Annual Report and Accounts
2022
Costain Group PLC
Creating a
sustainable future
We shape, create and deliver solutions
that transform the performance of the
infrastructure ecosystem.
Overview
Highlights 1
Our purpose 2
Chair’s statement 4
Strategic Report
Chief Executive Officer’s statement 7
Our strategy 10
Market overview 12
Our business model 15
Purpose in action 16
Operational review 22
Key performance indicators 28
Our stakeholders 30
Environmental, Social
and Governance (ESG) 32
The Task Force on Climate-related
Financial Disclosures (TCFD) 34
Ethnicity pay gap statistics 35
Chief Financial Officer’s review 36
Principal risks and uncertainties 39
Viability statement 44
Governance
Board of Directors 46
Executive Board 48
Governance at a glance 50
Chair’s introduction 52
Board evaluation 55
Our governance structure 56
S172 statement 58
Key activities 62
Board diversity 64
Purpose, values and culture 66
Workforce engagement 68
Attendance and composition 72
Other Board matters 74
Audit Committee report 76
Nomination Committee report 82
Directors’ remuneration report 86
Remuneration at a Glance 86
Annual Statement by Chair
of the Remuneration Committee 89
Directors’ remuneration policy 95
Annual Report on Remuneration 102
Directors’ report 120
Directors’ responsibility statement 126
Independent auditor’s report 127
Accounts
Consolidated Income Statement 136
Consolidated Statement
of Comprehensive Income 137
Consolidated Statement
of Financial Position 138
Company Statement
of Financial Position 139
Consolidated Statement
of Changes in Equity 140
Company Statement
of Changes in Equity 141
Consolidated Cash Flow Statement 142
Company Cash Flow Statement 143
Notes to the Financial Statements 144
Five-Year Financial Summary 194
Other Information
Financial Calendar and Other
ShareholderInformation 195
Contact Us 197
Contents
For the latest investor relations
information visit our website /
w ww.costain.com/investors
Costain Group PLC
Annual Report and Accounts 2022
Environmental, Social and Governance Report 2022
Costain Group PLC
2022
2021 £53.1m
£72.9m 2022
2021 £30.1m
£36.3m 2022
2021 2.6%
2.6%
2022
2021 £1,135.2m
£1,421.4m 2022
2021(£9.5m)
£34.9m 2022
2021(0.8%)
2.5% 2022
2021(2.1p)
9.4p
Revenue
£1,421.4m
Operating profit
margin
2.5%
Operating
profit
£34.9m
Basic profit (loss)
per share
9.4p
Free cash
flow
1
£72.9m
Adjusted operating
profit margin
2
2.6%
Adjusted operating
profit
2
£36.3m
Adjusted basic
earnings per share
2
9.9p
2022
2021 0.15 LTIR
0.09 LTIR 2022
2021 42,722tCO
2
e
36,283tCO
2
e
Safety
0.09 LTIR
Environmental impact
36,283tCO
2
e
Social contribution
£391k
2022
2021 £200k
£391k
2022 9.9p
2021 9.6p
Non-financial highlights
Download the ESG report here / www.costain.com/our-culture/
performance-and-reports/
See our KPIs / Page 28 and 29
Our ESG performance
Operating responsibly is integral to our strategic priorities
of people, planet and performance, underpinning how we
operate and our expectations of our people, suppliers and
partners. For further information on our ESG performance
please download our ESG report.
1 Free cash flow is defined as cash from operations, excluding adjusting items and pension deficit contributions, less taxation and capital expenditure.
2 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Financial highlights
1
Overview GovernanceStrategic Report Financial Statements
Our vision
To create connected, sustainable infrastructure enabling people
and the planet to thrive.
How we do that
We shape, create and deliver pioneering solutions that transform
the performance of the infrastructure ecosystem.
Where we operate
Our focus is on four strategic sectors in the UK: Transport, Energy,
Water and Defence and everything that we do is rooted in
delivering solutions and is organised around ourcustomers.
See our operational review / Pages 22 to 27
Transportation
Within the Transportation division, we support key customers such as National Highways, HS2 and Network Rail, as well as local and
devolved authorities, and Integrated Transport such as aviation. We report results in three sectors: Road, Rail and Integrated Transport.
Natural Resources
Within the Natural Resources division we work with privately-owned utility, water and sewerage companies, with energy companies, and in
defence, with several public and private sector organisations. We report results in three sectors: Water, Energy and Defence.
Road Rail Integrated Transport
Water Energy Defence
Our purpose
Improving
people’slives
Costain Group PLC
Annual Report and Accounts 2022
2
Our ambition
Revenue growth with an adjusted operating profit margin run-rate
of 3.5% during the course of 2024, rising to 4.5% during 2025, and
in excess of 5.0%thereafter.
See our strategy / Pages 10 and 11
Our stakeholders
We collaborate more closely than
ever with customers, partners,
communities, wider industry
and shareholders to meet
today’s infrastructuredemands.
See our stakeholder engagement / Pages 58 and 59
How we measure success
Our financial and non-financial KPIs are on pages 28 and 29.
See our risks / Pages 39 to 43
3
Overview GovernanceStrategic Report Financial Statements
We have a strong leadership team with a clear strategy and
history of delivery in the growing UK infrastructure market
and I look forward to contributing to the next stage of the
Group’s development.
During 2022, Costain delivered an improved financial
performance, with the Group’s adjusted operating profit
1
increasing in the year from £30.1m in 2021 to £36.3m,
while also generating strong free cash flow. This financial
performance has been delivered against the backdrop
of increasing inflation and challenging macroeconomic
conditions, demonstrating the strength of Costain’s
operational and financial management. Our CFO,
Helen Willis, discusses this in our Financial Review on
pages 36 to38.
Our customers
Costain’s ambition is to be the partner of choice for our
customers, building on its deep construction heritage
to address the changing needs of infrastructure and
bringing together a unique mix of engineering solutions
for increasingly complex problems. Our commitment to
create connected, sustainable infrastructure is core to
all our activities.
During 2022, Costain
delivered an improved
financial performance.
Chair’s statement
I am delighted to be discussing the performance of
Costain with you, my first set of results as chair since
joining the Group in November 2022.
“ We are progressing well on
our strategic objectives and
delivering positive benefits
for all our stakeholders in
difficult conditions.”
Kate Rock
Chair
Costain Group PLC
Annual Report and Accounts 2022
4
2022
2021 £30.1m
£36.3m
Adjusted operating profit
1
£36.3m
2022
2021 £53.1m
£72.9m
Free cash flow
2
£72.9m
There is a necessity to update, connect and integrate
infrastructure ecosystems to meet the needs of the UK’s
growing population, the impact of climate change and
the requirement for increased economic, environmental,
and political resilience. We are pleased that the UK
Government set out in its Autumn Statement a series of
measures to boost growth and productivity by investing in
people, infrastructure, and innovation, with investment in
net zero, rail and energy.
To meet these societal changes and the opportunities
it brings, Costain focuses on the four key markets of
Transport, Water, Defence and Energy, and we discuss
our strategic priorities and addressable markets on
pages 12 to 14.
Stakeholder engagement
During 2022, the Group has increased levels of
engagement with our customers, to better enable smooth
project delivery, while adapting rapidly to the twin
challenges of inflation and material supply shortages. We
are also increasingly working closely with Government
and its agencies, helping them to shape their projects
at an early stage of the planning process and maximise
efficiencies during infrastructure delivery.
Costain also plays a growing role in wider society, with the
Board focused on Environmental, Social and Governance
(ESG) matters. ESG is not only important for the Group,
but also for our customers who increasingly value our
approach to responsible business and the expertise,
knowledge and capability we provide.
Delivering our climate change action plan remains our
highest environmental priority, with the Group focused on
reducing operational emissions in line with PAS 2080 and
working with designers to scale up the use of transitional
materials. These initiatives will be essential to Costain
meeting our objective to be net zero carbon by 2035. We
look forward to receiving feedback on our climate change
action plan from the Science Based Target initiative (SBTi).
Our social priority is to support our customers in
maximising the social value generated from infrastructure
investment, creating a lasting legacy within the
communities where we work. This directly aligns with
the Levelling Up agenda and is supportive of stakeholder
procurement policies. Further details of our projects can
be seen on pages 16 to 21.
With the continued industry challenges around labour and
material availability, ethics continues to be a significant
governance priority for Costain and we are increasing our
work in this area to further minimise the risk of unethical
labour practices.
Further detail on our ESG policies and practices can be
found on pages 32 to 35 and we publish a separate ESG
report which is available at www.costain.com/our-culture/
performance-and-reports.
Our People
Culture is central to Costain and our values inform
everything we do, with diversity, equality and inclusion
being key areas of focus, critical in developing high
performing teams. In order to develop the Costain culture,
our CEO Alex Vaughan and the management team have
been connecting widely with the Costain workforce, such
as on the regular Leadership Impact Days, discussed on
page 58 and 68. We outline the Board’s engagement and
outreach activities in more detail on pages 68 to 71.
This year we launched our refreshed values and
behaviours. Our values are what we stand for as an
organisation and, most importantly, how they guide our
activities. These are discussed on pages 66 and 67. I’m
delighted by how quickly I’ve seen colleagues bringing
our values and behaviours to life.
In 2022, we ran a Best Companies employee engagement
survey and I was pleased to see that we were recognised
as a ‘Very Good Company’ to work for.
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
5
Overview GovernanceStrategic Report Financial Statements
Above: Kate Rock on site at HS2
We have also recognised that the cost of living was, and
is, significantly affecting many of our people and have
taken several actions to give as much support as possible,
including one-off payments, an employee discount
scheme and a financial education programme.
Our response to the cost-of-living crisis will be for
the long-term and we are continuously reviewing the
support we can offer.
Capital allocation
During the last two years, the Group has made very
significant progress in its operating cash generation,
demonstrated by our strong year end cash position
and operating cash flow in 2022.
A strong balance sheet is fundamental to our ability to win
business and manage risk. At the same time, the Board
recognises the importance of dividends to shareholders
and remains committed to returning to dividend payments
whenappropriate.
The Board regularly reviews the Company’s capital and its
potential uses, including whether there is surplus capital
available to distribute to our shareholders.
Looking forward over the next financial year, the Board
has concluded that the priorities, and best returns, for the
Company’s capital are to invest in our organic opportunities
and to build further its capital base.
Board changes
On 6 April 2022, Fiona MacAulay joined the Board as an
independent non-executive director and became a member
of the Company’s Audit, Nomination and Remuneration
Committees. Fiona became chair of the Remuneration
Committee at the conclusion of the Annual General Meeting
on 5 May 2022, taking over from Jacqueline de Rojas, who
chaired the Remuneration Committee on an interim basis
following the resignation of Alison Wood.
As detailed in our 2021 full year results, Paul Golby
announced that he wished to step down as chair and non-
executive director. The Board wishes to thank Paul for his
considerable contribution to Costain for more than six years.
The Nomination Committee, led by Tony Quinlan as
senior independent director, concluded a search for
Paul’s successor in September 2022. I am delighted that
I was appointed to the Board on 1 November 2022 as an
independent non-executive director and chair designate,
and I assumed the role of chair on 1 December 2022.
The Board thanks Sharon Harris, who stood down as
Company Secretary, for her contribution to the Group and
we welcomed Nicole Geoghegan to the role on 5 July 2022.
Outlook
It has been three years since the start of the pandemic
and, together with our customers, we have been able to
navigate our way through what has been, on many levels, a
demanding time. The Board would like to thank our people,
our customers and our suppliers for their efforts during 2022
and their long-term commitment to the Group.
We expect that the ongoing improvement in the business will
deliver positive results for the Group in 2023 and beyond, and
we expect to see an increase in adjusted operating profit in
2023 compared to this year, while delivering further free cash
flow and ensuring a robust balance sheet.
Our shift in business mix, together with other measures we
are taking to transform the business internally, means that
we expect to progressively increase our adjusted operating
margin in the coming years. Alex discusses this in more detail
in his statement on the following pages.
While we are mindful of market conditions such as inflation
due to wider economic and geopolitical challenges,
we believe there is a positive long-term outlook for
infrastructure and good growth prospects for the Group.
These market drivers, combined with the strategic progress
made during the year as we develop the Group, gives the
Board confidence in our future and that we will deliver
increasing value to all of our stakeholders.
Kate Rock
Chair
13 March 2023
Chair’s statement continued
Costain Group PLC
Annual Report and Accounts 2022
6
Chief Executive Officer’s statement
In 2022, we:
• Delivered a strong financial performance in
difficultconditions:
– An adjusted operating profit of £36.3m, up 20.6%
onlast year
1
.
– A net cash position of £123.8m at the end of the year,
well ahead of expectations, resulting from a positive
free cash inflow of £72.9m
2
.
– An unchanged adjusted operating margin of 2.6%
1
.
– Secured a strong order book and preferred
bidderposition.
• Strengthened ourresilience:
– Benefitting from the embedding of our risk management.
– Strengthened our balance sheet.
– Broadened our Tier 1 customer mix across our
growthmarkets.
– Secured a contract portfolio that is lowerrisk.
Delivering for
our customers.
“ A strong operational
performance, benefitting
from our strategy.”
Alex Vaughan
Chief Executive Officer
I am pleased to report that we have made positive
progress in 2022 across a number of key measures.
1 See notes 1 to 4 of the financial statements for adjusted metric details and
definitions, and reconciliation to reported metrics.
2 Net cash balance is cash and cash equivalents in FY22 and is cash and cash
equivalents less interest-bearing borrowings (excluding leases under IFRS16
and net of unamortised arrangement fees of £0.6m) in FY21.
Overview GovernanceStrategic Report Financial Statements
7
2022
2021 £1,178.6m
£1,421.4m
Adjusted revenue
1
£1,421.4m
2022
2021 £26.3m
£34.2m
Adjusted profit before tax
1
£34.2m
Net cash balance
2
£123.8m
2022
£119.4m
£123.8m
2021
Chief Executive Officer’s statement continued
• Benefitted from our strategic positioning:
– The scale of our future work is now more than three
times annual revenue.
– Continuing to have a positive market outlook
supporting our growth ambitions.
– We have increased our position as a Delivery
Partnerconsultant.
– We have now built an unrivalled range of expertise.
• Navigated the short-term challenges, and are
positioned for long-term opportunities:
– We have managed inflation.
– We are addressing the impacts of Government changes.
– In our markets, national needs are growing.
– We are seeing digital transformation being part of
thefuture.
• Set out a clear roadmap for our strategic
positioningfor:
– Increasing margin growth, which I discuss below.
– Demonstrating the progress of our broadening
business mix.
– Positioned for key growth spend areas in devolved
government, rail, energy and water.
I‘m very grateful for all the hard work and support that has
been provided by all of our employees and partners, to
both deliver this progress and to navigate the challenging
operating environment. Thank you.
Our strategy
The Group is benefitting from being strategically
positioned in four markets; Transport, Water, Energy and
Defence, where long-term investment continues to be
made, and which provides us with a strategic, diversified
and resilient customer base. We expect a broad
investment, underpinned by legislative and regulatory
commitments, in infrastructure of around £66bn per year
until the end of the decade across our markets.
Our customer focus, combined with our differentiated
offering, is positioning Costain strongly. We are benefitting
from the long-term investment plans in place, and continue
to see significant opportunities for growth.
We have specifically chosen to work with customers who
wish to partner with a business such as ours to help them
shape, create and deliver their business plan commitments
and investment programmes, and to navigate the various
challenges facing their businesses. Our expertise and focus
on key blue-chip customers allows us to truly understand
their specific needs and how we can best support them
right across their business portfolio. With our expert
broader service offering, we are servicing more of our
customers’ business investment, and creating greater
competitive advantage by being increasingly relevant to
our customers’ changing needs. Our vision is to create
connected, sustainable infrastructure to help people and the
planet thrive and you can read more about our strategy and
markets on pages 10 to 14.
Our order book reflects a prudent view on work secured,
as well as a changing mix of our contracts. At the end of
2022, our order book, where contracts are signed and ready
to proceed was £2.8bn (FY 21: £3.4bn). This reflected the
timing of major contract bids, our customers’ investment
programmes, maintaining discipline in contract selection and
the shorter lead time of consulting and digital work.
Our preferred bidder book, increased to £1.6bn (FY 21:
£0.9bn), and is a positive outcome to theyear, see page 23
for furtherdetails.
We have made good progress in securing new work that
demonstrates how we are working in deeper partnerships
with our customers. During 2022, we announced that
National Highways has appointed a Costain/Mott
MacDonald joint venture as Delivery Assurance Partner for
the A303 Stonehenge Improvements Scheme, our fourth
delivery partner major consultancy commission. We are also
working with Heathrow Airport as a solution delivery partner
providing construction, consulting and digital capabilities
over their next regulatory period. We were selected by bp as
their design partner for the net zero scheme inTeesside.
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
2 Net cash balance is cash and cash equivalents in FY22 and is cash and cash equivalents less interest-bearing borrowings (excluding leases under IFRS16 and net of
unamortised arrangement fees of £0.6m) in FY21.
Costain Group PLC
Annual Report and Accounts 2022
8
Strategic Priorities
Right across the Group we are focused on three strategic
priorities that will deliver our strategic ambition for all
of our stakeholders: Performance, People and Planet.
PERFORMANCE – This is where we provide insight
via our relationships with our customers and work with
them to help shape, create and deliver their broader
infrastructure requirements. During the year we
continued to embed our risk controls in securing new
business (contract selection, independent risk review and
enhanced legal process). As a result, we have managed
the risk and return criteria of contracts, and chose not
to bid on a small number of opportunities. We have also
enhanced operational contract delivery via an Operational
Excellence Model (OEM), comprehensive financial reviews,
and senior management ownership, which has improved
contract margin resilience.
As a result of the implementation of our strategy and risk
management processes, at year end FY22, our order book
does not include any fixed-price construction contracts.
Our strategy is delivering a transformation in the business
in terms of assured delivery, lower risk contracts in our
order book, and a broader business mix; and our ambition
remains to deliver strong long-term operating margins.
Our pathway towards these margins is a 3.0% Group
adjusted operating margin for the second half of 2022 and
then deliver:
• An adjusted operating margin run-rate of 3.5% during
the course of 2024, as we implement our Transformation
plan and grow our consultancy business.
• A medium-term Group operating margin run-rate of
4.5% during the course 2025. This will be reached by
improving margins of complex programme delivery
(construction contracts), while growing our consultancy
and digital services. In addition, we will enact further
efficiencies across thebusiness.
• We have the ambition to reach a long-term Group
operating margin in excess of 5.0%.
PEOPLE – Here we focus on safety, diversity, inclusion, and
social impact for our people and the wider community,
which are key values for the Group. As noted by our chair,
we have responded to the cost of living crisis and refreshed
our values, as well as stepping up our engagement with
ESG issues, please see pages 32 to 35 and 58 and 59.
During the year our Accident Frequency Rate in 2022 was
0.05 alongside a Lost Time Injury Frequency Rate of 0.09.
We discuss our work in the community to deliver social
value on pages 30 and31.
However, in July, with deep sadness, we experienced
a fatality on one of our rail projects and following
our investigation, to prevent a recurrence we are
implementing a number of recommendations across our
business including changes to current industry practice.
PLANET – It is important that we continue to strive to
deliver environmentally positive actions within the Group
and for our customers. We continue to implement our
climate change action plan, working towards net zero
carbon by 2035. To validate our plan, we have submitted
our climate change action plan to the Science-Based
Target Initiative and await endorsement. We have absolute
greenhouse gas (GHG) emissions, including Scope 3,
as one of our key non-financial performance indicators
(see page 34), as it is fundamental that however much
our business grows, we still reduce the carbon dioxide we
are releasing into theatmosphere.
Our customers increasingly value our ESG capabilities as a
point of differentiation, and on pages 16 to 21 we discuss
projects where we have demonstrated our skills, such as
providing diesel-free sites for HS2 and reducing carbon
for Tideway.
Outlook
Overall, I’m pleased with the progress that we have made
and the momentum and ambition across the Company.
We have navigated our way through the pandemic and
the material availability and inflation challenges seen
through2022.
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. We have had good growth
in adjusted operating profit and delivered good free cash
flow during 2022. Given our position in the market and
the quality of our order and preferred bidder books, we
expect to achieve further growth in adjusted operating
profit and increase our net cash balance in 2023.
Alex Vaughan
Chief Executive Officer
13 March 2023
For more information visit our website / www.costain.com
Overview GovernanceStrategic Report Financial Statements
9
We are at the forefront of helping meet
many of the UK’s infrastructure challenges.
Our strategy focuses on transforming infrastructure performance and safeguarding our planet.
Our ambition
To be our customers’ strategic partner, helping
them meet their critical infrastructure needs.
We have enacted a Transformation programme
within Costain to streamline our organisational
structure, use digital to increase efficiencies
and refine our procurement processes.
Our target is to increase revenue and deliver
increasing profits. We aim for increased
adjusted operating margin of 3.5% run-rate
during the course of 2024 and 4.5% run-rate
during the course of 2025, and for margins in
excess of 5.0% thereafter.
At the same time, we recognise our wider
responsibilities and report on ESG matters
on pages 32 to 35 in our separate report at
www.costain.com/our-culture/performance-
and-reports.
Our integrated offering
As construction, consulting and digital
partners we bring together a mix of experts
to engineer solutions to the most complex
infrastructure problems. We have specifically
chosen to work with customers who wish to
partner with us to help them shape, create
and deliver their business plan commitments
and investment programmes, and navigate
the challenges facing their businesses.
At our core
Everything we do is rooted in delivery
and organised around our customers. We
anticipate and help solve their challenges,
such as a growing population, climate change,
and economic and environmental resilience
across the infrastructureecosystem.
Building Costain
There is a major requirement to update,
connect and integrate infrastructure systems in
the UK, which requires new ways of working.
1. We aim to grow a resilient customer
base where long-term strategic
investment is being made with emphasis
on those customers where we can
collaborate closely to create connected,
sustainableinfrastructure.
2. Our 150-year heritage of pioneering
problem solving, together with constant
innovation, enables us to deliver
sustainable, efficient and practical
answers as construction, consulting
anddigitalpartners.
3. We look to enhance the environmental and
social value that construction delivers by
becoming net zero carbon by 2035.
Our strategy
Costain Group PLC
Annual Report and Accounts 2022
10
See examples of our purpose in action / www.costain.com/solutions
People
To deliver our ambition for growth, we are focused on
making Costain a great and inclusive place to work where
people can be at their best and thrive.
During 2022, we refreshed our values and behaviours and
are embedding these into all aspects of the employee
experience. We have also run an engagement survey
and are working with our employees on integrated
actionplans.
In addition, we are investing in five key areas:
• Excellent leadership and line management role
modelling of our values and behaviours, to motivate and
engage our people.
• Having a diverse, inclusive, and thriving workforce.
• Creating high performing, agile teams with a one
Costain ethos.
• Developing skills, capabilities, and talent now and for
the future giving our people opportunity to grow their
careers at Costain.
• Ensuring our people feel valued, respected, recognised
and appropriately rewarded.
Planet
Protecting nature and the environment to safeguard our
planet for future generations is fundamental. Working
with our customers we are helping to decarbonise their
businesses and the infrastructure ecosystem (see pages 12
to 15 for more information on how climate change presents
a market opportunity for Costain).
We are focused on driving an orderly transition to net
zero, while adapting to overcome the physical climate
risks that will impact infrastructure. For further information
please see page 34 for our TCFD disclosure.
As a Group, we are also increasing our focus on
maximising our social and environmental contribution.
This includes an ambition to generate significant intrinsic
and extrinsic social value through our construction work,
while having a workforce that is reflective of society.
We are working with our customers on a wide range of
projects to enable them to reach their ESG targets.
Performance
To meet the huge challenges and opportunities facing
infrastructure delivery in the UK, we need to transform
the performance of infrastructuredelivery.
We collaborate more closely than ever with
customers, partners, communities and wider industry
to deliver infrastructure faster and more efficiently,
without compromising on innovation, safety or
environmentalimpact.
In addition, we are developing our consultancy
capabilities to support our customers to develop
strategies and deliver the outcomes they need.
We are improving the performance of our business,
by simplifying processes and bringing clarity
ofaccountability.
To drive margin growth, assure project delivery and
ensure the highest safety performance, we focus on:
Safety: we continue to embed our Learning Organisation
Model to continuously improve our safety performance
and make sure that the lessons learned from the fatal
incident at Gatwick are rolled out.
Environment: we aim, by the end of 2023, that all solutions
proposed will include a low carbon option in line with
PAS2080.
Assurance: we are improving our risk and assurance
function to strengthen our management of risk,
support decision making and coordinate assurance
activities across the business (see pages 40 and 41 for
moreinformation).
Step change in delivery: we are implementing standard
practices across our contracts such as mobilisation
and reporting, while strengthening our Operational
Excellence Model, to drive better decision making and
projectperformance.
Developing skills: we continue to implement development
programmes to drive excellence for our project directors,
commercial managers and frontline supervisors.
