conditions

The vesting of options/awards will be subject to performance conditions. If matching options/awards are granted, these must be subject to a performance condition.

The Costain remuneration committee may also, in certain circumstances, amend, relax or waive the performance conditions applying to existing options/awards if events occur which cause the Costain remuneration committee to consider that the original performance conditions have ceased to be appropriate and provided that, in the reasonable opinion of the Costain remuneration committee, the new performance condition is materially no more easy or difficult to satisfy than the performance condition being amended has when it was imposed (or last amended).

(G) Cessation of employment

If a participant ceases to be employed within or to be a director of the Costain Group for any reason, outstanding options/awards will lapse, unless the Costain remuneration committee determines otherwise either before such cessation or within 6 months after. Any vesting of options/awards shall be subject to the performance conditions being met unless the Costain remuneration committee determines that the provisions to amend, relax or waive the performance condition apply in these circumstances and so amend, relax or waive the performance condition.

If the cessation of employment was due to death, options/awards may vest or be released from any holding period immediately at the discretion of the Costain remuneration committee; or

If the cessation of employment was for any other reason, options/awards may only vest on the normal vesting date and may only be released at the end of any normal holding period, unless the Costain remuneration committee allows early vesting/release.

(H) Corporate events

In the event of a takeover or winding up of Costain, any vested options will have their exercise periods curtailed. In the event of a takeover, any unvested options/awards will lapse unless the Costain remuneration committee determines otherwise (taking into account the reduced period of time between their grant and vesting and Costain's performance over that period) and the trustee consents to such exercise of discretion. In the event of a takeover, if all options/awards can be replaced by equivalent new options/wards over shares in the new holding company, the Costain remuneration committee may decide the options/awards will be so exchanged.

(I) Variation of capital

In the event of any variation of Costain's share capital, including a demerger, capitalisation or rights issue or consolidation, sub-division or reduction of capital, the Costain remuneration committee may make such adjustment as it considers appropriate with the consent of the trustee.

(J) Satisfaction of options/awards

LTIP 2002 options/awards may be satisfied using new issue Costain Shares, treasury Costain Shares or Costain Shares purchased in the market.

(K) Overall limit

In any ten-year period, Costain may not issue or transfer treasury Costain Shares (or grant rights to issue or to transfer treasury Costain Shares) more than:

• 10% of the issued ordinary Costain Share capital of Costain under the LTIP 2002 together with any other employee share plan operated for the benefit of Costain Group employees in respect of Costain Shares; and
• 5% of the issued ordinary Costain Share capital of Costain under the LTIP 2002 together with any other executive share plan operated for the benefit of Costain Group employees in respect of Costain Shares.

(L) Alterations to the LTIP 2002

The Costain Board may, at any time, amend the LTIP 2002 in any respect, provided that: (i) no amendment is made which would materially prejudice participants' interests in subsisting options/ awards without such prior consent from those participants as would be required under the provisions for the alteration of class rights in the Costain Articles as if the underlying Costain Shares constituted a separate but single class of Costain Shares and such Costain Shares were entitled to such right; and (ii) the prior approval of Costain Shareholders is obtained for any amendments that are to the advantage of participants in respect of the rules governing eligibility, limits on participation, the overall limits on the issue of Costain Shares or the transfer of treasury Costain Shares, the basis for determining a participant's entitlement to, and the terms of, the Costain Shares or cash to be acquired and the adjustment of awards.

The requirement to obtain the prior approval of Costain Shareholders will not, however, apply to any minor alteration made to benefit the administration of the LTIP 2002, to take account of a change in legislation or to obtain or maintain favourable tax, exchange control or regulatory treatment for participants or for any company in the Costain Group.

(M) General

No payment is required for the grant of an option/award under the LTIP 2002. LTIP 2002 options/ awards are not transferable, except on death. LTIP 2002 options/awards are not pensionable.

(N) Participants' rights

LTIP 2002 options/awards will not confer any Costain Shareholder rights until awards have vested or options have been exercised and the participants have received the underlying Costain Shares.

(O) Rights attaching to underlying Costain Shares

Any Costain Shares allotted when an award vests or an option is exercised will rank equally with Costain Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

11.5 SAYE 2002

(A) Outline

The SAYE 2002 was approved by Costain Shareholders at the Costain annual general meeting on 24 May 2002 and was approved by HMRC as a scheme which provides UK tax-favoured options to UK employees. The SAYE 2002 reached the end of its ten-year life in 2012. It continues to operate in respect of outstanding options but no new options may be granted under this plan.

The SAYE 2002 allowed for the grant of options to all employees of the Costain Group (though only UK employees can receive UK tax-favoured options) within certain limits. If Costain decides to grant options under the SAYE 2002, all UK resident tax-paying employees and full time directors must be invited to participate on the same terms.

(B) Eligibility

Employees and full-time directors of the Company and any designated participating subsidiary who are UK resident taxpayers are eligible to participate. The Costain Board may require employees to have completed a qualifying period of employment of up to five years before the grant of options. The Costain Board may also allow other employees to participate.

(C) Grant of options

Invitations to participate may have been issued within the 42-day period commencing on the date when the SAYE 2002 was approved by HMRC, the day following the announcement by Costain of its results for any period or the day when the Costain remuneration committee considers there to be exceptional circumstances which justify offering options under the SAYE 2002.

Options could only have been granted to employees who enter into HMRC approved savings contracts, under which monthly savings are normally made over a period of three or five years. Options must have been granted within 30 days (or 42 days if applications were scaled back and could not have been granted within 30 days) of the first day by reference to which the market value of the Costain Shares under option is set. The number of Costain Shares over which an option is granted will be such that the total exercise price payable for those Costain Shares will correspond to the proceeds on maturity of the related savings contract. No further options may be granted under this plan.

(D) Savings limits

Monthly savings by an employee under all savings contracts linked to options granted under the SAYE 2002 and any other sharesave plan may not exceed the statutory maximum (currently £250). The Costain Board may set a lower limit in relation to any particular grant. The minimum monthly savings must not be less than £5.

(E) Exercise price

The exercise price per Costain Share payable upon the exercise of an option must be not manifestly less than 80% (or such other percentage permitted by statute) of the market value (defined in the plan rules) of a Costain Share on the day invitations were sent to participants or on such later date on which the participants are notified of the exercise price and, if the option relates only to new issue Costain Shares, must also be not less than the nominal value of a Costain Share.

(F) Exercise of options

Options will normally be exercisable from the third, fifth or seventh anniversary of the commencement of the related savings contracts, after which the option will lapse. Early exercise of options is permitted when an employee reaches 65.

(G) Cessation of employment

Early exercise is generally permitted in the following circumstances:

• following a participant's death;
• following cessation of employment by reason of injury, disability, redundancy, retirement on reaching age 65 (or any other age at which the employee is bound to retire under his contract of employment) or the business or company that the employee works for ceasing to be part of the Costain Group; or
• following cessation of employment where employment ceases more than three years from grant for any other reason.

Except where stated above, options will lapse on cessation of employment or directorship with the Costain Group.

(H) Corporate Events

In the event of a takeover or voluntary winding-up of Costain, options may be exercised early. Alternatively, a participant may agree to exchange his options for an equivalent new option over shares in the new holding company.

(I) Variation of capital

If there is a variation in Costain's share capital then the Costain Board may, subject to prior HMRC approval, make such adjustments as Costain's auditors confirm in writing to be fair and reasonable to the number of Costain Shares under option and the exercise price.

(J) Satisfaction of options

SAYE 2002 options may be satisfied using new issue Costain Shares, treasury Costain Shares or Costain Shares purchased in the market.

(K) Overall limit

In any ten calendar year period, Costain may not issue or transfer treasury Costain Shares (or grant rights to issue or to transfer treasury Costain Shares) more than 10% of the issued ordinary share capital of Costain under the SAYE 2002 and any other employee share plan operated for the benefit of Costain Group employees in respect of Costain Shares.

(L) Alterations to the SAYE 2002

With the approval of the trustee, the Costain Board may, at any time, amend the provisions of the SAYE 2002 in any respect, provided that: (i) no alteration that would materially affect a participant's subsisting options is made unless 75% of participants (calculated on the basis of the number of Costain Shares under option) consent to such alteration; and (ii) the prior approval of Costain Shareholders is obtained for any amendments that are to the advantage of participants in respect of the rules governing eligibility, individual limits on participation, the overall limits on the issue of Costain Shares or the transfer of treasury Costain Shares, the basis for determining a participant's entitlement to, and the terms of, the Costain Shares to be acquired, or the adjustment of options in the event of a rights issue or other variation of capital.

The requirement to obtain the prior approval of Costain Shareholders will not, however, apply to any minor alteration made to benefit the administration of the SAYE 2002, to take account of a change in legislation or to obtain or maintain favorable tax, exchange control or regulatory treatment for participants or for any company in the Costain Group.

No alteration shall be effective until HMRC approval has been obtained. HMRC must be notified if any amendment is intended to cause the SAYE 2002 to lose its HMRC-approved status.

(M) General

No payment is required for the grant of an option under the SAYE 2002. SAYE 2002 options are not transferable, except on death, and shall lapse immediately on a participant's bankruptcy. SAYE 2002 options are not permissable.

(N) Participants' rights

SAYE 2002 options will not confer any Costain Shareholder rights until options have been exercised and the participants have received the underlying Costain Shares.

(O) Rights attaching to underlying Costain Shares

Any Costain Shares allotted when an option is exercised will rank equally with Costain Shares then in issue (except for rights arising by reference to a record date prior to their allotment).

12. Pension benefits

The Costain Group operates defined contribution and defined benefit pension arrangements.

The Costain Group previously provided pension benefits to employees on a defined benefit basis, through the Costain Pension Scheme. The Costain Pension Scheme was closed to new members from 1 June 2005 and was closed to future accrual on 30 September 2009. The Costain Pension Scheme remains a legacy liability which the Costain Group continues to fund in line with pensions legislation. As at 30 November 2012, there were 6,562 members of the Costain Pension Scheme.

The defined contribution arrangement operated for salaried employees is the Group Personal Pension Plan provided by Standard Life. The Group matches employees' contributions to the Group Personal Pension Plan between 4% and 10% of salary. The majority of employees contribute through a salary sacrifice arrangement. As at 30 November 2012, 1,358 employees were members of the Group Personal Pension Plan.

Under their terms of engagement, the executive directors are entitled to an annual pension allowance of 22% of their base salary. In the year ended 31 December 2012, pension contributions made by the Group in respect of the Costain executive directors amounted to £151,464 (2011: £148,495).

13. Directors' confirmations

None of the Costain Directors nor the Proposed Directors have, during the five years prior to the date of this document:

• (a) been convicted in relation to a fraudulent offence;
• (b) been associated with any bankruptcy, receivership or liquidation while acting in the capacity of a member of the administrative, management or supervisory body or of senior manager of any company save that Ishbel Macpherson was a director of The GAME Group plc at the time it went into administration in March 2012 and Andrew Walker was a director of Manganese Bronze

Holdings plc at the time it went into administration in October 2012, Brintons Limited at the time it went into administration in September 2011 and Bioganix plc at the time an intermediate nontrading holding company was voluntary put into administration in April 2009;

• (c) been subject to any official public incrimination and/or sanction by statutory or regulatory authorities (including designated professional bodies); or
• (d) been disqualified by a court from acting as a member of the administrative, management or supervisory bodies of any issuer or from acting in the management or conduct of the affairs of any issuer.

14. Conflicts of interest

In respect of any Costain Director, there are no actual or potential conflicts of interests between any duties they have to the Company, either in respect of the Merger or otherwise, and the private interests and/or other duties they may also have. Save as disclosed in this Part X there are no interests, including conflicting ones, that are material to the Merger.

In respect of any Proposed Director, there are no actual or potential conflicts of interests between any duties they have to the Company, either in respect of the Merger or otherwise, and the private interests and/or other duties they may also have. Save as disclosed in this Part X there are no interests, including conflicting ones, that are material to the Merger.

No Costain Director has or had during the year ended 2012 a material interest in any significant contract with Costain or any of its subsidiaries.

No Proposed Director has or had during the year ended 2012 a material interest in any significant contract with Costain or any of its subsidiaries.

No Costain Director was selected to be a director of Costain pursuant to any arrangement or understanding with any major customer, supplier or other person having a business connection with the Costain Group.

No Proposed Director was selected to be a director of Costain pursuant to any arrangement or understanding with any major customer, supplier or other person having a business connection with the Costain Group.

No restrictions have been agreed by any Costain Director on the disposal within a certain period of time of his holding in Costain securities.

