TIDMCOST
RNS Number : 3332S
Costain Group PLC
16 March 2021
Costain Group PLC
('Costain' or 'the Group' or 'the Company')
RESULTS FOR THE YEARED 31 DECEMBER 2020
Costain, the smart infrastructure solutions company, announces
its results for the year ended 31 December 2020.
Highlights
-- Operating effectively and profitably
- in responding to COVID-19 all contracts continue to operate
effectively with clear safety measures and remote working in
place
- adjusted operating profit of GBP18.0m (2019: GBP37.9m),
despite financial impact of COVID-19, in line with revised
expectations
- statutory reported loss before tax of GBP96.1m (2019: GBP6.6m)
includes significant charges in relation to the Peterborough &
Huntingdon (P&H) and A465 road contracts
-- Significant operational improvements made
- new leadership team
- de-layered organisational structure
- improved contract selection and risk management processes
-- Continued momentum in securing new work in line with strategic focus
- GBP2.3bn of new contract awards and extensions, including
GBP1.1bn of new contract awards and extensions and GBP1.2bn of
preferred bidder at year end
- GBP4.2bn order book
-- Strong year end cash
- net cash of GBP102.9m (2019: GBP64.9m)
-- Confident outlook for 2021 and beyond
- substantial and growing infrastructure market, positioned on
significant long-term underwritten investment programmes
- confident in delivering growth in profits and margins in 2021
Financial Summary 2020 2019
GBPm GBPm
--------------------------------- -------- --------
Group revenue
-adjusted (1) 1,070.5 1,175.6
-statutory reported 978.4 1,155.6
Operating profit/(loss)
-adjusted(2) 18.0 37.9
-statutory reported (92.0) (3.2)
Profit/(loss) before tax
-adjusted(2) 13.9 34.6
-statutory reported (96.1) (6.6)
Net cash balance(3) 102.9 64.9
--------------------------------- -------- --------
Basic earnings/(loss) per share
-adjusted(2) 5.8p 25.1p
-statutory reported (36.7)p (2.3)p
Dividend per share Nil 3.8p
--------------------------------- -------- --------
1. Before revenue impact of significant contract provision
adjustments of GBP92.1m (2019: GBP20.0m) (see financial statements
note 3).
2. Before net other items of GBP10.3m (2019: GBP21.1m) and
significant contract provision adjustments of GBP99.7m (2019:
GBP20.0m) (see financial statements note 3).
3. Net cash balance is cash and cash equivalents less
interest-bearing loans and borrowings (before arrangement fees of
GBP1.2m).
Alex Vaughan, chief executive officer, commented:
"Last year was a challenging year but I am proud of how well
everyone at Costain responded and the resilience shown across our
business which enabled us to continue to operate effectively with
strict COVID-19 safety measures in place.
"We are pleased to report an adjusted operating profit of
GBP18.0m, despite the financial impact from COVID-19. The
significant charges reported at the half-year relating to two
contracts are clearly disappointing, and importantly we have taken
robust steps to prevent such issues from reoccurring.
"Last year, we continued to be successful in winning new
contracts and preferred bidder positions worth over GBP2.3bn with
an increasing proportion of this work incorporating our broader
service offering in line with our strategy.
"The UK Government has provided a clear strategic framework for
UK infrastructure investment, underpinned by long-term underwritten
investment programmes to support the UK Government's drive to
level-up economic growth and to meet decarbonisation commitments. I
am confident that Costain is in a good position to capitalise on
the opportunities in front of us and to grow our profits in
2021."
Enquiries:
Costain Tel: 01628 842 444
Alex Vaughan, Chief executive officer
Helen Willis, Chief financial officer
Sara Lipscombe, Group communications
director
MHP Communications Tel: 020 3128 8771
Tim Rowntree Costain@mhpc.com
Peter Hewer
Robert Collett-Creedy
There will be a live online presentation for analysts today at
09:00. To register your attendance please contact
costain@mhpc.com
An on-demand webcast will be available via
www.costain.com/investors from 2pm today.
Notes to Editors
Costain helps to improve people's lives with integrated, leading
edge, smart infrastructure solutions across the UK's
transportation, water, energy and defence markets. We help our
clients improve their business performance by increasing capacity,
improving customer service, safeguarding security, enhancing
resilience, decarbonising and delivering increased efficiency. Our
vision is to be the UK's leading smart infrastructure solutions
company. We will achieve this by focusing on blue chip clients
whose major spending plans are underpinned by strategic national
needs, regulatory commitments, legislation or essential performance
requirements. We offer our clients leading edge solutions that are
digitally optimised through the following five services which cover
the whole lifecycle of their assets: future-shaping strategic
consultancy; consultancy and advisory; digital technology
solutions; asset optimisation and complex programme delivery. Our
culture and values underpin everything we do.
For more information visit www.costain.com
2020 OVERVIEW
Summary
In responding and adapting to COVID-19, our priority has been
ensuring the safety and wellbeing of our people and the communities
in which we work, as well as protecting our business and continuing
to serve our clients. We are proud of how well everyone has adapted
to achieve this and would again like to pay tribute to our people,
partners and clients who have done everything they can to look
after one another and to do the right thing.
Last year was an exceptionally challenging year as we worked
hard to successfully manage the operational impact from COVID-19
and maintain effective operations for our clients. We also
completed our capital raising which strengthened our balance sheet
and was a positive catalyst for a number of new contract wins.
We finished the year with an adjusted operating profit of
GBP18.0m, a positive performance given the challenges created by
the pandemic and one we are confident we can build on this
year.
These results reflect GBP94.7m of significant charges from two
long-standing contracts in relation to Peterborough &
Huntingdon (P&H) and the A465 road construction (both disclosed
at the half-year) and a one-off charge of GBP5.0m in relation to
closing out a legacy contract (ASF South). Clear lessons have been
learnt from these events and we have taken decisive action to
prevent such issues reoccurring. We have strengthened the senior
leadership team, introduced greater accountability from top to
bottom, improved our governance and controls and completed a root
and branch exercise to identify and manage potential contract risk.
As a result, Costain is a more resilient business and one which we
are convinced will move forward with confidence to capitalise on
the many opportunities ahead of us.
The infrastructure markets in which we operate have remained
strong and this is reflected in the level of new work we have won.
Supported by the strength of our balance sheet following our
capital raising last May, we secured GBP2.3bn of new work awards
including GBP1.2bn of preferred bidder positions last year. Our
order book stood at GBP4.2bn at the year end and we have a good
level of secured revenue for 2021 at cGBP1.0bn (compared to
cGBP940m at FY2020). We will also benefit from positions on some 60
major live frameworks, with 27 won in 2020.
Our markets are supported by significant long-term investment
programmes underwritten by UK Government policy, regulation,
legislation and critical national need. The UK Government has
committed to further investment to support its drive to level up
economic growth and to meet decarbonisation commitments. Crucially,
we have positioned our offer to meet the changing needs of our
clients through our complex construction programmes, consultancy
contracts and digital performance improvement unlocking the
opportunity to deliver safer, faster, greener, better and more
efficient solutions.
As well as taking advantage of these market opportunities,
improving our business performance is paramount. Our focus on
delivering projects to plan, managing our risks effectively,
prioritising cash generation and continuing our efficiency
programme are the bedrock to delivering the improved business
performance we expect in 2021.
Costain is committed to leading on conducting business
responsibly and we have aligned our purpose of improving peoples'
lives to the United Nation's Sustainable Development Goals. Our
focus areas are creating a greener future, working towards being
net zero by 2035, ensuring Costain is a safe, inclusive and great
place to work where everyone can be at their best and enhancing the
value that Costain contributes to society.
Trading and financial performance
Results
Statutory reported Group revenue for the year was GBP978.4m
(2019: GBP1,155.6m). The reduction in revenue results from a lower
level of capital project activity, in line with our planned
strategic change in mix of services and the revenue impact of
contract adjustments on the A465, P&H and ASF South
contracts.
Statutory reported loss before tax was GBP96.1m (2019: loss of
GBP6.6m) and statutory reported loss per share was 36.7 pence
(2019: 2.3 pence).
Adjusted operating profit was GBP18.0m (2019: GBP37.9m) and
adjusted basic earnings per share were 5.8 pence (2019: 25.1
pence). The adjusted operating profit reflects the estimated
GBP9.2m impact of COVID-19, as well as the impact of an extensive
contract review during the year assessing end-of-life assumptions
and changes in margin mix and volume.
Order book
We have maintained our strong order book at GBP4.2bn (as at 31
December 2020) with over 90% being repeat orders, of which GBP1.1bn
is new contract awards and extensions. In addition, we have a
strong preferred bidder position on contracts worth over GBP1.2bn
(including GBP1.0bn in respect of the allocated work under the
Highways England Smart Motorway Programme) and have secure
positions on some 60 major live frameworks, with 27 won in 2020.
The level of tendering activity across our target markets remains
high.
Operational changes
Leadership team
We have made further significant changes to bolster the
Executive Board over the past year. Helen Willis joined as chief
financial officer in November 2020, Sue Kershaw was appointed
managing director of the transportation division in March 2020, and
Sharon Harris was appointed general counsel and company secretary
in October 2020. Other new members of the leadership team completed
their first year, including Nathan Marsh in the newly-created
position of chief digital officer, Maxine Mayhew as managing
director of the natural resources division and Catherine Warbrick
as human resources director. These changes have brought a refreshed
approach and diversified the experience of our executive management
team, placing us in an even stronger position to take advantage of
the market opportunity open to us.
Improved contract risk management
The Group's contract selection, tender and contract management
processes and behaviours have been enhanced over the past 18
months, resulting in lower contract risk and better cost management
throughout the lifecycle of our projects. In reassessing our
contract selection criteria we have decided not to pursue one-off
energy EPC contracts, focusing instead on long term investment
programmes.
To enhance tender governance the Group has updated its policies
for commercial expectations and risk appetite for all new
contracts, including reducing the acceptable level of downside risk
and increasing the minimum level of acceptable profit for all new
contracts. The Group has also implemented a five-gated approval
process prior to signing any contract, including independent risk
and assurance review prior to target cost and contract conditions
approval.
In addition, the Group has implemented its 'Operational
Excellence Model' on all new contracts and existing long-term
frameworks. The monitoring and administration of scope of works
changes to identify and escalate potential cost increases at an
early stage have been enhanced, including the rigour of monthly
reviews of all contracts in a standard and mandatory format, and
detailed measurement of work in progress and cash collection.
Response to COVID-19
In responding and adapting to COVID-19, our priority has been
ensuring the safety and wellbeing of our people and the communities
in which we work, as well as protecting our business and continuing
to serve our clients.
At the start of the pandemic, we took decisive actions to reduce
our cost base, including management taking a reduction to their
salaries. Overall, in 2020 the estimated financial impact of
COVID-19 was mitigated to a reduction in our profitability of
GBP9.2m. The Group received GBP2.0m from the COVID-19 Job Retention
Scheme and also took the decision to defer VAT of cGBP10.0m under
an agreed UK Government scheme.
In the second half of the year we adapted and maintained strong
and effective safety measures which ensured the effective operation
of our business across every contract. We remain alert to the
continuing challenges and will ensure that we maintain the
necessary safety measures in place on all our contracts to both
keep our teams safe, and to maintain our productivity.
Our markets
Long-term investment plans are shaping the increased investment
in the UK's strategic infrastructure to meet key national
priorities. In order to meet and benefit from these key
infrastructure priorities for the UK, Costain has positioned itself
as one of the UK's leading smart infrastructure solutions companies
operating across the transportation, water, energy and defence
markets supporting the delivery, enhancement and operation of the
UK's critical infrastructure.
These markets have significant long-term investment programmes
underwritten by UK Government policy, regulation, legislation and
critical national need. They are evolving rapidly and positioned
for accelerated growth responding to population increases, climate
change, customers' enhanced expectations of improved service,
ageing assets and the need for greater efficiency and performance
including a growing adoption of technology. All are resulting in
Costain's clients changing their business strategies and investment
priorities.
