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Costain Group PLC
Annual Report & Accounts
2020
Contents
Overview
Highlights
Company Overview
Why Invest in Costain?
Market Overview
Our Business Model
Strategic Report
Chair’s Statement
Chief Executive Officer’s Statement
Responding to COVID-19
Strategy Implementation
Our Stakeholders
S172 Statement
Responsible Business
Non-financial Information Statement
Operational Review
Chief Financial Officer’s Review
Principal Risks and Uncertainties
Long-term Viability and
Going Concern Statement
Governance
Governance at a Glance
Board of Directors
Group Executive Board
Governance Report
Chair’s Introduction
Case Study on Board Engagement
Our Governance Structure
Board Leadership
Our Purpose, Values and Culture
Key Activities
Audit Committee Report
Nomination Committee Report
Directors’ Remuneration Report
Remuneration at a Glance
Annual Statement by Chair of
the Remuneration Committee
Remuneration Policy
Annual Report on Remuneration
Directors’ Report
Directors’ Responsibility Statement
Independent Auditor’s Report
Accounts
Consolidated Income Statement
Consolidated Statement of Comprehensive
Income and Expense
Consolidated Statement of Financial Position
Company Statement of Financial Position
Consolidated Statement of Changes in Equity
Company Statement of Changes in Equity
Consolidated Cash Flow Statement
Company Cash Flow Statement
Notes to the Financial Statements
Other Information
Five-Year Financial Summary
Financial Calendar and Other
Shareholder Information
Contact Us
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Costain is a
smart infrastructure
solutions company
Our purpose is to improve people’s lives.
We deliver integrated leading edge smart
infrastructure solutions to meet national
needs across the UK’s transportation,
water, energy and defence markets.
Our services
Future shaping strategic consultancy
We work with our clients in their business and investment planning to
develop new solutions to meet changing needs, leveraging our deep
client insight, leading edge expertise and broad range of capabilities.
Consultancy and advisory
We improve our clients’ business performance by providing value
adding consultancy and advisory services, leveraging our deep client
insight, leading edge expertise and broad range of capabilities.
Digital technology solutions
We transform business performance and infrastructure intelligence
through the development and integration of leading edge digital
technology solutions built on our deep client insight.
Asset optimisation
We combine our deep client insight and leading edge expertise
to increase capacity, improve resilience, minimise downtime and
reduce our clients’ operating costs.
Complex programme delivery
Our complex programme delivery is safer, faster, better,
smarter and costs less as a result of our pioneering working
practices and collaborative behaviours.
See more online at
www.costain.com/investors/
Overview | Highlights
Highlights
• Operating effectively and profitably
• Continued momentum in securing new
• In responding to COVID-19 all contracts continue
to operate effectively with clear safety measures
and remote working in place.
• Adjusted operating profit of £18.0m (2019:
£37.9m), despite financial impact of COVID-19,
in line with revised expectations.
• Statutory reported loss before tax of £96.1m
(2019: £6.6m) includes significant charges in
relation to the Peterborough & Huntingdon (P&H)
and A465 contracts.
• Significant operational improvements made
• New leadership team, de-layered organisational
structure and improved contract selection and
risk management processes.
work in line with strategic focus
• £2.3bn of new contract awards and extensions,
including £1.1bn of new contract awards and
extensions and £1.2bn of preferred bidder
positions at year-end.
• £4.2bn order book.
• Strong year-end cash
• Net cash of £102.9m (2019: £64.9m).
• Confident outlook for 2021 and beyond
• Substantial and growing infrastructure market,
positioned on significant long-term underwritten
investment programmes.
• Confident in delivering growth in profits and
margins in 2021.
Adjusted1 Group revenue
Adjusted2 profit before tax
Net cash balance3
£1,070.5m
£13.9m
£102.9m
2020
2019
£1070.5m
£1,175.6m
2020
2019
£13.9m
£34.6m
2020
2019
£102.9m
£64.9m
Reported Group Revenue
£978.4m
Adjusted2 basic earnings/(loss)
per share
Adjusted2
operating profit
01
5.8p
£18.0m
2020
2019
£978.4m
£1,155.6m
2020
2019
5.8p
25.1p
2020
2019
£18.0m
£37.9m
Last year was a challenging year but we are proud of how well everyone at Costain responded and the resilience
shown across our business enabling us to continue to operate effectively with strict COVID-19 safety measures
in place.
We are pleased to report an adjusted operating profit of £18.0m, despite the financial impact from COVID-19.
The significant charges reported at the half-year relating to two contracts are clearly disappointing and
importantly we have taken robust steps to prevent such issues from reoccurring.
Last year, we continued to be successful in winning new contracts and preferred bidder positions worth
over £2.3bn with an increasing proportion of this work incorporating our broader service offering in line
with our strategy.
The UK Government has provided a clear strategic framework for UK infrastructure investment underpinned by
long-term underwritten investment programmes to support the UK Government’s drive to level up economic
growth and to meet decarbonisation commitments. We are confident that Costain is in a good position to
capitalise on the opportunities in front of us and to grow our profits in 2021.
1 Before revenue impact of significant contract provision adjustments of £92.1m (2019: £20.0m) (see financial statements note 3 on page 139).
2 Before net other items of £10.3m (2019: £21.1m) and significant contract provision adjustments of £99.7m (2019: £20.0m) (see financial
statements note 3 on page 139).
3 Net cash balance is cash and cash equivalents less interest-bearing loans and borrowings (before arrangement fees of £1.2m).
Company Overview
We improve people’s lives
by delivering responsible
smart infrastructure solutions
What we do
Why we do it
We offer our clients leading edge solutions through
five core 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.
Costain’s purpose is to improve people’s lives by
helping to: connect and keep the nation moving,
keep water clean and flowing, power communities
sustainably and keep people safe.
Consultancy
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Future s h
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Digital
How we do it
We deliver integrated
leading edge smart
infrastructure solutions to
meet national needs across
the UK’s transportation,
water, energy and defence
markets.
See pages 12 and 13 for
our business model
0202
Costain Group PLC
Annual Report & Accounts 2020
Improving
people’s lives
Asset optimi s a t i o n
Our markets
Transportation
We connect and keep
the nation moving
Water
We keep water clean
and flowing
Energy
We power communities
sustainably
Defence
We keep the
nation safe
See more on page 08
See more on page 09
See more on page 10
See more on page 11
See pages 06 to 11 for more information on our markets
Overview | Company Overview
Our Leading Edge strategy
Our Leading Edge strategy closely aligns our services to meet the
changing needs of our blue-chip clients whose major spending plans
are underpinned by strategic national needs, regulatory commitments,
legislation or essential performance requirements.
Our strategic priorities
Our strategic priorities drive continued progress and differentiation and
are linked directly to our Executive Board-sponsored implementation plan.
Assuring and enhancing
our performance
Developing our skills
and capabilities
Delivering innovative
solutions
Leading as a
responsible business
See pages 22 and 23 for more information on our strategy implementation
Delivered through our people
Our outstanding team, strong culture and embedded values
underpin everything we do. Our people are essential to the success
of our business and we are proud to have such a highly skilled, inclusive
and experienced team.
The COVID-19 pandemic has fundamentally changed the way that
we work. As we have adapted to the pressures of working during
lockdown, the wellbeing of our teams has been at the forefront of
our decision-making. Read more about our response to COVID-19
on pages 20 and 21 and about our purpose, values and culture on
pages 62 and 63.
03
03
Why Invest in Costain?
Positioned for
future growth
The long-term, strategic nature of our client relationships and our positioning on key
infrastructure spend programmes across our core markets provides us with a strong
platform to accelerate the deployment of our higher margin services alongside our
complex programme delivery.
Strategically aligned
to meeting market
priorities
• Focused on markets with
increasing committed spend
driven by the levelling-up
agenda, decarbonisation and
provision of essential services.
• Long-term investment
plans driving sustainable
market growth as a result of
technological, demographic
and environmental change.
• Well positioned on long-term
infrastructure programmes
across all of our markets.
Long-term strategic
relationships, client
insight and domain
knowledge
• Developed by working
alongside clients as trusted
advisors, understanding
their challenges and desired
outcomes to co-create the best
solutions and deliver leading
edge services.
• Leveraging 155 years working as
trusted delivery partners across
transportation, water, energy
and defence.
Our people
• Focused, experienced
management team driving
Leading Edge strategy
implementation.
• Broadening mix of skills and
diversity across our workforce,
with over 400 chartered
professionals.
• Attracting and developing
industry-leading talent, bringing
a fresh perspective to our
clients’ challenges.
• Supporting 15 PhDs who
collaborate with our projects to
provide insight and innovation.
Read more on pages 06 to 11
Read more on pages 32 to 35
Read more on pages 50 and 51
Repeat business
90%
Our employees
c 3,100
across the UK
Awards and recognition
Top 50 Employers
for Women Consultants
Armed Forces Covenant
Race at Work Charter
Disability Confident
BSI Kitemark for
Innovation Consultants
04
Costain Group PLC
Annual Report & Accounts 2020
Overview | Why Invest in Costain?
Our purpose is to improve
people’s lives and our vision
is to be the UK’s leading smart
infrastructure solutions company
Financial strength
• Positive net cash position.
Leading as a
responsible business
• Positioned for growth with
strong momentum in new
orders, a £4.2bn order book,
new contracts and preferred
bidder positions of £1.2bn and
positions on some 60 major
live frameworks, with 27 won
in 2020.
• Strengthened balance sheet,
enabling the Group to capitalise
on the growing infrastructure
market opportunities.
• Responsible business priorities
aligned to the United Nations
Sustainable Development Goals.
• Committed to:
– creating a greener future
– ensuring Costain is a safe, inclusive
and great place to work, where
everyone can be at their best
– enhancing the value that Costain
contributes to society.
• Robust corporate governance and
risk management processes.
Read more on pages 36 to 39
Read more on pages 40 to 43
Order Book
£4.2bn
at 31 December 2020
Preferred bidder
£1.2bn
at 31 December 2020
Our Leading Edge strategy
enables us to achieve our
purpose and vision
05
05
Market Overview
A continually
evolving market
UK Government recognises the critical role of infrastructure in supporting a growing and globally
competitive economy and in decarbonising our environment. Reinforcing its commitment, UK
Government has also stated that the infrastructure and construction sectors are vital to the recovery
of the economy following the impact of COVID-19. As the graphic below shows, Costain is well placed
to support UK Government in delivering its infrastructure ambitions across our markets.
Our markets are underpinned by significant UK Government and regulated investment, including the
National Infrastructure Strategy, the Ten Point Plan for a Green Industrial Revolution and Energy
White Paper, the Defence spending review, Ofgem’s commitment to RIIO-2 and Ofwat’s commitment
to AMP7, all of which are focused on delivering safer, better, greener, faster and more efficiently.
Costain position against UK major infrastructure spend programmes
06 Costain Group PLC
Annual Report & Accounts 2020
Significant market opportunity
Our markets are underpinned by significant UK Government investment and regulatory commitments,
including UK Government’s Build Back Better roadmap for recovery and its commitment of over
£600bn of gross public sector investment in infrastructure over the next five years.
Transportation
Water
Energy
Defence
RIS2 – £27.0bn
HS2 P1&2
AMP7
Ten-point plan
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£27.4bn
£40.0bn
Network Rail CP6 (2019–24)
£51.0bn
£53.0bn
Investment in local and
devolved authorities
£20.2bn
Highways England Smart
Motorways Alliance
Highways England Regional
Delivery Partnership
HS2 Enabling Works
HS2 S1 and S2 Main Works
Network Rail CP6 – Gatwick Airport
Network Rail Design Services
Framework
Lancashire County Council Preston
distributor road
East Sussex County Council
highways services
Anglian Water Strategic Pipeline
Alliance
Severn Trent Water capital delivery
programme
Southern Water capital delivery
programme
South Staffs Water consultancy
and asset management
Thames Water AMP7 PMO
United Utilities Managed Service
Provider
Welsh Water innovation funding
Yorkshire Water Technical Service
Framework
Energy
White Paper
£12.0bn
stimulating significant private
investment to 2030
RIIO-2
£30.0bn
Defence Budget
£41.5bn
Defence Review 2020
£16.5bn
additional funding over 4 years
plus £5.0bn of existing
commitments
South Wales Industrial Cluster
Dreadnought
Scotland Industrial Cluster
SSEN microgrid
AWE
Rolls Royce
U-Battery Developments Limited
advanced modular reactor
Babcock Devonport
BAE
Cadent CMO
Overview | Market Overview
Bringing action to the consultancy market
2020 has been a year of gathering momentum for our consultancy business,
building firm foundations on which we will continue to deliver growth.
We continue to lead the South Wales Industrial Cluster deployment project working with
multiple partners to create a hydrogen economy, increase energy efficiency and avoid carbon
emissions while exploring opportunities for Carbon Capture Usage and Storage (CCUS) and
low carbon power generation to decarbonise industry in South Wales and support the green
industrial revolution agenda. In addition, 2020 has seen Costain working with Highways
England, Thames Water, Cadent, Yorkshire Water, TfL, First Group, Manchester Airports
Group, Babcock and many more clients
in a consulting capacity. Costain gained
external recognition for its consulting
work with the BCIA product innovation
of the year award, WICE Recognition
for Best Woman Consultant and
nominations for five other members of
our team. We were listed in the FT’s
Management Consultancy listings for
the second year running.
See more online at
www.costain.com/what-we-do/
Evolving our digital offering
In 2020, we made good progress towards achieving our vision of being the UK’s
leading digitally enabled smart infrastructure solutions company.
We helped to reduce operating costs and save lives by making hundreds of remote pedestrian
level crossings safer. Our own technology team developed a reliable solar powered, wireless,
radar-based warning system called Meerkat. This will be deployed across the majority of
Network Rail’s remote level crossings in 2021.
Our digital technology capabilities continue to be focused around solving our clients’ most
pressing issues and helping them and our sector to make the changes required to design,
deliver and operate digitally connected and data-rich national infrastructure. Our U-Route
solution, which optimises the design process and improves project delivery certainty, won
British Construction Industry award for
Product Innovation of the Year.
2020 also saw us enhance our position
as a key provider of digital advisory
services to government by winning a
place on the new G-Cloud 12 and
Digital Outcomes and Specialists 4
(DOS4) frameworks where UK public
sector organisations can directly
procure hosting, software, advisory
and support services.
See more online at
www.costain.com/what-we-do/
07
Market Overview continued
Transportation
We connect and keep
the nation moving
08 Costain Group PLC
Annual Report & Accounts 2020
We deliver major infrastructure programmes in line with the levelling up agenda for
economic growth and which support the UK’s decarbonisation ambitions. We have
continued to deliver complex programmes which increase the capacity of the transport
network, enhance the customer experience and improve journey times and safety.
Client need
Safe and seamless journeys; improving
network capacity and air quality; increasing
connectivity and data capture; transition to
a low carbon future and lowering capital
expenditure and maintenance costs.
As a specialist adviser and integrator of smart
transport digital technology, asset optimisation
and decarbonisation solutions, we have provided
tailored solutions to regional and local transport
operators to help make the UK’s roads safer
and greener.
We are positioned across several nationally
significant infrastructure projects such as Highways
England’s Regional Delivery Partnership and Smart
Motorways Alliance, the A14, HS2 and Crossrail.
In addition, we continue to support devolved
government programmes which deliver UK
Government’s levelling up agenda by offering
increased economic growth, connectivity and
productivity.
Improving national infrastructure by:
• increasing productivity and effectiveness
in complex programme delivery
• assuring delivery by forecasting and
mitigating the risk of harm on major
schemes
• matching the pace of infrastructure-side
technology to enable more efficient,
safer and greener journeys
• making roads safer by developing,
integrating and maintaining the next
generation of digital message signs
• helping clients achieve their carbon
reduction targets by making hydrogen
fuel a reality for transport
• ensuring net positive biodiversity
gain using leading edge geospatial
technology
• maximising the socio-economic value
of projects through implementing
industry-leading social value initiatives
• supporting the transition to zero
carbon transport.
Overview | Market Overview
Water
We keep water clean
and flowing
We continue to provide leading edge, technology-based solutions to UK water utility
companies across the lifecycle of their assets. In 2020 we were at the front end of clients’
delivery strategies in AMP7 helping them to drive safer, faster, greener, better and more
efficient capital programmes and asset operations.
09
Across the water sector we provide a broad
range of integrated consultancy and digital
services to drive the efficient optimisation of
water and wastewater assets, transforming
performance, enhancing resilience, reducing
risks and minimising carbon emissions.
We continue to help water companies meet their
net zero carbon commitments through innovation
projects. For example, in collaboration with
Welsh Water, we have been working on the
Hy-Value project. This aims to convert sewage-
derived biogas into zero emission fuel that could
power Welsh Water’s fleet of vehicles (as well as
those belonging to local councils).
Client need
Improved regulatory performance and
customer service; lower water bills;
digitisation of assets; increased asset
resilience; environmental protection; carbon
reduction and embedded social value.
Improving national infrastructure by:
• significantly reducing programme
timeframes
• digitising existing assets to optimise
performance
• minimising water usage and
environmental impact
• delivering efficiencies through effective
programme management and
collaborative innovation
• offering better services to the client and
delivering regulatory outcomes early
• ensuring zero interruption to supply to
improve customer service.
Market Overview continued
Energy
We power communities
sustainably
10
Costain Group PLC
Annual Report & Accounts 2020
We continue to work with industry, transport and energy utilities to shape the decarbonised
energy systems of the future. These will safeguard security of supply and support the UK’s
journey towards net zero carbon, aligned with the UK Government’s Energy White Paper
and £12 billion Ten Point Plan for a Green Industrial Revolution.
In 2020 we continued our important roles in the
South Wales and Scotland industrial clusters. We
looked at the infrastructure required for the
development of the hydrogen economy, for large
scale carbon capture, usage and storage (CCUS)
and transport. We also demonstrated the
feasibility of the concept of hydrogen ‘deblending’
for a first of its kind programme, bringing together
all the gas distribution networks to collaboratively
develop innovative hydrogen solutions that will
decarbonise energy for heat, transport, industry
and power generation.
We are collaborating to develop an advanced
modular reactor (AMR) which is being funded as
part of the Energy and Industrial Strategy’s
Energy Innovation Portfolio.
Client need
Decarbonisation; decentralisation; enhancing
efficiency; improving resilience and reducing
cost of decommissioning legacy assets.
Improving national infrastructure by:
• decarbonising energy through innovative
hydrogen and decarbonisation solutions
• enabling cost effective and large-scale
capture, transport and storage of CO2
• reducing capital expenditure and
environmental impact of gas infrastructure
• improving security of supply of remote
networks
• assuring delivery certainty for major asset
optimisation and capital programmes
• enhancing energy efficiency of industrial
processes and oil and gas infrastructure.
Overview | Market Overview
Defence
We keep the nation safe
We continue to successfully position as the consultant of choice for delivery of national
strategic defence infrastructure programmes. Our services cover fully managed and strategic
advisory services, backed by digital solutions which achieve improved value for money
outcomes for our clients. We are leveraging 150 years of delivering complex programmes,
our leading edge digital technology solutions, behavioural science work and P3M expertise
to help clients transform performance of infrastructure investments.
11
Client need
A trusted partner on complex, mission
critical equipment programmes; improved
value for money certainty; equipment
programme continuity and change control;
improved performance; security of data and
reduction in through life costs of assets.
Spanning the full programme and project
lifecycles we provide high value programme and
project leadership and controls; advisory, risk,
engineering and assurance; and digital services
that help clients to optimise the performance of
the most complex national strategic programmes,
including our involvement in the Continuous At
Sea Deterrent (CASD) and Defence Estates.
Achievements in 2020 include successful
programme delivery for a key defence client with
no schedule impact despite COVID-19,
achievement of a prestigious Quality Award and
introducing additional value through our digital
services such as digital twin capability.
Improving national infrastructure by:
• enhancing cost certainty and minimising
time delays through digitising
programme controls
• improving performance of middle and
senior management through P3M
(technical and behavioural skills)
continuing professional development
• risk resilience, improving performance
and reducing costs of programme change
• more efficient operations and
maintenance through improved
forecasting and resource planning
• greater delivery confidence in strategic
programmes through P3M transformation,
design and implementation
• better and faster surveillance deployment
through specialist technology
engineering, supply and maintenance.
Our Business Model
Aligning our services
Distinct business model
Five core services targeted at a blue-chip client base with non-discretionary, long-term spend across four key markets.
Our markets
Transportation
We connect and keep
the nation moving
Water
We keep water clean
and flowing
Energy
We power communities
sustainably
Defence
We keep the
nation safe
12 Costain Group PLC
Annual Report & Accounts 2020
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Future s h
strategic c o
Consultancy
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Digital
Improving
people’s lives
Asset optimi s a t i o n
How we operate
Leading business responsibly
We focus on operating a sustainable business that
creates economic, environmental and social value and
delivers tangible benefits for all of our stakeholders.
Embedded values and culture
Our strong culture and embedded values underpin
everything we do.
Robust corporate governance
We have rigorous policies and procedures and
mandatory training to ensure we do things right
first time.
Effective risk management
We have robust risk management processes which
identify, manage and mitigate potential risks to
protect the performance of the Group.
Our evolving service mix
Our strategy will ensure we remain a highly valued and cutting edge partner to our clients and supports
improved profitability. We are targeting divisional margins of 6% to 7% over the medium term, aiming for
45% of our profitability being derived from our complex programme delivery and 55% from our integrated
consultancy and digital services.
Implementing our Leading Edge strategy
i
*
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13
* Related to normalised profitability
Medium-term margin progression
Digital
technology
solutions
Consultancy
and advisory
Complex
programme
delivery
Our sources of competitive advantage
Long-term, strategic relationships and client insight
We develop long-term relationships with our clients,
collaborating strategically at all levels and understanding
their individual needs to deliver optimal solutions.
Benefits driven, leading edge services
We invest in research, innovation and technology to
provide the leading edge solutions our clients need.
Delivering solutions safer, faster, greener, better and
more efficiently.
Outstanding reputation and diverse team
We are recognised for our outstanding delivery,
technical excellence and our diverse, industry
leading team.
Delivery pedigree
Our clients trust us to consistently deliver innovative
solutions on time and on budget, achieving measurable
outcomes which improve their business performance.
Overview | Our Business Model
Chair’s Statement
We have worked hard this year to manage the operational impact of COVID-19 and successfully
adapted to maintain productivity while employing strict safety measures to protect our people,
our teams and the communities in which we work.
14 Costain Group PLC
Annual Report & Accounts 2020
We have reported an adjusted profit of
£18.0m. Supported by the strength of
our balance sheet following the
successful capital raising, we have
secured £2.3bn of new contracts and
preferred bidder positions and
positions on some 60 major live
framework contracts, with 27 won in
2020. An increasing proportion of this
work incorporates our broader service
offering. This was a positive
performance in the context of the
challenges created by the pandemic
and a clear demonstration of our
strategic progress.
Our 2020 results also reflect £94.7m of
significant charges from two long-
standing contracts in relation to
Peterborough & Huntingdon and the
A465 road construction (both disclosed
at the half-year) and a one-off charge
of £5.0m in relation to closing out a
legacy contract (ASF South). A number
of lessons have been learned and we
have made further organisational
changes and improved our governance
and controls.
These measures combined with the
momentum we are seeing in our
broader client offering provide a
robust platform to improve profitability
and deliver long-term value for our
shareholders.
Board and people
In 2020, there have been several
changes to your Board. On 19 June
2020, Bishoy Azmy was appointed as
non-executive director and
representative of ASGC, which has a
15.15% shareholding in the Company
following completion of the capital
raising. Helen Willis was appointed chief
financial officer in November, replacing
Anthony Bickerstaff who had served in
that role for 14 years. Tony Quinlan was
appointed to the Board as a non-
executive director in February 2021 and
will succeed Jane Lodge as chair of the
Audit Committee at the conclusion of
the Company’s 2021 Annual General
Meeting (AGM) to be held on 6 May
2021. As previously announced, Jane
Lodge will step down from the Board
after nine years of service at the
conclusion of the 2021 AGM.
People are essential to the success of
our business and we are proud to have
such a highly skilled and experienced
workforce of c3,100 people.
I would like to pay tribute to our
people, clients and supply chain for
their efforts to look after one another
and to protect our business, each other
and the communities we serve during
this pandemic.
Strategic Report | Chair’s Statement
Leading business
responsibly
See our Responsible Business
Commitments on page 28
Experienced
management team with
a far reaching skill set
See our Board of Directors
on pages 50 and 51
A Board committed to
the highest standards
of governance
15
See Board Leadership
on pages 58 to 61
Environmental, social purpose
and governance
Operating responsibly and sustainably
is a business imperative for Costain
and the safety and wellbeing of our
people, our clients, partners and the
general public is our highest priority.
In line with the United Nation’s
Sustainable Development goals, we
deliver on our purpose to improve
people’s lives, helping to build a
sustainable future and ensuring that
Costain is a safe, inclusive and great
place to work.
We have maintained a world-leading
safety performance, with only 10
reportable accidents occurring in over
31m hours worked. Our accident
frequency rate (AFR) of 0.03 continues
to lead the industry and I am pleased
to report that we had no significant
environmental incidents in 2020.
In February 2020 we set out our
Climate Change Action Plan to deliver
low carbon solutions to every client
by 2023 and to be net zero by 2035.
An early milestone this year was the
introduction of electric vehicles to our
car fleet with a target of achieving net
zero emissions from this source by
2023. In addition, we have been
working with our sites and supply chain
to reduce plant emissions by 20%,
sharing data and lessons learned to
tackle this industry emissions hot spot.
Costain was included in the FTSE4Good
index for the first time, demonstrating
our strong environmental, social and
governance (ESG) practices.
Dividend
The Group does not recommend
a dividend for 2020. The Board
recognises the importance of
dividends to shareholders and will
continue to review the reinstatement
of future dividends in the light of the
Group’s performance, cash flow
requirements and the importance of
maintaining a strong balance sheet.
Outlook
Looking ahead, our infrastructure
markets remain strong, supported by
significant long-term investment
programmes underwritten by
government policy, regulation,
legislation and critical national need.
The UK Government has set out the
critical role of new and modernised
infrastructure in supporting the
levelling-up of a growing and globally
competitive economy, and in
decarbonising our environment.
Our order book stood at £4.2bn at the
end of the year with a good level of
secured revenue for 2021 at c£1bn.
I am confident that Costain is in a
strong position to capitalise on the
opportunities in front of us and to
grow our profits in 2021.
Dr Paul Golby CBE
Chair
Chief Executive Officer’s Statement
In responding and adapting to COVID-19, our priority has been ensuring the safety and wellbeing
of our people and the communities in which we work, as well as protecting our business and
continuing to serve our clients. We are proud of how well everyone has adapted to achieve this
and would again like to pay tribute to our people, partners and clients who have done everything
they can to look after one another and to do the right thing.
16 Costain Group PLC
Annual Report & Accounts 2020
Last year was an exceptionally
challenging year as we worked hard to
successfully manage the operational
impact from COVID-19 and maintain
effective operations for our clients. We
also completed our capital raising
which strengthened our balance sheet
and was a positive catalyst for a
number of new contract wins.
We finished the year with an adjusted
operating profit of £18.0m, a positive
performance given the challenges
created by the pandemic and one we
are confident we can build on this year.
These results reflect £94.7m of
significant charges from two long-
standing contracts in relation to
Peterborough & Huntingdon (P&H) and
the A465 road construction (both
disclosed at the half-year) and a
one-off charge of £5.0m in relation to
closing out a legacy contract (ASF
South). Clear lessons have been learned
from these events and we have taken
decisive action to prevent such issues
reoccurring. We have strengthened the
senior leadership team, introduced
greater accountability from top to
bottom, improved our governance and
controls and completed a root and
branch exercise to identify and manage
potential contract risk. As a result,
Costain is a more resilient business and
one which I am convinced will move
forward with confidence to capitalise
on the many opportunities ahead of us.
The infrastructure markets in which
we operate have remained strong
and this is reflected in the level of
new work we have won. Supported
by the strength of our balance sheet
following our capital raising last
May, we secured £2.3bn of new
work awards including £1.2bn of
preferred bidders positions last year.
Our order book stood at £4.2bn at the
year-end and we have a good level of
secured revenue for 2021 at c£1.0bn
(compared to c £940m at FY2019). We
will also benefit from having positions
on some 60 major live frameworks,
with 27 won in 2020.
Our markets are supported by
significant long-term investment
programmes underwritten by UK
Government policy, regulation,
legislation and critical national need.
The UK Government has committed to
further investment to support its drive
to level up economic growth and to
meet decarbonisation commitments.
Crucially, we have positioned our offer
to meet the changing needs of our
clients through our complex
construction programmes, consultancy
contracts and digital performance
improvement unlocking the opportunity
to deliver safer, faster, greener, better
and more efficient solutions.
As well as taking advantage of these
market opportunities, improving our
business performance is paramount.
Our focus on delivering projects to
plan, managing our risks effectively,
prioritising cash generation and
continuing our efficiency programme
are the bedrock to delivering the
improved business performance
we expect in 2021.
Costain is committed to leading on
conducting business responsibly and
we have aligned our purpose of
improving people’s lives to the United
Nation’s Sustainable Development
Goals. Our focus areas are creating a
greener future, working towards being
net zero by 2035, ensuring Costain is a
safe, inclusive and great place to work
where everyone can be at their best
and enhancing the value that Costain
contributes to society.
“ Our priority has been ensuring the safety and wellbeing of
our people and we are proud of their response to COVID-19.”
Alex Vaughan Chief Executive Officer
17
Trading and financial performance
Results
Statutory reported Group revenue for
the year was £978.4m (2019:
£1,155.6m). The reduction in revenue
results from a lower level of capital
project activity, in line with our planned
strategic change in mix of services and
the revenue adjustment on the A465,
P&H and ASF South contracts.
Statutory reported loss before tax was
£96.1m (2019: loss of £6.6m) and
statutory reported loss per share was
36.7 pence (2019: 2.3 pence).
Adjusted operating profit was £18.0m
(2019: £37.9m) and adjusted basic
earnings per share were 5.8 pence
(2019: 25.1 pence). The adjusted
operating profit reflects the estimated
£9.2m impact of COVID-19, as well as
the impact of an extensive contract
review during the year assessing
end-of-life assumptions and changes
in margin mix and volume.
Order book
We have maintained our strong order
book at £4.2bn (as at 31 December
2020) with over 90% being repeat
orders, of which £1.1bn is new contract
awards and extensions. In addition, we
have a strong preferred bidder position
on contracts worth over £1.2bn
(including £1.0bn in respect of the
allocated work under the Highways
England Smart Motorway Programme)
and have secure positions on some 60
major live frameworks, with 27 won in
2020. The level of tendering activity
across our target markets remains high.
Operational changes
Leadership team
We have made further significant
changes to bolster the Executive Board
over the past year. Helen Willis joined as
chief financial officer in November 2020,
Sue Kershaw was appointed managing
director of the transportation division
in March 2020 and Sharon Harris was
appointed general counsel and company
secretary in September 2020. Other
new members of the leadership team
completed their first year, including
Nathan Marsh in the newly-created
position of chief digital officer, Maxine
Mayhew as managing director of the
natural resources division and Catherine
Warbrick as human resources director.
These changes have brought a refreshed
approach and diversified the experience
of our executive management team,
placing us in an even stronger position
to take advantage of the market
opportunity open to us.
Improved contract risk management
The Group’s contract selection, tender
and contract management processes
and behaviours have been enhanced
over the past 18 months, resulting in
lower contract risk and better cost
management throughout the lifecycle of
our projects. See more on the changes
we have made and our strategy
implementation progress on page 22.
Response to COVID-19
In responding and adapting to
COVID-19, our priority has been
ensuring the safety and wellbeing of
our people and the communities in
which we work, as well as protecting
our business and continuing to serve
our clients.
At the start of the pandemic, we took
decisive actions to reduce our cost
base, including management taking a
reduction to their salaries. Overall, in
2020 the estimated financial impact of
COVID-19 was mitigated to a reduction
in our profitability of £9.2m. The Group
received £2.0m from the COVID-19 Job
Retention Scheme and also took the
decision to defer VAT of c£10.0m under
an agreed UK Government scheme.
In the second half of the year we
adapted and maintained strong and
effective safety measures which
ensured the effective operation of
our business across every contract.
We remain alert to the continuing
challenges and will ensure that we
maintain the necessary safety measures
in place on all our contracts to both
keep our teams safe, and to maintain
our productivity.
Read more about our COVID-19
response on pages 20 and 21.
Our markets
Long-term investment plans are
shaping the increased investment in
the UK’s strategic infrastructure to
meet key national priorities. To meet
and benefit from these key
infrastructure priorities for the UK,
Costain has positioned itself as one of
the UK’s leading smart infrastructure
solutions companies operating across
the transportation, water, energy and
defence markets supporting the
delivery, enhancement and operation
of the UK’s critical infrastructure.
These markets have significant
long-term investment programmes
underwritten by UK Government
policy, regulation, legislation and
critical national need. They are
evolving rapidly and positioned for
accelerated growth responding to
population increases, climate change,
customers’ enhanced expectations of
improved service, ageing assets and
the need for greater efficiency and
performance including a growing
adoption of technology. All are
resulting in Costain’s clients changing
their business strategies and
investment priorities.
Strategic Report | Chief Executive Officer’s Statement Chief Executive Officer’s Statement continued
18 Costain Group PLC
Annual Report & Accounts 2020
UK Government investment
UK Government has set out the
critical role of new and modernised
infrastructure in supporting the
levelling up of a growing and globally
competitive economy and in
decarbonising our environment.
National Infrastructure Strategy
In response to the National
Infrastructure Commission’s
Infrastructure Assessment, the UK
Government published its National
Infrastructure Strategy in November
2020, committing to the investment of
£27.0bn in economic infrastructure in
2021–22.
Energy White Paper and
the Ten Point Plan
In December 2020, the UK Government
published its Energy White Paper
which provides further clarity around
the Prime Minister’s Ten Point Plan and
introduces a strategy to achieve it.
Defence spending
In November 2020, the UK
Government announced the biggest
programme of investment in British
defence since the end of the Cold War
with a £16.5bn increase above its 2019
manifesto commitment to be spent
over the next four years. This includes
a multi-year settlement to allow the
Ministry of Defence to invest in
next-generation military capability,
building on the previously pledged
increase in defence spending.
Devolved authorities
UK Government is investing in
numerous local infrastructure
programmes in addition to its
Levelling Up fund. These programmes
aim to increase connectivity, upgrade
local road and rail networks and
strengthen local environmental
protections with record levels of
investment in strategic roads, rail,
broadband and flood defences.
Regulated and private investment
In addition to UK Government’s
commitments, the scale of private
sector investment in infrastructure
is also increasing:
• in the water market, the regulator
Ofwat has approved investment
programmes for the water
companies amounting to £51.0bn
over the next five years to improve
water quality standards, supply
resilience, decarbonisation and
efficiency of operations; and
• in Energy, UK Government estimates
its Ten Point Plan will stimulate
further significant private investment
by 2030 across energy, buildings,
transport, innovation and the natural
environment. In addition, Ofgem has
confirmed its major investment
programme into Britain’s energy
infrastructure from 2021–26 (RIIO-2)
with £30.0bn upfront funding to
deliver a clean and reliable energy
system over and above the Ten
Point Plan.
Transforming performance
UK Government is also demanding
that our industry transforms the way
infrastructure programmes are
delivered in the UK to be faster,
greener and better. This will be
achieved through wide-ranging
reforms improving the way projects are
chosen, procured and delivered, and
the greater use of cutting-edge
construction technology. Costain was
directly involved in creating, and is a
signatory to, the UK Government’s
Construction Playbook which sets out
its proposals for this transformation.
Strategy and evolution of
our business
We have made good progress
implementing our Leading Edge
strategy, aligning our services to meet
the changing needs of our clients
across the markets which are
benefiting most from long term
strategic investment programmes.
As we broaden our offer from purely
complex construction to one which
also incorporates more innovative
consultancy and digital capabilities,
we become increasingly valuable to
our clients, resulting in a higher level
of profitability while at the same time
reducing our overall risk profile.
The progress we have made to date, in
particular the additional work we have
secured over the past 18 months gives
us confidence that we will achieve our
medium-term strategic objective of
6%–7% divisional margins with 55%
of profits derived from our higher
margin services.
The growth of the business and
increase in margins is being
delivered through:
Cutting edge complex construction
programme delivery
Costain continues to build a strong
position on the strategic long-term
(5 to 10 year) capital investment
programmes for our clients.
Through these programmes we
are implementing improved ways
of working; delivering safer, faster,
greener, better, and more efficient
construction solutions, both reducing
risk and increasing margins in line
with our targets.
Value and implementation
oriented consultancy
Leveraging our programme delivery
skills and expertise we are securing
new work as a consultant and advisor,
unlocking value for our clients, and
ensuring the solutions are delivered
effectively. These higher margin
consultancy frameworks and contracts,
with now over 1,000 consultants
deployed, will deliver margins within
our targeted range.
Digital performance improvement
Through leveraging our client
relationships, insight, and digital
expertise we are improving
performance and productivity by
delivering digital solutions including
improved ways of working, automated
services and new technology centric
solutions, which will deliver margins
in our targeted range.
Details of the contracts secured and
being delivered are included within the
Operational Review on pages 32 to 35.
As part of our strategy to improve
profitability, we are also on track to
meet our operational efficiency targets
aimed at delivering £20.0m of
annualised efficiencies by the end of
2024. We will be over half-way to
achieving this target at the end of
2021, which will enhance our
competitiveness and business
efficiency, with some of these
efficiencies shared with our clients
as well as reinvesting in the
development of our business.
Everyone at Costain is focused on
ensuring all projects are delivered to
plan and project risks are managed
effectively. This absolute focus
alongside the delivery of our strategic
plan is the bedrock to delivering the
improved performance we expect next
year and over the years ahead.
People
Our people are essential to the success
of our business and we are proud to
have such a highly skilled and
experienced employee base of c3,100
people, including over 400 chartered
professionals with a diverse range of
capabilities and c80 graduates and
c115 apprentices on a structured
development programme.
Diversity and inclusion remain a
business imperative for us and we were
very proud to be named as a Times
Top 50 Employer for Women for a third
year running. During the year, we stood
in solidarity with our black colleagues,
showing support for the Black Lives
Matter movement. We signed up to
the CBI ‘Change the Race Ratio’ and
Business In the Community ‘Race at
Work Charter’. In addition, we are a
proud signatory of the Valuable 500,
a global initiative to raise awareness
of disability inclusion and commit
businesses to action on this
important topic.
Environment, social purpose
and governance (ESG)
Costain is committed to leading on
conducting business responsibly and
this is a business imperative for the
Group. The safety of our people and
the general public is our number one
priority. We have maintained a
world-leading safety performance, with
only 10 reportable accidents occurring
in over 31m hours of work. Our
accident frequency rate (AFR) of 0.03
continues to lead the industry and I am
pleased to report that we had no major
environmental incidents in 2020. In
February 2020 we published our
Climate Change Action Plan which set
out the Group’s commitment to deliver
low carbon solutions to every client by
2023 and to be net zero by 2035 at the
latest without offsetting.
See more on our Responsible Business
Commitments and Climate Change
Action Plan on pages 28 to 30.
In delivering our Responsible Business
Commitments, the Costain business
was included in the FTSE4Good Index
for the first time, demonstrating our
strong ESG practices.
Outlook
Looking ahead, while mindful of the
macro-economic uncertainties, we are
confident in delivering growth in
profits and margins this year. Costain is
in a strong position with a high volume
of secured long-term programmes and
a positive market outlook, in particular
the UK Government’s commitment to
invest in infrastructure to support the
levelling of our economic activity and
decarbonisation of our environment.
Alex Vaughan
Chief Executive Officer
19
Strategic Report | Chief Executive Officer’s Statement Responding to COVID-19
We have responded
effectively to the
COVID-19 pandemic
20
Costain Group PLC
Annual Report & Accounts 2020
Since the onset of COVID-19 our priority has been to ensure the safety and wellbeing
of our people, clients and the communities in which we operate. We have protected
our business while continuing to work on critical national infrastructure programmes.
Our resilience and outlook
The Group’s contracts continue to operate
productively through the COVID-19 pandemic
with enhanced safety measures on construction
sites and colleagues working remotely. Our
offices have remained closed for the majority
of the year. However, when national guidelines
have allowed, we have been pleased to welcome
colleagues unable to work remotely or who were
experiencing wellbeing issues back into our
offices under COVID-19-safe conditions.
Our construction sites have remained
operational. They are now operating at normal
levels of productivity across the Group compared
to pre-COVID-19 levels. We remain alert to the
continuing challenges that the ongoing pandemic
is placing on our people’s safety and wellbeing
and on our operations. Overall, in 2020 the
estimated financial impact of COVID-19 was
mitigated to a reduction in our profitability of
£9.2m. The Group received £2.0m from the
COVID-19 Job Retention Scheme and also took
the decision to defer VAT of c£10.0m under an
agreed UK Government scheme.
Key COVID-19 impacts and mitigating actions
Impact: disruptions to productivity
Actions taken
Paused activities on several projects
Furloughed 360 employees, majority of
whom have returned to work by 1 Sept 2020
Restrictions to personnel on site due
to social distancing requirements
£2.0m recovered through
Job Retention Scheme to 1 Sept 2020
Delays to the award and start of new contracts
PAYE and VAT deferred (PAYE
paid July 2020, VAT payable from March 2021)
Additional costs for maintaining social
distancing and safety equipment
No UK Government loan schemes used
Costs of re-planning activities to
new operating procedures
Salary reductions of 10%–30%
for three months to 30 June 2020
Strategic Report | Responding to COVID-19
Safeguarding our workforce and supporting our stakeholders
Doing the right thing by our people, our clients, society and protecting our business has guided our decision-making
during COVID-19. Our Executive COVID-19 task force was formed to direct our response, supported by our COVID-19
steering group. These have been pivotal in leading our successful response to the pandemic and in enabling us to
continue to deliver services for critical national infrastructure programmes. These continue to operate.
Our Workforce
Our Clients
Protecting the health, safety and wellbeing of our people is
of paramount importance.
We responded immediately to our clients’ needs during
the pandemic.
• Our robust digital infrastructure enabled us to seamlessly
• Set up a rapid response microsite offering targeted
transition to working remotely and support this throughout
the year.
• Behavioural approach to safety and wellbeing which has
enhanced our ability to keep people safe and well. 92% of
our colleagues agree that Costain has taken the right steps
to secure their wellbeing while on site.
COVID-19 services to support our clients.
• Our project directors liaised closely with the Costain
COVID-19 steering committee and their client leads to
ensure our sites were adapted to allow safe social distancing.
We used innovative solutions like the social distance watches
on Thames Tideway.
• Every contract and department has developed and
• Pivoted from in-person site visits to virtual tours and
implemented a thrive plan to enable our teams to perform
at their best and provided our line managers with training on
managing in a virtual world.
• Our leadership impact days in April and September focused
on wellbeing, working from home and early lessons learned
from our response to the pandemic.
• We set up a COVID-19 intranet portal which was updated daily
with key information and FAQs for all staff. This became a
lynchpin of communication, supplemented by an active social
media group for furloughed staff and weekly communication
drop-in sessions for the Costain leadership group, where
challenges and concerns were heard and shared.
Our Shareholders
We acted decisively to mitigate the impact of COVID-19 on
our business and to update our shareholders on our
performance.
• Adapted our site operating procedures quickly and in
consultation with industry and clients to ensure our sites
could get back to operating productively.
• Implemented salary reductions between 10%–30% for three
months to June 2020.
• Issued a market update on 31 March 2020 on the impact of
COVID-19. Our interactive, virtual trading update in August
provided further information to our shareholders on how
Costain had reacted to the pandemic, and the on-going
impact on our operations.
engagement programmes across our projects.
Our Suppliers
21
We worked hard to support and engage with our supply
chain throughout the pandemic.
• In April 2020, our behavioural safety director, Alan Cheung,
delivered a practical briefing to our supply chain on how to
achieve social distancing on site.
• Our supply chain conference in September 2020 was held
virtually for the first time, with a focus on communication and
collaboration during the ongoing uncertainty resulting from
the pandemic.
Communities and Environment
Throughout the pandemic, we continued to take positive
action to support our communities.
• Supported Business In The Community with their National
Business Response Network, linking our supply chain with
community needs. In London we provided over 10,000 face
masks to a variety of community organisations.
• Costain military reservists were called up to support the
COVID-19 response, helping set up a Nightingale hospital.
w Strategy Implementation
Implementing our Leading
Edge strategy to align with
our clients’ changing needs
Our Executive Board-sponsored implementation
plan is driving change through our business,
aligning our services to meet the changing needs
of our clients and transforming how we deliver
those services.
Adapting our contract risk
management processes and
driving operational excellence
The Group’s contract selection, tender, contract
management processes and behaviours have been
enhanced over the last 18 months, resulting in lower
contract risk and better cost management throughout
the lifecycle of our projects. In reassessing our contract
selection criteria we have decided not to pursue one-off
energy EPC contracts, focusing instead on long term
investment programmes.
To enhance tender governance we have updated
policies for commercial expectations and risk appetite
for all new contracts, including reducing the acceptable
level of downside risk and increasing the minimum level
of acceptable profit for all new contracts. We have also
implemented a five-gated approval process prior to
signing any contract, including independent risk and
assurance review prior to target cost and contract
conditions approval.
In addition, we have implemented our ‘Operational
Excellence Model’ on all new contracts and existing
long-term frameworks. The monitoring and
administration of scope of works changes to identify
and escalate potential cost increases at an early stage
has been enhanced, including the rigour of monthly
reviews of all contracts in a standard and mandatory
format, and detailed measurement of work in progress
and cash collection. Our Smart Delivery Platform
supports the consistent delivery of our operational
excellence model across our projects. This positions our
contracts to maximise productivity through digitisation
and further improve access, development, accuracy and
speed in the use of data to enhance the pace of delivery
and quality of our projects.
See how our principal risks link to our strategic priorities on pages 42 and 43
Strategic priorities
Assuring and enhancing
our performance
Drive best in class productivity and enhance
operational performance in all service lines across
all projects through our Operational Excellence
Model (OEM). Continue to enhance and increase
our own efficiency through automation and
digitisation of our internal processes, and to
strengthen our contract governance.
Driven by our
implementation workstreams
• Leading Edge delivery
• Increased Competitiveness
2020 progress
• On track with annualised efficiencies
savings from both OEM roll-out and
expansion of robotic automation
processes (which contributed to
c28,000 hours saved across the
business).
• Group wide focus on strengthening
contract governance across all
contracts and services.
• Embedded our Supplier Relationship
Management system to further
streamline onboarding and
pre-qualification questionnaire
processes.
Key Performance
Indicators for 2021
• £12m annualised efficiencies.
• Margin progression across both
divisions c3.5%–4%.
• Complex Programme Delivery: All
new secured contracts delivering
3%–5% divisional margins.
22
Costain Group PLC Annual Report & Accounts 2020 Strategic Report | Strategy Implementation
Strategic priorities
Developing our skills
and capabilities
Develop our teams to create a culture
where everyone searches for opportunity
to broaden our service offering, achieving
excellence through our capabilities and
leveraging our full capability at every
opportunity.
Delivering innovative
solutions
Leading as a
responsible business
Become the UK’s leading smart
infrastructure solutions company. Provide
digital technology solutions across three
core offerings: digital delivery, digital
assets and digital systems integration.
Promote and ensure transparency of our
enhanced offering to the market and our
internal and external stakeholders. Shape
and support new solutions in emerging
markets with innovative thinking.
Continue to prioritise safety, health
and environment through our WiiSE
(wellbeing, safety and environment)
strategy, inclusion strategy and responsible
business commitments, allowing our team
to be at their best every day.
• Unlocking our capability
• Accelerating digital solutions
• Being at our best
• Building a sales culture
• Positioned for greater shaping
• Turning reputation into value
23
• Increasing work winning investment
spent on higher margin service
offerings.
• Embedded our digital sales leads
who helped secure key wins such as
the digital twin solution for Anglian
Strategic Pipeline Alliance contract.
• Restructured our transportation
divisional leadership to present
an integrated approach to market
opportunities and more closely align
with our clients’ needs.
• Implementing a new CRM system to
improve client and sales intelligence.
• Awarded BSI Kitemark for Innovation.
• Implemented common sales
operating model unlocking increasing
levels of profits from our integrated
consultancy and digital services.
• Secured leading roles in the
future decarbonisation of the UK
(see more on page 35).
• Launched Climate Change Action
Plan setting out our path to net-zero
carbon by 2035 (see more on page
30).
• Launched responsible business
commitments demonstrating our
alignment with the UN Sustainable
Development Goals.
• Listed in FTSE4Good Index for the
first time.
• Launched our Shadow Leadership
Programme, bringing together a
diverse and talented group to work
alongside and challenge our digital
and consultancy leadership groups.
• Secure two further Delivery Partner
programme positions and four
digital gamechangers.
• Secure new consultancy operation
and innovation funding with clients.
• Increase our digital sales order
• 40% of profits from higher margin
intake.
services.
• Reduce plant idling by 20% and
introduce greener company cars to
achieve a 20% CO2 reduction.
• Support 100 disadvantaged young
people and 100 under represented
people to enhance their job ready skills.
Our Stakeholders
Leading responsibly for
all of our stakeholders
Leading as a responsible business
We deliver on our purpose to improve people’s lives and build a sustainable future
by making positive contributions to society.
Operating as a socially responsible business is
integral to everything that we do. To be leading
edge, we need to be resilient to change and we
are committed to working with all of our
stakeholders to ensure that we are sustainable
for the future.
The Board and Executive Board of Costain have
overall accountability for responsible business
related activities and for ensuring that policies
and strategies are aligned with our wider
business objectives.
They also lead by example and ensure that
Costain’s success is delivered responsibly.
We have leadership groups that report our
responsible business performance to the
Board and hold direct responsibility for the
implementation and delivery of policy across
the organisation.
It is our policy to operate responsibly and with
high ethical standards, particularly with regards
to human rights issues. We take a zero tolerance
approach to corruption and bribery, and we have
an independent whistleblowing process in place
to ensure we maintain high standards in all areas.
Compliance with our anti-bribery policy is
reviewed on an annual basis by all relevant
officers, employees and partners and associated
persons within our supply chain.
24
Costain Group PLC
Annual Report & Accounts 2020
Our key stakeholder groups
Workforce
Our people are our most valuable
asset. We rely on their skills,
experience, knowledge and
diversity to deliver our purpose
to improve people’s lives.
Shareholders
Our shareholders’ views inform
our decision-making and it is
important that they understand
our strategic ambitions and
priorities.
Clients
Understanding our clients’
changing requirements is
fundamental to our success. We
support our clients by offering
them solutions to meet their
evolving needs.
Suppliers
Our suppliers are key to our ability
to deliver leading edge solutions
for our clients. It is important we
understand each other’s cultures
and methods of business.
Communities and Environment
We value the opportunity to engage with
our local communities across all of our
projects. We generate social value as a
result of our work in our local communities.
Making a positive contribution to our
environment and tackling climate change
are central to our operational practices.
See pages 26 and 27 for how we engage with our stakeholders
Strategic Report | Our Stakeholders
Aligning our strategic priorities and key stakeholder groups
Assuring and enhancing
our performance
ensures we remain competitive
by increasing our own efficiency
and drives best in class
productivity across our
projects for our clients.
Assuring and enhancing
our performance
Leading as a
responsible
business
Developing
our skills
and
capabilities
Leading as a
responsible business
sees us prioritising the
wellbeing and safety of our
people, maintaining an inclusive
culture and improving our natural
environment for the benefit of all of
our stakeholders.
Delivering innovative
solutions
Developing our skills
and capabilities
allows us to leverage our full
capability at every opportunity,
developing our teams and
individuals in a way which
supports their own interests
and development paths.
Delivering innovative
solutions
allows us to meet our clients’
changing needs and drives
resilience through our business
model, enhancing our offering
across our markets.
What matters to our stakeholders
We are committed to identifying and addressing the material sustainability issues
that affect Costain and our stakeholders.
Stakeholder engagement survey
To ensure that we focus on the big issues that
matter to our stakeholders, we conduct a
stakeholder materiality assessment every two
years. An assessment was conducted in 2019,
exploring issues that can affect and be
affected by our operations and through our
value chain. Many of these issues align with
the UN Sustainable Development Goals
(SDGs) and all require Costain to be a
responsible business.
In 2020 we launched our Responsible Business
Commitments developed from the feedback
gathered from our materiality assessment.
Our Responsible Business Commitments set
out the 2030 sustainability goals for Costain
and align them to the UN SDGs, creating a
clear linkage to the priority issues of our
stakeholders. Read more about our
Responsible Business Commitments on
page 28.
Material issues for our stakeholders
In addition to our stakeholder engagement
survey, we maintain a continual programme of
stakeholder engagement through face to face
meetings, surveys and desktop studies to
understand the issues that they currently face
and the risks that they see in the future.
In 2020 our stakeholders placed employee
and community wellbeing as their priority
focus, a direct impact of COVID-19. Other
priorities included racial equality in response
to the Black Lives Matter protests, climate
change, carbon reduction and social value.
Social value in particular is an umbrella term
for many pressing social issues, such as the
creation of employment outcomes, supporting
the COVID-19 recovery effort and mitigating
its ill effects on the wellbeing of society.
25
S172 Statement
Engaging with our stakeholders
Our commitment to stakeholders
We set out on page 24 our key stakeholder groups
and here we detail how we engage with each of
them. Each stakeholder group requires a tailored
engagement approach to foster effective
relationships. By understanding our stakeholders
and listening to their views and feedback, we can
factor into Board discussions the potential impact
of our decisions on each stakeholder group and
consider their needs and concerns.
The information included in the table to the
right and on pages 66 and 67 of the Corporate
Governance Report (Principal decisions), show
how the directors have performed their duty
under Section 172 Companies Act 2006, having
regard to various stakeholder factors.
Signed by the Board, 16 March 2021
26
Costain Group PLC
Annual Report & Accounts 2020
Workforce
Shareholders
How did we engage with them?
How did we engage with them?
2020 brought unprecedented challenge to
staying connected. To ensure we remained
connected with our workforce, we employed a
number of engagement methods:
• For our COVID-19 specific engagement, refer
to the briefing on pages 20 and 21.
• Our twice yearly leadership impact days went
virtual, as did our annual roadshow and digital
leadership day.
• Our site visits also went virtual, with our
leadership team ‘attending’ a number of our
projects via virtual platforms.
• We conducted wellbeing pulse surveys.
See pages 54 to 57 for how we gave our Board
first-hand insight into the successes, concerns
and challenges of our people.
We engaged with our large shareholders via our
brokers in respect of the capital raising
completed in May 2020.
Due to UK Government restrictions we were not
able to invite shareholders to the AGM in June
2020 in person, but we offered a facility for
shareholders to ask questions of the directors
and vote before the meeting, as we also did for
the EGM to approve the capital raising.
We wrote to our largest shareholders on two
occasions in 2020, once in relation to the
remuneration policy to be proposed at the 2020
AGM and secondly in relation to the grants of
our LTIPs to executive directors.
The Chair met separately and virtually with a
number of large shareholders in September to
discuss issues facing the Company.
What did we talk about?
What did we talk about?
• There was unsurprisingly a strong focus from
our workforce on protecting mental health
and supporting flexible working throughout
the pandemic. Our employees wanted us to
share best practice for working from home
and on site.
• Our employees also wanted to talk about
the Black Lives Matter movement which
dominated headlines in early 2020.
• Future working arrangements were also a
focus, particularly safety on sites.
• Prior to the initial announcement of our
intention to raise capital, we sought market
feedback on the proposal from our largest
shareholders and some prospective
new shareholders. Then, prior to the
announcement on 7 May 2020 of the final
form of the capital raising, we engaged with
shareholders, via the brokers, on the book
build to secure guaranteed funds.
• We talked to large shareholders throughout
the year in relation to announcements of results,
trading and contract updates, leadership
changes and executive remuneration.
• Improving our risk and governance processes.
How did we respond?
How did we respond?
• The amount proposed to be raised in the
capital raising was largely determined by
the level of support from shareholders when
we engaged with them early in the planning
process. As part of the capital raising, we
also welcomed ASGC as a shareholder of
15.15% of the Company.
• We took on board the comments of
large shareholders when finalising the
remuneration policy put to shareholders for
approval at the 2020 AGM.
