TIDMCOST
RNS Number : 1371K
Costain Group PLC
23 August 2023
23 AUGUST 2023
COSTAIN GROUP PLC
("Costain", the "Group", or the "Company")
RESULTS FOR THE SIX MONTHSED 30 JUNE 2023
Strong performance in H1 and positive market outlook.
-- Reported and adjusted(1) H1 23 revenue of GBP664.4m (H1 22: GBP665.2m).
-- Adjusted operating profit(1) increase of 7.1% to GBP15.0m (H1
22: GBP14.0m) resulting from increasing volumes and margin in
Natural Resources, and benefits from our Transformation
programme.
-- Reported operating profit of GBP7.6m (H1 22: GBP11.9m),
reflecting costs of repositioning digital services towards growth
and our Transformation programme.
-- Adjusted operating margin of 2.3%, with 20bp increase on H1 22.
-- Net cash(3) increase at half year to GBP132.1m (FY 22: GBP123.8m, H1 22: GBP95.9m).
-- Pension deficit payments substantially reduced following
triennial review, and banking and surety facilities successfully
refinanced.
-- Resumption of dividend payments being progressed.
Financial summary
GBPm H1 H1 23 H1 H1 22 H1 22 Adjusted(1)
23 adjusted(1) adjustments(1) 23 reported adjusted(1) reported change
Revenue 664.4 - 664.4 665.2 665.2 (0.1)%
Operating profit 15.0 (7.4) 7.6 14.0 11.9 7.1%
Operating margin 2.3% 1.1% 2.1% 1.8% 20bp
Profit before
tax 15.9 (7.4) 8.5 13.3 11.2 19.5%
Basic EPS 4.4p 1.9p 3.9p 3.3p 12.8%
Adjusted free
cash flow(2) 26.5 34.4 (23.0)%
--------------------- ---------------- ----------------- -------------- ------------- ---------- ------------
H1 H1 22
23
Net cash balance(3) 132.1 95.9 37.7%
--------------------- ---------------- ----------------- -------------- ------------- ---------- ------------
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
2. Free cash flow is defined as cash from operations, excluding
adjusting items and pension deficit contributions, less taxation
and capital expenditure.
3. Net Cash balance is cash and cash equivalents in H1 23 and is
cash and cash equivalents less interest-bearing borrowings
(excluding leases under IFRS16 and net of unamortised arrangement
fees) in H1 22.
Alex Vaughan, Chief Executive Officer, commented:
"Costain's performance in the first half of 2023 demonstrates
the strength and resilience of our business, with an increase in
adjusted operating profit supported by the robust growth in Natural
Resources, resilience in Transportation and continued positive cash
generation.
"In the period, we delivered important actions to strengthen our
balance sheet, including finalising our actuarial pension review,
and securing the refinancing of our banking and bond surety
facilities; both of which increases our ability to generate further
cash for the Group. Our Transformation programme to create
efficiencies within the Group is on track, with further benefits to
come in H2 23 and FY 24. The increase in operating performance and
the positive outcomes regarding the pension review and refinancing,
enables the Board to consider the resumption of dividend payments,
including the payment of an interim dividend in respect of the
period to 30 June 2023.
"There remains a positive outlook across our markets, while
recognising the short-term rephasing of the government's transport
spending. We expect that the sectoral growth we have seen in
Natural Resources, together with the rephasing and rescoping of
some infrastructure projects in Rail and Road to continue for the
remainder of the year and into 2024.
"While we are mindful of the macro-economic backdrop,
recognising the timing of customer procurement cycles, the quality
of our secured and preferred bidder work gives us good visibility
on future revenue, with more than 90% of revenue secured for the
remainder of 2023. Our expectations for 2023 remain unchanged and
we continue to be confident in the Group's long-term
prospects."
H1 23 performance
-- Adjusted(1) and reported revenue of GBP664.4m (H1 22:
GBP665.2m), reflecting growth in Natural Resources and the expected
rephasing and rescoping of projects in Transportation.
-- Growth in adjusted operating profit(1) up 7.1% to GBP15.0m
(H1 22: GBP14.0m) reflecting growth in Natural Resources and
benefits from our Transformation programme, more than offsetting a
decline in Transportation as a result of the rephasing and
rescoping of some Road contracts, with growth in our HS2
contract.
-- Adjusted operating margin of 2.3% (H1 22: 2.1%), following
operational improvements in Natural Resources and Transformation
benefits.
-- Reported operating profit of GBP7.6m (H1 22: GBP11.9m), due
to the repositioning of digital towards services growth.
-- Free cash flow(2) in H1 23 of GBP26.5m reflecting operating
cashflow and continued good working capital management, with an
increased H1 23 net cash position of GBP132.1m.
-- Pension scheme review and refinancing of bank and surety
facilities concluded in period and July 2023 respectively.
-- Health & Safety performance. Our people are our principal
asset, and the safety of our people is one of our core values. Our
LTIR rate was 0.11 (H1 22: 0.06) and in early 2023 we experienced a
rise in Lost Time Injuries which was addressed with action plans
across both divisions.
-- Secured key contract wins:
-- Magnox framework to deliver its decommissioning programme.
-- Appointed in July by United Utilities as Managed Service
Provider (AMP8) for a further two years.
-- Contracts awarded with bp, and post H1 23 with DfT and TfL.
Further smart motorway safety works moved from preferred bidder to
our orderbook.
-- Good visibility for FY23 with 90% of revenue (GBP630m+) secured(3) for H2 23.
-- On track to meet adjusted operating margin milestones
run-rate of 3.5% during the course of FY24 and 4.5% during the
course of FY25.
-- High quality order book and preferred bidder book(3) of
GBP4.0bn (FY 22: GBP4.4bn, H1 22: GBP4.3bn):
-- Order book of GBP2.5bn (FY 22: GBP2.8bn, H1 22: GBP2.7bn),
reflecting market cycles, continued disciplined approach to
contract bidding and the rephased timing of major contract
bids.
-- Preferred bidder book of GBP1.5bn (FY 22: GBP1.6bn, H1 22:
GBP1.6bn), reflecting bids and contracts mainly in Road, Water and
Integrated Transport, including Heathrow H7.
-- Interim dividend payment under consideration by Board with
announcement expected to be made shortly.
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
2. Free cash flow is defined as cash from operations, excluding
adjusting items and pension deficit contributions, less taxation
and capital expenditure.
3. Order book and secured revenue includes revenue from
contracts which are partially or fully unsatisfied and probable
revenue from water frameworks included at allocated volume.
Enquiries
Investors and analysts paul.sharma@costain.com
Paul Sharma, Costain +44 (0) 7867 501188
Financial media - Headland costain@headlandconsultancy.com
Andy Rivett-Carnac +44 (0) 7968 997 365
Charlie Twigg +44 (0) 7946 494 568
--------------------------------
Analyst & investor presentation
A live webcast of our results by Alex Vaughan (CEO) and Helen
Willis (CFO) will be at 9am on 23 August 202 3. Please go to
https://stream.brrmedia.co.uk/broadcast/64426af472587f8b7a6c9276 to
register for the event.
We will also host a live presentation relating to results via
Investor Meet Company at 10am on 24 August 2023. Investors can sign
up to Investor Meet Company for free and add to meet Costain Group
PLC via :
https://www.investormeetcompany.com/costain-group-plc/register-investor
Board changes
There have been no changes to the Board of Directors in H1
23.
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 notes 1 to 4 on pages 28 to 33.
GROUP TRADING PERFORMANCE
A positive financial performance
We report both our statutory results, 'reported', and results
excluding adjusting items, 'adjusted'. Key adjusting items for H1
23 include the impairment of an intangible asset and the impact of
Transformation and restructuring.
Reported and adjusted revenue was GBP664.4m in H1 23 (H1 22:
GBP665.2m), flat on the prior period. We saw increased Natural
Resources revenue in Water, and Defence and Nuclear. In
Transportation, we saw continued growth in Rail, and the rephasing
and rescoping of certain contracts in Road. Within Transportation,
in Integrated Transport, we successfully completed the Preston
contract, are growing activity on our Heathrow H7 contract, have
won strategic consultancy contracts with Transport for London, and
grown our services revenue across a range of local authorities.
Adjusted operating profit grew by 7.1% to GBP15.0m (H1 22:
GBP14.0m), driven mainly by increased profitability in Natural
Resources and the benefits of our Transformation programme across
the Group. The adjusted operating margin increased to 2.3% (H1 22:
2.1%) and reflected operational improvements in Natural Resources,
partially offset by a decline in Transportation due to reduced
margins in Road. Reported operating profit decreased from GBP11.9m
in H1 22 to GBP7.6m profit in H1 23, due mainly to the GBP5.3m
impairment of an intangible asset as we reposition our digital
portfolio, see page 7 for details.
Adjusted profit before tax increased 19.5% to GBP15.9m (H1 22:
GBP13.3m), with adjusted basic earnings per share (EPS) up by 12.8%
at 4.4p (H1 22: 3.9p). Reported profit before tax was down 24.1% at
GBP8.5m (H1 22: GBP11.2m) and reported basic earnings per share
(EPS) was also down 42.4% at 1.9p (H1 22: 3.3p), due to the above
impairment.
