CostainGroup Annual PLC Report 2012 Engineering Engineering Tomorrow

Costain Group PLC Annual Report 2012 methodology. Calculations are and greenhouse gases greenhouse and 2 : www.costain.com 2,915 kg of landfill of kg 2,915 60,268 litres water of 5,857 kWh electricity of CO 397 kg 4,736 kg of wood of kg 4,736

e ourc Results are obtained according to and are subject technical information to modification. based on a comparison between the recycled paper used versus a virgin fibre paper according to the latest European BREF data (virgin fibre paper) available. Carbon footprint data evaluated by FactorX in accordance with the Bilan Carbone® S By printing 4,000 printing By copies this of on Cocoonpublication recycled impact the environmental papers, was reduced by: Visit PLC Group Costain House Costain Park Business Vanwall Maidenhead 4UB SL6 Berkshire Kingdom United Who we are

At Costain we are continually progressing our business to become the engineering solutions provider of choice. Our customers demand a seamless world-class service – from initial consultancy and advice to construction and engineering solutions, and long-term asset care and maintenance support. We can never stand still. Throughout our history of almost 150 years we have been driven by the need to seek continually new and innovative ways to meet the challenges of delivering ever more complex solutions.

Our vision How we operate Our vision is to be one of the UK’s top engineering We are committed to operating our business both solutions providers. We must be the best for technical, sustainably and responsibly. We are focused on one innovative expertise and sustainable solutions. simple but powerful message – ‘Costain Cares’. This is not a slogan: it is an attitude of mind. It is integral to everything we do and a touchstone against which What we do we can evaluate and measure our performance. We focus on intelligent solutions to meet national needs. Costain Cares about relationships, our environment As a Tier One engineering solutions provider, we provide and the future. front-end engineering consultancy, construction and ongoing care and maintenance services across market sectors including water, waste, power, rail, hydrocarbons How we create value and chemicals, highways and nuclear process. Our ‘Choosing Costain’ strategy is designed to meet national needs by upgrading and maintaining the UK’s infrastructure and aiding economic recovery and growth. Value is created by our drive for innovation and we are committed to a constant quest for improvement. We are confident that our robust business model and our strategic focus will continue to deliver shareholder value in the years ahead.

Designed and produced by The College www.the-college.com This Report has been printed on Cocoon 50% Gloss and Cocoon 100% Offset – both are recycled papers. They contain 50% recycled Costain photographers: Mike Doherty, front cover and page 124 waste and 100% recycled waste respectively, are FSC certified and (Catherine Warbrick), pages 1, 10, 11 (Bidston Moss Viaduct), pages 49 produced at a mill with ISO 14001 certification. Recycled fibres used and 124 (Tracey Wood); Phil Starling, front cover (Dave Johnson and are Process Chlorine Free. Shuly Choudhury), pages 1 and 8 (Dave Johnson), pages 1 and 10 (Oliver O’Brien), pages 1 and 12 (Winny Oshodi), page 4 (Great Ormond Street Hospital), page 5 (Investor Relations Society Award); Ed Tyler, PAS2020 pages 6, 14, 44, 49, 51 (Costain Board Directors), page 124 (Graham Read); ENVIRONMENTALLY SENSITIVE Ian Routledge, pages 48, 49, (Costain Board Directors); and Gustavo CERTIFIED Ferrari, Pro Light Studio, page 49 (Samer G. Younis). CERTIFYING BODY

Additional photography: Matt Aston, pages 1, 8, 9 (Reading Station); If you have finished reading the Annual Report and no longer wish Courtesy of Curtis Photography and Southern Water, page 26 (cleaner Find us online to retain it, please pass it on to other interested readers or return it seas to Sussex); Darren Ruane, page 27 (M1 Junction 10-13 scheme); to Costain Group PLC or dispose of it in your recycled paper waste. Our Annual Report 2012 is available Brian Sherwen, www.briansherwen.co.uk page 32 (Bridges to schools Thank you. in both printed form and within the event); and Tandem TV & Film, page 35 (Achieving Excellence Awards). ‘Investors’ section of the Costain website at www.costain.com/ This Annual Report is available at www.costain.com investors. Effective communication The Annual Report is printed by an FSC (Forest Stewardship Council), with our shareholders is vital to our ISO 14001 and Carbon Neutral certified printer using vegetable continued success and we would based inks. (ISO 14001 is a pattern of control for an environmental welcome feedback on either or management system against which an organisation can be credited both versions of this Annual Report by a third party. FSC ensures there is an audited chain of custody from – contact us at [email protected] the tree in the well-managed forest through to the finished document in the printing factory.) Contents 2-13 12 Maximising whole-life value -11 10 Delivering programme excellence 08-09 Designing intelligent solutions Directors’ – Report Corporate Governance 48 44 42 40 Directors’ Report – Business review –Business Report Directors’

124 122 information Other 121  85 84 83 82 82 18 14 08 06 indicators.performance key and risks principal objectives, strategic our review We also performance. financial our of details provide we year, and the over developed has it how commitment to Corporate Responsibility, how our business is organised and our by underpinned is strategy our how We explain proposition. investment sustainable our and strategy our on focus greater provides section This 02 Overview 81 80  79  79  78 shareholder services. that our stakeholders finduseful including thecalendar and financial information other and statements financial detailed the contains section This Financial statements 76 75 65 60 52 50 audit procedures. and accountability our and committees the We detail processes. This section explains our Corporatedecision-making Governance and 25

Board of Directors Board Group Finance Director’s review Key indicators performance risks Principal Contact us and other calendar informationFinancial shareholder Five-year summary financial statements to financial Notes the statement flow cash Company Consolidated cash flow statement equity in of changes statement Company equity in of changes statement Consolidated Company statement of financial position Executive’s review Chief Care delivery, Project Consulting, Chairman’s statement 04 03 02 2012 highlights Consolidated statement of financial position expense and Company statement of comprehensive income expense and Consolidated statement of comprehensive income Consolidated income statement PLC Group of Costain Independent Auditor’s report to the members Directors’ responsibilities statement Directors’ remuneration report information statutory Other Corporate Governance statement Corporate Governance 30 29 26 Performing responsibly Business model



39 Environmental and social highlights 37 Operational highlights Financial highlights Costain Cares 30 and approach Our Corporate framework Responsibility performance Divisional

The Future The Our Environment Relationships Annual Report 2012 01 Report Annual PLC Group Costain

Other information Financial statements Corporate Business review Overview Governance 02 Costain Group PLC Annual Report 2012

Overview 2012 highlights

Strategy delivering results

Financial highlights

Revenue1 Underlying operating profit2 Adjusted profit from operations3 £m £m £m

1,200 30.0 40 1,061.1 1,022.5 996.0 986.3 24.1 25.1 31.4 900 934.5 22.5 22.0 30 29.4 19.5 17.4 23.6 20.8 600 15.0 20 18.3

300 7.5 10

0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12

Net cash balance Adjusted earnings per share3 Dividends per share £m Pence Pence

160 48 12 146.6 144.3 10.75 140.1 41.4 10.0 120.5 36.4 9.25 120 36 9 8.25 105.7 29.0 31.1 7.5 80 24 23.0 6

40 12 3

0 0 0 08 09 10 11 12 08 09 10 11 12 08 09 10 11 12

Year ended 31 December 2012 2011 1 Including share of joint ventures and associates. 1 Revenue £934.5m £986.3m 2 Underlying operating profit (before amortisation Operating profit of acquired intangible assets and employment 2 related acquisition consideration of £3.4 million) Underlying £ 25.1m £ 24.1m in 2012 excludes the £2.8 million one-off costs Profit from operations resulting from pension scheme liability actions. Adjusted3 £31.4m £23.6m 3 Results stated before amortisation of acquired Reported £28.0m £22.0m intangible assets and employment related acquisition consideration and after £10.5 million Profit before tax profit arising from transfer of PFI assets into Adjusted3 £29.5m £25.5m the Group’s pension scheme and £2.8 million one-off costs resulting from pension scheme Reported £ 26.1m £23.9m liability actions. Basic earnings per share Adjusted3 41.4p 31.1p Reported 37.1p 29.2p Net cash Year-end cash balance £105.7m £140.1m Average month-end cash balance £103.4m £130.4m Dividend per share 10.75p 10.0p • • • • • expected to be completed in spring 2015. spring in to completed be expected 2012, August in are works Started the development ofIreland.” Northern significant importance to the economic of are to complete, months 34 take will which works, “These said: Minister The £102 of the scheme. sod million first the by cutting project) venture joint Costain (a Dualling to Larne Belfast A8 has signalled theMLA, of start the Regional Development, Danny Kennedy Ireland MinisterThe Northern for underway to Larne Belfast A8 • • Operational highlights Operational Adjusted basic earningsshare per (2011:£29.5 million £25.5 million) to 10.75 pence, a7.5% increase on the prior year successivesixth year, taking the total for the year Recommended increase in final dividend for the secured for 2012) 2013 as at 31 2012 December (2011: over million £650 Increase to over £700 million of revenue secured for extensions to existing contracts (2011: £2.5 billion) fromof repeat 90% orders including new awards and High forward quality order book of £2.4 billion, in excess of £103.4balance (2011: million £130.4 million) (2011: £140.1 million)and average month-end cash £105.7 million year-end net balance cash profitsand a non-recurring timing benefit tax to 41.4 (2011: pence 31.1 reflecting pence), increased Underlying operating profit Increase of 16% in adjusted profit before tax (2011: £24.1 million)

2 up 4% to £25.1 million Decommissioning Authority.Decommissioning by Magnox on behalf of the Nuclear operated are which sites ten all across infrastructure and maintenance projects of construction, delivery the for million £288 around worth contract aframework awarded has Magnox framework contract million Magnox £288 Costain appointed to construction material. of suppliers local for demand in to increase an lead will which scheme, the for used be will material bituminous 310,000 and of tonnes reinforcement 1,300 of steel of concrete, tonnes tonnes 55,000 that estimated is It 3 up 33% 33% up

3

Board of Directors of Board Group Finance Director’s review Business model Chief Executive’s review Chairman’s statement Find out more: out Find to to

to help ensure the lights stay on.” stay lights the ensure to help available technology and talent best the bigger story which involves us deploying of amuch part one just is Road Gate project. Our breakthrough at Channel vital of this completion the towards step breakthrough represents another major “The Tunnels, said: of Cable Head Grid’s National Luetchford, David 2014. in completion for scheduled is work Tunnelling Haringey. in site launch her away from kilometre a approximately is and route of the 13km other the digging is Cleopatra year. this earlier Substation Willesden from journey its beginning after offices, Road Gate Grid’s Channel National a pre-prepared below deep shaft destination, way to its first its dug Evelyn Grid. National London Power Tunnels contract for of the part as tunnels level deep of three significant milestones in theconstruction of anumber reached has Costain Power Tunnels reached at London Major milestones in July 2012. July in 10 11 and Junctions between live went limit, speed the to vary technology using by congestion to relieve aims which The new managed motorway scheme, Luton. in School Primary Leagrave to £500 to donate decided team the to celebrate and 2009, in project milestone since work began on the this reached has project the time fourth the is It free. injury man-hours million 4,000 people, has again achieved one which has an inducted workforce of over Junctions 10-13 project. The project, major safety milestone on the M1 another reached JV Carillion Costain The injury-free million man-hours One Annual Report 2012 03 Report Annual PLC Group Costain pages 48-49 pages 44-47 pages ae 06-07 pages pages 18-24 pages 14-17 pages

Other information Financial statements Corporate Business review Overview Governance 04 Costain Group PLC Annual Report 2012

Overview 2012 highlights continued

Focused on our responsibilities

Environmental and social highlights £171,142 Donated to charitable causes in 2012, including £22,000 to Great Ormond Street Hospital Costain donated over £22,000 to Great the overall pension liabilities and risk Ormond Street Hospital’s ‘Raising the remaining within the scheme. Roof’ appeal, which will go towards Costain considered it important that all upgrading the hospital’s world-renowned members fully understood the offer and neuroscience centre. that they sought financial advice. The Earlier this year, Costain instigated an Company decided to make a donation Platinum status enhanced transfer value offer and of £10 to Great Ormond Street Hospital a pension increase exchange offer for each member who contacted the Costain’s commitment to being a to members of The Costain Pension appointed independent financial adviser, responsible business was underlined Scheme. This aimed to offer scheme Oval Financial Services Limited. During by the retention of Platinum status in members greater choice and flexibility the offer period, 2,246 members Business in the Community’s (‘BITC’s’) regarding their pension entitlement and contacted Oval, generating a donation 2012 Corporate Responsibility (‘CR’) gave Costain the opportunity to reduce of over £22,000. Index. “I congratulate Costain on achieving Platinum in the 2012 BITC Corporate Responsibility Index. The CR Index has helped to highlight clearly those best practice examples that bring to life in a powerful way what integrated responsible practice really looks like. As we celebrate ten years of our CR Index it has given me great pleasure to witness each company’s responsible business journey and the transformations they are making both within their businesses and the impact they have in our communities.” Stephen Howard Chief Executive Costain’s Sarah Barton, Lisa Bravery and Martin Hunter presented a cheque to Business in the Community Great Ormond Street Hospital’s Christina Panayiotou (second from right). 93% 27% 38 Waste diverted from Reduction in measured RoSPA Awards landfill carbon emissions over Costain’s Health and Safety performance the last four years was recognised by the achievement of Health and Safety Awards. The Group received 38 RoSPA Awards, including two Orders of Distinction, one President’s Award, five Gold Medals and 19 Gold Awards. monitoring equipment. to power panels solar installing site, and the wheel-wash for vehicles leaving the for rainwater using works, permanent recycling aggregates for and temporary onsustainability the project included of examples said Thevendran CSJV Project Dr Manager Vicknayson performance. environmental and social quality to industry engineering civil of the commitment the to demonstrate aims It and the engineering civil public realm. forscheme improving in sustainability award and assessment the is CEEQUAL (‘CEEQUAL’). AwardScheme and Assessment Quality EnvironmentalCivil Engineering the under Award’ Project ‘Whole first contractor, the was Crossrail’s won (‘CSJV’) venture joint Skanska Costain a which for London, west in contract Portal Oak Royal October,In C330 the project Crossrail CEEQUAL for award and supply chain. engaging with its employees, customers by actively baseline, a2009 against reduction in emission intensity by 2020 a55% to is achieve Costain’s target goals. reduction its to meet continues Company the ensure to review ayearly includes standard CEMARS The recognised. officially been has emissions carbon its reduce and report to accurately years three last the over Costain’s commitment means to CEMARS Accreditation (‘CEMARS’). Measurement and Reduction Scheme Emissions to Certified the Achilles by audit external an following footprint, carbon its reducing for accreditation Costain has received independent carbon footprint for accreditation receives Costain

a particular feature.” a particular Remuneration Committee content being and easy-to-navigate with report the aclear presented Group “Costain said: judges award, the the on Commenting form. entry awards the in out set award, each for criteria specific the and guidelines IRS’s practice best the on based achecklist, against scored and reviewed are entries All process. review three-part a robust, through determined are awards’ winners The UK. the in relations investor for point focal the is and relations investor in involved those The IRS is the professional body for cabinet minister Michael Portillo. Conservative by former presented and communications industry, were compered the investor relations and corporate approximately 450 people from across by attended were which awards, The print. in and online both best practice in investor communications, reward and recognise Awards Practice 12th their in Now year, Best IRS the 20 November. Tower Pavilion, on The of London, at held Awards Practice Best (‘IRSs’) Society’s Relations Investor the at category Award’, &AIM SmallCap the in (Printed and Online) Report Annual Overall Effective ‘Most the won Costain Report. 2011 its for London in ceremony Annual award relations investor aprestigious at recognised was November,In Costain Relations Award Society winsCostain Investor Report Annual of 19 modules covering business 2012 3September first on the to attend The Company welcomed 15 suppliers enterprises. to medium-sized small develop initiative that aims to and support academy, anew chain supply its opened officially September,In Costain Costain chain launches academy supply

it operated. it its business in the communities in which 2011, May in conducted it how to see launched initiative Cares Costain of the through the successful implementation financiallyand, company performed the how gauge to better stakeholders other and shareholders allowed This ago. years five Report Annual into its and corporate reporting responsibility financial its to integrate started Costain community. and stakeholders, and the financial acompany, shareholders its between most effective two-way communication the to enable rules listing Exchange Stock with compliance strict and finance,communication, marketing management function that incorporates astrategic is relations Investor Group. the across training and development adopted of standard high the with partners align the Company’s supply chain to launched been has academy The quality. and safety Safety, behavioural and Health insurance, practice, best administration, commercial and financial Annual Report 2012 05 Report Annual PLC Group Costain

Other information Financial statements Corporate Business review Overview Governance 06 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Chairman’s statement

Delivering excellent results

Overview & Strategic Update Costain has delivered another strong performance. As a result of the implementation of our ‘Choosing Costain’ strategy, the Group is one of the UK’s leading engineering solutions providers, delivering integrated consulting, project delivery and operations and maintenance services to major blue-chip customers in targeted market sectors. Our success is the direct result of our focus on major customers who are continuing to invest billions of pounds in capital, operations and maintenance contracts to address essential national infrastructure requirements across the transport, energy, water and waste sectors. During 2012, we increased the proportion of revenues from support service related activities to 29%. To meet the demands of major customers for an increasingly integrated service, we must continue to enhance and broaden the range of services we offer. The ongoing drive to develop our services particularly across engineering consultancy, and operations and maintenance will remain a key priority in 2013. David Allvey The spending plans of our customers provide a major Chairman opportunity to grow the business further. With a strong cash position, robust balance sheet and banking and bonding facilities in place, we have the resources to continue to grow the business organically and by acquisition.

Performance Revenue, including the Group’s share of joint ventures and associates, for the year was £934.5 million (2011: £986.3 million). Our focus on higher margin activities led to an increase of 4% in Group underlying operating profit of £25.1 million (2011: £24.1 million). Adjusted profit before tax increased by 16% to £29.5 million (2011: £25.5 million). Adjusted basic earnings per share were up 33% to 41.4 pence (2011: 31.1 pence), reflecting increased profits and a non-recurring tax timing benefit. As a result of the Group’s ongoing strategic focus on major blue chip customers who increasingly utilise a target cost based form of contract, our net cash position includes a lower level of advanced payments typically paid on lump sum contracts. Additionally, our increasing emphasis on support service related activities and changing industry cash flow trends, together with the cash flow timing implication of a delayed contract completion, accounted for the reduction in net cash to £105.7 million (2011: £140.1 million). We expect these trends will continue to be reflected in a lower average net cash position. considerable contribution over that time. time. that over contribution considerable his for John to like We thank would 11 member. aBoard as nearly years of 2012 end the at Board the after from retired who Bryant John succeeded Senior Director. Independent James became who Morley James succeeding appointed Chair of the Audit Committee, 2012. 1August been from also has Jane effect with Director a Non-Executive as Lodge of Jane appointment the to announce pleased was Board The &Staff Board 7.5% year. prior the over (2011: of increase an 10.00 pence), to 10.75 year full the share per pence for total dividend the bring would This 19 2013. on April of business close the at as register the on to shareholders on paid May be 201324 will dividend final 7.25 (2011: share per pence 6.75 pence) the approved, If of increase. year successive sixth the dividend, final the in a7.4% recommending is increase Board the Group, the for prospects long-term and our continuing in confidence the Reflectinganother year successful Dividend long-term visibility. such with year financial new the started to have 2012)for encouraging is it and 2013for (2011: secured million £650 over secured revenue the to £700 over million (2011: We increased have billion). £2.5 2012,31 December £2.4 was billion at as book, order the Consequently, contracts. to existing extensions and awards contract new of major a number We were in securing successful 30 September 2015. dateof amaturity with million of £465 facilities bonding and total banking with The Group has flexible financing in place “

for successive sixth the year. to increase final the dividend Board’sthe recommendation in reflected is Group’s future the in confidence our and 2012, in performance strong Costain has delivered another year. successive sixth the for dividend final the to increase Board’s recommendation in the reflected Group’s is the in future in 2012,performance and our confidence strong another delivered has Costain &Outlook Summary 2013. 31 at as out March carried be will CPS of the valuation actuarial full another the requirement for a tri-ennial review, with accordance In Review). Financial the within provided is detail (further CPS the in obligations the manage to taken being actions further two 2012, announced February in Group the Additionally, regard. that in actions decisive to various take continues and years ten than of less a period over deficit the to eliminate expected with the Pension Scheme Trustee, 2010, 31 at as March position agreed plan based on the latest actuarial recovery adeficit place in has Costain statements. to financial notes the the in out set are scheme pension of the valuation the in The assumptions and sensitivities used (2011: tax of deferred net £39.7 million). 2012 31 £40.0 December was million at (‘CPS’) Scheme Pension Costain The deficit on theGroup’s legacy Group Pension Scheme success. our in role to amajor play continue who Costain weat have colleagues excellent of the appreciation and recognition our record on tolike place Iwould Board, whole of the behalf On Executive’s Review. Chief the in covered are these and changes management of operational anumber were There

6 March 20136 March Chairman Allvey David organically and by acquisition. business to the grow to continue resources wethe have place, in facilities positioncash and and banking bonding net positive sheet, balance arobust With programmes. future their on customers with we work as accelerated be will business of the innovation, the strategic development by that, driven believes Group The maintenance capability. and operations and delivery provides integrated consulting, project of customers by that ensuring Costain focus on meeting the complex needs Group’s of the strategic a reflection challenging economic conditions, is despite years, recent in progress Our Annual Report 2012 07 Report Annual PLC Group Costain ”

Other information Financial Corporate Business review Overview statements Governance 08 Costain Group PLC Annual Report 2012

Directors’ Report – Business review

Consulting

Designing intelligent solutions

The depth and breadth of Costain’s expertise enables the Company to develop innovative solutions across its business sectors. These range from concrete gravity bases for offshore wind turbines, or completely redeveloping an operational railway station, to a study – with partners – of a new treatment for the UK’s 100,000 tonnes of irradiated graphite from decommissioned nuclear power stations. station continue uninterrupted. continue station throughplace while rail the services to take this all to allow designed been down to the platforms. The project has structure complete with escalators capacity a higher with stairs and footbridge existing the replacing involves tracks. the latter across The deck’ ‘transfer anew installing and station to ten 15, from the roofing of platforms increasingThis includes the number it. expand and to redevelop project million £80 an undertaking Ventureis Joint A Costain/Hochtief 17 annually. million passengers stations outside London, handling railway busiest of the one is Reading

ensure it fitted exactly onto its bearings. ontoits exactly fitted it ensure to of steps aseries in 25mm atime at The 1,100-tonne section was lowered position. final into its 100mm just it lower to nights three afurther then track, 18 the over section metres second the toGames. slide nights two took It Paralympic and Olympic the between period in the nights five over into position jacked was section second the while 2012, July in nights four over railway the over out 28 metres pushed was section tracks. the 50-metre first beside The asite at sections three in constructed was deck transfer 100-metre new The

commented Site Agent Dave Forbes. Dave Agent Site commented slide,” bridge earlier the after team the First Great Western’s confidence in and Rail Network both demonstrated suspended. are services rail when a possession during than rather railway operational an over out carried was project of the part particular This Annual Report 2012 09 Report Annual PLC Group Costain “This

Other information Financial statements Corporate Business review Overview Governance 10 Costain Group PLC Annual Report 2012

Directors’ Report – Business review

Project delivery

Delivering programme excellence

Construction involves much more than simply building an asset accurately and efficiently to plan. Costain has to understand clients’ requirements and work collaboratively with them to create the most effective solution to balance performance for users with long-term maintenance requirements. During construction it means having teams with the right levels of competence and leadership to pull together extensive supply chains and negotiate complicated interfaces. effect on the economic life of the Wirral. of the life economic the on effect closure would have had a severe HGVs 5,000 – daily, including vehicles 63,000 addressed. not were carries It threat of closure if structural weaknesses under was and 2005 from restrictions The viaduct had laboured under weight deterioration had set in. and construction method, structural like many structures of that vintage 1960s and, by the early ‘noughties’, late the in built bridge box girder peninsula. a37-span is It Wirral the on roundabout major and line arailway over motorway M53 the carrying structure a3.7km-long is Viaduct Moss Bidston

undertaken withundertaken efficiency. maximum was work the to ensure industry, car using techniques similar to those in the up, set was team engineering A lean spaces. confined extremely in together working trades Costain had to co-ordinate multiple compartments. box girder individual 602 into access improve or to create had subcontractors its and Costain 1969. since up meant opened This been not had structure of the Much overhead. maintained was flow traffic while –all structure box girder hollow the within steel of reinforcement tonnes 400 contractor,Costain, as principal installed

safety standards. safety and construction both in excellence for of awards aplethora won project The of deadline. ahead months three capacity structural to full restored was viaduct The Agency. Highways the for contract million £89.9 of the part as undertaken was carriageway and deck of the refurbishment and strengthened also were piers concrete viaduct’s The Annual Report 2012 11 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 12 Costain Group PLC Annual Report 2012

Directors’ Report – Business review

Care

Maximising whole-life value

Over the past decade, Costain has greatly expanded the services it offers clients. As well as its long-established project delivery expertise in construction and engineering, it now provides whole-life services, from consultancy and design work at the start of a project to the post-construction operation, maintenance and eventual decommissioning of assets. arrangements with the Highways Agency. Highways the with arrangements Contractor Agent Managing under routes England’s motorways and major trunk for approximatelyservices a third of Costain also provides maintenance and maintenance.ongoing support upfront, doing the work and supplying advising is example... for Costain utilities, water UK’s of the largest several with undertaken being contracts (‘AMP’) Under Asset Management Programme most apparent. been has change this where areas three are highways Water, and nuclear

the team to operate it. to team operate the with radiological waste and assembling to deal plant constructing and designing workforce. Additionally, Costain is also facilities for the decommissioning of creation plus roads, access and theincludes reconfiguration of buildings todecommissioning proceed. This allow will that infrastructure installing sites, Trawsfynydd and Berkeley the at Costain is also handling works enabling activities. traditional its beyond value creating on placing is Company emblematic of the emphasis the is to up years ten lasting contract process. A £288 million framework they enter the lengthy decommissioning as sites the for care helping is Costain Magnox nuclear reactors close down, In nuclear, as the UK’s first-generation

to a pre-set budget. to apre-set of works asuite delivered Costain where of intervention level prescriptive previous, network functioning as opposed to the the to keep to done be needs actually what around based are contracts contracts. modified to existing The system delivery service efficient a more to retro-fit Agency Highways the with worked has Costain roads, the On Annual Report 2012 13 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 14 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Chief Executive’s review

Engineering value is our business

Our business model

1 2 3

Engineering Focusing on Our market solutions to the needs of focus meet national major blue-chip needs customers

Page 18 Page 18 Page 19

Andrew Wyllie Chief Executive Against a backdrop of changing industry dynamics and ongoing challenging economic conditions, 2012 was another year of progress at Costain. Our focus on providing innovative and cost effective solutions to increasingly complex and large-scale national needs, along with our partnership approach, is enabling Costain to build new and extend existing long-term relationships with a range of major customers. As a result, during the year we secured new contracts and extensions of some £900 million and our year-end total order book stood at £2.4 billion. Reflecting the increasing quality of our customer relationships, over 90% of that order book now comprises repeat orders. The order book also provides good long-term visibility with over £700 million of revenue secured for 2013, and in excess of a further £1.7 billion of revenue secured for 2014 and beyond. In addition, the Group has maintained a strong preferred bidder position of over £400 million.

Trends & Developments During the year we saw a continuing trend amongst our major customers to consolidate their supply chains, as they seek to derive business benefits by working in a much more strategic and collaborative manner with a reduced number of preferred Tier One service providers who have the ability to deliver the entirety of their service needs. our customers’ evolving requirements. to meet times recent in transformed been has Group Costain The contracts. increasingly large and complex these on performance deliver, astrong then and to secure, necessary strength scale, skills,and financial experience the has it that to demonstrate able is Costain that essential is it environment, competitive and changing this In estate. of their whole the covers now that contract maintenance and operations a3-year on Agency &Pipelines Oil by the appointed we were and sites, nuclear UK of ten their all covers now that contract framework a10-year under providers service of two one as by Magnox appointed 2012 in trend, of this we were examples As larger, contracts. longer-term into activities operations and delivery acrossof consulting, services project approach, consolidating a broader range are rapidly changing their procurement As a consequence, our customers strategy Costain’ ‘Choosing Our Page 20 Page 4 in 2012 in and progress priorities Strategic Page 20 Page 5 “

divisions Our business Page 21 Page

6 supply chain partner. aleading as Costain rates assessment own Agency, whose Highways the with and PFI waste contracts; largest Europe’s of Western one project, Waste Manchester Greater the to site; units to deliver operations gas and oil modularisation techniques used in our innovative utilising we are where UK, the projectsnuclear decommissioning in Evaporator D project, one of the largest ofpart the Thameslink programme; the London Bridge Redevelopment, a key the for Rail Network from contract integrated and complex projects: the has us enabled to secure large, delivery safe reliable for reputation and expertise engineering acknowledged our team, of our capability recognised the with along services, and of skills range increasing of an provision The activities. service support 2012 in from revenue our derived was organically and by acquisition, 29% of and maintenance. Developed both to operations design and advisory from life-cycle, asset full the across We now services deliver Engineering Chairman Allvey David maintenance capability. and operations and delivery project Costainthe provides integrated consulting, complex needs of customers by ensuring the meeting on focus Group’s strategic the of areflection is conditions, economic despite years, recent in progress Our

architecture Our business Page 22 Page 7

responsibly and effectively Operating Page 23 Page 8

acquisition. 2011, in since size in doubled almost has FEED consultancy, by acquired Costain specialist oil andClerkMaxwell gas based Aberdeen Barrow. at The project Engineering design(‘FEED’) for a similar End Front the to develop by Centrica appointed been we just have plant, new the on delivery of successful aresult As Sea. North Yorkin the the field to serve Easington at plant gas of its delivery the for by Centrica utilised being is projects deliver and procure design, Costain’s growing in-house to ability programme. investment billion £37 of their a key part forming electrification with Rail, Network for contract electrification rail first our venture, joint in secured, recently also sector. highways the in We expected technology in of investment levels increased the given contract important an Government, Welsh the for contract first highways framework technology our year, the we secured During ” Annual Report 2012 15 Report Annual PLC Group Costain Investing in... Investing Page 24 Page 9 value shareholder Delivering Page 24 Page 10

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Directors’ Report – Business review Chief Executive’s review continued

Engineering value is our business

‘Engineering Tomorrow’ ‘Costain Cares’ Teamwork Engineering excellence runs through One of our competitive advantages is The results generated by Costain in 2012 our DNA and ‘Engineering Tomorrow’ the recognition some time ago of the were delivered by an outstanding team. is the Costain commitment to identifying, increasing importance customers were During the year, we increased our developing and implementing innovative placing on the “good citizen” credentials training and development programmes solutions to major national needs. of their supply-chain partners. Failure across the organisation so that we have to embrace and deliver on what our the requisite skills and resources. There Our customers are increasingly looking customers regard as vital components was a further increase in the number to their preferred supply chain partners of corporate and social responsibility of apprentices across the Group. such as Costain for innovative products means non qualification for tender lists. and services that will shorten lead times, There were also a number of We passionately share these values enhance the quality of project delivery adjustments to the senior executive and Costain believes that investment and, above all, provide cost-effective team. Mark Rogerson MBE, who joined in corporate social responsibility solutions. To remain a preferred Tier One the Group in June from Serco in the capital is a vital investment in the supplier, we need to stay one step ahead new role of Chief Development Officer, Group’s future success. of our peer group. has since been appointed Managing Core to our transformation and our Director of the new Natural Resources We have increased our investment value proposition to customers is our division. Mark has a track record of in Research and Development, and ‘Costain Cares’ programme which successfully managing and growing have introduced the Costain Start-Up places responsible, effective and support service businesses. The initiative to encourage and support collaborative stakeholder relationships Infrastructure division will continue to be entrepreneurial members of staff to at the core of everything we do. led by Managing Director Darren James. develop their ideas into business opportunities. The ‘Mario’ asset We received a Platinum award from Alan Kay, previously Managing Director management tool was one such idea, Business in the Community, recognising of the Environment Division, and who which is now being sold commercially our proactive commitment to mitigating recently completed the Advanced to rail and highways customers as an the environmental and social aspects Management Programme at Harvard addition to Costain’s range of services. of our operations. Business School, was appointed in November to the new role of Group We are currently undertaking consulting Costain places the highest priority on the Technical & Operations Director on the projects to develop Plasma Vitrification effective management of Safety, Health Executive Board to drive innovation, and Graphite Gasification technologies and Environment. Further progress was operational and engineering excellence as potential solutions for addressing the made in the year and we again recorded across the Group. treatment and storage of intermediate an improved Group Accident Frequency level nuclear waste. We are also Rate (‘AFR’) reducing from 0.11 to a new Tim Bowen, previously Highways undertaking work on behalf of the record low of 0.09, which continues Sector Director, was appointed to the Energy Technology Institute to develop to compare favourably with our major Executive Board to develop our a prototype process for carbon capture. Tier One peer group. We also received consulting and operations activities 19 Gold Awards from RoSPA and for major customers in the Middle East. two prestigious Orders of Distinction. The senior management team was further strengthened by the appointment of Fiona Ware as Human Resources Director. took effect from 1 January 2013. 1January from effect took sectors. The new divisional structure airports and rail, highways, the in activities Group’s the as well as activities power all include also now will which division operate alongside the Infrastructure The Natural Resources division will integrated for customers. service into an capability operations and process engineering, project delivery, end front its further to combine and requirements evolving customers’ its with closely more itself to align Group divisional structure will enable the previously in Infrastructure. This new activities service and some support Divisions Environment and & Process Energy existing of the most combining Nuclear Process and Waste sectors, &Chemicals, Water, Hydrocarbons operating division, encompassing the Resources Natural new of the formation In November, the Group announced the irrespective of divisional structure. awhole as Company the for returns address and optimise opportunities to meet specific customer requirements, toability focus group-wide resources the is of Costain strengths of the One A New Structure

6 March 20136 March Executive Chief Andrew Wyllie year. the during progress further on to reporting forward I look Tomorrow’. with our commitment to ‘Engineering line in operations of our all across technology new and innovation by driving customer’s changing requirements and to to react business of the agility the increasing by further to successful be continue we will that We believe range. and our enhance product services our to broaden steps further we take as to accelerate Costain in of change rate the we expect forward, Looking activity. of tendering levels high and pipeline astrong from to benefit we continue and year the for of work £700 over million secured 2013,We entered already having challenging of economic conditions. profitable growth even through the most to drive strategy right the has it that again demonstrated and performance strong another delivered has Costain The Future

Annual Report 2012 17 Report Annual PLC Group Costain

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Creating value through our customer-focused strategy

1 2 Focusing on the needs of Engineering major blue-chip customers solutions to Health and Safety Our focus on safety remains our highest priority. We achieve this by providing a safe working environment where the meet national health and wellbeing of our people are protected and actively promoted. needs Intelligent solutions Providing solutions that are agile and responsive to the needs of our customers remains essential in our chosen markets. Our experience and knowledge in the application of the right solutions remain critical to informing decisions at all stages of the asset life-cycle. Cost-competitiveness In a challenging global economy, businesses continue to come under pressure to drive down costs. We concentrate not just on solutions that deliver the best value for customers but also on how we deliver these solutions. This requires an unrelenting focus on our customers’ costs and our own operating procedures. Corporate Responsibility Our commitment to delivering services responsibly and sustainably is vitally important to the Group. We believe that responsible business is central to delivering greater value to our customers and all other stakeholders. Innovation and technology Today’s environment requires businesses to innovate at a faster rate than ever before. The need to continually innovate and apply new technology in creating solutions to meet national and customer needs is now a base requirement of operating in this market place. We focus on developing intelligent solutions and providing the latest technology in all activities that we undertake. Partnering and collaboration Partnering and collaboration form a central part of an approach which has become essential to deliver complex engineering and services. Our customers and suppliers value the importance of this partnership approach and we often work in collaboration to deliver required projects and services. collected waste. authority local of all 50% to circa be estimated landfills, from waste to divert and economy azero-waste to achieve UK’s the ambition reflects waste. This of recovery and recycling reuse, on to focus to transformed be continues by 2014. 3% to around grow market The management sector, which is predicted waste UK the to shape continue Environmental and legislative obligations Waste £ of capacity. to up 16GW to build billion £60 of circa investment estimated an with security, to energy UK vital as seen is power nuclear legacy, generating new nuclear UK’s the up cleaning in investment Authority’sDecommissioning £49.5 billion In addition to the Nuclear process Nuclear £ market. this in growth of the examples are markets retail and legislation-driven billion water £3 £4.1 billion London super-sewer project management plan cycle, proposed asset sixth The of scarcity. water threat continued and standards environmental of rising aresult as market water UK the in continues spend Committed Water £ Targeting worthof £billions on estimated committed (based spend spend). annual industry programmes by underpinned regulated spend and national needs. investment to planned aligned and robust remain in we operate markets The 11 3 9.5 5.4 bn Our market focus bn bn

of the UK strategic road network. road strategic UK of the quality and life the to extend £9.7 billion road networks, including plans to invest of pounds are being spent improving To overcome these challenges, billions upgraded. not are networks road if by 2025 ayear billion £22 economy the to cost predicted is year. Congestion on year volumes traffic in increases and delays average longer with pressure, under are networks road UK Highways £ 2(‘HS2’). Speed High network upgrades and the proposed and track electrification, including areas in networks rail national on years five £37.5 over tobillion invested set be is year. per trains more 355,000 and for an additional 225 million passengers demands future to meet and growth, the Government to stimulate economic for area apriority is This network. rail UK the in investment for plan a robust out sets plan infrastructure national The Rail £ 17 8 bn bn

10 9 8 7 6 5 4 3 2 1 more: out Find Delivering shareholder value in... Investing Operating effectively and responsibly Our business architecture Our business divisions Strategic priorities and progress in 2012 in progress and priorities Strategic Our ‘Choosing Costain’ strategy Our market focus Focusing on the needs of major blue-chip customers Engineering solutions to meet national needs

£ the UK economy £14 ayear. economy UK the billion costing is Heathrow at of capacity lack a that estimated is It growth. economic aviation infrastructure to accommodate its within capacity to UK increase the on pressure However, growing is there world’s centres. leading business of the one as recognised is UK The Airports £ exploration. gas in investment boosting are sources energy cheaper and prices rising energy demands, unstable oil addition, In Sea. North the in assets of mature optimisation the and drilling deep £10of over offshore in billion by investment driven primarily be will This to continue. expected is market upstream UK in the activity Significant chemicals Hydrocarbons and £ by 2020. anticipated is investment technology. Around £110 billion of Carbon Capture Storage (‘CCS’) with fuels fossil and power nuclear infrastructure, including renewables, smarter and bigger and of energy sources reliable more and cleaner in by investment underpinned be will This infrastructure. ageing an with reduction commitments and coping carbon meeting while future energy its to is secure UK’sThe challenge Power 23 6 9.5 Annual Report 2012 19 Report Annual PLC Group Costain bn bn

bn

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Creating value through our customer-focused strategy

4 Our ‘Choosing 5 Strategic priorities and progress in 2012 Costain’ strategy

Progress We continue to develop our strategy Customer focus • 36 patents and patents pending by broadening our offer and focusing Broadening our services across the to improve customers’ business on developing solutions to meet the asset life-cycle, enhancing the quality performance needs of our customers. of our earnings and the value to our customers and the end user. • Over £2 million deployed annually to Our focus is in our target markets solve technical challenges and bring of highways, rail, power, airports, Progress innovative solutions to market waste, water, nuclear process • 90% repeat business in 2012 • Directly over £8 million of government and hydrocarbons and chemicals. • 47% of new order book through investment Our geographical focus remains existing contract arrangements primarily in the UK whilst developing international consultancy services Operating responsibly through strategic partnerships Developing a best-in-class In contributing to the sustainable in the Middle East. management team development of the UK’s infrastructure, Providing new solutions through insight it is important that we approach Having successfully pursued this our business in a responsible way. approach for the last two years and innovation requires a leadership team at all levels of the business closely Corporate Responsibility (‘CR’) is core we are strengthening our market to our business. We are committed position and delivering engineering aligned to our customers’ needs and our ability to deliver these solutions. to delivering projects and services solutions across the entire asset responsibly and sustainably, ensuring life-cycle. Progress that we meet our customers’ and • 51 new recruits in senior positions, society’s needs while managing the We provide advisory and design including nine key senior-level recruits social, environmental and economic services designing intelligent (six external, three internal) impacts of our business. solutions, complex engineering delivering programme excellence • Two new appointments to the Progress and operations and maintenance Executive Board • Retained Platinum status in Business maximising whole-life value. in the Community’s 2012 CR Index Costain’s ambition remains to Operational efficiency • Please see pages 30 to 39 for further double profits in the medium term. To meet our customers’ needs we details of our progress in 2012 continue to focus on our cost base, ensuring that we are providing best Partnerships value through implementing a ‘lean’ strategy throughout the business. In a market where collaboration continues to deliver value, Costain Progress focuses on developing strategic • Appointment of Group Technical & partnerships to support the development Operations Director to the Board of broader services and technology.

