12 MARCH 2024
COSTAIN GROUP
PLC
("Costain", the "Group", or
the "Company")
RESULTS FOR THE YEAR ENDED
31 DECEMBER 2023 ("FY 23")
Continued
strong performance in 2023, ahead of market estimates, with
increased net cash balance
|
·
Adjusted operating
profit1 up 10.5% to £40.1m (FY 22: £36.3m)
reflecting mainly increasing volumes and margin in Natural
Resources and resilient performance in Transportation. Reported
operating profit of £26.8m (FY 22: £34.9m), after costs of
repositioning digital services in H1 23 and our Transformation
programme.
·
Net cash2 balance
increase of £40.6m to £164.4m (FY 22: £123.8m),
with adjusted free cash flow3 of £72.0m (FY 22:
£72.9m).
·
Adjusted operating margin of
3.0% for FY 23 (FY 22: 2.6%), with
H2 23 adjusted operating margin of 3.8% (H2 22: 2.9%). On track to
meet margin targets during FY 24 and FY 25 of 3.5% and
4.5%.
·
Adjusted EPS up 23.2% to
12.2p (FY 22: 9.9p) driven by net cash position
and adjusted operating profit increase, with reported EPS of 8.1p
(FY 22: 9.4p) reflecting adjusting items.
·
High quality forward
work4 position of around three times FY 23
revenue.
·
Proposed final dividend per
share of 0.8p making a full year dividend of 1.2p (FY 22:
0.0p).
£m
|
FY 23
adjusted1
|
FY 23
adjustments1
|
FY 23
reported
|
FY 22
adjusted1
|
FY 22
reported
|
Adjusted1
change
|
Revenue
|
1,332.0
|
-
|
1,332.0
|
1,421.4
|
1,421.4
|
-6.3%
|
Operating profit
|
40.1
|
(13.3)
|
26.8
|
36.3
|
34.9
|
10.5%
|
Operating margin
|
3.0%
|
-
|
2.0%
|
2.6%
|
2.5%
|
40bps
|
Profit before tax
|
44.2
|
(13.3)
|
30.9
|
34.2
|
32.8
|
29.2%
|
Basic EPS
|
12.2p
|
(4.2)p
|
8.1p
|
9.9p
|
9.4p
|
23.2%
|
Dividend per share
|
-
|
-
|
1.2p
|
-
|
-
|
-
|
Adjusted free cash
flow3
|
72.0
|
|
|
72.9
|
|
-1.2%
|
Net cash balance
|
|
|
164.4
|
|
123.8
|
32.8%
|
1. See notes 1
to 4 of the financial statements for adjusted metric details and
definitions, and reconciliation to reported
metrics.
2. Net cash balance is cash and
cash equivalents.
3. Adjusted free cash flow is
defined as cash generated from operations, excluding cash flows
relating to adjusting items and pension deficit contributions, less
taxation and capital expenditure.
4. See pages 5 and 6 for further
details of definitions of order book and preferred bidder
book.
Alex
Vaughan, chief
executive officer, commented:
|
"We had good momentum in the business in 2023,
delivering strong growth in adjusted operating profit and a 23%
increase in adjusted earnings per share, together with significant
net cash flow, ending the year with a net cash balance of
£164.4m. We saw growth and improved margins in Natural
Resources and a consistent adjusted margin performance in
Transportation. Adjusted operating margin increased as expected to
3.0%, and with a 3.8% operating margin in the second half, we are
in line to deliver our margin targets for FY 24 and FY
25.
"We have an excellent pipeline of
opportunities and are driving high levels of tendering activity.
Contract margins are in our target range and at the right risk
level. We expect significant growth in Water and Energy over the
next few years. Good progress has been made in rebalancing our
customer base with a broader range of exclusively Tier 1 clients.
This puts us in a positive position to take advantage of the medium
and long-term growth opportunities in UK infrastructure. Our
Transformation programme continues to improve our structure,
operational procedures and skillsets.
"The quality and balance of our forward work
across our two divisions gives us good visibility on future revenue
and margin. We have more than 80% of expected revenue secured for
2024 and our forward work stands at around three times 2023
revenue. We see continuing momentum in the business and remain
confident in the Group's growth prospects."
·
Reported and
adjusted1 revenue of £1,332.0m (FY
22: £1,421.4m), reflecting growth in Natural Resources and a
resilient operating performance in Transportation, with a reduction
in volumes due to the rephasing and rescoping of certain projects
in the division.
·
Growth in adjusted operating
profit1 up 10.5% to £40.1m (FY 22:
£36.3m) reflecting growth and increased margin in Natural
Resources, benefits from our Transformation programme, with a
consistent margin performance in Transportation.
·
Strong adjusted free cash
flow2 in FY 23 of £72.0m
(FY 22: £72.9m) reflecting increased operating cashflow and
financial income, together with positive working capital movements
in FY 23, resulting in an increased FY 23 net cash position to
£164.4m (FY 22: £123.8m).
·
On track to meet our margin
targets for FY 24 (run-rate 3.5%) and FY 25 (run-rate
4.5%), having delivered 3.0% adjusted operating
margin for FY 23 and 3.8% in H2 23.
·
Continuing to secure key
contracts:
o Programme
extensions including AMP8 water contracts with Severn Trent, Thames
Water and United Utilities.
o Appointed by
NRS Ltd (previously known as Magnox) to deliver its decommissioning
programme.
o Further
framework contracts with National Highways.
o Framework
consultancy commissions wins including with DfT, EDF, Yorkshire
Water and Greater Manchester Combined Authority (GMCA).
o Post year-end
we secured a new framework agreement with Northumbrian Water Group,
and separate design and construction contracts with Transport for
London (TfL).
·
On track for FY
24 with in excess of £1bn of revenue
secured3 for 2024 at year-end, representing more than
80% of expected revenue, and a good pipeline of expected
growth.
·
High quality order and
preferred bidder books3 position of
around three times FY 23 revenue at £3.9bn (FY 22:
£4.4bn):
o Order book of
£2.1bn (FY 22: £2.8bn), reflecting the procurement periods in our
chosen markets (RIS, CP7, AMP8), continued disciplined approach to
contract bidding and the rephased timing of certain major contract
tenders.
o
Preferred bidder book increased to £1.8bn (FY
23: £1.6bn), reflecting increasing activity in Water and Integrated
Transport. We have grown our consultancy positions
with AWE, Babcock, bp, Cadent, EDF, Heathrow, National Highways and
Yorkshire Water.
1.
See notes 1 to 4 of the financial statements for
adjusted metric details and definitions, and reconciliation to
reported metrics.
2.
Adjusted free cash flow is defined as cash
generated from operations, excluding cash flows relating to
adjusting items and pension deficit contributions, less taxation
and capital expenditure.
3.
Order book and secured revenue includes revenue
from contracts which are partially or fully unsatisfied and
probable revenue from water frameworks included at allocated
volume. See below for further details of definitions.
Our expectations for further progress in 2024
remain unchanged. As a result of our continued
strategic and operational development, we remain on track to
deliver an adjusted operating margin run-rate of 3.5% during the
course of FY 24 and 4.5% during the course of FY 25, in line with
our ambition to deliver margins in excess of 5.0%.
We remain mindful of the macro-economic and
geopolitical backdrop and its importance for near-term government
priorities and timing of spending. Notwithstanding this, with our
increasingly broad high-quality customer base, further improvements
to our operational performance, opportunities for higher-margin
business, strong cash position and clear strategic priorities, we
are well positioned for further growth in profits and cash
generation.
We remain confident in the Group's strategy
and longer-term prospects.
Steve Mogford and Amanda Fisher joined the
Board as independent non-executive directors on 1 November 2023 and
1 December 2023 respectively. Steve and Amanda are members of the
Company's Audit and Risk, Nomination and Remuneration Committees.
As part of these changes, Neil Crockett and Jacqueline de Rojas,
non-executive directors, stepped down from the Board on 31 October
2023.
As announced separately today, Bishoy Azmy has
also decided to step down from the Board with effect from 31 March
2024.
Use of
alternative performance measures
|
Throughout this release we use a number of
'adjusted' measures to provide users with a clearer picture of the
performance of the business. To aid understanding of the overall
performance of the Group, certain amounts that the Board considers
to be material or non-recurring in size or nature, or related to
the accounting treatment of acquisitions, are adjusted because they
are not long term in nature and will not reflect the long-term
performance of the Group. This is in line with how management
monitors and manages the business on a day-to-day basis. These
adjustments are discussed in further detail in notes 1 to 4 on
pages 27 to 36.
Additional
business information
|
|
FY 23
|
FY 22
|
Change
|
Business
metrics
|
|
|
|
Revenue secured1 for following year
(£m)
|
1,025
|
1,004
|
2.1%
|
Lost time injury rate (LTIR)
|
0.12
|
0.09
|
33%
|
Absolute GHG emissions (Scope 1-3)
tCO2e
|
319,232
|
355,580
|
-10.2%
|
1.
See page 6 for order book and preferred book
details and definitions.
Analyst &
investor presentation
|
A live webcast of our results by
Alex Vaughan (CEO) and Helen Willis (CFO) will be at 9am on 12
March 2024. Please go to https://stream.brrmedia.co.uk/broadcast/65b2747ac1cc5da56f54d462
to register for the event.
We will also host a live
presentation relating to results via Investor Meet Company at
10am on 13 March 2024. Investors can sign up to Investor Meet
Company for free and add to meet Costain Group
PLC via:
https://www.investormeetcompany.com/costain-group-plc/register-investor
GROUP TRADING PERFORMANCE
A positive
financial performance
We report both our statutory results,
'reported', and results excluding adjusting items, 'adjusted'. Key
adjusting items for FY 23 include the impact of our Transformation
programme and restructuring, and an impairment of an intangible
asset.
Reported and adjusted revenue was £1,332.0m in
FY 23 (FY 22: £1,421.4m), an expected reduction on the prior
period. We saw increased Natural Resources revenue in Defence and
Nuclear Energy, and Water. In Transportation, we saw continued
growth in Rail and growing activity on our Heathrow H7 contract,
new contracts with TfL, and the rephasing and
rescoping of certain contracts in Road.
Adjusted operating profit grew by 10.5% to
£40.1m (FY 22: £36.3m), driven mainly by the expected increased
profitability in Natural Resources and the benefits of our
Transformation programme across the Group. The adjusted operating
margin increased to 3.0% (FY 22: 2.6%) reflecting the above. Our H2
23 adjusted operating margin was 3.8% (H2 23: 2.9%).
Reported operating profit decreased to £26.8m
(FY 22: £34.9m), due to the previously announced impairment of an
intangible asset as we reposition our digital portfolio towards
services and the Group's transformation and restructuring
programme.
Net finance income amounted
to £4.1m (FY 22: £2.1m expense), driven by higher interest income
from bank deposits, higher interest income on the net assets of the
pension scheme, and lower interest payable on bank overdrafts,
loans, borrowings and other similar charges. As a result,
adjusted profit before tax increased 29.2% to £44.2m (FY 22:
£34.2m), with adjusted basic earnings per share (EPS) up by 23.2%
at 12.2p (FY 22: 9.9p). Reported profit before tax was down 5.8% at
£30.9m (FY 22: £32.8m) and reported basic earnings per share (EPS)
was also down 13.8% at 8.1p (FY 22: 9.4p).
Adjustments to reported items
We incurred £8.0m (FY 22: £5.7m) on
transformation and restructuring costs, and £5.3m (FY 22: £nil) on
the impairment of an intangible asset relating to the repositioning
of digital services. In FY 22 we incurred £1.4m of aged tunnel
boring machine write-off costs, and recognised an insurance receipt
of
£5.2m relating to the Peterborough &
Huntingdon contract, as well as a profit of £0.5m on the sale of a
non-core asset. We expect reduced transformation and restructuring
costs of around £5.0m in FY 24 and thereafter such costs to be
minimal and not to be separately disclosed as adjusting
items.
