TIDMCOST
RNS Number : 8230Y
Costain Group PLC
14 September 2020
Costain Group PLC
("Costain" or "the Group" or "the Company")
Results for the half year ended 30 June 2020
Costain, the smart infrastructure solutions company, announces
its results for the half year ended 30 June 2020.
-- All contracts now operational following the impact of
COVID-19, with necessary safety measures in place
-- Adjusted operating profit of GBP5.7 million, reflecting the
Group's resilient operations despite the impact of COVID-19 in the
period
-- Reported operating loss reflects the previously announced
charges in relation to the Peterborough & Huntingdon contract
(GBP49.3 million) and the A465 Heads of the Valleys road contract
(GBP45.4 million) to adjust the revenue recognised to the amount of
cash received to date on the contracts
-- Continued positive infrastructure market outlook with good
levels of activity and opportunities
-- Strengthened balance sheet following GBP100 million equity
raise resulting in net cash of GBP141 million, enabling the Group
to further capitalise on the growing infrastructure market
opportunities
-- Over GBP2 billion of contracts and frameworks secured in the
first half comprising a greater proportion of integrated services,
in line with strategic focus
-- Order book of GBP4.2 billion including GBP0.9 billion of secured revenue for 2021
Summary financials
H1 2020 H1 2019 FY 2019
Revenue
* adjusted(1) including share of JVs and associates GBP548.7m GBP599.2m GBP1,182.9m
GBP459.9m GBP594.1m GBP1,155.6m
* reported(3)
Operating profit
(--) adjusted(1) GBP5.7m GBP21.2m GBP37.9m
GBP(90.4)m GBP10.2m GBP(3.2)m
* reported(3)
Profit/(loss) before tax
* adjusted(1) GBP3.8m GBP19.5m GBP34.6m
GBP(92.3)m GBP8.4m GBP (6.6)m
* reported(3)
Basic earnings per share
* adjusted(1) 2.1p 13.5p(4) 25.1p(4)
* reported(3) (49.9)p 6.1p(4) (2.3)p(4)
Net cash balance(2) GBP140.9m GBP40.8m GBP64.9m
Dividend per share Nil 3.8p 3.8p
1. Before Peterborough & Huntingdon and A465 contract
adjustments and other items; amortisation of acquired intangible
assets, employment related deferred consideration and other one-off
costs as shown on the income statement. As detailed in note 3 to
the interim financial statements.
2. Net cash balance is cash and cash equivalents less interest-bearing loans and borrowings.
3. 2019 reported figures include the impact of the one-off cost
of GBP9.7 million in respect of an arbitration award and a one-off
aggregate charge of GBP8.9 million for the loss on disposal and
asset impairment for the Group's non-core business assets in Spain
as shown in the income statement.
4. Restated following the raising of new capital completed in May 2020.
Alex Vaughan, chief executive officer, commented:
"We are now back on site across all of our operations with
strict safety measures in place to protect our teams and the
communities we work in. I would like to pay tribute to our people
who have done everything they can to look after one another and to
do the right thing by our clients, communities, society and to
protect our business during this pandemic.
"We are clearly disappointed with the recent arbitration outcome
in relation to the A465 contract which, together with the mutual
termination of the Peterborough & Huntingdon contract, has
resulted in significant revenue adjustments for these long-standing
projects. We have in place clear actions to resolve the financial
position on these contracts and importantly we have taken decisive
action to prevent such issues from reoccurring.
"The equity raise in May has already helped us to capitalise on
the immediate opportunities in our infrastructure markets as we
successfully secured over GBP2 billion of contracts in the first
half, many of which incorporate our consultancy and digital
capabilities in line with our strategic focus. There remains a
strong pipeline of further opportunities which we are actively
targeting.
"Looking ahead, assuming no further sustained COVID-19
lockdowns, we are confident of delivering growth in profits and
margins next year. Although we are mindful of the macro-economic
uncertainties ahead, Costain is in a strong position with secured
long-term programmes and a positive market backdrop, in particular
the UK Government's drive to progress investment in infrastructure
so that it is better, greener and faster in support of the nation's
economic recovery."
Enquiries:
Costain Tel: 01628 842 444
Alex Vaughan, Chief Executive Officer
Tony Bickerstaff, Chief Financial Officer
Carolyn Rich, Investor Relations Director
Sara Lipscombe, Group Communications
Director
MHP Communications Tel: 020 3128 8771
Tim Rowntree
Peter Hewer
Robert Collett-Creedy
A live webcast will be available via the Costain website at 9am
today. www.costain.com/investors
Notes to Editors
Costain helps to improve people's lives with integrated, leading
edge, smart infrastructure solutions across the UK's
transportation, water, energy and defence markets. We help our
clients improve their business performance by increasing capacity,
improving customer service, safeguarding security, enhancing
resilience, decarbonising and delivering increased efficiency. Our
vision is to be the UK's leading smart infrastructure solutions
company. We will achieve this by focusing on blue chip clients
whose major spending plans are underpinned by strategic national
needs, regulatory commitments, legislation or essential performance
requirements. We offer our clients leading edge solutions that are
digitally optimised through the following five services which cover
the whole lifecycle of their assets: future-shaping strategic
consultancy; consultancy and advisory; digital technology
solutions; asset optimisation and complex programme delivery. Our
culture and values underpin everything we do.
For more information visit www.costain.com
CHIEF EXECUTIVE OFFICER'S REVIEW
The first half of 2020 has been a challenging period due to the
impact of COVID-19 and working to resolve issues with two
long-standing contracts, but it has also highlighted the benefit of
our strategic market positioning, the many strengths within Costain
and the resilience of everyone in our workforce.
We are clearly disappointed with the recent arbitration outcome
in relation to the A465 Heads of the Valleys road ("A465") contract
and the current position on the Peterborough & Huntingdon
("P&H") contract. We continue the process to resolve our
commercial position on these two contracts and clear actions have
been implemented across the Group to ensure such significant
contract issues do not reoccur.
We have kept our focus on achieving our strategic ambitions
despite the operational impact from the pandemic. I am pleased with
the progress that we are making across the Group, winning further
significant long-term contracts, broadening our value to clients
through additional consultancy and digital services, strengthening
our team, and delivering the first stages of our planned efficiency
savings.
The outlook for the UK infrastructure market remains positive,
despite COVID-19. To capitalise on the opportunities fully, we
needed to strengthen our balance sheet and in May we successfully
completed a GBP100 million (gross) capital raising. This
significantly improved our financial position and provided
additional confidence to our clients, which helped us secure over
GBP2 billion of work in the first half.
I am confident we will continue to build on our progress during
the remainder of this year to ensure we are set for growth in both
profit and margins in 2021 and beyond, in line with our strategic
ambitions.
COVID-19
Since the onset of COVID-19, our priority has been ensuring the
safety and wellbeing of our people and the communities we work in
as well as protecting our business. I am proud of how well everyone
has adapted in order to achieve this and I would like to pay
tribute to our people who have done everything they can to look
after one another and to do the right thing by our clients,
communities, society and to protect our business during this
pandemic.
Our critical services continued throughout the UK lockdown with
strict safety measures in place, although initially around one
third of contracts, principally in London, were paused. Gradually,
we were able to get back on site across the business with all
projects now resumed. We are now operating at on average c90%
productivity across the Group compared to pre-COVID-19 levels. We
remain alert to the continuing challenges that the necessary safety
measures place on all our operations.
Contract risk management
As a result of the issues on the A465 and P&H contracts, a
number of significant changes have been made to our contract
selection and management processes.
In taking actions to address the type of risk arising from these
contracts, the Group is no longer pursuing Energy EPC contracts,
focusing on long term investment programmes, and enhancing the
strength of its overall contract management under the new
Operational Excellence programme which is now in place.
A number of leadership changes have been made, including the
appointment of Sue Kershaw as the new managing director for
transportation, and we have removed two leadership layers to
enhance the accountability of our teams.
The Group's contract management processes and procedures have
been enhanced over the last 12 months so that contract risk and
changes to contract costs are better monitored and managed
throughout the life cycle of a project. These procedures
include:
-- a five-stage gated approval process prior to signing any
contract, including independent risk review prior to target cost
approval;
-- updated policies for the Group's commercial expectation and
risk appetite for all new contracts;
-- reduction in the acceptable level of downside risk on any new contract;
-- increased minimum level of acceptable profit for all new contracts;
-- enhancements to the monitoring and administration of scope of
work changes to identify and escalate potential cost increases at
an early stage;
-- implementation of a Group-wide 'Operating Excellence model'
on all new contracts and existing long-term frameworks;
-- monthly review of all contracts in a standard and mandatory format; and
-- detailed measurement of work in progress and cash collection.
Our markets
The UK Government recognises the critical role of infrastructure
in supporting a growing and globally competitive economy, and in
decarbonising our environment; and in March 2020 committed GBP600
billion of investment in UK infrastructure over the next five
years. Reinforcing this commitment, the Government has stated that
the infrastructure and construction sectors are vital to the
recovery of the economy following the impact of COVID-19.
We estimate the addressable spend across our core markets of
transportation, water, energy and defence is approximately GBP23
billion per year. Investment priorities are also evolving rapidly
with a focus on increased capacity, improved resilience,
efficiency, decarbonisation and enhanced customer service. For
organisations to deliver on these ambitions, new solutions and
approaches are needed.
We recognise that some clients may require modifications to
their investment plans as they address the continuing effects of
COVID-19. While this may create a potential short term impact where
clients' programmes are amended or necessarily deferred, it also
creates an opportunity whereby clients turn to us as partners to
help deliver changes to their programmes more efficiently.
Our strategy
Our 'Leading Edge' strategy ensures that Costain increasingly
develops and aligns its services to meet the changing needs of our
clients to address their complex business outcomes. Costain has a
strong reputation and ability to deliver complex infrastructure
programmes, bringing together collaboration, innovation,
engineering excellence and a drive to continuously improve the
delivery of successful outcomes. This expertise, together with our
integrated consultancy services and digital solutions, ensures we
deliver best in class solutions to our clients.
The strategy will support improved profitability as we seek to
deliver our divisional margin of 6% to 7% over the medium term. To
achieve this, we have a clear focus on the shape of our services
with a future ambition for 45% of our profits to be derived from
complex programme delivery (currently c67%) and 55% from our
consultancy and digital services (currently c33%).