No restrictions have been agreed by any Proposed Director on the disposal within a certain period of time of his holding in Costain securities.

There are no family relationships between any of the Costain Directors, any of the Proposed Directors or between any of the Costain Directors and any of the Proposed Directors.

PART XI ADDITIONAL INFORMATION

1. The Company

The Company was incorporated and registered in England and Wales on 12 October 1978 with registered number 01393773 as a company limited by shares under the Companies Act 1948 to 1976 with the name Trushelfco (No. 192) Limited which was subsequently changed to Costain Group Limited. The Company's name was eventually changed to Costain Group PLC on 20 October 1981.

It is proposed that the Company's name be changed, subject to the Scheme becoming Effective or, as the case may be, the Merger becoming or being declared wholly unconditional, to "Costain May Gurney PLC".

The principal legislation under which the Company operates, and pursuant to which the New Costain Shares will be created, is the Companies Act and regulations made thereunder.

The Company is domiciled in the United Kingdom and its registered and head office is at Costain House, Vanwall Business Park, Maidenhead, Berkshire, SL6 4UB.

The Existing Costain Shares are listed on the Official List of the London Stock Exchange. The ISIN of the Existing Costain Shares is GB00B64NSP76.

2. Share Capital

2.1 The following table shows the issued share capital of the Company as at 25 March 2013, the latest practicable date prior to the publication of this document, and issued share capital of the Company following Completion of the Merger:

		Costain Shares prior to the Merger	Costain Shares following the Merger
	Number	£	Number	£
Issued and fully paid	65,544,306	32,772,153	123,664,609	61,832,305

Save as disclosed in section 2.2 below, during the three years immediately preceding 25 March 2013 (being the latest practicable date prior to the publication of this document), there has been no issue of ordinary share capital of Costain, fully or partly paid, either in cash or for other consideration, and (other than in connection with the Merger or the Costain Share Schemes) no such issues are proposed.

As at 25 March 2013 (being the latest practicable date prior to the publication of this document), 0.8% of the issued share capital of the Company was held on trust by ACS HR Solutions Share Plan Services (Guernsey) Limited as Trustee of the Costain Group Employee Trust in connection with the Costain Share Schemes. The Trustee does not exercise any right to vote or to receive a dividend in respect of this shareholding. As at the date of this document, Costain holds no treasury shares.

The Existing Costain Shares are admitted to the premium listing segment of the Official List of the UK Listing Authority and admitted to trading on the main market for listed securities of the London Stock Exchange.

2.2 History of ordinary share capital

• (A) As at 1 January 2009, the first day covered by the historical financial information incorporated by reference in this document, the Company's issued share capital amounted to £31,700,000 divided into 633,366,063 Ordinary Shares of 5 pence each. Since 1 January 2009, during the period covered by the historical financial information incorporated by reference in this document, the following changes have occurred to the issued share capital of the Company:

• (i) On 22 May 2009 the issued share capital of Costain was increased by 330,328 shares (each of 0.05 pence nominal value) to 633,696,391 Ordinary Shares by allotments of 330,328 Ordinary Shares.

• (ii) On 29 October 2009 the issued share capital of Costain was increased by 529,756 shares to 634,226,147 Ordinary Shares by allotments of 529,756 Ordinary Shares.

• (iii) On 17 December 2009 the issued share capital of Costain was increased by 22,566 shares (each of 0.05 pence nominal value) to 634,248,713 Ordinary Shares by allotments of 22,566 Ordinary Shares.
• (iv) On 6 May 2010 the issued share capital was consolidated from 634,248,713 Ordinary Shares of 5 pence each to 63,424,871 Ordinary Shares of 50 pence each.
• (v) On 5 April 2011 the issued share capital of Costain was increased by 351,847 shares to 63,838,779 Ordinary Shares by allotments of 351,847 Ordinary Shares.
• (vi) On 1 July 2011 the issued share capital of Costain was increased by 389,819 shares to 64,288,271 Ordinary Shares by allotments of 389,819 Ordinary Shares.
• (vii) On 8 July 2011 the issued share capital of Costain was increased by 56,100 shares to 64,344,371 Ordinary Shares by allotments of 56,100 Ordinary Shares.
• (viii) On 15 July 2011 the issued share capital of Costain was increased by 58,307 shares to 64,402,678 Ordinary Shares by allotments of 58,307 Ordinary Shares.
• (ix) On 22 July 2011 the issued share capital of Costain was increased by 32,702 shares to 64,435,380 Ordinary Shares by allotments of 32,702 Ordinary Shares.
• (x) On 29 July 2011 the issued share capital of Costain was increased by 17,262 shares to 64,452,642 Ordinary Shares by allotments of 17,262 Ordinary Shares.
• (xi) On 5 August 2011 the issued share capital of Costain was increased by 12,084 shares to 64,464,726 Ordinary Shares by allotments of 12,084 Ordinary Shares.
• (xii) On 12 August 2011 the issued share capital of Costain was increased by 2,397 shares to 64,467,123 Ordinary Shares by allotments of 2,397 Ordinary Shares.
• (xiii) On 26 August 2011 the issued share capital of Costain was increased by 1,918 shares to 64,469,041 Ordinary Shares by allotments of 1,918 Ordinary Shares.
• (xiv) On 2 September 2011 the issued share capital of Costain was increased by 13,426 shares to 64,482,467 Ordinary Shares by allotments of 13,426 Ordinary Shares.
• (xv) On 9 September 2011 the issued share capital of Costain was increased by 18,796 shares to 64,501,263 Ordinary Shares by allotments of 18,796 Ordinary Shares.
• (xvi) On 16 September 2011 the issued share capital of Costain was increased by 58,976 shares to 64,560,239 Ordinary Shares by allotments of 58,976 Ordinary Shares.
• (xvii) On 23 September 2011 the issued share capital of Costain was increased by 22,824 shares to 64,583,063 Ordinary Shares by allotments of 22,824 Ordinary Shares.
• (xviii) On 30 September 2011 the issued share capital of Costain was increased by 10,836 shares to 64,593,899 Ordinary Shares by allotments of 10,836 Ordinary Shares.
• (xix) On 7 October 2011 the issued share capital of Costain was increased by 2,877 shares to 64,596,776 Ordinary Shares by allotments of 2,877 Ordinary Shares.
• (xx) On 14 October 2011 the issued share capital of Costain was increased by 7,672 shares to 64,604,448 Ordinary Shares by allotments of 7,672 Ordinary Shares.
• (xxi) On 28 October 2011 the issued share capital of Costain was increased by 43,377 shares to 64,647,825 Ordinary Shares by allotments of 43,377 Ordinary Shares.
• (xxii) On 4 November 2011 the issued share capital of Costain was increased by 2,877 shares to 64,650,702 Ordinary Shares by allotments of 2,877 Ordinary Shares.
• (xxiii) On 11 November 2011 the issued share capital of Costain was increased by 6,233 shares to 64,656,935 Ordinary Shares by allotments of 6,233 Ordinary Shares.
• (xxiv) On 18 November 2011 the issued share capital of Costain was increased by 4,795 shares to 64,661,730 Ordinary Shares by allotments of 4,795 Ordinary Shares.

• (xxv) On 9 December 2011 the issued share capital of Costain was increased by 1,918 shares to 64,663,648 Ordinary Shares by allotments of 1,918 Ordinary Shares.

• (xxvi) On 16 December 2011 the issued share capital of Costain was increased by 14,867 shares to 64,678,515 Ordinary Shares by allotments of 14,867 Ordinary Shares.

• (xxvii) On 23 December 2011 the issued share capital of Costain was increased by 5,603 shares to 64,684,118 Ordinary Shares by allotments of 5,603 Ordinary Shares.
• (xxviii) On 30 December 2011 the issued share capital of Costain was increased by 22,807 shares to 64,706,925 Ordinary Shares by allotments of 22,807 Ordinary Shares.
• (xxix) On 5 January 2012 the issued share capital of Costain was increased by 3,800 shares to 64,710,725 Ordinary Shares by allotments of 3,800 Ordinary Shares.
• (xxx) On 5 April 2012 the issued share capital of Costain was increased by 634,767 shares to 65,345,492 Ordinary Shares by allotments of 634,767 Ordinary Shares.
• (xxxi) On 25 May 2012 the issued share capital of Costain was increased by 133,133 shares to 65,478,625 Ordinary Shares by allotments of 133,133 Ordinary Shares.
• (xxxii) On 26 October 2012 the issued share capital was increased by 65,681 shares to 65,544,306 Ordinary Shares by allotments of 65,681 Ordinary Shares.

2.3 Share capital after the Merger

Subject to Admission, pursuant to the Merger, New Costain Shares will be issued with a nominal value of 50 pence per New Costain Share. This will result in the issued ordinary share capital of the Company increasing by approximately 89% (assuming no options or awards are exercised under the Costain Share Schemes between 25 March 2013 (being the last practicable date prior to the publication of this document) and the Effective Date).

2.4 Existing shareholder authorities

At the annual general meeting of the Company on 8 May 2008, the following resolutions were passed:

• (i) THAT, in substitution for all subsisting authorities, the directors be and they are hereby generally and unconditionally authorised to exercise all the powers of the Company to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985) up to an aggregate nominal amount of £10,470 million provided that this authority shall expire on 7 May 2013 save the Company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such offer or agreement as if the authority confirmed hereby had not expired.
• (ii) THAT, pursuant to the authority conferred on them by the above resolution, the directors be and are hereby empowered pursuant to section 95 of the Companies Act 1985 to allot equity securities for cash (within the meaning of section 94 of the said Act) as if sub-section (I) of section 89 of the said Act did not apply to any such allotment provided that this power shall be limited:
• (a) to the allotment of equity securities pursuant to Article 119 (A) and/or in connection with the allotment of equity securities in connection with a rights issue, open offer or any other preemptive offer or a scrap dividend alternative in favour of ordinary shareholders (excluding any shareholder holding shares as treasury shares); and
• (b) to the allotment (otherwise than pursuant to sub-paragraph (a) above) of equity securities up to an aggregate nominal value of £1,572,171 and shall expire 15 months following the passing of this resolution or, if earlier, at the conclusion of the next Annual General Meeting of the Company after the passing of this resolution save that the Company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired.

2.5 Shareholder Merger authority

The following resolutions are set out in the Notice of General Meeting that is to be found at the end of this document and it is proposed that these resolutions will be voted on at the Costain General Meeting on 8 May 2013 for the purpose of implementing the Merger:

• the Merger be approved and the Costain Directors be authorised to implement the Merger;

• the Costain Directors be authorised to allot the New Costain Shares in connection with the Merger up to an aggregate nominal amount of £30,000,000;
• the limit under the Costain Articles on the total fees paid to all Costain Directors be increased from £500,000 a year to £650,000 a year; and
• the Company and its subsidiaries be permitted to incur borrowings in excess of the £90,000,000 threshold currently provided for under the Costain Articles.

3. Costain Articles

The Costain Articles are available for inspection at the address specified in section 17 below. Costain's Memorandum of Association no longer sets out the objects of the Company, and its objects are unrestricted save to the extent otherwise provided in the Costain Articles.

The Costain Articles contain provisions, inter alia, to the following effect:

3.1 Share rights

Subject to other Costain Shareholders' rights, shares may be issued with such rights and restrictions as Costain may by ordinary resolution decide, or (if there is no such resolution or so far as it does not make specific provision) as the Costain Board may decide. Redeemable shares may be issued.

3.2 Voting rights

In the case of joint holders of a Costain Share, the only vote which will count is the vote of the person whose name is listed before the other voters on the register for the share.

3.3 Restrictions

No member shall be entitled to vote, unless the Costain Board determines otherwise, at any general meeting or class meeting in respect of any share held by him if any call or other sum then payable by him in respect of that share remains unpaid or if a member has been served with a restriction notice after failure to provide Costain with information concerning interests in those shares required to be provided under applicable law.

3.4 Dividends and other distributions

Subject to applicable law, Costain may by ordinary resolution from time to time declare dividends not exceeding the amount recommended by the Costain Board. The Costain Board may pay interim dividends, and also any fixed dividend, whenever the financial position of Costain, in the opinion of the Costain Board, justifies its payment. If the Costain Board acts in good faith, it is not liable for any losses Costain Shareholders may suffer because a lawful dividend has been paid on other shares which rank equally with or behind their shares.

The Costain Board may deduct from any dividend or other monies payable on or in respect of any shares all sums of money (if any) payable to Costain on account of calls or otherwise in respect of that share.

Except insofar as the rights attaching to, or the terms of issue of, any share otherwise provide, all dividends shall be apportioned and paid pro rata according to the amounts paid up on the share during any portion of the period in respect of which the dividend is paid.

