TIDMCOST
RNS Number : 8189S
Costain Group PLC
14 March 2023
14 MARCH 2023
COSTAIN GROUP PLC
("Costain", the "Group", or the "Company")
RESULTS FOR THE TWELVE MONTHSED 31 DECEMBER 2022
Strong financial performance in 2022
-- Reported and adjusted(1) revenue growth in 2022 across the
Group, up 25.2% and 20.6% respectively year-on-year.
-- Reported operating profit of GBP34.9m (FY21: GBP9.5m loss)
and adjusted operating profit(1) growth of 20.6% to GBP36.3m (FY21:
GBP30.1m).
-- Strong balance sheet:
o Free cash flow(2) of GBP72.9m (FY21: GBP53.1m) mainly
reflecting positive working capital.
o Net cash at year(3) end FY22 of GBP123.8m (FY21: GBP119.4m),
ahead of market expectations.
-- High quality secured workload reflecting five-year programme cycles:
o Order book of GBP2.8bn (FY21: GBP3.4bn), and
o Preferred bidder book of GBP1.6bn (FY21: GBP0.9bn).
-- Margin milestones - adjusted operating margin run-rate of
3.5% during the course of FY24 and 4.5% during the course of
FY25.
Financial summary
GBPm FY22 FY22 FY22 FY21 FY21 Adjusted(1)
adjusted(1) adjustments(1) reported adjusted(1) reported change
Revenue 1,421.4 - 1,421.4 1,178.6 1,135.2 20.6%
Operating profit 36.3 (1.4) 34.9 30.1 (9.5) 20.6%
Operating margin 2.6% (0.1)% 2.5% 2.6% (0.8)% -
Profit before
tax 34.2 (1.4) 32.8 26.3 (13.3) 30.0%
Basic EPS 9.9p (0.5)p 9.4p 9.6p (2.1)p 3.1%
Dividend per - - - - - -
share
Adjusted free
cash flow(2) 72.9 53.1 37.3%
Net cash balance(3) 123.8 119.4
--------------------- ------------- ---------------- ---------- ------------- ---------- ------------
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
2. Free cash flow is defined as cash from operations, excluding
adjusting items and pension deficit contributions, less taxation
and capital expenditure.
3. Net Cash balance is cash and cash equivalents in FY22 and is
cash and cash equivalents less interest-bearing borrowings
(excluding leases under IFRS16 and net of unamortised arrangement
fees of GBP0.6m) in FY21.
Alex Vaughan, Chief Executive Officer, commented:
"Our performance in 2022 delivered strong growth in revenue and
operating profits, with significant free cash flow, ending the year
with a net cash position of GBP123.8m. I am pleased that we have
grown our core complex programme delivery revenue and further
strengthened our consultancy market position. Consequently, we are
seeing good opportunities emerge in our chosen sectors, at margins
we aspire to.
"Costain has effectively negotiated the challenges of material
availability and inflation, as well as delays to some contract
awards, delivering a robust operational performance. We expect to
increase margins as we enact further operational improvements in
the business during 2023 and beyond, and as we continue to grow the
scale of our consultancy services.
"While we are mindful of the macro-economic backdrop, the
quality and nature of our secured and preferred bidder work gives
us good visibility on future revenue and we remain confident in the
Group's strategy and long-term prospects."
FY 22 highlights
-- Adjusted(1) revenue up 20.6% and reported revenue increase of 25.2%.
-- Growth in profitability with adjusted operating profit(1) up
20.6% to GBP36.3m (FY21: GBP30.1m). Adjusted operating margin was
unchanged at 2.6% (FY21: 2.6%), as volume increases and an improved
mix and operational improvements were offset by inflationary
impacts, targeted up-front investment in our consultancy
capability, and increased bid activity on a series of major
opportunities, primarily in Transportation. Our H2 22 adjusted
operating margin was 3.0% (H2 21: 3.0%), an increase on 2.1% in H1
22 (H1 21: 2.1%).
-- Strong adjusted free cash flow (2) in FY22 of GBP72.9m
reflected continued enhanced working capital management which
benefitted from cash collection timings prior to year-end, and
operating profit growth. The year-end net cash position of
GBP123.8m includes the previously disclosed payment of GBP43.4m
relating to the Peterborough & Huntingdon contract in February
2022.
Operating performance
-- Health & Safety performance. Our people are our principal
asset, and their safety remains our number one priority. As
previously reported, in July, the Group experienced a fatality on
one of its rail contracts, and following our investigation, to
prevent a recurrence we are implementing a number of
recommendations across our business including changes to current
industry practice. Our LTIR rate was 0.09 (FY21: 0.15) with an
Accident Frequency Rate of 0.05 (FY21: 0.05).
-- Transportation revenue strong growth in FY22 in Road and Rail
including HS2, with GBP746m of revenue secured for FY23, reflecting
our major complex programme delivery contracts in Road, Rail, and
Integrated Transport. In FY22 we were appointed as a delivery
assurance partner for the A303 road upgrade, design partner to TfL
on several schemes, solution partner to Heathrow, and construction
partner on the A66 highway scheme.
-- Natural Resources significantly improved performance reflecting growth in Water and in both consultancy-led markets of Energy and Defence. We saw strong margin uplift due mainly to operational improvements.
-- Good visibility for FY23 with more than GBP1.0bn of revenue
already secured(3) for 2023 at year-end, representing around 80% of
expected revenue, and a good pipeline of growth expected from
secured and preferred bidder frameworks.
-- High quality order and preferred bidder book(3) position total of GBP4.4bn (FY21: GBP4.3bn)
-- A high-quality order book of GBP2.8bn at end of FY22 (FY21:
GBP3.4bn), reflecting mainly market cycles, risk management of
contract bidding and the timing of major contract bids with awards
expected in FY23.
-- Preferred bidder book of GBP1.6bn (FY21: GBP0.9bn),
reflecting bids and contracts mainly in Road, Water and Integrated
Transport, including Heathrow H7 and the A66.
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
2. Free cash flow is defined as cash from operations, excluding
adjusting items and pension deficit contributions, less taxation
and capital expenditure.
3. Order book and secured revenue includes revenue from
contracts which are partially or fully unsatisfied and probable
revenue from water frameworks included at allocated volume.
Additional business information
FY22 FY21 Change
Business metrics
Order book(1) at 31 December (GBPbn) 2.8 3.4 -18%
Preferred order book(1) at 31
December (GBPbn) 1.6 0.9 78%
Revenue secured(2) for following
year (GBPm) 1,004 1,034 -3%
Lost time injury rate (LTIR) 0.09 0.15 -40%
Absolute GHG emissions (scope
1-3) tCO(2) e 36,283 42,722 -15%
-------------------------------------- ------- ------- -------
1. See page 6 'Business model resilience and strategic
positioning benefits' for order book and preferred book details and
definitions.
Enquiries
Investors and analysts
Paul Sharma, Costain +44 (0) 7867 501188
Financial media - Headland costain@headlandconsultancy.com
Andy Rivett-Carnac +44 (0) 7968 997 365
Charlie Twigg +44 (0) 7946 494 568
Analyst & investor presentation
A live webcast of our results by Alex Vaughan (CEO) and Helen
Willis (CFO) will be at 9am on 14 March 2023.
Please go to
https://stream.brrmedia.co.uk/broadcast/63ca6b44777efd4a8b512438 to
register for the event.
Board changes
Tony Quinlan assumed the additional responsibilities of senior
independent director on 12 January 2022 following Alison Wood
stepping down from the Board on 28 January 2022. Jacqueline de
Rojas became Remuneration Committee chair on an interim basis from
12 January 2022 to 5 May 2022 when Fiona MacAulay became chair of
the Committee having joined the Board on 6 April 2022.
On 9 March 2022, Costain announced that Paul Golby had decided
to step down as chair and non-executive director and, as announced
on 27 September 2022, Kate Rock joined the Board as an independent
non-executive director and chair designate on 1 November 2022. Kate
succeeded Paul as chair of the Board and chair of the Nomination
Committee on 1 December 2022 when Paul stepped down from the
Board.
Use of alternative performance measures
Throughout this release we use a number of 'adjusted' measures
to provide users with a clearer picture of the underlying
performance of the business. To aid understanding of the underlying
and overall performance of the Group, certain amounts that the
Board considers to be material or non-recurring in size or nature,
or related to the accounting treatment of acquisitions, are
adjusted because they are not long term in nature and will not
reflect the long-term performance of the Group. This is in line
with how management monitors and manages the business on a
day-to-day basis. These adjustments are discussed in further detail
in notes 1 to 4 on pages 26 to 36.
GROUP TRADING PERFORMANCE
A Strong Financial Performance
We report both our statutory results, 'reported', and results
excluding adjusting items, 'adjusted'. Key adjusting items for FY22
include the impact of restructuring and reorganisation, impairment
of tangible assets and an insurance receipt relating to the
Peterborough & Huntingdon contract.
Reported revenue increased from GBP1,135.2m in FY21 to
GBP1,421.4m in FY22, an increase of 25.2%, and adjusted revenue was
up 20.6% to GBP1,421.4m (FY21: GBP1,178.6m) driven by increased
volumes in complex programme delivery and the impact of inflation,
as well as increased revenue in our consultancy-led sectors,
predominantly in Energy and Defence.
Reported operating profit increased from GBP9.5m loss in FY21 to
GBP34.9m profit in FY22, while adjusted operating profit grew by
20.6% to GBP36.3m (FY21: GBP30.1m), driven by improved
profitability in Natural Resources. The adjusted operating margin
was unchanged at 2.6% (FY21: 2.6%) and reflected volume increases,
an improved mix and operational improvements, offset by the impact
of inflation costs, up-front investment in our consultancy
capability, and the additional cost of increased bid activity on a
series of major opportunities during FY22, primarily in
Transportation. H2 22 adjusted operating margin was 3.0% (H2 21:
3.0%).