UK Government investment
UK Government has set out the critical role of new and
modernised infrastructure in supporting the levelling up of a
growing and globally competitive economy, and in decarbonising our
environment.
National Infrastructure Strategy
In response to the National Infrastructure Commission's
Infrastructure Assessment, the UK Government published its National
Infrastructure Strategy in November 2020, committing to the
investment of GBP27.0bn in economic infrastructure in 2021-22.
Energy White Paper
In December 2020, the UK Government published its Energy White
Paper which provides further clarity around the Prime Minister's
Ten Point Plan and introduces a strategy to achieve it.
Defence spending
In November 2020 UK Government announced the biggest programme
of investment in British defence since the end of the Cold War with
a GBP16.5bn increase above its 2019 manifesto commitment to be
spent over the next four years. This includes a multi-year
settlement to allow the Ministry of Defence to invest in
next-generation military capability, building on the previously
pledged increase in defence spending.
Devolved authorities
UK Government is investing in numerous local infrastructure
programmes in addition to its Levelling Up fund. These programmes
aim to increase connectivity, upgrade local road and rail networks
and strengthen local environmental protections with record levels
of investment in strategic roads, rail, broadband and flood
defences.
Regulated and private investment
In addition to UK Government's commitments, the scale of private
sector investment in infrastructure is also increasing:
-- In the water market the regulator, Ofwat, has approved
investment programmes for the water companies amounting to
GBP51.0bn over the next five years to improve water quality
standards, supply resilience, decarbonisation and efficiency of
operations; and
-- In energy, the UK Government estimates its Ten Point Plan
will stimulate further significant private investment by 2030
across energy, buildings, transport, innovation and the natural
environment. In addition, Ofgem has confirmed its major investment
programme into Britain's energy infrastructure from 2021-26
(RIIO-2) with GBP30.0bn upfront funding to deliver a clean and
reliable energy system over and above the Ten Point Plan.
Transforming performance
UK Government is also demanding that our industry transforms the
way infrastructure programmes are delivered in the UK to be faster,
greener and better. This will be achieved through wide-ranging
reforms improving the way projects are chosen, procured and
delivered, and the greater use of cutting-edge construction
technology. Costain was directly involved in creating, and is a
signatory to, the UK Government's Construction Playbook which sets
out its proposals for this transformation.
Strategy and evolution of our business
We have made good progress implementing our Leading Edge
strategy, aligning our services to meet the changing needs of our
clients across the markets which are benefiting most from long term
strategic investment programmes. As we broaden our offer from
purely complex construction to one which also incorporates more
innovative consultancy and digital capabilities, we become
increasingly valuable to our clients resulting in a higher level of
profitability while at the same time reducing our overall risk
profile.
The progress we have made to date, in particular the additional
work we have secured over the past 18 months gives us confidence
that we will achieve our medium-term strategic objective of 6-7%
divisional margins with 55% of profits derived from our higher
margin services.
The growth of the business and increase in margins is being
delivered through:
-- Complex construction programme delivery
Costain continues to build a strong position on the strategic
long term (5 to 10 year) capital investment programmes for our
clients. Through these programmes we are implementing improved ways
of working; delivering safer, faster, greener, better, and more
efficient construction solutions, both reducing risk and increasing
margins in line with our targets.
-- Value and implementation orientated consultancy.
Leveraging our programme delivery skills and expertise we are
securing new work as a consultant and advisor, unlocking value for
our clients, and ensuring the solutions are delivered effectively.
These higher margin consultancy frameworks and contracts, with now
over 1,000 consultants deployed, will deliver margins within our
targeted range.
-- Digital performance improvement
Through leveraging our client relationships, insight, and
digital expertise we are improving performance and productivity by
delivering digital solutions including improved ways of working,
automated services and new technology centric solutions, which will
deliver margins in our targeted range.
Details of the contracts secured and being delivered are
included within the Operational Review.
As part of our strategy to improve profitability, we are also on
track to meet our operational efficiency targets aimed at
delivering GBP20.0m of annualised efficiencies by the end of 2024.
We will be over half-way to achieving this target at the end of
2021, which will enhance our competitiveness and business
efficiency, with some of these efficiencies shared with our clients
as well as reinvesting in the development of our business.
Everyone at Costain is focused on ensuring all projects are
delivered to plan and project risks are managed effectively. This
absolute focus alongside the delivery of our strategic plan is the
bedrock to delivering the improved performance we expect next year
and over the years ahead.
People
Our people are essential to the success of our business and we
are proud to have such a highly skilled and experienced employee
base of c3,100 people, including over 400 chartered professionals
with a diverse range of capabilities and c80 graduates and c115
apprentices on a structured development programme.
Diversity and inclusion remain a business imperative for us and
we were very proud to be named as a Times Top 50 Employers for
Women for a third year running. During the year, we stood in
solidarity with our black colleagues, showing support for the Black
Lives Matter movement. We signed up to the CBI 'Change the Race
Ratio' and Business In the Community's 'Race at Work' pledge. In
addition, we are a proud signatory of the Valuable 500, a global
initiative to raise awareness of disability inclusion and commit
businesses to action on this important topic.
Environment, social purpose and governance (ESG)
Costain is committed to leading on conducting business
responsibly and this is a business imperative for the Group. The
safety of our people and the general public is our number one
priority. We have maintained a world-leading safety performance,
with only 10 reportable accidents occurring in over 31 million
hours of work. Our accident frequency rate (AFR) of 0.03 continues
to lead the industry and we are pleased to report that we had no
major environmental incidents in 2020. In February 2020 we
published our Climate Change Action Plan which set out the Group's
commitment to deliver low carbon solutions to every client by 2023
and to be net zero by 2035 at the latest without offsetting. In
delivering our Responsible Business Commitments, the Costain
business was included in the FTSE4Good Index for the first time,
demonstrating our strong Environmental, Social and Governance (ESG)
practices.
Board
On 19 June 2020, Bishoy Azmy joined the Board as non-independent
non-executive director and representative of ASGC, which has a
15.15% shareholding in the Company following the capital raising
completed in 2020. David McManus, non-executive director, stepped
down from the Board on 19 June 2020 after six years of service.
Helen Willis was appointed chief financial officer on 30
November 2020 succeeding Anthony Bickerstaff who stepped down from
the Board on the same date after 14 years in the role.
Tony Quinlan has been appointed to the Board as a non-executive
director with effect from 1 February 2021. As announced on 27
January 2021, Jane Lodge, senior independent director and chair of
the audit committee, will be stepping down from the Board after
nine years of service at the conclusion of the Company's 2021 AGM
to be held on 6 May 2021 and it is intended Tony Quinlan will
succeed Jane as chair of the audit committee after the AGM.
Dividend
The Group does not recommend a dividend for 2020. The Board
recognises the importance of dividends to shareholders and will
continue to review the timing of the reinstatement of future
dividends in the light of the Group's performance, cash flow
requirements and the importance of maintaining a strong balance
sheet.
Outlook
Looking ahead, while mindful of the macro-economic
uncertainties, we are confident in delivering growth in profits and
margins this year. Costain is in a strong position with a high
volume of secured long-term programmes and a positive market
outlook, in particular the UK Government's commitment to invest in
infrastructure to support the levelling up of our economic activity
and decarbonisation of our environment.
DIVISIONAL REVIEW
Our strategy has positioned Costain to benefit from the key
investment priorities, with an increasing proportion of the new
business being from higher margin services. The table below
(non-exhaustive) demonstrates our alignment to the UK's strategic
national investment programmes.
Key strategic national Costain's contract alignment to strategic
investment programmes national investment programmes
Strategic Highway
Networks * Complex Programme delivery
(Highways England
- RIS2)
o M1 smart motorway programme
o A14 Integrated Delivery Partnership
o Regional Delivery Programme - A1, A12,
A19, A30,
o Smart Motorway Alliance
* Maintenance contracts, areas 12 & 14
* Consultancy partner
o SPaTS2
* Digital frameworks - TMT II
--------------------------------------------------------------------
HS2
* HS2 Enabling works and HS2 S1 and S2 Main works
* Consultancy partner on Phase 2
--------------------------------------------------------------------
Ofwat Regulated Water
Investment * Thames Tideway Tunnel
* AMP 7 capital delivery frameworks - Thames Water,
Severn Trent Water and Southern Water
* Strategic Pipeline Alliance with Anglian Water,
including digital twin
* United Utilities managed maintenance services
programme
* Consultancy
o Yorkshire Water Technical Services Framework
and Assurance Services
o United Utilities Manchester Resilience
programme
o Thames Water PMO
o Asset optimisation consultancy for Southern
Water
o South Staffs Water consultancy and asset
management services
o Welsh Water Hy-Value project
--------------------------------------------------------------------
Network Rail CP6
* Gatwick Station upgrade
* Design Services Framework
--------------------------------------------------------------------
Investment in local
infrastructure * Lancashire County Council Preston Western Distributor
Devolved Authorities Road
* East Sussex County Council highway services asset
management programme
* Bradford Council street lighting - project
management/consultancy
* TFL A40 Westway and Hammersmith Bridge and
Professional Services Framework
--------------------------------------------------------------------
Central Government
* Crown Commercial Services Management Consultancy
Framework
* DOS4 Central Government Digital Framework
* Government G-Cloud 12 Framework - consultancy/digital
--------------------------------------------------------------------
Green Industrial
Revolution * Sellafield Decommissioning Delivery Partner
* Cadent CMO
* Cadent FEEDs
* South Wales Industrial Cluster - decarbonisation work
* Hydrogen design service contracts
* INEOS Breagh Gas plant FEED
* Pale Blue Dot - Acorn Carbon Capture FEED
* EDF Project Controls Framework
--------------------------------------------------------------------
Defence
Equipment Programme * AWE - Project MENSA
* Devonport Royal Dockyard P3M consultancy services and
Delivery Partner roles
* Dreadnought Alliance
--------------------------------------------------------------------
Transportation
GBPm 2020 Adjusted(1) 2020 Statutory 2019 Adjusted(1) 2019 Statutory
Revenue 724.2 674.1 740.6 720.6
------------------------ ---------------- -------------- ---------------- --------------
Operating profit/(loss) 20.1 (30.3) 29.7 9.7
------------------------ ---------------- -------------- ---------------- --------------
(1) Refer to financial statements notes 3 and 4
The division has a forward order book of GBP3.1bn (2019:
GBP3.1bn), which includes our Regional Delivery Partnership (RDP)
position of GBP1.1bn and a preferred bidder position on the Smart
Motorways Alliance with allocated work of GBP1.0bn.
Notable contract wins in 2020 include: the Smart Motorway
Alliance (GBP1.3bn), RDP addition of A30 (GBP250m) and Specialist
Professional and Technical Services framework (SPaTS2) for Highways
England; commencement of phase 1 of the Main Works Civils Contract
joint venture for HS2 (GBP1.4bn); a smart street lighting project
for Bradford Council helping them deliver their targeted efficiency
programme and Network Rail's Design Services Framework.
Highways
As a strategic partner for Highways England, we opened the
flagship A14 Cambridge to Huntingdon project early and to budget.
This project combats congestion, improves safety and unlocks
regional growth by connecting people in the region. On RDP, which
is delivering schemes set out in the Road Investment Strategy
through a longer-term, integrated approach to improve benefits and
eliminate waste, we are continuing to deliver the A19 Testo's
scheme and have started work on the adjacent Downhill Lane Junction
scheme. We have also mobilised the A30 contract and we continue to
develop innovative solutions with Highways England on three road
improvement contracts on the A1 and the A12 widening.
Costain has worked with Highways England for many years to
improve the safety, capacity and journey experience on the nation's
strategic road network. As well as delivering smart motorways as
part of the Smart Motorway Alliance, we are providing highways
maintenance services on the M1 and M62 smart motorways in Yorkshire
and Humber as part of our Area 12 contract. We are delivering
R&D projects to support the continuing development of digital
roads and we successfully completed our 'Connected Digital Roads'
project, which explored opportunities for integrating smart
motorway technology with connected vehicle technology to enhance
the benefits of smart motorways. In addition, we continue to
support Highways England's operations division with a number of
asset management contracts.
