TIDMCOST
RNS Number : 5812C
Costain Group PLC
09 March 2011
Costain Group PLC
("Costain" or "the Group" or "the Company")
Results for the year ended 31 December 2010
Costain announces another strong performance, a significant
increase in profit before tax, an enhanced cash balance, a robust
order book and an increased dividend for the year.
Year ended 31 December 2010 2009
Revenue* GBP1,022.5m GBP1,061.1m
Profit from operations** GBP29.4m GBP20.8m
Profit before tax** GBP27.9m GBP18.1m
Net cash GBP144.3m GBP120.5m
Earnings per share*** 36.4p 23.0p
Full year dividend*** 9.25p 8.25p
* Including share of joint ventures & associates
** Including profit arising from PFI transfer / sales
*** Restated following 1 for 10 share consolidation
-- Profit from operations** increased by 41% to GBP29.4 million
(2009: GBP20.8 million)
-- Profit before tax** increased by 54% to GBP27.9 million
(2009: GBP18.1m million)
-- Strong net cash position at GBP144.3 million (2009: GBP120.5
million)
- average month-end cash balance of GBP116.0 million during the
year (2009: GBP125.3 million)
-- Revenue* at GBP1,022.5 million (2009: GBP1,061.1 million)
-- Year-end order book of GBP2.4 billion maintaining long-term
earnings visibility (2009: GBP2.6 billion)
- repeat order customers account for in excess of 80% of order
book
- includes c. GBP800 million of secured work for 2011
-- In addition, preferred bidder positions at year-end
maintained at over GBP400 million
-- Banking and bonding facilities increased in early 2010 by 20%
to GBP345 million and extended to September 2013
-- IAS 19 pension scheme deficit reduced to GBP28.9 million at
year-end, net of deferred tax (2009: GBP75.4 million)
- PFI assets of GBP22.0 million transferred into the Costain
Pension Scheme during the year
-- Recommended final dividend of 6.25p, increasing total payout
for the year by 12% to 9.25p (2009: 8.25p***)
-- Implementing 'Choosing Costain' strategy in order to broaden
further Costain's market position across the design and
engineering, construction, and operations and maintenance
spectrum.
David Allvey, Chairman, commented:
"We have delivered another excellent performance. Once again,
the Group has demonstrated its resilience in a continuing difficult
economic environment. We are confident that our position in markets
underpinned by strategic capital expenditure, regulatory commitment
or essential maintenance requirements will continue to stand us in
good stead.
"Through our 'Choosing Costain' strategy, we are making good
progress in achieving our vision of building Costain into one of
the UK's top solutions providers, with the scale and resources to
successfully meet the increasingly complex and challenging needs of
major customers.
"To expedite the delivery of our strategy, we said that we would
look at appropriate acquisition opportunities, an example of which
is Mouchel Group plc, as well as organic growth. We are actively
progressing a number of opportunities ranging from bolt-on to
transformational transactions, and all of which must meet a strict
set of criteria in the event that they were to be concluded.
"We look to the future with confidence, reinforced by our robust
year-end order book, enhanced cash balance and the ongoing support
of our customers committed to long-term capital investment
programmes. That confidence is reflected in the Board's
recommendation to increase the total dividend for the year."
9 March 2011
Enquiries:
Costain Tel: 01628 842 444
Andrew Wyllie, Chief Executive
Tony Bickerstaff, Finance Director
Graham Read, Communications Director
College Hill Tel: 020 7457 2020
Mark Garraway
Mike Davies
A video interview with Costain's Chief Executive Andrew Wyllie
and Finance Director Tony Bickerstaff in which they discuss the
2010 preliminary results announcement can be viewed at
www.costain.com
Notes to Editors
Costain is an international engineering, construction and
maintenance group with a reputation for technical excellence
founded on more than 140 years of experience. The Company's
business segments are in Infrastructure (Highways, Rail, Nuclear
and Airports), Environment (Water, Waste, Marine and Education),
Energy & Process (hydrocarbons & chemicals, nuclear process
and power activities) and Land Development.
The Company is focused on market sectors where it expects there
to be a significant investment driven by national needs.
It has worked on a number of significant infrastructure projects
in the UK, including the St Pancras railway station and the Channel
Tunnel Rail Link, and is currently working on a number of
significant projects including the municipal waste treatment
infrastructure for the Greater Manchester Waste Disposal Authority
and EVAP D at Sellafield, one of the largest nuclear projects in
the UK.
For further information please visit the company website:
www.costain.com
CHAIRMAN'S STATEMENT
Overview & strategy
I am delighted to report a strong Group performance in 2010,
which provides evidence of the continuing significant strides we
are making in the delivery of our 'Choosing Costain' strategy which
is designed both to build on the Group's current strengths and to
broaden its earnings streams in order to achieve our vision of
becoming one of the UK's top solutions providers.
The fundamental dynamic driving our marketplace is the fact
that, irrespective of the economic environment, the UK urgently
requires billions of pounds to be invested in its basic
infrastructure. Whether in roads, water, waste or power, investment
decisions for our long-term national success have to be - and are
being - taken today.
Whilst customers, both in the public and private sectors,
continue to place significant contracts they also continue to drive
for major cost savings in the process.
Costain has demonstrated that it has the proven ability to meet
the exacting needs of its blue-chip customers. This is being
achieved through a combination of factors including the outstanding
quality of our people, the innovative solutions that Costain
provides to meet its customers' demands and the utilisation of
technology to facilitate those innovative solutions.
Last year we unveiled 'Choosing Costain', the latest stage in
our evolving strategic development which is designed to take
advantage of new opportunities arising from the ongoing structural
changes in the sector through the further expansion of our market
position across the design and engineering, construction, and
operations and maintenance spectrum.
To expedite the delivery of our strategy, we said that we would
look at appropriate acquisition opportunities as well as organic
growth. We are actively progressing a number of opportunities
ranging from bolt-on to transformational transactions, and all of
which must meet a strict set of criteria in the event that they
were to be concluded.
Approaches to Mouchel Group plc
The Group is currently in an offer period in relation to Mouchel
Group plc. Following completion of comprehensive initial due
diligence, including management meetings with Mouchel, the Board of
Costain approached the board of Mouchel on 17 February 2011 with a
revised proposal, reflecting our assessment of the valuation of
Mouchel. Since then, the board of Mouchel has entered a
"co-operation agreement" with a third party.
Results
Revenue, including the Group's share of joint ventures and
associates, for the year was GBP1,022.5 million (2009: GBP1,061.1
million). The slight decrease reflects the deliberate actions taken
to reduce the Group's exposure to the health and education sectors,
where we anticipated significant expenditure cuts, whilst
increasing our efforts to secure infrastructure and energy related
projects which indeed showed strong revenue growth.
Profit from operations was GBP29.4 million (2009: GBP20.8
million), an increase of 41%, including the benefit of the
transaction, as announced in November 2010, that transferred the
Group's interest in a portfolio of six PFI investments into the
Costain Pension Scheme.
We actively trade our PFI equity portfolio in order to invest in
future opportunities for the Group. In 2010, the equity transfer
into the Costain Pension Scheme ('CPS') brought forward and
realised a profit of GBP11.2 million from the sale of the six PFI
investments (2009: GBP2.0 million profit generated from sales of
PFI investments). By way of comparison, after allowing for an
additional accrual of GBP2.0 million for share-based payments as a
result of the overall level of profit achieved by the Group
following the transaction, the PFI transfer generated an additional
profit of GBP7.2 million compared to the profit from PFI equity
sales in 2009.
