TIDMCOST
RNS Number : 9711W
Costain Group PLC
24 August 2022
COSTAIN GROUP PLC
UNAUDITED RESULTS FOR THE SIX MONTHS
ED 30 JUNE 2022
24 AUGUST 2022
Strong operational resilience and cash performance
Alex Vaughan, Chief Executive Officer, commented:
"In the first half of the year we delivered a strong operating
performance reflecting volume increases and the inflation recovery
mechanisms built into our contracts. Our adjusted operating profit
increased by 22% year-on-year, and we had a strong adjusted free
cash performance, ending the period with GBP95.9m, with a positive
net cash flow expected in the second half.
"Despite material availability and inflation challenges, we have
managed the supply chain pressures effectively, while delivering a
robust operational performance with new contracts being won on
attractive commercial terms with appropriate risk. Our four chosen
markets of Transport, Water, Energy and Defence remain resilient,
and the pipeline of potential new business is healthy. We undertook
a very high level of bidding activity in the first half, with award
decisions expected in H2 22 and in H1 23.
"In July, the company experienced a fatality on one of its Rail
projects. We are shocked and saddened by this tragic incident and
we, and our sub-contractor, are working with the authorities and
our client in an investigation to fully understand its causes. We
are focused on supporting the family and on the wellbeing of our
colleagues.
"While we remain mindful of the macro-economic backdrop, we are
pleased with the quality and scale of our order book, including
secured multi-year infrastructure programmes, the volume of
preferred bidder work and the additional long-term framework
contracts which will deliver continued progress in 2023 and
beyond."
Financial Summary
GBPm H1 22 H1 22 H1 22 H1 21 H1 21 Adjusted(1)
adjusted(1) adjusting reported adjusted(1) reported change
items(1)
Group revenue 665.2 - 665.2 556.8 556.8 19.5%
Operating profit 14.0 (2.1) 11.9 11.5 11.2 21.7%
Operating margin 2.1% (0.3%) 1.8% 2.1% 2.0% 0.0pp
Profit before
tax 13.3 (2.1) 11.2 9.4 9.1 41.5%
Basic EPS 3.9p (0.6)p 3.3p 2.8p 3.5p 39.3%
Dividend per - -
share
Adjusted free
cash flow(2) 34.4 28.2 22.0%
--------------------- ------------- ----------- ---------- ------------- ---------- ------------
H1 22 reported FY 21 reported
Net cash balance(3) 95.9 119.4
--------------------- ------------- ----------- ---------- ------------- ---------- ------------
1. Excluding the impact of specified contract provision
adjustments and other items (see financial statements note 3).
2. Adjusted free cash flow is an adjusted metric and is
calculated as cash flow from operations, excluding adjusting items
and pension deficit contributions, less taxation and capital
expenditure.
3. Net cash balance is cash and cash equivalents less
interest-bearing loans and borrowings (before arrangement fees of
GBP0.2m at H1 22 (GBP1.0m at H1 21)).
H1 2022 Performance
Financial performance for Costain Group PLC, "Costain", the
"Group", or the "Company"
-- Reported and adjusted(1) Group revenue up 19.5% to GBP665.2m
reflecting primarily volume growth and inflation protection
mechanisms within contracts.
-- Improved adjusted operating profit(1) up 21.7% to GBP14.0m in
line with management expectations for the Group, with growth across
both divisions. Adjusted operating margin was unchanged at 2.1% on
H1 21 as volume increases, an improved mix and operational
improvements were offset by targeted up-front investment in our
digital and consultancy capability, and the timing of increased bid
activity on a series of major opportunities during the period,
primarily in Transportation.
-- Strong adjusted free cashflow of GBP34.4m reflecting
increased adjusted profitability and continued enhanced working
capital management. The H1 22 net cash position of GBP95.9m (FY 21:
GBP119.4m) was after the previously disclosed payment of GBP43.4m
relating to the Peterborough & Huntingdon contract during the
period.
Operating performance
-- A Health & Safety incident in July saw the Group
experience a fatality on one of its Rail contracts and this
incident is currently being investigated. In H1 22, we had more
than 16 million work hours completed, and five reportable accidents
recorded, representing a Lost Time Injury Frequency Rate (LTIR) of
0.06, a 50% reduction on H1 21.
-- Continuing momentum in Transportation, with volume growth in
Road and Rail, and a high volume of bid activity undertaken in H1
22.
-- Natural Resources growth reflecting stable revenue in Water
and consultancy-led service growth in Energy and Defence.
-- Good visibility of contract revenue with around GBP560m
secured for H2 22 representing approximately 90% of expected Group
revenue for the second half, with long-term contracts in place,
together with a broadening mix of consultancy-led services.
-- Further strategic progress including first-of-a-kind
contracts awarded in growth areas including energy, digital and
innovation led programmes.
-- High quality order book(2)
-- GBP2.7bn at the end of H1 22 (H1 21: GBP4.0bn, FY 21:
GBP3.4bn), reflecting the timing of major contract bids and client
procurement.
-- Full year order book expected to strongly increase with award
decisions on further high-quality contracts expected in H2 22 and
H1 23.
-- Preferred bidder book of GBP0.8bn (H1 21: GBP0.9bn, FY 21: GBP0.9bn).
-- Appointed to more than 50 frameworks for higher margin
consulting and digital services that are expected to drive revenue
growth.
1. Excluding the impact of specified contract provision
adjustments and other items (see financial statements note 3).
2. Order book and secured revenue includes revenue from
contracts which are partially or fully unsatisfied and probable
revenue from water frameworks included at allocated volume.
Additional Business Information
H1 22 H1 21 Change
Transportation adjusted(1) revenue
(GBPm) 494.6 403.9 22.5%
Road 239.2 191.6 24.8%
Rail 219.2 173.4 26.4%
Integrated transport 36.2 38.9 -6.9%
Natural Resources adjusted(1)
revenue (GBPm) 170.6 152.9 11.6%
Water 106.9 100.4 6.5%
Energy 41.4 31.8 30.2%
Defence 22.3 20.7 7.7%
H1 22 H1 21 Change
Non-financial
Order book(2) at 30 June (GBPbn) 2.7 4.0 -32.5%
Lost time injury rate (LTIR) 0.06 0.11 (50)%
(1) Excluding the impact of specified contract provision
adjustments and other items (see financial statements notes 3 and
4).
(2) Order book and secured revenue includes revenue from
contracts which are partially or fully unsatisfied and probable
revenue from water frameworks included at allocated volume.
Enquiries
Investors and analysts
Helen Willis, CFO, Costain +44 (0) 7826 291 021
Financial media - Headland costain@headlandconsultancy.com
Andy Rivett-Carnac +44 (0) 7968 997 365
Charlie Twigg +44 (0) 7946 494 568
Analyst & Investor Presentation
A presentation of our results by Alex Vaughan (CEO) and Helen
Willis (CFO) will be at 9.00am (BST).
Please go to
https://stream.brrmedia.co.uk/broadcast/62f396132c785a4107c39693 to
register for the event.
To register a question please call 0800 279 6877 or +44 (0)330
165 4012 with confirmation code: 8726721.
Board Changes
On 6 April 2022, Fiona MacAulay joined the Board as an
independent non-executive director and became a member of the
Company's Audit, Nomination and Remuneration Committees. Fiona
became chair of the Remuneration Committee at the conclusion of the
Annual General Meeting on 5 May 2022, taking over from Jacqueline
de Rojas, who chaired the Remuneration Committee on an interim
basis following the resignation of Alison Wood.
The Nomination Committee is progressing the search for a
successor to Paul Golby, who announced on 9 March 2022 that he
intended to step down as Chair. An update will be provided when the
process is completed.
Use of alternative performance measures
Throughout this release we use a number of 'adjusted' measures
to provide users with a clearer picture of the underlying
performance of the business. Certain amounts that the Board
considers to be material or non-recurring in size or nature, or
related to the accounting treatment of acquisitions, are adjusted
to aid understanding of the underlying and overall performance of
the Group. This is in line with how management monitors and manages
the business on a day-to-day basis. These adjustments are discussed
in further detail in Note 3 on page 28.
GROUP TRADING PERFORMANCE
We report both our statutory reported results and adjusted
results excluding various adjusting items. Key adjusting items for
H1 22 comprise GBP2.6m of transformation and restructuring costs
and profit of GBP0.5m on the sale of a non-core asset.
Reported and adjusted Group revenue was up 19.5% to GBP665.2m
(H1 21: GBP556.8m). This was driven by increased volumes in Rail
and Road, and inflation protection mechanisms built into our
contracts in Transportation, as well as increased revenue in
Natural Resources, predominantly in Energy.
Reported Group operating profit increased from GBP11.2m to
GBP11.9m, while Group adjusted operating profit grew by 21.7% to
GBP14.0m (FY21: GBP11.5m), driven by improved profitability in both
divisions. The adjusted operating margin was 2.1% (H1 21: 2.1%) and
reflected volume increases, an improved mix and operational
improvements, offset by up-front investment in our digital and
consultancy capability, and the timing and additional cost of
increased bid activity on a series of major opportunities during
the period, primarily in Transportation.