• Reduction in operational overhead Progress • Alstom Babcock Costain joint venture Innovation wins first electrification project We continue to invest significantly in innovation, research and technology that will provide new services to customers and address national needs where new markets are emerging. Delivering major waste schemes across the UK. UK. the across schemes waste major Delivering Waste UK’s assets. of the strategic a number across delivered schemes capital and frameworks Major process Nuclear and industrial customers. to commercial services water Providing arrangements. framework programmes under the current AMP 5 maintenance and framework of capital provider A leading Water education. in projects legacy delivering also whilst chemicals, and hydrocarbons and waste water, process, in nuclear solutions NaturalThe engineering delivers division Resources Natural Resources into an integrated for service customers. capability operations and project delivery its front-end processing engineering, will enable Costain to combine further and Environment divisions. The division &Process Energy existing the combining by sectors waste and process nuclear water, hydrocarbons andchemicals, the encompass will new division The Natural Resources and Infrastructure. We now have divisions: two operating Group. Costain the of transformation of further the division as part operating by creating a new Natural Resources a restructuring of our business divisions 2012, we November announced In 6 Our business divisions

power and airports. and power highways, rail, in providers infrastructure principal for The Infrastructure division delivers engineering solutions Infrastructure East. Middle and UK the in sectors chemical and gas and oil downstream and upstream the for solutions implementing and Developing Hydrocarbons and chemicals Manchester. and Heathrow,at Gatwick assets airport across of work programmes Delivering Airports Grid. National for works tunnelling major delivering Currently distribution. and transmission Focusing on thermal generation, new nuclear, offshore wind, Power works. Involvement Contractor Early and MAC contracts current the under Maintenance authorities. local and Government Welsh Agency, Highways the for programmes major Delivering Highways London Bridge, Reading and Bond Street. at recently most hubs, transportation on focused principally projects major delivering LUL. Currently and Crossrail Rail, A leading provider of multi-disciplinary projects for Network Rail 10 9 8 7 6 5 4 3 2 1 more: out Find Find out more on pages 26-28 pages on more out Find Investing in... Investing Operating effectively and responsibly Our business architecture Our business divisions Strategic priorities and progress in 2012 in progress and priorities Strategic Our ‘Choosing Costain’ strategy Our market focus Focusing on the needs of major blue-chip customers Engineering solutions to meet national needs Delivering shareholder value Annual Report 2012 21 Report Annual PLC Group Costain

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Creating value through our customer-focused strategy

7 Our business architecture

Consulting Construction Care Advisory Complex programme Operations and design delivery and maintenance Pre-investment advisory Programme leadership Infrastructure network • Investment appraisals and • Detailed design management management business cases and control • Control centre staffing • Feasibility and concept design • Construction methodology • Call centre operations • Intelligent infrastructure solutions and strategy • Live ‘on network’ emergency • Optioneering and value management • Planning and programme management • Sustainable operational excellence • Resource allocation and optimisation Complex programme • Construction management Asset management advisory and maintenance • Programme management Sustainable delivery • Asset knowledge acquisition and governance • Behavioural safety and environmental • Asset monitoring, testing and • Performance assurance and controls assurance inspection • Risk and opportunity management • Quality assurance management • Planned preventative maintenance • Contractual consultancy services • Energy and waste management • ‘Non-scheduled’ defect solutions • Commercial controls • Community engagement and liaison • Life-expired asset renewal • Asset commissioning planning Asset operation integration • Decommissioning Operational excellence • Network management system Facilities management • Lean engineering • Network technology integration • Building fabric maintenance and • Cost planning and reduction • Service assurance renewal • Procurement and supply chain • Stakeholder management • Mechanical and electrical repair solutions and renewal • Asset management and optimisation Construction and • Support service staffing and • Decommissioning and reclamation engineering compliance resourcing • Risk control management • Commercial cleaning, Sustainability and • CDM standards and control catering and security energy advisory management • Grounds maintenance • Engineering consultancy, advice and • Construction systems and process support across the asset life-cycle assurance Compliance services • Behavioural and process safety Design • People development and communication • Fire systems maintenance • Concept outline through to detailed design • HVAC installation and maintenance • Front-end engineering studies • Water hygiene and monitoring • Feasibility and options • Energy efficiency management • • • • • • We will: are mutually beneficial. that relationships long-lasting strong, in communication.respectful We believe and honest open, We encourage Relationships Find out more on pages 30-36 pages on more out Find 8 innovative and sustainable solutions. us in efficient, delivering support partners our where chain supply operate a collaborative, responsible and Group; Costain the for people best the develop and retain attract, customers; highest standards for of our service the and solutions sustainable provide a lasting legacy; we leave ensuring we operate, which the localsupport communities in people; our all for environment working ahealthy provide free from harm; environment working asafe provide and responsibly and Operating effectively

environment. the enhance and protect – – – • We will: everyone. of natural environment for the benefit to the responsibly We to have deliver shareholders. and customers for value deliver we must where environment, We compete in the economic infrastructure. in investment strategic for needs national we meet where environment, built the in We operate EnvironmentOur Find out more on pages 37-38 pages on more out Find

sustainably sourcingsustainably materials; and minimising water consumption and effective waste management, through resources natural conserve change; climate on impact our reduce possible: to, where chain supply and customers our with work

10 9 8 7 6 5 4 3 2 1 more: out Find Investing in... Investing Operating effectively and responsibly Our business architecture Our business divisions Strategic priorities and progress in 2012 in progress and priorities Strategic Our ‘Choosing Costain’ strategy Our market focus Focusing on the needs of major blue-chip customers Engineering solutions to meet national needs Delivering shareholder value

• • • • • We will: to come. years many for felt be will investment in infrastructure today of benefits economy.The UK the provision of infrastructure vital for the in role important We an play The Future Find out more on page 39 page on more out Find enterprises. including small and medium-sized by our supporting supply chain, contribute to economic growth and sector; our within needs to future to respond supply chain to develop skills and customers our with work solutions for tomorrow’s challenges; to provide innovation in invest shareholders; our for investment on return asustainable provide providers; solutions UK’s of the one be top engineering Annual Report 2012 23 Report Annual PLC Group Costain

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9 Investing in... 10 Delivering shareholder value

Health and Safety Ensuring that we provide a safe working environment where Reflecting another the health and wellbeing of our people is protected and actively promoted. successful year and our Find out more on pages 30-32 continuing confidence Our people in the long-term Attract, retain and develop the best people and, in doing so, support the delivery of our strategy. A focus on key roles prospects for the to deliver our broadening offer into our chosen markets.

Find out more on pages 33-35 Group, the Board is Developing customer insight recommending a 7.4% Developing customer relationships through a greater focus on business development and early project engagement. increase in the final Additional capability dividend, the sixth Strategic acquisitions to support the ‘Choosing Costain’ strategy in our chosen markets. successive year of Find out more on pages 14-17 increase. Work-winning David Allvey Maximising our return on investment through focus and Chairman developing relationships with key partners to extend our offer to our customers. Providing greater capability, service and technology solutions. Dividends per share Innovation and technology Pence

Delivering intelligent solutions through the effective 12 10.75 deployment of direct investment, research funding and 10.0 9.25 customer-led innovation. 9 8.25 7.5 Responsible business and sustainability 6 Building a longer-term sustainable business that creates 3 economic, environmental and social value. 0 08 09 10 11 12 Providing sustainable solutions and the highest standards of service for our customers.

Find out more on pages 29-39 Performing responsibly responsibly Performing review –Business Report Directors’ is integral to and oursustainability success responsibly Performing Water reporting. to our approach to deliver a totally integrated Company. is to our aim Our responsible business is core that demonstrating reporting, (‘CR’) Corporate Responsibility combined our Financial and havewe year fifth the is This Nuclear Process Authorities Local

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Hydrocarbons and chemicals Waste Nuclear process Water education. in projects legacy delivering also whilst chemicals, and hydrocarbons and waste water, process, in nuclear solutions NaturalThe engineering delivers division Resources Natural resources infrastructure today will be felt for many years to come. years many for felt be todaywill infrastructure in investment of benefits economy.The UK the for vital of infrastructure provision the in role important We an play The Future everyone. of deliver responsibly to the natural environment for the benefit We to have shareholders. and customers for value deliver we must where environment, economic the in We compete infrastructure. in investment strategic for needs national we meet where environment, built the in We operate EnvironmentOur mutually beneficial. are that relationships long-lasting strong, in We believe communication. respectful and honest open, We encourage Relationships Airports Power Highways Rail airports. and power highways, rail, in providers infrastructure principal for The Infrastructure division delivers engineering solutions Infrastructure framework reporting operational Our Our CR reporting framework CRreporting Our Annual Report 2012 25 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 26 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Performing responsibly continued

Divisional performance

In Rail, during the period, the Group, in upgrade of the A8 Belfast to Larne Infrastructure joint venture, secured its fifth contract carriageway for the Northern Ireland with Crossrail for the construction and Roads Service, appointment to both lots The Infrastructure division, which fit out of the intermediate shafts and of the Highways Agency Asset Support incorporated activities in the highways, headhouses at Eleanor Street and Framework and a four-year technology rail, and airports sectors, had a very Mile End Park in London, along with contract awarded by the Welsh successful year in which revenue the connecting adits to the main running Government for the maintenance of (including share of joint ventures and tunnels. Work is also progressing well Road Network Communications and associates) increased to £562.3 million on the major London Bridge Station Tunnel Systems across Wales, involving (2011: £466.0 million) as investment redevelopment project for Network Rail, the maintenance and fault repair of in business development enabled the in which Costain is providing integrated complex technology systems such Group to take advantage of a number services including design, construction, as CCTV cameras, variable messaging of major opportunities in the market. logistical and environmental operations signs (‘VMS’), emergency telephones As a result, adjusted profit from whilst ensuring the station remains open and traffic signals along major strategic operations rose to £26.1 million (2011: throughout. routes. £10.2 million). The significantly improved profit performance reflects strong Costain continues to be a leading The Riverside Resource Recovery operating returns and additional gains supplier to the Highways Agency and Energy from Waste facility at Belvedere on successfully completed and final significant progress is being made is now fully operational and the final accounted projects. The order book with the large portfolio of professional account has been agreed. for the division has grown to £1.6 billion services, construction and maintenance (2011: £1.5 billion) and the level of contracts in which it is engaged for this tendering activity remains high. customer. New contract awards during the period under review include the

New wastewater infrastructure brings cleaner seas to Sussex A new wastewater treatment works, two pumping stations, an 11-kilometre sewer tunnel and a 2.5-kilometre-long sea outfall for client Southern Water is bringing cleaner seas to the Sussex coast. The project is being delivered by 4Delivery, a consortium made up of Costain, Veolia Water and MWH. A new sewer tunnel, bored through the local chalk, takes wastewater from Peacehaven, Telscombe, Saltdean, Rottingdean, Ovingdean and Brighton and Hove to a new wastewater treatment works. Located on the edge of the South Downs National Park, the works nestle in a dry valley and is covered by one of the largest green roofs in the UK, blending it into the surrounding landscape. Once fully operational the works will treat 95 million litres of wastewater each day to the latest EU standards. from successful close-out of a number of a number close-out successful from following the margin one-off benefits declined significantly in the period division in this profits Operating Group. the in activities other on priority strategic our by influenced been has revenue (2011: £17.5 in reduction The million). of £15.0 PFI transfers, million operations, including the profiton (2011: from profit with £375.4 million), £232.6 was million year the for ventures and associates) in the division Revenue share of (including joint change. major undergoes UK the in market the as term long and medium to the over grow this we expect and regulatory and legislative requirements by underpinned is market this in spend of long term customers. Customer number of a requirements specific the as well as markets waste and water the The Environment division focused on Environment then provides aftercare for the carriageways. the for aftercare provides then and rehabilitates these 1950s/60s/70s assets, through public inquiries, physically reconfigures them takes schemes, of the development Motorways programme office, itmanages Managed the in programme. aposition With of the stage every in involved is Costain 32 to 35. Junctions 28 to 32 and Junctions for contracts similar awarded been recently also has Costain and improving journey times. capacity –increasing periods busy during lane atraffic as shoulder hard the to use able be 10Junctions and 13 indicate, will, signs when a on between motorway 15-mile of the stretch 2013, spring in complete travelling motorists is scheme Motorways Managed the When assets, M1the motorway. ofcapacity one of the UK’s biggest infrastructure the maximising in involved heavily is Costain the of M1 efficiency flowand the Improving

in 2014. 2014. in regulatory review period, commencing next the for prepares sector water the as extensions and contracts new win to platform astrong Group the gives sector water the in Costain’s position Derbyshire. in Ambergate near sited reservoir service covered largest its Trent by Severn Water to replace contract a awarded also was Group the period Water. Welsh the and During Utilities Severn Trent, Southern Water, United contracts with Water, Northumbrian good progress on the AMP5 framework making is sector, water the In Group the strategic focus on other opportunities. reduction again reflecting theGroup’s the (2011: with billion £0.6 billion), £0.8 of book order aforward with year the complete a project. The division finished to costs of additional aresult as and period comparative the in allowances our within well issues of legacy

Our Corporate Responsibility framework and approach Business model 2012 highlights Find out more: out Find

continuing. discussion regarding completion commissioning phase and commercial extended an in remainder the with technologies, have handed over been of sophisticated waste management arange utilises which scheme, the on Authority. of The majority the facilities Greater Manchester Waste Disposal the for PFI contract the completing is sector, waste the In Group the Annual Report 2012 27 Report Annual PLC Group Costain pages 29-39 pages 02-05 pages pages 18-24

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Divisional performance

In Nuclear Process, we continued to Energy make good progress during the course Land & Process of the year in our various projects across Development the UK, including Evaporator D at Sellafield, one of the UK’s largest nuclear The Energy & Process division undertook decommissioning projects, which has Our non-core Land Development activity work in the hydrocarbons and chemicals, seen the delivery of further modules to in Spain continued to be subject to nuclear process and power sectors. site during the period. The Group was challenging market conditions. Revenue was £1.9 million (2011: £1.5 million) Revenue (including share of joint also appointed, as one of two suppliers, and the loss after tax was £2.3 million ventures and associates) in the division to the Magnox framework contract, for (2011: £2.0 million). As anticipated, no for the year was £137.7 million the delivery of construction, infrastructure significant land sales were completed in (2011: £143.4 million) with adjusted and maintenance projects across all the year and we continue our moratorium profit from operations of £2.5 million ten sites which are operated by Magnox on development activity on our land-bank (2011: £4.7 million). During the year, the on behalf of the Nuclear Decommissioning until the market improves and maximum profits in the division have been impacted Authority. The project work which shareholder value can be secured for by the reduced revenue, higher business Costain will deliver includes: the design, the assets. Our activities during the development costs, restructuring costs construction and maintenance of year have been focused on our leisure and additional costs to complete on two permanent buildings and structures, businesses of golf courses and our projects. The division finished the year infrastructure maintenance and extension 600-berth yacht marina adjacent to with a forward order book of £178 million works incorporating construction, civil Gibraltar which has reported increased (2011: £215 million). engineering structures and ground works projects. levels of activity during the year. In Hydrocarbons & Chemicals, the Group is continuing to carry out projects In Power, the Group continues its work for a number of customers both in the with the Energy Technologies Institute, UK and overseas. We have benefitted developing carbon dioxide reduction greatly from ClerkMaxwell, acquired in technology for use in coal fired power 2011, which is enabling us to take stations, a critical factor in the UK’s advantage of a number of exciting ability to meet its stated climate change opportunities in the high growth targets. upstream oil and gas service sector. During the period the Group also secured a three-year £60 million asset support contract, awarded by the Oil and Pipelines Agency for the operation and maintenance of the Government Pipeline and Storage System. The additional support services capabilities afforded the Group by the acquisition of Promanex in August 2011, were instrumental in securing this contract and demonstrates the value in enhancing existing capabilities through targeted acquisition. framework approach and Responsibility Corporate Our costain.com corporate.responsibility@ at us email www.costain.com/responsibility at survey online ashort complete and feedback. Please visit our website your welcome we would and us to important are Your comments www.costain.com website our see respond to our stakeholders, please and we engage how on information policies and reporting. For more stakeholders inform and guide our of our views The parties. interested environmental groups and other government, and community employees, investors, regulators, supplypartners, chain partners, including customers, joint venture of stakeholders, range We awide have stakeholders Listening to our and sustainable way. aresponsible in to work expected is employee Every performance. CR our of key for aspects responsibility direct of directors and senior with managers consisting CR champions, established We have programme. CR our to drive leadership providing and strategy including(‘CR’), setting policy and aspects of Corporate Responsibility all for accountable is Board Executive the and responsible is Board The society. sustainable to amore contribution agreater make we can employees and other stakeholders our customers, supply chain partners, with by working that We recognise impacts of our business. the social, environmental and economic and society’s while needs managing customers’ our we meet that ensuring responsibly and sustainably,and services projects to delivering We committed are Our approach

, or,

many years to come. years many for felt be todaywill infrastructure in investment of benefits economy.The UK provision of infrastructure vital for the the in role important We an play The Future everyone. of natural environment for the benefit to the responsibly We to have deliver shareholders. and customers for value deliver we must where environment, We compete in the economic infrastructure. in investment strategic for needs national we meet where environment, built the in We operate Our Environment are mutually beneficial. that relationships long-lasting strong, in communication.respectful We believe and honest open, We encourage Relationships on three fundamental pillars: based is Cares Costain value. social and that creates economic, environmental build a longer-term sustainable business to vision and strategy Responsibility launched Costain Cares, our Corporate 2011 In business. to our we material are that issues identified have we influence, of level and impacts our assessing stakeholder engagement and by or through our supply chain. Through that impact our business, either directly environmental and economic issues of social, range awide is There Key responsibilities

available to download on our website. our on to download available is report feedback Index BITC CR Our 95%. achieving status, Platinum retained 2012 Index CR to have proud are and BITC 2012, of the results the we received June In levels. operational and strategic integrate responsible business at companies how illustrates Index CR The Index. CR (‘BITC’) Community the in Business in by participating marketplace wider the in companies other and peers against ourselves our benchmark We measure and our performance performance Measuring our 50 60 70 80 90 100 % and band thresholds IndexResponsibility performance Business in the Community 2011toreflect theyearresults were published. ■ Platinum≥94.76% ■ Gold≥89.76% ■ Silver≥79.76% ■ Bronze ≥70.00% In 2011,BITCrenamed theCRIndex2010as Annual Report 2012 29 Report Annual PLC Group Costain 84 07 88 08 93 09 95 11

95 12

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Directors’ Report – Business review Performing responsibly continued

Costain Cares

Relationships

health and environment (‘SHE’) performance. In addition the managing We encourage open, honest, respectful director for the Infrastructure division and the Group SHE director undertook communications. We believe in strong, a series of briefings at various Costain long-lasting relationships that are forums to reinforce the message to all mutually beneficial. operational management. In October, a Prohibition Notice was served on Costain relating to confined Compliance space working on our Tier 1 COMAH Health and Safety management site at Purton in contravention of Our Health and Safety management Section 3(1) of the Health and Safety system is accredited to BS OHSAS at Work Act 1974 and Regulation 4 of Health and Safety: providing a safe 18001. This provides our stakeholders the Confined Spaces Regulations 1997. working environment free from harm with the reassurance they need that Immediately following the notice, all The Health and Safety of our workforce our system meets and exceeds the works ceased on the site concerned to are of paramount importance. We are requirements of all relevant Health and enable our procedures to be reviewed committed to providing a safe working Safety legislation, codes of practice and and strengthened. Suitable control environment, where the health and guidelines. measures were subsequently implemented at Purton and all other wellbeing of our people are both Our standards are maintained by protected and actively promoted. sites within the framework and the continually monitoring compliance notice was lifted six days later when In 2012, we achieved an Accident to systems and benchmarking work recommenced under the new Frequency Rate (‘AFR’) of 0.09, which performance through an established safe system of work. represents a reduction of 18% over the audit and inspection regime, undertaken previous year and a 47% reduction over by both external parties and our own Group average score in monthly the last five years. Health and Safety professionals. All SHE scored inspection findings are reviewed at the highest Score We are dedicated in our drive towards level and where necessary changes are zero accidents and incidents. We focus made to our policies or procedures, or 10.0 this drive on the following three areas: innovations captured and implemented 7.9 7.9 8.0 compliance, competence and culture. 7.5 7.2 Company-wide in the spirit of continual 6.0 improvement. 5.0 Group annual Accident Frequency Rate Number of reportable accidents per In March, Costain was prosecuted in 2.5 100,000 man-hours respect of an accident that occurred 0 on the A2/M25 site on 8 April 2008. The 08 09 10 11 12 0.20 Company pleaded guilty to breaching 0.17 0.16 0.15 0.15 Section 2(1) of the Health and Safety 0.11 at Work Act 1974 and was fined 0.10 0.09 £250,000 plus £45,000 costs. Following 8.0 Group average SHE performance score 0.05 the judgement, work stopped on all sites to enable a safety stand-down to be 0 Process safety management 08 09 10 11 12 conducted with a view to disseminating the lessons learnt across the Costain In 2012, we reviewed and strengthened ■ Trendline business to try to ensure that a similar our process safety management situation is never experienced again systems which now align to the industry- on one of our sites. The stand-down recognised Energy Institute framework. focused on raising awareness of In addition members of our PLC and 0.09 behavioural issues, and in particular Executive Boards attended process Group AFR, a 47% reduction in the last the impact of behaviours on our safety, safety awareness training sessions. five years sessions. workshops, assessments and feedback use of a number of techniques including through performance thesupervision of front-line standard a premier to was achieve initiative of the aim The event. the in part took Group, the across supervisors, of 562 front-line Atotal workplace. the in supervision dedicated a week-long campaign to we September in and performance, Safety and Health improving in key factor a is supervisors of front-line role The partners. chain supply of our those and employees own our both for provide ongoing training and development and workforce qualified afully on insist they are assigned. For this reason we which to tasks the out carry to qualified are workers all where one is site A safe Competence sites. our access that of vehicle types specific for standard a minimum logisticstransport and will be launching to relating processes and systems our 2013In to develop continue we will driving. while exist may that of risk degree the to control manager line their with action of acourse to agree required be may rating, risk resultant the on dependent and, assessment arisk to undertake on Company business are required to drive engaged are who personnel Costain all regime new the Under June. in tool assessment risk drivers’ online of an 2012.in launch the included This up drawn was risk of road management procedureAn enhanced for the Management of road risk Relationships Relationships continued

developed. improvementleadership plans will be style.leadership Subsequent personal their on reports direct their from directors to receive 360-degree feedback operational our all for atarget set have 2013, site.In on conditions we physical checking also while issues Safety and Health site regarding workforce the with into todiscussions was enter of which six engagement tours, focus the primary of aminimum out to carry required were directors 2012,In operational Costain all our business. Safety leadership principles throughout and Health our to cascade continue 2013 for planned we are as courses aimed at middle management. Further course Safety and Health bespoke of a delivery and development the 2012 during with continued Group the within culture Safety and Health the to improve drive ongoing Our of Directors safety guidance. leadership Institute the in out set criteria the against performance leadership own their actionleadership plan by assessing subsequently developed an individual in Costain’ course. All attendees Environment and Safety, Health ‘Leading senior attended managers a two-day 2011–2012,During 127 and directors innovation. and promote best practice and explore methods different of working another, one from we learn that so alike customers and supply chain partners and interact with their colleagues, to engage workforce our encourage actively accountability and teamwork of values Safety. Our and Health in leadership personal to demonstrate expected are people our and example by to lead expected are managers our where We aculture promote Culture Business model 2012 highlights Find out more: out Find

our strategic partners. strategic our with learnt lessons and practice best of sharing the and of views exchange an for forum effective an provided disciplines. meetings These have subcontractors in seven different preferred our with held were meetings Safety 2012, and In Health biannual operations. our of all delivery safe and fundamental to the smooth running to be we consider which chain, well-established links with our supply already our on to build We continue systems.quality and business of our delivery to and to develop and our enhance approach science principles of our CBS programme 2013,In behavioural the using be we will safety programmes. behavioural own their to deliver them supporting in clients of external number a with engaged currently are and safety and management consultancy CBS, we have developed a behavioural of success internal the on Building to’. want they ‘because things right the do us for work who people the where of aculture development the and leadership safety on focus which improvements safety sustained of delivery the influence significantly 2012. during to is aim (‘CBS’) The Programme Safety Behavioural Costain 2011, to our promote we continued in accreditation third-party Following Annual Report 2012 31 Report Annual PLC Group Costain 02-05 pages pages 18-24

Other information Financial Corporate Business review Overview statements Governance 32 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Performing responsibly continued

Costain Cares

Relationships continued

We continued to offer voluntary public health and tackle health wellbeing medicals to all staff during inequalities through their influence over the year, and have introduced a monthly food, physical activity, alcohol and health wellbeing clinic in our head office, in the workplace. As a Responsibility which is open to employees working Deal partner, we have signed up to in local sites as well as all head office five core commitments and supporting staff. The take-up of these medicals pledges and have made an individual increased during the year as employees pledge within the Health at Work Health: providing a healthy working recognised the value and benefits of category which relates to health checks environment for all our people regular health checks. for staff. The health and wellbeing of our people remained a key focus area during 2012. Our proactive approach to health During 2013, we will continually review Our ongoing ‘Be Healthy’ campaign promotion was maintained in 2012 with the management of health and wellbeing was enhanced in the spring with the the introduction of blood pressure in the workplace as we strive to raise development of a logo which now testing kits at all sites and offices to standards further. Our proactive stance appears on all health-related enable all members of the workforce with regard to health promotion in the documentation. (including our subcontractors) to workplace will continue with the delivery regularly test their own blood pressure. of regular themed campaigns, for Our vision is to provide a working In addition, we ran a skin cancer example the issuing of pedometers environment which impacts positively awareness/summer working campaign which are aimed at encouraging our on the health of our workers. Our health Company-wide with support from workers to exercise and thereby improve management system is focused on Macmillan Cancer Support. health and fitness in a sociable and the prevention of work-related ill-health enjoyable way. We will also continue to and the protection of workers with Furthermore, Costain signed up to the work closely with external organisations existing health conditions. In addition, Public Health Responsibility Deal, a such as the UK Contractors Group and the wellbeing and good health of the Department of Health initiative which the Rail Safety and Standards Board workforce is actively promoted and taps into the potential for businesses with a view to sharing best practice and maintained. and other organisations to improve raising standards.

In December, Costain organised a STEM event which gave over 240 pupils an insight into civil engineering, pictured are pupils from St James Junior School who took part in the Bridges to Schools event. Silver Awards and nine Bronze Awards. Bronze nine and Awards Silver four Awards, Gold four Scheme: from the Considerate Constructors of 17 receipt by the Awards recognised was performance our addition, In 2012). (December 33.2 approximately is scheme the with registered sites of all score average of 40. The out of 35 score average an achieved Group the 2012, In Practice. of Considerate Code out in the Considerate Constructors set to principles the committed we are Considerate Constructors Scheme, As an associate member of the community. local the with partnership in to work plan action an develop and makes, Costain that impacts positive note the associated with the local community, issues specific socio-economic engagement plans, which identify and implemented community 2012,In developed projects of our 86% Community engagement • • • key areas: following the on by focusing impact, positive a greater to is have goal our and disruption, and noise as such work, of our aspects negative the toWe minimise strive communities. local with relations excellent maintaining are committed to developing and We vital. is stakeholders other and work together with these communities and relationships our we manage How we operate. which in communities the affects work our that We recognise legacy alasting leave we ensuring communities in which we operate, the local supporting Communities: Relationships Relationships Charitable giving and volunteering.Charitable skills and employment Local engagement Community continued

during ‘Get Into Construction’ programme athree-week to undertake individuals for Costain will provide 100 opportunities funding, matched this With years. two over of £600,000 to value the matched funding, (‘EOS’) of Skills Ownership Prince’s Employee Trust,The secured and Construction for Academy Skills CITB-ConstructionSkills, the National with 2012In collaboration in Costain, law. the with trouble in been have or unemployed long-term are care, in been who have struggled academically, have 13 Trust with The works to 30-year-olds Leadership Group. Services Business member of the Trust’s Construction and a and lives, young change helps that Prince’s Trust,The charity youth the of We apatron are we work. which in training in opportunities the communities organisations to employment offer and and of partners arange with We work Local employment and skills Constructors Scheme Considerate the in score Average 35 0 10 20 30 40 score average Group Scheme performance Considerate Constructors 34.2

08 2013–2014. 34.7 09 35.0 10 Business model 2012 highlights Find out more: out Find 35.1 11 35.0 12

continuing this support in 2013. in support this continuing to committed we are of 27 and days atotal volunteered employees our 2012, In communities. to local difference while making a visible and sustainable toopportunity develop and share skills the with employees our we provide Through our employee volunteering policy, renowned neuroscience centre. towards upgrading the hospital’s world- went which appeal, Roof’ the ‘Raising Hospital’s Street Ormond to Great causes, including a donation of £22,000 2012,In £171,142 we donated to worthy donations given by our project teams. both corporately and through local charities various to support We continue Charitable giving and volunteering employees into the organisation. progression and bringing new career of employee amix ensuring placements, internal through of them year, last 56% We filled vacancies 154 2012 for turnover 7.37%. was staff voluntary our and years five over for us with been having of staff 49% with workforce, stable We arelatively have East. 1,026 Middle and the in people 3,740 employs now UK the in people to and grow continues Group Costain Group Costain the and developing the best people for Our retaining People: attracting, 2012 in causes to charitable Donated 171,142 £ 0 50 100 150 200 £000 Group charitable donations Annual Report 2012 33 Report Annual PLC Group Costain 69 08 95 09 95 10 135 02-05 pages 11 pages 18-24

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Directors’ Report – Business review Performing responsibly continued

Costain Cares

Relationships continued

Employee (voluntary) turnover rate1 Diversity profile1 Part of our ongoing strategy is to % % employees increase employment opportunities for young people, and we continue to 10.0 9.9 40 invest in our graduate and apprentice 32.6 programmes. During 2012, we 7.5 7.37 30 28.7 7.0 26.1 27.3 26.7 welcomed 38 new graduates from 5.0 5.1 20 eight discipline areas, bringing our 22.6 22.5 21.1 22.2 current scheme total to 120. This year 2.9 25.2 24.3 19.4 2.5 10 15.1 24.2 21.5 we have placed increased focus on 0 0 6.7 6.5 6.4 6.6 8.0 our apprentice schemes and have 08 09 10 11 12 08 09 10 11 12 seen a doubling in the number of apprentices. We currently have 1 UK employees ■ Female ■ Over 50 ■ BAME ■ Under 30 1 UK employees 65 apprentices on Level 3 frameworks across 11 disciplines, including new areas such as track and signalling, 7.37 % 19.4% tunnelling operation, business Employee (voluntary) turnover rate Of our people are female, 8.0% are administration and accounting. BAME Apprentice totals Building a diverse workforce Number of Costain apprentices We recognise the value of a diverse Developing talent workforce and ensure that all people We continue to invest in training and 75.0 65 activities continue to be inclusive and development for all our staff, delivering that we provide fair access to and a total of 7,988 training days in 2012, 52.5 participation in training, promotions, covering technical and behavioural skills 35.0 31 reward and recognition. We have and a range of qualification levels. In 24 17.5 16 October, over 120 leaders at all levels monitored our diversity profile over the 5 last five years. This year, our statistics within the Company, from the Board 0.0 include acquisitions, which have resulted to front-line supervisors and trainees, 08 09 10 11 12 in a slight decrease in the proportion of attended a Costain leadership female employees to 19.4% (construction development day, creating an opportunity industry female average: 13%, UK to engage and develop common 65 Contractors Group (‘UKCG’) average leadership styles across the Group. Apprentices on our apprenticeship female: 16%) and an increase in Black, Costain is now actively working with programme Asian and Minority Ethnic (‘BAME’) four sector skills academies, covering employees to 8.0% (construction rail, power, nuclear and construction. We are aware of the need to encourage industry BAME average: 5%, UKCG We are working with the academies to young people to take an interest in average BAME: 6%). While these figures develop skills and competencies to science, technology, engineering and compare favourably to the industry ensure we can meet the evolving needs math (‘STEM’) skills and we are average, we are not satisfied with this of our customers. encouraging all our graduates and and our focus for 2013 will be on apprentices to become STEM encouraging more women and BAME In 2012, we expanded our commitment ambassadors and to use their volunteer people to join Costain. In 2012, Costain to the Costain Project Management days to go into schools and encourage became a member of Business in the Academy, accredited by the Association young children to take an interest in Community’s ‘Opportunity Now’ of Project Management (‘APM’), these subjects. Please see page 39 campaign, to share ideas with other supporting 20 of our project managers for more information on our work industries to improve the attraction and who are targeting registered project developing skills for the future. retention of women in the workplace. professional status with the APM. Opportunity Now empowers employers Costain is currently one of only four to accelerate change for women in the organisations with ten or more registered workplace. project professionals in the UK. cross-project and cross-sector 447 employees through implementing of afurther development career the formal promotion and have facilitated recognised 293 employees through 12 last the we have In months, Reward and recognition 2013. in place take will Our next employee engagement survey by 6%. increased scores engagement overall their that pleased were and training the received who managers the of reports direct the We surveyed skills. improving appraisal their performance are managers our that demonstrating review scoring, our performance in ashift was there training of this result adirect As to 150 over managers. training leadership and management 2012and performance we provided 2011 In improvement. further for area management asperformance an Feedback from employees also identified ask for or support. offer and ideas their to share encouraged are networking forums, where employees Twitter) and implementing internal online embracing social media (for example updated our methods of communication, we have aresult As business. the across improve some forms of communication to we needed us told employees Our 2011of our survey. results the on to act we continued 2012, In made. be can improvements where areas target and feedback the opinions of our employees, gain to survey engagement understand rewarded. We run a biennial employee to and listened valued, to feel people our we want and important extremely are employees of our views The crucial to the successof our business. is people our with effectively Engaging Employee engagement Relationships Relationships continued

Excellence Awards 2012. Awards Excellence Achieving its at people its of performance outstanding and achievements the celebrates Costain of 84%. score average an 2012 In relationships. we achieved subcontract management and health and environment, quality, delivery, safety, as such values core against toperformance rate our customers our we ask where surveys, satisfaction We regular undertake customer from our customers. feedback seek actively and performance our to improve strive We constantly customers. to our of service standards highest the and solutions innovative sustainable, to is provide aim Our customers our for service of solutions and the highest standards providingCustomers: sustainable individuals. of contributions and performance outstanding the celebrate and recognise to Awards Excellence Achieving 2013, our we hosted February In 2013. during out rolled be will paths career The marketplace. current the in competitively employees our rewarding we are to ensure and improve of visibility careerprogression to order in place, in structure grading and career wearobust have that to ensure externally roles benchmarking and paths career developing been have We capabilities. and experience their to broaden them to enable transfers Business model 2012 highlights Find out more: out Find

80 81 82 83 84 % Customer score satisfaction and the achievement of mutual goals. of mutual achievement the and compliance, continuous improvement to ensure chain supply its supporting Costain is committed to engaging and turn, In solutions. sustainable innovative, efficient, delivering in us to support and standards and values our to share suppliers our it. We ask within issues the economic, environmental and social and chain supply of our management committed to the responsible are and activities procurement of our impact the We understand and sustainable solutions us in delivering innovative efficient, chain where support our partners collaborative, responsible supply operating a Supply chain: score satisfaction customer average Group 84% Annual Report 2012 35 Report Annual PLC Group Costain 80 08 81 09 82 10 81 02-05 pages 11 pages 18-24

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Other information Financial Corporate Business review Overview statements Governance 36 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Performing responsibly continued

Costain Cares

Relationships continued

Supply chain management to note that the number of suppliers In 2013, we will identify five key During 2012, our focus was to achieving the ‘Costain Blue’ standard sustainability focus areas that we will strengthen the supply chain, ensuring (a minimum score of 80% in an individual promote within our Top 250 suppliers, that the identified companies were performance review) increased to 171 setting timescales for them to meet sustainable businesses procured in from 115 in 2011. a required standard in these areas. a uniform and responsible manner, particularly in relation to industry- Supply chain performance To ensure our procurement staff recognised social and ethical trading % approach responsible procurement standards/initiatives. In 2011, Costain in a uniform manner, our commitment 80 in 2013 is to deliver responsible introduced an accreditation scheme for 69 63 65 procurement training to all our assessing the capabilities and values of 60 59 52 a supplier. During 2012, the percentage procurement personnel. 40 of our strategic and preferred supplier In September, we launched the Costain base accredited to the scheme 20 supply chain academy, a new initiative increased to 90%, from 59% in 2011. 0 that aims to support and develop small An added benefit of implementing the 08 09 10 11 12 to medium-sized enterprises (‘SMEs’). scheme is the facility to track and The Company welcomed 15 suppliers analyse the percentage of suppliers to the academy, where representatives that have achieved specific standards. attended 19 learning modules covering 33% business administration, commercial Effective engagement and two-way Increase in supply chain performance and financial best practice, insurance, feedback are essential to ensure that over the last five years we perform as one team. We monitor Health and Safety, behavioural safety and measure our own performance and quality. Supply chain engagement biannually via 360-degree feedback In April 2012, we held our third supply reviews requested from the elected chain conference at Warwick University, Top 100 supply chain. The results are attended by 160 senior representatives analysed to identify the formation of of our supply chain partners and trends or cultures, which are addressed 50 of Costain’s senior management. accordingly. In 2012, 203 reviews were The conference offered a chance for received, which collectively gave Costain suppliers to hear about the future of a feedback review score of 79.7%. working with Costain and to participate We undertake regular performance in a Q&A session with a panel consisting reviews with our supply chain, of Costain senior management. discussing issues such as supervision, competency, communication, teamwork, Responsible procurement cost, quality, innovation, safety and Responsible procurement for Costain environmental performance. Suppliers means leading socially, environmentally and project management are and economically responsible encouraged to conduct the performance procurement to deliver value and review jointly to ensure the performance benefits to stakeholders. of our supply chain is accurately represented. This allows both parties We have adopted the UK Government’s to have an input. During 2012, 1,160 Flexible Framework as the method performance reviews were conducted through which we will develop our on our Top 100 and other business- approach and measure our progress. critical supply chain members, resulting We have set a target to achieve Level 3 in an average score across the Group of the Flexible Framework in 2013 and of 69% (2011: 65%). We were pleased Level 5 by 2015. disclosure, in addition to reducing our emissions and carbon reporting to accurate dedication ongoing our to 2011. 2009 from data highlights This our accrediting (‘CEMARS’), Scheme Emissions Measurement and Reduction Certified to Achilles the accreditation Weperformance. achieved external overall our and change of climate improvements in the management 2012,in significant demonstrated our measured carbon emissions and, We remain committed to reducing Climate change • • • possible: to, where chain supply and customers our with to is work commitment Our activities. and environmental management of our continuously improve the operation and pollution prevent effectively, impacts its and work our all manage we to ensure intention our outlines Group Environmental Policy Statement 14001:2004. ISO The management of environmental standard international to the accredited is (‘EMS’) System Our Environmental Management everyone. of natural environment for benefit the to the We have responsibly to deliver Our EnvironmentOur protect and the enhance environment. sourcingsustainably materials; and minimising water consumption and effective waste management, naturalconserve resources through reduce our impact on climate change;