We continue to support devolved investment in infrastructure. We
are working with East Sussex County Council on its highways
services asset management programme, Lancashire County Council on
the Preston Western Distributor Road to improve connectivity and
economic growth in the region and Bradford City Council on its
green street lighting programme.
In developing our position as a valued implementation-biased
consultant, we are working with Transport for London (TfL) in
consultancy roles on Hammersmith Pedestrian Bridge and the A40
Westway upgrade. We continue to support the Department for
Transport as a prime supplier on its STARTwo consultancy framework,
under which we offer advice to the Government on a range of
strategic, nationally important transportation issues. Working with
Highways England through the SPaTS2 framework, we are supporting
the shaping of the future roads network and improved methods of
programme delivery. Our technology centre continues to develop and
implement new systems to meet the needs of an increasingly digital
strategic road network.
Rail
In this period, due to the impact of COVID-19 on Crossrail's
budget and programme, our joint venture mutually agreed settlement
and termination on Crossrail's Bond Street station. Work continues
on the systems and technology required for commissioning the
Elizabeth Line, and we have secured, by client request, a one year
extension on this contract to help the client successfully deliver
the new railway. As this is published, we are working hand in hand
with Crossrail to deliver Paddington and secure opening deadlines
for the station.
Our activity on High Speed 2, Britain's low carbon, high
capacity railway is progressing well and growing significantly. We
are delivering the Enabling Works and have mobilised the Phase 1
Main Civils Contracts on two major sections of the route. Our
consulting team has continued to support the design work associated
with the Hybrid Bill for Phase 2a and the development of the route
for Phase 2b.
The upgrade of Gatwick Airport Station for Network Rail to
improve capacity of this critical UK transportation hub is
progressing well. We continue to work with Network Rail on our
reliable, solar powered, wireless, radar-based warning system
(Meerkat) and this will be deployed across the majority of Network
Rail's remote level crossings in 2021.
Pushing the pace on digitisation and innovation to drive better,
faster and greener delivery of infrastructure, we are working
together with key partner SAP and a consortium of industry leading
enterprises (such as Transport for London (TfL), HE, HS2 and
Network Rail) called the 'Transport Infrastructure Efficiency
Strategy Living Lab' (TIES Living Lab) to create a demonstrator for
a new cloud-based data platform called the Intelligent
Infrastructure Control Centre (IICC).
Aviation
Despite early success in securing consultancy frameworks for
Manchester Airports Group, Heathrow Airport Limited and Gatwick
Airport, we have adjusted the focus of our aviation business as the
industry is in stasis due to COVID-19, reaching out to regional
airports and widening our offering to border issues and alternative
fuel usages such as hydrogen.
Central government
Costain has built a new portfolio of work with central
government and continues to win and deliver important and
influential services to key clients in this sector. We delivered
throughout 2020 as a technical and commercial partner to the
Department for Transport on highly complex time sensitive and
critical projects facing the UK economy during COVID-19 and in
preparation for BREXIT. In addition to this work we have also
undertaken strategic consulting assignments for Infrastructure and
Projects Authority, the Cabinet Office and for the Department for
Business, Energy and Industrial Strategy to lay the foundations for
building back a better, more sustainable Britain in line with the
SPEED Strategy.
Natural Resources
GBPm 2020 Adjusted(1) 2020 Statutory 2019 Adjusted(1) 2019 Statutory
Revenue 345.1 303.1 429.4 429.4
------------------------ ---------------- -------------- ---------------- --------------
Operating profit/(loss) 5.7 (43.6) 15.4 15.4
------------------------ ---------------- -------------- ---------------- --------------
(1) Refer to financial statements notes 3 and 4
As at 31 December 2020, the division had a forward order book of
GBP1.1bn (2019: GBP1.1bn), reflecting wins of GBP0.4bn in 2020.
Notable contract wins across the range of our broader services
include the Strategic Pipeline Alliance for Anglian Water; the
Technical Services Framework for Yorkshire Water; the AMP7 PMO
contract for Thames Water; the programme management consultancy for
Cadent and P3M consultancy and delivery partner roles for Babcock
at Devonport Royal Dockyard.
Water
We are focused on helping our clients respond to the Ofwat
regulatory requirements for water companies, enabling them to meet
stretching performance targets and efficiency challenges in the
period to 2025. We have secured positions with our broadest ever
number of clients as we move into AMP7. We continue our complex
capital delivery programme delivery with Severn Trent Water,
Southern Water and Thames Water, driving efficient and innovative
solutions such as asset optimisation. We are appointed as sole
Maintenance Service Provider for United Utilities, providing
overall management and delivery of United Utilities' larger-scale
water and wastewater asset maintenance activities across the
entirety of its network. Our appointment on Yorkshire Water's
Technical Services Framework will see us providing a broad range of
integrated consultancy and digital services to support our client
in driving efficient transformation and optimisation of its water
and wastewater assets during the first four years of AMP7. We are
working alongside Anglian Water in its Strategic Pipeline Alliance
to develop an enterprise-ready digital twin which will optimise
management of the water network throughout the lifecycle of the new
strategic pipeline and provide a much better, more stable, 24/7
service to all of its customers. We provide consultancy services to
Thames Water as PMO, driving efficient delivery across its whole
AMP7 programme. We also continue to provide consultancy and asset
management services to South Staffs Water. We are working to
support the UK water sector to achieve net zero carbon by 2030. In
collaboration with Welsh Water, we have been awarded funding by
Innovate UK for the Hy-Value project, demonstrating significant
progress towards converting sewage-derived biogas into
zero-emission fuel.
We are now finalising works on the AMP6 five-year programmes for
Thames Water, Severn Trent Water and Southern Water. Our AMP6
contract with Thames Water includes an element of incentivisation,
aligned to the client's objectives, estimated through the life of
the contract and finalised at the end of the programme.
The Thames Tideway project, on which we are in a joint venture
to deliver the east section, continues to progress well. We have
recently reached an important milestone on the project, with both
tunnel boring machines launched in 2020 and overall completion is
scheduled for 2024.
Energy
We continue to drive the transformation of our energy sector
with a renewed market focus on expanding our consultancy services
in decarbonisation and maximising existing asset performance.
In 2020, we secured leading roles in the future decarbonisation
of the UK through three UK carbon capture and storage cluster
schemes, as well as delivering a number of firsts in the UK
decarbonisation space; first trial of hydrogen into regional
distribution network; first in network gas compression for Biogas;
first carbon capture scheme; and first microgrid and resilience as
a service project for Scottish and Southern
Electricity Networks. We continued our important roles in both
the South Wales and Scotland industrial clusters and demonstrated
the feasibility of the concept of hydrogen 'deblending' for a first
of its kind programme that brings together all the gas distribution
networks to collaboratively develop innovative hydrogen solutions
that will decarbonise energy for heat, transport, industry and
power generation. While the pace of the UK transitioning to a
decarbonised energy network is slower than expected, we have
secured key positions which allow us to continue to support our
clients today, while working with them to shape and deliver the
energy networks of the future.
In addition, in 2020, Costain has provided strategic planning
and programme management to Cadent as part of its 10 year capital
investment programme. This contract builds on the established
partnership Costain has with Cadent as one of its partners
overseeing the HS2 gas main diversions. We are also Cadent's
strategic partner in the transition to the decarbonisation of
energy networks including the hydrogen economy through the North
West Hydrogen Alliance and the OptiNet project to research gas
compression technology.
Our Sellafield decommissioning framework and EDF Project
Controls framework contracts continue to perform in line with
expectations.
Defence
In 2020, Costain strengthened its market position as a valued
consultant with a number of key client wins. Today, we are involved
in the Continuous at Sea Deterrent programme at several levels,
working with defence primes including AWE, Rolls Royce and BAE and
directly with the Ministry of Defence via the Crown Commercial
Services framework. In addition, we are providing P3M consultancy
services and delivery partner roles for Babcock at Devonport Royal
Dockyard. Our programme management contract for AWE continues to
meet performance expectations, allowing us to secure opportunities
to support AWE on additional projects.
OTHER FINANCIAL INFORMATION
Other items and adjusted profit
To aid understanding of the underlying performance of the Group,
adjusted operating profit and adjusted profit before tax have been
used as alternative performance measures. These measures exclude
items which are considered to be one-off and unusual in nature or
related to accounting treatment of acquisitions and fall into two
categories:
1. the contract adjustments of GBP94.7m on the A465 and
Peterborough & Huntingdon contracts detailed below as well as
the GBP5.0m final settlement charge against a contract (ASF South)
that completed five years ago; and
2. 'other items' of GBP10.3m, which are shown in a separate
column in the consolidated income statement include amortisation of
acquired intangible assets, deferred consideration treated as an
employment expense, impairments and profits and losses on sales of
non-core assets (impairment of non-core assets GBP1.2m, profits on
the sale of non-core assets in Zimbabwe GBP1.0m and Spain GBP0.4m,
the sale of 'Building Schools for the Future' interests GBP1.6m)
and a GBP9.0m impairment of goodwill in our natural resources
division, one-off costs associated with advice received in
renegotiating the Group's bank facilities GBP1.2m and a GBP0.9m
charge relating to GMP equalisation of certain transfers of pension
liabilities following another Lloyds pension scheme court ruling in
late 2020.
Peterborough & Huntingdon Contract
On 29 June 2020, Costain announced that a termination and
settlement agreement (the "Agreement") had been reached with
National Grid to cease work on the Peterborough & Huntingdon
gas compressor project (the "Contract") following a significant
change in scope. The Agreement includes a legal process, through
adjudications, to agree up to GBP80.0m of identified compensation
events, recover costs to date and eliminate a potential liability
to National Grid for completing the works.
In its interim results for the six months ended 30 June 2020,
Costain recorded a charge to the income statement of GBP49.3m
reflecting the cash position at termination. The legal process is
ongoing and all adjudications will be filed by December 2021.
Supported by external advice, Costain believes it has a strong
entitlement to retain, as a minimum, the reported position, with no
further cash outflow.
Under the terms of the Agreement, the cumulative outcome for
Costain of these adjudications could range from an additional cash
receipt of up to a maximum of GBP50.0m to a cash payment (which
would not affect Costain's banking arrangements) of up to a maximum
of GBP57.3m. Any such cash adjustments would be made in the first
quarter of 2022.
A465 Contract
As announced on 17 February 2021, a settlement agreement was
entered into with the Welsh Government in relation to the A465
contract. The financial terms of the settlement are in line with
the provision made by the Group at the half-year of GBP45.4m. As a
result of the settlement, the Company has certainty of the final
account sum payable by the Welsh Government to the Company,
including further milestone payments. Work on the contract is
nearing completion, and the Company continues to be responsible for
the delivery and the management of associated project risks for the
remaining works, which are scheduled to be completed in September
2021.
ASF South
Following an extensive contract review, a decision was taken to
take a one-off charge of GBP5.0m to settle a legacy contract with
Highways England where works were completed in 2016.
Sale of non-core assets
Alcaidesa
In August 2020, the Group sold its marina concession for
EUR4.75m, the disposal of which completes the Group's strategy to
divest its non-core business assets in Spain. The aggregate loss on
the sale was GBP0.2m, including an impairment charge in the first
half of the year. Revenue in this non-core division in the period
was GBP1.2m (2019: GBP5.6m) with a GBP0.1m operating loss (2019:
GBP0.7m).
Legacy asset disposals
In the first half of the year, the Group completed the sale of
its legacy company that held property assets in Zimbabwe for
GBP1.0m (net of costs), which as the assets were held at no value
represents the profit on the disposal. In August 2020, the Group
also completed the sale of its equity share in its two remaining
'Building Schools for the Future' partnership companies for a
combined consideration of GBP3.7m. The Group's full year results
include the profit of GBP1.6m from the sale.
