TIDMCOST
RNS Number : 3212G
Costain Group PLC
03 March 2015
3 March 2015
Costain Group PLC
("Costain" or "the Group" or "the Company")
Results for the year ended 31 December 2014
Costain, the engineering solutions provider, announces another
strong performance with increases in revenue and underlying
operating profit, a record order book and a recommended final
dividend of 6.25 pence per share.
2014 2013
Revenue(1) GBP1,122.5m GBP960.0m
Operating Profit
* Underlying(2) GBP28.7m GBP27.4m
Profit before tax
* Adjusted(3) GBP28.5m GBP31.0m
GBP22.6m GBP12.9m
* Reported
Basic earnings per share
* Adjusted(3) 27.8p(4) 41.0p(5)
* Reported 22.2p(4) 17.6p(5)
Net Cash balance GBP148.5m GBP57.7m
Dividend per share 9.5p(4) 11.5p
1. Including share of joint ventures and associates
2. Underlying operating profit before Other items; amortisation
of acquired intangible assets and employment related and other
deferred consideration and in 2013 GBP3.7m one-off costs associated
with the offer for May Gurney Integrated Services plc.
3. Results stated before Other items (as stated in 2 above) and
in 2013 a non-cash impairment of GBP9.8m on carrying value of
assets in non-core Land Development activity in Spain.
4. On the enlarged capital base following the capital raise
completed in March 2014
5. Restated for the bonus element of the capital raise completed
in March 2014
Highlights
-- Another good trading performance
o Revenue increased to GBP1.1 billion (2013: GBP960.0
million)
o Underlying operating profit(2) up to GBP28.7 million (2013:
GBP27.4 million)
-- Enhanced balance sheet with a strong net cash position
o Successful capital raise of GBP70.3 million (net of expenses)
completed in March 2014, to take advantage of the growing number of
opportunities available to accelerate the Group's development
o Net cash balance of GBP148.5 million (2013: GBP57.7
million)
-- Unique customer focused strategy generating record order book
o Record forward order book up 17% to GBP3.5 billion (2013:
GBP3.0 billion)
o Over 90% of order book comprises repeat orders and over 90%
lower risk target cost, cost reimbursable forms of contract
-- Positive outlook and confidence in the future
o Over GBP1.0 billion of revenue secured for 2015, (as at 31
December 2013: over GBP750 million secured for 2014)
o Recommended final dividend of 6.25 pence per share taking the
total dividend for the year to 9.5 pence per share on enlarged
capital base (2013: 11.5 pence)
David Allvey, Chairman, commented:
"We have delivered another strong performance, with increases in
revenue and underlying operating profit and an enhanced net cash
position.
"Costain has an established reputation for innovative
multi-disciplined services that enables the Group to win large,
long-term contracts addressing the UK's national needs in energy,
water and transportation.
"This strong market position and the additional capital secured
during the year is enabling the Group to accelerate its growth, as
demonstrated by a record order book of GBP3.5 billion."
Enquiries:
Costain Tel: 01628 842 444
Andrew Wyllie CBE, Chief Executive
Tony Bickerstaff, Finance Director
Catherine Warbrick, Investor Relations
Director
Graham Read, Communications Director
Instinctif Partners Tel: 020 7457 2020
Mark Garraway
Helen Tarbet
Notes to Editors (for further information please visit the
company website: www.costain.com)
Costain is an engineering solutions provider, delivering
integrated consulting, project delivery and operations and
maintenance services, with a portfolio spanning 150 years of
innovation and technical excellence.
The Group's "Engineering Tomorrow" strategy involves focusing on
blue chip customers in Energy, Water and Transportation whose major
spending plans are underpinned by strategic national needs,
regulatory commitments or essential maintenance requirements.
Costain has worked on a number of high profile infrastructure
projects in the UK, including the St Pancras Station redevelopment
and the Channel Tunnel Rail Link. The Group's current major
contracts include EVAP D at Sellafield, one of the largest
decommissioning nuclear projects in the UK; the redevelopment of
London Bridge Station for Network Rail; the design, installation
and commissioning of railway systems for Crossrail; the Thames
Water eight(2) 0 Alliance asset management programme; and the
design and delivery of the water cooling systems for the proposed
new nuclear power station at Hinkley for EDF.
There will be a presentation to analysts today at Instinctif
Partners, 65 Gresham Street, EC2V 7NQ. To register your attendance
please contact james.gray@instinctif.com
The Costain 2014 results film is available at
www.costain.com
CHAIRMAN'S STATEMENT
I am delighted to report that Costain had another year of strong
performance and made further progress in its corporate
development.
Delivering growth
The rigorous implementation of our "Engineering Tomorrow"
strategy has delivered increases in revenue, underlying operating
profit and a record forward order book which now stands at GBP3.5
billion.
Across the business we have continued to create and deliver
innovative solutions to help address critical national needs in
energy, water and transportation.
We successfully completed a capital raise of GBP70.3 million
(net of expenses) to enable the business to take greater advantage
of opportunities in its chosen markets and thereby accelerate the
Group's medium and long-term growth prospects.
Dividend
At the time of the capital raise, the Group confirmed that it
intended to continue with a progressive dividend policy, targeting
an ongoing dividend cover of around two times underlying
earnings.
Our performance and confidence in the long-term prospects for
the Group has resulted in the Board recommending a final dividend
of 6.25 pence per share on the capital base enlarged by the capital
raise completed in March (2013: 7.75 pence per share). On a pro
forma basis, allowing for the issue of new shares in connection
with the capital raise, this represents an increase of
approximately 25% in the total amount of dividend paid to
shareholders compared with the total dividend for 2013.
Governance
As Chairman, my priority is to ensure the effectiveness of the
Board and, once again, we made good progress in delivering against
our objectives. During the year, an externally facilitated
evaluation of Board performance was conducted and actions agreed to
further improve the effectiveness of the Board.
In 2014, we welcomed two new independent Directors to the Board.
Alison Wood joined Costain as a non-executive Director in February,
succeeding Mike Alexander as Chair of the Remuneration Committee
when he retired from the Board in March. We were also pleased to
announce the appointment of David McManus as a non-executive
Director in May.
Corporate citizenship
We have an outstanding team at Costain, one that takes its role
in society and its corporate responsibility very seriously.
In 2015, Costain is celebrating its 150(th) anniversary and, to
help mark this special occasion, we are undertaking the Costain 150
Challenge, which will change many people's lives by raising GBP1
million for the Costain Charitable Foundation's four chosen
charities: British Heart Foundation, Macmillan Cancer Support,
Prince's Trust and Samaritans. A number of fundraising events are
taking place across the business.
Outlook
We have delivered another strong performance, with increases in
revenue and underlying operating profit and an enhanced net cash
position.
Costain has an established reputation for innovative
multi-disciplined services that enables the Group to win large,
long-term contracts addressing the UK's national needs in energy,
water and transportation.
This strong market position and the additional capital secured
during the year is enabling the Group to accelerate its growth, as
demonstrated by a record order book of GBP3.5 billion.
David Allvey
Chairman
CHIEF EXECUTIVE'S REVIEW
This has been another good year for Costain, the engineering
solutions provider.
Through our unique and focused "Engineering Tomorrow" strategy
we have successfully positioned the business to provide the range
of innovative integrated services demanded by our customers to meet
critical national needs in energy, water and transportation.
During the year, we added to our skills and breadth of
capability, developed our market proposition through the
introduction of new technologies and ensured that we consistently
delivered on the commitments given to our customers.
Our capability was further enhanced in March when we
successfully completed a capital raise of GBP70.3 million (net of
expenses).
The proceeds are being utilised for a number of purposes
including: ensuring the requisite financial capacity to support
anticipated further increases in contract size and duration;
investing in innovation and technology; financing bid costs; and,
providing flexibility to make selected in-fill acquisitions to
complement Costain's existing capabilities as opportunities
arise.
Market trends and developments
There is growing consensus across the political spectrum of the
explicit link between investment in a 21(st) century infrastructure
and the creation of sustainable economic growth and global
competitiveness.
The UK Government's 2014 National Infrastructure Plan has set
out an overall investment of over GBP320 billion to 2020-21 in an
identified pipeline of projects in the UK, including a further
GBP15 billion announced in December 2014 on road
infrastructure.
The UK market is further defined by significant and long-term
planned expenditure programmes underpinned by committed regulated
spend and essential capital investment. With the majority of this
total investment expected to continue to come from the private
sector, the opportunities in our markets are substantial.
At the same time, and as we anticipated, the changing nature and
increasing complexity of the requirements of the major customers in
these markets continues to change fundamentally the way in which
they procure services and work with their supplier partners.
These trends have created a rapidly changing and dynamic market
environment in which further consolidation has taken place and is
expected to continue.
Unique "Engineering Tomorrow" strategy
We have been successfully implementing our unique and evolving
"Engineering Tomorrow" strategy for a number of years. Our target
customers are large organisations that need solutions to their
complex business requirements.
