COSTAIN GROUP PLC ANNUAL REPORT 2014 MEETING NATIONAL NEEDS 150 years of pioneering solutions

For 150 years, Costain has been engineering solutions for major infrastructure projects. We understand what it takes to innovate and deliver pioneering solutions which meet national needs.

1935 1944 In 1935 Costain was a true Costain played a pioneer in international major part in wartime construction and built innovation by helping 11 miles of the Trans-Iranian to create the Mulberry Railway – seven tunnels and Harbour which was used two viaducts in isolated to land troops on the mountainous terrain. Normandy beaches in 1944.

1982 1993 Thames Barrier, Channel Tunnel Joint lead Contractor on Venture, founder member of the one of the longest undersea largest tunnel in the world. movable flood barriers in the world.

2011 2013 High Speed 2 rail link, The Big Infrastructure Conversation, in acting collaboration with BITC, consultant brought industry providing buildability advice. leaders together to tackle youth unemployment.

2012 2011 2016 E.ON Holford, underground Next Generation Carbon Evaporator D Project, Sellafield gas storage. Playing a Capture. (completing 2016) highly Largest nuclear Fulfilling a decommissioning lead role significant project in the UK. in developing technology role in UK gas delivery. capable of reducing CO2 emissions by 95%. Key to icons in this report Key this in icons to information of sources Other Costain 2014Costain Costain.com stakeholders. all our willin turn create sustainable value for which providers solutions engineering vision of being one of the UK’s top national needs, we will realise our By focusing onmeeting essential and support optimisation Asset integration Technology delivery Complex project management Programme design Specialist development and conceptAdvisory indicators Key performance in this report Related information available online More information

Annual online Report Independent Auditor’s report statement responsibility Directors’ report Directors’ report remuneration Directors’ Nomination Committee report report Committee Audit Directors of Board Corporate GovernanceCorporate report Governance report Strategic Contents and other information other and statements Financial Finance Director’s review Finance Director’s review Responsibility Corporate review Divisional and uncertainties risks Principal markets Our priorities strategic Our model business Our Board Executive Group review Executive’s Chief statement Chairman’s

services integrated Our do we what and are we Who Consolidated statement of statement Consolidated Consolidated income statement comprehensive income and expense comprehensive Operational highlights Operational highlights Financial Company of statement financialposition position financial of statement Consolidated shareholder information shareholder Financial calendar and other summary financial Five-year statements financial to the Notes statement flow cash Company statement flow cash Consolidated equity in changes of statement Company equity in changes of statement Consolidated study case – Water study case – Transport study case – Energy

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

01 129 128 80 08 04 46 84 06 88 83 90 54 86 03 34 85 20 58 02 02 92 45 45 89 28 26 79 87 91 59 75 10 31 18 12 41 13 17 11

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 02 Strategic report: Who we are and what we do Who we are Costain is an engineering solutions provider and what delivering integrated consulting, project delivery and operations and maintenance we do services, with a portfolio of achievements spanning 150 years of innovation and technical excellence. We meet essential national needs by providing world-class engineering and technology-led solutions to our blue-chip customers in the UK’s energy, water and transportation markets.

Go to costain.com for more

Our business is split into two core operating and reporting divisions, Infrastructure and Natural Resources.

Infrastructure Natural Resources The infrastructure division delivers The Natural Resources division engineering solutions in: delivers engineering solutions in:

Rail Water Delivering end-to-end asset life-cycle Providing engineering solutions to solutions across the entire railway, from UK water utility companies across the major station projects to asset life-cycle. multi-disciplinary rail projects.

Highways Nuclear Providing end-to-end highways services Creating the facilities to manage and delivering technology-led solutions nuclear waste safely using the latest for our customers. technology-led solutions.

Power Oil & Gas Playing a significant role in safely Providing full life-cycle engineering delivering the energy infrastructure that services in the development, design, will satisfy the UK’s future needs. delivery and maintenance of Oil & Gas infrastructure.

Go to page 31 for Divisional review

Costain Group PLC Annual Report 2014 blue-chip customers. blue-chip the changing need of our major toour architecture business meet range,product we have evolved our enhance and services our broaden to continue we as and To our value reflect proposition, lines service six across solutions Integrated pressing problems.pressing most for customers’ our solutions and options of development The concept development Advisory and infrastructure projects. of large complex delivery of the and management engineeringThe delivery Complex project

infrastructure assets. infrastructure and transform to manage, connect technology through Providing a service integration Technology engineering solutions. andComplex niche design Specialist

infrastructure assets. infrastructure maintain physical to operate and contracts Long-term support and Asset optimisation projects. interrelated of complexprogrammes management of and commercial operationalThe management Programme Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

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Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 04 Strategic report: Who we are and what we do

Y W G A R T E E N Focusing R E on essential national needs

T R A N N I O S P O R TAT

Find out more about our business model on page 18

TRANSPORT INTEGRATED TECHNOLOGY IS SMARTER FOR EVERYONE

Costain Group PLC Annual Report 2014 05

Services: Technology integration Strategic report 02 – 44

INTEGRATED TECHNOLOGY IS SMARTER FOR EVERYONE Governance 45 – 82

Customer: Highways Agency Electronic Service Delivery We now provide one for Abnormal Loads (ESDAL2) integrated system which is The Highways Agency appointed Costain to deliver a faster and far more friendly technology solution that would improve the service for road users moving Abnormal Indivisible Loads (AIL) around for all users. It’s having a Britain’s highways. As part of the technology solution, Costain provides a hosted software application with access very real and positive effect provided via web portals to the Highways Agency, hauliers, police, and bridge and highways authority users. The solution on our roads. includes the provision of a help desk to support system users and to manage and maintain the solution. The collaboration provided by the web portals boosts efficiency and eliminates James Bulleid, Highways Technology Director, Costain, wasted time and effort on the part of hauliers and the NEF Innovation of the Year (above) authorities. It also enables the Highways Agency’s Abnormal Loads Team to collaborate with stakeholders to plan routes and authorise Special Orders for the largest movements.

Costain Group PLC Annual Report 2014 Financial statements and other information 83 – 132 06 Strategic report: Who we are and what we do

Y W G A R T E E N Focusing R E on essential national needs

T R A N N I O S P O R TAT

Find out more about our business model on page 18

Customer: Thames Water UK AMP6 Capital Programme

Costain, part of Thames Water’s industry-leading eight2O alliance, will help deliver billions of pounds of essential improvements to Thames Water’s ageing network over the AMP6 period. To date, Costain has provided key members of the eight2O management team and has played a significant role in the development of programme strategy and approach to standardisation and offsite manufacture. As the programme moves into delivery, Costain together with its partner Atkins, will be responsible for delivering half of the overall capital programme. Thames Water is using the alliance model to achieve greater efficiency in the delivery of its business plan, with a greater emphasis on collaborative team-working, innovation, sustainability and an integrated supply community, in a bid to lock in long-term value to the company and its customers.

Costain Group PLC Annual Report 2014 07

Services: Advisory and Specialist design Complex project concept development delivery Strategic report 02 – 44

WATER HELPING TO IMPROVE WATER SUPPLIES FOR LONDON Governance 45 – 82

Collaboration sits at the heart of this project. Specialist skills and experience are shared by everyone. As a young engineer it’s been a great learning curve.

Sarah McGee, Project Manager, Costain (left)

Costain Group PLC Annual Report 2014 Financial statements and other information 83 – 132 08 Strategic report: Who we are and what we do

Y W G A R T E E N Focusing R E on essential national needs

T R A N N I O S P O R TAT

Find out more about our business model on page 18

Customer: Magnox Bradwell FED Treatment Project Costain delivered the engineering, procurement, construction and commissioning of the Bradwell Fuel Element Debris (FED) Treatment Project, which is part of the decommissioning programme taking Magnox’s Bradwell site into a long-term state of care and maintenance. FED is the most significant solid Intermediate Level Waste REDUCING THE IMPACT OF (ILW) hazard, by volume, stored on Magnox sites. Costain’s application of innovative thinking and extensive industry experience has resulted in the development of an innovative NUCLEAR WASTE IN THE UK dissolution process which dissolves FED waste in nitric acid, greatly accelerating the accepted process using carbonic acid. This process has been shown to reduce the volume of FED waste by over 90%. This form of hazard reduction will make a significant contribution to the nuclear waste legacy clean up in the UK.

This process reduces the amount of waste, the associated long-term storage costs and has lower environmental impacts. I am proud to be a part of it.

Fernando Campos, Process Engineer, Costain (left) 09

Services: Advisory and Specialist Programme concept development design management

Complex project Technology delivery integration Strategic report 02 – 44

ENERGY REDUCING THE IMPACT OF NUCLEAR WASTE IN THE UK Governance 45 – 82

Costain Group PLC Annual Report 2014 Financial statements and other information 83 – 132 10 Strategic report: Highlights Highlights Strategy delivering results

Go to page 41 for more

Financial highlights

Revenue1 Underlying operating profit2 Adjusted profit before tax3 £1,122.5m £28.7m £28.5m

1,122.5 28.7 1,200 30 27.4 40 986.3 24.5 934.5 960.0 25 24.1 30.8 31.0 28.5 900 30 20 23.6

600 15 20

10 300 10 5 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 0 0 0

£m £m £m

Net cash balance Adjusted basic earnings per share3 Dividend per share £148.5m 27.8p 9.5p

148.5 150 140.1 50 12 11.5 10.75 41.05 10.0 9.5 120 40 36.9 105.7 9 90 30 28.9 27.8 6 57.7 60 20 3 30 10

2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 0 0 0

£m p p 2014 2013 Revenue1 £1,122.5m £960.0m Operating Profit – Underlying2 £28.7m £27.4m Profit before tax – Adjusted3 £28.5m £31.0m – Reported £22.6m £12.9m Basic earnings per share – Adjusted3 27.8p4 41.0p5 – Reported 22.2p4 17.6p5 Net Cash balance £148.5m £57.7m Dividend per share 9.5p4 11.5p 1 Including share of joint ventures and associates. 2 Underlying operating profit before Other items; amortisation of acquired intangible assets and employment related and other deferred consideration and in 2013, £3.7m one-off costs associated with the offer for May Gurney Integrated Services plc. 3 Results stated before Other items (as stated in 2 above) and in 2013 a non-cash impairment of £9.8m on the carrying value of assets in non-core Land Development activity in Spain. 4 On the enlarged capital base following the capital raise completed in March 2014. 5 Restated for the bonus element of the capital raise completed in March 2014. These are the definitions used throughout the Strategic report.

Costain Group PLC Annual Report 2014 11

Operational highlights

Record high quality order book

2014 £3.5bn

2013 £3.0bn Her Majesty the Queen opened Reading Station after the critical redevelopment project was handed over ahead of schedule. Strategic report 02 – 44

Examples of Contract Awards 1. Appointed by Network Rail as one of four suppliers to the £2 billion National Electrification Programme

Appointed to three transmission frameworks with National Grid to provide a broad range of services, 2. including front end engineering design, programme management, construction and asset optimisation

Secured a place on the Highways Agency’s five-year Collaborative Delivery Framework for the improvement 3. of England’s motorways and major A roads

Contract, awarded by Perenco, to deliver Engineering, Procurement and Construction services for 4. the environmental upgrade of the Dimlington gas terminal on Humberside 5. Appointed by Southern Water to help deliver its 2015 – 2020 (AMP6) investment programme 6. Awarded a contract by Scottish Water to construct the Shieldhall Tunnel in Glasgow

Appointed by BAE Systems as one of its framework contractors on the eight-year, £300m-plus programme 7. to redevelop its submarine site, in Barrow-in-Furness, Cumbria Governance 45 – 82

Environmental and social highlights

Employee engagement RoSPA Awards CO2 emissions

75% 29 24,692T CO2e of employees think 29 Awards: one Order of 94% waste diverted Costain is a great place Distinction, seven Gold from landfill to work Medals, 17 Gold Awards, 4 Silver Awards Go to page 34 for more Go to page 34 for more

Costain Group PLC Annual Report 2014 Financial statements and other information 83 – 132 12 Strategic report: Chairman’s statement Chairman’s statement

David Allvey, Chairman

I am delighted to report that Costain had another year of strong performance and made further progress in its corporate development.

Delivering growth In 2014, we welcomed two new independent Directors to the Board. Alison Wood joined Costain as a Non-Executive The rigorous implementation of our ‘Engineering Tomorrow’ Director in February, succeeding Mike Alexander as Chair of the strategy has delivered increases in revenue, underlying Remuneration Committee when he retired from the Board in operating profit and a record forward order book which March. We were also pleased to announce the appointment of now stands at £3.5 billion. David McManus as a Non-Executive Director in May. Across the business we have continued to create and deliver innovative solutions to help address critical national needs in Corporate citizenship energy, water and transportation. We have an outstanding team at Costain, one that takes its role We successfully completed a capital raise of £70.3 million in society and its corporate responsibility very seriously. (net of expenses) to enable the business to take greater In 2015, Costain is celebrating its 150th anniversary and, advantage of opportunities in its chosen markets and to help mark this special occasion, we are undertaking the thereby accelerate the Group’s medium and long-term Costain 150 Challenge, which will change many people’s lives growth prospects. by raising £1 million for the Costain Charitable Foundation’s four chosen charities: British Heart Foundation, Macmillan Dividend Cancer Support, The Prince’s Trust and Samaritans. A number At the time of the capital raise, the Group confirmed that of fundraising events are taking place across the business. it intended to continue with a progressive dividend policy, targeting an ongoing dividend cover of around two times Outlook underlying earnings. We have delivered another strong performance, with increases Our performance and confidence in the long-term prospects in revenue and underlying operating profit and an enhanced net for the Group has resulted in the Board recommending a final cash position. dividend of 6.25 pence per share on the capital base enlarged Costain has an established reputation for innovative by the capital raise completed in March (2013: 7.75 pence per multi‑disciplined services that enables the Group to win large, share). On a pro forma basis, allowing for the issue of new long-term contracts addressing the UK’s national needs in shares in connection with the capital raise, this represents an energy, water and transportation. increase of approximately 25% in the total amount of dividend paid to shareholders compared with the total dividend for 2013. This strong market position and the additional capital secured during the year is enabling the Group to accelerate its growth, Governance as demonstrated by a record order book of £3.5 billion. As Chairman, my priority is to ensure the effectiveness of the Board and, once again, we made good progress in delivering against our objectives. During the year, an externally facilitated evaluation of Board performance was conducted and actions were agreed to further improve the effectiveness of the Board. David Allvey Chairman 02 March 2015 Go to page 45 for more

Costain Group PLC Annual Report 2014 on road infrastructure. infrastructure. road on including £15 a further billion announced in December 2014 2020 to billion £320 over of investment overall an out set has Plan Infrastructure 2014 National Government’s UK The competitiveness. and global growth economic sustainable of creation the and infrastructure a21st century in investment between link explicit the of spectrum political the across consensus growing is There developments and trends Market arise. as opportunities capabilities existing Costain’s complement to acquisitions in-fill selected make to flexibility providing and, costs; bid duration; investing in innovation and technology; financing and size contract in increases further anticipated support to capacity financial requisite the ensuring including: The proceeds are being utilised for a number of purposes expenses). (net of million £70.3 of raise acapital completed successfully we when March in enhanced further was capability Our our customers. we consistently delivered on the commitments given to that ensured and technologies new of introduction the through proposition market our developed capability, of breadth and skills our to year, added we the During transportation. and water in energy, demanded by our to customers meet critical national needs services integrated innovative of range the provide to business the positioned successfully have we strategy ‘Engineering Tomorrow’ focused and unique our Through provider.solutions This has another been year good for Costain, the engineering review Executive’sChief ‑ Go to page 26 for more for 26 page to Go 21 in an identified pipeline of projects in the UK, UK, the in projects of pipeline identified an 21 in

Unique our long our value customers our because profitable is strategy Our solution. best the deliver and create identify, to us allowing and needs their of understanding abetter enabling customers, our with relationships trusted and insightful developing by We win solutions. technology-led to createunderstanding and deliver innovative engineering and customer detailed our We use customers. our with levels all at strategically collaborates that partner delivery atrusted We are requirements. business complex their to solutions need that organisations large are customers target Our years. evolving We have been successfully implementing our unique and place and is expected to continue. to expected is and place taken has consolidation further which in environment market dynamic and changing arapidly created have trends These supplier partners. their with work and services procure they which in way the fundamentally change to continues markets these in customers major the of requirements the of complexity increasing and nature changing the anticipated, we as and time, same the At are substantial. markets our in opportunities the sector, private the from come to continue to expected investment total this of majority the With investment. capital essential and spend regulated by underpinned planned committed programmes expenditure long-term and significant by defined further is market UK The address their challenges in a collaborative and innovative way. innovative and acollaborative in challenges their address Andrew Wyllie, CBE, Chief Executive Chief CBE, Wyllie, Andrew ‑ ‘Engineering Tomorrow’ term commitment to the relationships and trust us to us trust and relationships the to commitment term ‘Engineering Tomorrow’‘Engineering Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain strategy for a number of of anumber for strategy strategy 13

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 14 Strategic report: Chief Executive’s review Chief Executive’s review continued

We sustain our competitive advantage by delivering on our promises and staying ahead using our customer insight to constantly improve our proposition. Our major customers, who are spending and will continue to spend billions of pounds in meeting national infrastructure Underlying operating profit needs, are consolidating their supply chains as they seek to derive business benefits by working in a more strategic and collaborative manner with a reduced number of preferred Tier £28.7m One providers through larger longer-term contracts. To be successful in the future we must continue to grow the business, 28.7 both organically and by targeted acquisition, to ensure that we 30 27.4 24.5 have the scale and capability to satisfy the full range of their 25 24.1 service needs for increasingly complex and large-scale projects. 20 15 Innovation driving value 10 Engineering, technology and innovation are in the DNA 5 at Costain. 2011 2012 2013 2014 0 We recognise that no customer will buy the same product, £m with the same attributes at the same price point year after year. It is therefore essential that we continuously improve the products and services that we provide and enhance value for our customers. Our ability to develop and offer innovative solutions – often ones which our customers have not previously considered – is a fundamental differentiator. It drives our ability to secure very high levels of repeat business with major customers who regard Costain as a long-term partner in the development, delivery and optimal operation of their assets. Our contracts now involve a significant amount of collaboration amongst the supply chain, our partners and external stakeholders, such as researchers and universities, utilising the latest information-sharing software and technology. We have research and development relationships established with eight leading universities and have continued to progress a number of patent applications. We also moved 400 people into our new engineering centre in Manchester.

Costain Group PLC Annual Report 2014 • • in the Divisional review. Divisional in the 2007, detailed in as awarded PFI contract Waste Manchester Greater legacy the with associated aprovision of impact the Resources division delivered an operating profit excluding Natural The book. order and profit operating revenue, in increases with year excellent an had division Infrastructure The 2014. March in completed raise capital thefollowing base capital theenlarged reflecting also 27.8 level (2013: was 41.0 lower share pence the per pence), earnings basic Adjusted ventures. joint three in shareholdings minority Group’s the of sale 2013 the in on generated profit significant the to due is reduction (2013: £31.0 the million); million £28.5 was tax before profit Adjusted (2013: £27.4 million). million £28.7 to increased profit operating underlying Group related service activities. support from derived was which of 30% circa million), (2013: £960.0 £1,122.5 to increased million year the for associates, and ventures joint of share Group’s the including Revenue, position cash strong and results operating Good • year, include: this businesses customers’ our to value added have which partners, with collaboration in Innovations, cost savings. cost and delivery project accelerated significantly achieve to practice best assembly manufacturing of Application to complex articulate engineering solutions; Creation models utilising of printing 3-D technologies 3-D analytics; usingMaintenance data pre predictable for system ‘WeCARE’ Costain the of Use £3.5bn ‑ planned and cost-effective Technology planned and Asset cost-effective record forward order book record forward

with £2.5 billion of revenues secured for 2016 and beyond. 2016 and for secured revenues of billion £2.5 with visibility long-term good provides also book 2014), order the for secured million 2013: £750 over 2015 31 December at (as for secured £1.0 revenues of over billion including as well As (31 December 2013: £3.0 billion). billion £3.5 of level record new at a year the finishing Consequently, the Group’s order book increased, has further • • • • • • include: which year the of course the during extensions contract and projects complex and large of £1.5 worth over billion secure to us enabled has innovation, for reputation and position market strong our with along services, and skills multidisciplined of range awide integrate and provide to ability The Record order book we anticipate small increases from this level going forward. going level this from increases small anticipate we and million) (2013: £50.7 million £95.6 was cash net month-end risk target-cost, cost-reimbursable contracts. The average lower- utilise who customers major with workload our increase to continue we as changed has position cash net Group’s the highlighted, previously As end. period the at flows cash contract positive of timing the from benefitted and March, in raise capital expenses) of (net million £70.3 successful the reflects position cash net the in (2013: £57.7£148.5 million increase The million). 2014 was 31 December at position cash net Group’s The gas terminal for Perenco. for terminal gas Dimlington the of upgrade the for services EPC of delivery the investment programme; AMP6 their for Water Southern by appointment site redevelopment programme; submarine their for Systems BAE with contract a framework a position for on three National frameworks transmission Grid; Framework; Delivery Collaborative Agency’s Highways the to appointment Programme;Electrification National Rail’s Network of delivery the Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 15

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 16 Strategic report: Chief Executive’s review Chief Executive’s review continued

The increasingly strategic nature of Costain’s long-term Our ‘Costain Cares’ programme places responsible, effective customer relationships has ensured that over 90% of the order and collaborative stakeholder relationships at the core of book comprises repeat business and, given the complexity everything we do. It is a central part of our value proposition to of the customer’s requirements, over 90% is in a target cost, customers and has a direct impact on the size and quality of our cost reimbursable, collaborative forms of contract providing order book. good long-term earnings visibility. The Group also has a strong In the year, we retained our Platinum status in the Business in preferred bidder position increased to over £500 million. the Community index, recognising our proactive commitment to Such a level of secured work gives us good reason to look to the the environmental and social aspects of our operations. future with confidence, especially as the level of active tendering Costain further improved its position in the annual assessment across all our target markets remains high. by Management Today magazine of Britain’s Most Admired The Group’s tender success rate is now better than one Companies, ranking 52nd overall, up from 55th the in three of all opportunities pursued, a win-rate that has previous year. improved significantly as a consequence of the implementation of our strategy to focus on the needs of major customers. Teamwork These customers are increasingly procuring contracts on a larger and longer-term basis, reflected in the fact that over 70% We adopt a ‘One Costain’ philosophy across the Group, and of the Group’s order book is for contracts or frameworks with a that is evident in the way in which our team of over 3,500 people remaining value in excess of £100 million. The average life of a work together to deliver an outstanding service to customers contract in the Group has increased considerably in the last few and deliver strong business performance. years and is now over four years in duration. We have continued to develop and enhance skills across the business and there are currently 179 graduates and ‘Costain Cares’ 80 apprentices on our structured development programmes. Our customers continue to place great emphasis on the During the year, David Taylor was appointed to the Executive ‘good citizen’ credentials of their supply chain partners. Board as Group Commercial Director, replacing Patrick Bruce Given the profile of their businesses and the nature of the who is retiring from the Group in March 2015 after over 40 years activities we undertake, how we deliver our services is as of service. important to them as what we do. Increasingly, customers insist that their Tier One providers share their corporate and Outlook social responsibility values and failure to embrace this means non‑qualification for tender lists. We have delivered a strong performance, and successfully completed a capital raising to enable the Group to accelerate its The management of Health and Safety is a core value at Costain. growth. We are excited by the many opportunities that lie ahead We place a priority on the management of Safety, Health and and, with an outstanding team and record order book, we look Environment, and the Group’s Accident Frequency Rate (AFR) forward to reporting on further progress in 2015. improved to 0.10 (2013: 0.12), which compares favourably with our peer group. We also received 17 Gold Awards from RoSPA, seven Gold Medals and a prestigious Order of Distinction. Notwithstanding the improved performance, and in view of the prosecution and fine for Health and Safety breaches following the death in 2011 of a subcontract worker at a site in Newbury, Andrew Wyllie CBE we recognise that there is still more we must do to achieve our Chief Executive objective of zero accidents. 02 March 2015

Costain Group PLC Annual Report 2014 The members ofThe members the Executive Board are: managers and is chaired by Andrew Wyllie, Chief Executive. ofIt the Executive consists and other Directors senior Board. down by Group laid the policies following Group’s the of operations, management day-to-day the for authority primary has Board Executive The Driving our strategy Executive Board Group Group Financial Controller Hunter Martin Natural Resources – Managing Director Alex Vaughan Chief Executive Chief CBE Wyllie Andrew

Company Secretary and Director Legal Wood Tracey Infrastructure – Managing Director Darren James Finance Director Finance Anthony Bickerstaff Group Commercial Director David Taylor Director DevelopmentCorporate Tim Bowen

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 17

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 18 Strategic report: Our business model Our business model

We have a unique The resources we call on ‘Engineering Tomorrow’ to run our business strategy of partnering with major blue-chip Human – the skills, experience, productivity, diversity and excellence of our people enable us to operate customers with very safely, reliably and efficiently and to deliver our projects complex requirements. on time and within budget. Together we are meeting

essential national Social and relationship – maintaining quality relationships with all our stakeholders is fundamental to creating and needs that in turn sustaining our business. will create long-term sustainable value for

our investors and all our Intellectual – our knowledge-based assets give us a other stakeholders. key competitive advantage that underpins our growth ambitions.

Financial – the financial resources (through shareholder capital, retained profits, debt and cash generation) we need to run our business and fund our activities.

Primary activities

1. Unique customer focus 2. Range of innovative services 3. Financial strength 4. Skills and experience of We target customers and markets By maintaining and developing We target blue-chip customers with the team where there is committed regulated the capabilities and services our longer-term, larger contracts and Our experts deliver innovative, spend and essential capital customers demand through the extensions. We have an order book efficient and value-driven solutions investment, addressing essential whole life, end-to-end life-cycle worth £3.5 billion and a repeat order for customers. It is vital that national needs and that have a of their assets, we ensure we meet rate of over 90%. More than 90% of we attract, develop and retain total investment spend of more their complex business challenges. our business is made up of low-risk, individuals with world-class than £87 billion. • Advisory and concept target-cost, cost-reimbursable expertise. We invest significantly • Water: £12.0bn development contracts. This combination gives us in developing and broadening the long-term stability and sustainability skills and capabilities of our team. • Power: £12.6bn • Specialist design of revenue and earnings. • Nuclear: £5.8bn • Programme management • Highways: £7.7bn • Complex project delivery • Rail: £26.0bn • Technology integration • Oil & Gas: £23.0bn • Asset optimisation and support

Costain Group PLC Annual Report 2014 19

Why our major blue-chip customers choose Costain: • our unique customer-aligned divisional structure • we deliver through longer-term, larger contracts • incorporating a broader range of services Result: 90% repeat orders

Our activities, Our outputs competitive and goals advantage and how we create 1. Unique value customer focus

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n n l For more go to page 41. r t e d c o a T r R d A N N I O 5 S P O R TAT . C en d a tra an llo l r ills of Non-financial goals– ca eso Sk e p ti urce 4. nc rio on rie build a sustainable ri and pe m tis ex tea business that creates atio he n t economic, environmental and social value. For more go to page 34. (1–4) Primary activities (5–7) Competitive advantage

Our competitive advantage Quick links Governance 45 – 82

5. Central resource allocation 6. Consistent behaviours and a 7. Values and brand reputation Go to costain.com for more and prioritisation proven track record We have a respected brand and In managing our central resource We have a proven track record of reputation amongst our peers and allocation to prioritise and optimise reliable, safe service delivery. We customer base. We are recognised as asset deployment we ensure: consistently demonstrate all the one of the UK’s best known and most • Effective and efficient resource vital attributes our customers and admired companies sitting at 52nd allocation stakeholders expect to see in their place in the league table organised partners. by Management Today magazine. • Targeted business development activities • Operating our business safely, Performing responsibly is integral to sustainably and responsibly our success and to the sustainability • Performance management through our Costain Cares of our business. Our set of values programme drives our behaviour and provides the • Continuing to develop a range of basis for all our decisions. Everyone innovative solutions at Costain is committed to being: • Building skilled and experienced • Customer focused teams • Open and honest • Safe and environmentally aware • Maintaining financial strength • Team players and stability • Accountable • Innovative – improving continuously and therefore the… • Natural choice

Costain Group PLC Annual Report 2014 Financial statements and other information 83 – 132 20 Strategic report: Our strategic priorities Engineering tomorrow: Our strategic priorities

Our strategic focus is to enhance our growth and market position by providing innovative and sustainable solutions to increasingly complex and large-scale national needs. Our ‘Engineering Tomorrow’ strategy will ensure we remain competitive and continue to deliver shareholder value.

Priority Measure Target

1. Operating safely, efficiently Accident Frequency To continually improve and responsibly Rate (‘AFR’) safety performance with a zero tolerance The Health and Safety of our people and approach everyone who is involved with Costain remains our highest priority. We demand that safety must be adhered to at all times to ensure that we operate

in an environment which is free from harm. CO2 equivalent To reduce our emissions measured emissions We concentrate on solutions that deliver best value for customers. This requires an unrelenting focus on our customers’ costs and our own operating procedures. We believe that responsible business is integral Underlying operating In line with to delivering greater value to our customers profit business plan and all our stakeholders. Our commitment to delivering services responsibly and sustainably is vitally important to the Group. We are focused on building a long-term sustainable business that creates economic, environmental and social value. Net cash balance Maintain a net cash balance at an appropriate level to suit the business requirements

2. Continue to enhance Repeat business In line with customer insight business plan The ability to understand the challenges facing our customers is crucial if we are to strengthen and evolve our relationships with them. Continuing to enhance our customer insight is one of our top priorities and it is by building strategic, long-term, collaborative partnerships Customer satisfaction Enhance customer that we are best positioned to deliver innovative engagement to gain solutions to these customers. a greater insight into our performance Additional value is delivered to both customers and end users by operating efficiently with a strong focus on speed and agility and an uncompromising attitude to safety. We recognise that talented, integrated and accountable project teams are fundamental to maximising the opportunities presented by unique customer insights.

Costain Group PLC Annual Report 2014 +90% 140.1 3,891 tCO 23,891 Scope 14,365 tCO 14,365 2013 total 10,474 tCO 110,474 Scope Emissions 14.85 intensity Performance 2011 2011 2011 2011 81% 2011 0.11 24.1 105.7 +90% 2012 2012 2012 2012 84% 2012 0.09 24.5 +90% 2013 2013 2013 2013 57.7 84% 2013 0.12 27.4 2 e 2 e 148.5 +90% 2014 2014 2014 2014 83% 2014 0.10 28.7 2 e 83 2014Customer satisfaction, +90 2014 business, Repeat £ 2014 balance, cash Net £ Underlying operating profit,2014 0.10 2014 AFR, Emissions 21.99 intensity 24,692 tCO 24,692 2014 total 20,600 tCO 120,600 Scope 4,092 tCO 24,092 Scope 148.5 28.7

% % m 2 e 2 e m 2 e • • 2015 in focus Our • • their business challenges business their into insights gaining deeper relationships with our customers, Continue to build strategic • engagement and feedback customer our of depth and to increase the frequency technology latest the Use medical within the last two years two last the within medical a had have who staff Costain Increase of the proportion harm zero of goal our towards AFR group Continuous improvement in the 2020 (against 2009 baseline) 2009 (against 2020 by 55% by intensity emissions Reduce measured carbon business plan the with line in profit Group’s underlying operating Continue to increase the cash managementcash on afocus Maintain scope 1 and 2 emissions where Costain has a financial interest. afinancial has Costain where 2emissions 1and scope all incorporate we that ensure to reporting of scope our expand to continue will we 2015, In stake. financial greater or a50% has Company the which in ventures, joint and interests overseas including activities, Group Costain all for 2emissions 1and scope cover regulation this under Emissions boundaries. reporting carbon its adjusted has Group the 2013, Regulations Report) Directors’ and (Strategic 2006 Act Companies the of requirements the with accordance In

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain uncertainties and Principal risks • • • • • • • • Operational delivery Winning new work market conditions Political, economic and systems IT of Failure liabilities Pension Financial strength Operational delivery and Environmental Health, Safety Go to page 28 for more for 28 page to Go Go to page 28 for more for 28 page to Go

21

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 22 Strategic report: Our strategic priorities Engineering tomorrow: Our strategic priorities continued

Priority Measure Target

3. Grow by broadening and Order book To build a strong integrating our services order book in line with the business plan We continue to deliver engineering services across the full asset life-cycle, from advisory and design to operations and maintenance, to broaden and enhance our service offering. Revenue In line with We have developed our value proposition across business plan six core service lines in an increasingly integrated offering to customers: advisory and concept development, specialist design, programme management, complex project delivery, technology integration, asset optimisation and support.

4. Develop best-in-class team Staff turnover To provide initiatives and working Attracting, retaining and developing the best conditions in order to people for Costain is key to our success. retain key staff We continue to grow and enhance our capability in line with our customers’ needs for the relevant skills for today and tomorrow. By investing in a diverse, knowledgeable and highly capable Diversity and inclusion To value diversity workforce, with transferable skills, we can be and inclusion in the sure that we have a pipeline of talent throughout workforce the business.

Investment in training To grow skills and and development capabilities in line with the business plan

Costain Group PLC Annual Report 2014 10,000+ training days, 2013 days, training 10,000+ invested £ Performance 2011 2011 2.5 7.0 relatedactivities 3 70% 0 3.0 Revenue % 2014 2013

Programme delivery Support services £960.0m 2012 2012 2.4 7.4 2 m 2013 2013

employees UK chart pie Outer employees UK chart pie Outer 0 3.0

8.5 1

Total 3,538 Male 2,857 681 Female Total 3,388 Male 2,743 645 Female 3

2014 2014 10.5 3.5

invested £ 2014 days, 14,318 training 10.5 £ 2014 value, book Order Staff turnover, 2014 turnover, Staff

members Board pieMiddle chart members Board pieMiddle chart

3.4 3.5 Total 8 Total Male 6 2 Female Total 7 Total Male 6 1 Female relatedactivities 3 69% 1

Revenue %

Programme delivery £1,122.5m Support services

m bn %

Management Senior chart pie Inner Management Senior chart pie Inner 2

0

Total 169 Total Male 155 14 Female Total 132 Total Male 120 12 Female 1 4 and capabilities of our workforce our of capabilities and skills the broaden to Continue from 2014) over (rolled business the across Deliver bias unconscious training engagement survey 2014 employee the from Deliver key resulting actions acquisition through and organically grow to Continue lines service core six order book across our Increase revenue and 2015 in focus Our

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain uncertainties and Principal risks • • • • • • • Financial strength skills and People Mergers and acquisitions Operational delivery Winning new work Financial strength market conditions Political, economic and Go to page 28 for more for 28 page to Go more for 28 page to Go 23

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 24 Strategic report: Our strategic priorities Engineering tomorrow: Our strategic priorities continued

Priority Measure Target

5. Create and deliver innovative Number of patents Increase the number sustainable solutions used to deliver new of patents in line with high value service to the business plan We are focused on creating intelligent, our customers sustainable solutions that improve the performance of our customers’ businesses. We invest in research, innovation and emerging technology to provide customers with new Number of Continue to services that reduce impact on the communities innovations extract innovative we serve. By aligning our pipeline of innovation solutions through to our customer challenge, we are able to an open innovation work closely with them through every stage programme of development.

6. Working in collaboration Supply chain Average key supplier performance performance score Partnering and collaboration form a central greater than 50% 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 developing strategic partnerships to support the development of broader services and technology. Collaborative Increase the % of contracts work in lower risk, cost-reimbursable contracts

Costain Group PLC Annual Report 2014 2011 2011 Performance 2011 December 2010 65% 50% 2012 2012 2012 69% 36 2013 2013 2013 70%

31 25 December 2014 90% 2014 2014 2014 69% 29 81 +90 2014Collaborative contracts, 69 Supplier performance, 2014 81 Total no. of innovations, 2014 29 2014 patents, of no. Total % % framework contracts framework our revenue from alliance/ increase to To continue developed for our customers ensure optimum solutions are to opportunity earliest the at them involving chain, collaboration with our supply close in work to To continue 2015 in supply chain innovation portal new innovations through the 100 attract to seek will Costain marketplace the in advantage to enhance our competitive technology patent exploit and develop identify, to Continue 2015 in focus Our

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain uncertainties and Principal risks • • • • • • venture risk chain/joint Supply Operational delivery market conditions Political, economic and skills and People Financial strength skills and People Go to page 28 for more for 28 page to Go Go to page 28 for more for 28 page to Go 25

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 26 Strategic report: Our markets Our markets Our focus and the opportunities we see

The sectors in which the Costain Group is active have, in total, a targeted investment spend of more than £87 billion per annum for the immediate future. Below is a summary of activity in those sectors.

