TIDMCOST
RNS Number : 4914Y
Costain Group PLC
22 August 2018
22 August 2018
Costain Group PLC
("Costain" or "the Group" or "the Company")
Results for the half-year ended 30 June 2018
Costain, the smart infrastructure solutions company, announces
another good first half performance with progression in Group
margin generating an increase in underlying operating profit. The
Group remains on course to deliver full year results in line with
the Board's expectations and announces an 8% increase in the
interim dividend.
HY 2018 HY 2017 FY 2017
Revenue
* including share of JVs and associates GBP772.9m GBP874.5m GBP1,728.9m
GBP758.7m GBP847.8m GBP1,684.0m
* reported
Operating profit
(-) underlying(1) GBP22.8m GBP21.2m GBP48.7m
GBP21.0m GBP18.7m GBP44.3m
* reported
Profit before tax
* underlying(1) GBP21.4m GBP18.3m GBP43.4m
GBP19.5m GBP15.7m GBP38.9m
* reported
Basic earnings per share
* underlying(1) 16.6p 14.4p 34.8p
* reported 15.1p 12.2p 31.1p
Net cash balance(2) GBP77.7m GBP87.5m GBP177.7m
Dividend per share 5.15p 4.75p 14.0p
1. Before other items; amortisation of acquired intangible
assets and employment related deferred consideration.
2. Net cash balance is cash and cash equivalents less
interest-bearing loans and borrowings.
Highlights
* Another good performance
o increase in Group margin generating underlying operating
profit(1) up 8% to GBP22.8 million (HY 2017: GBP21.2
million)
o revenue, including share of joint ventures and associates,
of GBP772.9 million (HY 2017: GBP874.5 million)
o net cash(2) balance of GBP77.7 million (HY 2017: GBP87.5
million) with average month-end net cash of GBP90.8 million
(HY 2017: GBP97.3 million).
* Evolving into the UK's leading smart infrastructure
solutions company
o proactively aligning the Group with the fast-changing
market environment
o differentiated by offering the range of integrated
technology enabled services increasingly required by
clients
o planned expansion to a new enlarged technology centre
o one third of our people are now in consultancy or technology
roles.
* Confident outlook
o higher quality order book of GBP3.7 billion, of which
over 90% continues to be repeat business (30 June 2017:
GBP3.7 billion)
o over GBP1.4 billion of revenue secured for FY 2018
at 30 June 2018 (30 June 2017: over GBP1.5 billion secured
for FY 2017)
o interim dividend increased by 8% to 5.15 pence per
share (2017: 4.75 pence).
Andrew Wyllie CBE, chief executive, commented:
"We delivered another good performance in the first half of the
year. The progression in Group margin generated growth in
underlying operating profit enabling an 8% increase in the interim
dividend.
"This performance is due to our differentiation as we evolve
into the UK's leading smart infrastructure solutions company. The
shape and nature of our activities continues to develop, reflecting
our clients' changing needs and their demand for integrated
solutions to improve the performance and capacity of their
assets.
"Our higher quality order book provides good visibility for the
Group's future performance and we are on course to deliver full
year results in line with the Board's expectations."
Enquiries:
Costain Tel: 01628 842 444
Andrew Wyllie CBE, Chief Executive
Tony Bickerstaff, Chief Financial
Officer
Carolyn Rich, Investor Relations
Director
Sara Lipscombe, Group Communications
Director
Instinctif Partners Tel: 020 7457 2020
Mark Garraway
James Gray
There will be a presentation to analysts today at 09:30 at
Instinctif Partners, 65 Gresham Street, EC2V 7NQ. To register your
attendance please contact christine.galloway@instinctif.com
A short animation summarising the results is available at
www.costain.com
Notes to Editors
Costain helps to improve people's lives by deploying
technology-based engineering solutions to meet urgent national
needs across the UK's energy, water and transportation
infrastructures. We have been shaping the world in which we live
for the past 150 years.
The Group's 'Engineering Tomorrow' strategy involves focusing on
blue chip clients in chosen sectors whose major spending plans are
underpinned by strategic national needs, regulatory commitments or
essential maintenance requirements.
Costain's 4,000 people are committed to high performance and
safe delivery. They are delivering a broad range of innovative
services including consultancy, technology, asset optimisation and
complex delivery services across a range of high profile contracts
in the UK incorporating the whole life cycle of our clients'
assets.
For more information visit www.costain.com
CHIEF EXECUTIVE'S STATEMENT
I am pleased to report that Costain delivered another good
performance in the first half of the year, the result of
proactively aligning the business in a rapidly changing market
environment to meet the evolving requirements of our clients.
The most significant aspect of the rapid change is the
revolutionary deployment of technology by clients across the UK's
energy, water and transportation infrastructures to increase
network capacity, improve customer service and optimise
performance. This is having a profound impact on the market and is
also creating a wide range of exciting new opportunities for
Costain.
These results again evidence our successful focus on strategic
relationships with those blue-chip clients who require Costain to
deliver a broad range of integrated services on longer-term
collaborative contracts. Over 90% of our contracts are on a 'target
cost, cost reimbursable' basis which, for complex investment
programmes, provides clients with maximum flexibility and lowers
our risk profile.
Strategic update
We are operating in a dynamic and rapidly changing market
environment. Significant demographic, economic and social trends
are having a deep impact on the performance and service required
from the UK's energy, water and transportation infrastructures. For
example, the National Infrastructure Assessment published last
month contemplates close to 100% adoption of electric new vehicle
sales in the UK by 2030. These trends are causing urgent
infrastructure needs and the solutions to address them are
increasingly complex and technology enabled.
Moreover, we must deliver solutions in highly regulated and
legislated environments, where the focus is on increasing existing
network capacity, improving customer service and ensuring security
of supply. Therefore, as well as enhancing network performance, our
solutions must also demonstrate value-for-money and be achieved
within clients' regulated budgets.
This rapidly-changing environment is having a very material
bearing on all market participants. It is creating a wide range of
new opportunities for us as we look to deliver ever more innovative
solutions to meet the challenges ahead. As an example, Connected
and Autonomous Vehicles (CAVs) and their enabling infrastructure
represent a growing market opportunity expected to be worth circa
GBP11 billion per annum in the UK by 2030.
The single biggest factor in our continuing success will be our
ability to further embrace the revolution taking place in the use
and deployment of technology. That is why we have been transforming
Costain into the UK's leading smart infrastructure solutions
company, embedding technology across everything we do.
We are aligning our business development activity with the
changing spend patterns of our clients. As an example, Network Rail
announced a 25% increase in spending to GBP47 billion in Control
Period 6, commencing next year, but has also indicated that
spending will be targeted towards asset enhancement and the
'Digital Railway' rather than large capital projects. This common
client trend is having a direct impact on the nature and scope of
contracts within our quality order book.
During the period, Costain developed further the strength and
experience of its most important asset: its people. We have 1,300
people working across consultancy or technology roles, representing
one third of our total head count.
We now have over 600 chartered professionals across a wide range
of disciplines, over 170 graduates working towards becoming
chartered and over 70 apprentices on a structured development
programme. We also sponsor 24 PhD students who are undertaking
leading-edge and targeted research at renowned universities
including Cambridge, Imperial College and Edinburgh.
Further progress has been made to ensure that the Costain team
is diverse and inclusive: for the first time in our history more
than half of our 2018 graduate intake was female, and in April we
were delighted to be listed in The Times Top 50 Employers for
Women.
Along with our engineering centre in Manchester, where over 300
of our people are based, we currently have research and development
relationships with 15 leading universities. We announced earlier
this year our planned expansion into a new enlarged technology
centre in Somerset reflecting the rapidly growing demand for
technology-enabled solutions.
These changing client trends are why we are also continuing to
invest in our skills, services and capabilities, both organically
and by targeted acquisition.