Overview GovernanceStrategic Report Financial Statements
11
Market opportunity
We focus on four key UK markets where there is strategic commitment to long-term investment in infrastructure:
Transport, Water, Energy and Defence. We expect the investment in the UK across our target markets to total
£600bn by 2030.
Infrastructure is experiencing
enormouschange.
Within the infrastructure market, the opportunities arising from a shift
towards a more connected, sustainable future with a focus on productivity,
are counterbalanced by headwinds such as price inflation, skills and
resource shortages, and the changes in government spending patterns.
We are at the forefront of meeting many of these challenges and work to
balance these to achieve growth in this market.
Market overview
Policy, investment and regulation trends are reinforcing
our strategy in terms of change in market needs and our
need to focus on productivity. Reports by the National
Infrastructure Commission and the Infrastructure and
Projects Authority (IPA) Transforming Infrastructure
Performance: Roadmap to 2030 confirm a need for a
different approach to transform delivery performance of
major infrastructure. Our approach puts us at the forefront
of meeting this opportunity to create truly connected,
sustainable infrastructure for the good of UK communities
and to improve people’s lives. We collaborate closely with
government, including DfT, the Department for Energy
Security and Net Zero, and the IPA, as well as other
industry bodies like Institute for Civil Engineers (ICE),
Association for Project Managers (APM) and Institute of
Environmental Management and Assessment (IEMA) to
shape the future of infrastructure delivery.
Strategic investment programmes – expected infrastructure spend
1
Current business
plan investment 2022 2023 2024 2025 2026 2027 2028 2029 2030
National Highways £27bn RIS2 RIS3
High Speed rail c.£50bn
Phase 1 (London – West Midlands)
Phase 2a (West Midlands – Crewe)
Phase 2b (Crewe – Manchester)
Integrated Rail Plan £54bn IRP
Network Rail £44bn CP6 CP7 CP8
Local Government £11bn Regional development funds
Water £51bn AMP 7 AMP 8
Energy
£12bn 10 Point Plan
£30bn RIIO 2 RIIO 3
Defence
£240bn Defence Estates Plan
£5bn Defence Estates Optimisation
Nuclear
c.£10bn
Nuclear Decommissioning
Authority Business Plan
c.£20bn Sizewell C
1 These investment plans are not all addressable by Costain and there are market opportunities which do not fall under these investment plans available to the Group.
The estimates are as of 31 December 2022.
We estimate that the total addressable annualised market for infrastructure in the UK is £66bn across all the markets
during the period outlined above, with a five-year growth rate of 3.0% per year from 2023 to 2027.
Costain Group PLC
Annual Report and Accounts 2022
12
Transport market
Water market
Within Transport our market is twofold. Firstly, supporting key
customers such as National Highways, HS2 and Network Rail
with strategic development, major infrastructure delivery and
existing asset optimisation; and secondly supporting local
and devolved authorities to drive economic growth through
investment in transport infrastructure to support the levelling
up agenda, and the growing market of aviation, as well as
ports. We are focused on improving transport infrastructure
delivery efficiency through digital transformation, accelerating
the transition to net zero and delivering better outcomes for
transport users and communities as an established integrator
of future transportation nodes.
National Highways is committed to spending £27bn across the
strategic road network through the Road Investment Strategy
2 (RIS2) programme. Our focus is delivering RIS2 imperatives
while supporting National Highways’ ambition on carbon,
digital, network operations and asset management.
HS2 has a committed spend of £55–75bn between 2020 and
2033, with multiple phases and types of contracts, playing to
both our construction and digital strengths.
The Integrated Rail Plan, alongside commitments to regional
rail development, demonstrates a long-term commitment to
significant rail investment across the UK. In addition, Network
Rail is currently in Control Period 6 (CP6), a five-year £53bn
investment programme, moving to CP7 in 2024, with further
committed spend of £44bn. There are additional long-term
investment opportunities with HS2 Eastern leg, Northern
Powerhouse Rail and East West Rail.
Investment continues to be focused on a regional level
through local authorities and regional transport bodies
through levelling up investment and further devolution
deals. This investment is focused on developing sustainable,
connected transport infrastructure. The aviation market
continues its recovery from COVID and the Flightpath to
the Future strategy outlined in May 2022 outlines a recovery
that focuses on a decarbonised future with aviation,
including urban airports, delivering local benefits.
Our customers in the water sector are privately-owned
utility, water and sewerage companies that are regulated
by Ofwat in England and Wales, with the regulator
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, reducing
pollution and discharge into rivers, while driving
innovation to improve resilience. Increased levels of
investment are expected in the next Asset Management
Period (AMP8).
We focus on being a partner for water customers as they
move into AMP8 to help deliver long-term plans, invest in
new infrastructure, and drive improvements throughout
the asset lifecycle.
RIS2 investment
£27bn
HS2 investment
£55–75bn
Please see page 26 for details on our progress in the sector
during2022.
Please see pages 24 and 25 for details on our progress in the sector
during2022.
Overview GovernanceStrategic Report Financial Statements
13
Market overview continued
Energy market Defence market
The transition to clean, sustainable energy forms a key
part of the UK’s commitment to be net zero by 2050. In
addition, there is a renewed emphasis on the UK’s energy
security and independence. Our ambition is to support
the UK in these areas.
The sector is diverse, and our target customers are
private entities, where we are focused on supporting
them through the whole lifecycle of their onshore project
delivery and decommissioning, with a particular focus on
industrial clusters. The UK Energy Security strategy, as
well as further updates to the energy transition strategies
across the UK, is committing investment towards ensuring
energy security as we transition to greener energy,
which is aligned to our strategy. An ongoing focus on
nuclear, hydrogen and carbon capture, usage and storage
(CCUS), as well as supporting the oil and gas sector to
decarbonise, forms the core of our energy offering.
The recent confirmation to delivering the Sizewell C
nuclear facility further supports this aim.
The national defence budget for equipment and
infrastructure is more than £23bn annually, and in June
2022 the government committed to increasing this to 2.5%
of GDP by 2030. This will allow the Ministry of Defence
to invest in next-generation capability and infrastructure.
Our focus to date has been on work on the Continuous
At-Sea Deterrent submarine programme and our ambition
is to grow into a long-term partner for defence customers’
most complex infrastructure engineering needs.
Integrated Rail Plan investment
£54bn
AMP7 and AMP8 water investment
£51bn
Energy investment
£42bn
Nuclear investment
£30bn
Please see pages 26 and 27 for details on our progress in the sector
during2022.
Please see page 27 for details on our progress in the sector
during2022.
Costain Group PLC
Annual Report and Accounts 2022
14
We work to shape, create and deliver infrastructure projects for our customers.
We develop strategic solutions to optimise value and reduce risk; engineer innovative solutions that are sustainable,
efficient and practical, and deliver projects in a safer, greener, faster and more efficient way. We discuss our work in
action on pages 16 to 21.
Our business model
Understanding the needs of our customers across the infrastructure ecosystem
We work with customers to anticipate, identify and meet their challenges, helping us to deliver pioneering solutions right
across the infrastructure lifecycle, in strategy, operations and asset creation. We do all of this as either a construction,
consultancy or digital partner.
Underpinned by our Environmental, Social and Governance (ESG) commitments
Operating responsibly and with integrity is an integral part of our strategy and forms part of our
core values.
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Read more / Pages 32
to 35
Overview GovernanceStrategic Report Financial Statements
15
Define scope
and identify
stakeholders
Mapping
outcomes
Evidencing
outcomes and
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Some examples of the activity across our portfolio of work,
across early stage and major projects, in the areas of People,
Planet and Performance, in a series of case studies.
Purpose in action
Value Toolkit
Safety, diversity and inclusion, and
social impact are key values for the
Group. We have helped develop the
Value Toolkit, a government-backed
initiative designed to change the
way the construction industry thinks
about and measures value. This was
in partnership with more than 200
experts from acrossindustry.
Right: Our approach
to social value
Costain Group PLC
Annual Report and Accounts 2022
16
The Value Toolkit in action
Costain has incorporated the Value
Toolkit’s process and suite of tools into
our social value consultancy planning
and has certified practitioners that
help our customers, in their decision-
making, consider the environment,
social and economic impact.
Some examples from 2022include:
• Working with South Staffordshire
Water to trial the Value Toolkit on a
major water treatment project, with
a particular emphasis on decision
making processes and alignment with
Ofwat’s Periodic Review 2024(PR24).
• We were commissioned by the
UK Water Partnership to lead the
multi capitals water group and this
work includes supporting Southern
Water with early development of a
wellbeing rating to support business
case decisions that deliver long-term
value for society.
People
Tideway
Costain has also been actively
increasing social value in major joint
venture projects such as Tideway.
Tideway is London’s new Super Sewer
and will prevent tens of millions of
tonnes of pollution from discharging
into the Thames river.
With the project, we implemented
a social value programme ‘Breaking
Barriers’ promoting careers in science,
technology, engineering and maths
to a diverse group of local pupils.
See pages 32 to 35 for details of our
ESG policies.
Overview GovernanceStrategic Report Financial Statements
17
Together we’re
focusing on the…
Within rail, on the HS2 project
during 2022, the Canterbury Road
Vent Shaft in South Kilburn became
HS2’s first diesel-free site, while the
Euston Approaches and Victoria Road
Crossover Box sites also achieved
diesel-free status.
Developing natural capital
Costain has worked in a joint venture
on the upgrade of Southern Water’s
Hailsham South Wastewater Treatment
Works where the opportunity was
identified to go beyond normal
industry practice and create a natural
‘wilded’ biodiverse environment from
three tertiary lagoons that were to be
retired fromservice.
Soil from the construction process
was retained and used to backfill
one of the lagoons, which was
planted with native woodland tree
species and a swathe of wildflowers.
Working with our customers as we
progress towards net zero carbon in the
UK. Costain aims to be net zero by 2035.
Below: FlyZero’s exploration into the
operation of hydrogen fuelled aircraft
A great crested newt pond was
also established with additional
aquatic planting. The reuse of the
excavated spoil ensured the project
did not need to dispose of over
3,500m
3
of soil to landfill, avoiding
over 300 lorry movements, which
saved an estimated 17t of carbon.
The enhancements provided an
overall biodiversity gain by providing
additional habitat for the great
crested newts, reptiles and bats,
enhancing the aquaticenvironment.
We are working with the Welsh Local
Government Association (WLGA) to
develop a geographic information
system-based tool to help local
authorities understand carbon
emissions associated with their
land, plus the carbon sequestration
potential for different land uses.
Reducing carbon
ininfrastructure
We are continually looking to see
how we can reduce the amount of
carbon emissions from our projects.
The East Section of Tideway,
delivered by Costain, Vinci and
Bachy Soletanche (CVB) in a joint
venture, has started secondary lining
of Greenwich Connection Tunnel
and Main Tunnel D. Secondary lining
requires significant quantities of
carbon intensive materials, primarily
concrete and steel fibres. CVB
challenged the design to achieve
material efficiencies by reducing the
thickness of the secondary lining to
achieve a significant carbon reduction
of 4500 tCO
2
e as a result of reduced
concrete and steel fibre volumes. CVB
has demonstrated a leading edge
solution in the industry’s journey to
net zero by designing out carbon.
We are working with our
customers on a wide range of
projects to enable them to reach
their and the UK’s emission
targets, using a broad range of
technologies. These include the
drive towards using hydrogen
and reducing the carbon impact
frominfrastructure.
Purpose in action continued
Costain Group PLC
Annual Report and Accounts 2022
18
Planet
The tool is being delivered through
the WLGA’s Transition & Recovery
Support Programme, a Welsh
Government funded programme
to support councils to decarbonise
and adapt to the impact of
climatechange.
Hydrogen to decarbonise
Costain is working with Dwr
Cymru Welsh Water, Wales and
West Utilities, and food and drink
manufacturer Princes Group on a
feasibility study to produce hydrogen
from biogas from the Cardiff East
Wastewater Treatment Works that will
fuel boilers to provide heat for fruit
juice pasteurisation. The programme
was funded through the Department
for Business, Energy and Industrial
Strategy’s (BEIS) £1bn Net Zero
Innovation Portfolio, which aims to
accelerate the commercialisation of
innovative clean energy technologies
and processes.
Led by the Aerospace Technology
Institute and also backed by BEIS,
the one-of-a-kind FlyZero research
project set out to realise zero-carbon
emission commercial aviation by
2030. The project brought together
experts from across the UK to
conduct a detailed and holistic
study of the design challenges,
manufacturing demands, operational
requirements and market opportunity
of potential zero-carbon emission
aircraft concepts. Costain’s remit
included assessing the practical
and regulatory requirements for the
safe and efficient ground operations
needed to support hydrogen-
powered aircraft, as well as the
commercial implications of these and
future requirements. We examined
the conditions required for storing
hydrogen and the impact of its
use on turnaround times of planes
atairports.
Alongside FlyZero, we undertook a
detailed study into the potential use
of hydrogen for the Zero Emission
Flight Infrastructure programme.
The research is being led by
Connected Places Catapult, the UK’s
innovation accelerator for cities,
transport, and place leadership, in
collaboration with the Department
for Transport. Our report provides
a high-level overview of the
infrastructure requirements to
support the transition to net zero.
We have also trialled a hydrogen-
powered generator on the Preston
Western Distributor Road project’s
M55 compound. This trial is the first of
its kind for Lancashire County Council.
Together with hydrogen start-up
Hydrologiq, we demonstrated carbon
savings from on-site operations
of between 70% and close to
100%, when powered by grey and
greenhydrogen respectively. Moving
from diesel to green hydrogen on a
similar compound could save up to
11tonnes CO
2
e per month.
Overview GovernanceStrategic Report Financial Statements
19
Together we’re
focusing on…
Delivery
We work across a variety of
infrastructure projects to ease
congestion and provide additional
capacity, across rail, road and
integrated transport, such as aviation.
Examples of our work in rail includes
HS2, which we discuss on the following
page, while road projects undertaken
in the year includes:
• A1. Costain and our design partner
Jacobs, on behalf of National
Highways, have successfully
completed a multi-million-pound
upgrade of the A1, supporting the
UK levelling up agenda by unlocking
economic growth in the North
East. The A1 Scotswood to North
Brunton improvement will boost
accessibility to jobs and services,
while also supporting new business
and development opportunities
and housing developments along
theroute.
Infrastructure increasingly needs
to deliver more and cost less, both
economically and environmentally.
We are investing in our digital
and consulting capabilities to help
our customers with a broadened
offering, to optimise existing
networks and future proof new ones,
as well as using new technologies
such as 3D concreteprinting.
Working with our customers to deliver
efficient, affordable and practical solutions
to complexchallenges.
Right: Tunnel boring machines as part of
the HS2 project
Below: The UK’s first 3D printed concrete
water chamber on behalf of United Utilities
• A19. Costain delivered a £51.6
million upgrade of the A19 to
budget and ahead of programme,
which is now open to traffic. The
National Highways A19 Downhill
Lane scheme provides extra capacity
on the junction between the A19
and the A1290 near Sunderland,
supporting the regional economy
and providing access to the planned
development of the International
Advanced Manufacturing Park
(IAMP) to the north of Nissan’s motor
manufacturing plant.
• A40. Our A40 project ensured that
critical upgrades to the London
road network were completed
ahead of the Queen’s Jubilee
celebrations, five weeks ahead of
schedule. We were appointed by
Transport for London to replace
the life-expired roller shutter joint
on a key section of the road at
Westway, near Paddington station.
This commission included the
concept design, detailed design and
construction phases, culminating in
the replacement of the bridge deck.
This took place over eight months,
while ensuring that the road remained
open from Monday to Friday.
Innovation
Costain supported United Utilities
and technology innovator’s
ChangeMaker3D to advise, deliver
and install the first 3D printed
concrete chamber, ‘Printfrastructure’,
for testing in the UK water sector to
reduce carbon, cost, and time.
During a 12-month period,
ChangeMaker3D worked in partnership
with United Utilities to successfully
design, 3D-print and install a
wastewater chamber at one of the utility
company’s test facilities in Cheshire.
Printfrastructure delivered a 25%
reduction in carbon, 20% cost saving
and 55% reduction in labour versus
traditional methods. The wastewater
chamber was built in under four hours
with a significant reduction in the
materials used and demonstrated safety
benefits by reducing the requirement to
work at height, or in confined spaces.
Purpose in action continued
Costain Group PLC
Annual Report and Accounts 2022
20
Performance
Consulting and digital
We use automation, business
intelligence and asset management
strategies to create competitive
advantage for our customers. Costain
has used data and trend analysis to
optimise the asset strategy within
the United Utilities maintenance
service provider framework to provide
a dedicated maintenance project
delivery service across the North
West of England. Through the use
of Power BI applications, Costain
has reduced the number of reactive
activities from 50% to 30% since the
start of thecontract.
To date the Core Services team of
United Utilities has responded to
over 13,000 maintenance work orders
and the approach has optimised
communication between their teams,
boosting customer satisfaction from
18% to 75% (on average) between
2019 and 2021.
HS2
Costain is delivering complex projects
in the London area for HS2.
The six year enabling works
programme, delivered in joint venture
with Skanska and completed in
December 2022, prepared 15 miles of
the HS2 route from Euston station out
to West Ruislip.
A vanguard project with a culture of
learning and continuous improvement,
smoothly and assuredly delivered on
time while reducing work package costs
by up to 30%. The team submitted 30
technical papers to the HS2 learning
legacy for sharing best practice with
all HS2 construction partners in key
areas including design management,
communication, procurement and
programme planning.
This learning has been a vital benefit
for HS2 as the enabling works team
has progressed to the Mainworks
Civils contract, delivering the new
infrastructure for the high speed
railway along the same line of route
through West London.
Working in joint venture again with
Skanska and also with STRABAG,
Costain’s UK construction experience
has been valuable in the design
and planning for the 10m diameter
Northolt and Euston tunnels and the
approach structures to Euston station.
In October 2022, the twins, Caroline
and Sushila, our 2,000 tonne tunnel
boring machines (TBMs) began their
five mile journey from West Ruislip
towards Euston. Two further and
equally massive machines will set off
later this year from the new high speed
rail super hub station at Old Oak
Common and head West to meet their
sister machines at Greenford in 2025.
Each TBM takes two months to assemble
by a group of 40 specialist engineers
with 56 separate supply companies
contributing to the build. Once launched
the machines do not stop and with a
team of 15 per shift working around
the clock our quartet of TBMs will build
8.4 miles of twin bored tunnels under
some of the most complex and sensitive
infrastructure in London.
Overview GovernanceStrategic Report Financial Statements
21
We report both our statutory results, ‘reported’, and results
excluding adjusting items, ‘adjusted’. Key adjusting items for
FY22 include the impact of restructuring and reorganisation,
impairment of tangible assets and an insurance receipt
relating to the Peterborough & Huntingdon contract.
Reported revenue increased from £1,135.2m in FY21 to
£1,421.4m in FY22, an increase of 25.2%, and adjusted
revenue was up 20.6% to £1,421.4m (FY21: £1,178.6m)
driven by increased volumes in complex programme
delivery and the impact of inflation, as well as increased
revenue in our consultancy-led sectors, predominantly in
Energy and Defence.
Reported operating profit increased from £9.5m loss in
FY21 to £34.9m profit in FY22, while adjusted operating
profit grew by 20.6% to £36.3m (FY21: £30.1m), driven by
improved profitability in Natural Resources. The adjusted
operating margin was unchanged at 2.6% (FY21: 2.6%) and
reflected volume increases, an improved mix and operational
improvements, offset by the impact of inflation costs,
up-front investment in our consultancy capability, and the
additional cost of increased bid activity on a series of major
opportunities during FY22, primarily in Transportation.
H2 22 adjusted operating margin was 3.0% (H2 21: 3.0%).
Adjusted profit before tax was up 30.0% to £34.2m (FY21:
£26.3m), while adjusted basic earnings per share (EPS)
was higher by 3.1% at 9.9p (FY21: 9.6p) due to increased
profitability partially offset by the recognition of a tax credit
in FY21 benefitting the prior year comparable. Reported
profit before tax was £32.8m (FY21: £13.3m loss) reflecting
the £43.4m provision for the Peterborough & Huntingdon
contract in FY21. Diluted basic profit per share (EPS) was
9.4p (FY21: 2.1p loss) reflecting the above.
Operational
review
Chief Executive Officer’s introduction
We have delivered a 20.6% increase
in adjusted operating profits and
strong free cash flow in the year.
“ Our 2022 results show the ongoing
operational improvements that are
taking place in the Group.”
Alex Vaughan
Chief Executive Officer
Costain Group PLC
Annual Report and Accounts 2022
22
2022
2021 £30.1m
£36.3m
Adjusted operating profit
1
£36.3m
2022
2021 £53.1m
£72.9m
Free cash flow
2
£72.9m
2022
2021 £1,178.6m
£1,421.4m
Adjusted revenue
1
£1,421.4m
Adjustments to reported items
We incurred £5.0m (FY21: £nil) of restructuring costs on
our Transformation programme, £0.7m (FY21: £nil) of
reorganisation costs, £1.4m (FY21: £nil) of aged tunnel
boring machine write-off costs, and £nil (FY21: £0.4m)
on amortisation of acquired intangible assets. We also
recognised an insurance receipt of £5.2m (FY21: £nil) relating
to the Peterborough & Huntingdon contract, as well as a
profit of £0.5m (FY21: £nil) on the sale of a non-core asset.
Cash flow and liquidity
Adjusted free cash inflow was £72.9m in FY22 (FY21:
£53.1m), reflecting continued enhanced working capital
management and increased adjusted profitability. Cash
from operations was £16.7m, (FY21: £33.2m), and was lower
in FY22 than FY21 following the expected settlement of
the Peterborough & Huntingdon contract of £43.4m in
February 2022. Partially offsetting this settlement payment,
we received £5.2m from an insurance claim during FY22
relating to the Peterborough & Huntingdon contract.
During FY22 we paid more than 98% of invoices within
60 days. Costain has been ranked as one of the top three
fastest-paying main contractors in construction following
the submissions to the Government’s Duty to Report on
Payment Practices and Performance.
Reflecting the above, this resulted in a net cash position at
the end of FY22 of £123.8m (FY21: £119.4m), considerably
higher than market expectations.
Business model resilience
Our markets remain characterised by strong customer
demand and Costain enjoys good overall forward visibility
with our combined order book and preferred bidder book
at FY22 increasing to £4.4bn (FY21: £4.3bn). This combined
view is increasingly relevant as we anticipate a shift in our
business mix towards the preferred bidder book as we
secure long-term frameworks positions with our customers.
Our order book stood at £2.8bn at the end of FY22 (FY21:
£3.4bn). This reduction reflected the timing of major contract
bids, our customers’ investment programmes, maintaining
discipline in contract selection and the shorter lead time
of consulting and digital work. The order book evolves
as contracts progress and as new contracts are added at
periods aligned to our customers’ strategic procurement
windows which are typically every five years, therefore it
does not provide a complete picture of potential future
revenue expectations.
The preferred bidder book grew to £1.6bn (FY21: £0.9bn),
with the main additions being contracts in Road, Water
and Integrated Transport, including Heathrow and the A66
contract. The preferred bidder book comprises awards
for which there is no other competitor and we are in final
negotiations prior to entering a contract, or exclusive
frameworks where a further works order is required.
Outlook
Looking ahead, despite the market headwinds and as
a result of our broad customer focus, we have already
secured more than £1bn of revenue, representing around
80% of expected revenue for 2023.
We remain mindful of the macro-economic and geopolitical
backdrop, recognising the challenges it has created for
inflation and energy costs and its importance for near-
term government priorities and timing of spending. With
our broad customer focus, further improvements to our
operational performance, strong cash position and clear
strategic priorities, we remain confident of navigating
these market headwinds and are well positioned for
furthergrowth.
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
2 Free cash flow is defined as cash from operations, excluding adjusting items and pension deficit contributions, less taxation and capital expenditure.
Read more about our business model / Page 15
Read more about our purpose in action / Pages 16 to 21
Further Information
We are building a new kind of company to create connected,
sustainable infrastructure, enabling people and the planet
to thrive.
We are committed to supporting our people and playing an
active, positive role in society.
Overview GovernanceStrategic Report Financial Statements
23
Operational review continued
Road reported and adjusted revenue increased by 17.0%
in 2022 over the prior year driven by increased schemes
delivery and the impact of inflation on delivery costs.
As a strategic partner for National Highways, we support
their key investment programmes through the Regional
Delivery Partnerships (RDP) major projects framework,
and the Smart Motorways Programme (SMP) Alliance
delivering smart motorway upgrades.
On RDP, we continued to upgrade the A1 around Newcastle,
with the A1 Scotswood to North Brunton scheme opening
early, and we are upgrading to dual carriageway a section of
both the A1 Birtley to Coal House and the A30 in Cornwall.
Pre-construction and design activities continue on the
A12 Chelmsford to A120 scheme, M60 Simister Island
scheme and we completed and opened early the A19
improvements at Downhill Lane.
With the SMP Alliance, our work delivering the M6 Junction
21a-26 smart motorway upgrades continues, and we
delivered infrastructure for cameras to detect stopped
vehicles, and safety improvements to the central reserve on
M62 junction 25–30.
