Costain Group PLC
Costain House
Vanwall Business Park
Maidenhead
Berkshire SL6 4UB
www.costain.com
Costain Group PLC Annual Report and Accounts 2021
Costain Group PLC Annual Report and Accounts 2021
Creating a
sustainable future
Costain Group PLC
Annual Report and Accounts
2021
Costain Group PLC Annual Report and Accounts 2021
Revenue
£1,135m
Free cash
flow
1
£38.9m
2021 £1,135m
2021 £38.9m 2021 £30.1m 2021 2.6% 2021 9.6p
2020 £978m
2020 £31.6m
£92.0m
2020 £18.0m
9.4%
2020 1.7%
36.7p
2020 5.8p
Operating loss margin
0.8%
Adjusted
2
operating
profit margin
2.6%
Operating loss
£9.5m
Adjusted
2
operating
profit
£30.1m
Basic loss per share
2.1p
Adjusted
2
basic
earnings per share
9.6p
£9.5m 0.8% 2.1p2021
2020 2020 2020
2021 2021
HIGHLIGHTS
CONTENTS
Overview
Highlights IFC
At a Glance 2
Chair’s Statement 4
For the latest investor relations information visit our website /
www.costain.com/investors
Read about our strategy / page 8
Strategic Report
Q&A with CEO Alex Vaughan 6
Our Strategy 8
Our Business Model 10
Market Overview 12
Chief Executive Officer’s statement 24
Our Key Performance Indicators 26
Operational Review 28
Our Stakeholders 32
S172 Statement 34
Responsible Business 38
Financial Review 42
Principal Risks and Uncertainties 44
Viability Statement 49
Governance
Board of Directors 50
Executive Board 52
Governance at a Glance 54
Chair’s Introduction 56
Our Governance Structure 58
Board Diversity 60
Our Purpose, Values and Culture 62
Key Activities 64
Workforce Engagement 66
Attendance and Composition 70
Other Board Matters 72
Board Evaluation 74
Q&A with Senior Independent
Direc tor and C hair of t he Audit Committee
Tony Quinlan 75
Audit Committee Report 76
Nomination Committee Report 80
Directors’ Remuneration Report 84
Remuneration at a Glance 84
Annual Statement by Interim Chair
of the Remuneration Committee 86
Remuneration Policy 89
Annual Report on Remuneration 93
Directors’ Report 108
Directors’ Responsibility Statement 114
Independent Auditor’s Report 115
Accounts Financial Statements
Consolidated Income Statement 123
Co n so l id at e d St a te m e nt of C ompre hensive
Incomeand Expense 124
Consolidated Statement
of Financial Position 125
Company Statement
of Financial Position 126
Consolidated Statement
of Changes in Equity 127
Company Statement
of Changes in Equity 128
Consolidated Cash Flow Statement 129
Company Cash Flow Statement 130
Notes to the Financial Statements 131
Five-Year Financial Summary 178
Other Information
Financial Calendar and Other
ShareholderInformation 179
Contact Us 180
Our vision is to create connected,
sustainable infrastructure that enables
people and the planet to thrive.
1 Free cash flow is defined as cash flow from operating
activities, excluding adjusting items, less capital expenditure.
2 Excluding the impact of significant contract provision adjustments
and other items (see note 3 on page 141).
Disclaimer
The purpose of this document is to provide information to the members
of Costain Group PLC. This document contains certain statements that are
forward-looking statements. They appear in a number of places throughout
this document and include statements regarding our intentions, beliefs or
current expectations and those of our officers, directors and employees
concerning, among other things, our results of operations, financial condition,
liquidity, prospects, growth, strategies and the business we operate. By
their nature, these statements involve uncertainty since future events and
circumstances can cause results and developments to differ materially
from those anticipated. The forward- looking statements reflec t knowledg e
and information available at the date of preparation of this document and
unless otherwise required by applicable law the Company undertakes no
obligation to update or revise these forward-looking statements.
Nothing in this document should be construed as a profit forecast.
The Company and its directors accept no liability to third parties
in respect of this document save as would arise under English law.
Safety
0.15 LTIR
2021 0.15 LTIR
2020 0.09 LTIR
Social contribution
£200k
2021 £200k
2020 £211k
Environmental impact
49,000tCO
2
e
2021 49,000tCO
2
e
2020 32,165tCO
2
e
“We are making good progress on our
journey to transform the Group and I’m
pleased with the clarity of focus and
improvement in adjusted performance.”
Dr Paul Golby
Non-Executive Chair
HOW WE ARE TRANSFORMING PERFORMANCE FOR ALL OUR STAKEHOLDERS
70 YEARS OF GAS
PROCESSING EXPERIENCE
APPLIED TO DEVELOPING
FIRST-OF-A-KIND
HYDROGEN STORAGE
Read more / page 20
DEVELOPING A DIGITAL
TWIN FOR CLEAN WATER
TO REDUCE COST AND
IMPROVE EFFICIENCY
Read more / page 18
DIGITAL BIODIVERSITY
MAPPING ENHANCED THE
NATURAL ENVIRONMENT
ON THE A19
Read more / page 16
CARBON MODELLING
AND INNOVATION ARE
SIGNIFICANTLY REDUCING
OUR ENVIRONMENTAL
IMPACT ON HS2
Read more / page 22
See our KPIs / page 26
NON-FINANCIAL HIGHLIGHTS
01
Overview | Highlights
Read my statement / page 4
Improving people’s lives
OUR PURPOSE
To create connected, sustainable infrastructure enabling people and the planet to thrive.
OUR VISION
HOW WE DO THAT
WHERE WE OPERATE
We shape, create and deliver pioneering solutions that transform the performance
of the infrastructure ecosystem.
We are focused on four strategic sectors across the UK: Transport, Energy, Water
and Defence, and everything that we do is rooted in delivery and organised
around our clients.
We are proud to be recognised for our contribution
to clients, our people and wider society.
AT A GLANCE
By drawing on our 150-year heritage of pioneering problem solving, Costain
brings together a unique mix of experts to transform the performance of
infrastructure that connects, protects and powers people’s lives.
AWARDS AND RECOGNITION
ACCREDITATIONS
ISO 9001 Quality Management System.
ISO 14001 Environmental Management.
ISO 45001 Occupational Health & Safety.
ISO 27001 Information Security Management.
ISO 22301 Business Continuity Management.
ISO 44001 Collaborative Business Relationships.
ISO 20000-1 IT Service Management.
PAS2080 Carbon Management
In Infrastructure.
ISO 56002 Innovation Management.
Read about our refreshed corporate positioning / page 62
Costain Group PLC | Annual Report and Accounts 2021
02
OUR INVESTMENT CASE
OUR STRATEGY TO DELIVER OUR STAKEHOLDERSOUR AMBITION
PEOPLE
Our team has a broad range of
expertise and works collaboratively
to meet our clients’ needs. We are
focused on unlocking the talent
of our 3,500 people and further
developing their capabilities to
deliver for our clients.
PLANET
Infrastructure contributes 55% of the
UK’s carbon footprint and has a further
impact on the wider environment.
We are passionate about safeguarding
our planet for future generations and
taking action to do so.
PERFORMANCE
We are working to deliver solutions
that will improve the performance of
infrastructure in a more cost effective
way. We are also driving efficiency
across our business to deliver for our
shareholders.
See our strategy / page 8
ATTRACTIVE MARKET, WITH LONG
TERM COMMITTED INVESTMENT
IN STRATEGIC INFRASTRUCTURE
See our markets / page 12
CLIENT FOCUSED IN KEY SECTORS,
WHERE OUR CAPABILITIES
DIFFERENTIATE US
See our business model / page 10
WELL CAPITALISED WITH A NET
CASH POSITION
See our financial review / page 42
ACTIONS IN PLACE TO DRIVE
GROWTH IN PROFIT AND MARGIN
See our strategy / page 8
We collaborate more closely
than ever with clients, partners,
communities, wider industry and
shareholders. Together we are
creating connected, sustainable
infrastructure to help people and
the planet thrive.
See our stakeholder engagement / page 32
HOW WE MEASURE SUCCESS
This year we have outlined financial
and non-financial KPIs for the first time.
See our KPIs / page 26
We are targeting revenue growth with
an operating profit margin of 5-6%.
See our strategy / page 8
OUR ASSOCIATED RISKS
We are focused on reducing contract
risk through improved contract
governance and management.
See strategy and risks / pages 8 and 44
03
Overview | At a Glance
CHAIR’S STATEMENT
During the last year, the Group has
made considerable progress on
its journey. This is evident in the
improvement in underlying business
performance and the increased
strategic clarity, as we develop our
capabilities in sustainability, consulting
and digital.
Importantly, we have been able to
conclude legacy contract issues,
including the Peterborough &
Huntingdon (P&H) contract which
was signed in 2016 (see page 141
for more detail). The outcome of
the dispute was unexpected and
it is disappointing that the Group
has had to bear a financial cost of
£43.4m, which was paid after the
end of the financial year. However,
the resolution of this contract will
enable management to look forward
and focus on the positive long-term
prospects for the Group.
I am pleased the Group’s adjusted
operating profit increased strongly in
the year and we saw good free cash
generation, which is discussed in more
detail in our Financial Review on page
42. The reported loss of £5.8m reflects
the settlement of the P&H contract.
Given the pressures of a growing
population, the need to meet the
impact of climate change and the
requirement for more economic
and environmental resilience, there
are huge possibilities to update,
connect and integrate infrastructure
ecosystems. Costain can build on
its deep construction heritage to
address the changing needs of our
clients by bringing together a unique
mix of experts to engineer solutions
for increasingly complex problems.
In return, we expect that Costain
can deliver profit growth with better
margins. We are already seeing the
benefits of these actions, with higher
operating profit margins from projects
that utilise this approach. This is
discussed in more detail by our CEO,
Alex Vaughan on page 6.
Engaging through change
The drive to create connected,
sustainable infrastructure is
increasingly understood by our
stakeholders – our people, clients,
governments, and our investors – and
our Board and management team
recognise the need for Costain to
engage increasingly with these groups.
Change can be challenging and during
2021, Alex and the management
team have been active in leading
discussions with our employees on the
benefits of our strategy, discussed on
page 8, which we expect will enable us
to attract and retain talent within the
Group. Our clients have responded
positively to our strategic direction,
with a good pipeline of orders for
the Group to manage across the
infrastructure ecosystem, while still
delivering complex programmes.
We are also conscious of the important
role we play in the wider community
and the Board has been increasingly
focused on Environmental, Social
and Governance (ESG) matters. The
Board considers leadership culture in
these areas to be an essential factor
in the Group’s ongoing strategic
development. Diversity, equality and
inclusion remain an area of focus, as
they are critical to developing high
performing teams. We are committed
to ensuring a culture of respect and
inclusivity to everyone we employ and
“I am pleased with the
underlying performance;
we have a strong team
to deliver our ambition
.”
further details on our ESG policies and
practices can be found on page 38.
We outline the Board’s engagement
activities in more detail on page 66.
Our people
The past two years have been difficult
for our people as we, and our clients,
have navigated our way through the
pandemic. I am pleased that despite
the challenges we have maintained
our excellent safety performance. The
Board would like to thank our people,
clients and partners for their effort and
resilience in what has been a difficult
time for all.
Capital allocation
The objective of our strategy
is to deliver long-term value to
shareholders while maintaining a
strong balance sheet that underpins
our financial position. Costain has
targeted a dividend cover of around
three times underlying earnings,
taking into account the free cash
flow generated in the period. It is
important that we maintain a strong
balance sheet that will support
investment in the business to drive
growth. Given the final settlement
payment made after the close of
the financial year in respect of the
Peterborough & Huntingdon contract,
the Board does not consider it
appropriate to recommend a final
dividend this year, despite the Group’s
improved operating and adjusted
cash performance. We recognise
the importance of dividends to
shareholders and will continue to
review the timing of the reinstatement
of future dividends in the light of
the Group’s performance, cash flow
requirements and the importance of
maintaining a strong balance sheet.
Costain Group PLC | Annual Report and Accounts 2021
04
Trading and outlook
As the nature of our business increasingly
moves towards the supply of consultancy
and digital solutions, we expect the
mix of our order book to evolve with a
greater number of shorter, higher margin
contracts. This, as well as market cycles,
is already being reflected, with our
order book of £3.4bn at the end of 2021,
compared to £4.3bn the year before.
I am pleased to note that a series of
contract wins during 2021 set the Group
up well for 2022 and we expect to see
an increase in adjusted operating profit
compared to 2021. We have seen a good
start to 2022 in both our divisions, with
secured revenue for the Group of more
than £1bn.
While we are mindful of market conditions
due to the pandemic, and wider
economic and geopolitical challenges,
there is a positive long-term outlook for
infrastructure and we have a significant
role to play in helping the UK Government
achieve net zero. This, combined with
the strategic progress made during
2021, gives the Board confidence in the
Group’s future prospects.
Finally, as announced alongside our
2021 full year results, I have decided to
step down as chair and non-executive
director within the next 12 months. The
Nomination Committee, led by Tony
Quinlan as senior independent director,
will soon begin a search for my successor.
After six years as chair and non-executive
director, we have navigated through some
challenging times, but now have a strong
management team and a clear strategy to
generate sustainable growth in the future.
Dr Paul Golby CBE
Chair
9 March 2022
05
Overview | Chair’s Statement
Q&A WITH CEO ALEX VAUGHAN
“We are delivering a strong operational performance,
drawing a line under legacy contract issues and pushing
forward with our strategic ambition in strong markets.”
Costain Group PLC | Annual Report and Accounts 2021
06
What are your key
reflections on 2021?
It’s a good opportunity to step back
and take a moment to talk about how
we have changed our business since I
became CEO, and to reflect on what
we have achieved during 2021.
We had another strong year of
performance last year, delivering
contracts well, securing the right type
of new work and increasing our position
on consultancy and digital frameworks
for our clients; cementing our position
as a valuable strategic partner for our
clients. We have importantly drawn
a line under all our historic contract
issues, the last of which had been
contracted as far back as 2016. Having
learned the key lessons from the two
contract issues, and operating very
differently, Costain is now a strong
resilient business; as is evidenced from
delivering adjusted earnings in line with
expectations for the last two years.
Last year we completed an update
of our strategy, that confirmed our
hypothesis for significant growth of
profits and margins. We have a clearer
plan, built on the good progress made
over the past two years, and a clear
ambition to significantly increase
the value of Costain. The business
leadership is a diverse mix of experts,
focused on delivering our ambitions and
continuously strengthening the business.
Today we are partners on our client’s
strategic long-term investment
programmes, with a broad team of
experts. A leading modern contractor, a
sizable value adding consultant and an
emerging digital partner shaping a more
productive and greener future. We are
the new type of company who is best
positioned to benefit from helping our
clients meet their changing needs.
What were the key
financial highlights?
In 2021 we delivered £30.1m adjusted
operating profit with a margin of
2.6%, both significant improvements
on last year.
Net cash was £119.4m and we
continued to secure new work with an
order book of £3.4bn at the end of the
year. The overall reported operating
loss was £9.5m reflecting the final
settlement of the Peterborough &
Huntingdon contract.
We have made significant changes to
improve contract risk management,
which gives me confidence we will not
experience such significant contract
write-offs in future. You can read more
about this on page 9.
What is the current status
of these legacy contracts?
In February 2021 we reached
a settlement with the Welsh
Government in relation to the A465
contract, giving us certainty over the
final cost of the project. The work has
largely been completed, and the road
was opened in November 2021.
In December 2021 we received an
adjudication decision on several claims
in the Peterborough & Huntingdon
dispute, most of which were found in
our favour on principle. However, the
adjudicator chose not to determine
the financial amounts in respect
of these compensation events. In
February 2022 we reached a full and
final settlement with National Grid,
resulting in a payment of £43.4m.
The settlement brings an end to the
dispute and prevents any further
claims under the contract. While this is
a disappointing outcome, I am pleased
to have finally resolved this matter and
we are now able to move forward and
focus on the future.
How do you see the infrastructure
market evolving?
Infrastructure is facing enormous
change. There are huge opportunities
to update, connect and integrate
systems, but challenges including
climate change and our economic and
environmental resilience are more
urgent than ever.
There is broad investment,
underpinned by legislative and
regulatory commitments, and there
is a pipeline of more than £650bn of
investment for the next 10 years across
our markets.
To do this, our clients need partners
that will support them through these
challenges. We expect a move from
‘build and then leave to the client’,
to the infrastructure provider being
involved at different stages throughout
the whole life of the asset, including
strategic development, asset creation,
operations and demobilisation.
In delivering net zero, more productive
and lower cost infrastructure, we will
continue to transform the way new
infrastructure is delivered, and commit
more resource and investment to
extending the life and improving the
performance of our existing assets.
What did the strategy
update determine?
Our strategy update tested the size
and scale of our market and confirmed
the significant opportunity it provides.
By focusing on four key markets in the
UK, namely Transport, Energy, Water
and Defence, we are able to develop
a deep understanding of our clients’
needs and tailor our solutions to them.
These markets are also receiving long-
term strategic and non-discretionary
investment to meet the needs of the UK.
In my mind, addressing the changes
in the market requires a new kind of
company. We believe that we can be
that company, which is why we are
building additional capabilities, so
we can be construction, consulting
and digital partners across the full
infrastructure ecosystem. This will allow
us to shape, create and deliver solutions
to the most complex infrastructure
challenges. Whilst the transition is
not easy, over time this will enable
us to deliver our vision of connected,
sustainable infrastructure that helps
people and the planet to thrive.
07
Strategic Report | Q&A with CEO Alex Vaughan
Our broader offering positions us
uniquely in the market as we do
not see anyone else thinking about
infrastructure in the same way. We are
increasingly recognised as a sector
leader and recently won a silver award
in the FT UK’s Leading Management
Consultants awards. You can read
more about our strategy and markets
on pages 8 and 12.
Can you update us on
the business leadership?
We have assembled a strong leadership
team to lead the business in delivering
its strategic objectives. Together with
the team already in place, during the
year Louise Bryant joined us from
Aggreko as Group communications
and investor relations director, Matthew
Higham joined us as chief digital officer
from Microsoft UK where he held the
same role, and Sam White is managing
director of the Natural Resources
division, joining from Babcock where
he had held a number of managing
director roles. Today, the leadership of
Costain is more diverse in its expertise
and gender than ever before, with more
progress yet to be made.
Now that you have completed
the strategy update where do
you see adjusted operating
margins in the future?
The strategy review highlighted the
huge potential that we see in our
markets, both in traditional programme
delivery and in helping our clients
navigate the growing complexities of
greater demand, less financial resource
and the need to safeguard our planet.
The volume of our complex programme
delivery work is expected to grow our
absolute profit in the 3-5% range; and
we will continue to grow the proportion
of our consultancy and digital business
services at margins in excess of 5%.
We are presenting our target in terms
of operating profit as opposed to
divisional margins, and our ambition
is to deliver margins in the 5-6% range.
Much has been written about the
climate change challenge facing
our planet, where are you on your
net zero journey?
Having read and heard a lot about
the challenges our planet faces, I
am committed for Costain to play a
leading role in safeguarding its future.
What are your thoughts on
the outlook for Costain in the
year ahead?
Overall, I’m pleased with the progress
that we have made and the momentum
and ambition across the Company.
We have a clear differentiated plan,
an outstanding leadership team, and
strong contract risk management.
Delivering our strategic ambition is
not easy, but I’m confident that we will
benefit from these changes in 2022 and
in the years ahead.
As well as the long-term work already
secured, we are well placed to
capitalise on the positive opportunities
across the UK’s infrastructure market. I
am really excited by the prospect of not
only improving the performance of this
business for shareholders, but also of
delivering better results for our clients,
their customers and society as a whole.
Alex Vaughan
Chief Executive Officer
We will do this in how we deliver our
infrastructure solutions and what those
solutions encompass. Additionally we
will play a key role in transitioning to a
green energy future, and are making
good progress in this area.
Within Costain, our Climate Change
Action Plan is to be net zero carbon by
2035, and we have continued to work
in collaboration with our suppliers to
reduce emissions. We are adopting
the latest plant technology and
continuing our focus on telematics
to drive behavioural improvement
to reduce plant idling, with a 20%
reduction in 2021. In addition to
becoming more efficient in how we
deliver infrastructure projects, our
materials engineers, designers and
PhD researchers have been working
hard with our supply chain partners
to accelerate the development of low
carbon construction materials, and we
are growing our work supporting the
energy transition, including carbon
capture and hydrogen.
But this is not enough; we must do
more to reduce the amount of carbon
we use in our operations and crucially,
the carbon embedded in what we
construct, and I have asked the team
to look at more ambitious targets for
the business. We are well positioned
to help shape a greener future in
transport and energy.
We have introduced absolute
greenhouse gas (GHG) emissions,
including Scope 3, as one of our key
performance indicators (see page 27),
as it is fundamental that however much
this business grows, we still reduce
the carbon dioxide we are releasing
into the atmosphere. I firmly believe
that we can do more to play our part
in safeguarding the planet and
I look forward to updating you
on our plans in due course.
We are growing our integrated proposition to support our clients’
needs for innovation that unlocks better infrastructure performance.
Leveraging our deep understanding of complex programme
delivery, we are investing in consulting and digital services to enable
us to shape infrastructure spending across the asset life cycle; this is
our unique client proposition. Bringing all this together will deliver
infrastructure that is more efficient, lower cost and with a positive
social and environmental impact.
Our long-term vision is to create connected,
sustainable infrastructure that helps people
and the planet to thrive.
Our strategy will transform the business and underpins
the development of our unique customer proposition,
setting us up to deliver this vision.
OUR STRATEGIC PRIORITIES
PEOPLE
In order to deliver our vision, we must
have high-performing teams. We have
refreshed our executive leadership
team and have experts throughout
the business. Our commitment is to
upskill our people and create new and
exciting opportunities so that they
choose to grow their careers with us,
while continuing to ensure that everyone
returns home safely at the end of the
day. We are also mindful of the impact
that we have on our end users, and want
to enable people to thrive. Infrastructure
needs to deliver more for society and has
a significant role to play in levelling up
the UK.
Strategic initiatives
• Investment in skills for the future
• Social value measurement
Read about our KPIs /
page 26
OUR STRATEGY
OUR AMBITION
Focus areas to deliver the Group operating margin
ambition of 5-6%
1. Improving margins on complex programme delivery (CPD) contracts
– our operational excellence model programme is delivering CPD
contracts in line with our target margin range of 3-5% and we are trading
out the proportion of revenue from historic lower margin contracts.
2. Growing our consulting services – this is developing well, with
contract margins growing to more than 5% as we increasingly build
our reputation and expertise together with continuing to secure
consultancy frameworks with our clients.
3. Growing digital services – building on our digital expertise, we are
helping our clients shape and develop their plans and we see a
considerable opportunity as infrastructure markets move to greater
digital infrastructure to enhance business performance. We expect
contract margins in this area of more than 5%. We have new leadership
in this area and are investing in a clear and focused plan.
While our complex programme delivery services include the benefits
of our consulting and digital expertise, and will therefore increase
margins, we are also growing our standalone consulting and digital
services. Taken together, we expect to deliver a progressive increase in
operating profit and operating margin as we implement our strategy.
DIFFERENTIATING COSTAIN
In meeting the changing needs of UK infrastructure we
have a unique approach:
• We have chosen to only focus on the UK and in markets where long
term strategic investment is being made. See page 12 for more
detail on our markets.
• By leveraging our 150-year heritage in problem solving and
programme delivery, our experts can meet our clients’ broad needs
across strategy, capex and opex as construction, consulting and
digital partners. It’s a new approach. See page 10 for more detail on
our business model.
• We will deliver a step change in reducing the environmental impact
of construction, by becoming carbon negative and nature positive.
We discuss our ESG initiatives in more detail on page 38.
Costain Group PLC | Annual Report and Accounts 2021
08
PLANET
Protecting nature and the
environment to safeguard our
planet for future generations is
fundamental. We have believed
this for a long time, and while
we have made changes, we
acknowledge that there is
considerably more that we can
do. We have recently committed
to achieved Science Based Target
accreditation and have given our
sustainability team new direction.
Strategic initiatives
• Commitment to Science
Based Target s
• Sustainability strategy update
Read our sustainability section /
page 38
PERFORMANCE
Infrastructure needs to deliver
more and cost less for the whole
of society. By developing a deep
understanding of our client’s
needs, we are pioneering solutions
that will deliver infrastructure
faster and more efficiently,
without compromising on safety
or the environmental impact. We
are investing in our digital and
consulting capabilities to support
our clients by helping them
develop their strategy, optimise
existing assets and deliver new
ones. By doing this, we will drive
growth in our business.
We are also improving the
performance of our business.
Costain has existed for more than
150 years, and inevitably over time
complexity has crept in. We have
identified areas where we can
simplify processes and bring clarity
and focus to how we work, which
will drive efficiency improvements
and better service for our clients,
while improving returns for
ourshareholders.
Strategic initiatives
• Data and systems
enhancement
• Production thinking
Read our performance review /
page 24
CONFIDENCE IN DELIVERY
As a result of the commercial issues faced
on legacy contracts, we have conducted
a root cause review and upgrade of our
contract risk management and delivery
assurance processes. As a result, we
have implemented a programme of
improvements, including:
Work winning
• Contract selection – contracts
are not pursued where the risk is
considered inappropriate
• Independent review – expert risk
review of contracts by specialist
teams outside the bid team
• Enhanced legal process –
restructured and strengthened legal
team to ensure contracts are rigorously
assessed, and terms documented to
the highest standards.
Operational contract delivery
• Operational Excellence Model
(OEM) – developed an OEM which
is being implemented across the
construction contract portfolio.
The OEM ensures rigorous process
management and consistent practices
are applied across the Group.
Compliance is assessed and
reviewed monthly.
Financial performance
• Financial oversight – financial
performance of every contract is
reviewed monthly, including a holistic
assessment of the risks and range
of potential outcomes to ensure
timely action is taken where
performance might deviate
from that in the bid process.
Senior management ownership
• Review process – rigorous and
clear guidelines in place to ensure
timely and proactive communication
to executive management and, if
necessary, Board level of on-the-
ground delivery issues.
09
Strategic Report | Our Strategy
Client focus
Being curious with clients to
understand their challenges and
deliver solutions that best meet
the needs of their customers –
the end users.
Capabilities
Our complex programme delivery
experience combined with our
broader digital and consulting
capabilities enable us to deliver
better solutions.
Innovation
We work in partnership with
universities and businesses to
research and develop pioneering
solutions, and to generate intellectual
property rights.
Expertise
We have in-depth understanding
and expertise to solve challenges
across the entire infrastructure asset
life cycle.
People and culture
We have a mix of skills and diversity
across our workforce, with more than
400 chartered professionals in our
highly skilled teams.
Collaboration
We work closely with our supply
chain partners, clients and regulators
to ensure we are delivering the best
outcomes for the end users.
HOW WE HELP TRANSFORM
INFRASTRUCTURE PERFORMANCE
UNDERSTANDING THE NEEDS OF OUR CLIENTS
ACROSS THE INFRASTRUCTURE ECOSYSTEM
Infrastructure is adapting to meet dramatically changing needs driven by climate
change, population growth and the need for economic and environmental resilience.
There are huge opportunities to update, connect and integrate our infrastructure ecosystem to create a
better future. Doing this requires a new kind of company which brings together a unique mix of experts
across construction, consulting and digital. Everything that we do is rooted in delivery and organised
around our clients, anticipating and solving their challenges.
OUR BUSINESS MODEL
UNDERPINNED BY OUR COMMITMENT TO BE A RESPONSIBLE BUSINESS
We are committed to doing the right thing: our responsible business commitments are an integral part of our strategy.
We work with clients to anticipate, identify and meet their
challenges, helping us to deliver pioneering solutions right
across the infrastructure ecosystem.
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HELPING
PEOPLE AND
THE PLANET
THRIVE
C
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A
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INFLUENCE,
SHAPE AND
ADVISE
• Rethinking the
approach to
infrastructure
• Developing
strategic solutions
designed to
optimise value
and reduce risk
CREATE & DELIVER
• Engineering innovative
solutions that are
sustainable, efficient
and practical and deliver
projects in a safer,
greener, faster and more
efficient way
MAINTAIN, OPTIMISE
AND REPURPOSE
• Enhancing and
maintaining existing
assets to ensure safe,
efficient and cost-
effective operations
• Extending asset life
or repurposing, while
delivering economic
and environmental value
Costain Group PLC | Annual Report and Accounts 2021
10
OUR CAPABILITIES
See our Responsible Business / page 38
The sustainable, efficient and practical solutions we provide
support UK economic growth and contribute to meeting the
challenge of economic and environmental resilience.
See our stakeholder engagement / page 32
HELPING PEOPLE AND THE PLANET THRIVE
For all of us
Delivering effective, environmentally friendly infrastructure solutions
that are user-friendly and good value for money.
For our clients
Providing leading services to meet our clients’ individual needs
while delivering safely, reliably and responsibly.
For our people
Keeping our people safe and supporting their personal
development to help empower the next generation.
For our partners
We work in partnership with our suppliers and joint venture partners
to share best practice across the industry.
For the environment
Making efficient use of resources and taking action to help protect
and revitalise the environment.
For our communities
Investing in the local areas in which we work and upskilling
disadvantaged and under represented people.
For our shareholders
Transforming the business to deliver long-term profit growth
and returns.
Consulting
Our value-adding consultancy and advisory
services are rooted in project delivery
experience and leverage our broad range
of capabilities.
Complex programme delivery
Our people deliver complex infrastructure
projects in a sustainable, efficient and
practical way by constantly innovating
and working collaboratively.
Digital
We engineer and integrate digital solutions
into our projects to improve the performance
of our infrastructure.
11
Strategic Report | Our Business Model
We are living through a transformational shift in the environmental and
societal expectations of infrastructure. These forces are being felt on
a global basis and are driven by three mega trends which we expect
to persist for years to come: climate change and resource scarcity;
digitisation; and demographic and social change.
MEGA TRENDS
MARKET OVERVIEW
CLIMATE CHANGE AND
RESOURCE SCARCITY
Our climate is changing and it is
critical that infrastructure is built with
this in mind. This means ensuring that
it will be resilient to the prevailing
conditions in 50 years’ time, such as
extremes of temperature, natural
disasters and rising sea levels.
Equally important is designing and
building infrastructure in a way that
does not have a further detrimental
impact on our planet through
inefficient resource use or the use of
unsustainable materials; we should
be aiming to create a nature positive
circular economy. A more sustainable,
circular-led approach requires the
construction industry to consider the
full environmental impact of materials
across the entire asset life cycle,
including decommissioning.
DIGITISATION
There is an urgent need to transform
infrastructure performance. The use
of data and the impact of changing
technology will play an increasing
role in improving the efficiency of
infrastructure, both existing and in
the future. It also has a role to play
in providing the tools to increase
productivity, improve efficiency and
safety, and reduce costs in the design
and delivery of infrastructure projects.
Cyber security needs to be carefully
controlled in this environment to
manage the associated risks; however
the benefits that digitisation can bring,
particularly to resource constrained
customers, are large.
DEMOGRAPHIC AND SOCIAL CHANGE
Inequality is a global challenge and
recognised by the UN Sustainable
Development Goals as intrinsically
linked with infrastructure investment.
There is increasing focus on how
investment in infrastructure can reduce
inequality, while also taking account of
other demographic and social changes.
Population growth and urbanisation
will increase the demand on already
stretched infrastructure; in the UK there
is expected to be a 20% increase in the
urban population by 2050. This will put
further pressure on transport systems,
water and waste management and will
require innovative thinking in how to
provide more infrastructure in already
congested urban environments. What
we want from, and the way that we use,
infrastructure is also changing with
increased focus on its impact on mental
and physical health, working patterns,
and diversity and inclusion.
Contribution of infrastructure
to the UK’s carbon footprint
1
55%
Global power infrastructure spend
avoided by using smart charging for EVs
2
$100bn
UK urban population growth
by 2050
3
+20%
1 Source: Institute for Civil Engineers.
2 Source: International Energy Agency, Digitalization and Energy report.
3 Source: United Nations.
4 Source: UK Government.
5 Source: ONS.
Costain Group PLC | Annual Report and Accounts 2021
12
Procurement is evolving
The way in which government assesses, procures and delivers
infrastructure investment is governed by the Construction Playbook,
introduced in 2020, which provides policies and guidance that
government departments are expected to follow. The aim is to
improve public sector buying decisions, with greater emphasis on
creating social, environmental and financial value. The industry is
increasingly using framework agreements ahead of major spending
programmes, whereby suppliers included in a framework agree to
terms and conditions that will apply for each specific contract. It is
not generally a guarantee of work, but is often a prerequisite for
being awarded work. Furthermore, alliances that encourage industry
collaboration are increasingly being used to drive better outcomes,
particularly on the maintenance of existing infrastructure. These
processes favour contracting arrangements that better integrate
national needs with the supply chain.
MARKET OPPORTUNITY
Investment in UK
infrastructure
4
£650bn
Proportion of UK infrastructure
spend funded by local government
5
40%
Average proportion of
infrastructure spend on transport
5
85%
In the UK, where we operate,
the government is investing
heavily in infrastructure.
This underpins the government’s
National Infrastructure Strategy and
Pipeline, published in March 2021, which
commits to spending over £650bn on
infrastructure in the next five years,
significantly higher than in recent years.
There is recognition that infrastructure
underpins the economy, and a desire
in government to improve the quality
of infrastructure to deliver economic
growth and simultaneously put the UK
on the path to net zero emissions by
2050. We have chosen to focus on four
key markets where there is a strategic
commitment to invest in meeting
national needs and where we are well
placed to support our clients to deliver
high-quality, affordable and sustainable
outcomes. The transport, water, energy
and defence markets benefit from long-
term investment plans, underwritten by
UK Government policy, regulation and
legislation designed to meet a critical
national need.
13
Strategic Report | Market Overview
MARKET OVERVIEW continued
TRANSPORTATION
We connect and keep the nation moving
Within Transportation our market is twofold. Firstly
supporting key clients such as National Highways, HS2
and Network Rail with strategic development, major
infrastructure delivery, existing asset optimisation and
operational improvement; and secondly helping local
and devolved authorities leverage economic growth
through investment in transport infrastructure to
support the levelling up agenda. Major infrastructure
projects include work for National Highways across
the strategic road network (SRN), with investment
allocated through the Road Investment Strategy 2 (RIS2)
programme, which is committed to spending £27bn
between 2020 and 2025. HS2 has committed spend of
£72-98bn between 2020 and 2033, with multiple phases
and types of contract, playing to both our construction
and digital strengths. Network Rail is currently
operating in Control Period 6 (CP6), a five-year £53bn
investment programme that started in 2019, which is
focused on delivering a safe, reliable, efficient and
growing railway. In November 2021, the Integrated Rail
Plan was announced, which at £96bn is the largest ever
public investment in the UK’s rail network, and aims to
deliver faster and better journeys to people across the
North and the Midlands.
WATER
We protect water, keeping it clean and owing
Our clients in the water sector are privately-owned utility,
water and sewerage companies that are regulated by
Ofwat in England and Wales, with the regulators setting
the price limit, investment requirements and service
package for customers. In England and Wales, the sector
is currently operating in Asset Management Period 7
(AMP7) which will deliver investment of £51bn between
2020 and 2025. The focus is on decarbonisation, improving
water quality and affordability, while driving innovation
to improve resilience. Similar levels of investment are
expected in the next Asset Management Period.
AMP7 Ofwat approved investment
£51bn
Integrated Rail Plan
£96bn
HS2
>£72bn
RIS2 investment in the strategic road network
£27.4bn
Devolved and local authority investment
£20.2bn
(including the £4.8bn levelling up fund)
Costain Group PLC | Annual Report and Accounts 2021
14
ENERGY
We power communities sustainably
The energy sector is in transition and forms a key
part of the UK’s commitment to be net zero by 2050.
This sector is diverse, but typically our clients are
private entities and we are focused on supporting
them through the energy transition and in the nuclear
subsector, with a particular focus on the industrial
clusters. The UK Government announced its Ten Point
Plan for a Green Industrial Revolution at the end of
2020, committing to invest £1bn to establish carbon
capture, usage and storage (CCUS) and an Advanced
Nuclear Fund to develop the next generation of nuclear
technology. The report also highlighted the potential
for private investment of over £4bn by 2030 to develop
low carbon hydrogen capability. Ofgem, the energy
market regulator, has confirmed its major investment
programmed into the UK’s energy infrastructure from
2021-2026 (RIIO-2) with £30bn upfront funding to deliver
a clean and reliable energy system and a further £12bn
to support future green energy projects where needed.
DEFENCE
We help protect the nation
The national defence budget for equipment and
infrastructure is over £23bn annually. In November 2020
the UK Government announced its biggest investment
in defence since the end of the Cold War with a £16.5bn
increase in spending over a four-year period. This will
allow the Ministry of Defence to invest in next-generation
military capability. Currently we are only playing in
a fraction of this market, mainly in work related to
submarines and naval bases. We have identified further
areas of opportunity in decommissioning, information
systems and services, and infrastructure.
RIIO-2 investment in clean energy
£30bn
Stimulating private investment of up to
£42bn
by 2030
10 point plan for a Green Industrial Revolution
£12bn
Increase in defence spending
£16.5bn
Defence budget
£41.5bn
15
Strategic Report | Market Overview
A19 Testo’s junction
improvements delivered on
budget and ahead of schedule,
supporting economic growth
Delivered by Costain for National Highways, the scheme
has provided a safer, more accessible and more uid road
network that will support regional economic growth in the
Northeast while enhancing the natural environment.
MARKET OVERVIEW continued
SUPPORTING STATISTICS
£1.5m+
saved by re-using earth
in the landscape and
avoiding off-site disposal
26,300
new plants native to the
area planted
1250tCO
2
e
saved through re-use of material
from the A1058 Coast Road
The £130m upgrade included a
142-metre bridge which raised the
A19 above the existing roundabout,
used by up to 80,000 vehicles a day.
It is estimated that 60% of this traffic
will use the new flyover, without
stopping at the roundabout. A large
proportion of these journeys will
be between the UK’s largest car
manufacturing plant, Nissan, and
the Port of Tyne.
The nearby A19 Down Hill Lane scheme
provides extra capacity at the junction,
supporting plans for the development of
the International Advanced Manufacturing
Park (IAMP) and major international supply
chain companies, adjacent to the A19. New
link roads have boosted journey times and
provided new facilities for pedestrians,
cyclists, andhorseriders.
Not only has the scheme delivered
economic growth, it has also enhanced
biodiversity. Digital biodiversity mapping,
and geospatial applications helped
to gather and visualise environmental
and safety data in a secure, single
cloud-based data platform that was
easily accessed from offices and mobile
devices. With live environmental data to
hand, teams could plan and deliver works
right first time, enhancing environmental
and project performance.
Costain Group PLC | Annual Report and Accounts 2021
16
Complex programme delivery
Digital
Consulting
Read more on our website
www.costain.com/news/news-releases/
new-environment-report-highlights-positive-
impact-of-the-a14-a-costain-skanska-and-
balfour-beatty-joint-venture-project/
“Seeing how intuitive data visualisation can
enhance the delivery and environmental
performance of a project is one of the reasons
I’m so passionate about GIS. The role that
data will play in delivering infrastructure more
efficiently and making it nature positive across
the UK, is hugely exciting.”
Soa Stouki
Group Head of Geospatial Information Systems (GIS)
17
Strategic Report | Market Overview
SUPPORTING STATISTICS
MARKET OVERVIEW continued
Securing water
supply and optimising
network performance
for Anglian Water
Costain is collaborating with Anglian Water and three other
partner organisations as part of the Strategic Pipeline Alliance
(SPA) to deliver a clean water pipeline and develop one of the
water industry’s rst digital twin network operations.
6%
of operational electricity and
711 tonnes of CO
2
e expected
to be saved annually
100s of km
of resilient clean water pipes are
being delivered
Our knowledge of complex
infrastructure delivery and
understanding of Anglian Water’s
operations means that the right
physical asset and operational data
is fed into the digital twin. This will
improve efficiency and reduce cost
as the pipeline can be assembled,
installed, tested and commissioned
in a virtual environment before the
delivery phase begins.
Through the integration of systems
and business functions, data insights
have been significantly improved giving
Anglian Water the ability to test scenarios
and better plan for events such as drought
or flooding. All this will aid planning, as
well as reducing maintenance and renewal
costs, as issues can be identified and
proactively addressed before they affect
operations. The end user will soon be able
to see how their behaviour affects water
demand and supply.
Costain Group PLC | Annual Report and Accounts 2021
18
Complex programme delivery
Digital
Consulting
“Working on industry firsts that are tackling the
challenges of clean water supply and climate change is the
sort of rewarding work I’ve always wanted to do. I get
to use my digital expertise and deep domain knowledge to
make a real difference for future generations.”
Dr. Kum Wah Choy
Technology Director and SPA Digital Twin Product Owner
19
Strategic Report | Market Overview
The HyNet system will take low
carbon hydrogen from production
to consumption, balancing supply and
demand. The facility, the largest in the
UK, will enable up to 1.3 TWh of excess
hydrogen to be stored underground
in salt cavities during periods of low
demand and discharged into the gas
network during peak winter periods.
We are using more than 70 years of gas
processing experience to undertake
the initial concept study and front end
engineering design that will shape and
create the infrastructure required for the
import, storage and export of hydrogen
at the facility. HyNet North West will
unlock a low carbon future for the North
West of England and North Wales and
help to decarbonise multiple sectors of
the economy from 2025 onwards.
Developing
first-of-a-kind
hydrogen storage
for the UK’s green
energy future
MARKET OVERVIEW continued
As part of our work to support the energy
transition, we are collaborating with INOVYN on
the development of a hydrogen storage facility for
the HyNet North West project. This is developing
solutions for storing hydrogen at scale, which is
key to enabling the UK’s hydrogen economy.
SUPPORTING STATISTICS
1.3 TWh
of hydrogen is enough gas
to heat over 750,000 UK
homes for a year
Costain Group PLC | Annual Report and Accounts 2021
20
Consulting
“We’re slightly stepping into the unknown, as nobody really
knows how the hydrogen economy will work or how the
storage needs to perform. The team and I are answering the
key questions such as how much, how fast, how often. It’s
exciting, it’s important and we’re making it happen.”
Rob Beresford
Chief Process Engineer
21
Strategic Report | Market Overview
Decarbonising delivery
of HS2 for the UK’s low
carbon transport future
The Costain Skanska joint venture has substantially
completed the enabling works for the southern section
and with the addition of STRABAG to our joint venture,
we are now delivering the construction phase of the
main works programme for the new railway.
MARKET OVERVIEW continued
99%
of waste diverted
from landfill
25%
carbon reduction already
achieved on the main
works programme
100% renewable energy
The JV has secured 100% renewable energy tariffs for our works, so our tunnel
boring machines (TBMs) and other operations will be run off zero carbon electricity.
This is equivalent to about 70,000 tCO
2
e saved when compared to a standard UK
grid electricity tariff
SUPPORTING STATISTICS
We are designing and delivering
the most complex section of
HS2 phase one, including 26 miles
of running tunnel between London
Euston and West Ruislip, with contract
completion in 2027.
Holistic carbon modelling of the entire
project, early engagement and leadership
in this field made it easy to efficiently
reduce carbon emissions. The enabling
works team used a Carbon Opportunities
process to re-use demolition materials
at 20 sites, removing 35,000 lorry
movements from local roads and saving
2,000 tCO
2
e. On the main works, by
working with our supply chain, we’ve
developed innovations such as zero trim
piling that eliminates the need to crop
piles. This has minimised noise and dust
and saved 840,000kg of CO
2
on just one
of our sites.
Costain Group PLC | Annual Report and Accounts 2021
22
“Working in a JV team with like-minded colleagues,
determined to make a difference to our carbon impact,
is driving some of the best collaboration I have seen in
my career so far. We’re setting new benchmarks in
environmental performance that I’m really proud of.”
Geri Badura
Environment and Sustainability Director for the JV
23
Strategic Report | Market Overview
Complex programme delivery
Digital
Consulting
CHIEF EXECUTIVE OFFICER’S STATEMENT
“Our 2021 results demonstrate the
progress we are making to improve
the Group’s performance.”
Alex Vaughan
Chief Executive Ofcer
We report both our statutory results,
‘reported’, and results excluding
adjusting items, ‘adjusted’. Key adjusting
items for FY21 include the Peterborough
& Huntingdon settlement payment,
partially offset by a provision release
relating to the A465 contract. Reported
Group revenue was up 16.0%, while
the reported operating loss reduced
significantly from £92.0m to £9.5m.
Adjusted group revenue was up 10.1%
to £1,178.6m (FY20: £1,070.5m). This
was driven by Transportation where
additional work from National Highways
and HS2 resulted in divisional revenue
growth of 19.3%. This more than offset
an 8.9% decline in Natural Resources
revenue, reflecting delays in AMP7 water
investment and slower than anticipated
investment in the energy market,
particularly in H1.
Group adjusted operating profit grew
strongly, up 67.2% to £30.1m (FY20:
£18.0m), in line with market expectations.
The adjusted operating margin was 2.6%
(FY20: 1.7%), driven by improvements
across Transportation, partly offset
by the weaker performance in Natural
Resources. The improvement reflects the
conclusion of lower margin work and an
increased proportion of consulting and
digital services.
Adjusted revenue
1
£1,179m
(2020: £1,071m)
Adjusted operating profit
1
£30.1m
(2020: £18.0m)
Free cash flow
2
£38.9m
(2020: £31.6m)
Further Information
We are building a new kind of
company to create connected,
sustainable infrastructure, enabling
people and the planet to thrive.
Read more about our business model
/ page 10
While the financial impact was
disappointing, I am pleased that
we have now settled our legacy
contract issues.
Read more about Peterborough &
Huntingdon contract / page 141
We have delivered an improved operating performance and
results in line with market expectations, including signicant
growth in adjusted operating prot and margin, and good free
cash ow generation.
Adjusted profit before tax was up
189.2% to £26.3m (FY20: £13.9m), while
adjusted basic earnings per share (EPS)
was up 65.5% to 9.6p (FY20: 5.8p), due to
improved profitability, partially offset by
the annualised impact on the weighted
average number of shares due to the
equity raise in FY20. Reported loss
before tax was £13.3m (FY20: £96.1m
loss) and diluted basic loss per share
(EPS) was 2.1p (FY20: 36.7p loss).
Our secured revenue for FY22 at year
end is more than £1bn. Our order
book
3
stood at £3.4bn at the year-end
(FY20: £4.3bn), reflecting our clients five
year investment programmes, greater
discipline in contract selection and the
shorter lead time of consulting and
digital work. The order book evolves as
contracts wind down and new contracts
are added, therefore it does not provide
a complete picture of potential future
revenue. In addition to the contracted
order book, we have a further £0.9bn
of contracts where we are preferred
bidder and around 50 further secured
frameworks for higher margin consulting
and digital services that will yield
meaningful revenue each year.
1 Before the impact of significant contract provisions and other items of £39.6m (FY20: £110.0m)
(see financial statements note 3 on page 141).
2 Free cash flow is defined as net cash flow from operating activities, excluding adjusting items,
less capital expenditure.
3 Order book and secured revenue includes revenue from contracts which are partially or
fully unsatisfied and probable revenue from water frameworks included at allocated volume.
Costain Group PLC | Annual Report and Accounts 2021
24
The Thames Tideway
Tunnel is a £3.8bn, 25km
super sewer being built under
the River Thames.
In 1865 London’s first underground
sewerage system was opened.
Designed by Joseph Bazalgette
it had capacity for waste for four
million Londoners, double the
population at that time. Since
then, the population of London
has increased to nearly nine million
people, placing significant strain
on the original system. The Thames
Tideway project is upgrading
London’s sewerage system to
cope with its growing population.
The 25km tunnel under the river
Thames will intercept, store and
ultimately transfer sewage waste
away from the river.
Costain, in conjunction with our
JV partners, is building the east
section of the tunnel. In addition to
improving the quality of the river,
the programme has invested in the
local community with employment
opportunities and STEM education
for local children.
For more information visit our website /
www.costain.com/solutions/case-
studies/tideway-east/
Adjustments to reported items
A significant contract provision was
made in the year, with the net charge
to the income statement amounting to
£39.2m. Within this, £43.4m was taken
in relation to the settlement of the
Peterborough & Huntingdon contract,
which was offset by other movements
including a provision release in relation
to the A465 contract. Payment of £43.4m
in settlement of the Peterborough &
Huntingdon contract was made after the
financial year end, please see below for
more details.
Cashflow and liquidity
Cash generated from operations was
£29.5m (FY20: £47.0m outflow) driven
by an improvement in operating
profit and efficient working capital
management. This has resulted in a
£38.9m free cash inflow for the year
(FY20: £31.6m). Net cash at the year
end was £119.4m (FY20: £102.9m).
Payment in respect of the settlement of
the Peterborough & Huntingdon contract
was made after the FY21 year end in
January 2022 and amounted to £43.4m.
The Group continues to maintain
sufficient facilities to meet its normal
funding requirements over the
medium term and, as at 31 December
2021, these facilities comprised a
committed revolving credit facility
of £131m, a term loan of £40m and
£310m of committed and uncommitted
surety and bank bonding facilities.
Capital structure and dividends
The objective of our strategy is to deliver
long-term value to shareholders while
maintaining a strong balance sheet
that underpins our financial position.
Costain has targeted a dividend cover
of around three times adjusted earnings,
taking into account the free cash flow
generated in the period.
It is important that we maintain a
strong balance sheet that will support
investment in the business to drive
growth. Given the final settlement
payment made after the close of
the financial year in respect of the
Peterborough & Huntingdon contract,
the Board does not consider it
appropriate to recommend a final
dividend this year, despite the
Group’s improved operating and
adjusted cash performance.
We recognise the importance of
dividends to shareholders and will
continue to review the timing of the
reinstatement of future dividends in the
light of the Group’s performance, cash
flow requirements and the importance
of maintaining a strong balance sheet.
COVID-19
We have continued to operate effectively
throughout 2021, despite the challenges
to our business operations from the
pandemic. We continue to listen to
the views of our people regarding our
COVID-19 safety measures, which we
kept in place on all our sites and offices
throughout the year. This approach
has enabled us to maintain effective
operations in all parts of our business, as
well as prioritise the safety of our people.
Outlook
Looking ahead, we have already secured
more than £1bn of Group revenue for
2022 and have entered the new year
with good momentum. We are mindful
of the macro-economic backdrop, and
we continue to monitor and work to
mitigate headwinds in commodity and
energy costs, as well as challenges in
the supply chain. We expect to deliver
further progress in 2022 and remain
confident in the Group’s strategy and
longer-term prospects.
25
Strategic Report | Chief Executive Officer’s Statement
Measure
Adjusted
1
operating profit.
Measure
Adjusted
1
operating profit
margin.
Measure
Adjusted
1
diluted earnings
per share.
Measure
Free cash flow is defined as
net cash flow from operating
activities, excluding
adjusting items, less capital
expenditure.
Target
Double digit compound
growth in the medium term.
Link to strategic priorities Link to strategic priorities Link to strategic priorities Link to strategic priorities
Target
Our medium-term ambition is
for a Group adjusted operating
profit margin of 5-6%.
Target
We target EPS growth in line
with our strategy to grow
operating profit.
Target
Cash conversion rate
of 90%.
Relevance
Our business is going through
a transformation as we build on
being purely a Tier 1 contractor
to providing a unique offering
across the asset life cycle, and
over time, we expect this to be
reflected in an improved margin.
The £650bn infrastructure
investment programme
being undertaken by the UK
Government is for the more
traditional type of construction
work, for which margins are
lower, and therefore our business
mix is likely to mean margins
do not improve as quickly as
we had previously anticipated.
However, we believe that we
can deliver significant operating
profit growth, and therefore the
combination of the two KPIs
(operating profit and margin)
provides a more complete
picture of performance.
Relevance
As our business mix shifts to
include more higher margin
consultancy and digital work,
we expect this to be reflected
in the operating profit margin.
Furthermore, we have identified
areas for operational efficiency,
some of which we anticipate
adding to the bottom line
and supporting our margin.
This is calculated as adjusted
operating profit divided by
adjusted revenue.
Relevance
We believe that EPS, while not
perfect, is an accessible measure
of the returns we are generating
for our shareholders and reflects
both revenue growth and
operating profit margin. It also
acknowledges that historically,
shareholdings have been diluted
through share issues. EPS is
calculated based on the adjusted
profit attributable to equity
shareholders, divided by the
diluted weighted average number
of ordinary shares ranking for any
dividend in the period.
Relevance
In a business with small
operating margins,
profitability alone is not
an adequate measure of
performance or balance
sheet strength; it is possible
to deliver better margins, but
poor value for shareholders
if that profit is not converted
into cash. We calculate free
cash flow as net cash flow
from operating activities,
before adjusting cash
flow items, less capital
expenditure.
Performance
Adjusted operating profit
was up 67%, reflecting strong
growth in work for National
Highways and HS2.
Performance
Improvement was driven by
Transportation performance
and the conclusion of historic
lower margin work.
Performance
Improvement in EPS is driven
by overall improvement in
profitability.
Performance
Good free cash flow in the
year, driven by improved
operating profit and efficient
working capital management.
How we performed
We have introduced a set of KPIs aligned with how we measure our performance against our
strategic priorities. These reect our vision of creating infrastructure that helps people and the
planet thrive, while also ensuring that we deliver nancial returns for our investors and secure
the future of the business.
9.6p
2021 9.6p
2020 5.8p
2.6%
2021 2.6%
2020 1.7%
£ 3 0 .1m
2021 £30.1m
2020 £18.0m
£38.9m
2021 £38.9m
2020 £31.6m
OUR KEY PERFORMANCE INDICATORS
FINANCIAL METRICS
Adjusted operating
prot
1
Adjusted operating
prot margin
1
Adjusted diluted
earnings per share
1
(EPS)
Free cash ow
1 Excluding the impact of significant contract provision adjustments and other items (see Note 3 on page 141).
Costain Group PLC | Annual Report and Accounts 2021
26
Measure
Lost Time Injury Rate (LTIR).
Measure
Community investment.
Measure
Absolute GHG emissions
(Scopes 1, 2 and 3).
Link to strategic priorities Link to strategic priorities
Link to strategic priorities
Target
Target is to keep LTIR less
than 0.15.
Target
Investment of 1% of absolute
profit in the medium term.
Target
Net zero GHG emissions by
2035 at the latest, regardless
of business growth.
Relevance
Effective health and safety
management systems are
critical in preventing incidents
which could cause injury to
people and damage to property
and reputation.
The main outcome metric
we use to measure safety
performance is Lost Time
Injury Rate which is calculated
by dividing the number of Lost
Time Injuries by the number
of hours worked, multiplied
by 100,000.
A Lost Time Injury is a work-
related injury resulting in an
employee’s inability to work
the next shift or day following
the initial injury.
Relevance
We are committed to being a
trusted community partner and
one that genuinely adds social
value. We have a responsibility
to understand the needs of local
people and, where possible,
work with them to make a lasting
difference. We measure our
contribution to the community
through the social value of
the hours spent volunteering
and sum of our charitable
giving. This is not a perfect
measurement and it may evolve
over time.
Relevance
Climate change is the challenge
of our generation and we are
committed to becoming a net
zero business by 2035 at the
latest. This year, for the first time,
we are disclosing our Scope 3
emissions. It is fundamental that
we not only reduce the carbon
produced in our operations and
our clients’ operations, but also
what becomes embedded in what
we build. Further detail on the
calculation of our GHG emissions
can be found on page 39.
Performance
Performance has returned to
pre-COVID levels in 2021 as
activity on sites increased and
control measures were eased.
Since 2016 lost time injury rates
have halved and we expect
our SHE policies to continue
to deliver a downward trend.
Performance
While our absolute community
investment went down in 2021,
the social outcomes achieved
increased, including over 150
employment opportunities.
Performance
Our total absolute footprint
increased by 52% against our 2020
baseline due to the significant
increase in construction activity
on our Highways contracts. This
increase in activity also saw a
significant increase in consumption
of gas oil (+43%).
£200k
2021 £200k
2020 £211k
0.15 LTIR
2021 0.15 LTIR
2020 0.09 LTIR
49,000t/CO
2
e
2021 49,000t/CO
2
e
2020 32,165t/CO
2
e
OTHER METRICS
Safety Social contribution Environmental
impact
See our full GHG
disclosure / page 39
27
Strategic Report | Our Key Performance Indicators
Transportation had a good year with a 106%
improvement in underlying protability and
the conclusion of the legacy A465 contract.
OPERATIONAL REVIEW
the upgrade to the M6 Junctions
21a/26 continues, and we have been
supporting National Highways to
upgrade stopped vehicle detection
and deliver more emergency areas.
Rail
Adjusted revenue for Rail increased
by 16.3% in FY21 on the prior year,
principally as a result of HS2 which
increased in the year as a substantial
completion of the enabling works was
achieved and the full year impact of
the construction phase of the main
works programme. We will commence
the main tunnel bores this summer,
and in total we will operate seven
tunnel boring machines providing
HS2 with 26 miles of running tunnel
between Euston and West Ruislip
with scheduled contract completion
in 2027. We have been providing
consulting services to support
the Hybrid Bill for the route from
Birmingham to Crewe and Manchester,
connecting the HS2 network with the
North, which are a key part of the
Rebalancing Britain initiative. Our work
on the Gatwick Airport Station Project
for Network Rail was augmented by
the client in the year, and being on site
also enabled us to unlock a significant
consulting opportunity to upgrade
Road
Adjusted revenue for Road increased
by 29.7% in FY21 on the prior year.
As a strategic partner for National
Highways, we are working with our
client on two of their ten-year key
investment programmes; the Regional
Delivery Partnerships (RDP) major
projects framework and the SMP
Alliance, delivering smart motorway
upgrades. We work on a number
of projects across our capabilities
of complex programme delivery,
consulting and digital services.
We successfully delivered the A19
Testo’s scheme in Tyneside and the
adjacent A19 Down Hill Lane Junction
improvement scheme, providing a
safer, more accessible and fluid road
network with extra capacity to support
economic growth. We have also been
upgrading parts of the A1 around
Newcastle under the RDP framework
and during the year we commenced
construction on the A30 in Cornwall.
Pre-construction and design activities
have been progressing well on the A12
Chelmsford to A120 scheme. While
the response to the Transport Select
Committee Report into the rollout and
safety of smart motorways has paused
elements of the smart motorways
programme, our work delivering
Adjusted
1
revenue was up 19.3% driven by work for National
Highways, High Speed 2 (HS2) Main Works and Network Rail,
which represent the majority of our divisional revenue. This
also drove a signicant improvement in operating margin,
together with better contract management, outperformance
and a change in mix as lower margin contracts come to an
end. Reported operating prot of £49.8m includes a provision
release following settlement of the A465 contract.