This differentiation is ensuring that Costain remains an
essential choice for the strategic relationships required by our
clients on their long-term collaborative multi-billion pound
investment programmes. Our offering, comprising integrated
technology, consultancy, asset optimisation and complex delivery
services, keeps Costain relevant to our clients, and their rapidly
changing requirements.
Trading and financial performance
Revenue, including the Group's share of joint ventures and
associates, reduced 11.6% to GBP772.9 million in the first half of
the year (2017: GBP874.5 million) and the increase in Group margin
resulted in underlying operating profit growing by 8% to GBP22.8
million (2017: GBP21.2 million).
The increase in the Group's operating profit benefits from a
good return from the Infrastructure division and a significant
improvement in the Natural Resources division where a healthier
return from the broad range of services is being delivered. The
reduction in revenue and increase in the Group's underlying
operating profit margin reflects the changing mix of the Group's
activities in line with strategy.
Net finance expense amounted to GBP1.6 million (2017: GBP3.1
million), with the decrease due to a lower interest cost on the net
liabilities of the pension scheme.
Underlying profit before tax, which represents profit before
acquired intangible amortisation and employment related deferred
consideration, increased by 16.9% to GBP21.4 million (2017: GBP18.3
million).
The Group's effective rate of tax was 17.4% (2017: 18.3%),
slightly below the statutory tax rate primarily due to the benefit
of R&D tax credits.
Underlying basic earnings per share increased to 16.6 pence
(2017: 14.4 pence). Statutory reported basic earnings per share
were 15.1 pence (2017: 12.2 pence).
Order book
Costain's strong market position, reputation for innovation and
wide range of integrated services enabled us to secure over GBP600
million of new contract awards and extensions to existing contracts
during the first half of the year.
Consequently, the Group's order book at 30 June 2018 stood at
GBP3.7 billion (30 June 2017: GBP3.7 billion), continuing to
provide good visibility for the Group's future performance.
Although the absolute size of the order book remains unchanged, we
consider it to be higher quality as the shape and nature of the
individual contracts continues to evolve reflecting our changing
strategic market positioning.
For example, in the first half of the year we have completed a
number of major capital projects and secured a number of contracts
related to the testing of autonomous and connected vehicles on the
UK road network, and our first pure technology contract for Network
Rail. This reflects the changing nature of the spending profile of
our major clients.
The strategic nature of Costain's long-term client relationships
has once again ensured that over 90% of the order book comprises
repeat business.
As at 30 June 2018, the Group had secured over GBP1.4 billion of
revenue for 2018 (30 June 2017: over GBP1.5 billion secured for
2017).
The order book at 30 June also provides good long-term
visibility with over GBP0.85 billion of revenue secured for 2019
(June 2017: over GBP0.9 billion secured for 2018), and over GBP2.1
billion secured for 2020 and beyond.
In addition, the Group has a preferred bidder position of circa
GBP400 million (2017: over GBP400 million).
Cash position
The Group continues to have a robust net cash position which at
30 June 2018 was GBP77.7 million (2017: GBP87.5 million).
The position reflects positive cash flow from operations,
working capital movements, dividend payments and associated pension
deficit contributions. As expected, the net cash position has
reduced from the very high level reported at the end of 2017,
following the working capital impact of the reversal of the
positive timing of receipts at the year-end.
The average month-end net cash was GBP90.8 million for the
period (2017: GBP97.3 million) with the average month-end net cash
balance for the full year expected to be circa GBP80 million.
In addition to its net cash balance, the Group has flexible
financing in place to support its future growth with total banking
facilities of GBP191.0 million, which mature in June 2022, and
GBP320 million of committed and uncommitted bonding facilities.
Capital allocation
A key element in the successful implementation of the Group's
strategy is the efficient allocation of capital.
The Board regularly reviews the appropriate allocation with
regard to the following priorities:
-- ensuring that the Group can effectively exploit available
organic and acquisition opportunities, deliver on its ongoing
obligations, including making regular returns to shareholders, and
address the Group's legacy pension contribution commitments
-- ensuring an appropriate mix of equity, banking and bonding
facilities to appropriately align the composition and structure of
the Group's funding with its prevailing strategic and investment
priorities; and
-- maintaining a strong and flexible balance sheet, typically
with a net cash position, while being prepared to take on modest
leverage if circumstances warrant
The Board believes that its approach to the optimal deployment
of capital generates value for all stakeholders on an efficient and
equitable basis.
Pension scheme
As at 30 June 2018, the surplus on the Group's legacy Costain
Pension Scheme in accordance with IAS 19 was GBP17.1 million (June
2017: deficit of GBP43.5 million). The significant improvement in
the position is a combination of employer contributions, better
than expected asset returns and positive changes in the
market-based discount and inflation rate assumptions used.
Based on the actuarial valuation as at 31 March 2016, the
company has in place a deficit reduction plan, agreed with the
pension scheme Trustee, which requires a contribution of GBP9.6
million per annum (increasing annually with inflation).
In addition, as previously implemented, the Group will continue
to make an additional contribution so that the total deficit
contributions match the total dividend amount paid by the company
each year. In this regard, an additional contribution of GBP5.0
million was paid in the first half of the year at the time the
final dividend payment was made.
The next triennial valuation review is due as at 31 March
2019.
Interim Dividend
The Board has declared an 8% increase in the interim dividend to
5.15 pence per share (2017: 4.75 pence per share). The dividend
will be paid on 19 October 2018 to shareholders on the register as
at the close of business on 14 September 2018.
The Board recognises the importance of regular dividends to
shareholders and has reviewed its dividend policy following the
Group's continued strong performance. Reflecting the historic and
expected future pay-out ratio, going forward the Group will target
dividend cover of around 2.5 times underlying earnings. The Board
is committed to growing the dividend in line with earnings over the
medium term.
Operational review
Under our 'One Costain' operating model the Group has two core
operating and reporting divisions within the business:
Infrastructure and Natural Resources.
Infrastructure
The division, which operates in the highways, rail and nuclear
markets delivered revenue (including share of joint ventures and
associations) of GBP587.0 million (2017: GBP694.1 million) and
underlying operating profit of GBP21.5 million (2017: GBP24.8
million). The revenue and profit reduction results from a lower
level of large capital project activity in the first half of 2018
compared to the same period last year. The margin achieved also
reflects the timing of profit recognition and returns across a
range of contracts and we expect the division's margin to return to
within the target range of 4% - 5% in the second half of the
year.
The level of tendering activity, targeted on opportunities in
line with our strategic focus, is high and the order book at 30
June 2018 had increased to GBP2.9 billion (30 June 2017: GBP2.8
billion). Several technology contracts were secured in the first
half in addition to the M6 J21a-26 smart motorway contract for
Highways England.
Highways
Costain continues to contribute to increasing capacity,
improving journey times and enhancing safety across the UK's
strategic road network. For Highways England we have continued to
transform significant stretches of the M1 into smart motorways.
Also, for Highways England the strategically important A14 corridor
is being improved with progress being made on the new
Expressway.
Our operation and maintenance contracts for Highways England on
Area 12 (Yorkshire and Humberside), Area 4 (Kent and Sussex) and
Area 14 (North East England) are performing in line with
expectations.
In the period we have seen the addition of several technology
enabled smart infrastructure appointments to our portfolio with our
contribution to the Midlands Future Mobility Connected Autonomous
Vehicle (CAV) test bed in the West Midlands and the award of the
Motorway Incident Detection (MIDAS) technology system contract.
We were also awarded a contract by Highways England to work in
collaboration with them, the Department for Transport, Transport
for London and Kent County Council to design, install and implement
one of the UK's first pilot connected vehicle corridors on a live
road, known as the A2M2 connected corridor. This flagship contract
will help promote the UK as market leader in technology.
Our asset management contract for East Sussex County Council and
our work to develop the Preston Western Distributor Road for
Lancashire County Council are progressing as planned.