Reduction in measured emissions intensity, compared with 2009 27% 0 11 22 33 44 Costain CO certified low-cost low-carbon solutions. with them to provide customers our with to work and 2009, with 2020, compared reduction in carbon emission intensity by a55% to is achieve target restated Our targets. associated and strategy change reviewed and updated our climate we have data our in accuracy increased and verification of this aresult As guidelines.reporting Commitment Energy Efficiency Scheme in line with the Carbon Reduction 14064-1:2006 ISO against, also is and certified and with, accordance in is emissions. Our method of reporting in reductions to deliver we continue to ensure review ayearly and data our verification independent includes of standard CEMARS The emissions. ’000 tCO operational control. Figures are reported inaccordance withISO14064-1:2006andreflect UKoperationswithinCostain’s direct combustion, companyownedorleasedvehicles ■ ■ ofatlandfill emissionsfrom waterusageandwastedisposed businesstravel(notincludedinScope1), ■ cp ieteisossc sfe Scope 1–Direct emissionssuchasfuel Scope 2–Indirect emissionssuchaselectricity Scope 3–Indirect emissionssuchasemployee 2 e/tCO 39.84 09 2 e per £m turnover £m e per Business model 2012 highlights Find out more: out Find 2 emissions by scope and emissions intensity 40.03

10

27.93 11 ■ Emissions intensity(tCO reporting boundary ■ abnfopit e eotn onay including2011acquisitions carbonfootprint:newreporting boundary of case studies. promotion the and projects, and offices weeks, sustainable plans for transport through dedicated energy awareness awareness among our employees business on climate change, raising 2012, In the to engage we continued operations. international and ventures joint to include footprint our expand further 2013, In reported. is we will increase an therefore, and, different are activities the turnover, against normalised are figures compared with 2011. While the intensity intensity and our absolute emissions this has increased both our emissions below, graph the from seen be can As their associated activities and turnover. boundaries to include 2011 acquisitions, carbon footprint and associated our expanded We further 2009. with in our absolute emissions compared 2012,In areduction we demonstrated msin nest iu custos (tCO Emissions intensityminusacquisitions 2 e/£M1) –2012Bcarbonfootprint:2011 Annual Report 2012 37 Report Annual PLC Group Costain 29.24 A 28.66 B 12 A 2 02A e/£M1) –2012A 12 B 02-05 pages pages 18-24

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Other information Financial Corporate Business review Overview statements Governance 38 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Performing responsibly continued

Costain Cares

Our Environment continued

Natural resources We successfully met our 2012 target, Environmental incident We continue to focus on waste increasing the waste diverted from frequency rate management and the reduction of landfill to 93%. In 2008, the Group Number of environmental incidents waste produced from all our activities. pledged its support to the Waste & per 1,000,000 man hours Resources Action Programme (‘WRAP’) Construction waste removed ‘Halving Waste to Landfill’ commitment, 0.4 from site setting a target to achieve a 50% ’000 tonnes of waste/ 0.3 0.28 tonnes per £100,000 turnover reduction in the total tonnage of construction, demolition and excavation 0.2 0.156 0.137 waste we sent to landfill by 2012. By 0.130 600 56,602 8 0.1 0.077 51,554 2012, we had vastly exceeded this target 450 6 by reducing the total tonnes of waste 0.0 6.3 08 09 10 11 12 300 31,001 27,066 4 we send to landfill by 92% compared 4.9 24,391 with 2008. 150 2 3.3 2.8 2.9 We are committed to minimising our We continue to train key personnel in impact on the environment by ensuring, 0 0 08 09 10 11 12 environmental management, in particular where possible, that our activities do responsible procurement, materials not result in damage and that we reduce ■ ■ Tonnes of waste removed from site procurement and waste and materials our overall environmental incidents year ■ Tonnes per £100,000 turnover management. This training provides on year. We ensure that all environmental Figures are reported in accordance with WRAP Waste Measurement and Reporting Guidance. Turnover figure advice, guidance and knowledge to incidents are reported and investigated reflect operations reporting waste. 2008–2011 figures relate to UK operations excluding MAC joint ventures and 2011 individuals dealing with waste and to capture lessons learnt and prevent acquisitions. 2012 figures reflect all operations but exclude our MAC 10 joint venture and Alcaidesa operations and materials on a day-to-day basis. recurrence. the associated turnover. Obtaining a greater understanding Our reported environmental incidents of our water consumption continues and the associated environmental 53% to be a key focus for the Group. Water incident frequency rate (‘EIFR’) have Reduction in construction waste, monitoring and measurement have increased in 2012. In 2011, we reviewed compared with 2008 commenced on a number of our projects our definition of environmental incidents and we continue to develop our reporting to align our reporting procedure with Waste diverted from landfill process to improve the capture of that of our customers and the regulator, % information across the business, so that and have continued to strongly promote we are able to report on our water the reporting of incidents. While our 100 93 consumption in 2013. reported EIFR has increased in 2012 84 89 75 compared with 2011, we attribute 67 58 Protecting the environment this to an increased awareness and 50 reporting of incidents. No major 25 Environmental incidents incidents have been reported in 2012, Number of incidents compared with one in 2011, and no 0 environmental prosecutions, cautions 08 09 10 11 12 100 or notices were received. 85 Figures are reported in accordance with WRAP Waste 75 Measurement and Reporting Guidance. Turnover figure To improve environmental awareness reflect operations reporting waste. 2008–2011 figures across the industry, Costain contributed relate to UK operations excluding MAC joint ventures 50 and 2011 acquisitions. 2012 figures reflect all operations 34 37 38 to the development of an industry but exclude our MAC 10 joint venture and Alcaidesa 25 24 operations and the associated turnover. environmental awareness course, the 0 Site Environmental Awareness Training 08 09 10 11 12 Scheme (‘SEATS’), for supervisors and 93% managers. The scheme will be launched ■ Number of major incidents in 2013 and will be formally accredited Waste diverted from landfill ■ Number of significant incidents ■ Number of minor incidents to CITB-ConstructionSkills. As defined by Costain. Group and within our supply chain. the across a total of 169 apprentices year. of the end the We achieved have within Costain and our supply chain by of 150 atarget apprentices setting apprentices within our supply chain, aundertook campaign to promote 11 2012, In across disciplines. we also 3frameworks Level on apprentices 65 our apprenticeship programme, with expand to and grow We continue 2013. in Group the across we offer placements increase experience of work the number 2012. to We atarget set have Awards National Placement and Internship voted 24th by being the in rewarded be and wereopportunities delighted to we over supported work 90 placement 2012, In meaningful. and accessible more of work world of the experience to their make aiming people, to young experience work inspirational we offer addition, In subjects. STEM in people young to inspire to into schools go time their volunteer who Group the across We have numerous ambassadors and relatedin engineering industries. careers about more out to find people of young aspirations and awareness the to raise we aim programme, Through our Futures Engineering we operate. where future local communities and support the for of talent pipeline sustainable a build organisation, into our talent young we attract to ensure universities engaging with schools, and colleges We recognise of the importance Developing skills for the future to come. years for many felt be will today The benefits of investment in infrastructure economy. UK for the vital of infrastructure provision the in role We important an play The Future

off the ground. the off it get and it to develop order in basis afull-time on idea their on to work candidate will be given the opportunity the to successful, If life. idea the bring to needed advice technical the as well as issues legal and HR finance, with help mean could That areality. it make to resources necessary the provide and idea their in invest will Company the chosen, is it if idea; business innovative their to submit invited are from across the Company. Employees innovativesupports ideas business and creates which initiative a new Start-ups, Costain we launched June, In their ambitions and aspirations. achieve them help will that customers to our solutions intelligent to providing We committed are competitiveness. and productivity growth, to our contribute will and strategy our underpins Innovation Innovation Business model 2012 highlights Find out more: out Find

www.costain.com please visit our website at vision, Cares Costain of our a copy For more information and to download 2014 our deliver and vision. improvements 2013for further to drive targets 2012 developed have and targets 76% of the We achieved improvement. continual drive and performance our we measure 2012 which against targets 2014, for vision our out sets and which strategy,Responsibility Cares, Costain 2011,In Corporate our we launched 2014 for vision our Cares: Costain 2013. for planned are intakes two Afurther quality. and safety safety, behavioural and Health bestandpractice, financial insurance, business administration, commercial attended 19 covering modules learning representatives academy,where first the Company welcomed 15 suppliers to The Group. the across adopted development and of training standard withsupply chain the partners high Company’s the to align and SMEs that aims to and develop support initiative academy, anew chain supply its opened Costain September in aim, of this support and recognition In potential. their to achieve them empowering chain, we SMEs within support our supply base,supplier including SMEs, and that supply chain is to accessible a diverse our that to ensuring We committed are enterprises (‘SMES’) including small and medium-sized oursupporting supply chain, toContribute economic growth CR targets achieved in 2012 in achieved targets CR 76% Annual Report 2012 39 Report Annual PLC Group Costain

02-05 pages pages 18-24

Other information Financial Corporate Business review Overview statements Governance 40 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Principal risks

Managing risk

Strategic and Financial Risk

Risk and Impact Mitigation Economic outlook The Group regularly monitors the pipeline of opportunities available and The uncertain outlook for the UK and global develops relationships with customers across a range of markets in both economy continues. The extent of any changes the private and public sectors. The Group has set out a clear strategy to government and international regulation, to target customers whose spending plans are driven by national need, taxation and interest rates, may also impact the regulatory commitments or essential maintenance requirements. The Group’s ability to win work and deliver forecast Group continues to broaden its offer in its key sectors. returns. The uncertain economic outlook also affects our customers’ ability and confidence to place orders, potentially impacting the Group’s level of opportunities. Change of Government Policy on spending Key factors that may affect Group strategy are kept under regular review Certain of the Group’s operations are dependent by senior management and action taken where potential future workload on government policy with regard to improving shortfalls are identified. public infrastructure and services. Any reduction The Group continues to liaise with government bodies, showcasing in government investment and funding would a wide range of innovative ideas to demonstrate the business as be likely to affect the Group’s future revenues a solution provider. and profitability adversely. Competition The Company’s strategy of targeting customers with committed long- The failure by the Group to compete effectively, term capital and operational spending plans will enable us to continue resulting in a failure to win work in a competitive to pursue and win work less affected by the downturn. The Company’s market, could reduce the Group’s revenue, ongoing drive, both organically and by acquisition, to broaden its services profitability and cash flow. across engineering consultancy, construction and operations and maintenance, and to provide innovative cost-effective solutions, will also provide it with a competitive edge. Pension liabilities The valuation under lAS 19 for the scheme as at 31 December 2012 valued The Group operates a defined benefit scheme the scheme’s assets at £558.8 million and liabilities of £610.7 million. which was closed to new members from An actuarial valuation of the scheme as at 31 March 2010 was concluded 1 June 2005 and was closed to future accrual during 2010 and Costain agreed a deficit recovery plan with the Trustee. on 30 September 2009. The current deficit on The next actuarial valuation is due on 31 March 2013. the scheme is £51.9 million net of deferred tax. If the market value of the scheme’s assets The value of the deficit recognised in the Group’s balance sheet pursuant decline in relation to its assessed liabilities, the to lAS 19 is dependent on certain critical assumptions, including mortality Group may be required to increase its cash rates, pension increases, investment returns and inflation and is likely to contributions to cover funding shortfalls which vary from year to year. could have an adverse impact on the Group’s operational results. The Company reviews the options regarding what actions Costain can take to mitigate its long-term risk and consults professional advisers as necessary. Acquisitions Full due diligence is carried out before any acquisition is made. Integration Failure to integrate successfully an acquired plans are put in place and managed by a dedicated team. business or recognise and mitigate new and related risks could have a damaging impact on the Group’s future revenue and profits. ability to grow the business as anticipated. anticipated. as business to the grow ability management or personnel may limit the Group’s skilled highly retain and develop to attract, Failure People losses. financial could suffer Group the financially, fails acustomer If losses. financial to it suffer cause and/or reputation Group’s the damage could it work, quality low or or is responsible for late or inadequate delivery supplier of fails financially goods or services or partner venture asubcontractor,joint If customer failure Subcontractor/supply chain and fines. and of legislation to breaches Company the expose and Group to the loss financial store key documentation securely, could cause to failure the as well as systems, IT to integrate and/or to manage inability systems, of IT Failure Documentation systems/Key IT of Loss performance. theaffect operational, financialand share price adversely and liabilities to financial Group the expose and/or Group’s the reputation affect procedures and guidelinescould adversely Failure to follow Company standards, policies, expectations. customers’ meet not do therefore and standards environmental and Safety and Health appropriate or quality cost, to time, delivered not are projects that mean could guidelines practice best to follow Failure Operational delivery Impact Risk and Risk Operational

Mitigation the Company remains competitive at all levels. levels. all at competitive remains Company the that to ensure competitors against benchmarked and market prevailing the against reviewed regularly also are of employment conditions Pay and Committee. Consultative Employee its and surveys engagement through employees with engage to actively seeks Company The levels. all at development ongoing encouraging and reviews’ which is regularly monitored. out ‘talent This process includes carrying The Company has in place a well-developed planning succession process need, regulatory commitments or essential maintenance requirements. national by strategic underpinned is activity spending whose sectors in customers blue-chip with working and targeting on focuses Company The preferred and strategic suppliers. by our compliance to system ensure audit external an use in has Company The concern. for cause or issue any to identify order in them with adialogue to maintain endeavours and suppliers and subcontractors reviewed regularly. The Company financial also monitoring undertakes of is which suppliers and subcontractors of preferred alist maintains subcontractor, supplier or joint venture partner. In addition, the Company one any on over-reliant not is it that to ensure seeks Company The of documentation. storage and usage safe for provided is training security Online procedures. backup data sound as well as recovery rapid include and to testing subject are areas Critical support. in team qualified asuitably has and systems IT the for responsible is executive A senior areas. work their in safety for acted upon as appropriate. Employees are encouraged to take responsibility and quickly reported are procedures in error. breaches Any of human risk the to reduce place take training site on and visits Safety and Health Regular and updating our procedures in line with the changing business. reviewing for responsible also is executive senior The compliance. ensuring and practice of best updating the issues, quality overall for responsible is executive Asenior taken. be can required, where action, corrective that so prepared reports and specialists by in-house audited is site on Work etc. risk, performance, financial cost, quality, safety, progress, to discuss place take meetings forecast end and meetings report manager’s project regular contract, of the life the During bids, which are subject to internal review and approval before submission. prepare to used are staff qualified and experienced To risk, cost the mitigate Corporate Governance Group Finance Director’s review Chief Executive’s review Chairman’s statement Find out more: out Find Annual Report 2012 41 Report Annual PLC Group Costain pages 50-76 pages 44-47 pages ae 06-07 pages pages 14-17 pages

Other information Financial Corporate Business review Overview statements Governance 42 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Key performance indicators

The Group uses a range of Staff turnover performance indicators across Target: To provide initiatives and working conditions in order its business units. These start to retain key staff with a formal three-year 2012 2011 2010 business plan that sets out clear strategic targets and 7.4% 7.0 % 5.1% The retention of staff is fundamental in delivering a quality objectives and which forms service to customers. The Group undertakes a number the basis of the budget for of important initiatives to retain key staff, including actively facilitating their career development. Clear action plans are the following financial year. in place to address issues such as Health and Safety, reward, training and development and job satisfaction. The Group uses The Board considers that the a ‘voluntary leavers’ turnover rate to monitor staff retention. In 2012, staff retention was very strong compared to long-term following Non-financial and industry norms. Financial key performance indicators (‘KPIs’) are the Supply chain performance Target: most effective measures for Average key supplier performance score of greater monitoring its objectives: than 50%

2012 2011 2010 Non-financial KPIs 69% 65% 63% Accident Frequency Rate (‘AFR’) The Group has a number of key suppliers and is reliant on Target: their performance in carrying out its business. Consequently, To continually improve safety performance with a zero an internal performance measurement tool is used to assess tolerance approach the performance of key suppliers on a regular basis against a number of indicators including Health and Safety, 2012 2011 2010 programme, commercial and quality performance. The result of the assessment is shown as a percentage score which allows comparison against previous scores and other 0.09 0.11 0.15 suppliers. The assessment and results are then used as Safety is the number one priority. Within the Company there a basis for discussion with each strategic and preferred is both a corporate and individual responsibility to ensure that supplier of their performance and to put in place, where operations are managed in a safe, healthy and environmentally necessary, actions to improve performance or, if appropriate, controlled manner. The common measure in the construction reduce the amount of work performed by a supplier. sector for measuring safety performance is the Accident Frequency Rate (‘AFR’) which measures the number of serious In 2012, the average key supplier performance score workplace accidents reportable under the Reporting of continued to improve. The objective is to ensure that all Injuries, Diseases and Dangerous Occurrences Regulations key suppliers have a performance score of at least 50%. 1995 per 100,000 of hours worked. The further improvement The Group has also implemented an external accreditation achieved in 2012 reflects the continued attention given system called Achilles (Building Confidence) for its strategic to all areas of safety and represents upper-quartile safety and preferred supply chain members. performance in the construction sector. of assets into The Costain Pension Scheme in 2012. in Scheme Pension Costain into The of assets transfer ofthe profit from million £10.5 to significant the due to 2011in 2012compared operations from increased profit Group’s The Report. Annual of the section review Business the in detail in reported is business of the segment each for operations from profit The Group. of the divisions and areas all across of performance akey is measure items) other related acquisition (before operations from profit of adjusted level The year. the during Group the in performance strong of the a result in 2011 profit Group’sThe operating 2012as and increased ventures. joint and of assets sale excludes and performance Group’s of the elements operating of the results the represents measure The Group. the for of performance akeyis measure costs) management liability pension and items other related acquisition (before profit operating of underlying level The £ 2012 In line with business plan Target: Adjusted profit from operations £ 2012 In line with business plan Target: profit operating Underlying Financial KPIs 31.4 25.1 m m

£ £ 2011 2011 23.6 24.1 m m 2010 2010 2010 £ £ 17.4 29.4 m m

Group Finance Director’s review Costain Cares of assets into The Costain Pension Scheme. Scheme. Pension Costain into The of assets transfer ofthe profit from million £10.5 significant the included in 2012 tax before profit reported The interest. 19lAS pension the and held deposits cash from interest the incorporates and Group the for measure is a key tax before profit Adjusted £130.4 2011. in million 2012 during to Group £103.4 the was for compared million balance cash month-end average The customers. chip blue with contracts based cost 2011 target to transition the reflects to compared 2012 the in balance reduction cash year-end The process. measurement performance of the part as out monitoring and measurement of cash resources is carried close and balance cash net apositive has Group The year. of the start the at level the from decreased has of Group 2012 the for end At the book growth. order the and profitability continued achieving for akey is measure out to carried is be work which on orders of secured level The Our Corporate Responsibility framework and approach Find out more: out Find £ 2012 In line with business plan Target: tax before profit Adjusted £ 2012 the business requirements to suit level appropriate an at balance cash anet Maintain Target: Net cash balance £ 2012 strategy with line in book To order astrong build Target: Order book 105.7 29.5 2.4 bn m m 2011 2011 2011 £ £ £ 140.1 25.5 2.5 Annual Report 2012 43 Report Annual PLC Group Costain bn m m 2010 2010 2010 2010 2010 £ £ £ 144.3 27.9 2.4 pages 44-47 pages 30-39 pages

bn m page 29 page m

Other information Financial Corporate Business review Overview statements Governance 44 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Group Finance Director’s review

Focused on a strong financial position

Costain delivered another year of good financial performance. The Group generated a 4% increase in underlying1 operating profit for the year to £25.1 million (2011: £24.1 million). Profit from operations, before other items2, for the year was £31.4 million (2011: £23.6 million). Group revenue, including share of joint ventures and associates, was £934.5 million for the twelve months to 31 December 2012 (2011: £986.3 million). The increased profitability, on reduced revenue, reflects the Group’s focus on higher margin work. During the year the Group transferred two PFI investments into The Costain Pension Scheme (‘CPS’) at an agreed value of £20.3 million which resulted in a profit on the transfer of £10.5 million. In addition the Group implemented an Enhanced Transfer Value and Pension Increase Exchange offers to the members of the CPS which resulted in a one-off accounting cost of £2.8 million in the year. Profit before tax, before other items2, for the year ended 31 December 2012 increased to £29.5 million (2011: Tony Bickerstaff £25.5 million). Basic earnings per share, before other items2, Group Finance Director amounted to 41.4 pence (2011: 31.1 pence per share), reflecting increased profits and a non-recurring tax timing benefit. Reported basic earnings per share were 37.1 pence (2011: 29.2 pence). During the year the Group secured a number of new contracts and extensions and the Group’s order book stood at £2.4 billion (31 December 2011: £2.5 billion). As a result of the Group’s ongoing strategic focus on major blue chip customers who increasingly utilise a target cost based form of contract, our net cash position includes a lower level of advanced payments typically paid on lump sum contracts. Additionally, our increasing emphasis on support service related activities, changing industry cash flow trends, together with the cash flow timing implication of a delayed contract completion, accounted for the reduction in net cash to £105.7 million (2011: £140.1 million). We expect these trends will continue to be reflected in a lower average net cash position.

1 Underlying operating profit is before amortisation of acquired intangible assets and employment related acquisition consideration and excludes the one-off costs relating from pension scheme liability actions.

2 Other items are the amortisation of acquired intangible assets of £1.7 million (2011: £0.9 million) and employment related acquisition consideration of £1.7 million (2011: £0.7 million). corporation tax of 23% from 1 April 2013. 1April from of 23% tax corporation rate of reduced of the balances tax deferred forward brought the on effect the and assets, tax deferred as allowances, not previously recognised capital and differences timing losses, tax forward of brought utilisation the claims, Research and Development relief tax Scheme, Pension Costain to The assets of PFI transfer the on relief to tax owing arose rate of tax normal than lower The (2011:7.3% tax before profit of the 21.8%). was rate of tax Group’sThe effective Tax £2.1 million. 2013 in increase to will expense interest method of calculation, the net pension the in achange 19,of IAS requiring requirements new of the consequence 2012. 31 at as December a As scheme deficit position was reassessed 19, IAS with pension the accordance In income). of £1.1expense (2011: million £1.8 million anet being million) (2010: £30.5 scheme’s of liabilities £27.4 million pension of the value present the on cost (2011: interest the and million) £32.3 million of £26.3 scheme’s assets expected return on the pension the between difference the included addition, the net finance expense £1.0 million (2011: £1.8 In million). to amounted receivables and loans other and deposits bank from income (2011: £1.7 interest the and million) £1.8 was charges million similar other and overdrafts bank on payable interest The £1.9 million (2011: £1.9 million income). to amounted expense finance Net Interest statements. financial the in analysis segmental the in shown are and section review operational divisions are considered in the Group’s of the operating results The

Increase Exchange (‘PIE’) offers to the to the offers (‘PIE’) Exchange Increase Pension and Transfer (‘ETV’) Value the implementation of Enhanced was action £10.5 second The million. of transfer on the profit accounting 2012 an in resulted and 22 February £20.3 million which was completed on of value agreed an at CPS into the PFI investments two Group’s in interest of the transfer the was of these first The CPS. the in obligations the manage to taken being actions further two 2012, announced February In Group the yields, used to calculate the liabilities. discount rate, based on corporate bond the in of areduction aresult as primarily scheme deficit position has increased (2011: £40.0 The million £39.7 million). was 19, tax, IAS with of deferred net pension scheme deficit in accordance 2012, 31 at As December Group’s the Pensions pension scheme. loss on the Group’s definedbenefit significantelement was the actuarial most The statements. financial the in equity in changes and expense and statements of comprehensive income are detailed in the consolidated to £19.1 expenses movements The million. £24.2 million and other comprehensive to amounted year the for profit The to £31.8year (2011: million million). £30.8 Shareholders’ increased in the equity Shareholders’ Equity amount of paid to dividend shareholders. to the equal scheme to pension the contribution cash additional an make will Group the years, previous in As of 7.5%. increase an (2011: share per share), 10.0 per pence to 10.75 year the total for the bring pence (2011:share to 6.75 share) per pence of 7.25 year the for per dividend pence afinal recommended has Board The Dividend Financial statements Corporate Governance Chief Executive’s review Chairman’s statement 2012 highlights Find out more: out Find

cash balance. abase to maintain seeks Group the to accommodate these cyclical flows, order in and cycles specific contract and by monthly affected is position cash The £103.4 million (2010: £130.4 million). 2012 during was balance cash month-end average The contributions. and matching pension deficit dividends of payment for outflows with outflow, together cash operating an had year, the Group the during statement, flow cash consolidated the in out set As £29.6 million (2011: £33.6 million). of operations controlled by jointly (2011: held cash £1.6 and million) and included £1.7 million of borrowings 201231 December (2011: £140.1 million) £105.7 was which at as balance, million cash net apositive has Group The Borrowings and Flow Cash 2013. 31 at as March out carried be will CPS of the valuation actuarial full review, another a tri-ennial for requirement the with accordance In Trustee the Scheme. with of the agreed plan 2010 31 at as March arecovery and bylast performed the Scheme Actuary was CPS of the valuation actuarial A full 2012. in expensed of million £2.8 cost accounting aone-off in resulted approximately million £35 and have of assets and liabilities scheme the in areduction in resulted have exercises PIE and ETV The CPS. of the members Annual Report 2012 45 Report Annual PLC Group Costain ae 77-121 pages 50-76 pages 02-05 pages ae 06-07 pages pages 14-17 pages

Other information Financial Corporate Business review Overview statements Governance 46 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Group Finance Director’s review continued

Focused on a strong financial position

2012 2011 2010 2009 2008 Revenue £934.5m £986.3m £1,022.5m £1,061.1m £996.0m Underlying operating profit £ 25.1m £ 24.1m £17.4m £22.0m £19.5m Profit from operations £28.0m £22.0m £29.4m £20.8m £18.3m Profit before tax £ 26.1m £23.9m £ 27.9 m £18.1m £ 23.1m Earnings per share – basic 37.1p 29.2p 36.4p 23.0p 29.0p Net cash £105.7m £140.1m £144.3m £120.5m £146.9m Dividends per ordinary share 10.75p 10.00p 9.25p 8.25p 7.50 p

Key Risks and Uncertainties The most critical accounting policies Going Concern The principal risks and uncertainties and significant areas of judgment and The Directors have acknowledged the of the business, and the factors which estimation arise from the accounting guidance ‘Going Concern and Liquidity mitigate these risks, are set out in the for defined benefit pension schemes Risk: Guidance for Directors of UK Group’s Annual Report and include the under IAS 19 Employee benefits, the Companies 2009’ published by the economic outlook, change of government accounting for long-term contracts under Financial Reporting Council in October policy on spending, competition, IAS 11 and assessments of the carrying 2009. The Directors have considered pension liabilities, acquisition integration, value of land, property, goodwill and the Group’s financial requirements, operational delivery, loss of IT systems, intangible assets. its current order book and future supply chain and customer failure and opportunities and its available bonding people retention. The Board continuously Contract Bonding and Banking facilities. Having reviewed the latest assesses and monitors these risks Facilities projections, including the application and the Chairman’s Statement, Chief The Group’s long-term contracting of reasonable downside sensitivities, Executive’s Review and business and business is dependent on it being able the Directors believe that the Group operations review in these financial to supply performance and other bonds is well placed to manage its business statements include consideration of as necessary. This means maintaining risks successfully despite the current uncertainties affecting the Group. adequate facilities from banks and surety uncertain economic outlook. Accordingly, bond providers to meet the current the Group continues to adopt the Accounting policies and significant and projected usage requirements. going concern basis in preparing these areas of judgment and estimation The Group has contract bonding and financial statements. A summary of the significant accounting banking facilities of £465 million with policies of the Group is set out in the a maturity date of 30 September 2015 Treasury Notes to the financial statements. There with its relationship banks and surety The Group’s treasury and funding has been no significant change to the companies. activities are undertaken by a centralised accounting policies in the year and there treasury function. Its primary activities is no material effect on the Financial are to manage the Group’s liquidity, statements of new accounting standards funding and financial risk, principally adopted in the period. arising from movements in interest rates and foreign currency exchange rates. The Notes to the financial statements also include the significant areas of judgment and estimation used in preparation of the financial statements. elsewhere within the Group. exists hedge anatural unless exposure currency any to minimise contracts currency forward to use subsidiaries appropriate, the Group requires its where and, overseas activities arising from subsidiaries’ commercial exposure currency transactional a small Transaction exposure: the Group has sheet date. balance the at ruling rates exchange foreign at translated are investments and subsidiaries of overseas sheets balance The transactions. of the dates the at ruling rates exchange foreign the to approximating rates at into sterling translated are activities Group’s overseas of the results the Translation exposure: Foreign Currency Exposure facilities. bank or reserves are by supported adequate cash ensure that projected financingneeds to usage forecast and usage cash profits.TheDirectors monitorregularly andfunds from retained shareholders capital, of working by amixture primarily operations its finances Group The Liquidity Risk to periodic review by internal audit. subject is and controls and objectives defined clearly within centre aservice as operates Treasury Group transactions. speculative in to not is engage policy Group’s The risks. these managing Group’s growth development, while resources are available to the support adequate and liquidity financial that to Group’s is ensure The policy “

Chairman Allvey David business organically and by acquisition.” to grow the to continue resources we have place, in the facilities bonding and banking and position cash net positive sheet, balance arobust With 6 March 20136 March Group Finance Director Tony Bickerstaff the Group’s equity. impact will this and hedges flow cash theaffect value of swaps classified as will rate movements interest associates, and ventures joint in investments the the Group’s relationship banks. Within with deposited generally is which cash, Group’s operations from arises surplus the within rate fluctuations to interest exposure main the of borrowings, level low and Group’s balances the With cash Group’s operations. the from directly arise payables) trade and receivables trade example, (for finance. financial instrumentsVarious of sources its and operations its from arising rate risks interest the manage to PFI investments, its within only currently and, operations its to finance purposes: main two for instruments GroupThe holds relatively minor financial Exposure and Risks Rate Interest

Annual Report 2012 47 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 48 Costain Group PLC Annual Report 2012

Directors’ Report – Business review Board of Directors

Experienced leadership

David P. Allvey (67) Andrew Wyllie (50) Anthony O. Bickerstaff (48) FCA, ATII 3 FREng, MBA, BSc, CEng, FCCA Non-Executive Chairman FICE, CCMI Group Finance Director Chief Executive

Appointment: November 2001 Appointment: September 2005 Appointment: June 2006 Skills and experience: David Allvey was Skills and experience: Andrew Wyllie Skills and experience: Tony Bickerstaff is appointed Chairman in January 2008 prior was appointed Chief Executive in September Group Finance Director, Costain Group PLC to which he was Chairman of the Audit 2005. He was previously Managing Director and has been since June 2006. Tony has Committee. With a career that started in of Taylor Woodrow Construction Ltd extensive knowledge of the construction and civil engineering and subsequently as (2001–2005) and a member of the Taylor support services sectors both in the UK and a Chartered Accountant, his previous roles Woodrow plc Executive Committee. Andrew overseas. He is responsible for all aspects of include Group Finance Director for BAT joined Taylor Woodrow in 1984 and worked the financial management of the Group as Industries plc, Barclays Bank plc and on major contracts in Africa, the Middle East, well as playing a major role in the Group’s Chief Operating Officer for Zurich Financial the Far East and the UK. strategic and operational development. Services, member of the UK Accounting Previously, Tony was with the Taylor Standards Board, member of the External appointments: Non-Executive Woodrow Group, which he joined in 1982. International Accounting Standards Insurance Director of Scottish Water. He held a number of senior management Group, Non-Executive Director of Thomas and financial positions in Taylor Woodrow Cook plc (2007–2012), Senior Non-Executive including Finance Director of Taylor Woodrow Director of Intertek Group plc (2002–2011), Construction Limited. Prior to becoming Senior Non-Executive Director of William Hill Finance Director, he was Divisional Operations plc (2002–2011), Senior Independent Director Director in charge of the Group’s PFI projects. of Friends Life FPG Limited (formerly Friends Provident Group plc) (2009–2011) and Chairman of Arena Coventry Ltd (2006–2012). External appointments: Senior Independent Director of Friends Life Group plc, Non-Executive Director of Clydesdale Bank plc and National Australia Group Europe Limited.

Former Director Mr John Bryant retired as a Non-Executive Director with effect from 31 December 2012.

Notes 1 Member of the Remuneration Committee 2 Member of the Audit Committee 3 Member of the Nomination Committee Jordanian Kuwait (Kuwait), Company Development Utilities (Kuwait), KSCC Co Contracting and Engineering ABJ of Member Board Managing Director of KharafiNational Group; and Chairman Vice is He 2009. June in Director aNon-Executive as appointed was Skills and experience: Appointment: Ltd. Associates BMS and Ltd Group BMS plc, Hire Speedy plc, Clarkson Director of The Innovation Group plc, appointments: External (2011–2012). Non-Executive Chairman of Acumus Ltd (1991–1996) plc Group and Trade Indemnity of Director Non-Executive (2001–2009), plc Atkins WS of Director Non-Executive (1994–2008), Trust plc Investment Non-Executive Director of the Bankers’ (1976–1989), plc Europe Avis of Director Chief ExecutiveDeputy and Finance (1990–1999), plc Exchange Royal Guardian of Finance Director Executive Group (1999–2001), plc Appleton Wiggins Arjo of Director Finance Group (2002–2005), plc Holdings Insurance Cox of Director Finance Group Ltd (2006–2007), Group Primary of Previous roles include Chief Operating Officer companies. private and listed both of member aboard as experience 27 years’ some with Accountant 2013. aChartered is He January of start the at Director Independent Senior the as 2012 appointed was October and of end the until 2008 January from asserved Chairman of the Audit Committee Skills and experience: Appointment: Forum for Environment and Development. Arab aTrustee the of and (Kuwait); (HEISCO) Engineering Industries & Shipbuilding Co Heavy and (UAE) Holding Company Utilities Emirates (Kuwait), Systems House Clearing Global (Kuwait), Consultants SSH Senior Independent Director FCA BSc, James Morley (64) Non-Executive Director Solidarity Italian of Star the of Order the of Officer Grand BSc, (51) Younis G. Samer

Holding 1 23 June 2009 2009 June 2008 January

Company Samer Younis Morley James Non-Executive

(Jordan),

3

Committee, DCC plc. Non-Executive Director and Chair of the Audit Trust Ltd and Museum Living Country Devro Plc, Non-Executive Director, Black Director and Chair of the Audit Committee, appointments: External Manufacturing Industry Sector. Birminghamand office theDeloitte UK sectors. She was senior of partner the andhouse-building construction and property companies, in particularly the manufacturing, global advising partner audit 25 an as (UK), LLP Deloitte at years 35 spent Jane 2012. to this October of end Prior the of the Audit Committee with from effect Chair 2012 appointed was August and in Director aNon-Executive as appointed Skills and experience: Appointment: Group Commercial Director Patrick Bruce Regional Development Director Tim Bowen Group Finance Director Tony Bickerstaff Chief Executive Andrew Wyllie are: Board Executive Chief Executive by Andrew Wyllie, chaired is and managers senior other and directors executive the of consists It Board. Group by the down Group’s operations, following policies laid the of management day-to-day the for authority primary has Board Executive The Board Executive Group Legal Director and Company Secretary Company and Director Legal LLB (43) Wood A. Tracey BSc FCA, (57) Lodge A. Jane Independent Non-Executive Director 1 2 3 1 23 August 2012 . The members of the the of members . The

Jane Lodge was was Lodge Jane Non-Executive

Legal Director and Company Secretary Secretary Company and Director Legal Wood Tracey Corporate Development Director Alex Vaughan Resources –Natural Director Managing Mark Rogerson Group Technical and Operations Director Kay Alan –Infrastructure Director Managing Darren James Group Financial Controller HunterMartin secretariat and human resources. Hammonds. at apartner formerly was and background She has a construction and commercial law 2006. February in Company the joined Skills and experience: Appointment: Director of Russian Platinum PLC. Deputy Chairman and Senior Independent Ltd and Energy EGS at Adviser Special &Gyr, Landis for Board Advisory European the of Ltd., member Associates Lexican and Ltd Lexican of Director Ltd.; Executive Council Payments of Director Non-Executive appointments: External Trust Ltd (1994–2001). Saving Energy the of Director Non-Executive and (2008–2009) Trainof Operators Association the of (2007–2010), Chairman AG TGE of Marine Chairman (2002–2003), Non-Executive Chairman of Goldfish Bank Ltd (1994–2003), plc Centrica of Director Executive and Officer Operating Chief Trading, Gas British of Director Managing (2003–2005), plc Energy British of Executive market. Previous roles include Chief energy the of experience extensive has Skills and experience: Appointment: Independent Non-Executive Director CSci CEng, BSc, MSc, FIChem.E, FIET, FIGM, (65) Alexander R. Michael Annual Report 2012 49 Report Annual PLC Group Costain

She June 2011 2011 June July 2007 2007 July 1 23

has

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Other information Financial Corporate Business review Overview statements Governance 50 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance

Corporate Governance

This section explains our Corporate Governance and decision-making processes. We detail the committees and our accountability and audit procedures.