During 2022, National Highways selected Costain as one of
its Delivery Integration Partners for the A66 Northern Trans-
Pennine project which will upgrade east-west connectivity
in the north of England; and in joint-venture with Mott
MacDonald, Costain was appointed as Delivery Assurance
Partner for the A303 Stonehenge Improvements Scheme.
Costain also continued to provide specialist advice to
National Highways under the SPaTS2 framework, to shape
the future and help critical challenges around automation,
decarbonisation and future programme delivery
Rail reported and adjusted revenue increased by 34.9%
in 2022, principally as a result of our growth of work in
delivering HS2.
December 2022 saw the Costain Skanska joint venture
(JV) successfully complete its 7-year programme of
enabling works for the HS2 route from Euston to West
Ruislip. The follow-on contract with the Skanska Costain
STRABAG JV to construct the same section of route in
twin bore tunnel has fully mobilised and launched the
first two of seven tunnel boring machines (TBMs).
“ Transportation has worked closely
with our customers to help them
navigate the impact of inflation
on project costs.”
Sue Kershaw
Managing Director – Transportation
Transportation revenue growth was driven
mainly by complex scheme delivery for High
Speed 2 and National Highways, which
represents the majority of our revenue.
Transportation highlights
• Reported and adjusted revenue of
£1,046.3m, was up 21.1% against prior
year as a result of increased project
delivery and inflation.
• Reported and adjusted operating margin
1
was 3.0%, down 1.8 percentage points year-
on-year.
• We have seen good progress across Road
and Rail and recently won a contract to be
delivery partner for Heathrow.
• New contract wins of £427.5m were
secured in the year, with FY23 secured
revenue of£746.0m.
Costain Group PLC
Annual Report and Accounts 2022
24
The completion of rail heads at Willesden and at Northolt
means the TBMs are fully serviced by rail, removing
thousands of heavy lorry journeys from local roads.
Our project-wide carbon reduction initiatives have set the
path to reduce CO
2
emissions by around 40% and led to
the first fully diesel-free sites on the HS2 programme.
Throughout the year our specialist planning and
constructibility teams have continued to support HS2 by
producing information for the Hybrid Bill submission that
will promote the ‘levelling up’ agenda and enable the
HS2 route from Crewe on to Manchester.
Our work on the Gatwick Airport Station Project for
Network Rail continues with the opening of platform 5
and 6 enabling Network Rail timetable improvements, and
we expect to finish work on this project during FY23. We
completed our final work on Crossrail, with the Elizabeth
Line successfully opening during the year. We continue to
expand our portfolio of work for Network Rail through our
framework contracts.
Integrated Transport provides a mix of consulting and
complex project delivery to Local Authorities, Central
Government and to customers in Aviation. Reported and
adjusted revenue decreased by 18.1% in FY22 on the prior
year, reflecting the timing of complex schemes delivery.
We continue to focus on supporting customers with inter-
modal connectivity and decarbonisation solutions.
During 2022, we completed work on A40 Westway for
Transport for London (TfL) and initiated work for TfL for the
Gallows Corner project. We extended the contract for CCTV
video management system for TfL for a further four years and
we were appointed by TfL to design critical upgrades to the
signalling infrastructure on the Piccadilly line.
Our delivery of the Preston Western Distributor Project
continues to plan, and we continue to support Lancashire
County Council with constructibility advice in the
development of their South Lancaster highway scheme.
We have successfully grown consulting services revenue
across a range of local authorities, such as Lancaster,
Bradford, Liverpool and in Cornwall.
Divisional results
Transportation FY22 adjusted
1
FY21 adjusted Adjusted
1
change
Road 498.7 426.3 17.0 %
Rail 480.8 356.4 34.9%
Integrated transport 66.8 81.5 -18.1%
Total revenue 1,046.3 864.2 21.1%
Operating profit/(loss) 31.5 41.4 -23.9%
Operating margin 3.0% 4.8% -1.8pp
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Planet
Reducing carbon in infrastructure
We continually aim to reduce carbon in our projects and
we discuss the use of leading edge solutions for Tideway
and the development of diesel-free sites for HS2 on pages
16 to 21.
During the year, we announced that we are a delivery partner
to Heathrow Airport, providing construction, consulting
and digital capabilities to help deliver its new investment
programme. We will work with Heathrow throughout project
lifecycles to shape, create and deliver asset renewal and
construction projects through the Terminal Asset Renewal
Partner and Major Project Partner lots of the H7 framework.
The first commission is the design phase of the upgrade of
baggage handling facilities and systems at Terminal 2, via the
Major Project Partner lot. We also have secured work for ZEFI
(zero emissions flight infrastructure) and with other aviation
customers at Stansted, Gatwick and Manchester airports.
We continue to grow our consulting services to local
government customers in support of accelerating progress
to net zero carbon (including a decarbonisation project for
Swindon council), green economic recovery and levelling
up the UK, and have secured places on a number of
targetedframeworks.
Costain has continued its growth with the UK Government in
helping deliver key policy interventions including embedment
of the Construction Playbook, securing our borders through
infrastructure investment and accelerating decarbonisation
through being involved in projects such as the Electric Roads
System and Net Zero Innovationprogramme.
Sue Kershaw
Managing Director – Transportation
13 March 2023
Overview GovernanceStrategic Report Financial Statements
25
Water delivers a broad range of services to improve
asset and operational resilience across the water sector,
together with decarbonisation capabilities. Reported
and adjusted revenue was up £38.2m, 19.1% on the
prior year with good visibility across our five-year water
AMP7 programmes through to 2025. We have made
good progress in delivering on Tideway, where, in a joint
venture, we are responsible for the eastern section.
The breadth of our service offering continues to grow
with capital delivery programmes for Anglian Water,
Severn Trent Water, Southern Water, and Thames Water;
maintenance service provider services for United Utilities;
a range of consultancy services for Yorkshire Water,
Thames Water, Southern Water, and Welsh Water; digital
services to Anglian Water and data and clear energy
innovation projects with Ofwat.
Alongside core AMP8 requirements, we continue to
engage with customers to understand their potential needs
for new value-added solutions for AMP8 to meet their ESG
requirements and are in an early stage of working with
customers regarding the Strategic Water Resource Options
programme, which will run alongsideAMP8.
As reported in FY21, we recognised a provision in respect
of one water contract. There was no adverse net impact to
the income statement in FY22 and no material net impact is
expected going forward. See note 20 for further details.
Energy has shown good growth, increasing by 9.7%
in FY22 on the prior year. Our contract with Cadent,
managing the mains replacement across the East of
England, our Project Controls contract with EDF and our
nuclear decommissioning contract with Sellafield continue
to perform strongly. We have performed well in energy
resilience and are building our position in energy transition.
Throughout FY22 we have strengthened our core strategy
to support the development of the industrial clusters
throughout the UK, spearheaded by our delivery for bp
on the track 1 net zero contract at Teesside (part of the
East coast cluster) and we continue to work on the track 2
schemes including the Acorn carbon capture and storage
scheme in St Fergus, Scotland.
“ Natural Resources delivered
increased revenue and returned
a strong operating margin
performance for 2022.”
Sam White
Managing Director – Natural Resources
Natural Resources engages with
customers to understand their needs
for new infrastructure solutions.
Operational review continued
Natural Resources highlights
• Adjusted revenue was £375.1m, an increase
of 19.3% driven by increased activity levels
in all three sectors and particularly across
AMP7 waterprogrammes.
• Adjusted operating profit
1
was £15.0m, up
£17.6m, and operating margin was 4.0%,
4.8percentage points higher.
• Good progress with water programmes,
Tideway, and our Energy and
Defencecustomers.
• Contract wins of £69.1m in the year, with
FY23 secured revenue of £257.0m.
Costain Group PLC
Annual Report and Accounts 2022
26
We have seen growth in project delivery and opportunities
in supporting our long-standing petrochemical customers
in decarbonising their midstream operations through large
scale energy switching engineering projects, including
hydrogen generation and transportation. As part of our
regional focus, which includes the delivery of the South
Wales Industrial Cluster, we won an energy transition
project, H2Juice, with Dwr Cymru Welsh Water, Wales
and West Utilities which uses hydrogen to decarbonise
carbon-intensive industries and was funded by BEIS.
Defence supports several public and private sector
organisations, in a variety of customer-side, delivery
partnership roles, across the UK defence nuclear
enterprise. Reported and adjusted revenue increased
by £15.5m, 36.6% on the prior year, driven by a growth
in demand for support within our current delivery
partnership roles, with Babcock and the Atomic
Weapons Establishment (AWE). In both contracts, we
work alongside the customer, as a construction delivery
partner, delivering major infrastructure projects, providing
expertise in design and construction management, and
the coordination of the work of several subcontractors.
We also provide ongoing support to the Defence
Nuclear Organisation (DNO), helping them develop
portfolio management capabilities and developing
its programme definition for future infrastructure
requirements. We provide customer-side support to
BAE Systems, in the form of portfolio management
expertise on the Dreadnought programme, to replace
the Royal Navy’s Trident missile Vanguard Submarines.
We are currently well positioned across the defence
nuclear enterprise, supporting the UK’s Continuous at
Sea Deterrent (CASD), and our ambition is to be the
delivery partner of choice for the Ministry of Defence’s
(MoD) strategic infrastructureneeds.
Divisional results
Natural Resources FY22 adjusted
1
FY21 adjusted Adjusted
1
change
Water 238.2 200.0 19.1%
Energy 79.0 72.0 9.7%
Defence 57.9 42.4 36.6%
Total revenue 375.1 314.4 19.3%
Operating profit/(loss) 15.0 (2.6) N/A
Operating margin (loss) 4.0% -0.8% 4.8pp
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Value Toolkit
Costain, in partnership with experts across industry,
has created the Value Toolkit, a suite of processes and
tools which is incorporated into our social value planning.
Examples from 2022 include working with South
Staffordshire Water and the UK Water Partnership,
please see pages 16 to 21 for more details.
We cover our ESG activities in more detail in a separate
report which is available at www.costain.com/our-culture/
performance-and-reports/
For more examples, visit our website
www.costain.com/solutions/
To maximise the potential for growth we have combined
our Defence and Nuclear activities, bringing together
capability for the division in a more operationally efficient
and effective structure. From H1 23 we will report revenue
reflecting the new Natural Resources structure for the
Water, Defence and Nuclear, and Energy sectors, as we
progress our activity within the energy transition market.
Sam White
Managing Director – Natural Resources
13 March 2023
People
Overview GovernanceStrategic Report Financial Statements
27
2022
2021 £30.1m
£36.3m
Adjusted operating
profit
1
£36.3m
2022
2021 2.6%
2.6%
Adjusted operating
profit margin
1
2.6%
2022
2021 9.6p
9.9p
Adjusted diluted
earnings per share
1
(EPS)
9.9p
2022
2021 £53.1m
£72.9m
Free cash flow
2
£72.9m
Adjusted operating profit was
£36.3m (FY21: £30.1m) and
adjusted operating growth
was 20.6% reflecting strong
growth in both divisions, as
we show both growth in our
projects, increasing efficiencies
in the business and the impact
ofinflation.
Adjusted operating margin
was broadly flat year on year
as we saw improvement in the
business mitigated by project
fee margin diluted by inflation.
Improvement in EPS is driven
by overall improvement
inprofitability.
Strong free cash flow in the
year, driven by improved
operating profit, efficient
working capital management
and the timing of cash receipts.
Key performance indicators
How we’ve performed
Financial metrics
Measure
Relevance
Target
Performance
Link to strategic priorities
Adjusted operating profit
1
.
Our business is going through
a transformation as we build on
being a Tier 1 contractor, in order
to provide a unique offering across
the asset life cycle, which to be
reflected in an increased adjusted
operating profit and improved
margin. The infrastructure
investment programme being
undertaken by the UK Government
is for the more traditional type
of construction work, for which
margins are lower, and we also saw
the impact of inflation on pricing.
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 complete picture
ofperformance.
Double digit compound growth
in the medium term.
Adjusted operating
profitmargin
1
.
We aim to reach 3.5% adjusted
operating margin run-rate
during the course of FY24, a
4.5% run-rate during the course
of FY25, and our ambition is to
reach in excess of 5% thereafter.
As our business becomes more
efficient and revenue mix shifts
to include more higher margin
consultancy and digital work,
we expect this to be reflected
in the operating profit margin.
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 adjustedrevenue.
Adjusted diluted earnings
per share
1
.
Free cash flow is defined as
net cash flow from operating
activities, excluding adjusting
items, less capital expenditure.
We target EPS growth in line
with our strategy to grow
operating profit.
Cash conversion rate of 90%.
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
theperiod.
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,
lesscapitalexpenditure.
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
2 Free cash flow is defined as cash from operations, excluding adjusting items and pension deficit contributions, less taxation and capital expenditure.
Costain Group PLC
Annual Report and Accounts 2022
28
2022
2021 0.15 LTIR
0.09 LTIR
Safety
0.09 LTIR
2022
2021 £200k
£391k
Social
contribution
£391k
2022
2021 42,722tCO
2
e*
36,283tCO
2
e
Environmental
impact
36,283tCO
2
e
Our indicators show that
workforce engagement is
high and injury rates are low,
mirroring our previous record-
breaking years. In July, the
Group experienced a fatality
on one of its rail contracts, and
following our investigation, to
prevent a recurrence we are
implementing a number of
recommendations across our
business including changes to
current industry practice.
Our total absolute footprint
reduced by 15% year-on-year,
in part driven by measures to
reduce energy consumption
and the mandated use of HVO
fuel in replacement of gas oil.
These measures contribute to
reductions of 38% reduction
for Scope 1 and 17% in Scope
2emissions.
* Restated figures for 2021 due
toadditional data obtained
afterreporting.
2022 saw a significant
increase in our community
and charity activity. This was
due to many factors including
our colleagues wishing to
support their communities
through challenging social
and economic times, the
mobilisation of certain key
contracts and our targeted
campaign to fundraise for our
charity parter Samaritans.
Our KPIs are aligned with how we measure our performance against our strategic priorities. These reflect our vision of creating
infrastructure that helps people and the planet to thrive, while also ensuring that we deliver for allourstakeholders.
Relevance
Non-financial metrics
Measure
Target
Performance
Link to strategic priorities
Lost Time Injury Rate (LTIR). Absolute GHG emissions
(Scopes 1, 2 and 3).
Community investment.
Target is to keep LTIR less
than0.15.
Net zero GHG emissions by
2035 at the latest, regardless
ofbusiness growth.
Investment of 1% of absolute
profit in the medium term.
Effective health and safety
management systems are
critical in preventing incidents
which could cause injury to
people and damage to property
andreputation.
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.
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
customers’ operations, but also
what becomes embedded in
what we build. Further detail
on the calculation of our GHG
emissions can be found on
page33.
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. As rigour around social
value reporting improves, this
measurement is likely to evolve
over time.
See our full GHG disclosure /
Page 33
Key to Strategic
priorities
People
Planet
Performance
Overview GovernanceStrategic Report Financial Statements
29
Our stakeholders
Working together
to achieve our goals
We know that being socially responsible is imperative to building a long-term, sustainable business.
We have a responsibility to work
together with our customers
and partners, our people, our
communities, and our supply chain
to minimize 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
DevelopmentGoals.
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
areraised.
The Board and Executive Board
of Costain remain accountable
for Environmental, Social and
Governance (ESG) related
activities, for developing and
implementing policies that align
with our wider business objectives.
The board recognise that it is
essential that Costain operates in
aresponsiblemanner.
The Board seeks to engage with
each of our key stakeholder groups
to help inform the strategic
decision-making process.
Stakeholder ESG
materiality assessment
Ensuring we prioritise the right
sustainability issues is crucial
and perhaps has never been
as important as it is today. In
reflection of the rate of social and
environmental change at both a
micro and macro level, we have
increased the frequency of
our materiality assessment.
Costain now completes an annual
stakeholder materiality survey
(previously a biennial activity) and
from 2023 will be undertaking a
quarterly assessment using an
artificial intelligence platform.
Also in 2023 Costain will be
undertaking a double materiality
assessment to help inform its new
sustainabilitystrategy (summer 2023)
and in preparation for possible future
sustainability reporting requirements.
Material issues for
our stakeholders
Greenhouse Gas emissions for the
first time ranked as Costain most
material ESG issue, replacing safety.
On average all environmental
issues increased in importance for
all stakeholder groups, alongside
social sustainability issues. However,
safety will continue to be our most
important operational priority.
Please see page 45 for our Non-Financial Information Statement, which sets out our position on the key non-financial matters that our
stakeholders have deemed important when taking part in our materiality assessment.
What matters to our stakeholders
We are committed to identifying and addressing the material sustainability and ESG issues
that affect Costain and our stakeholders.
Costain Group PLC
Annual Report and Accounts 2022
30
Customers
Understanding our
customers’ changing
requirements is
fundamental to our
success. We support
our customers
by offering them
solutions to meet
their evolving needs.
Shareholders
Our shareholders’
views inform our
decision-making
and their interests
underpin our
commitment to
operating responsibly.
Suppliers
Our suppliers are
key to our ability to
deliver pioneering
solutions for our
customers. 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 customers and
social value through the supply chain and wider society.
People
Performance
PlanetPeople
Putting the environment and our impact on it at the
forefront of how we operate and design and deliver
solutions for our customers.
Planet
Improving our operating performance to better
anticipate, solving challenges for our customers
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.
For our Section 172 Statement, which sets out how the Board takes stakeholder interests into account when making decisions, see our
Governance Report / Pages 58 to 61
Overview GovernanceStrategic Report Financial Statements
31
Environmental, Social and Governance (ESG)
Our ESG performance
OUR COMMITMENTS 2030 GOALS
Reporting progress against our
ESG goals
Our ESG goals are integral to our strategic
priorities of people, planet and performance,
underpinning how we operate.
In 2020 we set our ESG goals for 2030,
aligning to priorities shared by our
stakeholders. Our goals are underpinned
by policies, procedures, enabling plans and
strategies (wellbeing, safety, innovation,
inclusion and environment (WiiSE), climate
change action plan and inclusion strategy).
We are pleased to report progress against
our annual objectives within this report and
have produced a separate ESG report to share
further information on our performance.
Find our 2022 ESG report on our website /
www.costain.com/our-culture/
performance-and-reports/
In 2020 Costain launched our climate
change action plan (transition plan) which
sets out the actions we need to take and
the milestones we need to achieve to be
net zero carbon by 2035, ahead of the UK
Government’s Paris aligned 2050 objective.
This means:
• All operations, including supply chain,
will be net zero carbon by 2035 against
our 2020 baseline.
• By end of 2023, every solution delivered
by Costain for customers will propose a
low carbon option.
• Corporate emissions from car fleets will
be net zero carbon by 2030.
• Our permanent offices to be supplied
by carbon neutral energy by 2022
(achieved in 2021).
In 2022 we submitted our plan to the
Science Based Target initiative (SBTi) and
we await the outcome of our application.
As a validation of the progress Costain has
made in implementing our plan, Costain’s
Carbon Disclosure Project (CDP) score
improved to a B in 2022 (previously C).
We report our progress against the plan in
our ESG report (pages 9–10).
Costain’s climate change action plan is
accessible on our website:
www.costain.com/what-we-do/climate-
change-solutions/
Environment
Social
• Net zero carbon by
2035, supporting the
UN Paris Agreement
• Eliminating
waste through
circularthinking
• 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
• Eliminate waste through
an active role in the
circular economy
• Net positive biodiversity
impact and increased
natural capital
• Net zero company
carfleet
• 50% reduction in
emissions from plant
and machinery
• 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
theindustry
Governance
• Responsible
procurement
and supply chain
management
• Transparency in
our reporting
• Ethical conduct
• 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
forhumanrights
Costain Group PLC
Annual Report and Accounts 2022
32
2,551 967
2,561 942
2022
2021
4 4
5 3
2022
2021
18 10
18 11
2022
2021
IN 2023 WE WILL…OUR 2022 PROGRESS AND PERFORMANCE
Diversity of our workforce
Lost Time Injury Rate (LTIR)
0.09
2021: 0.15
Community giving
£391k
2021: £200k
2022 OBJECTIVES
• 3,300 hours volunteered in our local
communities (2021: 2,200)
• £57k raised in 2022 for our charity
partner Samaritans out of a total £337k
for UK charities
• 337 disadvantaged young people
supported with their employability skills
• 16 reportable accidents in over
32million working hours
Employees
Board members
Senior management
Male Female
• Continue to ensure
100% of all relevant
designs and delivery
contracts have a
carbon baseline and
reductionplans
• Deliver a ≥6%
reduction in our Scope
1 and 2emissions
• All solutions proposed
to include a low
carbon option in line
with PAS2080
• Eliminating harm in
all we do, achieving
an LTIR of 0.15
• Supporting 100
people previously
classed as NEET to
enhance their ‘Green
and digital skills’
• 10% year-on-year
increase in employee
volunteering
• 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
• Support 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 our
volunteer hub
• £322m spent with small businesses
andVCSEs
• 14 SMEs took part in our supply chain
academy, taking the total number of
businesses to 304 since 2012
• Average Considerate Constructors
Scheme score for Costain contracts.
45.3%. Industry average is 39.7%
• Please see page 34 for more information
on our TCFD disclosure
• > 35% of our spend to
be with SMEs
• ≥ 19.0% of our spend
to be with small
businesses and or,
voluntary, community
or social enterprises
(VCSEs)
• Progress towards
full compliance
with the TCFD
recommendations
Spend with SMEs
38%
2022
38%
2021
• > 35% of our spend
to be with SMEs
• Have an average
Considerate
Constructors Scheme
score of >42
• Conduct further
scenario analysis
to progress our
TCFD disclosure
CO
2
equivalent emissions (across all legal entities)
2022 2021 % change
Total emissions tCO
2
e 36,283 42,722* -15%
Scope 1 tCO
2
e 6,634 10,772* -38%
Scope 1 kWh 63,408,675 46,102,531 38%
Scope 2 tCO
2
e 926 1,116* -17%
Scope 2 kWh 4,689,997 4,787,774 -2%
Scope 3 tCO
2
e 28,723 30,834* -7%
Emissions intensity (tCO
2
e£m) 25.53 37.4 6* -32%
Environmental Incident frequency rate 0.10 0.15 -38%
Major environmental incidents 2 0 N/A
* Restated figures for 2021 based on additional data obtained after reporting.
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 theUK.
For a detailed breakdown of our emissions
including totals of energy consumption as
per the Streamlined energy and carbon
reporting (SECR) requirements, see our ESG
report page 10.
www.costain.com/our-culture/
performance-and-reports/
Overview GovernanceStrategic Report Financial Statements
33
The Task Force on Climate-related
Financial Disclosures (TCFD)
At the time of publication, Costain has made
climate-related financial disclosures consistent
with the TCFD recommendations:
• Governance (all recommended disclosures)
• Risk management (all recommended disclosures)
• Strategy (all recommended disclosures)
• Metrics and targets (disclosures (b) and (c)).
For metrics disclosure (a) further work is underway to
enhance data consistency across projects to help better
understand how climate change impacts on our project cost
base and therefore could have wider strategy implications.
The table below provides a high level summary of our
disclosure, including what we consider to be strategically
important. We have included the main detail of our TCFD
disclosure in our ESG report which is published in parallel
to this annual report, so it can be read in context with our
wider efforts to transition to a net zero carbon business.
Governance
(a) 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 three Board meetings in 2022. For further
information on Costain’s climate-related governance please see our ESG report (page 6).
(b) Describe management’s role in assessing
and managing climate-related risks
andopportunities.
In 2022 a climate change steering group was formed to provide oversight of the
delivery of Costain’s climate change action plan and management of principal risk 10.
The steering group is chaired by the chief people and sustainability officer, reporting
into the Executive Board. During the year climate change was discussed at four
Executive Board meetings and scenario analysis was undertaken (ESG report page 6).
Strategy
(a) 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, flooding and physical
damage to assets. Opportunities include the possibility of leading the decarbonisation
of our industry, see pages 12 and 13 and our ESG report (page 8).
(b) Describe the impact of climate-related risks and
opportunities on the organisation’s businesses,
strategy, and financial planning.
Despite being exposed to the societal impacts of climate change, we hold a certain
degree of climate resilience. This is due to the nature of contracting and holding minimal
non-current assets on site. However, we have recognised that some climate-related risks
could have an impact on our operating cash flow. We expect these risks to be identified,
prioritised and managed to limit the impact. Conversely, climate-related opportunities will
continue to generate additional revenue through innovation and environmental specific
consultancy discipline.
(c) Describe the resilience of the organisation’s
strategy, taking into consideration different
climate-related scenarios, including a 2°C or
lower scenario.
We have assessed our exposure to changes in chronic heat (physical risk), increased
flood events and our exposure to changes in carbon pricing (transition risk). This is
further explained in our ESG report (page 9).
Risk management
(a) Describe the organisation’s processes for
identifying and assessing climate-related risks.
(b) Describe the organisation’s processes for
managing climate-related risks.
