REG - Costain Group PLC - Strong performance in 2021
09/03/2022 07:00
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RNS Number : 1098E Costain Group PLC 09 March 2022
COSTAIN GROUP PLC
RESULTS FOR THE TWELVE MONTHS
ENDED 31 DECEMBER 2021
9 MARCH 2022
Strong performance in 2021; well positioned to deliver further progress this
year
Alex Vaughan, chief executive officer, commented:
"We have delivered an improved operating performance and results in line with
market expectations, including significant growth in adjusted operating profit
and margin, and good free cash flow generation.
"Infrastructure is facing enormous change, underpinned by significant
committed investment and generating huge opportunities for us and, in my mind,
addressing these changes requires a different approach. We have aligned our
services to meet the changing needs of our clients, allowing us to shape,
create and deliver pioneering solutions that transform the performance of the
infrastructure ecosystem.
"Looking ahead, while we are mindful of the macro-economic backdrop, we have
already secured more than £1bn of Group revenue for 2022 and have entered the
new year with good momentum. We expect to deliver further progress in 2022 and
remain confident in the Group's strategy and longer-term prospects."
Financial summary
£m FY21 adjusted(1) FY21 adjustments(1) FY21 reported FY20 FY20 reported Adjusted(1) change
adjusted(1)
Group revenue 1,178.6 (43.4) 1,135.2 1,070.5 978.4 10.1%
Operating profit / (loss) 30.1 (39.6) (9.5) 18.0 (92.0) 67.2%
Operating margin 2.6% (3.4)% (0.8)% 1.7% (9.4)% 0.9pp
Profit/(loss) before tax 26.3 (39.6) (13.3) 13.9 (96.1) 189.2%
Basic earnings/(loss) per share 9.6p (11.7)p (2.1)p 5.8p (36.7)p 65.5%
Dividend per share - -
Free cash flow(2) 38.9 31.6 23.1%
Net cash balance(3) 119.4 102.9
1. Before impact of significant contract provisions and other items of
£39.6m (FY20: £110.0m) (see note 3).
2. Free cash flow is defined as cash flow from operating activities,
excluding adjusting items, less capital expenditure.
3. Net cash balance is cash and cash equivalents less interest-bearing
loans and borrowings (before arrangement fees of £0.6m in FY21 (£1.2m in
FY20)).
Highlights
Financial performance
· Adjusted(1) Group revenue up 10% reflecting strong growth in
Transportation from National Highways and HS2.
· Improved profitability with adjusted operating profit(1) up 67% to
£30.1m and an adjusted operating margin of 2.6%. Reported operating loss of
£9.5m (FY20: £92.0m), the difference to FY21 adjusted profits reflecting
£39.6m of adjusting items mainly related to legacy contract issues.
· Strong cash generation with a year end net cash position of £119.4m
and £38.9m free cash flow, driven by strong cash collection.
· The Board does not consider it appropriate to recommend a final
dividend this year.
Operating performance
· Strong safety performance with LTIR of 0.15 in line with pre-COVID
levels.
· Transportation building good momentum with a strong pipeline and
£764m of revenue secured for FY22.
· Natural Resources impacted by slower than expected investment in
water and energy in H1. Trading improved in H2 and we expect this momentum to
continue into FY22.
· Good visibility for FY22 with more than £1bn of Group revenue
already secured(2) for 2022 at year end, incorporating our broadening mix of
construction, consulting and digital services.
· Solid order book(2) position:
· £3.4bn at end of FY21 (FY20: £4.3bn), reflecting the market cycles.
· Preferred bidder book of £0.9bn (FY20: £1.2bn).
· Around 50 further frameworks for higher margin consulting and digital
services that will yield meaningful revenues in the year.
· Pipeline remains strong driven by significant committed
infrastructure investment and structural growth drivers from Levelling Up, net
zero, climate resilience and customer service needs and underpinned by our
secured framework positions.
· Peterborough & Huntington (P&H) contract settlement concluded
post year end, impacting reported operating profitability in FY21, with cash
payment made in FY22.
1. Before impact of significant contract provisions and other items of
£39.6m (FY20: £110.0m) (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
FY21 FY20 Change
Transportation adjusted(1) revenue (£m) 864.2 724.2 19.3%
Road 408.9 315.2 29.7%
Rail 356.4 306.3 16.3%
Integrated transport 99.0 102.6 -3.6%
Natural Resources adjusted(1) revenue (£m) 314.4 345.1 -8.9%
Water 200.0 223.0 -10.3%
Energy 72.0 87.5 -17.7%
Defence 42.4 34.6 22.3%
Non-financial
Order book(2) at 31 December (£bn) 3.4 4.3 -20.9%
Revenue secured(2) for following year (£m) 1,034 1,039 -0.5%
Lost time injury rate (LTIR) 0.15 0.09 0.06
Community investment (£k) 200 211 -5.2%
Absolute GHG emissions (scope 1-3) tCO(2)e 49,000 32,165 52%
(1)Before impact of significant contract provisions and other items of £39.6m
(FY20: £110.0m) (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.
Enquiries
Investors and analysts
Louise Bryant,
Costain
+44 7813 210 809
Financial media -
MHP
Costain@mhpc.com (mailto:Costain@mhpc.com)
Tim
Rowntree
+44 203 128 8147
Peter
Hewer
+44 7709 326 261
Analyst & investor presentation
A presentation of our results by Alex Vaughan (CEO) and Helen Willis (CFO)
will be at 10.00am.
Please go to
https://webcasting.brrmedia.co.uk/broadcast/6203df0c636d105baf47a75d
(https://webcasting.brrmedia.co.uk/broadcast/6203df0c636d105baf47a75d) to
register for the event.
To register a question please call 0800 279 6877 or +44 (0)330 336 9601 with
confirmation code: 7995124.
Board changes
Tony Quinlan joined the Board as a non-executive director on 1 February 2021.
Jane Lodge, who was senior independent director and chair of the audit
committee, stepped down from the Board after nine years' service on 6 May
2021. Alison Wood became senior independent director and Tony Quinlan was
appointed chair of the audit committee on 6 May 2021. Neil Crockett joined the
Board as a non-executive director on 6 October 2021.
On 12 January 2022, Tony Quinlan also became the Company's senior independent
director and Jacqueline de Rojas became remuneration committee chair on an
interim basis, following the announcement that Alison Wood would step down as
a non-executive director. A search for an additional non-executive director to
become Remuneration Committee chair on appointment is well advanced and we
will update the market in due course.
As announced separately today, Paul Golby has indicated his intention to step
down as chair and from the Board within the next 12 months. Paul joined the
Board as chair and non-executive director in 2016. The Nomination Committee,
led by Tony Quinlan as senior independent director, will begin a search for
Paul's successor.
Use of alternative performance measures
Throughout this release we use a number of 'adjusted' measures to provide
users with a clearer picture of the underlying performance of the business. To
aid understanding of the underlying and overall performance of the Group,
certain amounts that the Board considers to be material or non-recurring in
size or nature, or related to the accounting treatment of acquisitions, are
adjusted because they are not long term in nature and will not reflect the
long-term performance of the Group. This is in line with how management
monitors and manages the business on a day-to-day basis. These adjustments are
discussed in further detail in Note 1 on page 24.
GROUP TRADING PERFORMANCE
We report both our statutory results, 'reported', and results excluding
adjusting items, 'adjusted'. Key adjusting items for FY21 include the
Peterborough & Huntingdon settlement payment, partially offset by a
provision release relating to the A465 contract. Reported Group revenue was up
16.0%, while the reported operating loss reduced significantly from £92.0m to
£9.5m.
Adjusted group revenue was up 10.1% to £1,178.6m (FY20: £1,070.5m). This was
driven by Transportation where additional work from National Highways and HS2
resulted in divisional revenue growth of 19.3%. This more than offset an 8.9%
decline in Natural Resources revenue, reflecting delays in AMP7 water
investment and slower than anticipated investment in the energy market,
particularly in H1.
Group adjusted operating profit grew strongly, up 67.2% to £30.1m (FY20:
£18.0m), in line with market expectations. The adjusted operating margin was
2.6% (FY20: 1.7%), driven by improvements across Transportation, partly offset
by the weaker performance in Natural Resources. The improvement reflects the
conclusion of lower margin work and an increased proportion of consulting and
digital services.