Adjustments to reported items
We incurred GBP2.1m (H1 22: GBP2.6m) on transformation and
restructuring costs, and GBP5.3m (H1 22: GBPnil) on the impairment
of an intangible asset relating to the repositioning of digital
services. In H1 22 we recognised GBP0.5m on the sale of a non-core
asset.
Cashflow and liquidity
During the period we completed the March 2022 review of our
defined benefit pension scheme, and the refinancing of our bond and
surety facilities, with the positive outcomes of both increasing
our ability to generate cash for the Group. We continue to
implement our Transformation programme to increase efficiencies
within the Group, which is on track to deliver further operational
efficiencies in H2 23 and FY 24.
Cash from operations in H1 23 was GBP16.9m (H1 22: cash used by
operations GBP19.1m), following increased adjusted operating
profits, with the H1 22 comparison impacted by the settlement of
the Peterborough & Huntingdon contract of GBP43.4m in February
2022.
Free cash flow in H1 23 of GBP26.5m reflected continued good
working capital management, which benefitted from further positive
cash collection timings during the half. We expect our year end net
cash position to be broadly similar to that at the end of H1 23, as
the underlying free cash flow from the business is likely to be
offset by the unwinding of positive working capital timing benefits
accumulated at the end of FY 22 and throughout H1 23. Reflecting
the above, this resulted in a strong net cash position at the end
of H1 23 of GBP132.1m (FY 22: GBP123.8m, H1 22: GBP95.9m).
During H1 23 we paid more than 98% of invoices within 60 days
(H1 22: 97%). In August 2023, Costain was re-confirmed as one of
the top three fastest-paying lead contractors in construction
following the submissions to the Government's Duty to Report on
Payment Practices and Performance, on an average days-to-pay
basis.
Business resilience
As a result of key actions, the Group has built solid business
resilience through the following measures:
-- Broad and growing strategic blue-chip customer base:
o Continued focus on significant Government Transportation and
Defence investment.
o Positioned for a significant increase in regulatory investment
in Water and Energy.
o Increasing focus on growing devolved government spending.
o Growth in private customer Transportation and Defence
investment.
o Leading expertise to address growing energy transition
investment plans.
-- Broad expertise-led service mix, helping our customers by
shaping, creating, and delivering pioneering infrastructure
solutions to meet their needs, leveraging our core contracting
expertise.
-- A strong balance sheet with good levels of positive cash
generation, financing capacity and reduced pension costs.
Our markets remain characterised by strong long-term customer
demand and strategic procurement approaches aligned to five-year
business plan periods. Costain enjoys good forward visibility with
our combined order book and preferred bidder book at H1 23 of
GBP4.0bn (FY22: GBP4.4bn, H1 22: GBP4.3bn), as well as the
anticipated customer procurement periods from which we will benefit
in the next eighteen months. This holistic view of our forward
visibility is increasingly relevant as we anticipate a shift in our
business mix towards the preferred bidder book as we secure
long-term (5-to-10-year) framework positions with our customers,
providing a reliable stream of future work.
Our order book stood at GBP2.5bn at the end of H1 23 (FY 22:
GBP2.8bn, H1 22: GBP2.7bn). This reflected the timing of major
contract bids, our customers' investment programmes, maintaining
discipline in contract selection and the shorter lead time of
consulting and digital work. The order book evolves as contracts
progress and as new contracts are added at periods aligned to our
customers' strategic procurement windows which are typically every
five years, and therefore does not provide a complete picture of
the Group's potential future revenue expectations.
The preferred bidder book comprises awards for which there is no
other competitor and we are in final negotiations prior to entering
a contract, or exclusive frameworks where a further works order is
required. The preferred bidder book was GBP1.5bn at the end of H1
23 (FY 22: GBP1.6bn, H1 22: GBP1.6bn), with contracts in Road,
Water and Integrated Transport, including Heathrow. During H1 23,
we agreed with National Highways that our involvement in the A66
scheme, which was in our preferred bidder book, will come to an
organised and managed end.
We note that some of our framework and consulting revenue is not
recorded in our order book, or preferred bidder book, and is
expected to represent an increasing proportion of our future
revenue.
We have more than GBP630m of secured Group revenue for H2 23 at
the end of H1 23, representing 90% of forecast revenue for the
period. Awards have yet to be made on the very high level of bids
undertaken in H1 22 and we currently expect awards on these bids to
be made during late FY 23 and into FY 24. The Transport, Water,
Energy and Defence markets continue to offer significant long-term
opportunities for the Group. We expect Water investment to double
during the next regulatory period. In addition, Integrated
Transport has seen strategic wins with Heathrow, Manchester
Airports Group, Transport for London (TfL), and a number of local
councils.
We have good momentum going into H2 23 and FY 24 and are making
progress with our operational performance and against our strategic
priorities. Our Transformation programme, which targets to simplify
and increase efficiencies within the business is progressing well,
delivering operating profits and operating margin uplift.
Following an extensive market review, we are reorganising our
digital activities to increase our growth focus on service
capabilities including: situational intelligence (real-time
monitoring systems) and digital twins (construction and
operational); and ceasing the more commoditised development and
manufacturing activities of operational technology.
The assessment and management of risk and uncertainty is central
to our culture, business processes and strategy. This is achieved
through rigorous risk management and commercial control throughout
our operations in three key areas:
-- A disciplined approach to contract selection, which includes
robust commercial and legal reviews, proactive shaping of
procurement approaches with our customers, and a rigorous
multi-stage gating process.
-- Commercial and operational assurance, which includes project
level controls, our Operational Excellence Model (OEM), and
management oversight of forecasts, and cross-disciplinary contract
review meetings on all projects.
-- Strategic supply chain partners, with application of robust
supply chain management processes.
As a result of the implementation of our strategy and risk
management processes, at the end of H1 23, our order book does not
include any fixed-price construction contracts.
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
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, and the potential impact of the
"dividend parity" arrangement relating to the defined benefit
pension scheme, which continues until 31 March 2027.
Under the "dividend parity" arrangement, an additional matching
contribution (the excess of the total dividend above the Scheme
contribution) to the Costain Pension Scheme will be made when the
total of the interim and final dividends for a financial year paid
to the shareholders of Costain are greater than the contributions
paid into the Scheme in the previous Scheme financial year, which
runs from 1 April to 31 March. In addition, If the funding level is
above 101% as at 31 March each year, then no contributions will be
payable in respect of dividend parity for the following year.
3. Selective M&A - retaining optionality to pursue strategic
investments in technology, skills and capabilities to enhance our
ability to support 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.
Dividend
Given the Group's improved financial performance, strong net
cash position and growth prospects, the Board is considering
resuming dividend payments starting in respect of the six months
ended 30 June 2023. Any dividends will typically be paid 1/3 as
interim and 2/3 as final dividends.
While the dividend parity arrangements remain in place, the
Board is considering paying a minimum annual dividend to match
broadly the GBP3.3m per year plus inflation (CPI) payment to the
defined pension scheme. Potential increased dividends above this
level may be considered by the Board during this period depending
upon the Group's underlying cash flow generation and the pension
scheme funding level (and any associated dividend parity
requirement) in line with the Group's policy of a target dividend
cover of around three times underlying earnings.
Any dividend in respect of the six months ended 30 June 2023 is
subject to the expiry of the requisite notice to be given to the
Group's bank and surety providers. Costain expects to announce the
Board's decision on any resumption of an interim dividend payment
shortly.
Outlook
We continue to trade in line with Board expectations for FY 23.
Our pipeline of future opportunities remains strong across our
markets.
We remain mindful of the macro-economic and geopolitical
backdrop, recognising the challenges it has created for inflation
and energy costs, and its impact on the rephasing and rescoping of
some major contracts, in particular in Transportation. With our
broad customer focus, further improvements to our operational
performance, strong cash position and clear strategic priorities,
we remain confident of navigating these market headwinds and are
well positioned for further growth.
As a result of the successful implementation of our strategy and
ongoing operational improvements, benefits from our Transformation
programme and our revenue mix expectations, we remain on track to
deliver an adjusted operating margin run-rate of 3.5% during the
course of FY 24 and 4.5% during the course of FY 25; in line with
our ambition to deliver margins in excess of 5%.
We remain confident in the Group's strategy in our chosen
markets and in our longer-term prospects.
STRATEGY UPDATE
The Group operates in the UK infrastructure market, focused on
infrastructure solutions that safeguard the future of our planet
and transform the performance of the UK's infrastructure ecosystem,
aligned to our purpose of 'Improving People's Lives'.
We are strategically positioned in our four chosen markets of
Transport, Water, Energy, and Defence, where significant long-term
strategic investment is being prioritised. Our leading market
expertise, strong customer focus, and differentiated broader
offering, positions the business strongly to benefit from our
customers' long-term investment plans, providing significant
opportunities for growth.
We have specifically chosen to work with customers who wish to
partner with their supply chain partners 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 enable us to understand
the specific needs of our individual customers across their
strategic, operational and asset creation requirements. With our
broad service offering, we are able to service more of the market
and are successfully creating greater competitive advantage. We
work as construction, consulting and digital infrastructure
partners, solving problems and delivering innovative engineered
solutions. Our vision is to create connected, sustainable
infrastructure to help people and the planet thrive.
