REG - Costain Group PLC - Final Results <Origin Href="QuoteRef">COSG.L</Origin> - Part 2
02/03/2016 07:10
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this is not demonstrated by the Group in
isolation.
4) Winning new workCostain maintains a pipeline of orders that now extends to £3.9 billion. There is a need for Costain to continue to innovate in order to win further work and maintain a leading position in the sector which could be at risk from: · Competition and failure to win work from core customers· Costain not being able to demonstrate the ability to provide an end-to-end delivery function Costain has no appetite for winning work that will impact the financial strength of the business:· Only sectors and customers which form part of the Group strategy to be pursued.· Target cost is the preferred contract form.· All contracts to be at least cash neutral.· Operations are to be in line with the Group Commercial expectations document. · The order book at year end stands at £3.9 billion, an increase of 11% from 2014, providing long-term visibility of earnings.· A focus on blue-chip customers whose
major spending plans are underpinned by strategic national needs, regulation commitments or essential maintenance requirements by following the Group's unique
'Engineering Tomorrow' strategy.· In 2015, the Group acquired the Rhead Group to further enhance its scale and ability to provide end-to-end delivery services. ·
Continuing to develop and maintain strong relationships with customers across key markets on the back of our track record for delivery.· Regularly monitoring pipeline
opportunities and ensuring resources are centrally allocated to the most advantageous business development activities.· Continuously striving to broaden the skills and
breadth of our capability (organically and by acquisition) to meet the increasingly broad requirements of the market.· Continuing to develop the Group's market
proposition through the introduction of new technologies and the strong Costain brand.
5) Operational deliveryCostain delivers works through a number of large contracts containing defined output requirements. There is a risk that Costain is unable to deliver these services to the time, cost or quality required in the contract as a result of:· A failure to accurately assess our works (including costs and time required) or contractual terms at tender· Design faults that result in additional works to rectify· An interruption to our supply chain that provides part of the services or materials to complete the works· Refusal of claim by insurers following a loss All operations to follow the Costain Way. Only approved suppliers to be used. All legislation and regulations to be complied with at all times. · The Costain Way provides a comprehensive management system including policies, processes and procedures for all parts of the contract life-cycle; from tendering to
contract close-out. · The use of experienced and qualified staff to prepare bids and manage the contracted works. · Defined delegated authority levels for approving
all tenders where all significant contracts are subject to escalation from the Executive Investment Panel to the Main Board. · Extensive review of the supply chain
strength prior to engagement and a requirement to use performance bonds where they are appropriate. Regular contract leaders' meetings are used to discuss safety,
progress, quality, financial performance, end forecast, risk, etc. · Work on site is audited by in-house specialists and reports are prepared so that corrective
action, where required, can be taken. · A senior executive is responsible for overall quality issues, the updating of best practice and ensuring compliance in both
existing operations and in line with the changing business. · Enhanced controls regarding the administration of insurance claims and the management of contracted
design was developed in 2015 including the evolution of processes to minimise exposure to the customer, whilst preserving subrogation with the Group's supply chain.
6) People and skillsThe success of the Group is built on the strength and experience of our people. Failure to continue to attract, retain and develop our best-in-class team in an increasingly competitive market may limit the Group's ability to grow the business as anticipated, or cause a short-term impact on performance. The right skills and capabilities to carry out Group operations are essential. · The Group's remuneration policy is designed to attract and retain high-calibre individuals and to remunerate fairly, whilst not encouraging inappropriate business
risk to be taken. · The Group has a high staff retention rate and engaged workforce. · Pay and conditions of employment are regularly reviewed against the
prevailing market and bench marked against competitors to ensure that the Group remains competitive at all levels. · An internal recruitment team provides a dedicated
service to the identification and enrolment of new staff who are provided with training as part of a comprehensive induction process.· A well-developed succession
planning process is regularly monitored. · Talent reviews and ongoing personal development are proactively supported at all levels. · Active liaison with employees
is achieved through the Costain Ground Force employee committee and engagement surveys.
