Leading Edge Solutions
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Leading Edge Solutions Costain Group PLC Annual Report and Accounts 2019 Costain Group PLC Annual Report and Accounts 2019 Overview Costain is a Highlights 01 Company Overview 02 Why Invest in Costain? 04 Market Overview 06 smart infrastructure Our Business Model 16 Strategic Report Chair’s Statement 18 Chief Executive Officer’s Statement 20 solutions company Our Strategy 26 Implementing Our Strategy 29 Non-financial Information Statement 31 Responsible Business Report 32 Our purpose is to improve people’s lives. We deliver Our Responsible Business Commitments 34 integrated leading edge smart infrastructure solutions Engaging with our stakeholders 36 Operational Review 38 to meet national needs across the UK’s transportation, Chief Financial Officer’s Review 44 water, energy and defence markets. Principal Risks and Uncertainties 48 Long-term Viability and Going Concern Statement 52 Governance Board of Directors 54 Group Executive Board 56 Governance Report 58 Chair’s Introduction 58 Board Engagement 60 Our services Our Governance Structure 62 Board Leadership 64 Our Purpose, Values and Culture 66 Future shaping strategic consultancy Key Activities 68 We work with our clients in their business and investment planning to Audit Committee Report 76 develop new solutions to meet changing needs, leveraging our deep Nomination Committee Report 80 client insight, leading edge expertise and broad range of capabilities. Directors’ Remuneration Report 83 Remuneration at a Glance 83 Annual Statement by Chair of Consultancy and advisory the Remuneration Committee 84 We improve our clients’ business performance by providing value Remuneration Policy 88 adding consultancy and advisory services, leveraging our deep client Annual Report on Remuneration 95 insight, leading edge expertise and broad range of capabilities. Directors’ Report 108 Directors’ Responsibility Statement 113 Independent Auditor’s Report 114 Digital technology solutions We transform business performance and infrastructure intelligence Accounts through the development and integration of leading edge digital Consolidated Income Statement 122 technology solutions built on our deep client insight. Consolidated Statement of Comprehensive Income and Expense 123 Consolidated Statement of Asset optimisation Financial Position 124 We combine our deep client insight and leading edge expertise to Company Statement of Financial Position 125 increase capacity, improve resilience, minimise downtime and reduce our clients’ operating costs. Consolidated Statement of Changes in Equity 126 Company Statement of Changes in Equity 127 Complex programme delivery Consolidated Cash Flow Statement 128 Our complex programme delivery is safer, faster, better, smarter Company Cash Flow Statement 129 and costs less as a result of our pioneering working practices Notes to the Financial Statements 130 and collaborative behaviours. Other Information Five-Year Financial Summary 181 Financial Calendar and Other Shareholder Information 182 Contact Us 185 Overview | Highlights 01 Highlights Aligning our integrated services to meet our clients’ changing needs 2019 has been a year of transition for Costain as we began the implementation of our Leading Edge strategy to reshape and focus our business. Our underlying financial performance was impacted by delays to certain contract start dates and new awards, together with a contract cancellation and the loss resulting from the A465 arbitration. However, we are pleased that the Group has continued to secure significant new work during the year. Our Leading Edge strategy aligns our activities to meet our clients’ changing needs, supporting a step change in our programme delivery performance and an acceleration in the deployment of our higher margin activities. The UK infrastructure markets are growing and developing rapidly, with increasing demand for innovative solutions to upgrade, enhance and decarbonise the nation’s strategic infrastructure. This is a significant opportunity for our business and we are well placed, with our breadth of integrated services, to benefit from these market dynamics. Strengthening our balance sheet will enable us to capitalise on these opportunities and further enhance our capabilities. £14.6 m £17.9 m £1,162.9m Underlying1 profit before tax Underlying1 operating profit Revenue* 2018: £49.7m 2018: £52.5m 2018: £1,489.3m 2017: £43.8m 2017: £49.1m 2017: £1,728.9m Reported2: £(6.6)m loss Reported2: £(3.2)m loss Reported: £1,155.6m 13.5 p 3.8p £64.9m Underlying1 basic earnings Total dividend per share3 Net cash balance4 per share 2018: 15.15p 2018: £118.8m 2018: 38.2p 2017: 14.00p 2017: £177.7m 2017: 32.9p Reported2: (2.7)p loss Highlights • Underlying operating profit • New Leading