Net financing expense amounted to GBP1.5 million (2009: GBP2.7
million) which incorporated net interest income of GBP0.1 million
(2009: GBP2.1 million) and a pension scheme related net interest
cost of GBP1.6 million (2009: GBP4.8 million).
Profit before tax was GBP27.9 million (2009: GBP18.1 million),
an increase of 54%.
Basic earnings per share were 36.4p (2009: 23.0p***).
As a consequence of continuing to secure major contracts during
the year, despite the prevailing economic conditions, the Group
finished the year with an order book of GBP2.4 billion (2009:
GBP2.6 billion).
The Group has no significant borrowings and net cash balances at
the year-end totalled GBP144.3 million (2009: GBP120.5 million),
including the Group's share of cash held by construction joint
venture arrangements of GBP33.8 million (2009: GBP36.0 million).
The average month-end net cash balance during the year was GBP116.0
million (2009: GBP125.3 million).
Dividend
The Board is recommending the payment of a final dividend for
the year of 6.25 pence per share (2009: 5.5 pence***). If approved
at the forthcoming Annual General Meeting, the dividend will be
paid on 20(th) May 2011 to shareholders on the register, as at
15(th) April 2011. This would bring the total for the full year to
9.25 pence per share (2009: 8.25 pence***), an increase of 12% over
the prior year.
Pension
Costain now only offers a defined contribution scheme for
employees.
As indicated above, the Board agreed with the Trustee of the
Costain Pension Scheme ('CPS') a transaction to reduce
significantly the Group's pension deficit through the transfer of
the Group's interest in a portfolio of six PFI investments into the
CPS at an agreed valuation of GBP22.0 million.
During the year, the pension scheme assets also increased in
value as a result of a recovery in the global equities markets.
However, this was partially offset by an increase in liabilities
due to an increase in longevity assumptions and a reduction in the
liability discount rate.
Consequently, as at 31 December 2010, the deficit in the UK
Pension Scheme recorded in the Group's balance sheet in accordance
with IAS 19 was GBP28.9 million, net of deferred tax (31 December
2009: GBP75.4 million).
An agreement was also finalised last year with the Trustee of
the CPS regarding the actuarial valuation as at 31 March 2010, and
the associated deficit recovery plan. This agreement, which
incorporates the GBP22.0 million transfer of the PFI investments,
will result in a corresponding reduction in the Group's future
annual cash contributions into the CPS over a thirty-nine month
period starting with effect from 1 January 2011.
Share Consolidation
At last year's Annual General Meeting of the Company,
shareholders approved a share consolidation on the basis of one
ordinary share in the Company with a nominal value of 50 pence each
for every ten ordinary shares with a nominal value of 5 pence held
on 6 May 2010.
Staff
On behalf of the whole Board, I would like to express our
gratitude to all our colleagues at Costain. The excellent
performance during the year is the result of the efforts of
everyone at the Group and we recognise their hard work and
dedication across the business.
Clive Franks, the Group's Company Secretary, who has been with
Costain for thirty years, is to retire with effect from 31 May
2011. Clive has been an outstanding member of the Costain team. He
has shown skill, knowledge and commitment throughout and
demonstrated a deep understanding of the Costain culture and the
values which we all embrace. We wish him a long and happy
retirement.
Tracey Wood, HR and Legal Director, will also become Group
Company Secretary with effect from 1st June 2011.
Summary & Outlook
We have delivered another excellent performance. Once again, the
Group has demonstrated its resilience in a continuing difficult
economic environment. We are confident that our position in markets
underpinned by strategic capital expenditure, regulatory commitment
or essential maintenance requirements will continue to stand us in
good stead.
Through our 'Choosing Costain' strategy, we are making good
progress in achieving our vision of building Costain into one of
the UK's top solutions providers, with the scale and resources to
successfully meet the increasingly complex and challenging needs of
major customers. Our strategy of growing the business through a
combination of organic growth and targeted acquisitions is
providing a number of exciting options for us to consider.
We therefore look to the future with confidence, reinforced by
our robust year-end order book, enhanced cash balance and the
ongoing support of our customers committed to long-term capital
investment programmes. That confidence is reflected in the Board's
recommendation to increase the total dividend for the year.
DAVID ALLVEY
Chairman
9 March 2011
CHIEF EXECUTIVE'S REVIEW
Overview
Costain delivered another strong performance in 2010,
reinforcing the Group's position as one of the UK's premier
engineering and construction businesses.
In what continued to be challenging economic conditions, we are
pleased to report a significant growth in profit before tax, a
robust order book, a strong net cash position and a recommendation
to increase the dividend for the year.
Our performance was widely recognised during the year, and we
were delighted to receive the "Contractor of the Decade" award from
New Civil Engineer magazine.
As a result of implementing our 'Choosing Costain' strategy, we
made good progress towards achieving our vision to be one of the
UK's top solutions providers with the scale and capability to meet
successfully the increasingly complex and challenging needs of
major customers.
Our growth aspirations and ambition for the business will be
achieved by organic growth and by suitable acquisitions in line
with strategy and we are progressing a number of options in this
respect.
Over the next decade there will be very substantial investment
in the UK's critical transport, energy, water and waste
infrastructures. We believe that spending will be prioritised on
meeting a number of identified essential national needs including
ensuring energy security, the provision of a sustainable water
supply, meeting the demanding requirements of European waste
legislation and creating key transport infrastructure capable of
supporting necessary economic growth.
The sheer scale of the investment required, and the time in
which it needs to be delivered, is driving a reshaping of the UK's
engineering and construction sector landscape. Customers require
suppliers of broad capability and scale with whom they can have the
confidence to place large, multi-year contracts.
Costain is changing rapidly, and our on-going commitment to
providing our customers with the increasingly full-service offering
they are demanding, from front-end engineering consultancy and
design, through construction to back-end care and maintenance,
ensures that we are well placed to provide valuable and cost
effective solutions to meeting those national needs.
2010: another strong performance
There have been a number of key achievements during the year,
which have been delivered despite an environment of economic
recession and considerable market uncertainty. Of particular
note:
-- Operating profits increased by 41%, and profit before tax
increased 54% to GBP27.9 million, including profit resulting from
the transfer of PFI assets into the pension fund
-- Revenue (including share of joint ventures and associates)
was maintained in excess of GBP1.0 billion
-- Following major contract awards during the year, the order
book at the year-end was GBP2.4 billion, providing long-term
earnings visibility
-- Our balance sheet was strengthened further, with the net cash
position increasing to GBP144.3 million
-- An actuarial review of the pension scheme was completed and
the deficit significantly reduced
-- Earnings per share increased 58% to 36.4 pence
The Board is consequently recommending an increased final
dividend.
Progress in Operations
In line with our strategy, during the year we integrated the
scaled-back Community division into an enlarged Environment
division which, together with the Infrastructure and Energy and
Process divisions, form the core focus for the development of the
Group's operations.
The enlarged Environment division focuses on the water and waste
markets as well as the specific requirements of a number of long
term customers. Costain is a leading player in the provision of
services to the water utilities under their Asset Management
Programme (AMP5) and is currently progressing well on the delivery
of the Manchester Waste scheme, Europe's largest waste project. The
division has a GBP1.2 billion order book, and we expect further
opportunities in sectors where investment is driven largely by
legislation and regulatory requirements.