7) Pension liabilitiesThe Group has a deficit of £36.7m in its defined benefit pension scheme which was closed to new members from 1 June 2005 and to future accrual on 30 September 2009. Failure to manage the scheme so that the liabilities are within a range appropriate to its capital base could have an adverse impact on the Group's operational results. The risk has increased as a result of having to undertake the 2016 triennial review during a period of market uncertainty. All current and future pension arrangements to be on a defined contribution basis. · Regular reviews, including the use of independent professional advisers, are held to mitigate long-term risk associated with the legacy defined benefit scheme.·
Ongoing active management of the obligations of the scheme including the transfer of assets into the scheme and the implementation of Enhanced Transfer Value and Pension
Increase Exchange exercises. · A full actuarial valuation of the scheme as at 31 March 2013 enabled the agreement of a deficit recovery plan with the Trustee.
8) AcquisitionsThe Group has a growth plan that is partly facilitated by the effective acquisition of companies that will enhance the achievement of its strategy. Failure to integrate successfully an acquired business or recognise and mitigate new and related risks could have a damaging impact on the Group's future revenue and profits. This risk has increased as a result of the Rhead acquisition in 2015. Acquisitions must focus on the creation of shareholder value through capability-broadening opportunities that can be cross-sold via our existing customer base. · Full due diligence is carried out before any acquisition is made. · Integration plans are put in place and managed by a dedicated and experienced team. ·
Regular progress reports using pre-agreed performance indicators are made to the Board. · Lessons are fed back into future integration exercises.
9) Failure of IT systemsCostain has a high reliance upon IT systems to operate efficiently, process transactions and report on results. The failure of a system as well as the failure to store key documentation securely could cause financial loss to the Group and expose the Group to breaches of legislation and fines. It may also have a negative effect on the ability to secure further contracts. All critical systems are to be regularly backed up and a disaster recovery contingency plan put in place. · Business continuity systems ensure a suitably qualified team for support, including specialist outsourced suppliers, and safeguards knowledge. · There is at least
duplication in core hosting systems supporting data recovery efforts.· A suitably qualified team for support, including specialist outsourced suppliers, ensures
knowledge is maintained. · Regular internal and external testing and assurance exercises are carried out.· Established business continuity procedures, routinely
tested and developed, ensure rapid recovery and data retrieval. · Security training is provided for safe usage and storage of documentation for all staff.· The
system is accredited to the ISO 27001:2013 Information Security Management System providing independent assurance of best practice.
9) Failure of IT systemsCostain has a high reliance upon IT systems to operate
efficiently, process transactions and report on results. The failure of a
system as well as the failure to store key documentation securely could cause
financial loss to the Group and expose the Group to breaches of legislation
and fines. It may also have a negative effect on the ability to secure further
contracts.
All critical systems are to be regularly backed up and a disaster recovery
contingency plan put in place.
· Business continuity systems ensure a suitably qualified team for support,
including specialist outsourced suppliers, and safeguards knowledge. ·
There is at least duplication in core hosting systems supporting data recovery
efforts.· A suitably qualified team for support, including specialist
outsourced suppliers, ensures knowledge is maintained. · Regular internal
and external testing and assurance exercises are carried out.· Established
business continuity procedures, routinely tested and developed, ensure rapid
recovery and data retrieval. · Security training is provided for safe usage
and storage of documentation for all staff.· The system is accredited to
the ISO 27001:2013 Information Security Management System providing
independent assurance of best practice.
Going concern
The Group's business activities, together with the factors likely to affect
its future development, performance and position will be set out in the
Strategic Report of the Annual Report and Accounts for the year ended 31
December 2015. Principal risks and uncertainties are described in the
paragraphs above. In addition, Note 17 to the financial statements will
include the Group's objectives, policies and processes for managing its
exposures to interest rate risk, foreign currency risk, counterparty risk,
credit risk and liquidity risk. Details of the Group's financial instruments
and hedging activities will also be provided in Note 17.
The Directors believe, after due and careful enquiry, that the Group has
adequate resources to continue operations for the foreseeable future.
Accordingly, they continue to adopt the going concern basis in preparing the
accounts.
Viability statement
In accordance with provision C.2.2 of the 2014 UK Corporate Governance Code,
the Directors have assessed the viability of the Group over a three-year
period.