Despite the current macro-economic challenges, looking forward,
we expect further progress and remain confident in the Group
delivering on its medium-term objectives.
We recognise the short-term constraints on government funding.
However, in order to meet the UK's key critical needs, there
remains a significant commitment to approximately GBP60bn per year
of infrastructure investment in the period 2020-2030, all of which
is underpinned by legislative and regulatory commitments, as the
government and private customers address today's mega trends. These
include climate change and climate resilience, and the net zero
imperative; resource, environmental and economic resilience;
addressing inequality and low levels of regional and national
growth; and the need for infrastructure transformation to support
affordability and investment growth plans.
We are focused on three strategic priorities to drive our
strategic ambition.
Performance
Key measures of our performance are:
o Strong financial performance.
o Customer wins.
Strong financial performance
We continue to operate strong risk management processes on
contracts, ensuring a robust operational performance. In addition,
we have secured further opportunities with our customers,
demonstrating our strategic progress.
Our strategy provides for assured delivery, lower risk contracts
in our orderbook, and a broader business mix; and our ambition
remains to deliver improving long-term operating margins.
We are on track to deliver on our operational milestones as
outlined in March 2023:
-- An adjusted operating margin run-rate of 3.5% during the
course of FY 24, as we increase effectiveness within the business
through the implementation of our Transformation programme, the
implementation of our Operating Excellence Model (OEM), growth of
consultancy services and increased effectiveness in procurement and
ongoing control of operating costs.
-- An adjusted operating margin run-rate of 4.5% during the
course of FY 25 to be reached by improving margins within complex
programme delivery (construction contracts), further efficiencies
from our Transformation programme, our OEM and an increasing mix of
higher-margin contracts.
-- We continue to have an ambition for an adjusted operating margin in excess of 5%.
-- We expect that central costs will be held around 0.8% to 0.9%
of revenue during FY 23 to FY 25 and we expect divisional margins
to increase during the period to achieve our Group target. We
continue to monitor and manage the impact of inflationary pressures
on FY 23 revenue and costs.
Customer wins
During H1 23, we have:
-- Continued 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
number of opportunities during the period.
-- Been appointed by Magnox to deliver its decommissioning
programme, supporting the company across 11 sites and ensuring the
safe and secure closure of locations through to 2029.
-- F urther grown our delivery partner consultancy roles
building on our current positions with AWE, Babcock, Cadent and
National Highways. We are also increasing our activity at Heathrow,
where we will work as a solution delivery partner providing
construction, consulting and digital capabilities during its next
regulatory period.
-- Expanded our presence in the water sector with our first AMP8
win; appointed by United Utilities in July to extend our work as
its Managed Service Provider for a further two years.
-- Secured further strategic wins to provide consultancy advice
and support to bp and Yorkshire Water, and post period with the
Department for Transport and TfL.
With both new wins and existing contracts, we continue to
improve operational contract delivery via a rollout of our new
approach OEM, with comprehensive financial reviews and senior
management ownership.
People
We track safety performance through our lost time injury rate
(LTIR) of 0.11 in H1 23 (H1 22: 0.06), and in early 2023 we did
experience a rise in Lost Time Injuries which was addressed with
action plans across both divisions.
We continue making progress towards our goal to have a workforce
representative of society. Compared to FY 22 our overall gender and
ethnic diversity have both increased, gender by 0.8% and ethnicity
by 1.6%.
June 2023 Dec 2022
Female % of total population 28.2% 27.5%
---------- ---------
Female % Senior Leadership 33.3% 35.7%
---------- ---------
Female no. Executive team 5 of 8 5 of 8
---------- ---------
Female no. Board 4 of 8 4 of 8
---------- ---------
BAME % of total population 15.3% 14.5%
---------- ---------
BAME % Senior Leadership 3% 3%
---------- ---------
BAME no. Executive Team 1 of 8 1 of 8
---------- ---------
BAME no. Board 2 of 8 2 of 8
---------- ---------
To increase transparency, we disclosed our ethnicity pay gap in
the 2022 Annual Report, alongside our gender pay gap. We continue
to proactively address our gender pay gap and in H1 23 we launched
an 'Empowerment Programme' to support women in progressing in their
careers, building on the feedback of our employee networks.
Costain plays a significant role in enhancing the prosperity of
local communities by channelling our spend with small and
medium-sized business (SME). In H1 23 this was GBP340m,
representing 38% of Costain's total spend in the period. This is a
positive trend, exceeding the UK Government target of 33%, and
consistent with the FY 22 performance of 38%.
We continue to maintain a strategic partnership with education
and were pleased to publish an employer impact report for our eight
years working with the London Design and Engineering University
Technical College (LDE UTC). Beyond the high levels of diversity
and social mobility served by the school, the report found that the
level of employer engagement at the LDE UTC is some 20 times
greater than that recommended by Gatsby Foundation.
Planet
As part of our focus on innovation and decarbonising how we
deliver infrastructure projects, our team working on our National
Highways A30 Chiverton to Carland scheme has been the first UK
Highways project to use 3D printing of concrete instead of
pre-casting the material offsite. This solution could offer cost,
programme, and carbon efficiencies if scaled up.
In 2022, we submitted our climate change action plan to the
Science Based Target initiative (SBTi) and we are expecting an
outcome imminently. All relevant construction delivery contracts
have developed detailed carbon baselines and have reduction
targets, supported by implementation plans for achieving their
target in line with PAS 2080.
Costain recently completed the Preston Western Distributor
Project, opening the new road to traffic in June. Through the
construction of the road, we innovated to save the equivalent of
6,134 tonnes of carbon dioxide emissions, which equated to
financial savings of almost GBP7m. Additionally, 55% of employees
(including from the supply chain) came from the local area, with
ten apprentices from local colleges employed on the programme.
As a result of a successful designated fund application, the M6
J21a-26 project has completed works to create the Sandyforth Green
Gateway, which is 5.9ha of Wet Woodland, 24ha of new grassland
alongside seven new ponds and ditch works. Working in partnership
with Wigan County Council, the site which is immediately adjacent
to the M6 scheme north of J25, is forecast to help the National
Highways project achieve a greater than 10% biodiversity net gain
(BNG) more than originally forecast for the project (17% reduction
in BNG units).
DIVISIONAL REVIEW
TRANSPORTATION
GBPm H1 23 H1 23 H1 22 H1 22 Adjusted(1)
adjusted(1) reported adjusted(1) reported change
Road 201.8 201.8 239.2 239.2 -15.6%
Rail 259.3 259.3 219.2 219.2 18.3%
Integrated transport 26.0 26.0 36.2 36.2 -28.2%
Total revenue 487.1 487.1 494.6 494.6 -1.5%
Operating profit 12.2 6.9 15.9 15.9 -23.3%
Operating margin 2.5% 1.4% 3.2% 3.2% -0.7ppt
---------------------- -------------- ----------- -------------- ----------- ------------
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
-- Reported and adjusted revenue of GBP487.1m was down 1.5%
against H1 22, with strong growth in Rail, the impact of the
rephasing and rescoping of some contracts in Road, and a reduction
in Integrated Transport as the Preston Western road completed prior
to ramp up of our work with Heathrow.
-- Adjusted operating margin was 2.5%, down 0.7 percentage
points compared to prior year, mainly reflecting inflation and cost
pressures impacting margins in Road.
-- Revenue secured for H2 23 is GBP422m for Transportation as at 30 June 2023.
Our revenue was driven mainly by complex scheme delivery for
High Speed 2 (HS2) and National Highways, which currently represent
the majority of Transportation activities.
Road revenue declined by 15.6% in H1 23 over the prior year
driven by a decline in schemes delivery due to the completion,
rephasing and rescoping of projects. As a strategic partner for
National Highways, we support their key investment programmes
through the Regional Delivery Partnerships (RDP) major projects
framework, and the Smart Motorways Programme (SMP) Alliance
delivering smart motorway safety enhancements.
On RDP, our work to upgrade the A1 around Newcastle is making
good progress with the widening of the Birtley to Coal House
section, and in Cornwall our project continues to widen the last
section of the A30 to dual carriageway between Chiverton and
Carland Cross. We have led the work to submit the Development
Consent Order application for the A12 Chelmsford to A120 widening
project, along with a package of enabling works for the scheme. We
continue to develop the M60 Simister Island scheme in the
North-West, and are concluding our scheme development work on the
A66.
Within the SMP Alliance, our delivery of the M6 Junction 21a-26
smart motorway upgrade is progressing well, and we are supporting
the National Emergency Area Retrofit program for smart motorways
through design and delivery of additional stopping areas.
The development consent order (DCO) for the A303 Stonehenge
Improvements Scheme was given in July 2023, where we are appointed
as delivery assurance partner in joint venture with Mott
MacDonald.
Costain also continued to provide specialist advice to National
Highways under the SPaTS2 framework, to shape the future and help
critical challenges around automation, decarbonisation and future
programme delivery.