No dividend or other monies payable on or in respect of a share shall bear interest as against Costain. Any dividend unclaimed after a period of 12 years from the date when it was declared shall be forfeited and revert to Costain unless the Costain Board decides otherwise.

3.5 Variation of rights

Subject to applicable law, Costain can vary the rights attached to any class of shares if this is approved either in writing by Costain Shareholders holding at least three quarters of the issued shares of that class by amount (excluding any shares of that class held as treasury shares) or by a special resolution held passed at a separate meeting of the holders of the relevant class of shares.

The rights conferred upon the holders of any shares shall not, unless otherwise expressly provided in the rights attaching to those shares, be deemed to be varied by the creation or issue of further shares ranking pari passu with them.

3.6 General meetings

Each Costain Shareholder shall be entitled to attend and speak at any general meeting. The chairman of a meeting can also allow anyone to attend and speak where he considers that this will help the business of the meeting.

3.7 Costain Directors

(A) Number of Costain Directors

The Costain Directors shall be not less than two and not more than 18 in number. Costain may by ordinary resolution vary the minimum and/or maximum number of Costain Directors.

(B) Directors' shareholding qualification

A Costain Director is not required to hold any shares in Costain.

(C) Appointment of Costain Directors

Costain Directors may be appointed by Costain, subject to the Costain Articles, by ordinary resolution or by the Costain Board provided that the total number of Costain Directors shall not exceed the maximum number. A Costain Director appointed by the Costain Board may only hold office until the next following annual general meeting of Costain and is then eligible for re-election by Costain Shareholders.

The Costain Board may from time to time appoint one or more Costain Directors to hold any executive office for such period and on such terms as they may determine and, without prejudice to any claim for damages that a Costain Director may have against Costain or Costain may have against a Costain Director, may also revoke or terminate any such appointment.

(D) Retirement and rotation of Costain Directors

At every annual general meeting the following Costain Directors shall retire from office:

• (i) any Costain Director who has been appointed by the Costain Board since the last annual general meeting;
• (ii) any Costain Director who held office at the time of the two preceding annual general meetings and who did not retire at either of them; and
• (iii) any Costain Director who has been in office, other than as a Costain Director holding an executive position, for a continuous period of nine years or more at the date of the meeting.

Each retiring Costain Director shall be eligible for re-election.

Subject to the provisions of the Costain Articles, at the meeting at which a Costain Director retires Costain can pass an ordinary resolution to re-elect the Costain Director or to elect some other eligible person in his place.

(E) Removal of Costain Directors

Costain may by special resolution remove any Costain Director before the expiration of his period of office and (subject to the Costain Articles) by ordinary resolution appoint another person in his place.

(F) Vacation of office

Any Costain Director automatically stops being a Costain Director if:

• (i) he gives Costain a written notice of resignation;
• (ii) he gives Costain a written notice in which he offers to resign and the Costain Board decides to accept this offer;

• (iii) all of the other Costain Directors (who must comprise at least three people) pass a resolution or sign a written notice requiring the Costain Director to resign;

• (iv) he is or has been suffering from mental or physical ill health and the Costain Board passes a resolution removing the Costain Director from office;

• (v) he has missed Costain Board meetings (whether or not an alternate director appointed by him attends those meetings) for a continuous period of six months without permission from the Costain Board and the Costain Board passes a resolution removing the Costain Director from office;
• (vi) a bankruptcy order is made against him or he makes any arrangement or composition with his creditors generally;
• (vii) he is prohibited from being a Costain Director under the legislation; or
• (viii) he ceases to be a Costain Director under the legislation or he is removed from office under the Costain Articles.
• (G) Proceedings of the Costain Board

Pursuant to the Costain Articles, the Costain Board may decide when and where to have meetings and how they will be conducted. The Costain Board can also adjourn meetings. The quorum necessary for the transaction of the business of the Costain Board may be fixed by the Costain Board and, unless so fixed at any other number, shall be two. A meeting of the Costain Board at which a quorum is present shall be competent to exercise all the powers and discretions exercisable by the Costain Board. A meeting of the Costain Board can be called by any Costain Director.

The Costain Board may appoint any Costain Director as chairman or as deputy chairman and can remove him from that office at any time. If no chairman or deputy chairman has been appointed, or if at any meeting of the Costain Directors no chairman or deputy chairman is present within five minutes after the time appointed for holding the meeting, the Costain Directors present may choose one of their number to be chairman of the meeting.

Questions arising at any meeting of the Costain Board shall be determined by a majority of votes. In the case of an equality of votes the chairman of the meeting shall have a second or casting vote.

The Costain Board may delegate any of its powers, authorities or discretions to Committees consisting of such person or persons as it thinks fit and any Committee formed shall conform to any regulations imposed by the Costain Board. The meetings and proceedings of any Committee consisting of two or more members shall be governed by the provisions contained in the Costain Articles for regulating the meetings and proceedings of the Costain Board so far as the same are applicable and are not superseded by any regulations imposed by the Costain Board.

All or any of the members of the Costain Board or any Committee may participate in a meeting of the Costain Board by means of a conference telephone or any communication equipment which allows all persons participating in the meeting to hear each other. A person so participating shall be deemed to be present at the meeting and shall be entitled to vote and to be counted in the quorum.

A resolution in writing signed by all Costain Directors for the time being entitled to receive notice of a meeting of the Costain Board shall be valid and effectual as a resolution passed at a meeting.

(H) Remuneration of Costain Directors

Any Costain Director who holds any executive office shall receive such remuneration by way of salary, commission or otherwise, as the Costain Board or any Committee authorised by the Costain Board may determine, and either in addition to or in lieu of his remuneration as a Costain Director.

The Costain Board may repay to any Costain Director all such reasonable expenses as he may incur in attending and returning from meetings of the Costain Directors or any Committee of the Costain Directors or Costain Shareholders' meetings or otherwise in connection with the business of Costain or in the discharge of his duties as a Costain Director. Any Costain Director who performs services which in the opinion of Costain Board go beyond the ordinary duties of a Costain Director may be paid such extra remuneration, by way of salary, commission or otherwise, as the Costain Board or any Committee authorised by the Board may determine.

The aggregate amount of fees payable by Costain to the Costain Directors in any financial year shall not exceed £500,000, unless determined otherwise by ordinary resolution of Costain.

(I) Permitted interests of Costain Directors

A Costain Director must disclose the nature of any interest he has in a contract or arrangement with Costain to the Costain Board. Subject to disclosing the nature of his interest, a Costain Director can do any one or more of the following:

• (i) have any kind of interest in a contract with or involving Costain or another company in which Costain has an interest;
• (ii) hold any other office or place of profit with Costain (except that of auditor) in conjunction with his office of Costain Director for such period and upon such terms, including as to remuneration, as the Directors may decide;
• (iii) alone, or through a firm with which he is associated do paid professional work for Costain or another company in which Costain has an interest (other than as auditor);
• (iv) be or become a director or other officer of, or employed by or otherwise be interested in any holding company or subsidiary company of Costain or any other company in which Costain has an interest; and
• (v) be or become a director of any other company in which Costain does not have an interest and which cannot reasonably be regarded as giving rise to a conflict of interest at the time of his appointment as a director of that other company.

A Costain Director does not have to hand over to Costain or the Costain Shareholders any benefit he receives or any profit he makes as a result of a conflict authorised by the Costain Board or a conflict allowed under the Costain Articles, nor is any type of related contract liable to be avoided.

(J) Restrictions on voting

Save as otherwise provided by the Costain Articles, no Costain Director may vote on or be counted in the quorum in relation to any resolution of the Costain Board in respect of any contract or arrangement in which he has an interest, or in relation to any resolution of the Costain Board concerning his own appointment or the terms or termination of his appointment but this prohibition shall not apply to any of the following matters, namely:

• (i) a resolution about giving him any guarantee, indemnity or security for money which he or any other person has lent or obligations he or any other person has undertaken at the request of or for the benefit of Costain or any of its subsidiary undertakings;
• (ii) a resolution about giving any guarantee, indemnity or security to another person for a debt or obligation which is owed by Costain or any of its subsidiary undertakings to that other person if the Costain Director has taken responsibility for some or all of that debt or obligation. The Costain Director can take this responsibility by giving a guarantee, indemnity or security;
• (iii) a resolution about giving him any other indemnity where all other Costain Directors are also being offered indemnities on substantially the same terms;
• (iv) a resolution about Costain funding his expenditure on defending proceedings or Costain doing something to enable him to avoid incurring such expenditure where all other Costain Directors are being offered substantially the same arrangements;
• (v) a resolution relating to an offer by Costain or any of its subsidiary undertakings of any shares or debentures or other securities for subscription or purchase if the Costain Director takes part because he is a holder of shares, debentures or other securities or if he takes part in the underwriting or sub-underwriting of the offer;
• (vi) a resolution about a contract in which he has an interest because of his interest in shares or debentures or other securities of Costain or because of any other interest in or through Costain;

• (vii) a resolution about a contract involving any other company if the Costain Director has an interest of any kind in that company (including an interest by holding any position in that company or by being a shareholder in that company). This does not apply if he knows that he has a relevant interest in that company;

• (viii) a resolution about a contract relating to a pension fund, superannuation or similar scheme or retirement, death or disability benefits scheme or employees' share scheme which gives the Costain Director benefits which are also generally given to the employees to whom the fund or scheme relates;

• (ix) a resolution about a contract relating to an arrangement for the benefit of employees of Costain or of any of its subsidiary undertakings which only gives him benefits which are also generally given to the employees to whom the arrangement relates; and
• (x) a resolution about a contract relating to any insurance which Costain can buy or renew for the benefit of Costain Directors or of a group of people which includes Costain Directors.
• (K) Borrowing powers

The business of Costain is managed by the Costain Board which may exercise all the powers of Costain (whether relating to the management of the business of Costain or otherwise) which are not by applicable law or the Costain Articles required to be exercised by Costain in general meeting. In particular, the Costain Board may exercise all the powers of Costain to borrow money, to indemnify and to mortgage or charge any of its undertakings, property, assets (present and future) and uncalled capital and to issue debentures and other securities and to give security for any debt, liability or obligation of Costain or of any third party. The Costain Board must restrict the borrowings of Costain and exercise all voting and other rights or powers of control exercisable by Costain in relation to its subsidiary undertakings so as to secure that the aggregate principal amount from time to time outstanding of all borrowings (as defined in the Costain Articles) by the Costain Group (exclusive of borrowings within the Costain Group) shall not at any time, without the previous sanction of an ordinary resolution of Costain, exceed an amount equal to £90,000,000.

• (L) Untraced shareholders
• (i) Costain can sell any certificated shares at the best price reasonably obtainable at the time of the sale if:
• (a) during the 12 years before the earliest of the notices referred to in (ii) below, the shares have been in issue either as certificated shares or as CREST shares, at least three cash dividends have become payable on the shares and no dividend has been cashed during that period;
• (b) after the 12 year period, Costain has published a notice stating that it intends to sell the shares. The notice must have appeared in a national newspaper in the United Kingdom and in a local newspaper appearing in the area in the United Kingdom which includes the postal address held by Costain for serving notices relating to those shares; and
• (c) during the 12 year period and for three months after the last of the notices referred to in (ii) above appear, Costain has not heard from the Costain Shareholder or any person entitled to the shares by law.
• (ii) Costain can also sell at the best price reasonably obtainable at the time of the sale any additional certificated shares in Costain issued either as certificated shares or as CREST shares during the 12 year period referred in paragraph (a)(i) in right of any share to which paragraph (a) applies if the criteria in paragraphs (a)(ii) and (a)(iii) are satisfied in relation to the additional shares (but as if the words 'after the 12 year period' were omitted from paragraph (a)(ii) and the words 'during the 12 year period and' were omitted from paragraph (a)(iii)) and no dividend has been cashed on these shares.
• (iii) To sell any shares in this way, the Costain Board can appoint anyone to transfer the shares. This transfer will be just as effective as if it had been signed by the holder, or by a person who is entitled to the shares by law. The person to whom the shares are transferred will not be bound to concern himself as to what is done with the purchase moneys nor will his ownership be affected even if the sale is irregular or invalid in any way.
• (iv) The proceeds of sale will belong to Costain, but it must pay an amount equal to the sale proceeds less the costs of the sale to the Costain Shareholder who could not be traced, or to the person who is entitled to his shares by law, if that Costain Shareholder, or person, asks for it unless and until forfeited under the Costain Articles.