Our Infrastructure division, which incorporates activities in
the highways, rail, nuclear and airports sectors, had another good
year with increased revenue, upper quartile margins and an order
book increased to GBP1.1 billion. In line with our strategy we also
increased our highways maintenance activity and our joint venture
now maintains around one in three motorway miles in the UK. The
division has a substantial pipeline of future work.
The Energy and Process division, which undertakes work in the
hydrocarbons and chemicals, nuclear processing and power sectors,
had another excellent year. Progress has been good on the
Evaporator D contract at Sellafield, the UK's largest nuclear
decommissioning project. There is a clear need to invest in UK
energy infrastructure, and we see potential for further growth in
this sector.
Our Land Development activity in Spain, which is a joint venture
with a subsidiary of Santander Bank, continued to be subject to
very difficult market conditions. As anticipated, no land sales
were completed in the year. Activity has been scaled back until the
market improves and maximum shareholder value can be secured for
the assets. Separately, the first phase of the 600-berth yacht
marina was completed and the first sales have been achieved.
A more detailed review of each operating division is contained
within the Business & Operational Review.
Order book providing long term earnings visibility
As a direct result of the implementation of our customer focused
strategy, we continued to secure major contract awards throughout
the year. At 31st December the order book stood at GBP2.4 billion
(2009: GBP2.6 billion) providing good long term earnings
visibility.
In addition, we ended the year with preferred bidder positions
on contracts with an aggregate value in excess of GBP400
million.
During the year we secured over GBP900 million of new orders
across the business reflecting the breadth of our operations. Of
particular note was the Highways Agency Managed Motorway framework,
Welsh Water AMP 5 contract, a 10-year nuclear framework for Magnox
South, Bond Street station upgrade for London Underground and cable
tunnel infrastructure for National Grid. We also secured from the
Highways Agency the 5-year MAC 14 highways maintenance contract,
our fourth such award making our joint venture the market
leader.
Some 14% of the total Group order book is now in maintenance
related activities.
Our strategy focuses on providing valuable solutions for major
customers who have long-term or multi project investment
programmes. We are delighted that major customers continue to
re-appoint Costain for their investment plans: our repeat order
level has remained above the 80% level. We were also delighted to
secure a number of new customers during the year including National
Grid.
The year-end order book included circa GBP800 million of work
secured for 2011.
Since the year end, we have continued to secure major new
contracts and preferred bidder positions including work at London
Heathrow for BAA, runway refurbishment for Manchester Airports, our
third contract on Crossrail and a new bridge across the River
Thames for Surrey County Council.
Whilst economic conditions are expected to remain challenging,
the level of tendering and estimating remains high. We have a good
pipeline of opportunities and our bidding teams remain fully
occupied.
Strong finances
We have further enhanced our financial position during the year.
Given our strategic focus on major customers and their increasingly
large and longer-term contracts, being able to demonstrate a strong
financial covenant is an important requirement for the stakeholders
in the business.
We maintained a strong net cash position, which at the end of
the year had increased to GBP144.3 million. The average month end
cash position was down slightly to GBP116.0 million. The Group has
no significant borrowings.
Our banking and bonding facilities were extended early in the
year to 2013 and increased by 20% to GBP345 million. Consequently,
we have the necessary headroom available to capitalise on major
market opportunities as they arise and achieve our longer-term
strategic objectives.
During the year, as previously announced, the parent company
group of our customer, AE & E Inova AG, entered insolvency
proceedings. As a result there was some uncertainty regarding
future payments on the Belvedere waste contract on which we have a
sub-contract to AE & E Inova AG. On 20 December 2010, Hitachi
Zosen Corporation purchased AE & E Inova AG. The project is
proceeding as usual and there are no outstanding payments on the
contract.
Enhancing our Safety, Health and Environmental performance
Costain places the highest priority on the effective management
of Safety, Health and Environment.
Further progress was made in the year and we recorded an
improved Group Accident Frequency Rate (AFR) reducing from 0.16 to
0.15, which continues to compare favourably with our major
contractor peer group.
We received a total of 56 RoSPA safety awards including the
prestigious Order of Distinction for our Energy and Process
operations recognising 15 consecutive annual Gold awards.
Notwithstanding our industry-leading safety performance, there
was a fatal accident involving an employee of a sub-contractor on
the East & South-East Asset Management Framework project. This
reinforces the need for continuous vigilance and focus on our
safety performance.
Our proactive commitment to mitigating the environmental and
social impacts of our operations resulted in the receipt of our
first Gold award following an external assessment by Business in
the Community.
Developing our people
We can only achieve our strong business performance by ensuring
that we employ and retain a highly talented and motivated team of
people.
We are investing across the organisation to ensure that we
continue to have the skills and resources necessary to deliver
exceptional business performance. We place particular emphasis on
skills training and during the year received the Best Graduate
Development award from the Association of Graduate Developers and
Recruiters.
There were a number of changes to the Executive Board including
the appointment of Alan Kay as Managing Director of the Environment
division following the retirement of David Jenkins, and the
appointment of Alex Vaughan in the new role of Corporate
Development Director.
Tracey Wood, who will become Group Company Secretary on 1 June
2011, will also continue to be responsible for HR and legal matters
on the Executive Board whilst Christina Wade, who has nearly 20
years experience in HR and joins Costain from Centrica, has been
appointed as the new Group HR Director.
'Choosing Costain': meeting national needs
Turning now to the future, we are in a situation where the UK
faces unprecedented challenges.
We have a growing population, the impact of climate change,
finite waste disposal capacity, and the need to ensure a secure,
sustainable and balanced portfolio of energy sources. An ageing and
increasingly obsolete infrastructure means that there is a clear
national need for strategic investment.
For the UK to remain competitive globally and for the economy to
flourish it is essential that reliable infrastructure is in place
to achieve this objective and to meet the challenges ahead. To give
one example, the UK Government identified in its 2010 Budget that
the UK requires up to GBP200 billion of investment by 2020, much of
which will come from the private sector, to secure a low-carbon
energy future.
These pressing national needs also have to be weighed against
the economic realities of uncertainty, a reduced ability of the
public sector to invest, macroeconomic constraints and customers
who are increasingly seeking value-driven solutions.
Such a challenging market environment also provides major
opportunity for businesses able to create and deliver those
solutions.
Our 'Choosing Costain' strategy, which is focused on targeting
the blue-chip customers in chosen sectors whose major spending
plans are underpinned by strategic national needs, regulatory
commitments or essential maintenance requirements. Through
'Choosing Costain', the Group continues to develop its scale and
resources to meet successfully the increasingly complex delivery
programmes and outsourcing needs of major customers.
Over the next decade, the Board believes that those programmes
will be primarily in three growth markets:-
Infrastructure - particularly Highways, Rail and Airports
Environment - particularly Water and Waste
Energy & Process - particularly Nuclear, Power, Hydrocarbons
& Chemicals
Therefore, Costain's strategy is both to build on the Group's
current strengths and to broaden and improve the quality of
earnings streams by accelerating the development of an integrated
business, providing front-end engineering consultancy, construction
and on-going care and maintenance services.