Rail revenue increased by 18.3% in H1 23, principally as a
result of the volume of work in delivering HS2 .
Our contract with the Skanska Costain STRABAG JV to construct
the southern section of route, which has a twin bore tunnel, now
has three (of seven) tunnel boring machines (TBMs) in operation,
with the first two machines having now completed one mile of
tunnelling. Our TBMs are fully serviced by rail heads at Willesden
and at Northolt and the project has now transported over one
million tonnes of spoil via rail, taking more than 100,000 lorry
movements off the roads in the process.
We are working closely with HS2 Ltd to optimise our delivery
schedule in order to best progress the project delivery within the
introduced near-term financial constraints.
Our work to upgrade the Gatwick Airport Station for Network Rail
is ongoing and due to complete in H2 23. We have expanded our
portfolio of work for Network Rail through our framework contracts,
where we are providing professional consulting services on multiple
projects including supporting the weather resilience task
force.
Integrated Transport provides a mix of consulting and complex
project delivery to local and sub-national bodies, Central
Government and to customers in Aviation. Revenue decreased by 28.2%
in H1 23 on the prior year, reflecting the timing of complex
schemes delivery, including the completion of the Edith Rigby Way
(Preston Western scheme) which links the M55 with the A583.
During H1 23, we continued work for TfL with design and
feasibility work for Gallows Corner and George Green / Green Man,
design work on the Piccadilly Line and continued support for TfL's
CCTV service. We have also secured further works with TfL on a road
project. We have successfully expanded services to a range of local
authorities, including Bradford, Liverpool, Swindon and
Cornwall.
During H1 23, we ramped up our work with Heathrow to shape,
create and deliver asset renewal and construction projects through
the Terminal Asset Renewal Partner and Major Project Partner lots
of the H7 framework. We continue to support other aviation
customers at Stansted, Gatwick and Manchester airports.
NATURAL RESOURCES
GBPm H1 23 H1 23 H1 22 H1 22 Adjusted(1)
adjusted(1) reported adjusted(1) reported change
Water 107.2 107.2 106.9 106.9 0.3%
Energy 24.0 24.0 27.3 27.3 -12.1%
Defence and Nuclear
(2) 46.1 46.1 36.4 36.4 26.6%
Total revenue 177.3 177.3 170.6 170.6 3.9%
Operating profit 7.5 7.5 2.6 2.4 188.5%
Operating margin 4.2% 4.2% 1.5% 1.4% 2.7ppt
--------------------- ------------- ---------- ------------- ----------- ------------
1. See notes 1 to 4 of the financial statements for adjusted
metric details and definitions, and reconciliation to reported
metrics.
(2) Defence and Nuclear includes nuclear-related revenue
previously included in Energy, following the Natural Resources
reorganisation.
-- Adjusted revenue was GBP177.3m, up 3.9% driven by Defence and Nuclear.
-- Adjusted operating profit was GBP7.5m, up GBP4.9m, and
adjusted operating margin was 4.2%, 2.7 percentage points higher
compared to prior year, due to an improved operational performance
as well as revenue growth.
-- Revenue secured for H2 23 is GBP212m for Natural Resources as at 30 June 2023.
Water delivers a broad range of services to improve asset and
operational resilience across the water sector, together with
decarbonisation capabilities. Reported and adjusted revenue was up
0.3% on the prior year with good visibility across our five-year
water AMP7 programmes through to 2025. We continue to make good
progress in delivering on Tideway where, in a joint venture, we are
responsible for the eastern section.
The breadth of our service offering continues to grow with
capital delivery programmes for Anglian Water, Severn Trent Water,
Southern Water, and Thames Water; maintenance service provider
services for United Utilities under AMP7; a range of consultancy
services for Yorkshire Water, Thames Water, Southern Water; and
digital services to Anglian Water.
In July 2023, we were appointed by United Utilities to work as
its Managed Service Provider for a further two years, which
represents our first AMP8 programme. We expect to see growth in the
water sector, and we aim to expand our current portfolio under the
AMP8 programme. Alongside core AMP8 requirements, we continue to
engage with customers to understand their potential needs for new
value-added solutions for AMP8 to meet their ESG requirements and
are in an early stage of working with customers regarding the
Strategic Water Resource Options programme, which will run
alongside AMP8.
Energy revenue decreased by -12.1% in H1 23 on the prior year.
Nuclear-related revenue is now included within the Nuclear and
Defence sector. We continue with our contract with Cadent, managing
the mains replacement across the East of England. We have performed
well in energy resilience and are building our position in energy
transition. Throughout H1 23 we have strengthened our core strategy
to support the development of the industrial clusters throughout
the UK. We have completed delivery of the feed for bp on the track
1 net zero contract at Teesside (part of the East coast cluster)
and continue to work on future phases of the project.
We have seen growth in project delivery and opportunities in
supporting our long-standing petrochemical customers in
decarbonising their midstream operations through large scale energy
switching engineering projects, including hydrogen generation and
transportation.
Defence and Nuclear supports several public and private sector
organisations, in a variety of customer-side, delivery partnership
roles, across the UK Defence Nuclear Enterprise. Defence and
Nuclear includes nuclear-related revenue previously included in
Energy, following the reorganising of the Natural Resources
division. Reported and adjusted revenue increased by GBP9.7m, 26.6%
on the prior year, driven by a growth in demand for support within
our current delivery partnership roles, with Babcock and the Atomic
Weapons Establishment (AWE). In both contracts, we work as a
construction delivery partner, delivering major infrastructure
projects, and providing expertise in design and construction
management.
We also provide ongoing support to the Defence Nuclear
Organisation (DNO), helping it develop portfolio management
capabilities and developing its programme definition for future
infrastructure requirements. We are currently well positioned
across the Defence Nuclear Enterprise, supporting the UK's
Continuous at Sea Deterrent (CASD), and our ambition is to be the
delivery partner of choice for the Ministry of Defence's (MoD)
future strategic infrastructure needs.
During H1 23, we were awarded a place on a new six-year
framework for Magnox Ltd. We secured a position on both Lot 1 and
Lot 2 of the framework, utilising our full complex delivery and
consultancy capability, to support Magnox across 11 sites and
deliver its decommissioning programme through to 2029. In addition
to our work on decommissioning, we also see opportunities for
growth in support to the nuclear fuel sector.
FINANCIAL REVIEW
Divisional adjusted to reported reconciliation
Transportation Natural Resources Group
H1 H1 Change H1 H1 22 Change H1 H1 22 Change
23 22 23 23
Revenue GBPm
Adjusted 487.1 494.6 -1.5% 177.3 170.6 3.9% 664.4 665.2 -0.1%
Reported 487.1 494.6 -1.5% 177.3 170.6 3.9% 664.4 665.2 -0.1%
Operating
profit GBPm
Adjusted 12.2 15.9 -23.7% 7.5 2.6 183.8% 15.0 14.0 7.1%
Adjusting
items (5.3) - - (0.2) (7.4) (2.1)
Reported 6.9 15.9 -56.9% 7.5 2.4 207.1% 7.6 11.9 -36.1%
-------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
Adjusting items
We incurred GBP2.1m (H1 22: GBP2.6m) on transformation and
restructuring costs, and GBP5.3m (H1 22: GBPnil) on the impairment
of an intangible asset that had arisen from development costs
incurred as we reposition our digital services towards growth, and
the further development of this asset was not consistent with the
strategic decision to exit our digital hardware business. In H1 22
we recognised GBP0.5m on the sale of a non-core asset. We expect
additional Transformation cost as we increase efficiencies, as well
as further one-off costs relating to the change in our digital
services strategy in H2 23.
Net financial income / (expense)
Net finance income amounted to GBP0.9m (H1 22: net finance
expense (GBP0.7m)). The interest payable on bank overdrafts, loans
and other similar charges was GBP1.6m (H1 22: GBP1.2m) related to
the amortisation of costs in respect of the amend and extend of our
facilities in H2 22, partially offset by lower interest charges
following the repayment of our term loan at the same time. Interest
income from bank deposits amounted to GBP1.6m (H1 22: GBPnil), on
increased amounts held on deposit at a higher interest rate. In
addition, the net financial income for H1 23 includes the interest
income on the net assets of the pension scheme of GBP1.6m (H1 22:
GBP0.6m) and the interest expense on lease liabilities of GBP0.7m
(H1 22: GBP0.1m) under IFRS16.
Tax
The Group has a tax charge of GBP3.4m (H1 22: GBP2.1m) giving an
effective tax rate of 40.0% (H1 22: 18.8%). The H1 23 charge
primarily results from the recognition of a GBP5.3m impairment
accounted for during the first half of the year, which is not tax
deductible. The adjusted effective tax rate was 24.5% (H1 22:
19.5%). We expect the effective tax rate in 2023 to remain close to
the blended statutory tax rate of 23.5% (19% until April 2023, and
25% subsequently) .
Cashflow
The Group generated a GBP26.5m free cash inflow for the year (H1
22: GBP34.4m).