Adjusted profit before tax was up 189.2% to £26.3m (FY20: £13.9m), while
adjusted basic earnings per share (EPS) was up 65.5% to 9.6p (FY20: 5.8p), due
to improved profitability, partially offset by the annualised impact on the
weighted average number of shares due to the equity raise in FY20. Reported
loss before tax was £13.3m (FY20: £96.1m loss) and diluted basic loss per
share (EPS) was 2.1p (FY20: 36.7p loss).
Our secured revenue for FY22 at year-end is more than £1bn. Our order book
stood at £3.4bn at the year-end (FY20: £4.3bn), reflecting our clients five
year investment programmes, greater discipline in contract selection and the
shorter lead time of consulting and digital work. The order book evolves as
contracts wind down and new contracts are added, therefore it does not provide
a complete picture of potential future revenue. In addition to the contracted
order book, we have a further £0.9bn of contracts where we are preferred
bidder and around 50 further secured frameworks for higher margin consulting
and digital services that will yield meaningful revenue each year.
Adjustments to reported items
A significant contract provision was made in the year, with the net charge to
the income statement amounting to £39.2m. Within this, £43.4m was taken in
relation to the settlement of the Peterborough & Huntingdon contract,
which was offset by other movements including a provision release in relation
to the A465 contract. Payment of £43.4m in settlement of the Peterborough
& Huntingdon contract was made after the financial year-end, please see
below for more details.
Cashflow and liquidity
Cash generated from operations was £29.5m (FY20: £47.0m outflow) driven by
an improvement in operating profit and efficient working capital management.
This has resulted in a £38.9m free cash inflow for the year (FY20: £31.6m).
Net cash at the year-end was £119.4m (FY20: £102.9m).
Payment in respect of the settlement of the Peterborough & Huntingdon
contract was made after the FY21 year-end and amounted to £43.4m.
The Group continues to maintain sufficient committed facilities to meet its
funding requirements over the medium term and, as at 31 December 2021, these
committed facilities totalled £310m in contract bonding and bank bonding
facilities.
Capital structure and dividends
The objective of our strategy is to deliver long-term value to shareholders
while maintaining a strong balance sheet that underpins our financial
position. Costain has targeted a dividend cover of around three times adjusted
earnings, taking into account the free cash flow generated in the period.
It is important that we maintain a strong balance sheet that will support
investment in the business to drive growth. Given the final settlement payment
made after the close of the financial year in respect of the Peterborough
& Huntingdon contract, the Board does not consider it appropriate to
recommend a final dividend this year, despite the Group's improved operating
and adjusted cash performance.
We recognise the importance of dividends to shareholders and will continue to
review the timing of the reinstatement of future dividends in the light of the
Group's performance, cash flow requirements and the importance of maintaining
a strong balance sheet.
Outlook
Looking ahead, we have already secured more than £1bn of Group revenue for
2022 and have entered the new year with good momentum. We are mindful of the
macro-economic and geopolitical backdrop, and we continue to monitor and work
to mitigate headwinds in commodity and energy costs, as well as challenges in
the supply chain. We expect to deliver further progress in 2022 and remain
confident in the Group's strategy and longer-term prospects.
STRATEGY UPDATE
Infrastructure is facing enormous change with challenges such as climate
change, resource scarcity, increasing performance obligations and our economic
and environmental resilience are more urgent than ever. At the start of 2021,
we completed a comprehensive strategy update that tested the size and scale of
our addressable markets in Transport, Water, Energy and Defence, and which
confirmed the significant growth opportunity for the Group. There is £650bn
of infrastructure investment planned over the next 10 years, underpinned by
legislative and regulatory commitments, as the government addresses issues
such as inequality and decarbonisation.
We believe that our strategic positioning in our four chosen markets, combined
with our differentiated offering, is well aligned with these long-term
investment plans, giving us significant opportunities for growth. Our core
strengths are in transport, water, defence, and energy, all of which have
major planned investment programmes, with investment cycles of between four to
fifteen years. These programmes include:
Transport Water Energy Defence
· £27bn RIS2 investment in strategic road network · £51bn AMP7 Ofwat approved investment · £30bn RIIO-2 investment in clean energy · £42bn defence budget
· £72bn+ for HS2 · £12bn 10-point plan for a green industrial revolution · £17bn increase in defence spending
· £96bn Integrated Rail Plan · £42bn private investment stimulated by the green industrial revolution
· £20bn Devolved and local authority investment
· £53bn CP6 rail investment
Clients are looking for partners to help them deliver their investment
programmes and navigate the challenges to doing so, and we believe that our
differentiated and unique approach positions us strongly to support them. Our
expertise and focus on key sectors allows us to understand the broad needs of
our clients across their strategy, and operational and capital expenditure
requirements, and by broadening our offer, we will be able to address more of
the market going forwards. We work as construction, consulting and digital
partners, solving problems and delivering engineered solutions across the full
client ecosystem. Our vision is to create connected, sustainable
infrastructure to help people and the planet thrive.
We are focused on three strategic priorities that will drive our strategic
ambition.
People
In delivering our vision, we are increasingly building high-performing,
diverse teams and are continually focused on upskilling our people and
enhancing our leadership capability. In the year, to deliver on our ambitions
and take advantage of the market opportunities, we have further strengthened
our Executive leadership team with Sam White joining from Babcock as Managing
Director for Natural Resources, Matthew Higham joining from Microsoft UK as
Chief Digital Officer, and Louise Bryant joining as Group Communications and
Investor Relations Director. These additions have now enhanced the expertise
and diversity of our executive management team, supporting the delivery of our
strategy.
The safety of our people and our stakeholders is a core value for Costain and
it has been our long-term strategy to improve our performance. In FY21, our
Lost Time Injury Rate (LTIR) was 0.15, in line with the pre-COVID level, the
best comparator given the reduced number of people on site and strict control
measures in place during the pandemic. The long-term strategies we have been
implementing since 2016 have seen LTIR halve and we expect to deliver further
improvements and maintain our industry leading performance in FY22.
We have continued to operate effectively throughout 2021, despite the
challenges to our business operations from the pandemic. We continue to listen
to the views of our people regarding our COVID-19 safety measures, which we
kept in place on all our sites and offices throughout the year. This approach
has enabled us to maintain effective operations in all parts of our business,
as well as prioritise the safety of our people.
Planet
Protecting nature and the environment to safeguard our planet for future
generations is fundamental. While we have made some progress, there is much
more to do, and we have recently committed to achieve Science Based Target
accreditation in climate and nature. We are also undertaking a wider review of
our sustainability strategy to see what more we can do.
We continue to implement our Climate Change Action Plan, with a 20% reduction
in plant idling achieved and continued decarbonisation of our vehicle fleet.
This includes mandating hydrotreated vegetable oil (HVO) fuels and the
transition to fully electric and hydrogen construction plant, with performance
monitored using digital technology including telematics. We are already making
substantial progress to transition the whole car fleet (more than 3,000
vehicles) to a 100% zero emission fleet, comprising 100% electric and hydrogen
vehicles by 2030. Progress of all targets is measured and monitored on every
relevant contract and reported monthly through the Group and divisional SHE
dashboards.
Since 2020 we have been accredited PAS2080 compliant and in 2021 we joined the
COP26 Race to Zero campaign and the signed 'The Climate Pledge'
(https://www.theclimatepledge.com/) , an initiative with the ambition to beat
the Paris Agreement 2050 target by achieving net zero by 2035 at the latest.
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.
As a result of the significant commercial issues faced on the legacy
Peterborough & Huntingdon and A465 contracts, a key focus area has been a
root cause review and upgrade of the Group's contract risk management and
delivery assurance processes.
Based on the findings and conclusions of the root cause review, we have
implemented a programme of significant improvements during the past two years
including:
Work winning
· Contract selection - an updated contract bidding process to ensure
contracts will not be pursued where the risk apportionment is considered
inappropriate.
· Independent risk review - comprehensive expert risk review of all
potential new material contracts by specialist teams outside the contract
bidding team.
· Enhanced legal process - the legal team has been restructured and
strengthened to ensure that contracts being entered into are rigorously
assessed and assumptions and terms documented to the highest standards and
clarity in the event of future legal challenge.
Operational contract delivery
· Operational Excellence Model (OEM) - developed a root and branch OEM,
which is implemented across the whole construction contract portfolio. The OEM
ensures rigorous process management and consistent practices are applied
across the Group, including sharing of best practice and lessons learned.
Compliance with the OEM is assessed and reviewed monthly.