The changing shape of our business will be delivered
through:
-- Complex programme delivery - good margin, strategic long-term
(5 to 10 year) investment programmes for our clients, including
HS2, water company AMP7 programmes, Highways England Regional
Delivery Programme and Smart Motorway Alliance
-- Consultancy - higher margin services with the expertise of
Costain as a valued implementation biased consultant across:
-- Long term consultancy frameworks including Highways England
SPaTS2, and EDF project controls
-- Advisory commissions such as the work being delivered for the
Ministry of Defence and Thames Water Programme Management
Office
-- Design services to clients and as part of our integrated programme delivery capability
-- Delivery partner / programme manager roles such as those in place with AWE and Cadent
-- Digital Services - higher margin services utilising our
client insight to enhance performance through digital
technology
-- Digitising our delivery; including the digital U-Route
utility routing tool which automates asset location selection
-- Adding a digital component to our proposition, as per the
digital twin on the Anglian Water Strategic Pipeline Alliance
contract
-- A digital solution, such as the innovative Meerkat intelligent railway crossing.
Crucially, a greater proportion of the business we have won in
the last six months comprises more of our integrated services
including digital solutions and consultancy in line with our
strategic intent and our margin growth targets. These include:
-- The 10-year, GBP160 million, programme management consultancy
contract with Cadent to lead the oversight of their asset renewal
programme in the East of England
-- Securing a place on Highways England's SPaTS2 strategic
consultancy framework over the next four years to help shape the
development of the UK's highway network
-- Being awarded a position on Anglian Water's Strategic
Pipeline Alliance; where we are leading the implementation of their
industry leading digital twin as well as programme managing the
solution development
-- Our first Programme Management Office ('PMO') consultancy
appointment in water in supporting the delivery of Thames Water's
AMP7 programme
-- Commencing the implementation of our digital railway crossing
'Meerkat' solution for Network Rail across c200 remote level
crossings in the UK
-- In complex programme delivery, strategic long-term programmes
including HS2 main works, water company AMP7 programmes, Highways
England Smart Motorway Alliance.
In positioning Costain as the leading partner to deliver new
solutions, we are importantly playing a vital role in shaping the
nature of future infrastructure. Two examples of the work we are
doing in this area include our collaboration with E.ON and SSEN on
the energy 'Resilience as a Service' project, improving grid
resilience in remote areas to support the electrification of
transport; and working with the Department for Transport as their
chosen partner delivering the GBP2 million Intelligent
Infrastructure Control Centre that will deliver a step change in
the assured delivery of infrastructure programmes.
Encouragingly, we have replaced all the work we completed in the
first half, resulting in the order book remaining at GBP4.2
billion, including total secured revenue of cGBP0.9 billion for
2021. This also included receiving the formal notice to proceed on
our HS2 main works contracts totalling over GBP1 billion. The cGBP1
billion Smart Motorway Alliance programme and other frameworks have
not been added to the order book at this stage, ensuring it
reflects only those contracts formally awarded and commenced.
Continuing to pursue and win new work is a key activity in the
Group. However, we will ensure that our contract selection reflects
the right risk reward balance and we will not pursue opportunities
that do not meet our enhanced criteria. In this respect, we are
firmly focused on securing new contracts that deliver consistent
profits rather than revenue potential.
In the period, as well as work secured, we have made good
progress in the implementation actions underpinning our strategy.
This has included the implementation of the first phase of our
operational efficiency programme, which targets annualised
efficiencies of GBP20 million after three years. Under this
programme we have expanded our robotic automation processes and
increased operational performance through our business wide
operational excellence model. In the current year we expect to
achieve GBP7 million annualised efficiencies, and we are on track
to increase this to GBP12 million in 2021.
Peterborough & Huntingdon and A465 contracts
As announced on 29 June 2020, agreement was reached with
National Grid to cease work on the P&H contract with
demobilisation of activity by 31 August 2020. The termination
agreement incorporates a legal process over the next 18 months to
agree up to GBP80 million of identified compensation events,
recover costs to date and eliminate a potential liability to
National Grid for completing the works.
The Group has GBP42.0 million of P&H contract asset (i.e.
work undertaken but not yet paid) as at 30 June 2020 which will
increase to GBP49.3 million at the end of our works, to be
recovered through the resolution process. As previously announced
and supported by expert advice, the Group continues to believe that
it has a strong entitlement to recover this sum which is subject to
successful pursuit through adjudication and potentially litigation.
Reflecting the revised commercial resolution process incorporated
in the termination agreement and in accordance with IFRS15, there
is the requirement to take a one-off charge to the 2020 interim
results income statement of GBP49.3 million to adjust the revenue
recognised on the P&H contract to the level of cash received to
date. The majority of the cash impact of this charge has been
incurred in the first half of 2020, with GBP15 million of cash out
remaining in order to complete our works.
Work is continuing to complete the A465 contract on the fringe
of the Brecon Beacons National Park which was entered into in 2015.
As previously reported, the project has experienced significant
additional scope and we continue to look to resolve the associated
impact on the cost and schedule in accordance with the contractual
process.
The Welsh Government had escalated a specific matter under the
dispute resolution mechanism in the contract, relating to the
responsibility for design information for a specific retaining wall
and whether it qualified as a compensation event. This issue was
decided in the Company's favour by way of previous adjudication
awards. However, in arbitration, the arbitrator found that
responsibility for the design information rests with Costain and,
consequently, the additional costs associated with the building of
the retaining wall is not a compensation event under the contract.
The arbitration award, which determines a matter of principle only,
and not quantum, is non-appealable.
Although the arbitration award relates to the liability for the
additional costs associated with the building of a specific
retaining wall under the contract, it has implications for the
responsibility for design information under the whole contract and
therefore Costain's ability to recover these costs.
Costain is in ongoing discussions with the Welsh Government to
reach agreement on a final financial settlement and to seek
recovery of costs under the contract. However, as a result of the
arbitration award and on the basis of the uncertainty of recovery
of such costs, and subject to reaching a final settlement, the
Group's half year results include a charge to the income statement
of GBP45.4 million to adjust the revenue recognised based on the
level of cash received to date under the contract. Costain will
continue to fulfil its obligations under the contract, with
completion scheduled in 2021.
Trading and financial performance
The measures imposed by the UK Government in March in response
to COVID-19 impacted the revenue and profit of the Group in the
second quarter of the year. At the end of March, c30% of the
Group's operations were paused, with the productivity on other
projects also affected. During the second quarter, all the paused
projects were re-activated and in June were all operational, albeit
at reduced levels due to the necessary safe working restrictions
implemented.
While revenue in Q1 was at a very similar level to last year,
revenue in Q2 was down by 16% compared with Q1 and down by 17%
compared with the same period in 2019, reflecting the impact of
COVID-19. As a consequence, revenue, including the Group's share of
joint ventures and associates, reduced by 8% to GBP548.7 million in
the first half of the year (H1 2019: GBP599.2 million) on an
adjusted basis. The reported revenue, after the P&H and A465
contract adjustments, was GBP459.9 million for the period (H1 2019:
GBP594.1 million).
The Group's operating profit was significantly impacted by
COVID-19 working restrictions. A number of cost reduction measures
were taken to mitigate the associated drop in revenue, including
the cancellation of all discretionary expenditure and a reduction
in salaries and directors' fees for the Board and senior leadership
team of 30% for three months to 30 June 2020. The Group does,
however, have a level of fixed costs and has continued to incur
expenditure in relation to new contract opportunities.
As detailed in note 3 to the interim financial statements,
'adjusted revenue and profit' has been used as an alternative
performance measure to better reflect the underlying trading of the
Group. The measure excludes the significant one-off adjustments
made on the P&H and A465 contracts and other one-off
non-trading items.
Adjusted operating profit was GBP5.7 million (H1 2019: GBP21.2
million). This includes the impact of operations either being
temporarily suspended, reimbursed on a cost only basis or working
to lower levels of productivity from the end of Q1 and through Q2;
mitigated by cost reduction actions to safeguard the business. This
impact from COVID-19 reflects disruption to the Group's
productivity including stopping activities on several projects,
additional costs for maintaining social-distancing and safety
equipment, the cost of re-planning activities to new operating
procedures, restrictions to personnel on site due to
social-distancing requirements, delays to the award and start of
new contracts, with a number of clients suspending investment
plans, and the unrecovered cost of furloughed staff.
As reported above, in the period adjustments have been made on
the P&H and A465 contracts, resulting in a reported operating
loss for the period of GBP90.4 million (H1 2019: GBP10.2 million
profit) and a reported loss before tax of GBP92.3 million (H1 2019:
GBP8.4 million profit).
We took advantage of the Government's Coronavirus Job Retention
Scheme to safeguard approximately 360 jobs (11% of our employees)
resulting in a cost recovery of GBP1.6 million for the period to 30
June 2020. The majority of colleagues placed on furlough have now
returned. The Company has not utilised any of the Government loan
schemes but has deferred payment of PAYE (GBP15 million), which was
due and fully paid in July 2020, and VAT (GBP10 million), which is
payable by March 2021.
The divisional operating margin (before the P&H and A465
contract adjustments) reduced to 1.7% as a result of the impact of
the COVID-19 disruption. With increasing levels of activity, it is
anticipated that margins will improve in H2 2020, improving further
in 2021 reflecting the changing mix of activities in line with the
Group's strategy.
Other items and adjusted profit
The Group trading results are reported on an adjusted basis,
excluding a number of one-off items not considered by the Board to
be representative of underlying trading. In the period these
were:
-- P&H and A465 contract adjustments as detailed above;
-- Impairment of the Group's remaining non-core assets in Spain
of GBP0.6 million resulting from the loss on sale completed at the
beginning of August 2020;
-- Profit on sale of the Group non-core legacy assets in Zimbabwe of GBP1.0 million;
-- Impairment of the Group's non-core long-standing minority
investment in a hotel company of GBP0.6 million to a carrying value
of nil, reflecting the significant impact of COVID-19 in that
sector;
-- One-off costs of GBP0.7 million associated with advice
received in renegotiating the Group's bank facilities alongside the
equity raise; and
-- Amortisation of acquired intangible assets of GBP0.5 million.
Cash position
The Group had a net cash balance at 30 June 2020 of GBP140.9
million (H1 2019: GBP40.8 million), comprising GBP117.8 million of
cash, GBP85.1 million share of cash in joint operations, and
GBP62.0 million of drawn debt. The Group also has GBP121 million of
additional undrawn committed bank debt facilities with a maturity
date of 24 September 2023.