• We were mindful of shareholder sentiment
and the overall shareholder experience when
we revised the EPS target and reduced the
quantum of awards for the 2020 LTIP.
• Both of our leadership impact days focused
specifically on promoting mental health
and wellbeing and sharing best practice
for working from home. Feedback from
colleagues suggested that being able
to share challenges with each other and
talk about how working from home was
impacting them was a positive experience.
This resulted in our processes in this area
being revised.
• Our Religion, Ethnicity and Cultural Heritage
network hosted a ‘Let’s Talk about Race’
session supported by our Group HR director,
managing director – natural resources
and one of our non-executive directors,
Jacqueline de Rojas. This provided a safe
space for colleagues to learn about race in
the workplace.
• As a result of employee feedback, we ran the
‘You spoke we listened’ campaign organised
around five Group-wide themes. See page 55
for more information.
Strategic Report | S172 Statement
Clients
Suppliers
Communities and
environment
How did we engage with them?
How did we engage with them?
How did we engage with them?
We work hard to maintain close relationships
with our clients, ensuring we gather regular
feedback and deliver on our promises.
Additionally we conduct client satisfaction
surveys which help us to manage our
performance. In 2020 we had a client satisfaction
score of 84% (2019: 86%).
Throughout 2020 we used digital means to keep
in contact with our clients, supporting virtual
site visits and inviting them to attend and
contribute to our annual leadership day and SHE
behavioural management conferences.
Equality, diversity and inclusion has been high
on our clients’ and our agenda this year, and we
have actively engaged on this topic.
See pages 56 and 57 for more detail on how our
Board engaged with our projects and clients.
Costain has a dedicated supply chain
management team responsible for our supply
chain relationships. Our supply chain managers
had to adapt in 2020 and engage with our
suppliers virtually.
Our supply chain conference was delivered
digitally this year and was hosted by David
Taylor, our Group commercial director.
We provided webinars for our supply chain to
engage with and understand our new supplier
relationship management (SRM) system that was
launched in 2019.
We continued our focus on supporting small
businesses and customised our supply chain
academy for digital delivery.
At a time when our communities were home more
than ever before, it was essential we kept in
touch, informed them of our activities and
supported their needs.
Some of our projects are high-profile and
sensitive by nature, attracting protestors for a
variety of social, environmental and economic
reasons. We advise our people not to engage
directly with protestors.
Digital communications continue to shape our
approach and have enabled us to keep connected
in 2020. In August, our A30 contract held a virtual
public exhibition, receiving an unprecedented
1,500 visitors in the first 48 hours. The virtual
platform enhanced accessibility for the
community and allowed members of the project
team to be on hand to respond to queries in a
more efficient way.
27
What did we talk about?
What did we talk about?
What did we talk about?
• Digital solutions such as thermal cameras
to maintain safe operating conditions in
response to the COVID-19 pandemic.
• COVID-19 controls on site and managing the
wellbeing of the workforce.
• Best practice and lessons learned in relation
to diversity, inclusion and equality in the
workplace.
• How we can best engage with clients to
understand their needs.
• Throughout the year we worked closely with
our strategic suppliers to understand their
Brexit mitigation plans, particularly with
respect to the availability of migrant labour
and materials. Engagement took place
throughout the year aligned to political
events.
• The wellbeing of our workforce and
COVID-19 safe controls.
• We have discussed in detail our Climate
Change Action Plan and our need to
address Scope 3 emissions, particularly
from materials such as concrete, steel and
aggregates.
• It has been important to reassure our
communities of the COVID-19 safe
measures we have taken.
• We have talked to our communities and
charities about the support they needed
during the lockdown periods.
• We continued to talk to our communities
about the impact of our operations on the
environment and sought to work together
to enhance the natural capital.
How did we respond?
How did we respond?
How did we respond?
• In our transportation sector, client director
roles have been created to more directly
address our clients’ specific needs.
• Our employee networks now have project
representatives who share best practice with
our clients and partners.
• Following positive feedback from both
clients and employees who participated
in our leadership impact days and annual
roadshow, we are aiming to further increase
client involvement in these activities in 2021.
• The findings of our engagement pre- and
post-Brexit have indicated there will be
minimal impact on availability of materials
and labour. We will continue to seek updates
as appropriate from our supply chain.
• Our director of behavioural safety provided
practical guidance to our supply chain on
achieving social distancing.
• We held two cohorts of our supply chain
academy, reaching 31 small and medium-
sized enterprises (SMEs) with free of charge
learning from our experts to optimise their
businesses.
• We delivered in partnership with the
Prince’s Trust three World of Work tours
programmes, engaging 30 young people
and raising awareness of career paths.
• We supported Business In The Community
with their National Business Response
Network, linking our supply chain with
community needs. In London we provided
over 10,000 face masks to a variety of
community organisations.
• Costain military reservists were called up to
support the COVID-19 response, helping to
set up Nightingale hospitals.
• We talked to our strategic suppliers about
• We produced an employee support guide
the Mental Health at Work Commitment and
we listened to their approach to employee
wellbeing and provided advice.
for managing protestors at our major
projects and offices. We are committed to
delivering projects that improve people’s
lives and add value to the UK economy.
Responsible Business
Leading with our Responsible
Business Commitments
In addition to providing leading edge solutions, operating responsibly and sustainably is a business imperative
for Costain. Underpinning our commitments to responsible business are 10 actions that all of our people, partners
and suppliers must factor into their decision-making, helping us to achieve our 2030 ambitions and positively
contribute to the UN Sustainable Development Goals (UN SDGs). Our commitment is supported by Costain’s
policies, procedures and enabling strategies and plans (wellbeing, safety and environment (WiiSE), Climate
Change Action Plan and inclusion strategy).
Commitments
Create a
greener future
Actions
1.
Always a low or zero carbon solution.
4.
Eliminate waste through circular
thinking.
2.
3.
Ensure Costain is a
safe, inclusive and
great place to work,
where everyone can
be at their best
Always prioritising the safety of our
colleagues and members of the public.
5.
Inclusive and accessible to all.
Enhance biodiversity, social value
and natural capital.
6.
Enable people to be at their best
everyday.
28 Costain Group PLC
Annual Report & Accounts 2020
2030 Goals
•
•
•
Net zero carbon on or before 2035,
for all operations.
Eliminate waste through an active role
in the circular economy.
Net positive biodiversity impact and
increased natural capital value.
• Eliminate all harm.
• A gender pay gap of <5% and a
reduction in our BAME pay gap
of 50%.
• Demonstrable improvement in
employee wellbeing as a result of
being at work.
In 2021 we will…
• Reduce plant idling by 20%.
• Continue to prioritise eliminating
Enhance the value that
Costain contributes to
society
7.
Work smart and efficiently.
8.
Procure sustainable goods and
services.
9. Client focused.
10. Deliver value for our shareholders.
• Spend £1bn with small businesses
or voluntary, community and social
enterprises (VCSE).
• Be recognised as a champion for
human rights.
• Exceed all relevant industry regulatory
customer satisfaction measures.
• Our alignment to the UN SDGs has
delivered enhanced shareholder value.
• Support 100 disadvantaged young
people and 100 under represented
people to enhance their job ready skills.
• To develop supply chain skills, we will
transfer 5% of our apprentice levy
to SMEs.
• Volunteer ≥ 500 hours to support
COVID-19 recovery initiatives.
• Spend >£100m with small businesses
and VCSEs with a view to accelerating
achievement of 2030 goal.
• Report social value outcomes on 100%
of relevant contracts.
• Our low emissions car fleet will
achieve a CO2 reduction of 20%.
• 100% of relevant contracts are
measuring natural capital and
biodiversity impact to target net gain.
• Our sites will continue to work hard
in protecting our local environments,
achieving an environmental incident
frequency rate of <0.12.
• Continue working towards
compliance with the Task Force on
Climate-related Financial Disclosures
(TCFD) recommendations.*
Our 2020 progress
• £29.9m and c543,000 tCO2eq have
been saved through implementation
of our Resource Efficiency Matrix in
2020.
• Certified to PAS2080.
• Launched our Climate Change Action
Plan to achieve net zero by 2035.
harm in all we do, which also supports
achieving an AFR of <0.04.
• Continue to support the Mental Health
at Work commitment.
• Run quarterly employee wellbeing and
engagement surveys.
• Have a 100% year-on-year increase
in inclusion network membership,
with 50 trained and visible allies
across the Group.
• Target that female colleagues will make
up 29% of our employee population.
• Target that BAME colleagues will make
up 11% of our employee population.
• Have an average Considerate
Constructors Scheme score of ≥42.
• Costain named as a Top 100
Apprenticeship Employer.
• Demonstrating commitment to
disability inclusion, Costain signed up
to the Valuable 500.
• A new employee forum ‘Your Voice’
was launched to help make Costain
a great place to work (see page 55).
• We donated over 10,000 face masks
to London community groups to
support their services.
• Costain signed up to the People
Matter Charter.
• Over £342m spent with VCSEs and
small businesses in 2020.
*
We have recognised climate change as an emerging risk (see our risks section on pages 40 to 43) and our Climate Change Action Plan
(see page 30) identifies opportunities for Costain to mitigate its carbon footprint as well as influence the footprint of our industry.
2021 will see us continue to work towards compliance with all four pillars of the TCFD recommendations.
Strategic Report | Responsible Business
In 2020, we launched our Climate Change Action Plan (see page 30). Our plan tackles the whole life carbon cycle footprint, addressing and eliminating our Scope 1,
2 and 3 emissions with a key focus on materials; specifically concrete, steel and aggregates. Our emissions data is calculated in line with the GHG Protocol and is
third party accredited under CEMARS by Achilles. 100% of our emissions are incurred in the UK.
Scope 1 – all direct emissions from the activities of an organisation or under their control.
Scope 2 – indirect emissions from electricity purchased and used by the organisation.
Scope 3 – all other indirect emissions from activities of the organisation, occurring from sources that we do not own or control. For example, our clients' and supply
chain Scope 1 emissions.
Our 2020 performance
Improving lives and contributing to the UN SDGs:
Create a greener future
CO2 data
CO2 emissions (tCO2e)
16,216 total*
2020
2019
Emissions intensity (tCO2e/£m)
16.52 **
14,970 Scope 1 (tCO2e) in ‘000s**
16,216
14,748
2020
2019
14,970
12,697
0.14
2020
2019
0.14
0.12
Environmental Incident Frequency Rate
(EIFR)
1,246 Scope 2 (tCO2e) in ‘000s*
2020
2019
16.52
11.37
2020
2019
1,246
2,051
*
In 2020, we began reporting both Renewable Energy Guarantees Origin (REGO) and non-REGO consumption in our Scope 2 emissions. We have restated our 2019
total and Scope 2 emissions to include REGO and non-REGO consumption, allowing direct comparison to 2020 emissions.
** Our Scope 1 emissions increase is a direct impact of increased gas oil and diesel consumption due to several projects entering their delivery phase during the
reporting period. This (and our reduced revenue in 2020) has impacted our Emissions Intensity. Our Climate Change Action Plan sets out the clear steps we are taking
to reduce our whole lifecycle footprint.
Ensure Costain is a safe, inclusive and great place to work, where everyone can be at their best
Diversity and inclusion
Equality, diversity and inclusion
2,302 male
815 female
Board members
3 male 4 female
Senior Management
23 male 10 female
2020
2019
74%
75%
26%
25%
2020
2019
43%
57%
57%
43%
2020
2019
70%
75%
30%
25%
• Formation of Disability & Wellbeing network.
• Costain recognised as a Times Top 50 Employer for Women for third consecutive year.
29
Accident Frequency Rate
(AFR)
0.03
2019: 0.05
• Our best ever All Accident Frequency Rate (AAFR) of 0.44.
• Representing a 34% year-on-year reduction and our best ever safety performance.
Enhance the value that Costain contributes to society
Group charitable giving
£211,000
2020
2019
Considerate Constructors Scheme
(CCS) average score
43.8 out of 50
Spend with SMEs
43% 2020 37% 2019
£211,000
£225,100
2020
2019
43.8
42.3
• Proud Patrons of the Prince’s Trust, holding
• Costain has the third highest average
virtual site tours.
• Four colleagues supporting Business in
the Community in regional leadership
board roles.
Considerate Constructors Scheme score
for any construction related business.
• Over 14,000 individual students engaged
with our careers resources via the online
platform Start.
• 200th SME completed the Costain Supply
Chain Academy.
• Since launching in 2014, the Costain Supply Chain
Academy has delivered over £700k of social value
to 208 SMEs and reached over 5,800 people.
Responsible Business continued
30
Costain Group PLC
Annual Report & Accounts 2020
Leading as a responsible business
Our Climate Change Action
Plan to achieve net zero
Addressing climate change is the biggest challenge of the 21st century
and businesses, society and government all have a significant part to play.
We have set an ambition to lead UK infrastructure
into a zero carbon future by 2035 at the latest,
supporting the Government in meeting their
2050 target. Find out more about out detailed
action plan at www.costain.com/what-we-do/
climate-change-solutions/
2020 has seen us focus on our whole life
footprint, reducing our Scope 1 and 3 emissions
by tackling two of our emission hotspots: vehicles
and plant emissions.
We have committed to transition the whole car
fleet (both company car and car allowance) to a
100% emission-free electric and hydrogen fleet by
2030. In 2020, hybrid and electric vehicles were
made available across every grade with more than
50% of the available fleet made up of low emission
vehicles. An internal engagement plan has
highlighted the social and economic benefits of
choosing electric vehicles to our employees, and
we are confident that we will meet our 2030 target
for a 100% emission free fleet.
Fuel consumption by plant used on site
represents a significant proportion of our Group
carbon footprint. To reduce it, we have worked
with our sites and supply chain to create an idling
reduction plan. This identifies causes and
addresses the behaviour changes required to
meet our 20% reduction per annum target.
In 2020 we also:
1. achieved certification to PAS2080,
the global carbon management
standard
2. worked closely with plant
manufacturers to shape future ultra
low emissions plant and machinery
3. trained over 180 of our senior leaders
in our Leading Carbon in Costain
course, aimed at reducing carbon
through behavioural management.
We continue to use our Resource Efficiency
Matrix across our projects. Since its 2018 launch,
our Resource Efficiency Matrix has identified over
£49m in operational and capital costs savings and
1.9m tonnes of carbon emission equivalent
(tCO2e) from operational and delivery phases for
Costain, our clients and supply chain partners.
2020
Further development of our
hydrogen based energy
solutions to enable the UK
hydrogen economy
Enabling further trials
and delivery of technology
and infrastructure for
connected and autonomous
mobility (CAM)
Embedding PAS2080
principles throughout the
industry value chain, from
clients to our supply chain,
to deliver low and zero
carbon infrastructure
Providing innovative,
technology-based solutions
to deliver smarter, sustainable
energy networks for a low
carbon future
2035
Strategic Report | Responsible Business
Non-financial Information Statement
Our reporting is compliant with the Non-Financial Reporting requirements
contained in sections 414CA and 414CB of the Companies Act 2006. The below
table, and information it refers to, is intended to help stakeholders understand our
position on key non-financial matters. This is in addition to the reporting we already
do under CDP and Global Reporting Initiative.
ESG and risk management reporting requirements
and additional information
Environmental
• Our responsible business commitments page 28
Employees
• Our responsible business commitments page 28
• Board composition and diversity pages 60 and 61
• Gender Pay Gap Report
• Inclusion Strategy
Human rights
• Our approach page 24
• Modern Slavery Statement
• Supplier code of conduct
Social matters
• Our responsible business commitments page 28
• Gender Pay Gap Report
• Inclusion Strategy
Anti-corruption and anti-bribery
• Supplier code of conduct
Policy embedding, due diligence and outcomes
• Principal risks and uncertainties pages 40 to 43
Description of principal risk
and impact on the business
• Principal risks and uncertainties pages 40 to 43
Description of business model
• Business model pages 12 and 13
Non-financial KPIs
• See pages 22, 23, 28 and 29
31
Policy
Board diversity
This policy sets out the Chair and
Board of directors’ commitment to
maintaining a diverse and inclusive
Board. Leading by example and
setting expectation that the Group
operates inclusively and continues
to invest in diversity. The owner of
this policy is the chair.
Business continuity
management
The principles which are to be
adopted to ensure business
continuity across the Group are set
out in this policy. The Executive
Board sponsor for this policy is
the chief digital officer.
Health and safety
This policy protects all our
stakeholders, including clients,
colleagues and suppliers. Going
beyond our statutory duties and
responsibilities. The Executive
Board sponsor for this policy is the
chief executive officer.
Modern slavery and human
trafficking
This policy specifies the mandatory
conditions of employment and
contractual conditions for our
suppliers in respect of human
rights. The Executive Board
sponsor for this policy is the
Group human resources director.
Collaborative working
This policy sets out the approach
that Costain management shall
take to ensure a collaborative
working environment is maintained
and relationships reflect the
requirements of ISO44001:2017
Collaborative Business
Relationships. The Executive
Board sponsor for this policy is
the Group commercial director.
People
The Costain People policy
encompasses recruitment,
development, reward, equality and
diversity, health and wellbeing,
compliance with labour/
employment and data protection
laws and regulations wherever we
work. The Executive Board sponsor
for this policy is the Group human
resources director.
Responsible business
This policy sets out the Board
expectation for how the Company,
its employees, partners and
suppliers must conduct
themselves, including three high
level commitments to responsible
business: ensure Costain is a safe,
inclusive and great place to work
where everyone can be at their
best; create a greener future;
and enhance the value Costain
contributes to society. The
Executive Board sponsor for
this policy is the Group human
resources director.
Sustainable procurement
and supply chain
The Costain sustainable
procurement and supply chain
policy stipulates the conditions of
all procurement activity, aligning
outcomes to our responsible
business commitment and Leading
Edge strategy. The Executive
Board sponsor for this policy
is the Group commercial
director.
Customer service
This policy is a declaration of the
Board’s intent in relation to
achieving a positive impact on
society. It sets out how Costain will
meet the needs of clients, through
professional, courteous and
efficient service. The Executive
Board sponsor for this policy is
the chief executive officer.
Drugs and alcohol
This policy is a declaration of the
Board’s intent to provide a safe and
healthy working environment free
from inappropriate use of alcohol
and drugs in all Costain
undertakings. The Executive
Board sponsor for this policy is
the chief executive officer.
Environmental
This policy sets out our approach
to environmental management,
going beyond minimising harm to
the environment and sets out the
proactive requirements of how our
people must work to meet our
objective to be net zero carbon by
2035 at the latest. The Executive
Board sponsor for this policy is the
chief executive officer.
Ethical business conduct
Bribery prevention, fair and open
competition, insider dealing
prevention, fraud prevention and
whistleblowing are all covered by
the Costain Ethical business
conduct policy. The Executive
Board sponsor for this policy is the
general counsel and company
secretary.
Operational Review
32 Costain Group PLC
Annual Report & Accounts 2020
Divisional results
Transportation
Adjusted revenue
Statutory reported revenue
Adjusted operating profit
Statutory reported operating profit/(loss)
2020
724.2
674.1
20.1
(30.3)
2019
740.6
720.6
29.7
9.7
Under our ‘One Costain’ operating model we operate across
two core divisions of ‘transportation’ and ‘natural resources’.
Transportation
The division has a forward order book
of £3.1bn (2019: £3.1bn), which includes
our Regional Delivery Partnership
(RDP) position of £1.1bn and a
preferred bidder position on the
Smart Motorways Alliance with
allocated work of £1.0bn.
Notable contract wins in 2020 include:
the Smart Motorway Alliance (£1.3bn),
RDP addition of A30 (£250m) 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 (£1.4bn);
a smart street lighting project for
Bradford Council helping them deliver
their targeted efficiency programme
and Network Rail’s Design Services
Framework.
A465 Contract
As announced on 17 February 2021, a
settlement agreement was entered
into with the Welsh Government in
relation to the A465 contract. The
financial terms of the settlement are in
line with the provision made by the
Group at the half-year of £45.4m. As a
result of the settlement, the Company
has certainty of the final account sum
payable by the Welsh Government to
the Company, including further
milestone payments. Work on the
contract is nearing completion, and the
Company continues to be responsible
for the delivery and the management
of associated project risks for the
remaining works, which are scheduled
to be completed in September 2021.
Highways
As a strategic partner for Highways
England, we opened the flagship A14
Cambridge to Huntingdon project
early and to budget. This project
combats congestion, improves safety
and unlocks regional growth by
connecting people in the region. On
RDP, which is delivering schemes set
out in the Road Investment Strategy
through a longer-term, integrated
approach to improve benefits and
eliminate waste, we are continuing to
deliver the A19 Testo’s scheme and
have now also successfully started
work on the adjacent Downhill Lane
Junction scheme. These are
performing well to date in terms of
both quality and performance. We
have also mobilised the A30 contract
and we continue to develop innovative
solutions with Highways England on
three road improvement contracts on
the A1 and the A12 widening.
Costain has worked with Highways
England for many years to improve the
safety, capacity and journey experience
on the nation’s strategic road network.
As well as delivering new smart
motorways as part of the Smart
Motorway Alliance, we are providing
highways maintenance services on the
M1 and M62 smart motorways in
Yorkshire and Humber as part of our
Area 12 contract. We are delivering
R&D projects to support the continuing
development of digital roads, and we
successfully completed our ‘Connected
Digital Roads’ project which explored
the opportunities for integrating smart
motorway technology with connected
vehicle technology to enhance the
benefits of smart motorways.
Strategic Report | Operational Review
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 due
to COVID-19, reaching out to regional
airports and widening our offering to
border issues and alternative fuel
usages such as hydrogen.
Central Government
Costain has built a new portfolio of
work with central government and
continues to win and deliver important
and influential services to key clients in
this sector.
We delivered throughout 2020 as a
technical and commercial partner to
the Department for Transport on highly
complex time sensitive and critical
projects facing the UK economy during
COVID-19 and in preparation for Brexit.
In addition to this work we have also
undertaken strategic consulting
assignments for the Infrastructure and
Projects Authority, the Cabinet Office
and for the Department for Business,
Energy and Industrial Strategy to lay
the foundations for building back a
better, more sustainable Britain in line
with the SPEED strategy.
33
In addition, we continue to support
Highway’s England’s operations
division with a number of asset
management contracts.
We continue to support devolved
investment in infrastructure. We are
working with East Sussex County
Council on its highways services asset
management programme, Lancashire
County Council on the Preston
Western Distributor road to improve
connectivity and economic growth in
the region and Bradford City Council
on its green street lighting programme.
In developing our position as a valued
implementation-biased consultant, we
are working with Transport for London
(TfL) in consultancy roles on
Hammersmith Pedestrian Bridge and
the A40 Westway upgrade. We
continue to support the Department
for Transport as a prime supplier on its
STARTwo 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 the
shaping of the future roads network
and improved methods of programme
delivery. Our technology centre
continues to develop and implement
new systems to meet the needs of
an increasingly digital strategic
road network.
Rail
In this period, due to the impact of
COVID-19 on Crossrail’s budget and
programme, our joint venture mutually
agreed settlement and termination on
Crossrail’s Bond Street station. Work
continues on the systems and
technology required for commissioning
the Elizabeth Line, and we have
secured, by client request, a one year
extension on this contract to help the
client successfully deliver the new
railway. As this is published, we are
working hand in hand with Crossrail to
deliver Paddington and secure opening
deadlines for the station.
Our activity on High Speed 2, Britain’s
low carbon, high capacity railway is
progressing well and growing
significantly. We are delivering the
Enabling Works and have mobilised
the Phase 1 Main Civils Contracts on
two major sections of the route. Our
consulting team has continued to
support the design work associated
with the Hybrid Bill for Phase 2a and
the development of the route for
Phase 2b.
The upgrade of Gatwick Airport
Station for Network Rail to improve
capacity of this critical UK
transportation hub is progressing well.
We continue to work with Network Rail
on our reliable, solar powered,
wireless, radar-based warning system
(Meerkat) and this will be deployed
across the majority of Network Rail’s
remote level crossings in 2021.
Pushing the pace on digitisation and
innovation to drive better, faster and
greener delivery of infrastructure, we
are working together with key partner
SAP and a consortium of industry
leading enterprises (such as Transport
for London (TfL), Highways England,
HS2 and Network Rail) called the
‘Transport Infrastructure Efficiency
Strategy Living Lab’ (TIES Living Lab) to
create a demonstrator for a new
cloud-based data platform called the
Intelligent Infrastructure Control
Centre (IICC).
Operational Review continued
34
Costain Group PLC
Annual Report & Accounts 2020
Divisional results
Natural Resources
Adjusted revenue
Statutory reported revenue
Adjusted operating profit
Statutory reported operating profit/(loss)
2020
345.1
303.1
5.7
(43.6)
2019
429.4
429.4
15.4
15.4
Natural resources
As at 31 December 2020 the division
had a forward order book of £1.1bn
(2019: £1.1bn), reflecting wins of £0.3bn
in 2020.
Notable contract wins across the range
of our broader services include the
Strategic Pipeline Alliance for Anglian
Water; the Technical Services
Framework for Yorkshire Water; the
AMP7 PMO contract for Thames
Water; the programme management
consultancy for Cadent and P3M
consultancy and delivery partner roles
for Babcock at Devonport Royal
Dockyard.
Peterborough & Huntingdon Contract
On 29 June 2020, Costain announced
that a termination and settlement
agreement (the “Agreement”) had
been reached with National Grid to
cease work on the Peterborough &
Huntingdon gas compressor project
(the “Contract”) following a significant
change in scope. The Agreement
includes a legal process, through
adjudications, to agree up to £80.0m
of identified compensation events,
recover costs to date and eliminate a
potential liability to National Grid for
completing the works.
In its interim results for the six months
ended 30 June 2020, Costain recorded
a charge to the income statement of
£49.3m reflecting the cash position at
termination. The legal process is
ongoing and all adjudications will be
filed by December 2021. Supported by
external advice, Costain believes it has
a strong entitlement to retain, as a
minimum, the reported position, with
no further cash outflow.
Under the terms of the Agreement, the
cumulative outcome for Costain of
these adjudications could range from
an additional cash receipt of up to a
maximum of £50.0m to a cash payment
(which would not affect Costain’s
banking arrangements) of up to a
maximum of £57.3m. Any such cash
adjustments would be made in the first
quarter of 2022.
Water
We are focused on helping our clients
respond to the Ofwat regulatory
requirements for water companies,
enabling them to meet stretching
performance targets and efficiency
challenges in the period to 2025. We
have secured positions with our
broadest ever number of clients as we
move into AMP7. We continue our
complex capital delivery programme
delivery with Severn Trent Water,
Southern Water and Thames Water,
driving efficient and innovative
solutions such as asset optimisation.
We are appointed as sole Maintenance
Service Provider for United Utilities,
providing overall management and
delivery of United Utilities’ larger-scale
water and wastewater asset
maintenance activities across the
entirety of its network. Our
appointment on Yorkshire Water’s
Technical Services Framework will see
us providing a broad range of
integrated consultancy and digital
services to support our client in driving
efficient transformation and
optimisation of its water and
wastewater assets during the first four
years of AMP7. We are working
alongside Anglian Water in its Strategic
Pipeline Alliance to develop an
enterprise-ready digital twin which will
optimise management of the water
Strategic Report | Operational Review
Our Sellafield decommissioning
framework contract and our EDF
Project Controls framework contract
continue to perform in line with
expectations.
Defence
In 2020, Costain strengthened its
market position as a valued consultant
with a number of key client wins.
Today, we are involved in the
Continuous At Sea Deterrent
programme on several levels, working
with defence primes including AWE,
Rolls Royce and BAE, and directly with
the Ministry of Defence via the Crown
Commercial Services framework. In
addition, we are providing P3M
consultancy services and delivery
partner roles for Babcock at Devonport
Royal Dockyard.
Our programme management contract
for AWE Project MENSA continues to
meet performance expectations,
allowing us to secure opportunities to
support AWE on additional projects.
35
network throughout the lifecycle of the
new strategic pipeline and provide a
much better, more stable, 24/7 service
to all of its customers. We provide
consultancy services to Thames Water
as PMO, driving efficient delivery
across its whole AMP7 programme. We
also continue to provide consultancy
and asset management services to
South Staffs Water.
We are working to support the UK
water sector to achieve net zero
carbon by 2030. In collaboration with
Welsh Water, we have been awarded
funding by Innovate UK for the
Hy-Value project, demonstrating
significant progress towards converting
sewage-derived biogas into zero-
emission fuel.
We are now finalising works on the
AMP6 five-year programmes for
Thames Water, Severn Trent Water and
Southern Water. 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.
The Thames Tideway project, on which
we are in a joint venture to deliver the
east section, continues to progress
well. We have recently reached an
important milestone on the project,
with both tunnel boring machines
launched in 2020 and overall
completion is scheduled for 2024.
Energy
We continue to drive the transformation
of our energy sector with a renewed
market focus on expanding our
consultancy services in decarbonisation
and maximising existing asset
performance.
In 2020 we secured leading roles in the
future decarbonisation of the UK
through three UK carbon capture and
storage cluster 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
Scottish and Southern Electricity
Networks. We continued our important
roles in both the South Wales and
Scotland industrial clusters and
demonstrated the feasibility of the
concept of hydrogen ‘deblending’ for a
first of its kind programme that brings
together all the gas distribution
networks to collaboratively develop
innovative hydrogen solutions that will
decarbonise energy for heat, transport,
industry and power generation. While
the pace of the UK transitioning to a
decarbonised energy network is slower
than expected, we have secured key
positions which allow us to continue to
support our clients today, while working
with them to shape and deliver the
energy networks of the future.
In addition, in 2020, Costain has
provided the strategic planning and
programme management to Cadent as
part of its 10-year capital investment
programme. This contract builds on the
established partnership Costain has
with Cadent as one of its partners
overseeing the HS2 gas main diversions.
We are also Cadent’s strategic partner
in the transition to the decarbonisation
of energy networks including the
hydrogen economy through the North
West Hydrogen Alliance, and the
OptiNet project to research gas
compression technology.
Chief Financial Officer’s Review
This review brings together the key financial metrics of the Group and sets out the matters of financial
significance. In 2020, the Group’s financial performance was impacted by several factors which resulted
in a reduction in adjusted operating profit and earnings per share. These were principally the impact of
COVID-19 £9.2 million and the impact of an extensive contract review during the year assessing end-of-
life assumptions and changes in margin mix and volume.
36
Costain Group PLC
Annual Report & Accounts 2020
Results
Adjusted Group revenue was
£1,070.5m for the year to 31 December
2020 (2019: £1,175.6m). Statutory
reported Group revenue was £978.4m
for the year (2019: £1,155.6m). The
reduction in revenue results from a
lower level of capital project activity, in
line with our planned strategic change
in mix of services and revenue
adjustments on the A465, P&H and
ASF South contracts.
The Group’s adjusted operating profit
was £18.0m (2019: £37.9m) with the
reduction in the period due to the
factors set out in the opening
paragraph. Statutory reported
operating loss for the year was £92.0m
(2019: £3.2m loss), with the significant
reduction due to the lower underlying
operating profit, impact of COVID-19
and the adverse impact of other items
as set out below.
Adjusted profit before tax for the year
was £13.9m (2019: £34.6m). Adjusted
basic earnings per share amounted to
5.8 pence (2019: 25.1 pence).
Statutory reported loss before tax for
the year was £96.1m (2019: £6.6m loss).
Statutory reported basic loss per share
was 36.7 pence (2019: 2.3 pence loss
per share).
The results of the Group’s operating
divisions are considered in the
operational reviews on pages 32 to 35
and are shown in the segmental
analysis in the financial statements. The
Group operates with two core divisions
of ‘transportation’ (rail, highways and
aviation) and ‘natural resources’ (water,
energy and defence).
Other items
To aid understanding of the underlying
performance of the Group throughout
the annual report adjusted operating
profit and adjusted profit before tax
have been used as alternative
performance measures. These
measures exclude items which are
considered to be one-off and unusual
in nature or related to accounting
treatment of acquisitions and fall into
two categories:
1. the contract adjustments of £94.7m
on the A465 and Peterborough &
Huntingdon contracts detailed
below as well as the £5.0m final
settlement charge against a
contract (ASF South) that completed
five years ago; and
2. ‘other items’ of £10.3m, which are
shown in a separate column in the
consolidated income statement
include amortisation of acquired
intangible assets, deferred
consideration treated as an
employment expense, impairments
and profits and losses on sales of
non-core assets (impairment of
non-core assets £1.2m, profits on the
sale of non-core assets in Zimbabwe
£1.0m and Spain £0.4m, the sale of
‘Building Schools for the Future’
interests £1.6m) and a £9.0m
impairment of goodwill in our natural
resources division, one-off costs
associated with advice received in
renegotiating the Group’s bank
facilities £1.2m and a £0.9m charge
relating to GMP equalisation of
certain transfers of pension liabilities
following another Lloyds pension
scheme court ruling in late 2020.
Peterborough & Huntingdon
contract
On 29 June 2020, Costain announced
that a termination and settlement
agreement (the “Agreement”) had
been reached with National Grid to
cease work on the Peterborough &
Huntingdon gas compressor project
(the “Contract”) following a significant
Strategic Report | Chief Financial Officer’s Review
“ The Group continues to have a positive net cash position.”
Helen Willis Chief Financial Officer
37
change in scope. The Agreement
includes a legal process, through
adjudications, to agree up to £80.0m
of identified compensation events,
recover costs to date and eliminate a
potential liability to National Grid for
completing the works.
In its interim results for the six months
ended 30 June 2020, Costain recorded
a charge to the income statement of
£49.3m reflecting the cash position at
termination. The legal process is
ongoing and all adjudications will be
filed by December 2021. Supported by
external advice, Costain believes it has
a strong entitlement to retain, as a
minimum, the reported position, with
no further cash outflow.
Under the terms of the Agreement, the
cumulative outcome for Costain of
these adjudications could range from
an additional cash receipt of up to a
maximum of £50.0m to a cash payment
(which would not affect Costain’s
banking arrangements) of up to a
maximum of £57.3m. Any such cash
adjustments would be made in the first
quarter of 2022.
A465 contract
As announced on 17 February 2021, a
settlement agreement was entered
into with the Welsh Government in
relation to the A465 contract. The
financial terms of the settlement are in
line with the provision made by the
Group at the half-year of £45.4m. As a
result of the settlement, the Company
has certainty of the final account sum
payable by the Welsh Government to
the Company, including further
milestone payments. Work on the
contract is nearing completion, and the
Company continues to be responsible
for the delivery and the management
of associated project risks for the
remaining works, which are scheduled
to be completed in September 2021.
ASF South contract
Following an extensive contract review,
a decision was taken to take a one-off
charge of £5.0m to settle a legacy
contract with Highways England where
works were completed in 2016.
pension scheme of £0.2m (2019: £0.1m
income) and the interest expense on
lease liabilities of £1.0m (2019: £1.3m)
under IFRS 16. 2019 included an
unwind of discount on deferred
consideration of £0.1m.
Sale of non-core assets
Alcaidesa
In August 2020, the Group sold its
marina concession for €4.75m, the
disposal of which completes the
Group’s strategy to divest its non-core
business assets in Spain. The
aggregate loss on sale was £0.2m,
including an impairment charge in the
first half of the year. Revenue in this
non-core division in the period was
£1.2m (2019: £5.6m) with a £0.1m
operating loss (2019: £0.7m).
Legacy asset disposals
In the first half of the year, the Group
completed the sale of its legacy
company that held property assets in
Zimbabwe for £1.0m (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 £3.7m. The Group’s
full year results include the profit of
£1.6m from the sale.
Net finance expense
Net finance expense amounted to
£4.3m (2019: £3.7m). The interest
payable on bank overdrafts, loans and
other similar charges was £4.1m (2019:
£3.3m) and the interest income from
bank deposits and other loans and
receivables amounted to £0.6m (2019:
£0.9m). In addition, the net finance
expense includes the interest income
on the net assets/liabilities of the
Tax
The Group has a tax credit of £18.1m
(2019: £3.7m credit) giving an effective
tax rate of 18.8%. The 2020 tax credit
arose from recognising a deferred tax
asset in respect of losses that will be
utilised against future taxable profits.
We expect the effective tax rate to
remain close to the statutory tax rate
of 19% until 2023, when it will increase
to 25% as announced in the recent
Budget.
Debt, cash conversion
The Group had a positive net cash
balance of £102.9m as at 31 December
2020 (2019: £64.9m); comprised of a
Costain cash balance of £89.8m (2019:
£97.4m), cash held by joint operations
of £61.1m (2019: £83.5m) and
borrowings of £48.0m (before
arrangement fees of £1.2m) (2019:
£116.0m). Approximately £17.0m of the
net cash balance (2019: £35.0m)
reflects positive timing of receipts at
the year-end which reversed in the
early part of 2021. During the year,
the Group’s average month-end
net cash balance was £73.8m
(2019: £41.2m) improving to £94.4m
in the second-half.
The cash inflow in the period reflects
the positive cash flow from the capital
raising, operations and asset sales
offset by operating outflows on P&H
and A465, working capital movements
and associated pension deficit
contributions.
Chief Financial Officer’s Review continued
38
Costain Group PLC
Annual Report & Accounts 2020
Contract bonding and
banking facilities
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 £179.0m with its
relationship banks with a maturity date
of 24 September 2023. These facilities
are made up of a £131.0m revolving
credit facility and a £48.0m term loan.
In addition, the Group has in place
committed and uncommitted bonding
facilities of £320.0m. Utilisation of the
total bonding facilities on 31 December
2020 was £112.3m (31 December 2019:
£122.0m).
Pensions
As at 31 December 2020, the Group’s
pension scheme deficit in accordance
with IAS 19, was £5.6m (2019: £4.9m
surplus).
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 £10.2m per
annum (increasing annually with
inflation). In addition, as previously
implemented, the Group will continue
to make an additional contribution so
that total deficit contributions match
the total dividend amount paid by the
Company each year.
Guaranteed minimum pension
(GMP) equalisation
On 26 October 2018, the High Court
issued a judgement involving Lloyds
Banking Group defined benefit
pension schemes which concluded that
the schemes should be amended to
equalise pension benefits for men and
women in relation to GMP benefits.
This decision had implications for all
defined benefit pension schemes with
liabilities before 1997 and led to an
increase of £8.6m on the reported
pension liabilities at 31 December 2018
which was recorded as a pre-tax
exceptional expense in the 2018
income statement.
Subsequent to this, the High Court
issued another judgment on 20
November 2020 confirming pension
schemes would need to revisit and
equalise GMPs in historical transfer
values paid out between May 1990 and
October 2018. Therefore, an allowance
for the equalisation of GMP in
historical transfer values of £0.9m has
been included in the year end
disclosures. This increase in liabilities
represents a past service cost and has
been recorded as a pre-tax exceptional
expense in the 2020 income statement,
shown within ‘other items’.
Order book
During the year, the Group secured
£1.2bn of new contracts and extensions
and the Group’s order book was
maintained at £4.2bn (31 December
2019: £4.2bn), with over 90% being
repeat orders.
The order book is made up of an
estimate of the value remaining on
secured contracts, framework
arrangements, service delivery
arrangements and purchase orders.
Several of the Group’s contracts have
an early contractor involvement (ECI)
phase which involves planning activities
and preparation pre-construction; in
this case the order book also includes
the estimated value of the associated
construction activities.
Dividend
The Board recognises the importance
of dividends to shareholders and will
continue to review the timing of the
reinstatement of future dividends in
Strategic Report | Chief Financial Officer’s Review
the light of the Group’s performance,
cash flow requirements and the
importance of maintaining a strong
balance sheet.
Shareholders’ equity
Shareholders’ equity decreased in
the year to £156.5m (2019: £157.7m).
The movements are detailed in
the consolidated statements of
comprehensive income and
expense and changes in equity in
the financial statements.
Contract estimates
A significant proportion of the Group’s
activities are undertaken via long-term
contracts. The majority of these
contracts are not fixed-price in nature
and are based on arrangements which
allow for change which is expected
during the contract term through the
award of compensation events.
Management uses detailed contract
valuations and cost forecasts when
formulating its estimate of costs and
revenues and its assessments of the
expected outcome of each long term
contractual obligation. This includes,
among other things, consideration of
the number of compensation events on
the contract, changes in the design
and construction requirements, and
whether these all relate to the current
obligation or create a new obligation,
the impact of any third-party factors
and progress to date on agreements
with the client. Consideration is made
of the extent to which events have
impacted on the cost and programme
to complete the contract and the
associated level of estimation
uncertainty and appropriate
accounting treatment. In reviewing the
contract estimates attention is also
paid to past performance on contracts
and the success or otherwise of
resolving any contractual matters.
Project bank accounts
Several of the Group’s contracts
operate an arrangement with the client
and suppliers, known as project bank
accounts, whereby monies on the
contract are paid into a separate bank
account covered by a trust deed and
distributed directly to all suppliers,
including the Group, that join the trust
deed. This is not a financing
arrangement but is a form of payment
administration, requested by the client,
to provide transparency and security of
payments to suppliers. The Group
does not operate any supplier
financing arrangements.
Treasury
The Group’s treasury and funding
activities are undertaken by a
centralised treasury function. Its
primary activities are to manage
liquidity, funding and financial risk,
principally arising from movements in
interest rates and foreign currency
exchange rates.
The Group’s policy is to ensure that
adequate liquidity and financial
resources are available to support the
Group’s growth and development,
while managing these risks and not to
engage in speculative transactions.
Group treasury operates as a service
centre within clearly defined objectives
and controls and is subject to periodic
review by internal audit.
Liquidity risk
The Group finances its operations
primarily by a mixture of working
capital, funds from shareholders,
retained profits and borrowings.
The directors regularly monitor cash
usage and forecast usage to ensure
that projected financing needs are
supported by adequate cash reserves
or bank facilities.
Foreign currency exposure
Translation exposure: the results of the
Group’s overseas activities, mainly
non-core activities in Spain up to the
date of disposal, are translated into
sterling at rates approximating to the
foreign exchange rates ruling at the
dates of the transactions. The balance
sheets of overseas subsidiaries and
investments are translated at foreign
exchange rates ruling at the balance
sheet date. The Group held a currency
hedge against the assets held in its
Spanish subsidiary that was closed out
on the disposal.
Transaction exposure: the Group has
transactional currency exposures
arising from overseas supply purchases
for business in the UK and from
subsidiaries’ commercial activities
overseas. Where appropriate, the
Group requires its subsidiaries to use
forward currency contracts to minimise
any currency exposure unless a natural
hedge exists elsewhere within the
Group.
Interest rate risks and exposure
The Group enters into financial
instruments, where necessary, to
finance its operations. Various financial
instruments (for example, trade
receivables and trade payables) arise
directly from the Group’s operations.
The main exposure to interest rate
fluctuations within the Group’s
operations arises from surplus cash,
which is generally deposited with the
Group’s relationship banks, and bank
borrowings against part of which the
Group holds the appropriate interest
rate hedging arrangements.
Helen Willis
Chief Financial Officer
39
Principal Risks and Uncertainties
Managing risks and opportunities
is integral to the delivery of our
strategic priorities
Risk input factors
Leading Edge strategy
Business as usual
Business plans
New works
External influences
Projects/programmes
Board
9
Principal
risks
Executive Board
Divisional/Sector
Risks
Functional head/
sector directors
40
Costain Group PLC
Annual Report & Accounts 2020
Project/Programme/
Operational risks
Programme/
contract managers
bottom up risks
top down risks
Approach to identifying our
principal risks
Costain’s risk management approach
is not designed to eliminate risk
entirely, but provides a means to
identify, prioritise and manage risks
and opportunities in accordance with
the Group’s risk management
process.
Risks are identified both top down
from the Group strategy and bottom
up from the major projects,
programmes, joint ventures and
ongoing business as usual
operational activities. These are then
escalated or consolidated (as
appropriate) and assessed based on
a consistent methodology to identify
and prioritise those that could
threaten the achievement of the
Group’s strategic priorities.
Top down review
All principal risks are integrated with
our strategic priorities. These are
reviewed by the Executive Board
members at various times throughout
the year, for example at executive
strategy, work winning, finance and
health and safety meetings. A formal
bi-annual review of risks by the
Executive Board is aligned to half year
and year-end reporting. Each principal
risk is owned by a member of the
Executive Board. Discussions are held
with the owners and their delegates to
update the risk status and review
progress of response actions, together
with any supporting metrics to review
their effectiveness.
Emergent risks are reviewed and
assessed by a Risk Committee
consisting of nominated members of
the Executive Board and the Group risk
manager. The Risk Committee meets
four times a year. Identified emergent
risks are developed and monitored by
appointed risk owners. One of our
emergent risks/opportunities is climate
change. We manage this risk in relation
to our own operations through the
implementation of our decarbonisation
plan (as detailed on page 30). We also
see decarbonisation specifically as an
opportunity as we work with industry,
transport and energy utilities to shape
the decarbonised energy systems of
the future.
Bottom up review
Risk management is embedded at all
levels of the business. Sectors,
functions, major programmes, projects
and operations ensure that their risks
can be effectively managed within their
boundaries. If additional support or
assistance is required, the risk is
escalated to the next management
level, up to executive level where
appropriate.
Strategic Report | Principal Risks and Uncertainties
Key areas of focus
Our risk profile continues to evolve and change. Although overall our principal risks have remained consistent, the areas of emphasis
within each one adapts as the risks to the business change. In 2020 we have responded to new risks as we recognise the impact of the
COVID-19 pandemic on our people, our clients and our business. Our initial reaction to this risk in the early months of the pandemic has
allowed us to reach a position at the end of 2020 where our projects are fully operational and working in a COVID-secure manner. See
pages 20 and 21 for how we achieved this. We will maintain the commitment that is required to sustain this. Moving into 2021, the
changes in working practises, automation and collaboration implemented during 2020 present opportunities for us to thrive. In 2021,
we will continue to drive the frequency and quality of our risk conversations throughout our business. These conversations will in turn
enhance our risk mitigation plans.
Risk management process
There is continuous consultation between the top down and bottom up reviews to ensure consistency and appropriate
decision-making across the Group guided by our risk management process.
Plan
Identify
Assess
Respond
Manage
Close
Plan
A specific risk
management plan
that defines the
risk management
position to be
adopted.
Identify
Identify the risks
(threat and
opportunities) that
could impact the
Company at all
levels.
Assess
Use best
judgement,
experience,
industry norms
and lessons
learned to
estimate the
consequences
of the identified
risks.
Respond
Develop and
price appropriate
response actions
that will reduce
the impact of the
threat and
improve the
opportunity.
Manage
Control and
monitor the risk,
communicating
results to allow
effective
decision-making.
Close
The formal
end of risk
management
effort on an
individual
activity.
41
Risk dashboards are updated and
reviewed at the various levels within
Costain’s business. These dashboards
are used to highlight changes in the
risk description, the risk causes and
impacts, and to assess the progress of
the mitigating activities.
The flow of risk within our risk
management process is illustrated in
the diagram above.
Risk appetite
Risk appetite, which defines the level
and types of risk Costain is willing to
accept, has been considered by the
Board. Communicating our risk
appetite to staff enables them to make
decisions that are in line with our risk
profile. Costain has a zero tolerance to
harm (physical or mental) to individuals.
Also, our commitment to excellence in
our operational delivery is such that
100% compliance is required of our
approval gates and process Must Dos.
Governance
The Board is responsible for defining
risk appetite and determining the
nature and extent of the principal risks
the Company is willing to take to
achieve its long-term strategic
priorities. On behalf of the Board, the
Audit Committee each year reviews the
effectiveness of the Company’s risk
management and internal control
systems. The process for doing this is
set out in the Audit Committee Report
on pages 74 to 78.
Our principal risks are owned by
Executive Board members. They are
formally reviewed and approved by the
Executive Board twice-yearly in line
with mid-year and year-end reporting.
Additionally, the Risk Committee
meets four times a year to consider the
principal risks and to review and assess
emergent risks, and a monthly risk and
assurance meeting monitors the
ongoing risk management
activity throughout the
business.
To undertake a robust assessment of
the risks which could threaten the
business objectives, performance,
solvency or liquidity of Costain, the
Board undertakes reviews of our
principal risks and mitigation plans
during the year to ensure they are well
understood and actively managed to
reduce the potential impact.
Principal Risks and Uncertainties continued
42
Costain Group PLC
Annual Report & Accounts 2020
The table below sets out the principal risks faced by the Company, the link to the Company’s
strategic priorities, movement in the risk trend and examples of relevant controls and mitigating
factors. Further information on our strategic priorities can be found on pages 22 and 23.
Principal Risk
Description and impact
Controls and key mitigations
1
Prevent and
effectively
manage a major
accident, hazard
or incident
Costain operates in natural, complex and
hazardous environments. Failure to
manage the inherent risk and hazards,
including pandemics, may results in illness,
loss of life or significant damage to the
environment. Failure to manage this risk
could result in reputational damage, loss of
business and financial penalties.
Safety, health and environment management policies
and procedures.
Ongoing reviews and improvement of our safety, health
and environment performance through routine
continuous improvement processes.
The Costain behavioural management programme.
Wellbeing, safety and environment strategy and plans.
k
n
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t
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S
2
Accelerate the
deployment of
our higher
margin services
3
Maintain a strong
balance sheet
4
Secure new work
Risk trend: Neutral
(FY19: Neutral)
Excellent controls and practices have
reduced the incident rate, but we always
remain vigilant and undertake continuous
improvements in this area.
The effective implementation of Costain’s
Leading Edge strategy is critical to the
Group’s ability to accelerate the
deployment of our higher margin services
alongside our complex programme
delivery. Failure to manage this risk could
have an adverse effect on our business,
operating results, and shareholder value.
Risk trend: Increasing
(FY19: Neutral)
The financial impact of the issues with two
long standing contracts illustrates the
importance of delivering our Leading Edge
strategy.
A strong balance sheet is a fundamental
requirement to qualify for and support the
contract sizes and duration required by our
clients. Failure to manage this risk could
affect our ability to achieve our business
goals and our resilience to withstand
economic downturns.
Risk trend: Neutral
(FY19: Increasing)
Strengthened balance sheet, enabling the
Group to capitalise on the growing
infrastructure market opportunities.
Costain’s future growth and profitability is
dependent on our ability to secure new
work in our competitive marketplace. To be
successful we need to maintain strong
client relationships and broaden our
service offering by delivering innovative
solutions across complex delivery, digital
and consulting activities.
Risk trend: Neutral
(FY19: Increasing)
Changes made in 2020 (see page 22 and
23), have enabled us to react to and
address our clients’ priorities.
Detailed implementation plan, with timetabled
deliverables, clear performance measures and
accountable Executive Board sponsor.
Annual business budget includes performance measures
and actions linked to the delivery of the strategy.
Work winning budget aligned to investment that
supports our strategy.
Clear communications plan tailored to each of our key
stakeholders (internal and external) outlining how our
Leading Edge strategy enables our purpose to improve
people’s lives by being safer, better, greener, faster and
more efficient in delivering major infrastructure
projects.
Treasury function experienced in the management and
oversight of the bank and surety bonding facilities to
meet finance requirements.
A robust joint venture partner selection criterion: all
partnerships and alliances signed off by the Board.
Monitoring and management of amounts receivable.
Effective balance sheet reconciliation process.
Continued focus on net asset growth with key areas for
continuous development.
Executive investment panel ensuring strategic focus on
Costain’s target markets and prioritisation of resources
and activity.
Customer relationship management system – to identify,
manage and review all key stakeholders, ensuring that
key relationships are proactively identified and
maintained.
Sales transformation programme in place – ensuring we
have the right people, with the right skills empowered
to deliver opportunities in line with our growth strategy.
Close client relationships enabling us to understand and
shape clients’ needs, respond proactively to changes
and ensure our work winning team are fit for purpose.
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Strategic Report | Principal Risks and Uncertainties
Link to strategic priority
Assuring and
enhancing our
performance
Developing our skills
and capabilities
Delivering innovative
solutions
Leading as a
responsible business
Principal Risk
Description and impact
Controls and key mitigations
5
Culture and
people
The successful implementation of our
strategy is dependent on our ability to
attract and retain talent, grow the
capabilities and performance of our
employees and maintain a high performing,
ethical and caring culture where our team
can be at their best.
In-house recruitment team, focused on identifying and
recruiting the right people for Costain.
A fair remuneration policy monitored via the central
reward team and annual pay gap reporting.
A defined people strategy based on culture, inclusion,
engagement and wellbeing.
Risk trend: Neutral
(FY19: Neutral)
Learning and development budget aligned to the
Leading Edge strategy and business requirements.
Leadership development programmes to enable
empowerment, assurance and performance outcomes.
Thrive plans in place for each project and functional
team to help all our team be at their best.
6
Deliver projects
effectively
Failure to enter into contracts that are
aligned with our risk appetite or deliver
projects to the agreed time, budget and
quality could result in financial loss,
regulatory and contractual breaches and
loss of reputation with our clients and
investors.
Clear contract negotiation guidelines, with any
deviations requiring approval from the Executive Board
investment panel.
Working to our Operational Excellence Model and
Costain Way requirements and guidelines.
Ensuring a robust change control process is in place
across all projects.
Risk trend: Neutral
(FY19: Neutral)
Effective risk and design management process in place
to provide early warning of potential issues.
7
Manage the
legacy defined
benefit pension
scheme
Failure to manage the legacy defined
benefit pension scheme so that the
liabilities are within a range appropriate to
our capital base and do not adversely
impact our balance sheet.
Risk trend: Neutral
(FY19: Neutral)
8
Ensure that our
technology is
robust, our
systems are
secure and our
data protected
Our ability to enable safe, secure, and
resilient business operations (including
finding, winning, and delivering work
supported by efficient corporate services)
is dependent on the delivery of our core IT
strategy. The delivery of this strategy is
also key to our ability to safely and securely
acquire, host, use, and dispose of Costain,
client, and third party data.
Risk trend: Neutral
(FY19: Neutral)
A third-party pension expert provides independent
advice.
Monitoring the funding position of the scheme via
quarterly funding updates provided by the scheme’s
investment consultant.
Investment performance monitored and input to the
scheme’s investment strategy.
Regular monitoring in conjunction with the trustee of
asset performance, pensions regulations, Company
covenant and liability management.
Our core IT strategy integrates information systems,
personnel and physical aspects to prevent, detect and
investigate information security threats and incidents.
Process in place to engage with key technology partners
and suppliers, to ensure potentially vulnerable systems
are identified and updated.
Our architecture design provides the appropriate
protections and distance between project systems and
our core Costain systems.
Annual penetration tests and 24 hour threat monitoring
by reputable third parties.
The increased cyber threat is offset by
increased investment and a continuous
focus on security.
A secure environment for our internal and client data
across projects enabled by a menu of digital core
products provided by our Smart Delivery Platform.
9
Anticipate and
respond to
changes in client
circumstances
We have seen changes in the business
operations and investment priorities of our
core clients and clients challenged by ever
evolving policy, funding, operational and
regulatory changes. Failure to anticipate
the changes that are affecting our clients
and respond effectively, could restrict our
ability to grow margins and increase
market share.
Client service and perception surveys focused on our
ability to provide foresight to help navigate emerging
trends and feedback accurate and real time insights for
action.
Our Gartner partnership provides independent market,
trend, sector, client and competitor analysis.
Sales transformation programme is driving the
executive investment panel protocols to enable
risk-controlled faster growth.
Risk trend: Neutral
(FY19: Neutral)
Innovation leaders are embedded in all sectors and
accounts.
43
Long-term Viability and Going Concern Statement
The Board maintains a sharp
focus on assessing the Company’s
prospects and viability
44
Costain Group PLC
Annual Report & Accounts 2020
Assessing Costain’s prospects
and viability
As part of the Group’s Leading Edge
strategy and ambition to broaden our
services, increasing the proportion of
profit from higher value services, the
Board maintains a sharp focus on
assessing the Company’s prospects
and viability on a three-year basis.
Costain is one of the UK’s leading
smart infrastructure solutions
companies, delivering integrated
leading edge services to meet national
needs across the UK’s energy, water,
transportation and defence markets.
Our strategy is to focus 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 integrated services are
aligned with our clients’ changing
needs, driven by rapidly changing
markets which offer the potential for
sustainable long-term growth.
Costain is strategically positioned for
future growth with an established and
trusted brand, long term strategic
relationships with blue-chip clients,
a highly focused and experienced
management team and a broadening
mix of skills and diversity across
our workforce.
Costain runs a rigorous annual business
planning process, involving divisional
and Group management, with Board
input and oversight. This produces
divisional and Group business plans,
which in turn generate financial plans
and strategic objectives to achieve our
2024 strategy. This then drives the
setting of in-year budgets. At the core
of this process is the One Costain
philosophy and while we operate with
two divisions, we focus our resources
on identifying and securing the most
attractive opportunities across the
markets in which we operate.