Financial performance
· Financial Oversight - the financial performance of every contract is
comprehensively reviewed monthly, including a holistic assessment of the risks
and range of potential outcomes, to ensure timely action is taken where
financial performance is potentially deviating from that assumed in the
bidding process.
Senior management ownership
· Review process - rigorous and clear process guidelines are in place
to ensure timely, proactive and appropriate communication of on the ground
delivery issues to the executive management team and, if necessary, to the
Board.
· Review process - rigorous and clear process guidelines are in place
to ensure timely, proactive and appropriate communication of on the ground
delivery issues to the executive management team and, if necessary, to the
Board.
Operating profit growth
The strategy will deliver a transformation in the business over the next few
years, with a step change in business performance in four key areas which will
support the ambition to deliver a future group operating margin of 5-6%. These
key margin enhancement levers are:
1. Improving margins on complex programme delivery (CPD) contracts - our
OEM programme is delivering CPD contracts in line with our target margin range
of 3-5% and we are trading out the proportion of revenue from historic lower
margin contracts.
2. Growing our consulting services - this is developing well, with
contract margins growing to more than 5% as we increasingly build our
reputation and expertise, together with continuing to secure consultancy
frameworks with our clients.
3. Growing digital services - building on our digital expertise, we are
helping our clients shape and develop their plans and we see a considerable
opportunity as infrastructure markets move to greater digital infrastructure
to enhance business performance. We expect contract margins in this area of
more than 5%. We have new leadership in this area and are investing in a clear
and focused plan.
While our complex programme delivery services include the benefits of our
consulting and digital expertise, and will therefore increase margins, we are
also growing our standalone consulting and digital services. Taken together,
we expect to deliver a progressive increase in operating profit and operating
margin as we implement our strategy.
At present our work within Energy and Defence, for example, is purely
consulting with no construction contracts for our clients. We expect
consulting and digital as a standalone service to be an increasing proportion
of Group profits in the future.
To support our investment in transforming the business we remain focused on
increased business efficiency - this commenced in 2020 with the strategic
update, and continues to develop as we look at data, systems and process
improvements.
Corporate positioning
Following the strategy update in early 2021 we have introduced a vision, 'To
create connected, sustainable infrastructure enabling people and the planet to
thrive'. We are rolling this out externally and across the Group to ensure
that our people understand how it relates to them in their everyday roles. We
have also introduced our mission, which is the shorter-term articulation of
our vision: 'We shape, create and deliver pioneering solutions that transform
the performance of the infrastructure ecosystem'. This reflects the new
positioning and feedback so far has been very positive.
DIVISIONAL REVIEW
TRANSPORTATION
£m FY21 adjusted(1) FY21 reported FY20 adjusted(1) FY20 reported Adjusted(1) change
Road 408.9 408.9 315.2 265.1 29.7%
Rail 356.4 356.4 306.3 306.3 16.3%
Integrated transport 99.0 99.0 102.6 102.6 -3.6%
Total revenue 864.2 864.2 724.2 674.1 19.3%
Operating profit/(loss) 41.4 49.8 20.1 (30.6) 106.0%
Operating margin 4.8% 5.8% 2.8% -4.5% 2.0pp
1. Please see notes 3 and 4.
· Adjusted revenue up 19.3% driven by National Highways and HS2.
· Adjusted operating margin was 4.8%, up 2.0 percentage points due to
more effective contract management and outperformance.
· Contract wins of £248m in the year, with FY22 secured revenue of
£764m.
· Conclusion reached on the A465 contract.
Adjusted revenue was up 19.3% driven by work for National Highways, High Speed
2 (HS2) Main Works and Network Rail, which represent the majority of our
divisional revenue. This also drove a significant improvement in operating
margin, together with better contract management, outperformance and a change
in mix as lower margin contracts come to an end. Reported operating profit of
£49.8m includes a provision release of £8.4m following settlement of the
A465 contract.
Adjusted revenue for Road increased by 29.7% in FY21 on the prior year. As a
strategic partner for National Highways, we are working with our client on two
of their ten-year key investment programmes; the Regional Delivery
Partnerships (RDP) major projects framework and the SMP Alliance, delivering
smart motorway upgrades. We work on a number of projects across our
capabilities of complex programme delivery, consulting and digital services.
We successfully delivered the A19 Testo's scheme in Tyneside and the adjacent
A19 Down Hill Lane Junction improvement scheme, providing a safer, more
accessible and fluid road network with extra capacity to support economic
growth. We have also been upgrading parts of the A1 around Newcastle under the
RDP framework and during the year we commenced construction on the A30 in
Cornwall. Pre-construction and design activities have been progressing well on
the A12 Chelmsford to A120 scheme. While the response to the Transport Select
Committee Report into the rollout and safety of smart motorways has paused
elements of the smart motorways programme, our work delivering the upgrade to
the M6 Junctions 21a/26 continues, and we have been supporting National
Highways to upgrade stopped vehicle detection and deliver more emergency
areas.
Adjusted revenue for Rail increased by 16.3% in FY21 on the prior year,
principally as a result of HS2 which increased in the year as a substantial
completion of the enabling works was achieved and the full year impact of the
construction phase of the main works programme. We will commence the main
tunnel bores this summer, and in total we will operate seven tunnel boring
machines providing HS2 with 26 miles of running tunnel between Euston and West
Ruislip with scheduled contract completion in 2027. We have been providing
consulting services to support the Hybrid Bill for the route from Birmingham
to Crewe and Manchester, connecting the HS2 network with the North, which are
a key part of the Rebalancing Britain initiative. Our work on the Gatwick
Airport Station Project for Network Rail was augmented by the client in the
year, and being on site also enabled us to unlock a significant consulting
opportunity to upgrade the Brighton mainline, improving travel times. During
the year we also completed the handover of the Paddington Elizabeth line
station.
Adjusted revenue for Integrated Transport declined by 3.6% in FY21 on the
prior year, due to a reduction in a maintenance contract and plant hire
revenue more than offsetting increases elsewhere. Integrated Transport
includes work for devolved and local governments, and aviation. Work we
undertook in the year includes Newquay Airport for the G7 Summit and
commencing the revitalisation of the A40 Westway for Transport for London
(TfL). We have continued to grow our consulting services to central and local
government 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. In February 2021 we reached a settlement agreement with
the Welsh Government in relation to the A465 contract and completed the works
in November 2021.
Looking ahead, we continue to see multi-year revenue growth in our work for
HS2 and Network Rail, alongside further local government and integrated
transport opportunities.
During the year we secured £248m of new work. Revenue secured for FY22 for
Transportation is £764m (Prior year: £762m).
NATURAL RESOURCES
£m FY21 adjusted(1) FY21 reported FY20 adjusted(1) FY20 reported Adjusted(1) change
Water 200.0 200.0 223.0 223.0 -10.3%
Energy 72.0 28.6 87.5 45.5 -17.7%
Defence 42.4 42.4 34.6 34.6 22.3%
Total revenue 314.4 271.0 345.1 303.1 -8.9%
Operating profit/(loss) (2.6) (50.6) 5.7 (51.7) -145.6%
Operating margin -0.8% -18.7% 1.7% -17.1% -2.5pp
1. Please see notes 3 and 4.
· Adjusted revenue was down 8.9% and operating profit was down 145.6%
driven by lower activity levels in Water and Energy.
· Adjusted operating margin was -0.8%, down 2.5 percentage points on an
adjusted basis.
· Contract wins of £185m in the year, with 2022 secured revenue of
£271m.
· Full and final settlement on legacy Peterborough & Huntingdon
contract of £43.4m see adjustments to reported items on page 3 for further
details.
· Sam White appointed as Managing Director for Natural Resources.
Adjusted revenue for the year was down 8.9% driven by lower activity levels
across AMP7 water programmes and slower than anticipated investment in the
energy market. The operating margin for Natural Resources on an adjusted basis
was down 2.1 percentage points, reflecting the lower revenue and increased
costs, particularly in the water sector. Included within the adjusted results,
and in line with IFRS 15 requirements, we have recognised a £6.2m provision
in respect of a defect in a subcontractor's works for a contract in the water
sector. We expect the majority of the rectification costs will be recoverable.