In the first six months, the key movements in the Group's net
cash position were as follows:
-- GBP93 million net proceeds from the equity raise in May;
-- Positive net working capital, excluding the P&H and A465
contracts, interest and tax of GBP22 million;
-- Cash outflow of GBP55 million on the A465 and P&H
projects due to the ongoing commercial issues;
-- The benefit of the deferral of PAYE and VAT payments of GBP25 million in aggregate;
-- The anticipated reversal of cGBP35 million of positive timing
benefits from the year-end; and
-- The positive timing of receipts at the period end of
approximately GBP25 million (which reversed in the early part of H2
2020).
During H1 2020, which includes the 5-month period prior to the
receipt of the proceeds from the equity raise in May, the Group's
average month-end net cash balance was GBP56.3 million (H1 2019:
GBP63.7 million).
With the reversal of the positive timing benefits in H1 2020 and
the cash requirements on the A465 & P&H contracts, it is
anticipated that the net cash position of the Group at the end of
the year will be cGBP70-GBP80 million.
The Group has in place sufficient financial resources to manage
the ongoing working capital requirements and to capture the
opportunities available in the market.
Pension scheme
As at 30 June 2020, the surplus on the Group's legacy Costain
Pension Scheme in accordance with IAS 19 was GBP14.9 million (June
2019: surplus of GBP4.5 million). The increase in surplus results
from a combination of employer contributions, better than expected
asset returns, including from the liability driven investments, and
updated mortality assumptions offset by an increase in liabilities
from changes in the market-based assumptions used.
Based on the actuarial valuation as at 31 March 2019, the
Company has in place a deficit reduction plan, agreed with the
pension scheme Trustee, which requires a contribution of GBP10.2
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.
Dividend
Taking into account the ongoing disruption to the business from
COVID-19 and the commercial importance of retaining a strong net
cash position, the Board has decided not to pay an interim dividend
for 2020.
The Board recognises the importance of dividends to shareholders
and will continue to review the timing of the reinstatement of
future dividends in light of the Group's performance, cash flow
requirements and the importance of maintaining a strong balance
sheet.
People, communities and ESG
In the first half, engagement with our people and communities
was naturally a priority due to the COVID-19 pandemic. We increased
our internal engagement to ensure that we continued to support our
people, to keep them safe and ensure their positive wellbeing while
they were working on site in new COVID-19 safe conditions and
working remotely. We are proud of the ways in which our teams
supported the communities in which we work. Their contributions
included fundraising for local charities and hospices; providing
PPE to local NHS hospitals providing plant and equipment to help
convert a former military rehabilitation centre into a temporary
hospital for coronavirus patients and facilitating large community
donations to foodbanks. Four of our senior colleagues are Business
In The Community (BITC) regional board members and helped to
support their national business response network.
The Group is committed to job creation and supporting the
recovery of the UK economy through early careers employment by
continuing to offer traineeships, graduate and apprentice
programmes. We are actively supporting the construction talent
retention scheme being led by the Association for Consultancy and
Engineering as well as working with the Department for Work and
Pensions and the Prince's Trust.
At the start of the year, we launched our climate change action
plan and responsible business commitments. We have exceeded our
targets for the amount spent with small businesses or voluntary,
community and social enterprises.
Operational review
Under our 'One Costain' operating model we operate across two
core divisions of 'transportation' and 'natural resources'.
Transportation
The division had adjusted revenue (including joint ventures and
associates) in the period of GBP353.2 million (before the A465
contract adjustment) (H1 2019: GBP380.2 million) and adjusted
operating profit of GBP5.1 million (H1 2019: GBP14.6 million). The
revenue and profit reduction result from the impact of COVID-19 on
the Group's operations, with revenues in Q2 2020 down 15% compared
to the first quarter of the year and operating margins reduced in
the period to 1.4%. As a result of increasing levels of activity,
it is anticipated that margins will improve in H2 2020, improving
further in 2021 reflecting the changing mix of activities in line
with the Group's strategy.
On a statutory reported basis, including the impact of the
adjustment on the A465 contract detailed above, the division had
revenue of GBP307.7 million (H1 2019: GBP380.2 million) and a loss
from operations of GBP40.4 million (H1 2019: GBP14.0 million
profit).
The division has a forward order book of GBP3.0 billion (H1
2019: GBP3.0 billion) and is well positioned to benefit from the
Government's intent to stimulate the economy by building faster,
better, and greener infrastructure. In the period, Sue Kershaw
joined the Company as managing director of transportation, bringing
leading programme delivery and assurance consulting and strategic
transport expertise to the team.
We have built a strong position in the sector having secured a
number of long-term strategic programmes including the HS2 main
works, the Highways England's Smart Motorway Alliance and Regional
Delivery Programme and several other major infrastructure schemes.
We have also made good progress in growing the proportion of
consultancy and digital services we are providing to our
clients.
Recent notable contract wins in the first half include: the
Smart Motorway Alliance and Specialist Professional and Technical
Services framework (SPaTS2) for Highways England; commencement of
phase 1 of the Main Works Civils Contract joint venture for HS2; a
smart street lighting project for Bradford Council; and a contract
for thermal imaging camera operations at London Heathrow
Airport.
Highways
As a strategic partner for Highways England, we successfully
opened the flagship A14 Cambridge to Huntingdon project early and
to budget and we continue to support Highways England's operations
division with a number of asset management contracts.
On the Regional Delivery Programme, we are continuing to deliver
the A19 Testo's scheme, have secured approval to commence the
adjacent Downhill Lane contract; and have now mobilised the A30
contract. We are continuing to develop the solutions with Highways
England on three road improvement contracts on the A1 and the A12
widening.
In supporting the devolved investment in infrastructure, we are
supporting East Sussex council with their asset management
programme, Preston with their road improvement contract and
Bradford City council on their green street lighting programme.
In developing our position as a valued implementation based
consultant, we are working with Transport for London (TfL) in
consultancy roles on the Hammersmith Pedestrian Bridge, the
Rotherhithe tunnel and the A40 Westway upgrade. We continue to
support the Department for Transport as a prime supplier on its
STARTwo management consultancy framework, under which we offer
advice to the Government on a range of strategic, nationally
important transportation issues. Working with Highways England,
through the SPaTS2 framework we are supporting their shaping of the
future roads network and improved ways of programme delivery.
Our technology centre continues to develop and implement new
systems such as 'connected vehicles' to meet the needs of an
increasingly digital strategic road network, and Meerkat to enhance
pedestrian safety through intelligent railway crossing
solutions.
Rail
In this period, due to extremely challenging COVID-19 compliant
working conditions underground, our joint venture mutually agreed
settlement and termination on Crossrail's Bond Street station. Work
continues across the central section of the Crossrail network,
where we are responsible for tunnel systems and the technology
required for commissioning the Elizabeth Line; together with
completing Paddington Station. The closeout of the upgrade of the
new London Bridge Station for Network Rail is near completion.
Our activity on High Speed 2 is continuing, where we are
completing the enabling works and have mobilised the phase 1 Main
Civils Contracts on two major sections of the route. We are also
continuing to pursue a number of further opportunities on HS2.
The upgrade of Gatwick Airport Station for Network Rail is
progressing well and has been heralded as 'best practice in the
industry' for safely, efficiently and quickly adapting to working
under COVID-19 restrictions.
Aviation
Despite early success in securing consultancy frameworks for
Manchester Airports Group, Heathrow Airport Limited and Gatwick
Airport, we have adjusted the focus of our aviation business as the
industry is in stasis. Notably, we have successfully developed a
thermal imaging camera system with data management that has been
widely trialled throughout the UK and adopted by London Heathrow
airport as its new preferred provider and operator for this
service.
Natural Resources
The division had adjusted revenue (including joint ventures and
associates) in the period of GBP194.5 million (before the P&H
contract adjustment) (H1 2019: GBP216.0 million) and adjusted
operating profit of GBP4.5 million (H1 2019: GBP9.2 million). The
revenue and profit reduction results from the impact of COVID-19 on
the Group's operations, with revenues in Q2 2020 down 15% compared
to the first quarter of the year. Operating margins were also
impacted in the period reducing to 2.3%. As a result of increasing
levels of activity, it is anticipated that margins will improve in
H2 2020, improving further in 2021 reflecting the changing mix of
activities in line with the Group's strategy
On a statutory reported basis, including the impact of the
adjustment on the P&H contract detailed above, the division had
revenue of GBP151.2 million (H1 2019: GBP210.9 million) and a loss
from operations of GBP45.7 million (H1 2019: GBP1.1 million
loss).
While performance in the first half has been impacted by a
reduction in volume during lockdown, we have a strong client base
with a high-quality order book of GBP1.2 billion (H1 2019: GBP1.2
billion).
Recent notable contract wins in the first half include; the
Strategic Pipeline Alliance for Anglian Water; the Technical
Services Framework for Yorkshire Water; the AMP7 PMO contract for
Thames Water; and the programme management consultancy for
Cadent.
Water
In our water business we have significantly broadened our client
base following new contract wins, in addition to securing key
consultancy and digital service contracts. The challenging Ofwat
Final Determination requires our clients to seek new ideas and
innovative solutions and we have successfully secured positions on
the five-year AMP7 programmes for Anglian Water, Severn Trent
Water, Southern Water, South Staffs Water, Thames Water, United
Utilities and Yorkshire Water, and our bidding activity continues.
We are supporting these clients to improve water quality standards,
enhance supply resilience, meet anticipated demographic shifts and
address their Totex (capital and operational costs) efficiency
targets. In addition, we are working with several clients to
consider the impact of COVID-19 on the timing profile of their
immediate term investment programmes.
We are now finalising works on the AMP6 five-year programmes for
Thames Water, Severn Trent Water and Southern Water. These
programmes are delivering well and we are using our full range of
integrated capabilities to drive improved customer service,
innovative solutions and achieve significant total whole life
expenditure efficiency savings. Our AMP6 contract with Thames Water
includes an element of incentivisation, aligned to the client's
objectives, estimated through the life of the contract and
finalised at the end of the programme. We are in constructive
dialogue with the client to resolve this outstanding commercial
matter. We are also in ongoing final account discussions with
Severn Trent Water on our work carried out on their AMP6
programme.
The Thames Tideway project, on which we are in a joint venture
to deliver the east section, continues to progress well. The
tunnelling elements of the contract commenced in 2019 and overall
completion is scheduled for 2024.
Energy
We continue to drive the transformation of our energy sector,
with a renewed market focus in decarbonisation and an experienced
offering in maximising existing asset performance. We have taken
the decision to no longer pursue EPC design and build contracts in
this sector.