Cashflow and liquidity
During FY 23 we
completed the March 2022 review of our defined
benefit pension scheme, and the refinancing of our
bank and bonding facilities, with the positive outcomes of both
increasing our ability to generate cash for the Group.
Cash generated from operations in FY 23 was
£55.5m (FY 22: £16.7m). The FY 22 comparison was impacted by the
settlement of the Peterborough & Huntingdon contract of £43.4m
in February 2022 and a related, partially offsetting insurance
receipt of £5.2m.
Adjusted free cash flow in FY 23 of £72.0m
reflected growth in adjusted operating profit, increased financial
income and positive working capital movements, albeit at a lower
level than seen in the prior year, resulting in a
strong net cash position at the end of FY 23 of £164.4m (FY 22:
£123.8m). We expect our FY 24 year-end net cash
position to be broadly similar to that at the end of FY 23, as the
net cash flow from the business is likely to be offset by the
unwinding of cumulative working capital timing benefits of around
£25.0m at the end of FY 23.
During FY 23 we paid more than 98% of invoices
within 60 days (FY 22: more than 98%). In January 2024, Costain was
re-confirmed as one of the top fastest-paying lead contractors in
construction on an average days-to-pay basis following the
submissions to the Government's Duty to Report on Payment
Practices and Performance.
Strength of
business model
As a result of our strategy, the Group has
continued to make good progress in building a stronger business. We
are:
·
Focused on meeting the UK's strategic national needs, as set
out in the second National Infrastructure Assessment and in the
National Infrastructure and Construction Pipeline 2023; with more
than £700bn of investment expected during the next ten
years.
·
Building and expanding a broader Tier 1 customer base, with
both new customers and existing customers increasing their scale of
activities with us:
o Benefitting
from the significant increase in regulatory investment in Water and
Energy.
o Positioned
for the significant public and private sector Transportation and
Defence investment.
o Continuing to
build our leading expertise as a solution provider to address
growing energy transition investment plans.
o Increasing
our focus on growing our share of Devolved Government
spending.
·
Providing a broad expert-led service mix to meet our
customers' ecosystem needs, helping them by shaping, creating, and
delivering pioneering infrastructure solutions to meet their needs,
leveraging our core contracting expertise in managing major
infrastructure programmes.
·
Maintaining a strong balance sheet with good levels of
positive cash generation, a strong risk management culture,
financing capacity and minimal pension costs.
Costain enjoys good forward visibility with
our combined order book and preferred bidder book representing
around three times our FY 23 annual revenues, at £3.9bn (FY 22:
£4.4bn). We anticipate a shift towards the preferred bidder book
away from the order book as we continue to secure long-term
(5-to-10-year) framework positions with our customers, providing a
reliable and long-term stream of future work.
Our order book stood
at £2.1bn at the end of FY 23 (FY 22: £2.8bn). This reflected the
timing of certain major contract bids, our customers' five-year
investment programmes, maintaining discipline in contract selection
and the shorter lead time of consulting and digital
work. The order book evolves as contracts
progress and as new contracts are added at periods aligned to our
customers' strategic procurement windows which are typically every
five years. The order book does not therefore provide a complete
picture of the Group's potential future revenue
expectations.
The preferred bidder book comprises awards for
which we have been selected as the preferred partner and are in the
final stages prior to commencing the contract, or exclusive
frameworks where a further works order is required. The preferred
bidder book increased to £1.8bn at the end of FY 23 (FY 22:
£1.6bn), with contracts in Road, Water and Integrated Transport,
including Heathrow.
We note that some of our framework
and consulting revenue is not recorded in our order book, or
preferred bidder book, and is expected to represent an increasing
proportion of our future revenue.
We had in excess of £1bn of
secured Group revenue for FY 24 at the end of FY 23, representing
more than 80% of forecast revenue for the period.
Awards have yet to be made on a significant
number of bids undertaken since H1 22 and we currently expect
awards on these bids to be made during FY 24 and FY
25.
The Transport, Water, Energy and
Defence markets continue to offer significant long-term
opportunities for the Group. We expect Water investment to at least
double during the next regulatory period to its highest level for
decades, and we are well placed to capitalise on these
opportunities. In addition, our Integrated Transport business has
seen strategic wins with Heathrow, Manchester Airports Group, TfL,
and a number of local councils.
Our Transformation programme,
which simplifies and increases efficiencies within the business and
is expected to be largely complete during FY 24, is progressing
well, having delivered profit and operating margin uplift during FY
23, as well as enabling investment in business improvement
activities. As previously announced, during H1 23 we
reorganised our digital activities to increase
our growth focus on service capabilities.
The accurate assessment and management of risk
and uncertainty is central to our strategy. This is achieved
through rigorous risk management and commercial control throughout
our operations in three key areas:
· A
disciplined approach to contract selection, which includes robust
commercial and legal reviews, proactive shaping of procurement
approaches with our customers, and a rigorous multi-stage gating
process.
·
Commercial and operational assurance, which includes project
level controls, our Operational Excellence Model (OEM), management
oversight of forecasts, and cross-disciplinary contract review
meetings.
·
Strategic supply chain partners, with application of robust
supply chain management processes.
As a result of the implementation of our
strategy and risk management processes, at the end of FY 23, our
order book does not include any single stage design and build
fixed-price construction contracts.
We continue to monitor the impact
of inflationary pressures on FY 24 revenue and costs and
have effectively negotiated the challenges
of material availability and inflation during FY
23.
Capital allocation
Our capital allocation policy is:
1. Investing for growth - disciplined investment
in key areas such as digital that accelerate our business
transformation.
2. Progressive dividend - the Board recognises
the importance of dividends for shareholders and expects to target
dividend cover of around three times adjusted earnings. This will
take into account the cash flow generated in the period, and the
potential impact of the "dividend parity" arrangement relating to
the defined benefit pension scheme, which continues until 31 March
2027.
Under the "dividend parity" arrangement, an
additional matching contribution (the excess of the total dividend
above the Scheme contribution) to the Costain Pension Scheme will
be made when the total of the interim and final dividends for a
financial year paid to the shareholders of Costain are greater than
the contributions paid into the Scheme in the previous Scheme
financial year, which runs from 1 April to 31 March. In addition,
if the funding level is above 101% as at 31 March each year, then
no Scheme contributions will be payable in respect of dividend
parity for the following year.
3. Selective M&A - retaining optionality
to pursue strategic investments in technology, skills and
capabilities to enhance our ability to support
customers.
4. Returning surplus capital - after ensuring
a strong balance sheet and cash position, identified surplus
capital is returned to shareholders through share buy backs or
special dividends.
Dividends
Dividend payments were resumed in FY 23 with
an interim dividend of 0.4p per share for the six months ended 30
June 2023. The Board is proposing a final dividend of 0.8p per
share which, if approved, will be paid on 28 May 2024 to
shareholders on the register at the close of business on 19 April
2024. We expect that dividends will typically be paid 1/3 as
interim and 2/3 as final dividends.
Payment of the final dividend will be both as
a cash dividend and scrip dividend alternative. Shareholders
wishing to join the scrip dividend scheme should return a completed
mandate form to the Registrar, Equiniti, by 3 May 2024. The scrip
dividend reference price will be announced on 25 April
2024.
While the dividend parity arrangements remain
in place, the Board aims to pay a minimum annual dividend to match
broadly the £3.3m per year plus inflation (CPI) payment to the
defined pension scheme. Potential increased dividends above this
level may be considered by the Board depending upon the Group's net
cash flow generation and the pension scheme funding level (and any
associated dividend parity requirement) in line with the Group's
policy of a target dividend cover of around three times adjusted
earnings.
DIVISIONAL REVIEW
TRANSPORTATION
£m
|
FY 23
adjusted1
|
FY 23
reported
|
FY 22
adjusted1
|
FY 22
reported
|
Adjusted1
change
|
Road
|
399.5
|
399.5
|
498.7
|
498.7
|
-19.9%
|
Rail
|
500.2
|
500.2
|
480.8
|
480.8
|
4.0%
|
Integrated Transport
|
43.4
|
43.4
|
66.8
|
66.8
|
-35.0%
|
Total revenue
|
943.1
|
943.1
|
1,046.3
|
1,046.3
|
-9.9%
|
Operating profit
|
28.0
|
20.9
|
31.5
|
30.1
|
-11.1%
|
Operating margin
|
3.0%
|
2.2%2
|
3.0%
|
2.9%
|
0.0pp
|
1. See notes 1 to 4
of the financial statements for adjusted metric details and
definitions, and reconciliation to reported metrics.
2. See page 17 for further information.
·
Reported and adjusted revenue of £943.1m was down 9.9%
against FY 22, reflecting growth in Rail, lower volumes in Road due
to the impact of the rephasing and rescoping of some contracts, and
a reduction in Integrated Transport as the Preston
Western road completed, prior to ramp up of our work
with Heathrow.
·
Adjusted operating margin was 3.0%, consistent with the prior
year, as overall operating performance offset inflation and cost
pressures impacting margins in Road.
·
Revenue secured for FY 24 is £687m for Transportation as at
31 December 2023.
·
Jonathan Willcock will join Costain in April 2024 as the new
managing director of the Transportation division.
Our revenue in 2023 was mainly
from a number of complex project delivery schemes for
High Speed 2 (HS2) and National Highways, which currently
represents the majority of Transportation activities. The mix of
our revenue is now transitioning towards a better-balanced
portfolio, benefitting from activities in Rail, Aviation, Ports and
Local Government, together with continuing activities with HS2 and
National Highways.
Road revenue
declined by 19.9% in FY 23 compared with the prior year, as
expected, driven by a reduction in schemes revenue as they near
completion, and the impact of previously announced rephasing and
rescoping of projects. As a strategic partner for National
Highways, we support their key investment programmes through the
Regional Delivery Partnerships (RDP) major projects frameworks, and
the Smart Motorways Programme (SMP) Alliance.
On RDP, our work to upgrade the A1 around
Newcastle continues to progress well with the widening of the
Birtley to Coal House section, and in Cornwall our work continues
to widen the A30 to dual carriageway between Chiverton and Carland
Cross. We have led the work to submit the Development Consent Order
(DCO) application for the A12 Chelmsford to A120 widening project,
which was granted in January 2024, along with a package of enabling
works. We continue to develop the M60 Simister Island scheme in the
North-West through its development phase, are continuing to deliver
highway maintenance activities on our Area 14 contract with
National Highways, which continues to 2032 and we have concluded
our scheme development work on the A66.
Within the SMP Alliance, our
delivery of the M6 Junction 21a-26 smart motorway upgrade continues
and is progressing well, and we are supporting the National
Emergency Area Retrofit programme for smart motorways through
design and delivery of additional stopping areas.
Our role as delivery assurance
partner in a joint venture with Mott MacDonald continues on the
A303 Stonehenge Improvements Scheme following the granting of a DCO
in July 2023.
We have a growing pipeline of
opportunities in Road for local government bodies, as well as
National Highways, and see good long-term prospects in this
market.
Rail revenue
increased by 4.0% in FY 23, principally as a
result of the volume of work in delivering HS2. The Skanska Costain STRABAG JV contract to construct the
southern section of route for HS2 which has a twin bore tunnel now
has three (of seven) tunnel boring machines (TBMs) fully in
operation. We are working closely with HS2 Ltd to optimise our
delivery schedule to best progress the project delivery within the
introduced near-term financial constraints.
We have expanded our portfolio of
work for Network Rail through our framework contracts, where we are
providing professional consulting services on multiple projects.
Our work to upgrade Gatwick Airport Station concourse for Network
Rail will complete in H1 24 following the opening of the station in
Q4 23.
We also have several live tenders
being progressed in Rail.
Integrated
Transport provides a mix of consulting and
complex project delivery to sub-national bodies, Central
Government, and to customers in aviation and ports. Revenue
decreased by 35.0% in FY 23 on the prior year, reflecting the
timing of complex schemes delivery. During the year we successfully
completed the Edith Rigby Way (Preston Western distributor scheme)
which links the M55 with the A583 and we expect that design phase
work we have undertaken during 2023 will deliver revenue growth for
this sector during 2024.