(v) After the sale, Costain must record the name of the Costain Shareholder, or (if known) the person who would have been entitled to the shares by law, as a creditor for the money in its accounts. Costain will not be a trustee of the money and will not be liable to pay interest on it. Costain can use the money, and any money earned by using the money, for its business or in any other way that the Costain Board decides. If no valid claim for the money has been received by Costain during a period of six years from the date on which the relevant shares were sold by Costain under the Costain Articles, the money will be forfeited and will belong to Costain.

4. Litigation

4.1 Costain

Save as described below, so far as Costain is aware, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Costain Group is aware) during the period covering the 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on the financial position or profitability of the Costain Group.

(A) Potential claim in connection with use of database

On 5 November 2012, Costain received a letter from Sir Robert McAlpine Limited ("SRM") notifying Costain that SRM were the defendants in High Court proceedings relating to an alleged unlawful conspiracy with other construction companies in connection with the use of a database which was maintained by the Consulting Association. In that letter, SRM notified Costain of its intention to defend these proceedings and, in order to seek to further protect its position, to make an additional claim within the proceedings against Costain UK Ltd, a member of the Costain Group, as well as against the other subscribers to and/or users of the Consulting Association, as persons who would be, if the claim is successful, jointly liable for the resulting loss and damage under the Civil Liability (Contribution) Act 1978.

To date, Costain has not received any formal claim for contribution in respect of such matters. It is not possible for Costain to currently quantify the likely financial effect on the Costain Group should such a claim be received. However, it is possible that if the claim is successful that other participants in the construction industry, including members of the Costain Group, will be liable to make a contribution in relation to the ensuing liability.

4.2 May Gurney

So far as Costain is aware, there are no governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the May Gurney Group is aware) during the period covering the 12 months preceding the date of this document which may have, or have had in the recent past, significant effects on the financial position or profitability of the May Gurney Group.

5. Costain Material Contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Costain Group: (a) in the two years immediately preceding the date of this document and are, or may be, material to the Costain Group as at the date of this document; or (b) at any time which contain provisions under which any member of the Costain Group has any obligation or entitlement which is material to the Costain Group as at the date of this document:

(i) Purchase of Promanex Group Holdings Limited

On 20 August 2011, Costain Limited (the 'Purchaser', a wholly-owned subsidiary of Costain) entered into a contract (the 'Promanex SPA') to buy the total issued share capital of Promanex Group Holdings Limited ('Promanex'), an industrial support services business providing facilities management, installation, repair and maintenance and general asset management in a number of high growth, specialist markets such as Power, Petrochemicals and Nuclear. The selling shareholders comprised members of its management (the 'Individual Sellers'), their families, and certain other private companies (together the 'Sellers').

The consideration for the acquisition, together with management retention payments, was £16.4 million. In addition, the Promanex business was acquired with normalised net debt of £2.4 million. The acquisition was funded from the Costain Group's existing cash resources. Each of the Individual Sellers (excluding Michael Wallis) were retained as board members of Promanex following completion of the acquisition (the 'Promanex Completion'), which also occurred on 20 August 2011.

Each of the Individual Sellers (excluding Michael Wallis) provided customary undertakings to the Purchaser designed to protect the goodwill of Promanex, including undertakings not to directly or indirectly compete with its business or solicit its employees or suppliers for a period of two years following the Promanex Completion. Each of the Sellers provided certain warranties to the Purchaser, including warranties as to title to the shares, and their power and authority to enter into the Promanex SPA. Each of Mark Dixon, Paul Morris and Benjamin Howard (the 'Warrantors') provided certain additional warranties to the Purchaser which are customary for a transaction of this nature, including, among other things, in respect of borrowings, charges, assets owned by Promanex, insurance, material contracts, intellectual property, the accounts and tax liabilities, employees, pensions, property and environmental liabilities.

The Purchaser and the Warrantors also entered into a tax deed (the 'Promanex Tax Deed') on 20 August 2011 under which the Warrantors provided joint and several undertakings to indemnify the Purchaser against certain tax liabilities of the Promanex Group which are referable to events occurring or profits arising prior to 20 August 2011.

The Promanex SPA contains certain limitations on the ability of the Purchaser to claim against the Warrantors for breach of warranty. In particular, the total aggregate liability of the Warrantors under the Promanex SPA and the Promanex Tax Deed will not exceed £446,447. The Warrantors will not be liable for any warranty claim for less than £10,000. The Warrantors will also have no liability for any warranty claim unless and until warranty claims exceed £80,000 in aggregate (in which case the Warrantors will be liable for the full amount and not just the excess over £80,000). In addition, claims under warranties in the Promanex SPA and the Promanex Tax Deed must be brought on or before the date 18 months after the date of the Promanex Completion.

(ii) Purchase of ClerkMaxwell Limited

On 7 April 2011, Costain Oil Gas & Process Limited ('COGP', a wholly-owned subsidiary of Costain) entered into a contract (the 'ClerkMaxwell SPA') with Satnam Shoker and Others (the 'Sellers') to acquire 75% of the share capital of ClerkMaxwell, an Aberdeen-based front-end engineering and operations support services provider operating in the upstream oil and gas sector.

The consideration consisted of an initial payment of £2,194,539 in cash, with additional deferred consideration payments becoming payable by COGP on completion the financial years ending 31 December 2012, 2013 and 2014 respectively, such consideration based on a percentage of the notional future value of ClerkMaxwell, calculated on the basis of an 8.0x multiple of EBITDA ('Notional Future Value'). The total aggregate percentage of Notional Future Value payable over the three years ending 31 December 2014 is 49%.

Each of the Sellers (except Rodney Coffey) (the 'Covenantors') provided customary undertakings to COGP designed to protect the goodwill of ClerkMaxwell, including undertakings not to directly or indirectly compete with its business or solicit its employees or suppliers for a period of two years following the completion of the acquisition (the 'ClerkMaxwell Completion'), which also occurred on 7 April 2011. Each of the Sellers provided certain warranties to COGP, including warranties as to title to the shares and their power and authority to enter into the sale ClerkMaxwell SPA. The Covenantors provided certain additional warranties to COGP which are customary for a transaction of this nature, including, among other things, in respect of borrowings, charges, assets, insurance, material contracts, intellectual property, the accounts and tax liabilities, employees, pensions, property and environmental liabilities.

COGP and the Covenantors also entered into a tax deed (the 'ClerkMaxwell Tax Deed') on the same date with each of the Covenantors, under which the Covenantors provided joint and several undertakings to indemnify COGP against certain tax liabilities of the ClerkMaxwell Group which are referable to events occurring or profits arising prior to 7 April 2011.

Both the ClerkMaxwell SPA and the ClerkMaxwell Tax Deed included limitations on the ability of COGP to make a claim for breach of the warranties therein, and the Sellers' and Covenantors' total aggregate liability for claims under the warranties in both the ClerkMaxwell SPA and the ClerkMaxwell Tax Deed was limited to the total of the initial consideration plus any deferred consideration actually paid, including the consideration for the Meteor Investments option agreement (below). The Covenantors will not be liable for any warranty claim for less than £30,000. The Covenantors will also have no liability for any warranty claim unless and until warranty claims exceeding £30,000 exceed £150,000 in aggregate (including, in each case, costs, interest, fines, penalties and surcharges; and in which case the Covenantors will be liable for the full amount and not just the excess over £150,000).

With the exception of certain warranties about ClerkMaxwell's tax situation which must be brought before the seventh anniversary of the ClerkMaxwell Completion, claims against the Covenantors' warranties in the ClerkMaxwell SPA or the ClerkMaxwell Tax Deed must be brought before the earlier of (i) the signing by the auditors of ClerkMaxwell of ClerkMaxwell's Audit report in the audited accounts of ClerkMaxwell for the year ended 31 December 2012; or (ii) date falling 24 months after the date of the ClerkMaxwell Completion.

COGP gave warranties to the Sellers in respect of its power and ability to enter into the ClerkMaxwell SPA. COGP also provided the Sellers with certain undertakings to ensure the fair functioning of the deferred consideration provisions, namely that COGP would not knowingly do or omit to do anything with the intention of frustrating the achievement by the business of any EBITDA necessary for the Sellers to receive any deferred consideration, and that each of the Sellers who were remaining in the day-to-day management of the business would use all reasonable endeavours to maximise the profits of the business and the Costain Group PLC as a whole (although not in such a way as to artificially increase the EBITDA to detriment of the business in the long-term).

COGP also entered into an option agreement on the same date with Meteor Investments Limited (the 'Grantor') and ClerkMaxwell, under which the Grantor granted an option over its 25% shareholding in ClerkMaxwell to COGP at an option exercise price of £1 million. COGP exercised the option on 26 April 2011. Following the exercise of the option, COGP now owns the entire share capital of ClerkMaxwell.

(iii) Confidentiality Agreement

Costain and May Gurney have entered into a mutual confidentiality agreement dated 26 November 2012 (the "Confidentiality Agreement") pursuant to which each of Costain and May Gurney has undertaken to keep certain information relating (i) to the Merger and (ii) to the other party confidential and not to disclose such information to third parties, except (i) to certain permitted disclosures, for the purposes of evaluating the Merger or (ii) if required by applicable laws or regulations. These confidentiality obligations will remain in force until completion of the Merger or, if the Merger fails to complete, three years from the date of the Confidentiality Agreement.

(iv) Revolving Credit Facility

On 8 December 2011, Costain entered into a revolving credit facility agreement (the "Revolving Credit Facility Agreement") with Lloyds TSB Bank plc as agent and Abbey National Treasury Services plc, Bayerische Landesbank London Branch, HSBC Bank plc and Lloyds TSB Bank plc as mandated lead arrangers.

Under the terms of the Revolving Credit Facility Agreement, the arrangers agreed to provide Costain with a revolving credit facility of £45 million (the "Revolving Credit Facility") to be used for general corporate purposes and working capital purposes. The Revolving Credit Facility is to be repaid on the last day of the interest period relating to the relevant advance, with no sums being able to be drawn or outstanding on or after 30 September 2015. As at 25 March 2012, £5 million had been drawn down pursuant to the Revolving Credit Facility. The Revolving Credit Facility currently incurs interest at a rate of LIBOR plus a margin of between 1.5 per cent. and 2.2 per cent. per annum (depending on the ratio of total net debt to EBITDA) plus, where appropriate, any applicable mandatory costs. The Revolving Credit Facility Agreement permits voluntary prepayments and voluntary cancellation of undrawn amounts (subject to payment of any applicable break costs). It also contains standard representations, undertakings and events of default as well as financial and general covenants which Costain must observe. The Revolving Credit Facility is guaranteed by Costain together with certain subsidiaries of Costain and has the benefit of security sharing provisions separately agreed between various creditors of Costain. Otherwise, the Revolving Credit Facility Agreement is unsecured. The Revolving Credit Facility Agreement includes provisions allowing certain wholly owned subsidiaries of Costain to accede as additional borrowers and/or additional guarantors.

An amendment and waiver agreement in relation to the Revolving Credit Facility Agreement was entered into on 26 March 2013 in order permit the Merger and to effect certain other amendments required or otherwise considered desirable in relation to the Merger such amendments to take effect only, among other things, on the satisfaction of all conditions precedent in the Term and Revolving Credit Facilities Agreement (as defined below). Pursuant to these provisions, among other things, the financial covenants and applicable margins under the Revolving Credit Facility Agreement are to be amended and Bayerische Landesbank London Branch will cease to be a mandated lead arranger with its participation transferring to Lloyds, TSB Bank plc.

(v) Bonding Facilities and Surety Facilities

On 8 December 2011, Costain together with certain of its subsidiaries (the "Borrowers") entered into five bilateral bonding facility agreements (the "Bonding Facility Agreements") with each of: (1) The Royal Bank of Scotland plc acting as agent for National Westminster Bank plc; (2) Bayerische Landesbank London Branch; (3) Abbey National Treasury Services plc; (4) HSBC Bank plc; and (5) Lloyds TSB Bank plc. On the same date, Costain together with certain of its subsidiaries (the "Contractors") entered into six facility and general agreements of indemnity (the "Surety Facility Agreements") with each of: (1) Zurich Insurance plc; (2) QBE Insurance (Europe) Ltd; (3) Liberty Mutual Insurance Europe Ltd; (4) HCC International Insurance Company plc; (5) Euler Hermes UK plc; and (6) Chartis Europe Ltd.

Under the terms of each Bonding Facility Agreement, each respective lender has agreed to make available to the Borrowers a bonding facility (a "Bonding Facility") up to a maximum amount specified therein to be used to secure, guarantee or assure the performance by a Borrower of any of its obligations and liabilities from time to time to any of its respective employers or other persons dealing with it. The aggregate amount available to the Borrowers across all of the Bonding Facilities is currently £145 million.