“I am really pleased with the
progress that we’ve made this
year by focusing on our clients’
needs and delivering what we
promise. I am excited by the
huge opportunity for us as we
look ahead.”
Sue Kershaw
Managing Director – Transportation
1 Excluding the impact of significant contract provision adjustments and other items (see Note 3 on page 141).
2 Order book and secured revenue includes revenue from contracts which are partially or fully unsatisfied and
probable revenue from water frameworks included at allocated volume.
Transportation
highlights
• Adjusted
1
revenue up
19.3% driven by National
Highways and HS2
• Operating margin was
4.8%, up 2.0 percentage
points due to more
effective contract
management and
outperformance
• Contract wins of £248m in
the year, with 2022 secured
revenue of £764m
• Conclusion reached on
A465 contract
Adjusted operating profit
1
£41.4m
(2020: £20.1m)
Costain Group PLC | Annual Report and Accounts 2021
28
the Brighton mainline, improving
travel times. During the year we
also completed the handover of the
Paddington Elizabeth line station.
Integrated Transport
Adjusted revenue for Integrated
Transport declined by 3.6% in FY21 on
the prior year. Integrated Transport
includes work for devolved and local
governments, and aviation. Work
we undertook in the year includes
Newquay Airport for the G7 Summit
and commencing the revitalisation
of the A40 Westway for Transport for
London (TfL). We have continued to
grow our consulting services to central
and local government in support of
accelerating progress to net zero
carbon, green economic recovery and
levelling up the UK and have secured
places on all our targeted frameworks.
In February 2021 we reached a
settlement agreement with the
Welsh Government in relation
to the A465 contract and
completed the works in
November 2021.
Digital biodiversity
mapping enhanced the
natural environment on
the A19
Read more / page 16
Outlook
Looking ahead, we continue to see
multi-year revenue growth in our work
for HS2 and Network Rail, alongside
further local government and
integrated transport opportunities.
During the year we secured £248m
of new work. Revenue secured for
FY22
2
for Transportation is £764m
(prior year: £762m).
29
Strategic Report | Operational Review
Divisional results
Transportation 2021 2020
Road 408.9 315.2
Rail 356.4 306.3
Integrated Transport 99.0 102.6
Adjusted
1
revenue 864.2 724.2
Statutory reported revenue 864.2 674.1
Adjusted
1
operating profit 41.4 20.1
Statutory reported operating profit/(loss) 49.8 (30.6)
Natural Resources underperformed in the year;
Sam White joined in January 2022 to deliver
the considerable potential of the division.
OPERATIONAL REVIEW continued
Energy
Adjusted revenue for Energy declined
by 17.7% on the prior year. In H1, we
saw a number of contract awards
deferred into H2 which had a high
demand for our engineering and
consultancy services. We are one year
into a 10-year consultancy project
for Cadent, managing the mains
replacement programme across the
East of England. We have also been
successful in gaining a further two-year
extension to our EDF Project Controls
framework contract where we are
supporting them in the safe, efficient
operation and decommissioning of
their eight UK nuclear power stations.
We continue to build a portfolio of
project and consultancy assignments
in key areas of the energy transition
agenda. We have established positions
in a number of projects to enable the
wide scale deployment of hydrogen
and carbon capture, utilisation
and storage (CCUS) technologies,
including as deployment lead on the
£38m South Wales Industrial Cluster
deployment project; the Front End
Water
Adjusted revenue for Water declined
by 10.3% on the prior year. This was
driven by lower volumes of activity in
the AMP7 water programmes as clients
adjusted their year-one projects due
to COVID-19. As the year progressed,
volumes improved as the year-two
programmes commenced, and we
are now undertaking work with key
clients including Severn Trent Water,
Southern Water, Thames Water and
United Utilities under their five-year
programmes through to 2025. We
have made good progress on the
Thames Tideway project, where in
a joint venture, we are responsible
for the eastern section. We are also
working with Anglian Water on its
eight-year Strategic Pipeline Alliance
to develop an enterprise-ready digital
twin, which will replicate all activity
and interactions across the operational
system allowing Anglian Water to
create predictive “what-if” scenarios
and their impact on operations. In
addition, we are providing bespoke
consulting services to Yorkshire Water,
South Staffs Water and Welsh Water.
Adjusted
1
revenue for the year was down 8.9% driven by lower
activity levels across AMP7 water programmes and slower than
anticipated investment in the energy market. The operating
margin for Natural Resources on an adjusted basis was down 2.5
percentage points, reecting the lower revenue and increased
costs, particularly in the water sector. Included within the adjusted
results, and in line with IFRS 15 requirements, we have recognised
a £6.2m provision in respect of a defect in a subcontractor’s works
for a contract in the water sector. We expect the majority of the
rectication costs will be recoverable.
“I’m excited to have joined
a company with the heritage
and pedigree of Costain
and I’m looking forward to
working with the Natural
Resources team to build
stronger market positions
and accelerate growth across
water, energy and defence.”
Sam White
Managing Director – Natural Resources
1 Excluding the impact of significant contract provision adjustments and other items (see Note 3 on page 141.
2 Order book and secured revenue includes revenue from contracts which are partially or fully unsatisfied and
probable revenue from water frameworks included at allocated volume.
Natural Resources
highlights
• Adjusted
1
revenue down
8.9% and operating profit
was down 146% driven by
lower activity levels in water
and energy
• Operating margin was
-0.8%, down 2.5 percentage
points on an adjusted basis
• Contract wins of £185m in
the year, with 2022 secured
revenue of £271m
• Full and final settlement
achieved on legacy
Peterborough &
Huntingdon contract
Adjusted
operating loss
1
£2.6m
(2020: £5.7m profit)
Costain Group PLC | Annual Report and Accounts 2021
30
Divisional results
Natural Resources 2021 2020
Water 200.0 223.0
Energy 72.0 87.5
Defence 42.4 34.6
Adjusted
1
revenue 314.4 3 45.1
Statutory reported revenue 271.0 303.1
Adjusted
1
operating profit/(loss) (2.6) 5.7
Statutory reported operating profit/(loss) (50.6) (51.7)
Engineering Design (FEED) for the
Acorn carbon capture and storage
scheme in St Fergus, Scotland; and
a first-of-a-kind hydrogen storage
facility in Cheshire.
Defence
Adjusted revenue for Defence
increased by 22.3% on the prior
year. We saw good growth in the
year, albeit from a small base, as we
grow our footprint in this area. We
are well positioned in the Ministry of
Defence Continuous and Sea Defence
programme, and our ambition is to
be the delivery partner of choice
across the Ministry of Defence’s
(MoD) strategic infrastructure needs.
Revenue in the year was driven by
our contract with AWE on a major
infrastructure project, where we
are providing expertise in design
and construction management,
and coordinating the work of
several subcontractors. We have
been awarded a place on a number
of Crown Commercial Service
Frameworks and through these
we secured two contracts with the
Defence Nuclear Organisation, one of
which is the provision of a Programme
Management Office to support the
infrastructure division. In addition, we
are pleased to have won a significant
consultancy contract for the rebuilding
of facilities at Devonport Dockyard,
which will mobilise in 2022.
Outlook
Looking ahead, we see further
opportunities for growth across
Energy, supporting decarbonisation,
and in Defence where we are
broadening our market position to
cover all strategic defence and security
infrastructure.
During the year we secured £185m
of new work. Revenue secured for
FY22
2
for Natural Resources is £271m
(prior year: £278m).
70 years of gas
processing experience
applied to develop
rst-of-a-kind
hydrogen storage
Read more / page 20
31
Strategic Report | Operational Review
We know that being socially responsible is imperative to building a long-term,
sustainable business.
What matters to our stakeholders
We are committed to identifying and addressing the material sustainability and ESG issues
that affect Costain and our stakeholders.
Further information regarding our 2021 materiality assessment and analysis of the findings can be found in our ESG report.
We have a responsibility to work
together with our clients and partners,
our people, our communities, and
our supply chain to minimise our
environmental impact and to generate
positive, social value. We actively
listen to our stakeholders and take
action to help address their needs.
We look beyond our local impact and
engage with stakeholders to consider
our wider societal impact and to
help make a positive contribution
to support the United Nations
Sustainable Development Goals.
We work with our stakeholders
to maintain our high standards of
business conduct, particularly with
regards to ethics and human rights
issues. We take a zero-tolerance
approach to corruption and bribery,
and our independent whistleblowing
process ensures that we can listen and
react to any concerns that are raised.
The Board and Executive Board
of Costain remain accountable for
responsible business-related activities,
for developing and implementing
policies and strategies that align
with our wider business objectives
and ensuring that we operate in a
responsible manner.
The Board seeks to engage with
each of our key stakeholder groups
to help inform the strategic decision-
making process.
Stakeholder ESG
materiality assessment
On a biennial basis we conduct
a materiality assessment
to seek feedback from our
stakeholders (clients, suppliers
and our employees) on their
ESG priorities and pressures.
In 2021 we received feedback
from over 160 stakeholders via
OUR STAKEHOLDERS
Working together
to achieve our goals
a digital survey. Participants were from
a broad range of job roles, levels and
business sectors ensuring a rounded
data sample could be obtained. The
data and verbatim comments received
have been used to ensure that we
focus on the big issues that matter and
select responsible business KPIs that
align with our stakeholders’ priorities.
Material issues for
our stakeholders
Workforce safety once again features
as the highest priority issue for all
stakeholder groups, closely followed
by public safety and employee health
and wellbeing. While all ESG issues
on average increased in priority,
our stakeholders clearly told us that
employee health and wellbeing,
availability of skilled resources and
ethical conduct have increased most.
Costain Group PLC | Annual Report and Accounts 2021
32
Clients
Understanding our
clients’ changing
requirements is
fundamental to
our success. We
support our clients
by offering them
solutions to meet
their evolving needs.
Shareholders
Our shareholders’
views inform our
decision-making and
it is important that
they understand our
strategic ambitions
and priorities.
Suppliers
Our suppliers are
key to our ability to
deliver pioneering
solutions for our
clients. It is important
we understand each
other’s cultures and
methods of business.
Our key stakeholder groups
Aligning our strategic priorities and key stakeholder groups
Offering rewarding careers to our people, while
delivering pioneering solutions for our clients and social
value through the supply chain and wider society.
People
For how we engage with our stakeholders / page 34
Performance
PlanetPeople
Putting the environment and our impact on it at the
forefront of how we operate and design and deliver
solutions for our clients.
Planet
Improving our operating performance to better
anticipate and solve challenges for our clients across
the infrastructure ecosystem, while improving our
financial performance.
Performance
Workforce
Our people are our
most valuable asset.
We rely on their
skills, experience,
knowledge and
diversity to deliver our
purpose to improve
people’s lives.
Communities
and environment
We value the opportunity
to engage with our local
communities across
all of our projects. We
generate social value
as a result of our work
in our local communities.
Making a positive
contribution to our
environment and
tackling climate change
are central to our
operational practices.
33
Strategic Report | Our Stakeholders
Workforce
Clients
Suppliers
Communities
and environment
Shareholders
Engaging with
our stakeholders
Our commitment to stakeholders
We set out on page 33 our key
stakeholder groups and here we detail
how we engage with each of them. Each
stakeholder group requires a tailored
engagement approach to foster effective
relationships. By understanding our
stakeholders and listening to their views
and feedback, we can factor into Board
discussions the potential impact of our
decisions on each stakeholder group and
consider their needs and concerns.
The information included in the table
to the right and on pages 36 and 37
(Principal decisions), shows how the
directors have performed their duty
under Section 172 Companies Act 2006,
having regard to a range of stakeholder
feedback.
During the year, management,
overseen by the Board, conducted a
top-down, bottom-up review of our
strategy and the future direction of
the Group. We consulted with each of
our key stakeholder groups, as well as
government and the media, on their
perception of Costain. This exercise
confirmed our belief that there is huge
opportunity for the Group, but that to
deliver this we needed to reposition
Costain in the market. A refreshed vision
is being rolled-out across the Group to
ensure that our people understand how
it relates to them in their everyday roles.
Feedback so far has been very positive;
there is a greater understanding of what
makes Costain different and our people
are inspired by what we are aiming to do
(see page 62 for full details).
Signed by the Board
9 March 2022
S172 STATEMENT
• To stay connected with our colleagues during the pandemic,
we have used face-to-face, virtual and hybrid methods. Board
members took part in several site visits.
• We held two safety, health and environment leadership impact
days where our people stopped their usual activities and took
part in discussions related to the day’s themes.
• We held our annual employee roadshow virtually in 2021.
• We conducted a Group-wide wellbeing survey.
• We convened our new, quarterly employee forum, Your Voice.
• We launched a series of live Transportation division quarterly
briefings for all employees.
• We refreshed our new joiner induction programme and annual
code of conduct compliance training for all employees.
• We conducted client satisfaction surveys to help monitor our
performance.
• The Board received presentations from the divisional managing
directors on major clients.
• We took our clients on site visits, helping to showcase our capabilities
and the quality of work across our portfolio.
• We attended strategic client events such as the opening of the HS2
logistics hub and the A19.
• We organised a series of client roundtables exploring key aspects
of programme management.
• Visits to clients were undertaken by members of the leadership team
with strong CEO and CFO client engagement.
• We held our annual leadership day and safety, health and
environment (SHE) behavioural management conferences.
• We hosted an online conference, our ‘Race to Zero: The Power of
Collaboration’, attended by clients from across our business.
• For the first time, our Annual General Meeting (AGM) was
broadcast live. Questions could be asked before the meeting.
• We issued other regular announcements and streamed
webcasts to accompany results announcements.
• We wrote to our largest shareholders describing the Directors’
Remuneration Report in the 2020 annual report and the basis
of the 2021 LTIP grants to executive directors.
• We had a refreshed focus on shareholder engagement, with
the assistance of our brokers. The chair, CEO and CFO met
with shareholders on a number of occasions.
• Our supply chain managers provide a crucial link with our
3,000+ suppliers, conducting supplier performance reviews
with our strategic partners.
• We held our biennial supply chain conference virtually in 2021.
• We held another virtual intake to our supply chain academy,
training 84 SME businesses on a variety of topics such as safety,
commercial, carbon and social value.
• We facilitated a series of virtual supplier roundtables focused on
our wellbeing, innovation, inclusion, safety and environmental
(WiiSE) strategy and responsible business commitments.
• As COVID-19 restrictions eased, our community engagement
teams, where appropriate, began to meet with local
communities in person.
• We continued to use the digital tools we have developed over
the past few years to inform, and engage with, our communities.
• Through our position as a Business in the Community (BITC)
member, we have worked with the charity to discuss matters
such as climate change, wellbeing and skills and employment.
HOW WE ENGAGED
Costain Group PLC | Annual Report and Accounts 2021
34
• In the year of COP26, we focused engagement on climate action and
the responsibility that each member of the workforce has in meeting
our net zero carbon objective.
• Our employee roadshow focused on implementation essentials for
our strategy, career development opportunities and our dynamic
workingapproach.
• We welcomed the feedback from our engagement survey to ensure
we provided the necessary support for our people and to keep them
safe during the pandemic.
• We talked about colleague community safety as a response to the
Sarah Everard case.
• The Your Voice forum focused on key themes: dynamic working,
recognition, communication, blue-collar engagement and COVID-19
safety measures.
• Maintaining client relationships is fundamental to us understanding
our clients’ needs and those of their customers. In 2021 we changed
how client satisfaction is measured.
• We discussed a range of topics with our clients throughout the year,
with workforce safety (including COVID-19), employee wellbeing,
diversity and inclusion, and decarbonisation the most featured.
• Our flagship ‘Race To Zero: The Power of Collaboration’ event
provided a platform for generating conversations about accelerating
the race to net zero.
• Our cross-sector client roundtable sessions explored best practice
programme management by focusing on the following topics:
selecting the right delivery model; culture and behaviours; benefits
realisation; and sustainable procurement.
• We responded to consultations, for example on the construction
playbook and framework procurement.
• We talked to shareholders about our share price, results
announcements, trading, legacy contract issues and executive
remuneration.
• We discussed our contract governance improvements.
• We appointed a new Group director of communications and
investor relations.
• We discussed actions we and our suppliers need to take to meet
our net zero carbon objective.
• We invited feedback from our strategic supply chain partners on
our WiiSE strategy and our responsible business commitments.
• We discussed market trends, such as the materials and labour
shortages.
• Our local communities have been keen to discuss COVID-19
recovery, archaeological finds, opportunities for local businesses,
job opportunities, climate change and biodiversity.
• We stay connected with our local communities to inform them
of any operational impact they may experience from our works.
• Some of our high-profile projects have attracted protestor interest
and in those cases we have taken efforts to de-escalate tensions
and engage in productive conversations.
• The leadership impact days were an effective way to identify and
encourage the sharing of the progress already made on our journey
to net zero carbon. Many best practice case studies were produced
and shared.
• We listened to employee feedback and further developed our
COVID-19 safety measures to ensure our colleagues were confident
in the effectiveness of the control measures. We reconfigured and
refurbished some of our offices to allow employees to collaborate
safely in person.
• We embedded our compliance culture.
• We evidenced high levels of staff engagement.
• We encouraged team leaders to create bespoke ‘thrive plans’ to
ensure local measures were in place to support employee wellbeing.
• We implemented a play-list of wellbeing-related training modules
available to our colleagues.
• We developed a four-year business plan to take into account our
clients’ changing requirements and created plans to enhance
ways of working.
• The various engagement channels resulted in closer client
relationships.
• We transferred learning from one sector to another.
• We placed increased emphasis on the importance of
deliverability.
• We were recognised for our activities by winning awards and
accreditations (see page 2).
• In 2021 we commenced implementation of a customer relationship
management tool which records and tracks all meetings and
interactions with analysts and shareholders and invites them to give
feedback, which can then be communicated to the Board.
• In considering share award vesting levels and the quantum of LTIP
awards, the Remuneration Committee was mindful of the overall
shareholder experience as well as the Company’s performance.
• We briefed the Board on the complex shareholding arrangements of
some of our larger shareholders, including their reporting obligations.
• We mandated the use of HVO fuel on all plant from January 2022,
formalising a supplier agreement for this low-carbon fuel source.
• Costain supported the Supply Chain Sustainability School in creating
a new learning platform dedicated to building the skills of managers
in the construction industry to accelerate digital adoption.
• We took proactive measures to procure materials ahead of time
and, where practicable, stockpiled certain critical materials to
ensure productivity.
• Costain senior leaders took part in various BITC events, sharing our
best practice on community engagement, skills and employment,
climate change, inclusion and wellbeing.
• We worked in partnership with the Prince’s Trust to deliver Kickstart
placements and virtual workplace visits. Our Group HR director
attended a green skills roundtable with HRH The Prince of Wales
in St James’s Palace.
• Costain colleagues volunteered as mentors for people struggling
to get back into the job market as part of the BITC Boost scheme.
DISCUSSIONS & ACTIONS OUTCOMES
35
Strategic Report | S172 Statement
Principal
decisions
S172 STATEMENT continued
In making the following principal decisions in 2021, the Board, in accordance with Section 172(1),
considered the outcome of stakeholder engagement (as set out on pages 34 and 35), as well
as the need to maintain a reputation for high standards of business conduct and to act fairly
between the members of the Company.
Key area
of activity
Matters
considered Outcomes
Stakeholder
group
considered
Safety,
health and
environment
Sustainability
and climate
change
commitment
In the year, the Board approved a net zero strategy in support of the
Climate Change Action Plan. Information on how Costain has identified and
addressed the material sustainability issues that affect the Company and its
stakeholders is set out on page 25 of our ESG report at www.costain.com.
COVID-19 The Board continually reviewed its safety procedures in relation to the
pandemic in order to protect its workforce and the communities in which it
operates, while still meeting its clients’ needs and delivering the strategy.
Strategy Financing During 2021 the Board approved amendments to the Group’s bank and
surety facilities that mature in September 2023, together with financial
covenants for 2021. The Group has remained compliant with those financial
covenants throughout 2021, with a comfortable level of headroom, and
anticipates maintaining compliance with its financial covenants looking
forward. Preparatory work has now commenced to look at amending and
extending the current maturity date of the Group’s bank and surety facilities.
Delivery of
strategy
The strategy, four-year business plan and 2022 budget were approved by the
Board, following a comprehensive review of our strategic priorities and risks
to the business, by way of items at the May, July, October, November and
December Board meetings. The business plan takes into account our clients’
changing requirements and includes plans for a number of enhanced ways
of working.
The Board oversaw a comprehensive review of the strategy and future
direction of the Group (see page 62). It also had oversight of the recruitment
strategy and attracting, unlocking and developing talent.
Communications
strategy
The Board appointed an external adviser to assist with the strategic update
and improvements to the communications plan and approach. A refreshed
vision is being rolled out across the Group to ensure a greater understanding
of what makes Costain different.
Capital markets The Board received two updates on market activity during the year
from its financial advisers, which included mergers and acquisitions and
sentiment regards debt and equity, in order to help the directors assess
the opportunities and risks which could impact stakeholders.
Costain Group PLC | Annual Report and Accounts 2021
36
Key area
of activity
Matters
considered Outcomes
Stakeholder
group
considered
Business
and financial
performance
Trading updates At various times in the year, the Board agreed market announcements
in relation to trading performance, including after the December 2021
Peterborough & Huntingdon contract adjudication decision. The CEO, CFO
and Group director of communications and investor relations held various
conversations with analysts and shareholders to ensure they fully understood
the current position and impact.
Contract
review and risk
management
The Board had oversight over improved contract review and work
winning processes, including a new onerous terms policy, together with
improvements to the governance of the contract lifecycle.
The Board contemplated at multiple times during the year the process in
relation to the Peterborough & Huntingdon contract dispute with National
Grid, including the adjudication decisions and potential financial scenarios.
It also considered the settlement agreement with the Welsh Government in
respect of the A465.
Cash flow In support of our suppliers, the Board oversaw improvements in payment
practices against the requirements of the Prompt Payment Code to which
Costain Limited, the Group’s major trading subsidiary, is a signatory.
Pension In 2021, with the assistance of a specialist adviser, the Board reviewed the
pension scheme’s investment strategy and noted the requirements of and
changes required by the Pension Schemes Act 2021. In addition, it was
agreed with the pension scheme trustee to seek to appoint a professional
independent trustee in 2022.
Dividends Having regard to what it considered, in good faith, to be for the benefit of its
shareholders, the Company recommended no dividends in respect of 2021
(see page 4).
Culture and
governance
Board
appointments
To further align with the strategy and enhance its skillset, the Board
approved the appointment of Tony Quinlan as non-executive director and
later chair of the Audit Committee, and Neil Crockett as non-executive
director (see Nomination Committee report on pages 80 to 83).
Board
governance
Following in-depth reviews, the Board approved changes to the delegated
authority matrix and the matters reserved for the Board, to increase visibility
of high risk/value matters. It also adopted a refreshed non-audit services
policy and received more qualitative and insightful reporting in relation to
its largestshareholders.
Employee
share plan
Approval of a new sharesave plan for submission to shareholders at the
2022 AGM.
SHAREHOLDERS CLIENTS SUPPLIERS
COMMUNITIES AND
ENVIRONMENT
WORKFORCE
37
Strategic Report | S172 Statement
OUR COMMITMENTS 2030 GOALS
Leading
as a
responsible
business is a strategic
priority (see page [27]) and
underpins how we operate, our
expectations of our people, suppliers
and partners. Using ESG as a framework,
we have made ten commitments that act as
guiding principles for our strategic and operational
decision making. These ten commitments align with the
ESG priorities shared by our stakeholders (see page [26]) and if
delivered upon will ensure meet our UN Sustainable Development
Goal aligned 2030 goals. Our responsible business commitments are
supported by Costain policies, procedures and enabling plans and strategies
(wellbeing, safety and environment (WiiSE), Climate Change Action Plan and inclusion
strategy).
Our commitment
to responsible business
Leading as a responsible business
is integral to our strategic priorities
of people, planet and performance,
(see page 27) underpinning how we
operate and our expectations of our
people, suppliers and partners. We
have made 10 commitments that act as
guiding principles for our strategic and
operational decision making. These
10 commitments align with the ESG
priorities shared by our stakeholders
and, if delivered upon, will support us to
meet our UN Sustainable Development
Goal aligned 2030 goals. Our responsible
business commitments are supported by
Costain policies, procedures and enabling
plans and strategies (wellbeing, safety
and environment (WiiSE), Climate Change
Action Plan and inclusion strategy).
Aligned with the UN Sustainable
Development Goals
In 2015, The United Nations Sustainable
Development Goals (SDGs) were adopted
by United Nations (UN) member states,
as a global call to action for governments,
business, and society to end poverty,
protect the planet and ensure prosperity
for all by 2030. We recognise that
we have an important role to play in
this process, both in what we do as a
business and how we do it responsibly.
We have mapped our business against
the SDGs and believe through the
delivery of our ‘leading edge strategy’
we can directly impact SDG’s: 6, 7, 9, 11
and 13 and significantly contribute to the
targets that underpin each goal.
In addition, we recognise that by
operating responsibly and sustainably
that we can also play a part in contributing
to SDGs: 3, 4, 5, 8, 10, 12, 14, 15 and 16.
To find out more about our SDG
alignment please see our ESG report.
RESPONSIBLE BUSINESS
Environment
Social
Governance
Leading with our responsible
business commitments
Costain Group PLC | Annual Report and Accounts 2021
38
• Net zero carbon
by 2035, supporting the
UN Paris Agreement
• Eliminating waste
through circular thinking
• Enhancing biodiversity
and natural capital
• Prioritising the safety
of the public and
our people
• Inclusive and
accessible to all
• Enabling people
to be at their best
• Community and
customer focused to
deliver social value
• Responsible
procurement and supply
chain management
• Transparency in
our reporting
• Ethical conduct
• Eliminate waste through
an active role in the
circular economy
• Net positive biodiversity
impact and increased
natural capital
• Targeting the elimination
of harm in all we do
• Exceeding all relevant
regulatory customer
satisfaction measures
• People rate Costain
highly as a great place
to work
• Recognised as the
leading inclusive
employer in the industry
• Our alignment to the UN
Sustainable Development
Goals (SDGs) has
delivered enhanced
shareholder value
• Spend £1bn in the 2020s
with small businesses and
voluntary, charitable and
social enterprises (VCSEs)
• Recognised in our
industry as a champion
for human rights
Spend with SMEs
• £322m spent with small
businesses and VCSEs
• 84 SMEs took part in our
supply chain academy,
taking the total number of
businesses to 290 since 2012
• Average Considerate
Constructors Scheme score
for Costain contracts 44.6/50.
IN 2022 WE WILL…OUR 2021 PROGRESS AND PERFORMANCE
Diversity of our workforce
Lost Time Injury Rate (LTIR)
0.15
2020: 0.09
Community giving
£200k
2020: £211k
2021 OBJECTIVES
• 2,200 hours volunteered
in our local communities
• 44% increase in graduates
and apprentices joining our
early careers programme
• 16 reportable accidents in
over 30 million working hours
• 85% employee confidence
in Costain’s COVID-19
safety measures
Employees
2,5612021
2021
2021
942
2,3022020
2020
2020
815
Board members
5 3
3 4
Senior management
18 11
23
Male
10
Female
• Reduce plant idling
by a further 20%
• 100% of all relevant
designs and delivery
contracts to establish
bespoke carbon
baselines and develop
reduction plans
• Eliminating harm in all
we do, achieving an
Environmental Incident
Frequency Rate of <0.11
• Continue to measure
biodiversity impact on
all relevant contracts
• Eliminating harm in all
we do, achieving an LTIR
of 0.15
• Undertake a company-
wide debate to discuss
inclusion
• Supporting 100 people
previously classed as Not
in Education, Employment
or Training (NEET) to
enhance their ‘Green
and digital skills’
• 10% year-on-year increase
in social value, created
through Costain contracts
• Raise £250k through
employee fundraising and
drive a 30% increase in
employee volunteering
through the roll-out of
the Volunteer Hub
• > 35% of our spend to be
with SMEs
• Conduct further scenario
analysis to progress our
TCFD disclosure
• Incorporate Sustainability
Accounting Standards
Board (SASB) framework
into our annual reporting
38%
2021
37%
2020
39
Strategic Report | Responsible Business
• Reduce plant idling
by 20%
• 20% carbon reduction
from our car fleet
• Environmental Incident
Frequency Rate of
<0.12
• 100% of relevant
contracts measuring
natural capital and
biodiversity impact
• Issue a compliant
Task Force for Climate
Related Financial
Disclosures (TCFD)
disclosure.
• Lost Time Injury Rate
of 0.15
• Continue to support
the Mental Health at
Work Commitment
• 100% year-on-year
increase in inclusion
network membership
• 50 trained and visible
inclusion allies
• Our employee
population to be 29%
female and 11% BAME
• Support 100
disadvantaged
young people
• Volunteer 500 hours
to support COVID-19
recovery initiatives.
• Spend >£100m with
small business and
VCSEs
• Have an average
Considerate
Constructors Scheme
score of >42.
CO2 equivalent emissions (across all legal entities)
2021 2020 % change
Total emissions tCO
2
e 49,000 32,165
*
52%
Scope 1 tCO
2
e (in ‘000s) 16,736 12,405
*
35%
Scope 2 tCO
2
e (in ‘000s) 1,319 1,123
*
17%
Scope 3 tCO
2
e (in ‘000s) 30,945 18,637 66%
Emissions intensity (tCO
2
e£m) 42.97 32.77
*
31%
* Restated figures
Our emissions data is calculated in line with the GHG Protocol and is third party
accredited under CEMARs by Achilles. 100% of our emissions were incurred in the UK.
• See page 11 of our ESG report
for a detailed breakdown of
our emissions including totals
of energy consumption
• Zero major environmental incidents
Environmental Incident
Frequency Rate
0.15
2020: 0.14
Leading
as a
responsible
business is a strategic
priority (see page [27]) and
underpins how we operate, our
expectations of our people, suppliers
and partners. Using ESG as a framework,
we have made ten commitments that act as
guiding principles for our strategic and operational
decision making. These ten commitments align with the
ESG priorities shared by our stakeholders (see page [26]) and if
delivered upon will ensure meet our UN Sustainable Development
Goal aligned 2030 goals. Our responsible business commitments are
supported by Costain policies, procedures and enabling plans and strategies
(wellbeing, safety and environment (WiiSE), Climate Change Action Plan and inclusion
strategy).
GOVERNANCE
Describe the Board’s oversight of climate-related risks
and opportunities.
The Costain Board has overall accountability and discussed climate
change, decarbonisation and carbon management in seven Board
meetings in 2021. (ESG report page 8).
Describe management’s role in assessing and
managing climate-related risks and opportunities.
The TCFD working group is chaired by the CFO and reports into the
Executive Board. During the year climate change was discussed at nine
Executive Board meetings and scenario analysis was undertaken.
(ESG report page 8).
STRATEGY
Describe the climate-related risks and opportunities
the organisation has identified over the short, medium,
and long term.
Physical and transition risks and opportunities have been identified
across three time horizons. Risks include productivity loss, regulatory
change and physical damage to assets. Opportunities include
the possibility of leading the decarbonisation of our industry.
(See pages 12 and 13 for Market Overview and ESG report page 9).
Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning.
To leverage opportunities relating to decarbonisation, Costain may
have to invest in additional capabilities. The revenue opportunities
are growing and our strategy update and business planning highlights
areas for us to grow into. (ESG report page 9).
Describe the resilience of the organisation’s strategy,
taking into consideration different climate-related
scenarios, including a 2°C or lower scenario.
We assessed our exposure to changes in chronic heat (physical risk)
and our exposure to changes in carbon pricing (transition risk). There
is a growing uncertainty of the impact of climate change and we need
to improve our data to fully understand the risks. (ESG report page 9).
RISK MANAGEMENT
Describe the organisation’s processes for identifying
and assessing climate-related risks. Describe the
organisation’s processes for managing climate-related
risks. Describe how these processes are integrated
into the organisation’s overall risk management.
Risks are identified both top-down and bottom-up and then assessed
against whether they threaten delivery of the Group’s strategy. The
Risk Committee reviews the principal risks and assesses emergent risks.
(See pages 44 to 48 for risk management and ESG report page 10).
METRICS AND TARGETS
Disclose the metrics used by the organisation to
assess climate-related risks and opportunities in
line with its strategy and risk management process.
Please see page 11 of our ESG report for information on how we
monitor our climate-relate risks. Costain is working to improve the data
available and this will be reflected in future disclosures.
Disclose Scope 1, Scope 2, and, if appropriate, Scope 3
greenhouse gas (GHG) emissions, and the related risks.
Please see page 39 for our GHG emissions data.
Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets.
Please see page 39 for our GHG emissions data and our ESG report
(pages 11 and 12) for information on our progress towards our net zero
objective.
Read more on our website /
www.costain.com/what-we-do/climate-change-solutions/
We are reporting against the TCFD recommendations for the rst time.
We are pleased to be reporting against all 11 of the TCFD recommendations and will continue to make progress on
this highly complex topic and as such our disclosures in future years will reflect our progress to refine the quality of our
reporting. Our full TCFD disclosure is included in our ESG report to provide all of the required information in a readily
identifiable and accessible format. The table below provides a high level summary of our disclosure, including what we
consider to be strategically important. For further detail, we have linked the relevant sections of our disclosure to the
relevant sections of this annual report and our ESG report.
Find our 2021 ESG report on our website / www.costain.com/our-culture/performance-and-reports
RESPONSIBLE BUSINESS continued
The Task Force on Climate-related
Financial Disclosures (TCFD)
Costain Group PLC | Annual Report and Accounts 2021
40
Environmental
• Our responsible business commitments /
page 38
ESG and risk management reporting
requirements and additional information
Policy
Board diversity and inclusion
This policy sets out the chair and Board
of directors’ commitment to maintaining
a diverse and inclusive Board. Leading
by example and setting expectation
that the Group operates inclusively
and continues to invest in diversity.
The owner of this policy is the Chair.
Business continuity
management
The principles which are to be adopted
to ensure business continuity across
the Group are set out in this policy.
The sponsor for this policy is the Chief
information officer.
Collaborative working
This policy sets out the approach
that Costain management shall take
to ensure a collaborative working
environment is maintained and
relationships reflect the requirements
of ISO44001:2017 Collaborative
Business Relationships. The Executive
Board sponsor for this policy is the
Group commercial director.
Customer service
This policy is a declaration of the
Board’s intent in relation to achieving
a positive impact on society. It sets out
how Costain will meet the needs of its
clients, through professional, courteous
and efficient service. The Executive
Board sponsor for this policy is the
Chief executive officer.
Drugs and alcohol
This policy is a declaration of the
Board’s intent to provide a safe and
healthy working environment, free
from inappropriate use of alcohol
and drugs in all Costain undertakings.
The Executive Board sponsor for this
policy is the Chief executive officer.
Environmental
This policy sets out our approach to
environmental management, going
beyond minimising harm to the
environment and sets out the proactive
requirements of how our people must
work to meet our objective to be
net zero carbon by 2035 at the latest.
The Executive Board sponsor for this
policy is the chief executive officer.
Ethical business conduct
Bribery prevention, fair and open
competition, insider dealing prevention,
fraud prevention and whistleblowing
are all covered by the Costain ethical
business conduct policy. The Executive
Board sponsor for this policy is the
General counsel and company secretary.
Health and safety
This policy protects all our stakeholders,
including clients, colleagues and
suppliers. Going beyond our statutory
duties and responsibilities. The
Executive Board sponsor for this policy
is the Chief executive officer.
Modern slavery and
human trafficking
This policy specifies the mandatory
conditions of employment and
contractual conditions for our suppliers
in respect of human rights. The
Executive Board sponsor for this policy
is the Group human resources director.
People
The Costain people policy encompasses
recruitment, development, reward,
equality and diversity, health and
wellbeing, compliance with labour/
employment and data protection laws
and regulations, wherever we work. The
Executive Board sponsor for this policy
is the Group human resources director.
Responsible business
This policy sets out the Board’s
expectation for how the Company,
its employees, partners and suppliers
must conduct themselves, including
10 commitments to responsible
business. This policy encompasses
Costain’s approach to social value and
transparency in our reporting. The
Executive Board sponsor for this policy
is the Group human resources director.
Sustainable procurement
and supply chain
The Costain sustainable procurement
and supply chain policy stipulates
the conditions of all procurement
activity, aligning outcomes to our
responsible business commitment
and business strategy. The Executive
Board sponsor for this policy is the
Group commercial director.
To read our policies in full,
please visit our website /
www.costain.com/our-culture/policies/
Human rights
• Supplier code of conduct
(www.costain.com/suppliers)
• Modern slavery statement
(www.costain.com/our-culture)
Social matters
• Our responsible business commitments /
page 38
• Gender pay gap report and Inclusion strategy
(www.costain.com/our-culture)
Anti-corruption and anti-bribery
• Supplier code of conduct
(www.costain.com/suppliers)
Policy embedding, due diligence
and outcomes
• Principal risks and uncertainties / pages 44 to 48
Description of principal risk
and impact on the business
• Principal risks and uncertainties / pages 44 to 48
Description of business model
• Business model / pages 10 to 11
Non-nancial KPIs
• See pages 27, 38 and 39
Employees
• Our responsible business commitments /
page 38
• Board composition and diversity /
pages 60 and 61
• Gender pay gap report and Inclusion strategy
(www.costain.com/our-culture)
• Inclusion strategy
Leading
as a
responsible
business is a strategic
priority (see page [27]) and
underpins how we operate, our
expectations of our people, suppliers
and partners. Using ESG as a framework,
we have made ten commitments that act as
guiding principles for our strategic and operational
decision making. These ten commitments align with the
ESG priorities shared by our stakeholders (see page [26]) and if
delivered upon will ensure meet our UN Sustainable Development
Goal aligned 2030 goals. Our responsible business commitments are
supported by Costain policies, procedures and enabling plans and strategies
(wellbeing, safety and environment (WiiSE), Climate Change Action Plan and inclusion
strategy).
Our reporting is compliant with the Non-Financial Reporting requirements contained in
sections 414CA and 414CB of the Companies Act 2006. The below table, and the information it
refers to, is intended to help stakeholders understand our position on key non-nancial matters.
This is in addition to the reporting we already do under CDP and Global Reporting Initiative.
NON-FINANCIAL STATEMENT
41
Strategic Report | Responsible Business
FINANCIAL REVIEW
“We have delivered strong adjusted
profit growth and increased cash
generation, with year end net cash
of £119m.”
Helen Willis
Chief Financial Ofcer
Adjusting items
Significant contract provisions were
taken in the year, amounting to
£39.2m. A provision of £43.4m was
taken in relation to the settlement
of the Peterborough & Huntingdon
contract, along with £4.2m of other
costs associated with the dispute.
We also released a provision of £8.4m
on lower than provided final costs
relating to the A465 and incurred
£0.4m on amortisation of acquired
intangible assets.
Net financial expense
Net finance expense amounted to
£3.8m (FY20: £4.3m). The interest
payable on bank overdrafts, loans
and other similar charges was £3.0m
(FY20: £4.1m) and the interest income
from bank deposits and other loans
and receivables amounted to £0.1m
(FY20: £0.6m). In addition, the net
finance expense includes the interest
income on the net assets/liabilities
of the pension scheme of £nil
(FY20: £0.2m income) and the interest
expense on lease liabilities of £0.9m
(FY20: £1.0m) under IFRS 16.
Tax
The Group has a tax credit of £7.5m
(FY20: £18.1m credit) giving an
effective tax rate of 56.4%. The 2021
net tax credit arose primarily from
the £7.8m impact of the rate change
(from 19% to 25% in 2023, which has
now been substantively enacted) on
deferred tax recognised in respect
of losses and pensions. The adjusted
effective tax rate was -5.7% (FY20:
10.8%) and we expect the effective
tax rate to remain close to the
statutory tax rate of 19% until 2023.
Adjusted to reported reconciliation
Transportation Natural Resources Group
2021 2020 Change 2021 2020 Change 2021 2020 Change
Revenue £m
Adjusted 864.2 724.2 19.3% 314.4 345.1 – 8.9% 1,178.6 1.070.5 10.9%
Adjusting items – (50.1) – (43.4) (42.0) – (43.4) (92.1) –
Reported 864.2 674.1 28.2% 271.0 303.1 –10.6% 1,13 5. 2 978.4 16.0%
Operating profit £m –
Adjusted 41.4 20.1 106.0% (2.6) 5.7 n/m 3 0.1 18.0 67. 2%
Adjusting items 8.4 (50.7) – (48.0) ( 5 7.4 ) – (39.6) (110.0) –
Reported 49.8 (30.6) n/m (50.6) (51.7) 2.1% (9.5) (92.0) 89.7%
Cashflow
The Group generated a £38.9m free
cash inflow for the year (FY20: £31.6m).
The Group had a positive net cash
balance of £119.4m as of 31 December
2021 (HY21: £113.0m, FY20: £102.9m)
comprising Costain cash balances
of £101.3m (HY21: £100.0m, FY20:
£89.8m), cash held by joint operations
of £58.1m (HY21: £57.0m, FY20: £61.1m)
and borrowings of £40.0m (before
arrangement fees of £0.6m (FY20:
£1.2m)) (HY21: £44.0m, FY20: £48.0m).
During the year, the Group’s average
month-end net cash balance was
£107.0m (HY20: £102.9m, FY20: £73.8m).
Free cash flow reconciliation
£m FY21 FY20
Cash flow from operating activities 29.5 (47.0 )
Add back adjusting items 11.6 82.7
Less capital expenditure (2.2) (4.1)
Free cash flow 38.9 31.6
Costain Group PLC | Annual Report and Accounts 2021
42
We remain in a positive net cash
position, with positive Costain cash
balances, following the final settlement
payment made after the end of
the financial year in respect of the
Peterborough & Huntingdon contract.
Financial resources
The Group has in place banking
and bonding facilities from banks
and surety bond providers to meet
the current and projected usage
requirements. The Group has
banking facilities of £171.0m with its
relationship banks with a maturity date
of 24 September 2023. These facilities
are made up of a £131.0m revolving
credit facility and a £40.0m term loan.
The revolving credit facility was not
utilised throughout the financial year
to 31 December 2021.
In addition, the Group has in place
committed and uncommitted bonding
facilities of £310m. Utilisation of
the total bonding facilities as at
31December 2021 was £100.7m
(HY20: £103.2m, FY20: £112.3m).
Capital allocation
We understand the importance of
delivering long-term sustainable value
for shareholders and are committed
to maintaining a balanced approach
between investment in the business,
maintaining a strong balance sheet
and returns to shareholders. We look
to prioritise investment as follows:
1. Investing for growth – disciplined
investment in key areas such as
digital to help accelerate our
business transformation.
2. Progressive dividend – committed
to reinstating the dividend and
we target divided cover of around
three times underlying earnings
taking into account the free cash
flow generated in the period.
3. Selective M&A – retaining
optionality to pursue strategic
investments in technology, skills
and capabilities to enhance our
ability to support clients in the
face of significant change.
4. Returning surplus capital –
ensuring surplus capital is
identified and returned to
shareholders through share buy
backs of additional dividends.
The Board have discussed the
appropriate time to reinstate the
payment of a dividend. Despite the
Group’s improved cash performance,
given the £43.4m payment to National
Grid and the need to retain a strong
balance sheet, the Board does not
consider it appropriate to recommend
a final dividend this year.
Pensions
As at 31 December 2021, the Group’s
pension scheme surplus in accordance
with IAS 19, was £67.1m (HY21: £29.0m
surplus, FY20: £5.6m liability).
The movement in the IAS 19 valuation
from a deficit at 31 December 2020
to a surplus at 31 December 2021 was
due to the impact of growth in scheme
assets and a reduction in scheme
liabilities, primarily driven by a higher
discount rate of 1.80% used in the
IAS 19 valuation as at 31 December
2021 compared to the discount rate
at 31December 2020 of 1.35%.
Cash contributions were made to the
scheme during the year amounting to
£10.4m (FY20: £10.6m) and the charge
to operating profit in respect of the
administration cost of the UK Pension
Scheme in the period was £0.3m
(FY20: £0.3m).
Net cash reconciliation
£m FY21 FY20
Cash and cash equivalents at the beginning of period 150.9 180.9
Net cash flow 8.5 (29.4)
FX 0.0 (0.6)
Cash and cash equivalents at the end of period 159.4 150.9
Borrowings (40.0) (48.0)
Net cash 119.4 102.9
Note: Borrowings are stated excluding associated arrangement fees of £0.6m (2020: £1.2m), which are being amortised over the period of the facility.
43
Strategic Report | Financial Review
Project/Programme/
Operational risks
10
Principal
risks
Divisional/Sector
risks
Programme/
contract managers
Functional head/
sector directors
Executive Board
top-down risksbottom-up risks
Board
Strategy
Business plans
External influences
Operations
New works
Projects/Programmes
Risk input factors
Risk management process
There is continuous consultation between the top-down and bottom-up reviews to ensure consistency
and appropriate decision making across the Group, guided by our risk management process.
Plan
A specific risk
management
plan that
defines the risk
management
position to
be adopted.
Close
The formal
end of risk
management
effort on an
individual
activity.
Identify
Identify the
risks (threat and
opportunities)
that could
impact the
Company at
all levels.
Assess
Use best
judgement,
experience,
industry norms
and lessons
learned to
estimate the
consequences
of the identified
risks.
Respond
Develop
and price
appropriate
response actions
that will reduce
the impact of
the threat and
improve the
opportunity.
Manage
Control and
monitor the risk,
communicating
results to
allow effective
decision making.
Approach to identifying our principal risks
Our risk management approach is not designed to eliminate risk entirely, but provides a means to identify, prioritise and
manage risks and opportunities in accordance with the Group’s risk management process.
Risks are identified both top-down from the Group strategy and bottom-up from the major projects, programmes, joint
ventures and ongoing, business as usual, operational activities. These are then escalated or consolidated (as appropriate)
and assessed based on a consistent methodology to identify and prioritise those that could threaten the achievement of
the Group’s strategic priorities.
Managing risks and opportunities
is integral to the delivery of our
strategic objectives
Costain Group PLC | Annual Report and Accounts 2021
44
PRINCIPAL RISKS AND UNCERTAINTIES
Top-down review
All principal risks are integrated with
our strategic priorities. These are
reviewed by the Executive Board
members at various times throughout
the year. A formal biannual review
of risks by the Executive Board is
aligned to half-year and year-end
reporting. Each principal risk is owned
by a member of the Executive Board.
Discussions are held with the owners
to update the risk status and review
progress of response actions together
with any supporting metrics to review
their effectiveness.
Emergent risks are reviewed and
assessed by a Risk Committee
with nominated members from the
Executive Board and the Group risk
manager. Identified emergent risks
are developed and monitored with
dedicated risk owners.
Bottom-up review
Risk management is embedded at
all levels of the business. Sectors,
functions, major programmes, projects
and operations ensure that their risks
can be effectively managed within
their areas. If additional support
or assistance is required, the risk is
escalated to the next management
level, up to executive level where
appropriate.
Risk dashboards are updated and
reviewed at the various levels within
the business to determine the current
risk position such as any changes
in risk description, their causes, the
impact statements and importantly
to assess the progress of the
mitigating activities.
The flow of risk within our risk
management process is illustrated
in the diagram opposite.
Risk appetite
Risk appetite, which defines the level
and types of risk we are is willing
to accept, has been considered by
the Board in 2021. We have a zero
tolerance to harm (physical or mental)
to individuals.
Governance
The Board is responsible for defining
risk appetite and determining the
nature and extent of the principal risks
the Group is willing to take to achieve
its long-term strategic objectives.
On behalf of the Board, the Audit
Committee reviews the effectiveness
of the Group’s risk management and
internal control systems every year.
The process for doing this is set out
in the Audit Committee report on
pages 76 to 79.
To undertake a robust assessment
of the risks which could threaten the
business objectives, performance,
solvency or liquidity of Costain, the
Board undertakes reviews of our
principal risks and mitigation plans
during the year to ensure they are
well understood and actively managed
to reduce the potential impact. The
Board continues to oversee risk deep-
dives and to receive presentations
on these from the Executive Board
risk sponsor.
Following the significant commercial
issues on legal contracts, in 2021
Costain launched The Big Risk
Conversation. This is a behavioural
campaign to embed risk and
opportunity discussion in every
conversation, every day. Central to the
approach has been the application of
the behavioural science from Costain’s
Behavioural Safety programme to
shape effective risk conversations
to enhance decision making. Further
information regarding changes to
our contract risk management process
can be found on page 9.
Key areas of focus
Our risk profile continues to evolve.
Although overall our principal risks
have largely remained consistent, the
areas of emphasis within each one
adapts as the risks to the business
change. In 2021, recognising the
increasing prevalence of climate
change events in the UK and the
global environment, we have elevated
this emergent risk to a principal risk.
We now have 10 principal risks, see
pages 46 to 48.
Climate change is increasing the
number of unforeseen weather events
(flooding, drought, storms). These
events bring about ‘physical risks’ that
impact our society directly and have
the potential to affect the economy.
Significant changes are needed to
UK infrastructure to be more climate
resilient. This presents an opportunity
for us but in order to realise this
opportunity we need to demonstrate
our own journey to net zero and that
we operate in a way that supports the
environment and the green economy.
Climate change presents physical
and transitional risks. Failure to adapt
our business to meeting client needs
through the transition or ensuring
physical resilience could prevent our
business from thriving.
45
Strategic Report | Principal Risks and Uncertainties
The table below sets out the principal risks faced by the Group, the link to our strategic priorities,
change in the risk and relevant controls and mitigations. Read about our strategy on pages 8 and 9.
PRINCIPAL RISKS AND UNCERTAINTIES continued
Principal Risk Description and impact Controls and key mitigations
Strategic link
1
Prevent a major
accident, hazard
or incident
We operate in natural, complex and
hazardous environments. Failure to
manage the inherent risk and hazards,
including pandemics, may result
in illness, loss of life or significant
damage to the environment. Failure
to manage this risk could result in
reputational damage, loss of business
and financial penalties.
Risk trend: Neutral
(FY20: Neutral)
• Safety, Health and Environment (SHE)
management policies and procedures.
• The Costain Behavioural Safety (CBS)
programme.
• Mandated accident and near miss reporting
and embedding of lessons learned.
• SHE governance, monitoring and assurance.
• Training to selected supply chain partners
on wellbeing, safety and environment.
2
Increase the
profitability
and margin
performance
of the Group
The effective implementation of our
strategy is critical to the Group’s
ability to increase profitability and
margin performance of the Group
and effectively align our services
to meet the changing needs of our
clients. Failure to manage this risk
could have an adverse effect on our
business, operating results,
and shareholder value.
Risk trend: Neutral
(FY20: Increasing)
• Governance (in addition to the Executive
Board): key meetings and reports to monitor
and measure progress against plans.
• Clear implementation plans: business
plan, corporate calendar and strategic
implementation plan.
• Engagement Forums: utilising existing
stakeholder group forums to test various
elements of the strategy implementation.
• Performance and investment – annual
business budget includes investments
and KPIs linked to the delivery of the
business plan.
3
Maintain a
strong balance
sheet
A strong balance sheet is a
fundamental requirement to qualify
for and support the contract sizes
and duration required by our clients.
Failure to manage this risk could
affect our ability to achieve our
business goals and our resilience
to withstand economic downturns.
Risk trend: Neutral
(FY20: Neutral)
• Quarterly profit and cash forecast produced
for current and following fiscal year including
monitoring of covenant compliance and cash
headroom and liquidity. Approved forecast
reported to Executive Board and Costain
Group PLC Board.
• Short-term three month rolling weekly
cash flow forecast produced and reviewed
by senior finance team.
• Developed Finance Improvement Plan
to include key priorities, milestones and
detailed plan.
4
Secure new work
Our future growth and profitability
is dependent on our ability to
secure new work in our competitive
marketplace. To be successful we
need to maintain strong client
relationships and broaden our service
offering by delivering innovative
solutions across complex delivery,
digital and consulting activities.
Risk trend: Neutral
(FY20: Neutral)
• Clear and realistic business plan objectives.
• Executive Investment Panel ensuring focus
on target markets and prioritisation of
resources and activity.
• Client Relationship Management (CRM)
system to identify, manage and review
all key stakeholders.
• Develop, implement, monitor and report
on targeted divisional market plans.
Costain Group PLC | Annual Report and Accounts 2021
46
Principal Risk Description and impact Controls and key mitigations
Strategic link
5
People
The successful implementation of
our strategy is dependent on our
ability to attract, develop and
retain talent, to grow the skills and
capabilities of our employees and
maintain a high-performing, ethical
and inclusive culture where our team
can be at their best.
Risk trend: Increasing
(FY20: Neutral)
An increasingly competitive market
following very low staff turnover
during the pandemic has resulted
in a higher staff turnover in 2021.
Our continued mitigations are key
to our staff retention.
• A fair remuneration policy, monitored via the
Remuneration Committee including annual
benchmarking review, and both market and
equal pay reviews.
• Annual review and update of Costain People
Strategy. People risks and opportunities
embedded into Group business plan.
Reports and management information are
used to identify trends or issues.
• Resourcing working group established, with
representation from across the business, to
identify ways to resolve current challenges
in resource requirements.
• Greater focus on succession planning and
development in the talent review process.
6
Deliver projects
effectively
Failure to enter into contracts that
are aligned with our risk appetite
or deliver projects to the agreed
time, budget and quality could
result in financial loss, regulatory
and contractual breaches and
loss of reputation with our clients
and investors.
Risk trend: Neutral
(FY20: Neutral)
• Monthly performance review process
incorporating standard reporting at project,
sector, division and Group levels. Additional
“deep dive” on major projects.
• Increased legal oversight of contracts,
including the definition of a set of onerous
contract terms requiring approval from the
chief financial officer and general counsel.
• Conduct improved JV analysis based upon
values and past experience with partners
including putting in place better “Way of
working/Teaming agreements”.
• Monitoring supply chain with strategic and
preferred supplier status requirements
established in the Operational Excellence
Model.
7
Manage the
legacy defined
benefit (DB)
pension scheme
Failure to manage the legacy
defined benefit pension scheme
so that the liabilities are within a
range appropriate to our capital
base and do not adversely impact
our balance sheet.
Risk trend: Neutral
(FY20: Neutral)
• Regular monitoring in conjunction with the
trustee, of asset performance, pensions
regulations, company covenants, scheme
funding and liability management.
• Provision of independent advice from a
third-party pensions expert to help manage
potential risks.
• Agree pensions risk approach with Costain
Group PLC Board. (Pensions presentation to
cover DB pension scheme history, company
risks, options to manage risks, 2022 valuation
and 2021 Pensions Schemes Act).
People Planet Performance
Link to strategic priority
47
Strategic Report | Principal Risks and Uncertainties
PRINCIPAL RISKS AND UNCERTAINTIES continued
Principal Risk Description and impact Controls and key mitigations
Strategic link
8
Ensure that
our technology
is robust, our
systems secure
and our data
protected
Our ability to enable safe, secure
and resilient business operations
(including finding, winning and
delivering work supported by efficient
corporate services) is dependent on
the delivery of our core IT strategy.
The delivery of this strategy is also key
to our ability to safely and securely
acquire, host, use and dispose of
Costain, client and third- party data.
Risk trend: Increasing
(FY20: Neutral)
There have been increased threats
in the market with more attacks since
the start of the pandemic and the
current geo-political situation further
heightens the risk.
• Increased investment in cyber security.
• New chief digital officer with cyber
background.
• Engagement with key technology partners
and suppliers to ensure potentially vulnerable
systems are identified and updated.
• Working in line with GCHQ guidance
and ensuring we are proactive in our
cyber security management.
• Maintaining our accreditations: ISO27001
and ISO22301; Cyber Essentials Plus.
9
Anticipate and
respond to
changes in client
circumstances
We have seen changes in the business
operations and investment priorities
of our core clients and clients
challenged by ever-evolving policy,
funding, operational and regulatory
changes. Failure to anticipate the
changes that are affecting our clients
and respond effectively could restrict
our ability to grow margins and
increase market share.
Risk trend: Neutral
(FY20: Neutral)
• Weekly management information on business
development and work winning reviewed
at senior leadership teams, Executive Board
and sector meetings.
• Capture client perception and net
promoter score via assessment of
service quality reviews.
• Key account management plans in
place with targeted actions/reviews.
• Client zipper (stakeholder relationship
map) plans in place aligned to strategy
and campaigns from Board downwards,
with more formalised data collection.
10
Climate change
resilience
The risk that we lack the resilience
to survive and thrive amid the impacts
of climate change on a local, national
and international level.
New principal risk
• Development of climate change supply
chain risk roadmap for 2021 and beyond.
• Development of new core climate change
competencies for all disciplines.
• Incorporate climate change into business
continuity planning.
• Roll-out of 2021 climate change action
plan targets and training programme
across the business.
People Planet Performance
Link to strategic priority
Costain Group PLC | Annual Report and Accounts 2021
48
VIABILIT Y STATEMENT
Assessing the Group’s prospects
The Group’s prospects are assessed
through the annual strategic planning
process, which involves the creation
of five-year divisional business plans
which are reviewed in detail by the
Executive Board.
To create these plans, each division
assesses external factors – market
spend and emerging trends,
regulatory environment, legislative
spend, strategic national needs and
our clients’ business plans, and internal
factors – including capability, skills,
technology and thought leadership.
This results in a set of objectives
and a clear implementation plan,
considering known and emerging
risks and opportunities over a broader
horizon. This includes a five-year
financial plan, with strategic objectives
including targets for key accounts
and strategic campaigns, resourcing
and skills planning as well as research
and development activity to support
our clients to address complex
infrastructure challenges.
The Board scrutinises and monitors
the strategic and financial plans.
Assessing the Group’s viability
While the Group has a five-year
strategic planning horizon, our
order book visibility is stronger over
the medium-term period and our
implementation workstreams are
focused on the more immediate term.
Therefore, the directors believe that
an appropriate period to consider the
Group’s viability is over three years.
The directors have assumed that the
current revolving credit facility remains
in place with the same covenant
requirements through to September
2023 and that the Group would either
renew the facility thereafter or have
sufficient time to agree an alternative
source of finance, on terms which are
broadly consistent with the current
facility for the remainder of the
three-year period assessed.
Viability Statement and
Going Concern Assessment
The assessment of viability has
been made considering the Group’s
principal risks (as outlined on pages
46 to 48). The directors consider the
likelihood of all these risks crystallising
together to be remote and have
therefore tested scenarios where a
number of these risks materialise
together in a plausible, but severe
and prolonged combination.