We will continue to ensure the appropriate application of
innovation and new technology is at the very heart of the services
that we provide. It is such effective application that allows us to
develop and deliver solutions that save our customers millions of
pounds every year through enhanced, technology-led solutions, thus
generating high levels of repeat order business
As previously announced, it is expected that the Company's
growth aspirations and ambition for the business will be achieved
through a combination of organic growth and by suitable
acquisitions in line with strategy.
The way in which we work and our continuing commitment to
deliver on our promises will help ensure that our customers,
partners, people, suppliers and investors choose to work
successfully with Costain in the future.
The Costain values represent the essence of the business and set
the benchmark of performance for our people. They give direction
and structure to everything that we do and adherence to these
values is paramount.
It is our unswerving commitment and compliance to these
principles that allows us to achieve excellence in performance.
Summary
We have again delivered a strong performance despite the
continuation of very challenging operating conditions.
Costain has been transformed in recent years as a result of the
robust implementation of our focused strategy, and is establishing
itself as one of the UK's leading solutions providers.
Whilst economic conditions are expected to remain challenging,
we continue to benefit from our strategy of focusing on major
customers in chosen sectors whose spending plans are underpinned by
strategic national needs, regulatory commitments or essential
maintenance requirements.
We are approaching the future with confidence, and I look
forward to reporting on further progress during the year.
ANDREW WYLLIE
Chief Executive
9 March 2011
BUSINESS & OPERATIONAL REVIEW
Environment
The Environment division includes Costain's water, waste, marine
and education activities.
In 2010, the Environment and Community business units were
combined into a single, enlarged Environment division. Accounting
for c. 50% of the Group's forward order book, the Environment
division is focused on delivering solutions that meet the needs of
long-term customers and particularly in the water and waste
markets.
Revenue (including share of joint ventures and associates) for
the year was GBP489.8 million (2009: GBP593.9 million), with an
operating profit of GBP17.2 million (2009: GBP3.3 million)
including profit of GBP11.2 million arising from the transfer of
six PFI investments into the CPS. As previously reported, the
profit - pre-PFI transfer - was impacted by costs associated with
the amalgamation of the enlarged division, bidding activity
particularly for waste PFI opportunities, and additional costs on a
marine project.
The division's year-end order book was GBP1.2 billion (2009:
GBP1.4 billion).
The UK water market is core to Costain. OFWAT's five-year, GBP22
billion Asset Management Programme (AMP-5) commenced in 2010.
Following outstanding performance on its AMP-4 contracts, Costain
was re-appointed on AMP-5 frameworks with Southern Water, United
Utilities and Welsh Water. The Group was also successful in
securing a new ten-year GBP400 million contract with Severn Trent
and has been chosen for Northumbrian Water's preferred contractor
and consultant select list to carry out its major water
infrastructure upgrade and maintenance framework.
In addition to long-term asset management contracts, Costain has
continued successfully to design, secure and deliver major complex
capital works infrastructure. Construction commenced on the
Brighton and Hove waste water treatment works for Southern Water
whilst in a further expansion of its operations and maintenance
(O&M) activities, Costain secured the contract to deliver
Severn Trent's minor works O&M services.
The UK waste market in 2010 continued to offer significant
long-term growth opportunities for Costain.
An example of the current major investment in this sector is the
Greater Manchester Waste contract, the UK's largest ever combined
recycling, waste and renewable energy project managing
approximately 1.2 million tonnes of waste per year. Under the
five-year contract secured with Viridor-Laing, Costain is
responsible for the construction of a total of 43 state-of-the-art
recycling and waste treatment facilities, based at 27 different
locations across Greater Manchester. To date, the Company has
successfully handed over 33 different facilities.
Delivery of the UK's largest Energy from Waste (EfW) plant, the
Riverside Resource Recovery Facility (RRRF), is entering its final
phase with testing and commissioning underway. A strategic
river-served waste management facility for London, the first waste
has been delivered using the jetty in readiness for the start of
thermal treatment. Generating energy from a renewable resource, the
RRRF will help London manage its own waste and also make a
significant contribution to helping the capital meet its plan to be
85% self-sufficient in energy by 2020.
The UK urgently needs to significantly increase and enhance its
ports capacity. Costain's position as a leader in specialist
maritime engineering significantly enhances its competitive
advantage in this market.
The Felixstowe South Reconfiguration Phase One is nearing
completion with final handover in early 2011. This project for a
730 metre long, deep-water container quay, will enable the Port of
Felixstowe to handle the world's largest and most advanced
container ships - a unique capability in the current UK market.
In our Local Education Partnership with Lewisham, under the
Building Schools for the Future programme, we achieved financial
close on four PFI schools with a combined value of GBP82 million
and one, under a design-and-build contract, with a value of GBP18
million.
The final phase of the Bradford BSF Programme has progressed
with four secondary schools currently due for completion and ready
for occupation in 2011.
Infrastructure
The Infrastructure division includes Costain's highways, rail
and airports activities.
Revenue (including share of joint ventures and associates) for
the year was GBP395.3 million (2009: GBP364.8 million), with an
operating profit of GBP12.2 million (2009: GBP16.9 million).
Whilst the division continued to record upper-quartile margin
performance, profitability was impacted by a high level of bidding
costs and, as previously announced, a high level of project bonuses
in 2009.
The division's year-end order book was GBP1.1 billion (2009:
GBP1.0 billion), an increase of 10%.
Costain's appointment in joint venture as Managing Agent
Contractor ('MAC') for the Highways Agency Area 14 further
strengthened Costain's position as a leading provider of highways
maintenance services. Together with MAC Areas 10, 7 and 12 this
means Costain's joint venture is responsible for a third of the
Highways Agency Network.
The award of the contract for the Major Project framework in
early 2010 to develop, construct and commission Managed Motorways
for the Highways Agency provides a significant boost to the Group's
strategy of focusing on providing solutions that deliver value and
the savings required by customers today. Our ongoing projects such
as M1 J10 to 13 and the A40 for the Welsh Assembly Government are
progressing ahead of schedule and budget.
The Company's capability in the Highways sector was underlined
further with the successful completion of the Bell Common Tunnel,
for the Highways Agency and the Church Village By-pass for Rhonnda
Cynon Taf. Both projects were ahead of programme and under
budget.
In Rail, Costain is engaged on two of the UK's largest rail
projects including Crossrail, Europe's largest infrastructure
project, and Network Rail's Thames-link programme. On Crossrail,
Costain secured two portal contracts during the year whilst on
Thameslink, the Group is working on the key Farringdon Station
project, a major component in overall programme providing 'twelve
car' capability at the station.
On London Underground, Costain was awarded the Bond Street
station redevelopment contract. The Company also successfully
completed the Victoria Mid-Tunnel Vent Shafts contract.
The Group's framework contract with the Manchester Airport Group
continues to perform well and the recent award of the runway
renewal at Manchester reinforces Costain's capability in this
sector. The year also saw the completion of the impressive new
North Terminal Interchange and Forecourt at Gatwick for Gatwick
Airport Ltd together with the award of a role on BAA's Heathrow
Local Project Integrator framework.
The Company was awarded a contract from National Grid for its
London Cable Replacement Tunnel. The contract is worth
approximately GBP200 million and forms part of National Grid's
investment plans in the capital to ensure a continued safe and
reliable electricity transmission network. The work will involve
building a new high voltage electricity cable tunnel between
Hackney and Willesden (via Kensal Green) and Kensal Green and
Wimbledon.