52 Corporate Governance statement 60 Other statutory information 65 Directors’ remuneration report 75 Directors’ responsibilities statement 76 Independent Auditor’s report to the members of Costain Group PLC Costain Group PLC Annual Report 2012 51

Directors’ Report – Corporate Governance Overview Dear Shareholder “The Board is committed to We believe that great companies achieving the highest standards of governance. This overview sets are built on the foundation of trust. out our approach to effective leadership and best practice.” Trust is earned by providing open Business review and transparent information, David Allvey Chairman together with strong compliance with both the spirit and letter of the law, and by managing the business in a responsible and sustainable way. Corporate Corporate Governance

At Costain, we are committed to robust corporate governance practices and accountability. The Company considers that the principles set out in the UK Corporate Governance Code are central to the effective management of the business and to maintaining the confidence of the investors. Our Board is responsible for providing strong leadership to the Costain

Group. Effective leadership is realised through collaboration between Financial the Board and the executive team and my role as Chairman is to ensure statements that we harness the experience and knowledge of the Directors and drive a culture of continual improvement in standards, decision-making, policies and accountability. Governance goes well beyond the boardroom. At Costain, we operate with diligence and discipline across the whole business and believe it is important to assess continually how we do things. Encouraging dialogue with stakeholders helps to guide and shape our approach to governance and risk management.

We continually monitor the composition of the Board to ensure we Other information have the right level of skills and expertise. The Directors have a deep understanding of our business and sector and bring valuable insight and experience to the table. Our Board is ultimately responsible for the success of Costain and we are committed to the highest standards of corporate governance to enable us to achieve our vision of becoming one of the UK’s top engineering solutions providers. The way in which the Costain Board and its various committees operates and delivers effective corporate governance is detailed in the following Corporate Governance statement.

David Allvey Chairman 52 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Corporate Governance statement

Responsibilities The Board of Directors of Costain Group PLC is The Board has adopted a schedule of matters specifically reserved to the committed to achieving Board for its approval.2 the highest standards of The principal matters reserved to the Corporate Governance Board include: and to managing operations • reviewing the environmental and health and safety in accordance with the performance of the Group; principles set out in the UK • setting Group strategy; • approving the annual operating and capital expenditure Corporate Governance Code budgets and material changes to them; 1 (the ‘Code’) to which the • reviewing performance in light of the Group strategy, objectives, business plans and budgets and ensuring Company is subject. that any necessary corrective action is taken; • supervising the Group’s operations and financial These principles are considered to be central to the performance; effective management of the business and to maintaining the confidence of investors. • approving major acquisitions and divestments; • reviewing the Group’s systems of financial control and risk management; • ensuring that appropriate management development and succession plans are in place; • approving appointments to the Board and Executive Board and the appointment of the Company Secretary; • approving policies relating to executive directors’ remuneration and the severance of executive directors’ service agreements; and • ensuring that a satisfactory dialogue takes place with shareholders.

1 A copy of the Code is publicly available at www.frc.org.uk 2 A copy of the schedule is available on the Company’s website at www.costain.com Set out below is a summary of the key matters undertaken by the Board in 2012: in Board by the undertaken key of matters the asummary is below out Set year? the during done Board the has What Achievements of2012Achievements and investment and discussions Strategic (‘CR’) Responsibility Corporate Evaluation Training Visits Monitoring risk

‘Choosing Costain’ strategy. 2012 the on December based in approved was on a regular basis. dedicated CR Director and monitors progress Company’s the from reports receives Board The 2012. August in Director aNon-Executive as appointed was Lodge Jane composition and competencies of the Board, of the consideration due 55. Following page on found be can evaluation external of the details Further evaluation. Board independent facilitated externally of an results the reviewed Board The leadership. safety of process area the in and area this in training undertook also members Board All Company’s Competition Law Compliance Policy. of the updating the overseen has Board The the Group. affect that issues operational of the understanding an maintain directors the to ensure country the gatherings and visited a number of sites across team leadership senior attended Board The objectives. Company’sstrategic the reflects Group’s profile the that risk ensured has and controls Group’s of the reporting effectiveness the to assess continued has Board The 2013 for plan Abusiness investments. and ongoing consideration of potential acquisitions profitunderlying of and the included business the the in astep-change to achieve a strategy advisers. Discussions were focused on formulating third-party and Board Executive of the members by attended workshops of Board a number discussions on key strategic which issues included wide-ranging to undertake continued Board The

– 2015 2015

a whole. as Board of the skill-set the enhances considerable experience to her role and brings Jane (UK), LLP Deloitte at partner audit an as 25 years spent Having 2012. of October end the from effect with appointed Chair of the Audit Committee and Director aNon-Executive as 2012 appointed was August Lodge Jane With Board’s effect from the diversity. to add will who background, a diverse interest from candidates drawn from welcome and to encourage continue will Company the Board, the of refreshing process ongoing of the part as and context, this Within people. best the we appoint of ensuring apolicy following backgrounds whilst and experience of skills, range to abroad have aims throughout the business. The Board and boardroom in the specific) of greater diversity (not just gender importance the recognises Board The 54. page on chart directors, which are depicted in the non-executive of the of service lengths varying by the enhanced is balance this that and non-executives and appropriate balance betweenexecutives an is there that believes Board The Company. of the to management the relevant and important is that experience financial and of business arange have directors non-executive the that illustrate to biographies 48 49. The pages their biographies are set out on and directors individual of the A list W.L.L. Co. Sons AbdulmohsinMohammed AI-Kharafi & is nominated by our major shareholder, The nominee non-executive director director. non-executive anominee is one the Senior Director) Independent and being (one directors non-executive independent are three Chairman, the is one of whom directors non-executive five and directors executive two comprises currently Board The Board? the on is Who deliver these objectives. appropriate controls are in place to the that and available are resources other and financial necessary the that Company’s strategic aims, ensuring the Company, of setting the leadership providing entrepreneurial and prudent by shareholders for value long-term to is create role Board’s main The Board. The Group is controlled through its Board the of role The Committees and Board Annual Report 2012 53 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 54 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Corporate Governance statement continued

Conflicts In accordance with the Company’s Length of Service: The Company has procedures in place Non-Executive Directors Articles of Association and provision as at 31 December 2012 for managing conflicts of interest. The B.7.1 of the Code, David Allvey, Board has satisfied itself that there is Tony Bickerstaff, Samer Younis and no compromise to the independence Jane Lodge will offer themselves for 0-2 years 20% of the directors who have appointments re-election at the next Annual General on the boards of, or relationships with, Meeting. Having due regard to the 40% 5+ years other companies. The Board requires results of the independently facilitated directors to declare all appointments review of the Board’s performance which could result in a possible conflict conducted towards the end of 2011 2-5 years 40% of interests and has adopted appropriate and to the periodic internal evaluations, processes to manage and, if appropriate, the Board confirms that it is of the approve any such conflict. opinion that each of the directors Independence standing for re-election continues The Board considers each of its Appointments to the Board and to make an effective and valuable independent non-executive directors retirement of directors contribution to the Board and should to be independent in character and The membership of the Board and therefore be re-elected at the judgement and there are no relationships biographical details of the executive forthcoming Annual General Meeting. and non-executive directors are given or circumstances which are likely to The Chairman and independent on pages 48 to 49. affect (or could appear to affect) the non-executive directors all have terms judgement of such non-executive Jane Lodge was appointed to the and conditions of appointment, which directors. Board in August 2012 and became are available for inspection during normal The Nomination Committee continues Chair of the Audit Committee at the business hours at the Company’s to review succession on a regular basis. end of October 2012, replacing James registered office. An independent Morley who became the Senior non-executive director’s appointment At the time of his original appointment Independent Director at the end of is for an initial period of three years, in January 2008, the Chairman of the December 2012 upon the retirement at the expiry of which time the Company was considered independent from the Board of John Bryant. appointment is reviewed to determine by the Board. However, in accordance whether the appointment should The appointment and replacement of with the Code, the ongoing test of continue. Mohammed Abdulmohsin directors is governed by the Company’s independence is not applicable in AI-Kharafi & Sons Co. W.L.L. and the Articles of Association, the Code, the relation to the Chairman. other major shareholder UEM Builders Companies Act 2006 and related Berhad are each entitled to appoint The Company complies with the legislation. The Articles of Association a non-executive director for so long requirement under provision B.1.2 may be amended by a special resolution as these shareholders each hold 7% of the Code that at least half of the of the Company’s shareholders. The of the aggregate nominal value of the Board, excluding the chairman, should Company’s Articles of Association then issued ordinary share capital of the comprise non-executive directors require that all directors, including Company. UEM Builders Berhad has determined by the Board to be nominee non-executive directors, not taken advantage of this option since independent, notwithstanding that this should be subject to election by 4 December 2009. In consequence, the requirement is waived in respect shareholders at the first opportunity Company did not comply with provision of smaller companies, such as the after their appointment and to re-election B.2.3 of the Code, which requires that Company, which are members of the thereafter at intervals of no more than all non-executive directors should be FTSE SmallCap Index. three years. The Company’s Articles appointed for a specific term. of Association also provide that non-executive directors who have served for longer than nine years should be subject to annual re-election. Accordingly, the aforementioned provisions of the Company’s Articles of Association comply with provision B.7.1 of the Code, as applicable to smaller companies below the FTSE 350. ** * B A below: table the in given are 2012 in meetings Board at attendance of the Details occasions. seven on 2012,During formally met Board the telephone conference as required. by and physically both basis hoc ad an on meets and year the throughout meetings scheduled holds Board The meet? Board the does often How J MBryant** S GYounis J ALodge* M RAlexander J Morley A OBickerstaff A Wyllie D PAllvey Director Board meetings

Board and Executive Committee structure 31 December 2012 31 December from effect with Board the from retired 2012 August 01 from effect with Board to the appointed attended Number of meetings the director actually could have attended director the meetings of number Maximum Board of Directors PLC Board Group Costain Investments Committee Committee Investments Board Executive Group Audit Committee A 7 7 4 7 7 7 7 7

B 7 4 4 7 7 7 7 7 of 2013. of end the towards to commence due is review facilitated independently next The 2012–2013. for planning Board’s action committee evaluation have informed the 2011 of the and outputs Board external The diversity. Board and effectiveness of key including issues overall to anumber given is consideration which during Board, by the conducted evaluation and development work on-going and regular of the part formed basis. This independent external review aconfidential on individually interviewed completed a questionnaire and was independent) and each director to be considered Company, are the with connection other no having (who, Ltd by SCT Consultants conducted committee review. The review was and Board facilitated externally an practice, the Board commissioned of 2011,end best with accordance in principal committees. Towards the its and Board of the performance of the evaluation the for process aformal established has Board The is effective? Board our sure make we do How basis. hoc ad an on held meetings board attended commitments. SamerYounis regularly work to other due year the throughout meetings Board scheduled seven of the out four Younis attended Samer Committee Safety and Health Nomination Committee

and issues that affect the Group. Group. the affect that issues and ofunderstanding the operations business ensure that directors have a thorough to essential considered are visits site Board addition, In issues. remuneration with corporate governance, audit and concerned matters company, particularly appointment as directors of a public to their relevant issues on conferences toencouraged attend and seminars Company, by are the arranged ofindependent any formal training members, Board directors, non-executive and executive of the development professional continuing the regards As financial informationabout theGroup. latest the and procedures, and practices the Group’s corporate governance powers delegated to the committees, the and committees Board principal the of membership and of reference terms the decision, its for reserved matters the and Board of the role the Group, the about information receive they to which in an induction programme, pursuant part take directors the appointment, On beingChairman present. the without directors non-executive Independent Director met with the David Allvey’s the performance, Senior to appraise process of the part as and, present being directors executive the without directors non-executive the with met year, the Allvey David During Remuneration Committee Annual Report 2012 55 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 56 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Corporate Governance statement continued

In order to discharge their duties, the Audit Committee Role of the Audit Committee directors are provided with full and In accordance with its terms of timely access to papers prior to Board Members reference, the Audit Committee is meetings and the directors are free responsible for: to seek any further information they Director A B • monitoring the integrity of the Group’s consider necessary. In addition, financial statements and any formal between Board meetings, non-executive J A Lodge* announcement relating to the Group’s directors have access to the Chief (Committee Chair) 2 2 performance; Executive, Group Finance Director and J Morley 5 5 Company Secretary in order to progress • monitoring the effectiveness of the the Company’s business. The non- M R Alexander 5 5 external audit process and making executive directors also receive a weekly J M Bryant** 5 5 recommendations to the Board report from the Chief Executive, monthly in relation to the appointment, A Maximum number of meetings the director management accounts, internal audit could have attended re-appointment and remuneration reports and regular management reports B Number of meetings the director actually attended of the external auditors; and information, which enable them * appointed to the Committee with effect from to scrutinise the Group’s and its 20 August 2012 • ensuring that an appropriate management’s performance against ** retired from the Board with effect from relationship between the Group and 31 December 2012 agreed objectives. the external auditors is maintained, including reviewing non-audit services All Board members have access to all Details of the attendance at Audit and fees; information relating to the Group and Committee meetings in 2012 are given have access to the advice and services in the table above. The Committee’s • reviewing the Group’s system of of the Company Secretary (who is terms of reference are available from the internal controls and the processes responsible for ensuring that Board Company Secretary and are published for management of the risks facing procedures are followed) and who is on the Company’s website. The the Group; also the Company’s Legal Director. meetings of the Committee are normally • reviewing the effectiveness of the The appointment and removal of the also attended by the Chairman, the internal audit function and approving, Company Secretary is a matter reserved Chief Executive, the Group Finance in consultation with the Chief for Board approval. The Board also Director, the external auditors, the Executive, the appointment and obtains advice from professional Head of Internal Audit and the Group termination of employment of the advisers as and when required at the Financial Controller. The Audit head of that function; and expense of the Group. Committee regularly meets privately with the external auditors and Head of • reviewing its terms of reference and The Group’s organisation and structure Internal Audit. The Company Secretary its effectiveness from time to time is established and overseen by the is the Secretary to the Audit Committee. and recommending to the Board Board and designed to allow effective any changes required as a result decision-making and to meet corporate Biographies of the members of the of the review. governance standards. A diagram Committee are shown on page 49. illustrating the structure is shown on The Company considers that it has Main activities during the year page 55. The Board has established in Jane Lodge, as Chair of the Audit In 2012, the Audit Committee discharged committees which are responsible for Committee, an appropriate person its responsibilities placed on it by audit, remuneration and succession. possessing what the Financial Reporting provisions of the Code by performing Each committee plays a vital role in Council’s (‘FRC’) guidance on audit the following activities: helping the Board to ensure that high committees describes as recent and standards of corporate governance are relevant financial experience. • reviewing the Group’s draft financial maintained throughout the Group. The statements, preliminary and interim Prior to joining the Costain Board, Jane results prior to Board approval and committees are governed by terms of Lodge, a chartered accountant, spent reference which are reviewed annually reviewing the external auditors’ 35 years at Deloitte LLP (UK), 25 as an detailed reports thereon. Significant and can be viewed in the corporate audit partner advising global companies, governance section of the Company’s issues that the Committee considered particularly in the manufacturing, included key contract judgements, website. The membership and activities house-building and property and of each of the Board committees is internal controls, cash flow and construction sectors. Jane Lodge was financial covenant compliance; detailed in the following sections. senior partner of the Birmingham office The Group Executive Board is and the Deloitte UK Manufacturing • reviewing the appropriateness of the accountable for running the business Industry Sector. Group’s accounting policies; and delivering the Group strategy. • reviewing the external auditors’ plan It consists of the executive directors for the audit of the Group’s financial and other senior managers, is chaired statements; by Andrew Wyllie (Chief Executive) and works with the support of a number of operational committees and functions. put in the role of advocate for the Group. Group. the for of advocate role the in put be or Group; the with interest of financial amutuality have Group; the for decisions management firm’s make own their work; auditors: the auditors should not audit of by non-audit the services external key principles that underpinthe provision of anumber out sets also policy The objectivity. or independence their impair not do services such that ensuring external auditors with the objective of provision of by non-audit the services has developed a formal policy on the and auditors, external by its Group the being providednon-audit to services The Audit Committee monitors the Non-audit services Company’s audit director since 2010. the been has who Bligh, Stephen Mr is 76) page on of KPMG behalf on Report Auditor (whohas signed the Audit KPMG Audit Plc. The Senior Statutory The Company’s external auditors are Audit services • • • • • • • the internal audit function. and Committee of the effectiveness of the review internal an undertaking and commercial and financial IT systems; reviewing and monitoring the Group’s within the business; any significantrisks and opportunities evaluatingidentifying, and managing monitoring the process for formally control; of financial areas key on risk updates regular receiving and review of the results the on to Board the reporting effectiveness, its and controls internal Group’s the of system reviewing year; the during work its on reports quarterly and reports work programme, internal audit reviewing the internal audit function’s fees; non-audit and audit their with auditors’ engagement letter, together reviewing/approving the external standard; of asatisfactory remained Committee concluded that this operated by the auditors. The processes control quality the with regulatory requirements, together relevant UK professional and into consideration taking process, audit of the effectiveness the and auditors’ and objectivity independence reviewing and monitoring the external

** * B A Nomination Committee of 2012. course the during diligence on potential acquisitions of due respect in employed also & Ernst and were PwC Young, firms, accounting other of two services The and independence. objectivity KPMG’s upon impact not would satisfied that the non-audit services provision and of were these services The Audit Committee approved the expertise. particular their and Group on their thorough of understanding the to based these undertake services supplier efficient and cost-effective most the as selected were KPMG services. acquisitions and the provision of tax of potential respect in services In 2012, non-audit KPMG performed services. provision of non-audit permissible by the impaired not are those that so and regulatory requirementsperformance relevant into consideration taking and of objectivity the external auditors, independence the to assess annually being provided by the external auditors Audit Committee reviews all services The of £25,000. excess to in be likely is fee the where auditors external the required forprovided any by services Approval of the Audit Committee is

J MBryant** S GYounis M RAlexander J Morley J ALodge* Chair) (Committee D PAllvey Director Members

31 December 2012 31 December from effect with Board the from retired 2012 August 20 appointed to the Committee with from effect attended actually director the meetings of Number could have attended director the meetings of number Maximum

1 A 1 1 1 1 1

B 1 0 1 1 1 1 • • • • • activities: following the performing by responsibilities its discharged In 2012, the Nomination Committee year the during activities Main of the Nomination Committee. Secretary the is Secretary Company The in respect of senior management. planning succession arrangements and training management reviews also and reviews effectiveness Board the The Nomination Committee directs vacancies. Board to fill candidates and propose to the Board suitable to identify and Board of the composition and structure the to is review Committee The principal role of the Nomination Role of the Nomination Committee on the Company’s website. published are and Secretary Company the from available are of reference terms Committee’s The above. table the in 2012 in meetings given are Committee Nomination at attendance of the Details management. respect of the Company’s senior reviewing planning in succession and reviews; periodic Board performance of results the and independence on Board’s of the policy consideration due following of Association, Articles the with accordance in Meeting Annual General the at re-election for themselves to offer due are who re-appointment of those directors the to Board the recommending arise; may interest of conflict apotential which in appointments, situations, such as proposed external of directors from notifications receiving directors; of non-executive recruitment reviewing of 2011; end the towards place took which effectiveness of Board review external of the results the reviewing Annual Report 2012 57 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 58 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Corporate Governance statement continued

Remuneration Committee The Company obtains feedback from This process is reviewed by the Audit its brokers, Investec, on the views of Committee on behalf of the Board and Members institutional investors on a non-attributed accords with the Financial Reporting basis. As a matter of routine, the Board Council’s (‘FRC’) guidance on internal Director A B reviews reports from its brokers on control. issues relating to recent share price The Audit Committee has reviewed M R Alexander performance, trading activity and the effectiveness of the system of (Committee Chair) 6 6 institutional sentiment. The Board also internal controls. The review covered receives copies of relevant analysts’ J A Lodge* 2 2 all controls, including financial, reports on an ad hoc basis. J Morley 6 5 operational and compliance controls The Board regards the Annual General and risk management. J M Bryant** 6 6 Meeting as an important opportunity to A Maximum number of meetings the director communicate directly with shareholders. Risk management could have attended Board members, including the Chairs The Company has various procedures B Number of meetings the director actually attended of the Remuneration, Nomination and for identifying and managing risk, * appointed to the Committee with effect from 20 August 2012 Audit Committees, attended the 2012 including a pre-qualification and ** retired from the Board with effect from meeting and propose attending the 2013 pre-tender review for obtaining approval 31 December 2012 meeting where they will be available to bid for a project from the Investments to answer questions. Committee and a specific project Details of the attendance at risk management procedure which Shareholders may raise issues or Remuneration Committee meetings involves a continuous review of risks concerns by contacting the Group’s in 2012 are given in the table above. by the project manager and commercial Investor Relations team via the email The Committee’s terms of reference are manager of the project following address stated on the Company’s available from the Company Secretary contract award. and are published on the Company’s website or by writing to the Company website. Secretary. The Company has established a Corporate Risk and Opportunity Role of the Remuneration Internal controls and risk Register, as well as, sector business Committee management Risk Registers, which are monitored and The role and operation of the Review of internal controls updated regularly. The Board and Audit Remuneration Committee is set out The Board is responsible for the Group’s Committee receive reports on the in the Director’s remuneration report system of internal controls and for Company’s main corporate risks and on pages 65 to 74. reviewing its effectiveness. Such a opportunities. As recommended by the system, however, can only manage Code, the Board has determined the Relationship with institutional rather than eliminate the risk of failure nature and extent of the significant risks investors and private investors to achieve business objectives and it is willing to take in achieving its The Company remains committed to can only provide reasonable, but not strategic objectives. absolute, assurance against material maintaining good relationships with both For the duration of a contract, the Risk misstatement or loss. institutional and private shareholders. and Opportunity Register is updated There continues to be regular dialogue The Board maintains full control over on a monthly basis and the top five risks with institutional investors and brokers. strategic, financial, operational and and opportunities reviewed by Group At the time of the announcement compliance issues. Management of senior management. Internal Audit of the full-year and half-year results, the Group is delegated to the Chief conducts site reviews and circulates presentations are made to brokers’ Executive, who is assisted by members reports with further follow-up actions analysts, the press and institutional of the Executive Board. The Chief and inspections. investors. These presentations are Executive has full authority to act subject The risk management strategy is available on the Company’s website to the matters reserved to the Board regularly reviewed and the Group’s risks at www.costain.com. In addition, and to the requirements of Group and opportunities compared against there are meetings with analysts, policies. financial journalists and institutional those of other blue-chip companies. investors throughout the year. The Board confirms that there is an Internal Audit provides independent ongoing process for identifying, assurance that risks inherent to the The Chairman is available to discuss evaluating and managing the significant Company’s business processes are strategy and governance issues with risks faced by the Group, which has reasonably controlled and assists shareholders and James Morley, as the been in place for the year under review management in assessing those risks Senior Independent Director, is available and up to the date of approval of the and how effectively they are managed to shareholders if they have concerns Annual Report. This process extends by internal controls. Internal Audit that have not been, or cannot be, not only to projects undertaken solely also promotes best practice in risk addressed through the Chairman. by subsidiaries of the Group but also to management processes to ensure projects undertaken in joint arrangements delivery of corporate objectives. and by joint ventures and associates. with and execution of the guidelines. guidelines. of the execution and with environmental advisersaudit, compliance and safety, the health and monitors team guidelines. The project management environmental and safety, health practice, of best framework acontrolled within operate projects All levels. staffing and variations, risk management, progress and claims profit, and cost value, flow, cash statistics, environmental and safety, on health information monthly reports, which include Each project manager completes Institution. Standards British by the biannually management systems are undertaken of the audits external accreditation, Company’s the to maintain order In monitored and audited by Internal Audit. are systems the with compliance and to 27001:2005. ISO Implementation information certified processes security In addition, the Company operates business. entire the across processes in providing safe management quality are to designed management support which to 9001:2008 ISO accredited management systems that are The Company has developed operational regularly. updated and reviewed are which instructions, written other and manuals procedure statements, policy Group in detailed are procedures and Controls Operational controls objectives. strategic its reflects profile Group’s the that risk to ensure controls reporting Company’s effectiveness of the the assesses also Board The develop within the Group. to continuing is culture management risk astrong that is assessment implemented effectively. The overall recommendations have been accepted that assurance provide to appropriate follow-up action to subject were out carried reviews All processes. management risk of the effectiveness the on report and appraise to reviews departmental and project In 2012, Internal Audit conducted

where necessary. the appropriate and staff training given and regulatory are changes notified to reviewed by, the Board. Significant legal to, and submitted is £50,000 above valued litigation of all review annual An to Board. the submitted is report a legal issue, legal of a critical event the In employees and key suppliers. all from standards highest the expects 2010. Act Company The Bribery the any change in legislation, for example appropriate to ensure compliance with regularly reviewed and updated as is statement This dealings. business Company’s the all in employed be must legal, ethical and moral standards that on business conduct, emphasising the The Group’s policies contain a statement Compliance to Group. the of significance Director, issues any on Committee, via the Group Finance Taxation to report Manager the Audit The Group Treasurer and Group the underlying financial reports. issues significant on narrative accompanying an with flow cash and loss and profit cover reports The Board. Executive and Board to the budget against reported and by management monthly reviewed is budget. Each operation’s performance annual the with compared is which year rolling forecast update for the current The Company produces a monthly December. in Board by the approval three-year Plan, Business before final the alongside Board, Executive by the finalised and reviewed is year following the for budget The Group. the within business review, each for strategy to annual the linked system, budgeting annual acomprehensive is There controls Financial Safety. and Health for responsible member Board the is Executive Chief The procedures. ensuring compliance with Company for responsible is Board Executive significant operationalmatters. The and environmental performance and safety, on health reports regular receive Board Executive and Board The

Governance statement. Corporate of this 54 page on detailed as shareordinary capital of the Company, issued 7% then of the hold each they as long so for director a non-executive to appoint entitled are shareholders major two Company’s the because term aspecific for to appointed be directors the Code, which requires non-executive B.2.3 of provision for except ‘Code’), (the the UK Corporate Governance Code applicable principles and provisions of the all with 2012 complied Company the 31 December ended year the Throughout Code the with Compliance of all Audit Committee meetings. minutes the receive members Board all and to Board the meetings Committee Audit of the outcome the reports The Chairman of the Audit Committee Annual Report 2012 59 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 60 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Other statutory information

Forward looking statements This Annual Report contains forward-looking statements. The directors submit to These forward-looking statements are not guarantees of future performance. Rather, they are based on current views the members their and assumptions and involve known and unknown risks, Report and Accounts uncertainties and other factors that may cause actual results to differ from any future results or developments expressed of the Company for the year or implied by the forward-looking statements. Each forward- ended 31 December 2012. looking statement speaks only as of its particular date. Directors and directors’ interests Brief biographies of the present members of the Board are The Directors’ Report of the Company for the year ended given on pages 48 and 49. 31 December 2012, prepared in accordance with the In accordance with Article 78 of the Company’s Articles of Auditing Standards Board’s (‘ASB’s’) Reporting Statement on Association and the Code, David Allvey, Tony Bickerstaff, Operating and Financial Review, is set out on pages 06 to 75. Samer Younis and Jane Lodge, being eligible, will offer themselves for re-election at the 2013 Annual General Meeting. Activities David Allvey, having been in office for a continuous period The principal activities of the Group are engineering in excess of nine years, is required to stand for re-election on consultancy, construction and operations and maintenance. an annual basis. Tony Bickerstaff and Samer Younis, having The Group also has a share in a land development and marina served on the Board at the time of the two preceding Annual joint venture in southern Spain. The progress and prospects General Meetings without retiring, are required to stand for of the Group’s businesses and the main factors which could re-election at the 2013 Annual General Meeting. Jane Lodge, affect the future development and performance of the Group having been appointed as a director of the Company since are set out in the Business review (pages 06 to 44). the last Annual General Meeting, is required to stand for re-election at the 2013 Annual General Meeting. David Allvey Fixed assets and Jane Lodge have letters of appointment with the The Board is of the opinion that the aggregate market value Company and Tony Bickerstaff has a service contract with of the Group’s land and buildings is in excess of book value the Company, details of which are set out in the Directors’ but that this difference is not significant in relation to the affairs remuneration report. of the Group as a whole. With regard to the re-election of David Allvey, Tony Bickerstaff, Profit and dividends Samer Younis and Jane Lodge, the Board is of the opinion The profit after tax for the financial year ending 31 December that they each continue to perform effectively and demonstrate 2012 amounted to £24.2 million (2011: £18.7 million). An commitment of time for Board and committee meetings and interim dividend of 3.50 pence per share (2011: 3.25 pence) other respective duties. amounting to £2.3 million (2011: £2.2 million) was paid on 26 October 2012. The directors recommend payment No director had any material interest in any contract of of a final dividend at the rate of 7.25 pence per share (2011: significance with the Group during the period under review. 6.75 pence) amounting to £4.7 million (2011: £4.4 million). Details of directors’ emoluments and interests in shares in If approved, the dividend will be paid on 24 May 2013 to the Company, including any changes in interests during 2012, shareholders registered at close of business on 19 April 2013. are contained in the Directors’ remuneration report, which appears on pages 65 to 74. Going concern The directors believe, after due and careful enquiry, that the Related party transactions Group has sufficient resources for its present requirements Details of transactions with related parties undertaken by and, therefore, consider it appropriate to adopt the going the Group during the year are disclosed in Note 25 to the concern basis in preparing the 2012 financial statements as financial statements on page 119. discussed on page 46 of the Group Finance Director’s review and Note 2 to the financial statements. Incorporation and constitution Costain Group PLC is domiciled in England and incorporated in England and Wales under Company Number 1393773. Costain Group PLC’s Articles of Association are available on the Company’s website at www.costain.com (ii) (i) capital: share ordinary its in interests voting following of the (‘DTR5’), Authority Services Financial by the including the under Disclosure and Transparency issued Rules notified, 2013, been had March 04 at As Company the Major shareholders www.costain.com at website Company’s the on found be also can scheme dividend scrip the passing of Details aboutjoining the resolution). shareholders of the anniversary fifth the (being time that at expire will approval current the as Meeting 2013 the at General Annual sought be will scheme dividend ascrip to offer directors the for authority the to renew 122.approval page on Shareholders’ out set is scheme dividend scrip the on information Further 2012. for dividend 2012 interim of the October respect in in to shareholders allotted were each ofpence 50 shares 2011, for dividend final of the 65,681 and respect ordinary in to shareholders allotted were each ofpence 50 shares 2012, May In dividend. 133,133 scrip the in participate ordinary to elect who shareholders to those dividends of cash lieu in shares ordinary allot and to offer directors the authorises which scheme dividend ascrip to offer approval shareholder obtained Company the Meeting, General Annual 2008 At the 73. page on report remuneration Directors’ the in found LTIP be of these can awards vesting to the regard with details Further exercise. of £1 per price exercise an with each ofpence 50 634,767 shares ordinary 2012 March 2011 in of awards vesting over the in resulting 31 at as LTIP’) December ‘2002 matured (the Plan Incentive Long-Term 2002 the under 2009 April in granted awards The 116. Note page 20in on found be can Company of the capital share of the Details each. ofpence 50 shares 2012 £32,772,153, was ordinary of 65,544,306 consisting 31 at as December Company of the capital share issued The each. ofpence 50 value anominal with shares of ordinary consists capital share Company’s The Share capital AI-Kharafi & Sons Co. Sons & W.L.L. AI-Kharafi Abdulmohsin Mohammed Investors Global Henderson UEM Builders Berhad Management Investment &General Legal

Shares are held by nominees on behalf of these beneficial owners. beneficial these of behalf on nominees by held are Shares Fund managers holding shares on behalf of a number of beneficial owners. beneficial of anumber of behalf on shares holding managers Fund (ii) (i)

(ii) (i)

13,789,490 13,810,850 2,564,056 3,642,742

21.04% 21.07% 21.07% 5.56% 5.56% 3.91% 3.91%

The section on performing responsibly is on pages 25 to 39. pages on is responsibly performing on section The Corporate Responsibility Company. of the to control regard with rights special carrying Company the in securities holds person No specialSecurities carrying rights Meeting. General year’s Annual this at 2012 to in so do propose not Meeting do they and General Annual last the at shares Company’s of the any back to buy authority request not did directors The dividends. scrip the and schemes share employee under awards to satisfy order in were allotted been had that shares only the of £10,924,051. amount nominal 2012, 31 at As December to aggregate up an Meeting, 2013 the at General Annual shares ordinary to allot authority directors’ the to renew sought be will 2013,approval 7May on to expire due is shareholders’ aggregate nominal amount of £10.47 million. As this authority to up an shares ordinary to allot to directors the authority an granted shareholders 2008, 8May on held Meeting General Annual Company’s At the meeting. general in shareholders the or of Association Articles by to the so do authorised if shares back buy and issue only may directors The shares own its back buying or issuing Company the to relation in Powers Board. of the disposal the at is of shares issue the rights, shareholders’ other and 2006 Act Companies shareholders. Subject to the of Articles Association, the by the passed anyresolution with conflict no is there as long as directors by the or shareholders by the passed resolutions by ordinary either decided be can restrictions or rights These shares. to existing attached restrictions or rights any restrict not do restrictions or rights such provided them to attached restrictions or rights any with shares issue can Company the of Association, Articles the with accordance In Rights and obligations attaching to shares of securities. transfer the on restrictions in result may that of securities holders between agreements of any aware not is Company The • • except Company, the in of securities transfer the on restrictions no are There Restrictions on transferof securities Company’s shares. ordinary the in to deal Company of the approval the require Company of the employees certain whereby Authority Services Financial of the Rules to Listing the pursuant and laws); trading insider example, (for regulations and by laws imposed be to time time from may restrictions certain that Annual Report 2012 61 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 62 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Other statutory information continued

Employee involvement Policy and practice on payment of suppliers The Company maintains a strong communication network As a result of the nature of the Group’s business, its and employees are encouraged to discuss with management contractual relationships with suppliers of goods and services matters of interest and issues affecting the day-to-day and with subcontractors vary according to circumstances and operations of the Group. Employees are kept informed type of supplier or subcontractor. It is the Group’s policy to of the financial and economic factors affecting the Company’s enter into an appropriate form of contractual agreement on performance and other matters of concern to them as payment terms when agreeing the terms of each transaction employees in various ways. These include regular updates and to pay according to those terms. The Group enters into from the Chief Executive and other senior managers, a Costain an appropriate form of contractual agreement on payment online news service, personal briefings and emails. Senior terms with its suppliers and subcontractors on an individual managers also visit sites and discuss with employees matters basis rather than following a code or standard on payment of current interest and concern to them and the business. practice. The Group’s policy is to make every effort to abide by Employees also have the opportunity to provide feedback these agreed terms when it can be confirmed that the supplier and ask questions at the annual staff road-shows which take has provided the goods or services in accordance with the place around the country. contract terms and conditions. The Company also organised a staff engagement survey in The amount for trade creditors of the major subsidiary trading 2011, allowing it to understand how employees feel about companies represents 47 (2011: 46) days of average daily Costain and will be organising a further survey during the purchases. The Company has no trade creditors (2011: none). course of 2013. In December 2011, the Company also launched ‘ask.costain.com’, enabling employees to get Significant agreements – change of control involved in two-way communication with the Company. The directors are not aware of any significant agreements to which the Company and/or any of its subsidiaries or The Company has an established Employee Consultative associates are a party that take effect, alter or terminate Committee which convenes three times a year and on an upon a change of control of the Company following a takeover ad hoc basis throughout the year, to discuss matters bid, save in respect of the Facility Agreements relating to the impacting the business, in order that the views of employees Company’s banking and surety bonding facilities, which would can be taken into account in making decisions likely to affect terminate upon a change of control. There are no agreements their interests. between the Company and its directors or employees Share schemes are an established part of our reward package, providing for compensation for loss of office or employment encouraging and supporting employee share ownership; in that occurs because of a takeover bid except that provisions particular, employees currently participate in the Company’s of the Company’s share schemes and plans may cause Save As You Earn Scheme. options and awards to be granted to employees under such schemes and plans to vest on a takeover. Diversity and inclusion The Company is an inclusive employer and promotes Essential contracts or other arrangements equality and inclusion from recruitment and selection, through Given the scope and diversity of the Company’s activities, training and development, to promotion and retirement. the Company does not consider that it has contractual We are fully committed to the elimination of unlawful and unfair or other arrangements which are essential to the business discrimination and we value the differences that a diverse of the Group and which are required to be disclosed. workforce brings to the organisation. It is Company policy that people with disabilities should have full and fair consideration Research and development for all vacancies. Wherever possible, we endeavour to The Group is involved in research and development in all interview those people with disabilities who fulfil the minimum sectors in which it operates, but specifically in highways, rail, criteria, and to retain employees in the workforce if they airports, nuclear, hydrocarbons and chemicals, waste and become disabled during employment and to provide specialist water. The Group’s engineers and technical staff in these training where appropriate. We support our supply chain named sectors develop and deliver technical advances, and encourage their active commitment to our approach processes and innovations in an effort to achieve practical, on equality and inclusion. integrated solutions that incorporate the most advanced technologies, while taking account of the broader regulatory Our customers are looking to us to provide local employment perspective and seeking to resolve all scientific and and skills, and to facilitate inclusion in our projects. We technological uncertainties. In undertaking certain elements continue to work with the UK Contractors Group to deliver of this research and development work, the Group is an equality and diversity action plan across Costain and to supported by arrangements with certain British universities apply local solutions to diversity issues on projects. We assist and various technology specialists. our customers in their employment and skills agenda by delivering an apprentice development programme and through Donations establishing National Skills Academies. Charitable donations of £171,142 (2011: £135,424) were made by the Group during the year, principally to industry-related charities serving the communities in which the Group operates. No political donations were made during the year ended 31 December 2012 (2011: none). The Company has a policy of not making donations to political organisations. of securities that may result in restrictions of voting rights. rights. of voting restrictions in result may that of securities holders between agreement of any aware not is Company The under the Companies Act 2006. to provided be required shares those in interests concerning information with Company the to provide failure after Association) of Articles in the defined (as notice a restriction with served been has amember if or unpaid remains share of that respect in by him/her payable then sum other or call any if by him/her held share of any respect in meeting class or meeting to vote general any at entitled be shall member No Restrictions on voting register in of respect the joint holding. the in stand names the which in order by the determined other joint holdersand, for this purpose, shall be seniority votes of the of the to exclusion the accepted be proxy, shall by or person in avote, whether tenders who senior of the vote the of ashare, holders of joint case the In by him/her. held share vote every for one apoll, upon has, by proxy or person in present member every vote and one of hands, ashow upon has, meeting class or meeting ageneral at and duly member every Every appointed proxy present Voting rights page 75. DTR 4.1.12under required confirmations on out set are contained within and this the Report Annual directors’ The directors’ responsibilities for the financial statements Directors’ responsibilities of directors. favour in indemnities subsisting no are There officers. and directors its for insurance liability PLC maintains Group Costain Directors’ indemnity General Meeting. to reappoint them will be proposed at the forthcoming Annual resolution a and Company of the auditor independent as office in to continue willingness its expressed has Plc Audit KPMG Auditors ActCompanies 2006. 418 of Section provisions the of the with accordance in interpreted be should and given is confirmation This of that information. aware are auditors external Company’s the that to establish awarehimself/herself of any relevant audit information and to make adirector as to taken have ought he/she that steps the all taken has director each and unaware; are auditors external Company’s the of which information audit relevant no is aware, there each are as they far so that, confirm report of this dateapproval of at the office held who directors The Disclosure of information to auditors

and may also revoke or terminate any such appointment. appointment. such any terminate revoke or also may and determine may they as terms such on and period such for office executive or employment any to hold directors more or one appoint to time time from may Board, by the authorised committee any or Board, The reappointment. for eligible then is and Company of the Meeting General Annual next the until only office holds Board by the appointed Adirector Board. by the or resolution by ordinary Company by the appointed Company’s share ownership guidelines. Directors may be the under to so do PLCencouraged is but Group Costain in shares any to hold required be not shall A director the number minimum of maximum and/or directors. vary resolution by may ordinary 18 Company number. in The than more not and two than less not be shall directors The Appointment and replacement of directors Company’s shareholders. of the resolution by aspecial amended be may Association of Articles Company’s Company, of the the of Association Articles in the contrary to the specified expressly Unless Amendment of of Articles Association them. with passu pari ranking shares of further issue or creation by the to varied be deemed be shares, to those attaching rights the in provided expressly otherwise unless not, shall shares of any holders the upon conferred rights The shares). treasury as held shares any excluding (calculated class of the shares issued of the value nominal in one-third than less not by proxy representing or holding persons more or one be shall quorum the meeting), adjourned an (except meeting general separate such At every shares. of those holders of the meeting general aseparate at passed resolution of aspecial sanction the with or shares), treasury as held issued shares of that class (calculated excluding any shares of the value nominal in three-fourths than less of not holders of the consent written the with varied be may of shares class to any attached rights 2006, Act to Companies the Subject Variation of rights 2006. Act Companies the under provided be to required shares those in interests concerning information with Company the to provide failure after notice a restriction with served been has aperson such if shares Company’s of the aclass in a0.25% with interest aperson from shares Company’s of the respect in payable monies other or dividends of any part any or of all payment withhold may Board The shares which rank equally with or behind their shares. other on paid been has dividend alawful because suffer may shareholders that loss any for liable not are they faith, good in act directors If the payment. its justifies Board, of the whenever the financial position of theCompany, in the opinion ratedividend, fixed any also and dividends, interim pay may Board the 2006, Act to Companies the Subject Board. by the notdeclare dividends exceeding the amount recommended to time time from resolution by may ordinary Company The Dividends and other distributions Annual Report 2012 63 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 64 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Other statutory information continued

At every Annual General Meeting of the Company, any director Annual General Meeting (‘AGM’) who has been appointed by the Board since the last Annual The AGM of the Company will be held in The More Suite, General Meeting, or who held office at the time of the two 2nd Floor, Dexter House, No 2 Royal Mint Court, Tower Hill, preceding Annual General Meetings and who did not retire at London EC3N 4QN on Wednesday 8 May 2013 at 11.00am. either of them, or who has held office with the Company, other The Notice of Annual General Meeting will be sent in paper than employment or executive office, for a continuous period form to all shareholders and will also be available on the of nine years or more at the date of the meeting, shall retire Company’s website at www.costain.com. This 2012 Annual from office and may offer himself/herself for reappointment Report will also be available on the Company’s website. by the members. Those shareholders who have elected to receive paper copies The Company may by special resolution remove any director of shareholder information will receive a copy of this Annual before the expiration of his/her period of office. The office Report with the Notice of Annual General Meeting. of a director shall be vacated if: (i) he/she resigns or offers Jane Lodge, the Chair of the Audit Committee and to resign and the Board resolves to accept such offer; Michael Alexander, the Chairman of the Remuneration (ii) his/her resignation is requested by all of the other directors Committee, will be available at the Annual General Meeting, and all of the other directors are not less than three in number; together with the Chairman of the Board and the Senior (iii) he/she is or has been suffering from mental or physical ill Independent Director. health and the Board resolves that his/her office be vacated; (iv) he/she is absent without the permission of the Board from By Order of the Board meetings of the Board (whether or not an alternate director appointed by him/her attends) for six consecutive months and the Board resolves that his/her office is vacated; (v) he/she becomes bankrupt or compounds with his creditors generally; (vi) he/she is prohibited by a law from being a director; (vii) he ceases to be a director by virtue of the Companies Act 2006; or (viii) he/she is removed from office pursuant to the Paul Starkey Company’s Articles of Association. Joint Company Secretary Powers of the directors 6 March 2013 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 who 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.

