PLC Group Costain Engineering

Visit www.costain.com Tomorrow... today Annual Report 2013 Costain Group PLC Costain Group PLC Costain House Annual Report 2013 Vanwall Business Park Maidenhead Berkshire SL6 4UB United Kingdom

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Strategic report Governance Financial statements 01 The spirit of innovation... 47 Chairman’s statement on corporate 86 Consolidated income statement 02 The history of Costain spans governance 87 Consolidated statement of a period of nearly 150 years 48 Board of Directors comprehensive income and expense 04 2013 highlights 50 Corporate Governance statement 88 Consolidated statement 06 Chairman’s statement 55 Audit Committee report of fi nancial position 08 Chief Executive’s review 58 Nomination Committee report 89 Company statement of fi nancial position 11 Business model 59 Directors’ remuneration report 90 Consolidated statement of changes 12 Business model – The Costain difference 77 Directors’ report in equity 24 Principal risks and uncertainties 81 Directors’ responsibilities statement 90 Company statement of changes in equity 26 Performing responsibly 82 Independent Auditor’s report to the 91 Consolidated cash fl ow statement 26 Divisional performance members of Costain Group PLC 92 Company cash fl ow statement 28 Engineering Tomorrow... ‘in action’ 93 Notes to the fi nancial statements 34 Corporate Responsibility 132 Five-year fi nancial summary 34 Costain Cares 35 Relationships Other information 39 Our Environment 134 Financial calendar and other shareholder 41 The Future information 43 Finance Director’s review 136 Contact us

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Costain photographers: Ian Routledge pages 6, 8, 43, 47, 48, 49 (Costain Board Directors); Ed Tyler pages 49, 136 (Jane Lodge, Graham Read); and Mike Doherty pages 49, 136 (Tracey Wood, Catherine Warbrick).

Additional photography: Courtesy of Thinkstock (front cover images and page 30); artist impression courtesy of Network Rail, page 2 ( Bridge Station); courtesy of Highways Agency, page 31 (Smart Motorways case study); courtesy of Network Rail, page 33 (BIM case study); and courtesy of Port Studio, page 40 (Harbour Way case study).

KPI Brunel illustration: Gilly Lovegrove

This icon has been used throughout the report and This report has been printed on Cocoon 50% Gloss and Cocoon references our key performance indicators (‘KPIs’). 100% Offset – both are recycled papers. They contain 50% recycled waste and 100% recycled waste respectively, are FSC-certifi ed and produced at a mill with ISO 14001 certifi cation. Recycled fi bres used Throughout the Annual Report, are process chlorine free. we have used the following icons to direct you to further information PAS2020 either in the report or elsewhere. ENVIRONMENTALLY SENSITIVE Links to further information CERTIFIED Find us online CERTIFYING BODY Our Annual Report 2013 is available in both in this report. printed form and within the ‘Investors’ section If you have fi nished reading the Annual Report and no longer wish of the Costain website at www.costain.com/ to retain it, please pass it on to other interested readers, return it investors. Effective communication with our to Costain Group PLC or dispose of it in your recycled paper waste. shareholders is vital to our continued success Links to further information and we would welcome feedback on either or within our website. Thank you. both versions of this Annual Report – email us at [email protected] This Annual Report is available at: www.costain.com Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 . 0101 Natural Resources Natural Water Process Nuclear Waste Oil & Gas Services Specialist design Specialist Technology integration Technology Complex project delivery Programme management Programme Asset optimisation and support Advisory and concept development of a strong and profi table of a strong forward and profi order book. Delivering value to all our stakeholders CostainCostain Group Group PLC PLC Annual Annual Report Report 2013 2013 Infrastructure Rail Highways Power Airports Delivering a sustainable business through the development Our vision... Our is to be one of the UK’s top engineering solutions providers. We must be the best for technical, innovative and sustainable solutions. Behaviour... we are committed to operating our business both sustainably and responsibly. We are focused on one simple but powerful message – ‘CostainThis Cares’. is not a slogan: it is an attitude of mind. It is integral to everything we do and a touchstone against which we can evaluate and measure our performance. Costain Cares about relationships, our environment and the future. Operations... we focus on intelligent solutions to meet national needs.As a Tier One engineering solutions provider, we provide front-end engineering consultancy, and ongoing care and maintenance services across market sectors. We have two core operating and reporting divisions within our business, Infrastructure and Natural Resources. Our strategy for sustainable growth can be found11-23. on pages Engineering Tomorrow Engineering ciently More detailed information about our strategic priorities can be found of this report.on13-19 pages Working in collaboration in Working Operate safely,effi responsibly and enhance to Continue insight customer Grow by broadening and services our integrating Develop best-in-class team Create and deliver innovative solutions sustainable Focusing on six strategic priorities strategy strategy strategy can can strategy be found at key locations in this report, 28-33,cally 12-23, on pagesspecifi 6, 8-9, 35, 40 and 42. Additional information concerning our our concerning information Additional Tomorrow Engineering Engineering Tomorrow Engineering Innovative – improving continuously and therefore the... s designeds meet to national needs by i upgrading and maintaining the UK’s UK’s the maintaining and upgrading infrastructure and aiding economic recovery Valueand is created growth. by our drive for innovation and we are committed to a constant quest for improvement. are We dent that our robust business modelconfi and our strategic focus will continue to deliver shareholder value in the years ahead. Isambard Kingdom Brunel was the celebrated engineer of his era. era. his of engineer celebrated the was Brunel Kingdom Isambard revolutionised ideas engineering innovative of pursuit and vision His rst century, In twenty-fi the century. the nineteenth in infrastructure world. a better build to passion a similar by driven is Costain today’s of challenges complex the meet to ways new seek We t benefi will that solutions engineering programmes; infrastructure the UK for generations to come. lived he which in world the on impact a fundamental had Brunel today. live we which in world the on and by spirit Brunel the share we Costain, At The spiritThe of innovation... Strategic reportStrategic Costain Cares and Our Values careWe about all our stakeholders. Our set of values drives our behaviour and provides the basis for all our decisions. Everyone at Costain is committed being: to • Customer focused • Open and honest • Safe and environmentally aware players• Team Accountable • • • Natural choice How we create value Our Strategic report

The history of Costain spans a period of nearly 150 years

Costain continues to be one of the UK’s leading engineering solutions providers, working to improve people’s lives by focusing on the issues you care about.

The Group was Mulberry Harbours founded in Wartime work included in 1865 by Richard 26 aerodromes, part of the Mulberry Harbours Costain, aged 26, and munitions factories. a jobbing builder from the . Festival of Britain Costain was the fi rst UK contractor to win the Queen’s Award for Export Achievement, in 1971.

Costain built the London Bridge Station Skylon and Dome A list of 101 interesting facts about Costain can of Discovery for the be found on its website: www.costain.com/ 1951 Festival of news Britain.

02 Costain Group PLC Annual Report 2013 01-45 Strategic report o r t Costain regularly announces key stakeholder information on the ‘News’ section of its website: Costain voted www.costain.com/ news Top 100 company The 4 December 2013 One of the UK’s leading engineering solutions providers, Costain, was placed 55th (joint place with Virgin Trains) in Britain’s ‘Most Admired’ league table, climbing up from last year’s 61st position.

The table, comprising 247 top names including Rolls-Royce, Unilever, Marks & Spencer, Royal Dutch Shell, J Sainsbury and Coca-Cola Enterprises, was organised by Management Today magazine and sponsored by BSI. Costain was a founder member The league table was compiled by asking Britain’s largest of the Channel public companies in 26 sectors to evaluate their peers. Tunnel joint venture. Contract fi nalised with EDF CostainC awarded M6 – Heysham The 1,377 metre Tsing for Hinkley Point Nuclear LinkL Road contract. Ma suspension bridge Power Station. built in consortium in is the world’ss longest combined road CostainCostain awawardedard fi ve-year framework and rail bridge. contract for Network Rail.

Costain to refurbish Hammersmith Flyover. Costain JV awarded Costain awarded £900 million Network a £400 million contract Rail contract. to redevelop London Bridge Station. Costain appointed to Thames Water AMP6 programme.

Costain Group PLC Annual Report 2013 03 Strategic report 2013 highlights Strategy delivering results

Financial highlights

2 1, 3 1, 4 Revenue Underlying operating profit KPI Adjusted profit from operations £m £m £m

1 ,200 30.0 40 1,061.1 27.4 35.0 1,022.5 986.3 960.0 24.1 24.5 900 934.5 22.5 22.0 30 29.4 30.8 17.4 23.6 600 15.0 20 20.8

300 7.5 10

0 0 0 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13

1, 4 Net cash balance KPI Adjusted earnings per share Dividend per share £m Pence Pence

160 48 12 11.5 144.3 44.1 10.75 140.1 39.7 10.0 120 120.5 36 36.4 9 9.25 105.7 31.1 8.25 80 24 23.0 6 57.7 40 12 3

0 0 0 09 10 11 12 13 09 10 11 12 13 09 10 11 12 13

1 2012 restated for revised IAS 19 Employee 2012 benefi ts accounting standard. 2013 1 (restated) 2 Including share of joint ventures and associates. Revenue 2 £960.0m £934.5m 3 Underlying operating profi t before Other items (amortisation of acquired intangible assets Operating profi t and employment related and other deferred Underlying 3 £27.4m £24.5m consideration and in 2013 £3.7 million one-off costs associated with the offer for May Gurney Profi t before tax Integrated Services plc) and in 2012 excludes 4 the £2.8 million one-off costs resulting from Adjusted £31.0m £28.1m pension scheme liability actions. Reported £12.9m £24.7m 4 Results stated before Other items (amortisation of acquired intangible assets and employment Basic earnings per share related and other deferred consideration and in Adjusted 4 44.1p 39.7p 2013 £3.7 million one-off costs associated with the offer for May Gurney Integrated Services plc Reported 18.8p 35.4p and non-cash impairment of £9.8 million on carrying value of assets in non-core Land Net cash balance £57.7m £105.7m Development activity in Spain). Dividend per share 11.5p 10.75p

KPI

This icon has been used throughout the report and references our key performance indicators (‘KPIs’).

The Finance Director’s review can be found on pages 43-45.

The fi nancial statements can be found on pages 86-132.

04 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 05 Costain Group PLC Annual Report 2013 A more detailed review of the Group’s Responsibility performance Corporate can be found on pages 34-42. Andrew Wyllie, Chief Executive, reviews the Group’s performance in more detail on pages 8-10. In September, Costain, in conjunction in conjunction Costain, September, In The Big Infrastructure hosted BITC, with City Hall London’s at Conversation recognised was Costain December, In (The NEF Innovation prestigious the at receiving Awards, Innovation Institute) Most the for high commendations and Most Business Process Innovative categories Inspiring Business Leader Acquisition of EPC Offshore Ltd, Offshore EPC Ltd, of Acquisition gas project oil and a specialist and management services company, provide to Upstream, Costain launch of upstream of life-cycle services the across offshore gas assets oil and nal dividend in fi Recommended increase taking year, successive seventh the for pence, 11.5 to year the for total the prior year on the increase a 7% and and placing rm placing fi Proposed million (before £75 open raise circa offer to the of advantage take to expenses) opportunities available number of growing development Group’s the accelerate to medium and long term in the • • • • •

4 up 12% up 12% 3 to £31.0 million (2012: £28.1 million) £28.1 million (2012: £31.0 to 4 Costain achieved the highest ranking, ranking, highest the achieved Costain in Business in the Big Tick, Platinum annual benchmark (‘BITC’) Community’s business responsible management, of Responsibility Index Corporate the be named in the to delighted were We Index Performance Leadership Climate performing best companies the as one of annual Project’s Disclosure Carbon in the change report FTSE climate 350 Underlying operating profi t profi Underlying operating Adjusted basic earnings per share basic Adjusted to £27.4 million (2012: £24.5 million) £24.5 (2012: million £27.4 to t before profi in adjusted 10% of Increase tax increased by 11% to 44.1 pence 44.1 to 11% by increased pence) 39.7 (2012: to book up 25% order Forward billion): over £2.4 billion (2012: £3.0 book comprises repeat 90% order of 90% risk cost- lower and over orders contract of forms reimbursable net cash balance million year-end £57.7 the ecting million), refl £105.7 (2012: risk cost- lower to transition anticipated reimbursable contracts, reduced levels and increasing payments advance of support services revenues Environmental and social highlights social and Environmental • • • Highlights • • • • Strategic report Chairman’s statement

The opportunities in our marketplaces The Group’s net cash position at are substantial as investment by major 31 December 2013 was £57.7 million customers in transportation, energy and (2012: £105.7 million). This reduction water resources is expected to grow was expected given the Group’s rapid signifi cantly, and supplier consolidation transformation and strategic focus on is anticipated to continue. In this major customers who utilise target cost, changing and competitive environment, cost-reimbursable contracts. Over 90% it is essential that Costain is able to of the order book now includes this demonstrate that it has the scale, lower risk form of contract, which is skills, experience and fi nancial strength more suited to complex, long-term necessary to secure, and then deliver, projects. The lower net cash position a strong performance on these also refl ects an increase in support increasingly large and complex contracts. service related activities, a reduction David Allvey in advance payments and a delayed Chairman The proposed under-written capital contract. raising will enable Costain to capitalise Overview and strategic update on these opportunities by demonstrating We were successful in securing a Costain has delivered another strong the Group’s fi nancial capacity to number of major new contract awards performance. support a greater number of longer, and extensions to existing contracts. larger contracts, investing in innovation Consequently, the order book was up The Group has been transformed in and technology, fi nancing bid costs 25% to £3.0 billion as at 31 December recent years and is now recognised for projects, funding increased working 2013, compared to the start of the year as one of the UK’s leading engineering capital requirements and, where (2012: £2.4 billion). solutions providers. The Group is part opportunities arise, adding further of a select group of companies with the expertise by acquisition, thereby Dividend integrated consulting, project delivery accelerating the Group’s development. In light of another successful and operational capability required to performance and our continuing meet the needs of major customers in Performance confi dence in the long-term prospects a rapidly developing multi-billion pound Revenue, including the Group’s share for the Group, the Board is market. of joint ventures and associates, for the recommending a 7% increase in the year increased to £960.0 million fi nal dividend, the seventh successive We recognise the changing dynamics (2012: £934.5 million), 30% of which year of increase. If approved, the of the UK marketplace, in which major was derived from support service related 7.75 pence per share (2012: 7.25 pence) customers are seeking to build strategic activities. Our focus on higher margin fi nal dividend will be paid on 25 April relationships with fewer service providers activities led to an increase of 12% in 2014 to shareholders on the register involving larger, longer term contracts Group underlying operating profi t of as at the close of business on 14 March incorporating a broader range of services £27.4 million (2012: £24.5 million). 2014. This would bring the total dividend across the full life-cycle of an asset. Adjusted profi t before tax increased by for the full year to 11.5 pence per share 10% to £31.0 million (2012: £28.1 million). (2012: 10.75 pence), an increase of Through the successful implementation Adjusted basic earnings per share were 7% over the prior year. of our Engineering Tomorrow strategy, up 11% to 44.1 pence (2012: 39.7 pence). Costain now provides a range of Group pension scheme integrated consulting, project delivery The defi cit on the Group’s legacy and operations and maintenance Costain Pension Scheme (‘CPS’) at services to blue-chip customers in the 31 December 2013 was £29.4 million UK’s infrastructure, energy and water net of deferred tax (2012: £40.0 million). markets. The Group has a well- The assumptions and sensitivities used respected brand, excellent reputation in the valuation of the pension scheme and strong track record of performance. are set out in the notes to the fi nancial statements. In accordance with the requirement for a triennial review, another full actuarial valuation of the CPS is being carried out as at 31 March 2013.

06 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 07 Costain Group PLC Annual Report 2013 erformance with a forward in 2013, Summary and outlook outlook Summary and Costain has delivered another strong p David Allvey David Chairman 26 February 2014 order book up 25% to £3.0 billion, and billion, £3.0 to 25% up book order the Board is recommending an increase nal dividend for the seventh in the fi successive year. The Group has been transformed, and leading is now one of the UK’s Tier One engineering solutions providers. Costain is established in a developing market of a limited number of providers who can deliver the innovative integrated consulting, project delivery and services maintenance and operations major by demanded increasingly customers. The proposed capital raising alongside these good results provides us with the opportunity accelerate to our growth in the medium and long term in rapidly evolving markets, in which it is expected spent be will billion £400 over that in the next ten years. appointment their including skillsdate, and experience and external appointments can be found on 48-49. pages The Board Directors of at Mr Samer a Non-Executive Younis, People we announcedOn November20 2013, th Director of Costain and the nominee of & Al-Kharafi Abdulmohsin Mohammed ed ’), had notifi (‘Kharafi Sons W.L.L. Co. the Board of his resignation as a Director of theCompany with effect from would We 30 like to November 2013. thank Samer for his contribution during his years of service. wereWe pleased welcome to the to Board Mr Ahmed a nominee Aly Samy, , as a Non-Executive Director of Kharafi with effect from 30 November 2013. the DeputyMr Samy, Director General , is also Investment Affairs at Kharafi a member Nomination of Costain’s Committee. announcedWe January on 28 2014 that Alison Wood would join the Board as a Non-Executive Director with effect from Alison 1 February is currently 2014. a Non-Executive Director at Cobham plc and Senior Independent Director at e2v technologies plc and was formerly Non-Executive Director plc at BTG and Thus Group plc. Alison will succeed Mike Alexander as Chair of the he when Committee Remuneration retires, as previously announced, on March31 2014. There were a number of operational management changes in the year and these are covered in the Chief Executive’s review. On behalf of the Board, I would like placeto on record our recognition and appreciation the of excellent colleagues we have at Costain who continue to play a major role in our success. to demonstrate to customers to the nancial capacity support to fi Group’s the anticipated further increases in contract size and duration; invest to in innovation and technology necessary enhance to the service offering the customers; to nance bid costs associated with fi to a greater number of large-scale projects for which the Company is in a position tender; to fund to likely increased working capital requirements arising from the move in the market towards target cost, contracts; cost-reimbursable exibility make to selected provide to fl complement to acquisitions ll in-fi capabilities as existing Costain’s opportunities arise; and for general corporate purposes. apital raising enable to the Group Please see the separate announcement separate the see Please made Costain by for further details of the terms and conditions of the proposed raising. capital The proceeds will be utilised: be will proceeds The • • • • • • The capital raising has been fully underwritten Investec by Bank plc and Liberum Capital Limited. The Group proposes raise to (net million of £70.3 approximately rm placing and expenses) way of a fi by placing and open offer in aggregate, of, 33,382,068 new ordinary shares at an offer price pence of 225 per new ordinar y share.rm shares will be issued through the fi 11,111,112 new ordinar newplacing ordinary and 22,270,956 y shares will be issued through the placing and open offer on the basis of 1 new ordinary share for every 3 existing ordinary shares. to take greaterto advantage of the opportunities in its chosen markets and thereby accelerate medium- the Group’s and long-term growth prospects. Proposed capital raising Costain has announced a proposed c Strategic report Chief Executive’s review

This change in customer procurement In energy, it is estimated £110 billion approach, and associated supplier is to be invested by 2020 in new energy consolidation, along with the very infrastructure to meet the forecast substantial expenditure expected in energy supply capacity gap; and the next few years is creating a dynamic £50 billion is expected to be spent to marketplace which provides Costain address the UK’s nuclear waste legacy, with a tremendous opportunity to whilst the ongoing capital investment in accelerate the development of the North Sea oil and gas is at its strongest business. for over 30 years (£13 billion forecast in 2013). Market trends and developments The UK transport, energy and water In water, there remains an ongoing need markets are defi ned by signifi cant and for asset performance improvements, Andrew Wyllie long-term planned expenditure increased water standards and a greater Chief Executive programmes underpinned by committed focus on the combination of capital regulated spend and essential capital and operating costs, with continued This has been another year of signifi cant investment. The future opportunities in regulated investment planned. The progress in the transformation of Costain these markets are substantial. 5 year AMP6 period commencing in into a full engineering service provider for April 2015, is expected to include an major customers who continue to invest The UK Government, as set out in investment level similar to the £21 billion billions of pounds addressing essential their recent National Infrastructure invested over 5 years during AMP5. national needs. Plan, estimates that average annual infrastructure investment in the UK Alongside these planned levels of The development of new skills and has increased to £45 billion per annum infrastructure investment, our major capabilities, broadening the scope of compared to an average of £41 billion customers are consolidating their supply our activities, and the introduction of per annum between 2005 and 2010. chains as they seek to derive business new technology has ensured that we The National Infrastructure Plan has benefi ts by working in a more strategic were able to deliver a strong fi nancial set out an overall investment of and collaborative manner with a performance and secure a 25% increase £224 billion to 2020 in an identifi ed reduced number of preferred Tier One in our order book to £3.0 billion, of which pipeline of projects in the UK. engineering solutions providers, like over 90% is repeat business. We have Costain, who have the ability to satisfy increased to over £750 million the Rail remains a priority area of investment the full range of their service needs revenue secured for 2014 (2012: over for the UK Government, to stimulate for increasingly complex and large-scale £700 million secured for 2013) and economic growth, with a 14% increase projects. in excess of a further £2.2 billion of in demand for rail travel estimated for revenue secured for 2015 and beyond. the next fi ve years. To address this The complex nature of the customers’ In addition, the Group has maintained demand, £38 billion has been allocated requirements also dictates that a target a strong preferred bidder position of to national rail networks in areas cost, cost-reimbursable form of contract over £400 million. It is encouraging to including electrifi cation, track and is the most appropriate to be utilised. have started the new fi nancial year with network upgrades. A further £43 billion Consequently, over 90% of our order such good long-term revenue visibility. has been allocated for . book is now comprised of this form of contract. Contracts of this form benefi t Costain is now established as a leading In highways, the Chancellor promised from generally being lower-risk than Tier One UK engineering solutions in June 2013 the most extensive lump sum contracts, but they do tend to provider. programme of road building in over be associated with higher bid costs and 50 years. By 2020-21, the UK working capital requirements. The speed Through the implementation of our Government is expected to invest of the move to this form of contract is Engineering Tomorrow strategy, over £28 billion in enhancements and refl ected in the cash fl ow movement we are focused on providing innovative maintenance of national and local roads. in the year. and cost-effective solutions to customers who are increasingly seeking more strategic relationships through larger and longer-term contracts in order to meet their complex requirements.

08 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 09

Costain Group PLC Annual Report 2013 e sale of its minority shareholdings s refl ected by a 12% increaseected a 12% in by s refl Operating results Operating The strong performance of the Group i in three joint venture companies to for a total consideration PLC Severn Trent will Trent Severn million. £12.0 of therefore become 100% owner of the three companies, which provide services As a resultin the water sector. of the t transaction, Costain realised a profi 2013. in million £9.1 of theAt period end, the Group acquired interest fromthe 27% its partner Serco Group plc in their Managed venture joint Technology Motorway arrangement for a cash consideration venture The joint million. £2.4 of arrangement, in which Costain already held the remaining interest, 73% has a place on the Highways Agency framework deliver to new technology-led highways improvements. joint venture activities During the period, Costain completed in developments cant th Group underlying operating profi t to t to Group underlying operating profi million). £24.5 (2012: million £27.4 The Infrastructure division in particular has had a very successful with an year, underlying operating revenue, in increase t and order book. This strong profi performance is a result of our previous focus on a number of opportunities in the infrastructure markets now delivering excellent operating returns for the Group. During the Natural the year, Resources division has continued its transformation ects tability refl and the reduced profi lower revenues, additional costs to complete a small number of projects and restructuring and business development costs including the deployment of new skills and capabilities under a strengthened leadership team. The transformation is now complete nished the year with and the division fi an increased order book and a high level of tendering activity. Signifi strategy can be can strategy Additional information concerning our concerning information Additional Tomorrow Engineering cally found locations at key in this report,specifi 40 35, 28-33, and 12-23, pages42. 8-9, 6, Scan this QR code view to interview announcement the Wyllie. Andrew with rough acquisition rough o announce the acquisition of EPC management tool was one such idea, which is now being sold commercially rail to and highways customers as an addition range Costain’s to of services. Other examples of new innovation and technology beingdriven across our entire service offering include: COpath, an asset intelligence resource which gathers data intelligence on the behaviour and movement of people within major assets such as railway stations; carbon capture and storage technology; Nuclear Management Waste cation; and GRAVITAS Graphite Gasifi offshore, which carries out research on the design and construction of concrete gravity foundations for large offshore turbines. wind The wide range of new technology within the business was showcased for customers at a successful innovation event held in September at the Darwin Centre in the Natural History Museum London. in capabilities our Broadening th On 1 August 2013, we were delightedOn 1 August 2013, t Offshore, a specialist oil andgas project management services for an company, million £10.6 of consideration initial cash). excess for million (including £1.0 The acquisition is expected be to earnings enhancing Costain to in the rst full year of acquisition. fi Costain also announced the launch of Costain Upstream, provide to services across the life-cycle of upstream offshore oil and gas assets. Costain Upstream will combine the capabilities of ClerkMaxwell, the oil and gas engineering support and services whichprovider, has more than doubled and in size since its acquisition in 2011, EPC Offshore, increase to the scale of servicesthe Group’s in the growing, high-value North Sea upstream oil and market. gas

rategy st Engineering Tomorrow Engineering a contract with design EDF to and deliver the water cooling systems for the new Hinkley Point C nuclear station; power cation upgrade of the the electrifi West Coast Mainline for Network Rail; the AMP6 programmes for Thames andWater Severn Trent; a number of contracts for t-out and including the design, fi commissioning of the railway systems; delivery the of Front End Engineering Design (‘FEED’) for gas Centrica’s following Barrow, at terminal design the of completion successful and construction of the Easington eld; and terminal fi for the York a highways framework contract with Transport for London including the Hammersmith Flyover strengthening project. s a Tier One provider and our market s the Costain commitment identifying, to We areWe increasing our investment in Research and Development, and we have initiatives in place encourage to and support entrepreneurial members of staff develop to their ideas into business opportunities. The ‘Mario’ asset developing and implementing innovative innovative implementing and developing is It needs. national major to solutions this that enables win us to large and involving contracts strategic long-term, highly complex work across the full life-cycle of our major customers’ assets. Our customers’ endorsement of Costain endorsement of customers’ Our a leading reputation is founded on our in excellence to commitment engineering. i • • • • • Tomorrow Engineering The provision of an increasing range of skills and services, along with our strong brand and reputation for excellent delivery, has enabled secure us to over integrated large, worth of billion £1.5 and complex projects and contract extensions during the course of the including: year, • Strategic report Chief Executive’s review continued

The Group has reassessed the carrying ‘Costain Cares’ During the period, Alex Vaughan was value of the assets in its non-core Land Our customers place great emphasis appointed Managing Director of the Development activity in Spain, which is on the ‘good citizen’ credentials of their Natural Resources division, succeeding undertaken in a 50:50 joint venture with supply-chain partners. Increasingly, Mark Rogerson who left the Group to Santander Bank. As a consequence of customers insist that their Tier One pursue other opportunities. Tim Bowen continuing uncertainty regarding future providers share their corporate and replaced Alex Vaughan as Corporate market conditions in Spain, a non-cash social responsibility values, and failure Development Director. impairment has been taken against the to embrace this means non-qualifi cation assets, the Group’s share of which is for tender lists. We passionately share The Future £9.8 million, reducing Costain’s total these values because we believe Costain has delivered another strong carrying value in the joint venture that investment in corporate social performance and demonstrated again to £26.6 million. responsibility capital is a vital investment that it has the right strategy to drive in the Group’s future success. profi table growth by responding to the Lapsed all-share merger with complex and fast-evolving requirements May Gurney Integrated Services plc Our ‘Costain Cares’ programme places of its blue-chip customers. (‘May Gurney’) responsible, effective and collaborative The Boards of Costain and May Gurney stakeholder relationships at the core of Our established status as one of the announced in March that they had everything we do, is a central part of our UK’s leading engineering solutions reached agreement on the terms of value proposition to customers and has providers, our increased order book a recommended all-share merger of a direct impact on the size and quality and our market-leading reputation for Costain and May Gurney (the ‘Proposed of our order book. innovation means that we are confi dent Merger’). of delivering further progress and being We received a further Platinum award able to take advantage of signifi cant Following an offer from another party from Business in the Community, opportunities in our chosen sectors. in April, Costain announced that, having recognising our proactive commitment undertaken several months of detailed to mitigating the environmental and The proposed capital raising will enable due diligence, it did not believe that it social aspects of our operations. us to accelerate the rate at which we would be in the best interests of Costain address these opportunities, and will shareholders for Costain to amend the Costain places the highest priority thereby enhance the Group’s medium- terms of the Proposed Merger and that on the effective management of and long-term growth prospects, by it would not be making a revised offer for Safety, Health and Environment, and demonstrating the Group’s fi nancial May Gurney. Accordingly, the Proposed the Group’s Accident Frequency Rate capacity to support a greater number Merger lapsed in accordance with (‘AFR’) was 0.12, which continues to of longer, larger contracts, investing in its terms. compare favourably with our major innovation and technology, fi nancing Tier One peer group. We also received bid costs for projects, funding increased The Group incurred transaction pre-tax 16 Gold Awards from RoSPA, four working capital requirements and, costs of £3.7 million associated with the Gold Medals and two prestigious where opportunities arise, adding further May Gurney proposal and these have Orders of Distinction. expertise by acquisition. been expensed in the results and treated as a one-off non-trading item. Costain improved its position in the I look forward to reporting on further annual assessment by Management progress during the year. Today magazine of Britain’s Most Admired Companies, ranking 55th overall and improving to second place in the sector.

Additional information Teamwork concerning our Costain The strong results generated by Cares strategy can be Costain in 2013 were delivered by our Andrew Wyllie found on pages 34-42 outstanding multi-disciplined team of Chief Executive and on our website: approximately 4,000. During the year, www.costain.com/ we increased once again our training 26 February 2014 responsibility and development programmes across the organisation so that we have the requisite skills and resources. There was a further increase in the number of apprentices across the Group.

10 Costain Group PLC Annual Report 2013 Strategic report 01-45 Strategic report Business model Our business model 46 Governance

We are committed to growing -84 our business in a controlled Our vision... manner across all our target is to be one of the UK’s top engineering solutions providers. We must be the best for technical, innovative and sustainable solutions. markets. We deliver this through our business model which enables us to deliver innovative engineering Behaviour... solutions for our clients and we are committed to operating our business both sustainably and their customers. responsibly. We are focused on one simple but powerful message – ‘Costain Cares’. This is not a slogan: it is an attitude of mind. It is integral Our strategy and business to everything we do and a touchstone against which we can evaluate

and measure our performance. Costain Cares about relationships, 85-132 Financial statements model are underpinned by our environment and the future. strong leadership and robust processes across fi nance, risk management and operations, strong governance and very Operations... high standards of responsibility. we focus on intelligent solutions to meet national needs. As a Tier One engineering solutions provider, we provide front-end engineering consultancy, This approach delivers construction and ongoing care and maintenance services across market sectors. We have two core operating and reporting divisions within our sustainable growth, allowing business, Infrastructure and Natural Resources. us to meet our business goal of delivering value to all our Infrastructure Natural Resources stakeholders. Rail Water 133-136 Other information Highways Nuclear Process Power Waste Airports Oil & Gas

Services Advisory and concept development Specialist design Programme management Complex project delivery Technology integration Asset optimisation and support

Delivering value to all our stakeholders Delivering a sustainable business through the development of a strong and profi table forward order book.

Costain Group PLC Annual Report 2013 11 Strategic report Business model continued The Costain difference

01 Creating value through our customer focused strategy

Our strategy...strategy...

Engineering Tomorrow...

is our strategic commitment to identifying, developing and implementing innovative and sustainable solutions to meet major national needs.

Additional information can be found online: www.costain.com/engineering-tomorrow

12 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 13 KPI t 2012 2011 2012 £24.5m £24.1m Costain Group PLC Annual Report 2013 s a key measures a key of performance for Underlying operating profi operating Underlying plan. business with line In Target: £27.4m 2013 £27.4m tThe level of underlying operating profi i the Group. The measure represents the results of the operating elements performanceof the Group’s and excludes sales of assets and joint ventures. underlying The Group’s and 2013 t in 2012 operating profi increased as a result of the strong performance in the Group during each ects tability refl The increasedyear. profi continuedthe Group’s focus on higher work. margin In accordance with the requirements requirements the with accordance In of theCompanies Act 2006 (Strategic and Directors’ Report) Regulations the Group has adjusted its2013, reporting boundaries. carbon Emissions under thisregulation cover and 2 emissions1 scope for all Costain Group activities, including overseas interests and joint ventures, in which the Company has a 50% or greater we willnancial stake. In 2014, fi continue expand to our scope of reporting ensure to that we incorporate and2 emissions 1 all scope where nancial interest. Costain has a fi KPI Emission intensity e 2 tonnes CO tonnes strategy will ensure ensure will strategy Tomorrow Engineering Total 1 Scope 2 Scope . equivalent emissions equivalent

2 2 2 orporate and an individual responsibility CO to ensureto that operations are managed in a safe, healthy and environmentally common The manner. controlled measure in the construction sector for measuring safety performance is the AFR which measures the number of serious workplace accidents reportable under the Reporting of Injuries, Diseases and Dangerous Occurrences Regulations per hours 100,000 1995 AFRThe increased Group’s worked. are We compared 2012. to in 2013 continuing work reduce to to the AFR in line with our aspiration towards zero accidents. CO 14,365 Target: To reduce our measureTo Target: emissions equivalent equivalent emissions (tonnes)CO 14,365 10,474 equivalent 3,891 emissions (tonnes/ £million) 14.85 Within the there Company, is both a c responsibly ciently and KPI 2012 2011 2012 0.09 0.11

1: Operate effi safely,

Focusing on six strategic priorities Focusing erformance with a zero tolerance AFR’)

2013 performance and KPIs 0.12 2013 0.12 approach. Target: To continuallyTo improve safety Target: p Accident Frequency Rate Rate Frequency Accident (‘ The Health and Safety of our people and everyone who is involved with Costain remains ourhighest priority. demandWe that safety must be adhered at all to times ensure to that we operate in an environment which harm. from free is concentrateWe on solutions that deliver best value forcustomers. This requires an unrelenting focus on our customers’ costs and our own procedures. operating business responsible that believe We is integral delivering to greater value to our customers and all our stakeholders. Our commitment delivering to services responsibly and sustainably is vitally important the are Group. to We focused on building a long-term creates that business sustainable and environmental economic, value. social 02 we remainwe competitive and continue to deliver shareholder value. Our strategic focus is to enhance our growth and position market providing by innovative and sustainable solutions to increasingly complex and large-scale national TheGroup hasneeds. been transformed in recent times to meet our customers’ continuously requirements. evolving Our Strategic report Business model continued The Costain difference

02 Focusing on six strategic priorities continued

1: Operate safely, effi ciently and responsibly continued

Net cash balance KPI Costain Way of working. The Costain Target: Maintain a net cash Way is faster, easier to access, easier balance at an appropriate level to search and is simplifi ed to tell you to suit the business requirements. what you must do and how to do it, with guidance and tools. This improvement will help manage and reduce risk and drive effi ciencies £57.7m across the business. 2013 2012 2011 £57.7m £105.7m £140.1m 2014 focus

The Group has a positive net cash • Continue to reduce the Group AFR balance and close monitoring and and the All Accident Frequency Rate measurement of cash resources is (‘AAFR’) towards our goal of zero carried out as part of the performance harm: AFR 0.08, AAFR 2.1 measurement process. The reduced • Reduce measured carbon emissions positive position refl ects a transition to intensity by 55% by 2020 (against over 90% of the order book being a 2009 baseline) lower risk, target-cost form of contract, • Launch our 2020 Costain Cares an increase in support services (Corporate Responsibility) Strategy activities and a delayed contract • Reduce non-operating and completion. operating costs

Health and Safety Awards Risks Our strong Health and Safety performance was recognised by the • Health and Safety achievement of 35 RoSPA Awards, including two Orders of Distinction, • Operational delivery one President’s Award, four Gold • Failure of IT system Medals and 16 Gold Awards. Additional information relating to the principal risks and uncertainties can The Costain Way be found on pages 24 and 25. The Costain Way is Costain Group’s Business Assurance System, a risk-based, integrated management system that provides instructions and advice on how to promote best practice across the Group. The Costain Way updates and builds on the strength and success of its predecessor, Implementing Best Practice (‘IBP’), providing a new innovative approach. It contains the required standards, guidance, best practices and standard forms for all the activities undertaken by everyone across the Costain Group – the

14 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 15 The Group’s divisional performance can be found on pages 26 and 27. Costain Group PLC Annual Report 2013 2012 2011 2012 84% 81% Additional information relating the to principal risks and uncertainties can be found on pages and 24 25. ndon’s Natural Historyndon’s Museum was Winning new work delivery Operational Economic conditions Economic relationships with our customers, their into deepergaining insight challengesbusiness thought our strengthen to Continue we ensuring by position leadership uential ‘voice of the become the infl industry’ in terms of sustainable infrastructure development C Risks 2014 focus 2014 • • • ontinue build to strategic • 84% 2013 84% evening innovation Customer theIn September, Darwin Centre at Lo host venue for a Customer Innovations products exciting showcasing Evening, and developments that the Group has brought fruition to over the past year. The audience consisted of over 60 customers and stakeholders, key who were able talk the to Costain to innovations, the behind personnel ts of individual discovering the benefi innovations and how they could improve the performance of their business. • Customer satisfaction Customer KPI 2012 2011 2012 +90% +90% is focused on providing

2: Continueto enhance customer insight

morrow nnovative and cost-effective solutions 2013 performance and KPIs to customersto who are increasingly longer-term strategic seeking more contracts in order meet to their complex is, business Repeat requirements. therefore, an essential measure for the business. With over 90% repeat maintained has Costain business, business of pipeline strong a development opportunities and we continue demonstrate to the quality of our customer insight and relationship. Engineering strategyThe Engineering Group’s To

+90% +90% 2013 Repeat business Repeat plan. business with line In Target: The ability understand to the is customers our challenges facing crucial if strengthen we are to and evolveour relationships with them. customer our enhance to Continuing insightis one of our priorities top and long-term, strategic, building by is it collaborative partnerships that we are best positioned deliver to innovative solutions these to customers. Additional value is delivered both to customers and end users operating by ciently with a strong focus on speed effi uncompromising an and agility and attitude recognise We safety. to that talented, integrated and accountable project teams are fundamental to maximising the opportunities presented uniqueby customer insights. i Strategic report Business model continued The Costain difference

02 Focusing on six strategic priorities continued

3: Grow by broadening and integrating our services

We continue to deliver engineering Revenue 2014 focus services across the full asset life-cycle, Target: In line with business plan. from advisory and design to operations • Increase revenue and order book and maintenance. 19 11 across our six core service lines In 2013, we continued to broaden and • Organic growth and growth through 70 enhance our service offering. We have acquisition developed our value proposition across 2013 six core service lines in an increasingly Risks integrated offering to customers: 11% Advisory and design advisory and concept development, 70% Programme delivery • Economic conditions specialist design, programme 19% Operations and maintenance • Winning new work management, complex project delivery, • Operational delivery technology integration, asset Costain delivers engineering solutions • Acquisitions optimisation and support. across our customers’ full asset life-cycle, from advisory and design, Additional information relating to the 2013 performance and KPIs principal risks and uncertainties can programme delivery to operations and be found on pages 24 and 25. maintenance. The increasing range of Order book KPI skills and services across these activities Target: To build a strong order has enabled the Group to continue to book in line with strategy. increase the revenue derived from this broader range of services. £3.0bn Acquisition of EPC Offshore In August, Costain acquired EPC 2013 2012 2011 Offshore, a specialist oil and gas project £3.0bn £2.4bn £2.5bn management services company. EPC Offshore, a fi eld development and The level of secured orders on which project management specialist providing work is to be carried out is a key client-side services to North Sea oil measure for achieving continued and gas companies, complements the profi tability and growth. The order book acquisition of ClerkMaxwell in 2011. has increased compared to 2012 due These acquisitions strengthen our to the Group securing over £1.5 billion strategy, broadening our range of of new contracts and extensions. capabilities in response to requirements of major customers, increasing the scale of the Group’s services in the growing, high-value North Sea upstream oil and gas market.

16 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 17 Additional information relating the to principal risks and uncertainties can be found on pages and 24 25. Costain Group PLC Annual Report 2013 h Business in the Community, Community, the in Business h and sponsorship pipelines to disciplines new Continue develop to transferrable sectors across skills management Talent Unconscious bias training People B Investment in training in Investment development and £3.0m days training 10,000 over training days 7,988 2012: Risks 2014 focus 2014 roaden graduate, apprentice • • • • Big Infrastructure Conversation In September Costain, in conjunction wit hosted the Big Infrastructure Conversation, City at London’s Hall. students,On the ambassadors, day, apprentices and trainees met business leaders and discussed their own the experiences, apprenticeship work inspirational importance of experience and skills. For the industry leaders, there was also an opportunity share to best practice about how businesses can tackle youth unemployment and to listen young to people about their needs, hopes and ambitions for the future, particularly in relation advice. career valuable securing to • KPI 12 120 management 22.2% 22.2% female ) female 1 6 BAME 19.4% female 8.0% BAME 6.6% BAME 2012 2011 2012 Board Senior in the workforce. the in 645 2,743 Figures as December at 31 2013 UK employees UK employees: 3,388, 645 are female Board: one female out of seven Senior management: females out 12 of 132 ( Costain is an inclusive employer and from inclusion equality and promotes recruitment and selection, through training and development, promotion, to reward, recognition and retirement. The Group values the differences that a diverse workforce brings the to organisation.The Group has monitored le of its employees, as the diversity profi a total population, over the last six years, le which shows a fairly consistent profi of female and Black, Asian and Minority 2013, In employees. (‘BAME’) Ethnic there has been a slight decrease in the number of female employees 19.0% to and a decrease in BAME employees (employees who 7.2% declaredto their ethnicity). the Group has In 2013, expanded reporting include to women in senior positions within the Company. 19.0% 7.2% 2013 19.0% female 7.2% BAME Diversity and inclusion value diversityTo and Target: inclusion KPI 7.4% 7.0 % 2012 2011 2012

4: best-in-class Develop team

rking conditions in order retain to o delivering a quality service to 2013 performance and KPIs customers. The Group undertakes a number of important initiatives retain to staff,key including actively facilitating their career development. Clear action plans are in place address to issues such as Health and reward, Safety, training and development and job satisfaction. The Group uses a to rate turnover leavers’ ‘voluntary ourmonitor staff retention. In 2013, staff turnover increased slightly to 8.5%, but it continues compare to favourably the industry to average. 2013 8.5% The retention of staff is fundamental t key staff. 8.5% Staff turnover Staff turnover provide initiativesTo and Target: wo Attracting, retaining and developing the best people for Costain to is key success. our continueWe grow and to enhance our capability in line with our customers’ needs for the relevant skills for today and By tomorrow. investing in a diverse, knowledgeable and highly capable workforce, with transferable skills, we can be sure that we have a pipeline of talent throughout the business. Strategic report Business model continued The Costain difference

02 Focusing on six strategic priorities continued

5: Create and deliver innovative sustainable solutions

We are focused on creating intelligent, Innovation Awards Risks sustainable solutions that improve In December, Costain was the performance of our customers’ recognised at the prestigious NEF • People businesses. We invest signifi cantly in (The Innovation Institute) Innovation Additional information relating to the research, innovation and emerging Awards, receiving high commendations principal risks and uncertainties can technology to provide customers with in the Most Innovative Business Process be found on pages 24 and 25. new services that reduce impact on and Most Inspiring Business Leader Examples of Innovation can be found in the the communities we serve. By aligning categories. section titled Engineering Tomorrow... our pipeline of innovation to our ‘in action’ on pages 6, 8-9, 12-23, 28-33, 35, The innovations included a science, 40 and 42. customer challenge, we are able to technology, engineering and maths work closely with them through every (‘STEM’) game app aimed at raising stage of development. young people’s awareness of the construction and engineering industry 2013 performance and KPIs and the different career options available using a smartphone or tablet device, Number of patents and and COpath, an innovative passenger patents pending monitoring and measurement technology for use in the travel and transport industries. 31patents Both innovations earned Costain a 2013 2012 runner-up award from the judging panel, 31 patents 36 patents which included the award sponsors (14 granted, 17 in EMC, BASF: The Chemical Company, application phase) National Grid and EDF Energy.

