TIDMCOST
RNS Number : 1332Y
Costain Group PLC
01 March 2017
Costain Group PLC
("Costain" or "the Group" or "the Company")
Results for the year ended 31 December 2016
Costain, the engineering group, deploying technology-based
solutions to meet urgent national needs across the UK's energy,
water and transportation infrastructures, announces a strong
performance with significant increases in both revenue and
underlying operating profit and a recommended 15% increase in the
final dividend.
2016 2015
Revenue
GBP1,658.0m GBP1,316.5m
* Including share of JVs and associates
GBP1,573.7m GBP1,263.6m
* Reported
Operating profit
* Underlying(1) GBP41.1m GBP33.2m
GBP34.9m GBP29.6m
* Reported
Profit before tax
* Underlying(1) GBP37.5m GBP29.9m
GBP30.9m GBP26.0m
* Reported
Basic earnings per share
* Underlying(1) 31.5p 25.1p
* Reported 25.7p 21.8p
Net cash balance(2) GBP140.2m GBP108.2m
Dividend per share 12.7p 11.0p
1. Before other items; amortisation of acquired intangible
assets and employment related and other deferred consideration
2. Net cash balance is cash and cash equivalents less interest
bearing loans and borrowings
Highlights
-- Another strong performance
o Revenue, including share of joint ventures & associates,
increased to GBP1.7 billion (2015: GBP1.3 billion)
o Underlying(1) operating profit up 24% to GBP41.1 million
(2015: GBP33.2 million)
o Net cash(2) position of GBP140.2 million (2015: GBP108.2
million) reflecting positive timing of receipts at the period
end.
-- Customer focused strategy delivering high quality order book
o Forward order book maintained at record level of GBP3.9
billion (2015: GBP3.9 billion)
o Over 90% lower risk target cost, cost reimbursable forms of
contract and over 90% of order book comprises repeat orders and
-- Accelerating growth both organically and by acquisition
o Successful acquisition, further enhancing technology
capability, of SSL for GBP17.0 million, now fully integrated and
performing well
o Nature of service offering changing rapidly, with total
headcount of over 4,100 of which over 1,200 now in technology,
advisory and design service roles.
-- Positive outlook
o Over GBP1.2 billion of revenue secured for 2017, (as at 31
December 2015: over GBP1.1 billion secured for 2016) with GBP2.7
billion of revenue secured for 2018 and beyond
o Recommended final dividend of 8.4 pence per share (2015: 7.25
pence), increasing the total dividend for the year by 15% to 12.7
pence per share (2015: 11.0 pence).
Dr Paul Golby CBE, Chairman, commented:
"I am pleased to report that Costain has delivered another
strong result, with continued growth in both revenue and profit,
and has maintained a record high quality forward order book.
"Our major customers are committed to spending billions of
pounds to improve people's lives by enhancing the UK's energy,
water and transportation infrastructures. In order to deliver
solutions to their increasingly complex requirements, Costain will
continue to provide the broadest range of innovative integrated
services and technology-based solutions.
"The Group's continuing success is, therefore, the direct result
of its 'Engineering Tomorrow' strategy and the deliberate
acceleration of growth, both organically and by targeted
acquisition.
"Costain is well-positioned to take advantage of the
opportunities that lie immediately ahead and this, combined with
the good visibility we have over the medium-term, reinforces our
confidence for the future.
"That confidence is reflected in the recommendation to increase
the total dividend for the year by 15% and I look forward to
reporting on future progress."
Enquiries:
Costain Tel: 01628 842 444
Andrew Wyllie, CBE, Chief
Executive
Tony Bickerstaff, Finance
Director
Catherine Warbrick, Investor
Relations Director
Sara Lipscombe, Communications
Director
Instinctif Partners Tel: 020 7457 2020
Mark Garraway
Helen Tarbet
James Gray
There will be a presentation to analysts today at 11:00 at
Instinctif Partners, 65 Gresham Street, London, EC2V 7NQ. To
register your attendance please contact
christine.galloway@instinctif.com
The Costain 2016 results film is available at
www.costain.com
Notes to Editors (for further information please visit the
company website: www.costain.com)
Costain helps to improve people's lives by deploying
technology-based engineering solutions to meet urgent national
needs across the UK's energy, water and transportation
infrastructures. We have been shaping the world in which we live
for the past 150 years.
The Group's 'Engineering Tomorrow' strategy involves focusing on
blue chip customers in chosen sectors whose major spending plans
are underpinned by strategic national needs, regulatory commitments
or essential maintenance requirements.
Costain's 4,100 people, who are committed to high performance
and safe delivery, are working on a number of high profile
contracts in the UK incorporating a broad range of innovative
services across the whole life-cycle of our customers' assets and
does so through the delivery of integrated consultancy, asset
optimisation, technology and complex delivery services.
CHAIRMAN'S STATEMENT
This is my first statement since joining the Board and becoming
Chairman on 5 May 2016. I am pleased to report that Costain has
delivered another strong result, with continued growth in both
revenue and profit, and has maintained a record forward order
book.
I was delighted to have been asked to join Costain. It is a
great British engineering success story with an outstanding brand
and leading market positions.
I look forward to playing a part in delivering further success
as the Group accelerates its growth.
Costain's opportunity
These are exciting times for Costain.
The cross-party political support for investment in
infrastructure as a facilitator of sustainable economic growth,
coupled with our customers' committed multi-billion pound
investment programmes, creates a positive environment for the Group
to continue to grow. This is evidenced through recent decisions to
progress investment programmes at Hinkley, Heathrow and High Speed
2.
Meanwhile, the increasingly complex demands of the Group's blue
chip customers present engineering challenges which require an even
greater emphasis on technology-based solutions. Costain's unique
and focused 'Engineering Tomorrow' strategy has successfully
positioned the business as one of only a few companies able to
provide those solutions.
Costain is continuing to grow its skills and capabilities and
this is enabling the Group to win substantial new contracts and
contract extensions thereby maintaining a high quality order
book.
Dividend
The Group has a progressive dividend policy, targeting an
ongoing dividend cover of around two times underlying earnings,
translating strong performance directly in to shareholder
value.
Our performance this year, and our confidence in the
opportunities for future growth, has resulted in the Board
recommending a final dividend of 8.4 pence per share (2015: 7.25
pence) which, if approved, will be paid on 19 May 2017 to
shareholders on the register as at 7 April 2017. This represents an
increase of 15% in the total dividend for the year to 12.7 pence
per share (2015: 11.0 pence).
Pension
A triennial actuarial review of the Costain defined benefit
scheme, reflecting updated market and liability assumptions, has
been carried out as at 31 March 2016 and a plan agreed with the
scheme Trustee regarding the associated deficit recovery. The
amount of annual total contributions has been agreed at the same
overall level as previously established, based on the Group's
dividend matching policy.
Governance
I have joined a company with a Board committed to the highest
standards of governance and a first-rate executive team
implementing a robust strategy.
Our Annual Report will set out and explain the processes we have
put in place to deliver long-term success whilst also ensuring that
the Company complies with all applicable laws and regulations and
meets the requirements of our shareholders and their representative
bodies.
We measure the Board's effectiveness by holding an externally
facilitated evaluation of Board performance every three years and
take appropriate action where required. The most recent external
evaluation was in 2014 and, in the interim, we undertake annual
internal follow-up reviews to ensure that we are delivering agreed
actions.
Board and people
I joined the Board and succeeded David Allvey as Chairman at the
conclusion of the Annual General Meeting on 5 May 2016. David had
been Chairman for seven years, and on behalf of everyone at
Costain, I would like to thank him for the substantial role he
played, and we wish him and his family all the very best for the
future.
The success of any company is down to the quality of its
leadership and the depth of talented and skilled people throughout
the organisation.
On behalf of the Board, I would also like to thank all of
Costain's people for their commitment, dedication and hard work.
The strong result we have achieved this year would not be possible
without them.
Corporate citizenship
Costain takes seriously its wider corporate responsibility and
the role the business plays in society. That corporate perspective
is also integral to the development of long-term relationships with
our blue-chip customers who increasingly place a demonstrable
commitment to corporate responsibility high on their selection
criteria for preferred suppliers.
Outlook
Our major customers are committed to spending billions of pounds
to improve people's lives by enhancing the UK's energy, water and
transportation infrastructures. In order to deliver solutions to
their increasingly complex requirements, Costain will continue to
provide the broadest range of innovative integrated services and
technology-based solutions.
The Group's continuing success is, therefore, the direct result
of its 'Engineering Tomorrow' strategy and the deliberate
acceleration of growth, both organically and by targeted
acquisition.
Costain is well-positioned to take advantage of the
opportunities that lie immediately ahead and this, combined with
the good visibility we have over the medium-term, reinforces our
confidence for the future.
That confidence is reflected in the recommendation to increase
the total dividend for the year by 15% and I look forward to
reporting on future progress.
Dr Paul Golby CBE
Chairman
CHIEF EXECUTIVE'S REVIEW
Our purpose at Costain is to improve people's lives by deploying
technology-based engineering solutions to meet urgent national
needs across the UK's energy, water and transportation
infrastructures.
I am pleased to report on another good year, during which we
delivered a strong overall result, continued to accelerate the
growth of the business through investing in our skills and
capabilities, maintained our market leading position and secured a
record amount of work for the following year.
Strong trading performance
Revenue, including the Group's share of joint ventures and
associates, for the year increased 26% to GBP1,658.0 million (2015:
GBP1,316.5 million).
Group underlying operating profit increased 24% to GBP41.1
million (2015: GBP33.2 million).
Underlying profit before tax was GBP37.5 million (2015: GBP29.9
million), and underlying basic earnings per share increased to 31.5
pence (2015: 25.1 pence). Reported profit before tax was GBP30.9
million (2015: GBP26.0 million) and reported earnings per share
were 25.7 pence (2015: 21.8 pence).