Energy & Process Division
The Energy and Process division includes Costain's hydrocarbons
& chemicals, nuclear process and power activities.
Revenue (including share of joint ventures and associates) for
the year was GBP136.6 million (2009: GBP101.2 million), with an
operating profit of GBP8.2 million (2009: GBP9.3 million including
specific provision release).
The division's year-end order book was GBP127 million (2009:
GBP180 million).
With the decline of North Sea gas, the UK is urgently investing
in underground gas storage capacity as a safeguard against
interruptions in supplies from overseas. With several projects
planned in various locations around the UK, Costain is
well-advanced in constructing E.ON's underground gas storage
facility at Holford in Cheshire. This facility will have a capacity
to store 156 million cubic metres of gas and is due to go into
commercial operation in autumn 2011.
Costain successfully completed its work with Eni in Pakistan
associated with the engineering and procurement of gas processing
facilities linked with the Bhit and Badra fields. In the Middle
East, Costain has developed its operations in Abu Dhabi with a
continued focus on Das Island.
In the nuclear sector, the high profile 'Sellafield Evaporator D
Project' made significant progress. Complex process plant modules
are being fabricated offsite and will be delivered to Sellafield by
sea barge.
Costain has a number of projects underway for Magnox at various
sites around the UK. In September, Costain was awarded a ten-year
decommissioning framework contract centred on the delivery of Fuel
Element Debris dissolution.
Land Development
Revenue for the year was GBP0.8 million (2009: GBP1.2 million)
with a loss after tax of GBP1.8 million (2009: loss of GBP2.6
million). The reduced loss reflects a significant reduction in the
cost base during the year.
As previously reported, the real estate market in Spain has
remained very challenging with little activity in the development
land market. Such conditions are expected to prevail for some time.
As well as continuing to reduce its cost base, the Group's joint
venture development company, Alcaidesa, continues to manage and
bring forward planning consent to add long-term value to the land
bank to ensure there are attractive land sales opportunities when
market conditions improve.
Efforts during the year were also focussed on completing the 600
berth yacht marina, adjacent to Gibraltar, which was successfully
opened in August 2010. The marina has been well received and has
generated a good level of early occupancy. Further investment is
being undertaken to increase the value-added services available
including a repair yard and dry dock with travel lift which are
expected to open in summer 2011.
Results for the year ended 31 December 2010
Consolidated income statement
Year ended 31 December
Notes 2010 2009
GBPm GBPm
Revenue (Group and share of joint ventures
and associates) 2 1,022.5 1,061.1
Share of joint ventures and associates 8 (98.0) (67.7)
-------- --------
Group revenue 924.5 993.4
Cost of sales (883.9) (949.2)
-------- --------
Gross profit 40.6 44.2
Administrative expenses (23.2) (22.2)
-------- --------
Group operating profit 17.4 22.0
Profit on sales of interests in joint ventures
and associates 11.2 2.0
Profit on sale of land and property 3 1.3 -
Share of results of equity accounted joint
ventures and associates 8 (0.5) (3.2)
Profit from operations 2 29.4 20.8
Finance income 4 30.7 26.0
Finance expense 4 (32.2) (28.7)
-------- --------
Net finance expense (1.5) (2.7)
Profit before tax 27.9 18.1
Income tax expense 5 (4.8) (3.5)
-------- --------
Profit for the year attributable to equity
holders of the parent 23.1 14.6
-------- --------
Earnings per share
Basic (2009 restated) 6 36.4p 23.0p
Diluted (2009 restated) 6 35.4p 22.6p
Share numbers included in the earnings per share calculation
have been restated for the 1 for 10 share consolidation (Note
6).
During the year and the previous year, no businesses were
acquired. The impact of business disposals in either year was not
material and, therefore, all results are classified as arising from
continuing operations.
Consolidated statement of comprehensive income and expense
Year ended 31 December
2010 2009
GBPm GBPm
Profit for the year 23.1 14.6
------ -------
Exchange differences on translation of foreign
operations (1.1) (3.6)
Cash flow hedges:
Group
Effective portion of changes in fair value
during year 0.3 (0.4)
Net change in fair value transferred to
retained earnings (0.3) (0.9)
Tax recognised on changes in fair value - 0.4
Joint ventures and associates
Effective portion of changes in fair value
(net of tax) during year (1.3) 2.7
Net change in fair value (net of tax)
transferred to retained earnings 8.1 1.9
Actuarial gains/(losses) on defined benefit
pension scheme 24.6 (67.4)
Tax recognised on actuarial (gains)/losses
recognised directly in equity (8.1) 18.9
------ -------
Other comprehensive income/(expense) for the
year 22.2 (48.4)
------ -------
Total comprehensive income/(expense) for the
year attributable to equity holders of the
parent 45.3 (33.8)
------ -------
Consolidated statement of changes in equity
Year ended 31 December
Share Share Translation Hedging Retained Total
capital premium reserve reserve earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
At 1 January 2009 31.7 1.7 10.6 (12.7) 2.3 33.6
Profit for the
year - - - - 14.6 14.6
Other
comprehensive
income/(expense) - - (3.6) 3.7 (48.5) (48.4)
Equity-settled
share-based
payments - - - - 1.1 1.1
Dividend paid - 0.2 - - (4.9) (4.7)
-------- -------- ------------ -------- --------- -------
At 31 December
2009 31.7 1.9 7.0 (9.0) (35.4) (3.8)
-------- -------- ------------ -------- --------- -------
At 1 January 2010 31.7 1.9 7.0 (9.0) (35.4) (3.8)
Profit for the
year - - - - 23.1 23.1
Other
comprehensive
income/(expense) - - (1.1) 6.8 16.5 22.2
Transfer between
reserves - - 0.9 - (0.9) -
Equity-settled
share-based
payments - - - - 1.5 1.5
Dividend paid - 0.1 - - (5.5) (5.4)
-------- -------- ------------ -------- --------- -------
At 31 December
2010 31.7 2.0 6.8 (2.2) (0.7) 37.6
-------- -------- ------------ -------- --------- -------
Consolidated statement of financial position
As at 31 December
Notes 2010 2009
GBPm GBPm
ASSETS
Non-current assets
Property, plant and equipment 9.7 11.5
Intangible assets 0.1 1.0
Investments in equity accounted joint
ventures 24.5 27.2
Investments in equity accounted associates 1.5 1.6
Loans to equity accounted joint ventures 10.8 12.8
Loans to equity accounted associates 0.6 2.5
Other 18.9 12.7
Deferred tax 20.9 34.6
------ -------
Total non-current assets 87.0 103.9
------ -------
Current assets
Inventories 1.3 2.4
Trade and other receivables 162.0 201.9
Cash and cash equivalents 9 146.0 120.8
------ -------
Total current assets 309.3 325.1
------ -------
Total assets 396.3 429.0
------ -------
EQUITY