GBPm H1 H1 22
23
Cash from operations 16.9 (19.1)
Add back adjusting items 4.0 48.4
Add back pension deficit contributions 5.7 5.2
Less taxation - -
Less capital expenditure (0.1) (0.1)
------ -------
Free cash flow 26.5 34.4
---------------------------------------- ------ -------
The Group had a positive net cash balance of GBP132.1m as of 30
June 2023 (FY 22: GBP123.8m; H1 21: GBP95.9m) comprising Costain
cash balances of GBP77.6m (FY 22: GBP67.3m; H1 22: GBP76.5m), cash
held by joint operations of GBP54.5m (FY 22: GBP56.5m; H1 22:
GBP55.4m,) and borrowings of GBPnil (FY22: GBPnil; H1 22: GBP36.0m
excluding arrangement fees of GBP0.2m). During H1 23, the Group's
average month-end net cash balance was GBP127.9m (FY 22: GBP99.2m;
H1 22: GBP91.9m). Utilisation of the total bonding facilities as of
30 June 2023 was GBP78.9m (FY 22: GBP88.8m, H2 22: GBP88.5m).
GBPm H1 23 H1 22 FY 22
Cash and cash equivalents at the
beginning of year 123.8 159.4 159.4
Net cash flow 8.3 (27.5) (35.6)
Cash and cash equivalents at the
end of year 132.1 131.9 123.8
Borrowings (excluding leases and - (36.0) -
unamortised arrangement fee of
GBP0.6m in FY21)
------ ------- -------
Net cash 132.1 95.9 123.8
---------------------------------- ------ ------- -------
Bank and bonding facilities
On 26 July 2023, we announced that we had successfully concluded
negotiations with our bank and surety facility providers to
refinance a new three-year agreement of our bank and bonding
facilities.
The Group's new facilities agreement to September 2026 comprises
an GBP85m sustainability-linked revolving credit facility (RCF)
(previously GBP125m), and surety and bank bonding facilities
totalling GBP270m (previously GBP280m). This new agreement replaces
the previous one-year "amend and extend" of our facilities from
September 2023 to September 2024, as announced in November
2022.
The new facility is backed by a group of four banks and five
sureties. Lloyds Bank acted as coordinator, Lloyds Bank and HSBC as
joint sustainability coordinators, together with Crédit Industriel
et Commercial (CIC) and National Westminster Bank (NatWest), the
latter being a new addition to the banking group. The surety
bonding facilities are provided by Euler Hermes SA (NV), HCC
International Insurance Company Plc, Liberty Mutual Insurance
Europe SE, QBE UK Limited and Zurich Insurance Company Ltd, UK
Branch.
Costain has agreed with its banks and sureties that it will not
declare a dividend should liquidity (undrawn revolving credit
facility, plus Costain cash balances) be less than, or expected to
be less than, GBP100m for the next twelve months (as certified by
Costain).
The sustainability interest rate margin linkage has three key
performance indicators (KPIs) relating to reduction in greenhouse
gas emissions, spend with small, local business and charities, and
an increase in gender diversity.
Pensions
On 30 June 2023, we announced that agreement has been reached
with the Trustee of the Company's defined benefit pension scheme on
the 31 March 2022 triennial actuarial funding valuation and ongoing
contributions to the Scheme.
The new contribution plan from the Group to the Costain Pension
Scheme runs from 1 July 2023 to 31 March 2027 and is for a payment
of GBP3.3m per year, payable in pro rata monthly instalments, which
will increase in line with inflation (CPI) each 1 April. This
replaces the previous contribution plan to the Scheme, which from
April 2023 had increased to an annual payment of GBP11.98m paid in
monthly instalments.
As a result of the new contribution plan, the full year 2023
pension contribution payment by the Group will total GBP7.4m, and
payments for 2024 and thereafter will be GBP3.3m annually, plus
inflationary increases as outlined above. The Scheme funding
position on a Technical Provisions basis as at 31 March 2022 was a
deficit of GBP25.1m (a funding level of around 97%).
An assessment of the Scheme funding position will be carried out
each 31 March and, if the funding level (on a Technical Provisions
basis) is more than 101%, contributions will stop from the
following 1 July to 30 June. If the funding level falls below 101%
at the following 31 March, contributions will resume for the next
year starting 1 July to 30 June at the agreed new level.
As at 30 June 2023, the Group's pension scheme was in surplus in
accordance with IAS 19 at GBP58.7m (FY 22: GBP60.2m surplus, H1 22:
GBP86.2m surplus).
The movement in the IAS 19 valuation, being a slight reduction
in surplus from 31 December 2022 to 30 June 2023 was due to the
impact of a reduction in the value of scheme assets being slightly
greater than the reduction in scheme liabilities, primarily driven
by performance of the growth assets.
Cash contributions were made to the scheme during the half year
amounted to GBP5.7m (H1 22: GBP5.2m) and the charge to operating
profit in respect of the administration cost of the UK Pension
Scheme in the year was GBP0.1m (H1 22: GBP0.2m).
DIRECTORS REPORT
Going concern
In determining the appropriate basis of preparation of the
financial statements for the six months ended 30 June 2023, the
directors are required to consider whether the Group 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.
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 its strategic priorities, future performance,
solvency and liquidity, remain substantially unchanged from those
identified on pages 41 to 43 of the Group's Annual Report for the
year ended 31 December 2022 which can be found at
www.costain.com.
There 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 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 and
that the interim management 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 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 2022.
For and on behalf of the Board
Alex Vaughan Helen Willis
Chief Executive Officer Chief Financial Officer
22 August 2023
Cautionary statement
This report contains forward-looking statements. These have been
made by the directors in good faith based on the information
available to them up to the time of their approval of this report.
The directors can give no assurance that these expectations will
prove to have been correct. Due to the inherent uncertainties,
including both economic and business risk factors underlying such
forward-looking information, actual results may differ materially
from those expressed or implied by these forward-looking
statements. The directors undertake no obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
Shareholder information
There is a large amount of information about our business on our
website, www.costain.com . This includes copies of recent investor
presentations as well as London Stock Exchange announcements.
GROUP INCOME STATEMENT
For the six months ended 30 June 2023
GBPm Note
H1 H1 22
23 unaudited
unaudited
Revenue 4 664.4 665.2
Cost of Sales (618.0) (627.4)
------------ ------------
Gross profit 46.4 37.8
------------------------------------ ----- ------------ ------------
Impairment of intangible asset 10 (5.3) -
Other administrative expenses (33.5) (25.9)
------------------------------------ ----- ------------ ------------
Administrative expenses 5 (38.8) (25.9)
Operating profit 7.6 11.9
Profit from operations 4 7.6 11.9
Finance income 6 3.2 0.6
Finance expense 6 (2.3) (1.3)
------------ ------------
Net finance income/ (expense) 0.9 (0.7)
------------ ------------
Profit before tax 8.5 11.2
Taxation 7 (3.4) (2.1)
------------ ------------
Profit for the period attributable
to equity holders of the parent 5.1 9.1
------------ ------------
Earnings per share
Basic 8 1.9p 3.3p
Diluted (as restated) 8 1.8p 3.3p
------------------------------------ ----- ------------ ------------
See note 15 for more information on restatements.
GROUP STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
For the six months ended 30 June 2023
GBPm H1 H1 22
23 unaudited
unaudited
Profit for the period 5.1 9.1
----------- -----------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations - (0.1)
Total items that may be reclassified subsequently
to profit or loss - (0.1)
Items that will not be reclassified to
profit or loss:
Remeasurement of retirement benefit asset (8.7) 13.4
Tax recognised on remeasurement of retirement
benefit asset 2.0 (3.3)
----------- -----------
Total items that will not be reclassified
to profit or loss (6.7) 10.1
----------- -----------
Other comprehensive (expense)/ income for
the period (6.7) 10.0
----------- -----------
Total comprehensive (expense)/ income
for the period attributable to equity
holders of the parent (1.6) 19.1
---------------------------------------------------- --- ----------- -----------
GROUP BALANCE SHEET
GBPm Note 30 June 31 December
2023 2022
unaudited audited
(as restated)
Assets
Non-current assets
Intangible assets 10 46.6 52.2
Property, plant and
equipment 11 29.0 32.0
Equity accounted investments 0.4 0.4
Retirement benefit
asset 58.7 60.2
Trade and other receivables 3.9 3.5
Insurance recovery
asset 4.0 4.0
Deferred tax 13.7 14.5
----------- ---------------
Total non-current
assets 156.3 166.8
Current assets
Inventories 0.2 0.2
Trade and other receivables 192.7 187.4
Insurance recovery
asset 8.5 9.4
Cash and cash equivalents 12 132.1 123.8
----------- ---------------
Total current assets 333.5 320.8
----------- ---------------
Total assets 489.8 487.6
----------- ---------------
Liabilities
Non-current liabilities
Other payables 0.8 1.1
Lease liabilities 13.7 18.5
Provisions for other liabilities
and charges 3.7 3.7
----------- ---------------
Total non-current
liabilities 18.2 23.3
Current liabilities
Trade and other payables 242.5 232.5
Taxation 0.8 0.2
Lease liabilities 10.3 11.0
Provisions for other liabilities
and charges 7.7 9.4
----------- ---------------
Total current liabilities 261.3 253.1
----------- ---------------
Total liabilities 279.5 276.4
----------- ---------------
Net assets 210.3 211.2
----------- ---------------
Equity
Share capital 14 138.3 137.5
Share premium 16.4 16.4
Translation reserve 0.6 0.6
Retained earnings 55.0 56.7
----------- ---------------
Total equity 210.3 211.2
----------- ---------------
See Note 15 for more information on restatements.