We are a trusted delivery partner that collaborates
strategically at all levels with our customers. We use our detailed
customer understanding to create and deliver innovative engineering
and technology-led solutions.
We win by developing insightful and trusted relationships with
our customers enabling a better understanding of their needs
allowing us to identify, create and deliver the best solution. Our
strategy is profitable because our customers value our long-term
commitment to the relationships and trust us to address their
challenges in a collaborative and innovative way.
We sustain our competitive advantage by delivering on our
promises and staying ahead using our customer insight to constantly
improve our proposition.
Our major customers, who are spending and will continue to spend
billions of pounds in meeting national infrastructure needs, are
consolidating their supply chains as they seek to derive business
benefits by working in a more strategic and collaborative manner
with a reduced number of preferred Tier One providers through
larger longer-term contracts. To be successful in the future we
must continue to grow the business, both organically and by
targeted acquisition, to ensure that we have the scale and
capability to satisfy the full range of their service needs for
increasingly complex and large scale projects.
Innovation driving value
Engineering, technology and innovation are in the DNA at
Costain.
We recognise that no customer will buy the same product, with
the same attributes at the same price point year after year. It is
essential therefore that we continuously improve the products and
services that we provide and enhance value for our customers.
Our ability to develop and offer innovative solutions - often
ones which our customers have not previously considered - is a
fundamental differentiator. It drives our ability to secure very
high levels of repeat business with major customers who regard
Costain as a long-term partner in the development, delivery and
optimal operation of their assets.
Our contracts now involve a significant amount of collaboration
amongst the supply chain, our partners and external stakeholders,
such as researchers and universities, utilising the latest in
information sharing software and technology.
We have research and development relationships established with
eight leading universities and have continued to progress a number
of patent applications. We also moved 400 people into our new
engineering centre in Manchester.
Innovations, in collaboration with partners, which have added
value to our customers' businesses this year, include:
-- Use of the Costain 'WeCARE' system for predictable
pre-planned and cost-effective Technology Asset Maintenance using
data analytics
-- Creation of 3-D models utilising 3-D printing technologies to
articulate complex engineering solutions
-- Application of manufacturing assembly best practice to
achieve significantly accelerated project delivery and cost
savings
Good operating results and strong cash position
Revenue, including the Group's share of joint ventures and
associates, for the year increased to GBP1,122.5 million (2013:
GBP960.0 million), circa 30% of which was derived from support
service related activities.
Group underlying operating profit increased to GBP28.7 million
(2013: GBP27.4 million).
Adjusted profit before tax was GBP28.5 million (2013: GBP31.0
million); the reduction is due to the significant profit generated
in 2013 on the sale of the Group's minority shareholdings in three
joint ventures. Adjusted basic earnings per share was 27.8 pence
(2013: 41.0 pence), the lower level also reflecting the enlarged
capital base following the capital raise completed in March
2014.
The Infrastructure division had an excellent year with increases
in revenue, operating profit and order book. The Natural Resources
division delivered an operating profit excluding the impact of a
provision associated with the legacy Greater Manchester Waste PFI
contract awarded in 2007, as detailed below in the Operational
Review.
The Group's net cash position at 31 December 2014 was GBP148.5
million (2013: GBP57.7 million). The increase in the net cash
position reflects the successful GBP70.3 million (net of expenses)
capital raise in March, and benefitted from the timing of positive
contract cash flows at the period end. As previously highlighted,
the Group's net cash position has changed as we continue to
increase our work load with major customers who utilise lower-risk
target cost, cost reimbursable contracts. The average month-end net
cash was GBP95.6 million (2013: GBP50.7 million) and we anticipate
small increases from this level going forward.
Record order book
The ability to provide and integrate a wide range of
multi-disciplined skills and services, along with our strong market
position and reputation for innovation, has enabled us to secure
over GBP1.5 billion worth of large and complex projects and
contract extensions during the course of the year which
include:
-- the delivery of Network Rail's National Electrification Programme;
-- appointment to the Highways Agency's Collaborative Delivery Framework;
-- a position on three transmission frameworks for National Grid;
-- a framework contract with BAE Systems for their submarine site redevelopment programme
-- appointment by Southern Water for their AMP 6 investment programme;
-- the delivery of EPC services for the upgrade of the Dimlington gas terminal for Perenco
Consequently, the Group's order book has further increased,
finishing the year at a new record level of GBP3.5 billion (31
December 2013: GBP3.0 billion).
As well as including over GBP1.0 billion of revenues secured for
2015 (as at 31 December 2013: over GBP750 million secured for
2014), the order book also provides good long-term visibility with
GBP2.5 billion of revenues secured for 2016 and beyond.
The increasingly strategic nature of Costain's long-term
customer relationships has ensured that over 90% of the order book
comprises repeat business and, given the complexity of the
customer's requirements, over 90% is in a target cost, cost
reimbursable, collaborative forms of contract providing good
long-term earnings visibility. The Group also has a strong
preferred bidder position increased to over GBP500 million.
Such a level of secured work gives us good reason to look to the
future with confidence, especially as the level of active tendering
across all our target markets remains high.
The Group's tender success rate is now better than one in three
of all opportunities pursued, a win-rate that has improved
significantly as a consequence of the implementation of our
strategy to focus on the needs of major customers. These customers
are increasingly procuring contracts on a larger and longer-term
basis, reflected in the fact that over 70% of the Group's order
book is for contracts or frameworks with a remaining value in
excess of GBP100m. The average life of a contract in the Group has
increased considerably in the last few years and is now over four
years in duration.
"Costain Cares"
Our customers continue to place great emphasis on the "good
citizen" credentials of their supply chain partners. Given the
profile of their businesses and the nature of the activities we
undertake, how we deliver our services is as important to them as
what we do. Increasingly, customers insist that their Tier One
providers share their corporate and social responsibility values
and failure to embrace this means non-qualification for tender
lists.
The management of health and safety is a core value at Costain.
We place a priority on the management of Safety, Health and
Environment, and the Group's Accident Frequency Rate (AFR) improved
to 0.10 (2013: 0.12), which compares favourably with our peer
group. We also received 17 Gold Awards from RoSPA, 7 Gold Medals
and a prestigious Orders of Distinction. Notwithstanding the
improved performance, and in view of the prosecution and fine for
health and safety breaches following the death in 2011 of a
subcontract worker at a site in Newbury, we recognise that there is
still more we must do to achieve our objective of zero
accidents.
Our "Costain Cares" programme places responsible, effective and
collaborative stakeholder relationships at the core of everything
we do. It is a central part of our value proposition to customers
and has a direct impact on the size and quality of our order
book.
In the year, we retained our Platinum status in the Business in
the Community index, recognising our proactive commitment to the
environmental and social aspects of our operations.
Costain further improved its position in the annual assessment
by Management Today magazine of Britain's Most Admired Companies,
ranking 52(nd) overall, up from 55(th) the previous year.
Teamwork
We adopt a "One Costain" philosophy across the Group, and that
is evident in the way in which our team of over 3,500 people work
together to deliver an outstanding service to customers and deliver
strong business performance.
We have continued to develop and enhance skills across the
business and there are currently 179 graduates and 80 apprentices
on our structured development programmes.
During the year, David Taylor was appointed to the Executive
Board as Group Commercial Director, replacing Patrick Bruce who is
retiring from the Group in March 2015 after over 40 years of
service.
OPERATIONAL REVIEW
We have two core operating and reporting divisions within our
business; Infrastructure and Natural Resources.
Our customer-aligned divisional structure has enabled us to
continue to focus our resources on identifying and securing the
most attractive new business opportunities across the sectors in
which we operate.
Infrastructure
The Infrastructure Division, which operates in the Highway, Rail
and Power sectors, experienced another year of strong growth as
major customers continued to invest in upgrading and renewing the
UK's infrastructure assets, encouraged by Government initiatives
such as the National Infrastructure Plan.
Revenue (including share of joint ventures and associations)
increased to GBP785.2 million (2013: GBP560.6 million) whilst
adjusted profit from operations rose to GBP38.3 million (2013:
GBP31.4 million) as the division performed well on existing
projects and secured significant new contracts across all its
target sectors. Profit margins in the year were at the upper-end of
our expectations and included the benefit of the award of
gain-share and bonuses on a number of projects.
The order book for the division has grown to GBP2.3 billion
(2013: GBP1.9 billion) as we have secured significant new orders
and contract extensions from customers. We have also delivered
several major Early Contractor Involvement ('ECI') schemes through
the planning and statutory process, prior to commencing delivery
phase. The level of tendering activity remains high with a
significant opportunity pipeline.
In Highways, Costain continued to build on its status as a
leading supplier to the Highways Agency. The Group secured a place
on their five-year, GBP5 billion Collaborative Delivery Framework
and was awarded three Smart Motorway schemes as part of the Managed
Motorway Programme on which Costain is a long-term partner. The
Group also continued to deliver significant maintenance works
within the Asset Support Framework and three Managing Agent
Contracts. Our broad, multi-disciplinary capability is also
enabling close involvement at earlier stages of major projects
through ECI schemes, which then lead to contract extensions for the
delivery phase, for example on the A556 Knutsford project.