This business planning process,
combined with the Group’s approach
to identifying, monitoring and
managing risk, are a significant
contributor to the assessment of the
Group’s prospects.
Factors in assessing long-term
prospects
Strategy and business model
• Leading as a responsible business,
committed to the highest SHE
standards and to operating
sustainably, ethically and inclusively.
• Long-term strategic relationships
with blue-chip clients leading to a
£4.2bn order book, encompassing a
broader range of services and 90%
repeat orders.
• Focused Leading Edge strategy
which aligns our integrated services
to our clients’ changing spend
patterns, targeting an increase in the
proportion of higher value services
to enhance margins over the
medium-term.
Strategic Report | Long-term Viability and Going Concern Statement
Viability statement
In accordance with provision C.2.2 of
the UK Corporate Governance Code,
the directors have assessed the
prospects of the Group over a longer
period than the 12 months required by
the ‘Going Concern’ provisions. Based
on the results of this analysis, the
Board confirms that it has a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the
three-year period to 31 December 2023.
Going Concern
The Group’s going concern statement is
detailed in note 2 of the consolidated
financial statements on page 128.
45
Strategic Report
Our 2020 Overview and Strategic
Report on pages 1 to 45 have been
reviewed and approved by the Board of
Directors and signed on its behalf by
Sharon Harris, Company Secretary.
16 March 2021
• Rigorous contract selection, tender,
contract management and
governance processes, actively
managing the risk of client selection,
tender governance and contract
form, adopting the ‘One Costain’
philosophy.
• Robust financial management is
fundamental to win work, invest and
drive sustainable business growth.
Principal risks related to the Group’s
business model
The assessment of viability has been
made considering the principal risks as
detailed on pages 42 and 43.
Structured strategic and financial
planning process
The Group’s prospects are assessed
through the annual strategic and
business planning process as described
on page 44, the results of which are
then reviewed in detail by the
Executive Board.
To create these plans, each division
assesses external factors – market
spend and emerging trends, regulatory
environment, legislative spend,
strategic national needs and our
clients’ business plans, and internal
factors – including capability, skills,
technology and thought leadership.
This results in a set of objectives and a
clear implementation plan, considering
known and emerging risks and
opportunities over a broader horizon.
In addition to the financial plan and
strategic objectives, there are targets
for key accounts and strategic
campaigns, resourcing and skills
planning as well as research and
development activity to support our
clients to address complex
infrastructure challenges.
The Board scrutinises and monitors
the strategic and financial plans.
Assessing the Group’s viability
The assessment of viability has been
made considering the Group’s principal
risks and testing several plausible,
but severe and prolonged scenarios.
These downside scenarios reflect a
combination of circumstances,
including the potential impact of a
significant decline in activity resulting
from an inability to secure new work,
damage to reputation from a major
safety incident or data breach and
associated fines, the impact on
working capital decline arising from
a major dispute on contract delivery,
the loss of key management and
inability to recruit the right capabilities,
and a change in Government
policy impacting investment and
procurement programmes.
Impact of COVID-19
We continue to closely monitor the
COVID-19 situation and will continue
to follow UK Government guidelines.
We have considered the potential
on-going impact of COVID-19 in our
scenario analysis.
Governance at a Glance
Governance at a glance
Governance at a glance
Leading a responsible business
Board meeting attendance
Meetings in 2020
Gender representation
on our Board
Ethnic groups represented
on our Board
24
Director
Paul Golby*
Alex Vaughan*
Anthony Bickerstaff1
Helen Willis2
Attendance
100%
100%
100%
100%
Female
50%
Other ethnicity
25%
Governance at a glance
Governance at a glance
Jacqueline de Rojas*
89%
100%
Bishoy Azmy3
Jane Lodge*5
David McManus4
Alison Wood*
100%
100%
100%
46
Female
4
Male
4
White
All other ethnic
groups combined
(excluding White minorities)
Board independence
Costain has taken the right
steps to secure my safety and
wellbeing on site or in the office
50%
78%
Agree
Chair#
Non-independent directors
Independent directors
1
3
4
Agree – 78%
Neutral – 14%
Disagree – 8%
Governance improvements
Examples of key Board decisions
• Introduction of additional commercial controls and
contract management processes.
• Evaluation of risk profile of consultancy and digital
contracts and cyber security.
• Endorsed some de-risking triggers in the
pension scheme.
• Capital raising to strengthen the balance sheet.
• Ambition to achieve whole life carbon net zero on or before 2035.
• Divestment of some non-core businesses.
• COVID-19 mitigation measures.
• Director changes.
• 2021 budget.
Footnotes:
Board changes (in 2020)
1 Anthony Bickerstaff stepped down from the Board on 30 November 2020 as CFO.
2 Helen Willis joined the Board on 30 November 2020 as CFO.
3 Bishoy Azmy joined the Board on 19 June 2020 as non-independent non-executive director representative of the shareholder ASGC. Bishoy was unable to attend one
unscheduled Board meeting due to a prior commitment.
4 David McManus stepped down from the Board on 19 June 2020 as non-executive director.
Board changes (in 2021)
- Tony Quinlan joined the Board on 1 February 2021 as non-executive director and future chair of the Audit Committee and therefore is not shown in the table above.
5 Jane Lodge will step down from the Board as senior independent director and chair of the Audit Committee at the conclusion of the 2021 AGM.
* Total of 24 meetings for those in post during the full 2020 year.
# The chair was independent on appointment.
Costain Group PLC Annual Report & Accounts 2020 Governance | Board of Directors
Board of Directors
Experienced and
effective leadership
Dr Paul Golby
Alex Vaughan
Helen Willis
CBE, FREng, FIET, FIMechE, FEI, FCGI
BSc (Hons) FRICS, Dip IoD, FIoD
ACA, BSc
Non-Executive Chair
Chief Executive Officer
Chief Financial Officer
Appointment
May 2016
Appointment
May 2019
Appointment
November 2020
Skills and experience
Skills and experience
Skills and experience
Helen Willis was appointed CFO in
November 2020. She has significant
experience in senior finance roles,
including most recently as chief financial
officer of De La Rue. Prior to this, Helen
worked at Premier Farnell between 2014
and 2017, including as chief financial
officer from 2015. She has also held
senior finance roles at Pelican Rouge,
AZ Electronic Materials, and HSS Hire.
Alex Vaughan was appointed CEO in
May 2019. Prior to this he was managing
director of the natural resources division
with responsibility for Costain’s services
to water, oil and gas and power clients
as well as the development of client
facing technology solutions across the
Group. He held this position from 2013.
Alex is qualified as a chartered quantity
surveyor. He has worked on
infrastructure projects in the UK and
internationally, as well as having held a
number of corporate roles including
Group HR director and corporate
development director. In 2009 he
completed the Harvard Business School
Advanced Management Program (AMP).
47
Paul Golby was appointed as chair of
Costain in May 2016. A fellow of the
Royal Academy of Engineering, Paul has
held a variety of roles within the
engineering and energy industries.
Following an early career with Dunlop
Holdings plc and BTR plc he joined
Clayhithe plc, becoming an executive
director in 1992. In 1998, Paul joined
East Midlands Electricity plc as
managing director and following its
acquisition by PowerGen (subsequently
E.ON UK plc) was appointed executive
director, UK operations. In 2002, Paul
became chief executive and later
executive chair, stepping down from the
E.ON Board in December 2011. Paul was
also non-executive chair of AEA
Technology Group plc (2009–2012),
chair of Engineering UK (2010–2016) and
pro chancellor and chair of council of
Aston University (2009–2017). He was
chair of the Engineering and Physical
Sciences Research Council (2012–2018)
and a member of the Prime Minister’s
Council for Science and Technology
(2010–2019).
External appointments
External appointments
Chair of the CBI regional council.
Non-executive director and chair of the
safety, environment and health
committee of National Grid plc, board
member of the ERA Foundation and
chair of the National Air Traffic Services
(NATS Holdings Ltd).
C
Committee membership
Member of the
Remuneration Committee
Member of the
Audit Committee
Member of the
Nomination Committee
C
Chair of Committee
Board of Directors continued
Experienced and effective
leadership continued
48
Jane Lodge
FCA, BSc
Alison Wood
MBA, BA
Bishoy Azmy
MBA, BSc
Senior Independent Director
Independent Non-Executive Director
Non-Independent Non-Executive Director
Appointment
August 2012
Appointment
February 2014
Appointment
June 2020
Skills and experience
Skills and experience
Skills and experience
Jane Lodge was appointed as the senior
independent director in May 2018 having
been a non-executive director since
August 2012 and chair of the Audit
Committee from the end of October
2012. Jane spent 35 years at Deloitte
LLP (UK), 25 as an audit partner advising
global companies, particularly in the
manufacturing, house-building and
property and construction sectors. She
was senior partner of the Birmingham
office and the Deloitte UK Manufacturing
Industry Sector. Jane was previously a
non-executive director and chair of the
audit committee, Moorgate Industries
Limited (2014–2015), Devro PLC (2012-
2020) and Sirius Minerals plc (2015-2020
when the company was acquired by
Anglo American plc) and a non-executive
director of Black Country Living
Museum Trust Limited.
Alison Wood was appointed as a
non-executive director with effect from
1 February 2014 and was appointed as
chair of the Remuneration Committee
from the beginning of April 2014. Alison
is the former global director of strategy
and corporate development at National
Grid plc (2008–2013). Before that, Alison
spent nearly 20 years in a number of
strategy and leadership roles at BAE
Systems plc including group strategic
development director. Alison has also
held non-executive director positions at
BTG plc (2004–2008), Thus Group plc
(2007–2008), Cobham plc (2011–2020)
and e2v technologies plc (2013–2017)
where she was senior independent
director.
Bishoy Azmy was appointed as a
non-executive director in June 2020.
Bishoy is the CEO of ASGC, a
construction conglomerate with its
headquarters in Dubai, UAE. As CEO and
a member of the ASGC Executive Board,
he has been responsible for developing
ASGC’s expansion strategies, overseeing
the group’s digital transformation and
optimising operations across diverse
construction sectors.
Bishoy is an active member of the Young
Presidents Organization (YPO) and an
associate of the Chartered Institute of
Arbitrators. Bishoy graduated from the
American University in Cairo with a
BSc in Construction Engineering (2002).
He is a PMI Project Management
Professional (2006) and also holds a
masters in international construction
management from the University of
Bath, UK (2007) and an MBA from
London Business School, UK (2013).
External appointments
External appointments
External appointments
Non-executive director and chair
of the audit committee at DCC plc.
Non-executive director and chair of the
audit and risk committee at Bakkavor
Group plc. Non-executive director
of Glanbia PLC and the Bromsgrove
School Foundation.
Non-executive director and chair of
the Remuneration Committee at TT
Electronics plc, Cairn Energy PLC,
Oxford Instruments plc and the British
Standards Institute (a non-listed entity).
CEO of ASGC, a shareholder of Costain
Group PLC.
C
C
Costain Group PLC Annual Report & Accounts 2020 Governance | Board of Directors
49
Jacqueline de Rojas
Tony Quinlan
CBE
ACA, BSc
Sharon Harris
LLB
Independent Non-Executive Director
Independent Non-Executive Director
General Counsel and Company Secretary
Appointment
November 2017
Appointment
February 2021
Appointment
September 2020
Skills and experience
Skills and experience
Skills and experience
Sharon Harris trained as a solicitor at
Norton Rose Fulbright and worked as
a solicitor at Simmons & Simmons.
She is a general counsel and company
secretary with listed company
experience gained in multiple sectors,
including energy and defence. She has
considerable international and domestic
experience of legal, commercial and
governance matters.
Tony Quinlan was appointed as a
non-executive director in February 2021.
He is a chartered accountant, an
experienced non-executive director and
audit chair with experience as a public
company chief executive and finance
director. He was previously chief
financial officer (2015) and chief
executive officer (2016) of Laird PLC,
chief financial officer of Drax Group plc
(2008–2015) and held senior finance
roles at Marks and Spencer plc
(1992–2008). Tony was also previously
senior independent dirctor and chair of
the audit committee for the Port of
London Authority.
Jacqueline de Rojas was appointed as a
non-executive director with effect from
20 November 2017. As president of
techUK she is a leader in the UK
technology sector and an experienced
non-executive director who has held
executive positions at global blue-chip
software companies such as Citrix
Systems, CA Technologies, McAfee and
Novell. Jacqueline was previously a
non-executive director of AO World Plc
and Home Retail Group prior to the
divestment of this group. She is the
co-chair at the Institute of Coding and
advises the board of accelerateHer to
address the underrepresentation of
women in technology. Jacqueline also
lends her support to the Girlguiding
Association and is an executive mentor
at Merryck & Co. She was awarded a
CBE for services to international trade in
technology in the 2018 New Year
Honours list.
External appointments
External appointments
Non-executive director and senior
independent director at Rightmove plc
and non-executive director and board
member responsible for employee voice
at FDM Group (Holdings) plc. President
of techUK and chair of Metapraxis Ltd.
Non-executive director and senior
independent director of Hill & Smith
Holdings PLC and non-executive
director of Associated British Ports.
Adviser to Laird.
Committee membership
Member of the
Remuneration Committee
Member of the
Audit Committee
Member of the
Nomination Committee
C
Chair of Committee
Group Executive Board
An experienced leadership
team to deliver the strategy
The Group Executive Board, chaired by Alex Vaughan, focuses on running
the business and delivering the Group strategy. The members are:
50
Dr Maxine Mayhew
Sue Kershaw
Martin Hunter
FioD, PhD
BSc (Hons) Civil Engineering
BA, ACA
Managing Director – natural resources
Managing Director – transportation
Group Financial Controller
Appointment
November 2018
Appointment
March 2020
Appointment
April 1999
Skills and experience
Skills and experience
Skills and experience
Martin Hunter holds the position of
Group financial controller and has held a
number of head office finance positions
since 1984. Previously, Martin worked
for Stoy Hayward, a London based firm
of chartered accountants. He is a
member of the Institute of Chartered
Accountants in England and Wales.
Sue Kershaw has a strong track record of
driving complex, high profile transport
and construction programmes to
delivery. Before joining Costain she was
managing director, Infrastructure
Advisory Group at KPMG. Prior to that
she was UK infrastructure head of
programme management for KPMG
Major Projects Advisory. Previous
positions include director of rail, Europe
at CH2M and deputy director of
transport for the Olympic Delivery
Authority. Sue is a civil engineer and
started her career with Taylor Woodrow.
Maxine Mayhew was appointed
managing director of the natural
resources division in May 2019. She
joined the business in 2017 and
previously held the positions of water
sector director and Group capability
director, responsible for Costain’s
capability including technology,
consultancy, complex delivery and asset
optimisation. After completing a PhD in
wastewater treatment, Maxine has held
a variety of roles in her 20 years in the
water industry focused on leadership,
innovation, commercial development
and strategy delivery across all aspects
of the industry from operations and
engineering through to central support
services (marketing, supply chain, SHEQ)
and retail operations.
External appointments
External appointments
Senior independent director of Low
Carbon Contracts Company and
Electricity Settlements Company and an
independent council member for
Cranfield University.
President of the Association for Project
Management, a member of the Mayor of
London’s Infrastructure Advisory Panel
and a Royal Academy of Engineering
visiting professor at the Bartlett School
of Construction and Project
Management, University College
London.
Costain Group PLC Annual Report & Accounts 2020 Governance | Group Executive Board
Alex Vaughan
Helen Willis
BSc (Hons) FRICS, Dip IoD, FIoD
ACA, BSc
Sharon Harris
LLB
Chief Executive Officer
Chief Financial Officer
General Counsel and Company Secretary
David Taylor
FRICS, FIoD
Catherine Warbrick
Nathan Marsh
BSc Econ Hons
Group Commercial Director
Group HR Director
Chief Digital Officer
Appointment
January 2015
Appointment
September 2019
Appointment
October 2019
Skills and experience
Skills and experience
Skills and experience
David Taylor joined the Company in
2009 and was appointed to the
Executive Board as Group commercial
director in January 2015. He has held a
number of senior leadership roles within
the business and is currently responsible
for the commercial, supply chain and
procurement functions. David is also
executive sponsor for business
improvement including the delivery of
operational excellence across the
Group’s portfolio of complex delivery
projects. Since December 2020, David is
the executive sponsor for Wellbeing for
the Group.
Prior to joining Costain, David acquired
more than 25 years’ experience with
Taylor Woodrow where he held the
position of commercial director for its
UK operations.
David is a Fellow of the Institute of
Directors and a Fellow of the Royal
Institution of Chartered Surveyors.
Catherine joined Costain in 2006 and
has performed a number of roles, most
recently as director of learning and
development and corporate
responsibility and prior to that as
investor relations director. Highlights of
her career with Costain include
developing and implementing the
Group’s first Corporate Responsibility
(CR) strategy, achieving Platinum status
in Business in the Community’s CR Index
in 2013 and driving change to achieve
the Group’s recognition in the Times
Top 50 Employers for Women
2018–2020, and being cited as a game
changer in 2019 for Costain’s work on
gender parity in early careers
recruitment. Catherine graduated with
an honours degree in Environmental
Science.
Nathan Marsh was appointed chief
digital officer in October 2019. Nathan
brings over 20 years’ experience
working in digital transformation with a
particular focus on planning and
enabling digital capabilities across the
UK’s critical national infrastructure.
Nathan is experienced in leading client
and consulting businesses to design and
deliver digitally-enabled programmes
with new commercial structures,
leveraging technology and new
operating models across sectors
including government, digital
infrastructure, future mobility, defence,
capital markets and strategic risk. He
has helped develop the Robotics and
Artificial Intelligence, Rail and
Connected & Autonomous Mobility
Sector Deals. His career history includes
working in the US and UK with AON,
Atkins-SNC Lavalin, McKinsey & Co and
EY and seven years as an army officer.
External appointments
Zenzic Advisory Board, CBI Public
Sector Partners Council and the CBI AI
& Digital Ethics Advisory Board, Bristol
Robotics Laboratory Advisory Board and
the St Gobain Global Sustainability
Advisory Board.
51
Chair’s Introduction
The Board has ensured
robust governance practices
across the Group
Dear shareholder
The Board has continued to maintain
the highest standards of corporate
governance across the Group. It has
done this by promoting integrity and
openness, valuing diversity and being
responsive to the views of shareholders
and wider stakeholders.
The Board recognises the value of
good corporate governance to
long-term sustainable business
success and has again demonstrated
full compliance with the 2018 UK
Corporate Governance Code
(the 2018 Code).
Strategy
The Board continued to monitor
implementation of the Leading Edge
strategy, aimed at enhancing
stakeholder value by more closely
aligning our integrated services with
our clients’ changing, long-term
infrastructure needs.
As part of this review, the Board looked
at our purpose ‘to improve people’s
lives’ and vision ‘to be the UK’s leading
smart infrastructure solutions
company’, to ensure these continued
to be aligned to our Leading Edge
strategy and our culture, and agreed
that they do.
Risk management
Effective risk management is a
fundamental aspect of the Group’s
operating, financial and governance
activities. The disappointing arbitration
decision in relation to the A465 Heads
of the Valley road contract and the
termination of the Peterborough &
Huntingdon contract (see the Strategic
Report on pages 14 to 45), have led
the Board to oversee in depth actions
taken by the Group to address the type
of risk arising from these contracts.
As a result, the Company is no longer
pursuing energy engineering,
procurement and construction (EPC)
contracts and is instead focusing on
long term investment programmes
and not one-off capital projects. It has
enhanced the strength of its overall
contract management under the new
Operational Excellence Model (see
page 22). Oversight of how the
Company manages its risks will continue
to be an area of specific focus for the
Board in 2021.
Engaging with stakeholders
It is important Costain builds trust by
forging strong relationships with
shareholders and key stakeholders. You
can see from pages 26 and 27 how the
Board engages with stakeholders. In
particular, with regard to workforce
engagement, the Board continued to
use the extensive range of measures it
has in place.
Board effectiveness review
In line with the 2018 Code’s requirement
to undertake an externally-facilitated
Board evaluation at three-year intervals,
the Board engaged Independent Audit
Limited to undertake an effectiveness
review of the Board and its Committees.
Details of the review process and
findings can be found on page 69.
52
“The Board recognises
the value of good
corporate governance
to long-term sustainable
business success.”
Paul Golby Chair
Costain Group PLC Annual Report & Accounts 2020 Governance | Chair’s Introduction
Governance highlights
COSTAIN GROUP
PLC BOARD OF
DIRECTORS
Board evaluation
Board activity
Stakeholder engagement
See more on
page 69
See more on
pages 64 to 67
See more on
pages 26 & 27
Board developments and diversity
After 14 years in the role, Anthony
Bickerstaff stepped down as chief
financial officer on 30 November 2020.
Helen Willis’ appointment as chief
financial officer with effect from the
same date was in accordance with the
Board’s succession plan and included an
extensive internal and external search
process led by Russell Reynolds
Associates. Full details of this process
are included in the Nomination
Committee Report on page 81.
On 19 June 2020, Bishoy Azmy joined
the Board as non-independent
non-executive director and
representative of ASGC, which has a
15.15% shareholding in the Company
following the capital raising. David
McManus, non-executive director,
stepped down from the Board with
effect from the conclusion of the AGM
on 19 June 2020 after six years of
dedicated service.
Since the year-end, Tony Quinlan has
been appointed to the Board as an
independent non-executive director
with effect from 1 February 2021. As
announced on 27 January 2021, Jane
Lodge, senior independent director
and chair of the Audit Committee, will
be stepping down from the Board after
nine years’ service at the conclusion of
the 2021 AGM and it is intended Tony
Quinlan will succeed Jane as chair of
the Audit Committee after the AGM.
The Nomination Committee has
continued its focus on executive and
senior leadership succession planning.
During the year, we assessed the
talent pipeline and identified the skills
needed to support our strategy and
business long-term. Sue Kershaw
joined the Company on 23 March 2020
as managing director, transportation
and Sharon Harris was appointed as
general counsel and company secretary
on 2 September 2020.
Further details are included in the
Nomination Committee Report on
pages 79 to 81.
As described on page 80, Board and
Group-wide diversity continues to be
an important focus for Costain. The
Board currently has 50% female
representation which exceeds the
Hampton-Alexander Review voluntary
target for women on boards of FTSE
350 companies.
Our principles on Board diversity also
apply to the Executive Board and we
currently have 56% (five of nine) of our
Executive Board being female. It is
important that we continue to build a
diverse pipeline within the business,
not just in relation to gender but also
to social and ethnic backgrounds and
cognitive and personal strengths. This
is an area of focus for the Nomination
Committee.
Remuneration
Our current remuneration policy was
approved at our 2020 Annual General
Meeting with over 90% of votes in
favour of it. The Committee considers
that the policy continues to be fit for
purpose and appropriately supports
our strategy.
In the application of the policy, we have
taken into account the shareholder
experience during 2020 and in particular
the impact on the share price.
53
Please see the Directors’ Remuneration
Report on pages 82 to 105 for more
information.
On the following pages we explain
our approach to corporate governance,
demonstrating how the Board and its
Committees have fulfilled their
responsibilities to ensure robust
governance practices are embedded
throughout the Company.
Dr Paul Golby CBE
Chair
16 March 2021
Compliance with the UK Corporate Governance Code
As a premium listed company on the London Stock
Exchange, and in respect of the financial year ended
31 December 2020, the Company is reporting in
accordance with the 2018 UK Corporate Governance Code
(the 2018 Code) which sets out standards of good practice
in relation to the following principles: (i) board leadership
and company purpose, (ii) division of responsibilities, (iii)
composition, succession and evaluation, (iv) audit, risk and
internal control and (v) remuneration. The 2018 Code is
published by the Financial Reporting Council (FRC) and
is available on its website www.frc.org.uk. Costain was
compliant with the provisions of the 2018 Code in 2020.
The Audit Committee Report on pages 74 to 78, the
Nomination Committee Report on pages 79 to 81 and
the Directors’ Remuneration Report on pages 82 to 105
are also incorporated into this report by reference.
Case Study on Board Engagement
Board engagement
with the workforce
54
Engagement with and feedback from the workforce are vital to maintaining a
sustainable business. This is not limited to Company employees but also includes
contractors and agency workers. In compliance with the 2018 Code, we have adopted a
workforce engagement mechanism. This involves direct contact between directors and a
diverse cross section of the workforce through a range of engagement activities. In
addition, the Board continues to use a number of recognised indicators of culture
(see page 63).
Staff roadshows
• In 2020 the annual ‘Costain in Business’
staff roadshow was held virtually. There
were 24 sessions from 14–17 September
2020, with each day focused on one
element of the strategy as follows:
• Participation levels augmented from 28%
in prior years to 54% of employees for
the live sessions, reaching over 1,750
employees with a total of 6,128 views of
the live sessions.
– Being Leading Edge
– Improving lives and delighting our
clients
– Unlocking our capabilities
– Being at our best.
• To facilitate two-way communication,
polls were conducted during many of the
sessions and there was a facility to ask
questions of presenters. Questions could
be raised anonymously to create a more
open dialogue.
• Jacqueline de Rojas, non-executive
director, participated in the session
‘Working together across our sectors’
where she joined the interactive session
with members of the divisional leadership
team. Jacqueline talked about how
technology, particularly as evidenced
during the COVID-19 pandemic, poses
significant opportunities and how digital
and consultancy can be successfully
combined with infrastructure delivery.
• Each session was recorded enabling
those not able to attend live to catch
up at a later date.
• As a business, we used these sessions to
reconnect, inspire, motivate and inform
our teams after six months of working
differently. As a result of the roadshow,
it was reported that:
– 74% of employees felt reconnected to
the One Costain team
– 66% felt more positive about working
at Costain and excited and optimistic
about the future
– 66% felt motivated to perform in their
role to help Costain achieve its
objectives
– 67% felt more informed about how
they can contribute to the future
success of the Group.
Less than 10% of respondents answered
negatively. The Company has taken steps
to address this feedback by the ‘You spoke
we listened’ campaign (see following page).
Costain Group PLC Annual Report & Accounts 2020 Governance | Case Study on Board Engagement
Monthly leadership briefings
Every month the CEO has a 30-minute
telephone call with the senior
leadership team. The purpose of the
call is to update senior leaders on our
business performance and priorities,
together with any important messages
from our stakeholder engagement
processes. This process enables our
senior leaders to better communicate
key messages to their teams. The
format is a 10-minute update with a
short leadership message from the
CEO, followed by a Q&A session.
Themes and key messages from the
Q&A sessions are communicated to
the Board by the CEO via his Board
Report and weekly updates.
In 2020, to support a broader level of
engagement, other members of the
Executive Board participated in the
Q&A session.
Additionally, there are bi-weekly
blogs from our CEO and members
of our Executive Board to all staff.
During the year these blogs
have covered:
• progress updates on delivering
the strategic priorities
• reinforcement of the steps needed
to ensure we manage project risks
effectively
• feedback on lessons learnt
on collaboration, client focus,
operational excellence, accelerating
digital and remote working
• the good progress made towards
our goal of achieving net zero carbon
by 2035
• guidance on COVID-19 and measures
staff could take to enhance their
wellbeing and continue to thrive
during the pandemic
• recognition and celebration of
achievements of our people
through the Leading Edge Awards
(see page 63)
• a thank you to staff for continuing
to look after each other and our
communities, including a focus
on social value, together with an
update on inclusion and the
employee networks.
The key results from the Your
Wellbeing survey were communicated
back to employees and were as follows:
• 69% of employees agreed that
Costain cares about their wellbeing
with 60% rating their wellbeing as
good/excellent.
• 79% of employees agreed/strongly
agreed their line manager supports
them.
• 84% of employees agreed/strongly
agreed Costain is taking the right
steps to see the Company and
employees through the COVID-19
pandemic.
The Company reviewed and analysed
feedback from the Wellbeing survey,
the Leadership Impact Day in October
and the ‘Costain in Business’ virtual
roadshow in September. This resulted
in a ‘You spoke we listened’ campaign
launched in November which was
organised on five Group-wide themes:
1. Increasing guidance on dynamic and
flexible working, supporting every
employee to thrive.
2. Consolidating COVID-19 guidelines
to simplify and clarify
communications.
3. Giving all employees an additional
day’s annual leave on their birthday in
2021 in recognition of their resilience,
hard work and professionalism during
the pandemic.
4. Improving support for line managers
in the form of training courses.
5. Encouraging virtual social
interaction, recognising home
working for some can be isolating.
A new employee forum group called
‘Your Voice’ was launched at the
roadshow in September. Eight
champions were selected representing
all sectors and capabilities. The first
meeting was held in January 2021.
Outputs from the forum will be fed
back to the Board which will consider
the appropriate action to be taken.
55
Case Study on Board Engagement continued
Site visits
Typically non-executive directors would
regularly carry out engagement tours on
our projects and sites in person to gain
further insights into the business and to
examine in particular our health, safety
and environmental performance.
As part of these visits a ‘question and answer’
session is normally held with members of the
site team (including staff, operatives and
members of the supply chain) to allow two-way
communication with the Board member. At the
end of each visit the non-executive director
returns a form to the general counsel and
company secretary capturing key information
and feedback from the visit. Relevant themes
are then discussed at Board meetings and
appropriate actions agreed.
Recognising the impact of COVID-19, most
visits were held virtually in 2020. Some case
studies of site visits follow:
56
Case study 1 – AWE
In August 2020 Jacqueline de Rojas visited the
AWE site. This workforce engagement opportunity
comprised both an introduction, briefing and closing
debrief held virtually with the contract leader,
together with a physical site visit. The latter
comprised a safety briefing and site activity brief,
followed by a site tour accompanied by a member
of onsite management and two graduates. The visit
concluded with a question and answer session with
around 40 employees which included many questions
on strategy.
Social distance was maintained at all times.
In her feedback Jacqueline de Rojas commented:
“Well done for managing the client so positively but
most importantly for creating a culture that is inclusive
and collaborative.”
The below site visits were held virtually unless otherwise indicated:
Paul Golby
Gatwick Station, Thames Tideway, Dunscroft Office (Industrial cooling),
United Utilities MSP
Jacqueline de Rojas
A14 Cambridge*, Gatwick Station, AWE (in person)
Jane Lodge
Alison Wood
A465 Heads of the Valley, Thames Tideway, RDP East, CMDP waste water
treatment plant
Hammersmith Temporary Bridge, Severn Trent (Finham Site), Preston Western
Distributor (in person), C610
* Drone footage used to give overview of the site.
Costain Group PLC Annual Report & Accounts 2020 Governance | Case Study on Board Engagement
Case study 2 – Thames Tideway
Jane Lodge undertook a leadership
engagement tour of Thames Tideway on
15 July 2020. Although the visit was following
the initial lockdown, it was deemed that
non-essential site visitors still posed a risk to
the project and therefore the project looked
to alternative solutions to make the site visit
possible. This was enabled through the use of
technology which allows the wearer to provide
real time video footage and communication
to remote users.
Paul Golby undertook a virtual leadership
engagement tour to Thames Tideway on
30 September 2020 at which lessons learned
from the first site visit were adopted. The
COVID-19 measures which the project team
had in place for the workforce were outlined.
These measures began from the workforce’s
commute to site. Special arrangements were in
place which included additional bicycle parking
and the use of a local carpark to minimise the
number of people reliant on public transport.
The chair observed other measures which had
been adopted on the project including the
wearing of social distancing watches which
beep when in close contact with another
individual, the wearing of face coverings and
COVID-19 PPE, one-way walkways, perspex
desk enclosures and health questionnaires.
Senior site employees answered questions
using the real time technology and gave
explanations to the working operations and
associated safe systems of work which were
being adopted.
After his visit to Thames Tideway, the chair
reported he was impressed with the measures
in place to facilitate a safe return to work and to
improve efficiency.
57
Other
Each of our non-executive directors also acts as a mentor to a participant on our executive development
programme.
Our Governance Structure
Delivering effective decision-
making and meeting corporate
governance standards
The Group’s organisational structure is established and overseen by the Board and
designed to enable effective decision-making and to meet corporate governance standards.
A diagram illustrating the structure is shown here:
58
COSTAIN GROUP
PLC BOARD OF
DIRECTORS
Our Board
Key responsibilities:
• The Board is collectively responsible for the management
of the Company. The Board’s main role is to create
long-term sustainable value for shareholders by providing
entrepreneurial and prudent leadership and taking into
account the interests of all stakeholder groups. It does this
by setting the Company’s strategic priorities and
overseeing their delivery, ensuring that the necessary
financial and other resources are available, and by
maintaining a balanced approach to risk within a
framework of effective controls.
BOARD
COMMITTEES
Board Committees
Key responsibilities:
• The Board has established Committees which are
responsible for audit, remuneration and appointments and
succession. Each Committee plays a vital role in helping the
Board to ensure that high standards of corporate
governance are maintained throughout the Group.
AUDIT
COMMITTEE
NOMINATION
COMMITTEE
REMUNERATION
COMMITTEE
Audit Committee
Nomination Committee
Remuneration Committee
Key responsibilities:
• Monitors and reviews the integrity
of Costain’s financial statements.
• Manages the relationship with the
external auditor.
• Oversees the Company’s systems
for internal control and risk
management.
Key responsibilities:
• Monitors and reviews the
composition and balance of the
Board and its Committees to ensure
Costain has the right structure,
skills, diversity and experience in
place for the effective management
of the Group.
• Reviews management training and
succession planning in respect of
the Company’s senior executives.
Key responsibilities:
• Determines the remuneration for the
chair, executive directors and certain
senior management.
• Oversees Costain’s overall
remuneration policy, strategy and
implementation. This includes the
alignment of incentives with reward
and culture and takes into account
employees’ pay and rewards when
setting the policy for directors’
remuneration.
Costain Group PLC Annual Report & Accounts 2020 Governance | Our Governance Structure
EXECUTIVE
BOARD
Executive Board
Key responsibilities:
• Accountable for the day-to-day
running of the business, delivering
the Group strategy and monitoring
the operational and financial
performance of the Group.
See Executive Board biographies on pages 50 and 51
INVESTMENTS
COMMITTEE
HEALTH
AND SAFETY
COMMITTEE
RISK
COMMITTEE
Investments Committee
Health and Safety Committee
Risk Committee
Key responsibilities:
• Responsible for allocating
the Group’s work winning
resources and authorising
certain investments.
Key responsibilities:
• Responsible for setting
Key responsibilities:
• Identifies emergent risks.
and monitoring compliance
with the Group’s health and
safety policies.
• Considers principal risks and
establishes their risk trend.
• Preliminary review of risk
appetite.
59
How we divide up our responsibilities
Chair
The chair, Paul Golby, is responsible for the effective leadership and operation of the Board. He promotes high
standards of governance and supports and guides the CEO.
Chief executive
officer
The CEO, Alex Vaughan, is responsible for managing the business of the Company through the implementation of
policies and strategies as approved by the Board. Alex is responsible for maintaining dialogue with the chair, the
Group’s shareholders and other stakeholders.
Senior
independent
director
The role of the senior independent director involves providing a sounding board for the chair, acting as a point of
contact for shareholders to raise concerns should they arise and meeting with the other non-executive directors,
without the presence of the chair or executive directors, to discuss such matters as the appraisal of the chair’s
performance.
The senior independent director is Jane Lodge.
Non-executive
directors
The non-executive directors all bring valuable experience, insight and perspective to the Board, through their
former or current executive roles and their other non-executive positions, which are held across a wide range
of businesses and disciplines. This facilitates robust decision-making by the Board as a whole. The non-executive
directors, including the chair, also meet without the executive directors being present from time to time as a matter
of good corporate governance.
The Board Committees are governed by terms of reference which are reviewed annually and can
be viewed in the corporate governance section of the Company’s website. The members
of each Committee and details of their attendance are shown on pages 47 to 49 and 68.
Board Leadership
Board composition
and diversity
The Board is committed to ensuring that it
remains diverse and has set a clear policy on
boardroom diversity which is reviewed every year.
We believe that diversity in all its forms is a
strategic business issue and is essential for
introducing different perspectives into our
discussions and decision-making.
Our policy applies to the whole workforce
including the Board and Executive Board. The
Board has been supportive of the boardroom
diversity targets set by the respective Hampton-
Alexander and Parker Reviews and has worked
hard in recent years to achieve these important
objectives:
• By 2020 women to make up at least 33% of a
company’s board positions – Achieved in 2017.
• FTSE 250 companies to have at least one
non-white director on their boards by 2024
– Achieved in 2017.
Currently, four of our eight directors are women
(50%) and two directors are BAME. The Board’s
commitment to diversity covers the whole
organisation and it places a high emphasis on the
importance of developing diversity in senior
management. The Board has overseen the
Group’s aim to increase female representation
within senior positions across the Group. In 2020
we achieved the significant milestone of 50% of
our Executive Board being female. We have been
encouraged to see our senior female
management population increase from 15% to
30% over the past five years (see page 29).
In 2020 succession planning for our senior
management population also considered ethnic
diversity, with the aim of increasing the BAME
representation in our development programmes.
We have worked with our REACH (religion,
ethnicity and cultural heritage) employee network
to increase the voluntary disclosure of ethnicity in
our employee data.
Looking beyond the Board there are a number of ongoing
activities across the Group to prioritise diversity and
inclusion:
We launched our Disability and
Wellbeing network. The launch
event centred around a ‘let’s talk
about disability’ session and was
attended by over 150 people
60
We were proud to be
named as a Times Top 50
Employer for Women for
a third consecutive year
in 2020
In collaboration with
Stonewall and our LGBT+
and allies network, we
produced a ‘How to
transition at work’ guide
Our REACH network
held 10 ‘let’s talk about
race’ sessions attended
by colleagues of all levels,
including Board members
Costain Group PLC Annual Report & Accounts 2020
Governance | Board Leadership
Female representation
Level
Board
Executive Board
Senior Management
Minimum target
by June 2020
Actual
30 June 2020
Actual
30 June 2020
(Number)
Actual
31 Dec 2020
33%
33%
33%
43%
44%
30%
3 of 7
4 of 9
10 of 33
57%
50%
30%
Actual
31 Dec 2020
(Number)
4 of 7
4 of 8
10 of 33
Actual
16 March 2021
50%
56%
36%
We worked with our employee networks
to understand and address the
disproportionately higher COVID-19 risk
to our BAME colleagues and provided
guidance to our line managers
The theme of one of our leadership impact
days was centred around ‘thriving in the
workplace’ recognising the individual needs of
our people to be at their best
As part of our effort to raise
awareness of race issues, we
launched an over-subscribed
reverse mentoring programme
and look forward to commencing
the next intake in 2021
61
To demonstrate our commitment
to diversity and inclusion we
signed up to the Valuable 500, CBI
Change the Race Ratio and the BITC
Race at Work Charter
We were accredited with a silver
award through the Ministry of
Defence Employer Recognition
Scheme. The award recognises the
efforts Costain has made to support
veterans, reservists and their spouses
We have worked hard to ensure that development
opportunities are accessible to all. In 2020, 40% of
participants on our emerging leaders programme were
female and 10% BAME. In early careers recruitment, 30% of
our graduates and 53% of apprentices were female and 26%
of our graduates and 16% of apprentices BAME
Our Purpose, Values and Culture
At Costain, our clear
purpose is to improve
people’s lives
Our purpose is underpinned by our Leading Edge strategy which closely aligns our services to meet the changing
needs of our markets and clients. We are confident this strategy will enhance our offer to clients, deliver higher
margins and generate long term stakeholder value.
Costain’s culture is the values, beliefs and behaviours that characterise our Company and guide our practices. It is defined
through the Costain Way. This sets out what we expect from our employees and workforce and how we expect business to
be carried out. Our senior leadership team play a critical role in setting the tone of the organisation and championing the
behaviours we expect to see. All senior leaders are expected to carry out engagement tours to our sites at least once a month
to obtain feedback from the workforce on such issues as health, safety and wellbeing and to highlight our values and beliefs.
62
Our purpose
is to
improve
people’s lives
Our vision
is to be the
UK’s leading smart
infrastructure
solutions
company
Our
‘Leading Edge’
strategy
enables us to
achieve our
purpose
and vision
All of which are underpinned by our values:
C
O
S
T
A
I
N
Client focused
Open and honest
Safe and environmentally aware
Team players
Accountable
Innovative and continuously improving
Natural choice
Costain Group PLC Annual Report & Accounts 2020 Governance | Our Purpose, Values and Culture
Recognised indicators of culture reviewed
by the Board and its Committees include:
Outputs from
staff surveys
Whistleblowing
reports
Internal audit
reports and findings
See pages 54 & 55
See page 78
See page 77
Health and wellbeing
performance
Safety performance,
initiatives and trends
including both leading
and lagging indicators
Progress in
respect of inclusion
and diversity
See page 55
See page 29
See pages 60 & 61
63
Rewarding the right behaviours in our quarterly
Leading Edge awards:
Being Curious
The Costain automation solutions team won a Leading
Edge award for using our in-house digital capabilities to
create a robotic process to capture CO2 vehicle emissions
from staff vehicles within the expenses platform. The
robotic application exports information without human
input, running swiftly and without error. As data
accumulates this will allow us to calculate the carbon
footprint of our vehicle fleet, supporting our Climate
Change Action Plan objectives. See more on our
Climate Change Action Plan on page 30.
Being Leading Edge
Bryan Ormond and Arkadiusz Stasiak have been working
to develop digital solutions that drive and improve
efficiency on their contract. The work includes a digitised
live risk and method statements (RAMs) register, easier
data entry for RAMS, an automatically updated CDM
hazards register, management dashboards, smart
reporting templates, red line drawing system and
timesheet improvements as well as introducing reminder
robots. The solution has delivered over £85,000 of savings
per year and further one off savings, making us safer,
faster, better and more efficient – truly Leading Edge!
Key Activities
The following summarises the Board’s main activities over the course of the year:
64
Key area
of activity
Safety,
Health and
Environment
Matters considered
At each scheduled Board meeting, monitored safety, health and environment
performance against the WiiSE strategy (see page 28).
Reviewed how the Company adapted its working practices to meet the COVID-19
conditions and addressed the impact on our employees’ wellbeing (see pages 20 and
21).
Considered and approved the Climate Change Action Plan and targets (see page 30).
Strategy
Reviewed the progress made in delivering the Group’s Leading Edge strategy. In
addition to discussions at scheduled Board meetings, an interactive strategy session
attended by members of the Executive Board was held.
Received presentations from third party advisers on strategic opportunities and the
market landscape and reviewed internal reports on market developments and industry
trends.
Spent a significant amount of time considering the appropriate capital structure for
the Group to enable the Company to capitalise on the growing infrastructure market
opportunities in line with its strategy, have a strong balance sheet and provide
additional headroom to effectively manage working capital flows in the business.
Considered and approved divestment opportunities.
Business
and financial
performance
Received detailed updates on our business performance against our strategic
priorities and KPIs.
Reviewed and discussed financial performance against budget, including exceptional
items and any deviations from expectations.
Reviewed and approved significant bids.
Considered the Company’s performance on major contracts and the Company’s
strategy in managing contractual disputes.
Reviewed and approved the Company’s tax strategy.
Reviewed and approved the Annual Report and Accounts and preliminary results
announcement, the interim results statement and the dividend policy.
Received reports on analyst and investor feedback.
Received updates on the Group’s defined benefit pension scheme and
related governance.
Risk and
opportunity
Conducted an in depth review of improvements to governance and controls around
contract bid, execution and delivery (see page 22).
Undertook ‘deep dive’ reviews of our principal risks to reassess these in light of the risk
mitigation actions undertaken. Such reviews included an evaluation of our contract
management, consultancy, digital and cyber security risks.
Evaluated the impact of COVID-19 on the Group’s operations and financial
performance as government guidance and regulations changed in line with the
evolving pandemic.
Monitored the impact of Brexit on the Company’s supply chain.
Costain Group PLC Annual Report & Accounts 2020 Governance | Key Activities
Key area
of activity
Matters considered
Culture and
governance
Considered and approved recommendations from the Nomination Committee
regarding Board succession planning.
Conducted an externally facilitated Board effectiveness review. Further information
about this process and the outcomes can be found on page 69.
Approved the Group’s Modern Slavery Statement, Gender Pay Gap Report and the
Board’s Diversity Policy.
Received guidance on and approved the treatment of actual and potential directors’
conflict of interest. The Board considered the potential conflict of interest of: (i) the chair
in having oversight of the Company’s dispute with National Grid on the Peterborough &
Huntingdon EPC compressor contract in light of him being a non-executive director of
National Grid; and (ii) the appointment of Mr Azmy as a non-independent non-executive
director of the Company by virtue of Mr Azmy being the CEO of ASGC Construction
L.L.C. (a 15.15% shareholder of the Company).
Noted changes to the guidance note published by the Chartered Governance Institute
(ICSA) on directors’ general duties to reflect the requirement to report on compliance with
Section 172 Companies Act 2006 (duty to promote the success of the company for the
benefit of members as a whole and have regard to various stakeholder factors, see pages
26 and 27).
Approved changes to the Board and Committees’ terms of reference to reflect where
applicable the updated model terms of reference published by ICSA.
Talent and
people
Discussed succession planning and talent development for the Executive Directors and
the Executive Board.
Engaged with high potential candidates through presentations and ‘deep dives’ at
Board meetings.
Reviewed and discussed the feedback from the wellbeing pulse survey and virtual
annual roadshow.
65
Key Activities continued
Principal decisions
In making the following principal decisions in 2020, the Board, in accordance with Section 172(1), has
considered the outcome of stakeholder engagement (as set out on pages 26 and 27) as well as the
need to maintain a reputation for high standards of business conduct and the need to act fairly
between the members of the Company.
Key area
of activity
Matters
considered
Outcomes
Stakeholder
group
considered
Safety,
Health and
Environment
Sustainability and
climate change
commitment
Strategy
Capital raising
The Board has adopted an ambition to achieve whole life carbon net
zero on or before 2035 for all operations (including our client and
supply chain footprints). Several leading KPIs have been set and
progress is reported monthly across all levels of the organisation,
including at Executive Board level and at each scheduled Board
meeting.
Details of the Climate Change Action Plan and how Costain has
identified and addressed the material sustainability issues that
affect Costain and its stakeholders are set out on pages 24 to 30.
On 11 March 2020, the Board announced it was considering a new
equity capital raising, fully underwritten by HSBC, Investec and Liberum
on a standby basis. On 7 May 2020, the Company announced details of
a firm placing and placing and open offer. On 29 May 2020 new shares
raising gross proceeds of £100m were issued in the Company following
completion of the capital raising, with ASGC becoming a shareholder
of 15.15% of the shares of the Company.
Financing
Costain agreed with its banks that the maturity date of its existing
facilities (£179.0m as at 31 December 2020) would be extended from
June 2022 to September 2023.
66
Delivery of
Leading Edge
strategy
The Board continued to ensure the Leading Edge strategy enhances
value and supports the Company’s culture and purpose.
The 2021 budget and rolling three year business plan were approved by
the Board following a comprehensive review of our strategic priorities
and risks to the business by way of items at the October, November
and December Board meetings. The plan takes into account our clients’
changing requirements and includes plans for a number of enhanced
ways of working.
The Board decided to reduce its risk profile in the future by adopting
contract risk mitigation actions, including no longer pursuing
engineering, procurement and construction (EPC) contracts in the
energy sector and by focusing on long-term investment programmes
and not one-off capital projects (see page 22).
The CEO updated the Board on the work undertaken by the business in
assessing the implications of Brexit on the Group in some of his weekly
reports (see page 27).
Sale of non-core
assets
During 2020, the Board completed its strategy to divest its non-core
business assets in Spain by selling the 624 berth marina concession.
The Group also completed the sale of its legacy company that held
property assets in Zimbabwe and, in August 2020, completed the sale
of its equity share in its two remaining ‘Building Schools for the Future’
partnership companies.
Costain Group PLC Annual Report & Accounts 2020
Governance | Key Activities
WORKFORCE
SHAREHOLDERS
CLIENTS
SUPPLIERS
COMMUNITIES AND
ENVIRONMENT
Key area
of activity
Matters
considered
Outcomes
Stakeholder
group
considered
Business
and financial
performance
Trading updates
At various times in the year, the Company updated the market on
trading after performance had been impacted by material factors such
as COVID-19 and the A465 and P&H contracts (see pages 20 and 21,
and 36 and 37).
Contract review
and risk
management
The Board conducted an in depth review of improvements to
governance and controls around contract tender, risk and commercial
management (see page 22).
Cash flow
The Board monitored regularly payment practices against the
requirements of the Prompt Payment Code to which Costain
Limited, the Group’s major trading subsidiary, is a signatory.
Pension
Over a number of years, the Board has sought to address the deficit of
the Costain Pension Scheme, a closed defined benefit pension scheme.
Dividends
COVID-19
During 2020, the trustee of the Pension Scheme reviewed the Scheme’s
investment portfolio and made the following changes which were
endorsed by the Board:
•
•
increased the level of hedging against interest and inflation in the
Scheme from 75% to 95% of funded liabilities
introduced some de-risking triggers whereby if the funding position
is ahead of target due to better than expected investment returns,
the Scheme will automatically sell some growth assets and buy more
matching assets.
As a result of the de-risking triggers introduced in 2020 being hit, the
allocation to growth assets was reduced from 60% to 45%.
Having regard to what it considered, in good faith, to be for the benefit
of its shareholders, the Company declared no dividends in 2020 (see
page 106).
To mitigate the financial impact of COVID-19 and protect the
Company’s cash position, the Board supported a number of prudent
actions including:
• making reductions to the Group’s cost base and deferring capital
expenditure
• deferring PAYE and VAT payments
•
for three months, reducing non-executive directors’ fees and
executive directors’ and senior leadership team’s salaries by 30%, as
well as reducing salaries to some extent for any employee earning
more than £45,000
• using the Government’s job retention scheme to furlough employees
who were unable to work during the initial COVID-19 period.
Culture and
governance
Board
appointments
The Board approved the appointment of Helen Willis as CFO with effect
from 30 November 2020 (see Nomination Committee report on pages
79 to 81).
67
Key Activities continued
68
Meeting attendance
The Board meets regularly, with seven scheduled meetings having taken place during the year. The
directors’ attendance record at the scheduled Board meetings and Board Committee meetings for
the year ended 31 December 2020 is shown in the table below. Also shown below is the directors’
attendance at unscheduled Board meetings in relation to the capital raising. This project was an
intense period requiring multiple meetings, many at short notice, to receive updates on and
consider, discuss and approve various aspects of the capital raising. Further ad hoc meetings were
arranged as appropriate to deal with matters between the scheduled meetings such as commercial
issues relating to contracts (see the Strategic Report on pages 36 and 37 for more information).
For the Board and Committee meetings, attendance is expressed as the number of meetings that
each director attended out of the number that they were eligible to attend.
Board attendance
Executive directors
Anthony Bickerstaff1
Alex Vaughan
Helen Willis2
Non-executive directors
Paul Golby
Jane Lodge
Bishoy Azmy3
Jacqueline de Rojas
David McManus4
Alison Wood
Tony Quinlan5
Scheduled
Board
meetings
Maximum 7
Board meetings
relating to
capital raising
Maximum 11
Other ad hoc
Board meetings
Maximum 6
Audit
Committee
Maximum 7
Remuneration
Committee
Maximum 4
Nomination
Committee
Maximum 5
6/6
7/7
1/1
7/7
7/7
5/5
7/7
2/2
7/7
n/a
11/11
11/11
n/a
11/11
11/11
n/a
11/11
11/11
11/11
n/a
6/6
6/6
n/a
6/6
6/6
3/4
6/6
2/2
6/6
n/a
6a
7a
1a
7a
7/7
2a
7/7
2/2
7/7
n/a
1a
3a
–a
4a
4/4
2a
4/4
2/2
4/4
n/a
1a
4a
–a
5/5
5/5
2/4
4/5
1/1
5/5
n/a
1 Anthony Bickerstaff stepped down from the Board on 30 November 2020.
2 Helen Willis joined the Board on 30 November 2020 which was after the capital raising. No ad hoc meetings were held after Helen’s
appointment.
3 Bishoy Azmy joined the Board on 19 June 2020 which was after the capital raising. He was unable to attend one unscheduled Board
meeting and two Nomination Committee meetings due to prior commitments.
4 David McManus stepped down from the Board on 19 June 2020.
5 Tony Quinlan joined the Board on 1 February 2021 and therefore was not eligible to attend any meetings in 2020.
a Not a member of the Committee – attendance at meeting by invitation. Anthony Bickerstaff did not attend Nomination Committee
meetings relating to the appointment of the new CFO, nor did any director attend the Remuneration Committee for discussions on
their own remuneration.
Board composition
The Board currently comprises the chair, two
executive directors, four independent non-
executive directors and one non-independent
non-executive director. The membership of the
Board and biographical details of all the directors
can be found on pages 47 to 49.
The biographies illustrate that the non-executive
directors have a range of business, sector and
financial experience that is important and relevant
to the management of the Company. The Board
believes that there is an appropriate balance
between executives and non-executives. The Board
is enhanced by the varying lengths of service,
gender balance and expertise of all the directors.
The Board’s skills and experience are depicted in
the adjacent diagram.
The non-executive directors provide constructive
challenge, strategic guidance and specialist
advice. They also hold management to account.
Skills and experience (all 8 directors*)
Construction
Consultancy
Engineering
Finance, audit and banking
General management
Government relations
Natural resources
PLC governance
Safety and risk management
Strategy and M&A
Technology
Transportation
2
3
3
3
4
4
4
5
7
7
7
6
* Self-assessment based on strong or very strong experience.
Costain Group PLC Annual Report & Accounts 2020 Governance | Key Activities
Board effectiveness
The Board has established a formal
process for the evaluation of the
effectiveness of the Board and
its Committees.
For the 2020 financial year, the annual
evaluation was externally-facilitated by
Independent Audit Limited (IAL). IAL is
an independent third party professional
organisation with no other connection
to the Company. The evaluation was
conducted using its online assessment
tool and also involved a review of a
selection of Board and Committee
papers. The evaluation was conducted
under the direction of the chair, with
support from the general counsel and
company secretary.
The evaluation focused on good
governance practices (including
behaviours and culture), strategy, risk
management, how the Board addressed
the challenges faced by the Company
during the year and its engagement with
stakeholders.
The process involved each of the directors, and key employees who frequently
have dealings with the Board and its Committees, completing an anonymous
online questionnaire. In addition, IAL observed the December 2020 Board
meeting, at which items for consideration included a detailed strategy item and
the 2021 budget, together with the December 2020 Audit, Remuneration and
Nomination Committee meetings. The findings were discussed with IAL in
attendance at the Board meeting in January 2021.
Timetable
October 2020
• Tender conducted of external providers and consequent
appointment of IAL.
• Confirmed scope and areas of focus of the review.
November 2020
• Questionnaire tailored to the Company’s needs issued to
respondents.
December 2020
• Reviewed questionnaire responses and analysed results.
• Richard Sheath of IAL observed the Board, Audit
Committee, Remuneration Committee and Nomination
Committee meetings.
• Analysed results and drafted the report.
January 2021
• Final report discussed at Board meeting and
recommended actions agreed.
Ongoing in 2021
• Post-review support.
Based on the review, the Board
concluded that its strength continued
to be demonstrated through its
composition, diversity, clarity of
roles and clear focus on strategy.
The Board considered that the directors
continue to have sufficient time,
knowledge and commitment to
contribute effectively to the Board and
its Committees, and that the Board as a
whole demonstrates good practice on
the key indicators of Board effectiveness.
Following the evaluation, the Board
agreed to focus on the following areas in
2021; contract risk appetite and controls,
delivery and communication of our
strategy, and monitoring the culture
change required to deliver our strategy.
IAL shared with the senior independent
director observations on the chair’s
performance emerging from the
self-assessment of the Board. Jane
Lodge then discussed the findings of
the assessment one to one with the
other directors and then met with the
chair to provide feedback.
The procedures, effectiveness and
development of the Board will continue
to be kept under review.
Progress made against the areas of focus
that were identified during the 2019
internal evaluation are shown below.
2018 and 2019
internal evaluations
2020
external evaluation
2021
internal evaluation
Areas of focus identified in 2019:
Action taken in 2020:
Improving risk management
• This was a key area of focus for the Board in the year. The Board oversaw a number of actions to improve risk
management, details of which are set out on pages 22 and 40 to 43.
Manner in which Board challenges management
• The Board had in depth challenging discussions on a range of matters throughout the year.