The Group has realigned its patent 2014 focus portfolio to refl ect the business’ focus. • Enhance relationships with our partners to identify, develop and implement innovation through our current contracts and provide new services to our customers • Identify funding and, through ‘open innovation’, transfer innovation from other sectors to create new business opportunities • Use advanced technology to create insights about the performance of our customer asset • Rethink contract delivery with our customers to deliver better outcomes

18 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 19 Costain Group PLC Annual Report 2013 Additional information relating the to principal risks and uncertainties can be found on pages and 24 25. Operational delivery delivery Operational To be recognised leading To as the UK’s BS11000 of exponent ts through deliver shared To benefi ‘game-changing’ relationships increase ourTo revenue from alliance/ contracts framework E rocess in which relationships can be Risks 2014 focus 2014 • conditions conomic • • • In 2013, the average supplier key In 2013, performance score continued to suppliers of number The improve. achieving Costain Blue standard (80% or above) in a single quarterly review in 2012, increased171 from 255 to a 49% increase. +90% of contracts are lower risk cost-reimbursable formed and developed between organisations of any size, for mutual The process ist. additional benefi (Collaborative BS11000 to accredited a is which Relationships) Business procedural framework introduced in the by British Standards2010 Institute. Costain is a foundation member of the Institute of Collaborative Working. • Collaborative Business Relationships: BS11000 Costain has developed a best practice p KPI 69% 65% 2012 2011 2012

6: collaboration in Working

erformance score of greater than 50%. uppliers and is reliant on their 2013 performance and KPIs The Group has a number of key s 2013 70% performance carrying in its out internal an Consequently, business. performance measurement tool is used assessto the performance of key suppliers on a regular basis against a Health including indicators of number commercial programme, Safety, and and quality performance.The result of the assessment is shown as a percentage score which allows scores previous against comparison and other suppliers.The assessment and results are then used as a basis and strategic each with discussion for preferred supplier of their performance and put to in place, where necessary, actions improve to performance or, if appropriate, reduce the amount of work performed a supplier. by 70% Supply chain performance chain Supply Average supplier key Target: p Partnering and collaboration form a central part of our approach. Both are essential in delivering complex engineering and services. In a market where collaboration continues to deliver value, Costain focuses on partnerships to strategic developing broader of support development the services technology. and Strategic report Business model continued The Costain difference

03 Our market focus

The sectors in which the Costain Group is active have, in total, a targeted investment spend of more than £70 billion per annum for the immediate future. Below is a summary of activity in those Costain sectors:

Water The Airports Commission’s shortlisted Power alternatives vary in cost from £13 billion to £112 billion. Despite these challenges, £11bn total the UK has more seats available and £3.9bn total serves more destinations on a daily Potential Addressable basis than any other European country. Potential Addressable £4.6 billion £2.6 billion The debate is no longer whether we £1.8 billion £700 million need new runways and infrastructure, The recent submission of water but when and where. The UK’s challenge is to secure a company business plans to OfWat sustainable energy future whilst at the for the sixth asset management cycle Highways same time replacing power generation refl ects a continued commitment to capacity and ageing infrastructure. spend in the sector. The regulator’s For energy to be truly sustainable, focus on total expenditure (‘totex’) £6.3bn total solutions must ensure that they meet provides the opportunity to grow into carbon reduction targets and minimise higher value services. Potential Addressable the impact of rising consumer prices. £3.2 billion £2 billion In 2012, private sector investment in Airports energy rose to £11.6 billion, representing In June 2013, the Chancellor promised around 10% of the UK’s capital the biggest programme of road building investment, or equivalent to building 1 £3.2bn total in over 50 years. The Government will 20 Olympic stadiums. This level of invest over £28 billion in enhancements investment is expected to continue Potential to and maintenance of national and local and will include renewables, new £1 billion roads to: add extra lanes to the busiest technologies, smarter networks motorways, identify and fund solutions and demand-side controls. Around Aviation investment continues to be an to tackle some of the most notorious £110 billion of investment is anticipated area of intense public debate with the and longstanding road hotspots in the by 2020. Airports Commission Interim report, country, upgrade the national non- 1 Source: Powering the UK – Investing in future published on 17 December 2013, motorway network; repair the national growth, EY 2013. supporting the need for further and local road network; and transform investment in developing capacity the Highways Agency into a publicly- in the sector and suggesting that without owned corporation. this it will cost users and providers of airport infrastructure £18-£20 billion and the wider economy £30-£45 billion. Existing investment remains high to support the intensity of use on our existing infrastructure which sees Heathrow at capacity and London Gatwick expected to reach the same point by 2020.

20 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 21 Costain Group PLC Annual Report 2013 total Addressable £5.4 billion Information concerning the concerning the Information activitiesGroup’s in these sectors are described on Additional pages and 26 27. information together with examples of our work can be viewed on our website: www.costain.com/ engineering-tomorrow o be robust as outlined in the National Potential £9.5 billion Infrastructure Plan 2013. This remainsInfrastructure Plan 2013. a priority area of investment for Government stimulate to economic increasegrowth, with in a 14% demand ve for rail travel estimated for the next fi £38 has billion this, address To years. been allocated for national rail networks cation, track in areas including electrifi and network upgrades and the proposed High Speed 2. Rail £17.4bn Rail investment in the UK continues t Addressable £600 million Addressable billion £1.5 total total

actors retiring over the next K market are continue. set to In 2020, Potential billion £1.8 Potential £2.8 billion we will still rely on oil and gas for 70% of our energy requirements as a nation. With an enhanced market need for asset decommissioning, and maintenance Costain also has opportunity convert to successes in Front End Engineering and Design (‘FEED’) activity engineering, into procurement and construction managementThe launch contracts. of Costain Upstream highlights the Group’s the on capitalise to commitment substantial growth in the UK market, with a two-fold increase in the number of exploration wells expected in the next two years. Costain Upstream will leverage its already established market position become to a trusted supplier services. whole-life across choice of Oil & Gas £27bn

ten years, there remains signifi cant ten years, there remains signifi opportunities from decommissioning pledged by investment billion £49.5 the Authority Decommissioning Nuclear the for the clean-upThis of its goes sites. aim Government’s the with hand-in-hand deliverto of new nuclear 16GW capacity further opportunities presenting 2030, by alreadyfor Costain’s mature and market. UK the in position established Nuclear Process Process Nuclear £6bn With all but current one of the UK’s re Sustained activity and growth in the U Strategic report Business model continued The Costain difference

04 Our business divisions

We have two core operating and reporting divisions within our business: Infrastructure Natural Resources The Infrastructure division delivers engineering The Natural Resources division delivers solutions for principal infrastructure providers in: engineering solutions in:

Rail Water A leading provider of multi-disciplinary projects for Network A leading provider of capital framework and maintenance Rail, Crossrail and LUL. Currently delivering major projects framework programmes under the current AMP5 principally focused on transportation hubs, most recently arrangements. Providing water services to commercial at London Bridge, Reading and Bond Street. and industrial customers. Highways Nuclear Process Delivering major programmes for the Highways Agency, Major frameworks and capital schemes delivered across Welsh Government and local authorities. Maintenance a number of the UK’s strategic assets. under the current MAC contracts and Early Contractor Involvement works. Waste Delivering major waste schemes in the UK. Power Focusing on thermal generation, new nuclear, offshore wind, Oil & Gas transmission and distribution. Currently delivering major Developing and implementing solutions for the upstream tunnelling works for National Grid. and downstream oil and gas and chemical sectors in the UK and Middle East. Airports Delivering programmes of work across airport assets Additional information relating to the Natural Resources division at Heathrow, Gatwick and Manchester. can be found on pages 26-27.

Additional information relating Costain regularly announces key stakeholder to the Infrastructure division information in the ‘News’ section of its website: can be found on page 26. www.costain.com/news

22 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 23 KPI ts, ected £m 13 13 31.0 11.5 28.1 10.75 nal dividend for Costain Group PLC Annual Report 2013 dence in the 25.5 10.0 t before tax 27.9 9.25 09 10 11 12 09 10 11 12 18.1 8.25 Delivering shareholder value shareholder Delivering 2 Group’s future is refl Group’s in the decision Board’s to increase thefi the consecutive year. seventh with our strong orderTogether book and increase in profi are continuing deliver we to value. shareholder Adjusted profi t before tax measure is a key for the Group Adjusted profi and incorporates interest, including pension the lAS 19 increasedt before tax in 2013 The adjustedprofi interest. due a strong to underlying performance in the Group. Costain has delivered another strong performance in 2013 and our confi Adjusted profi plan. business with line In Target: 40 30 20 10 0 Dividend per share pence Pence 1 9 6 3 0 06 ect our value proposition Our service lines 05 Asset optimisationsupport Asset and Long-term contracts operate to and maintain physical infrastructure assets. Technology integration Technology Providing a service through technology manage, to connect and transform infrastructure assets. Complex project delivery The engineering and mangement of the delivery of large complex infrastructure projects. The operational and commercial management of programmes of complex projects. inter-related Specialist design Specialist Complex and niche engineering solutions. management Programme The development of solutions and options for our customers’ problems. pressing most Advisory and concept development and continue as we to broaden our services and enhance our product our business evolved range, have we the changing meet to architecture needs of our major blue-chip customers. deliver integratedWe solutions across six service lines. To refl Strategic report Principal risks and uncertainties Managing risk through our business

This section highlights the principal risks and uncertainties facing the Group.

The Board formally reviews the material risks and ensures The table below lists the principal risks and uncertainties facing that these are appropriately managed by the management the Group at the date of this Report. This list is not intended team. The Board retains the ultimate responsibility for the to be exhaustive. Some risks have not been included in this Group’s risk management framework, including reviewing section on the basis that they are not considered to be its effectiveness. It has, however, delegated responsibility material or are not presently known to the Board. for annually reviewing the overall effectiveness of the risk management programme to the Audit Committee. The internal audit function provides assurances to the Audit Committee of the effectiveness of the internal control procedures through completion of the annual audit plan, which takes into account current business risks.

Risk and Impact Mitigation

Economic conditions The Group focuses on targeting and working with blue-chip customers whose • Change in Government policy spending plans are driven by national need, regulatory commitments or essential on spending. maintenance requirements. • Loss of material contract. The Group also regularly monitors the pipeline of opportunities available and • Failure of customers/subcontractors/ develops relationships with customers across a range of markets in both the suppliers/joint venture partners. private and public sectors. The Company seeks to ensure that it is not over-reliant on any one subcontractor, supplier or joint venture partner. In addition, the Company maintains a list of preferred subcontractors and suppliers which is reviewed regularly. The Company also undertakes fi nancial monitoring of subcontractors and suppliers and endeavours to maintain a dialogue with them in order to identify any issue or cause for concern. The Company has in use an external audit system to ensure compliance by its preferred and strategic suppliers.

Winning new work Target cost contracts tend to have less advantageous cash fl ow characteristics • Working capital impact of moving but they benefi t from generally being lower-risk than lump sum contracts. away from fi xed price contracts Costain has defi ned delegated authority levels for approving all tenders. towards target cost. All signifi cant contracts are subject to review by the Investment Committee. • Failure to estimate accurately risks, To mitigate the cost risk, experienced and qualifi ed staff are used to prepare bids, costs, contractual terms. which are subject to internal review and approval before submission. During the • Competition and failure to win work. life of the contract, regular project manager’s report meetings and end forecast meetings take place to discuss safety, progress, quality, cost, fi nancial performance, risk, etc. The Company’s strategy of targeting blue-chip customers with committed long-term capital and operational spending plans will enable us to continue to pursue and win work less affected by the downturn. The Company’s ongoing drive, both organically and by acquisition, to broaden its skills and services, along with its strong brand and excellent reputation for delivery, will also provide us with a competitive edge.

24 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 25 Costain Group PLC Annual Report 2013 management programme can be viewed in the Audit Committee report on pages 55-57. The overall effectiveness riskthe of Group’s Mitigation Full due diligence is carried out before any acquisition is made. Integration plans are put in place and managed a dedicated by team. A senior executive is responsibleed for the IT systems and has a suitably qualifi team in support. Critical areas are subject testing to and include rapidrecovery as well as sound data backup procedures. Online security training is provided for safe usage and storage of documentation. The Company has in place a well-developed succession planning process which is regularlyThis process monitored. includes carrying out ‘talent reviews’ and encouraging ongoing development at all levels. The Company seeks to actively engage with employees through engagement surveys and its Employee Committee. Consultative andPay conditions of employment are also regularly reviewed against the prevailing market and benchmarked against competitors ensure to that the Company remains competitive at all levels. The valuationunder for the scheme lAS 19 December valued as at 31 2013 million. £629.7 of liabilities and million £592.5 at assets scheme’s the An actuarial valuation of the was scheme concluded March as at 31 2010 during cit recovery plan and A full with Costain the actuarial Trustee. agreed2010 a defi valuation is being carried March out as at 31 2013. cit recognised balance in the Group’s sheetThe pursuant value of the defi to is dependentlAS 19 on certain critical assumptions, including mortality rates, pensionation and increases, is likely vary to investment from year returns and infl to year. The Company reviews the options regarding what actions Costain can take mitigateto its long-term risk and consults professional advisers as necessary. Work on site is audited in-house by specialists and reports prepared so that corrective action, where required, can be taken. A senior executive is responsible for overall quality issues, the updating of best practice and ensuring compliance. The senior executive is also responsible for reviewing and updating the Company’s procedures in line with the changing business. Costain has detailed Health and Safety policies in place. Regular Health and Safety visits experienced by professionals and on-site training take place to reduce the risk of human Any breaches error. in procedures are reported quickly and acted upon as appropriate. Employees are encouraged take responsibility to for safety in their work areas. A Health and Safety committee also meets monthly developto a consistent approach and consider best practice. inadequate safety regime. safety inadequate C costs. disallowed Design faults. Procurement delay or failure. Failure obtain/renew to insurance or refusal of claim insurers. by Major anage and/or integrate to IT systems, enefi t scheme which was closed enefi cquired business or recognise and etain highly skilled management highly etain Failure of IT systems Failure of IT systems, inability to m as well as the failure store key to documentation securely, could cause nancial loss the Group to and expose fi the Company breaches to of legislation nes. fi and mitigate new and related risks could have a damaging impact on the Group’s ts. future revenue and profi to new membersto from 1 June 2005 and was closed future to accrual on cit 30 September 2009. The current defi (before million £37.2 is scheme the on deferred tax). If the market value of the assetsscheme’s decline in relation to its assessed liabilities, the Group may be required increase to its cash contributions coverto funding shortfalls, which could have an adverse impact on the Group’s results. operational Pension liabilities Pension ned The Group operates a defi b Acquisitions Failure integrate successfully to an a or personnel may limit the Group’s ability grow the to business as anticipated. an exposing incident • • • Health and Safety • People Failure attract, to develop and r Operational delivery Operational • ost overruns, time overruns, Risk and Impact Strategic report Performing Responsibly Divisional performance

In Rail, the division experienced growth in both revenues and We continue to focus and prioritise order book. Signifi cant milestones were reached on the major our Group-wide resources, and our London Bridge Station redevelopment contract, and works at Reading Station and on the complex Bond Street upgrade customer-aligned divisional structure, project continued to progress well. The Group continues to on identifying the most attractive new be a major partner to Crossrail, securing its eleventh contract with this customer during the year for Paddington New Yard. business opportunities across the sectors The Group’s investment in developing its programme in which we operate. management and rail engineering capabilities continues to yield benefi ts. During the year, three railway systems contracts for Crossrail were secured and these are Infrastructure progressing well, as is the delivery of the West Coast Main Line power upgrade contract for Network Rail. Costain is The Infrastructure division, which incorporates activities also involved in providing consultancy services for HS2. in the Highways, Rail, Power and Airports sectors, experienced another year of profi t growth as customers invested in In Power, the Group is now a major contract partner in the upgrading and renewing the UK’s infrastructure assets. construction of the new Hinkley Point C nuclear power station in Somerset, providing the design and delivery of the water Revenue was £560.6 million (2012: £494.9 million) whilst cooling systems. During the year, Costain was also awarded a adjusted profi t from operations rose over 30% to £31.4 million place on UK Power Networks’ £40 million power transmission (2012: £23.5 million) as we delivered excellent performance framework contract. The Group also consolidated its position across the division including the award of gain-share on a as a leading player in power station maintenance, with work number of contracts. The order book for the division has being carried out for SSE, E.ON and Scottish Power. Good grown to £1.9 billion (2012: £1.5 billion) and the level of progress continued to be made on the London Cable Tunnels tendering activity remains high, particularly in the highways, project for National Grid, as part of its investment to upgrade rail and power sectors. the power infrastructure in the South-East.

In Highways, Costain is benefi ting from the development Costain continues to be active in the Airports sector, where of its innovative technology offering, developing and delivering there is growing pressure to increase the capacity of the UK’s complex solutions for the Welsh Government’s All-Wales aviation infrastructure to accommodate economic growth. Technology framework and the Highways Agency. The Group The Group is a Tier One supplier on the Heathrow Framework continues to be a leading supplier to the Highways Agency, and at Manchester Airport. with a large portfolio of design, construction and maintenance projects for this customer. During the period, some major projects, such as the M1 J10-13 Managed Motorway and Walton Bridge across the Thames, were completed, whilst Natural Resources a new contract to deliver the A160/A180 Port of Immingham The Natural Resources division, encompassing the Water, Oil Improvement scheme in North Lincolnshire was secured. & Gas, Nuclear Process and Waste sectors, was established The Group’s three Managing Agent Contracts (‘MACs’) all in November 2012, combining most of the Energy & Process performed well with one of them, the fi ve-year highway and Environment Divisions and some support service activities maintenance contract for the East Midlands, being awarded previously in Infrastructure. a two-year contract extension. During the year, the MAC10 contract came to the end of its term and was renewed with Customer spend in this market is underpinned by regulatory another party. and legislative requirements and we expect this to grow over the medium and long-term to meet the energy and water Costain was also awarded a place by Transport for London needs of the UK’s rapidly growing population. (a new customer for the Group) on its Early Contractor Involvement (‘ECI’) and Construction framework, worth Revenue (including share of joint ventures and associates) approximately £200 million overall. The Group’s fi rst project in the division for the year was £397.6 million (2012: £437.7 within this framework, the Hammersmith Flyover strengthening million), with adjusted profi t from operations, including project, is now well underway. £9.1 million profi t on sale of interest in associates, of £12.8 million (2012: £19.5 million including £10.5 million profi t on sale of interest in joint venture). The reduction in revenue refl ected the prioritisation of resources towards attractive opportunities for growth across the Group. Operating profi ts

26 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 27 Costain Group PLC Annual Report 2013 In Waste, the GroupIn Waste, is completing the PFI contract for the Greater Manchester Disposal Waste Authority, which utilises a range sophisticated of waste management technologies. Of the 46 waste facilities under the contract, 36 have reached nalnal acceptance, acceptance, three are seeking obtain to fi fi six are currently in the post-completion (warranty) period and one remains be completed. to Design faults have been edfour at sites, including the site that remains beidentifi to completed, and remedial work and testing is ongoing in respect of that Costain site. is in discussions with relevant contract counterparties insurers and the Group’s regarding the issues that have arisen and expects a successful discussions. to outcome Land Development Land Our non-core Land Development activity in Spain undertaken in a 50:50 joint venture with Santander Bank continued be to subject challenging to market conditions.The joint venture has a portfolio of in excess 500 of hectares of land in Southern Spain with varying levels of planning approval and, although the Spanish economy is showing some early signs of improvement, there remains considerable uncertainty as to cant recovery will be achieved.when As signifi a consequence of continuing uncertainty regarding future market conditions, a non-cash impairment has been taken against the assets, Costain’s reducing million, £9.8 is which of share Group’s the million. £26.6 to carrying venture joint the in total value cant land sales were completedAs anticipated, no signifi million) £1.9 (2012: million £1.8 was revenue and year, the in million), £2.3 (2012: million after tax loss £2.1 the and was excluding the exceptional asset writedown outlined in the previous paragraph. Our activities have continued focus to on our leisure businesses of golf courses and our 624-berth yacht marina adjacent to Gibraltar, both of which have reported improving revenue streams, particularly in the marina where our new boat repair yard is in demand and is assisting in raising marina occupancy. Costain has continued the successful delivery of its AMP5 framework contracts with Northumbrian Southern Water, United Utilities,Water, and Severn Welsh whilst Water Trent also continuing deliver to large capital wastewater treatment schemes for Liverpool and Brighton the & Hove, latter of which Britishwon Major Construction Project at the 2013 of the Year Industry Awards. In Water, 2013 saw signifi cant bidding activity associated saw signifi 2013 In Water, ve-year Asset Management Programmewith the next cycle fi rst AMP6 contract (‘AMP6’) and Costain secured fi the sector’s whilstfor Thames also retaining Water, a place on the AMP6 Water SevernThe programme. Trent Group has also ed for further AMP6 long-termprequalifi contract opportunities. Work in Nuclear Process was dominated the by achievement of all major contractualcant milestones on two very signifi projects.eld The Evaporator D construction project at Sellafi nalsaw the module-920 successful in October, delivery the of fi and the Fuel Element Debris (‘FED’) dissolution construction nal construction and full-timeat Bradwell entered the into fi commissioning phases. In addition, as one of two suppliers the Magnoxto framework contract, additional facilities were delivered and continue be maintained. to It is expected that frameworksthe sector’s within the Nuclear Decommissioning Authority estate will (‘NDA’) continue bring to repeat-order business overall the into Group’s portfolio. The Group is continuing deliver to support services for the Oil and Pipelines implementing Agency (‘OPA’), a programme of upgrades and improvements in performance across OPA’s network of jet fuel pipelines and storage facilities. Elsewhere the Group in the continued sector, deliver to high complexity projects for blue-chip customers: the Easington cantcontract progress for Centrica was completed, and signifi was made on the Barrow Terminal Optimisation project for the same customer; the scheme is expected be complete to by 2015. In Oil & Gas, Costain announced during the year the launch of Costain Upstream, which combines the ClerkMaxwell and EPC Offshorebusinesses, the latter was acquired in August. Costain Upstream will provide engineering and advisory services in the upstream oil and gas market, where there cant opportunities secure to are work signifi in this high-value, area. specialised highly in this division declined in the period as a result of those lower revenues, additional costs complete to a small number of projects, and restructuring and business development costs including the deployment of new skills and capabilities under nisheda strengthened the year leadershipThe division team. fi billion). £0.9 (2012: billion £1.1 of book order forward a with Strategic report Performing Responsibly continued Engine Tomor r ‘in action’

28 Costain Group PLC Annual Report 2013 01-45 Strategic report ering row...

Engineering Tomorrow is the Costain strategy aimed at identifying, developing and implementing innovative solutions to meet the UK’s major national infrastructure needs.

Costain has implemented a number of schemes which will enhance the quality of project delivery, develop the skills and ideas of its people and provide cost-effective solutions, all in support of Engineering Tomorrow. The strategy relies on sharing knowledge and applying best practice across the Costain Group.

Costain places high priority on innovation and this can be seen in the Company’s technological and organisational initiatives, in addition to skills-based training and the determination to be more socially responsible, at all times, to the needs of Costain stakeholders.

The following pages provide examples of Engineering Tomorrow... ‘in action’

Costain Group PLC Annual Report 2013 29 Strategic report Performing Responsibly continued Engineering Tomorrow... ‘in action’

Additional information about Engineering Tomorrow can be found online: www.costain.com/ engineering-tomorrow

CO2 Engineering Tomorrow... Engineering Tomorrow... ‘in action’ ‘in action’

A new approach to Tracking passenger fl ows carbon capture through rail hubs

Carbon capture – reducing the amount of CO2 Problem: How to accurately measure passenger pumped into the atmosphere – is vital to help control usage of a railway station where many travellers use climate change. it only to change trains and therefore never pass through the gatelines? Current carbon capture technology requires the installation of massive solvent scrubbing ‘absorber’ Answer: Costain has applied its COpath solution, columns. provided in partnership with Path Intelligence, which uses sensors to detect signals emitted by mobile The visual impact of these is considerable – less so phones carried by passengers using the station. with coal-fi red power stations, much of whose existing The sensors allocate an anonymised designation infrastructure is tall, but a major problem with ‘low-rise’ to each telephone and record its movements, creating gas-fi red stations. a detailed picture of passenger fl ows.

Costain is collaborating with Edinburgh University Costain has pioneered COpath’s fi rst use in the UK on novel designs of absorber column with an emphasis rail sector. It allows station and airport operators to on modularisation. understand passenger movements and behaviours to, among other things, reduce congestion and The project is looking at fundamental modelling such increase non-fare revenues. as the fl ow of gases and liquids. It is thought that alternative column designs will also involve shorter Its successful trial at one station has led to installation construction time, be easier to upgrade in the future, contracts for several more. and possibly more cost-effective.

Results of the year-long project will be published by mid-2014.

30 Costain Group PLC Annual Report 2013 Operate safely, effi ciently 01-45 Strategic report and responsibly

Continue to enhance customer insight

Grow by broadening and integrating our services

Develop best-in-class team

Create and deliver innovative sustainable solutions

Working in collaboration

Engineering Tomorrow...‘in action’

Smart motorways

Sometimes, innovation is about behaviours and not “The innovation that we can be the most proud of is just new technology. working together,” says Highways Programme Director Tony Scutt. “I’ve been in meetings where six contractors In 2009, Costain entered a partnership agreement to were sharing ideas for the benefi t of everyone. Getting develop what are now known as ‘smart motorways’. that behavioural change of collaboration is the real ground-breaking part of this contract.” This is a way of creating more capacity from the existing road network at a fraction of the cost of building This collaborative programme approach has led to new lanes. Motorists can use the hard shoulder as a the Department for Transport’s 20% effi ciency savings permanent running lane or when instructed by signals target against the Highways Agency’s project estimates on overhead gantries. being exceeded.

Costain Group PLC Annual Report 2013 31 Strategic report Performing Responsibly continued Engineering Tomorrow... ‘in action’

Additional information about Engineering Tomorrow can be found online: www.costain.com/ engineering-tomorrow

Engineering Tomorrow... ‘in action’

Bridging the gap with a robot tug

Using miniature robot ‘tugs’ to help rig new cables between electricity pylons high across roads or railways is not new. But getting approval for their use in a fraction of the normal three to four years, is. And Engineering Tomorrow... that’s what Costain anticipates in 2014. The battery-powered, remotely-controlled tug system ‘in action’ developed by Costain and subcontractor partner TLI is designed to eliminate the large, expensive scaffolding structures normally required before initial ropes and pulley blocks can be strung between pylons. Once in place, new cables can be hauled through the pulleys.

Managing Mobicloud to improve Getting the tug approved involves considerable site effi ciency methodology and effective planning to prove the tug’s safety.

Mobicloud is a European Union-funded project to Far faster than traditional methods of rigging new develop a ‘corporate app store’ – part of the EU’s cables, Costain believes this could potentially save its Competitiveness and Innovation Framework client several hundred thousand pounds in 2014 alone. Programme.

It is deployed in both Android and IOS tablets that are planned to connect to Costain’s corporate systems via a cloud-hosted platform; the Group believes it is one of the leaders in deploying the system in the construction industry.

Mobicloud’s fi rst development with Costain is a site diary app that allows engineers to record details or events as they happen while out on site. This aids accuracy and saves time.

A joint effort with Sheffi eld University is underway to develop further apps to estimate volumes and to replace traditional paper-based survey books. The ultimate aim is to have a suite of apps bespoke to Costain.

32 Costain Group PLC Annual Report 2013 Operate safely, effi ciently 01-45 Strategic report and responsibly

Continue to enhance customer insight

Grow by broadening and integrating our services

Develop best-in-class team

Create and deliver innovative sustainable solutions

Working in collaboration

Engineering Tomorrow... ‘in action’

Cutting the cost of carbon capture

Costain’s heritage of gas processing expertise is being directed towards a new avenue. Research is underway

to remove CO2 from a new generation of coal-fi red power plants by processing the gas stream at low temperature to separate the CO in liquid form. Engineering Tomorrow... 2 This approach has been patented by Costain and ‘in action’ holds out the promise of reducing the substantial costs currently associated with carbon capture, which is a major front in the battle to minimise climate change.

If less costly methods of removing CO2 can be developed, the likelihood of implementation by public BIM brings down barriers or private sector energy producers is increased. among project team If successful, the fruits of this research will be available in the 2020s. Getting designers and site personnel to talk the same language can be problematic. At the upgrade of London Bridge Station, Costain and Building Information Modelling (‘BIM’) are solving that problem.

BIM involves creating an intelligent, virtual 3D model of a facility. At London Bridge design consultants and specialist subcontractors are sharing highly-detailed 3D models. This enables collaborative reviews of progress.

Engineers concerned about measurements on a project document, for example, can now simply send a screenshot taken from the model to the designer asking for confi rmation of its accuracy.

The team is also in the process of piloting an innovative mobile form-fi lling app solution that will allow site engineers to complete multiple forms electronically using iPads. This will reduce the need for paper forms on site.

Costain Group PLC Annual Report 2013 33 Strategic report Corporate Responsibility Costain Cares

We are committed to delivering projects and services responsibly and sustainably. Ensuring that we meet our customers’ and society’s needs while managing the social, environmental and economic issues that impact our business either directly or through our supply chain. Through stakeholder engagement and by assessing our impacts and level of infl uence, we have identifi ed key priorities that are material to our business. Costain Cares, our Corporate Responsibility strategy and vision to build a longer-term sustainable business that creates economic, environmental and social value, was launched in 2011. Costain Cares is based on three fundamental pillars:

Relationships Our Environment The Future We encourage open, honest and We operate in the built environment, We play an important role in the respectful communication. We believe where we meet national needs for provision of infrastructure vital for in strong, long-lasting relationships that strategic investment in infrastructure. the UK economy. The benefi ts of are mutually benefi cial. We will: We compete in the economic investment in infrastructure today will • provide a working environment where environment, where we must deliver be felt for many years to come. We will: the health of our people is protected, value for customers and shareholders. • be one of the UK’s top engineering their wellbeing is enhanced and We have to deliver responsibly to the solutions providers; natural environment for the benefi t everyone returns home safely at the • provide a sustainable return on end of the working day; of everyone. We will work with our customers and supply chain to, investment for our shareholders; • support the local communities in where possible: • invest in innovation to provide which we operate, ensuring we leave solutions to tomorrow’s challenges; a lasting legacy; • reduce our impact on climate change; • conserve natural resources through • work with our customers and supply • attract, retain and develop the best chain to develop skills to respond to people for the Costain Group; effective waste management, minimising water consumption and future needs within our sector; and • provide sustainable solutions and the sustainable sourcing of materials; and • contribute to economic growth highest standards of service for our • protect and enhance the environment. by supporting our supply chain, customers; and including small and medium-sized • operate a collaborative, responsible enterprises. supply chain where our partners support us in delivering effi cient, innovative, sustainable solutions.

A detailed review of our approach to Corporate Responsibility can be found on our website: www.costain.com/responsibility

34 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 35 cation Costain Group PLC Annual Report 2013 s of vital importance us. In to order Health and wellbeing and Health The health and wellbeing of our people i to improveto the management of health and wellbeing at project level, a new rolekey of site Health Champion has been created. In addition, the site Health, Safety and Environmental enhanced been has Plan Management c Health and now includes a specifi section with the aim of ensuring that health issues are given the correct level of consideration in all relevant aspects management. project of Vulnerable road usersroad Vulnerable concern about nationwide Following thesafety of cyclists and pedestrians on our streets, particularly in number introduced a we London, of measures in order to play our part in addressing this very serious The measuresissue. include specifi the to enhancements of vehicles rated greater than 3.5 tonnes, requirements with regard to registration with the Fleet and Operators Registration Scheme recommendations with regard to driver training. Adoption of these leading-edge standards aims to reduce the risk to vulnerable road users whilst also improving the safety standards of transport and thereby construction vehicles, making our towards contributing place. safer a roads ‘in action’ Additional examples of Tomorrow... Engineering can be found on pages 28-33. nd engaging Health and Safety leadership. Two successfulTwo leadership. Health and Safety Leadership Impact days were held across the business in May and Led the by twoOctober. Managing Directors, the most senior personnel over visited business the across from 40 sites in order engage to with site personnel, reinforce Health Costain’s and Safety message, and demonstrate commitment from the highest level. Leadership recogniseWe the importance of visible a Engineering Engineering Tomorrow... ‘in action’

Please see page for details 13 of the Group’s Accident Frequency Rate.

hibition Notice in respect of mains our overriding priority. During We have developedWe and implemented a new toolkit for the investigation of serious accidents and incidents based on the Swiss Cheese model. The new methodology has not only cation cantly improved the identifi signifi of underlying and root causes of accidents/incidents, but has also enhanced the communication of business. our across learnt lessons insuffi cient cover over exposed pipelinesinsuffi c route on one of our across the traffi sites. Following the issue the of notice, a comprehensive action plan was drawn up and agreed with the regulator to ed. address the shortfalls identifi Accidents and incidents In we received January a 2013, Pro Health and Safety The Health and Safety of our workforce re continued we focus to on2013, promoting a positive Health and Safety culture where everyone is supported workto safely and encouraged take to responsibility for keeping themselves and others free from harm in the workplace. continued We develop to our already robust Health and Safety systems in order further to improve our performance on our sitesand ces. in our offi Relationships Costain Cares... ‘in action’Costain Cares... Strategic report Corporate Responsibility continued Costain Cares

During 2013, we ran two Company-wide Community engagement Group charitable donations wellbeing campaigns. During the fi rst Our projects develop and implement £000 quarter of the year, a pedometer community engagement plans, which challenge was initiated as a means of identify socio-economic issues specifi c 200 + encouraging our workforce to become to the local community and actions 171 173 150 more active in a fun and sociable way. when Costain can work in partnership 135 The second week-long campaign was with the community to have a positive 100 95 95 during October and focused on how impact. 50 to maintain a healthy heart. Furthermore, our commitment to offering ‘wellbeing’ As an associate member of the 0 medicals to all staff continued. Considerate Constructors Scheme, we 09 10 11 12 13 are committed to the principles set out In order to improve the competency of in the Considerate Constructors Code We continue to support various charities key members of our workforce, we ran of Considerate Practice. In 2013, a local to our operations and via the a one-day bespoke Health course at number of our projects were recognised Costain Community Chest, where small venues across the country. The course, by the scheme. We received three Gold donations are made by the Company to attended by our supervisors and health Awards, fi ve Silver Awards, 10 Bronze support employee charity involvement. champions, provides guidance on how Awards and two of our projects were In 2013, we donated over £173,500 to to manage the key health issues on runners-up in the Most Considerate Site worthy causes. our sites. Award. The awards recognise sites’ excellent standards of consideration Through our employee volunteering We continued to support the Public towards their neighbours, their policy, we provide our employees with Health Responsibility Deal, a workforce and the environment. Award the opportunity to develop and share Department of Health initiative to winners are selected from the top skills while making a valuable improve public health and tackle health performing 10% of sites registered under contribution to local communities. inequalities. In addition to honouring the Scheme. our public pledge with regard to staff Employment, education and skills medicals, our Group SHE Director Charitable giving and volunteering We work with a range of partners and became a member of the Construction Costain is pleased to be a patron of organisations to offer employment and Sub-committee, which developed and The Prince’s Trust, the youth charity that training opportunities in the communities launched a collective pledge on behalf helps change young lives, and a where we operate. of the construction/ member of the Trust’s Construction and industry in October. A number of leading Business Services Leadership Group. In 2013, we became a ‘Champion’ construction companies, including The Trust works with 13- to 30-year-olds business supporting a joint initiative Costain, have signed up to this pledge, who have struggled academically, have between BITC and the Department for aimed at managing the causes of been in care, are long-term unemployed Work and Pensions, the ‘Generation occupational disease and taking action or have been in trouble with the law. In Talent’ programme. The aim of the to improve the health and wellbeing of 2012 Costain, in collaboration with programme is to help businesses scale their workforces. CITB-ConstructionSkills, the National up the number of unemployed young Skills Academy for Construction and people they recruit. It has a growing Communities The Prince’s Trust, secured Employee number of large UK employers (90+ so We recognise that our work affects the Ownership of Skills (‘EOS’) funding to far) who have found that by making small communities in which we operate. How provide 100 opportunities for young changes to their recruitment process we manage our relationships and work people to undertake the Trust’s three- they can make more jobs available to with local communities and other week ‘Get into Construction’ programme talented unemployed young people. stakeholders is vital. We are committed during 2013–2014. We are on target to to developing and maintaining excellent deliver this commitment. relations with local communities.

36 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 37 Please see page 41 for for 41 page see Please more information about skills developing work our for the future. Costain Group PLC Annual Report 2013 To ensure that we continueTo develop to and grow the Costain capability, we are active in attracting new talent the to business. have continued We expand to our award-winning graduate scheme diverse disciplines, which 11 includes from our traditional roots in civil and surveying, quantity engineering, and English to chemical engineering, we 2014, In management. business will broaden this further encompass to technology disciplines such as computer and data science. increased We our bringing in 2013, graduate 61 intake to have alsoour We total cohort 129. to cantly expanded our apprenticesignifi programmes. recruited We a further apprentices across31 in 2013 disciplines13 ranging from accountancy trackto and signalling engineering and the Since administration. business programme apprentice our of relaunch in 2008, we have recruited 92 apprentices and have a current completion we of 83%. rate In 2014, apprenticeships higher introduce will and continue broaden to our schemes coverto project controls and BIM. eries of career mapping tools Developing our peopleDeveloping our In June, we launched ‘Find My Future’, a s designed to support both managers support both to designed and employees with career development career include tools The discussions. inspiration and advice from leaders within Costain, a master schedule of current and planned job roles, career career possible paths, detailing maps and self-coaching support tools to employees explore to and discover many more opportunities beyond the traditional vertical promotion routes. willWe continue develop to further career paths in preparation for our 2014 career development reviews. we promotedDuring 316 2013, employees and transferred over 400 employees different into sectors or creating business, the within disciplines new opportunities for individuals to broaden their experience, skills and capabilities. continuedWe invest to in training and development for all our employees, delivering training over 10,000 days in successfully We 2013. led a consortium bid secure to EOS funding, enabling us developto and deliver enhanced training ourto supply chain. Our focus for 2014 refreshis to our suite of management, leadership and executive development programmes. will We be complementing our strong focus on project management development delivered through our Academy. Details of our diversity statistics can be found on page 17. omotes equality and inclusion from from inclusion equality and omotes eveloping and retaining the best people In 2012, Costain becameIn a member 2012, Community’s the in Business of Opportunity Now campaign share to ideas with other industries improve to the attraction and retention of women in we strengthenedthe workplace. In 2013, our commitment becoming by signatories Opportunity to Project Now’s a pioneering28-40, study the into experiences of women in the workplace. The focus of the study gain is to valuable insight and identify actions aimed at improving the attraction and retention of women. deliver is to Our focus in 2014 unconscious bias training and to continue address to the gender balance in the Group. We have monitored our diversity profi le have monitoredWe our diversity profi for the last six years, which shows a le of female and fairly consistent profi Black, Asian and Minority Ethnic employees. (‘BAME’) recruitment and selection, through training and development, promotion, to reward, recognition and retirement. We are fully committed the elimination to of unlawful and unfair discrimination and we value the differences that a diverse workforce brings the organisation. to We support our supply chain and encourage its active commitment our to approach inclusion. equality and on Building a diverse workplace Costain is an inclusive employer and pr Our people Our are focusedWe on attracting, d and creating an environment where l their true potential. people can fulfi Strategic report Corporate Responsibility continued Costain Cares

Employee engagement and involvement Reward and recognition Paddington Station Crossrail... Engaging effectively with our people is In February 2014, we hosted our was awarded the Green Line crucial to the success of our business. Achieving Excellence Awards to Award under the Crossrail The views of our employees are recognise and celebrate the outstanding Green Line Recognition Scheme, extremely important and we want our performance and contributions of our a unique and intelligent way for project people to feel valued, listened to and people and our supply chain. teams to increase their environmental rewarded. We maintain a strong performance. communication network and employees Customers are encouraged to discuss with Our aim is to provide sustainable, Supply Chain management matters of interest and innovative solutions and the highest We understand the economic, issues affecting the day-to-day standards of service to our customers. environmental and social impacts operations of the Group. Employees We constantly strive to improve our of our procurement activities and are kept informed of the fi nancial and performance and actively seek feedback are committed to the responsible economic factors affecting the from our customers. In 2013, we have management of our supply chain. Company’s performance, and other been widely recognised for our We ask our suppliers to share our matters of concern to them as sustainability performance from various values and standards and to support employees, in various ways. These external bodies, including: us in delivering effi cient, innovative, include regular updates from the Chief sustainable solutions. In turn, we are Executive and other senior managers, Port Talbot, Harbour Way... committed to engaging and supporting a Costain online news service, personal achieved a CEEQUAL our supply chain to ensure compliance, briefi ngs and emails. Senior managers (Civil Engineering Environmental continual improvement and the also visit sites and discuss with Quality Assessment) Excellent Award achievement of mutual goals. employees matters of current interest and won the Best Conceptual Design and concern to them and the business. category, in the 2013 Brownfi eld Briefi ng Supply chain engagement Employees also have the opportunity Awards, for the remediation works We continue to prioritise supply chain to provide feedback and ask questions undertaken as part of the construction engagement. In December, we hosted at the annual staff roadshows which of the Harbour Way Scheme. The a supply chain engagement event, take place around the country. Our project was also highly commended ‘Engagement and Opportunities with established Employee Consultative in the Best Reuse of Material category. Costain’, in Newport, South Wales. Committee convenes three times a year The aim of the event was to increase and on an ad hoc basis throughout the Farringdon Station supply chain diversity. Speakers year, to discuss matters impacting the redevelopment included Dafydd Hughes, Head of the business, in order that the views of Following the project’s 2012 Construction Sector, Welsh Government employees can be taken into account CEEQUAL Excellent Award, it was and Alan Kay, Group Technical and in making decisions likely to affect their awarded an Outstanding Achievement Operations Director, Costain. In addition interests. The Company operates an Award for Ecology and Biodiversity and to this event, our projects hosted a employee share plan (the ‘SAYE’ was highly commended in the Historic number of local ‘meet the buyer’ events scheme) which encourages and Environment category. The project also across the country. supports the ownership of shares in won the Sustainable Excellence Award Costain and a further grant was made at the Network Rail Partnership Awards In April 2014, we will host our fourth under this scheme during the course for its collaborative approach to supply chain conference at Warwick of 2013. delivering sustainable outcomes. University, which will be attended by senior representatives from our supply Following the acquisitions of Welsh Water Coed Dolwyd chain partners and senior management ClerkMaxwell, Promanex and EPC Service water reservoir from Costain. The conference offers Offshore and some signifi cant TUPE scheme... a chance for suppliers to hear about the movements in and out of the business won the Green Apple Wales National future of working with Costain. during 2012 and 2013, we took the Gold Award, in recognition of the positive decision not to repeat our engagement environmental impact and best practice survey in 2013 but to focus on work carried out on the site. developing a new survey in 2014. This will re-benchmark engagement data and develop and implement targeted improvement plans through our Employee Consultative Committee.