Net financial expense
Net finance expense amounted to GBP4.3m (2019: GBP3.7m). The
interest payable on bank overdrafts, loans and other similar
charges was GBP4.1m (2019: GBP3.3m) and the interest income from
bank deposits and other loans and receivables amounted to GBP0.6m
(2019: GBP0.9m). In addition, the net finance expense includes the
interest income on the net assets/liabilities of the pension scheme
of GBP0.2m (2019: GBP0.1m income) and the interest expense on lease
liabilities of GBP1.0m (2019: GBP1.3m) under IFRS16. 2019 included
an unwind of discount on deferred consideration of GBP0.1m.
Tax
The Group has a tax credit of GBP18.1m (2019: GBP3.7m credit)
giving an effective tax rate of 18.8%. The 2020 tax credit arose
from recognising a deferred tax asset in respect of losses that
will be utilised against future taxable profits. We expect the
effective tax rate to remain close to the statutory tax rate of 19%
until 2023, when it will increase to 25% as announced in the recent
Budget.
Debt, cash conversion
The Group had a positive net cash balance of GBP102.9m as at 31
December 2020 (2019: GBP64.9m); comprised of a Costain cash balance
of GBP89.8m (2019: GBP97.4m), cash held by joint operations of
GBP61.1m (2019: GBP83.5m) and borrowings of GBP48.0m (before
arrangement fees of GBP1.2m) (2019: GBP116.0m). Approximately
GBP17.0m of the net cash balance (2019: GBP35.0m) reflects positive
timing of receipts at the year-end which reversed in the early part
of 2021. During the year, the Group's average month-end net cash
balance was GBP73.8m (2019: GBP41.2m) improving to GBP94.4m in the
second-half.
The cash inflow in the period reflects the positive cash flow
from the capital raising, operations and asset sales offset by
operating outflows on P&H and A465, working capital movements,
and associated pension deficit contributions.
Contract bonding and banking facilities
The Group has in place banking and bonding facilities from banks
and surety bond providers to meet the current and projected usage
requirements. The Group has banking facilities of GBP179.0m with
its relationship banks with a maturity date of 24 September 2023.
These facilities are made up of a GBP131.0m revolving credit
facility and a GBP48.0m term loan.
In addition, the Group has in place committed and uncommitted
bonding facilities of GBP320.0m. Utilisation of the total bonding
facilities on 31 December 2020 was GBP112.3m (31 December 2019:
GBP122.0m).
Pensions
As at 31 December 2020, the Group's pension scheme deficit in
accordance with IAS 19, was GBP5.6m (2019: GBP4.9m surplus).
Based on the actuarial valuation as at 31 March 2019, the
Company has in place a deficit reduction plan, agreed with the
pension scheme Trustee, which requires a contribution of GBP10.2m
per annum (increasing annually with inflation). In addition, as
previously implemented, the Group will continue to make an
additional contribution so that total deficit contributions match
the total dividend amount paid by the Company each year.
DIRECTORS REPORT
Going concern
The Directors have reviewed the budgets for 2021 and the
projections for 2022 developed during the 2020 annual strategic
planning cycle. They have assessed the future funding requirements
of the Group and compared them with the level of available
borrowing facilities. They have also assessed the ongoing impact on
the Group's trading arising from the UK's departure from the EU,
which is not anticipated to be significant in the context of the
Group's operations. Our projects have been operational through the
majority of the COVID-19 lock down period and this is expected to
continue. Based on this, the Directors are satisfied that the Group
has adequate resources to continue in operational existence for at
least 12 months from the date of approval of the financial
statements. For this reason, they confirm that it is appropriate to
adopt the going concern basis in preparing the financial
statements.
Principal risks and uncertainties
The Board has conducted a thorough assessment of the principal
risks facing the Group during the year, including those that would
threaten the successful and timely delivery of its strategic
priorities, future performance, solvency and liquidity. A full
discussion can be found at the end of this document and will be set
out in our Annual Report and Accounts.
Responsibility statement
The responsibility statement below has been prepared in
connection with (and will be set out in) the Group's Annual Report
and Accounts for the year ended 31 December 2020 (the 'Annual
Report and Accounts').
Each of the persons who is a Director at the date of approval of
the Annual Report and Accounts confirms that to the best of his or
her knowledge:
-- The Group financial statements, prepared in accordance with
IFRS as adopted by the EU, give a true and fair view of the assets,
liabilities, financial position and profit of the Company and of
the Group taken as a whole;
-- The Strategic report and the Directors' report in the Annual
Report and Accounts includes a fair review of the development and
performance of the business and the position of the Company and the
Group taken as a whole, together with a description of the
principal risks and uncertainties that they face; and
-- The Annual Report and Accounts, taken as a whole, is fair,
balanced and understandable and provides the information necessary
for shareholders to assess the Group's financial position,
performance, business model and strategy.
A list of current directors and their respective
responsibilities is maintained on the Costain website at
www.costain.com .
For and on behalf of the Board
Alex Vaughan
Chief Executive Officer
Helen Willis
Chief Financial Officer
16 March 2021
Cautionary statement
This report contains forward-looking statements. These have been
made by the Directors in good faith based on the information
available to them up to the time of their approval of this report.
The Directors can give no assurance that these expectations will
prove to have been correct. Due to the inherent uncertainties,
including both economic and business risk factors underlying such
forward-looking information, actual results may differ materially
from those expressed or implied by these forward-looking
statements. The Directors undertake no obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2020 2019
Before Before
other Other other Other
Notes items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Group revenue 4 978.4 - 978.4 1,155.6 - 1,155.6
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Cost of sales before
other items (1,027.0) - (1,027.0) (1,105.1) - (1,105.1)
Arbitration award
on historical building
project - - - - (9.7) (9.7)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Cost of Sales (1,027.0) - (1,027.0) (1,105.1) (9.7) (1,114.8)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Gross (loss)/profit (48.6) - (48.6) 50.5 (9.7) 40.8
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Administrative
expenses before
other items (33.1) - (33.1) (32.6) - (32.6)
Impairment of Alcaidesa
marina - (0.6) (0.6) - (5.9) (5.9)
Impairment of other
investment - (0.6) (0.6) - - -
Profit on sales
of interests in
joint ventures
and associates - 1.6 1.6 - - -
Profit/(loss) on
disposal of subsidiary
undertakings - 1.4 1.4 - (3.0) (3.0)
Refinancing advisory
fees - (1.2) (1.2) - - -
Pension GMP equalisation
charge 12 - (0.9) (0.9) - - -
Amortisation of
acquired intangible
assets 9 - (1.0) (1.0) - (2.3) (2.3)
Impairment of goodwill 9 - (9.0) (9.0)
Employment related
and other deferred
consideration - - - - (0.2) (0.2)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Administrative
expenses (33.1) (10.3) (43.4) (32.6) (11.4) (44.0)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Group operating
(loss)/profit (81.7) (10.3) (92.0) 17.9 (21.1) (3.2)
Share of results
of joint ventures
and associates 0.2 - 0.2 0.3 - 0.3
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
(Loss)/profit from
operations 4 (81.5) (10.3) (91.8) 18.2 (21.1) (2.9)
Finance income 5 0.8 - 0.8 1.0 - 1.0
Finance expense 5 (5.1) - (5.1) (4.6) (0.1) (4.7)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Net finance expense (4.3) - (4.3) (3.6) (0.1) (3.7)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
(Loss)/profit before
tax (85.8) (10.3) (96.1) 14.6 (21.2) (6.6)
Taxation 6 17.5 0.6 18.1 (0.1) 3.8 3.7
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
(Loss)/profit for
the year attributable
to equity holders
of the parent (68.3) (9.7) (78.0) 14.5 (17.4) (2.9)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
(Loss)/earnings
per share
Basic 7 (36.7)p (2.3)p
Diluted 7 (36.7)p (2.3)p
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
The impact of business disposals in either year was not material
and, therefore, all results are classified as arising from
continuing operations.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
Year ended 31 December
2020 2019
GBPm GBPm
--------------------------------------------------------- ------- -------
Loss for the year (78.0) (2.9)
---------------------------------------------------------- ------- -------
Items that may be reclassified subsequently to
profit or loss:
Exchange differences on translation of
foreign operations 0.2 (1.4)
Exchange differences on translation transferred
to the income statement (1.2) (3.7)
Net investment hedge:
Effective portion of changes in fair value
during year 0.1 1.6
Net changes in fair value transferred
to the income statement 0.4 2.0
Cash flow hedges :
Effective portion of changes in fair
value during year (0.3) (0.4)
Net changes in fair value transferred
to the income statement 0.5 (0.8)
Total items that may be reclassified subsequently
to profit or loss (0.3) (2.7)
----------------------------------------------------------- ------- -------
Items that will not be reclassified to
profit or loss:
Remeasurement of retirement benefit (obligations)/asset (19.9) (7.0)
Tax recognised on remeasurement of retirement
benefit (obligations)/asset 3.8 1.2
----------------------------------------------------------- ------- -------
Total items that will not be reclassified
to profit or loss (16.1) (5.8)
----------------------------------------------------------- ------- -------
Other comprehensive expense for the year (16.4) (8.5)
----------------------------------------------------------- ------- -------
Total comprehensive expense for the year
attributable to equity holders of the
parent (94.4) (11.4)
---------------------------------------------------------- ------- -------
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December Notes 2020 2019
GBPm GBPm
--------------------------------- ------- ------ ------
Assets
Non-current assets
Intangible assets 9 52.1 59.0
Property, plant and
equipment 10 39.9 44.1
Equity accounted investments 0.4 2.5
Retirement benefit
asset - 4.9
Trade and other receivables 3.5 2.1
Deferred tax 23.6 4.6
---------------------------------- ------- ------ ------
Total non-current
assets 119.5 117.2
---------------------------------- ------- ------ ------
Current assets
Inventories 0.6 1.3
Trade and other receivables 218.7 247.6
Taxation 0.2 5.5
Cash and cash equivalents 11 150.9 180.9
---------------------------------- ------- ------ ------
Total current assets 370.4 435.3
---------------------------------- ------- ------ ------
Total assets 489.9 552.5
---------------------------------- ------- ------ ------
Liabilities
Non-current liabilities
Retirement benefit
obligations 12 5.6 -
Other payables 1.1 0.7
Interest bearing loans
and borrowings 39.6 48.0
Lease liabilities 20.8 17.2
Total non-current
liabilities 67.1 65.9
---------------------------------- ------- ------ ------
Current liabilities
Trade and other payables 246.0 247.4
Interest bearing loans
and borrowings 7.2 68.0
Lease liabilities 12.5 12.8
Provisions for other
liabilities and charges 0.6 0.7
---------------------------------- ------- ------ ------
Total current liabilities 266.3 328.9
---------------------------------- ------- ------ ------
Total liabilities 333.4 394.8
---------------------------------- ------- ------ ------
Net assets 156.5 157.7
---------------------------------- ------- ------ ------
Equity
Share capital 13 137.5 54.1
Share premium 16.4 16.4
Translation reserve 0.6 1.1
Hedging reserve (0.3) (0.5)
Retained earnings 2.3 86.6
---------------------------------- ------- ------ ------
Total equity 156.5 157.7
---------------------------------- ------- ------ ------
CONSOLIDATED STATEMENT OF CHANGES IN
EQUITY
Share Share Translation Hedging Merger Retained Total
capital premium reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------------ --------- --------- ------------ --------- --------- ---------- --------
At 1 January 2019 53.5 15.0 2.6 0.7 - 110.5 182.3
Loss for the year - - - - - (2.9) (2.9)
Other comprehensive
expense - - (1.5) (1.2) - (5.8) (8.5)
Issue of ordinary
shares under employee
share option plans 0.3 0.4 - - - (0.2) 0.5
Shares purchased
to satisfy employee
share schemes - - - - - (0.7) (0.7)
Equity-settled
share-based payments - - - - - 0.5 0.5
Dividends paid 0.3 1.0 - - - (14.8) (13.5)
------------------------
At 31 December
2019 54.1 16.4 1.1 (0.5) - 86.6 157.7
------------------------ --------- --------- ------------ --------- --------- ---------- --------
At 1 January 2020 54.1 16.4 1.1 (0.5) - 86.6 157.7
Loss for the year - - - - - (78.0) (78.0)
Other comprehensive
(expense)/ income - - (0.5) 0.2 - (16.1) (16.4)
Shares purchased
to satisfy employee
share schemes - - - - - (0.2) (0.2)
Equity-settled
share-based payments - - - - - 0.9 0.9
Capital raise (note
13) 83.4 - - - 9.1 - 92.5
Transfer - - - - (9.1) 9.1 -
------------------------ --------- --------- ------------ --------- --------- ---------- --------
At 31 December
2020 137.5 16.4 0.6 (0.3) - 2.3 156.5
------------------------ --------- --------- ------------ --------- --------- ---------- --------
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December Notes 2020 2019
GBPm GBPm
------------------------------------------------------ ------ -------- -------
Cash flows from/(used by) operating activities