Rights under the employee share schemes ACS HR Solutions Share Plan Services (Guernsey) Limited (formerly Excellerate HRO Share Plan Services (Guernsey) Limited), as Trustee of the Costain Group Employee Trust, holds 0.77% of the issued share capital of the Company as at 31 December 2012 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 and Save As You Earn Scheme (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. Directors’ remuneration report Directors’ remuneration year ended 31 December 2012, split between circa £58,000 £58,000 2012, circa 31 between December ended split year £123,000 of circa fees the for received Street Bridge New standard. of a high advice and support independent receive to continues Company the that to ensure basis aperiodic on to tender out function consultant remuneration the to put Committee of the policy the is It consultants. remuneration Company’s the as to act re-appointed was Street Bridge New of 2012 course the Committee, by the during process a tender toconsidered be independent. of Following the undertaking is Street Bridge Company, New the with connection other no having and, year the during to Company the services other provided plc, of Aon part other any nor Street, Bridge New Neither Group’s of Conduct. Code Consulting to Remuneration the signatory afounder is Street Bridge New remuneration. executive of senior benchmarking the Long-Term and Plan Incentive 2012 the under award initial the for targets appropriate the on advice included This Limited). Hewitt of Aon name trading (a Street Bridge New from appropriate, as advice, took year, the Committee the During consultants. independent specialist to experienced access has Committee the practice, best and of market account due take practices remuneration Company’s the that ensuring in To Committee the assist ** * B A follows: as are meetings those at attendance of the details 2012. and December times 2012, In six met Committee the of end the at Board the from retirement his until Committee of the amember also was Bryant Morley. John James and Jane Lodge Committee are Michael Alexander (Chairman), independent non-executive directors. Thethe members of The Remuneration Committee is comprised exclusively of Operation of Committee Remuneration Committee practice guidelines. Governance Code and best Corporate UK the 2006, Act Companies the rules, listing ofrequirements UKLA the the with accordance in Board, has been prepared by approved the report, This J MBryant** J Morley J ALodge* Chair) (Committee M RAlexander Director

retired from the Board with effect from 31 December 2012 31 December from effect with Board the from retired 2012 August 20 from effect with Committee to the appointed attended actually director the meetings of Number attended have could director the meetings of number Maximum A 6 6 2 6

B

6 5 2 6 the course of the year. of the course the over meetings of the each at covered Committee the which issues key remuneration the out sets table following The activity Committee Remuneration Secretary. Company the from obtained be can advisers Committee’s the appointing letters of the Copies Secretary. www.costain.com at website Company’s the on available are of reference terms Committee’s The Terms of Reference to Committee. the secretary as acts Secretary Company The discussed. being was remuneration own their meetings of the Committee, although none was present when various to attend invited were Director Legal and HR the and Director, Chairman Company’s the Finance Group the year, Executive, of the Chief the course the During sources. In addition, advice was sought where appropriate from other Scheme). 2012 new of the to introduction LTIP the SAYErelation and in (including advice of such to implementation the relating £65,000 circa and to Committee the given to advice relating (including discretionary votes). discretionary (including vote favour in a96.86% with by shareholders approved was report year’s remuneration AGM. Last the at proposed be will report remuneration Directors’ the to approve A resolution

2012 2012 11 December 2012 2 October 20129 May 20124 April 2012 9 February 2012 4 January Date • • • • • • • • • • • • • • • • • items Key agenda Approved the 2013 annual salary review 2013 the salary Approved annual targets bonus 2013 the cash Approved annual 2013 awards for targets LTIPReviewed performance LTIP/DSBP the in to participants changes Approved targets and measurements with together Street), Bridge by New (prepared packages Reviewed market update on remuneration 2012 the under awards LTIPGranted 2012 DSBP the for year base participants of notification the Approved 2011 year base the for DSBP the under awards Granted LTIP 2009 of the vesting the Approved Reviewed the Directors’ remuneration report Reviewed the Chairman’s fee year base 2012 the for targets performance (‘DSBP’) Plan Bonus Share Deferred the Approved targets 2012 bonus the cash Approved annual Reviewed senior executives’ salaries 2011 of the audit to final subject Accounts Approved 2011 annual cash bonuses (‘SAYE’) Rules You As Save Scheme Earn Reviewed proposed new LTIP and awards 2012 the for targets performance (‘LTIP’) Long-Term the Plan Reviewed Incentive Annual Report 2012 65 Report Annual PLC Group Costain or from the Company Company the from or

Other information Financial Corporate Business review Overview statements Governance 66 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Directors’ remuneration report continued

Policy Report Purpose and Maximum Performance Changes from Element Link to Strategy How operated potential value targets prior policy The Committee determines the remuneration policy for executive directors, the Chairman and other senior Salary • To attract and retain high-calibre individuals by • Generally reviewed annually (with any change • N/A • N/A • No change management with the aim of attracting, motivating and providing an appropriate level of basic fixed effective 1 April) but exceptionally at other in policy retaining executives of the appropriate calibre and expertise, income whilst avoiding excessive risk arising times of the year • Salary changes so that the Company is managed successfully for the benefit from over reliance on variable income • Set with reference to individual performance, are set out on • The basic salary reflects the market rate for experience and responsibilities page 68 of its stakeholders. The following table sets out the main the individual, their role, skills and experience • Broadly takes into account the median position elements of the remuneration policy for the year ending in light of remuneration generally within the 31 December 2013. Each year, the Committee reviews the Company and other companies in the remuneration policy, taking into account both the external UK-based construction sector market (including environment, social and corporate • Higher increases may be appropriate where an governance issues) and the Company’s strategic objectives individual is promoted, changes role or where over the short and the medium term. The framework has any individual is appointed on a below market been designed as an integral part of the Company’s overall salary with the expectation that his/her salary business strategy. will increase with experience and performance Annual Cash • To incentivise the achievement of key financial • The Committee considers and approves the • Up to 100% of base • Group underlying earnings before • No change Bonus and strategic targets for the forthcoming year measures and targets at the start of each year salary interest, tax, amortisation and in policy without encouraging excessive risk taking and ensures they are aligned with business employment related acquisition strategy and are sufficiently stretching consideration but excluding any • In setting financial parameters, the Committee PFI transfer into the pension scheme takes into account the Company’s internal and pension risk management costs budgets and, where applicable, investors (‘EBITA’) (80%) expectations. The targets applying to financial • Health and safety targets (10%) measures are based on a sliding scale • Personal objectives (10%) • Paid in cash • The weightings are determined at the • Not pensionable start of the year and reflect business priorities

Deferred Share • To incentivise the delivery of annual profit • Any bonus earned is deferred in shares which • Up to 50% of base • Group underlying earnings before • No change Bonus Plan • Promotes greater alignment with shareholders vest on the second anniversary of grant salary interest, tax, amortisation and in policy • To facilitate share ownership (subject to continued employment and not employment related acquisition being under notice of termination, either given consideration but excluding any or received, on the date of vesting) PFI transfer into the pension scheme • Shares are purchased by a trust on behalf and pension risk management costs of the Group and so do not lead to any dilution (‘EBITA’) of shareholder interest • Targets disclosed retrospectively

Long-Term • Aligned to main strategic objectives of delivering • Annual grant of shares which normally vest • LTIP awards with • Portion of LTIP award worth up to 50% • No change Incentive Plan sustainable profit growth which in turn should after three years subject to continued service a face value of up to of salary: Sum of EPS for the next three in policy (‘LTIP’) deliver enhanced returns and satisfaction of performance targets 100% of base salary consecutive financial years • To facilitate share ownership • For executive directors, the portion of LTIP award in excess of 50% of salary: Operating Profit for the financial year ending three years post-grant • LTIP performance measured over three years

SAYE Scheme • To facilitate share ownership and provide • Periodic grants which normally vest after • Executive directors • N/A • No change further alignment with shareholders three or five years subject to continued service are eligible to participate in policy in the 2012 SAYE Scheme on the same terms as other employees

Pension • To aid retention and remain competitive • For executive directors, an annual pension • N/A • N/A • No change in the market place allowance of 22% of base salary in policy

Other Benefits • To aid retention and be competitive in the • Company car or car allowance • N/A • N/A • No change market place • Fuel in policy • Healthcare benefits in order to minimise • Medical insurance business disruption • Life assurance

Share Ownership • Further alignment of interests with shareholders • Executive directors are required to build and • N/A • N/A • No change Guidelines maintain a shareholding worth not less than in policy 100% of base salary (for non-executives, not less than 100% of their annual fee) through the retention of vested share awards or through open market purchases Bonus Cash Annual Salary Element Guidelines Share Ownership Other Benefits Pension Scheme SAYE (‘LTIP’) Incentive Plan Long-Term Bonus Plan Share Deferred Link to Strategy Purpose and • • • • • • • • • • • • • Further alignment of interests with shareholders business disruption to minimise order in benefits Healthcare market place the in competitive be and To retention aid in the market place competitive remain and To retention aid alignmentfurther with shareholders provide and ownership share To facilitate To facilitate share ownership deliver enhanced returns sustainable profitgrowth which in turnshould delivering of objectives strategic to main Aligned To facilitate share ownership Promotes greater alignment with shareholders profit annual of delivery the To incentivise without encouraging excessive risk taking year forthcoming the for targets strategic and key of financial achievement the To incentivise experience and skills role, their individual, the The reflects basic salary the market rate for from over reliance on variable income arising risk excessive avoiding whilst income fixed basic of level appropriate an providing by individuals high-calibre retain and To attract

• • • • • • • • • • • • • • • • • • How operated ofshareholder interest dilution to any lead not do so and Group the of Shares are purchased by a trust on behalf vesting) of date the on received, or given either termination, of notice under being not and employment to continued (subject grant of anniversary second the on vest which shares in deferred is earned bonus Any Not pensionable cash in Paid scale asliding on based are measures expectations. The targets applying to financial budgets and, where applicable, investors internal Company’s the account into takes In setting financial parameters, theCommittee stretching sufficiently are and strategy and ensures they are aligned with business year each of start the at targets and measures The Committee considers and approves the performance and experience with increase will with thesalary expectation that salary his/her market abelow on appointed is individual any where or role changes promoted, is individual an where appropriate be may increases Higher UK-based construction sector Company and other companies in the the within generally remuneration of light in position median the account into takes Broadly experience and responsibilities performance, to individual reference with Set year the of times other at exceptionally but 1April) effective Generally reviewed annually (with any change open market purchases through or awards share vested of retention the through fee) annual their of 100% than less not non-executives, (for salary base of 100% than less not worth ashareholding maintain and to build required are directors Executive Life assurance insurance Medical Fuel allowance car or car Company salary base of 22% of allowance pension annual an directors, executive For service continued to subject years five or three Periodic grants which normally vest after targets performance of satisfaction and service to continued subject years three after vest normally which shares of grant Annual

potential value Maximum • • • • • • • • 100% of base salary salary base of 100% to up of value a face LTIP with awards salary base of to 50% Up salary base of to 100% Up N/A N/A N/A N/A employees other as terms same the on Scheme 2012 the in SAYE are to eligible participate directors Executive

targets Performance • • • • • • • • • • • • • • (‘EBITA’) (80%) costs management risk pension and scheme pension the into transfer PFI consideration but excluding any employment related acquisition and amortisation tax, interest, Group before earnings underlying N/A N/A N/A N/A N/A three years over measured LTIP performance ending three years post-grant Operating Profit for the financialyear salary: of 50% of LTIP excess in award of portion the directors, executive For consecutive financial years three next the for EPS of Sum salary: of to 50% up LTIP of worth award Portion Targets disclosed retrospectively (‘EBITA’) costs management risk pension and scheme pension the into transfer PFI consideration but excluding any employment related acquisition and amortisation tax, interest, Group before earnings underlying priorities business reflect and year the of start The weightings are determined at the Personal objectives (10%) (10%) targets safety and Health

Annual Report 2012 67 Report Annual PLC Group Costain

prior policy Changes from • • • • • • • • • in policy change No page 68 on out set are changes Salary in policy change No in policy change No in policy change No in policy change No in policy change No in policy change No in policy change No

Other information Financial Corporate Business review Overview statements Governance 68 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Directors’ remuneration report continued

Salary Long-Term Incentive Plan For 2013, the Committee approved a 2.5% increase for The Company’s 2002 Long-Term Incentive Plan (the ‘2002 executive directors (effective 1 April 2013), resulting in LTIP’), approved by shareholders at the 2002 AGM, reached a base salary of £426,564 for Andrew Wyllie and £282,599 the end of its ten-year life in 2012 and shareholders gave their for Tony Bickerstaff. A 2.5% salary increase budget will also approval for the introduction of a new Long-Term Incentive be applied across the Company for 2013. Plan (the ‘2012 LTIP’) at the 2012 Annual General Meeting. The 2012 LTIP allows for conditional awards over shares to Pensions be granted to a participant with a market value of up to 100% Under their terms of engagement, the executive directors are of base salary at the date of grant of the award. The vesting entitled to an annual pension allowance of 22% of base salary. of awards are subject to performance conditions set by the Life assurance cover of four times base salary is provided Committee. For the year ended 31 December 2013, the through the Costain Life Assurance Scheme. The annual maximum grant under the 2012 LTIP for the Chief Executive premiums payable in respect of life assurance for Andrew and the Group Finance Director remains unchanged, with Wyllie and Tony Bickerstaff were £1,904 (2011: £1,867) and the same basic approach to target-setting to be applied. £1,262 (2011: £1,237) respectively. For 2012 onwards, the Committee introduced a clawback The Group offers a Group Flexible Retirement Plan which provision incorporated into the annual cash bonus, the LTIP was set up in 2009 with Standard Life for employees and and the DSBP with regard to any material misstatement to senior management. Neither executive director participates audited accounts, an error in calculation of targets resulting in the scheme. in an overpayment, gross misconduct or criminal behaviour on the part of a participant. Annual cash bonus Executive directors and other senior management are eligible Fixed versus variable pay mix for annual cash bonuses to encourage improved performance, The chart below illustrates the average mix between the with targets established by the Committee to align rewards fixed and variable (performance-related) elements of with the Company strategy. The targets are set at the remuneration of the executive directors at target and maximum beginning of the year by the Committee and are reviewed performance. Target performance assumes target payouts with appropriate input from the Audit Committee at the end of cash and DSBP and an expected value of LTIP awards. of the year. For the year ended 31 December 2012, the Maximum performance assumes all bonuses and long-term Chief Executive and the Group Finance Director each had incentive awards vest in full. The chart demonstrates the a maximum bonus opportunity of 100% of base salary. weighting of the package towards variable pay, particularly at maximum performance. The Committee considers the mix For the year ended 31 December 2013, the maximum annual between fixed and variable pay to be appropriate. During the cash bonus potential for the Chief Executive and the Group year, the Committee reviewed the executive remuneration Finance Director remains unchanged, with the same basic arrangements from a risk perspective and concluded that approach to target-setting (i.e. 80% relating to key financial they do not encourage undue risk and that the arrangements, targets, 10% relating to Health and Safety targets and 10% as a whole, provide an appropriate balance. relating to personal goals). Fixed versus variable pay mix Deferred Share Bonus Plan % of maximum remuneration Executive directors and other senior management are eligible to participate in the Company’s Deferred Share Bonus Plan Target (‘DSBP’) which promotes greater alignment with shareholders 1 2 3 4 5 through the award of deferred shares. Under the DSBP, any bonus earned is deferred in shares which vest on the second 1 2 3 4 5 Maximum anniversary of grant, subject to continued employment and 0 20 40 60 80 100 not being under notice of termination (either given or received) at the date of vesting. Shares to satisfy the deferred bonuses ■1 Base salary ■2 Pension ■3 Cash bonus are purchased by a trust on behalf of the Group and so do not ■4 Deferred share bonus ■5 Long-term incentives lead to any dilution of shareholder interest. For the year ended 31 December 2013, the maximum potential DSBP award for the executive directors remains unchanged. The Committee will disclose on a retrospective basis the EBITA measure (defined as underlying earnings before interest, tax, amortisation of acquired intangible assets and employment- related acquisition consideration but excluding any PFI transfer into the pension and pension risk management costs) for 2013 in next year’s report. increase is effective from 1 April. 1April. from effective is increase any and annually reviewed are Fees Executive. Chief the and Committee the between consultation following Board to the recommended and determined is fee Chairman’s The Executive. Chief the and Chairman the between consultation following Board, by the determined is Chairman, the than other directors, non-executive for Remuneration Chairman and other non-executive directors policy. above the with accordance in fees £19,872 paid was (2011: £19,872). these retained has He 2012 31 December he ended year the for appointment of the respect in and 2009 Water7April on of Scottish Director aNon-Executive appointed was Wyllie Andrew concerned. individual by the retained be may appointments external for paid to Company. Fees the commitment to individual’s the relation in reasonable be must appointment to external devoted the time the and of interest conflict no be must There undertaken. be may appointment such one than more no Generally, performance. Company’s to make the can they which contribution the and skills their broaden appointments such that belief Company, the in of the consent prior the with appointments, non-executive to up take directors executive encourages Company The directorships External 2006. 3March dated is Tonyand Bickerstaff’s 2005 25 dated is April agreement Wyllie’s service Andrew applies. loss to mitigate duty the and Group by the termination of wrongful case in compensation of predetermined payment for provision no is There notice. of 12 giving the months’ on party by either terminated be can that contracts service have directors executive The agreementsService and letters of appointment of 2012.course 2012 the or SAYE the 2002 Scheme during SAYE Scheme the either 2013. under made were 31 grants December No ending year the for results half-year of its announcement the following 2012the period six-week the during SAYE Scheme under options of grant first to its make intends Company The ‘2012 (the Meeting SAYE Scheme’). 2012 the at General You As Save Scheme a new Annual Earn of establishment the for approval their gave shareholders 2012 in life ten-year of its end the and reached also SAYE ‘2002 AGM (the 2002 Scheme’) the at by shareholders approved You As Save Scheme 2002 Company’s Earn The All-employee Share Plan

* (2) (1) are as follows: as are appointment director’s original non-executive of each dates The Board. the on to sit director non-executive anominee appointed has shareholders major two of the one only Currently, of office. loss for to compensation entitled not are way and usual the in re-election for to stand required are directors non-executive Nominee capital. share issued of the percentage a specific holds them nominating shareholder the as long as for office hold 54), page on Statement Governance Corporate the in indicated (as directors non-executive Nominee office. of loss for to compensation entitled not are Morley James and Lodge Jane Alexander, Allvey, Michael David side. either on notice by reasonable terminated be can director non-executive independent of an appointment The of appointment. letters have directors non-executive independent The of £132,096 fee annual an (2012: receive £129,500). will he 2013, 1April from effect With memberships. committee for fees of £128,875. fees paid additional any receive not does He 2012, was 31 December ended Chairman the year the For are as follows: follows: as are fees annual to Company. The the bring they that expertise the and directors of non-executive expected commitment time increased the reflecting fees, additional the and fees annual basic the 2012, in areview to increase following decided was it Audit and Remuneration Committees. As reported last year, for the Senior Director, Independent and chairmanship of the fees additional and Company of the director non-executive a as acting for fee annual abasic comprise Chairman, the than other directors, non-executive for Remuneration 2012 2013 Year Samer G Younis James Morley ALodge Jane RAlexander Michael PAllvey David director Non-executive   of Association. Articles Company’s the and Code Governance Corporate UK the with accordance in years, nine than more for Board the on served having if AGM each at re-election and years three than more no of intervals at re-election subsequent appointment, their following AGM the at to re-election Subject  of October 2012, succeeding James Morley. James 2012, succeeding October of end the at Committee Audit the of Chair as appointed was Lodge Jane end of December 2012 upon the retirement of John Bryant. John of retirement 2012 the upon December of end the at Director Independent Senior the as appointed was Morley James £41,820 £42,865 fee Basic 6,120 £ £6,273 Director Independent Senior 23.06.2009 09.01.2008 01.08.2012 25.07.2007 01.11.2001 appointment Date of original

(1) Annual Report 2012 69 Report Annual PLC Group Costain

£8,670 £8,887 Chair Committee Audit (2) Close of 2013Close AGM of 2014Close AGM of 2013Close AGM of 2014Close AGM of 2013Close AGM of current term* Expiry

6,120 £ £6,273 Chairman Committee Remuneration

Other information Financial Corporate Business review Overview statements Governance 70 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Directors’ remuneration report continued

Implementation Report The DSBP includes a mechanism to allow the Company to deliver a combined arrangement at no additional cost Annual bonus to the Company by delivering to participants a combination For the year ended 31 December 2012, 80% of the executive of HM Revenue & Customs (‘HMRC’) tax-approved market directors’ annual bonus metrics were set as measurable key value share Options (with an exercise price determined at the financial targets, being Group underlying earnings before time of grant) over a fixed number of shares, together with interest, tax, amortisation and employment related acquisition non tax-approved Combined Deferred Awards with a nil consideration but excluding any PFI transfer into the pension exercise price over a fixed value of shares. The tax-approved scheme and pension risk management costs (‘EBITA’). The and non tax-approved options/awards are linked, in terms remaining 20% was linked to: 10% for health and safety of value and exercise and mirror the same commercial terms targets, relating to Group Accident Frequency Rate (‘AFR’) as the Deferred Awards. and site scored inspections, and 10% to personal goals, relating to building and developing the executive team and Long-Term Incentive Plan the talent pool within the organisation. The performance conditions applying to the initial awards made under the 2012 LTIP for the executive directors depends The total bonus payment for the executive directors for the upon the quantum of the award. For the portion of awards year ended 31 December 2012 amounted to 52% of salary made over shares worth up to 50% of salary (Tier 1), the for Andrew Wyllie and 51% of salary for Tony Bickerstaff. performance condition is based on an aggregate EPS target Of this total payment, 32% related to measurable financial over a period of three financial years. For the portion of awards targets (‘EBITA’), 10% to health and safety targets (including made over shares in excess of 50% of salary (Tier 2), the the achievement of an AFR of 0.09% against a target of 0.12%) performance condition is based on stretching operating profit and 10% and 9% related to personal goals for Messrs. Wyllie targets for the 2014 financial year. and Bickerstaff respectively (which included the implementation and development of a newly constituted Executive Board and The targets for the 2012 LTIP awards are as follows: management team to reflect the re-structuring of the business into two divisions: Infrastructure and Natural Resources). Tier 1 Sum of the EPS for the Deferred Share Bonus Plan financial years ending For the year ended 31 December 2012, both executive 31 December 2012, Vesting level for awards directors had a maximum DSBP opportunity of 50% of base 2013 and 2014 up to 50% of salary salary. The performance measure was EBITA, as described Below 90 pence 0% in the table below: 90 pence 15% Group EBITA Percentage of Relevant 100 pence or more 100% for 2012 Maximum Award Between 90 pence £21.2 million or less 0% and 100 pence Pro-rata between 15% and 100% Between £21.2 million and Between 0% and 60% £23.5 million on a straight-line basis Tier 2 £23.5 million 60% Operating Profit for the Between £23.5 million Between 60% and 100% financial year ending Vesting level for awards and £28.2 million on a straight-line basis 31 December 2014 in excess of 50% of salary £28.2 million or more 100% £29.6 million or below 0% £37 million 50% The EBITA for the year ended 31 December 2012 was Between £29.6 million £23.7 million and, accordingly, 62% of the maximum DSBP and £37 million Pro-rata between 0% and 50% award opportunity will vest. The number of shares to which a participant in the DSBP will be entitled will be calculated on £44.4 million or more 100% the basis of the monetary value of the deferred bonus divided Between £37 million by the middle-market quotation of a share at the date of the and £44.4 million Pro-rata between 50% and 100% deferred award. The grant of the deferred bonus award is due to be made in the six weeks following the preliminary announcement of the results for the financial year ended 31 December 2012. 0 20 40 60 80 100 120 £ Total shareholder return (from 1 January 2008) Company and investors by encouraging the executive executive the by encouraging investors and Company of the 2011. interests the toduring align seek guidelines The with the Company’s share ownership guidelinesintroduced Tony Bickerstaff’s shareholdings during 2012 which accords Wyllie’s and Andrew in increases substantial continuing the welcomed therefore Committee The Board. Costain the and investors between of interests alignment agenuine of creating The Remuneration Committee is committed to the concept pension scheme and pension risk management costs. into the transfer (‘PFI’) initiative finance private any excluding and employment-related acquisition consideration, but amortisation tax, interest, before profit underlying as defined is profit operating 19) whilst lAS under calculated (itself interest pension 2012 in before made award the for EPS calculated is LTIP previous awards, with As price. share Company’s of the drivers two of the key are profit operating and EPS in growth 2012 the for to use metrics LTIP, appropriate most the as are profit operating and EPS that believes Committee The full. in vested 1has Tier 2014 and 35.531 pence December least at is ending year financial the for interest) pension (before EPS the unless vest will 2award Tier of the element no addition, In 2010 from years four levels. over doubled than more have must profit operating full, in 2to vest Tier this for Consequently, Source: ThomsonReuters ■ CostainGroupPLCFTSESmallCapIndex 100.0 1 Jan08 100.0 31 Dec 08 31 Dec 56.1 75.4 31 Dec 09 31 Dec 95.3 86.5

of a more similar size to Costain than the FTSE All-Share. All-Share. FTSE the than to size Costain similar of amore companies comprises and aconstituent is Company the which in Index the is it as to use Index appropriate an is Index SmallCap the that believes Committee The Index. SmallCap of £100 FTSE the in value the invested with compared 2008 PLC 1January on Group £100for Costain in invested 2012, by 31 value, the December shows above graph The Performance graph of aparticipant. part the on in an overpayment, gross misconduct or criminal behaviour resulting of targets calculation in error an accounts, audited to misstatement to material any regard with DSBP the and LTIP the bonus, cash annual into the incorporated provision aclawback introduced 2012For Committee the onwards, satisfied. is guidelines these under target the 2012 any under LTIP until awards received DSBP or of shares number net of the to up 50% to retain encouraged also are executives senior other and directors Executive salary. base of 50% than less no worth ashareholding executives senior other for and fee) annual of 100% their directors non-executive of case the in (and salary of 100% base than less not directors to build up and maintain a shareholding worth 31 Dec 10 31 Dec 103.4 86.3 Annual Report 2012 71 Report Annual PLC Group Costain 31 Dec 1131 Dec 90.5 78.3 31 Dec 12 31 Dec

115.6 112.7

Other information Financial Corporate Business review Overview statements Governance 72 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Directors’ remuneration report continued

The following sections have been audited by KPMG Audit Plc.

Directors’ emoluments The aggregate directors’ remuneration for the year ended 31 December 2012 was £1,404,342 (2011: £1,584,800).

2012 2011 2012 2011 Salary/Fee Bonus Benefits Total Total Pension* Pension* £ £ £ £ £ £ £ Executive directors A Wyllie 414,120 216,403 13,394 643,917 766,310 91,106 89,320 A O Bickerstaff 274,354 140,610 11,894 426,858 510,740 60,358 59,175 Non-executive directors D P Allvey 128,875 – – 128,875 125,250 – – M R Alexander 47,70 5 – – 47,705 46,500 – – J A Lodge(i) 18,870 – – 18,870 – – – J Morley(ii) 48,797 – – 48,797 49,000 – – S G Younis 41,615 – – 41,615 40,500 – – J M Bryant(iii) 47,70 5 – – 47,705 46,500 – – Former directors – – – – – – – Total 1,022,041 357,013 25,288 1,404,342 1,584,800 151,464 148,495 * Pension contributions in excess of £50,000 paid as a cash supplement. (i) Jane Lodge was appointed as a Non-Executive Director with effect from 1 August 2012 and became Chair of the Audit Committee at the end of October 2012, succeeding James Morley. (ii) James Morley became the Senior Independent Director at the end of December 2012. (iii) John Bryant retired as a Non-Executive Director with effect from 31 December 2012.

Directors’ share interests (i) Beneficial holdings

As at 1 January 2012 As at 31 December 2012 Number of Ordinary Shares Number of Ordinary Shares A Wyllie 142,016 200,452 A O Bickerstaff 79,833 117,198 D P Allvey 5,250 5,250 M R Alexander 17,5 3 3 18,364 J A Lodge(i) – – J Morley(ii) 23,000 27,000 S G Younis – – J M Bryant*(iii) 15,028 15,028 * All shares held by spouse through a nominee account. (i) Jane Lodge was appointed as a Non-Executive Director with effect from 1 August 2012 and became Chair of the Audit Committee at the end of October 2012, succeeding James Morley. (ii) James Morley became the Senior Independent Director at the end of December 2012. (iii) John Bryant retired as a Non-Executive Director with effect from 31 December 2012.

There continued to be a significant increase in shareholding during 2012 following the introduction of the Company’s share ownership guidelines in 2011.

(ii) Deferred Share Bonus Plan awards Under the DSBP, deferred bonus awards can be granted in the following two forms: (i) an option with a nil exercise price over a fixed value of shares (the ‘Combined Deferred Award’), which is granted in combination with an HMRC approved market value option over a fixed number of shares (the ‘Option’) – this applies to an individual maximum of £30,000; and (ii) an option with a nil exercise price over a fixed number of shares (‘Deferred Award’). A O Bickerstaff A OBickerstaff 5 4 3 2 1 A Wyllie follows: as LTIP are awards directors’ share executive of the Details awards Plan Long-Term Incentive (iii) dateof grant. of the anniversary tenth the until exercisable Rules, to DSBP the subject remains, it exercisable, becomes award of an part any or To all that extent the exercise. on to participants the delivered be will grant at Option Awardand Deferred the under of shares number The of grant. time the at award that under shares of the value the as same the is exercise Award on Deferred Combined the under delivered shares of the value The participant. of the employment to continued the subject dateof grant of the anniversary second the on exercisable become will awards of the All counted. not is Option the under shares of the value the Plan, of the terms the under granted be may Award that aDeferred under shares of the value maximum the calculating When time. same the at exercised be normally must Option the Award and Deferred Combined The equal. are Option the Award and Deferred Combined the under shares of the value The 4 3 2 1 A Wyllie follows: as are awards share DSBP directors’ executive of the Details A OBickerstaff    for Tony Bickerstaff. Tonyfor Bickerstaff. £122,304 £191,100 and was Wyllie directors Andrew for executive these by received insurance) national and tax 2012 £2.3187. was April (before 05 on gain The shares Company’s the of price market 52,747 The exercised options. share Tony Bickerstaff and 82,417 options exercised share 2012, Wyllie April Andrew 05 On full. in vested has 1 Tier and 35.5p 2014 interest) least at is pension December 31 ended (before year EPS the unless financial the vest for will award 2 Tier the of element no addition, In achieved. actually profit million £29.6 operating to the between pro-rata scale million £44.4 sliding and ona vests) (100% million £44.4 to vests) (50% million 2014 £37 of December 31 ending year financial on the for based is 2) profit (Tier operating award the of 50% remaining The achieved. actually EPS to the pro-rata 15%100% and between scale asliding on vests) (100% 100p of 2012, EPS to 2013 2014 and (15% December 90p 31 vests) of ended years financial the for target EPS aggregate to an subject 1) is (Tier award the of 50% (EPS targets achieved. rounded EPS as appropriate). actual to the pro-rata 100% and 0% between scale asliding on vests) (100% 56p of to EPS 2013 financial vests) 47p of the for EPS an 31 (0% on December ended based be year will award the of 50% remaining The achieved. actually EPS to the pro-rata 15%100% and between scale asliding on vests) 2011, December 31 2012 2013 ended and of EPS to of 102p years (15% 113pvests) (100% financial the for EPS aggregate to an subject is award the of 50% met. 100% was target EPS The achieved. actually EPS to the pro-rata and 100% 15% between scale 2012 sliding on a of of 27.5pEPS to 21.0p (15% December vests) 31 vests) (100% ended year financial the for EPS met. 100% was target EPS The achieved. actually EPS to the pro-rata and 100% 15% between scale 2011 sliding on a of of 27.5pEPS to 21.0p December 31 (15%vests) ended vests) (100% year financial the for EPS Tony for Bickerstaff. £54,969 and Wyllie £86,128 was Andrew for directors executive these by received insurance) 2012 national and 27 April on tax shares £2.19. (before was Company’s gain the of The price market The Shares). Dividend 543 received also thereby (and awards 24,557 of share atotal exercised Tony Bickerstaff and 1,151 Shares) received also Dividend in thereby (and 38,177 of awards atotal share DSBP exercised 2012, Wyllie 27 April Andrew On Option. the under shares of Number Award. Deferred Combined the under shares of value and number Maximum Award. Deferred the under shares of Number 19.04.10 19.04.10 19.04.10 19.04.10 19.04.10 04.04.12 04.04.12 19.04.10 12.04.11 12.04.11 granted Date (£29,999.91) (£29,999.91) 1 Jan 20121 Jan 07.04.09 07.04.09 09.05.12 09.05.12 14.04.10 14.04.10 12.04.11 12.04.11 82,644 12,377 12,377 54,752 12,377 12,377 25,800 12,377 12,180 granted As at As Date Date – – 1 4 3 2 1 4 3 2 1 1 3 1 3 1

2 2

1 Jan 20121 Jan 78,258 51,846 169,294 112,157 54,081 54,081 Granted 81,632 81,632 the year the 82,417 82,417 52,747 52,747 during As at at As – – – – – – – – – – 1 1

207,044 137,167

12,377 12,377 Granted the year the year the year the Lapsed during during – – – – – – – – – – – – – –

Exercisable 12,377 12,180 25,800 12,377 the year the year the year the Lapsed Lapsed during during – – – – – – – – – – – – – – 4 31 Dec 201231 Dec 54,752 82,644 78,258 51,846 51,846 82,417 82,417 52,747 the year the Annual Report 2012 73 Report Annual PLC Group Costain Vested Vested during As at As – – – – – – – – – – – – 5

31 Dec 201231 Dec 169,294 137,167 207,044 £2.42p £2.42p 112,157 112,157 54,081 54,081 81,632 81,632 Exercise As at at As price – – – – – – – – – –

April 2014-2022 April April 2013-2021 April April 2014-2022 April April 2013-2021April April 2012-2020April April 2012-2020April April 2012-2020April April 2012-2020April April 2012-2020April April 2012-2020April March 2013 March 2013 March 2015 March 2015 March 2012 March 2012 March 2014 March 2014 Exercisable Exercisable

from from from

Other information Financial Corporate Business review Overview statements Governance 74 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Directors’ remuneration report continued

Notes (a) The awards, which are expressed as options, are subject to an exercise price of £1. (b) The average closing middle-market price of ordinary shares of 50p each in the Company for the dealing day immediately preceding the date of grant for the 2009 award was 227p, for the 2010 award 245p, for the 2011 award 241p and for the 2012 award 201p. (c) The total number of ordinary shares of 50p each still outstanding and subject to the 2009 award is 25,186 (2011: 620,262), the 2010 award: 605,533 (2011: 606,550), the 2011 award: 736,504 (2011: 761,402) and the 2012 award: 860,378. (d) At 31 December 2012, the derived mid-market price of the ordinary shares in the Company, as advised by the Company’s brokers, was 254p. The range of the share price of the ordinary shares during 2012 was 184.87p to 254p.