38 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 0 39 10 40 30 20 13 28.65 e/£M) 2 12 29.30 ste going to landfi ll, andll, we strive goingste landfi to Costain Group PLC Annual Report 2013 Scope 1 – Direct emissions arising from our emissions arising from Scope 1 – Direct We alsoWe submit our data annually the to Carbon Disclosure Project (‘CDP’) – an t organisation independent, not-for-profi that aims increase to transparency and promote climate change data as a factor in business, policy and investment decisions. wereWe delighted be named to in the Climate Performance Leadership Index (‘CPLI’) as one of the best performing companies in the Carbon Disclosure annualProject’s FTSE 350 climate change report. achieved We a score of 84A, highlighting the positive impact the company has made in measuring and driving down its greenhouse gas emissions. are also We the only FTSE SmallCap company achieve to band and only the status second in 2013, ‘A’ small-cap company achieve to an ‘A’ band rating since the ratings were 2009. in introduced Resource management continueWe drive to down the amount of wa towards zero waste to landfi ll. Inll. June, towards zero landfi waste to Reductiona Waste & Recycling campaign was implemented Company- Recycling National with coincide to wide Week, the aim reduce to the quantity of waste produced on our projects ces and ensure to that and inour offi maximised. is recycling Q operations (fuel combustion, Company-owned or leased vehicles) QEmissions intensity (tCO 11 . Your opinions,. Your views 28.22 e 2 10 39.53 Costain regularly announces stakeholder key information on section the ‘News’ of its website: www.costain.com/news and questions about Costain matter us. Please to contact us via the home pageof our website: www.costain.com 09 37.27 In addition this to footprint we also report in accordance with the requirements of the Companies Act 2006 (Strategic and Directors’ Report) 2013. Regulations 13. page see Please e per £m turnover/’000 tCO equivalent emissions equivalent 2 2 Scope 3 – Other indirect emissions (employee Scope 3 – Other indirect Figures are reported in accordance with ISO14064-1:2006 and reflect UK operations within Costain's direct UK operations within Costain's direct with ISO14064-1:2006 and reflect in accordance reported are Figures operational control. Q water usage business travel, emissions from and waste disposed to landfill) emissions arising from Scope 2 – Indirect Q consumption electricity 40 30 20 10 0 ourselves the target of reducing carbon emissions intensity 2020. 55% by by The Climate Change Steering Group continued co-ordinateto Costain’s approach climate to change and to demonstrate visible clear, leadership, ensure to that the Company is managing its impacts and maximising potential low-carbon providing opportunities in solutions our to customers. we achieved externalIn 2012, accreditation of our carbon footprint Emissions ed (‘Certifi CEMARS to Measurement and Reduction Scheme’) cation. The CEMARS standard certifi cationincludes of our independent verifi emissions data and a yearly review to ensure we continue deliver to reductions in our emissions. have successfully We renewed this accreditation in 2013. Our method of reporting is in accordance date, To ISOed 14064-1. to and certifi reduction we have achieved a 30.1% in emission intensity against our 2009 baseline, demonstrating that we are on track meet to our target 2020 of a 55% reduction in emission intensity. CO tCO

asured carbon emissions. In 2013, 2013, In emissions. carbon asured eans leading socially, environmentally we published our fi rst Climate Change we published our fi whichStrategy, clearly sets out our vision be a leading to provider of settinglow-carbon also whilst solutions an exemplary standard of how the reduce and manage should Company itsowngreenhouse gas emissions and those of its customers. have set We Climate change Climate our reducing to committed remain We me Environment manage successfully to continue We our impact on the environment through implementation of our Environmental edManagement System, which is certifi continue We to ISO 14001:2004. to focus on reducing the risk of any direct impact on the environment, and have widened our focus assess to and minimise the indirect impact of our activities. Our Our and economically responsible responsible economically and procurement deliver to value and stakeholders.ts to have We benefi adopted the UK Government’s Flexible Framework as the method through which we will develop our approach and measure our progress. In support of this commitment, we have updated our sustainable procurement policy and developed a guidance document, ‘Delivering Sustainable Procurement’, for our procurement staff and our current and future suppliers. In addition, ensureto our procurement teams in procurement sustainable approach a uniform we have manner, developed and piloted a sustainable procurement training module. The sustainable procurement module will be rolled out allto our commercial and procurement teams in 2014. Sustainable procurement Sustainable Sustainable procurement for Costain m Strategic report Corporate Responsibility continued Costain Cares

Construction waste removed from site Engineering ’000 tonnes of waste/tonnes per £100,000 turnover Tomorrow... 600 8 51,554 ‘in action’ 450 6 6.3 300 31,001 4 4.9 27,066 4.9 24,391 20,337 150 3.3 2 2.83.3 2.92.8 2.9 2.1 0 0 09 10 11 12 13 Harbour Way, Port Talbot identifi ed as suitable habitat for QQ Tonnes of waste removed from site the Small Blue Butterfl y (a UK QTonnes per £100,000 turnover Biodiversity Action Plan species) Figures are reported in accordance with WRAP Waste The Harbour Way dual carriageway were also moved prior to Measurement and Reporting Guidance. Turnover figures reflect operations reporting waste. 2009–2011 figures relate links the M4 Junction 38 to Port construction and additional to UK operations excluding MAC joint ventures and 2011 acquisitions. 2012 figures reflect all operations but exclude Talbot and its docks. The route replacement habitat was provided our MAC 10 joint venture and Alcaidesa operations and passes through an area of the Port the associated turnover. along the scheme corridor. Over Talbot Steel Works site which has an 15,200 new trees and shrubs were extensive historical legacy and is planted in the landscaping scheme Waste diverted from landfill an area of land that was grossly % and a Sustainable Urban Drainage contaminated from previous heavy System (‘SUDS’) was incorporated industrial uses. Through the into the drainage design with 100 93 95 implementation of a remediation 84 89 planted swales and ponds to 75 strategy and a material management 67 provide additional habitat and plan, an estimated 23% saving in 50 reduce fl ood risk. CO2e was realised through 25 techniques such as the remediation The project’s achievements were and reuse of previously contaminated 0 recognised by winning a CEEQUAL 09 10 11 12 13 soils, and sourcing fi ll materials Excellent Award as well as Best locally. Conceptual Design in the Brownfi eld Figures are reported in accordance with WRAP Waste Measurement and Reporting Guidance. Turnover figures Briefi ng Awards. reflect operations reporting waste. 2009–2011 figures Prior to construction over 1,800 relate to UK operations excluding MAC joint ventures reptiles were translocated to new Additional examples of and 2011 acquisitions. 2012 figures reflect all operations Engineering Tomorrow... ‘in action’ but exclude our MAC 10 joint venture and Alcaidesa operations and the associated turnover. receptor sites. Areas of grassland can be found on pages 28-33.

We have successfully increased our Environmental incident Our reported environmental incidents total waste diverted from landfi ll to 95% frequency rate and the associated environmental compared to 93% in 2012 and 87% of Number of environmental incidents incident frequency rate (‘EIFR’) in 2013 construction waste diverted from landfi ll per 1,000,000 man hours remained at 0.28. We have, however, compared to 85% in 2012. reduced the number of signifi cant and 0.4 minor incident compared to 2012. Protecting the environment 0.3 0.280 0.280 We recorded four signifi cant incidents We are committed to minimising our compared to seven in 2012 and 0.2 impact on the environment ensuring, 0.156 0.137 76 minor incidents compared to where possible, that our activities do not 0.1 0.077 78 in 2012. result in damage and that we reduce our 0.0 overall environmental incidents year on 09 10 11 12 13 No major incidents were reported year. We ensure that all environmental in 2013 and no environmental incidents are reported and investigated prosecutions, cautions or notices were to capture lessons and prevent received. We have received no recurrence. environmental prosecutions, cautions or formal notices since 2004.

40 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 41 Costain Group PLC Annual Report 2013 hain an initiative academy, that aims The site is regularly updated with vacancies for work experience, apprenticeships and graduate training forthcoming as well as positions, employment events and seminars. academy chain Supply we launched the CostainIn 2012, supply c supportto and develop small and date, To enterprises. medium-sized 45 suppliers have been through the whereacademy, representatives attend business covering modules learning 19 nancial fi and commercial administration, best practice, insurance, Health and behaviouralSafety, safetyand quality. are pleasedWe with feedback received date andto are planning support to a further 30 suppliers through the academy in 2014. We have alsoWe joined forces with innovative careers website encourage to ‘plotr’ more young people consider to a career at Costain. ‘Plotr’ is an online careers that is free 24-year-olds to service11- for for young people, parents and teachers is ‘plotr’ a use. Foundedto in 2011, t Community Interest not-for-profi Company that combines input from careers advisers, youth organisations, teachers, leading technology and social media companies and hundreds of young people create to an innovative and informative careers advice platform. Working with we have ‘plotr’ created the ‘Costain Career represent World’ to the sectors the Company operates in and job roles demonstrate to included the 11 various careers available within the Group. The jobs are a mix of entry-level and aspirational roles and the site offers advice about how you get started, what cations are skills are needed, what qualifi required and what salary might be expected. There are also short video clips of Costain employees talking about their role, how they got started, what their skills key are, what they love about their job and, as with all jobs, what the challenges are. biggest

le developing a CITB-accredited ngaging with schools, colleges and schools, with ngaging universities ensure to we attract young talent our into organisation, build a sustainable pipeline of talent for the future and support local communities Throughwhere we operate. our Engineering Futures programme, we aim raise to the awareness and nd out aspirations of young people fi to more about careers in engineering and related industries. have over We ambassadors100 across the Group who volunteer their time go into to schools inspire to young people in Science, Engineering Technology, and Maths (‘STEM’) subjects. In addition, we offer inspirational work experience youngto people, aiming make to their experience of the world of work more meaningful. and accessible Developing skills for the future recogniseWe the importance of e In 2013, we underlinedIn 2013, our continued commitment sustainable to development signingby the Welsh Government’s Sustainable Development Charter. Signing the Charter is a voluntary sustainability making to commitment central business, to promoting and and social environmental, delivering decisions through wellbeing economic and operations, and sharing the learning journey. that from The Future The Training Costain took a lead During 2012–2013, ro environmental training course, the Site Training Awareness Environmental Scheme, (‘SEATS’), which was launched in Groupby Fisher, Peter SHE Director, February. Costain is a registered training provider and for SEATS we intend to rollout as a mandatory SEATS requirement for all site supervisors and managers. During we have the year, Costaintrained employees of 143 a total and 95 sub-contractors, and three courses have already been run as part supplyof Costain’s chain academy. Strategic report Corporate Responsibility continued Costain Cares

Our performance Costain achieved the highest ranking in Engineering BITC’s annual benchmark of responsible business management, the Corporate Tomorrow... Responsibility Index (‘CR Index’). The CR Index is the UK’s leading and ‘in action’ most in-depth voluntary benchmark of Corporate Responsibility. It has been run by Business in the Community for over a decade to help companies: accurately measure and manage all aspects of their social and environmental performance; shape how they integrate and improve The Big Infrastructure Corporate Responsibility throughout their business operations, and benchmark Conversation themselves against competitors. In September Costain, in conjunction A new banding in the Index for 2013, with Business in the Community, Platinum Big Tick, is designed to hosted The Big Infrastructure challenge leading companies with Conversation at London’s City Hall. ‘stretch questions’ on topics such as On the day students, ambassadors, their long-term planning and the unique apprentices and trainees met youth unemployment and to listen contribution their business can make business leaders and discussed their to young people about their needs, to create transformational change and own apprenticeship experiences, hopes and ambitions for the future, a sustainable economy. the importance of inspirational particularly in relation to securing work experience and skills. For the valuable career advice. Achieving Platinum Big Tick status industry leaders, there was also an Additional examples of means that Costain can demonstrate opportunity to share best practice Engineering Tomorrow... ‘in action’ that it is thinking about how global mega about how businesses can tackle can be found on pages 28-33. trends, such as population growth and resource scarcity, are affecting the future Costain Cares: our 2020 vision strategy of the business. The banding is In 2011, we launched our Corporate an indication that it is making long-term Responsibility strategy, Costain Cares, investments to improve or launch new setting out our vision for 2014. This year, environmentally and socially sound we will undertake a full review of our products and services, and is 2014 vision, report on our achievements embedding responsible values and, in an aim to ensure continual throughout the workforce. improvement, launch our 2020 vision. Business in the Community Corporate Responsibility Index performance and band thresholds %

100 97 93 95 95 90 88 80 70 Additional information concerning 60 our Costain Cares strategy can 50 be found online: www.costain.com/ 09 10 11 12 13 responsibility Q Bronze ≥ 70.00% Q Silver ≥ 79.76% Q Gold ≥ 89.76% Q Platinum ≥ 94.76% In 2011, BITC renamed the CR Index 2010 as CR Index 2011 to reflect the year the results were published.

42 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 43 Costain Group PLC Annual Report 2013 e 100% share capital of EPC Offshore Limited for an initial consideration of for million (including million £1.0 £10.6 excess cash). EPC Offshore Limited eld development and project is a fi providing specialist management client-side services North to Sea oil and gas companies and enhances the skillsGroup’s and capabilities in the North Sea upstream oil and gas market. Further consideration may be payable nancial performancedepending on the fi nancial years of the business in the fi and 2015 ending December 31 2014, and the retention of certain2016 key Thisemployees performance in 2016. consideration is subject a minimum to maximum a and of million £2.0 of million. £14.4 theAt period end, the Group acquired interest fromthe 27% its partner Serco Group plc in their Managed venture joint Technology Motorway arrangement for a cash consideration venture The joint million. £2.4 of agreement, in which Costain already held the remaining interest, 73% has a place on the Highways Agency framework deliver to new technology-led improvements. highways accounting with accordance In consideration deferred any standards, for acquisitions that is related to employment is expensed in the income statement over the period deferment. of employment relatedIn 2013, and other to amounted consideration deferred million), the £1.7 (2012: million £2.8 increase from the prior period is due to an increase in the expected performance a including acquisition, previous a of deferred consideration element not related employment.to This expense is shown The results of the Group’s performance Divisional section the in operating divisions are considered (pages and and 26 27) are shown in nancial the segmental analysis in the fi 103). to statements (pages101 Acquisitions the Group acquiredIn August 2013, th In 2013, the Group sold its minorityIn 2013, shareholdings in three joint venture companiesas part of the continued disposal of its PFI equity portfolio, for an million. £12.0 of consideration aggregate million £9.1 of t profi a realised The Group as a result of the sale. The Group has reassessed the carrying value of the assets in its non-core Land Development activity in Spain, and as a consequence of continuing uncertainty regarding future market conditions, a non-cash impairment has been taken against the assets, share the Group’s million. £9.8 is which of the Group transferredIn two 2012, PFI investments The into Costain Pension Scheme (‘CPS’) at an agreed value of on t profi a in resulted which million £20.3 addition, In million. £10.5 of transfer the the Group during implemented 2012 an Enhanced Value and Transfer Pension Increase Exchange offers the to members of the CPS which resulted in million £2.8 of one-off cost a accounting in the year. During the Group the year, secured a number of new contracts and extensions order and the book Group’s December 2012: (31 billion £3.0 at stood billion). £2.4 As a result ongoing of the Group’s 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 support on emphasis serviceincreasing related activities and changing industry ow trends, together with the cash cash fl ow implications of a delayed contract, fl accounted for the reduction in net (December million 2012: £57.7 to cash trends these expect million). We £105.7 ected in a lower will continue be refl to average net operating cash position. , 3 : £28.1 : £28.1 2 : 35.4 pence).: 35.4 2 operating profi t to £27.4 £27.4 t to operating profi : £24.5 million) on Group million) Group on £24.5 : 1 2 , amounted to 44.1 pence , amounted 44.1 to 3

: 39.7 pence per share), refl ecting pence per: 39.7 share), refl 2

Restated for revisedts Employee IAS 19 benefi accounting standard. Other items are the amortisation of million £1.8 of assets intangible acquired and related million), employment £1.7 (2012: million £2.8 of consideration deferred other million £3.7 the 2013 in million) and £1.7 (2012: one-off costs associated with the offer for May Gurney Integrated Services plc and the carrying on million £9.8 of impairment non-cash value of assets in non-core Land Development Spain. activity in Underlyingt is before operating Other items profi (amortisation of acquired intangible assets and employment related and other deferred one-off million £3.7 2013 in and consideration costs associated with the offer for May Gurney Integrated Services plc) excludes and in 2012 from resulting one-off costs million £2.8 the liability actions. scheme pension

Profi t before tax, before other items Profi revenue, including share of joint ventures for million £960.0 of associates, and December months 31 to the 2013 12 million). £934.5 The increased (2012: ects the Group’s tability refl profi continued focus on higher margin work. for the year ended December 31 2013 (2012 million £31.0 to increased increased profi ts and a tax timing benefi t. ts and a tax timing benefi increased profi Reported basic earnings per share were pence (2012 18.8 million). Basic earnings per share, before before million). earnings share, per Basic other items million (2012 million (2012 2 3 1 The Group generated increase a 12% underlyingin Tony Bickerstaff Tony Director Finance This review brings together the key nancial metrics of the Group and sets fi cance. nancial signifi out the matters of fi Finance Director’s review Director’s Finance Strategic report Finance Director’s review continued

separately in the income statement Shareholders’ equity A full actuarial valuation of the CPS was under ‘other items’ to aid the user of the Shareholders’ equity increased in last performed by the Scheme Actuary fi nancial statements in understanding the the year to £43.3 million (2012: £31.8 as at 31 March 2010 and a recovery plan underlying performance of the Company. million). The profi t for the year amounted agreed with the Trustee of the Scheme. to £12.5 million and other comprehensive A full actuarial valuation is being carried Interest income of £4.2 million. The movements out as at 31 March 2013. Net fi nance expense amounted to are detailed in the consolidated £4.0 million (20122: £2.7 million). The statements of comprehensive income Cash fl ow and borrowings interest payable on bank overdrafts and and expense and changes in equity The Group has a positive net cash other similar charges was £2.6 million in the fi nancial statements. balance, which was £57.7 million as at (2012: £1.8 million) and the interest 31 December 2013 (2012: £105.7 million) income from bank deposits and other On 27 February 2014, the Group and included £26.6 million of borrowings loans and receivables amounted to announced a proposed £70.3 million (2012: £1.7 million) and cash held £0.7 million (2012: £1.0 million). In (net of expenses) capital raising which, by jointly controlled operations of addition, the net fi nance expense if approved at the extraordinary £25.6 million (2012: £29.6 million). includes the interest cost on the net general meeting on 17 March 2014, liabilities of the pension scheme of will increase the level of shareholders As set out in the consolidated cash fl ow £2.1 million (20122: £1.9 million). equity signifi cantly in 2014. statement and explained above, during the year, the Group had an operating Tax Pensions cash outfl ow, together with outfl ows The Group’s effective rate of tax As at 31 December 2013, the Group’s for payment of dividends and matching was 3.1% of the profi t before tax pension scheme defi cit in accordance pension defi cit contributions. The (2012: 6.5%). The lower than normal with IAS 19, net of deferred tax, was average month-end net cash balance rate of tax arose owing to tax relief on £29.4 million (2012: £40.0 million). during 2013 was £50.7 million (2012: the sale of shareholdings in PFI assets, The scheme defi cit position has reduced £103.4 million). Research and Development tax relief primarily as a result of the return on claims, timing differences, not previously assets and Company contributions Key risks and uncertainties recognised as deferred tax assets, exceeding the increased liabilities The principal risks and uncertainties and the effect on the brought forward arising from changes in the fi nancial of the business, and the factors deferred tax balances of the reduced assumptions. which mitigate these risks, are set out on rate of corporation tax of 21% from pages 24 and 25. The Board proactively 1 April 2014. In February 2012, the Group announced monitors these risks and the Chairman’s two further actions being taken to statement and the Chief Executive’s Dividend manage the obligations in the CPS. review in these fi nancial statements The Board has recommended a fi nal The fi rst of these was the transfer of the include consideration of uncertainties dividend for the year of 7.75 pence per Group’s interest in two PFI investments affecting the Group. share (2012: 7.25 pence per share) to into the CPS at an agreed value of bring the total for the year to 11.5 pence £20.3 million which was completed on Contract bonding and per share (2012: 10.75 pence per share), 22 February 2012 and resulted in an banking facilities an increase of 7%. accounting profi t on the transfer of The Group’s long-term contracting £10.5 million. The second action was business is dependent on it being able Subject to fi nalisation of the 31 March the implementation of Enhanced to supply performance and other bonds 2013 actuarial review, as in previous Transfer Value (‘ETV’) and Pension as necessary. This means maintaining years, the Group will make an additional Increase Exchange (‘PIE’) offers to the adequate facilities from banks and surety cash contribution to the pension scheme members of the CPS. The ETV and bond providers to meet the current and equal to the amount of dividend paid PIE exercises resulted in a reduction projected usage requirements. During to shareholders. in the scheme liabilities and assets of the period, the Group increased its approximately £35 million and in a contract bonding and banking facilities one-off accounting cost of £2.8 million to £495 million and extended the expensed in 2012. maturity date to 30 June 2017 with its relationship banks and surety companies.

44 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 45 Costain Group PLC Annual Report 2013 Costain fi nancial statements Costain fi can be found on pages 86-132. uidance ‘Going Concern and Liquidity nstruments, where necessary, for two Tony Bickerstaff Tony Director Finance 26 February 2014 Risk: Guidance for Directors of UK Companies 2009’ published the by Financial Reporting Council in October 2009. The Directors have considered nancial requirements, fi the Group’s its current order book and future opportunities and its available bonding facilities. Having reviewed the latest projections, including the application sensitivities, downside reasonable of the Directors believe that the Group is wellplaced manage to its business risks successfully despite the current uncertain economic outlook. Accordingly, the Group continues adopt the to going concern basis in preparing these nancial statements. fi main purposes: to fi nance its operations main purposes: fi to nance investments, and, in its project fi manage to interest risks rate arising from its operations and its sources of instruments nancial fi Various nance. fi (for example, trade receivables and trade payables) arisedirectly from the operations. Group’s The main exposure interest to rate uctuations within the Group’s fl operations arises from surplus cash, which is generally deposited with the relationshipGroup’s banks, and bank borrowings. Within the investments in joint ventures and associates, interest movementsrate will affect the value of any swaps that may be entered and into ow hedges and ed as cash fl are classifi this will impact equity. the Group’s concern Going The Directors have acknowledged the g Interest rate risks and exposure nancial The Group enters fi into i roup’s overseasroup’s activities are translated rimarily a mixture by of working capital, ctivities are undertaken a centralised by Transaction exposure: the Group has small transactional currency exposures arising from subsidiaries’ commercial activities overseas and from overseas supply purchases for business in the WhereUK. appropriate, the Group requires its subsidiaries use to forward currency contracts minimise to any currency exposure unless a natural hedge exists elsewhere within the Group. into sterlinginto at rates approximating to the foreign exchange rates ruling at the dates of the transactions.The balance sheets of overseas subsidiaries and investments are translated at foreign exchange rates ruling at the balance date. sheet Foreign currency exposure currency Foreign exposure:Translation the results of the G funds from shareholders, retained profi ts funds from shareholders, retained profi andThe borrowings. Directors regularly monitor cash usage and forecast usage nancing needs ensureto that projected fi reserves cash adequate by supported are facilities. bank or Liquidity risk nances its operations The Group fi p The Group’s policyThe ensure is Group’s to that nancial resourcesadequate liquidity and fi are available support to the Group’s growth development, while managing policytheseThe Group’s is not risks. engageto in speculative transactions. Group Treasury operates as a service ned objectives centre within clearly defi and controls and is subject periodic to review internal by audit. treasury function. Its primary activities manageare to liquidity, the Group’s nancial risk, principallyfunding and fi arising from movements in interest rates and foreign currency exchange rates. Treasury treasuryThe Group’s and funding a Governance

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

In this section 47 Chairman’s statement on corporate governance 48 Board of Directors 50 Corporate Governance statement 55 Audit Committee report 58 Nomination Committee report 59 Directors’ remuneration report 77 Directors’ report 81 Directors’ responsibilities statement 82 Independent Auditor’s report to the members of Costain Group PLC

Additional information about our governance can be found online: www.costain.com/responsibility

46 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 47

Costain Group PLC Annual Report 2013 e business and to maintaining e business and to to undertake wide-ranging undertake wide-ranging to . Discussions were focused focused . Discussions were sues, which included a number sues, g skills, experience, gender experience, g skills, strategy included strategy Tomorrow Engineering

he ongoing consideration of potential acquisitions and acquisitions potential of he ongoing consideration investments. A business plan for 2014–2016 was approved approved was 2014–2016 A business plan for investments. in December 2013. Costain success of the for responsible is ultimately The Board corporate of highest standards the to committed are and we our vision of achieve to continue enable us to to governance providers. engineering solutions leading UK’s the being one of David Allvey David Chairman 26 February 2014 the confi dence of investors. dence of confi the leadership strong providing for is responsible The Board is realised leadership and effective Costain Group the to executive and the Board the between collaboration through harness the we that ensure as Chairman is to My role team. a culture and drive Directors the of and knowledge experience decision-making, in standards, improvement continual of policies and accountability. diversity across lies in its our Board of strength A key includin measures, of a range is strategic discussions on key Dear Shareholder very seriously governance corporate take we Costain, At practices governance corporate robust to committed and are principles the considers that The Board and accountability. to central Code are Governance UK Corporate out in the set th of management effective the the with our Board further strengthened We and nationality. Alison and Alison Wood. Ahmed Samy of appointments on Committee Remuneration the Chair of will become the has also continued The Board Executive the members of by attended workshops Board of third-party and advisers Board on developing our on developing t 1 April 2014 when Mike Alexander will retire from the Board. Board. the from will retire Alexander when Mike April 2014 1

and best practice.” best and effective leadership our approach to to approach our overview sets out of governance. This This governance. of highest standards achieving the committed to committed “The Board is is Board “The David Allvey David Chairman Chairman’s statementgovernance on corporate Chairman’s Governance Governance Governance Board of Directors Experienced leadership

David P Allvey (68) Andrew Wyllie (51) James Morley (65) FCA, ATII 3 FREng, MBA, BSc, CEng, BSc, FCA 1 2 3 Non-Executive Chairman FICE, CCMI Senior Independent Director Chief Executive Appointment: November 2001 Appointment: January 2008 Appointment: September 2005 Skills and experience: David Allvey was Skills and experience: James Morley appointed Chairman in January 2008 Skills and experience: Andrew Wyllie served as Chairman of the Audit Committee prior to which he was Chairman of the was appointed Chief Executive in September from January 2008 until the end of October Audit Committee. With a career that started 2005. He was previously Managing Director 2012 and was appointed as the Senior in civil engineering and subsequently as a of Construction Ltd Independent Director at the start of January Chartered Accountant, his previous roles (2001–2005) and a member of the Taylor 2013. He is a Chartered Accountant with include Group Finance Director for BAT Woodrow plc Executive Committee. Andrew some 27 years’ experience as a board Industries plc, Bank plc and joined Taylor Woodrow in 1984 and worked member of both listed and private Chief Operating Officer for Zurich Financial on major contracts in Africa, the Middle East, companies. Previous roles include Chief Services, member of the UK Accounting the Far East and the UK. Operating Officer of Primary Group Ltd Standards Board, member of the (2006–2007), Group Finance Director of International Accounting Standards Insurance External appointments: Non-Executive Cox Insurance Holdings plc (2002–2005), Group, Non-Executive Director of Thomas Director of Scottish Water. Group Finance Director of Arjo Wiggins Cook plc (2007–2012), Senior Non-Executive Appleton plc (1999–2001), Group Executive Director of Intertek Group plc (2002–2011), Director Finance of Guardian Royal Exchange Senior Non-Executive Director of William Hill plc (1990–1999), Deputy Chief Executive plc (2002–2011), Senior Independent and Finance Director of Avis Europe plc Director of Friends Life FPG Limited (formerly (1976–1989), Non-Executive Director of the Friends Provident Group plc) (2009–2011) Bankers’ Investment Trust plc (1994–2008), and Chairman of Arena Coventry Ltd Non-Executive Director of WS plc (2006–2012). (2001–2009), Non-Executive Director of Trade Indemnity Group plc (1991–1996) External appointments: Senior and Non-Executive Chairman of Acumus Ltd Independent Director of Friends Life Group plc, (2011–2012). Non-Executive Director of Clydesdale Bank Anthony O Bickerstaff (49) plc and National Australia Group Europe FCCA External appointments: Non-Executive Limited. Finance Director Director of The Innovation Group plc, Clarkson plc, plc, and BMS Appointment: June 2006 Associates Ltd. Skills and experience: Tony Bickerstaff is Finance Director and has been since June 2006. Tony has extensive knowledge of the construction and support services sectors both in the UK and overseas. He is responsible for all aspects of the financial management of the Group as well as playing a major role in the Group’s strategic and operational development. Previously, Tony was with the Taylor Woodrow Group, which Former Director he joined in 1982. He held a number of senior Mr Samer Younis retired as a Non-Executive Director with effect from 30 November 2013. management and financial positions in The responsibilities of Taylor Woodrow including Finance Director the Directors have been Notes of Taylor Woodrow Construction Limited. set out on page 81. 1 Member of the Remuneration Committee. Prior to becoming Finance Director, he was 2 Member of the Audit Committee. Divisional Operations Director in charge of 3 Member of the Nomination Committee. Taylor Woodrow Group’s PFI projects.

48 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

. . Board Member Board Ahmed Samy Samy Ahmed 3 November 2013 Costain Group PLC Annual Report49 2013 Group Executive Board The Executive Board has primary management day-to-day the for authority of the operations, Group’s following Board. Group the by down laid policies It consists of the Executive Directors and other senior managers and is chaired by Executive Chief Wyllie, Andrew The members of the Executive Board are: WyllieAndrew Executive Chief Bickerstaff Tony Director Finance Tim Bowen Director Development Corporate Bruce Patrick Director Commercial Group Martin Hunter Controller Financial Group James Darren Infrastructure – Director Managing Alan Kay Director Operations and Technical Group Vaughan Alex Resources Natural – Director Managing Tracey Wood Legal Director and Company Secretary of Credit Bank of Albania. Appointment: experience: and Skills years’ banking11 experience, culminating in his appointment as Staff Credit Officer (formerly Bank International Commercial at Egypt. Bank), National Chase External appointment: was appointed as a Non-Executive Director in November He is Deputy 2013. Director General InvestmentAffairs of Mohammed Abdulmohsin Al-KharafiW.L.L. & Sons Co. managing include responsibilities his and the company’s offshore investments in and evaluation markets, international project/investment of implementation undertakingopportunities and various and mergers including actions corporate acquisitions. Previous his years to 25 in the investment field, Ahmed Samy gained Ahmed Samy (58) BCom/Accounting Director Non-Executive

Independent Independent Mike Alexander, Tracey Wood joined Tracey July 2007 June 2011 1 2 3 Appointment: Mike Alexander will be retiring from the Board with effect from March 31 2014. experience: and Skills Committee, Remuneration the of Chairman has extensive experience of the energy Chief include roles Previous market. Executive of British Energy plc (2003–2005), Managing Director of British Gas Trading, Chief Operating Officer and Executive Director of Centrica plc (1994–2003), Bank Goldfish of Chairman Non-Executive (2002–2003),Ltd Chairman Marine of TGE Association the of Chairman (2007–2010), AG Operatorsof Train (2008–2009), Non- Executive Director of the Energy Saving Trust and (1994–2001) Ltd Deputy Chairman and Russian of Director Independent Senior Platinum (2011-2013). PLC External appointments: Non-Executive Director of Payments Council ExecutiveLtd.; Director of Lexican and Ltd Lexican Associates member Ltd., of the European Advisory Board for Landis & Gyr, Special Adviser at EGS Energy and Ltd Chairman and Director Independent Senior Seplat of Committee Remuneration the of Limited. Company Development Petroleum Appointment: experience: and Skills the Company in February 2006. She has a background law corporate and construction and was formerly a partner at Hammonds. the in roles senior of number a had has She Company and was appointed Legal Director and Company Secretary She in June 2011. resources human for responsibility has also across the Group. Tracey Wood (44) LLB Legal Director and Company Secretary Independent Non-Executive Director Non-Executive Independent Michael R Alexander (66) FIGM, FIET, FIChem.E, MSc, BSc, CEng, CSci

Non-Executive Non-Executive Non-Executive Non-Executive Jane Lodge was Alison Wood was August 2012 August 2014 February 1 2 3 1 2 3 Appointment: experience: and Skills Director Non-Executive a as appointed Appointment: experience: and Skills with Director Non-Executive a as appointed effect from 1 February and will be 2014 Remuneration the of Chair as appointed 2014. April of beginning the from Committee Alison is the former Global Director of Strategy and Corporate Development at National Grid plc (2008–2013). Before that, Alison spent nearly years 20 in a number of strategy and leadership roles at BAE Systems Development Strategic Group including plc Non-Executive held also has Alison Director. (2004–2008) plc BTG with positions Director and Thus Group plc (2007–2008). External appointments: Senior and plc Cobham at Director plc. technologies e2v at Director Independent Jane A Lodge (58) FCA, BSc Director Non-Executive Independent in August 2012 andin August was appointed 2012 Chair effect from with Committee Audit the of the Prior end of October this, to 2012. Jane spent 35 years at Deloitte LLP (UK), as an25 audit partner advising global manufacturing, the particularly in companies, property and house-building and partner senior was She sectors. construction Deloitte the office and Birmingham the of Sector. Industry Manufacturing UK External appointments: Director and Chair of the Audit Committee of of Committee Audit the of Chair and Director Devro Plc, Non-Executive Director of Black Country Living Museum Non- Ltd, Trust Audit the of Chair and Director Executive Non-Executive and plc DCC of Committee Foundation. School Bromsgrove of Director Alison J Wood (50) MBA, BA Independent Non-Executive Director Non-Executive Independent Governance Corporate Governance statement

Principles statement The Board of Directors of Costain Costain Group PLC Board of Directors Group PLC is committed to achieving the highest standards of corporate governance.

These principles are considered to be Group Audit Nomination Remuneration central to the effective management Executive Committee Committee Committee of the business and to maintaining the Board confi dence of investors.

Statement of compliance The version of the Corporate Governance Health and Code applicable to the current reporting Investments Safety period is the June 2010 and September Committee 2012 UK Corporate Governance Code Committee (the ‘Code’). Throughout the year the Company complied with the provisions of the Code, except for provision B.2.3 The Board has adopted a schedule The Group Executive Board is of the Code, which requires Non- of matters specifi cally reserved to the accountable for running the business Executive Directors to be appointed for Board for its approval. The schedule and delivering the Group strategy. a specifi c term because the Company’s details key aspects of the affairs of the It consists of the Executive Directors two major shareholders are entitled to Company which the Board does not and other senior managers, is chaired appoint a Non-Executive Director for delegate including key strategic, by Andrew Wyllie (Chief Executive) and so long as they each hold 7% of the operational, and fi nancial issues. works with the support of a number of then issued ordinary share capital A copy of the schedule of matters can operational committees and functions. of the Company, as detailed on page be found on the Company’s website 52 of this Corporate Governance report. at www.costain.com Board composition As at the date of this Report, the Board The Audit Committee report on The Group’s organisational structure comprised the Chairman, two Executive pages 55 to 57, the Nomination report is established and overseen by the Directors and four independent Non- on page 58 and the Directors’ Board and designed to allow effective Executive Directors and one nominee Remuneration report on pages 59 to decision-making and to meet corporate Non-Executive Director. The nominee 76 are also incorporated into this Report governance standards. A diagram Non-Executive Director is nominated by reference. illustrating the structure is shown above. by one of our major shareholders, Mohammed Abdulmohsin AI-Kharafi Role of the Board The Board has established Committees & Sons Co. W.L.L. The membership The Company is controlled through its which are responsible for audit, of the Board and biographical details Board. The Board’s main role is to create remuneration and succession. Each of all the Directors can be found on long-term value for shareholders by Committee plays a vital role in helping pages 48 to 49. providing entrepreneurial and prudent the Board to ensure that high standards leadership of the Company, setting the of corporate governance are maintained The biographies illustrate that the Company’s strategic aims, ensuring throughout the Group. The Committees Non-Executive Directors have a range that the necessary fi nancial and other are governed by terms of reference of business and fi nancial experience resources are available and that the which are reviewed annually and can that is important and relevant to the appropriate controls are in place to be viewed in the corporate governance management of the Company. The deliver these objectives. section of the Company’s website. Board believes that there is an The members of each of the Board appropriate balance between Executives Committees and details of their and Non-Executives and that this attendance are detailed opposite. balance is enhanced by the varying lengths of service of the Non-Executive Directors, which are depicted in the pie chart opposite. 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

50 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 51 Costain Group PLC Annual Report 2013 tirement of Directors of tirement oard and in replaced November 2013 Appointments to the Board and re Ahmed Samy was appointed the to B Samer as the nominee Younis Non- Executive Director nominated one by of our major shareholders, Mohammed & Sons Co. Abdulmohsin AI-Kharafi appointed was Wood Alison W.L.L. the Boardto on 1 February and 2014 will replace Mike Alexander as Chair upon Committee Remuneration the of his retirement from the Board on March31 2014. The appointment and replacement of Directors is governed the by Company’s Articles of Association, the Code, the Companies Act 2006 and related Association Articles The of legislation. may be amended a special by resolution of the Company’s shareholders. The Association Articles of Company’s require that all Directors, including Directors, Non-Executive nominee should be subject election to by rst opportunity shareholders at the fi after their appointment and re-election to thereafter at intervals of no more than three years. The Company’s Articles of Association also provide that Non- Executive Directors who have served for longer than nine years should be subject the Accordingly, re-election. annual to aforementioned provisions of the Association Articles of Company’s of the Code, comply with provision B.7.1 companies smaller to applicable as below the FTSE 350. Company’s the with accordance In Articles of Association and provision of the Code, David James Allvey, B.7.1 AhmedMorley, Samy and Alison Wood will offer themselves for re-election at the next Annual General Meeting. Having due regard the results to of the independently facilitated review of the performanceBoard’s conducted and periodic to towards the end of 2011 rms internal evaluations, the Board confi that it is of the opinion that each of the Directors standing for re-election continues make an to effective and valuable contribution the Board to and should therefore be re-elected at the forthcoming Annual General Meeting. Nomination Committee Committee Maximum 1 Committee Committee Maximum 6 Remuneration t Non-Executive Directors Directors Non-Executive t Audit Committee Committee Maximum 4 to be independentto in character and judgment and there are no relationships or circumstances which are likely to affect (or could appearaffect) to the Non-Executive such of judgment Directors. The Nomination Committee continues reviewto succession on a regular basis. theAt time of his original appointment in January 2008, the Chairman of the Company was considered independent in the accordanceby Board. However, with the Code, the ongoing test of independence is not applicable in relation the Chairman. to The Company complies with the requirement of under provision B.1.2 the Code that at least half of the Board, excluding the Chairman, should Directors Non-Executive comprise determined the by Board be to that notwithstanding independent, this requirement is waived in respect of smaller companies, such as the whichCompany, are members of the FTSE SmallCap Index. Board independence Board The Board considers each of its independen Board Maximum 7 7+ years 7+ 2-7 years 2-7 37.5% 25.0% 37.5% 0-2 years Not a member of the Committee – attendance at meeting by invitation. Appointed on 30 November 2013. 2013. November 30 on Resigned The Directors’ attendance record at the scheduled Board meetings and Board Committee meetings for the year ended December is shown31 in the table 2013 For thebelow. Board and Committee meetings, attendance is expressed as the number of meetings that each Director attended out of the number that they were eligible attend. to In addition, ad hoc meetings were also arranged dealto with matters between the appropriate. as meetings scheduled The Board recognises the importance of greater diversity (not just gender c) in the boardroom and specifi details Further business. the throughout of which are given under the Nomination Committee report on page 58. Length of Service Directors Non-Executive 2013 December 31 at as Executive Directors Executive WyllieAndrew BickerstaffTony Directors Non-executive AllveyDavid James Morley AlexanderMike LodgeJane Younis*Samer Ahmed Samy** 7/7 7/7 4*** 4*** 7/7 7/7 7/7 3*** 1*** 4*** 7/7 3/6 4/4 3/4 1/1 1*** 1*** 5*** 4/4 n/a 6/6 6/6 n/a 1/1 6/6 n/a 1/1 1/1 n/a 1/1 0/1 n/a ** *** * Governance Corporate Governance statement continued

The Chairman and Non-Executive The last internally facilitated evaluation Operation of the Board Directors all have terms and conditions of the Board and its Committees was In order to discharge their duties, the of appointment which are available for concluded in March 2013. This was Directors are provided with full and inspection during normal business hours facilitated internally by the then Joint timely access to papers prior to Board at the Company’s registered offi ce. Company Secretary, under the direction meetings via a fully encrypted electronic An independent Non-Executive of the Chairman. The process involved portal system. Directors are also free Director’s appointment is for an initial each of the Directors completing a high to seek any further information they period of three years, at the expiry of level questionnaire and a comprehensive consider necessary. In addition, which time the appointment is reviewed discussion between the Chairman and between Board meetings, the Chairman to determine whether the appointment each of the Board members. Separately, and Non-Executive Directors have should continue. Mohammed the Senior Independent Director met access to the Chief Executive, Finance Abdulmohsin AI-Kharafi & Sons Co. with the Non-Executive Directors without Director and Company Secretary in W.L.L. and the other major shareholder the Chairman being present. order to progress the Company’s UEM Builders Berhad are each entitled business. The Chairman and to appoint a Non-Executive Director for Board induction and training Non-Executive Directors also receive a so long as these shareholders each hold On appointment, the Directors take part weekly report from the Chief Executive, 7% of the aggregate nominal value of the in an induction programme, pursuant monthly management accounts, internal then issued ordinary share capital of the to which they receive information about audit reports and regular management Company. UEM Builders Berhad has the Group, the role of the Board and the reports and information, which enable not taken advantage of this option since matters reserved for its decision, the them to scrutinise the Group’s and its 4 December 2009. In consequence, the terms of reference and membership of management’s performance against Company did not comply with provision the principal Board Committees and the agreed objectives. B.2.3 of the Code, which requires that powers delegated to the Committees, all Non-Executive Directors should be the Group’s corporate governance All Board members have access to all appointed for a specifi c term. practices and procedures, and the latest information relating to the Group and fi nancial information about the Group. have access to the advice and services Effectiveness of the Company Secretary (who is The Board has established a formal As regards the continuing professional responsible for ensuring that Board process for the evaluation of the development of the Executive and procedures are followed) and who is performance of the Board and its Non-Executive Directors, Board also the Company’s Legal Director. principal Committees. members, independent of any formal The appointment and removal of the training arranged by the Company, are Company Secretary is a matter reserved The last externally facilitated Board encouraged to attend seminars and for Board approval. The Board also and Committee review was conducted conferences on issues relevant to their obtains advice from professional towards the end of 2011 by SCT appointment as Directors of a public advisers as and when required at the Consultants Ltd (who, having no other company, particularly matters expense of the Company. connection with the Company, were concerned with corporate governance, considered to be independent). The audit and remuneration issues. In Director’s confl icts of interest next independently facilitated review addition, Board site visits are considered The Company has procedures in place is expected to commence in 2014 in essential to ensure that Directors for managing confl icts of interest. The accordance with provision B.6.2 of have a thorough understanding of the Board has satisfi ed itself that there is the Code, notwithstanding that this business operations and issues that no compromise to the independence requirement is waived in respect of affect the Group. of the Directors who have appointments smaller companies, such as the on the boards of, or relationships with, Company, which are members of other companies. The Board requires the FTSE SmallCap Index. Directors to declare all appointments which could result in a possible confl ict of interest and has adopted appropriate processes to manage and, if appropriate, approve any such confl ict.