Water Ofwat’s final determination for the sixth asset management cycle will see the investment of Total: £44 billion in improving services, improving resilience and protecting the environment. This will be delivered through 522 performance commitments to deliver a high-quality £12bn service to customers with incentives to Potential: £6.4 billion promote success. This demonstrates a Addressable: £2.9 billion continued commitment to spend in the sector. The regulators’ focus on total expenditure (Totex) provides an opportunity to grow into higher value services and drive efficiency across the industry.

Highways Our road network requires significant investment. Road congestion is forecast to Total: keep increasing, costing the economy billions each year and causing frustration to road users. The road network is also an ageing asset. £ 7.7bn The Government’s response in December 2014 was to announce its ‘Roads Investment Potential: £3.2 billion Strategy’– the biggest-ever upgrade of the Addressable: £2.8 billion UK’s existing roads. The Government has committed £15 billion to improve the national road network. • £6 billion to resurface 80% of the national network Through the National Infrastructure Plan the Government will also be providing • £9 billion to add 1,300 extra lane miles local authorities in England with £5.8 billion • Over 60 junction improvements to the over 2014-2020 for the maintenance of national road network local highways.

Costain Group PLC Annual Report 2014 Addressable: £6.5 billion £6.5 Addressable: Potential: £11.6 billion £26bn Total: Rail Addressable: £2.6 billion £5.1 billion Potential: £23bn Total: &Gas Oil £1.0 billion Addressable: Potential: £3.2 billion £5.8bn Total: Nuclear Addressable: £1.5 billion billion £6.4 Potential: £12.6bn Total: Power better efficiency and better efficiency higher energysavings. deliver can and responsive more much are that grids smart developing ultimately – flows power controlling of ways new the of advantage take can we so them modernise to need We also generation. energy carbon low of types new the of advantage take can we so them expand to ensure resilience,our networks we need to rebuild to need we do only Not date. of out and ageing are they but well us served have economy. Historically, our networks existing asuccessful of components vital and security energy for critical are networks energy Resilient gas networks £7.6 in and billion electricity in needed be may investment further of billion £34 estimated an 2020, 2014 and Between Underground. HS2 continues to gather pace London and Crossrail Rail, London to commitments significant further with upgrades, station andenhancements routeelectrification, covering underway, is years five next the over networks rail national the on investment billion £38 The needs. national these achieve help will solutions’ ‘digital driven Technology railway. cost-effective and reliable safer, more a on decade next the over 30% afurther grow to set journeys passenger with this, from benefiting is plc UK investment. ongoing and strategicrail engagement with industry-wide The Government underpins commitment its to work more and efficiently re-evaluate project costs, reduce to operators drive will price oil reducing the with faced challenges The sector. Nuclear the in further grow to position Costain’s for opportunity further presents this market, MOD the in growth and 2030 by capacity nuclear 16GW new of deliver to objective Government’s the with In conjunction and decommissioning contracts. up clean long-term offering sites legacy the of up clean the manage to strategy its accelerate continuesDecommissioning to Authority Nuclear The construction. plant power new and decommissioning in both market, nuclear UK the in exist opportunities Significant 1 . of planned investment in this area this in investment planned of billion £46 over is There stations. power nuclear new as well as technology, and projects storage and capture carbon in investment attracting is future the for energy clean for requirement the infrastructure, network to addition In market.electricity European asingle of development the and support objectives, decarbonisation and affordability security, UK’s energy the Increased interconnection will support markets. neighbouring with integrated more be to need also networks national Our 1 Investment: Networks. Published: January 2015 January Published: Networks. Investment: spectrum portfolio for portfolio customers. spectrum afull provide to skills railway specialist our developed We have market. emerging akey as life full of provider solution value-added a as reputation its upon build to Costain for opportunities will provide This execution. carbon capture projects. and gas unconventional of development UK for momentum increasing the to regards in ahead lietransmission opportunities systems. Further and the enhancement and maintenance of storage; gas and oil for demand growing the projects; expansion and upgrade brownfield positioned for involvement in necessary ideally is Costain sectors, all in expertise engineering particular With its services. Source: HMG, DECC – Delivering UK Energy Energy UK –Delivering DECC HMG, Source: Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 1 . ‑ cycle cycle 27

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 28 Strategic report: Principal risks and uncertainties Principal risks and uncertainties

This section highlights the principal risks and uncertainties facing the Group together with the key mitigating activities in place to manage those risks.

The Board formally reviews the material risks and ensures that these are appropriately managed by the management team. The Board retains the ultimate responsibility for the Group’s risk management framework, including reviewing its effectiveness. It has, however, delegated responsibility 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. The table below lists the principal risks and uncertainties facing the Group at the date of this Report. This list is not intended to be exhaustive. Some risks have not been included in this section on the basis that they are not considered to be material or are not presently known to the Board.

Risk and Impact Mitigation

Health, Safety and Environment The health and safety of our people and everyone who is impacted by Costain remains our highest priority. • Failure to prevent a major safety incident/accident or environmental Accordingly, Costain has detailed Health and Safety policies in place to minimise event which could adversely affect the such risks. Regular Health and Safety visits by experienced professionals and on-site Group’s reputation and its operational training take place to reduce the risk of human error. Any breaches in procedures and financial performance are reported quickly and acted upon as appropriate. A Health and Safety committee also meets monthly to develop a consistent approach and consider best practice. Performance metrics in the Group’s Annual Incentive Plan also include a key non-financial indicator for Health and Safety.

Political, economic and market The strategy of the Group is to focus on major customers in the UK energy, water conditions and transportation markets. These markets are defined by significant and long-term planned expenditure programmes underpinned by committed regulated spend • Change in Government and policy and essential capital investment. The future opportunities in these markets on spending are substantial. • Residual effects of the global The UK Government’s National Infrastructure Plan has identified investment of over economic downturn resulting £320 billion to 2020-21 in an identified pipeline of projects in the UK, including a in contracts being cancelled further £15 billion announced in December 2014 on road infrastructure. The plan has or postponed identified that the funding for investment will be 65.6% from the private sector, 13.8% representing a mix of public and private sources and 20.6% from the public sector.

Financial strength The Group has a strong balance sheet with a positive net cash position and no significant debt. • Unable to demonstrate to customers the required level of financial In March 2014, the Group successfully completed a capital raise of £70.3 million resource resulting in failure to (net of expenses) to enable the business to take greater advantage of the win long‑term contracts opportunities in its chosen markets and therefore accelerate the Group’s medium and long-term growth prospects. The capital raise significantly increased the • Inability to maintain competitive scale net asset base of the Company. in a consolidating market The Group has in place extensive unutilised banking and bonding facilities. • Failure to maintain adequate working capital to operate the business

Costain Group PLC Annual Report 2014 • Supply venture chain/joint risks • • • • • Operational delivery • Winning new work Impact and Risk to budget to and time on contracts deliver to failure in resulting partners venture joint or Failure suppliers of subcontractors, insurers by claim of refusal Failure to obtain/renew or insurance Procurement delay or failure faults Design terms contractual or time costs, risks, assess accurately to Failure the contract in required quality or cost time, the to services the deliver to Failure work win to failure and Competition Mitigation strategic suppliers. and preferred its by compliance ensure to system audit external an use in has Group The concern. for cause or issue any identify to order in them with dialogue a maintain to endeavours and suppliers and subcontractors of monitoring financial undertakes also Group The regularly. reviewed is which suppliers and subcontractors preferred of alist maintains Group the addition, In partner. venture joint or supplier subcontractor, one any on over-reliant not is it that ensure to seeks Group The business. changing the with line in procedures Group’s the updating and reviewing for responsible also is executive senior The compliance. ensuring and practice best of updating the issues, quality overall for responsible is executive Asenior taken. be can required, where action, corrective that so prepared are reports and specialists in-house by audited is site on Work etc. risk, forecast, end performance, financial cost, quality, progress, safety, discuss to place take meetings leaders’ contract regular contract, the of life the During submission. before approval and review internal to subject are which bids, prepare to used are staff qualified and experienced risk, cost the To mitigate Committee. Investment the by review to subject are contracts significant All tenders. all approving for levels authority delegated defined has Costain employees. all for requirements the out setting Way’ in the ‘Costain together brought are These contracts. of delivery and planning preparation, tendering, the for procedures and processes policies, place in has Costain edge. acompetitive with it provide also will delivery, for reputation excellent and brand strong its and technologies new of introduction the through proposition market its develop capability, of breadth and skills its broaden to acquisition, by and organically both drive, ongoing Group’s The available. of opportunities pipeline the monitors regularly Group The requirements. business complex to their solutions need that transportation and water energy, in markets of arange across customers these with relationships strong developed successfully has Group The regulation commitments or essential maintenance requirements. needs, national strategic by underpinned are plans spending major whose customers ‘Engineering Tomorrow’ unique Group’s The strategy focuses on blue-chip blue-chip on focuses strategy Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 29

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 30 Strategic report: Principal risks and uncertainties Principal risks and uncertainties continued

Risk and Impact Mitigation

People and skills To support its goal to develop a best-in-class team, the Group’s remuneration policy is designed to attract and retain high-calibre individuals in an increasingly • Failure to attract, retain and develop competitive market and to remunerate fairly, whilst not encouraging inappropriate a best-in-class team in an increasingly business risk to be taken. Pay and conditions of employment are also regularly competitive market may limit the reviewed against the prevailing market and bench marked against competitors to Group’s ability to grow the business ensure that the Group remains competitive at all levels. as anticipated The Group has in place a well-developed succession planning process which is regularly monitored. This process includes carrying out talent reviews and encouraging ongoing development at all levels. The Group also seeks to actively engage with employees through engagement surveys.

Pension liabilities The Group manages a legacy defined benefit scheme and continually reviews the actions it can take to mitigate long-term risk and consults professional advisers, • Failure to manage the Group’s pension as necessary. scheme so that the liabilities are within a range appropriate to its capital base The scheme was closed to new members from 1 June 2005 and to future accrual which could have an adverse impact on 30 September 2009. A number of other actions have been taken to manage on the Group’s operational results the obligations in the scheme, including the transfer of assets into the scheme and the implementation of Enhanced Transfer Value and Pension Increase Exchange exercises. A full actuarial valuation of the scheme as at 31 March 2013 was concluded during 2014 and the Group agreed a deficit recovery plan with the Trustee.

Acquisitions Full due diligence is carried out before any acquisition is made. Integration plans are put in place and managed by a dedicated team and progress monitored against • Failure to integrate successfully an pre‑agreed performance indicators. acquired business or recognise and mitigate new and related risks could have a damaging impact on the Group’s future revenue and profits

Failure of IT systems A senior executive is responsible for the IT systems and has a suitably qualified team for support. Critical areas are subject to testing and include rapid recovery as well as • Failure of IT systems, inability to sound data backup procedures. Online security training is provided for safe usage manage and/or to integrate IT and storage of documentation. systems, as well as the failure to store key documentation securely, could The Group is accredited to ISO/IEC 27001:2005 Information Security cause financial loss to the Group and Management System. expose the Group to breaches of legislation and fines.

Costain Group PLC Annual Report 2014 delivery phase, for example on the A556 Knutsford project. Knutsford A556 the on example for phase, delivery the for extensions contract to lead then which schemes, ECI through projects major of stages earlier at involvement close enabling also is capability multidisciplinary broad, Our Contracts. Agent Managing three and Framework Support Asset the within works maintenance significant deliver to continued also Group The partner. along-term is Costain which on Programme Motorway Managed the of part as schemes Motorway Smart three awarded was and Framework Delivery Collaborative five-year,£5billion their on a place secured Group The Agency. Highways the to supplier leading a as status its on build to continued Costain Highways, In pipeline. opportunity asignificant with high remains activity tendering of level The phase. delivery commencing to prior process, statutory and planning the through schemes (‘ECI’) Involvement Contractor Early major several delivered also We have customers. from extensions contract and orders new significant (2013: £1.9 secured have we as billion) billion £2.3 to grown has division the for book order The projects. of anumber on bonuses and gain-share of the award of benefit the included and expectations our of end upper the at were year the in margins Profit sectors. target its all across contracts new significant secured and projects existing on well performed division (2013: the £31.4 as million) million £38.3 to rose operations from profit adjusted whilst million) (2013: £560.6 million £785.2 to increased associations) and ventures joint of share (including Revenue Infrastructure Plan. National the as such initiatives Government by encouraged assets, UK’s infrastructure the renewing and upgrading in invest to continued customers major as growth strong Rail and Power experienced sectors, another year of Highways, the in operates which division, Infrastructure The Infrastructure operate. we in which sectors the across opportunities business new attractive most the securing and identifying on resources our focus to continue to us enabled has structure divisional customer-aligned Our Resources. Natural and business: Infrastructure our divisions within reporting and We have core operating two reviewDivisional underground and overhead line transmission frameworks. voltage high their to appointment following Grid National with work repeat secured also has Group the addition, In of tunnel under London the in longest history.the construction National Grid’s London Power Tunnels which involves project, delivering progress significant making is Power, Group In the platforms. new six use, into bringing including milestones, key on deliver to continued has Costain UK, the in hubs transport busiest the of one Bridge, London At schedule. of ahead over handed was project redevelopment critical the after Station Reading opened Queen the Majesty Her well. progress to Yard New continue Paddington and Station Street Bond Station, Paddington at Crossrail for works other Costain’s whilst contract, Spur East North the of award the with reinforced was project, infrastructure largest Europe’s Crossrail, for providers service significant most the of one as position Group’s The Project. Improvement Glasgow to Edinburgh the Rail’sNetwork £2 billion National Programme and Electrification of share largest the awarded was venture joint aCostain Rail, In budget. on and time on progressing Hammersmithimportant flyover for for LondonTransport is also strategically the strengthening on work Group’s The project. the of stage design and engineering front-end the of delivery successful Group’s the following phase construction the to moving now contract ECI A465 the and well progressing contract Technology Wales All the with Government, Welsh the to supplier amajor be to continued also has Costain £2.3bn £785m Infrastructure order book Infrastructure Infrastructure revenue Infrastructure Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 31

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 32 Strategic report: Divisional review Divisional review continued £335m Natural Resources revenue £1.2bn Natural Resources order book

The Costain team has delivered several key overhead line projects for UK Power Networks and also continues to perform operations and maintenance activities for SSE, E.ON and Scottish Power. The Group is also engaged at the ECI In Water, the Group continued to deliver successfully AMP5 stage with EDF in the development of the Hinkley C new frameworks for United Utilities, Southern Water, Severn Trent nuclear power plant, designing and developing the cooling Water, Welsh Water and Northumbrian Water. Looking to system marine tunnel. the future, Costain has been awarded places on the five-year AMP6 programmes, which commence in April 2015, for Thames Natural Resources Water, Severn Trent Water and Southern Water. The Group is continuing to deliver the large waste water treatment plants at The Natural Resources division encompasses Costain’s Liverpool and Woolston, and has completed the award-winning activities in the Oil & Gas, Nuclear and Water sectors. Brighton & Hove scheme. In addition, work commenced on the Revenue (including share of joint ventures and associations) Shieldhall contract with Scottish Water. for the year was £335.0 million (2013: £397.6 million), with Costain continued to broaden its specialist capabilities in the adjusted profit from operations, including £4.0 million profit Oil & Gas market where it believes it will continue to secure new on transfer of interest in associates to The Costain Pension work although there will be some impact from the recent falls in Scheme, of £0.5 million (2013: £12.8 million, including the oil price. In 2014, the Group secured a contract with Centrica £9.1 million profit on sale of interest in joint ventures). Energy for EPC services as part of the Barrow Gas Terminals The reduction in revenue reflects our policy of prioritising and Project and with Perenco for its Freon replacement project allocating tendering resources towards the most attractive at Dimlington. opportunities for growth across the Group at any point in time. We continue to deliver support services for the Oil and Pipelines Agency, including operations, maintenance and upgrade The adjusted operating result for the year includes additional services across its network of jet fuel pipelines and storage costs for the completion of the legacy waste PFI contract facilities, with a further one-year extension being awarded in awarded in 2007 for the Greater Manchester Waste Disposal the year. Costain Upstream, which delivers asset development Authority as described on page 33. Excluding these costs, the and asset improvement consulting services from its base in division generated an operating profit and is trading in line Aberdeen, has performed well and continued to secure new with expectations including an increasing level of tendering work including an extension to the Premier Oil framework. costs for new work. The division has increased its forward order book to £1.2 billion (2013: £1.1 billion) and is expected to benefit from customer spend in its target markets which are underpinned by regulatory and legislative requirements.

Costain Group PLC Annual Report 2014 in 2011in incurred. was site the at worker acontract of death the to relating breaches safety and health for million £0.5 of afine proceedings, legal Following client. our with work the for account final the on agreement reached and project, residential and retail amixed Newbury, in development Parkway the We completed nature. this of contracts fixed-price pursue to not 2009 since policy Group’s the been has It project. the complete to costs additional for taken been has a provision 2014, In discussions. these to outcome asuccessful expects Board The contract. this on arisen have that issues the regarding insurers Group’s the and counterparties contract relevant with discussions in is Costain reported, previously As £14 of million. payments milestone and retention contractual handover of the finalfacility, we received in December achieving In completed. be will modifications plant and work further which during contract the of terms the under period warranty the in or completed fully either now are contract the on facilities 2007. 46 in All awarded PFI contract Authority Disposal Waste Manchester Greater legacy the on facility waste final the on achieved was handover December, During for commissioning. active over handed successfully was Bradwell at facility dissolution Debris Element Fuel The expected. as continues Cumbria in West Facility Reprocessing Nuclear Sellafield the at Barrow in site submarine the re-develop to year programme eight million, £300 its to appointed been having BAE with partner contract amajor now is Group the Nuclear, In ‑ in-Furness. The delivery of The delivery Evaporator-Din-Furness. construction sales were completed in the year the in completed were sales land significant no £1.3 (2013: anticipated, £2.1 million As million). was tax after loss (2013: the £1.8 and million million) £2.3 was Revenue achieved. be will recovery significant when to improvement, there remains as considerable uncertainty of signs show to continues economy Spanish the Whilst marina occupancy. raising in assisting is and demand in is yard repair boat the where marina the in particularly streams, revenue improving reported have activities leisure Both Gibraltar. to adjacent marina, yacht 624-berth and club agolf businesses, leisure two holds also It development. hotel and residential for approval planning of levels varying with Spain Southern in of land hectares 500 of excess in of aportfolio has venture joint The conditions. market challenging to subject be to continued Bank, Santander with venture joint a50:50 in undertaken Spain, in activity Development Land non-core Group’s The Development Land Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 33

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 34 Strategic report: Corporate Responsibility review Corporate Responsibility review

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 influence, we have identified key priorities that are material to our business and are of importance to our key stakeholders. Costain Cares, our Corporate Responsibility (CR) strategy and vision to build a longer-term sustainable business that creates economic, environmental and social value, addresses these key priorities.

Our approach Costain Cares is based on three fundamental pillars: Relationships, Our Environment and The Future.

1. Relationships “Costain Cares is a continued We encourage open, honest and respectful communication and believe in strong, long-lasting relationships that are commitment to you, our mutually beneficial. stakeholder, to focus on the We will: issues you care about.” • provide a safe working environment free from harm; Andrew Wyllie CBE, Chief Executive • provide a healthy working environment for all our people; • support the local communities in which we operate, ensuring we leave a lasting legacy; • provide sustainable solutions and the highest standards of service for our customers; • attract, retain and develop the best people for the Costain Group; and • operate a collaborative, responsible supply chain where our partners support us in delivering efficient, innovative and sustainable solutions.

Costain Group PLC Annual Report 2014 • • • • • will: We • • • to: chain supply and customers our with work will we possible, Where infrastructure today will be felt for many years to come. come. to years many for felt be will today infrastructure in investment of benefits The economy. UK the to vital infrastructure of provision the in role important an We play Future 3. The everyone. of benefit the for environment natural the to responsibly deliver to have we Finally, shareholders. and customers for value deliver must weNext, compete in the economic environment, where we infrastructure. in investment strategic for needs national We operate in the built environment, where we meet 2. Our Environment chain, including small and medium-sized enterprises. supply our supporting by growth economic to contribute and sector; our within needs future to respond to skills develop to chain supply and customers our with work tomorrow’s challenges; to solutions provide to innovation in invest our shareholders; for investment on return a sustainable provide providers solutions engineering UK’s top the of one be protect and enhance the environment. and materials; of sourcing sustainable management, minimising water consumption and waste effective through resources natural conserve change; climate on impact our reduce

to retain Platinum status. Platinum retain to proud 2014, were In we levels. operational and strategic at business responsible integrate how companies illustrates Index CR The Index. CR (BITC) Community in the in Business bymarketplace participating wider the in companies other and peers our against strategy, we also measure and ourselves benchmark our against performance measuring to addition In way. sustainable and aresponsible in work our CR programme. employee Every to is expected drive to leadership providing and strategy and policy setting including CR of aspects all for accountable is Board Executive the and responsible is Board The 41. page on performance financial or 20 page on priorities strategic of review our in either on reported already not are that priorities CR key our against progress our summarises page next The CR performance Our available online at costain.com/our-culture at online available More details about our Costain’s CR work are are work CR Costain’s our about details More % 5 6 7 8 9 100 BITC CRIndexperformance 0 0 0 0 0 2 88% 0 09 2 93% 0 1 0 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 2 95% 0 1 1 2 95% 0 1 2 2 97% 0 1 3 2 97% 0 1 4 35

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 36 Strategic report: Corporate Responsibility review Corporate Responsibility review continued

1. Relationships Goal: To provide a working environment where the health of our people is protected, their wellbeing is enhanced and everyone returns home safely at the end of the working day

A safe working environment free A healthy working environment for from harm all our people

Key highlights Key highlights • The launch of the Costain Safe Start Toolkit aimed at ensuring • Strengthened our policy with regard to ‘wellbeing’ medicals that every worker at Costain starts work safely. The toolkit for non-safety critical staff by making voluntary medicals includes a training package which focuses on developing the available to everyone working with us. communication skills of the managers and supervisors who • The delivery of two company-wide health campaigns to raise put people to work. awareness of: • Two successful safety, health and environmental (SHE) – the health risks associated with construction dust Leadership Impact days were held across the Group in – cancer. April and October. Led by the two Managing Directors, • The second campaign was delivered by Macmillan Cancer approximately 50 senior business leaders visited over 50 sites Support who visited over 20 sites and the two principal and the two principal offices in order to engage with site offices, reaching a total audience of over 1,500 people. personnel and demonstrate commitment from the highest level. The two key themes for both days were the importance • Signed up to the Institute of Occupational Safety and Health of putting people to work safely using the Safe Start toolkit (IOSH) ‘No Time to Lose’ campaign, aimed at improving and the management of health and wellbeing. understanding of the causes of occupational cancer and helping businesses to take action. Metrics Metrics Accident Frequency Rate Group All Accident Frequency Rate 0.12 0.11 2.22 0.10 2.05 2.01 0.09 1.83 3.3 days lost (on average per employee) in 2014 through absence Note: this is the first year this data has been reported on

2011 2012 2013 2014 2011 2012 2013 2014 Focus for 2015 A 9% reduction in the last A 9.5% reduction in the last four years four years • Continue the promotion of wellbeing medicals for our non‑safety critical staff. Our aim is for 75% of Costain staff to have undergone a medical within the last two years by the end Focus for 2015 of 2015. • Achieve a Group AFR of 0.08. • Develop and trial a Health Maturity Matrix which will comprise • Hold two SHE Leadership Impact Days. a list of incremental standards which will allocate Gold, Silver or Bronze status to our contracts in respect of their • Undertake comprehensive SHE readiness reviews prior to management of health and wellbeing. We aim to adopt the start up of all new contracts. Matrix company-wide in 2016. • Actively participate in European Health & Safety Week • Continue to promote health and wellbeing in the workplace in October. through the delivery of three company-wide campaigns. The campaigns in 2015 will focus on Vibration, Personal Wellbeing and Mental Health.

Costain Group PLC Annual Report 2014 135,000 Community investment Community Constructors Scheme Constructors Group average Considerate • 2015 for Focus Community investment Metrics • • Key highlights Metrics • Key highlights communities local with Work partnership in legacy lasting a in which we operate, we ensuring leave Goal: To communities local the Support 2011 2011 35.1 Cancer Support, The Prince’s Trust and Samaritans. and Trust Prince’s The Support, Cancer Macmillan Foundation, Heart British the charities: chosen four Foundation’s Charitable Costain the for £1 million Raise anniversary. 150th Costain’s of celebration in 150 Challenge Costain the Launched charity. aregistered Foundation, Charitable Costain the Founded performing 10% of sites registered under the scheme. top the from selected are winners Award environment. the and workforce their neighbours, their towards consideration of standards excellent sites’ recognise awards The Award. Site Considerate Most the in runners-up were projects our of two and Awards Bronze seven Awards, Silver three Awards, Scheme.Considerate We Constructors received five Gold the by recognised were projects our of 2014,In anumber 171,000 2012 2012 35.0 173,000 2013 2013 40.2 226,418 2014 2014 40.6 out of 50, consistently high scores high consistently 50, of out 40.6 the last four years four last the increase in charitable donations in 68 %

long the provide will scheme Link M6 to Heysham The economy. the Lancaster will help boost scheme apark-and-ride while residents, and businesses local for congestion ease and access improve will scheme park-and-ride and carriageway dual long-awaited This Scheme M6 to Link Heysham website: http://costain.com/our-culture/costain-cares-stories our visit please studies, case other and this on details further For successful delivery of the scheme. the of delivery successful the in assist to apprentices five recruited We also have unemployed. previously were whom of 80 locally, living personnel agency 85% of in resulted has This possible. where labour local using on insisting Costain with scheme the from benefited also has community local The community local the Supporting risk. road prevent and awareness raise to users road local with done have they 0.11) AFR (current record work and safety the of proud is team Our delivery. during priority ahigh remains Safety cost reductions. and carbon further even identify to opportunity is There asphalts. in reduction the through realised been have savings carbon largest the while 25% alone, nearly by tonnage aggregate the reduced design new The project. entire the of footprint carbon embodied the and required materials of quantity the in savings considerable identify to able were team Our design. original 21% of the from reduction carbon total a to led materials and design the on engagement Early and benefits. cost safety delivered also that atarget phase, construction the during footprint carbon the minimise Tarmac, to Lafarge partner, chain supply our with closely working We been have Reducing our footprint carbon opportunities. employment and access passenger increased biodiversity, quality, air improved including benefits community and key of environmental anumber realise to set is 2014, scheme early in the began construction Since peninsula. Heysham and Morecambe the to 34 ‑ awaited connection from the M6 at Junction Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 37

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 38 Strategic report: Corporate Responsibility review Corporate Responsibility review continued

1. Relationships continued Goal: To attract, retain and develop the best people for the Costain Group

Provide initiatives and working conditions London Bridge Legacy in order to retain key staff At London Bridge station, we are striving to maintain a fit and healthy workforce, to reduce our use of natural Key highlights resources, eliminate waste, maximize our talent and skills, integrate business into the community and help tackle • Enhanced the population of our Annual Incentive Plan low employment in the London Borough of Southwark. in order to engage and retain top talent. Key benefits, as at December 2014: • Conducted Group-wide employee engagement survey. • c.£1.8 million spent with local and small and • Further successful grant made under the Company’s Save medium-sized businesses (SMEs) by December 2014 As You Earn (SAYE) scheme which encourages and supports • 99% of waste diverted from landfill share ownership by employees. • 26 apprenticeships offered We are working with our client, Network Rail, to ensure Metrics long-term employee and project value by implementing sustainable solutions both in design and construction. We SAYE take-up by eligible Employee engagement have introduced a number of best practices and initiatives employees 75% that will help us provide a sustainable legacy. 25% 24% 57% Integrating business into the community 17% Engagement with local companies and recruiting local SMEs is important to promote local economic sustainability. By holding local supplier events and 2011 2013 2014 2011 2014 encouraging companies to develop their offering, we SAYE take-up remains at a 75% of employees think have contributed towards the economy of the London strong level Costain is a great place Borough of Southwark. to work By identifying skills gaps within the local community and gaining our Skills Academy status in 2013, we have helped Focus for 2015 young people obtain employment, providing them with • Deliver the key actions identified in the 2014 engagement the basic training needed in the construction industry. survey focusing on communications and visibility of Environmental responsibility career opportunities. We proactively work to minimise all impacts through • Conduct a full survey, with a smaller pulse survey in-between changes in methods or mitigation in advance of major to track key drivers every two years. works. Automated monitoring systems have been installed around the worksite to assess noise and air quality impacts and allow us to pinpoint any problems. One of our focuses has been the responsible procurement of materials and services using tools such as our material use plan. This allows us to make informed decisions about the materials that we use on projects. The project has required the removal of over 200,000 tonnes of waste, and despite the contaminated nature of the sites we have diverted over 99% of the waste from landfills. For further details on this and other case studies please visit our website: http://costain.com/our-culture/costain-cares-stories

Costain Group PLC Annual Report 2014 241,899 Metrics • • 2015 for Focus four years… last the in projects excavation volume high of number a taken under We have removed waste of Tonnes • • • Key highlights resources natural Conserve resources Goal: To natural conserve 2. Our environment 2011 waste production and increase diversion from landfills. from diversion increase and production waste reduce to continue to chain supply our with closely Work resources. of use efficient the maximising of aim the with systems our improve and efficiency resource drive to Continue possible. as waste much as recovered and or limited reduced we ensure and wastage eliminate or minimise to chain supply our with closely work to We continued waste. reduce therefore, and, materials manage to Practice of Code CL:AIRE the used we feasible, Where waste. eliminate and materials minimise to ways contracts, of phases early in identify, and management waste and material efficient of awareness raise to We continued 351,417 2012 695,000 2013 684,886 2014 2011 remains consistently high. landfills from divert we waste of percentage the …but Waste diverted from landfills from diverted Waste 89%

2012 93% 2013 95% 2014 94%

reporting ofreporting incidents. the and awareness in increase an to led has training staff Better Environmental incidents the environment Goal: To andenhance protect • Key highlights environment the enhance and Protect • • 2015 for Focus 0 Metrics Prosecutions, cautions, notices 2011 24 levels of training and communication initiatives. viaundertaken numerous mechanisms including increased environmental incidents and of the importance reporting, of years three last the over awareness raised Significantly Reduce our Environmental Incident Frequency Rate to 0.31. year-on-year. incidents environment and reducing our overall environmental the on impact our minimising to committed We are notices in the last eight years eight last the in notices prosecutions, cautions or No environmental 2012 85 2013 80 2014 108 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 2011 frequency rate frequency Environmental incident 0.08

2012 0.28 2013 0.28

2014 0.35 39

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 40 Strategic report: Corporate Responsibility review Corporate Responsibility review continued

3. The Future Goal: To work with our customers and supply Goal: To contribute to economic growth by chain to develop skills to respond to future supporting our supply chain, including small needs within our sector and medium-sized enterprises

Raising awareness of engineering Working in collaboration with our opportunities among young people supply chain and partners

Key highlights Key highlights • 74 young people took part in Costain’s ‘Get Into Construction’ • Launched the Costain supply chain innovation portal to course, a two-week work experience/training programme with make collaborating on innovation a reality for hundreds of The Prince’s Trust. Over 50% of the young people who took businesses focused on accelerating new solutions. part have gone into employment. • Held Costain supply chain conference, attended by senior • Launched Costain’s Science, Technology, Engineering and representatives of our supply chain partners and Costain’s Maths (STEM) app, ‘Engineering your Tomorrow’ with over senior management team. 1,000 downloads to date. • Founded the factory thinking forum to develop new innovative solutions and enhance best practice in Metrics off‑site manufacturing.

Engagement with over 50 schools Metrics 50 in the last 12 months Number of SMEs engaged in our supply chain academy Number of work experience placements 30 31 164 150 15 95 XXX To date, 76 supply chain partners have been through the academy, a total of 2011 2012 2013 2014 2,280 participants Over 400 placements in the last three years 2012 2013 2014 Focus for 2015 • Achieve level three of the Sustainable Procurement Task Force Focus for 2015 Flexible Framework. • 100% of contracts to develop and implement community • Two further intakes of the supply chain academy. engagement plans. • Roll out sustainable procurement guidance and training to our procurement teams and strategic partners.

Costain Group PLC Annual Report 2014 analysis in the financial statements. statements. financial the in analysis segmental the in shown are and section review Divisional the in considered are divisions operating Group’s the of results The billion). 2013: £3.0 (31 December billion £3.5 to increased book order Group’s the and extensions and contracts new of anumber secured Group The sale. this of £9.1of aprofit result as a million realised Group £12.0 The million. of consideration aggregate an for portfolio, this of disposal the of part as companies venture joint three in shareholdings minority its sold 2013,Group In the million. of £4.0 transfer the on profit a in resulted £7.4 of which million, scheme the of Trustee the with agreed avalue at (CPS) Scheme Pension Costain The into PFI investments two remaining its transferred Group 2014, the in and portfolio PFI equity Group’s the of disposal or transfer the on profits includes items, other before tax, before Profit earnings per share were 22.2 pence (2013: 17.6 pence). amounted to 27.8 pence (2013: 41.0 pence). Reported basic items, other before share, per (2013: earnings £31.0 Basic million). million £28.5 was year the for items, other before tax, before Profit customers. chip blue with orders repeat long-term on focus continued Group’s the reflects profit increased The (2013: £27.4 million £28.7 to million). profit operating underlying in increase a5% generated Group The million). (2013: £960.0 2014 £1,122.5 31 to December was year the for million associates, and ventures joint of share including revenue, Group Overview ofthe matters financial significance. This review brings together the key financial theof metrics Group out sets and review Finance Director’s

Capital raising Capital • • • • • • utilised: be, will and being, are proceeds The capital. new of expenses) of (net million £70.3 of raising the completed successfully Group 2014, 18the On March for general corporate purposes. arise; and opportunities as capabilities existing Costain’s complement to acquisitions in-fill selected make to flexibility provide to contracts; cost-reimbursable target-cost, towards market the in move the from arising requirements capital working increased likely fund to tender; to aposition in is Group the which for projects scale large of number greater a with associated costs bid finance to the offering to service customers; enhance to necessary technology and innovation in invest to and duration; size contract in increases further anticipated the support to capacity financial Group’s the customers to demonstrate to Anthony Bickerstaff, FinanceAnthony Bickerstaff, Director Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

41

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 42 Strategic report: Finance Directors’ review Finance Director’s review continued

Interest Shareholders’ equity Net finance expense amounted to £3.6 million Shareholders’ equity increased in the year to £110.8 million (2013: £4.0 million). The interest payable on bank overdrafts, (2013: £43.3 million). The profit for the year amounted to loans and other similar charges was £2.2 million £21.0 million and other comprehensive expenses to £16.1 million. (2013: £2.6 million) and the interest income from bank deposits The movements are detailed in the consolidated statements and other loans and receivables amounted to £0.7 million of comprehensive income and expense and changes in equity (2013: £0.7 million). In addition, the net finance expense in the financial statements. The most significant change to includes the interest cost on the net liabilities of the pension shareholders’ equity resulted from the capital raise completed scheme of £1.4 million (2013: £2.1 million) and £0.7 million during the year. (2013: £Nil) unwind of discount on deferred consideration. Pensions Tax As at 31 December 2014, the Group’s pension scheme deficit in The Group’s effective rate of tax was 7.1% of the profit accordance with IAS 19, net of deferred tax, was £33.4 million before tax (2013: 3.1%). The lower than normal rate of tax (2013: £29.4 million). The scheme deficit position has increased arose owing to tax relief on the sale of shareholdings in primarily as a result of a reduction in the discount rate used PFI assets, Research and Development tax relief claims, timing to calculate the liabilities offset by a decrease in the assumed differences not previously recognised as deferred tax assets, inflation rate, the return on assets and company contributions. and the effect on the brought-forward deferred tax balances As part of the ongoing actions to manage the Group’s pension of the reduction in the rate of corporation tax to 20%. obligations, in 2014, the Group transferred its interest in two PFI investments into the CPS at a value agreed with the Trustee of Dividend the scheme of £7.4 million. The Board has recommended a final dividend for the year In the year, agreement was reached with the Trustee of the CPS of 6.25 pence per share (2013: 7.75 pence per share) to bring regarding the triennial actuarial review as at 31 March 2013 and the total for the year to 9.5 pence per share (2013: 11.5 pence the associated deficit recovery plan. As anticipated, the annual per share). The reduction in dividend per share is due to the cash contribution to the scheme deficit has been agreed at increase in the number of shares as a result of the new capital £7.0 million per annum (increasing annually with inflation) plus an raised during the year. additional contribution to bring the total contributions to match In accordance with the pension deficit recovery plan agreed the total dividend amount paid by the Company over the next with the Trustee of the CPS, the Group will make an additional three years. cash contribution to the pension scheme to match the total deficit contribution to the total amount of dividends paid to shareholders.