Costain has also continued to be a major supplier to the Welsh
Government, with the All Wales Technology contract progressing well
and the A465 ECI contract now moving to the construction phase
following the Group's successful delivery of the front end
engineering and design stage of the project. The Group's work on
strengthening the strategically important Hammersmith flyover for
Transport for London is also progressing on time and on budget.
In Rail, a Costain joint venture was awarded the largest share
of Network Rail's GBP2bn National Electrification Programme and the
Edinburgh to Glasgow Improvement Project. The Group's position as
one of the most significant service providers for Crossrail,
Europe's largest infrastructure project, was reinforced with the
award of the North East Spur contract, whilst Costain's other works
for Crossrail at Paddington Station, Bond Street Station and
Paddington New Yard continue to progress well.
Her Majesty the Queen opened Reading Station after the critical
redevelopment project was handed over ahead of schedule and budget.
At London Bridge, one of the busiest transport hubs in the UK,
Costain has continued to deliver on key milestones, including the
bringing into use of six new platforms.
In Power, the Group is making significant progress delivering
National Grid's London Power Tunnels project, which involves the
construction of the longest tunnel under London in history. In
addition, the Group has also secured repeat work with National Grid
following appointment to their high voltage underground and
overhead transmission line frameworks.
The Costain team has delivered several key overhead line
projects for UK Power Networks and also continues to perform
operations and maintenance activities for SSE, E.ON and Scottish
Power. The Group is also engaged at the ECI stage with EdF in the
development of the Hinkley C new nuclear power plant, designing and
developing the cooling system marine tunnel.
Natural Resources
The Natural Resources division encompasses Costain's activities
in the Oil & Gas, Nuclear and Water sectors.
Revenue (including share of joint ventures and associations) for
the year was GBP335.0 million (2013: GBP397.6 million), with
adjusted profit from operations, including GBP4.0 million profit on
transfer of interest in associates to The Costain Pension Scheme,
of GBP0.5 million (2013: GBP12.8 million, including GBP9.1 million
profit on sale of interest in joint ventures). The reduction in
revenue reflects our policy of prioritising and allocating
tendering resources towards the most attractive opportunities for
growth across the Group at any point in time.
The adjusted operating result for the year includes additional
costs for the completion of the legacy waste PFI contract awarded
in 2007 for the Greater Manchester Waste Disposal Authority as
described below. Excluding these costs, the division generated an
operating profit and is trading in line with expectations including
an increasing level of tendering costs for new work. The division
has increased its forward order book to GBP1.2 billion (2013:
GBP1.1 billion) and is expected to benefit from customer spend in
its target markets, which are underpinned by regulatory and
legislative requirements.
In Water, the Group continued to deliver successfully AMP-5
frameworks for United Utilities, Southern Water, Severn Trent
Water, Welsh Water and Northumbrian Water. Looking to the future,
Costain has been awarded places on the five year AMP-6 programmes,
which commence in April 2015, for Thames Water, Severn Trent Water
and Southern Water. The Group is continuing to deliver the large
waste water treatment plants at Liverpool and Woolston, and
completed the award winning Brighton & Hove scheme. In
addition, work commenced on the Shieldhall contract with Scottish
Water.
Costain continued to broaden its specialist capabilities in the
Oil & Gas market where it believes it will continue to secure
new work although there will be some impact from the recent falls
in the oil price. In 2014, the Group secured a contract with
Centrica Energy for EPC services as part of the Barrow Gas
Terminals Project, and also with Perenco for its Freon replacement
project at Dimlington.
We continue to deliver support services for the Oil and
Pipelines Agency, including operations, maintenance and upgrade
services across its network of jet fuel pipelines and storage
facilities, with a further one-year extension being awarded in the
year. Costain Upstream, which delivers asset development and asset
improvement consulting services from its base in Aberdeen, has
performed well, and continued to secure new work including an
extension to the Premier Oil framework.
In Nuclear, the Group is now a major contract partner with BAE
having been appointed to its GBP300 million, eight year programme
to re-develop the submarine site in Barrow-in-Furness. The delivery
of Evaporator-D construction at the Sellafield Nuclear Reprocessing
Facility in West Cumbria continues as expected. The Fuel Element
Debris dissolution facility at Bradwell was successfully handed
over for active commissioning.
During December, handover was achieved on the final waste
facility on the legacy Greater Manchester Waste Disposal Authority
PFI contract awarded in 2007. All 46 facilities on the contract are
now either fully completed or in the warranty period under the
terms of the contract during which further work and plant
modifications will be completed. In achieving handover of the final
facility, we received in December contractual retention and
milestone payments of GBP14 million. As previously reported,
Costain is in discussions with relevant contract counterparties and
the Group's insurers regarding the issues that have arisen on this
contract. The Board expects a successful outcome to these
discussions. In 2014, a provision has been taken for additional
costs to complete the project. It has been the Group's policy since
2009 not to pursue fixed price contracts of this nature.
We completed the Parkway development in Newbury, a mixed retail
and residential project, and reached agreement on the final account
for the work with our client. Following legal proceedings, a fine
of GBP0.5 million for health and safety breaches relating to the
death of a contract worker at the site in 2011 was incurred.
Land Development
The Group's non-core Land Development activity in Spain,
undertaken in a 50:50 joint venture with Santander Bank, continued
to be subject to challenging market conditions. The joint venture
has a portfolio of in excess of 500 hectares of land in Southern
Spain with varying levels of planning approval for residential and
hotel development. It also holds two leisure businesses, a golf
club and 624-berth yacht marina, adjacent to Gibraltar. Both
leisure activities have reported improving revenue streams,
particularly in the marina where the boat repair yard is in demand
and is assisting in raising marina occupancy.
Whilst the Spanish economy continues to show signs of
improvement, there remains considerable uncertainty as to when
significant recovery will be achieved. Revenue was GBP2.3 million
(2013: GBP1.8 million) and the loss after tax was GBP1.3 million
(2013: GBP2.1 million). As anticipated, no significant land sales
were completed in the year
Outlook
We have delivered a strong performance, and successfully
completed a capital raising to enable the Group to accelerate its
growth. We are excited by the many opportunities that lie ahead
and, with an outstanding team and record order book, we look
forward to reporting on further progress in 2015.
ANDREW WYLLIE
Chief Executive
FINANCE DIRECTOR'S REVIEW
This review brings together the key financial metrics of the
Group and sets out the matters of financial significance.
Group revenue, including share of joint ventures and associates,
was GBP1,122.5 million for the year to 31 December 2014 (2013:
GBP960.0 million). The Group generated a 5% increase in
underlying(1) operating profit to GBP28.7 million (2013: GBP27.4
million). The increased profit reflects the Group's continued focus
on long-term repeat orders with blue chip customers.
Profit before tax, before other items(2) , for the year was
GBP28.5 million (2013: GBP31.0 million). Basic earnings per share,
before other items(2) , amounted to 27.8 pence (2013: 41.0 pence).
Reported basic earnings per share were 22.2 pence (2013(3) : 17.6
pence).
Profit before tax, before other items, includes profits on the
transfer or disposal of the Group's PFI equity portfolio and in
2014, the Group transferred its remaining two PFI investments into
The Costain Pension Scheme ("CPS") at a value agreed with the
Trustee of the scheme of GBP7.4 million, which resulted in a profit
on the transfer of GBP4.0 million. In 2013, the Group sold its
minority shareholdings in three joint venture companies as part of
the disposal of this portfolio, for an aggregate consideration of
GBP12.0 million. The Group realised a profit of GBP9.1 million as a
result of this sale.
The Group secured a number of new contracts and extensions and
the Group's order book increased to GBP3.5 billion (31 December
2013: GBP3.0 billion).
The results of the Group's operating divisions are considered in
the operational review section and are shown in the segmental
analysis in the financial statements.
Capital Raising
On 18 March 2014, the Group successfully completed the raising
of GBP70.3 million (net of expenses) of new capital. The proceeds
are being, and will be, utilised:
-- to demonstrate to customers the Group's financial capacity to
support the anticipated further increases in contract size and
duration;
-- to invest in innovation and technology necessary to enhance
the service offering to customers;
-- to finance bid costs associated with a greater number of
large scale projects for which the Group is in a position to
tender;
-- to fund likely increased working capital requirements arising
from the move in the market towards target cost, cost reimbursable
contracts;
-- to provide flexibility to make selected in-fill acquisitions
to complement Costain's existing capabilities as opportunities
arise; and
-- for general corporate purposes.
Interest
Net finance expense amounted to GBP3.6 million (2013: GBP4.0
million). The interest payable on bank overdrafts, loans and other
similar charges was GBP2.2 million (2013: GBP2.6 million) and the
interest income from bank deposits and other loans and receivables
amounted to GBP0.7 million (2013: GBP0.7 million). In addition, the
net finance expense includes the interest cost on the net
liabilities of the pension scheme of GBP1.4 million (2013: GBP2.1
million) and GBP0.7 million (2013: GBPNil) unwind of discount on
deferred consideration.