(iv) Save As You Earn scheme awards Details of the executive directors’ SAYE options are as follows:

Date As at Granted Lapsed Exercised As at Exercise Exercisable granted 1 Jan 12 during year during year during year 31 Dec 12 price from A Wyllie 11.10.11 1,633 – – – 1,633 205p Nov 2014-May 2015 A O Bickerstaff 11.10.11 1,633 – – – 1,633 205p Nov 2014-May 2015

On behalf of the Board

Michael R Alexander Chairman of the Remuneration Committee 6 March 2013

statement responsibilities Directors’ – CorporateDirectors’ Governance Report differ fromdiffer legislation in other jurisdictions. preparation and dissemination of financial statementsmay the governing UK the in Legislation website. Company’s on the included information financial and corporate of the integrity and maintenance the for responsible are directors The that comply with that law and those regulations. remuneration and Corporate report Governance statement responsible for preparing a Directors’ Report, Directors’ Under applicable law and regulations, the directors are also irregularities. other and fraud detect and prevent to and Group of the assets the to to safeguard them open reasonably are as steps such taking for responsibility general have They 2006. Act Companies the with comply statements financial its that to ensure them enable and company parent of the position financial the time any at accuracy company’s transactions and disclose with reasonable parent the explain and show to sufficient are that records accounting adequate keeping for responsible are directors The • • • • to: required are directors the statements, financial company parent and Group of the each preparing In period. that for loss or profit of their and company parent and Group of the of state affairs of the view fair and a true give these that satisfied are they unless statements financial the approve not must law, directors the company Under basis. same on the statements financial company parent the to prepare elected have and law applicable EU and by the adopted as IFRSs with accordance in statements financial Group the to prepare law, that year. required are they Under financial each for statements financial company parent and Group the to prepare directors the requires law Company regulations. law and applicable with statements in accordance parent company financial and Group the and Report for preparing Annual the The directors are responsible and the parent company will continue in business. business. in continue will company parent the and basis it unless is inappropriate to presume that the Group concern going on the statements financial the prepare and EU; by the adopted as IFRSs with accordance in prepared been have they whether state prudent; and reasonable are that estimates and judgements make consistently; select suitable accounting policies and then apply them

6 March 20136 March Executive Chief Andrew Wyllie Chairman Allvey David On behalf of the Board Board of the behalf On • • knowledge: our of best that to the We confirm and uncertainties that they face. face. they that uncertainties and risks principal of the adescription with together a whole, includedin the consolidation takenundertakings as business and the position of the Company and the of the performance and development of the review a fair Finance Director’s review sections of this include report Group the and indicators Key performance and risks the Directors’ Report, the Business review, the Principal and included inundertakings the consolidation taken as a whole; the and Company the of loss or profit and position financial liabilities, assets, of the view fair and EU, atrue the give by adopted as IFRSs with 2012, accordance in prepared December ended 31 year the for statements financial the Annual Report 2012 75 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 76 Costain Group PLC Annual Report 2012

Directors’ Report – Corporate Governance Independent Auditor’s report to the members of Costain Group PLC

We have audited the financial statements of the Costain Group Opinion on other matters prescribed by the PLC for the year ended 31 December 2012 which comprise Companies Act 2006 the Consolidated Income Statement, the Consolidated and In our opinion: Parent Company Statement of Comprehensive Income, the • the part of the Directors’ remuneration report to be audited Consolidated and Parent Company Statement of Financial has been properly prepared in accordance with the Position, the Consolidated and Parent Company Statements Companies Act 2006; of Changes in Equity, the Consolidated and Parent Company Cash Flow Statements and the related notes. The financial • the information given in the Directors’ report for the financial reporting framework that has been applied in their preparation year for which the financial statements are prepared is is applicable law and International Financial Reporting consistent with the financial statements; and Standards (‘IFRS’s’) as adopted by the EU and, as regards the parent company financial statements, as applied in • information given in the Corporate Governance statement accordance with the provisions of the Companies Act 2006. with respect to internal control and risk management systems in relation to financial reporting processes and This report is made solely to the Company’s members, as about share capital structures is consistent with the financial a body, in accordance with Chapter 3 of Part 16 of the statements. Companies Act 2006. Our audit work has been undertaken so that we might state to the Company’s members those matters Matters on which we are required to report we are required to state to them in an auditor’s report and for by exception no other purpose. To the fullest extent permitted by law, we do We have nothing to report in respect of the following: not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our Under the Companies Act 2006 we are required to report audit work, for this report, or for the opinions we have formed. to you if, in our opinion: • adequate accounting records have not been kept by the Respective responsibilities of directors and auditor parent company, or returns adequate for our audit have As explained more fully in the Directors’ Responsibilities not been received from branches not visited by us; or Statement the directors are responsible for the preparation of the financial statements and for being satisfied that they • the parent company financial statements and the part give a true and fair view. Our responsibility is to audit, and of the Directors’ remuneration report to be audited are not express an opinion on, the financial statements in accordance in agreement with the accounting records and returns; or with applicable law and International Standards on Auditing • certain disclosures of directors’ remuneration specified (UK and Ireland). Those standards require us to comply with by law are not made; or the Auditing Practices Board’s (‘APB’s’) Ethical Standards for Auditors. • we have not received all the information and explanations we require for our audit. Scope of the audit of the financial statements A description of the scope of an audit of financial Under the Listing Rules we are required to review: statements is provided on the APB’s website at • the directors’ statement, set out in the Directors’ Report, www.frc.org.uk/auditscopeukprivate in relation to going concern; and Opinion on financial statements • the part of the Corporate Governance Statement relating In our opinion: to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our • the financial statements give a true and fair view of the state review; and of the Group’s and of the parent company’s affairs as at 31 December 2012 and of the Group’s profit for the year • certain elements of the report to shareholders by the then ended; Board on directors’ remuneration. • the Group financial statements have been properly prepared in accordance with IFRSs as adopted by the EU; • the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Stephen Bligh Companies Act 2006; and Senior Statutory Auditor • the financial statements have been prepared in accordance with the requirements of the Companies Act 2006; and, for and on behalf of KPMG Audit Plc, Statutory Auditor, as regards the Group financial statements, Article 4 of the Chartered accountants lAS Regulation. 15 Canada Square London E14 5GL 6 March 2013 Costain Group PLC Annual Report 2012 77

Financial statements Overview Financial statements Business review This section contains the detailed financial statements and other information that our stakeholders Corporate Corporate

find useful, including the financial Governance calendar and shareholder services.

78 Consolidated income statement 79 Consolidated statement of comprehensive income and expense 79 Company statement of comprehensive income and expense 80 Consolidated statement of financial position Financial Financial

81 Company statement of financial position statements 82 Consolidated statement of changes in equity 82 Company statement of changes in equity 83 Consolidated cash flow statement 84 Company cash flow statement 85 Notes to the financial statements 121 Five-year financial summary Other information 78 Costain Group PLC Annual Report 2012

Financial statements Consolidated income statement Year ended 31 December

2012 2011 Before Other Before Other other items items Total other items items Total Notes £m £m £m £m £m £m Continuing operations Revenue 3 934.5 – 934.5 986.3 – 986.3 Less: Share of revenue of joint ventures and associates 13 ( 86.1) – ( 86.1) (117.8 ) – (117.8 ) Group revenue 848.4 – 848.4 868.5 – 868.5

Cost of sales (794.2) – (794.2) (818.8) – (818.8) Gross profit 54.2 – 54.2 49.7 – 49.7

Administrative expenses (29.1) – (29.1) (25.6) – (25.6) Pension liability management (2.8) – (2.8) – – – Amortisation of acquired intangible assets – (1.7) (1.7) – (0.9) (0.9) Employment related deferred consideration – (1.7) (1.7) – (0.7) (0.7) Group operating profit 22.3 (3.4) 18.9 24.1 (1.6) 22.5

Profit on sale of non-consolidated subsidiary 4 – – – 0.5 – 0.5 Profit on sales of interests in joint ventures and associates 4 10.5 – 10.5 0.3 – 0.3 Share of results of joint ventures and associates 13 (1.4) – (1.4) (1.3) – (1.3) Profit from operations 3 31.4 (3.4) 28.0 23.6 (1.6) 22.0

Finance income 7 27.3 – 27.3 34.1 – 34.1 Finance expense 7 (29.2) – (29.2) (32.2) – (32.2) Net finance (expense)/income (1.9) – (1.9) 1.9 – 1.9

Profit before tax 3/4 29.5 (3.4) 26.1 25.5 (1.6) 23.9 Income tax 8 (2.5) 0.6 (1.9) (5.6) 0.4 (5.2) Profit for the year attributable to equity holders of the parent 27.0 (2.8) 24.2 19.9 (1.2) 18.7

Earnings per share Basic 9 41.4p (4.3)p 37.1p 31.1p (1.9)p 29.2p Diluted 9 40.0p (4.1)p 35.8p 30.0p (1.8)p 28.2p

The impact of business disposals in either year was not material and, therefore, all results are classified as arising from continuing operations. (2011: of million). £2.5 loss of £1.0year the for aprofit than million other expense, or income comprehensive any have not does Company The expense and income comprehensive of Company statement Year 31 ended December expense and income comprehensive Consolidated of statement Other comprehensive expense for the year the for expense comprehensive Other

Group: hedges flow Cash operations of foreign translation on differences Exchange year the for Profit Total for comprehensive the year income/(expense) attributable Tax recognised on actuarial losses recognised directly in equity Actuarial losses on definedbenefit pension scheme Net changes in fair value (net of tax) transferred to the income statement to income the transferred of tax) (net value fair in changes Net year during of tax) (net value fair in of changes portion Effective Joint ventures and associates: Net changes in fair value transferred to the income statement to income the transferred value fair in changes Net year during value fair in of changes portion Effective to equity holders of the parent the of holders equity to

Annual Report 2012 79 Report Annual PLC Group Costain (24.4) (19.1) 24.2 24.2 (0.4) 2012 (1.1) 4.0 4.0 2.7 2.7 5.1 5.1 0.1 0.1 £m –

(22.6) 22.1) ( 18.7 18.7 (0.8) (3.9) (2.8) 2011 0.1) ( 0.2 0.2 3.0 3.0 £m –

Other information Financial Corporate Business review Overview statements Governance 80 Costain Group PLC Annual Report 2012

Financial statements Consolidated statement of financial position As at 31 December

2012 2011 Notes £m £m Assets Non-current assets Intangible assets 11 18.7 20.3 Property, plant and equipment 12 9.1 11.4 Investments in equity accounted joint ventures 13 36.1 21.4 Investments in equity accounted associates 13 1.6 1.4 Loans to equity accounted joint ventures 13 – 13.7 Loans to equity accounted associates 13 2.7 6.4 Other 14 17.5 16.4 Deferred tax 8 17.4 17.4 Total non-current assets 103.1 108.4

Current assets Inventories 1.7 2.3 Trade and other receivables 14 181.5 188.0 Cash and cash equivalents 15 107.4 141.7 Total current assets 290.6 332.0 Total assets 393.7 440.4

Equity Share capital 20 32.8 32.4 Share premium 3.7 3.3 Foreign currency translation reserve 5.0 6.1 Hedging reserve (1.2) (4.9) Retained earnings (8.5) ( 6.1) Total equity attributable to equity holders of the parent 31.8 30.8

Liabilities Non-current liabilities Retirement benefit obligations 19 51.9 52.9 Other payables 17 5.0 6.1 Provisions for other liabilities and charges 18 1.9 2.3 Total non-current liabilities 58.8 61.3

Current liabilities Trade and other payables 17 297.6 342.9 Income tax liabilities 8 1.7 1.7 Bank overdrafts 15 1.7 1.6 Provisions for other liabilities and charges 18 2.1 2.1 Total current liabilities 303.1 348.3 Total liabilities 361.9 409.6 Total equity and liabilities 393.7 440.4

The financial statements were approved by the Board of Directors on 6 March 2013 and were signed on its behalf by:

A Wyllie A O Bickerstaff Director Director Registered number: 1393773 As at 31 December position of financial statement Company Trade receivables other and Current assets Total non-current assets subsidiaries in Investments Non-current assets Assets Income tax liabilitiesIncome tax Trade payables other and Current liabilities Total liabilities non-current charges and liabilities other for Provisions liabilities Non-current Liabilities Cash and cash equivalents cash and Cash Registered Director A Wyllie number: 1393773 by: behalf its on 2013March on 6 signed were and Directors of Board by the approved were statements financial The Total and liabilities equity Total current liabilities charges and liabilities other for Provisions Total to attributable holders equity equity of the parent Total liabilities Total current assets Retained earnings reserves Other Share premium Share capital Equity Total assets Director A OBickerstaff

Annual Report 2012 81 Report Annual PLC Group Costain Notes 20 18 13 18 15 14 17 8 165.1 165.1 165.1 165.1 32.8 32.8 95.2 95.2 95.2 95.2 85.9 85.9 84.0 84.0 39.9 39.9 30.0 30.0 69.9 69.9 32.1 32.1 87.2 87.2 77.9 2012 0.2 0.2 9.3 9.3 3.7 3.7 1.3 1.3 1.3 1.3 1.7 1.7 £m 109.7 109.7 191.2 191.2 191.2 191.2 121.4 121.4 121.4 121.4 0. 107.5 111.0 111.0 80.2 80.2 69.8 69.8 32.4 32.4 38.1 38.1 61.7 61.7 2011 3.3 3.3 0.5 0.5 6.4 6.4 1.3 1.3 1.3 1.3 8.1 8.1 1.7 1.7 £m

Other information Financial Corporate Business review Overview statements Governance 82 Costain Group PLC Annual Report 2012

Financial statements Consolidated statement of changes in equity

Share Share Translation Hedging Retained Total capital premium reserve reserve earnings equity £m £m £m £m £m £m At 1 January 2011 31.7 2.0 6.8 (2.2) (0.7) 37.6 Profit for the year – – – – 18.7 18.7 Other comprehensive income/(expense) – – (0.8) (2.7) (19.1) (22.6) Transfer between reserves – – 0.1 – ( 0.1) – Issue of ordinary shares under employee share option plans 0.6 1.1 – – (0.2) 1.5 Equity-settled share-based payments – – – – 1.4 1.4 Dividends paid 0.1 0.2 – – ( 6.1) (5.8) At 31 December 2011 32.4 3.3 6.1 (4.9) ( 6.1) 30.8 At 1 January 2012 32.4 3.3 6.1 (4.9) (6.1) 30.8 Profit for the year – – – – 24.2 24.2 Other comprehensive income/(expense) – – (1.1) 3.7 (21.7) (19.1) Issue of ordinary shares under employee share option plans 0.3 – – – (0.3) – Equity-settled share-based payments – – – – 2.1 2.1 Dividends paid 0.1 0.4 – – (6.7) (6.2) At 31 December 2012 32.8 3.7 5.0 (1.2) (8.5) 31.8 Company statement of changes in equity

Share Share Other Retained Total capital premium reserve earnings equity £m £m £m £m £m At 1 January 2011 31.7 2.0 4.5 46.9 85.1 Comprehensive income/(expense) – – – (2.5) (2.5) Issue of ordinary shares under employee share option plans 0.6 1.1 – (0.2) 1.5 Equity-settled share-based payments granted to employees of subsidiaries – – 1.9 – 1.9 Dividends paid 0.1 0.2 – ( 6.1) (5.8) At 31 December 2011 32.4 3.3 6.4 38.1 80.2 At 1 January 2012 32.4 3.3 6.4 38.1 80.2 Comprehensive income/(expense) – – – 1.0 1.0 Issue of ordinary shares under employee share option plans 0.3 – – (0.3) – Equity-settled share-based payments granted to employees of subsidiaries – – 2.9 – 2.9 Dividends paid 0.1 0.4 – (6.7) (6.2) At 31 December 2012 32.8 3.7 9.3 32.1 77.9

There are no significant restrictions on the ability to remit Overseas reserves.

Details of the nature of the above reserves are set out below.

Group Translation reserve The translation reserve comprises all foreign exchange differences arising 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 a foreign subsidiary.

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.

Company Other reserve The Company grants certain of its subsidiaries rights to its equity instruments as part of its share-based payment plan incentive. The impact is recognised within this non-distributable reserve. Year 31 ended December Consolidated flow cash statement Finance income associates and ventures of joint of results Share for: Adjustments year the for Profit Cash flows from operating activities Income tax Income Finance expense Cash, cash equivalents and overdrafts at beginning of the year of the beginning at overdrafts and equivalents cash Cash, Net decrease in cash, cash equivalents and overdrafts Net cash used by financing activities paid dividends Ordinary capital share of ordinary Issue activities financing by) from/(used flows Cash activities investing by used cash Net overdrafts) and equivalents cash and cash of acquired (net of subsidiaries Acquisitions of subsidiary sale from Proceeds venture joint in of interest sale from Proceeds associates and ventures by joint repayments Loan Amortisation of intangible assets of intangible Amortisation Depreciation of property, plant and equipment Profit onsale of non-consolidated subsidiary associates and ventures joint in interests of sales on Profit Cash, cash equivalents and overdrafts at end of the year the of end at overdrafts and equivalents cash Cash, rate changes exchange of foreign Effect associates and ventures to joint to loans Additions Proceeds of disposal of property, plant and equipment assets to intangible Additions Additions to property, plant and equipment associates and ventures joint from received Dividends activities investing by) from/(used flows Cash Net by)/fromoperatingactivities cash (used Share-based payments expense payments Share-based Employment related deferred consideration Interest paid received Interest Cash by)/fromoperations (used benefits employee and provisions in Movement in payables (Decrease)/increase in receivables Decrease/(increase) in inventories Decrease/(increase) Cash from operations before changes in working capital and provisions

Annual Report 2012 83 Report Annual PLC Group Costain Notes 13 13 13 13 15 15 12 11 7 8 7 4 4 4 4 5 105.7 105.7 (22.3) 140.1 140.1 (34.4) (10.5) 2. ) (27.3 (23.1) (48.1) 29.2 29.2 24.2 24.2 27.6 27.6 (6.2) (6.2) (0.8) (6.5) (5.4) 2012 (1.8) (5.1) 0.1) ( 2.3 2.3 2.9 2.9 0.6 0.6 0.6 0.6 0.6 0.6 1.8 1.8 1.9 1.9 1.4 1.4 1.0 1.0 1.7 1.7 4.1 £m – – – – – – – 144.3 140.1 140.1 (34.8) (13.5) (34.1) 21.1) ( (10.1) 34.8 34.8 32.2 32.2 25.0 25.0 34.7 34.7 18.7 18.7 7927.9 (0.3) (5.8) (0.5) (2.9) 2011 (4.3) (4.3) (1.0) 0.1) ( (1.7) 5.2 5.2 0.2 0.2 0.3 0.3 0.5 0.5 7.1) ( 0.9 0.9 0.4 0.4 0.7 0.7 1.3 1.3 1.5 1.5 1.8 1.8 1.9 1.9 1.9 1.9 1.4 1.4 0.1 0.1 £m

Other information Financial Corporate Business review Overview statements Governance 84 Costain Group PLC Annual Report 2012

Financial statements Company cash flow statement Year ended 31 December

2012 2011 Notes £m £m Cash flows from operating activities Profit/(loss) profit for the year 1.0 (2.5) Adjustments for: Finance income (2.2) (2.3) Finance expense 0.3 0.4 Income tax ( 0.1) (0.6) Loss on sale of investment 0.7 – Amount written off investments – 3.5 Cash used by operations before changes in working capital and provisions (0.3) (1.5)

Increase in receivables (3.5) (2.3) Decrease in payables (23.4) (10.4) Movement in provisions (0.3) 0.1 Cash used by operations (27.5 ) (14.1) Interest received 0.6 0.3 Interest paid (0.3) (0.4) Income tax received 0.1 0.6 Net cash used by operating activities (27.1) (13.6)

Cash flows from investing activities Dividends received 1.6 2.0 Net cash from investing activities 1.6 2.0

Cash flows from/(used by) financing activities Issue of ordinary share capital – 1.5 Ordinary dividends paid (6.2) (5.8) Net cash used by financing activities (6.2) (4.3)

Net decrease in cash and cash equivalents (31.7) (15.9)

Cash and cash equivalents at beginning of the year 15 61.7 77.6 Cash and cash equivalents at end of the year 15 30.0 61.7

Notes to the financial statements Notes financial to the Note. this in later discussed are year next the in adjustment material of risk asignificant with estimates and statements financial on the effect asignificant have that of IFRS application the in by management made Judgments estimates. these from differ may results Actual sources. other from apparent readily not are that liabilities and of assets values carrying about judgments the of making basis the form of which results are believed to be reasonable under the circumstances, the that factors other various and experience historical on based are assumptions associated and estimates The expenses. and income liabilities, and of assets amounts reported and of policies application the affect that assumptions and estimates to judgments, make management requires IFRS with conformity in statements of financial preparation The statement under a separate column headed ‘Other items’. income the in reported are consideration deferred related amortisation of acquired intangible assets and employment related Acquisition by IFRS. required as value fair their at stated are instruments financial derivative and assets financial that except basis, cost historical the on prepared are statements rounded to the hundred nearest thousand. financial The sterling, in Pounds presented are statements financial These Basis of preparation statements. financial approved of these apart form that notes related and statement income individual its tonot present 2006 Act Companies of the 408 Section in exemption of the advantage taking is Company the statements, financial Group the with here together statements financial Company parent the publishing On interpretations. related their and IFRS’) EU (‘Adopted by the adopted as Standards Reporting Financial International with accordance in directors by the approved and prepared been have statements financial consolidated Group the and statements financial Company the Both policies accounting significant of 2 Summary 2013. 6March on directors by the issue for authorised were statements financial The Group. its about not and entity aseparate as financial statements present informationabout theCompany company parent The operations. controlled jointly and entities controlled jointly associates, Group’s in the interests and 2012 Group the 31 December comprise ended year the for Company of the statements financial consolidated The statements. financial of these section review Business the in described are Group’) to ‘the as referred (collectively undertakings subsidiary its and Company of the activities principal The Report. Annual of this page last the on disclosed is business of place principal and office registered its company incorporated in the United Kingdom. The address of limited apublic is Company’) PLC (‘the Group Costain 1 General information

• • • • Group: the 2012 to material 31 not are December but ended year the for effective are interpretations and standards following The statements. Company to each presented period in these financial the and Group by the consistently applied been stated, otherwise have, unless below out set policies accounting The Accounting policies statements. financial these preparing in basis concern going the to adopt continue they despite the economic outlook. current uncertain Accordingly, successfully risks business its to manage placed well is Group reasonable downside sensitivities, the directors believe that the reviewed the latest projections, including the application of Having facilities. bonding available its and opportunities future and book order Group’s the current requirements, these considered have directors The 2009. October in Council 2009’Companies published by the Financial Reporting of UK Directors for Guidance Risk: Liquidity and Concern The directors have acknowledged the guidance ‘Going quarterly. are tested which one, aprofit-based including covenants, financial have facilities companies. These surety and banks from facilities bonding committed its by utilising requirements these satisfies It bonds. other and performance to provide required sometimes is it operations, contracting of its part As earnings. retained and capital shareholders’ from provided balances cash uses it requirements, Kingdom. capital ToUnited day-to-day working its meet the across mainly of customers, anumber with contracts The Group’s principal business activity involves long-term Notein and 16. statements financial of these section review Financial in the described are risk financial and capital its managing for processes and policies objectives, its and risk to credit exposure activities, hedging and instruments position, borrowing and bonding facilities, use of financial liquidity flows, cash Group,its of the position financial The statements. financial of these section review Business the in out set are position and performance development, future its to affect likely factors the and activities Group’sThe business Going concern instruments’ IFRIC 19 financial ‘Extinguishing liabilities with equity Estate’ of Real 15IFRIC Construction the ‘Agreements for payment’ to2‘Share-based IFRS Amendments Standards’ Reporting Financial of International Adoption to1‘First-time IFRS Amendments

Annual Report 2012 85 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 86 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

2 Summary of significant accounting policies (e) Jointly controlled operations are those joint ventures continued over which joint control exists, established by contractual Basis of consolidation agreement, which are not legal entities. Where a jointly (a) The Group’s financial statements include the financial controlled operation exists, then the Group entity involved statements of the Company and subsidiaries controlled records the assets it controls, the liabilities and expenses by the Company. Control exists where the Company or it incurs and its share of income. Such jointly controlled one of its subsidiaries has the power, directly or indirectly, operations are reported in the consolidated financial to govern the financial and operating policies of an entity statements on the same basis. Transactions between so as to obtain benefits from its activities. In assessing Group companies and jointly controlled operations control, potential voting rights that presently are exercisable eliminate on consolidation. are taken into account. The financial statements of subsidiaries are included in the consolidated financial (f) Intra-group balances and transactions together with any statements from the date that control commences until unrealised gains arising from intra-group transactions the date that control ceases. are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with (b) Associates are operations over which power exists to associates, jointly controlled entities and jointly controlled exercise significant influence but not control, generally operations are eliminated to the extent of the interest in the accompanied by a share of between 20% and 50% entity or operation. Unrealised losses are eliminated in the of the voting rights. Associates are accounted for using same way as unrealised gains, but only to the extent that the equity method. If the share of losses equals the there is no evidence of impairment. investment, no further losses are recognised, except to the extent that there are amounts receivable that may not be Currency translation recoverable or further commitments to provide funding. Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary (c) Jointly controlled entities are those joint ventures where assets and liabilities denominated in foreign currencies are control is shared with another entity, established by translated to Pounds sterling at the exchange rate ruling contractual agreement. Jointly controlled entities are at the statement of financial position date. Foreign exchange accounted for using the equity method from the date differences arising on translation are recognised in the income that the jointly controlled entity commences until the date statement. that joint control of the entity ceases. If the share of losses equals the investment in the entity, no further losses are The assets and liabilities of foreign operations, including recognised, except to the extent that there are amounts goodwill and fair value adjustments, are translated to receivable that may not be recoverable or further Pounds sterling at exchange rates ruling at the statement commitments to provide funding. of financial position date. The revenues and expenses of foreign operations are translated to Pounds sterling (d) The presentation in the statement of financial position at rates approximating to the exchange rates ruling at the in respect of investments in associates and jointly dates of these transactions. controlled entities restricts the minimum carrying value to £Nil. Where the cost of investment would be negative, Exchange differences arising from the translation of the net due to losses incurred, then an amount up to the value investment in foreign operations and of related hedges are of the negative position is applied to any outstanding loan recognised directly in equity and those that have arisen since balance with the investment or, where future funding 1 January 2004, the date of transition to IFRS, are presented commitments exist, a provision is made up to the value as a separate component of equity. Cumulative exchange of the commitment. Any such transfers of excess losses differences are released into the income statement upon from the carrying value of investments are shown within disposal. Translation differences that arose before the date reclassifications in Note 13. of transition to IFRS in respect of all foreign operations are not presented as a separate component. associated with the transaction will flow to the Group. Group. flow to the will transaction the with associated benefits economic the that probable is it and reliably measured be can of revenue to buyer, the amount the transferred been have goods of the of ownership rewards and risks significant the when recognised is of goods sale the from Revenue revenue Other (b) contracts. long-term on balances credit in included is amount the performed, of work value the exceeds customers from received cash Where receivables. trade in included are to customers billed and valued Amounts capacity. operating normal on based overheads variable and of fixed allocation related directly to projects specific and an appropriate expenditure all includes Cost work. contract for customers from due amounts in included is and billed amounts less and recognised to date a less provision for foreseeable losses profit plus cost at stated is progress in work Construction expense immediately. an as recognised is loss expected the revenue, contract total exceed will costs total contract that probable is it When are incurred. they which in period the in expenses as recognised are costs Contract recoverable. be will costs those probable is it where incurred costs of contract to extent the recognised is revenue contract reliably, estimated be cannot contract a construction of outcome the customer. the When from recovered be will probable that the amount, which can be measured reliably, is it where revenue in included are claims and Variations of completion. stage of the representative be not would this where except total costs, estimated the to to daterelative performed work the for incurred costs of contract to proportion the by reference assessed is completion of date.Stage position of financial statement the at activity contract of the of completion to stage the by reference recognised are costs and revenue profitable, be will contract the that probable is it and reliably estimated be can contract of along-term outcome year. the the Where during provided of services value the on and contracts construction on performed of work value the in increase from arises Revenue Long-term contracts (a) contracts. long-term from Group’sof arises the revenue Most operations. controlled of jointly of revenue share the includes and tax added of value net receivable, or received consideration of the value fair the at measured is Revenue Revenue recognition continued policies of accounting significant 2 Summary

disposal of the business to which it relates. it to which business of the disposal included whendetermining the profit or losson subsequent is Goodwill losses. impairment accumulated less cost at carried is and impairment for annually reviewed is Goodwill statement. to income the expensed are of acquisitions costs attributable The assets. non-current in goodwill arising on the acquisition of subsidiaries is included and entity acquired of the liabilities contingent and liabilities assets, identifiable the over consideration of the value fair of the excess the represents acquisitions on arising Goodwill Goodwill and other intangible assets incurred. as expensed are activities development and research to relating as classified Costs Research and development relate. costs the to which contract construction of the life the over recognised is credit the venture, joint or associate an as for accounted is interest that and retained is vehicle purpose a special in interest an When statement. to income the credited are capitalised previously not were that recovery this within costs pre-contract and vehicle purpose special the from recovered are costs contracts, on PFI achieved is close financial When work. contract for customers from due amounts in included and position of financial statement the in forward carried are close dateto dateof financial that the from incurred costs secured, is status bidder preferred when usually awarded, be will acontract that probable is it When incurred. as off written are contracts for bidding with associated Costs costs Pre-contract lease. of the term the over basis astraight-line on income total rental of the part integral an as recognised are incentives Lease lease. of the term the over basis straight-line a on statement income the in recognised is income Rental provided. is service the when recognised is contracts services other from Revenue

Annual Report 2012 87 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 88 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

2 Summary of significant accounting policies Impairment of non-financial assets continued For the purposes of impairment testing, goodwill is allocated Goodwill and other intangible assets continued to each of the cash generating units expected to benefit from Other intangible assets comprise acquired intangible assets: the synergies of the combination. Cash generating units to customer relationships, order book and brand and computer which goodwill has been allocated are tested for impairment software. Customer relationships and other intangibles annually, or more frequently when there is an indication that acquired are measured at the present value of cash flows the unit may be impaired, If the recoverable amount of the attributable to the relationship less an appropriate contributory cash generating unit is less than the carrying amount of the asset charge. Computer software is carried at cost; unit, the impairment loss is allocated first to reduce the subsequent expenditure is capitalised only when it increases carrying amount of any goodwill allocated to the unit and the future economic benefits embodied in the specific asset then to other assets of the unit pro-rata on the basis of the to which it relates, otherwise expenditure is expensed carrying amount of each asset in the unit. An impairment loss as incurred. recognised for goodwill is not reversed in a subsequent period.

Amortisation begins when an asset is acquired or, in the The carrying amounts of other assets, except inventories case of computer software, available for use and is calculated and deferred tax assets, are reviewed at each statement of on a straight-line basis to allocate the cost of the assets over financial position date to determine whether there is any their estimated useful lives. indication of impairment. If any such indication exists, the assets recoverable amount is estimated. Property, plant and equipment Property, plant and equipment is carried at cost less An impairment loss is recognised whenever the carrying accumulated depreciation and impairment losses. Where amount of an asset, or its cash-generating unit, is less than parts of an item of property, plant and equipment have the recoverable amount. Impairment losses are recognised different useful lives, they are accounted for as separate items. in the income statement. Cost comprises purchase price and directly attributable costs. Freehold land is not depreciated. For all other property, plant An impairment loss is reversed if there has been a change and equipment, depreciation is calculated on a straight-line in the estimates resulting in the recoverable amount rising basis to allocate cost less residual values of the assets over above the impaired carrying value of the asset. An impairment their estimated useful lives as follows: loss is reversed only to the extent that the carrying amount of the assets does not exceed the carrying amount that would Freehold buildings 50 years have been determined, net of depreciation or amortisation, Leasehold buildings Shorter of 50 years or lease term if no impairment loss had been recognised. Plant and equipment Remaining useful life (generally 3 to 10 years) Provisions A provision is recognised in the statement of financial position The assets’ residual values and useful lives are reviewed when there is a legal or constructive obligation as a result and adjusted, if appropriate, at each statement of financial of a past event and it is probable that an outflow of economic position date. benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the Investments – Company expected future cash flows at a pre-tax rate that reflects Company investments in subsidiaries are carried at cost less current market assessments of the time value of money and, impairment losses less any pre-acquisition dividends received. where appropriate, the risks specific to the liability.

PFI investments A provision for onerous contracts is recognised when the The Group has interests in PFI investments held through expected benefits to be derived from a contract are lower joint ventures and associates. These arrangements, whereby a than the unavoidable cost of meeting the obligations under private sector operator participates in the development, the contract. financing, operation and maintenance of infrastructure for public services, are accounted in accordance with IFRIC 12. Under this interpretation, the infrastructure assets within the Group’s investments are recognised as financial assets because the operator has an unconditional right to receive a specified amount of cash or other financial asset over the life of the agreement. The operator recognises investment income in respect of the financial asset on an effective interest basis. straight-line basis. a on term lease the over expense of rental areduction as recognised are leases into to operating enter incentives Any term. lease the over basis astraight-line on statement income the in expense an as recognised are leases operating under made Payments leases. operating comprise principally Leases Leases dividend. related to the pay liability the as time same the at recognised are of dividends distribution the from arising taxes Additional equity. in with dealt also is tax deferred the case which to in equity, directly credited or charged to items relates it when except statement income the in credited or charged is tax date. Deferred position of financial statement the at enacted substantially or enacted those on based rates tax the at calculated is tax Deferred future. foreseeable the in reverse not will difference temporary the that probable is it and difference temporary of the reversal the to control able is Group the where except ventures, joint in interests and subsidiaries in investments on arising Deferred liabilities are tax recognised for differences temporary accounting profit. the nor profit taxable the neither affects that atransaction in combination, abusiness in than other liabilities, and assets other or of goodwill recognition initial the from arises difference temporary the if recognised not are liabilities and assets Such date. position of financial statement each at reviewed is assets tax of deferred amount carrying The utilised. be can available against which deductible differences temporary be will profits taxable future that probable is it that extent to the recognised are assets tax deferred and below out set exemptions specific those for except differences temporary all for recognised generally are liabilities tax Deferred method. accounted for using the statement of financial position liability is and profit of taxable computation the in used bases tax corresponding the and statements financial the in liabilities and of assets amounts carrying the between differences on recoverable or to payable be expected tax the is tax Deferred date. position of financial statement by the enacted substantively or enacted been have that laws and rates tax using calculated is tax current for liability The deductible. or taxable never are that items excludes further it and years other in deductible or taxable are that expense or of income items excludes it because statement income the in reported as tax before profit from year.the differs profit Taxable for profit taxable the on based is payable currently tax The tax. Deferred and payable currently tax Overseas and tax corporation Kingdom of United sum the represents expense tax The Taxation continued policies of accounting significant 2 Summary

financial position date. of statement the at assets of scheme value fair the less obligations benefit defined of the value present the is scheme financial position in respect of thedefined benefit pension of statement the in recognised liability The to liability. the a highcorporate quality bond of equivalent term and currency on rate of return current the at discounted and method unit Pension scheme liabilities are measured using a projected Pension scheme assets are measured using market values. Group. of the those from separately held are scheme Note 19. in of the assets The included are details The salary. Kingdom, which provides benefits basedon pensionable A definedbenefit pension scheme isoperated in the United Retirement benefit obligations equity. in directly recognised being credit corresponding the with statements, payment charge recognised in its subsidiaries’ financial share-based to equity-settled the equivalent subsidiaries its in investment of cost in the increase an statements financial its in recognises Company the of subsidiaries, employees to Company the in shares over granted are options Where model. pricing option of aBlack-Scholes use by the measured is date. value Fair position of financial statement each at determined value fair current its at recognised is received services of the to portion the equal a liability payments, share-based cash-settled For vest. eventually will that of awards estimate the on based period, vesting the over expensed is value fair the and dateof grant the at value fair at measured are payments share-based Equity-settled compensation plans. compriseThese equity-settled and cash-settled share-based payments Share-based statements. financial Note 10 the in to the disclosed are but recognised not are which they are declared. proposed Dividends but not declared in period the in distributions as recognised are Dividends Dividends proceeds. the from of tax, net adeduction, as equity in shown are options or shares of new to issue the attributable directly costs Incremental equity. as classified are shares Ordinary Share capital required. be will guarantee the under apayment that probable becomes it as time such until liability acontingent as treated is contract guarantee the respect, this In such. as them for accounts and arrangements to insurance be these considers Company the Group, the within companies of other indebtedness the to guarantee contracts guarantee into financial enters Company the Where contracts Financial guarantee Annual Report 2012 89 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 90 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

2 Summary of significant accounting policies Trade and other receivables continued Trade and other receivables do not carry interest and are Retirement benefit obligations continued stated at their initial value less impairment losses. Any increase in the present value of the liabilities of the defined benefit pension scheme arising from employee service is Impairment of financial assets charged to profit from operations in the period. The expected Estimated recoverable amounts are based on the ageing return on the scheme’s assets and the increase during the of the outstanding receivable and provisions against individual period in the present value of the scheme’s liabilities arising receivables are recognised when management deems the from the passage of time are included in finance income and amounts are not collectible. finance expense respectively. Actuarial gains and losses are recognised in the consolidated statement of comprehensive Cash and cash equivalents income. Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and Obligations for contributions to defined contribution pension form an integral part of the Group’s cash management are plans are recognised as an expense in the income statement included as a component of cash and cash equivalents for as incurred. the purpose of the statement of cash flows.