(c) 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 39 to 40). For details on Costain’s principal risk 10 see
page 43 and for further climate-related risk management information see our ESG report
(page 9).
Metrics and targets
(a) Disclose the metrics used by the organisation to
assess climate-related risks and opportunities in
line with its strategy and risk managementprocess.
Please see page 10 of our ESG report for information on how we monitor our greenhouse
gas performance against our climate change action plan. Costain has made good progress
in improving the data to monitor climate risks and the performance of our mitigation
measures. In our next disclosure (2023) we will provide a more comprehensive set of metrics.
(b) Disclose Scope 1, Scope 2, and, if appropriate,
Scope 3 greenhouse gas (GHG) emissions, and
the related risks.
Please see page 33 for our GHG emissions data and page 10 of our ESG report for a
more detailed breakdown of our emissions footprint.
(c) Describe the targets used by the organisation to
manage climate-related risks and opportunities
and performance against targets.
Please see page 33 for our GHG emissions data and our ESG report (pages 10 and 11)
for information on our progress towards our net zero objective.
To access our full TCFD disclosure please visit our ESG report www.costain.com/our-culture/performance-and-reports/
Environmental, Social and Governance (ESG) continued
Costain Group PLC
Annual Report and Accounts 2022
34
Ethnicity pay gap statistics
Ethnicity pay gap statistics
This is the first time Costain is publishing our ethnicity pay gap statistics which are outlined below:
Overall pay gap
All White
2022
All Asian
2022
All Black
2022
All other
Minority
2022
Unknown/
prefer
not to say
Median N/A 12.12% 20.28% 15.5% 5.14%
Mean N/A 12.87% 22.15% 17.4% -2.97%
Salary quartiles
All White
2022
All Asian
2022
All Black
2022
All other
Minority
2022
Upper quartile 90.72% 5.95% 1.94% 1.39%
Upper middle quartile 86.57% 7.06% 4.16% 2.21%
Lower middle quartile 86.29% 6.93% 3.60% 3.18%
Lower quartile 79.39% 10.79% 7.0 5% 2.77%
Number at 05 April 2022
All
White
All
Asian
All
Black
All other
Minority Total
Unknown/
Prefer not
to say
Updated
Total
Number of employees 2,756 242 133 76 3,207 262 3,469
Percentage 79.45 6.98 3.83 2.19 7.55
In 2020 we committed to voluntarily share our ethnicity pay gap results as part of the
Confederation of British Industry (CBI) Change the race ratio campaign.
2022 was the first year we have conducted ethnicity pay
gap analysis, applying best practice shared by Business in
The Community. Our ethnicity pay gap is calculated as the
average hourly pay for Black, Asian, All other Minorities and
our unknown population compared as a percentage against
the All White population.
Our data tells us that despite having an overall ethnic
diversity of employees comparable with the UK population,
Costain does have a pay gap for all ethnic groups when
compared to the white population. An under representation
of ethnic diversity in both the upper and upper middle
payquartile is the main reason for our pay gap.
We are committed to reducing our ethnicity pay gap and are
pleased to report an increase in the population of ethnically
diverse colleagues to 14.5%, and 47% of our 2022 graduate
programme intake comprised of Black, Asian and Minority
Ethnicities (BAME*).
We are aware that there is a proportion of our employees
who have not disclosed their ethnicity, and this population
has a higher mean pay than the ‘White’ employee population
(demonstrated by a negative value). The population of this
group is low, however it is still an indication that we have work
to do to improve the psychological safety around the sharing
of ethnicity data. We are actively encouraging people to
share data with us through education and demonstrating the
benefits of ethnicity disclosure for the entire workforce.
As part of our commitment to reducing our ethnicity pay
gap, we have evolved our reverse mentoring scheme
between members of our Religion, Ethnicity and Cultural
Heritage (REACH) Network and senior leaders, to a mutual
mentoring scheme, based on feedback. The mentoring
programme is designed to share experiences on the barriers
to progression, helping leaders to understand how they
can be active allies for equitable progression across all
ethnicities, as well as helping to identify and remove any
organisational barriers that may remain.
Our REACH Network has talked about ‘imposter syndrome’
among ethnic minorities, and acting on feedback we
now proactively reach out to applicants via our employee
networks and via their managers, to encourage applications
to our development programmes. In 2022, we saw 22% of
our emerging leaders programme cohort from Black, Asian
and MinorityEthnicities.
* We recognise the term BAME (Black, Asian and Minority Ethnic) is not preferred
by everyone. We use it here to refer to ethnic groups which are in the minority in
the UK.
Costain also publishes an annual gender pay gap report which can be
found on our website:
www.costain.com/our-culture/equality-diversity-and-inclusion
Overview GovernanceStrategic Report Financial Statements
35
Adjusted operating profit
1
£36.3m
2022 £36.3m
£30.1m2021
Adjusting items
We incurred £5.0m (FY21: £nil) of restructuring costs on
our Transformation programme, £0.7m (FY21: £nil) of
reorganisation costs, £1.4m (FY21: £nil) of older tunnel
boring machine write-off costs, and £nil (FY21: £0.4m)
on amortisation of acquired intangible assets. We also
recognised an insurance receipt of £5.2m (FY21: £nil)
relating to the Peterborough & Huntingdon contract
previously provided for, as well as a profit of £0.5m
(FY21: £nil) on the sale of a non-core asset. We expect
additional Transformation costs in FY23.
Net financial expense
Net finance expense amounted to £2.1m (FY21: £3.8m).
The interest payable on bank overdrafts, loans and other
similar charges was £2.7m (FY21: £3.0m) and the interest
income from bank deposits amounted to £0.5m (FY21:
£0.1m). In addition, the net finance expense includes the
interest income on the net assets of the pension scheme
of £1.3m (FY21: £nil) and the interest expense on lease
liabilities of £1.2m (FY21: £0.9m) under IFRS16.
“ We have delivered strong
adjusted profit growth and
increased cash generation, with
year end net cash of £123.8m.”
Helen Willis
Chief Financial Officer
Delivering strong positive
free cash flow performance.
Chief Financial Officer’s review
Adjusted to reported reconciliation
Transportation Natural Resources Group
2022 2021 Change 2022 2021 Change 2022 2021 Change
Revenue £m
Adjusted
1
1,046.3 864.2 21.1% 375.1 314.4 19.3% 1,421.4 1,178.6 20.6%
Adjusting items – – – (43.4) – (43.4)
Reported 1,046.3 864.2 21.1% 375.1 271.0 38.4% 1,421.4 1,135.2 25.2%
Operating profit £m –
Adjusted
1
31.5 41.4 -23.9% 15.0 (2.6) 36.3 30.1 20.6%
Adjusting items (1.4) 8.4 4.5 (48.0) (1.4) (39.6)
Reported 30.1 49.8 -39.6% 19.5 (50.6) 34.9 (9.5) N/A
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Costain Group PLC
Annual Report and Accounts 2022
36
Tax
The Group has a tax charge of £6.9m (FY21: £7.5m credit)
giving an effective tax rate of 21.0%. The FY21 net tax
credit arose primarily from the £6.2m impact of the tax
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 20.5% (FY21: 0.4%). We expect the effective
tax rate to remain close to the statutory tax rate of 19%
until April 2023, and 25% subsequently, giving an FY23
effective tax rate of close to 23.5%.
Free cash flow reconciliation
£m FY22 FY21
Cash flow from operations 16.7 33.2
Add back adjusting items 46.4 11.6
Add back pension deficit contributions 10.8 10.4
Less taxation (0.5) 0.1
Less capital expenditure (0.5) (2.2)
Free cash flow 72.9 53.1
Net cash reconciliation
£m FY22 FY21
Cash and cash equivalents at the beginning of period 159.4 150.9
Net cash flow (35.6) 8.5
FX – –
Cash and cash equivalents at the end of period 123.8 159.4
Borrowings – (40.0)
Net cash 123.8 119.4
We remain in a positive net cash position, following the final settlement payment made during the first quarter of the
financial year in respect of the Peterborough & Huntingdon contract.
Cash flow
The Group generated a £72.9m free cash inflow for the
year (FY21: £53.1m). The Group had a positive net cash
balance of £123.8m as of 31 December 2022 (HY22:
£95.9m, FY21: £119.4m) comprising Costain cash balances
of £67.3m (HY22: £76.5m, FY21: £101.3m), cash held by
joint operations of £56.5m (HY22: £55.4m, FY21: £58.1m).
Overview GovernanceStrategic Report Financial Statements
37
Financial resources
In November 2022, the Group successfully concluded its
negotiations with its bank and surety facility providers to
secure a one year ‘amend and extend’ of its facilities.
The Group has in place banking and bonding facilities
from banks and surety bond providers to meet current and
projected usage requirements, and has a £125.0m (FY21:
£131.0m) revolving credit facility with its relationship banks
with a maturity date of 24 September 2024. The revolving
credit facility remained undrawn throughout 2022. In
November 2022, the Group prepaid in full the £36.0m
balance of its Term Loan facility from its cash resources.
In addition, the Group has in place bonding facilities
of £280.0m (FY21: £310m). Utilisation of the total
bonding facilities as of 31 December 2022 was £88.8m
(FY21: £100.7m).
Since the end of FY22, the Group has converted its
£125.0m revolving credit facility to a £125.0m
sustainability-linked revolving credit facility with
three ESG key performance indicators.
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 for growth, maintaining a strong balance
sheet and returns to shareholders. We look to prioritise
uses of cash as follows:
1. Investing for growth – disciplined investment in key
areas such as bidding activity and digital to help
accelerate our business transformation.
2. Progressive dividend – the Board recognises the
importance of dividends for shareholders and expects
to target dividend cover of around three times
underlying earnings taking into account the 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 customers
in the face of significant change.
4. Returning surplus capital – after ensuring a strong
balance and cash position, surplus capital is identified
and returned to shareholders through share buy backs
or special dividends.
Chief Financial Officer’s review continued
Looking forward over the next financial year, the Board
has concluded that the priorities, and best returns,
for the Company’s capital are to invest in our organic
opportunities and to build further the company’s capital
base (see page 6 for further details).
Pensions
As at 31 December 2022, the Group’s pension scheme
surplus in accordance with IAS 19, was £60.2m (HY22:
£86.2m surplus, FY21: £67.1m surplus).
The movement in the IAS 19 valuation, being a slight
reduction in surplus from 31 December 2021 to
31December 2022 was due to the impact of a reduction
in the value of scheme assets, primarily due to the fall in
the value of Liability Driven Investment portfolio due to
the significant increase in long term bond yields over the
year, being slightly greater than the reduction in scheme
liabilities, primarily driven by changes in the principal
actuarial assumptions, in particular a higher discount rate
of 5.00% used in the IAS 19 valuation as at 31 December
2022 compared to the discount rate at 31 December 2021
of 1.80%.
Cash contributions were made to the scheme during the
year amounting to £10.8m (FY21: £10.4m) and the charge
to operating profit in respect of the administration cost
of the UK Pension Scheme in the year was £0.3m
(FY21: £0.3m).
Helen Willis
Chief Financial Officer
13 March 2023
Costain Group PLC
Annual Report and Accounts 2022
38
Principal risks and uncertainties
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 ourstrategicobjectives
Strategy
Business Plans
External influences
Operations
Projects / Programmes
Risk 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
beadopted.
Close
The formal
endof risk
management
effort on an
individual
activity.
Identify
Identify
the risks
(threats and
opportunities)
that could
impact the
Company at
alllevels.
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 or help
realise the
opportunity.
Manage
Conduct
response
actions and
monitor
risk trends
to support
effective
decision
making.
Project / Contract /
Operational Risks
Principal
Risks
Divisional /
Function Risks
Programme /
Contract Managers
Divisional Leadership
/ Heads of Functions
Executive Board
Top Down RisksBottom Up Risks
Board
Overview GovernanceStrategic Report Financial Statements
39
Principal risks and uncertainties continued
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 & assurance director. Identified
emergent risks are developed and monitored with
dedicated riskowners.
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 can be escalated to
thenext management level, up to executive level
whereappropriate.
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
toassessthe progress of the mitigating activities.
The flow of risk within our risk management process is
illustrated in the diagram on page 39.
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 81.
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
onthese from the Executive Board risk sponsor.
During the year we outsourced our internal audit function
to ensure we had access to the depth and breadth of
resources required to effectively audit our work. We also
appointed a new risk & assurance director and a new,
dedicated, specialist fraud investigator, demonstrating
ourcommitment to effective risk management.
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. Pressures on the UK economy evident
at the end of 2022 mean we have noted an increase in
our principal risks related to Group financial performance
and changes in our customers’ circumstances, while
the strengthening of our information technology
arrangements have helped to mitigate our principal
cyberrisk.
As part of our wider Transformation activities, we have
changed our risk & assurance (R&A) function to strengthen
our arrangements for managing risk and coordinate
assurance activities across the business. Key areas of
focus for the R&A function in 2023 will be developing
our risk appetite thresholds to support decision making
and enhance contract governance, updating our risk
framework and supporting teams acrossour divisions,
functions and contracts in proactivelyevaluating and
managing risk.
Costain Group PLC
Annual Report and Accounts 2022
40
Link to strategic priority
Performance
Planet
People
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
(FY21: 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.
SHE Assurance Review Delivery Process aligned
with the Learning Organisation Model.
An incident occurred at our Gatwick site in 2022,
however, the risk trend for 2022 remains Neutral
until the formal findings of the incident are
released. It is noted that Costain’s LTR and AFR
2022 figures remain some of the best in class.
2
Increase the
profitability
and margin
performance
ofthe 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
customers. Failure to manage this
risk could have an adverse effect
on our business, operating results,
andshareholder value.
Risk trend: Increasing
(FY21: Neutral)
As a result of impacts of
cost inflation on customer
spendingplans.
Quarterly Business Reviews (QBRs) – to
understand changes in the market, customers,
capabilities and associated impact on business
plan and budget.
Commercial review process which examines
in depth the performance of all projects
and the strength of the pipeline across the
business to assess progress in achieving our
strategicobjectives.
Transformation Plan – incorporating all five
implementation essentials in a prioritised and
sequenced plan with clarity on timelines, key
performance measures and accountability. This
includes strengthening of work winning and
contract risk management arrangements to
improve financial performance
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
customers. Failure to manage
this risk could affect our ability
to achieve our business goals
and our resilience towithstand
economicdownturns.
Risk trend: Neutral
(FY21: Neutral)
Quarterly profit and cash forecast produced
for current and following fiscal year including
monitoring of covenant compliance and cash
headroom and liquidity.
Purchase to pay projects to improve invoice
processing to allsuppliers.
Developed a balance sheet strategy for
the Group during 2022 along with defining
measures/targets todemonstrate progress.
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 ourstrategy on pages 10 and 11.
Overview GovernanceStrategic Report Financial Statements
41
Principal risks and uncertainties continued
Principal Risk Description and impact Controls and key mitigations
Strategic
link
4
Secure new
work
Our future growth and profitability
is dependent on our ability to
secure new work in our competitive
marketplace. Tobe successful we
need to maintain strong customer
relationships and broaden our
service offering by delivering
innovative solutions across
complex delivery, digital and
consultingactivities.
Risk trend: Neutral
(FY21: Neutral)
Directors quarterly progress review of Group
andDivisional Business plan objectives.
Leverage market intelligence, data analysis and
bidlearning to improve and better target work
winning activities.
Develop processes to manage and analyse
information entered into Customer Relationship
Management (CRM), ensuring customer and
pipeline data is available to support work
winning and business development activities.
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: Neutral
(FY21: Increasing)
A fair remuneration policy, monitored via the
Remuneration Committee including annual
benchmarking review, and both market and
equalpay 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.
Cost of living: review and implement measures
to address key pinch points for our staff. Market
benchmarking of Costain’s overall reward
package to ensure this remains competitive.
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 customers
andinvestors.
Risk trend: Neutral
(FY21: Neutral)
Development and implementation of
‘step-change’ which includes; new ‘Production
Thinking’ methodologies, standardised
reporting, consistency in mobilisation and an
improved project controls and risk management
approach for all contracts, to increase value and
improve performance.
Development and implementation of digital
solutions to deliver real time project data and
performance reports, and improve productivity.
Monitoring supply chain performance against
enhanced standards established in 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
(FY21: Neutral)
Regular monitoring in conjunction with the
trustee, of asset performance, pensions
regulations, company covenants, scheme
funding and liabilitymanagement.
Provision of independent advice from a
third-party pensions expert to help manage
potential risks.
Review and refine long-term pension scheme
strategy in agreement with Executive and
PLCBoards.
Costain Group PLC
Annual Report and Accounts 2022
42
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 ofCostain,
customer and third-party data.
Costain has continued to invest
in cyber protection in 2022
through additional resources
andITupgrades.
Risk trend: Neutral
(FY21: Increasing)
Costain information security strategy integrates
information systems, personnel and physical
aspects to prevent, detect and respond
toinformation security threats and incidents.
Maintain annual IS 22301 accreditation. Disaster
Recovery (DR) and Business Continuity Plans (BCP).
Maintain annual Cyber Essentials Plus
(CE+)accreditation.
Focus on improving cyber resiliency in
technology and people, improving our SETA
(security education, training and awareness).
Introduce Cyber security awareness training into
the corporate induction programme.
9
Anticipate
andrespond
to changes
in customer
circumstances
We have seen changes in
the business operations and
investment priorities of our
core customers and customers
challenged by ever-evolving policy,
funding, operational and regulatory
changes. Failure to anticipate the
changes that are affecting our
customers and respond effectively
could restrict our ability to grow
margins and increase market share.
Risk trend: Increasing
(FY21: Neutral)
Due to changes in customer
spend due to inflation.
As part of annual strategy review process,
changes in markets and customers landscape
are analysed, particularly in growth and fast
changing customers and markets. Strategy leads
appointed in both divisions and Group to drive
this analysis and ensure continuous horizon
scanning, confirming changes to strategy
and business plan, risks and opportunities
to Costain and any threats (eg competition,
customerorganisation change).
Ensure continuous building of good customer
and stakeholder relationships at all levels by
business development teams at sector and key
accountlevel.
Customer zipper (stakeholder relationship map)
plans in place to shape relationships with central
government, local authorities and trade bodies
from Board downwards.
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
andinternationallevel.
Risk trend: Neutral
(FY21: New risk)
Annual strategy and Business planning cycle –
functional business plans reviewed for alignment
with climate change action plan.
Integration of core climate change competencies
for all disciplines into SHE training matrix.
Roll out of carbon eLearning modules 1 and 2
across Group.
Incorporate climate change into current supply
chain management process following on from
2022TCFD findings.
Link to strategic priority
Performance
Planet
People
Overview GovernanceStrategic Report Financial Statements
43
Viability statement
Viability statement and
going concern assessment
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 customers’ business plans, and internal
factors – including capability, skills, technology and
thoughtleadership.
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
customersto 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 2024 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.
The assessment of viability has been made considering
the Group’s principal risks (as outlined on pages 41 to
43. 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 or deliver at improved margins, 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
leverage, interest and liquidity covenants as set out
withinits banking facilities.
Viability statement
In accordance with Corporate Governance Code 2018
Provision 31, 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 2025.
Going concern
The Group’s going concern statement is detailed in
note 2 of the consolidated financial statements on
pages 144 and 145.
Strategic Report
Our 2022 Overview and Strategic Report on pages 1 to
45 have been reviewed and approved by the Board of
directors and signed by order of the Board.
Nicole Geoghegan
Company Secretary
13 March 2023
Costain Group PLC
Annual Report and Accounts 2022
44
Environmental, Social and Governance
(ESG) and risk management
reporting requirements and
additionalinformation
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 head of IT.
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 customers, 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 customers, 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 chief
people and sustainability officer.
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 chief people and sustainability officer.
Social Value
This policy sets out the Board’s
expectation for how the Company,
its employees, partners and suppliers
undertake social value in alignment with
Procurement Policy Note 06/20 themes.
This policy encompasses Costain’s
approach to social value and transparency
in our reporting. The Executive Board
sponsor for this policy is the chief people
and sustainability officer
Sustainable procurement
and supply chain
The Costain sustainable procurement
and supply chain policy stipulates
the conditions of all procurement
activity, aligning outcomes to our ESG
commitments and business strategy. The
Executive Board sponsor for this policy
is the chief financial officer.
Non-financial statement
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-financial matters. This is in addition to the reporting we already do under CDP and the Global
Reporting Initiative.
Policy
To read our policies in full, please visit our website /
www.costain.com/our-culture/policies/
Environmental
Our ESG commitments / pages 32 to 35
Climate change action plan (www.costain.com/
what-we-do/climate-change-solutions)
Human rights
Supplier code of conduct
(www.costain.com/suppliers)
Modern slavery statement
(www.costain.com/our-culture)
Social matters
Our ESG commitments / pages 32 to 35
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 39 to 43
Description of principal risk and impact
on the business
Principal risks and uncertainties / pages 39 to 43
Description of business model
Business model / page 15
Non-financial KPIs
See pages 29, 32 and 33
Employees
Our ESG commitments / pages 32 to 35
Board composition and diversity / pages 64 and 65
Gender pay gap report and Inclusion strategy
(www.costain.com/our-culture)
Overview GovernanceStrategic Report Financial Statements
45
Board of Directors
Tony Quinlan
BSc, ACA
Senior Independent
Director
Kate Rock
BA
Non-Executive Chair
Alex Vaughan
BSc (Hons), FRICS,
Dip IoD, FIoD, FICE
Chief Executive Officer
Helen Willis
BSc, ACA
Chief Financial Officer
Dynamic and effective leadership
EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS
Kate was appointed to the Board
on 1 November 2022 and became
chair of the Board and chair of
the Nomination Committee on
1December 2022.
Alex was appointed to the
Board as CEO in May 2019.
Helen was appointed to the Board
as CFO in November 2020.
Tony was appointed to the Board
in February 2021, became chair of
the Audit Committee in May 2021
and senior independent director
on 12 January 2022.
Appointed
Kate is an experienced
non-executive director with
a background in corporate
communications and strategy
and brings a strong understanding
of the construction contracting
sector, the application of
innovation and technology to
drive productivity enhancements,
and ofgovernment.
Baroness Rock is senior
independent director at Keller
Group plc (see below) and was,
until 2017, a non-executive director
and chair of the remuneration
committee of Imagination
Technologies plc. She was, until
January 2023, a member of the
House of Lords Select Committee
for Science and Technology and a
board member of the Centre for
Data Ethics and Innovation.
Alex joined Costain in 1992
and has been a member of
the Executive Board since
2006. Before becoming CEO,
Alex played a leading role in
Costain’s transformation into a
smart infrastructure solutions
business through his leadership
of the development and growth
of the Group’s consultancy and
technology services. In his role
as MD, Natural Resources, Alex
delivered significant growth in
profit and margin.
Alex is a qualified chartered
quantity surveyor and has
worked on infrastructure
projects in the UK and
internationally and, additionally,
held various corporate roles
across HR, strategy, M&A and
corporate development. In
2009 he completed the Harvard
Business School Advanced
Management Program. Alex was
chair of the CBI regional council
from 2019 to 2021.
Helen has a strong financial
background underpinned by
her profession as a chartered
accountant. She is an experienced
public company chief financial
officer with a high level of
understanding of investor relations
and change programmes, including
in organisations undergoing
periods of strategic change.
Helen has also driven finance
transformation programmes to
significantly improve processes,
systems and culture. She has
worked in multiple sectors and is
highly commercial, able to balance
both short and long term goals,
develop strategic options and
contribute broadly to the business.
Prior to joining Costain, Helen held
roles as chief financial officer of De
La Rue and Premier Farnell. She
has also held senior finance roles
at Pelican Rouge, AZ Electronic
Materials and HSS Hire.
Skills and Competencies
Tony is a chartered accountant with
a wealth of financial experience
gained during multiple senior roles
in high profile large companies
and as a chair of audit committees.
He also brings to the Board his
business turnaround experience
from his time as CFO then CEO at
Laird. Tony possesses the recent
and relevant financial experience
in accounting and auditing
required to effectively chair the
Audit Committee and, as senior
independent director of another
listed company, had the experience
required to successfully lead the
search for our new chair in 2022.
Tony was previously chief financial
officer of Drax Group, held senior
finance roles at Marks & Spencer
and was senior independent
director and chair of the audit
committee for the Port of
LondonAuthority.
External Appointments
• Keller Group plc; senior
independent director, chair
of social and community
committee and non-executive
director with responsibility for
workforce engagement.
• Unbound Group plc;
non-executive director
and chair of remuneration
committee.
• The Prince’s Countryside
Fund; trustee.
• None• None • Hill & Smith Holdings PLC;
non-executive director and
senior independent director.
• Associated British Ports;
non-executive director.
• Laird Thermal Systems
(Adparatus GmbH); advisory
board member.
Costain Group PLC
Annual Report and Accounts 2022
46
Audit Committee Nomination Committee Remuneration Committee Chair
C
Bishoy Azmy
BSc, MBA
Neil Crockett
BA
Fiona MacAulay
MSc
Non-Independent
Non-Executive Director
Independent
Non-Executive Director
Independent
Non-Executive Director
Jacqueline de Rojas
CBE
Independent
Non-Executive Director
NON-EXECUTIVE DIRECTORS
Bishoy was appointed to the Board
in June 2020.