Although we have two core operating and reporting divisions
within our business (Infrastructure and Natural Resources) we have
continued to implement our 'One Costain' philosophy which enables
us to constantly focus our resources on identifying and securing
the most attractive business opportunities across the markets in
which we operate.
The Infrastructure division delivered increases in revenue and
operating profit and maintained a record order book. The Natural
Resources division saw an increase in revenue with the overall
result impacted by further costs in relation to the legacy Greater
Manchester Waste contract awarded in 2007, as detailed in the
Divisional review.
Costain finished the year with a strong net cash position of
GBP140.2 million (2015: 108.2 million) reflecting positive timing
of receipts at the period end. This is after significant further
investment in the Group's strategic development including the GBP17
million acquisition in July 2016 of Simulations Systems Limited
(SSL), which has been fully integrated and which will be earnings
enhancing in 2017.
Accelerating growth: investing in 'Engineering Tomorrow'
Our performance is the result of our unique, focused and
continually evolving 'Engineering Tomorrow' strategy which has
successfully positioned the business to provide the range of
innovative integrated services demanded by our major customers who
are spending billions of pounds on projects, underpinned by
legislation, regulation or essential capital spend in the UK,
upgrading and renewing the country's energy, water and
transportation infrastructures.
Through increasing the capacity of road and rail infrastructure
networks, improving the security of water and power supplies and
enhancing the service provided to consumers, Costain is playing a
key role in enhancing the lives of millions of people across the
country.
Additionally, the Group's blue-chip customers' increasingly
complex requirements to ensure future-proofed capacity, high
quality service, security of supply and efficiency in delivery
present numerous opportunities which demand an ever greater
emphasis on innovative engineering and technology-based solutions.
We have previously referred to the revolution taking place in the
deployment of technology and this is gathering momentum as our
customers increasingly recognise it as a major facilitator in the
delivery of infrastructure. Costain is, and intends to remain, at
the forefront of that revolution.
Following the referendum vote in June, there has been no adverse
impact on Costain.We have noted the increased emphasis from the
Government on the vital role infrastructure plays in promoting
economic growth and an allied commitment to investment in key
sectors, including technology, to ensure that the country continues
to compete on the global stage. This presents Costain with
additional opportunity.
Consequently, we are reinforcing our strategic focus on our
major customers who are already committed to spending billions of
pounds addressing critical UK infrastructure needs and we will
continue to accelerate the growth of the business, investing both
organically and by acquisition, in people and skills and in
innovation and capabilities.
In July, we successfully acquired SSL to enhance further the
range of technology-led solutions we can provide to our customers.
SSL, established in 1979 and with 165 people, provides integrated
hardware and software-based solutions across a broad spectrum of
traffic monitoring and management solutions with the potential for
wider application across our customer groups. The business has now
been fully integrated into the Group and is performing well.
Combining an award winning team and leading-edge innovation
The success of Costain is built on the strength and experience
of our team and it is essential that we continue to attract, retain
and develop the best talent. Costain today has over 4,100 people
and, reflecting the development and changing nature of the
business, over 1,200 of those are now in technology, advisory or
design service roles.
At Costain there are over 750 chartered professionals across a
wide range of disciplines. Additionally, there are over 200
graduates on our award-winning graduate development programme and
120 apprentices on a structured development programme undergoing
training across the business.
Across the Group, there has been over 50,000 hours of training
and development in the year. A number of the members of the senior
leadership team have participated in executive education programmes
during the year at leading business schools including Harvard and
INSEAD.
In order to ensure we continue to generate thought leadership on
key issues, we are currently sponsoring 13 PhD students undertaking
leading-edge research at renowned universities including Cambridge,
Imperial College, Edinburgh and Manchester.
Along with our engineering centre in Manchester, where over 300
of our people are based, we currently have research and development
relationships with 15 leading universities and with whom we
continue to progress a number of patent applications.
This investment in people and R&D continued to deliver a
number of exciting innovations including:
-- Advanced Vehicle Technology: Automatic vehicle recognition
technology for the management of vehicles, removing the need for
traditional toll booths and automatic crossing charging and
therefore reducing traffic congestion;
-- Analytics and predictive services: our technology is being
used to manage critical infrastructure when experiencing extreme
events;
-- The deployment of workforce and workflow technology to the
delivery of complicated maintenance contracts. Through the use of
this technology we are improving the local customer experience,
improving event management and improving efficiency of operations
through automatic workforce management;
-- Capturing asset operational data and maintenance records,
through the use of algorithms, to optimise maintenance and
operations achieving significant reductions in both capex and opex
costs.
Record order book providing visibility of earnings
As a consequence of its strong customer relationships, and its
engineering and technology-led solutions, Costain secured a
significant number of new orders and contract extensions
including:
-- Development of the M4 corridor around Newport for the Welsh Government;
-- Peterborough and Huntingdon compressor station upgrade for National Grid;
-- Contract for the East works package of the Thames Tideway Tunnel in London;
-- High Speed 2 South Enabling Works contract;
-- Appointment to the Decommissioning Delivery Partnership framework by Sellafield Ltd;
-- Three asset maintenance support contracts for Highways England;
-- Transport for London's Surface Transport Major Projects Framework.
As a result, the Group's order book at the year-end was
maintained at the record level of GBP3.9 billion (31 December 2015:
GBP3.9 billion).
The Group has increased its revenues secured for 2017 to over
GBP1.2 billion (as at 31 December 2015: over GBP1.1 billion secured
for 2016). The order book also provides good medium-term visibility
with GBP2.7 billion of revenues secured for 2017 and beyond. In
addition to the order book, the Group has maintained its preferred
bidder position at over GBP500 million, and is actively seeking to
secure further new work across all of its target markets.
The strategic nature of Costain's long-term customer
relationships has once again ensured that over 90% of the order
book comprises repeat business. We deliberately work with major
customers who utilise target cost, cost reimbursable contracts as
the most appropriate contract form to deliver their complex and
changing requirements. As a consequence, over 90% of the order book
is in this lower-risk form of contract.
Given the changing nature of the business and the evolving
profile of the order book, we will also increasingly use
consultancy-related indicators, such as utilisation.
Operational review
Under our 'One Costain' operating model the Group has two core
operating and reporting divisions within the business:
Infrastructure and Natural Resources.
Infrastructure
The Costain Infrastructure division, which operates in the
highways, rail and nuclear markets, has had a strong year with an
increase in revenue and operating profit. Revenue (including share
of joint ventures and associations) increased to GBP1,276.1 million
(2015: GBP996.1 million) and operating profit (before other items)
rose to GBP56.6 million (2015: GBP50.9 million) Reported (after
other items) operating profit was GBP54.6 million (2015: GBP49.9
million). The underlying operating profit margin delivered in the
division is within the targeted blended range of 4% to 5%.
The forward order book for the division has increased to GBP2.9
billion (2015: GBP2.8 billion) and the level of tendering activity
is high as we continue to prioritise the Group's bidding activity
in the areas that currently provide the greatest opportunity.
Highways
In Highways, major milestones have been achieved on the M1
Junction 28 to 35 Managed Motorways contract for Highways England,
the M6 to Heysham Link Road for Lancashire County Council and the
A465 Heads of the Valleys Dualling for the Welsh Government.
We continue to provide 24/7 operational capability to key
customers who require immediate response to incidents and severe
weather events, keeping our strategic road network open and
available for safe use by all. Following successful awards by
Highways England, the Areas 4 and 12 Asset Support Contracts (ASCs)
have been successfully mobilised and, in December, we were awarded
the Area 14 Maintenance and Response contract.
Our Highways operational capability was recognised further with
the award of our first local authority operations and maintenance
contract for East Sussex County Council and which has also been
successfully mobilised.
The acquisition of SSL in July has already enabled us to secure
important contract wins as a consequence of the additional
capabilities the business brought to Costain, particularly across
technology services. These new capabilities are now being deployed
on the recently awarded TMT2 framework for Highways England and the
refurbishment of the critical M4 Brynglas Tunnels for the Welsh
Government.
Rail
This year has seen a significant growth in activity as we work
with Network Rail and others to modernise ageing infrastructure.
During the year we successfully, and on time, opened the first
phase of the major London Bridge station redevelopment. This was a
major landmark, achieved whilst having to keep one of London's
busiest transport hubs open for business.
We also responded swiftly to the closure of the Folkestone to
Dover line as a consequence of the damage to the sea wall in the
December 2015 storms. This contract has been completed well ahead
of schedule and budget and the railway line was back into full
operation in September 2016.
Capacity constraints on the national rail network are being
alleviated by our rail electrification joint venture, ABC
Electrification Limited which continues of deliver significant
sections of the National Electrification Programme in the Midlands,
Scotland and on the Great Western Line.
Crossrail will improve journey times across London and will ease
congestion while offering significantly enhanced connectivity. On
this iconic programme of work we continue to deliver the landmark
Paddington and Bond Street stations and have made significant
progress on the System Wide contract to provide the operational
railway on the central section of Europe's largest infrastructure
programme. On associated works for London Underground, both the
Bond Street station upgrade and the Bakerloo Line link at
Paddington have made excellent progress in the year.
In order to increase rail capacity and reduce travel times into
London from the Midlands and the North, the Government is
developing a high-speed rail network known as HS2. This programme
has made good progress in the year with Costain being awarded, in
joint venture, the southern section enabling works contract.
Nuclear
As part of the programme to manage the decommissioning of the
UK's legacy nuclear power stations, Costain made significant
progress towards completion of the Evaporator D contract for
Sellafield Limited and we have mobilised a team for Sellafield's
design and delivery partner framework.
With regard to the upgrade programme of the country's existing
nuclear power station fleet, Costain successfully secured in
December the project controls programme management advisory project
for EDF which, importantly, demonstrates the broadening of the
Group's capabilities across integrated services and consultancy. We
are also undertaking advance works for EDF at Hinkley Point.