Loss for the year (78.0) (2.9)
Adjustments for:
Share of results of joint ventures and associates (0.2) (0.3)
Finance income 5 (0.8) (1.0)
Finance expense 5 5.1 4.7
Taxation 6 (18.1) (3.7)
Impairment of Alcaidesa marina 0.6 5.9
Impairment of other investment 0.6 -
Profit on sales of interests in joint ventures (1.6) -
and associates
(Profit)/loss on disposal of subsidiary undertakings (1.4) 3.0
Pension GMP equalisation charge 0.9 -
Depreciation of property, plant and equipment 10 15.0 17.7
Amortisation of intangible assets 9 10.5 2.6
Employment related and other deferred consideration - 0.2
Shares purchased to satisfy employee share
schemes (0.2) (0.7)
Share-based payments expense 0.9 0.5
------------------------------------------------------ ------ -------- -------
Cash (used by)/from operations before changes
in working capital and provisions (66.7) 26.0
Decrease in inventories 0.7 0.1
Decrease in receivables 25.5 30.2
Decrease in payables (0.1) (63.5)
Movement in provisions and employee benefits (10.4) (16.3)
------------------------------------------------------ ------ -------- -------
Cash used by operations (51.0) (23.5)
Interest received 0.8 1.0
Interest paid (5.1) (4.6)
Taxation received/(paid) 8.3 (5.1)
------------------------------------------------------ ------ -------
Net cash used by operating activities (47.0) (32.2)
------------------------------------------------------ ------ -------- -------
Cash flows from/(used by) investing activities
Dividends received from joint ventures and
associates 0.2 0.2
Additions to property, plant and equipment (0.5) (3.8)
Additions to intangible assets (3.6) (3.1)
Proceeds of disposals of property, plant and
equipment and intangible assets 0.3 0.3
Repayment of loans by joint ventures and associates - 0.1
Proceeds of sales of interests in joint ventures 3.7 -
and associates
Acquisition related deferred consideration - (1.5)
Proceeds of sales of subsidiary undertakings 4.6 11.8
Net cash from investing activities 4.7 4.0
------------------------------------------------------ ------ -------- -------
Cash flows from/(used by) financing activities
Issue of ordinary share capital 92.5 0.5
Ordinary dividends paid - (13.5)
Repayments of lease liabilities (12.1) (13.6)
Drawdown of loans 71.5 70.0
Repayment of loans (139.0) (23.6)
Net cash from financing activities 12.9 19.8
------------------------------------------------------ ------ -------- -------
Net decrease in cash and cash equivalents (29.4) (8.4)
Cash and cash equivalents at beginning of the
year 11 180.9 189.3
Effect of foreign exchange rate changes (0.6) -
------------------------------------------------------ ------ -------- -------
Cash and cash equivalents at end of the year 11 150.9 180.9
------------------------------------------------------ ------ -------- -------
Notes to the financial statements
1 Basis of preparation
Costain Group PLC ("the Company") is a public limited company
domiciled in England and incorporated in England and Wales. The
consolidated financial statements of the Company for the year ended
31 December 2020 comprise the Group and the Group's interests in
associates, joint ventures and joint operations and have been
prepared and approved by the directors in accordance with both
international accounting standards in conformity with the
requirements of the Companies Act 2006 and international financial
reporting standards adopted pursuant to Regulation (EC) No
1606/2002 as it applies in the European Union.
A duly appointed and authorised committee of the Board of
Directors approved the preliminary announcement on 16 March 2021.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2020
and 2019 but is derived from those accounts. Statutory accounts for
2019 have been delivered to the Registrar of Companies and those
for 2020 will be delivered in due course.
The auditor has reported on these accounts. Their report for
2020 was (i) unqualified and (ii) did not contain a statement under
section 498(2) or (3) of the Companies Act 2006. Their report for
the accounts of 2019 was (i) unqualified, (ii) contained a material
uncertainty in respect of going concern to which the auditor drew
attention by way of emphasis without modifying their report and
(iii) did not contain a statement under section 498(2) or (3) of
the Companies Act 2006.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with International
Financial Reporting Standards (IFRS), this announcement does not
itself contain sufficient information to fully comply with
IFRS.
The accounting policies have been applied consistently by the
Group to each period presented in these financial statements.
Going concern
In determining the appropriate basis of preparation of the
financial statements for the year ended 31 December 2020, the
Directors are required to consider whether the Group can continue
in operational existence for the foreseeable future. Having
undertaken a rigorous assessment of the financial forecasts, the
Board considers that the Group has adequate resources to remain in
operation for the foreseeable future and, therefore, has adopted
the going concern basis for the preparation of the financial
statements.
In assessing the going concern assumptions, the Board has
reviewed the base case plans. They have assessed the ongoing impact
on the Group's trading arising from the UK's departure from the EU,
which is not anticipated to be significant in the context of the
Group's operations. Our projects have been operational through the
majority of the COVID-19 lock down period and this is expected to
continue. The Board has identified severe but plausible downsides
and after applying these downside scenarios, the Board concluded
that there is liquidity headroom in a reasonable worst case
scenario, headroom on the committed facilities and that headroom on
the associated financial covenants is adequate.
Alternative performance measures
Income statement presentation - Other items
In order to aid understanding of the underlying and overall
performance of the Group, certain amounts are shown in the
consolidated income statement in a separate column headed 'Other
items'. Items are included under this heading where the Board
considers them to be of a one-off and unusual nature or related to
the accounting treatment of acquisitions. These results present
underlying profit and EPS, which is a Non-GAAP measure. Other items
include:
-- amortisation of acquired intangibles, employment related
deferred consideration, impairment charges on the Alcaidesa marina
and profits and losses on sales of residual businesses;
-- in 2020, the goodwill impairment, the pension GMP
equalisation charge, finance advisory costs associated with the
capital raise and the bank facilities, the impairment of a minor
stake in a hotel company investment and the profit on sale of the
Group's remaining interests in "Buildings Schools for the Future"
partnership companies; and
-- in 2019, the one-off exceptional costs of an arbitration
award in respect of the remedial works deemed required to the roof
in relation to a building contract completed in 2006.
The tax impact of the above is shown on the taxation line below
the other items.
The Group also has non-GAAP adjusted profit and earnings per
share measures, which exclude both other items and the three
significant contract adjustments, and an adjusted revenue measure,
that excludes the revenue element of the three contract adjustments
(note 3).
All these items are adjusted because they are not long term in
nature and, hence, will not reflect the long-term performance of
the Group.
2 Significant areas of judgment and estimation
The estimates and underlying assumptions used in the preparation
of these financial statements are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The most critical accounting policies and significant areas of
estimation and judgement arise from the accounting for long-term
contracts under IFRS 15 'Revenue from Contracts with Customers',
the carrying value of goodwill and acquired intangible assets, the
assumptions used in the accounting for defined benefit pension
schemes under IAS 19 'Employee benefits', the recognition of
deferred tax assets in relation to tax losses and the items
classified as 'other items' and contract adjustments.
Long-term contracts
The majority of the Group's activities are undertaken via
long-term contracts and IFRS 15 requires the identification and
separation of individual, distinct performance obligations, which
are then accounted individually. The most common type of contracts
undertaken by the Group with multiple performance obligations are
framework contracts. In most cases, the obligations are satisfied
over time and estimates are made of the total contract costs and
revenues. In many cases, these obligations span more than one
financial period. Both cost and revenue forecasts may be affected
by a number of uncertainties that depend on the outcome of future
events and may need to be revised as events unfold and
uncertainties are resolved. Cost forecasts take into account the
expectations of work to be undertaken on the contract. Revenue
forecasts take into account compensation events, variations and
claims and assessments of the impact of pain/gain arrangements to
the extent that the amounts the Group expects to recover or incur
can be reliably estimated and are highly probable not to reverse
based on most likely outcome.
Management bases its estimates of costs and revenues and its
assessment of the expected outcome of each long-term contractual
obligation on the latest available information, this includes
detailed contract valuations, progress on discussions over
compensation events, variations and claims with customers, progress
against the latest programme for completing the works, forecasts of
the costs to complete and, in certain limited cases, assessments of
recoveries from insurers where virtually certain. Revenue is
recognised to the extent that amounts forecast from compensation
events, variations and claims are agreed or considered in
management's judgement highly probable to be agreed.
During the course of the contract, there is often significant
change to the scope of the works and this has an impact on the
programme and costs on the contract. The amount of resulting
compensation events can be substantial and at any time these are
often not fully agreed with the customer due to the timing and
requirements of the contractual process. Also, many will relate to
work yet to be undertaken or completed. Therefore, assessments are
based on an estimate of the potential cost impact of the
compensation events.
The Group's five largest compensation events positions included
in contract assets at the year-end are summarised in aggregate
below. In 2019, the most significant amounts related to the A465
and the Peterborough & Huntingdon contracts both of which
contracts are discussed in note 3. Neither of these contracts are
included in the 2020 analysis. The Peterborough & Huntingdon
contract is discussed separately below.
2020 2019
GBPm GBPm
------------------------------------ -------- --------
Overall contract value 1,135.6 1,334.0
Revenue in year 176.9 281.3
Total estimated end of contract
compensation events 83.1 472.1
Total estimated unagreed end of
contract compensation events 51.3 238.6
Total unagreed compensation events
valued at year end and included
in contract assets 22.5 45.7
------------------------------------ -------- --------
The financial impact of changes to the value of compensation
events finally agreed will depend on the precise terms of the
contract and the interaction with incentive arrangements, such as
pain/gain mechanisms and bonus or KPI arrangements, and any
assessments made about costs disallowed under the contract. If the
estimated value of the unagreed end of contract compensation events
in relation to the currently estimated change in these contracts
was increased or decreased by 10%, the impact on the financial
results over the life of the contract could be an increase or
decrease of up to GBP7.0m (2019: up to GBP15.0m). Additional
compensation events for further change may also arise over the
remaining contract period.
The estimates of the contract position and the profit or loss
earned to date are updated regularly and significant changes are
highlighted through established internal review procedures. The
impact of any change in the accounting estimates both positive and
negative is then reflected in the financial statements.
Management believes it is reasonably possible, on the basis of
existing knowledge, that outcomes within the next financial year
could require material adjustment. Given the pervasive impact of
judgements and estimates on revenue, cost of sales and related
balance sheet amounts, it is difficult to quantify the impact of
taking alternative assessments on each of the judgements above.
On 29 June 2020, Costain announced that a termination and
settlement agreement (the "Agreement") had been reached with
National Grid to cease work on the Peterborough & Huntingdon
gas compressor project (the "Contract") following a significant
change in scope. The Agreement includes a legal process, through
adjudications, to agree up to GBP80.0m of identified compensation
events, recover costs to date and eliminate a potential liability
to National Grid for completing the works.
In its interim results for the six months ended 30 June 2020,
Costain recorded a charge to the income statement of GBP49.3m
reflecting the cash position at termination. The legal process is
ongoing and all adjudications will be filed by December 2021.
Supported by external advice, Costain believes it has a strong
entitlement to retain, as a minimum, the reported position, with no
further cash outflow.
Under the terms of the Agreement, the cumulative outcome for
Costain of these adjudications could range from an additional cash
receipt of up to a maximum of GBP50.0m to a cash payment (which
would not affect the Group's banking arrangements) of up to a
maximum of GBP57.3m. Any such cash adjustments would be made in the
first quarter of 2022.