Overall, our adjusted operating margin absorbed around 80bps of
margin dilution in H1 22 due to a high level of bid activity costs,
and targeted investment in consultancy and digital. Overall, we saw
inflation indexation delivering stable adjusted operating margins
on H1 21.
Adjusted profit before tax was up 41.5% to GBP13.3m (H1 21:
GBP9.4m), and adjusted basic earnings per share (EPS) increased by
39.3% to 3.9p (H1 21: 2.8p), due mainly to the improved
profitability. Reported profit before tax was GBP11.2m (H1 21:
GBP9.1m) and diluted reported basic earnings per share (EPS) was
lower at 3.3p (H1 21: 3.5p), due to the recognition of a tax credit
in H1 21.
Our secured revenue for H2 22 is more than GBP560m, representing
around 90% of Group expectations for the second half. Our order
book stood at GBP2.7bn at the end of H1 22 (H1 21: GBP4.0bn, FY 21:
GBP3.4bn). This reflected the timing of major contract bids, our
clients' investment programmes, maintaining discipline in contract
selection and the shorter lead time of consulting and digital work.
We have undertaken a series of bids on major contracts in H1 22,
which we expect to provide an uplift to the order book during H2 22
and H1 23. The order book evolves as contracts progress and as new
contracts are added at periods aligned to our clients' strategic
procurement windows, therefore it does not provide a complete
picture of potential future revenue.
In addition to the contracted order book, we have a further
GBP0.8bn of contracts where we are preferred bidder and more than
50 further secured frameworks for higher margin, short lead time
consulting and digital services that are expected to yield revenue
growth.
Adjustments to reported items
We incurred GBP2.6m (H1 21: GBPnil) on transformation and
restructuring costs, GBPnil (H1 21: GBP0.3m) on amortisation of
acquired intangible assets, which we discuss in detail below, and
recognised a profit of GBP0.5m (H1 21: GBPnil) on the sale of a
non-core asset. We expect a small additional transformation and
restructuring cost in H2 22.
Cash flow and liquidity
Adjusted free cash inflow was GBP34.4m in H1 22 (H1 21:
GBP28.2m), after adjusting for capital expenditure, taxation and
pension deficit contributions, driven by the improvement in
operating profit and a GBP9.8m inflow on working capital. The
enhanced working capital performance was driven by a continued
focus on cash collections. In addition, during H1 22 we paid more
than 97% of invoices within 60 days.
After expected payments in relation to historic contracts of
GBP48.4m, including GBP43.4m related to the settlement of the
Peterborough & Huntingdon contract, cash outflow from
operations in the period was GBP19.0m (H1 21: cash inflow
GBP18.6m). This has resulted in a net cash position at the end of
H1 22 of GBP95.9m (FY 21: GBP119.4m). The Group continues to
maintain sufficient committed facilities to meet its funding
requirements over the medium term and, as at 30 June 2022,
committed facilities totalled GBP310m in contract bonding and bank
bonding facilities.
The Group's current banking facilities expire in September 2023.
Management is in negotiations with the respective facility
providers to secure a one year "amend and extend" of these
facilities. The Board considers an "amend and extend" to be in the
best interest of shareholders given the current state of the debt
market.
Capital allocation
We understand the importance of delivering long-term sustainable
value for shareholders and are committed to maintaining a balanced
approach between investment in the business for growth, maintaining
a strong balance sheet and returns to shareholders. We look to
prioritise uses of cash as follows:
1. Investing for growth - disciplined investment in key areas
such as digital to help accelerate our business transformation
2. Progressive dividend - the Board recognises the importance of
dividends for shareholders and expects to target dividend cover of
around three times underlying earnings taking into account the cash
flow generated in the period
3. Selective M&A - retaining optionality to pursue strategic
investments in technology, skills and capabilities to enhance our
ability to support clients in the face of significant change
4. Returning surplus capital - after ensuring a strong balance
and cash position, surplus capital is identified and returned to
shareholders through share buy backs or special dividends.
Dividends
The Board is committed to returning to dividend payments at the
appropriate time. For now, we are focused on investment for growth,
maintaining discipline in contract selection, increasing our cash
balances and strengthening our balance sheet.
Outlook
FY 22 adjusted operating profit is expected to show good growth
year-on-year and our expectations are unchanged, reflecting our
continued improvement and the robust operating performance of the
business, together with new contracts being won on attractive
commercial terms with appropriate risk. We generated good free cash
flow in H1 22 and expect further positive cash inflow in H2 22.
Our pipeline of new opportunities is strong and during H1 22 we
have undertaken major contract bids with awards decisions expected
in H2 22 and in H1 23.
We remain mindful of the macro-economic and geopolitical
backdrop, and recognise the challenges created by higher commodity
and energy costs. Given this backdrop, we continue to monitor and
work with clients to mitigate these headwinds, as well as
challenges in the supply chain. At the same time, we note that the
inflation recovery mechanisms built into our contracts has enabled
the Group to demonstrate its financial resilience in the face of
these challenges.
STRATEGIC PROGRESS
In order to meet key critical national needs, there is more than
GBP650bn of infrastructure investment planned over the next 10
years, underpinned by legislative and regulatory commitments, as
the government addresses issues such as security of primary
services, inequality of regional growth and climate change. We are
strategically positioned in four chosen markets of Transport,
Water, Energy and Defence providing for a diversified and resilient
business. This sector focus combined with our differentiated
offering positions the business strongly to benefit from these
long-term investment plans, giving us significant opportunities for
growth.
We have specifically chosen to work with clients who wish to
partner with us to help them shape, create and deliver their
business plan commitments and investment programmes, and navigate
the challenges facing their businesses. Our expertise and focus on
our key sectors allow us to understand the specific needs of our
clients across their strategic, operational and asset creation
requirements. With our broad service offering, we are able to
service more of the market and create greater competitive
advantage. We work as construction, consulting and digital
partners, solving problems and delivering innovative engineered
solutions. Our vision is to create connected, sustainable
infrastructure to help people and the planet thrive.
We are focused on three strategic priorities to drive our
strategic ambition.
People
Safety, diversity and inclusion, and social impact are key
values for the Group.
In July, the company experienced a fatality on one of its Rail
projects. We are shocked and saddened by this tragic incident and
we are working with the authorities and our client to investigate
and fully understand its causes. Our focus at this time is on
supporting the individual's family and on the wellbeing of our
colleagues.
During H1 22:
-- We had five reportable accidents recorded during 16 million
work hours. Our Accident Frequency Rate in H1 22 was 0.03 alongside
a Lost Time Injury Frequency Rate of 0.06 (H1 21: 0.11).
-- Through our Employee Forums, we have refreshed our Values and
linked them to core behaviours that will enhance the delivery of
our strategy. Our core Values are Integrity, Customer Focus, Safety
& Wellbeing and Environmental & Social Responsibility. Our
core behaviours are to be curious, collaborative, courageous and
caring.
-- In April 2022, we held our first Inclusion-themed Leadership
Impact Day. Our 3,500 people, site teams, clients and suppliers
came together to discuss increasing inclusion and it received
positive feedback from across our stakeholders.
-- During H2 22 we will be undertaking our first ethnicity pay
gap analysis alongside gender pay gap reporting. In preparation we
have sought to increase the number of employees sharing diversity
data in our HR system. In 2019, 50% of our workforce had disclosed
ethnicity on their personnel record and, after targeted effort,
this has since increased to 91%.
Planet
We continue to implement our climate change action plan, working
towards net zero carbon by 2035. To validate our plan, we have
submitted our climate change action plan to the Science-Based
Target Initiative and await endorsement in H2 22.
During H1 22:
-- We continue to improve climate and carbon literacy of our
broader leadership team, with colleagues completing our bespoke
in-house training. We plan to increase training completion to all
our identified colleagues, ensuring we have the necessary skills
and literacy to drive our journey to net zero carbon.
-- In support of our objective to drive carbon reductions on our
contracts, all relevant construction contracts have established a
baseline and have carbon reduction plans in place. Additionally,
these contracts have also set plant idling baselines and are
seeking to drive greater fuel efficiency using behavioural science
and enhanced data analytics.
-- This year marked our first completely diesel-free
construction site, on the HS2 Canterbury Works Vent Shaft (working
in joint venture with Skanska and STRABAG). Innovations on this
site include one of the UK's first 160 tonne emissions-free fully
electric crawler cranes; the use of biofuels to power plant and
machinery on site; an electric compressor and access to mains power
on a 100% renewable energy tariff.
Performance
Infrastructure increasingly needs to deliver more and cost less,
both economically and environmentally. We are investing in our
digital and consulting capabilities to help our clients with a
broadened offering, to optimise existing networks and future proof
new ones.
During H1 22:
-- We continue to embed our risk controls in securing new
business (contract selection, independent risk review and enhanced
legal process). As a result, we have managed the risk and return
criteria of contracts to meet our requirements and chose not to bid
on a small number of opportunities during H1 22.