Neil was appointed to the Board in
October 2021.
Jacqueline was appointed to the
Board in November 2017.
Fiona was appointed to the
Board on 6 April 2022
and became chair of the
Remuneration Committee
on 5 May 2022.
Appointed
Jacqueline brings to the Board a
wealth of global experience in fast
moving technology businesses,
having previously held senior roles in
major global technology companies
such as Citrix Systems, CA
Technologies, McAfee and Novell.
She brings a deep understanding
of how technology can be used to
transform a business and insight
into the development of new
commercial models that deliver
attractiveeconomics.
Jacqueline is a passionate advocate
for diversity and inclusion in the
workplace. She was awarded a CBE
for services to international trade
in technology in 2018.
Bishoy is the designated Board
representative of ASGC, a
construction conglomerate with
its headquarters in Dubai, UAE,
and the largest shareholder
of the Company. Bishoy is an
engineer with a focus on safety
and risk management. The
Company benefits from the
wealth of market knowledge,
management and commercial
expertise, together with
construction sector experience,
he has accumulated during his
career. He has dynamically led
new market expansion, digital
transformation and operational
innovation strategy thereby
bringing a strong strategic focus
toBoarddiscussions.
Bishoy is an active member of the
Young Presidents Organization
and an associate of the Chartered
Institute ofArbitrators.
Neil was chief digital officer at
Rolls-Royce where, in partnership
with business unit leaders, he
accelerated the development of
the group’s digital strategy. Neil
previously held several global,
European and UK leadership
positions with Cisco Systems.
Neil brings a passion and a strong
track record in digital innovation
and transformation and has
gained experience of the wider UK
digital innovation community in
his previous role as the founding
CEO of Digital Catapult, a UK
Government funded digital
innovation organisation and in his
current role as a non-executive
director at Catalyst, a business
accelerating innovation and growth
in the Northern Ireland knowledge
economy. Neil is also a member of
the Queen’s Awards for Enterprise
Innovation panel.
Fiona is an experienced non-
executive director and remuneration
committee chair within the
resources and industrial sectors
including upstream oil and gas.
Fiona has extensive experience
in Environmental, Social and
Governance (ESG), has completed
Diligent’s Climate Leadership
Program and is a member of
Chapter Zero, a community of
business leaders taking ownership
of the climatechallenge.
Fiona has experience in operations,
large programme, stakeholder and
global supply chain management
from BG Group, Mobil, Rockhopper
Exploration and Echo Energy. Fiona
was, until 2022, a non-executive
director, remuneration committee
chair and HSE committee chair of
Coro Energy and is a past President
of American Association of Petroleum
Geologists Europe.
• Innovo Holdings Limited; CEO. • Barnardo’s; trustee board
member and chair of the
riskcommittee.
• Catalyst; non-executive
director.
• Rightmove plc; non-
executive director and senior
independent director.
• FDM Group Holdings plc;
non-executive director and
board member responsible for
employee voice.
• IFS; non-executive director
andboard member responsible
forESG.
• techUK; board member and
former president.
• Merryck & Co.;
executive mentor.
• IOG plc; non-executive chair
and chair of the remuneration
committee (to step down after
AGM, expected to be May 2023).
• Ferrexpo plc; senior
independent director and
chair of the remuneration
and ESG committees.
• Chemring Group PLC;
non-executive director.
• Dowlais Group plc;
non-executive director (listed
company from late April 2023,
subject to approvals).
47
Overview GovernanceStrategic Report Financial Statements
Executive Board
Alex Vaughan
BSc (Hons), FRICS,
Dip IoD, FIoD, FICE
Helen Willis
BSc, ACA
Catherine Warbrick
BSc (Hons)
Nicole Geoghegan
LLB
Running the business
Chief Executive Officer Chief Financial Officer
Appointed in May 2019. Appointed in November 2020.
Chief People and
Sustainability Officer
Appointed in September 2019.
General Counsel and
Company Secretary
Appointed in July 2022.
For more information please
go to / Page 46
For more information please go
to / Page 46
Nicole is a highly experienced
general counsel and company
secretary with an extensive
background in major/mega
projects and infrastructure,
covering the full asset lifecycle.
Nicole spent six years on the
HS2 project as general counsel
and company secretary prior to
joining Costain. She has significant
international experience in rail/
transport, engineering and project
services and is an expert in public
sector procurement, fit-for-
purpose governance and effective
risk management.
Catherine joined Costain in 2006
and has performed a number
of roles, including as director of
learning and development and
corporate responsibility (CR),
and investor relations director. In
2019, Catherine became Group
HR director and in 2022 took
on additional responsibility for
sustainability, becoming chief
people and sustainability officer.
Highlights of Catherine’s career
with Costain include developing
and implementing the Group’s
first CR strategy, achieving
Platinum status in Business in the
Community’s CR Index in 2013,
driving change to achieve the
Group’s recognition in the Times
Top 50 Employers for Women
2018–2021 and Costain being
cited as a game changer in 2019 for
its work on gender parity in early
careers recruitment. Catherine is
a qualified executive coach and
graduated with an honours degree
in Environmental Science.
Appointed
Skills and Competencies
External Appointments
• None • None • None • None
Costain Group PLC
Annual Report and Accounts 2022
48
Abida Lalani
BSc (Hons)
Sue Kershaw
BSc (Hons), FICE, FAPM,
HFRICS
Sam White
BSc, MBA
David Taylor
FRICS, FIoD
Director of Strategy and
Transformation
Managing Director –
Transportation
Appointed in March 2020.
Managing Director –
Natural Resources
Appointed in January 2022. Appointed in October 2022.
Group Commercial
Director
Appointed in January 2015.
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.
• President of the Association
for Project Management,
and honorary Professor
at the Bartlett School of
Sustainable Construction,
UniversityCollege London.
Sam White was appointed
managing director of Natural
Resources in January 2022. He has
a strong track record in developing
strategic customer 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.
• None
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
function. David also has significant
supply chain and procurement
experience and has long
advocated the benefits of strategic
partnerships. Since December
2020, David is the executive
sponsor for wellbeing for the Group
and represents Costain on BITC’s
Wellbeing Leadership Team.
Prior to joining Costain, David
acquired more than 25 years’
experience with Taylor Woodrow
where he held the position
of commercial director for its
UKoperations.
Abida Lalani joined Costain as
change programme director in
November 2019 and is focused on
accelerating the implementation
of Costain’s strategy across its four
markets in transportation, water,
energy and defence. Abi has since
also taken on day to day strategy
and planning for the Group and
oversees the running of our Group
wide transformation programme
and other business improvement
activities. Prior to Costain, Abida
worked for HSBC, KPMG and
Lloyds Banking Group where she
formed a niche in large-scale
transformation programmes, in
particular integration or separation
activity as a result of mergers,
acquisitions, divestments or carve-
outs. She has lived and worked
across the UK and continental
Europe, the USA, Middle East and
Asia. Abi is also the Executive
Sponsor for the Religious Ethnic
and Cultural Heritage (REACH)
Network atCostain.
• Chair of the Board of Trustees
at Volunteer Centre Camden
and member of Business
in the Community London
Leadership Board.
Appointed
• None
49
Overview GovernanceStrategic Report Financial Statements
2015 2018 2020 2021 20232016 2017 2019 2022 2024 2025 2026 2027 2028
Original
appointment
20 November 2017
Original
appointment
19 June 2020
Original
appointment
1 February 2021
Original
appointment
6 October 2021
Original
appointment
6 April 2022
Original
appointment
1 November 2022
Governance at a glance
Leading a
responsible business
Non-executive director service timeline
Below we demonstrate the length 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.
50%
(4 of 8)
All other ethnic groups combined
(excluding white minorities)
Chair
#
1
Non-independent directors 3
Independent directors 4
# The chair was independent on appointment.
Board independence Board diversity – female Board diversity – other ethnicity
Jacqueline de Rojas
Bishoy Azmy*
Tony Quinlan
Fiona MacAulay
Neil Crockett
50%
(4 of 8)
25%
(2 of 8)
Kate Rock
Costain Group PLC
Annual Report and Accounts 2022
50
Statistics from people survey
88%
Colleagues believe they can
make a valuable contribution
to Costain’s success
93%
Colleagues say Costain takes
health and safety seriously
81%
Line managers exhibit the
Costain behaviours
UK Corporate Governance Code –
application of Code Principles
The table below sets out where the required reporting on the
Principles can be located in the 2022 annual report.
Governance focus
• Conducted in-depth review and
lessons learned on Gatwick fatality.
• Further alignment of Board
skills to strategy with new
Boardappointments.
• Appointed a dedicated, specialist
fraud investigator and new risk
&assurance director.
• Outsourced the internal
auditfunction.
• Consulted on the proposed
remuneration policy.
• Reviewed progress with the
transformation and restructuring.
• Appointed a professional
independent trustee as a
pensiontrustee director.
1. Board leadership and Company purpose
A Effective Board (pages 46, 47 and 72)
B Purpose, values and culture (page 66 and 67)
C Governance framework and Board resources
(pages 28, 29 and 39 to 43)
D Stakeholder engagement (pages 30, 31, 58 and 59)
E Workforce policies and practices (page 45)
2. Division of responsibilities
F Board roles (pages 56 and 57)
G Independence (pages 46, 47, 50, 57 and 73)
H External appointments and conflicts of interest
(pages 46, 47, 74 and 124)
I Key activities of the Board during 2022 (pages 62 and 63)
3. Composition, succession and evaluation
J Appointments to the Board (pages 82 to 85)
K Board skills, experience and knowledge (pages 46, 47, 50 and 72)
L Annual Board evaluation (page 55)
4. Audit, risk and internal control
M Financial reporting, external auditor & internal audit
(pages 76 to 81)
N Review of the 2022 annual report (page 75)
O Internal financial controls and risk management
(pages 39 to 43 and 75)
5. Remuneration
P
Linking remuneration with purpose and strategy
(pages 87, 90 and 91)
Q Remuneration policy review (pages 89 to 101)
R Performance outcomes in 2022 (pages 86, 105 to 109)
Strategic targets (pages 109 to 113)
Key Board matters considered
• Director changes and responsibilities.
• Settlement of contractual disputes.
• Cost-of-living crisis.
• ‘Amend and extend’ of
bankingfacilities.
• Communications strategy.
• 2023 budget and four-year
business plan.
• Dividend policy.
51
Overview GovernanceStrategic Report Financial Statements
Chair’s introduction
Dear shareholder
I am delighted to be writing to you for the first time
as the newly appointed chair of Costain. 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
widerstakeholders.
In July, we experienced a fatality on one of our rail
contracts, at Gatwick. Following our investigation, to
prevent a recurrence, we are implementing a number of
recommendations across our business including changes
to current industry practice. I and many of our Board
members have visited the Gatwick site to offer support
to the teams there.
Since my appointment, I have met with a number of
large shareholders to hear their views and to discuss the
opportunities and challenges for Costain. I have visited
several of our operational sites and been delighted to
see first hand the commitment of our employees to their
work and evidence of them modelling the Costain values
andbehaviours.
The Board recognises the value of good corporate
governance to long-term sustainable business success
and has demonstrated full compliance with the 2018 UK
Corporate Governance Code (the 2018 Code).
ESG
The Board continues to prioritise matters relating to
Environmental, Social and Governance (ESG) matters.
The Board has spent time in the year understanding our
customers and levels of customer engagement, often
in relation to the social value of projects, relations with
Government, and progress with delivering our climate
change action plan and net zero carbon strategy (see
pages 30 to 35, together with our separate ESG
report at www.costain.com).
As a Board we continually
look for improvements in
our governance processes
“ The Board recognises the value of good
corporate governance to long-term
sustainable business success.”
Kate Rock
Chair
Costain Group PLC
Annual Report and Accounts 2022
52
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 2022. In 2021 we were not compliant
with Provision 41 relating to opportunities for
employees to discuss executive pay. During 2022
we actively used the ‘Your Voice’ employee forum
for this dialogue (see page 70 for details of Your
Voice) with the Head of Reward attending a meeting
of the Forum to discuss pay and benefits across
theorganisation.
The Audit Committee Report on pages 76 to 81,
the Nomination Committee Report on pages 82
to 85 and the Directors’ Remuneration Report on
pages 86 to 119 are also incorporated into this
report by reference.
On the following pages we explain our
approach to corporate governance,
demonstrating how the Board and
its Committees have fulfilled 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 2022, 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.
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 that our share price does not reflect the value
of the Group, the Board wishes to build stronger investor
and market confidence in the Company. Following the
work in 2021 to review Costain’s strategy, including its
purpose, vision and mission, the Company’s values and
behaviours have been refreshed in 2022 to align with the
strategy (see page 67). By means of implementing the
transformation and delivering our strategy, we believe we
can achieve strong growth. Further details of our strategy
are on pages 10, 11 and66.
Risk management
Effective risk management is a fundamental aspect of the
Group’s operating, financial and governance activities (see
pages 39 to 43.
The Board conducted an in depth review of the principal
risk ‘prevent a major accident, hazard or incident’ as a
result of the fatality at Gatwick. The Audit Committee
undertook a ‘deep dive’ of a number of the Group’s
principal risks, including climate change, balance sheet
strength, effective project delivery and securing new work.
During the year we outsourced our internal audit function
to ensure we had access to the depth and breadth of
resources required to effectively audit our work. We also
appointed a new risk & assurance director and a new,
dedicated, specialist fraud investigator, demonstrating our
commitment to effective riskmanagement.
53
Overview GovernanceStrategic Report Financial Statements
Chair’s introduction continued
Further details of all Audit Committee matters are
provided in the Audit Committee Report on pages 76
to81.
Board members use their engagement visits to site (see
page 68) as an opportunity to lead a risk conversation.
Board and Committee governance
The Board approved the appointment of Tony Quinlan as
senior independent director, and Jacqueline de Rojas as
Remuneration Committee chair on an interim basis, both
effective 12 January 2022. Alison Wood stepped down
from the Board on 28 January 2022.
To align with our strategy and further strengthen our
Board, Costain made two non-executive director
appointments in the year. Fiona MacAulay was appointed
to the Board on 6 April 2022 and became Remuneration
Committee chair in May 2022. I was appointed as an
independent non-executive director and chair designate
from 1 November 2022 and assumed the role of chair
of the Board and chair of the Nomination Committee
from December 2022 when Paul Golby stepped down
from the Board. These two appointments were in line
with the Board’s succession plan and followed extensive
independent external search processes.
These external searches were the key focus for the
Nomination Committee during the year. Further details
of all Nomination Committee matters are provided in the
Nomination Committee Report on pages 82 to 85.
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, particularly in
the context of the cost-of-living crisis. During the year, the
Remuneration Committee reviewed the existing policy
and, as required, will be submitting a new remuneration
policy for approval by shareholders at our 2023 AGM.
We are committed to aligning shareholder and Company
interests, maintaining an open and transparent dialogue
with our shareholders on executive pay and listening to
shareholders’ views. We concluded a consultation with our
largest investors and their representative bodies in March
2023 on the proposed new remuneration policy. Fiona
MacAulay, our Remuneration Committee chair, met with
shareholders who wished to discuss the proposals in more
detail and we corresponded with others on their further
enquiries arising from the consultation.
Please see the Directors’ Remuneration Report on
pages 86 to 119 for more information on the proposed
remuneration policy and implementation of the existing
policy in 2022.
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 66). Towards the end of
2022, the Company carried out an employee engagement
survey. We were delighted with the participation level as
it gives us a wealth of information on what we do well and
areas for improvement, together with our accreditation
as a Best Companies 1 Star organisation, meaning that
Costain is a ‘Very Good Company’ to work for (see page
69 for more information).
Board effectiveness review
For the second year running an internal effectiveness
review of the Board and its Committees was conducted in
2022. Actions are being taken as a result of the Directors’
collective feedback (see opposite for more details of the
review). An external Board and Committee effectiveness
review will be undertaken in 2023.
Kate Rock
Chair
13 March 2023
Above: Kate Rock on site at HS2
Costain Group PLC
Annual Report and Accounts 2022
54
Board evaluation
The Board has a formal process for the evaluation of the
effectiveness of the Board and its Committees. For 2022,
in recognition of the chair transition, the annual evaluation
was conducted internally by the newly appointed general
counsel and company secretary, Nicole Geoghegan. At
the October Board meeting, having sought the preliminary
views of the then chair, senior independent director
and CEO, Nicole obtained approval for the process for
conducting the Board effectiveness evaluation in 2022.
The review was formal and rigorous with two meetings
held with most non-executive and executive directors.
Topics covered many aspects of the terms of reference
and activities of the Board and its Committees, including
thefollowing:
• what’s working well at the Board and Committees
• what would help the Board be moreeffective
• Costain’s largest challenges
• strategy and business planning
• culture, behaviour and boardroom dynamics
• approach to risk management
• Board’s priorities
• ESG.
Using the detailed notes provided by the general counsel
and company secretary, the new chair discussed the
findings with the Board which agreed the following actions
for 2023:
• increase time on strategic matters
• embed ESG commitments
• refresh the risk appetite
• heighten engagement with stakeholders
• chair to reach out to other directors immediately prior to
each meeting to discuss the papers and any proposals
• continuous improvement of Board papers
• bring outside views into the boardroom.
As a result of the review, 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.
In accordance with best practice in the third year since the
last external review, the Board has committed to conduct
an external review in 2023, which will likely be undertaken
in Q4.
As Paul Golby had indicated his intention to step down
as chair, and Kate Rock was appointed as chair from
1December 2022, an assessment of chair effectiveness
was not undertaken. However, as part of her review as
incoming general counsel and company secretary as
described above, Nicole Geoghegan discussed with each
director their expectations of a new chair. These have
been shared with the new chair and a review of chair and
individual director effectiveness will be undertaken as part
of the external effectiveness review in 2023.
The procedures, effectiveness and development of the
Board will continue to be kept under review, recognising
in particular that this is a relatively new Board.
Progress made in 2022 against the areas of focus that were identified during the 2021 internal evaluation are
shownbelow.
Areas of focus identified in 2021 Purpose, link to strategy and actions undertaken
Undertake a deep dive review of the
digital strategy
• The following were presented and discussed at Board meetings in 2022: digital
landscape and cyber security (March); the digital growth strategy and risk (May);
digital addressable market (July); and digital plan (December).
Monitoring the performance of
KPIs that underpin the delivery
of the strategy, business plan and
transformation
• KPIs were agreed at the March Board meeting and performance against them is
regularly monitored.
• The Board received a presentation on strategy and market update at its July and
October meetings.
Creating additional opportunities for
engagement with management and
the talent pipeline
• The Board has engaged with various members of the Executive Board and
the senior leadership team at various Board and Committee meetings and at
othermeetings.
• Members of the Executive Board joined the Board members for dinner in May
and August 2022.
• Non-executive directors have accompanied members of the leadership team
on site visits, including the new chair visiting Gatwick, HS2 and Tideway.
Fiona MacAulay attended a Natural Resources briefing focused on Energy in
November in our Manchester offices.
55
Overview GovernanceStrategic Report Financial Statements
Our governance structure
Delivering effective decision
making and meeting corporate
governance standards
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.
Remuneration Committee
Key responsibilities:
• Determines the remuneration for the
chair, executive directors and certain
senior managers.
• 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
oftheGroup.
• 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.
Remuneration
Committee
Audit
Committee
Nomination
Committee
Costain Group
PLC Board of
directors
Board
Committees
Our Board
Key responsibilities:
The Board is collectively responsible for overseeing and
guiding the Company and holding management to account.
The Board’s main role is to create long-term sustainable value
for shareholders by providing 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.
Costain Group PLC
Annual Report and Accounts 2022
56
Risk
Committee
Health and Safety
Committee
Investment
Committee
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.
Investment Committee
Key responsibilities:
• Responsible for allocating the Group’s
work winning resources and authorising
certain investments.
Further information
In December 2022, the Board approved one change to the matters reserved for the Board in relation to clarity around approvals for any
joint venture and subsequent contracts relating to that same joint venture. No changes were made to the terms of reference of Board
Committees in 2022 other than to update them for changes in job role titles largely resulting from the transformation project. The matters
reserved for the Board and Committee terms of reference, which are reviewed annually, 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 46, 47, and 72.
How we divide up our responsibilities
Chair The chair, Kate Rock, is responsible for the effective leadership and operation of the Board.
The chair 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
constructive dialogue with the chair, the Group’s shareholders on strategy and performance and
otherstakeholders.
Senior
independent
director
The role of the senior independent director, Tony Quinlan, involves providing a sounding board for the
chair and providing support to her, acting as a point of contact for shareholders to raise any concerns
not addressed adequately through normal channels and meeting with the other non-executive
directors, without the presence of the chair or executive directors, to discuss such matters as the
chair’s performance.
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.
Executive
Board
57
Overview GovernanceStrategic Report Financial Statements
S172 statement
Engaging with our stakeholders
Workforce
Customers
Communities
and environment
Suppliers
Shareholders
Our commitment
to stakeholders
We set out on page 31 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
60 and 61 (Principal decisions),
shows how the directors have
performed their duty under
Section 172 Companies Act
2006, having regard to a range
of stakeholder feedback.
Via our Your Voice forum, the
Board heard directly from
our people on the challenges
they face arising from the
cost-of-living crisis. The Board
responded proactively with
a number of interventions
(see here and page 70 for
fulldetails).
Signed by the Board
13 March 2023
• Board members took part in several site visits and attended virtual
meetings with colleagues.
• We held two leadership impact days where our people stopped
their usual activities and took part in discussions related to the
day’sthemes.
• We conducted a Group-wide people survey.
• We convened our quarterly employee forum, Your Voice.
• We launched a series of live divisional quarterly briefings for
allemployees.
• We refreshed our new joiner induction programme and annual code
of conduct compliance training for all employees.
• We launched our Samaritans 24/7 fundraising campaign in 2022.
• We conducted customer satisfaction surveys for individual projects
to help monitor our performance.
• The Board received presentations from the divisional managing
directors on major customers and from the Infrastructure Projects
Authority on trends and ambitions in the construction industry.
• We took our customers on site visits to flagship projects, helping to
showcase our capabilities and the quality of work across ourportfolio.
• We attended strategic customer events such as the opening of the
Tideway Project.
• We attended a number of events with industry associations including
the Hydrogen Summit.
• Visits to customers were undertaken by members of the leadership
team with strong CEO and CFO customer engagement.
• In April, our 3,500 people, site teams, customers and suppliers came
together on one of our leadership impact days to discuss increasing
inclusion, receiving positive feedback across our stakeholders.
• Our Annual General Meeting (AGM) was again 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 2021 annual report and later in the year on
the proposal for the remuneration policy renewal (see page 89).
• Since appointment, the chair has been meeting with major investors
to discuss their views on the Company and receive feedback.
• The investor relations director has also dealt with shareholders on
an ad hoc basis during the year on issues including the new chair
appointment and the pension fund.
• Our supply chain managers provide a crucial link with suppliers,
developing strong, enduring relationships to seek out the best
solutions for our customers.
• We continue to seek opportunities to liaise with our supply chain
at the earliest possible moment, providing and developing our
customer solutions.
• We held another virtual intake to our supply chain academy,
training SME businesses on a variety of topics including corporate
responsibility, inclusive practices and carbon.
• We facilitated a series of supplier engagement sessions focused on
alignment of their wellbeing, inclusion, safety, environmental and
ethical business alignment to our ESG commitments.
• Costain’s community relations continues to be recognised by the
Considerate Constructors Scheme, averaging 45.5 compared to the
industry average of 39.7 (out of 50). Every contract has an individual
or team responsible for community/stakeholder relations.
• We use digital tools to help us keep our neighbours informed of our
work, with inclusive and accessible communications.
• To ensure we are abreast of the societal issues affecting our
neighbours, Costain has five senior leaders serving as regional
board members for Business in the Community (BITC) and Catherine
Warbrick is member of the Prince’s Trust’s Built Environment Group.
HOW WE ENGAGED
Costain Group PLC
Annual Report and Accounts 2022
58
• We have been engaging with and listening to feedback from the
workforce in relation to the impact of the cost-of-living crisis.
• We welcomed the feedback from our people survey. We asked a
set of core questions about leadership, the Company, managers,
teams, wellbeing, personal growth, fair deal and giving something
back. In addition, we asked questions about SHE, culture, advocacy,
communication and career progression.
• We consulted our people on our existing values to assess their
continuedrelevance.
• The Your Voice forum focused on key themes: cost of living, systems and
processes, reward and benefits, values and behaviours, communication
andpolicies.
• We gave back to Samaritans for their support in the pandemic. Focused
on promoting their services and taking care of our mental health.
• Maintaining customer relationships is fundamental to us understanding
our customers’ needs and those of their customers. In 2022 we reviewed
how we gain feedback from our customers and in 2023 will be updating
our process to better suit customer preferences.