Carrying value of goodwill and intangible assets
Reviewing the carrying value of goodwill and intangible assets
recognised on acquisition requires estimation and judgement,
principally, in respect of operating margins, growth rates and
future cash flows of cash generating units, the useful lives of
intangible assets and the selection of discount rates used to
calculate present values.
The carrying value of development expenditure is reviewed
against the expected future cash flows that will be generated from
that asset. Development costs of products for sale are assessed
against contracted sales and internal sales forecasts.
Defined benefit pension schemes
Defined benefit pension schemes require significant estimates in
relation to the assumptions for inflation, future pension
increases, investment returns and member longevity that underpin
the valuation. Each year in selecting the appropriate assumptions,
the directors take advice from an independent qualified actuary.
The assumptions and resultant sensitivities are set out in note
12.
Deferred tax
Included in deferred tax assets is an asset for tax losses
recorded in the year. The asset is recognised on the basis that the
losses will be used against future taxable profits of the Group
over the next six years.
Other items
Management has used judgement to determine the items classified
as other items and to determine the contract adjustments set out in
note 3.
3 Reconciliation of reported revenue and operating (loss)/profit
to adjusted revenue and operating profit
Adjusted revenue, operating profit and earnings per share are
being used as non-GAAP performance measurements. The adjustments
exclude the impact of significant one-off changes in the accounting
treatments of three contracts, Peterborough & Huntingdon
(P&H), the A465 Heads of the Valley road (A465) and the ASF
South contracts, as described below, as well as the other items of
GBP10.3m. The revenue adjustment represents the reversal of the
contract asset recorded in the statement of financial position
immediately prior to the write down. The Board considers the
adjusted measures better reflect the underlying trading performance
of the Group.
The Peterborough & Huntingdon contract charge followed the
agreement with National Grid to mutually terminate the contract in
June 2020. The position is described further in Significant areas
of judgement and estimation in note 2.
At the date of termination, the Group had a contract asset of
GBP42.0m associated with this contract and this was forecast to
increase to GBP49.3m at the end of the works. Reflecting the
commercial resolution process incorporated in the termination
agreement and in accordance with IFRS 15, a one-off charge to the
income statement of GBP49.3m was reflected to adjust the revenue
recognised to the level of cash received and to cover the cost of
remaining works. 2020 adjusted revenue includes GBP32.3m of revenue
on Peterborough & Huntingdon up to the termination date.
The A465 Heads of the Valley road contract was entered into in
2015 for the Welsh Government. At 30 June 2020, the Group had a
contract asset of GBP45.4 million. The client had escalated a
specific matter relating to the responsibility for design
information for a specific retaining wall and whether it qualified
as a compensation event to arbitration under the dispute resolution
mechanism in the contract. While the issue was decided in the
Group's favour by way of previous adjudication awards, the
arbitrator found that responsibility for the design information
rests with Costain and, consequently, the additional costs
associated with the building of the retaining wall is not a
compensation event under the contract. The arbitration award
determined a matter of principle only, and not quantum, and was
non-appealable. As a result of the decision, the Group adjusted the
revenue recognised based on the level of cash received to date
under the contract and reflected a write down of the GBP45.4m
contract asset. Subsequently, the account has been agreed with the
client in line with this write down. The Group will continue to
fulfil its obligations under the contract, with completion
scheduled in 2021. 2020 adjusted Group revenue includes GBP18.0m of
revenue on the A465 contract.
The ASF South contract was in respect of works undertaken for
Highways England that were completed in 2016. Following an
extensive contract review, the Group has taken a one-off charge of
GBP5.0m to close out this legacy contract.
Year ended Before
31 December ASF other Other
2020 Adjusted P&H A465 South items items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue before
contract adjustments 1,070.5 - - - 1,070.5 - 1,070.5
Contract adjustments - (42.0) (45.4) (4.7) (92.1) - (92.1)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Group revenue 1,070.5 (42.0) (45.4) (4.7) 978.4 - 978.4
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Cost of sales (1,019.4) (7.3) - (0.3) (1,027.0) - (1,027.0)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Gross profit/(loss) 51.1 (49.3) (45.4) (5.0) (48.6) - (48.6)
Administrative
expenses before
other items (33.1) - - - (33.1) - (33.1)
Other items - - - - - (10.3) (10.3)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Administrative
expenses (33.1) - - - (33.1) (10.3) (43.4)
Group operating
profit/(loss) 18.0 (49.3) (45.4) (5.0) (81.7) (10.3) (92.0)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Share of results
of joint ventures
and associates 0.2 - - - 0.2 - 0.2
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Profit/(loss)
from operations 18.2 (49.3) (45.4) (5.0) (81.5) (10.3) (91.8)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Net finance
expense (4.3) - - - (4.3) - (4.3)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Profit/(loss)
before tax 13.9 (49.3) (45.4) (5.0) (85.8) (10.3) (96.1)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Taxation (1.5) 9.4 8.6 1.0 17.5 0.6 18.1
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Profit/(loss)
for the period
attributable
to equity holders
of the parent 12.4 (39.9) (36.8) (4.0) (68.3) (9.7) (78.0)
----------------------- ----------- -------- -------- -------- ----------- -------- -----------
Basic earnings/(loss)
per share 5.8p (36.7)p
Year ended Before
31 December ASF other Other
2019 Adjusted P&H A465 South items items Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue before
contract adjustment 1,175.6 - - - 1,175.6 - 1,175.6
Contract adjustment - - (20.0) - (20.0) - (20.0)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Group revenue 1,175.6 - (20.0) - 1,155.6 - 1,155.6
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Cost of sales (1,105.1) - - - (1,105.1) (9.7) (1,114.8)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Gross profit/(loss) 70.5 - (20.0) - 50.5 (9.7) 40.8
Administrative
expenses before
other items (32.6) - - - (32.6) - (32.6)
Other items - - - - - (11.4) (11.4)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Administrative
expenses (32.6) - - - (32.6) (11.4) (44.0)
Group operating
profit/(loss) 37.9 - (20.0) - 17.9 (21.1) (3.2)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Share of results
of joint ventures
and associates 0.3 - - - 0.3 - 0.3
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Profit/(loss)
from operations 38.2 - (20.0) - 18.2 (21.1) (2.9)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Net finance
expense (3.6) - - - (3.6) (0.1) (3.7)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Profit/(loss)
before tax 34.6 - (20.0) - 14.6 (21.2) (6.6)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Taxation (3.9) - 3.8 - (0.1) 3.8 3.7
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Profit/(loss)
for the period
attributable
to equity holders
of the parent 30.7 - (16.2) - 14.5 (17.4) (2.9)
----------------------- ----------- ------ ---------- -------- ----------- -------- -----------
Basic earnings/(loss)
per share 25.1p (2.3)p
4 Operating segments
The Group has two core business segments: Natural Resources and
Transportation plus the non-core business Alcaidesa in Spain. The
core segments are strategic business units with separate management
and have different core customers or offer different services. This
information is provided to the Chief Executive who is the chief
operating decision maker. The segments are discussed in the
divisional review section of this preliminary announcement.
The Group evaluates segment performance on the basis of profit
or loss from operations before interest and tax expense before and
after other items and contract adjustments. The segment results
that are reported to the Chief Executive include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Other items are allocated to the operating
segments where appropriate, but otherwise are viewed as Central
items.
2020 Natural Central
Resources Transportation Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
Segment revenue
Adjusted revenue 345.1 724.2 1.2 - 1,070.5
Contract adjustments (42.0) (50.1) - - (92.1)
-------------------------------- ----------- ----------------- ------------ -------- --------
Group revenue 303.1 674.1 1.2 - 978.4
-------------------------------- ----------- ----------------- ------------ -------- --------
Segment profit/(loss)
Adjusted operating profit 5.7 20.1 (0.1) (7.7) 18.0
Contract adjustments (49.3) (50.4) - - (99.7)
-------------------------------- ----------- ----------------- ------------ -------- --------
Operating loss before
other items (43.6) (30.3) (0.1) (7.7) (81.7)
Share of results of
joint ventures and associates 0.2 - - - 0.2
-------------------------------- ----------- ----------------- ------------ -------- --------
Loss from operations
before other items (43.4) (30.3) (0.1) (7.7) (81.5)
Other items:
Impairment of Alcaidesa
marina - - (0.6) - (0.6)
Impairment of other
investment - - - (0.6) (0.6)
Profit on sales of interests
in joint ventures and
associates 1.6 - - - 1.6
Profit on disposal of
subsidiary undertakings - - 0.4 1.0 1.4
Refinancing advisory
fees - - - (1.2) (1.2)
Pension GMP equalisation
charge - - - (0.9) (0.9)
Amortisation of acquired
intangible assets (0.7) (0.3) - - (1.0)
Impairment of goodwill (9.0) - - - (9.0)
Loss from operations (51.5) (30.6) (0.3) (9.4) (91.8)
-------------------------------- ----------- ----------------- ------------ -------- --------
Net finance expense (4.3)
-------------------------------- ----------- ----------------- ------------ -------- --------
Loss before tax (96.1)
-------------------------------- ----------- ----------------- ------------ -------- --------
2019 Natural Central
Resources Transportation Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
Segment revenue
Adjusted revenue 429.4 740.6 5.6 - 1,175.6
Contract adjustments - (20.0) - - (20.0)
-------------------------------- ----------- ----------------- ------------ -------- --------
Group revenue 429.4 720.6 5.6 - 1,155.6
-------------------------------- ----------- ----------------- ------------ -------- --------
Segment profit/(loss)
Adjusted operating profit 15.4 29.7 (0.7) (6.5) 37.9
Contract adjustments - (20.0) - - (20.0)
-------------------------------- ----------- ----------------- ------------ -------- --------
Operating profit/(loss)
before other items 15.4 9.7 (0.7) (6.5) 17.9
Share of results of
joint ventures and associates 0.3 - - - 0.3
-------------------------------- ----------- ----------------- ------------ -------- --------
Profit/(loss) from operations
before other items 15.7 9.7 (0.7) (6.5) 18.2
Other items:
Exceptional costs of
arbitration award on
historical building
project (9.7) - - - (9.7)
Impairment of Alcaidesa
marina - - (5.9) - (5.9)
Loss on disposal of
subsidiary undertaking - - (3.0) - (3.0)
Amortisation of acquired
intangible assets (1.4) (0.9) - - (2.3)
Employment related and
other deferred consideration (0.2) - - - (0.2)
-------------------------------- ----------- ----------------- ------------ -------- --------
Profit/(loss) from operations 4.4 8.8 (9.6) (6.5) (2.9)
-------------------------------- ----------- ----------------- ------------ -------- --------
Net finance expense (3.7)
-------------------------------- ----------- ----------------- ------------ -------- --------
Loss before tax (6.6)
-------------------------------- ----------- ----------------- ------------ -------- --------
5 Net finance expense
2020 2019
GBPm GBPm
Interest income from bank deposits 0.5 0.7
Interest income on loans to related parties 0.1 0.2
Interest income on the net assets of the
defined benefit pension scheme 0.2 0.1
---------------------------------------------- ------ ------
Finance income 0.8 1.0
---------------------------------------------- ------ ------
Interest payable on interest bearing bank
loans, borrowings and other similar charges (4.1) (3.3)
Interest expense on lease liabilities (1.0) (1.3)
Unwind of discount on deferred consideration - (0.1)
Finance expense (5.1) (4.7)
---------------------------------------------- ------ ------
Net finance expense (4.3) (3.7)
---------------------------------------------- ------ ------
Other similar charges includes arrangement and commitment fees
payable. Interest income on loans to related parties relates to
shareholder loan interest receivable from investments in equity
accounted joint ventures and associates.