Adjusted revenue for Water declined by 10.3% on the prior year. This was
driven by lower volumes of activity in the AMP7 water programmes as clients
adjusted their year-one projects due to COVID-19. As the year progressed,
volumes improved as the year-two programmes commenced, and we are now
undertaking work with key clients including Severn Trent Water, Southern
Water, Thames Water and United Utilities under their five-year programmes
through to 2025. We have made good progress on the Thames Tideway project,
where in a joint venture, we are responsible for the eastern section. We are
also working with Anglian Water on its eight-year Strategic Pipeline Alliance
to develop an enterprise-ready digital twin, which will replicate all activity
and interactions across the operational system allowing Anglian Water to
create predictive "what-if" scenarios and their impact on operations. In
addition, we are providing bespoke consulting services to Yorkshire Water,
South Staffs Water and Welsh Water.
Adjusted revenue for Energy declined by 17.7% on the prior year. In H1, we saw
a number of contract awards deferred into H2 which had a high demand for our
engineering and consultancy services. We are one year into a 10-year
consultancy project for Cadent, managing the mains replacement programme
across the East of England. We have also been successful in gaining a further
two-year extension to our EDF Project Controls framework contract where we are
supporting them in the safe, efficient operation and decommissioning of their
eight UK nuclear power stations.
We continue to build a portfolio of project and consultancy assignments in key
areas of the energy transition agenda. 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, including as deployment
lead on the £38m South Wales Industrial Cluster deployment project; the Front
End Engineering Design (FEED) for the Acorn carbon capture and storage scheme
in St Fergus, Scotland; and a first-of-a-kind hydrogen storage facility in
Cheshire.
Adjusted revenue for Defence increased by 22.3% on the prior year. We saw good
growth in the year, albeit from a small base, as we grow our footprint in this
area. We are well positioned in the Ministry of Defence Continuous and Sea
Defence programme, and our ambition is to be the delivery partner of choice
across the Ministry of Defence's (MoD) strategic infrastructure needs. 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 coordinating the work of several subcontractors. We have been
awarded a place on a number of Crown Commercial Service Frameworks and through
these we secured two contracts with the Defence Nuclear Organisation, one of
which is the provision of a Programme Management Office to support the
infrastructure division. In addition, we are pleased to have won a significant
consultancy contract for the rebuilding of facilities at Devonport Dockyard,
which will mobilise in 2022.
Looking ahead, we see further opportunities for growth across Energy,
supporting decarbonisation, and in Defence where we are broadening our market
position to cover all strategic defence and security infrastructure.
During the year we secured £185m of new work. Revenue secured for FY22 for
Natural Resources is £271m (Prior year: £278m).
FINANCIAL REVIEW
Adjusted to reported reconciliation
Transportation Natural Resources Group
2021 2020 Change 2021 2020 Change 2021 2020 Change
Revenue £m
Adjusted 864.2 724.2 19.3% 314.4 345.1 -8.9% 1,178.6 1.070.5 10.9%
Adjusting items - (50.1) (43.4) (42.0) (43.4) (92.1)
Reported 864.2 674.1 28.2% 271.0 303.1 -10.6% 1,135.2 978.4 16.0%
Operating profit £m
Adjusted 41.4 20.1 106.0% (2.6) 5.7 n/m 30.1 18.0 67.2%
Adjusting items 8.4 (50.7) (48.0) (57.4) (39.6) (110.0)
Reported 49.8 (30.6) n/m (50.6) (51.7) 2.1% (9.5) (92.0) 89.7%
Adjusting items
Significant contract provisions were taken in the year, amounting to £39.2m.
A provision of £43.4m was taken in relation to the settlement of the
Peterborough & Huntingdon contract, along with £4.2m of other costs
associated with the dispute. We also released a provision of £8.4m on lower
than provided final costs relating to the A465, and incurred £0.4m on
amortisation of acquired intangible assets.
Net financial expense
Net finance expense amounted to £3.8m (FY20: £4.3m). The interest payable on
bank overdrafts, loans and other similar charges was £3.0m (FY20: £4.1m) and
the interest income from bank deposits and other loans and receivables
amounted to £0.1m (FY20: £0.6m). In addition, the net finance expense
includes the interest income on the net assets/liabilities of the pension
scheme of £nil (FY20: £0.2m income) and the interest expense on lease
liabilities of £0.9m (FY20: £1.0m) under IFRS16.
Tax
The Group has a tax credit of £7.5m (FY20: £18.1m credit) giving an
effective tax rate of 56.4%. The 2021 net tax credit arose primarily from the
£7.8m impact of the rate change (from 19% to 25% in 2023, which has now been
substantively enacted) on deferred tax recognised in respect of losses and
pensions. The adjusted effective tax rate was -5.7% (FY20: 10.8%) and we
expect the effective tax rate to remain close to the statutory tax rate of 19%
until 2023.
Cashflow
The Group generated a £38.9m free cash inflow for the year (FY20: £32.4m).
£m FY21 FY20
Cash flow from operating activities 29.5 (47.0)
Add back adjusting items 11.6 82.7
Less capital expenditure (2.2) (4.1)
Free cash flow 38.9 31.6
The Group had a positive net cash balance of £119.4m as of 31 December 2021
(HY21: £113.0m, FY20: £102.9m) comprising Costain cash balances of £101.3m
(HY21: £100.0m, FY20: £89.8m), cash held by joint operations of £58.1m
(HY21: £57.0m, FY20: £61.1m) and borrowings of £40.0m (before arrangement
fees of £0.6m (FY20: £1.2m)) (HY21: £44.0m, FY20: £48.0m). During the
year, the Group's average month-end net cash balance was £106.5m (HY20:
£102.9m, FY20: £73.8m).
£m FY21 FY20
Cash and cash equivalents at the beginning of period 150.9 180.9
Net cash flow 8.5 (29.4)
FX 0.0 (0.6)
Cash and cash equivalents at the end of period 159.4 150.9
Borrowings (40.0) (48.0)
Net cash 119.4 102.9
Note: Borrowings are stated excluding associated arrangement fees of £0.6m
(2020: £1.2m), which are being amortised over the period of the facility.
We remain in a positive net cash position, with positive Costain cash
balances, following the final settlement payment made after the end of the
financial year in respect of the Peterborough & Huntingdon contract.
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 £171.0m with its relationship banks with a maturity
date of 24 September 2023. These facilities are made up of a £131.0m
revolving credit facility and a £40.0m term loan.
In addition, the Group has in place committed and uncommitted bonding
facilities of £310m. Utilisation of the total bonding facilities as at 31
December 2021 was £100.7m (HY20: £103.2m, FY20: £112.3m).
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, maintaining a strong balance sheet and returns to
shareholders. We look to prioritise investment as follows:
1. Investing for growth - disciplined investment in key areas such as
digital to help accelerate our business transformation
2. Progressive dividend - committed to reinstating the dividend and we
target divided cover of around three times underlying earnings taking into
account the free 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 - ensuring surplus capital is identified and
returned to shareholders through share buy backs of additional dividends.
The Board have discussed the appropriate time to reinstate the payment of a
dividend. Despite the Group's improved cash performance, given the £43.4m
payment to National Grid and the need to retain a strong balance sheet, the
Board does not consider it appropriate to recommend a final dividend this
year.
Pensions
As at 31 December 2021, the Group's pension scheme surplus in accordance with
IAS 19, was £67.1m (HY21: £29.0m surplus, FY20: £5.6m liability).
The movement in the IAS 19 valuation from a deficit at 31 December 2020 to a
surplus at 31 December 2021 was due to the impact of growth in scheme assets
and a reduction in scheme liabilities, primarily driven by a higher discount
rate of 1.80% used in the IAS 19 valuation as at 31 December 2021 compared to
the discount rate at 31 December 2020 of 1.35%.
Cash contributions were made to the scheme during the year amounting to
£10.4m (FY20: £10.6m) and the charge to operating profit in respect of the
administration cost of the UK Pension Scheme in the period was £0.3m (FY20:
£0.3m).
DIRECTORS REPORT
Going concern
In determining the appropriate basis of preparation of the financial
statements for the year ended 31 December 2021, 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.
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.