In the period we secured leading roles in the future
decarbonisation of the UK through three UK carbon capture and
storage clusters schemes, as well as delivering a number of firsts
in the UK decarbonisation space; first trial of hydrogen into
regional distribution network; first in network gas compression for
Biogas; first carbon capture scheme; and first Microgrid and
resilience as a service project for SSEN. While the pace of the UK
transitioning to a decarbonised energy network is slower than
expected, we have secured key positions to exploit the future
opportunities.
We are now mobilising our new contract to programme manage
Cadent's asset management programme in the East of England for the
next 10 years.
Defence
We continue to support our clients through improving complex
programme management on major infrastructure schemes, project
controls and delivery, as well as providing vital assurance
capability. We continue to roll out programme, portfolio and
project management leadership training with BAE and Qinetiq and
have introduced a digital enterprise platform for improved project
controls on a major defence programme.
Our programme management contract for AWE continues to meet
performance expectations, allowing us to secure opportunities to
support AWE on additional projects.
Alcaidesa
In December 2019, the Group completed the sale of its ownership
of two golf courses, land and a club house in Cadiz, Spain. In
August 2020, the Group sold its 624-berth Marina Concession for
EUR4.75 million, the disposal of which completes the Group's
strategy to divest its non-core business assets in Spain. The loss
on the sale of GBP0.6 million is included in the income statement
as a one-off impairment charge in the first half of the year.
Revenue in this non-core division in the period was GBP1.0
million (H1 2019: GBP3.0 million) with a GBP0.1 million operating
loss (H1 2019: GBP0.1 million operating loss).
Legacy asset disposals
In the period, the Group completed the sale of its legacy
company that held property assets in Zimbabwe for GBP1.0 million
(net of costs), which as the assets were held at no value
represents the profit on the disposal.
In August 2020, the Group also completed the sale of its equity
share in its two remaining "Building Schools for the Future"
partnership companies for a combined consideration of GBP3.6
million. The Group's full year results will include the profit of
GBP1.6 million from the sale.
Outlook
We are now back on site across all of our operations with strict
safety measures in place to protect our teams and the communities
we work in. I would like to pay tribute to our people who have done
everything they can to look after one another and to do the right
thing by our clients, communities, society and to protect our
business during this pandemic.
We are clearly disappointed with the recent arbitration outcome
in relation to the A465 contract which, together with the mutual
termination of the Peterborough & Huntingdon contract, has
resulted in significant revenue adjustments for these long-standing
projects. We have in place clear actions to resolve the financial
position on these contracts and importantly we have taken decisive
action to prevent such issues from reoccurring.
The equity raise in May has already helped us to capitalise on
the immediate opportunities in our infrastructure markets as we
successfully secured over GBP2 billion of contracts in the first
half, many of which incorporate our consultancy and digital
capabilities in line with our strategic focus. There remains a
strong pipeline of further opportunities which we are actively
targeting.
Looking ahead, assuming no further sustained COVID-19 lockdowns,
we are confident of delivering growth in profits and margins next
year. Although we are mindful of the macro-economic uncertainties
ahead, Costain is in a strong position with secured long-term
programmes and a positive market backdrop, in particular the UK
Government's drive to progress investment in infrastructure so that
it is better, greener and faster in support of the nation's
economic recovery.
Alex Vaughan
Chief Executive Officer
14 September 2020
Cond e n se d c on s olid ated in c ome state m e nt
Half-year ended 30 2020 2019 2019
June, Half-year Half-year Year
year ended 31 December Unaudited Unaudited Audited
--------------------------- ----------------------------- ------------------------------ ----------------------------------
Before Before Before
other Other other Other other Other
items items Total items items Total items items Total
Note GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------- ------- --------- --------- -------- --------- ----------- -------- -----------
Revenue plus
share of joint
ventures and
associates 4 461.3 - 461.3 599.2 - 599.2 1,162.9 - 1,162.9
Less: Share
of revenue of
joint ventures
and associates (1.4) - (1.4) (5.1) - (5.1) (7.3) - (7.3)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
Group revenue 459.9 - 459.9 594.1 - 594.1 1,155.6 - 1,155.6
Cost of sales
before other
items (531.0) - (531.0) (554.3) - (554.3) (1,105.1) - (1,105.1)
Arbitration
award on
historical
building
project - - - - (9.7) (9.7) - (9.7) (9.7)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
Cost of sales (531.0) - (531.0) (554.3) (9.7) (564.0) (1,105.1) (9.7) (1,114.8)
Gross
(loss)/profit (71.1) - (71.1) 39.8 (9.7) 30.1 50.5 (9.7) 40.8
Administrative
expenses
before
other items (17.9) - (17.9) (18.6) - (18.6) (32.6) - (32.6)
Impairment of
Alcaidesa
marina 11 - (0.6) (0.6) - - - - (5.9) (5.9)
Impairment of
other
investment - (0.6) (0.6) - - - - - -
Profit/(loss)
on disposal
of subsidiary
undertakings - 1.0 1.0 - - - - (3.0) (3.0)
Refinancing
advisory fees - (0.7) (0.7) - - - - - -
Amortisation
of acquired
intangible
assets - (0.5) (0.5) - (1.1) (1.1) - (2.3) (2.3)
Employment
related
and other
deferred
consideration - - - - (0.2) (0.2) - (0.2) (0.2)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
Administrative
expenses (17.9) (1.4) (19.3) (18.6) (1.3) (19.9) (32.6) (11.4) (44.0)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
Group operating
(loss)/profit 3 (89.0) (1.4) (90.4) 21.2 (11.0) 10.2 17.9 (21.1) (3.2)
Share of
results
of joint
ventures
and associates 0.1 - 0.1 0.1 - 0.1 0.3 - 0.3
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
(Loss)/profit
from operations 4 (88.9) (1.4) (90.3) 21.3 (11.0) 10.3 18.2 (21.1) (2.9)
Finance income 0.3 - 0.3 0.4 - 0.4 1.0 - 1.0
Finance expense (2.3) - (2.3) (2.2) (0.1) (2.3) (4.6) (0.1) (4.7)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
Net finance
expense 5 (2.0) - (2.0) (1.8) (0.1) (1.9) (3.6) (0.1) (3.7)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
(Loss)/profit
before tax (90.9) (1.4) (92.3) 19.5 (11.1) 8.4 14.6 (21.2) (6.6)
Taxation 6 17.4 0.2 17.6 (3.0) 2.1 (0.9) (0.1) 3.8 3.7
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
(Loss)/profit
for the period
attributable
to equity
holders
of the parent (73.5) (1.2) (74.7) 16.5 (9.0) 7.5 14.5 (17.4) (2.9)
------------------ ------- --------- ------- --------- --------- -------- --------- ----------- -------- -----------
(Loss)/earnings
per share
Basic 7 (49.9)p 6.1p (2.3)p
Diluted 7 (49.8)p 6.1p (2.3)p
Prior period earnings per share calculations have been restated
following the capital raise in the period to 30 June 2020. 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.
Cond e n se d c on s olid ated state m e nt of comprehensive
income and expense
Half-year ended 30 June, 2020 2019 2019
year ended 31 December Half-year Half-year Year
unaudited unaudited audited
GBPm GBPm GBPm
------------------------------------------------------------- ------------ ------------ ----------
(Loss)/profit for the period (74.7) 7.5 (2.9)
------------------------------------------------------------- ------------ ------------ ----------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation
of foreign operations 0.4 (0.2) (1.4)
Exchange differences on translation
transferred to the income statement (1.4) - (3.7)
Net investment hedge
* Effective portion of changes in fair value during
period (0.3) (0.3) 1.6
* Net changes in fair value transferred to the income
statement 0.9 - 2.0
Cash flow hedges:
* Effective portion of changes in fair value during
period (0.1) (0.4) (0.4)
* Net changes in fair value transferred to the income
statement 0.4 0.5 (0.8)
Total items that may be reclassified
subsequently to profit or loss (0.1) (0.4) (2.7)
------------------------------------------------------------- ------------ ------------ ----------
Items that will not be reclassified
to profit or loss:
Remeasurement of retirement benefit
asset/(obligations) 4.6 (2.1) (7.0)
Tax recognised on remeasurement of
retirement benefit asset/(obligations) (0.9) 0.4 1.2
Total items that will not be reclassified
to profit or loss 3.7 (1.7) (5.8)
------------------------------------------------------------- ------------ ------------ ----------
Other comprehensive income/(expense)
for the period 3.6 (2.1) (8.5)
------------------------------------------------------------- ------------ ------------ ----------
Total comprehensive (expense)/income
for the period attributable to equity
holders of the parent (71.1) 5.4 (11.4)
------------------------------------------------------------- ------------ ------------ ----------
Cond e n se d c on s olid ated state m e nt 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 2019 -
audited 53.5 15.0 2.6 0.7 - 110.5 182.3
Profit for the period - - - - - 7.5 7.5
Other comprehensive
(expense)/income - - (0.5) 0.1 - (1.7) (2.1)
Issue of ordinary shares
under employee share
option plans 0.3 0.3 - - - - 0.6
Shares purchased to
satisfy employee share
schemes - - - - - (0.9) (0.9)
Equity-settled share-based
payments - - - - - 0.9 0.9
Dividend paid (note
8) 0.2 0.6 - - - (10.7) (9.9)
------------------------------ ---------- --------- ------------ --------- ---------- ---------- --------
At 30 June 2019 - unaudited 54.0 15.9 2.1 0.8 - 105.6 178.4
Loss for the period - - - - - (10.4) (10.4)
Other comprehensive
expense - - (1.0) (1.3) - (4.1) (6.4)
Issue of ordinary shares
under employee share
option plans - 0.1 - - - (0.2) (0.1)
Shares purchased to
satisfy employee share
schemes - - - - - 0.2 0.2
Equity-settled share-based
payments - - - - - (0.4) (0.4)
Dividend paid (note
8) 0.1 0.4 - - - (4.1) (3.6)
------------------------------ ---------- --------- ------------ --------- ---------- ---------- --------
At 31 December 2019
- audited 54.1 16.4 1.1 (0.5) - 86.6 157.7
Loss for the period - - - - - (74.7) (74.7)
Other comprehensive
(expense)/income - - (0.4) 0.3 - 3.7 3.6
Shares purchased to
satisfy employee share
schemes - - - - - (0.2) (0.2)
Equity-settled share-based
payments - - - - - 0.6 0.6
Capital raise (note
13) 83.4 - - - 9.1 - 92.5
Transfer - - - - (9.1) 9.1 -
------------------------------ ---------- --------- ------------ --------- ---------- ---------- --------
At 30 June 2020 - unaudited 137.5 16.4 0.7 (0.2) - 25.1 179.5
----------------------------- ---------- --------- ------------ --------- ---------- ---------- ----------
Merger reserve
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.