Financial assets and liabilities Investments Financial assets and financial liabilities are recognised in Investments are recognised and derecognised on the trade the Group’s statement of financial position when the Group date where the purchase or sale of an investment is under becomes a party to the contractual provisions of the instrument. a contract whose terms require delivery of the investment within the timeframe established by the market concerned. (a) Financial assets Investments are measured initially at fair value plus transaction Financial assets are classified as available-for-sale financial costs. assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is (b) Financial liabilities determined at the time of initial recognition. Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are A financial asset is derecognised only when the contractual subsequently measured at amortised cost using the effective rights to the cash flows from that asset expire, or it transfers interest method, with interest expense recognised on an the financial asset and substantially all the risks and rewards effective yield basis. Where borrowings are the hedged item of ownership of the asset to another entity. in an effective fair value hedge relationship, the carrying value is adjusted to reflect the fair value movements associated with Effective interest method the hedged risk. The effective interest method is a method of calculating the amortised cost of a financial asset and of allocating interest Financial liabilities are derecognised only when the obligations income over the relevant period. The effective interest rate is are discharged, cancelled or expire. the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where Trade payables appropriate, a shorter period. Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective Loans and receivables interest method. Loans and other receivables with fixed or determinable payments that are not quoted in an active market are classified (c) Derivative financial instruments as loans and receivables and measured at amortised cost Derivative financial instruments are used to manage risks using the effective interest method, less any impairment. arising from changes in foreign exchange rates, interest rates Interest income is recognised by applying the effective interest and inflation and are measured at their fair value. The fair value rate, except for short-term receivables when the recognition of forward exchange contracts is their quoted market value of interest would be immaterial. at the statement of financial position date. The fair value of interest rate and RPI swaps is the estimated amount that would be received or paid to terminate the swap at the statement of financial position date. Valuations for forward exchange contracts and interest rate and RPI swaps are determined using valuation techniques supported by reference to market values for similar transactions. and future periods. current both affects revision the if periods future and revision of the period the in or period, that only affects revision the if revised is estimate the which in period the in recognised are estimates to accounting Revisions basis. ongoing an on reviewed are statements financial of these preparation the in used assumptions underlying and estimates The estimation and judgment of areas Significant statement. income the in recognised are hedges as designated not instruments financial derivative of value fair in changes from arising losses or gains Any statement. to income the transferred is loss or gain to occur, cumulative net the expected longer no is transaction hedged the If occurs. transaction hedged the until or loss previously recognised inis equity retained in equity gain cumulative Any accounting. hedge for qualifies longer no or exercised, or terminated sold, is or expires instrument hedging the when discontinued is accounting Hedge statement. income the affects flow cash hedged the which in period same the in statement to income the transferred are equity in recognised are that losses or gains the hedges, flow cash other all For liability. or asset of the measurement initial the in gains or losses previously recognised inare equity included recognition of a non-financialasset or liability, theassociated in the result flows cash hedged When statement. income the in portion ineffective any with equity, in recognised is hedge effective to an be determined is that instrument hedging on the loss or gain of the portion the hedges, flow cash For hedged item. of the amount carrying the against adjusted and statement income the in recognised is value fair at instrument hedging the re-measuring from loss or gain any hedges, value fair For • • and classified as follows: hedges in line with established risk management policies as designated are instruments financial derivative Certain Derivative(c) financial instruments continued continued policies of accounting significant 2 Summary with a recognised asset or liability or a forecast transaction. aforecast or liability or asset arecognised with associated risk particular a either to attributable is that flows cash in to variability exposure hedge that hedges flow Cash or liability; or asset of arecognised value fair the in to changes exposure the hedge that hedges value Fair

are set out in Note 11. in out set are selection of discount rates used to calculate present values the and assets of intangible lives useful the units, generating cash of flows cash future and rates of growth respect in recognised on acquisition requires judgments, principally, assets intangible and of goodwill value carrying the Reviewing statements. financial in these reflected been have necessary, considered if provisions, and valuations, of external use the including undertaken, was assets marina of the value carrying of the and holdings land of its of each value realisable net of the a review 2012, At 31 December agreement. concession a long-term under amarina operates and developed also has company The assets. non-current and current its within property and land holds and market estate real Spanish the in operates Group’s of the ventures, one joint SA, Holding Alcaidesa statements. financial in the reflected then is estimates accounting the in change of any impact The procedures. review internal and significantare changes highlighted throughestablished regularly updated are date to earned loss or profit the and position contract of the estimates The to complete. costs of the forecasts and valuations contract detailed includes contractual obligation on the latest available information, this long-term of each outcome expected of the assessment its and revenues and of costs judgments its bases Management resolved. are uncertainties and unfold events as to revised be need may and events of future outcome the on depend that of uncertainties by anumber affected be may revenues and costs the Also, contractual obligations span more than one financialperiod. these cases, many In revenues. and costs contract for made 11, IAS to with be estimates accordance in requires which for accounted are contracts these and contracts long-term via undertaken are Group’s of the activities majority The Note 19. in out set are qualified actuary.The assumptionsand resultant sensitivities independent an from advice take directors the assumptions, appropriate the selecting in year Each valuation. the underpin that longevity member and returns investment increases, pension future inflation, for to assumptions the relation in Definedbenefit pension schemes require significant judgments assets. intangible acquired and of goodwill value carrying the and of land value carrying of the assessments contracts, 11 IAS under Construction contracts long-term for accounting benefitpension schemes under IAS 19 Employeebenefits, the defined for accounting the from arise estimation and judgment of areas significant and policies accounting critical most The Annual Report 2012 91 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 92 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

2 Summary of significant accounting policies • IFRS 11 ‘Joint Arrangements’ – this could result in changes continued to the classification of certain jointly controlled operations IFRSs not applied where the Group accounts for its share of the individual The following IFRSs having been endorsed, will be applicable assets or liabilities to being equity accounted as associates in the future: or joint ventures. It will not affect the Group’s profit for the period or net assets. It will be effective for 2014, being • Amendments to IAS 1 ‘Presentation of Items of Other adopted as a ‘suite of standards’ (with IFRS 10 and 12). Comprehensive Income’ – requires an entity to present the items of other comprehensive that may be recycled to profit • IFRS 12 ‘Disclosure of Interests in Other Entities’ – requires or loss in the future if certain conditions are met, separately the disclosure of information that enables users of financial from those that would never be recycled to profit or loss. statements to evaluate the nature of, and risk associated Consequently, as the Group presents items of other with, its interests in other entities and the effects of those comprehensive income before related income tax effects the interests on its financial position, financial performance and aggregated income tax amount would need to be allocated cash flows. This is not expected to have a significant impact between those sections. It will be effective for 2013. on the financial statements. It will be effective for 2014, being adopted as a ‘suite of standards’ (with IFRS 10 and 11). • IAS 19 (Revised) ‘Employee Benefits’ – this amendment will require the financing cost of a defined benefit scheme • IFRS 13 ‘Fair Value Measurement’ – defines fair value with to be calculated on the net surplus or deficit. It will increase a single definition in a new standard replacing existing the net pension interest expense. It will be effective for 2013. guidance on fair value measurement in different IFRSs, Had it been effective for 2012, operating profit would have providing a framework for measuring fair values and been reduced by £0.6 million and pension interest expense disclosures about fair value measurements. This is not increased by £0.8 million with a corresponding increase in expected to have a significant impact on the financial other comprehensive income. This change has no impact statements. It will be effective for 2014. on the pension deficit or cash. The following IFRSs have not been endorsed, but may be • IAS 27 (Revised) ‘Separate Financial Statements’ will be applicable in the future: effective from 2014. This is not expected to have an impact on the financial statements. • IFRS 9 ‘Financial Instruments’ – classification of financial assets for measurement purposes. This is not expected • IAS 28 (Revised) ‘Investments in Associates and Joint to have a significant impact on the financial statements. Ventures’ will be effective from 2014. This is not expected The earliest adoption will be 1 January 2015 if adopted by to have an impact on the financial statements. the EU from this date. • Amendment to IAS 32 ‘Financial Instruments: Presentation’ – Offsetting Financial Assets and Financial Liabilities’ – this amendment clarifies the application of offsetting criteria in financial statements. This is not expected to have a significant impact on the financial statements. It will be effective for 2014. • ‘Amendments to IFRS 7 ‘Financial Instruments: Disclosures’ – Offsetting Financial Assets and Financial Liabilities’ – this amends the disclosure requirements in respect of financial instruments that are set-off in accordance with guidance in IAS 32. This is not expected to have a significant impact on the financial statements. It will be effective for 2013. • IFRS 10 ‘Consolidated Financial Statements’ – this now provides a single model establishing principles for the presentation and preparation of consolidated financial statements when an entity controls one or more other entities. This is not expected to have a significant impact on the consolidated financial statements. It will be effective for 2014, being adopted as a ‘suite of standards’ (with IFRS 11 and 12). Profit/(loss) from operations Profit/(loss) Employment related deferred consideration Amortisation (including acquired (including Amortisation intangible assets) Depreciation is statedSegment profit/(loss) charging after tax before Profit expense finance Net Amortisation ofAmortisation acquired intangible assets Other items: from operationsbefore other itemsProfit/(loss) Share of results of joint ventures and associates associates and ventures of joint of results Share Profit on sales of interests in joint ventures and associates and ventures joint in interests of sales on Profit Pension liability management Operating profit/(loss) Segment profit/(loss) Total segment revenue Share of revenue of joint ventures and associates associates and ventures of joint of revenue Share External revenue Segment revenue 2012 material. not are transfers and sales Intersegment basis. areasonable on allocated be can that those as well as to asegment attributable directly items include Executive to Chief the reported are that results segment The expense. tax income and interest before operations from loss or of profit basis the on performance segment evaluates Group The policies. accounting of significant summary the in described those as same the are segments operating of the policies accounting The below. out set 2012 as to up However, 31 reported December were results the Resources. Natural and Infrastructure segments, 2013 main two have we will 1January from that 17 page on Executive’s review weannounced have Chief the in discussed As financial statements. of these section review Business the in discussed are maker. segments The decision operating chief the is who Executive to Chief the provided is information This services. different offer or customers core different have and director managing to asegment reporting management separate with units business strategic are segments The Spain. in operations Development Land and &Process Energy Infrastructure, Environment, segments: business four on based is information Segment segments 3 Operating the following:

Environment 232.6 232.6 148.5 148.5 10.5 10.5 15.0 15.0 15.0 15.0 84.1 84.1

0.9 0.9 3.6 3.6 1.7 1.7 £m – – – – Infrastructure 562.3 562.3 562.3 562.3 23.6 23.6 26.1 26.1 26.1 26.1 (0.9) (1.6) 0.3 0.3 1.6 1.6 £m – – – – & Process Energy 137.6 137.6 137.7 137.7 (0.8) (0.1) ( 2.5 2.5 2.5 2.5 0.2 0.2 0.3 0.3 0.1 0.1 1.6 1.6 Annual Report 2012 93 Report Annual PLC Group Costain £m – – – Development (2.3) (2.3) (2.3) Land 1.9 1.9 1.9 1.9 £m – – – – – – – – Central (2.8) (9.9) costs (9.9) (7.1) £m – – – – – – – – – 848.4 934.5 934.5

28.0 28.0 10.5 10.5 26.1 26.1 86.1 86.1 31.4 31.4 25.1 25.1 (2.8) (1.9) (1.4) (1.7) (1.7) Total 2.3 2.3 1.8 1.8

£m

Other information Financial Corporate Business review Overview statements Governance 94 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

3 Operating segments continued

Energy Land Central Environment Infrastructure & Process Development costs Total £m £m £m £m £m £m Segment assets Reportable segment assets 56.4 135.6 40.9 36.0 – 268.9 Unallocated assets: Deferred tax 17.4 Cash and cash equivalents 107.4 Total assets 393.7

Expenditure on non-current assets Property, plant and equipment 0.2 0.5 0.1 – – 0.8 Intangible assets 0.1 – 0.1 – – 0.2 Loans to joint ventures and associates 2.2 – – 3.2 – 5.4

Segment liabilities Reportable segment liabilities 94.2 151.0 50.2 – 11.2 306.6 Unallocated liabilities: Retirement benefit obligations 51.9 Overdrafts 1.7 Income tax 1.7 Total liabilities 361.9

Energy Land Central Environment Infrastructure & Process Development costs Total 2011 £m £m £m £m £m £m Segment revenue External revenue 281.8 448.5 138.2 – – 868.5 Share of revenue of joint ventures and associates 93.6 17.5 5.2 1.5 – 117.8 Total segment revenue 375.4 466.0 143.4 1.5 – 986.3

Segment profit/(loss) Operating profit/(loss) 16.1 10.2 4.6 – (6.8) 24.1 Profit on sale of non-consolidated subsidiary 0.5 – – – – 0.5 Profit on sale of interest in joint venture 0.3 – – – – 0.3 Share of results of joint ventures and associates 0.6 – 0.1 (2.0) – (1.3) Profit/(loss) from operations before other items 17.5 10.2 4.7 (2.0) (6.8) 23.6 Other items: Amortisation of acquired intangible assets – (0.7) (0.2) – – (0.9) Employment related deferred consideration – (0.3) (0.4) – – (0.7) Profit/(loss) from operations 17.5 9.2 4.1 (2.0) (6.8) 22.0 Net finance income 1.9 Profit before tax 23.9

Segment profit/(loss) is stated after charging the following: Depreciation 0.1 1.3 0.5 – – 1.9 Amortisation (including acquired intangible assets) – 0.7 0.2 – – 0.9

Loans to joint ventures and associates and ventures to joint Loans Intangible assets assets. of the location geographical the on based are assets Segment of customers. location geographical the on based is revenue segment segments, of geographical basis the on information presenting In Geographical information Total liabilities tax Income Overdrafts Retirement benefit obligations Unallocated liabilities: segment liabilities Reportable Segment liabilities of £116.0 revenue for accounted (2011: segment million (2011: customer Infrastructure the £155.4One in one) million). revenue of 10% than more for accounting Customers Property, plant and equipment onExpenditure non-current assets Total assets equivalents cash and Cash tax Deferred Unallocated assets: Rest of the World of the Rest 3 Operating segments continued segments 3 Operating Spain United Kingdom segment assets Reportable Segment assets

Environment 138.4 138.4 10.3 10.3 77.8

£m – –

Infrastructure 165.0 122.3 122.3 16.6 16.6

3.4 3.4 £m –

934.5 934.5 910.2 910.2 22.4 22.4 2012 1.9 1.9 £m Revenue & Process Energy Energy 49.7 49.7 45.1 4.5 4.5 0.4 0.4 Annual Report 2012 95 Report Annual PLC Group Costain £m –

986.3 957.9 Development 26.9 26.9 2011 1.5 1.5 £m 35.9 35.9

Land 3.2 3.2 0.1 0.1 £m – –

Non-current assets 103.1 103.1 36.0 36.0 65.0 65.0 2012 2.1 2.1 £m Central costs 0.2 0.2 0.2 0.2 £m – – –

409.6 409.6 353.4 108.4 108.4 281.3 281.3 440.4 141.7 68.8 68.8 52.9 52.9 13.5 13.5 3. 37.3 21.1 21.1 17.4 3.8 3.8 2011 2.3 2.3 Total 1.6 1.6 1.7 1.7 £m £m

Other information Financial Corporate Business review Overview statements Governance 96 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

4 Other operating expenses and income

2012 2011 £m £m Profit before tax is stated after charging: Amortisation of intangible assets (Note 11) 1.8 0.9 Depreciation of property, plant and equipment (Note 12) 2.3 1.9 Hire of plant and machinery 26.8 23.1 Rent of land and buildings 4.0 3.2 and after crediting: Profit on sale of non-consolidated subsidiary – 0.5 Profit on sales of interests in joint ventures and associates 10.5 0.3 Income from rent of land and buildings 1.1 1.4

In February 2012, the Group transferred two PFI investments to The Costain Pension Scheme for £20.3 million. As a result of this transfer, £4.0 million of fair value adjustments on the PFI financial assets relating to cash flow hedges was recycled through the income statement, making up part of the profit of £10.5 million.

In April 2011, the Group sold its interest in its Zimbabwe based contracting business, Ceezed Construction (Private) Limited, for net proceeds of £0.5 million. In October 2011, the Group disposed of its interest in the assets of China Harbour-Costain Mexico S de RL de CV for net proceeds of £0.3 million.

Auditors’ remuneration The Companies (Disclosure of Auditor Remuneration and Liability Limitation Agreements) (Amendment) Regulations 2011 is mandatory for periods starting on/after 1 October 2011. The comparatives in respect of the disclosures of Auditor Remuneration have been restated accordingly.

2012 2011 £m £m Fees payable to the Group’s auditor for the audit of the annual financial statements 0.1 0.1 Fees payable to the Group’s auditor and its associates in respect of: – Audit of financial statements of subsidiaries of the Company 0.3 0.3 – Other tax advisory services 0.1 0.1 – Corporate finance services 0.3 0.6 0.8 1.1

Amounts paid to the Company’s auditor 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.

5 Employee benefit expense

2012 2011 Group £m £m Wages and salaries 153.7 139.9 Social security costs 16.1 14.9 Pension costs (Note 19) 8.1 5.3 Share-based payments expense (Note 19) 2.9 1.9 180.8 162.0

2012 2011 Average number of persons employed Number Number Environment 809 1,128 Infrastructure 2,129 1,615 Energy & Process 1,323 1,394 Central 22 22 4,283 4,159

Company The Company does not employ any personnel, except for the directors considered in Note 6.

joint accounted equity in investments from receivable interest loan to shareholder relates parties to related loans on income Interest (expense)/income Net finance ventures Finance expense (Note 19) obligations and benefit defined of the value present the on cost Interest associates. 8 Income tax (expense)/income 7 Net finance report. remuneration Directors’ the in included are options share and Plans Bonus Share Long-Term Deferred the in Plans, interest Incentive entitlements, pension remuneration, directors’ of the Details 6 Remuneration of directors Interest payable on bank overdrafts and other similar charges similar other and overdrafts bank on payable Interest Finance income Expected return on definedbenefit pension (Notescheme assets 19) parties to related loans on income Interest Income expense tax in theconsolidatedincome statement years of prior respect in Adjustments losses and profits overseas and taxation to deferred relating Rate adjustments Utilisation of previously unrecogniseddifferences temporary losses capital by relieved profits and gains Non-taxable Disallowed provisions and expenses 24.5% at (2011: associates and ventures of joint 26.5%) of results Share 24.5% at tax (2011:Income 26.5%) tax before Profit Tax reconciliation Income expense tax in theconsolidatedincome statement year the for charge tax Deferred years of prior respect in Adjustment year current for charge tax Deferred year the for credit tax Current 24.5% at years tax (2011: of prior corporation respect in Kingdom 26.5%) –Adjustment United year the for profit On deposits bank from income Interest (2011: million £5.3 were million). £5.8 Kingdom, United the in mainly forward, carried losses tax Accumulated periods. outstanding of all respect in taxes of £1.7 of income amount the (2011: liabilities tax million represent current Company and £1.7The Group the for million) of tax. net statement income consolidated the in disclosed are results whose associates, and ventures joint accounted equity for amounts any include not does above tax income The tax of rate Effective

Annual Report 2012 97 Report Annual PLC Group Costain (29.2) 7.3% (27.4) 26.3 26.3 26.1 26.1 27.3 27.3 (2.2) (0.2) (2.0) (0.3) (6.4) (1.8) 2012 2012 2012 (1.9) (1.9) (1.9) 2.6 2.6 0.2 0.2 0.3 0.3 0.3 0.6 0.6 1.5 1.5 0.7 0.7 0.1 0.1 0.1 £m £m £m 21.8% (30.5) (32.2) 23.9 23.9 32.3 32.3 34.1 34.1 (6.3) (0.3) (0.3) (5.3) (5.9) (5.2) (5.2) 2011 2011 2011 (1.7) 0.3 0.3 0.3 0.3 0.6 0.6 0.4 0.4 0.4 0.4 0.7 0.7 1.9 1.9 1.4 1.4 0.1 0.1 0.1

£m £m £m

Other information Financial Corporate Business review Overview statements Governance 98 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

8 Income tax continued

2012 2011 Deferred tax asset recognised at 23.0% ( 2011: 25.0 %) £m £m Accelerated capital allowances 1.7 1.9 Short-term temporary differences 3.5 1.8 Retirement benefit obligations 11.9 13.2 Tax losses 0.3 0.5 Deferred tax asset 17.4 17.4

The Company had no deferred tax asset at either year end.

2012 2011 Analysis of deferred tax movements £m £m At 1 January 17.4 20.9

Deferred tax relating to business combinations Transfer in respect of business combinations – 0.8 Transfer in respect of acquired intangible assets – (1.5) – (0.7)

Deferred tax in consolidated income statement Accelerated capital allowances (0.2) (0.4) Short-term temporary differences 2.2 (4.2) Tax losses ( 0.1) (0.2) Retirement benefit obligations (3.9) (0.5) (2.0) (5.3)

Deferred tax in other comprehensive income and expense statement Retirement benefit obligations 2.7 3.0

Deferred tax recognised directly in the consolidated changes in equity statement Short-term temporary differences (0.7) (0.5)

At 31 December 17.4 17.4

(2011: calculation all). shares of ordinary number average weighted diluted the in 2012,At 31 included were December options all Weighted average number of ordinary shares in issue for diluted earnings per share calculation share per earnings diluted for issue in shares of ordinary number average Weighted schemes share employee from arising shares ordinary potential Dilutive calculation share per earnings basic for issue in shares of ordinary number average Weighted below. out set (2011:£24.2 of million profit on shares of based is number share the £18.7and per ofmillion) earnings calculation The 9 Earnings per share Company by parent incurred charges and expenses Management available. are assets tax deferred following the differences, temporary to above the addition In 23.0% at recognised not asset tax Deferred date. position financial of statement at the assured not were benefits economic future their that basis the on year-end the at recognised been not have that operations Kingdom United their in (2011: assets tax deferred potential have Company and Group The charges tax future affect may that Factors continued tax 8 Income 25.0%) Temporary differences Trading losses tax Short-term differences temporary Accelerated capital allowances by asset £1.5 tax million. rate of 2014deferred tax 21.0% the April 1 from proposed reduce the would to reflect reduction A further future. in the arise profits suitable if obtained be will relief tax and recognised, not and recognised assets, tax deferred the with associated dates expiry no are There above. reconciliation tax the in (2011: detailed as million) £0.3 £1.5 was losses million tax trading and differences temporary short-term above the 24.5%, at of using effect, tax year current The Capital losses

Group 63.3 63.3 13.1 13.1 2012 6.5 4.9 4.9 0.9 0.9 0.7 0.7 £m Annual Report 2012 99 Report Annual PLC Group Costain 68.9 68.9 14.2 14.2 2011 0.7 0.7 5.7 0.7 7.1 £m

(millions) Number 65.3 65.3 67.6 55.4 55.4 13.1 13.1 2012 2012 2.3 2.3 Company £m – – – –

Number (millions) 66.3 66.3 64.1 64.1 60.3 60.3 14.2 14.2 2011 2011 2.2 2.2 £m – – – –

Other information Financial Corporate Business review Overview statements Governance 100 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

10 Dividends

Dividend per share 2012 2011 pence £m £m Final dividend for the year ended 31 December 2010 6.25 – 3.9 Interim dividend for the year ended 31 December 2011 3.25 – 2.2 Final dividend for the year ended 31 December 2011 6.75 4.4 – Interim dividend for the year ended 31 December 2012 3.50 2.3 – Amount recognised as distributions to equity holders in the year 6.7 6.1 Dividends settled in shares (0.5) (0.3) Dividends settled in cash 6.2 5.8

A final dividend in respect of the year ended 31 December 2012 of 7.25p per share, amounting to a dividend of £4.7 million, is to be proposed at the Annual General Meeting. If approved, the dividend is expected to be paid on 25 May 2013 to shareholders registered at the close of business on 20 April 2013 and a scrip dividend alternative will be offered. These financial statements do not reflect the final dividend payable.

11 Intangible assets

Customer Other acquired Software & Goodwill relationships intangibles development Total Group £m £m £m £m £m Cost At 1 January 2011 – – – 5.0 5.0 Acquired through business combinations 15.2 4.1 1.7 – 21.0 Other additions – – – 0.1 0.1 At 31 December 2011 15.2 4.1 1.7 5.1 26.1 At 1 January 2012 15.2 4.1 1.7 5.1 26.1 Additions – – – 0.2 0.2 At 31 December 2012 15.2 4.1 1.7 5.3 26.3 Amortisation At 1 January 2011 – – – 4.9 4.9 Provided in year – 0.7 0.2 – 0.9 At 31 December 2011 – 0.7 0.2 4.9 5.8 At 1 January 2012 – 0.7 0.2 4.9 5.8 Provided in year – 1.5 0.2 0.1 1.8 At 31 December 2012 – 2.2 0.4 5.0 7.6

Net book value At 31 December 2012 15.2 1.9 1.3 0.3 18.7 At 31 December 2011 15.2 3.4 1.5 0.2 20.3 At 1 January 2011 – – – 0.1 0.1

The net book value of other acquired intangible assets comprises £0.8 million relating to order book and £0.5 million relating to brand value (2011: £0.9 million and £0.6 million respectively).

Goodwill has been allocated to the applicable cash generating units identified within the Infrastructure (£11.4 million) and Energy & Process (£3.8 million) reporting segments.

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: discount rates, growth rates and expected changes to revenue and direct costs during the period.

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 CGU in Infrastructure was 14% and for the CGU in Energy & Process was 16%.

by a amount. comfortable amounts carrying the exceeded of goodwill value recoverable the valuations, 2012, internal 31 at As these on December based Growth rates Growth acquired businesses: to the attributable rates growth annual of the assessments internal following on the based flows cash those extrapolates and years two following the for forecasts financial recent most the from derived forecasts flow cash prepares Group The continued assets 11 Intangible At 1 January 2011At 1January Cost Group equipment and plant 12 Property, Long-term average 5 Year 3-4 Years 2011At 1January year in Provided 2012At 1January 2011At 31 December Disposals Disposals Additions 2012At 1January 2011At 31 December Acquired through business combinations Disposals Additions At 31 December 2011At 31 December 2012 31At December value book Net 2012 31At December Disposals year in Provided 2011At 1January Depreciation 2012 31At December

Annual Report 2012 101 Report Annual PLC Group Costain buildings Land and Land (0.2) (0.1) ( 0.3 0.3 0.9 0.9 0.9 0.9 0.6 0.6 0.6 0.6 0.2 0.2 0.3 0.3 0.3 0.3 0.9 0.9 0.9 0.9 0.6 0.6 0.6 0.6 0.1 0.1 £m – – – – –

Infrastructure equipment Plant and 22.3 22.3 23.2 23.2 13.5 23.2 23.2 12.1 12.1 (0.9) 10.7 10.7 20.1 20.1 12.1 12.1 (0.5) (1.7) 11.1 11.1 (0.4) 2.3 2.3 8.8 8.8 0.8 0.8 9.4 9.4 2.9 2.9 0.7 0.7 1.8 1.8 2.5 1.5 1.5 £m % & Process Energy Energy 23.2 23.2 12.7 12.7 24.1 24.1 14.1 14.1 (0.9) 21.0 21.0 12.7 12.7 24.1 24.1 11.3 11.3 11.4 11.4 (0.5) (1.7) (0.7) 2.3 2.3 0.8 0.8 0.9 0.9 2.9 2.9 Total 9.1 9.1 9.7 9.7 1.9 1.9 2.5 2.5 1.5 £m %

Other information Financial Corporate Business review Overview statements Governance 102 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

13 Investments and loans in subsidiaries, equity accounted joint ventures and associates

Investments Loans Joint ventures Associates Joint ventures Associates Total Group £m £m £m £m £m Cost or fair value At 1 January 2011 38.8 0.2 10.8 1.5 51.3 Currency realignment (0.7) – (0.3) ( 0.1) (1.1) Additions – – 3.2 10.3 13.5 Repayments – – – (0.4) (0.4) At 31 December 2011 38.1 0.2 13.7 11.3 63.3 At 1 January 2012 38.1 0.2 13.7 11.3 63.3 Currency realignment (0.8) – (0.5) – (1.3) Additions – – 3.2 2.2 5.4 Disposal – – – (9.9) (9.9) Transfer* 17.6 – (16.4) – 1.2 At 31 December 2012 54.9 0.2 – 3.6 58.7 Share of post-acquisition reserves At 1 January 2011 (14.3) (0.8) (15.1) Currency realignment 0.2 – 0.2 Dividends (0.8) (0.6) (1.4) (Loss)/profit for the year (1.8) 0.5 (1.3) Cash flow hedges – change in fair value – (2.8) (2.8) At 31 December 2011 (16.7) (3.7) (20.4) At 1 January 2012 (16.7) (3.7) (20.4) Currency realignment 0.2 ( 0.1) 0.1 Dividends – (0.6) (0.6) (Loss)/profit for the year (2.3) 0.9 (1.4) Cash flow hedges – change in fair value – (0.4) (0.4) Cash flow hedges – disposals – 4.0 4.0 At 31 December 2012 (18.8) 0.1 (18.7) Reclassifications At 1 January 2011 – 2.1 – (0.9) 1.2 Arising in the year – 2.8 – (4.0) (1.2) At 31 December 2011 – 4.9 – (4.9) – At 1 January 2012 – 4.9 – (4.9) – Arising in the year – (3.6) – 4.0 0.4 At 31 December 2012 – 1.3 – (0.9) 0.4

Net book value At 31 December 2012 36.1 1.6 – 2.7 40.4 At 31 December 2011 21.4 1.4 13.7 6.4 42.9 At 1 January 2011 24.5 1.5 10.8 0.6 37.4 * During 2012, the loan to Alcaidesa Holding SA, including outstanding interest, was converted into equity.

associates and ventures joint of liabilities and assets income, revenue, total the of Analysis Group’s the are share. figures All works. construction ongoing relate to commitments capital the and schemes in PFI involved associates relate to commitments financial The (2011: (2011: of 0.2% to 0.4% annum income per are rates of 1.7%interest 0.2% to 0.4%) expense and to 11.5% annum per 2012 in associates £1.7 was and applicable ventures The by (2011: joint payable million interest payable). Net million £2.5 5.4% to 11.5%). joint in Investments Capital commitments Non-current liabilities Current liabilities assets Current Non-current assets year the for (Loss)/profit Financial commitments Income tax Income Non-current liabilities assets Current Non-current assets (Loss)/profit for the year the for (Loss)/profit tax Income tax before (Loss)/profit Revenue Analysis of Group share of joint ventures and associates revenue, income and assets and liabilities and assets and income revenue, associates and ventures joint of share Group of Analysis continued associates and ventures joint accounted equity subsidiaries, in loans and 13 Investments (Loss)/profit before tax before (Loss)/profit Revenue Equity Current liabilities Note 23. in shown are associates and operations controlled jointly ventures, joint undertakings, subsidiary principal of the Details ventures and associates 2012 2012 Holding SA Holding SA Alcaidesa Alcaidesa (20.2) (10.1) 29.5 29.5 36.0 36.0 20.0 20.0 38.7 38.7 59.6 59.6 71.3 71.3 (2.3) (2.3) (6.8) (3.4) (4.6) (4.6) 3.7 3.7 1.9 1.9 £m £m – – – – Other joint Other Other joint Other ventures ventures 126.3 126.3 (15.2) (34.6) 52.9 52.9 15.3 15.3 34.9 34.9 0.1 0.1 0.3 0.3 0.1 0.1 0.1 £m £m – – – – – – – – – – Associates Associates (142.7) 178.5 178.5 (32.2) (10.3) (79) (47.9 58.9 58.9 31.3 31.3 (0.4) 99.1 99.1 (1.8) 2.3 2.3 0.9 0.9 0.9 1.3 1.3 1.6 1.6 2.3 2.3 3.9 3.9 5.9 5.9 5.7 5.7 2.2 2.2 £m £m

(162.9) 103.7 103.7 273.0 273.0 (58.0) (28.9) 229.1 229.1 (73.6) 20.9 20.9 86.1 86.1 37.7 37.7 (0.4) 77.5 41.0 41.0 (1.0) (1.4) (0.6) (1.8) Total Total 2.2 2.2 1.2 1.2 2.3 2.3 £m £m 2011 2011 Holding Holding Alcaidesa Alcaidesa Alcaidesa Alcaidesa (25.5) (50.9) (10.5) 20.9 20.9 31.2 31.2 21.3 21.3 43.0 43.0 62.4 62.4 42.0 42.0 (5.3) (2.0) (2.0) (4.1) (4.1) 1.5 1.5 3.0 3.0

£m

£m SA SA – – – –

Annual Report 2012 103 Report Annual PLC Group Costain Other joint Other joint ventures ventures 176.3 176.3 (30.2) (68.9) 30.3 30.3 80.4 80.4 69.2 69.2 (0.1) ( 0.2 0.2 0.2 0.2 0.1 0.1 0.3 0.3 0.3 0.3 0.4 0.4 £m £m – – – – – – –

Associates Associates (101.9) (328.1) ( 369.3 369.3 113.6 113.6 119.4 119.4 (38.5) (13) (11.3 35.9 35.9 13.4 13.4 (0.3) (0.9) 0.5 0.5 0.8 0.8 3.6 3.6 1.0 1.0 1.4 1.4 3.5 3.5 2.6 2.6 2.4 2.4 5.1 5.1 £m £m

(379.0) (2. ) (127.4 500.9 500.9 298.7 (1. ) (117.9 175.1 175.1 (46.8) 178 117.8 22.8 22.8 13.4 13.4 21.9 21.9 48.4 48.4 44.4 (0.3) (0.2) (1.3) (1.0) (1.0) (1.2) 3.6 3.6 Total Total £m £m

Other information Financial Corporate Business review Overview statements Governance 104 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

13 Investments and loans in subsidiaries, equity accounted joint ventures and associates continued Company Investments in subsidiaries £m Cost At 1 January 2011 392.2 Additions 1.9 At 31 December 2011 394.1 At 1 January 2012 394.1 Additions 2.9 Disposal (32.6) At 31 December 2012 364.4 Amounts written off At 1 January 2011 (269.2) Provided (3.5) At 31 December 2011 (272.7) At 1 January 2012 (272.7) Disposal 3.5 At 31 December 2012 (269.2)

Net book value At 31 December 2012 95.2 At 31 December 2011 121.4 At 1 January 2011 123.0

Additions relate 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.

Details of the principal subsidiaries in which the Company has an interest are set out in Note 23.

14 Trade and other receivables

Group Company 2012 2011 2012 2011 £m £m £m £m Amounts included in current assets Trade receivables 73.0 84.8 – – Other receivables 12.8 15.2 – – Amounts due from customers for contract work 79.0 74.3 – – Prepayments and accrued income 15.9 13.2 0.9 0.9 Amounts owed by joint ventures and associates 0.8 0.5 – – Amounts owed by subsidiary undertakings – – 39.0 7.2 181.5 188.0 39.9 8.1 Amounts included in non-current assets Other 17.5 16.4 – –

At 31 December 2012, amounts due from customers for contract work falling due within one year and other receivables falling due after more than one year included retentions of £39.8 million (2011: £40.5 million) relating to construction contracts in progress.

The directors consider that the carrying amount of trade, other receivables and amounts owed by joint ventures and associates approximates to their fair value. Based on prior experience, the directors believe that the trade receivables are recoverable and, other than as disclosed in Note 25, there is no allowance for bad or doubtful debts (2011: £Nil).

£29.6 million (2011: £33.6 million). of operations controlled by jointly held Group’s of the cash share include below, and analysed are equivalents cash and Cash 15 contracts long-term on balances credit in included are profits recognised and incurred of costs excess in billings and started, not has Cash to £2,707.2 amounted contracts (2011: construction work million open which for under £2,762.6 Advances customers million). from received £2,753.2(2011:advances date and was position million billings £2,789.6Progress of financial statement million). (Note at the progress in contracts all for losses, recognised less profits, recognised plus incurred of costs amount aggregate The and balances. these over held is collateral No recoverable. considered are amounts the 17). and quality credit in change significant no been has there as made been has provision no which datefor reporting the at due cash (2011: past million are of £6.8 which amount £6.1 million), acarrying with debtors, are balance receivables trade the in Included days. £3.1 60 (2011: (2011: and days £4.6 60 after million and million due 30 £3.7 £19.6between million) due million) equivalents (2011: days, 30 million within £65.3 was due £61.5 million) receivables trade of the dates due (2011: of the analysis The 31 days). days 33 is of goods sales on and work construction for billed amounts on receivables trade within period credit average The continued receivables 14 other Trade and and capital needs of the business. investment of the account taking after share per earnings underlying in growth on based to shareholders paid dividends increase progressively Board’sto is the policy It operations. its Group’s and the strategy describes review Business the profitability; improving and business the by growing Group the to strengthen options to explore continues (‘Board’) of directors Board The earnings. retained and shareholders from capital by equity driven is Group of the base capital current the and debt long-term no has Group The stakeholders. other and shareholders for returns to provide order in business, to the grow resources to provide and concern agoing as to continue ability its to are safeguard capital managing when Group’sThe objectives Capital derivatives. other or contracts currency foreign forward any have not does Company The Management transactions. into speculative enter not does Group The PFI investments. for used are rate swaps interest and requirements currency of foreign respect in used are contracts purchase and sale currency foreign forward risks, these directors. by the manage To agreed policies with accordance in risks, funding and liquidity and rates inflation and rates interest rates, currency in foreign movements from arising principally risk, financial manages function treasury Group’sThe centralised 16 Financial and instruments risk management statement flow cash the in overdrafts and equivalents cash Cash, equivalents cash and Cash Bank overdrafts Bank

105.7 105.7 107.4 107.4 (1.7) 2012 £m Group Annual Report 2012 105 Report Annual PLC Group Costain 140.1 140.1 141.7 141.7 (1.6) 2011 £m

30.0 30.0 30.0 30.0 2012 Company £m – 61.7 61.7 61.7 61.7 2011

£m –

Other information Financial Corporate Business review Overview statements Governance 106 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

16 Financial instruments and risk management continued 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. The nature and timing of the contract cash flows causes the cash balances to vary over the month with the balance usually highest at the month end.

The average month end cash balance during the year was £103.4 million (2011: £130.4 million).

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 secure 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.

The Group has banking and bonding facilities including a £45 million Revolving Credit Facility extending to 30 September 2015. The facilities have financial covenants based on profit, interest cover and leverage measured quarterly. There were no changes in the Board’s approach to capital management during the year.

Unsecured bonding facilities available

Group and Company 2012 2011 £m £m Expiring between two and five years* 420.0 420.0 * Element of above facilities available for borrowings 2.5 2.5

Credit risk The Group uses an external credit scoring system to assess a potential customer’s credit quality and will enter into a contract only if that assessment is satisfactory. Deposits in the United Kingdom are placed with the bank facility providers or, in jointly controlled 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 counter-parties 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 counter-party will fail to meet its obligations.

At the year-end date, 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 amounts due from customers for contract work in the statement of financial position. Further information on the exposure to credit risk is set out in Note 14.

Interest rate risk The Group has cash balances in the United Kingdom and Overseas and bank borrowings Overseas. The largest constituents are United Kingdom balances denominated in Pounds sterling. A 1% rise in interest rates would have increased the annual net interest income on cash balances by £1.0 million (2011: £1.3 million).

The only interest rate hedging currently undertaken by the Group is within PFI investments, where interest rate derivatives have been used as a means of hedging interest rate risk. The policy is to fix the interest cost on variable rate financing on specific projects by taking out floating to fixed interest rate swaps; these swaps are designated to the underlying debt obligations and are expected to be effective for cash flow hedge accounting purposes.

(2011: year-end the at hedges Nil). ineffective no were There swaps. of the life the over reverse will value fair The method. 2valuation aLevel on based value fair at stated and hedges flow cash as classified are swaps These loans. of bank rate risk interest the to hedge swaps following into the entered had associates, in investments as records and interest an has Group the which in 2012,At 31 companies, December PFI project rates. interest quoted from derived curves yield applicable on the based discounted and estimated flows cash future of the value present the at measured are rate swaps Interest 2013. in million of £0.2 aloss is contracts exchange foreign of the statement income the on impact expected The Sales Purchases Foreign exchange contracts commitments. sterling the represent flows cash contractual the contract; of the value fair the represents value carrying below. The 2012 31 at summarised December are outstanding contracts purchase and sale currency foreign The (2011: year-end the at hedges Nil). ineffective no were There commitments. of the terms the match contracts currency foreign of the terms The derivatives. value fair as recognised were amounts These method. 2valuation aLevel on based value fair at stated and hedges flow cash as classified are transactions forecast hedge that contracts currency Forward (2011: Nil). contracts sale currency foreign other no held Group The purchases. (2011: future of committed 11)) hedges as designated (2011: contracts contracts 4sale and purchase 26) (22 contracts 2012, currency At 31 foreign had December Group the contracts. of the maturities matching rates interest quoted from derived curves yield and rates exchange forward quoted using measured are contracts currency Foreign Cash £4.0 by position of financial statement the impacted favourably have would Euro the in A10% strengthening loans). including flow (2011: million £36.0 was million £35.0 investment equity of the value carrying Euro.net in year-end,the At the denominated and Spain in based acompany SA, Holding Alcaidesa in Group’s the investment includes ventures joint in Investments million hedges (2011: million by £0.4 million). results the £0.2 impacted adversely have would UAE Dirham the in A 10% strengthening (2011: million by £0.3 million). results £0.2 the impacted adversely have would Euro the in A 10% strengthening (2011: functional currency. their as sterling (2011: with Group of the of £Nil assets members in £16.5 monetary net million) denominated Euro were involved operation of the currency £3.9 functional the than other currencies in denominated 2012, assets At 31 December monetary net the effectiveness. hedge to item maximise hedged of the terms to the match derivative hedge of the terms the tois negotiate Group’s the and policy transaction currency foreign of the respect in exists commitment million). acontractual when contracts forward into enters only Group The exists. hedge natural no and reliably determined be can amount and timing transaction the where and applicable, where exposures, currency foreign forecast and committed both to is hedge strategy current The currency. functional their than other currencies in companies by operating purchases or sales from arise exposures currency Transactional Foreign 16 Financial and instruments risk management continued currency risk 2012 Carrying amount (0.2) (0.3) 0.1 0.1 £m Contractual Contractual cash flows cash (5.0) (. ) (7.6 2.6 2.6 £m one year one Within (5.0) (. ) (7.6 2.6 2.6 £m

five years five Between one and £m – – – 2011 Carrying amount (0.3) (0.5) 0.2 0.2 £m Annual Report 2012 107 Report Annual PLC Group Costain Contractual Contractual cash flows cash (10.7) (6.2) 4.5 4.5 £m one year Within (6.4)

(4.2) 2.2 2.2 £m

five years Between Between one and

(2.0) (4.3)

2.3 2.3 £m

Other information Financial Corporate Business review Overview statements Governance 108 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

16 Financial instruments and risk management continued Maturity of PFI swaps

2012 2011 Between Between Within one and After Within one and After Total one year five years five years Total one year five years five years £m £m £m £m £m £m £m £m Interest rate swaps 1.3 0.1 0.4 0.8 6.0 0.3 1.2 4.5 Less tax (0.3) – ( 0.1) (0.2) (1.5) ( 0.1) (0.3) (1.1) 1.0 0.1 0.3 0.6 4.5 0.2 0.9 3.4

These amounts (net of tax) were recognised as fair value derivatives within the value of the investment or, if a future commitment exists, within provisions.

