REG - Costain Group PLC - Strong operational resilience and cash performance
24/08/2022 07:01
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RNS Number : 9711W Costain Group PLC 24 August 2022
COSTAIN GROUP PLC
UNAUDITED RESULTS FOR THE SIX MONTHS
ENDED 30 JUNE 2022
24 AUGUST 2022
Strong operational resilience and cash performance
Alex Vaughan, Chief Executive Officer, commented:
"In the first half of the year we delivered a strong operating performance
reflecting volume increases and the inflation recovery mechanisms built into
our contracts. Our adjusted operating profit increased by 22% year-on-year,
and we had a strong adjusted free cash performance, ending the period with
£95.9m, with a positive net cash flow expected in the second half.
"Despite material availability and inflation challenges, we have managed the
supply chain pressures effectively, while delivering a robust operational
performance with new contracts being won on attractive commercial terms with
appropriate risk. Our four chosen markets of Transport, Water, Energy and
Defence remain resilient, and the pipeline of potential new business is
healthy. We undertook a very high level of bidding activity in the first half,
with award decisions expected in H2 22 and in H1 23.
"In July, the company experienced a fatality on one of its Rail projects. We
are shocked and saddened by this tragic incident and we, and our
sub-contractor, are working with the authorities and our client in an
investigation to fully understand its causes. We are focused on supporting the
family and on the wellbeing of our colleagues.
"While we remain mindful of the macro-economic backdrop, we are pleased with
the quality and scale of our order book, including secured multi-year
infrastructure programmes, the volume of preferred bidder work and the
additional long-term framework contracts which will deliver continued progress
in 2023 and beyond."
Financial Summary
£m H1 22 adjusted(1) H1 22 adjusting items(1) H1 22 reported H1 21 H1 21 reported Adjusted(1) change
adjusted(1)
Group revenue 665.2 - 665.2 556.8 556.8 19.5%
Operating profit 14.0 (2.1) 11.9 11.5 11.2 21.7%
Operating margin 2.1% (0.3%) 1.8% 2.1% 2.0% 0.0pp
Profit before tax 13.3 (2.1) 11.2 9.4 9.1 41.5%
Basic EPS 3.9p (0.6)p 3.3p 2.8p 3.5p 39.3%
Dividend per share - -
Adjusted free cash flow(2) 34.4 28.2 22.0%
H1 22 reported FY 21 reported
Net cash balance(3) 95.9 119.4
1. Excluding the impact of specified contract provision
adjustments and other items (see financial statements note 3).
2. Adjusted free cash flow is an adjusted metric and is calculated
as cash flow from operations, excluding adjusting items and pension deficit
contributions, less taxation and capital expenditure.
3. Net cash balance is cash and cash equivalents less
interest-bearing loans and borrowings (before arrangement fees of £0.2m at H1
22 (£1.0m at H1 21)).
H1 2022 Performance
Financial performance for Costain Group PLC, "Costain", the "Group", or the
"Company"
· Reported and adjusted(1) Group revenue up 19.5% to £665.2m reflecting
primarily volume growth and inflation protection mechanisms within contracts.
· Improved adjusted operating profit(1) up 21.7% to £14.0m in line with
management expectations for the Group, with growth across both divisions.
Adjusted operating margin was unchanged at 2.1% on H1 21 as volume increases,
an improved mix and operational improvements were offset by targeted up-front
investment in our digital and consultancy capability, and the timing of
increased bid activity on a series of major opportunities during the period,
primarily in Transportation.
· Strong adjusted free cashflow of £34.4m reflecting increased adjusted
profitability and continued enhanced working capital management. The H1 22 net
cash position of £95.9m (FY 21: £119.4m) was after the previously disclosed
payment of £43.4m relating to the Peterborough & Huntingdon contract
during the period.
Operating performance
· A Health & Safety incident in July saw the Group experience a
fatality on one of its Rail contracts and this incident is currently being
investigated. In H1 22, we had more than 16 million work hours completed, and
five reportable accidents recorded, representing a Lost Time Injury Frequency
Rate (LTIR) of 0.06, a 50% reduction on H1 21.
· Continuing momentum in Transportation, with volume growth in Road and
Rail, and a high volume of bid activity undertaken in H1 22.
· Natural Resources growth reflecting stable revenue in Water and
consultancy-led service growth in Energy and Defence.
· Good visibility of contract revenue with around £560m secured for H2
22 representing approximately 90% of expected Group revenue for the second
half, with long-term contracts in place, together with a broadening mix of
consultancy-led services.
· Further strategic progress including first-of-a-kind contracts awarded
in growth areas including energy, digital and innovation led programmes.
· High quality order book(2)
· £2.7bn at the end of H1 22 (H1 21: £4.0bn, FY 21: £3.4bn),
reflecting the timing of major contract bids and client procurement.
· Full year order book expected to strongly increase with award
decisions on further high-quality contracts expected in H2 22 and H1 23.
· Preferred bidder book of £0.8bn (H1 21: £0.9bn, FY 21: £0.9bn).
· Appointed to more than 50 frameworks for higher margin consulting and
digital services that are expected to drive revenue growth.
1. Excluding the impact of specified contract provision adjustments and
other items (see financial statements note 3).
2. Order book and secured revenue includes revenue from contracts which
are partially or fully unsatisfied and probable revenue from water frameworks
included at allocated volume.
Additional Business Information
H1 22 H1 21 Change
Transportation adjusted(1) revenue (£m) 494.6 403.9 22.5%
Road 239.2 191.6 24.8%
Rail 219.2 173.4 26.4%
Integrated transport 36.2 38.9 -6.9%
Natural Resources adjusted(1) revenue (£m) 170.6 152.9 11.6%
Water 106.9 100.4 6.5%
Energy 41.4 31.8 30.2%
Defence 22.3 20.7 7.7%
H1 22 H1 21 Change
Non-financial
Order book(2) at 30 June (£bn) 2.7 4.0 -32.5%
Lost time injury rate (LTIR) 0.06 0.11 ~(50)%
(1) Excluding the impact of specified contract provision adjustments and other
items (see financial statements notes 3 and 4).
(2)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.
Enquiries
Investors and analysts
Helen Willis, CFO, Costain
+44 (0) 7826 291 021
Financial media - Headland
costain@headlandconsultancy.com
(mailto:costain@headlandconsultancy.com)
Andy Rivett-Carnac
+44 (0) 7968 997 365
Charlie Twigg
+44 (0) 7946 494 568
(tel:+44%20(0)79%204649%204568)
Analyst & Investor Presentation
A presentation of our results by Alex Vaughan (CEO) and Helen Willis (CFO)
will be at 9.00am (BST).
Please go to https://stream.brrmedia.co.uk/broadcast/62f396132c785a4107c39693
(https://stream.brrmedia.co.uk/broadcast/62f396132c785a4107c39693) to
register for the event.
To register a question please call 0800 279 6877 or +44 (0)330 165 4012 with
confirmation code: 8726721.
Board Changes
On 6 April 2022, Fiona MacAulay joined the Board as an independent
non-executive director and became a member of the Company's Audit, Nomination
and Remuneration Committees. Fiona became chair of the Remuneration Committee
at the conclusion of the Annual General Meeting on 5 May 2022, taking over
from Jacqueline de Rojas, who chaired the Remuneration Committee on an interim
basis following the resignation of Alison Wood.
The Nomination Committee is progressing the search for a successor to Paul
Golby, who announced on 9 March 2022 that he intended to step down as Chair.
An update will be provided when the process is completed.
Use of alternative performance measures
Throughout this release we use a number of 'adjusted' measures to provide
users with a clearer picture of the underlying performance of the business.
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 to aid understanding of the underlying and overall 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
Note 3 on page 28.