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2023
GBPm
Share Share Translation Retained Total
capital premium reserve earnings equity
At 1 January 2022
audited 137.5 16.4 0.6 44.5 199.0
Profit for the period - - - 9.1 9.1
Other comprehensive
income - - (0.1) 10.1 10.0
Issue of shares under
employee share schemes 0.1 - - (0.1) -
Equity-settled share-based
payments - - - 0.8 0.8
At 30 June 2022
unaudited 137.6 16.4 0.5 64.4 218.9
----------- --------- ------------ ----------
At 1 January 2023
audited 137.5 16.4 0.6 56.7 211.2
Profit for the period - - - 5.1 5.1
Other comprehensive
expense - - - (6.7) (6.7)
Issue of ordinary shares
under employee share
schemes (see note 14) 0.8 - - (0.8) -
Shares purchased to
satisfy employee share
schemes - - - (0.1) (0.1)
Equity-settled share-based
payments - - - 0.8 0.8
----------- --------- ------------ ---------- --------
At 30 June 2023
unaudited 138.3 16.4 0.6 55.0 210.3
------------------------------- ----------- --------- ------------ ---------- --------
GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2023
GBPm Note H1 H1 22
23 unaudited
unaudited
Cash flows from/ (used by) operating activities
Profit for the year 5.1 9.1
Adjustments for:
Finance income 6 (3.2) (0.6)
Finance expense 6 2.3 1.3
Taxation 7 3.4 2.1
Profit on sale of interest in joint ventures
and associates - (0.5)
Impairment of intangible asset 5.3 -
Depreciation of property, plant and equipment 11 6.9 4.7
Amortisation of intangible assets 10 0.4 0.3
Shares purchased to satisfy employee share (0.1) -
schemes
Share-based payments expense 0.8 0.8
----------- -----------
Cash from operations before changes in
working capital and provisions 20.9 17.2
Decrease in inventories - 0.1
Increase in trade and other receivables (4.8) (1.6)
Increase in trade and other payables 9.7 11.3
Payment of Peterborough & Huntingdon final
settlement provision - (43.4)
Movement in other provisions and employee
benefits (8.9) (2.7)
----------- -----------
Cash from/ (used by) operations 16.9 (19.1)
Interest received 1.6 0.1
Interest paid (0.7) (1.2)
Net cash from/ (used by) operating activities 17.8 (20.2)
-----------
Cash flows from/ (used by) investing activities
Additions to property, plant and equipment - (0.1)
Additions to intangible assets (0.1) -
Proceeds on sale of investment - 0.5
Net cash (used by)/ from investing activities (0.1) 0.4
-----------
Cash flows from/ (used by) financing activities
Repayments of lease liabilities (9.4) (3.7)
Repayment of loans - (4.0)
----------- -----------
Net cash used by financing activities (9.4) (7.7)
----------- -----------
Net increase/ (decrease) in cash and cash
equivalents 8.3 (27.5)
Cash and cash equivalents at beginning of
the period 12 123.8 159.4
Cash and cash equivalents at end of the
period 12 132.1 131.9
------------------------------------------------- ----- -----------
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. These
condensed consolidated financial statements for the half year ended
30 June 2023 comprise the Group and the Group's interests in
associates, joint ventures and joint operations and have been
prepared and approved by the directors in accordance with
UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
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 2022, 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 the half year ended 30 June 2023, has been calculated on
the basis of the forecasted year end estimated tax rate for FY
23.
The Group has applied the following standards and amendments for
the first time for the period commencing 1 January 2023:
-- IFRS 17 Insurance Contracts;
-- Disclosure of Accounting Policies - Amendments to IAS 1 and
IFRS Practice Statement 2;
-- Definition of Accounting Estimates - Amendments to IAS 8.
The Group also elected to adopt the following amendments
early:
-- Deferred Tax related to Assets and Liabilities arising from a
Single Transaction - Amendments to IAS 12.
The amendments listed above did not have any impact on the
amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
The comparative figures for the financial year ended 31 December
2022 are not the Group'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 2022. Those accounts have been reported
on by the Group's auditors and delivered to the Registrar of
Companies. The audit report for 2022 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. In July
2023, the Group announced that it had successfully concluded
negotiations with its bank and surety facility providers to
refinance a new three-year agreement of its bank and bonding
facilities.
The Group's new facilities agreement to September 2026 comprises
an GBP85m sustainability-linked revolving credit facility (RCF)
(previously GBP125m), and surety and bank bonding facilities
totalling GBP270m (previously GBP280m). This new agreement replaces
the previous one-year "amend and extend" of the Group's facilities
from September 2023 to September 2024, as announced in November
2022.
These facilities have a leverage covenant of net debt/EBITDA
<=1.5 times, an interest covenant of EBITA/net interest payable
covenant of >=4.0 times and a liquidity covenant whereby the
aggregate of, without double counting, any cash and cash equivalent
investments and the available commitment under the facility does
not fall below GBP50.0m. These financial covenants are tested
quarterly. As at 30 June 2023, the Group had a leverage covenant
ratio of below zero (the Group had no net debt) and an interest
covenant ratio of 8.7 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 GBP20m bank
bonding and GBP250m surety company bonding facilities.
In determining the appropriate basis of preparation of the
financial statements for the six months ended 30 June 2023, the
directors are required to consider whether the Group 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.
In assessing the going concern assumption, the Board reviewed
the Group's base case plans for the period to 31 December 2024,
being the first covenant deadline more than 12 months after the
approval of the financial statements. The directors have assumed
that the current RCF remains in place with the same covenant
requirements through to its current expiry date, which is beyond
the end of the period reviewed for Going Concern purposes. The base
case assumes delivery of the Board approved strategic and financial
plans. As part of the assessment, the Board also identified severe
but plausible downsides affecting future profitability, working
capital requirements and cash flow. The severe but plausible
downsides include applying the aggregated impact of lower revenue,
lower margins, higher working capital requirements and adverse
contract settlements.
Both the base case and severe but plausible forecasts show
significant headroom and indicate that the Group will be able to
operate within its available banking facilities and covenants
throughout this period.
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, the
directors have adopted the going concern basis in the preparation
of the financial statements.
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 period 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 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 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 153 to 155 of the Annual
Report for the year ended 31 December 2022.
3. RECONCILIATION OF REPORTED REVENUE AND OPERATING PROFIT TO
ADJUSTED REVENUE AND OPERATING PROFIT
Adjusted revenue, operating profit and earnings per share are
presented as non-GAAP alternative performance measurements. The
Board considers the adjusted measures better reflect the underlying
trading performance of the Group for the reasons described in note
1.
The profit adjustments represent amounts included in the income
statement. The Group incurred GBP2.1m (H1 22: GBP2.6m) on
transformation and restructuring costs, fully impaired a technology
intangible asset by GBP5.3m (H1 22: GBPnil) (see note 10) and
recognised GBPnil profit (H1 22: GBP0.5m) on the sale of a non-core
asset.
Six months ended 30 June
2023 Intangible Other
Adjusted impairment items Total
GBPm GBPm GBPm GBPm
Revenue 664.4 - - 664.4
------------ -------------- ---------
Cost of sales (618.0) - - (618.0)
-------------------------------- ------------ -------------- --------- ---------
Gross profit 46.4 - - 46.4
Administrative expenses before
other items (31.4) - - (31.4)
Impairment of intangible asset - (5.3) - (5.3)
Transformation costs - - (2.1) (2.1)
-------------------------------- ------------ -------------- --------- ---------
Administrative expenses (31.4) (5.3) (2.1) (38.8)
Operating profit/ (loss) 15.0 (5.3) (2.1) 7.6
------------ -------------- ---------
Profit/ (loss) from operations 15.0 (5.3) (2.1) 7.6
-------------------------------- ------------ -------------- --------- ---------
Net finance income 0.9 - - 0.9
-------------------------------- ------------ -------------- --------- ---------
Profit/ (loss) before tax 15.9 (5.3) (2.1) 8.5
-------------------------------- ------------ -------------- --------- ---------
Taxation (3.9) - 0.5 (3.4)
-------------------------------- ------------ -------------- --------- ---------
Profit/ (loss) for the period 12.0 (5.3) (1.6) 5 .1
-------------------------------- ------------ -------------- --------- ---------
Basic earnings per share 4.4p 1.9p
-------------------------------- ------------ -------------- --------- ---------
Six months ended 30 June
2022 Adjusted Other items Total
GBPm GBPm GBPm
Revenue 665.2 - 665.2
---------- ---------------
Cost of sales (627.9) 0.5 (627.4)
-------------------------------- ---------- --------------- ---------
Gross profit 37.3 0.5 37.8
Administrative expenses (23.3) (2.6) (25.9)
Operating profit/ (loss) 14.0 (2.1) 11.9
---------- ---------------
Profit/ (loss) from operations 14.0 (2.1) 11.9
-------------------------------- ---------- --------------- ---------
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 10.7 (1.6) 9.1
-------------------------------- ---------- --------------- ---------
Basic earnings per share 3.9p 3.3p
-------------------------------- ---------- --------------- ---------
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 and before
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.