Corporate Responsibility (‘CR’) The Board receives reports from the Company’s dedicated CR Director and monitors progress on a regular basis.

52 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 53 Costain Group PLC Annual Report 2013 tem of internal controls and for In 2013, Internal Audit conductedIn 2013, project and departmental reviews appraise to and report on the effectiveness the of risk management processes. All reviews carried out were subject appropriate to follow-up action provideto assurance have recommendations accepted that The effectively. implemented been overall assessment is that there is a strong risk management culture within the Group which is continuing to develop. The Board also assesses the effectiveness reporting of the Group’s controls ensure risk to that the Group’s ects its strategic objectives. le refl profi rms that there is an The Board confi ongoing process for identifying, cant evaluating and managing the signifi risks faced the by Group, which has been in place for the year under review and the up date of approval to of the Annual Report. This process extends not only projects to undertaken solely subsidiariesby of the Group but also projectsto undertaken in joint arrangements and joint by ventures and associates. This process is reviewed by the Audit Committee on behalf of the Board and accords with the Financial Reporting (‘FRC’) Council’s guidance control. internal on controls Internal The Board is responsible for the Group’s sys reviewing its effectiveness. Such a can onlysystem, however, manage rather than eliminate the risk of failure achieveto business objectives andcan only provide reasonable, but not absolute, assurance against material mis-statement or loss. The Board maintains full control over and operational nancial, fi strategic, compliance issues. Management of the Group is delegated the Chief to Executive, who is assisted members by of the Executive Board. The Chief Executive has full authority act to subject the mattersto reserved the Board to and the requirementsto of Group policies. rol r identifying and managing risk, including a pre-qualifi cation and including a pre-qualifi pre-tender review for obtaining approval bidto for a project from the Investments c project riskCommittee and a specifi management procedure which involves a continuous review of risks and opportunities the by project manager and commercial manager of the project following contract award. For the duration of a contract, the risks and opportunities are updated on a monthly ve risks and basis and the fi top opportunities reviewed Group by senior management. The Company has also established a corporate risk and opportunity whichregister, is monitored and updated regularly, as well as sector business risk registers. The Board and Audit Committee receive reports on the Company’s main corporate risks and opportunities. As recommended the by Code, the Board has determined the cant nature and extent of the signifi achieving in take to willing is it risks its strategic objectives. The risk management strategy is regularly reviewed risks and the Group’s and opportunities compared against those of other blue-chip companies. The Group reviews any changes in moving new into markets, such as its recent move technology into contracts, and attempts identify to any emerging risks and possible effects on the provides Audit Internal business. independent assurance that risks business Company’s the to inherent processes are reasonably controlled and assists management in assessing those risks and how effectively they are managed internal by controls. Internal Audit also promotes best practice in risk management processes ensure to delivery of corporate objectives. Risk management management Risk The Company has various procedures fo Risk managementand internal cont . In addition, taining good relationships with both both with relationships good taining www.costain.com Shareholders may raise issues or Group’s the contacting concerns by Investor Relations team via the email address stated on the Company’s website or writing by the Company to Secretary. The Board regards the Annual General Meeting as an important opportunity to shareholders. with directly communicate Board members, including the Chairs of the Remuneration, Nomination and Audit Committees, meeting attended the 2013 and propose meeting attending the 2014 where they will be available answer to questions. The Company obtains feedback from its brokers, Investec and Liberum Capital, on the views of institutional investors on a non-attributed basis. As a matter of routine, the Board reviews reports from its brokers on issues relating recent to share price performance, trading activity and institutional sentiment. The Board also receives copies of relevant analysts’ reports on an ad hoc basis. At theAt time of the announcement of the full-year and half-year results, presentations are made brokers’ to analysts, the press and institutional investors. These presentations are available on the Company’s website at The Chairman is available discuss to strategy and governance issues with shareholders and James as the Morley, available is Independent Director, Senior shareholdersto if they have concerns that have not been, or cannot be, addressed through the Chairman. institutional and private shareholders. There continues be regular to dialogue with institutional investors and brokers. there are meetings with analysts, nancial journalists and institutionalfi investors throughout the year. Shareholder communication and and communication Shareholder engagement The Company remainscommitted to main Governance Corporate Governance statement continued

In 2013, the Company considerably Each project manager also completes accompanying narrative on signifi cant strengthened and updated its internal monthly reports, which include issues underlying the fi nancial reports. controls with the introduction of a information on safety, health and Furthermore, a review of the common platform, which houses all its environmental statistics, cash fl ow, consolidated fi nancial statements is governances, controls, policies and value, cost and profi t, claims and completed by management to ensure procedures for all activities within our variations, risk management, progress that the fi nancial position and results business, called ‘The Costain Way’ and and staffi ng levels. All projects operate of the Group are appropriately refl ected also updated its HR information system within a controlled framework of best therein. The Group Treasurer and Group with a new module called MyHR, which practice, safety, health and Taxation Manager also report to the captures all HR matters. environmental guidelines. The project Audit Committee, via the Finance management team monitors, and the Director, on any issues of signifi cance The Audit Committee has reviewed the safety, health and environmental to the Group. effectiveness of the system of internal advisers audit, compliance with, and controls. The review covered all controls, execution of, the guidelines. Compliance including fi nancial, operational and The Group’s policies contain a statement compliance controls and risk The Board and Executive Board receive on business conduct, emphasising the management. regular reports on safety, health and legal, ethical and moral standards that environmental performance and must be employed in all the Company’s Operational controls signifi cant operational matters. The business dealings. This statement is Controls and procedures are detailed Executive Board is responsible for regularly reviewed and updated as in Group policy statements, procedure ensuring compliance with Company appropriate to ensure compliance with manuals and other written instructions, procedures. The Chief Executive is the any change in legislation. The Company which are reviewed and updated Board member responsible for Health expects the highest standards from regularly. and Safety. all employees and key suppliers.

The Company has developed an Financial controls In the event of a critical legal issue, operational management system (‘the There is a comprehensive annual a legal report is submitted to the Board. Costain Way’) that has been externally budgeting system, linked to the annual An annual review of all litigation valued certifi ed by BSi as compliant to strategy review, for each business within above £50,000 is submitted to, and ISO 9001, ISO 14001, OHSAS 18001, the Group. The budget for the following reviewed by, the Board. Signifi cant legal ISO 22301, ISO 27001 and BS 11000 year is reviewed and fi nalised by the and regulatory changes are notifi ed to and which is designed to support Executive Board, alongside the three- the appropriate staff and training given management in providing safety, year business plan, before fi nal approval where necessary. quality, environmental, business by the Board in December. continuity, information security collaborative management processes The Company also has in place internal across the entire business. The controls and risk management systems objective of The Costain Way is to in relation to the Company’s fi nancial provide assurance that: reporting process and the Group’s • Company activities are compliant process for preparation of consolidated with appropriate legislation and codes accounts. These internal controls are of practice; designed to provide reasonable assurance regarding the reliability of • Company systems, procedures and fi nancial reporting and the preparation processes are effective at mitigating of fi nancial statements for external identifi ed risks; reporting purposes. The Company • customer expectations are produces a monthly rolling forecast understood, communicated and update for the current year which is effectively delivered; compared with the annual budget. Each division’s performance is reviewed • management controls are consistently monthly by management and reported applied across the Group; and against budget to the Board and • performance is reviewed, validated Executive Board. The reports cover and continually improved. profi t and loss and cash fl ow with an

54 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 55 Costain Group PLC Annual Report 2013 requires signifi cant judgments in requires signifi for assumptions the to relation increases, pension future ation, infl investment returns and member longevity that underpin the valuation. in selectingEach year, the appropriate takes Committee the assumptions, written advice from an independent ed actuary. The assumptions qualifi and sensitivities are set out in 125. to on 20 pagesNote 124 T intangible assets A the goodwill 109, to and acquired Group the within balances intangible relate principally the acquisition to of Offshore, EPC businesses including ClerkMaxwell and Promanex. During the year ended December 31 2013, the Committee critically reviewed the analysis performed management by on goodwill and intangibles and agreed with the amortisation charge in respect of intangibles and that was goodwill to impairment no necessary. requires estimates be made to for contract costs and revenues. These costs and revenues may be affected a numberby of uncertainties that depend on the outcome of future events and may need be revised to as events unfold and uncertainties resolved. are Management bases its judgments of costs and revenues and its assessment of the expected outcome of each long-term contractual obligation on detailed contract valuations and forecast of the costs complete. to During the Committeethe year, critically examined these judgments and was content with the position adopted. T (3) (3) t scheme ned benefi defi he Group’s he carrying value ofgoodwill and on pages 108 s set out in 11 Note Pension (2)

A on pages the majority 100 99 to of activitiesthe Group’s are undertaken via long-term contracts and these contracts are accounted for in whichaccordance with IAS 11, reviewing its terms of reference and its effectiveness from time time to and recommending the Board to any changes required asresult a of the review. reviewing the effectiveness of the internal audit function and approving, in consultation with the Chief Executive, the appointment and termination of employment of the head of that function; and reviewing system of the Group’s internal controls and the processes for management of the risks facing the Group; ensuring that an appropriate appropriate an that ensuring relationship between the Group and the External Auditor is maintained, services non-audit reviewing including fees; and monitoring the effectivenessthe of external audit process and making recommendations the Board to in relation the appointment, to reappointment and remuneration of the External Auditors; ommittee and the manner in which raft fi nancial statements, preliminaryraft fi ccounting issues, matters and Principal activities during the year year the activities during Principal the principalIn activities 2013, of the C • • • • • The Committee considered key a accounting matterscant judgments in relation the Group’s to nancial statements and disclosures fi relating to: (1) contract Key judgments s more fully explained in 2, Note it discharged its responsibilities were follows: as Financial statements The Committee reviewed the Group’s d and interim results and reports from the External KPMG Audit Plc, Auditor, on the outcome of its reviews and audits 2013. in Signifi

www.costain.com

ilable from the Company Secretary ndependent Non-Executive Directors. monitoring the integrity of the Group’s nancial statements and any formal fi Group’s the to relating announcement cant signifi reviewing and performance, nancial judgments contained in them;fi nd in compliance with the Code, the Role of the Audit Committee In accordance with its terms of reference a for: responsible is Committee • and are published on the Company’s website at Terms of reference of Terms The Committee’s terms of reference are ava The meetings of the Committee are normally also attended the by Chairman, the Chief Executive, the Finance Director, the External the Head of Internal Auditor, Audit and the Group Financial Controller. The Audit Committee regularly meets privately with the External Auditor and Head of Internal Audit. The Company Secretary is the Secretary the to Committee. The Company considers that it has in Jane Lodge, as Chair of the Audit Committee, an appropriate person possessing what the Financial Reporting (‘FRC’)Council’s Guidance on Audit Committees describes as recent and nancial experience. Prior to relevant fi joining the Costain Board, Jane, a chartered accountant, spent 35 years at Deloitte LLP (UK), as an 25 audit partner particularly companies, global advising house-building manufacturing, the in and property and construction sectors. She was also senior partner of the ce and the Deloitte Birmingham UK offi Industry Sector. Manufacturing The membersthe of Committee and details of their attendance at Audit Committee meetings are given on Biographiespage are shown 51. on pages 48 and 49. Operation of the Audit Committee Committee’) (‘the exclusively comprised is Committee The of i Audit Committee reportAudit Governance Governance Governance Audit Committee report continued

(4) Alcaidesa Holding SA The policy also sets out a number of The Senior Statutory Auditor (who has T he Committee has reviewed the net key principles that underpin the provision signed the Audit Report on behalf of realisable value of each of the land of non-audit services by the External KPMG on page 84) is Mr Andrew holdings in Spain held by the Group’s Auditor: the External Auditor should Marshall who was appointed as the 50/50 joint venture. The Committee not audit its own fi rm’s work; make lead audit partner at the beginning of addressed this issue by considering management decisions for the Group; the year. He replaces Mr Stephen Bligh the report from management on have a mutuality of fi nancial interest with who had been the Company’s Audit the review carried out of the net the Group; or be put in the role of Director since 2010 and who has retired realisable value of each of the land advocate for the Group. from KPMG. holdings in Spain and of the carrying value of the marina assets, and the Approval of the Committee is required The Audit Committee is satisfi ed that golf courses including the use of for any services provided by the External the independence of the External Auditor external valuations. The Committee Auditor where the fee is likely to be in is not impaired due to the fact that the agreed that as a consequence of excess of £25,000. The Committee audit engagement partner has recently continuing uncertainty regarding reviews all services being provided by changed and that the amount of future market conditions in Spain, the External Auditor annually to assess non-audit fees are of a level that does a non-cash impairment should be the independence and objectivity of the not impact upon KPMG’s objectivity taken against the assets of the joint External Auditor, taking into consideration and independence. venture, the Group’s share of relevant performance and regulatory which is £9.8 million, reducing the requirements so that those are not Audit quality and approach Company’s total carrying value in impaired by the provision of permissible to audit tender the joint venture to £26.6 million. non-audit services. As part of a formal review process, audit effectiveness questionnaires (5) F uture IFRS and UK GAAP In 2013, the External Auditor performed are completed by members of the developments non-audit services in respect of potential Committee and the Executive Directors D uring the year, the Committee acquisitions and the provision of tax and members of the fi nance team. received a management report from services. The External Auditor also Based on the responses to the the External Auditor regarding future provided services in reporting on questionnaires, the Company Secretary accounting developments likely to working capital in connection with the produces a report for detailed affect the presentation of the Group’s lapsed all share merger with May Gurney consideration by the Committee. fi nancial statements. and the proposed capital raising. The External Auditor was selected as the Based on its consideration of the Independence of the most cost-effective and effi cient supplier report, together with its own ongoing External Auditor to undertake these services based assessment, for example, through the The Company’s External Auditor is on their thorough understanding of the quality of the External Auditor’s reports KPMG Audit Plc. Group and their particular expertise. and the audit partner’s interaction In the fi nancial year, the Company with the Committee, the Committee In order to ensure the independence spent £1.7 million (2012: £0.4 million) remains satisfi ed with the effi cient and objectivity of the External Auditor, with the External Auditor in respect and effectiveness of the Audit. the Committee monitors the non-audit of non-audit fees. services being provided to the Group The Committee has not therefore by its External Auditor, and has adopted In accordance with best practice and considered it necessary to require the a policy on the provision of non-audit professional standards, the Company audit to be put out to tender. The services by the External Auditor with the also requires its External Auditor to Committee continues to be satisfi ed objective of ensuring that such services adhere to a rotation policy whereby the with the work of the External Auditor do not impair the independence or audit engagement partner is rotated and that it continues to remain objective objectivity of the External Auditor. after fi ve years. The External Auditor and independent. is also required to periodically assess whether, in its professional opinion, it is independent and those views are shared with the Audit Committee.

56 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 57 Annual Report 2013 Costain Group PLC

Jane Lodge Committee Audit the of Chair February26 2014 Accountability The Board is required present to a fair, balanced understandable and financial Company’s the assessment of position and prospects. The and Directors the of responsibilities External Auditor are set out on pages As 84. set out to in the81 Director’s the consider Directors the Report, concern. going a is business Company’s

year. During the Committeeyear. the year, assessment internal undertook an theof effectiveness and independence theof internal audit function. to the Committee. The Committee has has Committee The Committee. the to received reports on its findings and programme reviews of at each its of meetings during the course the of Internal audit Internal The Group has an internally resourced reporting directly function audit internal covered all controls, including financial, financial, including controls, all covered controls compliance and operational and risk management. controls and risk management operated within the Group pursuant the to Financial Reporting guidance Council on internal control. The evaluation Corporate Governance statement. statement. Governance Corporate the evaluated has Committee The effectiveness the of system internal of Details internal the of Group’s controls and risk management are more fully set out on pages 54 the of 53 to members the of FTSE SmallCap Index. and management Risk controls internal tender at least every ten years, years, ten every least at tender is requirement this that notwithstanding waived in respect smaller of companies, such as the which Company, are The Committee recognises the new new the recognises Committee The requirement in the Code that the External Auditcontract be put out to recommends the Board seek authority for the Directors fix the to External remuneration. Auditors’ Committee decided to recommend to to recommend to decided Committee the Board that KPMG LLP be appointed Company the to Externalas Auditor at the The AGM. Committee also for reappointment at the Company’s KPMG LLP will However, AGM. 2014 seek election at this meeting. The change the entity which conducts the Plc Audit KPMG from audit Company’s has Plc Audit KPMG LLP. KPMG to indicated therefore that it will not stand KPMG Audit Plc has informed the the informed has Plc Audit KPMG Company that it wishes formally to Governance Nomination Committee report

Operation of the Nomination Main activities during the year Committee (‘the Committee’) In 2013, the Committee discharged The Committee is comprised exclusively its responsibilities by performing the of independent Non-Executive Directors. following activities: The members of the Committee and • reviewing the results of the internal details of their attendance at Committee review of Board effectiveness which meetings are given on page 51. concluded in March 2013; Biographies are shown on pages 48 to 49. • reviewing recruitment of Non- Executive Directors; Role of the Committee • receiving notifi cations from Directors The principal role of the Committee is of situations, such as proposed to review the structure and composition external appointments, in which a of the Board and to identify and propose potential confl ict of interest may arise; to the Board suitable candidates to fi ll Board vacancies. • recommending to the Board the reappointment of those Directors The Committee directs the Board who are due to offer themselves for effectiveness reviews and also reviews re-election at the Annual General management training and succession Meeting in accordance with the planning arrangements in respect of Articles of Association, following senior management. The Company due consideration of the Board’s Secretary is the Secretary of the policy on independence and the Committee. results of periodic Board performance reviews; and The Board aims to have a broad range • reviewing succession planning in of skills, backgrounds and experience respect of the Company’s senior whilst following a policy of ensuring we management. appoint the best people. Within this context, and as part of the ongoing process of refreshing the Board, the Company will continue to encourage and welcome interest from candidates drawn from a diverse background, who will add to the Board’s diversity.

With effect from 1 February 2014, Alison Wood was appointed as a Non-Executive Director and will become Chair of the Remuneration Committee with effect from 1 April 2014 upon the retirement from the Board of Mike Alexander. The Committee instructed Odgers Berndtson (who do not have any other connection with the Company) to identify appropriate external candidates, and subsequent to meetings with shortlisted candidates, the Committee identifi ed Alison Wood as a suitable successor and recommended to the Board her appointment. Alison brings considerable experience to her role and enhances the skill-set of the Board as a whole.

58 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 59

Annual Report 2013 Costain Group PLC our Policy on Directors’ remuneration, which setsout our future remuneration policy; it will be the subject a binding of shareholder at the forthcoming vote AGM; the Annual Report on remuneration, which describes how the policy was implemented and will be implemented it will in 2013 be the subject in 2014; anof advisory shareholder vote. 26 February26 2014 believes that the remuneration policy will continue retain to and motivate our objectives strategic Company’s the with alignment fostering while team, senior and the drive for long-term growth for our shareholders. believe We that the remuneration Executives of reflects during our successes 2013 to in thedate delivery that of strategy. sincerely Yours Alexander Michael Committee Remuneration the of Chairman (‘DSBP’) a single into annual incentive plan (‘AIP’) with an element deferral of into shares. are proposing We simplify to the share-based Incentive Plan Long-Term (‘LTIP’) structure for Executive Directors taking by the away two-tier approach to performance targets; also we introduced an additional two years’ deferral on half for Executive theof LTIP Directors. Whilst holding constant the overall level of moved we incentive the balance pay, the longer to term. These proposals were discussed with major shareholders and the in 2013 late final designtook accountinto feedback received. The resulting Policynew will be subject at the forthcoming a vote to in AGM May as will the new and revised incentive plans that are required give to effect these to changes. I do hope that you will feel able support to both the resolutions approve to the level remuneration of and paid the Committee’s during forward 2013 looking remuneration Annual at this policy, year’s General Meeting. The Committee • • During the Committee the year, reviewed the remunerationpolicy for Executive Directors, ensure to our structures were fitfor purpose in advanceof seeking shareholders’ approval for a policy that it is hoped will endure for the coming three years.concluded We that the current structure is fitfor purpose, but thatwe should make several changes that would simplify the structure and tiltthe balance of Executives’ incentives towards the long-term. decidedWe combine to the annual bonus and the Deferred Share Bonus Plan Chairman’s Summary Statement Chairman’s Dear Shareholder I am pleased take this to opportunity set out remuneration to Costain’s strategy and the it way has been implemented during the past year. In accordancewith the new regulations governing the disclosure and approval directors’of remuneration, our remuneration report has been split two into parts:

and best practice provisions. ‘Committee’) confirms that throughout throughout that confirms ‘Committee’) the financialyear the Company has rules governance these with complied to Directors’to remuneration, as set out Code Governance Corporate UK the in (the ‘Code’), are applied in practice. (the Committee Remuneration The Disclosure and Transparency Rules. Transparency and Disclosure unless otherwise stated. unaudited is It In this report describe we how the relating governance good of principles Regulations 2013. It alsoRegulations meets the 2013. requirements the of UK Listing Authority’s Listing Rules and the provisions of the Companies Act 2006 Act Companies the of provisions and Schedule the 8 of Large and Groups and Companies Medium-sized (Accounts and Reports) (Amendment) This report, approved the by Board, has been prepared in accordance with the Governance Governance Directors’ remuneration report Governance Directors’ remuneration report continued

Policy report Element: Annual Incentive Plan (‘AIP’)

This report sets out the Company’s policy on the remuneration Purpose and link to strategy of its Directors and will be put to a binding shareholder vote • To incentivise the achievement of key financial and at the AGM in 2014 and the policy will take formal effect from strategic targets for the forthcoming year without that date. encouraging excessive risk taking. • Promotes greater alignment with shareholders. The Committee also determines the remuneration policy for • To facilitate share ownership. the Company Secretary and such other members of the executive management team as it is designated by the Board, Operation with the aim of attracting, motivating and retaining executives • The Committee considers and approves the measures of the appropriate calibre and expertise, so that the Company and targets at the start of each year and ensures they is managed successfully for the benefit of its stakeholders. are aligned with business strategy and are sufficiently The framework has been designed as an integral part of the stretching. Company’s overall business strategy. For the avoidance of doubt, although the policy for employees below the Board • Financial metrics will comprise at least three-quarters follows similar principles and structure to that for the executive of AIP opportunity, of which at least half will be a measure directors, the remuneration policy set out below governs the of Group profit. policy for the Board only. • In addition to these financial metrics, the AIP includes Health and Safety targets and personal objectives. Future Remuneration Policy for Executive Directors, to • In setting financial parameters, the Committee takes into apply from the date of the 2014 AGM, is set out below. account the Company’s internal budgets and, where Element: Salary applicable investors’ expectations. The targets applying to financial measures are based on a sliding scale. Purpose and link to strategy • Two-thirds paid in cash. • To attract and retain high-calibre individuals. • Not pensionable. • Reflects skills, experience over time. • Deferral into shares of one-third of earned AIP; this vests • Provides an appropriate level of basic fixed income whilst on the second anniversary of grant (subject to continued avoiding excessive risk arising from over reliance on employment and not being under notice of termination, variable income. either given or received, on the date of vesting). Operation • Shares provided under the AIP are typically purchased • Generally reviewed annually (with any change effective by a trust on behalf of the Group so as to not lead to any 1 April) but exceptionally at other times of the year. dilution of shareholder interest. • Set with reference to individual performance, experience • Awards may be subject to clawback if the Committee and responsibilities. becomes aware of a material misstatement to the audited • Reflects the market rate for the individual and their role, accounts, an error in calculation of targets resulting in determined with reference to remuneration levels in an overpayment, gross misconduct or criminal behaviour companies of similar size and complexity, taking into on the part of a participant. account pay levels within the Company in general. Maximum opportunity • Higher increases may be appropriate where an individual • Maximum: 150% of salary. is promoted, changes role or where an individual is • There is no minimum opportunity. appointed on a below market salary with the expectation that his salary will increase with experience and performance.

Maximum opportunity • Salaries to apply for the year from 1 April 2014 are:  – Chief Executive: £437,228 – Finance Director: £289,664 • There is no maximum salary value.

60 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

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Incentive plan discretions Illustration of application of Remuneration Policy The Committee will operate the AIP and LTIP according to their We estimate that the level of remuneration received by each respective rules, the policy set out above and in accordance of the two Executive Directors for the first full year under the with the Listing Rules and HMRC rules where relevant. A copy Remuneration Policy set out above will be: of the Plan rules is available on request from the Company Secretary. The Committee, consistent with market practice, £’000 retains discretion over a number of areas relating to the operation and administration of these plans. These include 2,000 (but are not limited to) the following: £1,639,772 1,500 27% £1,158,821 £1,089,333 • who participates in the plans; 1,000 £770,703 19% 40% 27% 34% 19% • the timing of grant of award and/or payment; £546,701 40% 500 £365,173 100% 47% 33% 34% • the size of an award and/or a payment; 33% 0 100% 47% • the choice of (and adjustment of) performance measures Minimum On-Target Maximum Minimum On-Target Maximum and targets for each incentive plan in accordance with the Chief Executive Finance Director policy set out above and the rules of each plan; ■ Fixed pay ■ Annual bonus and DSBP ■ LTIP • discretion relating to the measurement of performance in the event of a change of control or reconstruction; The chart above illustrates how the total pay opportunities • determination of a good leaver (in addition to any specified for the Executive Directors vary under three performance categories) for incentive plan purposes based on the rules scenarios: Minimum, On-Target and Maximum. of each plan and the appropriate treatment chosen; and Assumptions: • adjustments required in certain circumstances (e.g. rights • Minimum – fixed pay only, including salary effective 1 April 2014, 22% pension issues, corporate restructuring, on a change of control and allowances and benefits as paid in FY2013. special dividends). • On-Target – fixed pay, plus 60% of the maximum payout under the AIP (and mandatory deferred element), and 50% LTIP vesting. • Maximum – fixed pay, plus 100% of the maximum payout under the AIP and Any use of the above discretions would, where relevant, be (and mandatory deferred element), and 100% LTIP vesting. explained in the Annual Report on Remuneration and may, as appropriate, be the subject of consultation with the Company’s Service agreements and loss of office major shareholders. The Executive Directors have service contracts that can be terminated by either party on the giving of 12 months’ notice. Legacy arrangements There is no entitlement to the payment of a predetermined For the avoidance of doubt, in approving the Policy report, amount on termination of employment in any circumstances. authority is given to the Company to honour any commitments There are no liquidated damages provisions for compensation entered into with current or former Directors that have been on termination within the Executive Directors’ service disclosed previously to shareholders. It is also part of this agreements. The Executive Directors’ service agreements policy that we will honour payments or awards crystallising do contain provisions for payment in lieu of notice, but these after the effective date of this policy but arising from are at the Company’s sole discretion. commitments entered into prior to the effective date of the new policy, or at a time when the relevant individual was not The Company seeks to avoid any payment for failure. The a Director of the Company. The Company will also have the circumstances of the termination (taking into account the authority to meet any claims against the Company arising individual’s performance) and an individual’s duty and as a result of a Director’s termination. opportunity to mitigate losses are taken into account in every case. Our policy is to stop or reduce compensatory payments to former Executive Directors to the extent that they receive remuneration from other employment during the compensation period and that any such payments would be paid monthly in arrears.

62 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

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the

gain

ver two three to years. me the devoted external to appointmentmust be reasonable in relation the individual’s to commitment the Fees Company. to ate for theate role. If it is considered appropriate appoint to a new Director on a below market salary (for example, allow to them ti paid for external appointments may be retained the by individual concerned. r The remuneration package fornew a Executive Director would be set in accordance with the terms the of Company’s approved remuneration policy in force at the time appointment. of In addition, the Committee may offer additional cash and/or share-based elements (on a one-time basis or ongoing) when it considers these be in to the best interests the of Company (and therefore shareholders). Any such payments would be based solely on remuneration lost when leaving the former employer and would reflect Recruitment remunerationRecruitment Salaries to o In the case an of internal appointment, any variable pay element awarded in respect the of prior role may be allowed pay out to according its terms to on grant, adjusted as relevant take account into to the appointment. In addition, any other ongoing remuneration obligations existing prior appointment to may continue, provided that they are put shareholders to for approval External directorships The Company encourages Executive Directors take up to Non-Executive appointments, with the prior consent the of Company, in the belief that such appointments broaden their skills and the contribution which they can the make Company’s to performance. Non-Executive Directors will be recruited subject the terms to set out within the stated policy on page 64. Executive Directors Executive WyllieAndrew Bickerstaff Tony The Committee may also agree that the Company will compensate Executives, both internal and external, for certain relocation appropriate. as expenses The conditions coveringloss officeof payments are as set out in the individual Plan rulesfor the deferred the elementof the AIP, The Committeelegacy will DBSP operate and within the LTIP. these parameters when determining remuneration in the event of the loss office. of at the firstAGMfollowing their appointment. It is the Committee’s intention that any future service contracts will be made in accordance with the policy stated above. Under the rules the of new AIP (deferral element), outstanding the legacy awardsmay vest DSBP if a participant and the LTIP, certainreasons. specified for Group the leaves Governance Directors’ remuneration report continued

Chairman and other Non-Executive Directors Element: Share ownership guidelines The Non-Executive Directors have letters of appointment. The appointment of an independent Non-Executive Director Purpose and link to strategy can be terminated by reasonable notice on either side. David • Alignment of interests between Costain Board and Allvey, Michael Alexander, James Morley, Jane Lodge and shareholders. Alison Wood are not entitled to compensation for loss of office. Operation The nominee Non-Executive Directors (as indicated in the • Non-Executive Directors are required to build and Corporate Governance statement on page 50), hold office for maintain a shareholding worth not less than 100% as long as the shareholder nominating them holds a specific of their annual fee. percentage of the issued share capital. The nominee Non- Executive Directors are required to stand for re-election in the Maximum opportunity usual way and are not entitled to compensation for loss of • N/A. office. Currently, only one of the two shareholders entitled to appoint a Non-Executive Director has appointed a nominee Consideration of employee views to sit on the Board. Although the Committee does not formally consult employees on executive remuneration, it considers the general basic The dates of each Non-Executive Director’s original salary increase as well as pay and conditions for the broader appointment are as follows: employee population when determining the annual salary Date of original Expiry of increases for the Executive Directors. Non-Executive Director appointment current term1 David Allvey 01.11.2001 Close of 2014 AGM Consideration of shareholder views The Committee considers shareholder feedback received in Michael Alexander 25.07.2007 Close of 2014 AGM2 relation to the AGM each year at a meeting following the AGM. Jane Lodge 01.08.2012 Close of 2016 AGM This feedback, plus any additional feedback received during James Morley 09.01.2008 Close of 2014 AGM any meetings from time to time, is then considered as part of Ahmed Samy 30.11.2013 Close of 2014 AGM the Company’s annual review of remuneration policy. Alison Wood 01.02.2014 Close of 2014 AGM When there are material issues relating to executive 1 Subject to re-election at the AGM following their appointment, subsequent remuneration or proposed changes in policy, we engage re-election at intervals of no more than three years and re-election at each actively with major shareholders to ensure we understand AGM if having served on the Board for more than nine years, in accordance with the UK Corporate Governance Code and the Company’s Articles the range of their views. When significant changes are made of Association. within the policy, the Committee Chairman will inform 2 Michael Alexander will, however, be retiring prior to that date, on 31 March 2014. shareholders of these.

Remuneration Policy for Chairman and Details of votes cast for and against the resolution to approve Non-Executive Directors last year’s remuneration report and any matters discussed Element: Fees with shareholders during the year are set out in the Annual Report on Remuneration. Purpose and link to strategy •  Attract and retain high performing individuals.

Operation • Remuneration for Non-Executive Directors, other than the Chairman, is determined by the Board, following consultation between the Chairman and the Chief Executive. The Chairman’s fee is determined by the Board following consultation between the Committee and the Chief Executive. Fees are reviewed annually and any increase is effective from 1 April. • Remuneration for Non-Executive Directors, other than the Chairman, comprises a basic annual fee for acting as Non-Executive Director of the Company and additional fees for the Senior Independent Director, and chairmanship of the Audit and Remuneration Committees.

Maximum opportunity • N/A.

• 64 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 2013

Act

Finance

the

or from the Company Company the from or under

Costain Group PLC Annual Report65 2013 changes

reflect

to

plans

approved

HMRC

the

to

amendments

Reviewed the senior executives’ salaries Approved the Deferred Share Bonus Plan (‘DSBP’) performance base year targets for the 2013 Reviewed the Chairman’s and Non-Executives’ fees Reviewed the annual salary adjustment forthe wider workforce report remuneration Directors’ the Reviewed payments) Granted awards under base year the DSBP for the 2012 Approved notificationto participants in respect baseyear of the DSBP2013 Approved Reviewed a market update on remuneration packages (prepared New by Bridge Street) Considered (subject LTIP the shareholder introduction to a new of 2014 approval) performanceReviewed LTIP the proposed targets 2014 Considered the introduction a new of annual incentive plan comprising Share Deferral a new Plan 2014 replacing the existing DSBP and the current annual cash bonus plan (subject shareholder to approval) Reviewed annual the proposed incentive 2014 plan performance measures Approved and annual the list LTIP of incentive plan participants annualApproved salary the 2014 review Key agenda items 7 May 2013 Granted LTIP awards under the 2013 15 March 201315 3 April 2013 Considered the impact a potential of acquisition on the Company’s incentive plans (including bonus Approved LTIP the vesting the of 2010 2013 September 30 Date 7 February 2013 annual Approved cash the bonuses 2012 subject Accounts final to auditof the 2012 Terms of reference of Terms The Committee’s terms reference of are available on the Company’s website at www.costain.com Remuneration Committee activity The following table sets out the remuneration key issues which the Committee covered ateach the of meetings over the course of the year. Alison Wood was appointed as an Non-Executive Director on 1 February and will become 2014 chair the of Committee at the beginning upon the retirement April of from 2014 the Board Michael of Alexander. Secretary. Copies the of letters appointing the Committee’s advisers can be obtained from the Company Secretary. Governance Committee of Operation the members of The Directors. Non-Executive independent of exclusively comprised is Committee Remuneration The Committee and details their of attendance at the Remuneration Committee meetings Biographies are given on page are 51. shown on pages 48 and 49. Annual Report Remuneration on 2013 December 10 Governance Directors’ remuneration report continued

Advice provided to the Committee Advice was sought where appropriate from other sources. During the course of the year, the Chief Executive, the Finance Director, the Group’s Chairman, the Group HR Director, and Legal Director and Company Secretary were invited to attend various meetings of the Committee, although none was present when their own remuneration was being discussed.

To assist the Committee in ensuring that the Company’s remuneration practices take due account of market and best practice, the Committee has access to experienced specialist independent consultants. During the year, the Committee took advice, as appropriate, from New Bridge Street (a trading name of Aon Hewitt Limited).

New Bridge Street is a founder signatory to the Remuneration Consulting Group’s Code of Conduct. Neither New Bridge Street nor any other part of Aon Hewitt provided other services to the Company during the year and, having no other connection with the Company, New Bridge Street is considered to be independent. Following a tender process in 2012 by the Committee, New Bridge Street was re-appointed to act as the Company’s remuneration consultants. It is the policy of the Committee to put the remuneration consultant function out to tender on a periodic basis to ensure that the Company continues to receive independent support and advice of a high standard. New Bridge Street received fees of £165,937 for the year ended 31 December 2013.

Voting on the Remuneration Report at the AGM in 2013 Last year’s remuneration report was approved by shareholders with a 96.9% (2012: 96.86%) vote in favour (including discretionary votes). Implementation of Policy in the year to 31 December 2013

Single Total Figure of Remuneration for each Director. This table and the associated footnotes have been audited by KPMG Audit Plc.

2013 2012 Salary Taxable Annual Salary Taxable Annual & Fees Benefits Pension* Incentive** LTIP*** Total & Fees Benefits Pension* Incentive** LTIP £ £ £ £ £ £ £ £ £ £ £ Total Executive Directors A Wyllie 423,963 13,283 93,272 482,017 238,704 1,251,239 414,120 13,394 91,106 345,413 225,304 1,089,337 A O Bickerstaff 280,876 11,783 61,793 333,467 158,140 846,059 274,354 11,894 60,358 226,079 149,263 721,948

Chairman D P Allvey 131,928 –––– 131,928 128,875 –––– 128,875

Non-Executive Directors M R Alexander 48,839 –––– 48,839 47,70 5 –––– 47,70 5 J A Lodge1 51,437 –––– 51,437 18,870 –––– 18,870 J Morley2 48,839 –––– 48,839 48,797 –––– 48,797 A Samy3 3,572 –––– 3,572 –––––– A J Wood4 –––––– –––––– S G Younis5 (former Director) 39,032 – – – – 39,032 41,615 –––– 41,615 Other former directors6 –––––– 47,70 5 –––– 47,70 5

* Pension contributions in excess of £47,500 paid as a cash supplement. ** The Annual Incentive includes payments under the legacy annual bonus scheme and legacy DSBP. *** The value of the LTIP for 2013 is subject to the Committee’s determination (see Additional Notes below). 1 appointed as a Non-Executive Director w.e.f. 1 August 2012 and as Chair of the Audit committee w.e.f. 31 October 2012 (succeeding J Morley). 2 appointed Senior Independent Director w.e.f. 31 October 2012. 3 appointed as a Non-Executive Director w.e.f. 30 November 2013. 4 appointed as a Non-Executive Director w.e.f. 1 February 2014 and as Chair of the Remuneration Committee w.e.f. 1 April 2014. 5 retired as a Non-Executive Director w.e.f. 30 November 2013. 6 J M Bryant retired as a Non-Executive Director w.e.f. 31 December 2012.

66 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

7% 5% 5% 2% 0% 0% 71% 10% 42% 84%

Adjusted performance Adjusted Adjusted performance Adjusted as a percentage of DSBP as a percentage of Bonus 7% 5% 5% 2% 0% 0% 10% 79% 50% 100% of DSBP* Performance Costain Group PLC Annual Report67 2013 Actual percentage Actual as a percentage of Bonus 5% 5% 5% 5% 10% 10% 10% 50% 100% of Bonus Maximum percentage percentage Maximum 0% Between 0% and 60% on a straight line basis 60% Between 60% and 100% on a straight line basis 100% Percentage of Relevant Maximum Award * * * * * N/A N/A £35.0m £35.0m Actual performanceActual AFR not achieved, Scored Inspections achieved Performance targetPerformance performance* Actual see table above table see † † S T A A Committee. the by adjusted s Committee. the by adjusted s met. been have performance conditions the that determination official Committee’s the to ubject he Committee has determined that those particular performance measures remain commercially sensitive and, as such, has chosen not disclose to them. Personal Performance Total Cash Conversion Cash Cash Balance Cash Total Order BookTotal Order Book Contract Profit Health and Safety † Metric EBITA * £22.6 million£22.6 or less Group for EBITA 2013 million £25.1 and million Between £22.6 million £25.1 million £28.9 and million Between £25.1 more or million £28.9 Determination of 2013 DSBP (Grant to be made in 2014) The level is determined DSBP of grants be made to with in reference 2014 performance to over the financialyear ending In determining the bonus outcome for the Executive Directors, the Remuneration Committee took account into that the performance against the principal financial measure (EBITA), calculated in accordance with the scheme rules,would include the profit recognised on the disposalof our share duringof a jointventure 2013 Trent, million. whichwith Severn amounts to £9.1 Whilst the Committee took the view that the management team had performed commendably both in the stewardship this of asset prior sale to and in the negotiation its of eventual disposal, took we the view that this profit should not count fullytowards bonus. thereforethe target We reviewed for the 2013 the bonus outcome both including and excluding the effect this of disposal and determined that the bonus payable should be at the mid-point these of two results. The adjusted result in the right-hand column shows this adjusted amount which will form the basis for payment. 31 December 2013, their December value31 being 2013, included Annual Incentive in the 2013 in Figure shown the Single on Table page Total 66 and is subject the Committee’s to determination that the performance conditions have been against met, a maximum 50% of salary.of The performance measures and targets are set out below: * † Determination of 2013 Annual bonus – Cash Cash – bonus Annual 2013 of Determination Annual bonus payments were determined with reference performance to over the financialyear 31 ending December 2013, against a maximum opportunity 100% salary. of of The performance measures and targets are set out below: Metric EBITA of £12,000 (Andrew Wyllie) Bickerstaff) £12,000 of (Tony and £10,500 and private medical This insurance package for both £1,283. of benefitsof was unchanged from2012. Additional Notes to the Single Figure Total of Remuneration Taxable benefits provided to Executive Directors The main benefitsavailable to the Executive Directors (and during their2013 approximatevalues) were a car allowance Group Overhead Group Governance Directors’ remuneration report continued

The measure for the DSBP is also EBITA, which is the principal measure for the annual bonus and therefore subject to the same considerations as set out above. The Committee followed the same process for determining the result of the DSBP as for the annual bonus.