Costain Group PLC Annual Report 2014 surety companies. surety and banks relationship its 2017 with June 30 of date maturity a with £495 of million facilities banking and bonding contract has Group The requirements. usage projected and current the meet to providers bond surety and banks from facilities adequate maintaining means This necessary. as bonds other and performance supply to able being it on The Group’s long-term business contracting is dependent facilities banking and bonding Contract million). £50.7 (2013: million £95.6 2014 was during balance cash net month-end average year. The the during completed raising capital million £70.3 the by enhanced was balance cash The contributions. deficit pension and dividends of payment for outflows with flow,together cash operating apositive had Group the statement, flow cash consolidated the in out set As million). £24.1 of (2013: £25.6 million operations joint by held cash included this million), (2013: £26.6 borrowings no and million) 2014 (2013: £84.3 31 December at as £148.5 million was which balance, cash apositive has Group The borrowings and flow Cash Revenue £ 0 300 600 900 1,200 £1,122.5 m 986.3 2 0 1 1 934.5 2 0 1 2 m 960.0 2 0

1 3 1,122.5 2 0 1 4 and controls and is subject to periodic review by internal audit. internal by review periodic to subject is and controls and objectives defined clearly within centre aservice as operates Treasury Group transactions. speculative in engage to not is policy Group’s The risks. these managing while development, growth Group’s the support to available are resources financial and liquidity adequate that ensure to is policy Group’s The currency exchange rates. foreign and rates interest in movements from arising principally risk, financial and funding liquidity, Group’s the manage to are activities primary Its function. treasury acentralised by undertaken are activities funding and treasury Group’s The Treasury supported by adequate cash reserves or bank facilities. bank or reserves cash adequate by supported are needs financing projected that ensure to usage forecast and usage cash monitor regularly Directors The borrowings. and profits retained shareholders, from funds capital, working of mixture by a primarily operations its finances Group The risk Liquidity Net cashbalance £ 0 30 60 150 90 120 £1 m 140.1 48.5 2 0 1 1 105.7 2 0 1 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 2 m 2 57.7 0

1 3 148.5 2 0 1 4 43

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 44 Strategic report: Finance Directors’ review Finance Director’s review continued

Foreign currency exposure Interest rate risks and exposure Translation exposure: the results of the Group’s overseas The Group enters into financial instruments, where necessary, activities, mainly non-core Land Development in Spain, are to finance its operations. Various financial instruments (for translated into sterling at rates approximating to the foreign example, trade receivables and trade payables) arise directly exchange rates ruling at the dates of the transactions. from the Group’s operations. The balance sheets of overseas subsidiaries and investments The main exposure to interest rate fluctuations within are translated at foreign exchange rates ruling at the balance the Group’s operations arises from surplus cash, which is sheet date. generally deposited with the Group’s relationship banks, and Transaction exposure: the Group has small transactional bank borrowings. currency exposures arising from subsidiaries’ commercial activities overseas and from overseas supply purchases for business in the UK. Where appropriate, the Group requires its subsidiaries to use forward currency contracts to minimise any currency exposure unless a natural hedge exists elsewhere within the Group. Anthony Bickerstaff Finance Director 02 March 2015

Costain Group PLC Annual Report 2014 and accountability.”and transparency encourages continues to be on maintaining a strong team. astrong maintaining on be to continues focus My Alexander. Mike of retirement the following Committee Remuneration the of Chair 2014, became February in Board the to appointed been had who Alison Wood, 2014 April in whilst McManus, David of appointment the with Board our strengthened 2014, further May we In including skills, experience, gender and nationality. measures, of arange across diverse is that ateam I lead control and risk management. internal to approach efficient and ameticulous with combined and accountability, transparency that encourages framework governance arobust create to is role Our providers. solutions engineering UK’s leading the of one being of vision our achieve to continue to us enable to governance corporate of standards highest the to committed are we and business the of success the for responsible ultimately is Board Our Costain. at governance corporate for accountable Iam Chairman, As Dear Shareholder statement Chairman’s summary David Allvey, Chairman report Corporate Governance framework that that framework governance robust create a “Our to is role 02 March 2015 March 02 Chairman Allvey David committees govern our approval and operating procedures. various the how year, explaining the during activities various Board’s the detail more in discuss pages following The approved in December 2014. was plan Abusiness arise. opportunities as capabilities potential in-fill acquisitions to complementCostain’s existing Tomorrow‘ ’Engineering evolving and unique our implementing on focused be to continued conversations These advisers. third-party and Board Executive the of members by attended workshops Board of anumber included this and issues strategic key on discussions wide-ranging undertook Board the addition, In GovernanceCorporate report. the of 50 page on found be can details Further questionnaires. detailed and interviews personal of way by conducted was This 2014. in performance Board’s the of evaluation facilitated externally an out carried we Code’), (‘the Code Governance Corporate UK the of requirements the with keeping In strategy, including the ongoing consideration of Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 45

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 46 Governance: Board of Directors

Committee membership Board of Directors 1 Member of the Remuneration Committee. 2 Member of the Audit Committee. Experienced leadership 3 Member of the Nomination Committee.

Go to page 17 to read about the Executive board

Go to pages 54 to 74 to read more about Committee activity

David P Allvey (69)3 Andrew Wyllie (52) FCA, ATII CBE, FREng, MBA, BSc, CEng, FICE, Non-Executive Chairman CCMI Appointment Chief Executive November 2001 Appointment Skills and experience September 2005 David Allvey was appointed Chairman Skills and experience in January 2008 prior to which he was Andrew Wyllie was appointed Chief Chairman of the Audit Committee. With a career that started in Executive in September 2005. He was previously Managing Director civil engineering and subsequently as a Chartered Accountant, his of Taylor Woodrow Construction Ltd (2001 to 2005) and a member previous roles include Group Finance Director for BAT Industries of the Taylor Woodrow plc Executive Committee. Andrew joined plc, Barclays Bank plc and Chief Operating Officer for Zurich Taylor Woodrow in 1984 and worked on major contracts in Africa, Financial Services, member of the UK Accounting Standards Board, the Middle East, the Far East and the UK. He was awarded the CBE member of the International Accounting Standards Insurance for services to Construction and Engineering. Group, Non-Executive Director of Thomas Cook plc (2007 to 2012), External appointments Senior Non-Executive Director of Intertek Group plc (2002 to 2011), Non-Executive Director of Scottish Water. Senior Non-Executive Director of William Hill plc (2002 to 2011), Senior Independent Director of Friends Life FPG Limited (formerly Friends Provident Group plc) (2009 to 2011) and Chairman of Arena James Morley (66)1,2,3 Coventry Ltd (2006 to 2012). BSc, FCA External appointments Senior Independent Director Senior Independent Director of Friends Life Group plc, Non- Appointment Executive Director of Clydesdale Bank plc and National Australia January 2008 Group Europe Limited. Skills and experience James Morley was appointed as the Senior Independent Director in January 2013 Anthony O Bickerstaff (50) prior to which he served as Chairman of the Audit Committee from FCCA January 2008 until the end of October 2012. He is a Chartered Finance Director Accountant with some 27 years’ experience as a board member Appointment of both listed and private companies. Previous roles include Chief June 2006 Operating Officer of Primary Group Ltd (2006 to 2007), Group Skills and experience Finance Director of Cox Insurance Holdings plc (2002 to 2005), Tony Bickerstaff was appointed Finance Group Finance Director of Arjo Wiggins Appleton plc (1999 to 2001), Director in June 2006. Tony has extensive Group Executive Director Finance of Guardian Royal Exchange knowledge of the construction and support services sectors both plc (1990 to 1999), Deputy Chief Executive and Finance Director of in the UK and overseas. He is responsible for all aspects of the Avis Europe plc (1976-1989), Non-Executive Director of the Bankers’ financial management of the Group as well as playing a major role Investment Trust plc (1994 to 2008), Non-Executive Director of W S in the Group’s strategic and operational development. Previously, Atkins plc (2001-2009), Non-Executive Director of Trade Indemnity Tony was with the Taylor Woodrow Group, which he joined in 1982. Group plc (1991-1996) and Non-Executive Chairman of Acumus Ltd. He held a number of senior management and financial positions (2011-2012). in Taylor Woodrow including Finance Director of Taylor Woodrow External appointments Construction Limited. Prior to becoming Finance Director, he was Non-Executive Director of The Innovation Group plc, Clarkson Divisional Operations Director in charge of Taylor Woodrow Group’s plc, Speedy Hire plc, BMS Group Ltd. and Minova Insurance PFI projects. Holdings Ltd. External appointments Non-Executive Director and Chair of the Audit Committee of Low Carbon Contracts Company Limited & Electricity Settlements Company Limited.

Costain Group PLC Annual Report 2014 3  2  1  Committee membership Board Member of Credit Bank of Albania of Bank Credit of Member Board appointments External National Bank), Egypt. Chase (formerly Bank International Commercial at Officer Credit Staff as appointment his in culminating experience, banking gained years’ 11 Samy Ahmed field, investment the in years 25 his to Previous acquisitions. and mergers including actions various corporate and undertaking investment opportunities of project/ implementation and evaluation markets, international on investments offshore company’s the managing include responsibilities his and Co. W.L.L., Sons & Al-Kharafi Abdulmohsin Mohammed of Affairs Investment General Director Deputy is He Stemcor Holdings Ltd. Holdings Stemcor Committee, Audit the of Chair and Director Non-Executive and DCC PLC, Director, Non-Executive Bromsgrove School Foundation Committee, Audit the of Chair and Director Non-Executive Ltd, Trust Museum Living Country Black Director, Non-Executive PLC, Devro Committee, Audit the of Chair and Director Non-Executive appointments External Deloitte UK Manufacturing Sector. Industry the and office Birmingham the of partner senior was She sectors. and construction and house-building property the manufacturing, in particularly companies, global advising partner audit an as 25 (UK), LLP Deloitte at years 35 spent Jane this to 2012. Prior October of end the from effect with Committee Audit the of Chair appointed Nomination Committee. the of Member Committee. Audit the of Member Remuneration Committee. the of Member more about Committee activity 74 read to to 54 pages to Go board Executive the about 17 read to page to Go Jane A Lodge (59) ALodge Jane Executive Director in November 2013. November in Director Executive aNon- as appointed was Samy Ahmed Skills and experience November 2013 Appointment Non-Executive Director BCom/Accounting Executive Director in August 2012 and was was 2012 and August in Director Executive aNon- as appointed was Lodge Jane Skills and experience 2012 August Appointment Independent Non-Executive Director BSc FCA, Ahmed Aly Samy (59) Samy Aly Ahmed 1,2,3

3

Rockhopper Exploration plc and Caza Oil & Gas Inc. &Gas Oil Caza and plc Exploration Rockhopper FlexLNG, Corporation, Hess the at Director Non-Executive appointments External 2008. to 2006 from Chairman as serving (2004-2012), plc Cape of Director aNon-Executive formerly was David (2004-2012). Resources Natural Pioneer of Operations International President, Vice Executive as and (2000-2004) Group BG (1994-2000), (ARCO) Company Richfield (1989-1994), Atlantic plc LASMO (1980-1989), UK Shell in positions executive of number a hold to on went and engineering civil in graduating after 1980) (1975- Corporation Fluor the with career his began 2014. David from 31 March 2014. 31 March from effect with Director aNon-Executive as retired Alexander Mike Mr Former Director Director at technologies e2v plc. Independent Senior and plc Cobham at Director Non-Executive appointments External (2007-2008). plc Group Thus and (2004-2008) BTG plc with positions Director Non-Executive held also has Alison Director. Development Strategic Group including plc Systems BAE at roles leadership and strategy of a number in years 20 nearly spent Alison that, Before (2008-2013). plc Grid National at Development Corporate and Strategy of Director Global former the is 2014. Alison April of beginning the from Committee Remuneration the of Chair as appointed was 2014 and 1 February Executive Director with effect from 12 May from effect with Director Executive aNon- as appointed was McManus David Skills and experience 2014 May Appointment Independent Non-Executive Director BSc David McManus (61) McManus David Alison J Wood (51) JWood Alison Executive Director with effect from from effect with Director Executive aNon- as appointed was Wood Alison Skills and experience 2014 February Appointment Independent Non-Executive Director BA MBA, Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 1,2,3 1,2,3

47

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 48 Governance: Corporate Governance report

Corporate Governance Board structure report continued Costain Group PLC Board of Directors

Audit Group Nomination Remuneration Committee Executive Committee Committee Board

Health Investments and Safety Committee Committee

Principles statement The Board of Directors of Costain Group PLC is committed to achieving the highest standards of corporate governance. The Board has adopted a schedule of matters specifically These principles are considered to be central to the effective reserved for its approval. The schedule details key aspects of management of the business and to maintaining the the affairs of the Company which the Board does not delegate, confidence of investors. including key strategic, operational and financial issues. A copy of the schedule of matters can be found on the Company’s Statement of compliance website at www.costain.com

The version of the Code1 applicable to the current reporting The Group’s organisational structure is established and period is the September 2012 UK Corporate Governance overseen by the Board and designed to allow effective Code. Throughout the year, the Company complied with decision-making and to meet corporate governance standards. the provisions of the Code, except for provision B.2.3, which A diagram illustrating the structure is shown above. requires Non-Executive Directors to be appointed for a specific term because the Company’s two major shareholders The Board has established Committees which are responsible are entitled to appoint a Non-Executive Director for so long for audit, remuneration and succession. Each Committee plays as they each hold 7% of the then issued ordinary share capital a vital role in helping the Board to ensure that high standards of the Company, as detailed on page 50 of this Corporate of corporate governance are maintained throughout the Governance report. Group. The Committees are governed by terms of reference which are reviewed annually and can be viewed in the The Audit Committee report on pages 54 to 57, the corporate governance section of the Company’s website. The Nomination report on page 58 and the Directors’ members of each Committee and details of their attendance remuneration report on pages 59 to 74 are also incorporated are shown on page 49. into this report by reference. The Group Executive Board is accountable for running the Role of the Board business and delivering the Group strategy. It consists of the Executive Directors and other senior managers, is chaired by The Company is controlled through its Board. The Board’s Andrew Wyllie (Chief Executive) and works with the support main role is to create long-term value for shareholders by of a number of operational committees and functions. providing entrepreneurial and prudent leadership of the Further details can be found on page 17. Company, setting the Company’s strategic aims, ensuring that the necessary financial and other resources are available Board composition and that the appropriate controls are in place to deliver these objectives. As at the date of this report, the Board comprised the Chairman, two Executive Directors and four independent Non‑Executive Directors and one nominee Non-Executive Director. The nominee Non-Executive Director is nominated by one of the Company’s major shareholders, Mohammed Abdulmohsin AI-Kharafi & Sons Company for General Trading, General Contracting and Industrial Structures WLL. The membership of the Board and biographical details of all the Directors can be found on pages 46 to 47.

1 A copy of the Code is publicly available at www.frc.org.uk

Costain Group PLC Annual Report 2014 49

Board independence Length of Service Non-Executive Directors as at 31 December 2014 The Board considers each of its independent Non-Executive Directors to be independent in character and judgment and there are no relationships or circumstances which are likely to affect (or could appear to affect) the judgment of such Non‑Executive Directors. 7+ years The Nomination Committee continues to review succession on 0–2 years 33% a regular basis. 50% At the time of his original appointment in January 2008, the Chairman of the Company was considered independent by the Board. However, in accordance with the Code, the ongoing test of independence is not applicable in relation to the Chairman. The Company complies with the requirement under provision B.1.2 of the Code that at least half of the Board, excluding 2–7 years the Chairman, should comprise Non-Executive Directors 17% determined by the Board to be independent, notwithstanding that this requirement is waived in respect of smaller companies,

such as the Company, which are members of the FTSE Strategic report 02 – 44 SmallCap Index.

Appointments to the Board and retirement The biographies illustrate that the Non-Executive Directors of Directors have a range of business and financial experience that is important and relevant to the management of the Company. Alison Wood was appointed to the Board as a Non-Executive The Board believes that there is an appropriate balance Director on 1 February 2014 and succeeded Mike Alexander as between Executives and Non-Executives and that this Chair of the Remuneration Committee upon his retirement from balance is enhanced by the varying lengths of service of the the Board on 31 March 2014. David McManus was appointed to Non‑Executive Directors depicted in the pie-chart above. the Board as a Non-Executive Director on 12 May 2014. The Board recognises the importance of greater diversity (not The appointment and replacement of Directors is governed just gender specific) in the boardroom and throughout the by the Company’s Articles of Association, the Code, the business, further details of which are given in the Nomination Companies Act 2006 and related legislation. The Articles Committee report on page 58. of Association may be amended by a special resolution of the Company’s shareholders. The Company’s Articles of The Directors’ attendance record at the scheduled Board Association require that all Directors, including nominee meetings and Board Committee meetings for the year ended Non-Executive Directors, should be subject to election by 31 December 2014 is shown in the table below. For the Board shareholders at the first opportunity after their appointment and Committee meetings, attendance is expressed as the and to re-election thereafter at intervals of no more than three number of meetings that each Director attended out of the years. The Company’s Articles of Association also provide that number that they were eligible to attend. In addition, ad-hoc Non-Executive Directors who have served for longer than nine meetings were arranged to deal with matters between the years should be subject to annual re-election. Accordingly, scheduled meetings as appropriate. the aforementioned provisions of the Company’s Articles of Association comply with provision B.7.1 of the Code, as applicable to smaller companies below the FTSE 350. Governance 45 – 82

Audit Remuneration Nomination Board Committee Committee Committee Maximum 8 Maximum 5 Maximum 5 Maximum 1 Executive Directors Andrew Wyllie 8/8 5(d) 3(d) 1(d) Tony Bickerstaff 8/8 5(d) 2(d) 1(d) Non-executive Directors David Allvey 8/8 5(d) 4(d) 1/1 James Morley 7/8 3/5 5/5 1/1 Mike Alexander(a) 2/2 2/2 1/1 n/a Jane Lodge 8/8 5/5 5/5 1/1 Alison Wood(b) 8/8 5/5 5/5 1/1 David McManus(c) 5/5 3/3 2/2 1/1 Ahmed Samy 7/8 n/a n/a 1/1

(a) Retired from the Board with effect from 31 March 2014. (b) Appointed to the Board with effect from 1 February 2014 and appointed as Chair of the Remuneration Committee with effect from 1 April 2014. (c) Appointed to the Board with effect from 12 May 2014. (d) Not a member of the Committee – attendance at meeting by invitation.

Costain Group PLC Annual Report 2014 Financial statements and other information 83 – 132 50 Governance: Corporate Governance report Corporate Governance report continued

Board effectiveness The Chairman and Non-Executive Directors all have terms and conditions of appointment which are available for The Board has established a formal process for the evaluation inspection during normal business hours at the Company’s of the performance of the Board and its principal Committees. registered office. An externally facilitated Board review was conducted between An independent Non-Executive Director’s appointment November 2014 and January 2015 by SCT Consultants Ltd is for an initial period of three years, at the expiry of which (who, having no other connection with the Company, were time the appointment is reviewed to determine whether the considered to be independent). The process involved the appointment should continue. Mohammed Abdulmohsin completion of detailed online questionnaires by all Board AI-Kharafi & Sons Company for General Trading, General members and the Company Secretary, observation of a Contracting and Industrial Services WLL and the other major Board meeting, document review and interviews with Board shareholder UEM Builders Berhad are each entitled to appoint members and the Company Secretary. a Non-Executive Director for so long as these shareholders The results of the evaluation were discussed at the February each hold 7% of the aggregate nominal value of the then issued 2015 Nomination Committee meeting attended by all Board ordinary share capital of the Company. UEM Builders Berhad members and the Board has already started to formulate the has not taken advantage of this option since 4 December 2009. necessary actions in order to focus on the perceived areas In consequence, the Company did not comply with provision of improvement and will continue to review its procedures, B.2.3 of the Code, which requires that all Non-Executive effectiveness and development in the financial year ahead. Directors should be appointed for a specific term. The Board considers that the performance review shows that Board induction and training each Director continues to contribute effectively and the Board as a whole demonstrates good practice on the key On appointment, the Directors take part in an induction indicators of Board effectiveness. programme, pursuant to which they receive information about the Group, the role of the Board and the matters reserved for The next independently facilitated review is expected to its decision, the terms of reference and membership of the take place in 2016/17 in accordance with provision B.6.2 of principal Board Committees and the powers delegated to the Code, notwithstanding that this requirement is waived in the Committees, the Group’s corporate governance practices respect of smaller companies, such as the Company, which and procedures, and the latest financial information about are members of the FTSE SmallCap Index. the Group. Re-election As regards the continuing professional development of the Executive and Non-Executive Directors, Board members, In accordance with the Company’s Articles of Association independent of any formal training arranged by the Company, and provision B.7.1 of the Code, David Allvey, Andrew Wyllie are encouraged to attend seminars and conferences on issues and David McManus will offer themselves for re-election relevant to their appointment as Directors of a public company, at the next Annual General Meeting. Having due regard to particularly matters concerned with corporate governance, the results of the externally facilitated review of the Board’s audit and remuneration issues. In addition, Board site visits are performance conducted by SCT Consultants Ltd, and to considered essential to ensure that Directors have a thorough periodic internal evaluations, the Board confirms that it is of understanding of the business operations and issues that affect the opinion that each of the Directors standing for re-election the Group. The Board also takes part in the Company’s Health continues to make an effective and valuable contribution and Safety training programmes. to the Board and should therefore be re-elected at the forthcoming Annual General Meeting.

Costain Group PLC Annual Report 2014 and monitors progress on a regular basis. Director CR Company’s the from reports receives Board The Corporate Responsibility (CR) conflict. such any approve appropriate, if and, manage to processes appropriate adopted has and interest of conflict apossible in result could which appointments all declare to Directors requires Board The companies. other with, of, relationships or boards the on appointments have who Directors the of independence the to compromise no is there that itself satisfied has Board The interest. of conflicts managing for place in procedures has Company The interest of conflicts Directors’ Company. of the expense the at required when and as advisers professional from advice obtains also Board The approval. Board for reserved amatter is Secretary Company the of removal and appointment The Director. Legal Company’s the also is who and followed) are procedures Board that ensuring for responsible is (who Secretary Company the of services and advice the to access have and Group the to relating information all to access have members Board All management’sits against performance agreed objectives. and Group the scrutinise to them enable which information, and reports management regular and reports audit internal accounts, management monthly Executive, Chief the from and Directors also Non-Executive receive a weekly report Chairman The business. Company’s the progress to order in Secretary Company and Director Finance Executive, Chief the to access have Directors Non-Executive and Chairman necessary. In addition, Board between meetings, the consider they information further any seek to free also are Directors system. portal electronic encrypted afully via meetings Board to prior papers to access timely and full with provided are Directors the duties, their discharge to order In Board the of Operation Company Secretary. the to writing by or website Company’s the on stated address email the via Director Relations Investor Group’s the contacting by concerns or issues raise may Shareholders questions. answer to available be will they where 2015 meeting the attending propose and Nomination the and 2014 attended Audit Committees, meeting Remuneration, the of Chairs the including members, Board to communicate with shareholders. directly opportunity important an as Meeting General Annual the regards Board The basis. ad-hoc an on reports analysts’ relevant of copies receives also Board The price and performance, institutional trading sentiment. activity share recent to relating issues on brokers its from reports reviews Board the routine, of amatter As basis. non-attributed a on investors institutional of views the on Capital, Liberum and Investec brokers, its from feedback obtains Company The Chairman. the through addressed be, cannot or been, not have that concerns have they if shareholders to available is Director, Independent Senior the as Morley, James and shareholders, with issues governance and strategy discuss to available is Chairman The 2014. 5November on held Day’ Markets a‘Capital including year the throughout investors institutional and journalists financial analysts, with meetings are www.costain.com at website Company’s the and investors. institutional presentations These are available on press the analysts, brokers’ to made are presentations results, half-year and full-year the of announcement the of time the At Company’s continued commitment to investor relations. the reflecting Director, Relations Investor the as appointed also was Director CR Group’s 2014, of the end the Towards investors and brokers. institutional with dialogue regular be to continues There relationships with both and institutional private shareholders. to good maintaining committed remains Company The engagement Shareholder and communication Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain . In addition, there there addition, . In 51

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 52 Governance: Corporate Governance report Corporate Governance report continued

Risk management and internal control In 2014, Internal Audit conducted project and departmental reviews to appraise and report on the effectiveness of the risk Risk management management processes. All reviews carried out were subject to appropriate follow-up action to provide assurance that The Board is responsible for making a robust assessment of accepted recommendations have been implemented effectively. the principal risks facing the Company and for ensuring that The overall assessment is that there is a strong risk management appropriate mitigating actions are in place to manage them. culture within the Group which is continuing to develop. The principal risk and uncertainties facing the Company at The Board also assesses the effectiveness of the Group’s the date of this report can be found on pages 28 to 30 of the reporting controls to ensure that the Group’s risk profile reflects Strategic report. its strategic objectives. Risk management processes are incorporated within the Company’s normal management and governance processes Internal controls system at all levels and form an integral part of the day-to-day activity The Board is responsible for the Group’s system of internal of the Company. For example, at the pre-bid stage, a risk controls and for reviewing its effectiveness. Such a system, appetite document is used to determine whether to pursue an however, can only manage rather than eliminate the risk of opportunity or not. Risks are also identified as part of the work failure to achieve business objectives and can only provide winning process , including a pre-qualification and pre-tender reasonable, but not absolute, assurance against material review process for obtaining approval to bid a project from misstatement or loss. the Investments Committee. Following contract award, there is a continuous review of risks and opportunities by both the The Board maintains full control over strategic, financial, contract leader and commercial manager. These are updated operational and compliance issues. Management of the Group on a monthly basis and the top five risks and opportunities are is delegated to the Chief Executive, who is assisted by members reviewed by Group senior management. of the Executive Board. The Chief Executive has full authority to act subject to the matters reserved to the Board and to the The Company also has a corporate risk and opportunity requirements of Group policies. register, which is monitored and updated regularly by the Group Executive Board, as well as sector business risk Following the introduction in 2013 of ‘the Costain Way’, a registers. The Board and Audit Committee receive reports on common platform which contains all governance, controls, the Company’s main corporate risks and opportunities. policies and procedures, the Company has further fine-tuned the control environment and delivered training to its users. The risk management strategy is regularly reviewed and the Group’s risks and opportunities compared against those of The effectiveness of the Company’s risk management other blue-chip companies. The Group reviews any changes and internal control systems are regularly reviewed by the in moving into new markets, such as its recent move into Board, in compliance with the Code and such a review was technology contracts, and attempts to identify any emerging undertaken during the year. The review covered all controls, risks and possible effects on the business. including financial, operational and compliance controls and risk management. Internal Audit provides independent assurance that risks inherent to the Company’s business processes are reasonably controlled and assists management in assessing those risks and how effectively they are managed by internal controls. Internal Audit also promotes best practice in risk management processes to ensure delivery of corporate objectives.

Costain Group PLC Annual Report 2014 responsible for Health and Safety. and Health for responsible procedures. The Chief Executive is the Board member Company with compliance ensuring for responsible is Board Executive Group The matters. operational significant and on safety,reports health and environmental performance regular receive Board Executive Group and Board The of, guidelines. those environmental audit, advisers compliance with, and execution and health safety, the and monitors, team management safety, health and environmental guidelines and the project practice, best of framework acontrolled within operate projects All levels. staffing and progress management, risk variations, and claims profit, and cost value, flow, cash information on safety, health and environmental statistics, include that reports, monthly completes leader contract Each BS 11000. and 27001 ISO 22301, ISO 18001, 14001, OHSAS ISO 9001, ISO to compliant as by BSi certified externally been Way has Costain The • • • • • that: assurance provide to Way is Costain the of objective The Way’). Costain (‘the system management operational an uses Company The regularly. updated and reviewed are which statements, procedure manuals and other instructions, written policy Group in detailed are procedures and Controls Operational controls continually improved. continually isperformance reviewed, validated and and Group; management controls are consistently applied across the delivered; effectively are communicated understood, and expectations customer at mitigating identifiedrisks; Company systems, procedures and processes are effective appropriate legislation and of codes practice; with compliant are business the across activities Company significance to the Group. the to significance of issues any on Director, Finance the via Committee, Audit the to report also Manager Taxation Group and Treasurer Group The therein. reflected appropriately are Group the of results and position financial the that ensure to management by completed is statements financial consolidated the of a review Furthermore, the underlying financialsignificantissues reports. on narrative accompanying an with flow cash and loss and profit cover reports The Board. Executive and Board the to budget against reported and management by monthly reviewed is performance division’s Each budget. annual the with compared is which year current the for update forecast rolling monthly a produces Company The purposes. reporting external for statements financial of preparation the and reporting financial of reliability the regarding assurance reasonable provide to designed are controls internal These accounts. consolidated and process the Group’sreporting for process preparation of financial Company’s the to relation in systems management risk and controls internal place in has also Company The December. in Board the by approval final before plan, business three-year the alongside Board, Executive the by finalised and reviewed is year following the for budget The Group. the within business each for review, strategy annual the to linked system, budgeting annual acomprehensive is There controls Financial appropriate staff and training given where necessary. where given training and staff appropriate the to notified are changes regulatory and legal Significant by, Board. the reviewed to, and submitted is £50,000 above valued litigation all of review annual An Board. the to submitted is report alegal issue, legal acritical of event the In partners. venture joint and suppliers all employees, from standards highest the expects Company The legislation. in change any with compliance ensure to appropriate as dealings. This statement is regularly reviewed and updated business Company’s the all in employed be must that standards moral and ethical legal, the emphasising conduct, business on astatement contain policies Group’s The Compliance Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 53

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 54 Governance: Audit Committee report Audit Committee report

“The robust assessment of principal risks facing the Company will continue to be an area of focus.”

Jane Lodge, Chair of the Audit Committee

Chairman’s summary statement Operation of the Committee The Committee is comprised exclusively of independent Dear Shareholder Non-Executive Directors. The members of the Committee and I am pleased to take this opportunity, on behalf of the details of their attendance at meetings are given on page 49. Board, to present our report on the work of the Audit Biographies are shown on pages 46 to 47. Committee (‘the Committee’) in respect of the year The Company considers that it has in Jane Lodge, as Chair ended 31 December 2014. of the Audit Committee, an appropriate person possessing In this report, we have set out the Committee’s ongoing what the FRC’s Guidance on Audit Committees describes responsibilities and key tasks undertaken over the last year as recent and relevant financial experience. Prior to joining including reviewing the appropriateness of the Company’s the Costain Board, Jane, a chartered accountant, spent 35 financial reporting, the effectiveness of the Company’s risk years at Deloitte LLP (UK), with 25 years as an audit partner management and internal controls systems, together with the advising global companies, particularly in the manufacturing, robustness of the internal and external audit process. house‑building and property and construction sectors. She was also senior partner of the Birmingham office and the Deloitte UK Looking ahead, the Committee welcomes the changes to Manufacturing Industry Sector. the revised UK Corporate Governance Code (‘the Code’) and the Financial Reporting Council’s (‘the FRC’) Guidance The meetings of the Committee are normally also attended by on Risk Management, Internal Control and Related the Chairman, the Chief Executive, the Finance Director, the Financial and Business Reporting issued in September 2014. External Auditor, the Head of Internal Audit and the Group These changes apply to accounting periods beginning on or Financial Controller. Other senior executives will attend as after 1 October 2014 and the Company has started to monitor required to provide information on matters being discussed the Company’s risk management and internal control systems which fall into their area of responsibility. The Committee on an ongoing basis and a robust assessment of principal risks regularly meets privately with the External Auditor and Head facing the Company will continue to be an area of focus. of Internal Audit. The Company Secretary is the Secretary to the Committee.

Terms of reference The Committee’s terms of reference are available from the Jane Lodge Company Secretary and are published on the Company’s Chairman of the Audit Committee website at www.costain.com. These are reviewed annually and 02 March 2015 some minor changes were made in 2014.

Costain Group PLC Annual Report 2014 in 2014. in audits and reviews its of outcome the on Auditor, External the from reports and results interim and preliminary statements, financial draft Group’s the reviewed Committee The Financial statements as follows: were responsibilities its discharged it which in manner the and Committee the of activities principal 2014,In the year the during activities Principal • • • • • • for: responsible is Committee the Code, the with compliance in and reference of terms its with accordance In Committee Audit the of Role required as a result of the review. the of aresult as required changes any Board the to recommending and time to time from effectiveness its and reference of terms its reviewing that and function; of head the of employment of termination and appointment the Executive, Chief the with consultation in approving, and function audit internal the of effectiveness the reviewing Group; the facing risks the of management for processes the and controls internal of system Group’s the reviewing fees; and services non-audit reviewing including maintained, is Auditor External the and Group ensuring that an appropriate relationship the between Auditor;External the appointment, reappointment and remuneration of the and making recommendations to the Board in relation to process audit external the of effectiveness the monitoring them; in contained judgments financial significant reviewing and performance, Group’s the to relating announcement formal any and statements financial Group’s the of integrity the monitoring was content with the judgments that had been made. been had that judgments the with content was it that concluded Committee the reviews, these of basis the On nature. this of contracts fixed-price pursue to not 2009 since policy Group’s the been has It project. the complete to costs additional for taken been has year, aprovision the During discussions. these to outcome asuccessful expects Board The contract. the on arisen have that issues the regarding insurers Group’s the and counterparties contract relevant with discussions in is Group the that noted also was £14of It million. December 2014 retention contractual and milestone payments in received Group the facility, final the of handover achieving In completed. be will modifications plant and work further some which during contract, the of terms the under period warranty the in or completed fully either now are contract the on facilities 46 All facility. waste final the on achieved was The Committee noted that during December 2014, handover 2007. in awarded PFI contract Authority Disposal Waste Manchester the of consideration alia inter included review This management and Auditor. the External with discussions through Group, the across contracts material of anumber on management by taken judgments and positions the reviewing year the during Committee the by spent was time of proportion alarge contracts, of portfolio extensive Company’s the Given complete. to costs the of forecast and obligationcontractual using valuations detailed contract of assessment its outcome the expected of each long-term and revenues and costs of judgments its bases Management areuncertainties resolved. and unfold events as revised be to need may and events future of outcome the on depend that uncertainties of anumber by affected be may revenues and costs These revenues. and costs contract for made be to estimates 11, IAS requires with which are accounted and these contracts forcontracts in accordance long-term via undertaken are activities Group’s the of majority the 98, to 92 pages on 2, Note in explained fully more As judgments (1) Key contract disclosures relating to: and statements financial Group’s the to relation in judgments and matters issues, accounting key considered Committee The Significant accounting matters Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

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Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 56 Governance: Audit Committee report Audit Committee report continued

(2) Pension Independence of the External Auditor The Group’s defined benefit scheme requires significant The Company’s External Auditor is KPMG LLP (“KPMG”). judgments in relation to the assumptions for inflation, future pension increases, investment returns and member longevity In order to ensure the independence and objectivity of the that underpin the valuation. Each year, in selecting the External Auditor, the Committee monitors the non-audit appropriate assumptions, the Committee takes written advice services being provided to the Group by its External Auditor, from an independent qualified actuary. The assumptions and and has adopted a policy on the provision of non-audit services sensitivities are set out in Note 20 on pages 120 to 123. by the External Auditor with the objective of ensuring that such services do not impair the independence or objectivity of the (3) The carrying value of goodwill and intangible assets External Auditor. As set out in Note 11 on page 107, the goodwill and acquired The policy also sets out a number of key principles that underpin intangible balances within the Group relate to the acquisition the provision of non-audit services by the External Auditor: of companies. During the year ended 31 December 2014, the External Auditor should not audit its own firm’s work; the Committee critically reviewed the analysis performed by make management decisions for the Group; have a mutuality management on goodwill and intangibles and agreed with of financial interest with the Group; or be put in the role of the amortisation charge in respect of intangibles and that no advocate for the Group. impairment to goodwill was necessary. Approval of the Committee is required for any services provided by the External Auditor where the fee is likely to be in excess of (4) Alcaidesa Holding SA £25,000. The Committee reviews all services being provided by The Committee has reviewed the net realisable value of each the External Auditor annually to assess the independence and of the land holdings in Spain held by the Group’s 50:50 joint objectivity of the External Auditor, taking into consideration venture. The Committee addressed this issue by considering relevant performance and regulatory requirements, so the report from management on the review carried out that those are not impaired by the provision of permissible of the net realisable value of each of the land holdings in non‑audit services. Spain and of the carrying value of the marina assets, and In 2014, the External Auditor performed non-audit services the golf courses including the use of external valuations. in reporting on working capital in connection with the capital The Committee agreed that no further impairment should be raising. The External Auditor was selected as the most taken against the assets of the joint venture. cost‑effective and efficient supplier to undertake these services based on their thorough understanding of the Group and their (5) Cash flow and working capital particular expertise. In the financial year, the Company spent The Group’s processes for the management of cash flow £0.4 million (2013: £1.7 million) with the External Auditor in and working capital is also an area which the Committee has respect of non-audit fees. reviewed in detail, particularly in view of the capital raising In accordance with best practice and professional standards, which took place in March 2014. The Committee concluded the Company also requires its External Auditor to adhere to that it was satisfied with these processes. a rotation policy whereby the audit engagement partner is rotated after five years. The External Auditor is also required (6) Future IFRS and UK GAAP developments to periodically assess whether, in its professional opinion, During the year, the Committee received a management it is independent and those views are shared with the report from the External Auditor regarding future accounting Audit Committee. developments likely to affect the presentation of the Group’s The Senior Statutory Auditor (who has signed the Audit report financial statements including capitalisation of operating on behalf of KPMG on page 82) is Mr Andrew Marshall who was leases and revenue recognition on long-term contracts. appointed as the lead audit partner at the beginning of 2013.