Financial assets and liabilities Currency and maturity of financial assets

2012 2011 Between Between Within one and After Within one and After Total one year five years five years Total one year five years five years £m £m £m £m £m £m £m £m Cash and cash equivalents: Pounds sterling 106.1 106.1 – – 135.9 135.9 – – UAE Dirham 1.1 1.1 – – 2.6 2.6 – – Euro – – – – 2.8 2.8 – – Other 0.2 0.2 – – 0.4 0.4 – – 107.4 107.4 – – 141.7 141.7 – – Loans to joint ventures and associates: Pounds sterling 2.7 0.1 0.5 2.1 6.4 0.6 2.4 3.4 Euro – – – – 13.7 – 13.7 – 2.7 0.1 0.5 2.1 20.1 0.6 16.1 3.4 Trade, other receivables and amounts owed by joint ventures and associates: Pounds sterling 101.8 84.3 17.5 – 113.7 97.3 16.4 – Other 2.3 2.3 – – 3.2 3.2 – – 104.1 86.6 17.5 – 116.9 100.5 16.4 – Total financial assets 214.2 194.1 18.0 2.1 278.7 242.8 32.5 3.4

Total financial liabilities Reconciliation of trade and other receivables and trade and other payables to the balance sheet. to balance the payables other and trade and receivables other and of trade Reconciliation unsecured. are and rate afloating at are overdrafts bank The Credit balances on long-term contracts long-term on balances Credit Amounts due from customers from due Amounts above) (as Trade receivables other and UAE Dirham Pounds sterling Trade payables: other and –UAE Dirham overdrafts Bank Trade and other payables (as above) (as Trade payables other and Effective interest rates of financial assets and liabilities and assets financial of rates interest Effective Accruals and deferred income amount. by not amaterial (2011:of £2.7 but million million), £6.4 values carrying their than 10% higher above be may rates interest carrying of loans values fair the except values fair their and liabilities and assets Group’s Company’sof the financial and values carrying the between differences significant no are There and (2011: sterling £30.0million in Pounds of £61.7bank at cash denominated comprised million) assets financial Company’s The overdrafts Bank maturing Financial liabilities associates and ventures to joint Loans within equivalents cash and Cash Financial assets one year. Currency and of maturity financial liabilities 16 Financial and instruments risk management continued Prepayments and accrued income accrued and Prepayments

2012 145.5 145.5 140.3 140.3 147.2 147.2 Total 1.7 1.7 5.2 5.2 £m

one year one 142.2 142.2 135.3 135.3 140.5 140.5 Within 5.2 5.2 1.7 1.7 £m 2012 2012 five years five Between one and Current Current 140.5 140.5 149.5 149.5 297.6 297.6 181.5 10.0% to 11.5% to 10.0% 86.6 86.6 79.0 15.9 15.9 5.0 5.0 5.0 5.0 5.0 5.0 7.6 0.0% to 1.2% to 0.0% £m £m £m – – 2011 Annual Report 2012 109 Report Annual PLC Group Costain Non-current Non-current 3.3% 154.8 154.8 156.4 156.4 148.4 148.4 17.5 17.5 17.5 17.5 2012 5.0 5.0 5.0 5.0 6.4 6.4 Total 1.6 1.6 £m £m £m – – – – 2011 2011 one year 100.5 100.5 342.9 342.9 188.0 188.0 150.3 150.3 148.7 148.7 148.7 148.7 142.3 142.3 Current Current 171.9 171.9 22.3 22.3 13.2 13.2 Within Within 74.3 74.3 6.4 6.4 1.6 1.6 10.0% to 11.5% £m £m £m 0.0% to0.0% 1.3% Non-current Non-current five years Between Between one and 5.5% 16.4 16.4 16.4 16.4 2011 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1 6.1

£m £m £m – – – – – –

Other information Financial Corporate Business review Overview statements Governance 110 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

17 Trade and other payables

Group Company 2012 2011 2012 2011 £m £m £m £m Current liabilities Trade payables 105.1 108.1 – – Other payables 21.5 23.3 – – Social security 5.5 4.6 – – Credit balances on long-term contracts 7.6 22.3 – – Accruals and deferred income 149.5 171.9 – 0.6 Amounts owed to joint ventures and associates 8.4 12.7 – – Amounts owed to subsidiary undertakings – – 84.0 106.9 297.6 342.9 84.0 107.5 Non-current liabilities Other payables 5.0 6.1 – –

At 31 December 2012, credit balances on long-term contracts included no advance payments from customers (2011: £13.1 million).

Accruals and deferred income include subcontract liabilities (not yet payable), subcontract retentions and other accruals and deferred income.

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.

Financial risk management policies are in place that seek to ensure that all payables are paid within their credit timeframes.

18 Provisions for other liabilities and charges

PFI Property investments Other Total Group £m £m £m £m Current At 1 January 2011 0.7 1.2 1.3 3.2 Provided 0.2 – 0.4 0.6 Utilised ( 0.1) – – ( 0.1) Released – – (0.6) (0.6) Transfer 0.2 (1.2) – (1.0) At 31 December 2011 1.0 – 1.1 2.1 At 1 January 2012 1.0 – 1.1 2.1 Provided 0.7 – 0.5 1.2 Utilised (0.4) – – (0.4) Released (0.3) – (0.5) (0.8) At 31 December 2012 1.0 – 1.1 2.1 At 31 December 2012 31At December Utilised Provided 2012At 1January 2011At 31 December Transfer Utilised Released 18 Provisions for other liabilities and charges continued charges and liabilities other for 18 Provisions At 1 January 2012At 1January 2011At 31 December Transfer 2011At 1January Non-current 2011At 1January Current Company 2012 31At December Utilised 2011At 1January Non-current At 31 December 2012 31At December consolidation. on eliminates which subsidiary, Overseas to anon-trading obligations to relate funding Company the in Provisions Company year.next the over utilised be will which of most costs, remedial and claims, insurance and years, five next the over utilised be will company,which subsidiary Overseas an of staff to the payable benefits staff for aprovision comprise mainly provisions, Other to expected satisfied, is funding to provide obligation the when to reverse expected are provisions The funding. further to provide exists obligation an and negative is investment of the value carrying the where to relate investments provisions PFI investment be years. three next the over utilised be will and properties of vacant to relate costs provisions Property Group within one year. Provided Provided 2012At 1January 2011At 31 December Transfer

Property (0.1) ( (0.2) 0.2 0.2 0.2 0.2 0.4 0.4 0.1 0.1 £m – Annual Report 2012 111 Report Annual PLC Group Costain investments obligations Funding (0.1) ( (0.1) ( 0.2 0.2 0.2 1.3 1.3 1.3 1.3 0.2 0.2 0.2 0.2 1.3 1.3 1.4 1.4 0.1 0.1 £m £m PFI – – – – – – – – – –

(0.3) (0.6) Other Other 0.3 0.3 0.3 0.3 1.8 1.8 0.2 0.2 0.3 0.3 2.1 2.1 0.1 0.1 2.1 2.1 2.1 2.1 £m £m – – – – – – – – – –

(0.3) (0.7) (0.2) (0.1) ( (0.1) ( 2.3 2.3 0.2 0.2 0.5 0.5 0.3 0.3 1.3 1.3 1.3 1.3 1.9 1.9 0.2 0.2 0.3 0.3 0.5 0.5 2.3 2.3 2.5 2.5 Total Total 1.3 1.3 1.4 1.4 0.1 0.1

£m £m –

Other information Financial Corporate Business review Overview statements Governance 112 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

19 Employee benefits (a) Pensions A defined benefit pension scheme is operated in the United Kingdom and a number of defined contribution pension schemes are in place in the United Kingdom and Overseas. Contributions are paid by subsidiary undertakings and employees. The total pension charge in the income statement was £9.2 million comprising £8.1 million included in operating costs and £1.1 million included in net finance expense (2011: £3.5 million, comprising £5.3 million in operating costs less £1.8 million in net finance income).

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 at 31 March 2010 and was updated to 31 December 2012 by a qualified independent actuary.

2012 2011 2010 £m £m £m Present value of defined benefit obligations (610.7) (600.8) (576.7) Fair value of scheme assets 558.8 5 47.9 537.1 Recognised liability for defined benefit obligations (51.9) (52.9) (39.6)

Movements in present value of defined benefit obligations

2012 2011 £m £m At 1 January 600.8 576.7 Interest cost 27.4 30.5 Amendments (Pension Increase Exchange ‘PIE’) (1.7) – Plan Settlements (Enhanced Transfer Value ‘ETV’) (29.3) – Actuarial losses 40.7 18.2 Benefits paid (27.2 ) (24.6) At 31 December 610.7 600.8

Movements in fair value of scheme assets

2012 2011 £m £m At 1 January 547.9 537.1 Expected return on scheme assets 26.3 32.3 Actuarial (losses)/gains 16.2 (3.9) Contributions by employer 28.4 7.0 Plan Settlements (‘ETV’) (32.8) – Benefits paid (27.2 ) (24.6) At 31 December 558.8 5 47.9

(Expense)/income recognised in theincome statement (Expense)/income Pensions (a) continued benefits 19 Employee Experience adjustmentsExperience Finance expense Finance income million) of £0.9 costs PIE, including and (ETV management liability Pension obligations benefit defined on cost Interest Expected return on scheme assets million) of £0.9 costs PIE, including and (ETV management liability Pension Government bonds bonds yield High Equities gain on schemeExperience liabilities (£m) History of the scheme for the last five years five last the for scheme the of History Income statement(expense)/income classification of Group. by the used assets, or other property, in or instruments Group’s the in financial invested assets any have not does scheme pension The 2010in 2012. and Scheme Pension Costain to The Group by the transferred PFI investments of eight portfolio the is holding infrastructure The cash and funds return Absolute Infrastructure and property Change in assumptions on scheme liabilities (£m) Experience adjustments on scheme assets (£m) assets scheme on adjustments Experience assets scheme on return the and assets scheme of value Fair (2011: of £84.7 million aloss dateto is million). IFRS, £60.2 transition the 2004, 1 January since expense and income comprehensive other in recognised losses and gains of actuarial amount cumulative The Total (loss)/gain (£m) Total (loss)/gain continued

(24.5) (40.7) 16.2 16.2 2012 3% 7% – – (18.2) (22.1) ( (3.9) 2011 0% 3% 1% –

Annual Report 2012 113 Report Annual PLC Group Costain (2. ) 27.0 ( 18.5 18.5 24.6 24.6 33.1 33.1 2010 6% 3% 5% 558.8 184.2 184.2 195.8 195.8 (113.7) (27.4) (27.4) (6. ) 67.4 ( 68.8 68.8 46.2 46.2 63.8 63.8 26.3 26.3 46.3 46.3 (2.8) (2.8) (2.8) (3.9) (3.9) (3.9) 20% 10% 2009 2012 2012 2012 £m £m £m – –

(105.1) 223.4 223.4 173.9 173.9 54. 47.9 5 (30.5) (30.5) (10.5) 94.6 94.6 32.3 32.3 32.3 43.7 43.7 52.8 52.8 54.1 54.1 19% 27% 2008 2011 2011 2011 1.8 1.8 1.8 £m £m £m – – – –

Other information Financial Corporate Business review Overview statements Governance 114 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

19 Employee benefits continued (a) Pensions continued Principal actuarial assumptions (expressed as weighted averages)

2012 2011 2010 % % % Discount rate 4.40 4.80 5.40 Expected rate of return on scheme assets 4.40 4.95 6.11 Future pension increases 2.85 2.90 3.40 Inflation assumption 2.95 3.00 3.40

The expected rate of return on scheme assets is determined by reference to relevant indices. The overall expected rate of return is calculated by weighting the individual rates in accordance with the anticipated balance in the scheme’s investment portfolio.

Weighted average life expectancy from age 65 as per mortality tables used to determine benefits at 31 December 2012 and 31 December 2011 is:

2012 2011 Male Female Male Female (years) (years) (years) (years) Currently aged 65 21.7 23.8 21.5 23.7 Non-retirees 24.5 25.6 24.4 25.6

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 Pension liability cost £m £m Increase discount rate by 0.25%, decreases pension liability and increases pension cost by 28.2 1.1 Decrease inflation, pension increases by 0.25%, decreases pension liability and reduces pension cost by 25.4 1.1 Increase life expectancy by one year, increases pension liability and increases pension cost by 16.7 0.7

The expected pension cost for 2013 under IAS 19 (Revised), which becomes effective for 2013 is a £0.6 million operating expense and a £2.1 million finance expense.

The Group expects to contribute an amount equal to dividends paid to shareholders and the expenses of administration to its defined benefit scheme in the next financial year.

Defined contribution schemes Several defined contribution pensions are operated. The total expense relating to these plans was £5.3 million (2011: £5.3 million).

(2011: of 6.4 life years contractual 3.6 years). remaining average aweighted had year of the end the at outstanding options Share Exercisable at the end of the period the of end the at Exercisable 2012 31 December at Outstanding year the during Granted Exercised during the year the during Exercised Forfeited during the year the during Forfeited year the during Adjusted 2012At 1January 2011 31 at December Outstanding year the during Granted year the during Exercised 2011 1January at Outstanding below: shown are SAYE schemes outstanding the and management senior and Directors to Executive of shares grant the for arrange which option), (Nil-cost DSBPs and grant) individual £1 per LTIPs price (exercise outstanding The 2010. in 1to to the 10 2010 for consolidation prior restated share granted awards been have Outstanding year the of end the at outstanding Options (2011: to subsidiaries. relates £2.9 million was charge entire the £1.9 million); employees with transactions payment share-based for tax, income before statement, income the in recognised amounts The Share scheme). of the rules by the permitted where (except Group the within employment to continued subject is of options Exercise saved. funds the withdraw may they options, their tonot exercise based decide employees If saved. funds the using expire) options the which (after options their to exercise which in months six have employees period, savings of the end At the years. five or to three over save elect may and month each account into asavings salary from amount afixed pay Employees employees. to all open are of SAYE which anumber plans, operates Company The payment Save dateof vesting. the on received) or given (either of termination notice under not and Company the with employment in be must expense Participants interest. of shareholder to dilution any lead not will DSBP the so and Group of the behalf on by atrust purchased be As will bonus deferred the to satisfy shares The dateof grant. of the anniversary second the on vests award bonus deferred The tax). and interest before (Earnings EBIT on based condition aperformance with salary of base to of up 50% value aface with awards conditional for allows DSBP The shares. of deferred award an through shareholders with alignment greater promotes You which Plan Bonus Share Deferred Company’s the in to participate eligible are management senior other and directors Executive (‘DSBP’) Plan Bonus Share Deferred Earn EPS. on based condition aperformance with salary to of up of 100% base value face amaximum with awards LTIP conditional for The allows 2012 Long-Term the of at anew Plan introduction the Incentive AGM. for approval their gave 2012 in life shareholders and ten-year of its end Plans the AGM, reached 2002 the at by shareholders Long-Term approved 2002 Company’s Plan, The Incentive (‘LTIP’) Plans Long-Term Incentive below. described as plans payment based of share anumber (‘SAYE’) operates company The payments Share-based (b) continued benefits 19 Employee Forfeited during the year the during Forfeited year the during Adjusted

Number (0.6) (0.2) (1.5) 2.2 2.2 2.0 2.0 0.8 0.8 0.8 0.8 2.9 2.9 2.0 2.0 LTIP (m) – – – –

Annual Report 2012 115 Report Annual PLC Group Costain Number DSBP (0.2) (0.2) 2.2 2.2 0.2 0.2 0.6 0.6 1.4 1.4 0.6 0.6 1.2 1.2 1.4 1.4 (m) – – – –

SAYE Number (0.4) (0.8) (0.3) 1.5 1.5 1.9 1.9 2.0 2.0 1.9 1.9 1.0 1.0 (m) – – – – –

exercise price Weighted average

190.0 190.0 199.0 199.0 308.8 308.8 231.4 231.4 223.4 223.4 186.5 196.0 196.0 199.0 199.0

– – – – – (p)

Other information Financial Corporate Business review Overview statements Governance 116 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

19 Employee benefits continued (b) Share-based payments continued Fair value of options granted during the year The fair value of options granted are calculated using the Black-Scholes option pricing model. The aggregate fair value of options granted during the year was £2.7 million (2011: £3.2 million). The assumptions used in valuing the grants were:

2012 2011 Expected volatility 20% 20% Expected life (years) 2.7 – 5.0 2.7 – 5.0 Risk-free interest rate 2.1% 3.6% Expected dividend yield 2% 2%

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.

20 Share capital

2012 2011 Nominal Nominal Number value Number value (millions) £m (millions) £m Issued share capital Shares in issue at beginning of year – Ordinary shares of 50p each, fully paid 64.7 32.4 63.5 31.7 Issued in year (see below) 0.8 0.4 1.2 0.7 Shares in issue at end of year – Ordinary shares of 50p each, fully paid 65.5 32.8 64.7 32.4

The Company’s issued share capital comprised 65,544,306 ordinary shares of 50 pence each.

On 4 April 2012, the Company issued 634,767 shares in respect of the exercise of options granted under the 2009 LTIP.

The Company announced on 24 May 2012 that shareholders had, pursuant to the Scrip Dividend Scheme, elected to receive 133,133 ordinary shares of 50 pence each in the Company in lieu of cash in respect of all or part of their final dividend for the year ended 31 December 2011, and a further 65,681 ordinary shares on 26 October 2012 in lieu of cash in respect of all or part of their interim dividend for the year ended 31 December 2012.

During the year, the Company issued 3,800 shares on exercise of options granted under the 2008 3-year SAYE scheme.

All shares rank pari passu regarding entitlement to capital and dividends.

The share options outstanding at the year-end are detailed in Note 19. Details of the performance conditions and the options granted to executive directors are given in the Directors’ remuneration report.

(2011: commitments £Nil). financial other any have not does Company The Company leases. operating non-cancellable under vehicles leases also Group The rights. renewal and clauses escalation terms, have various leases The agreements. lease operating non-cancellable under offices various has Group The years five than Later years five and one Between £51.9was Note 19. in (2011: million disclosed as £52.9 million) 2012, AtDecember liability Kingdom. 31 potential the United the in scheme pension benefit defined the Scheme, Pension Costain of The employers participating are that companies subsidiary of the obligations the guaranteed has Company The Company 18). (Note for provided those than other liabilities contingent the from arise will liabilities material any that anticipated not is It • • • of: respect in liabilities contingent are There Group 21 liabilities Contingent No later than one year one than later No Future aggregate minimum lease income under non-cancellable Leases as lessor year one than later No Future aggregate minimum lease payments under non-cancellable Leases as lessee Operating Group 22 financial Other commitments lease commitments companies to subsidiary overdrafts of bank guarantees Under Between one and five years five and one Between leases expiring: leases expiring: leases of business. course ordinary the in arising claims legal of business; course ordinary the into in entered undertakings other and bonds performance assets; of their value book the than less are which operations, controlled of jointly creditors

Company Group 2012 buildings Land and 18.9 18.9 2012 4.3 4.3 7.5 7.5 7.1 7.1 £m £m – Annual Report 2012 117 Report Annual PLC Group Costain operating leases Other 3.4 3.4 3.6 3.6 2011 7.0 7.0 £m £m – –

2011

Land and Land buildings Land andLand buildings 22.6 22.6 2012 2012 0.6 0.6 8.3 8.3 9.5 9.5 4.8 4.8 1.7 1.7 1.1 1.1 0.5 0.5 £m £m £m operating operating

leases Other 2011 2011 4.3 4.3 0.9 0.9 2.8 2.8 1.9 1.9 1.6 1.6 1.0 1.0 71 7.1 £m £m £m –

Other information Financial Corporate Business review Overview statements Governance 118 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

23 Principal subsidiary undertakings, jointly controlled entities, associates and jointly controlled operations

Percentage of Country of Activity equity held incorporation Subsidiary undertakings ClerkMaxwell Ltd Engineering and Design Services 100 UK Costain Ltd Engineering, Construction and Maintenance 100 UK Costain Abu Dhabi Co WLL Process Engineering 49 UAE Costain Building & Civil Engineering Ltd Engineering and Construction 100 UK Costain Engineering & Construction Ltd Holding and Service Company 100 UK Costain Oil, Gas & Process Ltd Process Engineering 100 UK Promanex (Civils & Industrial Services) Ltd Support Services 100 UK Promanex (Construction & Maintenance Services) Ltd Support Services 100 UK Promanex (Total FM & Environmental Services) Ltd Support Services 100 UK Richard Costain Ltd Service Company 100 UK

Issued share capital Percentage of Country of Reporting Activity £m equity held incorporation date Jointly controlled entities Alcaidesa Holding SA Land Development 10.9 50 Spain 31 December Brighton & Hove 4Delivery Ltd Civil Engineering – 49 UK 31 March 4Delivery Ltd Civil Engineering – 40 UK 31 March

Associates Severn Trent Costain Holdings Ltd Asset Management 0.5 20 UK 31 March Severn Trent Costain Services Ltd Asset Management – 20 UK 31 March Severn Trent Costain Ltd Asset Management – 40 UK 31 March Integrated Bradford LEP Ltd Construction and Operation of Schools – 40 UK 31 December Lewisham Schools for the Future LEP Ltd Construction and Operation of Schools 0.1 40 UK 31 March Lewisham Schools for the Future SPV 3 Ltd Construction and Operation of Schools – 40 UK 31 March Lewisham Schools for the Future SPV 4 Ltd Construction and Operation of Schools – 40 UK 31 March

The equity capital of the above are held by subsidiary undertakings with the exception of Richard Costain Limited and Costain Engineering & Construction Ltd.

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.

All undertakings operate mainly in the country of incorporation, with the exception of Costain Building & Civil Engineering Ltd, which operates outside the United Kingdom.

All holdings are of ordinary shares except Richard Costain Ltd, where Costain Group PLC holds 100% of the ordinary and preference shares. 2011 the in statements. disclosed financial Limited Holdings Group Promanex and Limited of ClerkMaxwell values fair to acquisition the changes no were there and year the during acquisitions no were There 24 Acquisitions services and goods of Sales officers. executive and directors its with and Scheme Pension Costain The operations, controlled jointly associates, and ventures joint subsidiaries, shareholders, major its with exists relationship party A related Group 25 Related party transactions eliminated are 14 Notes in operations 17. and disclosed controlled are jointly with associates and ventures Balances joint with Balances uncertain. is recovery but continue parties the all among Discussions a subcontract. on under out carried to work relates It 2006. since against provided fully been has shareholder amajor from due amount An (2011: year the during £Nil). shareholders to major services and of goods sales no were There consolidation. of Group employeesServices Venture Joint Costain Lafarge Utilities Venture–United Joint Galliford-Costain-Atkins Schools Venture–Bradford Joint UK Educo C411 –Crossrail Street Costain-Skanska Venture–Bond Joint –Crossrail Venture–Paddington Joint C405 Costain-Skanska station Venture–Reading Joint Costain-Hochtief station Venture–Farringdon Joint O’Rourke Costain-Laing station Street Venture–Bond Joint O’Rourke Costain-Laing Link A5/M1 and Venture–M1 Joint Widening Costain-Carillion –MAC 14 Services Highway Integrated A-one+ –MAC 12 Services Highway Integrated A-one+ –MAC 10 Services Highway Integrated A-one+ –MAC 7 Services Highway Integrated A-one+ Major jointly controlled operations return. annual Company’s the in included be will companies of Group list A full controlled continued operations jointly23 Principal controlled undertakings, entities,associates subsidiary and jointly Construction services and materials and services Construction

2012 ventures and associates 20.6 20.6 61.6 61.6 41.0 41.0 Joint £m

operations controlled Jointly 61.9 61.9 65.1 65.1 3.2 3.2 £m Engineering &Engineering Maintenance &Engineering Maintenance &Engineering Maintenance &Engineering Maintenance 126.7 126.7 44.2 44.2 82.5 Total Civil Engineering Civil Engineering Civil Engineering Civil Engineering Civil Engineering Civil Engineering Civil Engineering Civil Engineering £m Construction 2011 Annual Report 2012 119 Report Annual PLC Group Costain ventures and and ventures associates Activity 23.9 23.9 46.7 46.7 70.6 70.6 Joint £m Percentage operations

controlled of equity 62.5 62.5 59.6 59.6 Jointly 2.9 2.9 held £m 33 33 33 50 50 50 50 50 50 50 50 42 25 incorporation Country of Country

133.1 133.1 83.5 49.6 49.6 Total UK UK UK UK UK UK UK UK UK UK UK UK UK £m

Other information Financial Corporate Business review Overview statements Governance 120 Costain Group PLC Annual Report 2012

Financial statements Notes to the financial statements continued

25 Related party transactions continued Major shareholders Mohammed Abdulmohsin Al-Kharafi & Sons Co. W.L.L. and UEM Builders Berhad are regarded as related parties of the Company.

The Costain Pension Scheme Details of transactions between the Group and The Costain Pension Scheme are included in Note 19.

Transactions with key management personnel The directors of the Company and their immediate relatives control 383,292 ordinary shares in Costain Group PLC, which expressed as a percentage of the issued share capital is 0.6% (2011: 0.4%) of the voting shares of the Company.

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 and SAYE plans, which are detailed in Note 19.

The compensation of key management personnel, including the directors, is as follows:

Group 2012 2011 £m £m Directors’ emoluments 1.4 1.6 Executive officers’ emoluments 2.1 2.1 Post retirement benefits 0.3 0.4 Termination benefits 0.2 – Share-based payments 1.1 0.9 5.1 5.0

The above amounts are included in employee benefit expense (Note 5).

Company The Company has no transactions with related parties other than the charge in relation to share-based payments (Note 19) (2011: none). Five-year financialsummary Profit from operations Profit before tax before Profit Net finance(expense)/income Finance income associates and ventures of joint of results Share Final* Dividends per share ordinary tax Income Finance expense Profit on sale of land and property and land of sale on Profit * parent the of holders equity to attributable Equity Total liabilities Other non-current liabilities Retirement benefit obligations Current liabilities Total assets assets Current assets Total non-current Other non-current assets Intangible assets Summarised consolidated statement of financial position Interim* –diluted* share per Earnings –basic* share per Earnings holders equity to attributable year the for Profit Profit on sales of interests in joint ventures and associates and ventures joint in interests of sales on Profit Investments in equity accounted joint ventures and associates and ventures joint accounted equity in Investments Property, plant and equipment Profit on sales of investments of sales on Profit Group operating profit Employment related deferred consideration Amortisation ofAmortisation acquired intangible assets Other items: Group operating profitbefore other items Group revenue associates) and ventures of joint share and (Group Revenue profit and Revenue Less: Share of joint ventures and associates and ventures of joint Share Less:

of the parent the of The figures for 2008 and 2009 have been restated for the 1 for 10 share consolidation in 2010.in consolidation share for 1 10 the for restated been have 2009 and 2008 for figures The

848.4 934.5 934.5 290.6 393.7 393.7 303.1 303.1 361.9 103.1 103.1 (29.2) 3.50p 35.8p 7.25p (86.1) ( 37.1p 22.3 22.3 24.2 24.2 28.0 28.0 34.9 34.9 40.4 40.4 18.9 18.9 10.5 10.5 31.8 31.8 18.7 18.7 26.1 26.1 51.9 51.9 27.3 27.3 (1.9) (1.9) (1.4) (1.7) (1.7) 2012 6.9 6.9 9.1 9.1 £m – – 868.5 986.3 348.3 348.3 409.6 409.6 440.4 332.0 332.0 108.4 108.4 (1. ) (117.8 3.25p (32.2) 6.75p 33.8 33.8 30.8 30.8 20.3 20.3 23.9 23.9 22.5 22.5 22.0 22.0 52.9 52.9 42.9 42.9 18.7 18.7 34.1 34.1 24.1 24.1 11.4 11.4 (0.9) (5.2) 28.2 29.2 (0.7) (1.3) 0.3 0.3 0.5 0.5 2011 8.4 8.4 1.9 1.9 £m –

Annual Report 2012 121 Report Annual PLC Group Costain 1,022.5 1,022.5 396.3 396.3 309.3 309.3 358.7 358.7 924.5 924.5 311.4 311.4 (98.0) 6.25p 36.4p 35.4p (32.2) 39.8 39.8 39.6 39.6 29.4 29.4 30.7 30.7 23.1 23.1 2. 27.9 8. 87.0 3. 37.6 11.2 11.2 3. 37.4 1. 17.4 1. 17.4 3.0p (0.5) (4.8) (1.5) 2010 9.7 9.7 1.3 1.3 0.1 0.1 77 7.7 £m – – –

1,061.1 1,061.1 993.4 993.4 320.5 320.5 432.8 432.8 429.0 429.0 103.9 103.9 104.7 325.1 325.1 23.0p 22.6p (28.7) 2.75p (6. ) 67.7 ( 20.8 20.8 26.0 26.0 22.0 22.0 22.0 22.0 14.6 14.6 44.1 18.1 18.1 4. 47.3 11.5 11.5 (3.8) 5.5p (3.2) (3.5) (2.7) 2009 2.0 2.0 1.0 1.0 76 7.6 £m – – – –

406.3 406.3 996.0 996.0 329.2 329.2 902.6 902.6 372.7 372.7 312.1 312.1 (30.0) 29.0p 29.0p (93.4) 50.2 50.2 34.8 34.8 33.6 33.6 18.2 18.2 24.9 24.9 19.5 19.5 19.5 19.5 10.4 10.4 42.7 42.7 23.1 23.1 7. 77.1 (3.9) 5.0p 2.5p (4.9) 18.3 18.3 2008 4.8 4.8 1.8 1.8 2.7 2.7 77 7.7 £m – – – –

Other information Financial Corporate Business review Overview statements Governance 122 Costain Group PLC Annual Report 2012

Other information Financial calendar and other shareholder information

Financial calendar* Analysis of shareholders Full year results 6 March 2013 Accounts Shares % Annual Report mailing 28 March 2013 Institutions, companies, Ex-dividend date for final dividend 17 April 2013 individuals and nominees: Final dividend record date 19 April 2013 Shareholdings 100,000 and more 65 55,023,617 83.95 Interim Management Statement 8 May 2013 Shareholdings 50,000-99,999 38 2,610,553 3.98 Annual General Meeting 8 May 2013 Shareholdings 25,000-49,999 35 1, 207,824 1.84 Final dividend payment date (subject to shareholder approval) 24 May 2013 Shareholdings 5,000-24,999 316 3,237,299 4.94 Half-year end 30 June 2013 Shareholdings 1-4,999 10,877 3,465,013 5.29 Half-year results 2013 22 August 2013 Totals 11,331 65,544,306 100 Ex-dividend date for Secretary interim dividend 18 September 2013 Tracey Wood Interim dividend record date 20 September 2013 Interim dividend payment date 25 October 2013 Registered Office Interim Management Statement October 2013 Costain House, Vanwall Business Park, Maidenhead, Berkshire SL6 4UB Financial year-end 31 December 2013 * The financial calendar may be updated from time to time throughout the year. Telephone 01628 842 444 Please refer to our website www.costain.com for up-to-date details. www.costain.com [email protected] Scrip dividend scheme Company Number 1393773 Subject to approval at the 2013 Annual General Meeting, a scrip dividend scheme will be offered in respect of the final Registrar dividend. Those shareholders who have already elected to Equiniti, Aspect House, Spencer Road, Lancing, join the scheme will automatically have their dividend sent West Sussex BN99 6DA to them in this form. Telephone 0871 384 2250** or +44 121 415 7047 if calling Shareholders wishing to join the scheme for the final from outside the United Kingdom. dividend (and all future dividends) should return a completed mandate form to the Registrar, Equiniti by 02 May 2013. Shareholder information Copies of the mandate form and the scrip dividend brochure The Company’s Registrar is Equiniti, Aspect House, can be downloaded from the Company’s website at Spencer Road, Lancing, West Sussex BN99 6DA. For www.costain.com or obtained from Equiniti by telephoning enquiries regarding your shareholding, please telephone 0871 384 2268** or +44 121 415 7173 if calling from outside 0871 384 2250** (or +44 121 415 7047 if calling from outside the United Kingdom. the United Kingdom). You can also view up to date information about your holdings by visiting the shareholder website at www.shareview.co.uk (see page 123 for further details). Please ensure that you advise Equiniti promptly of a change of name or address.

** Calls to 0871 numbers cost 8p per minute plus network extras. Lines are open Monday to Friday 8.30am to 5.30pm, excluding UK bank holidays. ** on the website. given are requirements equipment and of software Details Visit the website at www.shareview.co.uk version. electronic your to of how download details with email by notified be voucher, will you tax paper the of receiving Instead electronically. voucher tax your collect also can you preference, mailing your as email selected have you and account, tobank your straight paid dividends your have you If of post. instead by email various shareholder communications, such as annual results, of notified be will you preference, mailing your as email select format for or (post email) shareholder communications. If you preferred your register can site, you the with register you When charge to register. no is There stationery. dividend or form proxy your on printed reference’ ‘shareholder the need you To Shareview for up sign • • shareholders: fromThe Shareview our Registrar, service Equiniti, gives Shareview service www.shareview.com/overseas from obtained be can information more and currency local their in paid be to dividends their for arrange can shareholders Overseas payment. dividend last of your voucher to tax the attached one find will you Alternatively, details. further for below (see www.shareview.co.uk at website shareholder the via obtained be also can and you to assist pleased be will who 121(+44 415 Kingdom) United the outside from 7047 calling if 0871 on 2250** Equiniti 384 by contacting or website, Company’s the from obtained be can form A mandate • • • are: service this to using advantages The form. mandate bank a by completing account, society building or bank into their directly paid dividends to their have arrange can Shareholders Dividend mandate open Monday to Friday 8.30am to 5.30pm, excluding UK bank holidays. bank UK excluding to 5.30pm, 8.30am to Friday Monday open are Lines extras. network plus minute per 8p cost to 0871 numbers Calls instructions online. payment dividend or address their to change ability the and details; dividend and movements share recent including register share the on behalf their on held to data access direct out-of-date cheques. or stolen of lost, risk no is there and acheque; in of paying hassle the avoids it post; the in lost getting cheques of risk the avoid can you as secure more is payment the for more details.

This service is completely free of charge. free completely is service This Tax purposes. Gains Capital for aloss nor to again neither rise way gives this in to charity shares Donating request. on forms at Details of the scheme are available on the website ShareGift them. to sell uneconomic it makes value whose of shares parcels small with shareholders for scheme donation share acharity operates (ShareGift) Foundation Macintosh Orr The ShareGift www.costain.com at website Company’s the on found be also can issue this on guidance Further W1E OZT London LON20771 29 Freepost The Mailing Preference Service contact: can receive they mail Shareholders who wish to limit the amount of unsolicited fromcorrespondence unauthorised investment firms. shareholders may receive unsolicited mail, including available to the public. general Consequently, some register share to its make obliged legally is Company The mail Unsolicited www.sharegift.org

. Equiniti can provide stock transfer transfer stock provide can . Equiniti Annual Report 2012 123 Report Annual PLC Group Costain

Other information Financial Corporate Business review Overview statements Governance 124 Costain Group PLC Annual Report 2012

Other information Contact us

For shareholder information, For corporate responsibility, For corporate communications, please contact: please contact: please contact: Tracey Wood Catherine Warbrick Graham Read Legal Director and Company Secretary Corporate Responsibility Director Communications Director [email protected] [email protected] [email protected]

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. A feedback response box has been provided on the Annual Report microsite to enable you to comment.

Website links: www.costain.com www.costain.com/investors www.costain.com/responsibility www.costain.com/annual-report-2012 www.costain.com/news Who we are

At Costain we are continually progressing our business to become the engineering solutions provider of choice. Our customers demand a seamless world-class service – from initial consultancy and advice to construction and engineering solutions, and long-term asset care and maintenance support. We can never stand still. Throughout our history of almost 150 years we have been driven by the need to seek continually new and innovative ways to meet the challenges of delivering ever more complex solutions.

Our vision How we operate Our vision is to be one of the UK’s top engineering We are committed to operating our business both solutions providers. We must be the best for technical, sustainably and responsibly. We are focused on one innovative expertise and sustainable solutions. simple but powerful message – ‘Costain Cares’. This is not a slogan: it is an attitude of mind. It is integral to everything we do and a touchstone against which What we do we can evaluate and measure our performance. We focus on intelligent solutions to meet national needs. Costain Cares about relationships, our environment As a Tier One engineering solutions provider, we provide and the future. front-end engineering consultancy, construction and ongoing care and maintenance services across market sectors including water, waste, power, rail, hydrocarbons How we create value and chemicals, highways and nuclear process. Our ‘Choosing Costain’ strategy is designed to meet national needs by upgrading and maintaining the UK’s infrastructure and aiding economic recovery and growth. Value is created by our drive for innovation and we are committed to a constant quest for improvement. We are confident that our robust business model and our strategic focus will continue to deliver shareholder value in the years ahead.

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Costain Group PLC Annual Report 2012 methodology. Calculations are and greenhouse gases greenhouse and 2 : www.costain.com 2,915 kg of landfill of kg 2,915 60,268 litres water of 5,857 kWh electricity of CO 397 kg 4,736 kg of wood of kg 4,736

e ourc Results are obtained according to and are subject technical information to modification. based on a comparison between the recycled paper used versus a virgin fibre paper according to the latest European BREF data (virgin fibre paper) available. Carbon footprint data evaluated by FactorX in accordance with the Bilan Carbone® S By printing 4,000 printing By copies this of on Cocoonpublication recycled impact the environmental papers, was reduced by: Visit PLC Group Costain House Costain Park Business Vanwall Maidenhead 4UB SL6 Berkshire Kingdom United