Determination of 2012 DSBP (grant made in 2013) The 2012 DSBP award (granted 13 April 2013) was based on performance for the year ended 31 December 2012. In the previous Directors’ remuneration report details of the grant were not included in the emoluments table as the award of shares had not been determined at that time. The report indicated, however, that an award of shares equivalent to 62% of the maximum opportunity of 50% of salary would be made. We have therefore included details of the 2012 DSBP award (granted April 2013) below.

The DSBP grants made in 2013 are included in the 2012 AIP in the Single Total Figure Table shown on page 66. The performance measures and targets are set out below:

Group EBITA for 2012 Percentage of Relevant Maximum Award £21.2 million or less 0% Between £21.2 million and £23.5 million Between 0% and 60% on a straight line basis £23.5 million 60% Between £23.5 million and £28.2 million Between 60% and 100% on a straight line basis £28.2 million or more 100%

Metric Performance target Actual percentage of DSBP EBITA See table above 62%

The EBITA for the year ended 31 December 2012 was £23.7 million and accordingly 62% of the maximum DSBP award opportunity vested as confirmed by the Committee.

The grants made under the DSBP during 2013, based on performance for the year ending 31 December 2012, are set out below:

Executive Number of shares Face value Andrew Wyllie 36,4011 10,771 £129,010 (£29,997)2 10,7713 Tony Bickerstaff 20,3941 10,771 £85,469 (£29,997)2 10,7713

1 Number of ordinary shares under the Deferred Award. 2 Maximum number and value or shares under the Combined Deferred Award. 3 Number of shares under the Option.

The DSBP includes a mechanism to allow the Company to deliver a combined arrangement at no additional cost to the Company by delivering to participants a combination of HM Revenue & Customs (‘HMRC’) tax-approved market value share options (with an exercise price determined at the time of grant) over a fixed number of shares, together with non tax-approved Combined Deferred Awards with a nil exercise price over a fixed value of shares. The tax-approved and non tax-approved options/awards are linked, in terms of value and exercise, and mirror the same commercial terms as the Deferred Awards.

68 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 1 1

Value value

Estimated £158,140 £149,263 £238,704 £225,304 Total Total 81,632 56,079 84,647 54,081 – – – –

to vest to vest on shareson on shareson Dividends Dividends Costain Group PLC Annual Report69 2013 to lapse Number Number 81,632 54,081 of sharesof Sub-total – – to lapse Number Number Number Number 56,078 56,079 84,647 84,647 of shares of sharesof due vest* to 0% 15% – 100% pro rata 15% 100% 0% 0% – 100% pro rata 100% 0% 15% – 100% pro rata 15% 100% Vesting level (for 50% of the award) Vesting Vesting level vested at grant Number Number Number Number of sharesof of shares 112,157 169,294 at grant Number Number 81,632 81,632 54,081 54,081 of sharesof S V V alued based on the average share price over the final three months of the financial year ended 31 December 2013, being £2.82. alued using the share price on the date of vesting being £2.76. ubject the to Committee’s official determination that the performance conditions have been met andto any other adjustment. Tony Bickerstaff Tony Tony Bickerstaff Tony Below 47.0 pence Below 47.0 This award had two EPS-based performance conditions: 102.3 pence pence penceBetween and 112.6 102.3 pence or more 112.6 EPS for the financial year ended31 December 2013 pence and pence 56.0 Between 47.0 pence56.0 or more EPS for the financialyear 31 ended Decembercalculated on 2013 an adjusted basis approvedby the Remuneration Committee pencewas 46.9 (calculated and and2013 aggregate on the EPS forsame the financial2012 years 31 endedDecember 2011, pence. As a result, 100% the of elementbasis) relating aggregate was 118.7 to EPS is due vest to (50% the of maximum award), and 0% the of element EPS is due vest to (50% relating 2013 the of to maximum award). Therefore, 50% the of awards granted and are shown in the table are due vest to below: in 2014* April 2011 on 12 Below 102.3 penceBelow 102.3 12 April 2011 award (included in 2013 Long-Term Incentives award (included figure Long-Term in SingleTable April Figureon inpage 2013 2011 66).12 Aggregate EPS for the financial years andended 2013 2012 31 December 2011, Vesting level (for 50% of the award) 1 Andrew WyllieAndrew EPS for the financial year ended31 December 2012 pence Below 21.0 21.0 pence pence penceBetween and 27.5 21.0 pence or more 27.5 EPS for the financialyear pence. 31 endedapprovedDecember by the Therefore, Remuneration 2012 Committee37.1 was as shown vested in in thethe full April table awards granted in 2013, below: 2010 on 14 Long-Term Incentive Plan Incentive Long-Term was based on performance April award grantedThe 2011 on 12 LTIP the year to ended December and is due 31 vest to 2013 14 April 2010 award (included in 2012 Long-Term Incentives award figure (included Long-Term April in SingleTable 2010 Figureon 14 page in 2012 66). in March 2014, subject the Committee’s to determinationin March 2014, that the performance conditions award LTIP have been The met. 2010 April(granted was based 2010) on 14 performance for the year ended but and December as vested the 31 in March2013 2012 previous Directors’ remuneration report, although indicating that the EPS target had been 100% did met, not confirm that the award had vested (as the Committee had not at that stage convened officially to determine theextent to which the performance condition had been met), these awards have also been included below. There was a single EPS performance condition relating this to award: * 1 Andrew WyllieAndrew Governance Directors’ remuneration report continued

Grants Made During the Year

2013 DSBP Grants The grants under the 2013 DSBP are set out on page 68.

2013 LTIP Grants The grants made under the LTIP during 2013 which are due to vest in May 2016, based on performance from 1 January 2013 to 31 December 2015, are as follows:

End of Number performance Performance Threshold Weighting Performance of shares Face value1 period Condition vesting (% of award) measure Andrew Wyllie 163,293 £424,562 31 December 2015 (2) 50% EPS 50% Operating Profit (2) Tony Bickerstaff 108,691 £282,597 31 December 2015 (2) 50% EPS 50% Operating Profit (2) 1 Valued using the share price on the day prior to the date of grant (07 May 2013), being 260p per share.

(2) Performance conditions relating to the grants made under the LTIP during 2013 are as follows:

Percentage of vesting of that portion of an option/award made over Aggregate EPS targets over the 2013-2015 financial years Ordinary Shares worth up to and including 50% of salary Below 88.7 pence 0% 88.7 pence 15% 100 pence or more 100% Between 88.7 pence and 100 pence Between 15% and 100% vesting on a straight-line basis

Percentage of vesting of that portion of an option/award made over Ordinary Operating profit for the 2015 financial year Shares worth in excess of 50% of salary £35 million or below 0% £42 million 50% £50 million or more 100% Between £42 million and £50 million Between 50% and 100% on a straight-line basis

Irrespective of the extent to which the operating profit performance condition shall be achieved, no part of this portion of an option/award will vest unless the following EPS underpins have been achieved: • EPS for the 2015 financial year must be at least 37.3 pence; and • aggregate EPS over three financial years ending with the 2015 financial year must equal 100 pence or more.

If these two EPS underpins have been met, the portion of the option/award subject to the operating profit performance condition will vest in accordance with the above table.

Pensions Under their terms of engagement, the Executive Directors are entitled to an annual pension allowance of 22% of base salary. Life assurance cover of four times base salary is provided through the Costain Life Assurance Scheme. The annual premiums payable in respect of life assurance for Andrew Wyllie and Tony Bickerstaff were £1,950 (2012: £1,904) and £1,292 (2012: £1,262) respectively.

The Group offers a Group Flexible Retirement Plan which was set up in 2009 with Standard Life for employees and senior management. Neither Executive Director participated in the scheme.

70 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 7% 4.6% -1.5% 2.4 % 17.0 % 11.0 % -0.8% -34.6% % change % % change % 6.7 2012 2012 153.7 £million £4,217 £2,768 £ 37,8 8 5 £13,394 £414,120 £528,360 £6,273 Remuneration Remuneration Chairman Committee 7.2 2013 2013 151.4 £million £4,679 £3,239 £39,616 £13,283 £345,412 £423,963 Costain Group PLC Annual Report71 2013 £8,887 Audit Committee Committee Audit Chairman £6,273 Senior IndependentSenior Director £42,865 £42,865 Basic Fee Basic 4 1 3 2 B B performance and years 2012). 2011 A paid employees averaged and 2013 in 2012 per head. E averaged per head for monthly paid employees.   mployee benefits is calculated based on thetotal costto the company of private medical insurances, life assurance, company cars and car allowances,

  onus/AIP figures for the for 2014 whole company are not available, hence for employees, the comparator figure is totalthe bonus payments made to monthly   onus/AIP figures for the Chief Executive are calculated on the basis of the combined cash bonus and DSBP actually paid(forand 2013 the in 2012 verage salary for employees is calculated on the basis of the annual monthly UK salary bill divided by the average number of monthly paid UK employees. These matters were selected be shown to as they represent distributions key the by Group its stakeholders. to Statement of change in pay of Chief Executive compared to other employees The table below shows the movement in the remuneration for the Chief Executive between the current and previous financial year compared the average to (per head) for all employees. Average per employee per Average salary– – benefits – bonus/AIP – Overall expenditure on pay Dividend 4 Relative importance of spend on pay The table below illustrates the change in expenditure the by Company on remuneration paid all to the employees the of Group and distributions shareholders to from the financialyear to the 31 endingfinancialDecember year2012 31 ending December2013. 1 2 3 Chief Executive Chief salary– 2013 Fees 2013 Fees Non-Executive Directors Non-Executive Remuneration for Non-Executive Directors, other than the Chairman, comprises a basic annual fee for acting as Non-Executive Director the of Company and additional fees for the Senior Independent and chairmanship Director, the of Audit and Remuneration Committee. The annual fees set with effect are as from follows: 1 April 2013 All-employee Share Plans Share All-employee The Company Scheme granted the Executive SAYE to options under Directors details the 2012 during which of are 2013, shown on page 75. – bonus/AIP – – benefits Governance Directors’ remuneration report continued

Statement of implementation of policy for 2014

Salary For 2014, the Committee approved a 2.5% increase for Executive Directors, effective 1 April 2014. A 2.5% salary increase budget was also applied across the Company in 2014. The results of the salary review are set out in the table below:

Salary Salary 2013 2014 % change Andrew Wyllie £426,564 £437,228 2.5% Tony Bickerstaff £282,599 £289,664 2.5%

Annual Incentive Plan During 2013, the Committee decided to simplify the structure of the annual bonus plan by combining the annual cash bonus and the Deferred Share Bonus Plan into one Annual Incentive Plan (‘AIP’). The proposed operation of the deferred element of the new AIP will be subject to the approval of the Company’s Shareholders at the 2014 AGM. The combined maximum bonus opportunity for the Chief Executive and the Finance Director for the year ended 31 December 2014 will remain unchanged from 2013 at 150% of base salary, with one-third of earned bonus deferred into shares for a further two years (i.e. maintaining the same level of deferral as under the operation of the DSBP).

Executive Directors and other senior management are eligible for annual bonuses to encourage improved performance, with targets established by the Committee to align rewards with the Company strategy. The targets are set at the beginning of the year by the Committee and are reviewed with appropriate input from the Audit Committee at the end of the year.

The performance measures for the 2014 AIP are as follows:

Metric Maximum percentage of AIP EBITA 66.7% Group Overhead 6.7% Health and Safety 6.7% Order Book Contract Profi t 3.3% Total Order Book 3.3% Cash Balance 3.3% Cash Conversion 3.3% Personal Performance 6.7%

The Committee has chosen not to disclose, in advance, the performance targets for the forthcoming year, as these include items which the Committee considers commercially sensitive. The Committee will continue to provide retrospective disclosure of certain performance measures in next year’s Annual Report on Remuneration to the extent the Committee determines the measures to not remain commercially sensitive.

Long-Term Incentive Plan In December 2013, the Committee determined that the LTIP should be amended from the current tiered structure to a single award, subject to the approval of the Company’s Shareholders at the 2014 AGM. It is proposed that the grant level is to remain at 100% of salary. The Committee also decided that, subject to achievement of the performance conditions set out below, half of the award that vests should be subject to deferral for a further two years (i.e. to the fi fth anniversary of grant). This will ensure long-term alignment of Executive Directors with shareholder interests. It is proposed that the targets for the 2014 LTIP awards will be as follows:

72 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 s

73 e 0% 15% 100% 273.7 169.3 31 Dec 2013 Vesting level for awards 149.4 206.2 31 Dec31 2012 Costain Group PLC Annual Report 2013 161.3 103.9 31 Dec31 2011 114.4 184.4 31 Dec31 2010 154.3 126.3 31 Dec31 2009 1 Jan 2009 100.0 100.0 ith invested the value in the £100 of FTSE SmallCap Index. The Committee believes that the SmallCap Index is an appropriate Costain Group PLC Q FTSE SmallCap Index Q Costain Group Source: Thomson Reuters than the FTSE All-Share. Index use to as it is the Index in which the Company is a constituent and comprises companiesmore of a similar Costain size to Other information Other Performance graph The graph below invested shows December for in the £100 Costain value, 31 by Group on 1 January 2013, PLC 2009 compared w Below 113.2 pence Below 113.2 EPS condition EPS nancial Sum years of the EPS ending for the fi and December 31 2016 2015 2014, 113.2 pence pence or more 126.7 pence pence and 126.7 Between 113.2 The Committee has the discretionary power vary to awards these will EPS targets. take LTIP plac It is anticipated that the 2014 Between and 100% vesting 15% on a straight linebasis The Committee believes that EPS is the most as growth appropriate in EPS is one metric of the driver use key to under the LTIP, A clawback provision is incorporated in the new (and AIP and the the LTIP legacy DSBP) with regard any material to misstatement audited to accounts, an error in calculation of targets resulting in an overpayment, gross misconduct or criminal behaviour on the part of a participant. immediately subject AGM, following Shareholder to the 2014 approval of the new LTIP. of the Company’s share price. As with awards, previous EPS for the be is awards to LTIP that are due be made to in 2014 basis. adjusted an on calculated 200 150 100 50 0 300 250 Total shareholder return (from 1 January 2009) (from 1 return shareholder Total £ Governance Directors’ remuneration report continued

Change in Chief Executive’s Remuneration Year ending 31 December 2013 2012 2011 2010 2009 Total Remuneration £1,251,239 £1,089,337 £1,228,332 £1,603,014 £887,814 AIP (%) 75% 55% 86% 94% 84% LTIP vesting (%) 100% 100% 100% 96% 0%

External directorships Andrew Wyllie was appointed a Non-Executive Director of Scottish Water on 7 April 2009 and in respect of the appointment for the year ended 31 December 2013, he was paid £19,872 (2012: £19,872). He has retained these fees in accordance with the policy set out in the Policy Report.

Share awards under the legacy DSBP Under the DSBP, deferred bonus awards were granted in the following two forms: i. an option with a nil exercise price over a fi xed value of shares (the ‘Combined Deferred Award’), which is granted in combination with an HMRC approved market value option over a fi xed 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 fi xed number of shares (‘Deferred Award’).

Details of the Executive Directors’ participation in the DSBP are as follows:

Amount realised on Share Market Market exercise Balance at price price at price at (excluding Balance at Date 1 January Granted at date Vested date of date of deduction 31 December Actual/expected Executive granted 2013 during year of grant during year vesting exercise of tax) 2013 vesting date Andrew Wyllie 12.04.11 82,6441 –241p82,6442 £2.89 £2.89 £247,415 – April 2013 04.04.12 78,2581 –232p––– –78,258April 2014-2022 03.04.13 – 36,4011 272p––– –36,401April 2015-2013 10,771 10,771 (£29,997)3 (£29,997) 10,7714 10,771 Tony Bickerstaff 12.04.11 54,7521 –241p54,7522 £2.89 £2.79 £158,240 – August 2013 04.04.12 51,8461 –232p––– –51,846April 2014-2022 03.04.13 – 20,3941 272p––– –20,394April 2015-2023 10,771 10,771 (£29,997)3 (£29,997) 10,7714 10,771

1 Number of shares under the Deferred Award. 2 In addition, Andrew Wyllie and Tony Bickerstaff received 2,967 and 1,965 dividend shares respectively upon vesting. 3 Maximum number and value of shares under the Combined Deferred Award. 4 Number of shares under the Option.

The value of the shares under the Combined Deferred Award and the Option are equal. The Combined Deferred Award and the Option must normally be exercised at the same time. When calculating the maximum value of the shares under a Deferred Award that may be granted under the terms of the Plan, the value of the shares under the Option is not counted.

All of the awards will become exercisable on the second anniversary of the date of grant subject to the continued employment of the participant. The value of the shares delivered under the Combined Deferred Award on exercise is the same as the value of the shares under that award at the time of grant. The number of shares under the Deferred Award and Option at grant will be delivered to the participants on exercise. To the extent that all or any part of an award becomes exercisable, it remains, subject to the DSBP Rules, exercisable until the tenth anniversary of the date of grant.

74 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 75 Actual/ from/to expected Exercisable vesting date Nov 2014- 2014- 2015 Nov May 2017 May Nov 2016- 2015 2016- May Nov 2014- 2017 Nov May 2013 2013 Balance at Balance 5% vests) EPS to of le between 0% and 100% f 88.7 pencef 88.7 vests) (15% f 90 pence vests) (15% to Balance at at Balance 31 December target has been met. ts) on a sliding scale between 31 December ests) on a sliding scale between will vest unless the EPS (before l vest unless the EPS (before pension of tax)of Amount exercise deduction deduction Amount (excluding realised realised on Costain Group PLC Annual Report 2013 on vesting on year during during Lapsed Lapsed Lapsed during year during Market date of date price at exercise at date date at of exerciseof date of of date Market price price Market Market vesting price at Vested Exercised during year during during year during price grant Share Exercise Exercise date of of date price at Granted Granted Granted during year during during year during –108,691260p–––– –108,691May 2016 –108,691May –108,691260p–––– – 163,293 260p – – – – – 163,293 May 2016 2013 2013 81,632 – 245p 81,632 £2.76 £2.75 – £224,488 – 2013 March 54,081 – 245p 54,081 £2.76 £2.75 – 148,732 – March 2013 137,167 – 205p – – – – – 137,167 May 2015 112,157 – 241p – – – – – 112,157 March 2014 1 January 207,044 – 205p – – – – – 207,044 May 2015 169,294 – 241p – – – – – 169,294 March 2014 Balance at at Balance 1 January Balance at at Balance 1 2 3 4 1 2 3 4 Date Date Date Date granted granted 12.04.11 12.04.11 07.05.13 07.05.13 09.05.12 09.05.12 30.09.13 – 1,572 222p – – – – 1,572 30.09.13 – 1,572 222p – – – – 1,572 112.6 pence (100% vests)112.6 ona sliding scale between and 15% 100% pro-rata the to EPS actually achieved. The remaining 50% ofnancial the award will year beon based an ended EPS for the December fi 31 pence of 47 (0% 2013 vests) EPS to of 56 pence (100% vests) on a sliding sca pro-rata the to actual EPS achieved. (EPS targets rounded as appropriate). Subjectrmation, the to Committee’s 50% of the confi v (100% million EPS of pence 100 £44.4 (100% (50% vests) to million vests) £37 of on a sliding December 2014 scale 31 ending year betweennancial and 15% 100% pro-rata the to EPS fi actually the for t achieved. The remaining profi operating on based is 50%of the award (Tier 2) award 2 Tier the of element no addition, In achieved. actually t profi operating the to pro-rata million £44.4 and million £29.6 pensionnancial interest) year ended for the December fi 31 is at least 2014 35.5 pence and Tier 1 has vested in full. ves EPSto of pence 100 (100% £50 million (50% to (100% million vests) vests) £42 of on a sliding December 2014 scale 31 ending between year nancial and 100% 15% pro-rata the to EPS fi actually the for t achieved. The remaining profi operating on based 50%is of the award (Tier 2) wil award 2 Tier the of element no addition, In achieved. actually t profi operating the to pro-rata £50 million and £35 million nancial interest) year ended for the December fi 31 pence is at least 2015 and 37.3 Tier 1 has vested in full. 50% of the award (Tier is 1) subject an to aggregatenancial EPS target years ended for o the and December fi 31 2014 2013 2012, 50% of the award (Tier is 1) subject an to aggregatenancial EPS target years ended for the o December fi and 31 2015 2014 2013, EPS for the fi nancial year endedEPS for the December pence fi 31 pence vests) of 21.0 (15% (100% EPS to vests) of2012 27.5 on a sliding scale between and 15% 100% pro-rata the to EPS actually achieved. The EPS target was 100% met. 50% of the award is subjectnancial an to aggregate pence years of 102.3 and EPS (1 ended for 2013 the 2012 fi December 31 2011,

Tony Bickerstaff 14.04.10 Executive Share awards under the LTIP Tony Bickerstaff11.10.111,633–205p––––1,633 Tony Andrew WyllieAndrew 11.10.11 1,633 – 205p – – – – 1,633 Executive Save As You EarnSave As You scheme awards Details of the Executive options Directors’ are as follows: SAYE The LTIP awards, whichThe LTIP are expressed as options, are subject December the derived an 31 to At exercise price 2013, of £1. mid-market price of the ordinary shares in the as Company, advised the by Company’s brokers, pence. was 277 The range of the share price of the ordinary pence shares was 306 248 to during pence. 2013 4 3 1 2 Andrew WyllieAndrew 14.04.10 Governance Directors’ remuneration report continued

Directors’ shareholdings Details of the directors’ share interests as at 31 December 2013 and at the date of this report are as follows:

% % shareholding actual Outstanding Outstanding Outstanding requirement shareholding Beneficially DBSP LTIP SAYE (% of salary/ (% of salary/ Executive owned awards awards awards fee) fee) Andrew Wyllie 289,089 125,430 539,631 3,205 100% 153.99% Tony Bickerstaff 145,860 83,011 358,015 3,205 100% 111.83% David Allvey 5,250 – – – 100% 7.56 % Michael Alexander 19,101 – – – 100% 73.00% Jane Lodge1 2,500 – – – 100% 13.09% James Morley 27,000 – – – 100% 115.26% Ahmed Samy 0 – – – 100% 0%

1 Held by a connected person.

As set out in the Policy Report, Executive Directors are required to build and maintain a shareholding worth not less than 100% of base salary through the retention of vested share awards or through open market purchases. As at 31 December 2013, both the Executive Directors met the shareholding requirement.

On behalf of the Board

Michael R Alexander Chairman of the Remuneration Committee 26 February 2014

76 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 77 Costain Group PLC Annual Report 2013 rdinary shares with a nominal value Share capital Share The Company’s share capital consists of o of 50 pence each. The issued share capital of the Company December wasas at 31 2013 consisting£33,396,470.5, of 66,792,941 ordinary shares of 50 pence each. Further details of the share capital of the Company can be found on in 21 Note 127. page The awards granted under in April 2010 Incentive Planthe (the 2002 Long-Term matured December‘2002 LTIP’) as at 31 resulting in the vesting2012 of awards over 605,533in ordinary March 2013 shares of 50 pence each with an exercise price per of £1 exercise. Further details with regard the vesting to of awardsthese can be LTIP found in the Directors’ remuneration report on 69. page areful enquiry, that the Group has fi nancial position of the in the Company, fi es its opinion of the Board, justifi payment. If the Directors act in good faith, they are not liable for any loss that shareholders may suffer because a lawful dividend has been paid on other shares whichrank equally with or behind their shares. The Board may withhold payment of all or any part of any dividends or other monies payable in respect of the Company’s shares from a person with interesta 0.25% in a class of the Company’s shares if such a person has been served with a restriction notice after failure provide to the Company with information concerning interests in those shares required be provided to under the Companies Act 2006. concern Going The Directors believe, after due and c suffi cient resources for its presentsuffi requirements and, therefore, consider it appropriate adopt the to going concern nancial basis in fi preparing the 2013 statements as discussed on page 45 of the Finance review Director’s and nancial statements. the fi 2 to Note

solution from time time to declare

developments in the Strategic report. Strategic the in developments The Company has chosen to include the disclosure of likely future future likely of disclosure the include to chosen has Company The also incorporated into this Report reference. by this into incorporated also about employee involvement and greenhouse gas emissions) are are emissions) gas greenhouse and involvement employee about Responsibility report on pages 34 to 42 (with regard to information information to (with regard 34 42 to pages on report Responsibility The Governance report on pages 46 to 84 and the Corporate Corporate the 46 84 and to pages on report Governance The of the Company for the year ended 31 December 2013. December 31 ended year the for Company the of The Directors submit to the members their Report and Accounts Accounts Report and their members the to submit Directors The ngland and incorporated in England nding 31 December 2013 amounted Decembernding 31 2013 dividends not exceeding the amount recommended the by Board. Subject the Companiesto Act 2006, the Board may pay interim dividends, and also dividend,xed rate whenever the any fi Dividends and other distributions The Company may ordinary by re Profi million). £23.1 (2012: million £12.5 to An interim pence dividend per 3.75 of pence) 3.50 share (2012: amounting to paid million) was £2.3 (2012: million £2.5 nal dividend A fi Octoberon 25 2013. pence per share at the of 7.75 rate pence) amounting to 7.25 (2012: million) will £4.7 (2012: million £5.2 also be recommended Shareholders to at the General Meeting be held to If approved, the March 2014. on 17 dividend will be paid April on 25 2014 shareholdersto registered at close of 2014. March 14 on business and Wales under Company Number 1393773. nancial year t after tax for the fi The profi t ande dividends

Incorporation and constitution and Incorporation Costain Group is domiciled PLC in E Directors’ report Directors’ Governance Directors’ report continued

At the 2013 Annual General Meeting, Major shareholders nominal amount of £16,699,156. As at shareholders approved the renewal As at 25 February 2014, the Company 31 December 2013, the only shares that of the scrip dividend scheme which had been notifi ed, including under the had been allotted were in order to satisfy authorises the Directors to offer and allot Disclosure and Transparency Rules awards under employee share schemes ordinary shares in lieu of cash dividends issued by the Financial Services and the scrip dividends. The Directors to those shareholders who elect to Authority (‘DTR5’), of the following voting did not request authority to buy back participate in the scrip dividend. In May interests in its ordinary share capital: any of the Company’s shares at the last 2013, 93,558 ordinary shares of Annual General Meeting in 2013 and 50 pence each were allotted to UEM Builders they do not propose to do so at this shareholders in respect of the fi nal Berhad(i) 13,810,850 20.68% year’s Annual General Meeting. dividend for 2012, and 67,150 ordinary Mohammed shares of 50 pence each were allotted to Abdulmohsin Securities carrying special rights shareholders in October 2013 in respect AI-Kharafi & No person holds securities in the of the interim dividend for 2013. Further Sons Co. Company carrying special rights with information on the scrip dividend W.L.L.(i) 13,789,490 20.65% regard to control of the Company. scheme is set out on page 134. Details (i) Shares are held by nominees on behalf of these about joining the scrip dividend scheme benefi cial owners. Restrictions on voting can also be found on the Company’s No member shall be entitled to vote at website at www.costain.com Rights and obligations any general meeting or class meeting in attaching to shares respect of any share held by him/her if Restrictions on transfer In accordance with the Articles of any call or other sum then payable by of securities Association, the Company can issue him/her in respect of that share remains There are no restrictions on the transfer shares with any rights or restrictions unpaid or if a member has been served of securities in the Company, except: attached to them provided such rights with a restriction notice (as defi ned in the • that certain restrictions may from time or restrictions do not restrict any rights Articles of Association) after failure to to time be imposed by laws and or restrictions attached to existing provide the Company with information regulations (for example, insider shares. These rights or restrictions can concerning interests in those shares trading laws); and be decided either by ordinary resolutions required to be provided under the passed by the shareholders or by the Companies Act 2006. • pursuant to the Listing Rules of the Directors as long as there is no confl ict Financial Services Authority whereby with any resolution passed by the The Company is not aware of any certain employees of the Company shareholders. Subject to the Articles of agreement between holders of securities require the approval of the Company Association, the Companies Act 2006 that may result in restrictions of to deal in the Company’s ordinary and other shareholders’ rights, the issue voting rights. shares. of shares is at the disposal of the Board. Rights under the employee The Company is not aware of any Powers in relation to the share schemes agreements between holders of Company issuing or buying ACS HR Solutions Share Plan Services securities that may result in restrictions back its own shares (Guernsey) Limited, as Trustee of the on the transfer of securities. The Directors may only issue and buy Costain Group Employee Trust, holds back shares if authorised to do so by 0.58% of the issued share capital of the the Articles of Association or the Company as at 31 December 2013 on shareholders in general meeting. At the trust for the benefi t of those employees Company’s Annual General Meeting who exercise their share awards/options held on 8 May 2013, shareholders under the Company’s Long-Term granted an authority to the Directors to Incentive Plan, Deferred Share Bonus allot ordinary shares up to an aggregate Plan and Save As You Earn Scheme (in nominal amount of £10.92 million. As this respect of ‘good leavers’ who leave the authority is due to expire on 8 May 2014, employment of the Company before shareholders’ approval will be sought to their contract matures). The Trustee renew the Directors’ authority to allot does not exercise any right to vote or ordinary shares at the 2014 Annual to receive a dividend in respect of this General Meeting, up to an aggregate shareholding.

78 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 79

Costain Group PLC Annual Report 2013 evelopment in all the sectors in which etails the greenhouse gas emissions ignifi cant agreements which to the ignifi nsurance for its Directors and offi cers.nsurance for its Directors and offi Signifi it operates. engineers The Group’s and technical staff in these named sectors seek develop to and deliver technical advances. In undertaking certain elements of this research and development work, the Group is supported arrangements by with certain British universities and various technology specialists. Greenhouse gas emissions The Strategic report on page 13 d disclosures required the by Companies Act 2006 (Strategic Report and Report) 2013. Regulations Directors’ This information is incorporated by reference (and into shall be deemed formto part of) this Report. indemnity Directors’ Costain Group maintains PLC liability i There are no subsisting indemnities in favour of Directors. controlof The Directors are not aware of any change – agreements cant s Company and/or any of its subsidiaries or associates are a party that take effect, alter or terminate upon a change of control of the Company following a takeover bid, save in respect of the Facility Agreements relating the to Company’s banking and surety bonding facilities, which would terminate upon a change of control. There are no agreements between the Company and its Directors or employees providing for ce or compensation for loss of offi employment that occurs because a of takeover bid except that provisions of the Company’s share schemes and plans may cause options and awards begranted to employees to under such schemes and plans vest to on a takeover. development and Research The Group is involved in research and d ompany that they are not seeking Morley, havingMorley, served on the Board at the time of the two preceding Annual General Meetings without retiring, is required stand to for re-election at the Annual General2014 Meeting. Ahmed Samy and Alison having Wood, been appointed as Directors of theCompany since the last Annual General Meeting, are required stand to for re-election Annual Generalat the2014 Meeting. David James Allvey, Ahmed Morley, Samy and Alison Wood have letters of appointment with the details Company, of which are set out in the Directors’ report. remuneration With regard the re-election to of David JamesAllvey, Ahmed Morley, Samy and Alison the Wood, Board is of the opinion that they each continue perform to effectively and demonstrate commitment of time for Board and committee meetings and other respective duties. No Director had any material interest cance with the in any contract of signifi Group during the period under review. Details of Directors’ emoluments and interests in shares in the Company, including any changes in interests during are contained in the2013, Directors’ remuneration report, which appears on pages 76. to 59 Auditors Independent ed the KPMG Audit Plc has notifi C reappointment. It is proposed that KPMG LLP are appointed as auditors ce of the Company and they will hold offi from the conclusion of the in AGM until the conclusionMay 2014 of the next general meeting at which the accounts are laid before the Company. See page 55 of the Audit Committee Report and the Notice of Meeting for further details. Association embers of the Board are given on e yearended December 31 2013 ssociation, the Companies Act 2006 ontrary in the Articles of Association In accordance with Article of the 78 and Association Articles of Company’s of the Code, David Allvey, provision B.7.1 James Ahmed Morley, Samy and Alison Wood will offer themselves for re-election Annual General at the 2014 Meeting. having David Allvey, been in ce for a continuous period in excessoffi of nine years,is required stand to for re-election on an annual basis. James Directors and Directors’ interests Directors’ and Directors Brief biographies of the present m pages 49. 48 to (2012: none).(2012: The Company has a policy of not making donations political to organisations. Political Donations Political No political donations were made during th Unless expressly specifi ed the to Unless expressly specifi c of the the Company, Company’s Articles of Association may be amended by a special resolution of the Company’s shareholders. A copy of the Articles of Association are available on the Company’s website at www.costain.com Amendment of Articles of Amendment of and any directions given the Company to specialby resolution, the business of the Company will be managed the by Board who may exercise all the powers the of InCompany. particular, the Board may exercise all the powers of the Company to borrow money, to guarantee, to any charge or mortgage to indemnify, of its undertaking, property, assets (present and future) and uncalled capital and issue to debentures and other securities and give to security for any debt, liability or obligation of the Company or of any third party. Powers of the Directors Subject the Company’s to Articles of A Governance Directors’ report continued

Appointment and replacement (whether or not an alternate Director Disclosure of information of Directors appointed by him/her attends) for six to Auditors The Directors shall be not less than two consecutive months and the Board The Directors confirm that, so far as they and not more than 18 in number. The resolves that his/her office is vacated; are aware, there is no relevant audit Company may by ordinary resolution (v) he/she becomes bankrupt or information (as defined in section 418 of vary the minimum and/or maximum compounds with his creditors generally; the Companies Act 2006) of which the number of Directors. (vi) he/she is prohibited by a law from Company’s External Auditor is unaware being a Director; (vii) he/she ceases to and that each Director has taken all the A Director shall not be required to hold be a Director by virtue of the Companies steps that he/she ought to have taken as any shares in Costain Group PLC but Act 2006; or (viii) he/she is removed a Director to make himself/herself aware is encouraged to do so under the from office pursuant to the Company’s of any relevant audit information and to Company’s share ownership guidelines. Articles of Association. establish that the Company’s external Directors may be appointed by the auditors are aware of that information. Company by ordinary resolution or by Employee Information the Board. A Director appointed by the The average number of employees This confirmation is given and should Board holds office only until the next within the Company and Group be interpreted in accordance with the Annual General Meeting of the Company is shown in Note 5 to the Financial provisions of Section 418 of the and is then eligible for reappointment. Statements on page 105. Companies Act 2006. The Board, or any Committee authorised by the Board, may from time to time Apart from ensuring that an individual By Order of the Board appoint one or more Directors to hold has the ability to carry out a particular any employment or executive office for role, the Company does not discriminate such period and on such terms as they in any way. The Company endeavours may determine and may also revoke or to retain employees if they become terminate any such appointment. disabled, making reasonable At every Annual General Meeting of the adjustments to their role and, if Tracey Wood Company, any Director who has been necessary, look for redeployment Company Secretary appointed by the Board since the last opportunities within the Group. Annual General Meeting, or who held The Company also ensures that training, office at the time of the two preceding career development and promotion Annual General Meetings and who did opportunities are available to all not retire at either of them, or who has employees irrespective of gender, race, held office with the Company, other than age or disability. employment or executive office, for a continuous period of nine years or more Full details of actions taken to introduce, at the date of the meeting, shall retire maintain or develop arrangements from office and may offer himself/herself aimed at employees are described in for reappointment by the members. the Corporate Responsibility report on pages 37 to 38. The Company may by special resolution remove any Director before the Essential contracts or expiration of his/her period of office. other arrangements The office of a Director shall be vacated Given the scope and diversity of the if: (i) he/she resigns or offers to resign Company’s activities, the Company and the Board resolves to accept such does not consider that it has contractual offer; (ii) his/her resignation is requested or other arrangements which are by all of the other Directors and all of the essential to the business of the Group other Directors are not less than three and which are required to be disclosed. in number; (iii) he/she is or has been suffering from mental or physical ill health and the Board resolves that his/ her office be vacated; (iv) he/she is absent without the permission of the Board from meetings of the Board

80 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 81 Costain Group PLC Annual Report 2013 the Group accounts, which have been prepared in accordance with IFRSs as giveadopted the a true by EU, and fair nancial view of the assets, liabilities,fi position and result of the Group taken as a whole; and the Strategic Report includes a fair review of the development and and business the performance of the position of the Group taken as a whole, together with a description of the principal risksand uncertainties that it faces. Each of the Directors of the Company therms best to that, of his or her confi knowledge: • • On behalf of the Board David Allvey Allvey David Chairman Wyllie Andrew Executive Chief The Directors are responsible for records accounting adequate keeping cient show to and explain that are suffi the Group and the Company’s with disclose and transactions reasonable accuracy at any time the nancial position of the Group and the fi Company and enable them ensure to that the accounts and the Director’s the reportwith comply remuneration Companies Act 2006 and as regards the Group accounts, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Under applicable law and regulations, the Directorsare also responsible for preparing a Directors’ report, Directors’ report Corporate and remuneration Governance statement that comply with that law and those regulations. The Directors are also responsible for the maintenance and integrity of the nancial information corporate and fi website. Company’s the on included Legislation in the UK governing the of dissemination and preparation nancial statements may differ from fi jurisdictions. other in legislation The Directors are responsible for preparing the Annual Report in and law applicable with accordance regulations. The Directors consider the Annual Report and accounts, taken as balanced a whole, is fair, and understandable and provides the information necessary assess to the Company’s and the Group’s and model business performance, strategy.

select suitable accounting policies accounting suitable select and then apply them consistently; make judgments and accounting estimates that are reasonable and prudent; whether state applicable IFRSs as adopted the by EU have been followed, subject any material to explained and departures disclosed in the accounts; and prepare the accounts on the going concern basis unless it is the that presume to inappropriate Group and the Company will continue business. in In preparing each of the Group and the Company accounts, the Directors are required to: • • • • Under company the directors law, must nancial statements not approve the fi ed that these give unless they are satisfi a true and fair view of the state of affairs of the Group and the Company and of t or loss for that period. their profi Company law requires the directors nancial prepareto accounts for each fi Under the Directorsyear. that law, are required prepare to the Group and Company accounts in accordance with International Financial reporting standards (‘IFRSs’) as adopted the by European Union (‘EU’). The Directors are responsible for preparing the Annual Report, the remunerationDirector’s report and applicable with accordance in accounts law and regulations. Directors’ responsibilities statement responsibilities Directors’ Governance Independent Auditor’s report to the members of Costain Group PLC

Opinions and conclusions arising 2 Our assessment of risks of • Our response: Using a variety of from our audit material misstatement quantitative and qualitative factors, 1 Our opinion on the fi nancial In arriving at our audit opinion above including contract value and statements is unmodifi ed on the fi nancial statements the risks profi tability, the client’s risk report and We have audited the fi nancial statements of material misstatement that had the our own knowledge of the business, of Costain Group PLC for the year greatest effect on our audit were we selected a sample of contracts to ended 31 December 2013 which as follows: assess and challenge the most comprise the Consolidated Income Contract accounting estimates signifi cant and complex contract Statement, the Consolidated Statement Refer to page 55 (Audit Committee estimates. We obtained the detailed of Comprehensive Income, the Report), page 93 (accounting policy). project management review papers Consolidated and Company Statement • The Risk: The Group recognises from the Group to support the of Financial Position, the Consolidated revenue and profi t in accordance estimates made and challenged the and Company Statement of Changes in with IAS 11 based on the stage of judgements underlying those papers Equity, the Consolidated and Company completion of contracts which is with senior operational, commercial Cash Flow Statement and related notes. assessed with reference to the and fi nancial management. In this In our opinion: proportion of contract costs incurred area our audit procedures included, among others: • the fi nancial statements give a true for the work performed to the balance and fair view of the state of the sheet date, relative to the estimated – evaluating the fi nancial performance Group’s and of the parent company’s total costs of the contract at of contracts against budget and affairs as at 31 December 2013 and completion. The recognition of historical trends; of the group’s profi t for the year then revenue and profi t therefore relies – completing site visits to certain ended; on estimates in relation to the fi nal higher risk or larger value contracts, out-turn of costs on each contract. physically inspecting the stage of • the group fi nancial statements have Changes to these estimates could been properly prepared in accordance completion of individual projects give rise to material variances in the and identifying areas of complexity with International Financial Reporting amount of revenue and profi t/loss Standards as adopted by the through observation and discussion recognised. Cost contingencies may with site personnel; European Union (IFRSs as adopted also be included in these estimates by the EU); to take account of specifi c uncertain – challenging the Group’s judgement • the parent company fi nancial risks, or disputed claims against the in respect of forecast contract statements have been properly Group, arising within each contract. out-turn, contingencies, settlements prepared in accordance with IFRSs These contingencies are reviewed and the recoverability of contract as adopted by the EU and as applied by the Group on a regular basis balances via agreement to third in accordance with the provisions throughout the contract life and party certifi cations and of the Companies Act 2006; and adjusted where appropriate. Variations confi rmations and with reference and claims, together with in limited to our own assessments, historical • the fi nancial statements have been circumstances insurance recoveries, outcomes and industry norms; prepared in accordance with the are recognised on a contract-by- – analysing correspondence with requirements of the Companies Act contract basis when the Group 2006 and, as regards the group customers around variations and believes it is probable that the amount claims and considering whether this fi nancial statements, Article 4 of the will be recovered from the customer IAS Regulation. information is consistent with the or insurer and the amount can be estimates made by management; measured reliably. Therefore there is a high degree of management – analysing correspondence and judgement in: estimating the amount meeting minutes with insurers of revenue to be recognised by the around recognised insurance Group with respect to the fi nal out-turn claims, analysing assessments of on contracts; assessing the level of these undertaken by the insurer’s the contingencies; and recognising legal or technical experts, if receipt of variations, claims and applicable and considering whether insurance recoveries. this information supports the position taken on the contract;

82 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 83 ed ed Costain Group PLC Annual Report 2013 e part of the Directors’ remuneration th report be audited to has been accordance in prepared properly with the Companies Act 2006; and the information given in the Strategic Report and the Directors’ report nancial year for which the for the fi nancial statements are prepared fi nancial is consistent with the fi statements. We agreedWe withthe audit committee to report it all to corrected and uncorrected ed through our misstatements we identifi audit witha value in excess of £85,000, in addition other to audit misstatements below that threshold that we believe warranted reporting on qualitative grounds. Audits for group reporting purposes auditors component performed by were reportingat the key component in Spain and the by group audit team in the UK. These procedures covered 99% of t total group revenue; 99% of group profi before other items and taxation and 99% total of group assets. The segment disclosures in 3 set Note out the c cance of a specifi individual signifi countries. The audit undertaken for group reporting purposes in Spain was performed to a materiality level set the by group audit £850,000. at team to sent were instructions audit Detailed the auditors in Spain. These instructions cant audit areas that covered the signifi should be covered the by audit (which included the relevant risks of material misstatement detailed above) and set out the information required be to reported back the group to audit team. The group audit team also attended nal audit meeting in Spain. the fi O 4 prescribed by the Companies Act ur opinion on other matters 2006 unmodifi is In our opinion: • • The non-current assets Our response: Our (namely golf courses and a marina) have been valued the by company projection ow fl cash discounted using models. In respect of these assets our others, among included, procedures testing these models establish to appropriately were they whether designed and operating correctly. With respect the inputs key to and assumptions driving the outputs of the models, we utilised a member of the audit team with specialist valuation skills compare to that data with our historical experience, our knowledge of therelevant market and market ation. Our forecasts for growth and infl audit procedures in respect of the land held for development in the Alcaidesa portfolio included, among others, inspecting copies of the external valuations for that land and performing procedures evaluate to whether the rms that produced the valuation fi ed. We reports were suitably qualifi utilised a member the of team with specialist valuation skills test the to comparing by assumptions underlying them market to evidence and our knowledge of the sites. also We considered the adequacy of the disclosuresgroup’s in respect of the venture. joint tatements as a whole was set at 3 O 3 • and an overview of the scope ur application of materiality of our audit nancial The materiality for the fi s been determined This has million. £1.7 with reference a benchmark to of group t before taxation which we consider profi be oneto of the principal considerations for members of the company in nancial performanceassessing the fi of the group. Materiality represents t before tax and 5.4% of group profi 13% t before other items as of group profi disclosed on the face of the consolidated statement. income Alcaidesa Holding SA Report), page 93 (accounting inspecting the selected contracts for clauses, key identifying relevant as such mechanisms contractual pain/gain shares, design bonuses, liquidated damages andsuccess fees and assessing whether these clauseskey have been appropriately ected in the amounts recognised refl nancial statements; in the fi assessing whether the amounts nancial recognised in the fi statements resulting from the made assumptions and estimates represent a balanced view of the risks and opportunities pertinent position; contract each to considering whether provisions ect ciently refl against contracts suffi the level of risk, and challenging judgementthe Group’s in this area with reference our to own and assessments.; considering the adequacy of the disclosuresgroup’s in respect of contract accountingand the key risks relating these to amounts.