• On the basis of the externally-facilitated review, the Board concluded there is a good relationship between the
Board and the executive team based on trust and openness.
Visibility of action completion via KPIs
• The critical milestones to monitor success in delivering our strategy were considered at each scheduled Board
meeting.
69
Key Activities continued
70
Board independence
Having due regard to the results of the externally-
facilitated 2020 review of Board performance,
the Board considers each of its independent
non-executive directors standing for re-election
continues to be independent in character and
judgement and there are no relationships or
circumstances which are likely to affect (or
could appear to affect) the judgement of such
independent non-executive directors. Bishoy
Azmy is a non-independent non-executive
director and represents the shareholder ASGC.
The Board also confirms that these directors
continue to perform effectively, that they
demonstrate commitment to their particular
roles, that they ensure proper time is devoted
to Board and Committee meetings and should
therefore be elected or re-elected at the
forthcoming AGM.
After nine years’ loyal service, Jane Lodge will not
be standing for re-election at the 2021 AGM.
The current terms of appointment of all the
directors are set out in the Directors’
Remuneration Report on page 102.
At the time of his original appointment in May
2016, the chair, Paul Golby, was considered
independent by the Board.
Board induction
On appointment, new members of the Board take
part in a tailored induction programme, organised
by the general counsel and company secretary.
The induction programme for new non-executive
directors covers the following activities
and meetings:
1. Meeting with the Board, its Committees and
other external stakeholders
As part of the appointment process, a newly
appointed director has meetings with the chair,
the senior independent director and Committee
chairs to build up their understanding of the
Costain business and its markets. Additionally,
they will have the opportunity to meet with other
key advisers and stakeholders, including the
Company’s financial advisers and brokers.
2. Meeting with senior management and staff
A newly appointed director will spend time
meeting the chief executive and chief financial
officer. They will also have meetings with all the
members of the Executive Board.
3. Understanding the business
A newly appointed director (accompanied by the
relevant managing director) will carry out
engagement tours at various operational sites.
These tours will involve meeting with members of
the project team, including the supply chain. They
learn about the nature of each of the projects
including health, safety and environment aspects,
and obtain insights from the workforce. A
feedback form is then returned to the general
counsel and company secretary.
4. Training
An electronic induction pack is provided to
ensure a thorough understanding of the role of
the newly appointed director and the framework
within which the Board operates. This is coupled
with a training session with the general counsel
and company secretary covering directors’ duties,
the Market Abuse Regulation and the Group’s
corporate governance practices and procedures.
Newly appointed directors also undertake the
Company’s online health and safety, inclusion,
information security, competition law and
anti-bribery and corruption awareness training
modules.
Induction of new CFO
In addition to the above, the CEO and general
counsel and company secretary also arranged for
Helen Willis, on appointment, to meet with
representatives of the Company’s banks, major
shareholders, external auditor and members of
the wider leadership team.
Ongoing Board training
As regards the continuing professional
development of the executive and non-executive
directors, Board members, independent of any
formal training arranged by the Company, are
encouraged to attend seminars and conferences
on issues relevant to their appointment as
directors of a public company, particularly matters
concerned with corporate governance, audit and
remuneration issues. In addition, Board site visits
are considered essential to ensure that directors
have a thorough understanding of the business
operations and issues that affect the Group.
Costain Group PLC Annual Report & Accounts 2020 Governance | Key Activities
management’s performance against
agreed objectives. The Board is also
kept up to date on legal, regulatory and
governance matters by both the general
counsel and company secretary and
external advisers.
All Board members have access to the
advice and services of the company
secretary, who is also the Company’s
general counsel. The general counsel
and company secretary is responsible
for ensuring that Board procedures and
applicable rules and regulations are
followed. The appointment and
removal of the general counsel and
company secretary is a matter reserved
for Board approval. On 2 September
2020, Tracey Wood stepped down as
general counsel and company secretary
and was replaced by Sharon Harris.
The Board also obtains advice from
professional advisers as and when
required at the expense of the Company.
71
Corporate Responsibility
The Board receives reports from the
Company’s corporate responsibility
director and monitors progress on a
regular basis.
Diversity
Details of the Company’s diversity
policy, in relation to the Board and
senior executives, can be found on
pages 60 and 61 and in the Nomination
Committee Report on page 80.
Details of the Company’s Group-wide
approach to issues of diversity and
equality can also be found on pages 60
and 61 of this annual report.
How the non-executive directors
are kept informed
• Deep dive presentations from
business sectors and functions.
• Visits to regional offices or
operational sites (mostly virtual
visits during the pandemic).
• Access to key executive
personnel between meetings.
• Weekly reports from the chief
executive officer.
• Monthly management accounts
and regular internal reports.
• Updates on legal, regulatory and
governance matters.
• Presentations from external
advisers.
Health and Safety
• The Board considers health and
safety its number one priority.
• All Board members hold a
Construction Site Visitor Card
certificated under the
Construction Skills Certification
Scheme or similar appropriate
internal certification.
• The directors also take part in
twice yearly leadership impact
days which take place across all
our sites. They complete a
feedback form just as they do
after site visits.
• As part of the Company’s
commitment to health and
wellbeing, some members of the
Board have undertaken mental
health awareness training.
Operation of the Board
The chair sets the Board’s agenda and
ensures that adequate time is available
for discussion of all agenda items. To
discharge their duties, the directors are
provided with full and timely access
to papers prior to Board meetings via
a fully encrypted electronic portal
system. Directors have access to all
information relating to the Group and
are free to seek any further information
they consider necessary. After each
meeting, the general counsel and
company secretary operates a
comprehensive follow-up procedure to
ensure that actions are completed as
agreed by the Board.
Senior executives and high potential
employees below Board level are
invited to attend Board meetings from
time to time to deliver presentations on
issues that are relevant to their
particular business sector or function.
In 2020 they attended virtually due to
the pandemic.
Prior to the pandemic, the directors set
aside some days to combine scheduled
Board and Committee meetings with
visiting regional offices and operational
sites. This provided the non-executive
directors with an opportunity to meet
both senior managers and other
members of staff and to obtain a
greater insight into particular aspects
of the business and projects that the
Company is engaged in.
In addition, between Board meetings,
the chair and non-executive directors
have access to the chief executive
officer, chief financial officer and
general counsel and company secretary
to progress the Company’s business.
The chair and non-executive directors
also receive a weekly report from the
chief executive officer, monthly
management accounts, internal audit
reports and regular management
reports and information, which enable
them to scrutinise the Group and its
Key Activities continued
72
Directors’ external appointments
The non-executive directors may serve on a
number of other company boards provided they
continue to demonstrate the requisite commitment
to discharge their duties to the Company
effectively. Such external appointments are seen
as being beneficial to the overall decision-making
process of the Board as a whole. The Company
also encourages, when appropriate, the executive
directors to take up non-executive positions, with
the prior consent of the Board, in the belief that
such appointments broaden their skills and
enhance the contribution which they can make to
the Company’s performance. Generally, no more
than one such appointment may be undertaken by
the executive directors.
Remuneration
A summary of the Company’s remuneration
policy approved in 2020 and how it has been
implemented, together with the activities of the
Remuneration Committee, can be found on pages
82 to 105 of the Directors’ Remuneration Report.
Shareholder communication and engagement
The Company remains committed to maintaining
good relationships with both institutional and
private shareholders. There continues to be
regular dialogue with institutional investors.
Additional details of how the Company engages
with shareholders can be found on page 26 of the
Strategic Report.
The chair is available to discuss strategy and
governance issues with shareholders. The senior
independent director, Jane Lodge, is available to
shareholders if they have any concerns that have
not been, or cannot be, addressed through the
normal channels of chair, chief executive officer or
chief financial officer. In 2020, both Paul Golby
and Jane Lodge met with shareholders.
The Company obtains feedback from its brokers,
Investec and Liberum Capital, on the views of
institutional investors on a non-attributed basis.
The Board routinely reviews reports from its
brokers on issues relating to recent share price
performance, trading activity and institutional
sentiment. The Board also receives copies of
relevant analysts’ reports on an ad hoc basis.
The Board regards the AGM as an important
opportunity to communicate directly with
shareholders. Typically the AGM provides
shareholders with an opportunity to ask questions
of the directors during the meeting and also on a
more informal basis following the conclusion of
the meeting, at which senior members of staff are
also present. The AGM also normally gives
shareholders an opportunity to listen to a
presentation from the chief executive officer on
the current trading performance and
developments within the business.
At the time of the 2020 AGM in June 2020, due
to the COVID-19 pandemic, the UK Government
had prohibited public gatherings of more than
two people. In light of these measures, the
AGM in 2020 was run as a closed meeting and
shareholders were not able to attend in person.
The Company made arrangements such that the
legal requirements to hold the meeting were
satisfied through the attendance of a minimum
number of employee shareholders, namely the
CEO and general counsel and company secretary,
and the format of the meeting was purely
functional. The Board recognised the importance
of the AGM to shareholders and was keen to
ensure that they were able to exercise their right
to participate in the meeting by voting.
Registered shareholders were also able to submit
their questions to the directors in advance of the
meeting by email.
Shareholders may raise issues or concerns by
contacting investor relations or by writing to the
general counsel and company secretary (see
contact details on page 185).
Costain Group PLC Annual Report & Accounts 2020 Governance | Key Activities
Accountability
Financial and business reporting
The Board is required by the 2018 Code to
present a fair, balanced and understandable
assessment of the Company’s position and
prospects and reference is made to the statement
of directors’ responsibilities on page 111 together
with the statement on the status of the Company
as a going concern and the financial Viability
Statement on pages 44 and 45.
As can be seen from page 75 the preparation of
this annual report involved input from a number
of functions across the Group. The Board was
involved at an early stage to enable review,
challenge and discussion ahead of approving
the final publication.
The Board also recognises that its responsibility
to present a fair, balanced and understandable
assessment extends to interim and other price-
sensitive reports that the Company may publish
from time to time, for example the update
regarding the Peterborough & Huntingdon
contract on 29 June 2020 and the trading update
on 17 August 2020.
Business model
The Overview and Strategic Report on pages 1 to
45 give details of the Company’s business model
and the strategy for delivering the priorities of
the Company.
Going concern and viability
The Group’s going concern statement is detailed in
note 2 of the consolidated financial statements on
page 128. The long-term Viability Statement is set
out on pages 44 and 45.
Risk and internal control
Risk management
The Board is responsible for undertaking a robust
assessment of the principal risks facing the Group,
as described on pages 40 to 43 of the Strategic
Report. This includes those risks that would
threaten its business model, future performance,
solvency and liquidity and ensuring that
appropriate mitigating actions are in place to
manage them.
The Group’s approach to risk management as
more fully described on pages 40 to 43 ensures
that, on an ongoing basis, the most significant
risks to the Group’s objectives are identified,
assessed and managed.
The Costain Way, which forms the basis of the
Group’s control framework, contains all policies,
procedures and controls and is regularly updated
to reflect the output of risk and assurance activity
to ensure that there is continuous improvement to
the control environment.
Internal control
The Board is responsible for the Group’s systems
of risk management and internal control and is
required to regularly review their effectiveness.
The Audit Committee has undertaken this review in
accordance with the requirements of the Guidance
on Risk Management, Internal Control and Related
Financial and Business Reporting, published by the
FRC, throughout the year and up to the date of this
annual report. Further details can be found on
pages 76 and 77 of the Audit Committee Report.
The Group uses the Costain Way as the framework
for the systems and controls in place to ensure that
exposure to significant risks is managed
appropriately. The Board recognises that such a
system can only manage rather than eliminate the
risk of failure to achieve business objectives and
can only provide reasonable, but not absolute,
assurance against material misstatement or loss.
The Group also has an independent internal audit
function which undertakes a programme of risk
based audits across all operations throughout the
year. All audit reports are shared with the relevant
business owners who are accountable for
implementing appropriate measures to address
any risks or controls weaknesses. The results of all
internal audit activity are also shared with the
chief executive officer, chief financial officer, the
external auditor and scrutinised by the Audit
Committee on a regular basis, further details of
which can be found on pages 76 and 77 of the
Audit Committee Report.
73
Audit Committee Report
The Committee has open and challenging dialogue
with management and the internal and external
auditors and has an appropriate level of scrutiny
In accordance with its terms of reference and in compliance with the 2018
Code, on behalf of the whole Board, the Committee is responsible for:
• monitoring the integrity of the
Group’s financial statements and any
formal announcements relating to
the Group’s performance, and
reviewing significant financial
judgements contained in them
• reviewing the effectiveness of the
external audit process and making
recommendations to the Board in
relation to the appointment,
reappointment and remuneration
of the external auditor
• providing advice (where requested by
the Board) on whether the annual
report, taken as a whole, is fair
balanced and understandable, and
provides the information necessary
for shareholders to assess the
Company’s position and performance,
business model and strategy
• reviewing the Company’s internal
financial controls and internal control
and risk management systems, and
the processes for management of the
principal risks facing the Group
• monitoring and reviewing the
effectiveness of the internal audit
and risk function. Approving, in
consultation with the chief executive
officer, the appointment and
termination of employment of the
head of that function
• ensuring that an appropriate
relationship between the Group and
the external auditor is maintained.
Reviewing non-audit services and
fees and the external auditor’s
independence
• developing and implementing policy
on the engagement of the external
auditor to supply non-audit services.
Considering the impact this may have
on independence, taking into
account the relevant regulations and
ethical guidance in this regard.
Reporting to the Board on any
improvement or action required
• reviewing its terms of reference and
its effectiveness from time to time
and recommending to the Board any
changes required.
74
AUDIT
COMMITTEE
Governance of the Committee
The Audit Committee (the Committee) is comprised
exclusively of independent non-executive directors, with
myself acting as Committee chair. The members of the
Committee and details of their attendance at Committee
meetings are given on page 68 and their biographies are
shown on pages 47 to 49.
The general counsel and company secretary is secretary
to the Committee.
The Company considers that I, as Committee chair,
possess the necessary recent and relevant financial
experience to effectively chair the Committee and am
competent in accounting and auditing. In addition, the
Company considers that the members of the Committee
as a whole possess relevant skills and sector experience to
meaningfully discharge the responsibilities of the Committee.
During 2020, the Committee held seven meetings
reflecting the increased oversight required as a result of
the capital raising, refinancing, COVID-19 pandemic and
accounting treatment of material contracts. The meetings
of the Committee are normally also attended by the Group
chair, the chief executive officer, the chief financial officer,
the head of internal audit and risk, the financial controller
and the external auditor. Other senior executives will
attend as required to provide information on matters being
discussed which fall into their area of responsibility. The
Committee also regularly meets privately with the external
auditor and the head of internal audit and risk.
Costain Group PLC Annual Report & Accounts 2020 Governance | Audit Committee Report
“ I am pleased to present the 2020 report of the Audit Committee which describes how the
Committee has carried out its responsibilities during the year. This is my last report as chair
of the Committee. I know I will be leaving the Committee in safe hands under Tony Quinlan’s
chairship. I would like to thank the members of the Committee, the executive management
team and the external auditor for the open discussions that take place at our meetings and
the importance they all attach to the Committee’s work.“
Jane Lodge
Committee Chair
Committee effectiveness review
Independent Audit Limited was
appointed to undertake a review of
the effectiveness of the Board and its
Committees. The evaluation process is
discussed in greater detail on page 69.
On the basis of the review, the Audit
Committee concluded that the
Committee and its chair remained
effective. There were no significant
areas for concern in respect of the
performance of the Committee or any
of its members.
Activities
In 2020, the principal activities of the
Committee and the manner in which it
discharged its responsibilities were as
follows:
Capital raising
In considering the Group’s capital
structure, the Committee evaluated
and recommended to the Board an
equity capital raising of £100m by
way of a firm placing and placing and
open offer.
Refinancing
The Committee reviewed Costain’s
banking facilities and recommended to
the Board an extension be made to the
maturity date of its existing facilities
(£179.0m as at 31 December 2020) from
June 2022 to September 2023.
Dividend policy
The Committee reviewed and
recommended to the Board a
dividend policy (see page 106).
Pension
The Committee reviewed the pension
deficit recovery plan and in March 2020
agreed an updated plan with the
scheme trustee.
Risk assessment
The Committee reviewed the principal
and emerging risks. A ‘deep dive’ into
the cyber security risk was conducted,
which included an assessment of the
impact of COVID-19 on this risk. The
Committee also considered the risks
arising from undertaking consultancy
engagements.
Financial statements
The Committee reviewed and
evaluated the Group’s draft financial
statements, preliminary and interim
results and reports from the external
auditor on the outcome of its reviews
and audits in 2020.
Significant accounting matters
The Committee considered key
accounting issues, matters and
judgements in relation to the Group’s
financial statements and disclosures
relating to:
(A) Material contract judgements
As detailed in note 2 on pages 128 to
138 of the financial statements, a
significant proportion of the Group’s
activities are undertaken via long-term
contracts. These contracts are accounted
for in accordance with IFRS 15, Revenue
Recognition, which requires them to be
accounted by their separately identifiable
performance obligations. The costs and
revenues of some of these performance
obligations may be affected by a number
of uncertainties that depend on the
outcome of future events and may need
to be revised as events unfold and any
uncertainties are resolved.
Management uses detailed contract
valuations and cost forecasts when
formulating its judgements of costs
and revenues and its assessments of
the expected outcome of each
long-term contractual obligation.
Given the Company’s portfolio of
contracts, the Committee spent time
during the year reviewing the positions
and judgements taken by management
on a number of material contracts
across the Group.
This was mainly achieved through
discussions with, and reviewing reports
presented by, management and the
external auditor.
75
How do we ensure that the Group’s financial statements, taken as a whole, are fair, balanced and reasonable?
The process is:
• Comprehensive guidance issued to all contributors.
• Verification process dealing with the factual content of the report.
• Review of the disclosure judgements made by the contributors from various functions to each section.
• Comprehensive reviews undertaken to ensure consistency and overall balance.
• Review undertaken by the Committee prior to recommendation to the Board.
Audit Committee Report continued
The main contracts considered, as referenced as
applicable in the Strategic Report on pages 14 to
45 were:
• A14
• A465 Heads of the Valley
• ASF South
• Crossrail C412 & C610 Systemwide
• HS2
• London Bridge
• M1 J13–16
• M1 J23a–25
• Peterborough & Huntingdon compressor
stations
• Severn Trent AMP6
• Thames Tideway
• Thames Water AMP6 ROI
• West Coast Power Supply Upgrade.
This review included, among other things,
consideration of the number of compensation
events on the contract, changes in the design and
construction requirements, the impact of any
third-party factors and progress to date on
negotiations with the client. The Committee
considered in particular the extent to which
events have impacted on the cost and
programme to complete the contract and the
associated level of judgement and appropriate
accounting treatment. In reviewing the contract
judgements consideration is also made to past
performance on contracts and the success or
otherwise of resolving any disputed matters. On the
basis of its review of material contracts, the
Committee concluded that it was content with the
judgements that had been made by management
and that appropriate disclosures had been made at
the relevant times.
(B) Pension
The Group’s defined benefit pension scheme
requires significant judgements to be made in
relation to the assumptions for inflation, future
pension increases, investment returns and member
longevity that underpin the valuation. Each year,
in selecting the appropriate assumptions, the
Company takes written advice from an
independent qualified actuary. These assumptions
and sensitivities are set out in note 21 on pages
168 to 172 of the financial statements.
(C) The carrying value of goodwill and
intangible assets
As set out in note 12 on pages 149 and 150 of the
financial statements, the goodwill and acquired
intangible balances within the Group relate to
companies acquired by the Group. In particular, the
Committee reviewed the carrying value of the
goodwill within the natural resources division. The
Committee also critically reviewed the impairment
considerations in respect of the goodwill and
intangibles. The Committee agreed that the
goodwill within the natural resources division should
be impaired by £9.0m. The Committee agreed the
amortisation charge in respect of other intangibles.
(D) Going concern and viability statement
The Company completed an equity raising of
£100.0m and secured with its banks and sureties
an extension to the maturity date of its existing
facilities (£179.0m as at 31 December 2020) from
June 2022 to September 2023.
The Committee considered the requirements of
the 2018 Code as it applies to the Group’s
viability statement including the three-year period
of assessment which aligns with the Group’s
planning horizon and the processes supporting
the viability statement. After discussion and
having considered the various scenarios that were
presented as part of the viability assessment,
alongside the liquidity and debt positions of the
business, the Committee determined that the
three-year measurement period continued to be
appropriate and that the viability statement (as
set out on pages 44 and 45) should be
recommended to the Board for approval.
(E) Future IFRS and UK GAAP developments
During the year, there were no changes to the
Group’s accounting policies and there were no
new accounting standards.
Audit, risk and internal control
The Board assumes ultimate responsibility for the
effective management of risk across the Group.
However, the Committee helps the Board in its
monitoring of the Company’s internal financial
control, and internal controls and risk management
systems and monitoring and reviewing the work of
the internal audit and risk function.
76
Costain Group PLC Annual Report & Accounts 2020 Governance | Audit Committee Report
Internal audit
The internal audit and risk function has
an integral role in the Company’s
governance structure, providing
independent assurance and advice to
help the Group achieve its strategic
priorities. In December 2019, the
Committee agreed the 2020 audit plan
to be undertaken by the internal audit
team and assessed the adequacy of the
budget and resources. The audit plan is
based on risk, strategic priorities and
consideration of the strength of the
control environment. Progress against
the plan is monitored. The Committee
reviews the results of the internal audit
reports during each meeting which are
graded. Management is responsible for
ensuring that issues raised by internal
audit are addressed within the agreed
timetable and their timely completion is
reviewed by the Committee. Where
internal or external circumstances give
rise to an increased level of risk, the
audit plan is modified accordingly
during the year. In 2020, the audit plan
was modified to take account of the
new risk factors arising from the
COVID-19 pandemic.
The head of internal audit and risk
continues to report directly into the
Committee chair with a second
reporting line to the CEO (previously to
the general counsel and company
secretary) for administrative purposes.
During the year the Committee
received the results of the head of
internal audit and risk’s annual
performance review. It also reviewed
statistics on key staff numbers,
qualifications and experience which the
Committee considered to be
satisfactory.
The effectiveness of internal audit is
assessed by the Committee by:
reviewing the results of an annual
questionnaire completed by individuals
who have exposure to and contact with
the internal audit function; evaluating
internal audit reports; and meetings
with the chair of the Committee without
management present. The
implementation of elements of the 2020
internal audit plan was delayed by
people changes within the internal audit
team. In the year, resourcing within the
internal audit team was reinstated to its
previous level following some
departures. The Committee is satisfied
that the quality, experience and
expertise of the function is appropriate
for the business and to deliver the 2021
internal audit plan.
Internal control and risk
Details of the Group’s internal controls
and risk management framework are
more fully set out on pages 40 to 43 in
the Strategic Report and page 73 in the
Governance Report. The Group’s
principal risks are set out on pages 42
and 43.
The Committee has evaluated the
effectiveness of the systems operated
within the Group pursuant to the FRC’s
guidance on internal control. The
evaluation covered all material controls.
These included financial, operational
and compliance controls. They
encompassed a review of: the
management confirmation reports
submitted by all senior management;
controls reports; reports on fraud
perpetrated against the Group; the
Group’s approach to anti-bribery and
corruption and whistleblowing; and
reports from both the internal and
external auditors.
The review did not identify any
significant weaknesses in the system of
internal control and risk management.
External auditor
The Company’s external auditor is
PricewaterhouseCoopers LLP (PwC).
The audit partner is Jonathan Hook.
Effectiveness of the external
audit process
Following the end of the 2019 financial
year, the Committee considered the
effectiveness of PwC as external
auditor. As part of this process,
external audit effectiveness
questionnaires were completed by
members of the Committee, the
executive directors, other members
of the Executive Board and certain
members of the finance team. Based
on the responses to the
questionnaires, the general counsel
and company secretary produced a
report for consideration by the
Committee. The Committee confirms
that it remained satisfied with the
efficiency and effectiveness of the
external audit in respect of the year
ended 31 December 2019.
During the year, the Committee kept
under review the ongoing effectiveness
of PwC as the Company’s external
auditor, for example, through the
quality of the external auditor’s reports
and the audit partner’s interaction with
the Committee.
At its meeting in December 2020, the
Committee considered and approved
the external audit plan for the audit
of the Group for the year ended
31 December 2020. The Committee
considered significant risk areas for
the audit, the proposed scope, and
the materiality threshold.
Auditor independence
and objectivity
Auditor independence and objectivity
are an essential part of the audit
framework and the assurance it
provides. The auditor’s independence
is therefore monitored throughout
the year. For example, the Committee
has reviewed PwC’s own policies and
procedures for safeguarding its
objectivity and independence and the
arrangements that PwC have in place
to identify, report and manage conflicts
of interest. PwC are also required to
rotate the lead audit partner every five
years to ensure a fresh outlook without
sacrificing institutional knowledge.
Jonathan Hook has served four years
out of five with PwC having first been
appointed as the Company’s auditor in
2017 following a competitive tender
process. Mr Hook will be retiring in
2021 and it was agreed that Andrew
Paynter would succeed him and
shadow Mr Hook to the conclusion of
the 2020 year-end audit.
The Committee is not aware of any
relationships between the external
auditor and the Company that may
reasonably be thought to bear on their
integrity, independence and
objectivity. The Committee reviews all
services being provided by the external
auditor annually to assess its
independence and objectivity. The
Committee takes into consideration
relevant performance and regulatory
requirements, so as to ensure that
these are not impaired by the provision
of permissible non-audit services.
77
Audit Committee Report continued
Whistleblowing and fraud
During 2020, the Committee on behalf of the Board
considered the confidential reporting and
whistleblowing procedures the Company has in
place and is satisfied with these procedures. The
Committee also reviews any instances of fraud
perpetrated against the Company and the action
taken by management to prevent recurrences.
Looking ahead
On the basis of the external review of the Audit
Committee by IAL (see page 69), the Committee
determined the main areas of focus for 2021, in
addition to the annual routine matters, are:
• a detailed review of the risk management
framework, including risk appetite
• continuing to oversee risk ‘deep dives’ and to
receive presentations on these from the
Executive Board risk sponsor (see page 40)
• overseeing a campaign to re-publicise the
Company’s whistleblowing procedures to
ensure they remain effective in light of the
virtual ways of working driven by the COVID-19
pandemic.
Jane Lodge
Committee Chair
16 March 2021
The Committee confirms that it believes that the
independence and objectivity of PwC and
the effectiveness of the audit process remains
strong and has therefore recommended the
reappointment of PwC for 2021.
Non-audit fees
The Company has a policy on the provision of
non-audit services by the external auditor, with
the objective of ensuring that such services do
not impair the independence or objectivity of the
external auditor.
The policy also sets out a number of key
principles that underpin the provision of non-
audit services by the external auditor: the
external auditor should not audit its own firm’s
work; make management decisions for the
Group; have a mutuality of financial interest with
the Group; or be put in the role of advocate for
the Group.
Approval of the Committee is required for any
services provided by the external auditor where
the fee is likely to be in excess of £30,000.
In 2020, the value of non-audit work performed
by PwC was £619,250 (2019: less than £0.1m) and
exceeded the 70% non-audit/audit fee threshold.
This was due to the extended nature of the work
undertaken in relation to the capital raising
(£500,000). Pursuant to Regulation 13 of the
Statutory Auditors and Third Country Auditors
Regulation 2016 and Article 4(2) of the EU Audit
Regulations the Financial Reporting Council
granted a one year waiver to exceed the cap in
respect of the year ended 31 December 2020.
The Committee considered the nature of the work
and the circumstances of the increased scope and
impact on timetable of the COVID-19 pandemic
and satisfied itself that the external audit
remained independent and objective. The
remaining balance was £118,500 for the half year
review and £750 for a website subscription.
78
Costain Group PLC Annual Report & Accounts 2020 Governance | Nomination Committee Report
Nomination Committee Report
Alignment with the
Leading Edge strategy
“ Board composition has continued to be a key focus for the
Nomination Committee, ensuring we have the right
balance of skills, experience and diversity on the Board.”
Paul Golby
Committee Chair
NOMINATION
COMMITTEE
Governance of the Committee
The Nomination Committee (the
Committee) is comprised of
independent non-executive
directors and, since his
appointment, Bishoy Azmy, with
myself acting as chair. The members
of the Committee, together with
their biographies, are given on
pages 47 to 49 and details of their
attendance at Committee meetings
is shown on page 68.
The general counsel and company
secretary is secretary to the
Committee.
Only members of the Committee
have the right to attend
Committee meetings. Other
individuals, such as the chief
executive officer, Group HR
director, members of senior
management and external
advisers, may be invited to attend
meetings as and when it is
considered appropriate.
The outcome of all Committee
meetings is reported to the Board
for its consideration. The senior
independent director of the
Company would chair any
meetings of the Committee that
may deal with the appointment of
my successor as chair of the
Company. The Committee may
take independent professional
advice on any matters covered by
its terms of reference at the
Company’s expense.
79
Role of the Committee
Activities
In accordance with its terms of
reference and in compliance with the
2018 Code, the Committee is
responsible for:
In 2020, the principal activities of the
Committee and the manner in which it
discharged its responsibilities were as
follows:
• reviewing the overall size, structure
and composition of the Board
• identifying and nominating for the
Board’s approval, candidates to fill
Board vacancies as and when they
arise
• receiving notifications from directors
of situations, such as proposed
external appointments, in which a
potential conflict of interest might
arise and/or their time commitment
to the Board could be compromised
• recommending to the Board the
reappointment of those directors
who are offering themselves for
re-election at the Annual General
Meeting following due consideration
of the Board’s policy on
independence and the results of
periodic Board performance reviews
• formulating plans for succession for
both the executive directors and
non-executive directors
• reviewing succession planning
arrangements and development
plans for other senior employees
• directing periodic Board
effectiveness reviews, both internal
and external, which form part of the
regular evaluation and development
work conducted by the Board to
ensure it continues to improve its
overall effectiveness.
Succession planning
Succession planning has continued to
be a key area of focus during the year
in respect of the Board and for those
high performing individuals below
Board level.
In considering the Board’s structure
and composition, the Committee
considered how well the skills,
knowledge and experience of the
Board continued to support the
business to deliver effectively our
Leading Edge strategy. The Committee
also discussed emerging requirements
for skills and experience. The process
for the appointment of Helen Willis as
CFO is detailed on page 81.
During the year, the Committee
received updates from the Group HR
director, Catherine Warbrick, on the
talent management and succession
planning activities within the wider
Group, including those individuals
within the Group who have been
identified as having longer-term
potential for senior roles. In the year
under review, Executive Board
appointments were made. Sue Kershaw
joined the Company on 23 March 2020 in
the position of MD transportation and
Sharon Harris was appointed general
counsel and company secretary on
2 September 2020.
Nomination Committee Report continued
80
Board diversity
Reappointment of directors
The Company recognises the importance of
diversity at the Board and all levels of the Group.
Further details of the work undertaken to support
the development of a diverse pipeline, including
the Board’s policy on diversity, our measurable
objectives that have been set for implementing
the policy and progress made on achieving these
objectives, can be found on pages 60 and 61.
By appreciating and celebrating our differences
we are creating a Company that is a more
dynamic and inspiring place to be for our
employees. We are working hard to ensure that
our workforce reflects the diverse communities
we serve, and we create an inclusive culture
where each employee can truly be themselves at
work. Embracing diversity underpins our
commitment to providing equal opportunities to
our current and potential employees and applying
fair and equitable employment practices.
Our directors come from broad industry and
professional backgrounds, with varied experience
and expertise aligned to the needs of our
business.
A copy of the Board’s Diversity Policy relating to
the whole of the workforce can be found on the
Company’s website at www.costain.com.
The composition of our Board and Executive
Board can be found on pages 47 to 49, and 50
and 51 of this annual report respectively.
Committee effectiveness review
Independent Audit Limited was appointed to
undertake a review of the effectiveness of the
Board and its Committees. The evaluation process
is discussed in greater detail on page 69. On the
basis of the review, the Nomination Committee
concluded that the Committee and its chair
remained effective and there were no significant
areas for concern in respect of the performance of
the Committee or any of its members.
In 2021 the Nomination Committee will continue
its focus on ensuring diversity, particularly in the
Executive Board successor pool. It will also oversee
the development and training plans for this group.
Additionally, it will look to strengthen Board sector
specific knowledge to support the Company’s
Leading Edge strategy.
At the 2020 AGM, all our directors (with the
exception of David McManus who stepped down
from the Board from the conclusion of the AGM
on 19 June 2020) stood for re-election, as
required by the 2018 Code.
The Committee spent time during the course of
the year considering all Board members’ other
appointments and the impact on their time
availability in view of shareholders’ general
concerns regarding overboarding.
During the year Jane Lodge was appointed as a
director of Glanbia PLC and Alison Wood as a
director of Oxford Instruments plc. Both
appointments were approved by the Board, as
required under the 2018 Code, and in doing so
the Board considered the directors’ other
commitments and shareholder concerns
regarding overboarding.
There were no significant changes to the
chair’s other commitments in the year.
Renewal of letters of appointment
During the year, the Nomination Committee
agreed the renewal of the letters of appointment
for a third three-year term for Alison Wood from
February 2020 and for a second three-year term
for Jacqueline de Rojas from November 2020. The
Committee, on behalf of the Board, is satisfied
that all Board members have, and commit, the
time required to discharge their roles at Costain
effectively. This has been evidenced in the past
year during which each Board member has
contributed fully and effectively.
Appointment of directors
There is a formal, rigorous and transparent
procedure for the appointment of new directors
to the Board which involves the use of an
external search firm.
Careful consideration is given to ensure the
proposed candidates have the right skills,
knowledge and experience and can devote
sufficient time to the role.
Dr Paul Golby CBE
Committee Chair
16 March 2021
Costain Group PLC Annual Report & Accounts 2020 Governance | Nomination Committee Report
CFO succession
The Committee considers executive director
succession as part of its routine succession
planning activities, with an item at the
December 2020 Committee meeting on senior
level succession, talent and development.
Following the announcement on 5 October
2020 of Anthony Bickerstaff’s departure as
chief financial officer, the Committee started a
search to identify an individual who would be
able to undertake the role of CFO of Costain.
The Committee, supported by the Group HR
director and the general counsel and company
secretary, agreed:
• a specification for the role and
responsibilities for a new CFO
• to appoint Russell Reynolds Associates, which
has no other connection with the Company or
individual directors, as the external search
partner and
• an interview and selection process.
The Committee requested that the
Remuneration Committee determine an
indicative reward package in line with the
remuneration policy for executive directors
approved at the 2020 AGM. With the assistance
of Russell Reynolds, a long list of candidates
was drawn up for consideration by the
Committee. Both internal and external
candidates were invited to participate in
the process.
Russell Reynolds undertook both a
benchmarking exercise and facilitated personal
assessments, to determine both external and
internal candidates’ skills, potential and
development requirements.
The Committee then considered the formal
appraisals of the candidates on the long-list
and agreed a shortlist of candidates to progress
to the next stage of the process. The CEO and
Group HR director undertook first interviews
with a diverse shortlist of candidates, and
recommended four candidates for interview
and further consideration by the chair and
Jane Lodge, senior independent director and
chair of the Audit Commitee. Finally, the
preferred candidate then met with other
non-executive directors.
Following the conclusion of these meetings, the
Committee met to discuss their findings, noting
in particular the preferred candidate’s proven
track record of executing for success combined
with her commercial acumen and the ability to
think strategically while balancing both short
and long term goals.
The Board met to consider the recommendations
of both the Committee and the Remuneration
Committee. The Directors unanimously approved
the proposals. On 20 November 2020 we
announced the appointment of Helen Willis as
CFO with effect from 30 November 2020 and that
she would join on 23 November 2020 to start a
handover prior to taking up her position.
Having successfully secured a suitable
candidate for the role and discharged its
announcement obligations, the Committee
tasked the CEO and general counsel and
company secretary with preparing a detailed
induction plan for Helen (see page 70).
Non-executive director succession
During the Autumn of 2020, a process to recruit
a new non-executive director and successor to
the chair of the Audit Committee was instigated
and progressed leading to the announcement
on 27 January 2021 of Tony Quinlan as a
director of the Company with effect from
1 February 2021. Tony will take over as chair of
the Audit Committee when Jane Lodge steps
down from the Board with effect from the
conclusion of the 2021 AGM.
As the process straddled the year-end, full
details of the recruitment and appointment
process undertaken for Tony Quinlan will be
included in the 2021 annual report.
81
Directors’ Remuneration Report
How did we perform in the year?
Group EBITA3
£18.0m
2019: £18.2m
2018: £52.8m
Group health and safety
0.03AFR1
2019: 0.05
2018: 0.03
Adjusted2 basic earnings per share
Cash flow (Average month end cash balance)
5.8p
2019: 13.5p
2018: 38.2p
£73.8m
2019: £41.2m
2018: £77.1m
How was our performance reflected in our pay?
AIP – Award achieved by executive directors5,6
Group
EBITA3
(max
Group
Health
and Safety
(max
Order Book
(max
Cash Flow4
(max
Personal
Performance
(max
opportunity:
opportunity:
opportunity:
opportunity:
opportunity:
Alex Vaughan
50%)
0%
10%)
10%)
10%
10%
10%)
0%
20%)
Total
Achieved
Actual
pay-out#
6.5% 26.5%
0%
82
#
Due to the financial performance of the Group in 2020, the Remuneration Committee, in consultation and agreement with Alex Vaughan,
exercised its discretion and decided to not award any bonus.
LTIP – Award achieved by executive directors
Aggregate EPS7 for financial years
ended 31 December 2018, 2019
and 2020 (75% of the award)
Cash conversion
(25% of the award)
Total Achieved
Alex
Vaughan
Anthony
Bickerstaff6
58.3 pence
(threshold vesting level:
99.44 pence or more)*
58.3 pence
(threshold vesting level:
99.44 pence or more)*
58%
(threshold vesting level 80%)
58%
(threshold vesting level 80%)
* As adjusted following the capital raising completed May 2020.
Nil%
Nil%
Ensuring shareholder alignment
of AIP bonus is automatically deferred into
Costain shares with a two year holding period.
Subject to performance targets being met,
100% of LTIP shares vest after three years but
will only be released after five years.
Share Ownership Guidelines are set at 200%
of salary for the executive directors.
1 Accident frequency rate.
2 For 2020 calculated on an adjusted basis before net other items of £10.3m and significant contract provisions of £99.7m. For 2019 and 2018, calculated on an
underlying basis before other items. See definition on page 84.
3 Earnings before interest, tax and amortisation; calculated on an adjusted basis for 2020. For 2019 and 2018, calculated on an underlying basis before other items.
See definition on page 84.
4 Measured pre-acquisition and investments.
5 Helen Willis was appointed to the Board on 30 November 2020 and was not eligible to receive an AIP award for 2020.
6 Anthony Bickerstaff stepped down from the Board on 30 November 2020. The Remuneration Committee determined that he was not eligible to receive an AIP award
for 2020 but that he retained his 2018 LTIP award as he was employed for the majority of the performance period.
7 Adjusted to exclude pension interest and other items considered to be one-off and unusual in nature or related to the accounting treatment of acquisitions.
Costain Group PLC Annual Report & Accounts 2020 Governance | Directors’ Remuneration Report
Annual Statement by Chair of the
Remuneration Committee
I am pleased to present our Directors’ Remuneration Report for the year
ended 31 December 2020.
2020 variable pay outcomes
2020 AIP award outcome: Notwithstanding the good performance
against non-financial measures (see page 93), the Committee, in
consultation and agreement with Alex Vaughan, exercised discretion to
reduce from 26.5% to nil the pay-out which he would otherwise have
earned, having regard to overall financial performance and broader
stakeholder experience. Neither Anthony Bickerstaff nor Helen Willis
were eligible to earn a bonus in respect of 2020.
2018 LTIP: The threshold EPS and cash conversion targets under the 2018
LTIP award were not achieved and the awards lapsed in full (see page 94).
2020 LTIP awards
Alex Vaughan’s 2020 LTIP award was granted in October 2020, with Helen
Willis’ award granted following her appointment in November 2020.
Performance targets were set having regard to the circumstances at the
time, and more information is given on page 96. Taking into account market
conditions, the award quantum was reduced from 100% of salary to 55% of
salary, with a pro rata reduction then applied to Helen Willis’ award to reflect
her period of service during the performance period.
Implementation in 2021
Alex Vaughan’s salary will be increased
by 2% in 2021. Helen Willis’ salary was
set on her appointment in November
2020 and will not be increased for 2021.
Maximum 2021 AIP opportunity equal
to 150% of salary subject to a mixture
of financial and non-financial
performance measures (see page 98).
One third of any AIP award earned is
deferred into shares for two years.
Maximum 2021 LTIP award opportunity
of up to 100% of salary. Awards will be
subject to EPS performance as regards
two thirds of the award and cash
conversion performance as regards one
third of the award over the three financial
years ending 31 December 2023 (see
pages 98 and 99 for further details). Any
LTIP awards which vest will be subject to
a two year holding period.
“ 2020 Executive reward outcomes have been reviewed
against the backdrop of the COVID-19 impact on the
business and wider workforce.”
Alison Wood
Committee Chair
16 March 2021
Actions in response
to COVID-19
Board Remuneration
• 30% salary reduction
for executive directors,
the Executive Board
and the leadership team
for three months.
• 30% fee reduction for chair
and NEDs for three months.
• No salary or fee increase
for directors.
Wider Workforce
• Use of CJRS, with the majority
of the 360 employees
furloughed returned to work
by 1 September 2020.
• 20% salary reduction for
employees on a structured
bonus scheme for three
months.
• 10% salary reduction
for those earning over
£45,000 for three months.
• Temporary pause on
promotions for three months.
This report is split into
three sections:
I.
this annual statement
which includes a
summary of the
remuneration decisions
(see pages 82 to 85)
II.
extracts from the
remuneration policy
approved at the 2020
AGM (see pages 86
to 89)
III. the Annual Report on
Remuneration (see
pages 90 to 105), which
will be subject to an
advisory vote at our
2021 AGM
83
Directors’ Remuneration Report continued
Annual Statement by Chair of the
Remuneration Committee continued
Link to strategy and culture
Our new remuneration policy was approved at the
2020 AGM with over 90% of the votes cast in favour
of it. We were pleased to see similarly strong
support for the 2019 Directors’ Remuneration
Report, with 99% of votes cast in favour of it. Our
policy is designed to be simple and transparent,
aligned with delivering our Leading Edge strategy,
and ultimately supporting the creation of long term
sustainable shareholder value.
performance measures, Alex Vaughan would have
earned an AIP award equal to 26.5% of salary.
However, recognising it was, overall, a challenging
year for the Company, the Committee reviewed any
2020 bonus payment against the backdrop of
shareholder and wider workforce experience in
2020. In light of this, the Committee, in consultation
with and agreement of Alex Vaughan, exercised its
discretion to reduce the AIP award pay-out to nil.
Further details are set out on page 93.
Our core financial and strategic objectives, critical
to the success of our long-term transformational
strategy, are largely embedded within the
executive remuneration framework through the
AIP and LTIP.
We hold ourselves accountable to the highest
safety, health and environment standards and are
committed to operating sustainably, ethically and
inclusively. A proportion of the AIP is therefore
based on health and safety performance. The
executive directors’ personal performance
objectives under the AIP are also linked to talent
development and progressing the Group’s
inclusion strategy.
No changes are proposed to the policy, which
continues to be fit for purpose and appropriately
supports the Company’s strategy. We have set
out below how we propose to implement the
policy in 2021.
We reported last year that we would formally
include in the new policy a maximum pension
opportunity for newly appointed executive
directors in line with the wider workforce
(currently 10% of salary). Helen Willis was
appointed in the year with a company pension
contribution of 10% of salary, the same as for Alex
Vaughan, meaning that the pension opportunity
for both executive directors is now aligned with
the wider workforce.
Performance and variable pay outcomes for
the year ended 31 December 2020
The 2020 AIP award was subject to a mixture of
financial and non-financial performance measures
aligned with key strategic priorities. 50% was linked
to EBITA and the remainder to continued
improvement of our health and safety performance,
order book profitability, cash management and
personal objectives linked to critical strategic and
corporate activities. During the year, the Group
continued to make good progress with
implementing the Leading Edge strategy to align
with our clients’ changing needs (further details are
set out on pages 22 and 23 of the Strategic Report).
Based on assessment against the non-financial
Anthony Bickerstaff’s bonus opportunity lapsed
when he left the business, and Helen Willis was
not eligible to earn a bonus for 2020 reflecting
that she served for one month in the year.
The LTIP award granted on 4 April 2018 was
subject to EPS performance as regards 75% of
the award and cash conversion performance as
regards 25% of the award. The threshold
performance targets were not achieved and the
award therefore lapsed in full. Further details are
set out on pages 94 and 95.
2020 LTIP awards
In the 2019 Directors’ Remuneration Report, we
confirmed our intention to grant 2020 LTIP awards
at the level of up to 100% of salary, and set out the
proposed EPS targets for the two thirds of the
awards subject to an EPS performance condition.
Alex Vaughan’s award was granted in October
2020, with Helen Willis being granted an award
following her appointment in November 2020.
Taking into account market conditions, the
quantum for each award was reduced from 100%
of salary to 55% of salary, with a pro rata reduction
then applied to Helen Willis’ award to reflect her
period of service during the performance period.
As we confirmed when the awards were granted,
the EPS targets were revised to take account of the
change in circumstances, including the capital
raising, with the Committee of the view that the
revised targets are achievable but still require the
delivery of EPS performance which is appropriately
stretching. The targets were confirmed when the
awards were granted, and are set out on page 96.
Executive director changes
Helen Willis joined the business on 23 November
2020 and was appointed CFO with effect from 30
November 2020, the date on which Anthony
Bickerstaff left the Board. A summary of Helen
Willis’ remuneration package is set out opposite.
The remuneration arrangements in connection
with Anthony Bickerstaff leaving the business
were determined in accordance with the policy,
and are described on page 97.
84
Definitions used in this report
AIP: Annual Incentive Plan.
EBITA: Underlying Earnings
Before Interest, Tax and
Amortisation as adjusted by
the Remuneration Committee
to exclude other items
considered to be one-off and
unusual in nature or related to
the accounting treatment of
acquisitions and to ensure that
the performance measures are
assessed on a consistent basis
year-to-year.
EPS: Underlying Earnings Per
Share as adjusted by the
Remuneration Committee to
exclude pension interest and
other items considered to be
one-off and unusual in nature
or related to the accounting
treatment of acquisitions and
to ensure that the performance
measures are assessed on a
consistent basis year-to-year.
LTIP: Long-Term Incentive Plan.
SDP: Share Deferral Plan.
Costain Group PLC Annual Report & Accounts 2020 Helen Willis’ remuneration arrangements
Salary
Pension
Bonus
LTIP
£360,000.
10% of salary, in line with the wider workforce.
Up to 150% of salary. No bonus opportunity was awarded for 2020.
Up to 100% of salary. As described previously, awards for 2020 were reduced to 55% of salary, and Helen Willis’
award was then reduced to reflect her period of service during the performance period. Helen Willis’ 2020
LTIP award is subject to a specific retention requirement (see note i, page 103).
Notice period 12 months.
Reward for the year ending
31 December 2021
Alex Vaughan’s salary will be increased
by 2% in 2021, which is less than the
wider workforce. Helen Willis’ salary
was set on her appointment in
November 2020 and will not be
increased for 2021.
The maximum AIP opportunity for
executive directors will be 150% of
salary. The AIP will be weighted 80%
as regards financial measures, 10% as
regards health and safety measures
and 10% as regards other non-financial
Group and personal measures. The
Committee considers that this
weighting appropriately aligns the
AIP performance measures with key
financial, strategic and workforce
based priorities of the business.
Details of the AIP performance
measures are provided on page 98
and the targets with performance
against them will be provided in the
2021 Directors’ Remuneration Report.
One third of the AIP earned will be
deferred under the SDP.
The maximum LTIP opportunity for
executive directors will be up to 100%
of salary. Vesting will be subject to
EPS performance as regards two thirds
of the award and cash conversion
performance as regards one third of
the award. Details of the LTIP
performance measures and targets
are provided on pages 98 and 99.
LTIP awards which vest will be subject
to a two year holding period.
There will be a 2% increase in non-
executive directors’ fees including fees
for chairing Committees and the chair’s
fee in 2021.
Conclusion
We remain committed to a responsible
approach to executive pay and believe
the policy operated as intended during
the year. The decisions made as a
Committee as regards remuneration
outcomes in respect of 2020
demonstrate our commitment to
ensuring that executive directors’ reward
is aligned with performance, reflective
of returns delivered to shareholders and
acknowledges the impact on the wider
workforce of this challenging year.
We look forward to receiving your
support at our 2021 AGM. I will respond
to any questions that shareholders may
have on this report or our intended
approach to reward for 2021.
Alison Wood
Committee Chair
16 March 2021
85
Remuneration disclosure
• Risk – performance targets are set to
This report, approved by the Board, has
been prepared in accordance with the
provisions of the Companies Act 2006 and
Schedule 8 of the Large and Medium-sized
Companies and Groups (Accounts and
Reports) Regulations 2008 (as amended). It
also meets the requirements of the UK
Listing Authority’s Listing Rules and the
Disclosure and Transparency Rules.
In this report we describe how the
principles of good governance relating to
directors’ remuneration, as set out in the
2018 UK Corporate Governance Code, are
applied in practice. The Committee, when
determining the new policy approved in
2020, addressed the factors in Provision 40
of the 2018 Code as follows:
• Clarity – remuneration arrangements
are simple and transparent and take
account of pay policies for the wider
workforce.
• Simplicity – we follow a conventional
UK market approach to remuneration
with established incentive plans that
operate on a clear and consistent basis.
reward sustainable business
performance, while not encouraging
inappropriate business risks to be taken.
Malus and clawback provisions apply to
AIP and LTIP awards, and the
Committee has the means to apply
discretion and judgement to vesting
outcomes.
• Predictability – details of the potential
values that may be earned by executive
directors through their remuneration
arrangements are set out in the
remuneration policy.
• Proportionality – the AIP and LTIP
performance measures are clearly
aligned to the Group’s strategic
objectives. The Committee takes into
account underlying business
performance and the experience of
shareholders and the wider workforce
when determining vesting outcomes,
ensuring that poor performance is not
rewarded.
• Alignment to culture – the
Committee’s intent is that the policy
drives the right behaviours, and reflects
the Group’s purpose, values and
strategy. The Committee regularly
reviews the remuneration framework to
ensure that this continues to be the
case.
This report is unaudited unless otherwise
stated.
The report is in two sections:
• Extract from the remuneration policy.
This section contains the policy table
summarising the remuneration policy
approved at the 2020 AGM and is for
information only. The full remuneration
policy is available in the 2019 annual
report on the Company’s website at
www.costain.com
• The annual report on remuneration.
This section sets out details of how our
remuneration policy was implemented
for the year ended 31 December 2020
and how we intend for the policy to
apply for the year ending 31 December
2021 and is the subject of an advisory
shareholder vote at the 2021 AGM.
Governance | Directors’ Remuneration Report Directors’ Remuneration Report continued
Remuneration Policy
Our remuneration policy was approved by shareholders at our 2020 AGM, supported by over 90% of
the votes cast. We have set out below the policy table and the full remuneration policy is available in
the 2019 annual report on the Company’s website at www.costain.com.
Maximum
opportunity
• To avoid setting
expectations of
future salary
increases there
is no maximum
salary value set
under the
policy.
• Maximum:
150% of salary.
• The combined
AIP and LTIP
maximum
opportunities
for any year may
not exceed
250% of salary.
86
Annual
Incentive
Plan
Element
Salary
Purpose and
link to strategy
• To attract
and retain
high-calibre
individuals.
• Reflects skills,
experience and
performance
in role.
• Provides an
appropriate level of
basic fixed income
while avoiding
excessive risk arising
from over reliance
on variable income.
Operation
Performance metrics
• Generally reviewed annually (with
any change usually effective from
1 April) but exceptionally at other
times of the year.
• N/A
• Set with reference to individual
performance, experience and
responsibilities.
• Reflects the market rate for the
individual and their role,
determined with reference to
remuneration levels in companies
of similar size and complexity,
taking into account pay levels
within the Company in general.
• Increases will usually be in line with
average salary increases for the
wider workforce (in percentage
terms).
• Higher increases may be
appropriate in certain
circumstances, which include but
are not limited to, where an
individual is promoted or changes
role or where an individual is
appointed on a below market salary
with the expectation that their
salary will increase with experience
and performance.
• To incentivise the
• Two thirds paid in cash.
achievement of key
financial and strategic
targets for the
forthcoming year
without encouraging
excessive risk taking.
• Promotes greater
alignment with
shareholders.
• To facilitate share
ownership.
• Not pensionable.
• Deferral into shares of one third of
earned AIP; this vests on the
second anniversary of grant
(subject, ordinarily, to continued
employment and not being under
notice of termination, either given
or received, on the date of vesting).
Deferred share awards may be
granted as conditional awards or nil
or nominal cost options.
• The Committee may decide not to
operate deferral where the amount
of the bonus otherwise to be
deferred would, in the opinion of
the Committee, be so small as to
make deferral unduly
administratively burdensome.
Executives may, with the approval
of the Committee, elect for a
greater proportion of the AIP
award to be deferred into shares.
• Deferred share awards may include
the right to receive a benefit
determined by reference to the
value of dividends that would have
been paid by reference to dividend
record dates in the period from
grant to the date on which shares
can first be acquired. The benefit
may assume the reinvestment of
dividends.
• Shares provided under the AIP are
typically purchased by a trust on
behalf of the Group so as to not
lead to any dilution of shareholder
interest.
• Awards may be subject to malus
and clawback as described below.
• The Committee considers and
approves the performance
measures and targets at the start
of each year and ensures they are
aligned with business strategy
and are sufficiently stretching.
• Financial metrics will comprise at
least 50% of AIP opportunity. The
balance of the AIP opportunity
will be based on financial metrics
and/or non-financial metrics such
as Health and Safety targets and
personal objectives.
• In setting financial parameters,
the Committee takes into account
the Company’s internal budgets
and, where applicable, brokers’
forecasts. The targets applying to
financial measures are based on a
sliding scale between 0% and
100%. Up to 60% of the maximum
potential will be earned for
on-target performance.
• The Committee may amend the
pay-out if it considers that the
level of vesting that would
otherwise apply is not
appropriate, including where that
level would materially deviate
from the intention of the policy, is
unreflective of underlying
financial or non-financial
performance of the Group or
executive director over the
relevant period or is not
appropriate in the context of
unexpected or unforeseen
circumstances.
Costain Group PLC Annual Report & Accounts 2020 Element
Long-Term
Incentive
Plan
Purpose and
link to strategy
Operation
Performance metrics
• Aligned to main
strategic objectives
of delivering
sustainable
performance which
in turn should
deliver enhanced
returns.
• Annual grant of performance shares,
which vest subject to performance
measured over three years. Awards may
be granted as conditional awards or nil or
nominal cost options.
• Awards are subject to a further holding
period of two years following the end of
the performance period.
• LTIP awards may include the right to
receive a benefit determined by reference
to the value of dividends that would have
been paid on vested shares by reference
to dividend record dates in the period
from grant to the date on which the
vested shares can first be acquired. The
benefit may assume the reinvestment
of dividends.
• Awards may be subject to malus and
clawback as described below.
• The performance condition will be based on
key metrics aligned to the business strategy,
including but not limited to EPS, return
measures and cash-based measures.
• At least 50% of the opportunity will be
subject to an EPS performance measure.
• Up to 25% of the maximum is earned for
threshold performance, 100% for maximum
with straight line vesting usually applying
between these points.
• The Committee has discretion to vary the
formulaic vesting outturn if it considers that
the level of vesting that would otherwise
apply is not appropriate, including where
that level would materially deviate from the
intention of the policy, is unreflective of
underlying financial or non-financial
performance of the Group or executive
director over the vesting period or is not
appropriate in the context of circumstances
that were unexpected or unforeseen at the
grant date.
Maximum
opportunity
• LTIP awards with a face
value of not more than
150% of salary.
• The combined AIP
and LTIP maximum
opportunities for any
year may not exceed
250% of salary.
SAYE
Scheme
• Offered to all UK
employees, to
facilitate share
ownership and
provide further
alignment with
shareholders.
Pension
• To aid retention and
remain competitive
in the market place.
• Periodic grants which normally vest after
three or five years subject to continued
service.
• N/A
• Operated under HMRC requirements as a
tax qualifying plan.