These downside scenarios reflect
a combination of circumstances,
including the potential impact of a
significant decline in activity resulting
from an inability to secure new work,
the impact of a major safety incident or
data breach and associated fines, the
impact of a working capital decline, the
loss of key management and inability
to recruit the right capabilities, and
a change in Government policy
impacting investment and procurement
programmes. The main focus has been
the impact of these downside scenarios
on the Group’s ability to comply with
the liquidity and interest covenants as
set out within its banking facilities.
Impact of COVID-19
We continue to closely monitor the
COVID-19 situation and will continue
to follow UK Government Guidelines.
We have considered the potential
on-going impact of COVID-19 in our
scenario analysis.
Viability statement
In accordance with provision C.2.2
of the UK Corporate Governance
Code, the directors have assessed the
prospects of the Group over a longer
period than the 12 months required
by the ‘Going Concern’ provisions.
Based on the results of this analysis, the
Board confirms that it has a reasonable
expectation that the Group will be able
to continue in operation and meet its
liabilities as they fall due over the three-
year period to 31 December 2024.
Going concern
The Group’s going concern statement
is detailed in note 2 of the consolidated
financial statements on pages 131 and 132.
Strategic Report
Our 2021 Overview and Strategic
Report on pages 1 to 49 have been
reviewed and approved by the Board
of directors and signed on its behalf by
Sharon Harris
Company Secretary
9 March 2022
49
Strategic Report | Viability Statement
Non-executive director
and senior independent
director at Rightmove plc
and non-executive director
at FDM Group (Holdings) plc.
President of techUK, chair
of Metapraxis Ltd and non-
executive director of IFS.
COSTAIN GROUP
PLC BOARD OF
DIRECTORS
Appointment
Skills and experience Paul Golby was appointed
as chair of Costain in May
2016. A fellow of the Royal
Academy of Engineering,
Paul has held a variety of
roles within the engineering
and energy industries.
Following an early career
with Dunlop Holdings plc
and BTR plc he joined
Clayhithe plc, becoming an
executive director in 1992.
In 1998, Paul joined East
Midlands Electricity plc and
following its acquisition by
PowerGen (subsequently
E.ON UK plc) was appointed
executive director, UK
operations. In 2002, Paul
became chief executive
and later executive chair,
stepping down from the
E.ON Board in 2011. Paul
was also non-executive chair
of AEA Technology Group
plc (2009–2012), chair of
Engineering UK (2010–2016)
and pro chancellor and
chair of council of Aston
University (2009–2017).
He was a member of the
Prime Minister’s Council
for Science and Technology
(2010–2019), non-executive
director of National Grid
plc (2012-2021) and also
chair of the Engineering and
Physical Sciences Research
Council (2012–2018).
Alex Vaughan was
appointed CEO in May
2019. Prior to this he was
managing director of
the Natural Resources
division with responsibility
for Costain’s services to
water, oil and gas and
power clients as well as the
development of client-
facing technology solutions
across the Group. He held
this position from 2013. Alex
is qualified as a chartered
quantity surveyor. He has
worked on infrastructure
projects in the UK and
internationally, as well as
having held a number of
corporate roles including
Group HR director and
corporate development
director. In 2009 he
completed the Harvard
Business School Advanced
Management Program
(AMP). Alex was chair of the
CBI regional council from
2019-2021.
Helen Willis was appointed
CFO in November 2020. She
has significant experience
in senior finance roles,
including most recently as
chief financial officer of De
La Rue. Prior to this, Helen
worked at Premier Farnell
between 2014 and 2017,
including as chief financial
officer from 2015. She has
also held senior finance
roles at Pelican Rouge, AZ
Electronic Materials, and
HSS Hire.
May 2016 May 2019 November 2020
Alex Vaughan
BSc (Hons), FRICS, Dip IoD,
FIoD
CHIEF EXECUTIVE OFFICER
Helen Willis
ACA, BSc
CHIEF FINANCIAL OFFICER
Board member of the ERA
Foundation and chair of the
National Air Traffic Services
(NATS Holdings Ltd).
External appointments
BOARD OF DIRECTORS
Jacqueline de Rojas was
appointed as a non-
executive director in
November 2017 and became
Remuneration Committee
Chair on an interim basis
on 12 January 2022. As
president of techUK she is a
leader in the UK technology
sector and an experienced
non-executive director who
has held executive positions
at global blue-chip software
companies such as Citrix
Systems, CA Technologies,
McAfee and Novell.
Jacqueline was previously
a non-executive director
of AO World Plc and Home
Retail Group. She is the
co-chair at the Institute of
Coding and advises the
board of accelerateHER
to address the under-
representation of women
in technology. Jacqueline
also lends her support to
the Girlguiding Association
and is an executive mentor
at Merryck & Co. She was
awarded a CBE for services
to international trade in
technology in the 2018
New Year Honours list.
November 2017
Jacqueline de Rojas
CBE
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Dr Paul Golby
CBE, FREng, FIET, FIMechE,
FEI, FCGI
NON-EXECUTIVE CHAIR
Experienced and
effective leadership
Costain Group PLC | Annual Report and Accounts 2021
50
Non-executive director and
senior independent director
of Hill & Smith Holdings PLC
and non-executive director
of Associated British Ports.
Adviser to Laird.
COMMITTEE MEMBERSHIP
Trustee board member
and chair of risk committee
at Barnardo’s and non-
executive director of
Catalyst.
Bishoy Azmy was appointed
as a non-executive director
in June 2020. Bishoy is
the designated Board
representative of ASGC, a
construction conglomerate
with its headquarters in
Dubai, UAE, and which is
a shareholder of Costain.
Bishoy has been responsible
for developing ASGC’s
expansion strategies,
overseeing the group’s
digital transformation
and optimising operations
across diverse construction
sectors.
Bishoy is an active member
of the Young Presidents
Organization (YPO) and an
associate of the Chartered
Institute of Arbitrators.
Bishoy graduated from the
American University in Cairo
with a BSc in Construction
Engineering (2002). He is a
PMI Project Management
Professional (2006) and
also holds a masters in
international construction
management from the
University of Bath, UK (2007)
and an MBA from London
Business School, UK (2013).
Tony Quinlan was appointed
as an independent non-
executive director in
February 2021, became
audit committee chair
in May 2021 and senior
independent director
in January 2022. He is a
chartered accountant,
an experienced non-
executive director and
audit committee chair with
experience as a public
company chief executive
and finance director. He was
previously chief financial
officer (2015) and chief
executive officer (2016) of
Laird PLC, chief financial
officer of Drax Group plc
(2008-2015) and held senior
finance roles at Marks &
Spencer plc (1992-2008).
Tony was also previously
senior independent director
and chair of the audit
committee for the Port of
London Authority.
Sharon Harris trained as
a solicitor at Norton Rose
Fulbright and worked as
a solicitor at Simmons &
Simmons. She is a general
counsel and company
secretary with listed
company experience gained
in multiple sectors, including
energy and defence. She has
considerable international
and domestic experience
of legal, commercial and
governance matters.
Neil Crockett was appointed
as an independent
non-executive director
in October 2021. Neil
was chief digital officer
at Rolls-Royce from
2016-2018 where, in
partnership with business
unit leaders, he accelerated
the development of the
group’s digital strategy.
Before that, Neil gained
strong experience of the
wider UK digital innovation
community and from 2013 to
2016 was the founding CEO
of Digital Catapult, a UK
Government-funded digital
innovation organisation.
Neil previously held several
global, European and UK
leadership positions with
Cisco Systems (1998-2012).
He is non-executive director
of Catalyst, a not-for-profit
organisation accelerating
innovation and growth
in the Northern Ireland
knowledge economy.
Neil is also a member of
the Queen’s Awards for
Enterprise Innovation
category panel.
June 2020 February 2021 October 2021 September 2020
Bishoy Azmy
MBA, BSc
NON-INDEPENDENT
NON-EXECUTIVE DIRECTOR
Tony Quinlan
ACA, BSc
SENIOR INDEPENDENT
DIRECTOR
Sharon Harris
LLB
GENERAL COUNSEL AND
COMPANY SECRETARY
Neil Crockett
BA
INDEPENDENT
NON-EXECUTIVE DIRECTOR
Member of the
Remuneration Committee
Member of the
Audit Committee
Member of the
Nomination Committee
Chair of Committee
For more details of the
Directors’ skills and
experience, please see
the Notice of 2022 Annual
General Meeting /
www.costain.com
51
Governance | Board of Directors
EXECUTIVE
BOARD
For more information
please go to page 50.
For more information
please go to page 50.
Matthew Higham was
appointed chief digital
officer in December 2021.
His experience has centred
around leading digital
business transformation and
maximising the benefit of
digital technology adoption
across multiple industries,
including infrastructure.
Before joining Costain
he was chief digital
officer & sustainability
lead for Microsoft UK.
Prior to this Matthew
worked across a range of
markets including financial
services, manufacturing,
automotive, critical national
infrastructure, travel,
transport, local and national
services. He has a solid
background in design led
thinking and has worked
for companies such as
McLaren Technology Group,
Gatwick Airport and Equiniti
(now called EQ).
Catherine joined Costain
in 2006 and has performed
a number of roles, most
recently as director of
learning and development
and corporate responsibility
and prior to that as
investor relations director.
Highlights of her career with
Costain include developing
and implementing the
Group’s first Corporate
Responsibility (CR) strategy,
achieving Platinum status in
Business in the Community’s
CR Index in 2013 and driving
change to achieve the
Group’s recognition in the
Times Top 50 Employers
for Women 2018-2021,
and being cited as a game
changer in 2019 for our
work on gender parity in
early careers recruitment.
Catherine graduated with
an honours degree in
Environmental Science.
May 2019 November 2020 December 2021 September 2019
EXECUTIVE BOARD
An experienced leadership
team to deliver the strategy
External appointments
Member of the techUK
Climate Strategy &
Resilience Council and Net
Zero Technology Centre
Industry Advisory Board.
Costain Group PLC | Annual Report and Accounts 2021
52
Appointment
Skills and experience
Catherine Warbrick
BSc (Hons) Environmental
Science
GROUP HR DIRECTOR
Alex Vaughan
BSc (Hons), FRICS, Dip IoD,
FIoD
CHIEF EXECUTIVE OFFICER
Helen Willis
ACA, BSc
CHIEF FINANCIAL OFFICER
Matthew Higham
CHIEF DIGITAL OFFICER
Sue Kershaw has a strong
track record for driving
complex, high profile
transport and construction
programmes to delivery.
Before joining Costain
she was managing
director, Infrastructure
Advisory Group at KPMG.
Prior to that she was UK
infrastructure head of
programme management
for KPMG Major Projects
Advisory. Previous positions
include director of rail-
Europe at CH2M and deputy
director of transport for the
Olympic Delivery Authority.
Sue is a civil engineer and
started her career with
Taylor Woodrow.
Sam White was appointed
managing director of
Natural Resources in
January 2022. He has a
strong track record in
developing strategic client
relationships and delivering
enhanced business
performance and growth,
gained through a variety
of challenging multi-sector
roles in multi-national
organisations. Sam joined
Costain from Babcock
International Group where
he held various leadership
roles across defence, energy
and engineering services.
Prior to this he held roles
with BAE systems and
General Dynamics. Sam is
a qualified executive coach
and is a passionate advocate
of inclusion and diversity.
David Taylor joined the
Company in 2009 and was
appointed to the Executive
Board as Group commercial
director in January 2015.
He has held a number of
senior leadership roles
within the business and is
currently responsible for
the commercial, supply
chain and procurement
functions. David is also
executive sponsor for
business improvement
including the delivery of
operational excellence
across the Group’s portfolio
of complex delivery
projects. Since December
2020, David is the executive
sponsor for wellbeing for
the Group.
Prior to joining Costain,
David acquired more than
25 years’ experience with
Taylor Woodrow where
he held the position of
commercial director for its
UK operations.
David is a Fellow of the
Institute of Directors
and a Fellow of the Royal
Institution of Chartered
Surveyors.
For more information
please go to page 51.
March 2020 January 2022 January 2015 September 2020
President of the Association
for Project Management,
a member of the Mayor
of London’s Infrastructure
Advisory Panel and a Royal
Academy of Engineering
visiting professor at
the Bartlett School of
Construction and Project
Management, University
College London.
Elected Councillor for the
Confederation of British
Industry (CBI) in London.
53
Governance | Executive Board
Sue Kershaw
BSc (Hons) Civil Engineering
MANAGING DIRECTOR –
TRANSPORTATION
Sam White
MBA, BSc
MANAGING DIRECTOR –
NATURAL RESOURCES
David Taylor
FRICS, FIoD
GROUP COMMERCIAL
DIRECTOR
Sharon Harris
LLB
GENERAL COUNSEL AND
COMPANY SECRETARY
The Executive Board, chaired by Alex
Vaughan, focuses on running the business
and delivering the Group strategy.
NON-EXECUTIVE DIRECTOR SERVICE TIMELINE
Below we demonstrate the longevity of service of our non-executive directors. While each
non-executive director is appointed or reappointed on an annual basis by shareholders at the
AGM, their letters of appointment provide for a three-year term, after which the director’s
appointment may be extended for a further one or two terms.
* Shareholder representative director
2014 2015 2018 2020 2021 20232016 2017 2019 2022 2024 2025 2026 2027 2028
ORIGINAL
APPOINTMENT
5 May 2016
ORIGINAL
APPOINTMENT
20 November 2017
ORIGINAL
APPOINTMENT
19 June 2020
ORIGINAL
APPOINTMENT
1 February 2021
ORIGINAL
APPOINTMENT
6 October 2021
Dr Paul Golby
Jacqueline de Rojas
Bishoy Azmy
*
Tony Quinlan
Neil Crockett
Independence
43%
Female
29%
(2 of 7)
Other ethnicity
29%
(2 of 7)
GOVERNANCE AT A GLANCE
Leading a
responsible business
Chair
#
1
Non-independent directors 3
Independent directors 3
# The chair was independent on appointment.
In March 2021, the Board had 50% female
representation, however, this had lowered
to 29% by January 2022. The Nomination
Committee is working hard to address this
position (see pages 80 to 83).
All other ethnic groups combined
(excluding white minorities)
GENDER REPRESENTATION
ON OUR BOARD
BOARD
INDEPENDENCE
ETHNICITY REPRESENTATION
ON OUR BOARD
Costain Group PLC | Annual Report and Accounts 2021
54
UK CORPORATE GOVERNANCE CODE –
APPLICATION OF CODE PRINCIPLES
84%
of employees say Costain
is a great place to work
96%
of employees feel
committed to helping
Costain succeed
88%
of employees are proud
of the Costain brand
GOVERNANCE HIGHLIGHTS
• Reviewed Costain’s contract lifecycle
governance processes.
• Reviewed contract risk appetite
including new onerous times policy.
• Considered Company’s strategy in
managing contractual disputes.
• Approved changes to the delegated
authority matrix and matters reserved
to increase Board’s oversight of higher
risk areas.
• Conducted in-depth strategic review.
• Further alignment of Board skills
to strategy.
• Updated the whistleblowing policy
and transferred ownership to the
legal function.
• Board evaluation focused on insightful
comments and not a ratings approach.
EXAMPLES OF KEY BOARD DECISIONS
• Contract adjudications impact.
• COVID-19 safety measures.
• Pension Schemes Act 2021 impact.
• Refreshed diversity and inclusion policy.
• Director changes and responsibilities.
• 2022 budget and four-year
business plan.
1. Board leadership and Company purpose
A Effective Board (pages 50 and 51)
B Purpose, values and culture (pages 62 and 63)
C Governance framework and Board resources
(pages 26, 27 and 44 to 48)
D Stakeholder engagement (pages 32 to 37)
E Workforce policies and practices (page 41)
2. Division of responsibilities
F Board roles (pages 59 and 74)
G Independence (pages 50, 51, 54 and 71)
H External appointments and conflicts of interest
(pages 72 and 82)
I Key activities of the Board during 2021 (pages 64, 65 and 74)
3. Composition, succession and evaluation
J Appointments to the Board (pages 80 to 83)
K Board skills, experience and knowledge (pages 50, 51 and 70)
L Annual Board evaluation (page 74)
4. Audit, risk and internal control
M Financial reporting, external auditor & internal audit
(pages 73 and 76 to 79)
N Review of the 2021 annual report (page 73)
O Internal financial controls and risk management
(pages 44 to 48 and 73)
5. Remuneration
P Linking remuneration with purpose and strategy
(pages 85 and 86)
Q Remuneration policy review (page 87)
R Performance outcomes in 2021 (pages 84, 96 to 98)
Strategic targets (pages 96 to 101)
The table below sets out where the required reporting
on the Principles can be located in the 2021 annual report.
55
Governance | Governance at a Glance
CHAIR’S INTRODUCTION
“The Board recognises the value of
good corporate governance to long-term
sustainable business success.”
As a Board we continually
look for improvements in
our governance processes
Costain Group PLC | Annual Report and Accounts 2021
56
Dear shareholder
The Board has continued to maintain
high standards of corporate
governance across the Group. It has
done this by promoting integrity
and openness, valuing diversity and
being responsive to the views of
shareholders and wider stakeholders.
The Board recognises the value of
good corporate governance to long-
term sustainable business success and
has demonstrated compliance with
the 2018 UK Corporate Governance
Code (the 2018 Code) with the
exception of Provision 41 relating
to opportunities for employees to
discuss executive pay. While Costain
did not engage with employees during
2021 specifically on this matter, it did
engage with and seek feedback from
employees (see pages 34, 35, 66 to 69
and 71). In addition, pay, reward and
benefits were discussed broadly at
the staff roadshow (see page 69).
We have reviewed our engagement
channels and will be compliant with
Provision 41 of the Code during 2022
by actively using the ‘Your Voice’
employee forum for this dialogue
(see page 68 for details of Your Voice).
No questions regarding executive pay
have been raised by representatives at
the forum, which meets quarterly.
ESG
The Board continues to prioritise
matters relating to Environmental,
Social and Governance (ESG).
As regards COVID-19, as a Board we
have continued our commitment to
safety measures to protect our people
and the communities in which we
operate while continuing to deliver to
our clients (see pages 25, 34 and 35).
Further, all Board and Committee
meetings were held in line with
government guidance in relation
to the COVID-19 pandemic.
The Board has spent time in the year
focusing on our part in delivering
smart motorways and the relevant
safety aspects of them (see page 28).
The Board approved our net zero
strategy (see page 27 of this report
and pages 11 and 12 of our ESG
report at www.costain.com for
more information).
Strategy
The Board establishes the Group’s
purpose, values and strategy, ensuring
these are aligned to the culture of
the business. In shaping the Group’s
strategic direction, the Board seeks
to ensure that good governance
standards are embedded throughout
the organisation to support our
purpose.
Recognising our share price does not
reflect the underlying performance
of the Group and that Costain
has underperformed the sector,
the Board identified the need to
build stronger investor and market
confidence in the Company. Louise
Bryant was appointed our new Group
communications and investor relations
director. In 2021 we also began a
review of Costain’s strategy, including
its purpose, vision and mission. This
exercise confirmed our belief in the
opportunities for the Group, but
showed that to deliver we need to
reposition Costain in the market.
By focusing on the delivery of our
strategy, we believe we can achieve
strong growth. Further details of the
strategy update are on pages 6 to 9
and 62.
Contract risk management
Effective risk management is a
fundamental aspect of the Group’s
operating, financial and governance
activities.
Following disappointing contractual
outcomes (see the Q&A with CEO
Alex Vaughan on page 6), the Board
has led a review of our contractual
processes. This has resulted in the
implementation of improvements
throughout the Group, including an
effective contract lifecycle programme
and a new onerous terms policy to
ensure the Company does not enter
into contracts where the terms are
outside the Company’s contractual
risk appetite.
The Board supported the ‘Big Risk
Conversation’ initiative (see page
45) to make the consideration of risk
and opportunity an everyday habit at
Costain. Board members use the site
visits (see page 67) as an opportunity
to lead a ‘Big Risk Conversation’.
On the following pages we
explain our approach to corporate
governance, demonstrating how
the Board and its Committees
have fullled their responsibilities
to ensure robust governance
practices are embedded
throughout the Group.
Compliance with the UK
Corporate Governance Code
As a premium listed company
on the London Stock Exchange,
and in respect of the financial
year ended 31 December 2021,
the Company is reporting in
accordance with the 2018 UK
Corporate Governance Code
(the 2018 Code) which sets out
standards of good practice
in relation to the following
principles: (i) board leadership
and company purpose,
(ii) division of responsibilities,
(iii) composition, succession
and evaluation, (iv) audit,
risk and internal control and
(v) remuneration.
The 2018 Code is published by the
Financial Reporting Council (FRC)
and is available on its website
www.frc.org.uk
Costain was compliant with the
provisions of the 2018 Code
in 2021 with the exception of
Provision 41 (see opposite).
The Audit Committee Report on
pages 76 to 79, the Nomination
Committee Report on pages
80 to 83 and the Directors’
Remuneration Report on pages
84 to 107 are also incorporated
into this report by reference.
57
Governance | Chair’s Introduction
Board and Committee governance
To align with our strategy and further
strengthen our Board, we have
made two non-executive director
appointments in the year. Tony
Quinlan was appointed to the Board
on 1 February 2021 and became
chair of the Audit Committee in May
2021 when Jane Lodge stepped
down from the Board. Neil Crockett
was appointed as non-executive
director in October 2021. These two
appointments were in line with the
Board’s succession plan and followed
extensive external search processes.
Pending the departure of Alison Wood
later in January 2022, Tony Quinlan
became the senior independent
director, with Jacqueline de Rojas
appointed Remuneration Committee
chair on an interim basis, both
effective 12 January 2022.
The Nomination Committee has also
had significant focus on executive
and senior leadership succession
planning and development, as well as
Board and Group-level diversity and
inclusion. The Nomination Committee
is working hard to address the current
balance of women on our Board.
Our instructions to external search
consultants are to always include a
diverse long-list of candidates. The
Board is proud that Costain, for the
fourth consecutive year, was named as
a Times Top 50 Employer for Women.
Further details of all Nomination
Committee matters are provided in
the Nomination Committee Report
on pages 80 to 83.
During the year the Board also
benchmarked then updated its
delegated authorities to ensure it had
the correct level of oversight set out
in the matters reserved for the Board.
Remuneration
In the application of the remuneration
policy approved in 2020, the
Remuneration Committee continued to
have regard to the wider workforce, our
shareholders and other stakeholders and
believes our incentive outcomes are a fair
reflection of the Group’s performance.
We shall be submitting a new
remuneration policy for approval by
shareholders at our 2023 AGM.
Please see the Directors’ Remuneration
Report on pages 84 to 107 for more
information.
Culture
The Board has an important role in
setting and developing the culture
of the Company and uses several
leading and lagging indicators to
make an informed assessment of the
Company’s culture (see page 63).
Board effectiveness review
Following the externally-facilitated
Board evaluation in 2020, an internal
effectiveness review of the Board and
its Committees was conducted in 2021.
This year we asked Board members to
provide more detailed commentary
on a smaller number of key areas. This
led to an increased focus and greater
insights (see page 74 for more details).
Chair update
As announced alongside our 2021
full year results, I have decided to
step down as chair and non-executive
director within the next 12 months. The
Nomination Committee, led by Tony
Quinlan as senior independent director,
will begin a search for my successor
who I will work with to ensure a well
managed and orderly transition.
Dr Paul Golby CBE
Chair
9 March 2022
OUR GOVERNANCE STRUCTURE
Delivering effective decision
making and meeting corporate
governance standards
COSTAIN GROUP
PLC BOARD OF
DIRECTORS
BOARD
COMMITTEES
REMUNERATION
COMMITTEE
AUDIT
COMMITTEE
NOMINATION
COMMITTEE
The Group’s organisational structure is established and
overseen by the Board and designed to enable effective
decision making and to meet corporate governance standards.
Our Board
Key responsibilities:
The Board is collectively responsible for the management of the
Company. The Board’s main role is to create long-term sustainable
value for shareholders by providing entrepreneurial and prudent
leadership and taking into account the interests of all stakeholder
groups. It does this by setting the Company’s strategic priorities
and overseeing their delivery, ensuring that the necessary financial
and other resources are available, and by maintaining a balanced
approach to risk within a framework of effective controls.
Board Committees
Key responsibilities:
The Board has established Committees which are responsible
for audit, remuneration, and appointments and succession.
Each Committee plays a vital role in helping the Board to ensure
that high standards of corporate governance are maintained
throughout the Group.
Remuneration Committee
Key responsibilities:
• Determines the remuneration for the
chair, executive directors and certain
senior management.
• Oversees Costain’s overall remuneration
policy, strategy and implementation.
This includes the alignment of incentives
with reward and culture and takes into
account employees’ pay and rewards
when setting the policy for directors’
remuneration.
Nomination Committee
Key responsibilities:
• Monitors and reviews the composition of
the Board and its Committees to ensure
Costain has the right structure, skills,
diversity and experience in place for the
effective management of the Group.
• Reviews management development
and succession planning and the talent
pipeline in respect of the Company’s
senior executives.
Audit Committee
Key responsibilities:
• Monitors and reviews the integrity
of Costain’s financial statements.
• Manages the relationship with the
external auditor.
• Oversees the Company’s systems for
internal control and risk management.
Costain Group PLC | Annual Report and Accounts 2021
58
RISK
COMMITTEE
HEALTH
AND SAFETY
COMMITTEE
EXECUTIVE
BOARD
INVESTMENTS
COMMITTEE
Executive Board
Key responsibilities:
• Accountable for the day-to-day running of the business,
delivering the Group strategy and monitoring the
operational and financial performance of the Group.
Risk Committee
Key responsibilities:
• Identifies emergent risks.
• Considers principal risks and
establishes their risk trend.
• Considers risk appetite.
Health and Safety Committee
Key responsibilities:
• Responsible for setting and monitoring
compliance with the Group’s health and
safety policies.
Investments Committee
Key responsibilities:
• Responsible for allocating the Group’s
work winning resources and authorising
certain investments.
Further information
In 2021, the matters reserved for the Board were reviewed and updated to increase the Board’s oversight in certain areas. No changes
were made to the terms of reference of Board Committees in 2021 which are also reviewed annually. The matters reserved for the Board
and Committee terms of reference can be viewed in the corporate governance section of the Company’s website. The members of each
Committee and details of their attendance are shown on pages 50 and 51, and 70.
How we divide up our responsibilities
Chair
The chair, Paul Golby, is responsible for the effective leadership and operation of the Board.
Paul promotes high standards of governance and supports and guides the CEO.
Chief executive officer
The CEO, Alex Vaughan, is responsible for managing the business of the Company through
the implementation of policies and strategies approved by the Board. Alex is responsible for
maintaining dialogue with the chair, the Group’s shareholders and other stakeholders.
Senior independent
director
The role of the senior independent director involves providing a sounding board for the chair,
acting as a point of contact for shareholders to raise any concerns and meeting with the other
non-executive directors, without the presence of the chair or executive directors, to discuss
such matters as the appraisal of the chair’s performance (see page 75).
Tony Quinlan was appointed senior independent director on 12 January 2022.
Non-executive directors
The non-executive directors all bring valuable experience, insight and perspective to
the Board, through their former or current executive roles and their other non-executive
positions, which are held across a wide range of businesses and disciplines. This facilitates
robust decision making by the Board as a whole. The non-executive directors, including the
chair, also meet without the executive directors being present from time to time as a matter
of good corporate governance.
59
Governance | Our Governance Structure
Female representation
Level
Actual
31 Dec 2020
Actual
31 Dec 2020
(number)
Actual
31 Dec 2021
Actual
31 Dec 2021
(number)
Actual
9 March 2022
Actual
9 March 2022
(number)
Board 57% 4 of 7 38% 3 of 8 29% 2 of 7
Executive Board 50% 4 of 8 56% 5 of 9 50% 4 of 8
Senior Management 30% 10 of 33 38% 11 of 29 41% 13 of 32
Costain Group PLC | Annual Report and Accounts 2021
60
BOARD DIVERSITY
Diversity and inclusion
ACHIEVEMENTS IN 2021
Costain is committed to maintaining
a diverse Board and in 2021 the
Nomination Committee approved
a refreshed policy on Board and
Committee diversity and inclusion.
We have long believed that diversity
in all its forms is a requisite for strong
decision making and delivering high
performance. Costain is committed to
a culture of inclusion, setting a clear
tone from the top, with the Board and
Executive Board championing diversity
and inclusion.
In 2021 Costain updated it’s inclusion
strategy setting ambitious objectives
and a long-term goal of having a
workforce that is representative of the
communities in which we operate. This
extends to broader diversity aspects
such as sexual orientation, disability
and socio-economic background.
The Board endorses the objectives
and actions set out in the 2021
inclusion strategy.
The Board continues to be supportive
of the boardroom diversity targets set
by the Hampton-Alexander and Parker
Reviews respectively:
• In 2017 Costain met the target of
33% of a company’s board to be
female by 2020 and maintained
this percentage until very recently.
The Nomination Committee’s
efforts to address Board diversity
are set out on pages 80 to 83.
• In 2017 Costain met, and continues
to meet, the target for FTSE 250
companies to have at least one
non-white director on their boards
by 2024. Costain has two BAME
directors.
The Board’s commitment places an
emphasis on developing diversity
within senior management and the
wider workforce. The Board has
overseen the Group’s aim to increase
female representation within senior
positions. In 2020 and throughout
2021, we achieved the significant
milestone of 50% or more of our
Executive Board being female.
We recognise that there is progress
to be made on the ethnic diversity
of our senior management and we
therefore made this a specific focus
in our 2021 succession planning work.
We are working hard to increase BAME
representation in our development
programmes.
Costain has a clear implementation
plan in place to improve diverse
representation, close its gender pay
gap and continue building an inclusive
culture that allows employees,
suppliers and stakeholders to be at
their best. Initiatives include targeted
development programmes for diverse
talent and attracting diverse shortlists.
Progress in meeting the Company’s
objectives is monitored by the Board
and is built into the objectives of
management.
To read our diversity and inclusion policy
and inclusion strategy in full, please visit:
www.costain.com/our-culture/equality-
diversity-and-inclusion/
TIMES TOP 50 EMPLOYERS
FOR WOMEN CONSULTANTS
What is psychological safety?
Psychological safety is about creating a workplace
where people feel able to speak up with information,
ideas, questions or concerns, without fear of
discrimination as a result. At Costain, we know that
psychological safety is key to creating inclusive teams
which bring diversity of thought to our solutions.
How have we improved psychological safety?
Active allyship
As part of our 2021 inclusion strategy, we pledged to train
50 senior leaders to be visible allies across the business. We
have achieved double our target and established active allies
among our employees and our supply chain to create a safe
space to challenge non-inclusive behaviour.
Creating feedback loops
Our six employee networks are crucial to creating a safe space
where members can provide feedback. Through feedback
from our employee networks, we have enhanced our policies
to ensure they are representative of everyone. We have
developed our 'A Manager’s Guide to…' series, produced a
guidance for transitioning (gender) at work and are raising
awareness of diverse personal protective equipment (PPE)
requirements and how to access PPE for specific needs.
Data-informed decision making
A review in 2019 established that 50% of our workforce had
not disclosed ethnicity on their personnel record, which
suggested a possible lack of psychological safety around
personal data sharing. With the help of our REACH (religion,
ethnicity, and cultural heritage) employee network, we
contacted employees to understand the barriers to sharing
this data, communicated how data was used and protected,
and demonstrated to employees how they could update their
details on the system. We have since reduced our unknown
ethnicity percentage to 9% in 2021.
This demonstrates an improvement around psychological
safety in sharing data. It also helps us to ensure there is equal
access to promotion and development opportunities through
regular review and analysis.
61
Managing diversity goes beyond the boardroom.
Across the Group we have implemented a number
of diversity initiatives to foster a culture of inclusion.
“Having diverse teams can bring
diversity of perspective to our
approach. However, only with
an inclusive culture, fuelled by
psychological safety, will we enable
diverse thinking to surface, and
become embedded in our solutions.”
Jyoti Sehdev
Group EDI manager
Governance | Board Diversity
OUR PURPOSE, VALUES AND CULTURE
MISSION
We shape, create and deliver
pioneering solutions that
transform the performance
of the infrastructure ecosystem
Addressing this requires a new kind
of company that brings together a
unique mix of experts. As construction,
consulting and digital partners we
engineer solutions to the most complex
problems. Together, our people
transform the performance of the
infrastructure that connects, protects
and powers people’s lives.
Everything we do is rooted in
delivery and organised around our
clients, anticipating and solving their
challenges across the infrastructure
ecosystem. Our 150-year heritage of
pioneering problem solving, together
with constant innovation, enables us
to deliver sustainable, efficient and
practical answers for our clients.
To achieve the best possible solutions
and make infrastructure fit for a better
future, we collaborate more closely
than ever with clients, partners,
communities and wider industry.
Together we are creating connected,
sustainable infrastructure to help
people and the planet thrive.
Infrastructure is facing enormous change. There are huge opportunities to update, connect and
integrate systems, but challenges including a growing population, climate change, and economic
and environmental resilience are more urgent than ever.
Our recommended
positioning
Refreshing our corporate positioning
During the year we undertook an update of our strategy and the future direction of the Group. This exercise
confirmed our belief that there is huge opportunity for the Group, but that to deliver this we needed to reposition
Costain in the market.
The perception of Costain across key stakeholders was of a solid, but smaller, Tier 1 construction partner. Our
strategy was not well understood, and investors in particular were struggling to see differentiating factors. Over
an intensive three-month period, we undertook research to understand what current perceptions were across all
stakeholder groups, but critically identify those factors that were commonly agreed on and those areas where there
was some dissonance. As part of this phase, we spoke to our people, investors, clients, suppliers and also included
feedback from the media and Government. This research informed an initial positioning which was subsequently
put through rigorous testing to reach the version included here.
This refreshed vision is being rolled out across the Group to ensure that our people understand how it relates
to them in their everyday roles. Alongside this we are also refreshing our values to reflect the new positioning.
Feedback so far has been very positive; there is a greater understanding of what makes Costain different and
our people are inspired by what we are aiming to do. See also Q&A with CEO Alex Vaughan on pages 6 and 7.
PURPOSE
Improving people’s lives
VISION
To create connected, sustainable
infrastructure enabling people
and the planet to thrive
Why we do what we do
Timeframe: 3-5 years
How we do what we do
Timeframe: 3-5 years
What we believe in
Timeframe: 10+ years
Why we exist
Timeframe: 10+ years
Vision
Mission
Values
Strategy
Costain Group PLC | Annual Report and Accounts 2021
62
See page 66
See pages 27 and 66
See page 79
See pages 39 and 41
See page 78
See pages 60 and 61
Recognised indicators of culture reviewed
by the Board and its Committees include:
Rewarding the right behaviours in our quarterly awards
Being Curious
As part of the commitment to ‘Build Back Better’, Rhian
Lawton was recognised for her instrumental role in
helping to fulfil our commitment to offer Government
Kickstart placements to young people aged between
16 and 24, who are currently at risk of long-term
unemployment. She connected with projects across
the organisation to identify opportunities, worked with
the HR function and recruitment to develop a process,
and has managed our relationship with the Prince's
Trust and Department for Work and Pensions. During
2021, we placed 12 ‘kickstarters’ in the business − a true
example of how we are improving lives and generating
social value through the delivery of our contracts.
Being Innovative
Howard Dukes won an award for always putting the
safety of the roadworker and customer first. Working
with Chevron TM, Howard has helped develop the
Enhanced Mobile Carriageway Closure Technique
(EMCC) which involves using a bespoke, adapted traffic
management vehicle to provide a rolling road block
allowing traffic management operatives installing the
taper for upstream lane closures to do so in a safe and
controlled environment. Simultaneously, the technique
helps to improve delivery of construction programmes,
allowing longer, more predictable working periods.
This has now been approved by National Highways and
is being adopted across the network.
Outputs from staff surveys
Health and wellbeing
performance
Whistleblowing reports
Safety performance, initiatives
and trends, including both
leading and lagging indicators
Internal audit reports and
findings
Progress in respect of
diversity and inclusion
63
Governance | Our Purpose, Values and Culture
KEY ACTIVITIES
Key area of activity Link to Principal Risk
Safety, health and environment
Monitored safety, health and environment performance against the WiiSE strategy (see pages 1 and 38 to 40).
Continued to review the robustness of the Company’s safety procedures and working practices to meet the
challenges of COVID-19, including employees’ wellbeing (see pages 56 and 66).
Monitored progress against the Climate Change Action Plan and targets set in 2020 (see pages 38 and 39).
Approved a net zero strategy.
1
2
3
4
5
6
9
10
Strategy
Reviewed the progress made in delivering the Group’s strategy, including multiple interactive and in-depth
strategy sessions attended by various members of the Executive Board.
Conducted a thorough review of the strategy and the Company’s market positioning (see page 62 and
business model on page 10).
1
2
3
4
5
6
9
10
Business and financial performance
Received detailed updates on our business performance against our strategic priorities and KPIs.
Reviewed and discussed financial performance against budget, including exceptional items and any
deviations from expectations. Considered the operational improvements.
Reviewed and approved several large projects to support the growth and strategy of the Group.
Considered the Company’s performance on major contracts and the Company’s strategy in managing
contractual disputes. Undertook detailed discussions in respect of the Peterborough & Huntingdon contract
adjudication process, outcome and next steps. Reviewed the position with other legacy contracts and the
progress made to resolve them.
Oversaw improvements to the timing of supplier payments under the Prompt Payment Code.
Reviewed and approved the 2020 annual report and preliminary results announcement, the 2021 interim results
statement and the dividend policy. Continued to review the timing of the reinstatement of future dividends.
Received reports on analyst and investor feedback and received presentations from the Company’s
financial advisers.
Noted the position as regards the Company’s bank and surety facilities and financial covenants
(see pages 25 and 77).
1
2
3
4
5
6
7
8
9
10
The following summarises the Board’s main activities and areas of discussion during 2021.
Principal Risks:
1
Prevent a major
accident, hazard
or incident
2
Increase the
profitability and
margin performance
of the Group
3
Maintain a strong
balance sheet
4
Secure new work
5
People
Costain Group PLC | Annual Report and Accounts 2021
64
Key area of activity Link to Principal Risk
Risk and opportunity
Reviewed contract risk appetite, introducing an effective contract lifecycle governance process and a new
onerous terms policy (see page 56).
Undertook deep dive reviews of our principal risks to reassess these in light of the risk mitigation actions
undertaken, including an evaluation of our major accident, hazard or incident process, review of digital and
cyber security risks, a presentation on our key clients’ changing needs in Transportation and Defence and
consideration of progress with our people, as well as a review of our pensions strategy and risk. Approved
an additional principal risk in relation to climate change resilience.
Endorsed and took part in discussions on ‘The Big Risk Conversation’ (see page 45).
Continued to evaluate the impact of COVID-19 on the Group’s operations (including on the supply chain) and
financial performance as Government guidance and regulations changed in line with the evolving pandemic.
Continued to monitor the impact of Brexit on the Company’s supply chain.
1
2
3
4
5
6
7
8
9
10
Culture and governance
Approved recommendations from the Nomination Committee regarding Board succession.
Implemented actions to address the findings from the 2020 externally-conducted Board effectiveness review.
Conducted an internally-facilitated Board effectiveness review in 2021. Further information about this process
and the outcomes can be found on page 74.
Approved for publication the Group’s Modern Slavery Statement, Gender Pay Gap Report and the Board’s
diversity and inclusion policy.
Approved the treatment of actual and potential directors’ conflicts of interest, including the actual conflict of
interest of Tony Quinlan who is a director of Hill & Smith Holdings PLC (a non-material supplier to the Company).
Approved changes to the delegated authority matrix and the matters reserved for the Board.
Approved the arrangements for the 2021 AGM to comply with Government guidelines on COVID-19.
Approved a revised whistleblowing process including transfer of responsibility to the legal function.
Contributed to and approved the Company’s response to the BEIS consultation on ‘Restoring trust in audit
and corporate governance’.
Noted restructurings of the legal and finance functions to strengthen their support in delivering the strategy
by closely aligning them to the divisions.
Received updates on the Group’s defined benefit pension scheme and related governance including the
impact of the Pension Schemes Act 2021. Reviewed the Group’s pensions investment strategy and risk with
advisers and approved the proposal to seek to appoint an independent professional trustee in conjunction
with the current pension scheme trustee board.
2
3
5
7
Talent and people
Discussed, via the Nomination Committee, succession planning and talent development for the executive
directors and the Executive Board.
Engaged with high potential candidates through presentations and deep dives at Board meetings.
Reviewed and discussed the feedback from the ‘Your Voice’ forum, wellbeing survey, site visits and annual
staff roadshow (see pages 66 to 69).
Noted the increase in early careers recruitment and apprenticeships.
Noted progress with recruitment and reviewed staff turnover rates.
Agreed not to offer an invitation under the Company’s sharesave scheme due to the prevailing share price.
1
4
5
6
6
Deliver projects
effectively
7
Manage the legacy
defined benefit
pension scheme
8
Ensure that our
technology is
robust, our systems
secure and our
data protected
9
Anticipate and
respond to changes in
client circumstances
10
Climate change
resilience
65
Governance | Key Activities
WORKFORCE ENGAGEMENT
Board engagement with
the workforce
Engagement with and feedback
from the workforce are vital to
maintaining a sustainable business.
This is not limited to Company
employees but also includes
contractors and agency workers.
In compliance with the 2018 Code, we have
adopted a workforce engagement mechanism.
This involves direct contact between directors
and a diverse cross section of the workforce
through a range of engagement activities.
Costain aims to inspire and engage our teams,
creating interactive two-way dialogue through
mechanisms such as the employee networks,
employee surveys and the ‘Your Voice’ forum.
In addition, the Board continues to use a
number of recognised indicators of culture
(see page 63).
WORKFORCE
ENGAGEMENT
Employee forum
Wellbeing
survey
Leadership
briefings and
blogs
Staff roadshow
Site visits
Mentoring
Wellbeing survey
As we continued to navigate through the COVID-19 pandemic, we launched our second Group-wide
wellbeing survey in February 2021 to better understand how our employees were feeling.
The results showed that overall wellbeing was down
compared to the previous survey in September 2020,
with 54% rating their overall wellbeing as good or
excellent, compared to 60% in the last survey. The
survey also identified the main barriers and concerns
for colleagues returning to sites and offices as
restrictions started to ease in April. The information
was shared with the Board and helped shape the
COVID-19 roadmap, a communication endorsed by
the Board that detailed, step by step, the changes
that colleagues could expect to see and ensuring
that at all times Costain was doing the right thing
by society, our people and our clients.
More positively, the survey showed an increase in
employees feeling supported by their line managers
and that employees continued to feel that Costain
was taking the right steps through the pandemic.
The survey included three engagement questions
as follows:
84% of employees say Costain is a great place to
work (82% 2018)
96% feel committed to helping Costain succeed
(91% 2018)
88% of our employees are proud of the Costain
brand (87% 2018)
During May, the results (comprising overall Group
results and a deep dive by business area) were
cascaded, detailing the Group actions that would be
taken. Teams were encouraged to discuss the results
and talk about any local actions they could take.
The Board monitored progress against the actions
throughout the rest of the year.
Costain Group PLC | Annual Report and Accounts 2021
66
Our non-executive directors carry out engagement tours on our projects and sites
to gain further insights into the business and to examine in particular our health,
safety and environmental performance.
As part of these visits a Q&A session is normally
held with members of the site team (including staff,
operatives and members of the supply chain) to
enable two-way communication with the Board
member. At the end of each visit the non-executive
director returns a form to the general counsel and
company secretary capturing key information and
feedback from the visit. Relevant themes are then
discussed at Board meetings and appropriate
actions agreed.
Due to COVID-19, some site visits were held virtually
and some in person in 2021. In early October 2021,
our Board members visited two of our London
projects in person as follows:
Site visits
HS2 Main Works, Euston
Paul Golby, Helen Willis and Tony Quinlan,
together with the general counsel and
company secretary, visited HS2 Main Works
hosted by Sue Kershaw as the divisional MD.
They keenly observed the ‘zero trim’ method
conceived by Costain’s Lee Piper which
avoids breaking the bored piles down to a
level after they have been cast. This method
reduces our carbon footprint from the
reduction in concrete production, waste
and transportation. By totally removing the
later activity of breaking down the piles, this
innovation also saves time, reduces cost and
removes any potential health hazards caused
by noise, vibration and dust. Lee won an
employee award in early 2021 for this initiative
which is now used across the industry.
Thames Tideway, Bermondsey
Alex Vaughan, Bishoy Azmy and Jacqueline
de Rojas visited this site, hosted by the
divisional MD.
After the visit, Jacqueline de Rojas
commented, “It was clear from the feedback
and our questioning that employee care
is top of mind, together with a very strong
emphasis on Costain being a real catalyst for
opportunity as an employer with space for
people to rise to the challenge. I observed a
cultural cohesion and pride in their work. An
example of an incredibly complex project both
in engineering terms but also collaboration
with JV partners and other diverse groups.”
Subsequently, Paul Golby and Tony Quinlan
visited Thames Tideway Greenwich Pumping
Station on 1 November 2021, with Paul Golby
commenting, “a very well organised site,
particularly given the space constraints with
a lot of thought given to traffic movements
and other local community and environmental
issues,” and Tony Quinlan commending
the “very good operational standards in a
potentially hazardous tunnelling environment.”
67Governance | Workforce Engagement
WORKFORCE ENGAGEMENT continued
Every month the CEO has a 30-minute briefing call with the senior leadership team. The purpose of
the call is to update senior leaders on our business performance and priorities, together with any
important messages from our stakeholder engagement processes.
The briefing supports clear and transparent
communication cascades throughout the
organisation. The format is a 10-minute update with
a short leadership message from the CEO, followed
by a Q&A session with other members of the
Executive Board. Themes and key messages from
the Q&A sessions are communicated to the Board
by the CEO via his Board report and weekly updates.
Additionally, there are fortnightly blogs from our
CEO and members of our Executive Board to all staff.
During the year these blogs have covered topics
such as:
• Keeping safe during the pandemic and COVID-19
measures in place.
• Decarbonisation and some of the actions being
taken to target net zero.
• Costain’s digital growth.
• Update on ‘The Big Risk Conversation’ programme
across the Group.
• Launch of the 2021−2024 Inclusion Strategy,
promotion of allyship and zero tolerance of
discrimination.
• Update on supply chain relationships and the
supply chain conference held in October 2021.
• Performance review process to emphasise the
importance of performance and development
discussions.
• Wellbeing, including COVID-19 impact and mental
health awareness.
• Adoption of dynamic working to provide flexibility
as to where, when and how employees work,
ensuring they stay connected while allowing
them to thrive and be at their best.
• Awards, employee and team recognition
and sharing examples of great work.
Leadership briengs and blogs
Our new employee forum ‘Your Voice’ met for the first time in January 2021 and is chaired by Sara
Brady, corporate social responsibility and engagement manager.
Your Voice comprises eight elected champions
representing all sectors and capabilities, along
with a people lead, engagement lead and rolling
Executive Board member. Alex Vaughan represented
the Executive Board in 2021 and attended all the
quarterly Your Voice forum meetings. Helen Willis
is joining Your Voice in 2022.
The objectives of the forum are to:
• Share and take forward ideas and experiences to
accelerate how we make Costain a better business
– safer, faster, greener and more efficient.
• Share ideas and proposals to help make Costain
an even better place to work.
• Seek feedback from our employees on important
workplace matters.
• Be a career and skills development opportunity
for those taking part.
Outputs from the forum are fed back to the Board
via the HR director’s report. Periodically Catherine
Warbrick also attends Board meetings in person
to give presentations on HR matters and answer
questions raised by the Board. Examples of matters
reported to the Board in 2021 were as follows:
• Additional support measures implemented to
mitigate the isolation challenges of younger
colleagues in shared accommodation during
lockdowns due to COVID-19.
• Communication plan to promote the support
available for parents juggling home school
responsibilities, including thrive plans,
key-worker letters and access to the parent
and carers’ network.
• Campaign launched to promote volunteering
opportunities and remind employees of Costain’s
volunteering policy. Many colleagues volunteered
as vaccinators or vaccination centre stewards in
their spare time as part of the COVID-19 response.
• How the ‘Your Voice’ champions engaged with
frontline staff to ensure as many as possible
completed the wellbeing survey.
• Feedback on the success of the rollout of dynamic
working as a result of the ‘Your Voice’ champions
holding focus group sessions.
Employee forum: Your Voice
Costain Group PLC | Annual Report and Accounts 2021
68
This year the roadshow, hosted by members of the Executive Board, consisted of three sessions on
2 November 2021 as follows:
• Keynote session: ‘Let’s talk about our future’
during which Alex Vaughan, Helen Willis and the
two divisional MDs looked ahead to 2022 priorities.
• ‘Let’s talk about exceptional delivery’ during which
David Taylor, Group commercial director and
Craig Reade, complex delivery capability director,
together with contract leaders, highlighted some
best-practice examples.
• ‘Let’s talk about my future’ during which Catherine
Warbrick, Group HR director, together with other
senior members of the HR team, showcased how
colleagues had grown their careers at Costain,
the opportunities available and how the Company
supported employees in their career development.
Each session included a Q&A session where
employees could submit questions, anonymously if
preferred. The questions were then selected using a
voting system to ensure matters most important to
employees were answered.
A total of 1,170 employees attended at least one
roadshow session and 140 later watched at least one
of the session recordings. Feedback was very positive
with employees liking the new approach to the Q&A
session.
Questions received were grouped into
the following themes:
Pay and benefits
Career opportunities
Retention
Share price confidence and sharesave plan
Work winning
Dynamic working
Lessons learnt and knowledge sharing
Climate change and net zero
Systems and efficiency
Key feedback from the roadshow has been included
in our plans for 2022.
Staff roadshow
With new Board
members in post, the
non-executive director
mentoring programme
is being reinvigorated.
Each non-executive
Board member is
expected to mentor
two senior mentees.
Mentoring
69Governance | Workforce Engagement
ATTENDANCE AND COMPOSITION
Skills and experience (all 7 directors*)
2
3
4
3
3
3
3
7
5
7
3
4
4
6
* Self-assessment based on strong or very strong experience.
Meeting attendance
The Board meets regularly, with seven
scheduled full meetings during the
year. The directors’ attendance record
at the scheduled full Board meetings
and Board Committee meetings for
the year ended 31 December 2021 is
shown in the table below. Also shown
Board attendance
Scheduled full
Board meetings
Maximum 7
Other brief update
or ad hoc Board
meetings
Maximum 6
Audit
Committee
Maximum 8
Remuneration
Committee
Maximum 4
Nomination
Committee
Maximum 4
Executive directors
Alex Vaughan 7/7 6/6 8
a
3
a
4
a
Helen Willis 7/7 6/6 8
a
– 1
a
Non-executive directors
Paul Golby 7/7 6/6 8
a
4
a
4/4
Bishoy Azmy
1
7/7 3/6 2
a
3
a
4/4
Neil Crockett
2
2/2 1/1 2/2 1/1 1/1
Jacqueline de Rojas
3
7/7 5/6 7/8 4/4 4/4
Jane Lodge
4
2/2 4/4 4/4 2/2 1/1
Tony Quinlan
5
7/7 5/5 8/8 4/4 4/4
Alison Wood 7/7 6/6 8/8 4/4 4/4
1 Bishoy Azmy is the designated representative of our largest shareholder, ASGC Construction L.L.C. and is a non-independent director. As a result of his executive
responsibilities, Bishoy is sometimes unable to join Board meetings but does feed back comments on the papers and proposals to the chair prior to those meetings.
Two meetings Bishoy was unable to attend in 2021 were unscheduled meetings called at short notice and one was a scheduled brief update meeting.
2 Neil Crockett joined the Board on 6 October 2021 and was not eligible to attend any meetings prior to that date.
3 Jacqueline de Rojas was unable to attend a combined Audit Committee and Board unscheduled additional meeting in March 2021 due to other prior commitments.
4 Jane Lodge stepped down from the Board at the conclusion of the AGM on 6 May 2021.
5 Tony Quinlan joined the Board on 1 February 2021 and was not eligible to attend any meetings prior to that date.
a Not a member of the Committee – attendance at meeting by invitation. No director attended the Remuneration Committee for discussions on their own remuneration.
Board composition
The Board currently comprises the chair, two executive
directors, three independent non-executive directors
and one non-independent non-executive director. The
membership of the Board and biographical details of
all the directors can be found on pages 50 and 51.
The biographies illustrate that the non-executive directors
have a range of business, sector and financial experience
that is important and relevant to the management of
the Company. The balance between executives and
non-executives is constantly under review. The Board
is enhanced by the varying lengths of service, gender
and ethnicity balance and expertise of all the directors,
together with the mix of skills and experience depicted
in the adjacent chart.
The non-executive directors provide constructive
challenge, strategic guidance and specialist advice.
They also hold management to account.
below is the directors’ attendance
record at scheduled brief update or
ad hoc Board meetings, the latter to
deal with matters between scheduled
meetings such as the Peterborough &
Huntingdon adjudication decision (see
pages 76 and 77 for more information).
Engineering
ESG
For the Board and Committee
meetings, attendance is expressed
as the number of meetings that each
director attended out of the number
that they were eligible to attend.
Consultancy
General management
Construction
Digital/technology
Transportation
Strategy and M&A
Finance, audit and banking
Government relations
Communications/marketing
Safety and risk management
Natural Resources
PLC governance
Costain Group PLC | Annual Report and Accounts 2021
70
Board independence
Having due regard to the results of
the internally-facilitated 2021 review of
Board performance (see page 74 for
details), the Board considers each of its
independent non-executive directors
standing for re-election continues
to be independent in character
and judgement and there are no
relationships or circumstances which
are likely to affect (or could appear
to affect) the judgement of such
independent non-executive directors.
Bishoy Azmy is a non-independent
non-executive director and represents
the shareholder ASGC. The Board
also confirms that these directors
continue to perform effectively, that
they demonstrate commitment to
their particular roles, that they ensure
proper time is devoted to Board and
Committee meetings and should
therefore be elected or re-elected at
the forthcoming AGM.
The current terms of appointment
of all the directors are set out in the
Directors’ Remuneration Report on
page 105.
At the time of his original appointment
in May 2016, the chair, Paul Golby, was
considered independent by the Board.
Board induction
On appointment, new members of the
Board take part in a tailored induction
programme, organised by the general
counsel and company secretary.
The induction programme for new
non-executive directors covers the
following activities and meetings:
1. Meetings with Board members
and other external stakeholders
As part of the appointment process, a
newly appointed director has meetings
with the chair, the senior independent
director and Committee chairs to build
up their understanding of the Costain
business and its markets. Additionally,
they will have the opportunity to
meet with other key advisers and
stakeholders, including the Company’s
financial advisers and brokers.
2. Meetings with senior
management and staff
A newly appointed director will spend
time meeting the chief executive
officer and chief financial officer. They
will also have meetings with the other
members of the Executive Board.
3. Understanding the business
A newly appointed director
(accompanied by the relevant
managing director) will carry out
engagement tours at various
operational sites. These tours will
involve meeting with members of
the project team, including the supply
chain. They learn about the nature
of each of the projects including
health, safety and environment
aspects, and obtain insights from the
workforce. A feedback form is then
returned to the general counsel and
company secretary.
4. Training
An electronic induction pack is
provided to ensure a thorough
understanding of the role of the newly
appointed director and the framework
within which the Board operates. This
is coupled with a training session with
the general counsel and company
secretary covering directors’ duties,
the Market Abuse Regulation and
the Group’s corporate governance
practices and procedures. Newly
appointed directors also undertake
the Company’s online health and
safety, inclusion, information security,
competition law and anti-bribery and
corruption awareness training modules.
During the year the general counsel
and company secretary also provided
a briefing paper on share ownership
governance and shareholder reporting
requirements.
Induction of new
non-executive directors
In addition to the above, Tony Quinlan
and Neil Crockett, on appointment,
met with representatives of the
Company’s external auditor and
members of the wider leadership team.
On his induction, Neil commented:
“Since I joined in October 2021 I’ve
undergone a comprehensive, formal
induction programme tailored to
my needs. In addition to multiple
meetings with managers and
advisers, together with briefings and
documentation on the governance
around being a director of a UK listed
company, Costain’s approach to
stakeholders has been an important
topic in my induction. I have been
able to quickly understand the main
areas of business activity, especially
areas involving significant risk, and I
fully recognise the importance of our
relationships with clients and suppliers
to our long-term success. I recently
joined Sue Kershaw, managing
director, Transportation, on a visit to
our operations at HS2 Victoria Road
Crossover Box, and Matt Higham,
the new chief digital officer, on a visit
to Worle Technology Centre. I have
also visited our Tideway operations
in Greenwich with Sam White, our
new managing director, Natural
Resources. During the visits I enjoyed
opportunities to engage with and seek
feedback from staff and participated
in Q&As which gave me additional
insight into the positive and inclusive
culture at Costain.”
Ongoing Board training
As regards the continuing professional
development of the executive and
non-executive directors, Board
members, independent of any formal
training arranged by the Company,
are encouraged to attend seminars
and conferences on issues relevant
to their appointment as directors
of a public company, particularly
matters concerned with corporate
governance, audit and remuneration
issues. In addition, Board site visits
are considered essential to ensure
that directors have a thorough
understanding of the business
operations and issues that affect
the Group.
71
Governance | Attendance and Composition
OTHER BOARD MATTERS
Operation of the Board
The chair sets the Board’s agenda
and ensures that adequate time is
available for discussion of all agenda
items. To discharge their duties,
the directors are provided with full
and timely access to papers prior to
Board meetings via a fully encrypted
electronic portal system. Directors
have access to all information relating
to the Group and are free to seek
any further information they consider
necessary. After each meeting,
the general counsel and company
secretary operates a comprehensive
follow-up procedure to ensure that
actions are completed as agreed by
the Board.
Senior executives and high potential
employees below Board level
are invited to attend Board and
Committee meetings from time to
time to deliver presentations on issues
that are relevant to their particular
business sector or function.
Between Board meetings, the chair
and non-executive directors have
access to the chief executive officer,
chief financial officer and general
counsel and company secretary to
progress the Company’s business.
The chair and non-executive directors
also receive a weekly report from
the chief executive officer, monthly
management accounts, internal audit
reports and regular management
reports and information, which enable
them to scrutinise the Group and
management’s performance against
agreed objectives. The Board is also
kept up to date on legal, regulatory
and governance matters by both
the general counsel and company
secretary and external advisers.
The general counsel and company
secretary is responsible for ensuring
that Board procedures and applicable
rules and regulations are followed.
The appointment and removal of
the general counsel and company
secretary is a matter reserved for
Board approval.
The Board also obtains advice
from professional advisers as and
when required at the expense of
the Company.
Corporate responsibility
The Board receives reports on
corporate responsibility and
monitors progress on a regular basis.