During FY 23, we continued work for TfL with
design and feasibility work for Gallows Corner and the A40, design
work on the Piccadilly Line and continued support for TfL's CCTV
service. In January 2024, we were awarded the Gallows
Corner Flyover Detailed Design & Build contract by TfL and the
design phase for Brent Cross. We have successfully
expanded services to a range of local authorities.
During FY 23, we increased the
volume of our work at Heathrow to shape, create and deliver asset
renewal and construction projects through the Terminal
Asset Renewal Partner and Major Project Partner lots of the H7
framework. We continue to support other aviation customers at East
Midlands, Gatwick, Manchester and Stansted airports.
We expect that Aviation, Ports, Local and
Devolved Government will offer strong growth opportunities for the
business.
NATURAL
RESOURCES
£m
|
FY 23
adjusted1
|
FY 23
reported
|
FY 22
adjusted1
|
FY 22
reported
|
Adjusted1
change
|
Water
|
245.3
|
245.3
|
238.2
|
238.2
|
2.9%
|
Energy
|
45.6
|
45.6
|
52.6
|
52.6
|
-13.6%
|
Defence and Nuclear Energy 2
|
98.0
|
98.0
|
84.3
|
84.3
|
16.3%
|
Total revenue
|
388.9
|
388.9
|
375.1
|
375.1
|
3.7%
|
Operating profit
|
21.8
|
21.7
|
15.0
|
19.5
|
45.3%
|
Operating margin
|
5.6%
|
5.6%
|
4.0%
|
5.2%
|
+1.6pp
|
1. See notes 1 to 4 of the
financial statements for adjusted metric details and definitions,
and reconciliation to reported metrics.
2 Defence and Nuclear Energy
includes nuclear-related revenue previously included in Energy,
following the Natural Resources reorganisation.
·
Adjusted revenue was £388.9m, up 3.7% driven by Defence and
Nuclear Energy, and Water.
·
Adjusted operating profit was £21.8m, up £6.8m, and
adjusted operating margin was 5.6%, 1.6 percentage points
higher compared to prior year, due to an improved operational
performance as well as revenue growth.
·
Revenue secured for FY 24 is £338m for Natural Resources as
at 31 December 2023.
Water delivers a
broad range of services to improve asset and operational resilience
across the Water sector, together with decarbonisation
capabilities. Reported and adjusted revenue was up 2.9% on the
prior year with good visibility across our five-year AMP7
programmes through to 2025, and our recently announced AMP8
projects. We continue to make good progress in delivering on
Tideway as it moves towards its commissioning phase where, in a
joint venture, we are responsible for the eastern
section.
The breadth of our service offering continues
to grow with work including wastewater to gas, water quality
assurance and water treatment, as well as design, maintenance,
capital delivery and strategic resource options. We deliver capital
delivery programmes for Anglian Water, Severn Trent Water, Southern
Water, and Thames Water in AMP7; recently won a Northumbrian Water
contract for AMP8; an AMP7 maintenance service provider contract
for United Utilities; a range of consultancy services for Yorkshire
Water, Thames Water, Southern Water; and digital services for
Anglian Water.
In July 2023, we were appointed by
United Utilities to work as its Managed Service Provider for
a further two years, which represented our first AMP8
programme win. Since then, we have expanded our AMP8 work
with programme extensions with Severn Trent and Thames Water, and a
new AMP8 contract with Northumbrian Water Group, with the latter
announced in January 2024. We expect to see continued
growth in the Water sector, and we aim to expand our current
portfolio under AMP8. Alongside core AMP8 requirements, we continue
to engage with customers to understand their potential needs for
value-added solutions to meet their ESG requirements and are in an
early stage of working with customers regarding the Strategic Water
Resource Options programme, which will run alongside
AMP8.
Energy revenue
decreased by 13.6% in FY 23 on the prior year, with nuclear-related
revenue now included within the Defence
and Nuclear Energy sector. We expect significant growth in this
sector given the requirement for energy infrastructure investment
to support economic growth, tackle climate change and enhance the
natural environment, as outlined in the National Infrastructure
Commission's recent Second National Infrastructure
Assessment (SNIA). We provide our
customers in this sector with a range of services including
engineering design, managed services and programme management,
solving our customers' complex energy challenges through excellence
in engineering and delivery.
Our strategic focus areas are energy transition (hydrogen and carbon capture), energy
resilience (brownfield modifications for enhanced longevity and
performance, energy storage and carbon reduction) and energy
connectivity (gas and electricity networks). We
continue with our contract with Cadent, managing the mains
replacement across the East of England. We continue to build our
position in energy transition and through FY 23 we have
strengthened our core strategy to support the development of the
industrial clusters across the UK. Having completed delivery of the
FEED (Front end engineering design) for bp on the track 1 net zero
contract at Teesside (part of the East Coast cluster), we continue
to support bp as it progresses the wider de-carbonisation of the
local energy supply and pursues innovative carbon capture and
storage solutions.
We have seen growth in project
delivery and opportunities in supporting our long-standing
petrochemical customers in decarbonising their midstream operations
through large scale energy switching engineering projects,
including hydrogen generation and transportation.
Defence and
Nuclear Energy supports several public and
private sector organisations, in a variety of customer-side,
delivery partnership roles, across the UK Defence Nuclear
Enterprise. Defence and Nuclear Energy
includes nuclear-related revenue previously included in
Energy, following the reorganising of the Natural Resources
division. Reported and adjusted revenue increased by £13.7m, 16.3%
on the prior year, driven by a growth in demand for support within
our current delivery partnership roles, with Babcock and the Atomic
Weapons Establishment (AWE). In both contracts, we work as a
construction delivery partner, delivering major infrastructure
projects, and providing expertise in design and construction
management and do not carry out any construction work.
We also provide ongoing support to the Defence
Nuclear Organisation (DNO), helping it develop portfolio management
capabilities and developing its programme definition for future
infrastructure requirements. We are currently well positioned
across the Defence Nuclear Enterprise, supporting the UK's
Continuous At Sea Deterrent (CASD), and our ambition is to be the
delivery partner of choice for the Ministry of Defence's (MoD)
future strategic infrastructure needs.
During H1 23, we were awarded a
place on a new six-year framework for NRS Ltd (previously known as
Magnox). Through our work at Sellafield, we also see
opportunities for growth in support to the nuclear fuel
sector.
During H2 23, we secured a two-year contract
extension to deliver a project controls managed service across
EDF's eight UK nuclear power stations. As part of this contract,
which has the option to be extended, Costain will continue to
develop and grow EDF's core project controls capabilities and
provide specialist support to improve project performance and
deliver cost efficiencies.
STRATEGY UPDATE
The Group operates in the UK infrastructure
market, focused on providing infrastructure solutions that
safeguard the future of our planet and transform the performance of
the UK's infrastructure ecosystem, aligned to our purpose of
'Improving People's Lives'.
In line with the priorities of the National
Infrastructure Commission's Second National Infrastructure
Assessment, we are strategically well positioned in our four chosen
markets of Transport, Water, Energy and Defence. These markets
benefit from significant, and increasing, long-term strategic
investment to meet the UK's critical national needs. Our leading
service expertise, strong customer focus, and differentiated
broader offering positions the business to benefit from our
customers' long-term investment plans, providing significant
opportunities for growth. With our customers, we are focused on
meeting the UK's strategic national needs and enabling economic
growth, positive social change, addressing climate change and
safeguarding our environment. While the National Infrastructure and
Construction Pipeline 2023 sets out more than £700bn of investment
in the next ten years, we recognise the short-term constraints on
government funding.
Our business is differentiated in seeking to
meet our customers' broader business needs, and not just their new
capital infrastructure needs. This includes asset maintenance,
extending the life of and optimising the performance of existing
assets, advising on long term asset planning, and overseeing
development programmes. We achieve this by working with our
customers as construction, consulting and digital infrastructure
partners. This has seen us win work with significant new customers
such as Northumbrian Water, as well as existing customers choosing
to expand or extend their relationships with us such as bp, TfL and
United Utilities.
People
Our people strategy is focused on six key
areas:
·
Excellent leadership and line management role modelling of
our values and behaviours, to motivate and engage
our people.
·
Having a diverse, inclusive, and thriving
workforce.
·
Creating high-performing, agile teams with a one
Costain ethos.
·
Developing skills, capabilities, and talent now and for the
future giving our people the opportunity to grow their careers
at Costain.
·
Ensuring our people feel valued, respected, recognised and
appropriately rewarded.
·
We value the health and wellbeing of our people,
and the safety of everyone working with us and around us is
one of our core values.
Our aim is to eliminate harm across all of our
activities, and to be a continuously learning organisation. We
track safety performance through our lost time injury rate (LTIR)
of 0.12 in FY 23 (FY 22: 0.09), which is below our target level of
0.15. In early 2023 we did experience a rise in Lost Time Injuries
which was addressed with action plans across both divisions.
Costain's new approach to lifting following the
fatality on our Gatwick Station project in July 2022 is changing
industry practice, with significant interest from customers and
peers who are also adopting the new approach.
We were delighted to be accredited
as a Best Companies 'A Very Good Company To Work For' in 2023 and
increased our overall engagement score compared with 2022,
demonstrating our commitment to making Costain a great place to
work.
We are maintaining progress towards our goal
of having a workforce representative of society and when comparing
ourselves against industry benchmarks believe we are
'industry-leading', however, we have more to do. Our overall gender
and ethnic diversity have both increased, 28.8% female (FY 22:
27.5%) and 15.7% ethnic minority (FY 22: 14.5%). Costain for the second year has voluntarily disclosed its
ethnicity pay gap, forming part of an integrated pay report
alongside the statutory gender pay gap disclosure.
We continue to proactively address our gender pay
gap and in 2023 we launched a pilot programme to support women in
progressing in their careers building on the feedback of our
employee networks. Following the success of the programme, Costain
will be rolling out a second intake in Q1 24.
Costain plays a significant role in enhancing
the prosperity of local communities by channelling our spending
with small and medium-sized businesses (SMEs). In 2023 Costain
spent £650m with SMEs, representing 38% of Costain's total spend,
exceeding the UK Government target of 33%, and consistent with the
FY 22 performance of 38%.
Planet
During 2023, we have progressed and
updated our climate change action plan, our ESG programme,
developed nature positive initiatives which increase biodiversity,
and continued our development of low carbon and energy transition
solutions.
Driving an orderly transition to net zero is
critical to both Costain and our customers, all the while adapting
to overcome the climate risks that impact infrastructure.
We have worked with the Science Based Targets
initiative (SBTi) to validate Costain's near and long-term net zero
targets and we are pleased to report these were approved in
February 2024. For Costain's long-term SBTi, we commit to
reaching net-zero greenhouse gas emissions across the value chain
by 2050. Work is underway to develop a carbon transition plan, as
the next phase of Costain's climate change action plan, working
towards our 2035 net zero ambition.
During 2023, we have seen a
year-on-year 10% decrease in absolute emissions, which was a 14%
increase against our 2021 baseline. When normalised by turnover
(tCO2e/£M) emissions have reduced by 2% compared to our 2021
baseline. As part of our continual improvement, we have updated our
boundary and quantification approach to allow us to include
additional Scope 3 categories in our 2023 reporting.
While our Scope 1 and 3 emissions decreased
year-on-year, there was a 36% increase in Scope 2 emissions. This
was due to two factors: an increase in projects using
mains-supplied electricity rather than generators (supporting the
Scope 1 emission reduction); and major tunnelling operations
occurring on our HS2 contract.
We developed and implemented an ESG programme
to accelerate our approach to enhancing the
sustainability performance of Costain and our customers. We have
positioned ourselves to support customers in reaching their
ESG objectives through our unique service mix and
skills.