Tax
The Group's effective rate of tax was 7.1% of the profit before
tax (2013: 3.1%). The lower than normal rate of tax arose owing to
tax relief on the sale of shareholdings in PFI assets, Research and
Development tax relief claims, timing differences not previously
recognised as deferred tax assets, and the effect on the brought
forward deferred tax balances of the reduction in the rate of
corporation tax to 20%.
Dividend
The Board has recommended a final dividend for the year of 6.25
pence per share (2013: 7.75 pence per share) to bring the total for
the year to 9.5 pence per share (2013: 11.5 pence per share). The
reduction in dividend per share is due to the increase in the
number of shares as a result of the new capital raised during the
year.
In accordance with the pension deficit recovery plan agreed with
the Trustee of the CPS, the Group will make an additional cash
contribution to the pension scheme to match the total deficit
contribution to the total amount of dividends paid to
shareholders.
Shareholders' Equity
Shareholders' equity increased in the year to GBP110.8 million
(2013: GBP43.3 million). The profit for the year amounted to
GBP21.0 million and other comprehensive expenses to GBP16.1
million. The movements are detailed in the consolidated statements
of comprehensive income and expense and changes in equity in the
financial statements. The most significant change to shareholders'
equity resulted from the capital raise completed during the
year.
Pensions
As at 31 December 2014, the Group's pension scheme deficit in
accordance with IAS 19, net of deferred tax, was GBP33.4 million
(2013: GBP29.4 million). The scheme deficit position has increased
primarily as a result of a reduction in the discount rate used to
calculate the liabilities offset by a decrease in the assumed
inflation rate, the return on assets and company contributions.
As part of the ongoing actions to manage the Group's pension
obligations, in 2014, the Group transferred its interest in two PFI
investments into the CPS at a value agreed with the Trustee of the
scheme of GBP7.4 million.
In the year, agreement was reached with the Trustee of the CPS
regarding the triennial actuarial review as at 31 March 2013 and
the associated deficit recovery plan. As anticipated, the annual
cash contribution to the scheme deficit has been agreed at GBP7.0
million per annum (increasing annually with inflation) plus an
additional contribution to bring the total contributions to match
the total dividend amount paid by the Company over the next three
years.
Cash Flow and Borrowings
The Group has a positive cash balance, which was GBP148.5
million as at 31 December 2014 (2013: GBP84.3 million) and no
borrowings (2013: GBP26.6 million), this included cash held by
joint operations of GBP24.1 million (2013: GBP25.6 million).
As set out in the consolidated cash flow statement, the Group
had a positive operating cash flow, together with outflows for
payment of dividends and pension deficit contributions. The cash
balance was enhanced by the GBP70.3 million capital raising
completed during the year. The average month-end net cash balance
during 2014 was GBP95.6 million (2013: GBP50.7 million).
Contract Bonding and Banking Facilities
The Group's long-term contracting business is dependent on it
being able to supply performance and other bonds as necessary. This
means maintaining adequate facilities from banks and surety bond
providers to meet the current and projected usage requirements. The
Group has contract bonding and banking facilities of GBP495 million
with a maturity date of 30 June 2017 with its relationship banks
and surety companies.
Treasury
The Group's treasury and funding activities are undertaken by a
centralised treasury function. Its primary activities are to manage
the Group's liquidity, funding and financial risk, principally
arising from movements in interest rates and foreign currency
exchange rates.
The Group's policy is to ensure that adequate liquidity and
financial resources are available to support the Group's growth
development, while managing these risks. The Group's policy is not
to engage in speculative transactions. Group Treasury operates as a
service centre within clearly defined objectives and controls and
is subject to periodic review by internal audit.
Liquidity Risk
The Group finances its operations primarily by a mixture of
working capital, funds from shareholders, retained profits and
borrowings. The Directors regularly monitor cash usage and forecast
usage to ensure that projected financing needs are supported by
adequate cash reserves or bank facilities.
Foreign Currency Exposure
Translation exposure: the results of the Group's overseas
activities, mainly non-core Land Development in Spain, are
translated into sterling at rates approximating to the foreign
exchange rates ruling at the dates of the transactions. The balance
sheets of overseas subsidiaries and investments are translated at
foreign exchange rates ruling at the balance sheet date.
Transaction exposure: the Group has small transactional currency
exposures arising from subsidiaries' commercial activities overseas
and from overseas supply purchases for business in the UK. Where
appropriate, the Group requires its subsidiaries to use forward
currency contracts to minimise any currency exposure unless a
natural hedge exists elsewhere within the Group.
Interest Rate Risks and Exposure
The Group enters into financial instruments, where necessary, to
finance its operations. Various financial instruments (for example,
trade receivables and trade payables) arise directly from the
Group's operations.
The main exposure to interest rate fluctuations within the
Group's operations arises from surplus cash, which is generally
deposited with the Group's relationship banks, and bank
borrowings.
Tony Bickerstaff
Finance Director
1Underlying operating profit before Other items; amortisation of
acquired intangible assets and employment related and other
deferred consideration and in 2013 GBP3.7m one-off costs associated
with the offer for May Gurney Integrated Services plc.
2 Results stated before Other items (as stated in 1 above) and
in 2013 a non-cash impairment of GBP9.8m on carrying value of
assets in non-core Land Development activity in Spain.
(3) Restated for bonus element of the capital raise completed in
March 2014.
PRINCIPAL RISKS AND UNCERTAINTIES
This section highlights the principal risks and uncertainties
facing the Group together with the key mitigating activities in
place to manage those risks.
The Board formally reviews the material risks and ensures that
these are appropriately managed by the management team. The Board
retains the ultimate responsibility for the Group's risk management
framework, including reviewing its effectiveness. It has, however,
delegated responsibility for annually reviewing the overall
effectiveness of the risk management programme to the Audit
Committee. The internal audit function provides assurances to the
Audit Committee of the effectiveness of the internal control
procedures through completion of the annual audit plan, which takes
into account current business risks.
The table below lists the principal risks and uncertainties
facing the Group at the date of this Report. This list is not
intended to be exhaustive. Some risks have not been included in
this section on the basis that they are not considered to be
material or are not presently known to the Board.
Risk and Impact Mitigation
----------------------------------------------------------------- ---------------------------------------------------
Health, Safety and Environment
* Failure to prevent a major safety incident/accident The Health and Safety of our people and
or environmental event which could adversely affect everyone who is impacted by Costain remains
the Group's reputation and its operational and our highest priority.
financial performance Accordingly, Costain has detailed Health
and Safety policies in place to minimise
such risks. Regular Health and Safety visits
by experienced professionals and on-site
training take place to reduce the risk
of human error. Any breaches in procedures
are reported quickly and acted upon as
appropriate. A Health and Safety committee
also meets monthly to develop a consistent
approach and consider best practice.
Performance metrics in the Group's Annual
Incentive Plan also include a key non-financial
indicator for Health & Safety.
----------------------------------------------------------------- ---------------------------------------------------
Political, economic and
market conditions
* Change in Government and policy on spending The strategy of the Group is to focus on
major customers in the UK energy, water
and transportation markets. These markets
* Residual effects of the global economic downturn are defined by significant and long-term
resulting in contracts being cancelled or postponed planned expenditure programmes underpinned
by committed regulated spend and essential
capital investment. The future opportunities
in these markets are substantial.
The UK Government's National Infrastructure
Plan has identified investment of over
GBP320 billion to 2020-21 in an identified
pipeline of projects in the UK, including
a further GBP15 billion announced in December
2014 on road infrastructure. The plan has
identified that the funding for investment
will be 65.6% from the private sector,
13.8% representing a mix of public and
private sources and 20.6% from the public
sector.
----------------------------------------------------------------- ---------------------------------------------------
Financial strength
* Unable to demonstrate to customers the required level The Group has a strong balance sheet with
of financial resource resulting in failure to win a positive net cash position and no significant
long-term contracts debt.
In March 2014, the Group successfully completed
a capital raise of GBP70.3 million (net
* Inability to maintain competitive scale in a of expenses) to enable the business to
consolidating market take greater advantage of the opportunities
in its chosen markets and therefore accelerate
the Group's medium and long-term growth
* Failure to maintain adequate working capital to prospects. The capital raise significantly
operate the business increased the net asset base of the Company.
The Group has in place extensive unutilised
banking and bonding facilities.
----------------------------------------------------------------- ---------------------------------------------------
Winning new work
* Competition and failure to win work The Group's unique "Engineering Tomorrow"
strategy focuses on blue-chip customers
whose major spending plans are underpinned
by strategic national needs, regulation
commitments or essential maintenance
requirements.
The Group has successfully developed strong
relationships with these customers across
a range of markets in energy, water and
transportation that need solutions to their
complex business requirements. The Group
regularly monitors the pipeline of
opportunities
available.