• Annual pension allowance.
• N/A
• Paid as a cash contribution to the Defined
Contribution pension scheme, personal
pension arrangements and/or a cash
supplement.
• Participation on the
same basis as all other
employees.
87
• A percentage of base
salary not exceeding the
pension contribution
available to the majority
of the wider workforce
(which is currently 10%).
Other
Benefits
• To aid retention and
be competitive in
the market place.
• Healthcare benefits
to minimise
business disruption.
Share ownership guidelines
• Company car (or car allowance) and fuel
• N/A
• N/A
allowance.
• Medical insurance.
• Life assurance.
• Other benefits as appropriate, for
example, relocation expenses and travel
and subsistence.
The Company has adopted share ownership guidelines to provide further alignment between the interests of the
Board and the Company’s shareholders. During employment, executive directors are expected to build and maintain a
shareholding worth not less than 200% of base salary. Shares subject to LTIP awards for which the performance period has
ended (i.e. which are in a holding period, or which have been released but which are not exercised) and shares subject to SDP
awards count towards the shareholding guideline, on a net of assumed tax basis. Executive directors are required to retain
half of the shares acquired pursuant to the LTIP and SDP (after sales to cover tax) until the shareholding guidelines are met.
The Committee’s policy on post-employment shareholding requirements is to apply the ‘leaver’ provisions under the
Company’s share plans (described on pages 91 and 92 of the 2019 annual report) as regards both unvested awards which
are subject to performance conditions (i.e. LTIP awards which are in their performance period) and vested awards (i.e. LTIP
awards which are in a holding period and SDP awards which are in a deferral period).
Governance | Directors’ Remuneration Report Directors’ Remuneration Report continued
Remuneration Policy continued
Notes
Performance measures
The choice of the performance metrics applicable to the AIP reflects the Committee’s aim that our
annual incentives should balance the delivery of stretching financial performance with non-financial
indicators, particularly health and safety targets, and specific individual objectives. The LTIP financial
metrics capture long-term earnings performance and, if appropriate, may be extended to include
return based and cash measures which we believe are closely aligned with the financial performance
expected by our shareholders. LTIP measures may also include strategic measures to incentivise the
behaviours needed to deliver the Company’s overall strategy.
AIP and LTIP performance measures may be adjusted if an event occurs which causes the Committee
to consider that it would be appropriate to amend the performance measures (e.g. a material
acquisition or divestment) so that they achieve their original purpose.
Recovery provisions
The AIP (including the deferred awards delivered under the SDP) and LTIP awards are subject to
‘malus’ and ‘clawback’ provisions as follows.
For up to two years following the payment of the cash element of an AIP award, the Committee may
require repayment of all or part of the bonus in the event of a material misstatement or error in
assessing performance measures which has led to an overpayment of the bonus or in the event of
dismissal due to gross misconduct, or in the event of criminal behaviour, serious reputational damage
or serious corporate failure. Some or all of a deferred share award under the SDP may be clawed back
(via a cancellation of the award) prior to vesting in equivalent circumstances.
For up to two years following the vesting of an LTIP award (or part of an LTIP award) the Committee
may require the repayment of all or part of the award (which may be effected by the cancellation of
unvested LTIP awards or vested but unreleased LTIP awards) in the event of a material misstatement or
error in assessing performance measures which has led to an award vesting to a greater degree than
would otherwise have been the case or in the event of dismissal due to gross misconduct, serious
corporate failure or serious reputational damage.
Incentive plan operation
The Committee will operate the AIP, SDP, LTIP and SAYE Scheme according to their respective rules.
Share awards under the SDP, LTIP and SAYE Scheme (and any applicable performance conditions) may
be adjusted in the event of a variation of the Company’s share capital or a demerger, special dividend
or other event which affects the market price of a share. Share awards under the SDP and LTIP may be
satisfied, in whole or in part, in cash, although the Committee has no intention to settle any executive
director’s award in cash and would do so only in exceptional circumstances, such as where there was a
regulatory restriction on the delivery of shares, or to settle tax liabilities arising in connection with the
acquisition of shares. Awards may vest early, in accordance with the plan rules, in the event of a
change of control or other relevant event (such as a winding-up or demerger). Where an LTIP award
vests early, the extent of vesting will be determined taking into account the extent to which the
performance condition has been satisfied (as assessed by the Committee) and, unless the Committee
determines otherwise, the proportion of the vesting period that has elapsed.
88
Costain Group PLC Annual Report & Accounts 2020 Remuneration policy for chair and non-executive directors
Element
Fees
Purpose and
link to strategy
Attract and retain
high performing
individuals.
Maximum
opportunity
N/A
Operation
Remuneration for non-executive directors, other than the chair, is determined by
the Board, following consultation between the chair and the chief executive
officer. The chair’s fee is determined by the Board following consultation between
the Committee and the CEO. Fees are reviewed annually and any increase is
usually effective from 1 April.
Remuneration for non-executive directors, other than the chair, comprises a basic
annual fee for acting as non-executive director of the Company and additional
fees for undertaking other roles such as the senior independent director, and
chairship of the Audit and Remuneration Committees.
Overall fees will remain within the limit set out in the Company’s articles of
association.
The chair and non-executive directors do not participate in any variable pay or
share scheme arrangement, although their fees may be paid in cash or shares.
May be entitled to benefits such as travel and subsistence and secretarial support,
or other benefits as appropriate.
Share ownership guidelines
The Company has adopted share ownership guidelines to provide further alignment between the interests of the Board
and the Company’s shareholders. Non-executive directors are expected to build and maintain a shareholding worth not
less than 100% of their annual fee.
Consideration of employee views
There is no employee representation on the Committee. However, the Company liaises actively with employees through
the employee committee Your Voice and engagement surveys (see page 55). The Group HR director briefs the Board on
employees’ views, ensuring that the Committee’s decisions are taken with appropriate insight to employees’ views.
Consideration of shareholder views
The Committee considers shareholder feedback received in relation to the AGM each year at a meeting following the
AGM. This feedback, plus any additional feedback received during any meetings from time to time, is then considered as
part of the Company’s annual review of remuneration policy.
89
When there are material issues relating to executive remuneration or proposed changes in policy, we engage actively with
major shareholders to ensure we understand the range of their views. When significant changes are made within the policy,
the Committee chair will inform shareholders of these.
Governance | Directors’ Remuneration Report
Directors’ Remuneration Report continued
Annual Report on Remuneration
90
The Annual Report on Remuneration set out on pages 90 to 105 provides details of how our
remuneration policy was implemented in the year ended 31 December 2020 and how we intend for
the policy to apply for the year ending 31 December 2021. The Annual Report on Remuneration will be
subject to an advisory vote at the 2021 AGM.
Governance of the Committee
The Remuneration Committee is comprised exclusively of independent non-executive directors. The
members of the Committee, together with their biographies, are given on pages 47 to 49 and details
of their attendance at Committee meetings is shown on page 68. The Committee is chaired by Alison
Wood. The deputy company secretary is secretary to the Committee.
Terms of reference
The Committee’s terms of reference are available on the Company’s website at www.costain.com.
Copies of the letters appointing the Committee’s advisers can be obtained from the general counsel
and company secretary.
Remuneration Committee activity
The following table sets out the key remuneration issues which the Committee covered at each of the
meetings over the course of the year.
Date
Key agenda items
22 January
2020
Consideration given to the extent to which the performance measures were likely to
have been met with regard to the LTIP granted in 2017.
Consideration of shareholder feedback relating to the remuneration policy consultation.
Determined there would be no pay-out of the 2019 AIP annual cash bonuses.
Approved the 2020 AIP performance measures and list of participants.
Approved indicative performance targets for the 2020 LTIP grant (subsequently revised).
Noted the automatic vesting of the 2018 SDP share awards on 4 April 2020.
Reviewed the chair’s and non-executive directors’ fees for 2020 (no increase).
Reviewed the executive directors’ and senior executives’ salaries for 2020 (no increase).
29 May 2020 Approved methodology for adjustments to share awards for the capital raising
completed May 2020.
Received an update on matters relating to the remuneration policy submitted to
shareholders for approval at the 2020 AGM.
Considered appropriate timing of a grant of 2020 LTIP awards and other matters relating
to such awards including potential quantum and performance targets.
5 October
2020
Considered matters relating to the SAYE scheme and the decision not to grant any awards
in 2020.
Granted awards under the 2020 LTIP and determined quantum, performance targets and
other terms.
14 December
2020
Ratified the remuneration package for the new CFO, approved by written circulation
between meetings.
Noted the 2020 LTIP grant to the new CFO, approved by written resolution between
meetings.
Considered the limited shareholder feedback to the 2020 LTIP grants.
Received a governance update paper from the Committee’s advisers.
Reviewed the proposed performance targets for the 2021 LTIP.
Approved the 2021 AIP performance measures and list of participants.
Determined 2.5% annual salary increase for the wider workforce for 2021.
Costain Group PLC Annual Report & Accounts 2020 Committee effectiveness review
Independent Audit Limited was appointed to undertake a review of the effectiveness of the Board and its Committees.
The evaluation process is discussed in greater detail on page 69. On the basis of the review, the Remuneration Committee
concluded that the Committee and its chair remained effective and there were no areas for concern in respect of the
performance of the Committee or any of its members.
Based on the review, the areas the Committee identified for additional focus in 2021 were in relation to how the executive
reward strategy could be broadened to include other aspects of Costain’s strategy and corporate objectives together with
improved oversight of workforce policies including how these aligned with Costain’s strategy and values.
Advice provided to the Committee
Advice was sought, where appropriate, from a number of sources. During the course of the year, the chief executive officer,
the chief financial officer, the Group’s chair, the Group HR director, and the general counsel and company secretary were
invited to attend various meetings of the Committee, although none were present when their own remuneration was being
discussed.
To help the Committee in ensuring that the Company’s remuneration practices take due account of market and best
practice, the Committee has access to experienced specialist independent consultants. During the year, the Committee
took advice, as appropriate, from Deloitte LLP (a member firm of Deloitte Touche Tohmatsu Limited).
It is the policy of the Committee to put the remuneration consultant function out to tender on a periodic basis to ensure
that the Committee continues to receive independent support and advice of a high standard. Deloitte LLP was appointed
in 2014 following a competitive tender process to act as the Committee’s remuneration consultants. Deloitte LLP received
fees of £20,910 (2019: £44,520) for the year ended 31 December 2020 in respect of services provided to the Committee.
Deloitte LLP is a founder signatory to the Remuneration Consulting Group’s Code of Conduct and is considered by the
Committee to be objective and independent. During the year, Deloitte LLP also provided advice to the Company in relation
to the operation of the Company’s share plans and employment tax.
91
Voting on the Remuneration Report at the AGM in 2020
Last year’s Remuneration Report was approved by shareholders with a 99.82% (2019 AGM: 99.73%) vote in favour (including
discretionary votes).
Voting on the remuneration policy at the AGM in 2020
The current policy was approved by shareholders with a 90.09% vote in favour (including discretionary votes) at the
Company’s 2020 AGM.
Governance | Directors’ Remuneration Report 92
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Implementation of policy in the year to 31 December 2020
Single total figure of remuneration for each director
This table and the associated footnotes have been audited by PwC LLP.
2020
Fixed
Variable
Salary
and fees1
£
Taxable
benefits
£
Pension*
£
Subtotal
Annual
incentive
£
LTIP
£
Subtotal
Total
£
Executive directors
A J Vaughan2
H M Willis3
393,125
15,272
39,313
447,710
38,308
104
3,000
41,412
A O Bickerstaff4
274,548
10,745
60,401 345,694
Non-executive chair
P Golby
154,734
Non-executive directors
J A Lodge
D McManus5
A J Wood
J de Rojas
B Azmy6
58,536
21,858
51,786
46,536
24,537
–
–
–
–
–
–
– 154,734
–
–
–
–
–
58,536
21,858
51,786
46,536
24,537
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
447,710
41,412
– 345,694
– 154,734
–
–
–
–
–
58,536
21,858
51,786
46,536
24,537
2019
Fixed
Variable
Salary
and fees
£
Taxable
benefits
£
Pension
**
£
Subtotal
Annual
incentive
£
LTIP
£
Subtotal
Total
£
Executive directors
A J Vaughan2
H M Willis3
275,336
9,309
27,597 312,242
–
–
–
–
A O Bickerstaff4
324,597
11,659
71,412 407,668
Non-executive chair
P Golby
166,460
Non-executive directors
J A Lodge
D McManus5
A J Wood
J de Rojas
B Azmy6
62,817
46,817
53,817
46,817
–
–
–
–
–
–
–
– 166,460
–
–
–
–
–
62,817
46,817
53,817
46,817
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 312,242
–
–
– 407,668
– 166,460
–
–
–
–
–
62,817
46,817
53,817
46,817
–
1 The Board agreed to a 30% reduction in salaries and fees for the three month period from April to June 2020 in response to COVID-19.
The salaries and fees disclosed for 2020 are after the reduction.
2 Appointed to the Board on 7 May 2019.
3 Appointed to the Board on 30 November 2020.
4 Stepped down from the Board on 30 November 2020.
5 Stepped down from the Board on 19 June 2020.
6 Appointed to the Board on 19 June 2020.
* A pension contribution of £5,636 was paid into the Company’s Group Flexible Retirement Plan for Alex Vaughan and the balance was paid
to him directly as a taxable benefit. The amounts quoted for Anthony Bickerstaff and Helen Willis were paid to them both directly as a
taxable benefit.
** For the period 8 May 2019 to 31 December 2019 a pension contribution of £6,522 was paid into the Company’s Group Flexible Retirement
Plan for Alex Vaughan and the balance was paid to him directly as a taxable benefit. The amount quoted for Anthony Bickerstaff was paid
to him directly as a taxable benefit.
Costain Group PLC Annual Report & Accounts 2020 Additional notes to the single total figure of remuneration
(a) Annual salaries for executive directors prior to reduction for COVID-19
The annual salaries with effect from 1 April 2020 were £425,000 for Alex Vaughan and £326,196 for Anthony Bickerstaff,
and were reduced by 30% for three months from April to June 2020 as one part of the actions taken by the Group to
mitigate the financial impact of COVID-19 and protect the Group’s cash position.
(b) Taxable benefits provided to executive directors
The main benefits available to the executive directors during 2020 (for the period to 30 November 2020 for Anthony
Bickerstaff and from 30 November 2020 for Helen Willis), and their approximate values, were a car allowance of £14,048
(2019: £8,546) for Alex Vaughan, £9,625 (2019: £10,500) for Anthony Bickerstaff and £1,117 (2019: nil) for Helen Willis,
together with private medical insurance for Alex Vaughan of £1,224 (2019: £763), Anthony Bickerstaff of £1,120 (2019:
£1,159) and Helen Willis of £104 (2019: £nil). This package of benefits was unchanged from 2019.
(c) Determination of the 2020 annual incentive
The maximum AIP opportunity for the chief executive and the chief financial officer for the year ended 31 December 2020
remained unchanged from 2019 at 150% of base salary, with one third of the earned AIP award to be deferred into shares
for a further two years and two thirds of the earned AIP award paid in cash.
The performance measures established by the Committee for the 2020 AIP continued to align with the Company’s strategy
while not encouraging inappropriate business risks to be taken. These included inter alia a maximum target of £44.0m for
Group EBITA.
The achievement of the performance measures has been reviewed, with appropriate input from the Audit Committee,
following the end of the 2020 financial year. As shown in the table below, Alex Vaughan earned an AIP award equal to
26.5% of the maximum opportunity based on an assessment against the performance targets. However, taking into
account the overall financial performance of the Group during 2020, the Committee, in consultation and agreement with
Alex Vaughan, exercised its discretion to reduce the AIP award pay-out to nil. On departure, Anthony Bickerstaff was not
eligible to receive an AIP award for 2020. Helen Willis was appointed to the Board on 30 November 2020 and was not
eligible to receive an AIP award for 2020.
93
AIP
opportunity
– maximum
percentage
of bonus
AIP
award – as a
percentage
of bonus
AIP performance measure
Performance measures
Alex Vaughan
Alex Vaughan
Threshold
Maximum
Actual
performance
% Pay-out
Group EBITA1
Group Health and Safety2
Order Book (level of
secured gross profit)
Cash Flow3 (average month end
cash balance)
Personal Performance
Total
50%
10%
10%
20%
10%
100%
0%
10%
10%
£36.0m
£44.0m
£18.0m
n/a
AFR 0.04
AFR 0.03
£64.3m
£78.6m
£79.0m
0%
£79.9m
£83.9m
£73.8m
6.5%
see personal performance section below
26.5%
0
04
04
0
04
0
1 Earnings before interest, tax and amortisation; calculated on an adjusted basis for 2020. For 2019 and 2018, calculated on an underlying basis before other items.
2
Includes leadership of health and safety engagement and culture.
3 Measured pre-acquisition and investments, adjusted for the capital raising completed May 2020.
4 Discretion exercised by the Committee, in consultation and agreement with Alex Vaughan, to reduce the pay-out to nil taking into account the overall financial
performance of the Group during 2020.
Governance | Directors’ Remuneration Report
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Personal performance
Personal performance was based on progress towards delivery of the Leading Edge strategy and
corporate activities critical to the strategic transformation of the business which were the personal
responsibility of the executive directors. Details of Alex Vaughan’s performance against his personal
objectives are set out below.
Alex Vaughan
Objective
Achievement during the year
Technology
and consulting
Continued to successfully grow our consultancy and digital
capabilities in line with the strategy, however overall profit was
below budget.
• Consultancy work winning increased significantly, securing key
framework positions.
• Digital services secured a number of key contracts, but was
behind plan for 2020.
Maximum Award
2.5%
0%
Developing the
senior team,
including EDI
performance
Successful appointments made to strengthen the executive team,
including the appointment of new managing director for
transportation, chief financial officer and general counsel and
company secretary; and senior succession planning for executive
succession.
2.5%
2.5%
94
Significant progress in the implementation of our inclusion
strategy including being named as a Times Top 50 Employer for
Women for a third year. We have also increased female
representation on the executive board (56%) and in our senior
leadership team.
Operational
excellence
Driven operational excellence and competitiveness achieving
savings in line with the cost efficiency programme, including:
2.5%
2.5%
• robotics process automation
• cost base efficiency
• operational performance improvements.
Repositioning
Costain brand
Effective marketing campaigns aligned with strategy, principally
covering our focus on decarbonisation, increasing digital solutions
and cutting edge ways of delivery.
2.5%
1.5%
10%
6.5%
(d) Vesting of the 4 April 2018 LTIP award
The LTIP award granted on 4 April 2018 was based on EPS and cash conversion performance for the
three years ended 31 December 2020.
Performance against the measures and the resulting vesting outcome is shown below. The threshold EPS
and cash conversion performance targets were not achieved and as such the 2018 LTIP award lapsed in
full, including the 2018 LTIP award granted to Alex Vaughan prior to his appointment to the Board.
Costain Group PLC Annual Report & Accounts 2020
(A) EPS performance measures1 (relating to 75% of the award)
Aggregate EPS for the financial years ended 31 December 2018, 2019 and 2020
Vesting level for awards
Below 99.44 pence
99.44 pence
Between 99.4 pence and 109.37 pence
109.37 pence or more
Actual performance: 58.3 pence
1 As adjusted for the capital raising completed May 2020.
0%
15%
15% – 100% pro rata
100%
Vesting outcome: 0%
For the purposes of the LTIP, EPS is adjusted by the Committee to take account of relevant events (such as acquisitions or
disposals and excludes pension interest) and to ensure that the performance measures are assessed on a consistent basis
year-to-year.
(B) Cash conversion performance measures (relating to 25% of the award)
Average cash conversion for the financial years ended 31 December 2018, 2019 and 2020
Vesting level for awards
Below 80%
80%
Between 80% and 100%
100%
Actual performance: 58%
0%
15%
15% – 100% pro rata
100%
Vesting outcome: 0%
(e) Pensions and life assurance
Alex Vaughan’s and Helen Willis’ pension provision is equal to 10% of salary in line with the wider workforce. Anthony
Bickerstaff’s pension provision was 22% of salary and reflected a long standing contractual entitlement. Life assurance
cover of four times’ base salary is provided through the Costain Life Assurance Scheme. The annual premiums payable in
respect of life assurance for Alex Vaughan, Anthony Bickerstaff (until he stepped down from the Board on 30 November
2020) and Helen Willis (from her appointment to the Board on 30 November 2020) were £2,407 (2019: £1,544), £1,543
(2019: £1,816) and £155 (2019: £nil) respectively.
95
The Group offers a Group Flexible Retirement Plan which was set up in 2009 with Standard Life for employees and senior
management. Alex Vaughan is a participant of this scheme.
(f) Chair
Remuneration for the chair comprised a basic annual fee of £167,280 from 1 April 2020 which was reduced by 30% for
three months from April to June 2020 as one part of the actions taken by the Group to mitigate the financial impact of
COVID-19 and protect the Group’s cash position.
(g) Non-executive directors
Remuneration for non-executive directors, other than the Group’s chair, comprises a basic annual fee for acting as a
non-executive director of the Company and additional fees for the senior independent director and chairship of the
Audit and Remuneration Committees. The annual fees set with effect from 1 April 2020 were as follows, but, as for the
chair, the fees were reduced by 30% for three months from April to June 2020 as part of the actions taken by the Group
to mitigate the financial impact of COVID-19 and protect the Group’s cash position:
2020 Fees
Fees
Basic Fee
£47,048
Senior independent
director
Audit Committee
chair
Remuneration
Committee chair
£6,600
£9,400
£7,000
Governance | Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Grants made during the year
These tables and the associated footnotes have been audited by PwC LLP.
2020 LTIP Grant
Grants were made under the LTIP on 7 October 2020 to Alex Vaughan and other members of the
senior leadership team, and to Helen Willis on appointment to the Board on 30 November 2020.
Taking into account market conditions, the grant level for the executive directors was reduced from
100% of salary to 55% of salary, with a pro rata reduction then applied to Helen Willis’ award to reflect
her period of service during the performance period.
The award vests after three years, subject to continued service and the achievement of performance
measures (as set out below), but cannot be exercised until after five years (the final two years being
subject only to continued service), thereby ensuring long-term alignment of the executive directors’
and shareholders’ interests.
Performance measures for the 2020 LTIP are as follows:
(A) EPS performance measure (relating to two thirds of the award)
Aggregate EPS over the financial years ended 31 December 2020, 2021 and 2022
Vesting level
Below 22.6 pence
22.6 pence
Between 22.6 pence and 26.7 pence
26.7 pence or more
0%
15%
15% – 100% pro rata
100%
96
(B) Cash conversion performance measure (relating to one third of the award)
Average cash conversion for the financial years ended 31 December 2020, 2021 and 2022
Vesting level
Below 80%
80%
Between 80% and 100%
100%
0%
15%
15% – 100% pro rata
100%
The Committee also has the ability to exercise discretion to make adjustments to the formulaic
vesting outcome if it is not considered to be appropriate taking into account business performance
during the performance period. This includes consideration of any “windfall gains” at the point of
vesting. In assessing whether there is any “windfall gain”, the Committee will take into account a
number of factors, including share price performance over the vesting period, financial performance
of the business, and the impact of COVID-19 and any other significant events which have impacted
the Company’s share price or the market as a whole.
The share awards granted under the 2020 LTIP are as follows:
Number of shares
Face value1
End of performance period
Threshold vesting
Alex Vaughan
Helen Willis
553,909
£233,750
31 December 2022
258,705
£138,925
31 December 2022
15%
15%
1 Valued using the share price on the business day prior to the date of grant (6 October 2020 for Alex Vaughan and 27 November 2020 for
Helen Willis), being 42.2 pence and 53.7 pence per share respectively.
SDP
No awards were granted under the SDP to the executive directors in 2020 as no bonus was paid under
the AIP for 2019 (see page 104).
All-employee share plan
The Company did not invite employees to participate in the SAYE scheme in 2020 and therefore no
SAYE awards were granted to the executive directors during 2020.
Costain Group PLC Annual Report & Accounts 2020 Exit payments made during the year
This section has been audited by PWC LLP.
As announced on 5 October 2020, Anthony Bickerstaff, after 14 years as chief financial officer, stepped down from the
Board on 30 November 2020.
The remuneration arrangements in respect of Mr Bickerstaff’s departure, which are in line with the remuneration policy, are
summarised below.
Salary, pension
and benefits
He continued to receive his salary, pension and benefits until 30 November 2020.
Following 30 November 2020, he received a payment of £25,406 in respect of accrued but untaken annual leave
during 2020.
In respect of the period from 30 November 2020 to 30 September 2021, he will be paid a monthly sum of
£27,183 in respect of his salary and a cash supplement in lieu of pension contribution, and will continue to receive
his other benefits (pension, car allowance, private health insurance and life assurance cover) subject to
mitigation.
AIP 2020
He did not receive a bonus in respect of the 2020 financial year.
Unvested SDP
awards
He holds a deferred share award granted under the SDP in respect of his 2018 bonus over 31,051 shares.
Recognising his contribution to the business over the relevant bonus period and the fact that this award is not
subject to further performance conditions, Anthony Bickerstaff was permitted to retain this award which will vest
at the originally envisaged time in April 2021, subject to the rules of the SDP.
Unvested /
unreleased
LTIP awards
The second tranche of his 2016 LTIP award (which is vested over 46,703 shares) is due to be released in April
2021. Since this award was earned based on performance over the three years to 31 December 2018, the
Remuneration Committee has exercised discretion to allow him to retain this award without a reduction for time
pro-rating. There will be no early release of the award.
His 2018 LTIP remained capable of vesting based on performance over the three years ending 31 December
2020. As disclosed on pages 94 and 95, the 2018 LTIP award has since lapsed in full.
His 2019 LTIP lapsed in full.
He was not granted an LTIP award in 2020.
97
SAYE
Legal fees
All outstanding SAYE options have been treated in accordance with the rules of the scheme, with the 2018 and
2019 awards lapsing and the 2017 award remaining exercisable until 30 April 2021.
He received a contribution of £3,300 (excluding VAT) towards the legal fees incurred in connection with the
cessation of his employment.
Implementation of policy in the year to 31 December 2021
Salary
The chief executive officer will receive a salary increase in 2021 of 2%, effective 1 April. A 2.5% salary increase will be applied
across the Company in 2021. While above inflation, the rise was determined to be appropriate in recognition of there being
no pay increases in 2020. The base salary for Helen Willis on her appointment as chief financial officer was £360,000. This
was set taking into account the size and complexity of the Company, her skills and experience, her remuneration package as
a whole, internal relativities and affordability to the Company, and ensuring that the Company does not pay more than is
necessary. Helen, having been recently appointed, will not receive an increase in 2021.
Alex Vaughan
Helen Willis
Salary 2021
£433,500
£360,000
Salary 2020
£425,000
£360,000
% change
2%
Nil
Chair’s fee
The chair’s basic annual fee will be increased by 2% with effect from 1 April 2021 to £170,600.
Non-executive director fees
Non-executive directors’ fees will be increased by 2% with effect from 1 April 2021, as shown in the table below:
2021 Fees
Fees
Basic Fee
£48,000
Senior independent
director
£6,700
Audit Committee
chair
£9,600
Remuneration Committee
chair
£7,200
Governance | Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report on Remuneration continued
2021 Annual incentive
Executive directors and the wider senior leadership team are eligible for annual bonuses under the
AIP to encourage improved performance, with targets established by the Committee to align
rewards with the Company strategy. The targets are clearly aligned with the delivery of our strategy.
Their achievement will be reviewed, with appropriate input from the Audit Committee, at the end of
the year.
The maximum AIP opportunity for the chief executive officer and the chief financial officer for the year
ending 31 December 2021 will remain unchanged from 2020 at 150% of base salary, with one third of
earned AIP deferred into shares for a further two years, to be awarded under the SDP, and two thirds
of earned AIP paid in cash.
The performance measures for the 2021 AIP are as follows:
Performance measures
Chief executive officer
Chief financial officer
2021 AIP opportunity –
maximum percentage of bonus
Group EBITA (with 90% cash conversion)
Group health and safety
Profit secured for 2022
Cash flow (average month end cash balances)
Personal performance
Total
50%
10%
15%
15%
10%
100%
50%
10%
15%
15%
10%
100%
The Committee has chosen not to disclose in advance the performance targets for the year ending
31 December 2021, as these include items which the Committee considers commercially sensitive.
The Committee will continue to provide retrospective disclosure of performance targets in next year’s
Annual Report on Remuneration to the extent the Committee determines these targets are not
commercially sensitive.
2021 LTIP Grant
The grant level for the executive directors will be up to 100% of salary. It is expected the LTIP awards
will be granted in early April 2021 and the Committee will finalise the quantum of the grants at that
time having regard to share price performance and market conditions at that time. As with the 2020
awards, subject to the achievement of performance measures as set out below, LTIP shares which vest
after three years will only be released after five years, thereby ensuring long-term alignment of the
executive directors’ and shareholders’ interests.
As with the 2020 LTIP awards, the measures will be two thirds EPS and one third cash conversion,
reflecting that the sustainable generation of cash backed profits is a key element to the future success
of the Company.
The proposed targets are set out below.
EPS performance measure
Aggregate EPS over the financial years ending 31 December 2021, 2022 and 2023
Vesting level for awards
Below 27.9 pence
27.9 pence
Between 27.9 pence and 32.4 pence
32.4 pence or more
0%
15%
15% – 100% pro rata
100%
The Committee believes that EPS remains an appropriate metric to use under the LTIP, as growth in
EPS is one of the key drivers of the Company’s share price. As with previous LTIP awards, EPS shall be
calculated on an adjusted basis as determined by the Committee to take account of relevant events
(such as acquisitions or disposals) and ensure that the performance measures are assessed on a
consistent basis year-to-year.
98
Costain Group PLC Annual Report & Accounts 2020 Average cash conversion for the financial years ending 31 December 2021, 2022 and 2023
Vesting level for awards
Below 80%
80%
Between 80% and 100%
100%
0%
15%
15% – 100% pro rata
100%
Cash conversion is adjusted cash flow from operations (excluding cash movements in provisions and pension deficit)
divided by EBITDA. It is measured as average cash flow conversion over the three-year period ending 31 December 2023.
Cash flow from operations will be adjusted to recognise the timing of cash inflows at the year-end.
The Committee has the discretionary power to vary these targets, should circumstances change, so that the original
targets are no longer considered appropriate (e.g. in the case of a material acquisition or divestment in the Group or
other material transaction).
A clawback and malus provision is incorporated in the AIP and the LTIP with regard to any material misstatement to audited
accounts, an error in calculation of targets resulting in an overpayment, gross misconduct or criminal behaviour on the part
of a participant, reputational damage and a serious corporate failure. The Committee also has the ability to exercise
discretion to make adjustments to the formulaic payout/vesting of variable incentives if the formulaic outcome is not
considered to be appropriate.
Other information
Performance graph
The graph below shows the value, to 31 December 2020, of £100 invested in Costain Group PLC on 1 January 2011
compared with the value of £100 invested in the FTSE SmallCap Index. The Committee believes that the FTSE SmallCap
Index is the most appropriate index to use as it is the index in which the Company is a constituent and comprises
companies of a similar size to Costain.
Costain Group PLC
FTSE Small Cap Index
305.9
99
350
300
250
200
150
100
100.0
100.0
90.8
87.5
50
0
229.3
163.5
224.8
220.8
213.1
199.8
186.9
166.8
149.8
148.0
148.4
130.6
111.8
254.3
237.3
113.4
44.7
1 Jan
2011
31 Dec
2011
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
Change in chief executive officer’s remuneration
Year ending 31 December
Chief executive
officer
Total
remuneration
AIP (%)
LTIP vesting (%)
2011
AW
2012
AW
2013
AW
2014
AW
2015
AW
2016
AW
2017
AW
2018
AW
20191
AW
AV
2020
AV
£1,228,332
£1,089,337
£1,251,239
£1,329,007
£1,414,381
£1,089,943
£1,707,094
£1,560,601
£211,927
£312,242
£447,710
86%
100%
55%
100%
75%
50%
71.6%
50%
79.8%
50%
75.4%
Nil%
81%
79.1%
62.6%
100%
Nil
Nil
Nil
Nil
Nil
Nil
1 Andrew Wyllie (AW) stepped down from the Board on 7 May 2019 and Alex Vaughan (AV) was appointed to the Board on 7 May 2019.
Governance | Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report on Remuneration continued
CEO pay ratio
The table below shows, for 2019 and 2020, the ratio of the pay of the CEO to that of the best full time
equivalent lower quartile, median and upper quartile employee within the Group.
Year
2020
2019*
Methodology used
25th Percentile Pay Ratio
50th Percentile Pay Ratio
75th Percentile Pay Ratio
Option B
Option B
13:1
17:1
8:1
10:1
6:1
7:1
*
The Single Total Figure of Remuneration for the CEO has been calculated as the total remuneration paid to Andrew Wyllie for the period
1 January 2019 to 7 May 2019 plus the total remuneration paid to Alex Vaughan for the period 8 May 2019 to 31 December 2019.
We have chosen to use Option B of the available methodologies to calculate the ratio. This
methodology is based on the data collected as part of gender pay reporting. Option B was selected
on the basis that it is an efficient and robust approach, recognising that the data required to calculate
the ratio comes from multiple sources. Analysis has been performed to ensure that the lower quartile,
median and upper quartile employees are reasonably representative.
The table below shows the UK employee percentile pay and benefits used to determine the above pay
ratios and the salary component for each figure.
£
2020
Total pay and benefits
Salary component
2019
Total pay and benefits
Salary component
CEO
25th percentile
Median
75th percentile
£447,710
£393,125
£524,169
£445,319
£34,016
£32,948
£30,923
£29,837
£57,580
£45,934
£50,903
£45,170
£73,844
£61,669
£75,304
£60,137
The UK employee percentile pay and benefits has been calculated based on the amount paid or
receivable for the relevant financial year. The calculations are on the same basis as required for the
CEO’s remuneration for single total figure purposes. The calculations were performed as at the final
day of the relevant financial year.
A high proportion of the chief executive’s total reward is performance related and delivered in shares.
The ratios will therefore depend significantly on the chief executive’s variable pay outcomes and may
fluctuate year to year.
The ratios have reduced in 2020 due (i) to the reduction in salaries from April to June 2020 as part of
the actions taken by the Group to mitigate the financial impacts of COVID-19 and protect the Group’s
cash position and (ii) to the change in CEO on 7 May 2019 with Alex Vaughan’s salary and pension
provision being set lower than his predecessor.
The Board believes that the median pay ratio is consistent with the Group’s wider policies on pay,
reward and progression.
100
Costain Group PLC Annual Report & Accounts 2020 Annual percentage change in remuneration of directors compared to all employees
The table below shows the annual percentage change in each of the Directors’ remuneration compared to the average
employee remuneration.
Executive directors
A J Vaughan2
H M Willis3
A O Bickerstaff4
Non-executive chair
P Golby
Non-executive directors
J A Lodge
D McManus5
A J Wood
J de Rojas
B Azmy6
Average employee7
% change between 2019 and 2020
Salary and fees1
Benefits
Annual bonus
n/a
n/a
n/a
(7)
(7)
n/a
(4)
(1)
n/a
(0.8)8
n/a
n/a
n/a
–
–
n/a
–
–
n/a
6.29
n/a
n/a
n/a
–
–
n/a
–
–
n/a
(18)10
1 The Board agreed to a 30% reduction in salaries and fees for the three month period April to June 2020 in response to COVID-19. There has therefore been a reduction
in salaries and fees received by directors during 2020 compared to 2019.
2 Appointed to the Board on 7 May 2019 and therefore annual percentage change in remuneration is not applicable.
3 Appointed to the Board on 30 November 2020 and therefore annual percentage change in remuneration is not applicable.
4 Stepped down from the Board on 30 November 2020 and therefore annual percentage change in remuneration is not applicable.
5 Stepped down from the Board on 19 June 2020 and therefore annual percentage change in remuneration is not applicable.
6 Appointed to the Board on 19 June 2020 and therefore annual percentage change in remuneration is not applicable.
7 The percentage change in each element of employee remuneration is based on all monthly paid UK employees across the Group. This population has been selected as
no employees are directly employed by the listed parent entity.
8 Average salary for employees is calculated based on the annual monthly UK salary bill divided by the average number of monthly paid UK employees. The wider
workforce (those earning over £45,000) agreed to 10% to 30% reductions in salaries for the period April to June 2020 in response to COVID-19. There has therefore
been a reduction in salaries received by some employees during 2020 compared to 2019 which impacts the average employee figure.
9 Employee benefits are calculated based on the total cost to the Company of private medical insurances, life assurance, company cars and car allowances, averaged per
head for monthly paid employees.
10 Bonus figures earned are calculated on the total bonus payments made to monthly employees divided by the average number of monthly paid employees.
Relative importance of spend on pay
The table below illustrates the change in expenditure by the Company on remuneration paid to all the employees of
the Group and distributions to shareholders from the financial year ended 31 December 2019 to the financial year ended
31 December 2020.
101
Overall expenditure on pay
Dividends and share buybacks
2020
£m
182.0
nil
2019
£m
206.5
14.8
%
change
(12)%
(100)%
These matters were selected to be shown as they represent key distributions by the Group to its stakeholders.
Directors’ appointments
The executive directors have service contracts that can be terminated by either party on the giving of 12 months’ notice.
The non-executive directors have letters of appointment. The independent non-executive directors are appointed for initial
three year terms which thereafter may be extended. The appointment of a non-executive director can be terminated by not
less than one month’s notice on either side. Each non-executive director is subject to re-election at the AGM each year.
Governance | Directors’ Remuneration Report Directors’ Remuneration Report continued
Annual Report on Remuneration continued
The dates of each of the director’s original appointment and expiry of current term are as follows:
Director
original appointment
latest appointment letter
Expiry of current term 1, 3
Date of
Effective date of
Alex Vaughan
7 May 2019
7 May 2019
Terminable on 12 months’ notice
30 November 2020
30 November 2020
Terminable on 12 months’ notice
Helen Willis
Paul Golby
Jane Lodge
5 May 2016
1 August 2012
5 May 2019
8 May 20184
Alison Wood
1 February 2014
1 February 2020
5 May 2022
1 August 20214
1 February 2023
Jacqueline de Rojas
20 November 2017
20 November 2020
20 November 2023
Bishoy Azmy
Tony Quinlan
19 June 2020
19 June 2020
n/a2
1 February 2021
1 February 2021
1 February 2024
1 The appointment of a non-executive director can be terminated by reasonable notice on either side (of not less than one month).
2 Bishoy Azmy joined the Board as non-independent non-executive director and representative of ASGC, which has a 15.15% shareholding
in the Company following the 2020 capital raising.
3
4
In accordance with the 2018 UK Corporate Governance Code, at each AGM all the directors are required to seek election or re-election.
Jane Lodge was appointed senior independent director with effect from 8 May 2018 and will step down from the Board with effect from
the 2021 AGM.
External directorships
Anthony Bickerstaff was reappointed, with effect from 12 November 2017, for a second three year
term as a non-executive director and chair of the Audit Committee of Low Carbon Contracts Company
Limited and Electricity Settlements Company Limited, and, in respect of his appointment for the
period from 1 January 2020 until he stepped down from the board of Low Carbon Contracts Company
Limited and Electricity Settlements Company Limited on 2 October 2020, he was paid £23,488
(2019: £31,000).
Anthony Bickerstaff was appointed to the Board of Wincanton plc with effect from 1 September 2020
and, in respect of the period from 1 September 2020 until he stepped down from the Board of Costain
Group PLC on 30 November 2020, he was paid £12,000 (2019: £nil).
Mr Bickerstaff retained these fees in accordance with the remuneration policy.
The following tables and the associated footnotes have been audited by PwC LLP.
102
Costain Group PLC Annual Report & Accounts 2020 Share awards under the Long-Term Incentive Plan (LTIP)
Details of the executive directors’ participation in the LTIP are as follows:
Director
Alex
Vaughan
Date
granted
Balance at
1 January
2020a,b
Granted
during
year
05.04.173
19,896
04.04.184
20,130
07.05.195
130,769
–
–
–
Share
price at
date of
grant
455p
461p
325p
07.10.206
–
553,909
42.2p
Vested
during
year
–
–
–
–
Anthony
Bickerstaff
09.03.151
37,130
–
316p
54,291f
06.04.162
43,956
– 346.25p
05.04.173
68,573
–
455p
04.04.184
69,370
07.05.195
100,368
–
–
461p
325p
– 106,641h
Helen Willis 30.11.20
–
258,705
53.7p
–
–
a Awards under the LTIP are structured as options with a nil exercise price.
b Balance at the date of appointment to the Board on 30 November 2020 for Helen Willis.
c At date of sale/ retention of balance.
d Excluding shares deducted to settle tax sold at market price on date of exercise.
Lapsed
during
year
19,896
–
–
–
–
–
68,573
18,290g
–
–
–
Market
price at
date of
exercise
Average
market
pricec
Value of shares
at date of sale/
retention of
balanced
Balance
at 31
December
2020e
Actual/
expected
vesting/
release
date
–
–
–
–
–
–
–
–
–
–
–
–
–
April 2020
April 2022
21,388
April 2021
April 2023
138,942
May 2024
553,909
April 2025
75p
75p
£21,580
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– March 2018
March 2020
46,703
April 2019
April 2021
–
April 2020
April 2022
35,810g
19,605g
April 2021
April 2023
– g
May 2024
258,705i
April 2025
e Other than 2020 awards which were granted post capital raising, all awards adjusted for the capital raising using the adjustment factor of 1.0625.
f At vesting of the second tranche of the award on 9 March 2020, dividend shares of 13,968 were accrued. The total award of 51,098 was subsequently adjusted for the
capital raising using the adjustment factor of 1.0625. The award over 54,291 shares was exercised on 12 June 2020.
g On stepping down from the Board on 30 November 2020, the 2018 LTIP award for Mr Bickerstaff was prorated. The award had previously been adjusted for the capital
raising using the adjustment factor of 1.0625 resulting in an award over 73,705 shares.
h On stepping down from the Board on 30 November 2020, the 2019 LTIP award for Mr Bickerstaff lapsed in full.
i
The award to Helen Willis is subject to a specific condition that it will lapse if Helen ceases employment (or gives or receives notice of cessation of employment) for any
reason before 30 November 2021.
1 100% of the award was subject to an aggregate EPS target for the financial years ended 31 December 2015, 2016 and 2017 of 83.9 pence (15% vests) to EPS of
96.9 pence (100% vests) on a sliding scale between 15% and 100% pro rata to the EPS actually achieved. 50% of the award vested three years after grant, subject to
the satisfaction of the performance conditions over the three-year financial period ended 31 December 2017, while the remaining 50% of the award vested on the fifth
anniversary of the date of grant (with no further performance conditions applying). This award vested by 79.1% based on aggregate EPS performance during the
period.
2 100% of the award was subject to an aggregate EPS target for the financial years ended 31 December 2016, 2017 and 2018 of 91.7 pence (15% vests) to EPS of
101.7 pence (100% vests) on a sliding scale between 15% and 100% pro rata to the EPS actually achieved. 50% of the award vested three years after grant, subject to
the satisfaction of the performance conditions over the three-year financial period ending 31 December 2018, while the remaining 50% of the award vested on the fifth
anniversary of the date of grant (with no further performance conditions applying). This award vested by 100% based on aggregate EPS performance during the period.
The award was not reduced on the departure of Anthony Bickerstaff (see page 97).
3 Performance targets were as follows:
(a)
(b)
an EPS target (relating to 75% of the award) of 101.4p (for 15% vesting) and 113.6p (for 100% vesting), with vesting on a straight-line basis between the two and
a cash conversion target (relating to 25% of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between the two.
50% of the award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending
31 December 2019, while the remaining 50% of the award will normally vest on the fifth anniversary of the date of grant (with no further performance conditions
applying) provided, ordinarily, the individual remains an employee or officer of the Company. This award lapsed in full.
4 Performance targets are as follows:
(a)
an EPS target (relating to 75% of the award) of 99.44p (for 15% vesting) and 109.37p (for 100% vesting), as adjusted following the capital raising in May 2020,
with vesting on a straight-line basis between the two and
(b)
a cash conversion target (relating to 25% of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between the two.
50% of the award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending
31 December 2020, while the remaining 50% of the award will normally vest on the fifth anniversary of the date of grant (with no further performance conditions
applying) provided, ordinarily, the individual remains an employee or officer of the Company. This award is due to lapse in full based on the performance against
these targets during the period.
103
Governance | Directors’ Remuneration Report
Directors’ Remuneration Report continued
Annual Report on Remuneration continued
Share awards under the Long-Term Incentive Plan (LTIP) continued
5 Performance targets are as follows:
(a) an EPS target (relating to 75% of the award) of 108.77p (for 15% vesting) and 119.63p (for 100% vesting), as adjusted following the
capital raising in May 2020, with vesting on a straight-line basis between the two and
(b) a cash conversion target (relating to 25% of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a
straight-line basis between the two.
The award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial
period ending 31 December 2021, but will not normally be released and become exercisable until the fifth anniversary of the date of grant
(with no further performance conditions applying) provided, ordinarily, the individual remains an employee or officer of the Company.
6 Performance targets are as follows:
(a) an EPS target (relating to two thirds of the award) of 22.6p (for 15% vesting) and 26.7p (for 100% vesting), with vesting on a straight-line
basis between the two and
(b) a cash conversion target (relating to one third of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a
straight-line basis between the two.
The award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial
period ending 31 December 2022, but will not normally be released and become exercisable until the fifth anniversary of the date of grant
(with no further performance conditions applying) provided, ordinarily, the individual remains an employee or officer of the Company.
The LTIP awards, which are expressed as options, have a nil exercise price. At 31 December 2020, the
derived mid-market price of the ordinary shares in the Company, as advised by the Company’s
brokers, was 59.2 pence. The range of the closing share price of the ordinary shares during 2020 was
31.8 pence to 195.3 pence.
Share awards under the Share Deferral Plan (SDP)
Details of the executive directors’ participation in the SDP are as follows:
Value of
shares at
104
Balance at
Granted
price at
Vested
Lapsed
price at
Average
sale/
at 31
expected
Share
Market
date of
Balance
Actual/
Date
Director
granted
1 January
20201,2
during
date of
year
grant
during
year3
during
date of
year
exercise
market
price4
retention
of balance5
December
20201,6,7
vesting
date8
Alex
Vaughan
04.04.18
12,109
03.04.19
16,076
Anthony
Bickerstaff
04.04.18
27,410
03.04.19
29,225
Helen
Willis
–
–
–
–
–
–
–
461p 23,335
342.5p
–
461p 52,824
342.5p
–
–
–
–
–
–
–
–
75p
75p
£9,275
0
–
–
–
17,080
75p
75p
£20,997
0
–
–
–
–
–
–
31,051
–
–
April
2020
April
2021
April
2020
April
2021
1 Awards under the SDP are structured as options with a nil exercise price.
2 Balance as at date of appointment on to the Board on 30 November 2020 for Helen Willis.
3 The adjusted number of shares following the capital raising in May 2020 (adjustment factor of 1.0625). In addition, dividend shares were
awarded upon vesting – Alex Vaughan: 9,854 shares pre-capital raising; Anthony Bickerstaff: 22,307 shares pre-capital raising which are
also included (adjusted factor applied) in this figure. Both Alex Vaughan and Anthony Bickerstaff exercised their 2018 SDP awards on
12 June 2020.
4 At date of sale/ retention of balance.
5 Excluding shares deducted to settle tax sold at market price on date of exercise.
6 The adjusted number of shares following the capital raising (adjustment factor of 1.0625).
7 Balance at the date of stepping down from the Board on 30 November 2020 for Anthony Bickerstaff. The award was not reduced on
departure (see page 97).
8 Awards become exercisable on or around the second anniversary of the date of grant in accordance with the Rules of the SDP and subject,
ordinarily, to the continued employment of the participants. To the extent that the awards become exercisable, they will remain
exercisable until the 10th anniversary of the date of grant.
Costain Group PLC Annual Report & Accounts 2020
Share Options under the SAYE Scheme (SAYE)
Details of the executive directors’ SAYE options are as follows:
Date
granted
Balance at
1 January
20201
Granted
during
year
Exercise
price2
Exercised
during
year
Lapsed
during
year
Market
price at
date of
exercise
Market
price at
date of
retention
Value of
shares at
date of
retention
Balance
at 31
December
20203
Exercised/
exercisable
from/to
Director
Alex
Vaughan
25.09.17
1,319
– 336.30p
24.09.18
1,314
23.09.19
1,398
Anthony
Bickerstaff
26.09.16
1,251
–
–
–
316.90p
111.40p
279p
25.09.17
1,289
– 336.30p
24.09.18
1,314
23.09.19
1,398
Helen
Willis
–
–
–
–
–
316.90p
111.40p
–
–
–
–
–
–
–
–
–
–
–
–
1,251
–
1,3963,5
1,4853,5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,4014
1,396
1,485
Nov 2020
May 2021
Nov 2021
May 2022
Nov 2022
May 2023
–
Nov 2019
May 2020
1,3694
–
–
–
Nov 2020
May 2021
Nov 2021
May 2022
Nov 2022
May 2023
–
1 Balance at the date of appointment to the Board on 30 November 2020 for Helen Willis.
2 Exercise price adjusted for the capital raising completed May 2020 (adjustment factor of 0.9412) with the exception of the 2016 grant to Anthony Bickerstaff which had
already lapsed before the capital raising.
3 Adjusted number of shares under option following the capital raising completed May 2020 (adjustment factor of 1.0625).
4 Option still outstanding as at 31 December 2020 (or on departure at 30 November 2020 for Anthony Bickerstaff), the market price of a share being lower than the
option price and therefore not exercised.
5 The 2018 and 2019 SAYE options lapsed on Mr Bickerstaff’s departure from the Company.
105
No executive director exercised a SAYE share option in 2020 and therefore there was no gain on exercise.
The Company granted no options under the SAYE Scheme in 2020.
Directors’ shareholdings
Details of the directors’ share interests in the Company as at 31 December 2020, and at the date of this report, are as
follows:
Director
Beneficially
owned
Outstanding
SDP awards
Outstanding
LTIP awards
Outstanding
SAYE awards
Shareholding guidelines
(% of salary/fee)
Actual shareholding
(% of salary/fee)1
Alex Vaughan
228,4612
17,0803
714,2393
4,2823
Helen Willis
Paul Golby
Jane Lodge
Alison Wood
Jacqueline de Rojas
Bishoy Azmy
Tony Quinlan6
–
118,3334
66,324
19,166
12,8284
–5
–
–
–
–
–
–
–
–
258,705
–
–
–
–
–
–
–
–
–
–
–
–
–
1 Based on the calculation methodology set out in the Company’s Share Ownership Guidelines.
2 Part held by persons closely associated.
3 2019 SDP, 2018 LTIP and 2017 and 2018 SAYE awards were granted prior to Alex Vaughan becoming a director.
4 Held by persons closely associated.
200%
200%
100%
100%
100%
100%
100%
100%
95.52%
0%
96.31%
129.00%
41.63%
51.37%
100%+5
0%
5 As the director representative of the shareholder ASGC, the shareholding of ASGC counts towards the shareholding for Bishoy Azmy in accordance with the Company’s
Share Ownership Guidelines. Bishoy Azmy held no shares in his own name.
6 Tony Quinlan was appointed to the Board on 1 February 2021 and data reflects his share interests on appointment and at the date of this report.
The executive directors are expected to build and maintain a shareholding of not less than 200% of base salary through the
retention of vested share awards or through open market purchases. The non-executive directors are also expected to
build and maintain a shareholding of 100% of their fee.
Governance | Directors’ Remuneration Report Directors’ Report
106
The directors submit to the members their report and accounts of the Company
for the year ended 31 December 2020.
The Governance Report on pages 46 to 105
and the Strategic Report on pages 14 to 45
(and in particular pages 22 to 30, 54 to 57
and 60 and 61 with regard to information
about employee involvement, diversity and
greenhouse gas emissions) are also
incorporated into this report by reference.
The Company has chosen to include the
disclosure of likely future developments of
the Company’s business in the Strategic
Report.
Incorporation and constitution
Costain Group PLC is domiciled in England
and incorporated in England and Wales
under Company Number 1393773.
Annual General Meeting (AGM)
The Company’s 2021 AGM will be held on
Thursday 6 May 2021 at Costain House,
Vanwall Business Park, Maidenhead,
Berkshire SL6 4UB. A circular incorporating
the Notice of AGM accompanies this annual
report.
(Loss)/profit, dividend payments and
dividend policy
The loss after tax for the financial year
ended 31 December 2020 was £78.0m
(2019: loss £2.9m).
No interim dividend was paid during the
year ended 31 December 2020 (2019: interim
dividend 3.80 pence per share). The
Company will pay no final dividend in
respect of the year ended 31 December
2020 (2019: no final dividend). The total
dividend paid for the year will therefore be
nil (2019: 3.80 pence per share).
The Board recognises the importance of
dividends to shareholders and will continue
to review the timing of the reinstatement of
future dividends in the light of the Group’s
performance, cash flow requirements and
the importance of maintaining a strong
balance sheet.
Dividends and other distributions
The Company may, by ordinary resolution,
from time to time declare dividends not
exceeding the amount recommended by the
Board. Subject to the Companies Act 2006,
the Board may pay interim dividends, and
also any fixed rate dividend, whenever the
financial position of the Company, in the
opinion of the Board, justifies its payment.
If the directors act in good faith, they are
not liable for any loss that shareholders may
suffer because a lawful dividend has been
paid on other shares which rank equally with
or behind their shares.
The Board may withhold payment of all or
any part of any dividends or other monies
payable in respect of the Company’s shares
from a person with a 0.25% or more interest
in a class of the Company’s shares if such a
person has been served with a restriction
notice after failure to provide the Company
with information concerning interests in
those shares required to be provided under
the Companies Act 2006.
Share capital
The Company’s share capital consists of
ordinary shares with a nominal value of 50
pence each. The issued share capital of the
Company as at 31 December 2020 was
£137,474,870.50, consisting of 274,949,741
ordinary shares of 50 pence each. Further
details of the share capital of the Company
can be found in note 22 on page 172.
The awards granted in April 2017 under the
2014 Long-Term Incentive Plan (LTIP)
matured as at 31 December 2019, resulting
in nil vesting as the performance criteria
attached to the awards were not met.
Further details regarding the nil vesting of
the 2017 LTIP awards can be found in the
Directors’ Remuneration Report on page
103. Details regarding the 2018 LTIP awards
that are due to vest in April 2021 but have
not met their performance targets, can also
be found in the Directors’ Remuneration
Report on pages 94 and 95.
Share options granted under the Company’s
Save As You Earn Scheme (SAYE) in
November 2017 (at a post capital raising
adjusted option price of 363.30p) matured
as at 1 November 2020. As the market price
was less than the option price, the maturity
resulted in the exercise of nil options over
ordinary shares as at 31 December 2020.
Further details of the SAYE Scheme can be
found on page 105 of the Directors’
Remuneration Report.
At the 2019 AGM, shareholders approved the
renewal of the scrip dividend scheme which
authorises the directors to offer and allot
ordinary shares in lieu of cash dividends to
those shareholders who elect to participate in
the scrip dividend. This authority was granted
for a period of three years (until the
Costain Group PLC Annual Report & Accounts 2020 Governance | Directors’ Report
conclusion of the 2022 AGM), which
is in line with the guidelines of the
Investment Association (IA) which
requires shareholder approval to be
sought to renew the directors’ authority
to offer a scrip dividend scheme at least
once every three years.
In 2020, as there were no dividends
paid, nil ordinary shares of 50 pence
each were allotted to shareholders in
respect of dividends. Further
information on the scrip dividend
scheme is set out on page 182. Details
about joining the scrip dividend scheme
can also be found on the Company’s
website at www.costain.com.
Restrictions on transfer of securities
There are no restrictions on the
transfer of securities in the Company,
except:
The Company is not aware of any
agreements between holders of
securities that may result in restrictions
on the transfer of securities.
• that certain restrictions may from
time to time be imposed by laws and
regulations (for example, insider
trading laws) and
• pursuant to the Company’s Share
Dealing Code, whereby the directors
and certain employees of the
Company require the approval of the
Company to deal in the Company’s
ordinary shares.
Major shareholders
As at 31 December 2020 the Company
had been notified, under the Disclosure
Guidance and Transparency Rules
issued by the Financial Conduct
Authority (DTR5), of the following
notifiable interests in its ordinary
share capital:
Shareholder
Date of
notification
Number
of shares/
voting rights
% of voting
rights
ASGC Construction L.L.C.