GROUP TRADING PERFORMANCE
We report both our statutory reported results and adjusted results excluding
various adjusting items. Key adjusting items for H1 22 comprise £2.6m of
transformation and restructuring costs and profit of £0.5m on the sale of a
non-core asset.
Reported and adjusted Group revenue was up 19.5% to £665.2m (H1 21:
£556.8m). This was driven by increased volumes in Rail and Road, and
inflation protection mechanisms built into our contracts in Transportation, as
well as increased revenue in Natural Resources, predominantly in Energy.
Reported Group operating profit increased from £11.2m to £11.9m, while Group
adjusted operating profit grew by 21.7% to £14.0m (FY21: £11.5m), driven by
improved profitability in both divisions. The adjusted operating margin was
2.1% (H1 21: 2.1%) and reflected volume increases, an improved mix and
operational improvements, offset by up-front investment in our digital and
consultancy capability, and the timing and additional cost of increased bid
activity on a series of major opportunities during the period, primarily in
Transportation.
Overall, our adjusted operating margin absorbed around 80bps of margin
dilution in H1 22 due to a high level of bid activity costs, and targeted
investment in consultancy and digital. Overall, we saw inflation indexation
delivering stable adjusted operating margins on H1 21.
Adjusted profit before tax was up 41.5% to £13.3m (H1 21: £9.4m), and
adjusted basic earnings per share (EPS) increased by 39.3% to 3.9p (H1 21:
2.8p), due mainly to the improved profitability. Reported profit before tax
was £11.2m (H1 21: £9.1m) and diluted reported basic earnings per share
(EPS) was lower at 3.3p (H1 21: 3.5p), due to the recognition of a tax credit
in H1 21.
Our secured revenue for H2 22 is more than £560m, representing around 90% of
Group expectations for the second half. Our order book stood at £2.7bn at the
end of H1 22 (H1 21: £4.0bn, FY 21: £3.4bn). This reflected the timing of
major contract bids, our clients' investment programmes, maintaining
discipline in contract selection and the shorter lead time of consulting and
digital work. We have undertaken a series of bids on major contracts in H1 22,
which we expect to provide an uplift to the order book during H2 22 and H1 23.
The order book evolves as contracts progress and as new contracts are added at
periods aligned to our clients' strategic procurement windows, therefore it
does not provide a complete picture of potential future revenue.
In addition to the contracted order book, we have a further £0.8bn of
contracts where we are preferred bidder and more than 50 further secured
frameworks for higher margin, short lead time consulting and digital services
that are expected to yield revenue growth.
Adjustments to reported items
We incurred £2.6m (H1 21: £nil) on transformation and restructuring costs,
£nil (H1 21: £0.3m) on amortisation of acquired intangible assets, which we
discuss in detail below, and recognised a profit of £0.5m (H1 21: £nil) on
the sale of a non-core asset. We expect a small additional transformation and
restructuring cost in H2 22.
Cash flow and liquidity
Adjusted free cash inflow was £34.4m in H1 22 (H1 21: £28.2m), after
adjusting for capital expenditure, taxation and pension deficit contributions,
driven by the improvement in operating profit and a £9.8m inflow on working
capital. The enhanced working capital performance was driven by a continued
focus on cash collections. In addition, during H1 22 we paid more than 97% of
invoices within 60 days.
After expected payments in relation to historic contracts of £48.4m,
including £43.4m related to the settlement of the Peterborough &
Huntingdon contract, cash outflow from operations in the period was £19.0m
(H1 21: cash inflow £18.6m). This has resulted in a net cash position at the
end of H1 22 of £95.9m (FY 21: £119.4m). The Group continues to maintain
sufficient committed facilities to meet its funding requirements over the
medium term and, as at 30 June 2022, committed facilities totalled £310m in
contract bonding and bank bonding facilities.
The Group's current banking facilities expire in September 2023. Management is
in negotiations with the respective facility providers to secure a one year
"amend and extend" of these facilities. The Board considers an "amend and
extend" to be in the best interest of shareholders given the current state of
the debt market.
Capital allocation
We understand the importance of delivering long-term sustainable value for
shareholders and are committed to maintaining a balanced approach between
investment in the business for growth, maintaining a strong balance sheet and
returns to shareholders. We look to prioritise uses of cash as follows:
1. Investing for growth - disciplined investment in key areas such as
digital to help accelerate our business transformation
2. Progressive dividend - the Board recognises the importance of dividends
for shareholders and expects to target dividend cover of around three times
underlying earnings taking into account the cash flow generated in the period
3. Selective M&A - retaining optionality to pursue strategic
investments in technology, skills and capabilities to enhance our ability to
support clients in the face of significant change
4. Returning surplus capital - after ensuring a strong balance and cash
position, surplus capital is identified and returned to shareholders through
share buy backs or special dividends.
Dividends
The Board is committed to returning to dividend payments at the appropriate
time. For now, we are focused on investment for growth, maintaining
discipline in contract selection, increasing our cash balances and
strengthening our balance sheet.
Outlook
FY 22 adjusted operating profit is expected to show good growth year-on-year
and our expectations are unchanged, reflecting our continued improvement and
the robust operating performance of the business, together with new contracts
being won on attractive commercial terms with appropriate risk. We generated
good free cash flow in H1 22 and expect further positive cash inflow in H2 22.
Our pipeline of new opportunities is strong and during H1 22 we have
undertaken major contract bids with awards decisions expected in H2 22 and in
H1 23.
We remain mindful of the macro-economic and geopolitical backdrop, and
recognise the challenges created by higher commodity and energy costs. Given
this backdrop, we continue to monitor and work with clients to mitigate these
headwinds, as well as challenges in the supply chain. At the same time, we
note that the inflation recovery mechanisms built into our contracts has
enabled the Group to demonstrate its financial resilience in the face of these
challenges.
STRATEGIC PROGRESS
In order to meet key critical national needs, there is more than £650bn of
infrastructure investment planned over the next 10 years, underpinned by
legislative and regulatory commitments, as the government addresses issues
such as security of primary services, inequality of regional growth and
climate change. We are strategically positioned in four chosen markets of
Transport, Water, Energy and Defence providing for a diversified and resilient
business. This sector focus combined with our differentiated offering
positions the business strongly to benefit from these long-term investment
plans, giving us significant opportunities for growth.
We have specifically chosen to work with clients who wish to partner with us
to help them shape, create and deliver their business plan commitments and
investment programmes, and navigate the challenges facing their businesses.
Our expertise and focus on our key sectors allow us to understand the specific
needs of our clients across their strategic, operational and asset creation
requirements. With our broad service offering, we are able to service more of
the market and create greater competitive advantage. We work as construction,
consulting and digital partners, solving problems and delivering innovative
engineered solutions. Our vision is to create connected, sustainable
infrastructure to help people and the planet thrive.
We are focused on three strategic priorities to drive our strategic ambition.
People
Safety, diversity and inclusion, and social impact are key values for the
Group.
In July, the company experienced a fatality on one of its Rail projects. We
are shocked and saddened by this tragic incident and we are working with the
authorities and our client to investigate and fully understand its causes. Our
focus at this time is on supporting the individual's family and on the
wellbeing of our colleagues.
During H1 22:
· We had five reportable accidents recorded during 16 million work
hours. Our Accident Frequency Rate in H1 22 was 0.03 alongside a Lost Time
Injury Frequency Rate of 0.06 (H1 21: 0.11).
· Through our Employee Forums, we have refreshed our Values and linked
them to core behaviours that will enhance the delivery of our strategy. Our
core Values are Integrity, Customer Focus, Safety & Wellbeing and
Environmental & Social Responsibility. Our core behaviours are to be
curious, collaborative, courageous and caring.
· In April 2022, we held our first Inclusion-themed Leadership Impact
Day. Our 3,500 people, site teams, clients and suppliers came together to
discuss increasing inclusion and it received positive feedback from across our
stakeholders.