Costain Group PLC Annual Report 2014 upon KPMG’s and independence. objectivity impact not does that alevel of are fees non-audit of amount engagement has partner recently changed and that the audit the given impaired not is Auditor External the of The Audit Committee is satisfiedthat the independence during such discussions. such during present not was partner audit lead The Audit. External the of atender for timing optimum potential the considered has and relation to rotation including the proposed transition rules in EU regulation new the discussed also has Committee the addition, In Index. SmallCap FTSE the of members are which Company, the as such companies, smaller of respect in waived least ten every years, that notwithstanding this requirement is at tender to out put be contract Audit External the that Code 2012 the in requirements the recognises Committee The 2015 AGM. the at shareholders to proposed be Auditor External Company’s the as KPMG of reappointment the for aresolution that Board the to recommended unanimously has and independent and objective remains it that considers Auditor, External the of work the with satisfied be to continues Committee The tender. to out put be to audit the require to necessary it considered therefore not has Committee The audit. external the of effectiveness and efficiency the with satisfied remains Committee the Committee, the with interaction partner’s audit the and reports Auditor’s External the of quality the through example, for assessment, ongoing own its with together report, the of consideration its on Based consideration by the Committee. detailed for areport produces Secretary Company the questionnaires, the to responses the on Based team. finance the of members certain and Committee Board Executive the the Committee, the Executive Directors, other of members questionnaires areeffectiveness completed by of members audit external process, review aformal of part As tender audit to approach and quality Audit is satisfiedwith the process. and place in has Company the procedures blowing whistle and reporting confidential the considered also has Committee The operational and compliance controls and risk management. financial, including controls, all covered evaluation The control. internal on FRC’s guidance the to pursuant Group of internal controls and risk management operated within the system the of effectiveness the evaluated has Committee The Governance report. Corporate the of 53 to 52 pages on out set fully more are management risk and controls internal Group’s the of Details Risk management internal and controls business is a going concern. agoing is business Company’s the consider Directors the report, Director’s the in out set As 79 82. to pages on out set are Auditor External and Directors the of responsibilities The prospects. and position financial Company’s the of assessment understandable and afair, balanced present to required is Board The Accountability the Committee. to directly accountable be will and Group the across risk of management the for responsible be will who Manager Risk Group of role anew create to decided has Company The areas. highlighted any resolve to plans action and year the of course the during meetings its of each at reviews of findings and programme the on reports regular received has Committee The of theindependence internal audit function. anundertook internal and of assessment the effectiveness Committee year, the the During function. this of effectiveness responsible for monitoring and reviewing the operation and is Committee The Committee. the to directly reporting function audit internal resourced internally an has Group The Internal audit Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 57

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 58 Governance: Nomination Committee report Nomination Committee report

“The Board aims to have a broad range of skills, backgrounds and experience whilst following a policy of ensuring that the best people are appointed”.

David Allvey, Chairman

Dear Shareholder Main activities during the year The Nomination Committee (‘the Committee’) is comprised In 2014, the Committee discharged its responsibilities by exclusively of independent Non-Executive Directors. performing the following activities: The members of the Committee and details of their • Reviewing the overall structure and composition of the Board; attendance at Committee meetings are given on page 49. Biographies are shown on pages 46 to 47. • Commissioning an independent external review of Board effectiveness, facilitated by SCT Consultants Ltd (‘SCT’), which Role of the Committee concluded in December 2014. Following the completion of a questionnaire, each member of the Board was interviewed The principal role of the Committee is to review the structure individually on a confidential basis by SCT and the results of and composition of the Board and to identify and propose to the external review were then discussed by the Nomination the Board suitable candidates to fill Board vacancies. Committee. Further details of this review can be found on The Committee directs the periodic Board effectiveness page 50 of the Corporate Governance report; reviews, both internal and external, which forms part of • Reviewing potential candidates for the position of the regular evaluation and development work conducted Non‑Executive Director and making recommendations to by the Board to ensure it continues to improve its overall the Board as to their appointment; effectiveness. The Committee also reviews management training and succession planning arrangements in respect • Receiving notifications from Directors of situations, such as of the Company’s senior executives. The Company Secretary proposed external appointments, in which a potential conflict is the Secretary of the Committee. of interest may arise; The Board aims to have a broad range of skills, backgrounds • Reviewing/recommending to the Board the reappointment and experience whilst following a policy of ensuring that of those Directors who are due to offer themselves for the best people are appointed. Within this context, and as re-election at the Annual General Meeting in accordance part of the ongoing process of refreshing the Board, the with the Articles of Association, following due consideration Company will continue to encourage and welcome interest of the Board’s policy on independence and the results of from candidates drawn from a diverse background, who will periodic Board performance reviews; add to the Board’s diversity. • Reviewing succession planning in respect of the As reported last year, with effect from 1 February 2014, Executive Directors; and Alison Wood was appointed as a Non-Executive Director and • Reviewing succession planning and development of talent became Chair of the Remuneration Committee with effect in respect of the Company’s senior executives. from 1 April 2014 upon the retirement from the Board of Mike Alexander. With effect from 12 May 2014, David McManus was appointed to the Board as a Non-Executive Director. The Committee instructed Odgers Berndtson (who do not have any other connection with the Company) to identify appropriate David Allvey external candidates, and after meetings with shortlisted Chairman candidates, the Committee identified David McManus as a 02 March 2015 suitable appointee and recommended his appointment to the Board. David brings considerable experience to his role and enhances the skill set of the Board as a whole.

Costain Group PLC Annual Report 2014 direction of the Company”. the strategic supports framework • report: Strategic the of 25 to 20 pages on out set as business the of priorities strategic the supports policy remuneration our how of overview an is following The strategy. ‘Engineering our Tomorrow’ of implementation the and of the strategic direction the Company supports framework remuneration our that ensure to approach a disciplined take to continue we and arrangements remuneration our to changes significant any made not 2014, have we During votes). discretionary (including favour in vote a97% with shareholders by approved was report Policy the that pleased WeAGM. were 2014 our at vote abinding to subject was which report Policy our in out set were changes pay. These incentive of level overall the increasing without long-term the towards incentives Executives’ of balance the shift and structure the simplify to order in framework remuneration Director Executive our to changes of anumber year, made we Last Remuneration Policy 31 December 2014. ended year the of respect in report remuneration Directors’ our Board, the of behalf on present, to pleased I am 2014. February in Board Company’s the joining since member a been 2014, having 1April from effect with Committee’) (‘the Committee Remuneration the of Chairman I became Dear Shareholder statement Chairman’s summary Committee Remuneration the of Chair Wood, Alison report Directors’ remuneration around Health targets; and Safety indicator non-financial akey includes (‘AIP’) Plan Incentive Accordingly, the for metrics performance our Annual priority. highest our remains Costain with involved is who everyone and people our of Safety and Health The that our remuneration remuneration our that approach to ensure disciplined a take “We continue to

•

• –  –  –  stakeholders: our all to value of goal delivering allowing us to our business meet business, the of development future the and growth sustainable of delivery the facilitate which behaviours To encourage –  and to remunerate executives fairly and responsibly. and fairly executives remunerate to and high retain and attract to designed is policy remuneration our team, abest-in-class develop to goal our To support longer support to year last LTIP introduced was half the on deferral years’ two additional An earnings. in growth long-term captures (‘LTIP’) plan Long-Term Incentive our business; the of sustainability the on effect the and decisions their of impacts term longer the consider executives that ensure to shares into deferred is earned award AIP any of a third objectives; individual specific and targets Safety and Health particularly indicators, non-financial with targets) book order and cash (including objectives financial key other and growth earnings balance to aim AIP our for metrics performance the and shareholders; and business risks to be taken; be to risks business business performance, whilst not encouraging inappropriate sustainable reward to set are targets performance the ‑ calibre individuals in an increasingly competitive market competitive in an increasingly individuals calibre ‑ term alignment Executive Directors between Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

59

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 60 Governance: Directors’ remuneration report Directors’ remuneration report continued

Performance and variable pay outcomes for the year Conclusion ended 31 December 2014 The following pages describe in further detail how we have As described in the Strategic report, the Company continues implemented our remuneration policy in respect of 2014, to perform strongly delivering profitable earnings growth together with our approach for 2015. and strong progress against the Company’s key strategic The Policy report approved last year will remain in force. priorities. The key highlights are as follows: We have therefore published the Policy table but not the full • Revenue increased to £1.1 billion (2013: £960.0 million) Policy section, recognising that it was approved by shareholders at our 2014 AGM. The Policy report in its entirety is available on • Underlying operating profit up to £28.7 million our website in the 2013 Annual Report. (2013: £27.4 million) Overall, given the Company’s performance over the one‑ and • Net cash balance of £148.5 million (2013: £57.7 million) three-year periods to the end of the 2014 financial year, we • Record forward order book up 17% to £3.5 billion believe that the remuneration of the Executive Directors in (2013: £3.0 billion) respect of 2014 reflects our success in the delivery of our • Over £1.0 billion of revenue secured for 2015, (as at ‘Engineering Tomorrow’ strategy and the drive for long-term 31 December 2013: over £750 million secured for 2014) growth for our shareholders. The performance targets set for both the AIP and LTIP represent a significant stretch. Taking into account the performance achieved during the year, AIP payments to Executive Directors were 71.6% and 75.3% of the maximum AIP opportunity for the Chief Executive and Alison Wood Finance Director respectively. Further rationale for these Chair of the Remuneration Committee payments can be found on pages 66 to 67. 02 March 2015 The LTIP award granted on 9 May 2012 was based on performance to the year ended 31 December 2014 and is due Remuneration disclosure to vest in May 2015 (subject to the Committee’s determination This report, approved by the Board, has been prepared in accordance that the performance conditions have been met) at 50% of with the provisions of the Companies Act 2006 and Schedule 8 of the maximum, in light of aggregate adjusted EPS of 107.7 pence Large and Medium-sized Companies and Groups (Accounts and Reports) delivered over the performance period. (Amendment) Regulations 2013. It also meets the requirements of the UK Listing Authority’s Listing Rules and the Disclosure and Transparency Rules.

Reward changes for 2015 It is unaudited unless otherwise stated. In this report we describe how the principles of good governance relating to Directors’ remuneration, as No changes are being made to our reward framework in 2015. set out in the UK Corporate Governance Code (‘the Code’), are applied We approved salary increases for the Executive Directors of in practice. The Remuneration Committee (‘the Committee’) confirms 2.5% after carefully considering their performance, the range that throughout the financial year the Company has complied with these governance rules and best practice provisions. of salary increases awarded to other employees and market reference points. The report is in two sections: • Extract from the Policy report. This section contains the policy table summarising the remuneration policy approved at the 2014 AGM and is for information only.

• The Annual Report on Remuneration. This section sets out details of how our remuneration policy was implemented for the year ended 31 December 2014 and how we intend for the policy to apply for the year ended 31 December 2015 and is the subject of an advisory shareholder vote.

Costain Group PLC Annual Report 2014 Remuneration Policy for Executive Directors is set out below. out set is Directors Executive for Policy Remuneration policy. amended or anew by replaced until apply will 2014 AGM in and the at vote a binding under shareholders by approved was Policy This Directors. its of remuneration the on Policy Company’s the out sets report This report Policy the from Extract Plan (‘AIP’) (‘AIP’) Plan Incentive Annual Element Salary • • • link to strategy and Purpose • • • share ownership. share To facilitate with shareholders. alignment greater Promotes taking. risk excessive encouraging without year for the forthcoming strategic targets and financial key of achievement To incentivise the variable income. on reliance over from arising risk excessive avoiding income whilst fixed basic of appropriate level Provides an time. over experience skills, Reflects individuals. calibre retain high- and To attract

• • • • • • • • • Operation • • • • behaviour on the part of aparticipant. of part the on behaviour criminal or misconduct gross overpayment, an in resulting targets of calculation in error misstatement to the audited accounts, an amaterial of aware becomes Committee the if clawback to subject be may Awards interest. shareholder of dilution any to lead not to as so Group the of behalf on atrust by purchased typically are AIP the under provided Shares vesting). of date the on received, or given either termination, of notice under being not and employment continued to (subject grant of anniversary second the on vests this AIP; earned of third one of shares into Deferral Not pensionable. cash. in paid Two-thirds scale. asliding on based are measures financial to applying targets The expectations. investors’ applicable, where and, budgets internal Company’s the account into takes Committee the parameters, financial setting In objectives. personal and targets Safety and Health includes AIP the metrics, financial these to addition In profit. Group of measure a be will half least at which of opportunity, AIP of quarters three least at comprise metrics Financial stretching. sufficiently are and strategy business with aligned are they ensures and year each of start the at targets and measures the approves and considers Committee The with experience and performance. increase will salary his that expectation the with salary abelow-market on appointed is individual an where or role changes promoted, is individual an where appropriate be may increases Higher general. in Company the within levels pay account into taking complexity, and size similar of companies in levels remuneration to reference with determined role, their and individual the for rate market the Reflects experience and responsibilities. Set with reference to individual performance, year. the of times other at exceptionally but 1April) effective change any (with annually reviewed Generally • • • • Maximum opportunity Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain minimum opportunity. minimum no is There salary. of 150% Maximum: salary value. salary maximum no is There £296,906 Director: – Finance £448,159 Executive: – Chief 2015 are: 1April from year the for apply to Salaries

61

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 62 Governance: Directors’ remuneration report

Purpose and Element link to strategy Operation Maximum opportunity Long-Term • Aligned to main • Annual grant of performance shares, half of which • LTIP awards with a face Incentive strategic objectives vest after three years subject to continued service value of not more than 100% Plan of delivering and performance targets, and half of which vest of salary. (‘LTIP’) sustainable profit after five years (the final two years being subject • Amount that is paid for growth which in only to continued service). achievement of threshold turn should deliver • LTIP performance is measured over three years. performance: 15% of enhanced returns. • The performance condition consists of a measure the maximum. of EPS over a three-year period, starting with the year of grant. • Awards may be subject to clawback if the Committee becomes aware of a material misstatement to the audited accounts, an error in calculation of targets resulting in an overpayment, gross misconduct or criminal behaviour on the part of a participant. SAYE • Offered to all • Periodic grants which normally vest after three or • Executive Directors are Scheme eligible UK five years subject to continued service. eligible to participate in the employees, to SAYE Scheme on the same facilitate share terms as other employees. ownership and provide further alignment with shareholders. Pension • To aid retention and • Annual pension allowance. • Allowance up to 22% of remain competitive • Paid as a cash contribution to the Defined base salary. in the market place. Contribution pension scheme and/or a cash supplement. Other • To aid retention and • Company car and fuel (or car allowance). • N/A. benefits be competitive in • Medical insurance. the marketplace. • Life assurance. • Healthcare benefits in order to minimise business disruption. Share • Further alignment • Executive Directors are required to build and • N/A. ownership of interests between maintain a shareholding worth not less than 100% guidelines Costain Board of base salary through the retention of vested and shareholders. share awards or through open-market purchases.

Notes The choice of the performance metrics applicable to the AIP reflect the Committee’s aim that our annual incentives should balance the delivery of earnings growth and other key financial objectives with non-financial indicators, particularly Health and Safety targets, and specific individual objectives. The LTIP captures long-term growth in earnings, which we believe is most closely aligned with the financial performance expected by our shareholders. The quantum of salary, benefits and incentive packages of Executives (and senior management) are set with reference to market comparatives and the impact of an individual’s role. Employees below Executive level receive packages that are reflective of their role and typically have less emphasis on variable, performance-related pay than for Executive Directors. Long-term incentives are provided only for the most senior executives who, it is anticipated, have the greatest potential to influence the overall performance of the Company.

Costain Group PLC Annual Report 2014 Remuneration Policy for Chairman and Non-Executive Directors Element guidelines ownership Share Fees link to strategy and Purpose • • and shareholders. Board Costain interests between of Alignment individuals. high-performing retain and Attract

Operation • • • 100% of their annual fee. annual their of 100% than less not worth ashareholding maintain and build to required are Directors Non-Executive Audit and Remuneration Committees. the of chairmanship and Director, Independent Senior the for fees additional and Company the of Director Non-Executive as acting for fee annual abasic comprises Chairman, the than Remuneration other Directors, for Non-Executive 1April. from effective is increase any and annually reviewed are Fees Executive. Chief the and Committee the between by Board the followingdetermined consultation is fee Chairman’s The Executive. Chief the and following the Chairman consultation between Board, the by determined is Chairman, the than Remuneration other Directors, for Non-Executive • Maximum opportunity • Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain N/A. N/A. 63

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 64 Governance: Directors’ remuneration report

Annual Report on Remuneration

Operation of Committee The Remuneration Committee is comprised exclusively of independent Non-Executive Directors. The members of the Committee and details of their attendance at the Remuneration Committee meetings are given on page 49. Biographies are shown on pages 46 to 47. Alison Wood was appointed as a Non-Executive Director on 1 February 2014 and became chair of the Committee at the beginning of April 2014 upon the retirement from the Board of Michael Alexander.

Terms of reference The Committee’s terms of reference are available on the Company’s website at www.costain.com or from the Company Secretary. Copies of the letters appointing the Committee’s advisers can be obtained from the Company Secretary.

Remuneration Committee activity The following table sets out the key remuneration issues which the Committee covered at each of the meetings over the course of the year. Date Key agenda items 5 February 2014 Approved the methodology to be used to determine the extent that EPS performance conditions have been met with regard to the LTIP granted in 2011 Approved the methodology to be used to determine the extent to which the EBITA performance condition has been met for the proposed 2014 DSBP grant relating to the 2013 base year Approved the 2013 annual cash bonuses subject to final audit of the 2013 accounts Approved the Chairman’s and Non-Executives’ fees for 2014 Reviewed the Directors’ remuneration report Reviewed the draft resolutions seeking approval to the new 2014 LTIP and new 2014 SDP at the 2014 AGM 31 March 2014 Approved the methodology to be used to adjust the Company’s various share plans following the capital raising approved by shareholders on 17 March 2014 Approved the vesting of the 2011 LTIP Granted awards under the DSBP for the 2013 base year Noted the vesting of the 2012 DSBP 7 May 2014 Noted the approval by shareholders at the 2014 AGM of the new LTIP and SDP Noted that first awards under the SDP would be made in 2015 subject to eligible participants receiving a bonus in respect of the 2014 year end Approved an adjustment to the proposed performance targets for the 2014 LTIP grant to reflect the capital raising in March 2014 Granted awards under the new 2014 LTIP 18 August 2014 Reviewed market trends and shareholder sentiments (Annual Concept Meeting) Reviewed Executive Directors’ remuneration, confirming overall packages are fit for purpose with an appropriate balance of incentives which align with strategy and which do not encourage excessive risk Reviewed the overall structure of the AIP, approving the harmonisation of deferral levels so that all eligible participants receive 33% of award achieved deferred in shares 9 December 2014 Approved amendments to the HMRC approved plans to reflect changes under the Finance Act 2014 Approved the proposed 2015 LTIP performance targets Approved the proposed 2015 AIP performance measures and list of participants Approved the 2015 annual salary increases for the Executive Directors, Executive Committee and the wider workforce

Definitions: LTIP: Long-Term Incentive Plan DSBP: Deferred Share Bonus Plan SDP: Share Deferral Plan AIP: Annual Incentive Plan

Costain Group PLC Annual Report 2014 M RAlexander S GYounis A JWood A Samy J Morley 5 4 3 2 1 £2.65. being exercise of date the at as price share the using 2014 and March in raising capital following adjusted Figures **** The*** Annual Incentive for 2013 includes under payments the annual legacy bonus scheme and DSBP. legacy below). (c) Note (see determination Committee’s the to subject is 2015 in vest to due is 2012 LTIP which the of value The ** *  Director) (former Director) (former D McManus J ALodge Directors Non-Executive D PAllvey Chairman A Wyllie Directors Executive LLP. KPMG by audited been have footnotes associated the and table This Director each for remuneration of Figure Total Single I votes). discretionary (including favour (2013 in a99.64% vote AGM: 96.90%) with shareholders by approved was report remuneration year’s Last 2014 AGM in the at report remuneration the on Voting are considered to be independent. Street Bridge New and LLP Deloitte Company, the with connection other no having and, year the during Company the to services other provided companies) of group Hewitt Aon or Deloitte the of part other any (nor Street Bridge New nor Deloitte Neither Conduct. of Code Group’s Consulting Remuneration the to signatories founder are Street Bridge New and LLP Deloitte Both 2014. 31 December ended year £93,712 of the for fees received Street Bridge New and £50,208 of fees received LLP Deloitte consultants. remuneration Company’s the as act to Street Bridge New of place in appointed were LLP Deloitte Committee, the 2014 in by process atender Following standard. ahigh of advice and support independent receive to continues Company the that ensure to basis aperiodic on tender to out function consultant remuneration the put to Committee the of policy the is It Limited). Hewitt Aon of name trading (a Street Bridge New from and Limited) Touche Tohmatsu Deloitte of firm (a member LLP Deloitte from as appropriate, advice, took Committee year, the the During consultants. independent specialist experienced to access has Committee the practice, best and market of account due take practices remuneration Company’s the that ensuring in Committee the To assist discussed. being was remuneration own their when present was none although Committee, the of meetings various attend to invited were Secretary Company and Director Legal the and Director, HR Group the Chairman, Group’s the Director, Finance the Executive, Chief year, the the of course the During sources. other from appropriate where sought was Advice Committee the to provided Advice A OBickerstaff Retired as a Non-Executive Director w.e.f. 31 March 2014. w.e.f. 31 March Director aNon-Executive as Retired 2013. November w.e.f. 30 Director aNon-Executive as Retired 2014. w.e.f. 1April Committee Remuneration the of Chair as 2014 and w.e.f. 1February Director aNon-Executive as Appointed 2013. November w.e.f. 30 Director aNon-Executive as Appointed w.e.f. 12 2014. May Director aNon-Executive as Appointed mplementation of Policy in the year to 31 December 2014 31 to year December the in Policy of mplementation benefit. Pension contributions of £10,000 were paid to Anthony Bickerstaff’s chosen pension arrangement and the balance was paid to him directly as a directly him to paid was balance the and arrangement pension benefit. taxable chosen Bickerstaff’s Anthony to paid were ataxable as of £10,000 directly him to paid was contributions balance the Pension and benefit. arrangement pension chosen Wyllie’s Andrew to paid were £40,000 of contributions Pension 2 3 4

1

5

135,226 434,562 287,898 Salary & Salary 12,285 44,919 43,669 50,060 28,165 52,722 Fees Fees – £

Benefits Taxable Taxable 13,275 11,775 – – – – – – – – £

Pension* 95,603 63,337 – – – – – – – – £ 2014 Incentive 469,583 327,175 Annual Annual – – – – – – – – £

315,984 209,339 LTIP** LTIP** – – – – – – – – £ 1,329,007 135,226 899,524 12,285 44,919 43,669 50,060 28,165 52,722 Total Total – £

131,928 423,963 280,876 Salary & Salary 48,839 39,032 48,839 51,437 3,572 Fees Fees – – £

Benefits Taxable 13,283 11,783 – – – – – – – – £

93,272 61,793 Pension Pension Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain – – – – – – – – £ 2013 Incentive*** 482,017 333,467 Annual – – – – – – – – £ 241,086 159,718 LTIP**** LTIP**** – – – – – – – – £

1,253,621 131,928 847,637 65 48,839 39,032 48,839 51,437 3,572 Total Total – – £

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 66 Governance: Directors’ remuneration report

Additional Notes to the single total figure of remuneration

(a) Taxable benefits provided to Executive Directors The main benefits available to the Executive Directors during 2014 (and their approximate values) were a car allowance of £12,000 (2013: £12,000) for Andrew Wyllie and £10,500 (2013: £10,500) for Anthony Bickerstaff together with private medical insurance for both Executive Directors of £1,275 (2013: £1,283). This package of benefits was unchanged from 2013.

(b) Determination of the 2014 Annual Incentive

As reported in last year’s Directors’ remuneration report, during 2013 the Committee decided to simplify the structure of the annual bonus plan by combining the annual cash bonus and the legacy Deferred Share Bonus Plan (DSBP) into one Annual Incentive Plan (AIP). The operation of the deferred element of the new AIP was approved by the Company’s shareholders at the 2014 AGM. The combined maximum AIP opportunity for the Chief Executive and the Finance Director for the year ended 31 December 2014 remained unchanged from 2013 at 150% of base salary, with one-third of the earned AIP award to be deferred into shares for a further two years (i.e. maintaining the same level of deferral as under the operation of the legacy DSBP) and two-thirds of the earned AIP award paid in cash. Grants will be made under the Company’s Share Deferral Plan (SDP) in March 2015. The performance measures established by the Committee for the 2014 AIP continued to align reward with the Company’s ‘Engineering Tomorrow’ strategy whilst not encouraging inappropriate business risks to be taken. These included inter alia a maximum target measure of £31.6 million for Group EBITA1. In addition, all measures were subject to an underpin for cash in order to encourage the timely collection of cash. This underpin is defined as “cash received by the Group from project and contract operations equal to 90% of budgeted gross margin”. If this underpin was not achieved, the 2014 AIP would be subject to a reduction of 10%. The achievement of the performance measures has been reviewed, with appropriate input from the Audit Committee, following the end of the year. The maximum 2014 AIP opportunity against each of the performance measures is shown below, together with the AIP award actually achieved. The cash underpin has also been achieved. In determining the bonus outcome for the Executive Directors, the Committee took into account that performance against the principal financial measure (EBITA), calculated in accordance with the scheme rules, would include the profit recognised on the transfer of assets into the pension scheme. The Committee took the view that this profit should not count fully towards the EBITA measure for the 2014 bonus and therefore reviewed the bonus outcome, both including and excluding the effect of this transfer, determining that the bonus payable should be at the mid-point of these two results. The result in the right-hand column shows this adjusted amount which will form the basis for payment. The Committee is satisfied that these measures remain aligned with the execution and delivery of the Company’s strategy. AIP award – AIP opportunity – maximum Actual as a percentage Adjusted AIP award – as a Performance measures percentage of bonus performance of bonus percentage of bonus Andrew Anthony Andrew Anthony Andrew Anthony Wyllie Bickerstaff Wyllie Bickerstaff Wyllie Bickerstaff Group EBITA1 66.7% 66.7% £31.4m 65.4% 65.4% 52% 52% Group Cost Control 6.7% 6.7% + 0% 0% 0% 0% Group Health and Safety 6.7% 6.7% AFR 0.10 3.4% 3.4% 3.4% 3.4% scored inspections achieved Order Book Contract Profit 3.3% 3.3% + 3.3% 3.3% 3.3% 3.3% Total Order Book 3.3% n/a £3.5bn 2.9% n/a 2.9% n/a Cash Balance 3.3% 3.3% £148.5m 3.3% 3.3% 3.3% 3.3% Cash Conversion 3.3% n/a + 0% n/a 0% n/a Pension Risk Management n/a 3.3% + n/a 3.3% n/a 3.3% Personal Performance2 6.7% 10.0% n/a 6.7% 10.0% 6.7% 10.0% Total 100% 100% n/a 85.0% 88.7% 71.6% 75.3%

1 Calculated on an adjusted basis as approved by the Committee.

2 Includes building, maintaining and developing the executive team and personal development.

+ The Committee has determined that these particular performance measures remain commercially sensitive and, as such, has chosen not to disclose them as they provide our competitors with insight into our business plans.

Costain Group PLC Annual Report 2014 Bickerstaff Anthony £44.4 million £44.4 million £44.4 and million £37 Between million £37 million £37 and £29.6 million Between Below £29.6 million 2014 December 31 ended year financial the for profit Operating more or pence 90.73 81.66Between pence and 90.73 pence 81.66 pence Below 81.66 pence EPS Aggregate conditions: performance two has award This met. been have conditions performance the that determination Committee’s the to 2015,May subject in vest to due is 2014 and 31 December ended year the to performance on based 2012 9May on was granted LTIPThe award 2012 9May LTIP the award of (c) Vesting due to vest in May 2015 and are shown in the table below: table the in shown are 2015 May and in vest due to 2012 May on 9 are granted awards the of 50% Therefore, award). maximum the of (50% vest to due is Profit Operating to relating element the of 0% and award), maximum the of (50% vest to due is EPS aggregate to relating element the of 100% aresult, As 107.7was basis) same pence. the on 2012, 20132014 and (calculated December 31 ended years financial the for EPS and aggregate pence 24.8 was Committee the by approved basis adjusted an on 2014calculated December 31 ended year financial the for EPS 2014). March in raising capital the following adjusted (as pence 32.21 2014least at is December 31 ending year financial the for EPS the that and full in met is above shown as condition performance EPS aggregate the that requires which met been has underpin an EPS unless vest shall Profit Operating the to relating award the of element no that agreed Committee the addition, In 1 Fees Fees 2014 follows: as 2014 were 1April from effect with set fees annual The Committee. Remuneration and Audit the of chairmanship and Director Independent Senior the for fees additional and Company the of Director aNon-Executive as acting for fee annual abasic comprises Chairman, the than other Directors, Non-Executive for Remuneration (f) Non-Executive Directors 2013: 2014 £132,737). (1 April 1 April from effect with £136,056 at set was which fee annual abasic comprises Chairman the for Remuneration Chairman (e) management. Neither Executive Director participated in the scheme. senior and employees for Life Standard with 2009 in up set was which Plan Retirement Flexible aGroup offers Group The respectively. £2,016 (2013: £1,950) were (2013: £1,335 £1,292) and Bickerstaff Anthony and Wyllie Andrew for assurance life of respect in payable premiums annual The Scheme. Assurance Life Costain the through provided is salary base times four of cover assurance Life salary. base of 22% of allowance pension annual an to entitled are Directors Executive the engagement, of terms their Under (d) Pensions and life assurance 3 2 1 Wyllie Andrew As adjusted following the capital raising in March 2014. March in raising capital the following adjusted As Valued based on the average share price over the final three months of the financial year ended 31 December 2014, being £2.84. being 2014, December 31 ended year financial the of months three final the over price share average the on based Valued adjustment. other any to and met been have conditions performance the that determination official Committee’s the to Subject 2014. March in raising capital the following adjusted As 1 for the financial years ended 31 December 2012, 2013 and 2014 20132012,and December 31 ended years financial the for shares granted Number of of Number 147,422 222,524 1 Basic Fee Basic £43,937 Number of of Number shares due 111,262 73,711 to vest to 2 Number of of Number shares due 111,262 Independent to lapse to 73,711 Director £6,430 Senior Senior

Dividends onDividends shares due to vest to Vesting level (for 50% of the award) the of 50% (for level Vesting Vesting level (for 50% of the award) the of 50% (for level Vesting 100% rata pro –100% 50% 50% rata pro –50% 0% 0% 100% rata pro 15% –100% 15% 0% – –

Committee Committee Chairman £9,109 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Audit Total shares shares Total

111,262

73,711 due to to due vest 2 Remuneration Committee Committee £209,339 £315,984 Estimated Chairman

£6,430 value 67 3

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 68 Governance: Directors’ remuneration report

Other grants made during the year

2014 LTIP Grant Grants were made under the LTIP on 7 May 2014. The grant level for the Executive Directors remains at 100% of salary. Half of the award vests after three years, subject to continued service and performance conditions (as set out below), and the other half vests after five years (the final two years being subject only to continued service), thereby ensuring long-term alignment of the Executive Directors’ and shareholders’ interests. Performance measures for the 2014 LTIP are as follows:

Aggregate EPS1 over the financial years ended 31 December 2014, 2015 and 2016 Vesting level (for 100%) of the award Below 83.9 pence 0% 83.9 pence 15% 92.9 pence or more 100% Between 83.9 pence and 92.9 pence Between 15% and 100% pro-rata on a straight-line basis

1 As adjusted following the capital raising in March 2014. The share awards granted under the 2014 LTIP are as follows: End of performance Threshold Weighting Number of shares Face value1 period vesting (% of award) Andrew Wyllie 164,467 £435,838 31 December 2016 15% EPS 100% Anthony Bickerstaff 108,959 £288,741 31 December 2016 15% EPS 100%

1 Valued using the share price on the day prior to the date of grant (7 May 2014), being £2.65 pence per share.

All-employee share plans The Company granted options under the Costain Group PLC Sharesave Plan to the Executive Directors during 2014, details of which are shown on page 74.

Implementation of Policy in the year to 31 December 2015

Salary For 2015, the Committee approved a 2.5% increase for the Executive Directors, effective 1 April 2015. A 2.5% salary increase budget will also be applied across the Company in 2015. The results of the salary review are set out in the table below: Salary Salary % 2015 2014 change Andrew Wyllie £448,159 £437,228 2.5% Anthony Bickerstaff £296,906 £289,664 2.5%

Non-Executive Director fees

Non-Executive Directors’ fees, and Chairman’s fees, were not increased with effect from 1 April 2015.

Costain Group PLC Annual Report 2014 Group EBITA Group Performance Measures follows: as 2015 are AIP the for measures performance The cash. in paid opportunity AIP earned of two-thirds and years two afurther for shares into deferred bonus earned of one-third with salary, base of 2014 150% at from unchanged remain will 2015 31 December ended year the for Director Finance the and Executive Chief the for opportunity bonus maximum combined The year. the of end the at Committee, Audit the from input appropriate with reviewed, be will achievement Their ‘Engineering our Tomorrow’ of delivery the with aligned clearly are 2015 of and 2014/beginning December of end at the set were targets The strategy. Company the with rewards align to Committee the by established targets with performance, improved encourage to AIP the under bonuses annual for eligible are management senior other and Directors Executive Incentive 2015 Annual behaviour on the part of aparticipant. of part the on behaviour criminal or misconduct gross overpayment, an in resulting targets of calculation in error an accounts, audited to misstatement material any to regard with DSBP) legacy LTIP the the (and and AIP the in incorporated is provision malus and A clawback basis. adjusted an on calculated be 2015 in shall made be to due are that awards the for EPS LTIP awards, previous with As price. share Company’s the of drivers key the of LTIP, one is EPS the in under use to growth as metric appropriate most the remains EPS that believes Committee The March 2015. in place take will 2015 LTIP the awards that anticipated is It targets. EPS these vary to power discretionary the has Committee The 83.9Between pence and 96.9 pence more or 96.9 pence 83.9 pence Below 83.9 pence 2017 2016and 2015, December 31 ending years financial the for EPS the of Sum Group Cost Control Group Health and Safety and Health Group Order Book Contract Profit Contract Book Order Total Order Book Total Order Cash Balance Cash Personal Performance Total EPS performance condition follows: as be will 2015 LTIP the for awards targets the that proposed is It interests. shareholders’ and Directors’ Executive the of alignment long-term ensuring thereby service), continued to only subject being years two final (the years five after vest will half other the and years three after vest will award the of half below, set as out conditions performance of achievement the to Subject salary. of 100% at remains Directors Executive the for level grant The 2015 LTIP Grant sensitive. commercially not are measures these determines Committee the extent the to on Remuneration Report Annual year’s next in achievement maximum for performance target certain of disclosure retrospective provide to continue will Committee The sensitive. commercially considers Committee the which items include these 2015, as 31 December ended year the for achievement maximum for performance target the advance in disclose to not chosen has Committee The Vesting level for awards for level Vesting Between 15% and 100% pro-rata on a straight-line basis astraight-line on pro-rata 15% 100% and Between 100% 15% 0% Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Andrew Andrew 100% Wyllie 60% 10% Maximum Percentage of Bonus of Percentage Maximum 6% 6% 6% 6% 6%

2015 AIP Opportunity – Opportunity AIP 2015 strategy. Bickerstaff Anthony 100% 69 60% 10% 16% n/a 6% 4% 4%

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 70 Governance: Directors’ remuneration report

Other information

Performance graph The graph below shows the value, by 31 December 2014, for £100 invested in Costain Group PLC on 1 January 2009 compared with the value of £100 invested in the FTSE SmallCap Index. The Committee believes that the SmallCap Index is an appropriate Index to use as it is the index in which the Company is a constituent and comprises companies of a more similar size to Costain than the FTSE All-Share.