For the Welsh Government we are continuing to make progress on
the technically-complex A465 Heads of the Valleys, due to be
completed in 2020 and we are in a process with our client to
resolve the effect of additional scope, and the associated cost and
schedule impact. We have also successfully completed the All Wales
Technology contract, are nearing completion on the M4 Brynglas
tunnel technology upgrade and we are providing professional
services to support the delivery of the M4 Corridor around Newport
through the public inquiry.
Rail
Costain has delivered significant milestones in support of
Network Rail to enhance and improve the nation's rail network. This
included the much-needed London Bridge Station redevelopment, which
was celebrated at the official opening ceremony, led by the Duke of
Cambridge along with the Secretary of State for Transport.
Also, for Network Rail, works have been completed on the
Crossrail on-network Anglia contract which has been subject to
significant change, and we are now in commercial discussions on the
final account for the contract. Work to conclude the Kent
Multi-Functional framework for Network Rail is progressing as
planned.
While much of the planned National Electrification programme has
been curtailed, we have continued to deliver on our existing
contracts in the Midlands and on the West Coast Mainline. Having
concluded our initial contract on the electrification of the
Edinburgh to Glasgow corridor we have also achieved significant
milestones on the follow-on Stirling Dunblane Alloa programme.
These contracts will deliver journey time improvements and reduce
the carbon footprint of this mode of transport.
For London Underground, discussions continue to finalise the
account for the completed Bond Street Station Upgrade, and the
Bakerloo Line link to the Elizabeth Line at Paddington is nearing
completion.
For Crossrail, which will be known as the Elizabeth Line,
progress is being made to complete the contracts at Paddington and
Bond Street stations. Our system-wide contracts to deliver the
track and electrification systems are also moving towards
completion as planned.
Reflecting the evolution of our business, we were appointed by
the Crown Commercial Service to provide consultancy services as
part of its management consultancy framework for a broad range of
infrastructure schemes and projects.
We are continuing to see growth in our activity on the HS2
Southern Area enabling works contract, particularly around Euston
station. We are also progressing with the early stages of our two
main works contracts with the development of detailed design,
schedule and cost forecasts. The HS2 scheme is expected to deliver
significant enhancement to the capacity of the rail network.
Nuclear
Costain has continued to play an important role in nuclear new
build, decommissioning and security. Our programme management
contract for AWE is progressing well and our work at Sellafield on
the Decommission Delivery Partner framework is making a positive
contribution towards the decommissioning of the nation's legacy
nuclear facilities.
For EdF at Hinkley Point, having successfully completed our
remaining obligations on the marine and infrastructure contracts,
we are concentrating on completing the temporary jetty. This
contract has been affected by scope increase and weather delays and
we are working with EdF to resolve the associated cost
implications.
Elsewhere for EdF, our project controls support contract to EdF
Energy across their existing fleet of nuclear power stations is
going well and making a contribution to the efficient operation of
the plants.
Natural Resources
The Natural Resources division, which operates in the water,
power and oil & gas markets, made further significant progress
during the period. Revenue (including share of joint ventures and
associations) was GBP183.1 million (2017: GBP177.7 million) with an
underlying operating profit of GBP4.7 million (2017: GBP0.2
million).
The significant improvement in the performance reflects growth
in profits from the water and power sector activities and the
margin, although presently impacted by lower contributions from the
oil & gas operations, is increasing as expected towards the
medium term underlying target margin of 4% - 5% for the
division.
The division had a forward order book at 30 June 2018 of GBP0.8
billion (30 June 2017: GBP0.9 billion), with the reduction
reflecting the latter stages of our five-year framework contracts
awarded for the regulated AMP 6 cycle in the water sector.
Water
The Group is now in year four of the five-year AMP 6 programmes
for Thames Water, Severn Trent and Southern Water. We are
supporting these clients to improve and maintain water quality
standards, enhance supply resilience and meet anticipated
demographic shifts. These programmes are performing well and are
using our full range of integrated capabilities to deliver improved
customer service, innovative solutions and significant total
expenditure efficiency savings.
Our joint venture for the east section of the Thames Tideway
project is also progressing well. This major project will form an
integral part of the modernisation of London's Victorian sewerage
system and will improve water quality in the River Thames,
providing capacity to cope with the demands of the city well into
the 22nd century.
In Glasgow, Costain is improving water quality and resilience of
supply through the delivery of the Shieldhall Tunnel for Scottish
Water, reducing flooding issues in the city's wastewater network.
The scheme is now operational and we are continuing to work with
the client to agree the final account to reflect the programme,
scope and cost changes on the contract.
Bid activity for AMP 7, the next five-year regulatory period
commencing in 2020, is well underway with several clients seeking
contracts with early engagement to help develop their business
plans.
Power
Costain is playing a role in ensuring that the UK has a secure
and resilient energy mix.
The Peterborough and Huntingdon compressor stations project,
where Costain is designing and managing its delivery, will increase
system resilience and reduce overall risk on the National
Transmission System by replacing ageing assets. This is National
Grid's largest current upgrade project to comply with the
Industrial Emissions Directive and Pollution Prevention and Control
regulations.
We are providing project services for the replacement of the
Humber Estuary Crossing for National Grid. The River Humber
pipeline is a strategically important asset, connecting the gas
import facility at Easington on the Yorkshire coast and which
provides 70-100 million cubic metres of natural gas per day to the
national network.
Costain also provides asset management services and programme
management for Interconnector contracts with Cadent and National
Grid, as well as service contracts to other leading Energy
operators.
Oil & Gas
Work has completed on the Hydrochloric Acid Dosing Plant and
Condensate Mercury Removal System for Total's Edradour-Glenlivet
facility and the Stella field development programme for Ithaca.
We continue to provide ongoing support services to Total and
Phillips 66 at their Immingham refineries, as well as programme
development services and design services to key energy operators
both on and off-shore in the UK.
In the period we have continued to secure new contracts for our
gas process technology service offering and a number of strategic
development consultancy services. This includes the appointment by
Infrastrata PLC for the FEED design on their Islandmagee gas
storage facility in Northern Ireland, which will significantly
increase the UK's gas storage capacity.
The market remains subdued but there has been a noticeable
increase in new business opportunities as clients restructure their
operations and investment projects to accommodate prevailing market
conditions.
Alcaidesa
Alcaidesa is a non-core activity in Spain in which Costain owns
operating assets of two golf courses with an associated parcel of
land, and a 624-berth marina concession adjacent to Gibraltar.
Revenue in the period was GBP2.8 million (2017: GBP2.7 million) and
a breakeven result in the period, reflecting increased activity
levels (2017: GBP0.5 million loss). We continue to review our
options for this non-core asset.
Risks and uncertainties
The Board continually assesses and monitors the key risks of the
business. The key risks that could affect the Group's medium term
performance, and the factors that mitigate these risks, are set out
on pages 44-49 of the Group's Annual Report for 2017, a copy of
which is available from our website www.costain.com.
Summary and outlook
We delivered another good performance in the first half of the
year. The progression in Group margin generated growth in
underlying operating profit enabling an 8% increase in the interim
dividend.
This performance is due to our differentiation as we evolve into
the UK's leading smart infrastructure solutions company. The shape
and nature of our activities continues to develop, reflecting our
clients' changing needs and their demand for integrated solutions
to improve the performance and capacity of their assets.
Our higher quality order book provides good visibility for the
Group's future performance and we are on course to deliver full
year results in line with the Board's expectations.