Under the terms of each Surety Facility Agreement, each respective surety has agreed to issue, at the request of a Contractor, any bond, guarantee, indemnity or obligatory instrument in respect of the obligations of such Contractor (a "Surety Facility") up to a maximum amount specified therein. The aggregate amount available across all of the Surety Facilities is £275 million.

Each of the Bonding Facility Agreements have substantially the same terms, except that the agreement with Lloyds TSB Bank plc also includes an overdraft facility of £2.5 million (the "Overdraft Facility"), to be used for general corporate purposes. Each of the Surety Facility Agreements have substantially the same terms. In addition, the Bonding Facility Agreements and the Surety Facility Agreements share many of the same terms. Both the Bonding Facilities and the Surety Facilities terminate on 30 September 2015. As at 25 March 2013, £32.1 million of bonds were in issue pursuant to the Bonding Facilities and £114.2 million of surety guarantees were in issue pursuant to the Surety Facilities. The Bonding Facility Agreements and Surety Facility Agreements permit voluntary cancellation of the relevant available facility. They also contain standard representations, undertakings and events of default as well as financial and general covenants which Costain and certain subsidiaries of Costain must observe. The Bonding Facilities and Surety Facilities are guaranteed by Costain together with certain subsidiaries of Costain and have the benefit of security sharing provisions separately agreed between various creditors of Costain. Otherwise, the Bonding Facility Agreements and Surety Facility Agreements are unsecured. The Bonding Facility Agreements and the Surety Facility Agreements include provisions allowing certain wholly owned subsidiaries of Costain to accede as additional borrowers or contractors (as the case may be) and/or additional guarantors.

Amendment and waiver agreements were entered into in relation to the Bonding Facility Agreements and Surety Facility Agreements were amended on 26 March 2013 in order to permit the Merger and to effect certain other amendments required or otherwise considered desirable in relation to the Merger, such amendments to take effect only, among other things, as the satisfaction of all of the conditions precedent to the Term and Revolving Credit Facility Agreement (as defined below). Pursuant to these provisions, among other things, the financial covenants in each Bonding Facility Agreement and Surety Facility Agreement are to be amended and £10.0 million of The Royal Bank of Scotland plc's available facility and approximately £10.6 million of Bayerische Landesbank's available facility is to be cancelled.

(vi) Term and Revolving Credit Facility

On 26 March 2013, Costain entered a revolving credit and term loan facilities agreement (the "Term and Revolving Credit Facilities Agreement") with Lloyds TSB Bank plc as agent and Abbey National Treasury Services plc, HSBC Bank plc, Lloyds TSB Bank plc and The Royal Bank of Scotland plc as mandated lead arrangers. The commitments under the Term and Revolving Credit Facilities Agreement are subject, among other things, to the delivery of the certified copy of the "Offer Document" (as that term is defined therein). Under the terms of the Term and Revolving Credit Facilities Agreement, the arrangers have agreed, subject to the occurrence, among other things, of the Effective Date (as defined therein), to provide Costain with a revolving credit facility of £65 million ("Facility A") and a term loan facility of up to £30 million ("Facility B" and, together with Facility A, the "Term and Revolving Credit Facility"), to be used towards the refinancing of certain indebtedness of May Gurney and its subsidiaries, certain other costs associated with the Merger and the general corporate purposes and working capital purposes of Costain. Facility A is to be repaid on the last day of the interest period relating to the relevant advance, with no sums being able to be drawn or outstanding on or after 30 June 2017. Facility B is to be repaid in three instalments, the last of which is payable on 30 June 2017. Both Facility A and Facility B incur interest at a rate of LIBOR plus a margin of between 1.75 per cent. and 2.95 per cent. per annum (depending on the ratio of total net debt to EBITDA) plus, where appropriate, any applicable mandatory costs. The Term and Revolving Credit Facilities Agreement permits voluntary prepayments and voluntary cancellation of undrawn amounts (subject to payment of any applicable break costs). It also contains standard representations, undertakings and events of default as well as financial and general covenants which Costain must observe. The Term and Revolving Credit Facility is guaranteed by Costain and certain subsidiaries of Costain and has the benefit of certain security sharing provisions separately agreed between various creditors of Costain. Otherwise, the Term and Revolving Credit Facility Agreement is unsecured. The Term and Revolving Credit Facility Agreement includes provisions allowing certain wholly owned subsidiaries of Costain to accede as additional borrowers and/or additional guarantors.

(vii) Security Sharing Agreement

On 26 March 2013, Costain and certain of its subsidiaries entered into a security sharing agreement (the "Security Sharing Agreement") with Lloyds TSB Bank plc, The Royal Bank of Scotland plc as agent for National Westminster Bank plc, Abbey National Treasury Services plc, Bayerische Landesbank London Branch, HSBC Bank plc, HCC International Insurance Company plc, Euler Hermes Europe S.A. (N.V.) (formerly Euler Hermes UK plc), AIG Europe Ltd. (formerly Chartis Europe Ltd), Zurich Insurance plc, Liberty Mutual Insurance Europe Ltd and QBE Insurance (Europe) Ltd. The effect of the Security Sharing Agreement is that, following certain events of default in respect of Costain or its subsidiaries, available cash or cash equivalent balances held in accounts with the counterparties to the Security Sharing Agreement under Costain's name, or under the names of certain subsidiaries, will be shared between the providers of the Term and Revolving Credit Facilities, the Revolving Credit Facility, the Bonding Facilities and the Surety Facilities in accordance with a common regime set out in therein.

6. May Gurney Material Contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the May Gurney Group: (a) in the two years immediately preceding the date of this document and are, or may be, material to the May Gurney Group as at the date of this document; or (b) at any time which contain provisions under which any member of the May Gurney Group has any obligation or entitlement which is material to the May Gurney Group as at the date of this document:

(i) Acquisition of Senturion Group Limited

On 8 November 2011, May Gurney Limited entered into a sale and purchase agreement with certain individual and private equity shareholder sellers and a minority sellers' sale and purchase agreement with certain individual minority shareholder sellers pursuant to which it agreed to acquire the entire issued share capital of Senturion Group Limited, trading as TransLinc, a provider of specialist fleet and passenger services in the UK to local authorities.

The consideration for the acquisition was satisfied by May Gurney Limited paying, in aggregate: (i) £22,155,745 to the sellers under both agreements on completion; and (ii) a further £635,215 into a warranty retention account by way of security for any claims brought against certain management warrantors prior to 31 January 2013. The warranty retention sum (together with accrued interest) was released (without deduction) to the management warrantors on 31 January 2013 in the proportions specified in the principal sale and purchase agreement. Both sale and purchase agreements also contain warranties, restrictive covenants and other provisions which are customary for a transaction of this nature.

In connection with this acquisition, a credit facility between a UK based provider of personal and business financing services and May Gurney Fleet and Passenger Services Limited (secured by parent company guarantees) and an additional borrowing facility with a major financing services provider were put in place (see below for further information).

(ii) Facility agreement with Bank of Scotland plc

May Gurney and other members of the May Gurney Group (the "Borrowers") have a revolving credit facility (the "Credit Facility") with Bank of Scotland plc as lender (the "Bank"). The credit agreement was amended by an amendment and restatement agreement dated 7 November 2011 and has a maturity date of 7 November 2014. The Credit Facility originally provided for revolving credit facilities of £33 million, however, on 28 February 2013, in order to better meet the needs of the May Gurney Group, the Borrowers and the Bank agreed to reduce the maximum amount available under the Credit Facility to £23 million in exchange for an increase of £10 million in the overdraft facility made available to the May Gurney Group by the Bank.

As at 19 March 2013, being the latest practicable date prior to the publication of this document, £20 million of the £23 million available had been drawn under the Credit Facility.

The Credit Facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. The financial covenants in the Credit Facility require that the total interest cover ratio be equal to or greater than a 6 to 1 ratio and that the debt cover ratio be equal to or greater than a 2 to 1 ratio.

Restrictions include limitations on the ability of each of the Borrowers to assign or transfer its obligations, rights or benefits under the Credit Facility; to consolidate, merge or otherwise fundamentally change its ownership or business type; and/or to make additional borrowings.

As at the most recent covenant test date under the Credit Facility, being 31 December 2012, the Borrowers were in compliance with the above covenants and restrictions.

In connection with the Merger, the Credit Facility will be repaid in full and will be replaced by Costain's existing financing arrangements, amended as described above.

(iii) Facility agreement with Lombard North Central plc

May Gurney Fleet and Passenger Services Limited (the "Borrower") has £30 million of revolving credit facilities (the "Credit Facility") with Lombard North Central plc. The Credit Facility was acquired with May Gurney's acquisition of Senturion Group Limited. The credit agreement relating to the Credit Facility was amended by an amendment and restatement agreement dated 1 April 2010 and has a termination date of 10 July 2015. The Credit Facility is secured by way of a May Gurney parent company guarantee.

As at 25 March 2013, being the latest practicable date prior to the publication of this document, £25.4 million had been drawn under the Credit Facility.

The Credit Facility contains certain financial covenants, restrictions and other customary affirmative and negative covenants. The financial covenants in the Credit Facility require that the total interest cover ratio be equal to or greater than a 4 to 2 to 1 ratio and that the cashflow cover ratio be equal to or greater than a 3 to 5 to 1 ratio.

Restrictions include limitations on the ability of the Borrower to assign or transfer its obligations, rights or benefits under the Credit Facility and/or to consolidate, merge or otherwise fundamentally change its ownership or business type.

As at the most recent covenant test date under the Credit Facility, being 31 December 2012, the Borrower was in compliance with the above covenants and restrictions.

In connection with the Merger, Lombard North Central plc has entered into a waiver whereby, conditional upon the Merger becoming Effective, it has waived any breach of the terms of Credit Facility which would otherwise arise as a result of the Merger and, accordingly, the Credit Facility will remain in place following the Merger becoming Effective.

(iv) Equipment leasing agreements

May Gurney and other members of the May Gurney Group are parties to certain equipment lease and hire-purchase facilities with Lloyds TSB Bank Plc and HSBC Equipment Finance (UK) Limited as follows:

• (a) a master agreement for a hire purchase facility with Lloyds TSB Commercial Financial Limited dated 16 April 2007;
• (b) a master agreement for a hire purchase facility with Lloyds TSB Bank Plc dated 29 September 2008;
• (c) a master agreement for a hire purchase facility with Lloyds TSB Bank Plc dated 16 January 2012;
• (d) certain asset purchase contracts of various dates with HSBC Equipment Finance (UK) Limited,

(together, the "Equipment Leasing Agreements").

As at 25 March 2013, being the latest practicable date prior to the publication of this document, the aggregate amount outstanding and secured under the Equipment Leasing Agreements was approximately £40.4 million.

The obligations of relevant members of the May Gurney Group under the Equipment Leasing Agreements are secured by a parent company guarantee from May Gurney and a security interest over the relevant assets and equipment that is the subject of those agreements.

In connection with the Merger, HSBC Equipment Finance (UK) Limited and Lloyds TSB Bank Plc and Lloyds TSB Commercial Finance Limited have entered into waivers whereby, conditional upon the Merger becoming Effective, they have waived any breach of the terms of the relevant Equipment Leasing Agreements which would otherwise arise as a result of the Merger and, accordingly, the Equipment Leasing Agreements will remain in place following the Merger becoming Effective.

7. Related party transactions

Other than as disclosed in the financial information incorporated by reference into this document for the years ended 31 December 2009, 2010 and 2011, as well as the preliminary report for the year ended 31 December 2012, there are no related party transactions by the Company or members of the Costain Group that were entered into during the years ended 31 December 2009, 2010, 2011 and 2012. There have been no additional related party transactions by the Company or members of the Costain Group that were entered into during the period between 31 December 2012 and 25 March 2013 (being the latest practicable date prior to the publication of this document).

In particular, further detail regarding related party transactions can be found on pages 116, 113 and 110 of the Company's Annual Report and Accounts for the year ended 31 December 2011, 2010 and 2009, respectively. Additional detail can be found on page 30 of the Preliminary Results for the year ended 31 December 2012.

8. Dividends

The following table sets out the dividend per Ordinary Share paid in respect of each of the years ended 31 December 2012, 2011, 2010 and 2009:

	2012 (pence)	2011 (pence)	2010 (pence)	2009 (pence)
Final dividend per Ordinary Share for each year ended 31 December Interim dividend per Ordinary Share for each year ended	7.251	6.75	6.25	5.50
31 December	3.50	3.25	3.00	2.75

9. Working capital

Costain is of the opinion that, after taking into account existing available facilities, the working capital available to the Costain Group is sufficient for its present requirements, that is for at least the next 12 months from the date of publication of this document.