Directors’ external appointments
The non-executive directors may
serve on a number of other company
boards provided they continue
to demonstrate the requisite
commitment to discharge their duties
to the Company effectively. Such
external appointments are seen
as being beneficial to the overall
decision-making process of the
Board as a whole. The Company may
encourage, when appropriate, the
executive directors to take up non-
executive positions, with the prior
consent of the Board, in the belief
that such appointments broaden their
skills and enhance the contribution
which they can make to the Company’s
performance. Generally, no more
than one such appointment may be
undertaken by the executive directors.
At present neither executive director
has such an appointment and Alex
Vaughan ceased to chair the CBI
regional council in November 2021.
Remuneration
A summary of the Company’s
remuneration policy approved in 2020
and how it has been implemented,
together with the activities of the
Remuneration Committee, can be
found on pages 84 to 107 of the
Directors’ Remuneration Report.
Shareholder communication
and engagement
The Company remains committed
to maintaining good relationships
with both institutional and private
shareholders. There continues to be
regular dialogue with institutional
investors and this has been enhanced
during the year with the appointment
of Louise Bryant as Group director
of communications and investor
relations. Additional details of how the
Company engages with shareholders
can be found on pages 34 and 35 of
the Strategic Report.
The chair is available to discuss
strategy and governance issues with
shareholders. The senior independent
director, Tony Quinlan, is available to
shareholders if they have any concerns
that have not been, or cannot be,
addressed through the normal
channels of chair, chief executive
officer or chief financial officer.
In line with our shareholder
engagement process, in 2021
Paul Golby met with some of
our major shareholders.
The Company obtains feedback from
its brokers, Investec and Liberum
Capital, on the views of institutional
investors on a non-attributed basis.
The Board routinely reviews reports
from its brokers on issues relating
to recent share price performance,
trading activity and institutional
sentiment. The Board also receives
copies of relevant analysts’ reports
on an ad hoc basis.
Costain Group PLC | Annual Report and Accounts 2021
72
How the non-executive
directors are kept informed
• Deep dive presentations
from business sectors
and functions.
• Visits to regional offices and
operational sites
• Access to the Executive Board
members between meetings.
• Weekly reports from the chief
executive officer.
• Monthly management
accounts and regular
internal reports.
• Updates on legal, regulatory
and governance matters.
• Presentations from external
advisers.
The Board regards the AGM as an
important opportunity to communicate
directly with shareholders. The
AGM provides shareholders with an
opportunity to ask questions of the
directors during the meeting. The
AGM also gives shareholders an
opportunity to listen to a presentation
from the chief executive officer on
the current trading performance and
developments within the business.
At the time of the 2021 AGM in May,
due to the COVID-19 pandemic,
there remained restrictions on public
gatherings and travel as a result of
public health guidance and legislation
issued by the UK Government. We
therefore held the AGM at our offices
in Maidenhead with the minimum
attendance required to form a
quorum and to conduct the business
of the meeting. The quorum of two
shareholders comprised the chair
and CEO. Shareholders were able to
listen to the AGM via a live webcast
which was available on-demand after
theAGM.
Shareholders were not able to attend
the AGM in person but were able to
cast their votes ahead of the meeting
and submit their questions to the
directors in advance of the meeting
byemail.
At any time, shareholders may raise
issues or concerns by contacting
investor relations (see contact details
on page 180).
Accountability
Financial and business reporting
The Board is required by the 2018
Code to present a fair, balanced
and understandable assessment
of the Company’s position and
prospects and reference is made
to the statement of directors’
responsibilities on page 114 together
with the statement on the status of
the Company as a going concern and
the financial Viability Statement on
page 49.
As can be seen on page 78, the
preparation of this annual report
involved input from a number of
functions across the Group. The
Board was involved at an early stage
to enable review, challenge and
discussion ahead of approving the
final publication.
The Board also recognises that
its responsibility to present a fair,
balanced and understandable
assessment extends to interim and
other price-sensitive reports that
the Company may publish from time
to time, for example the update
regarding the Peterborough &
Huntingdon contract and trading
update on 13 December 2021.
Business model
The Overview and Strategic Report
on pages 1 to 49 give details of
the Company’s business model
for delivering the priorities of
the Company.
Going concern and viability
The Group’s going concern
statement is detailed in note 2
of the consolidated financial
statements on pages 131 and 132.
The long-term Viability Statement
is set out on page 49.
Risk and internal control
Risk management
The Board is responsible for
undertaking a robust assessment of
the principal risks facing the Group,
as described on pages 44 to 48 of the
Strategic Report. This includes those
risks that would threaten its business
model, future performance, solvency
and liquidity and ensuring that
appropriate mitigating actions
are in place to manage them.
The Group’s approach to risk
management as more fully described
on pages 44 to 48 ensures that, on an
ongoing basis, the most significant
risks to the Group’s objectives are
identified, assessed and managed.
The Costain Way, which forms
the basis of the Group’s control
framework, contains all policies,
procedures and controls and is
regularly updated to reflect the output
of risk and assurance activity to ensure
that there is continuous improvement
to the control environment.
Internal control
The Board is responsible for the
Group’s systems of risk management
and internal control and is required
to regularly review their effectiveness.
The Audit Committee has undertaken
this review in accordance with the
requirements of the Guidance on
Risk Management, Internal Control
and Related Financial and Business
Reporting, published by the Financial
Reporting Council (FRC), throughout
the year and up to the date of this
annual report. Further details can
be found on page 78 of the Audit
Committee Report.
The Group uses the Costain Way
as the framework for the systems
and controls in place to ensure
that exposure to significant risks
is managed appropriately. The
Board recognises that such a
system can only manage rather
than eliminate the risk of failure to
achieve business objectives and can
only provide reasonable, but not
absolute, assurance against material
misstatement or loss.
The Group also has an independent
internal audit function which
undertakes a programme of risk-
based audits across our operations
throughout the year. All audit reports
are shared with the relevant business
owners who are accountable for
implementing appropriate measures
to address any risk or control
weaknesses. The results of all internal
audit activity are also shared with the
chief executive officer, chief financial
officer and the external auditor. The
Audit Committee scrutinises the
internal audit activity. Further details
can be found on page 78 of the Audit
Committee Report.
73
Health and safety
• The Board considers health
and safety its number
one priority.
• All Board members hold
a Construction Site Visitor
Card certificated under
the Construction Skills
Certification Scheme or
similar appropriate internal
certification.
• The directors also take part in
leadership impact days which
take place across all our sites.
They are asked to complete
a feedback form, as they also
do after a site visit.
Governance | Other Board Matters
BOARD EVALUATION
Board evaluation
The Board has a formal process for
the evaluation of the effectiveness of
the Board and its Committees. For
the 2021 financial year, the annual
evaluation was conducted internally
under the direction of the chair with
support from the general counsel and
company secretary and took a revised
approach to drive more qualitative
information.
Instead of a questionnaire with ratings,
this year the evaluation comprised 17
statements, each soliciting feedback
from the directors on key indicators of
good governance and each building
on discussions and findings from
last year’s external performance
evaluation. For each statement,
directors were asked to comment on
what they perceive works well and
suggested areas for improvement.
Areas covered included strategy
and business planning, business
model, markets and competitor
landscape, relationships at Board
level, information around Company
performance, factors affecting
the Company’s success, risks and
uncertainties, the Company’s cultures
and behaviours and engagement with
multiple stakeholders.
The chair then met with each director
to discuss the findings and areas
identified for future focus in more
detail. Board and Committees papers
were prepared and the findings
were discussed at the Board and
Committee meetings in December
2021 and actions agreed.
Based on the review, the Board
concluded that its strength continued
to be demonstrated through its
composition, diversity, clarity of roles
and heightened focus on strategy.
The Board considered that the
directors continue to have sufficient
time, knowledge and commitment
to contribute effectively to the Board
and its Committees, and that the
Board as a whole demonstrates
good practice on the key indicators
of Board effectiveness.
As a result of the evaluation, the Board
agreed to give additional focus to the
following areas in 2022: the strategy
for growth including contribution of
digital; monitoring the performance of
KPIs that underpin the delivery of the
business plan; and creating additional
opportunities for engagement with
management and the talent pipeline.
Following his appointment as senior
independent director, Tony Quinlan
conducted an assessment of the
chair’s effectiveness at a meeting
of other directors in February 2022
and then met with the chair to
provide feedback.
The procedures, effectiveness
and development of the Board will
continue to be kept under review.
Progress made in 2021 against the
areas of focus that were identified
during the 2020 external evaluation
are shown below.
Areas of focus identified in 2020 Purpose and link to strategy
Contract risk appetite and controls • Contract risk appetite reviewed including new onerous terms policy.
• Improved contract risk reporting to the Board.
• Deep dives of principal risks undertaken by the Board and Audit Committee.
• Delegated authority matrix updated and cascaded to increase the Board’s
oversight of higher risk areas.
• Review undertaken of Costain’s contract lifecycle governance processes.
Delivery and communication
of our strategy
• On multiple occasions during the year, the Board considered progress with
strategy implementation.
• Conducted a strategic update including of the Company’s market positioning
(see page 62).
Monitoring the culture change
required to deliver our strategy
• Enhanced reporting to the Board by the Group HR director.
• Detailed presentations to the Nomination Committee on recruitment, talent,
diversity and inclusion (see pages 80 to 83).
• Reviewed the Company’s purpose, vision, mission and narrative. Refreshing our
values and behaviours to reflect the business we are evolving into is a priority
for 2022.
Costain Group PLC | Annual Report and Accounts 2021
74
Q&A WITH SENIOR INDEPENDENT DIRECTOR AND CHAIR OF THE AUDIT COMMITTEE TONY QUINLAN
“I was delighted to be asked to
be Costain’s senior independent
director in January this year.
The Company has an important
history, going back over 150
years, and has a clear vision for
its future. As a Board, we will
oversee implementation of the
strategy to support clients’ needs
for innovation, unlocking better
and more efficient infrastructure
performance.”
Tony Quinlan
Senior independent director
75
Governance | Q&A with Senior Independent Director and Chair of the Audit Committee Tony Quinlan
What can you tell us about
yourself and your background?
I’m a chartered accountant with
financial and commercial experience
gained across several sectors,
including technology, engineering,
industrial, energy and retail. I have
recent experience, as CEO, in leading
and turning around a UK listed
company. I am senior independent
director at another FTSE 250 company
and a non-executive director at the
UK’s largest port operator. I also have
experience of chairing various audit
committees.
You joined the Board in 2021.
What were your first impressions
of Costain?
Costain is rightly proud of its heritage
together with its client-centric cultural
and behavioural values, which have
been very apparent from the day
I joined the Board. There has also
been a business-critical drive from
the leadership team to resolve legacy
contract issues, including resetting
the culture and processes to better
manage contract risk − a challenge
for Costain and others in this industry.
Along with a strong client focus,
workforce safety and playing a part
in improving the environment, are at
the very core of Costain. The long-
term vision to create connected,
sustainable infrastructure that helps
people and the planet to thrive offers
hugely exciting opportunities to grow
the business, delivering value for all
stakeholders.
What is your role as senior
independent director (SID)?
As is the prescribed role of a SID, I will
work closely with Paul Golby as chair
of the Company, acting as a sounding
board and providing support, as
necessary. Ordinarily, the SID leads the
Board in an annual review of the chair’s
performance and is also available if
any of our institutional shareholders
wish to speak with me or raise any
matters which they feel are not being
addressed adequately through the
normal channels. Outside of these
more formal responsibilities, the SID
is really there to offer 'wise counsel',
mentoring, coaching or whatever may
help, to ensure the Board is efficient
and effective and all directors can
contribute at their best.
Following the announcement of Paul’s
desire to step down as chair and non-
executive director within the next 12
months, my immediate priority is to
lead the process for the recruitment
of a new chair.
Finally, how do you relax in your
spare time?
Well, I am an Arsenal season ticket
holder, although that is not exactly
relaxing at the moment! Spending
time with my family is very important
to me; our daughters are young adults
now and taking their first steps in their
own careers. I also try to keep fit −
I find time in the gym or cycling
as good ways to decompress.
AUDIT COMMITTEE REPORT
The Committee has open and challenging dialogue
with management and the internal and external
auditors and has an appropriate level of scrutiny
Governance of the Committee
I have been chair of the Audit
Committee (the Committee), which is
comprised exclusively of independent
non-executive directors, since 6 May
2021. The members of the Committee
and details of their attendance at
Committee meetings are given below
and on page 70 and their biographies
are shown on pages 50 and 51. The
general counsel and company secretary
is secretary to the Committee.
The Company considers that I,
as Committee chair, possess the
necessary recent and relevant financial
experience to effectively chair the
Committee and am competent in
accounting and auditing. In addition,
the Company considers that the
members of the Committee as a whole
possess relevant skills and sector
experience to meaningfully discharge
the responsibilities of the Committee.
Absent any specific matters to
consider, such as the Peterborough &
Huntingdon dispute, the Committee
would expect to meet four times a
year. During 2021, the Committee
held eight meetings reflecting the
increased oversight in the year of
significant contract judgements and
the risk management framework.
The outcome of the Peterborough &
Huntingdon dispute was unexpected,
given the independent advice the
Board had been presented with,
and disappointing. Commercial and
dispute resolution lessons have been
absorbed by management. In 2022, the
Committee will continue to review and
challenge management’s judgements
on significant accounting issues
including key contract judgements.
The Committee also welcomed the
opportunity to submit a response in
June 2021 to the BEIS consultation on
restoring trust in governance and audit.
In September 2021, the FRC notified
Costain that it had been included in
a sample of companies reviewed by
the FRC in relation to its Viability and
Going Concern Thematic Review.
Based on its limited scope review of
Costain’s compliance with the relevant
reporting requirements, the FRC
confirmed there were no questions
or queries it wished to raise at that
stage. Findings which were identified
as areas for improvement for almost
all companies in the sample have been
considered in the preparation of the
Viability Statement and Going Concern
Assessment on page 49.
The meetings of the Committee are
normally also attended by the Group
chair, the chief executive officer, the
chief financial officer, the head of
internal audit and risk, the financial
controller and the external auditor.
Other senior executives will attend
as required to provide information
on matters being discussed which
fall into their area of responsibility.
The Committee also regularly meets
privately with the external auditor and
the head of internal audit and risk.
Activities
In accordance with its terms of
reference and in compliance with the
2018 Code, on behalf of the whole
Board, in 2021 the Committee:
• monitored the integrity of the
Group’s financial statements and
formal announcements relating
to the Group’s performance, and
reviewed significant financial
judgements contained in them,
having also received reports
from the external auditor on the
outcome of its audits and reviews
• provided advice on whether the
annual report, taken as a whole, was
fair, balanced and understandable,
and provided the information
necessary for shareholders to
assess the Company’s position
and performance, business model
and strategy
• reviewed the Company’s internal
financial controls and internal control
and risk management systems, and
the processes for management of
the principal risks facing the Group
• monitored and reviewed the
effectiveness of the internal
audit and risk function
“ On behalf of the Board, I am
pleased to present my first
report as chair of the Audit
Committee which describes
how the Committee carried
out its responsibilities during
the year. A large proportion
of the Committee’s time was
spent reviewing significant
contract judgements, in
particular in relation to
Peterborough & Huntingdon
(see opposite).”
Tony Quinlan
Committee Chair
Committee members
Attendance
Tony Quinlan 100%
Neil Crockett
2
100%
Jacqueline de Rojas
3
88%
Jane Lodge
4
100%
Alison Wood
5
100%
1 Joined the Board on 1 February 2021.
2 Joined the Board on 6 October 2021.
3 Unable to attend one ad hoc meeting.
4 Stepped down from the Board and as
Committee chair on 6 May 2021.
5 Stepped down from the Board on
28January 2022.
Meetings held
8
Costain Group PLC | Annual Report and Accounts 2021
76
• reviewed the effectiveness of the
external audit process and made
recommendations to the Board
in relation to the reappointment
and remuneration of the external
auditor
• ensured that an appropriate
relationship between the Group
and the external auditor was
maintained, and reviewed non-
audit services and fees and the
external auditor’s independence
• adopted a revised policy on the
engagement of the external
auditor to supply non-audit
services (see page 79)
• reviewed its terms of reference
and its effectiveness (see pages
59 and 79).
In addition, the Committee expended
time as follows:
Revenue and margin recognition
The Committee considered contract
and commercial issues with exposure
to both revenue and margin
recognition risks on which it received
detailed reports and presentations
from management. As a key area
of audit focus, the Committee also
received reports from the external
auditor setting out the results of
its work in relation to key contract
judgements.
Provisions
The Committee reviewed the
significant judgements relating to
provisions, including litigation and
other risks. The Committee received
detailed reports, including relevant
legal advice and independent claims
assessor reports.
Cyber security
The Committee received two separate
presentations regarding cyber security
and the management and control of
key risks associated with providing
digital services.
Banking arrangements
The Committee oversaw the terms
of an agreement with the Group’s
banks on the treatment of A465
and Peterborough & Huntingdon
as ‘exceptional’ for the purposes of
calculating the banking covenants
and carve-outs to the future interest
cover covenant test.
Materiality
The Committee considered the auditor’s
year end materiality benchmark in light
of the sector and profitability of the
Group and agreed to increase this to
0.4% of reported statutory revenue.
Pension
The Committee considered a risk
assessment of the impact of the legacy
defined benefit pension scheme.
Risk management
The Committee reviewed the
principal and emerging risks and the
developments to the risk management
framework (see pages 44 to 48). The
Committee received presentations by
principal risk owners on the following
principal risks and undertook a deep
dive review of them: (i) ensure that our
technology is robust, our systems secure
and our data protected (including cyber
risk); (ii) secure new work; (iii) deliver
projects effectively; and (iv) prevent
a major accident, hazard or incident.
Significant accounting matters
The Committee spent a substantial
amount of time considering key
accounting issues, matters and
judgements in relation to the Group’s
financial statements and disclosures
relating to:
(A) Material contract judgements
As detailed in note 2 on pages 131
to 140 of the financial statements, a
significant proportion of the Group’s
activities is undertaken via long-
term contracts. These contracts are
accounted for in accordance with
IFRS 15, Revenue Recognition, which
requires them to be accounted by their
separately identifiable performance
obligations. The costs and revenues of
some of these performance obligations
may be affected by a number of
uncertainties that depend on the
outcome of future events and may
need to be revised as events unfold
and any uncertainties are resolved.
Management uses detailed contract
valuations and cost forecasts when
formulating its judgements of costs
and revenues and its assessments of
the expected outcome of each long-
term contractual obligation. Given
the Company’s portfolio of contracts,
the Committee spent time during
the year reviewing the positions and
judgements taken by management on
a number of material contracts across
the Group.
In respect of the Peterborough &
Huntingdon project, on 24 February
2022, Costain announced that it had
reached a full and final settlement
with National Grid. The settlement
agreement brings an end to the dispute
and prevents any further claims under
the contract. Costain made a full and
final payment of £43.4m to National
Grid in the first quarter of 2022. Related
legal and other costs of £4.2m were
also incurred and expensed during
the period ending 31 December 2021.
After careful consideration including
obtaining legal advice, it is the
Committee’s clear view that there have
been specific and unexpected changes
in circumstance that have occurred
during 2021. These were not envisaged
by the Committee or its external
advisers nor could they reasonably
have been foreseen when reaching
the conclusion in the December
2020 financial statements that it was
highly probable that Costain would
be awarded compensation events
consistent with the cash neutral balance
sheet position adopted. That position
had been the subject of detailed
focus by independent experts and
legal advisers who had confirmed
and supported the position taken.
After due consideration of the
unexpected outcome of the
adjudication process during 2021,
the Committee concluded that it was
appropriate to record the £43.4m
adjustment in the period ending
31December 2021 as a charge to the
income statement. As disclosed in
note 3 on pages 141 to 143, this charge
has been treated as an adjusting item,
consistent with the treatment adopted
in respect of the Peterborough &
Huntingdon contract in the prior year.
During the year, Costain recognised
a £6.2m provision in respect of the
expected future costs of probable
rectification works required at a
customer’s facility where the Group
had been prime contractor. Costain
has engaged with its insurers and
other stakeholders to explore routes
for recovery and to minimise the
Group’s ultimate exposure. However,
as at 31 December 2021, the expected
recoveries do not yet meet the virtually
certain criteria, and accordingly
no reimbursement asset has been
recognised.
77
Governance | Audit Committee Report
AUDIT COMMITTEE REPORT continued
that there was sufficient headroom to
agree with the Board’s confirmation that
the Group has a reasonable expectation
to continue in operation and meet
its liabilities as they fall due over the
viability period. Alongside the liquidity
and debt positions of the business, the
Committee determined that the three-
year measurement period continued
to be appropriate and that the viability
statement (as set out on page 49)
should be recommended to the Board
for approval.
(E) Future IFRS and UK GAAP
developments
During the year, there were no
changes to the Group’s accounting
policies and there were no new
accounting standards.
Fair, balanced andreasonable
The process to ensure the Group’s
financial statements, taken as a whole,
are fair, balanced and reasonable is:
• comprehensive guidance issued to
all contributors
• verification process dealing with
the factual content of the report
• review of the disclosure
judgements made by the
contributors from various functions
• comprehensive reviews undertaken
to ensure consistency and overall
balance
• review undertaken by
the Committee prior to
recommendation to the Board.
Audit, risk and internal control
The Board assumes ultimate
responsibility for the effective
management of risk across the
Group. However, the Committee
helps the Board in its monitoring
of the Company’s internal financial
control and internal controls and risk
management systems, and monitoring
and reviewing the work of the internal
audit and risk function.
Internal audit
The internal audit and risk function
has an integral role in the Company’s
governance structure, providing
independent assurance and advice to
help the Group achieve its strategic
priorities. The Committee agreed the
2021 audit plan to be undertaken by
the internal audit team and assessed
the adequacy of the budget and
resources. The audit plan is based
on risk, strategic priorities and
consideration of the strength of the
control environment. Progress against
the plan is monitored. The Committee
reviews the results of the internal audit
reports at each meeting. Management
is responsible for ensuring that issues
raised by internal audit are addressed
within the agreed timetable and their
timely completion is reviewed by the
Committee. Where internal or external
circumstances give rise to an increased
level of risk, the audit plan is modified
accordingly during the year.
The head of internal audit and risk
continues to report directly into
the Committee chair with a second
reporting line to the CFO (previously to
the CEO) for administrative purposes.
During the year the Committee received
the results of the head of internal audit
and risk’s annual performance review.
It also reviewed statistics on key staff
numbers, qualifications and experience
which the Committee considered to
besatisfactory.
The effectiveness of internal audit
is assessed by the Committee by:
reviewing the results of an annual
questionnaire completed by individuals
who have exposure to and contact with
the internal audit function; evaluating
internal audit reports; and meetings
with the chair of the Committee without
management present. The Committee
is satisfied the function is competent to
deliver the 2022 internal audit plan.
Internal control and risk
Details of the Group’s internal controls
and risk management framework are
more fully set out on pages 44 and 45
in the Strategic Report and page 73 in
the Governance Report. The Group’s
principal risks are set out on pages
46 to 48.
The Committee has evaluated the
effectiveness of the systems operated
within the Group pursuant to the FRC’s
guidance on internal control. The
evaluation covered all material controls.
These included financial, operational and
compliance controls. They encompassed
a review of: the management
confirmation reports submitted by all
senior management; controls reports;
reports on fraud perpetrated against
the Group; the Group’s approach
to anti-bribery and corruption and
whistleblowing; and reports from both
the internal and external auditors.
The review did not identify any
significant weaknesses in the system of
internal control and risk management.
Management has identified a range
of potential solutions to expedite
the required rectification works. The
Committee has carefully assessed
the maximum potential risk and
likely scenarios and agree with
management’s best estimate cost of
the single most likely solution as at
31 December 2021 is £6.2m. A provision
for this probable economic outflow
has been recognised and disclosed
in note 20 on pages 166 and 167.
(B) Pension
The Group’s defined benefit pension
scheme requires significant judgements
to be made 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 Company takes written
advice from an independent qualified
actuary. The Committee has critically
reviewed these assumptions and
considers them to be reasonable. These
assumptions and sensitivities are set out
in note 21 on pages 167 to 171 of the
financial statements.
(C) The carrying value of goodwill
and intangible assets
As set out in note 12 on pages 151
and 152 of the financial statements,
the goodwill and acquired intangible
balances within the Group relate to
companies acquired by the Group. In
particular, the Committee reviewed the
carrying value of the goodwill within
the Natural Resources division and
critically reviewed the key assumptions
in relation to forecast operating margin,
the discount rates and long term
growth rates. The Committee agreed
with management’s assessment that
no impairment was required.
(D) Going concern and
viability statement
The Committee considered the
requirements of the 2018 Code as
it applies to the Group’s viability
statement including the three-year
period of assessment which aligns
with the Group’s planning horizon
and the processes supporting the
viability statement. The Committee
considered the various scenarios that
were presented as part of the viability
assessment, which included a reverse
stress test, mitigations and severe but
plausible scenario analysis relating to the
Group’s principle risks. The Committee
assessed the appropriateness of the
downside scenarios and determined
Costain Group PLC | Annual Report and Accounts 2021
78
External auditor
The Company’s external auditor is
PricewaterhouseCoopers LLP (PwC).
The audit partner is Andrew Paynter.
Effectiveness of the
external audit process
Following the end of the 2020 financial
year, the Committee considered the
effectiveness of PwC as external
auditor. As part of this process, external
audit effectiveness questionnaires
were completed by members of the
Committee, the executive directors,
other members of the Executive Board
and certain members of the finance
team. Based on the responses to the
questionnaires, the general counsel
and company secretary produced
a report for consideration by the
Committee. The Committee confirms
that it remained satisfied with the
efficiency and effectiveness of the
external audit in respect of the year
ended 31 December 2020.
During the year, the Committee kept
under review the ongoing effectiveness
of PwC as the Company’s external
auditor, for example, through the
quality of the external auditor’s
reports and the audit partner’s
interaction with the Committee.
At its meeting in December 2021, the
Committee considered and approved
the external audit plan for the audit
of the Group for the year ended
31December 2021. The Committee
considered significant risk areas for
the audit, the proposed scope, and
the materiality threshold.
Auditor independence
and objectivity
Auditor independence and objectivity
are an essential part of the audit
framework and the assurance it
provides. The auditor’s independence
is therefore monitored throughout
the year. For example, the Committee
has reviewed PwC’s own policies
and procedures for safeguarding its
objectivity and independence and the
arrangements that PwC has in place
to identify, report and manage
conflicts of interest. PwC is required
to rotate the lead audit partner every
five years to ensure a fresh outlook
without sacrificing institutional
knowledge. Jonathan Hook, after
serving four years, retired in 2021
and Andrew Paynter succeeded him
as lead audit partner.
The Committee is not aware of any
relationships between the external
auditor and the Company that bear
on their integrity, independence and
objectivity. The Committee reviews
all services being provided by the
external auditor annually to assess its
independence and objectivity. The
Committee takes into consideration
relevant performance and regulatory
requirements to ensure these are not
impaired by the provision of permissible
non-audit services (see below).
The Committee believes the
independence and objectivity of
PwC and the effectiveness of the
audit process remains strong and
has therefore recommended the
reappointment of PwC for 2022.
Non-audit fees
During the year the Committee
approved an updated policy on the
provision of non-audit services by
the external auditor which ensures
that such services do not impair the
independence or objectivity of the
external auditor.
The policy sets out a number of key
principles that underpin the provision
of non-audit services by the external
auditor: the external auditor should
not audit its own firm’s work; make
management decisions for the Group;
have a mutuality of financial interest
with the Group; or be put in the role
of advocate for the Group.
No material changes to the policy
were made and approval of the
Committee continues to be required
for any services provided by the
external auditor where the fee is
likely to be in excess of £30,000.
In 2021, the value of non-audit work
performed by PwC was less than
£0.1m (2020: £619,250).
Whistleblowing and fraud
Following the external evaluation of
the Audit Committee in 2020, it was
agreed to conduct a detailed review
of the effectiveness of the Company’s
whistleblowing procedures in light of
the virtual ways of working driven by the
COVID-19 pandemic. Following a review
in 2021, the Committee on behalf of
the Board considered the confidential
reporting and whistleblowing procedures
in place and noted some improvements
to the process had been implemented
and communicated to the workforce
(see below). The Committee noted there
had been 11 reports in 2021 (2020: 10).
The Committee also reviews any
instances of fraud perpetrated against
the Company and the action taken by
management to prevent recurrences.
Committee effectiveness review
During the year, an internal evaluation
of the effectiveness of the Committee
was conducted (see page 74).
On the basis of the review, the Audit
Committee concluded that the
Committee and its chair remained
effective. There were no significant areas
for concern in respect of the performance
of the Committee or any of its members.
The Committee identified the following
areas of focus for 2022: review the level
of qualitative reporting of financial
information to the Board and Committee
and further development of the risk
management and control framework.
Below is a summary of the agreed areas
of focus that came out of the external
review of the Audit Committee in 2020
and the actions taken in 2021.
Tony Quinlan
Committee Chair
9 March 2022
Area of focus Actions taken
Detailed review of the risk management
framework, including risk appetite
See pages 44 and 45.
Continuing to oversee risk deep dives
and to receive presentations on these
from the Executive Board risk sponsor
See page 77.
Oversee a campaign to re-publicise the
Company’s whistleblowing procedures
to ensure they remain effective.
Accountability for the whistleblowing
process was transferred from the HR to the
legal function reflecting the fact that not
all whistleblows are made by employees.
The whistleblowing policy was simplified
with the objective of encouraging
greater utilisation of the independent
whistleblowing hotline.
79
Governance | Audit Committee Report
NOMINATION COMMITTEE REPORT
• receiving notifications from
directors of situations, such as
proposed external appointments,
in which a potential conflict of
interest might arise and/or their
time commitment to the Board
could be compromised
• recommending to the Board the
reappointment of those directors
who are offering themselves
for re-election at the Annual
General Meeting following due
consideration of the Board’s
policy on independence and
the results of periodic Board
performance reviews
• formulating plans for succession
for both the executive directors
and non-executive directors
• reviewing succession planning
arrangements and development
plans for other senior employees
• reviewing periodically the
effectiveness of the Committee’s
own performance, which forms
part of the regular evaluation and
development work conducted by
the Board to ensure it continues to
improve its overall effectiveness.
Board diversity
The Company recognises the
importance of diversity at the Board
and all levels of the Group. In 2021
the Committee approved a refreshed
diversity and inclusion policy. Further
details of the work undertaken to
support the development of a diverse
pipeline, our measurable objectives
that have been set for implementing
the policy, and progress made
achieving these objectives, can
be found on page 60. While much
progress has been made and strengths
recognised, there continues to be
a lack of ethnic diversity in Costain
senior leadership roles, together
with low levels of diversity in contract
leadership roles. Actions are in place
to address these important areas.
Governance of the Committee
The Nomination Committee (the
Committee) is comprised of myself
as chair together with all the other
non-executive directors. The members
of the Committee, together with their
biographies, are shown on pages 50
and 51 and details of their attendance
at Committee meetings is shown on
page 70 and in the table below. Jane
Lodge and Alison Wood stepped
down from the Board and as members
of the Committee on 6 May 2021 and
28 January 2022 respectively.
The general counsel and company
secretary is secretary to the
Committee.
Only members of the Committee
have the right to attend Committee
meetings. Other individuals, such
as the chief executive officer, Group
HR director, members of senior
management and external advisers,
may be invited to attend meetings as
and when it is considered appropriate.
The outcome of all Committee
meetings is reported to the Board
for its consideration. The senior
independent director of the
Company will chair the meetings of
the Committee that deal with the
appointment of my successor as chair
of the Company. The Committee may
take independent professional advice
on any matters covered by its terms of
reference at the Company’s expense.
Role of the Committee
In accordance with its terms of
reference and in compliance with
the 2018 Code, the Committee is
responsible for:
• reviewing the overall size, structure
and composition of the Board
• identifying and nominating
candidates, for the Board’s
approval, to fill Board vacancies
as and when they arise
Significant progress made in the year to
strengthen our Board and leadership team
“Board and Executive Board
composition, succession and
development have continued to be
a key focus for the Nomination
Committee, ensuring we continue
to have the right balance of
skills, experience and diversity
on the Board and at the most
senior levels of the business.”
Paul Golby
Committee Chair
Committee members
Attendance
Paul Golby 100%
Bishoy Azmy 100%
Neil Crockett
1
100%
Jacqueline de Rojas 100%
Tony Quinlan
2
100%
Jane Lodge
3
100%
Alison Wood
4
100%
1 Appointed to the Board on 6 October 2021.
2 Appointed to the Board on 1 February 2021.
3 Stepped down from the Board on
6 May 2021.
4 Stepped down from the Board on
28 January 2022.
The composition of our Board and
Executive Board can be found on
pages 50 and 51, and 52 and 53
respectively of this annual report.
Meetings held
4
Costain Group PLC | Annual Report and Accounts 2021
80
NOMINATION
COMMITTEE
Activities in 2021 and into 2022
Succession planning has continued
to be a key area of focus during the
year in respect of the Board and for
those high performing individuals
below Board level.
In considering the Board’s
structure and composition, the
Committee considered how
well the skills, knowledge and
experience of the Board continued
to support the business to
effectively deliver our strategy.
During the year the Committee
achieved its aim to strengthen
Board sector-specific knowledge
to support the Company’s
strategy. In this regard, further
information on the processes for
the recruitment and appointment
of Tony Quinlan and Neil Crockett
as non-executive directors is
detailed on pages 82 and 83.
Since the year end, having
tendered her resignation from
28 January 2022, Alison Wood
ceased to be senior independent
director and chair of the
Remuneration Committee with
effect from 12 January 2022. The
Committee recommended the
appointment of Tony Quinlan as
senior independent director and
Jacqueline de Rojas as chair of
the Remuneration Committee, the
latter on an interim basis, on the
same date
.
The Committee received two
in-depth updates, in July and
December, from the Group HR
director, Catherine Warbrick,
on the talent management and
succession planning activities
within the wider Group, including
those individuals who have been
identified as having longer-term
potential for senior roles, including
as executive directors.
To support the delivery of our
strategy and long-term success of
the business, Matt Higham joined
the Executive Board as chief digital
officer on 1 December 2021 to lead
Costain’s digital and technology
capability. Sam White joined the
Executive Board on 4 January
2022 in the position of Managing
Director, Natural Resources
replacing Maxine Mayhew who left
Costain at the end of 2021.
The Committee also focused
on diversity with approval of a
refreshed policy (see opposite).
By appreciating and celebrating
our differences, we are creating a
Company that is a more dynamic
and inspiring place to be for our
employees. We are working hard to
ensure that our workforce reflects the
diverse communities we serve, and we
create an inclusive culture where each
employee can truly be themselves at
work. Embracing diversity underpins
our commitment to providing equal
opportunities to our current and
potential employees and applying fair
and equitable employment practices.
At the sign-off of the 2020 annual
report on 9 March 2021, the Board had
50% female representation. Following
further Board changes in 2021 and the
departure of Alison Wood in January
2022, female representation has fallen
to 29%. The Nomination Committee
is prioritising addressing diversity on
the Board. All instructions to external
search firms include a requirement for
a diverse long list of candidates.
Our principles on Board diversity also
apply to the Executive Board and
currently 50% (four of eight) of our
Executive Board are female. We seek
to build a diverse talent pipeline within
the business, not just in relation to
gender but also to social and ethnic
backgrounds and cognitive and
personal strengths. This will continue
to be an area of continued focus for
the Nomination Committee in 2022.
Committee effectiveness review
2021 review
Following an external review in 2020,
the effectiveness of the Board and its
Committees was conducted internally
in 2021. The evaluation process is
discussed on page 74. In relation to
the work of the Committee, areas
explored for comment by directors
were: (i) balance of skills, diversity,
independence and knowledge; (ii)
succession and talent management;
and (iii) the importance of diversity
and inclusion throughout the
Company. On the basis of the review,
the Nomination Committee concluded
that the Committee and its chair
remained effective and there were
no significant areas for concern in
respect of the performance of the
Committee or any of its members.
Areas identified for additional focus
by the Committee in 2022 were
the recruitment of a Remuneration
Committee chair and executive team
recruitment, talent and succession
with an emphasis on the internal
pipeline of candidates.
As I have decided to step down as
chair within the next 12 months, the
Committee, led by Tony Quinlan as
senior independent director, will
also lead the search for a new chair.
81
Governance | Nomination Committee Report
NOMINATION COMMITTEE REPORT continued
previously been an adviser, and
secondly as a non-executive director
of IFS, a global enterprise applications
company. Both appointments were
approved by the Board, as required
under the 2018 Code, and in doing
so the Board considered Jacqueline’s
other commitments and shareholder
concerns regarding overboarding.
On 26 July 2021, Paul Golby stepped
down as a non-executive director of
National Grid plc.
The Committee, on behalf of the
Board, is satisfied that all Board
members have, and commit, the
time required to discharge their
roles at Costain effectively. This has
been evidenced during the past year
when each Board member has again
contributed fully and effectively.
Updated letters of appointment
During the year, the Nomination
Committee agreed to update the
letters of appointment for Alison
Wood and Tony Quinlan to reflect their
additional responsibilities as senior
independent director and chair of the
Audit Committee respectively, both
effective 6 May 2021. Letters have
necessarily been updated further
in 2022 following Alison’s departure
and further changes in responsibilities.
Appointment of directors
There is a formal, rigorous and
transparent procedure for the
appointment of new directors to the
Board. During 2021, two different
external search firms were used to
ensure Costain was accessing the
widest possible and most diverse
pool of candidates.
Careful consideration is given to
ensure the proposed candidates
have the right skills, knowledge and
experience and can devote sufficient
time to the role.
Dr Paul Golby CBE
Committee Chair
9 March 2022
Update on actions from the
2020 review
Arising from the external performance
evaluation in 2020, the Nomination
Committee undertook in 2021 to
continue to prioritise diversity,
particularly in the Executive Board
successor pool and to oversee the
development and training plans for
this population. Both these matters
were considered in detail at the July
Committee meeting. At its December
meeting, the Committee again
discussed succession, talent and
development together with progress
with the appointment of key hires,
for example Louise Bryant as Group
communications and investor relations
director, and in the Highways and
Energy leadership teams.
As previously mentioned, the
Committee appointed Tony Quinlan
and Neil Crockett in the year, achieving
its aim to strengthen Board sector-
specific knowledge to support the
Company’s strategy.
Reappointment of directors
At the 2021 AGM, all our directors in
post at the time (with the exception
of Jane Lodge who stepped down
from the Board from the conclusion of
the AGM on 6 May 2021) stood for re-
election, as required by the 2018 Code.
The Committee spent time during
the course of the year considering all
Board members’ other appointments
and the impact on their time
availability in view of shareholders’
general concerns regarding
overboarding. It also reviewed and
approved the potential and actual
conflicts of interests of directors
including the actual conflict of interest
of Tony Quinlan who is also a director
of Hill & Smith Holdings PLC, a non-
material supplier to the Company in
terms of value of goods.
During the year, Jacqueline de Rojas
was appointed as a director of two
unlisted entities, firstly as chair of
Metapraxis Limited, where she had
Non-executive director
succession
During the year, Jane Lodge left
Costain after 9 years’ service. Tony
Quinlan and Neil Crockett were
appointed to the Board effective
1 February and 6 October 2021
respectively to further strengthen
the Board and align it to the strategy.
Tony Quinlan
As reported in the 2020 Annual
Report, during the autumn of 2020,
a process to recruit a new non-
executive director and successor to
the chair of the Audit Committee
was progressed leading to the
announcement on 27 January
2021 of Tony Quinlan as a director
of the Company with effect from
1February 2021. As expected,
Tony took over as chair of the
Audit Committee when Jane Lodge
stepped down from the Board with
effect from the conclusion of the
2021 AGM.
Tony Quinlan – recruitment
and appointment process
1. The Committee, supported by
the Group HR director, agreed:
• a specification for the role
and responsibilities for a non-
executive director who would
have the financial skills and
competency in accounting
and auditing, and necessary
recent and relevant financial
experience, to effectively
chair the Audit Committee
• to appoint Russell Reynolds
Associates, which has no other
connection with the Company
or individual directors, as the
external search partner, and
• an interview and selection
process.
2. With the assistance of Russell
Reynolds, a long-list of candidates
was drawn up for consideration.
Costain Group PLC | Annual Report and Accounts 2021
82
3. The chair and Jane Lodge, at the
time senior independent director
and chair of the Audit Committee,
considered the formal appraisals
of the candidates and agreed a
diverse short-list of four candidates
to progress to the next stage of
the process.
4. The chair undertook first interviews
and recommended three candidates
for further interview.
5. After interviews with Jane Lodge,
a preferred candidate then met with
all the other directors, them noting
his experience as a FTSE 250 finance
director and qualified accountant,
together with his experience as a
public company chief executive, and
as an experienced NED and audit
committee chair.
6. The Committee members reported
back to the chair on their views.
7. By written circulation on 26 January
2021, the Nomination Committee
and Board considered the proposal,
which the directors unanimously
approved, subject to final approval
of a Board sub-committee
comprising the chair and chief
executive officer.
8. In the evening of 26 January 2021,
the Board sub-committee approved
the proposal to appoint Tony Quinlan.
9. On 27 January 2021 we announced
the appointment of Tony Quinlan
as a non-executive director with
effect from 1 February 2021 with the
expectation that he would become
chair of the Audit Committee on
the departure of Jane Lodge at
the conclusion of the 2021 AGM.
10. Having successfully secured a
suitable candidate for the role
and discharged its announcement
obligations, the Committee tasked
the general counsel and company
secretary with preparing a detailed
induction plan for Tony (see page 71).
Neil Crockett
On 28 September 2021, the Company
announced the appointment of Neil
Crockett as a non-executive director
with effect from 6 October 2021.
Neil Crockett – recruitment
and appointment process
1. The Committee, supported by
the Group HR director, agreed:
• a specification for the role
and responsibilities for a non-
executive director who would
have skills and expertise in
business leadership, preferably
in a business characterised by
long-term, high−value contracts
or frameworks and in industries
that have seen significant
transformation due to disruptive
technologies.
• to appoint in this instance Lygon
Group, which has no other
connection with the Company
or individual directors, as the
external search partner following
a review of three executive search
firms, and
• an interview and selection process.
2. With the assistance of Lygon Group,
a long-list of candidates was drawn
up for consideration.
3. The chair on behalf of the Committee
considered the formal appraisals of
the candidates on the long-list and
agreed a short-list of six candidates
to progress to interview.
4. The chair and Bishoy Azmy
undertook first interviews with a
diverse short-list of candidates, and
recommended three candidates for
further interview and consideration
by the other directors.
5. Following the conclusion of these
interviews, the Committee members
reported back to the chair and
Group HR director on their views.
6. An unscheduled meeting of the
Nomination Committee took place
on 20 August at which Committee
members discussed the candidate
feedback summary in the context of
the Board’s skills and competency
matrix (see page 70 for the current
matrix) and unanimously agreed
to recommend to the Board,
and the Board immediately
approved, the appointment of
Neil Crockett, all subject to the
chair offering the position and
agreeing final details with him
to conclude the appointment.
Neil Crockett was the preferred
candidate due to his passion and
expertise in using digital innovation
to lead engineering teams and
organisations through rapid
transformational change, having
held several global, European and
UK leadership positions.
7. In the evening of 27 September
2021, the chair confirmed all aspects
of the appointment had been
concluded.
8. On 28 September 2021 we
announced the appointment of Neil
Crockett as a non-executive director
with effect from 6 October 2021.
9. Having successfully secured a
suitable candidate for the role
and discharged its announcement
obligations, the Committee tasked
the general counsel and company
secretary with preparing a detailed
and bespoke induction plan for
Neil (see page 71), recognising in
particular that he had no public
company experience to date and this
would be an area for additional focus.
83
Governance | Nomination Committee Report
DIRECTORS’ REMUNERATION REPORT
2021 £433,500
2022 £446,500
2021 £360,000
2022 £370,800
Actual remuneration for our executive directors for 2021 and proposed application of our policy for 2022
CEO – Alex Vaughan CFO – Helen Willis
Base salaries
Pension 10% of salary in line with wider workforce 10% of salary in line with wider workforce
AIP – maximum opportunity 2021: 150% of salary
2022: 150% of salary
2021: 150% of salary
2022: 150% of salary
LTIP – maximum opportunity 2021: 100% of salary
2022: 100% of salary
2021: 100% of salary
2022: 100% of salary
Single figure total for 2021 £980,793 £802,055
How was our performance reflected in our pay for 2021?
AIP – Award earned by executive directors for 2021
Director
Group EBITA
1
(max
opportunity: 50%)
Group health
and safety (max
opportunity: 10%)
Profit secured
for 2022 (max
opportunity:
15%)
Cash flow
2
(max
opportunity: 15%)
Role specific
3
(max opportunity:
10%)
Total achieved
(% max)
Actual pay-out
(% of salary)
4
Alex
Vaughan
30% 10% 8% 15% 10% 73% 110%
Helen
Willis
30% 10% 8% 15% 10% 73% 110%
LTIP – Award vesting for performance over the 3 years ending 31 December 2021
5
Aggregate EPS
6
for financial years ended
31 December 2019, 2020 and 2021 (75% of the award)
Cash conversion
(25% of the award) Total Achieved
Alex Vaughan
28.2 pence
(maximum vesting level: 119.63p or more)*
124%
(maximum vesting level: 100%)
25%
* As adjusted following the capital raising completed May 2020.
Ensuring shareholder alignment
33% of AIP bonus
is automatically
deferred into
Costain shares
with a two year
holding period.
Subject to performance
targets being met, LTIP
shares vest after three
years but will only be
released after five years.
Share Ownership Guidelines are set at 200% of salary for the executive directors.
Alex Vaughan
104%
96%
Helen Willis
7
200%
Progress toward holding requirement
Balance of 200% holding requirement
1 Earnings before interest, tax and amortisation calculated on an adjusted basis before other items. See definition on page 88. Target underpinned by 90% cash
conversion.
2 Measured pre-acquisition and investments.
3 Paid out if Group EBITA threshold target achieved.
4 Both Alex Vaughan and Helen Willis agreed for 50% of the value of their AIP award for 2021 to be deferred into shares under the Share Deferral Plan (SDP).
5 Helen Willis was appointed to the Board on 30 November 2020 and was not granted a 2019 LTIP award.
6 Adjusted to exclude pension interest and other items considered to be one-off and unusual in nature or related to the accounting treatment of acquisitions.
7 Since appointment, Helen Willis has not had any LTIP awards vest nor received any SDP awards.
Costain Group PLC | Annual Report and Accounts 2021
84
Remuneration at a Glance
Alignment of our Remuneration Policy with our strategy
People
Planet Performance
Executive directors’ role specific
objectives under the AIP are linked
to talent development, succession
and progressing the Group’s
inclusion strategy.
Our ambition is to become Living
Wage Foundation accredited
employer in 2022.
We hold ourselves accountable to the
highest safety, health and environment
standards and are committed to
operating sustainably, ethically and
inclusively. A proportion of the AIP
is based on wellbeing, health and
environment (ESG) performance.
Our core financial and strategic
objectives, critical to the success of our
long-term transformational strategy, are
largely embedded within the executive
remuneration framework through the
AIP and LTIP.
AIP performance metrics – 2022
LTIP performance metrics – 2022
50% Group EBITA with
90% cash conversion
10% ESG (including safety,
health and environment)
15% Profit secured for 2023
15% Cash flow
10% Role specific
66.7% EPS
6
33.3% cash conversion
Wider workforce
All employee share plan – shareholder
approval for new Sharesave Plan to be
sought at the 2022 AGM
Wider workforce base salary
increase for 2022: 3%
8
No. of promotions in 2021: 431
400 chartered professionals
in our highly skilled teams
Our intention is to ensure that
all employees are paid in line
with the real living wage in 2022
We will also review and move away
from any zero hours contracts in 2022
9
84%
of
employees
say
Costain
is
a
great
place
to
work
88%
of
employees
are
proud
of
the
Costain
brand
Percentage of females in senior
management positions: 38%
2024 target: Disability confident
level 3; Stonewall Top 100 employer;
33% female and 14% BAME in senior
leadership positions
8 Excluding promotions, the graduate half-year review and the structured increases for our apprentices.
9 We currently have fewer than 10 employees who are contracted to work under 15 hours at their request and a small number of additional seasonal workers who are on
zero hours contracts.
85
Governance | Directors’ Remuneration Report
DIRECTORS’ REMUNERATION REPORT continued
Annual Statement by Interim Chair
of the Remuneration Committee
I am pleased to present our Directors’ Remuneration Report for the year ended 31 December 2021. I would like to take
this opportunity to thank Alison Wood for chairing the Committee since 2014. Our report explains the work of the
Committee and how we have implemented our remuneration policy which was approved by shareholders at the 2020
AGM. A summary of how the pay for our executive directors is aligned with delivering our strategy and our performance
for 2021 is summarised in the ‘Remuneration at a glance’ section.
For ease of reference, the policy table summarising the remuneration policy is included on pages 89 to 92. The full
remuneration policy is available in the 2019 annual report on the Company’s website at www.costain.com.
The Annual Report on Remuneration (on pages 93 to 107) describes how the directors’ remuneration policy has been
applied for the period ended 31 December 2021, and how we intend to implement the directors’ remuneration policy
in 2022. This will be the subject of an advisory shareholder vote at the 2022 AGM.
2021 remuneration in the context of our business performance and outcomes for our key stakeholders
Our aim is to always consider the wider workforce, our shareholders and other stakeholders by taking a fair, prudent and
balanced approach to remuneration.
Adjusted financial and operating performance for 2021 was in line with our expectations, reflecting management’s focus
on operating performance and cash generation. As detailed in the Strategic Report, we are pleased to report strong
adjusted profit growth and increased cash generation. In particular:
• We have been able to conclude legacy contract issues, including the Peterborough & Huntingdon contract which
we signed in 2016. The resolution of this contract will enable management to look forward and focus on the positive
long-term prospects for the Group.
• We have continued to be successful in winning new contracts combining Costain’s core strengths and our broader
service offering. Importantly, we have been selective in our approach to tendering, focussing on bidding discipline
and risk management.
• We have continued to drive the implementation of our climate change action plan and are working towards becoming
a net zero carbon business by 2035. We also joined the COP26 Race to Zero campaign and the signed ‘The Climate
Pledge’, an initiative with the ambition to beat the Paris Agreement 2050 target by achieving net zero by 2035 at
the latest.
• We have further strengthened our Executive Board and senior management team, enhancing the expertise and
diversity of our leadership to support the delivery of our strategy.
• Our focus on increasing the diversity of our workforce was recognised with Costain named as a top 50 employer for
women by The Times for the fourth consecutive year, attaining a Gold Armed Forces Covenant award by the Ministry
of Defence and achieving silver accreditation in the Inclusive Employers Standard.
• The health, safety and wellbeing of our customers, our teams and our communities has continued to be paramount
throughout the year. We maintained strong and effective safety measures, ensuring the effective operation of our
business both to keep our teams safe and to maintain our productivity.
• The feedback from our wellbeing pulse surveys and employee engagement channels indicates that employee
engagement and satisfaction scores remain high.
• The all employee pay rise for 2022 will be 3% (excluding promotions, the graduate half-year review and the structured
increases for our apprentices).
Executive directors’ bonuses for 2021 will be 73% of the maximum award, reflecting our underlying business
performance. Awards granted under the 2019 LTIP, for which 2021 was the final year of the three year performance period,
will vest at 25% of the maximum award. Further details are provided on page 98 in this report.
“Our remuneration policy is designed to be simple and transparent, aligned with delivering our strategy, and
ultimately supporting the creation of long term sustainable shareholder value. Our aim is to always consider the wider
workforce, our shareholders and other stakeholders by taking a fair, prudent and balanced approach to remuneration.”
Jacqueline de Rojas
Interim Committee Chair
Costain Group PLC | Annual Report and Accounts 2021
86
In line with good practice these incentive outcomes were reviewed in the broader context of the stakeholder experience.
The Committee considered that these incentive outcomes are a fair reflection of the Group’s underlying financial
performance achieved in 2021 and the past three years. The Committee also noted the good progress made on our
journey to transform the business, reduce risk and improve returns for the benefit of our shareholders, employees,
suppliers, customers and communities. As a result the Committee determined the outcomes to be appropriate and
did not exercise discretion to adjust the AIP earned for 2021 or level of LTIP vesting. However, the Committee also
acknowledged the cost incurred in connection with the conclusion of the legacy Peterborough & Huntingdon contract
dispute as well as the Group’s share price performance and that dividends have not been yet been reinstated. Taking into
account these factors and in order to provide further alignment with shareholders, for 2021, the proportion of the AIP that
is deferred into shares for two years was increased from one-third to half the AIP earned.
Variable pay outcomes for the year ended 31 December 2021
The 2021 AIP was subject to a mixture of financial and non-financial performance measures aligned with key strategic priorities.
50% was linked to EBITA with a cash flow underpin of 90% and the remainder to continued improvement of our health
and safety and environment performance, profit secured for 2022, cash management and personal objectives linked to
critical strategic and corporate activities.
Based on performance against the performance measures, Alex Vaughan earned an AIP award equal to 110% of salary
(73% of maximum) and Helen Willis also earned an AIP award equal to 110% of salary (73% of maximum). As noted
above, taking into account the broader context of the stakeholder experience and in order to enhance alignment with
shareholders the proportion of the AIP deferred into shares for two years has been increased. Half of the AIP earned for
2021 will therefore be deferred into shares for two years. Further details are set out on page 96.
The LTIP award granted on 7 May 2019 was subject to EPS performance as regards 75% of the award and cash conversion
performance as regards 25% of the award. EPS performance measured over 2019, 2020 and 2021 was below the threshold
performance target. However, as a result of the cash conversion target being achieved in full, 25% of the 2019 LTIP award
is due to vest in May 2022. LTIP awards which vest will be subject to a two year holding period for the executive directors.
Further details are set out on page 98. Helen Willis was appointed to the Board on 30 November 2020 and therefore was
not granted a 2019 LTIP award.
2021 LTIP awards
LTIP awards were granted to the executive directors in April 2021 at a level of 100% of salary. Awards are subject to EPS
performance as regards two thirds of the award and cash conversion performance as regards one third of the award.
Further details, including the performance targets are set out on page 99.
Reward for the year ending 31 December 2022
Helen Willis’ salary will be increased by 3% for 2022, in line with the increase awarded to the wider workforce.
When Alex Vaughan was appointed as chief executive in May 2019, his base salary was set at £425,000 balancing market
rates and taking into account the size and complexity of the Company and his skills and experience. This was lower
than his predecessor’s base salary of £482,700. Over the last two years, the wider workforce received salary increases
of 2% in 2020 and 2.5% in 2021. The base salary increase for Alex in 2021 was 2% (below the wider workforce rate).
In acknowledgment of his strong performance and experience gained in role and recognising that his base salary is
positioned at the lower end of the market compared to both companies of a similar size and complexity and against
sector peers, the Committee intends to increase his base salary to a more market competitive level on a phased basis.
For 2022 the proposed increase was 6% from £433,500 to £460,000. However, Alex has made the decision to decline this
increase for 2022 and asked instead for his salary increase to be capped at the level awarded to the wider workforce (3%).
The maximum AIP opportunity for executive directors will be 150% of salary. The AIP will be weighted 80% as regards
financial measures, 10% as regards ESG: safety, health and environment measures and 10% as regards other non-financial
Group and personal measures. The Committee considers that this weighting appropriately aligns the AIP performance
measures with key financial, strategic and workforce-based priorities of the business. Details of the AIP performance
measures are provided on page 100 and the targets with performance against them will be provided in the 2022
Directors’ Remuneration Report. One third of the AIP earned will be deferred into shares for two years.
The maximum LTIP opportunity will be 100% of salary. Vesting will be subject to EPS performance as regards two thirds of
the award and cash conversion performance as regards one third of the award. Details of the LTIP performance measures
and targets are provided on page 101. As outlined above, LTIP awards which vest are only to be released after five years,
thereby ensuring long-term alignment of the executive directors’ and shareholders’ interests.
Looking ahead – key focus areas for the Committee for 2022
Our remuneration policy was approved at the 2020 AGM with over 90% of the votes cast in favour of it. We were pleased
to see strong support for the 2020 Directors’ Remuneration Report, with 98% of votes cast in favour of it.
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Governance | Directors’ Remuneration Report
DIRECTORS’ REMUNERATION REPORT continued
During the course of 2022 we will be reviewing our remuneration policy to ensure that it continues to support our
strategic priorities. The Committee is mindful of the need to attract and retain high calibre individuals in an increasingly
competitive market and to remunerate executives fairly and responsibly. As part of this review we will also consider
the extent to which we should enhance the focus on ESG targets in the reward framework. We will consult with our
shareholders in advance of the next triennial shareholder vote on the policy at the 2023 AGM.
I will also transfer Remuneration Committee responsibilities to a new Committee chair during the course of the year.
Conclusion
We remain committed to a responsible approach to executive pay and believe the policy operated as intended during the
year. The decisions made as a Committee as regards remuneration earned in respect of 2021 demonstrate our commitment
to ensuring that executive directors’ reward is aligned with performance and the outcomes for all our stakeholders.
We look forward to receiving your support at our 2022 AGM, where I intend to be available to respond to any questions
that shareholders may have on this report, or our intended approach to reward for 2022.
Jacqueline de Rojas
Interim Committee Chair
9 March 2022
Remuneration disclosure
This report, approved by the Board,
has been prepared in accordance with
the provisions of the Companies Act
2006 and Schedule 8 of the Large and
Medium-sized Companies and Groups
(Accounts and Reports) Regulations
2008 (as amended). It also meets
the requirements of the UK Listing
Authority’s Listing Rules and the
Disclosure and Transparency Rules.
In this report we describe how the
principles of good governance relating to
directors’ remuneration, as set out in the
2018 UK Corporate Governance Code,
are applied in practice. The Committee,
when determining the new policy
approved in 2020, addressed the factors
in Provision 40 of the Code as follows:
• Clarity – remuneration arrangements
are simple and transparent and take
account of pay policies for the wider
workforce.
• Simplicity – we follow a conventional
UK market approach to remuneration
with established incentive plans that
operate on a clear and consistent basis.
• Risk – performance targets are
set to reward sustainable business
performance, while not encouraging
inappropriate business risks to be taken.
Malus and clawback provisions apply to
AIP and LTIP awards, and the Committee
has the means to apply discretion
and judgement to vesting outcomes.
• Predictability – details of the potential
values that may be earned by executive
directors through their remuneration
arrangements are set out in the
remuneration policy.
• Proportionality – the AIP and LTIP
performance measures are clearly
aligned to the Group’s strategic
objectives. The Committee takes
into account underlying business
performance and the experience of
shareholders and the wider workforce
when determining vesting outcomes,
ensuring that poor performance is
not rewarded.