The Risk: The (equity accounted joint venture with the in million carrying £27 a of value accounts) operates in the Spanish real estate market and holds as its principal non-current assets, a marina and two golf coursesand, as its principal current asset, land held for development. The Group performs a yearly review for impairment of the non-current assets and of the net realisable value of the development land determine to if these assets are being recorded at an appropriate level and that the additional write down recognised in the current year was appropriate. Due the current to depressed state of the Spanish economy and the property market in particular the valuation of these cant risk assets represents a signifi in the Group balance sheet. – – – – ccounted joint venture – valuation policy) and pages 111-112 (fi nancial (fi policy) and pages 111-112 disclosures) • Refer page to 55 (Audit Committee Land and property assets held equity by a Governance Independent Auditor’s report continued

5 We have nothing to report in Under the Listing Rules we are required respect of the matters on which we to review: are required to report by exception  • the directors’ statement, set out Under ISAs (UK and Ireland) we are on page 77, in relation to going required to report to you if, based on the concern; knowledge we acquired during our audit, we have identified other information in • the part of the Corporate Governance the annual report that contains a material statement on page 50 relating to the inconsistency with either that knowledge company’s compliance with the nine or the financial statements, a material provisions of the 2010 UK Corporate misstatement of fact, or that is otherwise Governance Code specified for our misleading. review.

In particular, we are required to report We have nothing to report in respect to you if: of the above responsibilities.

• we have identified material Scope of report and responsibilities inconsistencies between the As explained more fully in the knowledge we acquired during our Directors’ responsibilities statement audit and the directors’ statement that set out on page 81, the Directors are they consider that the annual report responsible for the preparation of the and financial statements taken as a financial statements and for being whole is fair, balanced and satisfied that they give a true and fair understandable and provides the view. A description of the scope of an information necessary for audit of financial statements is provided shareholders to assess the group’s on the Financial Reporting Council’s performance, business model and website at www.frc.org.uk/ strategy; or auditscopeukprivate. This report is • the Audit Committee Report does made solely to the Company’s members not appropriately address matters as a body and is subject to important communicated by us to the audit explanations and disclaimers regarding committee. our responsibilities, published on our website at www.kpmg.com/uk/ Under the Companies Act 2006, we auditscopeukco2013a, which are are required to report to you if, in our incorporated into this report as if set out opinion: in full and should be read to provide an • adequate accounting records have understanding of the purpose of this not been kept by the parent company, report, the work we have undertaken or returns adequate for our audit have and the basis of our opinions. not been received from branches not visited by us; or • the parent company financial statements and the part of the Directors’ remuneration report to be Andrew Marshall audited are not in agreement with the (Senior Statutory Auditor) accounting records and returns; or • certain disclosures of directors’ for and on behalf of KPMG Audit Plc, remuneration specified by law are Statutory Auditor not made; or Chartered Accountants 15 Canada Square • we have not received all the London information and explanations we E14 5GL require for our audit. 26 February 2014

84 Costain Group PLC Annual Report 2013 01--45 Strategic report

Financial statements 46-84 Governance This section contains the detailed fi nancial statements and other information that our stakeholders fi nd useful, including the fi nancial calendar and shareholder services.

In this section 86 Consolidated income statement 87 Consolidated statement of comprehensive income and expense 88 Consolidated statement of fi nancial position 89 Company statement of fi nancial position 90 Consolidated statement of changes in equity 85 statements Financial -132 90 Company statement of changes in equity 91 Consolidated cash fl ow statement 92 Company cash fl ow statement 93 Notes to the fi nancial statements 132 Five-year fi nancial summary

The Chairman’s statement can be found on page 6.

The Chief Executive’s review can be found on page 8. 13 Other information The Finance Director’s review can be found on page 43. 3-136

Costain Group PLC Annual Report 2013 85 Financial statements Consolidated income statement Year ended 31 December

2013 2012 (restated) Before Other Before Other other items items Total other items items Total Notes £m £m £m £m £m £m Continuing operations Revenue 3 960.0 – 960.0 934.5 – 934.5 Less: Share of revenue of joint ventures and associates 13 (74.8) – (74.8) (86.1) – (86.1) Group revenue 885.2 – 885.2 848.4 – 848.4 Cost of sales (826.7) – (826.7) (794.2) – (794.2) Gross profi t 58.5 – 58.5 54.2 – 54.2

Administrative expenses (31.1) – (31.1) (29.7) – (29.7) Pension liability management – – – (2.8) – (2.8) Exceptional transaction costs 4 –(3.7)(3.7) – – – Amortisation of acquired intangible assets – (1.8) (1.8) – (1.7) (1.7) Employment related and other deferred consideration – (2.8) (2.8) – (1.7) (1.7) Group operating profi t 27.4 (8.3) 19.1 21.7 (3.4) 18.3

Profi t on sales of interests in joint ventures and associates 4 9.1 – 9.1 10.5 – 10.5 Share of results of joint ventures and associates 13 (1.5) (9.8) (11.3) (1.4) – (1.4) Profi t from operations 3 35.0 (18.1) 16.9 30.8 (3.4) 27.4

Finance income 7 0.7 – 0.7 1.0 – 1.0 Finance expense 7 (4.7) – (4.7) (3.7) – (3.7) Net fi nance expense (4.0) – (4.0) (2.7) – (2.7)

Profi t before tax 3/4 31.0 (18.1) 12.9 28.1 (3.4) 24.7 Income tax 8 (1.8) 1.4 (0.4) (2.2) 0.6 (1.6) Profi t for the year attributable to equity holders of the parent 29.2 (16.7) 12.5 25.9 (2.8) 23.1

Earnings per share Basic 9 44.1p (25.3)p 18.8p 39.7p (4.3)p 35.4p Diluted 9 42.4p (24.3)p 18.1p 38.3p (4.1)p 34.2p

The impact of business disposals in either year was not material and, therefore, all results are classifi ed as arising from continuing operations.

86 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – 87 £m 0.1 0.1 5.1 2.4 2.6 4.0 (1.1) (0.4) 2012 23.1 23.1 (18.0) (20.6) (23.0) estated) (r £m 1.2 0.9 8.6 8.6 3.3 3.3 0.2 4.2 (0.1) 2013 (5.3) (0.2) (0.2) 16.7 12.5 Costain Group PLC Annual Report 2013 t or loss t or loss: t or loss t or loss: ed to profi to ed ed subsequently to profi to subsequently ed ed to profi to ed ed subsequently to profi to subsequently ed

t for the year sh fl ow hedgesow sh fl ther comprehensive income/(expense) for the year Net changes in fair value transferred the income to statement Net changes in fair value (net of tax) transferred the income to statement Joint ventures and associates: otal items that will not be reclassifi otal items that may be reclassifi otal comprehensive income for the year attributable to equity holders of the parent ax recognised on remeasurement of defi ned benefi t liability axned recognised benefi on remeasurement of defi tems that will not be reclassifi tems that may be reclassifi O

T Exchange differences on translation of foreign operations Ca T

T Group: Effective portion of changes in fair value during year I Effective portion of changes in fair value (net of tax) during year

T Remeasurement of defi ned benefi t liability ned benefi Remeasurement of defi I Profi

comprehensive income and expense and income comprehensive December 31 ended Year Consolidated statement of Financial statements Consolidated statement of fi nancial position As at 31 December

2013 2012 Notes £m £m Assets Non-current assets Intangible assets 11 33.0 18.7 Property, plant and equipment 12 7.9 9.1 Investments in equity accounted joint ventures 13 27.1 36.1 Investments in equity accounted associates 13 0.2 1.6 Loans to equity accounted associates 13 4.8 2.7 Other 14 22.0 17.5 Deferred tax 8 9.8 17.4 Total non-current assets 104.8 103.1

Current assets Inventories 1.6 1.7 Trade and other receivables 14 190.6 181.5 Cash and cash equivalents 15 84.3 107.4 Total current assets 276.5 290.6 Total assets 381.3 393.7

Equity Share capital 21 33.4 32.8 Share premium 4.7 3.7 Foreign currency translation reserve 4.8 5.0 Hedging reserve (0.1) (1.2) Retained earnings 0.5 (8.5) Total equity attributable to equity holders of the parent 43.3 31.8

Liabilities Non-current liabilities Retirement benefi t obligations 20 37.2 51.9 Other payables 18 4.3 5.0 Provisions for other liabilities and charges 19 0.4 1.9 Total non-current liabilities 41.9 58.8

Current liabilities Trade and other payables 18 266.1 297.6 Income tax liabilities 8 1.6 1.7 Bank overdrafts 15 1.6 1.7 Interest bearing loans and borrowings 16 25.0 – Provisions for other liabilities and charges 19 1.8 2.1 Total current liabilities 296.1 303.1 Total liabilities 338.0 361.9 Total equity and liabilities 381.3 393.7

The fi nancial statements were approved by the Board of Directors on 26 February 2014 and were signed on its behalf by:

A Wyllie A O Bickerstaff Director Director Registered number: 1393773

88 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – 89 £m 1.7 1.3 1.3 3.7 3.7 9.3 0.2 2012 87.2 87.2 32.1 32.1 77.9 77.9 32.8 32.8 84.0 84.0 39.9 39.9 69.9 69.9 30.0 30.0 85.9 85.9 95.2 95.2 95.2 95.2 165.1 165.1 – £m 0.1 0.1 1.3 1.3 1.5 4.7 4.7 2013 97.9 97.9 97.9 97.9 77.2 77.2 51.3 51.3 21.9 12.0 75.9 72.0 49.3 49.3 25.0 25.0 33.4 33.4 149.2 149.2 8 14 15 18 19 19 16 21 Notes Costain Group PLC Annual Report 2013 nancial position nancial Director Director A O Bickerstaff

liabilities tax liabilities

e premium e isions for other liabilities and charges rrent assetsrrent uity tained earningstained tal assets her reserves reserves her ash and cash equivalents cash and ash iabilities he fi nancial statements were approved the by Board of Directorshe fi on February and 26 were signed on 2014 its behalf by: otal liabilities otal otal equity and liabilities otal non-current liabilities non-current otal otal non-current assets otal equity attributable to equity holders of the parent otal current liabilities current otal otal current assets nterest bearing loans and borrowings Eq T Prov Registered number: 1393773 number: Registered A Wyllie Director Director T Current Cu C Trade and other receivablesTrade Ot Re T T

Assets assetsNon-current Investments in subsidiaries 13 Company statementfi of Company December 31 As at T I Non-current liabilitiesNon-current Provisions for other liabilities and charges T T Shar Share capital Share Trade and other payablesTrade L T To Income 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 2012 32.4 3.3 6.1 (4.9) (6.1) 30.8 Profi t for the year – – – – 23.1 23.1 Other comprehensive income/(expense) – – (1.1) 3.7 (20.6) (18.0) 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 At 1 January 2013 32.8 3.7 5.0 (1.2) (8.5) 31.8 Profi t for the year – – – – 12.5 12.5 Other comprehensive income/(expense) – – (0.2) 1.1 3.3 4.2 Issue of ordinary shares under employee share option plans 0.5 0.6 – – (0.3) 0.8 Shares purchased to satisfy employee share schemes – – – – (1.5) (1.5) Equity-settled share-based payments – – – – 2.2 2.2 Dividends paid 0.1 0.4 – – (7.2) (6.7) At 31 December 2013 33.4 4.7 4.8 (0.1) 0.5 43.3 Company statement of changes in equity

Share Share Other Retained Total capital premium reserve earnings equity £m £m £m £m £m At 1 January 2012 32.4 3.3 6.4 38.1 80.2 Comprehensive income – – – 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 At 1 January 2013 32.8 3.7 9.3 32.1 77.9 Comprehensive expense – – – (2.7) (2.7) Issue of ordinary shares under employee share option plans 0.5 0.6 – (0.3) 0.8 Equity-settled share-based payments granted to employees of subsidiaries – – 2.7 – 2.7 Dividends paid 0.1 0.4 – (7.2) (6.7) At 31 December 2013 33.4 4.7 12.0 21.9 72.0 There are no signifi cant 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 fi nancial 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 fl ow 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.

90 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – – – – – – – – 91 £m 4.1 4.1 1.7 1.4 1.6 1.0 1.8 3.7 3.7 2.9 2.3 0.6 0.6 0.6 (5.1) (0.1) (1.0) (1.8) (5.4) 2012 (5.9) (6.2) (6.2) (0.8) 27.0 27.0 23.1 23.1 (48.1) (23.1) (10.5) (34.4) (22.3) 140.1 105.7

£m 0.1 0.1 1.3 4.7 4.7 0.6 0.4 2.7 2.7 0.8 0.2 2.4 2.4 2.3 2.3 2.8 2.8 (9.1) (7.9) (1.3) (1.5) 2013 (0.7) (6.7) (1.2) (2.7) (9.4) (6.6) 11.7 (3.0) (0.3) (2.9) 19.1 11.3 (2.2) 27.8 27.8 12.5 82.7 82.7 25.0 25.0 (40.7) (12.2) (23.0) (35.5) (32.9) 105.7 4 8 7 4 7 5 4 11 12 15 13 15 13 16 13 13 25 Notes Costain Group PLC Annual Report 2013 ow statement ow nancing activities nancing nancing activities nancing

income expense ows from/(used by) fi ows from/(used by) investing activities ows from operating activities operating from ows

ease in payables in ease t for the year t on sales of interests in joint ventures and associates ceeds of sale of interests in associates ceeds of disposal of property, plant and equipment ployment related and other deferred consideration sh fl sh fl ome taxome preciation of property, plant and equipment and plant property, of preciation justments for: ditions property, to plant and equipment ditions loans to joint to ventures and associates ditions intangible to assets ditions cost to of investments quisition of subsidiary (net of acquired cash and cash equivalents and overdrafts) erest paid ovementts in provisions and employee benefi et cash used by investing activities et cash from/(used by) fi et cash used by operating activities et decrease in cash, cash equivalents and overdrafts rdinary paid dividends ash, cash equivalents and overdrafts at end of the year ash used by operations by used ash ash from operations before changes in working capital and provisions ash, cash equivalents and overdrafts at beginning of the year rawdown of revolving credit facility ecrease in inventories in ecrease mortisation of intangible assets hares purchased satisfy to employee share schemes hare-based payments expense cquisition related deferred consideration deferred related cquisition Increase)/decrease in receivables ncome tax paid nterest received Finance A Ad Ad M Share of results of joint ventures and associates S Finance N Ac N Decr Ad C Pro Dividends received from joint ventures and associates I Inc N C D Ad Cash fl Profi Consolidated cash fl cash Consolidated December 31 ended Year A C O Issue of ordinary share capital N S ( D Ca Ca C Ad Int Profi Pro I De Em Financial statements Company cash fl ow statement Year ended 31 December

2013 2012 Notes £m £m Cash fl ows from operating activities (Loss)/profi t for the year (2.7) 1.0 Adjustments for: Finance income (0.7) (2.2) Finance expense 0.3 0.3 Income tax (1.1) (0.1) Loss on sale of investment – 0.7 Cash used by operations before changes in working capital and provisions (4.2) (0.3)

Increase in receivables (9.9) (3.5) Decrease in payables (32.2) (23.4) Movement in provisions (0.1) (0.3) Cash used by operations (46.4) (27.5) Interest received – 0.6 Interest paid (2.8) (0.3) Income tax received 0.1 0.1 Net cash used by operating activities (49.1) (27.1)

Cash fl ows from investing activities Dividends received – 1.6 Net cash from investing activities – 1.6

Cash fl ows from/(used by) fi nancing activities Issue of ordinary share capital 0.8 – Ordinary dividends paid (6.7) (6.2) Drawdown of revolving credit facility 16 25.0 – Net cash from/(used by) fi nancing activities 19.1 (6.2)

Net decrease in cash and cash equivalents (30.0) (31.7)

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

92 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 93 Costain Group PLC Annual Report 2013 IAS 19 (revised 2011) ‘Employee Benefi ts’ ts’ ‘Employee Benefi (revisedIAS 19 2011) Amendments IAS 1 ‘Presentation to of Items of Other Income’ Comprehensive Amendments IFRS 7 ‘Financial to Instruments: Disclosures’ – ‘Offsetting Financial Assets and Financial Liabilities’ ‘Fair Value Measurement’IFRS 13 tated, beentated, applied consistently the by Group and the ts future development,performance and position are set out Going concern Going businessThe Group’s activities andthe factors likely affect to i in the Business review section of these fi nancialin the Business statements. review section these of fi ows, liquidity nancial position of the Group, its cash fl The fi position,nancial borrowing and bonding facilities, use of fi instruments and hedgingactivities, exposure credit to risk and its objectives, policies and processes for managing its nancial risk are describedcapital in the Financial and fi review nancial statements and in 17. Note section of these fi principalThe Group’s business activity involves long-term contracts with a number customers, of mainly across the United meet Kingdom. its day-to-day working To capital requirements, it uses cash balances provided from shareholders’ capital and retained earnings and its borrowing facilities. As part of its contracting operations, the Group may be required provide to performance and other bonds. es these requirements utilising by its committedIt satisfi bonding facilities from banks and surety companies. These nancial covenants that are tested quarterly.facilities have fi The directors have acknowledged the guidance ‘Going Concern and Liquidity Risk: Guidance for Directors of UK Companies 2009’ published the by Financial Reporting Council in October 2009. The directors have considered these requirements, current the Group’s order book and future opportunities and its available bonding facilities. Having reviewed the latest projections, including the application of reasonable downside sensitivities, the directors believe that the Group is well placed manage to its business risks successfully despite the current uncertain economic outlook. Accordingly, they continue adopt the to going concern basis nancial statements. in preparing these fi policies Accounting The accounting policies set out below unless have, otherwise s nancialCompany each to period presented in these fi statements. The following standards and interpretations are effective for the year ended December 31 2013: • • • • nancial statements nancial accountingcant policies

unded to the nearest hundred thousand. The fi nancialunded the nearest to hundred thousand. The fi The preparation of fi nancial statements in conformityThe preparation with of fi IFRS requires management make judgments, to estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed be reasonable to under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. Judgments made management by cant effect in the on application of IFRS that have a signifi cantnancial risk statements and estimates with a signifi the fi of material adjustment in the next year are discussed later Note. this in statements are prepared on the historical cost basis, except nancial nancial instruments assets and derivative fi that fi are stated at their fair value. Basis of preparation nancial statements are presented in PoundsThese sterling, fi ro 2 Summary of signifi nancial statements and the Group Both the Company fi nancial statements have been preparedconsolidated and fi approved the by directors in accordance with International Financial Reporting Standards as adopted the by EU IFRS’)(‘Adopted and their related interpretations. On nancial statementspublishinghere the parent Company fi nancial statements, the Companytogether with the Group fi is taking advantage of the exemption in Section 408 of the Companies Act 2006 present not to its individual income statement and related notes that form a part of these nancial statements. approved fi The fi nancial statements were authorised for issueThe fi the by directors on February 26 2014. The consolidated fi nancial statements of the CompanyThe for consolidated the fi year ended December comprise 31 the Group 2013 and the interests in associates,Group’s jointly controlled entities and jointlynancial controlled operations. The parent company fi statements present information about the Company as a separate entity and not about its Group. 1 General information Costain Group (‘the PLC Company’) is a public limited company incorporated in the United Kingdom. The address of ce and principal placeits registered of business offi is disclosed on the last page of this Annual Report. The principal activities of the Company and its subsidiary undertakings (collectively referred as ‘the to Group’) are described in the Business nancial statements. review section these of fi Notes to the fi to the Notes Financial statements Notes to the fi nancial statements continued

2 Summary of signifi cant accounting policies In accordance with the transitional provisions of IFRS 13, continued the Group has applied the new fair value measurement Accounting policies continued guidance prospectively and has not provided any comparative The revision to IAS 19 requires the fi nancing cost of a defi ned information for new dislcosures. Notwithstanding the above, benefi t scheme to be calculated on the net surplus or defi cit. the change had no signifi cant impact on the measurement The 2012 fi gures have been restated for consistency with of the Group’s assets and liabilities. A limited number of 2013 and this has reduced the previously reported operating assets and liabilities required Level 2 or Level 3 valuations, profi t by £0.6 million, increased pension interest expense see Note 17(e)(i), but have not resulted in a change to their by £0.8 million and reduced the tax charge by £0.3 million carrying values. with a corresponding increase in other comprehensive income. Earnings per share has reduced by 1.7 pence. There is no Basis of consolidation impact on the pension defi cit or cash. (a) The Group’s fi nancial statements include the fi nancial statements of the Company and subsidiaries controlled The amendment to IAS 1 requires an entity to present the by the Company. Control exists where the Company or items of other comprehensive income that may be recycled one of its subsidiaries has the power, directly or indirectly, to profi t or loss in the future separately from those that would to govern the fi nancial and operating policies of an entity never be recycled to profi t or loss. The presentation has been so as to obtain benefi ts from its activities. In assessing amended to satisfy this requirement. control, potential voting rights that presently are exercisable are taken into account. The fi nancial statements of The amendment to IFRS 7 changes the disclosure subsidiaries are included in the consolidated fi nancial requirements in respect of fi nancial instruments that are set-off statements from the date that control commences until in accordance with guidance in IAS 32. This has not had an the date that control ceases. impact on these fi nancial statements. (b) Associates are operations over which power exists to Fair value measurement exercise signifi cant infl uence but not control, generally IFRS 13 ‘Fair Value Measurement’ establishes a single accompanied by a share of between 20% and 50% of framework for measuring fair value and making disclosures the voting rights. Associates are accounted for using the about fair value measurements when such measures are equity method. If the share of losses equals the investment, required or permitted by other IFRSs. It unifi es the defi nition no further losses are recognised, except to the extent that of fair value as the price that would be received to sell an asset there are amounts receivable that may not be recoverable or paid to transfer a liability in an orderly transaction between or further commitments to provide funding. market participants at the measurement date (i.e. an exit price). It replaces and expands the disclosure requirements (c) Jointly controlled entities are those joint ventures where about fair value measurements in other IFRSs, including control is shared with another entity, established by IFRS 7. As a result, the Group has included additional contractual agreement. Jointly controlled entities are disclosures in this regard (see Note 17). accounted for using the equity method from the date that the jointly controlled entity commences until the date When measuring the fair value of a fi nancial or non-fi nancial that joint control of the entity ceases. If the share of losses asset or liability, the group uses market observable data equals the investment in the entity, no further losses are as far as possible. Fair values are categorised into different recognised, except to the extent that there are amounts levels in a fair value hierarchy based on the inputs used in receivable that may not be recoverable or further the valuation techniques as follows: commitments to provide funding. • Level 1: Quoted prices (unadjusted) in active markets for (d) The presentation in the statement of fi nancial position in identical assets and liabilities. respect of investments in associates and jointly controlled • Level 2: Inputs other than quoted prices included within entities restricts the minimum carrying value to £Nil. Where Level 1 that are observable for the asset or liability, the cost of investment would be negative, due to losses either directly (i.e. as prices) or indirectly (i.e. derived incurred, then an amount up to the value of the negative from prices). position is applied to any outstanding loan balance with the investment or, where future funding commitments exist, • Level 3: Inputs for the asset or liability that are not based a provision is made up to the value of the commitment. Any on observable market data (unobservable inputs). such transfers of excess losses from the carrying value of investments are shown within reclassifi cations in Note 13. If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value hierarchy, then the fair value measurement is categorised in its entirety in the same level of the hierarchy as the lowest level input that is signifi cant to the entire measurement.

94 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 95 Costain Group PLC Annual Report 2013 e service is provided. erformance of the Group, certain amounts are shown in the n construction contracts and on the value of services (a) contracts Long-term Revenue arises from increase in the value of work performed o Revenue from the sale of land is recognised when the cant risks and rewards of ownership have beensignifi transferred the amount the buyer, to of revenue can be measured reliably and it is probable that the economic the Group.ow to ts associated with the transaction will fl benefi Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives are recognised as an integral part of the rental total income on a straight-line basis over the term of the lease. Income statement presentation – Other items In order aid to understanding of the underlying and overall p consolidated income statement in a separate column headed Items are included‘Other under items’. this heading where the Board considers them be of a one-off to and unusual nature or related the accounting to treatment of acquisitions. provided during Where the year. the outcome of a long-term contract can be estimated reliably and it is probable that the table, revenue and costs are recognisedcontract will be profi referenceby the stage to of completion of the contract activity nancial position Stage date. of completionat the statement of fi is assessed reference by the proportion to of contract costs incurred for the work performed date relative to the to estimated total costs. Variations and claims are included in revenue where it is probable that the amount, which can be measured reliably, will be recovered from When the customer. the outcome of a long-term contract cannot be estimated reliably, contract revenue is recognised the extent to of contract costs incurred where it is probable those costs will be recoverable. Contract costs are recognised as expenses in the period in which they incurred. are When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognised as an expense immediately. Constructiont work in progress is stated at cost plus profi recognised date less to a provision for foreseeable losses and less amounts billed and is included in amounts due from customers for contract work. Cost includes all expenditure c projects and an appropriaterelated directly specifi to xed and variable overheads basedallocation on normal of fi operating capacity. Amounts valued and billed customers to are included in trade receivables. Where cash received from customers exceeds the value of work performed, the amount is included in credit balances on long-term contracts. (b) Other revenue Revenue from other services contracts is recognised when th accountingcant policies which joint control exists, established contractual by agreement, which are not legal entities. Where a jointly controlled operation exists, then the Group entity involved records the assets it controls, the liabilities and expenses it incurs and its share income. of Such jointly controlled nancialoperations are reported in the consolidated fi statements on the same basis. Transactions between Group companies and jointly controlled operations eliminate on consolidation. Intra-group balancesand transactions together with any unrealised gains arising from intra-group transactions nancialare eliminated in preparing the consolidated fi statements. Unrealised gains arising from transactions with associates, jointly controlled entities and jointly controlled operations are eliminated the extent to of the interest in the entity or operation. Unrealised losses are eliminated in the same way as unrealised gains, but only the extent to that there is no evidence of impairment. J change ruling rate at the date of the transaction. Monetary ceived or receivable, net of value added tax and includes the share of revenue of jointly controlled operations. 96% revenue of the arises Group’s from long-term contracts. Revenue recognition Revenue Revenue is measured at the fair value of the consideration re Exchange differences arising from the translation of the net investment in foreign operations and of relatedhedges are recognised directly in equity and those that have arisen since 1 January 2004, the date of transition IFRS, are to presented as a separate component of equity. Cumulative exchange differences are released the into income statement upon disposal. differences Translation that arose before the date of transition IFRS to in respect of all foreign operations are not presented as a separate component. The assets and liabilities of foreign operations are translated Poundsto sterling at exchange rates ruling at the statement nancial position The date. revenues and expensesof fi of foreign operations are translated Pounds to sterling at rates approximating the exchange to rates ruling at the dates of these transactions. assets and liabilities denominated in foreign currencies are translated Pounds to sterling at the exchange ruling rate nancial position Foreign date. exchangeat the statement fi of differences arising on translation are recognised in the statement. income (f) Currency translation Transactions in foreign currencies are translated at the ex ointly controlled operations are those joint ventures over 2 Summary of signifi continued Basis of consolidation continued (e) Financial statements Notes to the fi nancial statements continued

2 Summary of signifi cant accounting policies Amortisation begins when an asset is acquired or, in the case continued of computer software, available for use and is amortised over Pre-contract costs the following periods: Costs associated with bidding for contracts are written off Brands – on a straight line basis up to three years. as incurred. When it is probable that a contract will be awarded, usually when preferred bidder status is secured, Order book – in line with expected profi t generation costs incurred from that date to the date of fi nancial close up to three years. are carried forward in the statement of fi nancial position and Manpower – on a straight line basis up to four years. included in amounts due from customers for contract work. Customer relationships – on a straight line basis up to seven years. When fi nancial close is achieved on PFI contracts, costs are Computer recovered from the special purpose vehicle and pre-contract software and costs within this recovery that were not previously capitalised development – on a straight line basis up to fi ve years. are credited to the income statement. When an interest in a special purpose vehicle is retained and that interest is Property, plant and equipment accounted for as an associate or joint venture, the credit is Property, plant and equipment is carried at cost less recognised over the life of the construction contract to which accumulated depreciation and impairment losses. Where parts the costs relate. of an item of property, plant and equipment have different useful lives, they are accounted for as separate items. Cost Research and development comprises purchase price and directly attributable costs. Research and development activities are usually directly Freehold land is not depreciated. For all other property, plant attributable to a project and accounted within project costs. and equipment, depreciation is calculated on a straight-line basis to allocate cost less residual values of the assets over Goodwill and other intangible assets their estimated useful lives as follows: Goodwill arising on acquisitions represents the excess of the fair value of the consideration over the identifi able assets, Freehold buildings – 50 years liabilities and contingent liabilities of the acquired entity and Leasehold buildings – shorter of 50 years or lease term goodwill arising on the acquisition of subsidiaries is included Plant and equipment – remaining useful life in non-current assets. The attributable costs of acquisitions (generally 3 to 10 years) are expensed to the income statement. The assets’ residual values and useful lives are reviewed Goodwill is reviewed annually for impairment and is carried and adjusted, if appropriate, at each statement of fi nancial at cost less accumulated impairment losses. Goodwill is position date. included when determining the profi t or loss on subsequent disposal of the business to which it relates. Investments – Company Company investments in subsidiaries are carried at cost less Other intangible assets comprise acquired intangible assets: provisions for impairment. customer relationships, order book, manpower and brand and computer software. Customer relationships and other PFI investments intangibles acquired are measured at the present value The Group has interests in PFI investments held through of cash fl ows attributable to the relationship less an joint ventures and associates. These arrangements, whereby appropriate contributory asset charge. Computer software a private sector operator participates in the development, is carried at cost; subsequent expenditure is capitalised only fi nancing, operation and maintenance of infrastructure for when it increases the future economic benefi ts embodied in public services, are accounted in accordance with IFRIC 12. the specifi c asset to which it relates, otherwise expenditure Under this interpretation, the infrastructure assets within the is expensed as incurred. Group’s investments are recognised as fi nancial assets because the operator has an unconditional right to receive a specifi ed amount of cash or other fi nancial asset over the life of the agreement. The operator recognises investment income in respect of the fi nancial asset on an effective interest basis.

96 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 97 Costain Group PLC Annual Report 2013 nder operating leases are recognised as an expense in the orporation tax and Overseas tax currently payable and Taxation The tax expense represents the sum of United Kingdom c income statement on a straight-line basis over the lease term. Any incentives enter to operating into leases are recognised as a reduction of rental expense over the lease term on a straight-line basis. deferred tax. deferred The tax currentlyt for the payableis based on the taxable profi t before tax as reportedt differs from profi Taxable profi year. in the income statement because it excludes itemsof income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates and laws that have been enacted or substantively enactedthe by nancial position date. statement of fi Deferred tax is the tax expected be payable to or recoverable on differences between the carrying amounts of assets and nancial statements andthe correspondingliabilities in the fi tax basest and is used in the computation of taxable profi nancial positionaccounted liability for using the statement of fi method. Deferred tax liabilities are generally recognised for all temporary differencesc exemptions except for those specifi set out below and deferred tax assets are recognised to the extentts will that it is probable that future taxable profi be available against which deductible temporary differences can be utilised. The carrying amount of deferred tax assets nancial position date. is reviewed at each statement of fi Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill or other assets and liabilities, other than in a business combination, in a transactiont nor that affects neither the taxable profi t. profi accounting the Deferred tax liabilities are recognised for temporary differences arising on investments in subsidiaries and interests in joint ventures, except where the Group is able control to the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax is calculated at the tax rates based on those enacted or substantially enacted at the statement of nancial position Deferred date. tax is chargedfi or credited in the income statement except when it relates items to charged or credited directly equity, in to which case the deferred tax is also dealt with in equity. Additional taxes arising from the distribution of dividends are recognised at the same time as the liability pay the related to dividend. Leases Leases principally comprise operating leases. Payments made u accountingcant policies nancial assets nancial hen there is a legal or constructive obligation as a result acht from of the cash the generating units expected benefi to A provision for onerous contractsis recognised when the bets to derived from a contractexpected are lower benefi than the unavoidable cost of meeting the obligations under the contract. of a past event and it is probable that an outfl ow of economicof a past event and it is probable that an outfl ts will be required settle to the obligation. If the effectbenefi is material, provisions are determined discounting by the ects ows at a pre-tax that rate refl expected future cash fl current market assessments of the time value of money and, the liability.c to where appropriate, the risks specifi Provisions nancialA provision position is recognised in the statement of fi w An impairment loss is reversed if there has been a change in the estimates resulting in the recoverable amount rising above the impaired carrying value of the asset. An impairment loss is reversed only the extent to that the carrying amount of the assets does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss hadbeen recognised. An impairment loss is recognised whenever the carrying amount of an asset, or its cash-generating unit, is less than the recoverable amount. Impairment losses are recognised statement. income the in The carrying amounts of other assets, except inventories and deferred tax assets, are reviewed at each statement of nancial position determine date to whether there is anyfi indication of impairment. If any such indication exists, the assets recoverable amount is estimated. synergies of thecombination. Cash generating units which to goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash generating unit is less than the carrying amountthe of unit, the impairment rst reduce to the carryingloss amount is allocated of any fi goodwill allocated the unit to and then other to assets of the unit pro-rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. 2 Summary of signifi continued non-fi of Impairment For the purposes of impairment testing, goodwill is allocated to e Financial statements Notes to the fi nancial statements continued

2 Summary of signifi cant accounting policies Adminstration costs of the scheme are recognised in the continued income statement. The interest cost on the scheme’s net Financial guarantee contracts liabilities is included in fi nance expense. Remeasurements Where the Company enters into fi nancial guarantee contracts of the net liability are recognised in the consolidated statement to guarantee the indebtedness of other companies within of comprehensive income. the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect, Obligations for contributions to defi ned contribution pension the guarantee contract is treated as a contingent liability until plans are recognised as an expense in the income statement such time as it becomes probable that a payment under the as incurred. guarantee will be required. Financial assets and liabilities Share capital Financial assets and fi nancial liabilities are recognised in Ordinary shares are classifi ed as equity. Incremental costs the Group’s statement of fi nancial position when the Group directly attributable to the issue of new shares or options are becomes a party to the contractual provisions of the shown in equity as a deduction, net of tax, from the proceeds. instrument.

Dividends (a) Financial assets Dividends are recognised as distributions in the period in Financial assets are classifi ed as available-for-sale fi nancial which they are declared. Dividends proposed but not declared assets and loans and receivables. The classifi cation depends are not recognised but are disclosed in the Note 10 to the on the nature and purpose of the fi nancial assets and is fi nancial statements. determined at the time of initial recognition.

Share-based payments A fi nancial asset is derecognised only when the contractual These comprise equity-settled and cash-settled share-based rights to the cash fl ows from that asset expire, or it transfers compensation plans. the fi nancial asset and substantially all the risks and rewards of ownership of the asset to another entity. Equity-settled share-based payments are measured at fair value at the date of grant and the fair value is expensed over Effective interest method the vesting period, based on the estimate of awards that The effective interest method is a method of calculating the will eventually vest. For cash-settled share-based payments, amortised cost of a fi nancial asset and of allocating interest a liability equal to the portion of the services received is income over the relevant period. The effective interest rate is recognised at its current fair value determined at each the rate that exactly discounts estimated future cash receipts statement of fi nancial position date. Fair value is measured through the expected life of the fi nancial asset, or, where by the use of a Black-Scholes option pricing model. appropriate, a shorter period.

Where options are granted over shares in the Company to Loans and receivables employees of subsidiaries, the Company recognises in its Loans and other receivables with fi xed or determinable fi nancial statements an increase in the cost of investment in payments that are not quoted in an active market are classifi ed its subsidiaries equivalent to the equity-settled share-based as loans and receivables and measured at amortised cost payment charge recognised in its subsidiaries’ fi nancial using the effective interest method, less any impairment. statements, with the corresponding credit being recognised Interest income is recognised by applying the effective interest directly in equity. rate, except for short-term receivables when the recognition of interest would be immaterial. Retirement benefi t obligations A defi ned benefi t pension scheme is operated in the United Trade and other receivables Kingdom, which provides benefi ts based on pensionable Trade and other receivables do not carry interest and are salary. The details are included in Note 20. The assets of the stated at their initial value less impairment losses. scheme are held separately from those of the Group. Impairment of fi nancial assets Pension scheme assets are measured using market values. Estimated recoverable amounts are based on the ageing Pension scheme liabilities are measured using a projected of the outstanding receivable and provisions against individual unit method and discounted at the current rate of return on receivables are recognised when management deems the a high quality corporate bond of equivalent term and currency amounts are not collectible. to the liability. The liability recognised in the statement of fi nancial position in respect of the defi ned benefi t pension scheme is the present value of the defi ned benefi t obligations less the fair value of scheme assets at the statement of fi nancial position date.