Natural Resources
The Natural Resources division, which operates in the water,
power and oil & gas markets, has seen some good progress in
underlying performance. Revenue in the division has increased as a
consequence of the expected cyclical growth in spend in the AMP 6
programmes in the water sector, the full benefit from the
integration of the acquisition of the Rhead Group in August 2015
and despite the impact of the continued difficult oil and gas
market conditions.
Revenue (including share of joint ventures and associations)
increased to GBP377.3 million (2015: GBP317.6 million) with an
operating loss (before other items), including the impact of the
increased costs and provisions on the legacy waste PFI contract
detailed below, of GBP8.6 million (2015: GBP11.1 million loss).
Reported (after other items) loss from operations was GBP12.6
million (2015: GBP13.4 million loss). Excluding the impact of the
legacy waste contract the division generated an underlying
operating profit of GBP6.5 million in 2016.
The loss in the period includes further costs and provisions
arising in the year totalling GBP15.1 million in relation to the
completion of the legacy Greater Manchester Waste Disposal
Authority PFI contract awarded in 2007. As reported previously, all
46 facilities on the scheme are operating and processing waste.
These facilities are all either fully completed or in the warranty
period under the terms of the contract during which further work
and plant modifications are to be completed. In the period, the
Group has incurred further costs and has taken additional
provisions to reach Final Acceptance on the contract, which is now
targeted this year; and to complete the remaining works when access
is available in accordance with the operational running of the
plants under an agreed schedule to 2019. Costain has received
significant payments from, and remains in discussions on further
payments with relevant contract counterparties and the Group's
insurers regarding the issues that have arisen on this contract. It
has been the Group's policy since 2009 not to pursue fixed price
contracts of this nature.
The division has a forward order book of GBP1.0 billion (2015:
GBP1.1 billion).
Water
The Group is now in year two of the AMP6 five year programmes
for Thames Water, Severn Trent and Southern Water with a focus on
improving and maintaining water quality standards, supply
resilience and meeting anticipated demographic shifts. These
programmes are utilising the full range of integrated capabilities
available in the Group to deliver improved customer service,
innovative solutions and achieve significant total expenditure
efficiency savings.
In Glasgow, Costain is improving water quality and resilience of
supply through the delivery of the Shieldhall Tunnel for Scottish
Water, reducing flooding issues in the city's wastewater network.
This is one of the largest infrastructure investments in Scotland
and the main tunnel drive and associated works are progressing
well.
Costain's joint venture for the east section of the Thames
Tideway project has now successfully mobilised and is progressing
well. This major project will form an integral part of the
modernisation of London's Victorian sewerage system and
significantly improve water quality in the River Thames, providing
capacity to cope with the demands of the city well in to the 22(nd)
century.
Power
Ensuring that the UK has a secure and reliable energy mix is
another area of national need in which Costain is playing a key
role.
The River Humber pipeline is a strategically important asset,
connecting the gas import facility at Easington on the Yorkshire
coast and which provides 70 - 100 million cubic metres of natural
gas per day, to the national network. Costain is delivering the
project services contract to deliver the replacement of the Humber
Estuary Crossing for National Grid.
Following completion of a successful Front End Engineering
Design (FEED) project, Costain was awarded the contract by National
Grid to upgrade its Peterborough and Huntingdon compressor
stations. The programme of work is part of National Grid's
Emissions Reduction Project to ensure that both compressor stations
comply with the Industrial Emissions Directive and Pollution
Prevention and Control regulations. The project will also increase
system resilience and reduce overall risk on the National
Transmission System by replacing aging assets with modern,
efficient equipment.
Oil & Gas
The Group continues to secure new repeat order work for its
front end design studies, programme management, complex project
delivery and asset support including the new Hydrochloric Acid
Dosing Plant Construction Contract with Total, building on the
Condensate Mercury Removal System for its Edradour-Glenlivet
facility.
Costain's programme management services to Ithaca on the Stella
field development continue to programme, as well as the ongoing
support services to Total and Phillips 66 at their Immingham
refineries.
There was a noticeable increase in new business opportunities
towards the end of 2016 as customers restructure their operations
and investment projects to accommodate prevailing market
conditions, providing us with some improvement in visibility of
potential workload in 2017.
Alcaidesa
In July 2015, we announced, by mutual agreement with our partner
Santander Bank, that we had completed a reorganisation of the
Spanish non-core joint venture that resulted in the assets being
split equally between the parties. Costain now owns the Alcaidesa
group, which incorporates the operating assets of the golf courses,
the associated parcel of land and the 624-berth marina concession,
adjacent to Gibraltar, and has retained its portion of the debt,
amounting to EUR11.5 million.
Revenue in the year was GBP4.6 million (2015: GBP2.8 million)
and the loss from operations was GBP0.7 million (2015: GBP0.9
million loss). The result reflects some early improvement in market
conditions in Spain for this non-core activity.
Costain Cares
The management of Safety, Health and Environment is a core value
at Costain. The Group's Accident Frequency Rate (AFR) in the year
was 0.09, which although slightly behind the best-ever performance
of 0.08 achieved in 2015, still compares well with our industry
peer group.
We received a total of 21 RoSPA awards in 2016 including two
Orders of Distinction, two President's Awards and the International
Dilmum Environmental Trophy.
Notwithstanding this industry leading safety performance, the
Group still had a number of serious safety incidents in the year,
including a fatality on the M1 J16-19 Managed Motorway contract,
which reinforced the need for continuous learnings, vigilance and
improvement in our safety performance.
We remain committed to further improvement in our safety
performance and are implementing a strategy to reduce by a further
50% the number of incidents in the business by the end of 2018.
Our customers place great emphasis on the good citizen
credentials of their strategic supply chain partners. Given the
profile of their businesses and the nature of the activities we
undertake, how we deliver our services is as important to them as
what we do. Increasingly, customers insist that their tier-one
providers share their corporate and social responsibility values
and failure to do this would mean a failure to pre-qualify for
future work.
The Costain Charitable Foundation is the focus of the range of
charitable and community work we undertake, both individually and
as a Group. Following the success in 2015 of the 'Costain 150
Challenge', which raised over GBP1.1 million for good causes, we
set a challenge for 2016 of 10,000 hours of volunteering by Costain
people and I am delighted to report that we achieved a total of
over 12,000 hours.
Outlook
These are exciting times with billions of pounds being spent
upgrading and renewing the country's energy, water and
transportation infrastructures.
There is a revolution in the deployment of technology-led
innovative solutions to meet the increasingly complex requirements
of our national infrastructure needs and we are continuing rapidly
to transform our business to be at the heart of the opportunity
this presents.
We started 2017 with a maintained record order book giving good
visibility over the medium term and we look forward to the future
with confidence.
ANDREW WYLLIE CBE
Chief Executive
FINANCE DIRECTOR'S REVIEW
This review brings together the key financial metrics of the
Group and sets out the matters of financial significance.
Overview
In 2016, the Group had another year of strong financial
performance with increases in revenue and profit and finished the
year with a record order book and an excellent net cash position.
This performance reflects the effective implementation of the
Group's focused strategy which has continued to deliver good
financial results over a number of years.
In addition, investment has been made in enhancing the Group's
skills and capabilities through the acquisition made in the period.
The Group continues to attract good support from its banking and
surety bond providers and has enhanced and extended its facilities
during the year.
Revenue, including share of joint ventures and associates, was
GBP1,658.0 million for the year to 31 December 2016 (2015:
GBP1,316.5 million). The Group generated a 24% increase in
underlying operating profit to GBP41.1 million (2015: GBP33.2
million). The increased profit reflects the Group's continued focus
on long-term repeat orders with blue-chip customers.
Reported revenue, excluding share of joint ventures and
associates, was GBP1,573.7 million for the year to 31 December 2016
(2015: GBP1,263.6 million).
Profit before tax, before other items, for the year was GBP37.5
million (2015: GBP29.9 million). Basic earnings per share, before
other items, amounted to 31.5 pence (2015: 25.1 pence).
Reported profit before tax for the year was GBP30.9 million
(2015: GBP26.0 million). Reported basic earnings per share were
25.7 pence (2015: 21.8 pence).
The Group secured a number of new contracts and extensions and
the Group's order book was maintained at GBP3.9 billion (31
December 2015: GBP3.9 billion).
The results of the Group's operating divisions are considered in
the Divisional review section and are shown in the segmental
analysis in the financial statements.
Other items
In order to aid understanding of the underlying performance of
the Group, throughout the Annual Report underlying operating profit
and underlying profit before tax have been used. These measures
exclude 'other items' which are acquisition related charges
including amortisation of intangible assets and deferred
consideration treated as an employment expense. These 'other items'
are shown in a separate column in the consolidated income
statement.
Acquisitions
On 5 July 2016, the Group acquired SSL a provider of
technology-based solutions, primarily for the highways sector, but
with the potential for wider applications across the Group. SSL was
acquired for a total cash consideration of GBP17.0 million on a
debt free/cash free basis with normalised working capital. GBP1.5
million of consideration has been deferred and is payable in July
2019.
In 2015, the Group acquired Rhead Group, a professional services
consultancy with a focus on programme and commercial management.
The acquisition was made for a total consideration of GBP36 million
on a debt free/cash free basis with normalised working capital.
GBP3 million of the consideration was deferred and was payable in
two equal tranches with the first paid in August 2016 and the
second is payable in August 2017.
Also in 2015, the Group, by mutual agreement with its joint
venture partner, reorganised the net assets held by the non-core
Costain-Santander joint venture (JV) in Spain. The reorganisation
resulted in Costain acquiring the partner's 50% stake in the JV and
the partner acquiring certain real estate assets owned by the
JV.
Interest
Net finance expense amounted to GBP4.2 million (2015: GBP3.5
million). The interest payable on bank overdrafts, loans and other
similar charges was GBP3.3 million (2015: GBP2.7 million) and the
interest income from bank deposits and other loans and receivables
amounted to GBP0.6 million (2015: GBP0.8 million). In addition, the
net finance expense includes the interest cost on the net
liabilities of the pension scheme of GBP1.1 million (2015: GBP1.3
million) and GBP0.4 million (2015: GBP0.3 million) unwind of
discount on deferred consideration.