Costain is of the opinion that, after taking into account existing available facilities, the working capital available to the Combined Group is sufficient for its present requirements, that is for at least the next 12 months from the date of publication of this document.

10. No significant change

• 10.1 There has been no significant change in the trading or financial position of the Costain Group since 31 December 2012, the date to which Costain's preliminary financial information was prepared.
• 10.2 There has been no significant change in the financial or trading position of the May Gurney Group since 30 September 2012, the date to which May Gurney's last unaudited financial information was prepared.

11. Significant shareholdings

11.1 As at 25 March 2013 (being the latest practicable date prior to the publication of this document), the Company had been notified in accordance with DTR5 of the Disclosure and Transparency Rules of the following interests in its Ordinary Shares:

	Number of Shares	Percentage interest of issued ordinary share capital
UEM Builders Berhad	13,810,850	21.07%
Mohammed Abdulmohsin Al-Kharafi & Sons WLL	13,789,490	21.04%
Henderson Global Investors Limited	3,642,742	5.56%
Legal & General Group PLC	2,564,056	3.91%

• 11.2 Save as disclosed in this section 11, Costain is not aware of any person who, as at 25 March 2013 (being the latest practicable date prior to the publication of this document), directly or indirectly, has a holding which is notifiable under English law.
• 11.3 Costain is not aware of any persons who, as at 25 March 2013 (being the latest practicable date prior to the publication of this document), directly or indirectly, jointly or severally, exercise or could exercise control over Costain nor is it aware of any arrangements the operation of which may at a subsequent date result in a change of control of the Company.
• 11.4 None of the Costain Shareholders referred to in this section 11 has different voting rights from any other holder of Costain Shares in respect of any Costain Shares held by them.

¹ Subject to approval by Costain Shareholders and not yet paid.

12. Subsidiaries

Costain is the parent company of the Costain Group. The following table contains a list of the principal (but not necessarily direct) subsidiaries of Costain and of May Gurney (each of which is considered by Costain to be likely to have a significant effect on the assessment of the assets, liabilities, financial position and/or profits and losses of the Combined Group):

Name	Percentage ownership interest	Field of Activity	Country of Incorporation	Registered Office
Principal Costain subsidiaries
ClerkMaxwell Limited	100	Engineering and Support Services	UK	UK
Costain Abu Dhabi Co WLL	49	Process Engineering	UAE	UAE
Costain Limited	100	Engineering, Construction and Maintenance	UK	UK
Costain Building & Civil Engineering Limited	100	Engineering and Construction	UK	UK
Costain Engineering & Construction Limited	100	Holding and Service Company	UK	UK
Costain Oil, Gas & Process Limited	100	Process Engineering	UK	UK
Promanex (Civils & Industrial Services) Limited	100	Support Services	UK	UK
Promanex (Construction & Maintenance Services) Limited	100	Support Services	UK	UK
Promanex (Total FM & Environmental Services) Limited	100	Support Services	UK	UK
Richard Costain Limited	100	Service Company	UK	UK
Principal May Gurney subsidiaries
May Gurney Limited	100	Infrastructure support services	UK	UK
May Gurney Estates Limited	100	Property holding and development	UK	UK
May Gurney Recycling CIC	100	Collection and sale of recyclable materials	UK	UK
Turriff Group Limited	100	Provision of contracting services to utility markets	Scotland	Scotland
Turriff Contractors Limited	100	Provision of contracting services to utility markets	Scotland	Scotland
TOR2 Limited	80	Waste, recycling collections and highways maintenance	UK	UK
May Gurney Fleet and Passenger Services Limited	100	Provider of specialist fleet and passenger services	UK	UK

13. Mandatory takeover bids, squeeze-out rules, sell-out rules and takeover bids

13.1 Mandatory takeover bids

The City Code on Takeovers and Mergers applies to the Company. Under the City Code, if an acquisition of interests in shares were to increase the aggregate holding of an acquirer and persons acting in concert with it to an interest in shares carrying 30% or more of the voting rights in the Company, the acquirer and, depending upon the circumstances, persons acting in concert with it, would be required (except with the consent of the Takeover Panel) to make a cash offer for the outstanding shares at a price not less than the highest price paid for any interest in shares by the acquirer or his concert parties during the previous 12 months. A similar obligation to make such a mandatory offer would also arise on the acquisition of an interest in shares by a person holding (together with any persons acting in concert) an interest in shares carrying between 30% and 50% of the voting rights in the Company if the effect of such acquisition were to increase that person's percentage of the voting rights.

13.2 Squeeze-out rules

Under the Companies Act, if a 'takeover offer' (as defined in section 974 of the Companies Act) is made for the Costain Shares and the offeror were to acquire, or unconditionally contract to acquire, not less than 90% in value of the shares to which the offer relates (the 'Offer Shares') and not less than 90% of the voting rights attached to the Offer Shares, within three months of the last day on which its offer can be accepted, it could acquire compulsorily the outstanding shares not assented to the offer. It would do so by sending a notice to outstanding shareholders telling them that it will acquire compulsorily their shares and then, six weeks later, it would execute a transfer of the outstanding shares in its favour and pay the consideration to the Company, which would hold the consideration on trust for outstanding shareholders. The consideration offered to the shareholders whose shares are acquired compulsorily under the Companies Act must, in general, be the same as the consideration that was available under the takeover offer.

13.3 Sell-out rules

The Companies Act also gives minority shareholders a right to be bought out in certain circumstances by an offeror who has made a takeover offer. If a takeover offer related to all the Costain Shares and at any time before the end of the period within which the offer could be accepted the offeror held or had agreed to acquire not less than 90% of the Costain Shares to which the offer relates, any holder of Costain Shares to which the offer related who had not accepted the offer could by a written communication to the offeror require it to acquire those Costain Shares. The offeror is required to give any shareholder notice of his right to be bought out within one month of that right arising. The offeror may impose a time limit on the rights of the minority shareholders to be bought out, but that period cannot end less than three months after the end of the acceptance period. If a shareholder exercises his or her rights, the offeror is bound to acquire those Costain Shares on the terms of the offer or on such other terms as may be agreed.

13.4 Takeover bids

No public takeover bid has been made in relation to the Company during the last financial year or the current financial year.

14. Consents

• 14.1 Rothschild whose address is New Court, St Swithin's Lane, London EC4N 8AL has given and has not withdrawn its written consent to the inclusion in this document of references to its name in the form and context in which they appear in the form and context in which it appears.
• 14.2 The auditors and reporting accountants of the Company are KPMG Audit Plc, whose address is 15 Canada Square, London E14 5GL. KPMG Audit Plc has given and has not withdrawn its written consent to the inclusion in this document of its accountant's report in Part VIII of this document in the form and context in which it appears, and has authorised the contents of that report for the purposes of paragraph 5.5.3(2)(f) of the Prospectus Rules. KPMG Audit Plc is a member of the Institute of Chartered Accountants of England and Wales.

15. General

15.1 The financial information concerning Costain contained in this document does not constitute statutory accounts within the meaning of section 434(3) of the Companies Act. The consolidated financial statements of the Company in respect of the three years ended 31 December 2009, 2010 and 2011 incorporated by reference in this document were reported on by KMPG, the auditors of the Company, within the meaning of section 495 of the Companies Act for the period of the historical financial information set out in this document. The auditors of the Company made reports under section 503 of the Companies Act in respect of the three years ended 31 December 2009, 2010 and 2011 incorporated by reference in this document and such reports were unqualified reports within the meaning of sections 836 to 841 of the Companies Act.

• 15.2 The Company remains subject to the continuing obligations of the Listing Rules with regard to the issue of securities for cash, and the provisions of section 561 of the Companies Act (which confers on Shareholders rights of pre-emption in respect of the allotment of equity securities which are, or are to be, paid up in cash) apply to any further issuances of share capital of the Company.
• 15.3 The Existing Costain Shares are in registered form, are capable of being held in uncertificated form and are admitted to the Official List and are traded on the main market for listed securities of the London Stock Exchange.
• 15.4 The New Costain Shares will be in registered form and, from Admission, will be capable of being held in uncertificated form and title to such shares may be transferred by means of a relevant system (as defined in the CREST Regulations). Where New Costain Shares are held in certificated form, share certificates will be sent to the registered members by first-class post. Where New Costain Shares are held in CREST, the relevant CREST stock account of the registered members will be credited. The New Costain Shares have the ISIN GB00B64NSP76.
• 15.5 The Company will make an appropriate announcement(s) to a Regulatory Information Service if the Merger becomes Effective, which is expected to be on or about 6 June 2013.
• 15.6 The aggregate costs and expenses of the Merger payable by the Company are estimated to be £15 million (exclusive of VAT).

16. Sources and bases of selected financial information

In this document:

• 16.1 Unless otherwise stated:
• (A) financial information reported under IFRS relating to Costain has been extracted or provided (without material adjustment) from the consolidated audited annual report and accounts for Costain for the year ended 31 December 2011; and
• (B) financial information reported under IFRS relating to May Gurney has been extracted or provided (without material adjustment) from the audited annual report and accounts for May Gurney for the year ended 31 March 2012.
• 16.2 Unless otherwise stated, all prices quoted for Costain Shares are closing mid-market prices and are derived from the Daily Official List of the London Stock Exchange.
• 16.3 The value of the whole of the issued share capital of Costain of approximately £32.8 million is based upon 65,544,306 Costain Shares being the number of existing issued shares of Costain as at the date of the Merger Announcement and value of 50 pence per Costain Share.
• 16.4 The expected operational cost savings have been calculated on the basis of the existing cost and operating structures of Costain and May Gurney. These statements of estimated cost savings and one-off costs for achieving them relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. Because of this, the cost savings referred to may not be achieved, or those achieved could be materially different from those estimated. This statement is not intended to be a profit forecast and should not be interpreted to mean that the earnings per share in 2013 or in any subsequent financial period, would necessarily match or be greater than those for the relevant preceding financial period.

• 16.5 The statements that the Merger is expected to be materially earnings enhancing for Costain in 2013 (the first full year following completion of the Merger) relate to future actions and circumstances which, by their nature, involve risks, uncertainties and other factors. These statements do not constitute a profit forecast and should not be interpreted to mean that earnings for that year or any subsequent financial period would necessarily match or be greater than those for any preceding financial period. Earnings in this context represent net after tax earnings before the amortisation of intangible assets and non-operating items.

• 16.6 The number of New Costain Shares to be issued pursuant to the Scheme, being 58,120,303 is based on 70,236,016 May Gurney Shares in issue as at the date of the Merger Announcement and assumes that no more May Gurney Shares will be issued prior to the Scheme becoming Effective.

• 16.7 All share prices expressed in pence and all percentages have been rounded to one decimal place.
• 16.8 Where information has been sourced from a third party, Costain confirms that the information has been accurately reproduced and, as far as Costain is aware and able to ascertain from information published by that third party, no facts have been omitted which would render the reproduced information inaccurate or misleading. Where third party information has been used, the source of such information has been identified wherever it appears in this document.

17. Documents available for inspection

Copies of the following documents:

• 17.1 the existing Articles of Association of Costain;
• 17.2 the audited consolidated accounts of the Costain Group for the three years ended 31 December 2010 and 2011 and the unaudited preliminary results for the financial year ended 31 December 2012;
• 17.3 the audited consolidated accounts of the May Gurney Group for the three years ended 31 March 2010, 2011 and 2012 and the unaudited consolidated interim accounts of the May Gurney Group for the six months ended 30 September 2012;
• 17.4 the consent letters referred to in section 13 above;
• 17.5 the report from KPMG set out in Part VIII, section B, Accountant's Report on Pro Forma Financial Information;
• 17.6 the irrevocable undertakings referred to in section 8 of Part I (Letter From Chairman of Costain) of this document;
• 17.7 the Scheme Document; and
• 17.8 this document

are available for inspection during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for a period from the date of publication of this document until Admission at:

• (A) the registered office of Costain, Costain House, Vanwall Business Park, Maidenhead, Berkshire, SL6 4UB; and
• (B) the offices of Slaughter and May, One Bunhill Row, London EC1Y 8YY.