Total shareholder return (from 1 January 2009)

300 276.1 273.7

250

206.2

200 184.4

154.3 161.3 190.8 150 169.3 149.4 100 126.3 100 114.4 100 103.9

50

2011 2012 2013 2014 2014 2014 0

£ 1 January 2009 31 December 2009 31 December 2010 31 December 2011 31 December 2012 31 December 2013 31 December 2014

Costain Group PLC FTSE SmallCap Index

Source: Thomson Reuters Datastream

Change in Chief Executive’s remuneration Year ending 31 December 2014 2013 2012 2011 2010 Total remuneration £1,329,007 £1,251,239 £1,089,337 £1,228,332 £1,603,014 AIP (%) 71.6% 75% 55% 86% 94% LTIP vesting (%) 50% 50% 100% 100% 96%

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 to the average (per head) for all employees. 2014 2013 % change Chief Executive – salary £434,562 £423,963 2.50% – benefits £13,275 £13,283 –0.06% – bonus1 (annual incentive) £482,017 £345,412 39.60% Average per employee – salary2 £41,705 £39,616 5.27% – benefits3 £4,579 £4,679 –2.41% – bonus4 (annual incentive) £3,331 £3,239 2.84%

1 Bonus figures for the Chief Executive are calculated on the basis of the combined cash bonus actually paid and the value of the share options that were granted under the DSBP during 2013 and 2014 (for the financial years ended 31 December 2012 and 2013 respectively). 2 Average 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.

3 Employee benefits are calculated based on the total cost to the Company of private medical insurances, life assurance, company cars and car allowances, averaged per head for monthly paid employees. 4 Bonus figures earned for 2014 for the whole Company are not available, hence for employees, the comparator figure is the total bonus payments made to monthly paid employees during 2013 and 2014 averaged per head.

Costain Group PLC Annual Report 2014

Overall expenditure on pay distributions to shareholders from the financial and year ending Group the of 31 December2013 employees the all to tothe paid financial year ending remuneration on 31 December 2014. Company the by expenditure in change the illustrates below table The pay on spend of importance Relative (2013: n/a). The Executive Directors have retained these fees in accordance with the policy set out in the Policy report. report. Policy the in out set policy the with accordance in fees these retained have Directors (2013: n/a). Executive The £4,253 paid 2014, was he 31 December ended year the for appointment the of respect in 2014 11 and on Company November Limited Settlements Electricity and Limited Company Contracts Carbon Low of Committee Audit the of Chair and Director aNon-Executive as appointed was (2013: £20,016 £19,872). paid Bickerstaff 2014, was he Anthony 31 December ended year the for appointment the of respect in and, 2009 7April on Water Scottish of Director aNon-Executive as appointed was Wyllie Andrew directorships External 1 Ahmed Samy David McManus Alison Wood Jane Lodge James Morley Allvey David Anthony Bickerstaff WyllieAndrew Director follows: as are term current of expiry and appointment original Director’s the of each of dates The appointment Directors’ stakeholders. its to Group the by distributions key represent they as shown be to selected were matters These * 

Dividend  Expiry of Current Term is subject to: subject is Term Current of Expiry (b)  (b) (a)  amended its dividend policy resulting in an increase in the total dividend payment payment dividend total the in increase an in and shares resulting ordinary policy new dividend its 33,382,068 of amended Offer Open and Placing and Placing aFirm of way by million £70.3 of proceeds net raised Group the 2014, March In the appointment of an independent Non-Executive Director can be terminated by reasonable notice on either side (of not less than one month); one than less not (of side either on notice reasonable by terminated be can Director Non-Executive independent an of appointment the Association. The Directors standing for re-election at the 2015 AGM will be David Allvey, Andrew Wyllie and David McManus. David and Wyllie Andrew Allvey, David be will AGM 2015 the at re-election for of standing Articles Directors Company’s The the and Code Association. Governance Corporate UK each at the with re-election accordance in and years years, nine three than than more more for no of Board the on intervals at served having if AGM re-election subsequent appointment, their following AGM the at required is re-election Date of original appointment original of Date 30 November2013 01 November2001 01 February2014 09 January2008 01 August2012 03 March 2006 25 April2005 09 May2014 £million 162.1 8.4* 2014 2014 Terminable on12months’notice Terminable on12months’notice Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

£million 151.4 Close of2017AGM Close of2017AGM Close of2015AGM Expiry of current term current of Expiry 2013 2013 7.2 01 February2017 01 August2015

09 May2017 change 16.7%* 2.1% 71 %

1

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 72 Governance: Directors’ remuneration report

Share awards under the legacy DSBP Under the legacy DSBP, deferred bonus awards were granted in the following two forms: i. an option with a nil exercise price over a fixed value of shares (‘the Combined Deferred Award’), which is granted in combination with an HMRC approved market value option over a fixed number of shares (‘the Option’) – this applies to an individual maximum of £30,000; and ii. an option with a nil exercise price over a fixed number of shares (‘Deferred Award’). Details of the Executive Directors’ participation in the DSBP are as follows: Amount realised on Market Market exercise Balance at Actual/ Balance at Granted Share price Vested price at price at (excluding 31 expected Date 1 January during at date of during date of date of deduction December vesting Executive granted 2014 year grant year vesting exercise of tax) 2014 date Andrew 04.04.12 84,109*1 – 215p* 84,1092 265p 265p £237,027 – April 2014 Wyllie 03.04.13 39,122*1 – 259p* – – – – 39,122 April 2015-2023 11,576* – – – – – – 11,576 (£29,981)*3 (£29,981) 11,576*4 – – – – – – 11,576 07.05.14 – 61,7781 290p – – – – 61,778 May 2016-2024

Anthony 04.04.12 55,722*1 – 215p* 55,7222 265p 265p £157,030 – April 2014 Bickerstaff 03.04.13 21,918*1 – 259p* – – – – 21,918 April 2015-2023 11,576* – – – – – – 11,576 (£29,981)*3 (£29,981) 11,576*4 – – – – – – 11,576 07.05.14 – 40,9281 290p – – – – 40,928 May 2016-2024

* As adjusted following capital raising in March 2014.

1 Number of shares under the Deferred Award.

2 In addition, Andrew Wyllie and Anthony Bickerstaff received 5,150 and 3,412 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 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.

Costain Group PLC Annual Report 2014 Bickerstaff Anthony Share awards under the LTIP the under awards Share share price of the ordinary shares during 2014 was 250 pence to 300 pence. 300 to pence 250 2014 was during shares ordinary the of price share mid derived 2014, the £1. of 31 At price December exercise an to subject are options, as expressed are which LTIPThe awards, 4 3 2 1 Wyllie Andrew Executive * As adjusted following capital raising in March 2014. March in raising capital following adjusted * As     the award will normally vest on the fifth anniversary of the date of grant (with no further performance conditions applying) provided the individual remains an remains individual the provided applying) Company. conditions the of officer or performance employee further no (with of 50% grant of date the of remaining the whilst 2016, anniversary December 31 fifth the on ending vest period normally financial will award the three-year the over conditions after performance the of years three vest satisfaction normally the to will award the of subject 50% grant, achieved. actually EPS the to pro-rata 100% 15% and between scale asliding on of EPS to vests) (15%vests) (100% pence 83.92016 of 2015and 2014,92.9 pence December 31 ended years financial the for target EPS aggregate an to subject is award the of 100% full. in vested has 1 Tier and pence 33.84* least at 2015is (before EPS December the 31 ended unless year vest will financial the award 2 for Tier the of interest) element no pension addition, In achieved. actually profit operating between the to scale pro-rata sliding ona million £50 vests) and million (100% million £35 £50 to vests) (50% million 2014 of£42 December 31 ending 2) year (Tier financial award the the of for 50% profit remaining The operating on based achieved. is actually EPS the to pro-rata 100% 15% and between scale asliding on (15%vests) pence vests) (100% 80.48* 2015of 2014 pence 2013,and 90.73 of EPS to December 31 ended years financial the for target EPS aggregate an to 1) subject is (Tier award the of 50% met. Committees’ been the to has target the Subject of full. 50% in vested has 1 Tier confirmation, and pence 32.21* least at 2014was December 31 ended EPS the year unless financial the vest for would award 2 interest) Tier the of pension element no (before addition, In achieved. actually profit between operating the to scale sliding pro-rata ona million vests) £44.4 and (100% million million £29.6 £44.4 to vests) (50% million £37 2014 of December 31 was 2) ending year (Tier award financial the the of for 50% profit remaining The operating on achieved. based actually EPS the to pro-rata 100% 15% and between scale asliding on to vests) (15%vests) (100% pence 2014 of 81.66* 20132012,and pence 90.73* of EPS December 31 ended years financial the for target EPS aggregate an to subject 1) was (Tier award the of 50% met. was target the of 50% appropriate). as the to rounded pro-rata targets (EPS 100% and 0% achieved EPS between actual scale sliding on a vests) (100% pence 56 of EPS to for EPS vests) an on (0% 2013 based pence of 47 was award December the of 31 50% ended year remaining The financial the achieved. actually EPS the to pro-rata 100% 15% and between scale asliding on vests) of (100% EPS to 112.6 pence (15%vests) pence 2011, 2013of 2012102.3 and December 31 ended years financial the for EPS aggregate an to subject was award the of 50% ‑ market price of the ordinary shares in the Company, as advised by the Company’s brokers, was 280 pence. The range of the the of range The pence. 280 was brokers, Company’s the by advised as Company, the in shares ordinary the of price market 07.05.14 07.05.13 09.05.12 07.05.14 07.05.13 09.05.12 12.04.11 12.04.11 granted Date 4 3 2 1 4 3 2 1 Balance at 1 January 116,817* 147,422* 120,542* 175,502* 222,524* 181,952* 2014 2014 – –

108,959 164,467 Granted Granted during during year – – – – – –

price at date of of date 187p* 224p* 187p* 224p* 241p* 241p* 265p 265p Share grant

60,271 90,976 Vested Vested during during year – – – – – –

price at vesting date of of date Market Market 265p 265p – – – – – – exercise price at date of of date Market Market 265p 265p – – – – – – 60,271 90,976 Lapsed during during year – – – – – –

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain realised on realised deduction deduction £159,718 £241,086 (excluding exercise Amount Amount of tax) of – – – – – – December 116,817 147,422 175,502 222,524 108,959 164,467 Balance Balance at 31 31 at 2014 – –

April2014 April2014 May2017 May 2016 May 2015 May 2016 May 2015 May 2017 expected expected Actual/ Actual/ vesting vesting 73 date

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 74 Governance: Directors’ remuneration report

Share Options under the Save As You Earn (SAYE) scheme Details of the Executive Directors’ SAYE options are as follows: Market Balance Balance at price at Lapsed Amount at 31 Exercised/ Date 1 January Granted Exercise Exercised date of during realised on December Exercisable Executive granted 2014 during year price during year exercise year vesting 2014 from/to Andrew Wyllie 11.10.11 1,755* – 190.73p* 1,755 291p – £5,107 – Nov 2014 Nov 2016– 30.09.13 1,689* – 206.55p* – – – – 1,689 May 2017 Nov 2017– 29.09.14 – 2,253 234.80p – – – – 2,253 May 2018 Anthony Bickerstaff 11.10.11 1,755* – 190.73p* 1,755 294p – £5,160 – Nov 2014 Nov 2016– 30.09.13 1,689* – 206.55p* – – – – 1,689 May 2017 Nov 2017– 29.09.14 – 2,253 234.80p – – – – 2,253 May 2018

* As adjusted following capital raising in March 2014.

Directors’ shareholdings Details of the Directors’ share interests in the Company as at 31 December 2014 and at the date of this report are as follows: Shareholding Actual Beneficially Outstanding Outstanding Outstanding guidelines Shareholding Director owned DSBP awards LTIP awards SAYE awards (% of salary/fee) (% of salary/fee) Andrew Wyllie 340,000 112,476 562,493 3,942 100% 175.51% Anthony Bickerstaff 186,691 74,422 373,198 3,942 100% 139.08% David Allvey1 15,888 – – – 100% 24.93% James Morley 47,111 – – – 100% 202.29% Jane Lodge1 25,809 – – – 100% 111.32% Alison Wood2 6,666 – – – 100% 2.97% David McManus3 0 – – – 100% 0% Ahmed Samy 0 – – – 100% 0%

1 Part held by a connected person.

2 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.

3 Appointed as a Non-Executive Director w.e.f. 12 May 2014. The Directors are encouraged to build and maintain a shareholding worth not less than 100% of base salary/fee through the retention of vested share awards (for the Executive Directors) or through open market purchases.

Costain Group PLC Annual Report 2014 Strategic report. the in business Company’s the of developments future likely of disclosure the include to chosen has Company The emissions) are also incorporated into this by report reference. information about employee involvement and greenhouse gas to regard (with 38 21 and pages on report Strategic the the 74 to 45 and pages on report Governance Corporate The Companies Act 2006. Companies Act the under provided be to required shares those in the Company with information concerning interests provide to failure after notice arestriction with served been has aperson such if shares Company’s the of a class in interest a0.25% with aperson from shares Company’s the of respect in payable monies other or dividends any of part any or all of payment withhold may Board The shares. their behind or with equally rank which shares other on paid been has dividend alawful because suffer may shareholders that loss any for liable not are they faith, good in act Directors the If payment. its justifies Board, the of opinion the in Company, the of position financial the whenever dividend, rate fixed any also and dividends, interim pay may Board the 2006, Act Companies the to Subject Board. the by declare dividends not exceeding the amount recommended time to time from resolution, may, ordinary by Company The Dividends distributions other and 2015. 17 on April business of close at registered 2015 May shareholders to 22 on paid be will dividend the 2015. approved, 6May If on held be to Meeting recommended to shareholders at the Annual General be also will million) (2013: £5.2 million £6.3 to amounting (2013: 7.75 share per pence pence) 6.25 of rate the at dividend 2014. Afinal 24 October on paid was million) (2013: £2.5 million £3.2 to amounting (2013: 3.75 pence) share per pence 3.25 of dividend (2013: £12.5 interim An million). 31 December 2014 amounted to £21.0 million ending year financial the for tax after profit The Profitand dividends 1393773. Number Company under Wales and England in incorporated and England in PLC domiciled is Group Costain Incorporation constitution and Company for the year 31 ended December 2014. submit andThe Directors accounts to their of the members the report report Directors’

Share capital financialstatements. 2014 the preparing in basis concern going the adopt to continue Directors the reason, this For future. foreseeable the for operations continue to resources adequate has Group the that enquiry careful and due after believe, Directors The concernGoing website at www.costain.com at website Company’s the on found be also can scheme dividend scrip the joining 129. about page on Details out set is scheme dividend scrip the on information 2014. for Further dividend interim the of 2014 respect in October in shareholders to allotted were each pence 50 of shares ordinary 2013, 73,270 and for dividend final the of respect in shareholders to allotted were each 50 pence of shares 2014, 191,503 ordinary April In dividend. scrip the in participate to elect who shareholders those to dividends cash of lieu in shares ordinary allot and offer to Directors the authorises which scheme dividend scrip the of renewal the approved shareholders Meeting, General 2013 the Annual At 73. page on report remuneration Directors’ the in found be can LTIP awards 2011 the of vesting the to regard with details Further exercise. £1 of per price exercise an with each pence 50 of shares ordinary 603,275 2014 over April in awards of vesting the in 2013 resulting 31 December at as (LTIP) Plan matured Incentive Long-Term 2002 the 2011 under April in granted awards The 123. page 21 on Note in found be can Company the of capital share the of details Further expenses). of (net million £70.3 approximately of sum the in raising acapital to shareholders by approval 2014 18 following on March Company the by issued were each pence 50 of shares ordinary new 33,382,068 each. pence 50 of shares ordinary 101,202,693 of consisting £50,601,346.50, 2014 was 31 December at as Company the of capital share issued The each. pence 50 of value nominal a with shares ordinary of consists capital share Company’s The . Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

75

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 76 Governance: Directors’ report

Restrictions on transfer of securities Powers in relation to the Company issuing There are no restrictions on the transfer of securities in the or buying back its own shares Company, except: The Directors may only issue and buy back shares if authorised • that certain restrictions may from time to time be imposed to do so by the Articles of Association or the shareholders in by laws and regulations (for example, insider trading laws); general meeting. At the Company’s Annual General Meeting and held on 7 May 2014, shareholders granted an authority to the Directors to allot ordinary shares up to an aggregate nominal • pursuant to the Disclosure and Transparency Rules of amount of £16.7 million. As this authority is due to expire on the Financial Conduct Authority (DTR3) whereby certain 6 May 2015, shareholders’ approval will be sought to renew the employees of the Company require the approval of the Directors’ authority to allot ordinary shares at the 2015 Annual Company to deal in the Company’s ordinary shares. General Meeting, up to an aggregate nominal amount of The Company is not aware of any agreements between £16,867,991. As at 31 December 2014, the only shares that had holders of securities that may result in restrictions on the been allotted were in order to satisfy awards under employee transfer of securities. share schemes and the scrip dividends. The Directors did not request authority to buy back any of the Company’s shares Major shareholders at the last Annual General Meeting in 2014 and they do not propose to do so at this at this year’s Annual General Meeting. As at 20 February 2015, the Company had been notified, including under the Disclosure and Transparency Rules issued Securities carrying special rights by the Financial Conduct Authority (DTR5), of the following voting interests in its ordinary share capital: No person holds securities in the Company carrying special rights with regard to control of the Company. Number % of of shares/ voting Shareholder Voting rights rights Restrictions on voting UEM Builders Berhad(i) 13,810,850 13.65 No member shall be entitled to vote at any general meeting Mohammed Abdulmohsin or class meeting in respect of any share held by him/her if any Al-Kharafi & Sons Company call or other sum then payable by him/her in respect of that for General Trading, General share remains unpaid or if a member has been served with a Contracting and Industrial restriction notice (as defined in the Articles of Association) after Structures WLL(i) 10,429,490 10.31 failure to provide the Company with information concerning Miton Group plc 5,101,741 5.04 interests in those shares required to be provided under the JO Hambro Capital Companies Act 2006. Management Group Limited 5,085,708 5.03 The Company is not aware of any agreement between holders (i) Shares are held by nominees on behalf of these beneficial owners. of securities that may result in restrictions of voting rights.

Rights and obligations attaching to shares Rights under the employee share schemes In accordance with the Articles of Association, the Company ACS HR Solutions Share Plan Services (Guernsey) Limited, as can issue shares with any rights or restrictions attached to Trustee of the Costain Group Employee Trust, held 0.36% of the them provided such rights or restrictions do not restrict any issued share capital of the Company as at 31 December 2014 rights or restrictions attached to existing shares. These rights on trust for the benefit of those employees who exercise their or restrictions can be decided either by ordinary resolutions share awards/options under the Company’s Long-Term Incentive passed by the shareholders or by the Directors as long Plan, Deferred Share Bonus Plan, Share Deferral Plan and Save as there is no conflict with any resolution passed by the As You Earn Scheme (in respect of ‘good leavers’ who leave the shareholders. Subject to the Articles of Association, the employment of the Company before their contract matures). Companies Act 2006 and other shareholders’ rights, the issue The Trustee does not exercise any right to vote or to receive a of shares is at the disposal of the Board. dividend in respect of this shareholding.

Costain Group PLC Annual Report 2014 devoted to Board and committee meetings. committee and Board to devoted is time proper that ensure they and roles particular their to effectively,to that commitment they perform demonstrate continue each they that opinion the of is Board the evaluation, performance aformal following McManus, David and Wyllie Andrew Allvey, David of re-election the to regard With the Directors’ remuneration report. in out set are which of details Company, the with employment of acontract has Wyllie Andrew and appointment of letters have McManus David and Allvey David Meeting. General 2015 Annual the at re-election for stand to required both are Meeting, General Annual last the since Company the of aDirector as appointed been having McManus, David and precedingtwo Annual General Meetings without retiring, the of time the at Board the on served having Wyllie, Andrew basis. annual an on re-election for stand to required is years, nine of excess in period continuous a for office in been having Allvey, David Meeting. General 2015 Annual the at re-election for themselves offer will McManus David and Wyllie Andrew B.7.1 Allvey, provision David and Code, the of Association of Articles Company’s 78 the of Article with accordance In 47. to 46 pages on given are Board the of members present the of biographies Brief interests Directors’ and Directors making donations to political organisations. not of apolicy has 2014 Company (2013: The nil). 31 December ended year the during made were donations political No Political donations www.costain.com at website Company’s the on available is Association of Articles the of Acopy shareholders. Company’s the of resolution aspecial by amended be may Association of Articles Company’s the Company, the of Association of Articles the in contrary the to specified expressly Unless Association of Articles of Amendment party. third any of or Company the of obligation or liability debt, any for security give to and securities other and debentures issue to and capital uncalled and future) and (present assets property, undertaking, its of any charge or mortgage to indemnify, to guarantee, to money, borrow to Company the of powers the all exercise may Board the particular, In Company. the of powers the all exercise may who Board the by managed be will Company the of business the resolution, special by Company the to given directions any and 2006 Act Companies the Association, of Articles Company’s the to Subject Directors Powers the of . www.costain.com at website Company’s the on available Meeting, General Annual of Notice the and report Committee Audit the of 57 page See Company. the before laid are accounts the which at meeting general next the of conclusion the 2015 May AGM until in the of conclusion the from office hold will they and Company the of auditors as re-appointed are LLP KPMG that proposed is It Independent auditors 59 74. to pages on appears which report, remuneration Directors’ the in contained 2014, are during interests in changes any including Company, the in shares in interests and emoluments Directors’ of Details review. under period the during Group the with significance of contract any in interest material any had Director No plans to vest on atakeover. on vest to plans and schemes such under employees to granted be to awards and options cause may plans and schemes share Company’s the of provisions that except bid atakeover of because occurs that employment or office of loss for compensation for providing employees or Directors its and Company the between agreements no are There control. of achange upon terminate would which facilities, bonding surety and banking Company’s the to relating Agreements Facility the of respect in save bid, atakeover following Company the of control of achange upon terminate or alter effect, take that aparty are associates or subsidiaries its of any and/or Company the which to agreements significant any of aware not are Directors The of control change – agreements Significant its Directors. its of favour in indemnities subsisting no are There officers. and Directors its for insurance liability PLC maintains Group Costain indemnity Directors’ report. this of) part form to deemed be shall (and into reference by incorporated is information This (Strategic Regulations and Directors’ Report Report) 2013. 2006 Act Companies the by required disclosures emissions gas greenhouse the 21 details page on report Strategic The Greenhouse gas emissions technology specialists. by British with certain arrangements universities and various supported is Group the work, development and research this deliver technical elements advances. of certain In undertaking and develop to seek sectors named these in staff technical and engineers Group’s The operates. it which in sectors the all in development and research in involved is Group The development and Research , for further details. further , for Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 77

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 78 Governance: Directors’ report

Appointment and replacement Employee information of Directors The average number of employees within the Company The Directors shall be not less than two and not more than and Group is shown in Note 5 to the financial statements on 18 in number. The Company may by ordinary resolution vary page 103. the minimum and/or maximum number of Directors. Apart from ensuring that an individual has the ability to carry A Director shall not be required to hold any shares in Costain out a particular role, the Company does not discriminate in Group PLC but is encouraged to do so under the Company’s any way. The Company endeavours to retain employees if they share ownership guidelines. Directors may be appointed become disabled, making reasonable adjustments to their role by the Company by ordinary resolution or by the Board. and, if necessary, looking for redeployment opportunities within A Director appointed by the Board holds office only until the the Group. The Company also ensures that training, career next Annual General Meeting of the Company and is then development and promotion opportunities are available to all eligible for reappointment. The Board, or any Committee employees irrespective of gender, race, age or disability. authorised by the Board, may from time to time appoint one The Company maintains a strong communication network or more Directors to hold any employment or executive office and employees are encouraged to discuss with management for such period and on such terms as they may determine and matters of interest and issues affecting the day-to-day may also revoke or terminate any such appointment. At every operations of the Group. Employees are kept informed of Annual General Meeting of the Company, any Director who the financial and economic factors affecting the Company’s has been appointed by the Board since the last Annual performance, and other matters of concern to them as General Meeting, or who held office at the time of the two employees, through various means including regular updates preceding Annual General Meetings and who did not retire from the Chief Executive and other senior managers and at either of them, or who has held office with the Company, a Costain online news service. Employees also have the other than employment or executive office, for a continuous opportunity to provide feedback and ask questions at the period of nine years or more at the date of the meeting, annual staff road shows which take place around the country. shall retire from office and may offer himself/herself for Further details of the actions taken to introduce, maintain or reappointment by the members. develop arrangements aimed at employees are described in the The Company may by special resolution remove any Director Corporate Responsibility report on pages 38. before the expiration of his/her period of office. The office of a Director shall be vacated if: (i) he/she resigns or offers Essential contracts or other arrangements to resign and the Board resolves to accept such offer; (ii) his/ Given the scope and diversity of the Company’s activities, the her resignation is requested by all of the other Directors and Company does not consider that it has contractual or other all of the other Directors are not less than three in number; arrangements which are essential to the business of the Group (iii) he/she is or has been suffering from mental or physical and which are required to be disclosed. 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 (whether or not an alternate Director Disclosure of information to auditors appointed by him/her attends) for six consecutive months and The Directors confirm that, so far as they are aware, there is the Board resolves that his/her office is vacated; (v) he/she no relevant audit information (as defined in section 418 of the becomes bankrupt or compounds with his creditors generally; Companies Act 2006) of which the Company’s External Auditor (vi) he/she is prohibited by a law from being a Director; (vii) he/ is unaware and that each Director has taken all the steps that he/ she ceases to be a Director by virtue of the Companies Act she ought to have taken as a Director to make himself/herself 2006; or (viii) he/she is removed from office pursuant to the aware of any relevant audit information and to establish that the Company’s Articles of Association. Company’s external auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. By Order of the Board

Tracey Wood Company Secretary 02 March 2015

Costain Group PLC Annual Report 2014 detection of fraud and other irregularities. other and fraud of detection and prevention the for steps reasonable taking for hence and Company the and Group the of assets the safeguarding for responsible also are They Regulation. IAS the 4of Article accounts, Group the regards as and 2006 Act Companies the with comply report remuneration Director’s the and accounts the that ensure to them enable and Company the and Group the of position financial the time any at accuracy reasonable with disclose and transactions Company’s the and Group the explain and show to sufficient are that records accounting adequate keeping for responsible are Directors The • • • • to: required are Directors the accounts, Company the and Group the of each preparing In period. that for loss or profit their of and Company the and Group the of affairs of state the of view fair and true a give these that satisfied are they unless statements financial the approve not must Directors law, the Company Under (‘EU’). Union European the by adopted as (‘IFRSs’) Standards Reporting Financial International with to prepare the Group and Company accounts in accordance required are Directors the law, that year. Under financial each for accounts prepare to Directors the requires law Company regulations. and law applicable with accordance in accounts and report remuneration Director’s the Annual Report, the preparing for responsible are Directors The statement responsibility Directors’ will in business. continue Company the and Group the that presume to inappropriate is it unless basis concern going the on accounts the prepare and accounts; the in explained and been followed, to subject any material disclosed departures EU have the by adopted as IFRSs applicable whether state prudent; and reasonable are that estimates accounting and judgments make them consistently; apply then and policies accounting suitable select On behalf of the Board the of behalf On • • knowledge: her or his of best the to that, confirms Company the of Directors the of Each performance, business model and strategy. Group’s the and Company’s the assess to necessary information the provides and understandable and fair, balanced is awhole, as taken accounts, and Report Annual the consider Directors The regulations. and law applicable with accordance in Report Annual the preparing for responsible are Directors The from legislation in other jurisdictions. preparation and dissemination of financial maystatements differ the governing UK the in Legislation website. Company’s the on ofintegrity the and corporate financial information included and maintenance the for responsible also are Directors The regulations. those and law that with that comply andremuneration Governance Corporate report statement Directors’ report, a for Directors’ preparing responsible also are Directors the regulations, and law applicable Under 2015 March 02 Chairman Allvey David they face. they that uncertainties and risks principal the of a description with together awhole), as taken Group the of (and Company the of position the and business the of performance and development the of review afair includes report Strategic the and awhole); as taken Group the of (and Company the of profits/losses and position financial liabilities, assets, the of view fair and atrue EU, give the by adopted as IFRSs with accordance in prepared been have which accounts, Group the Chief Executive 02 March 2015 March 02 Wyllie Andrew Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 79

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 80 Governance: Independent Auditor’s report Independent Auditor’s report to the members of Costain Group PLC only

Opinions and conclusions arising from and profit therefore relies on estimates in relation to the our audit final out-turn of costs on each contract. Changes to these estimates could give rise to material variances in the amount of revenue and profit/loss recognised. Cost contingencies 1 Our opinion on the financial statements is unmodified may also be included in these estimates to take account We have audited the financial statements of of specific uncertain risks, or disputed claims against the Costain Group PLC for the year ended 31 December 2014 Group, arising within each contract. These contingencies which comprise the Consolidated Income Statement, the are reviewed by the Group on a regular basis throughout the Consolidated Statement of Comprehensive Income and contract life and adjusted where appropriate. Variations and Expense, the Consolidated and Company Statement of claims, together with, in limited circumstances, insurance Financial Position, the Consolidated and Company Statement recoveries, are recognised on a contract-by-contract basis of Changes in Equity, the Consolidated and Company Cash when the Group believes it is probable that the amount will Flow Statement and related notes. In our opinion: be recovered from the customer or insurer and the amount can be measured reliably. Therefore, there is a high degree • the financial statements give a true and fair view of the of risk and associated management judgement in: estimating state of the Group’s and of the parent Company’s affairs as the amount of revenue to be recognised by the Group with at 31 December 2014 and of the Group’s profit for the year respect to the final out-turn on contracts; assessing the level then ended; of the contingencies; and recognising receipt of variations, • the group financial statements have been properly claims and insurance recoveries. prepared in accordance with International Financial • Our response: Using a variety of quantitative and qualitative Reporting Standards as adopted by the European Union criteria we selected a sample of contracts to assess and (IFRSs as adopted by the EU); challenge the most significant and complex contract • the parent company financial statements have been estimates. We obtained the detailed project management properly prepared in accordance with IFRSs as adopted by review papers from the Group to support the estimates made the EU and as applied in accordance with the provisions of and challenged the judgements underlying those papers with the Companies Act 2006; and senior operational, commercial and financial management. • the financial statements have been prepared in accordance In this area our audit procedures included: with the requirements of the Companies Act 2006 and, – evaluating the financial performance of contracts against as regards the group financial statements, Article 4 of the budget and historical trends; IAS Regulation. – completing site visits to certain higher risk or larger value 2 Our assessment of risks of material misstatement contracts, physically inspecting the stage of completion of individual projects and identifying areas of complexity In arriving at our audit opinion on the financial statements the through observation and discussion with site personnel; risks of material misstatement that had the greatest effect on our audit were as follows: – challenging the Group’s judgement in respect of forecast contract out-turn, contingencies, settlements and the Contract accounting estimates recoverability of contract balances via agreement to third-party certifications and confirmations and with Refer to page 55 (Audit Committee report) and pages 92 – 98 reference to our own assessments, historical outcomes and (accounting policies). industry norms; • The Risk: The Group recognises revenue and profit in – analysing correspondence with customers around variations accordance with IAS 11 based on the stage of completion of and claims and considering whether this information is contracts which is assessed with reference to the proportion consistent with the estimates made by the Group; of contract costs incurred for the work performed to the balance sheet date, relative to the estimated total costs of the contract at completion. The recognition of revenue

Costain Group PLC Annual Report 2014 • to 110 109 disclosures). pages and (financial policies) (accounting 92 –98 pages report), Committee (Audit 56 to page Refer venture – valuation joint accounted by equity held assets property and Land a significant risk in the Group balance sheet. balance Group the in risk a significant represents assets these of valuation the particular, in market property the and economy Spanish the of state depressed continued the to Due amount. appropriate an at recorded being are assets these if determine to land development the of value realisable net the of and assets non-current the of impairment for review ayearly performs Group The development. for held land asset, current principal its as and, courses golf two and amarina assets, non-current principal its as holds and market estate real Spanish the in operates accounts) the in million £25.2 of venture Risk: The –  –  –  –  –  to these amounts. these to relating risks key the and accounting contract of respect in disclosures Group’s the of adequacy the considering and assessments; own our to reference with area this in judgement Group’s the challenging and risk, of level the reflect sufficiently contracts against provisions whether considering to position; pertinent each contract opportunities and risks the of view abalanced represent made resultingstatements from the estimates and assumptions financial the in recognised amounts the whether assessing financialstatements; the in recognised amounts the in reflected appropriately been have clauses key these whether assessing and design bonuses, liquidated damages and success fees shares, pain/gain as such mechanisms contractual relevant identifying clauses, key for contracts selected inspecting the contract; the positionwhether this taken information on supports considering and applicable, if experts, technical or legal insurer’s the by undertaken claims these of assessments analysing claims, insurance recognised around insurers with minutes meeting and correspondence analysing Alcaidesa Holding SA (equity accounted joint joint accounted (equity SA Holding Alcaidesa misstatements that warranted reporting on that qualitative warranted reporting grounds. misstatements exceedingmisstatements in addition £70,000, to other identified uncorrected or corrected any committee audit the to We report 5.3%. represents it which of million £26.2 of charges finance and taxation before profit Group of benchmark a to reference with £1.4 at determined set million was whole as a statements financial Group’s the for materiality The 3  awhole. as investment Alcaidesa the to relation in level Group the at held provision of level the reviewed We also • scope of our audit our of scope the of overview an and materiality of application Our sites. the of knowledge our and evidence market to them comparing by assumptions underlying the test to skills valuation specialist with team our of member a utilised We qualified. suitably were reports the produced that firms valuation the whether evaluating and land that for valuations external the of copies inspecting included portfolio Alcaidesa the in development for held land the of respect in procedures audit Our and for inflation. growth forecasts market and market relevant the of knowledge our experience, historical our with that compare to skills valuation specialist valuation exercise utilising a member of our team with external the of outputs and inputs the both and projections the of methodology the examined then We have projections. flow cash discounted using valuer party athird by valued externally were courses golf the of assets non-current The inflation. and growth for forecasts market and historical experience, our knowledge of the relevant market our with that compare to skills valuation specialist with team our of amember utilised we model; the of outputs the driving assumptions and inputs key the on reported which valuer external the of output the examined We then model. the of operation and design the testing included procedures our asset, this of respect In valuer. party athird by on reported and reviewed subsequently was which model projection flow cash adiscounted using Group the by internally valued Our response: The non-current asset of the marina was was marina the of asset non-current The Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 81

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 82 Governance: Independent Auditor’s report

Independent Auditor’s report continued

Audits for Group reporting purposes were performed by Under the Companies Act 2006 we are required to report to you component auditors at the key reporting components in if, in our opinion: Spain, Aberdeen and by the Group audit team at the Group’s • adequate accounting records have not been kept by the head offices. These procedures covered 99% of total Group parent Company, or returns adequate for our audit have not revenue; 99% of Group profit before tax and 99% of total been received from branches not visited by us; or Group assets. The segment disclosures in Note 3 set out the individual significance of specific countries. • the parent Company financial statements and the part of the Directors’ remuneration report to be audited are not in The Group audit team instructed component auditors as to agreement with the accounting records and returns; or the significant areas to be covered, including the relevant risks detailed above and the information to be reported back. • certain disclosures of Directors’ remuneration specified by law The Group audit team approved the component materialities. are not made; or The audits undertaken for Group reporting purposes in Spain • we have not received all the information and explanations we and Aberdeen were performed to materiality levels set by require for our audit. the Group audit team of £525,000 and £725,000 respectively, having regard to the size and risk profile of those components. Under the Listing Rules we are required to review: • the Directors’ statement, set out on page 75, in relation to 4 Our opinion on other matters prescribed by the going concern; and Companies Act 2006 is unmodified • the part of the Corporate Governance report on page 48 In our opinion: relating to the Company’s compliance with the ten provisions • the part of the Directors’ remuneration report to be of the 2012 UK Corporate Governance Code specified for audited has been properly prepared in accordance with the our review. Companies Act 2006; and We have nothing to report in respect of the • the information given in the Strategic report and the above responsibilities. Directors’ report for the financial year for which the financial statements are prepared is consistent with the Scope of report and responsibilities financial statements. As explained more fully in the Directors’ responsibilities 5 We have nothing to report in respect of the matters on statement set out on page 79, the Directors are responsible which we are required to report by exception for the preparation of the financial statements and for being satisfied that they give a true and fair view. A description Under ISAs (UK and Ireland) we are required to report to you of the scope of an audit of financial statements is if, based on the knowledge we acquired during our audit, we provided on the Financial Reporting Council’s website have identified other information in the Annual Report that at www.frc.org.uk/auditscopeukprivate. This report contains a material inconsistency with either that knowledge is made solely to the Company’s members as a body or the financial statements, a material misstatement of fact, or and is subject to important explanations and disclaimers that is otherwise misleading. regarding our responsibilities, published on our website In particular, we are required to report to you if: at www.kpmg.com/uk/auditscopeukco2014a, which are incorporated into this report as if set out in full and should be • we have identified material inconsistencies between the read to provide an understanding of the purpose of this report, knowledge we acquired during our audit and the Directors’ the work we have undertaken and the basis of our opinions. statement that they consider that the Annual Report and financial statements taken as a whole is fair, balanced and understandable and provide the information necessary for Andrew Marshall (Senior Statutory Auditor) shareholders to assess the Group’s performance, business for and on behalf of KPMG LLP, Statutory Auditor model and strategy; or Chartered Accountants 15 Canada Square • the Audit Committee report does not appropriately address London E14 5GL matters communicated by us to the Audit Committee. 02 March 2015

Costain Group PLC Annual Report 2014 and other information other and statements Financial statements Financial Consolidated statement of statement Consolidated Consolidated income statement comprehensive income and expense comprehensive Company of statement financialposition position financial of statement Consolidated shareholder information shareholder Financial calendar and other summary financial Five-year statements financial to the Notes statement flow cash Company statement flow cash Consolidated equity in changes of statement Company equity in changes of statement Consolidated Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain

83 129 128 84 88 83 90 86 85 92 89 87 91

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02– 44 84 Financial statements Consolidated income statement Year ended 31 December

2014 2013 Before Other Before Other other items items Total other items items Total Notes £m £m £m £m £m £m Continuing operations Revenue 3 1,122.5 – 1,122.5 960.0 – 960.0 Less: Share of revenue of joint ventures and associates 13 (50.7) – (50.7) (74.8) – (74.8) Group revenue 1,071.8 – 1,071.8 885.2 – 885.2 Cost of sales (1,011.6) – (1,011.6) (826.7) – (826.7) Gross profit 60.2 – 60.2 58.5 – 58.5

Administrative expenses (31.5) – (31.5) (31.1) – (31.1) Exceptional transaction costs 4 – – – – (3.7) (3.7) Amortisation of acquired intangible assets – (3.0) (3.0) – (1.8) (1.8) Employment related and other deferred consideration – (2.2) (2.2) – (2.8) (2.8) Group operating profit 28.7 (5.2) 23.5 27.4 (8.3) 19.1

Profit on sales of interests in joint ventures and associates 4 4.0 – 4.0 9.1 – 9.1 Share of results of joint ventures and associates 13 (1.3) – (1.3) (1.5) (9.8) (11.3) Profit from operations 3 31.4 (5.2) 26.2 35.0 (18.1) 16.9

Finance income 7 0.7 – 0.7 0.7 – 0.7 Finance expense 7 (3.6) (0.7) (4.3) (4.7) – (4.7) Net finance expense (2.9) (0.7) (3.6) (4.0) – (4.0)

Profit before tax 3/4 28.5 (5.9) 22.6 31.0 (18.1) 12.9 Income tax 8 (2.2) 0.6 (1.6) (1.8) 1.4 (0.4) Profit for the year attributable to equity holders of the parent 26.3 (5.3) 21.0 29.2 (16.7) 12.5

Earnings per share Basic* 9 27.8p (5.6)p 22.2p 41.0p (23.4)p 17.6p Diluted* 9 27.2p (5.5)p 21.7p 39.4p (22.5)p 16.9p

The impact of business disposals in either year was not material and, therefore, all results are classified as arising from continuing operations. * 2013 has been restated for the bonus element in the 2014 capital raise.