· During H2 22 we will be undertaking our first ethnicity pay gap
analysis alongside gender pay gap reporting. In preparation we have sought to
increase the number of employees sharing diversity data in our HR system. In
2019, 50% of our workforce had disclosed ethnicity on their personnel record
and, after targeted effort, this has since increased to 91%.
Planet
We continue to implement our climate change action plan, working towards net
zero carbon by 2035. To validate our plan, we have submitted our climate
change action plan to the Science-Based Target Initiative and await
endorsement in H2 22.
During H1 22:
· We continue to improve climate and carbon literacy of our broader
leadership team, with colleagues completing our bespoke in-house training. We
plan to increase training completion to all our identified colleagues,
ensuring we have the necessary skills and literacy to drive our journey to net
zero carbon.
· In support of our objective to drive carbon reductions on our
contracts, all relevant construction contracts have established a baseline and
have carbon reduction plans in place. Additionally, these contracts have also
set plant idling baselines and are seeking to drive greater fuel efficiency
using behavioural science and enhanced data analytics.
· This year marked our first completely diesel-free construction site,
on the HS2 Canterbury Works Vent Shaft (working in joint venture with Skanska
and STRABAG). Innovations on this site include one of the UK's first 160 tonne
emissions-free fully electric crawler cranes; the use of biofuels to power
plant and machinery on site; an electric compressor and access to mains power
on a 100% renewable energy tariff.
Performance
Infrastructure increasingly needs to deliver more and cost less, both
economically and environmentally. We are investing in our digital and
consulting capabilities to help our clients with a broadened offering, to
optimise existing networks and future proof new ones.
During H1 22:
· We continue to embed our risk controls in securing new business
(contract selection, independent risk review and enhanced legal process). As a
result, we have managed the risk and return criteria of contracts to meet our
requirements and chose not to bid on a small number of opportunities during H1
22.
· We have also enhanced operational contract delivery via an Operational
Excellence Model (OEM), comprehensive financial reviews, and senior management
ownership. This has improved contract margin resilience.
We have continued to make further strategic progress in the delivery of our
strategy during H1 22, which will support future margin and profit growth
including:
· Continued development and enhancement of our complex programme delivery
expertise and risk management.
· Growth of our delivery partner consultancy role building on our
positions with AWE, Babcock and Cadent.
· 30% growth in our energy operations, including the award of the bp net
zero for carbon capture and storage, Industrial Cluster footprint growth, and
new framework awards for other energy majors.
· Broadening of our design services including the award of the TfL
Piccadilly line improvements and water process solutions.
· Securing positions on clients' digital procurement frameworks including
positions with National Highways, Network Rail and Central Government.
· First-of-a-kind digital and innovation led contracts including a
data-led consultancy programme for the Department of Transport, and National
Highways Digital Roads strategy.
· Selected by Ofwat to deliver two innovation projects bringing Hydrogen
to the water industry and optimising operational performance through open data
systems.
Operating profit growth
Our strategy aims to deliver a transformation in the business over the
medium-term, with a step change in performance to support the ambition to
deliver a future Group operating margin of 5-6%. We continue to monitor the
impact of the expected inflationary pressures on FY 23 revenue and costs.
The key levers being used to deliver increasing adjusted operating profit are:
1. Improving margins on complex programme delivery (construction)
contracts. Our Operational Excellence Model is enabling the delivery of
construction contracts in line with our target net margin range of 3-5% and we
are trading out the proportion of revenue from historically lower margin
contracts.
2. Growing our consulting services. The scale of our consultancy activities
continues to grow, with contract margins increasing as the scale of the
operations supports our cost base, with targets for net consulting margins of
more than 5%.
3. Growing digital services. Building on our digital expertise, we are
helping our clients shape and develop their plans and we are actively shaping
the considerable opportunity as infrastructure markets move to greater digital
infrastructure to enhance business performance. We expect net contract margins
in this area to be well above 5%. Currently our digital services are loss
making as we continue to invest in building this important capability.
At the same time as our complex programme delivery services benefit from our
consulting and digital expertise, and will therefore increase margins, we are
also growing our standalone consulting and digital services. Taken together,
over time, we expect to deliver a progressive increase in both operating
profit and operating margin as we implement our strategy.
DIVISIONAL REVIEW
TRANSPORTATION
£m H1 22 adjusted(1) H1 22 reported H1 21 adjusted(1) H1 21 reported Adjusted(1) change
Road 239.2 239.2 191.6 191.6 24.8%
Rail 219.2 219.2 173.4 173.4 26.4%
Integrated transport 36.2 36.2 38.9 38.9 -6.9%
Total revenue 494.6 494.6 403.9 403.9 22.5%
Operating profit/(loss) 15.9 15.9 15.5 15.5 2.6%
Operating margin 3.2% 3.2% 3.8% 3.8% -0.6pp
(1) Excluding the impact of specified contract provision adjustments and other
items (see financial statements notes 3 and 4).
· Reported and adjusted revenue up 22.5% as a result of volume increases
and inflation protection mechanisms in contracts.
· Reported and adjusted operating margin was 3.2%, down 0.6 percentage
points due to up-front investment in our digital and consultancy capability
and the timing of increased bid activity on a series of major opportunities
during the period, partially offset by increased volumes.
We have seen growth in each of our portfolios driven by work for High Speed 2
(HS2), National Highways, and Network Rail, which represent the majority of
Transportation revenue.
Reported and adjusted revenue for Road increased by 24.8% in H1 22 on the
prior year driven by volume increases and the inflation protection in our
contracts. As a strategic partner for National Highways, we support their key
investment programmes through the Regional Delivery Partnerships (RDP) major
projects framework, and the SMP Alliance delivering smart motorway upgrades.
On RDP we have continued to upgrade the A1 around Newcastle and to upgrade to
dual carriageway a section of the A30 in Cornwall. Pre-construction and design
activities are continuing on the A12 Chelmsford to A120 scheme. Our work
delivering the M6 Junctions 21a-26 smart motorway upgrades continues.
Reported and adjusted revenue for Rail increased by 26.4% in H1 22 on the
prior year, principally as a result of volume increases and the inflation
protection of contracts. During H1 22, we completed the delivery of Paddington
Station and continue to provide systems-wide rail systems for the Elizabeth
Line. Our work on the Gatwick Airport Station Project for Network Rail
continues. We will commence work on the HS2 main tunnel bores this summer, and
in total we will drive seven tunnel boring machines with scheduled contract
completion in 2027. We started operating HS2's first diesel-free construction
site this year, and HS2 expects all of its construction sites to be
diesel-free by 2029. We continue to expand our portfolio of advisory work with
our recent appointment on the Victoria station masterplan project.
Reported and adjusted revenue for Integrated Transport decreased by 6.9% in H1
22 on the prior year. We continue to focus on supporting clients with
intermodal connectivity and decarbonisation solutions. In H1 22, we completed
works on A40 Westway for Transport for London (TfL) five weeks ahead of
schedule, and we were appointed by TfL to design critical upgrades to the
signalling infrastructure on the Piccadilly line. We have also successfully
grown work across a range of clients in Local Authorities and Aviation where
we provide consulting and advisory services.
We continue to grow our consulting services to central and local government
clients in support of accelerating progress to net zero carbon, green economic
recovery and levelling up the UK, and have secured places on all our targeted
frameworks.
During the half we secured £81.2m of new work, with major awards expected to
be confirmed in H2 22 and FY 23. Revenue secured for H2 22 is £405m for
Transportation as of 30 June 2022.