Andrew Wyllie CBE
Chief Executive
22 August 2018
Condensed consolidated income statement
Half-year ended 2018 2017 2017
30 June, Half-year Half-year Year
year ended 31 unaudited unaudited audited
December
-------------------------- --------------------------------- ---------------------------------- -----------------------------------
Other Other Other
Underlying items Total Underlying items Total Underlying items Total
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Revenue
including
share of
joint ventures
and associates 3 772.9 - 772.9 874.5 - 874.5 1,728.9 - 1,728.9
Less: Share
of revenue
of joint
ventures
and associates (14.2) - (14.2) (26.7) - (26.7) (44.9) - (44.9)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Group revenue 758.7 - 758.7 847.8 - 847.8 1,684.0 - 1,684.0
Cost of sales (714.6) - (714.6) (806.8) - (806.8) (1,596.2) - (1,596.2)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Gross profit 44.1 - 44.1 41.0 - 41.0 87.8 - 87.8
Administrative
expenses
before other
items (21.3) - (21.3) (19.8) - (19.8) (39.1) - (39.1)
Amortisation
of acquired
intangible
assets - (1.5) (1.5) - (1.6) (1.6) - (3.2) (3.2)
Employment
related
deferred
consideration - (0.3) (0.3) - (0.9) (0.9) - (1.2) (1.2)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Total
Administrative
expenses (21.3) (1.8) (23.1) (19.8) (2.5) (22.3) (39.1) (4.4) (43.5)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Group operating
profit 22.8 (1.8) 21.0 21.2 (2.5) 18.7 48.7 (4.4) 44.3
Share of
results of
joint ventures
and associates 0.1 - 0.1 0.1 - 0.1 0.3 - 0.3
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Profit from
operations 3 22.9 (1.8) 21.1 21.3 (2.5) 18.8 49.0 (4.4) 44.6
Finance income 0.3 - 0.3 0.3 - 0.3 0.4 - 0.4
Finance expense (1.8) (0.1) (1.9) (3.3) (0.1) (3.4) (6.0) (0.1) (6.1)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Net finance
expense 4 (1.5) (0.1) (1.6) (3.0) (0.1) (3.1) (5.6) (0.1) (5.7)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Profit before
tax 21.4 (1.9) 19.5 18.3 (2.6) 15.7 43.4 (4.5) 38.9
Taxation 5 (3.7) 0.3 (3.4) (3.2) 0.3 (2.9) (6.9) 0.6 (6.3)
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Profit for
the period
attributable
to equity
holders of
the parent 17.7 (1.6) 16.1 15.1 (2.3) 12.8 36.5 (3.9) 32.6
----------------- ------- ------------ -------- --------- ------------ --------- --------- ------------ -------- -----------
Earnings
per share
Basic 6 16.6p (1.5)p 15.1p 14.4p (2.2)p 12.2p 34.8p (3.7)p 31.1p
(2.1) (3.6)
Diluted 6 16.3p (1.5)p 14.8p 14.0p p 11.9p 34.2p p 30.6p
During the period, previous period and previous year the impact
of business disposals was not material and, therefore, all results
are classified as arising from continuing operations.
Condensed consolidated statement of comprehensive income and
expense
Half-year ended 30 June, 2018 2017 2017
year ended 31 December Half-year Half-year Year
unaudited unaudited audited
GBPm GBPm GBPm
------------------------------------------------------------- ------------ ------------ ----------
Profit for the period 16.1 12.8 32.6
------------------------------------------------------------- ------------ ------------ ----------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations (0.1) 0.7 0.5
Net investment hedge
* Effective portion of changes in fair value during
period 0.2 (0.5) (0.7)
* Net changes in fair value transferred to the income
statement - - 0.2
Cash flow hedges:
* Effective portion of changes in fair value during
period (1.8) 0.5 (1.4)
* Net changes in fair value transferred to the income
statement 0.3 (0.8) 0.3
Total items that may be reclassified
subsequently to profit or loss (1.4) (0.1) (1.1)
------------------------------------------------------------- ------------ ------------ ----------
Items that will not be reclassified
to profit or loss
Remeasurement of defined benefit obligations 31.4 23.7 39.2
Tax recognised on remeasurement of
defined benefit obligations (5.9) (4.6) (7.4)
Total items that will not be reclassified
to profit or loss 25.5 19.1 31.8
------------------------------------------------------------- ------------ ------------ ----------
Other comprehensive income for the
period 24.1 19.0 30.7
------------------------------------------------------------- ------------ ------------ ----------
Total comprehensive income for the
period attributable to equity holders
of the parent 40.2 31.8 63.3
------------------------------------------------------------- ------------ ------------ ----------
Condensed consolidated statement of changes in equity
Share Share Translation Hedging Retained Total
capital premium reserve reserve earnings equity
GBPm GBPm GBPm GBPm GBPm GBPm
------------------------------ ---------- ---------- ------------- ---------- ----------- ---------
At 1 January 2017 52.1 8.8 2.3 1.9 34.5 99.6
Profit for the period - - - - 12.8 12.8
Other comprehensive
income/(expense) - - 0.2 (0.3) 19.1 19.0
Issue of ordinary shares
under employee share
option plans 0.1 0.2 - - - 0.3
Shares purchased to
satisfy employee share
schemes - - - - (1.2) (1.2)
Equity-settled share-based
payments - - - - 1.2 1.2
Dividend paid (note
7) 0.2 1.6 - - (8.8) (7.0)
------------------------------ ---------- ---------- ------------- ---------- ----------- ---------
At 30 June 2017 - unaudited 52.4 10.6 2.5 1.6 57.6 124.7
Profit for the period - - - - 19.8 19.8
Other comprehensive
income/(expense) - - (0.2) (0.8) 12.7 11.7
Issue of ordinary shares
under employee share
option plans 0.4 1.4 - - - 1.8
Shares purchased to
satisfy employee share
schemes - - - - (0.2) (0.2)
Equity-settled share-based
payments - - - - 1.0 1.0
Dividend paid (note
7) - 0.1 - - (4.9) (4.8)
------------------------------ ---------- ---------- ------------- ---------- ----------- ---------
At 31 December 2017
- audited 52.8 12.1 2.3 0.8 86.0 154.0
Adoption of IFRS 15
Revenue from Contracts
with Customers * - - - - (4.6) (4.6)
------------------------------ ---------- ---------- ------------- ---------- ----------- ---------
Restated total equity
at the beginning of
the financial year 52.8 12.1 2.3 0.8 81.4 149.4
Profit for the period - - - - 16.1 16.1
Other comprehensive
income/(expense) - - 0.1 (1.5) 25.5 24.1
Issue of ordinary shares
under employee share
option plans 0.3 0.2 - - - 0.5
Shares purchased to
satisfy employee share
schemes - - - - (1.3) (1.3)
Equity-settled share-based
payments - - - - 1.3 1.3
Dividend paid (note
7) 0.1 1.0 - - (9.8) (8.7)
------------------------------ ---------- ---------- ------------- ---------- ----------- ---------
At 30 June 2018 - unaudited 53.2 13.3 2.4 (0.7) 113.2 181.4
------------------------------ ---------- ---------- ------------- ---------- ----------- ---------
* See note 14 for details regarding the adoption of IFRS 15
Revenue from Contracts with Customers
Condensed consolidated statement of financial position
Half-year as at 30 June, 2018 2017 2017
year as at 31 December Half-year Half-year Year
unaudited unaudited audited
GBPm GBPm GBPm
---------------------------------------- ---- ------------ ------------ ----------
Assets
Non-current assets
Intangible assets 8 60.0 64.2 62.5
Property, plant and equipment 8 40.7 41.2 43.0
Investments in equity accounted
joint ventures 0.3 0.3 0.3
Investments in equity accounted
associates 0.7 0.6 0.8
Loans to equity accounted associates 1.6 1.7 1.6
Retirement benefit asset 9 17.1 - -
Other receivables 7.2 4.1 4.9
Deferred tax asset 3.2 9.2 10.1
---------------------------------------- ---- ------------ ------------ ----------
Total non-current assets 130.8 121.3 123.2
---------------------------------------- ---- ------------ ------------ ----------
Current assets
Inventories 1.3 3.9 1.4
Trade and other receivables 345.0 343.6 287.8
Cash and cash equivalents 158.1 167.8 248.7
---------------------------------------- ---- ------------ ------------ ----------
Total current assets 504.4 515.3 537.9
---------------------------------------- ---- ------------ ------------ ----------
Total assets 635.2 636.6 661.1
---------------------------------------- ---- ------------ ------------ ----------
Equity