-- We have also enhanced operational contract delivery via an Operational Excellence Model (OEM), comprehensive financial reviews, and senior management ownership. This has improved contract margin resilience.
We have continued to make further strategic progress in the
delivery of our strategy during H1 22, which will support future
margin and profit growth including:
-- Continued development and enhancement of our complex
programme delivery expertise and risk management.
-- Growth of our delivery partner consultancy role building on
our positions with AWE, Babcock and Cadent.
-- 30% growth in our energy operations, including the award of
the bp net zero for carbon capture and storage, Industrial Cluster
footprint growth, and new framework awards for other energy
majors.
-- Broadening of our design services including the award of the
TfL Piccadilly line improvements and water process solutions.
-- Securing positions on clients' digital procurement frameworks
including positions with National Highways, Network Rail and
Central Government.
-- First-of-a-kind digital and innovation led contracts
including a data-led consultancy programme for the Department of
Transport, and National Highways Digital Roads strategy.
-- Selected by Ofwat to deliver two innovation projects bringing
Hydrogen to the water industry and optimising operational
performance through open data systems.
Operating profit growth
Our strategy aims to deliver a transformation in the business
over the medium-term, with a step change in performance to support
the ambition to deliver a future Group operating margin of 5-6%. We
continue to monitor the impact of the expected inflationary
pressures on FY 23 revenue and costs.
The key levers being used to deliver increasing adjusted
operating profit are:
1. Improving margins on complex programme delivery
(construction) contracts. Our Operational Excellence Model is
enabling the delivery of construction contracts in line with our
target net margin range of 3-5% and we are trading out the
proportion of revenue from historically lower margin contracts.
2. Growing our consulting services. The scale of our consultancy
activities continues to grow, with contract margins increasing as
the scale of the operations supports our cost base, with targets
for net consulting margins of more than 5%.
3. Growing digital services. Building on our digital expertise,
we are helping our clients shape and develop their plans and we are
actively shaping the considerable opportunity as infrastructure
markets move to greater digital infrastructure to enhance business
performance. We expect net contract margins in this area to be well
above 5%. Currently our digital services are loss making as we
continue to invest in building this important capability.
At the same time as our complex programme delivery services
benefit from our consulting and digital expertise, and will
therefore increase margins, we are also growing our standalone
consulting and digital services. Taken together, over time, we
expect to deliver a progressive increase in both operating profit
and operating margin as we implement our strategy.
DIVISIONAL REVIEW
TRANSPORTATION
GBPm H1 22 H1 22 H1 21 H1 21 Adjusted(1)
adjusted(1) reported adjusted(1) reported change
Road 239.2 239.2 191.6 191.6 24.8%
Rail 219.2 219.2 173.4 173.4 26.4%
Integrated transport 36.2 36.2 38.9 38.9 -6.9%
Total revenue 494.6 494.6 403.9 403.9 22.5%
Operating profit/(loss) 15.9 15.9 15.5 15.5 2.6%
Operating margin 3.2% 3.2% 3.8% 3.8% -0.6pp
------------------------- ------------- ---------- ------------- ---------- ------------
(1) Excluding the impact of specified contract provision
adjustments and other items (see financial statements notes 3 and
4).
-- Reported and adjusted revenue up 22.5% as a result of volume
increases and inflation protection mechanisms in contracts.
-- Reported and adjusted operating margin was 3.2%, down 0.6
percentage points due to up-front investment in our digital and
consultancy capability and the timing of increased bid activity on
a series of major opportunities during the period, partially offset
by increased volumes.
We have seen growth in each of our portfolios driven by work for
High Speed 2 (HS2), National Highways, and Network Rail, which
represent the majority of Transportation revenue.
Reported and adjusted revenue for Road increased by 24.8% in H1
22 on the prior year driven by volume increases and the inflation
protection in our contracts. As a strategic partner for National
Highways, we support their key investment programmes through the
Regional Delivery Partnerships (RDP) major projects framework, and
the SMP Alliance delivering smart motorway upgrades. On RDP we have
continued to upgrade the A1 around Newcastle and to upgrade to dual
carriageway a section of the A30 in Cornwall. Pre-construction and
design activities are continuing on the A12 Chelmsford to A120
scheme. Our work delivering the M6 Junctions 21a-26 smart motorway
upgrades continues.
Reported and adjusted revenue for Rail increased by 26.4% in H1
22 on the prior year, principally as a result of volume increases
and the inflation protection of contracts. During H1 22, we
completed the delivery of Paddington Station and continue to
provide systems-wide rail systems for the Elizabeth Line. Our work
on the Gatwick Airport Station Project for Network Rail continues.
We will commence work on the HS2 main tunnel bores this summer, and
in total we will drive seven tunnel boring machines with scheduled
contract completion in 2027. We started operating HS2's first
diesel-free construction site this year, and HS2 expects all of its
construction sites to be diesel-free by 2029. We continue to expand
our portfolio of advisory work with our recent appointment on the
Victoria station masterplan project.
Reported and adjusted revenue for Integrated Transport decreased
by 6.9% in H1 22 on the prior year. We continue to focus on
supporting clients with intermodal connectivity and decarbonisation
solutions. In H1 22, we completed works on A40 Westway for
Transport for London (TfL) five weeks ahead of schedule, and we
were appointed by TfL to design critical upgrades to the signalling
infrastructure on the Piccadilly line. We have also successfully
grown work across a range of clients in Local Authorities and
Aviation where we provide consulting and advisory services.
We continue to grow our consulting services to central and local
government clients in support of accelerating progress to net zero
carbon, green economic recovery and levelling up the UK, and have
secured places on all our targeted frameworks.
During the half we secured GBP81.2m of new work, with major
awards expected to be confirmed in H2 22 and FY 23. Revenue secured
for H2 22 is GBP405m for Transportation as of 30 June 2022.
NATURAL RESOURCES
GBPm H1 22 H1 22 H1 21 H1 21 Adjusted(1)
adjusted(1) reported adjusted(1) reported change
Water 106.9 106.9 100.4 101.9 6.5%
Energy 41.4 41.4 31.8 31.8 30.2%
Defence 22.3 22.3 20.7 20.7 7.7%
Total revenue 170.6 170.6 152.9 152.9 11.6%
Operating profit/(loss) 2.6 2.4 0.4 0.1 550.0%
Operating margin 1.5% 1.4% 0.3% 0.1% 1.2pp
------------------------- ------------- ---------- ------------- ---------- ------------
(1) Excluding the impact of specified contract provision
adjustments and other items (see financial statements notes 3 and
4).
-- Reported and adjusted revenue up 11.6% primarily driven by strong growth in Energy.
-- Adjusted operating margin was 1.5%, up 1.2 percentage points
due mainly to revenue growth, improved mix on the addition of new
higher margin contracts within Energy, and operational
improvements, partially offset by upfront investment in our digital
and consultancy capabilities.
Reported and adjusted revenue for Water was up 6.5% in H1 22 on
the prior year with good visibility across our five-year water AMP7
programmes for Anglian Water, Severn Trent Water, Southern Water,
Thames Water and United Utilities, delivering a broad range of
services to deliver improved asset and operational resilience,
together with decarbonisation capabilities. We are on schedule on
Tideway, where, in a joint venture, we are responsible for the
eastern section, with tunnelling completed during the period.
During H1 22, we have secured Ofwat innovation funding for two
projects as part of the 'Transform' stream. We are also engaging
with clients to understand their potential requirements for new
value-added solutions for AMP8.
Reported and adjusted revenue for Energy has shown good growth,
increasing by 30.2% in H1 22 on the prior year, building our
position in energy transition, with wins including the bp net zero
contract at Teesside (part of the East coast cluster), and a new
framework appointment by a Tier 1 energy business. Our contracts
with Cadent, EDF and Sellafield continue to perform strongly. We
are two years into a 10-year service delivery partnership with
Cadent, managing the mains replacement programme across the East of
England, and during H1 22, we won a new framework with Cadent. We
have established positions in a number of projects to enable the
wide scale deployment of hydrogen and carbon capture, utilisation
and storage (CCUS) technologies. We have completed our first year
as deployment lead on the South Wales Industrial Cluster deployment
project, and we continue work on the Front End Engineering Design
(FEED) for the Acorn carbon capture and storage scheme in St
Fergus, Scotland. We have appointed Matt Browell-Hook as Energy
sector director.
Reported and adjusted revenue for Defence increased by 7.7% in
H1 22 on the prior year, with growth in our current delivery
partnership role at Devonport and wider defence projects. Revenue
in the year was driven by our contract with AWE on a major
infrastructure project, where we are providing expertise in design
and construction management, and the coordination of the work of
several subcontractors. We are well positioned across the UK's
strategic Continuous at Sea Deterrent enterprise, and our ambition
is to be the delivery partner of choice for the Ministry of
Defence's (MoD) strategic infrastructure needs. Our work with the
Defence Nuclear Organisation continues. We are helping the
organisation to develop its portfolio management capabilities and
support its programme definition for future infrastructure
requirements.