NATURAL RESOURCES
£m H1 22 adjusted(1) H1 22 reported H1 21 adjusted(1) H1 21 reported Adjusted(1) change
Water 106.9 106.9 100.4 101.9 6.5%
Energy 41.4 41.4 31.8 31.8 30.2%
Defence 22.3 22.3 20.7 20.7 7.7%
Total revenue 170.6 170.6 152.9 152.9 11.6%
Operating profit/(loss) 2.6 2.4 0.4 0.1 550.0%
Operating margin 1.5% 1.4% 0.3% 0.1% 1.2pp
(1) Excluding the impact of specified contract provision adjustments and other
items (see financial statements notes 3 and 4).
· Reported and adjusted revenue up 11.6% primarily driven by strong
growth in Energy.
· Adjusted operating margin was 1.5%, up 1.2 percentage points due
mainly to revenue growth, improved mix on the addition of new higher margin
contracts within Energy, and operational improvements, partially offset by
upfront investment in our digital and consultancy capabilities.
Reported and adjusted revenue for Water was up 6.5% in H1 22 on the prior year
with good visibility across our five-year water AMP7 programmes for Anglian
Water, Severn Trent Water, Southern Water, Thames Water and United Utilities,
delivering a broad range of services to deliver improved asset and operational
resilience, together with decarbonisation capabilities. We are on schedule on
Tideway, where, in a joint venture, we are responsible for the eastern
section, with tunnelling completed during the period. During H1 22, we have
secured Ofwat innovation funding for two projects as part of the 'Transform'
stream. We are also engaging with clients to understand their potential
requirements for new value-added solutions for AMP8.
Reported and adjusted revenue for Energy has shown good growth, increasing by
30.2% in H1 22 on the prior year, building our position in energy transition,
with wins including the bp net zero contract at Teesside (part of the East
coast cluster), and a new framework appointment by a Tier 1 energy business.
Our contracts with Cadent, EDF and Sellafield continue to perform strongly. We
are two years into a 10-year service delivery partnership with Cadent,
managing the mains replacement programme across the East of England, and
during H1 22, we won a new framework with Cadent. We have established
positions in a number of projects to enable the wide scale deployment of
hydrogen and carbon capture, utilisation and storage (CCUS) technologies. We
have completed our first year as deployment lead on the South Wales Industrial
Cluster deployment project, and we continue work on the Front End Engineering
Design (FEED) for the Acorn carbon capture and storage scheme in St Fergus,
Scotland. We have appointed Matt Browell-Hook as Energy sector director.
Reported and adjusted revenue for Defence increased by 7.7% in H1 22 on the
prior year, with growth in our current delivery partnership role at Devonport
and wider defence projects. Revenue in the year was driven by our contract
with AWE on a major infrastructure project, where we are providing expertise
in design and construction management, and the coordination of the work of
several subcontractors. We are well positioned across the UK's strategic
Continuous at Sea Deterrent enterprise, and our ambition is to be the delivery
partner of choice for the Ministry of Defence's (MoD) strategic infrastructure
needs. Our work with the Defence Nuclear Organisation continues. We are
helping the organisation to develop its portfolio management capabilities and
support its programme definition for future infrastructure requirements.
During the half we secured £40.9m of new work with major awards to be
confirmed in H2 22 and FY 23. Revenue secured for H2 22 is £162m for Natural
Resources as of 30 June 2022.
FINANCIAL REVIEW
Adjusted to reported reconciliation
Transportation Natural Resources Group
H1 22 H1 21 Change H1 22 H1 21 Change H1 22 H1 21 Change
Revenue £m
Adjusted 494.6 403.9 22.5% 170.6 152.9 11.6% 665.2 556.8 19.5%
Adjusting items - - - - - -
Reported 494.6 403.9 22.5% 170.6 152.9 11.6% 665.2 556.8 19.5%
Operating profit £m
Adjusted 15.9 15.5 2.6% 2.6 0.4 550.0% 14.0 11.5 21.7%
Adjusting items - - (0.2) (0.3) (2.1) (0.3)
Reported 15.9 15.5 2.6% 2.4 0.1 2300% 11.9 11.2 6.3%
Adjusting items
We incurred £2.6m (H1 21: £nil) on transformation and restructuring costs
and £nil (H1 21: £0.3m) on amortisation of acquired intangible assets, and
recognised a profit of £0.5m (H1 21: £nil) on the sale of a non-core asset.
Net finance expense
Net finance expense amounted to £0.7m (H1 21: £2.1m). The interest payable
on bank overdrafts, loans and other similar charges was £1.2m (H1 21: £1.8m)
on the reduced term loan balance. In addition, the net finance expense
includes the interest income on the net assets/liabilities of the pension
scheme of £0.6m (H1 21: £nil) and the interest expense on lease liabilities
of £0.1m (H1 21: £0.3m) under IFRS16.
Tax
The Group has a tax charge of £2.1m in the half (H1 21: £0.4m credit) giving
an effective tax rate of 18.8% (H1 21: -3.8%). The 2021 net tax credit arose
primarily from the impact of the rate change (from 19% to 25% in 2023, which
was substantively enacted in the prior year) on deferred tax recognised in
respect of losses and pensions. The tax charged has been calculated by
applying the effective rate of tax which is expected to apply to the Group for
the period ending December 2022 using rates substantively enacted as required
by IAS 34 Interim Financial Reporting. We expect the effective tax rate to
remain close to the statutory tax rate of 19% until 2023.
Cashflow
The Group generated a £34.4m adjusted free cash inflow for H1 22 (H1 21:
£28.2m), after adjusting items of £48.4m which included the £43.4m payment
to settle the Peterborough & Huntingdon contract, made early in the year.
£m H1 22 H1 21
Cash (used by) / from operations (19.1) 18.6
Add back adjusting items 48.4 5.2
Add back pension deficit contributions 5.2 5.2
Less taxation - (0.1)
Less capital expenditure (0.1) (0.7)
Adjusted free cash flow((1)) 34.4 28.2
(1) Adjusted free cash flow is an adjusted metric and is calculated as cash
flow from operations, excluding adjusting items and pension deficit
contributions, less taxation and capital expenditure.
The Group had a positive net cash balance of £95.9m as of 30 June 2022 (31
December 2021: £119.4m) comprising Costain cash balances of £76.5m (31
December 2021: £101.3m), cash held by joint operations of £55.4m (31
December 2021: £58.1m) and borrowings of £36.0m (31 December 2021: £40.0m)
(before arrangement fees of £0.2m (31 December 2021: £0.6m)). During the
half, the Group's average month-end net cash balance was £91.9m (FY 21:
£107.0m).
£m H1 22 H1 21 FY 21
Cash and cash equivalents at the beginning of period 159.4 150.9
Net cash flow (27.5) 6.0
FX - 0.1
Cash and cash equivalents at the end of period 131.9 157.0 159.4
Borrowings (36.0) (44.0) (40.0)
Net cash 95.9 113.0 119.4
Note: Borrowings are stated excluding associated arrangement fees of £0.2m
(H1 21 : £1.0m; FY 21: £0.6m), which are being amortised over the period of
the facility.
Financial resources
The Group has in place banking and bonding facilities from banks and surety
bond providers to meet the current and projected usage requirements. The Group
has banking facilities of £167.0m with its relationship banks with a maturity
date of 24 September 2023. These facilities are made up of a £131.0m
revolving credit facility (RCF) and a £36.0m term loan.
In addition, the Group has in place committed and uncommitted bonding
facilities of £310m. Utilisation of the total bonding facilities as at 30
June 2022 was £88.5m (31 December 2021: £100.7m).
Pensions
As of 30 June 2022, the Group's pension scheme surplus in accordance with IAS
19, was £86.2m (31 December 2021: £67.1m).
The movement in the IAS 19 valuation from 31 December 2021 to 30 June 2022 was
due to the impact of growth in scheme assets and a reduction in scheme
liabilities, primarily driven by a higher discount rate of 3.85% used in the
IAS 19 valuation as at 30 June 2022 compared to the discount rate at 31
December 2021 of 1.80%.