Share capital 11 53.2 52.4 52.8
Share premium 13.3 10.6 12.1
Foreign currency translation reserve 2.4 2.5 2.3
Hedging reserve (0.7) 1.6 0.8
Retained earnings * 113.2 57.6 86.0
---------------------------------------- ---- ------------ ------------ ----------
Total equity attributable to equity
holders of the parent 181.4 124.7 154.0
---------------------------------------- ---- ------------ ------------ ----------
Liabilities
Non-current liabilities
Retirement benefit obligations 9 - 43.5 23.9
Other payables 3.5 0.7 1.3
Interest bearing loans and borrowings 60.5 30.1 60.6
Provisions for other liabilities
and charges - 0.4 -
---------------------------------------- ---- ------------ ------------ ----------
Total non-current liabilities 64.0 74.7 85.8
---------------------------------------- ---- ------------ ------------ ----------
Current liabilities
Trade and other payables 364.0 382.0 402.5
Taxation 4.3 3.9 7.1
Interest bearing loans and borrowings 19.9 50.2 10.4
Provisions for other liabilities
and charges 1.6 1.1 1.3
---------------------------------------- ---- ------------ ------------ ----------
Total current liabilities 389.8 437.2 421.3
---------------------------------------- ---- ------------ ------------ ----------
Total liabilities 453.8 511.9 507.1
---------------------------------------- ---- ------------ ------------ ----------
Total equity and liabilities 635.2 636.6 661.1
---------------------------------------- ---- ------------ ------------ ----------
* See note 14 for details regarding the adoption of IFRS 15
Revenue from Contracts with Customers
Condensed consolidated cash flow statement
Half-year ended 30 June, 2018 2017 2017
year ended 31 December Half-year Half-year Year
unaudited unaudited audited
GBPm GBPm GBPm
--------------------------------------------- ------------ ------------ ----------
Cash flows from operating activities
Profit for the period 16.1 12.8 32.6
Adjustments for:
Share of results of joint ventures
and associates (0.1) (0.1) (0.3)
Finance income (0.3) (0.3) (0.4)
Finance expense 1.9 3.4 6.1
Taxation 3.4 2.9 6.3
Depreciation of property, plant
and equipment 2.0 2.2 3.9
Amortisation of intangible assets 1.7 1.9 3.7
Employment related deferred consideration 0.3 0.9 1.2
Share-based payments expense 1.5 1.2 2.7
Shares purchased to satisfy employee
share schemes (1.3) (1.2) (1.4)
---------------------------------------------- ------------ ------------ ----------
Cash from operations before changes
in working capital and provisions 25.2 23.7 54.4
Decrease/(increase) in inventories 0.1 (0.3) 0.2
(Increase)/ decrease in receivables (64.1) (41.0) 14.2
(Decrease)/increase in payables (39.6) (17.0) 3.4
Movement in provisions and employee
benefits (9.5) (6.8) (12.4)
---------------------------------------------- ------------ ------------ ----------
Cash (used by)/from operations (87.9) (41.4) 59.8
Interest received 0.1 0.4 0.3
Interest paid (1.1) (1.2) (3.2)
Taxation paid (4.2) (1.8) (5.3)
---------------------------------------------- ------------ ------------ ----------
Net cash (used by)/from operating
activities (93.1) (44.0) 51.6
Cash flows from investing activities
Dividends received from joint ventures
and associates 0.2 0.1 0.1
Additions to property, plant and
equipment (0.3) (0.5) (1.8)
Additions to intangible assets - (0.1) (0.3)
Proceeds of disposals of property,
plant and equipment 0.6 - 0.2
Proceeds of disposals of intangible
assets 0.8 - -
Repayment of loans to joint ventures
and associates - - 0.1
Acquisition related deferred consideration - (0.9) (2.4)
---------------------------------------------- ------------ ------------ ----------
Net cash from/(used by) investing
activities 1.3 (1.4) (4.1)
Cash flows from financing activities
Issue of ordinary share capital 0.5 0.3 2.2
Ordinary dividends paid (8.7) (7.0) (11.9)
Drawdown of loans 20.0 10.0 70.7
Repayment of loans (10.5) - (70.0)
---------------------------------------------- ------------ ------------ ----------
Net cash from/(used by) financing
activities 1.3 3.3 (9.0)
Net (decrease)/increase in cash,
cash equivalents and overdrafts (90.5) (42.1) 38.5
Cash, cash equivalents and overdrafts
at beginning of the period 248.7 210.2 210.2
Effect of foreign exchange rate
changes (0.1) (0.3) -
Cash, cash equivalents and overdrafts
at end of the period 158.1 167.8 248.7
---------------------------------------------- ------------ ------------ ----------
Notes to the interim financial statements
1. General information
Costain Group PLC (the Company) is a public limited company
incorporated in the United Kingdom. The address of its registered
office and principal place of business is Costain House, Vanwall
Business Park, Maidenhead, Berkshire SL6 4UB.
The condensed consolidated interim financial statements are
presented in pounds sterling, rounded to the nearest hundred
thousand.
The comparative figures for the financial year ended 31 December
2017 are not the Company's full statutory accounts for that
financial year. Those accounts have been reported on by the
Company's auditors and delivered to the Registrar of Companies. The
report of the auditors was (i) unqualified, (ii) did not include a
reference to any matters to which the auditors drew attention by
way of emphasis without qualifying their report, and (iii) did not
contain a statement under section 498 (2) or (3) of the Companies
Act 2006.
2. Statement of compliance
This interim financial information for the half-year ended 30
June 2018 has been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the European Union and with the
Disclosure and Transparency Rules of the Financial Conduct
Authority.
The accounting policies, presentation and methods of computation
adopted in the preparation of these condensed consolidated interim
financial statements are consistent with those followed in the
preparation of the Group's Annual Financial Statements for the year
ended 31 December 2017, which were prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union except for the adoption of new and amended
standards as set out below. They do not include all the information
required for full annual financial statements and should be read in
conjunction with the Consolidated Financial Statements of the Group
as at and for the year ended 31 December 2017.
New standards adopted by the Group
The adoption of IFRS 15 Revenue from Contracts with Customers
has required an adjustment to brought forward reserves. The Group
has also adopted IFRS 9 Financial Instruments which did not have
any quantitative impact on the financial results.
The impact of the adoption of these standards and the new
accounting policies is discussed in note 14.
Impact of standards issued but not yet effective, and therefore
not applied in these financial statements
IFRS 16 Leases was issued in January 2016. It will result in
almost all leases being recognised on the balance sheet, as the
distinction between operating and financial leases is removed.
Under the new standard, an asset (the right to use the leased item)
and a financial liability to pay rentals are recognised. The only
exceptions are short term and low value leases.
The standard will primarily affect the accounting for the
Group's operating leases and hire charges. The Group is assessing
the potential impact on its consolidated financial statements
resulting from the application of IFRS 16 and expects to disclose a
range of estimates for the quantitative impact prior to initial
adoption. It is not practicable to provide a reasonable estimate of
the effect of IFRS 16 or to conclude on the transition approach to
be taken until the detailed reviews have been completed.
The standard is mandatory for first interim periods with annual
reporting periods beginning on or after 1 January 2019. The Group
does not intend to adopt the standard before its effective
date.
Except for IFRS 16, the directors do not currently anticipate
that the adoption of any other standard or interpretation that has
been issued but is not yet effective will have a material impact on
the financial statements of the Group in future periods.