Adjusted profit before tax was up 30.0% to GBP34.2m (FY21:
GBP26.3m), while adjusted basic earnings per share (EPS) was higher
by 3.1% at 9.9p (FY21: 9.6p) due to increased profitability
partially offset by the recognition of a tax credit in FY21
benefitting the prior year comparable. Reported profit before tax
was GBP32.8m (FY21: GBP13.3m loss) reflecting the GBP43.4m
provision for the Peterborough & Huntingdon contract in FY21.
Reported basic earnings per share (EPS) was 9.4p (FY21: 2.1p loss)
reflecting the above.
Adjustments to reported items
We incurred GBP5.0m (FY21: GBPnil) of restructuring costs on our
Transformation programme, GBP0.7m (FY21: GBPnil) of reorganisation
costs, GBP1.4m (FY21: GBPnil) of aged tunnel boring machine
write-off costs, and GBPnil (FY21: GBP0.4m) on amortisation of
acquired intangible assets. We also recognised an insurance receipt
of GBP5.2m (FY21: GBPnil) relating to the Peterborough &
Huntingdon contract, as well as a profit of GBP0.5m (FY21: GBPnil)
on the sale of a non-core asset.
Cashflow and liquidity
Adjusted free cash inflow was GBP72.9m in FY22 (FY21: GBP53.1m),
reflecting continued enhanced working capital management and
increased adjusted profitability. Cash from operations was
GBP16.7m, (FY21: GBP33.2m), and was lower in FY22 than FY21
following the expected settlement of the Peterborough &
Huntingdon contract of GBP43.4m in February 2022. Partially
offsetting this settlement payment, we received GBP5.2m from an
insurance claim during FY22 relating to the Peterborough &
Huntingdon contract.
During FY22 we paid more than 98% of invoices within 60 days.
Costain has been ranked as one of the top three fastest-paying main
contractors in construction following the submissions to the
Government's Duty to Report on Payment Practices and
Performance.
Reflecting the above, this resulted in a net cash position at
the end of FY22 of GBP123.8m (FY21: GBP119.4m), considerably higher
than market expectations.
Business model resilience
Our markets remain characterised by strong customer demand and
Costain enjoys good overall forward visibility with our combined
order book and preferred bidder book at FY22 increasing to GBP4.4bn
(FY21: GBP4.3bn). This combined view is increasingly relevant as we
anticipate a shift in our business mix towards the preferred bidder
book as we secure long-term framework positions with our customers
.
Our order book stood at GBP2.8bn at the end of FY22 (FY21:
GBP3.4bn). This reduction reflected the timing of major contract
bids, our customers' investment programmes, maintaining discipline
in contract selection and the shorter lead time of consulting and
digital work. The order book evolves as contracts progress and as
new contracts are added at periods aligned to our customers'
strategic procurement windows which are typically every five years,
therefore it does not provide a complete picture of potential
future revenue expectations.
The preferred bidder book grew to GBP1.6bn (FY21: GBP0.9bn),
with the main additions being contracts in Road, Water and
Integrated Transport, including Heathrow and the A66 contract. The
preferred bidder book comprises awards for which there is no other
competitor and we are in final negotiations prior to entering a
contract, or exclusive frameworks where a further works order is
required.
We note that some of our framework and consulting revenue is not
recorded in our order book, or preferred bidder book. We have more
than GBP1bn of secured revenue for FY23 at year end, representing
around 80% of revenue.
The Transport, Water, Energy and Defence markets continue to
offer opportunities for the Group. For example, we expect Water
investment to double during the next regulatory period. Headwinds
are being experienced with delays to the timing of some contract
awards. We have good momentum going into FY23 and are making
improvements to our operational performance and strategic
priorities and remain confident of managing these headwinds.
The assessment and management of risk and uncertainty is central
to our culture, business processes and strategy. This is achieved
through rigorous risk management and commercial control throughout
our operations in three key areas:
-- A disciplined approach to contract selection, which includes
robust commercial and legal reviews, proactive shaping of
procurement approaches with our customers, and a rigorous
multi-stage gating process.
-- Commercial and operational assurance, which includes project
level controls, our Operational Excellence Model (OEM), and
management oversight of forecasts, and cross-disciplinary contract
review meetings on all projects.
-- Strategic supply chain partners, with application of robust
supply chain management processes.
As a result of the implementation of our strategy and risk
management processes, at year end FY22, our order book does not
include any fixed-price construction contracts.
Capital allocation
We understand the importance of delivering long-term sustainable
value for shareholders and are committed to maintaining a balanced
approach between investment in the business for growth, maintaining
a strong balance sheet and returns to shareholders. We look to
prioritise uses of cash as follows:
1. Investing for growth - disciplined investment in key areas
such as bidding activity and digital to help accelerate our
business transformation.
2. Progressive dividend - the Board recognises the importance of
dividends for shareholders and expects to target dividend cover of
around three times underlying earnings taking into account the cash
flow generated in the period.
3. Selective M&A - retaining optionality to pursue strategic
investments in technology, skills and capabilities to enhance our
ability to support customers in the face of significant change.
4. Returning surplus capital - after ensuring a strong balance
sheet and cash position, surplus capital is identified and returned
to shareholders through share buy backs or special dividends.
Dividends
During the last two years, the Group has made very significant
progress in its operating cash generation, demonstrated by our
strong year end cash position and operating cash flow in FY22.
A resilient business model and strong balance sheet is
fundamental to our ability to win business and manage risk. At the
same time, the Board recognises the importance of dividends to
shareholders and remains committed to returning to dividend
payments when appropriate.
Outlook
Looking ahead, despite the market headwinds and as a result of
our broad customer focus, we have already secured more than GBP1bn
of revenue, representing around 80% of expected revenue for
2023.
We remain mindful of the macro-economic and geopolitical
backdrop, recognising the challenges it has created for inflation
and energy costs and its importance for near-term government
priorities and timing of spending. With our broad customer focus,
further improvements to our operational performance, strong cash
position and clear strategic priorities, we remain confident of
navigating these market headwinds and are well positioned for
further growth.
We expect to increase our net cash position in FY23, building on
what was a very positive year for cash in FY22. As a result of the
successful implementation of our strategy and ongoing operational
improvements, benefits from our Transformation programme and our
revenue mix expectations, we expect to deliver an adjusted
operating margin run-rate of 3.5% during the course of FY24 and
4.5% during the course of FY25; in line with our ambition to
deliver margins in excess of 5%. We remain confident in the Group's
strategy and longer-term prospects.
STRATEGY UPDATE
In order to meet the UK's key critical needs, there is more than
GBP600bn of infrastructure investment planned by 2030, underpinned
by legislative and regulatory commitments, as the government and
private customers address today's mega trends. These include
climate change/climate resilience and the net zero imperative;
resource, environmental and economic resilience; addressing
inequality and low levels of regional and national growth; and the
need for infrastructure transformation to support affordability and
investment growth plans.
We are strategically positioned in our four chosen markets of
Transport, Water, Energy and Defence, where we believe long-term
strategic investment will be prioritised and will provide for a
diversified and resilient business. Our market focus, combined with
our differentiated offering, positions the business strongly to
benefit from our customers' long-term investment plans, providing
significant opportunities for growth in profitability and
margins.
We have specifically chosen to work with those customers who
wish to partner with us to help them shape, create and deliver
their business plan commitments and investment programmes, and
navigate the challenges facing their businesses. Our unique
expertise and focus on our key sectors enable us to understand the
specific needs of our customers across their strategic, operational
and asset creation requirements. With our broad service offering,
we can service more of the market and are creating greater
competitive advantage. We work as construction, consulting and
digital infrastructure partners, solving problems and delivering
innovative engineered solutions. Our vision is to create connected,
sustainable infrastructure to help people and the planet
thrive.
We are focused on three strategic priorities to drive our
strategic ambition.
Performance
Key measures of our performance include:
o Strong financial performance.
o Business resilience.
Strong financial performance
During FY22, we continued to improve our capabilities and our
strong risk management processes on contracts, delivering a robust
operational performance. In addition, we have secured further
opportunities with our customers, demonstrating our strategic
progress.
Our strategy is delivering a transformation in the business in
terms of assured delivery, lower risk contracts in our orderbook,
and a broader business mix; and our ambition remains to deliver
improving long-term operating margins.
Our pathway towards higher margins, as we exit H2 22 at 3.0%
adjusted operating margin, is to deliver:
-- An adjusted operating margin run-rate of 3.5% during the
course of FY24, as we increase effectiveness within the business
through the implementation of our Transformation plan, the
implementation of our Operating Excellence Model (OEM), growth of
consultancy services and increased effectiveness in procurement and
ongoing control of operating costs.
-- An adjusted operating margin run-rate of 4.5% during the
course of FY25 to be reached by improving margins within complex
programme delivery (construction contracts), further efficiencies
from our Transformation plan, our OEM and an increasing mix of
higher-margin contracts.
-- We continue to have an ambition for an adjusted operating
margin in excess of 5% and to play a role as a digital partner
improving business performance, as investment in this area
increases.
We expect that central costs will be held around 0.8% to 0.9% of
revenue during FY23 to FY25 and we expect divisional margins to
increase during the period to achieve our Group target. We continue
to monitor the impact of inflationary pressures on FY23 revenue and
costs.
Business Resilience
During FY22, we have:
-- Continued to embed our risk controls in securing new business
(contract selection, independent risk review and enhanced legal
process). As a result, we have managed the risk and return criteria
of contracts to meet our requirements and chose not to bid on a
small number of opportunities during the year.
-- Enhanced operational contract delivery via an OEM,
comprehensive financial reviews, and senior management
ownership.
-- F urther grown our delivery partner consultancy roles
building on our current positions with AWE, Babcock, Cadent and
National Highways, and Heathrow, which is a new customer, where we
will work for Heathrow as solution delivery partner providing
construction, consulting and digital capabilities over its next
regulatory period.
-- Grown our energy operations, including the award of the bp
net zero project for carbon capture and storage, Industrial Cluster
footprint growth, and new framework awards for other major energy
customers.
-- Broadened our design services, including the award of the TfL
Piccadilly line improvements and water process solutions.