Cash contributions were made to the scheme during the period amounting to
£5.2m (H1 21: £5.2m) and the charge to operating profit in respect of the
administration cost of the UK Pension Scheme in the period was £0.2m (H1 21:
£0.1m).
DIRECTORS REPORT
Going concern
In determining the appropriate basis of preparation of the financial
statements for the six months ended 30 June 2022, the Directors are required
to consider whether the Group and the Company can continue in operational
existence for the foreseeable future, being a period of at least twelve months
from the date of approval of the accounts. The Group's current banking
facilities expire in September 2023. Management is in negotiations with the
respective facility providers to secure a one year "amend and extend" of these
facilities. The Board considers an "amend and extend" to be in the best
interest of shareholders given the current state of the debt market. The Group
has not utilised its revolving credit facility since July 2020. Having
undertaken a rigorous assessment of the financial forecasts, including its
liquidity and compliance with covenants using the existing facilities, 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.
Principal Risks and Uncertainties
The Directors consider that the principal risks facing the Group, including
those that would threaten the successful and timely delivery of it strategic
priorities, future performance, solvency and liquidity, remain substantially
unchanged from those identified on pages 44 to 48 of the Group's Annual Report
for the year ended 31 December 2021 which can be found at www.costain.com
(http://www.costain.com) .
On pages 44 and 45 of the Annual Report 2021, we set out the Group's approach
to risk management and on pages 46 to 48, we define and describe the principal
risks that are most relevant to the Group including controls and key
mitigating actions assigned to them. In summary, the Group's principal risks
and uncertainties are as follows: 1) prevent a major accident, hazard or
incident 2) increase the profitability and margin performance of the Group 3)
maintain a strong balance sheet 4) secure new work 5) people 6) deliver
projects effectively 7) manage the legacy defined benefit (DB) pension scheme
8) ensure that our technology is robust, our systems secure and our data
protected 9) anticipate and respond to changes in client circumstances and 10)
climate change resilience.
The Board reviews the status of all principal and emerging risks with a
notable potential impact at Group level throughout the year. Additionally, the
Board and Audit Committee carry out focused risk reviews. These reviews
include an analysis of principal risks, together with the controls, monitoring
and assurance processes established to mitigate those risks to manageable
levels.
Statement of Directors' Responsibilities
The Directors confirm that these condensed consolidated half year financial
statements have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the United Kingdom
and that the interim report includes a fair review of the information required
by DTR 4.2.7 and DTR 4.2.8, namely:
• an indication of important events that have occurred during the first
six months and their impact on the condensed set of financial statements, and
a description of the principal risks and uncertainties that will continue to
be monitored for the remaining six months of the financial year; and
• material related-party transactions in the first six months and any
material changes in the related party transactions described in the last
Annual Report.
The current Directors of Costain Group PLC are listed in the Annual Report for
the year ended 31 December 2021, except for Fiona MacAulay who was appointed
to the board of Directors on 6 April 2022. Nicole Geoghegan replaced Sharon
Harris as Company Secretary on 5 July 2022.
For and on behalf of the Board
Alex Vaughan
Helen Willis
Chief Executive Officer
Chief Financial Officer
24 August 2022
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 (http://www.costain.com) . This includes copies of recent
investor presentations as well as London Stock Exchange announcements.
GROUP INCOME STATEMENT
For the six months ended 30 June 2022
£m Notes H1 22 H1 21
unaudited unaudited
Group revenue 4 665.2 556.8
Cost of Sales (627.4) (525.8)
Gross profit 37.8 31.0
Administrative expenses (25.9) (19.8)
Group operating profit 11.9 11.2
Profit from operations 4 11.9 11.2
Finance income 5 0.6 -
Finance expense 5 (1.3) (2.1)
Net finance expense (0.7) (2.1)
Profit before tax 11.2 9.1
Taxation 6 (2.1) 0.4
Profit for the year attributable to equity holders of the parent 9.1 9.5
Earnings per share
Basic 7 3.3p 3.5p
Diluted 7 3.1p 3.4p
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2022
£m
H1 22 H1 21
unaudited unaudited
Profit for the period 9.1 9.5
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations (0.1) 0.2
Cash flow hedges:
Net changes in fair value transferred to the income statement - 0.3
Total items that may be reclassified subsequently to profit or loss (0.1) 0.5
Items that will not be reclassified to profit or loss:
Remeasurement of retirement benefit asset/(obligations) 13.4 29.5
Tax recognised on remeasurement of retirement benefit asset/(obligations) (3.3) (5.5)
Total items that will not be reclassified to profit or loss 10.1 24.0
Other comprehensive income for the period 10.0 24.5
Total comprehensive income for the period attributable to equity holders of 19.1 34.0
the parent
GROUP BALANCE SHEET
£m Notes 30 June 2022 31 December 2021
unaudited audited
Assets
Non-current assets
Intangible assets 9 52.2 52.5
Property, plant and equipment 10 33.8 32.0
Equity accounted investments 0.4 0.4
Retirement benefit asset 86.2 67.1
Trade and other receivables 3.6 5.5
Deferred tax 10.2 15.4
Total non-current assets 186.4 172.9
Current assets
Inventories 0.2 0.3
Trade and other receivables 203.1 199.6
Taxation - 0.2
Cash and cash equivalents 11 131.9 159.4
Total current assets 335.2 359.5
Total assets 521.6 532.4
Liabilities
Non-current liabilities
Retirement benefit obligations 12 - -
Other payables 1.1 1.8
Interest bearing loans and borrowings 28.0 32.0
Lease liabilities 20.5 18.2
Total non-current liabilities 49.6 52.0
Current liabilities
Trade and other payables 226.8 215.1
Current tax liabilities 0.2 -
Interest bearing loans and borrowings 7.8 7.4
Lease liabilities 9.0 8.6
Provisions for other liabilities and charges 9.3 50.3
Total current liabilities 253.1 281.4
Total liabilities 302.7 333.4
Net assets 218.9 199.0
Equity
Share capital 13 137.6 137.5
Share premium 16.4 16.4
Translation reserve 0.5 0.6
Hedging reserve - -
Retained earnings 64.4 44.5
Total equity 218.9 199.0
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2022
£m
Share capital Share premium Translation reserve Hedging reserve Merger reserve Retained earnings Total equity
At 1 January 2021 audited 137.5 16.4 0.6 (0.3) - 2.3 156.5
Profit for the period - - - - - 9.5 9.5
Other comprehensive (expense)/ income - - 0.2 0.3 - 24.0 24.5
Shares purchased to satisfy employee share schemes - - - - - (0.1) (0.1)
Equity-settled share-based payments - - - - - 0.4 0.4
At 30 June 2021 unaudited 137.5 16.4 0.8 - - 36.1 190.8
- - - - - (15.3) (15.3)
Loss for the period
Other comprehensive (expense)/ income - - (0.2) - - 23.1 22.9
Shares purchased to satisfy employee share schemes - - - - - (0.1) (0.1)
Equity-settled share-based payments - - - - - 0.7 0.7
At 1 January 2022 audited 137.5 16.4 0.6 - - 44.5 199.0
Profit for the period - - - - - 9.1 9.1
Issue of ordinary shares under employee share option plans 0.1 (0.1) -
Other comprehensive income - - (0.1) - - 10.1 10.0
Equity-settled share-based payments - - - - - 0.8 0.8
At 30 June 2022 unaudited 137.6 16.4 0.5 - - 64.4 218.9
GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2022
£m Notes H1 22 H1 21
unaudited unaudited
Cash flows from operating activities
Profit for the period 9.1 9.5
Adjustments for:
Finance income 5 (0.6) -
Finance expense 5 1.3 2.1
Taxation 6 2.1 (0.4)
Profit on sale of interest in joint ventures and associates (0.5) -
Depreciation of property, plant and equipment 10 4.7 7.8
Amortisation and impairment of intangible assets 9 0.3 0.5
Shares purchased to satisfy employee share schemes - (0.1)
Share-based payments expense 0.8 0.4
Cash from operations before changes in working capital and provisions 17.2 19.8
Decrease in inventories 0.1 0.2
Increase in trade and other receivables (1.6) (4.0)
Increase in trade and other payables 11.3 7.6
Payment of P&H final settlement provision (43.4) -
Movement in other provisions and employee benefits (2.7) (5.0)
Cash (used by)/from operations (19.1) 18.6
Interest received 0.1 -
Interest paid (1.2) (1.5)
Taxation received - 0.1
Net cash (used by)/from operating activities (20.2) 17.2
Cash flows from investing activities
Additions to property, plant and equipment (0.1) (0.1)
Additions to intangible assets - (0.6)
Proceeds of sale of investment 0.5 -
Net cash from/(used by) investing activities 0.4 (0.7)
Cash flows from financing activities
Repayments of lease liabilities (3.7) (6.7)
Drawdown of loans - -
Repayment of loans (4.0) (3.8)
Net cash used by financing activities (7.7) (10.5)
Net (decrease)/increase in cash and cash equivalents (27.5) 6.0
Cash and cash equivalents at beginning of the period 11 159.4 150.9
Effect of foreign exchange rate changes - 0.1
Cash and cash equivalents at end of the period 11 131.9 157.0
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.
