Results for the year ended 31 December 2010
Meeting national needs
Analyst presentation 9 March 2011 David Allvey, Chairman 2010: a milestone year
» Another excellent performance in 2010 » 12% increase in dividend » Significant progress in establishing Costain as one of the UK‟s top solutions providers » Deploying „firepower‟ to expedite strategy
2 Results for the year ended 31 December 2010 Acquisition strategy
» Expediting delivery of strategy by acquisitions, from bolt-on to transformational » Progressing a number of opportunities » Costain is in an offer period regarding Mouchel Group plc » Following completion of extensive initial due diligence, revised proposal reflecting our assessment of valuation submitted on 17th February 2011 » Mouchel has since entered a “co-operation agreement” with a third party » All potential acquisitions must meet strict criteria
3 Results for the year ended 31 December 2010 Tony Bickerstaff, Finance Director Financial highlights
» Profit from operations* up 41% to £29.4m (2009: £20.8m) » Profit before tax* up 54% to £27.9m (2009: £18.1m) » Successfully completed PFI transfer into Costain Pension Scheme » High quality order book at £2.4bn (2009: £2.6bn) » C. £800m of new work secured for 2011 » Strong net cash position of £144.3m (2009: £120.5m) » Average month end balance £116.0m (2009: £125.3m) » Pension Scheme deficit significantly reduced to £28.9m, net of deferred tax (2009: £75.4m) » Increased recommended final dividend of 6.25p, increasing total payout for year by 12% to 9.25p (2009: 8.25p**)
* Including profit arising from PFI transfer / sales
** Restated following 1 for 10 share consolidation
5 Results for the year ended 31 December 2010 Revenue & profit
Revenue £m Profit from Operations £m 35 29 1,200 30 996 1,061 1,023 1,000 877 25 21 H2 800 H2 17 18 529 553 490 20 20 H1 447 H1 600 15 13 9 10 400 10 200 430 467 508 533 5 8 8 8 9 0 0 2007 2008 2009 2010 2007 2008 2009 2010
6 Results for the year ended 31 December 2010 Revenue by division
Infrastructure Environment * Energy & Process increased 8% decreased 18% increased 35%
£m 500 £m 800 £m 150 400 600 137 100 300 365 395 594 400 490 101 200 50 100 200 0 0 0 2009 2010 2009 2010 2009 2010
(*Reflecting integration of Community division into Environment division)
7 Results for the year ended 31 December 2010 Segmental income statement Year ended 31 December
2010 2009 £m £m Margin £m £m Margin Environment 17.2 3.5% 3.3 0.6% Including PFI Sales/transfers 11.2 2.0 Infrastructure 12.2 3.1% 16.9 4.6% Energy & Process 8.2 6.0% 9.3 9.2% Land Development (1.8) (2.6) Central costs (6.4) (6.1) Profit from operations 29.4 20.8
Net finance expense (1.5) (2.7) Profit before tax 27.9 18.1 Basic EPS 36.4p 23.0p
8 Results for the year ended 31 December 2010 Net finance expense
2010 2009 £m £m Net Bank Deposit/Loan interest 0.1 2.1
IAS19 Pension Scheme interest: Expected return on scheme assets 29.7 23.4 Interest cost on present value of obligations (31.3) (28.2)
IAS19 Pension Scheme net interest (1.6) (4.8)
Net finance expense (1.5) (2.7)
9 Results for the year ended 31 December 2010 Tax
» 2010 tax rate at 17.2% of PBT (2009: 19.3%) » Includes benefit of PFI Transfer as a non-taxable gain » Normalised rate expected to be 25%-27% on non JV profit
10 Results for the year ended 31 December 2010 Cash flow reconciliation Year ended 31 December
2010 2009 £m £m Cash and cash equivalents at beginning of period 120.5 146.9 Cash flow from / (used by) operating activities 30.7 (16.5) Cash flow used by investing activities (1.6) (4.2) Dividends / financing (5.4) (5.0) Effects of foreign exchange rate changes 0.1 (0.7) Cash and cash equivalents at end of period 144.3 120.5 Net cash reconciliation Cash and cash equivalents at end of period 144.3 120.5
Less: Interest bearing loans and borrowings 0.0 0.0
Reported net cash 144.3 120.5
Average month-end cash balance £116.0m (2009: 125.3 million)
11 Results for the year ended 31 December 2010 Balance sheet Year ended 31 December
2010 2009 £m £m
Non current assets (excluding pension deficit deferred tax) 76.3 74.6 Trade and other receivables 163.3 204.3 Cash 146.0 120.8 Current assets 309.3 325.1 Total assets 385.6 399.7 Current liabilities (311.4) (320.5) Total assets less current liabilities 74.2 79.2 Non current liabilities (excluding net pension liability) (7.7) (7.6) Pension liability net of deferred tax (28.9) (75.4) Total equity 37.6 (3.8)