Six months ended 30 June Natural Central
2023 Resources Transportation costs Total
GBPm GBPm GBPm GBPm
Segment revenue
Total revenue 177.3 487.1 - 664.4
--------- ----------------- -------- --------
Segment profit/ (loss)
Adjusted operating profit/
(loss) 7.5 12.2 (4.7) 15.0
Profit/ ( loss) from operations
before other items 7.5 12.2 (4.7) 15.0
Other items:
Intangible impairment - (5.3) - (5.3)
Transformation costs - - (2.1) (2.1)
Profit/ (loss) from operations 7 .5 6.9 (6.8) 7.6
--------- ----------------- -------- --------
Net finance income 0.9
--------- ----------------- -------- --------
Profit before tax 8.5
------------------------------------- --------- ----------------- -------- --------
Six months ended 30 June Natural Central
2022 Resources Transportation costs Total
GBPm GBPm GBPm GBPm
Segment revenue
Total revenue 170.6 494.6 - 665.2
--------- ----------------- -------- --------
Segment profit/ (loss)
Adjusted operating profit/
(loss) 2.6 15.9 (4.5) 14.0
--------- ----------------- -------- --------
Profit/ (loss) 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/ (loss) from operations 2.4 15.9 (6.4) 11.9
--------- ----------------- -------- --------
Net finance expense (0.7)
--------- ----------------- -------- --------
Profit before tax 11.2
-------------------------------------- --------- ----------------- -------- --------
5. ADMINISTRATIVE EXPENSES
The Group incurred administrative expenses of GBP38.8m in H1 23,
an increase of GBP12.9m on the same period last year (H1 22:
GBP25.9m). GBP5.3m of the increase relates to the impairment of an
intangible asset. GBP3.6m of the increase has resulted from a
reclassification of costs previously shown within cost of sales,
now reflected in administrative expenses, as we have improved
alignment, ownership and understanding of our cost base across the
Group as part of our Transformation programme. The balance of the
increase has been driven by cost and wage inflation as well as the
timing of incremental investment that will facilitate further net
benefits from our Transformation programme through the balance of
the year and into FY 24, partially offset by the year-on-year
benefit of cost management actions taken in the second half of FY
22.
6. NET FINANCE INCOME/ (EXPENSE)
GBPm H1 23 H1 22
Interest income from bank deposits 1.6 -
Interest income on the net assets of the
defined benefit pension scheme 1.6 0.6
------ ------
Finance income 3.2 0.6
------ ------
Interest payable on interest bearing bank
loans, borrowings and other similar charges (1.6) (1.2)
Interest expense on lease liabilities (0.7) (0.1)
Finance expense (2.3) (1.3)
------
Net finance income/ (expense) 0.9 (0.7)
---------------------------------------------- ------ ------
Other similar charges include arrangement and commitment fees
payable.
7. TAXATION
GBPm H1 23 H1 22
On profit for the period
Current tax charge for the period (0.7) (0.5)
-------
Deferred tax charge for the period (2.7) (1.6)
-------
Tax charge in the consolidated income
statement ( 3.4) (2.1)
--------------------------------------- ------- ------
GBPm H1 23 H1 22
Tax reconciliation
Profit before tax 8 .5 11.2
------- ------
Taxation at 23.5% (H1 22: 19.0%) (2.0) (2.1)
Disallowed expenses (1.3) -
Rate adjustment relating to deferred taxation (0.1 ) -
Tax charge in the consolidated income
statement (3.4) (2.1)
----------------------------------------------- ------- ------
8. EARNINGS PER SHARE
The calculation of earnings per share is based on profit of
GBP5.1m (H1 22: 9.1m) and the number of shares set out below.
H1 23 H1 22
Number Number
(millions) (millions)
(as restated)
Weighted average number of ordinary shares
in issue for basic earnings per share calculation 275.8 275.0
Dilutive potential ordinary shares arising
from employee share schemes 4.6 1.0
------------ ----------------
Weighted average number of ordinary shares
in issue for diluted earnings per share calculation 280.4 276.0
------------------------------------------------------ ------------ ----------------
See Note 15 for more information on restatements.
9. DIVIDS
No dividends were paid or provided for in respect of the six
months ended 30 June 2023 (H1 22: none).
10. INTANGIBLE ASSETS
Customer Other acquired Other
Goodwill relationships intangibles intangibles Total
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2022 54.1 15.4 9.7 15.9 95.1
Additions - - - 0.3 0.3
At 31 December
2022 54.1 15.4 9.7 16.2 95.4
--------- --------------- --------------- -------------
At 1 January 2023 54.1 15.4 9.7 16.2 95.4
Additions 0.1 0.1
Impairment - - - (5.3) (5.3)
--------------------------- --------- --------------- --------------- ------------- ------
At 30 June 2023 54.1 15.4 9.7 11.0 90.2
--------------------------- --------- --------------- --------------- ------------- ------
Accumulated amortisation/
impairment
At 1 January 2022 9.0 15.4 9.7 8.5 42.6
Charge in year - - - 0.6 0.6
At 31 December
2022 9.0 15.4 9.7 9.1 43.2
--------- --------------- --------------- -------------
At 1 January 2023 9.0 15.4 9.7 9.1 43.2
Charge in period - - - 0.4 0.4
At 30 June 2023 9.0 15.4 9.7 9.5 43.6
--------- --------------- --------------- -------------
Net book value
At 30 June 2023 45.1 - - 1.5 46.6
--------------------------- --------- --------------- --------------- ------------- ------
At 31 December
2022 45.1 - - 7.1 52.2
--------------------------- --------- --------------- --------------- ------------- ------
On 6 July 2023, the Board ratified a proposal to restructure the
Group's digital activities to increase growth focus on service
capabilities. As a result, the capitalised development costs of a
product being developed under the Group's manufacturing
capabilities has been impaired (shown within Other intangibles) at
the balance sheet date by GBP5.3m to GBPnil.
Goodwill has been allocated to the applicable cash generating
units of the Transportation segment (GBP15.5m (H1 22: GBP15.5m))
and the Natural Resources segment (GBP29.6m (H1 22: GBP29.6m)).
The Group reviews the value of goodwill and in the absence of
any identified triggering events, 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.
At 30 June 2023, the Group carried out a review of potential
goodwill impairment indicators or triggers in order to determine if
a full impairment review is required. No triggers were identified.
As such, a full impairment review of each CGU will be carried out
at 31 December 2023.
At 31 December 2022, the point of the most recent full
impairment review, discount rates were estimated based on pre-tax
rates that reflect current market assessments of the time value of
money and the risks specific to the CGU. The rate used to discount
the forecast cash flows for both the Transportation and Natural
Resources CGUs was 15.5%. In 2021, the discount rates used for the
two CGUs were Transportation 13.2% and Natural Resources 13.6%.
The value in use calculations use the Group's four-year cash
flow forecasts, which are based on the expected revenues and
profitability of each CGU, taking into account the current level of
secured and anticipated orders, extrapolated for future years by
the expected growth applicable to each CGU, as follows:
2022 2021
2022 Natural 2021 Natural
Transportation Resources Transportation Resources
% % % %
-------- ----------- ---------------- -----------
Growth Rates
Year 5 1.5 1.5 1.9 1.9
Long-term average 1.5 1.5 1.9 1.9
--------------------------- -------- ----------- ---------------- -----------
At 31 December 2022, based on the internal value in use
calculations, management concluded that the recoverable value of
the Transportation cash generating unit exceeded its carrying
amount with substantial headroom.
At 31 December 2022, based on the internal value in use
calculations, which included a sensitivity aligned to a 30%
reduction in absolute business unit operating profit, management
concluded that the recoverable amount of the Natural Resources cash
generating unit exceeded its carrying amount, with headroom of
GBP32.1m. The recoverable amount of the Natural Resources goodwill
therefore continues to be subject to further sensitivities and
changes in the value in use assessment assumptions would have
resulted in the following changes:
-- An increase in the discount rate of 1.0% (from 15.5% to 16.5%
pre-tax), reduces headroom by GBP7.9m;
-- A decrease in the long-term growth rate of 1.0% (from 1.5% to
0.5%), reduces headroom by GBP5.8m; and
-- A further reduction in CGU operating profit by an additional
20%, on top of the 30% reduction already modelled, reduces headroom
by GBP19.3m.
Based on the above sensitivities the directors consider that
there is no reasonable possible change in any key assumption that,
in isolation, would result in an impairment of goodwill. However,
if the sensitivities modelled above were to occur in combination,
this would give rise to an impairment.