During the half we secured GBP40.9m of new work with major
awards to be confirmed in H2 22 and FY 23. Revenue secured for H2
22 is GBP162m for Natural Resources as of 30 June 2022.
FINANCIAL REVIEW
Adjusted to reported reconciliation
Transportation Natural Resources Group
H1 H1 21 Change H1 H1 21 Change H1 22 H1 21 Change
22 22
Revenue GBPm
Adjusted 494.6 403.9 22.5% 170.6 152.9 11.6% 665.2 556.8 19.5%
Adjusting - - - - - -
items
Reported 494.6 403.9 22.5% 170.6 152.9 11.6% 665.2 556.8 19.5%
Operating
profit GBPm
Adjusted 15.9 15.5 2.6% 2.6 0.4 550.0% 14.0 11.5 21.7%
Adjusting
items - - (0.2) (0.3) (2.1) (0.3)
Reported 15.9 15.5 2.6% 2.4 0.1 2300% 11.9 11.2 6.3%
-------------- ------ ------ ------- ------ ------ ------- ------ ------ -------
Adjusting items
We incurred GBP2.6m (H1 21: GBPnil) on transformation and
restructuring costs and GBPnil (H1 21: GBP0.3m) on amortisation of
acquired intangible assets, and recognised a profit of GBP0.5m (H1
21: GBPnil) on the sale of a non-core asset.
Net finance expense
Net finance expense amounted to GBP0.7m (H1 21: GBP2.1m). The
interest payable on bank overdrafts, loans and other similar
charges was GBP1.2m (H1 21: GBP1.8m) on the reduced term loan
balance. In addition, the net finance expense includes the interest
income on the net assets/liabilities of the pension scheme of
GBP0.6m (H1 21: GBPnil) and the interest expense on lease
liabilities of GBP0.1m (H1 21: GBP0.3m) under IFRS16.
Tax
The Group has a tax charge of GBP2.1m in the half (H1 21:
GBP0.4m credit) giving an effective tax rate of 18.8% (H1 21:
-3.8%). The 2021 net tax credit arose primarily from the impact of
the rate change (from 19% to 25% in 2023, which was substantively
enacted in the prior year) on deferred tax recognised in respect of
losses and pensions. The tax charged has been calculated by
applying the effective rate of tax which is expected to apply to
the Group for the period ending December 2022 using rates
substantively enacted as required by IAS 34 Interim Financial
Reporting. We expect the effective tax rate to remain close to the
statutory tax rate of 19% until 2023.
Cashflow
The Group generated a GBP34.4m adjusted free cash inflow for H1
22 (H1 21: GBP28.2m), after adjusting items of GBP48.4m which
included the GBP43.4m payment to settle the Peterborough &
Huntingdon contract, made early in the year.
GBPm H1 22 H1 21
Cash (used by) / from operations (19.1) 18.6
Add back adjusting items 48.4 5.2
Add back pension deficit contributions 5.2 5.2
Less taxation - (0.1)
Less capital expenditure (0.1) (0.7)
Adjusted free cash flow(1) 34.4 28.2
---------------------------------------- -------
(1) Adjusted free cash flow is an adjusted metric and is
calculated as cash flow from operations, excluding adjusting items
and pension deficit contributions, less taxation and capital
expenditure.
The Group had a positive net cash balance of GBP95.9m as of 30
June 2022 (31 December 2021: GBP119.4m) comprising Costain cash
balances of GBP76.5m (31 December 2021: GBP101.3m), cash held by
joint operations of GBP55.4m (31 December 2021: GBP58.1m) and
borrowings of GBP36.0m (31 December 2021: GBP40.0m) (before
arrangement fees of GBP0.2m (31 December 2021: GBP0.6m)). During
the half, the Group's average month-end net cash balance was
GBP91.9m (FY 21: GBP107.0m).
GBPm H1 22 H1 21 FY 21
Cash and cash equivalents at the
beginning of period 159.4 150.9
Net cash flow (27.5) 6.0
FX - 0.1
------- ------- -------
Cash and cash equivalents at the
end of period 131.9 157.0 159.4
Borrowings (36.0) (44.0) (40.0)
------- ------- -------
Net cash 95.9 113.0 119.4
---------------------------------- ------- ------- -------
Note: Borrowings are stated excluding associated arrangement
fees of GBP0.2m (H1 21 : GBP1.0m; FY 21: GBP0.6m), which are being
amortised over the period of the facility.
Financial resources
The Group has in place banking and bonding facilities from banks
and surety bond providers to meet the current and projected usage
requirements. The Group has banking facilities of GBP167.0m with
its relationship banks with a maturity date of 24 September 2023.
These facilities are made up of a GBP131.0m revolving credit
facility (RCF) and a GBP36.0m term loan.
In addition, the Group has in place committed and uncommitted
bonding facilities of GBP310m. Utilisation of the total bonding
facilities as at 30 June 2022 was GBP88.5m (31 December 2021:
GBP100.7m).
Pensions
As of 30 June 2022, the Group's pension scheme surplus in
accordance with IAS 19, was GBP86.2m (31 December 2021:
GBP67.1m).
The movement in the IAS 19 valuation from 31 December 2021 to 30
June 2022 was due to the impact of growth in scheme assets and a
reduction in scheme liabilities, primarily driven by a higher
discount rate of 3.85% used in the IAS 19 valuation as at 30 June
2022 compared to the discount rate at 31 December 2021 of
1.80%.
Cash contributions were made to the scheme during the period
amounting to GBP5.2m (H1 21: GBP5.2m) and the charge to operating
profit in respect of the administration cost of the UK Pension
Scheme in the period was GBP0.2m (H1 21: GBP0.1m).
DIRECTORS REPORT
Going concern
In determining the appropriate basis of preparation of the
financial statements for the six months ended 30 June 2022, the
Directors are required to consider whether the Group and the
Company can continue in operational existence for the foreseeable
future, being a period of at least twelve months from the date of
approval of the accounts. The Group's current banking facilities
expire in September 2023. Management is in negotiations with the
respective facility providers to secure a one year "amend and
extend" of these facilities. The Board considers an "amend and
extend" to be in the best interest of shareholders given the
current state of the debt market. The Group has not utilised its
revolving credit facility since July 2020. Having undertaken a
rigorous assessment of the financial forecasts, including its
liquidity and compliance with covenants using the existing
facilities, the Board considers that the Group has adequate
resources to remain in operation for the foreseeable future and,
therefore, have adopted the going concern basis for the preparation
of the financial statements.
Principal Risks and Uncertainties
The Directors consider that the principal risks facing the
Group, including those that would threaten the successful and
timely delivery of it strategic priorities, future performance,
solvency and liquidity, remain substantially unchanged from those
identified on pages 44 to 48 of the Group's Annual Report for the
year ended 31 December 2021 which can be found at www.costain.com
.
On pages 44 and 45 of the Annual Report 2021, we set out the
Group's approach to risk management and on pages 46 to 48, we
define and describe the principal risks that are most relevant to
the Group including controls and key mitigating actions assigned to
them. In summary, the Group's principal risks and uncertainties are
as follows: 1) prevent a major accident, hazard or incident 2)
increase the profitability and margin performance of the Group 3)
maintain a strong balance sheet 4) secure new work 5) people 6)
deliver projects effectively 7) manage the legacy defined benefit
(DB) pension scheme 8) ensure that our technology is robust, our
systems secure and our data protected 9) anticipate and respond to
changes in client circumstances and 10) climate change
resilience.
The Board reviews the status of all principal and emerging risks
with a notable potential impact at Group level throughout the year.
Additionally, the Board and Audit Committee carry out focused risk
reviews. These reviews include an analysis of principal risks,
together with the controls, monitoring and assurance processes
established to mitigate those risks to manageable levels.
Statement of Directors' Responsibilities
The Directors confirm that these condensed consolidated half
year financial statements have been prepared in accordance with
International Accounting Standard 34, 'Interim Financial
Reporting', as adopted by the United Kingdom and that the interim
report includes a fair review of the information required by DTR
4.2.7 and DTR 4.2.8, namely:
-- an indication of important events that have occurred during
the first six months and their impact on the condensed set of
financial statements, and a description of the principal risks and
uncertainties that will continue to be monitored for the remaining
six months of the financial year; and
-- material related-party transactions in the first six months
and any material changes in the related party transactions
described in the last Annual Report.
The current Directors of Costain Group PLC are listed in the
Annual Report for the year ended 31 December 2021, except for Fiona
MacAulay who was appointed to the board of Directors on 6 April
2022. Nicole Geoghegan replaced Sharon Harris as Company Secretary
on 5 July 2022.
For and on behalf of the Board
Alex Vaughan Helen Willis
Chief Executive Officer Chief Financial Officer
24 August 2022
Cau tionary statement
This report contains forward-looking statements. These have been
made by the Directors in good faith based on the information
available to them up to the time of their approval of this report.