APPENDIX I DEFINITIONS

The following definitions apply throughout this document unless the context otherwise requires:

'Admission'	means admission to the premium listing segment of the Official List in accordance with the Listing Rules and to trading on the London Stock Exchange's main market for listed securities in accordance with the Admission and Disclosure Standards;
'Admission and Disclosure Standards'	means the requirements contained in the publication 'Admission and Disclosure Standards' dated April, 2002 (as amended from time to time) containing, amongst other things, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's market for listed securities;
'AMP4'	means OFWAT's asset management plan for the planning period for 2005-2010;
'AMP5'	means OFWAT's asset management plan for the planning period for 2010-2015;
'Business Day'	means any day (other than a Saturday or Sunday) on which banks generally are open for business in London (other than solely for settlement and trading in Euro);
'Capital Reduction'	means the proposed reduction of share capital of May Gurney pursuant to the Scheme;
'City Code'	means the City Code on Takeovers and Mergers of the United Kingdom;
'Closing Price'	means the closing middle market price of a May Gurney Share as derived from the Daily Official List;
'Combined Group'	means the Costain Group including the May Gurney Group following the Effective Date;
'Combined Group Board Members'	means the board members of the Combined Group, comprising the Costain Directors and the Proposed Directors and 'Combined Group Board' shall be construed accordingly;
'Companies Act'	means the Companies Act 2006, as amended;
'Conditions'	means the conditions to the Merger set out in section 13 of Part I (Letter From Chairman of Costain) of this document and 'Condition' means any one of them;
'Consent'	means any authorisation, order, recognition, grant, consent, licence, confirmation, clearance, permission or approval;
'Costain Articles'	means the articles of association of association of Costain;
'Costain Board' or 'Costain Board of Directors'	means the board of directors of Costain;
'Costain Directors'	means the directors of Costain, and 'Costain Director' means any one of them;

'Costain General Meeting'	means the General Meeting of Costain to be held at 10.00 am on 8 May 2013, or any adjournment thereof, to consider and, if thought fit, to approve the Resolutions;
'Costain Group'	means Costain and its subsidiary undertakings;
'Costain' or the 'Company'	means Costain Group PLC;
'Costain Pension Scheme'	means the Costain Pension Scheme, governed and administered in accordance with the provisions of a definitive trust deed and rules dated 4 March 2011, as amended;
'Costain Pension Trustee'	means Costain Pension Scheme Trustee Limited, as trustee of the Costain Pension Scheme;
'Costain Share Schemes'	means the LTIP 2012, the SAYE 2012, the DSBP, the LTIP 2002 and the SAYE 2002;
'Costain Shareholder Circular'	means the circular, which forms part of this document, to be sent to holders of Existing Costain Shares to approve, among other matters, the Merger and containing the notice convening the Costain General Meeting;
'Costain Shareholders'	means holders of Costain Shares;
'Costain Shares' or 'Ordinary Shares'	means ordinary shares of 50 pence each in the capital of Costain (including, if the context requires, the New Costain Shares);
'Court'	means the High Court of Justice in England and Wales;
'Court Hearings'	means the Scheme Court Hearing and the Reduction Court Hearing and "Court Hearing" means either one of them (as the case may be);
'Court Meeting'	means the meeting of May Gurney Shareholders, as convened by order of the Court under section 896 of the Companies Act, to consider and, if thought fit, approve the Scheme;
'Court Orders' or 'Orders'	the orders of the court sanctioning the Scheme and confirming the Capital Reduction involved therein;
'CREST'	means the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the operator (as defined in the CREST Regulations);
'CREST Regulations'	means the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/378), as amended;
'Daily Official List'	means the daily official list of the London Stock Exchange;
'Disclosure Rules'	means the disclosure rules and regulations made by the UK Listing Authority;
'DSBP'	means the Costain Deferred Share Bonus Plan which was approved by the Costain Board on 7 April 2009 and whose tax favoured schedule was approved by the Costain Board on 3 March 2010;
'EBITA'	means operating profit before amortisation and non-recurring costs after writing off bidding and mobilisation costs incurred;

'EEA State'	means a member state of the European Economic Area;
'Effective'	means, if the Merger is implemented by way of the Scheme, the Scheme having become effective pursuant to its terms;
'Effective Date'	means the date on which the Merger becomes Effective, which is expected to be 6 June 2013;
'EPS'	means underlying earnings per share, before non-recurring items;
'Euroclear'	means Euroclear U.K. & Ireland Limited
'Excluded Shares'	means any May Gurney Shares beneficially owned by Costain or any subsidiary undertaking (as defined in the Companies Act) of Costain and any unissued shares in the capital of May Gurney;
'Executive Board'	means the Costain committee with primary authority for the day-to-day management of the Costain Group's operations, consisting of Costain's executive directors and other Senior Managers and chaired by Andrew Wyllie, Chief Executive of Costain;
'Existing Costain Shareholders'	means holders of Existing Costain Shares;
'Existing Costain Shares'	means the Costain Shares in issue as at the date of this document;
'Financial Adviser'	means N M Rothschild & Sons Limited, New Court, St. Swithin's Lane, London EC4N 8AL;
'FSA'	means the UK Financial Services Authority;
'FSMA'	means the Financial Services and Markets Act 2000, as amended;
'FY2010'	means May Gurney's financial year ended 31 March 2010;
'FY2011'	means May Gurney's financial year ended 31 March 2011;
'FY2012'	means May Gurney's financial year ended 31 March 2012;
'Gross Dividend'	means a dividend plus its related tax credit when paid to a shareholder who is an individual resident (for tax purposes) in the United Kingdom;
'Group'	means the Costain Group, the May Gurney Group or the Combined Group, as appropriate;
'HMRC'	means HM Revenue & Customs;
'HY2013'	means the six months ending 30 September 2012, being the first half of May Gurney's financial year ending 31 March 2013;
'IFRS'	means the International Financial Reporting Standards;
'KPMG'	means KPMG Audit Plc;
'Listing Rules'	means the rules and regulations made by the FSA in its capacity as the UK Listing Authority under FSMA and contained in the UK Listing Authority's publication of the same name;

'London Stock Exchange'	means London Stock Exchange plc;
'LTIP 2002'	means the Costain Group PLC Long-term Incentive Plan which was approved by Costain Shareholders at Costain's annual general meeting on 24 May 2002;
'LTIP 2012'	means the 2012 Costain Group PLC Long-Term Incentive Plan which was approved by Costain Shareholders at Costain's annual general meeting on 9 May 2012;
'MAA'	means Mohammed Abdulmohsin Al-Kharafi & Sons WLL;
'May Gurney'	means May Gurney Integrated Services plc, registered in England and Wales with company number 04321657 with its registered office at Trowse, Norwich, Norfolk, NR14 8SZ;
'May Gurney Board' or 'May Gurney Board of Directors'	means the board of directors of May Gurney;
'May Gurney Directors'	means the directors of May Gurney, and 'May Gurney Director' means any one of them;
'May Gurney General Meeting'	means the general meeting of the May Gurney Shareholders to be convened to consider and if thought fit pass, inter alia, the Special Resolution;
'May Gurney Group'	means May Gurney and its subsidiary undertakings;
'May Gurney Pensions Scheme'	means the May Gurney Group Limited Pension Scheme, governed and administered in accordance with the provision of a definitive trust deed and rules dated 24 September 1998, as amended;
'May Gurney Second Interim Dividend'	means the second interim dividend of 5.6 pence per May Gurney Share payable to each May Gurney Shareholder in respect of the financial year ended 31 March 2013.
'May Gurney Share Schemes'	means the May Gurney Integrated Services Unapproved Share Option Scheme, the May Gurney Long Term Incentive Plan, the May Gurney Integrated Services plc Company Share Option Plan (2007), the May Gurney Integrated Services plc Deferred Share Bonus Plan, the May Gurney Integrated Services plc Savings Related Option Scheme (2007), the May Gurney Integrated Services plc Share Incentive Plan, the standalone share option to acquire 151,515 May Gurney Shares held by Nicholas Chesters and the standalone share option to acquire 5,961 May Gurney Shares held by Matthew Hall;
'May Gurney Shareholders'	means holders of May Gurney Shares;
'May Gurney Shares'	means the existing unconditionally allotted or issued and fully paid (or credited as fully paid) ordinary shares of 5 pence each in the capital of May Gurney and any further such shares which are unconditionally allotted or issued on or prior to the Effective Date;
'Meetings'	means the Scheme Meeting and the May Gurney General Meeting;

'Merger'	means the proposed all-share merger of Costain with May Gurney to be implemented by way of (i) the Scheme or (ii) the Merger Offer (as the case may be);
'Merger Announcement'	means the announcement made by Costain, dated 26 March 2013, of the terms of the all-share merger of Costain with May Gurney;
'Merger Offer'	means, should the Merger be implemented by way of a takeover offer as defined in Chapter 3 of Part 28 of the Companies Act, the recommended offer to be made by or on behalf of Costain to acquire the entire issued and to be issued share capital of May Gurney and, where the context admits, any subsequent revision, variation, extension or renewal of such offer
'Minute'	means the minute (approved by the Court) showing, as altered by the Court Order confirming the Capital Reduction, the several particulars required by section 649 of the Companies Act with respect to May Gurney's share capital;
'net cash'	net cash excludes finance leases and includes short-term bank loans;
'New Costain Shares'	means the Costain Shares proposed to be issued fully paid to May Gurney Shareholders pursuant to the Scheme;
'Notice of General Meeting'	means the notice of Costain General Meeting that is found at the end of this document at page 307;
'Official List'	means the list maintained by the UK Listing Authority;
'OFWAT'	means the Water Services Regulation Authority, being the body responsible for economic regulation of the privatised water and sewerage industry in England and Wales;
'Overseas Shareholders'	means Scheme Shareholders who are resident in, ordinarily resident in, or citizens of, jurisdictions outside the United Kingdom;
'Panel'	means the United Kingdom Panel on Takeovers and Mergers;
'Pensions Regulator'	means the regulator established under Part 1 of the Pensions Act 2004 (as amended) in the United Kingdom;
'Proposed Directors'	means the May Gurney Directors who it is proposed will be on the board of the Combined Group, being Baroness Margaret Ford, Willie MacDiarmid, Ishbel Macpherson and Andrew Walker;
'Prospectus Rules'	means the Prospectus Rules brought into effect on 1 July 2005 pursuant to Commission Regulation (EC) No. 809/2004;
'Reduction Court Hearing'	means the hearing by the Court of the Claim form to confirm the Capital Reduction;
'Reduction Court Order'	means the order of the Court under section 648 of the Companies Act confirming the Capital Reduction;
'Reduction of Capital'	means the proposed reduction of share capital of May Gurney pursuant to the Scheme;
'Regulatory Information Service' or 'RNS'	means any of the services set out in Schedule 12 to the Listing Rules of the UK Listing Authority;

'Reorganisation Record Time'	means the time and date at which a copy of the Scheme Court Order is delivered to the Registrar of Companies;
'Resolutions'	means the ordinary resolutions to be proposed at the Costain General Meeting (and set out in the Notice of General Meeting) to, among other matters, approve the Merger, authorise the Costain Directors to allot the New Costain Shares, increase the limit under the Costain Articles on the total fees paid to all Costain Directors from £500,000 a year to £650,000 a year; and increase the permitted borrowings by up to £210,000,000 above the £90,000,000 threshold currently provided for under the Costain Articles;
'Restricted Jurisdiction'	means any jurisdiction where offering the New Costain Shares or making them available for subscription or purchase would result in a requirement to comply with any governmental or other consent or any registration, filing or other formality which Costain or May Gurney regards as unduly onerous;
'Rothschild'	means N M Rothschild & Sons Limited, New Court, St. Swithin's Lane, London EC4N 8AL;
'SAYE 2002'	means the Costain Group PLC Savings-Related Share Option Scheme which was approved by Costain Shareholders at Costain's annual general meeting on 24 May 2002;
'SAYE 2012'	means the Costain Group PLC Sharesave Plan which was approved by Costain Shareholders at Costain's annual general meeting on 9 May 2012;
'Scheme'	means the proposed scheme of arrangement under Part 26 of the Companies Act between May Gurney and Scheme Shareholders to implement the Merger;
'Scheme Court Hearing'	means the hearing of the Court to sanction the Scheme under section 899 of the Companies Act;
'Scheme Court Order'	means the order of the Court sanctioning the Scheme under section 899 of the Companies Act;
'Scheme Document'	means the document to be dispatched to May Gurney Shareholders including the particulars required by section 897 of the Companies Act;
'Scheme Record Time'	means the time and date specified in the Scheme Document, expected to be 6pm on the Business Day immediately prior to the date of the Court Meeting;
'Scheme Shareholders'	means holders of Scheme Shares;
'Scheme Shares'	means the May Gurney Shares:
	(i) in issue at the date of the Scheme;
	(ii) issued after the date of the Scheme but before the Voting Record Time; and
	(iii) issued at or after the Voting Record Time and before the Reorganisation Record Time on terms that the original or any subsequent holders shall be, or shall have agreed in writing by such time to be, bound by the Scheme,

in each case, excluding any Excluded Shares;