• Alignment to culture – the Committee’s
intent is that the policy drives the
right behaviours, and reflects the
Group’s purpose, values and strategy.
The Committee regularly reviews the
remuneration framework to ensure
that this continues to be the case.
This report is unaudited unless
therwise stated.
The report is in two sections:
• Extract from the remuneration policy.
This section contains the policy table
summarising the remuneration policy
approved at the 2020 AGM and is for
information only. The full remuneration
policy is available in the 2019 annual
report on the Company’s website at
www.costain.com.
• The annual report on remuneration.
This section sets out details of how our
remuneration policy was implemented
for the year ended 31 December 2021
and how we intend for the policy to
apply for the year ending 31 December
2022 and is the subject of an advisory
shareholder vote at the 2022 AGM.
Definitions used in this report
AIP: Annual Incentive Plan.
EBITA: Adjusted Earnings Before Interest, Tax and Amortisation as adjusted by the Remuneration Committee to exclude
other items considered to be one-off and unusual in nature or related to the accounting treatment of acquisitions and to
ensure that the performance measures are assessed on a consistent basis year-to-year.
EPS: Adjusted Earnings Per Share as adjusted by the Remuneration Committee to exclude pension interest and other
items considered to be one-off and unusual in nature or related to the accounting treatment of acquisitions and to ensure
that the performance measures are assessed on a consistent basis year-to-year.
LTIP: Long-Term Incentive Plan.
SDP: Share Deferral Plan.
Costain Group PLC | Annual Report and Accounts 2021
88
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Governance | Directors’ Remuneration Report
Remuneration Policy
Our remuneration policy was approved by shareholders at our AGM on 19 June 2020, supported
by over 90% of the votes cast. We have set out below the policy table and the full remuneration
policy is available in the 2019 annual report on the Company’s website at www.costain.com.
Element
Purpose and
link to strategy Operation Performance metrics
Maximum
opportunity
Salary
• To attract and
retain high-calibre
individuals.
• Reflects skills,
experience and
performance in role.
• Provides an
appropriate level
of basic fixed income
while avoiding
excessive risk arising
from over reliance
on variable income.
• Generally reviewed annually (with any
change usually effective from 1 April) but
exceptionally at other times of the year.
• Set with reference to individual
performance, experience and
responsibilities.
• Reflects the market rate for the individual
and their role, determined with reference
to remuneration levels in companies of
similar size and complexity, taking into
account pay levels within the Company
in general.
• Increases will usually be in line with
average salary increases for the wider
workforce (in percentage terms).
• Higher increases may be appropriate in
certain circumstances, which include but
are not limited to, where an individual
is promoted or changes role or where
an individual is appointed on a below
market salary with the expectation that
their salary will increase with experience
and performance.
• N/A • To avoid setting
expectations
of future salary
increases there is
no maximum salary
value set under
the policy.
Annual
Incentive
Plan
• To incentivise the
achievement of
key financial and
strategic targets for
the forthcoming year
without encouraging
excessive risk taking.
• Promotes greater
alignment with
shareholders.
• To facilitate share
ownership.
• Two thirds paid in cash.
• Not pensionable.
• Deferral into shares of one third of earned
AIP; this vests on the second anniversary
of grant (subject, ordinarily, to continued
employment and not being under notice
of termination, either given or received,
on the date of vesting). Deferred share
awards may be granted as conditional
awards or nil or nominal cost options.
• The Committee may decide not to
operate deferral where the amount of
the bonus otherwise to be deferred
would, in the opinion of the Committee,
be so small as to make deferral unduly
administratively burdensome. Executives
may, with the approval of the Committee,
elect for a greater proportion of the AIP
award to be deferred into shares.
• Deferred share awards may include the
right to receive a benefit determined by
reference to the value of dividends that
would have been paid by reference to
dividend record dates in the period from
grant to the date on which shares can first
be acquired. The benefit may assume the
reinvestment of dividends.
• Shares provided under the AIP are
typically purchased by a trust on behalf
of the Group so as to not lead to any
dilution of shareholder interest.
• Awards may be subject to malus and
clawback as described below.
• The Committee considers and
approves the performance
measures and targets at the start
of each year and ensures they are
aligned with business strategy
and are sufficiently stretching.
• Financial metrics will comprise at
least 50% of AIP opportunity. The
balance of the AIP opportunity
will be based on financial metrics
and/or non-financial metrics such
as Health and Safety targets and
personal objectives.
• In setting financial parameters,
the Committee takes into account
the Company’s internal budgets
and, where applicable, brokers’
forecasts. The targets applying to
financial measures are based on
a sliding scale between 0% and
100%. Up to 60% of the maximum
potential will be earned for on-
target performance.
• The Committee may amend the
pay-out if it considers that the level
of vesting that would otherwise
apply is not appropriate, including
where that level would materially
deviate from the intention of the
policy, is unreflective of underlying
financial or non-financial
performance of the Group or
executive director over the relevant
period or is not appropriate in
the context of unexpected or
unforeseen circumstances.
• Maximum:
150% of salary.
• The combined AIP
and LTIP maximum
opportunities for
any year may not
exceed 250%
of salary.
DIRECTORS’ REMUNERATION REPORT continued
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90
Element
Purpose and
link to strategy Operation Performance metrics Maximum opportunity
Long-Term
Incentive
Plan
• Aligned to main
strategic objectives
of delivering
sustainable
performance
which in turn
should deliver
enhanced returns.
• Annual grant of performance shares,
which vest subject to performance
measured over three years. Awards
may be granted as conditional awards
or nil or nominal cost options.
• Awards are subject to a further holding
period of two years following the end
of the performance period.
• LTIP awards may include the right
to receive a benefit determined by
reference to the value of dividends that
would have been paid on vested shares
by reference to dividend record dates
in the period from grant to the date
on which the vested shares can first be
acquired. The benefit may assume the
reinvestment of dividends.
• Awards may be subject to malus and
clawback as described below.
• The performance condition
will be based on key metrics
aligned to the business strategy,
including but not limited to
EPS, return measures and
cash-based measures.
• At least 50% of the opportunity
will be subject to an EPS
performance measure.
• Up to 25% of the maximum
is earned for threshold
performance, 100% for
maximum with straight line
vesting usually applying
between these points.
• The Committee has discretion
to vary the formulaic vesting
outturn if it considers that
the level of vesting that
would otherwise apply is not
appropriate, including where
that level would materially
deviate from the intention of
the policy, is unreflective of
underlying financial or non-
financial performance of the
Group or executive director
over the vesting period or is
not appropriate in the context
of circumstances that were
unexpected or unforeseen at
the grant date.
• LTIP awards with
a face value of not
more than 150%
of salary.
• The combined AIP
and LTIP maximum
opportunities for any
year may not exceed
250% of salary.
SAYE
Scheme
• Offered to all UK
employees, to
facilitate share
ownership and
provide further
alignment with
shareholders.
• Periodic grants which normally vest
after three or five years subject to
continued service.
• Operated under HMRC requirements
as a tax qualifying plan.
• N/A • Participation on the
same basis as all
other employees.
Pension
• To aid retention and
remain competitive
in the market place.
• Annual pension allowance.
• Paid as a cash contribution to the
Defined Contribution pension scheme,
personal pension arrangements and/or
a cash supplement.
• N/A • A percentage of
base salary not
exceeding the
pension contribution
available to the
majority of the wider
workforce (which is
currently 10%).
Other
Benefits
• To aid retention and
be competitive in
the market place.
• Healthcare benefits
to minimise
business disruption.
• Company car (or car allowance) and
fuel allowance.
• Medical insurance.
• Life assurance.
• Other benefits as appropriate, for
example, relocation expenses and
travel and subsistence.
• N/A • N/A
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Governance | Directors’ Remuneration Report
Share ownership guidelines
The Company has adopted share ownership guidelines to provide further alignment between the interests of the
Board and the Company’s shareholders. During employment, executive directors are expected to build and maintain a
shareholding worth not less than 200% of base salary. Shares subject to LTIP awards for which the performance period
has ended (i.e. which are in a holding period, or which have been released but which are not exercised) and shares
subject to SDP awards count towards the shareholding guideline, on a net of assumed tax basis. Executive directors are
required to retain half of the shares acquired pursuant to the LTIP and SDP (after sales to cover tax) until the shareholding
guidelines are met.
The Committee’s policy on post-employment shareholding requirements is to apply the ‘leaver’ provisions under the
Company’s share plans (described on pages 91 and 92 of the 2019 annual report) as regards both unvested awards
which are subject to performance conditions (i.e. LTIP awards which are in their performance period) and vested awards
(i.e. LTIP awards which are in a holding period and SDP awards which are in a deferral period).
Notes
Performance measures
The choice of the performance metrics applicable to the AIP reflects the Committee’s aim that our annual incentives
should balance the delivery of stretching financial performance with non-financial indicators, particularly, health and
safety targets, and specific individual objectives. The LTIP financial metrics capture long-term earnings performance and,
if appropriate, may be extended to include return based and cash measures which we believe are closely aligned with the
financial performance expected by our shareholders. LTIP measures may also include strategic measures to incentivise
the behaviours needed to deliver the Company’s overall strategy.
AIP and LTIP performance measures may be adjusted if an event occurs which causes the Committee to consider that it
would be appropriate to amend the performance measures (e.g. a material acquisition or divestment) so that they achieve
their original purpose.
Recovery provisions
The AIP (including the deferred awards delivered under the SDP) and LTIP awards are subject to ‘malus’ and ‘clawback’
provisions as follows.
For up to two years following the payment of the cash element of an AIP award, the Committee may require repayment
of all or part of the bonus in the event of a material misstatement or error in assessing performance measures which
has led to an overpayment of the bonus or in the event of dismissal due to gross misconduct, or in the event of criminal
behaviour, serious reputational damage or serious corporate failure. Some or all of a deferred share award under the
SDP may be clawed back (via a cancellation of the award) prior to vesting in equivalent circumstances.
For up to two years following the vesting of an LTIP award (or part of an LTIP award) the Committee may require the
repayment of all or part of the award (which may be effected by the cancellation of unvested LTIP awards or vested but
unreleased LTIP awards) in the event of a material misstatement or error in assessing performance measures which has
led to an award vesting to a greater degree than would otherwise have been the case or in the event of dismissal due
to gross misconduct, serious corporate failure or serious reputational damage.
Incentive plan operation
The Committee will operate the AIP, SDP, LTIP and SAYE Scheme according to their respective rules.
Share awards under the SDP, LTIP and SAYE Scheme (and any applicable performance conditions) may be adjusted in
the event of a variation of the Company’s share capital or a demerger, special dividend or other event which affects the
market price of a share. Share awards under the SDP and LTIP may be satisfied, in whole or in part, in cash, although
the Committee has no intention to settle any executive director’s award in cash and would do so only in exceptional
circumstances, such as where there was a regulatory restriction on the delivery of shares, or to settle tax liabilities arising
in connection with the acquisition of shares. Awards may vest early, in accordance with the plan rules, in the event of a
change of control or other relevant event (such as a winding-up or demerger). Where an LTIP award vests early, the extent
of vesting will be determined taking into account the extent to which the performance condition has been satisfied
(as assessed by the Committee) and, unless the Committee determines otherwise, the proportion of the vesting period
that has elapsed.
DIRECTORS’ REMUNERATION REPORT continued
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92
Remuneration policy for chair and non-executive directors
Element
Purpose and
link to strategy Operation
Maximum
opportunity
Fees
Attract and retain high
performing individuals.
Remuneration for non-executive directors, other than the chair, is
determined by the Board, following consultation between the chair
and the chief executive officer. The chair’s fee is determined by the
Board following consultation between the Committee and the CEO.
Fees are reviewed annually and any increase is usually effective from
1 April.
Remuneration for non-executive directors, other than the chair,
comprises a basic annual fee for acting as non-executive director
of the Company and additional fees for undertaking other roles
such as the senior independent director, and chairship of the Audit
and Remuneration Committees.
Overall fees will remain within the limit set out in the Company’s
articles of association.
The chair and non-executive directors do not participate in any
variable pay or share scheme arrangement, although their fees
may be paid in cash or shares.
May be entitled to benefits such as travel and subsistence and
secretarial support, or other benefits as appropriate.
N/A
Share ownership guidelines
The Company has adopted share ownership guidelines to provide further alignment between the interests of the Board
and the Company’s shareholders. Non-executive directors are expected to build and maintain a shareholding worth not
less than 100% of their annual fee.
Consideration of employee views
There is no employee representation on the Committee. However, the Company liaises actively with employees through
engagement surveys, site visits, the staff roadshow and the employee forum ‘Your Voice’ (see pages 66 to 69). The Group
HR director briefs the Board on employees’ views, ensuring that the Committee’s decisions are taken with appropriate
insight to employees’ views. To ensure full compliance with Provision 41 of the Code, for 2022 we are looking at ways to
engage with the workforce, by way of Your Voice, specifically on how executive remuneration aligns with wider company
pay policy and to feed back the views of the workforce to the Committee so that the Committee can take these views into
account in its decision making.
Consideration of shareholder views
The Committee considers shareholder feedback received in relation to the AGM each year at a meeting following the
AGM. This feedback, plus any additional feedback received during any meetings from time to time, is then considered
as part of the Company’s annual review of remuneration policy.
When there are material issues relating to executive remuneration or proposed changes in policy, we engage actively
with major shareholders to ensure we understand the range of their views. When significant changes are made within
the policy, the Committee chair will inform shareholders of these.
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Governance | Directors’ Remuneration Report
Annual Report on Remuneration
The Annual Report on Remuneration set out on pages 93 to 107 provides details of how our remuneration policy was
implemented in the year ended 31 December 2021 and how we intend for the policy to apply for the year ending
31December 2022. The Annual Report on Remuneration will be subject to an advisory vote at the 2022 AGM.
Governance of the Committee
The Remuneration Committee is comprised exclusively of independent non-executive directors. The members of the
Committee, together with their biographies, are given on pages 50 and 51 and details of their attendance at Committee
meetings is shown below. The Committee was chaired by Alison Wood from April 2014 until 12 January 2022 when
Jacqueline de Rojas took over as chair on an interim basis. The general counsel and company secretary is secretary to
theCommittee.
Committee members
Director Attendance
Jacqueline de Rojas
1
100%
Neil Crockett
2
100%
Tony Quinlan
3
100%
Jane Lodge
4
100%
Alison Wood
5
100%
1 Appointed chair of the Committee on an interim basis on 12 January 2022.
2 Appointed to the Board on 6 October 2021.
3 Appointed to the Board on 1 February 2021.
4 Stepped down from the Board on 6 May 2021.
5 Stepped down as chair of the Committee on 12 January 2022 and from the Board on 28 January 2022.
Terms of reference
The Committee’s terms of reference are available on the Company’s website at www.costain.com. Copies of the letters
appointing the Committee’s advisers can be obtained from the general counsel and 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
4 February 2021 Consideration given to the extent to which the performance measures were likely to have been met
withregard to the LTIP granted in 2018.
Determined there would be no pay-out of the 2020 AIP.
Approved the 2021 AIP performance measures and list of participants.
Approved indicative performance targets for the 2021 LTIP grant.
Noted the automatic vesting of the 2019 SDP share awards on 3 April 2021.
Reviewed and approved the chair’s fee increases for 2021 against benchmarked data.
Reviewed and approved the executive directors’ and senior executives’ salary increases for 2021
againstbenchmarked data.
Reviewed the draft Directors’ Remuneration Report in the 2020 annual report.
31 March 2021 Approved the grant of awards under the 2021 LTIP and determined quantum, performance targets,
participants and other terms.
Approved a letter to top 10 shareholders to introduce the Directors’ Remuneration Report in the 2020
annual report on publication day and set out the terms of the 2021 LTIP grants.
4 October 2021 Considered the limited shareholder feedback to the 2021 LTIP grants.
Reviewed total compensation opportunity and incentives below Board level.
Reviewed progress against actions arising from the 2020 external Committee evaluation.
Reviewed performance of the Board and leadership team against the share ownership guidelines.
DIRECTORS’ REMUNERATION REPORT continued
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94
Date Key agenda items
13 December 2021 Received a governance update paper from the Committee’s advisers.
Reviewed the proposed performance targets for the 2022 LTIP and list of participants.
Approved the 2022 AIP performance measures and list of participants.
Determined 3.0% annual salary increase for the wider workforce for 2022.
Reviewed again total compensation opportunity and incentives below Board level.
Recommended to the Board a new sharesave plan for approval by shareholders.
Noted a new dashboard on key HR metrics across the workforce, including reward and compensation.
Reviewed the output from the Committee’s internal performance evaluation and agreed recommended
areas for additional focus in 2022.
Agreed no changes required to the Committee’s terms of reference.
Committee effectiveness review
In 2021, the review of the effectiveness of the Board and its Committees was conducted internally. The evaluation process
is discussed in greater detail on page 74. On the basis of the review, the Remuneration Committee concluded that the
Committee remained effective and there were no areas for concern in respect of the performance of the Committee or
any of its members.
Based on the review, the areas the Committee identified for additional focus in 2022 were in relation to Committee
chair succession, development of a new remuneration policy for submission to shareholders at the 2023 AGM, including
appropriate shareholder engagement, and greater focus on ESG targets in the reward framework.
Advice provided to the Committee
Advice was sought, where appropriate, from a number of sources. During the course of the year, the chief executive
officer, the chief financial officer, the Group’s chair, the Group HR director, and the general counsel and company
secretary were invited to attend various meetings of the Committee, although none were present when their own
remuneration was being discussed.
To help the Committee in ensuring that the Company’s remuneration practices take due account of market and best
practice, the Committee has access to experienced specialist independent consultants. During the year, the Committee
took advice, as appropriate, from Deloitte LLP (a member firm of Deloitte Touche Tohmatsu Limited).
It is the policy of the Committee to put the remuneration consultant function out to tender on a periodic basis to ensure
that the Committee continues to receive independent support and advice of a high standard. Deloitte LLP was appointed
in 2014 following a competitive tender process to act as the Committee’s remuneration consultants. Deloitte LLP received
fees of £27,300 (2020: £20,910) for the year ended 31 December 2021 in respect of services provided to the Committee.
Deloitte LLP is a founder signatory to the Remuneration Consulting Group’s Code of Conduct and is considered by the
Committee to be objective and independent. During the year, Deloitte LLP also provided advice to the Company in
relation to the operation of the Company’s share plans and employment tax.
Voting on the Remuneration Report at the AGM in 2021
Last year’s Remuneration Report was approved by shareholders with a 98.18% (2020 AGM: 99.82%) vote in favour
(including discretionary votes).
Voting on the remuneration policy at the AGM in 2020
The current policy was approved by shareholders with a 90.09% vote in favour (including discretionary votes) at the
Company’s 2020 AGM.
Remuneration Committee activity continued
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Governance | Directors’ Remuneration Report
Implementation of policy in the year to 31 December 2021
Single total figure of remuneration for each director
This table and the associated footnotes have been audited by PwC LLP.
2021
Fixed Variable
Salary and
fees
£
Taxable
benefits
£
Pension*
£ Subtotal
Annual
incentive
£
LTIP
£ Subtotal
Total
£
Executive directors
Alex Vaughan 431,375 12,892 43 ,13 8 487,405 474,683 18,705
#
493,388 980,793
Helen Willis
1
360,000 11,855 36,000 407,855 394,200 – 394,200 802,055
Non-executive chair
Paul Golby 169,770 – – 169,770 – – – 169,770
Non-executive directors
Bishoy Azmy
2
47,762 – – 47,762 – – – 47,762
Neil Crockett
3
11,323 – – 11,323 – – – 11,323
Jacqueline de Rojas 47,762 – – 47,762 – – – 47,762
Jane Lodge
4
22 ,110 – – 22 ,110 – – – 22 ,110
Tony Quinlan
5
50,106 – – 50,106 – – – 5 0,106
Alison Wood 59,258 – – 59,258 – – – 59,258
2020
Fixed Variable
Salary and
fees
6
£
Taxable
benefits
£
Pension**
£ Subtotal
Annual
incentive
£
LTIP
£ Subtotal
Total
£
Executive directors
Alex Vaughan 393,125 15,272 39,313 447,710 – – – 447,710
Helen Willis
1
38,308 104 3,000 41,412 – – – 41,412
Non-executive chair
Paul Golby 154,734 – – 154,734 – – – 154,734
Non-executive directors
Bishoy Azmy
2
24,537 – – 24,537 – – – 24,537
Neil Crockett
3
– – – – – – – –
Jacqueline de Rojas 46,536 – – 46,536 – – – 46,536
Jane Lodge
4
58,536 – – 58,536 – – – 58,536
Tony Quinlan
5
– – – – – – – –
Alison Wood 51,786 – – 51,786 – – – 51,786
# 2019 LTIP award of 138,942 shares vested at 25%. Value calculated based on average share price over three months ended 31 December 2021 being 53.85p per share.
1 Appointed to the Board on 30 November 2020.
2 Appointed to the Board on 19 June 2020.
3 Appointed to the Board on 6 October 2021.
4 Stepped down from the Board on 6 May 2021.
5 Appointed to the Board on 1 February 2021.
6 The Board agreed to a 30% reduction in salaries and fees for the three month period from April to June 2020 in response to COVID-19.
The salaries and fees disclosed for 2020 are after the reduction.
* A pension contribution of £3,864 was paid into the Company’s Group Flexible Retirement Plan for Alex Vaughan and the balance was paid to him directly as a taxable
benefit. The amount quoted for Helen Willis was paid directly as a taxable benefit.
** A pension contribution of £5,636 was paid into the Company’s Group Flexible Retirement Plan for Alex Vaughan and the balance was paid to him directly as a taxable
benefit. The amount quoted for Helen Willis was paid directly as a taxable benefit.
DIRECTORS’ REMUNERATION REPORT continued
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96
Additional notes to the single total figure of remuneration
(a) Annual salaries for executive directors
The annual salaries with effect from 1 April 2021 were £433,500 for Alex Vaughan and £360,000 for Helen Willis.
(b) Taxable benefits provided to executive directors
The main benefits available to the executive directors during 2021, and their approximate values, were a car allowance
of £11,537 (2020: £14,048) for Alex Vaughan and £10,500 (2020: £1,117) for Helen Willis, together with private medical
insurance for Alex Vaughan of £1,355 (2020: £1,224) and Helen Willis of £1,355 (2020: £104). This package of benefits was
unchanged from 2020. As Helen Willis was appointed to the Board on 30 November 2020, her benefits for 2020 were only
available for part of the year.
(c) Determination of the 2021 annual incentive
The maximum AIP opportunity for the chief executive and the chief financial officer for the year ended 31 December 2021
remained unchanged from 2020 at 150% of base salary, with one third of the earned AIP award to be deferred into shares
for a further two years and two thirds of the earned AIP award paid in cash.
The performance measures established by the Committee for the 2021 AIP continued to align with the Company’s
strategy while not encouraging inappropriate business risks to be taken. These included inter alia a maximum target
of £33.0m for Group EBITA.
The achievement of the performance measures has been reviewed, with appropriate input from the Audit Committee,
following the end of the 2021 financial year. As shown in the table below, Alex Vaughan and Helen Willis earned an AIP
award equal to 73% and 73% respectively of the maximum opportunity based on an assessment against the performance
targets. As discussed in the annual statement from the Remuneration Committee Chair on pages 86 to 88, in line with good
practice these outcomes were reviewed in the context of the broader stakeholder experience. The Committee considered
that these incentive outcomes are a fair reflection of the Group’s underlying financial performance achieved in 2021.
The Committee also noted the good progress made on our journey to transform the business, reduce risk and improve
returns for the benefit of our shareholders, employees, suppliers, customers and communities. As a result the Committee
determined the outcomes to be appropriate and did not exercise discretion to adjust the AIP earned for 2021. However,
the Committee also acknowledged the cost incurred in connection with the conclusion of the legacy Peterborough &
Huntingdon contract dispute as well as the Group’s share price performance and that dividends have not been yet been
reinstated. Taking into account these factors and in order to provide further alignment with shareholders, for 2021, the
proportion of the AIP that is deferred into shares for two years was increased from one-third to half the AIP earned.
AIP
opportunity
– maximum
percentage
of bonus
AIP
award – as a
percentage
of bonus
AIP
opportunity
– maximum
percentage
of bonus
AIP
award – as a
percentage
of bonus AIP performance measure
Performance measures
Alex
Vaughan
Alex
Vaughan
Helen
Willis
Helen
Willis Threshold Maximum
Actual
performance
%
Pay-out
Group EBITA (with
90% cash conversion)
1
50% 30% 50% 30% £ 27. 0 m £33.0m £30.1m 30%
Group health and safety
2
10% 10% 10% 10% n/a LTIR 0.15 LTIR 0.15 10%
Order book (level of
secured gross profit)
15% 8% 15% 8% £66.6m £81.4m £73.3m 8%
Cash flow
3
(average
month end cash balances)
15% 15% 15% 15% £81.3m £99.3m £107.0 m 15%
Personal performance 10% 10% 10% 10% see personal performance section below 10%
Total 100% 73% 100% 73% 73%
1 Earnings before interest, tax and amortisation; calculated on an adjusted basis.
2 Includes accident frequency rate and the requirement for all contracts to achieve a minimum of silver in the resource efficiency matrix.
3 Measured pre-acquisition and investments.
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Governance | Directors’ Remuneration Report
Personal performance
Personal performance was based on progress towards delivery of the strategy and corporate activities critical to the
strategic transformation of the business which were the personal responsibility of the executive directors. Details of
Alex Vaughan’s performance against his personal objectives are set out below.
Alex Vaughan
Objective Achievement during the year Maximum Award
Operational excellence Ensure the business has embedded the lessons learnt from the contract issues
root cause review, including the Group’s contract risk management and delivery
assurance processes.
Delivered assured contract performance with increased margins through the
Operational Excellence Model.
5% 5%
Developing the
senior team, including
EDI performance
Successful appointments made to strengthen the executive team, including the
appointment of new managing director for Natural Resources, chief digital officer
and Group director of communications and investor relations; and succession
planning for senior management.
Significant progress in the implementation of our inclusion strategy including
being named as a Times Top 50 Employer for Women for a fourth year and
achieving silver accreditation in the Inclusive Employer Standard. We have
also increased female representation in our senior leadership team and BAME
representation in our senior management team.
2.5% 2.5%
Repositioning
Costain brand
Conducted a strategy update and as a result refreshed Costain’s vision and
mission (see page 62).
A clear business plan and implementation priorities to deliver increased growth
in profitability and margins over the next 5 years.
2.5% 2.5%
10% 10%
Details of Helen Willis’ performance against her personal objectives are set out below.
Helen Willis
Objective Achievement during the year Maximum Award
Operational excellence Ensure the business has embedded the lessons learnt from the contract issues
root cause review, including the Group’s contract risk management and delivery
assurance processes.
Delivered assured contract performance with increased margins through the
Operational Excellence Model.
5% 5%
Developing the
senior team, including
EDI performance
Restructured finance team with new appointments at divisional level and the
launch of a finance transformation programme.
Significant progress in the implementation of our inclusion strategy including
being named as a Times Top 50 Employer for Women for a fourth year and
achieving silver accreditation in the Inclusive Employer Standard. We have
also increased female representation in our senior leadership team and BAME
representation in our senior management team.
2.5% 2.5%
Repositioning
Costain brand
Strengthened financial oversight across contracts, including a holistic assessment
of the risks and range of potential outcomes to ensure timely action is taken
where performance might deviate from that in the bid process.
2.5% 2.5%
10% 10%
DIRECTORS’ REMUNERATION REPORT continued
Costain Group PLC | Annual Report and Accounts 2021
98
(d) Vesting of the 3 April 2019 LTIP award
The LTIP award granted on 7 May 2019 was based on EPS and cash conversion performance for the three years ended
31December 2021.
Performance against the measures and the resulting vesting outcome is shown below. The threshold EPS was not
achieved and cash conversion performance targets were achieved to the full extent and as such 25% of the 2019 LTIP
vested and 75% of the award lapsed.
(A) EPS performance measures
1
(relating to 75% of the award)
Aggregate EPS for the financial years ended 31 December 2019, 2020 and 2021 Vesting level for awards
Below 108.77 pence 0%
108.77 pence 15%
Between 108.77 pence and 119.63 pence 15-100% pro rata
119.63 pence or more 100%
Actual performance: 28.2 pence Vesting outcome: 0%
1 As adjusted for the capital raising completed May 2020.
For the purposes of the LTIP, EPS is adjusted by the Committee to take account of relevant events (such as acquisitions or
disposals and excludes pension interest) and to ensure that the performance measures are assessed on a consistent basis
year-to-year.
(B) Cash conversion performance measures (relating to 25% of the award)
Average cash conversion for the financial years ended 31 December 2019, 2020 and 2021 Vesting level for awards
Below 80% 0%
80% 15%
Between 80% and 100% 15-100% pro rata
100% 100%
Actual performance: 124% Vesting outcome: 100%
(e) Pensions and life assurance
Alex Vaughan’s and Helen Willis’ pension provision is equal to 10% of salary in line with the wider workforce. Life
assurance cover of four times’ base salary is provided through the Costain Life Assurance Scheme. The annual premiums
payable in respect of life assurance for Alex Vaughan were £2,411 (2020: £2,407) and for Helen Willis £2,021 (2020: £155).
The Group offers a Group Flexible Retirement Plan which was set up in 2009 with Standard Life for employees and senior
management. Alex Vaughan is a participant of this scheme.
(f) Chair
Remuneration for the chair comprised a basic annual fee of £170,600 from 1 April 2021.
(g) Non-executive directors
Remuneration for non-executive directors, other than the Group’s chair, comprises a basic annual fee for acting as a non-
executive director of the Company and additional fees for the senior independent director and chair of the Audit and
Remuneration Committees. The annual fees set with effect from 1 April 2021 were as follows:
2021 Fees Basic Fee
Senior independent
director
Audit Committee
chair
Remuneration
Committee chair
Fees £48,000 £6,700 £9,600 £ 7, 2 0 0
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Governance | Directors’ Remuneration Report
Grants made during the year
These tables and the associated footnotes have been audited by PwC LLP.
2021 LTIP Grant
Grants were made under the LTIP on 8 April 2021 to Alex Vaughan, Helen Willis and other members of the senior
leadership team.
The award vests after three years, subject to continued service and the achievement of performance measures (as set out
below), but cannot be exercised until 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 2021 LTIP are as follows:
(A) EPS performance measure (relating to two thirds of the award)
Aggregate EPS over the financial years ended 31 December 2021, 2022 and 2023 Vesting level
Below 27.9 pence 0%
27.9 pence 15%
Between 27.9 pence and 32.4 pence 15-100% pro rata
32.4 pence or more 100%
(B) Cash conversion performance measure (relating to one third of the award)
Average cash conversion for the financial years ended 31 December 2021, 2022 and 2023 Vesting level
Below 80% 0%
80% 15%
Between 80% and 100% 15-100% pro rata
100% 100%
The Committee also has the ability to exercise discretion to make adjustments to the formulaic vesting outcome if it is not
considered to be appropriate taking into account business performance during the performance period. This includes
consideration of any ‘windfall gains’ at the point of vesting. In assessing whether there is any windfall gain, the Committee
will take into account a number of factors, including share price performance over the vesting period, financial performance
of the business and any other significant events which have impacted the Company’s share price or the market as a whole.
The share awards granted under the 2021 LTIP, structured as options with a nil exercise price, are as follows:
Number of shares Face value
1
End of performance
period Threshold vesting
Alex Vaughan 710,655 £433,500 31 December 2023 15%
Helen Willis 590,163 £360,000 31 December 2023 15%
1 Valued using the mid-market closing share price on the business day prior to the date of grant (7 April 2021), being 61 pence.
SDP
No awards were granted under the SDP to the executive directors in 2021 as no bonus was paid under the AIP for 2020
(see page 106).
All-employee share plan
As in 2020, the Company did not invite employees to participate in the SAYE scheme in 2021 and therefore no SAYE
awards were granted to the executive directors during 2021.
DIRECTORS’ REMUNERATION REPORT continued
Costain Group PLC | Annual Report and Accounts 2021
100
Exit payments made during the year and payments made to past directors
No executive directors departed in 2021 and no payments have been made to past directors.
Implementation of policy in the year to 31 December 2022
Salary
The chief executive officer and chief financial officer will receive a salary increase in 2022 of 3%, effective 1 April. A 3%
salary increase will be applied across the Company in 2022. When Alex Vaughan was appointed as chief executive in May
2019, his base salary was set at £425,000 balancing market rates and taking into account the size and complexity of the
company and his skills and experience. This was lower than his predecessor’s base salary of £482,700. Over the last two
years, the wider workforce received salary increases of 2% in 2020 and 2.5% in 2021. The base salary increase for Alex in
2021 was 2% (below the wider workforce rate). In acknowledgment of his strong performance and experience gained
in role and recognising that his base salary is positioned at the lower end of the market compared to both companies
of a similar size and complexity and against sector peers, the Committee intends to increase his base salary to a more
market competitive level on a phased basis. For 2022 the proposed increase was 6% from £433,500 to £460,000. However,
Alex has made the decision to decline this increase for 2022 and asked for his salary increase to be capped at the level
awarded to the wider workforce (3%).
Salary 2022 Salary 2021 % change
Alex Vaughan £446,500 £433,500 3%
Helen Willis £370,800 £360,000 3%
Chair’s fee
The chair’s basic annual fee will be increased by 3% with effect from 1 April 2022 to £175,700.
Non-executive director fees
Non-executive directors’ fees will be increased by 3% with effect from 1 April 2022, as shown in the table below:
2022 Fees Basic Fee
Senior independent
director
Audit Committee
chair
Remuneration Committee
chair
Fees £49,400 £6,900 £9,900 £ 7, 4 0 0
2022 Annual incentive
Executive directors and the wider senior leadership team are eligible for annual bonuses under the AIP to encourage
improved performance, with targets established by the Committee to align rewards with the Company strategy. The
targets are clearly aligned with the delivery of our strategy. Their achievement will be reviewed, with appropriate input
from the Audit Committee, at the end of the year.
The maximum AIP opportunity for the chief executive officer and the chief financial officer for the year ending
31December 2022 will remain unchanged from 2021 at 150% of base salary, with one third of earned AIP deferred into
shares for a further two years, to be awarded under the SDP, and two thirds of earned AIP paid in cash.
The performance measures for the 2022 AIP are as follows:
2022 AIP opportunity –
maximum percentage of bonus
Performance measures Chief executive officer Chief financial officer
Group EBITA (with 90% cash conversion) 50% 50%
ESG 10% 10%
Profit secured for 2023 15% 15%
Cash flow (average month end cash balance) 15% 15%
Personal performance 10% 10%
Total 100% 100%
The Committee has chosen not to disclose in advance the performance targets for the year ending 31 December 2022,
as these include items which the Committee considers commercially sensitive. The Committee will continue to provide
retrospective disclosure of performance targets in next year’s Annual Report on Remuneration to the extent the Committee
determines these targets are not commercially sensitive.
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Governance | Directors’ Remuneration Report
2022 LTIP Grant
The grant level for the executive directors will be up to 100% of salary. It is expected the LTIP awards will be granted
in early April 2022. As with the 2020 and 2021 awards, subject to the achievement of performance measures as set out
below, LTIP shares which vest after three years will only be released after five years, thereby ensuring long-term alignment
of the executive directors’ and shareholders’ interests.
As with the 2020 and 2021 LTIP awards, the measures will be two thirds EPS and one third cash conversion, reflecting that
the sustainable generation of cash backed profits is a key element to the future success of the Company.
The proposed targets are set out below.
EPS performance measure
Aggregate EPS over the financial years ending 31 December 2022, 2023 and 2024 Vesting level for awards
Below 27.5 pence 0%
27.5 pence 15%
Between 27.5 pence and 33.7 pence 15-100% pro rata
33.7 pence or more 100%
The Committee believes that EPS remains an appropriate metric to use under the LTIP, as growth in EPS is one of the
key drivers of the Company’s share price. As with previous LTIP awards, EPS shall be calculated on an adjusted basis as
determined by the Committee to take account of relevant events (such as acquisitions or disposals) and ensure that the
performance measures are assessed on a consistent basis year-to-year.
Average cash conversion for the financial years ending 31 December 2022, 2023 and 2024 Vesting level for awards
Below 80% 0%
80% 15%
Between 80% and 100% 15-100% pro rata
100% 100%
Cash conversion is adjusted cash flow from operations (excluding cash movements in provisions and pension deficit)
divided by EBITDA. It is measured as average cash flow conversion over the three-year period ending 31 December 2024.
Cash flow from operations will be adjusted to recognise the timing of cash inflows at the year-end.
The Committee has the discretionary power to vary these targets, should circumstances change, so that the original
targets are no longer considered appropriate (e.g. in the case of a material acquisition or divestment in the Group or
other material transaction).
A clawback and malus provision is incorporated in the AIP and the LTIP with regard to any material misstatement to
audited accounts, an error in calculation of targets resulting in an overpayment, gross misconduct or criminal behaviour
on the part of a participant, reputational damage or serious corporate failure. The Committee also has the ability to
exercise discretion to make adjustments to the formulaic payout/vesting of variable incentives if the formulaic outcome is
not considered to be appropriate.
DIRECTORS’ REMUNERATION REPORT continued
400
350
300
250
200
127.8
169.7
163.0
252.5
186.9
171.2
183.7
337.0
228.4
247.6
213.6
124.9
44.4
290.7
357.7
252.4
49.3
271.4
143.9
100.0
100.0
150
100
50
1 Jan
2012
Costain Group PLC
FTSE SmallCap Index
31 Dec
2012
31 Dec
2013
31 Dec
2014
31 Dec
2015
31 Dec
2016
31 Dec
2017
31 Dec
2018
31 Dec
2019
31 Dec
2020
31 Dec
2021
0
Costain Group PLC | Annual Report and Accounts 2021
102
Other information
Performance graph
The graph below shows the value, to 31 December 2021, of £100 invested in Costain Group PLC on 1 January 2012
compared with the value of £100 invested in the FTSE SmallCap Index. The Committee believes that the FTSE SmallCap
Index is the most appropriate index to use as it is the index in which the Company is a constituent and comprises
companies of a similar size to Costain.
Change in chief executive officer’s remuneration
Year ending 31 December
2012 2013 2014 2015 2016 2017 2018 2019
1
2020 2021
Chief executive
officer AW AW AW AW AW AW AW AW AV AV AV
Total
remuneration £1,089,337 £1,251,239 £1,329,007 £1,414,381 £1,089,943 £1,707,0 94 £1,560,601 £211,927 £312,242 £447,710 £980,793
AIP (%) 55% 75% 71.6% 79.8% 75.4% 81% 62.6% Nil Nil Nil 73%
LTIP vesting (%) 100% 50% 50% 50% Nil% 79.1% 100% Nil Nil Nil 25%
1 Andrew Wyllie (AW) stepped down from the Board on 7 May 2019 and Alex Vaughan (AV) was appointed to the Board on 7 May 2019.
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Governance | Directors’ Remuneration Report
CEO pay ratio
The table below shows, for 2019, 2020 and 2021, the ratio of the pay of the CEO to that of the best full time equivalent
lower quartile, median and upper quartile employee within the Group.
Year Methodology used 25th Percentile Pay Ratio 50th Percentile Pay Ratio 75th Percentile Pay Ratio
2021 Option B 22:1 17:1 13:1
2020 Option B 13:1 8:1 6:1
2019* Option B 17:1 10:1 7:1
* The Single Total Figure of Remuneration for the CEO has been calculated as the total remuneration paid to Andrew Wyllie for the period 1 January 2019 to 7 May 2019
plus the total remuneration paid to Alex Vaughan for the period 8 May 2019 to 31 December 2019.
We have chosen to use Option B of the available methodologies to calculate the ratio. This methodology is based on
the data collected as part of gender pay reporting. Option B was selected on the basis that it is an efficient and robust
approach, recognising that the data required to calculate the ratio comes from multiple sources. Analysis has been
performed to ensure that the lower quartile, median and upper quartile employees are reasonably representative.
The table below shows the UK employee percentile pay and benefits used to determine the above pay ratios and the
salary component for each figure.
£ CEO 25th percentile Median 75th percentile
2021
Total pay and benefits £980,793 £45,166 £56,596 £77,235
Salary component £431,375 £39,470 £46,476 £57,330
2020
Total pay and benefits £447,710 £34,016 £5 7, 5 8 0 £73,844
Salary component £393,125 £32,948 £45,934 £61,669
2019
Total pay and benefits £524,169 £30,923 £50,903 £75,304
Salary component £445,319 £29,837 £45,170 £6 0,137
The UK employee percentile pay and benefits has been calculated based on the amount paid or receivable for the
relevant financial year. The calculations are on the same basis as required for the CEO’s remuneration for single total
figure purposes. The calculations were performed as at the final day of the relevant financial year.
A high proportion of the CEO’s total reward is performance related and delivered in shares. The ratios will therefore
depend significantly on the CEO’s variable pay outcomes and may fluctuate year to year.
The ratios have increased in 2021 due to the payment of a bonus in respect of 2021 to the CEO. In both 2019 and 2020 no
bonus was paid to the CEO. In addition, in 2020 the CEO pay was lower due to the reduction in salaries from April to June
2020 as part of the actions taken by the Group to mitigate the financial impacts of COVID-19 and protect the Group’s
cash position.
The Board believes that the median pay ratio is consistent with the Group’s wider policies on pay, reward and progression.
DIRECTORS’ REMUNERATION REPORT continued
Costain Group PLC | Annual Report and Accounts 2021
104
Annual percentage change in remuneration of directors compared to all employees
The table below shows the annual percentage change in each of the director’s remuneration compared to the average
employee remuneration. The 10% increase in Alex Vaughan’s and Paul Golby’s salary/fees between 2020 and 2021 reflects
that the comparison is between the values reported in the single total figure of remuneration for each year, with the 2020
values taking into account a 30% reduction in salaries and fees for three months in 2020. As reported last year, the actual
increase in Alex Vaughan’s salary and Paul Golby’s fee with effect from 1 April 2021 was 2%.
Executive
directors
Non–executive
chair
Non–executive
directors
Average
employee
1
Alex
Vaughan
2
Helen
Willis
3
Paul Golby
Bishoy
Azmy
4
Neil
Crockett
5
Jacqueline
de Rojas
Jane
Lodge
6
Tony
Quinlan
7
Alison
Wood
Salary/
fees
2020 –
2021
10
5
8
10 n/a 10 n/a n/a 3 n/a n/a 14
9
2019 –
2020
10
(0.8)
11
n/a n/a (7) n/a n/a (1) (7) n/a (4)
Taxable
benefits
2020 –
2021
(6)
12
(16) n/a – n/a n/a – n/a n/a –
2019 –
2020
6.2 n/a n/a – n/a n/a – – n/a –
Annual
bonus
2020 –
2021
236
13
n/a
14
n/a – n/a n/a – n/a n/a –
2019 –
2020
(18) n/a n/a – n/a n/a – – n/a –
1 The percentage change in each element of employee remuneration is based on all monthly paid UK employees across the Group. This population has been selected
as no employees are directly employed by the listed parent entity.
2 Alex Vaughan was appointed to the Board on 7 May 2019 and therefore annual change in remuneration between 2019 and 2020 is not applicable.
3 Helen Willis was appointed to the Board 30 November 2020 and therefore annual change in remuneration is not applicable for the financial years shown.
4 Bishoy Azmy was appointed to the Board on 19 June 2020 and therefore annual change in remuneration is not applicable for the financial years shown.
5 Neil Crockett was appointed to the Board on 6 October 2021 and therefore annual change in remuneration is not applicable for the financial years shown.
6 Jane Lodge stepped down from the Board on 6 May 2021 and therefore annual change in remuneration between 2020 and 2021 is not applicable.
7 Tony Quinlan was appointed to the Board on 1 February 2021 and therefore annual change in remuneration is not applicable for the financial years shown.
8 Average salary for employees is calculated based on the annual monthly UK salary bill divided by the average number of monthly paid UK employees.
9 Alison Wood became senior independent director with effect from 6 May 2021 and received a corresponding fee increase.
10 The Board agreed to a 30% reduction in salaries and fees for the three-month period April to June 2020 in response to COVID-19. There was therefore a reduction in
salaries and fees received by directors during 2020 compared to 2019 and a corresponding increase between 2020 and 2021.
11 The wider workforce (those earning over £45,000) agreed to 10% to 30% reduction in salaries for the period April to June 2020 in response to COVID-19. There was
therefore a reduction in salaries received by some employees during 2020 compared to 2019 which impacted the average employee figure.
12 Employee benefits are calculated based on the total cost to the Company of private medical insurance, company cars and car allowances, averaged per head for
monthly paid employees.
13 Bonus figures are calculated on the total bonus payments made to monthly employees divided by the average number of monthly paid employees.
14 No bonus was paid to Alex Vaughan for 2020 therefore a percentage change cannot be calculated. Alex Vaughan's bonus for 2021 was £474,683.
Relative importance of spend on pay
The table below illustrates the change in expenditure by the Company on remuneration paid to all the employees of the
Group and distributions to shareholders from the financial year ended 31 December 2020 to the financial year ended
31December 2021.
2021
£m
2020
£m
%
change
Overall expenditure on pay 200.3 182.0 10.1%
Dividends and share buybacks nil nil 0%
These matters were selected to be shown as they represent key distributions by the Group to its stakeholders.
Directors’ appointments
The executive directors have service contracts that can be terminated by either party on the giving of 12 months’ notice.
The non-executive directors have letters of appointment. The independent non-executive directors are appointed for initial
three year terms which thereafter may be extended. The appointment of a non-executive director can be terminated by not
less than one month’s notice on either side. Each non-executive director is subject to re-election at the AGM each year.
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Governance | Directors’ Remuneration Report
The dates of each of the director’s original appointment and expiry of current term are as follows:
Director
Date of
original appointment
Effective date of
latest appointment letter Expiry of current term
1,2
Alex Vaughan 7 May 2019 7 May 2019 Terminable on 12 months’ notice
Helen Willis 30 November 2020 30 November 2020 Terminable on 12 months’ notice
Paul Golby 5 May 2016 5 May 2019 5 May 2022
3
Bishoy Azmy 19 June 2020 19 June 2020 n/a
4
Neil Crockett 6 October 2021 6 October 2021 6 October 2024
Jacqueline de Rojas 20 November 2017 12 January 2022
5
20 November 2023
Tony Quinlan 1 February 2021 12 January 2022
6
1 February 2024
1 The appointment of a non-executive director can be terminated by reasonable notice on either side (of not less than one month).
2 In accordance with the 2018 UK Corporate Governance Code, at each AGM all the directors are required to seek election or re-election.
3 As announced on 9 March 2022, Paul Golby has indicated his intention to step down as chair and from the Board within the next 12 months. His current letter of
appointment, due to expire on 5 May 2022, will therefore be renewed for an additional period.
4 Bishoy Azmy joined the Board as non-independent non-executive director and representative of ASGC, which has a 15.15% shareholding in the Company following
the 2020 capital raising.
5. Jacqueline de Rojas was appointed chair of the Remuneration Committee, on an interim basis, with effect from 12 January 2022.
6. Tony Quinlan was appointed senior independent director with effect from 12 January 2022.
External directorships
Neither of the executive directors held external directorships in the year.
The following tables and the associated footnotes have been audited by PwC LLP.
Share awards under the Long-Term Incentive Plan (LTIP)
Details of the executive directors’ participation in the LTIP are as follows:
Director
Date
granted
Balance at
1 January
2021
a
Granted
during
year
Share price
at date of
grant
Vested
during
year
Lapsed
during
year
Market
price at
date of
exercise
Average
market
price
b
Value of
shares at
date of sale/
retention of
balance
c
Balance
at 31
December
2021
Actual/
expected
vesting/
release
date
Alex
Vaughan
04.04.18
1
21,388 – 461p – 21,388 – – – – April
2021
07.0 5.19
2
138,942 – 325p – – – – – 138,942 May
2024
07.10. 2 0
3
553,909 – 42.2p – – – – – 553,909 April
2025
08.04.21
4
– 710,655 61.0 p – – – – – 710,655 April
2026
Helen
Willis
30.11.20
3
258,705 – 53.7p – – – – – 258,705 April
2025
08.04.21
4
– 590,163 61.0p – – – – – 590,163 April
2026
a Awards under the LTIP are structured as options with a nil exercise price. 2018 and 2019 awards adjusted for the capital raising using the adjustment factor of 1.0625.
b At date of sale/retention of balance.
c Excluding shares deducted to settle tax sold at market price on date of exercise.
1 Performance targets are as follows:
(a) an EPS target (relating to 75% of the award) of 99.44p (for 15% vesting) and 109.37p (for 100% vesting), as adjusted following the capital raising in May 2020, with
vesting on a straight-line basis between the two and
(b) a cash conversion target (relating to 25% of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between the two.
50% of the award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending
31 December 2020, while the remaining 50% of the award will normally vest on the fifth anniversary of the date of grant (with no further performance conditions
applying) provided, ordinarily, the individual remains an employee or officer of the Company. This award lapsed in full based on the performance against these
targets during the period.
2 Performance targets are as follows:
(a) an EPS target (relating to 75% of the award) of 108.77p (for 15% vesting) and 119.63p (for 100% vesting), as adjusted following the capital raising in May 2020, with
vesting on a straight-line basis between the two and
(b) a cash conversion target (relating to 25% of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between the
two. The award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending
31 December 2021, but will not normally be released and become exercisable until the fifth anniversary of the date of grant (with no further performance
conditions applying) provided, ordinarily, the individual remains an employee or officer of the Company. This award is due to vest at 25% based on performance
during the year.
DIRECTORS’ REMUNERATION REPORT continued
Costain Group PLC | Annual Report and Accounts 2021
106
Share awards under the Long-Term Incentive Plan (LTIP) continued
3 Performance targets are as follows:
(a) an EPS target (relating to two thirds of the award) of 22.6p (for 15% vesting) and 26.7p (for 100% vesting), with vesting on a straight-line basis between the two and
(b) a cash conversion target (relating to one third of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between
the two.
The award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending
31 December 2022, but will not normally be released and become exercisable until the fifth anniversary of the date of grant (with no further performance conditions
applying) provided, ordinarily, the individual remains an employee or officer of the Company.
4 Performance targets are as follows:
(a) an EPS target (relating to two thirds of the award) of 27.9p (for 15% vesting) and 32.4p (for 100% vesting), with vesting on a straight-line basis between the two and
(b) a cash conversion target (relating to one third of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between
the two.
The award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending
31December 2023, but will not normally be released and become exercisable until the fifth anniversary of the date of grant (with no further performance conditions
applying) provided, ordinarily, the individual remains an employee or officer of the Company.
The LTIP awards, which are expressed as options, have a nil exercise price. At 31 December 2021, the derived mid-market
price of the ordinary shares in the Company, as advised by the Company’s brokers, was 53.4 pence. The range of the
closing share price of the ordinary shares during 2021 was 47.0 pence to 69.4 pence.
Share awards under the Share Deferral Plan (SDP)
Details of the executive directors’ participation in the SDP are as follows:
Director
Date
granted
Balance
at
1January
2021
1,2
Granted
during
year
Share
price at
date of
grant
Vested
during
year
3
Lapsed
during
year
Market
price at
date of
exercise
Average
market
price
4
Value of
shares
at date
of sale/
retention
of
balance
5
Balance
at 31
December
2021
1
Actual/
expected
vesting
date
Alex Vaughan 03.04.19 17,080 – 342.5p 21,041 – 61.5p 61.5p £6,858 – April
2021
Helen Willis – – – – – – – – – – –
1 Awards under the SDP are structured as options with a nil exercise price.
2 Adjusted number of shares following the capital raising in May 2020 (adjustment factor of 1.0625).
3 Adjusted number of shares following the capital raising in May 2020 (adjustment factor of 1.0625). In addition, Alex Vaughan was awarded 3,961 dividend shares upon
vesting which are also included in this figure. Alex Vaughan exercised his 2019 SDP award on 6 April 2021.
4 At date of sale/ retention of balance.
5 Excluding shares deducted to settle tax sold at market price on date of exercise.
Share Options under the SAYE Scheme (SAYE)
Details of the executive directors’ SAYE options are as follows:
Director
Date
granted
Balance
at
1 January
2021
1
Granted
during
year
Exercise
price
2
Exercised
during
year
Lapsed
during
year
Market
price at
date of
exercise
Market
price at
date of
retention
Value of
shares at
date of
retention
Balance
at 31
December
2021
Exercised/
exercisable
from/to
Alex Vaughan 25.09.17 1,401 – – – 1,401 – – – – Nov 2020
May 2021
24.09.18 1,396 – 316.90p – – – – – 1,396
3
Nov 2021
May 2022
23.0 9.19 1,485 – 111.4 0 p – – – – – 1,485 Nov 2022
May 2023
Helen Willis – – – – – – – – – – –
1 Adjusted number of shares under option following the capital raising in May 2020 (adjustment factor of 1.0625).
2 Exercise price adjusted for the capital raising in May 2020 (adjustment factor of 0.9412).
3 Option still outstanding as at 31 December 2021, the market price of a share being lower than the option price and therefore not exercised.
No executive director exercised a SAYE share option in 2021 and therefore there was no gain on exercise.
The Company granted no options under the SAYE Scheme in 2020 or 2021.
Directors’ shareholdings
Details of the directors’ share interests in the Company as at 31 December 2021, and at the date of this report, are as
follows:
Director
Beneficially
owned
Outstanding
SDP awards
Outstanding
LTIP awards
Outstanding
SAYE awards
Shareholding
guidelines
(% of salary/
fee)
Actual
shareholding as at
31.12.21
(% of salary/fee)
1
Actual
shareholding as at
09.03.22
(% of salary/fee)
1
Alex Vaughan 247,705
2
– 1,403,506 2,881
3
200% 96.23% 96.23%
Helen Willis – – 848,868 – 200% 0% 0%
Paul Golby 118,333
4
– – – 100% 94.43% 94.43%
Bishoy Azmy –
5
– – – 100% 100%+
5
100%+
5
Neil Crockett 20,000
6
– – – 100% 23.25% 23.25%
Jacqueline de Rojas 12,828
4
– – – 100% 50.35% 43.78%
7
Tony Quinlan 25,000
8
– – – 100% 27.93% 25.02%
8
1 Based on the calculation methodology set out in the Company’s Share Ownership Guidelines.
2 Part held by persons closely associated.
3 2018 SAYE award was granted prior to Alex Vaughan becoming a director.
4 Held by persons closely associated.
5 As the director representative of the shareholder ASGC, the shareholding of ASGC counts towards the shareholding for Bishoy Azmy in accordance with the
Company’s Share Ownership Guidelines. Bishoy Azmy held no shares in his own name.
6 Neil Crockett was appointed to the Board on 6 October 2021 at which time he had no share interests. Neil purchased 20,000 shares on 9 November 2021 at a price
of 55.79p per share.
7 Jacqueline de Rojas was appointed chair of the Remuneration Committee on 12 January 2022. As a result of the associated fee increase, Jacqueline’s holding as a
percentage of her total fee decreased with effect from this date.
8 Tony Quinlan was appointed to the Board on 1 February 2021 at which time he had no share interests. Tony purchased 25,000 shares on 20 April 2021 at a price of
64.34p per share. Tony was appointed senior independent director on 12 January 2022. As a result of the associated fee increase, Tony’s holding as a percentage
of his total fee decreased with effect from that date.
The executive directors are expected to build and maintain a shareholding of not less than 200% of base salary through
the retention of vested share awards or through open market purchases. The non-executive directors are also expected
to build and maintain a shareholding of 100% of their fee.
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Governance | Directors’ Remuneration Report
DIRECTORS’ REPORT
The directors submit to the members their report and accounts of the Company for the year
ended 31 December 2021.
The Governance Report on pages 50 to 107 and the Strategic Report on pages 06 to 49 (and in particular pages 08 to 39,
60 and 61 and 66 to 69 with regard to information about employee involvement, diversity and greenhouse gas emissions)
are also incorporated into this report by reference.
The Company has chosen to include the disclosure of likely future developments of the Company’s business in the
Strategic Report.
Climate-related disclosures consistent with the Task Force on Climate-related Financial Disclosures (TCFD)
Recommendations and TCFD Recommended Disclosures can be found on page 40 and in our separate ESG Report at
www.costain.com.
Incorporation and constitution
Costain Group PLC is domiciled in England and incorporated in England and Wales under Company Number 1393773.
Annual General Meeting (AGM)
The Company’s 2022 AGM will be held on Thursday 5 May 2022 at No. 11 Cavendish Square, London W1G 0AN.
A circular incorporating the Notice of AGM accompanies this annual report.
(Loss)/profit, dividend payments and dividend policy
The loss after tax for the financial year ended 31 December 2021 was £5.8m (2020: loss £78.0m).
No interim dividend was paid during the year ended 31 December 2021 (2020: no interim dividend). The Company will
pay no final dividend in respect of the year ended 31 December 2021 (2020: no final dividend). The total dividend paid for
the year will therefore be nil (2020: nil).
The objective of the Company’s strategy is to deliver long-term value to shareholders while maintaining a strong balance
sheet that underpins its financial position. Costain has targeted a dividend cover of around three times adjusted earnings,
taking into account the free cash flow generated in the period.
It is important that Costain maintains a strong balance sheet that will support investment in the business to drive
growth. Given the final settlement payment made after the close of the financial year in respect of the Peterborough &
Huntingdon contract, the Board does not consider it appropriate to recommend a final dividend this year, despite the
Group’s improved operating and adjusted cash performance.
The Board recognises the importance of dividends to shareholders and will continue to review the timing of the
reinstatement of future dividends in the light of the Group’s performance, cash flow requirements and the importance
of maintaining a strong balance sheet.
Dividends and other distributions
The Company may, by ordinary resolution, from time to time declare dividends not exceeding the amount recommended
by the Board. Subject to the Companies Act 2006, the Board may pay interim dividends, and also any fixed rate dividend,
whenever the financial position of the Company, in the opinion of the Board, justifies its payment.
If the directors act in good faith, they are not liable for any loss that shareholders may suffer because a lawful dividend
has been paid on other shares which rank equally with or behind their shares.
The Board may withhold payment of all or any part of any dividends or other monies payable in respect of the Company’s
shares from a person with a 0.25% or more interest in a class of the Company’s shares if such a person has been served
with a restriction notice after failure to provide the Company with information concerning interests in those shares
required to be provided under the Companies Act 2006.
Share capital
The Company’s share capital consists of ordinary shares with a nominal value of 50 pence each. The issued share capital
of the Company as at 31 December 2021 was £137,474,870.50, consisting of 274,949,741 ordinary shares of 50 pence each.
Further details of the share capital of the Company can be found in note 22 on page 171.