Cond e n se d c on s olid ated state m e nt of financial
position
Half-year as at 30 June, 2020 2019 2019
year as at 31 December Half-year Half-year Year
unaudited unaudited audited
GBPm GBPm GBPm
---------------------------------------- ---- ------------ ------------ ----------
Assets
Non-current assets
Intangible assets 9 59.4 58.2 59.0
Property, plant and equipment 9 40.3 71.4 44.1
Investments in equity accounted
joint ventures 0.4 0.4 0.4
Investments in equity accounted
associates 0.5 0.4 0.6
Loans to equity accounted associates 1.5 1.5 1.5
Retirement benefit asset 10 14.9 4.5 4.9
Other 2.8 2.4 2.1
Deferred tax 21.1 1.4 4.6
---------------------------------------- ---- ------------ ------------ ----------
Total non-current assets 140.9 140.2 117.2
---------------------------------------- ---- ------------ ------------ ----------
Current assets
Inventories 1.2 1.8 1.3
Trade and other receivables 228.7 311.1 247.6
Assets held for sale 11 4.1 - -
Taxation 0.8 - 5.5
Cash and cash equivalents 202.9 130.5 180.9
---------------------------------------- ---- ------------ ------------ ----------
Total current assets 437.7 443.4 435.3
---------------------------------------- ---- ------------ ------------ ----------
Total assets 578.6 583.6 552.5
---------------------------------------- ---- ------------ ------------ ----------
Equity
Share capital 13 137.5 54.0 54.1
Share premium 16.4 15.9 16.4
Foreign currency translation reserve 0.7 2.1 1.1
Hedging reserve (0.2) 0.8 (0.5)
Retained earnings 25.1 105.6 86.6
---------------------------------------- ---- ------------ ------------ ----------
Total equity attributable to equity
holders of the parent 179.5 178.4 157.7
---------------------------------------- ---- ------------ ------------ ----------
Liabilities
Non-current liabilities
Other payables 0.7 0.4 0.7
Interest-bearing loans and borrowings 44.0 60.5 48.0
Lease liabilities 19.7 15.6 17.2
Provisions for other liabilities
and charges - 0.1 -
---------------------------------------- ---- ------------ ------------ ----------
Total non-current liabilities 64.4 76.6 65.9
---------------------------------------- ---- ------------ ------------ ----------
Current liabilities
Trade and other payables 303.4 282.8 247.4
Taxation - 0.9 -
Interest-bearing loans and borrowings 18.0 29.2 68.0
Lease liabilities 12.6 14.8 12.8
Provisions for other liabilities
and charges 0.7 0.9 0.7
---------------------------------------- ---- ------------ ------------ ----------
Total current liabilities 334.7 328.6 328.9
---------------------------------------- ---- ------------ ------------ ----------
Total liabilities 399.1 405.2 394.8
---------------------------------------- ---- ------------ ------------ ----------
Total equity and liabilities 578.6 583.6 552.5
---------------------------------------- ---- ------------ ------------ ----------
Cond e n se d c on s olid ated cash flow statement
Half-year ended 30 June, 2020 2019 2019
year ended 31 December Half-year Half-year Year
unaudited unaudited audited
GBPm GBPm GBPm
--------------------------------------------- ------------ ------------ ----------
Cash flows from operating activities
(Loss)/profit for the period (74.7) 7.5 (2.9)
Adjustments for:
Share of results of joint ventures
and associates (0.1) (0.1) (0.3)
Finance income (0.3) (0.4) (1.0)
Finance expense 2.3 2.3 4.7
Taxation (17.6) 0.9 (3.7)
(Profit)/loss on disposal of subsidiary
undertakings (1.0) - 3.0
Impairment of Alcaidesa marina 0.6 - 5.9
Impairment of other investment 0.6 - -
Transfer subsidiary cash to asset
held for sale (0.3) - -
Depreciation of property, plant
and equipment 8.0 8.4 17.7
Amortisation of intangible assets 0.5 1.2 2.6
Employment related and other deferred
consideration - 0.2 0.2
Share-based payments expense 0.6 0.9 0.5
Shares purchased to satisfy employee
share schemes (0.2) (0.9) (0.7)
---------------------------------------------- ------------ ------------ ----------
Cash (used by)/from operations
before changes in working capital
and provisions (81.6) 20.0 26.0
(Increase)/decrease in inventories (0.2) (0.3) 0.1
Decrease/(increase) in receivables 18.0 (33.4) 30.2
Increase/(decrease) in payables 56.8 (32.5) (63.5)
Movement in provisions and employee
benefits (5.3) (10.7) (16.3)
---------------------------------------------- ------------ ------------ ----------
Cash used by operations (12.3) (56.9) (23.5)
Interest received 0.1 0.2 1.0
Interest paid (2.3) (1.3) (4.6)
Taxation received/(paid) 4.7 (0.6) (5.1)
---------------------------------------------- ------------ ------------ ----------
Net cash used by operating activities (9.8) (58.6) (32.2)
Cash flows from investing activities
Dividends received from joint ventures
and associates 0.2 0.3 0.2
Additions to property, plant and
equipment (0.3) (3.9) (3.8)
Additions to intangible assets (0.9) (0.9) (3.1)
Proceeds of disposals of property,
plant and equipment and intangible
assets 0.1 2.4 0.3
Repayment of loans by joint ventures
and associates - - 0.1
Acquisition related deferred consideration - - (1.5)
Proceeds of sales of subsidiaries 1.0 - 11.8
Net cash from/(used by) investing
activities 0.1 (2.1) 4.0
Cash flows from financing activities
Issue of ordinary share capital 92.5 0.7 0.5
Ordinary dividends paid - (10.0) (13.5)
Repayments of lease liabilities (6.5) (8.0) (13.6)
Drawdown of loans 91.0 20.0 70.0
Repayment of loans (145.0) (0.7) (23.6)
---------------------------------------------- ------------ ------------ ----------
Net cash from financing activities 32.0 2.0 19.8
Net increase/(decrease) in cash,
cash equivalents and overdrafts 22.3 (58.7) (8.4)
Cash, cash equivalents and overdrafts
at beginning of the period 180.9 189.3 189.3
Effect of foreign exchange rate
changes (0.3) (0.1) -
Cash, cash equivalents and overdrafts
at end of the period 202.9 130.5 180.9
---------------------------------------------- ------------ ------------ ----------
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
2019 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 unqualified and did not contain a
statement under section 498 (2) or (3) of the Companies Act 2006.
It did include a reference to a material uncertainty in respect of
going concern regarding an uncertainty over completing a proposed
new capital raise, which required shareholder approval. The capital
raise was completed in May 2020 as explained in note 13.
2. Statement of compliance
This interim financial information for the half-year ended 30
June 2020 has been prepared in accordance with IAS 34 Interim
Financial Reporting as adopted by the European Union and with the
Disclosure Guidance 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 2019, which were prepared in accordance with
International Financial Reporting Standards ("IFRS") as adopted by
the European Union. 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 2019.
Impact of standards issued but not yet effective, and therefore
not applied in these financial statements
The directors do not currently anticipate that the adoption of
any 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
The Group's principal business activity involves work on the
UK's infrastructure, mostly delivering long-term contracts with a
number of clients. Its business activities and the factors likely
to affect its future development, performance and position are set
out in the Chief executive officer's review. To meet its day-to-day
working capital requirements, it uses cash balances provided from
shareholders' capital and retained earnings and its borrowing
facilities. As part of its contracting operations, the Group may be
required to provide performance and other bonds. It satisfies these
requirements by utilising its bonding facilities from banks and
surety companies. These facilities have financial covenants that
are tested quarterly.
In determining the appropriate basis of preparation of the
condensed consolidated interim financial statements for the six
months ended 30 June 2020, the directors are required to consider
whether the Company can continue in operational existence for the
period of at least 12 months from the date of authorisation of
these statements.
In preparing the assessment, alongside the most likely base case
forecast, the Board has considered potential downside scenarios,
including assessing the likely impacts of the consequences of
COVID-19. While in the first half of the year, the Group took
advantage of the Government's Coronavirus Job Retention Scheme to
safeguard jobs, which has resulted in a recovery of GBP1.6 million
in the period, deferred the payment of PAYE of GBP15.6 million and
VAT of GBP10.7 million, no new such actions are assumed in the
forecasts. Most staff furloughed returned during July and August
and the PAYE was paid in July. The deferred VAT is payable by March
2021.
The assessment shows the Group has sufficient liquidity to
discharge its liabilities as they fall due throughout the going
concern period under all scenarios, including those with further
disruption arising from COVID-19, where the Group is assuming
working practices established through the initial COVID-19 period
will continue to operate and assuming continued access to its bank
facilities, which is dependent on the Group operating within its
banking covenants.
Testing of the Group's banking covenants at 30 June 2020
confirmed that the Group operated within them. In respect of the
interest cover covenant, this is on the basis that the write downs
on the Peterborough & Huntingdon and A465 contracts are one-off
exceptional items for the purposes of the covenant tests. The Group
considers this to be the correct treatment of these contract
adjustments and has notified its banks of them.
Under the downside forecast scenarios, which considered
reductions in and delays to the award of new work and the
attainable margins, contract performance and the impact of further
COVID-19 lock downs, and based on the same treatment of the write
downs on the Peterborough & Huntingdon and A465 contracts for
the purposes of the interest cover covenant, the Group is expected
to remain within its banking covenants throughout the going concern
period although headroom on the interest cover covenant gets more
limited as the scenarios get more severe.
Based on the above, the Directors have a reasonable expectation
that the Group has adequate resources to continue in operational
existence for the going concern period, and, therefore, the Board
has continued to adopt the going concern basis in preparing the
condensed consolidated interim financial statements. If, which the
Group does not consider to be the case, the write downs on the
Peterborough & Huntingdon and A465 contracts were not
exceptional items for the purpose of the banking covenant tests,
the Group's forecasts show that the interest cover covenant would
be breached. In that event, the GBP44.0m of non-current borrowings
at 30 June 2020 would be reclassified as current debt because under
the terms of the facility agreements the banks and surety providers
would be able to require repayment of the facilities. Were this to
occur the Group would need to seek a waiver of the covenant or
otherwise renegotiate the terms of the facility agreements and
there can be no certainty that this could be achieved. This
indicates the existence of a material uncertainty which may cast
significant doubt about the Group's ability to continue as a going
concern. The condensed consolidated interim financial statements do
not include the adjustments that would result if the Group were
unable to continue as a going concern.