12 Results for the year ended 31 December 2010 Pension » Net Deficit reduced to £28.9m (2009: £75.4m) » Increased asset returns and company contributions » Partially offset by increased longevity assumption and reduced discount rate » Ongoing actions to manage the obligations » Scheme closed to future accrual from 30th September 2009 » All current employees now only have defined contribution scheme option » £22m PFI Transfer to scheme completed in November 2010 » Actuarial valuation as at 31 March 2010 and recovery plan agreed » Reduced cash contributions from 1 January 2011 » Ongoing commitment to match dividend with Dec June Dec equivalent additional contribution to pension scheme 2010 2010 2009 £m £m £m Present value of defined benefit obligations (576.7) (540.4) (560.5) Fair value of scheme assets 537.1 462.2 455.8 Recognised liability for defined benefit obligations (39.6) (78.2) (104.7) Deferred tax 10.7 21.9 29.3 Net pension deficit (28.9) (56.3) (75.4)
13 Results for the year ended 31 December 2010 PFI transfer into Costain Pension Scheme
» Costain actively trades its PFI portfolio investments to invest in future opportunities » In 2010, six PFI investments transferred into Costain Pension Scheme » Agreed valuation of £22.0 million, representing an effective discount rate below 7% » Accounting profit of £11.2 million (2009: £2 million profit from sale of PFI investments) » Allowing for additional accrual for share-based payments of £2 million as a result of overall profit generated by group in 2010, transaction generated additional £7.2 million compared to 2009
14 Results for the year ended 31 December 2010 PFI equity portfolio
Invested Committed Estimated Status Capital Capital Valuation Valuation of Current Portfolio
Bridgend Sold 30.0 Kings Sold Sirhowy Sold Kent Schools Sold Ealing Schools Sold Shropshire Sold 25.0 Kent Elderly Sold Kingston 3 Shires - Lincolnshire Transferred 3 Shires - Leicester to 3 Shires - Derby Pension Bradford BSF I Scheme 20.0
Lewisham BSF I Estimated Valuation(£m) Estimated Aquatrine Operations 1.1 - 5.0 Bradford BSF II Construction - 9.3 15.5 Lewisham BSF II Construction - 0.9 1.4 Lewisham BSF III Construction - 1.3 1.7 15.0 Lewisham BSF IV Construction - 2.2 2.5 10.0% 9.5% 9.0% 8.5% 8.0% 7.5% 7.0% 6.5% 6.0%
Discount Rates TOTALS 1.1 13.7 26.1
15 Results for the year ended 31 December 2010 Banking & bonding facilities
» Facilities increased by 20% to £345.0 million in early 2010 » Extended to September 2013 » Circa 40% utilised for bonding » Cash of £146.0 million* » Only debt is £1.7 million overdraft » Strong position to support next phase of growth
* Including £33.8 million share of cash held by joint venture arrangements
16 Results for the year ended 31 December 2010 High quality order book » Major contract awards during year include: » Highways Agency managed motorway 31 December 2010: framework £2.4 billion » Highways Agency Maintenance Area 14 » Welsh Water AMP5 » 10-Year nuclear framework for Magnox South » Two Crossrail projects » Bond Street station upgrade » National Grid cable tunnel infrastructure » Repeat business at over 80% » Preferred bidder positions in excess of £400 million » Further contract awards since 31 December 2010 including: » Northumberland AMP5 » Manchester & Heathrow frameworks » River Thames bridge » Highways Agency A556 ECI » 3rd Crossrail project » Bidding activity remains high
17 Results for the year ended 31 December 2010 Over 70% of order book regulated or maintenance related
Order Book as at 31 December 2010
18 Results for the year ended 31 December 2010 Maintained long-term visibility of earnings
2010 Order Book @ 31 December 2009: 2011 £2.6bn 2012+ Preferred Bidder
Order Book @ 2011 31 December 2010: £2.4bn 2012 2013+ Preferred Bidder
0 200 400 600 800 1000 1200 £m
Secured circa £800 million of 2011 revenue at 31 December 2010 (December 2009: c. £900 million for 2010)
19 Results for the year ended 31 December 2010 Increased dividend
» Recommended final dividend of 6.25p (2009: 5.5p*) taking full pay-out for year (if approved) to 9.25p (2009: 8.25p*), an increase of 12% » Payment on 20th May 2011 to shareholders on the register as at 15th April 2011 » Option to take shares in lieu
* Restated following 1 for 10 share consolidation
20 Results for the year ended 31 December 2010 Andrew Wyllie, Chief Executive Meeting national needs - priorities
Energy commitment Reducing congestion Waste solutions