In 2023, we signed the Nature Positive
Business Pledge, which is a commitment to halt and
reverse impacts on nature in ways that work
together with our net zero carbon ambitions. In 2024, Costain will
be introducing our Nature Positive plan which will set out how we
will meet our Nature Positive goal by 2030. The plan will also
align with the Taskforce for Nature-related Financial Disclosures
(TNFD) which Costain will begin voluntarily disclosing in our 2023
ESG report, to be fully compliant at the earliest
opportunity.
Performance
Key measures of our performance
are:
o Financial performance on growth and margins.
o New customer wins and expansions of existing customer
relationships, further diversifying our revenue base.
Financial performance
Our risk management processes on
contracts continues to ensure a robust operational performance. In
addition, we have secured further opportunities with our customers,
demonstrating our strategic progress.
Our strategy provides for assured
delivery, lower risk contracts in our orderbook, together with a
broader business mix, and our ambition remains to deliver improving
long-term operating margins.
We remain in line to deliver on
our operational milestones, outlined in March 2023:
·
An adjusted operating margin run-rate of 3.5%
during the course of FY 24, as we increase effectiveness within the
business through the implementation of our Transformation programme
and our OEM, the growth of our consultancy services, the increased
effectiveness in procurement and ongoing control of operating
costs.
·
An adjusted operating margin run-rate of 4.5%
during the course of FY 25 to be reached by improving margins
within complex programme delivery (construction contracts), further
efficiencies from our Transformation programme, our OEM and an
increasing mix of higher-margin contracts.
·
We continue to have an ambition for an adjusted operating margin in excess of
5.0%.
·
We expect that central costs will be held around
0.8% to 0.9% of revenue during FY 24 to FY 25 and we expect
divisional margins to increase during the period to achieve our
Group target. We continue to monitor and manage the impact of
inflationary pressures on FY 24 revenue and costs.
Customer growth
During FY 23, we have:
·
Expanded our presence in the water sector with
our first AMP8 win and been appointed by United Utilities in July
to extend our work as its Managed Service Provider for a further
two years. We have also agreed to extend our AMP7 contracts into
AMP8 with Severn Trent and Thames Water. Post year-end we began a
new relationship with Northumbrian Water Group when they appointed
us to their AMP8 framework.
·
Been appointed by NRS Ltd (previously known as Magnox) to
deliver its decommissioning programme, supporting the company
across 11 sites and ensuring the safe and secure closure of
locations through to 2029.
·
Further grown our delivery partner consultancy roles building
on our current positions with AWE, Babcock, Cadent and National
Highways. We are also increasing our activity at Heathrow, where we
will work as a solution delivery partner providing construction,
consulting and digital capabilities during its next regulatory
period.
·
Secured further strategic wins to provide consultancy advice
and support to bp and Yorkshire Water, and post year-end with
Transport for London (TfL).
FINANCIAL REVIEW
Divisional adjusted to reported
reconciliation
|
Transportation
|
Natural
Resources
|
Group
|
|
FY 23
|
FY
22
|
Change
|
FY 23
|
FY
22
|
Change
|
FY 23
|
FY
22
|
Change
|
Revenue £m
|
|
|
|
|
|
|
|
|
|
Adjusted
|
943.1
|
1,046.3
|
-9.9%
|
388.9
|
375.1
|
3.7%
|
1,332.0
|
1,421.4
|
-6.3%
|
Adjusting items
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Reported
|
943.1
|
1,046.3
|
-9.9%
|
388.9
|
375.1
|
3.7%
|
1,332.0
|
1,421.4
|
-6.3%
|
|
|
|
|
|
|
|
|
|
|
Operating profit £m
|
|
|
|
|
|
|
|
|
|
Adjusted
|
28.0
|
31.5
|
-11.1%
|
21.8
|
15.0
|
45.3%
|
40.1
|
36.3
|
10.5%
|
Adjusting items
|
(7.1)
|
(1.4)
|
|
(0.1)
|
4.5
|
|
(13.3)
|
(1.4)
|
|
Reported
|
20.9
|
30.1
|
-30.6%
|
21.7
|
19.5
|
11.3%
|
26.8
|
34.9
|
-23.2%
|
Central
costs
We incurred central costs of £9.7m (FY 22:
£10.2m) on an adjusted basis and £15.8m (FY 22: £ 14.7m) on a
reported basis.
Adjusting items
We incurred £8.0m (FY 22: £5.7m) on
transformation and restructuring costs, and £5.3m (FY 22: £nil) on
the impairment of an intangible asset relating to the repositioning
of digital services. In FY 22 we incurred £1.4m of aged tunnel
boring machine write-off costs, and recognised an insurance receipt
of £5.2m relating to the Peterborough & Huntingdon contract, as
well as a profit of £0.5m on the sale of a non-core asset. We
expect further transformation costs of £5.0m in FY 24 and
thereafter such costs to be minimal and not to be separately
disclosed as adjusting items.
Administrative costs
The Group incurred administrative expenses of
£78.0m in FY 23, an increase of £20.2m on the same period last year
(FY 22: £57.8m). £5.3m of the increase relates to the impairment of
an intangible asset in FY 23. £5.2m of the increase is driven by
the recognition of an insurance receipt relating to the
Peterborough & Huntingdon contract in FY 22. £1.4m of the
increase has resulted from higher transformation and restructuring
costs driven by the repositioning of digital services in FY 23,
partially offset by asset write-off costs seen in FY 22. £7.3m of
the increase has resulted from a reclassification of costs
previously shown within cost of sales, now reflected in
administrative expenses, as we have improved alignment, ownership
and understanding of our cost base across the Group as part of our
Transformation programme. The £1.0m balance of the increase has
been driven by cost and wage inflation as well as the timing of
incremental investment that will facilitate further net benefits
from our Transformation programme into FY 24, partially offset by
the year-on-year benefit of cost management actions taken during FY
23 and in H2 22.
Net financial
income/(expense)
Net finance income amounted
to £4.1m (FY 22: £2.1m expense). The interest payable on bank
overdrafts, loans and other similar charges was £2.3m (FY 22:
£2.7m) and the interest income from bank deposits amounted to £4.8m
(FY 22: £0.5m). In addition, the net finance income / (expense)
includes the interest income on the net assets of the pension
scheme of £3.2m (FY 22: £1.3m), the interest expense on lease
liabilities of £1.5m (FY 22: £1.2m) under IFRS 16, and other
interest expense of £0.1m (FY 22: £nil).
Tax
The Group has a tax charge of
£8.8m (FY 22: £6.9m) which is an effective tax rate of 28.5% (FY
22: 21.0%). The rate is higher than the blended statutory tax rate
of 23.5% due to permanent differences which include intangible
impairments. The adjusted effective tax rate is 24.2% (FY 22:
20.5%). We expect the effective tax rate to remain close to
the statutory tax rate of 25% from 2024.
Cashflow
The Group generated a £72.0m adjusted free
cash inflow for the year (FY 22: £72.9m).
£m
|
FY 23
|
FY 22
|
|
|
|
Cash generated from
operations
|
55.5
|
16.7
|
Add back adjusting
items
|
9.2
|
46.4
|
Add back pension deficit
contributions
|
8.1
|
10.8
|
Less taxation
|
(0.7)
|
(0.5)
|
Less capital
expenditure
|
(0.1)
|
(0.5)
|
Adjusted free cash flow
|
72.0
|
72.9
|
The Group had a positive net cash
balance of £164.4m as of 31 December 2023 (H1 23: £132.1m, FY 22:
£123.8m) comprising Costain cash balances of £105.2m (H1 23:
£77.6m, FY 22: £67.3m), cash held by joint operations of £59.2m (H1
23: £54.5m, FY 22: £56.5m) and borrowings of £nil (H1 23: £nil, FY
22: £nil). The average month-end net cash balance
during the year was £141.4m (FY 22: £101.9m) and the average
week-end net cash balance during the year was £141.0m (FY 22:
£94.5m). Utilisation of the total bonding
facilities as of 31 December 2023 was £69.9m (H1 23: £78.9m; FY 22:
£88.8m).
£m
|
FY 23
|
FY 22
|
|
|
|
Cash and cash equivalents at the
beginning of year
|
123.8
|
159.4
|
Net cash flow
|
40.6
|
(35.6)
|
Cash and cash equivalents at the
end of year
|
164.4
|
123.8
|
Borrowings
|
-
|
-
|
Net cash
|
164.4
|
123.8
|
Financial resources
On 26 July 2023, we announced that we had
successfully concluded negotiations with our bank and surety
facility providers to refinance a new three-year agreement of our
bank and bonding facilities. The Group's facilities agreement
to September 2026 comprises an £85m sustainability-linked revolving
credit facility (RCF) (previously £125m), and surety and bank
bonding facilities totalling £270m (previously £280m).
Costain has agreed with its banks and sureties
that it will not declare a dividend should liquidity (undrawn
revolving credit facility, plus Costain cash balances) be less
than, or expected to be less than, £100m for the next twelve months
(as certified by Costain).
Pensions
On 30 June 2023, we announced that
agreement has been reached with the Trustee of the Company's
defined benefit pension scheme on the 31
March 2022 triennial actuarial funding valuation and ongoing
contributions to the Scheme. The contribution plan from the Group
to the Costain Pension Scheme runs from 1 July 2023 to 31 March
2027 and is for a payment of £3.3m per year, payable in monthly
instalments, which will increase in line with inflation (CPI) each
1 April. This replaces the previous contribution plan to the
Scheme, which from April 2023 had increased to an annual payment of
£11.98m paid in monthly instalments.
As a result of the new
contribution plan, the full year 2023 pension contribution payment
by the Group was £8.1m, and payments for 2024 and thereafter will
be £3.3m annually, plus inflationary increases as outlined
above.
An assessment of the Scheme
funding position will be carried out each 31 March and, if the
funding level (on a Technical Provisions basis) is more than 101%,
contributions will stop from the following 1 July to 30 June. If
the funding level falls below 101% at the following 31 March,
contributions will resume for the next year starting 1 July to 30
June at the agreed new level.
As at 31 December 2023, the
Group's pension scheme was in surplus in accordance with IAS 19 at
£53.5m (H1 23: £58.7m surplus, FY 22: £60.2m surplus).
The movement in the IAS 19 valuation, being a
slight reduction in surplus from 30 June 2023 to 31 December 2023
was due to the impact of an increase in the value of scheme
assets being slightly less than the
increase in scheme liabilities, with the key drivers being the
performance of growth assets, and the impact on
liabilities from mortality assumption changes.
Cash contributions made to the
scheme during the year amounted to £8.1m (FY 23: £10.8m) and the
charge to operating profit in respect of the administration cost of
the UK Pension Scheme in the year was £0.2m (FY 22:
£0.3m).
DIRECTORS REPORT
Going
concern
In determining the appropriate
basis of preparation of the financial statements for the year ended
31 December 2023, the directors are required to consider whether
the Group and the Company can continue in operational existence for
the foreseeable future, being a period of at least twelve months
from the date of approval of the accounts. Having undertaken a
rigorous assessment of the financial forecasts, including its
liquidity and compliance with covenants, the Board considers that
the Group has adequate resources to remain in operation for the
foreseeable future and, therefore, have adopted the going concern
basis for the preparation of the financial statements. Please see
note 1 for more details.
For and on behalf of the Board
Alex Vaughan
Helen Willis
Chief Executive
Officer
Chief Financial Officer
11 March 2024
Cautionary statement
This report contains forward-looking
statements. These have been made by the directors in good faith
based on the information available to them up to the time of their
approval of this report. The directors can give no assurance that
these expectations will prove to have been correct. Due to the
inherent uncertainties, including both economic and business risk
factors underlying such forward-looking information, actual results
may differ materially from those expressed or implied by these
forward-looking statements. The directors undertake no obligation
to update any forward-looking statements whether as a result of new
information, future events or otherwise.
Shareholder information
There is a large amount of
information about our business on our website,
www.costain.com.