29/05/2020
41,666,666
J O Hambro Capital Management Limited*
04/06/2020
27,773,508
Ennismore Fund Management Limited
07/09/2020
19,534,640
KBI Global Investors Ltd**
13/05/2020
7,528,503
Gresham House Asset Management Limited
23/09/2020
15,018,286
Artemis Investment Management LLP
02/06/2020
8,469,850
15.15
10.10
7.10
6.70
5.46
3.08
Number of
shares/voting
rights attaching
to financial
instruments
n/a
2,291,447
n/a
n/a
n/a
n/a
% of voting
rights
Aggregate %
of voting
rights
n/a
0.83
n/a
n/a
n/a
n/a
15.15
10.93
7.10
6.70
5.46
3.08
*
Subsequent notification received from J O Hambro Capital Management Limited on 21 January 2021 that they had decreased their total interest in the Company to
27,250,190 shares representing 9.91% of voting rights with none attaching to financial instruments.
** Notification prior to the capital raising completed 29 May 2020 (i.e. when issued share capital was 108,283,074).
Save as noted above in respect of J O Hambro Capital Management Limited, the Company did not receive any further notifications pursuant to DTR5 in the period from
31 December 2020 to the date of this report (being a date not more than one month prior to the date of the Company’s Notice of AGM).
107
Rights and obligations
attaching to shares
In accordance with the articles of
association, the Company can issue
shares with any rights or restrictions
attached to them provided such rights
or restrictions do not restrict any rights
or restrictions attached to existing
shares. These rights or restrictions can
be decided either by ordinary
resolution passed by the shareholders
or by the directors as long as there is
no conflict with any resolution passed
by the shareholders. Subject to the
articles of association, the Companies
Act 2006 and other shareholders’
rights, the issue of shares is at the
disposal of the Board.
Authority to issue shares
Disapplication of pre-emption rights
The directors may only issue shares if
authorised to do so by the articles of
association or the shareholders in
general meeting. At the Company’s
AGM held on 19 June 2020,
shareholders granted an authority to
the directors to allot ordinary shares up
to an aggregate nominal amount of
£45.8m. As at 31 December 2020, no
shares had been allotted in
the Company.
As this authority is due to expire on
6 May 2021, shareholders will be asked
to renew and extend the authority,
given to the directors at the last AGM,
to allot shares in the Company, or grant
rights to subscribe for, or to convert
any security into, shares in the
Company for the purposes of Section
551 of the Companies Act 2006.
Further details on the resolution
are provided in the Notice of this
year’s AGM.
If the directors wish to allot new shares
and other equity securities, or sell
treasury shares, for cash (other than in
connection with an employee share
scheme) company law requires that these
shares are offered first to shareholders in
proportion to their existing holdings.
There may be occasions, however, when
the directors need the flexibility to
finance business opportunities by the
issue of shares without a pre-emptive
offer to existing shareholders. This
cannot be done under the Companies
Act 2006 unless the shareholders have
first waived their pre-emption rights.
At the forthcoming AGM, shareholders
will be asked to pass two special
resolutions to grant the directors
powers to disapply shareholders’
pre-emption rights under certain
circumstances. Further details on
the resolutions are provided in the
Notice of this year’s AGM.
Directors’ Report continued
Amendment of articles of association
Unless expressly specified to the contrary in
the articles of association of the Company,
the Company’s articles of association may be
amended by special resolution of the Company’s
shareholders. A copy of the articles of association
is available on the Company’s website at
www.costain.com.
Political donations
No political donations were made during the
year ended 31 December 2020 (2019: nil). The
Company has a policy of not making donations
to political organisations. As a precautionary
measure, shareholder approval is being sought
at the forthcoming AGM for the Company and
its subsidiaries to make donations and/or incur
expenditure which may be construed as
‘political’ by the wide definition of that term
included in the relevant legislation. Further
details on the resolution are provided in the
Notice of this year’s AGM.
Independent auditors
PricewaterhouseCoopers LLP (PwC) were
reappointed as auditor of the Company at the
2020 AGM. The Board is proposing the
reappointment of PwC as auditor from the
conclusion of the AGM in May 2021 until the
conclusion of the next general meeting at which
the accounts are laid before the Company. See
pages 77 and 78 of the Audit Committee Report
and the Notice of this year’s AGM, available on
the Company’s website at www.costain.com,
for further details.
Financial instruments
Details of the Group’s use of financial
instruments, together with information on policies
and exposure to price, liquidity, cash flow, credit,
interest rate and currency risks, can be found in
note 18 on pages 158 to 165. All information
detailed in this note is incorporated into the
Directors’ Report by reference and is deemed to
form part of the Directors’ Report.
Power in relation to the Company buying
back its own shares
The directors may only buy back shares if
authorised to do so by the articles of association
or by a special resolution of the shareholders at a
general meeting. Any shares which have been
bought back may be held as treasury shares, and
either be resold for cash, cancelled (either
immediately or in the future), or used for the
purposes of the Company’s share schemes. Any
cancelled treasury shares will thereby reduce the
amount of the Company’s issued share capital.
The Company did not buy back any of its shares
during the year ended 31 December 2020
or during the period from 1 January 2021 to the
date of this report.
At the forthcoming AGM authority will be sought
from the shareholders to grant authority for the
Company to repurchase up to 10% of the issued
share capital of the Company. Further details on
the resolution are provided in the Notice of this
year’s AGM.
Securities carrying special rights
No person holds securities in the Company
carrying special rights with regard to control
of the Company.
Restrictions on voting
No member shall be entitled to vote at any
general meeting or class meeting in respect of
any share held by him/her if any call or other sum
then payable by him/her in respect of that share
remains unpaid or if a member has been served
with a restriction notice (as defined in the articles
of association) after failure to provide the
Company with information concerning interests in
those shares required to be provided under the
Companies Act 2006.
The Company is not aware of any agreement
between holders of securities that may result in
restrictions of voting rights.
Employee Share Trust
As at 31 December 2020, Buck Trustees
(Guernsey) Limited, as trustee of the Costain
Group Employee Trust, held 0.24% (2019: 0.64%)
of the issued share capital of the Company on
trust for the benefit of those employees who
exercise their share awards/options under the
Company’s Long-Term Incentive Plan, Deferred
Share Bonus Plan, Share Deferral Plan and Save
As You Earn Scheme (the latter in respect of
‘good leavers’ who leave the employment of the
Company before their contract matures). The
trustee does not exercise any right to vote or to
receive a dividend in respect of this shareholding.
108
Costain Group PLC Annual Report & Accounts 2020 Governance | Directors’ Report
Significant agreements –
change of control
The directors are not aware of any
significant agreements to which the
Company and/or any of its subsidiaries
or associates are a party that take
effect, alter or terminate upon a
change of control of the Company
following a takeover bid, save in
respect of the facility agreements
relating to the Company’s banking and
surety bonding facilities, which would
become terminable upon a change of
control. There are no agreements
between the Company and its directors
or employees providing for
compensation for loss of office or
employment as a result of a successful
takeover bid except that provisions of
the Company’s share schemes and
plans may cause options and awards
to be granted to employees under
such schemes and plans to vest on
a takeover.
Post-balance sheet events
There are no post-balance sheet events.
Research and development
The Group is involved in research and
development in all the sectors in which
it operates. The Group’s engineers and
technical staff in these named sectors
seek to develop and deliver technical
advances. In undertaking certain
elements of this research and
development work, the Group is
supported by arrangements with
certain British universities and various
technology specialists.
Greenhouse gas emissions
The Strategic Report on page 29
details the greenhouse gas emissions
disclosures required by the Companies
Act 2006 (Strategic Report and
Directors’ Report) Regulations 2013.
This information is incorporated by
reference into (and shall be deemed
to form part of) this report.
Information required by LR 9.8.4R
There is no information required to
be disclosed under LR 9.8.4R.
The Company may, by special
resolution, remove any director before
the expiration of his/her period of
office. The office of a director shall
also be vacated under a number of
situations which are set out in the
articles of the Company. These include
a director wishing to resign, being
required to step down due to ill
health, becoming bankrupt or being
prohibited by law from being a director.
The executive directors have contracts
of employment with the Company,
terminable on 12 months’ notice, while
the chair and non-executive directors
all have letters of appointment with the
Company. An independent non-
executive director’s appointment is for
an initial period of three years, at the
expiry of which time the appointment
is reviewed to determine whether the
appointment should continue. Bishoy
Azmy’s appointment does not have the
same three-year review period, his
appointment being subject to the
relationship agreement between
the Company and ASGC described
in the Company's prospectus dated
7 May 2020. All contracts and letters
of appointment are available for
inspection at the Company’s registered
office during normal business hours.
Directors’ conflicts of interest
The Company has procedures in place
for managing conflicts of interest.
Directors are required to declare all
external appointments or relationships
with other companies and the Board
has adopted appropriate processes to
manage and, if appropriate, approve
any such appointment or relationship
which could result in a possible conflict
of interest. The Board has satisfied
itself that there is no compromise to
the independence of the directors who
have appointments on the boards of,
or relationships with, other companies.
Overseas interests
Details of the Company’s overseas
subsidiary undertakings can be found
in note 24 on pages 173 to 178.
The Company has two overseas
branches in Abu Dhabi.
Directors
Biographies of the Board are given on
pages 47 to 49 and include details of
the skills, experience and career history
of directors in post as at the date of
this report, and the Committees on
which they serve. Anthony Bickerstaff
stepped down as chief financial officer
and was succeeded by Helen Willis,
both changes effective 30 November
2020. David McManus stepped down
from the Board on 19 June 2020.
Bishoy Azmy was appointed to the
Board on the same date pursuant to
the relationship agreement between
the Company and ASGC described in
the Company’s prospectus dated
7 May 2020. Tony Quinlan was
appointed to the Board with effect
from 1 February 2021. The directors
shall be not less than two and not more
than 18 in number. The Company may
by ordinary resolution vary the
minimum and/or maximum number
of directors.
Appointment and replacement
of directors
The appointment and replacement
of directors is governed by the
Company’s articles, the 2018 UK
Corporate Governance Code, the
Companies Act 2006 and related
legislation. The articles may be
amended by a special resolution of the
Company’s shareholders. Directors may
be appointed by the Company by
ordinary resolution or by the Board.
At every AGM of the Company, all
directors are required to retire from
office and may offer themselves for
reappointment by the members.
The Board, or any Committee
authorised by the Board, may from
time to time appoint one or more
directors to hold any employment or
executive office for such period and on
such terms as they may determine and
may also revoke or terminate any such
appointment.
109
Directors’ Report continued
Powers of the directors
Subject to the Company’s articles of association,
the Companies Act 2006 and any directions given
to the Company by special resolution, the
business of the Company will be managed by the
Board, which may exercise all the powers of the
Company. In particular, the Board may exercise all
the powers of the Company to borrow money, to
guarantee, to indemnify, to mortgage or charge
any of its undertaking, property, assets (present
and future) and uncalled capital and to issue
debentures and other securities and to give
security for any debt, liability or obligation of the
Company or of any third party.
Directors’ interests
No director had any material interest
in any contract of significance with the Group
during the period under review. Details of
directors’ emoluments and interests in shares
(including their connected persons’ beneficial
interests) in the Company, including any changes
in interests during 2020, are contained in the
Directors’ Remuneration Report, which appears
on pages 82 to 105.
Directors’ indemnity
Costain Group PLC maintains liability insurance
for its directors and officers. There are no
subsisting indemnities in favour of its directors.
Diversity
Details of the Company’s policy on diversity
within the business (including at Board level), is
provided in the Nomination Committee Report on
page 80 and the Governance Report on pages 60
and 61. Apart from ensuring that an individual has
the ability to carry out a particular role, the
Company does not discriminate in any way. The
Company endeavours to retain employees if they
become disabled, making reasonable adjustments
to their role and, if necessary, looking for
redeployment opportunities within the Group.
The Company also ensures that training, career
development and promotion opportunities are
available to all employees irrespective of gender,
race, age or disability.
Employee information
The average number of employees within the
Company and Group is shown in note 6 to the
financial statements on page 145.
The Company maintains a strong communication
network and employees are encouraged to
discuss with management matters of interest and
issues affecting the day-to-day operations of the
Group. Regular staff engagement surveys are run
by the Company, the results of which are
communicated to employees.
Employees are also kept informed of the financial
and economic factors affecting the Company’s
performance, the strategy and other matters of
concern to them as employees, through various
means including regular updates from the chief
executive officer and other senior managers and
via the Company’s intranet site. Employees also
have the opportunity to provide feedback and ask
questions at the annual staff ‘Costain in Business’
roadshows which normally take place around the
country but in 2020 the roadshow was held
virtually, as shown on page 54.
The Company also operates an all employee share
plan (SAYE) enabling employees to become
shareholders and build a stake in the future
success of the Company. No grants were made
under the SAYE in 2020.
Stakeholder Engagement
For more information on how the directors have
engaged with the workforce, clients, suppliers
and others, and how the directors have had
regard to their interests, and the effect of that
regard including on principal decisions, see the
Stakeholder Engagement section of the Strategic
Report on pages 26 and 27, and pages 66 and 67
of the Corporate Governance Report.
Essential contracts or other arrangements
Given the scope and diversity of the Company’s
activities, the Company does not consider that it
has contractual or other arrangements which are
essential to the business of the Group and which
are required to be disclosed.
Disclosure of information
to auditor
The directors confirm that, so far as they are
aware, there is no relevant audit information (as
defined in Section 418 of the Companies Act
2006) of which the Company’s external auditor is
unaware and that each director has taken all the
steps that he/she ought to have taken as a
director to make himself/herself aware of any
relevant audit information and to establish that
the Company’s external auditor is aware of
that information.
This confirmation is given and should be
interpreted in accordance with the provisions
of Section 418 of the Companies Act 2006.
By Order of the Board
Sharon Harris
Company Secretary
16 March 2021
110
Costain Group PLC Annual Report & Accounts 2020 Governance | Directors’ Responsibility Statement
Directors’ Responsibility Statement
The directors are responsible for preparing the
annual report, the Directors’ Remuneration
Report and the accounts in accordance with
applicable law and regulations.
Company law requires the directors to prepare
accounts for each financial year. Under that law,
the directors are required to prepare the Group
and Company accounts in accordance with
International Financial Reporting Standards
(IFRSs) as adopted by the European Union (EU).
Under Company law, the directors must not
approve the financial statements unless they are
satisfied that these give a true and fair view of the
state of affairs of the Group and the Company
and of their profit or loss for that period.
In preparing each of the Group and the Company
accounts, the directors are required to:
• select suitable accounting policies and then
apply them consistently
• make judgements and accounting estimates
that are reasonable and prudent
• state whether applicable IFRSs as adopted by
the EU have been followed, subject to any
material departures disclosed and explained in
the accounts and
• prepare the accounts on the going concern
basis unless it is inappropriate to presume that
the Group and the Company will continue in
business.
The directors are responsible for keeping
adequate accounting records that are sufficient to
show and explain the Group and the Company’s
transactions and disclose with reasonable
accuracy at any time the financial position of the
Group and the Company and enable them to
ensure that the accounts and the Directors’
Remuneration Report comply with the Companies
Act 2006 and, as regards the Group accounts,
Article 4 of the IAS Regulation.
They are also responsible for safeguarding the
assets of the Group and the Company and hence
for taking reasonable steps for the prevention and
detection of fraud and other irregularities.
Under applicable law and regulations, the
directors are also responsible for preparing a
Strategic Report, Directors’ Report, Directors’
Remuneration Report and Corporate Governance
Statement which comply with that law and those
regulations. The directors are also responsible for
the maintenance and integrity of the corporate
and financial information included on the
Company’s website. Legislation in the UK
governing the preparation and dissemination of
financial statements may differ from legislation in
other jurisdictions.
The directors consider the annual report, taken as
a whole, is fair, balanced and understandable and
provides the information necessary for
shareholders to assess the Company’s and the
Group’s position and performance, business
model and strategy.
Each of the directors of the Company confirms
that, to the best of his or her knowledge:
• the Group accounts, which have been prepared
in accordance with IFRSs as adopted by the EU,
give a true and fair view of the assets, liabilities,
financial position and profits or losses of the
Company (and of the Group taken as a whole)
and
• the Strategic Report includes a fair review of
the development and performance of the
business and the position of the Company (and
of the Group taken as a whole), together with a
description of the principal risks and
uncertainties that they face.
On behalf of the Board
Dr Paul Golby CBE
Chair
Alex Vaughan
Chief Executive Officer
16 March 2021
111
Independent Auditors’ Report
to the members of Costain Group PLC
Report on the audit of the financial statements
Opinion
In our opinion, Costain Group PLC Group financial statements and parent company financial statements
(the “financial statements”):
• give a true and fair view of the state of the Group’s and of the parent company’s affairs as at 31 December 2020 and
of the Group’s loss and the Group’s and parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with international accounting standards in conformity with the requirements
of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”),
which comprise: the Consolidated Statement of Financial Position and the Company Statement of Financial Position as
at 31 December 2020; the Consolidated Income Statement and Consolidated Statement of Comprehensive Income and
Expense, the Consolidated Cash Flow Statement and Company Cash Flow Statement, the Consolidated Statement of
Changes in Equity and the Company Statement of Changes in Equity for the year then ended; and the notes to the financial
statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Separate opinion in relation to international financial reporting standards adopted pursuant to Regulation (EC)
No 1606/2002 as it applies in the European Union
As explained in note 2 to the Group financial statements, the Group, in addition to applying international accounting
standards in conformity with the requirements of the Companies Act 2006, has also applied international financial reporting
standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
In our opinion, the Group financial statements have been properly prepared in accordance with international financial
reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.
112
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were
not provided to the Group.
Other than those disclosed in the Directors’ Report, we have provided no non-audit services to the Group in the period
under audit.
Our audit approach
Overview
Audit scope
• The Group is primarily UK based and has two main segments; Transportation and Natural Resources. We identified five
legal entities requiring full scope audit, either due to their size or their risk characteristics.
Key audit matters
• Timing and accuracy of contract revenue and profit recognition including recoverability of amounts due from clients (Group)
• Impairment of goodwill and other intangible assets (Group and parent)
• Valuation of defined benefit pension scheme obligation (Group)
• Covid-19 (Group)
Costain Group PLC Annual Report & Accounts 2020 Governance | Independent Auditor’s Report
Materiality
• Overall Group materiality: £1,600,000 (2019: £1,700,000) based on 5% of the three year average profit before tax adjusted
both for other items set out in note 2 and for the significant contract losses relating to A465 and Peterborough &
Huntingdon projects, as these are deemed to be one off in nature.
• Overall parent company materiality: £1,440,000 (2019: £1,700,000) based on 1% of net assets
(capped at 90% of Group materiality).
• Performance materiality: £1,200,000 (Group) and £1,080,000 (parent company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement
in the financial statements.
Capability of the audit in detecting irregularities, including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined in the Auditors’ responsibilities for the audit of the financial statements section, to detect
material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of
detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws
and regulations related to non-compliance with health and safety legislation, pension obligations, data protection
legislation, anti-bribery and corruption legislation, environmental legislation, tax legislation and construction laws,
and we considered the extent to which non-compliance might have a material effect on the financial statements. We also
considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the
Companies Act 2006. We evaluated management’s incentives and opportunities for fraudulent manipulation of the financial
statements (including the risk of override of controls), and determined that the principal risks were related to posting
inappropriate journal entries to increase revenue or reduce expenditure and management bias in accounting estimates.
Audit procedures performed by the engagement team included:
• Discussion with management, internal audit and the Group’s in-house legal advisers, including consideration of known or
suspected instances of non-compliance with laws and regulations and fraud;
• Evaluation of management’s controls designed to prevent and detect irregularities;
• Review of the financial statement disclosures to underlying supporting documentation;
• Assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation
of such matters;
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular in
relation to contract accounting and impairment of goodwill and intangible assets (see related key audit matters below);
and
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations or
posted by senior management.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of
non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial
statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one
resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations,
or through collusion.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of
the financial statements of the current period and include the most significant assessed risks of material misstatement
(whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit
strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any
comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial
statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year. In 2019, our opinion also included an ‘emphasis of matter’ relating
to going concern and the uncertainty regarding the successful conclusion of the Group’s equity raise.
113
Independent Auditors’ Report continued
to the members of Costain Group PLC
Key audit matters continued
Key audit matter
How our audit addressed the key audit matter
Timing and accuracy of contract revenue
and profit recognition including
recoverability of amounts due from
clients (Group)
We obtained an understanding of and evaluated management’s own process and controls for
reviewing long term contracts and gained an understanding of the key judgements involved and
background to the specific contracts selected in our sample. We selected a sample of contracts
for our testing, based on both quantitative and qualitative criteria including:
Refer to page 75 (Audit Committee Report),
pages 128 to 138, note 2 (Summary of
significant accounting policies and
significant areas of judgement and
estimation).
• high levels of revenue recognised in the year;
• low margin or loss making contracts;
• contracts with significant receivables or contract asset balances at the year end; and
• those identified through our discussions with management, review of Board minutes,
review of legal reports and review of publicly available information.
The valuation of amounts recoverable on
construction contracts is dependent on
judgements and estimates around stage
of completion and remaining costs to
complete, as well as the associated
provisions.
In a number of the Group’s projects there
are assumptions within revenue regarding
recovery of contractual entitlement from
clients. These assumptions are required
as a result of compensation events that
have arisen due to changes under the
terms of the contract. The valuation of
these compensation events can involve a
significant degree of estimation in the end
of life forecast revenue for a project and the
estimated final revenue may not yet have
been certified or fully agreed with the
customer. This can impact both on profit
recognition in the year and work in progress
recorded at the balance sheet date.
The Group concluded a Termination and
Settlement Agreement in respect of its
contract with National Grid in relation
to the Peterborough & Huntingdon gas
compressor project during the year.
The Group no longer holds a contract
asset in respect of this project and,
therefore, the position reflects the cash
received at the point of termination.
There is, however, an agreed process of
adjudications through 2021 which will
consider a list of defined compensation
events, totalling a maximum of £80m.
Under the terms of the Termination and
Settlement Agreement the cumulative
outcome of these adjudications will result
in a final settlement with National Grid
which could range from an additional
receipt of £50m to a repayment to
National Grid of £57.3m.
Provisions are recorded by the Group
where there are concerns over
recoverability of receivables or contract
assets or recognition of revenue does not
meet the criteria under IFRS 15 of being
highly probable of not being subject to
significant reversal.
The majority of the Group’s contracts are target cost, cost reimbursable arrangements and
some include pain/gain arrangements, therefore, we focused on the significant judgements
adopted by management in relation to the revenue and margin recognition, and the percentage
completion. For the sample of contracts selected our testing included:
• obtaining an understanding of the contract and its key terms;
• meeting with the project and commercial leaders to assess delivery progress and challenge
key areas of estimation in end of life revenue and cost
• agreeing forecast revenue to signed contracts, signed variations, agreed compensation
events or other supporting documentation;
• where applicable, we agreed the pain/gain mechanism to relevant contracts, recalculated
the forecast impact on the outturn margin and challenged where there was estimation in end
of life forecasts;
• reconciling revenue recognised with amounts applied for and amounts certified by
clients, agreeing the amounts received to cash and confirming, that the reconciling items
were appropriate;
• obtaining details of unagreed compensation events and challenging entitlement to
assumed recoveries;
• re-performing the key calculations behind the margin applied, the profit taken and the stage
of completion, as well as contract assets held on the balance sheet;
• testing a sample of actual costs incurred;
• testing forecast costs to complete to evidence (such as orders signed with subcontractors or
supporting calculations) and applying industry knowledge and experience to challenge the
completeness of the forecast costs to completion including any cost contingencies held;
• assessing the recoverability of contract assets and receivables by comparing to external
certification of the value of work performed;
• obtaining documentary evidence of proposed settlement agreements with clients;
• reviewing legal correspondence and expert advice obtained in respect of the judgements
and where necessary speaking directly with management’s experts who had provided this
advice; and
• in addition in respect of the terminated Peterborough & Huntingdon contract with National
Grid we obtained the Termination and Settlement Agreement and assessed the key terms
therein. We obtained the reports of management’s quantum and legal experts; met with
those experts to understand and challenge their assessments and used our own capital
projects specialists to support us in those meetings.
For the remaining contract population we performed the following:
• reviewed the forecast margins for the population of contracts. For those which had moved
significantly since tender and / or the prior reporting period, we obtained explanations
from management;
• inspected Contract Leader Reports (‘CLRs’);
• considered appropriateness of management provisions against contract assets;
• recalculated the percentage completion based on costs to date and recalculated revenue
to agree to those reported by management;
• for a sample of contracts which generated in excess of £1.2m of revenue in the year
we agreed the December certificate to cash received, agreed reported cumulative costs
to the underlying cost ledgers and recomputed the cumulative revenue recognised; and
for all contract asset balances in excess of £1.2m at the year end we tested evidence of
subsequent certification.
Based on all of the evidence obtained in the above procedures, we were satisfied with the
recognition of contract revenue and profit and of the amounts held as contract assets. Given the
degree of estimation, we also considered the disclosures around significant ongoing contracts
included in note 2 to the financial statements.
114
Costain Group PLC Annual Report & Accounts 2020 Governance | Independent Auditor’s Report
Key audit matter
How our audit addressed the key audit matter
Impairment of goodwill and other intangible assets
(Group and parent)
Refer to page 76 (Audit Committee Report), pages 128 to 138, note 2
(Significant areas of judgement and estimation), and page 149 note 12
– Intangible Assets.
At 31 December 2020 the Group had a net balance of £45.1m of
goodwill (2019: £54.1m) and £7.0m of other intangible assets (2019:
£4.9m).
The Company had a corresponding investment in subsidiaries
balance of £151.2m (2019: £141.3m).
Goodwill has been allocated to the applicable cash generating units
of the Transportation segment £15.5m, (2019: £15.5m) and the Natural
Resources segment £29.6m, (2019: £38.6m).
The carrying values of goodwill and intangible assets, and of the
Company’s investments in subsidiaries, are contingent on future cash
flows and there is a risk that the assets will be impaired if these cash
flows do not meet the Group’s expectations. The impairment reviews
performed by the Group contained a number of judgements and
estimates including discount rates, growth rates and expected
changes to revenue and direct costs during the period. Changes in
these assumptions could lead to an impairment to the carrying value
of the assets.
An impairment charge of £9.0m has been recorded against the
Natural Resources goodwill balance in the Group. A £34.0m charge
recorded within the parent’s investment in subsidiaries balance for
the year ended 31 December 2020.
We obtained the directors’ future cash flow forecasts, which were
prepared to a sufficiently detailed level. We evaluated management’s
basis of determination of the CGUs between Transportation and
Natural Resources.
We performed the following testing with a particular focus on the
Natural Resources segment where the CGU’s assumptions were more
sensitive to an impairment:
• we compared the cash flows to the latest Board approved budgets,
tested the integrity of the underlying calculations and assessed how
both internal and external drivers of performance were
incorporated into the projections;
• we challenged the discount rate, with the support of our valuations
experts, by independently recalculating the cost of capital, which
was consistent with the discount rate used;
• we tested the revenue forecasts by comparing the revenue
projected to the order book and supporting contract information,
noting that 72% of the 2021 forecast revenue has been secured;
• we assessed operating margin assumptions in the context of
historic performance (including any impact resulting from Covid-19)
for each CGU and the remaining work to be obtained;
• we compared the 2020 financial performance to budget and
understood the drivers of projected improvement in profitability
and working capital movements;
• we performed sensitivity analysis around the key drivers of the cash
flow forecasts, in particular the revenue growth and margin
assumptions; and
• in respect of other intangibles we tested capitalisation of costs
incurred and recoverability in accordance with IAS 38 and were
satisfied that these were appropriate.
Valuation of defined benefit pension scheme obligation (Group)
Refer to page 76 (Audit Committee Report), pages 128 to 138 note 2
(Significant areas of judgement and estimation), and page 168 note 21
– Employment Benefits.
The Group has significant retirement benefit obligations. At
31 December 2020 the present value of these obligations was
£886.5 million (2019: £812.1m) offset by plan assets at fair value of
£880.9m (2019: £817.0m) in respect of funded schemes.
These retirement benefit obligations were determined based on a
number of actuarial assumptions and calculations, which were subject
to significant judgement and estimate.
Changes in these assumptions can have a material impact on the
quantum of obligations recorded in the Consolidated statement of
financial position.
We concluded management’s assessment, after reflecting a
£9.0 million impairment in Natural Resources CGU, is appropriate.
Our findings were discussed with the Audit Committee and we
concluded the impairment charge recognised was within an
acceptable range.
115
We obtained the actuarial valuation at 31 December 2020 and tested
the valuation of the pension liabilities as follows:
• we challenged with the support of our pension experts the actuarial
assumptions by comparing them against benchmark ranges based
on the market conditions and expectations at 31 December 2020.
Based on our review of the assumptions, in each case we found that
the actuarial assumptions used were reasonable and sat within our
acceptable range and, where appropriate, were applied on a basis
consistent with previous years;
• we also reviewed the methodology and challenged the assumptions
used in calculating the impact of the equalisation of Guaranteed
Minimum Pensions which has been recognised in the Consolidated
income statement this year;
• we independently confirmed the pension assets held by the
schemes with the third-party custodians and fund managers. We
also performed an independent assessment, of the asset valuations
with the support of valuations expert and concluded that they were
appropriate; and
• we tested the underlying census data to supporting documents to
confirm completeness and accuracy.
We did not identify any issues within our testing and were satisfied the
assumptions applied are within an appropriate range.
Independent Auditors’ Report continued
to the members of Costain Group PLC
Key audit matters continued
Key audit matter
How our audit addressed the key audit matter
In response to the key areas identified as being significantly impacted
by Covid-19, we performed the following procedures:
i) We reviewed management’s cash flow forecasts, and assessed
covenant compliance and the treatment of Covid-19 related costs,
used to support the Board’s going concern assessment, ensuring
appropriate stress test scenarios were considered. We challenged
management’s key cash flow assumptions by performing our own
sensitivity analysis. We concur with the Board’s conclusion to adopt
the going concern basis of preparation for the financial statements
at 31 December 2020;
ii) Refer to our Key Audit Matter above for details of how we
considered the impact of Covid-19 in our procedures over
contract accounting;
iii) Refer to our Key Audit Matter above for details of how we
considered the impact of Covid-19 in our procedures over
impairment of goodwill;
iv) We tested a sample of HMRC claims and associated cash receipts
in respect of the CJRS income recorded. We did not identify any
issues with the amounts recognised, which have been presented
net against the payroll costs to which they relate.
We undertake a substantive audit and, therefore, do not place reliance
on controls. However, recognising the risk that the general control
environment may have been impacted as a result of the pandemic we
discussed with management and key individuals in the IT function to
understand how the business had adapted; management did not
identify any deterioration in the operation of key controls. We did not
identify any significant control observations as a result of our
substantive audit.
Covid-19 and Going Concern (Group)
Refer to page 76 (Audit Committee Report), pages 128 to 138, note 2
(Significant areas of judgement and estimation).
The Covid-19 pandemic has had an impact on the performance of the
Group during FY20, with the severity of the impact varying across the
Group’s two divisions. As a result, the pandemic has brought
increased estimation uncertainty to certain areas of the financial
statements.
The key areas of the financial statements most impacted by the
increased estimation uncertainty are described below:
i) The Directors have carefully considered the appropriateness of
the going concern basis of preparation in the Group’s financial
statements, including assessing the impact of further disruption
arising from Covid-19 during the forecast period and potential
impact on bank covenants;
ii) Covid-19 has had an impact on the Group’s ability to execute long
term contracts, and it has incurred additional costs in doing so,
particularly as a result of the requirements for personal protective
equipment and on-site social distancing guidelines. To the extent
that these incremental costs are considered to be part of the cost
of delivering a contract, they are factored into the end of life
forecast (‘ELF’) and not expensed to the Income Statement;
iii) The Group has £45.1m of goodwill as at 31 December 2020. Given
the impact of the pandemic on the Group’s trading results to
date, there is a risk that further disruption caused by Covid-19
could materially reduce the value in use of the Natural Resources
CGU, against which £29.6m of the Group’s goodwill is allocated;
iv) Following the emergence of Covid-19 in the UK, the Group
accessed HMRC’s Coronavirus Job Retention Scheme (‘CJRS’),
and claimed £2.0m of compensation in respect of UK employee
wages over the period from April to October 2020.
This has been disclosed in note 5 in accordance with IAS 20,
‘Accounting for government grants and disclosure of
government assistance’.
In addition, management’s ways of working, including the operation
of controls, has been impacted as a result of a large number of staff
having to work remotely. This has resulted in an increase in risk due
to the remote accessing of IT systems and a potentially heightened
cyber risk.
116
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial
statements as a whole, taking into account the structure of the Group and the parent company, the accounting processes
and controls, and the industry in which they operate.
The Group is primarily UK based and has two main segments; Transportation and Natural Resources. In establishing the
overall approach to the Group audit, we determined the type of work needed to be performed at these reporting units.
We identified the following five legal entities requiring full scope audit; Costain Limited (financially significant component),
Costain Oil and Gas Process Limited, Costain Engineering & Construction Limited, Richard Costain Limited and Costain
Group PLC, which in our view, required an audit of their entire financial information, either due to their size or their risk
characteristics. In addition to this we performed work over specific balances in other Group entities, which in our view,
required an audit of such balances, either due to their size or their risk characteristics. In total, these accounted for 97%
(2019: 97%) of Group revenues and 78% (2019: 80% ) of Group Profit before tax. The percentage of Group Profit before tax is
calculated on an absolute basis, which aggregates component profits and losses.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality.
These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and
extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of
misstatements, both individually and in aggregate on the financial statements as a whole.
Costain Group PLC Annual Report & Accounts 2020 Governance | Independent Auditor’s Report
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall materiality
£1,600,000 (2019: £1,700,000).
£1,440,000 (2019: £1,700,000).
Financial statements – Group
Financial statements – parent company
How we determined it
Rationale for
benchmark applied
5% of a three year average of profit before tax adjusted
for "other items" which are deemed to be one off or non
trading in nature and for the losses relating to A465 and
Peterborough & Huntingdon contracts.
1% of net assets (capped at 90% of
Group materiality)
Based on the benchmark used in the Annual Report,
profit before tax adjusted for “other items” and the
significant contract losses is the primary measure used by
the shareholders in assessing the performance of the
Group, and is generally accepted auditing benchmark.
We have also adopted a three year average to smooth out
the impact of Covid-19 on the financial results in 2020.
The Company primarily holds
intercompany receivables, investments in
subsidiaries and debt. There are no
trading activities in the company
therefore we considered a balance sheet
measure to be the most appropriate
auditing benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was £500,000 to £1,600,000.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected
and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the
scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for
example in determining sample sizes. Our performance materiality was 75% of overall materiality, amounting to £1,200,000
for the Group financial statements and £1,080,000 for the parent company financial statements.
In determining the performance materiality, we considered a number of factors - the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£100,000 (Group audit) (2019: £100,000) and £100,000 (parent company audit) (2019: £100,000) as well as misstatements
below those amounts that, in our view, warranted reporting for qualitative reasons.
117
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the group’s and the parent company’s ability to continue to adopt the going
concern basis of accounting included:
• We obtained the latest bank facility agreement including covenant arrangements;
• We assessed the appropriateness of the cash flow forecasts in the context of the Group’s 2020 financial position and
evaluated the Directors’ downside sensitivities against these forecasts;
• We evaluated the key assumptions in the forecasts and considered whether these appeared reasonable, for example by
comparing forecast sales growth to levels of future revenue that has been secured;
• We examined the minimum committed facility headroom under the base case cash flow forecasts and sensitised cases
and evaluated whether the Directors’ conclusion that liquidity headroom remained in all events was reasonable;
• We obtained and reperformed the Group’s most recent covenant compliance calculations under the previous agreement
and subsequent quarterly forecast covenant compliance calculations under the revised facility agreement;
• We considered the impact of the Group’s financial performance, and specifically its presentation of profit before
exceptional items, a defined term in the banking agreement, and amortisation of acquired intangibles, on its covenant
calculations; and
• We also reviewed the disclosures provided relating to the going concern basis of preparation, and found that these
provided an explanation of the Directors’ assessment that was consistent with the evidence we obtained.
Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the group’s and the parent company’s ability to continue
as a going concern for a period of at least twelve months from when the financial statements are authorised for issue.
Independent Auditors’ Report continued
to the members of Costain Group PLC
Conclusions relating to going concern continued
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in
the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Group’s
and the parent company’s ability to continue as a going concern.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise
explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so,
consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in
the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material
misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial
statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that
there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic report and Directors’ Report, we also considered whether the disclosures required by the UK
Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions
and matters as described below.
118
Strategic report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and
Directors’ Report for the year ended 31 December 2020 is consistent with the financial statements and has been prepared in
accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and parent company and their environment obtained in the
course of the audit, we did not identify any material misstatements in the Strategic report and Directors’ Report.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view.
The directors are also responsible for such internal control as they determine is necessary to enable the preparation of
financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’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 the parent company or to cease
operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Costain Group PLC Annual Report & Accounts 2020 Governance | Independent Auditor’s Report
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data
auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing
complete populations. We will often seek to target particular items for testing based on their size or risk characteristics.
In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample
is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in
accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these
opinions, 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.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the parent company financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 8 May 2017 to audit the
financial statements for the year ended 31 December 2017 and subsequent financial periods. The period of total
uninterrupted engagement is 4 years, covering the years ended 31 December 2017 to 31 December 2020.
119
Jonathan Hook (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
16 March 2021
Consolidated Income Statement
Year ended 31 December
2020
2019
Before
other items
£m
Other items
£m
Notes
Total
£m
Before
other items
£m
Other items
£m
Total
£m
Continuing operations
Group revenue
Cost of sales before other items
978.4
(1,027.0)
Arbitration award on historical building project
5
–
Cost of sales
Gross (loss)/profit
Administrative expenses before other items
Impairment of Alcaidesa marina
Impairment of other investment
Profit on sales of interests in joint ventures and
associates
Profit/(loss) on disposal of subsidiary undertakings
Refinancing advisory fees
Pension GMP equalisation charge
Amortisation of acquired intangible assets
Impairment of goodwill
13
5
26
26
5
21
12
12
Employment related and other deferred consideration 18
Administrative expenses
Group operating (loss)/profit
120
Share of results of joint ventures and associates
(Loss)/profit from operations
Finance income
Finance expense
Net finance expense
(Loss)/profit before tax
Taxation
(Loss)/profit for the year attributable
to equity holders of the Parent
(Loss)/earnings per share
Basic
Diluted
14
4
8
8
4/5
9
10
10
978.4
1,155.6
(1,027.0)
(1,105.1)
–
–
(1,027.0)
(1,105.1)
(48.6)
50.5
(33.1)
(32.6)
–
–
–
–
–
–
(0.6)
(0.6)
1.6
1.4
(1.2)
(0.9)
(1.0)
(9.0)
–
(0.6)
(0.6)
1.6
1.4
(1.2)
(0.9)
(1.0)
(9.0)
–
(1,027.0)
(48.6)
(33.1)
–
–
–
–
–
–
–
–
–
(33.1)
(81.7)
(10.3)
(10.3)
(43.4)
(92.0)
0.2
–
0.2
(81.5)
(10.3)
(91.8)
0.8
(5.1)
(4.3)
(85.8)
17.5
–
–
–
0.8
(5.1)
(4.3)
(10.3)
(96.1)
0.6
18.1
–
–
–
–
–
–
–
–
–
(32.6)
17.9
0.3
18.2
1.0
(4.6)
(3.6)
14.6
(0.1)
–
–
1,155.6
(1,105.1)
(9.7)
(9.7)
(9.7)
–
(5.9)
–
–
(9.7)
(1,114.8)
40.8
(32.6)
(5.9)
–
–
(3.0)
(3.0)
–
–
(2.3)
–
(0.2)
(11.4)
(21.1)
–
(21.1)
–
(0.1)
(0.1)
(21.2)
3.8
–
–
(2.3)
–
(0.2)
(44.0)
(3.2)
0.3
(2.9)
1.0
(4.7)
(3.7)
(6.6)
3.7
(68.3)
(9.7)
(78.0)
14.5
(17.4)
(2.9)
(36.7)p
(36.7)p
(2.3)p
(2.3)p
The impact of business disposals in either year was not material and, therefore, all results are classified as arising from
continuing operations.
Costain Group PLC Annual Report & Accounts 2020 Accounts | Consolidated Statement of Comprehensive Income and Expense
Consolidated Statement of Comprehensive Income and Expense
Year ended 31 December
Loss for the year
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations
Exchange differences on translation transferred to the income statement
Net investment hedge:
Effective portion of changes in fair value during year
Net changes in fair value transferred to the income statement
Cash flow hedges:
Effective portion of changes in fair value during year
Net changes in fair value transferred to the income statement
Total items that may be reclassified subsequently to profit or loss
Items that will not be reclassified to profit or loss:
Remeasurement of retirement benefit (obligations)/asset
Tax recognised on remeasurement of retirement benefit (obligations)/asset
Total items that will not be reclassified to profit or loss
Other comprehensive expense for the year
Total comprehensive expense for the year attributable to
equity holders of the parent
2020
£m
(78.0)
0.2
(1.2)
0.1
0.4
(0.3)
0.5
(0.3)
(19.9)
3.8
(16.1)
(16.4)
2019
£m
(2.9)
(1.4)
(3.7)
1.6
2.0
(0.4)
(0.8)
(2.7)
(7.0)
1.2
(5.8)
(8.5)
(94.4)
(11.4)
121
Consolidated Statement of Financial Position
As at 31 December
Assets
Non-current assets
Intangible assets
Property, plant and equipment
Equity accounted investments
Retirement benefit asset
Trade and other receivables
Deferred tax
Total non-current assets
Current assets
Inventories
Trade and other receivables
Taxation
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Retirement benefit obligations
Other payables
122
Interest-bearing loans and borrowings
Lease liabilities
Total non-current liabilities
Current liabilities
Trade and other payables
Interest-bearing loans and borrowings
Lease liabilities
Provisions for other liabilities and charges
Total current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Translation reserve
Hedging reserve
Retained earnings
Total equity
Notes
12
13
14
21
16
9
16
9
17
21
19
17
13
19
17
13
20
22
2020
£m
52.1
39.9
0.4
–
3.5
23.6
119.5
0.6
218.7
0.2
150.9
370.4
489.9
5.6
1.1
39.6
20.8
67.1
246.0
7.2
12.5
0.6
266.3
333.4
156.5
137.5
16.4
0.6
(0.3)
2.3
156.5
2019
£m
59.0
44.1
2.5
4.9
2.1
4.6
117.2
1.3
247.6
5.5
180.9
435.3
552.5
–
0.7
48.0
17.2
65.9
247.4
68.0
12.8
0.7
328.9
394.8
157.7
54.1
16.4
1.1
(0.5)
86.6
157.7
The financial statements were approved by the Board of directors on 16 March 2021 and were signed on its behalf by:
A Vaughan
Director
H Willis
Director
Registered number: 1393773
Costain Group PLC Annual Report & Accounts 2020
Accounts | Company Statement of Financial Position
Company Statement of Financial Position
As at 31 December
Assets
Non-current assets
Investments in subsidiaries
Deferred tax
Total non-current assets
Current assets
Trade and other receivables
Cash and cash equivalents
Total current assets
Total assets
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings
Provisions for other liabilities and charges
Total non-current liabilities
Current liabilities
Trade and other payables
Taxation
Interest-bearing loans and borrowings
Provisions for other liabilities and charges
Total current liabilities
Total liabilities
Net assets
Equity
Share capital
Share premium
Other reserves
Hedging reserve
Retained earnings
Total equity
Notes
2020
£m
2019
£m
14
9
16
17
17
20
19
9
17
20
22
151.2
0.1
151.3
134.9
20.1
155.0
306.3
39.6
0.7
40.3
28.0
1.5
7.2
0.1
36.8
77.1
229.2
137.5
16.4
–
(0.3)
75.6
229.2
141.3
–
141.3
175.4
0.1
175.5
316.8
48.0
0.8
48.8
27.6
1.5
68.0
0.1
97.2
146.0
170.8
54.1
16.4
25.9
(0.2)
74.6
170.8
123
The loss for the year was £35.0m (2019: profit of £3.3m).
The financial statements were approved by the Board of directors on 16 March 2021 and were signed on its behalf by:
A Vaughan
Director
H Willis
Director
Registered number: 1393773
Consolidated Statement of Changes in Equity
Year ended 31 December
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
At 1 January 2019
Loss for the year
Other comprehensive expense
Issue of ordinary shares under employee
share option plans
Shares purchased to satisfy employee
share schemes
Equity-settled share-based payments
Dividends paid
At 31 December 2019
At 1 January 2020
Loss for the year
Other comprehensive (expense)/income
Shares purchased to satisfy employee
share schemes
Equity-settled share-based payments
Capital raise (note 22)
Transfer
53.5
15.0
–
–
–
–
0.3
0.4
–
–
0.3
54.1
54.1
–
–
–
–
83.4
–
–
–
1.0
16.4
16.4
–
–
–
–
–
–
2.6
–
(1.5)
–
–
–
–
1.1
1.1
–
(0.5)
–
–
–
–
0.7
–
(1.2)
–
–
–
–
(0.5)
(0.5)
–
0.2
–
–
–
–
At 31 December 2020
137.5
16.4
0.6
(0.3)
Details of the nature of the above reserves are set out below.
Translation reserve
–
–
–
–
–
–
–
–
–
–
–
–
–
9.1
(9.1)
–
124
Total
equity
£m
182.3
(2.9)
(8.5)
110.5
(2.9)
(5.8)
(0.2)
0.5
(0.7)
0.5
(14.8)
86.6
86.6
(78.0)
(16.1)
(0.2)
0.9
–
9.1
2.3
(0.7)
0.5
(13.5)
157.7
157.7
(78.0)
(16.4)
(0.2)
0.9
92.5
–
156.5
The translation reserve comprises all foreign exchange differences arising after 1 January 2004, the date of adoption of IFRS,
from the translation of the financial statements of foreign operations that are not integral to the operations of the Company,
as well as from the translation of liabilities that hedge the Group’s net investment in foreign subsidiaries, including prior to
selling the remaining Spanish operation, fair value movements on investment hedges.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
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.
Costain Group PLC Annual Report & Accounts 2020
Accounts | Company Statement of Changes in Equity
Company Statement of Changes in Equity
Year ended 31 December
At 1 January 2019
Total comprehensive (expense)/income
Issue of ordinary shares under employee
share option plans
Equity-settled share-based payments granted
to employees of subsidiaries
Dividends paid
At 31 December 2019
At 1 January 2020
Total comprehensive expense
Equity-settled share-based payments granted
to employees of subsidiaries
Capital raise (note 22)
Transfer
Share
capital
£m
Share
premium
£m
53.5
–
0.3
–
0.3
54.1
54.1
–
–
83.4
–
15.0
–
0.4
–
1.0
16.4
16.4
–
–
–
–
Other
reserve
£m
25.1
–
–
0.8
–
25.9
25.9
–
1.0
–
(26.9)
Hedging
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Total
equity
£m
180.1
2.9
0.5
0.8
(13.5)
170.8
170.8
86.3
3.3
(0.2)
–
(14.8)
74.6
74.6
(35.0)
(35.1)
–
–
36.0
75.6
1.0
92.5
–
229.2
–
–
–
–
–
–
–
–
–
9.1
(9.1)
–
0.2
(0.4)
–
–
–
(0.2)
(0.2)
(0.1)
–
–
–
At 31 December 2020
137.5
16.4
–
(0.3)
Details of the nature of the above reserves are set out below.
Other reserve
The Company grants certain of its subsidiaries rights to its equity instruments as part of its share-based payment plan
incentive schemes. The impact is recognised within this non-distributable reserve, which has now been reclassified within
retained earnings.
Hedging reserve
The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that have not yet occurred.
125
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.
Consolidated Cash Flow Statement
Year ended 31 December
Notes
Cash flows from/(used by) operating activities
Loss for the year
Adjustments for:
Share of results of joint ventures and associates
Finance income
Finance expense
Taxation
Impairment of Alcaidesa marina
Impairment of other investment
Profit on sales of interests in joint ventures and associates
(Profit)/loss on disposal of subsidiary undertakings
Pension GMP equalisation charge
Depreciation of property, plant and equipment
Amortisation and impairment of intangible assets
Employment related and other deferred consideration
Shares purchased to satisfy employee share schemes
Share-based payments expense
Cash (used by)/from operations before changes in working capital and provisions
Decrease in inventories
Decrease in receivables
Decrease in payables
Movement in provisions and employee benefits
Cash used by operations
126
Interest received
Interest paid
Taxation received/(paid)
Net cash used by operating activities
Cash flows from/(used by) investing activities
Dividends received from joint ventures and associates
Additions to property, plant and equipment
Additions to intangible assets
Proceeds of disposals of property, plant and equipment and intangible assets
Repayment of loans by joint ventures and associates
Proceeds of sales of interests in joint ventures and associates
Acquisition related deferred consideration
Proceeds of sales of subsidiary undertakings
Net cash from investing activities
Cash flows from/(used by) financing activities
Issue of ordinary share capital
Ordinary dividends paid
Repayments of lease liabilities
Drawdown of loans
Repayment of loans
Net cash from financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Effect of foreign exchange rate changes
Cash and cash equivalents at end of the year
14
8
8
9
13
5
5
26
21
5
5
6
14
13
12
14
26
18
26
22
11
17
17
17
17
2020
£m
(78.0)
(0.2)
(0.8)
5.1
(18.1)
0.6
0.6
(1.6)
(1.4)
0.9
15.0
10.5
–
(0.2)
0.9
(66.7)
0.7
25.5
(0.1)
(10.4)
(51.0)
0.8
(5.1)
8.3
(47.0)
0.2
(0.5)
(3.6)
0.3
–
3.7
–
4.6
4.7
92.5
–
(12.1)
71.5
(139.0)
12.9
(29.4)
180.9
(0.6)
150.9
2019
£m
(2.9)
(0.3)
(1.0)
4.7
(3.7)
5.9
–
–
3.0
–
17.7
2.6
0.2
(0.7)
0.5
26.0
0.1
30.2
(63.5)
(16.3)
(23.5)
1.0
(4.6)
(5.1)
(32.2)
0.2
(3.8)
(3.1)
0.3
0.1
–
(1.5)
11.8
4.0
0.5
(13.5)
(13.6)
70.0
(23.6)
19.8
(8.4)
189.3
–
180.9
Costain Group PLC Annual Report & Accounts 2020
Accounts | Company Cash Flow Statement
Company Cash Flow Statement
Year ended 31 December
Cash flows from/(used by) operating activities
(Loss)/profit for the year
Adjustments for:
Finance income
Finance expense
Impairment in investments
Cash from operations before changes in working capital and provisions
Decrease/(increase) in receivables
Decrease in payables
Movement in provisions
Cash from/(used by) operations
Interest received
Interest paid
Taxation received
Net cash from/(used by) operating activities
Cash flows from/(used by) investing activities
Investment in subsidiaries
Dividends received
Net cash (used by)/from investing activities
Cash flows from/(used by) financing activities
Issue of ordinary share capital
Ordinary dividends paid
Drawdown of loans
Repayment of loans
Net cash from financing activities
Net movement in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Notes
14
14
22
11
17
17
17
17
2020
£m
(35.0)
(2.2)
4.1
34.0
0.9
38.2
0.3
(0.1)
39.3
2.2
(4.1)
–
37.4
(42.9)
1.0
(41.9)
92.5
–
71.0
(139.0)
24.5
20.0
0.1
20.1
2019
£m
3.3
(5.7)
3.3
–
0.9
(37.2)
0.6
(0.1)
(35.8)
2.2
(3.3)
0.3
(36.6)
–
3.5
3.5
0.5
(13.5)
70.0
(23.8)
33.2
0.1
–
0.1
127
Notes to the Financial Statements
1 General information
Costain Group PLC (‘the Company’) is a public limited company domiciled in England and incorporated in England and
Wales. The address of its registered office and principal place of business is disclosed on page 183 of this annual report.
The principal activities of the Company and its subsidiary undertakings (collectively referred to as ‘the Group’) are
described in the Strategic Report.
The consolidated financial statements of the Company for the year ended 31 December 2020 comprise the Group and
the Group’s interests in associates, joint ventures and joint operations. The Parent Company financial statements present
information about the Company as a separate entity and not about its Group.
The financial statements were authorised for issue by the directors on 16 March 2021.
2 Summary of significant accounting policies
Basis of preparation
Both the Company financial statements and the Group consolidated financial statements have been prepared and approved
by the directors in accordance with both international accounting standards in conformity with the requirements of the
Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it
applies in the European Union. On publishing the parent Company financial statements here together with the Group
financial statements, the Company is taking advantage of the exemption in Section 408 of the Companies Act 2006 not to
present its individual income statement and related notes that form a part of these approved financial statements.
These financial statements are presented in pounds sterling, rounded to the nearest hundred thousand. The financial
statements are prepared on the historical cost basis, except that financial assets and derivative financial instruments are
stated at their fair value.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses.
The estimates and associated assumptions are based on historical experience and various other factors that are believed
to be reasonable under the circumstances, the results of these form the basis of making the judgements about carrying
values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these
estimates. Judgements made by management in the application of IFRS that have a significant effect on the financial
statements and estimates with a significant risk of material adjustment in the next year are discussed later in this note.
128
Going concern
The Group’s business activities and the factors likely to affect its future development, performance and position are set out
in the Strategic Report. The financial position of the Group, its cash flows, liquidity position, borrowing and bonding
facilities, use of financial instruments and hedging activities, exposure to credit risk and its objectives, policies and
processes for managing its capital and financial risk are described in the chief financial officer’s review section of these
financial statements and in note 18.
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. 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. The facilities have financial covenants that are tested quarterly.
In determining the appropriate basis of preparation of the financial statements for the year ended 31 December 2020, the
Directors are required to consider whether the Group can continue in operational existence for the foreseeable future.
Having undertaken a rigorous assessment of the financial forecasts, the Board considers that the Group and the Company
have 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 assumptions, the Board has reviewed the base case plans. They have assessed the ongoing
impact on the Group’s trading arising from the UK’s departure from the EU, which is not anticipated to be significant in the
context of the Group’s operations. Our projects have been operational through the majority of the COVID-19 lock down
period and this is expected to continue. The Board has identified severe but plausible downsides and after applying these
downside scenarios, the Board concluded that there is liquidity headroom in a reasonable worst case scenario, headroom on
the committed facilities and that headroom on the associated financial covenants is adequate.
Costain Group PLC Annual Report & Accounts 2020 Accounting policies
The accounting policies set out below have been applied consistently by the Group and the Company to each period
presented in these financial statements, except for the adoption of the new accounting standards noted below.
The Group has applied the following standards and amendments for the first time for their annual reporting period
commencing 1 January 2020:
• Definition of Material – amendments to IAS 1 and IAS 8
• Definition of a Business – amendments to IFRS 3
• Interest Rate Benchmark Reform – amendments to IFRS 9, IAS 39 and IFRS 7
• Revised Conceptual Framework for Financial Reporting.
The Group also elected to adopt the following amendments early:
• Annual Improvements to IFRS Standards 2018–2020 Cycle.
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to
significantly affect the current or future periods.
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2020
reporting periods and have not been early adopted by the Group. These standards are not expected to have a material
impact on the entity in the current or future reporting periods and on foreseeable future transactions.
129
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 2 Summary of significant accounting policies continued
Accounting policies continued
Basis of consolidation
(a) The Group’s financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries are
entities controlled by the Group and control exists when the Group is exposed to, or has the rights to, variable returns
from its involvement with the entity and has the ability to affect those returns through its power over the entity. The
financial statements of subsidiaries are included in the consolidated financial statements from the date that control
starts until the date that control ceases.
(b) Associates are operations over which power exists to exercise significant influence but not control, generally
accompanied by a share of between 20% and 50% of the voting rights. Associates are accounted for using the
equity method.
(c) Joint ventures are those joint arrangements where control is shared with another entity, and where the Group has rights
to the net assets of the arrangement. Joint ventures are accounted for using the equity method from the date that the
joint venture starts until the date that joint control of the entity ceases.
(d) The presentation of investments in associates and joint ventures in the statement of financial position restricts the
minimum carrying value to £nil. Where the cost of investment would be negative, due to losses incurred, then an amount
up to the value of the negative position is applied to any outstanding loan balance with the investment or, where future
funding commitments exist, a provision is made up to the value of the commitment.