98 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 99 hed risk management policies management risk hed Costain Group PLC Annual Report 2013

Fair value hedges that hedge the exposure changes to in the fair value of a recognised asset or liability; or ow hedges thathedge exposure variability to Cash fl in cash ows that is attributable either to a particular riskfl associated with a recognised asset or liability or a forecast transaction. reparation of these fi nancial statements are reviewedreparation on of these fi and classifi ed as follows: as ed classifi and • • For fair value hedges, any gain or loss from re-measuring the hedging instrument at fair value is recognised in the income statement and adjusted against the carrying amount of the item. hedged hedges,ow the portion of the gain orFor loss cash on fl the hedging instrument that is determined be an to effective hedge is recognised in equity, with any ineffective portion ows resultin the income statement. When hedged cash fl nancial asset or liability, thein the recognition of a non-fi associated gains or losses previously recognised in equity are included in the initial measurement of the asset or liability. ow hedges, the gains or lossesFor all that other are cash fl recognised in equity are transferred the income to statement in theow affects same period the in which the hedged cash fl statement. income Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no es for hedge accounting.longer Any cumulative qualifi gain or loss previously recognised in equity is retained in equity until the hedged transaction occurs. If the hedged transaction is no longer expected the net cumulative occur, to gain or loss is transferred the incometo statement. Any gains or losses arising from changes in fair value of nancial instruments not designatedderivative as hedges fi are recognised in the income statement. Signifi Certain derivative fi nancial instrumentsCertainare designated derivative as fi establis with line in hedges The estimates and underlying assumptions used in the p cant areas of judgment and are estimationestimates accounting to Revisions basis. ongoing an recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and periods. future accountingcant policies ncial instruments ncial na air value, net of transaction costs. Financial liabilities are eposits. Bank overdrafts that are repayable on demand and ate whereate the purchase or sale of an investment is under rising from changes in foreign exchange rates, interest rates ubsequently measured at amortised cost using the effective (c) Derivative fi ation and are measured at their fair value. Theand fair infl value of forward exchange contracts is their quoted market value nancial position The date. fair valueat the statement of of fi interest and rate RPI swaps is the estimated amount that would be received or paid terminate to the swap at the nancial position Valuations date. for forwardstatement of fi exchange contracts and interest and rate RPI swaps are determined using valuation techniques supported reference by marketto values for similar transactions. interest method. interest nancial instruments are used manageDerivative to risks fi a Trade payables payables areTrade recognised initially at fair value and s Financial liabilities are derecognised only when the obligations are discharged, cancelled or expire. subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. Where borrowings are the hedged item in an effective fair value hedge relationship, the carryingvalue ect the fair value movements associated is adjusted refl to with the hedged risk. Investments are measured initially at fair value plus transaction costs. (b) liabilities Financial Financial liabilities, including borrowings, are initially measured at f a contract whose terms require delivery of the investment within the timeframe established the by market concerned. Investments Investments are recognised and derecognised on the trade d form an integral part cash of the management Group’s are included as a component of cash and cash equivalents for ows. the purpose of the statement of cash fl 2 Summary of signifi continued (a) Financial assets continued equivalents cash and Cash Cash and cash equivalents comprise cash balances and call d Financial statements Notes to the fi nancial statements continued

2 Summary of signifi cant accounting policies IFRSs not applied continued The following IFRSs having been endorsed, will be applicable Signifi cant areas of judgment and estimation continued in the future: The most critical accounting policies and signifi cant areas of • IAS 27 (Revised) ‘Separate Financial Statements’ will be judgment and estimation arise from the accounting for effective from 2014. This is not expected to have an impact long-term contracts under IAS 11 Construction contracts, on the fi nancial statements. assessments of the carrying value of land and the carrying • IAS 28 (Revised) ‘Investments in Associates and Joint value of goodwill and acquired intangible assets and the Ventures’ will be effective from 2014. This is not expected assumptions used in the accounting for defi ned benefi t to have an impact on the fi nancial statements. pension schemes under IAS 19 Employee benefi ts. • Amendment to IAS 32 ‘Financial Instruments: Presentation’ The majority of the Group’s activities are undertaken via – Offsetting Financial Assets and Financial Liabilities’ – this long-term contracts and these contracts are accounted for amendment clarifi es the application of offsetting criteria in accordance with IAS 11, which requires estimates to be in fi nancial statements. This is not expected to have a made for contract costs and revenues. In many cases, these signifi cant impact on the fi nancial statements. It will be contractual obligations span more than one fi nancial period. effective for 2014. Also, the costs and revenues may be affected by a number • IFRS 10 ‘Consolidated Financial Statements’ – this now of uncertainties that depend on the outcome of future events provides a single model establishing principles for the and may need to be revised as events unfold and uncertainties presentation and preparation of consolidated fi nancial are resolved. statements when an entity controls one or more other entities. This is not expected to have a signifi cant impact Management bases its judgments of costs and revenues and on the consolidated fi nancial statements. It will be effective its assessment of the expected outcome of each long-term for 2014, being adopted as a ‘suite of standards’ (with contractual obligation on the latest available information, this IFRS 11 and 12 and the revisions to IAS 27/28). includes detailed contract valuations and forecasts of the costs to complete. The estimates of the contract position • IFRS 11 ‘Joint Arrangements’ – this could result in changes and the profi t or loss earned to date are updated regularly to the classifi cation of certain jointly controlled operations and signifi cant changes are highlighted through established where the Group accounts for its share of the individual internal review procedures. The impact of any change in assets or liabilities to being equity accounted as associates the accounting estimates is then refl ected in the fi nancial or joint ventures. Currently, it will not affect the Group’s profi t statements. for the period or net assets. It will be effective for 2014, being adopted as a ‘suite of standards’ (with IFRS 10 and 12 and Alcaidesa Holding SA, one of the Group’s joint ventures, the revisions to IAS 27/28). operates in the Spanish real estate market and holds land • IFRS 12 ‘Disclosure of Interests in Other Entities’ – requires and property within its current and non-current assets. The the disclosure of information that enables users of fi nancial company has also developed and operates a marina under statements to evaluate the nature of, and risk associated a long-term concession agreement and has developed and with, its interests in other entities and the effects of those operates two golf courses. At 31 December 2013, a review interests on its fi nancial position, fi nancial performance and of the net realisable value of each of its land holdings has cash fl ows. This is not expected to have a signifi cant impact been undertaken using external professional valuers. A review on the fi nancial statements. It will be effective for 2014, being of the carrying value of the marina and golf course assets adopted as a ‘suite of standards’ (with IFRS 10 and 11 and has been undertaken using a discounted cash fl ow model. the revisions to IAS 27/28). As a consequence of those reviews, write downs in the value • Transition guidance: Amendments to IFRS 10, IFRS 11 of Alcaidesa’s assets of £9.8m (Costain’s share) have been and IFRS 12 – amendments to simplify the transition to refl ected in these fi nancial statements. these standards. Reviewing the carrying value of goodwill and intangible assets The following IFRSs have not been endorsed, but may be recognised on acquisition requires judgments, principally, applicable in the future: in respect of growth rates and future cash fl ows of cash generating units, the useful lives of intangible assets and the • IFRS 9 ‘Financial Instruments’ – classifi cation of fi nancial selection of discount rates used to calculate present values assets for measurement purposes. This is not expected are set out in Note 11. to have a signifi cant impact on the fi nancial statements. There is no current EU adoption date. Defi ned benefi t pension schemes require signifi cant judgments in relation to the assumptions for infl ation, future pension increases, investment returns and member longevity that underpin the valuation. Each year in selecting the appropriate assumptions, the directors take advice from an independent qualifi ed actuary. The assumptions and resultant sensitivities are set out in Note 20.

100 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 101 re £m 9.8 Total 84.3 (4.0) 12.9 381.3 £m costs Central £m Land Development Costain Group PLC Annual Report 2013 £m Infrastructure – – – – – (3.7) (9.8) (3.7) – (9.8) £m 9.1 9.1 – – – 9.1 3.1 3.1 31.4 – (7.1) 27.4 1.0 1.0 1.4 – – 2.4 1.4 1.4 0.9 – – 2.3 0.6 – (2.1) – (1.5) 9.5 30.1 (11.9) (10.8) 16.9 (2.1) (0.7) – – (2.8) (1.2) (0.6) – – (1.8) 73.0 – 1.8 – 74.8 12.8 31.4 (2.1) (7.1) 35.0 397.6 397.6 560.6 1.8 – 960.0 133.3 126.6 26.6 0.7 287.2 Natural Natural 324.6 560.6 – – 885.2 Resources (loss) t/ eciation

ferred tax ferred eportable segment assets xceptional transaction costs 2013 revenue Segment External revenue Share of revenue of joint ventures and associates segmentTotal revenue profi Segment In November 2012, the Group announcedIn November 2012, the formation of the new Natural Resources operating division, encompassing Water, Hydrocarbons and Chemicals, Nuclear Process and sectors. Waste The division combined most of the existing Energy & Process and Environment divisions with somesupport service activities previously in Infrastructure. The new divisional structu 3 Operating segments Operating 3 The Group now has two core business segments (see below): Natural Resources and Infrastructure plus the Land Development operations in Spain. The core segments are strategic business units with separate management and have different core customers or offer different services. This information is provided the Chief to Executive who is the chief operating decision The segmentsmaker. are discussednancial in the Strategic statements. report section of these fi Intersegment sales and transfers are not material. The accounting policies of the operatingsegments are the same as those describedcant accounting in the summary of signifi policies. The Group evaluates segmentt or loss from performance operations before interest on the and basis incomeprofi of tax expense before and after other items. The segment results that are reported the Chief to Executive include items directly attributable a segment to as well as those that can beallocated on a reasonable basis. enables the Group align to itself more closely with its customers’ evolving requirements and combine to furtherits front end process engineering, project delivery and operations capability an into integrated service for customers. Results for the year ended have December been 31 restated for consistency 2012 with 2013. t/(loss) from operations before other items Operating profi t/(loss) profi Operating t on sales of interests in joint ventures and associatesProfi Share of results of joint ventures and associates Profi items: Other E assets intangible acquired Amortisation of consideration deferred related Employment Impairment of assets of joint venture Profi Profi t/(loss) is stated afterSegment charging profi the following: Depr equivalents cash and Cash Total assets t before tax nance expense Net fi t/(loss) operations from Amortisation (including acquired intangible assets) assets Segment R Unallocated assets: Unallocated De Financial statements Notes to the fi nancial statements continued

3 Operating segments continued

Natural Land Central Resources Infrastructure Development costs Total £m £m £m £m £m Expenditure on non-current assets Property, plant and equipment 1.2 0.1 – – 1.3 Intangible assets 0.7 2.9 – – 3.6 Loans to joint ventures and associates 2.2 – – – 2.2

Segment liabilities Reportable segment liabilities 109.7 155.4 – 7.5 272.6 Unallocated liabilities: Retirement benefi t obligations 37.2 Overdrafts 1.6 Borrowings 25.0 Income tax 1.6 Total liabilities 338.0

Natural Land Central Resources Infrastructure Development costs Total 2012 (restated) £m £m £m £m £m Segment revenue External revenue 353.5 494.9 – – 848.4 Share of revenue of joint ventures and associates 84.2 – 1.9 – 86.1 Total segment revenue 437.7 494.9 1.9 – 934.5

Segment profi t/(loss) Operating profi t/(loss) 8.1 23.5 – (7.1) 24.5 Pension liability management – – – (2.8) (2.8) Profi t on sale of interest in joint venture 10.5 – – – 10.5 Share of results of joint ventures and associates 0.9 – (2.3) – (1.4) Profi t/(loss) from operations before other items 19.5 23.5 (2.3) (9.9) 30.8 Other items: Amortisation of acquired intangible assets (0.8) (0.9) – – (1.7) Employment related deferred consideration (1.2) (0.5) – – (1.7) Profi t/(loss) from operations 17.5 22.1 (2.3) (9.9) 27.4 Net fi nance expense (2.7) Profi t before tax 24.7

Segment profi t/(loss) is stated after charging the following: Depreciation 2.0 0.3 – – 2.3 Amortisation (including acquired intangible assets) 0.2 1.6 – – 1.8

Segment assets Reportable segment assets 107.7 125.2 36.0 – 268.9 Unallocated assets: Deferred tax 17.4 Cash and cash equivalents 107.4 Total assets 393.7

102 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – – 103 £m £m £m 1.7 1.7 Total 51.9 49.7 49.7 85.7 85.7 36.0 36.0 95.0 26.6 68.4 assets assets 361.9 361.9 Non-current Non-current £m costs Central £m Land £m £m Total Total revenue segment revenue segment segment Development Costain Group PLC Annual Report 2013 £m £m £m JVs and JVs assoc’s Share of Share JVs and JVs assoc’s Share of Share revenue of Infrastructure revenue of – 1.9 1.9 – 1.8 1.8 £m £m £m 9.5 – 9.5 85.2 74.8 960.0 22.4 22.4 – 22.4 Natural revenue 826.0 826.0 84.2 910.2 848.4 848.4 86.1 934.5 875.7 875.7 73.0 948.7 External External 8 External revenue Resources

ustomers. Segment assets are based on the geographical location of the assets and exclude deferred tax assets.

Rest of the World Customers accounting for more million). than 10% of revenue £116.0 (2012: million £289.6 of revenue for accounted segment Infrastructure one) the in (2012: customers Two Spain Overdrafts taxIncome liabilities Total information Geographical In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of c Segment liabilities Segment Reportable liabilities segment liabilities: Unallocated obligations t benefi Retirement 148.7 146.7 – 11.2 306.6 Expenditure on non-current assets equipment and plant Property, assetsIntangible Loans joint to ventures and associates 2.2 0.3 0.5 – 0.2 3.2 – – – – 5.4 0.8 – – 0.2 3 Operating segments continued segments Operating 3 2012 United Kingdom Spain Rest of the World 2013 Kingdom United Financial statements Notes to the fi nancial statements continued

4 Other operating expenses and income

2013 2012 £m £m Profi t before tax is stated after charging: Amortisation of intangible assets (Note 11) 2.3 1.8 Depreciation of property, plant and equipment (Note 12) 2.4 2.3 Exceptional transaction costs 3.7 – Hire of plant and machinery 27.6 26.8 Rent of land and buildings 5.2 4.0 and after crediting: Profi t on sales of interests in joint ventures and associates 9.1 10.5 Income from sub-leases of land and buildings 0.7 1.1

Costs of £3.7 million associated with the lasped all share merger with May Gurney Integrated Services plc have been shown as exceptional transaction costs within Other items.

In December 2013, the Group sold three minority shareholdings in three joint venture companies to Severn Trent Plc for an aggregate cash consideration of £12.0 million. The three companies were Severn Trent Costain Holdings Limited, Severn Trent Costain Services Limited and Severn Trent Costain Limited. As a result of the sale, the Group realised a profi t of £9.1 million. £1.2 million of fair value adjustments on the PFI fi nancial assets relating to cash fl ow hedges were recycled through the income statement as part of this profi t.

In February 2012, the Group transferred two PFI investments, Integrated Bradford Holdco Two Limited and Lewisham Schools for the Future Holdings 2 Limited, to The Costain Pension Scheme for £20.3 million. The transfer amount was included as a contribution received by the Scheme. As a result of the transfer, £4.0 million of fair value adjustments on the PFI fi nancial assets relating to cash fl ow hedges were recycled through the income statement within the profi t of £10.5 million.

Auditors’ remuneration

2013 2012 £m £m Fees payable to the Group’s auditor for the audit of the annual fi nancial statements 0.1 0.1 Fees payable to the Group’s auditor and its associates in respect of: – Audit of fi nancial statements of subsidiaries of the Company 0.3 0.3 – Other tax advisory services 0.1 0.1 – Transaction related services not covered above 1.6 0.3 2.1 0.8

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 fi nancial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.

104 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 105 £m £m £m 2.1 0.1 1.4 1.0 0.7 0.7 0.6 0.3 22 d 8.1 8.1 (1.9) (1.8) (2.7) (3.7) 2.9 2012 2012 2012 2012 16.1 4,283 2,129 2,129 2,132 2,132 estated) 153.7 180.8 Number (r 22 22 £m £m £m 0.1 0.1 0.1 1.6 0.7 0.7 0.7 0.6 2.4 7.1 2.7 2.7 (2.1) (4.7) 2013 2013 2013 2013 (4.0) (2.6) 16.2 1,397 3,620 3,620 2,201 2,201 177.4 151.4 Number Costain Group PLC Annual Report 2013

t expense t

nanceexpense income expense security costs tral rastructure f the above employees 292 were employed overseas 1,012). (2012: ains made on the exercise of share-based plans et fi nance expense et fi hare-based payments expense (Note 20) ost-employment benefi ts benefi ost-employment ension costs (Note 20) nterest income on loans related to parties nterest payable on bank overdrafts, interest bearing loans, borrowings and other similar charges nterest cost on the net liabilities of the defi ned benefi t pension scheme (Note 20)ned benefi nterest cost on the net liabilities of the defi I Interest income on loans related to parties relates shareholder to loan interest receivable from investments in equity accounte joint ventures and associates. and ventures joint

N

G Finance I I Interest income from bank deposits 7 Net fi Remuneration Natural Resources Natural Inf P For the purpose of the disclosure required Schedule by the Companies 5 to Act 2006, the aggregate total emoluments of the are detaileddirectors and below. in 2012 respect of 2013 6 Remuneration of directors Detailsof the directors’ remuneration, pension entitlements, Incentive interest Plans, in the Deferred Long-Term Share Bonus Plans and share options are included in the Directors’ remuneration report. Social Average number of persons employed Wages and salaries 5 Employee benefi Group O Finance S P Cen Company Company The Company does not employ any personnel, except for the directors considered in 6. Note

Financial statements Notes to the fi nancial statements continued

8 Income tax

2012 2013 (restated) £m £m On profi t for the year United Kingdom corporation tax at 23.25% (2012: 24.5%) – Adjustment in respect of prior years 0.1 0.1 Current tax credit for the year 0.1 0.1 Deferred tax charge for current year (1.4) (1.9) Adjustment in respect of prior years 0.9 0.2 Deferred tax charge for the year (0.5) (1.7)

Income tax expense in the consolidated income statement (0.4) (1.6)

2012 2013 (restated) £m £m Tax reconciliation Profi t before tax 12.9 24.7

Income tax at 23.25% (2012: 24.5%) (3.0) (6.1) Share of results of joint ventures and associates at 23.25% (2012: 24.5%) (2.6) (0.3) Disallowed provisions and expenses (0.1) (0.2) Non-taxable gains and profi ts relieved by capital losses 2.2 2.6 Utilisation of previously unrecognised temporary differences 0.7 1.5 Rate adjustments relating to deferred taxation and overseas profi ts and losses 1.4 0.6 Adjustments in respect of prior years, mainly research and development tax relief claims 1.0 0.3 Income tax expense in the consolidated income statement (0.4) (1.6)

Effective rate of tax 3.1% 6.5%

The income tax above does not include any amounts for equity accounted joint ventures and associates, whose results are disclosed in the consolidated income statement net of tax.

The current tax liabilities of £1.6 million (2012: £1.7 million) for the Group and £1.5 million (2012: £1.7 million) for the Company represent the amount of income taxes in respect of all outstanding periods.

Accumulated tax losses carried forward, mainly in the United Kingdom, were £5.3 million (2012: £5.3 million).

2013 2012 Deferred tax asset recognised at 21.0% (2012: 23.0%) £m £m Accelerated capital allowances 1.6 1.7 Short-term temporary differences – 3.5 Retirement benefi t obligations 7.9 11.9 Tax losses 0.3 0.3 Deferred tax asset 9.8 17.4

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

106 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – – – – – 107 ed £m £m 2.4 2.2 (1.7) lion. (0.1) (0.7) (0.2) 2012 2012 (3.6) 17.4 17.4 56.9 241.0 – – – – – £m £m 1.1 1.1 9.8 (1.3) 2013 2013 (1.2) (0.4) 17.4 (0.5) (0.5) (5.3) 56.9 56.9 241.0 241.0 Company £m 3.0 3.9 2012 21.3 28.2 56.9 275.0 Costain Group PLC Annual Report 2013 £m 3.3 3.3 3.8 3.8 2013 29.1 29.1 56.9 56.9 22.0 22.0 275.0 275.0 Group

consolidated changes in equity statement in changes consolidated e year-end on the basis that their future economic benefi ts were not assured at the statement of fi nancial positione year-end onts were date. the not basis assured that their at the statement future economic of fi benefi 1 December1 erred tax recognised directly in the the in directly recognised tax erred erred tax in consolidated income statement income consolidated tax in erred pital losses tirement benefi t obligations t benefi tirement mporary differences eferred tax relating to business combinations eferred tax in other comprehensive income and expense statement hort-term temporary differences hort-term temporary differences he current year tax effect of using at 23.25% the above short-term temporary differences and trading tax losses was rading tax losses rading tax losses n addition the above to temporary differences, the following deferred S Short-term temporary differences At 3 I gross tax assets are available. Management expenses and charges incurred parent by Company T Accelerated capital allowances ect the proposed A further tax would from of 20.0% rate reduce 1 April reduction the deferred 2015 refl to tax asset £0.5 by mil if suitable profi ts arise in the future. if suitable profi There are no expiry dates associated with the deferred tax assets, recognised and not recognised, and tax relief will be obtain £0.7 million (2012: £1.5 million) as detailed in the tax reconciliation above. tax the reconciliation million) in detailed as £1.5 (2012: million £0.7 T S Accelerated capital allowances Gross deferrednancial tax position assets not recognised date were as follows: at the statement of fi At 1 JanuaryAt 8 Income tax continued Analysis of deferred tax movements D Transfer in respectTransfer of acquired intangible assets Def Re Retirement benefi t obligations t benefi Retirement Def T Ca Te Factors that may affect future tax charges The Group and Company have potential deferred tax assets in their United Kingdom operations that have not been recognised at th D Financial statements Notes to the fi nancial statements continued

9 Earnings per share The calculation of earnings per share is based on profi t of £12.5 million (2012: £23.1 million (restated)) and the number of shares set out below.

2013 2012 Number Number (millions) (millions) Weighted average number of ordinary shares in issue for basic earnings per share calculation 66.3 65.3 Dilutive potential ordinary shares arising from employee share schemes 2.6 2.3 Weighted average number of ordinary shares in issue for diluted earnings per share calculation 68.9 67.6

At 31 December 2013, all options were included in the diluted weighted average number of ordinary shares calculation (2012: all).

10 Dividends

Dividend per share 2013 2012 pence £m £m 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 Final dividend for the year ended 31 December 2012 7.25 4.7 – Interim dividend for the year ended 31 December 2013 3.75 2.5 – Amount recognised as distributions to equity holders in the year 7.2 6.7 Dividends settled in shares (0.5) (0.5) Dividends settled in cash 6.7 6.2

A fi nal dividend in respect of the year ended 31 December 2013 of 7.75p per share, amounting to a dividend of £5.2 million, is to be proposed at the Annual General Meeting. If approved, the dividend is expected to be paid on 25 April 2014 to shareholders registered at the close of business on 14 March 2014 and a scrip dividend alternative will be offered. These fi nancial statements do not refl ect the fi nal dividend payable.

11 Intangible assets

Other Customer acquired Software & Goodwill relationships intangibles development Total Group £m £m £m £m £m Cost 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 At 1 January 2013 15.2 4.1 1.7 5.3 26.3 Acquired through business combinations 7.1 4.5 1.4 – 13.0 Additions – – 2.4 1.2 3.6 At 31 December 2013 22.3 8.6 5.5 6.5 42.9 Amortisation 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 At 1 January 2013 – 2.2 0.4 5.0 7.6 Provided in year – 0.4 1.4 0.5 2.3 At 31 December 2013 – 2.6 1.8 5.5 9.9

Net book value At 31 December 2013 22.3 6.0 3.7 1.0 33.0 At 31 December 2012 15.2 1.9 1.3 0.3 18.7 At 1 January 2012 15.2 3.4 1.5 0.2 20.3

108 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 % 109 : e

Natural Resources % 1.51.5 2.5 1.5 2.5 2.5 Infrastructure Costain Group PLC Annual Report 2013 £2.4 million. The joint venture arrangement, in which Costain which in arrangement, venture The joint million. £2.4 continued Years 3-4 Growth rates Growth based on internal value in use calculations of the cash generating unit (‘CGU’). The assumptions key for these calculations are Year 5 average Long-term December basedAs at 31 on these internal 2013, valuations, the recoverable value of goodwill exceeded the carrying amounts a comfortableby amount. 11 Intangible assets assets Intangible 11 In the December Group acquired interest 2013, the from 27% its partner Serco Group plc in their Managed Motorway of consideration cash a arrangement for venture joint Technology As described the Group in 2, Note reviews the valueed impairment of goodwill and risks, in the absence tests ar of any identifi nancialow forecasts forecasts derivedThe Group for the from following prepares the most recent two cash years fi fl and ows based on the followingextrapolates internal assessments those cash fl of the annual growth rates attributable the CGUs: to The net book value of other acquired intangible assets comprises £3.6 million (2012: £0.8 million) relating to order book, £Nil book, order to million) £0.8 relating (2012: million comprises £3.6 assets intangible acquired other of value book The net (£5.5 million) and Infrastructure the within ed identifi units applicable generating cash the to been allocated has Goodwill million) reporting segments. (£16.8 Resources Natural Discountect rates current have been estimated market assessments based on pre-tax weighted of the Group’s rates that refl ows for the CGU in the Theaverage CGU. c to used rate cost discount to of capital the forecast and the risks cash specifi fl Infrastructure and for the CGU was 10.5% in Natural Resources was 12.5%. already held the remaining interest, 73% has a place on the Highways Agency framework deliver to new technology-led highways improvements. manpower. £Nil) to relating (2012: million £0.1 and value brand to million) £0.5 relating (2012: discount rates, growth rates and expected changes revenue to and direct costs during the period. Financial statements Notes to the fi nancial statements continued

12 Property, plant and equipment

Land and Plant and buildings equipment Total Group £m £m £m Cost At 1 January 2012 0.9 23.2 24.1 Additions – 0.8 0.8 Disposals – (1.7) (1.7) At 31 December 2012 0.9 22.3 23.2 At 1 January 2013 0.9 22.3 23.2 Additions – 1.3 1.3 Disposals – (1.3) (1.3) Acquired through business combinations – 0.1 0.1 At 31 December 2013 0.9 22.4 23.3 Depreciation At 1 January 2012 0.6 12.1 12.7 Provided in year –2.32.3 Disposals – (0.9) (0.9) At 31 December 2012 0.6 13.5 14.1 At 1 January 2013 0.6 13.5 14.1 Provided in year – 2.4 2.4 Disposals – (1.1) (1.1) At 31 December 2013 0.6 14.8 15.4

Net book value At 31 December 2013 0.3 7.6 7.9 At 31 December 2012 0.3 8.8 9.1 At 1 January 2012 0.3 11.1 11.4

110 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 111 £m 0.1 0.1 0.1 0.1 0.1 Total 4.0 4.0 1.2 1.2 (1.4) (0.4) (0.6) (1.3) (0.2) (18.7) (20.4) (11.3) (18.7) (30.1) £m Associates Loans £m Joint ventures Joint Costain Group PLC Annual Report 2013 £m Associates – (0.4) – 4.0 – – 0.1 (1.3) – – (0.2) – 1.2 – (3.6) – 4.0 0.4 – (0.1) – (1.0) (1.1) – – (0.6) – 4.9 – – – 1.3 – (1.3) (4.9) – – – (0.9) – – 0.9 0.4 – (0.4) – – 1.3 – (0.9) 0.4 £m 0.1 0.1 – 0.2 0.2 (0.1) 2.7 – – 2.2 4.9 (2.3) 0.9 27.1 27.1 0.2 – 4.8 32.1 21.4 21.4 1.4 13.7 6.4 42.9 (0.3) – – – (0.3) 36.1 36.1 1.6 – 2.7 40.4 57.3 57.3 0.1 – 4.8 62.2 54.9 0.2 – 3.6 58.7 (16.7) (3.7) (18.8) 0.1 (11.5) 0.2 (18.8) 0.1 (30.2) 0.1 Joint ventures Joint Investments

ions cat 1 December1 2013 t 1 January 2012 t 1 January 2012 During the loan Alcaidesa to 2012, Holding SA, including outstanding interest, was converted into equity.

Currency realignment Currency Disposals Dividends (Loss)/profi t for the year (Loss)/profi Cash fl ow hedges – change in fair value Cash fl Cash fl ow hedges – disposals Cash fl DecemberAt 31 2013 Reclassifi Cost or fair value 1 JanuaryAt 2012 realignmentCurrency AdditionsDisposalTransfer* December 31 At 2012 1 JanuaryAt 2013 realignment Currency Additions Disposal DecemberAt 31 2013 reserves post-acquisition of Share A 38.1 (0.8) 0.2 – 54.9 13.7 (0.5) – 0.2 11.3 – 17.6 – 63.3 – – – – (1.3) 3.2 (16.4) 3.6 – 2.2 58.7 – (9.9) 5.4 1.2 (9.9) Group 13 Investments13 and loans in subsidiaries, equity accounted joint ventures and associates At 1 JanuaryAt 2013 Currency realignment Currency Dividends t for the year (Loss)/profi December 31 At 2012 Cash fl ow hedges – change in fair value Cash fl ow hedges – disposals Cash fl Arising in the year December 2012 31 At 1 JanuaryAt 2013 Arising in the year DecemberAt 31 2013 Net book value At 3 At 1 JanuaryAt 2012

* At 31 December 31 At 2012 A Financial statements Notes to the fi nancial statements continued

13 Investments and loans in subsidiaries, equity accounted joint ventures and associates continued Analysis of Group share of joint ventures and associates revenue, income and assets and liabilities

2013 2012 Alcaidesa Other joint Alcaidesa Other joint Holding SA ventures Associates Total Holding SA ventures Associates Total £m £m £m £m £m £m £m £m Revenue 1.8 43.1 29.9 74.8 1.9 52.9 31.3 86.1 (Loss)/profi t before tax (11.9) 0.4 0.3 (11.2) (2.3) – 1.3 (1.0) Income tax – – (0.1) (0.1) – – (0.4) (0.4) (Loss)/profi t for the year (11.9) 0.4 0.2 (11.3) (2.3) – 0.9 (1.4) Non-current assets 18.4 – 0.8 19.2 20.0 – 0.9 20.9 Current assets 19.6 18.3 41.2 79.1 29.5 15.3 58.9 103.7 Current liabilities (2.6) (17.8) (15.9) (36.3) (3.4) (15.2) (10.3) (28.9) Non-current liabilities (8.8) – (25.9) (34.7) (10.1) – (47.9) (58.0) Investments in joint ventures and associates 26.6 0.5 0.2 27.3 36.0 0.1 1.6 37.7

Financial commitments – – – – – – 2.3 2.3 Capital commitments – – – – – – 2.2 2.2

During 2013, the Group has re-assessed the carrying value of the assets in its non-core Land Development activity in Spain, which is undertaken in a 50:50 joint venture with Santander Bank. As a consequence of continuing uncertainty regarding future market conditions in Spain, a non-cash impairment has been taken against the assets, the Group’s share of which is £9.8 million, reducing Costain’s total carrying value in the joint venture to £26.6 million.

Net interest payable by joint ventures and associates in 2013 was £1.0 million (2012: £1.7 million payable). The applicable interest rates are income of 0.2% to 6.5% per annum (2012: 0.2% to 6.1%) and expense of 1.7% to 11.5% per annum (2012: 5.4% to 11.5%).

The fi nancial commitments related to associates involved in PFI schemes and the capital commitments to ongoing construction works. All fi gures are the Group’s share.

Analysis of the total revenue, income, assets and liabilities of joint ventures and associates

2013 2012 Alcaidesa Other joint Alcaidesa Other joint Holding SA ventures Associates Total Holding SA ventures Associates Total £m £m £m £m £m £m £m £m Revenue 3.7 105.1 93.6 202.4 3.7 126.3 99.1 229.1 (Loss)/profi t before tax (23.7) 0.8 0.7 (22.2) (4.6) 0.1 5.7 1.2 Income tax – – (1.0) (1.0) – – (1.8) (1.8) (Loss)/profi t for the year (23.7) 0.8 (0.3) (23.2) (4.6) 0.1 3.9 (0.6) Non-current assets 36.8 – 2.1 38.9 38.7 – 2.3 41.0 Current assets 39.3 43.1 103.1 185.5 59.6 34.9 178.5 273.0 Current liabilities (5.3) (41.9) (39.6) (86.8) (6.8) (34.6) (32.2) (73.6) Non-current liabilities (17.6) – (64.8) (82.4) (20.2) – (142.7) (162.9) Equity 53.2 1.2 0.8 55.2 71.3 0.3 5.9 77.5

Details of the principal subsidiary undertakings, joint ventures, jointly controlled operations and associates are shown in Note 24.

112 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – – – – – .2 113 £m £m 2.9 0.9 3.5 2012 2.7 2.7 97.9 97.9 39.0 39.0 39.9 39.9 95 he (32.6)

121.4 (272.7) 394.1 394.1 367.1 367.1 364.4 364.4 (269.2) 364.4 364.4 (269.2) (269.2) – – – – – £m 1.0 2013 continued 51.3 50.3 50.3 Company – £m 0.8 2012 17.5 12.8 15.9 79.0 73.0 181.5 Costain Group PLC Annual Report 2013 – £m 5.3 5.3 2.4 2.4 2013 87.4 87.4 15.2 80.3 80.3 22.0 22.0 190.6 Group s included in non-current assets non-current in included s 1 December1 2013 payments and accrued income ther receivables ther mounts owed joint by ventures and associates mounts due from customers for contract work mounts owed subsidiary by undertakings t 31 December 2013, amounts Decembert 31 due from customers 2013, for contract work falling due within one year include retentions t 1 January 2012 A With respect trade receivables to that are neither impaired nor past due, there are no indications at the reporting that date t of £20.6 million (2012: £22.8 million) relating to long-term contracts in progress. Other receivables falling due after more more after due Other receivables falling progress. in contracts long-term to million) relating £22.8 (2012: million £20.6 of progress. in contracts long-term to million) relating £17.0 (2012: million £21.5 of retentions include year one than payment obligations will not be The met. directors consider that the carrying amount of trade, other receivables andamounts owed joint by ventures and associates approximates their to fair value. A Amount Pre A At 31 DecemberAt 31 2013 Amounts written off A At 1 JanuaryAt 2013 Additions Disposal December 31 At 2012 Additions Cost 1 JanuaryAt 2012 13 Investments13 and loans in subsidiaries, equity accounted joint ventures and associates Company subsidiaries in Investments At 31 DecemberAt 31 2013 Net book value At 3 Amounts included in current assets current in included Amounts receivables Trade 14 Trade and Trade other14 receivables Provided December 31 At 2012 1 JanuaryAt 2013 December 31 At 2012 1 JanuaryAt 2012 Detailsof the principal subsidiaries in which the Company has an interest are set out in 24. Note Additions the relate increase to in the cost of investments in subsidiaries the by equivalent amount of the equity settled share-based payment charge in relation employees to of subsidiaries included in the income statement. O Other Other A Financial statements Notes to the fi nancial statements continued

14 Trade and other receivables continued The average credit period within trade receivables on amounts billed for construction work and on sales of goods is 33 days (2012: 33 days). The analysis of the due dates of the trade receivables was £76.1 million (2012: £65.3 million) due within 30 days, £8.8 million (2012: £4.6 million) due between 30 and 60 days and £2.5 million (2012: £3.1 million) due after 60 days.

These balances include receivables, with a carrying amount of £5.0 million (2012: £6.8 million), which are past due at the reporting date and for which no provision has been made as there has been no signifi cant change in credit quality and the amounts are considered recoverable. No collateral is held over these balances. The analysis of the overdue amounts was £2.8 million (2012: £3.0 million) overdue by less than 30 days, £0.5 million (2012: £0.9 million) overdue by between 30 and 60 days and £1.7 million (2012: £2.9 million) overdue by more than 60 days.

The provision for impairment of trade and other receivables is £6.9 million (2012: £6.7 million).

The aggregate amount of costs incurred plus recognised profi ts, less recognised losses, for all contracts in progress at the statement of fi nancial position date was £2,782.6 million (2012: £2,753.2 million). Progress billings and advances received from customers under open construction contracts amounted to £2,728.8 million (2012: £2,707.8 million). Advances for which work has not started, and billings in excess of costs incurred and recognised profi ts are included in credit balances on long-term contract (Note 18).

15 Cash and cash equivalents Cash and cash equivalents are analysed below, and include the Group’s share of cash held by jointly controlled operations of £25.6 million (2012: £29.6 million).

Group Company 2013 2012 2013 2012 £m £m £m £m Cash and cash equivalents 84.3 107.4 – 30.0 Bank overdrafts (1.6) (1.7) – – Cash, cash equivalents and overdrafts in the cash fl ow statement 82.7 105.7 – 30.0

16 Interest bearing loans and borrowings

Group Company 2013 2012 2013 2012 £m £m £m £m Revolving Credit Facility 25.0 – 25.0 –

The Group’s borrowings facilities are described in Note 17.

17 Financial instruments – Fair values and risk management a) Risk management The Group’s centralised treasury function manages fi nancial risk, principally arising from liquidity and funding risks and movements in foreign currency rates, interest rates and infl ation rates, in accordance with policies agreed by the directors.

The Group does not enter into speculative transactions.

The Company does not have any forward foreign currency contracts or other derivatives. i) Capital Management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern and to provide resources to grow the business, in order to provide returns for shareholders and other stakeholders. The current capital base of the Group is driven by equity capital from shareholders and retained earnings. The Board of directors (‘Board’) continues to explore options to strengthen the Group by growing the business and improving profi tability; the Strategic report describes the Group’s strategy and its operations. It is the Board’s policy to progressively increase dividends paid to shareholders based on growth in underlying earnings per share after taking account of the investment and capital needs of the business. There were no changes in the Board’s approach to capital management during the year.

114 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

115 £m ed

2.5 s 2012

420.0 tly £m 2.5 2.5 2013 400.0 400.0 Group and Company Costain Group PLC Annual Report 2013 continued

ement of above facilities available for borrowings t 31 December 2013, the utilisation of these bonding facilities amounted to £157.1 million (2012: £144.4 million). £144.4 (2012: million £157.1 to amounted facilities bonding these of utilisation the December 2013, 31 t nly if that assessment is satisfactory. Deposits in the United Kingdom are placed with the bank facility providers in join or, re United Kingdom balances denominated in Pounds sterling. rise in A 1% interest rates would have increased the annual ramework manage to funding requirements. The Group has cash balances in the United Kingdom and Overseas and bank borrowings Overseas. The largest constituents a iv) Interest rate risk risk rate Interest amounts duenancial from customers position. for contract Further work in information the statement of fi on the exposure to credit risk is set out in 14. Note iv) controlled operations, with banks agreed the by partners. Overseas deposits are placed with major banks operating in those nancialcountries. instruments Transactions involving are with bank derivative or insurance fi company counter-parties with high nancialnancial instruments, theby carrying asset, including and the individual derivative amounts of each fi fi constituents of No interest hedging rate is currently undertaken the by Group. At the year-end date, there were no signifi cant concentrations of credit theAt year-end there date, were risk. no signifi The maximum exposure credit to risk is represent million). £1.0 (2012: million £0.5 balances cash by net on income interest * El 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 meet to its obligations. Expiring between two and fi ve years*Expiring between two and fi At 31 December 2013, the Group has banking and bonding facilities, including a £95 million Revolving Credit Facility, extending Facility, Credit £95 a Revolving including million facilities, bankingbonding and has Group the December 2013, 31 At facilities bonding Unsecured Customers awarding long-term contracting as a condition work may, of the award, require the contractor provide to performance and other bonds. Consequently, the Group is reliant on its ability secure to bank and surety bonds. It has facilities inplace to provide these bonds and monitors the usage and regularly updates the forecast usage of these facilities. The facilities were renegotiated andnancial 30June theto term 2017. extended covenant during The facilities the year. have fi interestt, cover and leverage measuredbased quarterly. on profi The average month end net cash balance during the year was £50.7 million (2012: £103.4 million). £103.4 (2012: million £50.7 was year the balance during cash net end month The average Liquidity risk is managedle monitoring by of actual and forecastandows the maturity short profi and medium termcash fl nancial assets and liabilities and maintaining by fi adequate cash reserves.ows The nature and timing of the contract cash fl causes the cash balances vary to over the month with the balance usually highest at the month end. 17 Financial17 instruments – Fair values and risk management continued management Risk a) ii) Liquidity and funding risk Ultimate responsibility for liquidity and funding risk rests with the Board, which has put in place a monitoring and reporting f A iii) Credit risk iii) Credit The Group uses an external credit scoring assess system to a potential credit customer’s quality and will enter a contract into o Financial statements Notes to the fi nancial statements continued

17 Financial instruments – Fair values and risk management continued a) Risk management continued v) Foreign currency risk Transactional currency exposures arise from sales or purchases by operating companies in currencies other than their functional currency. The current strategy is to hedge both committed and forecast foreign currency exposures, where applicable, and where the transaction timing and amount can be determined reliably and no natural hedge exists. The Group only enters into forward contracts when a contractual commitment exists in respect of the foreign currency transaction and the Group’s policy is to negotiate the terms of the hedge derivative to match the terms of the hedged item to maximise hedge effectiveness.

Investments in joint ventures includes the Group’s investment in Alcaidesa Holding SA, a company based in Spain and denominated in Euro. At the year-end, the net carrying value of the equity investment was £26.6 million (2012: £36.0 million). A 10% strengthening in the Euro would have favourably impacted the statement of fi nancial position favourably by £3.0 million (2012: £4.0 million). A 10% strengthening in the Euro would have adversely impacted the results by £1.3 million (2012: £0.3 million).

In addition, a 10% strengthening in the UAE Dirham would have adversely impacted the results by £0.2 million (2012: £0.4 million) and at 31 December 2013, the net monetary assets denominated in currencies other than the functional currency of the operation involved were Euro denominated net monetary assets of £0.1 million (2012: £Nil) in members of the Group with sterling as their functional currency. b) Cash fl ow hedges Foreign currency contracts are measured using quoted forward exchange rates and yield curves derived from quoted interest rates matching maturities of the contracts.

At 31 December 2013, the Group had foreign currency contracts (seven purchase contracts (2012: 22) and fi ve sale contracts (2012: four)) designated as hedges of future transactions.

Forward currency contracts that hedge forecast transactions are classifi ed as cash fl ow hedges and stated at fair value based on a Level 2 valuation method. These amounts were recognised as fair value derivatives. The terms of the foreign currency contracts match the terms of the commitments. There were no ineffective hedges at the year-end (2012: Nil).

The foreign currency sale and purchase contracts outstanding at 31 December 2013 are summarised below. The carrying value represents the fair value of the contract; the contractual cash fl ows represent the sterling commitments.

Foreign exchange contracts

2013 2012 Between Between Carrying Contractual Within one and Carrying Contractual Within one and amount cash fl ows one year fi ve years amount cash fl ows one year fi ve years £m £m £m £m £m £m £m £m Purchases – (1.8) (1.8) – (0.3) (7.6) (7.6) – Sales (0.1) 1.4 – 1.4 0.1 2.6 2.6 – (0.1) (0.4) (1.8) 1.4 (0.2) (5.0) (5.0) –

The expected impact on the income statement of the foreign exchange contracts is a loss of £Nil in 2014. c) Maturity of PFI swaps Interest rate swaps are measured at the present value of the future cash fl ows estimated and discounted based on the applicable yield curves derived from quoted interest rates.

At 31 December 2013, the Group had no interest rate swaps outstanding. At 31 December 2012, PFI project companies, in which the Group had an interest and recorded as investments in associates, had entered into the following swaps to hedge the interest rate risk of bank loans. These swaps are classifi ed as cash fl ow hedges and stated at fair value based on a Level 2 valuation method. The fair value will reverse over the life of the swaps. There were no ineffective hedges at the end of 2012.