These condensed consolidated financial statements for the half-year ended 30
June 2022 have been prepared 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.
The accounting policies, presentation and methods of computation adopted in
the preparation of these condensed consolidated interim financial statements
are consistent with those followed in the preparation of the Group's Annual
Financial Statements for the year ended 31 December 2021, which were prepared
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, with the exception of taxation which for half year
ended 30 June 2022, has been calculated on the basis of the forecasted year
end estimated tax rate for FY 22. The comparative figures for the financial
year ended 31 December 2021 are not the Company's full statutory accounts for
that financial year, they do not include all the information required for full
annual financial statements and should be read in conjunction with the
Consolidated Financial Statements of the Group as at and for the year ended 31
December 2021. Those accounts have been reported on by the Company's auditors
and delivered to the Registrar of Companies. The audit report for 2021 was (i)
unqualified and (ii) did not contain a statement under section 498(2) or (3)
of the Companies Act 2006.
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. These borrowing facilities give the Group access to a
RCF cash drawdown component of £131m and a £36m five-year Term Loan, which
reduces by £4m every six months on 30 June and 31 December.
These facilities have a liquidity covenant of net debt / EBITDA ≤1.5 times
and an interest covenant of EBITA / net interest payable covenant of ≥4.0
times and these financial covenants are tested quarterly. As at 30 June 2022,
the Group had a leverage covenant ratio of below zero (the Group had no net
debt) and an interest covenant ratio of 13.0 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 £35m bank bonding and £275m
surety company bonding facilities.
In determining the appropriate basis of preparation of the financial
statements for the six months ended 30 June 2022, the Directors are required
to consider whether the Group and the Company can continue in operational
existence for the foreseeable future, being a period of at least twelve months
from the date of approval of the accounts. The Group's current banking
facilities expire in September 2023. Management is in negotiations with the
respective facility providers to secure a one year "amend and extend" of these
facilities. The Board considers an "amend and extend" to be in the best
interest of shareholders given the current state of the debt market. The Group
has not utilised its revolving credit facility since July 2020.
Having undertaken a rigorous assessment of the financial forecasts, including
its liquidity and compliance with covenants using the existing facilities, 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. In assessing the going
concern assumption, the Board reviewed the base case plans and also identified
severe but plausible downsides affecting future profitability, working capital
requirements and cash flow. The base case assumes delivery of the Board
approved strategic and financial plans. The severe but plausible downsides
include applying the aggregated impact of lower revenue, lower margins, future
contractual issues, higher working capital requirements and adverse contract
settlements.
These forecasts show significant headroom and support that the Group will be
able to operate within its available banking facilities and covenants
throughout this period. Covenants are calculated on a rolling 12-month basis
each quarter and therefore for all quarters until Q2 of FY23, a portion of the
EBITDA/EBITA has already been earned, reducing the risk of a potential breach.
Taking this into account along with the forecasts reviewed, it is considered
that the EBITA/net interest covenant for the rolling 12 months to Q4 of FY22
is the limiting factor, given the Group's net cash position. The Board
concluded that there is liquidity headroom in severe but plausible downside
scenarios, as well as headroom on the committed facilities and on the
associated financial covenants.
Alternative performance measures
Income statement presentation - Adjusting items
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 to aid understanding of the underlying and overall performance of the
Group. This is in line with how management monitors and manages the business
on a day-to-day basis. Presenting results on this adjusted basis is consistent
with the internal reporting presented to the Board.
The Directors exercise judgement in determining the classification of certain
items as adjusting using quantitative and qualitative factors. In assessing
whether an item is an adjusting item, the Directors give consideration, both
individually and collectively, as to an item's size, the specific
circumstances which have led to the item arising and if the item is likely to
recur, or whether the matter forms part of a group of similar items.
The separate presentation of these items is intended to enhance understanding
of the financial performance of the Group in the particular year under review
and the extent to which results are influenced by material unusual and/or
non-recurring items. The tax impact of the above is shown in note 3 to the
financial statements on the taxation line.
Consequently, the Group is disclosing as supplementary information 'Adjusted
revenue, Adjusted profit and Adjusted earnings per share' alternative
performance measurements. These are reconciled to statutory numbers in note 3
to the financial statements and reported in the presentation of segmental
reporting in note 4.
The Group also presents free cash flow and net cash/ bank debt as alternative
performance measures. The Directors consider that this provides useful
information about the Group's liquidity position.
2. SIGNIFICANT AREAS OF JUDGEMENT AND ESTIMATION
The estimates and underlying assumptions used in the preparation of these
financial statements are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
The Directors consider that the significant areas of judgement made by
management that have a significant effect on the Group's performance as well
as those estimates with a significant risk of material adjustment during the
second half of the year are unchanged from those identified on pages 139 to
140 of the Annual Report for the year ended 31 December 2021.
3. RECONCILIATION OF REPORTED REVENUE AND OPERATING (LOSS)/PROFIT TO
ADJUSTED REVENUE AND OPERATING PROFIT
Adjusted revenue, operating profit and earnings per share are being used as non-GAAP alternative performance measurements. These measurements were introduced in 2020 and exclude the impact of significant one-off re-measurements of three specified contracts, Peterborough & Huntingdon, the A465 Heads of the Valley (A465) and the ASF South contracts, as well as the other items that the Board considers to be of a one-off and unusual nature or related to the accounting treatment of acquisitions. The Board considers the adjusted measures better reflect the underlying trading performance of the Group.
Revenue adjustments represent the reversal of the contract asset recorded in the statement of financial position immediately prior to the initial write down and any subsequent adjustment to overall contract revenue. There were no revenue adjustments in H1 22 or in H1 21. Details regarding the adjustments relating to Peterborough & Huntingdon, A465 and ASF South Contract in FY 21 were disclosed in the FY 21 Annual Report, and therefore are not repeated here.
Profit adjustments represent the amounts included in the income statement. We
incurred £2.6m (H1 21: £nil) on transformation and restructuring costs and
£nil (H1 21: £0.3m) on amortisation of acquired intangible assets, and
recognised a profit of £0.5m (H1 21: £nil) on the sale of a non-core asset.