Alternative performance measures
Income statement presentation - Other items
In order to aid understanding of the 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 unusual
nature or related to the accounting treatment of acquisitions. The
results present profit and earnings per share before other items,
which is a non-GAAP measure.
The Group has now introduced an additional non-GAAP adjusted
performance measure to report adjusted operating profit and
earnings per share. This reports profit excluding the impact of the
two significant one-off contract adjustments in the period.
Contract profits and losses continue to be reported within results
before other items, however, in view of the magnitude and one-off
nature of the two contract adjustments and to aid understanding of
the ongoing business these have been separately identified.
Revenue plus share of joint ventures and associates
Some clients want a contract to be undertaken by a joint company
formed solely for that purpose rather than by a joint operation,
which would be the more usual contracting entity. The joint company
is resourced by the shareholders in the same way as joint
operations. Therefore, the Group considers showing the revenue plus
share of joint ventures and associates gives a better view of the
scale of operations being undertaken by the Group.
Principal risks, uncertainties and significant areas of
judgement and estimation
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 pages 48 to 51 of the Annual Report for the year
ended 31 December 2019. The only exceptions are the estimation of
income tax liabilities which is determined in the Interim Financial
Statements using the estimated average annual effective income tax
rate applied to the pre-tax income of the interim period.
On pages 48 to 49 of the Annual Report 2019, we set out the
Group's approach to risk management and on pages 50 to 51, we
define the principal risks that are most relevant to the Group.
These risks are described in detail and have controls and
mitigating actions assigned to each of them.
In our view the principal risks remain substantially unchanged
from those indicated in the Annual Report 2019 other than in
respect of the impact of COVID-19 coronavirus pandemic.
The outbreak of COVID-19 coronavirus pandemic has negatively
impacted economic conditions globally and is having an adverse and
disruptive effect on the UK economy. This may have an adverse
effect on the Company's business, financial condition and results
of operations.
It is not clear for how long this pandemic will last or how much
more extensive it will become, or the further measures that will be
taken by the UK government and others to seek to control this
pandemic and its impact. If the COVID-19 pandemic continues for a
prolonged period of time this may further affect the margins
expected to be achieved on certain contracts, result in further
delays to existing contracts and delays in receiving payments from
clients and may result in existing contracts being cancelled and
the Group failing to secure new work. The COVID-19 pandemic may
therefore have a material adverse effect on the Group's business,
cash flows, profitability, results of operation and financial
condition.
Since the outbreak of the pandemic, the Group's way of operating
has adapted and the Group has taken a number of responsive measures
including introducing new cleaning regimes, safe working distance
measures and providing protective equipment for its employees. A
significant proportion of the Group's employees are working from
home. Whilst the Group is liaising closely with its clients and
suppliers to understand any changes in requirements and priorities
during this time, the uncertainties surrounding the development of
this pandemic make it difficult to predict the extent to which the
Group may be affected.
The Group has taken a number of other actions to mitigate the
impact on these risks as set out in Chief executive officer's
review. The Board will continue to monitor the ongoing impact of
the Covid-19 coronavirus pandemic on the business, including the
identification and consideration of emerging risks, the
consequences of any decision in the long term and appropriate risk
mitigation strategies.
The Board approved the unaudited interim financial statements on
14 September 2020.
3. Reconciliation of reported Group operating (loss)/profit to Adjusted Group operating profit
Adjusted operating profit and earnings per share are being used
as non-GAAP performance measurements. Adjusted operating profit
excludes the impact of one-off changes in the accounting treatments
of the Peterborough & Huntingdon (P&H) and the A465 Heads
of the Valley road (A465) contracts as described below. The Board
considers the adjusted measures better reflect the underlying
trading performance of the Group.
The Peterborough & Huntingdon contract change followed the
agreement with National Grid, announced on 29 June 2020, to cease
work and demobilise activity by 31 August 2020. The termination
agreement incorporates a legal process over the next 18 months to
agree up to GBP80 million of identified compensation events,
recover costs to date and eliminate a potential liability to
National Grid for completing the works.
At 30 June 2020, the Group had a contract asset of GBP42.0
million associated with this contract and this will increase to
GBP49.3 million at the end of our works. Supported by expert
advice, the Group continues to believe that it has a strong
entitlement to recover this sum, which is subject to successful
pursuit through adjudication and potentially litigation. However,
reflecting the revised commercial resolution process incorporated
in the termination agreement and in accordance with IFRS15, a
one-off charge to the income statement of GBP49.3 million has been
reflected to adjust the revenue recognised on the P&H contract
to the level of cash received to date and to cover the cost of
remaining works. Most of the cash impact of this charge has been
incurred in the first half of 2020. There will be a further out
flow of GBP15 million including on the remaining works. 2020
adjusted Group revenue includes GBP32.3 million of revenue on the
P&H contract up to the termination date.
On the A465 Heads of the Valley road contract, which was entered
into in 2015, at 30 June 2020 the Group had a contract asset of
GBP45.4 million. The Welsh Government had escalated a specific
matter under the dispute resolution mechanism in the contract
relating to the responsibility for design information for a
specific retaining wall and whether it qualified as a compensation
event. This issue was decided in the Group's favour by way of
previous adjudication awards. However, the arbitrator's decision
found that responsibility for the design information rests with
Costain and, consequently, the additional costs associated with the
building of the retaining wall is not a compensation event under
the contract. Costain is disappointed by the arbitration award
which reverses the ruling of previous adjudication awards. The
arbitration award, which determines a matter of principle only, and
not quantum, is non-appealable.
Costain is in ongoing discussions with the Welsh Government to
reach agreement on a final financial settlement and to seek
recovery of costs under the contract. However, on the basis of the
uncertainty of recovery of such costs following the arbitration
award, and subject to reaching a final settlement, a charge to the
income statement of GBP45.4 million has been taken to adjust the
revenue recognised based on the level of cash received to date
under the contract. The Group will continue to fulfil its
obligations under the contract, with completion scheduled in 2021.
2020 adjusted Group revenue includes GBP14.8 million of revenue on
the A465 contract.
Before Other
Half-year ended 30 June 2020 Adjusted P&H A465 other items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue plus share of joint
ventures and associates before
P&H and A465 contract adjustments 548.7 - - 548.7 - 548.7
Contract adjustments - (42.0) (45.4) (87.4) - (87.4)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Revenue plus share of joint
ventures and associates 548.7 (42.0) (45.4) 461.3 - 461.3
Less: Share of revenue of
joint ventures and associates (1.4) - - (1.4) - (1.4)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Group revenue 547.3 (42.0) (45.4) 459.9 - 459.9
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Cost of sales (523.7) (7.3) - (531.0) - (531.0)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Gross profit/(loss) 23.6 (49.3) (45.4) (71.1) - (71.1)
Administrative expenses before
other items (17.9) - - (17.9) - (17.9)
Other items - - - - (1.4) (1.4)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Administrative expenses (17.9) - - (17.9) (1.4) (19.3)
Group operating profit/(loss) 5.7 (49.3) (45.4) (89.0) (1.4) (90.4)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Share of results of joint
ventures and associates 0.1 - - 0.1 - 0.1
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Profit/(loss) from operations 5.8 (49.3) (45.4) (88.9) (1.4) (90.3)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Net finance expense (2.0) - - (2.0) - (2.0)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Profit/(loss) before tax 3.8 (49.3) (45.4) (90.9) (1.4) (92.3)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Taxation (0.7) 9.4 8.7 17.4 0.2 17.6
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Profit/(loss) for the period
attributable to equity holders
of the parent 3.1 (39.9) (36.7) (73.5) (1.2) (74.7)
------------------------------------- ---------- --------- ---------- -------------- -------- ---------
Basic earnings/(loss) per
share 2.1p (26.6)p (24.6)p (49.1)p (0.8)p (49.9)p
Before Other
Half-year ended 30 June 2019 Adjusted P&H A465 other items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue plus share of joint
ventures and associates 599.2 - - 599.2 - 599.2
Less: Share of revenue of
joint ventures and associates (5.1) - - (5.1) - (5.1)
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Group revenue 594.1 - - 594.1 - 594.1
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Cost of sales before other
items (554.3) - - (554.3) - (554.3)
Arbitration award on historical
building project - - - - (9.7) (9.7)
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Cost of sales (554.3) - - (554.3) (9.7) (564.0)
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Gross profit/(loss) 39.8 - - 39.8 (9.7) 30.1
Administrative expenses before
other items (18.6) - - (18.6) - (18.6)
Other items - - - - (1.3) (1.3)
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Administrative expenses (18.6) - - (18.6) (1.3) (19.9)
Group operating profit 21.2 - - 21.2 (11.0) 10.2
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Share of results of joint
ventures and associates 0.1 - - 0.1 - 0.1
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Profit/(loss) from operations 21.3 - - 21.3 (11.0) 10.3
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Net finance expense (1.8) - - (1.8) (0.1) (1.9)
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Profit/(loss) before tax 19.5 - - 19.5 (11.1) 8.4
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Taxation (3.0) - - (3.0) 2.1 (0.9)
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Profit/(loss) for the period
attributable to equity holders
of the parent 16.5 - - 16.5 (9.0) 7.5
---------------------------------- ---------- ------ -------- -------------- -------- ---------
Basic earnings/(loss) per
share 13.5p - - 13.5p (7.4)p 6.1p
Before Other
Year ended 31 December 2019 Adjusted P&H A465 other items items Total
GBPm GBPm GBPm GBPm GBPm GBPm