Costain Group PLC Annual Report 2014 Profit for the year the for Profit Year 31 ended December comprehensive income expense and of statement Consolidated Exchange differences on translation differences Exchange of foreign operations loss: or profit to subsequently reclassified be may that Items Group: hedges flow Cash

Total items that may be reclassified subsequently to profit or loss or profit to subsequently reclassified be may that Total items Remeasurement of defined benefit obligations loss: or profit to reclassified be not will that Items Tax recognised on remeasurement of defined benefit obligations Total items that will not be reclassified to profit or loss or profit to reclassified be not will that Total items Other comprehensive (expense)/income for the year Total comprehensive income for the year attributable to equity holders of the parent the of holders to equity attributable year the for income Total comprehensive Effective portion of changes in fair value during year during value fair in changes of portion Effective Net changes in fair value transferred to the income statement income the to transferred value fair in changes Net Effective portion of changes in fair value (net of tax) during year during tax) of (net value fair in changes of portion Effective associates: and ventures Joint Net changes in fair value (net of tax) transferred to the income statement income the to transferred tax) of (net value fair in changes Net

Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain (15.7) (14.2) (16.1) 21.0 2014 2014 (2.0) (1.9) 0.1 1.5 4.9 £m – – –

85 12.5 16.7 2013 2013 (0.2) (0.1) (0.2) (5.3) 0.2 1.2 0.9 8.6 3.3 4.2 £m

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 86 Financial statements Consolidated statement of financial position As at 31 December

2014 2013 Notes £m £m Assets Non-current assets Intangible assets 11 31.0 33.0 Property, plant and equipment 12 10.0 7.9 Investments in equity accounted joint ventures 13 25.5 27.1 Investments in equity accounted associates 13 0.3 0.2 Loans to equity accounted associates 13 1.7 4.8 Other 14 31.8 22.0 Deferred tax 8 9.2 9.8 Total non-current assets 109.5 104.8

Current assets Inventories 1.3 1.6 Trade and other receivables 14 197.1 190.6 Cash and cash equivalents 15 148.5 84.3 Total current assets 346.9 276.5 Total assets 456.4 381.3

Equity Share capital 21 50.6 33.4 Share premium 5.5 4.7 Foreign currency translation reserve 2.8 4.8 Hedging reserve – (0.1) Retained earnings 51.9 0.5 Total equity attributable to equity holders of the parent 110.8 43.3

Liabilities Non-current liabilities Retirement benefit obligations 20 41.7 37.2 Other payables 18 4.5 4.3 Provisions for other liabilities and charges 19 0.1 0.4 Total non-current liabilities 46.3 41.9

Current liabilities Trade and other payables 18 296.3 266.1 Income tax liabilities 8 1.5 1.6 Bank overdrafts 15 – 1.6 Interest bearing loans and borrowings 16 – 25.0 Provisions for other liabilities and charges 19 1.5 1.8 Total current liabilities 299.3 296.1 Total liabilities 345.6 338.0 Total equity and liabilities 456.4 381.3

The financial statements were approved by the Board of Directors on 2 March 2015 and were signed on its behalf by:

A Wyllie A O Bickerstaff Director Director

Registered number: 1393773

Costain Group PLC Annual Report 2014 Investments in subsidiaries Investments Non-current assets Assets at 31As December position financial of Company statement Registered number: 1393773 Director A Wyllie Total non-current assets Trade and other receivables Current assets Cash and cash equivalents cash and Cash Total current assets Total assets Total Share capital Share Equity Share premium Share Other reserves reserves Other Retained earnings Retained Total equity attributable to equity holders of the parent the of holders to equity attributable Total equity Provisions for other liabilities and charges and liabilities other for Provisions liabilities Non-current Liabilities Total liabilities non-current Trade and other payables other Trade and Current liabilities Income tax liabilities liabilities tax Income Interest bearing loans and borrowings loans bearing Interest Provisions for other liabilities and charges and liabilities other for Provisions Total liabilities current Total liabilities Total and liabilities equity The financial statements were approved by the Board of Directors on 2 March 2015 and were signed on its behalf by: behalf its on signed 2015were and March on 2 Directors of Board the by approved were statements financial The Director A OBickerstaff Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Notes 13 14 15 21 19 18 16 19 8 100.1 100.1 168.5 137.8 168.5 58.2 10.2 68.4 50.6 14.2 67.5 27.9 29.4 30.7 2014 2014 5.5 1.3 1.3 1.5 £m – –

149.2 149.2 87 97.9 97.9 51.3 51.3 33.4 12.0 21.9 72.0 49.3 25.0 75.9 77.2 2013 2013 4.7 1.3 1.3 1.5 0.1 £m –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 88 Financial statements Consolidated statement of changes in equity

Share Share Translation Hedging Merger Retained Total capital premium reserve reserve reserve earnings equity £m £m £m £m £m £m £m At 1 January 2013 32.8 3.7 5.0 (1.2) – (8.5) 31.8 Profit for the year – – – – – 12.5 12.5 Other comprehensive (expense)/income – – (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 At 1 January 2014 33.4 4.7 4.8 (0.1) – 0.5 43.3 Profit for the year – – – – – 21.0 21.0 Other comprehensive (expense)/income – – (2.0) 0.1 – (14.2) (16.1) Issue of ordinary shares under employee share option plans 0.4 0.2 – – – (0.3) 0.3 Issue of ordinary shares under capital raise (Note 21) 16.7 – – – 53.6 – 70.3 Transfer – – – – (53.6) 53.6 – Shares purchased to satisfy employee share schemes – – – – – (2.0) (2.0) Equity-settled share-based payments – – – – – 1.7 1.7 Dividends paid 0.1 0.6 – – – (8.4) (7.7) At 31 December 2014 50.6 5.5 2.8 – – 51.9 110.8

There are no significant restrictions on the ability to remit overseas reserves. Details of the nature of the above reserves are set out below.

Translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations that are not integral to the operations of the Company, as well as from the translation of liabilities that hedge the Group’s net investment in a foreign subsidiary.

Hedging reserve The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have not yet occurred.

Merger reserve The capital raise was effected through a structure, which resulted in a merger reserve arising under Section 612 of the Companies Act 2006. Following the receipt of the cash proceeds through the structure, the excess of the net proceeds over the nominal value of the share capital issued has been transferred to retained earnings.

Costain Group PLC Annual Report 2014 At 1 January 2013 1January At equity in changes of Company statement Comprehensive expense Issue of ordinary shares under employee share share employee under shares ordinary of Issue Equity-settled share-based payments grantedEquity-settled to Dividends paid Dividends At 31 December 2013 At 1 January 2014 1January At Comprehensive income Issue of ordinary shares under employee share share employee under shares ordinary of Issue Issue of ordinary shares under capital raise raise capital under shares ordinary of Issue Transfer Equity-settled share-based payments grantedEquity-settled to Dividends paid Dividends At 31 December 2014 31At December of the share capital issued has been transferred to retained earnings. retained to transferred been has issued capital share the of value nominal the over proceeds net the of excess the structure, the through proceeds cash the of receipt the Following 2006. Act 612 Companies the of Section under arising reserve amerger in resulted which astructure, through effected was raise capital The Merger reserve incentive plan payment schemes. The is impact recognised within reserve. this share-based non-distributable its of part as instruments equity its to rights subsidiaries its of certain grants Company The reserve Other below. out set are reserves above the of nature the of Details option plans employees of subsidiaries employees option plans (Note 21) employees of subsidiaries employees

capital Share 33.4 16.7 50.6 32.8 33.4 0.4 0.1 0.5 0.1 £m – – – – –

premium Share Share 4.7 0.2 0.6 5.5 3.7 0.6 0.4 4.7 £m – – – – – –

reserve Other 12.0 14.2 12.0 2.2 9.3 2.7 £m – – – – – – – –

reserve Merger Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain (53.6) 53.6 £m – – – – – – – – – – – –

Retained Retained earnings 21.9 53.6 67.5 32.1 21.9 (0.3) (8.4) (2.7) (0.3) (7.2) 0.7 £m – – –

137.8 equity 89 72.0 70.3 Total 77.9 72.0 (7.7) (2.7) (6.7) 0.7 0.3 2.2 0.8 2.7 £m –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 90 Financial statements Consolidated cash flow statement Year ended 31 December

2014 2013 Notes £m £m Cash flows from operating activities Profit for the year 21.0 12.5 Adjustments for: Share of results of joint ventures and associates 13 1.3 11.3 Finance income 7 (0.7) (0.7) Finance expense 7 4.3 4.7 Income tax 8 1.6 0.4 Profit on sales of interests in joint ventures and associates 4 (4.0) (9.1) Depreciation of property, plant and equipment 4 2.0 2.4 Amortisation of intangible assets 4 3.4 2.3 Employment related and other deferred consideration 2.2 2.8 Shares purchased to satisfy employee share schemes (2.0) (1.5) Share-based payments expense 5 2.2 2.7 Cash from operations before changes in working capital and provisions 31.3 27.8

Decrease in inventories 0.3 0.1 Increase in receivables (16.3) (12.2) Increase/(decrease) in payables 33.1 (40.7) Movement in provisions and employee benefits (4.8) (7.9) Cash from/(used by) operations 43.6 (32.9) Interest received 0.7 0.6 Interest paid (3.6) (2.9) Income tax paid (0.1) (0.3) Net cash from/(used by) operating activities 40.6 (35.5)

Cash flows from/(used by) investing activities Dividends received from joint ventures and associates 13 0.1 1.3 Additions to property, plant and equipment 12 (5.3) (1.3) Additions to intangible assets 11 (0.8) (1.2) Proceeds of disposal of property, plant and equipment 0.6 0.2 Additions to loans to joint ventures and associates 13 – (2.2) Additions to cost of investments 13 (1.7) (2.7) Repayment of loans to joint ventures and associates 13 0.1 - Proceeds of sales of interests in associates 4 – 11.7 Acquisition related deferred consideration 17 (3.3) (3.0) Acquisition of interest in joint operation 11 (2.4) – Acquisition of subsidiary (net of acquired cash and cash equivalents and overdrafts) 25 – (9.4) Net cash used by investing activities (12.7) (6.6)

Cash flows from/(used by) financing activities Issue of ordinary share capital 70.6 0.8 Ordinary dividends paid (7.7) (6.7) (Repayment)/drawdown of revolving credit facility 16 (25.0) 25.0 Net cash from financing activities 37.9 19.1

Net increase/(decrease) in cash, cash equivalents and overdrafts 65.8 (23.0)

Cash, cash equivalents and overdrafts at beginning of the year 15 82.7 105.7 Cash, cash equivalents and overdrafts at end of the year 15 148.5 82.7

Costain Group PLC Annual Report 2014 Profit/(loss) for the year the for Profit/(loss) activities operating from flows Cash Year 31 ended December flowstatement Company cash Finance income Adjustments for: Finance expense Income tax Income Cash used by operations before changes in working capital and provisions and capital working in changes before operations by used Cash Increase in receivables Movement in provisions payables in Decrease Interest received operations by used Cash Interest paid Interest Income received tax Net cash used by operating activities operating by used cash Net Issue of ordinary share capital share ordinary of Issue activities financing by) from/(used flows Cash Ordinary dividends paid dividends Ordinary (Repayment)/drawdown of revolving credit facility credit of revolving (Repayment)/drawdown Net cash from financing activities financing from cash Net Net increase/(decrease) in cash and cash equivalents cash and cash in increase/(decrease) Net Cash and cash equivalents at beginning of the year the of beginning at equivalents cash and Cash Cash and cash equivalents at end of the year the of end at equivalents cash and Cash Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Notes 16 15 15 (21.4) (28.3) (27.7) (25.0) 70.6 37.9 10.2 10.2 2014 2014 (0.7) (0.4) (0.3) (6.5) (0.1) (0.1) (7.7) 0.7 0.1 0.7 £m – –

91 (32.2) (46.4) (49.1) (30.0) 25.0 19.1 30.0 2013 2013 (2.7) (0.7) (1.1) (4.2) (9.9) (0.1) (2.8) (6.7) 0.3 0.1 0.8 £m – –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 92 Financial statements: Notes to the financial statements Notes to the financial statements

1 General information Going concern Costain Group PLC (‘the Company’) is a public limited The Group’s business activities and the factors likely to affect company incorporated in the United Kingdom. The address its future development, performance and position are set out in of its registered office and principal place of business is the Strategic report. The financial position of the Group, its cash disclosed on the last page of this Annual Report. The principal flows, liquidity position, borrowing and bonding facilities, use of activities of the Company and its subsidiary undertakings financial instruments and hedging activities, exposure to credit (collectively referred to as ‘the Group’) are described in the risk and its objectives, policies and processes for managing its Strategic report. capital and financial risk are described in the Financial review section of these financial statements and in Note 17. The consolidated financial statements of the Company for the year ended 31 December 2014 comprise the Group and The Group’s principal business activity involves long-term the Group’s interests in associates, joint ventures and joint contracts with a number of customers, virtually all in the United operations. The parent company financial statements present Kingdom. To meet its day-to-day working capital requirements, information about the Company as a separate entity and not it uses cash balances provided from shareholders’ capital and about its Group. retained earnings and its borrowing facilities. As part of its contracting operations, the Group may be required to provide The financial statements were authorised for issue by the performance and other bonds. It satisfies these requirements by Directors on 2 March 2015. utilising its committed bonding facilities from banks and surety companies. These facilities have financial covenants that are 2 Summary of significant accounting tested quarterly. policies The Directors have acknowledged the guidance “Going Both the Company financial statements and the Group Concern and Liquidity Risk: Guidance for Directors of UK consolidated financial statements have been prepared Companies 2009” published by the Financial Reporting and approved by the Directors in accordance with Council in October 2009. The Directors have considered International Financial Reporting Standards as adopted by these requirements, the Group’s current order book and the EU (‘Adopted IFRS’) and their related interpretations. future opportunities and its available bonding facilities. On publishing the parent Company financial statements here Having reviewed the latest projections, including the application together with the Group financial statements, the Company of reasonable downside sensitivities, the Directors believe is taking advantage of the exemption in Section 408 of the that the Group is well-placed to manage its business risks Companies Act 2006 not to present its individual income successfully despite the current uncertain economic outlook. statement and related notes that form a part of these Accordingly, they continue to adopt the going concern basis in approved financial statements. preparing these financial statements.

Basis of preparation Accounting policies These financial statements are presented in pounds sterling, The accounting policies set out below have, unless rounded to the nearest hundred thousand. The financial otherwise stated, been applied consistently by the Group statements are prepared on the historical cost basis, except and the Company to each period presented in these that financial assets and derivative financial instruments are financial statements. stated at their fair value. The following standards and interpretations are effective for the The preparation of financial statements in conformity with year ended 31 December 2014: IFRS requires management to make judgments, estimates • IAS 27 (Revised) ‘Separate Financial Statements’ and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and • IAS 28 (Revised) ‘Investments in Associates and expenses. The estimates and associated assumptions are Joint Arrangements’ based on historical experience and various other factors • Amendment to IAS 32 ‘Financial Instruments: Presentation’ – that are believed to be reasonable under the circumstances, Offsetting Financial Assets and Financial Liabilities’ the results of which form the basis of making the judgments • IFRS 10 ‘Consolidated Financial Statements’ about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ • IFRS 11 ‘Joint Arrangements’ from these estimates. Judgments made by management in • IFRS 12 ‘Disclosure of Interests in Other Entities’ the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of • Transition guidance: Amendments to IFRS 10, IFRS 11 material adjustment in the next year are discussed later in and IFRS 12 – amendments to simplify the transition to this Note. these standards. The impact of these standards is limited to minor disclosure changes and alignment of accounting policies has not necessitated any prior year restatements.

Costain Group PLC Annual Report 2014 (f)  (f) (e)   (d) (c)   (b) (a)  Basis of consolidation policies accounting significant of 2 Summary evidence of impairment. no is there that extent the to only but gains, unrealised as way same the in eliminated are losses Unrealised operation. or entity the in interest the of extent the to eliminated are operations joint and ventures joint associates, with statements. Unrealised gains arising from transactions financial consolidated the preparing in eliminated are transactions intra-group from arising gains unrealised any with together transactions and balances Intra-group control of the entity ceases. entity the of control joint that date the until commences venture joint the that date the from method equity the using for accounted are ventures Joint arrangement. the of assets net the to rights has Group the where and entity, another with shared is control where arrangements joint those are ventures Joint date that control ceases. control that date the until commences control that date the from statements financial consolidated the in included are subsidiaries of statements financial The entity. the over power its through returns those affect to ability the has and entity the with involvement its from returns to, variable rights the has to, or exposed is Group the when exists control and Group the by controlled entities are Subsidiaries subsidiaries. its and Company the of statements financial the include statements financial Group’s The on consolidation. eliminate operations joint and companies Group onstatements the same basis. Transactions between financial consolidated the in reported are operations joint Such income. of share its and incurs it expenses and liabilities the controls, it assets the records involved entity Group the then exists, operation ajoint Where arrangement. the to relating liabilities the for obligations and assets the to rights have parties the where and joint control established by exists, agreement contractual which over arrangements joint those are operations Joint Note 13. 13. Note in reclassifications within shown are investments of value carrying the from losses excess of transfers such Any commitment. the of value the to up made is a provision investment or, where future funding commitments exist, the with balance loan outstanding any to applied is position negative the of value the to up amount an then incurred, losses to due negative, be would investment of cost the Where £Nil. to value carrying minimum the restricts position financial of statement the in ventures joint and associates in investments of presentation The method. equity the using for accounted are Associates control. not but influence significant exercise to exists power which over operations are Associates continued expense immediately. an as recognised is loss expected the revenue, contract total exceed will costs contract total that probable is it When incurred. are they which in period the in expenses as recognised are costs Contract recoverable. be will costs those probable is it where incurred costs contract of extent the to recognised is revenue contract reliably, estimated be cannot contract term along- of outcome the When customer. the from recovered be will reliably, measured be can which amount, the that probable is it where revenue in included are claims and Variations costs. total estimated the to relative date to performed work the for incurred costs contract of proportion the to reference by assessed is completion of Stage date. position financial of statement the at activity contract the of completion of stage the to reference by recognised are costs and revenue profitable, be will contract the that probable is it and reliably estimated be can contract along-term of outcome the year. Where the during provided services of value the on and contracts construction on performed work of value the in increase from arises Revenue contracts (a) Long-term contracts. long-term from arises revenue Group’s the of 97% operations. joint of revenue of share the includes and tax added value of net receivable, or received consideration the of value fair the at measured is Revenue Revenue recognition component. aseparate as presented not are operations foreign all of respect in IFRS to transition of date the before arose that differences Translation disposal. aredifferences released into the income statement upon exchange Cumulative equity. of component aseparate as presented are IFRS, to transition of date the 2004, 1 January since arisen have that those and equity in directly recognised are hedges related of and operations foreign in investment net the of translation the from arising differences Exchange these transactions. of dates the at ruling rates exchange the to approximating rates at sterling pounds to translated are operations foreign of expenses and revenues The date. position financial of statement the at ruling rates exchange at sterling pounds to translated are operations foreign of liabilities and assets The translation are recognised in the income statement. on arising differences exchange Foreign date. position financial of statement the at ruling rate exchange the at sterling pounds to translated are currencies foreign in denominated liabilities and assets Monetary transaction. the of date the at ruling rate exchange the at translated are currencies foreign in Transactions Currency translation Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 93

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 94 Financial statements: Notes to the financial statements Notes to the financial statements continued

2 Summary of significant accounting Goodwill and other intangible assets policies continued Goodwill arising on acquisitions represents the excess of the fair value of the consideration over the identifiable assets, Revenue recognition continued liabilities and contingent liabilities of the acquired entity and goodwill arising on the acquisition of subsidiaries is included Construction work in progress is stated at cost plus profit in non-current assets. The attributable costs of acquisitions are recognised to date less a provision for foreseeable losses expensed to the income statement. and less amounts billed and is included in amounts due from customers for contract work. Cost includes all expenditure Goodwill is reviewed annually for impairment and is carried at related directly to specific projects and an appropriate cost less accumulated impairment losses. Goodwill is included allocation of fixed and variable overheads based on normal when determining the profit or loss on subsequent disposal of operating capacity. Amounts valued and billed to customers the business to which it relates. are included in trade receivables. Where cash received from Other intangible assets comprise acquired intangible assets: customers exceeds the value of work performed, the amount customer relationships, order book and brand and computer is included in credit balances on long-term contracts. software. Customer relationships and other intangibles acquired (b) Other revenue are measured at the present value of cash flows attributable to Revenue from other services contracts is recognised when the the relationship less an appropriate contributory asset charge. service is provided. Computer software is carried at cost; subsequent expenditure is capitalised only when it increases the future economic benefits Revenue from the sale of land is recognised when the embodied in the specific asset to which it relates, otherwise significant risks and rewards of ownership have been expenditure is expensed as incurred. transferred to the buyer, the amount of revenue can be measured reliably and it is probable that the economic Amortisation begins when an asset is acquired or, in the case of benefits associated with the transaction will flow to the Group. computer software, available for use and is amortised over the following periods: Rental income is recognised in the income statement on a straight-line basis over the term of the lease. Lease incentives Brands – on a straight-line basis up to three years. are recognised as an integral part of the total rental income Order book – in line with expected profit generation up on a straight-line basis over the term of the lease. to three years. Customer – on a straight-line basis up to seven years. Income statement presentation – Other items relationships In order to aid understanding of the underlying and overall Computer – on a straight-line basis up to five years. performance of the Group, certain amounts are shown in the software and consolidated income statement in a separate column headed development ‘Other items’. Items are included under this heading where the Board considers them to be of a one-off and unusual Property, plant and equipment nature or related to the accounting treatment of acquisitions. Property, plant and equipment is carried at cost less Pre-contract costs accumulated depreciation and impairment losses. Where parts of an item of property, plant and equipment have different Costs associated with bidding for contracts are written useful lives, they are accounted for as separate items. off as incurred. When it is probable that a contract will be Cost comprises purchase price and directly attributable costs. awarded, usually when preferred bidder status is secured, Freehold land is not depreciated. For all other property, plant costs incurred from that date to the date of financial close and equipment, depreciation is calculated on a straight-line are carried forward in the statement of financial position and basis to allocate cost less residual values of the assets over their included in amounts due from customers for contract work. estimated useful lives as follows: When financial close is achieved on PFI contracts, costs are Freehold buildings – 50 years recovered from the special purpose vehicle and pre-contract Leasehold buildings – shorter of 50 years or lease term costs within this recovery that were not previously capitalised Plant and equipment – remaining useful life are credited to the income statement. When an interest (generally 3 to 10 years) in a special purpose vehicle is retained and that interest is accounted for as an associate or joint venture, the credit is The assets’ residual values and useful lives are reviewed recognised over the life of the construction contract to which and adjusted, if appropriate, at each statement of financial the costs relate. position date.

Research and development Investments – Company Research and development activities are usually directly Company investments in subsidiaries are carried at cost less attributable to a project and accounted within project costs. provisions for impairment.

Costain Group PLC Annual Report 2014 where appropriate, the risks specific to the liability. the to specific risks the appropriate, where and, money of value time the of assessments market current reflects that rate pre-tax at a flows cash future expected is material, provisions are determined by discounting the effect the If obligation. the settle to required be will benefits economic of outflow an that probable is it and event a past of aresult as obligation constructive or alegal is there when position financial of statement the in recognised is A provision Provisions if no impairment loss had been recognised. have been determined, net of depreciation or amortisation, would that amount carrying the exceed not does assets the of amount carrying the that extent the to only reversed is loss impairment An asset. the of value carrying impaired the above rising amount recoverable the in resulting estimates the in achange been has there if reversed is loss impairment An statement. income in the the recoverable amount. Impairment are losses recognised than less is unit, cash-generating its or asset, an of amount An impairment loss is recognised whenever the carrying recoverableassets amount is estimated. the exists, indication such any If impairment. of indication any is there whether determine to date position financial of statement each at reviewed are assets, tax deferred and inventories except assets, other of amounts carrying The in a subsequent period. An impairment loss recognised for goodwill is not reversed unit. the in asset each of amount carrying the of basis the on pro-rata unit the of assets other to then and unit the to allocated goodwill any of amount carrying the reduce to first allocated is loss impairment the unit, the of amount carrying the than less is unit generating cash the of amount recoverable the If impaired. be may unit the that indication an is there when frequently more or annually, impairment for tested are allocated been has goodwill which to units generating Cash combination. the of synergies the from benefit to expected units generating cash the of each to For the of purposes impairment testing, goodwill is allocated assets ofImpairment non-financial basis. interest effective an on asset financial the of respect in income life of the agreement. The operator recognises investment the over asset financial other or cash of amount a specified receive to right unconditional an has operator the because assets financial as recognised are investments Group’s the within assets infrastructure the interpretation, this Under 12. IFRIC with accordance in accounted are services, public for infrastructure of maintenance and operation financing, a in operator private participates the sector development, joint ventures and associates. These arrangements, whereby through held PFI investments in interests has Group The investments PFI policies accounting significant of 2 Summary continued related dividend. the pay to liability the as time same the at recognised are dividends of distribution the from arising taxes Additional equity. in with dealt also is tax deferred the case which in equity, to directly statement except when it relates to items charged or credited income the in credited or charged is tax Deferred date. position financial of statement the at enacted substantially or enacted those on based rates tax the at calculated is tax Deferred future. foreseeable the in reverse not will difference temporary the that probable is it and difference temporary the of reversal the control to able is Group the where except arrangements, joint in interests and subsidiaries in investments on arising Deferred liabilities tax are recognised for differences temporary profit. accounting the nor profit taxable the neither affects that atransaction in combination, abusiness in than other liabilities, and assets other or goodwill of recognition initial are not recognised if the difference arises from temporary the liabilities and assets Such date. position financial of statement each at reviewed is assets tax deferred of amount carrying The against can differences be which temporary utilised. deductible available be will profits taxable future that probable is it that extent the to recognised are assets tax deferred and below out except differences temporary for those specific exemptionsset method. Deferred liabilities tax are generally recognised for all liability position financial of statement the using for accounted is and profit taxable of computation the in used bases tax corresponding the and statements financial the in liabilities and assets of amounts carrying the between differences on recoverable or payable be to expected tax the is tax Deferred date. position financial of statement the by enacted substantively or enacted been have that laws and rates tax using calculated is tax current for liability The deductible. or taxable never are that items excludes further it and years other in deductible or taxable are that expense or income of items excludes it because statement income the in reported as tax before profit from differs year. profit Taxable the for profit taxable the on based is payable currently tax The deferred tax. and payable currently tax overseas and tax corporation Kingdom United of sum the represents expense tax The Taxation the contract. under obligations the meeting of cost unavoidable the than benefits expected to bederived from are a contract lower the when recognised is contracts onerous for A provision Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 95

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 96 Financial statements: Notes to the financial statements Notes to the financial statements continued

2 Summary of significant accounting Retirement benefit obligations policies continued A defined benefit pension scheme is operated in the United Kingdom, which provides benefits based on pensionable salary. Leases The details are included in Note 20. The assets of the scheme are held separately from those of the Group. Leases principally comprise operating leases. Payments made under operating leases are recognised as an expense in the Pension scheme assets are measured using market values. income statement on a straight-line basis over the lease term. Pension scheme liabilities are measured using a projected Any incentives to enter into operating leases are recognised as unit method and discounted at the current rate of return on a a reduction of rental expense over the lease term on a straight- high-quality corporate bond of equivalent term and currency line basis. to the liability. The liability recognised in the statement of financial position in respect of the defined benefit pension Financial guarantee contracts scheme is the present value of the defined benefit obligations less the fair value of scheme assets at the statement of financial Where the Company enters into financial guarantee contracts position date. to guarantee the indebtedness of other companies within the Group, the Company considers these to be insurance Administration costs of the scheme are recognised in the arrangements and accounts for them as such. In this respect, income statement. The interest cost on the scheme’s net the guarantee contract is treated as a contingent liability until liabilities is included in finance expense. Remeasurements of such time as it becomes probable that a payment under the the net liability are recognised in the consolidated statement guarantee will be required. of comprehensive income. Obligations for contributions to defined contribution pension Share capital plans are recognised as an expense in the income statement Ordinary shares are classified as equity. Incremental costs as incurred. directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Financial assets and liabilities Financial assets and financial liabilities are recognised in Dividends the Group’s statement of financial position when the Group Dividends are recognised as distributions in the period in becomes a party to the contractual provisions of the instrument. which they are declared. Dividends proposed but not declared are not recognised but are disclosed in the Note 10 to the (a) Financial assets financial statements. Financial assets are classified as loans and receivables. The classification depends on the nature and purpose Share-based payments of the financial asset and is determined at the time of These comprise equity-settled and cash-settled share-based initial recognition. compensation plans. A financial asset is derecognised only when the contractual Equity-settled share-based payments are measured at fair rights to the cash flows from that asset expire, or it transfers value at the date of grant and the fair value is expensed over the financial asset and substantially all the risks and rewards the vesting period, based on the estimate of awards that of ownership of the asset to another entity. will eventually vest. For cash-settled share-based payments, a liability equal to the portion of the services received is Loans and receivables Loans and other receivables with fixed or determinable recognised at its current fair value determined at each payments that are not quoted in an active market are classified statement of financial position date. Fair value is measured by as loans and receivables and measured at amortised cost the use of a Black-Scholes option pricing model. using the effective interest method, less any impairment. Where options are granted over shares in the Company to Interest income is recognised by applying the effective interest employees of subsidiaries, the Company recognises in its rate, except for short-term receivables when the recognition of financial statements an increase in the cost of investment in interest would be immaterial. its subsidiaries equivalent to the equity-settled share-based payment charge recognised in its subsidiaries’ financial Trade and other receivables Trade and other receivables do not carry interest and are stated statements, with the corresponding credit being recognised at their initial value less impairment losses. directly in equity. Impairment of financial assets Estimated recoverable amounts are based on the ageing of the outstanding receivable and provisions against individual receivables are recognised when management deems the amounts are not collectible.