Six months ended 30 June 2022 Adjusted Other items Total
£m £m £m
Revenue before contract adjustments 665.2 - 665.2
Contract adjustments - - -
Group revenue 665.2 - 665.2
Cost of sales (627.9) 0.5 (627.4)
Gross profit 37.3 0.5 37.8
Administrative expenses before other items (23.3) (2.6) (25.9)
Administrative expenses (23.3) (2.1) (25.4)
Group operating profit 14.0 (2.1) 11.9
Share of results of joint ventures and associates - - -
Profit/(loss) from 14.0 (2.1) 11.9
operations
Net finance expense (0.7) - (0.7)
Profit/(loss) before tax 13.3 (2.1) 11.2
Taxation (2.6) 0.5 (2.1)
Profit/(loss) for the period attributable to equity holders of the parent 10.7 (1.6) 9.1
Basic earnings/(loss) per share 3.9p 3.3p
Six months ended 30 June 2021 Adjusted Other items Total
£m £m £m
Revenue before contract adjustments 556.8 - 556.8
Contract adjustments - - -
Group revenue 556.8 - 556.8
Cost of sales (525.8) - (525.8)
Gross profit 31.0 - 31.0
Administrative (19.5) - (19.5)
expenses before
other items
Other items - (0.3) (0.3)
Administrative expenses (19.5) (0.3) (19.8)
Group operating profit 11.5 (0.3) 11.2
Share of results of joint ventures and associates - - -
Profit/(loss) from operations 11.5 (0.3) 11.2
Net finance expense (2.1) - (2.1)
Profit/(loss) before tax 9.4 (0.3) 9.1
Taxation (1.7) 2.1 0.4
Profit/(loss) for the period attributable to 7.7 1.8 9.5
equity holders of the parent
Basic earnings/(loss) per share 2.8p 3.5p
4. OPERATING SEGMENTS
The Group has two core business segments: Transportation and Natural
Resources. The core segments are strategic business units with separate
management and have different core customers or offer different services. This
information is provided to the Chief Executive who is the chief operating
decision maker. The segments are discussed in the Strategic Report section of
these financial statements.
The Group evaluates segment performance on the basis of profit or loss from
operations before interest and tax expense before and after other items and
contract adjustments. The segment results that are reported to the Chief
Executive include items directly attributable to a segment as well as those
that can be allocated on a reasonable basis. Other items are allocated to the
operating segments where appropriate, but otherwise are viewed as Central
items.
6 months ended 30 June 2022 Natural Central
Resources Transportation costs Total
£m £m £m £m
Segment revenue
Adjusted revenue 170.6 494.6 - 665.2
Contract adjustments - - - -
Group revenue 170.6 494.6 - 665.2
Segment profit
Adjusted operating profit 2.6 15.9 (4.5) 14.0
Contract adjustments - - - -
Operating profit before other items 2.6 15.9 (4.5) 14.0
Share of results of joint ventures and associates - - - -
Profit from operations before other items 2.6 15.9 (4.5) 14.0
Other items:
Transformation and restructuring costs (0.2) - (2.4) (2.6)
Profit on sale of non-core asset - - 0.5 0.5
Profit from operations 2.4 15.9 (6.4) 11.9
Net finance expense (0.7)
Profit before tax 11.2
6 months ended 30 June 2021 Natural Central
Resources Transportation costs Total
£m £m £m £m
Segment revenue
Adjusted revenue 152.9 403.9 - 556.8
Contract adjustments - - - -
Group revenue 152.9 403.9 - 556.8
Segment profit
Adjusted operating profit 0.4 15.5 (4.4) 11.5
Contract adjustments - - - -
Operating profit before other items 0.4 15.5 (4.4) 11.5
Share of results of joint ventures and associates - - - -
Profit from operations before other items 0.4 15.5 (4.4) 11.5
Other items:
Amortisation of acquired intangible assets (0.3) - - (0.3)
Profit from operations 0.1 15.5 (4.4) 11.2
Net finance expense (2.1)
Profit before tax 9.1
5. NET FINANCE EXPENSE
£m H1 22 H1 21
Interest income from bank deposits - -
Interest income on loans to related parties - -
Interest income on the net assets of the defined benefit pension scheme 0.6 -
Finance income 0.6 -
Interest payable on interest bearing bank loans, borrowings and other similar (1.2) (1.8)
charges
Interest expense on lease liabilities (0.1) (0.3)
Finance expense (1.3) (2.1)
Net finance expense (0.7) (2.1)
Other similar charges includes arrangement and commitment fees payable.
Interest income on loans to related parties relates to shareholder loan
interest receivable from investments in equity accounted joint ventures and
associates.
6. TAXATION
£m H1 22 H1 21
On profit for the period
UK corporation tax at 19.0% (H1 21: 19.0%) 0.5 -
Adjustment in respect of prior years - -
Current tax charge for the period 0.5 -
Deferred tax charge/(credit) for the period 1.6 (0.4)
Adjustment in respect of prior years - -
Deferred tax charge/(credit) for the period 1.6 (0.4)
Tax charge/(credit) in the consolidated income statement 2.1 (0.4)
£m
H1 22 H1 21
Tax reconciliation
Profit before tax 11.2 9.1
Taxation at 19.0% (H1 21: 19.0%) 2.1 1.7
Adjustments in respect of rate changes - (2.1)
Tax charge/(credit) in the consolidated income statement 2.1 (0.4)
7. EARNINGS PER SHARE
The calculation of earnings per share is based on a profit of £9.1m (H1 21:
£9.5m) and the number of shares set out below.
H1 22 H1 21
Number Number
(millions) (millions)
Weighted average number of ordinary shares in issue for basic earnings per 275.0 274.9
share calculation
Dilutive potential ordinary shares arising from employee share schemes 13.7 5.4
Weighted average number of ordinary shares in issue for diluted earnings per 288.7 280.3
share calculation
8. DIVIDENDS
No dividends were paid or proposed in respect of the 6 months to 30 June 2022
(H1 21: nil).
9. INTANGIBLE ASSETS
Goodwill Customer relationships Other acquired intangibles Other intangibles Total
£m £m £m £m £m
Cost
At 1 January 2021 54.1 15.4 9.7 14.4 93.6
Additions - - - 0.6 0.6
At 30 June 2021 54.1 15.4 9.7 15.0 94.2
At 1 January 2022 54.1 15.4 9.7 15.9 95.1
Additions - - - - -
At 30 June 2022 54.1 15.4 9.7 15.9 95.1
Accumulated amortisation
At 1 January 2021 9.0 15.0 9.7 7.8 41.5
Charge in year - 0.3 - 0.2 0.5
Impairment - - - - -
At 30 June 2021 9.0 15.3 9.7 8.0 42.0
At 1 January 2022 9.0 15.4 9.7 8.5 42.6
Charge in year - - - 0.3 0.3
Impairment - - - - -
At 30 June 2022 9.0 15.4 9.7 8.8 42.9
Net book value
At 30 June 2022 45.1 - - 7.1 52.2
At 30 June 2021 45.1 0.1 - 7.0 52.2
Goodwill has been allocated to the applicable cash generating units of the
transportation segment (£15.5 million (H1 21: £15.5 million)) and the
natural resources segment (£29.6 million (H1 21: £29.6 million)).
As described in note 2, the Group reviews the value of goodwill on an annual
basis and in the absence of any identified impairment risks, tests are based
on internal value in use calculations of the cash generating unit (CGU). The
key assumptions for these calculations are: operating margins, discount rates
and growth rates.
Discount rates have been estimated based on pre-tax rates that reflect current
market assessments of the Group's weighted average cost of capital and the
risks specific to the CGU. The rate used to discount the forecast cash flows
for the Transportation CGU was 13.2% (H1 21: 12.4%) and for the Natural
Resources CGU was 13.6% (H1 21: 12.5%).