• We hosted a number of events including Tomorrow’s Net Zero
conference and Disruption 2030 series and Digital Twin webinar.
• We have undertaken customer roundtable sessions which 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 have also taken customers to our Worle facility to showcase our
digital and technical capabilities and options.
• We talked to shareholders about our share price, results announcements,
new chair, trading and executive remuneration.
• We engaged with investors on their enquiries on our releases on A303
andHeathrow.
• We engaged on the ‘amend and extend’ financing arrangements.
• Fiona MacAulay, chair of the Remuneration Committee, met with
shareholders who wished to discuss the new remuneration policy
proposals in more detail and responded in writing to those requesting
some more information.
• We appointed a new investor relations director.
• 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 ESG commitments.
• We invited suppliers to attend ‘Walk and Talk’ events in aid of our
Samaritans 24/7 campaign, discussing the importance of mental health
and how Costain can support suppliers in raising awareness.
• We discussed market trends, such as the materials and labour shortages.
• Our local communities have been keen to discuss construction activity,
opportunities for local businesses, job opportunities and climate change.
• We stay connected with our local communities to inform them of any
operational impact they may experience from our works and maintain a
service level agreement for customer contact.
• Some of our high-profile projects have attracted protester interest and in
those cases we have taken efforts to de-escalate tensions and engage in
productive conversations.
DISCUSSIONS & ACTIONS
• We have used workforce feedback to inform our programmatic
approach to cost of living interventions.
• Our first leadership impact day focused on inclusion and we published
a ‘Little Book of Respect’ to supplement the learning.
• We embedded refreshed Costain values and behaviours into the
whole employee lifecycle (see page 67).
• We evidenced high levels of engagement with the people survey
(see page 69).
• At end February 2023, we have raised £66,570 for the Samaritans
24/7 campaign.
• We have undertaken working groups to better support our customers
with upcoming projects.
• We developed a four-year business plan to take into account our
customers’ changing requirements and created plans to enhance
ways of working.
• The use of various engagement channels resulted in closer
customerrelationships.
• We transferred learning from one sector to another through
‘lessons learned’ workshops to maximise cross sector learning.
• We placed increased emphasis on the importance of deliverability.
• We were recognised for our activities by winning awards
andaccreditations.
• During the year the Board held several discussions in relation to the
dividend policy and appropriate timings for reinstating the dividend
(see page 38).
• 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.
• As a result of listening to feedback from the remuneration
policy consultation, the Remuneration Committee made
appropriateadjustments (see page 89).
• The Board received an update from its financial advisers on market
challenges, the competitive landscape and any opportunities for growth.
The Board confirmed its strategy aligned to the current market position.
• Costain continues to support the Supply Chain Sustainability
School with their learning platform dedicated to building the skills
of managers in the construction industry to accelerate digital
adoption. A number of our subject matter experts also support in
teachingmodules.
• We took proactive measures to procure materials ahead of time
and, where practicable, stockpiled certain critical materials to
ensureproductivity.
• We submit our statistics on prompt payment performance publicly
every six months.
• Costain senior leaders took part in various BITC events, including
meeting with community groups to discuss the cost of livingchallenges.
• Costain worked in partnership with the Prince’s Trust to deliver a
‘Get into Green and Digital Construction’ Programme.
• We introduced a volunteer hub which can be accessed by all
employees. Opportunities can be filtered by date, type, discipline of
professional, so everyone has the ability to find the right opportunity.
OUTCOMES
59
Overview GovernanceStrategic Report Financial Statements
S172 statement continued
Principal decisions
Key area
of activity Matters considered Outcomes
Stakeholder
group
considered
Safety,
health and
environment
Sustainability and
climate change
commitment
The Board monitored progress with the net zero carbon 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 4 of our ESG report at www.costain.com.
The Board noted social value from projects including HS2, together with the
focus on carbon reduction on infrastructure projects.
Safety
The Board discussed updates and reports on the Gatwick fatality including
observations from their own engagement visits.
The Board monitored progress with legal proceedings in relation to
previousfatalities.
The Board endorsed the removal of COVID-19 restrictions in March 2022.
Strategy
Financing
The Board approved the ‘amend and extend’ proposals in respect of its
banking facilities.
The Board noted the banks’ proposed metrics for factoring ESG into their risk
analyses for returns and any impact on Board decision-making.
Delivery of
strategy
The strategy, four-year business plan and 2023 budget were approved by the
Board. This followed a comprehensive review over a number of meetings of our
strategic priorities, addressable market including UK Government spend, and risks
to the business. The business plan takes into account our customers’ changing
requirements and enhanced ways of working resulting from the transformation.
The Board received frequent updates on progress with the transformation
programme; project design, people, timescales, benefits, risks, KPIs and
investment requirements, together with details of the digital strategy. The Board
supported the aim to reduce process complexity and improve systems.
The Board approved the sale of the Company’s minority shareholding in a
legacy non-core business, Sleeperz Hotels Limited.
Communications
strategy
The Board approved the repositioned purpose, vision, mission and narrative plan.
The Board approved new external PR advisers who in May presented to the
Board on the communications and investor relations strategy.
Capital markets
In order to assess the opportunities and risks, the Board received an update on
market activity from its financial advisers, which included options for growth
and consideration of certain shareholder views.
In making the following principal decisions in 2022, the Board, in accordance with Section 172(1), considered
the outcome of stakeholder engagement (as set out on pages 58 and 59), 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.
Costain Group PLC
Annual Report and Accounts 2022
60
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 settlement of the Peterborough &
Huntingdon contract dispute. The Board has since determined that typically trading
updates will no longer be made, with a focus on the full and half year results.
The chair, CEO, CFO and investor relations director held various conversations with
analysts and shareholders to update them on the current position and receive their
views and feedback.
Risk
management
The Board contemplated the details of the Peterborough & Huntingdon contract dispute
negotiations with National Grid and agreed the final settlement. The Board reviewed
lessons learned from the dispute including information flow and record keeping.
The Board approved the outsourcing of the internal audit function.
The Board reviewed the status of cyber security management.
Margin The Board contemplated the impact of inflation and other factors on margin.
Pension As a matter of good governance, a professional independent pension scheme
trustee was appointed in 2022.
Dividends Having regard to what it considered, in good faith, to be for the benefit of its
shareholders, after in depth analysis, the Company recommended no dividends in
respect of 2022 (see pages 6 and 38).
Culture and
governance
Appointments To further align with the strategy and enhance its skillset, the Board approved the
appointments of Fiona MacAulay as non-executive director and later chair of the
Remuneration Committee, and Kate Rock as non-executive chair designate and later
chair of the Company (see Nomination Committee Report on pages 82 to 85). The
Board approved actual or potential conflicts of interest.
The Board approved the appointment of a new general counsel and company secretary.
Board
governance
Progress was made in increasing the quality and transparency of information
provided to the Board.
The Board recommended for approval by shareholders new articles of association.
The Board allotted shares in connection with the Company’s share plans.
A change was approved to the delegated authorities in relation to joint ventures.
People The Board endorsed various initiatives in relation to the cost-of-living crisis (see page
70) and determined, for the third consecutive year, to not make an invitation under
the sharesave scheme due to the prevailing share price.
SHAREHOLDERS CUSTOMERS
COMMUNITIES AND
ENVIRONMENT
WORKFORCE SUPPLIERS
61
Overview GovernanceStrategic Report Financial Statements
Key area of activity Link to Principal Risk
Safety, health and environment
Continued to review the robustness of the Company’s safety procedures and working practices particularly
following the Gatwick fatality, including employees’ wellbeing.
Monitored safety, health and environment performance against the WiiSE strategy (see pages 32 and 33).
Monitored progress against the climate change action plan and targets set in 2020 and with our net zero
strategy (see pages 29, 32, 33, 34, 43 and 60).
The Board reviewed ESG initiatives for their viability, both financially and sustainably.
1
2
3
4
5
6
9
10
Strategy
Reviewed the progress made in delivering the Group’s strategy, including interactive and in-depth strategy
sessions attended by various members of the Executive Board. The Board monitored closely macroeconomic
and market trends together with the Company’s customer mix, competitor landscape and labour shortages.
Reviewed progress with the transformation in relation to people, functions, restructuring costs and longer
term cost savings.
Received a presentation from representatives of the Infrastructure Projects Authority to discuss trends
and ambitions in the construction industry and adoption of the Construction Playbook, together with
Governmentspend.
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 some large projects to support the growth and strategy of the Group, in accordance
with the matters reserved for the Board.
Considered the Company’s performance on major contracts.
Reviewed and approved the 2021 annual report and preliminary results announcement, the 2022 interim
results statement and the dividend policy. Continued to review the timing of the reinstatement of
futuredividends.
Noted centralisation of the procurement function in order to achieve further efficiencies.
Received reports on analyst and investor feedback and received a presentation from the Company’s
financial advisers.
Oversaw the project to ‘amend and extend’ the Company’s bank and surety facilities (see page 144).
1
2
3
4
5
6
7
8
9
10
The following summarises the Board’s main
activities and areas of discussion during 2022
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
Key activities
Costain Group PLC
Annual Report and Accounts 2022
62
Key area of activity Link to Principal Risk
Risk and opportunity
Set parameters around the settlement with National Grid in respect of the Peterborough & Huntingdon
contract dispute and agreed the terms of the final settlement at the beginning of 2022. Reviewed the position
with other legacy contracts and the progress made to resolve them.
Undertook deep dive reviews of our principal risks to reassess these in light of the risk mitigation
actionsundertaken.
Received presentations on risks including on safety, health and environment, specifically in relation to the
Gatwick fatality (see pages 53 and 78), increasing the profitability and margin performance of the Group, and
anticipating and responding to changes in customer circumstances.
Monitored the impact of inflationary pressures on the Company’s supply chain and the Company.
1
2
3
4
5
6
7
8
9
10
Culture and governance
Approved recommendations from the Nomination Committee regarding Board and Committee chair
appointments including senior independent director and chair succession.
Implemented actions to address the findings from the 2021 internal Board effectiveness review and considered
the outcomes of the 2022 internal Board evaluation process (see page 55 for further information).
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 Kate Rock who is a director of Keller Group plc (a non-material supplier to the Company).
Approved minor changes to the delegated authority matrix, matters reserved for the Board and share
dealingcode.
Noted progress with operating the new whistleblowing process.
Appointed new PR advisers.
Received updates on the Group’s defined benefit pension scheme. Endorsed the appointment of a
professional independent trustee as a trustee director.
2
3
4
5
7
Talent and people
Discussed and endorsed interventions in relation to the cost-of-living crisis.
Engaged with high potential employees through presentations and deep dives at Board meetings.
Reviewed and discussed feedback from the ‘Your Voice’ forum and engagement visits to site (see pages 68
and 70).
Noted progress with recruitment and reviewed employee turnover rates.
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 customer
circumstances
10
Climate change
resilience
63
Overview GovernanceStrategic Report Financial Statements
Board diversity
Female representation
Level
Actual
31 Dec 2021
Actual
31 Dec 2021
(number)
Actual
31 Dec 2022
Actual
31 Dec 2022
(number)
Actual
13 March 2023
Actual
13 March 2023
(number)
Board 37.5% 3 of 8 50% 4 of 8 50% 4 of 8
Executive Board 56% 5 of 9 62.5% 5 of 8 62.5% 5 of 8
Senior Management 38% 11 of 29 36% 10 of 28 35% 11 of 31
Ethnicity representation
Number of
Board members
Percentage of
the Board
Number of
senior positions
on the Board
(CEO, CFO, SID
and Chair)
Number in
executive
management
Percentage
of executive
management
White British or other White
(including minority-white groups) 6 of 8 75% 4 of 4 7 of 8 87.5%
Mixed / Multiple Ethnic Groups 1 of 8 12.5% 0 of 4 0 of 8 0%
Asian / Asian British 0 of 8 0% 0 of 4 1 of 8 12.5%
Black / African / Caribbean / Black British 0 of 8 0% 0 of 4 0 of 8 0%
Other ethnic group, including Arab 1 of 8 12.5% 0 of 4 0 of 8 0%
Not specified / prefer not to say 0 of 8 0% 0 of 4 0 of 8 0%
Diversity and inclusion
Costain is committed to maintaining a diverse Board.
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 andinclusion.
The Board endorses the objectives and actions set
out in the 2022 inclusionstrategy which can be located
at www.costain.com/our-culture/equality-diversity-
and-inclusion.
The Board continues to be supportive of the boardroom
diversity targets set by the Hampton-Alexander and
Parker Reviews respectively:
• By 2020 women to make up at least 33% of a company’s
board positions – achieved by Costain in 2017 and
maintained (with a brief dip in 2022) with the chair and
CFO positions currently held by women and women
now representing 50% of the Board.
• By 2024 for FTSE 250 companies to have at least one
non-white director on their boards – in 2017 Costain
met, and continues to meet, the target with currently
two BAMEdirectors.
The Board 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. Since 2020, 50% or
more of our Executive Board have been female.
As stated in our 2021 annual report, we recognise there is
progress to be made on the ethnic diversity of our senior
management and we therefore made this a specific focus
in our 2022 succession planning work. This is evidenced
within our 2022 emerging leaders programme cohort, with
56% of representatives female and 22%BAME.
We also continued our REACH (Religion, Ethnicity And
Cultural Heritage network) mutual mentoring programme
following a pilot in 2021, with 15 mentors and 15 mentees
participating in the scheme with members of our REACH
and senior leadership. CEO Alex Vaughan was a mentor in
this year’s mentoringprogramme.
Costain Group PLC
Annual Report and Accounts 2022
64
Achievements in 2022
To read our diversity and inclusion policy and inclusion strategy in full, please visit:
www.costain.com/our-culture/equality-diversity-and-inclusion/
Costain has a clear implementation plan in place to improve
diverse representation, close its gender and ethnicity pay
gaps 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.
We collate diversity as part of our onboarding process
within our ‘MyHR’ system, asking employees to self-report
their data. We provide a list of detailed categories for
employees to select along with an option for employees
to self-describe their sexual orientation in the event they
do not identify with categories listed. We provide a ‘prefer
not say’ for non-mandatory fields for those employees
who would prefer to not disclose their characteristics.
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Overview GovernanceStrategic Report Financial Statements
Purpose, values and culture
MISSION
We shape, create and deliver
pioneering solutions that
transform the performance of
the infrastructureecosystem
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 customers, 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
ourcustomers.
To achieve the best possible solutions and make
infrastructure fit for a better future, we collaborate more
closely than ever with customers, partners, communities
and wider industry. Together we are creating connected,
sustainable infrastructure to help people and the
planetthrive.
See page 69
See pages 29 and 69
See page 81
See pages 29, 32 and 33
See page 79
See pages 32, 33, 35, 64 and 65
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.
Who we are
Recognised indicators of culture reviewed by
the Board and its Committees include:
Outputs from people 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
PURPOSE
Improving people’s lives
(see page 2 for more
onpurpose)
VISION
To create connected,
sustainable infrastructure
enabling people and the
planet to thrive
Costain Group PLC
Annual Report and Accounts 2022
66
INTEGRITY
CUSTOMER
FOCUS
SAFETY &
WELLBEING
ENVIRONMENTAL
& SOCIAL
RESPONSIBILITY
BE
COURAGEOUS
BE
CARING
BE
CURIOUS
BE
COLLABORATIVE
IMPROVING
PEOPLE’S LIVES
VALUES BEHAVIOURS
Refreshing our values
Our values are what we believe in, what we stand for as an
organisation and what we hold true. Having a clear set of
shared values across our business is the cornerstone of the
culture at Costain.
In 2022, we undertook extensive research and testing to
determine if the existing Costain values were still relevant to
the business today.
Using our networks and forums from a cross section of the
organisation, we ran a series of focus groups to review the
existing values, identify what resonated, what might be missing
and what we could build on. We researched customers’ and
joint venture values, as well as looking at what investors, future
employees and wider society expect from Costain.
We engaged with:
Internal stakeholders: Your Voice, employee networks,
contract leaders board, front line managers, senior leadership
teams and the Executive Board.
External stakeholders: Customers, joint ventures and investors.
Embedding the values
Our refreshed values and behaviours have been
embedded across the whole employee lifecycle to make
sure they are turned from words into real actions as follows:
• Engaged the leadership community at the leadership
conference in May 2022 and provided a digital toolkit to
share with their teams.
• Re-launched our quarterly, internal recognition awards
as the Costain Awards. Each category has been aligned
to a core value, ensuring the business is recognising and
celebrating teams and colleagues who are living the
values and displaying the behaviours.
• Re-designed the intranet portal homepage.
• Incorporated the values into our performance
reviewprocess.
• Published a special edition, all-employee
communication from Alex Vaughan explaining
why the values areimportant.
In our recent Best Companies people survey (see page 69),
81% of colleagues told us that their line manager exhibits
the Costain behaviours.
Outcome
Following research and testing, Costain has a refreshed set of four liveable values underpinned by four core behaviours.
81%
of colleagues told us that their
line manager exhibits the
Costainbehaviours
People
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Overview GovernanceStrategic Report Financial Statements
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, people surveys and the Your
Voice forum. In addition, the Board continues to use a
number of recognised indicators of culture on page 66.
WORKFORCE
ENGAGEMENT
Employee
forum
People
survey
Leadership
briefings
and blogs
Employee
roadshow
Engagement
visits to site
Mentoring
As part of these visits a Q&A session is normally held
with members of the site team (including employees,
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 actionsagreed.
The first of our bi-annual Company-wide ‘Leadership
Impact Days’ was held in April and was focused on
inclusion, fully involving our customers and supply
chain. Video stories demonstrated inclusive behaviours
and then multiple real-life case studies of non-inclusive
behaviours were used for discussion. The day reinforced
the importance of creating the right working environment
and ensuring everyone in our teams feels safe to be their
true selves so they can perform at their very best.
The second 2022 Impact Day, in October, focused
on our refreshed values and behaviours and their
alignment to our safety and wellbeing value.
Accompanying Alex Vaughan at Gatwick, Jacqueline
de Rojas met with the workforce, listening to their
thoughts and capturing safety and wellbeing ideas.
From Gatwick, the project director gave a live opening
address and was joined virtually by managing director
Transportation, Sue Kershaw, from Tideway.
Jacqueline reported a high level of engagement at
Gatwick. There was recognition of the quality of work
performed while dealing with the sad loss of a valued
colleague. Jacqueline commented, “I was particularly
struck by their openness to embrace change and new
thinking. The crews obviously like working together
and strive hard to bring new team members up to
their high standards”.
During 2022, Neil Crockett visited our projects at
HS2, Tideway and for EDF, and also our offices
at Worle, and took part in an employee digital
webinar. Tony Quinlan visited HS2 at Ruislip. Since
appointment, Kate Rock has visited Tideway, Gatwick
and HS2. Fiona MacAulay attended a Natural
Resources employee briefing on Energy at our
Manchester offices.
Each member of senior management, including
Executive Board members, completes a site visit monthly
and feeds back all observations to the SHE team.
Engagement visits to site
Our non-executive directors carry out engagement tours on our projects and sites to gain further insights
into the business, such as health, safety and environmental practices and performance, operational
efficiencies and knowledge of customer relationships.
Costain Group PLC
Annual Report and Accounts 2022
68
People survey – a ‘Very Good Company’
to work for
Costain was measured against Best Companies
eight factors of engagement methodology and
scored against the following themes: Leadership,
Mycompany, My Manager, My team, Wellbeing,
Personal Growth, Giving something back and Fair
deal. In addition, Costain asked bespoke questions to
obtain feedback on important topics for our business.
Costain is delighted to be accredited as a Best
Companies 1 Star organisation, meaning that
Costain is a ‘Very Good Company’ to work for.
The data from the survey has been used to establish
our people priorities by recognising and celebrating
those things that we are doing well and helping us to
understand what we might improve to make Costain
an even better place to work.
Group, divisional, sector and functional results have
been cascaded and informed action plans produced to
increase engagement at local and Group levels. Teams
were encouraged to discuss the results and talk about
the local actions they will take.
The Board will monitor progress against the
actions throughout the rest of 2023 and later in
the year Costain will re-run the survey to measure
performance against our 2022 benchmark to ensure
continuousimprovement.
Towards the end of 2022, Costain worked with Best Companies to launch a new Group-wide people
survey to measure, recognise and improve levels of engagement, to give colleagues the opportunity to
have their say on the business and for Costain to listen and act.
93%
of colleagues agree that health and safety
is taken seriously in Costain, with health and
safety our top performing area.
88%
of colleagues believe they can make a valuable
contribution to the success of Costain.
82%
of colleagues think Costain provides
a great service to its customers.
81%
of line managers are exhibiting the
Costain behaviours (collaborative,
caring, curious andcourageous).
Action we will take:
• continue to focus on the
wellbeing of our teams
• review fairness and
transparency ofpay
• improve our systems
andprocesses
• increase visibility of career
opportunities and development.
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Workforce engagement continued
Your Voice meets quarterly and comprises of eight
elected champions representing all sectors and
capabilities, along with representatives from the
people function, engagement lead and rolling
Executive Board member. The group meets quarterly
to discuss ideas and share feedback.
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 chief people and sustainability officer who also
attends certain Board meetings and the Remuneration
Committee meetings to give updates on matters
relating to the wider workforce and to answer
questions raised by thedirectors.
Employee forum: Your Voice
Our colleague forum Your Voice continued to meet in 2022 and this year was attended by CFO,
Helen Willis.
As a responsible business, Costain has
taken a collaborative approach, with
business functions working together to
develop a programme of support initiatives
for colleagues.
Unsurprisingly, cost-of-living concerns
were the most reported issue facing
colleagues in 2022. The business listened
to feedback from your Your Voice and
recognising that the cost-of-living crisis
would be an ongoing challenge, Costain
has taken a programmaticapproach to
itsinterventions.
Supporting colleagues through the
cost-of-living crisis
Costain responded to the UK’s biggest
societal challenge in 2022 by taking
action to help support colleagues,
customers and suppliers during the
cost-of-living crisis.
Action taken:
• Increasing the annual salary review budget in
2022 and again in 2023.
• Commitment to paying the Real Living Wage
in 2022 and 2023.
• One-off payment of £750 (in January 2023)
to all employees earning £35,000 per annum
(full time equivalent) or less.
• Launched Costain Lifestyle – a new employee
discount platform to help colleagues make
savings on everyday purchases.
• Improvements made to the expenses
process to speed up recovery of costs
and increased electric vehicle rates.
• Introducing a travel card.
• Reviewing entirety of our travel and
subsistence policy.
• Ran a series of financial webinars.
• Launched a cost of living community for
colleagues to share practical tips andadvice.
Costain Group PLC
Annual Report and Accounts 2022
70
Each non-executive Board member is
expected to mentor two senior mentees.
We also continued our REACH (Religion,
Ethnicity and Cultural Heritage network)
mutual mentoring programme following
a pilot in 2021, with 15 mentors and 15
mentees participating in the scheme
with members of our REACH and senior
leadership. CEO Alex Vaughan was a mentor
in this year’s mentoring programme.
Mentoring
With new Board members in post,
the non-executive director mentoring
programme has been reinvigorated.
Bringing members of the leadership
team together for the first time since
the pandemic, they were provided with
the digital tools to help embed our
Costain story and cascade the values
andbehaviours.
Leadership
conference
In May 2022, the ‘Sharing the Costain
Story’ leadership conference focused
on the strategy, purpose, vision and
mission, as well as introducing the
refreshed values and behaviours
(see page 67).
Every month the CEO holds a 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.
It starts with a member of the leadership team
volunteering a values moment (see our refreshed
values and behaviours on page 67). The format is then
a short update from the CEO on such matters as the
cost-of-living crisis, customers, bid wins, organisational
changes, and in 2022 was often followed by an update
from the director of strategy and transformation on
the transformation project and from the chief people
and sustainability officer on HR matters. The CEO then
recognises a number of colleague successes. There
follows a discussion and Q&A session involving 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
weeklyupdates.
Additionally, there are fortnightly blogs (‘Costain
Connected’) from our CEO and other members of
the Executive Board to all employees. In response
to employee feedback on their preferred ways of
receiving information, in 2022 we introduced some
video briefings and interviews. These blogs and
videos covered topics such as:
• Safety and wellbeing.
• The transformation project including organisational
changes and review of processes and systems.
• Meeting Sam White, managing director Natural
Resources and Nicole Geoghegan, general counsel
and company secretary, both new joiners and
members of the Executive Board.
• Update from Sue Kershaw, managing director
Transportation, on driving step change in our
service delivery to lead and shape the construction
and infrastructure industry of the future.
• Cost of living and actions being taken to support
theworkforce.
• Refreshment of the mandatory code of conduct
training and new whistleblowing reporting line
andplatform.
• Update on Costain policies, including a summary of
each policy’s purpose and changes for 2022.
• Employees’ career journeys in Costain.
• Pensions update and change in our workplace
pensionprovider.
• Update on decarbonisation and net zero.
• Celebrating success – work won, Costain award
winners and industry recognition.
• Management of risk with a focus on using our
excellence in behavioural management and being
vigilant to changes in risk.
• Updates on financial and operating performance.