-- Been appointed in a Costain/Mott MacDonald joint venture by
National Highways as Delivery Assurance Partner for the A303
Stonehenge Improvements Scheme , our fifth delivery partner major
consultancy commission.
People
Safety, diversity and inclusion, wellbeing and social impact are
key concerns for the Group.
During FY22:
-- Our Accident Frequency Rate in FY22 was 0.05 (FY21: 0.05)
alongside a Lost Time Injury Frequency Rate of 0.09 (FY21:
0.15).
-- In September 2022, we hosted our National Inclusion Week as
we continue to develop a more inclusive culture.
-- In 2022, we ran a Best Companies employee engagement survey,
and we were recognised by Best Companies as a very good company to
work for.
-- We have also recognised that the cost of living is
significantly affecting many of our people and have taken several
actions to give as much support as possible, including one-off
payments, an employee discount scheme, a money management app and a
financial education programme. Our response to the cost-of-living
crisis will be for the long-term and we are continuously reviewing
the support we can offer.
-- Through our Employee Forums and wider stakeholder network ,
we have refreshed our Values and linked them to core behaviours
that will enhance the delivery of our strategy. Our core Values are
Integrity, Customer Focus, Safety & Wellbeing and Environmental
& Social Responsibility. Our core behaviours are to be curious,
collaborative, courageous and caring.
Our people are our principal asset, and their safety remains our
number one priority. It was deeply saddening to report In July that
the company experienced a fatality on one of its rail contracts.
Following our investigation, to prevent a recurrence we are
implementing a number of recommendations across our business,
including changes to current industry practice.
Planet
Delivering our climate change action plan remains our highest
environmental priority, with the Group focused on reducing
operational emissions in line with PAS 2080 and working with
designers to increase to scale the use of transitional materials.
These initiatives will be essential elements in Costain meeting our
objective to be net zero carbon by 2035. In 2022 we submitted our
climate change action plan to the Science Based Target initiative
(SBTi) and we await the outcome of our application.
We continue to implement our climate change action plan, while
also working with our customers on a wide range of projects to
enable them to reach their Environmental, Social and Governance
(ESG) targets, using a broad range of technologies. These include
the drive towards using hydrogen and reducing the use of carbon in
infrastructure.
During FY22:
-- All relevant contracts now have a carbon baseline target and
implementation plan on how they will achieve their target in line
with PAS 2080.
-- We continue to improve climate and carbon literacy of our
broader leadership team, with colleagues completing our bespoke
in-house training. We plan to increase training completion to all
our identified colleagues, ensuring we have the necessary skills
and literacy to drive our journey to net zero carbon.
-- In 2022, HS2's site Canterbury Road Vent Shaft in South
Kilburn, became the first diesel-free site, while the Euston
Approaches and Victoria Road Crossover Box sites also achieved
diesel-free status. This led to the project being awarded the gold
standard by the Supply Chain Sustainability School.
-- We have trialled a hydrogen-powered generator on the Preston
Western Distributor Road project's M55 compound. This trial is the
first of its kind for Lancashire County Council, and together with
hydrogen start-up Hydrologiq, we demonstrated carbon savings from
onsite operations of between 70% and close to 100%, when powered by
grey and green hydrogen respectively.
-- Costain is working with Dwr Cymru Welsh Water, Wales and West
Utilities, and food and drink manufacturer Princes Group on a
feasibility study to produce hydrogen from biogas from the Cardiff
East Wastewater Treatment Works that will fuel boilers to provide
heat for fruit juice pasteurisation.
We have a commitment to environmental improvements such as Get
Nature Positive, which drives biodiversity net gains. Our proactive
position in our four chosen markets is a catalyst for change, with
green energy solutions such as hydrogen and carbon capture, in the
area of transport (rail and electric highways), and in new water
technologies.
DIVISIONAL REVIEW
TRANSPORTATION
GBPm FY22 FY22 FY21 FY21 Adjusted(1)
adjusted(1) reported adjusted(1) reported change
Road 498.7 498.7 426.3 426.3 17.0%
Rail 480.8 480.8 356.4 356.4 34.9%
Integrated transport 66.8 66.8 81.5 81.5 -18.1%
Total revenue 1,046.3 1,046.3 864.2 864.2 21.1%
Operating profit/(loss) 31.5 30.1 41.4 49.8 -23.9%
Operating margin 3.0% 2.9% 4.8% 5.8% -1.8pp
------------------------- ------------- ---------- ------------- ---------- ------------
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
-- Reported and adjusted revenue of GBP1,046.3m was up 21.1%
against prior year as a result of increased project volumes and
inflation.
-- Adjusted operating margin was 3.0%, down 1.8 percentage
points compared to prior year, reflecting the impact of inflation,
increased bid activity on a series of major opportunities during
the year, and targeted up-front investment in our digital
capability.
-- Contract wins of GBP427.5m secured in the year. FY23 secured revenue is GBP746.0m.
Our revenue growth was driven mainly by complex scheme delivery
for High Speed 2 (HS2) and National Highways, which currently
represent the majority of Transportation revenue. In FY21, the
division outperformed our expectations and in FY22, we have
experienced more typical returns, with inflation having a
distorting impact lowering margins on a small number of
contracts.
Road reported and adjusted revenue increased by 17.0% in FY22
over the prior year driven by increased schemes delivery and the
impact of inflation on delivery costs. As a strategic partner for
National Highways, we support their key investment programmes
through the Regional Delivery Partnerships (RDP) major projects
framework, and the Smart Motorways Programme (SMP) Alliance
delivering smart motorway upgrades.
On RDP, we continued to upgrade the A1 around Newcastle, with
the A1 Scotswood to North Brunton scheme opening early, and we are
upgrading to dual carriageway a section of both the A1 Birtley to
Coal House and the A30 in Cornwall. Pre-construction and design
activities continue on the A12 Chelmsford to A120 scheme, M60
Simister Island scheme and we completed and opened early the A19
improvements at Downhill Lane.
With the SMP Alliance, our work delivering the M6 Junction
21a-26 smart motorway upgrades continues, and we delivered
infrastructure for cameras to detect stopped vehicles, and safety
improvements to the central reserve on M62 junction 25-30.
During 2022, National Highways selected Costain as one of its
Delivery Integration Partners for the A66 Northern Trans-Pennine
project which will upgrade east-west connectivity in the north of
England; and in joint-venture with Mott MacDonald, Costain was
appointed as Delivery Assurance Partner for the A303 Stonehenge
Improvements Scheme. Costain also continued to provide specialist
advice to National Highways under the SPaTS2 framework, to shape
the future and help critical challenges around automation,
decarbonisation and future programme delivery.
Rail reported and adjusted revenue increased by 34.9% in 2022,
principally as a result of our growth of work in delivering HS2
.
December 2022 saw the Costain Skanska joint venture (JV)
successfully complete its seven-year programme of enabling works
for the HS2 route from Euston to West Ruislip. The follow-on
contract with the Skanska Costain STRABAG JV to construct the same
section of route in twin bore tunnel was fully mobilised during
2022 and launched the first two of seven tunnel boring machines
(TBMs). The completion of rail heads at Willesden and at Northolt
means the TBMs are fully serviced by rail, removing thousands of
heavy lorry journeys from local roads. Our project-wide carbon
reduction initiatives have set the path to reduce CO(2) emissions
by around 40% and led to the first fully diesel-free sites on the
HS2 programme.
Throughout the year our specialist planning and constructability
teams have continued to support HS2 by producing information for
the Hybrid Bill submission that will promote the 'levelling up'
agenda and enable the HS2 route from Crewe on to Manchester.
Our work on the Gatwick Airport Station Project for Network Rail
continues with the opening of platform 5 and 6 enabling Network
Rail timetable improvements, and we expect to finish work on this
project during FY23. We completed our final work on Crossrail, with
the Elizabeth Line successfully opening during the year. We
continue to expand our portfolio of work for Network Rail through
our framework contracts.
Integrated Transport provides a mix of consulting and complex
project delivery to Local Authorities, Central Government and to
customers in Aviation. Reported and adjusted revenue decreased by
18.1% in FY22 on the prior year, reflecting the timing of complex
schemes delivery. We continue to focus on supporting customers with
inter-modal connectivity and decarbonisation solutions.
During 2022, we completed work on A40 Westway for Transport for
London (TfL) and initiated work for TfL for the Gallows Corner
project. We extended the contract for CCTV video management system
for TfL for a further four years and we were appointed by TfL to
design critical upgrades to the signalling infrastructure on the
Piccadilly line.
Our delivery of the Preston Western Distributor Project
continues to plan, and we continue to support Lancashire County
Council with advice in the development of their South Lancaster
highway scheme. We have successfully grown consulting services
revenue across a range of local authorities, such as Lancaster,
Bradford, Liverpool and in Cornwall.
During the year, we announced that we are a delivery partner to
Heathrow Airport, providing construction, consulting and digital
capabilities to help deliver its new investment programme. We will
work with Heathrow throughout project lifecycles to shape, create
and deliver asset renewal and construction projects through the
Terminal Asset Renewal Partner and Major Project Partner lots of
the H7 framework. The first commission is the design phase of the
upgrade of baggage handling facilities and systems at Terminal 2,
via the Major Project Partner lot. We also have secured work for
ZEFI (zero emissions flight infrastructure) and with other aviation
customers at Stansted, Gatwick and Manchester airports.
We continue to grow our consulting services to local government
customers in support of accelerating progress to net zero carbon
(including a decarbonisation project for Swindon council), green
economic recovery and levelling up the UK, and have secured places
on a number of targeted frameworks.
Costain has continued its growth with the UK Government in
helping deliver key policy interventions including embedment of the
Construction Playbook, securing our borders through infrastructure
investment and accelerating decarbonisation through being involved
in projects such as the Electric Roads System and Net Zero
Innovation programme.