The Directors can give no assurance that these expectations will
prove to have been correct. Due to the inherent uncertainties,
including both economic and business risk factors underlying such
forward-looking information, actual results may differ materially
from those expressed or implied by these forward-looking
statements. The Directors undertake no obligation to update any
forward-looking statements whether as a result of new information,
future events or otherwise.
Shareholder information
There is a large amount of information about our business on our
website, www.costain.com . This includes copies of recent investor
presentations as well as London Stock Exchange announcements.
GROUP INCOME STATEMENT
For the six months ended 30 June 2022
GBPm Notes H1 22 H1 21
unaudited unaudited
Group revenue 4 665.2 556.8
Cost of Sales (627.4) (525.8)
----------- -----------
Gross profit 37.8 31.0
Administrative expenses (25.9) (19.8)
----------- -----------
Group operating profit 11.9 11.2
Profit from operations 4 11.9 11.2
Finance income 5 0.6 -
Finance expense 5 (1.3) (2.1)
----------- -----------
Net finance expense (0.7) (2.1)
----------- -----------
Profit before tax 11.2 9.1
Taxation 6 (2.1) 0.4
----------- -----------
Profit for the year attributable
to equity holders of the parent 9.1 9.5
----------- -----------
Earnings per share
Basic 7 3.3p 3.5p
Diluted 7 3.1p 3.4p
---------------------------------- ------ ----------- -----------
GROUP STATEMENT OF COMPREHENSIVE INCOME
For the six months ended 30 June 2022
GBPm
H1 22 H1 21
unaudited unaudited
Profit for the period 9.1 9.5
------------ ------------
Items that may be reclassified subsequently
to profit or loss:
Exchange differences on translation of
foreign operations (0.1) 0.2
Cash flow hedges:
Net changes in fair value transferred
to the income statement - 0.3
------------ ------------
Total items that may be reclassified subsequently
to profit or loss (0.1) 0.5
Items that will not be reclassified to
profit or loss:
Remeasurement of retirement benefit asset/(obligations) 13.4 29.5
Tax recognised on remeasurement of retirement
benefit asset/(obligations) (3.3) (5.5)
------------ ------------
Total items that will not be reclassified
to profit or loss 10.1 24.0
------------ ------------
Other comprehensive income for the period 10.0 24.5
------------ ------------
Total comprehensive income for the period
attributable to equity holders of the
parent 19.1 34.0
---------------------------------------------------------- ------------ ------------
GROUP BALANCE SHEET
GBPm Notes 30 June 31 December
2022 2021
unaudited audited
Assets
Non-current assets
Intangible assets 9 52.2 52.5
Property, plant and
equipment 10 33.8 32.0
Equity accounted investments 0.4 0.4
Retirement benefit
asset 86.2 67.1
Trade and other receivables 3.6 5.5
Deferred tax 10.2 15.4
----------- ------------
Total non-current
assets 186.4 172.9
Current assets
Inventories 0.2 0.3
Trade and other receivables 203.1 199.6
Taxation - 0.2
Cash and cash equivalents 11 131.9 159.4
----------- ------------
Total current assets 335.2 359.5
----------- ------------
Total assets 521.6 532.4
----------- ------------
Liabilities
Non-current liabilities
Retirement benefit 12 - -
obligations
Other payables 1.1 1.8
Interest bearing loans
and borrowings 28.0 32.0
Lease liabilities 20.5 18.2
----------- ------------
Total non-current
liabilities 49.6 52.0
Current liabilities
Trade and other payables 226.8 215.1
Current tax liabilities 0.2 -
Interest bearing loans
and borrowings 7.8 7.4
Lease liabilities 9.0 8.6
Provisions for other
liabilities and charges 9.3 50.3
----------- ------------
Total current liabilities 253.1 281.4
----------- ------------
Total liabilities 302.7 333.4
----------- ------------
Net assets 218.9 199.0
----------- ------------
Equity
Share capital 13 137.6 137.5
Share premium 16.4 16.4
Translation reserve 0.5 0.6
Hedging reserve - -
Retained earnings 64.4 44.5
----------- ------------
Total equity 218.9 199.0
------------------------------- ------ ----------- ------------
GROUP STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2022
GBPm
Share Share Translation Hedging Merger Retained Total
capital premium reserve reserve reserve earnings equity
At 1 January 2021
audited 137.5 16.4 0.6 (0.3) - 2.3 156.5
Profit for the
period - - - - - 9.5 9.5
Other comprehensive
(expense)/ income - - 0.2 0.3 - 24.0 24.5
Shares purchased
to satisfy employee
share schemes - - - - - (0.1) (0.1)
Equity-settled
share-based payments - - - - - 0.4 0.4
--------- --------- ------------ --------- --------- ---------- --------
At 30 June 2021
unaudited 137.5 16.4 0.8 - - 36.1 190.8
Loss for the period - - - - - (15.3) (15.3)
Other comprehensive
(expense)/ income - - (0.2) - - 23.1 22.9
Shares purchased
to satisfy employee
share schemes - - - - - (0.1) (0.1)
Equity-settled
share-based payments - - - - - 0.7 0.7
--------- --------- ------------ --------- --------- ---------- --------
At 1 January 2022
audited 137.5 16.4 0.6 - - 44.5 199.0
Profit for the
period - - - - - 9.1 9.1
Issue of ordinary
shares under employee
share option plans 0.1 (0.1) -
Other comprehensive
income - - (0.1) - - 10.1 10.0
Equity-settled
share-based payments - - - - - 0.8 0.8
At 30 June 2022
unaudited 137.6 16.4 0.5 - - 64.4 218.9
------------------------ --------- --------- ------------ --------- --------- ---------- --------
GROUP CASH FLOW STATEMENT
For the six months ended 30 June 2022
GBPm Notes H1 22 H1 21
unaudited unaudited
Cash flows from operating activities
Profit for the period 9.1 9.5
Adjustments for:
Finance income 5 (0.6) -
Finance expense 5 1.3 2.1
Taxation 6 2.1 (0.4)
Profit on sale of interest in joint ventures (0.5) -
and associates
Depreciation of property, plant and equipment 10 4.7 7.8
Amortisation and impairment of intangible
assets 9 0.3 0.5
Shares purchased to satisfy employee share
schemes - (0.1)
Share-based payments expense 0.8 0.4
----------- -----------
Cash from operations before changes in
working capital and provisions 17.2 19.8
Decrease in inventories 0.1 0.2
Increase in trade and other receivables (1.6) (4.0)
Increase in trade and other payables 11.3 7.6
Payment of P&H final settlement provision (43.4) -
Movement in other provisions and employee
benefits (2.7) (5.0)
----------- -----------
Cash (used by)/from operations (19.1) 18.6
Interest received 0.1 -
Interest paid (1.2) (1.5)
Taxation received - 0.1
----------- -----------
Net cash (used by)/from operating activities (20.2) 17.2
----------- -----------
Cash flows from investing activities
Additions to property, plant and equipment (0.1) (0.1)
Additions to intangible assets - (0.6)
Proceeds of sale of investment 0.5 -
Net cash from/(used by) investing activities 0.4 (0.7)
-----------
Cash flows from financing activities
Repayments of lease liabilities (3.7) (6.7)
Drawdown of loans - -
Repayment of loans (4.0) (3.8)
----------- -----------
Net cash used by financing activities (7.7) (10.5)
----------- -----------
Net (decrease)/increase in cash and cash
equivalents (27.5) 6.0
Cash and cash equivalents at beginning of
the period 11 159.4 150.9
Effect of foreign exchange rate changes - 0.1
----------- -----------
Cash and cash equivalents at end of the
period 11 131.9 157.0
----------------------------------------------- ------ ----------- -----------
NOTES TO THE FINANCIAL STATEMENTS
1. BASIS OF PREPARATION
Costain Group PLC ("the Company") is a public limited company
domiciled in England and incorporated in England and Wales.
These condensed consolidated financial statements for the
half-year ended 30 June 2022 have been prepared in accordance with
UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
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 2021, which were prepared in accordance with
UK-adopted international accounting standards and with the
requirements of the Companies Act 2006 as applicable to companies
reporting under those standards, with the exception of taxation
which for half year ended 30 June 2022, has been calculated on the
basis of the forecasted year end estimated tax rate for FY 22. The
comparative figures for the financial year ended 31 December 2021
are not the Company's full statutory accounts for that financial
year, they do not include all the information required for full
annual financial statements and should be read in conjunction with
the Consolidated Financial Statements of the Group as at and for
the year ended 31 December 2021. Those accounts have been reported
on by the Company's auditors and delivered to the Registrar of
Companies. The audit report for 2021 was (i) unqualified and (ii)
did not contain a statement under section 498(2) or (3) of the
Companies Act 2006.
Going concern
The Group's principal business activity involves work on the
UK's infrastructure, mostly delivering long-term contracts with a
number of customers. To meet its day-to-day working capital
requirements, it uses cash balances provided from shareholders'
capital and retained earnings and its borrowing facilities. These
borrowing facilities give the Group access to a RCF cash drawdown
component of GBP131m and a GBP36m five-year Term Loan, which
reduces by GBP4m every six months on 30 June and 31 December.