Tax
The Group's effective rate of tax was 14.6% of the profit before
tax (2015: 14.6%). The lower than normal rate of tax arose owing to
Research and Development tax relief and the reversal of timing
differences including the use of tax losses not previously
recognised as deferred tax assets.
Dividend
The Board has recommended a final dividend for the year of 8.4
pence per share (2015: 7.25 pence per share) to bring the total for
the year to 12.7 pence per share (2015: 11.0 pence per share).
In accordance with the pension deficit recovery plan agreed with
the Trustee of The Costain Pension Scheme (CPS), the Group will
make an additional cash contribution to the pension scheme to match
the total deficit contribution to the total amount of dividends
paid to shareholders.
Shareholders' equity
Shareholders' equity decreased in the year to GBP99.6 million
(2015: GBP120.6 million). The profit for the year amounted to
GBP26.4 million and other comprehensive expenses to GBP39.8
million. The movements are detailed in the consolidated statements
of comprehensive income and expense and changes in equity in the
financial statements, the decrease in the year is primarily due to
the re-measurement of the Group's legacy pension scheme defined
benefit obligations to reflect current market based
assumptions.
Pensions
As at 31 December 2016, the Group's pension scheme deficit in
accordance with IAS 19, was GBP73.5 million (2015: GBP36.7
million). The scheme deficit position has increased primarily as a
result of a decrease in the discount rate used to calculate the
liabilities, which is based on corporate bond yields, and an
increase in the assumed inflation rate partially offset by the
return on assets and Company contributions.
The table below sets out the key details of the pension scheme
deficit calculation:
2016 2015
GBPm GBPm
Present value of defined benefit
obligations (827.5) (687.4)
Fair value of scheme assets 754.0 650.7
-------- --------
Recognised liability for defined
benefit obligations (73.5) (36.7)
-------- --------
Principal actuarial assumptions % %
(expressed as weighted averages)
Discount rate 2.70 3.80
Future pension increases 3.10 2.95
Inflation assumption 3.20 3.00
In accordance with the pension regulations a triennial actuarial
review of the Costain defined benefit pension scheme was carried
out as at 31 March 2016. In February 2017, an updated deficit
recovery plan has been agreed with the scheme Trustee resulting in
cash contributions of GBP10.0 million for the 12 months to 31 March
2017 and then GBP9.6 million per annum (increasing annually with
inflation) until the deficit is cleared, which would be in 2031 on
the basis of the assumptions made in the valuation and agreed
recovery plan.
In addition, as previously implemented, the Group will continue
to make an additional contribution so that the total deficit
contributions match the total dividend amount paid by the Company
each year. Consequently, the total amount of contribution is
anticipated to be at the same overall level to that under the
previous plan. Any additional payments in this regard would have
the effect of reducing the recovery period in the agreed plan.
Cash flow and borrowings
The Group has a positive cash balance, which was GBP210.2
million as at 31 December 2016 (2015: GBP146.7 million) and
borrowings of GBP70.0 million (2015: GBP38.5 million). This
included cash held by joint operations of GBP68.1 million (2015:
GBP42.7 million).
The increase in the net cash position reflects positive
operating cash flow and working capital, in particular benefiting
from the timing of receipts at the year-end. These positive
movements have been partially offset by the payment of acquisition
related consideration, dividend payments and pension deficit
contributions made during the year. The average month-end net cash
balance during 2016 was GBP69.1 million (2015: GBP103.7
million).
Contract bonding and banking facilities
The Group's long-term contracting business is dependent on it
being able to supply performance and other bonds as necessary. This
means maintaining adequate facilities from banks and surety bond
providers to meet the current and projected usage requirements.
During the year, the Group has increased its contract bonding and
banking facilities to GBP555 million and extended the maturity date
to 30 June 2021 with its relationship banks and surety companies.
These facilities are made up of GBP400 million of contract bonding,
a GBP125 million revolving credit facility and a GBP30 million term
loan.
Treasury
The Group's treasury and funding activities are undertaken by a
centralised treasury function. Its primary activities are to manage
the Group's liquidity, funding and financial risk, principally
arising from movements in interest rates and foreign currency
exchange rates.
The Group's policy is to ensure that adequate liquidity and
financial resources are available to support the Group's growth
development, while managing these risks. The Group's policy is not
to engage in speculative transactions. Group Treasury operates as a
service centre within clearly defined objectives and controls and
is subject to periodic review by internal audit.
Liquidity risk
The Group finances its operations primarily by a mixture of
working capital, funds from shareholders, retained profits and
borrowings. The Directors regularly monitor cash usage and forecast
usage to ensure that projected financing needs are supported by
adequate cash reserves or bank facilities.
Foreign currency exposure
Translation exposure: the results of the Group's overseas
activities, mainly non-core activities in Spain, are translated
into sterling at rates approximating to the foreign exchange rates
ruling at the dates of the transactions. The balance sheets of
overseas subsidiaries and investments are translated at foreign
exchange rates ruling at the balance sheet date. The Group holds a
currency hedge against the assets held in its Spanish
subsidiary.
Transaction exposure: the Group has transactional currency
exposures arising from subsidiaries' commercial activities overseas
and from overseas supply purchases for business in the UK. Where
appropriate, the Group requires its subsidiaries to use forward
currency contracts to minimise any currency exposure unless a
natural hedge exists elsewhere within the Group.
Interest rate risks and exposure
The Group enters into financial instruments, where necessary, to
finance its operations. Various financial instruments (for example,
trade receivables and trade payables) arise directly from the
Group's operations.
The main exposure to interest rate fluctuations within the
Group's operations arises from surplus cash, which is generally
deposited with the Group's relationship banks, and bank
borrowings.
Anthony Bickerstaff
Finance Director
Principal risks and uncertainties
The table below lists the principal risks and uncertainties
facing the Group at the date of this report and the mitigations
that we have in place to manage the impact of these risks upon the
business.
This list is not intended to be exhaustive. Some risks have not
been included in this section on the basis that they are not
considered to be material.
RISK AND IMPACT RISK APPETITE MITIGATION
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
1. Safety, Health Costain recognises
and Environment that we operate * The health and safety of our people and everyone who
* Failure to prevent a major safety incident/accident in a high-risk is impacted by Costain remains our highest priority.
or environmental event which could adversely affect field but we
the Group's reputation and its operational and have a zero
financial performance tolerance approach * A comprehensive strategy for the improvement of our
to the safety Safety, Health and Environment performance enhanced
and health in 2016 to deliver further progress to our goals.
* Failure to deliver ongoing improvements to of our workforce
performance result in failure to secure new work and other stakeholders,
and in relation * Detailed Safety, Health and Environment management
to the protection processes.
of the environment.
* The Costain Behavioural Safety (CBS) programme,
accredited by The Cambridge Centre for Behavioural
Studies, is used to create an environment where,
through exhibiting leadership, everyone understands
the importance of taking responsibility for their own
safety and those around them.
* Regular monitoring visits by experienced
professionals and senior leaders from across the
business, and on-site training take place to reduce
the risk of human error.
* Performance metrics in the Group's Annual Incentive
Plan also include a key non-financial indicator for
Safety and Health.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
2. Political, economic Costain's business
and market conditions is based on * Our focus is on major customers in the UK energy,
Whilst the long-term taking informed water and transportation markets defined by
nature of Costain's decisions on significant and long-term expenditure programmes
contracts limits the future underpinned by committed regulated spend and
sudden fluctuations market conditions essential capital investment, e.g. the UK
in revenue, changes but this can Government's National Infrastructure Plan has
in the cost of only happen identified investment of over GBP320 billion to
Costain doing business where there 2020-21.
or reductions in is a high level
the addressable of insight.
market could arise * The period of contracts providing significant
as a result of: protection from immediate change to Government
* Changes in Government policy on spending including an policy.
increased burden on corporate entities
* Monitoring of policy development via industry groups
* The implications of the EU referendum result and close contact with customers in our target
markets.
* The changing nature of international politics and
their influence on the UK market * High levels of engagement with our customers and
other key stakeholders in Government and third
parties.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
3. Financial strength Costain prioritises
Costain must establish its financial * A strong balance sheet including positive net cash
sufficient financial strength to position.
strength to operate ensure it can
its business. Without continue to
this the Group win work: * Extensive unutilised banking and bonding facilities
will: * Foreign currency exposure risk to be hedged.
* Be unable to demonstrate to customers the required
level of financial resource resulting in failure to * The strategic use of joint venture partners to help
win long-term contracts. * Parent Company guarantee is the preferred option, and achieve the required financial and operational
any performance bonds to be a maximum of 10% and strength only in markets where this is not
surety bonds are preferred. demonstrated by the Group in isolation.
* Be unable to maintain a competitive scale in a
consolidating market within the engineering sector.
* There is zero tolerance to fraud and bribery.
* Fail to maintain adequate working capital to operate
the business.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
4. Winning new Costain has
work no appetite * The order book at year end stands at GBP3.9 billion,
Costain maintains for winning providing long-term visibility of earnings.
a pipeline of orders work that will
that now extends impact the
to GBP3.9 billion. financial strength * A focus on blue-chip customers whose major spending
There is a need of the business: plans are underpinned by strategic national needs,
for Costain to * Only sectors and customers which form part of the regulation commitments or essential maintenance
continue to innovate Group strategy to be pursued. requirements by following the Group's unique
in order to win 'Engineering Tomorrow' strategy.
further work and
maintain a leading * Target cost is the preferred contract form.
position in the * The accelerated implementation of programme
sector which could management and technology services via strategic
be at risk from: * All contracts to be at least cash neutral. acquisitions.