NATURAL RESOURCES
GBPm FY22 FY22 FY21 FY21 Adjusted(1)
adjusted(1) reported adjusted(1) reported change
Water 238.2 238.2 200.0 200.0 19.1%
Energy 79.0 79.0 72.0 28.6 9.7%
Defence 57.9 57.9 42.4 42.4 36.6%
Total revenue 375.1 375.1 314.4 271.0 19.3%
Operating profit/(loss) 15.0 19.5 (2.6) (50.6) N/A
Operating margin 4.0% 5.2% -0.8% -18.7% 4.8pp
------------------------- ------------- ---------- ------------- ---------- ------------
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
-- Adjusted revenue was GBP375.1m, up 19.3% driven by increased
activity levels in all three sectors and particularly across AMP7
water programmes.
-- Adjusted operating profit was GBP15.0m, up GBP17.6m, and
adjusted operating margin was 4.0%, 4.8 percentage points higher
compared to prior year, due to an improved operational performance
as well as revenue growth, in particular from new higher margin
contracts within Energy, partially offset by targeted up-front
investment in our consultancy and digital capabilities, and
increased bid activity.
-- Contract wins of GBP69.1m secured in the year. FY23 secured revenue is GBP257.0m.
-- As reported in FY21, we recognised a provision in respect of
one water contract. There was no adverse net impact to the income
statement in FY22 and no material net impact is expected going
forward. See note 2 for further details.
Water delivers a broad range of services to improve asset and
operational resilience across the water sector, together with
decarbonisation capabilities. Reported and adjusted revenue was up
GBP38.2m, 19.1% on the prior year with good visibility across our
five-year water AMP7 programmes through to 2025. We have made good
progress in delivering on Tideway where, in a joint venture, we are
responsible for the eastern section.
The breadth of our service offering continues to grow with
capital delivery programmes for Anglian Water, Severn Trent Water,
Southern Water, and Thames Water; maintenance service provider
services for United Utilities; a range of consultancy services for
Yorkshire Water, Thames Water, Southern Water, and Welsh Water;
digital services to Anglian Water and data and clear energy
innovation projects with Ofwat.
Alongside core AMP8 requirements, we continue to engage with
customers to understand their potential needs for new value-added
solutions for AMP8 to meet their ESG requirements and are in an
early stage of working with customers regarding the Strategic Water
Resource Options programme, which will run alongside AMP8.
Energy has shown good growth, increasing by 9.7% in FY22 on the
prior year. Our contract with Cadent, managing the mains
replacement across the East of England, our Project Controls
contract with EDF and our nuclear decommissioning contract with
Sellafield continue to perform strongly. We have performed well in
energy resilience and are building our position in energy
transition. Throughout FY22 we have strengthened our core strategy
to support the development of the industrial clusters throughout
the UK, spearheaded by our delivery for bp on the track 1 net zero
contract at Teesside (part of the East coast cluster) and we
continue to work on the track 2 schemes including the Acorn carbon
capture and storage scheme in St Fergus, Scotland.
We have seen growth in project delivery and opportunities in
supporting our long-standing petrochemical customers in
decarbonising their midstream operations through large scale energy
switching engineering projects, including hydrogen generation and
transportation. As part of our regional focus, which includes the
delivery of the South Wales Industrial Cluster, we won an energy
transition project, H2Juice, with Dwr Cymru Welsh Water, Wales and
West Utilities which uses hydrogen to decarbonise carbon-intensive
industries and was funded by BEIS.
Defence supports several public and private sector
organisations, in a variety of customer-side, delivery partnership
roles, across the UK defence nuclear enterprise. Reported and
adjusted revenue increased by GBP15.5m, 36.6% on the prior year,
driven by a growth in demand for support within our current
delivery partnership roles, with Babcock and the Atomic Weapons
Establishment (AWE). In both contracts, we work alongside the
customer, as a construction delivery partner, delivering major
infrastructure projects, providing expertise in design and
construction management, and the coordination of the work of
several subcontractors.
We also provide ongoing support to the Defence Nuclear
Organisation (DNO), helping it develop portfolio management
capabilities and developing its programme definition for future
infrastructure requirements. We provide customer-side support to
BAE Systems, in the form of portfolio management expertise on the
Dreadnought programme, to replace the Royal Navy's Trident missile
Vanguard Submarines. We are currently well positioned across the
defence nuclear enterprise, supporting the UK's Continuous at Sea
Deterrent (CASD), and our ambition is to be the delivery partner of
choice for the Ministry of Defence's (MoD) strategic infrastructure
needs.
To maximise the potential for growth, we have combined our
Defence and Nuclear activities, bringing together capability for
the division in a more operationally efficient and effective
structure. From H1 23 we will report revenue reflecting the new
Natural Resources structure for the Water, Defence, and the Nuclear
and Energy sectors, as we progress our activity within the energy
transition market.
FINANCIAL REVIEW
Divisional adjusted to reported reconciliation
Transportation Natural Resources Group
2022 2021 Change 2022 2021 Change 2022 2021 Change
Revenue GBPm
Adjusted 1,046.3 864.2 21.1% 375.1 314.4 19.3% 1,421.4 1,178.6 20.6%
Adjusting
items - - - (43.4) - (43.4)
Reported 1,046.3 864.2 21.1% 375.1 271.0 38.4% 1,421.4 1,135.2 25.2%
Operating
profit GBPm
Adjusted 31.5 41.4 -23.9% 15.0 (2.6) 36.3 30.1 20.6%
Adjusting
items (1.4) 8.4 4.5 (48.0) (1.4) (39.6)
Reported 30.1 49.8 -39.6% 19.5 (50.6) 34.9 (9.5)
-------------- -------- ------ ------- ------ ------- ------- -------- -------- -------
Adjusting items
We incurred GBP5.0m (FY21: GBPnil) of restructuring costs on our
Transformation programme, GBP0.7m (FY21: GBPnil) of reorganisation
costs, GBP1.4m (FY21: GBPnil) of older tunnel boring machine
write-off costs, and GBPnil (FY21: GBP0.4m) on amortisation of
acquired intangible assets. We also recognised an insurance receipt
of GBP5.2m (FY21: GBPnil) relating to the Peterborough &
Huntingdon contract previously provided for, as well as a profit of
GBP0.5m (FY21: GBPnil) on the sale of a non-core asset. We expect
additional Transformation costs in FY23.
Net financial expense
Net finance expense amounted to GBP2.1m (FY21: GBP3.8m). The
interest payable on bank overdrafts, loans and other similar
charges was GBP2.7m (FY21: GBP3.0m) and the interest income from
bank deposits amounted to GBP0.5m (FY21: GBP0.1m). In addition, the
net finance expense includes the interest income on the net assets
of the pension scheme of GBP1.3m (FY21: GBPnil) and the interest
expense on lease liabilities of GBP1.2m (FY21: GBP0.9m) under
IFRS16.
Tax
The Group has a tax charge of GBP6.9m (FY21: GBP7.5m credit)
giving an effective tax rate of 21.0%. The FY21 net tax credit
arose primarily from the GBP6.2m impact of the tax rate change
(from 19% to 25% in 2023, which has now been substantively enacted)
on deferred tax recognised in respect of losses and pensions. The
adjusted effective tax rate was 20.5% (FY21: 0.4%). We expect the
effective tax rate to remain close to the statutory tax rate of 19%
until April 2023, and 25% subsequently, giving an FY23 effective
tax rate of close to 23.5% .
Cashflow
The Group generated a GBP72.9m free cash inflow for the year
(FY21: GBP53.1m).
GBPm FY22 FY21
Cash from operations 16.7 33.2
Add back adjusting items 46.4 11.6
Add back pension deficit contributions 10.8 10.4
Less taxation (0.5) 0.1
Less capital expenditure (0.5) (2.2)
------ ------
Free cash flow 72.9 53.1
---------------------------------------- ------ ------
The Group had a positive net cash balance of GBP123.8m as of 31
December 2022 (HY22: GBP95.9m, FY21: GBP119.4m) comprising Costain
cash balances of GBP67.3m (HY22: GBP76.5m, FY21: GBP101.3m), cash
held by joint operations of GBP56.5m (HY22: GBP55.4m, FY21:
GBP58.1m) and borrowings of GBPnil (HY22: GBP36.0m excluding
arrangement fees of GBP0.2m, FY21: GBP40.0m excluding arrangement
fees of GBP0.6m). During the year, the Group's average month-end
net cash balance was GBP99.2m (HY21: GBP91.9m, FY21:
GBP107.0m).
GBPm FY22 FY21
Cash and cash equivalents at the
beginning of year 159.4 150.9
Net cash flow (35.6) 8.5
Cash and cash equivalents at the
end of year 123.8 159.4
Borrowings (excluding leases and
unamortised arrangement fee of
GBP0.6m in FY21) - (40.0)
------- -------
Net cash 123.8 119.4
---------------------------------- ------- -------
We remain in a positive net cash position, following the final
settlement payment of GBP43.4m made during the first quarter of the
financial year in respect of the Peterborough & Huntingdon
contract.
Financial resources
In November 2022, the Group successfully concluded its
negotiations with its bank and surety facility providers to secure
a one year "amend and extend" of its facilities.
The Group has in place banking and bonding facilities from banks
and surety bond providers to meet current and projected usage
requirements, and has a GBP125.0m (FY21: GBP131.0m) revolving
credit facility with its relationship banks with a maturity date of
24 September 2024. The revolving credit facility remained undrawn
throughout 2022. In November 2022, the Group prepaid in full the
GBP36.0m balance of its term loan facility from its cash
resources.
In addition, the Group has in place bonding facilities of
GBP280.0m (FY21: GBP310m). Utilisation of the total bonding
facilities as of 31 December 2022 was GBP88.8m (FY21:
GBP100.7m).
Since the end of FY22, the Group has converted its GBP125.0m
revolving credit facility to a GBP125.0m sustainability-linked
revolving credit facility with three ESG key performance
indicators.
Pensions
As at 31 December 2022, the Group's pension scheme surplus in
accordance with IAS 19, was GBP60.2m (HY22: GBP86.2m surplus, FY21:
GBP67.1m surplus).