These facilities have a liquidity covenant of net debt / EBITDA
<= 1.5 times and an interest covenant of EBITA / net interest
payable covenant of >= 4.0 times and these financial covenants
are tested quarterly. As at 30 June 2022, the Group had a leverage
covenant ratio of below zero (the Group had no net debt) and an
interest covenant ratio of 13.0 times. As part of its contracting
operations, the Group may be required to provide performance and
other bonds. It satisfies these requirements by utilising its
GBP35m bank bonding and GBP275m surety company bonding
facilities.
In determining the appropriate basis of preparation of the
financial statements for the six months ended 30 June 2022, the
Directors are required to consider whether the Group and the
Company can continue in operational existence for the foreseeable
future, being a period of at least twelve months from the date of
approval of the accounts. The Group's current banking facilities
expire in September 2023. Management is in negotiations with the
respective facility providers to secure a one year "amend and
extend" of these facilities. The Board considers an "amend and
extend" to be in the best interest of shareholders given the
current state of the debt market. The Group has not utilised its
revolving credit facility since July 2020.
Having undertaken a rigorous assessment of the financial
forecasts, including its liquidity and compliance with covenants
using the existing facilities, the Board considers that the Group
has adequate resources to remain in operation for the foreseeable
future and, therefore, have adopted the going concern basis for the
preparation of the financial statements. In assessing the going
concern assumption, the Board reviewed the base case plans and also
identified severe but plausible downsides affecting future
profitability, working capital requirements and cash flow. The base
case assumes delivery of the Board approved strategic and financial
plans. The severe but plausible downsides include applying the
aggregated impact of lower revenue, lower margins, future
contractual issues, higher working capital requirements and adverse
contract settlements.
These forecasts show significant headroom and support that the
Group will be able to operate within its available banking
facilities and covenants throughout this period. Covenants are
calculated on a rolling 12-month basis each quarter and therefore
for all quarters until Q2 of FY23, a portion of the EBITDA/EBITA
has already been earned, reducing the risk of a potential breach.
Taking this into account along with the forecasts reviewed, it is
considered that the EBITA/net interest covenant for the rolling 12
months to Q4 of FY22 is the limiting factor, given the Group's net
cash position. The Board concluded that there is liquidity headroom
in severe but plausible downside scenarios, as well as headroom on
the committed facilities and on the associated financial
covenants.
Alternative performance measures
Income statement presentation - Adjusting items
Certain amounts that the Board considers to be material or
non-recurring in size or nature, or related to the accounting
treatment of acquisitions, are adjusted to aid understanding of the
underlying and overall performance of the Group. This is in line
with how management monitors and manages the business on a
day-to-day basis. Presenting results on this adjusted basis is
consistent with the internal reporting presented to the Board.
The Directors exercise judgement in determining the
classification of certain items as adjusting using quantitative and
qualitative factors. In assessing whether an item is an adjusting
item, the Directors give consideration, both individually and
collectively, as to an item's size, the specific circumstances
which have led to the item arising and if the item is likely to
recur, or whether the matter forms part of a group of similar
items.
The separate presentation of these items is intended to enhance
understanding of the financial performance of the Group in the
particular year under review and the extent to which results are
influenced by material unusual and/or non-recurring items. The tax
impact of the above is shown in note 3 to the financial statements
on the taxation line.
Consequently, the Group is disclosing as supplementary
information 'Adjusted revenue, Adjusted profit and Adjusted
earnings per share' alternative performance measurements. These are
reconciled to statutory numbers in note 3 to the financial
statements and reported in the presentation of segmental reporting
in note 4.
The Group also presents free cash flow and net cash/ bank debt
as alternative performance measures. The Directors consider that
this provides useful information about the Group's liquidity
position.
2. SIGNIFICANT AREAS OF JUDGEMENT AND ESTIMATION
The estimates and underlying assumptions used in the preparation
of these financial statements are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in
which the estimate is revised if the revision affects only that
period, or in the period of the revision and future periods if the
revision affects both current and future periods.
The Directors consider that the significant areas of judgement
made by management that have a significant effect on the Group's
performance as well as those estimates with a significant risk of
material adjustment during the second half of the year are
unchanged from those identified on pages 139 to 140 of the Annual
Report for the year ended 31 December 2021.
3. RECONCILIATION OF REPORTED REVENUE AND OPERATING
(LOSS)/PROFIT TO ADJUSTED REVENUE AND OPERATING PROFIT
Adjusted revenue, operating profit and earnings per share are
being used as non-GAAP alternative performance measurements. These
measurements were introduced in 2020 and exclude the impact of
significant one-off re-measurements of three specified contracts,
Peterborough & Huntingdon, the A465 Heads of the Valley (A465)
and the ASF South contracts, as well as the other items that the
Board considers to be of a one-off and unusual nature or related to
the accounting treatment of acquisitions. The Board considers the
adjusted measures better reflect the underlying trading performance
of the Group.
Revenue adjustments represent the reversal of the contract asset
recorded in the statement of financial position immediately prior
to the initial write down and any subsequent adjustment to overall
contract revenue. There were no revenue adjustments in H1 22 or in
H1 21. Details regarding the adjustments relating to Peterborough
& Huntingdon, A465 and ASF South Contract in FY 21 were
disclosed in the FY 21 Annual Report, and therefore are not
repeated here.
Profit adjustments represent the amounts included in the income
statement. We incurred GBP2.6m (H1 21: GBPnil) on transformation
and restructuring costs and GBPnil (H1 21: GBP0.3m) on amortisation
of acquired intangible assets, and recognised a profit of GBP0.5m
(H1 21: GBPnil) on the sale of a non-core asset.
Six months ended 30 June 2022 Adjusted Other items Total
GBPm GBPm GBPm
Revenue before contract adjustments 665.2 - 665.2
Contract adjustments - - -
------------------------------------------- ---------- ------------- ---------
Group revenue 665.2 - 665.2
------------------------------------------- ---------- ------------- ---------
Cost of sales (627.9) 0.5 (627.4)
------------------------------------------- ---------- ------------- ---------
Gross profit 37.3 0.5 37.8
Administrative expenses before
other items (23.3) (2.6) (25.9)
Administrative expenses (23.3) (2.1) (25.4)
Group operating profit 14.0 (2.1) 11.9
---------- -------------
Share of results of joint ventures - - -
and associates
------------------------------------------- ---------- ------------- ---------
Profit/(loss) from
operations 14.0 (2.1) 11.9
------------------------------------------- ---------- ------------- ---------
Net finance expense (0.7) - (0.7)
------------------------------------------- ---------- ------------- ---------
Profit/(loss) before tax 13.3 (2.1) 11.2
------------------------------------------- ---------- ------------- ---------
Taxation (2.6) 0.5 (2.1)
------------------------------------------- ---------- ------------- ---------
Profit/(loss) for the period attributable
to equity holders of the parent 10.7 (1.6) 9.1
------------------------------------------- ---------- ------------- ---------
Basic earnings/(loss) per share 3.9p 3.3p
------------------------------------------- ---------- ------------- ---------
Six months ended 30 June 2021 Adjusted Other items Total
GBPm GBPm GBPm
Revenue before contract adjustments 556.8 - 556.8
Contract adjustments - - -
------------------------------------------- ---------- ------------- ---------
Group revenue 556.8 - 556.8
------------------------------------------- ---------- ------------- ---------
Cost of sales (525.8) - (525.8)
------------------------------------------- ---------- ------------- ---------
Gross profit 31.0 - 31.0
Administrative
expenses before
other items (19.5) - (19.5)
Other items - (0.3) (0.3)
------------------------------------------- ---------- ------------- ---------
Administrative expenses (19.5) (0.3) (19.8)
Group operating profit 11.5 (0.3) 11.2
---------- -------------
Share of results of joint ventures - - -
and associates
------------------------------------------- ---------- ------------- ---------
Profit/(loss) from operations 11.5 (0.3) 11.2
------------------------------------------- ---------- ------------- ---------
Net finance expense (2.1) - (2.1)
------------------------------------------- ---------- ------------- ---------
Profit/(loss) before tax 9.4 (0.3) 9.1
------------------------------------------- ---------- ------------- ---------
Taxation (1.7) 2.1 0.4
------------------------------------------- ---------- ------------- ---------
Profit/(loss) for the period attributable
to
equity holders of the parent 7.7 1.8 9.5
------------------------------------------- ---------- ------------- ---------
Basic earnings/(loss) per share 2.8p 3.5p
------------------------------------------- ---------- ------------- ---------
4. OPERATING SEGMENTS
The Group has two core business segments: Transportation and
Natural Resources. The core segments are strategic business units
with separate management and have different core customers or offer
different services. This information is provided to the Chief
Executive who is the chief operating decision maker. The segments
are discussed in the Strategic Report section of these financial
statements.