The awards granted in April 2018 under the 2014 Long-Term Incentive Plan (LTIP) matured as at 31 December 2020,
resulting in nil vesting as the performance criteria attached to the awards were not met. Further details regarding the nil
vesting of the 2018 LTIP awards can be found in the Directors’ Remuneration Report on page 105. Details regarding the
2019 LTIP awards that are due to vest in May 2022 can also be found in the Directors’ Remuneration Report on page 98.
Costain Group PLC | Annual Report and Accounts 2021
108
Share options granted under the Company’s Save As You Earn Scheme (SAYE) in November 2018 (at a post capital raising
adjusted option price of 316.90p) matured as at 1 November 2021. As the market price was less than the option price, the
maturity resulted in the exercise of nil options over ordinary shares as at 31 December 2021. Further details of the SAYE
Scheme can be found on page 106 of the Directors’ Remuneration Report.
At the 2019 AGM, shareholders approved the renewal of the scrip dividend scheme which authorises the directors
to offer and allot ordinary shares in lieu of cash dividends to those shareholders who elect to participate in the scrip
dividend. This authority was granted for a period of three years (until the conclusion of the 2022 AGM), which is in line
with the guidelines of the Investment Association (IA) which requires shareholder approval to be sought to renew the
directors’ authority to offer a scrip dividend scheme at least once every three years. Shareholder approval will therefore
be sought to renew the directors’ authority to offer a scrip dividend scheme at the 2022 AGM.
In 2021, as there were no dividends paid, nil ordinary shares of 50 pence each were allotted to shareholders in respect
of dividends. Further information on the scrip dividend scheme is set out on page 179. Details about joining the scrip
dividend scheme can also be found on the Company’s website at www.costain.com.
Restrictions on transfer of securities
There are no restrictions on the transfer of securities in the Company, except:
• that certain restrictions may from time to time be imposed by laws and regulations (for example, insider trading laws)
and
• pursuant to the Company’s Share Dealing Code, whereby the directors and certain employees of the Company
require the approval of the Company to deal in the Company’s ordinary shares.
The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer
of securities.
Major shareholders
As at 31 December 2021 the Company had been notified, under the Disclosure Guidance and Transparency Rules issued
by the Financial Conduct Authority (DTR5), of the following notifiable interests in its ordinary share capital:
Shareholder
Date of
notification
Number of
shares/voting
rights
% of
voting
rights
Number of shares/voting
rights attaching to
financial instruments
% of
voting
rights
Aggregate % of
voting rights
ASGC Construction L.L.C. 29.05.2020 41,666,666 15.15 n/a n/a 15.15
J O Hambro Capital
Management Limited 21.01.2021 27,250,190 9.91 n/a n/a 9.91
Ennismore Fund
Management Limited 07.09.2020 19,534,640 7.10 n/a n/a 7.10
KBI Global Investors Ltd* 13.05.2020 7,528,503 6.70 n/a n/a 6.70
Gresham House Asset
Management Limited 23.09.2020 15,018,286 5.46 n/a n/a 5.46
Artemis Investment
Management LLP 02.06.2020 8,469,850 3.08 n/a n/a 3.08
* Notification prior to the capital raising completed 29 May 2020 (i.e. when the issued share capital was 108,283,074 ordinary shares).
The Company did not receive any notifications pursuant to DTR5 in the period from 31 December 2021 to the date of this report (being a date not more than one
month prior to the date of the Company’s Notice of AGM).
Rights and obligations attaching to shares
In accordance with the articles of association, the Company can issue shares with any rights or restrictions attached to
them provided such rights or restrictions do not restrict any rights or restrictions attached to existing shares. These rights
or restrictions can be decided either by ordinary resolution passed by the shareholders or by the directors as long as
there is no conflict with any resolution passed by the shareholders. Subject to the articles of association, the Companies
Act 2006 and other shareholders’ rights, the issue of shares is at the disposal of the Board.
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Governance | Directors’ Report
Authority to issue shares
The directors may only issue shares if authorised to do so by the articles of association or the shareholders in general meeting.
At the Company’s AGM held on 6 May 2021, shareholders granted an authority to the directors to allot ordinary shares up
to an aggregate nominal amount of £45.8m. As at 31 December 2021, no shares had been allotted in the Company.
As this authority is due to expire on 6 May 2021, shareholders will be asked to renew and extend the authority, given to
the directors at the last AGM, to allot shares in the Company, or grant rights to subscribe for, or to convert any security
into, shares in the Company for the purposes of Section 551 of the Companies Act 2006. Further details on the resolution
are provided in the Notice of this year’s AGM.
Disapplication of pre-emption rights
If the directors wish to allot new shares and other equity securities, or sell treasury shares, for cash (other than in
connection with an employee share scheme) company law requires that these shares are offered first to shareholders in
proportion to their existing holdings. There may be occasions, however, when the directors need the flexibility to finance
business opportunities by the issue of shares without a pre-emptive offer to existing shareholders. This cannot be done
under the Companies Act 2006 unless the shareholders have first waived their pre-emption rights.
At the forthcoming AGM, shareholders will be asked to pass two special resolutions to grant the directors powers to
disapply shareholders’ pre-emption rights under certain circumstances. Further details on the resolutions are provided in
the Notice of this year’s AGM.
Power in relation to the Company buying back its own shares
The directors may only buy back shares if authorised to do so by the articles of association or by a special resolution of
the shareholders at a general meeting. Any shares which have been bought back may be held as treasury shares, and
either be resold for cash, cancelled (either immediately or in the future), or used for the purposes of the Company’s share
schemes. Any cancelled treasury shares will thereby reduce the amount of the Company’s issued share capital.
The Company did not buy back any of its shares during the year ended 31 December 2021 or during the period from
1January 2022 to the date of this report.
At the forthcoming AGM authority will be sought from the shareholders to grant authority for the Company to repurchase
up to 10% of the issued share capital of the Company. Further details on the resolution are provided in the Notice of this
year’s AGM.
Securities carrying special rights
No person holds securities in the Company carrying special rights with regard to control of the Company.
Restrictions on voting
No member shall be entitled to vote at any general meeting or class meeting in respect of any share held by him/her if
any call or other sum then payable by him/her in respect of that share remains unpaid or if a member has been served
with a restriction notice (as defined in the articles of association) after failure to provide the Company with information
concerning interests in those shares required to be provided under the Companies Act 2006.
The Company is not aware of any agreement between holders of securities that may result in restrictions of voting rights.
Employee Share Trust
As at 31 December 2021, Buck Trustees (Guernsey) Limited, as trustee of the Costain Group Employee Trust, held 0.13%
(2020: 0.24%) of the issued share capital of the Company on trust for the benefit of those employees who exercise
their share awards/options under the Company’s Long-Term Incentive Plan, Deferred Share Bonus Plan, Share Deferral
Plan and Save As You Earn Scheme (the latter in respect of ‘good leavers’ who leave the employment of the Company
before their contract matures). The trustee does not exercise any right to vote or to receive a dividend in respect of this
shareholding.
Amendment of articles of association
Unless expressly specified to the contrary in the articles of association of the Company, the Company’s articles of
association may be amended by special resolution of the Company’s shareholders. A copy of the articles of association
is available on the Company’s website at www.costain.com. A resolution will be put to shareholders at the 2022 AGM
to approve new articles of association of the Company, further details of which are provided in the Notice of 2022 AGM.
DIRECTORS’ REPORT continued
Costain Group PLC | Annual Report and Accounts 2021
110
Political donations
No political donations were made during the year ended 31 December 2021 (2020: nil). The Company has a policy of
not making donations to political organisations. As a precautionary measure, shareholder approval is being sought at
the forthcoming AGM for the Company and its subsidiaries to make donations and/or incur expenditure which may be
construed as ‘political’ by the wide definition of that term included in the relevant legislation. Further details on the
resolution are provided in the Notice of this year’s AGM.
Independent auditors
PricewaterhouseCoopers LLP (PwC) were reappointed as auditor of the Company at the 2021 AGM. The Board is
proposing the reappointment of PwC as auditor from the conclusion of the AGM in May 2022 until the conclusion of the
next general meeting at which the accounts are laid before the Company. See page 79 of the Audit Committee Report
and the Notice of this year’s AGM, available on the Company’s website at www.costain.com, for further details.
Financial instruments
Details of the Group’s use of financial instruments, together with information on policies and exposure to price, liquidity,
cash flow, credit, interest rate and currency risks, can be found in note 18 on pages 159 to 165. All information detailed
in this note is incorporated into the Directors’ Report by reference and is deemed to form part of the Directors’ Report.
Significant agreements – change of control
The directors are not aware of any significant agreements to which the Company and/or any of its subsidiaries or
associates are a party that take effect, alter or terminate upon a change of control of the Company following a takeover
bid, save in respect of the facility agreements relating to the Company’s banking and surety bonding facilities, which
would become terminable upon a change of control. There are no agreements between the Company and its directors
or employees providing for compensation for loss of office or employment as a result of a successful takeover bid except
that provisions of the Company’s share schemes and plans may cause options and awards to be granted to employees
under such schemes and plans to vest on a takeover.
Event after the reporting date
On 24 February 2022, the Company announced it has reached a final settlement with National Grid regarding the legacy
Peterborough & Huntingdon contract. The settlement agreement brings an end to the dispute after the contract was
mutually terminated in June 2020 and prevents any further claims under the contract.
As announced on 13 December 2021, Costain was due to make a payment to National Grid of £53.5m in January 2022.
Instead, Costain has made a full and final payment of £43.4m to National Grid.
Research and development
The Group is involved in research and development in all the sectors in which it operates. The Group’s engineers and
technical staff in these named sectors seek to develop and deliver technical advances. In undertaking certain elements of
this research and development work, the Group is supported by arrangements with certain British universities and various
technology specialists.
Greenhouse gas emissions
The Strategic Report on page 39 details the greenhouse gas emissions disclosures required by the Companies Act 2006
(Strategic Report and Directors’ Report) Regulations 2013. This information is incorporated by reference into (and shall be
deemed to form part of) this report.
Information required by LR 9.8.4R
There is no information required to be disclosed under LR 9.8.4R.
Overseas interests
Details of the Company’s overseas subsidiary undertakings can be found in note 24 on pages 172 to 175. The Company
has two overseas branches in Abu Dhabi.
111
Governance | Directors’ Report
Directors
Biographies of the Board are given on pages 50 and 51 and include details of the skills, experience and career history
of directors in post as at the date of this report, and the Committees on which they serve. Jane Lodge stepped down as
senior independent director and chair of the Audit Committee at the conclusion of the AGM on 6 May 2021 when Alison
Wood assumed the additional responsibilities of senior independent director. Tony Quinlan was appointed to the Board
on 1 February 2021 and became chair of the Audit Committee on 6 May 2021. Neil Crockett was appointed as non-executive
director with effect from 6 October 2021.
Since the year-end, Alison Wood stepped down from the Board on 28 January 2022. Tony Quinlan became our senior
independent director, with Jacqueline de Rojas becoming Remuneration Committee chair on an interim basis, both
effective from 12 January 2022. A search for an additional non-executive director to become Remuneration Committee
chair on appointment is well advanced and we will update the market in due course. On 9 March 2022, Costain
announced that Paul Golby has decided to step down as chair and from the Board within the next 12 months. The Board
will commence a search for a successor.
The directors shall be not less than two and not more than 18 in number. The Company may by ordinary resolution vary
the minimum and/or maximum number of directors.
Appointment and replacement of directors
The appointment and replacement of directors is governed by the Company’s articles, the 2018 UK Corporate Governance
Code, the Companies Act 2006 and related legislation. The articles may be amended by a special resolution of the Company’s
shareholders. Directors may be appointed by the Company by ordinary resolution or by the Board. At every AGM of the
Company, all directors are required to retire from office and may offer themselves for reappointment by the members.
The Board, or any Committee authorised by the Board, may from time to time appoint one or more directors to hold
any employment or executive office for such period and on such terms as they may determine and may also revoke or
terminate any such appointment.
The Company may, by special resolution, remove any director before the expiration of his/her period of office. The
office of a director shall also be vacated under a number of situations which are set out in the articles of the Company.
These include a director wishing to resign, being required to step down due to ill health, becoming bankrupt or being
prohibited by law from being a director.
The executive directors have contracts of employment with the Company, terminable on 12 months’ notice, while the
chair and non-executive directors all have letters of appointment with the Company. An independent non-executive
director’s appointment is for an initial period of three years, at the expiry of which time the appointment is reviewed to
determine whether the appointment should continue. Bishoy Azmy’s appointment does not have the same three-year
review period, his appointment being subject to the relationship agreement between the Company and ASGC described
in the Company’s prospectus dated 7 May 2020. All contracts and letters of appointment are available for inspection at
the Company’s registered office during normal business hours.
Directors’ conflicts of interest
The Company has procedures in place for managing conflicts of interest. Directors are required to declare all external
appointments or relationships with other companies and the Board has adopted appropriate processes to manage and, if
appropriate, approve any such appointment or relationship which could result in a possible conflict of interest. The Board
has satisfied itself that there is no compromise to the independence of the directors who have appointments on the
boards of, or relationships with, other companies. The Board has approved the actual conflict of interest of Tony Quinlan
who is also a director of Hill & Smith Holdings PLC, a non-material supplier to the Company in terms of value of goods.
Powers of the directors
Subject to the Company’s articles of association, the Companies Act 2006 and any directions given to the Company by
special resolution, the business of the Company will be managed by the Board, which may exercise all the powers of
the Company. In particular, the Board may exercise all the powers of the Company to borrow money, to guarantee, to
indemnify, to mortgage or charge any of its undertaking, property, assets (present and future) and uncalled capital and
to issue debentures and other securities and to give security for any debt, liability or obligation of the Company or of any
third party.
Directors’ interests
No director had any material interest in any contract of significance with the Group during the period under review.
Details of directors’ emoluments and interests in shares (including their connected persons’ beneficial interests) in the
Company, including any changes in interests during 2021, are contained in the Directors’ Remuneration Report, which
appears on pages 84 to 107.
DIRECTORS’ REPORT continued
Costain Group PLC | Annual Report and Accounts 2021
112
Directors’ indemnity
Costain Group PLC maintains liability insurance for its directors and officers. There are no subsisting indemnities in favour
of its directors.
Diversity
Details of the Company’s policy on diversity and inclusion within the business (including at Board level), are provided in the
Governance Report on pages 60 and 61 and the Nomination Committee Report on pages 80 to 83. Apart from ensuring
that an individual has the ability to carry out a particular role, the Company does not discriminate in any way. The Company
endeavours to retain employees if they become disabled, making reasonable adjustments to their role and, if necessary,
looking for redeployment opportunities within the Group. The Company also ensures that training, career development
and promotion opportunities are available to all employees irrespective of gender, race, age or disability.
Employee information
The average number of employees within the Company and Group is shown in note 6 to the financial statements on
page 147.
The Company maintains a strong communication network and employees are encouraged to discuss with management
matters of interest and issues affecting the day-to-day operations of the Group. Regular staff engagement surveys are
run by the Company, the results of which are communicated to employees.
Employees are also kept informed of the financial and economic factors affecting the Company’s performance, the
strategy and other matters of concern to them as employees, through various means including regular leadership briefings
and blogs from the chief executive officer and other senior managers and via the Company’s intranet site. Employees also
have the opportunity to provide feedback and ask questions at the annual staff roadshow, as well as via the employee
forum ‘Your Voice’ (see pages 66 to 69 for engagement with workforce).
The Company also operates an all employee share plan (SAYE) enabling employees to become shareholders and build a
stake in the future success of the Company. No grants were made under the SAYE in 2021.
Stakeholder engagement
For more information on how the directors have engaged with the workforce, clients, suppliers and others, and how
the directors have had regard to their interests, and the effect of that regard including on principal decisions, see the
Stakeholder Engagement section of the Strategic Report on pages 34 to 37, and pages 66 to 69 of the Governance Report.
Essential contracts or other arrangements
Given the scope and diversity of the Company’s activities, the Company does not consider that it has contractual or other
arrangements which are essential to the business of the Group and which are required to be disclosed.
Disclosure of information to auditor
The directors confirm that, so far as they are aware, there is no relevant audit information (as defined in Section 418 of
the Companies Act 2006) of which the Company’s external auditor is unaware and that each director has taken all the
steps that he/she ought to have taken as a director to make himself/herself aware of any relevant audit information and
to establish that the Company’s external auditor is 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
Sharon Harris
Company Secretary
9 March 2022
113
Governance | Directors’ Report
DIRECTORS’ RESPONSIBILITY STATEMENT
Costain Group PLC | Annual Report and Accounts 2021
114
Statement of directors’ responsibilities in respect of the nancial statements
The directors are responsible for preparing the Annual
Report and the financial statements in accordance with
applicable law and regulation.
Company law requires the directors to prepare financial
statements for each financial year. Under that law the
directors have prepared the Group and the Parent
Company financial statements in accordance with
UK-adopted international accounting standards.
Under company law, directors must not approve the
financial statements unless they are satisfied that they
give a true and fair view of the state of affairs of the
Group and Parent Company and of the profit or loss
of the Group for that period. In preparing the financial
statements, the directors are required to:
• select suitable accounting policies and then apply
them consistently;
• state whether applicable UK-adopted international
accounting standards have been followed, subject
to any material departures disclosed and explained
in the financial statements;
• make judgements and accounting estimates that are
reasonable and prudent; and
• prepare the financial statements on the going concern
basis unless it is inappropriate to presume that the
Group and Parent Company will continue in business.
The directors are responsible for safeguarding the assets
of the Group and Parent Company and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
The directors are also responsible for keeping adequate
accounting records that are sufficient to show and
explain the Group’s and Parent Company’s transactions
and disclose with reasonable accuracy at any time the
financial position of the group and Parent Company and
enable them to ensure that the financial statements and
the Directors’ Remuneration Report comply with the
Companies Act 2006.
The directors are responsible for the maintenance and
integrity of the Parent Company’s website. Legislation
in the United Kingdom governing the preparation and
dissemination of financial statements may differ from
legislation in other jurisdictions.
Directors’ confirmations
The directors consider that the Annual Report and Accounts
and accounts, taken as a whole, is fair, balanced and
understandable and provides the information necessary for
shareholders to assess the Group’s and Parent Company’s
position and performance, business model and strategy.
Each of the directors, whose names and functions are listed
in the Governance section confirm that, to the best of their
knowledge:
• the Group and Parent Company’s financial statements,
which have been prepared in accordance with UK-
adopted international accounting standards, give a
true and fair view of the assets, liabilities and financial
position of the Group and Parent Company, and of the
loss of the Group; and
• the Strategic Report includes a fair review of the
development and performance of the business and
the position of the Group and Parent Company,
together with a description of the principal risks and
uncertainties that they face.
On behalf of the Board
Dr Paul Golby CBE
Chair
Alex Vaughan
Chief Executive Officer
9 March 2022
Report on the audit of the nancial statements
Opinion
In our opinion, Costain Group PLC’s Group financial statements and Company financial statements
(the “financial statements”):
• give a true and fair view of the state of the Group’s and of the Company’s affairs as at 31 December 2021
and of the Group’s loss and the Group’s and Company’s cash flows for the year then ended;
• have been properly prepared in accordance with UK-adopted international accounting standards; and
• have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”),
which comprise: the consolidated statement of financial position and the Company statement of financial position
as at 31December 2021; the consolidated income statement, the consolidated statement of comprehensive income
and expense, the consolidated statement of changes in equity, the Company statement of changes in equity, the
consolidated cash flow statement and the Company cash flow statement, for the year then ended; and the notes
to the financial statements, which include a description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law.
Our responsibilities under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial
statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.
Independence
We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the
financial statements in the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities,
and we have fulfilled our other ethical responsibilities in accordance with these requirements.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard
were not provided.
Other than those disclosed in the Audit Committee Report, we have provided no non-audit services to the Company
or its controlled undertakings in the period under audit.
Our audit approach
Overview
Audit scope
• The Group is primarily UK based and has two main segments; Transportation and Natural Resources.
We identified five legal entities requiring a full scope audit, either due to their size or their risk characteristics.
Key audit matters
• Contract accounting (Group)
• Impairment of goodwill, investments in Group companies and amounts owed by subsidiaries (Group and Company)
• Valuation of defined benefit pension scheme obligation (Group)
Materiality
• Overall Group materiality: £4,500,000 (2020: £1,600,000) based on 0.4% of the Group’s revenue.
• Overall Company materiality: £3,000,000 (2020: £1,400,000) based on 1% of total assets.
• Performance materiality: £3,375,000 (2020: £1,200,000) (Group) and £2,250,000 (2020: £1,100,000) (Company).
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financial statements.
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INDEPENDENT AUDITOR’S REPORT
to the members of Costain Group PLC
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the
financial statements of the current period and include the most significant assessed risks of material misstatement (whether
or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the
allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we
make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a
whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
COVID-19 and Going Concern, which was a key audit matter last year, is no longer included because of the reduced impact
of the pandemic and its related impact on the Group’s ability to execute long term contracts. Otherwise, the key audit
matters below are consistent with last year.
Key audit matter How our audit addressed the key audit matter
Contract accounting (Group)
Refer to page 77 (Audit Committee Report),
pages 131 to 140, note 2 (Summary of
signicant accounting policies and signicant
areas of judgement and estimation).
The Group has signicant long-term contracts
in its Transportation and Natural Resources
businesses. The recognition of revenue
in relation to construction contracts is in
accordance with IFRS 15 and is based on the
stage of completion of contract activity.
Prots or losses on contracts is a signicant
risk for our audit because of the inherent
uncertainty in preparing estimates of the
forecast costs and revenues on contracts. An
error in the contract forecast could result in a
material variance in the amount of prot or loss
recognised to date and, therefore, the current
nancial year.
The Group also operates in an industry in which
contracts allow a route to recovery that may
be disputed or become subject to contract
resolution procedures. The settlement process
can be time consuming and can result in an
outcome that varies from the amount claimed.
These contract issues may exist in the supply
chain, or with customers.
These estimates include the expected recovery
of costs arising from the following: variations
to the contract requested by the customer,
compensation events, and claims made both
by and against the Group for delays or other
additional costs arising or projected to arise.
The Group’s accounting policy is to recognise
additional contractual amounts receivable
from customers only when these amounts are
considered highly probable of no signicant
reversal. Claims from third parties (other than
the Group’s customers), suppliers or insurance
recoveries are recognised only when they are
determined to be ‘virtually certain’.
Peterborough and Huntingdon
contract (“P&H”)
On 29 June 2020, Costain announced that a
termination and settlement agreement had
been reached with National Grid to cease
work on the Peterborough & Huntingdon gas
compressor project following a signicant
change in scope. The agreement included a
legal process, through adjudications, to agree
up to £80.0m of identied compensation
events, recover costs to date and eliminate
a potential liability to National Grid for
completing the works.
We focussed our work on those contracts with the greatest estimation uncertainty over the nal
contract values and, therefore, prot outcome. We selected a sample of contracts for our testing,
based on both quantitative and qualitative criteria, including:
• contracts with high levels of revenue recognised in the year;
• low margin or loss making contracts;
• contracts with signicant balance sheet exposure; and
• contracts identied through our discussions with management, review of Board minutes, review
of legal reports and review of publicly available information.
Our work was tailored according to the specic risk prole of each contract and included the
following procedures (where relevant):
• challenging management’s forecasts, in particular the appropriateness of key assumptions, which
include the expected recovery of variations, claims and compensation events from clients, as well as
pain/gain mechanisms, to determine the basis on which the associated revenue was considered to be
‘highly probable’ of not reversing;
• we also challenged those assumptions in respect of estimated recoveries from subcontractors,
designers, and insurers included in the forecast, to determine whether these could be considered
‘virtually certain’ of recoverability;
• we substantively tested a sample of actual costs incurred to date to check that these had been
recorded accurately;
• we performed a margin analysis on the end-of-life forecasts to assess the performance of the contract
portfolios year on year;
• we inspected correspondence and meeting minutes with customers concerning variations, claims and
compensation events, and obtained third-party assessments of these from legal or technical experts
contracted by the Group, if applicable, to assess whether this information was consistent with the
estimates made;
• we obtained an understanding of the relevant contractual clauses and terms and conditions and
agreed forecast revenue to signed contracts, signed variations, agreed compensation events or other
corroborative and supporting documentation;
• we reconciled revenue recognised with amounts applied for and amounts certied by clients, agreed
the amounts received to cash using our industry knowledge and experience to ensure any reconciling
items are appropriate;
• we agreed forecast costs to complete to supporting evidence (such as orders signed with
subcontractors, performed look back testing and assessed the appropriateness of forecast run rates)
and applied industry knowledge and experience to challenge the completeness and accuracy of the
forecast costs to completion including any cost contingencies held. In doing so we also challenged
management to ensure an appropriate provision was included for signicant rectication works that,
although expected to be covered by insurance, would likely to lead to a cash outow;
• we assessed the recoverability of balance sheet items by comparing these to external certication of
the value of work performed and subsequent cash receipts;
• we obtained corroborative evidence of settlement agreements with clients and where relevant reviewed
legal correspondence and expert advice obtained for key judgments;
• for the residual contract population (“the tail”) we performed targeted risk based procedures including,
for example testing cost to come, material unagreed change, reviewing the contract forecast report for
unusual items and recalculating the percentage of completion;
• we assessed the potential impact of other identied risks including COVID-19, ination and climate
change related costs on the costs incurred and cost to complete;
• we considered the adequacy of the disclosures in the nancial statements in relation to specic
contracts and also the disclosures in respect of signicant judgements and estimates.
Based on all of the evidence obtained in the above procedures, we were satised with the
recognition of contract revenue and prot and of the amounts held as contract assets. Given the
degree of estimation, we also considered the disclosures around signicant ongoing contracts
included in note 2 to the nancial statements.
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INDEPENDENT AUDITOR’S REPORT continued
to the members of Costain Group PLC
Key audit matter How our audit addressed the key audit matter
Under the terms of the agreement, the aggregate potential outcome for
Costain of these adjudications ranged from an additional cash receipt of up to
a maximum of £50.0m to a cash payment (which would not affect the Group’s
banking arrangements) of up to a maximum of £57.3m.
At 31 December 2020, the Group, supported by external advice, determined
it had a strong entitlement to retain, at a minimum, the reported position
which was consistent with the cash received to date with no further asset or
liability being recorded on the balance sheet at that time.
During 2021 various adjudications were scheduled. On 10 December 2021,
Costain received the outcome of a material combined adjudication where
the adjudicator found in Costain’s favour on principle in respect of three out
of the four compensation events, however, the adjudicator unexpectedly
declined to make a quantum assessment leaving the matter undecided.
Within his decision the adjudicator also indicated that in the event he had
made a decision on quantum, the adjudicator would have sought to apply a
methodology that was not envisaged by either party nor widely used within
the construction industry nor in accordance with or dened within the form
of contract.
In light of these changes in events, Costain concluded that it was appropriate
to enter into discussions with National Grid with a view to reaching a
settlement. Thereafter on 24 February 2022, Costain announced that it had
reached a full and nal settlement with National Grid regarding the P&H
contract. The settlement agreement brings an end to the dispute after the
contract was mutually terminated in June 2020 and prevents any further
claims under the contract. Costain made a full and nal payment of £43.4m to
National Grid after the end of the nancial year 2021.
In considering the appropriate accounting treatment for this full and nal
settlement, the Costain Board concluded that there have been specic
unexpected triggers, events and changes in circumstances that have occurred
during the year which have led to this position. These events were not
envisaged nor could they reasonably have been foreseen at the time the
Board’s accounting decisions were made in approving the December 2020
accounts. This position has been rigorously reviewed and conrmed and
supported by external advisors.
The Board, therefore, concluded that the adjustment to contract revenue
which arises as a result of this settlement and cash payment of £43.4m should
be recorded in the year ended 31 December 2021. Consistent with the prior
year, any adjustments relating to the P&H contract have been separately
disclosed within note 3 as an adjusting item.
In respect of the P&H contract with National Grid we have:
• obtained the settlement agreement and understood and assessed
the key terms therein;
• obtained and reviewed management’s own assessment of the
£43.4m contract adjustment and challenged management on the
appropriate period in which the adjustment should be recorded;
• obtained and reviewed management’s position papers,
correspondence, adjudication results and relevant independent
reports that had been obtained from management’s legal and
other representatives throughout the year;
• re-assessed the evidence which supported the highly probable
traded position at the previous year-end, including the reports
from experts and legal advisors and also determined whether the
changes in circumstances which led to the ultimate settlement and
cash outow could reasonably have been envisaged at the previous
year-end; and
• assessed the related disclosures included in the Group nancial
statements.
Based on all of the evidence obtained as a result of the above procedures,
we were satised with the recognition of the P&H contract adjustment in
the nancial statements for the year ending 31 December 2021.
We were also satised, given the nature and signicance of this contract
loss, that it was acceptable to disclose this loss as an adjusting item in note
3, consistent with the treatment adopted in the prior year.
Impairment of goodwill, investments in Group companies
and amounts owed by subsidiaries (Group and Company)
Refer to page 78 (Audit Committee Report), pages 131 to 140, note 2
(Signicant areas of judgement and estimation), and page 151 note 12 –
Intangible Assets.
At 31 December 2021 the Group had £45.1m of goodwill (2020: £45.1m).
Goodwill has been allocated to the applicable cash generating units of the
Transportation segment £15.5m (2020: £15.5m) and the Natural Resources
segment £29.6m (2020: £29.6m).
The carrying value of goodwill is contingent on future cash ows and there
is a risk that the assets will be impaired if these cash ows do not meet the
Group’s forecast projections. The impairment reviews performed by the Group
contain a number of judgements and estimates including discount rates,
growth rates and expected changes to revenue, direct costs and margins
during the forecast periods. Changes in these assumptions could lead to an
impairment to the carrying value of the assets.
We determined there to be a signicant audit risk that the carrying value of
goodwill allocated to the Natural Resources business may not be supportable
when compared to its recoverable amount, given the impairment of £9.0m
booked in the 2020 nancial statements and the current headroom of £3.0m
showing in the Directors impairment assessment.
The Company holds an investment in subsidiaries of £152.3m (2020:
£151.2m). We have focussed on this area due to the size of investments
balance in the context of the Group’s market capitalisation which remains
below the carrying value of the investments in subsidiaries. The Directors
assessment of the carrying value of the investment in its subsidiaries was
that no impairment was required.
We obtained the directors’ future cash ow forecasts, which were prepared
to a sufciently detailed level. We evaluated management’s basis of
determination of the CGUs as Transportation and Natural Resources.
In evaluating the Directors’ impairment assessment for goodwill in respect
of the Natural Resources segment where the CGU’s assumptions were
more sensitive to an impairment, we performed the following:
• we compared the cash ows to the latest Board approved budgets for
FY22 and forecasts until FY25, tested the integrity of the underlying
calculations and assessed how both internal and external drivers of
performance were incorporated into the projections;
• we challenged the discount and long term growth rate, with the support
of our valuations experts;
• we tested certain contracts in the Group’s pipeline to provide evidence
of the associated revenue forecast in the cash ow model;
• we assessed operating margin assumptions in the context of historic
performance (including any impact resulting from Covid-19 or
climate change related risks) for each CGU and the remaining work
to be obtained;
• we challenged management’s forecasts and compared future cash ow
performance to historic levels as part of our assessment as to whether
the planned performance was considered achievable;
• we compared the 2021 nancial performance to budget and
understood the drivers of the projected improvements in protability
and working capital movements;
• we performed sensitivity analysis in respect of the key drivers of the cash
ow forecasts, in particular assessing the extent to which changes in
revenue growth and margin assumptions would lead to an impairment;
and
• we ensured that reasonably possible changes in assumptions were
appropriately disclosed in accordance with IAS 36, ‘Impairment of Assets’.
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Key audit matter How our audit addressed the key audit matter
The Company also has amounts receivable from subsidiaries of £71.9m (2020:
£134.9m). During the year the Company has recognised a £40.0m expected
credit loss provision in respect of a nancial guarantee that had been provided
by the Company to National Grid, guaranteeing obligations of the subsidiary
delivering the Peterborough & Huntington contract. The requirement for the
expected credit loss provision follows the settlement agreement with National
Grid (see Key Audit Matter above), and reects the subsidiary’s inability to
make the agreed cash payment itself. See note 20 on page 166.
We concluded that management’s assessment that no impairment was
required in respect of the Natural Resources Goodwill was supportable.
We assessed the accounting policy for investments in, and amounts due
from, subsidiaries to ensure they were compliant with IFRS. We veried that
the methodology used by management in arriving at the carrying value
of investments in subsidiaries as at 31 December 2021, and the expected
credit loss for intercompany receivables, was compliant with IFRS.
We obtained management’s impairment assessment for the recoverability
of investments in and amounts receivable from subsidiaries and assessed
the conclusions reached by management.
We determined that management’s conclusion that the Company’s
investments in subsidiaries were recoverable due to the carrying values
being supported by the future cash ow forecasts, was supportable.
We conrmed that the expected credit loss provision in the Company’s
balance sheet in respect of the nancial guarantee impacted by the P&H
settlement was appropriate.
Valuation of defined benefit pension scheme obligation
(Group)
Refer to page 78 (Audit Committee Report), pages 131 to 140 note 2
(Signicant areas of judgement and estimation), and page 167 note 21 –
Employee Benets.
The Group has signicant retirement benet obligations. At 31 December
2021 the present value of these obligations was £837.5m (2020: £886.5m)
offset by plan assets at fair value of £904.6m (2020: £880.9m) in respect of
funded schemes. Therefore a net pension asset of £67.1m (2020: liability of
£5.6m) has been recognised on the Group’s balance sheet.
These retirement benet obligations were determined based on a number
of actuarial assumptions and calculations, which were subject to signicant
judgement and estimate.
Changes in these assumptions can have a material impact on the quantum
of obligations recorded in the Consolidated statement of nancial position.
We obtained the actuarial valuation at 31 December 2021 and tested the
valuation of the pension liabilities as follows:
• We challenged with the support of our pension experts the actuarial
assumptions by comparing them against benchmark ranges based on
the market conditions and expectations at 31 December 2021. Based
on our review of the assumptions, in each case we found that the
actuarial assumptions used were reasonable and within our acceptable
range and, where appropriate, were applied on a basis consistent with
previous years;
• We agreed the underlying census data to supporting documents to
conrm completeness and accuracy;
• We independently conrmed the pension assets held by the schemes
with the third-party custodians and fund managers. We also performed
an independent assessment, of the asset valuations with the support of
valuation experts and concluded that they were appropriate; and
• We reviewed the scheme rules and legal advice previously obtained by
the Group that no asset restrictions are applied to the scheme.
We did not identify any issues within our testing and were satised the
assumptions applied are within an appropriate range. We are satised
that the recognition of a pension asset is appropriate in accordance with
IFRIC 14 IAS 19 - The Limit on a Dened Benet Asset, Minimum Funding
Requirements and their Interaction.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the
financial statements as a whole, taking into account the structure of the Group and the Company, the accounting
processes and controls, and the industry in which they operate.
The Group is primarily UK based and has two main segments; Transportation and Natural Resources. In establishing
the overall approach to the Group audit, we determined the type of work needed to be performed at these reporting
units. We identified the following five legal entities requiring full scope audit; Costain Limited (financially significant
component), Costain Oil and Gas Process Limited, Costain Engineering & Construction Limited, Richard Costain Limited
and Costain Group PLC, which in our view, required an audit of their entire financial information, either due to their size or
their risk characteristics. In addition to this we performed work over specific balances in other Group entities, which in our
view, required an audit of such balances, either due to their size or their risk characteristics. In total, our scope accounted
for 97% (2020: 97%) of Group revenues and 88% (2020: 78% ) of Group loss before tax. The percentage of Group loss
before tax is calculated on an absolute basis, which aggregates component profits and losses.
As part of our audit we made enquiries of management to understand the process they have adopted to assess the extent
of the potential impact of climate change risk on the Group’s financial statements. Management considers that the impact
of climate change does not give rise to a material financial statement impact. We used our knowledge of the Group to
evaluate management’s assessment. We particularly considered how climate change risks would impact the assumptions
made in the forecasts prepared by management used in their estimates and judgements in respect of long-term contract
accounting and impairment analyses. We also considered the consistency of the disclosures in relation to climate change
made in the other information within the Annual Report with the financial statements and our knowledge from our audit.
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INDEPENDENT AUDITOR’S REPORT continued
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for
materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the
nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and
in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Financial statements – Group Financial statements – Company
Overall materiality £4,500,000 (2020: £1,600,000). £3,000,000 (2020: £1,400,000).
How we determined it 0.4% of the Group’s revenue 1% of total assets
Rationale for
benchmark applied
This year, we re-evaluated the way in which we determined
materiality, and we considered different benchmarks based
on a number of profit measures and revenue, taking into
account the fluctuating performance of the business over
the last few years on and the overall scale of the business.
This gave us a range within which to determine materiality.
Based on our professional judgement, we concluded that
an amount of £4.5m was appropriate, which represents
approximately 0.4% of the Group’s revenue.
The Company primarily holds
intercompany receivables, investments
in subsidiaries and debt. There are
no trading activities in the Company
therefore we considered a balance sheet
measure to be the most appropriate
auditing benchmark.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group
materiality. The range of materiality allocated across components was between £2.5 million and £4.3 million. Certain
components were audited to a local statutory audit materiality that was also less than our overall Group materiality.
We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and
undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope
of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example
in determining sample sizes. Our performance materiality was 75% (2020: 75%) of overall materiality, amounting to £3,375,000
(2020: £1,200,000) for the Group financial statements and £2,250,000 (2020: £1,100,000) for the Company financial statements.
In determining the performance materiality, we considered a number of factors – the history of misstatements, risk
assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the higher end of
our normal range was appropriate.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above
£200,000 (Group audit) (2020: £100,000) and £200,000 (Company audit) (2020: £100,000) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going
concern basis of accounting included:
• assessing the appropriateness of the Group’s cash flow, liquidity and covenant forecasts in the context of the Group’s
2021 financial position and its banking and related facilities;
• understanding and assessing the appropriateness of the key assumptions used both in the base case and in the
Directors’ severe but plausible downside scenario, including assessing whether we considered the downside
sensitivities to be appropriately severe;
• corroborating key assumptions to underlying documentation (e.g. by comparing forecast sales growth to levels of
future revenue that have been secured) and ensuring this was consistent with our audit work in these areas;
• testing the mathematical accuracy of management’s cash flow models and examining the minimum committed facility
headroom under the base case cash flow forecasts and sensitised cases;
• obtaining and reperforming the Group’s forecast covenant compliance calculations, including sensitising the
forecasts of liquidity and profitability to assess the potential impact of downside sensitivities on future covenant
compliance, taking into account terms specifically defined in the covenant agreements;
• evaluating whether the Directors’ conclusion that liquidity and covenant headroom remained in all these scenarios
was reasonable: and
• reviewing the disclosures provided relating to the going concern basis of preparation in the financial statements, as a
result of which we found that these provided an explanation of the Directors’ assessment that was consistent with the
evidence we obtained.
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Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions
that, individually or collectively, may cast significant doubt on the Group’s and the Company’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for issue.
In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting
in the preparation of the financial statements is appropriate.
However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the
Group’s and the Company’s ability to continue as a going concern.
In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing
material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting.
Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant
sections of this report.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our
auditors’ report thereon. The directors are responsible for the other information, which includes reporting based on the
Task Force on Climate-related Financial Disclosures (TCFD) recommendations. Our opinion on the financial statements
does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent
otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing
so, consider whether the other information is materially inconsistent with the financial statements or our knowledge
obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency
or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement
of the financial statements or a material misstatement of the other information. If, based on the work we have performed,
we conclude that there is a material misstatement of this other information, we are required to report that fact. We have
nothing to report based on these responsibilities.
With respect to the Strategic report and the Directors’ Report, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain
opinions and matters as described below.
Strategic report and the Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report
and the Directors’ Report for the year ended 31 December 2021 is consistent with the financial statements and has been
prepared in accordance with applicable legal requirements.
In light of the knowledge and understanding of the Group and Company and their environment obtained in the course of
the audit, we did not identify any material misstatements in the Strategic report and the Directors’ Report.
Directors’ Remuneration
In our opinion, the part of the Directors’ remuneration report to be audited has been properly prepared in accordance
with the Companies Act 2006.
Corporate governance statement
The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of
the corporate governance statement relating to the Company’s compliance with the provisions of the UK Corporate Governance
Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other
information are described in the Reporting on other information section of this report.
Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate
governance statement, included within the Governance report is materially consistent with the financial statements and our
knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to:
• The directors’ confirmation that they have carried out a robust assessment of the emerging and principal risks;
• The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging
risks and an explanation of how these are being managed or mitigated;
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INDEPENDENT AUDITOR’S REPORT continued
• The directors’ statement in the financial statements about whether they considered it appropriate to adopt the going
concern basis of accounting in preparing them, and their identification of any material uncertainties to the Group’s and
Company’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial
statements;
• The directors’ explanation as to their assessment of the Group’s and Company’s prospects, the period this assessment covers
and why the period is appropriate; and
• The directors’ statement as to whether they have a reasonable expectation that the Company will be able to continue in
operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing
attention to any necessary qualifications or assumptions.
Our review of the directors’ statement regarding the longer-term viability of the Group was substantially less in scope than an
audit and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that
the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the
statement is consistent with the financial statements and our knowledge and understanding of the Group and Company and their
environment obtained in the course of the audit.
In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of
the corporate governance statement is materially consistent with the financial statements and our knowledge obtained
during the audit:
• The directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable,
and provides the information necessary for the members to assess the Group’s and Company’s position,
performance, business model and strategy;
• The section of the Annual Report that describes the review of effectiveness of risk management and internal control
systems; and
• The section of the Annual Report describing the work of the Audit Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s
compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the
Listing Rules for review by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of
the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair
view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation
of financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the Group’s and the Company’s ability
to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Group or the Company or to cease operations, or
have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these financial statements.
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with
our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent
to which our procedures are capable of detecting irregularities, including fraud, is detailed below.
Based on our understanding of the Group and industry, we identified that the principal risks of non-compliance with laws and
regulations related to health and safety legislation, pension obligations, data protection legislation, anti-bribery and corruption
legislation, environmental legislation, tax legislation and construction laws, and we considered the extent to which non-
compliance might have a material effect on the financial statements. We also considered those laws and regulations that have
a direct impact on the financial statements such as the Companies Act 2006 and the Listing Rules. We evaluated management’s
incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls),
and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or reduce
expenditure and management bias in accounting estimates.
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Governance | Independent Auditor’s Report
Audit procedures performed by the engagement team included:
• Discussion with management, internal audit and the Group’s in-house legal advisers, including consideration
of known or suspected instances of non-compliance with laws and regulations and fraud;
• Evaluation of management’s controls designed to prevent and detect irregularities;
• Review of the financial statement disclosures to underlying supporting documentation;
• Assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s
investigation of such matters;
• Challenging assumptions and judgements made by management in their significant accounting estimates, in particular
in relation to contract accounting, impairment of goodwill and investments in Group companies and amounts owed by
subsidiaries (see related key audit matters above); and
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations,
descriptions or posted by senior management.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance
with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions,
accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been
received from branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ remuneration report to be audited are not in
agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Audit Committee, we were appointed by the members on 8 May 2017 to audit
the financial statements for the year ended 31 December 2017 and subsequent financial periods. The period of total
uninterrupted engagement is five years, covering the years ended 31 December 2017 to 31 December 2021.
Other matter
In due course, as required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R,
these financial statements will form part of the ESEF-prepared annual financial report filed on the National Storage
Mechanism of the Financial Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’).
This auditors’ report provides no assurance over whether the annual financial report will be prepared using the single
electronic format specified in the ESEF RTS.
Andrew Paynter (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
9 March 2022
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to the members of Costain Group PLC
INDEPENDENT AUDITOR’S REPORT continued
2021
£m
2020
£m
Continuing operations
Group revenue 1 ,1 3 5 . 2 978 .4
Cost of sales (1 ,095.0 ) (1 , 0 2 7. 0 )
Gross profit/(loss) 40. 2 (4 8. 6 )
Administrative expenses (4 9. 7 ) (43 .4 )
Group operating loss (9. 5 ) (9 2.0 )
Share of results of joint ventures and associates 14 – 0.2
Loss from operations 4 (9. 5 ) (9 1. 8 )
Finance income 8 0 .1 0.8
Finance expense 8 (3 .9 ) (5 .1 )
Net finance expense (3.8 ) (4.3 )
Loss before tax 4/5 (13 . 3 ) (9 6 .1 )
Taxation 9 7. 5 1 8 .1
Loss for the year attributable
to equity holders of the Parent (5.8 ) (78 .0 )
Earnings/(loss) per share
Basic 10 (2 .1 )p (36.7 )p
Diluted 10 (2 .1 ) p (36.7 )p
The impact of business disposals in either year was not material and, therefore, all results are classified as arising from
continuingoperations.
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Financial Statements | Consolidated Income Statement
CONSOLIDATED INCOME STATEMENT
Year ended 31 December 2021
2021
£m
2020
£m
Loss for the year (5.8) (78.0)
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translation of foreign operations – 0.2
Exchange differences on translation transferred to the income statement – (1. 2 )
Net investment hedge:
Effective portion of changes in fair value during year – 0 .1
Net changes in fair value transferred to the income statement – 0 .4
Cash flow hedges:
Effective portion of changes in fair value during year 0.3 (0.3 )
Net changes in fair value transferred to the income statement – 0.5
Total items that may be reclassified subsequently to profit or loss 0.3 (0.3 )
Items that will not be reclassified to profit or loss:
Remeasurement of retirement benefit asset/(obligations) 62 .7 (19. 9 )
Tax recognised on remeasurement of retirement benefit asset/(obligations) (15 . 6 ) 3 .8
Total items that will not be reclassified to profit or loss 4 7 .1 (16 .1 )
Other comprehensive income/(expense) for the year 47. 4 (16 . 4 )
Total comprehensive income/(expense) for the year
attributable to equity holders of the Parent 41. 6 (94.4 )
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME AND EXPENSE
Year ended 31 December 2021
Notes
2021
£m
2020
£m
Assets
Non-current assets
Intangible assets 12 52. 5 5 2 .1
Property, plant and equipment 13 32.0 3 9. 9
Equity accounted investments 14 0.4 0 .4
Retirement benefit asset 21 6 7 .1 –
Trade and other receivables 16 5.5 3.5
Deferred tax 9 15. 4 23.6
Total non-current assets 17 2 .9 11 9. 5
Current assets
Inventories 0.3 0. 6
Trade and other receivables 16 19 9. 6 2 18 . 7
Taxation 9 0.2 0. 2
Cash and cash equivalents 17 15 9. 4 1 5 0 .9
Total current assets 3 5 9. 5 370 .4
Total assets 532.4 4 8 9. 9
Liabilities
Non-current liabilities
Retirement benefit obligations 21 – 5. 6
Other payables 19 1. 8 1.1
Interest-bearing loans and borrowings 17 32 .0 3 9. 6
Lease liabilities 13 18 . 2 20.8
Total non-current liabilities 52. 0 6 7. 1
Current liabilities
Trade and other payables 19 2 1 5 .1 24 6 .0
Interest-bearing loans and borrowings 17 7. 4 7. 2
Lease liabilities 13 8.6 12 . 5
Provisions for other liabilities and charges 20 50.3 0.6
Total current liabilities 2 81. 4 266. 3
Total liabilities 333.4 333. 4
Net assets 19 9. 0 156.5
Equity
Share capital 22 13 7. 5 13 7. 5
Share premium 16 . 4 16 . 4
Translation reserve 0.6 0.6
Hedging reserve – (0.3 )
Retained earnings 44 .5 2. 3
Total equity 19 9. 0 156.5
The financial statements were approved by the Board of directors on 9 March 2022 and were signed on its behalf by:
A Vaughan H Willis
Director Director
Registered number: 1393773
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Financial Statements | Consolidated Statement of Financial Position
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
Notes
2021
£m
2020
£m
Assets
Non-current assets
Investments in subsidiaries 14 152.3 151.2
Deferred tax 9
1.0 0.1
Total non-current assets 153.3 151.3
Current assets
Trade and other receivables 16 71.9 134.9
Cash and cash equivalents 17 75.0 20.1
Total current assets 146.9 155.0
Total assets 300.2 306.3
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 17 32.0 39.6
Provisions for other liabilities and charges 20 0.7 0.7
Total non-current liabilities 32.7 40.3
Current liabilities
Trade and other payables 19 27.3 28.0
Taxation 9 1.6 1.5
Interest-bearing loans and borrowings 17 7.4 7.2
Provisions for other liabilities and charges 20 40.0 0.1
Total current liabilities 76.3 36.8
Total liabilities 109.0 7 7.1
Net assets 191.2 229.2
Equity
Share capital 22 137.5 137.5
Share premium 16.4 16.4
Hedging reserve – (0.3)
Retained earnings 37.3 75.6
Total equity 191.2 229.2
The loss for the year was £39.4 million (2020: loss of £35.0 million).
The financial statements were approved by the Board of directors on 9 March 2022 and were signed on its behalf by:
A Vaughan H Willis
Director Director
Registered number: 1393773
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COMPANY STATEMENT OF FINANCIAL POSITION
As at 31 December 2021
Share
capital
£m
Share
premium
£m
Translation
reserve
£m
Hedging
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Total
equity
£m
At 1 January 2020 54. 1 16. 4 1 .1 (0.5 ) – 86 .6 15 7. 7
Loss for the year – – – – – (78 .0 ) (78. 0 )
Other comprehensive (expense)/income – – (0.5 ) 0.2 – (16.1 ) (16 . 4 )
Shares purchased to satisfy employee share schemes – – – – – (0.2 ) (0.2 )
Equity-settled share-based payments – – – – – 0 .9 0 .9
Capital raise (note 22) 83 .4 – – – 9.1 – 9 2.5
Transfer – – – – (9.1 ) 9.1 –
At 31 December 2020 13 7. 5 16. 4 0.6 (0.3 ) – 2.3 1 56.5
At 1 January 2021 13 7. 5 16 . 4 0.6 (0. 3 ) – 2 .3 15 6 . 5
Loss for the year – – – – – (5.8 ) (5. 8 )
Other comprehensive income – – – 0.3 – 4 7.1 47. 4
Shares purchased to satisfy employee share schemes – – – – – (0.2 ) (0. 2 )
Equity-settled share-based payments – – – – – 1 .1 1 .1
At 31 December 2021 13 7. 5 16 . 4 0.6 – – 44 .5 19 9. 0
Details of the nature of the above reserves are set out below.
Translation reserve
The translation reserve comprises all foreign exchange differences arising after 1 January 2004, the date of adoption of
IFRS, from the translation of the financial statements of the residual no longer trading foreign entities, as well as from the
translation of liabilities that hedge the Group’s net investment in foreign subsidiaries.
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 2020 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.
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Financial Statements | Consolidated Statement of Changes in Equity
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021
Share
capital
£m
Share
premium
£m
Other
reserve
£m
Hedging
reserve
£m
Merger
reserve
£m
Retained
earnings
£m
Total
equity
£m
At 1 January 2020 54.1 16.4 25.9 (0.2) – 74.6 170.8
Total comprehensive expense – – – (0.1) – (35.0) (35.1)
Equity-settled share-based payments granted to
employees of subsidiaries – – 1.0 – – – 1.0
Capital raise (note 22) 83.4 – – – 9.1 – 92.5
Transfer – – (26.9) – (9.1) 36.0 –
At 31 December 2020 137.5 16.4 – (0.3) – 75.6 229.2
At 1 January 2021 137.5 16.4 – (0.3) – 75.6 229.2
Total comprehensive income/(expense) – – – 0.3 – (39.4) (39.1)
Equity-settled share-based payments granted to
employees of subsidiaries – – – – – 1.1 1.1
At 31 December 2021 137.5 16.4 – – – 37.3 191.2
Details of the nature of the above reserves are set out below.
Retained earnings
The Company grants certain of its subsidiaries rights to its equity instruments as part of its share-based payment plan
incentive schemes. The impact is recognised within retained earnings.
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 2020 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.
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COMPANY STATEMENT OF CHANGES IN EQUITY
Year ended 31 December 2021
Notes
2021
£m
2020
£m
Cash flows from/(used by) operating activities
Loss for the year (5.8 ) (78 .0 )
Adjustments for:
Share of results of joint ventures and associates 14 – (0. 2 )
Finance income 8 (0 .1 ) (0.8 )
Finance expense 8 3 .9 5 .1
Taxation 9 (7. 5 ) (1 8 .1 )
Impairment of Alcaidesa marina 13 – 0.6
Impairment of other investment 5 – 0.6
Profit on sales of interests in joint ventures and associates 5 – (1. 6 )
Profit on disposal of subsidiary undertakings 26 – (1. 4 )
Pension GMP equalisation charge 21 – 0 .9
Depreciation of property, plant and equipment 5 12 .9 15 . 0
Amortisation and impairment of intangible assets 5 1 .1 10. 5
Shares purchased to satisfy employee share schemes (0. 2 ) (0. 2 )
Share-based payments expense 6 1 .1 0 .9
Cash from/(used by) operations before changes in working capital and provisions 5.4 (6 6 .7 )
Decrease in inventories 0.3 0.7
Decrease in receivables 1 7. 7 25.5
Decrease in payables (2 9. 9 ) (0 .1 )
Movement in provisions and employee benefits 3 9. 7 (10. 4 )
Cash from/(used by) operations 33.2 (51. 0 )
Interest received 0 .1 0.8
Interest paid (3 .9 ) (5 .1 )
Taxation received 0 .1 8.3
Net cash from/(used by) operating activities 29.5 (4 7. 0 )
Cash flows from/(used by) investing activities
Dividends received from joint ventures and associates 14 – 0.2
Additions to property, plant and equipment 13 (0 .7 ) (0. 5 )
Additions to intangible assets 12 (1. 5 ) (3.6 )
Proceeds of disposals of property, plant and equipment and intangible assets – 0.3
Proceeds of sales of interests in joint ventures and associates 26 – 3.7
Proceeds of sales of subsidiary undertakings 26 – 4.6
Net cash (used by)/from investing activities (2.2 ) 4 .7
Cash flows from/(used by) financing activities
Issue of ordinary share capital 22 – 92.5
Repayments of lease liabilities (10 . 8 ) (12 .1 )
Drawdown of loans 17 – 71. 5
Repayment of loans 17 (8. 0 ) (13 9. 0 )
Net cash (used by)/from financing activities (18. 8 ) 12 .9
Net increase/(decrease) in cash and cash equivalents 8.5 (2 9.4 )
Cash and cash equivalents at beginning of the year 17 15 0 .9 18 0.9
Effect of foreign exchange rate changes – (0 .6 )
Cash and cash equivalents at end of the year 17 159.4 15 0 .9
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Financial Statements | Consolidated Cash Flow Statement
CONSOLIDATED CASH FLOW STATEMENT
Year ended 31 December 2021
Notes
2021
£m
2020
£m
Cash flows from/(used by) operating activities
Loss for the year (39.4) (35.0)
Adjustments for:
Finance income (2.7) (2.2)
Finance expense 3.2 4.1
Taxation (0.4) –
Impairment in investments 14 – 34.0
Cash from operations before changes in working capital and provisions (39.3) 0.9
Decrease in receivables 63.9 38.2
(Increase)/decrease in payables (0.6) 0.3
Movement in provisions 39.9 (0.1)
Cash from operations 63.9 39.3
Interest received 1.7 2.2
Interest paid (3.2) (4.1)
Taxation paid (0.5) –
Net cash from operating activities 61.9 37. 4
Cash flows from/(used by) investing activities
Investment in subsidiaries 14 – (42.9)
Dividends received 1.0 1.0
Net cash from/(used by) investing activities 1.0 (41.9)
Cash flows from/(used by) financing activities
Issue of ordinary share capital 22 – 92.5
Drawdown of loans 17 – 71.0
Repayment of loans 17 (8.0) (139.0)
Net cash (used by)/from financing activities (8.0) 24.5
Net movement in cash and cash equivalents 54.9 20.0
Cash and cash equivalents at beginning of the year 17 20.1 0.1
Cash and cash equivalents at end of the year 17 75.0 20.1
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COMPANY CASH FLOW STATEMENT
Year ended 31 December 2021
1 General information
The principal activities of the Company and its subsidiary undertakings (collectively referred to as ‘the Group’) are
described in the Strategic Report.
The consolidated financial statements of the Company for the year ended 31 December 2021 comprise the Group and
the Group’s interests in associates, joint ventures and joint operations. The Parent Company financial statements present
information about the Company as a separate entity and not about its Group.
The financial statements were authorised for issue by the directors on 9 March 2022.
2 Summary of significant accounting policies
Basis of preparation
Both the Company financial statements and the Group consolidated financial statements have been prepared and
approved by the directors in accordance with UK-adopted international accounting standards and with the requirements
of the Companies Act 2006 as applicable to companies reporting under those standards. On publishing the parent
Company financial statements here together with the Group financial statements, the Company is taking advantage of
the exemption in Section 408 of the Companies Act 2006 not to present its individual income statement and related
notes that form a part of these approved financial statements.
These financial statements are presented in pounds sterling, rounded to the nearest hundred thousand. The financial
statements are prepared on the historical cost basis, except that derivative financial instruments are stated at their
fairvalue. In preparing the financial statements of the Group we performed an assessment of the impact of climate
change, with reference to the disclosures made in the Strategicreport. There has been no material impact on the
financial statements for the current year from the Group’s assessment of the impact of climate change, including
estimates and judgements made, specifically in relation to long-term contract accounting.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates
and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and
expenses. The estimates and associated assumptions are based on historical experience and various other factors that
are believed to be reasonable under the circumstances. The results of these form the basis of making the judgements
about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ
from these estimates. Judgements made by management in the application of IFRS that have a significant effect on the
financial statements and estimates with a significant risk of material adjustment in the next year are discussed later in
this note.
Going concern
The Group’s business activities and the factors likely to affect its future development, performance and position are set
out in the Strategic Report. The financial position of the Group, its cash flows, liquidity position, borrowing and bonding
facilities, use of financial instruments and hedging activities, exposure to credit risk and its objectives, policies and
processes for managing its capital and financial risk are described in the chief financial officer’s review and in note 18.
shareholders’ capital and retained earnings and its borrowing facilities. These borrowing facilities give the Group access
to an RCF cash drawdown component of £131m and a £40m five-year Term Loan, which reduces by £4m every six months
on 30 June and 31 December.