The movement in the IAS 19 valuation, being a slight reduction
in surplus from 31 December 2021 to 31 December 2022 was due to the
impact of a reduction in the value of scheme assets, primarily due
to the fall in the value of Liability Driven Investment portfolio
due to the significant increase in long term bond yields over the
year, being slightly greater than the reduction in scheme
liabilities, primarily driven by changes in the principal actuarial
assumptions, in particular a higher discount rate of 5.00% used in
the IAS 19 valuation as at 31 December 2022 compared to the
discount rate at 31 December 2021 of 1.80%.
Cash contributions were made to the scheme during the year
amounting to GBP10.8m (FY21: GBP10.4m) and the charge to operating
profit in respect of the administration cost of the UK Pension
Scheme in the year was GBP0.3m (FY21: GBP0.3m).
DIRECTORS REPORT
Going concern
In determining the appropriate basis of preparation of the
financial statements for the year ended 31 December 2022, the
directors are required to consider whether the Group and the
Company can continue in operational existence for the foreseeable
future, being a period of at least twelve months from the date of
approval of the accounts. Having undertaken a rigorous assessment
of the financial forecasts, including its liquidity and compliance
with covenants, the Board considers that the Group has adequate
resources to remain in operation for the foreseeable future and,
therefore, have adopted the going concern basis for the preparation
of the financial statements. Please see note 1 for more
details.
For and on behalf of the Board
Alex Vaughan Helen Willis
Chief Executive Officer Chief Financial Officer
14 March 2023
Cau tionary 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.
Shareholder information
There is a large amount of information about our business on our
website, www.costain.com . This includes copies of recent investor
presentations as well as London Stock Exchange announcements.
GROUP INCOME STATEMENT
For the year ended 31 December 2022
GBPm Note 2022 2021
Revenue 4 1,421.4 1,135.2
Cost of Sales (1,328.7) (1,095.0)
---------- ----------
Gross profit 92.7 40.2
Administrative expenses (57.8) (49.7)
---------- ----------
Operating profit/(loss) 34.9 (9.5)
Share of results of joint ventures - -
and associates
---------- ----------
Profit/(loss) from operations 4 34.9 (9.5)
Finance income 5 1.8 0.1
Finance expense 5 (3.9) (3.9)
---------- ----------
Net finance expense (2.1) (3.8)
---------- ----------
Profit/(loss) before tax 32.8 (13.3)
Taxation 6 (6.9) 7.5
---------- ----------
Profit/(loss)for the year attributable
to equity holders of the parent 25.9 (5.8)
---------- ----------
Earnings/(loss) per share
Basic 7 9.4p (2.1)p
Diluted 7 9.4p (2.1)p
---------------------------------------- ----- ---------- ----------
GROUP STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
For the year ended 31 December 2022
GBPm 2022 2021
Profit/(loss) for the year 25.9 (5.8)
------- -------
Items that may be reclassified subsequently
to profit or loss:
Cash flow hedges:
Effective portion of changes in fair
value during year - 0.3
Total items that may be reclassified subsequently
to profit or loss - 0.3
Items that will not be reclassified to
profit or loss:
Remeasurement of retirement benefit asset (18.7) 62.7
Tax recognised on remeasurement of retirement
benefit asset 3.9 (15.6)
------- -------
Total items that will not be reclassified
to profit or loss (14.8) 47.1
------- -------
Other comprehensive (expense)/income for
the year (14.8) 47.4
------- -------
Total comprehensive income for the year
attributable to equity holders of the
parent 11.1 41.6
---------------------------------------------------- ------- -------
GROUP BALANCE SHEET
As at 31 December 2022
GBPm Note 2022 2021
Assets
Non-current assets
Intangible assets 9 52.2 52.5
Property, plant and
equipment 10 26.6 32.0
Equity accounted investments 0.4 0.4
Retirement benefit
asset 60.2 67.1
Trade and other receivables 3.5 5.5
Insurance recovery 4.0 -
asset
Deferred tax 14.5 15.4
------ ------
Total non-current
assets 161.4 172.9
Current assets
Inventories 0.2 0.3
Trade and other receivables 187.4 199.6
Insurance recovery 9.4 -
asset
Taxation - 0.2
Cash and cash equivalents 11 123.8 159.4
------ ------
Total current assets 320.8 359.5
------ ------
Total assets 482.2 532.4
------ ------
Liabilities
Non-current liabilities
Other payables 1.1 1.8
Interest bearing loans and borrowings - 32.0
Lease liabilities 15.0 18.2
Provisions for other liabilities 3.7 -
and charges
------ ------
Total non-current
liabilities 19.8 52.0
Current liabilities
Trade and other payables 232.5 215.1
Taxation 0.2 -
Interest bearing loans
and borrowings - 7.4
Lease liabilities 9.1 8.6
Provisions for other liabilities
and charges 9.4 50.3
------ ------
Total current liabilities 251.2 281.4
------ ------
Total liabilities 271.0 333.4
------ ------
Net assets 211.2 199.0
------ ------
Equity
Share capital 13 137.5 137.5
Share premium 16.4 16.4
Translation reserve 0.6 0.6
Hedging reserve - -
Retained earnings 56.7 44.5
------ ------
Total equity 211.2 199.0
------ ------
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2022
GBPm
Share Share Translation Hedging Retained Total
capital premium reserve reserve earnings equity
At 1 January 2021 137.5 16.4 0.6 (0.3) 2.3 156.5
Loss for the year - - - - (5.8) (5.8)
Other comprehensive income - - - 0.3 47.1 47.4
Shares purchased to satisfy
employee share schemes - - - - (0.2) (0.2)
Equity-settled share-based
payments - - - - 1.1 1.1
At 31 December 2021 137.5 16.4 0.6 - 44.5 199.0
--------- --------- ------------ --------- ----------
At 1 January 2022 137.5 16.4 0.6 - 44.5 199.0
Profit for the year - - - - 25.9 25.9
Other comprehensive expense - - - - (14.8) (14.8)
Equity-settled share-based
payments - - - - 1.1 1.1
--------- --------- ------------ --------- ---------- --------
At 31 December
2022 137.5 16.4 0.6 - 56.7 211.2
-------------------------------- --------- --------- ------------ --------- ---------- --------
GROUP CASH FLOW STATEMENT
For the year ended 31 December 2022
GBPm Note 2022 2021
Cash flows from/(used by) operating activities
Profit/(loss) for the year 25.9 (5.8)
Adjustments for:
Share of results of joint ventures and associates - -
Finance income 5 (1.8) (0.1)
Finance expense 5 3.9 3.9
Taxation 6 6.9 (7.5)
Profit on disposals of property, plant and (1.8) -
equipment
Impairment of investment in joint venture 6.5 -
Depreciation of property, plant and equipment 10 11.3 12.9
Amortisation and impairment of intangible
assets 9 0.6 1.1
Shares purchased to satisfy employee share
schemes - (0.2)
Share-based payments expense 1.1 1.1
------- -------
Cash from operations before changes in
working capital and provisions 52.6 5.4
Decrease in inventories 0.1 0.3
(Increase)/decrease in receivables (2.9) 17.7
Increase/(decrease) in payables 15.9 (29.9)
Movement in provisions and employee benefits (49.0) 39.7
------- -------
Cash from operations 16.7 33.2
Interest received 1.8 0.1
Interest paid (3.9) (3.9)
Taxation (paid)/received (0.5) 0.1
------- -------
Net cash from operating activities 14.1 29.5
------- -------
Cash flows from/(used by) investing activities
Additions to property, plant and equipment (0.2) (0.7)
Additions to intangible assets (0.3) (1.5)
Proceeds on disposals of property, plant
and equipment 2.6
Addition to cost of investment in joint (3.4) -
venture
------- -------
Net cash used by investing activities (1.3) (2.2)
------- -------
Cash flows from/(used by) financing activities
Repayments of lease liabilities (8.4) (10.8)
Repayment of loans (40.0) (8.0)
------- -------
Net cash used by financing activities (48.4) (18.8)
------- -------
Net (decrease)/increase in cash and cash
equivalents (35.6) 8.5
Cash and cash equivalents at beginning of
the year 11 159.4 150.9
Cash and cash equivalents at end of the
year 11 123.8 159.4
--------------------------------------------------- ----- -------
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 2022 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
UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. In preparing the financial
statements of the Group we performed an assessment of the impact of
climate change, with reference to the disclosures made in the
Strategic report. There has been no material impact on the
financial statements for the current year from the Group's
assessment of the impact of climate change, including estimates and
judgements made, specifically in relation to long-term contract
accounting.
A duly appointed and authorised committee of the Board of
directors approved the preliminary announcement on 14 March 2023.
The financial information set out above does not constitute the
Company's statutory accounts for the years ended 31 December 2022
and 2021 but is derived from those accounts. Statutory accounts for
2021 have been delivered to the Registrar of Companies and those
for 2022 will be delivered in due course.
The auditor has reported on these accounts. Their report for
2022 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 2021 was (i) unqualified, and (ii) did not contain
a statement under section 498(2) or (3) of the Companies Act
2006.
While the financial information included in this preliminary
announcement has been prepared in accordance with UK-adopted
international accounting standards, this announcement does not
itself contain sufficient information to fully comply with
UK-adopted international accounting standards.
The accounting policies have been applied consistently by the
Group to each period presented in these financial statements.
Going concern
The Group's principal business activity involves work on the
UK's infrastructure, mostly delivering long-term contracts with a
number of customers. To meet its day-to-day working capital
requirements, it uses cash balances provided from shareholders'
capital and retained earnings and its borrowing facilities. In
November 2022, the Group successfully concluded its negotiations
with its bank and surety facility providers to secure a one year
"amend and extend" of its borrowing facilities. These borrowing
facilities give the Group access to an RCF cash drawdown component
of GBP125.0m with a maturity date of 24 September 2024.
These facilities have a leverage covenant of net debt/EBITDA
<= 1.5 times, an interest covenant of EBITA/net interest payable
covenant of >= 4.0 times and a liquidity covenant whereby the
aggregate of, without double counting, any cash and cash equivalent
investments and the available commitment under the facility does
not fall below GBP50.0m. These financial covenants are tested
quarterly. As at 31 December 2022, the Group had a leverage
covenant ratio of below zero (the Group had no net debt) and an
interest covenant ratio of 16.1 times. As part of its contracting
operations, the Group may be required to provide performance and
other bonds. It satisfies these requirements by utilising its
GBP30m bank bonding and GBP250m surety company bonding
facilities.