6 Taxation
2020 2019
GBPm GBPm
------------------------------------------------- ------ ------
On loss for the year
UK corporation tax at 19.0% (2019: 19.0%) (1.9) 1.1
Adjustment in respect of prior years 3.0 1.9
------------------------------------------------- ------ ------
Current tax credit for the year 1.1 3.0
------------------------------------------------- ------ ------
Deferred tax expense for the current year 19.7 (1.2)
Adjustment in respect of prior years (2.7) 1.9
Deferred tax credit for the year 17.0 0.7
------------------------------------------------- ------ ------
Tax credit in the consolidated income statement 18.1 3.7
------------------------------------------------- ------ ------
2020 2019
GBPm GBPm
-------------------------------------------------- ------- ------
Tax reconciliation
Loss before tax (96.1) (6.6)
-------------------------------------------------- ------- ------
Taxation at 19.0% (2019: 19.0%) 18.3 1.3
Amounts qualifying for tax relief and disallowed
expenses (1.3) (1.2)
Tax decrease from other tax effects 0.6 -
Rate adjustment relating to deferred taxation
and overseas profits and losses 0.2 (0.2)
Adjustments in respect of prior years 0.3 3.8
-------------------------------------------------- ------- ------
Tax credit in the consolidated income statement 18.1 3.7
-------------------------------------------------- ------- ------
7 Loss per share
The calculation of earnings per share is based on a loss of
GBP78.0m (2019: loss GBP2.9m) and the number of shares set out
below.
2020 2019
Number Number
(millions) (millions)
---------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue for basic earnings per share calculation 212.8 107.6
Dilutive potential ordinary shares arising
from employee share schemes 2.9 0.2
---------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share
calculation 215.7 107.8
---------------------------------------------------- ----------- -----------
The 2019 shares number has been restated following the capital
raise in 2020.
8 Dividends
Dividend 2020 2019
per share
pence GBPm GBPm
------------------------------------- ---------- ----- ------
Final dividend for the year ended
31 December 2018 10.00 - 10.7
Interim dividend for the year ended
31 December 2019 3.80 - 4.1
------------------------------------- ---------- ----- ------
Amount recognised as distributions
to equity holders in the year - 14.8
Dividends settled in shares - (1.3)
------------------------------------- ---------- ----- ------
Dividends settled in cash - 13.5
------------------------------------- ---------- ----- ------
Consistent with the rationale for the equity raise, the Company
paid no final dividend in respect of the year ended 31 December
2019, therefore resulting in a total dividend paid for the prior
year being the interim dividend, of 3.8 pence per share. No
dividends were paid or proposed in respect of the year ended 31
December 2020.
9 Intangible assets
Customer Other acquired
Goodwill relationships intangibles Other intangibles Total
GBPm GBPm GBPm GBPm GBPm
-------------------------- --------- --------------- --------------- ------------------ ------
Cost
At 1 January 2019 54.1 15.4 9.7 7.7 86.9
Additions - - - 3.1 3.1
-------------------------- --------- --------------- --------------- ------------------ ------
At 31 December
2019 54.1 15.4 9.7 10.8 90.0
-------------------------- --------- --------------- --------------- ------------------ ------
At 1 January 2020 54.1 15.4 9.7 10.8 90.0
Additions - - - 3.6 3.6
-------------------------- --------- --------------- --------------- ------------------ ------
At 31 December
2020 54.1 15.4 9.7 14.4 93.6
-------------------------- --------- --------------- --------------- ------------------ ------
Accumulated amortisation
At 1 January 2019 - 12.5 8.9 7.0 28.4
Charge in year - 1.8 0.5 0.3 2.6
-------------------------- --------- --------------- --------------- ------------------ ------
At 31 December
2019 - 14.3 9.4 7.3 31.0
-------------------------- --------- --------------- --------------- ------------------ ------
At 1 January 2020 - 14.3 9.4 7.3 31.0
Charge in year - 0.7 0.3 0.5 1.5
Impairment 9.0 - - - 9.0
-------------------------- --------- --------------- --------------- ------------------ ------
At 31 December
2020 9.0 15.0 9.7 7.8 41.5
-------------------------- --------- --------------- --------------- ------------------ ------
Net book value
At 31 December
2020 45.1 0.4 - 6.6 52.1
-------------------------- --------- --------------- --------------- ------------------ ------
At 31 December
2019 54.1 1.1 0.3 3.5 59.0
-------------------------- --------- --------------- --------------- ------------------ ------
At 1 January 2019 54.1 2.9 0.8 0.7 58.5
-------------------------- --------- --------------- --------------- ------------------ ------
Goodwill has been allocated to the applicable cash generating
units of the transportation segment (GBP15.5 million (2019: GBP15.5
million)) and the natural resources segment (GBP29.6 million (2019:
GBP38.6 million)).
As described in note 2, the Group reviews the value of goodwill
and in the absence of any identified impairment risks, tests are
based on internal value in use calculations of the cash generating
unit (CGU). The key assumptions for these calculations are:
operating margins, discount rates and growth rates.
Discount rates have been estimated based on pre-tax rates that
reflect current market assessments of the Group's weighted average
cost of capital and the risks specific to the CGU. The rate used to
discount the forecast cash flows for the transportation CGU was
12.4% and for the natural resources CGU was 12.5%. In 2019, the
discount rates used for the two CGUs were transportation 10.9% and
natural resources 10.2%.
At 31 December 2020, based on the internal value in use
calculations, management concluded that the recoverable value of
the transportation cash generating units exceeded its carrying
amount with substantial headroom on goodwill. Accordingly, in the
view of the directors there is no reasonably foreseeable change in
a key assumption that would result in an impairment charge. In
respect of natural resources, the sensitivity of the assessment to
a lower revenue and/or underlying operating margins has resulted in
an impairment of the goodwill by GBP9.0 million, reducing the
amount allocated to natural resources to GBP29.6 million.
10 Property, plant and equipment
Right-of-use assets
------------------------
Vehicles,
Land & Plant & Land & plant &
Buildings Equipment Buildings equipment Total
GBPm GBPm GBPm GBPm GBPm
-------------------------- ----------- ----------- ----------- ----------- -------
Cost
At 1 January 2019 32.1 32.2 20.0 13.0 97.3
Currency movements (1.1) (0.2) - - (1.3)
Additions 0.1 3.7 1.7 12.1 17.6
Disposal of subsidiary
undertakings (18.4) (1.0) - - (19.4)
Disposals (0.2) (2.4) (2.2) (3.9) (8.7)
-------------------------- ----------- ----------- ----------- ----------- -------
At 31 December 2019 12.5 32.3 19.5 21.2 85.5
-------------------------- ----------- ----------- ----------- ----------- -------
At 1 January 2020 12.5 32.3 19.5 21.2 85.5
Currency movements 0.8 0.3 - - 1.1
Additions - 0.5 1.2 19.1 20.8
Disposal of subsidiary
undertakings (12.5) (4.0) - - (16.5)
Disposals (0.2) (2.1) (0.2) (10.0) (12.5)
-------------------------- ----------- ----------- ----------- ----------- -------
At 31 December 2020 0.6 27.0 20.5 30.3 78.4
-------------------------- ----------- ----------- ----------- ----------- -------
Accumulated depreciation
At 1 January 2019 3.8 20.5 - - 24.3
Currency movements (0.3) (0.1) - - (0.4)
Charge in year 0.8 2.9 4.6 9.4 17.7
Impairment 5.9 - - - 5.9
Disposal of subsidiary
undertakings (0.5) (0.4) - - (0.9)
Disposals (0.2) (2.1) (0.3) (2.6) (5.2)
-------------------------- ----------- ----------- ----------- ----------- -------
At 31 December 2019 9.5 20.8 4.3 6.8 41.4
-------------------------- ----------- ----------- ----------- ----------- -------
At 1 January 2020 9.5 20.8 4.3 6.8 41.4
Currency movements 0.6 0.1 - - 0.7
Charge in year - 2.7 4.3 8.0 15.0
Impairment 0.6 - - - 0.6
Disposal of subsidiary
undertakings (10.0) (1.9) - - (11.9)
Disposals (0.1) (1.9) (0.2) (5.1) (7.3)
-------------------------- ----------- ----------- ----------- ----------- -------
At 31 December 2020 0.6 19.8 8.4 9.7 38.5
-------------------------- ----------- ----------- ----------- ----------- -------
Net book value
At 31 December 2020 - 7.2 12.1 20.6 39.9
-------------------------- ----------- ----------- ----------- ----------- -------
At 31 December 2019 3.0 11.5 15.2 14.4 44.1
-------------------------- ----------- ----------- ----------- ----------- -------
At 1 January 2019 28.3 11.7 20.0 13.0 73.0
-------------------------- ----------- ----------- ----------- ----------- -------
11 Cash and cash equivalents
Cash and cash equivalents are analysed below and include the
Group's share of cash held by joint operations of GBP61.1m (2019:
GBP83.5m).
2020 2019
GBPm GBPm
--------------------------- ------- -------
Cash and cash equivalents 150.9 180.9
Borrowings - current (7.2) (68.0)
Borrowings - non-current (39.6) (48.0)
--------------------------- ------- -------
Net cash 104.1 64.9
--------------------------- ------- -------
The borrowings of GBP46.8m are net of arrangement fees of
GBP1.2m.
12 Pensions
A defined benefit pension scheme is operated in the UK and a
number of defined contribution pension schemes are in place in the
UK and overseas. Contributions are paid by subsidiary undertakings
and, to the defined contribution schemes, by employees. The total
pension charge in the income statement was GBP12.7m comprising
GBP12.9m included in operating costs less GBP0.2m interest income
included in net finance expense (2019: GBP12.3m, comprising
GBP12.4m in operating costs less GBP0.1m interest income included
in net finance expense).
Defined benefit scheme
The defined benefit scheme was closed to new members on 31 May
2005 and from 1 April 2006 future benefits were calculated on a
Career Average Revalued Earnings basis. The scheme was closed to
future accrual of benefits to members on 30 September 2009. A full
actuarial valuation of the scheme was carried out as at 31 March
2019 and this was updated to 31 December 2020 by a qualified
independent actuary. At 31 December 2020, there were 2,869 retirees
and 2,730 deferred members. The weighted average duration of the
obligations is 17.1 years.
2020 2019 2018
GBPm GBPm GBPm
---------------------------------- -------- -------- --------
Present value of defined benefit
obligations (886.5) (812.1) (752.7)
Fair value of scheme assets 880.9 817.0 748.5
---------------------------------- -------- -------- --------
Recognised (liability)/asset for
defined benefit obligations (5.6) 4.9 (4.2)
---------------------------------- -------- -------- --------
Movements in present value of defined benefit obligations
2020 2019
GBPm GBPm
--------------------------------------------- ------- -------
At 1 January 812.1 752.7
Past service cost - GMP equalisation charge 0.9 -
Interest cost 16.3 20.6
Remeasurements - demographic assumptions (2.9) (7.5)
Remeasurements - financial assumptions 99.0 74.6
Remeasurements - experience adjustments (4.6) 9.0
Benefits paid (34.3) (37.3)
--------------------------------------------- ------- -------
At 31 December 886.5 812.1
--------------------------------------------- ------- -------
Movements in fair value of scheme assets
2020 2019
GBPm GBPm
----------------------------------- ------- -------
At 1 January 817.0 748.5
Interest income 16.5 20.7
Remeasurements - return on assets 71.5 69.1
Contributions by employer 10.6 16.3
Administrative expenses (0.4) (0.3)
Benefits paid (34.3) (37.3)
----------------------------------- ------- -------
At 31 December 880.9 817.0
----------------------------------- ------- -------
Expense recognised in the income statement
2020 2019
GBPm GBPm
----------------------------------------------- ------ ------
Administrative expenses paid by the pension
scheme (0.4) (0.3)
Administrative expenses paid directly by
the Group (1.7) (1.7)
GMP equalisation charge (0.9) -
Interest income on the net liabilities/assets
of the defined benefit pension scheme 0.2 0.1
----------------------------------------------- ------ ------
(2.8) (1.9)
----------------------------------------------- ------ ------
Fair value of scheme assets
2020 2019
GBPm GBPm
-------------------------- ------ ------
Global equities 125.0 162.4
Multi-asset growth funds 118.4 162.2
Multi-credit fund 139.8 160.3
LDI plus collateral 421.4 251.8
PFI Investments 44.7 51.0
Property 15.7 17.7
Cash 15.9 11.6
-------------------------- ------ ------
880.9 817.0
-------------------------- ------ ------
Principal actuarial assumption (expressed as weighted
averages)
2020 2019
% %
-------------------------- ----- -----
Discount rate 1.35 2.05
Future pension increases 2.85 2.85
Inflation assumption 2.95 2.95
-------------------------- ----- -----
Weighted average life expectancy from age 65 as per mortality
tables used to determine benefits at 31 December 2020 and 31
December 2019 is:
2020 2019
Male Female Male Female
(years) (years) (years) (years)
------------------------ -------- -------- -------- --------
Currently aged 65 22.3 24.1 22.3 24.2
Non-retirees currently
aged 45 23.3 25.3 23.6 25.7
------------------------ -------- -------- -------- --------
The discount rate, inflation and pension increase, and mortality
assumptions have a significant effect on the amounts reported.