The Group evaluates segment performance on the basis of profit
or loss from operations before interest and tax expense before and
after other items and contract adjustments. The segment results
that are reported to the Chief Executive include items directly
attributable to a segment as well as those that can be allocated on
a reasonable basis. Other items are allocated to the operating
segments where appropriate, but otherwise are viewed as Central
items.
6 months ended 30 June 2022 Natural Central
Resources Transportation costs Total
GBPm GBPm GBPm GBPm
Segment revenue
Adjusted revenue 170.6 494.6 - 665.2
Contract adjustments - - - -
----------- ----------------- -------- --------
Group revenue 170.6 494.6 - 665.2
----------- ----------------- -------- --------
Segment profit
Adjusted operating profit 2.6 15.9 (4.5) 14.0
Contract adjustments - - - -
----------- ----------------- -------- --------
Operating profit before other
items 2.6 15.9 (4.5) 14.0
Share of results of joint - - - -
ventures and associates
----------- ----------------- -------- --------
Profit from operations before
other items 2.6 15.9 (4.5) 14.0
Other items:
Transformation and restructuring
costs (0.2) - (2.4) (2.6)
Profit on sale of non-core
asset - - 0.5 0.5
Profit from operations 2.4 15.9 (6.4) 11.9
----------- ----------------- -------- --------
Net finance expense (0.7)
----------- ----------------- -------- --------
Profit before tax 11.2
----------------------------------- ----------- ----------------- -------- --------
6 months ended 30 June 2021 Natural Central
Resources Transportation costs Total
GBPm GBPm GBPm GBPm
Segment revenue
Adjusted revenue 152.9 403.9 - 556.8
Contract adjustments - - - -
----------- ----------------- -------- --------
Group revenue 152.9 403.9 - 556.8
----------- ----------------- -------- --------
Segment profit
Adjusted operating profit 0.4 15.5 (4.4) 11.5
Contract adjustments - - - -
----------- ----------------- -------- --------
Operating profit before other
items 0.4 15.5 (4.4) 11.5
Share of results of joint - - - -
ventures and associates
----------- ----------------- -------- --------
Profit from operations before
other items 0.4 15.5 (4.4) 11.5
Other items:
Amortisation of acquired intangible
assets (0.3) - - (0.3)
Profit from operations 0.1 15.5 (4.4) 11.2
----------- ----------------- -------- --------
Net finance expense (2.1)
----------- ----------------- -------- --------
Profit before tax 9.1
-------------------------------------- ----------- ----------------- -------- --------
5. NET FINANCE EXPENSE
GBPm H1 22 H1 21
Interest income from bank deposits - -
Interest income on loans to related parties - -
Interest income on the net assets of the 0.6 -
defined benefit pension scheme
------ ------
Finance income 0.6 -
------ ------
Interest payable on interest bearing bank
loans, borrowings and other similar charges (1.2) (1.8)
Interest expense on lease liabilities (0.1) (0.3)
Finance expense (1.3) (2.1)
------
Net finance expense (0.7) (2.1)
---------------------------------------------- ------ ------
Other similar charges includes arrangement and commitment fees
payable. Interest income on loans to related parties relates to
shareholder loan interest receivable from investments in equity
accounted joint ventures and associates.
6. TAXATION
GBPm H1 22 H1 21
On profit for the period
UK corporation tax at 19.0% (H1 21: 19.0%) 0.5 -
Adjustment in respect of prior years - -
------ ------
Current tax charge for the period 0.5 -
------ ------
Deferred tax charge/(credit) for the period 1.6 (0.4)
Adjustment in respect of prior years - -
Deferred tax charge/(credit) for the period 1.6 (0.4)
------
Tax charge/(credit) in the consolidated
income statement 2.1 (0.4)
--------------------------------------------- ------ ------
GBPm
H1 22 H1 21
Tax reconciliation
Profit before tax 11.2 9.1
------ ------
Taxation at 19.0% (H1 21: 19.0%) 2.1 1.7
Adjustments in respect of rate changes - (2.1)
------ ------
Tax charge/(credit) in the consolidated
income statement 2.1 (0.4)
----------------------------------------- ------ ------
7. EARNINGS PER SHARE
The calculation of earnings per share is based on a profit of
GBP9.1m (H1 21: GBP9.5m) and the number of shares set out
below.
H1 22 H1 21
Number Number
(millions) (millions)
Weighted average number of ordinary shares
in issue for basic earnings per share calculation 275.0 274.9
Dilutive potential ordinary shares arising
from employee share schemes 13.7 5.4
----------- -----------
Weighted average number of ordinary shares
in issue for diluted earnings per share
calculation 288.7 280.3
---------------------------------------------------- ----------- -----------
8. DIVIDS
No dividends were paid or proposed in respect of the 6 months to
30 June 2022 (H1 21: nil).
9. INTANGIBLE ASSETS
Customer Other acquired Other
Goodwill relationships intangibles intangibles Total
GBPm GBPm GBPm GBPm GBPm
Cost
At 1 January 2021 54.1 15.4 9.7 14.4 93.6
Additions - - - 0.6 0.6
-------------------------- --------- --------------- --------------- ------------- ------
At 30 June 2021 54.1 15.4 9.7 15.0 94.2
-------------------------- --------- --------------- --------------- ------------- ------
At 1 January 2022 54.1 15.4 9.7 15.9 95.1
Additions - - - - -
-------------------------- --------- --------------- --------------- ------------- ------
At 30 June 2022 54.1 15.4 9.7 15.9 95.1
-------------------------- --------- --------------- --------------- ------------- ------
Accumulated amortisation
At 1 January 2021 9.0 15.0 9.7 7.8 41.5
Charge in year - 0.3 - 0.2 0.5
Impairment - - - - -
-------------------------- --------- --------------- --------------- ------------- ------
At 30 June 2021 9.0 15.3 9.7 8.0 42.0
-------------------------- --------- --------------- --------------- ------------- ------
At 1 January 2022 9.0 15.4 9.7 8.5 42.6
Charge in year - - - 0.3 0.3
Impairment - - - - -
At 30 June 2022 9.0 15.4 9.7 8.8 42.9
--------- --------------- --------------- -------------
Net book value
At 30 June 2022 45.1 - - 7.1 52.2
-------------------------- --------- --------------- --------------- ------------- ------
At 30 June 2021 45.1 0.1 - 7.0 52.2
-------------------------- --------- --------------- --------------- ------------- ------
Goodwill has been allocated to the applicable cash generating
units of the transportation segment (GBP15.5 million (H1 21:
GBP15.5 million)) and the natural resources segment (GBP29.6
million (H1 21: GBP29.6 million)).
As described in note 2, the Group reviews the value of goodwill
on an annual basis and in the absence of any identified impairment
risks, tests are based on internal value in use calculations of the
cash generating unit (CGU). The key assumptions for these
calculations are: operating margins, discount rates and growth
rates.
Discount rates have been estimated based on pre-tax rates that
reflect current market assessments of the Group's weighted average
cost of capital and the risks specific to the CGU. The rate used to
discount the forecast cash flows for the Transportation CGU was
13.2% (H1 21: 12.4%) and for the Natural Resources CGU was 13.6%
(H1 21: 12.5%).
10. PROPERTY, PLANT AND EQUIPMENT
Right-of-use assets
--------------------------
Vehicles,
Land Plant Land plant &
& Buildings & Equipment & Buildings equipment Total
GBPm GBPm GBPm GBPm GBPm
------------- ------------- ------------- ----------- -------
Cost
At 1 January 2021 0.6 27.0 20.5 30.3 78.4
Additions - 0.1 1.2 16.1 17.4
Disposals - (0.2) (1.4) (7.3) (8.9)
------------- ------------- ------------- ----------- -------
At 30 June 2021 0.6 26.9 20.3 39.1 86.9
------------- ------------- ------------- ----------- -------
At 1 January 2022 0.6 27.0 14.1 29.4 71.1
Additions - 0.1 9.1 10.4 19.6
Disposals - - (1.1) (13.2) (14.3)
------------- ------------- ------------- ----------- -------
At 30 June 2022 0.6 27.1 22.1 26.6 76.4
------------- ------------- ------------- ----------- -------
Accumulated depreciation
At 1 January 2021 0.6 19.8 8.4 9.7 38.5
Charge in year - 1.3 2.2 4.3 7.8
Disposals - (0.2) (0.7) (2.5) (3.4)
------------- ------------- ------------- ----------- -------
At 30 June 2021 0.6 20.9 9.9 11.5 42.9
------------- ------------- ------------- ----------- -------
At 1 January 2022 0.6 21.6 6.1 10.8 39.1
Charge in year - 1.1 1.6 2.1 4.8
Disposals - - (0.4) (0.9) (1.3)
------------- ------------- ------------- ----------- -------
At 30 June 2022 0.6 22.7 7.3 12.0 42.6
------------- ------------- ------------- ----------- -------
Net book value
At 30 June 2022 - 4.4 14.8 14.6 33.8
------------- ------------- ------------- ----------- -------
At 30 June 2021 - 6.0 10.4 27.7 44.0
-------------------------- ------------- ------------- ------------- ----------- -------
11. CASH AND CASH EQUIVALENTS
Cash and cash equivalents are analysed below and include the
Group's share of cash held by joint operations of GBP55.4m (H1 21:
GBP57.0m).