Costain Group PLC Annual Report 2014 which the hedged cash flow affects the income statement. income the affects flow cash hedged the which in period same the in statement income the to transferred are equity in recognised are that losses or gains the hedges, flow cash other all For liability. or asset the of measurement initial the in included are equity in recognised previously losses or gains associated the liability, or asset anon-financial of recognition the in result flows cash hedged When statement. income the in portion ineffective any with equity, in recognised is hedge hedging instrument that is determined to be an effective the on loss or gain the of portion the hedges, flow cash For hedged item. the of amount carrying the against adjusted and statement hedging instrument at fair value is recognised in the income the re-measuring from loss or gain any hedges, value fair For • • as follows: classified and policies management risk established with line in hedges as designated are instruments financial derivative Certain transactions. similar for values market to reference by supported techniques valuation using determined are contracts exchange the of statement financialposition date. Valuations for forward at value market quoted their is contracts exchange forward of value fair The value. fair their at measured are and inflation and rates interest rates, exchange foreign in changes from arising risks manage to used are instruments financial Derivative instruments financial (c) Derivative interest method. using measured cost subsequently the at effective amortised and value fair at initially recognised are Trade payables Trade payables expire. or cancelled discharged, are obligations the when only derecognised are liabilities Financial risk. hedged the with associated movements value fair the reflect to adjusted is value carrying the relationship, hedge value fair effective an in item hedged the are borrowings Where basis. yield effective interest method, with interest expense recognised on an using measured cost subsequently the at effective amortised are liabilities Financial costs. transaction of net value, fair at are initially measured borrowings, Financial liabilities, including (b) liabilities Financial flows. cash of statement the of purpose the for equivalents cash and cash of acomponent as included are management cash Group’s the of part integral an form and demand on repayable are that overdrafts Bank deposits. call and balances cash comprise equivalents cash and Cash equivalents cash and Cash policies accounting significant of 2 Summary with a recognised asset or liability or a forecast transaction. aforecast or liability or asset arecognised with associated risk particular a either to attributable is that flows cash in variability to exposure hedge that hedges flow Cash or liability; or asset arecognised of value fair the in changes to exposure the hedge that hedges value Fair continued

under IAS 19 Employee benefits. used in the accounting for defined benefit pensionschemes assumptions the and assets intangible acquired and goodwill of value carrying the and land of value carrying the of assessments under IAS 11long-term contracts, contracts Construction for accounting the from arise estimation and judgment of areas significant and policies accounting critical most The future periods. and current both affects revision the if periods future and revision the of period the in or period, that only affects revision the if revised is estimate the which in period the in recognised are estimates accounting to Revisions basis. ongoing an on reviewed are statements financial these of preparation the in used assumptions underlying and estimates The estimation and judgment of areas Significant for new disclosures. and hasprospectively not provided any comparative information guidance measurement value fair new the applied has Group 13, IFRS of the provisions transitional the with accordance In measurement. entire the to significant is that input level lowest the as hierarchy the of level same the in entirety hierarchy, then the fair value measurement is categorised in its value fair the of levels different in categorised be might liability or asset an of value fair the measure to used inputs the If • • • follows: as techniques valuation the in used inputs the on based hierarchy value a fair in levels different into categorised are values Fair possible. as far as data observable market uses group the liability, or asset non-financial or afinancial of value fair the measuring When Fair value measurement recognised in the income statement. are hedges as designated not instruments financial derivative of value fair in changes from arising losses or gains Any to the income statement. transferred is loss or gain cumulative net the occur, to expected longer no is transaction hedged the If occurs. transaction hedged the until equity in retained is equity in recognised previously loss or gain cumulative Any accounting. hedge for qualifies longer no or exercised, or terminated sold, is or expires Hedge accounting is discontinued when the hedging instrument observable marketobservable data (unobservable inputs). on based not are that liability or asset the for 3: Inputs Level (i.e.directly as prices) or indirectly (i.e. derived from prices). either liability, or asset the for observable are that Level 1 within included prices quoted than other Inputs 2: Level liabilities. and assets identical for markets active in (unadjusted) prices 1: Level Quoted Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 97

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 98 Financial statements: Notes to the financial statements Notes to the financial statements continued

2 Summary of significant accounting IFRSs not applied policies continued The following IFRSs having been endorsed, will be applicable in the future: Significant areas of judgment and estimation continued • IFRS 9 ‘Financial Instruments’ – Published in July 2014 The majority of the Group’s activities are undertaken via and replacing the existing guidance in IAS 39 ‘Financial long-term contracts and these contracts are accounted for in Instruments: Recognition and Measurement.’ IFRS 9 includes accordance with IAS 11, which requires estimates to be made for revised guidance on the classification and measurement of contract costs and revenues. In many cases, these contractual financial instruments, including a new expected credit loss obligations span more than one financial period. Also, the costs model for calculating impairment on financial assets, and the and revenues may be affected by a number of uncertainties that new general hedge accounting requirements. It also carries depend on the outcome of future events and may need to be forward the guidance on recognition and derecognition of revised as events unfold and uncertainties are resolved. financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with Management bases its judgments of costs and revenues and early adoption permitted. its assessment of the expected outcome of each long-term contractual obligation on the latest available information, The Group is assessing the potential impact on its this includes detailed contract valuations and forecasts of the consolidated financial statements resulting from the costs to complete. The estimates of the contract position and application of IFRS 9. the profit or loss earned to date are updated regularly and • IFRS 15 ‘Revenue from Contracts with Customers’ establishes significant changes are highlighted through established internal a comprehensive framework for determining whether, how review procedures. The impact of any change in the accounting much and when revenue is recognised. It replaces existing estimates is then reflected in the financial statements. revenue recognition guidance, including IAS 18 ‘Revenue’, Alcaidesa Holding SA, one of the Group’s joint arrangements, IAS 11 ‘Construction Contacts’ and IFRIC 13 ‘Customer operates in the Spanish real estate market and holds land and Loyalty programmes.’ IFRS 15 is effective for annual reporting property within its current and non-current assets. The company periods beginning on or after 1 January 2017, with early has also developed and operates a marina under a long-term adoption permitted. concession agreement and has developed and operates two The Group is assessing the potential impact on its golf courses. At 31 December 2014, a review of the net realisable consolidated financial statements resulting from the value of its land holdings has been undertaken using external application of IFRS 15. professional valuers. A review of the carrying value of the marina and golf course assets has been undertaken using a discounted • ‘Accounting for Acquisitions of Interests in Joint Operations’ cash flow model. As a consequence of those reviews, no write (Amendments to IFRS 11). downs in the value of Alcaidesa’s assets were required in these • ‘Clarification of Acceptable methods of Depreciation and financial statements. Amortisation’ (Amendments to IAS 16 and IAS 38). Reviewing the carrying value of goodwill and intangible assets • ‘Defined Benefit Plans: Employee Contributions’ recognised on acquisition requires judgments, principally, in (Amendments to IAS 19). respect of growth rates and future cash flows of cash generating units, the useful lives of intangible assets and the selection of • Annual Improvements to IFRSs 2010-2012 Cycle. discount rates used to calculate present values are set out in • Annual Improvements to IFRSs 2011-2013 Cycle. Note 11. Defined benefit pension schemes require significant judgments in relation to the assumptions for inflation, future pension increases, investment returns and member longevity that underpin the valuation. Each year in selecting the appropriate assumptions, the Directors take advice from an independent qualified actuary. The assumptions and resultant sensitivities are set out in Note 20.

Costain Group PLC Annual Report 2014 2014 material. not are transfers and sales Intersegment basis. areasonable on allocated be can that those as well as asegment to attributable directly items include Executive Chief the to reported are that results segment The items. other after and before expense tax income and interest before operations from loss or profit of basis the on performance segment evaluates Group The policies. accounting significant of summary the in described those as same the are segments operating the of policies accounting The statements. financial these of section report Strategic the in discussed are segments maker. The decision operating chief the is who Executive Chief the to provided is information This different services. offer or customers core different have and management separate with units business strategic are Spain. segments in core The operations Development Land the plus Infrastructure and Resources Natural segments: business core two has Group The segments 3 Operating External revenue External Segment revenue Share of revenue of joint ventures and associates associates and ventures joint of revenue of Share Total segment revenue Operating profit/(loss) Segment profit/(loss) Profit on sales of interests in joint ventures and associates and ventures joint in interests of sales on Profit Share of results of joint ventures and associates associates and ventures joint of results of Share Profit/(loss) from operations before other items other before operations from Profit/(loss) Amortisation of acquiredAmortisation intangible assets items:Other Employment related and other deferred consideration Profit/(loss) from operations Depreciation Segment profit/(loss) isstatedcharging after the following: tax before Profit Net finance expense Amortisation (including acquiredAmortisation intangible assets) Reportable segmentReportable assets Segment assets Total assets Total equivalents cash and Cash Deferred tax assets: Unallocated Resources Natural Natural 301.5 335.0 133.5 33.5 (3.5) (1.5) (2.2) (3.2) 4.0 0.5 1.0 1.7 £m –

Infrastructure 770.3 785.2 139.7 14.9 38.3 38.3 36.8 (1.5) 1.0 1.7 £m – – –

Development 25.2 (1.3) (1.3) (1.3) Land Land 2.3 2.3 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain £m – – – – – – –

Central costs (6.1) (6.1) (6.1) 0.3 £m – – – – – – – – –

1,071.8 1,122.5 456.4 148.5 298.7 99 50.7 28.7 31.4 22.6 26.2 (1.3) (3.0) (2.2) (3.6) Total 4.0 2.0 3.4 9.2 £m

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 100 Financial statements: Notes to the financial statements Notes to the financial statements continued

3 Operating segments continued

Natural Land Central Resources Infrastructure Development costs Total 2014 £m £m £m £m £m Expenditure on non-current assets Property, plant and equipment 5.1 0.2 – – 5.3 Intangible assets 0.8 – – – 0.8

Segment liabilities Reportable segment liabilities 104.0 190.5 – 7.9 302.4 Unallocated liabilities: Retirement benefit obligations 41.7 Income tax 1.5 Total liabilities 345.6

Natural Land Central Resources Infrastructure Development costs Total 2013 £m £m £m £m £m Segment revenue External revenue 324.6 560.6 – – 885.2 Share of revenue of joint ventures and associates 73.0 – 1.8 – 74.8 Total segment revenue 397.6 560.6 1.8 – 960.0

Segment profit/(loss) Operating profit/(loss) 3.1 31.4 – (7.1) 27.4 Profit on sales of interests in joint ventures and associates 9.1 – – – 9.1 Share of results of joint ventures and associates 0.6 – (2.1) – (1.5) Profit/(loss) from operations before other items 12.8 31.4 (2.1) (7.1) 35.0 Other items: Exceptional transaction costs – – – (3.7) (3.7) Amortisation of acquired intangible assets (1.2) (0.6) – – (1.8) Employment related and other deferred consideration (2.1) (0.7) – – (2.8) Impairment of assets of joint venture – – (9.8) – (9.8) Profit/(loss) from operations 9.5 30.1 (11.9) (10.8) 16.9 Net finance expense (4.0) Profit before tax 12.9

Segment profit/(loss) is stated after charging the following: Depreciation 1.0 1.4 – – 2.4 Amortisation (including acquired intangible assets) 1.4 0.9 – – 2.3

Segment assets Reportable segment assets 133.3 126.6 26.6 0.7 287.2 Unallocated assets: Deferred tax 9.8 Cash and cash equivalents 84.3 Total assets 381.3

Expenditure on non-current assets Property, plant and equipment 1.2 0.1 – – 1.3 Intangible assets 0.7 2.9 – – 3.6

Costain Group PLC Annual Report 2014 Loans to joint ventures and associates and ventures joint to Loans 2013 continued segments 3 Operating United Kingdom 2013 United Kingdom 2014 Reportable segment liabilities segment Reportable liabilities Segment Spain Spain customers. Segment assets are based on the geographical location of the assets and exclude deferred tax assets. tax deferred exclude and assets the of location geographical the on based are assets Segment customers. of location geographical the on based is revenue segment segments, geographical of basis the on information presenting In information Geographical Total liabilities tax Income Borrowings Overdrafts Retirement benefitobligations liabilities: Unallocated Rest of the World the of Rest Rest of the World the of Rest Two customers (2013: two) in the Infrastructure segment accounted for revenue of £443.5 million (2013: million). £289.6 million £443.5 of revenue for accounted segment Infrastructure the in (2013: two) Two customers revenue 10% of than more for accounting Customers Resources Natural 109.7 2.2 £m

Infrastructure 155.4 1,070.7 1,071.8 External External External External £m revenue revenue – 875.7 885.2

1.1 9.5 £m £m Development – –

revenue of revenue ofrevenue Land Land Share of of Share Share of of Share JVs and and JVs JVs and and JVs assoc’s assoc’s Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain £m 48.3 50.7 – – 73.0 74.8 2.4 1.8

£m £m – –

1,119.0 1,122.5 Central segment segment revenue revenue costs 948.7 960.0 7.5 Total Total Total Total £m 2.4 1.1 1.8 9.5 – £m £m

Non-current Non-current Non-current 101 100.3 338.0 272.6 assets assets 25.2 68.4 25.0 37.2 26.6 95.0 75.1 Total 2.2 1.6 1.6 £m £m £m – –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 102 Financial statements: Notes to the financial statements Notes to the financial statements continued

4 Other operating expenses and income 2014 2013 £m £m Profit before tax is stated after charging: Amortisation of intangible assets (Note 11) 3.4 2.3 Depreciation of property, plant and equipment (Note 12) 2.0 2.4 Exceptional transaction costs – 3.7 Hire of plant and machinery 45.1 27.6 Rent of land and buildings 5.3 5.2 and after crediting: Profit on sales of interests in joint ventures and associates 4.0 9.1 Income from sub-leases of land and buildings 0.5 0.7

In December 2014, the Group transferred two PFI investments, Lewisham Schools for the Future Holdings 3 Limited and Lewisham Schools for the Future Holdings 4 Limited, to The Costain Pension Scheme for £7.4 million. The transfer amount was included as a contribution received by the Scheme (Note 20). In 2013, costs of £3.7 million associated with the lapsed all share merger with May Gurney Integrated Services plc were 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 profit of £9.1 million. £1.2 million of fair value adjustments on the PFI financial assets relating to cash flow hedges were recycled through the income statement as part of this profit.

Auditor’s remuneration 2014 2013 £m £m Fees payable to the Group’s auditor for the audit of the annual financial statements 0.1 0.1 Fees payable to the Group’s auditor and its associates in respect of: – Audit of financial statements of subsidiaries of the Company 0.3 0.3 – Other tax advisory services – 0.1 – Transaction related services not covered above 0.4 1.6 0.8 2.1

Amounts paid to the Company’s auditor and its associates in respect of services to the Company, other than the audit of the Company’s financial statements, have not been disclosed as the information is required instead to be disclosed on a consolidated basis.

Costain Group PLC Annual Report 2014 Interest income from bank deposits bank from income Interest expense finance 7 Net Remuneration Natural Resources Average number of persons employed Wages and salaries Group expense 5 Employee benefit Directors in respect of 2014 and 2013 are detailed below. 2013 2014 of detailed and are respect in Directors the of emoluments aggregate total the 2006, Act Companies the 5to Schedule by required disclosure the of purpose the For report. remuneration Directors’ the in included are options share and Plans Bonus Share Deferred Plans, Incentive Annual Plans, Long-Term Incentive the in interest entitlements, pension remuneration, Directors’ the of Details Directors of 6 Remuneration Infrastructure Social costs security Interest income on loans to related parties related to loans on income Interest Post-employment benefits Central Pension costs (Note 20) (Note costs Pension Finance income plans share-based of exercise the on made Gains The Company does not employ any personnel, except for the Directors considered in Note 6. Note in considered Directors the for except personnel, any employ not does Company The Company (2013: 292). overseas employed were nine employees above the Of Share-based payments expense (Note 20) Interest payable on bank overdrafts, interest bearing loans, borrowings and other similar charges similar other and borrowings loans, bearing interest overdrafts, bank on payable Interest Unwind of discount on deferred consideration Interest cost on the net liabilities of the defined benefit pension scheme (Note 20) (Note scheme pension benefit defined the of liabilities net the on cost Interest Finance expense Net finance expense ventures and associates. and joint ventures accounted equity in investments from receivable interest loan shareholder to relates parties related to loans on income Interest Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Number 162.1 189.5 1,139 2,746 3,909 17.4 2014 2014 2014 2014 7.8 2.2 (2.2) (0.7) (1.4) (4.3) (3.6) 0.2 1.5 0.5 0.2 0.7 2.6 0.9 £m £m £m 24 24

103 Number 1,397 151.4 2,201 177.4 3,620 16.2 2013 2013 2013 2013 7.1 2.7 (2.6) (2.1) (4.7) (4.0) 0.1 1.6 0.6 0.1 22 22 0.7 2.4 0.7 £m £m £m

–

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 104 Financial statements: Notes to the financial statements Notes to the financial statements continued

8 Income tax 2014 2013 £m £m On profit for the year United Kingdom corporation tax at 21.5% (2013: 23.25%) – – Adjustment in respect of prior years – 0.1 Current tax credit for the year – 0.1 Deferred tax charge for current year (2.2) (1.4) Adjustment in respect of prior years 0.6 0.9 Deferred tax charge for the year (1.6) (0.5)

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

2014 2013 £m £m Tax reconciliation Profit before tax 22.6 12.9

Income tax at 21.5% (2013: 23.25%) (4.9) (3.0) Share of results of joint ventures and associates at 21.5% (2013: 23.25%) (0.3) (2.6) Disallowed provisions and expenses charged to reserves 0.2 (0.1) Non-taxable gains 0.9 2.2 Utilisation of previously unrecognised temporary differences 0.3 0.7 Research and Development tax relief for current year 0.7 – Rate adjustment relating to deferred taxation and overseas profits and losses 0.9 1.4 Adjustments in respect of prior years, mainly Research and Development tax relief claims 0.6 1.0 Income tax expense in the consolidated income statement (1.6) (0.4)

Effective rate of tax 7.1% 3.1%

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 £1.5 million (2013: £1.6 million) for the Group and £1.5 million (2013: £1.5 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 £5.1 million (2013: £5.3 million). 2014 2013 £m £m Deferred tax asset recognised at 20.0% (2013: 21.0%) Accelerated capital allowances 1.8 1.6 Short-term temporary differences (1.1) – Retirement benefit obligations 8.4 7.9 Tax losses 0.1 0.3 Deferred tax asset 9.2 9.8

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

Costain Group PLC Annual Report 2014 Accelerated capital allowances capital Accelerated 1January At Analysis of deferred tax movements continued tax 8 Income Transfer in respect of acquired intangible assets intangible acquired of respect in Transfer combinations to business relating tax Deferred Short-term differences temporary Accelerated capital allowances capital Accelerated statement income consolidated in tax Deferred Trading tax losses tax Trading Short-term differences temporary Temporary differences Trading tax losses tax Trading Management expenses and charges incurred by parent Company parent by incurred charges and expenses Management deferred gross following the differences, temporary above the to addition In Capital losses Retirement benefitobligations suitable profits arise in the future in the relevant entities. relevant the in future the in arise profits if suitable obtained be will relief tax and recognised, not and recognised assets, tax deferred the with associated dates expiry no are There above. reconciliation tax the in shown as (2013: million) million £0.7 £0.3 was losses tax trading and differences temporary short-term 21.5%, claiming at of effect, tax year current The Retirement benefitobligations statement expense and income comprehensive other in tax Deferred Short-term differences temporary equity in changes of statement consolidated the in directly recognised tax Deferred At 31At December Gross deferred tax assets not recognised at the statement of financial position date were as follows: as were date position financial of statement the at recognised not assets tax deferred Gross date. position financial of statement the at assured not were benefits economic future their that basis the on end year the at recognised been not have that operations Kingdom United their in assets tax deferred potential have Company and Group The charges tax future affect may that Factors tax assets are available. are assets tax 275.0 22.6 30.3 56.9 2014 3.3 4.4 £m Group

275.0 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 22.0 29.1 56.9 2013 3.3 3.8 £m

241.0 56.9 (0.5) 2014 2014 Company (0.5) (0.2) (1.6) (1.0) 9.8 0.1 1.5 9.2 £m £m – – – – –

105 241.0 17.4 56.9 2013 2013 (1.3) (0.4) (1.2) (0.5) (5.3) (0.5) 1.1 9.8 £m £m – – – – –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 106 Financial statements: Notes to the financial statements Notes to the financial statements continued

9 Earnings per share The calculation of earnings per share is based on profit of £21.0 million (2013: £12.5 million) and the number of shares set out below. 2014 2013 Number Number (millions) (millions) restated* Weighted average number of ordinary shares in issue for basic earnings per share calculation 94.6 71.2 Dilutive potential ordinary shares arising from employee share schemes 2.1 2.9 Weighted average number of ordinary shares in issue for diluted earnings per share calculation 96.7 74.1

* The number of shares has been adjusted for the bonus element within the 2014 capital raise detailed in Note 21. At 31 December 2014, 0.6 million options were excluded from the weighted average number of ordinary shares calculation as they were anti-dilutive (2013: all options were included).

10 Dividends Dividend per share 2014 2013 pence £m £m 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 Final dividend for the year ended 31 December 2013 7.75 5.2 – Interim dividend for the year ended 31 December 2014 3.25 3.2 – Amount recognised as distributions to equity holders in the year 8.4 7.2 Dividends settled in shares (0.7) (0.5) Dividends settled in cash 7.7 6.7

A final dividend in respect of the year ended 31 December 2014 of 6.25p per share, amounting to a dividend of £6.3 million, is to be proposed at the Annual General Meeting. If approved, the dividend is expected to be paid on 22 May 2015 to shareholders registered at the close of business on 17 April 2015 and a scrip dividend alternative will be offered. These financial statements do not reflect the final dividend payable.

Costain Group PLC Annual Report 2014 At 1 January 2013 1January At Cost Group 11 assets Intangible Years 3-4 Years rates Growth Acquired through business combinations business through Acquired Year 5 Year Additions Long-term average Long-term At 31 December 2013 a comfortable amount. a comfortable by amounts carrying the exceeded goodwill of value recoverable the valuations, internal these on 2014, based 31 December at As At 1 January 2014 1January At Reclassifications fromReclassifications plant property, andequipment Additions Disposals At 31 December 2014 31At December At 1 January 2013 1January At Amortisation Provided in year in Provided At 31 December 2013 At 1 January 2014 1January At Provided in year in Provided Disposals At 31 December 2014 31At December At 31 December 2014 31At December value book Net At 31 December 2013 At 1 January 2013 1January At extrapolates those cash flows based on the following internal assessments of the annual growth rates attributable to the CGUs: the to attributable rates growth annual the of assessments internal following the on based flows cash those extrapolates and years two following the for forecasts financial recent most the from derived forecasts flow cash prepares Group The 12.5%. was Resources Natural CGU in the for and 10.5% was Infrastructure in theCGU for flows cash forecast the discount to used rate The CGU.the to specific risks the and capital of cost average weighted Group’s the of assessments market current reflect that rates pre-tax on based estimated been have rates Discount period. the during costs direct and revenue to changes expected and rates growth rates, discount are: calculations these for assumptions key The (‘CGU’). unit generating cash the of calculations use in value internal on based are tests risks, impairment identified any of absence the in and goodwill of value the reviews Group the 2, Note in described As Natural and Resources (£16.8million) (£5.5 million) segments. reporting Infrastructure the within identified units generating cash applicable the to allocated been has Goodwill book. order to relating million) £2.1 (2013: £3.6 million includes assets intangible acquired other of value book net The 2014. January paid million £2.4 of consideration acash for arrangement venture joint Technology Motorway Managed their in plc Serco partner its from interest 27% outstanding the acquired Group 2013, the December In Goodwill 22.3 22.3

15.2 22.3 22.3 15.2 22.3 7.1 £m – – – – – – – – – – –

relationships Customer 8.6 8.6 2.6 1.5 4.1 4.5 4.1 4.5 8.6 2.2 0.4 2.6 6.0 1.9 £m – – – – –

Other acquired acquired Other intangibles 5.5 5.5 1.8 1.5 3.3 2.2 1.7 1.4 2.4 5.5 0.4 1.4 1.8 3.7 1.3 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain £m – – – –

development Infrastructure Software & Software (0.2) (0.2) 6.5 0.6 0.8 7.7 5.5 0.4 5.7 2.0 5.3 1.2 6.5 5.0 0.5 5.5 1.0 0.3 £m 2.5 1.5 1.5 – %

Resources 107 Natural 42.9 44.1 13.1

26.3 13.0 42.9 33.0 18.7 31.0 (0.2) (0.2) Total 0.6 0.8 9.9 3.4 3.6 7.6 2.3 9.9 2.5 2.5 1.5 £m %

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 108 Financial statements: Notes to the financial statements Notes to the financial statements continued

12 Property, plant and equipment Land and Plant and buildings equipment Total £m £m £m Group Cost 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 At 1 January 2014 0.9 22.4 23.3 Reclassifications to intangible assets – (0.6) (0.6) Additions – 5.3 5.3 Disposals – (6.4) (6.4) At 31 December 2014 0.9 20.7 21.6 Depreciation 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 At 1 January 2014 0.6 14.8 15.4 Provided in year 0.1 1.9 2.0 Disposals – (5.8) (5.8) At 31 December 2014 0.7 10.9 11.6

Net book value At 31 December 2014 0.2 9.8 10.0 At 31 December 2013 0.3 7.6 7.9 At 1 January 2013 0.3 8.8 9.1

Costain Group PLC Annual Report 2014 13 Investments and loans in subsidiaries, equity accounted joint ventures and associates and ventures joint accounted equity subsidiaries, in loans 13 and Investments At 1 January 2013 1January At value fair or Cost Group Currency realignment Currency Additions Disposal At 31 December 2013 At 1 January 2014 1January At Currency realignment Currency Additions Repayments Disposal At 31 December 2014 31At December Currency realignment Currency 2013 1January At Share of post-acquisition reserves Disposals Dividends Cash flow hedges – change in fair value fair in change – hedges flow Cash year the for (Loss)/profit Cash flow hedges – disposals At 1 January 2014 1January At At 31 December 2013 Currency realignment Currency Disposals Dividends (Loss)/profit for the year the for (Loss)/profit At 31 December 2014 31At December At 1 January 2013 1January At Reclassifications Adjustment in the year the in Adjustment At 31 December 2013 At 1 January 2014 1January At At 31 December 2014 31At December At 31 December 2014 31At December value book Net At 31 December 2013 At 1 January 2013 1January At Joint ventures Joint (30.2) (30.6) (18.8) (11.5) (30.2) Investments (2.9) 57.3 56.1 25.5 54.9 57.3 27.1 36.1 (1.4) (0.3) 1.7 1.0 2.7 0.1 £m – – – – – – – – – – – – –

–

Associates (0.1) Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain (0.1) (1.3) (1.3) 0.1 0.1 0.1 0.1 0.1 0.2 0.3 0.2 0.1 0.1 0.1 0.2 1.2 0.1 1.3 0.2 1.6 (0.2) £m – – – – – – – – – –

–

Associates Loans (3.0) (1.0) (0.9) 4.8 1.7 1.7 (0.1) 3.6 2.2 4.8 0.9 4.8 2.7 £m – – – – –

–

109 (30.1) (30.4) (18.7) (11.3) (30.1) 62.2 57.9 27.5 (0.3) 58.7 62.2 32.1 40.4 (2.9) (3.0) (0.1) (1.3) Total (1.1) (1.3) (0.4) 1.7 1.0 0.1 (0.1) 4.9 0.1 0.1 1.2 0.4 (0.2) £m – –

–

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 110 Financial statements: Notes to the financial statements Notes to the financial 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

2014 2013 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 2.3 41.7 6.7 50.7 1.8 43.1 29.9 74.8 (Loss)/profit before tax (0.8) (0.2) 0.2 (0.8) (11.9) 0.4 0.3 (11.2) Income tax (0.5) – – (0.5) – – (0.1) (0.1) (Loss)/profit for the year (1.3) (0.2) 0.2 (1.3) (11.9) 0.4 0.2 (11.3)

Non-current assets 16.1 – – 16.1 18.4 – 0.8 19.2 Current assets 18.6 12.0 3.5 34.1 19.6 18.3 41.2 79.1 Current liabilities (1.8) (11.7) (1.8) (15.3) (2.6) (17.8) (15.9) (36.3) Non-current liabilities (7.7) – (1.4) (9.1) (8.8) – (25.9) (34.7) Investments in joint ventures and associates 25.2 0.3 0.3 25.8 26.6 0.5 0.2 27.3

Dividends received by Group – – 0.1 0.1 – – 1.3 1.3

Net interest payable by joint ventures and associates in 2014 was £0.6 million (2013: £1.0 million). The applicable interest rates during the year are income of 0.2% to 6.5% per annum (2013: 0.2% to 6.5%) and expense of 1.7% to 11.5% per annum (2013: 1.7%to 11.5%).

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

2014 2013 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 4.7 111.1 16.9 132.7 3.7 105.1 93.6 202.4 (Loss)/profit before tax (1.6) (0.4) 0.4 (1.6) (23.7) 0.8 0.7 (22.2) Income tax (1.0) – (0.1) (1.1) – – (1.0) (1.0) (Loss)/profit for the year (2.6) (0.4) 0.3 (2.7) (23.7) 0.8 (0.3) (23.2)

Non-current assets 32.2 – 0.1 32.3 36.8 – 2.1 38.9 Current assets 37.2 29.6 8.6 75.4 39.3 43.1 103.1 185.5 Current liabilities (3.7) (28.9) (4.5) (37.1) (5.3) (41.9) (39.6) (86.8) Non-current liabilities (15.4) – (3.4) (18.8) (17.6) – (64.8) (82.4) Equity 50.3 0.7 0.8 51.8 53.2 1.2 0.8 55.2

Details of the principal subsidiary undertakings, joint ventures, joint operations and associates are shown in Note 24. The loss for the year of Alcaidesa Holding SA includes depreciation and amortisation of £1.3 million (2013: £1.4 million) and interest expense of £1.2 million (2013: £1.4 million). There is no other comprehensive income / (expense). Current assets of Alcaidesa Holding SA includes cash and cash equivalents of £0.5 million (2013: £0.4 million). Current financial liabilities (excluding trade and other payables and provisions) comprises borrowings of £1.6 million (2013: 2.5 million). Non-current liabilities comprises borrowings. There is no other comprehensive income / (expense) in respect of other joint ventures and the associates.

Costain Group PLC Annual Report 2014 Details of the principal subsidiaries in which the Company has an interest are set out in Note 24. Note in out set are interest an has Company the which in subsidiaries principal the of Details statement. income the in included subsidiaries of employees to relation in charge payment share-based settled equity the of amount equivalent the by subsidiaries in investments of cost the in increase the to relate Additions 2013 1January At At 31 December 2013 2014 31At December value book Net 2014 31At December 2014 1January At At 31 December 2013 2013 1January At off written Amounts 2014 31At December Additions 2014 1January At At 31 December 2013 Additions 2013 1January At Cost Investments in subsidiaries Company continued associates and ventures joint accounted equity subsidiaries, in loans 13 and Investments Trade receivables Amounts included in current assets 14 receivables Trade other and Other receivablesOther Amounts due from customers for contract work contract for customers from due Amounts Prepayments and accrued income Amounts owed by joint ventures and associates and ventures joint by owed Amounts Amounts owed by subsidiary undertakings subsidiary by owed Amounts Other assets included inAmounts non-current by joint ventures and associates approximates to their fair value. fair their to approximates associates and ventures owed joint by amounts and receivables other trade, of amount carrying the that consider Directors The met. be not will obligations payment the that date reporting the at indications no are there due, past nor impaired neither are that receivables trade to respect With progress. in contracts long-term to £31.1 of (2013: relating £21.5 million) retentions million include year one than more after due falling receivables Other progress. in contracts long-term to relating million) (2013: £20.6 £1.4 of million retentions include year one within due falling work contract for customers from due 2014, amounts 31At December 197.1 95.5 16.8 71.1 12.9 31.8 2014 0.8 £m Group –

190.6 87.4 80.3 15.2 22.0 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 2013 5.3 2.4 £m –

56.8 58.2 2014 1.4 Company £m – – – – –

111 (269.2) (269.2) (269.2) (269.2) 100.1 369.3 367.1 367.1 364.4 95.2 97.9 50.3 51.3 2013 2.2 2.7 1.0 £m £m – – – – –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 112 Financial statements: Notes to the financial statements Notes to the financial 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 (2013: 33 days). The analysis of the due dates of the trade receivables was £68.5 million (2013: £76.1 million) due within 30 days, £25.6 million (2013: £8.8 million) due between 30 and 60 days and £1.4 million (2013: £2.5 million) due after 60 days. These balances include receivables, with a carrying amount of £4.3 million (2013: £5.0 million), which are past due at the reporting date and for which no provision has been made as there has been no significant change in credit quality and the amounts are considered recoverable. No collateral is held over these balances. The analysis of the overdue amounts was £2.9 million (2013: £2.8 million) overdue by less than 30 days, £0.3 million (2013: £0.5 million) overdue by between 30 and 60 days and £1.1 million (2013: £1.7 million) overdue by more than 60 days. The provision for impairment of trade and other receivables is £7.4 million (2013: £6.9 million). The aggregate amount of costs incurred plus recognised profits, less recognised losses, for all contracts in progress at the statement of financial position date was £2,927.6 million (2013: £2,782.6 million). Progress billings and advances received from customers under open construction contracts amounted to £2,915.9 million (2013: £2,728.8 million). Advances for which work has not started, and billings in excess of costs incurred and recognised profits are included in credit balances on long-term contracts.

15 Cash and cash equivalents Cash and cash equivalents are analysed below, and include the Group’s share of cash held by joint operations of £24.1 million (2013: £25.6 million).

Group Company 2014 2013 2014 2013 £m £m £m £m Cash and cash equivalents 148.5 84.3 10.2 – Bank overdrafts – (1.6) – – Cash, cash equivalents and overdrafts in the cash flow statement 148.5 82.7 10.2 –

16 Interest bearing loans and borrowings

Group Company 2014 2013 2014 2013 £m £m £m £m Revolving Credit Facility – 25.0 – 25.0

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

Costain Group PLC Annual Report 2014 Expiring between two and five years* five and two between Expiring Unsecured bonding facilities measured quarterly. leverage and cover interest profit, on based covenants financial have 2017. June 30 to facilities The extending Facility, Credit Revolving million) (2013: £95.0 million a£95.0 including facilities, bonding and banking had Group 2014, the 31At December facilities. these of usage forecast the updates regularly and usage the monitors and bonds these provide to place in facilities has It bonds. surety and bank secure to ability its on reliant is Group the Consequently, bonds. other and performance provide to contractor the require award, the of may, acondition as work contracting long-term awarding Customers million). (2013: £50.7 million £95.6 was year the during balance cash net end month average The end. month at highest usually balance the with month the over vary to cash the balances causes flows cash contract the of timing and nature The reserves. cash adequate maintaining by and liabilities and financial of assets profile maturity the and flows cash medium-term and short forecast and actual monitoring by managed is risk Liquidity framework to manage funding requirements. reporting and amonitoring place in put has which Board, the with rests risk funding and liquidity for responsibility Ultimate ii) Liquidity and funding risk year. the during management capital to approach Board’s the in changes no were There business. the of needs capital and of investment account the taking after share per earnings underlying in growth on based shareholders to paid dividends increase policy Board’s the progressively to is It operations. its and strategy Group’s the describes report Strategic the profitability; improving and the business growing by Group the strengthen to seek to continues (‘Board’) Directors of Board The contracts. cost-reimbursable cost, target- to move the from arising requirements capital working increased likely fund and duration and size contract in increases further support to capacity financial Group’s the customers to demonstrate will 21). proceeds (Note The raise acapital through expenses) of (net million £70.3 raised Group year, the the During earnings. retained and shareholders from capital equity by driven is Group the of base capital current The stakeholders. other and shareholders for returns provide to order in business, the grow to resources provide to and concern agoing as continue to ability its safeguard to are capital managing when objectives Group’s The i) Capital management derivatives. other or contracts currency foreign forward any have not does Company The transactions. speculative into enter not does Group The Directors. the by agreed policies with accordance in rates, inflation and rates interest rates, currency movements and foreign in risks funding and liquidity from arising principally risk, financial manages function treasury centralised Group’s The management a) Risk management risk and –Fair values 17 instruments Financial * Element of above facilities available for borrowings for available facilities of above * Element due from customers for contract work in the statement of financial position. Further information on the exposure to credit risk is set set is 14. Note in risk out credit to exposure the on information Further position. financial of statement the in work contract for amounts of customers from due constituents individual the and instruments, financial derivative including asset, financial each of amounts carrying the by represented is risk credit to exposure maximum The risk. credit of concentrations significant no were there date, end year the At obligations. its meet to fail will counterparty any expect not does management used, companies insurance and banks the of ratings credit high the Given agreements. netting signed are there whom with and regularly monitored are that ratings credit high with counterparties company insurance or bank with instruments are financial derivative involving Transactions countries. those in operating banks major with placed are deposits Overseas partners. the by agreed banks with operations, or, joint in providers facility bank the with placed are in Kingdom United Deposits the satisfactory. is assessment that if only acontract into enter will and quality credit customer’s apotential system assess to scoring credit external an uses It customers. sector public large and sector private blue-chip major on focuses Group The risk Credit iii) (2013: £157.1 million £146.8 to amounted million). facilities bonding these of utilisation 2014, the 31At December Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Group and Company and Group 400.0 2014 2.5 £m

113 400.0 2013 2.5 £m

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 114 Financial statements: Notes to the financial statements Notes to the financial statements continued

17 Financial instruments – Fair values and risk management continued a) Risk management continued iv) Interest rate risk The Group has cash balances in the United Kingdom and overseas and until late 2014 bank borrowings overseas. The largest constituents are United Kingdom balances denominated in pounds sterling. A 1% rise in interest rates would have increased the annual interest income on net cash balances by £1.0 million (2013: £0.5 million). No interest rate hedging is currently undertaken by the Group. 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 £25.2 million (2013: £26.6 million). A 10% strengthening in the euro would have favourably impacted the statement of financial position by £2.8 million (2013: £3.0 million). A 10% strengthening in the euro would have adversely impacted the results by £0.2 million (2013: £1.3 million). In addition, a 10% strengthening in the UAE dirham would have adversely impacted the results by £0.1 million (2013: £0.2 million). At 31 December 2014, the net monetary assets denominated in currencies other than the functional currency of the operation involved were Euro denominated net monetary assets of £0.2 million (2013: £0.1 million), US dollar denominated net monetary assets of £0.2 million (2013: £Nil) and UAE dirham denominated net monetary assets of £0.6 million (2013: £Nil) in members of the Group with pounds sterling as their functional currency. b) Cash flow hedges Forward currency contracts that hedge forecast transactions are classified as cash flow hedges and stated at fair value based on a Level 2 valuation method, using quoted forward exchange rates. The terms of the foreign currency contracts match the terms of the commitments. At 31 December 2014, the Group had foreign currency contracts (five sale contracts (2013: five), no purchase contracts (2013: seven)) designated as hedges of future transactions and summarised below. The carrying value represents the fair value of the contract; the contractual cash flows represent the pounds sterling commitments. There were no ineffective hedges at the year end (2013: Nil).

Foreign exchange contracts

2014 2013 Between Between Carrying Contractual Within one and Carrying Contractual Within one and amount cash flows one year 5 years amount cash flows one year 5 years £m £m £m £m £m £m £m £m Purchases – – – – – (1.8) (1.8) – Sales – 1.4 0.7 0.7 (0.1) 1.4 – 1.4 – 1.4 0.7 0.7 (0.1) (0.4) (1.8) 1.4

The expected impact on the income statement of the foreign exchange contracts is £Nil in 2015. c) Financial assets and liabilities The Group has grouped its financial instruments into ‘classes’. Although IFRS 7 does not define ‘classes’, as a minimum instruments measured at amortised cost should be distinguished from instruments measured at fair value.