The Group's ongoing drive, both organically
and by acquisition, to broaden its skills
and breadth of capability, develop its
market proposition through the introduction
of new technologies and its strong brand
and excellent reputation for delivery,
will also provide it with a competitive
edge.
----------------------------------------------------------------- ---------------------------------------------------
Operational delivery
* Failure to deliver the services to the time, cost or Costain has in place policies, processes
quality required in the contract and procedures for the tendering, preparation,
planning and delivery of contracts. These
are brought together in "the Costain Way"
* Failure to assess accurately risks, costs, time, or setting out the requirements for all employees.
contractual terms Costain has defined delegated authority
levels for approving all tenders. All
significant
* Design faults contracts are subject to review by the
Investment Committee. To mitigate the cost
risk, experienced and qualified staff are
* Procurement delay or failure used to prepare bids, which are subject
to internal review and approval before
submission.
* Failure to obtain/renew insurance or refusal of claim During the life of the contract, regular
by insurers contract leaders' meetings take place to
discuss safety, progress, quality, cost,
financial performance, end forecast and
risk, etc.
Work on site is audited by in-house specialists
and reports prepared so that corrective
action, where required, can be taken. A
senior executive is responsible for overall
quality issues, the updating of best practice
and ensuring compliance. The senior executive
is also responsible for reviewing and updating
the Group's procedures in line with the
changing business.
----------------------------------------------------------------- ---------------------------------------------------
Supply chain/joint venture
risks
* Failure of subcontractors, suppliers, joint venture The Group seeks to ensure that it is not
partners resulting in failure to deliver contracts on over-reliant on any one subcontractor,
time and to budget supplier or joint venture partner. In addition,
the Group maintains a list of preferred
subcontractors and suppliers which is reviewed
regularly. The Group also undertakes financial
monitoring of subcontractors and suppliers
and endeavours to maintain a dialogue with
them in order to identify any issue or
cause for concern. The Group has in use
an external audit system to ensure compliance
by its preferred and strategic suppliers.
----------------------------------------------------------------- ---------------------------------------------------
People and skills
* Failure to attract, retain and develop a To support its goal to develop a best-in-class
best-in-class team in an increasingly competitive team, the Group's remuneration policy is
market may limit the Group's ability to grow the designed to attract and retain high-calibre
business as anticipated individuals in an increasingly competitive
market and to remunerate fairly, whilst
not encouraging inappropriate business
risk to be taken. Pay and conditions of
employment are also regularly reviewed
against the prevailing market and bench
marked against competitors to ensure that
the Group remains competitive at all levels.
The Group has in place a well-developed
succession planning process which is regularly
monitored. This process includes carrying
out 'talent reviews' and encouraging ongoing
development at all levels. The Group also
seeks to actively engage with employees
through engagement surveys.
----------------------------------------------------------------- ---------------------------------------------------
Pension liabilities
* Failure to manage the Group's pension scheme so that The Group manages a legacy defined benefit
the liabilities are within a range appropriate to its scheme and continually reviews the actions
capital base which could have an adverse impact on it can take to mitigate long-term risk
the Group's operational results and consults professional advisers, as
necessary.
The scheme was closed to new members from
1 June 2005 and to future accrual on 30
September 2009. A number of other actions
have been taken to manage the obligations
in the scheme, including the transfer of
assets into the scheme and the implementation
of Enhanced Transfer Value and Pension
Increase Exchange exercises.
A full actuarial valuation of the scheme
as at 31 March 2013 was concluded during
2014 and the Group agreed a deficit recovery
plan with the Trustee.
----------------------------------------------------------------- ---------------------------------------------------
Acquisitions
* Failure to integrate successfully an acquired
business or recognise and mitigate new and related Full due diligence is carried out before
risks could have a damaging impact on the Group's any acquisition is made. Integration plans
future revenue and profits are put in place and managed by a dedicated
team and progress monitored against pre-agreed
performance indicators.
----------------------------------------------------------------- ---------------------------------------------------
Failure of IT systems
* Failure of IT systems, inability to manage and/or to A senior executive is responsible for the
integrate IT systems, as well as the failure to store IT systems and has a suitably qualified
key documentation securely, could cause financial team in support. Critical areas are subject
loss to the Group and expose the Group to breaches of to testing and include rapid recovery as
legislation and fines. well as sound data backup procedures. Online
security training is provided for safe
usage and storage of documentation.
The Group is accredited to ISO /IEC 27001:2005
Information Security Management System
----------------------------------------------------------------- ---------------------------------------------------
Results for the year ended 31 December 2014
Consolidated income statement
Year ended 31 December 2014 2013
Before Before
other Other other Other
Notes items items Total items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Continuing operations
Revenue 2 1,122.5 - 1,122.5 960.0 - 960.0
Less: Share of revenue of
joint ventures and associates 9 (50.7) - (50.7) (74.8) - (74.8)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Group revenue 1,071.8 - 1,071.8 885.2 - 885.2
Cost of sales (1,011.6) - (1,011.6) (826.7) - (826.7)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Gross profit 60.2 - 60.2 58.5 - 58.5
Administrative expenses (31.5) - (31.5) (31.1) - (31.1)
Exceptional transaction
costs 2 - - - - (3.7) (3.7)
Amortisation of acquired
intangible assets - (3.0) (3.0) - (1.8) (1.8)
Employment related and other
deferred consideration - (2.2) (2.2) - (2.8) (2.8)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Group operating profit 28.7 (5.2) 23.5 27.4 (8.3) 19.1
Profit on sales of interests
in joint ventures and associates 4.0 - 4.0 9.1 - 9.1
Share of results of joint
ventures and associates 9 (1.3) - (1.3) (1.5) (9.8) (11.3)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Profit from operations 2 31.4 (5.2) 26.2 35.0 (18.1) 16.9
Finance income 4 0.7 - 0.7 0.7 - 0.7
Finance expense 4 (3.6) (0.7) (4.3) (4.7) - (4.7)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Net finance expense (2.9) (0.7) (3.6) (4.0) - (4.0)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Profit before tax 28.5 (5.9) 22.6 31.0 (18.1) 12.9
Income tax 5 (2.2) 0.6 (1.6) (1.8) 1.4 (0.4)
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Profit for the year attributable
to equity holders of the
parent 26.3 (5.3) 21.0 29.2 (16.7) 12.5
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
Earnings per share
Basic* 6 27.8p (5.6)p 22.2p 41.0p (23.4)p 17.6p
Diluted* 6 27.2p (5.5)p 21.7p 39.4p (22.5)p 16.9p
----------------------------------- ------ ---------- ------- ---------- -------- -------- --------
The impact of business disposals in either year was not material
and, therefore, all results are classified as arising from
continuing operations.
* 2013 has been restated for the bonus element in the 2014
capital raise.