Vital role for railways Water challenges Key market dynamics & trends
» National need driving £ billions of essential infrastructure investment » Economic conditions expected to remain uncertain » Customers continue to drive for major cost savings » Major customers are: » Working with fewer tier-1 suppliers » Placing longer-term, larger contracts… » …incorporating a wider range of complex services » Scale and capability essential » Strong balance sheet a pre-requisite » Driving consolidation on supply side
23 Results for the year ended 31 December 2010 Strategy to meet key market trends Changing Revenue Profile*
2006 2010 2014
Consulting Construction Care
2006 Infrastructure Highways, Rail, Airports
2008
‘Being Number ‘BeingOne’ Environment 2010 Water and Waste
2012 Energy and Process Nuclear, Power, and Hydrocarbons & Chemical
2014 Costain’ ‘Choosing 15%* 60%* 25%*
*Indicative
24 Results for the year ended 31 December 2010 24 The reality facing our customers today
Rising expectations Limited funding
Operating costs reduction
Innovation is the solution
25 Results for the year ended 31 December 2010 Customers looking for innovative solutions
26 Results for the year ended 31 December 2010 Customers looking for innovative solutions
27 Results for the year ended 31 December 2010 Delivering innovative solutions
» Costain is delivering valuable solutions through innovation… » …through the application of technology…and at pace » Delivering solutions which… » Generate savings, and… » …add value » Performance resulting in 80% repeat order business…and attracting new customers
A few case studies ...... & a glimpse of the future
28 Results for the year ended 31 December 2010 Delivery being transformed at Sellafield
The national challenge » 200,000 tonnes of legacy waste Utilisation of module technology » £1.5bn pa maintenance Costain ability » Leading player: 400 process engineers » Integrated team
The innovation » Offshore delivery » Whole-life condition management Customer benefit » Safety case » Programme reduced by a third » Under budget » Saving £ millions
29 Results for the year ended 31 December 2010 Risk reduced for Southern Water
The national challenge » 9,600m litres/day, 24/7 Capex comes off the risk register » Increasing regulation » Energy cost & carbon Costain ability » Market leader » Seeing through the eyes of the customer
The innovation » First single framework » Asset value optimisation Customer benefit » 5 year extension, programme certainty » Cost reduction yr/yr » Saving £ millions
30 Results for the year ended 31 December 2010 Making Europe’s largest waste project a reality
The national challenge » 100m tonnes/yr in UK Finance for Europe’s biggest waste deal » End to landfill » Keeping ahead of regulatory timetable Costain ability » Innovation management » Finance The innovation » State of the art technologies » 1st PFI deal post banking crisis Customer benefit » Secured finance » Addressed regulatory demands » Lifetime benefit » Energy from waste
31 Results for the year ended 31 December 2010 40% saving on M1 scheme
The national challenge » Journey time reliability Innovation in motion » Greater volume » 15% cost reduction Costain ability » Market leader » Asset management » Relentless project focus
The innovation » Technology deployment » Dynamic road space utilisation Customer benefit » Minimum disruption » 20% more capacity » 40% saving to the customer
32 Results for the year ended 31 December 2010 A glimpse of the future
33 Results for the year ended 31 December 2010 Recognition
“Extraordinary renaissance” “…the reputation of Costain has been rebuilt to the point that last summer it was named by the industry as “Contractor of the Decade”...in making the award New Civil Engineer magazine was elevating Costain above the likes of Balfour Beatty, Carillion, the McAlpines and the Laings. It also recognised an extraordinary renaissance.”
Robert Lea, Industrial Editor The Times, 8 January 2011 Summary
» 2010: a milestone year » Another excellent performance in 2010: 12% increase in dividend » Uncertain economic conditions expected to continue » National needs driving £ billions of essential infrastructure investment » Implementing clear strategy for development of the Group » 2011 progressing in line with our expectations
“Delivering innovative solutions to meet national needs”
35 Results for the year ended 31 December 2010 Results for the year ended 31 December 2010
Analyst presentation 9 March 2011