Share capital 31.7 31.7
Share premium 2.0 1.9
Foreign currency translation reserve 6.8 7.0
Hedging reserve (2.2) (9.0)
Retained earnings (0.7) (35.4)
------ -------
Total equity attributable to equity
holders of the parent 37.6 (3.8)
LIABILITIES
Non-current liabilities
Retirement benefit obligations 10 39.6 104.7
Other payables 5.2 4.5
Provisions for other liabilities and
charges 2.5 3.1
------ -------
Total non-current liabilities 47.3 112.3
------ -------
Current liabilities
Trade and other payables 304.8 313.3
Income tax liabilities 1.7 1.7
Bank overdrafts 9 1.7 0.3
Provisions for other liabilities and
charges 3.2 5.2
------ -------
Total current liabilities 311.4 320.5
------ -------
Total liabilities 358.7 432.8
------ -------
Total equity and liabilities 396.3 429.0
------ -------
Consolidated cash flow statement
Year ended 31 December
Notes 2010 2009
GBPm GBPm
Cash flows from operating activities
Profit for the year 23.1 14.6
Adjustments for:
Share of results of joint ventures and associates 8 0.5 3.2
Finance income 4 (30.7) (26.0)
Finance expense 4 32.2 28.7
Income tax 5 4.8 3.5
Profit on sales of interests in joint ventures
and associates 3 (11.2) (2.0)
Depreciation of property, plant and equipment 1.7 2.7
Amortisation of intangible assets 0.9 0.9
Share-based payments expense 4.5 1.1
Profit on sale of plant and equipment (1.2) -
Profit on sale of land and property (1.3) -
Cash from operations before changes in working
capital and provisions 23.3 26.7
Decrease/(increase ) in inventories 1.1 (0.8)
Decrease/(increase) in receivables 37.2 (32.7)
(Decrease)/increase in payables (10.2) 9.1
Movement in provisions and employee benefits (20.0) (18.4)
------- -------
Cash from/(used by) operations 31.4 (16.1)
Interest paid (0.9) (0.5)
Income tax received 0.2 0.1
------- -------
Net cash from/(used by) operating activities 30.7 (16.5)
------- -------
Cash flows from/(used by) investing activities
Interest received 1.0 2.6
Dividends received from joint ventures and
associates 0.1 0.6
Additions to property, plant and equipment (1.1) (7.2)
Additions to intangible assets - (0.1)
Proceeds of disposal of property, plant and
equipment 3.8 0.4
Proceeds from sales of interests in joint ventures
and associates - 8.7
Additions to investments in joint ventures and
associates - (0.2)
Loan repayments by joint ventures and associates 0.5 0.7
Additions to loans to joint ventures and associates (5.9) (9.7)
Net cash used by investing activities (1.6) (4.2)
------- -------
Cash flows used by financing activities
Ordinary dividends paid (5.4) (4.7)
Repayment of borrowings - (0.3)
------- -------
Net cash used by financing activities (5.4) (5.0)
------- -------
Net increase/(decrease) in cash, cash equivalents
and overdrafts 23.7 (25.7)
Cash, cash equivalents and overdrafts at beginning
of the year 9 120.5 146.9
Effect of foreign exchange rate changes 0.1 (0.7)
------- -------
Cash, cash equivalents and overdrafts at end
of the year 9 144.3 120.5
------- -------
Notes to the financial statements
1 Basis of preparation
Costain Group PLC ("the Company") is a public limited company
incorporated in the United Kingdom. The consolidated financial
statements of the Company for the year ended 31 December 2010
comprise the Group and the Group's interests in associates and
jointly controlled entities and have been prepared and approved by
the directors in accordance with International Financial Reporting
Standards as adopted for use in the EU in accordance with EU law
(IAS Regulation EC 1606/2002).
The financial information set out herein (which was authorised
for issue by the directors on 8 March 2011) does not constitute the
Company's statutory accounts for the years ended 31 December 2010
or 2009 but is derived from those accounts. Statutory accounts for
2009 have been delivered to the Registrar of Companies, and those
for 2010 will be delivered in advance of the Company's Annual
General Meeting. The auditors have reported on those accounts;
their reports were unqualified and did not include reference to any
matters to which the auditors drew attention by way of emphasis
without qualifying their reports and did not contain statements
under section 498(2) or (3) of the Companies Act 2006.
Whilst the financial information included in this preliminary
announcement has been prepared in accordance with International
Financial Reporting Standards (IFRS), this announcement does not
itself contain sufficient information to fully comply with
IFRS.
The directors have acknowledged the guidance "Going Concern and
Liquidity Risk: Guidance for Directors of UK Companies 2009"
published by the Financial Reporting Council in October 2009. The
directors have considered these requirements, the Group's current
order book and future opportunities and its available bonding
facilities. Having reviewed the latest projections, including the
application of reasonable downside sensitivities, the directors
believe that the Group is well placed to manage its business risks
successfully despite the current uncertain economic outlook.
Accordingly, they continue to adopt the going concern basis in
preparing these financial statements.
(i) Changes in accounting policy
IFRIC 12 applies to contractual arrangements whereby a private
sector operator participates in the development, financing,
operation and maintenance of infrastructure for public sector
services, typically under PFI arrangements. The Group is a party to
these arrangements through certain of its investments in joint
ventures and associates. The adoption of IFRIC 12 has not resulted
in any significant changes to the assets recorded within the
Group's investments although there is a change in the timing of
profit recognition over the lifetime of the contract. Importantly,
there is no change in the overall project cash flows. IFRIC 12 has
been adopted in the year with retrospective effect. The effect of
adoption on comparative amounts was immaterial and so comparative
amounts have not been restated.
(ii) Change in operating segments
During the year, the Group changed its internal management and
reporting structure and combined the activities previously reported
separately as its Environment and Community activities into a
single enlarged Environment segment. Comparative segment
information has been restated accordingly.
2 Operating segments
Segment information is based on four business segments:
Environment, Infrastructure, Energy & Process and Land
Development operations in Spain. The activities previously reported
separately as Community have been combined into a single enlarged
Environment segment and comparative segment information has been
restated accordingly. The segments are strategic business units
with separate management reporting to a segment managing director
and have different core customers or different services. This
information is provided to the Chief Executive who is the chief
operating decision maker.