These facilities have a liquidity covenant of net debt / EBITDA ≤1.5 times and an interest covenant of EBITA / net interest
payable covenant of ≥4.0 times and these financial covenants are tested quarterly. As at 31 December 2021, the Group
had a leverage covenant ratio of below zero (the Group had no net debt) and an interest covenant ratio of 11.0 times. As
part of its contracting operations, the Group may be required to provide performance and other bonds. It satisfies these
requirements by utilising its £35m bank bonding and £275m surety company bonding facilities.
In determining the appropriate basis of preparation of the financial statements for the year ended 31 December 2021,
the Directors are required to consider whether the Group and the Company can continue in operational existence for
the foreseeable future, being a period of at least twelve months from the date of approval of the accounts. Having
undertaken a rigorous assessment of the financial forecasts, including its liquidity and compliance with covenants, the
Board considers that the Group and the Company have adequate resources to remain in operation for the foreseeable
future and, therefore, have adopted the going concern basis for the preparation of the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
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Financial Statements | Notes to the Financial Statements
2 Summary of significant accounting policies continued
Going concern continued
In assessing the going concern assumptions, the Board reviewed the base case plans and also identified severe but
plausible downsides affecting future profitability, working capital requirements and cash flow. The base case assumes
delivery of the Board approved strategic and financial plans. These severe but plausible downsides include applying the
aggregated impact of lower revenue, lower margins, future contractual issues, higher working capital requirements and
adverse contract settlements.
These forecasts show significant headroom and support that the Group will be able to operate within its available
banking facilities and covenants throughout this period. Covenants are calculated on a rolling 12-month basis each
quarter and therefore for all quarters until Q4 of FY22, and Q1 and Q2 of FY23, a portion of the EBITDA/EBITA has
already been earned, reducing the risk of a potential breach. Taking this into account along with the forecasts reviewed,
it is considered that the EBITA/net interest covenant for the rolling 12 months to Q4 of FY22 and Q1 of FY23 is the limiting
factor, given the Group’s net cash position. The Board concluded that there is liquidity headroom in severe but plausible
downside scenarios, as well as headroom on the committed facilities and on the associated financial covenants.
New and amended standards adopted by the Group
The accounting policies set out below have been applied consistently by the Group and the Company to each period
presented in these financial statements, except for the adoption of the new accounting standards noted below.
The Group has applied the following standards and amendments for the first time for their annual reporting period
commencing 1 January 2021:
• Covid-19-Related Rent Concessions – amendments to IFRS 16, and
• Interest Rate Benchmark Reform – Phase 2 – amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.
The Group also elected to adopt the following amendments early:
• Annual Improvements to IFRS Standards 2018–2020,
• Deferred Tax related to Assets and Liabilities arising from a Single Transaction – amendments to IAS 12, and
• Covid-19-Related Rent Concessions beyond 30 June 2021.
The amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected
to significantly affect the current or future periods.
Certain new accounting standards, amendments to accounting standards and interpretations have been published
that are not mandatory for 31 December 2021 reporting periods and have not been early adopted by the Group. These
standards, amendments or interpretations are not expected to have a material impact on the entity in the current or
future reporting periods and on foreseeable future transactions.
Basis of consolidation
(a) The Group’s financial statements include the financial statements of the Company and its subsidiaries. Subsidiaries
are entities controlled by the Group and control exists when the Group is exposed to, or has the rights to, variable
returns from its involvement with the entity and has the ability to affect those returns through its power over the
entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date
that control starts until the date that control ceases.
(b) Associates are operations over which power exists to exercise significant influence but not control, generally
accompanied by a share of between 20% and 50% of the voting rights. Associates are accounted for using the equity
method.
(c) Joint ventures are those joint arrangements where control is shared with another entity, and where the Group has
rights to the net assets of the arrangement. Joint ventures are accounted for using the equity method from the date
that the joint venture starts until the date that joint control of the entity ceases.
(d) The presentation of investments in associates and joint ventures in the statement of financial position restricts the
minimum carrying value to £nil. Where the cost of investment would be negative, due to losses incurred, then an
amount up to the value of the negative position is applied to any outstanding loan balance with the investment or,
where future funding commitments exist, a provision is made up to the value of the commitment.
(e) Joint operations are those joint arrangements over which joint control exists, established by contractual agreement,
which are not legal entities and where the parties have rights to the assets and obligations for the liabilities relating
to the arrangement. Where a joint operation exists, then the Group entity involved records the assets it controls, the
liabilities and expenses it incurs and its share of income. Such joint operations are reported in the consolidated financial
statements on the same basis. Transactions between Group companies and joint operations eliminate on consolidation.
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(f) Intra-Group balances and transactions together with any unrealised gains arising from intra-Group transactions
are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with
associates, joint ventures and joint operations are eliminated to the extent of the interest in the entity or operation.
Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence
of impairment.
Currency translation
Transactions in foreign currencies are translated at the exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies are translated to pounds sterling at the exchange rate ruling
at the statement of financial position date. Foreign exchange differences arising on translation are recognised in the
income statement.
The assets and liabilities of the residual foreign entities are translated to pounds sterling at exchange rates ruling at the
statement of financial position date. Income and expenses of foreign entities are translated to pounds sterling at rates
approximating to the exchange rates ruling at the dates of these transactions.
Exchange differences arising from the translation of the net investment in the remaining foreign entities are recognised
directly in equity. Those exchange differences that have arisen since 1 January 2004, the date of transition to IFRS, are
presented as a separate component of equity. Cumulative exchange differences are released into the income statement
upon disposal. Translation differences that arose before the date of transition to IFRS in respect of all foreign operations
are not presented as a separate component.
Revenue from contracts with customers
The Group recognises revenue when control over the service or product is transferred to the customer and revenue is
measured at the fair value of the consideration received or receivable, net of value added tax. Where the consideration
is variable, the amount recognised is highly probable not to suffer a significant reversal in future.
The principal source of revenue relates to work on the UK’s infrastructure across transportation, water and energy. Over
90% arises under long-term contracts, which require delivery of a specified item to the customer, increasingly involve a
technology element, with a large element of the works undertaken on the customer’s land and perhaps taking a number
of years to complete. The majority are structured in a cost reimbursement or target cost form, typically with incentive and
penalty arrangements. Generally, the works specified within the contract are integrated and the customer procures the
one complete package, which may incorporate design, engineering and advisory work into the scope. Where a contract
comprises distinct performance obligations, each is accounted separately. The scope of the works will be often subject
to change and in the majority of contracts, the terms specify that changes are handled through compensation events.
These are considered on a case by case basis to determine whether they are a new separate performance obligation
and accounted as such, or part of the original works and dealt with on a cumulative catch-up basis. On the majority of
contracts, the compensation events relate to clarifications or revisions of the original works. Other design, advisory and
consulting contracts requiring production of a specified scope or provision of other services, some of which may lead
to the construction of the designed product, can be structured as inter-dependant or standalone contracts and the
resulting performance obligations depends on how the customer procures the contract.
Group revenue includes the Group’s share of revenue of joint operations.
(a) Long-term contracts
Revenue arises from the increase in the value of work performed and the value of services provided during the year.
Where the outcome of an individual long-term contract can be estimated reliably and it is probable that the contract will
be profitable, revenue and costs are recognised by reference to the stage of completion of the contract activity at the
statement of financial position date. Stage of completion is assessed by reference to the proportion of contract costs
incurred for the work performed to date relative to the estimated total costs. Contract costs are recognised as expenses
in the period in which they are incurred.
Compensation events, variations and claims, gain from pain/gain arrangements and other bonus assessments are
included in revenue where it is highly probable that the amount, which can be measured reliably, will be recovered
from the customer and will not reverse. Pain from pain/gain arrangements is included where incurred or expected to be
incurred. Revenue in respect of these items is determined on the most likely outcome method. When the outcome of a
long-term contract cannot be estimated reliably, contract revenue is recognised to the extent of contract costs incurred,
where it is highly probable those costs will be recoverable and will not reverse. When it is probable that total contract
costs will exceed total revenue, the expected loss is recognised as an expenseimmediately.
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Revenue from contracts with customers continued
(a) Long-term contracts continued
Contract work in progress is stated at cost plus profit recognised to date, including compensation events not yet agreed
but considered highly probable, less a provision for foreseeable losses and less amounts billed and is included in contract
assets. Amounts valued and billed to customers are included in trade receivables. Where cash received from customers
exceeds the value of work performed, the amount is included in contract liabilities.
Any reversal of revenue arising from a change that occurs in the current year but affects the previously recognised
position is recognised within revenue for the current year.
(b) Other revenue
Revenue from other services contracts is recognised when the service is provided and revenue from the sale of land is
recognised when title has been transferred to the buyer. The revenue recognised is the amount that can be measured
reliably and is highly probable to flow to the Group and not reverse. Rental income is recognised in the income statement on
a straight-line basis over the term of the lease. Insurance claims are recognised when they are considered virtually certain.
Income statement presentation – Adjusting items
To aid understanding of the underlying and overall performance of the Group, certain amounts that the Board considers
to be material or non-recurring in size or nature or related to the accounting treatment of acquisitions are adjusted
because they are not long term in nature and will not reflect the long-term performance of the Group. Presenting results
on this adjusted basis is consistent with the internal reporting presented to the Board.
The Directors exercise judgement in determining the classification of certain items as adjusting using quantitative and
qualitative factors. In assessing whether an item is an adjusting item, the Directors give consideration, both individually
and collectively, as to an item’s size, the specific circumstances which have led to the item arising and if the item is likely
to recur, or whether the matter forms part of a group of similar items.
The separate presentation of these items is intended to enhance understanding of the financial performance of the
Group in the particular year under review and the extent to which results are influenced by material unusual and/or
non-recurring items. The tax impact of the above is shown in note 3 to the financial statements on the taxation line.
Consequently, the Group is disclosing as supplementary information ‘Adjusted revenue, Adjusted profit and Adjusted
earning per share’ alternative performance measurements. These are reconciled to statutory numbers in note 3 to the
financial statements and reported in the presentation of segmental reporting in note 4.
The Group also presents net cash/bank debt as an alternative performance measure. The Directors consider that this
provides useful information about the Group’s liquidity position.
Pre-contract costs
Costs associated with bidding for contracts are written off as incurred.
Research and development
Research and development activities are usually directly attributable to a project and accounted within project costs. In
line with common practice, the Group has adopted the research and development expenditure credit (RDEC) regime as
these credits have characteristics similar to government grants. Development expenditure that satisfies all the relevant
conditions is capitalised as an intangible asset (see below).
Goodwill and other intangible assets
Goodwill arising on acquisitions represents the excess of the fair value of the consideration over the identifiable assets,
liabilities and contingent liabilities of the acquired entity and goodwill arising on the acquisition of subsidiaries is
included innon-current assets. The attributable costs of acquisitions are expensed to the income statement.
Goodwill is reviewed annually for impairment and is carried at cost less accumulated impairment losses. Goodwill is
included when determining the profit or loss on subsequent disposal of the business to which it relates.
Acquired intangible assets comprise customer relationships, order book, brand and intellectual property. Other
intangible assets comprise computer software, development expenditure and patents. Customer relationships and other
acquired intangibles are measured at the present value of cash flows attributable to the relationship less an appropriate
contributory asset charge. Computer software, development expenditure and patents are carried at cost. Once the asset
is complete, subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the
specific asset to which it relates, otherwise expenditure is expensed as incurred.
NOTES TO THE FINANCIAL STATEMENTS continued
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Internally generated development expenditure is recognised as an intangible asset only if all of the following conditions
aresatisfied:
• the asset can be identified
• it is probable that the asset will create future economic benefits
• the development costs can be measured reliably.
Amortisation begins when an asset is acquired or, in the case of computer software and other development assets,
available for use and is amortised over the following periods:
Brands – on a straight-line basis up to three years
Order book – in line with expected profit generation up to three years
Customer relationships – on a straight-line basis up to seven years
Other intangibles (including other acquired) – on a straight-line basis up to five years
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated depreciation and impairment losses. Where parts of an
item of property, plant and equipment have different useful lives, they are accounted as separate items. Cost comprises
purchase price and directly attributable costs. Freehold land is not depreciated. For all other property, plant and
equipment, depreciation is calculated on a straight-line basis to allocate cost less residual values of the assets over their
estimated useful lives as follows:
Freehold buildings – 50 years
Leasehold buildings – shorter of 50 years or lease term
Plant and equipment – remaining useful life (generally 3 to 10 years)
The assets’ residual values and useful lives are reviewed and adjusted, if appropriate, at each statement of financial
positiondate.
Investments – Company
Company investments in subsidiaries are carried at cost less provisions for impairment.
Impairment of non-financial assets
For the purposes of impairment testing, goodwill is allocated to the cash generating units expected to benefit from the
synergies of the combination. Cash generating units to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the
cash generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying
amount of any goodwill allocated to the unit and then to other assets of the unit pro rata on the basis of the carrying amount
of each asset in the unit.
The carrying amounts of other assets, except inventories and deferred tax assets, are reviewed at each statement of
financial position date to determine whether there is any indication of impairment. If any such indication exists, the assets
recoverable amount is estimated.
An impairment loss is recognised whenever the carrying amount of an asset, or its cash generating unit, is less than the
recoverable amount. Impairment losses are recognised in the income statement.
An impairment loss (other than in relation to goodwill) is reversed if there has been a change in the estimates resulting in
the recoverable amount rising above the impaired carrying value of the asset. An impairment loss is reversed only to the
extent that the carrying amount of the assets does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been recognised.
Provisions
A provision is recognised in the statement of financial position when there is a legal or constructive obligation as a result
of a past event and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect
is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
A provision for onerous contracts is recognised when the expected benefits to be derived from a contract are lower than
the unavoidable cost of meeting the obligations under the contract.
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Taxation
The tax expense represents the sum of UK corporation tax and overseas tax currently payable and deferred tax.
The tax currently payable is based on the taxable profit for the year. Taxable profit differs from profit before tax as
reported in the income statement because it excludes items of income or expense that are taxable or deductible in other
years and it excludes items that are never taxable or deductible. The liability for current tax is calculated using tax rates
and laws that have been enacted or substantively enacted by the statement of financial position date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit and
is accounted for using the statement of financial position liability method. Deferred tax liabilities are generally recognised
for all temporary differences except for those specific exemptions set out below and deferred tax assets are recognised
to the extent that it is probable that future taxable profits will be available against which deductible temporary differences
can be utilised. The carrying amount of deferred tax assets is reviewed at each statement of financial position date.
Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of goodwill
or from the initial recognition of other assets and liabilities (other than in a business combination) in a transaction that
affects neither the taxable profit nor the accounting profit.
Deferred tax liabilities are recognised for temporary differences arising on investments in subsidiaries and interests
in joint arrangements, except where the Group is able to control the reversal of the temporary difference and it is
probable that the temporary difference will not reverse in the foreseeable future.
Deferred tax is calculated at the tax rates based on those enacted or substantially enacted at the statement of financial
position date. Deferred tax is charged or credited in the income statement except when it relates to items charged or
credited directly to equity, in which case the deferred tax is also dealt with in equity.
Additional taxes arising from the distribution of dividends are recognised at the same time as the liability to pay the
relateddividend.
Leases
Where the Group is party to a lease, except for short-term leases or leases of low value assets (as noted below), the
Group recognises a right-of-use asset and a lease liability upon lease commencement. The major categories of leased
items within the scope of IFRS 16 are properties, vehicles and some site plant. Changes to contract scope can lengthen
or shorten contract programmes and result in extensions or early terminations to site plant lease terms.
The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any
lease payments made at or before the commencement date, any initial direct costs incurred and an estimate of costs to
dismantle and remove or to restore the underlying asset or the site on which is located, less any lease incentives received.
The asset is subsequently depreciated using the straight-line method from the commencement date to the earlier
of the end of the useful life of the asset or the end of lease term. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is reduced
by any impairment losses and adjusted for certain remeasurements of the lease liability associated with changes to the
lease term.
The lease liability is initially measured at the present value of the lease payments payable over the lease term, discounted
at the incremental borrowing rate.
The amount charged to the income statement comprises the depreciation of the right-of-use asset and the imputed
interest on the lease liability.
Payments associated with short-term leases and leases of low-value assets are recognised on a straight-line basis as an
expense in the income statement. Short-term leases are leases with a lease term of 12 months or less.
Financial guarantee contracts
Where the Company enters into financial guarantee contracts to guarantee the indebtedness of other companies within
the Group, the Company considers these to be insurance arrangements and accounts for them as such. In this respect,
the guarantee contract is treated as a contingent liability until such time as it becomes probable that a payment under
the guarantee will be required.
NOTES TO THE FINANCIAL STATEMENTS continued
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Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are
shown in equity as a deduction, net of tax, from the proceeds.
Dividends
Dividends are recognised as distributions in the period in which they are declared. Dividends proposed but not declared
are not recognised but are disclosed in note 10 to the financial statements.
Share-based payments
These comprise equity-settled share-based compensation plans.
Equity-settled share-based payments are measured at fair value at the date of grant and the fair value is expensed over
the vesting period, based on the estimate of awards that will eventually vest. Fair value is measured using a Black-Scholes
option pricing model.
Where options are granted over shares in the Company to employees of subsidiaries, the Company recognises in its
financial statements an increase in the cost of investment in its subsidiaries equivalent to the equity-settled share-based
payment charge recognised in its subsidiaries’ financial statements, with the corresponding credit being recognised
directly in equity.
Retirement benefit obligations
A defined benefit pension scheme is operated in the UK, which provides benefits based on pensionable salary.
The details are included in note 21. The assets of the scheme are held separately from those of the Group.
Pension scheme assets are measured using market values. Pension scheme liabilities are measured using a projected unit
method and discounted at the current rate of return on a high-quality corporate bond of equivalent term and currency to
the liability. The liability or asset recognised in the statement of financial position in respect of the defined benefit pension
scheme is the difference between the present value of the defined benefit obligations and the fair value of scheme assets at
the statement of financial position date. An asset is recognised because any surplus on the Costain Pension Scheme would
be recoverable by way of a refund, as the Group has the unconditional right to any surplus once all the obligations of the
Scheme have been settled.
Administration costs of the scheme are recognised in the income statement and a charge to reflect the impact of GMP
equalisation was included in other items in the income statement in 2020. The interest income or cost on the scheme’s
net asset or liabilities is included in net finance expense. Remeasurements of the net asset or liability are recognised in
the consolidated statement of comprehensive income.
Obligations for contributions to defined contribution pension plans are recognised as an expense in the income
statement asincurred.
Financial assets and liabilities
Financial assets and financial liabilities are recognised in the Group’s statement of financial position when the Group
becomes a party to the contractual provisions of the instrument.
(a) Financial assets
The classification depends on the nature and purpose of the financial asset and is determined at the time of initial recognition.
A financial asset is derecognised only when the contractual rights to the cash flows from that asset expire, or it transfers
the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.
Trade and other receivables
Trade and other receivables do not carry interest and are stated at their initial value less impairment losses. Trade receivables
mostly relate to long-term contracts.
Cash and cash equivalents
Cash and cash equivalents comprise cash balances and call deposits.
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Financial assets and liabilities continued
Impairment of financial assets
Impairment of financial assets is based on an expected credit loss model applying the simplified approach permitted
under IFRS 9. The Group calculates an allowance for credit losses based on the nature of the customer, experience of
collecting receivables from similar customers and modelling default scenarios and applying probabilities of such scenarios.
(b) Financial liabilities
Financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities
are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on
an effective yield basis.
Financial liabilities are derecognised only when the obligations are discharged, cancelled or expire.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective
interestmethod.
(c) Derivative financial instruments
Derivative financial instruments are used to manage risks arising from changes in foreign exchange rates and interest
rates and are measured at their fair value as explained in the cash flow hedges section of note 18.
Certain derivative financial instruments are designated as cash flow hedges in line with established risk management
policies. These hedge exposure to variability in cash flows that is attributable to either a particular risk associated with
a recognised asset or liability or a forecast transaction. The portion of the gain or loss on the hedging instrument that is
determined to be an effective hedge is recognised in equity, with any ineffective portion in the income statement. When
hedged cash flows result in the recognition of a non-financial asset or liability, the associated gains or losses previously
recognised in equity are included in the initial measurement of the asset or liability. For all other cash flow hedges, the
gains or losses that are recognised in equity are transferred to the income statement in the same period in which the
hedged cash flow affects the income statement.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer
qualifies for hedge accounting. Any cumulative gain or loss previously recognised in equity is retained in equity until the
hedged transaction occurs. If the hedged transaction is no longer expected to occur, the net cumulative gain or loss is
transferred to the income statement.
Any gains or losses arising from changes in fair value of derivative financial instruments not designated as hedges are
recognised in the income statement.
Fair value measurement
When measuring the fair value of a financial or non-financial asset or liability, the Group uses market observable data as
far as possible. Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the
valuation techniques as follows:
• Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
• Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (i.e. as prices) or indirectly (i.e. derived from prices).
• Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).
If the inputs used to measure the fair value of an asset or liability might be categorised in different levels of the fair value
hierarchy, then the fair value measurement is categorised in its entirety in the same level of the hierarchy as the lowest
level input that is significant to the entire measurement.
NOTES TO THE FINANCIAL STATEMENTS continued
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Significant areas of judgement and estimation
The estimates and underlying assumptions used in the preparation of these financial statements are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the
revision affects only that period, or in the period of the revision and future periods if the revision affects both current
and future periods.
The most critical accounting policies and significant areas of estimation and judgement arise from the accounting for
long-term contracts under IFRS 15 ‘Revenue from Contracts with Customers’, the carrying value of goodwill and acquired
intangible assets, the assumptions used in the accounting for defined benefit pension schemes under IAS 19 ‘Employee
benefits’, the recognition of deferred tax assets in relation to tax losses and the items classified as other items and
contract adjustments.
Long-term contracts
The majority of the Group’s activities are undertaken via long-term contracts and IFRS 15 requires the identification and
separation of individual, distinct performance obligations, which are then accounted individually. The most common
type of contracts undertaken by the Group with multiple performance obligations are framework contracts. In most
cases, the obligations are satisfied over time and estimates are made of the total contract costs and revenues. In many
cases, these obligations span more than one financial period. Both cost and revenue forecasts may be affected by a
number of uncertainties that depend on the outcome of future events and may need to be revised as events unfold and
uncertainties are resolved. Cost forecasts take into account the expectations of work to be undertaken on the contract.
Revenue forecasts take into account compensation events, variations and claims and assessments of the impact of pain/
gain arrangements to the extent that the amounts the Group expects to recover or incur can be reliably estimated and
are highly probable not to reverse.
Management bases its estimates of costs and revenues and its assessment of the expected outcome of each long-
term contractual obligation on the latest available information, this includes detailed contract valuations, progress on
discussions over compensation events, variations and claims with customers, progress against the latest programme for
completing the works, forecasts of the costs to complete and, in certain limited cases, assessments of recoveries from
insurers where virtually certain. Revenue is recognised to the extent that amounts forecast from compensation events,
variations and claims are agreed or considered in management’s judgement highly probable to be agreed.
During the course of the contract, there is often significant change to the scope of the works and this has an impact on
the programme and costs on the contract. The amount of resulting compensation events can be substantial and at any
time these are often not fully agreed with the customer due to the timing and requirements of the contractual process.
Also many will relate to work yet to be undertaken or completed. Therefore, assessments are based on an estimate of the
potential cost impact of the compensation events.
The Group’s five largest compensation events positions included in contract assets at the year-end are summarised in
aggregate below. The Peterborough & Huntingdon contract is not included in the table and is discussed separately below.
2021
£m
2020
£m
2019
£m
Overall contract value 1,501.9 1,135.6 1,334.0
Revenue in year 146.3 176.9 281.3
Total estimated end of contract compensation events 135.4 83.1 472.1
Total estimated unagreed end of contract compensation events
(included in the above) 96.1 51.3 238.6
Total unagreed compensation events valued at year-end and included
in contract assets 22.9 22.5 45.7
The financial impact of changes to the value of compensation events finally agreed will depend on the precise terms of the
contract and the interaction with incentive arrangements, such pain/gain mechanisms and bonus or KPI arrangements, and
any assessments made about costs disallowed under the contract. If the estimated value of the unagreed end of contract
compensation events in relation to the currently estimated change in these contracts was increased or decreased by
10%, the impact on the financial results within the next financial year could be an increase or decrease of up to £9.6m
(2020: up to £7.0m). Additional compensation events for further change may also arise over the remaining contract period.
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2 Summary of significant accounting policies continued
Significant areas of judgement and estimation continued
Long-term contracts continued
The estimates of the contract position and the profit or loss earned to date are updated regularly and significant changes
are highlighted through established internal review procedures. The impact of any change in the accounting estimates
both positive and negative is then reflected in the financial statements.
While management believes it has recorded positions that are highly probable not to reverse on the basis of existing
knowledge, there are a number of factors affecting the positions and some possible outcomes could require material
adjustment within the next financial year. Given the pervasive impact of judgements and estimates on revenue, cost of
sales and related balance sheet amounts, it is difficult to quantify the impact of taking alternative assessments on each
of the judgements above. However, a sensitivity analysis of the potential impact is included above.
Peterborough & Huntingdon
On 24 February 2022, Costain announced that it had reached a final settlement with National Grid regarding the
Peterborough & Huntingdon contract. The settlement agreement brings an end to the dispute after the contract was
mutually terminated in June 2020 and prevents any further claims under the contract. Costain made a full and final
payment of £43.4m to National Grid, after the end of the financial year 2021. See note 3 for further details.
Contract in the water sector
During the year Costain recognised a £6.2m provision in respect of the expected future costs of probable rectification
works required at a customer’s facility where the Group had been prime contractor. Costain has engaged with its
insurers and other stakeholders to explore routes for recovery and to minimise the Group’s ultimate exposure. However,
as at 31December 2021, the expected recoveries do not yet meet the virtually certain criteria, and accordingly no
reimbursement asset has been recognised.
The Group has identified a range of potential solutions to expedite the required rectification works, with an estimated
cost ranging between £5.5m to £12.2m. The Group’s best estimate cost of the single most likely solution as at
31December 2021 is £6.2m. A provision for this probable economic outflow has been recognised and disclosed
in note 20.
Carrying value of goodwill and intangible assets
Reviewing the carrying value of goodwill and intangible assets recognised on acquisition requires an estimation of the
value in use of cash generating unit to which the goodwill has been allocated. These valuations involve estimation and
judgement, principally, in respect of the levels of operating margins, growth rates and future cash flows of the cash
generating units and also include a consideration of potential sensitivities around those figures. The useful lives of
intangible assets and the selection of discount rates used to calculate present values are set out in note 12.
The carrying values of investments in some subsidiaries in the Company (note 14) are based on a value in use assessment
of that subsidiaries assets and liabilities. This requires estimates to be made of the future profitability and cash flows of
these subsidiaries.
Defined benefit pension schemes
Defined benefit pension schemes require significant estimates in relation to the assumptions for the discount rate, inflation
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 21.
Deferred tax
Included in deferred tax assets is an asset for tax losses recorded in current and prior years. The asset is recognised
on the basis that the losses will be used against future taxable profits of the Group over the next six years. The critical
judgements in assessing the recoverability relate to the ability of the Group to achieve its taxable profit forecasts and the
ability to withstand the application of what the Board considers appropriate sensitivities. Details of deferred tax assets
are shown in note 9.
Adjusting items
Management has used judgement to determine the items classified as adjusting items and set out in note 3.
NOTES TO THE FINANCIAL STATEMENTS continued
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3 Reconciliation of reported revenue and operating (loss)/profit to adjusted revenue and operating profit
Adjusted revenue, operating profit and earnings per share are being used as non-GAAP alternative performance
measurements. These measurements were introduced in 2020 and exclude the impact of significant one-off re-
measurements of three contracts, Peterborough & Huntingdon (P&H), the A465 Heads of the Valley road (A465) and
the ASF South contracts, as described below, as well as the other items that the Board considers to be of a one-off and
unusual nature or related to the accounting treatment of acquisitions. The Board considers the adjusted measures better
reflect the underlying trading performance of the Group.
The profit adjustments represent the amounts included in the income statement. The revenue adjustments represent the
reversal of the contract asset recorded in the statement of financial position immediately prior to the initial write down
and any subsequent adjustment to overall contract revenue.
On 29 June 2020, Costain announced that a termination and settlement agreement (the “Agreement”) had been reached
with National Grid to cease work on the Peterborough & Huntingdon (“P&H”) gas compressor project (the “Contract”)
following a significant change in scope. The Agreement included the parties entering into a legal process, through
adjudications, to agree up to £80.0m of identified compensation events, recover costs incurred and eliminate potential
liability to National Grid for completing the works.
Under the terms of the Agreement, the aggregate potential outcome for Costain of these adjudications ranged from an
additional cash receipt of up to a maximum of £50.0m to a cash payment (which would not affect the Group’s banking
arrangements) of up to a maximum of £57.3m. As outlined in the Agreement, Costain and National Grid had until
28December 2021, to agree the quantum of these compensation events. After this, in accordance with the contractual
mechanism, any remaining unagreed change items would require a cash payment to be paid to National Grid in the
interim. Should such a cash payment be required, this would be required to be made in the first quarter of 2022.
Subsequent to reaching this agreement, in its interim results for the six months ended 30 June 2020, Costain recorded
a charge to the income statement of £49.3m, reflecting the cash position at termination. See below for further details.
At 31 December 2020, the Group, supported by extensive input from third party quantum, delay and disruption experts
and independent legal advice, determined that it had a strong entitlement to retain, at a minimum, the reported position.
No asset or liability was recorded on the balance sheet at this time.
On 10 December 2021, Costain received the outcome of a material combined adjudication where the adjudicator found
in Costain’s favour on principle in respect of three out of four compensation events under consideration. However, the
adjudicator unexpectedly declined to make a quantum assessment and noted that had he been able to determine
quantum, this would only be in respect of non-productive time-related costs. In doing so the adjudicator therefore
indicated that he would have sought to apply a methodology that was not envisaged nor widely used within the
construction industry, nor was it in accordance with or defined within the contract. The impact of this would have been
to allow recovery of only a small proportion of the additional costs incurred and claimed. This left the matter undecided
and, in respect of certain matters, the subject of further adjudication.
Accordingly, in the absence of a quantified resolution via adjudication by 28 December 2021, Costain would have been
required to make a payment to National Grid of £53.5m in January 2022. This payment was required notwithstanding any
potential subsequent recoveries from National Grid which might become due as a result of further actions to recover
costs, including in respect of those compensation events that had been ruled in Costain’s favour.
In assessing and determining the most appropriate steps to conclude this matter, Costain considered the risks associated
with pursuing further recoveries via a potentially protracted process of further adjudication and litigation, the residual
future latent defect risks and the opportunity for the release of retention bonds and parent company guarantees held
by National Grid, in addition to the ongoing and significant management time this would require. On balance, Costain
concluded in light of these changes in events, that it was appropriate to enter into discussions with National Grid with a
view to reaching a settlement.
On 24 February 2022, Costain announced that it had reached a full and final settlement with National Grid. The
settlement agreement brings an end to the dispute and prevents any further claims under the contract. Costain made a
full and final payment of £43.4m to National Grid in the first quarter of 2022. Related legal and other costs of £4.2m were
also incurred and expensed during the period ending 31 December 2021.
After careful consideration including obtaining legal advice, it is the Board’s clear view that there have been specific
and unexpected changes in circumstance that have occurred during 2021. These were not envisaged by the Board or its
external advisors nor could they reasonably have been foreseen when reaching the conclusion in the December 2020
financial statements that it was highly probable that Costain would be awarded compensation events consistent with
the cash neutral balance sheet position adopted. That position had been the subject of detailed focus by independent
experts and legal advisors who had confirmed and supported the position taken.
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3 Reconciliation of reported revenue and operating (loss)/profit to adjusted revenue and
operating profit continued
After due consideration of the unexpected outcome of the adjudication process during 2021, the Board concluded that
it was appropriate to record the £43.4m adjustment in the period ending 31 December 2021 as a charge to the income
statement. As disclosed in Note 3 this charge has been treated as an adjusting item, consistent with the treatment
adopted in respect of the P&H contract in the prior year.
The A465 Heads of the Valley road contract was entered into in 2015 for the Welsh Government. In 2020, an arbitration
decided that Costain was responsible for design information for a specific retaining wall and that the additional building cost
associated with the wall was not a compensation event under the contract. As a consequence of the decision, at 30 June
2020, the Group adjusted the revenue recognised based on the level of cash received to that date and reflected a write down
of the £45.4m contract asset. The Group continued to fulfil its obligations under the contract, which was largely completed
during the current year. The final costs to complete were lower than forecast at the end of 2020 and a profit of £8.4m is
recognised in the year. 2020 adjusted Group revenue includes £18.0m of revenue on the A465 contract.
The ASF South contract was in respect of works undertaken for Highways England that were completed in 2016.
Following an extensive contract review in 2020, the Group took a one-off charge of £5.0m to close out this legacy
contract in the 2020 results.
2021
Adjusted
£m
P&H
£m
A465
£m
Other
items
£m
Total
£m
Revenue before contract adjustments 1,178. 6 – – – 1,178. 6
Contract adjustments – (43.4) – (43.4)
Group revenue 1,178. 6 (43.4) – – 1,13 5. 2
Cost of sales (1,099.2) (4.2) 8.4 – (1,095.0)
Gross profit/(loss) 79.4 (47.6) 8.4 – 40.2
Administrative expenses before other item: (49.3) – – – (49.3)
Amortisation of acquired intangible assets – – – (0.4) (0.4)
Administrative expenses (49.3) – – (0.4) (49.7)
Group operating profit/(loss) 30.1 (47.6) 8.4 (0.4) (9.5)
Share of results of joint ventures and associates – – – – –
Profit/(loss) from operations 30.1 (47.6) 8.4 (0.4) (9.5)
Net finance expense (3.8) – – – (3.8)
Profit/(loss) before tax 26.3 (47.6) 8.4 (0.4) (13.3)
Taxation 0.1 9.0 (1.6) – 7.5
Profit/(loss) for the period attributable
to equity holders of the parent 26.4 (38.6) 6.8 (0.4) (5.8)
Basic earnings/(loss) per share 9.6p (2.1)p
NOTES TO THE FINANCIAL STATEMENTS continued
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2020
Adjusted
£m
P&H
£m
A465
£m
ASF South
£m
Other
items
£m
Total
£m
Revenue before contract adjustments 1,070.5 – – – – 1,070.5
Contract adjustments – (42.0) (45.4) (4.7) – (92.1)
Group revenue 1,070.5 (42.0) (45.4) (4.7) – 978.4
Cost of sales (1,019.4) (7.3) – (0.3) – (1,0 27.0 )
Gross profit/(loss) 51.1 (49.3) (45.4) (5.0) – (48.6)
Administrative expenses before other items (33.1) – – – – (33.1)
Other items:
Impairment of Alcaidesa marina – – – – (0.6) (0.6)
Impairment of other investment – – – – (0.6) (0.6)
Profit on sales of interests in joint ventures and associates – – – – 1.6 1.6
Profit on disposal of subsidiary undertakings – – – – 1.4 1.4
Refinancing advisory fees – – – – (1.2) (1.2)
Pension GMP equalisation charge – – – – (0.9) (0.9)
Amortisation of acquired intangible assets – – – – (1.0) (1.0)
Impairment of goodwill – – – – (9.0) (9.0)
Administrative expenses (33.1) – – – (10.3) (43.4)
Group operating profit/(loss) 18.0 (49.3) (45.4) (5.0) (10.3) (92.0)
Share of results of joint ventures and associates 0.2 – – – – 0.2
Profit/(loss) from operations 18.2 (49.3) (45.4) (5.0) (10.3) (91.8)
Net finance expense (4.3) – – – – (4.3)
Profit/(loss) before tax 13.9 (49.3) (45.4) (5.0) (10.3) (96.1)
Taxation (1.5) 9.4 8.6 1.0 0.6 18.1
Profit/(loss) for the period attributable
to equity holders of the parent 12.4 (39.9) (36.8) (4.0) (9.7) (78.0)
Basic earnings/(loss) per share 5.8p (36.7)p
4 Operating segments
The Group has two core business segments: Natural Resources and Transportation and until its disposal in 2020, the
non-core business Alcaidesa in Spain. The core segments are strategic business units with separate management and
have different core customers or offer different services. This information is provided to the Chief Executive who is the
chief operating decision maker. The segments are discussed in the Strategic Report section of these financial statements.
The accounting policies of the operating segments are the same as those described in the summary of significant
accounting policies. The Group evaluates segment performance on the basis of profit or loss from operations before
interest and tax expense before and after other items and contract adjustments. The segment results that are reported
to the Chief Executive include items directly attributable to a segment as well as those that can be allocated on a
reasonable basis. Other items are allocated to the operating segments where appropriate, but otherwise are viewed as
Central items.
Intersegment sales and transfers are not material.
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4 Operating segments continued
2021
Natural
Resources
£m
Transportation
£m
Central costs
£m
Total
£m
Segment revenue
Adjusted revenue 314.4 864.2 – 1,178. 6
Contract adjustments (43.4) – – (43.4)
Group revenue 271.0 864.2 – 1,135.2
Segment profit/(loss)
Adjusted operating profit/(loss) (2.6) 41.4 (8.7) 30.1
Contract adjustments (47.6) 8.4 – (39.2)
Operating profit/(loss) before other items (50.2) 49.8 (8.7) (9.1)
Share of results of joint ventures and associates – – – –
Profit/(loss) from operations before other items (50.2) 49.8 (8.7) (9.1)
Other items:
Amortisation of acquired intangible assets (0.4) – – (0.4)
Profit/(loss) from operations (50.6) 49.8 (8.7) (9.5)
Net finance expense (3.8)
Loss before tax (13.3)
Segment profit/(loss) is stated after charging the following:
Depreciation and impairment 3.4 9.5 – 12.9
Amortisation and impairment (including acquired intangible assets) 0.6 0.5 – 1.1
Segment assets
Reportable segment assets 111.8 178.4 0.1 290.3
Unallocated assets:
Retirement benefit asset 67.1
Deferred tax 15.4
Taxation 0.2
Cash and cash equivalents 159.4
Total assets 532.4
Expenditure on non-current assets
Property, plant and equipment 4.3 14.4 – 18.7
Intangible assets 0.7 0.8 – 1.5
Segment liabilities
Reportable segment liabilities 100.7 183.0 10.3 294.0
Unallocated liabilities:
Borrowings 39.4
Total liabilities 333.4
NOTES TO THE FINANCIAL STATEMENTS continued
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2020
Natural
Resources
£m
Transportation
£m
Alcaidesa
£m
Central costs
£m
Total
£m
Segment revenue
Adjusted revenue 345.1 724.2 1.2 – 1,070.5
Contract adjustments (42.0) (50.1) – – (92.1)
Group revenue 303.1 674.1 1.2 – 978.4
Segment profit/(loss)
Adjusted operating profit 5.7 20.1 (0.1) ( 7.7 ) 18.0
Contract adjustments (49.3) (50.4) – – (99.7)
Operating loss before other items (43.6) (30.3) (0.1) ( 7.7 ) (81.7)
Share of results of joint ventures and associates 0.2 – – – 0.2
Loss from operations before other items (43.4) (30.3) (0.1) ( 7.7 ) (81.5)
Other items:
Impairment of Alcaidesa marina – – (0.6) – (0.6)
Impairment of other investment – – – (0.6) (0.6)
Profit on sales of interests in joint ventures and associates 1.6 – – – 1.6
Profit on disposal of subsidiary undertakings – – 0.4 1.0 1.4
Refinancing advisory fees – – – (1.2) (1.2)
Pension GMP equalisation charge – – – (0.9) (0.9)
Amortisation of acquired intangible assets (0.7) (0.3) – – (1.0)
Impairment of goodwill (9.0) – – – (9.0)
Loss from operations (51.5) (30.6) (0.3) (9.4) (91.8)
Net finance expense (4.3)
Loss before tax (96.1)
Segment profit/(loss) is stated after charging the following:
Depreciation and impairment 3.5 11.2 0.9 – 15.6
Amortisation and impairment
(including acquired intangible assets) 9.9 0.6 – – 10.5
Segment assets
Reportable segment assets 123.2 191.9 – 0.1 315.2
Unallocated assets:
Deferred tax 23.6
Taxation 0.2
Cash and cash equivalents 150.9
Total assets 489.9
Expenditure on non-current assets
Property, plant and equipment 2.7 18.1 – – 20.8
Intangible assets 1.7 1.9 – – 3.6
Segment liabilities
Reportable segment liabilities 61.1 195.9 – 24.0 281.0
Unallocated liabilities:
Retirement benefit obligations 5.6
Borrowings 46.8
Total liabilities 333.4
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4 Operating segments continued
Geographical information
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location
of customers. Segment assets are based on the geographical location of the assets and exclude deferred tax assets.
2021
External revenue
£m
Non-current assets
£m
UK 1,135.2 157.5
2020
External revenue
£m
Non-current assets
£m
UK 97 7. 2 95.9
Spain 1.2 –
978.4 95.9
Customers accounting for more than 10% of revenue
Two customers (2020: two) in the Transportation sector accounted for revenue of £629.0m (2020: £546.1m).
5 Other operating expenses and income
2021
£m
2020
£m
Loss before tax is stated after charging:
Amortisation and impairment of intangible assets (note 12) 1.1 10.5
Depreciation and impairment of property, plant and equipment (note 13) 12.9 15.6
Impairment of other investment (note 16) – 0.6
Refinancing advisory fees – 1.2
Pension GMP equalisation charge (note 21) – 0.9
Expenses relating to short-term leases and leases of low value assets 41.3 24.0
and after crediting:
Profit on sales of interests in joint ventures and associates – 1.6
Profit on disposal of subsidiary undertakings – Spain and Zimbabwe (note 26) – 1.4
RDEC grant income 3.0 1.7
Receipts under the Coronavirus Job Retention Scheme – 2.0
Amortisation and impairment of intangible assets includes the goodwill impairment of £nil (2020: £9.0m).
In the prior year, depreciation and impairment of property plant and equipment included impairment charges relating to
the Alcaidesa marina of £0.6m. The charges were based on offers for the sale of the asset, which was sold in August 2020
(note 26).
In the prior year, one-off advisory costs of £1.2m were associated with the Group’s capital raise and bank facilities.
Short-term leases mostly relate to the hiring of plant for operations on construction sites.
NOTES TO THE FINANCIAL STATEMENTS continued
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Auditors’ remuneration
2021
£m
2020
£m
Fees payable to the Group’s auditors for the audit of the annual financial statements 0.1 0.1
Fees payable to the Group’s auditors and its associates in respect of:
Audit of financial statements of subsidiaries of the Company 1.0 0.7
1.1 0.8
An amount of £0.1m was paid to the Group’s auditors in 2021 for the independent review of the interim results and other
non-audit services (2020: £0.6m comprising £0.6m for the capital raise (note 22) and less than £0.1m for the independent
review of the interim results and other non-audit services).
Amounts paid to the Company’s auditors 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.
6 Employee benefit expense
Group
2021
£m
2020
£m
Wages and salaries 200.3 182.0
Social security costs 21.4 19.2
Other pension costs – defined contribution schemes (note 21) 10.4 9.9
Share-based payments expense (note 21) 1.1 0.9
233.2 212.0
2021
Number
2020
Number
Average number of persons employed
Natural Resources 1,549 1,402
Transportation 1,741 1,827
Alcaidesa – 20
Central 21 20
3,311 3,269
Of the above employees one was employed overseas (2020: 21).
Company
The Company does not employ any personnel, except for the directors considered in note 7.
7 Remuneration of directors
Details of the directors’ remuneration, pension entitlements, interest in the Long-Term Incentive Plans, Annual Incentive
Plans, Deferred Share Bonus Plans and share options are included in the Directors’ Remuneration Report.
For the purpose of the disclosure required by Schedule 5 to the Companies Act 2006, the total aggregate emoluments of
the directors in respect of 2021 and 2020 are detailed below.
2021
£m
2020
£m
Remuneration 1.2 1.2
Post-employment benefits – 0.1
1.2 1.3
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8 Net finance expense
2021
£m
2020
£m
Interest income from bank deposits 0.1 0.5
Interest income on loans to related parties – 0.1
Interest income on the net assets of the defined benefit pension scheme (note 21) – 0.2
Finance income 0.1 0.8
Interest payable on interest bearing bank loans, borrowings and other similar charges (3.0) (4.1)
Interest expense on lease liabilities (0.9) (1.0)
Finance expense (3.9) (5.1)
Net finance expense (3.8) (4.3)
Other similar charges includes arrangement and commitment fees payable. Interest income on loans to related parties
relates to shareholder loan interest receivable from investments in equity accounted joint ventures and associates.
9 Taxation
2021
£m
2020
£m
On loss for the year
UK corporation tax at 19% (2020: 19%) – (1.9)
Adjustment in respect of prior years 0.1 3.0
Current tax credit for the year 0.1 1.1
Deferred tax credit for the current year 8.4 19.7
Adjustment in respect of prior years (1.0) (2.7)
Deferred tax credit for the year 7.4 17.0
Tax credit in the consolidated income statement 7.5 18.1
2021
£m
2020
£m
Tax reconciliation
Loss before tax (13.3) (96.1)
Taxation at 19% (2020: 19%) 2.5 18.3
Amounts qualifying for tax relief and disallowed expenses (0.3) (1.3)
Tax decrease from other tax effects – 0.6
Rate adjustment relating to UK deferred taxation (2020: overseas profits and losses) 6.2 0.2
Adjustments in respect of prior years (0.9) 0.3
Tax credit in the consolidated income statement 7.5 18.1
Effective rate of tax 56.4% 18.8%
The 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 asset of £0.2m (2020: £0.2m) for the Group and liability of £1.6m (2020: £1.5m) for the Company represent
the amount of tax in respect of all outstanding periods and include the Group’s best estimate of any assets and liabilities,
where appropriate.
NOTES TO THE FINANCIAL STATEMENTS continued
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2021
£m
2020
£m
Tax in other comprehensive income and expense statement
Current tax – Retirement benefit assets/obligations – 1.8
Deferred tax – Retirement benefit assets/obligations (15.6) 2.0
Tax (charge)/credit in the other comprehensive income and expense statement (15.6) 3.8
2021
£m
2020
£m
Deferred tax asset recognised
Accelerated capital allowances 0.8 1.1
Short-term temporary differences 2.7 1.5
Retirement benefit obligations/assets (16.7) 1.1
Tax losses 28.6 19.9
Deferred tax asset 15.4 23.6
Deferred tax assets have been recognised in respect of accumulated tax trading losses in the UK of £119.5m (2020: 104.5m).
The deferred tax assets include an amount of £28.6m (2020: £19.9m) which relates to these carried forward tax losses.
These have been recognised to the extent it is expected that they will be recoverable within six years using the estimated
future taxable income based on the approved forecasts for the Group and reasonably likely estimated future profits
following the final settlement of the Peterborough & Huntingdon project as well as settlement of other longstanding
contracts and the introduction of the operational excellence model. These losses can be carried forward indefinitely and
have no expiry date.
The Company has a deferred tax asset of £1.0m (2020: £0.1m) relating to short-term temporary differences.
2021
£m
2020
£m
Analysis of deferred tax movements
At 1 January 23.6 4.6
Deferred tax in consolidated income statement
Accelerated capital allowances (0.3) (0.2)
Short-term temporary differences 1.2 (0.4)
Retirement benefit obligations/assets (2.2) (0.1)
Tax losses 8.7 17.7
7.4 17.0
Deferred tax in other comprehensive income and expense statement
Retirement benefit obligations/assets (15.6) 2.0
At 31 December 15.4 23.6
Factors that may affect future tax charges
In the Spring Budget 2021, the Government announced that from 1 April 2023 the corporation tax rate would increase to 25%.
This rate was substantively enacted on 24 May 2021 and therefore is reflected in these financial statements. Deferred tax
balances in these financial statements have been calculated at the rate of 25% for those where the asset will unwind after
1 April 2023, at 19% where the asset will unwind prior to 1 April 2023, or a blended rate.
Deferred tax assets not recognised
The Group and Company have deferred tax assets in their UK operations that have not been recognised at the year-end
on the basis that their future economic benefits were not assured at the statement of financial position date.
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9 Taxation continued
The following gross assets are included in the net unrecognised deferred tax asset balances:
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Accelerated capital allowances – – – –
Short-term temporary differences – – – –
Trading tax losses 0.1 0.1 – –
Total 0.1 0.1 – –
In addition to the above temporary differences, the following
gross value items are available as deferred tax assets:
Management expenses and charges incurred by Parent Company 54.7 54.7 54.7 54.7
Capital losses 270.6 270.6 241.0 241.0
The current year tax effect, at 19%, of claiming unrecognised short-term temporary differences and tax losses was £nil
(2020: £nil) as shown in the table above.
There are no expiry dates associated with the deferred tax assets not recognised.
10 Earnings/(loss) per share
The calculation of earnings/(loss) per share is based on loss of £5.8m (2020: £78.0m) and the number of shares set out below.
2021
Number
(millions)
2020
Number
(millions)
Weighted average number of ordinary shares in issue for basic earnings per share calculation 274.9 212.8
Dilutive potential ordinary shares arising from employee share schemes 5.1 2.9
Weighted average number of ordinary shares in issue for diluted earnings per share calculation 280.0 215.7
At 31 December 2021, nil options were excluded from the weighted average number of ordinary shares calculation
because they were anti-dilutive (2020: 816,290 options were excluded).
11 Dividends
No dividends were paid or recommended in respect of the year ended 31 December 2021. The Board of directors
current policy for dividends is described in note 18 a) Capital management.
NOTES TO THE FINANCIAL STATEMENTS continued
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12 Intangible assets
Group
Goodwill
£m
Customer
relationships
£m
Other
acquired
intangibles
£m
Other
intangibles
£m
Total
£m
Cost
At 1 January 2020 54.1 15.4 9.7 10.8 90.0
Additions – – – 3.6 3.6
At 31 December 2020 54.1 15.4 9.7 14.4 93.6
At 1 January 2021 54.1 15.4 9.7 14.4 93.6
Additions – – – 1.5 1.5
At 31 December 2021 54.1 15.4 9.7 15.9 95.1
Accumulated amortisation and impairment
At 1 January 2020 – 14.3 9.4 7.3 31.0
Charge in year – 0.7 0.3 0.5 1.5
Impairment in year 9.0 – – – 9.0
At 31 December 2020 9.0 15.0 9.7 7.8 41.5
At 1 January 2021 9.0 15.0 9.7 7.8 41.5
Charge in year – 0.4 – 0.7 1.1
At 31 December 2021 9.0 15.4 9.7 8.5 42.6
Net book value
At 31 December 2021 45.1 – – 7.4 52.5
At 31 December 2020 45.1 0.4 – 6.6 52.1
At 1 January 2020 54.1 1.1 0.3 3.5 59.0
The amortisation charges for the year are included in administration expenses.
Other intangibles includes development expenditure of £6.1m (2020: £5.0m) primarily relating to a project in the rail sector.
Goodwill has been allocated to the applicable cash generating units of the Transportation segment (£15.5m (2020: £15.5m))
and the Natural Resources segment (£29.6m (2020: £29.6m)).
As described in note 2, the Group reviews the value of goodwill and in the absence of any identified impairment risks,
tests are based on internal value in use calculations of the cash generating unit (CGU). The key assumptions for these
calculations are: operating margins, discount rates and growth rates.
Discount rates have been estimated based on pre-tax rates that reflect current market assessments of the Group’s
weighted average cost of capital and the risks specific to the CGU. The rate used to discount the forecast cash flows for
the Transportation CGU was 13.2% and for the Natural Resources CGU was 14.3%. In 2020, the discount rates used for the
two CGUs were Transportation 12.4% and Natural Resources 12.5%.
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12 Intangible assets continued
The value in use calculations use the Group’s four-year cash flow forecasts, which are based on the expected revenues
of each CGU taking into account the current level of secured and anticipated orders, extrapolated for future years by the
expected growth applicable to each CGU, as follows:
Growth rates
2021
Transportation
%
2021
Natural Resources
%
2020
Transportation
%
2020
Natural Resources
%
Year 5 1.9 1.9 1.5 1.5
Long-term average 1.9 1.9 1.5 1.5
At 31 December 2021, based on the internal value in use calculations, management concluded that the recoverable
value of the Transportation cash generating unit exceeded its carrying amount with substantial headroom on goodwill.
Accordingly, in the view of the directors there is no reasonably foreseeable change in a key assumptions that would result
in an impairment charge.
At 31 December 2021, based on the internal value in use calculations, which included a sensitivity aligned to a 30%
reduction in absolute business unit operating profit, management concluded that the recoverable value of the Natural
Resources cash generating unit exceeded its carrying amount, but with limited headroom on goodwill. The recoverable
amount of the Natural Resources goodwill therefore continues to be subject to further sensitivities and changes in the
value in use assessment assumptions would have resulted in the following changes:
• Increase discount rate by 0.25% decreases headroom by £1.9m, but no impairment triggered;
• Decrease growth rate by 0.25% decreases headroom by £1.4m, but no impairment triggered;
• Reduce business operating margin by 0.5% (over and above the 30% reduction in absolute business operating profit
already applied) decreases headroom and triggers an impairment of £11.7m.
Accordingly, reasonably possible changes exist that would give rise to a further impairment, recognising that in the prior
year, in respect of Natural Resources, the sensitivity of the assessment to a lower revenue and / or underlying operating
margins resulted in an impairment of the goodwill by £9.0m, reducing the amount allocated to Natural Resources to the
current carrying value of £29.6m.
NOTES TO THE FINANCIAL STATEMENTS continued
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13 Property, plant and equipment
Group
Land and
buildings
£m
Plant and
equipment
£m
Right-of-use assets
Total
£m
Land and
buildings
£m
Vehicles, plant
and equipment
£m
Cost
At 1 January 2020 12.5 32.3 19.5 21.2 85.5
Currency movements 0.8 0.3 – – 1.1
Additions – 0.5 1.2 19.1 20.8
Disposal of subsidiary undertakings (note 26) (12.5) (4.0) – – (16.5)
Disposals (0.2) (2.1) (0.2) (10.0) (12.5)
At 31 December 2020 0.6 27.0 20.5 30.3 78.4
At 1 January 2021 0.6 27.0 20.5 30.3 78.4
Additions – 0.7 1.0 17.0 18.7
Disposals – (0.7) (7.4) (17.9) (26.0)
At 31 December 2021 0.6 27.0 14.1 29.4 71.1
Accumulated depreciation
At 1 January 2020 9.5 20.8 4.3 6.8 41.4
Currency movements 0.6 0.1 – – 0.7
Charge in year – 2.7 4.3 8.0 15.0
Impairment 0.6 – – – 0.6
Disposal of subsidiary undertakings (note 26) (10.0) (1.9) – – (11.9)
Disposals (0.1) (1.9) (0.2) (5.1) ( 7. 3 )
At 31 December 2020 0.6 19.8 8.4 9.7 38.5
At 1 January 2021 0.6 19.8 8.4 9.7 38.5
Charge in year – 2.5 3.3 7.1 12.9
Disposals – (0.7) (5.6) (6.0) (12.3)
At 31 December 2021 0.6 21.6 6.1 10.8 39.1
Net book value
At 31 December 2021 – 5.4 8.0 18.6 32.0
At 31 December 2020 – 7.2 12.1 20.6 39.9
At 1 January 2020 3.0 11.5 15.2 14.4 44.1
In the prior year, land and buildings includes an impairment charge of £0.6m in respect of the Alcaidesa marina.
Leased assets
Other amounts recognised in the income statement:
2021
£m
2020
£m
Interest expense (included in finance expense) 0.9 1.0
Expense relating to short-term leases (included in cost of sales and administrative expenses) 41.3 24.0
The lease liabilities relating to these right-of-use assets are as follows:
2021
£m
2020
£m
Current 8.6 12.5
Non-current 18.2 20.8
26.8 33.3
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14 Investments and loans in subsidiaries, equity accounted joint ventures and associates
Group
Investments Loans
Total
£m
Joint
ventures
£m
Associates
£m
Associates
£m
Cost
At 1 January 2020 14.4 0.1 1.5 16.0
Disposals – (0.1) (1.5) (1.6)
At 31 December 2020 14.4 – – 14.4
At 1 January 2021 14.4 – – 14.4
At 31 December 2021 14.4 – – 14.4
Share of post-acquisition reserves
At 1 January 2020 (14.0) 0.5 (13.5)
Disposals – (0.5) (0.5)
Dividends – (0.2) (0.2)
Profit for the year – 0.2 0.2
At 31 December 2020 (14.0) – (14.0)
At 1 January 2021 (14.0) – (14.0)
At 31 December 2021 (14.0) – (14.0)
Net book value
At 31 December 2021 0.4 – – 0.4
At 31 December 2020 0.4 – – 0.4
At 1 January 2020 0.4 0.6 1.5 2.5
Analysis of Group share of joint ventures and associates revenue, income and assets and liabilities
2021 2020
Joint
ventures
£m
Associates
£m
Total
£m
Joint
ventures
£m
Associates
£m
Total
£m
Revenue (4.1) – (4 .1) 1.9 0.5 2.4
Profit before tax – – – – 0.2 0.2
Taxation – – – – – –
Profit for the year – – – – 0.2 0.2
Non-current assets – – – – – –
Trade and other receivables 6.0 – 6.0 6.1 – 6.1
Cash and cash equivalents (0.1) – (0.1) 0.1 – 0.1
Trade and other payables – current (5.5) – (5.5) (5.8) – (5.8)
Non-current liabilities – – – – – –
Investments in joint ventures and associates 0.4 – 0.4 0.4 – 0.4
Dividends received by Group – – – – 0.2 0.2
Net interest payable by joint ventures and associates in 2021 was £nil (2020: £nil). There was no interest income and
interest expense during the year (2020: applicable interest rates on interest income of 0.2% to 13.6% and on interest
expense of 10.7% to 13.6%).
At the year-end, there were no capital or financial commitments entered into by the joint ventures or associates (2020: £nil).
NOTES TO THE FINANCIAL STATEMENTS continued
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Analysis of the total revenue, income, assets and liabilities of joint ventures and associates
2021 2020
Joint
ventures
£m
Associates
£m
Total
£m
Joint
ventures
£m
Associates
£m
Total
£m
Revenue (12.1) – (12 .1) 4.8 1.3 6.1
Profit before tax – – – – 0.5 0.5
Taxation – – – – (0.1) (0.1)
Profit for the year – – – – 0.4 0.4
Non-current assets – – – – – –
Trade and other receivables 17.3 – 17.3 17.6 – 17. 6
Cash and cash equivalents (0.3) – (0.3) 0.3 – 0.3
Trade and other payables – current (16.1) – (16.1) (16.9) – (16.9)
Non-current liabilities – – – – – –
Equity 0.9 – 0.9 1.0 – 1.0
Details of subsidiary undertakings, joint ventures, joint operations and associates are shown in note 24.