In determining the appropriate basis of preparation of the
financial statements for the year ended 31 December 2022, the
directors are required to consider whether the Group and the
Company can continue in operational existence for the foreseeable
future, being a period of at least twelve months from the date of
approval of the accounts. Having undertaken a rigorous assessment
of the financial forecasts, including its liquidity and compliance
with covenants, the Board considers that the Group and the Company
have adequate resources to remain in operation for the foreseeable
future and, therefore, have adopted the going concern basis in the
preparation of the financial statements.
In assessing the going concern assumption, the Board reviewed
the Group's base case plans for the period to 30 June 2024, being
the first covenant deadline more than 12 months after the approval
of the financial statements. The directors have assumed that the
current RCF remains in place with the same covenant requirements
through to its current expiry date, which is beyond the end of the
period reviewed for Going Concern purposes. The directors have
assessed that the Group will either renew the facility thereafter
or agree an alternative source of finance for the subsequent
period. The base case assumes delivery of the Board approved
strategic and financial plans. As part of the assessment, the Board
also identified severe but plausible downsides affecting future
profitability, working capital requirements and cash flow. The
severe but plausible downsides include applying the aggregated
impact of lower revenue, lower margins, higher working capital
requirements and adverse contract settlements.
Both the base case and severe but plausible forecasts show
significant headroom and indicate that the Group will be able to
operate within its available banking facilities and covenants
throughout this period. Covenants are calculated on a rolling
12-month basis each quarter and therefore for all quarters until Q4
of FY23, and Q1 of FY24, a portion of the EBITDA/EBITA has already
been earned, reducing the risk of a potential breach. Taking this
into account along with the forecasts reviewed, it is considered
that the EBITA/net interest covenant for the rolling 12 months to
Q4 of FY23 and Q1 to Q2 of FY24 is the potential limiting factor,
given the Group's strong net cash position. The Board concluded
that there is sufficient liquidity headroom in the severe but
plausible downside scenario, as well as headroom on the committed
facilities and on the associated financial covenants.
Alternative performance measures
Income statement presentation - Adjusting items
To aid understanding of the underlying and overall performance
of the Group, certain amounts that the Board considers to be
material or non-recurring in size or nature or related to the
accounting treatment of acquisitions are adjusted because they are
not long-term in nature and will not reflect the long-term
performance of the Group. Presenting results on this adjusted basis
is consistent with the internal reporting presented to the
Board.
The directors exercise judgement in determining the
classification of certain items as adjusting using quantitative and
qualitative factors. In assessing whether an item is an adjusting
item, the directors give consideration, both individually and
collectively, as to an item's size, the specific circumstances
which have led to the item arising and if the item is likely to
recur, or whether the matter forms part of a group of similar
items.
The separate presentation of these items is intended to enhance
understanding of the financial performance of the Group in the
particular year under review and the extent to which results are
influenced by material unusual and/or non-recurring items. The tax
impact of the above is shown in note 3 to the financial statements
on the taxation line.
Consequently, the Group is disclosing as supplementary
information 'Adjusted revenue, Adjusted profit and Adjusted
earnings per share' alternative performance measurements. These are
reconciled to statutory numbers in note 3 and reported in the
presentation of segmental reporting in note 4.
The Group also presents net cash/bank debt as an alternative
performance measure. The directors consider that this provides
useful information about the Group's liquidity position.
2. SIGNIFICANT AREAS OF JUDGEMENT 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, 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 for 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, for example, the impact of pain/gain
arrangements to the extent that the amounts the Group expects to
recover can be reliably estimated and are highly probable not to
reverse.
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 cases, assessments of
recoveries from insurers, suppliers and contractors, where these
are considered 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.
There are four material contracts where management has been
required to make significant accounting estimates and, which result
in estimate uncertainty, as at 31 December 2022. In relation to
these contracts, the Group has included estimated recoveries with a
combined value of GBP12.2m, on the basis that these are considered
highly probable not to reverse. However, there are a range of
factors which will affect the ultimate outcome once these contracts
are finalised. Management considers that the estimation uncertainty
in relation to these four contracts ranges from a potential upside
of GBP22.6m to a downside of GBP12.2m.
The ultimate financial impact of this estimation uncertainty
will depend, inter alia, on the terms of the contract and the
interaction with incentive arrangements, such as pain/gain
mechanisms and bonus or KPI arrangements, as well as final
conclusions regarding claims and compensation events and
assessments of, for example, costs disallowed under the
contract.
The estimates of the forecast contract outcome 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.
While management believes it has recorded positions that are
highly probable not to reverse on the basis of existing facts and
circumstances, there are uncertain factors which will impact the
final contract outcome and could give rise to material adjustments
within the next financial year. Given the inherent complexity and
pervasive impact of the various judgements and estimates impacting
revenue, cost of sales and related balance sheet amounts, it is not
considered plausible to quantify the impact of taking alternative
assessments on each of these judgements.
Rectification provision: Contract in the water sector
In 2021, Costain recognised a provision of GBP6.2m in respect of
the estimated future costs of expected rectification works required
at a customer's water treatment facility where the Group had been
prime contractor. During 2022, working with designers, insurers and
the customer, there is now greater clarity as to the scope and cost
of rectification work required, albeit a final solution has yet to
be formally agreed with all relevant parties.
As at 31 December 2022, the Group's best estimate of the cost of
the single most likely rectification solution is GBP17.0m, of which
costs of GBP4.8m have been incurred. Accordingly, a provision of
GBP12.2m has been included in the statement of financial position
and disclosed in note 20. The work is expected to be concluded in
2024.
Whilst the cost of rectification work is capable of being
estimated, a number of assumptions have had to be made in arriving
at the cost estimate. This, combined with the fact that the final
design solution has not been finalised, results in there being
inherent estimation uncertainty in determining the ultimate cost
and associated provision. Management considers that the ultimate
cost will fall within a range of +/-30% of the estimated total cost
of GBP17m.
Costain has engaged with its insurers and received confirmation
that insurance cover is available and that all reasonable costs of
rectification work that are validly incurred will be met by
insurers. Consistent with this, insurers made an interim payment on
account during 2022. On this basis, management has made a judgement
that the costs of rectification, after deduction of insurers'
excess and amounts already received from insurers, will be
recovered. Accordingly, an insurance receivable of GBP13.4m has
been recognised in the statement of financial position in
accordance with IAS 37 on the basis that recovery is considered
virtually certain. There is a cap on insurance but the cap is
significantly in excess of the cost estimate. As at 31 December
2021, discussions with insurers were at an early stage and the
expected recovery from insurers was not recognised as a receivable
on the basis that it could not be considered virtually certain.
Peterborough & Huntingdon
On 24 February 2022, Costain announced that it had reached a
final settlement with National Grid regarding the Peterborough
& Huntingdon contract. The settlement agreement brought an end
to the dispute after the contract was mutually terminated in June
2020 and prevents any further claims under the contract. In 2022,
Costain made a full and final payment of GBP43.4m to National Grid
(which was fully provided for in 2021) and recognised a GBP5.2m
insurance recovery. Also see note 3.
Carrying value of goodwill
Assessing the recoverability of the carrying value of goodwill
recognised on acquisition requires an estimation of the value in
use of the cash generating units to which the goodwill has been
allocated. These assessments involve estimation and judgement,
principally, in respect of the levels of operating margins, growth
rates and future cash flows of the cash generating units and also
include consideration of the impact of potential sensitivities in
respect of those assumptions. The discount rates used to calculate
present values and related sensitivities are set out in note 9.
Defined benefit pension schemes
Defined benefit pension schemes require significant estimates in
relation to the assumptions for the discount rate, inflation 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 current and prior years. The asset is recognised on the
basis that the losses will be used against future taxable profits
of the Group over the next five years. The significant judgement in
assessing the recoverability relates to the ability of the Group to
achieve its taxable profit forecasts and the ability of these
estimated numbers to withstand the application of what the Board
considers appropriate sensitivities.
Adjusting items
As described in note 1, management has used judgement to
determine the items classified as adjusting items and set out in
note 3.
3. RECONCILIATION OF REPORTED REVENUE AND OPERATING
PROFIT/(LOSS) TO ADJUSTED REVENUE AND OPERATING PROFIT
Adjusted revenue, operating profit and earnings per share are
presented as non-GAAP alternative performance measurements. The
Board considers the adjusted measures better reflect the underlying
trading performance of the Group for the reasons described in note
2.
The profit adjustments represent amounts included in the income
statement. The revenue adjustments represent the reversal of the
contract asset recorded in the statement of financial position
immediately prior to the initial write down and any subsequent
adjustment to overall contract revenue.
Peterborough & Huntingdon
During the year, a GBP5.2m insurance receipt was recognised in
relation to the Peterborough & Huntingdon contract outcome.
In 2021, a GBP43.4m provision was recognised in relation to the
full and final settlement agreed with National Grid. Costain made a
full and final payment of GBP43.4m to National Grid in the first
quarter of 2022. Related legal and other costs of GBP4.2m were also
incurred and expensed during the period ended 31 December 2021.
These costs were recognised as adjusting items and therefore the
related credit has also been treated as such.
Other items
During the year, Costain has embarked on a Transformation
programme to deliver operational efficiencies. In 2022, the Group
incurred GBP5.0m (2021: GBPnil) of restructuring costs and GBP0.7m
(2021: GBPnil) of reorganisation costs.
During the year, the Group sold a minor stake in a hotel company
for GBP0.5m. The investment was impaired to nil in 2020 reflecting
the significant impact of COVID-19 in that sector, so the profit
realised this year is also GBP0.5m. This cost was recognised as an
adjusting item and therefore the related profit has also been
treated as such.