(e) Joint operations are those joint arrangements over which joint control exists, established by contractual agreement,
which are not legal entities and where the parties have rights to the assets and obligations for the liabilities relating to
the arrangement. Where a joint operation exists, then the Group entity involved records the assets it controls, the
liabilities and expenses it incurs and its share of income. Such joint operations are reported in the consolidated financial
statements on the same basis. Transactions between Group companies and joint operations eliminate on consolidation.
(f)
Intra-Group balances and transactions together with any unrealised gains arising from intra-Group transactions are
eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates,
joint ventures and joint operations are eliminated to the extent of the interest in the entity or operation. Unrealised
losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Currency translation
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated to pounds sterling at the exchange rate ruling
at the statement of financial position date. Foreign exchange differences arising on translation are recognised in the
income statement.
The assets and liabilities of foreign operations are translated to pounds sterling at exchange rates ruling at the statement
of financial position date. The revenues and expenses of foreign operations are translated to pounds sterling at rates
approximating to the exchange rates ruling at the dates of these transactions.
Exchange differences arising from the translation of the net investment in foreign operations and of related hedges, to
the extent that the hedge is effective, are recognised directly in equity. Those exchange differences that have arisen since
1 January 2004, the date of transition to IFRS, are presented as a separate component of equity. Cumulative exchange
differences are released into the income statement upon disposal. Translation differences that arose before the date of
transition to IFRS in respect of all foreign operations are not presented as a separate component.
130
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Revenue from contracts with customers
The Group recognises revenue when control over the service or product is transferred to the customer and revenue is
measured at the fair value of the consideration received or receivable, net of value added tax. Where the consideration is
variable, the amount recognised is highly probable not to suffer a significant reversal in future.
The principal source of revenue relates to work on the UK’s infrastructure across transportation, water and energy. Over 90%
arises under long-term contracts, which require delivery of a specified item to the customer, increasingly involve a technology
element, with a large element of the works undertaken on the customer’s land and perhaps taking a number of years to
complete. The majority are structured in a cost reimbursement or target cost form, typically with incentive and penalty
arrangements. Generally, the works specified within the contract are integrated and the customer procures the one complete
package, which may incorporate design, engineering and advisory work into the scope. Where a contract comprises distinct
performance obligations, each is accounted separately. The scope of the works will be often subject to change and in the
majority of contracts, the terms specify that changes are handled through compensation events. These are considered on a
case by case basis to determine whether they are a new separate performance obligation and accounted as such, or part of the
original works and dealt with on a cumulative catch-up basis. On the majority of contracts, the compensation events relate to
clarifications or revisions of the original works. Other design, advisory and consulting contracts requiring production of a
specified scope or provision of other services, some of which may lead to the construction of the designed product, can be
structured as inter-dependant or standalone contracts and the resulting performance obligations depends on how the
customer procures the contract.
Group revenue includes the Group’s share of revenue of joint operations.
(a) Long-term contracts
Revenue arises from the increase in the value of work performed and the value of services provided during the year. Where
the outcome of an individual long-term contract can be estimated reliably and it is probable that the contract will be
profitable, revenue and costs are recognised by reference to the stage of completion of the contract activity at the
statement of financial position date. Stage of completion is assessed by reference to the proportion of contract costs
incurred for the work performed to date relative to the estimated total costs. Contract costs are recognised as expenses in
the period in which they are incurred.
Compensation events, variations and claims, gain from pain/gain arrangements and other bonus assessments are included
in revenue where it is highly probable that the amount, which can be measured reliably, will be recovered from the customer
and will not reverse. Pain from pain/gain arrangements is included where incurred or expected to be incurred. Revenue in
respect of these items is determined on the most likely outcome method. When the outcome of a long-term contract cannot
be estimated reliably, contract revenue is recognised to the extent of contract costs incurred, where it is highly probable
those costs will be recoverable and will not reverse. When it is probable that total contract costs will exceed total revenue,
the expected loss is recognised as an expense immediately.
Contract work in progress is stated at cost plus profit recognised to date, including compensation events not yet agreed but
considered highly probable, less a provision for foreseeable losses and less amounts billed and is included in contract
assets. Amounts valued and billed to customers are included in trade receivables. Where cash received from customers
exceeds the value of work performed, the amount is included in contract liabilities.
(b) Other revenue
Revenue from other services contracts is recognised when the service is provided and revenue from the sale of land is
recognised when title has been transferred to the buyer. The revenue recognised is the amount that can be measured
reliably and is highly probable to flow to the Group and not reverse. Rental income is recognised in the income statement on
a straight-line basis over the term of the lease. Insurance claims are recognised when they are considered virtually certain.
131
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 2 Summary of significant accounting policies continued
Income statement presentation – Other items
In order to aid understanding of the underlying and overall performance of the Group, certain amounts are shown in the
consolidated income statement in a separate column headed ‘Other items’. Items are included under this heading where the
Board considers them to be of a one-off and unusual nature or related to the accounting treatment of acquisitions. These
results present underlying profit, which is a Non-GAAP measure. Other items includes:
• amortisation of acquired intangibles (note 12), employment related deferred consideration (note 18), impairment charges
on the Alcaidesa marina (note 13) and profits and losses on sales of residual businesses (note 26), and,
• in 2020, the goodwill impairment (note 12), the pension GMP equalisation charge (note 21), finance advisory costs
associated with the capital raise and the bank facilities, the impairment of a minor stake in a hotel company investment
(note 16) and the profit on sale of the Group’s remaining interests in ‘Building Schools for the Future’ partnership
companies (note 26).
• in 2019, the one-off exceptional costs of an arbitration award in respect of the remedial works deemed required to the
roof in relation to a building contract completed in 2006 (note 5).
The tax impact of the above is shown on the taxation line below the other items.
The Group also has non-GAAP adjusted profit and earnings per share measures, which exclude both other items and the
three significant contract adjustments, and an adjusted revenue measure, that excludes the revenue element of the three
contract adjustments (note 3).
All these items are adjusted because they are not long term in nature and, hence, will not reflect the long-term performance
of the Group.
Pre-contract costs
Costs associated with bidding for contracts are written off as incurred.
Research and development
Research and development activities are usually directly attributable to a project and accounted within project costs. In line
with common practice, the Group has adopted the research and development expenditure credit (RDEC) regime as these
credits have characteristics similar to government grants. Development expenditure that satisfies all the relevant conditions
is capitalised as an intangible asset (see below).
Goodwill and other intangible assets
Goodwill arising on acquisitions represents the excess of the fair value of the consideration over the identifiable assets,
liabilities and contingent liabilities of the acquired entity and goodwill arising on the acquisition of subsidiaries is included
in non-current assets. The attributable costs of acquisitions are expensed to the income statement.
Goodwill is reviewed annually for impairment and is carried at cost less accumulated impairment losses. Goodwill is
included when determining the profit or loss on subsequent disposal of the business to which it relates.
Other intangible assets comprise acquired intangible assets (customer relationships, order book, brand and intellectual
property), computer software, development expenditure and patents. Customer relationships and other acquired intangibles
are measured at the present value of cash flows attributable to the relationship less an appropriate contributory asset charge.
Computer software, development expenditure and patents are carried at cost. Once the asset is complete, subsequent
expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it
relates, otherwise expenditure is expensed as incurred.
Internally generated development expenditure is recognised as an intangible asset only if all of the following conditions
are satisfied:
• the asset can be identified
• it is probable that the asset will create future economic benefits
• the development costs can be measured reliably.
132
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Amortisation begins when an asset is acquired or, in the case of computer software and other development assets, available
for use and is amortised over the following periods:
Brands
Order book
Customer relationships
Other intangibles
Property, plant and equipment
– on a straight-line basis up to three years
– in line with expected profit generation up to three years
– on a straight-line basis up to seven years
– on a straight-line basis up to five years
Property, plant and equipment is carried at cost less accumulated depreciation and impairment losses. Where parts of an
item of property, plant and equipment have different useful lives, they are accounted for as separate items. Cost comprises
purchase price and directly attributable costs. Freehold land is not depreciated. For all other property, plant and
equipment, depreciation is calculated on a straight-line basis to allocate cost less residual values of the assets over their
estimated useful lives as follows:
Freehold buildings
Leasehold buildings
Marina (Alcaidesa)
– 50 years
– shorter of 50 years or lease term
– concession period (17.4 years remaining up to date of disposal)
Plant and equipment
– remaining useful life (generally 3 to 10 years)
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each statement of financial
position date.
Investments – Company
Company investments in subsidiaries are carried at cost less provisions for impairment.
Impairment of non-financial assets
For the purposes of impairment testing, goodwill is allocated to the cash generating units expected to benefit from the
synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment annually,
or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating
unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the unit and then to other assets of the unit pro rata on the basis of the carrying amount of each asset
in the unit.
The carrying amounts of other assets, except inventories and deferred tax assets, are reviewed at each statement of financial
position date to determine whether there is any indication of impairment. If any such indication exists, the assets
recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset, or its cash generating unit, is less than the
recoverable amount. Impairment losses are recognised in the income statement.
An impairment loss (other than in relation to goodwill) is reversed if there has been a change in the estimates resulting in the
recoverable amount rising above the impaired carrying value of the asset. An impairment loss is reversed only to the extent
that the carrying amount of the assets does not exceed the carrying amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had been recognised.
Provisions
A provision is recognised in the statement of financial position when there is a legal or constructive obligation as a result of
a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is
material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are lower than the
unavoidable cost of meeting the obligations under the contract.
133
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 2 Summary of significant accounting policies continued
Taxation
The tax expense represents the sum of UK corporation tax and overseas tax currently payable and deferred tax.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as reported
in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it
excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates and laws that
have been enacted or substantively enacted by the statement of financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and
liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and is
accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised for
all temporary differences except for those specific exemptions set out below and deferred tax assets are recognised to the
extent that it is probable that future taxable profits will be available against which deductible temporary differences can be
utilised. The carrying amount of deferred tax assets is reviewed at each statement of financial position date.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or
other assets and liabilities, other than in a business combination, in a transaction that affects neither the taxable profit nor
the accounting profit.
Deferred tax liabilities are recognised for temporary differences arising on investments in subsidiaries and interests in
joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is probable
that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates based on those enacted or substantially enacted at the statement of financial
position date. Deferred tax is charged or credited in the income statement except when it relates to items charged or credited
directly to equity, in which case the deferred tax is also dealt with in equity.
Additional taxes arising from the distribution of dividends are recognised at the same time as the liability to pay the
related dividend.
Leases
Where the Group is party to a lease, except for short-term leases or leases of low value assets (as noted below), the Group
recognises a right-of-use asset and a lease liability upon lease commencement.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made at or before the start date, any initial direct costs incurred and an estimate of costs to dismantle and
remove or to restore the underlying asset or the site on which is located, less any lease incentives received.
The asset is subsequently depreciated using the straight-line method from the start date to the earlier of the end of the
useful life of the asset or the end of lease term. The estimated useful lives of right-of-use assets are determined on the same
basis as those of property, plant and equipment. In addition, the right-of-use asset is reduced by any impairment losses and
adjusted for certain remeasurements of the lease liability associated with changes to the lease term.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted at
the incremental borrowing rate.
The amount charged to the income statement comprises the depreciation of the right-of-use asset and the imputed interest
on the lease liability.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an
expense in the income statement. Short-term leases are leases with a lease term of 12 months or less.
Financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within the
Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, the
guarantee contract is treated as a contingent liability until such time as it becomes probable that a payment under the
guarantee will be required.
134
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised as distributions in the period in which they are declared. Dividends proposed but not declared are
not recognised but are disclosed in note 10 to the financial statements.
Share-based payments
These comprise equity-settled share-based compensation plans.
Equity-settled share-based payments are measured at fair value at the date of grant and the fair value is expensed over the
vesting period, based on the estimate of awards that will eventually vest. Fair value is measured using a Black-Scholes option
pricing model.
Where options are granted over shares in the Company to employees of subsidiaries, the Company recognises in its financial
statements an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based payment
charge recognised in its subsidiaries’ financial statements, with the corresponding credit being recognised directly in equity.
Retirement benefit obligations
A defined benefit pension scheme is operated in the UK, which provides benefits based on pensionable salary. The details
are included in note 21. The assets of the scheme are held separately from those of the Group.
Pension scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit
method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to the
liability. The liability or asset recognised in the statement of financial position in respect of the defined benefit pension scheme
is the difference between the present value of the defined benefit obligations and the fair value of scheme assets at the
statement of financial position date.
Administration costs of the scheme are recognised in the income statement and a charge to reflect the impact of GMP
equalisation is included in other items in the income statement in 2020. The interest income or cost on the scheme’s net
asset or liabilities is included in finance expense. Remeasurements of the net asset or liability are recognised in the
consolidated statement of comprehensive income.
135
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement
as incurred.
Financial assets and liabilities
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
(a) Financial assets
The classification depends on the nature and purpose of the financial asset and is determined at the time of initial
recognition.
A financial asset is derecognised only when the contractual rights to the cash flows from that asset expire, or it transfers the
financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
Trade and other receivables
Trade and other receivables do not carry interest and are stated at their initial value less impairment losses. Trade
receivables mostly relate to long-term contracts.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 2 Summary of significant accounting policies continued
Financial assets and liabilities continued
Impairment of financial assets
Impairment of financial assets is based on an expected credit loss model applying the simplified approach permitted under
IFRS 9. The Group calculates an allowance for credit losses based on the nature of the customer, experience of collecting
receivables from similar customers and modelling default scenarios and applying probabilities of such scenarios.
(b) Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are
subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an
effective yield basis.
Financial liabilities are derecognised only when the obligations are discharged, cancelled or expire.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interest method.
(c) Derivative financial instruments
Derivative financial instruments are used to manage risks arising from changes in foreign exchange rates and interest rates
and are measured at their fair value as explained in the cash flow hedges section of note 18.
Certain derivative financial instruments are designated as cash flow hedges in line with established risk management
policies. These hedge exposure to variability in cash flows that is attributable to either a particular risk associated with a
recognised asset or liability or a forecast transaction. The portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised in equity, with any ineffective portion in the income statement. When
hedged cash flows result in the recognition of a non-financial asset or liability, the associated gains or losses previously
recognised in equity are included in the initial measurement of the asset or liability. For all other cash flow hedges, the gains
or losses that are recognised in equity are transferred to the income statement in the same period in which the hedged cash
flow affects the income statement.
136
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer
qualifies for hedge accounting. Any cumulative gain or loss previously recognised in equity is retained in equity until the
hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss is
transferred to the income statement.
Any gains or losses arising from changes in fair value of derivative financial instruments not designated as hedges are
recognised in the income statement.
Fair value measurement
When measuring the fair value of a financial or non-financial asset or liability, the Group uses market observable data as far
as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation
techniques as follows:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the hierarchy as the lowest level
input that is significant to the entire measurement.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 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 most critical accounting policies and significant areas of estimation and judgement arise from the accounting for
long-term contracts under IFRS 15 ‘Revenue from Contracts with Customers’, the carrying value of goodwill and acquired
intangible assets, the assumptions used in the accounting for defined benefit pension schemes under IAS 19 ‘Employee
benefits’, the recognition of deferred tax assets in relation to tax losses and the items classified as other items and
contract adjustments.
Long-term contracts
The majority of the Group’s activities are undertaken via long-term contracts and IFRS 15 requires the identification and
separation of individual, distinct performance obligations, which are then accounted individually. The most common type of
contracts undertaken by the Group with multiple performance obligations are framework contracts. In most cases, the
obligations are satisfied over time and estimates are made of the total contract costs and revenues. In many cases, these
obligations span more than one financial period. Both cost and revenue forecasts may be affected by a number of uncertainties
that depend on the outcome of future events and may need to be revised as events unfold and uncertainties are resolved. Cost
forecasts take into account the expectations of work to be undertaken on the contract. Revenue forecasts take into account
compensation events, variations and claims and assessments of the impact of pain/gain arrangements to the extent that the
amounts the Group expects to recover or incur can be reliably estimated and are highly probable not to reverse based on most
likely outcome.
Management bases its estimates of costs and revenues and its assessment of the expected outcome of each long-term
contractual obligation on the latest available information, this includes detailed contract valuations, progress on discussions
over compensation events, variations and claims with customers, progress against the latest programme for completing the
works, forecasts of the costs to complete and, in certain limited cases, assessments of recoveries from insurers where
virtually certain. Revenue is recognised to the extent that amounts forecast from compensation events, variations and claims
are agreed or considered in management’s judgement highly probable to be agreed.
During the course of the contract, there is often significant change to the scope of the works and this has an impact on the
programme and costs on the contract. The amount of resulting compensation events can be substantial and at any time
these are often not fully agreed with the customer due to the timing and requirements of the contractual process. Also many
will relate to work yet to be undertaken or completed. Therefore, assessments are based on an estimate of the potential cost
impact of the compensation events.
137
The Group’s five largest compensation events positions included in contract assets at the year end are summarised in
aggregate below. In 2019, the most significant amounts related to the A465 and the Peterborough and Huntingdon
contracts both of which contracts are discussed in note 3. Neither of these contracts are included in the 2020 analysis. The
Peterborough & Huntingdon contract is discussed separately below.
Overall contract value
Revenue in year
Total estimated end of contract compensation events
Total estimated unagreed end of contract compensation events
Total unagreed compensation events valued at year end and included in contract assets
2020
£m
1,135.6
176.9
83.1
51.3
22.5
2019
£m
1,334.0
281.3
472.1
238.6
45.7
The financial impact of changes to the value of compensation events finally agreed will depend on the precise terms of the
contract and the interaction with incentive arrangements, such pain/gain mechanisms and bonus or KPI arrangements, and
any assessments made about costs disallowed under the contract. If the estimated value of the unagreed end of contract
compensation events in relation to the currently estimated change in these contracts was increased or decreased by 10%,
the impact on the financial results over the life of the contract could be an increase or decrease of up to £7.0m (2019: up to
£15.0m). Additional compensation events for further change may also arise over the remaining contract period.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
2 Summary of significant accounting policies continued
Significant areas of judgement and estimation continued
The estimates of the contract position and the profit or loss earned to date are updated regularly and significant changes
are highlighted through established internal review procedures. The impact of any change in the accounting estimates both
positive and negative is then reflected in the financial statements.
Management believes it is reasonably possible, on the basis of existing knowledge, that outcomes within the next financial
year could require material adjustment. Given the pervasive impact of judgements and estimates on revenue, cost of sales
and related balance sheet amounts, it is difficult to quantify the impact of taking alternative assessments on each of the
judgements above.
On 29 June 2020, Costain announced that a termination and settlement agreement (the “Agreement”) had been reached
with National Grid to cease work on the Peterborough & Huntingdon gas compressor project (the “Contract”) following a
significant change in scope. The Agreement includes a legal process, through adjudications, to agree up to £80.0m of
identified compensation events, recover costs to date and eliminate a potential liability to National Grid for completing
the works.
In its interim results for the six months ended 30 June 2020, Costain recorded a charge to the income statement of
£49.3m reflecting the cash position at termination. The legal process is ongoing and all adjudications will be filed
by December 2021. Supported by external advice, Costain believes it has a strong entitlement to retain, as a minimum,
the reported position, with no further cash outflow.
Under the terms of the Agreement, the cumulative outcome for Costain of these adjudications could range from an
additional cash receipt of up to a maximum of £50.0m to a cash payment (which would not affect the Group’s banking
arrangements) of up to a maximum of £57.3m. Any such cash adjustments would be made in the first quarter of 2022.
Carrying value of goodwill and intangible assets
Reviewing the carrying value of goodwill and intangible assets recognised on acquisition requires estimation and
judgement, principally, in respect of operating margins, growth rates and future cash flows of cash generating units, the
useful lives of intangible assets and the selection of discount rates used to calculate present values are set out in note 12.
The carrying value of development expenditure is reviewed against the expected future cash flows that will be generated
from that asset. Development costs of products for sale are assessed against contracted sales and internal sales forecasts.
The Company carries investments in some subsidiaries at above net asset value. In reviewing the recoverability of these
carrying values and of intercompany loans to these subsidiaries, estimates are required about their values.
Defined benefit pension schemes
Defined benefit pension schemes require significant estimates in relation to the assumptions for inflation, future pension
increases, investment returns and member longevity that underpin the valuation. Each year in selecting the appropriate
assumptions, the directors take advice from an independent qualified actuary. The assumptions and resultant sensitivities
are set out in note 21.
Deferred tax
Included in deferred tax assets is an asset for tax losses recorded in the year. The asset is recognised on the basis that the
losses will be used against future taxable profits of the Group over the next six years. Details of deferred tax assets are
shown in note 9.
Other items
Management has used judgement to determine the items classified as other items and to determine the contract
adjustments set out in note 3.
138
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 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 performance measurements.
The adjustments exclude the impact of significant one-off changes in the accounting treatments of three contracts,
Peterborough & Huntingdon (P&H), the A465 Heads of the Valley road (A465) and the ASF South contracts, as described
below, as well as the other items of £10.3m. The revenue adjustment represents the reversal of the contract asset recorded
in the statement of financial position immediately prior to the write down. The Board considers the adjusted measures
better reflect the underlying trading performance of the Group.
The Peterborough & Huntingdon contract charge followed the agreement with National Grid to mutually terminate the
contract in June 2020. The position is described further in Significant areas of judgement and estimation in note 2.
At the date of termination, the Group had a contract asset of £42.0m associated with this contract and this was forecast to
increase to £49.3m at the end of the works. Reflecting the commercial resolution process incorporated in the termination
agreement and in accordance with IFRS 15, a one-off charge to the income statement of £49.3m was reflected to adjust the
revenue recognised to the level of cash received and to cover the cost of remaining works. 2020 adjusted revenue includes
£32.3m of revenue on Peterborough & Huntingdon up to the termination date.
The A465 Heads of the Valley road contract was entered into in 2015 for the Welsh Government. At 30 June 2020, the Group
had a contract asset of £45.4m. The client had escalated a specific matter relating to the responsibility for design information
for a specific retaining wall and whether it qualified as a compensation event to arbitration under the dispute resolution
mechanism in the contract. While the issue was decided in the Group’s favour by way of previous adjudication awards, 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
determined a matter of principle only, and not quantum, and was non-appealable. As a result of the decision, the Group
adjusted the revenue recognised based on the level of cash received to date under the contract and reflected a write down
of the £45.4m contract asset. Subsequently, the account has been agreed with the client in line with this write down. The
Group will continue to fulfil its obligations under the contract, with completion scheduled in 2021. 2020 adjusted Group
revenue includes £18.0m of revenue on the A465 contract.
The ASF South contract was in respect of works undertaken for Highways England that were completed in 2016. Following
an extensive contract review, the Group has taken a one-off charge of £5.0m to close out this legacy contract.
139
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 3 Reconciliation of reported revenue and operating (loss)/profit to adjusted revenue and operating profit continued
2020
Adjusted
£m
Revenue before contract adjustments
1,070.5
Contract adjustments
Group revenue
–
1,070.5
P&H
£m
–
(42.0)
(42.0)
–
(45.4)
(45.4)
–
1,070.5
(4.7)
(4.7)
(92.1)
978.4
A465
£m
ASF South
£m
other items
£m
Other items
£m
Total
£m
Before
Cost of sales
(1,019.4)
(7.3)
–
(0.3)
(1,027.0)
Gross profit/(loss)
51.1
(49.3)
(45.4)
(5.0)
(48.6)
Administrative expenses
before other items
Other items
Administrative expenses
(33.1)
–
(33.1)
–
–
–
–
–
–
–
–
–
(33.1)
–
(33.1)
–
–
–
–
–
–
(10.3)
(10.3)
1,070.5
(92.1)
978.4
(1,027.0)
(48.6)
(33.1)
(10.3)
(43.4)
Group operating profit/(loss)
18.0
(49.3)
(45.4)
(5.0)
(81.7)
(10.3)
(92.0)
Share of results of joint ventures
and associates
Profit/(loss) from operations
Net finance expense
Profit/(loss) before tax
0.2
18.2
(4.3)
13.9
–
–
(49.3)
(45.4)
–
–
(49.3)
(45.4)
–
(5.0)
–
(5.0)
0.2
(81.5)
(4.3)
(85.8)
–
0.2
(10.3)
(91.8)
–
(10.3)
(4.3)
(96.1)
Taxation
(1.5)
9.4
8.6
1.0
17.5
0.6
18.1
140
Profit/(loss) for the period attributable
to equity holders of the parent
12.4
(39.9)
(36.8)
(4.0)
(68.3)
(9.7)
(78.0)
Basic earnings/(loss) per share
5.8p
(36.7)p
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 2019
Adjusted
£m
P&H
£m
A465
£m
ASF South
£m
Before
other items
£m
Other items
£m
Total
£m
Revenue before contract adjustments
1,175.6
Contract adjustments
Group revenue
Cost of sales
Gross profit/(loss)
Administrative expenses
before other items
Other items
Administrative expenses
Group operating profit/(loss)
Share of results of joint ventures
and associates
Profit/(loss) from operations
Net finance expense
Profit/(loss) before tax
Taxation
Profit/(loss) for the period attributable
to equity holders of the parent
Basic earnings/(loss) per share
4 Operating segments
–
1,175.6
(1,105.1)
70.5
(32.6)
–
(32.6)
37.9
0.3
38.2
(3.6)
34.6
(3.9)
30.7
25.1p
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20.0)
(20.0)
–
(20.0)
–
–
–
(20.0)
–
(20.0)
-
(20.0)
3.8
(16.2)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,175.6
(20.0)
1,155.6
–
–
–
1,175.6
(20.0)
1,155.6
(1,105.1)
(9.7)
(1,114.8)
50.5
(9.7)
40.8
(32.6)
–
(32.6)
–
(11.4)
(11.4)
(32.6)
(11.4)
(44.0)
17.9
(21.1)
(3.2)
0.3
18.2
(3.6)
14.6
(0.1)
–
(21.1)
(0.1)
(21.2)
3.8
0.3
(2.9)
(3.7)
(6.6)
3.7
14.5
(17.4)
(2.9)
141
(2.3)p
The Group has two core business segments: natural resources and transportation plus the non-core business 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.
The segments are discussed in the Strategic Report section of these financial statements.
The accounting policies of the operating segments are the same as those described in the summary of significant
accounting policies. 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.
Intersegment sales and transfers are not material.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements Natural
resources
£m
Transportation
£m
Alcaidesa
£m
Central
costs
£m
Total
£m
4 Operating segments continued
2020
Segment revenue
Adjusted revenue
Contract adjustments
Group revenue
Segment profit/(loss)
Adjusted operating profit
Contract adjustments
Operating loss before other items
Share of results of joint ventures and associates
Loss from operations before other items
Other items:
Impairment of Alcaidesa marina
Impairment of other investment
Profit on sales of interests in joint ventures and associates
Profit on disposal of subsidiary undertakings
Refinancing advisory fees
Pension GMP equalisation charge
Amortisation of acquired intangible assets
Impairment of goodwill
Loss from operations
Net finance expense
Loss before tax
142
Segment profit/(loss) is stated after charging the following:
Depreciation and impairment
Amortisation and impairment (including acquired
intangible assets)
345.1
(42.0)
303.1
5.7
(49.3)
(43.6)
0.2
(43.4)
–
–
1.6
–
–
–
(0.7)
(9.0)
(51.5)
3.5
9.9
724.2
(50.1)
674.1
20.1
(50.4)
(30.3)
–
(30.3)
–
–
–
–
–
–
(0.3)
–
(30.6)
Segment assets
Reportable segment assets
Unallocated assets:
Deferred tax
Taxation
Cash and cash equivalents
Total assets
Expenditure on non-current assets
Property, plant and equipment
Intangible assets
Segment liabilities
Reportable segment liabilities
Unallocated liabilities:
Retirement benefit obligations
Borrowings
Total liabilities
123.2
191.9
2.7
1.7
18.1
1.9
61.1
195.9
(0.3)
(9.4)
11.2
0.9
0.6
–
–
1.2
–
1.2
(0.1)
–
(0.1)
–
(0.1)
(0.6)
–
–
0.4
–
–
–
–
–
–
–
–
–
–
–
–
1,070.5
(92.1)
978.4
(7.7)
–
(7.7)
–
(7.7)
–
(0.6)
–
1.0
(1.2)
(0.9)
–
–
18.0
(99.7)
(81.7)
0.2
(81.5)
(0.6)
(0.6)
1.6
1.4
(1.2)
(0.9)
(1.0)
(9.0)
(91.8)
(4.3)
(96.1)
15.6
10.5
0.1
315.2
23.6
0.2
150.9
489.9
–
–
20.8
3.6
24.0
281.0
5.6
46.8
333.4
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 2019
Segment revenue
Adjusted revenue
Contract adjustments
Group revenue
Segment profit/(loss)
Adjusted operating profit
Contract adjustments
Operating profit/(loss) before other items
Share of results of joint ventures and associates
Profit/(loss) from operations before other items
Other items:
Exceptional costs of arbitration award on historical
building project
Impairment of Alcaidesa marina
Loss on disposal of subsidiary undertakings
Amortisation of acquired intangible assets
Employment related and other deferred consideration
Profit/(loss) from operations
Net finance expense
Loss before tax
Natural
resources
£m
Transportation
£m
Alcaidesa
£m
Central
costs
£m
429.4
–
429.4
15.4
–
15.4
0.3
15.7
(9.7)
–
–
(1.4)
(0.2)
4.4
740.6
(20.0)
720.6
29.7
(20.0)
9.7
–
9.7
–
–
–
(0.9)
–
8.8
5.6
–
5.6
(0.7)
–
(0.7)
–
(0.7)
–
(5.9)
(3.0)
–
–
(9.6)
–
–
–
(6.5)
–
(6.5)
–
(6.5)
–
–
–
–
–
(6.5)
Total
£m
1,175.6
(20.0)
1,155.6
37.9
(20.0)
17.9
0.3
18.2
(9.7)
(5.9)
(3.0)
(2.3)
(0.2)
(2.9)
(3.7)
(6.6)
Segment profit/(loss) is stated after charging the following:
Depreciation and impairment
Amortisation (including acquired intangible assets)
6.7
1.6
9.6
1.0
7.3
–
–
–
23.6
2.6
143
Segment assets
Reportable segment assets
Unallocated assets:
Retirement benefit asset
Deferred tax
Taxation
Cash and cash equivalents
Total assets
Expenditure on non-current assets
Property, plant and equipment
Intangible assets
Segment liabilities
Reportable segment liabilities
Unallocated liabilities:
Borrowings
Total liabilities
144.3
206.5
5.2
0.6
356.6
4.9
4.6
5.5
180.9
552.5
5.0
0.1
12.4
3.0
0.2
–
–
–
17.6
3.1
104.9
159.4
1.5
13.0
278.8
116.0
394.8
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 4 Operating segments continued
Geographical information
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of
customers. Segment assets are based on the geographical location of the assets and exclude deferred tax assets.
2020
UK
Spain
2019
UK
Spain
External
revenue
£m
977.2
1.2
978.4
External
revenue
£m
1,150.0
5.6
1,155.6
Non-current
assets
£m
95.9
–
95.9
Non-current
assets
£m
107.5
5.1
112.6
Customers accounting for more than 10% of revenue
Two customers (2019: three) in the transportation segment accounted for revenue of £546.1m (2019: £631.4m).
5 Other operating expenses and income
Loss before tax is stated after charging:
Amortisation and impairment of intangible assets (note 12)
144
Depreciation and impairment of property, plant and equipment (note 13)
Exceptional costs of arbitration award on historical building project
Impairment of other investment (note 16)
Loss on disposal of subsidiary undertakings - Spain (note 26)
Refinancing advisory fees
Pension GMP equalisation charge (note 21)
2020
£m
10.5
15.6
–
0.6
–
1.2
0.9
2019
£m
2.6
23.6
9.7
–
3.0
–
–
Expenses relating to short-term leases and leases of low value assets
24.0
28.8
and after crediting:
Profit on sales of interests in joint ventures and associates
Profit on disposal of subsidiary undertakings - Spain and Zimbabwe (note 26)
Income from sub-leases of land and buildings
RDEC grant income
Receipts under the Coronavirus Job Retention Scheme
1.6
1.4
–
1.7
2.0
–
–
0.1
3.8
–
Amortisation and impairment of intangible assets includes the goodwill impairment of £9.0m (2019: £nil).
Depreciation and impairment of property plant and equipment includes impairment charges relating to the Alcaidesa
marina of £0.6m (2019: £5.9m). The charges were based on offers for the sale of the asset, which was sold in August 2020
(note 26).
One-off advisory costs of £1.2m associated with the Group’s capital raise and bank facilities.
An arbitration award in favour of the client for the cost of remedial works deemed required to the roof of a building
constructed by the Group under a contract completed in 2006 was expensed in 2019.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Auditors’ remuneration
Fees payable to the Group’s auditors for the audit of the annual financial statements
Fees payable to the Group’s auditors and its associates in respect of:
Audit of financial statements of subsidiaries of the Company
2020
£m
0.1
0.7
0.8
2019
£m
0.1
0.5
0.6
An amount of £0.6m was paid to the Group’s auditors in 2020 (2019: less than £0.1m) with regards to the capital raise (note
22) and the independent review of the interim results and other non-audit services.
Amounts paid to the Company’s auditors and its associates in respect of services to the Company, other than the audit of
the Company’s financial statements, have not been disclosed as the information is required instead to be disclosed on a
consolidated basis.
6 Employee benefit expense
Group
Wages and salaries
Social security costs
Other pension costs – defined contribution schemes (note 21)
Share-based payments expense (note 21)
Average number of persons employed
Natural resources
Transportation
Alcaidesa
Central
2020
£m
182.0
19.2
9.9
0.9
212.0
2019
£m
206.5
22.3
10.4
0.5
239.7
2020
Number
2019
Number
1,402
1,827
20
20
3,269
145
1,418
2,109
68
18
3,613
Of the above employees 21 were employed overseas (2019: 70).
Company
The Company does not employ any personnel, except for the directors considered in note 7.
7 Remuneration of directors
Details of the directors’ remuneration, pension entitlements, interest in the Long-Term Incentive Plans, Annual Incentive
Plans, Deferred Share Bonus Plans and share options are included in the Directors’ Remuneration Report.
For the purpose of the disclosure required by Schedule 5 to the Companies Act 2006, the total aggregate emoluments of
the directors in respect of 2020 and 2019 are detailed below.
Remuneration
Post-employment benefits
Gains made on the exercise of share-based plans
2020
£m
1.2
0.1
–
1.3
2019
£m
1.2
0.1
–
1.3
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 8 Net finance expense
Interest income from bank deposits
Interest income on loans to related parties
Interest income on the net assets of the defined benefit pension scheme (note 21)
Finance income
Interest payable on interest bearing bank loans, borrowings and other similar charges
Interest expense on lease liabilities
Unwind of discount on deferred consideration
Finance expense
Net finance expense
2020
£m
0.5
0.1
0.2
0.8
(4.1)
(1.0)
–
(5.1)
(4.3)
2019
£m
0.7
0.2
0.1
1.0
(3.3)
(1.3)
(0.1)
(4.7)
(3.7)
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.
9 Taxation
On loss for the year
UK corporation tax at 19% (2019: 19%)
Adjustment in respect of prior years
Current tax credit for the year
146
Deferred tax expense for the current year
Adjustment in respect of prior years
Deferred tax credit for the year
Tax credit in the consolidated income statement
Tax reconciliation
Loss before tax
Taxation at 19% (2019: 19%)
Amounts qualifying for tax relief and disallowed expenses
Tax decrease from other tax effects
Rate adjustment relating to deferred taxation and overseas profits and losses
Adjustments in respect of prior years
Tax credit in the consolidated income statement
2020
£m
(1.9)
3.0
1.1
19.7
(2.7)
17.0
18.1
2020
£m
(96.1)
18.3
(1.3)
0.6
0.2
0.3
18.1
2019
£m
1.1
1.9
3.0
(1.2)
1.9
0.7
3.7
2019
£m
(6.6)
1.3
(1.2)
–
(0.2)
3.8
3.7
Effective rate of tax
18.8%
56.1%
The tax above does not include any amounts for equity accounted joint ventures and associates, whose results are disclosed
in the consolidated income statement net of tax.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 The current tax assets of £0.2m (2019: £5.5m) for the Group and liability of £1.5m (2019: £1.5m) for the Company represent the
amount of tax in respect of all outstanding periods and include the Group’s best estimate of any assets and liabilities, where
appropriate.
Accumulated tax trading losses carried forward in the UK were £104.5m (2019: £13.0m).
Accumulated tax losses in Spain are now £nil following the disposal in the year (2019: £11.2m). See note 26.
Tax in other comprehensive income and expense statement
Current tax - Retirement benefit obligations
Deferred tax - Retirement benefit obligations/assets
Tax credit in the other comprehensive income and expense statement
Deferred tax asset recognised
Accelerated capital allowances
Short-term temporary differences
Retirement benefit obligations/assets
Tax losses
Deferred tax asset
2020
£m
1.8
2.0
3.8
2020
£m
1.1
1.5
1.1
19.9
23.6
2019
£m
–
1.2
1.2
2019
£m
1.3
1.9
(0.8)
2.2
4.6
UK deferred tax assets have been recognised at 19% (2019: 17% or 19%).
Deferred tax assets have been recognised in respect of tax losses. The deferred tax assets include an amount of £19.9m
which relates to carried forward tax losses in the UK which have been recognised to the extent that they will be recoverable
using the estimated future taxable income based on the approved budgets for the Group. These losses can be carried
forward indefinitely and have no expiry date.
147
The Company has a deferred tax asset of £0.1m (2019: £nil) relating to short-term temporary differences.
Analysis of deferred tax movements
At 1 January
Deferred tax in consolidated income statement
Accelerated capital allowances
Short-term temporary differences
Retirement benefit obligations/assets
Tax losses
Deferred tax in other comprehensive income and expense statement
Retirement benefit obligations/assets
At 31 December
2020
£m
4.6
(0.2)
(0.4)
(0.1)
17.7
17.0
2.0
23.6
2019
£m
2.7
–
1.3
(2.8)
2.2
0.7
1.2
4.6
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 9 Taxation continued
Factors that may affect future tax charges
The rate of UK tax was originally set to reduce to 17% with effect from 1 April 2020. However, at Budget 2020, the government
announced that the rate for years starting 1 April 2020 and 2021 would remain at 19%. This was substantively enacted on
17 March 2020. The above deferred tax assets are reflected at the 19% rate.
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase to 25%.
As the proposal to increase the rate to 25% has not been substantively enacted at the balance sheet date, its effects are not
included in these financial statements. However, it is likely that the overall effect of the change, had it been substantively
enacted by the balance sheet date, would be to reduce the tax expense for the period by £4.0m and increase the deferred tax
asset by £4.0m.
The Group and Company have deferred tax assets in their UK operations that have not been recognised at the year-end
on the basis that their future economic benefits were not assured at the statement of financial position date.
The following gross assets are available to be recognised as deferred tax assets:
Accelerated capital allowances
Short-term temporary differences
Trading tax losses
Total
In addition to the above temporary differences, the following
gross value items are available as deferred tax assets:
Management expenses and charges incurred by Parent Company
148
Spanish tax losses carried forward
Capital losses
Group
Company
2020
£m
–
–
0.1
0.1
54.7
–
270.6
2019
£m
–
–
0.1
0.1
54.7
11.2
270.6
2020
£m
2019
£m
–
–
–
–
–
–
–
–
54.7
–
241.0
54.7
–
241.0
The current year tax effect, at 19%, of claiming short-term temporary differences and trading tax losses was £nil (2019: £nil)
as shown in the tax reconciliation above.
There are no expiry dates associated with the deferred tax assets not recognised.
10 (Loss)/earnings per share
The calculation of (loss)/earnings per share is based on loss of £78.0m (2019: £2.9m) and the number of shares set out below.
Weighted average number of ordinary shares in issue for basic earnings per share calculation
Dilutive potential ordinary shares arising from employee share schemes
Weighted average number of ordinary shares in issue for diluted earnings per share calculation
2020
Number
(millions)
212.8
2.9
215.7
2019
Number
(millions)
107.6
0.2
107.8
At 31 December 2020, 816,290 options were excluded from the weighted average number of ordinary shares calculation
because they were anti-dilutive (2019: 1,463,187 options were excluded).
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 11 Dividends
Final dividend for the year ended 31 December 2018
Interim dividend for the year ended 31 December 2019
Amount recognised as distributions to equity holders in the year
Dividends settled in shares
Dividends settled in cash
Dividend
per share
pence
10.00
3.80
2020
£m
–
–
–
–
–
2019
£m
10.7
4.1
14.8
(1.3)
13.5
Consistent with the rationale for the equity raise, the Company paid no final dividend in respect of the year ended
31 December 2019, therefore resulting in a total dividend paid for the prior year being the interim dividend, of 3.8 pence
per share.
No dividends were paid or proposed in respect of the year ended 31 December 2020. The Board of directors current
policy for dividends is described in note 18 a) Capital management.
12 Intangible assets
Group
Cost
At 1 January 2019
Additions
At 31 December 2019
At 1 January 2020
Additions
At 31 December 2020
Accumulated amortisation and impairment
At 1 January 2019
Charge in year
At 31 December 2019
At 1 January 2020
Charge in year
Impairment in year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Goodwill
£m
Customer
relationships
£m
Other acquired
intangibles
£m
Other
intangibles
£m
54.1
–
54.1
54.1
–
54.1
–
–
–
–
–
9.0
9.0
45.1
54.1
54.1
15.4
–
15.4
15.4
–
15.4
12.5
1.8
14.3
14.3
0.7
–
15.0
0.4
1.1
2.9
9.7
–
9.7
9.7
–
9.7
8.9
0.5
9.4
9.4
0.3
–
9.7
–
0.3
0.8
7.7
3.1
10.8
10.8
3.6
14.4
7.0
0.3
7.3
7.3
0.5
–
7.8
6.6
3.5
0.7
Total
£m
86.9
3.1
90.0
90.0
3.6
93.6
28.4
2.6
31.0
31.0
1.5
9.0
41.5
52.1
59.0
58.5
149
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 12 Intangible assets continued
The amortisation charges for the year are included in administration expenses.
The net book value of other acquired intangible assets includes £nil (2019: £0.3m) relating to order book.
Other intangibles includes development expenditure of £5.0m (2019: £2.8m).
Goodwill has been allocated to the applicable cash generating units of the Transportation segment (£15.5m (2019: £15.5m))
and the Natural Resources segment (£29.6m (2019: £38.6m)).
As described in note 2, the Group reviews the value of goodwill 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 12.4% and for the Natural Resources CGU was 12.5%. In 2019, the discount rates used for the two
CGUs were Transportation 10.9% and Natural Resources 10.2%.
The value in use calculations use the Group’s two-year cash flow forecasts, which are based on the expected revenues of
each CGU taking into account the current level of secured and anticipated orders, extrapolated for future years by the
expected growth applicable to each CGU as follows:
Growth rates
Year 3
Year 4
Year 5
Long-term average
Transportation
%
Natural resources
%
1.5
1.5
1.5
1.5
1.5
1.5
1.5
1.5
150
At 31 December 2020, based on the internal value in use calculations, management concluded that the recoverable value of
the Transportation cash generating units exceeded its carrying amount with substantial headroom on goodwill. Accordingly,
in the view of the directors there is no reasonably foreseeable change in a key assumption that would result in an impairment
charge. In respect of Natural Resources, the sensitivity of the assessment to a lower revenue and/or underlying operating
margins has resulted in an impairment of the goodwill by £9.0m, reducing the amount allocated to Natural Resources
to £29.6m.
The recoverable amount of the Natural Resources goodwill continues to be subject to sensitivities and changes in the value
in use assessment assumptions would have resulted in the following changes:
• Increase discount rate by 0.25% increases impairment by £2.1m;
• Decrease growth rate by 0.25% increases impairment by £1.8m;
• Reduce business operating margin by 0.5% increases impairment by £15.7m.
Accordingly, reasonably possible changes exist that would give rise to a further impairment.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 13 Property, plant and equipment
Group
Cost
At 1 January 2019
Adjustment on transition to IFRS 16
Restated at the beginning of the financial year
Currency movements
Additions
Disposal of subsidiary undertakings
Disposals
At 31 December 2019
At 1 January 2020
Currency movements
Additions
Disposal of subsidiary undertakings (note 26)
Disposals
At 31 December 2020
Accumulated depreciation
At 1 January 2019
Currency movements
Charge in year
Impairment
Disposal of subsidiary undertakings
Disposals
At 31 December 2019
At 1 January 2020
Currency movements
Charge in year
Impairment
Disposal of subsidiary undertakings (note 26)
Disposals
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Right-of-use assets
Land and
buildings
£m
Plant and
equipment
£m
Land and
buildings
£m
Vehicles, plant
and equipment
£m
32.1
–
32.1
(1.1)
0.1
(18.4)
(0.2)
12.5
12.5
0.8
–
(12.5)
(0.2)
0.6
3.8
(0.3)
0.8
5.9
(0.5)
(0.2)
9.5
9.5
0.6
–
0.6
(10.0)
(0.1)
0.6
–
3.0
28.3
32.2
–
32.2
(0.2)
3.7
(1.0)
(2.4)
32.3
32.3
0.3
0.5
(4.0)
(2.1)
27.0
20.5
(0.1)
2.9
–
(0.4)
(2.1)
20.8
20.8
0.1
2.7
–
(1.9)
(1.9)
19.8
7.2
11.5
11.7
–
20.0
20.0
–
1.7
–
(2.2)
19.5
19.5
–
1.2
–
(0.2)
20.5
–
–
4.6
–
–
(0.3)
4.3
4.3
–
4.3
–
–
(0.2)
8.4
12.1
15.2
–
–
13.0
13.0
–
12.1
–
(3.9)
21.2
21.2
–
19.1
–
(10.0)
30.3
–
–
9.4
–
–
(2.6)
6.8
6.8
–
8.0
–
–
(5.1)
9.7
20.6
14.4
–
Total
£m
64.3
33.0
97.3
(1.3)
17.6
(19.4)
(8.7)
85.5
85.5
1.1
20.8
(16.5)
(12.5)
78.4
24.3
(0.4)
17.7
5.9
(0.9)
(5.2)
41.4
41.4
0.7
15.0
0.6
(11.9)
(7.3)
38.5
39.9
44.1
40.0
151
Land and buildings includes an impairment charge of £0.6m (2019: £5.9m) in respect of the Alcaidesa marina.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
13 Property, plant and equipment continued
Leased assets
Other amounts recognised in the income statement:
Interest expense (included in finance expense)
Expense relating to short-term leases (included in cost of sales and administrative expenses)
The lease liabilities relating to these right-of-use assets are as follows:
Current
Non-current
2020
£m
1.0
24.0
2020
£m
12.5
20.8
33.3
14 Investments and loans in subsidiaries, equity accounted joint ventures and associates
Group
Cost
At 1 January 2019
Repayments
At 31 December 2019
At 1 January 2020
Disposals
At 31 December 2020
152
Share of post-acquisition reserves
At 1 January 2019
Dividends
Profit for the year
At 31 December 2019
At 1 January 2020
Disposals
Dividends
Profit for the year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
Investments
Joint ventures
£m
Associates
£m
Loans
Associates
£m
14.4
–
14.4
14.4
–
14.4
(14.0)
–
–
(14.0)
(14.0)
–
–
–
(14.0)
0.4
0.4
0.4
0.1
–
0.1
0.1
(0.1)
–
0.4
(0.2)
0.3
0.5
0.5
(0.5)
(0.2)
0.2
–
–
0.6
0.5
1.6
(0.1)
1.5
1.5
(1.5)
–
–
1.5
1.6
2019
£m
1.3
28.8
2019
£m
12.8
17.2
30.0
Total
£m
16.1
(0.1)
16.0
16.0
(1.6)
14.4
(13.6)
(0.2)
0.3
(13.5)
(13.5)
(0.5)
(0.2)
0.2
(14.0)
0.4
2.5
2.5
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Analysis of Group share of joint ventures and associates revenue, income and assets and liabilities
Revenue
Profit before tax
Taxation
Profit for the year
Non-current assets
Trade and other receivables
Cash and cash equivalents
Trade and other payables – current
Non-current liabilities
Investments in joint ventures and associates
Dividends received by Group
Joint
ventures
£m
1.9
–
–
–
–
6.1
0.1
(5.8)
–
0.4
–
2020
Associates
£m
0.5
0.2
–
0.2
–
–
–
–
–
–
0.2
Total
£m
2.4
0.2
–
0.2
–
6.1
0.1
(5.8)
–
0.4
0.2
Joint
ventures
£m
6.5
–
–
–
–
6.9
0.2
(6.7)
–
0.4
–
2019
Associates
£m
0.8
0.3
–
0.3
–
1.4
0.6
(0.2)
(1.2)
0.6
0.2
Total
£m
7.3
0.3
–
0.3
–
8.3
0.8
(6.9)
(1.2)
1.0
0.2
Net interest payable by joint ventures and associates in 2020 was £nil (2019: £nil). The applicable interest rates during the year
are income of 0.2% to 13.6% per annum (2019: 0.2% to 13.6%) and expense of 10.7% to 13.6% per annum (2019: 10.7% to 13.6%).
At the year-end, there were no capital or financial commitments entered into by the joint ventures or associates (2019: £nil).
Analysis of the total revenue, income, assets and liabilities of joint ventures and associates
Revenue
Profit before tax
Taxation
Profit for the year
Non-current assets
Trade and other receivables
Cash and cash equivalents
Trade and other payables – current
Non-current liabilities
Equity
153
Joint
ventures
£m
4.8
–
–
–
–
17.6
0.3
(16.9)
–
1.0
2020
Associates
£m
1.3
0.5
(0.1)
0.4
–
–
–
–
–
–
Total
£m
6.1
0.5
(0.1)
0.4
–
17.6
0.3
Joint
ventures
£m
17.3
–
–
–
–
19.4
0.5
(16.9)
(19.0)
–
1.0
–
0.9
2019
Associates
£m
2.0
0.7
(0.1)
0.6
–
3.5
1.5
(0.6)
(3.0)
1.4
Total
£m
19.3
0.7
(0.1)
0.6
–
22.9
2.0
(19.6)
(3.0)
2.3
Details of subsidiary undertakings, joint ventures, joint operations and associates are shown in note 24.
There is no other comprehensive income/(expense) in respect of joint ventures and the associates.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
14 Investments and loans in subsidiaries, equity accounted joint ventures and associates continued
Company
Investments in subsidiaries
Cost
At 1 January 2019
Additions
At 31 December 2019
At 1 January 2020
Additions
At 31 December 2020
Amounts written off
At 1 January 2019
At 31 December 2019
At 1 January 2020
Impairment in year
At 31 December 2020
Net book value
At 31 December 2020
At 31 December 2019
At 1 January 2019
£m
380.2
0.8
381.0
381.0
43.9
424.9
(239.7)
(239.7)
(239.7)
(34.0)
(273.7)
151.2
141.3
140.5
Additions relate to a capital increase in a subsidiary of the Company (£42.9m) and to the increase in the cost of investments
in subsidiaries by the equivalent amount of the equity-settled share-based payment charge in relation to employees of
subsidiaries included in the income statement (£1.0m (2019 £0.8m)).
154
Details of the subsidiaries in which the Company has an interest are set out in note 24.
15 Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers, in addition to amounts
included in trade receivables:
Contract assets
Non-current assets recognised relating to customer retentions
Contract liabilities
2020
£m
97.3
3.5
(5.5)
2019
£m
133.5
1.5
(6.4)
Contract assets is made up of a portfolio of contracts and represents unbilled amounts and includes amounts arising from
changes to the scope of works that have been recognised as revenue but not yet billed to the customer. There are no
significant one-off factors outside of normal trading.
Contract liabilities result when cumulative cash received exceeds cumulative revenue on any particular contract. On contracts
undertaken by the Group, this typically results from work being undertaken, or on framework contracts awarded, in a different
order to the programme envisaged in the contractual payments schedule.
Revenue recognised in 2020 from performance obligations satisfied in previous periods was immaterial.
The aggregate amount of costs incurred plus recognised profits, less recognised losses, for all contracts in progress at the
statement of financial position date was £4,220.5m (2019: £4,063.0m). Progress billings and advances received from customers
under open construction contracts amounted to £4,126.9m (2019: £3,938.2m). Advances for which work has not started, and billings
in excess of costs incurred and recognised profits are included in credit balances on long-term contracts.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Unsatisfied long-term contracts
The following table shows unsatisfied performance obligations resulting from long-term contracts:
Aggregate amount of the transaction price allocated to long-term
contracts that are partially or fully unsatisfied as at 31 December
2020
£m
2019
£m
2,996.1
1,358.8
Management expects that approximately 30% of the transaction price allocated to the unsatisfied contracts as of 31
December 2020 will be recognised as revenue during the next reporting period (£828.0m). Of the remaining 70%, 50% will
be recognised during 2022 to 2024.
Mobilisation costs and costs incurred to obtain a contract
The Group does not have any assets relating to mobilisation costs or costs incurred to obtain a contract.
16 Trade and other receivables
Amounts included in current assets
Trade receivables
Other receivables
Contract assets
Prepayments and accrued income
Amounts owed by joint ventures and associates
Amounts owed by subsidiary undertakings
Amounts included in non-current assets
Group
2020
£m
82.7
7.6
97.3
25.8
5.3
–
218.7
2019
£m
70.0
10.1
133.5
31.0
3.0
–
247.6
Company
2020
£m
–
–
–
–
–
2019
£m
–
–
–
–
–
134.9
134.9
175.4
175.4
155
Other receivables
3.5
2.1
–
–
At 31 December 2020, contract assets falling due within one year include retentions of £1.9m (2019: £2.3m) relating to
long-term contracts in progress. Other receivables falling due after more than one year include retentions of £3.5m (2019:
£1.5m) relating to long-term contracts in progress. The 2019 over one year number included a minor stake in a hotel
company recorded at £0.6m, this was impaired to nil in the 2020 results reflecting the significant impact of COVID-19 in that
sector.
The average credit period within trade receivables on amounts billed for contract work and on sales of goods is 32 days
(2019: 35 days). The analysis of the due dates of the trade receivables was £76.3m (2019: £60.5m) due within 30 days, £4.1m
(2019: £2.1m) due between 30 and 60 days and £2.3m (2019: £7.4m) due after 60 days. An analysis of trade receivables that
are beyond their due dates is shown in note 18.
In respect of the Company, amounts due from subsidiary undertakings are repayable on demand and may be interest-bearing.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 17 Cash, loans and borrowings
Cash and cash equivalents
Cash and cash equivalents are analysed below, and include the Group’s share of cash held by joint operations of £61.1m
(2019: £83.5m).
Cash and cash equivalents
Cash and cash equivalents
in the cash flow statement
Interest-bearing loans and borrowings
Current
Revolving Credit Facility
Term Loan
Non-current
Term Loan
Group
Company
2020
£m
150.9
2019
£m
180.9
150.9
180.9
2020
£m
20.1
20.1
Group
Company
2020
£m
–
7.2
7.2
39.6
39.6
2019
£m
60.0
8.0
68.0
48.0
48.0
2020
£m
–
7.2
7.2
39.6
39.6
2019
£m
0.1
0.1
2019
£m
60.0
8.0
68.0
48.0
48.0
156
The Term Loan is stated after associated arrangement fees of £1.2m, which are being amortised over the period of the
facility with £0.8m classified within one year. The Group’s borrowings facilities are described in note 18.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Cash flow information
Net cash/(debt) reconciliation
This section sets out an analysis of net cash/(debt) and movements in net cash/(debt) during the year.