Edge strategy in • Strengthening balance sheet: of £17.9 million in line with our place: accelerating the Group’s planned equity raise, fully revised expectations; the deployment of higher margin underwritten on a standby reduction in the year reflecting services through leveraging our basis, to strengthen the balance previously announced contract strong client relationships and sheet and enable the Group to delays, a contract cancellation reputation for complex capitalise on the growing and the impact of the A465 programme delivery. infrastructure market contract arbitration outcome. • Strong market opportunities: opportunities. • Continued momentum in our markets have significant securing new work: £1.7 billion long-term committed investment of new contract awards and programmes in place, with a extensions to existing contracts focus on addressing the UK’s secured during the year, with strategic infrastructure needs the order book, as at 31 and providing the Group with December 2019, standing at an annual c £23 billion £4.2 billion. addressable market. * Including share of joint ventures and associates. 1 Before other items; amortisation of acquired intangible assets, employment related deferred consideration and other one-off costs as shown on the income statement. 2 2019 reported figures include the impact of the one-off cost of £9.7 million in respect of an arbitration award and a one-off aggregate charge of £8.9 million for the loss on disposal and asset impairment for the Group’s non-core business assets in Spain as shown in the income statement. 3 This represents the interim dividend of 3.8 pence per share – the Company will pay no final dividend. 4 Net cash balance is cash and cash equivalents less interest-bearing loans and borrowings. Costain Group PLC 02 Annual Report and Accounts 2019 Company Overview We improve people’s lives by delivering integrated smart infrastructure solutions What we do Why we do it We offer our clients leading edge solutions that are Our purpose is to improve people’s lives. We help our digitally optimised across the whole life cycle of their clients improve their business performance by increasing assets by integrating five core services. capacity, improving customer service, safeguarding security, enhancing resilience, decarbonising and delivering increased efficiency. Our divisions and sectors Transportation Natural resources Rail Highways Aviation Energy Water Defence How we do it We deliver integrated leading edge smart infrastructure solutions to meet national needs across the UK’s Con sul transportation, water, energy ng tan pi ncy cy a ta a and defence markets. sh ul n ns d re o a u c d t ic v u g i F e s t o a r r y t s s n o i Improving t u l people’s lives o s y g o l o n h c e t l a it ig D As on set optimisati Overview | Company Overview 03 Our markets Transportation Water Energy Defence We connect and keep We keep water clean We power communities We keep the the nation moving and flowing sustainably nation safe See more on pages 08 and 09 See more on pages 10 and 11 See more on pages 12 and 13 See more on pages 14 and 15 Our Leading Edge strategy In 2019 we launched our Leading Edge strategy which closely aligns our services to meet the changing needs of our blue-chip clients whose major spending plans are underpinned by strategic national needs, regulatory commitments, legislation or essential performance requirements. Our strategic priorities drive continued progress and differentiation and are linked directly to our Executive Board-sponsored implementation plan. Our strategic priorities Enhancing our performance Developing our skills Delivering innovative Being a responsible and capabilities solutions business See our strategy on pages 26 to 30 Our outstanding team, strong culture and embedded values underpin everything we do. Sustainability and Life Cycle engineering Transportation Consultancy Design Management g Construction Management ty Risk Management Consulting ltin Electrical Engineering & Design ENGINEERING CONSULTING SERVICES Temporary s Design Safe es rategic consu onsulting Mechanical Engineering St ic Works PROCESS PROGRAMME Portfolio, Programme & rv C & Design ENGINEERING MANAGEMENT Project Management se ONSULTING HEALTH AND al L C SAFETY ti g stem ices Commercial Management NAGEMENT Project Engineering Management Mechanical Engineering rv Engineerin Digital Se Geospa Civil & Structural Engineering & Design Sy Engineering DESIGN MA mmercial Control & Instrumentation Engineering & Design VIRONMENTA EN Co Quality Management All of which contribute to… Our employees Leading Edge insight and delivery c 3,400 across the UK Costain Group PLC 04 Annual Report and Accounts 2019 Why Invest in Costain? The long-term, strategic nature of our client relationships and the trust they place in us to