30 June 31 December
2022 2021
GBPm GBPm
Cash and cash equivalents 131.9 159.4
Borrowings - current (7.8) (7.4)
Borrowings - non-current (28.0) (32.0)
-------- ------------
Net cash (net of arrangement fees) 96.1 120.0
Arrangement fees (0.2) (0.6)
-------- ------------
Net cash 95.9 119.4
------------------------------------ -------- ------------
Total borrowings of GBP35.8m (31 December 2021: GBP39.4m) are
shown net of arrangement fees of GBP0.2m (31 December 2021:
GBP0.6m).
12. PENSIONS
A defined benefit pension scheme is operated in the UK and a
number of defined contribution pension schemes are in place in the
UK. Contributions are paid by subsidiary undertakings and, to the
defined contribution schemes, by employees. The total pension
income in the income statement was GBP0.4m comprising GBP0.2m
included in operating costs and GBP0.6m interest income included in
net finance expense (H1 21: GBP0.2m total pension expense,
comprising GBP0.2m in operating costs less GBPnil interest income
included in net finance expense).
Defined benefit scheme
The defined benefit scheme was closed to new members on 31 May
2005 and from 1 April 2006 future benefits were calculated on a
Career Average Revalued Earnings basis. The scheme was closed to
future accrual of benefits to members on 30 September 2009. A full
actuarial valuation of the scheme was carried out as at 31 March
2019 and this was updated to 30 June 2022 by a qualified
independent actuary.
At At At
30 Jun 31 Dec 31 Dec
2022 2021 2020
GBPm GBPm GBPm
-------- -------- --------
Present value of defined benefit
obligations (602.2) (837.5) (886.5)
Fair value of scheme assets 688.4 904.6 880.9
-------- -------- --------
Recognised asset/(liability) for
defined benefit obligations 86.2 67.1 (5.6)
---------------------------------- -------- -------- --------
Movements in present value of defined benefit obligations
At At
30 Jun 31 Dec
2022 2021
GBPm GBPm
At 1 January 837.5 886.5
Past service cost - GMP equalisation charge -
Interest cost 7.5 11.7
Remeasurements - demographic assumptions (3.6) (5.4)
Remeasurements - financial assumptions (243.3) (16.1)
Remeasurements - experience adjustments 20.3 (6.5)
Benefits paid (16.1) (32.7)
-------- --------
At end of period 602.2 837.5
--------------------------------------------- -------- --------
Movements in fair value of scheme assets
At At
30 Jun 31 Dec
2022 2021
GBPm GBPm
At 1 January 904.6 880.9
Interest income 8.1 11.7
Remeasurements - return on assets (213.2) 34.6
Contributions by employer 5.2 10.4
Administrative expenses (0.2) (0.3)
Benefits paid (16.1) (32.7)
-------- --------
At end of period 688.4 904.6
----------------------------------- -------- --------
Expense recognised in the income statement
At At
30 Jun 31 Dec
2022 2021
GBPm GBPm
Administrative expenses paid by the pension
scheme (0.2) (0.3)
Administrative expenses paid directly by
the Group (0.8) (1.0)
Interest income on the net assets/liabilities 0.6 -
of the defined benefit pension scheme
-------- --------
(0.4) (1.3)
----------------------------------------------- -------- --------
Fair value of scheme assets
At At
30 Jun 31 Dec
2022 2021
GBPm GBPm
Global equities 125.9 137.2
Multi-asset growth funds 62.6 133.7
Multi-credit fund 123.2 118.1
LDI plus collateral 368.0 494.6
Property - 4.4
Cash 8.7 16.6
-------- --------
688.4 904.6
-------------------------- -------- --------
Principal actuarial assumption (expressed as weighted
averages)
2022 2021
% %
Discount rate 3.85 1.80
Future pension increases 3.00 3.25
Inflation assumption 3.15 3.40
-------------------------- ----- -----
Weighted average life expectancy from age 65 as per mortality
tables used to determine benefits at 30 June 2022 and 31 December
2021 is:
At At
30 Jun 31 Dec
2022 2021
Male Female Male Female
(years) (years) (years) (years)
------------------------ -------- -------- -------- --------
Currently aged 65 21.9 23.9 22.1 24.0
Non-retirees currently
aged 45 22.9 25.1 23.1 25.3
------------------------ -------- -------- -------- --------
In accordance with the pension regulations, a triennial
actuarial review of the Costain defined benefit pension scheme was
carried out as at 31 March 2019. In March 2020, the valuation and
an updated deficit recovery plan were agreed with the scheme
Trustee resulting in cash contributions of GBP10.2m for each year
commencing 1 April 2020 (increasing annually with inflation) until
the deficit is cleared, which would be in 2029 on the basis of the
assumptions made in the valuation and agreed recovery plan.
In addition, as previously implemented, the Group will continue
to make an additional contribution so that the total deficit
contributions match the total dividend amount paid by the Company
each year. Any additional payments in this regard would have the
effect of reducing the recovery period in the agreed plan. The
Group will also pay the expenses of administration in the next
financial year.
Any surplus of deficit contributions to the Costain Pension
Scheme would be recoverable by way of a refund, as the Group has
the unconditional right to any surplus once all the obligations of
the Scheme have been settled. Accordingly, the Group does not
expect to have to make provision for these additional contributions
arising from this agreement in future accounts.
The next triennial valuation of the Costain Pension Scheme has
an effective date of 31 March 2022. Initial results are expected
from the Trustee's Actuary imminently and discussions on these are
expected to take place over the second half of 2022. We have until
30 June 2023 to finalise the valuation.
Defined contribution schemes
Several defined contribution pensions are operated. The total
expense relating to these plans was GBP5.5m (H1 21: GBP4.9m).
13. SHARE CAPITAL
H1 22 H1 21
------------------------------ -------------------------- ----------------------
Nominal
Number Nominal Number value
(millions) value GBPm (millions) GBPm
------------------------------ ------------ ------------ ------------ --------
Issued share capital
Shares in issue at beginning
of period - ordinary shares
of 50p each, fully paid 275.1 137.6 275.0 137.5
Issued in year - - - -
------------------------------ ------------ ------------ ------------ --------
Shares in issue at end of
period- ordinary shares of
50p each, fully paid 275.1 137.6 275.0 137.5
------------------------------ ------------ ------------ ------------ --------
The Company's issued share capital comprised 275,084,741
ordinary shares of 50 pence each as at 30 June 2022.
All shares rank pari passu regarding entitlement to capital and
dividends.
Independent review report to Costain Group Plc
Report on the condensed consolidated interim financial
statements
Our conclusion
We have reviewed Costain Group Plc's condensed consolidated
interim financial statements (the "interim financial statements")
in the Results of Costain Group Plc for the six month period ended
30 June 2022 (the "period").
Based on our review, nothing has come to our attention that
causes us to believe that the interim financial statements are not
prepared, in all material respects in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
The interim financial statements comprise:
-- the Group Balance Sheet as at 30 June 2022;
-- the Group Income Statement and the Group Statement of
Comprehensive Income for the period then ended;
-- the Group Cash Flow Statement for the period then ended;
-- the Group Statement of Changes in Equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Results of
Costain Group Plc have been prepared in accordance with UK adopted
International Accounting Standard 34, 'Interim Financial Reporting'
and the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International
Standard on Review Engagements (UK) 2410, 'Review of Interim
Financial Information Performed by the Independent Auditor of the
Entity' issued by the Financial Reporting Council for use in the
United Kingdom. A review of interim financial information consists
of making enquiries, primarily of persons responsible for financial
and accounting matters, and applying analytical and other review
procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Results and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the interim
financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than
those performed in an audit as described in the Basis for
conclusion section of this report, nothing has come to our
attention to suggest that the directors have inappropriately
adopted the going concern basis of accounting or that the directors
have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on
the review procedures performed in accordance with this ISRE.
However, future events or conditions may cause the group to cease
to continue as a going concern.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Results, including the interim financial statements, is the
responsibility of, and has been approved by the directors. The
directors are responsible for preparing the Results in accordance
with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority. In preparing the
Results, including the interim financial statements, the directors
are responsible for assessing the group's ability to continue as a
going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or to cease
operations, or have no realistic alternative but to do so.
Our responsibility is to express a conclusion on the interim
financial statements in the Results based on our review. Our
conclusion, including our Conclusions relating to going concern, is
based on procedures that are less extensive than audit procedures,
as described in the Basis for conclusion paragraph of this report.
This report, including the conclusion, has been prepared for and
only for the company for the purpose of complying with the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility
for any other purpose or to any other person to whom this report is
shown or into whose hands it may come save where expressly agreed
by our prior consent in writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
23 August 2022
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END
IR ZZGZRKFRGZZM
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August 24, 2022 02:00 ET (06:00 GMT)
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