* Competition and failure to win work from core
customers
* Operations are to be in line with the Group * Continuing to develop and maintain strong
Commercial Expectations document. relationships with customers across key markets on
* Costain not being able to demonstrate the ability to the back of our track record for delivery.
provide an end-to-end delivery function as demanded
by our customers * Opportunities should be pursued alone unless there is
a compelling reason otherwise. * Regularly monitoring pipeline opportunities and
ensuring resources are centrally allocated to the
most advantageous business development activities.
* Continuously striving to broaden the skills and
breadth of our capability (organically and by
acquisition) to meet the increasingly broad
requirements of the market.
* Continuing to develop the Group's market proposition
through the introduction of new technologies and the
strong Costain brand.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
5. Operational All operations
delivery to follow the * The Costain Way provides a comprehensive management
Costain delivers Costain Way. system including policies, processes and procedures
works through a for all parts of the contract life-cycle; from
number of often Only approved tendering to contract close-out. Operational controls
large contracts suppliers to are also reviewed.
containing defined be used.
output requirements.
There is a risk All legislation * The use of experienced and qualified staff to prepare
that Costain is and regulations bids and manage the contracted works
unable to deliver to be complied
these services with at all
to the time, cost times. * Defined delegated authority levels for approving all
or quality required tenders where all significant contracts are subject
in the contract to escalation from the Executive Investment Committee
as a result of: to the Board.
* A failure to accurately assess our works (including
costs and time required) or contractual terms at
tender. * Extensive review of the supply chain strength prior
to engagement and a requirement to use performance
bonds where they are appropriate.
* Design faults that result in additional works to
rectify.
* Regular contract leaders' meetings are used to
discuss safety, progress, quality, financial
* An interruption to our supply chain that provides performance, end forecast, risk, etc.
part of the services or materials to complete the
works.
* Work on site is audited by in-house specialists and
reports are prepared so that corrective action, where
* Refusal of claim by insurers following a loss required, can be taken.
* Compensation events or increase in scope not being * A senior executive is responsible for overall quality
fully reimbursed by our customers. issues, the updating of best practice and ensuring
compliance in both existing operations and in line
with the changing business.
* Enhanced controls regarding the administration of
insurance claims and the management of contracted
design was developed in 2015 including the evolution
of processes to minimise exposure to the customer,
whilst preserving subrogation with the Group's supply
chain.
* Compensation events are closely monitored by our
project teams, and are included in the monthly
reporting process through to senior management.
Robust processes are in place to ensure compliance
with contractual requirements regarding such
compensation events, including timely notification,
documented discussions with the customer, and
maintenance of appropriate supporting records.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
6. People and skills The right skills
The success of and capabilities * The Group's remuneration policy is designed to
the Group is built to carry out attract and retain high-calibre individuals and to
on the strength Group operations remunerate fairly, whilst not encouraging
and experience are essential. inappropriate business risk to be taken
of our people.
Failure to continue
to attract, retain * The Group has a high staff retention rate and engaged
and develop our workforce.
best-in-class team
in an increasingly
competitive market * Pay and conditions of employment are regularly
may limit the Group's reviewed against the prevailing market and bench
ability to grow marked against competitors to ensure that the Group
the business as remains competitive at all levels.
anticipated, or
cause a short--term
impact on performance * An internal recruitment team provides a dedicated
service to the identification and enrolment of new
staff who are provided with training as part of a
comprehensive induction process
* A well-developed succession planning process is
regularly monitored.
* Talent reviews and ongoing personal development are
proactively supported at all levels.
* Active liaison with employees is achieved through the
Costain Ground Force employee committee and
engagement surveys.
--
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
7. Pension liabilities All current
The Group has a and future * Regular reviews, including the use of independent
deficit of GBP73.5 pension arrangements professional advisers, are held to mitigate long-term
million in its to be on a risk associated with the legacy defined benefit
defined benefit defined contribution scheme.
pension scheme basis.
which was closed
to new members * Ongoing active management of the obligations of the
from 01 June 2005 scheme including the transfer of assets into the
and to future accrual scheme and the implementation of Enhanced Transfer
on 30 September Value and Pension Increase Exchange exercises.
2009. Failure to
manage the scheme
so that the liabilities * An actuarial valuation of the scheme as at 31 March
are within a range 2016 has been carried out and an associated deficit
appropriate to recovery plan has been agreed with the Trustee.
its capital base
could have an adverse
impact on the Group's
operational results
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
8. Acquisitions Acquisitions
The Group has a must focus * Full due diligence is carried out before any
growth plan that on the creation acquisition is made.
is partly facilitated of shareholder
by the effective value through
acquisition of capability-broadening * Integration plans are put in place and managed by a
companies that opportunities dedicated and experienced team.
will enhance the that can be
achievement of cross-sold
its strategy. Failure via our existing * Regular progress reports using pre-agreed performance
to integrate successfully customer base. indicators are made to the Board.
an acquired business
or recognise and
mitigate new and * Lessons are fed back into future integration
related risks could exercises.
have a damaging
impact on the Group's
future revenue
and profits
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
9. Failure of IT All critical
systems systems are * Transition underway to cloud-based systems for
Costain has a high to be regularly enhanced security and monitoring.
reliance upon IT backed up and
systems to operate a disaster
efficiently, process recovery contingency * There is at least duplication in core hosting systems
transactions and plan put in supporting data recovery efforts.
report on results. place.
The failure of
a system as well * A suitably qualified team for support, including
as the failure specialist outsourced suppliers, ensures knowledge is
to store key documentation maintained.
securely could
cause financial
loss to the Group * Regular internal and external testing and assurance
and expose the exercises are carried out.
Group to breaches
of legislation
and fines. It may * Established business continuity systems and
also have a negative procedures, routinely tested and developed, ensure
effect on the ability rapid recovery and data retrieval.
to secure further
contracts. This
risk has increased * Security training is provided for safe usage and
due to increasing storage of documentation for all staff.
levels of cyber
security threats
within society * The system is accredited to the ISO 27001:2013
Information Security Management System providing
independent assurance of best practice.
------------------------------------------------------------ ------------------------------------------------------------ ------------------------------------------------------------
Going concern
The Group's business activities, together with the factors
likely to affect its future development, performance and position
will be set out in the Strategic Report of the Annual Report and
Accounts for the year ended 31 December 2016. Principal risks and
uncertainties are described in the paragraphs above. In addition,
Note 17 to the financial statements will include the Group's
objectives, policies and processes for managing its exposures to
interest rate risk, foreign currency risk, counterparty risk,
credit risk and liquidity risk. Details of the Group's financial
instruments and hedging activities will also be provided in Note
17.
The Directors believe, after due and careful enquiry, that the
Group has adequate resources to continue operations for the
foreseeable future. Accordingly, they continue to adopt the going
concern basis in preparing the accounts.
Viability statement
In accordance with provision C.2.2 of the 2014 UK Corporate
Governance Code, the Directors have assessed the viability of the
Group over a three--year period.
This assessment has been made taking into account the current
position of the Group, the annual corporate planning process and
the potential impact of the principal risks stated in the
paragraphs above. The plans and projections prepared as part of the
corporate planning process consider the Group's cash flows,
profits, contracted work, dividends and other key financial
indicators over the period.
The principal risks have been taken into consideration in
preparing the projections, with particular emphasis on:
-- A major health, safety or environmental incident;
-- Reduction in new work won;
-- Operational delivery issues;
-- Deterioration in pension liabilities;
-- Making an acquisition that does not achieve the planned profit;
-- A major IT systems failure.
The projections have then been incorporated into a sensitivity
analysis which reflects plausible, but severe, combinations of the
above variables, and the impact of these on the Group's liquidity
and banking arrangements. Given the long-term nature of a
significant element of the Company's activities, a number of the
principal risks potentially impact the Group's ability to win new
work. This has therefore formed a key element of the
assessment.
The period of three years has been chosen because this is a time
period in which the Company has a reasonable visibility of secured
work and pipeline of opportunities. It is also the period reviewed
by the Board in the business planning process.
Based on this assessment, the Directors confirm that they have a
reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the
three--year period to 31 December 2019.
In making this statement, the Directors carried out a robust
assessment of the principal risks facing the Group, including those
that would threaten its business model, future performance,
solvency or liquidity.
Costain Group PLC
Results for the year ended 31 December 2016
Consolidated income statement
Year ended 31 December 2016 2015
Before Before
other Other other Other
Notes items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Continuing operations
Revenue 1,658.0 - 1,658.0 1,316.5 - 1,316.5
Less: Share of revenue
of joint ventures
and associates 8 (84.3) - (84.3) (52.9) - (52.9)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Group revenue 1,573.7 - 1,573.7 1,263.6 - 1,263.6
Cost of sales (1,497.7) - (1,497.7) (1,196.9) - (1,196.9)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Gross profit 76.0 - 76.0 66.7 - 66.7
Administrative expenses
before other items (34.9) - (34.9) (33.5) - (33.5)
Amortisation of acquired
intangible assets - (4.6) (4.6) - (3.2) (3.2)
Employment related
and other deferred
consideration - (1.6) (1.6) - (0.4) (0.4)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Group operating profit 41.1 (6.2) 34.9 33.2 (3.6) 29.6
Share of results of
joint ventures and
associates 8 0.2 - 0.2 (0.1) - (0.1)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Profit from operations 2 41.3 (6.2) 35.1 33.1 (3.6) 29.5
Finance income 3 0.6 - 0.6 0.8 - 0.8
Finance expense 3 (4.4) (0.4) (4.8) (4.0) (0.3) (4.3)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Net finance expense (3.8) (0.4) (4.2) (3.2) (0.3) (3.5)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Profit before tax 37.5 (6.6) 30.9 29.9 (3.9) 26.0
Taxation 4 (5.1) 0.6 (4.5) (4.4) 0.6 (3.8)
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Profit for the year
attributable to equity
holders of the parent 32.4 (6.0) 26.4 25.5 (3.3) 22.2
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
Earnings per share
Basic 5 31.5p (5.8)p 25.7p 25.1p (3.3)p 21.8p
Diluted 5 30.7p (5.7)p 25.0p 24.4p (3.2)p 21.2p
-------------------------- ------ ---------- ------- ---------- ---------- ------- ----------
The impact of business disposals in either year was not material
and, therefore, all results are classified as arising from
continuing operations.