Energy
Year ended 31 & Land
December 2010 Environment Infrastructure Process Development Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
Segment
revenue
External
revenue 422.3 371.0 131.2 - - 924.5
Share of
revenue of
JVs and
associates 67.5 24.3 5.4 0.8 - 98.0
Total segment
revenue 489.8 395.3 136.6 0.8 - 1,022.5
------------ --------------- -------- ------------ -------- --------
Segment profit
Group
operating
profit/(loss) 3.6 12.2 8.0 - (6.4) 17.4
Profit on
sales of
joint
ventures and
associates 11.2 - - - - 11.2
Profit on
sales of land
and property 1.3 - - - - 1.3
Share of
results of
JVs and
associates 1.1 - 0.2 (1.8) - (0.5)
--------
Profit/(loss)
from
operations 17.2 12.2 8.2 (1.8) (6.4) 29.4
------------ --------------- -------- ------------ --------
Net finance
expense (1.5)
Profit before
tax 27.9
--------
Segment assets 66.7 78.7 48.6 35.2 0.2 229.4
------------ --------------- -------- ------------ --------
Unallocated
assets:
Deferred tax 20.9
Cash and cash
equivalents 146.0
--------
Total assets 396.3
--------
Segment
liabilities 156.5 112.1 46.6 - 0.5 315.7
------------ --------------- -------- ------------ --------
Unallocated
liabilities:
Retirement benefit
obligations 39.6
Overdrafts 1.7
Income tax liabilities 1.7
Total
liabilities 358.7
--------
Energy
Year ended 31 & Land
December 2009 Environment Infrastructure Process Development Central Total
GBPm GBPm GBPm GBPm GBPm GBPm
Segment
revenue
External
revenue 531.9 364.8 96.7 - - 993.4
Share of
revenue of
JVs and
associates 62.0 - 4.5 1.2 - 67.7
Total segment
revenue 593.9 364.8 101.2 1.2 - 1061.1
------------ --------------- -------- ------------ -------- -------
Segment profit
Group
operating
profit/(loss) 2.1 16.9 9.1 - (6.1) 22.0
Profit on
sales of JVs
and
associates 2.0 - - - - 2.0
Share of
results of
JVs and
associates (0.8) - 0.2 (2.6) - (3.2)
------------ --------------- -------- ------------ -------- -------
Profit/(loss)
from
operations 3.3 16.9 9.3 (2.6) (6.1) 20.8
Net finance
expense (2.7)
-------
Profit before
tax 18.1
-------
Reportable
segment
assets 118.8 76.8 42.3 35.4 0.3 273.6
------------ --------------- -------- ------------ --------
Unallocated
assets:
Deferred tax 34.6
Cash and cash
equivalents 120.8
-------
Total assets 429.0
-------
Segment
liabilities 186.8 92.8 46.0 - 0.5 326.1
------------ --------------- -------- ------------ --------
Unallocated
liabilities:
Retirement benefit
obligations 104.7
Overdrafts 0.3
Income tax
liabilities 1.7
-------
Total
liabilities 432.8
-------
Revenue Revenue
2010 2009
GBPm GBPm
United Kingdom 1,000.8 1,025.8
Spain 0.8 1.2
Rest of the world 20.9 34.1
------------------- -------------------
1,022.5 1,061.1
------------------- -------------------
3 Profit on sales of interests in joint ventures and
associates
The GBP11.2 million profit on sales of interests in joint
ventures and associates relates to the transfer of a portfolio of
six PFI investments to The Costain Pension Scheme for GBP22.0
million. As a result of this transfer, GBP8.1 million of fair value
adjustments on the PFI financial assets relating to cash flow
hedges were recycled through the income statement.
4 Net finance expense
2010 2009
GBPm GBPm
Interest income from bank deposits 0.4 1.2
Interest income on loans to related parties 0.6 1.4
Expected return on defined benefit pension scheme
assets 29.7 23.4
Finance income 30.7 26.0
------- -------
Interest payable on bank overdrafts and loans (0.9) (0.5)
Interest cost on the present value of the defined
benefit obligations (31.3) (28.2)
Finance expense (32.2) (28.7)
------- -------
Net finance expense (1.5) (2.7)
------- -------
Interest income on loans to related parties relates to
shareholder loan interest receivable from investments in equity
accounted joint ventures and associates.
5 Income tax
2010 2009
GBPm GBPm
On profit for the year:
United Kingdom corporation tax at 28.0% (2009:
28.0%) - -
Adjustments in respect of prior years 0.2 0.1
------ ------
Current tax credit for the year 0.2 0.1
Deferred tax charge for the current year (5.0) (3.4)
Adjustments in respect of prior years - (0.2)
------ ------
Deferred tax charge for the year (5.0) (3.6)
Income tax expense in the consolidated income
statement (4.8) (3.5)
------ ------
Effective rate of tax 17.2% 19.3%
2010 2009
GBPm GBPm
Tax reconciliation:
Profit before tax 27.9 18.1
------ ----------
Income tax at 28.0% (2009: 28.0%) (7.8) (5.1)
Rate adjustments relating to overseas profits (0.8) 0.2
Share of results of joint ventures and associates
at 28.0% (2009: 28.0%) (0.1) (0.9)
Disallowed provisions and expenses (0.9) (0.5)
Non-taxable gains and profits relieved by capital
losses 3.5 0.6
Utilisation of previously unrecognised temporary
differences 0.8 2.3
Rate adjustment relating to deferred tax 0.3 -
Adjustments in respect of prior years 0.2 (0.1)
Income tax expense in the consolidated income
statement (4.8) (3.5)
------ ----------
The income tax above does not include any amounts for equity
accounted joint ventures and associates, whose results are
disclosed in the consolidated income statement net of tax.
6 Earnings per share
The calculation of earnings per share is based on profit of
GBP23.1 million (2009: GBP14.6 million) and the number of shares
set out below:
2010 2009
(millions) (millions)
Weighted average number of ordinary shares in
issue for basic earnings per share calculation 63.5 63.4
Dilutive potential ordinary shares arising
from employee share schemes 1.7 1.3
------------ ------------
Weighted average number of ordinary shares in
issue for diluted earnings per share
calculation 65.2 64.7
------------ ------------
Share numbers included in the earnings per share calculation
have been restated for the 1 for 10 share consolidation.
7 Dividends per share
During the year, the 2009 final dividend of 5.5p (2009: 5.0p)
per share was paid to shareholders (GBP3.5 million in cash and
GBP0.1 million via scrip alternative). An interim 2010 dividend of
3.0p (2009: 2.75 p) per share (GBP1.9 million in cash (2009: GBP1.7
million in cash and GBP0.1 million via scrip alternative)) was also
paid.
A final dividend in respect of the year ended 31 December 2010
of 6.25p per share, amounting to a dividend of GBP4.0 million, is
to be proposed at the Annual General Meeting. If approved, the
dividend is expected to be paid on 20 May 2011 to shareholders
registered at the close of business on 15 April 2011; a scrip
dividend alternative will be offered. These financial statements do
not reflect this dividend payable.
8 Investments
The analysis of the Group's share of joint ventures and
associates is set out below:
2010 2009
Alcaidesa Other Alcaidesa Other
Holding joint Holding joint
SA ventures Associates Total SA ventures Associates Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
Revenue 0.8 81.1 16.1 98.0 1.2 49.0 17.5 67.7
---------- --------- ----------- ------- ---------- --------- ----------- --------
(Loss)/profit
before tax (2.5) 0.5 1.4 (0.6) (3.7) (0.8) 0.9 (3.6)
Income tax 0.7 (0.1) (0.5) 0.1 1.1 (0.2) (0.5) 0.4
---------- --------- ----------- ------- ---------- --------- ----------- --------
(Loss)/profit
for the year (1.8) 0.4 0.9 (0.5) (2.6) (1.0) 0.4 (3.2)
---------- --------- ----------- ------- ---------- --------- ----------- --------
Non-current
assets 23.6 - 81.4 105.0 21.7 36.8 114.5 173.0
Current assets 32.7 21.4 (8.0) 46.1 35.3 16.4 17.0 68.7
Current
liabilities (15.5) (20.6) (6.9) (43.0) (2.9) (14.6) (13.8) (31.3)
Non-current
liabilities (17.0) (0.1) (65.0) (82.1) (27.5) (38.0) (116.1) (181.6)
---------- --------- ----------- ------- ---------- --------- ----------- --------
Investments in
joint
ventures and
associates 23.8 0.7 1.5 26.0 26.6 0.6 1.6 28.8
---------- --------- ----------- ------- ---------- --------- ----------- --------
Net interest payable by joint ventures and associates in 2010
was GBP0.9 million (2009: GBP1.6 million payable).
9 Cash and cash equivalents
Cash and cash equivalents are analysed below, and include the
Group's share of cash held by jointly controlled operations of
GBP33.8 million (2009: GBP36.0 million).