For and on behalf of the Board
Alex Vaughan
Helen Willis
Chief Executive
Officer
Chief Financial Officer
9 March 2022
GROUP INCOME STATEMENT
For the year ended 31 December 2021
£m Notes 2021 2020
Group revenue 4 1,135.2 978.4
Cost of Sales (1,095.0) (1,027.0)
Gross profit/(loss) 40.2 (48.6)
Administrative expenses (49.7) (43.4)
Group operating loss (9.5) (92.0)
Share of results of joint ventures and associates - 0.2
Loss from operations 4 (9.5) (91.8)
Finance income 5 0.1 0.8
Finance expense 5 (3.9) (5.1)
Net finance expense (3.8) (4.3)
Loss before tax (13.3) (96.1)
Taxation 6 7.5 18.1
Loss for the year attributable to equity holders of the parent (5.8) (78.0)
Earnings/(loss) per share
Basic 7 (2.1)p (36.7)p
Diluted 7 (2.1)p (36.7)p
GROUP STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
For the year ended 31 December 2021
£m 2021 2020
Loss for the year (5.8) (78.0)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations - 0.2
Exchange differences on translation transferred to the income statement - (1.2)
Net investment hedge:
Effective portion of changes in fair value during year - 0.1
Net changes in fair value transferred to the income statement - 0.4
Cash flow hedges :
Effective portion of changes in fair value during year 0.3 (0.3)
Net changes in fair value transferred to the income statement - 0.5
Total items that may be reclassified subsequently to profit or loss 0.3 (0.3)
Items that will not be reclassified to profit or loss:
Remeasurement of retirement benefit asset/(obligations) 62.7 (19.9)
Tax recognised on remeasurement of retirement benefit asset/(obligations) (15.6) 3.8
Total items that will not be reclassified to profit or loss 47.1 (16.1)
Other comprehensive income/(expense) for the year 47.4 (16.4)
Total comprehensive income/(expense) for the year attributable to equity 41.6 (94.4)
holders of the parent
GROUP BALANCE SHEET
As at 31 December 2021
£m Notes 2021 2020
Assets
Non-current assets
Intangible assets 9 52.5 52.1
Property, plant and equipment 10 32.0 39.9
Equity accounted investments 0.4 0.4
Retirement benefit asset 67.1 -
Trade and other receivables 5.5 3.5
Deferred tax 15.4 23.6
Total non-current assets 172.9 119.5
Current assets
Inventories 0.3 0.6
Trade and other receivables 199.6 218.7
Taxation 0.2 0.2
Cash and cash equivalents 11 159.4 150.9
Total current assets 359.5 370.4
Total assets 532.4 489.9
Liabilities
Non-current liabilities
Retirement benefit obligations 12 - 5.6
Other payables 1.8 1.1
Interest bearing loans and borrowings 32.0 39.6
Lease liabilities 18.2 20.8
Total non-current liabilities 52.0 67.1
Current liabilities
Trade and other payables 215.1 246.0
Interest bearing loans and borrowings 7.4 7.2
Lease liabilities 8.6 12.5
Provisions for other liabilities and charges 50.3 0.6
Total current liabilities 281.4 266.3
Total liabilities 333.4 333.4
Net assets 199.0 156.5
Equity
Share capital 13 137.5 137.5
Share premium 16.4 16.4
Translation reserve 0.6 0.6
Hedging reserve - (0.3)
Retained earnings 44.5 2.3
Total equity 199.0 156.5
GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 31 December 2021
£m
Share capital Share premium Translation reserve Hedging reserve Merger reserve Retained earnings Total equity
At 1 January 2020 54.1 16.4 1.1 (0.5) - 86.6 157.7
Loss for the year - - - - - (78.0) (78.0)
Other comprehensive (expense)/ income - - (0.5) 0.2 - (16.1) (16.4)
Shares purchased to satisfy employee share schemes - - - - - (0.2) (0.2)
Equity-settled share-based payments - - - - - 0.9 0.9
Capital raise (note 13) 83.4 - - - 9.1 - 92.5
Transfer - - - - (9.1) 9.1 -
At 31 December 2020 137.5 16.4 0.6 (0.3) - 2.3 156.5
At 1 January 2021 137.5 16.4 0.6 (0.3) - 2.3 156.5
Loss for the year - - - - - (5.8) (5.8)
Other comprehensive income - - - 0.3 - 47.1 47.4
Shares purchased to satisfy employee share schemes - - - - - (0.2) (0.2)
Equity-settled share-based payments - - - - - 1.1 1.1
At 31 December 2021 137.5 16.4 0.6 - - 44.5 199.0
GROUP CASH FLOW STATEMENT
For the year ended 31 December 2021
£m Notes 2021 2020
Cash flows from/(used by) operating activities
Loss for the year (5.8) (78.0)
Adjustments for:
Share of results of joint ventures and associates - (0.2)
Finance income 5 (0.1) (0.8)
Finance expense 5 3.9 5.1
Taxation 6 (7.5) (18.1)
Impairment of Alcaidesa marina - 0.6
Impairment of other investment - 0.6
Profit on sales of interests in joint ventures and associates - (1.6)
Profit on disposal of subsidiary undertakings - (1.4)
Pension GMP equalisation charge - 0.9
Depreciation of property, plant and equipment 10 12.9 15.0
Amortisation and impairment of intangible assets 9 1.1 10.5
Shares purchased to satisfy employee share schemes (0.2) (0.2)
Share-based payments expense 1.1 0.9
Cash from/(used by) operations before changes in working capital and 5.4 (66.7)
provisions
Decrease in inventories 0.3 0.7
Decrease in receivables 17.7 25.5
Decrease in payables (29.9) (0.1)
Movement in provisions and employee benefits 39.7 (10.4)
Cash from/(used by) operations 33.2 (51.0)
Interest received 0.1 0.8
Interest paid (3.9) (5.1)
Taxation received 0.1 8.3
Net cash from/(used by) operating activities 29.5 (47.0)
Cash flows from/(used by) investing activities
Dividends received from joint ventures and associates - 0.2
Additions to property, plant and equipment (0.7) (0.5)
Additions to intangible assets (1.5) (3.6)
Proceeds of disposals of property, plant and equipment and intangible assets - 0.3
Proceeds of sales of interests in joint ventures and associates - 3.7
Proceeds of sales of subsidiary undertakings - 4.6
Net cash (used by)/from investing activities (2.2) 4.7
Cash flows from/(used by) financing activities
Issue of ordinary share capital - 92.5
Repayments of lease liabilities (10.8) (12.1)
Drawdown of loans - 71.5
Repayment of loans (8.0) (139.0)
Net cash (used by)/from financing activities (18.8) 12.9
Net increase/(decrease) in cash and cash equivalents 8.5 (29.4)
Cash and cash equivalents at beginning of the year 11 150.9 180.9
Effect of foreign exchange rate changes - (0.6)
Cash and cash equivalents at end of the year 11 159.4 150.9
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 2021 comprise the
Group and the Group's interests in associates, joint ventures and joint
operations and have been prepared and approved by the directors in accordance
with UK-adopted international accounting standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those
standards. In preparing the financial statements of the Group we performed an
assessment of the impact of climate change, with reference to the disclosures
made in the Strategic report. There has been no material impact on the
financial statements for the current year from the Group's assessment of the
impact of climate change, including estimates and judgements made,
specifically in relation to long-term contract accounting.
A duly appointed and authorised committee of the Board of Directors approved
the preliminary announcement on 8 March 2022. The financial information set
out above does not constitute the Company's statutory accounts for the years
ended 31 December 2021 and 2020 but is derived from those accounts. Statutory
accounts for 2020 have been delivered to the Registrar of Companies and those
for 2021 will be delivered in due course.
The auditor has reported on these accounts. Their report for 2021 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 2020 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 International Financial Reporting Standards
(IFRS), this announcement does not itself contain sufficient information to
fully comply with IFRS.
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. These borrowing facilities give the Group access to an
RCF cash drawdown component of £131m and a £40m 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 31 December
2021, the Group had a leverage covenant ratio of below zero (the Group had no
net debt) and an interest covenant ratio of 11.0 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 year ended 31 December 2021, the Directors are required to
consider whether the Group and the Company can continue in operational
existence for the foreseeable future, being a period of at least twelve months
from the date of approval of the accounts. Having undertaken a rigorous
assessment of the financial forecasts, including its liquidity and compliance
with covenants, the Board considers that the Group and the Company have
adequate resources to remain in operation for the foreseeable future and,
therefore, have adopted the going concern basis in the preparation of the
financial statements.
In assessing the going concern assumption, the Board reviewed the 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 Q4 of FY22, and Q1 and 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 and Q1 of FY23 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
To aid understanding of the underlying and overall performance of the Group,
certain amounts that the Board considers to be material or non-recurring in
size or nature or related to the accounting treatment of acquisitions are
adjusted because they are not long term in nature and will not reflect the
long-term performance of the Group. Presenting results on this adjusted basis
is consistent with the internal reporting presented to the Board.