Consolidated statement of comprehensive income and expense
Year ended 31 December
2014 2013
GBPm GBPm
---------------------------------------------------- ------- ------
Profit for the year 21.0 12.5
----------------------------------------------------- ------- ------
Items that may be reclassified subsequently to profit
or loss:
Exchange differences on translation
of foreign operations (2.0) (0.2)
Cash flow hedges
Group:
Effective portion of changes in fair
value during year - (0.1)
Net changes in fair value transferred to
the income statement 0.1 0.2
Joint ventures and associates:
Effective portion of changes in fair value
(net of tax) during year - (0.2)
Net changes in fair value (net of tax) transferred
to the income statement - 1.2
Total items that may be reclassified subsequently
to profit or loss (1.9) 0.9
------------------------------------------------------ ------- ------
Items that will not be reclassified
to profit or loss:
Remeasurement of defined benefit obligations (15.7) 8.6
Tax recognised on remeasurement of defined
benefit obligations 1.5 (5.3)
------------------------------------------------------ ------- ------
Total items that will not be reclassified
to profit or loss (14.2) 3.3
------------------------------------------------------ ------- ------
Other comprehensive (expense)/income for the
year (16.1) 4.2
------------------------------------------------------ ------- ------
Total comprehensive income for the
year attributable to equity holders
of the parent 4.9 16.7
----------------------------------------------------- ------- ------
Consolidated statement of changes in equity
Share Share Translation Hedging Merger Retained Total
capital premium reserve reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------------------- --------- --------- ------------ --------- --------- ---------- ---------
At 1 January 2013 32.8 3.7 5.0 (1.2) - (8.5) 31.8
Profit for the year - - - - - 12.5 12.5
Other comprehensive
(expense)/income - - (0.2) 1.1 - 3.3 4.2
Issue of ordinary
shares under employee
share option plans 0.5 0.6 - - - (0.3) 0.8
Shares purchased to
satisfy employee share
schemes - - - - - (1.5) (1.5)
Equity settled share-based
payments - - - - - 2.2 2.2
Dividends paid 0.1 0.4 - - - (7.2) (6.7)
----------------------------
At 31 December 2013 33.4 4.7 4.8 (0.1) - 0.5 43.3
---------------------------- --------- --------- ------------ --------- --------- ---------- ---------
At 1 January 2014 33.4 4.7 4.8 (0.1) - 0.5 43.3
Profit for the year - - - - - 21.0 21.0
Other comprehensive
(expense)/income - - (2.0) 0.1 - (14.2) (16.1)
Issue of ordinary
shares under employee
share option plans 0.4 0.2 - - - (0.3) 0.3
Issue of ordinary
shares under capital
raise (note 6) 16.7 - - - 53.6 - 70.3
Transfer (note 6) - - - - (53.6) 53.6 -
Shares purchased to
satisfy employee share
schemes - - - - - (2.0) (2.0)
Equity-settled share-based
payments - - - - - 1.7 1.7
Dividends paid 0.1 0.6 - - - (8.4) (7.7)
---------------------------- --------- --------- ------------ --------- --------- ---------- ---------
At 31 December 2014 50.6 5.5 2.8 - - 51.9 110.8
---------------------------- --------- --------- ------------ --------- --------- ---------- ---------
Consolidated statement of financial position
As at 31 December
Notes 2014 2013
GBPm GBPm
--------------------------------------- ------ ------ ------
Assets
Non-current assets
Intangible assets 8 31.0 33.0
Property, plant and equipment 10.0 7.9
Investments in equity accounted
joint ventures 9 25.5 27.1
Investments in equity accounted
associates 9 0.3 0.2
Loans to equity accounted associates 1.7 4.8
Other 31.8 22.0
Deferred tax 9.2 9.8
---------------------------------------- ------ ------ ------
Total non-current assets 109.5 104.8
---------------------------------------- ------ ------ ------
Current assets
Inventories 1.3 1.6
Trade and other receivables 197.1 190.6
Cash and cash equivalents 10 148.5 84.3
---------------------------------------- ------ ------ ------
Total current assets 346.9 276.5
---------------------------------------- ------ ------ ------
Total assets 456.4 381.3
---------------------------------------- ------ ------ ------
Equity
Share capital 50.6 33.4
Share premium 5.5 4.7
Foreign currency translation
reserve 2.8 4.8
Hedging reserve - (0.1)
Retained earnings 51.9 0.5
---------------------------------------- ------ ------ ------
Total equity attributable to equity holders
of the parent 110.8 43.3
------------------------------------------------ ------ ------
Liabilities
Non-current liabilities
Retirement benefit obligations 11 41.7 37.2
Other payables 4.5 4.3
Provisions for other liabilities
and charges 0.1 0.4
---------------------------------------- ------ ------ ------
Total non-current liabilities 46.3 41.9
---------------------------------------- ------ ------ ------
Current liabilities
Trade and other payables 296.3 266.1
Income tax liabilities 1.5 1.6
Bank overdrafts 10 - 1.6
Interest bearing loans and
borrowings - 25.0
Provisions for other liabilities
and charges 1.5 1.8
---------------------------------------- ------ ------ ------
Total current liabilities 299.3 296.1
---------------------------------------- ------ ------ ------
Total liabilities 345.6 338.0
---------------------------------------- ------ ------ ------
Total equity and liabilities 456.4 381.3
---------------------------------------- ------ ------ ------
Consolidated cash flow statement
Year ended 31 December
Notes 2014 2013
GBPm GBPm
----------------------------------------------------- ------ ------- ---------
Cash flows from operating activities
Profit for the year 21.0 12.5
Adjustments for:
Share of results of joint ventures and associates 9 1.3 11.3
Finance income 4 (0.7) (0.7)
Finance expense 4 4.3 4.7
Income tax 5 1.6 0.4
Profit on sales of interests in joint ventures
and associates 3 (4.0) (9.1)
Depreciation of property, plant and equipment 2.0 2.4
Amortisation of intangible assets 3.4 2.3
Employment related and other deferred consideration 2.2 2.8
Shares purchased to satisfy employee share
schemes (2.0) (1.5)
Share-based payments expense 2.2 2.7
----------------------------------------------------- ------ ------- ---------
Cash from operations before changes in working
capital and provisions 31.3 27.8
Decrease in inventories 0.3 0.1
Increase in receivables (16.3) (12.2)
Increase/(decrease) in payables 33.1 (40.7)
Movement in provisions and employee benefits (4.8) (7.9)
----------------------------------------------------- ------ ------- ---------
Cash from/(used by) operations 43.6 (32.9)
Interest received 0.7 0.6
Interest paid (3.6) (2.9)
Income tax paid (0.1) (0.3)
----------------------------------------------------- ------ ---------
Net cash from/(used by) operating activities 40.6 (35.5)
----------------------------------------------------- ------ ------- ---------
Cash flows from/(used by) investing activities
Dividends received from joint ventures and
associates 0.1 1.3
Additions to property, plant and equipment (5.3) (1.3)
Additions to intangible assets (0.8) (1.2)
Proceeds of disposal of property, plant and
equipment 0.6 0.2
Additions to loans to joint ventures and associates - (2.2)
Additions to cost of investments (1.7) (2.7)
Repayment of loans to joint ventures and associates 0.1 -
Proceeds of sales of interests in associates - 11.7
Acquisition related deferred consideration (3.3) (3.0)
Acquisition of interest in joint operation (2.4) -
Acquisition of subsidiary (net of acquired
cash and cash equivalents and overdrafts) - (9.4)
Net cash used by investing activities (12.7) (6.6)
----------------------------------------------------- ------ ------- ---------
Cash flows from/(used by) financing activities
Issue of ordinary share capital 70.6 0.8
Ordinary dividends paid (7.7) (6.7)
(Repayment)/drawdown of revolving credit facility (25.0) 25.0
Net cash from financing activities 37.9 19.1
----------------------------------------------------- ------ ------- ---------
Net increase/(decrease) in cash, cash equivalents
and overdrafts 65.8 (23.0)
Cash, cash equivalents and overdrafts at beginning
of the year 10 82.7 105.7
----------------------------------------------------- ------ ------- ---------
Cash, cash equivalents and overdrafts at end
of the year 10 148.5 82.7
----------------------------------------------------- ------ ------- -------
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 2014
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 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 2 March 2015) does not constitute the
Company's statutory accounts for the years ended 31 December 2014
or 2013 but is derived from those accounts. Statutory accounts for
2013 have been delivered to the Registrar of Companies, and those
for 2014 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.
Accounting policies have been consistently applied in 2014 and
the comparative period.
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.
Significant areas of judgment and estimation
The estimates and underlying assumptions used in the preparation
of these financial statements are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the
revision affects both current and future periods.
The most critical accounting policies and significant areas of
judgment and estimation arise from the accounting for long-term
contracts under IAS 11 Construction contracts, assessments of the
carrying value of land and the carrying value of goodwill and
acquired intangible assets and the assumptions used in the
accounting for defined benefit pension schemes under IAS 19
Employee benefits.
The majority of the Group's activities are undertaken via
long-term contracts and these contracts are accounted for in
accordance with IAS 11, which requires estimates to be made for
contract costs and revenues. In many cases, these contractual
obligations span more than one financial period. Also, the costs
and revenues may be affected by a number of uncertainties that
depend on the outcome of future events and may need to be revised
as events unfold and uncertainties are resolved.
Management bases its judgments of costs and revenues and its
assessment of the expected outcome of each long-term contractual
obligation on the latest available information, this includes
detailed contract valuations and forecasts of the costs to
complete. The estimates of the contract position and the profit or
loss earned to date are updated regularly and significant changes
are highlighted through established internal review procedures. The
impact of any change in the accounting estimates is then reflected
in the financial statements.
Alcaidesa Holding SA, one of the Group's joint arrangements,
operates in the Spanish real estate market and holds land and
property within its current and non-current assets. The company has
also developed and operates a marina under a long-term concession
agreement and has developed and operates two golf courses. At 31
December 2014, a review of the net realisable value of its land
holdings and golf course assets has been undertaken using external
professional valuers. A review of the carrying value of the marina
has been undertaken using a discounted cash flow model. As a
consequence of those reviews, no write downs in the value of
Alcaidesa's assets were required in these financial statements.
Reviewing the carrying value of goodwill and intangible assets
recognised on acquisition requires judgments, principally, in
respect of growth rates and future cash flows of cash generating
units, the useful lives of intangible assets and the selection of
discount rates used to calculate present values.
Defined benefit pension schemes require significant judgments in
relation to the assumptions for inflation, future pension
increases, investment returns and member longevity that underpin
the valuation. Each year in selecting the appropriate assumptions,
the directors take advice from an independent qualified actuary.
The assumptions and resultant sensitivities are set out in Note
11.
2 Operating segments
The Group has two core business segments: Natural Resources and
Infrastructure plus the Land Development operations in Spain. 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.