This includes copies of recent investor presentations as well as
London Stock Exchange announcements.
GROUP INCOME STATEMENT
For the year ended 31 December
2023
£m
|
Note
|
2023
|
2022
|
Revenue
|
4
|
1,332.0
|
1,421.4
|
Cost of Sales
|
|
(1,227.2)
|
(1,328.7)
|
Gross profit
|
|
104.8
|
92.7
|
Administrative expenses
|
|
(78.0)
|
(57.8)
|
Operating profit
|
|
26.8
|
34.9
|
Finance income
|
5
|
8.0
|
1.8
|
Finance expense
|
5
|
(3.9)
|
(3.9)
|
Net finance
income/(expense)
|
|
4.1
|
(2.1)
|
Profit before tax
|
|
30.9
|
32.8
|
Taxation
|
6
|
(8.8)
|
(6.9)
|
Profit for the year attributable to equity holders of the
parent
|
|
22.1
|
25.9
|
Earnings per share
|
|
|
|
Basic
|
7
|
8.1p
|
9.4p
|
Diluted
|
7
|
7.8p
|
9.4p
|
GROUP STATEMENT OF COMPREHENSIVE INCOME AND
EXPENSE
For the year ended 31 December
2023
£m
|
|
2023
|
|
2022
|
Profit for the year
|
|
22.1
|
|
25.9
|
|
|
|
|
|
|
Items that will not be reclassified to profit or
loss:
|
|
|
|
|
Remeasurement of retirement
benefit asset
|
|
(17.9)
|
|
(18.7)
|
Tax recognised on remeasurement of
retirement benefit asset
|
4.3
|
|
3.9
|
Total items that will not be reclassified to profit or
loss
|
(13.6)
|
|
(14.8)
|
Other comprehensive expense for the year
|
(13.6)
|
|
(14.8)
|
Total comprehensive income for the year attributable to
equity holders of the parent
|
|
8.5
|
|
11.1
|
|
|
|
|
| |
GROUP BALANCE SHEET
As at 31 December 2023
£m
|
|
Note
|
|
2023
|
|
2022
|
|
|
|
|
|
|
(as
restated)*
|
Assets
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
Intangible assets
|
|
9
|
|
45.7
|
|
52.2
|
Property, plant and
equipment
|
|
10
|
|
26.8
|
|
32.0
|
Equity accounted
investments
|
|
|
|
0.4
|
|
0.4
|
Retirement benefit
asset
|
|
|
|
53.5
|
|
60.2
|
Trade and other
receivables
|
|
|
|
4.2
|
|
3.5
|
Insurance recovery
asset
|
|
|
|
1.7
|
|
4.0
|
Deferred tax
|
|
|
|
11.8
|
|
14.5
|
Total non-current assets
|
|
|
|
144.1
|
|
166.8
|
Current assets
|
|
|
|
|
|
|
Inventories
|
|
|
|
-
|
|
0.2
|
Trade and other
receivables
|
|
|
|
149.1
|
|
187.4
|
Insurance recovery
asset
|
|
|
|
11.0
|
|
9.4
|
Cash and cash
equivalents
|
|
11
|
|
164.4
|
|
123.8
|
Total current assets
|
|
|
|
324.5
|
|
320.8
|
Total assets
|
|
|
|
468.6
|
|
487.6
|
Liabilities
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
Other payables
|
|
|
|
2.2
|
|
1.1
|
Lease liabilities
|
|
|
14.0
|
|
18.5
|
Provisions for other liabilities
and charges
|
|
|
-
|
|
3.7
|
Total non-current liabilities
|
|
|
|
16.2
|
|
23.3
|
Current liabilities
|
|
|
|
|
|
|
Trade and other
payables
|
|
|
|
207.8
|
|
232.5
|
Taxation
|
|
|
|
0.6
|
|
0.2
|
Lease liabilities
|
|
|
10.3
|
|
11.0
|
Provisions for other liabilities
and charges
|
|
|
14.3
|
|
9.4
|
Total current liabilities
|
|
|
|
233.0
|
|
253.1
|
Total liabilities
|
|
|
|
249.2
|
|
276.4
|
Net assets
|
|
|
|
219.4
|
|
211.2
|
Equity
|
|
|
|
|
|
|
Share capital
|
|
13
|
|
138.3
|
|
137.5
|
Share premium
|
|
|
|
16.4
|
|
16.4
|
Translation reserve
|
|
|
|
0.6
|
|
0.6
|
Treasury shares
|
|
|
|
(1.9)
|
|
-
|
Retained earnings
|
|
|
|
66.0
|
|
56.7
|
Total equity
|
|
|
|
219.4
|
|
211.2
|
|
|
|
|
|
|
|
*See note 14 for more information
on restatement.
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December
2023
£m
|
|
|
|
|
|
|
|
Share
capital
|
Share
premium
|
Translation
reserve
|
Treasury
shares
|
Retained
earnings
|
Total
equity
|
At 1 January 2022
|
137.5
|
16.4
|
0.6
|
-
|
44.5
|
199.0
|
|
|
|
|
|
|
|
Profit for the year
|
-
|
-
|
-
|
-
|
25.9
|
25.9
|
Other comprehensive
expense
|
-
|
-
|
-
|
-
|
(14.8)
|
(14.8)
|
Equity-settled share-based
payments
|
-
|
-
|
-
|
-
|
1.1
|
1.1
|
At 31 December 2022
|
137.5
|
16.4
|
0.6
|
-
|
56.7
|
211.2
|
At 1 January 2023
|
137.5
|
16.4
|
0.6
|
-
|
56.7
|
211.2
|
|
|
|
|
|
|
|
Profit for the year
|
-
|
-
|
-
|
-
|
22.1
|
22.1
|
Other comprehensive
expense
|
-
|
-
|
-
|
-
|
(13.6)
|
(13.6)
|
Issue of ordinary shares under
employee share option plans
|
0.8
|
-
|
-
|
(0.6)
|
(0.2)
|
-
|
Shares purchased to satisfy
employee share schemes
|
-
|
-
|
-
|
-
|
(0.1)
|
(0.1)
|
Equity-settled share-based
payments
|
-
|
-
|
-
|
-
|
2.2
|
2.2
|
Acquisition of treasury
shares
|
-
|
-
|
-
|
(1.3)
|
-
|
(1.3)
|
Dividends paid
|
-
|
-
|
-
|
-
|
(1.1)
|
(1.1)
|
At 31 December 2023
|
138.3
|
16.4
|
0.6
|
(1.9)
|
66.0
|
219.4
|
|
|
|
|
|
|
|
|
|
|
| |
GROUP CASH FLOW STATEMENT
For the year ended 31 December
2023
|
|
|
|
|
£m
|
Note
|
|
2023
|
2022
|
|
|
|
|
|
Cash flows generated from/(used by) operating
activities
|
|
|
|
|
Profit for the year
|
|
|
22.1
|
25.9
|
Adjustments for:
|
|
|
|
|
Finance income
|
5
|
|
(8.0)
|
(1.8)
|
Finance expense
|
5
|
|
3.9
|
3.9
|
Taxation
|
6
|
|
8.8
|
6.9
|
Profit on disposals of property,
plant and equipment
|
|
|
(2.2)
|
(1.8)
|
Impairment of investment in joint
venture
|
|
|
-
|
6.5
|
Depreciation of property, plant
and equipment
|
10
|
|
14.8
|
11.3
|
Impairment of intangible
assets
|
9
|
|
5.3
|
-
|
Amortisation of intangible
assets
|
9
|
|
1.3
|
0.6
|
Shares purchased to satisfy
employee share schemes
|
|
|
(0.1)
|
-
|
Share-based payments
expense
|
|
|
2.2
|
1.1
|
Cash generated from operations before changes in working capital and provisions
|
|
|
48.1
|
52.6
|
Decrease in inventories
|
|
|
0.2
|
0.1
|
Decrease/(increase) in
receivables
|
|
|
37.6
|
(2.9)
|
(Decrease)/increase in
payables
|
|
|
(23.6)
|
15.9
|
Movement in provisions and
employee benefits
|
|
|
(6.8)
|
(49.0)
|
Cash generated from operations
|
|
|
55.5
|
16.7
|
Interest received
|
|
|
4.0
|
1.8
|
Interest paid
|
|
|
(3.1)
|
(3.9)
|
Taxation paid
|
|
|
(0.7)
|
(0.5)
|
Net cash generated from operating
activities
|
|
|
55.7
|
14.1
|
Cash flows generated from/(used by) investing
activities
|
|
|
|
|
Additions to owned property, plant
and equipment
|
|
|
-
|
(0.2)
|
Additions to intangible
assets
|
|
|
(0.1)
|
(0.3)
|
Proceeds on disposals of property,
plant and equipment
|
|
|
-
|
2.6
|
Addition to cost of investment in
joint venture
|
|
|
-
|
(3.4)
|
Net cash used by investing activities
|
|
|
(0.1)
|
(1.3)
|
Cash flows generated from/(used by) financing
activities
|
|
|
|
|
Ordinary dividends paid
|
|
|
(1.1)
|
-
|
Acquisition of treasury
shares
|
|
|
(1.3)
|
-
|
Repayments of lease liabilities -
principal
|
|
|
(12.6)
|
(8.4)
|
Repayment of loans
|
|
|
-
|
(40.0)
|
Net cash used by financing activities
|
|
|
(15.0)
|
(48.4)
|
Net increase/(decrease) in cash and cash
equivalents
|
|
|
40.6
|
(35.6)
|
Cash and cash equivalents at
beginning of the year
|
11
|
|
123.8
|
159.4
|
Cash and cash equivalents at end of the
year
|
11
|
|
164.4
|
123.8
|
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF
PREPARATION
Costain Group PLC ("the Company") is a public
limited company domiciled in England and incorporated in England
and Wales. The consolidated financial statements of the Company for
the year ended 31 December 2023 comprise the Group and the Group's
interests in associates, joint ventures and joint operations and
have been prepared and approved by the directors in accordance with
UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards. A duly appointed and authorised
committee of the Board of directors approved the preliminary
announcement on 11 March 2024. The financial information set out
above does not constitute the Company's statutory financial
statements for the years ended 31 December 2023 and 2022 but is
derived from those financial statements. Statutory financial
statements for 2022 have been delivered to the Registrar of
Companies and those for 2023 will be delivered in due
course.
The auditor has reported on these financial
statements. Their report for 2023 was (i) unqualified and (ii) did
not contain a statement under section 498(2) or (3) of the
Companies Act 2006. Their report for the accounts of 2022 was (i)
unqualified, and (ii) did not contain a statement under section
498(2) or (3) of the Companies Act 2006.
While the financial information included in
this preliminary announcement has been prepared in accordance with
UK-adopted international accounting standards, this announcement
does not itself contain sufficient information to fully comply with
UK-adopted international accounting standards.
The accounting policies have been applied
consistently by the Group to each period presented in these
financial statements.
Going
concern
The Group's principal business activity
involves work on the UK's infrastructure, mostly delivering
long-term contracts with a number of customers. To meet its
day-to-day working capital requirements, it uses cash balances
provided from shareholders' capital and retained earnings and its
borrowing facilities.
In July 2023, the Group announced that it had
successfully concluded negotiations with its bank and surety
facility providers to refinance a new three-year agreement of its
bank and bonding facilities. The Group's new facilities agreement
to September 2026 comprises an £85m sustainability-linked revolving
credit facility (RCF) (previously £125m), and surety and bank
bonding facilities totalling £270m
(previously £280m).
These facilities have a leverage covenant of
net debt/adjusted EBITDA ≤1.5 times, an interest covenant of
adjusted EBITA/net interest payable covenant of ≥4.0 times and a
liquidity covenant whereby the aggregate of, without double
counting, any cash and cash equivalent investments and the
available commitment under the facility does not fall below £50m.