Going concern
After making enquiries and reviewing the latest forecasts, the
directors believe that the Group has adequate resources to continue
in operational existence for the foreseeable future. Accordingly,
they continue to adopt the going concern basis in preparing the
interim financial statements.
Income statement presentation - Other items
In order to aid understanding of the underlying and overall
performance of the Group, certain amounts are shown in the
consolidated income statement in a separate column headed 'Other
items'. Items are included under this heading where the Board
considers them to be of a one-off and unusual nature or related to
the accounting treatment of acquisitions, this includes
amortisation of acquired intangibles and employment related
deferred consideration. These are adjusted because they are not
long term in nature and, hence, will not reflect the long-term
performance of the Group.
Principal risks and significant areas of judgement and
estimation
The Group's principal risks and uncertainties are consistent
with those noted in the Annual Report for the year ended 31
December 2017. The Directors consider that the significant areas of
judgement made by management that have significant effect on the
Group's performance and estimates with a significant risk of
material adjustment in the second half of the year are unchanged
from those identified on page 120 of the Annual Report for the year
ended 31 December 2017.
The Board approved the unaudited interim financial statements on
22 August 2018.
3. Business segment information
The Group has two core business segments: Natural Resources and
Infrastructure plus Alcaidesa 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.
Half-year ended 30 June Natural Central
2018 Resources Infrastructure Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
External revenue 180.2 575.7 2.8 - 758.7
Share of revenue of JVs
and associates 2.9 11.3 - - 14.2
-------------------------------- ------------ ---------------- ----------- --------- -------
Total segment revenue 183.1 587.0 2.8 - 772.9
-------------------------------- ------------ ---------------- ----------- --------- -------
Group operating profit/(loss) 4.7 21.5 - (3.4) 22.8
Share of results of JVs
and associates 0.1 - - - 0.1
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit/(loss) from operations
before other items 4.8 21.5 - (3.4) 22.9
Other items:
Amortisation of acquired
intangible assets (0.4) (1.1) - - (1.5)
Employment related deferred
consideration (0.3) - - - (0.3)
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit/(loss) from operations 4.1 20.4 - (3.4) 21.1
-------------------------------- ------------ ---------------- ----------- ---------
Net finance expense (1.6)
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit before tax 19.5
-------------------------------- ------------ ---------------- ----------- --------- -------
Half-year ended 30 June Natural Central
2017 Resources Infrastructure Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
External revenue 172.8 672.3 2.7 - 847.8
Share of revenue of JVs
and associates 4.9 21.8 - - 26.7
-------------------------------- ------------ ---------------- ----------- --------- -------
Total segment revenue 177.7 694.1 2.7 - 874.5
-------------------------------- ------------ ---------------- ----------- --------- -------
Group operating profit/(loss) 0.2 24.8 (0.5) (3.3) 21.2
Share of results of JVs
and associates 0.1 - - - 0.1
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit/(loss) from operations
before other items 0.3 24.8 (0.5) (3.3) 21.3
Other items:
Amortisation of acquired
intangible assets (0.5) (1.1) - - (1.6)
Employment related deferred
consideration (0.9) - - - (0.9)
Profit/(loss) from operations (1.1) 23.7 (0.5) (3.3) 18.8
-------------------------------- ------------ ---------------- ----------- ---------
Net finance expense (3.1)
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit before tax 15.7
-------------------------------- ------------ ---------------- ----------- --------- -------
Year ended 31 December Natural Central
2017 Resources Infrastructure Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
External revenue 333.5 1,345.2 5.3 - 1,684.0
Share of revenue of JVs
and associates 10.4 34.5 - - 44.9
-------------------------------- ------------ ---------------- ----------- --------- ---------
Total segment revenue 343.9 1,379.7 5.3 - 1,728.9
-------------------------------- ------------ ---------------- ----------- --------- ---------
Group operating profit/(loss) 4.8 52.2 (1.4) (6.9) 48.7
Share of results of JVs
and associates 0.3 - - - 0.3
-------------------------------- ------------ ---------------- ----------- --------- ---------
Profit/(loss) from operations
before other items 5.1 52.2 (1.4) (6.9) 49.0
Other items:
Amortisation of acquired
intangible assets (1.1) (2.1) - - (3.2)
Employment related deferred
consideration (1.2) - - - (1.2)
-------------------------------- ------------ ---------------- ----------- --------- ---------
Profit/(loss) from operations 2.8 50.1 (1.4) (6.9) 44.6
-------------------------------- ------------ ---------------- ----------- ---------
Net finance expense (5.7)
-------------------------------- ------------ ---------------- ----------- --------- ---------
Profit before tax 38.9
-------------------------------- ------------ ---------------- ----------- --------- ---------
4. Net finance expense
Finance expense includes the interest cost on the net
liabilities of the pension scheme of GBP0.2 million (2017
half-year: GBP0.9 million, 2017 year: GBP1.8 million).
5. Taxation
Half-year ended 30 June, 2018 2017 2017
year ended 31 December Half-year Half-year Year
GBPm GBPm GBPm
-------------------------------------------- ------------ ------------ -------
UK corporation tax (1.4) (2.3) (8.9)
Deferred tax (2.0) (0.6) 2.6
-------------------------------------------- ------------ ------------ -------
Tax expense in the condensed consolidated
income statement (3.4) (2.9) (6.3)
-------------------------------------------- ------------ ------------ -------
Effective tax rate 17.5% 18.3% 16.2%
The tax charge is based on the estimated effective tax rate for
the full year.
6. Earnings per share
The calculation of earnings per share is based on profit for the
period of GBP16.1 million (2017 half-year: GBP12.8 million, 2017
year: GBP32.6 million) and the number of shares set out below:
2018 2017 2017
Half-year Half-year Year
m m m
---------------------------------------------- ------------ ------------ -------
Weighted average number of shares in
issue
for basic earnings per share calculation 106.0 104.4 104.7
Dilutive potential ordinary shares
arising from employee share schemes 2.8 3.1 2.0
---------------------------------------------- ------------ ------------ -------
Weighted average number of ordinary
shares in issue for fully diluted earnings
per share calculation 108.8 107.5 106.7
---------------------------------------------- ------------ ------------ -------
7. Dividends
Dividend Half-year Half-year Year ended
per share ended 30 ended 30 31 December
pence June 2018 June 2017 2017
GBPm GBPm GBPm
Final dividend for the year
ended 31 December 2016 8.40 - 8.8 8.8
Interim dividend for the year
ended 31 December 2017 4.75 - - 4.9
Final dividend for the year
ended 31 December 2017 9.25 9.8 - -
------------------------------------- ------------ ------------ ------------ --------------
Amount recognised as distributions
to equity holders in the period 9.8 8.8 13.7
------------------------------------- ------------ ------------ ------------ --------------
Dividends settled in shares (1.1) (1.8) (1.9)
------------------------------------- ------------ ------------ ------------ --------------
Dividends settled in cash 8.7 7.0 11.8
------------------------------------- ------------ ------------ ------------ --------------
The proposed interim dividend of 5.15 pence (2017: 4.75 pence)
has not been included as a liability in these interim financial
statements because it had not been approved at the period end date.
The dividend totalling GBP5.5 million will be paid on 19 October
2018 to shareholders on the register at the close of business on 14
September 2018. A scrip dividend alternative will be offered.
8. Non-current assets
During the interim period, the Group spent GBP0.3 million on
plant and equipment and GBPNil on software and development (2017
half-year: GBP0.5 million on plant and equipment and GBP0.1 million
on software and development, 2017 year: GBP1.8 million on plant and
equipment and GBP0.3 million on software and development).