11. PROPERTY, PLANT AND EQUIPMENT
Right-of-use assets
--------------------------
Vehicles,
Plant Land plant &
& Equipment & Buildings equipment Total
GBPm GBPm GBPm GBPm
------------- ------------- ----------- -------
At 31 December 2022
Cost (as restated) 24.6 21.8 28.3 74.7
Accumulated depreciation
and impairment (23.3) (7.6) (11.8) (42.7)
Net book value (as
restated) 1.3 14.2 16.5 32.0
------------- ------------- -----------
Period ended 30
June 2023
Cost
At 1 January 2023 24.6 21.8 28.3 74.7
Additions - - 4.5 4.5
Disposals (9.4) (1.2) (2.0) (12.6)
------------- ------------- ----------- -------
At 30 June 2023 15.2 20.6 30.8 66.6
------------- ------------- ----------- -------
Accumulated depreciation
and impairment
At 1 January 2023 23.3 7.6 11.8 42.7
Charge in period 0.6 3.7 2.6 6.9
Disposals (9.4) (0.6) (2.0) (12.0)
------------- ------------- ----------- -------
At 30 June 2023 14.5 10.7 12.4 37.6
------------- ------------- ----------- -------
Net book value
At 30 June 2023 0.7 9.9 18.4 29.0
------------- ------------- ----------- -------
See Note 15 for more information on restatements.
12. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are analysed below and include the
Group's share of cash held by joint operations of GBP54.4m (FY 22:
GBP56.5m).
30 June 31 December
2023 2022
GBPm GBPm
Cash and cash equivalents 132.1 123.8
Net cash 132.1 123.8
--------
13. PENSIONS
The Group operates a defined benefit pension scheme in the UK;
contributions are paid by subsidiary undertakings. There are also
two defined contribution pension schemes in place in the UK and
contributions are made both by subsidiary undertakings and
employees. The total pension charge in the income statement is
defined benefit scheme net income of GBP0.2m, and defined
contribution scheme operating costs of GBP6.1m (H1 22: defined
benefit scheme net expense of GBP0.4m, and defined contribution
scheme operating costs of GBP5.5m).
Defined benefit scheme
The defined benefit scheme was closed to new members on 31 May
2005 and from 1 April 2006 future benefits were calculated on a
Career Average Revalued Earnings basis. The scheme was closed to
future accrual of benefits to members on 30 September 2009. A full
actuarial valuation of the scheme was carried out as at 31 March
2022 and this was updated to 30 June 2023 by a qualified
independent actuary. At 30 June 2023, there were 2,877 retirees and
2,462 deferred members (2022: 2,867 retirees and 2,529 deferred
members). The weighted average duration of the obligations is 11.5
years (2022: 11.9 years).
At 30 At 31 December At 31 December
June 2022 2021
2023
GBPm GBPm GBPm
-------- --------------- ---------------
Present value of defined benefit
obligations (512.9) (527.1) (837.5)
Fair value of scheme assets 571.6 587.3 904.6
-------- --------------- ---------------
Recognised asset for defined
benefit obligations 58.7 60.2 67.1
---------------------------------- -------- --------------- ---------------
Movements in present value of defined benefit obligations
At 30 At 31 December
June 2022
2023
GBPm GBPm
At 1 January 527.1 837.5
Interest cost 12.9 14.8
Remeasurements - demographic assumptions (3.8) (0.3)
Remeasurements - financial assumptions (13.6) (321.4)
Remeasurements - experience adjustments 8.9 29.7
Benefits paid (18.6) (33.2)
------- ---------------
At end of period 512.9 527.1
------------------------------------------ ------- ---------------
Movements in fair value of scheme assets
At 30 At 31 December
June 2022
2023
GBPm GBPm
At 1 January 587.3 904.6
Interest income 14.5 16.1
Remeasurements - return on assets (17.2) (310.7)
Contributions by employer 5.7 10.8
Administrative expenses (0.1) (0.3)
Benefits paid (18.6) (33.2)
------- ---------------
At end of period 571.6 587.3
----------------------------------- ------- ---------------
Expense recognised in the income statement
H1 23 H1 22
GBPm GBPm
Administrative expenses paid by the pension
scheme (0.1) (0.2)
Administrative expenses paid directly by
the Group (1.3) (0.8)
Interest income on the net assets of the
defined benefit pension scheme 1.6 0.6
------ ------
0.2 (0.4)
--------------------------------------------- ------ ------
Fair value of scheme assets
At 30 At 31 December
June 2022
2023
GBPm GBPm
Global equities 103.5 109.8
Multi-asset growth funds 51.3 56.1
Multi-credit fund 101.6 110.9
LDI plus collateral 302.4 307.2
Cash 12.8 3.3
------ ---------------
571.6 587.3
-------------------------- ------ ---------------
Principal actuarial assumption (expressed as weighted
averages)
At 30 At 31 December
June 2022
2023
% %
Discount rate 5.30 5.00
Future pension increases 3.00 2.90
Inflation assumption 3.20 3.10
-------------------------- ------ ---------------
Weighted average life expectancies from age 65 as per mortality
tables used to determine benefits at 30 June 2023 and 31 December
2022 are:
At 30 June 2023 At 31 December
2022
Male Female Male Female
(years) (years) (years) (years)
Currently aged 65 21.9 23.7 21.9 23.9
Non-retirees currently
aged 45 22.9 25.0 22.9 25.1
------------------------ --------- -------- -------- --------
In accordance with the pension regulations, a triennial
actuarial review of the Costain defined benefit pension scheme was
carried out as at 31 March 2022. In June 2023, the valuation and
updated deficit recovery plan were agreed with the Scheme Trustee
resulting in cash contributions of GBP3.3m for each year commencing
1 July 2023 (increasing annually with inflation) until the deficit
is cleared, which would be in 2027, on the basis of the assumptions
made in the 2022 valuation and agreed recovery plan. This replaces
the previous contribution plan to the Scheme, which from April 2023
had increased to an annual payment of GBP11.98m paid in monthly
instalments.
In addition, as previously implemented, the Group will continue
to make an additional contribution so that the total deficit
contributions match the total dividend amount paid by the Company
each year. Any additional payments in this regard would have the
effect of reducing the recovery period in the agreed plan.
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
Two defined contribution pensions are operated. The total
expense relating to these plans was GBP6.1m (H1 22: GBP5.5m).
14. SHARE CAPITAL
H1 23 H1 22
------------------------------ -------------------------- ----------------------
Nominal
Number Nominal Number value
(millions) value GBPm (millions) GBPm
------------------------------ ------------ ------------ ------------ --------
Issued share capital
Shares in issue at beginning
of period - ordinary shares
of 50p each, fully paid 275.1 137.5 275.1 137.6
Issued in year (see below) 1.6 0.8 - -
------------------------------ ------------ ------------ ------------ --------
Shares in issue at end of
period - ordinary shares
of 50p each, fully paid 276.7 138.3 275.1 137.6
------------------------------ ------------ ------------ ------------ --------
The Company's issued share capital comprised 276,684,741
ordinary shares of 50 pence each as at 30 June 2023.
All shares rank pari passu regarding entitlement to capital and
dividends.
15. PRIOR PERIOD RESTATEMENTS
IFRS 16 - leases
Due to a mathematical error in the model used to calculate the
IFRS 16 right of use assets' cost and lease liabilities on initial
recognition, the cost of right of use assets and the lease
liabilities reported at 31 December 2022 as reported in the 2022
annual report and accounts were both understated by GBP5.4m. There
is no material impact on the profit and loss account or the
statement of cash flows from this error and the impact of the
restatement is as shown in the table below. There was also no
material impact at the opening balance sheet date of the earliest
period presented, being 1 January 2022.
As reported As restated
2022 2022
GBPm GBPm
Right of use assets 25.3 30.7
Lease liabilities - current 9.1 11.0
Lease liabilities - non-current 15.0 18.5
--------------------------------- ------------ ------------
Diluted EPS
An error in applying the treasury stock method was made in the
calculation of the dilutive potential ordinary shares at H1 22. The
number of shares was reported as 13.7 million and should have been
1.0 million. This has the effect of reducing the weighted average
number of ordinary shares in issue for diluted earnings per share
calculation by 12.7 million from 288.7 million to 276.0 million.
This increases the diluted earnings per share from 3.1p to 3.3p.
The position as reported at 31 December 2022 in the 2022 annual
report and accounts was correct and does not require
restatement.
16. EVENTS AFTER THE REPORTING DATE
Refinancing
On 26 July 2023, the Group refinanced its banking and surety
facilities in a new three-year agreement. The new facilities
comprise an GBP85m sustainability-linked revolving credit facility
(previously GBP125m), and surety and bank bonding facilities
totalling GBP270m (previously GBP280m).
There is no resulting impact on these interim financial
statements.
Dividend
The Board is considering an interim dividend payment, as noted
above, with an announcement expected to be made shortly.
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 for the six months ended 30 June 2023 (the
"Results").
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 2023;
-- the Group Income Statement and the Group Statement of
Comprehensive Income and Expense 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 ("ISRE (UK) 2410"). 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 ISRE (UK) 2410.
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
22 August 2023
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END
IR NKBBDKBKBDFB
(END) Dow Jones Newswires
August 23, 2023 02:00 ET (06:00 GMT)
Costain (AQSE:COST.GB)
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Costain (AQSE:COST.GB)
過去 株価チャート
から 11 2023 まで 11 2024