Revenue including share of
joint ventures and associates
before A465 contract adjustment 1,182.9 - - 1,182.9 - 1,182.9
Contract adjustment - - (20.0) (20.0) - (20.0)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Revenue plus share of joint
ventures and associates 1,182.9 - (20.0) 1,162.9 - 1,162.9
Less: Share of revenue of
joint ventures and associates (7.3) - - (7.3) - (7.3)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Group revenue 1,175.6 - (20.0) 1,155.6 - 1,155.6
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Cost of sales before other
items (1,105.1) - - (1,105.1) - (1,105.1)
Arbitration award on historical
building project - - - - (9.7) (9.7)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Cost of sales (1,105.1) - - (1,105.1) (9.7) (1,114.8)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Gross profit/(loss) 70.5 - (20.0) 50.5 (9.7) 40.8
Administrative expenses before
other items (32.6) - - (32.6) - (32.6)
Other items - - - - (11.4) (11.4)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Administrative expenses (32.6) - - (32.6) (11.4) (19.9)
Group operating profit 37.9 - (20.0) 17.9 (21.1) (3.2)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Share of results of joint
ventures and associates 0.3 - - 0.3 - 0.3
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Profit/(loss) from operations 38.2 - (20.0) 18.2 (21.1) (2.9)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Net finance expense (3.6) - - (3.6) (0.1) (3.7)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Profit/(loss) before tax 34.6 - (20.0) 14.6 (21.2) (6.6)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Taxation (3.9) - 3.8 (0.1) 3.8 3.7
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Profit/(loss) for the period
attributable to equity holders
of the parent 30.7 - (16.2) 14.5 (17.4) (2.9)
----------------------------------- ----------- ------ ---------- -------------- --------- -----------
Basic earnings/(loss) per
share 25.1p - (13.2)p 11.9p (14.2)p (2.3)p
4. Business segment information
The Group has two core business segments: Natural Resources and
Transportation 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
2020 Resources Transportation Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
Segment revenue
Group revenue 151.2 307.7 1.0 - 459.9
Share of revenue of JVs
and associates 1.3 0.1 - - 1.4
--------------------------------- ------------ ---------------- ----------- --------- --------
Total segment revenue 152.5 307.8 1.0 - 461.3
--------------------------------- ------------ ---------------- ----------- --------- --------
Segment profit/(loss)
Operating loss before
other items (44.8) (40.3) (0.1) (3.8) (89.0)
Share of results of JVs
and associates 0.1 - - - 0.1
--------------------------------- ------------ ---------------- ----------- --------- --------
Loss from operations
before other items (44.7) (40.3) (0.1) (3.8) (88.9)
Other items:
Impairment of Alcaidesa
marina - - (0.6) - (0.6)
Impairment of other investment (0.6) - - - (0.6)
Profit on disposal of
subsidiary undertaking - - - 1.0 1.0
Refinancing advisory
fees - - - (0.7) (0.7)
Amortisation of acquired
intangible assets (0.4) (0.1) - - (0.5)
--------------------------------- ------------ ---------------- ----------- --------- --------
Loss from operations (45.7) (40.4) (0.7) (3.5) (90.3)
--------------------------------- ------------ ---------------- ----------- ---------
Net finance expense (2.0)
--------------------------------- ------------ ---------------- ----------- --------- --------
Loss before tax (92.3)
--------------------------------- ------------ ---------------- ----------- --------- --------
Half-year ended 30 June Natural Central
2019 Resources Transportation Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
Segment revenue
Group revenue 210.9 380.2 3.0 - 594.1
Share of revenue of JVs
and associates 5.1 - - - 5.1
-------------------------------- ------------ ---------------- ----------- --------- -------
Total segment revenue 216.0 380.2 3.0 - 599.2
-------------------------------- ------------ ---------------- ----------- --------- -------
Segment profit/(loss)
Operating profit/(loss)
before other items 9.2 14.6 (0.1) (2.5) 21.2
Share of results of JVs
and associates 0.1 - - - 0.1
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit/(loss) from operations
before other items 9.3 14.6 (0.1) (2.5) 21.3
Other items:
Arbitration award on
historical building project (9.7) - - - (9.7)
Amortisation of acquired
intangible assets (0.5) (0.6) - - (1.1)
Employment related and
other deferred consideration (0.2) - - - (0.2)
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit/(loss) from operations (1.1) 14.0 (0.1) (2.5) 10.3
-------------------------------- ------------ ---------------- ----------- ---------
Net finance expense (1.9)
-------------------------------- ------------ ---------------- ----------- --------- -------
Profit before tax 8.4
-------------------------------- ------------ ---------------- ----------- --------- -------
Year ended 31 December Natural Central
2019 Resources Transportation Alcaidesa costs Total
GBPm GBPm GBPm GBPm GBPm
Segment revenue
Group revenue 429.4 720.6 5.6 - 1,155.6
Share of revenue of JVs
and associates 5.0 2.3 - - 7.3
--------------------------------- ------------ ---------------- ----------- --------- ---------
Total segment revenue 434.4 722.9 5.6 - 1,162.9
--------------------------------- ------------ ---------------- ----------- --------- ---------
Segment profit/(loss)
Operating profit/(loss)
before other items 15.4 9.7 (0.7) (6.5) 17.9
Share of results of JVs
and associates 0.3 - - - 0.3
--------------------------------- ------------ ---------------- ----------- --------- ---------
Profit/(loss) from operations
before other items 15.7 9.7 (0.7) (6.5) 18.2
Other items:
Arbitration award on
historical building project (9.7) - - - (9.7)
Impairment of Alcaidesa
marina - - (5.9) - (5.9)
Loss on disposal of subsidiary
undertakings - - (3.0) - (3.0)
Amortisation of acquired
intangible assets (1.4) (0.9) - - (2.3)
Employment related and
other deferred consideration (0.2) - - - (0.2)
--------------------------------- ------------ ---------------- ----------- --------- ---------
Profit/(loss) from operations 4.4 8.8 (9.6) (6.5) (2.9)
--------------------------------- ------------ ---------------- ----------- ---------
Net finance expense (3.7)
--------------------------------- ------------ ---------------- ----------- --------- ---------
Loss before tax (6.6)
--------------------------------- ------------ ---------------- ----------- --------- ---------
5. Net finance expense
Finance expense includes the interest income on the net assets
of the defined benefit pension scheme of GBP0.1 million (2019
half-year: GBPNil, 2019 year: GBP0.1 million) and interest expense
of GBP0.3 million relating to right-of-use assets (2019 half-year:
GBP0.5 million, 2019 year GBP1.3 million).
6. Taxation
Half-year ended 30 June, 2020 2019 2019
year ended 31 December Half-year Half-year Year
GBPm GBPm GBPm
---------------------------------------- ------------ ------------ -------
Current tax - 1.1 3.0
Deferred tax 17.6 (2.0) 0.7
---------------------------------------- ------------ ------------ -------
Tax credit/(expense) in the condensed
consolidated income statement 17.6 (0.9) 3.7
---------------------------------------- ------------ ------------ -------
Effective tax rate 19.0% 10.7% 56.1%
The tax credit is represented by the estimate of the effective
tax rate for the year.
7. (Loss)/earnings per share
The calculation of (loss)/earnings per share is based on loss
for the period of GBP74.7 million (2019 half-year: profit GBP7.5
million, 2019 year: loss GBP2.9 million) and the number of shares
set out below:
2020 2019 2019
Half-year Half-year Year
(Restated) (Restated)
Number Number Number
(millions) (millions) (millions)
---------------------------------------------- ------------ ------------ ------------
Weighted average number of ordinary
shares in issue
for basic earnings per share calculation 150.0 122.3 122.5
Dilutive potential ordinary shares
arising from employee share schemes 0.2 2.4 0.2
---------------------------------------------- ------------ ------------ ------------
Weighted average number of ordinary
shares in issue for fully diluted earnings
per share calculation 150.2 124.7 122.8
---------------------------------------------- ------------ ------------ ------------
Prior period shares have been restated following the capital
raise in the period to 30 June 2020.
8. Dividends
Dividend Half-year Half-year Year ended
per share ended 30 ended 30 31 December
pence June 2020 June 2019 2019
GBPm GBPm GBPm
Final dividend for the year
ended 31 December 2018 10.0 - 10.7 10.7
Interim dividend for the year
ended 31 December 2019 3.8 - - 4.1
Final dividend for the year -
ended 31 December 2019 - - -
------------------------------------- ------------ ------------ ------------ --------------
Amount recognised as distributions
to equity holders in the period - 10.7 14.8
------------------------------------- ------------ ------------ ------------ --------------
Dividends settled in shares - (0.8) (1.3)
------------------------------------- ------------ ------------ ------------ --------------
Dividends settled in cash - 9.9 13.5
------------------------------------- ------------ ------------ ------------ --------------
9. Non-current assets
Intangible assets Acquired intangible Other intangible Total intangible
assets assets assets
GBPm GBPm GBPm
------------------------ --------------------- ------------------ ------------------
Cost
At 1 January 2019 79.2 7.7 86.9
Additions - 0.9 0.9
At 30 June 2019 79.2 8.6 87.8
------------------------ --------------------- ------------------ ------------------
At 1 July 2019 79.2 8.6 87.8
Additions - 2.2 2.2
At 31 December 2019 79.2 10.8 90.0
------------------------ --------------------- ------------------ ------------------
At 1 January 2020 79.2 10.8 90.0
Additions - 0.9 0.9
At 30 June 2020 79.2 11.7 90.9
------------------------ --------------------- ------------------ ------------------
Amortisation
At 1 January 2019 21.5 6.9 28.4
Charge for the period 1.1 0.1 1.2
At 30 June 2019 22.6 7.0 29.6
------------------------ --------------------- ------------------ ------------------
At 1 July 2019 22.6 7.0 29.6
Charge for the period 1.1 0.3 1.4
At 31 December 2019 23.7 7.3 31.0
------------------------ --------------------- ------------------ ------------------
At 1 January 2020 23.7 7.3 31.0
Charge for the period 0.5 - 0.5
At 30 June 2020 24.2 7.3 31.5
------------------------ --------------------- ------------------ ------------------
Net book value
------------------------ --------------------- ------------------ ------------------
At 30 June 2020 55.0 4.4 59.4
------------------------ --------------------- ------------------ ------------------
At 1 January 2020 55.5 3.5 59.0
------------------------ --------------------- ------------------ ------------------
At 31 December 2019 55.5 3.5 59.0
------------------------ --------------------- ------------------ ------------------
At 30 June 2019 56.6 1.6 58.2
------------------------ --------------------- ------------------ ------------------
At 1 January 2019 57.7 0.8 58.5
------------------------ --------------------- ------------------ ------------------
Right-of-use assets
Tangible assets Land and Plant and Land and Plant and Total tangible
buildings equipment buildings equipment fixed assets
GBPm GBPm GBPm GBPm GBPm
------------------------- ------------ ------------ ------------ ------------ ----------------
Cost
At 1 January 2019 32.1 32.2 20.0 13.0 97.3
Currency movements (0.1) - (0.1)
Additions 0.1 3.0 1.7 4.4 9.2