2016 2015
GBPm GBPm
--------------------------------------------- ------- ------
Profit for the year 26.4 22.2
---------------------------------------------- ------- ------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations 4.2 (1.3)
Net investment hedge - net loss (3.7) -
Cash flow hedges
Group:
Effective portion of changes in 1.9 -
fair value during year
Net changes in fair value transferred - -
to the income statement
Total items that may be reclassified
subsequently to profit or loss 2.4 (1.9)
Items that will not be reclassified
to profit or loss:
Remeasurement of defined benefit
obligations (49.8) (3.3)
Tax recognised on remeasurement
of defined benefit obligations 7.6 0.7
Total items that will not be reclassified
to profit or loss (42.2) (2.6)
Other comprehensive expense for
the year (39.8) (3.9)
Total comprehensive (expense)/income
for the year attributable to equity
holders of the parent (13.4) 18.3
Consolidated statement of changes in equity
Share Share Translation Hedging Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- --------- --------- ------------ --------- ---------- --------
At 1 January
2015 50.6 5.5 2.8 - 51.9 110.8
Profit for the
year - - - - 22.2 22.2
Other comprehensive
(expense)/income - - (1.3) - (2.6) (3.9)
Issue of ordinary
shares under
employee share
option plans 0.4 - - - (0.4) -
Transfer - - 0.3 - (0.3) -
Shares purchased
to satisfy employee
share schemes - - - - (1.0) (1.0)
Equity settled
share-based payments - - - - 1.9 1.9
Dividends paid 0.1 0.7 - - (10.2) (9.4)
-----------------------
At 31 December
2015 51.1 6.2 1.8 - 61.5 120.6
----------------------- --------- --------- ------------ --------- ---------- --------
At 1 January
2016 51.1 6.2 1.8 - 61.5 120.6
Profit for the
year - - - - 26.4 26.4
Other comprehensive
income/(expense) - - 0.5 1.9 (42.2) (39.8)
Issue of ordinary
shares under
employee share
option plans 0.9 1.9 - - (0.3) 2.5
Shares purchased
to satisfy employee
share schemes - - - - (1.4) (1.4)
Equity-settled
share-based payments - - - - 2.3 2.3
Dividends paid 0.1 0.7 - - (11.8) (11.0)
----------------------- --------- --------- ------------ --------- ---------- --------
At 31 December
2016 52.1 8.8 2.3 1.9 34.5 99.6
----------------------- --------- --------- ------------ --------- ---------- --------
Consolidated statement of financial position
As at 31 December
Notes 2016 2015
GBPm GBPm
---------------------------------- ------ ------ ------
Assets
Non-current assets
Intangible assets 7 65.9 52.3
Property, plant and
equipment 42.2 37.3
Investments in equity
accounted joint ventures 8 0.3 0.4
Investments in equity
accounted associates 8 0.6 0.5
Loans to equity accounted
associates 1.7 1.7
Other 7.7 8.2
Deferred tax 14.9 10.6
----------------------------------- ------ ------ ------
Total non-current assets 133.3 111.0
----------------------------------- ------ ------ ------
Current assets
Inventories 3.6 2.9
Trade and other receivables 299.1 271.8
Cash and cash equivalents 9 210.2 146.7
----------------------------------- ------ ------ ------
Total current assets 512.9 421.4
----------------------------------- ------ ------ ------
Total assets 646.2 532.4
----------------------------------- ------ ------ ------
Equity
Share capital 52.1 51.1
Share premium 8.8 6.2
Foreign currency translation
reserve 2.3 1.8
Hedging reserve 1.9 -
Retained earnings 34.5 61.5
----------------------------------- ------ ------ ------
Total equity attributable to equity
holders of the parent 99.6 120.6
------------------------------------------- ------ ------
Liabilities
Non-current liabilities
Retirement benefit
obligations 10 73.5 36.7
Other payables 1.0 2.8
Interest bearing loans 30.1 -
and borrowings
Provisions for other liabilities
and charges 0.4 0.1
----------------------------------- ------ ------ ------
Total non-current liabilities 105.0 39.6
----------------------------------- ------ ------ ------
Current liabilities
Trade and other payables 397.2 329.0
Taxation 3.4 2.7
Interest bearing loans
and borrowings 39.9 38.5
Provisions for other liabilities
and charges 1.1 2.0
----------------------------------- ------ ------ ------
Total current liabilities 441.6 372.2
----------------------------------- ------ ------ ------
Total liabilities 546.6 411.8
----------------------------------- ------ ------ ------
Total equity and liabilities 646.2 532.4
----------------------------------- ------ ------ ------
Consolidated cash flow statement
Year ended 31 December
Notes 2016 2015
GBPm GBPm
-------------------------------------------- ------ ------- -------
Cash flows from operating activities
Profit for the year 26.4 22.2
Adjustments for:
Share of results of joint ventures
and associates 8 (0.2) 0.1
Finance income 3 (0.6) (0.8)
Finance expense 3 4.8 4.3
Taxation 4 4.5 3.8
Depreciation of property, plant
and equipment 6.4 2.9
Amortisation of intangible assets 5.2 3.9
Employment related and other deferred
consideration 1.6 0.4
Shares purchased to satisfy employee
share schemes (1.4) (1.0)
Share-based payments expense 2.9 2.4
-------------------------------------------- ------ ------- -------
Cash from operations before changes
in working capital and provisions 49.6 38.2
Decrease in inventories (0.7) 0.1
Increase in receivables (24.0) (37.7)
Increase in payables 61.1 26.7
Movement in provisions and employee
benefits (14.7) (9.1)
-------------------------------------------- ------ ------- -------
Cash from operations 71.3 18.2
Interest received 0.4 0.8
Interest paid (2.4) (2.7)
Taxation paid (2.2) (0.6)
-------------------------------------------- ------ -------
Net cash from operating activities 67.1 15.7
-------------------------------------------- ------ ------- -------
Cash flows from/(used by) investing
activities
Dividends received from joint ventures 0.2 -
and associates
Additions to property, plant and
equipment (7.0) (2.0)
Additions to intangible assets (0.1) (0.2)
Proceeds of disposal of property,
plant and equipment 0.1 0.1
Additions to cost of investments - (1.0)
Acquisition related deferred consideration (2.0) (5.4)
Acquisition of subsidiaries (net
of acquired cash and cash equivalents) (16.3) (30.0)
Net cash used by investing activities (25.1) (38.5)
-------------------------------------------- ------ ------- -------
Cash flows from/(used by) financing
activities
Issue of ordinary share capital 2.5 -
Ordinary dividends paid (11.0) (9.4)
Drawdown of loans 90.1 38.5
Repayment of loans (60.0) (8.1)
Net cash from financing activities 21.6 21.0
-------------------------------------------- ------ ------- -------
Net increase/(decrease) in cash,
cash equivalents and overdrafts 63.6 (1.8)
Cash, cash equivalents and overdrafts
at beginning of the year 9 146.7 148.5
Effect of foreign exchange rate (0.1) -
changes
-------------------------------------------- ------ ------- -------
Cash, cash equivalents and overdrafts
at end of the year 9 210.2 146.7
-------------------------------------------- ------ ------- -------
Notes to the financial statements
1 Basis of preparation
Costain Group PLC ("the Company") is a public limited company
incorporated in the UK. The consolidated financial statements of
the Company for the year ended 31 December 2016 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 International Financial Reporting Standards as
adopted by the EU ('Adopted IFRS') and their related
interpretations.
The financial information set out herein (which was authorised
for issue by the Directors on 1 March 2017) does not constitute the
Company's statutory accounts for the years ended 31 December 2016
or 2015 but is derived from those accounts. Statutory accounts for
2015 have been delivered to the Registrar of Companies, and those
for 2016 will be delivered in advance of the Company's Annual
General Meeting. The Auditors have reported on those accounts;
their reports were unqualified and did not include reference to any
matters to which the Auditors drew attention by way of emphasis
without qualifying their reports and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with International
Financial Reporting Standards (IFRS), this announcement does not
itself contain sufficient information to fully comply with
IFRS.
Accounting policies have been consistently applied in 2016 and
the comparative period.
The Directors have acknowledged the guidance "Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009"
published by the Financial Reporting Council in October 2009. The
Directors have considered these requirements, the Group's current
order book and future opportunities and its available bonding
facilities. Having reviewed the latest projections, including the
application of reasonable downside sensitivities, the Directors
believe that the Group is well placed to manage its business risks
successfully despite the current uncertain economic outlook.
Accordingly, they continue to adopt the going concern basis in
preparing these financial statements.
Significant areas of judgment and estimation
The estimates and underlying assumptions used in the preparation
of these financial statements are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The most critical accounting policies and significant areas of
judgement and estimation arise from the accounting for long-term
contracts under IAS 11 'Construction Contracts', the carrying value
of goodwill and acquired intangible assets and the assumptions used
in the accounting for defined benefit pension schemes under IAS 19
Employee benefits.
Long-term contracts
The majority of the Group's activities are undertaken via
long-term contracts and these contracts are accounted for in
accordance with IAS 11, which requires estimates to be made for
contract costs and revenues. In many cases, these contractual
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 to the extent that the amounts the Group
expects to recover can be reliably estimated and the receipt is
probable.
Management bases its judgements 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 clients and
forecasts of the costs to complete and, in certain limited cases,
assessments of recoveries from insurers. The estimates of the
contract position and the profit or loss earned to date are updated
regularly and significant changes are highlighted through
established internal review procedures. The impact of any change in
the accounting estimates is then reflected in the financial
statements
Management believes it is reasonably possible, on the basis of
existing knowledge, that outcomes within the next financial year
could require material adjustment. Given the persuasive impact of
judgements and estimates on revenue, cost of sales and related
balance sheet amounts, it is difficult to quantify the impact of
taking alternative assessments on each of the judgements above.