The Directors exercise judgement in determining the classification of certain
items as adjusting using quantitative and qualitative factors. In assessing
whether an item is an adjusting item, the Directors give consideration, both
individually and collectively, as to an item's size, the specific
circumstances which have led to the item arising and if the item is likely to
recur, or whether the matter forms part of a group of similar items.
The separate presentation of these items is intended to enhance understanding
of the financial performance of the Group in the particular year under review
and the extent to which results are influenced by material unusual and/or
non-recurring items. The tax impact of the above is shown in note 3 to the
financial statements on the taxation line.
Consequently, the Group is disclosing as supplementary information 'Adjusted
revenue, Adjusted profit and Adjusted earnings per share' alternative
performance measurements. These are reconciled to statutory numbers in note 3
to the financial statements and reported in the presentation of segmental
reporting in note 4.
The Group also presents net cash/ bank debt as an alternative performance
measure. The Directors consider that this provides useful information about
the Group's liquidity position.
2. SIGNIFICANT AREAS OF JUDGEMENT AND ESTIMATION
The estimates and underlying assumptions used in the preparation of these
financial statements are reviewed on an ongoing basis. Revisions to accounting
estimates are recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision and future
periods if the revision affects both current and future periods.
The most critical accounting policies and significant areas of estimation and
judgement arise from the accounting for long-term contracts under IFRS 15
'Revenue from Contracts with Customers', the carrying value of goodwill and
acquired intangible assets, the assumptions used in the accounting for defined
benefit pension schemes under IAS 19 'Employee benefits', the recognition of
deferred tax assets in relation to tax losses and the items classified as
other items and contract adjustments.
Long-term contracts
The majority of the Group's activities are undertaken via long-term contracts
and IFRS 15 requires the identification and separation of individual, distinct
performance obligations, which are then accounted individually. The most
common type of contracts undertaken by the Group with multiple performance
obligations are framework contracts. In most cases, the obligations are
satisfied over time and estimates are made of the total contract costs and
revenues. In many cases, these obligations span more than one financial
period. Both cost and revenue forecasts may be affected by a number of
uncertainties that depend on the outcome of future events and may need to be
revised as events unfold and uncertainties are resolved. Cost forecasts take
into account the expectations of work to be undertaken on the contract.
Revenue forecasts take into account compensation events, variations and claims
and assessments of the impact of pain/gain arrangements to the extent that the
amounts the Group expects to recover or incur 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 limited cases, assessments of recoveries
from insurers where 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.
During the course of the contract, there is often significant change to the
scope of the works and this has an impact on the programme and costs on the
contract. The amount of resulting compensation events can be substantial and
at any time these are often not fully agreed with the customer due to the
timing and requirements of the contractual process. Also many will relate to
work yet to be undertaken or completed. Therefore, assessments are based on an
estimate of the potential cost impact of the compensation events.
The Group's five largest compensation events positions included in contract
assets at the year-end are summarised in aggregate below. The Peterborough
& Huntingdon contract is not included in the table and is discussed
separately below.
£m 2021 2020
Overall contract value 1,501.9 1,135.6
Revenue in year 146.3 176.9
Total estimated end of contract compensation events 135.4 83.1
Total estimated unagreed end of contract compensation events (included in the 96.1 51.3
above)
Total unagreed compensation events valued at year-end and included in contract 22.9 22.5
assets
The financial impact of changes to the value of compensation events finally
agreed will depend on the precise terms of the contract and the interaction
with incentive arrangements, such pain/gain mechanisms and bonus or KPI
arrangements, and any assessments made about costs disallowed under the
contract. If the estimated value of the unagreed end of contract compensation
events in relation to the currently estimated change in these contracts was
increased or decreased by 10%, the impact on the financial results over the
life of the contract could be an increase or decrease of up to £9.6m (2020:
up to £7.0m). Additional compensation events for further change may also
arise over the remaining contract period.
The estimates of the contract position and the profit or loss earned to date
are updated regularly and significant changes are highlighted through
established internal review procedures. The impact of any change in the
accounting estimates 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 knowledge, there are a number of
factors affecting the positions and some possible outcomes could require
material adjustment within the next financial year. Given the pervasive impact
of judgements and estimates on revenue, cost of sales and related balance
sheet amounts, it is difficult to quantify the impact of taking alternative
assessments on each of the judgements above. However, a sensitivity analysis
of the potential impact is included above.
Peterborough & Huntingdon
On 24 February 2022, Costain announced that it had reached a final settlement
with National Grid regarding the Peterborough & Huntingdon contract. The
settlement agreement brings an end to the dispute after the contract was
mutually terminated in June 2020 and prevents any further claims under the
contract. Costain made a full and final payment of £43.4m to National Grid,
after the end of the financial year 2021. See note 3 for further details.
Carrying value of goodwill and intangible assets
Reviewing the carrying value of goodwill and intangible assets recognised on
acquisition requires an estimation of the value in use of cash generating unit
to which the goodwill has been allocated. These valuations involve estimation
and judgement, principally, in respect of the levels of operating margins,
growth rates and future cash flows of the cash generating units and also
include a consideration of potential sensitivities around those figures. The
useful lives of intangible assets and the selection of discount rates used to
calculate present values 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 six years. The
critical judgements in assessing the recoverability relate 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
Management has used judgement to determine the items classified as adjusting
items and set out in note 3.
3. RECONCILIATION OF REPORTED REVENUE AND OPERATING (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 contracts, Peterborough & Huntingdon (P&H),
the A465 Heads of the Valley road (A465) and the ASF South contracts, as
described below, 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.
The profit adjustments represent the amounts included in the income statement.
The revenue adjustments represent the reversal of the contract asset recorded
in the statement of financial position immediately prior to the initial write
down and any subsequent adjustment to overall contract revenue.
On 29 June 2020, Costain announced that a termination and settlement agreement
(the "Agreement") had been reached with National Grid to cease work on the
Peterborough & Huntingdon ("P&H") gas compressor project (the
"Contract") following a significant change in scope. The Agreement included
the parties entering into a legal process, through adjudications, to agree up
to £80.0m of identified compensation events, recover costs incurred and
eliminate potential liability to National Grid for completing the works.
Under the terms of the Agreement, the aggregate potential outcome for Costain
of these adjudications ranged from an additional cash receipt of up to a
maximum of £50.0m to a cash payment (which would not affect the Group's
banking arrangements) of up to a maximum of £57.3m. As outlined in the
Agreement, Costain and National Grid had until 28 December 2021, to agree the
quantum of these compensation events. After this, in accordance with the
contractual mechanism, any remaining unagreed change items would require a
cash payment to be paid to National Grid in the interim. Should such a cash
payment be required, this would be required to be made in the first quarter of
2022.
Subsequent to reaching this agreement, in its interim results for the six
months ended 30 June 2020, Costain recorded a charge to the income statement
of £49.3m, reflecting the cash position at termination. See below for further
details.
At 31 December 2020, the Group, supported by extensive input from third party
quantum, delay and disruption experts and independent legal advice, determined
that it had a strong entitlement to retain, at a minimum, the reported
position. No asset or liability was recorded on the balance sheet at this
time.
On 10 December 2021, Costain received the outcome of a material combined
adjudication where the adjudicator found in Costain's favour on principle in
respect of three out of four compensation events under consideration.
However, the adjudicator unexpectedly declined to make a quantum assessment
and noted that had he been able to determine quantum, this would only be in
respect of non-productive time-related costs. In doing so the adjudicator
therefore indicated that he would have sought to apply a methodology that was
not envisaged nor widely used within the construction industry, nor was it in
accordance with or defined within the contract. The impact of this would have
been to allow recovery of only a small proportion of the additional costs
incurred and claimed. This left the matter undecided and, in respect of
certain matters, the subject of further adjudication.
Accordingly, in the absence of a quantified resolution via adjudication by 28
December 2021, Costain would have been required to make a payment to National
Grid of £53.5m in January 2022. This payment was required notwithstanding any
potential subsequent recoveries from National Grid which might become due as a
result of further actions to recover costs, including in respect of those
compensation events that had been ruled in Costain's favour.
In assessing and determining the most appropriate steps to conclude this
matter, Costain considered the risks associated with pursuing further
recoveries via a potentially protracted process of further adjudication and
litigation, the residual future latent defect risks and the opportunity for
the release of retention bonds and parent company guarantees held by National
Grid, in addition to the ongoing and significant management time this would
require. On balance, Costain concluded in light of these changes in events,
that it was appropriate to enter into discussions with National Grid with a
view to reaching a settlement.