These financial covenants are tested quarterly. As at 31 December
2023, the Group had a leverage covenant ratio of below zero (the
Group had no net debt) and an interest covenant ratio of 10.3
times. As part of its contracting operations, the Group may be
required to provide performance and other bonds. It satisfies these
requirements by utilising its £20m bank bonding and £250m surety
company bonding facilities.
In determining the appropriate basis of
preparation of the financial statements for the year ended 31
December 2023, the directors are required to consider whether the
Group and the Company can continue in operational existence for the
foreseeable future, being a period of at least twelve months from
the date of approval of the financial statements. Having undertaken
a rigorous assessment of the financial forecasts, including its
liquidity and compliance with covenants, the Board considers that
the Group and the Company have adequate resources to remain in
operation for the foreseeable future and, therefore, have adopted
the going concern basis in the preparation of the financial
statements.
In assessing the going concern assumption, the
Board reviewed the Group's base case plans for the period to 30
June 2025, being the first covenant deadline after March 2025. The
directors have assumed that the current RCF remains in place with
the same covenant requirements through to its current expiry date,
which is beyond the end of the period reviewed for going concern
purposes. The base case assumes delivery of the Board approved
strategic and financial plans. As part of the assessment, the Board
also identified severe but plausible downsides affecting future
profitability, working capital requirements and cash flow. The
severe but plausible downsides include applying the aggregated
impact of lower revenue, lower margins, higher working capital
requirements and adverse contract settlements.
Both the base case and severe but plausible
forecasts show significant headroom and indicate that the Group and
the Company will be able to operate within available banking
facilities and covenants throughout this period.
Alternative
performance measures
Income statement presentation -
adjusting items
The Group discloses alternative performance
measures, in addition to statutory disclosures, to provide
investors with supplementary information which may be relevant to
the Group's future performance. 'Adjusted profit' excludes
'adjusting items', which are significant items of income and
expenditure that the Board considers do not reflect the long-term
performance of the Group. These adjusted measures are reconciled to
statutory disclosures, with the tax impact given, in note 3, and
disclosed in the segmental reporting in note 4. Presenting results
on this basis is consistent with internal reporting to the Board.
Alternative performance measures do not have standardised meanings
and, therefore, they may not be comparable between
companies.
The directors exercise judgement in
determining classification as an 'adjusting item' using
quantitative and qualitative factors. Consideration is given, both
individually and collectively, to the circumstances giving rise to
the item, its materiality and whether it's expected to
recur.
'Adjusted profit' may exclude income and
expenditure related to acquisitions, discontinued operations,
restructuring costs, litigation, and impairments, where the
impairment is the result of an isolated, non-recurring event.
'Adjusted earnings per share' is calculated using 'adjusted
profit'.
The Group has also historically disclosed
'Adjusted revenue'. 'Adjusted revenue' excludes the impact of a
reversal of any contract asset recorded immediately prior to the
initial write down on a contract and any subsequent adjustment to
overall contract revenue.
The Group also presents net cash/bank debt and
adjusted free cash flow as alternative performance measures in the
front of the annual report. Net cash/bank debt is defined as cash
and cash equivalents less interest-bearing borrowings (excluding
leases under IFRS 16 and net of unamortised arrangement fees).
Adjusted free cash flow is defined as cash generated from
operations, excluding 'adjusting items' and pension deficit
contributions, less taxation and capital expenditure. The directors
consider that these measures provide useful information about the
Group's liquidity position.
2. SIGNIFICANT AREAS
OF JUDGEMENT AND ESTIMATION
The estimates and underlying assumptions used
in the preparation of these financial statements are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future
periods if the revision affects both current and future
periods.
The most critical accounting policies and
significant areas of estimation and judgement arise from the
accounting for long-term contracts under IFRS 15 'Revenue from
Contracts with Customers', specific provisions, the carrying value
of goodwill, the assumptions used in the accounting for defined
benefit pension schemes under IAS 19 'Employee benefits', the
recognition of deferred tax assets in relation to tax losses and
the items classified as adjusting items.
Long-term
contracts
The majority of the Group's activities are
undertaken via long-term contracts and IFRS 15 requires the
identification and separation of individual, distinct performance
obligations, which are then accounted for individually. The most
common type of contracts undertaken by the Group with multiple
performance obligations are framework contracts. In most cases, the
obligations are satisfied over time and estimates are made of the
total contract costs and revenues. In many cases, these obligations
span more than one financial year. Both cost and revenue forecasts
may be affected by a number of uncertainties that depend on the
outcome of future events and may need to be revised as events
unfold and uncertainties are resolved. Cost forecasts take into
account the expectations of work to be undertaken on the contract.
Revenue forecasts take into account compensation events, variations
and claims and assessments of, for example, the impact of pain/gain
arrangements and disallowed or withheld costs, to the extent that
the amounts the Group expects to recover can be reliably estimated
and are highly probable not to reverse.
Management bases its estimates of costs and
revenues and its assessment of the expected outcome of each
long-term contractual obligation on the latest available
information. This includes detailed contract valuations, progress
on discussions over compensation events, variations and claims with
customers, progress against the latest programme for completing the
works, forecasts of the costs to complete and, in certain cases,
assessments of recoveries from insurers, suppliers and contractors,
where these are considered virtually certain. Revenue is recognised
to the extent that amounts forecast from compensation events,
variations and claims are agreed or considered in management's
judgement highly probable to be agreed.
There are a small number of material contracts
where management has been required to make significant accounting
estimates and, which result in estimation uncertainty, as at 31
December 2023. In relation to these contracts, the Group has
included estimated recoveries with a combined value of £11.9m, on
the basis that these are considered highly probable not to reverse.
However, there are a range of factors which will affect the
ultimate outcome once these contracts are finalised. Management
considers that the estimation uncertainty in relation to these
contracts ranges from a potential upside of £29.7m to a downside of
£11.9m.
The ultimate financial impact of this estimation
uncertainty will depend, inter alia, on the terms of the contract
and the interaction with incentive arrangements, such as pain/gain
mechanisms and bonus or KPI arrangements, as well as final
conclusions regarding claims and compensation events and
assessments of, for example, costs disallowed under the
contract.
The estimates of the forecast contract outcome
and the profit or loss earned to date are updated regularly and
significant changes are highlighted through established internal
review procedures. The impact of any change in the accounting
estimates both positive and negative is then reflected in the
financial statements.
While management believes it has recorded
positions that are highly probable not to reverse on the basis of
existing facts and circumstances, there are uncertain factors which
will impact the final contract outcome and could give rise to
material adjustments within the next financial year. Given the
inherent complexity and pervasive impact of the various judgements
and estimates impacting revenue, cost of sales and related balance
sheet amounts, it is not considered plausible to quantify the
impact of taking alternative assessments on each of these
judgements.
Rectification
provision: Contract in the Water sector
In 2021, the Group recognised a provision in
respect of the estimated future costs of expected rectification
works required at a customer's water treatment facility where
Costain had been prime contractor.
As at 31 December 2022, after
working with designers, insurers and the customer, there was
greater clarity as to the scope and cost of rectification work
required and the Group's best estimate of the cost of the single
most likely rectification solution at this time was £17.0m. Costs
of £4.8m had been incurred at the end of 2022, and accordingly, a
provision of £12.2m was included in the statement of financial
position. A number of assumptions were made in arriving at the cost
estimate and management considered that the ultimate cost would
fall within a range of ±30% of the estimated total.
During 2023, progress in design
and procurement has enabled management to validate the assessed
programme and narrow estimation uncertainty to a range of -8%/+13%
on the revised estimated total cost of £19.3m. Costs of £7.7m have
been incurred to date and therefore the provision recognised in the
statement of financial position at 31 December 2023 is £11.6m. The
work is still expected to be concluded in 2024.
As reported in 2022, Costain has engaged with
its insurers and received confirmation that insurance cover is
available and that all reasonable costs of rectification work that
are validly incurred will be met by insurers. Consistent with this,
insurers continued to make interim payments on account during 2023.
On this basis, management has made a judgement that the costs of
rectification, after deduction of insurers' excess and amounts
already received from insurers, will be recovered. Accordingly, an
insurance receivable of £12.7m is recognised in the statement of
financial position in accordance with IAS 37 on the basis that
recovery is considered virtually certain. There is a cap on
insurance but the cap is significantly in excess of the cost
estimate. As at 31 December 2022, £13.4m had been recognised as an
insurance receivable.
Carrying
value of goodwill
Assessing the recoverability of the carrying
value of goodwill recognised on acquisition requires an estimation
of the value in use of the cash generating units to which the
goodwill has been allocated. These assessments involve estimation
and judgement, principally in respect of the levels of operating
margins, growth rates and future cash flows, including those
related to work to be secured, of the cash generating units and
also include consideration of the impact of potential sensitivities
in respect of those assumptions. The discount rates used to
calculate present values and related sensitivities are set out in
note 9.
Defined
benefit pension schemes
Defined benefit pension schemes require
significant estimates in relation to the assumptions for the
discount rate, inflation and member longevity that underpin the
valuation. Each year in selecting the appropriate assumptions, the
directors take advice from an independent qualified actuary. The
assumptions and resultant sensitivities are set out in note
12.
Deferred
tax
Included in deferred tax assets is an asset
for tax losses recorded in current and prior years. The asset is
recognised on the basis that the losses will be used against future
taxable profits of the Group over the next five years. The
significant judgement in assessing the recoverability relates to
the ability of the Group to achieve its taxable profit forecasts
and the ability of these estimated numbers to withstand the
application of what the Board considers appropriate
sensitivities.
Adjusting
items
As described in note 1, management has used
judgement to determine the items classified as adjusting items as
set out in note 3.
3.
RECONCILIATION OF REPORTED
OPERATING PROFIT TO ADJUSTED OPERATING PROFIT
During the year, the Group restructured its
digital hardware activities to focus on service capabilities. As a
result, the capitalised development costs of products being
developed under the Group's manufacturing capabilities were
impaired by £5.3m to £nil as the Group has exited this
manufacturing.
Other costs in relation to the restructuring
of £1.8m, including in relation to rent and rates on a property
used for the Group's digital activities, which was vacated before
the break clause in the lease, were also recognised.
The Board considers these items 'adjusting' on
the basis of their magnitude and that they arise from a one-off
pivot in business strategy away from digital manufacturing that
will not recur in the future.
£6.2m was incurred on the Group's
Transformation programme in 2023 (FY 22 : £5.7m). Costs incurred
were in-line with the programme budget and include the cost of
people and advisors supporting our Transformation initiatives, as
well as the one-off cost of actions to support operating model
changes required.
The programme, which began in 2022 and
concludes in 2024, is bringing simplicity, clarity and focus to how
we work, by driving improved efficiency and effectiveness across
the business. This critically includes improving how we manage
customer projects in a more efficient, safe and green way, enabling
us to deliver greater value to both our customers and
stakeholders.
While the primary objective of the programme
was to transform the organisation to accelerate our strategic
ambition, efficiency and cost saving actions have allowed us to
start to deliver savings through 2023. Savings from the programme
are expected to exceed our cost of delivery within the next few
years.
The Board considers the costs of the
transformation programme are 'adjusting' on the basis of their
magnitude and that it is a one-off programme, which is not in the
ordinary course of business and therefore is not reflective of the
type of costs to be incurred on a recurring basis in
future.
In 2022, a £5.2m insurance receipt was
recognised in relation to the Peterborough & Huntingdon
contract outcome.
In 2022, the Group sold a minor stake in a
hotel company for £0.5m. The investment was impaired to nil in 2020
reflecting the significant impact of COVID 19 in that sector, so
the profit realised in 2022 was also £0.5m. This cost was
recognised as an adjusting item and therefore the related profit
was also treated as such.
In 2022, the Group fully impaired tunnel
boring machines held at net book value of £1.4m which were outmoded
and no longer core to operations.