9. Retirement benefit obligations
2018 2017 2017
Half-year Half-year Year
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ ---------
Present value of defined benefit obligations (759.6) (805.9) (803.4)
Fair value of scheme assets 776.7 762.4 779.5
----------------------------------------------- ------------ ------------ ---------
Recognised asset/(liability) for defined
benefit obligations 17.1 (43.5) (23.9)
----------------------------------------------- ------------ ------------ ---------
The Group has recognised an asset on the basis that any surplus
of deficit contributions to the Costain Pension Scheme would be
recoverable by way of a refund, as the Group has the unconditional
right to any surplus once all the obligations of the Scheme have
been settled.
Movement in present value of defined 2018 2017 2017
benefit obligations: Half-year Half-year Year
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ --------
Opening balance 803.4 827.5 827.5
Interest cost 9.9 10.9 21.9
Remeasurements - demographic assumptions - 15.0 16.8
Remeasurements - financial assumptions (42.6) 4.1 6.9
Remeasurements - experience assumptions 6.1 (34.2) (34.5)
Benefits paid (17.2) (17.4) (35.2)
------------------------------------------- ------------ ------------ --------
Closing balance 759.6 805.9 803.4
------------------------------------------- ------------ ------------ --------
Movement in fair value of scheme assets: 2018 2017 2017
Half-year Half-year Year
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ --------
Opening balance 779.5 754.0 754.0
Interest income 9.7 10.0 20.1
Remeasurements - return on assets (5.1) 8.6 28.4
Contributions by employer 9.9 7.2 12.5
Administrative expenses (0.1) - (0.3)
Benefits paid (17.2) (17.4) (35.2)
------------------------------------------- ------------ ------------ --------
Closing balance 776.7 762.4 779.5
------------------------------------------- ------------ ------------ --------
The following actuarial assumptions have been used in the IAS 19
valuations of the Group's defined benefit pension scheme, which was
closed to new members in May 2005 and to future accrual in
September 2009 (expressed as weighted averages):
2018 2017 2017
Half-year Half-year Year
% % %
--------------------------- ------------ ------------ -------
Discount rate 2.80 2.60 2.50
Future pension increases 2.90 3.05 2.90
Inflation assumption 3.00 3.10 3.10
--------------------------- ------------ ------------ -------
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
GBPm
-------------------------------------------------- ------------
Increase discount rate by 0.25%, decreases
pension liability by (30.5)
Decrease inflation (and pension increases)
by 0.25%, decreases pension liability by (26.4)
Increase life expectancy by one year, increases
pension liability by 28.1
-------------------------------------------------- ------------
10. Financial instruments
The Group's centralised function manages financial risk,
principally arising from liquidity and funding risks and movements
in foreign currency rates, in accordance with policies agreed by
the Directors. At 30 June 2018, the Group had foreign currency
contracts designated as cash flow hedges of future transactions
over a period of up to 3 years as summarised below and interest
rate swaps that fix the effective LIBOR rate of GBP60.0 million of
borrowings to June 2021. The carrying value represents the fair
value of the contract; the cash flows represent the pounds sterling
commitments. There were no ineffective hedges at the reporting
date.
Foreign exchange 2018 2017 2017
contracts Half-year Half-year Year
Carrying Cash flows Carrying Cash Carrying Cash
amount amount flows amount flows
GBPm GBPm GBPm GBPm GBPm GBPm
---------------------- ---------- ------------ ---------- -------- ---------- --------
Purchases (0.9) (15.5) 2.1 (26.3) 1.3 (17.5)
Sales 0.1 3.0 (0.2) 6.3 (0.1) (3.2)
---------------------- ---------- ------------ ---------- -------- ---------- --------
(0.8) (12.5) 1.9 (20.0) 1.2 (20.7)
Interest rate swaps 0.1 (1.6) - - (0.2) (1.8)
---------------------- ---------- ------------ ---------- -------- ---------- --------
(0.7) (14.1) 1.9 (20.0) 1.0 (22.5)
---------------------- ---------- ------------ ---------- -------- ---------- --------
The Group's investment in Alcaidesa Holding SA is hedged by euro
currency contracts which mitigate the foreign currency risk arising
from the subsidiary's net assets. The value of the forward sale
contracts at 30 June 2018 was EUR28.0 million (2017 half-year
EUR30.0 million, 2017 year EUR28.0 million). No ineffectiveness was
recognised from the net investment hedge.
11. Share capital
Issued capital as at 30 June 2018 amounted to GBP53.2 million
(2017 half-year: GBP52.4 million, 2017 year: GBP52.8 million) and
comprised 106,406,408 ordinary shares of 50 pence each.
The Company announced on 18 May 2018 that shareholders had,
pursuant to the Scrip Dividend Scheme, elected to receive 266,271
ordinary shares of 50 pence each in the Company in lieu of cash in
respect of all or part of their final dividend for the year ended
31 December 2017.
The Company operates a Long-Term Incentive Plan and a Share
Deferral Plan, together with a legacy Deferred Share Bonus Plan,
under which directors and senior employees can receive awards of
shares subject to defined performance targets being achieved by the
Group. The 2015 LTIP award vested in March 2018 resulting in the
issue of 500,000 ordinary shares of 50 pence each. Full details of
these plans are disclosed in the annual financial statement.
During the period, the Company issued 86,814 ordinary shares of
50 pence each following the exercise of share options granted to
employees under the Company's Savings Related Share Option Scheme
(relating to the 2014 three-year grant).
12. Related party transactions
Details of transactions between the Group and The Costain
Pension Scheme are included in Note 9. There have been no other
changes in the nature of related party transactions since the last
annual financial statements as at and for the year ended 31
December 2017.
13. Contingent liabilities
Group banking facilities and surety bond facilities are
supported by cross guarantees given by the Company and
participating companies in the Group. At 30 June 2018, amounts
drawn under the bonding facilities amounted to GBP99.2 million
(2017 half-year GBP87.6 million, 2017 year GBP97.0 million).
There are contingent liabilities in respect of performance bonds
and other undertakings, including joint arrangements and legal
claims arising, all in the ordinary course of business. None are
anticipated to result in material liabilities except as already
provided.
14. Impact of adoption of new accounting standards
This note explains the impact of the adoption of IFRS 9
Financial Instruments and IFRS 15 Revenue from Contracts with
Customers on the Group's financial statements.
IFRS 9 Financial Instruments - impact of adoption
IFRS 9 replaces the provisions of IAS 39 that relate to the
recognition, classification and measurement of financial assets and
financial liabilities, derecognition of financial instruments,
impairment of financial assets and hedge accounting.
The adoption of IFRS 9 Financial Instruments from 1 January 2018
did not result in changes to the Group's accounting policies nor
adjustments to the amounts recognised in the consolidated financial
statements.
IFRS 15 Revenue from Contracts with Customers - impact of
adoption
The Group has adopted IFRS 15 Revenue from Contracts with
Customers from 1 January 2018, which resulted in some changes in
accounting policies and adjustments to the amounts recognised in
the financial statements. In accordance with the transition
provisions in IFRS 15, the Group has adopted the modified
retrospective approach and has restated the brought forward
reserves as at 1 January 2018.
As disclosed in the 2017 Annual Report, under IFRS 15, revenue
will be spread over the expected life of each individual
performance obligation rather than in line with the total costs
profile. The main change for Costain from the adoption of IFRS 15
is the separation of individual, distinct performance obligations
within its framework and multiple revenue stream type contracts.
This change results in a reduction in revenue recognised in periods
prior to 1 January 2018 and a corresponding decrease in the amounts
recoverable on contracts in the statement of financial position of
GBP5.7 million and has been reflected by a decrease in opening
retained earnings as at 1 January 2018 of GBP4.6 million, net of
current tax. It will reverse over the remaining periods of the
contracts. During the period, the Group recognised additional
revenue and operating profit of GBP0.7 million (GBP0.6 million net
of tax) as a result of the adoption of IFRS 15.
There is no impact on the commercial activities, lifetime
profitability or cash flows of the Group, as a result of the
adoption of this accounting standard.