2010 2009
GBPm GBPm
Cash and cash equivalents 146.0 120.8
Bank overdrafts (1.7) (0.3)
------ ------
Cash, cash equivalents and overdrafts
in the cash flow statement 144.3 120.5
------ ------
10 Pensions
The Group operates a defined benefit pension scheme in the
United Kingdom and a number of defined contribution type pension
plans in the United Kingdom and overseas. Contributions are paid by
subsidiary undertakings and employees. The total pension charge for
the Group in the Consolidated income statement was GBP8.1 million
(2009: GBP11.5 million).
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 at 31 March 2010
and was updated to 31 December 2010 by a qualified independent
actuary.
2010 2009 2008
GBPm GBPm GBPm
Present value of defined benefit
obligations (576.7) (560.5) (435.8)
Fair value of scheme assets 537.1 455.8 385.6
Recognised liability for defined
benefit obligations (39.6) (104.7) (50.2)
-------- -------- --------
Movements in present value of defined benefit obligations:
2010 2009
GBPm GBPm
At 1 January 560.5 435.8
Current service cost - 1.7
Past service cost 1.2 1.2
Interest cost 31.3 28.2
Actuarial losses 8.5 113.7
Benefits paid (24.8) (23.1)
Contributions by members - 3.0
At 31 December 576.7 560.5
------- -------
Movements in fair value of scheme assets:
2010 2009
GBPm GBPm
At 1 January 455.8 385.6
Expected return on scheme assets 29.7 23.4
Actuarial gains 33.1 46.3
Contributions by employer 43.3 20.6
Contributions by members - 3.0
Benefits paid (24.8) (23.1)
At 31 December 537.1 455.8
------- -------
Expense recognised in the income statement:
2010 2009
GBPm GBPm
Current service cost - 1.7
Past service cost 1.2 1.2
Interest cost on defined benefit obligations 31.3 28.2
Expected return on scheme assets (29.7) (23.4)
------- -------
Total 2.8 7.7
------- -------
The expense is recognised in the following line items in the
income statement:
2010 2009
GBPm GBPm
Cost of sales 1.0 2.6
Administrative expenses 0.2 0.3
Finance income (29.7) (23.4)
Finance expense 31.3 28.2
------- -------
Total 2.8 7.7
------- -------
Fair value of scheme assets
2010 2009
GBPm GBPm
Equities 207.9 211.5
High yield bonds 54.0 50.6
Government bonds 131.2 99.9
Corporate bonds 53.0 61.5
Infrastructure and property 36.0 -
Absolute return funds and cash 55.0 32.3
------ ------
Total 537.1 455.8
------ ------
The infrastructure holding is the portfolio of six PFI
investments transferred by the Group to The Costain Pension Scheme
in 2010. The investments were transferred at GBP22.0 million and
all subsequent cash flows benefit the pension scheme. The transfer
is included with the employer contributions figure in the movement
in fair value of scheme assets.
Principal actuarial assumptions (expressed as weighted
averages):
2010 2009
% %
Discount rate 5.40 5.70
Expected rate of return on scheme assets 6.11 6.51
Future pension increases 3.40 3.50
Inflation assumption 3.40 3.50
The expected rate of return on scheme assets is determined by
reference to relevant indices. The overall expected rate of return
is calculated by weighting the individual rates in accordance with
the anticipated balance in the scheme's investment portfolio. The
scheme rules specify that future pension increases are based on
changes in the Retail Price Index.
Weighted average life expectancy from age 65 as per mortality
tables used to determine benefits at 31 December 2010 and 31
December 2009 is:
2010 2009
Female Male
Male (years) (years) (years) Female (years)
Currently aged
65 21.4 23.6 20.3 23.2
Non-retirees 24.2 25.5 21.3 24.1
The discount rate, inflation and pension increase and mortality
assumptions have a significant effect on the amounts reported.
Changes in these assumptions would have the following effects on
the Group's defined benefit scheme:
Pension liability Pension cost
GBPm GBPm
Increase discount rate by 0.25%, decreases
pension liability and increases pension
cost by: 22.1 0.2
Decrease inflation (and pension increases)
by 0.25%, decreases pension liability and
pension cost by: 19.4 1.1
Increase life expectancy by one year,
increases pension liability and pension
cost by: 14.7 0.8
Defined contribution plans
The Group operates a number of defined contribution pension
plans. The total expense relating to these plans in the current
year was GBP5.3 million (2009: GBP3.8 million).
11 Related party transactions
The Group has related party relationships with its major
shareholders, subsidiaries, joint ventures and associates and
jointly controlled operations, in relation to the sales of
construction services and materials and the provision of staff, and
with The Costain Pension Scheme. The total value of these services
in 2010 was GBP131.2 million (2009: GBP115.2 million); transactions
with The Costain Pension Scheme are included in Note 10.
12 Principal risks and uncertainties
There are a number of potential risks and uncertainties which
could have a material impact on the Group's business, financial
condition or results of operations. The Group has specific policies
and procedures which are designed to identify, manage and mitigate
business risks. The principal risks and uncertainties faced by the
Group are detailed in the Annual Report 2010 and are included by
reference in the Directors' Report.
These risks and uncertainties include:
- the general economic outlook, including the extent of any
governmental regulation, taxation and interest rates;
- the Group's ability to attract, develop and retain highly
skilled management and personnel;
- the failure to follow the Group's Best Practice procedures:
projects are not delivered to time, cost, quality or appropriate
health and safety and environmental standards and, therefore, do
not meet clients' expectations; in addition, failure to follow
Company Standards, Policies, Procedures and Guidelines could
adversely affect the Group's reputation and/or expose the Group to
financial liabilities and adversely affect the operational,
financial and share price performance;
- the pension deficit and the risk that contributions may have
to be increased to cover funding shortfalls;
- change in the UK Government's policies with regard to
improving public infrastructure, buildings and services
specifically in areas where the Group would expect to compete for
work;
- the failure to compete effectively in the marketplace
resulting in a failure to win work;
- financial failure within the supply chain or the supply chain
being responsible for late or inadequate delivery or poor quality
of work on a project which damages the Group's reputation and/or
causes it to suffer financial loss; and
- the loss of IT systems.
13 Forward-looking statements
The announcement contains certain forward-looking statements.
The forward-looking statements are not intended to be guarantees of
future performance but are based on current views and assumptions
and involve known and unknown risks, uncertainties and other
factors that may cause actual results to differ from any future
results or developments expressed or implied from the
forward-looking statements.
14 Responsibility statements
The Company's statutory accounts for the year ended 31 December
2010 comply with the Disclosure and Transparency Rules of the
United Kingdom's Financial Services Authority in respect of the
requirement to produce an annual financial report.
We confirm on behalf of the Board that to the best of our
knowledge:
-- the financial statements for the year ended 31 December 2010,
prepared in accordance with IFRS as adopted by the EU, give a true
and fair view of the assets, liabilities, financial position and
profit or loss of the Company and the undertakings included in the
consolidation taken as a whole; and
-- the Business Review, which is incorporated into the
Directors' Report in those financial statements, includes a fair
review of the development and performance of the business and the
position of the Company and the undertakings included in the
consolidation taken as a whole, together with a description of the
principal risks and uncertainties that they face.
On behalf of the Board:
D P ALLVEY
Chairman
ANDREW WYLLIE
Chief Executive
This information is provided by RNS
The company news service from the London Stock Exchange
END
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