This assessment has been made taking into account the current position of the
Group, the annual corporate planning process and the potential impact of the
principal risks stated in the paragraphs above. The plans and projections
prepared as part of the corporate planning process consider the Group's cash
flows, profits, contracted work, dividends and other key financial indicators
over the period.
The projections are then stress-tested using sensitivity analysis which
reflects plausible but severe combinations of the principal risks of the
business through reducing revenues and cash flows and the resultant impact on
the Group's liquidity and banking arrangements. Given the long-term nature of
a significant element of the Company's activities, a number of the principal
risks potentially impact the Group's ability to win new work. This has
therefore formed a key element of the assessment.
The period of three years has been chosen because this is a time period in
which the Company has a reasonable visibility of secured work and pipeline of
opportunities. It is also the period reviewed by the Board in the business
planning process.
Based on this assessment, the Directors confirm that they have a reasonable
expectation that the Company will be able to continue in operation and meet
its liabilities as they fall due over the three-year period to 31 December
2018.
In making this statement, the Directors carried out a robust assessment of the
principal risks facing the Group, including those that would threaten its
business model, future performance, solvency or liquidity.
Costain Group PLC
Results for the year ended 31 December 2015
Consolidated income statement
Year ended 31 December 2015 2014
Notes Before Other items Total Before Other items Total
other items other items
£m £m £m £m £m £m
Continuing operations
Revenue 2 1,316.5 - 1,316.5 1,122.5 - 1,122.5
Less: Share of revenue of joint ventures and associates 9 (52.9) - (52.9) (50.7) - (50.7)
Group revenue 1,263.6 - 1,263.6 1,071.8 - 1,071.8
Cost of sales (1,196.9) - (1,196.9) (1,011.6) - (1,011.6)
Gross profit 66.7 - 66.7 60.2 - 60.2
Administrative expenses (33.5) - (33.5) (31.5) - (31.5)
Amortisation of acquired intangible assets - (3.2) (3.2) - (3.0) (3.0)
Employment related and other deferred consideration - (0.4) (0.4) - (2.2) (2.2)
Group operating profit 33.2 (3.6) 29.6 28.7 (5.2) 23.5
Profit on sales of interests in joint ventures and associates - - - 4.0 - 4.0
Share of results of joint ventures and associates 9 (0.1) - (0.1) (1.3) - (1.3)
Profit from operations 2 33.1 (3.6) 29.5 31.4 (5.2) 26.2
Finance income 4 0.8 - 0.8 0.7 - 0.7
Finance expense 4 (4.0) (0.3) (4.3) (3.6) (0.7) (4.3)
Net finance expense (3.2) (0.3) (3.5) (2.9) (0.7) (3.6)
Profit before tax 29.9 (3.9) 26.0 28.5 (5.9) 22.6
Taxation 5 (4.4) 0.6 (3.8) (2.2) 0.6 (1.6)
Profit for the year attributable to equity holders of the parent 25.5 (3.3) 22.2 26.3 (5.3) 21.0
Earnings per share
Basic 6 25.1p (3.3)p 21.8p 27.8p (5.6)p 22.2p
Diluted 6 24.4p (3.2)p 21.2p 27.2p (5.5)p 21.7p
The impact of business disposals in either year was not material and,
therefore, all results are classified as arising from continuing operations.