There is no other comprehensive income/(expense) in respect of joint ventures and the associates.
Company
Investments in subsidiaries £m
Cost
At 1 January 2020 381.0
Additions 43.9
At 31 December 2020 424.9
At 1 January 2021 424.9
Additions 1.1
At 31 December 2021 426.0
Amounts written off
At 1 January 2020 (239.7)
Impairment in year (34.0)
At 31 December 2020 (273.7)
At 1 January 2021 (273.7)
At 31 December 2021 (273.7)
Net book value
At 31 December 2021 152.3
At 31 December 2020 151.2
At 1 January 2020 141.3
Additions relate to a capital increase in a subsidiary of the Company (£nil (2020: £42.9m)) and to the increase in the cost
of investments in subsidiaries by the equivalent amount of the equity-settled share-based payment charge in relation to
employees of subsidiaries included in the income statement (£1.1m (2020: £1.0m)).
In respect of subsidiaries valued on a value in use basis, a 10% reduction in the value in use assessment would result in an
impairment of £21.4m.
Details of the subsidiaries in which the Company has an interest are set out in note 24.
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15 Assets and liabilities related to contracts with customers
The Group has recognised the following assets and liabilities related to contracts with customers, in addition to amounts
included in trade receivables:
2021
£m
2020
£m
Contract assets 39.9 97. 3
Non-current assets recognised relating to customer retentions 5.5 3.5
Contract liabilities (10.7) (5.5)
Contract assets is made up of a portfolio of contracts and represents unbilled amounts and includes amounts arising
from changes to the scope of works that have been recognised as revenue but not yet billed to the customer. The reversal
of revenue as included in note 3 has resulted in a decrease in contract assets of £43.4m. There are no significant one-off
factors outside of normal trading.
Contract liabilities result when cumulative cash received exceeds cumulative revenue on any particular contract. On
contracts undertaken by the Group, this typically results from work being undertaken, or on framework contracts
awarded, in a different order to the programme envisaged in the contractual payments schedule. There are no significant
one-off factors outside of normal trading contributing to the increase in contract liabilities.
Revenue recognised in 2021 from performance obligations satisfied in previous periods was immaterial.
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 £4,041.3m (2020: £4,220.5m). Progress billings and advances received from
customers under open construction contracts amounted to £4,057.8m (2020: £4,126.9m). 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.
Unsatisfied long-term contracts
The following table shows unsatisfied performance obligations resulting from long-term contracts:
2021
£m
2020
£m
Aggregate amount of the transaction price allocated to long-term
contracts that are partially or fully unsatisfied as at 31 December 2,633.5 2,9 96.1
Management expects that approximately 35% of the transaction price allocated to the unsatisfied contracts as of
31December 2021 will be recognised as revenue during the next reporting period (£917.0m). Of the remaining 65%, 55%
will be recognised during 2023 to 2025.
Mobilisation costs and costs incurred to obtain a contract
The Group does not have any assets relating to mobilisation costs or costs incurred to obtain a contract.
NOTES TO THE FINANCIAL STATEMENTS continued
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16 Trade and other receivables
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Amounts included in current assets
Trade receivables 120.0 82.7 – –
Other receivables 4.5 7.6 – –
Contract assets 39.9 97. 3 – –
Prepayments and accrued income 34.5 25.8 – –
Amounts owed by joint ventures and associates 0.7 5.3 – –
Amounts owed by subsidiary undertakings – – 71.9 134.9
199.6 218.7 71.9 134.9
Amounts included in non-current assets
Other receivables 5.5 3.5 – –
At 31 December 2021, contract assets falling due within one year include retentions of £1.8m (2020: £1.9m) relating to
long-term contracts in progress. Other receivables falling due after more than one year include retentions of £5.5m
(2020: £3.5m) relating to long-term contracts in progress.
The amounts included in contract assets as at 31 December 2020 have not been reversed other than the reversal of
revenue included in note 3.
The average credit period within trade receivables on amounts billed for construction work and on sales of goods is
31 days (2020: 32 days). The analysis of the due dates of the trade receivables was £115.8m (2020: £76.3m) due within
30 days, £1.7m (2020: £4.1m) due between 30 and 60 days and £2.5m (2020: £2.3m) due after 60 days. An analysis of trade
receivables that are beyond their due dates is shown in note 18.
In respect of the Company, amounts due from subsidiary undertakings are repayable on demand and may be
interest-bearing.
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17 Cash, loans and borrowings
Cash and cash equivalents
Cash and cash equivalents are analysed below, and include the Group’s share of cash held by joint operations of £58.1m
(2020: £61.1m).
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Cash and cash equivalents 159.4 150.9 75.0 20.1
Cash and cash equivalents in
the cash flow statement 159.4 150.9 75.0 20.1
Interest-bearing loans and borrowings
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Current
Term Loan 7.4 7. 2 7.4 7. 2
7.4 7. 2 7.4 7. 2
Non-current
Term Loan 32.0 39.6 32.0 39.6
32.0 39.6 32.0 39.6
The Term Loan is stated after associated arrangement fees of £0.6m (2020: £1.2m), which are being amortised over the
period of the facility with £0.6m (2020: £0.8m) classified within one year. The Group’s borrowings facilities are described
in note 18.
Cash flow information
Net cash/(debt) reconciliation
This section sets out an analysis of net cash/(debt) and movements in net cash/(debt) during the year.
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Cash and cash equivalents 159.4 150.9 75.0 20.1
Borrowings – current (7.4) ( 7. 2) (7.4) ( 7.2)
Borrowings – non-current (32.0) (39.6) (32.0) (39.6)
Net cash/(debt) before lease liabilities 120.0 104.1 35.6 (26.7)
Lease liabilities (note 13) (26.8) (33.3) – –
Net cash/(debt) 93.2 70.8 35.6 (26.7)
NOTES TO THE FINANCIAL STATEMENTS continued
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Group
Cash and cash
equivalents
£m
Borrowings –
current
£m
Borrowings –
non-current
£m
Lease
liabilities
£m
Total
£m
Net cash/(debt) at 1 January 2020 180.9 (68.0) (48.0) (30.0) 34.9
Cash flows (29.4) 60.8 8.4 12.1 51.9
New leases – – – (20.3) (20.3)
Disposal of leases – – – 4.9 4.9
Interest expense – – – (1.0) (1.0)
Interest payments (presented as operating
cash flows) – – – 1.0 1.0
Effect of foreign exchange rate changes (0.6) – – – (0.6)
Net cash/(debt) at 31 December 2020 150.9 ( 7. 2) (39.6) (33.3) 70.8
Net cash/(debt) at 1 January 2021 150.9 (7. 2) (39.6) (33.3) 70.8
Cash flows 8.5 (0.2) 7.6 10.8 26.7
New leases – – – (18.0) (18.0)
Disposal of leases – – – 13.7 13.7
Interest expense – – – (0.9) (0.9)
Interest payments (presented as operating
cash flows) – – – 0.9 0.9
Net cash/(debt) at 31 December 2021 159.4 (7.4) (32.0) (26.8) 93.2
Company
Cash and cash
equivalents
£m
Borrowings –
current
£m
Borrowings –
non-current
£m
Total
£m
Net cash/(debt) at 1 January 2020 0.1 (68.0) (48.0) (115.9)
Cash flows 20.0 60.0 8.0 88.0
Arrangement fees – 0.8 0.4 1.2
Net cash/(debt) at 31 December 2020 20.1 ( 7. 2 ) (39.6) (26.7)
Net cash/(debt) at 1 January 2021 2 0.1 (7.2) (39.6) (26.7)
Cash flows 54.9 (0.8) 7.6 61.7
Arrangement fees – 0.6 – 0.6
Net cash/(debt) at 31 December 2021 75.0 (7.4) (32.0) 35.6
18 Financial instruments – Fair values and risk management
Risk management
The Group’s centralised treasury function manages financial risk, principally arising from liquidity and funding risks and
movements in foreign currency rates and interest rates, for all companies within the Group in accordance with policies
agreed by the directors.
Neither the Company or the Group enters into speculative transactions.
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18 Financial instruments – Fair values and risk management continued
Risk management continued
a) Capital management
The objective of our strategy is to deliver long-term value to shareholders while maintaining a strong balance sheet that
underpins our financial position. Costain has targeted a dividend cover of around three times adjusted earnings, taking
into account the free cash flow generated in the period.
It is important that the Group maintains a strong balance sheet that will support investment in the business to drive
growth. Given the final settlement payment made after the close of the financial year in respect of the Peterborough &
Huntingdon contract, the Board does not consider it appropriate to recommend a final dividend this year, despite the
Group’s improved operating and adjusted cash performance.
The Group recognises the importance of dividends to shareholders and will continue to review the timing of the
reinstatement of future dividends in the light of the Group’s performance, cash flow requirements and the importance
of maintaining a strong balance sheet.
b) Liquidity and funding risk
Ultimate responsibility for liquidity and funding risk rests with the Board, which has put in place a monitoring and
reporting framework to manage funding requirements.
Liquidity risk is managed by monitoring actual and forecast short and medium-term cash flows and the maturity profile
of financial assets and liabilities and by maintaining adequate cash reserves and bank facilities. The nature and timing of
the contract cash flows causes the cash balances to vary over the month with the balance usually highest at month end.
The average month end net cash balance during the year was £106.7m (2020: £73.8m).
Customers awarding long-term contracting work may, as a condition of the award, require the contractor to provide
performance and other bonds. Consequently, the Group is reliant on its ability to source bank and surety bonds. It has
facilities in place to provide these bonds and monitors the usage and regularly updates the forecast usage of these facilities.
At 31 December 2021, the Group had banking and bonding facilities, including a £131.0m (2020: £131.0m) Revolving
Credit Facility and a £40.0m (2020: £48.0m) Term Loan, extending to 24 September 2023. The unsecured facilities have
financial covenants based on interest cover and leverage measured quarterly. The covenants are based on accounting
standards already in force at the date of signing the facilities and any subsequent agreements. The Group complied with
all covenants in 2021. The unsecured bonding facilities are set out below:
Group and Company
2021
£m
2020
£m
Expiring between one and five years 310.0 320.0
Element of above facilities available for borrowings 2.5 2.5
At 31 December 2021, the utilisation of these bonding facilities amounted to £100.7m (2020: £112.3m).
c) Credit risk
The Group focuses on major blue-chip private sector and large public sector customers. In respect of contracts with other
customers, the Group uses an external credit scoring system to assess a potential customer’s credit quality and considers
the timing and amounts of progress payments and will enter into a contract only if these assessments are satisfactory.
To measure the expected credit losses, trade receivables and contract assets have been grouped based on shared credit
risk characteristics and the days past due. Group 1 comprises major blue-chip private sector and large public sector
customers. Group 2 includes smaller customers and receivables arising from various additional services undertaken as
requirements of some of the maintenance contracts. Group revenue of £1,123.0m (2020: £964.2m) was attributable to
Group 1 customers and £12.2m (2020: £14.2m) attributable to Group 2 customers.
The contract assets relate to unbilled work in progress and have substantially the same credit risk characteristics as
the trade receivables for the same types of contracts. The Group has concluded that the expected loss rates for trade
receivables are a reasonable approximation of the loss rates for the contract assets.
The loss rates, which were reviewed in the light of the impact of COVID-19 and considered still appropriate, will be
adjusted to reflect current and forward-looking information on macroeconomic factors that might affect the ability of the
customers to settle the receivables.
NOTES TO THE FINANCIAL STATEMENTS continued
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On this basis, the loss allowance as at 31 December 2021 and 31 December 2020 was determined as follows for both
trade receivables and contract assets:
Current
Less than
60 days past due
60 to 120 days
past due
More than 120 days
past due Total
31 December 2021
Group 1
Expected loss rate 0.00% 0.10% 0.25% 0.50%
£m £m £m £m £m
Trade receivables 114.6 2.8 1.0 1.1 119.5
Contract assets 19.2 8.2 4.2 8.4 39.9
Loss allowance – – – – –
Group 2
Expected loss rate 1.0% 2.0% 15.0% 30.0%
£m £m £m £m £m
Trade receivables 0.4 0.1 – – 0.5
Contract assets – – – – –
Loss allowance – – – – –
31 December 2020
Group 1
Expected loss rate 0.00% 0.10% 0.25% 0.50%
£m £m £m £m £m
Trade receivables 67.7 11.3 1.1 1.6 81.7
Contract assets 53.8 26.9 10.2 6.4 9 7. 3
Loss allowance – – – – –
Group 2
Expected loss rate 1.0% 2.0% 15.0% 30.0%
£m £m £m £m £m
Trade receivables 0.2 0.8 – – 1.0
Contract assets – – – – –
Loss allowance – – – – –
Impairment losses on trade receivables and contract assets are included within operating profit. Subsequent recoveries
of amounts previously written off are credited against the same line item. The total provision for impairment of trade and
other receivables is £0.3m (2020: £0.3m). The credit risk in contract assets is not material.
Deposits in the UK are placed with the bank facility providers or, in joint operations, with banks agreed by the partners
provided that bank has a long-term credit rating above BBB-. Overseas deposits are placed with major banks operating in
those countries. Transactions involving derivative financial instruments are with bank or insurance company counterparties
with high credit ratings that are monitored regularly and with whom there are signed netting agreements. Given the high
credit ratings of the banks and insurance companies used, management does not expect any counterparty will fail to
meet its obligations.
At the year-end date, excluding UK Government bodies, there were no significant concentrations of credit risk. The
maximum exposure to credit risk is represented by the carrying amounts of each financial asset, including derivative
financial instruments, and the individual constituents of contract assets in the statement of financial position.
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18 Financial instruments – Fair values and risk management continued
Risk management continued
d) Interest rate risk
The Group has cash balances and bank borrowings in the UK mostly denominated in pounds sterling.
The Group had interest rate swap arrangements that fixed the effective LIBOR interest rate on £50.0m of pounds sterling
borrowings up to June 2021.
A 1% rise in interest rates would increase the annual interest income on net cash balances by approximately £1.0m
(2020: approximately £1.0m).
e) 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. The Group’s treasury function evaluates and hedges foreign currency risks, in
close cooperation with the responsible operational management team.
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.
Interest rate swaps are classified as cash flow hedges and stated at fair value based on a Level 2 valuation method using
yield curves derived from prevailing market interest rates.
At 31 December 2021, the Group had cash flow hedges as 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. (2020: none).
2021 2020
Carrying
amount
£m
Contractual
cash flows
£m
Within one
year
£m
Between
one and
five years
£m
Carrying
amount
£m
Contractual
cash flows
£m
Within one
year
£m
Between
one and
five years
£m
Foreign exchange contracts:
Purchases – (0.2) (0.2) – – (4.5) (4.5) –
Sales – 1.0 1.0 – – 1.1 1.1 –
– 0.8 0.8 – – (3.4) (3.4) –
Interest rate swaps – – – – (0.4) (0.2) (0.2) –
– 0.8 0.8 – (0.4) (3.6) (3.6) –
The carrying amount of hedge instruments is included in trade and other receivables or trade and other payables.
The expected impact on the income statement of the foreign exchange contracts is £nil in 2022.
NOTES TO THE FINANCIAL STATEMENTS continued
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The movements on the hedging reserve by classification are set out below.
Spot component of
currency forwards
£m
Interest
rate swaps
£m
Total hedge
reserves
£m
At 1 January 2020 (0.2) (0.3) (0.5)
Change in fair value of hedging instrument recognised in OCI for the year – (0.3) (0.3)
Reclassified from OCI to profit or loss 0.2 0.3 0.5
At 31 December 2020 – (0.3) (0.3)
At 1 January 2021 – (0.3) (0.3)
Change in fair value of hedging instrument recognised in OCI for the year – – –
Reclassified from OCI to profit or loss – 0.3 0.3
At 31 December 2021 – – –
The Company does not have any forward foreign currency contracts or other derivatives.
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.
a) Currency and maturity of financial assets
Financial assets not measured at fair value
2021 2020
Total
£m
Within
one year
£m
Between
one and
five years
£m
After five
years
£m
Total
£m
Within
one year
£m
Between
one and
five years
£m
After five
years
£m
Cash and cash equivalents:
pounds sterling 158.8 158.8 – – 149.4 149.4 – –
other 0.6 0.6 – – 1.5 1.5 – –
159.4 159.4 – – 150.9 150.9 – –
Trade, other receivables and amounts
owed by joint ventures and associates:
pounds sterling 130.7 125.2 5.5 – 99.1 95.6 3.5 –
Total financial assets
not measured atfair value 290.1 284.6 5.5 – 250.0 246.5 3.5 –
The Group has not disclosed the fair values for short-term trade receivables and amounts due from joint ventures and
associates within financial assets, because their carrying amounts are a reasonable approximation of fair values.
Financial assets measured at fair value
The Group measures its currency forwards and interest rate swaps at fair value (see above) but does not have any other
financial assets measured at fair value.
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18 Financial instruments – Fair values and risk management continued
b) Currency and maturity of financial liabilities
Financial liabilities not measured at fair value
2021 2020
Total
£m
Within
one year
£m
Between
one and
five years
£m
Total
£m
Within
one year
£m
Between
one and
five years
£m
Term Loan – pounds sterling 39.4 7.4 32.0 46.8 7. 2 39.6
Lease liabilities – pounds sterling 26.8 8.6 18.2 33.3 12.5 20.8
Trade and other payables – pounds sterling 116.0 114.2 1.8 117. 2 116.1 1.1
Total financial liabilities not measured at fair value 182.2 130.2 52.0 19 7. 3 135.8 61.5
The Group has not disclosed the fair values for short-term trade and other payables and bank loans within financial
liabilities, because their carrying amounts are a reasonable approximation of fair values.
Lease liabilities are carried at the present value of the minimum lease payments. The expected undiscounted lease
payments on long term and high value leased assets included in the IFRS 16 discounted liability are within 1 year £9.2
million (2020: £13.0 million), 2-5 years £16.3 million (2020: £20.0 million) and over 5 years £3.8 million (2020: £2.2 million).
There are no financial liabilities carried at fair value.
The Company has issued financial guarantees relating to performance of contracts signed by its subsidiaries, which could
be called upon on demand if the subsidiary fails to perform under the contract. However, the value of these guarantees
is difficult to quantify and other than in relation to the Peterborough & Huntingdon contract they have not been utilised.
c) Reconciliation of trade and other receivables and trade and other payables to the statement of financial position
2021 2020
Current
£m
Non-current
£m
Current
£m
Non-current
£m
Trade and other receivables (as above) 125.2 5.5 95.6 3.5
Contract assets 39.9 – 97. 3 –
Prepayments and accrued income 34.5 – 25.8 –
199.6 5.5 218.7 3.5
2021 2020
Current
£m
Non-current
£m
Current
£m
Non-current
£m
Trade and other payables (as above) 114.2 1.8 116.1 1.1
Contract liabilities 10.7 – 5.5 –
Accruals and deferred income 90.2 – 124.4 –
215.1 1.8 246.0 1.1
d) Effective interest rates of financial assets and liabilities
2021 2020
Financial assets
Cash and cash equivalents 0.0% to 0.3% 0.0% to 0.7%
Loans to joint ventures and associates – 10.7% to 13.6%
Financial liabilities
The Group has a Term Loan and a Revolving Credit Facility (RCF). £39.4m (net of fees) (2020: £46.8m (net of fees)) Term Loan and
£nil (2020: £nil) of the RCF were drawn at the year-end. These loans are unsecured and carry interest at floating rates at a margin
over LIBOR and for 2022 onwards SONIA.
NOTES TO THE FINANCIAL STATEMENTS continued
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The Company’s financial assets comprised cash at bank of £75.0m (2020: £20.1m) denominated in pounds sterling,
either on demand or with a maturity of up to three months, and trade and other receivables of £71.9m (2020: £134.9m)
denominated in pounds sterling and maturing within one year.
The Company’s financial liabilities comprise trade and other payables of £26.4m (2020: £26.4m) denominated in pounds
sterling and the £39.4m (net of fees) (2020: £46.8m (net of fees)) Term Loan denominated in pounds sterling. The Term
Loan matures between one and five years, all other liabilities mature within one year.
Measurement of fair value
Valuation techniques and significant unobservable inputs
The following tables show the valuation techniques used in measuring Level 2 fair values, as well as the significant
unobservable inputs used. There are no financial instruments whose fair value could be determined under Level 1 or 3.
Financial instruments measured at fair value
Type Valuation technique
Significant
unobservable inputs
Inter relationship between
significant unobservable inputs
and fair value measurement
Cash flow hedges Market comparison technique: The fair values are based
on broker quotes. Similar contracts are traded in an
active market and quotes reflect the actual transactions
in similar instruments. Interest rate swaps are measured
by discounting the related cash flows using yield curves
derived from prevailing market interest rates.
Not applicable. Not applicable.
Financial instruments not measured at fair value
Type Valuation technique Significant unobservable inputs
Other financial liabilities (as above) Discounted cash flow. Not applicable.
Term Loan Discounted cash flow. Not applicable.
19 Trade and other payables
Group Company
2021
£m
2020
£m
2021
£m
2020
£m
Current liabilities
Trade payables 83.0 80.5 – –
Other payables 23.2 28.3 0.1 0.1
Social security 7.6 6.9 – –
Contract liabilities 10.7 5.5 – –
Accruals and deferred income 90.2 124.4 0.9 1.6
Amounts owed to joint ventures and associates 0.4 0.4 – –
Amounts owed to subsidiary undertakings – – 26.3 26.3
215.1 246.0 27.3 28.0
Non-current liabilities
Other payables 1.8 1.1 – –
1.8 1.1 – –
Accruals and deferred income include subcontract liabilities (not yet payable), subcontract retentions and other accruals
and deferred income.
The amounts included in contract liabilities and in deferred income at 31 December 2020 have all been recognised in the
income statement in the year.
Other payables primarily includes the VAT liability.
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.
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20 Provisions for other liabilities and charges
Group
Rectification
provision
£m
Onerous
contract
£m
Other
£m
Total
£m
Current
At 1 January 2020 – – 0.7 0.7
Provided – – 0.4 0.4
Utilised – – (0.5) (0.5)
At 31 December 2020 – – 0.6 0.6
At 1 January 2021 – – 0.6 0.6
Provided 6.2 43.4 0.5 50.1
Utilised – – (0.4) (0.4)
At 31 December 2021 6.2 43.4 0.7 50.3
Company
Expected credit
loss provision
£m
Funding obligations
£m
Total
£m
Current
At 1 January 2020 – 0.1 0.1
Reclassified from non-current – 0.1 0.1
Utilised – (0.1) (0.1)
At 31 December 2020 – 0.1 0.1
At 1 January 2021 – 0.1 0.1
Provided 40.0 – 40.0
Utilised – (0.1) (0.1)
At 31 December 2021 40.0 – 40.0
Non-current
At 1 January 2020 – 0.8 0.8
Reclassified to current – (0.1) (0.1)
At 31 December 2020 – 0.7 0.7
At 1 January 2021 – 0.7 0.7
At 31 December 2021 – 0.7 0.7
Group
During the year Costain recognised a £6.2m provision in respect of the expected future costs of probable rectification
works required at a customer’s facility where the Group had been prime contractor. Costain has engaged with its
insurers and other stakeholders to explore routes for recovery and to minimise the Group’s ultimate exposure. However,
as at 31December 2021, the expected recoveries do not yet meet the virtually certain criteria, and accordingly no
reimbursement asset has been recognised.
The Group has identified a range of potential solutions to expedite the required rectification works, with an estimated
cost ranging between £5.5m to £12.2m. The Group’s best estimate cost of the single most likely solution as at
31December 2021 is £6.2m. A provision for this probable economic outflow has been recognised as disclosed above.
On 24 February 2022, Costain announced that it had reached a final settlement with National Grid regarding the
Peterborough & Huntingdon contract. The settlement agreement brings an end to the dispute after the contract was
mutually terminated in June 2020 and prevents any further claims under the contract. At 31 December 2021 a provision
of £43.4m was taken in relation to the settlement. This is further disclosed in note 3.
Other provisions, mainly comprise insurance provisions and provisions for remedial costs, most of which are expected to
be used over the next year.
Company
Provisions in the Company relating to funding obligations to a non-trading overseas subsidiary, which eliminates on
consolidation.
NOTES TO THE FINANCIAL STATEMENTS continued
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During the year, the Company has recognised a £40.0m expected credit loss provision in respect of a financial guarantee
that had been provided by the Company to National Grid, guaranteeing obligations of the subsidiary delivering the
Peterborough & Huntington contract. The requirement for the expected credit loss provision follows the settlement
agreement with National Grid and reflects the subsidiary’s inability to make the agreed cash payment itself. This
provision eliminates on consolidation.
21 Employee benefits
Pensions
A defined benefit pension scheme is operated in the UK and a number of defined contribution pension schemes are
in place in the UK. Contributions are paid by subsidiary undertakings and, to the defined contribution schemes, by
employees. The total pension charge in the income statement was £11.7m comprising £11.7m included in operating costs
and £nil interest income included in net finance expense (2020: £12.7m, comprising £12.9m in operating costs less £0.2m
interest income included 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 2019 and this
was updated to 31 December 2021 by a qualified independent actuary. At 31 December 2021, there were 2,875 retirees
and 2,629 deferred members (2020: 2,869 retirees and 2,730 deferred members). The weighted average duration of the
obligations is 16.3 years.
2021
£m
2020
£m
2019
£m
Present value of defined benefit obligations (837.5) (886.5) (812.1)
Fair value of scheme assets 904.6 880.9 817.0
Recognised asset/(liability) for defined benefit obligations 67.1 (5.6) 4.9
Movements in present value of defined benefit obligations
2021
£m
2020
£m
At 1 January 886.5 812.1
Past service cost – GMP equalisation charge – 0.9
Interest cost 11.7 16.3
Remeasurements – demographic assumptions (5.4) (2.9)
Remeasurements – financial assumptions (16.1) 99.0
Remeasurements – experience adjustments (6.5) (4.6)
Benefits paid (32.7) (34.3)
At 31 December 837.5 886.5
Movements in fair value of scheme assets
2021
£m
2020
£m
At 1 January 880.9 817. 0
Interest income 11.7 16.5
Remeasurements – return on assets 34.6 71.5
Contributions by employer 10.4 10.6
Administrative expenses (0.3) (0.4)
Benefits paid (32.7) (34.3)
At 31 December
904.6 880.9
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21 Employee benefits continued
Pensions continued
Expense recognised in the income statement
2021
£m
2020
£m
Administrative expenses paid by the pension scheme (0.3) (0.4)
Administrative expenses paid directly by the Group (1.0) (1.7)
GMP equalisation charge – (0.9)
Interest income on the net assets/liabilities of the defined benefit pension scheme – 0.2
(1.3) (2.8)
The GMP (Guaranteed Minimum Pension) equalisation charge in the prior year resulted from a decision in November
2020 when the High Court issued a judgement involving Lloyds Banking Group defined benefit pension schemes. The
judgement, which followed an earlier decision that the schemes should be amended to equalise pension benefits for
men and women in relation to GMP benefits, ruled that the decision would also apply to past transfers from the
schemes.The effect of GMP equalisation has implications for the majority of defined benefit schemes with liabilities
before 1997. The change was recorded as a £0.9m past service cost increase to the reported pension liabilities.
Fair value of scheme assets
2021
£m
2020
£m
Global equities 137.2 125.0
Multi-asset growth funds 133.7 118.4
Multi-credit fund 118.1 139.8
LDI plus collateral 494.6 421.4
PFI investments – 44.7
Property 4.4 15.7
Cash 16.6 15.9
904.6 880.9
All equities are quoted securities. The multi-asset growth funds comprise portfolios of quoted and unquoted investments.
The multi-credit fund invests in a portfolio of primarily floating rate debt of non-investment grade or unrated borrowers.
The Liability Driven Investments (LDI) portfolio comprises gilts, repos and swaps and is supported by a liquid absolute
return fund providing collateral. All the PFI investments were sold in 2021.
Quoted equities are valued at the prevailing bid, offer or middle market stock exchange or over-the-counter market
prices. In the multi-asset growth funds, the fair values of the underlying unquoted assets are determined by the fund
managers using quoted prices for similar assets or other valuation techniques where all the inputs are directly observable
or indirectly observable from market data. The loans in the multi-credit fund may be priced either using quotes from a
pricing vendor (if available), a broker or at a level determined by the investment manager that is agreed with the fund.
The LDI fund is valued using a unit price calculated for the fund based on the net asset value of the underlying assets. The
PFI investments are valued using a Level 3 valuation method based on the future cash flows of the individual investments.
The property investment is held within a limited partnership and is valued by the general partner in accordance with RICS
valuation standards.
The pension scheme does not have any assets invested in the Group’s financial instruments or in property or other assets
used by the Group.
NOTES TO THE FINANCIAL STATEMENTS continued
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Principal actuarial assumptions (expressed as weighted averages)
2021
%
2020
%
2019
%
Discount rate 1.80 1.35 2.05
Future pension increases 3.25 2.85 2.85
Inflation assumption 3.40 2.95 2.95
Weighted average life expectancy from age 65 as per mortality tables used to determine benefits at 31 December 2021
and 31 December 2020 is:
2021 2020
Male
(years)
Female
(years)
Male
(years)
Female
(years)
Currently aged 65 22 .1 24.0 22.3 24.1
Non-retirees currently aged 45 23.1 25.3 23.3 25.3
The discount rate, inflation and pension increase and mortality assumptions have a significant effect on the amounts
reported. Changes in these assumptions would have the following effects on the defined benefit scheme:
Pension liability
£m
Pension cost
£m
Increase discount rate by 0.25%, decreases pension liability and reduces pension cost by 33.1 0.6
Decrease inflation, pension increases by 0.25%, decreases pension liability
and reduces pension cost by 28.6 0.5
Increase life expectancy by one year, increases pension liability and increases pension cost by 39.0 0.7
As highlighted in the table above, the defined benefit scheme exposes the Group to actuarial risks such as longevity,
interest rate, inflation and investment risks. The LDI portfolio is designed to respond to changes in gilt yields in a similar
way to a fixed proportion of the liabilities. With the LDI portfolio, if gilt yields fall, the value of the investments will rise to
help partially match the increase in the trustee valuation of the liabilities arising from a fall in the gilt yield based discount
rate. Similarly, if gilt yields rise, the value of the matching asset portfolio will fall, as will the valuation of the liabilities
because of an increase in the discount rate. The leverage within the LDI portfolio means the equivalent of 95 per cent of
the value of the assets is sensitive to changes in interest rates and inflation and this mitigates the equivalent movement in
the liabilities on the scheme as a whole.
In accordance with the pension regulations, a triennial actuarial review of the Costain defined benefit pension scheme
was carried out as at 31 March 2019. In March 2020, the valuation and an updated deficit recovery plan were agreed with
the scheme Trustee resulting in cash contributions of £10.2m for each year commencing 1 April 2020 (increasing annually
with inflation) until the deficit is cleared, which would be in 2029 on the basis of the assumptions made in the valuation
and agreed recovery plan.
In addition, as previously implemented, the Group will continue to make an additional contribution so that the total
deficit contributions match the total dividend amount paid by the Company each year. Any additional payments in this
regard would have the effect of reducing the recovery period in the agreed plan. The Group will also pay the expenses
of administration in the next financial year.
Any surplus of deficit contributions to the Costain Pension Scheme would be recoverable by way of a refund, as the
Group has the unconditional right to any surplus once all the obligations of the Scheme have been settled. Accordingly,
the Group does not expect to have to make provision for these additional contributions arising from this agreement in
future accounts.
Defined contribution schemes
Several defined contribution pensions are operated. The total expense relating to these plans was £10.4m (2020: £9.9m).
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21 Employee benefits continued
Share-based payments
The Company operates a number of share-based payment plans as described below.
Long-Term Incentive Plans (LTIP)
Shareholders approved Long-Term Incentive Plan at the 2014 AGM that allows for conditional awards with a maximum
face value of up to 100% of base salary to be awarded. Performance conditions, such as those based on earnings per
share, are determined by the Remuneration Committee of the Board at the time of grant.
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 was satisfied
by shares purchased by a trust on behalf of the Group, so did not dilute shareholder interests. The last grant under the
DSBP was made in 2014 and vested on 31 March 2016 and the last transactions completed in 2020.
Save As You Earn Scheme (SAYE)
The Company operates a SAYE scheme that is open to all eligible employees who pay a fixed amount from salary into
a savings account each month and elect to save over three 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 tax, for share-based payment transactions with employees was
£1.1m (2020: £0.9m); the entire charge relates to subsidiaries.
Options outstanding at the end of the year
The movements in 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
Number
(m)
Number
(m)
Number
(m)
Number
(m)
Weighted average
exercise price
(p)
Outstanding at 1 January 2020 1.6 0.1 0.5 3.2 326.1
Adjusted during the year 0.2 (0.1) 0.2 0.1 229.3
Forfeited during the year (0.7) – (0.8) (1.2) 265.3
Exercised during the year (0.1) – (0.3) – –
Granted during the year 2.8 – 0.8 – –
Outstanding at 31 December 2020 3.8 – 0.4 2.1 229.5
Outstanding at 1 January 2021 3.8 – 0.4 2 .1 229.5
Adjusted during the year – – – – –
Forfeited during the year (1.0) – – (0.8) 286.3
Exercised during the year (0.2) – (0.2) – –
Granted during the year 2.9 – – – –
Outstanding at 31 December 2021 5.5 – 0.2 1.3 191.9
Exercisable at the end of the period 0.1 – 0.1 – –
Share options outstanding at the end of the year had a weighted average remaining contractual life of 4.2 years
(2020: 4.8 years).
NOTES TO THE FINANCIAL STATEMENTS continued
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The fair value of options granted is calculated using the Black-Scholes option pricing model. The aggregate fair value of
options granted during the year was £1.7 million (2020: £1.1 million). The assumptions used in valuing the grants were:
2021 2020
Expected volatility 20% 20%
Expected life (years) 3.0 3.0
Risk-free interest rate 1.2% 1.1%
Expected dividend yield 0.0% 3.0%
The expected volatility is based on the historical share price volatility over a term matching the expected life. The
expected life is based on management’s best estimate having regard to the effect of non-transferability, exercise
restrictions and behaviouralconsiderations.
22 Share capital
2021 2020
Number
(millions)
Nominal value
£m
Number
(millions)
Nominal value
£m
Issued share capital
Shares in issue at beginning of year –
ordinary shares of 50p each, fully paid 275.0 137.5 108.3 54.1
Issued in year (see below) – – 166.7 83.4
Shares in issue at end of year –
ordinary shares of 50p each, fully paid
275.0 137.5 275.0 137. 5
The Company’s issued share capital comprised 274,949,741 ordinary shares of 50 pence each as at 31 December 2021.
The increase in issued share capital in 2020 reflects the Firm Placing and Placing and Open Offer undertaken by Costain
in May 2020 and described in Costain’s results for FY20.
All shares rank pari passu regarding entitlement to capital and dividends.
In the year, no dividends were paid and, therefore, no shares were issued under the Scrip Dividend Scheme.
No options were exercised under the SAYE schemes in the year as all options were ‘underwater’ so the Company issued
nil shares in respect of SAYE. Similarly, the 2017 LTIP lapsed in full and so no shares were issued in respect of the LTIP.
The share options outstanding at the year-end are detailed in note 21. Details of the performance conditions and the
options granted to executive directors are given in the Directors’ Remuneration report.
23 Contingent liabilities
Group
Group bank borrowing facilities and bank and surety bonding facilities are supported by cross-guarantees given by the
Company and participating companies in the Group.
There are contingent liabilities in respect of:
• 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.
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 UK. At 31 December 2021, the asset was £67.1m
(2020: liability of £5.6m) on an IAS 19 basis and is included in these financial statements as disclosed in note 21.
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24 Subsidiary undertakings, joint ventures, associates and joint operations
Activity
Percentage of
equity held
Registered
office/principal
place of business
Principal subsidiary undertakings
Costain Limited Engineering, Construction and Maintenance 100 (1)
Costain Engineering & Construction Limited Holding and Service Company 100 (1)
Costain Integrated Services Limited Professional Services 100 (1)
Costain Integrated Technology Solutions Limited Technology Integration 100 (1)
Costain Oil, Gas & Process Limited Process Engineering 100 (1)
Costain Upstream Limited Engineering and Design Services 100 (2)
Richard Costain Limited Service Company 100 (1)
Activity
Issued share
capital
£m
Percentage of
equity held
Registered
office/principal
place of business Reporting date
Principal joint ventures
ABC Electrification Ltd Rail Electrification – 33.3 (7) 31 March
4Delivery Limited Civil Engineering – 40 (3) 31 March
The equity capital of the above are held by subsidiary undertakings with the exception of Richard Costain Ltd and
Costain Engineering & Construction Limited.
All undertakings operate mainly in the country of incorporation. See key to registered office/principal place of business
at the bottom of this note.
All holdings are of ordinary shares.
Activity
Percentage
interest
Country of
business
Major joint operations
Alstom-Costain C644 Joint Venture – Traction power – Crossrail Rail Engineering 32.5 UK
Alstom-Costain C650 Joint Venture – HV power supply – Crossrail Rail Engineering 32.5 UK
A-one+ Joint Venture – ASC area 12 – Highways England Engineering and Maintenance 33.3 UK
ATC Joint Venture – C610 – Crossrail Rail Engineering 32.5 UK
CH2M-Costain Joint Venture – Area 14 M&R contract Engineering and Maintenance 50 UK
Costain-CH2M UK – ESCC JV – East Sussex highway maintenance Engineering and Maintenance 50 UK
Costain-Atkins-Black & Veatch Joint Venture – Thames Water AMP6 Engineering 70 UK
Costain-Galliford Try Joint Venture – M1 smart motorways Civil Engineering 70 UK
Costain-MWH Joint Venture – Southern Water AMP6 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 – HS2 Enabling works Civil Engineering 50 UK
Costain-Skanska Joint Venture – A14 Cambridge to Huntingdon
Improvement Scheme
Civil Engineering 50 UK
Costain-Skanska Joint Venture – Balfour Beatty Joint Venture – A14 Civil Engineering 33.3 UK
CVB Joint Venture – Thames Tideway Tunnel East Civil Engineering 40 UK
Skanska-Costain-Strabag S1 Joint Venture – HS2 Main Works Rail Engineering 34 UK
Skanska-Costain-Strabag S2 Joint Venture – HS2 Main Works Rail Engineering 34 UK
The ASP Batch Joint Venture – Severn Trent – Large capital schemes
outside AMP6
Engineering 33.3 UK
NOTES TO THE FINANCIAL STATEMENTS continued
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In accordance with Section 409 of the Companies Act 2006 a full list of subsidiaries, associates, joint ventures and joint
arrangements is required:
Status
Percentage of
equity held
Registered
office/principal
place of business
Other subsidiaries owned directly by Costain Group PLC
Costain Civil Engineering Limited Holding Company 100 (1)
Costain Investments Limited Dormant 100 (8)
Costain USA Inc. Holding Company 100 (5)
County & District Properties Limited Trading 100 (1)
Renown Investments (Holdings) Limited Trading 100 (1)
Lysander Services Limited Trading 100 (1)
Other subsidiaries owned indirectly by Costain Group PLC
Brunswick Infrastructure Services Limited Trading 100 (1)
Calvert & Russell Limited Trading 100 (1)
CLM Engineering (Overseas) Limited Dormant 100 (1)
COGAP (Middle East) Limited Holding Company 100 (1)
Construction Study Centre Limited Trading 100 (1)
Costain Abu Dhabi Co WLL Trading 49 (9)
Costain Alcaidesa Limited Holding Company 100 (1)
Costain America Inc Holding Company 100 (5)
Costain Building & Civil Engineering Limited Holding Company 100 (1)
Costain Construction Limited Dormant 100 (1)
Costain de Venezuela CA Dormant 100 (15)
Costain Energy Solutions Limited Trading 100 (1)
Costain Engineering & Construction (Overseas) Limited Holding Company 100 (1)
Costain Engineering Services Inc Dormant 100 (5)
Costain International Limited Dormant 100 (1)
Costain Management Design Limited Dormant 100 (1)
Costain Minerals Inc. Dormant 100 (5)
Costain Mining Services Inc. Dormant 100 (5)
Costain Oil, Gas & Process (Nigeria) Limited Dormant 95 (16)
Costain Oil, Gas & Process (Overseas) Limited Dormant 100 (1)
Costain Process Construction Limited Dormant 100 (1)
JBCC Rhead PTE Limited Dormant 100 (12)
Promanex (Civils & Industrial Services) Limited Dormant 100 (1)
Promanex (Construction & Maintenance Services) Limited Dormant 100 (1)
Promanex Group Holdings Limited Dissolved 2021 100 (1)
Promanex Group Limited Dissolved 2021 100 (1)
Promanex (Total FM & Environmental Services) Ltd Dormant 100 (1)
RG Bidco Limited Dissolved 2021 100 (1)
Rhead Group Holdings Limited Dissolved 2021 100 (1)
Rhead Holdings Limited Dissolved 2021 100 (1)
Sunland Mining Corporation (II) Dormant 100 (5)
Westminster Plant Co. Limited Dormant 100 (1)
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24 Subsidiary undertakings, joint ventures, associates and joint operations continued
Status
Percentage of
equity held
Registered
office/principal
place of business
Other joint ventures or associates owned indirectly by Costain Group PLC
ACM Health Solutions Limited Dormant 33.3 (4)
Brighton & Hove 4Delivery Limited Trading 49 (3)
Budimex & Costain SP ZO.O Dormant 50 (14)
China Harbour-Costain Mexico S de RL de CV Dormant 50 (13)
Gravitas Offshore Limited Dormant 45 (6)
Jalal Costain WLL Dormant 49 (10)
Nesma-Costain Process Co. Limited Dormant 50 (11)
Costain Abu Dhabi Co WLL has been treated as a subsidiary undertaking due to Costain having power to influence and
control the composition of the Board of directors and the beneficial right to all the net income. Dormant status means no
or a very small number of transactions with activity winding down.
Activity
Percentage
interest
Country of
business
Other joint operations, including completed
ACTUS Joint Venture – Trawsfynydd nuclear power station
active waste retrieval
Civil Engineering 25 UK
Alstom-Babcock-Costain Joint Venture – Edinburgh to Glasgow
Rail Improvement Programme
Rail Engineering
33.3 UK
Amec-Costain-Jacobs Joint Venture –
Magnox ILW Management Programme
Civil Engineering 33.3 UK
A-one+ Integrated Highway Services – MAC 7 Engineering and Maintenance 33.3 UK
A-one+ Integrated Highway Services – MAC 10 Engineering and Maintenance 25 UK
A-one+ Integrated Highway Services – MAC 12 Engineering and Maintenance 33.3 UK
A-one+ Integrated Highway Services – MAC 14 Engineering and Maintenance 33.3 UK
A-one+ Joint Venture – ASC area 4 – Highways England Engineering and
Maintenance
33.3 UK
Bachy Soletanche-Costain-Skanska Joint Venture –
CTRL 240 – Stratford Box
Civil Engineering 33.3 UK
Balfour Beatty-BmJV-Carillion-Costain Joint Venture –
National Major Projects – Highways England
Civil Engineering 22 UK
Black & Veatch-Costain Joint Venture – Margate & Broadstairs
UWWTD Scheme – Southern Water
Civil Engineering 50 UK
CosMott Joint Venture – Devonport Major Infrastructure
Programme – Construction Delivery Partner
Consultancy 50 UK
Costain Arup Joint Venture – Yorkshire Water Consultancy 50 UK
Costain-Carillion Joint Venture – M1 Widening and A5/M1 Link Civil Engineering 100 UK
Costain-Dalekovod Joint Venture – National Grid HV Overhead
Line System
Engineering 60 UK
Costain-Hochtief Joint Venture – Reading station Civil Engineering 50 UK
Costain-John Mowlem-Skanska Joint Venture – A2/M2 widening
(Cobham to Jct.2)
Civil Engineering 30 UK
Costain-Lafarge Joint Venture – East and South East Framework Civil Engineering 50 UK
Costain-Lafarge Joint Venture – Midlands Framework 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
NOTES TO THE FINANCIAL STATEMENTS continued
Costain Group PLC | Annual Report and Accounts 2021
174
Contents_GEN_Page Contents_GEN_PageL2Contents Generation – Section
Activity
Percentage
interest
Country of
business
Other joint operations, including completed continued
Costain-Laing O’Rourke Joint Venture – King’s Cross Eastern Range Refurbishment 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 50
UK
Costain-Skanska Joint Venture – A14 Ellington to Fen Ditton Civil Engineering 50 UK
Costain-Skanska Joint Venture – A43 Silverstone Civil Engineering 50 UK
Costain-Skanska Joint Venture – Crossrail Civils Framework Enabling Works Civil Engineering 50 UK
Costain-Skanska Joint Venture – Kings College Hospital, London Building 50 UK
Costain-Skanska Joint Venture – Lower Precinct Shopping Centre, Coventry Building 50 UK
Costain-Skanska Joint Venture – NGT Tunnels, London Civil Engineering 52.6 UK
Costain-Skanska Joint Venture – Paddington Station Bakerloo Line Link Project Civil Engineering 50 UK
Costain-Skanska Joint Venture – The new Met Office Building 50 UK
Costain-Taylor Woodrow Joint Venture – King’s Cross re-development & PhaseII
Northern works
Civil Engineering 50 UK
Costain-Vinci Construction Joint Venture – Shieldhall Civil Engineering 50 UK
Costain-Vinci Joint Venture – M4 corridor around Newport Civil Engineering 50 UK
Costain-VWS Joint Venture – Mersey Valley Processing Centre
(Shell Green) Extension Project Stage 2
Engineering 50 UK
Educo UK Joint Venture – Bradford Schools Building 50 UK
Galliford-Costain-Atkins Joint Venture – United Utilities Engineering 42.5 UK
Lagan-Ferrovial-Costain – A8 Civil Engineering 45 UK
The e5 Joint Alliance Severn Trent Framework Engineering 25 UK
TSIF-ILW Joint Venture – Trawsfynydd nuclear power station decommissioning Civil Engineering 33.3 UK
Key to registered office/principal place of business
(1) Costain House, Vanwall Business Park, Maidenhead, Berkshire, SL6 4UB, England
(2) 56 Carden Place, Aberdeen, AB10 1UP, Scotland
(3) 210 Pentonville Road, London, N1 9JY, England
(4) Booths Park, Chelford Road, Knutsford, WA16 8QZ, England
(5) The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801
(New Castle County),USA
(6) Whitehill House, Windmill Hill Business Park, Whitehill Way, Swindon, SN5 6PE, England
(7) 8th Floor, The Place, High Holborn, London, WC1V 7AA, England
(8) P.O.Box N-7768, Bank Lane, Nassau, Bahamas
(9) Building 4F, Corniche Road, Ground floor, Office 1, Mussafah Industrial Area, 3069, Abu Dhabi, UAE
(10) Flat 33, Building 232, Road 18, Block 321, Manama, Bahrain
(11) P.O.Box 6967, 21452, Jeddah, Saudi Arabia
(12) Peninsula Plaza #27-01, 111 North Bridge Road, 179098, Singapore
(13) Calle Delfines No. 268 – 2, Frac. Playa Ensenada, Ensenada, B.C., CP. 22880, Mexico
(14) Marszałkowska 82, Warsaw, Mazowieckie, 00-517, Poland
(15) Dormant company – Venezuela, no record of address
(16) Dormant company – Nigeria, no record of address
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Financial Statements | Notes to the Financial Statements
Contents_GEN_Page Contents_GEN_PageL2Contents Generation – Section
25 Related party transactions
Group
A related party relationship exists with its subsidiaries, joint ventures and associates, joint operations, The Costain Pension
Scheme and with its directors and executive officers.
Sales of goods and services
2021 2020
Joint ventures
and associates
£m
Joint
operations
£m
Total
£m
Joint ventures
and associates
£m
Joint
operations
£m
Total
£m
Services of Group employees 0.4 81.4 81.8 2.0 130.7 132.7
Construction services and materials – 17.3 17.3 – 27.8 27. 8
0.4 98.7 99.1 2.0 158.5 160.5
Balances with joint ventures and associates are disclosed in notes 16 and 19. Balances with joint operations are eliminated
onconsolidation.
The Costain Pension Scheme
Details of transactions between the Group and The Costain Pension Scheme are included in note 21.
Transactions with key management personnel
Disclosures related to the remuneration of key personnel as defined in IAS 24 ‘Related Party Disclosures’ are given in
note 6. Key management personnel, as defined under IAS 24 ‘Related Party Disclosures’, have been identified as the
Board of directors as the controls operated by the Group ensure that all key decisions are reserved for the Board.
As at 9 March 2022, the date of signing of this report, the Directors of the Company and their immediate relatives control
423,866 ordinary shares in Costain Group PLC , which expressed as a percentage of the issued share capital is 0.15%
(2020: 0.16%) of the voting shares of the Company. In addition, Mr Bishoy Azmy, non-independent non-executive director
is the director representative of the shareholder ASGC which holds 41,666,666 shares and is a c. 15% shareholder of the
Company. Bishoy Azmy held no shares in his own name.
In addition to their salaries, in respect of the Executive Directors and executive officers, the Group provides non-cash
benefits and contributes to defined contribution pension plans. Executive Directors and executive officers also
participate in the Group’s LTIP, DSBP, AIP and SAYE plans, which are detailed in note 21.
The compensation of key management personnel, including the directors, is as follows:
Group
2021
£m
2020
£m
Directors’ emoluments 1.2 1.1
Executive officers’ emoluments 1.5 1.3
Post-employment benefits – 0.1
Share-based payments 0.6 0.3
3.3 2.8
The above amounts are included in employee benefit expense (note 6).
Company
The Company has no transactions with related parties other than the charge in relation to share-based payments
(note 21) (2020: none).
NOTES TO THE FINANCIAL STATEMENTS continued
Costain Group PLC | Annual Report and Accounts 2021
176
Contents_GEN_Page Contents_GEN_PageL2Contents Generation – Section
26 Disposals of subsidiary and associated undertakings
Alcaidesa Servicios S.A.U. (Spain)
In 2020, the Group disposed of its investment in Alcaidesa Servicios S.A.U. for a net consideration of £3.6m, which
generated a profit of £0.4m.
Zimbabwe subsidiaries
In 2020, the Group completed the sale of its legacy companies that held property assets in Zimbabwe for £1.0m
(net of costs), which as the net assets were held at no value represents the profit on disposal.
Associated undertakings
In 2020, the Group completed the sale of its interests in its two remaining “Buildings Schools for the Future” partnership
companies for a combined consideration of £3.7m, which generated a profit of £1.6m.
27 Event after the reporting date
As per notes 2 and 3 we reached a full and final settlement regarding the Peterborough & Huntingdon contract with a
cash payment of £43.4m after the year-end.
177
Financial Statements | Notes to the Financial Statements
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178
FIVE-YEAR FINANCIAL SUMMARY
Contents_GEN_Page Contents_GEN_PageL2Contents Generation – Section
2021
£m
2020
£m
2019
£m
2018
£m
2017
£m
Revenue and profit
Group revenue 1,135.2 978.4 1,155.6 1,463.7 1,684.0
Group operating (loss)/profit before other items (9.1) (81.7) 17.9 52.5 49.1
Other items:
RDEC grant income – – – 2.6 2.5
Arbitration award on historical building project – – (9.7) – –
Impairment of Alcaidesa marina – (0.6) (5.9) – –
Impairment of other investment – (0.6) – – –
Profit on sales of interests in joint ventures and associates – 1.6 – – –
Profit/(loss) on disposal of subsidiary undertakings – 1.4 (3.0) – –
Refinancing advisory fees – (1.2) – – –
Pension GMP equalisation charge – (0.9) – (8.6) –
Amortisation of acquired intangible assets (0.4) (1.0) (2.3) (3.0) (3.2)
Impairment of goodwill – (9.0) – – –
Employment related and other deferred consideration – – (0.2) (0.4) (1.2)
Group operating (loss)/profit (9.5) (92.0) (3.2) 43.1 47. 2
Share of results of joint ventures and associates – 0.2 0.3 0.3 0.3
(Loss)/profit from operations (9.5) (91.8) (2.9) 43.4 47.5
Finance income 0.1 0.8 1.0 0.4 0.4
Finance expense (3.9) (5.1) (4.7) (3.6) (6.1)
Net finance expense (3.8) (4.3) (3.7) (3.2) (5.7)
(Loss)/profit before tax (13.3) (96.1) (6.6) 40.2 41.8
Taxation 7.5 18.1 3.7 ( 7. 4) (9.2)
(Loss)/profit for the year attributable
to equity holders of the Parent
(5.8) (78.0) (2.9) 32.8 32.6
(Loss)/earnings per share – basic* (2.1) p (36.7)p (2.3)p 30.9p 31.1p
(Loss)/earnings per share – diluted* (2.1)p (36.7)p (2.3)p 30.2p 30.6p
Dividends per ordinary share
Final – – – 10.00p 9.25p
Interim – – 3.80p 5.15p 4.75p
Summarised consolidated statement of financial position
Intangible assets 52.5 52.1 59.0 58.5 62.5
Property, plant and equipment 32.0 39.9 4 4.1 40.0 43.0
Investments in and loans to equity accounted joint ventures
and associates 0.4 0.4 2.5 2.5 2.7
Retirement benefit asset 67.1 – 4.9 – –
Other non-current assets 20.9 27.1 6.7 6.3 15.0
Total non-current assets 172.9 119.5 117. 2 107.3 123.2
Current assets 359.5 370.4 435.3 4 67. 3 539.8
Total assets 532.4 489.9 552.5 574.6 663.0
Current liabilities 281.4 266.3 328.9 326.7 423.2
Retirement benefit obligations – 5.6 – 4.2 23.9
Other non-current liabilities 52.0 61.5 65.9 61.4 61.9
Total liabilities 333.4 333.4 394.8 392.3 509.0
Equity attributable to equity holders of the Parent 199.0 156.5 15 7.7 182.3 154.0
* The Loss per share figures for 2019 have been restated for the capital raise in 2020.
FINANCIAL CALENDAR AND OTHER SHAREHOLDER INFORMATION
Financial calendar
1
Full-year results 9 March 2022
Annual General Meeting 5 May 2022
Half-year end 30 June 2022
Half-year results 2022 24 August 2022
Financial year-end 31 December 2022
1 The financial calendar may be updated from time to time throughout the year. Please refer to the Investors section of our website at www.costain.com for up-to-date details.
Scrip dividend scheme
The Company will pay no final dividend in respect of the year ended 31 December 2021. Subject to shareholder approval
at the 2022 AGM for its renewal, a scrip dividend scheme is offered when a dividend is paid. Those shareholders who
have already elected to join the scheme will automatically have their future dividends sent to them in this form.
Shareholders wishing to join the scrip dividend scheme for all future dividends should return a completed mandate form
to the Registrar, EQ (formerly known as Equiniti). Copies of the mandate form and the scrip dividend brochure can be
downloaded from the Company’s website at www.costain.com or obtained from EQ by telephoning +44 (0)371 384 2268*
(please use the country code if calling from outside the UK)
Dividend mandate
Shareholders can arrange to have their dividends paid directly into their bank or building society account, by completing
a bank mandate form. The advantages of using this service are:
• the payment is more secure as you can avoid the risk of cheques getting lost in the post
• it avoids the hassle of paying in a cheque and
• there is no risk of lost, stolen or out-of-date cheques.
A mandate form can be obtained from the Company’s website, or by contacting EQ on +44 (0)371 384 2250*
(please use the country code if calling from outside the UK) and can also be obtained via the shareholder website at
www.shareview.co.uk (see overleaf for further details). Overseas shareholders can arrange for their dividends to be
paid in their local currency and more information can be obtained from www.shareview.com/overseas.
Analysis of shareholders
as at 3 March 2022
Total number
of holdings
Percentage
of holders
Total number
of shares
Percentage issued
capital
Shareholdings 100,000 and more 135 1.61 262,860,840 95.6
Shareholdings 50,000–99,999 48 0.57 3,374,305 1.23
Shareholdings 25,000–49,999 43 0.51 1, 49 7,02 2 0.54
Shareholdings 5,000–24,999 394 4.71 3,948,993 1.44
Shareholdings 1–4,999 7,75 0 92.6 3,268,581 1.19
Total s 8,370 100 274,949,741 100
Secretary
Sharon Harris
Registered Office
Telephone 01628 842 444
www.costain.com
Company Number 1393773
Registrar
EQ, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
Telephone +44 (0)371 384 2250* (please use the country code if calling from outside the UK)
Website
www.shareview.co.uk
179
Other Information | Financial Calendar and Other Shareholder Information
Shareview service
The Shareview service from our registrar, EQ, allows shareholders to manage their shareholding online, giving:
• direct access to data held on their behalf on the share register including recent share movements, indicative
valuations and dividend details and
• the ability to change their address or dividend payment instructions online.
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, at www.shareview.co.uk, 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 ‘dividend tax confirmation’ electronically. Instead of receiving the paper ‘dividend tax
confirmation’, you will be contacted 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.
* Lines are open Monday to Friday 08.30am to 5.30pm, excluding public holidays in England and Wales.
Bereavement services
In the event of the death of a shareholder the next of kin or administrator of the estate should contact our registrar, EQ.
EQ have a Designated Bereavement Services Helpline on +44 (0)371 384 2793 (please use the country code if calling
from outside the UK). You will be asked to supply a certified copy or the original of the death certificate, together with
an appropriate authority to deal with the estate, such as a Grant of Probate.
Further information is available on www.shareview.co.uk.
Unsolicited mail
The Company is legally obliged to make its share register available to the general public. Consequently, some
shareholders may receive unsolicited mail, including correspondence from unauthorised investment firms.
Shareholders who wish to limit the amount of unsolicited mail they receive can contact The Mailing Preference
Service at www.mpsonline.org.uk or on 0207 291 3310.
Further guidance can also be found on the Company’s website at www.costain.com.
ShareGift
The Orr Mackintosh Foundation (ShareGift – Registered Charity No. 1052686) operates a charity share donation scheme
for shareholders with small parcels of shares whose value makes it uneconomical to sell them. Details of the scheme are
available on the ShareGift website at www.sharegift.org. EQ can provide stock transfer forms on request. Donating shares
to charity in this way gives rise neither to a gain nor a loss for Capital Gains Tax purposes and the service is free of charge.
Website
The Company’s website at www.costain.com provides information about the Group including its strategy and recent
news. The ‘Investors’ section is a key source of information for shareholders, containing details of financial results,
shareholder meetings and dividends. Current and past annual reports are also available to view and download.
FINANCIAL CALENDAR AND OTHER SHAREHOLDER INFORMATION continued
Contact us
We are committed to engaging in dialogue with all our stakeholders.
For investor relations enquiries, please contact: ir@costain.com
For media enquiries, please contact: mediaenquiries@costain.com
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180