IFRS 15 Revenue from Contracts with Customers - Accounting
policy applied from 1 January 2018
The Group recognises revenue when control over the service or
product is transferred to the customer and revenue is measured at
the fair value of the consideration received or receivable, net of
value added tax. Where the consideration is variable, the amount
recognised is highly probable not to suffer a significant reversal
in future.
The principal source of revenue relates to work on the UK's
infrastructure across transportation, water and energy. Over 95%
arises under long-term contracts, which require delivery of a
specified item to the customer, increasingly involve a technology
element, with a large element the works undertaken on the
customer's land and perhaps taking a number of years to complete.
The majority are structured in a cost reimbursement form, typically
with incentive and penalty arrangements. Generally, the works
specified within the contract are integrated and the customer
procures the one complete package, which may incorporate design,
engineering and advisory work into the scope. Where a contract
comprises distinct performance obligations, each is accounted
separately. Other design, advisory and consulting contracts
requiring production of a specified scope or provision of other
services, some of which may lead to the construction of the
designed product, can be structured as inter-dependant or
stand-alone contracts and the resulting performance obligations
will depend on how the customer procures the contract.
Group revenue includes the Group's share of revenue of joint
operations.
(a) Long-term contracts
Revenue arises from increase in the value of work performed and
the value of services provided during the year. Where the outcome
of an individual long-term contract can be estimated reliably and
it is probable that the contract will be profitable, revenue and
costs are recognised by reference to the stage of completion of the
contract activity at the statement of financial position date.
Stage of completion is assessed by reference to the proportion of
contract costs incurred for the work performed to date relative to
the estimated total costs. Contract costs are recognised as
expenses in the period in which they are incurred.
Compensation events, variations and claims, gain from pain/gain
arrangements and other bonus assessments are included in revenue
where it is highly probable that the amount, which can be measured
reliably will be recovered from the customer and will not reverse.
Pain from pain/gain arrangements is included where incurred or
expected to be incurred. When the outcome of a long-term contract
cannot be estimated reliably, contract revenue is recognised to the
extent of contract costs incurred, where it is probable those costs
will be recoverable.
When it is probable that total contract costs will exceed total
revenue, the expected loss is recognised as an expense
immediately.
Contract work in progress is stated at cost plus profit
recognised to date less a provision for foreseeable losses and less
amounts billed and is included in amounts due from customers for
contract work. Cost includes all expenditure related directly to
specific projects and an appropriate allocation of fixed and
variable overheads based on normal operating capacity. Amounts
valued and billed to customers are included in trade receivables.
Where cash received from customers exceeds the value of work
performed, the amount is included in credit balances on long-term
contracts.
(b) Other revenue
Revenue from other services contracts is recognised when the
service is provided and revenue from the sale of land is recognised
when title has been transferred to the buyer. The revenue
recognised is the amount that can be measured reliably and is
highly probable to flow to the Group and not reverse. Rental income
is recognised in the income statement on a straight-line basis over
the term of the lease. Lease incentives are recognised as an
integral part of the total rental income on a straight-line basis
over the term of the lease.
15. Cautionary forward-looking statements
These results contain forward-looking statements based on
current expectations and assumptions. Various known and unknown
risks, uncertainties and other factors may cause actual results to
differ from any future results or developments expressed or implied
from the forward-looking statements. Each forward-looking statement
speaks only as of the date of this document. The Group accepts no
obligation to publicly revise or update these forward-looking
statements or adjust them to future events or developments, whether
as a result of new information, future events or otherwise, except
to the extent legally required.
Responsibility Statement of the Directors in respect of the
interim financial report
Each of the directors of Costain Group PLC confirms, to the best
of his or her knowledge, that:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU;
-- the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being
an indication of important events that have occurred during the
first six months of the financial year and their impact on the
condensed set of financial statements; and a description of the
principal risks and uncertainties for the remaining six months of
the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being
related party transactions that have taken place in the first six
months of the current financial year and that have materially
affected the financial position or performance of the Group during
that period; and any changes in the related party transactions
described in the last annual report that could do so.
On behalf of the Board
Paul Golby CBE - Chairman
Andrew Wyllie CBE - Chief Executive
22 August 2018
Independent review report to Costain Group PLC
Report on the Condensed consolidated interim financial
statements for the half-year
Our conclusion
We have reviewed Costain Group PLC's Condensed consolidated
interim financial statements (the "interim financial statements")
for the half-year end 30 June 2018 of Costain Group PLC. Based on
our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in
all material respects, in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
- the Condensed consolidated statement of financial position as
at 30 June 2018;
- the Condensed consolidated income statement and Condensed
consolidated statement of comprehensive income and expense for the
period then ended;
- the Condensed consolidated cash flow statement for the period
then ended;
- the Condensed consolidated statement of changes in equity for
the period then ended; and
- the explanatory notes to the interim financial statements.
The interim financial statements included in the Results for the
half-year ended 30 June 2018 have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the European Union and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
As disclosed in note 2 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Results for the half-year ended 30 June 2018, including the
interim financial statements, is the responsibility of, and has
been approved by, the directors. The directors are responsible for
preparing the Results for the half-year ended 30 June 2018 in
accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the interim results based on our review.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK and
Ireland) and, consequently, does not enable us to obtain assurance
that we would become aware of all significant matters that might be
identified in an audit. Accordingly, we do not express an audit
opinion.
We have read the other information contained in the Results for
the half-year ended 30 June 2018 and considered whether it contains
any apparent misstatements or material inconsistencies with the
information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
22 August 2018
Unsolicited mail
The Company is legally obliged to make its share register
available to the general public. Consequently, some shareholders
may receive unsolicited mail, including correspondence from
unauthorised investment firms. Shareholders who wish to limit the
amount of unsolicited mail they receive can contact:
The Mailing Preference Service
Freepost 29 (LON20771)
London W1E 0ZT
Company's Registrar
The Company's Registrar is Equiniti, who are located at Aspect
House, Spencer Road, Lancing, West Sussex BN99 6DA. For enquiries
regarding your shareholding, please telephone 0371 384 2250. If you
are calling from outside the UK, please telephone +44(0) 121 415
7047. Lines are open 08.30am to 05.30pm, Monday to Friday. You can
also view up to date information about your shareholdings by
visiting the shareholder website at www.shareview.co.uk. Please
ensure that you advise Equiniti promptly of any change of name or
address.
Scrip dividend scheme
A scrip dividend alternative will be offered in respect of the
interim dividend, enabling shareholders to receive new ordinary
shares instead of cash if they so wish. Those shareholders who have
already elected to join the scrip dividend scheme will
automatically have their interim dividend sent to them in this
form. Shareholders wishing to join the scheme for the interim
dividend (and all future dividends) should return their completed
mandate form to the Registrar, Equiniti, by 28 September 2018.
Copies of the mandate form and the scrip dividend brochure can be
downloaded from the Company's website www.costain.com or obtained
from Equiniti by telephoning 0371 384 2268.
Dividend payments
If your dividend is not currently paid directly into your bank
or building society account and you would like to benefit from this
service, please contact Equiniti on 0371 384 2250 who will be
pleased to assist. By receiving your dividends in this way, you can
avoid the risk of cheques getting lost in the post.
ShareGIFT
The Orr Mackintosh Foundation (ShareGift) operates a charity
share donation scheme for shareholders with small parcels of shares
whose value makes it uneconomic to sell them. Details of the scheme
are available on the ShareGift website www.sharegift.org and
Equiniti can provide stock transfer forms on request. Donating
shares to charity in this way gives rise neither to a gain nor a
loss for Capital Gains Tax purposes. This service is completely
free of charge.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SEDFWFFASEFA
(END) Dow Jones Newswires
August 22, 2018 02:00 ET (06:00 GMT)
Costain (LSE:COST)
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Costain (LSE:COST)
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