Carrying value of goodwill and intangible assets
Reviewing the carrying value of goodwill and intangible assets
recognised on acquisition requires judgements, principally, in
respect of growth rates and future cash flows of cash generating
units, the useful lives of intangible assets and the selection of
discount rates used to calculate present values are set out in Note
7.
Defined benefit pension schemes
Defined benefit pension schemes require significant judgements
in relation to the assumptions for inflation, future pension
increases, investment returns and member longevity that underpin
the valuation. Each year in selecting the appropriate assumptions,
the Directors take advice from an independent qualified actuary.
The assumptions and resultant sensitivities are set out in Note
10.
2 Operating segments
The Group has two core business segments: Natural Resources and
Infrastructure plus the Alcaidesa operations in Spain. The core
segments are strategic business units with separate management and
have different core customers or offer different services. This
information is provided to the Chief Executive who is the chief
operating decision maker.
2016 Natural Infrastructure Alcaidesa Central Total
Resources costs
GBPm GBPm GBPm GBPm GBPm
Segment revenue
External revenue 361.9 1,207.2 4.6 - 1,573.7
Share of revenue
of joint ventures
and associates 15.4 68.9 - - 84.3
------------------------- ----------- --------------- ---------- -------- --------
Total segment revenue 377.3 1,276.1 4.6 - 1,658.0
------------------------- ----------- --------------- ---------- -------- --------
Segment profit/(loss)
Operating profit/(loss) (8.6) 56.6 (0.7) (6.2) 41.1
Share of results
of joint ventures
and associates 0.2 - - - 0.2
------------------------- ----------- --------------- ---------- -------- --------
Profit/(loss) from
operations before
other items (8.4) 56.6 (0.7) (6.2) 41.3
Other items:
Amortisation of
acquired intangible
assets (2.8) (1.8) - - (4.6)
Employment related
and other deferred
consideration (1.4) (0.2) - - (1.6)
Profit/(loss) from
operations (12.6) 54.6 (0.7) (6.2) 35.1
------------------------- ----------- --------------- ---------- --------
Net finance expense (4.2)
------------------------- ----------- --------------- ---------- -------- --------
Profit before tax 30.9
------------------------- ----------- --------------- ---------- -------- --------
2015 Natural Infrastructure Alcaidesa Central Total
Resources costs
GBPm GBPm GBPm GBPm GBPm
Segment revenue
External revenue 298.8 962.9 1.9 - 1,263.6
Share of revenue
of joint ventures
and associates 18.8 33.2 0.9 - 52.9
------------------------- ----------- --------------- ---------- -------- --------
Total segment revenue 317.6 996.1 2.8 - 1,316.5
------------------------- ----------- --------------- ---------- -------- --------
Segment profit/(loss)
Operating profit/(loss) (11.1) 50.9 (0.5) (6.1) 33.2
Share of results
of joint ventures
and associates 0.3 - (0.4) - (0.1)
------------------------- ----------- --------------- ---------- -------- --------
Profit/(loss) from
operations before
other items (10.8) 50.9 (0.9) (6.1) 33.1
Other items:
Amortisation of
acquired intangible
assets (2.2) (1.0) - - (3.2)
Employment related
and other deferred
consideration (0.4) - - - (0.4)
------------------------- ----------- --------------- ---------- -------- --------
Profit/(loss) from
operations (13.4) 49.9 (0.9) (6.1) 29.5
------------------------- ----------- --------------- ---------- --------
Net finance expense (3.5)
------------------------- ----------- --------------- ---------- -------- --------
Profit before tax 26.0
------------------------- ----------- --------------- ---------- -------- --------
3 Net finance expense
2016 2015
GBPm GBPm
Interest income from bank deposits 0.3 0.5
Interest income on loans to related
parties 0.3 0.3
-------------------------------------- -------- --------
Finance income 0.6 0.8
-------------------------------------- -------- --------
Interest payable on bank overdrafts,
interest bearing loans, borrowings
and other similar charges (3.3) (2.7)
Unwind of discount on deferred
consideration (0.4) (0.3)
Interest cost on the net liabilities
of the defined benefit pension
scheme (1.1) (1.3)
-------------------------------------- -------- --------
Finance expense (4.8) (4.3)
-------------------------------------- -------- --------
Net finance expense (4.2) (3.5)
-------------------------------------- -------- --------
Interest income on loans to related parties relates to
shareholder loan interest receivable from investments in equity
accounted joint ventures and associates.
4 Taxation
2016 2015
GBPm GBPm
---------------------------------- ------ ------
On profit for the year
UK corporation tax at 20% (2015:
20.25%) (2.8) (2.4)
---------------------------------- ------ ------
Current tax charge for the year (2.8) (2.4)
---------------------------------- ------ ------
Deferred tax charge for current
year (1.7) (1.7)
Adjustment in respect of prior
years - 0.3
---------------------------------- ------ ------
Deferred tax charge for the year (1.7) (1.4)
---------------------------------- ------ ------
Tax expense in the consolidated
income statement (4.5) (3.8)
---------------------------------- ------ ------
2016 2015
GBPm GBPm
----------------------------------------- ------ ------
Tax reconciliation
Profit before tax 30.9 26.0
----------------------------------------- ------ ------
Taxation at 20% (2015: 20.25%) (6.2) (5.3)
Share of results of joint ventures
and associates at 20% (2015: 0.1 -
20.25%)
Disallowed expenses and amounts
qualifying for tax relief (0.3) 0.1
Utilisation of previously unrecognised
temporary differences 0.1 0.3
Research and Development tax
relief for current year 0.5 0.7
Rate adjustment relating to deferred
taxation and overseas profits
and losses 1.3 0.1
Adjustments in respect of prior
years, mainly Research and Development
tax relief claims - 0.3
----------------------------------------- ------ ------
Tax expense in the consolidated
income statement (4.5) (3.8)
----------------------------------------- ------ ------
5 Earnings per share
The calculation of earnings per share is based on profit of
GBP26.4 million (2015: GBP22.2 million) and the number of shares
set out below.
2016 2015
Number Number
(millions) (millions)
-------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue for basic earnings per share
calculation 102.8 101.7
Dilutive potential ordinary shares arising
from employee share schemes 2.6 2.8
-------------------------------------------- ----------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share
calculation 105.4 104.5
-------------------------------------------- ----------- -----------
6 Dividends
Dividend 2016 2015
per share
pence GBPm GBPm
------------------------------------ ---------- ------ ------
Final dividend for the year ended
31 December 2014 6.25 - 6.3
Interim dividend for the year
ended 31 December 2015 3.75 - 3.9
Final dividend for the year ended
31 December 2015 7.25 7.4 -
Interim dividend for the year
ended 31 December 2016 4.30 4.4 -
------------------------------------ ---------- ------ ------
Amount recognised as distributions
to equity holders in the year 11.8 10.2
Dividends settled in shares (0.8) (0.8)
------------------------------------ ---------- ------ ------
Dividends settled in cash 11.0 9.4
------------------------------------ ---------- ------ ------
7 Intangible assets
Other
Customer acquired Other
Goodwill relationships intangibles intangibles Total
GBPm GBPm GBPm GBPm GBPm
------------------------ --------- --------------- ------------- ------------- ------
Cost
At 1 January 2015 22.3 8.6 5.5 7.7 44.1
Acquired through
business combinations 18.5 4.0 1.7 0.8 25.0
Additions - - - 0.2 0.2
Disposals - - - (0.1) (0.1)
------------------------ --------- --------------- ------------- ------------- ------
At 31 December
2015 40.8 12.6 7.2 8.6 69.2
------------------------ --------- --------------- ------------- ------------- ------
At 1 January 2016 40.8 12.6 7.2 8.6 69.2
Currency realignment - - - 0.1 0.1
Acquired through
business combinations 13.3 2.8 2.5 - 18.6
Additions - - - 0.1 0.1
Disposals - - - (0.7) (0.7)
------------------------ --------- --------------- ------------- ------------- ------
At 31 December
2016 54.1 15.4 9.7 8.1 87.3
------------------------ --------- --------------- ------------- ------------- ------
Amortisation
At 1 January 2015 - 4.1 3.3 5.7 13.1
Provided in year - 1.5 1.7 0.7 3.9
Disposals - - - (0.1) (0.1)
------------------------ --------- --------------- ------------- ------------- ------
At 31 December
2015 - 5.6 5.0 6.3 16.9
------------------------ --------- --------------- ------------- ------------- ------
At 1 January 2016 - 5.6 5.0 6.3 16.9
Provided in year - 2.3 2.3 0.6 5.2
Disposals - - - (0.7) (0.7)
------------------------ --------- --------------- ------------- ------------- ------
At 31 December
2016 - 7.9 7.3 6.2 21.4
------------------------ --------- --------------- ------------- ------------- ------
Net book value
At 31 December
2016 54.1 7.5 2.4 1.9 65.9
------------------------ --------- --------------- ------------- ------------- ------
At 31 December
2015 40.8 7.0 2.2 2.3 52.3
------------------------ --------- --------------- ------------- ------------- ------
At 1 January 2015 22.3 4.5 2.2 2.0 31.0
------------------------ --------- --------------- ------------- ------------- ------
8 Investments
The analysis of Group share of joint ventures and associates is
set out below:
2016 2015
--------------------- ---------- ----------- ------- ---------- ----------- --------
Joint Joint
ventures Associates Total ventures Associates Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------- ---------- ----------- ------- ---------- ----------- --------
Revenue 83.4 0.9 84.3 49.8 3.1 52.9
--------------------- ---------- ----------- ------- ---------- ----------- --------
Profit/(loss)
before tax - 0.3 0.3 (0.3) 0.2 (0.1)
Income tax - (0.1) (0.1) - - -
--------------------- ---------- ----------- ------- ---------- ----------- --------
Profit/(loss)
for the year - 0.2 0.2 (0.3) 0.2 (0.1)
--------------------- ---------- ----------- ------- ---------- ----------- --------
Non-current
assets - - - 0.1 - 0.1
Current assets 15.7 2.5 18.2 13.0 2.7 15.7
Current liabilities (15.4) (0.6) (16.0) (12.7) (0.9) (13.6)
Non-current
liabilities - (1.3) (1.3) - (1.3) (1.3)
--------------------- ---------- ----------- ------- ---------- ----------- --------
Investments
in joint
ventures
and associates 0.3 0.6 0.9 0.4 0.5 0.9
--------------------- ---------- ----------- ------- ---------- ----------- --------
Alcaidesa Holding SA was reorganised during the prior year with
the assets being split equally between the partners. Under the
transaction, which generated no profit or loss to the Group, the
Group took ownership of its share of the assets by a purchase of
the partner's interest in the restructured company, which then
became a wholly owned subsidiary (Note 11).