Year ended 31 December 2023
|
Adjusted
|
Intangible
impairment
|
Other
items
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
Revenue
|
1,332.0
|
-
|
-
|
1,332.0
|
|
|
|
|
|
Cost of sales
|
(1,227.2)
|
-
|
-
|
(1,227.2)
|
|
|
|
|
|
Gross profit
|
104.8
|
-
|
-
|
104.8
|
Administrative expenses before
adjusting items
|
(64.7)
|
-
|
-
|
(64.7)
|
Adjusting items:
|
|
|
|
|
Restructuring costs
|
-
|
-
|
(1.8)
|
(1.8)
|
Transformation costs
|
-
|
-
|
(6.2)
|
(6.2)
|
Impairment of intangible
asset
|
-
|
(5.3)
|
-
|
(5.3)
|
Administrative expenses
|
(64.7)
|
(5.3)
|
(8.0)
|
(78.0)
|
Operating profit/(loss)
|
40.1
|
(5.3)
|
(8.0)
|
26.8
|
Net finance income
|
4.1
|
-
|
-
|
4.1
|
Profit/(loss) before tax
|
44.2
|
(5.3)
|
(8.0)
|
30.9
|
Taxation
|
(10.7)
|
-
|
1.9
|
(8.8)
|
Profit/(loss) for the year attributable to equity holders of
the parent
|
33.5
|
(5.3)
|
(6.1)
|
22.1
|
Basic earnings per
share
|
12.2p
|
|
|
8.1p
|
Year ended 31 December 2022
|
Adjusted
|
P&H
|
Other
items
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
Revenue
|
1,421.4
|
-
|
-
|
1,421.4
|
|
|
|
|
|
Cost of sales
|
(1,328.7)
|
-
|
-
|
(1,328.7)
|
|
|
|
|
|
Gross profit
|
92.7
|
-
|
-
|
92.7
|
Administrative expenses before
adjusting items
|
(56.4)
|
-
|
-
|
(56.4)
|
Adjusting items:
|
|
|
|
|
P&H insurance
recovery
|
-
|
5.2
|
-
|
5.2
|
Transformation costs
|
-
|
-
|
(5.7)
|
(5.7)
|
Tunnel boring machines
impairment
|
-
|
-
|
(1.4)
|
(1.4)
|
Profit on disposal of other
investment
|
-
|
-
|
0.5
|
0.5
|
Administrative expenses
|
(56.4)
|
5.2
|
(6.6)
|
(57.8)
|
Operating profit/(loss)
|
36.3
|
5.2
|
(6.6)
|
34.9
|
Net finance expense
|
(2.1)
|
-
|
-
|
(2.1)
|
Profit/(loss) before tax
|
34.2
|
5.2
|
(6.6)
|
32.8
|
Taxation
|
(7.0)
|
(1.0)
|
1.1
|
(6.9)
|
Profit/(loss) for the year attributable to equity holders of
the parent
|
27.2
|
4.2
|
(5.5)
|
25.9
|
Basic earnings per
share
|
9.9p
|
|
|
9.4p
|
4. OPERATING
SEGMENTS
The Group has two business segments:
Transportation and Natural Resources. These segments are strategic
business units with separate management and have different
customers or offer different services. Segmental information is
provided to the chief executive who is the chief operating decision
maker. The segments are discussed in the Strategic Report section
of these financial statements.
The Group evaluates segment performance on the
basis of profit or loss from operations before interest and tax
expense and before adjusting items. The segment results that are
reported to the chief executive include items directly attributable
to a segment as well as those that can be allocated on a reasonable
basis. Other items are allocated to the operating segments where
appropriate, but otherwise are viewed as Central costs.
2023
|
Natural
Resources
|
Transportation
|
Central
costs
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
Segment revenue
|
|
|
|
|
Revenue
|
388.9
|
943.1
|
-
|
1,332.0
|
|
|
|
|
|
Segment profit/(loss)
|
|
|
|
|
Operating profit/(loss) before adjusting
items
|
21.8
|
28.0
|
(9.7)
|
40.1
|
Adjusting items:
|
|
|
|
|
Restructuring costs
|
-
|
(1.8)
|
-
|
(1.8)
|
Transformation costs
|
(0.1)
|
-
|
(6.1)
|
(6.2)
|
Impairment of intangible
asset
|
-
|
(5.3)
|
-
|
(5.3)
|
Profit/(loss) from operations
|
21.7
|
20.9
|
(15.8)
|
26.8
|
Net finance income
|
|
|
|
4.1
|
Profit before tax
|
|
|
|
30.9
|
|
|
|
|
| |
2022
|
Natural
Resources
|
Transportation
|
Central
costs
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
Segment revenue
|
|
|
|
|
Revenue
|
375.1
|
1,046.3
|
-
|
1,421.4
|
|
|
|
|
|
Segment profit/(loss)
|
|
|
|
|
Operating profit/(loss) before adjusting
items
|
15.0
|
31.5
|
(10.2)
|
36.3
|
Adjusting items:
|
|
|
|
|
P&H insurance
recovery
|
5.2
|
-
|
-
|
5.2
|
Transformation costs
|
(0.7)
|
-
|
(5.0)
|
(5.7)
|
Tunnel boring machines
impairment
|
-
|
(1.4)
|
-
|
(1.4)
|
Profit on disposal of other
investment
|
-
|
-
|
0.5
|
0.5
|
Profit/(loss) from operations
|
19.5
|
30.1
|
(14.7)
|
34.9
|
Net finance expense
|
|
|
|
(2.1)
|
Profit before tax
|
|
|
|
32.8
|
|
|
|
|
| |
5. FINANCE
INCOME/(EXPENSE)
£m
|
2023
|
2022
|
|
|
|
Interest income from bank
deposits
|
4.8
|
0.5
|
Interest income on the net assets
of the defined benefit pension scheme
|
3.2
|
1.3
|
Finance income
|
8.0
|
1.8
|
|
|
|
Interest payable on interest
bearing bank loans, borrowings and other similar charges
|
(2.3)
|
(2.7)
|
Interest expense on lease
liabilities
|
(1.5)
|
(1.2)
|
Other interest
|
(0.1)
|
-
|
Finance expense
|
(3.9)
|
(3.9)
|
|
|
|
Net finance
income/(expense)
|
4.1
|
(2.1)
|
Other similar charges includes
arrangement and commitment fees payable.
6.
TAXATION
£m
|
2023
|
2022
|
|
|
|
On profit for the year
|
|
|
UK corporation tax at blended rate
of 23.5% (2022: statutory rate of 19%)
|
(5.4)
|
(4.6)
|
Adjustment in respect of prior
years
|
1.0
|
0.3
|
Current tax charge for the
year
|
(4.4)
|
(4.3)
|
|
|
|
Deferred tax charge for the
current year
|
(3.2)
|
(2.5)
|
Adjustment in respect of prior
years
|
(1.2)
|
(0.1)
|
Deferred tax charge for the
year
|
(4.4)
|
(2.6)
|
|
|
|
Tax charge in the consolidated income
statement
|
(8.8)
|
(6.9)
|
£m
|
2023
|
2022
|
|
|
|
Tax reconciliation
|
|
|
Profit before tax
|
30.9
|
32.8
|
|
|
|
Taxation at 23.5% (2022:
19.0%)
|
(7.2)
|
(6.2)
|
Amounts qualifying for tax relief
and disallowed expenses
|
(1.4)
|
(1.0)
|
Rate adjustment relating to
deferred taxation and overseas profits and losses
|
-
|
0.1
|
Adjustments in respect of prior
years
|
(0.2)
|
0.2
|
|
|
|
Tax charge in the consolidated income
statement
|
(8.8)
|
(6.9)
|
7. EARNINGS PER
SHARE
The calculation of earnings per share is based
on profit of £22.1m (2022: £25.9m) and the number of shares set out
below.
|
2023
|
2022
|
|
Number
|
Number
|
|
(millions)
|
(millions)
|
|
|
|
Weighted average number of
ordinary shares in issue for basic earnings per share
calculation
|
273.6
|
275.0
|
Dilutive potential ordinary shares
arising from employee share schemes
|
8.5
|
1.7
|
Weighted average number of
ordinary shares in issue for diluted earnings per share
calculation
|
282.1
|
276.7
|
8.
DIVIDENDS
Dividend payments were resumed in 2023 with an
interim dividend of 0.4p per share for the six months ended 30 June
2023. The Board is proposing a final dividend of 0.8p per
share.
9. INTANGIBLE
ASSETS
|
Goodwill
|
Customer
relationships
|
Other acquired
intangibles
|
Other
intangibles
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
Cost
|
|
|
|
|
|
At 1 January 2022
|
54.1
|
15.4
|
9.7
|
15.9
|
95.1
|
Additions
|
-
|
-
|
-
|
0.3
|
0.3
|
At 31 December 2022
|
54.1
|
15.4
|
9.7
|
16.2
|
95.4
|
|
|
|
|
|
|
At 1 January 2023
|
54.1
|
15.4
|
9.7
|
16.2
|
95.4
|
Additions
|
-
|
-
|
-
|
0.1
|
0.1
|
Disposal
|
-
|
-
|
-
|
(0.1)
|
(0.1)
|
At 31 December 2023
|
54.1
|
15.4
|
9.7
|
16.2
|
95.4
|
|
|
|
|
|
|
Accumulated amortisation and impairment
|
|
|
|
|
|
At 1 January 2022
|
9.0
|
15.4
|
9.7
|
8.5
|
42.6
|
Charge in year
|
-
|
-
|
-
|
0.6
|
0.6
|
At 31 December 2022
|
9.0
|
15.4
|
9.7
|
9.1
|
43.2
|
|
|
|
|
|
|
At 1 January 2023
|
9.0
|
15.4
|
9.7
|
9.1
|
43.2
|
Charge in year
|
-
|
-
|
-
|
1.3
|
1.3
|
Impairment in year
|
-
|
-
|
-
|
5.3
|
5.3
|
Disposals
|
-
|
-
|
-
|
(0.1)
|
(0.1)
|
At 31 December 2023
|
9.0
|
15.4
|
9.7
|
15.6
|
49.7
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
At 31 December 2023
|
45.1
|
-
|
-
|
0.6
|
45.7
|
At 31 December 2022
|
45.1
|
-
|
-
|
7.1
|
52.2
|
At 1 January 2022
|
45.1
|
-
|
-
|
7.4
|
52.5
|
Goodwill has been allocated to the applicable
cash generating units of the Transportation segment (£15.5m (2022:
£15.5m)) and the Natural Resources segment (£29.6m (2022:
£29.6m)).
As described in note 2, the Group reviews the
value of goodwill and in the absence of any identified impairment
risks, tests are based on internal value in use calculations of the
cash generating unit (CGU). The key assumptions for these
calculations are: operating margins, discount rates, growth rates
and work still to be secured.
Discount rates have been estimated based on
pre-tax rates that reflect current market assessments of the time
value of money and the risks specific to the CGU. The rates used to
discount the forecast cash flows for the Transportation and Natural
Resources CGUs were 15.8% and 15.7% respectively. In 2022, the
discount rates used for both the Transportation and Natural
Resources CGUs were 15.5%.
The value in use calculations use the Group's
four-year cash flow forecasts, which are based on the expected
revenues and profitability of each CGU, taking into account the
current level of secured and anticipated orders, extrapolated for
future years by the expected growth rate applicable to each CGU,
2.0% for both Transportation and Natural Resources (2022: 1.5% for
both Transportation and Natural Resources).
At 31 December 2023, based on the internal
value in use calculations, management concluded that the
recoverable value of both the Natural Resources and the
Transportation cash generating units exceeded their respective
carrying amounts with substantial headroom.
The directors consider that there is no
reasonable possible change in assumptions that would give rise to
an impairment, for example, a 30.0% reduction in absolute business
unit operating profit, a 1.0% decrease in growth rate and a 1.0%
increase in discount rate in combination would not result in an
impairment.
10.