Cash and cash equivalents
Borrowings – current
Borrowings – non-current
Net cash/(debt)
Group
Net cash/(debt) at 1 January 2019
Cash flows
Disposal of subsidiary undertakings
Effect of foreign exchange rate changes
Net cash/(debt) at 31 December 2019
Net cash/(debt) at 1 January 2020
Cash flows
Effect of foreign exchange rate changes
Net cash/(debt) at 31 December 2020
Company
Net cash/(debt) at 1 January 2019
Cash flows
Net cash/(debt) at 31 December 2019
Net cash/(debt) at 1 January 2020
Cash flows
Arrangement fees
Net cash/(debt) at 31 December 2020
Group
Company
2020
£m
150.9
(7.2)
(39.6)
104.1
2019
£m
180.9
(68.0)
(48.0)
64.9
2020
£m
20.1
(7.2)
(39.6)
(26.7)
Cash and cash
equivalents
£m
Borrowings –
current
£m
Borrowings –
non-current
£m
189.3
(8.4)
–
–
180.9
180.9
(29.4)
(0.6)
150.9
(10.0)
(58.9)
0.7
0.2
(68.0)
(68.0)
60.8
–
(7.2)
(60.5)
12.5
–
–
(48.0)
(48.0)
8.4
–
(39.6)
Cash and cash
equivalents
£m
Borrowings –
current
£m
Borrowings –
non-current
£m
–
0.1
0.1
0.1
20.0
–
20.1
(9.8)
(58.2)
(68.0)
(68.0)
60.0
0.8
(7.2)
(60.0)
12.0
(48.0)
(48.0)
8.0
0.4
(39.6)
2019
£m
0.1
(68.0)
(48.0)
(115.9)
Total
£m
118.8
(54.8)
0.7
0.2
64.9
64.9
39.8
(0.6)
104.1
Total
£m
(69.8)
(46.1)
(115.9)
(115.9)
88.0
1.2
(26.7)
157
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 18 Financial instruments – Fair values and risk management
Risk management
The Group’s centralised treasury function manages financial risk, principally arising from liquidity and funding risks and
movements in foreign currency rates and interest rates, in accordance with policies agreed by the directors.
Neither the Company or the Group enters into speculative transactions.
a) Capital management
The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and to provide
resources to grow the business, in order to provide returns for shareholders and other stakeholders. The current capital base
of the Group is driven by equity capital from shareholders and retained earnings. During 2020, the Group raised additional
capital from shareholders of £92.5m (note 22). The Board of directors (‘Board’) will continue to seek to strengthen the Group
by growing the business and improving profitability; the Strategic Report describes the Group’s strategy and its operations.
The Board will continue to review the timing of the reinstatement of future dividends in the light of the Group’s performance,
cash flow requirements and the importance of maintaining a strong balance sheet.
b) Liquidity and funding risk
Ultimate responsibility for liquidity and funding risk rests with the Board, which has put in place a monitoring and reporting
framework to manage funding requirements.
Liquidity risk is managed by monitoring actual and forecast short and medium-term cash flows and the maturity profile of
financial assets and liabilities and by maintaining adequate cash reserves and bank facilities. The nature and timing of the
contract cash flows causes the cash balances to vary over the month with the balance usually highest at month end.
The average month end net cash balance during the year was £73.8m (2019: £41.2m).
Customers awarding long-term contracting work may, as a condition of the award, require the contractor to provide
performance and other bonds. Consequently, the Group is reliant on its ability to source bank and surety bonds. It has facilities
in place to provide these bonds and monitors the usage and regularly updates the forecast usage of these facilities.
158
At 31 December 2020, the Group had banking and bonding facilities, including a £131.0m (2019: £131.0m) Revolving Credit
Facility and a £48.0m (2019: £56.0m) Term Loan, extending to 24 September 2023. The unsecured facilities have financial
covenants based on interest cover and leverage measured quarterly. The covenants are based on accounting standards
already in force at the date of signing the facilities and any subsequent agreements. The Group complied with all covenants
in 2020. The unsecured bonding facilities are set out below:
Expiring between one and five years
Element of above facilities available for borrowings
Group and Company
2020
£m
320.0
2.5
2019
£m
320.0
2.5
At 31 December 2020, the utilisation of these bonding facilities amounted to £112.3m (2019: £122.0m).
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 c) Credit risk
The Group focuses on major blue-chip private sector and large public sector customers. In respect of contracts with other
customers, the Group uses an external credit scoring system to assess a potential customer’s credit quality and considers
the timing and amounts of progress payments and will enter into a contract only if these assessments are satisfactory.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit
risk characteristics and the days past due. Group 1 comprises major blue-chip private sector and large public sector
customers. Group 2 includes smaller customers and receivables arising from various additional services undertaken as
requirements of some of the maintenance contracts. Group revenue of £964.2m (2019: £1,123.5m) was attributable to Group
1 customers and £14.2m (2019: £32.1m) attributable to Group 2 customers.
The contract assets relate to unbilled work in progress and have substantially the same credit risk characteristics as the trade
receivables for the same types of contracts. The Group has concluded that the expected loss rates for trade receivables are
a reasonable approximation of the loss rates for the contract assets.
The loss rates, which were reviewed in the light of the impact of COVID-19 and considered still appropriate, will be adjusted
to reflect current and forward-looking information on macroeconomic factors that might affect the ability of the customers
to settle the receivables.
On this basis, the loss allowance as at 31 December 2020 and 31 December 2019 was determined as follows for both trade
receivables and contract assets:
31 December 2020
Group 1
Expected loss rate
Trade receivables
Contract assets
Loss allowance
Group 2
Expected loss rate
Trade receivables
Contract assets
Loss allowance
31 December 2019
Group 1
Expected loss rate
Trade receivables
Contract assets
Loss allowance
Group 2
Expected loss rate
Trade receivables
Contract assets
Loss allowance
Current
Less than
60 days
past due
60 to 120 days
past due
More than
120 days
past due
0.00%
0.10%
0.25%
0.50%
£m
67.7
53.8
–
1.0%
£m
0.2
–
–
£m
11.3
26.9
–
2.0%
£m
0.8
–
–
£m
1.1
10.2
–
£m
1.6
6.4
–
15.0%
30.0%
£m
–
–
–
£m
–
–
–
0.00%
0.10%
0.25%
0.50%
£m
58.3
90.4
–
1.0%
£m
–
–
–
£m
3.4
24.8
–
2.0%
£m
0.1
–
–
£m
2.2
8.3
–
15.0%
£m
–
–
–
£m
6.1
10.0
0.1
30.0%
£m
–
–
–
159
Total
£m
81.7
97.3
–
£m
1.0
–
–
£m
70.0
133.5
0.1
£m
0.1
–
–
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
18 Financial instruments – Fair values and risk management continued
Risk management continued
Impairment losses on trade receivables and contract assets are included within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line item. The total provision for impairment of trade and other
receivables is £0.3m (2019: £0.4m). The credit risk in contract assets is not material.
Deposits in the UK are placed with the bank facility providers or, in joint operations, with banks agreed by the partners.
Overseas deposits are placed with major banks operating in those countries. Transactions involving derivative financial
instruments are with bank or insurance company counterparties with high credit ratings that are monitored regularly and
with whom there are signed netting agreements. Given the high credit ratings of the banks and insurance companies used,
management does not expect any counterparty will fail to meet its obligations.
At the year-end date, excluding UK Government bodies, there were no significant concentrations of credit risk.
The maximum exposure to credit risk is represented by the carrying amounts of each financial asset, including derivative
financial instruments, and the individual constituents of contract assets in the statement of financial position.
d) Interest rate risk
The Group has cash balances in the UK and overseas and bank borrowings in the UK and, up to the date of the disposal of
the subsidiary undertaking, in Spain. The largest constituents are UK balances denominated in pounds sterling.
The Group has interest rate swap arrangements that fix the effective LIBOR interest rate on £50.0m of pounds sterling
borrowings up to June 2021.
A 1% rise in interest rates would have increased the annual interest income on net cash balances by approximately £1.0m
(2019: approximately £0.7m).
e) Foreign currency risk
160
Transactional currency exposures arise from sales or purchases by operating companies in currencies other than their
functional currency. The current strategy is to hedge both committed and forecast foreign currency exposures, where
applicable, and where the transaction timing and amount can be determined reliably and no natural hedge exists. The
Group only enters into forward contracts when a contractual commitment exists in respect of the foreign currency
transaction and the Group’s policy is to negotiate the terms of the hedge derivative to match the terms of the hedged
item to maximise hedge effectiveness. The Group’s treasury function evaluates and hedges foreign currency risks, in
close cooperation with the responsible operational management team.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Cash flow hedges
Forward currency contracts that hedge forecast transactions are classified as cash flow hedges and stated at fair
value based on a Level 2 valuation method, using quoted forward exchange rates. The terms of the foreign currency
contracts match the terms of the commitments.
Interest rate swaps are classified as cash flow hedges and stated at fair value based on a Level 2 valuation method using
yield curves derived from prevailing market interest rates.
At 31 December 2020, the Group had cash flow hedges as summarised below. The carrying value represents the fair value
of the contract; the contractual cash flows represent the pounds sterling commitments. There were no ineffective hedges
at the year-end (2019: none).
Foreign exchange contracts:
Purchases
Sales
Interest rate swaps
2020
2019
Carrying
amount
£m
Contractual
cash flows
£m
Within
one year
£m
Between
one and five
years
£m
Carrying
amount
£m
Contractual
cash flows
£m
Within
one year
£m
Between
one and five
years
£m
–
–
–
(0.4)
(0.4)
(4.5)
1.1
(3.4)
(0.2)
(3.6)
(4.5)
1.1
(3.4)
(0.2)
(3.6)
–
–
–
–
–
(0.5)
0.1
(0.4)
(0.2)
(0.6)
(13.0)
1.0
(12.0)
(0.7)
(12.7)
(12.5)
0.5
(12.0)
(0.5)
(12.5)
(0.5)
0.5
–
(0.2)
(0.2)
The carrying amount of hedge instruments is included in trade and other receivables or trade and other payables.
The expected impact on the income statement of the foreign exchange contracts is £nil and of the interest rate swaps
is £0.4m in 2021.
The movements on the hedging reserve by classification are set out below.
Spot component of
currency forwards
£m
Interest rate
swaps
£m
Total hedge
reserves
£m
At 1 January 2019
Change in fair value of hedging instrument recognised in OCI for the year
Reclassified from OCI to profit or loss
At 31 December 2019
At 1 January 2020
Change in fair value of hedging instrument recognised in OCI for the year
Reclassified from OCI to profit or loss
At 31 December 2020
0.5
0.1
(0.8)
(0.2)
(0.2)
–
0.2
–
0.2
(0.5)
–
(0.3)
(0.3)
(0.3)
0.3
(0.3)
0.7
(0.4)
(0.8)
(0.5)
(0.5)
(0.3)
0.5
(0.3)
The Company is party to the interest rate swaps. It does not have any forward foreign currency contracts or other derivatives.
161
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
18 Financial instruments – Fair values and risk management continued
Financial assets and liabilities
The Group has grouped its financial instruments into ‘classes’. Although IFRS 7 does not define ‘classes’, as a minimum
instruments measured at amortised cost should be distinguished from instruments measured at fair value.
a) Currency and maturity of financial assets
Financial assets not measured at fair value
2020
2019
Total
£m
Within
one year
£m
Between
one and
five years
£m
After five
years
£m
Total
£m
Within
one year
£m
Between
one and
five years
£m
After five
years
£m
Cash and cash equivalents:
pounds sterling
other
Loans to joint ventures
and associates:
pounds sterling
Trade, other receivables and
amounts owed by joint ventures
and associates:
pounds sterling
other
149.4
149.4
1.5
1.5
150.9
150.9
–
–
–
–
–
–
99.1
95.6
–
–
99.1
95.6
3.5
–
3.5
Total financial assets
not measured at fair value
250.0
246.5
3.5
–
–
–
178.9
2.0
180.9
178.9
2.0
180.9
–
–
–
–
–
–
–
–
–
–
–
1.5
0.1
0.4
1.0
85.1
0.1
85.2
83.0
0.1
83.1
2.1
–
2.1
–
–
–
267.6
264.1
2.5
1.0
162
The Group has not disclosed the fair values for short-term trade receivables and amounts due from joint ventures and
associates within financial assets, because their carrying amounts are a reasonable approximation of fair values.
Financial assets measured at fair value
The Group measures its currency forwards and interest rate swaps at fair value (see above) but does not have any other
financial assets measured at fair value.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
b) Currency and maturity of financial liabilities
Financial liabilities not measured at fair value
2020
2019
Term Loan – pounds sterling
Revolving Credit Facility - pounds sterling
Total
£m
46.8
–
46.8
Within
one year
£m
Between
one and
five years
£m
Total
£m
56.0
60.0
39.6
–
7.2
–
7.2
39.6
116.0
Within
one year
£m
Between
one and
five years
£m
8.0
60.0
68.0
48.0
–
48.0
Lease liabilities – pounds sterling
33.3
12.5
20.8
30.0
12.8
17.2
Trade and other payables – pounds sterling
117.2
116.1
1.1
126.2
125.5
0.7
Total financial liabilities not measured at fair value
197.3
135.8
61.5
272.2
206.3
65.9
The Group has not disclosed the fair values for short-term trade and other payables and bank loans within financial liabilities,
because their carrying amounts are a reasonable approximation of fair values.
Lease liabilities are carried at the present value of the minimum lease payments.
There are no financial liabilities carried at fair value.
163
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
18 Financial instruments – Fair values and risk management continued
Financial assets and liabilities continued
c) Reconciliation of trade and other receivables and trade and other payables to the statement of financial position
Trade and other receivables (as above)
Contract assets
Prepayments and accrued income
Trade and other payables (as above)
Contract liabilities
Accruals and deferred income
2020
2019
Current
£m
95.6
97.3
25.8
218.7
Non-current
£m
3.5
–
–
3.5
Current
£m
83.1
133.5
31.0
247.6
2020
2019
Current
£m
116.1
5.5
124.4
246.0
Non-current
£m
1.0
–
–
1.0
Current
£m
125.5
6.4
115.5
247.4
Non-current
£m
2.1
–
–
2.1
Non-current
£m
0.7
–
–
0.7
164
d) Effective interest rates of financial assets and liabilities
Financial assets
Cash and cash equivalents
Loans to joint ventures and associates
Financial liabilities
2020
2019
0.0% to 0.7%
0.0% to 0.7%
10.7% to 13.6%
10.7% to 13.6%
The Group has a Term Loan and a Revolving Credit Facility (RCF). The £46.8m (net of fees) (2019: £56.0m) Term Loan
and £nil (2019: £60.0m) of the RCF were drawn at the year-end. These loans are unsecured and carry interest at floating
rates at a margin over LIBOR and the effective LIBOR cost to the Group on £50.0m of borrowings was fixed by entering
into interest rate swaps in 2017.
The Company’s financial assets comprised cash at bank of £20.1m (2019: £0.1m) and trade and other receivables of £134.9m
(2019: £175.4m) with £134.9m (2019: £174.2m) denominated in pounds sterling and £nil (2019: £1.2m) denominated in euros
and all maturing within one year.
The Company’s financial liabilities comprise trade and other payables of £26.4m (2019: £26.4m) denominated in pounds
sterling, the £46.8m (net of fees) (2019: £56.0m) Term Loan denominated in pounds sterling and the £nil RCF denominated in
pounds sterling (2019: £60.0m). The Term Loan matures between one and five years, all other liabilities mature within one
year.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
Measurement of fair value
Valuation techniques and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 3 and Level 2 fair values, as well as the
significant unobservable inputs used. There are no financial instruments whose value could be determined under Level 1.
Financial instruments measured at fair value
Type
Valuation technique
Deferred
consideration
Cash flow hedges
Discounted cash flows: The valuation models
consider the present value of the contractual
payments, discounted using a risk-adjusted
discount rate.
Market comparison technique: The fair values are
based on broker quotes. Similar contracts are
traded in an active market and quotes reflect the
actual transactions in similar instruments. Interest
rate swaps are measured by discounting the
related cash flows using yield curves derived
from prevailing market interest rates.
Significant
unobservable inputs
Risk-adjusted
discount rate (12.5%)
Inter relationship between
significant unobservable inputs
and fair value measurement
The estimated fair value
would increase (decrease) if
the risk-adjusted discount
rate were lower (higher).
Not applicable.
Not applicable.
Financial instruments not measured at fair value
Type
Valuation technique
Significant unobservable inputs
Other financial liabilities (as above)
Discounted cash flow.
Revolving Credit Facility
Term Loan
Level 3 fair values
Discounted cash flow.
Discounted cash flow.
Not applicable.
Not applicable.
Not applicable.
The following table shows a reconciliation from the opening to closing balances for Level 3 fair values:
165
At 1 January 2019
Addition charged to income statement (including unwind of discount)
Payments
At 31 December 2019
At 1 January 2020
At 31 December 2020
.
Deferred
consideration
£m
1.2
0.3
(1.5)
–
–
–
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
19 Trade and other payables
Current liabilities
Trade payables
Other payables
Social security
Contract liabilities
Accruals and deferred income
Amounts owed to joint ventures and associates
Amounts owed to subsidiary undertakings
Non-current liabilities
Other payables
Group
2020
£m
80.5
28.3
6.9
5.5
124.4
0.4
–
246.0
1.1
1.1
2019
£m
97.4
21.2
6.5
6.4
115.5
0.4
–
247.4
0.7
0.7
Company
2020
£m
–
0.1
–
–
1.6
–
26.3
28.0
–
–
2019
£m
–
0.1
–
–
1.2
–
26.3
27.6
–
–
Accruals and deferred income include subcontract liabilities (not yet payable), subcontract retentions and other accruals and
deferred income.
The amounts included in contract liabilities and in deferred income at 31 December 2019 have all been recognised as
revenue in the year.
The directors consider that the carrying amount of trade payables, other payables, social security and amounts
owed to joint ventures and associates approximates to their fair value.
166
Financial risk management policies are in place that seek to ensure that all payables are paid within their credit timeframes.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
20 Provisions for other liabilities and charges
Group
Current
At 1 January 2019
Provided
Utilised
At 31 December 2019
At 1 January 2020
Provided
Utilised
At 31 December 2020
Company
Current
At 1 January 2019
Reclassified from non-current
Utilised
At 31 December 2019
At 1 January 2020
Reclassified from non-current
Utilised
At 31 December 2020
Non-current
At 1 January 2019
Reclassified to current
At 31 December 2019
At 1 January 2020
Reclassified to current
At 31 December 2020
Group
Other
£m
0.9
0.6
(0.8)
0.7
0.7
0.4
(0.5)
0.6
Funding obligations
£m
0.1
0.1
(0.1)
0.1
0.1
0.1
(0.1)
0.1
0.9
(0.1)
0.8
0.8
(0.1)
0.7
167
Other provisions, mainly comprise insurance provisions and provisions for remedial costs, most of which are expected
to be used over the next year.
Company
Provisions in the Company relate to funding obligations to a non-trading overseas subsidiary, which eliminates
on consolidation.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 21 Employee benefits
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 and overseas. Contributions are paid by subsidiary undertakings and, to the defined contribution
schemes, by employees. The total pension charge in the income statement was £12.7m comprising £12.9m included in
operating costs less £0.2m interest income included in net finance expense (2019: £12.3m, comprising £12.4m in operating
costs less £0.1m interest income included in net finance expense).
The Company does not operate a pension scheme.
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
31 December 2020 by a qualified independent actuary. At 31 December 2020, there were 2,869 retirees and 2,730 deferred
members. The weighted average duration of the obligations is 17.1 years.
Present value of defined benefit obligations
Fair value of scheme assets
Recognised (liability)/asset for defined benefit obligations
Movements in present value of defined benefit obligations
2020
£m
(886.5)
880.9
(5.6)
At 1 January
168
Past service cost – GMP equalisation charge
Interest cost
Remeasurements – demographic assumptions
Remeasurements – financial assumptions
Remeasurements – experience adjustments
Benefits paid
At 31 December
Movements in fair value of scheme assets
At 1 January
Interest income
Remeasurements – return on assets
Contributions by employer
Administrative expenses
Benefits paid
At 31 December
2019
£m
(812.1)
817.0
4.9
2020
£m
812.1
0.9
16.3
(2.9)
99.0
(4.6)
(34.3)
886.5
2020
£m
817.0
16.5
71.5
10.6
(0.4)
(34.3)
880.9
2018
£m
(752.7)
748.5
(4.2)
2019
£m
752.7
–
20.6
(7.5)
74.6
9.0
(37.3)
812.1
2019
£m
748.5
20.7
69.1
16.3
(0.3)
(37.3)
817.0
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
Expense recognised in the income statement
Administrative expenses paid by the pension scheme
Administrative expenses paid directly by the Group
GMP equalisation charge
Interest income on the net liabilities/assets of the defined benefit pension scheme
2020
£m
(0.4)
(1.7)
(0.9)
0.2
(2.8)
2019
£m
(0.3)
(1.7)
–
0.1
(1.9)
The GMP (Guaranteed Minimum Pension) equalisation charge resulted from a decision in November 2020 when the High
Court issued a judgement involving Lloyds Banking Group defined benefit pension schemes. The judgement, which
followed an earlier decision that the schemes should be amended to equalise pension benefits for men and women in
relation to GMP benefits, ruled that the decision would also apply to past transfers from the schemes. The effect of GMP
equalisation has implications for the majority of defined benefit schemes with liabilities before 1997. The change was
recorded in the year as a £0.9m past service cost increase to the reported pension liabilities.
Fair value of scheme assets
Global equities
Multi-asset growth funds
Multi-credit fund
LDI plus collateral
PFI investments
Property
Cash
2020
£m
125.0
118.4
139.8
421.4
44.7
15.7
15.9
880.9
2019
£m
162.4
162.2
160.3
251.8
51.0
17.7
11.6
817.0
169
All equities are quoted securities. The multi-asset growth funds comprise portfolios of quoted and unquoted investments.
The multi-credit fund invests in a portfolio of primarily floating rate debt of non-investment grade or unrated borrowers.
The Liability Driven Investments (LDI) portfolio is designed to respond to changes in gilt yields in a similar way to a fixed
proportion of the liabilities. It comprises gilts, repos and swaps and is supported by a liquid absolute return fund providing
collateral. The PFI investments is the portfolio of interests in 10 PFI investments transferred by the Group to The Costain
Pension Scheme between 2010 and 2014.
Quoted equities are valued at the prevailing bid, offer or middle market stock exchange or over-the-counter market prices. In
the multi-asset growth funds, the fair values of the underlying unquoted assets are determined by the fund managers using
quoted prices for similar assets or other valuation techniques where all the inputs are directly observable or indirectly
observable from market data. The loans in the multi-credit fund may be priced either using quotes from a pricing vendor (if
available), a broker or at a level determined by the investment manager that is agreed with the fund. The LDI fund is valued
using a unit price calculated for the fund based on the net asset value of the underlying assets. The PFI investments are valued
using a Level 3 valuation method based on the future cash flows of the individual investments. The property investment is held
within a limited partnership and is valued by the general partner in accordance with RICS valuation standards.
The pension scheme does not have any assets invested in the Group’s financial instruments or in property or other assets
used by the Group.
Principal actuarial assumptions (expressed as weighted averages)
Discount rate
Future pension increases
Inflation assumption
2020
%
1.35
2.85
2.95
2019
%
2.05
2.85
2.95
2018
%
2.80
3.00
3.20
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
21 Employee benefits continued
Pensions continued
Weighted average life expectancy from age 65 as per mortality tables used to determine benefits at 31 December 2020 and
31 December 2019 is:
Currently aged 65
Non-retirees currently aged 45
2020
Male
(years)
22.3
23.3
Female
(years)
24.1
25.3
2019
Male
(years)
22.3
23.6
Female
(years)
24.2
25.7
The discount rate, inflation and pension increase and mortality assumptions have a significant effect on the amounts
reported. Changes in these assumptions would have the following effects on the defined benefit scheme:
Pension liability
£m
Pension cost
£m
Increase discount rate by 0.25%, decreases pension liability and reduces pension cost by
Decrease inflation, pension increases by 0.25%, decreases pension liability and reduces
pension cost by
Increase life expectancy by one year, increases pension liability and increases pension cost by
35.8
30.6
41.7
0.5
0.4
0.6
As highlighted above, the defined benefit scheme exposes the Group to actuarial risks such as longevity, interest rate,
inflation and investment risks. The LDI portfolio is designed to respond to changes in gilt yields in a similar way to a fixed
proportion of the liabilities. With the LDI portfolio, if gilt yields fall, the value of the investments will rise to help partially
match the increase in the trustee valuation of the liabilities arising from a fall in the gilt yield based discount rate. Similarly, if
gilt yields rise, the value of the matching asset portfolio will fall, as will the valuation of the liabilities because of an increase
in the discount rate. The leverage within the LDI portfolio means the equivalent of 95 per cent of the value of the assets is
sensitive to changes in interest rates and inflation and mitigates the equivalent movement in the liabilities.
170
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 £10.2m 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.
Defined contribution schemes
Several defined contribution pensions are operated. The total expense relating to these plans was £9.9m
(2019: £10.4m.
Share-based payments
The Company operates a number of share-based payment plans as described below.
Long-Term Incentive Plans (LTIP)
Shareholders approved Long-Term Incentive Plan at the 2014 AGM that allows for conditional awards with a maximum face
value of up to 100% of base salary to be awarded. Performance conditions, such as those based on earnings per share, are
determined by the Remuneration Committee of the Board at the time of grant.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
Annual Incentive Plan (AIP)
Executive directors and other senior management are eligible to participate in the Company’s Annual Incentive Plan,
under which one third of the award is payable in shares. The total AIP award of up to 150% of base salary has performance
conditions based on adjusted EBIT (Earnings before interest, tax and other items) (at least 50% of the award) and other
measures. The share award element vests on the second anniversary of the date of grant and will be satisfied by shares
purchased by a trust on behalf of the Group. It will not lead to any dilution of shareholder interest. Participants must be in
employment with the Company and not under notice of termination (either given or received) on the date of vesting.
Deferred Share Bonus Plan (DSBP)
Prior to 2014, executive directors and other senior management were eligible to participate in the Company’s Deferred
Share Bonus Plan which allowed for conditional awards with a face value of up to 50% of base salary with a performance
condition based on adjusted EBIT (Earnings before interest, tax and other items). The deferred bonus award was satisfied
by shares purchased by a trust on behalf of the Group, so did not dilute shareholder interests. The last grant under the
DSBP was made in 2014 and vested on 31 March 2016.
Save As You Earn Scheme (SAYE)
The Company operates a SAYE scheme that is open to all eligible employees who pay a fixed amount from salary into a
savings account each month and elect to save over three years. At the end of the savings period, employees have six months
in which to exercise their options (after which the options expire) using the funds saved. If employees decide not to exercise
their options, they may withdraw the funds saved. Exercise of options is subject to continued employment within the Group
(except where permitted by the rules of the scheme).
Share-based payment expense
The amounts recognised in the income statement, before tax, for share-based payment transactions with employees was
£0.9m (2019: £0.5m); the entire charge relates to subsidiaries.
Options outstanding at the end of the year
The movements in the outstanding LTIPs (exercise price £1 per individual grant), AIP (Nil-cost option) and DSBPs (Nil-cost
option), which arrange for the grant of shares to executive directors and senior management, and the outstanding SAYE
schemes are shown below.
171
Outstanding at 1 January 2019
Adjusted during the year
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at 31 December 2019
Outstanding at 1 January 2020
Adjusted during the year
Forfeited during the year
Exercised during the year
Granted during the year
Outstanding at 31 December 2020
Exercisable at the end of the period
LTIP
DSBP
AIP
SAYE
Number
(m)
1.3
0.1
–
(0.4)
0.6
1.6
1.6
0.2
(0.7)
(0.1)
2.8
3.8
0.2
Number
(m)
0.1
–
–
–
–
0.1
0.1
(0.1)
–
–
–
–
–
Number
(m)
Number
(m)
Weighted
average
exercise price
(p)
1.0
(0.1)
(0.2)
(0.2)
–
0.5
0.5
0.2
(0.8)
(0.3)
0.8
0.4
0.2
3.1
–
(1.0)
(0.2)
1.3
3.2
3.2
0.1
(1.2)
–
–
2.1
0.5
326.1
–
325.8
310.3
118.4
243.0
326.1
229.3
265.3
–
–
229.5
357.4
Share options outstanding at the end of the year had a weighted average remaining contractual life of 4.8 years
(2019: 4.9 years).
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
21 Employee benefits continued
Share-based payments continued
The fair value of options granted is calculated using the Black-Scholes option pricing model. The aggregate fair value of
options granted during the year was £1.1m (2019: £2.5m). The assumptions used in valuing the grants were:
Expected volatility
Expected life (years)
Risk-free interest rate
Expected dividend yield
2020
20%
3.0
1.1%
3.0%
2019
20%
3.0
1.3%
3.0%
The expected volatility is based on the historical share price volatility over a term matching the expected life. The expected
life is based on management’s best estimate having regard to the effect of non-transferability, exercise restrictions and
behavioural considerations.
22 Share capital
Issued share capital
Shares in issue at beginning of year –
ordinary shares of 50p each, fully paid
Issued in year (see below)
Shares in issue at end of year –
ordinary shares of 50p each, fully paid
2020
2019
Number
(millions)
Nominal value
£m
Number
(millions)
Nominal value
£m
108.3
166.7
275.0
54.1
83.4
137.5
107.0
1.3
108.3
53.5
0.6
54.1
172
The Company’s issued share capital comprised 274,949,741 ordinary shares of 50 pence each as at 31 December 2020.
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 £100m (£92.5m after expenses), approximately £80m by way of a Firm Placing of
133,348,799 ordinary shares and approximately £20m 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.
All shares rank pari passu regarding entitlement to capital and dividends.
In the year, no dividends were paid and therefore no shares were issued under the Scrip Dividend Scheme.
No options were exercised under the SAYE schemes in the year as all options were ‘underwater’ so the company issued nil
shares in respect of SAYE. Similarly, the 2017 LTIP lapsed in full and so no shares were issued in respect of the LTIP.
The share options outstanding at the year end are detailed in note 21. Details of the performance conditions and the options
granted to executive directors are given in the Directors’ Remuneration report.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
23 Contingent liabilities
Group
Group bank borrowing facilities and bank and surety bonding 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 in the ordinary course of business and
• legal claims arising in the ordinary course of business.
It is not anticipated that any material liabilities will arise from the contingent liabilities other than those provided.
Company
The Company has guaranteed the obligations of the subsidiary companies that are participating employers of The Costain
Pension Scheme, the defined benefit pension scheme in the UK. At 31 December 2020, the liability was £5.6m (2019: asset of
£4.9m) on an IAS 19 basis and is included in these financial statements as disclosed in note 21.
24 Subsidiary undertakings, joint ventures, associates and joint operations
Principal subsidiary undertakings
Activity
Percentage of
equity held
Registered
office/principal
place of
business
Costain Limited
Engineering, Construction and Maintenance
Costain Engineering & Construction Limited
Holding and Service Company
Costain Integrated Services Limited
Professional Services
Costain Integrated Technology Solutions Limited
Technology Integration
Costain Oil, Gas & Process Limited
Process Engineering
Costain Upstream Limited
Richard Costain Limited
Engineering and Design Services
Service Company
100
100
100
100
100
100
100
(1)
(1)
(1)
(1)
(1)
(2)
(1)
173
Activity
Principal joint ventures
ABC Electrification Ltd
Rail Electrification
4Delivery Limited
Civil Engineering
Issued share
capital
£m
Percentage of
equity held
Registered
office/principal
place of
business Reporting date
–
–
33.3
40
(9)
(3)
31 March
31 March
The equity capital of the above are held by subsidiary undertakings with the exception of Richard Costain Ltd and Costain
Engineering & Construction Limited.
All undertakings operate mainly in the country of incorporation. See key to registered office/principal place of business at
the bottom of this note.
All holdings are of ordinary shares.
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements 24 Subsidiary undertakings, joint ventures, associates and joint operations continued
Activity
Percentage
interest
Country of
business
Major joint operations
Alstom-Babcock-Costain Joint Venture – Edinburgh to Glasgow
Rail Improvement Programme
Rail Engineering
Alstom-Costain C644 Joint Venture – Traction power – Crossrail
Rail Engineering
Alstom-Costain C650 Joint Venture – HV power supply – Crossrail
Rail Engineering
A-one+ Joint Venture – ASC area 12 – Highways England
Engineering and Maintenance
A-one+ Joint Venture – ASC area 4 – Highways England
Engineering and Maintenance
ATC Joint Venture – C610 – Crossrail
Rail Engineering
CH2M-Costain Joint Venture – Area 14 M&R contract
Engineering and Maintenance
Costain-CH2M UK – ESCC JV – East Sussex highway maintenance
Engineering and Maintenance
Costain-Atkins-Black & Veatch Joint Venture – Thames Water AMP6
Engineering
Costain-Galliford Try Joint Venture – M1 smart motorways
Civil Engineering
Costain-MWH Joint Venture – Southern Water AMP6
Civil Engineering
Costain-Skanska C360 Joint Venture – Eleanor Street – Crossrail
Civil Engineering
Costain-Skanska C405 Joint Venture – Paddington – Crossrail
Civil Engineering
Costain-Skanska C412 Joint Venture – Bond Street – Crossrail
Civil Engineering
Costain-Skanska – HS2 Enabling works
Costain-Skanska Joint Venture – A14 Cambridge to Huntingdon
Improvement Scheme
Civil Engineering
Civil Engineering
Costain-Skanska Joint Venture – Balfour Beatty Joint Venture – A14
Civil Engineering
CVB Joint Venture – Thames Tideway Tunnel East
Civil Engineering
Skanska-Costain-Strabag S1 Joint Venture – HS2 Main Works
Rail Engineering
Skanska-Costain-Strabag S2 Joint Venture – HS2 Main Works
Rail Engineering
The ASP Batch Joint Venture – Severn Trent – Large capital
schemes outside AMP6
Engineering
174
33.3
32.5
32.5
33.3
33.3
32.5
50
50
70
70
50
50
50
50
50
50
33.3
40
34
34
33.3
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associates, joint ventures and joint
arrangements is required:
Other subsidiaries owned directly by Costain Group PLC
Costain Civil Engineering Limited
Costain Investments Limited
Costain USA Inc.
County & District Properties Limited
Renown Investments (Holdings) Limited
Lysander Services Limited
Other subsidiaries owned indirectly by Costain Group PLC
AB Rhead & Associates Limited
Alcaidesa Servicios S.A.U.
Alway Associates (London) Limited
Brunswick Infrastructure Services Limited
Calvert & Russell Limited
C-in-A Limited
CLM Engineering (Overseas) Limited
COGAP (Middle East) Limited
Construction Study Centre Limited
Costain Abu Dhabi Co WLL
Costain Alcaidesa Limited
Costain America Inc
Costain Building & Civil Engineering Limited
Costain Construction Limited
Costain de Venezuela CA
Costain Energy Solutions Limited
Status
Holding Company
Dormant
Holding Company
Trading
Trading
Trading
Dissolved 2020
Disposed 2020
Dissolved 2020
Trading
Trading
Dissolved 2020
Dormant
Holding Company
Trading
Trading
Holding Company
Holding Company
Holding Company
Dormant
Dormant
Trading
Costain Engineering & Construction (Overseas) Limited
Holding Company
Costain Engineering Services Inc
Costain International Limited
Costain Management Design Limited
Costain Minerals Inc.
Costain Mining Services Inc.
Costain Oil, Gas & Process (Nigeria) Limited
Costain Oil, Gas & Process (Overseas) Limited
Costain Process Construction Limited
EPC Offshore Limited
JBCC Rhead PTE Limited
L.R.R. Holdings Limited
Promanex (Civils & Industrial Services) Limited
Promanex (Construction & Maintenance Services) Limited
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dormant
Dissolved 2020
Trading
Dissolved 2020
Dormant
Dormant
Promanex Group Holdings Limited
Holding Company
Percentage of
equity held
Registered
office/principal
place of
business
100
100
100
100
100
100
0
0
0
100
100
0
100
100
100
49
100
100
100
100
100
100
100
100
100
100
100
100
95
100
100
0
100
0
100
100
100
175
(1)
(11)
(6)
(1)
(1)
(1)
(1)
(5)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(12)
(1)
(6)
(1)
(1)
(18)
(1)
(1)
(6)
(1)
(1)
(6)
(6)
(19)
(1)
(1)
(2)
(15)
(1)
(1)
(1)
(1)
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
24 Subsidiary undertakings, joint ventures, associates and joint operations continued
Other subsidiaries owned indirectly by Costain Group PLC
continued
Promanex Group Limited
Promanex (Total FM & Environmental Services) Ltd
RG Bidco Limited
Rhead Group Holdings Limited
Rhead Holdings Limited
Southview Holdings (Private) Limited
Southview Investments (Private) Limited
Sunland Mining Corporation (II)
Westminster Plant Co. Limited
Other joint ventures or associates owned
indirectly by Costain Group PLC
ACM Health Solutions Limited
Brighton & Hove 4Delivery Limited
Budimex & Costain SP ZO.O
China Harbour-Costain Mexico S de RL de CV
Gravitas Offshore Limited
Integrated Bradford LEP FIN Co One Limited
176
Integrated Bradford LEP Limited
Integrated Bradford PSP Limited
Jalal Costain WLL
L21 Lewisham PSP Limited
Lewisham Schools for the Future LEP Limited
Nesma-Costain Process Co. Limited
Status
Dormant
Trading
Dormant
Holding Company
Holding Company
Disposed 2020
Disposed 2020
Dormant
Dormant
Dormant
Trading
Dormant
Dormant
Dormant
Disposed 2020
Disposed 2020
Disposed 2020
Dormant
Disposed 2020
Disposed 2020
Dormant
Percentage of
equity held
Registered
office/principal
place of
business
100
100
100
100
100
0
0
100
100
33.3
49
50
50
45
0
0
0
49
0
0
50
(1)
(1)
(1)
(1)
(1)
(20)
(20)
(6)
(1)
(4)
(3)
(17)
(16)
(7)
(8)
(8)
(8)
(13)
(10)
(10)
(14)
Costain Abu Dhabi Co WLL has been treated as a subsidiary undertaking due to Costain having power to influence and
control the composition of the Board of directors and the beneficial right to all the net income. Dormant status means no or
a very small number of transactions with activity winding down.
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
Other joint operations, including completed
ACTUS Joint Venture – Trawsfynydd nuclear power station
active waste retrieval
Amec-Costain-Jacobs Joint Venture – Magnox ILW
Management Programme
Activity
Civil Engineering
Civil Engineering
A-one+ Integrated Highway Services – MAC 7
Engineering and Maintenance
A-one+ Integrated Highway Services – MAC 10
Engineering and Maintenance
A-one+ Integrated Highway Services – MAC 12
Engineering and Maintenance
A-one+ Integrated Highway Services – MAC 14
Engineering and Maintenance
Bachy Soletanche-Costain-Skanska Joint Venture –
CTRL 240 – Stratford Box
Balfour Beatty-BmJV-Carillion-Costain Joint Venture – National
Major Projects – Highways England
Black & Veatch-Costain Joint Venture – Margate & Broadstairs
UWWTD Scheme – Southern Water
Civil Engineering
Civil Engineering
Civil Engineering
CosMott Joint Venture - Devonport Major Infrastructure Programme
- Construction Delivery Partner
Consultancy
Costain Arup Joint Venture - Yorkshire Water
Consultancy
Costain-Carillion Joint Venture – M1 Widening and A5/M1 Link
Civil Engineering
Costain-Dalekovod Joint Venture – National Grid HV Overhead
Line System
Engineering
Costain-Hochtief Joint Venture – Reading station
Costain-John Mowlem-Skanska Joint Venture – A2/M2 widening
(Cobham to Jct.2)
Civil Engineering
Civil Engineering
Costain-Lafarge Joint Venture – East and South East Framework
Civil Engineering
Costain-Lafarge Joint Venture – Midlands Framework
Civil Engineering
Costain-Laing O'Rourke Joint Venture - Bond Street station
Civil Engineering
Costain-Laing O’Rourke Joint Venture – Farringdon station
Civil Engineering
Costain-Laing O’Rourke Joint Venture – King’s Cross Eastern
Range Refurbishment
Civil Engineering
Costain-Skanska C411 Joint Venture – Bond Street – Crossrail
Civil Engineering
Costain-Skanska Joint Venture – A14 Ellington to Fen Ditton
Civil Engineering
Costain-Skanska Joint Venture – A43 Silverstone
Costain-Skanska Joint Venture – Crossrail Civils Framework
Enabling Works
Civil Engineering
Civil Engineering
Costain-Skanska Joint Venture – Kings College Hospital, London
Building
Costain-Skanska Joint Venture – Lower Precinct Shopping
Centre, Coventry
Building
Costain-Skanska Joint Venture - NGT Tunnels, London
Costain-Skanska Joint Venture – Paddington Station Bakerloo
Line Link Project
Civil Engineering
Civil Engineering
Costain-Skanska Joint Venture – The new Met Office
Building
Costain-Taylor Woodrow Joint Venture – King’s Cross re-
development & Phase II Northern works
Civil Engineering
Costain-Vinci Construction Joint Venture - Shieldhall
Civil Engineering
Costain-Vinci Joint Venture – M4 corridor around Newport
Civil Engineering
Costain-VWS Joint Venture – Mersey Valley Processing
Centre (Shell Green) Extension Project Stage 2
Engineering
Percentage
interest
Country of
business
25
33.3
33.3
25
33.3
33.3
33.3
22
50
50
50
100
60
50
30
50
50
50
50
50
50
50
50
50
50
50
52.6
50
50
50
50
50
50
177
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
24 Subsidiary undertakings, joint ventures, associates and joint operations continued
Other joint operations, including completed continued
Educo UK Joint Venture – Bradford Schools
Galliford-Costain-Atkins Joint Venture – United Utilities
Lagan-Ferrovial-Costain – A8
The e5 Joint Alliance Severn Trent Framework
TSIF-ILW Joint Venture – Trawsfynydd nuclear power
station decommissioning
Key to registered office/principal place of business
Activity
Building
Engineering
Civil Engineering
Engineering
Civil Engineering
Percentage
interest
Country of
business
50
42.5
45
25
33.3
UK
UK
UK
UK
UK
(1)
(2)
(3)
(4)
(5)
(6)
Costain House, Vanwall Business Park, Maidenhead, Berkshire, SL6 4UB, England
56 Carden Place, Aberdeen, AB10 1UP, Scotland
210 Pentonville Road, London, N1 9JY, England
Booths Park, Chelford Road, Knutsford, WA16 8QZ, England
Avda. Pablo Cerezo, s/n, Club de Golf Alcaidesa, 11360 – San Roque-Cádiz, Spain
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801
(New Castle County), USA
(7) Whitehill House, Windmill Hill Business Park, Whitehill Way, Swindon, SN5 6PE, England
(8)
(9)
Chancery Exchange, 10 Furnival Street, London, EC4A 1AB, England
8th Floor, The Place, High Holborn, London, WC1V 7AA, England
(10)
3 More London Riverside, London, SE1 2AQ, England
178
(11)
(12)
(13)
(14)
(15)
P.O.Box N-7768, Bank Lane, Nassau, Bahamas
Building 4F, Corniche Road, Ground floor, Office 1, Mussafah Industrial Area, 3069, Abu Dhabi, UAE
Flat 33, Building 232, Road 18, Block 321, Manama, Bahrain
P.O.Box 6967, 21452, Jeddah, Saudi Arabia
Peninsula Plaza #27-01, 111 North Bridge Road, 179098, Singapore
(16) Calle Delfines No. 268 – 2, Frac. Playa Ensenada, Ensenada, B.C., CP. 22880, Mexico
(17) Marszałkowska 82, Warsaw, Mazowieckie, 00-517, Poland
(18) Dormant company – Venezuela, no record of address
(19) Dormant company – Nigeria, no record of address
(20)
10th Floor, Club Chambers Building, Corner Nelson Mandela Avenue / 3rd Street, Harare, Zimbabwe
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020
25 Related party transactions
Group
A related party relationship exists with its subsidiaries, joint ventures and associates, joint operations, The Costain Pension
Scheme and with its directors and executive officers.
Sales of goods and services
Services of Group employees
Construction services and materials
Joint
ventures and
associates
£m
2020
Joint
operations
£m
Joint
ventures and
associates
£m
Total
£m
2.0
–
2.0
130.7
132.7
27.8
27.8
158.5
160.5
2.9
–
2.9
2019
Joint
operations
£m
177.8
37.8
215.6
Total
£m
180.7
37.8
218.5
Balances with joint ventures and associates are disclosed in notes 16 and 19. Balances with joint operations are eliminated
on consolidation.
The Costain Pension Scheme
Details of transactions between the Group and The Costain Pension Scheme are included in note 21.
Transactions with key management personnel
Disclosures related to the remuneration of key personnel as defined in IAS 24 ‘Related Party Disclosures’ are given in note 6.
Key management personnel, as defined under IAS 24 ‘Related Party Disclosures’, have been identified as the Board of
directors as the controls operated by the Group ensure that all key decisions are reserved for the Board.
The Directors of the Company and their immediate relatives control 445,112 ordinary shares in Costain Group PLC, which
expressed as a percentage of the issued share capital is 0.16% (2019: 0.73%) of the voting shares of the Company. In addition,
Mr Bishoy Azmy, non-independent non-executive director is the director representative of the shareholder ASGC which holds
41,666,666 shares and is a c.15% shareholder of the Company. Bishoy Azmy held no shares in his own name.
179
In addition to their salaries, in respect of the Executive Directors and executive officers, the Group provides non-cash
benefits and contributes to defined contribution pension plans. Executive Directors and executive officers also participate
in the Group’s LTIP, DSBP, AIP and SAYE plans, which are detailed in note 21.
The compensation of key management personnel, including the directors, is as follows:
Directors’ emoluments
Executive officers’ emoluments
Post-employment benefits
Share-based payments
Group
2020
£m
1.1
1.3
0.1
0.3
2.8
2019
£m
1.4
1.7
0.2
1.3
4.6
The above amounts are included in employee benefit expense (note 6).
Louis Thompson, who until 5 July 2016 was a director of Simulation Systems Limited (now Costain Integrated Technology
Solutions Limited), is a beneficiary of a pension scheme that owns and leases a property to a Costain subsidiary under a 25
year lease dated 2007. The rent is £10,600 per annum. Notice has been served to terminate the lease.
Company
The Company has no transactions with related parties other than the charge in relation to share-based payments (note 21)
(2019: none).
Accounts | Notes to the Financial StatementsAccounts | Notes to the Financial Statements
26 Disposals of subsidiary and associated undertakings
Alcaidesa Servicios S.A.U. (Spain)
On 6 August 2020, the Group disposed of its investment in Alcaidesa Servicios S.A.U. for a net consideration of £3.6m.
Property, plant and equipment
Trade and other receivables
Other payables
Interest bearing loans and borrowings
Less net cash consideration
Translation reserve less net investment hedge transferred to income statement
Profit on disposal
2020
£m
4.6
0.1
(0.2)
(0.5)
4.0
(3.6)
0.4
(0.8)
(0.4)
In 2019, the Group disposed of its investment in Alcaidesa Holding S.A.U. and its wholly owned subsidiary Alcaidesa Golf
SLU for a net consideration of £11.8m, incurring a loss on disposal of £3.0m.
Zimbabwe subsidiaries
During April 2020, the Group completed the sale of its legacy companies that held property assets in Zimbabwe for
£1.0m (net of costs), which as the net assets were held at no value represents the profit on disposal.
Associated undertakings
In August 2020, the Group completed the sale of its interests in its two remaining ‘Building Schools for the Future’
partnership companies for a combined consideration of £3.7m, which generated a profit of £1.6m.
180
Notes to the Financial Statements continuedCostain Group PLC Annual Report & Accounts 2020 Other Information | Five-Year Financial Summary
Five-Year Financial Summary
Revenue and profit
Group revenue
2020
£m
2019
£m
2018
£m
2017
£m
2016
£m
978.4
1,155.6
1,463.7
1,684.0
1,573.7
Group operating (loss)/profit before other items
(81.7)
17.9
52.5
49.1
41.1
Other items:
RDEC grant income
Arbitration award on historical building project
Impairment of Alcaidesa marina
Impairment of other investment
Profit on sales of interests in joint ventures and associates
Profit/(loss) on disposal of subsidiary undertakings
Refinancing advisory fees
Pension GMP equalisation charge
Amortisation of acquired intangible assets
Impairment of goodwill
Employment related and other deferred consideration
Group operating (loss)/profit
Share of results of joint ventures and associates
(Loss)/profit from operations
Finance income
Finance expense
Net finance expense
(Loss)/profit before tax
Taxation
(Loss)/profit for the year attributable to
equity holders of the Parent
(Loss)/earnings per share – basic*
(Loss)/earnings per share – diluted*
Dividends per ordinary share
Final
Interim
Summarised consolidated statement of financial position
Intangible assets
Property, plant and equipment
Investments in and loans to equity accounted joint ventures
and associates
Retirement benefit asset
Other non-current assets
Total non-current assets
Current assets
Total assets
Current liabilities
Retirement benefit obligations
Other non-current liabilities
Total liabilities
–
–
(0.6)
(0.6)
1.6
1.4
(1.2)
(0.9)
(1.0)
(9.0)
–
(92.0)
0.2
(91.8)
0.8
(5.1)
(4.3)
(96.1)
18.1
(78.0)
(36.7)p
(36.7)p
–
–
52.1
39.9
0.4
–
27.1
119.5
370.4
489.9
266.3
5.6
61.5
333.4
–
(9.7)
(5.9)
–
–
(3.0)
–
–
(2.3)
–
(0.2)
(3.2)
0.3
(2.9)
1.0
(4.7)
(3.7)
(6.6)
3.7
(2.9)
(2.3)p
(2.3)p
–
3.80p
59.0
44.1
2.5
4.9
6.7
117.2
435.3
552.5
328.9
–
65.9
394.8
2.6
2.5
–
–
–
–
–
–
(8.6)
(3.0)
–
(0.4)
43.1
0.3
43.4
0.4
(3.6)
(3.2)
40.2
(7.4)
32.8
30.9p
30.2p
10.00p
5.15p
58.5
40.0
2.5
–
6.3
107.3
467.3
574.6
326.7
4.2
61.4
–
–
–
–
–
–
–
(3.2)
–
(1.2)
47.2
0.3
47.5
0.4
(6.1)
(5.7)
41.8
(9.2)
32.6
31.1p
30.6p
9.25p
4.75p
62.5
43.0
2.7
–
15.0
123.2
539.8
663.0
423.2
23.9
61.9
–
–
–
–
–
–
–
–
(4.6)
–
(1.6)
34.9
0.2
35.1
0.6
(4.8)
(4.2)
30.9
(4.5)
26.4
25.7p
25.0p
8.40p
4.30p
65.9
42.2
2.6
–
22.6
133.3
512.9
646.2
441.6
73.5
31.5
392.3
509.0
546.6
Equity attributable to equity holders of the Parent
156.5
157.7
182.3
154.0
99.6
*
The Loss per share figures for 2019 have been restated for the capital raise in 2020
181
Financial Calendar and Other Shareholder Information
Financial calendar1
Full year results
Annual report mailing
Annual General Meeting
Half-year end
Half-year trading update
Half-year results 2021
Financial year-end
16 March 2021
1 April 2021
6 May 2021
30 June 2021
July 2021
25 August 2021
31 December 2021
1
The financial calendar may be updated from time to time throughout the year. Please refer to the Investors section of our website at www.costain.com for up-to-date
details.
Scrip dividend scheme
The Company will pay no final dividend in respect of the year ended 31 December 2020. A scrip dividend scheme is offered
when a dividend is paid. Those shareholders who have already elected to join the scheme will automatically have their
future dividends sent to them in this form.
Shareholders wishing to join the scheme for all future dividends should return a completed mandate form to the
Registrar, Equiniti. Copies of the mandate form and the scrip dividend brochure can be downloaded from the Company’s
website at www.costain.com or obtained from Equiniti by telephoning 0371 384 2268* or +44 (0) 121 415 7173 if calling
from outside the UK.
Analysis of shareholders
as at 3 March 2021
182
Shareholdings 100,000 and more
Shareholdings 50,000–99,999
Shareholdings 25,000–49,999
Shareholdings 5,000–24,999
Shareholdings 1–4,999
Totals
Total number of
holdings
Percentage of
holders
Total number of
shares
Percentage issued
capital
132
52
49
407
7,953
8,593
1.54
0.60
0.57
4.74
92.55
100
261,990,447
95.29
3,649,587
1,778,871
4,084,808
3,446,028
274,949,741
1.33
0.65
1.48
1.25
100
Costain Group PLC Annual Report & Accounts 2020 Other Information | Financial Calendar and Other Shareholder Information
Secretary
Sharon Harris
Registered Office
Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB
Telephone 01628 842 444
www.costain.com
info@costain.com
Company Number 1393773
Registrar
Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone 0371 384 2250* or +44 (0)121 415 7047 if calling from outside the UK.
Website
www.shareview.co.uk
Dividend mandate
Shareholders can arrange to have their dividends paid directly into their bank or building society account, by completing a
bank mandate form. The advantages of using this service are:
• the payment is more secure as you can avoid the risk of cheques getting lost in the post
• it avoids the hassle of paying in a cheque and
• there is no risk of lost, stolen or out-of-date cheques.
A mandate form can be obtained from the Company’s website, or by contacting Equiniti on 0371 384 2250* or +44 (0) 121
415 7047 if calling from outside the UK and can also be obtained via the shareholder website at www.shareview.co.uk (see
below for further details). Overseas shareholders can arrange for their dividends to be paid in their local currency and
more information can be obtained from www.shareview.com/overseas.
Shareview service
The Shareview service from our registrar, Equiniti, allows shareholders to manage their shareholding online, giving:
• direct access to data held on their behalf on the share register including recent share movements, indicative valuations
and dividend details and
• the ability to change their address or dividend payment instructions online.
To sign up for Shareview you need the ‘shareholder reference’ printed on your proxy form or dividend stationery.
There is no charge to register.
When you register with the site, at www.shareview.co.uk, you can register your preferred format (post or email) for
shareholder communications. If you select email as your mailing preference, you will be notified of various shareholder
communications, such as annual results, by email instead of post.
If you have your dividends paid straight to your bank account, and you have selected email as your mailing preference, you
can also collect your ‘dividend tax confirmation’ electronically. Instead of receiving the paper ‘dividend tax confirmation’,
you will be notified by email with details of how to download your electronic version. Visit the website
at www.shareview.co.uk for more details.
Details of software and equipment requirements are given on the website.
*
Lines are open Monday to Friday 08.30am to 5.30pm, excluding public holidays in England and Wales, times may vary during the COVID-19 pandemic.
183
Financial Calendar and Other Shareholder Information continued
Bereavement services
In the event of the death of a shareholder the next of kin or administrator of the estate should contact our registrar,
Equiniti. Equiniti have a Designated Bereavement Services Helpline on 0371 384 2793 (UK) or +44 121 415 0875 (overseas).
You will be asked to supply a certified copy or the original of the death certificate, together with an appropriate authority
to deal with the estate, such as a Grant of Probate.
Further information is available on www.shareview.co.uk.
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
0207 291 3310.
Further guidance can also be found on the Company’s website at www.costain.com.
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 at www.sharegift.org. 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 and the service is free
of charge.
Website
The Company’s website at www.costain.com provides information about the Group including its strategy and recent news.
The ‘Investors’ section is a key source of information for shareholders, containing details of financial results, shareholder
meetings and dividends. Current and past annual reports are also available to view and download.
184
Costain Group PLC Annual Report & Accounts 2020 Other Information | Contact Us
Contact Us
Sharon Harris
General Counsel and
Company Secretary
Sara Lipscombe
Group Communications Director
We welcome your views
Costain is committed to engaging in dialogue
with all its stakeholders.
We are actively encouraging feedback on our annual
report and would welcome any views you may have.
For shareholder information, please contact:
info@costain.com
For investor relations enquiries, please contact:
ir@costain.com
For corporate communications, please contact:
mediaenquiries@costain.com
Useful links
www.costain.com
www.costain.com/investors
www.costain.com/our-culture
www.costain.com/news
185
www.costain.com/investors
Disclaimer
The purpose of this document is to provide information to the members of Costain Group PLC. This document contains certain statements that are
forward-looking statements. They appear in a number of places throughout this document and include statements regarding our intentions, beliefs
or current expectations and those of our officers, directors and employees concerning, among other things, our results of operations, financial
condition, liquidity, prospects, growth, strategies and the business we operate. By their nature, these statements involve uncertainty since future
events and circumstances can cause results and developments to differ materially from those anticipated. The forward-looking statements reflect
knowledge and information available at the date of preparation of this document and unless otherwise required by applicable law the Company
undertakes no obligation to update or revise these forward-looking statements.
Nothing in this document should be construed as a profit forecast. The Company and its directors accept no liability to third parties in respect of
this document save as would arise under English law.
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Costain House
Vanwall Business Park
Maidenhead
Berkshire SL6 4UB
Telephone 01628 842 444
costain.com
info@costain.com
Company Number 1393773