'SDRT'	means stamp duty reserve tax;
'SEC'	means the US Securities and Exchange Commission;
'SEDOL'	means the London Stock Exchange Daily Official List;
'Senior Managers'	means senior managers of Costain;
'Special Resolution'	means the special resolution to be proposed by May Gurney at the May Gurney General Meeting in connection with, amongst other things, the approval of the Scheme and confirmation of the Reduction of Capital, the amendment of May Gurney's articles of association and such other matters as may be necessary to implement the Scheme and the delisting of the May Gurney shares;
'Statement of Capital'	means the statement of capital (approved by the Court) showing, with respect to May Gurney's share capital as altered by the Reduction Court Order, the information required by section 649 of the Companies Act;
'Substantial Interest'	means a direct or indirect interest in 20% or more of the voting equity capital of an undertaking;
'Third Party'	means any government, government department or governmental, quasi-governmental, supranational, statutory, regulatory, environmental or investigative body, court, stock exchange, trade agency, association, institution or any other body or person whatsoever in any jurisdiction;
'TransLinc Pensions Scheme'	means the TransLinc Pension Scheme, governed and administered in accordance with the provision of a definitive trust deed and rules dated 30 March 2000, as amended;
'UK' or 'United Kingdom'	means the United Kingdom of Great Britain and Northern Ireland;
'UK Corporate Governance Code'	means the UK Corporate Governance Code on the Principles of Good Governance and Code of Best Practice published in June 2010 by the Financial Reporting Council in the UK;
'UK Listing Authority'	means the United Kingdom Financial Services Authority in its capacity as the competent authority for listing under Part VI of the UK Financial Services and Markets Act 2000;
'underlying profit before tax'	means profit before tax, amortisation and non-recurring costs;
'US Securities Act'	means the United States Securities Act of 1933, as amended;
'US' or 'United States' or 'United States of America'	means the United States of America, its territories and possessions, any State of the United States and the District of Columbia; and
'Voting Record Time'	means 6.00pm on the day which is two days before the Scheme Meeting or, if the Scheme Meeting is adjourned, 6.00pm on the second day before the date of such adjourned meeting.

All references to legislation in this document are to the legislation of England and Wales unless the contrary is indicated. Any reference to any provision of any legislation shall include any amendment, modification, re-enactment or extension thereof.

Words importing the singular shall include the plural and vice versa, and words importing the masculine gender shall include the feminine or neutral gender.

References to '£', 'Pound sterling', 'p' and 'pence' are to the lawful currency of the United Kingdom.

APPENDIX II RELEVANT DOCUMENTATION

The following documentation, which was sent to Costain Shareholders at the relevant time and/or is available for inspection in accordance with section 16 of Part XI (Additional Information), contains information which is relevant to the Merger:

Information incorporated by reference into this document	Location of incorporation in this document	Page number in this document
Preliminary Results for the year ended 31 December 2012 in relation to Costain	Part V	67
Annual Report and Accounts for the year ended 31 December 2011 in relation to Costain	Part V	67
Annual Report and Accounts for the year ended 31 December 2010 in relation to Costain	Part V	66
Annual Report and Accounts for the year ended 31 December 2009 in relation to Costain	Part V	66

Copies of the documents which are incorporated by reference in this document are available as provided in section 16 of Part XI (Additional Information) of this document.

NOTICE OF GENERAL MEETING

COSTAIN GROUP PLC

(Incorporated in and registered in England and Wales with registered number 01393773)

NOTICE IS HEREBY GIVEN that a general meeting of Costain Group PLC (the 'Company') will be held at More Suite, 2nd Floor, Dexter House, No 2 Royal Mint Court, Tower Hill, London EC3N 4QN on 8 May 2013 at 10.00 a.m. (the 'Meeting') for the purpose of considering and, if thought fit, passing the following resolutions:

ORDINARY RESOLUTIONS

THAT:

• 1. subject to resolutions 2, 3 and 4 below being passed, the proposed all-share merger of the Company with May Gurney Integrated Services plc ('May Gurney') (the 'Merger') to be implemented by way of a Court-sanctioned scheme of arrangement of May Gurney under Part 26 of the Companies Act 2006 (the 'Scheme') or a takeover offer made by or on behalf of the Company for the entire issued and to be issued ordinary share capital of May Gurney (the 'Merger Offer'), substantially on the terms set out in the circular to shareholders outlining the Merger dated 26 March 2013 (a copy of which is produced to the meeting and signed for identification purposes by the chairman of the meeting) be and is hereby approved and the directors of the Company (the 'Directors') (or any duly constituted committee thereof) be and hereby are authorised: (i) to take all such steps as may be necessary or desirable in connection with, and to implement, the Merger; and (ii) to agree such modifications, variations, revisions, waivers or amendments to the terms and conditions of the Merger (provided such modifications, variations, revisions, waivers or amendments are not a material change to the terms of the Merger), and to any documents and arrangements relating thereto, in either such case as they may in their absolute discretion think fit.

• 2. subject to, and conditional upon, the Scheme becoming effective (save for the delivery of the orders of the High Court of Justice in England and Wales (the 'Court') sanctioning the Scheme and confirming the reduction of capital of May Gurney to the Registrar of Companies in England and Wales and (if so ordered by the Court) the registration of such order(s) by the Registrar of Companies in England and Wales; and the U.K. Listing Authority having acknowledged to the Company or its agent (and such acknowledgement not having been withdrawn) that the application for the admission of the new ordinary shares of 50 pence each in the capital of the Company to be issued in connection with the Merger ('New Ordinary Shares') to the Official List of the U.K. Listing Authority with a premium listing has been approved and (after satisfaction of any conditions to which such approval is expressed to be subject (the 'listing conditions')) will become effective as soon as a dealing notice has been issued by the Financial Services Authority and any listing conditions have been satisfied; and the London Stock Exchange plc having acknowledged to the Company or its agent (and such acknowledgement not having been withdrawn) that the New Ordinary Shares will be admitted to trading on the London Stock Exchange's Main Market for listed securities ('Admission')), or, as the case may be, the Merger Offer becoming or being declared wholly unconditional (save for Admission), the Directors be and are hereby authorised generally and unconditionally pursuant to and in accordance with section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot the New Ordinary Shares and to grant rights to subscribe for or to convert any security into shares in the Company, credited as fully paid, with authority to deal with fractional entitlements arising out of such allotment as they think fit and to take all such other steps as they may in their absolute discretion deem necessary, expedient or appropriate to implement such allotment, in connection with the Merger up to an aggregate nominal amount of £30,000,000, which authority (i) shall expire on the fifth anniversary of the date of this resolution, save that the Company may allot shares in the Company in connection with the Scheme and the Merger pursuant to any agreement entered into at any time prior to such expiry (whether before or after the passing of this resolution) which would or might require shares in the Company to be allotted after such expiry and the Directors may allot shares in the Company in pursuance of such agreement as if the authority conferred hereby had not expired and (ii) shall be in addition and without prejudice to any other authority under section 551 of the Companies Act 2006 previously granted and in force on the date on which this resolution is passed.

• 3. THAT, subject to, and conditional upon, the Merger becoming effective, the limit on the total fees paid to all directors of the Company set out in Article 86 of the articles of association of the Company be increased from £500,000 a year to £650,000 a year.

• 4. THAT, subject to, and conditional upon, the Merger becoming effective, the Directors be and are hereby authorised for the purposes of Article 92 of the articles of association of the Company to incur and permit subsidiaries of the Company to incur and have outstanding borrowings (including any refinancing of such borrowings) up to an amount of £210,000,000 in excess of the limit set out in Article 92(B)(I) of the articles of association of the Company.

Tracey Wood Company Secretary

25 March 2013 Registered No:

01393773

Registered office: Costain House Vanwall Business Park, Maidenhead Berkshire SL6 4UB

By order of the Board

NOTES TO THE NOTICE OF GENERAL MEETING

• 1. Members are entitled to appoint a proxy to exercise all or any of their rights to attend and to speak and vote on their behalf at the Meeting. A shareholder may appoint more than one proxy in relation to the Meeting provided that each proxy is appointed to exercise the rights attached to a different share or shares held by that shareholder. A proxy need not be a shareholder of the Company. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms, please contact the Company's registrars, Equiniti on 0871 384 2250 (overseas callers should use +44 (0) 12 1415 7047). Calls cost 8p per minute plus network extras. Lines open 8.30a.m. to 5.30p.m., Monday to Friday. You can only appoint a proxy using the procedures set out in these notes and the notes to the proxy form.
• 1. To be valid any proxy form or other instrument appointing a proxy must be received by post or (during normal business hours only) by hand at Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA by no later than 10 a.m. on 6 May 2013.
• 1. The return of a completed proxy form, other such instrument or any CREST Proxy Instruction (as described in paragraph 11 below) will not prevent a shareholder attending the Meeting and voting in person if he/she wishes to do so.
• 1. In the case of a member which is a company, the proxy form must be executed under its common seal or signed on its behalf by an officer of the company or an attorney for the company.
• 1. Any power of attorney or any other authority under which the proxy form is signed (or a duly certified copy of such power or authority) must be included with the proxy form.
• 1. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If no voting indication is given, your proxy will vote or abstain from voting at his or her discretion.
• 1. Any person to whom this notice is sent who is a person nominated under section 146 of the Companies Act 2006 to enjoy information rights (a 'Nominated Person') may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the Meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights.
• 1. The statement of the rights of shareholders in relation to the appointment of proxies in paragraphs 1 and 2 above does not apply to Nominated Persons. The rights described in these paragraphs can only be exercised by shareholders of the Company. Nominated persons are reminded that they should contact the registered holder of their shares (and not the Company) on matters relating to their investment in the Company.
• 1. To be entitled to attend and vote at the Meeting (and for the purpose of the determination by the Company of the votes they may cast), shareholders must be registered in the Register of Members of the Company at 6 p.m. on Monday 6 May 2013 (or, in the event of any adjournment, by 6 p.m. on the day which is two days before the time of the adjourned Meeting). Changes to the Register of Members after the relevant deadline shall be disregarded in determining the rights of any person to attend and vote at the Meeting.
• 1. As at 25 March 2013 (being the latest practicable date prior to the publication of this Notice) the Company's issued share capital consists of 65,544,306 ordinary shares, carrying one vote each. Therefore, the total voting rights in the Company as at 25 March 2013 are 65,544,306. The Company does not hold any shares in Treasury.
• 1. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
• 1. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a 'CREST Proxy Instruction') must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications, and must contain the information

required for such instruction, as described in the CREST Manual (available via www.euroclear.com/CREST). The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer's agent (ID RA19) by 10 a.m. on Monday 6 May 2013. For this purpose, the time of receipt will be taken to be the time (as determined by the time stamp applied to the message by the CREST Application Host) from which the issuer's agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.

• 1. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider, to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
• 1. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001.
• 1. In each case the proxy appointments must be received by the Company not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.
• 1. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's register of members in respect of the joint holding (the first-named being the most senior).
• 1. Any corporation which is a member can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a member provided that they do not do so in relation to the same shares.
• 1. Any member attending the Meeting has the right to ask questions. The company must cause to be answered any such question relating to the business being dealt with at the Meeting but no such answer need be given if:
• (i) to do so would interfere unduly with the preparation for the Meeting or involve the disclosure of confidential information,
• (ii) the answer has already been given on a website in the form of an answer to a question; or
• (iii) it is undesirable in the interests of the company or the good order of the Meeting that the question be answered.
• 1. A copy of this notice, and other information required by s311A of the Companies Act 2006, can be found at www.costain.com.
• 1. Except as provided above, members who have general queries about the Meeting should use the following means of communication (no other methods of communication will be accepted):
• (i) By contacting the Company's registrars Equiniti in writing at Aspect House, Spencer Road, Lancing, West Sussex, BN99 6DA or by telephoning their shareholder helpline on 0871 384 2250 (overseas callers should use +44 (0) 12 1415 7047). Calls cost 8p per minute plus network extras. Lines open 8.30a.m. to 5.30pm, Monday to Friday.
• (ii) By contacting the Company Secretary in writing at Costain House, Vanwall Business Park, Costain House, Vanwall Business Park, Maidenhead, Berkshire, SL6 4UB or by telephoning him on 01628 842 444 or by emailing him at info@costain.com. Please note that shareholders may not use any electronic address provided in either this document or any related documents (including the proxy form) to communicate with the Company for any purposes other than those expressly stated.

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