PROPERTY, PLANT AND EQUIPMENT
|
|
|
Right-of-use
assets
|
|
|
Land &
Buildings
|
Plant &
Equipment
|
Land &
Buildings
|
Vehicles, plant &
equipment
|
Total
|
|
£m
|
£m
|
£m
|
£m
|
£m
|
Cost
|
|
|
|
|
|
At 1 January 2022
|
0.6
|
27.0
|
14.1
|
29.4
|
71.1
|
Additions (as
restated)*
|
-
|
0.2
|
9.1
|
13.1
|
22.4
|
Disposals
|
(0.6)
|
(2.6)
|
(1.4)
|
(14.2)
|
(18.8)
|
At 31 December 2022 (as
restated)*
|
-
|
24.6
|
21.8
|
28.3
|
74.7
|
|
|
|
|
|
|
At 1 January 2023
|
-
|
24.6
|
21.8
|
28.3
|
74.7
|
Additions
|
-
|
-
|
0.5
|
9.7
|
10.2
|
Disposals
|
-
|
(9.6)
|
(2.8)
|
(5.3)
|
(17.7)
|
At 31 December 2023
|
-
|
15.0
|
19.5
|
32.7
|
67.2
|
|
|
|
|
|
|
Accumulated depreciation
and impairment
|
|
|
|
|
|
At 1 January 2022
|
0.6
|
21.6
|
6.1
|
10.8
|
39.1
|
Charge in year
|
-
|
2.9
|
2.1
|
4.9
|
9.9
|
Impairment in year
|
-
|
1.4
|
-
|
-
|
1.4
|
Disposals
|
(0.6)
|
(2.6)
|
(0.6)
|
(3.9)
|
(7.7)
|
At 31 December 2022
|
-
|
23.3
|
7.6
|
11.8
|
42.7
|
|
|
|
|
|
|
At 1 January 2023
|
-
|
23.3
|
7.6
|
11.8
|
42.7
|
Charge in year
|
-
|
0.9
|
4.8
|
9.1
|
14.8
|
Disposals
|
-
|
(9.6)
|
(2.6)
|
(4.9)
|
(17.1)
|
At 31 December 2023
|
-
|
14.6
|
9.8
|
16.0
|
40.4
|
|
|
|
|
|
|
Net book value
|
|
|
|
|
|
At 31 December 2023
|
-
|
0.4
|
9.7
|
16.7
|
26.8
|
At 31 December 2022 (as
restated)
|
-
|
1.3
|
14.2
|
16.5
|
32.0
|
At 1 January 2022
|
-
|
5.4
|
8.0
|
18.6
|
32.0
|
*See note 14 for more information
on restatement.
11.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are analysed below
and include the Group's share of cash held by joint operations of
£59.2m (2022: £56.5m).
|
2023
|
2022
|
|
£m
|
£m
|
Cash and cash
equivalents
|
164.4
|
123.8
|
Net cash
|
164.4
|
123.8
|
|
|
|
12.
PENSIONS
The Group operates a defined benefit pension
scheme in the UK; contributions are paid by subsidiary
undertakings. There are also two defined contribution pension
schemes in place in the UK and contributions are made both by
subsidiary undertakings and employees. The total pension charge in
the income statement is £11.4m comprising £14.6m included in
operating costs less £3.2m interest income included in net finance
income (2022: £11.9m, comprising £13.2m in operating costs less
£1.3m interest income included in net finance expense).
Defined
benefit scheme
The defined benefit scheme was closed to new
members on 31 May 2005 and from 1 April 2006, future benefits were
calculated on a Career Average Revalued Earnings basis. The scheme
was closed to future accrual of benefits to members on 30 September
2009. A full actuarial valuation of the scheme was carried out as
at 31 March 2022 and this was updated to 31 December 2023 by a
qualified independent actuary. At 31 December 2023, there were
2,885 retirees and 2,412 deferred members (2022: 2,867 retirees and
2,529 deferred members). The weighted average duration of the
obligations is 11.9 years (2022: 11.9 years).
|
2023
|
2022
|
2021
|
|
£m
|
£m
|
£m
|
Present value of defined benefit
obligations
|
(542.6)
|
(527.1)
|
(837.5)
|
Fair value of scheme
assets
|
596.1
|
587.3
|
904.6
|
|
|
|
|
Recognised asset for defined benefit
obligations
|
53.5
|
60.2
|
67.1
|
Movements in
present value of defined benefit obligations
|
2023
|
2022
|
|
£m
|
£m
|
|
|
|
At 1 January
|
527.1
|
837.5
|
Interest cost
|
25.5
|
14.8
|
Remeasurements - demographic
assumptions
|
(1.0)
|
(0.3)
|
Remeasurements - financial
assumptions
|
14.8
|
(321.4)
|
Remeasurements - experience
adjustments
|
10.5
|
29.7
|
Benefits paid
|
(34.3)
|
(33.2)
|
At 31 December
|
542.6
|
527.1
|
Movements in
fair value of scheme assets
|
2023
|
2022
|
|
£m
|
£m
|
|
|
|
At 1 January
|
587.3
|
904.6
|
Interest income
|
28.7
|
16.1
|
Remeasurements - return on
assets
|
6.5
|
(310.7)
|
Contributions by
employer
|
8.1
|
10.8
|
Administrative expenses
|
(0.2)
|
(0.3)
|
Benefits paid
|
(34.3)
|
(33.2)
|
At 31 December
|
596.1
|
587.3
|
Expense
recognised in the income statement
|
2023
|
2022
|
|
£m
|
£m
|
|
|
|
Administrative expenses paid by
the pension scheme
|
(0.2)
|
(0.3)
|
Administrative expenses paid
directly by the Group
|
(1.8)
|
(1.2)
|
Interest income on the net assets
of the defined benefit pension scheme
|
3.2
|
1.3
|
|
1.2
|
(0.2)
|
Fair value of
scheme assets
|
2023
|
2022
|
|
£m
|
£m
|
Global equities
|
99.5
|
109.8
|
Multi-asset growth
funds
|
65.9
|
56.1
|
Multi-credit fund
|
96.6
|
110.9
|
LDI plus collateral
|
323.8
|
307.2
|
Cash
|
10.3
|
3.3
|
|
596.1
|
587.3
|
Principal
actuarial assumptions (expressed as weighted
averages)
|
2023
|
2022
|
|
%
|
%
|
Discount rate
|
4.75
|
5.00
|
Future pension
increases
|
2.90
|
2.90
|
Inflation assumption
|
3.05
|
3.10
|
Weighted average life expectancies from age 65
as per mortality tables used to determine benefits at 31 December
2023 and 31 December 2022 are:
|
2023
|
2022
|
|
Male
|
Female
|
Male
|
Female
|
|
(years)
|
(years)
|
(years)
|
(years)
|
Currently aged 65
|
22.0
|
23.8
|
21.9
|
23.9
|
Non-retirees currently aged
45
|
22.9
|
25.1
|
22.9
|
25.1
|
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
liability
|
Pension
cost
|
£m
|
£m
|
Increasing the discount rate by
0.25%, decreases pension liability and increases pension
income/reduces pension cost by
|
15.8
|
0.8
|
Decreasing inflation by 0.25%
(which decreases pensions increases), decreases pension liability
and increases pension income/reduces pension cost by
|
14.0
|
0.7
|
Increasing life expectancy by one
year, increases pension liability and reduces pension
income/increases pension cost by
|
19.2
|
0.9
|
|
|
|
As highlighted in the table above, the defined
benefit scheme exposes the Group to actuarial risks such as
longevity, interest rate, inflation and investment risks. The LDI
portfolio is designed to respond to changes in gilt yields in a
similar way to a fixed proportion of the liabilities. With the LDI
portfolio, if gilt yields fall, the value of the investments will
rise to help partially match the increase in the trustee valuation
of the liabilities arising from a fall in the gilt yield based
discount rate. Similarly, if gilt yields rise, the value of the
matching asset portfolio will fall, as will the valuation of the
liabilities because of an increase in the discount rate. The
leverage within the LDI portfolio means the equivalent of 95% of
the value of the assets is sensitive to changes in interest rates
and inflation and this mitigates the equivalent movement in the
liabilities of the scheme as a whole. In 2022, long-term government
bond yields increased significantly which meant that the value of
the LDI portfolio fell but the value of the liabilities also fell
by a similar amount.
In accordance with the pension regulations, a
triennial actuarial review of the Costain defined benefit pension
scheme was carried out as at 31 March 2022. In June 2023, the
valuation and updated deficit recovery plan were agreed with the
Scheme Trustee resulting in cash contributions of £3.3m for each
year commencing 1 July 2023 (increasing annually with inflation)
until the deficit is cleared, which would be in 2027, on the basis
of the assumptions made in the 2022 valuation and agreed recovery
plan. This replaces the previous contribution plan to the Scheme,
which from April 2023 had increased to an annual payment of £11.98m
paid in monthly instalments.
In addition, as previously implemented, the
Group will continue to make an additional contribution so that the
total deficit contributions match the total dividend amount paid by
the Company each year. Any additional payments in this regard would
have the effect of reducing the recovery period in the agreed plan.
The Group will also pay the expenses of administration in the next
financial year.
Any surplus of deficit contributions to the
Costain Pension Scheme would be recoverable by way of a refund, as
the Group has the unconditional right to any surplus once all the
obligations of the Scheme have been settled. Accordingly, the Group
does not expect to have to make provision for these additional
contributions arising from this agreement in future financial
statements.
In June 2023, the High Court judged in the
Virgin Media vs NTL Pension Trustee case that certain amendments
made to the NTL Pension Plan were invalid because the scheme's
actuary had not provided the necessary confirmations ('Section 37
Certificates'). If upheld, the High Court's decision could
have wider ranging implications, affecting other schemes (such as
the Costain Pension Scheme) that were contracted-out on a
salary-related basis, and made amendments between April 1997 and
April 2016.
There is still further uncertainty with a
Court of Appeal hearing for the case set for June 2024 as well as
the potential for overriding government legislation to be
introduced. As a result the Company and the Trustee of the Costain
Pension Scheme cannot at this stage be certain of the potential
implications (if any). The Company and the Trustee of the Costain
Pension Scheme will continue to seek legal advice on the matter and
act accordingly as the situation evolves.
Defined
contribution schemes
Two defined contribution pensions are
operated. The total expense relating to these plans was £12.6m (FY
22: £11.7m).
13.
SHARE CAPITAL
|
2023
|
|
2022
|
|
Number
(millions)
|
Nominal value
£m
|
|
Number
(millions)
|
Nominal value
£m
|
Issued share capital
|
|
|
|
|
|
Shares in issue at beginning of
year - ordinary shares of 50p each, fully paid
|
275.1
|
137.5
|
|
275.0
|
137.5
|
Issued in year (see
below)
|
1.6
|
0.8
|
|
0.1
|
-
|
Shares in issue at end of year -
ordinary shares of 50p each, fully paid
|
276.7
|
138.3
|
|
275.1
|
137.5
|
The Company's issued share capital comprised
276,718,885 ordinary shares of 50 pence each as at 31 December 2023
(2022: 275,084,741 ordinary shares).
All shares rank pari passu regarding
entitlement to capital and dividends.
14.
PRIOR PERIOD
RESTATEMENT
IFRS 16 -
leases
Due to a mathematical error in the model used
to calculate the IFRS 16 right-of-use assets' cost and lease
liabilities on initial recognition, the cost of right-of-use assets
and the lease liabilities reported at 31 December 2022 as reported
in the 2022 annual report and accounts were both understated by
£5.4m. There is no material impact on the profit and loss account
or the statement of cash flows from this error and the impact of
the restatement is as shown in the table below. There was
also no material impact at the opening balance sheet date of the
earliest period presented, being 1 January 2022.
|
As
reported
2022
|
As
restated
2022
|
|
£m
|
£m
|
Right-of-use assets
|
25.3
|
30.7
|
Lease liabilities -
current
|
9.1
|
11.0
|
Lease liabilities -
non-current
|
15.0
|
18.5
|
15.
EVENTS AFTER THE REPORTING
DATE
There are no events after the reporting
date.