Consolidated statement of comprehensive income and expense
Year ended 31 December
2015 2014
£m £m
Profit for the year 22.2 21.0
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (1.3) (2.0)
Cash flow hedges
Group:
Effective portion of changes in fair value during year - -
Net changes in fair value transferred to the income statement - 0.1
Total items that may be reclassified subsequently to profit or loss (1.3) (1.9)
Items that will not be reclassified to profit or loss:
Remeasurement of defined benefit obligations (3.3) (15.7)
Tax recognised on remeasurement of defined benefit obligations 0.7 1.5
Total items that will not be reclassified to profit or loss (2.6) (14.2)
Other comprehensive expense for the year (3.9) (16.1)
Total comprehensive income for the year attributable to equity holders of the parent 18.3 4.9
Consolidated statement of changes in equity
Share capital Share premium Translation reserve Hedging reserve Merger reserve Retained earnings Total equity
£m £m £m £m £m £m £m
At 1 January 2014 33.4 4.7 4.8 (0.1) - 0.5 43.3
Profit for the year - - - - - 21.0 21.0
Other comprehensive (expense)/income - - (2.0) 0.1 - (14.2) (16.1)
Issue of ordinary shares under employee share option plans 0.4 0.2 - - - (0.3) 0.3
Issue of ordinary shares under capital raise 16.7 - - - 53.6 - 70.3
Transfer - - - - (53.6) 53.6 -
Shares purchased to satisfy employee share schemes - - - - - (2.0) (2.0)
Equity settled share-based payments - - - - - 1.7 1.7
Dividends paid 0.1 0.6 - - - (8.4) (7.7)
At 31 December 2014 50.6 5.5 2.8 - - 51.9 110.8
At 1 January 2015 50.6 5.5 2.8 - - 51.9 110.8
Profit for the year - - - - - 22.2 22.2
Other comprehensive (expense)/income - - (1.3) - - (2.6) (3.9)
Issue of ordinary shares under employee share option plans 0.4 - - - - (0.4) -
Transfer - - 0.3 - - (0.3) -
Shares purchased to satisfy employee share schemes - - - - - (1.0) (1.0)
Equity-settled share-based payments - - - - - 1.9 1.9
Dividends paid 0.1 0.7 - - - (10.2) (9.4)
At 31 December 2015 51.1 6.2 1.8 - - 61.5 120.6
Consolidated statement of financial position
As at 31 December
Notes 2015 2014
£m £m
Assets
Non-current assets
Intangible assets 8 52.3 31.0
Property, plant and equipment 37.3 10.0
Investments in equity accounted joint ventures 9 0.4 25.5
Investments in equity accounted associates 9 0.5 0.3
Loans to equity accounted associates 1.7 1.7
Other 8.2 31.8
Deferred tax 10.6 9.2
Total non-current assets 111.0 109.5
Current assets
Inventories 2.9 1.3
Trade and other receivables 271.8 197.1
Cash and cash equivalents 10 146.7 148.5
Total current assets 421.4 346.9
Total assets 532.4 456.4
Equity
Share capital 51.1 50.6
Share premium 6.2 5.5
Foreign currency translation reserve 1.8 2.8
Hedging reserve - -
Retained earnings 61.5 51.9
Total equity attributable to equity holders of the parent 120.6 110.8
Liabilities
Non-current liabilities
Retirement benefit obligations 11 36.7 41.7
Other payables 2.8 4.5
Provisions for other liabilities and charges 0.1 0.1
Total non-current liabilities 39.6 46.3
Current liabilities
Trade and other payables 329.0 296.3
Taxation 2.7 1.5
Bank overdrafts 10 - -
Interest bearing loans and borrowings 38.5 -
Provisions for other liabilities and charges 2.0 1.5
Total current liabilities 372.2 299.3
Total liabilities 411.8 345.6
Total equity and liabilities 532.4 456.4
Consolidated cash flow statement
Year ended 31 December
Notes 2015 2014
£m £m
Cash flows from operating activities
Profit for the year 22.2 21.0
Adjustments for:
Share of results of joint ventures and associates 9 0.1 1.3
Finance income 4 (0.8) (0.7)
Finance expense 4 4.3 4.3
Income tax 5 3.8 1.6
Profit on sales of interests in joint ventures and associates 3 - (4.0)
Depreciation of property, plant and equipment 2.9 2.0
Amortisation of intangible assets 3.9 3.4
Employment related and other deferred consideration 0.4 2.2
Shares purchased to satisfy employee share schemes (1.0) (2.0)
Share-based payments expense 2.4 2.2
Cash from operationsbefore changes in working capital and provisions 38.2 31.3
Decrease in inventories 0.1 0.3
Increase in receivables (37.7) (16.3)
Increase/(decrease) in payables 26.7 33.1
Movement in provisions and employee benefits (9.1) (4.8)
Cash from operations 18.2 43.6
Interest received 0.8 0.7
Interest paid (2.7) (3.6)
Taxation paid (0.6) (0.1)
Net cash from
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