On 24 February 2022, Costain announced that it had reached a full and final
settlement with National Grid. The settlement agreement brings an end to the
dispute and prevents any further claims under the contract. Costain made a
full and final payment of £43.4m to National Grid in the first quarter of
2022. Related legal and other costs of £4.2m were also incurred and
expensed during the period ending 31 December 2021.
After careful consideration including obtaining legal advice, it is the
Board's clear view that there have been specific and unexpected changes in
circumstance that have occurred during 2021. These were not envisaged by the
Board or its external advisors nor could they reasonably have been foreseen
when reaching the conclusion in the December 2020 financial statements that it
was highly probable that Costain would be awarded compensation events
consistent with the cash neutral balance sheet position adopted. That
position had been the subject of detailed focus by independent experts and
legal advisors who had confirmed and supported the position taken.
After due consideration of the unexpected outcome of the adjudication process
during 2021, the Board concluded that it was appropriate to record the £43.4m
adjustment in the period ending 31 December 2021 as a charge to the income
statement. As disclosed in Note 3 this charge has been treated as an adjusting
item, consistent with the treatment adopted in respect of the P&H contract
in the prior year.
The A465 Heads of the Valley road contract was entered into in 2015 for the
Welsh Government. In 2020, an arbitration decided that Costain was responsible
for design information for a specific retaining wall and that the additional
building cost associated with the wall was not a compensation event under the
contract. As a consequence of the decision, at 30 June 2020, the Group
adjusted the revenue recognised based on the level of cash received to that
date and reflected a write down of the £45.4m contract asset. The Group
continued to fulfil its obligations under the contract, which was completed
during the current year. The final costs to complete were lower than forecast
at the end of 2020 and a profit of £8.4m is recognised in the year. 2020
adjusted Group revenue includes £18.0m of revenue on the A465 contract.
The ASF South contract was in respect of works undertaken for Highways England
that were completed in 2016. Following an extensive contract review in 2020,
the Group took a one-off charge of £5.0m to close out this legacy contract in
the 2020 results.
Year ended 31 December 2021 Adjusted P&H ASF South Other items Total
A465
£m £m £m £m £m £m
Revenue before 1,178.6 - - - - 1,178.6
contract adjustments
Contract adjustments - (43.4) - - - (43.4)
Group revenue 1,178.6 (43.4) - - - 1,135.2
Cost of sales (1,099.2) (4.2) 8.4 - - (1,095.0)
Gross profit/(loss) 79.4 (47.6) 8.4 - - 40.2
Administrative (49.3) - - - - (49.3)
expenses before
other items
Other items - - - - (0.4) (0.4)
Administrative expenses (49.3) - - - (0.4) (49.7)
Group operating 30.1 (47.6) 8.4 - (0.4) (9.5)
profit/(loss)
Share of results of - - - - - -
joint ventures and
associates
Profit/(loss) from 30.1 (47.6) 8.4 - (0.4) (9.5)
operations
Net finance expense (3.8) - - - - (3.8)
Profit/(loss) before 26.3 (47.6) 8.4 - (0.4) (13.3)
tax
Taxation 0.1 9.0 (1.6) - - 7.5
Profit/(loss) for the 26.4 (38.6) 6.8 - (0.4) (5.8)
period attributable to
equity holders of the
parent
Basic earnings/(loss) 9.6p (2.1)p
per share
Year ended 31 December 2020 Adjusted P&H ASF South Other items Total
A465
£m £m £m £m £m £m
Revenue before 1,070.5 - - - - 1,070.5
contract adjustments
Contract adjustments - (42.0) (45.4) (4.7) - (92.1)
Group revenue 1,070.5 (42.0) (45.4) (4.7) - 978.4
Cost of sales (1,019.4) (7.3) - (0.3) - (1,027.0)
Gross profit/(loss) 51.1 (49.3) (45.4) (5.0) - (48.6)
Administrative (33.1) - - - - (33.1)
expenses before
other items
Other items - - - - (10.3) (10.3)
Administrative expenses (33.1) - - - (10.3) (43.4)
Group operating 18.0 (49.3) (45.4) (5.0) (10.3) (92.0)
profit/(loss)
Share of results of 0.2 - - - - 0.2
joint ventures and
associates
Profit/(loss) from 18.2 (49.3) (45.4) (5.0) (10.3) (91.8)
operations
Net finance expense (4.3) - - - - (4.3)
Profit/(loss) before 13.9 (49.3) (45.4) (5.0) (10.3) (96.1)
tax
Taxation (1.5) 9.4 8.6 1.0 0.6 18.1
Profit/(loss) for the 12.4 (39.9) (36.8) (4.0) (9.7) (78.0)
period attributable to
equity holders of the
parent
Basic earnings/(loss) 5.8p (36.7)p
per share
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.
2021 Natural Central
Resources Transportation costs Total
£m £m £m £m
Segment revenue
Adjusted revenue 314.4 864.2 - 1,178.6
Contract adjustments (43.4) - - (43.4)
Group revenue 271.0 864.2 - 1,135.2
Segment profit/(loss)
Adjusted operating profit (2.6) 41.4 (8.7) 30.1
Contract adjustments (47.6) 8.4 - (39.2)
Operating loss before other items (50.2) 49.8 (8.7) (9.1)
Share of results of joint ventures and associates - - - -
Profit/(loss) from operations before other items (50.2) 49.8 (8.7) (9.1)
Other items:
Amortisation of acquired intangible assets (0.4) - - (0.4)
Profit/(loss) from operations (50.6) 49.8 (8.7) (9.5)
Net finance expense (3.8)
Loss before tax (13.3)
2020 Natural Central
Resources Transportation Alcaidesa costs Total
£m £m £m £m £m
Segment revenue
Adjusted revenue 345.1 724.2 1.2 - 1,070.5
Contract adjustments (42.0) (50.1) - - (92.1)
Group revenue 303.1 674.1 1.2 - 978.4
Segment profit/(loss)
Adjusted operating profit 5.7 20.1 (0.1) (7.7) 18.0
Contract adjustments (49.3) (50.4) - - (99.7)
Operating loss before other items (43.6) (30.3) (0.1) (7.7) (81.7)
Share of results of joint ventures and associates 0.2 - - - 0.2
Loss from operations before other items (43.4) (30.3) (0.1) (7.7) (81.5)
Other items:
Impairment of Alcaidesa marina - - (0.6) - (0.6)
Impairment of other investment - - - (0.6) (0.6)
Profit on sales of interests in joint ventures and associates 1.6 - - - 1.6
Profit on disposal of subsidiary undertakings - - 0.4 1.0 1.4
Refinancing advisory fees - - - (1.2) (1.2)
Pension GMP equalisation charge - - - (0.9) (0.9)
Amortisation of acquired intangible assets (0.7) (0.3) - - (1.0)
Impairment of goodwill (9.0) - - - (9.0)
Loss from operations (51.5) (30.6) (0.3) (9.4) (91.8)
Net finance expense (4.3)
Loss before tax (96.1)
5. NET FINANCE EXPENSE
£m 2021 2020
Interest income from bank deposits 0.1 0.5
Interest income on loans to related parties - 0.1
Interest income on the net assets of the defined benefit pension scheme - 0.2
Finance income 0.1 0.8
Interest payable on interest bearing bank loans, borrowings and other similar (3.0) (4.1)
charges
Interest expense on lease liabilities (0.9) (1.0)
Finance expense (3.9) (5.1)
Net finance expense (3.8) (4.3)
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 2021 2020
On loss for the year
UK corporation tax at 19.0% (2020: 19.0%) - (1.9)
Adjustment in respect of prior years 0.1 3.0
Current tax credit for the year 0.1 1.1
Deferred tax credit for the current year 8.4 19.7
Adjustment in respect of prior years (1.0) (2.7)
Deferred tax credit for the year 7.4 17.0
Tax credit in the consolidated income statement 7.5 18.1
£m
2021 2020
Tax reconciliation
Loss before tax (13.3) (96.1)
Taxation at 19.0% (2020: 19.0%) 2.5 18.3
Amounts qualifying for tax relief and disallowed expenses (0.3) (1.3)
Tax decrease from other tax effects - 0.6
Rate adjustment relating to deferred taxation and overseas profits and losses 6.2 0.2
Adjustments in respect of prior years (0.9) 0.3
Tax credit in the consolidated income statement 7.5 18.1
7. LOSS PER SHARE
The calculation of earnings per share is based on a loss of £5.8m (2020: loss
£78.0m) and the number of shares set out below.