2014 Natural Infrastructure Land Development Central Total
Resources costs
GBPm GBPm GBPm GBPm GBPm
Segment revenue
External revenue 301.5 770.3 - - 1,071.8
Share of revenue of joint
ventures and associates 33.5 14.9 2.3 - 50.7
------------------------------- ----------- ----------------- ----------------- -------- ----------
Total segment revenue 335.0 785.2 2.3 - 1,122.5
------------------------------- ----------- ----------------- ----------------- -------- ----------
Segment profit/(loss)
Operating profit/(loss) (3.5) 38.3 - (6.1) 28.7
Profit on sale of interest
in associates 4.0 - - - 4.0
Share of results of joint
ventures and associates - - (1.3) - (1.3)
------------------------------- ----------- ----------------- ----------------- -------- ----------
Profit/(loss) from operations
before other items 0.5 38.3 (1.3) (6.1) 31.4
Other items:
Amortisation of acquired
intangible assets (1.5) (1.5) - - (3.0)
Employment related and
other deferred consideration (2.2) - - - (2.2)
Profit/(loss) from operations (3.2) 36.8 (1.3) (6.1) 26.2
------------------------------- ----------- ----------------- ----------------- -------- ----------
Net finance expense (3.6)
------------------------------- ----------- ----------------- ----------------- -------- ----------
Profit before tax 22.6
------------------------------- ----------- ----------------- ----------------- -------- ----------
2013 Natural Infrastructure Land Development Central Total
Resources costs
GBPm GBPm GBPm GBPm GBPm
Segment revenue
External revenue 324.6 560.6 - - 885.2
Share of revenue of joint
ventures and associates 73.0 - 1.8 - 74.8
------------------------------- ----------- ----------------- ----------------- -------- ----------
Total segment revenue 397.6 560.6 1.8 - 960.0
------------------------------- ----------- ----------------- ----------------- -------- ----------
Segment profit/(loss)
Operating profit/(loss) 3.1 31.4 - (7.1) 27.4
Profit on sale of interest
in joint venture 9.1 - - - 9.1
Share of results of joint
ventures and associates 0.6 - (2.1) - (1.5)
------------------------------- ----------- ----------------- ----------------- -------- ----------
Profit/(loss) from operations
before other items 12.8 31.4 (2.1) (7.1) 35.0
Other items:
Exceptional transaction
costs - - - (3.7) (3.7)
Amortisation of acquired
intangible assets (1.2) (0.6) - - (1.8)
Employment related and
other deferred consideration (2.1) (0.7) - - (2.8)
Impairment of assets of
joint venture - - (9.8) - (9.8)
------------------------------- ----------- ----------------- ----------------- -------- ----------
Profit/(loss) from operations 9.5 30.1 (11.9) (10.8) 16.9
------------------------------- ----------- ----------------- ----------------- -------- ----------
Net finance expense (4.0)
------------------------------- ----------- ----------------- ----------------- -------- ----------
Profit before tax 12.9
------------------------------- ----------- ----------------- ----------------- -------- ----------
Costs of GBP3.7 million associated with the lapsed all share
merger with May Gurney Integrated Services plc were shown as
exceptional transaction costs within Other items.
3 Profit on sales of interests in joint ventures and
associates
In December 2014, the Group transferred two PFI investments,
Lewisham Schools for the Future Holdings 3 Limited and Lewisham
Schools for the Future Holdings 4 Limited, to The Costain Pension
Scheme for GBP7.4 million. The transfer amount was included as a
contribution received by the Scheme.
In December 2013, the Group sold three minority shareholdings in
three joint venture companies to Severn Trent Plc for an aggregate
cash consideration of GBP12.0 million. The three companies were
Severn Trent Costain Holdings Limited, Severn Trent Costain
Services Limited and Severn Trent Costain Limited. As a result of
the sale, the Group realised a profit of GBP9.1 million. GBP1.2
million of fair value adjustments on the PFI financial assets
relating to cash flow hedges were recycled through the income
statement as part of this profit.
4 Net finance expense
2014 2013
GBPm GBPm
Interest income from bank deposits 0.2 0.1
Interest income on loans to related parties 0.5 0.6
----------------------------------------------- -------- --------
Finance income 0.7 0.7
----------------------------------------------- -------- --------
Interest payable on bank overdrafts, interest
bearing loans, borrowings and other similar
charges (2.2) (2.6)
Unwind of discount on deferred consideration (0.7) -
Interest cost on the net liabilities of
the defined benefit pension scheme (1.4) (2.1)
----------------------------------------------- -------- --------
Finance expense (4.3) (4.7)
----------------------------------------------- -------- --------
Net finance expense (3.6) (4.0)
----------------------------------------------- -------- --------
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
2014 2013
GBPm GBPm
----------------------------------------- ------ ------
On profit for the year
United Kingdom corporation tax at 21.5%
(2013: 23.25%) - Adjustment in respect
of prior years - 0.1
----------------------------------------- ------ ------
Current tax credit for the year - 0.1
----------------------------------------- ------ ------
Deferred tax charge for current year (2.2) (1.4)
Adjustment in respect of prior years 0.6 0.9
----------------------------------------- ------ ------
Deferred tax charge for the year (1.6) (0.5)
----------------------------------------- ------ ------
Income tax expense in the consolidated
income statement (1.6) (0.4)
----------------------------------------- ------ ------
2014 2013
GBPm GBPm
----------------------------------------------- -------- --------
Tax reconciliation
Profit before tax 22.6 12.9
----------------------------------------------- -------- --------
Income tax at 21.5% (2013: 23.25%) (4.9) (3.0)
Share of results of joint ventures and
associates at 21.5% (2013: 23.25%) (0.3) (2.6)
Disallowed provisions and expenses charged
to reserves 0.2 (0.1)
Non-taxable gains 0.9 2.2
Utilisation of previously unrecognised
temporary differences 0.3 0.7
Research and Development tax relief for 0.7 -
current year
Rate adjustment relating to deferred taxation
and overseas profits and losses 0.9 1.4
Adjustments in respect of prior years,
mainly Research and Development tax relief
claims 0.6 1.0
----------------------------------------------- -------- --------
Income tax expense in the consolidated
income statement (1.6) (0.4)
----------------------------------------------- -------- --------
6 Earnings per share
The calculation of earnings per share is based on profit of
GBP21.0 million (2013: GBP12.5 million) and the number of shares
set out below.
2014 2013
Number Number
(millions) (millions)
restated*
---------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares in issue
for basic earnings per share calculation 94.6 71.2
Dilutive potential ordinary shares arising from employee
share schemes 2.1 2.9
---------------------------------------------------------- ----------- -----------
Weighted average number of ordinary shares in issue
for diluted earnings per share calculation 96.7 74.1
---------------------------------------------------------- ----------- -----------
* The number of shares has been adjusted for the bonus element
within the 2014 capital raise.
On 27 February 2014, the Group announced a capital raise of
GBP70.3 million (net of expenses) by way of an issue of 33,382,068
ordinary shares of 50 pence each at 225 pence per share. 11,111,112
shares were to be issued through a firm placing and 22,270,956
through a placing and open offer. The capital raise was completed
successfully on 18 March 2014.
The capital raise was effected through a structure, which
resulted in a merger reserve arising under Section 612 of the
Companies Act 2006. Following the receipt of the cash proceeds
through the structure, the excess of the net proceeds over the
nominal value of the share capital issued has been transferred to
retained earnings.