9 Cash and cash equivalents
Cash and cash equivalents include the Group's share of cash held
by joint operations of GBP68.1 million (2015: GBP42.7 million).
10 Pensions
A defined benefit pension scheme is operated in the UK and a
number of defined contribution pension schemes are in place in the
UK and overseas. Contributions are paid by subsidiary undertakings
and, to the defined contribution schemes, by employees. The total
pension charge in the income statement was GBP12.1 million
comprising GBP11.0 million included in operating costs plus GBP1.1
million included in net finance expense (2015: GBP11.2 million,
comprising GBP9.9 million in operating costs plus GBP1.3 million in
net finance expense).
Defined benefit scheme
The defined benefit scheme was closed to new members on 31 May
2005 and from 01 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
2013 and this was updated to 31 December 2016 by a qualified
independent actuary. At 31 December 2016, there were 2,820 retirees
and 3,234 deferred members. The weighted average duration of the
obligations is 17.3 years.
2016 2015 2014
GBPm GBPm GBPm
---------------------------------- -------- -------- --------
Present value of defined benefit
obligations (827.5) (687.4) (701.0)
Fair value of scheme assets 754.0 650.7 659.3
---------------------------------- -------- -------- --------
Recognised liability for defined
benefit obligations (73.5) (36.7) (41.7)
---------------------------------- -------- -------- --------
Movements in present value of defined benefit obligations
2016 2015
GBPm GBPm
------------------------------------------ ------- -------
At 1 January 687.4 701.0
Interest cost 25.5 24.6
Remeasurements - demographic assumptions - 7.9
Remeasurements - financial assumptions 153.0 (13.9)
Remeasurements - experience adjustments (6.8) -
Benefits paid (31.6) (32.2)
------------------------------------------ ------- -------
At 31 December 827.5 687.4
------------------------------------------ ------- -------
Movements in fair value of scheme assets
2016 2015
GBPm GBPm
----------------------------------- ------- -------
At 1 January 650.7 659.3
Interest income 24.4 23.3
Remeasurements - return on assets 96.4 (9.3)
Contributions by employer 14.1 9.6
Benefits paid (31.6) (32.2)
----------------------------------- ------- -------
At 31 December 754.0 650.7
----------------------------------- ------- -------
Expense recognised in the income statement
2016 2015
GBPm GBPm
--------------------------------------------- ------ ------
Administrative expenses paid by the pension
scheme (0.2) (0.4)
Administrative expenses paid directly
by the Group (2.3) (1.8)
Interest cost on the net liabilities
of the defined benefit pension scheme (1.1) (1.3)
--------------------------------------------- ------ ------
(3.6) (3.5)
--------------------------------------------- ------ ------
Fair value of scheme assets
2016 2015
GBPm GBPm
---------------------- ------ ------
UK equities 116.2 89.3
Overseas equities 95.9 73.2
Multi-credit fund 87.1 75.5
Index linked gilts 311.0 266.1
PFI Investments 51.6 51.6
Property 22.3 22.6
Absolute return fund 68.4 71.7
Cash 1.5 0.7
---------------------- ------ ------
754.0 650.7
---------------------- ------ ------
Principal actuarial assumption (expressed as weighted
averages)
2016 2015
% %
-------------------------- ----- -----
Discount rate 2.70 3.80
Future pension increases 3.10 2.95
Inflation assumption 3.20 3.00
Weighted average life expectancy from age 65 as per mortality
tables used to determine benefits at 31 December 2016 and 31
December 2015 is:
2016 2015
Male Female Male Female
(years) (years) (years) (years)
----------------------------- -------- -------- -------- --------
Currently aged 65 22.2 24.7 22.2 24.7
Non-retirees currently aged
45 today 24.1 26.7 24.0 26.6
----------------------------- -------- -------- -------- --------
The discount rate, inflation and pension increase and mortality
assumptions have a significant effect on the amounts reported.
Changes in these assumptions would have the following effects on
the defined benefit scheme:
Pension Pension
liability cost
GBPm GBPm
-------------------------------------------- ----------- --------
Increase discount rate by 0.25%, decreases
pension liability and reduces pension
cost by 34.7 1.2
Decrease inflation, pension increases
by 0.25%, decreases pension liability
and reduces pension cost by 30.7 1.2
Increase life expectancy by one year,
increases pension liability and increases
pension cost by 28.1 2.8
-------------------------------------------- ----------- --------
In accordance with the pension regulations, a triennial
actuarial review of the Costain defined benefit pension scheme was
carried out as at 31 March 2016. In February 2017, the valuation
and an updated deficit recovery plan were agreed with the scheme
Trustee resulting in cash contributions of GBP10.0 million for the
12 months to 31 March 2017 and then GBP9.6 million per annum
(increasing annually with inflation) until the deficit is cleared,
which would be in 2031 on the basis of the assumptions made in the
valuation and agreed recovery plan.
In addition, as previously implemented, the Group will continue
to make an additional contribution so that the total deficit
contributions match the total dividend amount paid by the Company
each year. Consequently, the total amount of contribution is
anticipated to be at a similar level to that under the previous
plan. 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 post balance sheet agreement in future
accounts.
Defined contribution schemes
Several defined contribution pensions are operated. The total
expense relating to these plans was GBP8.5 million (2015: GBP7.7
million).
11 Acquisitions
On 5 July 2016, the Group purchased the share capital of
Simulation Systems Limited (now Costain Integrated Technology
Solutions Limited) . The business is based in the UK and provides
innovative technology based solutions, primarily in the highways
sector.
The initial consideration was GBP17.6 million. A further payment
of GBP1.5 million was deferred over three years. This is dependent
on continued future service and, in accordance with IFRS 3, will be
expensed to the income statement.
Costain's strategy is to focus on major customers spending
billions of pounds addressing national needs in energy, water and
transportation. These customers are consolidating their supply
chains and seeking an increasingly integrated service offering from
their service providers through larger, longer-term collaborative
contracts. The Group believes the acquisition will further enhance
its technology capability as part of its focus on delivering a
broad range of innovative integrated services.
The contributions to revenue and operating profit before
amortisation of acquired intangibles and employment related
consideration within the Group's results of this acquisition was
revenue GBP11.5 million, operating profit GBP0.5 million, including
integration costs.
The acquisition had the following effect on the Group's assets
and liabilities:
GBPm
Cash consideration 17.6
------------------------------------ ------
Acquired intangible assets
- Customer relationships 2.8
Acquired intangible assets
- Other 2.5
Property, plant and equipment 0.1
Cash 1.6
Other current assets 2.6
Other current liabilities (3.9)
Deferred tax (1.1)
Fair value of assets acquired
and liabilities recognised 4.6
------------------------------------ ------
Goodwill arising on acquisitions 13.0
------------------------------------ ------
Based on the provisional assessment of the recognised values of
assets and liabilities, the goodwill arising on the acquisitions is
expected to be GBP13.0 million.
The acquisition of Rhead Group Holdings Limited, acquired in
July 2015, was adjusted by GBP0.3 million with a corresponding
increase in the goodwill. There was no change to the acquisition
fair values of Alcaidesa Holding SA, the joint venture that became
a wholly owned subsidiary in 2015, following a reorganisation in
which the assets were split between the two partners.
12 Related party transactions
The Group has related party relationships with its major
shareholders, subsidiaries, joint ventures and associates and joint
operations, in relation to the sales of construction services and
materials and the provision of staff, with The Costain Pension
Scheme and with two directors of a subsidiary and another employee
in relation to office leases acquired. The total value of these
services in 2016 was GBP195.1 million (2015: GBP133.2 million) and
transactions with The Costain Pension Scheme are included in Note
10.
13 Forward-looking statements
The announcement contains certain forward-looking statements.
The forward-looking statements are not intended to be guarantees of
future performance but are based on current views and assumptions
and involve known and unknown risks, uncertainties and other
factors that may cause actual results to differ from any future
results or developments expressed or implied from the
forward-looking statements.
14 Responsibility statements
The responsibility statement set out below has been prepared in
connection with (and will be set out in) the Annual Report and
Accounts for the year ended 31 December 2016.
"Each of the Directors of the Company confirms that, to the best
of his or her knowledge:
-- The Group accounts, which have been prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profits/losses of the Company
(and of the Group taken as a whole); and
-- The Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company (and of the Group taken as a whole), together with a
description of the principal risks and uncertainties that they
face."
The Directors of the Company are Paul Golby (Chairman), Andrew
Wyllie (Chief Executive), Tony Bickerstaff (Finance Director),
James Morley (Senior Independent Director), Jane Lodge (Independent
Non-Executive Director), Alison Wood (Independent Non-Executive
Director) and David McManus (Independent Non-Executive
Director).
On behalf of the Board:
PAUL GOLBY
Chairman
ANDREW WYLLIE
Chief Executive
519653503
This information is provided by RNS
The company news service from the London Stock Exchange
END
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