2021 2020
Number Number
(millions) (millions)
Weighted average number of ordinary shares in issue for basic earnings per 274.9 212.8
share calculation
Dilutive potential ordinary shares arising from employee share schemes 5.1 2.9
Weighted average number of ordinary shares in issue for diluted earnings per 280.0 215.7
share calculation
8. DIVIDENDS
No dividends were paid or proposed in respect of the year ended 31 December
2021.
9. INTANGIBLE ASSETS
Goodwill Customer relationships Other acquired intangibles Other intangibles Total
£m £m £m £m £m
Cost
At 1 January 2020 54.1 15.4 9.7 10.8 90.0
Additions - - - 3.6 3.6
At 31 December 2020 54.1 15.4 9.7 14.4 93.6
At 1 January 2021 54.1 15.4 9.7 14.4 93.6
Additions - - - 1.5 1.5
At 31 December 2021 54.1 15.4 9.7 15.9 95.1
Accumulated amortisation
At 1 January 2020 - 14.3 9.4 7.3 31.0
Charge in year - 0.7 0.3 0.5 1.5
Impairment 9.0 - - - 9.0
At 31 December 2020 9.0 15.0 9.7 7.8 41.5
At 1 January 2021 9.0 15.0 9.7 7.8 41.5
Charge in year - 0.4 - 0.7 1.1
At 31 December 2021 9.0 15.4 9.7 8.5 42.6
Net book value
At 31 December 2021 45.1 - - 7.4 52.5
At 31 December 2020 45.1 0.4 - 6.6 52.1
At 1 January 2020 54.1 1.1 0.3 3.5 59.0
Goodwill has been allocated to the applicable cash generating units of the
transportation segment (£15.5 million (2020: £15.5 million)) and the natural
resources segment (£29.6 million (2020: £29.6 million)).
As described in note 2, the Group reviews the value of goodwill and in the
absence of any identified impairment risks, tests are based on internal value
in use calculations of the cash generating unit (CGU). The key assumptions for
these calculations are: operating margins, discount rates and growth rates.
Discount rates have been estimated based on pre-tax rates that reflect current
market assessments of the 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% and for the Natural Resources CGU was
14.3%. In 2020, the discount rates used for the two CGUs were Transportation
12.4% and Natural Resources 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 2020 12.5 32.3 19.5 21.2 85.5
Currency movements 0.8 0.3 - - 1.1
Additions - 0.5 1.2 19.1 20.8
Disposal of subsidiary undertakings (12.5) (4.0) - - (16.5)
Disposals (0.2) (2.1) (0.2) (10.0) (12.5)
At 31 December 2020 0.6 27.0 20.5 30.3 78.4
At 1 January 2021 0.6 27.0 20.5 30.3 78.4
Additions - 0.7 1.0 17.0 18.7
Disposals - (0.7) (7.4) (17.9) (26.0)
At 31 December 2021 0.6 27.0 14.1 29.4 71.1
Accumulated depreciation
At 1 January 2020 9.5 20.8 4.3 6.8 41.4
Currency movements 0.6 0.1 - - 0.7
Charge in year - 2.7 4.3 8.0 15.0
Impairment 0.6 - - - 0.6
Disposal of subsidiary undertakings (10.0) (1.9) - - (11.9)
Disposals (0.1) (1.9) (0.2) (5.1) (7.3)
At 31 December 2020 0.6 19.8 8.4 9.7 38.5
At 1 January 2021 0.6 19.8 8.4 9.7 38.5
Charge in year - 2.5 3.3 7.1 12.9
Disposals - (0.7) (5.6) (6.0) (12.3)
At 31 December 2021 0.6 21.6 6.1 10.8 39.1
Net book value
At 31 December 2021 - 5.4 8.0 18.6 32.0
At 31 December 2020 - 7.2 12.1 20.6 39.9
At 1 January 2020 3.0 11.5 15.2 14.4 44.1
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 £58.1m (2020: £61.1m).
2021 2020
£m £m
Cash and cash equivalents 159.4 150.9
Borrowings - current (7.4) (7.2)
Borrowings - non-current (32.0) (39.6)
Net cash 120.0 104.1
The borrowings of £39.4m are net of arrangement fees of £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 charge in the income statement was £11.7m
comprising £11.7m included in operating costs and £nil interest income
included in net finance expense (2020: £12.7m, comprising £12.9m in
operating costs less £0.2m 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 31 December 2021 by a qualified
independent actuary. At 31 December 2021, there were 2,875 retirees and 2,629
deferred members. The weighted average duration of the obligations is 16.3
years.
2021 2020 2019
£m £m £m
Present value of defined benefit obligations (837.5) (886.5) (812.1)
Fair value of scheme assets 904.6 880.9 817.0
Recognised asset/(liability) for defined benefit obligations 67.1 (5.6) 4.9
Movements in present value of defined benefit obligations
2021 2020
£m £m
At 1 January 886.5 812.1
Past service cost - GMP equalisation charge - 0.9
Interest cost 11.7 16.3
Remeasurements - demographic assumptions (5.4) (2.9)
Remeasurements - financial assumptions (16.1) 99.0
Remeasurements - experience adjustments (6.5) (4.6)
Benefits paid (32.7) (34.3)
At 31 December 837.5 886.5
Movements in fair value of scheme assets
2021 2020
£m £m
At 1 January 880.9 817.0
Interest income 11.7 16.5
Remeasurements - return on assets 34.6 71.5
Contributions by employer 10.4 10.6
Administrative expenses (0.3) (0.4)
Benefits paid (32.7) (34.3)
At 31 December 904.6 880.9
Expense recognised in the income statement
2021 2020
£m £m
Administrative expenses paid by the pension scheme (0.3) (0.4)
Administrative expenses paid directly by the Group (1.0) (1.7)
GMP equalisation charge - (0.9)
Interest income on the net assets/liabilities of the defined benefit pension - 0.2
scheme
(1.3) (2.8)
Fair value of scheme assets
2021 2020
£m £m
Global equities 137.2 125.0
Multi-asset growth funds 133.7 118.4
Multi-credit fund 118.1 139.8
LDI plus collateral 494.6 421.4
PFI Investments - 44.7
Property 4.4 15.7
Cash 16.6 15.9
904.6 880.9
Principal actuarial assumption (expressed as weighted averages)
2021 2020
% %
Discount rate 1.80 1.35
Future pension increases 3.25 2.85
Inflation assumption 3.40 2.95
Weighted average life expectancy from age 65 as per mortality tables used to
determine benefits at 31 December 2021 and 31 December 2020 is:
2021 2020
Male Female Male Female
(years) (years) (years) (years)
Currently aged 65 22.1 24.0 22.3 24.1
Non-retirees currently aged 45 23.1 25.3 23.3 25.3
The discount rate, inflation and pension increase, and mortality assumptions
have a significant effect on the amounts reported. Changes in these
assumptions would have the following effects on the defined benefit scheme:
Pension liability Pension cost
£m £m
Increase discount rate by 0.25%, decreases pension liability and reduces 33.1 0.6
pension cost by
Decrease inflation, pension increases by 0.25%, decreases pension liability 28.6 0.5
and reduces pension cost by
Increase life expectancy by one year, increases pension liability and 39.0 0.7
increases pension cost by
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 per cent of the
value of the assets is sensitive to changes in interest rates and inflation
and this mitigates the equivalent movement in the liabilities on the scheme as
a whole.
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.
Defined contribution schemes
Several defined contribution pensions are operated. The total expense relating
to these plans was £10.4m (2020: £9.9m).
13. SHARE CAPITAL
2021 2020
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 275.0 137.5 108.3 54.1
Issued in year (see below) - - 166.7 83.4
Shares in issue at end of year - ordinary shares of 50p each, fully paid 275.0 137.5 275.0 137.5
The Company's issued share capital comprised 274,949,741 ordinary shares of 50
pence each as at 31 December 2021. The increase in issued share capital in
2020 reflects the Firm Placing and Placing and Open Offer undertaken by
Costain in May 2020 and described in Costain's results for FY20.
All shares rank pari passu regarding entitlement to capital and dividends.
14. EVENTS AFTER THE REPORTING DATE
As per notes 2 and 3 we reached a full and final settlement regarding the
Peterborough & Huntingdon contract with a cash payment of £43.4m after
the year-end.
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