7 Dividends
Dividend 2014 2013
per share
pence GBPm GBPm
------------------------------------------------- ---------- ------ ------
Final dividend for the year ended 31 December
2012 7.25 - 4.7
Interim dividend for the year ended 31 December
2013 3.75 - 2.5
Final dividend for the year ended 31 December
2013 7.75 5.2 -
Interim dividend for the year ended 31 December
2014 3.25 3.2 -
------------------------------------------------- ---------- ------ ------
Amount recognised as distributions to equity
holders in the year 8.4 7.2
Dividends settled in shares (0.7) (0.5)
------------------------------------------------- ---------- ------ ------
Dividends settled in cash 7.7 6.7
------------------------------------------------- ---------- ------ ------
8 Intangible assets
Customer Other acquired Software
Goodwill relationships intangibles & development Total
GBPm GBPm GBPm GBPm GBPm
--------------------------- --------- --------------- --------------- --------------- -------
Cost
At 1 January 2013 15.2 4.1 1.7 5.3 26.3
Acquired through business
combinations 7.1 4.5 1.4 - 13.0
Additions - - 2.4 1.2 3.6
--------------------------- --------- --------------- --------------- --------------- -------
At 31 December 2013 22.3 8.6 5.5 6.5 42.9
--------------------------- --------- --------------- --------------- --------------- -------
At 1 January 2014 22.3 8.6 5.5 6.5 42.9
Reclassifications from
property, plant and
equipment - - - 0.6 0.6
Additions - - - 0.8 0.8
Disposals - - - (0.2) (0.2)
--------------------------- --------- --------------- --------------- --------------- -------
At 31 December 2014 22.3 8.6 5.5 7.7 44.1
--------------------------- --------- --------------- --------------- --------------- -------
Amortisation
At 1 January 2013 - 2.2 0.4 5.0 7.6
Provided in year - 0.4 1.4 0.5 2.3
--------------------------- --------- --------------- --------------- --------------- -------
At 31 December 2013 - 2.6 1.8 5.5 9.9
--------------------------- --------- --------------- --------------- --------------- -------
At 1 January 2014 - 2.6 1.8 5.5 9.9
Provided in year - 1.5 1.5 0.4 3.4
Disposals - - - (0.2) (0.2)
--------------------------- --------- --------------- --------------- --------------- -------
At 31 December 2014 - 4.1 3.3 5.7 13.1
--------------------------- --------- --------------- --------------- --------------- -------
Net book value
At 31 December 2014 22.3 4.5 2.2 2.0 31.0
--------------------------- --------- --------------- --------------- --------------- -------
At 31 December 2013 22.3 6.0 3.7 1.0 33.0
--------------------------- --------- --------------- --------------- --------------- -------
At 1 January 2013 15.2 1.9 1.3 0.3 18.7
--------------------------- --------- --------------- --------------- --------------- -------
9 Investments
The analysis of Group share of joint ventures and associates is
set out below:
2014 2013
--------------------- ---------- ---------- ----------- -------- ---------- ---------- ----------- ---------
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 2.3 41.7 6.7 50.7 1.8 43.1 29.9 74.8
--------------------- ---------- ---------- ----------- -------- ---------- ---------- ----------- ---------
(Loss)/profit
before tax (0.8) (0.2) 0.2 (0.8) (11.9) 0.4 0.3 (11.2)
Income tax (0.5) - - (0.5) - - (0.1) (0.1)
--------------------- ---------- ---------- ----------- -------- ---------- ---------- ----------- ---------
(Loss)/profit
for the year (1.3) (0.2) 0.2 (1.3) (11.9) 0.4 0.2 (11.3)
--------------------- ---------- ---------- ----------- -------- ---------- ---------- ----------- ---------
Non-current
assets 16.1 - - 16.1 18.4 - 0.8 19.2
Current assets 18.6 12.0 3.5 34.1 19.6 18.3 41.2 79.1
Current liabilities (1.8) (11.7) (1.8) (15.3) (2.6) (17.8) (15.9) (36.3)
Non-current
liabilities (7.7) - (1.4) (9.1) (8.8) - (25.9) (34.7)
--------------------- ---------- ---------- ----------- -------- ---------- ---------- ----------- ---------
Investments
in joint ventures
and associates 25.2 0.3 0.3 25.8 26.6 0.5 0.2 27.3
--------------------- ---------- ---------- ----------- -------- ---------- ---------- ----------- ---------
10 Cash and cash equivalents
Cash and cash equivalents are analysed below, and include the
Group's share of cash held by joint operations of GBP24.1 million
(2013: GBP25.6 million).
2014 2013
GBPm GBPm
--------------------------------------------------- ------ ------
Cash and cash equivalents 148.5 84.3
Bank overdrafts - (1.6)
--------------------------------------------------- ------ ------
Cash, cash equivalents and overdrafts in the cash
flow statement 148.5 82.7
--------------------------------------------------- ------ ------
11 Pensions
A defined benefit pension scheme is operated in the United
Kingdom and a number of defined contribution pension schemes are in
place in the United Kingdom and Overseas. Contributions are paid by
subsidiary undertakings and employees. The total pension charge in
the income statement was GBP9.2 million comprising GBP7.8 million
included in operating costs plus GBP1.4 million included in net
finance expense (2013: GBP9.2 million, comprising GBP7.1 million in
operating costs plus GBP2.1 million in net finance expense).
Defined benefit scheme
The defined benefit scheme was closed to new members on 31 May
2005 and from 1 April 2006 future benefits were calculated on a
Career Average Revalued Earnings basis. The scheme was closed to
future accrual of benefits to members on 30 September 2009. A full
actuarial valuation of the scheme was carried out as at 31 March
2013 and this was updated to 31 December 2014 by a qualified
independent actuary.
2014 2013 2012
GBPm GBPm GBPm
---------------------------------------------- -------- -------- --------
Present value of defined benefit obligations (701.0) (629.7) (610.7)
Fair value of scheme assets 659.3 592.5 558.8
---------------------------------------------- -------- -------- --------
Recognised liability for defined benefit
obligations (41.7) (37.2) (51.9)
---------------------------------------------- -------- -------- --------
Movements in present value of defined benefit obligations
2014 2013
GBPm GBPm
---------------- ------- -------
At 1 January 629.7 610.7
Interest cost 28.3 26.2
Remeasurements 71.2 21.6
Benefits paid (28.2) (28.8)
---------------- ------- -------
At 31 December 701.0 629.7
---------------- ------- -------
Movements in fair value of scheme assets
2014 2013
GBPm GBPm
--------------------------- ------- -------
At 1 January 592.5 558.8
Interest income 26.9 24.1
Remeasurements 55.5 30.2
Contributions by employer 12.6 8.2
Benefits paid (28.2) (28.8)
--------------------------- ------- -------
At 31 December 659.3 592.5
--------------------------- ------- -------
Contributions by the employer in 2014 included the transfer of
two PFI investments, Lewisham Schools for the Future Holdings 3
Limited and Lewisham Schools for the Future Holdings 4 Limited, at
an agreed amount of GBP7.4 million.
Expense recognised in the income statement
2014 2013
GBPm GBPm
----------------------------------------------------- ------ ------
Administrative expenses (0.8) (1.1)
Interest cost on the net liabilities of the defined
benefit pension scheme (1.4) (2.1)
----------------------------------------------------- ------ ------
(2.2) (3.2)
----------------------------------------------------- ------ ------
Fair value of scheme assets
2014 2013
GBPm GBPm
-------------------------------- ------ ------
Equities 146.1 175.6
Multi-credit 66.8 65.7
Government bonds 307.5 212.4
Infrastructure and property 73.6 64.8
Absolute return funds and cash 65.3 74.0
-------------------------------- ------ ------
659.3 592.5
-------------------------------- ------ ------
Principal actuarial assumption (expressed as weighted
averages)
2014 2013
% %
-------------------------- ----- -----
Discount rate 3.60 4.60
Future pension increases 2.85 3.20
Inflation assumption 2.90 3.30
Weighted average life expectancy from age 65 as per mortality
tables used to determine benefits at 31 December 2014 and 31
December 2013 is:
2014 2013
Male Female Male Female
(years) (years) (years) (years)
------------------- -------- -------- -------- --------
Currently aged 65 22.1 24.6 22.0 24.5
Non-retirees 23.9 26.5 23.8 26.4
------------------- -------- -------- -------- --------
The discount rate, inflation and pension increase and mortality
assumptions have a significant effect on the amounts reported.
Changes in these assumptions would have the following effects on
the defined benefit scheme:
Pension Pension
liability cost
GBPm GBPm
----------------------------------------------------------- --------------- --------
Increase discount rate by 0.25%, decreases pension
liability and reduces pension cost by 27.5 1.0
Decrease inflation, pension increases by 0.25%, decreases
pension liability and reduces pension cost by 24.0 0.9
Increase life expectancy by one year, increases pension
liability and increases pension cost by 21.2 0.8
----------------------------------------------------------- --------------- --------
The Group expects to make contributions of approximately GBP7.0 million,
plus an element of dividend matching and the expenses of administration
to its defined benefit scheme in the next financial year.
Defined contribution
schemes
Several defined contribution pensions are operated. The total expense
relating to these plans was GBP7.0 million (2013: GBP6.0 million).
12 Related party transactions
The Group has related party relationships with its major
shareholders, subsidiaries, joint ventures and associates and joint
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 2014 was GBP127.5
million (2013: GBP112.7 million); transactions with The Costain
Pension Scheme are included in Note 11.
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 responsibility statement set out below has been prepared in
connection with (and will be set out in) the Annual Report and
Accounts for the year ended 31 December 2014.
"Each of the directors of the Company confirms that, to the best
of his or her knowledge:
-- the Group accounts, which have been prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union, give a true and fair view of the assets,
liabilities, financial position and profits/losses of the Company
(and of the Group taken as a whole); and
-- the Strategic Report includes a fair review of the
development and performance of the business and the position of the
Company (and of the Group taken as a whole), together with a
description of the principal risks and uncertainties that they
face."
The directors of the Company are David Allvey (Chairman), Andrew
Wyllie (Chief Executive), Tony Bickerstaff (Finance Director),
James Morley (Senior Independent Director), Jane Lodge (Independent
Non-Executive Director), Alison Wood (Independent Non-Executive
Director), David McManus (Independent Non-Executive Director) and
Ahmed Samy (Non-Executive Director).
On behalf of the Board:
DAVID ALLVEY
Chairman
ANDREW WYLLIE
Chief Executive
519653503
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR JTMPTMBAMBFA
Costain (LSE:COST)
過去 株価チャート
から 6 2024 まで 7 2024
Costain (LSE:COST)
過去 株価チャート
から 7 2023 まで 7 2024