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 2021 0.6 27.0 20.5 30.3 78.4
Additions - 0.1 1.2 16.1 17.4
Disposals - (0.2) (1.4) (7.3) (8.9)
At 30 June 2021 0.6 26.9 20.3 39.1 86.9
At 1 January 2022 0.6 27.0 14.1 29.4 71.1
Additions - 0.1 9.1 10.4 19.6
Disposals - - (1.1) (13.2) (14.3)
At 30 June 2022 0.6 27.1 22.1 26.6 76.4
Accumulated depreciation
At 1 January 2021 0.6 19.8 8.4 9.7 38.5
Charge in year - 1.3 2.2 4.3 7.8
Disposals - (0.2) (0.7) (2.5) (3.4)
At 30 June 2021 0.6 20.9 9.9 11.5 42.9
At 1 January 2022 0.6 21.6 6.1 10.8 39.1
Charge in year - 1.1 1.6 2.1 4.8
Disposals - - (0.4) (0.9) (1.3)
At 30 June 2022 0.6 22.7 7.3 12.0 42.6
Net book value
At 30 June 2022 - 4.4 14.8 14.6 33.8
At 30 June 2021 - 6.0 10.4 27.7 44.0
11. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are analysed below and include the Group's share of
cash held by joint operations of £55.4m (H1 21: £57.0m).
30 June 2022 31 December 2021
£m £m
Cash and cash equivalents 131.9 159.4
Borrowings - current (7.8) (7.4)
Borrowings - non-current (28.0) (32.0)
Net cash (net of arrangement fees) 96.1 120.0
Arrangement fees (0.2) (0.6)
Net cash 95.9 119.4
Total borrowings of £35.8m (31 December 2021: £39.4m) are shown net of
arrangement fees of £0.2m (31 December 2021: £0.6m).
12. PENSIONS
A defined benefit pension scheme is operated in the UK and a number of defined
contribution pension schemes are in place in the UK. Contributions are paid by
subsidiary undertakings and, to the defined contribution schemes, by
employees. The total pension income in the income statement was £0.4m
comprising £0.2m included in operating costs and £0.6m interest income
included in net finance expense (H1 21: £0.2m total pension expense,
comprising £0.2m in operating costs less £nil interest income included in
net finance expense).
Defined benefit scheme
The defined benefit scheme was closed to new members on 31 May 2005 and from 1
April 2006 future benefits were calculated on a Career Average Revalued
Earnings basis. The scheme was closed to future accrual of benefits to members
on 30 September 2009. A full actuarial valuation of the scheme was carried out
as at 31 March 2019 and this was updated to 30 June 2022 by a qualified
independent actuary.
At At At
30 Jun 31 Dec 31 Dec
2022 2021 2020
£m £m £m
Present value of defined benefit obligations (602.2) (837.5) (886.5)
Fair value of scheme assets 688.4 904.6 880.9
Recognised asset/(liability) for defined benefit obligations 86.2 67.1 (5.6)
Movements in present value of defined benefit obligations
At At
30 Jun 31 Dec
2022 2021
£m £m
At 1 January 837.5 886.5
Past service cost - GMP equalisation charge -
Interest cost 7.5 11.7
Remeasurements - demographic assumptions (3.6) (5.4)
Remeasurements - financial assumptions (243.3) (16.1)
Remeasurements - experience adjustments 20.3 (6.5)
Benefits paid (16.1) (32.7)
At end of period 602.2 837.5
Movements in fair value of scheme assets
At At
30 Jun 31 Dec
2022 2021
£m £m
At 1 January 904.6 880.9
Interest income 8.1 11.7
Remeasurements - return on assets (213.2) 34.6
Contributions by employer 5.2 10.4
Administrative expenses (0.2) (0.3)
Benefits paid (16.1) (32.7)
At end of period 688.4 904.6
Expense recognised in the income statement
At At
30 Jun 31 Dec
2022 2021
£m £m
Administrative expenses paid by the pension scheme (0.2) (0.3)
Administrative expenses paid directly by the Group (0.8) (1.0)
Interest income on the net assets/liabilities of the defined benefit pension 0.6 -
scheme
(0.4) (1.3)
Fair value of scheme assets
At At
30 Jun 31 Dec
2022 2021
£m £m
Global equities 125.9 137.2
Multi-asset growth funds 62.6 133.7
Multi-credit fund 123.2 118.1
LDI plus collateral 368.0 494.6
Property - 4.4
Cash 8.7 16.6
688.4 904.6
Principal actuarial assumption (expressed as weighted averages)
2022 2021
% %
Discount rate 3.85 1.80
Future pension increases 3.00 3.25
Inflation assumption 3.15 3.40
Weighted average life expectancy from age 65 as per mortality tables used to
determine benefits at 30 June 2022 and 31 December 2021 is:
At At
30 Jun 31 Dec
2022 2021
Male Female Male Female
(years) (years) (years) (years)
Currently aged 65 21.9 23.9 22.1 24.0
Non-retirees currently aged 45 22.9 25.1 23.1 25.3
In accordance with the pension regulations, a triennial actuarial review of
the Costain defined benefit pension scheme was carried out as at 31 March
2019. In March 2020, the valuation and an updated deficit recovery plan were
agreed with the scheme Trustee resulting in cash contributions of £10.2m for
each year commencing 1 April 2020 (increasing annually with inflation) until
the deficit is cleared, which would be in 2029 on the basis of the assumptions
made in the valuation and agreed recovery plan.
In addition, as previously implemented, the Group will continue to make an
additional contribution so that the total deficit contributions match the
total dividend amount paid by the Company each year. Any additional payments
in this regard would have the effect of reducing the recovery period in the
agreed plan. The Group will also pay the expenses of administration in the
next financial year.
Any surplus of deficit contributions to the Costain Pension Scheme would be
recoverable by way of a refund, as the Group has the unconditional right to
any surplus once all the obligations of the Scheme have been settled.
Accordingly, the Group does not expect to have to make provision for these
additional contributions arising from this agreement in future accounts.
The next triennial valuation of the Costain Pension Scheme has an effective
date of 31 March 2022. Initial results are expected from the Trustee's Actuary
imminently and discussions on these are expected to take place over the second
half of 2022. We have until 30 June 2023 to finalise the valuation.
Defined contribution schemes
Several defined contribution pensions are operated. The total expense relating
to these plans was £5.5m (H1 21: £4.9m).
13. SHARE CAPITAL
H1 22 H1 21
Number (millions) Nominal value £m Number (millions) Nominal value £m
Issued share capital
Shares in issue at beginning of period - ordinary shares of 50p each, fully 275.1 137.6 275.0 137.5
paid
Issued in year - - - -
Shares in issue at end of period- ordinary shares of 50p each, fully paid 275.1 137.6 275.0 137.5
The Company's issued share capital comprised 275,084,741 ordinary shares of 50
pence each as at 30 June 2022.
All shares rank pari passu regarding entitlement to capital and dividends.
Independent review report to Costain Group Plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Costain Group Plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Results of Costain
Group Plc for the six month period ended 30 June 2022 (the "period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Group Balance Sheet as at 30 June 2022;
· the Group Income Statement and the Group Statement of Comprehensive
Income for the period then ended;
· the Group Cash Flow Statement for the period then ended;
· the Group Statement of Changes in Equity for the period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Results of Costain Group Plc
have been prepared in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom. A review of interim financial
information consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Results and considered
whether it contains any apparent misstatements or material inconsistencies
with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with this ISRE. However, future events or
conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Results, including the interim financial statements, is the responsibility
of, and has been approved by the directors. The directors are responsible for
preparing the Results in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority. In preparing the Results, including the interim financial
statements, the directors are responsible for assessing the group's ability to
continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease operations, or have
no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Results based on our review. Our conclusion, including our
Conclusions relating to going concern, is based on procedures that are less
extensive than audit procedures, as described in the Basis for conclusion
paragraph of this report. This report, including the conclusion, has been
prepared for and only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority and for no other purpose. We do not, in giving
this conclusion, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come
save where expressly agreed by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23 August 2022
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