During the year, the Group fully impaired tunnel boring machines
held at net book value of GBP1.4m which were outmoded and no longer
core to operations.
In 2022, the Group incurred GBPnil (2021: GBP0.4m) amortisation
on acquired intangibles as these are now carried at net book value
GBPnil.
In 2021, the Group also recognised a profit of GBP8.4m on the
A465 Heads of the Valley Road contract as a result of lower costs
to complete than forecast at the end of 2020 when a write down to
the contract asset was recognised.
Year ended 31 December 2022 Other
Adjusted P&H items Total
GBPm GBPm GBPm GBPm
Revenue before contract adjustments 1,421.4 - - 1,421.4
Contract adjustments - - - -
------------------------------------- ----------- ------- -------- -----------
Revenue 1,421.4 - - 1,421.4
------------------------------------- ----------- ------- -------- -----------
Cost of sales (1,328.7) - - (1,328.7)
------------------------------------- ----------- ------- -------- -----------
Gross profit 92.7 - - 92.7
Administrative expenses before
other items (56.4) - - (56.4)
Other items - 5.2 (6.6) (1.4)
------------------------------------- ----------- ------- -------- -----------
Administrative expenses (56.4) 5.2 (6.6) (57.8)
Operating profit/(loss) 36.3 5.2 (6.6) 34.9
----------- ------- --------
Share of results of joint - - - -
ventures and associates
------------------------------------- ----------- ------- -------- -----------
Profit/(loss) from operations 36.3 5.2 (6.6) 34.9
------------------------------------- ----------- ------- -------- -----------
Net finance expense (2.1) - - (2.1)
------------------------------------- ----------- ------- -------- -----------
Profit/(loss) before tax 34.2 5.2 (6.6) 32.8
------------------------------------- ----------- ------- -------- -----------
Taxation (7.0) (1.0) 1.1 (6.9)
------------------------------------- ----------- ------- -------- -----------
Profit/(loss) for the year
attributable to equity holders
of the parent 27.2 4.2 (5.5) 25.9
------------------------------------- ----------- ------- -------- -----------
Basic earnings per share 9.9p 9.4p
------------------------------------- ----------- ------- -------- -----------
Year ended 31 December Other
2021 Adjusted P&H A465 items Total
GBPm GBPm GBPm GBPm GBPm
Revenue before contract
adjustments 1,178.6 - - - 1,178.6
Contract adjustments - (43.4) - - (43.4)
-------------------------------- ----------- -------- ------- -------- -------------
Revenue 1,178.6 (43.4) - - 1,135.2
-------------------------------- ----------- -------- ------- -------- -------------
Cost of sales (1,099.2) (4.2) 8.4 - (1,095.0)
-------------------------------- ----------- -------- ------- -------- -------------
Gross profit/(loss) 79.4 (47.6) 8.4 - 40.2
Administrative expenses
before other items (49.3) - - - (49.3)
Other items - - - (0.4) (0.4)
-------------------------------- ----------- -------- ------- -------- -------------
Administrative expenses (49.3) - - (0.4) (49.7)
Operating profit/(loss) 30.1 (47.6) 8.4 (0.4) (9.5)
----------- -------- ------- --------
Share of results of - - - - -
joint ventures and associates
-------------------------------- ----------- -------- ------- -------- -------------
Profit/(loss) from
operations 30.1 (47.6) 8.4 (0.4) (9.5)
-------------------------------- ----------- -------- ------- -------- -------------
Net finance expense (3.8) - - - (3.8)
-------------------------------- ----------- -------- ------- -------- -------------
Profit/(loss) before
tax 26.3 (47.6) 8.4 (0.4) (13.3)
-------------------------------- ----------- -------- ------- -------- -------------
Taxation 0.1 9.0 (1.6) - 7.5
-------------------------------- ----------- -------- ------- -------- -------------
Profit/(loss) for the
year attributable to
equity holders of the
parent 26.4 (38.6) 6.8 (0.4) (5.8)
-------------------------------- ----------- -------- ------- -------- -------------
Basic earnings/(loss)
per share 9.6p (2.1)p
-------------------------------- ----------- -------- ------- -------- -----------
4. OPERATING SEGMENTS
The Group has two core business segments: Transportation and
Natural Resources. 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 Strategic Report section of these financial
statements.
The Group evaluates segment performance on the basis of profit
or loss from operations before interest and tax expense and before
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.
2022 Natural Central
Resources Transportation costs Total
GBPm GBPm GBPm GBPm
Segment revenue
Adjusted revenue 375.1 1,046.3 - 1,421.4
Contract adjustments - - - -
--------- ----------------- -------- --------
Total revenue 375.1 1,046.3 - 1,421.4
--------- ----------------- -------- --------
Segment profit/(loss)
Adjusted operating profit 15.0 31.5 (10.2) 36.3
Contract adjustments - - - -
--------- ----------------- -------- --------
Operating loss before other
items 15.0 31.5 (10.2) 36.3
Share of results of joint - - - -
ventures and associates
--------- ----------------- -------- --------
Profit/(loss) from operations
before other items 15.0 31.5 (10.2) 36.3
Other items:
P&H insurance recovery 5.2 - - 5.2
Transformation costs (0.7) - (5.0) (5.7)
Tunnel boring machines impairment - (1.4) - (1.4)
Profit on disposal of other
investment - - 0.5 0.5
Profit/(loss) from operations 19.5 30.1 (14.7) 34.9
--------- ----------------- -------- --------
Net finance expense (2.1)
--------- ----------------- -------- --------
Profit before tax 32.8
--------------------------------------- --------- ----------------- -------- --------
2021 Natural Central
Resources Transportation costs Total
GBPm GBPm GBPm GBPm
Segment revenue
Adjusted revenue 314.4 864.2 - 1,178.6
Contract adjustments (43.4) - - (43.4)
--------- ----------------- -------- --------
Total revenue 271.0 864.2 - 1,135.2
--------- ----------------- -------- --------
Segment profit/(loss)
Adjusted operating profit (2.6) 41.4 (8.7) 30.1
Contract adjustments (47.6) 8.4 - (39.2)
--------- ----------------- -------- --------
Operating loss before other
items (50.2) 49.8 (8.7) (9.1)
Share of results of joint - - - -
ventures and associates
--------- ----------------- -------- --------
Profit/(loss) from operations
before other items (50.2) 49.8 (8.7) (9.1)
Other items:
Amortisation of acquired intangible
assets (0.4) - - (0.4)
Profit/(loss) from operations (50.6) 49.8 (8.7) (9.5)
--------- ----------------- -------- --------
Net finance expense (3.8)
--------- ----------------- -------- --------
Loss before tax (13.3)
----------------------------------------- --------- ----------------- -------- --------
5. NET FINANCE EXPENSE
GBPm 2022 2021
Interest income from bank deposits 0.5 0.1
Interest income on the net assets of the 1.3 -
defined benefit pension scheme
------ ------
Finance income 1.8 0.1
------ ------
Interest payable on interest bearing bank
loans, borrowings and other similar charges (2.7) (3.0)
Interest expense on lease liabilities (1.2) (0.9)
Finance expense (3.9) (3.9)
------
Net finance expense (2.1) (3.8)
---------------------------------------------- ------ ------
Other similar charges includes arrangement and commitment fees
payable.
6. TAXATION
GBPm 2022 2021
On profit/(loss) for the year
UK corporation tax at 19.0% (2021: 19.0%) (4.6) -
Adjustment in respect of prior years 0.3 0.1
------ ------
Current tax (charge)/credit for the year (4.3) 0.1
------ ------
Deferred tax (charge)/credit for the current
year (2.5) 8.4
Adjustment in respect of prior years (0.1) (1.0)
Deferred tax (charge)/credit for the year (2.6) 7.4
------
Tax (charge)/credit in the consolidated
income statement (6.9) 7.5
---------------------------------------------- ------ ------
GBPm 2022 2021
Tax reconciliation
Profit/(loss) before tax 32.8 (13.3)
------ -------
Taxation at 19.0% (2021: 19.0%) (6.2) 2.5
Amounts qualifying for tax relief and disallowed
expenses (1.0) (0.3)
Rate adjustment relating to deferred taxation
and overseas profits and losses 0.1 6.2
Adjustments in respect of prior years 0.2 (0.9)
------ -------
Tax (charge)/credit in the consolidated
income statement (6.9) 7.5
-------------------------------------------------- ------ -------
7. EARNINGS/(LOSS) PER SHARE
The calculation of earnings/(loss) per share is based on profit
of GBP25.9m (2021: loss of GBP5.8m) and the number of shares set
out below.
2022 2021
Number Number
(millions) (millions)
Weighted average number of ordinary shares
in issue for basic earnings per share calculation 275.0 274.9
Dilutive potential ordinary shares arising
from employee share schemes 1.7 5.1
----------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share
calculation 276.7 280.0
---------------------------------------------------- ----------- -----------
8. DIVIDS
No dividends were paid or proposed in respect of the year ended
31 December 2022.
9. INTANGIBLE ASSETS
Customer Other acquired Other
Goodwill relationships intangibles intangibles Total
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2021 54.1 15.4 9.7 14.4 93.6
Additions - - - 1.5 1.5
-------------------------- --------- --------------- --------------- ------------- ------
At 31 December
2021 54.1 15.4 9.7 15.9 95.1
-------------------------- --------- --------------- --------------- ------------- ------
At 1 January 2022 54.1 15.4 9.7 15.9 95.1
Additions - - - 0.3 0.3
-------------------------- --------- --------------- --------------- ------------- ------
At 31 December
2022 54.1 15.4 9.7 16.2 95.4
-------------------------- --------- --------------- --------------- ------------- ------
Accumulated amortisation
At 1 January 2021 9.0 15.0 9.7 7.8 41.5
Charge in year - 0.4 - 0.7 1.1
At 31 December
2021 9.0 15.4 9.7 8.5 42.6
--------- --------------- --------------- -------------
At 1 January 2022 9.0 15.4 9.7 8.5 42.6
Charge in year - - - 0.6 0.6
At 31 December
2022 9.0 15.4 9.7 9.1 43.2
--------- --------------- --------------- -------------
Net book value
At 31 December
2022 45.1 - - 7.1 52.2
-------------------------- --------- --------------- --------------- ------------- ------
At 31 December
2021 45.1 - - 7.4 52.5
-------------------------- --------- --------------- --------------- ------------- ------
At 1 January 2021 54.1 0.4 - 6.6 52.1
-------------------------- --------- --------------- --------------- ------------- ------
Goodwill has been allocated to the applicable cash generating
units of the Transportation segment (GBP15.5m (2021: GBP15.5m)) and
the Natural Resources segment (GBP29.6m (2021: GBP29.6m)).