Changes in these assumptions would have the following effects on
the defined benefit scheme:
Pension Pension
liability cost
GBPm GBPm
----------------------------------------------------------------- --------
Increase discount rate by 0.25%, decreases pension
liability and reduces pension cost by 35.8 0.5
Decrease inflation, pension increases by 0.25%,
decreases pension liability and reduces pension
cost by 30.6 0.4
Increase life expectancy by one year, increases
pension liability and increases pension cost
by 41.7 0.6
---------------------------------------------------- ----------- --------
As highlighted above, the defined benefit scheme exposes the
Group to actuarial risks such as longevity, interest rate,
inflation and investment risks. The LDI portfolio is designed to
respond to changes in gilt yields in a similar way to a fixed
proportion of the liabilities. With the LDI portfolio, if gilt
yields fall, the value of the investments will rise to help
partially match the increase in the trustee valuation of the
liabilities arising from a fall in the gilt yield-based discount
rate. Similarly, if gilt yields rise, the value of the matching
asset portfolio will fall, as will the valuation of the liabilities
because of an increase in the discount rate. The leverage within
the LDI portfolio means the equivalent of 95 per cent of the value
of the assets is sensitive to changes in interest rates and
inflation and mitigates the equivalent movement in the
liabilities.
In accordance with the pension regulations, a triennial
actuarial review of the Costain defined benefit pension scheme was
carried out as at 31 March 2019. In March 2020, the valuation and
an updated deficit recovery plan were agreed with the scheme
Trustee resulting in cash contributions of GBP10.2m for each year
commencing 1 April 2020 (increasing annually with inflation) until
the deficit is cleared, which would be in 2029 on the basis of the
assumptions made in the valuation and agreed recovery plan.
In addition, as previously implemented, the Group will continue
to make an additional contribution so that the total deficit
contributions match the total dividend amount paid by the Company
each year. Any additional payments in this regard would have the
effect of reducing the recovery period in the agreed plan. The
Group will also pay the expenses of administration in the next
financial year.
Any surplus of deficit contributions to the Costain Pension
Scheme would be recoverable by way of a refund, as the Group has
the unconditional right to any surplus once all the obligations of
the Scheme have been settled. Accordingly, the Group does not
expect to have to make provision for these additional contributions
arising from this agreement in future accounts.
Defined contribution schemes
Several defined contribution pensions are operated. The total
expense relating to these plans was GBP9.9m (2019: GBP10.4m).
13 Share capital
2020 2019
------------------------------ -------------------------- ----------------------
Nominal
Number Nominal Number value
(millions) value GBPm (millions) GBPm
------------------------------ ------------ ------------ ------------ --------
Issued share capital
Shares in issue at beginning
of year - ordinary shares
of 50p each, fully paid 108.3 54.1 107.0 53.5
Issued in year (see below) 166.7 83.4 1.3 0.6
------------------------------ ------------ ------------ ------------ --------
Shares in issue at end of
year - ordinary shares of
50p each, fully paid 275.0 137.5 108.3 54.1
------------------------------ ------------ ------------ ------------ --------
The Company's issued share capital comprised 274,949,741
ordinary shares of 50 pence each as at 31 December 2020.
On 7 May 2020, the Company announced details of a proposed Firm
Placing and Placing and Open Offer (the "Capital Raising") to raise
gross proceeds of GBP100m (GBP92.5m after expenses), approximately
GBP80m by way of a Firm Placing of 133,348,799 ordinary shares and
approximately GBP20m by way of a Placing and Open Offer of
33,317,868 ordinary shares. The Capital Raising was approved by the
Company's shareholders on 27 May 2020. On 29 May 2020, 166,666,667
ordinary shares of 50 pence each were issued in connection with the
Capital Raising at an offer price of 60 pence per share. The
capital raise was effected through a structure, which resulted in a
merger reserve arising under Section 612 of the Companies Act 2006.
Following the receipt of the cash proceeds through the structure,
the excess of the net proceeds over the nominal value of the share
capital issued has been transferred to retained earnings.
All shares rank pari passu regarding entitlement to capital and
dividends.
14 Related party transactions
The Group has related party relationships with its major
shareholders, subsidiaries, joint ventures and associates and joint
operations, in relation to the sales of construction services and
materials and the provision of staff and with The Costain Pension
Scheme. The total value of these services in 2020 was GBP160.5m
(2019: GBP218.5m) and transactions with The Costain Pension Scheme
are included in Note 11.
519653503
Our Principal Risks
Principal
Risk Description and impact Controls and key mitigations
1. Prevent Costain operates in natural, Safety, Health and Environment
and effectively complex and Management policies
manage a hazardous environments. Failure and procedures.
major accident, to
hazard, manage the inherent risk and Ongoing reviews and improvement
or incident hazards, of our Safety, Health
including pandemics, may results and Environment performance
in illness, through routine
loss of life or significant continuous improvement processes.
damage to the
environment. Failure to manage The Costain behavioural management
this risk programme.
could result in reputational
damage, loss of Wellbeing, safety and environment
business and financial penalties. strategy and plans.
Risk trend: Neutral
(FY19: Neutral)
Excellent controls and practices
have
reduced the incident rate,
but we always
remain vigilant and undertake
continuous
improvements in this area.
===================================== =======================================
2. Accelerate The effective implementation Detailed implementation plan,
the deployment of Costain's with timetabled
of our higher Leading Edge strategy is critical deliverables, clear performance
margin services to the measures and
Group's ability to accelerate accountable Executive Board
the sponsor.
deployment of our higher margin
services Annual business Budget includes
alongside our complex programme performance measures
delivery. Failure to manage and actions linked to the
this risk could delivery of the strategy.
have an adverse effect on
our business, Work winning budget aligned
operating results, and shareholder to investment that
value. supports our strategy.
Risk trend: Increasing Clear communications plan
(FY19: Neutral) tailored to each of our key
The financial impact of the stakeholders (internal and
issues with two external) outlining how our
long standing contracts illustrates Leading Edge strategy enables
the our purpose to improve
importance of delivering our people's lives by being safer,
Leading Edge better, greener, faster and
strategy. more efficient in delivering
major infrastructure
projects.
===================================== =======================================
3. Maintain A strong balance sheet is Treasury function experienced
a strong a fundamental in the management and
balance requirement to qualify for oversight of the bank and
sheet and support the surety bonding facilities
contract sizes and duration to
required by our meet finance requirements.
clients. Failure to manage
this risk could A robust joint venture partner
effect our ability to achieve selection criterion: all
our business partnerships and alliances
goals and our resilience to signed off by the Board.
withstand
economic downturns. Monitoring and management
of amounts receivable.
Risk trend: Neutral
(FY19: Increasing) Effective balance sheet reconciliation
process.
Strengthened balance sheet,
enabling the Continued focus on net asset
Group to capitalise on the growth with key areas for
growing continuous development.
infrastructure market opportunities.
===================================== =======================================
4. Secure Costain's future growth and Executive investment panel
new work profitability is ensuring strategic focus on
dependent on our ability to Costain's target markets and
secure new prioritisation of resources
work in our competitive marketplace. and activity.
To be
successful we need to maintain Customer relationship management
strong system - to identify,
client relationships and broaden manage and review all key
our stakeholders, ensuring that
service offering by delivering key relationships are proactively
innovative identified and
solutions across complex delivery, maintained.
digital
and consulting activities. Sales transformation programme
in place - ensuring we
Risk trend: Neutral have the right people, with
(FY19: Increasing) the right skills empowered
Changes made in 2020 (see to deliver opportunities in
pages 22 and line with our growth strategy.
23 of the Annual Report),
have enabled us to react to Close client relationships
and enabling us to understand
address our clients' priorities. and
shape clients' needs, respond
proactively to changes
and ensure our work winning
team are fit for purpose.
5. Culture The successful implementation In-house recruitment team,
and people of our focused on identifying and
strategy is dependent on our recruiting the right people
ability to for Costain.
attract and retain talent,
grow the A fair remuneration policy
capabilities and performance monitored via the central
of our reward team and annual pay
employees and maintain a high gap reporting.
performing,
ethical and caring culture A defined people strategy
where our team based on culture, inclusion,
can be at their best. engagement and wellbeing.
Risk trend: Neutral
(FY19: Neutral) Learning and development budget
aligned to the
Leading Edge strategy and
business requirements.
Leadership development programmes
to enable
empowerment, assurance and
performance outcomes.
Thrive plans in place for
each project and functional
team to help all our team
be at their best.
6. Deliver Failure to enter into contracts Clear contract negotiation
projects that are guidelines, with any
effectively aligned with our risk appetite deviations requiring approval
or deliver from the Executive Board
projects to the agreed time, investment panel.
budget and
quality could result in financial Working to our Operational
loss, Excellence Model and
regulatory and contractual Costain Way requirements and
breaches and guidelines.
loss of reputation with our
clients and Ensuring a robust change control
investors. process is in place
Risk trend: Neutral across all projects.
(FY19: Neutral)
Effective risk and design
management process in place
to provide early warning of
potential issues.
7. Manage Failure to manage the legacy A third-party pension expert
the legacy defined provides independent
defined benefit pension scheme so advice.
benefit that the
pension liabilities are within a range Monitoring the funding position
scheme appropriate to of the scheme via
our capital base and do not quarterly funding updates
adversely impact our balance provided by scheme's
sheet. investment consultant.
Risk trend: Neutral Investment performance monitored
(FY19: Neutral) and input to the
scheme's investment strategy.
Regular monitoring in conjunction
with the trustee of
asset performance, pensions
regulations, Company
covenant and liability management.
8. Ensure Our ability to enable safe, Our core IT strategy integrates
that our secure, and information systems,
technology resilient business operations personnel and physical aspects
is robust, (including to prevent, detect and
our systems finding, winning, and delivering investigate information security
are secure work threats and incidents.
and our supported by efficient corporate
data protected services) Process in place to engage
is dependent on the delivery with key technology partners
of our core IT and suppliers, to ensure potentially
strategy. The delivery of vulnerable systems
this strategy is are identified and updated.
also key to our ability to
safely and securely Our architecture design provides
acquire, host, use, and dispose the appropriate
of Costain, protections and distance between
client, and third party data. project systems and
our core Costain systems.
Risk trend: Neutral
(FY19: Neutral) Annual penetration tests and
The increased cyber threat 24 hour threat monitoring
is offset by by reputable third parties.
increased investment and a
continuous A secure environment for our
focus on security. internal and client data
across projects enabled by
a menu of digital core
products provided by our Smart
Delivery Platform.
9. Anticipate We have seen changes in the Client service and perception
and respond business surveys focused on our
to changes operations and investment ability to provide foresight
in client priorities of our to help navigate emerging
circumstances core clients and clients challenged trends and feedback accurate
by ever and real time insights for
evolving policy, funding, action.
operational and
regulatory changes. Failure Our Gartner partnership provides
to anticipate independent market,
the changes that are affecting trend, sector, client and
our clients competitor analysis.
and respond effectively, could
restrict our Sales transformation programme
ability to grow margins and is driving the
increase executive investment panel
market share. protocols to enable
Risk trend: Neutral risk-controlled faster growth.
(FY19: Neutral)
Innovation leaders are embedded
in all sectors and
accounts.
===================================== =======================================
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END
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