Leadership briefings and blogs
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Overview GovernanceStrategic Report Financial Statements
2
6
7
7
Sector: Transportation
6
Digital/technology
3
Strategy and M&A
8
5
4
4
Communications/marketing
4
4
Safety and risk management
Construction
4
3
Consultancy
Engineering
ESG
PLC governance
Finance, audit and banking
General management
Government/political relations
Sector: Natural Resources
Attendance and composition
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 2022 is shown
in the table below. Also shown below is the directors’
attendance record at scheduled brief update meetings.
For the Board and Committee meetings, attendance is
expressed as the number of meetings that each director
attended out of the number they were eligible to attend.
No director attended the Remuneration Committee for
discussions on their own remuneration.
Skills and competencies (all 8 directors*)
* Self-assessment based on strong or very strong experience.
Board attendance
Scheduled full
Board meetings
Maximum 7
Other brief update
or ad hoc Board
meetings
Maximum 3
Audit
Committee
Maximum 4
Remuneration
Committee
Maximum 5
Nomination
Committee
Maximum 5
Executive directors
Alex Vaughan 7/7 3/3 – – –
Helen Willis 7/7 3/3 – – –
Non-executive directors
Kate Rock
1
2/2 – – – 1/1
Paul Golby
2
5/6 3/3 – – 2/2
Bishoy Azmy
3
6/7 3/3 – – 4/5
Neil Crockett 7/7 3/3 4/4 5/5 5/5
Jacqueline de Rojas 7/7 3/3 4/4 5/5 5/5
Fiona MacAulay
4
6/6 1/1 3/3 2/2 3/3
Tony Quinlan 7/7 3/3 4/4 5/5 5/5
Alison Wood
5
– 0/1 – – –
1 Kate Rock joined the Board on 1 November 2022 and was not eligible to attend any meetings prior to that date.
2 Paul Golby stepped down from the Board on 1 December 2022. Paul did not attend any meetings of the Nomination Committee at which the search for and
appointment of his successor were discussed.
3 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.
4 Fiona MacAulay joined the Board on 6 April 2022 and was not eligible to attend any meetings prior to that date.
5 Alison Wood stepped down from the Board on 28 January 2022.
Board composition
The Board currently comprises the chair, two executive
directors, four 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 46 and 47.
The non-executive directors have a range of business,
sector and financial experience that is relevant to the
Company. 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 as depicted in the adjacent chart.
The non-executive directors provide constructive
challenge, strategic guidance and specialist advice.
They hold management to account and independent
directors are sufficient in number to counter any
potential imbalance associated with the number of
non-independent directors. The balance between
executives and non-executives is constantly under review.
Costain Group PLC
Annual Report and Accounts 2022
72
Board independence
Having due regard to the results of the internally-
facilitated 2022 review of Board performance (see page
55 for details) and the conduct of directors, the Board
considers that 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 116.
At the time of their original appointments in May 2016
and November 2022 respectively, the former chair Paul
Golby and current chair Kate Rock, were 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 each of their Board colleagues,
the Board’s advisers and stakeholders, including the
Company’s auditor, Remuneration Committee advisers,
financial advisers and brokers. This induction programme
builds up their understanding of Costain’s business and
its markets, including risks and opportunities, and helps
new Board members understand the culture of the
Company. During the year, Fiona MacAulay and Kate Rock
undertook a comprehensive, formal induction programme
tailored to their needs. In the case of Kate Rock, she
attended meetings with some of our largest shareholders
to gain their feedback on the Company.
2. Meetings with senior management and employees
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 and members of the senior
leadership team.
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
arranged by 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 trainingmodules.
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.
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Overview GovernanceStrategic Report Financial Statements
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 theCompany.
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 anappointment.
Remuneration
Details of how the Company’s remuneration policy approved
in 2020 has been implemented in 2022, together with the
activities of the Remuneration Committee, can be found on
pages 102 to 119 of the Directors’ Remuneration Report.
In December 2022 and January 2023, the Remuneration
Committee consulted with our largest shareholders and their
representative bodies on our proposed remuneration policy
which is being submitted to shareholders for approval at the
2023 AGM (see pages 89 to 101).
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 our new chair who is attending meetings with
some of our largest shareholders. Tony Quinlan, Jacqueline
de Rojas and Fiona MacAulay also met with shareholders in
the year. Additional details of how the Company engages
with shareholders can be found on pages 58 and 59.
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.
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.
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.
In May 2022, we were pleased to welcome shareholders to
our first AGM in person since the pandemic. Shareholders
were also able to watch the AGM via a live webcast which
was available on-demand after the AGM. Viewing numbers
were low, and therefore in 2023 we have decided not to
offer a webcast facility as this will ensure shareholder funds
are used more effectively.
Costain Group PLC
Annual Report and Accounts 2022
74
At any time, shareholders may raise issues or concerns
by contacting investor relations (see contact details on
page 197).
How the non-executive directors are
kept informed
• Deep dive presentations from business sectors
andfunctions.
• Visits to regional offices and operational sites.
• Access to the Executive Board members
betweenmeetings.
• Weekly reports from the CEO or CFO.
• Monthly management accounts and regular
internal reports.
• Updates on legal, regulatory and governance matters.
• Presentations from external advisers.
Health and safety
• The Board considers health and safety its number
one priority.
• All Board members hold an appropriate internal
certification for site visits.
• 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.
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 126
together with the statement on the status of the Company
as a going concern and the financial viability statement on
page 44.
As can be seen on page 79, 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 content.
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
details of the Peterborough & Huntingdon contract
resolution on 24 February 2022 and the trading updates
on 5 May and 20 July 2022.
Business model
The Overview and Strategic Report on pages 1 to 45 give
details of the Company’s business model.
Going concern and viability
The Group’s going concern statement is detailed in
note 2 to the financial statements on pages 144 and 145.
The long-term viability statement is set out on page 44.
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 39 to 43 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 39 and 40 ensures that, on an
ongoing basis, the risks to the Group’s objectives are
identified, assessed and managed.
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 pages 79 and 80 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
now outsourced to Mazars 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 79 of the
Audit Committee Report.
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Overview GovernanceStrategic Report Financial Statements
Audit Committee report
Governance of the Committee
I have been chair of the Audit Committee (the
Committee), which is comprised of independent non-
executive directors, since May 2021. The members of
the Committee and details of their attendance at
Committee meetings are given below and on page 72
and their biographies are shown on pages 46 and 47.
The general counsel and company secretary is secretary
to theCommittee.
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 Committee as a whole
possesses relevant skills to meaningfully discharge the
responsibilities of theCommittee.
The meetings of the Committee are normally also
attended by the Group chair, the chief executive officer,
the chief financial officer, the lead internal audit partner,
the risk & assurance director (see below for appointments
during the year), the Group director of finance and the
external auditor. Other senior executives attend as required
to provide information on matters being discussed which
fall within their remit. The Committee also regularly meets
privately with the external auditor and the lead internal
audit partner and the risk & assurance director.
Absent any unforeseen matters to consider, the Committee
meets four times a year.
In 2022 the Committee continued to review and challenge
management’s judgements on significant accounting
issues, including the financial performance of key
contracts. The Committee also undertook a ‘deep dive’
of a number of the Group’s principal risks including
climate change, balance sheet strength, effective project
delivery and securing new work. The full Board conducted
a review of the principal risk relating to safety as a result
of the fatality at Gatwick of a Kilnbridge team member
in July2022.
“ On behalf of the Board, I am pleased
to present my report as chair of the
Audit Committee which describes
how the Committee carried out its
responsibilities during the year. This
year the Committee continued its
focus on key contract judgements, risk
management and internal controls.”
Tony Quinlan
Committee Chair
Meetings held
4
Committee members Attendance
Tony Quinlan 100%
Neil Crockett 100%
Jacqueline de Rojas 100%
Fiona MacAulay
1
100%
Alison Wood
2
N/A
1 Joined the Board on 6 April 2022.
2 Stepped down from the Board on 28 January 2022. During the period to
28January 2022 there were no Committee meetings.
The Committee has open and
challenging dialogue with management
and the internal and external auditors,
and has an appropriate level of scrutiny
Costain Group PLC
Annual Report and Accounts 2022
76
The Committee was briefed on the Company’s approach
to cash within joint ventures, the appointment of a new
independent pension trustee and provided oversight of
the Company’s approach to the Government’s Russian
sanctions. The Committee also continued its oversight
of the Company’s position in connection with risk
appetite and considered the conflicts of interest of all
Board members to ensure that appropriate controls
were inplace.
As part of the Company’s transformation, which we
referenced in our 2022 half-year results announcement,
the structure of its internal audit and risk team was
changed. The Committee approved the appointment
of Mazars, an international audit, tax and advisory firm
with no other connection with the Company, as internal
auditor effective 11 November 2022. Subsequently,
at its December meeting, the Committee noted the
transition of workstreams to Mazars together with its audit
charter. A new risk & assurance director was appointed
effective 10 October 2022. There was also a restructuring
of the finance team to ensure the required skills and
experience to support the delivery of the strategy and
the transformation. Additionally, projects are underway
to automate a number of financial processes to improve
the efficiency, depth and insight, not least with regard to
contract risk and contingencies, of financial reporting.
Activities
In accordance with its terms of reference and in
compliance with the 2018 Code, on behalf of the whole
Board, in 2022 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
theGroup
• monitored and reviewed the effectiveness of the
internal auditfunction
• reviewed the effectiveness of the external audit
process and made recommendations to the Board in
relation to the reappointment and remuneration of the
externalauditor
• 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’sindependence
• reviewed its terms of reference and its effectiveness
(see page 81).
In addition, the Committee expended time as follows:
Provisions
The Committee reviewed the significant judgements
relating to provisions, including litigation and other risks.
The Committee received detailed reports including
relevant legal advice.
Banking arrangements
During 2022, the Company undertook a project, which was
completed on 18 November 2022, to amend its banking
facilities. Its facilities now comprise an undrawn £125m
revolving credit facility (previously £131m) and surety and
bank bonding facilities totalling £280m (previously £310m).
The Company also prepaid the full balance of £36m of its
Term Loan facility from its cash resources. As part of this
project, the expiration date for such facilities was extended
from September 2023 to September2024.
77
Overview GovernanceStrategic Report Financial Statements
Audit Committee report continued
Materiality
The Committee considered the auditor’s year end
materiality benchmark. PricewaterhouseCoopers LLP
(PwC) set this at £5.6m taking into account the sector
andnature of the Company’s contracting activities.
Pension
In Q4 of 2022, the Company appointed a professional
pension trustee as a trustee director, which is independent
from the Company. The IAS 19 valuation of the pension
scheme has resulted in a slight decrease in surplus as a
result of the reduction in the value of scheme assets being
slightly higher than the reduction in scheme liabilities,
both falls being largely driven by the significant increase in
long term bond yields over the year.
Risk management
The Committee reviewed the principal and emerging
risks and the developments to the risk management
framework (see pages 39 to 43). The Committee received
presentations by principal risk owners on the following
principal risks and undertook a deep dive review of them:
(i) maintain a strong balance sheet; (ii) deliver projects
effectively; (iii) climate change resilience and (iv) secure
new work. Other risks were presented to the Board and
other Committees, for example at its October meeting
the Board received a presentation on the principal risk of
‘prevent a major accident, hazard or incident’ with a focus
on lessons learned from the Gatwick fatality.
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 144 to 155 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 considerable time during the year reviewing the
positions and judgements taken by management on
a number of material contracts across the Group.
This included consideration of inflation impacts on
both costs andrevenues.
In 2021, Costain recognised a provision of £6.2m in
respect of the estimated future costs of expected
rectification works required at a customer’s water
treatment facility where the Group had been prime
contractor. As at 31 December 2022, the Group’s best
estimate of the cost of the single most likely rectification
solution is £17.0m, of which costs of £4.8m have been
incurred. Accordingly, a provision of £12.2m has
been included in the statement of financial position.
The Committee has reviewed the assumptions used to
estimate the required level of provision and considers
that both the provision and the related disclosures
regarding estimation uncertainty are appropriate.
Costain has engaged with its insurers and has received
confirmation that insurance cover is available and
that all reasonable costs of rectification work that are
validly incurred will be met by insurers. Consistent with
this, insurers made an interim payment on account
during 2022. On this basis, management has made the
judgement that the cost of rectification, after deduction
of insurers’ excess and amounts already received from
insurers, will be recovered. Accordingly, an insurance
receivable of £13.4m has been recognised in the
statement of financial position in accordance with IAS 37
on the basis that recovery is considered virtually certain.
The Committee has critically reviewed the significant
judgement that the ‘virtually certain’ criteria has been
met and having discussed this both with management
and the external auditor considers this to be the
appropriatejudgement.
(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,
discount rate and member longevity, which 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 182 to 186
of the financial statements.
Costain Group PLC
Annual Report and Accounts 2022
78
(C) The carrying value of goodwill
As set out in note 12 on pages 165 and 166 of the financial
statements, the Group’s statement of financial position
includes goodwill of £45.1m which is subject to an annual
impairment assessment. The Committee focused in
particular on the carrying value of goodwill within
the Natural Resources division and critically reviewed
the key assumptions in relation to forecast operating
margin, the discount rate 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 principal risks.
The Committee assessed the appropriateness of
the downside scenarios and determined 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 44) should be recommended to the Board
forapproval.
(E) Accounting and other regulatory developments
PwC briefed the Committee in August 2022 on the
changes to ISA 315. Such changes were considered in the
scoping of the 2022 year end audit undertaken by PwC.
Fair, balanced and reasonable
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 supports 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 functions.
Internal audit
The internal audit and risk functions have 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 2022 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.
Under the new structure, the lead internal audit partner
from Mazars, the newly appointed internal audit provider,
reports to the CFO and has a direct relationship with the
Committee chair. The CFO line manages the risk and
assurance director, who also has a direct relationship with
the Committee chair. During the year the Committee
received the results of the review of the effectiveness of
the function (see below), this setting a baseline for delivery
of the internal audit function by Mazars. It also reviewed
statistics on key staff numbers, qualifications and experience
which the Committee considered to be satisfactory. At
the December meeting, the Committee received a report
from Mazars which covered progress against the 2022 audit
plan together with the reasons certain audits had been
paused or reprioritised, the status of management actions in
response to audit findings and the proposed content of the
2023 audit plan, which was approved by the Committee.
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. Following
the appointment of Mazars and a review in December of
resource and its charter, the Committee is satisfied the
function is competent to deliver the 2023 internal audit plan.
79
Overview GovernanceStrategic Report Financial Statements
Audit Committee report continued
Internal control and risk
Details of the Group’s internal controls and risk
management framework are more fully set out on pages
39 and 40 in the Strategic Report and page 75 in the
Governance Report. The Group’s principal risks are set
out on pages 41 to 43.
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; assurance results; 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.
External auditor
The Company’s external auditor is PwC. The audit partner
is Andrew Paynter.
Effectiveness of the external audit process
Following the end of the 2021 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 function. 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
2021. It was noted there was strong cooperation between
PwC and Costain and that both PwC and Costain were
committed to bringing continuous improvement to
theprocess.
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 2022, the Committee
considered and approved the external audit plan for the
audit of the Group for the year ended 31 December 2022.
The Committee considered significant risk areas for the
audit, the proposed scope and the materiality threshold.
Seven subsidiary companies sought exemption from audit
for 2022 as permitted under the relevant regulations,
leading to a cost saving for Costain.
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.
Andrew Paynter became lead audit partner effective for
the 2021 audit.
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 2023.
Non-audit fees
The 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) was adopted in 2021. 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.
In 2022, the value of non-audit work performed by
PwC for the Group was less than £0.1m (2021: less than
£0.1m) other than in relation to the review of the half year
financialstatements.
Costain Group PLC
Annual Report and Accounts 2022
80
Whistleblowing and fraud
In December 2022, a new, dedicated, specialist fraud
investigator joined Costain, reporting to the general
counsel and company secretary. This appointment
recognises the specialist skills required for fraud
investigation and mitigation and demonstrates the
Company’s commitment to ensuring shareholder funds
are safeguarded.
In spring 2022, including as part of the onboarding of
all new staff, refreshed Code of Conduct training was
implemented across the Company, which included
details of the Company’s whistleblowing line (which is
provided by an independent third party). During 2022,
the Committee received regular updates on the nature
and number of referrals to the whistleblowing line,
the outcomes of the resulting investigations and any
process improvements that were recommended to avoid
recurrence. There were 32 reports, most of which were
made via the whistleblowing line, in 2022.
Committee effectiveness review
During the year, an internal evaluation of the effectiveness
of the Board was undertaken, which also considered the
effectiveness of the Committee (see page 55).
On the basis of such evaluation, 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 2023:
• continue to challenge Costain’s approach to
identification and mitigation of risk
• ensure management continues to improve financial
reporting on contract risks and contingencies
• monitor closely the effectiveness of the counter-
fraudfunction.
Below is a summary of the agreed areas of focus that came out of the external review of the Audit Committee in 2021
and the actions taken in 2022.
Area of focus Actions taken
Review the level of qualitative reporting
offinancial information
The Group director of finance consulted with each Board member individually
on their desired format and content of the monthly management accounts.
The report was re-designed and continued to evolve over a few months in
response to further feedback from non-executive directors.
Further development of the risk
management and control framework
Appointment of Mazars as internal auditor.
Appointment of a new, dedicated, specialist fraud investigator and revised
approach to reporting to improve trend identification.
Deep dives of four principal risks and feedback on same.
Tony Quinlan
Committee Chair
13 March 2023
81
Overview GovernanceStrategic Report Financial Statements
Nomination Committee report
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 46 and 47 and
details of their attendance at Committee meetings is shown
on page 72 and in the table below. Alison Wood stepped
down from the Board and as a member of the Committee
on 28 January 2022. Paul Golby stepped down as non-
executive director and chair of the Board and this Committee
on 1 December 2022 when I assumed those roles. Fiona
MacAulay became a member of the Committee on joining
the Board on 6 April 2022. 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, chief people & sustainability officer,
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 chaired the meetings of the Committee that
resulted in my appointment as chair of the Company.
TheCommittee 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
• 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
Meetings held
5
Committee members Attendance
Paul Golby
1
100%
Kate Rock
2
100%
Bishoy Azmy
3
80%
Neil Crockett 100%
Jacqueline de Rojas 100%
Fiona MacAulay
4
100%
Tony Quinlan
5
100%
Alison Wood
6
N/A
1 Paul Golby was not eligible to attend meetings concerning the search for and
appointment of his replacement as chair and stepped down from the Board
and as chair of the Committee on 1 December 2022.
2 Joined the Board on 1 November 2022 and became chair of the Committee
on 1 December 2022.
3 Bishoy Azmy is the designated representative director of our largest
shareholder, ASGC Construction L.L.C.
4 Joined the Board on 6 April 2022.
5 Tony Quinlan, senior independent director, chaired all meetings relating to the
search for and appointment of the new chair.
6 Stepped down from the Board on 28 January 2022. During the period to
28January 2022 there were no Committee meetings.
The composition of our Board and Executive Board can be
found on pages 46 and 47, and 48 and 49 respectively of
this annual report.
In 2022 the Committee focused
on the recruitment of a new
Group chair and new chair of
the Remuneration Committee.
Costain Group PLC
Annual Report and Accounts 2022
82
• 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
overalleffectiveness.
Board diversity
The Company recognises the importance of diversity
at the Board and all levels of the Group. As reported
last year, 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 64.
While 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 and equality, diversity
and inclusion (EDI) will be included as a performance
measure for the 2023 LTIP (see page 112 of the Directors’
RemunerationReport).
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. For more information on our ethnicity and
gender pay gaps, please see page 35 and our separate
gender pay gap report at www.costain.com.
At the sign-off of the 2021 annual report on 9 March 2022,
female representation on the Board had fallen to 29%.
Following the changes in the year, female representation
has risen to 50%.
Our principles on Board diversity also apply to the
Executive Board and currently 63% (five 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.
During 2022, as described above, the focus of the
Committee was on Board-level recruitment. In
2023, Executive Board composition, succession and
development will be a focus for the Nomination
Committee, ensuring we have the right balance of skills,
experience, and diversity at the most senior levels of
the business. To this end, towards the end of 2022, a
significant programme of work started to identify or
confirm any succession gaps, timings for readiness
for promotion and would formalise the position on
‘emergency cover’, all for review and challenge by the
Committee in mid-2023.
Committee effectiveness review
The effectiveness of the Board and its Committees was,
for the second year, conducted internally in 2022. The
evaluation process is detailed on page 55. In relation to
the work of the Committee, comments were sought on
culture, behaviours and boardroom dynamics. On the
basis of the review, the Nomination Committee concluded
that the Committee remained effective and there were no
significant areas for concern in respect of the performance
of the Committee or any of its members.
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Overview GovernanceStrategic Report Financial Statements
Nomination Committee report continued
Areas identified for additional focus by the Committee in
2023 were:
• talent and succession planning and pipeline for the
Executive Board, including increased engagement by
the Board with management and emerging leaders
• continue to test whether the Board has the right mix of
skills and experience to support Costain’s strategy.
Following the 2021 internal review, agreed areas of focus
for the Committee were the recruitment of a Committee
chair, which was successfully completed, and executive
team recruitment, talent and succession with a focus on
the internal pipeline of candidates. As described above,
the latter programme of work continues and is a focus
for the Committee in 2023.
Activities in 2022
Succession planning was the key area of focus during the
year in respect of the Board. 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 deliver our
strategy effectively.
Alison Wood ceased to be senior independent director
and chair of the Remuneration Committee with effect
from 12 January 2022 and stepped down as a director
on 28 January 2022 following eight years’ service.
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 12 January
2022. The Committee recommended Fiona MacAulay be
appointed as a non-executive director on 6 April 2022
and to assume the role of chair of the Remuneration
Committee after the 2022 AGM on 5 May 2022. Later
in the year, the Committee recommended my
appointment as an independent non-executive director
and chair designate from 1 November 2022 and as chair
of the Company and chair of the Nomination Committee
from 1 December 2022 when PaulGolby stepped
down from the Board.
Reappointment of directors
At the 2022 AGM, all our directors in post at the time
stood for re-election, as required by the 2018 Code.
The Committee considered all Board members’
other appointments and the impact on their time
availability in view of shareholders’ general concerns
regardingoverboarding.
All new appointments were approved by the Board, as
required under the 2018 Code, and in doing so the Board
considered directors’ other commitments and shareholder
concerns regarding overboarding.
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
the update of letters of appointment for Tony Quinlan
and Jacqueline de Rojas, to reflect their additional
responsibilities as senior independent director and interim
chair of the Remuneration Committee respectively, together
with Paul Golby whose letter of appointment was renewed
at the expiry of his second three-year term on 5 May 2022
to cover the period until his departure.
Appointment of directors
There is a formal, rigorous and transparent procedure
for the appointment of new directors to the Board
(see opposite). During 2022, Lygon Group was used
for Board-level search processes.
As above, careful consideration is given to ensure the
proposed candidates have the right skills, knowledge and
experience and, can devote sufficient time to the role.
Kate Rock
Committee Chair
13 March 2023
Non-executive director succession
Fiona MacAulay and Kate Rock were appointed to the Board effective 6 April 2022 and 1 November 2022
respectively to further strengthen the Board, align its skills, knowledge and experience to the strategy and create
the right balance of competencies and diversity. Detailsof their recruitment and appointment processes are
described opposite.
Costain Group PLC
Annual Report and Accounts 2022
84
Fiona MacAulay
1. The Committee, supported by the Group HR director
(now the chief people & sustainability officer), agreed
towards the end of 2021:
• a specification for the role and responsibilities for a non-
executive director who would have sector experience
and the skills and competency to effectively chair the
Remuneration Committee, noting, under the Code, they
will need to have served on a remuneration committee
for at least 12 months
• to appoint Lygon Group, which has no other connection
with the Company or individual directors other than
previous recruitment assignments, as the external
search partner
• an interview and selection process.
2. Lygon Group provided a long-list of candidates.
3. The then chair 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 then chair undertook first interviews and
recommended other directors meet with two of
thecandidates.
5. On 10 February 2022, following the departure of Alison
Wood, the Committee held a meeting at short notice to
discuss the preferred candidate, who was an experienced
non-executive director and remuneration committee
chair with knowledge of the energy sector, strong insight
on ESG matters and a proven track record of developing
strong stakeholder relationships. The Board approved
the appointment in principle and delegated authority
to the then chair to finalise matters in relation to the
appointment including the announcement.
6. In the evening of 27 March 2022, the then chair
confirmed all matters were concluded in relation
to the appointment including execution of a letter
ofappointment.
7. On 28 March 2022 we announced the appointment of
Fiona MacAulay as a non-executive director from 6 April
2022 and as chair of the Remuneration Committee from
the conclusion of the 2022 AGM.
8. 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
Fiona (see page 73).
Kate Rock
1. The Committee, chaired in this instance by the senior
independent director (SID), supported by the Group
HR director (now the chief people & sustainability
officer)agreed:
• a specification for the role and responsibilities for the
Group chair who would have skills and expertise in
business leadership and sector knowledge
• to appoint Lygon Group, which has no other connection
with the Company or individual directors other than
previous recruitment assignments, as the external
search partner
• an interview and selection process.