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 time value of money and
the risks specific to the CGU. The rate used to discount the
forecast cash flows for both the Transportation and Natural
Resources CGUs was 15.5%. In 2021, the discount rates used for the
two CGUs were Transportation 13.2% and Natural Resources 14.3%.
The value in use calculations use the Group's four-year cash
flow forecasts, which are based on the expected revenues and
profitability of each CGU, taking into account the current level of
secured and anticipated orders, extrapolated for future years by
the expected growth applicable to each CGU, as follows:
2022 2021
2022 Natural 2021 Natural
Transportation Resources Transportation Resources
% % % %
-------- ----------- ---------------- -----------
Growth Rates
Year 5 1.5 1.5 1.9 1.9
Long-term average 1.5 1.5 1.9 1.9
-------- ----------- ---------------- -----------
At 31 December 2022, based on the internal value in use
calculations, management concluded that the recoverable value of
the Transportation cash generating unit exceeded its carrying
amount with substantial headroom.
At 31 December 2022, based on the internal value in use
calculations, which included a sensitivity aligned to a 30%
reduction in absolute business unit operating profit, management
concluded that the recoverable amount of the Natural Resources cash
generating unit exceeded its carrying amount, with headroom of
GBP32.1m. The recoverable amount of the Natural Resources goodwill
therefore continues to be subject to further sensitivities and
changes in the value in use assessment assumptions would have
resulted in the following changes:
-- An increase in the discount rate of 1.0% (from 15.5% to 16.5%
pre-tax), reduces headroom by GBP7.9m;
-- A decrease in the long-term growth rate of 1.0% (from 1.5% to
0.5%), reduces headroom by GBP5.8m; and
-- A further reduction in CGU operating profit by an additional
20%, on top of the 30% reduction already modelled, reduces headroom
by GBP19.3m.
Based on the above sensitivities the directors consider that
there is no reasonable possible change in any key assumption that,
in isolation, would result in an impairment of goodwill. However,
if the sensitivities modelled above were to occur in combination,
this would give rise to an impairment.
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 2021 0.6 27.0 20.5 30.3 78.4
Additions - 0.7 1.0 17.0 18.7
Disposals - (0.7) (7.4) (17.9) (26.0)
------------- ------------- ------------- ----------- -------
At 31 December 2021 0.6 27.0 14.1 29.4 71.1
------------- ------------- ------------- ----------- -------
At 1 January 2022 0.6 27.0 14.1 29.4 71.1
Additions - 0.2 0.7 16.1 17.0
Disposals (0.6) (2.6) (1.4) (14.2) (18.8)
------------- ------------- ------------- ----------- -------
At 31 December 2022 - 24.6 13.4 31.3 69.3
------------- ------------- ------------- ----------- -------
Accumulated depreciation
and impairment
At 1 January 2021 0.6 19.8 8.4 9.7 38.5
Charge in year - 2.5 3.3 7.1 12.9
Disposals - (0.7) (5.6) (6.0) (12.3)
------------- ------------- ------------- ----------- -------
At 31 December 2021 0.6 21.6 6.1 10.8 39.1
------------- ------------- ------------- ----------- -------
At 1 January 2022 0.6 21.6 6.1 10.8 39.1
Charge in year - 2.9 2.1 4.9 9.9
Impairment in year - 1.4 - - 1.4
Disposals (0.6) (2.6) (0.6) (3.9) (7.7)
------------- ------------- ------------- ----------- -------
At 31 December 2022 - 23.3 7.6 11.8 42.7
------------- ------------- ------------- ----------- -------
Net book value
At 31 December 2022 - 1.3 5.8 19.5 26.6
------------- ------------- ------------- ----------- -------
At 31 December 2021 - 5.4 8.0 18.6 32.0
------------- ------------- ------------- ----------- -------
At 1 January 2021 - 7.2 12.1 20.6 39.9
-------------------------- ------------- ------------- ------------- ----------- -------
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 GBP56.5m (2021:
GBP58.1m).
2022 2021
GBPm GBPm
Cash and cash equivalents 123.8 159.4
Borrowings - current - (7.4)
Borrowings - non-current - (32.0)
------ -------
Net cash (excluding unamortised arrangement
fees) 123.8 120.0
------ -------
Unamortised arrangement fees - (0.6)
------ -------
Net cash 123.8 119.4
------ -------
12. PENSIONS
The Group operates a defined benefit pension scheme in the UK;
contributions are paid by subsidiary undertakings. There are also
two defined contribution pension schemes in place in the UK and
contributions are made both by subsidiary undertakings and
employees. The total pension charge in the income statement is
GBP11.9m comprising GBP13.2m included in operating costs less
GBP1.3m interest income included in net finance expense (2021:
GBP11.7m, comprising GBP11.7m in operating costs and GBPnil
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
2022 and this was updated to 31 December 2022 by a qualified
independent actuary. At 31 December 2022, there were 2,867 retirees
and 2,529 deferred members (2021: 2,875 retirees and 2,629 deferred
members). The weighted average duration of the obligations is 11.9
years (2021: 16.3 years).
2022 2021 2020
GBPm GBPm GBPm
-------- -------- --------
Present value of defined benefit
obligations (527.1) (837.5) (886.5)
Fair value of scheme assets 587.3 904.6 880.9
-------- -------- --------
Recognised asset/(liability) for
defined benefit obligations 60.2 67.1 (5.6)
---------------------------------- -------- -------- --------
Movements in present value of defined benefit obligations
2022 2021
GBPm GBPm
At 1 January 837.5 886.5
Interest cost 14.8 11.7
Remeasurements - demographic assumptions (0.3) (5.4)
Remeasurements - financial assumptions (321.4) (16.1)
Remeasurements - experience adjustments 29.7 (6.5)
Benefits paid (33.2) (32.7)
-------- -------
At 31 December 527.1 837.5
------------------------------------------ -------- -------
Movements in fair value of scheme assets
2022 2021
GBPm GBPm
At 1 January 904.6 880.9
Interest income 16.1 11.7
Remeasurements - return on assets (310.7) 34.6
Contributions by employer 10.8 10.4
Administrative expenses (0.3) (0.3)
Benefits paid (33.2) (32.7)
-------- -------
At 31 December 587.3 904.6
----------------------------------- -------- -------
Expense recognised in the income statement
2022 2021
GBPm GBPm
Administrative expenses paid by the pension
scheme (0.3) (0.3)
Administrative expenses paid directly by
the Group (1.2) (1.0)
Interest income on the net assets of the 1.3 -
defined benefit pension scheme
------ ------
(0.2) (1.3)
--------------------------------------------- ------ ------
Fair value of scheme assets
2022 2021
GBPm GBPm
Global equities 109.8 137.2
Multi-asset growth funds 56.1 133.7
Multi-credit fund 110.9 118.1
LDI plus collateral 307.2 494.6
Property - 4.4
Cash 3.3 16.6
------ ------
587.3 904.6
-------------------------- ------ ------
Principal actuarial assumption (expressed as weighted
averages)
2022 2021
% %
Discount rate 5.00 1.80
Future pension increases 2.90 3.25
Inflation assumption 3.10 3.40
-------------------------- ----- -----
Weighted average life expectancies from age 65 as per mortality
tables used to determine benefits at 31 December 2022 and 31
December 2021 are:
2022 2021
Male Female Male Female
(years) (years) (years) (years)
Currently aged 65 21.9 23.9 22.1 24.0
Non-retirees currently
aged 45 22.9 25.1 23.1 25.3
------------------------ -------- -------- -------- --------
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
Increasing the discount rate by 0.25%, decreases
pension liability and increases pension
income/reduces pension cost by 15.4 0.8
Decreasing inflation by 0.25% (which decreases
pensions increases), decreases pension liability
and increases pension income/reduces pension
cost by 13.5 0.7
Increasing life expectancy by one year,
increases pension liability and reduces
pension income/increases pension cost by 17.9 0.9
As highlighted in the table 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% of the value of the
assets is sensitive to changes in interest rates and inflation and
this mitigates the equivalent movement in the liabilities of the
scheme as a whole. In 2022, long-term government bond yields
increased significantly which meant that the value of the LDI
portfolio fell but the value of the liabilities also fell by a
similar amount.
In accordance with the pension regulations, a triennial
actuarial review of the Costain defined benefit pension scheme as
at 31 March 2022 was started in 2022. Discussions around the
results of the review are currently in progress and the
Trustee/Company have until 30 June 2023 to complete the review. The
last triennial actuarial review was completed in March 2020 and the
valuation and 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 2019 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
Two defined contribution pensions are operated. The total
expense relating to these plans was GBP11.7m (2021: GBP10.4m).
13. SHARE CAPITAL
2022 2021
------------------------------ -------------------------- ----------------------
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 275.0 137.5 275.0 137.5
Issued in year (see below) 0.1 - - -
------------------------------ ------------ ------------ ------------ --------
Shares in issue at end of
year - ordinary shares of
50p each, fully paid 275.1 137.5 275.0 137.5
------------------------------ ------------ ------------ ------------ --------
The Company's issued share capital comprised 275,084,741
ordinary shares of 50 pence each as at 31 December 2022.
All shares rank pari passu regarding entitlement to capital and
dividends.
14. EVENTS AFTER THE REPORTING DATE
There are no events after the reporting date.
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END
FR JJMLTMTABBRJ
(END) Dow Jones Newswires
March 14, 2023 03:00 ET (07:00 GMT)
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