116 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

117 £m £m After After

fi ve ve years fi fi ve yearsve fi £m £m one and and one one and and one Between Between Between Between fi ve ve years fi fi ve ve years fi hin hin £m £m Wit Wit one year one one year one Costain Group PLC Annual Report 2013 £m £m 1.1 1.1 1.1 – – 1.0 1.0 0.1 0.3 0.6 2.7 2.7 2.7 0.1 0.1 0.5 0.5 2.1 2.1 1.3 1.3 0.1 0.4 0.8 Total Total 2.3 2.3 2.3 – – 0.2 0.2 0.2 – – (0.3) – (0.1) (0.2) 107.4 107.4 107.4 – – 104.1 104.1 86.6 17.5 – 101.8 101.8 84.3 17.5 – 106.1 106.1 106.1 – – 214.2 214.2 194.1 18.0 2.1 2012 2012 £m £m continued After After ve years ve years ve fi fi £m £m

one and one one and Between Between ve years ve years ve fi fi hin hin hin hin £m £m Wit Wit one year one one year one – – – – – – – – – – – –

£m £m 0.3 0.3 – – 4.8 4.8 0.2 0.2 0.9 0.9 3.7 3.7 0.2 0.2 – – 2.2 2.2 – – Total Total 84.3 84.3 84.3 – – 83.8 83.8 83.8 – – 117.1 117.1 95.1 22.0 – 114.9 114.9 92.9 22.0 – 206.2 179.6 22.9 3.7 2013 2013

nancial assets assets nancial E Dirham tal fi ans joint to ventures ss tax her her hese amounts (net tax) of were recognisedas fair value derivatives within the value of the investment. ad interest swaps rate (see (c) above), which were included within the valuation of investments in associates. rade, other receivables nstruments measured at amortised cost should be distinguished from instruments measured at fair value. T and associates: and Pounds sterling Le i) Currency and maturity of fi nancial assets i) Currency and maturity of fi Financial assets not measured at fair value Ot Financial assets measured at fair value nancial assets measured the the December Group Group at fair December 31 doesAt value. 31 At not have any 2013, fi 2012, h carrying interest rates above 10% may be higher than their carrying values of £4.8 million (2012: £2.7 million), but not by by million), not but £2.7 (2012: million carrying their £4.8 than higher be of values may 10% above carrying rates interest a material amount. The Group has not disclosed the fair values for short-term trade receivables and amounts due from joint ventures and associates within fi nancial assets, because theirwithin carrying fi amounts are a reasonable approximation of fair values. The fair values of loans T To d) Financial assets and liabilities as a minimumne ‘classes’, nancial Although instrumentsThe IFRS ‘classes’. Group into 7 does has not defi grouped its fi i

not measured not value fair at Interest rate swaps rate Interest 17 Financial17 instruments – Fair values and risk management c) Maturity of PFI swaps continued

UA Cash and cash equivalents: cash and Cash Pounds sterling and amounts owed joint by ventures and associates: Pounds sterling Ot Lo Financial statements Notes to the fi nancial statements continued

17 Financial instruments – Fair values and risk management continued d) Financial assets and liabilities continued ii) Currency and maturity of fi nancial liabilities Financial liabilities not measured at fair value

2013 2012 Between Between Within one and Within one and Total one year fi ve years Total one year fi ve years £m £m £m £m £m £m Bank overdrafts – UAE Dirham 1.6 1.6 – 1.7 1.7 – Revolving Credit Facility – Pounds sterling 25.0 25.0 – – – –

Trade and other payables: Pounds sterling 112.1 111.0 1.1 139.0 135.3 3.7 UAE Dirham 0.4 0.4 – 5.2 5.2 – 112.5 111.4 1.1 144.2 140.5 3.7

Total fi nancial liabilities not measured at fair value 139.1 138.0 1.1 145.9 142.2 3.7

The Group has not disclosed the fair values for short-term trade and other payables and bank overdrafts within fi nancial liabilities, because their carrying amounts are a reasonable approximation of fair values. Valuing the Revolving Credit Facility under a Level 2 valuation method gives the same value as the carrying value.

Financial liabilities measured at fair value

2013 2012 Between Between Within one and Within one and Total one year fi ve years Total one year fi ve years £m £m £m £m £m £m Deferred consideration – Pounds sterling 6.9 3.7 3.2 3.8 2.5 1.3 Total fi nancial liabilities measured at fair value 6.9 3.7 3.2 3.8 2.5 1.3

The deferred consideration is valued at a Level 3 valuation method. The fair value is the same as the carrying value. See (e) ‘Measurement of fair value’ below. iii) Reconciliation of trade and other receivables and trade and other payables to the statement of fi nancial position

2013 2012 Current Non-current Current Non-current £m £m £m £m Trade and other receivables (as above) 95.1 22.0 86.6 17.5 Amounts due from customers 80.3 – 79.0 – Prepayments and accrued income 15.2 – 15.9 – 190.6 22.0 181.5 17.5

2013 2012 Current Non-current Current Non-current £m £m £m £m Trade and other payables (as above) 111.4 1.1 140.5 3.7 Deferred consideration (as above) 3.7 3.2 2.5 1.3 Credit balances on long-term contracts 6.0 – 7.6 – Accruals and deferred income 145.0 – 147.0 – 266.1 4.3 297.6 5.0

118 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 119 t 2012 0.0% to 1.2% 10.0% to 11.5% to 10.0% 2013 The estimated fair value would (decrease) if: increase the annual revenue growth rate (lower); higher were the EBITDA margin were higher or (lower); the risk-adjusted discount rate were lower (higher). Generally, a change in the annual revenue growth is rate accompanied a directionallyby similar change EBITDA. in Inter-relationship between signifi cant cant signifi between Inter-relationship unobservable inputs and fair value measurement Costain Group PLC Annual Report 2013 0.0% to 0.5%0.0% to 10.0% to 11.5% continued Not applicable.Not applicable. Not Signifi cant unobservable inputs cant Signifi Forecast annual revenue growth – 35%) 25 (2013: rate Forecast EBITDA margin – 20%) 15 (2013: Risk-adjusted discount rates – 12.9%) (12.7 continued Market comparison technique: technique: comparison Market The fair values are based on broker quotes. Similar contracts are traded in an active market ect the actual and quotes refl transactions in similar instruments. The valuationmodels consider the present value of the based payment expected EBITDA and forecaston 2013 EBITDA for the next two years, risk- a using discounted discountadjusted rate. Valuation technique Valuation ans joint to ventures and associates nobservable inputs used. ) Valuation techniques and signifi cant unobservable ) Valuation techniques inputs and signifi Cash fl ow hedges ow Cash fl and interest rate (PFI) swaps Deferred considerationDeferred ows: fl cash Discounted Type u value fair at measured instruments Financial The following tables show the valuation techniques used in measuringcan Level 3 and Level 2 fair values, as well as the signifi Lo value fair of e) Measurement i The Company’s fi nancial liabilities comprised the Revolving Credit Facility of £25.0 million (2012: £Nil) and trade and other £Nil) other and trade and (2012: million £25.0 of Facility Credit Revolving the comprised liabilities nancial fi The Company’s year. one within maturing and sterling Pounds in million) denominated £84.0 (2012: million £49.3 of payables Financial liabilities Financial The Group has overdraft facilities and a Revolving Credit Facility. Theseoating are rates, unsecured and carry interest at fl at a margin over LIBOR, or in the case of the overdraft in Abu Dhabi at a margin over EIBOR. receivables other and million) trade and £30.0 £Nil of (2012: bank at cash comprised assets nancial fi Company’s The year. one within maturing and sterling Pounds in million) denominated £39.0 (2012: million £50.3 of Financial assets Financial equivalents cash and Cash 17 Financial17 instruments – Fair values and risk management d) Financial assets and liabilities nancial assets and liabilitiesiv) Effective interest rates of fi Financial statements Notes to the fi nancial statements continued

17 Financial instruments – Fair values and risk management continued e) Measurement of fair value continued Financial instruments not measured at fair value Type Valuation technique Signifi cant unobservable inputs Other fi nancial liabilities Discounted cash fl ow. Not applicable. (as above) Revolving Credit Facility Discounted cash fl ow. Not applicable. ii) Transfers between level 1 and 2 There are no fi nancial instruments whose value could be determined under Level 1, hence no transfers between level 1 and Level 2. iii) Level 3 fair values The following table shows a reconciliation from the opening to closing balances for Level 3 fair values:

Deferred consideration £m At 1 January 2013 3.8 Assumed within a business combination 3.2 Addition charged to income statement 2.8 Payments (2.9) At 31 December 2013 6.9 iv) Transfers out of Level 3 There were no transfers out of Level 3 other than the payments made during 2013. v) Sensitivity analysis For the fair value of non-current deferred consideration, reasonably possible changes at the reporting date to one of the signifi cant unobservable inputs, holding other inputs constant, would have effects to profi t and loss as set out in the table below. The fair value of current deferred consideration will not change.

Non-current deferred consideration

Profi t/(loss) Increase Decrease £m £m 31 December 2013 Annual revenue growth rate (0.5% movement) (0.1) 0.1 EBITDA margin (0.5% movement) (0.1) 0.1 Risk-adjusted discount rate (2.0% movement) 0.1 (0.1)

120 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 – – – – – – – – – – 121 £m £m Total 2012 84.0 84.0 84.0 84.0 – – – – – – – – – – £m £m 2013 Other 49.3 49.3 49.3 49.3 Company – £m £m 7.6 1.0 1.0 1.1 1.0 2.1 1.1 2.1 1.3 1.2 0.7 0.7 0.5 1.2 3.7 3.7 0.1 0.1 0.4 0.5 5.0 8.4 8.4 5.5 1.0 1.0 1.1 2.1 2012 0.6 1.2 1.8 (0.4) – (0.4) (0.3) (0.5) (0.8) (0.1) (0.3) (0.4) (0.4) – (0.4) 21.5 297.6 297.6 105.1 148.3 Property Costain Group PLC Annual Report 2013 – £m 5.3 1.1 1.1 4.7 4.7 3.7 3.7 6.0 6.0 4.3 4.3 3.2 3.2 2013 90.5 10.9 145.0 266.1 266.1 Group

security current liabilities current ferred consideration ferred consideration ferred cruals and deferred income her payables her redit balances on long-term contracts mounts joint owed to ventures and associates mounts subsidiary owed to undertakings t 31 December 2013, credit Decembert 31 balances 2013, on long-term contracts included no advance payments from customers £Nil). (2012: Ot Other payables Other De The directors consider that the carrying amount of trade payables, other payables, social security and amounts joint owed to ventures and associates approximates their to fair value. Financial risk management policies are in place that seek ensure to that all payables are paid within their credit timeframes. deferred income. income. Accruals and deferred income include subcontract liabilities (not payable), yet subcontract retentions and other accruals and deferred Social De Current 1 JanuaryAt 2012 19 Provisions19 for other liabilities and charges Group Provided Utilised Released December 31 At 2012 At 1 January 2013 Provided Utilised Released DecemberAt 31 2013 Current liabilities Current Trade payables 18 Trade and Trade other18 payables C Ac A A Non- A Financial statements Notes to the fi nancial statements continued

19 Provisions for other liabilities and charges continued

Property Other Total £m £m £m Non-current At 1 January 2012 0.2 2.1 2.3 Provided – 0.3 0.3 Transfer (0.1) (0.6) (0.7) At 31 December 2012 0.1 1.8 1.9 At 1 January 2013 0.1 1.8 1.9 Provided – 0.3 0.3 Utilised (0.1) (1.7) (1.8) At 31 December 2013 – 0.4 0.4

Funding obligations Other Total Company £m £m £m Current At 1 January 2012 0.2 0.3 0.5 Utilised – (0.3) (0.3) At 31 December 2012 0.2 – 0.2 At 1 January 2013 0.2 – 0.2 Utilised (0.1) – (0.1) At 31 December 2013 0.1 – 0.1

Non-current At 1 January 2012 1.3 – 1.3 At 31 December 2012 1.3 – 1.3 At 1 January 2013 1.3 – 1.3 At 31 December 2013 1.3 – 1.3

Group Property provisions relate to costs of vacant properties and will be utilised over the next three years.

Other provisions, mainly comprise a provision for staff benefi ts payable to the staff of an Overseas subsidiary company, which will be utilised over the next two years and insurance claims, and remedial costs, most of which will be utilised over the next year.

Company Provisions in the Company relate to funding obligations to a non-trading Overseas subsidiary, which eliminates on consolidation.

122 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 11 123 £m £m £m 20 2012 2012 (1.7) 17.6 27.4 27.4 27.8 27.8 40.7 40.7 25.5 (27.2) (27.2) (32.8) (29.3) ce estated) 547.9 547.9 610.7 558.8 558.8 600.8 600.8 (r – – – £m £m £m 2012 8.2 8.2 2013 2013 24.1 24.1 21.6 21.6 30.2 30.2 26.2 26.2 (51.9) (52.9) (28.8) (28.8) 610.7 558.8 558.8 547.9 629.7 629.7 592.5 592.5 558.8 558.8 (610.7) (600.8) £m 2013 (37.2) 592.5 592.5 (629.7) Costain Group PLC Annual Report 2013

t obligations obligations t ned benefi ned ts ts dments (Pension Increase Exchange ‘PIE’) Exchange Increase (Pension dments 1 December1 tributions by employer by tributions

measurements measurements erest income erest cost ovements in fair value of scheme assets 31 December 31 an Settlements (ETV) an Settlements (Enhanced ‘ETV’) Value Transfer ontributions included the by employer the transfer in 2012 of two PFI investments, Integrated Bradford Limited Holdco Two enefi ts paid enefi enefi ts paid enefi ecognised liability for defi ned benefi t obligations ned benefi ecognised liability for defi alculated on a Career Average Revalued Earnings basis. The members schemets to was closed future to accrual of benefi re in place in the United Kingdom and Overseas. Contributions are paid subsidiary by undertakings and employees. The total air value of scheme assets Int Con Movements in present value of defi B Pl Re

C M B At 1 JanuaryAt Int At 1 JanuaryAt Present value of defi ned benefi t obligations ned benefi Present value of defi F Defi ned benefi t schemet ned benefi Defi t scheme was closed newmembers to Mayts were 2005ned on 31 benefi and from 1 April 2006 future benefi The defi c The Company does not operate a pension scheme. expense). on 30 September 2009. A full actuarial valuation of the scheme is being carried and this was March updated out as at 31 2013 ed independent actuary. a qualifi December by 31 to 2013 pension charge in the income statement was £9.2 million comprising £7.1 million included in operating costs plus £2.1 million £2.1 plus costs operating in included million £7.1 comprising million £9.2 was statement income the in charge pension nan fi net in million £1.9 plus costs operating in million £8.7 comprising million, £10.6 (2012: expense nance fi net in included (a) Pensions Pensions benefi Employee 20 (a) t pension scheme is operatedned contribution in thened United benefi Kingdom pension and schemes a number of defi A defi a Pl At 3 At R Re and Lewisham Schools for the Future Holdings 2 Limited, at an agreed of £20.3 million (Note 4). (Note million £20.3 of agreed an at Limited, 2 Holdings Future the for Schools Lewisham and Amen Financial statements Notes to the fi nancial statements continued

20 Employee benefi ts continued (a) Pensions continued Expense recognised in the income statement

2012 2013 (restated) £m £m Pension liability management (ETV and PIE, including costs of £0.9 million) – (2.8) Administrative expenses (1.1) (0.6) Interest cost on the net liabilities of the defi ned benefi t pension scheme (2.1) (1.9) (3.2) (5.3)

History of the scheme for the last fi ve years

2013 2012 2011 2010 2009 Experience adjustments on scheme liabilities (£m) (8.9) – – 18.5 – 1% – – 3% – Change in assumptions on scheme liabilities (£m) (12.7) (40.7) (40.7) (27.0) (113.7) 2% 7% 3% 5% 20% Experience adjustments on scheme assets (£m) 30.2 17.6 16.2 33.1 46.3 5% 3% 1% 6% 10% Total gain/(loss) (£m) 8.6 (23.1) (24.5) 24.6 (67.4)

The cumulative amount of actuarial gains and losses recognised in other comprehensive income and expense since 1 January 2004, the transition date to IFRS, is a loss of £74.7 million (2012: £83.3 million). Figures for 2012 have been restated in accordance with IAS 19 (revised) for comparison with 2013.

Fair value of scheme assets and the return on scheme assets

2013 2012 £m £m Equities 175.6 184.2 Multi-credit (2012: High yield bonds) 65.7 46.2 Government bonds 212.4 195.8 Infrastructure and property 64.8 63.8 Absolute return funds and cash 74.0 68.8 592.5 558.8

The infrastructure holding is the portfolio of eight PFI investments transferred by the Group to The Costain Pension Scheme in 2010 and 2012.

The pension scheme does not have any assets invested in the Group’s fi nancial instruments or in property or other assets used by the Group.

Principal actuarial assumptions (expressed as weighted averages)

2013 2012 2011 % % % Discount rate 4.60 4.40 4.80 Future pension increases 3.20 2.85 2.90 Infl ation assumption 3.30 2.95 3.00

124 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136

125 £m cost

(years) Female Pension £m ears) Male 17.6 17.6 0.8 (y 21.7 21.7 23.8 24.5 25.6 23.7 23.7 1.0 liability Pension 2012 (years) Female Costain Group PLC Annual Report 2013 ears) Male 23.8 23.8 26.4 22.0 22.0 24.5 (y 2013

continued

ts ts avings accountve] each years. month the At end and of the may elect savings save over to period, [three employees or fi as £2.7 million (2012: £2.9 million); the entire charge relates to subsidiaries. subsidiaries. to relates charge million); entire the £2.9 (2012: million £2.7 as on-retirees romotes greater alignmentwith shareholders through an award of deferred shares. The DSBP allows for conditional awards he discount rate, infl ation and pension increase andcant mortalityhe effect discount infl rate, on the amounts assumptions reported. have a signifi 1 December 2012 is:1 December 2012 2012: £5.3 million). £5.3 2012: ace value 100% of base of up to salary with a performance condition based on earnings per share. Long-Term Incentive Plans (‘LTIP’) Long-Term Shareholders that AGM allows Incentive for conditional approved Plan at the a new2012 Long-Term awards with a maximum f (b)payments Share-based The company operates a number of share based payment plans as described below.

have six months in which exercise to their options (after which the options expire)using the funds saved. If employees decide exercisenot to their options, they may withdraw the funds saved. Exercise of options is subject continued to employment within with a face value 50% of up to of base salary with a performance condition based on EBIT (Earnings before interest and tax). The deferred bonus award vests on the second anniversaryed shares by purchased of the date of grant by and will be satisfi a trust on behalf of the Group. Consequently, the DSBP will not lead any dilution to of shareholder interest. Participants must Earn Plans As You Save (‘SAYE’) The Companyxed amount operates from plans a number salary that are of SAYE open all into to employees who pay a fi a s Share-based payment expense The amounts recognised in the income statement, before income tax, for share-based payment transactions with employees w be in employment with the Company and not under notice of termination (either given or received) on the date of vesting. the Group (except where permitted the by rules of the scheme). Deferred Share Bonus Plan (‘DSBP’) Executive directors and other senior management are eligible participate to in the Company’s Deferred Share Bonus Plan which p Increase discount 0.25%, by decreases rate pension liability and reduces pension cost by Defi ned contribution schemes Defi million £6.0 was plans these to relating expense The total operated. are pensions contribution ned defi Several ( Decrease infl ation, pension increases 0.25%, by decreasesDecrease infl pension liability and reduces pension cost by Increase life expectancy increases one by year, pension liability and increases pension cost by 20.6 nalisation of the acturial the Group valuation expects March as makeSubject at 31 2013, contributions to fi to of up to the in scheme t benefi deferred its to administration of expenses the and dividend matching element of an plus million, £6.0 nancial year. next fi 0.9 N Currently aged 65 Currently 20 Employee benefi Employee 20 (a) continued Pensions Weighted average life expectancy from age 65 as per mortality December andts at 31 2013 tables used determine to benefi 3 Changes in these assumptions would have the following effects on the defi ned benefi t scheme:Changes in these assumptionsned benefi would have the following effects on the defi T Financial statements Notes to the fi nancial statements continued

20 Employee benefi ts continued (b) Share-based payments continued Options outstanding at the end of the year The outstanding LTIPs (exercise price £1 per individual grant) and DSBPs (Nil-cost option), which arrange for the grant of shares to Executive Directors and senior management, and the outstanding SAYE schemes are shown below. Outstanding awards granted prior to 2010 have been restated for the 1 to 10 share consolidation in 2010.

LTIP DSBP SAYE Weighted average Number Number Number exercise price (m) (m) (m) (p) Outstanding at 1 January 2012 2.0 1.4 1.9 199.0 Adjusted during the year – 0.2 – – Forfeited during the year – – (0.4) 231.4 Exercised during the year (0.6) – – – Granted during the year 0.8 0.6 – – Outstanding at 31 December 2012 2.2 2.2 1.5 199.0 Adjusted during the year – (0.2) – – Forfeited during the year – – (0.1) 186.7 Exercised during the year (0.6) (0.9) (0.6) 195.8 Granted during the year 0.7 0.3 1.2 222.0 Outstanding at 31 December 2013 2.3 1.4 2.0 207.6

Exercisable at the end of the period 0.7 0.7 – –

Share options outstanding at the end of the year had a weighted average remaining contractual life of 5.8 years (2012: 6.4 years).

The fair value of options granted is calculated using the Black-Scholes option pricing model. The aggregate fair value of options granted during the year was £2.8 million (2012: £2.7 million). The assumptions used in valuing the grants were:

2013 2012 Expected volatility 20% 20% Expected life (years) 2.7 – 5.0 2.7 – 5.0 Risk-free interest rate 3.5% 2.1% Expected dividend yield 4% 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.

126 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 12 127 £m £m 20 value e year Nominal ote 19).ote £m 0.8 0.4 1.6 1.7 2013 64.7 32.4 65.5 32.8 millions) ( Number 2012 Company 12 £m £m 20 value Nominal Costain Group PLC Annual Report 2013 – – £m 1.3 0.6 2013 65.5 32.8 66.8 33.4 millions) Number ( Group 2013

reditors of jointly controlled operations, which are less than the book value of their assets; performance bonds and other undertakings entered in into the ordinary course of business; and legal claims arising in the ordinary course of business. c hares in issueend at of yearOrdinary – shares of 50p each, fully paid ension Scheme, the defi ned benefi t pension scheme in the United Kingdom.ned the December potential benefi 31 liability At 2013, ension was Scheme, the defi ssued in year (see below) The share options outstanding at the year-end are detailed Details in 20. Note of the performance conditions and the options granted executive to directors are given in the Directors’ remuneration report. All shares rank pari passu regarding entitlement capital to and dividends. During the Company the year, issued shares 482,394 on exercise of options granted under the 2008 scheme. 5-year SAYE ended 31 December 2012, andended shareholders ordinary December 31 in shares lieu 2012, elected of October on 25 receive to 2013 a further 67,150 cash in respect of all or part of their interim dividend for the year ended December 31 2013. The Company that shareholders announced May 2013 on 24 had, pursuant the Scrip to Dividend Scheme, elected receive to ordinary93,558 shares of 50 pence each in the Company in lieunalcash of dividend in respect for th of all or part of their fi On 3 April 2013, the CompanyOn 3 April issued 2013, 605,533 shares in respect of the exercise of options granted LTIP. under the 2010 The Company’s issued share ordinary capital comprised shares pence of 50 66,792,941 each. S Company The Company has guaranteed the obligations of the subsidiary companies that are participating employers of The Costain P 20. Note in disclosed as statements nancial fi these in included is and basis 19 million) IAS an on £51.9 (2012: million £37.2 • • It is not anticipated that any material liabilities will arise from the contingent liabilities other than those provided for (N Under guarantees of bank overdrafts subsidiary to companies 22 liabilities Contingent Issued share capital capital share Issued Shares in issue at beginningyear of – Ordinary shares of 50peach, fully paid 21 Share capital Share 21 I Group There are contingent liabilities in respect of: •

Financial statements Notes to the fi nancial statements continued

23 Other fi nancial commitments Group Operating lease commitments

2013 2012 Other Other Land and operating Land and operating buildings leases buildings leases Leases as lessee £m £m £m £m Future aggregate minimum lease payments under non-cancellable leases: Within one year 3.5 3.4 4.3 3.6 Between one and fi ve years 8.9 3.4 7.1 3.4 Later than fi ve years 7.0 – 7.5 – 19.4 6.8 18.9 7.0

Land and buildings 2013 201 Leases as lessor £m £m Future aggregate minimum lease income under non-cancellable leases: Within one year 0.3 0.6 Between one and fi ve years 0.3 0.5 0.6 1.1

The Group has various offi ces under non-cancellable operating lease agreements. The leases have various terms, escalation clauses and renewal rights. The Group also leases vehicles under non-cancellable operating leases. None of the leases include contingent rents.

Company The Company does not have any other fi nancial commitments (2012: £Nil).

24 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 EPC Offshore Ltd Project Management Services 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

128 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 129 date Reporting Country of Country incorporation equity held equity Country of Country Percentage of incorporation Activity equity held equity Costain Group PLC Annual Report 2013 Percentage of £m capital Issued share Activity Major jointly controlled operations controlled jointly Major A-one+ Integrated Highway Services 7 – MAC A-one+ Integrated Highway Services 12 – MAC A-one+ Integrated Highway Services 14 – MAC – Crossrail Joint C610 Venture ATC Link Widening A5/M1 and M1 – Costain- Venture Joint Costain-Hochtief Joint – Reading Venture stationCostain-Laing O’Rourke Joint – Bond Venture Street stationCostain-Laing O’Rourke Joint – Farringdon Venture stationCostain- C405 Joint – Paddington Venture – Crossrail Joint – Bond Venture StreetCostain-Skanska Engineering – Crossrail C411 & Maintenance Engineering & Maintenance JointCostain-Skanska – Bond Venture Street – Crossrail C412 Engineering & MaintenanceEduco UK Joint – Bradford Venture Schools Civil EngineeringGalliford-Costain-Atkins Joint – United Venture Utilities 33 33Lagan-Ferrovial-Costain-A8 33The e5 Joint Framework Severn Venture Trent 50 Civil Engineering UK Civil Engineering Civil Engineering UK Civil Engineering Civil Engineering UK UK 50 Civil Engineering 50 50 50 50 Engineering UK 50 UK UK Civil Engineering UK UK 33 UK Construction 42 UK Civil Engineering UK 50 25 Civil Engineering UK UK 45 UK A full list of Group companies will be included in the Company’s annual return. All holdings are of ordinary shares except Richard Costain where Ltd, Costain Group holds PLC 100% of the ordinary and shares. preference All undertakings operate mainly in the country of incorporation. Costain Abu Dhabi Co WLL has been treated as a subsidiary undertakinguence and due Costain to having power infl to control the compositioncial right all to the net of the board income. of directors and the benefi The equity capital of the above are held subsidiary by undertakings with the exception Richard of Costain Limited and Costain Engineering & Construction Ltd. Associates Integrated Bradford LEP LtdLewisham Schools for the Future LEP Ltd Construction and Operation of SchoolsLewisham Schools for the Future SPV 3 LtdLewisham Schools for the Future SPV 4 Ltd – Construction and Operation of Schools 40 Construction and Operation of Schools Construction and 0.1 Operation of Schools UK December 31 – 40 – 40 UK 40 UK March 31 March 31 UK March 31 Jointly controlled entities controlled Jointly Alcaidesa Holding SABrighton & Hove 4Delivery Ltd Ltd4Delivery Civil Engineering Land Development – 11.3 Engineering Civil 49 50 Spain December 31 UK – March 31 40 UK March 31 24 Principal subsidiary undertakings, jointly controlled entities, associates and jointly continued operations controlled Financial statements Notes to the fi nancial statements continued

25 Acquisitions On 1 August 2013, the Group purchased the share capital of EPC Offshore Limited (‘EPC’). The business, which is based in the United Kingdom, provides project management services to the upstream oil and gas sector.

The initial consideration was £10.6 million. Further payments, based on an 8 times multiple of EBITDA, may also be payable after the completion of the results for the years to December 2014, 2015 and 2016. The percentage payable in respect of the results for the year increases each year.

The total estimated value of these future payments is £8.9 million. Part of the payment estimated at £3.2 million is based only on the fi nancial performance in years 2014 and 2015. This has been included in the cost of acquisition (see below) and accounted as a fi nancial liability based on a Level 3 valuation method. The balance of the payments, estimated at £5.7 million, is dependent on continued future service and, in accordance with IFRS 3, will be expensed to the income statement. The payments are dependent on the future performance and fi nancial results and the £3.2 million provided as part of the cost of acquisition could range between £2.0 million and £4.0 million.

The Group believes the acquisition will broaden its capabilities in the upstream oil and gas market.

The contributions to revenue and operating profi t before amortisation of acquired intangibles and employment related consideration within the Group’s results of this acquisition was revenue £4.5 million, operating profi t £0.4 million, including integration costs.

The proforma fi gures as required by IFRS 3, assuming that the acquisition had been part of the Group throughout the year, were revenue £11.5 million and operating profi t before amortisation of acquired intangibles of £1.5 million.

The acquisition had the following effect on the Group’s assets and liabilities:

Total £m Cash 10.6 Contingent consideration 3.2 Consideration 13.8

Acquired intangible assets – Customer relationships 4.5 Acquired intangible assets – Other 1.4 Property, plant and equipment 0.1 Cash 1.2 Other current assets 2.4 Other current liabilities (1.6) Deferred tax (1.3) Fair value of assets acquired and liabilities recognised 6.7

Goodwill arising on acquisitions 7.1

Based on the provisional assessment of the recognised values of assets and liabilities, the goodwill arising on the acquisition is expected to be £7.1 million.

Costs of £0.6 million were incurred by the Group in relation to the acquisition and have been expensed in administrative expenses within the income statement.

There were no acquisitions in 2012.

130 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 131 £m £m ’s 1.1 2.1 2.1 5.1 5.1 1.4 Total 0.3 0.2 2012 d Group – £m £m 1.1 1.1 1.6 5.0 5.0 0.3 2.0 2.0 2013 Jointly controlled operations

£m Joint Joint 41.0 41.0 3.2 44.2 61.6 61.6 65.1 126.7 20.6 20.6 61.9 82.5 ntures and associates ve Costain Group PLC Annual Report 2013 2012 £m Total £m Jointly controlled operations £m Joint Joint 11.7 11.7 16.6 28.3 13.8 70.6 84.4 25.5 87.2 112.7

ntures and associates ve 2013

re-based payments re-based pressed as a percentage of the issued share 0.58%) of the voting capital shares (2012: of the Company. is 0.73% onstruction services and materials xecutive offi cers’ emoluments cers’ offi xecutive ost-employment benefi ts benefi ost-employment ansfer also 4. of two Note PFI investments in 2012, here were no sales of goods and services major to shareholders during £Nil). the year (2012: perations, The Costain Pension Schemecers. and with its directors and executive offi ermination benefi ts ermination benefi 2012: none). 2012: Company The above amountst expense are included (Note 5). in employee benefi Company The Company has no transactions with related parties other than the charge in relation share-based to payments (Note 20) ( P

The Costain Pension Scheme Details of transactions between the Group and The Costain PensionScheme are included and, in 20 Note in respect of the tr Major shareholders Major Place and LimitedMohammed & Sons York Co are W.L.L. regarded Abdulmohsin as related parties Al-Kharafi of the Company. Balances with joint ventures and associates are Balances disclosed and 18. with in Notes 14 jointly controlled operations are eliminated on consolidation. An amount due from a major shareholder has been fully provided against since 2006. It relates work to carried out under a subcontract. Discussions among all the parties continue but recovery is uncertain. Sha Directors’ emoluments Services of Group employees C E In addition their to salaries, in respecttscers, of the Executive the Group provides Directors non-cash and executive benefi offi ned contribution pensionand plans. contributescers Executive also defi to participate Directors in and the Group executive offi Transactions with management key personnel The directorsof the Company and their immediate relatives control 488,468 ordinary shares in Costain which Group PLC, ex The compensation management of key personnel, including the directors, is as follows: LTIP, DSBP and SAYE plans, DSBP which and SAYE are detailed 20. in Note LTIP, 26 Related party transactions Group A relatedparty relationship exists with its major shareholders, subsidiaries, joint ventures and associates, jointly controlle Sales of goods and services o T T Financial statements Five-year fi nancial summary

2012 2013 (restated) 2011 2010 2009 £m £m £m £m £m Revenue and profi t Revenue (Group and share of joint ventures and associates) 960.0 934.5 986.3 1,022.5 1,061.1 Less: Share of joint ventures and associates (74.8) (86.1) (117.8) (98.0) (67.7) Group revenue 885.2 848.4 868.5 924.5 993.4 Group operating profi t before other items 27.4 21.7 24.1 17.4 22.0 Other items: Exceptional transaction costs (3.7) – – – – Amortisation of acquired intangible assets (1.8) (1.7) (0.9) – – Employment related deferred consideration (2.8) (1.7) (0.7) – – Group operating profi t 19.1 18.3 22.5 17.4 22.0 Profi t on sales of investments – – 0.5 – – Profi t on sales of interests in joint ventures and associates 9.1 10.5 0.3 11.2 2.0 Profi t on sale of land and property – – – 1.3 – Share of results of joint ventures and associates (11.3) (1.4) (1.3) (0.5) (3.2) Profi t from operations 16.9 27.4 22.0 29.4 20.8 Finance income 0.7 1.0 34.1 30.7 26.0 Finance expense (4.7) (3.7) (32.2) (32.2) (28.7) Net fi nance (expense)/income (4.0) (2.7) 1.9 (1.5) (2.7) Profi t before tax 12.9 24.7 23.9 27.9 18.1 Income tax (0.4) (1.6) (5.2) (4.8) (3.5) Profi t for the year attributable to equity holders of the parent 12.5 23.1 18.7 23.1 14.6 Earnings per share – basic* 18.8p 35.4p 29.2p 36.4p 23.0p Earnings per share – diluted* 18.1p 34.2p 28.2p 35.4p 22.6p Dividends per ordinary share Final* 7.75p 7.25p 6.75p 6.25p 5.5p Interim* 3.75p 3.50p 3.25p 3.0p 2.75p

Summarised consolidated statement of fi nancial position Intangible assets 33.0 18.7 20.3 0.1 1.0 Property, plant and equipment 7.9 9.1 11.4 9.7 11.5 Investments in equity accounted joint ventures and associates 32.1 40.4 42.9 37.4 44.1 Other non-current assets 31.8 34.9 33.8 39.8 47.3 Total non-current assets 104.8 103.1 108.4 87.0 103.9 Current assets 276.5 290.6 332.0 309.3 325.1 Total assets 381.3 393.7 440.4 396.3 429.0 Current liabilities 296.1 303.1 348.3 311.4 320.5 Retirement benefi t obligations 37.2 51.9 52.9 39.6 104.7 Other non-current liabilities 4.7 6.9 8.4 7.7 7.6 Total liabilities 338.0 361.9 409.6 358.7 432.8

Equity attributable to equity holders of the parent 43.3 31.8 30.8 37.6 (3.8) The fi gures for 2012 are restated for IAS 19 (revised). * The fi gures for 2009 have been restated for the 1 for 10 share consolidation in 2010.

132 Costain Group PLC Annual Report 2013 01-45 Strategic report

Other information 46-84 Governance 85-132 Financial statements 13 Other information 3-136

Costain Group PLC Annual Report 2013 133 Other information Financial calendar and other shareholder information

Financial calendar 1 Analysis of shareholders as at 26 February 2014 Full-year results 27 February 2014 Ex-dividend date for fi nal dividend 12 March 2014 Accounts Shares % Final dividend record date 14 March 2014 Institutions, companies, Annual Report mailing 21 March 2014 individuals and nominees: Final dividend payment date 2 25 April 2014 Shareholdings 100,000 and more 62 55,603,155 83.22 Interim Management Statement 7 May 2014 Shareholdings Annual General Meeting 7 May 2014 50,000-99,999 34 2,445,356 3.66 Half-year end 30 June 2014 Shareholdings Half-year results 2014 21 August 2014 25,000-49,999 53 1,900,683 2.84 Ex-dividend date for interim dividend 17 September 2014 Shareholdings Interim dividend record date 19 September 2014 5,000-24,999 321 3,251,402 4.87 Interim dividend payment date 24 October 2014 Shareholdings 1-4,999 10,671 3,612,272 5.41 Interim Management Statement 06 November 2014 Totals 11,141 66,812,868 100.00 Financial year-end 31 December 2014 Secretary 1 The fi nancial calendar may be updated from time to time throughout the year. Please refer to our website www.costain.com for up-to-date details. Tracey Wood 2 Subject to shareholder approval at a general meeting to be held on 17 March 2014. Registered Offi ce Costain House, Vanwall Business Park, Maidenhead, Scrip dividend scheme Berkshire SL6 4UB A scrip dividend scheme will be offered in respect of the fi nal dividend. Those shareholders who have already elected to Telephone 01628 842 444 join the scheme will automatically have their dividend sent www.costain.com to them in this form. [email protected] Company Number 1393773 Shareholders wishing to join the scheme for the fi nal dividend (and all future dividends) should return a completed Registrar mandate form to the Registrar, Equiniti by 2 April 2014. Equiniti, Aspect House, Spencer Road, Lancing, Copies of the mandate form and the scrip dividend brochure West Sussex BN99 6DA can be downloaded from the Company’s website at www.costain.com or obtained from Equiniti by telephoning Telephone 0871 384 2250* or +44 121 415 7047 if calling from 0871 384 2268* or +44 121 415 7173 if calling from outside outside the United Kingdom. the United Kingdom. Shareholder information For enquiries regarding your shareholding, please contact the Registrar, Equiniti (details above). You can also view up-to-date information about your holdings by visiting the shareholder website at www.shareview.co.uk (see page 135 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.

134 Costain Group PLC Annual Report 2013 Strategic report Governance Financial statements Other information 01-45 46-84 85-132 133-136 135 www.costain. Costain Group PLC Annual Report 2013 . Equiniti can provide stock transfer www.costain.com etailed share price, Directors’ holdings, Additional shareholder information including information shareholder Additional d dividends,cant share price chart, signifi regulatory with together shareholders news, our investment case and details AGM can be found on our website: com/investors/investor-home ilable the general to public. Consequently, some www.sharegift.org hare donation scheme for shareholders with small parcels Unsolicited mail Unsolicited The Company is legally obliged make its to share register ava shareholders may receive unsolicited mail, including rms. fi investment unauthorised from correspondence Shareholders who wish limit to the amount of unsolicited mail they receive can contact: The Mailing Preference Service 29 Freepost LON20771 OZT London W1E Further guidance on this issue can also be found on the Company’s website at ShareGift The Orr Macintosh Foundation (ShareGift) operates a charity s of shares whose value makes it uneconomic sell to them. Details of the scheme are available on the ShareGift website at forms on request. Donating shares charity to in this way gives rise neither a gain to nor a loss for Capital Gains purposes.Tax This service is completely free of charge. (see (see for more details. www.shareview.co.uk www.shareview.co.uk www.shareview.com/overseas eholders: the payment is more secure as you can avoid the risk of cheques getting lost in the post; it avoids the hassle of paying in a cheque; and there is no risk lost, of stolenor cheques. out-of-date direct access data to held on their behalfon the share register including recent share movements and dividend and details; the ability change to their address or dividend payment online. instructions nto theirnto bank or building society account, completing by a • • A mandate form can be obtained from the Company’s website, or contacting by 384 Equiniti 2250* on 0871 if calling 7047 from outside the United Kingdom) 415 (+44 121 who will be pleased assist to you and can also be obtained via the shareholder website at bank mandate form. The advantages using to this service are: • Shareview service Shareview The Shareview service from our Equiniti, Registrar, gives shar below for furthernd one details). Alternatively, you will fi attached the tax to voucherof your last dividend payment. Overseas shareholders can arrange for their dividends be to paid in their local currency and more information can be from obtained If you have your dividends paid straight your to bank account, and you have selected email as your mailing preference, you can also collect your tax voucher electronically. Instead of receivinged by the paper tax you will voucher, be notifi email with details download of how to your electronic version. Visit the website at When you register with the you site, can register your preferred format (post or email) for shareholder communications. If you select emailed of as your mailing preference, you will be notifi various shareholder communications, such as annual results, emailby instead of post. • • sign up for ShareviewTo you need the ‘shareholder reference’ printed on your proxy form or dividend stationery. There is no register. to charge Details of software and equipment requirements are given on the website. Dividend mandate Dividend Shareholders can arrange have their to dividends paid directly i 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.

Useful links

www.costain.com www.costain.com/investors www.costain.com/responsibility www.costain.com/annual-report-2013 www.costain.com/engineering-tomorrow www.costain.com/news

136 Costain Group PLC Annual Report 2013 Contents

Strategic report Governance Financial statements 01 The spirit of innovation... 47 Chairman’s statement on corporate 86 Consolidated income statement 02 The history of Costain spans governance 87 Consolidated statement of a period of nearly 150 years 48 Board of Directors comprehensive income and expense 04 2013 highlights 50 Corporate Governance statement 88 Consolidated statement 06 Chairman’s statement 55 Audit Committee report of fi nancial position 08 Chief Executive’s review 58 Nomination Committee report 89 Company statement of fi nancial position 11 Business model 59 Directors’ remuneration report 90 Consolidated statement of changes 12 Business model – The Costain difference 77 Directors’ report in equity 24 Principal risks and uncertainties 81 Directors’ responsibilities statement 90 Company statement of changes in equity 26 Performing responsibly 82 Independent Auditor’s report to the 91 Consolidated cash fl ow statement 26 Divisional performance members of Costain Group PLC 92 Company cash fl ow statement 28 Engineering Tomorrow... ‘in action’ 93 Notes to the fi nancial statements 34 Corporate Responsibility 132 Five-year fi nancial summary 34 Costain Cares 35 Relationships Other information 39 Our Environment 134 Financial calendar and other shareholder 41 The Future information 43 Finance Director’s review 136 Contact us

Designed and produced by Instinctif Partners www.instinctif.com

Costain photographers: Ian Routledge pages 6, 8, 43, 47, 48, 49 (Costain Board Directors); Ed Tyler pages 49, 136 (Jane Lodge, Graham Read); and Mike Doherty pages 49, 136 (Tracey Wood, Catherine Warbrick).

Additional photography: Courtesy of Thinkstock (front cover images and page 30); artist impression courtesy of Network Rail, page 2 (London Bridge Station); courtesy of Highways Agency, page 31 (Smart Motorways case study); courtesy of Network Rail, page 33 (BIM case study); and courtesy of Port Studio, page 40 (Harbour Way case study).

KPI Brunel illustration: Gilly Lovegrove

This icon has been used throughout the report and This report has been printed on Cocoon 50% Gloss and Cocoon references our key performance indicators (‘KPIs’). 100% Offset – both are recycled papers. They contain 50% recycled waste and 100% recycled waste respectively, are FSC-certifi ed and produced at a mill with ISO 14001 certifi cation. Recycled fi bres used Throughout the Annual Report, are process chlorine free. we have used the following icons to direct you to further information PAS2020 either in the report or elsewhere. ENVIRONMENTALLY SENSITIVE Links to further information CERTIFIED Find us online CERTIFYING BODY Our Annual Report 2013 is available in both in this report. printed form and within the ‘Investors’ section If you have fi nished reading the Annual Report and no longer wish of the Costain website at www.costain.com/ to retain it, please pass it on to other interested readers, return it investors. Effective communication with our to Costain Group PLC or dispose of it in your recycled paper waste. shareholders is vital to our continued success Links to further information and we would welcome feedback on either or within our website. Thank you. both versions of this Annual Report – email us at [email protected] This Annual Report is available at: www.costain.com Costain Group PLC Group Costain Engineering

Visit www.costain.com Tomorrow... today Annual Report 2013 Costain Group PLC Costain Group PLC Costain House Annual Report 2013 Vanwall Business Park Maidenhead Berkshire SL6 4UB United Kingdom

This report has been printed on Cocoon recycled papers. By using this material rather than non-recycled papers, we have reduced the environmental impact by:

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