Contractors hit back at Eurotunnel

Construction gloom: Losses reported at Costain and Tarmac, while sales decline at Beazer
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The Independent Online
Costain and Tarmac, both members of the Transmanche Link consortium that built the channel tunnel, hit out yesterday at threats of legal action from Eurotunnel. The tunnel operator is considering suing the construction companies, claiming that they failed to supply sufficiently reliable equipment.

Alan Lovell, who yesterday took over as chief executive of Costain, said that the claims made two weeks ago by Eurotunnel were unjustified and without foundation. Both he and Neville Simms, the chief executive of Tarmac, said that TML would vigorously respond to any claim, which is reported to amount to around pounds 1bn.

Mr Simms pointed out that the project was handed over by the contractors two years ago, after tests had been completed to the satisfaction of Eurotunnel and performance bonds had been returned. He added that the consortium members would "brush it aside in due course".

TML is expected to issue a counter-claim if Eurotunnel presses its case, details of which are yet to emerge. Eurotunnel's actions did not prevent Costain from releasing pounds 2.5m of the total pounds 20m provision it had previously made against the channel tunnel contract.

The continuing row between Eurotunnel and TML distracted attention from disappointing interim figures from both Tarmac and Costain, which both contributed half-time losses to the gloomy construction reporting season, and from the demotion of Peter Costain, who moves from being chief executive of the struggling construction company to non-executive deputy chairman.

Mr Costain, who had been chief executive since 1980, has been the target of institutional investors, angered by a slump in the value of their investment in Costain and the staging by the company of two rights issues in recent years at prices well above the 69p at which the shares closed yesterday.

The two cash calls raised pounds 160m in 1991 and 1993 to shore up Costain's battered balance sheet at prices equivalent to pounds 15.50 and pounds 3 a share. Since 1987, the shares have lost 98 per cent of their value.

Mr Lovell also poured cold water yesterday on rumours that Costain might be a bid target for Mohamed Abdulmohsin Kharafi, a Kuwaiti construction company that recently built up a 13.3 per cent stake in the company. He said that there had been no suggestion that it was their intention to mount a bid and he did not expect any such approach to be made.

At Tarmac, a pounds 15.9m interim loss compared with a pounds 23.1m profit in the first six months of 1994 but was distorted by a one-off goodwill write- off of pounds 45m following the disposal of a brick-manufacturing business to rival Ibstock.

Tarmac saw profits from its housebuilding operation, which it put up for sale earlier in the summer, plunge as house prices fell by 2 per cent and unit sales slipped by 8 per cent to 2,368. Profits of pounds 18.9m last year slumped to pounds 8.7m.

Delays in work from the private finance initiative hit the contracting arm, where profits slipped to pounds 2.9m (pounds 3.7m) from sales of pounds 451m. Only quarrying flourished, as price rises held firm, pushing profits up from pounds 14.2m to pounds 25.8m.

Costain, which reduced last year's loss from pounds 14m to pounds 10.4m, warned that trading continued to be extremely challenging but said its order book, up 11 per cent since the start of the year to pounds 529m, had proved resilient.

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Investment column, page 24