Disposals (0.1) (1.4) - (3.6) (5.1)
------------------------- ------------ ------------ ------------ ------------ ----------------
At 30 June 2019 32.0 33.8 21.7 13.8 101.3
------------------------- ------------ ------------ ------------ ------------ ----------------
At 1 July 2019 32.0 33.8 21.7 13.8 101.3
Currency movements (1.0) (0.2) - - (1.2)
Additions - 0.7 - 7.7 8.4
Disposal of subsidiary
undertakings (18.4) (1.0) - - (19.4)
Disposals (0.1) (1.0) (2.2) (0.3) (3.6)
------------------------- ------------ ------------ ------------ ------------ ----------------
At 31 December 2019 12.5 32.3 19.5 21.2 85.5
------------------------- ------------ ------------ ------------ ------------ ----------------
At 1 January 2020 12.5 32.3 19.5 21.2 85.5
Currency movements 0.9 0.3 - - 1.2
Additions - 0.3 0.3 11.7 12.3
Transfer to current
asset held for sale (11.8) (4.7) - - (16.5)
Disposals - (1.8) (0.2) (5.2) (7.2)
------------------------- ------------ ------------ ------------ ------------ ----------------
At 30 June 2020 1.6 26.4 19.6 27.7 75.3
------------------------- ------------ ------------ ------------ ------------ ----------------
Depreciation
At 1 January 2019 3.8 20.5 - - 24.3
Charge for the period 0.4 1.6 3.2 5.1 10.3
Disposals - (1.3) (0.2) (0.2) (1.7)
------------------------- ------------ ------------ ------------ ------------ ----------------
At 30 June 2019 3.2 20.5 2.2 4.1 30.0
------------------------- ------------ ------------ ------------ ------------ ----------------
At 1 July 2019 3.2 20.5 2.2 4.1 30.0
Currency movements (0.3) (0.1) - - (0.4)
Charge for the period 1.4 1.6 2.2 5.1 10.3
Impairment 5.9 - - - 5.9
Disposal of subsidiary
undertakings (0.5) (0.4) - - (0.9)
Disposals (0.2) (0.8) (0.1) (2.4) (3.5)
------------------------- ------------ ------------ ------------ ------------ ----------------
At 31 December 2019 9.5 20.8 4.3 6.8 41.4
------------------------- ------------ ------------ ------------ ------------ ----------------
At 1 January 2020 9.5 20.8 4.3 6.8 41.4
Currency movements 0.6 0.2 - - 0.8
Charge for the period 0.1 1.4 2.4 4.1 8.0
Impairment 1.2 - - - 1.2
Transfer to current
asset held for sale (9.9) (2.6) - - (12.5)
Disposals - (1.7) (0.1) (2.1) (3.9)
------------------------- ------------ ------------ ------------ ------------ ----------------
At 30 June 2020 1.5 18.1 6.6 8.8 35.0
------------------------- ------------ ------------ ------------ ------------ ----------------
Net book value
------------------------- ------------ ------------ ------------ ------------ ----------------
At 30 June 2020 0.1 8.3 13.0 18.9 40.3
------------------------- ------------ ------------ ------------ ------------ ----------------
At 1 January 2020 3.0 11.5 15.2 14.4 44.1
------------------------- ------------ ------------ ------------ ------------ ----------------
At 31 December 2019 3.0 11.5 15.2 14.4 44.1
------------------------- ------------ ------------ ------------ ------------ ----------------
At 30 June 2019 29.5 13.4 18.9 9.6 71.4
------------------------- ------------ ------------ ------------ ------------ ----------------
At 1 January 2019 28.3 11.7 20.0 13.0 73.0
------------------------- ------------ ------------ ------------ ------------ ----------------
10. Retirement benefit obligations
2020 2019 2019
Half-year Half-year Year
GBPm GBPm GBPm
----------------------------------------------- ------------ ------------ ---------
Present value of defined benefit obligations (845.3) (810.6) (812.1)
Fair value of scheme assets 860.2 815.1 817.0
----------------------------------------------- ------------ ------------ ---------
Recognised asset for defined benefit
obligations 14.9 4.5 4.9
----------------------------------------------- ------------ ------------ ---------
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 2020 2019 2019
benefit obligations: Half-year Half-year Year
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ --------
Opening balance 812.1 752.7 752.7
Interest cost 8.2 10.4 20.6
Remeasurements - demographic assumptions (10.9) (9.2) (7.5)
Remeasurements - financial assumptions 56.1 74.4 74.6
Remeasurements - experience assumptions (2.4) - 9.0
Benefits paid (17.8) (17.7) (37.3)
------------------------------------------- ------------ ------------ --------
Closing balance 845.3 810.6 812.1
------------------------------------------- ------------ ------------ --------
Movement in fair value of scheme assets: 2020 2019 2019
Half-year Half-year Year
GBPm GBPm GBPm
------------------------------------------- ------------ ------------ --------
Opening balance 817.0 748.5 748.5
Interest income 8.3 10.4 20.7
Remeasurements - return on assets 47.4 63.1 69.1
Contributions by employer 5.4 10.9 16.3
Administrative expenses (0.1) (0.1) (0.3)
Benefits paid (17.8) (17.7) (37.3)
------------------------------------------- ------------ ------------ --------
Closing balance 860.2 815.1 817.0
------------------------------------------- ------------ ------------ --------
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):
2020 2019 2019
Half-year Half-year Year
% % %
--------------------------- ------------ ------------ -------
Discount rate 1.55 2.20 2.05
Future pension increases 2.75 3.00 2.85
Inflation assumption 2.85 3.15 2.95
--------------------------- ------------ ------------ -------
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 34.0
Decrease inflation (and pension increases)
by 0.25%, decreases pension liability by 29.0
Increase life expectancy by one year, increases
pension liability by 38.0
-------------------------------------------------- ------------
11. Assets classified as held for sale
The amount presented in the condensed consolidation statement of
financial position as Assets held for sale relates to the
subsidiary undertaking, Alcaidesa Servicios S.A.U., which holds the
Spanish marina concession. The company was sold on 6 August 2020.
The net proceeds of sale were GBP0.6 million below the carrying
value, which was reflected by an impairment charge in the period
(2019 half year: GBPNil, 2019 year-end: impairment of marina asset
GBP5.9 million).
12. 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 2020, 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.
2020 2019 2019
Half-year Half-year Year
Carrying Cash flows Carrying Cash flows Carrying Cash flows
amount amount amount
Foreign exchange GBPm GBPm GBPm GBPm GBPm GBPm
contracts
---------------------- ---------- ------------ ---------- ------------ ---------- ------------
Purchases 0.2 (8.9) 0.7 (17.9) (0.5) (13.0)
Sales - (1.4) (0.1) (4.2) 0.1 1.0
---------------------- ---------- ------------ ---------- ------------ ---------- ------------
0.2 (10.3) 0.6 (22.1) (0.4) (12.0)
Interest rate swaps (0.4) (0.6) (0.2) (1.3) (0.2) (0.7)
---------------------- ---------- ------------ ---------- ------------ ---------- ------------
(0.2) (10.9) 0.4 (23.4) (0.6) (12.7)
---------------------- ---------- ------------ ---------- ------------ ---------- ------------
13. Share capital
Issued capital as at 30 June 2020 amounted to GBP137.5 million
(2019 half-year: GBP54.0 million, 2019 year-end: GBP54.1 million)
and comprised 274,949,741 ordinary shares of 50 pence each.
On 7 May 2020, the Company announced details of a proposed Firm
Placing and Placing and Open Offer (the "Capital Raising") to raise
gross proceeds of GBP100 million (GBP92.5 million after expenses),
approximately GBP80 million by way of a Firm Placing of 133,348,799
ordinary shares and approximately GBP20 million by way of a Placing
and Open Offer of 33,317,868 ordinary shares. The Capital Raising
was approved by the Company's shareholders on 27 May 2020. On 29
May 2020, 166,666,667 ordinary shares of 50 pence each were issued
in connection with the Capital Raising at an offer price of 60
pence per share.
14. 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 2019.
15. Contingent liabilities
Group bank borrowing facilities and bank and surety bond
facilities are supported by cross guarantees given by the Company
and participating companies in the Group.
There are contingent liabilities in respect of performance bonds
and other undertakings entered into and legal claims arising, all
in the ordinary course of business. None are anticipated to result
in material liabilities except as already provided.
16. 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
Alex Vaughan - Chief Executive
14 September 2020
Independent review report to Costain Group PLC
Report on the interim financial statements
Our conclusion
We have reviewed Costain Group PLC's interim financial
statements (the 'interim financial statements') in the results for
the half-year ended 30 June 2020 of Costain Group PLC for the 6
month period ended 30 June 2020. 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.
Emphasis of matter - Going Concern
Without modifying our conclusion on the interim financial
statements, we have considered the adequacy of the disclosure made
in Note 2 "Statement of compliance" concerning the Group's ability
to continue as a going concern.
In preparing their going concern assessment, alongside the most
likely base case forecast, the Board has considered potential
downside scenarios. The Board's assessment is that at 30 June 2020
the Group has complied with the interest cover covenant and under
the forecast scenarios the Group is expected to remain within its
banking covenants throughout the going concern period. This
assessment is based on treating the contract adjustments in the
period on two contracts, P&H and A465, as one-off or
exceptional items for the purpose of the banking covenant tests.
The Group has informed its banks of this treatment. In the event
that the treatment were proven to be incorrect, the Group is in
breach of its interest cover covenant at 30 June 2020, and this
indicates the existence of a material uncertainty which may cast
significant doubt about the Group's ability to continue as a going
concern. The interim financial statements do not include the
adjustments that would result if the Group were unable to continue
as a going concern.
What we have reviewed
The interim financial statements comprise:
-- the Condensed consolidated statement of financial position as at 30 June 2020;
-- 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 2020 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 2020, 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 2020 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 results for the half-year ended 30 June
2020 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, 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 2020 and considered whether it
contains any apparent misstatements or material inconsistencies
with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
14 September 2020
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 at www.mpsonline.org.uk or on 0345 0700705.
Further guidance can also be found on the Company's website at
www.costain.com .
Company's Registrar
The Company's Registrar is Equiniti. 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.
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.
ShareGIFT
The Orr Mackintosh Foundation (ShareGift - Registered Charity
No. 1052686) operates a charity share donation scheme for
shareholders with small parcels of shares whose value makes it
uneconomical to sell them. Details of the scheme are available on
the ShareGift website http://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.
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END
IR UOVKRRVUKAAR
(END) Dow Jones Newswires
September 14, 2020 02:00 ET (06:00 GMT)
Costain (LSE:COST)
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Costain (LSE:COST)
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