Costain Group PLC Annual Report 2014 Bank overdrafts – UAE dirham –UAE overdrafts Bank Pounds sterling equivalents: cash and Cash value fair at measured not assets Financial assets financial of maturity and Currency i) continued liabilities and assets c) Financial continued management risk and –Fair values 17 instruments Financial Revolving Credit Facility – pounds sterling –pounds Facility Credit Revolving Other Pounds sterling payables: other Trade and Other Pounds sterling ventures joint to Loans Pounds sterling Trade, other receivables Total financial liabilities not measured at fair value fair at measured not liabilities Total financial Other because their carrying amounts are a reasonable approximation of fair values. fair of approximation areasonable are amounts carrying their because liabilities, financial within overdrafts bank and payables other and trade short-term for values fair the disclosed not has Group The Total financialassets not Financial liabilities not measured at fair value fair at measured not liabilities Financial liabilities financial of maturity and Currency ii) value. fair at measured assets financial any have not does Group The value fair at measured assets Financial material amount. a by not £1.7 of (2013: but £4.8 million), million values carrying their than higher be may 10% above rates interest loans of carrying values fair The values. fair of approximation reasonable a are amounts carrying their because assets, financial within associates and ventures joint from due amounts and receivables trade short-term for values fair the disclosed not has Group The and associates: and associates: and ventures joint by owedand amounts measured at fair value fair at measured 147.4 148.5 143.9 144.9 295.1 Total 1.7 1.0 1.1 £m

one year one 147.4 148.5 112.1 113.1 261.7 Within Within 1.1 0.1 1.0 £m 2014

five years five Between 133.0 133.2 one and 133.2 Total 31.8 31.8 32.1 0.2 0.3 £m £m – – – – – –

2014 one year one five years five 129.8 130.0 130.0 Within Within After After 0.2 1.3 1.3 £m £m – – – – – – – –

five years five Between one and 114.9 117.1 206.2 3.2 3.2 3.2 83.8 84.3 Total £m 0.5 4.8 2.2 – – – £m

one year 112.1 112.5 139.1 179.6 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain Within 83.8 25.0 84.3 92.9 95.1 Total 1.6 0.5 0.4 0.2 2.2 £m £m 2013

2013 five years one year Between Between one and 111.0 111.4 138.0 Within 25.0 22.0 22.0 22.9 1.6 0.4 0.9 £m £m – – – –

five years five years Between Between 115 one and After After 1.1 3.7 1.1 1.1 3.7 £m £m – – – – – – – – –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 116 Financial statements: Notes to the financial statements Notes to the financial statements continued

17 Financial instruments – Fair values and risk management continued c) Financial assets and liabilities continued

Financial liabilities measured at fair value

2014 2013 Between Between Within one and Within one and Total one year five years Total one year five years £m £m £m £m £m £m Deferred consideration – pounds sterling 6.5 5.2 1.3 6.9 3.7 3.2

The deferred consideration is valued at a Level 3 valuation method. The fair value is the same as the carrying value. See (d) ‘Measurement of fair value’ below. iii) Reconciliation of trade and other receivables and trade and other payables to the statement of financial position 2014 2013 Current Non-current Current Non-current £m £m £m £m Trade and other receivables (as above) 113.1 31.8 95.1 22.0 Amounts due from customers 71.1 – 80.3 – Prepayments and accrued income 12.9 – 15.2 – 197.1 31.8 190.6 22.0

2014 2013 Current Non-current Current Non-current £m £m £m £m Trade and other payables (as above) 130.0 3.2 111.4 1.1 Deferred consideration (as above) 5.2 1.3 3.7 3.2 Credit balances on long-term contracts 3.6 – 6.0 – Accruals and deferred income 157.5 – 145.0 – 296.3 4.5 266.1 4.3 iv) Effective interest rates of financial assets and liabilities 2014 2013 Financial assets Cash and cash equivalents 0.0% to 0.5% 0.0% to 0.5% Loans to joint ventures and associates 10.0% to 11.5% 10.0% to 11.5%

Financial liabilities The Group has overdraft facilities and a Revolving Credit Facility, both undrawn at the year end (2013: £1.6 million and £25.0 million respectively). These are unsecured and carry interest at floating rates at a margin over Base or LIBOR.

The Company’s financial assets comprised cash at bank of £10.2 million (2013: £Nil) and trade and other receivables of £58.2 million (2013: £50.3 million) denominated in pounds sterling and maturing within one year. The Company’s financial liabilities comprised trade and other payables of £27.5 million (2013: trade and other payables of £49.3 million and a Revolving Credit Facility of £25.0 million) denominated in pounds sterling and maturing within one year.

Costain Group PLC Annual Report 2014 Financial instruments not measured at fair value Cash flow hedges flow Cash consideration Deferred Type Financial instruments measured at fair value Level 1. under determined be could value whose instruments financial no are There used. inputs unobservable significant the as well as values, 2fair Level 3and Level measuring in used techniques valuation the show tables following The Valuation techniques and significant unobservable inputs value fair of Measurement d) continued management risk and –Fair values 17 instruments Financial The following table shows a reconciliation from the opening to closing balances for Level 3 fair values: 3fair Level for balances closing to opening the from areconciliation shows table following The values 3fair Level Credit Facility Revolving (as above) liabilities financialOther Type There were no transfers out of Level 3 other than the payments made during the year. the during made payments the than 3other Level of out transfers no were There 2014 31At December Payments Addition charged to income statement (including unwind of discount) 2014 1January At At 31 December 2013 Payments Addition charged to income statement within a combination business Assumed 2013 1January At

similar instruments. in transactions actual the reflect quotes and market active an in traded are quotes. Similar contracts broker on based are technique: The fair values Market comparison Valuation technique Valuation technique adjusted discount rate. discounted using a risk- 2015 for EBITDA forecast on payment,expected based the of value present the valuation models consider The flows: cash Discounted Discounted flow. cash Discounted flow. cash Not applicable. Significant unobservable inputs Significantunobservable Significant unobservable inputs Significantunobservable (12.5%) Risk-adjusted discount rates 17.5%) (2015: Forecast EBITDA margin (2015: 36%) rate growth annualForecast revenue Not applicable. Not applicable. Not applicable. similar change in EBITDA. in change similar adirectionally by accompanied is rate growth revenue annual the in achange Generally, (higher). the risk-adjusted discount rate were lower or (lower); higher were margin EBITDA the (lower) the annual revenue rate were growth higher if: (decrease) increase would value fair estimated The inputs andinputs fair value measurement Inter relationship significant between unobservable Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain consideration Deferred 117

(3.3) (3.0) 6.5 2.9 6.9 6.9 2.8 3.2 3.9 £m

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 118 Financial statements: Notes to the financial statements Notes to the financial statements continued

17 Financial instruments – Fair values and risk management continued d) Measurement of fair value continued Sensitivity analysis For the fair value of the £1.3 million non-current deferred consideration, reasonably possible changes at the reporting date to one of the significant unobservable inputs, holding other inputs constant, would have effects to profit or loss as set out in the table below.

Profit/(Loss) Increase Decrease £m £m 31 December 2014 Annual revenue growth rate (2.0% movement) (0.1) 0.1 EBITDA margin (2.0% movement) (0.1) 0.1 Risk-adjusted discount rate (4.0% movement) 0.1 (0.1)

The fair value of the current deferred consideration will not change.

18 Trade and other payables

Group Company 2014 2013 2014 2013 £m £m £m £m Current liabilities Trade payables 101.5 90.5 – ­– Other payables 16.7 10.9 – ­– Social security 5.5 5.3 – ­– Credit balances on long-term contracts 3.6 6.0 – ­– Accruals and deferred income 157.5 145.0 0.4 ­– Deferred consideration 5.2 3.7 – ­– Amounts owed to joint ventures and associates 6.3 4.7 – ­– Amounts owed to subsidiary undertakings – – 27.5 49.3 296.3 266.1 27.9 49.3 Non-current liabilities Other payables 3.2 1.1 – ­– Deferred consideration 1.3 3.2 – ­– 4.5 4.3 – ­– Accruals and deferred income include subcontract liabilities (not yet payable), subcontract retentions and other accruals and deferred income. The Directors consider that the carrying amount of trade payables, other payables, social security and amounts owed to joint ventures and associates approximates to their fair value. Financial risk management policies are in place that seek to ensure that all payables are paid within their credit timeframes.

Costain Group PLC Annual Report 2014 At 1 January 2013 1January At Current Group charges and liabilities 19 other for Provisions Provisions in the Company relate to funding obligations to a non-trading overseas subsidiary, which eliminates on consolidation. on eliminates which subsidiary, overseas anon-trading to obligations funding to relate Company the in Provisions Company year. next the over utilised be will which of most costs, remedial provisions and insurance subsidiary, overseas an of staff the to payable benefits staff for aprovision comprise mainly provisions, Other years. three next the over utilised be will and properties vacant of costs to relate provisions Property Group 2014 31At December 2014 1January At At 31 December 2013 2013 1January At Non-current 2014 31At December Utilised 2014 1January At At 31 December 2013 Utilised 2013 1January At Current Company 2013 1January At Non-current Group Provided Provided Provided Utilised Transfer Released At 31 December 2013 At 31 December 2013 At 1 January 2014 1January At At 1 January 2014 1January At Utilised Provided Provided Reclassified tocurrent Utilised At 31 December 2014 31At December Released Reclassified fromReclassified non-current At 31 December 2014 31At December Property Property Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain (0.5) (0.1) (0.4) (0.1) (0.1) 0.6 0.3 0.3 1.0 0.1 0.1 0.6 £m £m – – – – – – –

Other Other (0.1) (0.2) (0.1) (0.1) (1.7) (0.3) 0.4 1.2 0.1 0.2 1.2 1.1 1.8 0.4 0.3 0.4 1.2 £m £m – –

obligations 119 Funding (0.1) (0.1) (0.2) (0.6) (0.2) Total Total (0.1) (0.4) (1.8) (0.4) 1.3 1.3 0.1 0.4 1.8 0.3 0.1 0.2 1.5 1.3 1.3 0.1 0.2 2.1 1.9 0.5 0.3 0.4 1.8 £m £m £m –

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 120 Financial statements: Notes to the financial statements Notes to the financial statements continued

20 Employee benefits

(a) Pensions A defined benefit pension scheme is operated in the United Kingdom and a number of defined contribution pension schemes are in place in the United Kingdom and overseas. Contributions are paid by subsidiary undertakings and employees. The total pension charge in the income statement was £9.2 million comprising £7.8 million included in operating costs plus £1.4 million included in net finance expense (2013: £9.2 million, comprising £7.1 million in operating costs plus £2.1 million in net finance expense). The Company does not operate a pension scheme. Defined benefit scheme The defined benefit scheme was closed to new members on 31 May 2005 and from 1 April 2006 future benefits were calculated on a Career Average Revalued Earnings basis. The scheme was closed to future accrual of benefits to members on 30 September 2009. A full actuarial valuation of the scheme was carried out as at 31 March 2013 and this was updated to 31 December 2014 by a qualified independent actuary.

2014 2013 2012 £m £m £m Present value of defined benefit obligations (701.0) (629.7) (610.7) Fair value of scheme assets 659.3 592.5 558.8 Recognised liability for defined benefit obligations (41.7) (37.2) (51.9)

Movements in present value of defined benefit obligations 2014 2013 £m £m At 1 January 629.7 610.7 Interest cost 28.3 26.2 Remeasurements 71.2 21.6 Benefits paid (28.2) (28.8) At 31 December 701.0 629.7

Movements in fair value of scheme assets 2014 2013 £m £m At 1 January 592.5 558.8 Interest income 26.9 24.1 Remeasurements 55.5 30.2 Contributions by employer 12.6 8.2 Benefits paid (28.2) (28.8) At 31 December 659.3 592.5 Contributions by the employer in 2014 included the transfer of two PFI investments, Lewisham Schools for the Future Holdings 3 Limited and Lewisham Schools for the Future Holdings 4 Limited, at an agreed amount of £7.4 million. Expense recognised in the income statement 2014 2013 £m £m Administrative expenses (0.8) (1.1) Interest cost on the net liabilities of the defined benefit pension scheme (1.4) (2.1) (2.2) (3.2)

Costain Group PLC Annual Report 2014 Increase discount rate by 0.25%, decreases pension liability and reduces pension cost by cost pension reduces and liability pension decreases 0.25%, by rate discount Increase 65 aged Currently Discount rate Equities assets scheme of value Fair (a) Pensions continued continued 20 Employee benefits Decrease inflation, pension increases by 0.25%, decreases pension liability and reduces pension cost by cost pension reduces and liability pension decreases 0.25%, by increases pension inflation, Decrease Non-retirees Multi-credit Future pension increases pension Future Increase life expectancy by one year, increases pension liability and increases pension cost by by cost pension increases and liability pension year, one increases by expectancy life Increase scheme: benefit defined the on effects following the have would assumptions these in reported. Changes amounts the on effect significant a have assumptions mortality and increase pension and inflation rate, discount The Government bonds Inflationassumption Several defined contribution pensions are operated. The total expense relating to these plans was £7.0 (2013:million). was £6.0 million plans these to relating expense total The operated. are pensions contribution defined Several Defined contribution schemes year. financial next the in scheme benefit defined its to administration of expenses the and matching dividend of element an £7.0 plus million, approximately of contributions make to expects Group The Infrastructure and property and Infrastructure 31 2014 and at December 31 benefits determine to used tables mortality per as 65 age from expectancy life average Weighted Absolute return funds and cash return funds Absolute Principal actuarial assumptions (expressed as weighted averages) weighted as (expressed assumptions actuarial Principal by theused Group. assets other or property in or instruments financial Group’s the in invested assets any have not does scheme pension The in 2014. Scheme 2012 and 2010, Pension Costain The to Group the by transferred PFI investments ten of portfolio the includes holding infrastructure The

December 2013 is: (years) 22.1 23.9 Male 2014

Female (years) 24.6 26.5 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 3.60 2.85 2.90 2014 %

Pension liability 146.1 307.5 659.3 (years) 66.8 73.6 65.3 22.0 27.5 4.60 23.8 24.0 3.20 21.2 3.30 Male 2014 2013 £m £m 2013 %

121 Pension Female 175.6 212.4 592.5 (years) 24.5 4.40 26.4 65.7 2.85 2.95 64.8 74.0 2012 2013 cost 1.0 0.9 0.8 £m £m %

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 122 Financial statements: Notes to the financial statements Notes to the financial statements continued

20 Employee benefits continued

(b) Share-based payments The Company operates a number of share-based payment plans as described below. Long-Term Incentive Plans (LTIP) Shareholders approved a new Long-Term Incentive Plan at the 2012 AGM that allows for conditional awards with a maximum face value of up to 100% of base salary with a performance condition based on earnings per share. Annual Incentive Plan (AIP) Executive Directors and other senior management are eligible to participate in the Company’s Annual Incentive Plan, under which one third of the award is payable in shares. The total AIP award of up to 150% of base salary has performance conditions based on adjusted EBIT (Earnings before interest, tax and other items) (at least 50% of the award) and other measures. The share award element vests on the second anniversary of the date of grant and will be satisfied by shares purchased by a trust on behalf of the Group. It will not lead to any dilution of shareholder interest. Participants must be in employment with the Company and not under notice of termination (either given or received) on the date of vesting. Deferred Share Bonus Plan (DSBP) Prior to 2014, Executive Directors and other senior management were eligible to participate in the Company’s Deferred Share Bonus Plan which allowed for conditional awards with a face value of up to 50% of base salary with a performance condition based on adjusted EBIT (Earnings before interest, tax and other items). The deferred bonus award vests on the second anniversary of the date of grant and is satisfied by shares purchased by a trust on behalf of the Group, so does not lead to any dilution of shareholder interest. Participants must be in employment with the Company and not under notice of termination (either given or received) on the date of vesting. Save As You Earn Plans (SAYE) The Company operates a number of SAYE plans that are open to all employees who pay a fixed amount from salary into a savings account each month and may elect to save over three or five years. At the end of the savings period, employees have six months in which to exercise their options (after which the options expire) using the funds saved. If employees decide not to exercise their options, they may withdraw the funds saved. Exercise of options is subject to continued employment within the Group (except where permitted by the rules of the scheme). Share-based payment expense The amounts recognised in the income statement, before income tax, for share-based payment transactions with employees was £2.2 million (2013: £2.7 million); the entire charge relates to subsidiaries. Options outstanding at the end of the year The outstanding LTIPs (exercise price £1 per individual grant), AIP (Nil-cost option) and DSBPs (Nil-cost option), which arrange for the grant of shares to Executive Directors and senior management, and the outstanding SAYE schemes are shown below.

LTIP DSBP AIP SAYE Weighted average Number Number Number Number exercise price (m) (m) (m) (m) (p) Outstanding at 1 January 2013 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 Adjusted during the year 0.2 0.2 – – – Forfeited during the year (0.4) (0.3) – (0.2) 208.8 Exercised during the year (0.5) (0.5) – (0.2) 203.7 Granted during the year 0.8 – 0.5 1.3 231.9 Outstanding at 31 December 2014 2.4 0.8 0.5 2.9 218.6

Exercisable at the end of the period 0.1 – – – – Share options outstanding at the end of the year had a weighted average remaining contractual life of 5.8 years (2013: 5.8 years).

Costain Group PLC Annual Report 2014 21 Share capital 21 Share volatility Expected were: grants the valuing in used assumptions The £1.4 million). (2013: was £2.8 million year the during granted options of value fair aggregate The model. pricing option Black-Scholes the using calculated is granted options of value fair The continued payments (b) Share-based continued 20 Employee benefits fully paid fully each, 50p of shares –ordinary year of beginning at issue in Shares Issued share capital Expected life (years)Expected Issued in year (see below) (see year in Issued Risk-free interest rate Shares in issue at end of year – ordinary shares of 50p each, fully paid fully each, 50p of shares –ordinary year of end at issue in Shares Expected dividend yield Expected granted to Executive Directors are given in the Directors’ remuneration report. remuneration Directors’ the in given are Directors Executive to granted options the and conditions performance the of Details 20. Note in detailed are end year the at outstanding options share The dividends. and capital to entitlement regarding passu pari rank shares All SAYE schemes. 2011 and 3-year 5-year 2008 the under granted options of exercise on 159,636 shares issued Company year, the the During dividend for the year ended 31 December 2014. interim their of part or all of respect in cash of 2014 lieu in 24 October on shares ordinary 73,270 afurther receive to elected 2013,shareholders and December 31 ended year the for dividend final their of part or all of respect in cash of lieu in Company the in each pence 50 of shares 191,503 ordinary receive to elected shareholders Scheme, Dividend Scrip the to 2014, pursuant April 25 On 2011 the LTIP. under granted options of exercise the of respect in shares 603,275 issued Company 2014, the 16On April earnings. retained to transferred been has issued capital share the of value nominal the over proceeds net the of excess the structure, the through proceeds cash the of receipt the Following 2006. Act 612 Companies the of Section under arising reserve amerger in resulted which astructure, through effected was raise capital The 2014. 18 on March successfully completed was raise capital The offer. open and aplacing through 11,111,112 share. per pence 22,270,956 225 and at each placing pence afirm 50 of through shares issued be to ordinary were shares 33,382,068 of issue an of way by expenses) of (net million £70.3 of raise acapital announced Group 2014, the February 27 On 2014. 31 December at as each pence 50 of shares ordinary 101,202,693 comprised capital share issued Company’s The behavioural considerations. behavioural and restrictions exercise non-transferability, of effect the to regard having estimate best management’s on based is life expected The life. expected the matching aterm over volatility price share historical the on based is volatility expected The

(millions) Number 101.2 66.8 34.4 2014

Nominal 17.2 value 33.4 50.6 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain £m

2.7 –5.0 (millions) Number 2.1% 3.5% 20% 2014 65.5 66.8 1.3 2013

2.7 –5.0 123 Nominal 3.5% 4.0% value 20% 32.8 33.4 2013 0.6 £m

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 124 Financial statements: Notes to the financial statements Notes to the financial statements continued

22 Contingent liabilities

Group Company 2014 2013 2014 2013 £m £m £m £m Under guarantees of bank overdrafts to subsidiary companies – – – 1.6

Group There are contingent liabilities in respect of: • creditors of joint operations, which are less than the book value of their assets; • performance bonds and other undertakings entered into in the ordinary course of business; and • legal claims arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities other than those provided for (Note 19).

Company The Company has guaranteed the obligations of the subsidiary companies that are participating employers of The Costain Pension Scheme, the defined benefit pension scheme in the United Kingdom. At 31 December 2014, the potential liability was £41.7 million (2013: £37.2 million) on an IAS 19 basis and is included in these financial statements as disclosed in Note 20.

23 Other financial commitments Group Operating lease commitments 2014 2013 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 4.1 3.4 3.5 3.4 Between one and five years 11.6 4.1 8.9 3.4 Later than five years 7.0 – 7.0 – 22.7 7.5 19.4 6.8

Land and buildings 2014 2013 Leases as lessor £m £m Future aggregate minimum lease income under non-cancellable leases: Within one year 0.2 0.3 Between one and five years – 0.3 0.2 0.6

The Group has various offices 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 financial commitments (2013: £Nil).

Costain Group PLC Annual Report 2014 24 Principal subsidiary undertakings, joint ventures, associates and joint operations joint and associates ventures, joint undertakings, subsidiary 24 Principal ABC Ltd Electrification Joint ventures Ltd Costain Richard Ltd Services) &Environmental FM (Total Promanex Ltd Services) &Maintenance (Construction Promanex Ltd Services) &Industrial (Civils Promanex Costain Upstream Ltd Ltd &Process Gas Oil, Costain Ltd &Construction Engineering Costain Building Ltd & Engineering Civil Costain WLL Co Dhabi Abu Costain Ltd Costain Subsidiary undertakings Alcaidesa Holding SA Alcaidesa Brighton & Hove 4Delivery Ltd 4Delivery &Hove Brighton 4Delivery Ltd 4Delivery Integrated Bradford LEP Ltd Associates Lewisham Schools for the for Schools Lewisham preference shares. preference and ordinary the of 100% PLC holds Group Costain where Ltd, Costain Richard except shares ordinary of are holdings All incorporation. of country the in mainly operate undertakings All income. net the all to right beneficial the and directors of board the of composition the control and influence to power having Costain to due undertaking asubsidiary as treated been has WLL Co Dhabi Abu Costain Ltd. &Construction Engineering Costain and Limited Costain Richard of exception the with undertakings subsidiary by held are above the of capital equity The Future LEP Ltd LEP Future

Construction andOperationofSchools Construction andOperationofSchools Engineering, ConstructionandMaintenance Land Development Rail Electrification Civil Engineering Civil Engineering Engineering andDesignServices Holding andServiceCompany Activity Engineering andConstruction Issued share Process Engineering Process Engineering Service Company Support Services Support Services Support Services capital 10.6 0.1 £m – – – –

Percentage of equity held % held equity Activity Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 33.3 50 49 40 40 40 Percentage of incorporation equity held equity Country of of Country Spain 100 100 100 100 100 100 100 100 100 49 UK UK UK UK UK 31 December 31 December incorporation 31 March 31 March 31 March 31 March Country of of Country Reporting 125 UAE date UK UK UK UK UK UK UK UK UK

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 126 Financial statements: Notes to the financial statements Notes to the financial statements continued

24 Principal subsidiary undertakings, joint ventures, associates and joint operations continued A full list of Group companies will be included in the Company’s annual return.

Percentage of Country of Activity equity held % incorporation Major joint operations A-one+ Integrated Highway Services – MAC 7 Engineering & Maintenance 33.3 UK A-one+ Integrated Highway Services – MAC 12 Engineering & Maintenance 33.3 UK A-one+ Integrated Highway Services – MAC 14 Engineering & Maintenance 33.3 UK ATC Joint Venture – C610 – Crossrail Engineering 32.5 UK Costain-Carillion Joint Venture – M1 Widening and A5/M1 Link Civil Engineering 50 UK Costain-Hochtief Joint Venture – Reading station Civil Engineering 50 UK Costain-Laing O’Rourke Joint Venture – Bond Street station Civil Engineering 50 UK Costain-Laing O’Rourke Joint Venture – Farringdon station Civil Engineering 50 UK Costain-Skanska C360 Joint Venture – Eleanor Street – Crossrail Civil Engineering 50 UK Costain-Skanska C405 Joint Venture – Paddington – Crossrail Civil Engineering 50 UK Costain-Skanska C411 Joint Venture – Bond Street – Crossrail Civil Engineering 50 UK Costain-Skanska C412 Joint Venture – Bond Street – Crossrail Civil Engineering 51 UK Costain-Veolia-Atkins Joint Venture – Thames Water AMP6 Civil Engineering 44 UK Costain-Vinci Construction Joint Venture – Shieldhall Civil Engineering 50 UK Educo UK Joint Venture – Bradford Schools Construction 50 UK Galliford-Costain-Atkins Joint Venture – United Utilities Civil Engineering 42 UK Lagan-Ferrovial-Costain – A8 Civil Engineering 45 UK The e5 Joint Alliance Severn Trent Framework Civil Engineering 25 UK

25 Acquisitions There were no acquisitions during the year and there were no changes to the acquisition fair values of EPC Offshore Limited disclosed in the 2013 financial statements.

Costain Group PLC Annual Report 2014 Sales of goods and services and goods of Sales officers. executive and Directors its with and Scheme The Pension Costain operations, joint associates, and ventures joint subsidiaries, shareholders, major its with exists relationship party A related Group transactions party 26 Related Services ofServices Group employees Directors’ emoluments Construction services and materials services Construction Executive officers’ emoluments Post-employment benefits The compensation of key management personnel, including the Directors, is as follows: as is Directors, the including personnel, management key of compensation The 20. Note in detailed are Group’s which the SAYELTIP, in plans, and DSBP participate also officers executive and Directors Executive plans. pension contribution and defined to benefits contributes non-cash provides Group the officers, executive and Directors Executive the of respect in salaries, their to addition In Company. the of 0.61% is shares voting (2013: 0.73%) the capital of share issued the of apercentage as expressed PLC, which Group Costain in shares 622,165 ordinary control relatives immediate their and Company the of Directors The Board. the for reserved are decisions key all that ensure Group the by operated controls the as Directors of Board the as identified been have Disclosures’, Party ‘Related IAS24 under defined as personnel, management Key 6. Note in given are Disclosures’ Party ‘Related IAS24 in defined as personnel key of remuneration the to related Disclosures Transactions with key management personnel 4. Note 2014, in also PFI investments two of transfer the of respect in and, 20 Note in included are Scheme Pension Costain The and Group the between transactions of Details The Costain Pension Scheme Company. the of parties related as regarded are Limited and Place Co York W.L.L. Sons & Al-Kharafi Abdulmohsin Mohammed Major shareholders on consolidation. eliminated are operations joint with 14 18. Balances and Notes in disclosed are associates and ventures joint with Balances uncertain. is recovery but continue parties the all among Discussions a subcontract. under out carried work to relates It 2006. since against provided fully been has shareholder amajor from due amount An (2013: year £Nil). the during shareholders major to services and goods of sales no were There Share-based payments (2013: 20) (Note none). payments share-based to relation in charge the than other parties related with transactions no has Company The Company 5). (Note expense benefit employee in included are amounts above The and associates Joint ventures 40.4 41.3 0.9 £m

operations 2014 73.3 12.9 86.2 Joint £m

113.7 127.5 13.8 Total £m

and associates Joint ventures ventures Joint 13.8 11.7 25.5 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain £m

operations 2013 70.6 16.6 87.2 Joint 2014 2.4 1.7 0.1 5.2 1.0 £m £m Group

127 112.7 84.4 28.3 Total 2013 1.6 2.0 0.3 1.1 5.0 £m £m

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 128 Financial statements: Notes to the financial statements Five-year financial summary

2014 2013 2012 2011 2010 £m £m £m £m £m Revenue and profit Revenue (Group and share of joint ventures and associates) 1,122.5 960.0 934.5 986.3 1,022.5 Less: Share of joint ventures and associates (50.7) (74.8) (86.1) (117.8) (98.0) Group revenue 1,071.8 885.2 848.4 868.5 924.5 Group operating profit before other items 28.7 27.4 21.7 24.1 17.4 Other items: Exceptional transaction costs – (3.7) – – – Amortisation of acquired intangible assets (3.0) (1.8) (1.7) (0.9) – Employment related and other deferred consideration (2.2) (2.8) (1.7) (0.7) – Group operating profit 23.5 19.1 18.3 22.5 17.4 Profit on sales of investments – – – 0.5 – Profit on sales of interests in joint ventures and associates 4.0 9.1 10.5 0.3 11.2 Profit on sale of land and property – – – – 1.3 Share of results of joint ventures and associates (1.3) (11.3) (1.4) (1.3) (0.5) Profit from operations 26.2 16.9 27.4 22.0 29.4 Finance income 0.7 0.7 1.0 34.1 30.7 Finance expense (4.3) (4.7) (3.7) (32.2) (32.2) Net finance (expense)/income (3.6) (4.0) (2.7) 1.9 (1.5) Profit before tax 22.6 12.9 24.7 23.9 27.9 Income tax (1.6) (0.4) (1.6) (5.2) (4.8) Profit for the year attributable to equity holders of the parent 21.0 12.5 23.1 18.7 23.1 Earnings per share – basic * 22.2p 17.6p 32.9p 27.2p 33.9p Earnings per share – diluted * 21.7p 16.9p 31.8p 26.2p 32.9p Dividends per ordinary share Final 6.25p 7.75p 7.25p 6.75p 6.25p Interim 3.75p 3.75p 3.50p 3.25p 3.00p

Summarised consolidated statement of financial position Intangible assets 31.0 33.0 18.7 20.3 0.1 Property, plant and equipment 10.0 7.9 9.1 11.4 9.7 Investments in equity accounted joint ventures and associates 27.5 32.1 40.4 42.9 37.4 Other non-current assets 41.0 31.8 34.9 33.8 39.8 Total non-current assets 109.5 104.8 103.1 108.4 87.0 Current assets 346.9 276.5 290.6 332.0 309.3 Total assets 456.4 381.3 393.7 440.4 396.3 Current liabilities 299.3 296.1 303.1 348.3 311.4 Retirement benefit obligations 41.7 37.2 51.9 52.9 39.6 Other non-current liabilities 4.6 4.7 6.9 8.4 7.7 Total liabilities 345.6 338.0 361.9 409.6 358.7

Equity attributable to equity holders of the parent 110.8 43.3 31.8 30.8 37.6 * The earnings per share figures for 2010 to 2013 have been restated for the bonus element in the 2014 capital raise.

Costain Group PLC Annual Report 2014 Financial year end Interim dividend payment date Interim dividend record date Ex-dividend date for interim dividend 2015 results Half-year end Half-year +44 (0)121 415 7173 if calling from outside the United Kingdom. United the (0)121 415+44 outside 7173 from calling if or 2268* 384 0871 telephoning by Equiniti from obtained or www.costain.com at website Company’s the from downloaded be can brochure dividend scrip the and form mandate the of 2015. Copies April 30 by Equiniti, Registrar, the to form mandate acompleted return should dividends) future all (and dividend final the for scheme the join to wishing Shareholders form. this in them to sent dividend their have automatically will scheme the join to elected already have who shareholders Those dividend. final the of respect in offered be will scheme dividend A scrip Scrip dividend scheme 2 1 Final dividend payment date Annual General Meeting date record dividend Final dividend final for date Ex-dividend mailing Report Annual results year Full calendar Financial shareholder information other and calendar Financial   on 6 May 2015. 6May on held be to Meeting General Annual the at approval shareholder to Subject www.costain.com website our to refer Please year. the throughout time to time from updated be may calendar financial The 1 2 for up-to-date details. for up-to-date 18 September2015 17 September2015 31 December2015 23 October2015 20 August2015 20 March 2015 3 March 2015 30 June2015 17 April2015 16 April2015 22 May2015 6 May2015

as at 2 March 2015 2March at as ofAnalysis shareholders Shareholdings companies, Institutions, *  Kingdom. United the outside (0)121 from 415 +44 or calling if 7047 2250* 384 0871 Telephone 6DA BN99 Sussex West Equiniti, House, Spencer Aspect Road, Lancing, Registrar Secretary Company Number 1393773 Number Company [email protected] www.costain.com 444 01628 842 Telephone 4UB Berkshire SL6 Maidenhead, Park, Business Vanwall House, Costain Registered Office Tracey Wood Shareholdings Shareholdings Shareholdings Shareholdings Totals open Monday to Friday 08.30am to 05.30pm, excluding UK bank holidays. bank UK excluding 05.30pm, to 08.30am Friday to Monday open are Lines extras. network plus minute per 8p cost numbers 0871 to Calls 100,000 and more nominees: and individuals 50,000-99,999 25,000-49,999 5,000-24,999 1-4,999

Accounts 10,138 Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 9,574 109 358 43 54

101,207,950 89,152,633 2,939,577 1,831,819 3,511,611 3,772,310 Shares

129 100.00 88.09 2.90 1.81 3.47 3.73 %

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 130 Financial statements: Financial calendar and other shareholder information Financial calendar and other shareholder information continued

Dividend mandate Unsolicited mail Shareholders can arrange to have their dividends paid directly The Company is legally obliged to make its share register into their bank or building society account, by completing a available to the general public. Consequently, some bank mandate form. The advantages to using this service are: shareholders may receive unsolicited mail, including correspondence from unauthorised investment firms. • the payment is more secure as you can avoid the risk of Shareholders who wish to limit the amount of unsolicited mail cheques getting lost in the post; they receive can contact: • it avoids the hassle of paying in a cheque; and The Mailing Preference Service • there is no risk of lost, stolen or out-of-date cheques. Freepost 29 A mandate form can be obtained from the Company’s website, LON20771 or by contacting Equiniti on 0871 384 2250* (+44 (0) 121 415 7047 London W1E OZT if calling from outside the United Kingdom) who will be pleased Further guidance on this issue can also be found on the to assist you and can also be obtained via the shareholder Company’s website at www.costain.com website at www.shareview.co.uk (see below for further details). Alternatively, you will find one attached to the tax ShareGift voucher of your last dividend payment. Overseas shareholders can arrange for their dividends to be paid in their local The Orr Macintosh Foundation (ShareGift) operates a charity currency and more information can be obtained from share donation scheme for shareholders with small parcels www.shareview.com/overseas of shares whose value makes it uneconomic to sell them. Details of the scheme are available on the ShareGift website Shareview service at www.sharegift.org. Equiniti can provide stock transfer forms on request. Donating shares to charity in this way gives The Shareview service from our Registrar, Equiniti, allows rise neither to a gain nor a loss for Capital Gains Tax purposes. shareholders to manage their shareholding online, giving: This service is completely free of charge. • direct access to data held on their behalf on the share register including recent share movements and dividend details; and • the ability to change their address or dividend payment * Calls to 0871 numbers cost 8p per minute plus network extras. Lines are instructions online. open Monday to Friday 08.30am to 05.30pm, excluding UK bank holidays. To sign up for Shareview you need the ‘shareholder reference’ printed on your proxy form or dividend stationery. There is no charge to register. When you register with the site, you can register your preferred format (post or email) for shareholder communications. If you select email as your mailing preference, you will be notified of various shareholder communications, such as annual results, by email instead of post. If you have your dividends paid straight to your bank account, and you have selected email as your mailing preference, you can also collect your tax voucher electronically. Instead of receiving the paper tax voucher, you will be notified by email with details of how to download your electronic version. Visit the website at www.shareview.co.uk for more details. Details of software and equipment requirements are given on the website.

Costain Group PLC Annual Report 2014 save as would arise under English law. English under arise would as save document this of respect in parties third to liability no accept directors its and Company The forecast. aprofit as construed be statements. Nothingforward-looking in this document should these revise or update to obligation no undertakes Company the law applicable by required otherwise unless and document and information available at the date of preparation of this anticipated.knowledge The reflect statements forward-looking those from materially differ to developments and results cause can circumstances and events future since uncertainty involve statements these nature, their By operate. we business the and strategies growth, prospects, liquidity, condition, financial operations, of results our things, other amongst concerning, and thoseexpectations of our and directors officers, employees regardingstatements our intentions, beliefs or current include and document this throughout places of anumber in thatstatements are statements. They forward-looking appear ofmembers Costain Group PLC. This document contains certain the to information provide to is document this of purpose The Disclaimer Costain Group PLC Annual Report 2014 Report PLC Annual Group Costain 131

Financial statements and other information 83 – 132 Governance 45 – 82 Strategic report 02 – 44 132 Other information 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 Corporate Responsibility Director Communications Director Company Secretary [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.

Useful links www.costain.com www.costain.com/investors www.costain.com/our-culture www.costain.com/annual-report-2014 www.costain.com/news

Costain Group PLC Annual Report 2014 Photography Page 03 Russell Barker Page 09 Copyright Magnox Limited www.magnoxsites.com People photography Mike Doherty Ben Fisher Patrick Harrison

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