2. Lygon Group provided a long-list of candidates.
3. The SID on behalf of the Committee considered the
formal appraisals of the candidates on the long-list
and agreed a diverse short-list of four candidates to
progress to interview.
4. The SID, Jacqueline de Rojas and Alex Vaughan
separately undertook first interviews with the
shortlisted candidates.
5. Meetings of the Nomination Committee took place on
(i) 6 July 2022 to discuss progress with first interviews
and initial feedback and (ii) on 18 August 2022 at which
it was noted two candidates remained in the process
and further interviews were being conducted by the
other directors. Committee members discussed the
candidate feedback so far.
6. Following the final interviews, directors reported back
to the SID and Group HR director on their views.
7. By written circulation on 22 September 2022, the
Committee unanimously agreed to recommend to the
Board the appointment of Kate Rock, based on her
sector knowledge, public sector insight, communications
experience and personality.
8. Also by written circulation on 22 September 2022,
the Board approved the appointment of Kate Rock
and delegated authority to the SID and CEO to
finalise the appointment and announcement, noting
the Remuneration Committee had recommended an
appropriate fee.
9. In the evening of 26 September 2022, the SID and
CEO confirmed all aspects of the appointment had
been concluded including execution of a letter
ofappointment.
10. On 27 September 2022 we announced the
appointment of Kate Rock as an independent
non-executive director and chair designate from
1November 2022 and chair of the Company and chair
of the Nomination Committee from 1 December 2022.
11. Having successfully secured the right candidate as
chair and discharged its announcement obligations,
the Committee tasked the CEO and general counsel
and company secretary with preparing a detailed and
bespoke induction plan for Kate (see page 73).
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Overview GovernanceStrategic Report Financial Statements
Directors’ remuneration report
Remuneration at a Glance
Actual remuneration of our executive directors for 2022 and application of policy for 2023
CEO – Alex Vaughan CFO – Helen Willis
Base salaries
2023
2022 £446,500
£468,800 2023
2022 £370,800
£389,3 00
Pension 10% of salary in line with wider workforce 10% of salary in line with wider workforce
AIP – maximum opportunity 2023: 150% of salary
2022: 150% of salary
2023: 150% of salary
2022: 150% of salary
LTIP – maximum opportunity 2023: 100% of salary
2022: 100% of salary
2023: 100% of salary
2022: 100% of salary
Single Figure total for 2022 £1,146,715 £898,708
How was our performance reflected in our pay for 2022?
AIP – Award earned by executive directors for 2022
Group adjusted
EBITA
1
(max
opportunity: 50%)
Group safety, health
and environment
(max opportunity:
10%)
2
Profit secured
for 2023 (max
opportunity: 15%)
Cash flow
3
(max
opportunity:
15%)
Role specific (max
opportunity: 10%)
Total achieved
(% max)
Actual pay-out
(% of salary)
4
Alex
Vaughan 43% 0% 4% 15% 10% 72% 108%
Helen
Willis 43% 0% 4% 15% 10% 72% 108%
LTIP – Award vesting for performance over the three years ending 31 December 2022
Aggregate adjusted EPS
5
for financial years ended
31 December 2020, 2021 and 2022 (two thirds of the award)
Cash conversion
(one third of the award) Total Achieved
Alex Vaughan
25.3 pence
(maximum vesting level: 26.7p or more)
178%
(maximum vesting level: 100%
average cash conversion)
81.1%
Helen Willis
Ensuring shareholder alignment
33% of AIP bonus
is automatically
deferred into Costain
shares with a two
year holdingperiod.
Subject to performance
targets being met, LTIP
shares vest after three
years but will only be
released afterfiveyears.
Share Ownership Guidelines are set at 200% of salary for the executive
directors, and in the new Policy we have enhanced the post-employment
shareholdingrequirement.
Progress toward holding requirement
Balance of 200% holding requirement
123%Alex Vaughan
27% 173%
77%
Helen Willis
We are proposing to introduce a TSR element to the LTIP in order for there to be a clear alignment of executive directors’
interests with value created for shareholders and having regard to the feedback received from investors and the importance of
execution of the strategy translating to increases in our share price.
1 Earnings before interest, tax and amortisation calculated on an underlying basis before other items. See definition on page 94. Target underpinned by 90% cash conversion.
2 Taking into account the safety incident in July when the Group experienced a fatality on one of its rail contracts, the Remuneration Committee exercised discretion
to reduce the pay-out under the Group safety, health and environment element of the 2022 AIP from 7.5% to 0%.
3 Measured as average month end cash balances, pre-acquisition and investments. Actual performance was adjusted to exclude the impact of the £43.4m payment
relating to the Peterborough & Huntingdon contract in February 2022 which was one-off in nature in accordance with the target set.
4 33% of the value of the AIP award for 2022 will be deferred into shares under the Share Deferral Plan (SDP).
5 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. See
definition on page 94.
Costain Group PLC
Annual Report and Accounts 2022
86
Alignment of our Remuneration Policy with our strategy
People Planet Performance
Executive directors’ role specific
personal objectives under the AIP
are linked to talent development,
succession and progressing the Group’s
inclusionstrategy.
The introduction of an equality, diversity
and inclusion measure to the LTIP is
aligned with our goal to enhance the
proportion of female and ethnic diverse
talent in senior leadershiproles.
We hold ourselves accountable to the
highest safety, health and environment
standards and are committed to
operating sustainably, ethically
andinclusively.
The incorporation of science-based
carbon reduction targets in the LTIP
reflects our long-term vision of creating
connected, sustainable infrastructure
enabling people and the planet to thrive.
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.
The increased weighting on
measurable and robust role specific
personal objectives from 10% to 20%
of maximum for FY23, provides a
focus on the execution of our strategic
priorities and is aligned with our
transformation strategy.
AIP performance metrics – 2023
40% of Group adjusted EBITA
1
with
90% cash conversion
15% Profit secured for 2024
15% Cash flow
3
10% Safety, health and environment
20% Personal performance
LTIP performance metrics – 2023
50% Adjusted EPS
5
25% Absolute TSR
15% Carbon emissions reduction
10% Social: Equality, diversity
and inclusion (EDI)
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Overview GovernanceStrategic Report Financial Statements
Directors’ remuneration report continued
Wider workforce
All employee share plan – new Sharesave
Plan was approved at the 2022 AGM.
In April 2022, we increased the salary
review budget from 3% to 4% targeting
those employees on lower incomes.
We are proposing an increased April
2023 salary budget of 6%
1
targeted at
lower income/vulnerable employees (with
a further 1% budget for adjustments to
address market pressures). Executive
director salaries will be increased at
a level below that awarded to the
widerworkforce.
Promotions in 2022: 18%.
Transfers in 2022: 15%.
699 chartered professionals in our
highly skilled teams.
We are committed to paying the real
living wage to all our employees.
We made real living wage adjustments in
January 2023, ahead of the 1 April 2023
increase coming into effect.
We have a small number of seasonal
workers employed on zero hours
contracts. It is our intention to move away
from zero hours contracts in 2023.
Achieved Best Companies 1 Star status –
a ‘Very Good Company’ to work for:
75% of employees are proud to work
forCostain.
88% of employees believe they can make
a valuable contribution to the success
ofCostain.
See page 69 of the Governance Report
for more information.
Percentage of females in senior
management positions: 36% at
31December 2022 (see page 64
of the Governance Report).
2024 target: Disability confident
level 3; Stonewall Top 100 employer;
33% female and 9% BAME in senior
leadership positions.
As a responsible business, we continue to support our people with the challenges they are facing as a result of the cost-of-
living crisis. Further details of how the Board engaged with the workforce throughout the year can be found in the Governance
Report on pages 68 to 71.
1 Excluding promotions, the graduate half-year review and the structured increases for our apprentices.
Costain Group PLC
Annual Report and Accounts 2022
88
Annual Statement by Chair of the
Remuneration Committee
“ Our remuneration policy is designed to be simple and transparent, aligned with
delivering our strategy to transform the Group, and ultimately supporting the creation
of long-term sustainable shareholder value. The proposed AIP and LTIP metrics
and targets reflect our core financial and strategic priorities which are critical to our
success. This includes holding ourselves accountable to the highest safety, health and
environment standards and operating sustainably, ethically and inclusively. Our aim is
to always consider the wider workforce, our shareholders and other stakeholders by
taking a fair, prudent and balanced approach to remuneration.”
Fiona MacAulay
Chair of the Remuneration Committee
As the new chair of the Remuneration Committee (the Committee), I am pleased to present our Directors’ Remuneration
Report for the year ended 31 December 2022.
Our report describes the work of the Committee, how it has applied our Remuneration Policy (the Policy) that was
approved by shareholders at the 2020 AGM and sets out the Committee’s proposals for changes to that Policy that will
be subject to a binding shareholder vote at the 2023 AGM.
A summary of how the pay for our executive directors is aligned with delivering strategy to transform the Group and our
performance for 2022 is summarised in the ‘Remuneration at a Glance’ section.
The Annual Report on Remuneration (on pages 102 to 119) describes how the Policy has been applied for the period
ended 31 December 2022, and how we intend to implement the Policy for the 2023 financial period and is the subject of
an advisory shareholder vote at the 2023 AGM.
Investor engagement and Remuneration Policy
In 2022, the Committee has focused on the review and evolution of our Policy which we will ask shareholders to approve
at our AGM on 11 May 2023, in line with the normal three-year renewal cycle.
Our new Policy is proposed in the context of us making good progress on our journey to transform the Group, in line with our
mission to shape, create and deliver pioneering solutions that transform the performance of the infrastructure ecosystem.
The Committee reviewed all elements of the Policy to ensure alignment with our business strategy, the expectations of our
shareholders and the wider workforce. We have also been mindful of the need to attract and retain high calibre individuals in an
increasingly competitive market and to remunerate executives fairly and responsibly.
The Committee consulted the Company’s ten largest shareholders and the main proxy voting advisory agencies on our
Policy proposals. I met with shareholders who wished to discuss the proposals in more detail and responded in writing
to those requesting more information. Our major shareholders who provided feedback were largely very supportive of
the proposals. We had originally proposed that the 2023 LTIP performance measures include a relative TSR measure. As
part of the consultation exercise, some shareholders expressed a preference that we use an absolute rather than relative
measure, and we took into account this feedback in finalising our proposals. Details of the absolute TSR measure are set
out on page 112. The principal Policy changes are summarised below. Other minor changes have been made to reflect
the principal changes referred to below and to aid the operation of the Policy.
The Committee has concluded that the Policy approved in 2020 remains largely fit-for-purpose and supports the
strategy of the Group. However, the Committee is proposing the following changes to ensure that there is sufficient
flexibility built into the new Policy for the next three-year lifecycle:
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Overview GovernanceStrategic Report Financial Statements
Directors’ remuneration report continued
• LTIP, performance measures: The Policy approved in 2020 provides that at least 50% of an award will be subject to an
adjusted EPS performance measure. Additional flexibility has been included in the new Policy to ensure that the Long Term
Incentive Plan (LTIP) measures are aligned with the key financial and strategic areas of our business and to allow the LTIP to
be measured against strategic/transformation and environmental performance measures. This is particularly relevant in the
context of our transformation and growth strategy. Under the new Policy at least 75% of an award will be based on financial
and/or share price measures.
• Executive directors’ post-employment shareholding: Under the Policy approved in 2020, our approach to post-
employment shareholding requirements is to apply the ‘leaver’ provisions in our share plans. In the new Policy we have
introduced a requirement that for the first year after cessation, executive directors must retain such of their relevant
shares as have a value equal to 200% of salary, reducing to 100% of salary in the second year. In each case all relevant
shares must be retained if they have a value less than the required holding. Relevant shares are those acquired from
LTIP and deferred bonus awards granted from 1 January 2023 onwards. The ‘leaver’ provisions will continue to apply
to vested and unvested awards. We consider that this ‘tapered’ approach is a fair balance taking into account the size
of the business, the level of the in-service shareholding requirement, and the size of LTIP awards that are granted.
• Non-executive directors’ shareholding: The Policy approved in 2020 includes share ownership guidelines pursuant
to which non-executive directors are expected to build and maintain a shareholding worth not less than 100% of their
annual fee. In line with typical practice, these have been removed in the new Policy. Non-executive directors’ may
continue to acquire shares in the Company taking into account personal circumstances while remaining cognisant of
the importance of non-executive directors’ independence requirements.
• No increases to variable pay opportunity: The new Policy does not increase the variable pay opportunities
available. In the new Policy, as with the Policy approved in 2020, the combined annual incentive plan (AIP) and LTIP
maximum opportunities for any year may not exceed 250% of salary.
• LTIP – tax efficiency: The new Policy introduces the possibility to grant part of the LTIP award as a tax qualifying CSOP
option, introducing scope for tax savings for the Group and participants without increasing the pre-tax awardquantum.
2022 remuneration in the context of our business performance and outcomes for our
keystakeholders
The Committee has as usual considered executive remuneration in the light of outcomes for the wider workforce,
our shareholders and other stakeholders by taking a fair, prudent and balanced approach to remuneration.
• Our performance in 2022 delivered strong growth in revenue and operating profits, with adjusted revenue
1
up 20.6%,
reported revenue increase of 25.2%, adjusted operating profit
1
up 20.6% to £36.3m (FY21: £30.1m) and significant
free cash flow, ending the year with a net cash position of £123.8m. We have grown our core complex programme
delivery revenue and further strengthened our position as a delivery partner in the UK infrastructure marketplace.
Consequently, we are seeing good opportunities emerge in our chosen sectors, at margins we aspire to.
• We have effectively negotiated the challenges of material availability and inflation, as well as delays to some
contract awards, delivering a robust operational performance. We expect to increase margins as we enact further
operational improvements in the business during 2023 and beyond, and as we continue to grow the scale of our
consultancyservices.
• Our markets remain characterised by strong client demand and Costain enjoys good overall forward visibility with our
combined order book and preferred bidder book at FY22 increasing to £4.4bn (FY21: £4.3bn). This combined view is
increasingly relevant as we anticipate a shift in our business mix towards the preferred bidder book as we strengthen
our position as a delivery partner.
• Our people are our principal asset, and their safety remains our number one priority. As previously reported, in July,
the Group experienced a fatality on one of its rail contracts, and following our investigation, to prevent a recurrence
we are implementing a number of recommendations across our business including changes to current industry
practice. Our LTIR rate was lower at 0.09 (FY21: 0.15) with an Accident Frequency Rate of 0.05.
• We continue to drive the implementation of our climate change action plan to deliver low carbon solutions to every
customer by 2023, including tackling ‘Scope 3’ emissions, and to be net zero by 2035. During 2022 all relevant
contracts now have a carbon baseline target and implementation plan on how they will achieve their target in line with
PAS 2080. We also continued to improve climate and carbon literacy of our broader leadership team, with colleagues
completing our bespoke in-house training.
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Costain Group PLC
Annual Report and Accounts 2022
90
• The feedback from our people survey indicates that employee engagement and satisfaction scores remain high.
• As a responsible business, we are committed to paying the real living wage to all our employees and we continue
to support our people with the challenges they are facing as a result of the cost-of-living crisis. The programmatic
approach we have adopted is detailed in the Governance Report on page 70.
• To further support our employees, we made real living wage adjustments in January 2023, ahead of the 1April 2023
increase coming into effect. We are proposing an increased April 2023 salary budget of 6% (excluding promotions,
the graduate half-year review and the structured increases for our apprentices). The increases will be targeted at lower
income/vulnerable employees (with a further 1% budget for adjustments to address market pressures). We believe
this to be the most equitable and sustainable approach to supporting our team through the current period. Executive
directors will receive an increase below that awarded for the wider workforce. We have also set up a Cost-of-Living
Network to allow colleagues to share information and provide peer support. This will also enable us to target support
where it is needed.
Executive director base salary increases and variable pay outcomes for the year ended 31December2022
Helen Willis’ salary was increased by 3% for 2022, below the enhanced increase awarded to the wider workforce in April2022.
As set out in the Remuneration Report last year, when Alex Vaughan was appointed as CEO in May 2019, his base salary
was set at £425,000 (lower than his predecessor’s base salary of £482,700). For 2020 and 2021, the base salary increases
for Alex were 0% and 2% respectively (below the 2% and 2.5% increases for the wider workforce). The Committee is
mindful 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 and does not reflect his strong performance, notwithstanding the challenging
market conditions, and experience gained in role. However, Alex made the decision to decline a 6% increase to £460,000
for 2022 which was proposed last year in order to move his base to a market competitive level. Accordingly, Alex’s salary
was increased by 3% for 2022, below the enhanced increase awarded to the wider workforce.
The 2022 AIP was subject to a mixture of financial and non-financial performance measures aligned with key strategic
priorities. 50% was linked to Group adjusted EBITA and the remainder to continued improvement of our safety, health
and environment performance, profit secured for 2023, cash management and personal objectives linked to critical
strategic and corporate activities.
Taking into account the safety incident in July when the Group experienced a fatality on one of its rail contracts,
management and the Remuneration Committee exercised discretion to reduce the pay-out under the Group safety,
health and environment element of the 2022 AIP from 7.5% to 0%.
Based on performance against the performance measures, and after taking into account these decisions, Alex Vaughan
and Helen Willis each earned an AIP award equal to 108% of salary. One third of the AIP earned will be deferred into
shares for two years. Further details are set out on pages 106 to 108.
The LTIP award granted in 2020 (in October to Alex Vaughan and in November following her appointment to Helen
Willis) was subject to adjusted EPS performance for two thirds of the award and cash conversion performance for the
balance of the award. Taking into account market conditions at the time, the grant level for the executive directors was
reduced from 100% of salary to 55% of salary, with a pro-rata reduction then applied to Helen Willis’ award to reflect
her period of service during the performance period. Aggregate adjusted EPS measured over 2020, 2021 and 2022 was
25.3p and as a result 71.7% of this element vested. Average cash conversion over the period was 178% and as a result
this element of the award vested in full. The 2020 LTIP award is therefore due to vest at 81.1% in April 2023. LTIP awards
which vest will be subject to a two year holding period. Further details are set out on pages 108 and 109.
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 2022 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 of these factors, the Committee determined the outcomes as set out
above to be appropriate.
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Directors’ remuneration report continued
2022 LTIP awards
Taking into account the need to maintain an overall competitive package and having regard to the stretch in the
performance targets, LTIP awards were granted to the executive directors in April 2022 at a level of 100% of salary.
Awards are subject to adjusted 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 pages 109 and 110. The
Committee retains discretion to reduce the extent of vesting if it considers that any of the value at vesting represents a
‘windfall gain’.
Reward for the year ending 31 December 2023
• Executive director base salary increase: The CEO and CFO will receive a salary increase for 2023 of 5% (ie lower
than the wider workforce increases) and that the increases will take effect from 1 April 2023. As noted above, the
Committee is mindful that Alex Vaughan’s base salary is positioned at the lower end of the market. He has again
declined an increase in line with or slightly ahead of the wider workforce rate for 2023.
• AIP and LTIP quantum: No changes are proposed to the maximum AIP and LTIP opportunities. For 2023, the maximum
AIP opportunity for executive directors will be 150% of salary and the maximum LTIP opportunity will be 100% of salary.
Taking the above into account and the need to retain and incentivise the management team needed to deliver the
continued transformation of the business, the Committee strongly believes that scaling back the quantum of the LTIPs
(which are positioned at the lower end of market vs peers) is not in the best interests of shareholders. Retaining the
quantum of the LTIPs at 100% of salary provides alignment with shareholders and an incentive linked to the delivery of
long term sustainable performance. It is proposed that up to 25% of the maximum opportunity will vest for a threshold
level of performance in line with the limit in the current and new Policy. The Committee will retain 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 specifically 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.
• AIP performance measures: The annual bonus will continue to be based on financial, strategic and role-specific
personal metrics with at least 50% based on financial measures. For FY23 a rebalancing of the performance measures
will apply as set out below such that 70% of the bonus will be based on financial measures (Group adjusted EBITA,
profit secured for 2024 and cash flow), and 30% on non-financial measures (Group safety, health and environment and
personal performance).
Current AIP
weightings FY22
Proposed AIP
weightings FY23 Rationale
Group adjusted EBITA 50% 40% Core financial KPI
Profit secured for 2024 15% 15% Core financial KPI
Cash flow 15% 15% Core financial KPI
Safety, health and
environment 10% 10% Core non-financial KPI
Personal performance 10% 20% Increased weighting on measurable and robust personal
objectives provides a focus on the execution of our strategic
priorities and is aligned with our transformation strategy.
Costain Group PLC
Annual Report and Accounts 2022
92
• LTIP performance measures: For FY23, the cash conversion metric will be removed from the LTIP taking into
account the fact that cash flow is a performance measure for the annual incentive. The 2023 LTIP will be based on
thefollowingmeasures:
Metric and proposed weighting Rationale
Adjusted aggregate EPS (50% of max) Captures long-term sustainable earnings performance aligned
with the financial performance expected by ourshareholders.
Absolute TSR (25% of max) Provides a clear alignment of executive directors’ interests
with value created for shareholders and having regard to
the importance of execution of the strategy translating to
increases in our share price.
ESG metrics (25% of max)
Environmental: Reduction in Scope 1 and 2* carbon emissions
(15%weighting)
Social: Equality, diversity and inclusion (EDI) (10% weighting)
Reflects our long-term vision of creating connected, sustainable
infrastructure, enabling people and the planet to thrive.
Aligned with our goal to enhance the proportion of female
and ethnic diverse talent in senior leadership roles.
* Our climate change targets have been submitted to the Science Based Target Initiative (SBTi).
Further details of the performance targets for FY23 are included on pages 111 and 112.
Executive Share Plans
Our existing Long Term Incentive Plan and Share Deferral Plan (SDP) were approved by shareholders at the 2014 AGM and
will reach the end of their shareholder approved 10-year lives in May 2024. To coincide with the renewal of the Policy, we will
be seeking shareholder approval for a new LTIP and SDP at the 2023 AGM. These new plans will reflect the new Policy and
typicalpractice.
Summaries of the principal terms of the new plans are included in the Notice of AGM. Our approach to dilution limits in
these new plans is set out below.
Our current LTIP and SDP plans include the standard overall ‘10% in 10 years’ dilution limit on the use of new issue shares and
treasury shares for all of the Company’s share plans, and also the ‘5% in 10 years’ dilution limit which applies only to ‘discretionary’
plans. Each of our new plans will retain the ‘10% in 10 years’ limit. However, we have not included the ‘5% in 10 years’ limit.
The current dilution under our discretionary plans is at the ‘5% in 10 years’ limit. This restricts our ability to grant LTIP awards
going forwards over newly issued shares. The ability to grant LTIP awards to key executives is critical to our ability to attract
and retain high calibre individuals in an increasingly competitive market and to remunerate executives fairly and responsibly.
Not including the ‘5% in 10 years’ limit means that we can continue to operate our LTIP in a way which is aligned with our
overall approach to reward – enabling us to incentivise and retain the employees who are key to delivery of long-term
sustainable performance, including those below the executive director level, while at the same time giving us the flexibility to
settle awards in the most appropriate way taking into account all relevant considerations, including cash cost, dilution and the
interests of shareholders as a whole.
New Chair
Kate Rock was appointed to the Board on 1 November 2022 and assumed the role of chair with effect from 1 December 2022.
Kate’s fee as chair is £195,000 p.a. taking into account the time commitment expected of the role. The chair’s fee will not be
subject to an increase in 2023.
Shareholder and employee engagement
As referred to above, I wrote to investors holding in total over 60% of Costain’s shares to outline the Committee’s Policy and
remuneration proposals for 2023 and invited their feedback. The majority of shareholders who engaged were largely very
supportive of the proposals. A small number of our major shareholders expressed a strong preference for an absolute rather
than relative TSR measure in the LTIP. Reflecting these constructive discussions, we modified our original proposal which was
to include a relative TSR measure in the LTIP. As set out above, an absolute TSR measure will account for 25% of the overall LTIP
award. This maintains a clear alignment with value created for shareholders, and also addresses any concern that this element of
the LTIP awards could vest by reference to strong relative performance without an appropriate level of absolute performance.
As set out on page 101, we engage with employees on executive remuneration via various channels.
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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 2022 demonstrate
our commitment to ensuring that executive directors’ reward is aligned with performance and the outcomes for all
ourstakeholders.
We look forward to receiving your support at our 2023 AGM, where I will be available to respond to any questions that
shareholders may have on this report, or our intended approach to reward for 2023.
Fiona MacAulay
Committee Chair
13 March 2023
Definitions used in this report
AIP: Annual Incentive Plan.
Adjusted EBITA: Underlying 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.
Adjusted EPS: Underlying 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 (and including where relevant the plan approved in 2014 and the plan to be proposed to
shareholders at the 2023 AGM).
SDP: Share Deferral Plan (and including where relevant the plan approved in 2014 and the plan to be proposed to
shareholders at the 2023 AGM).
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 TransparencyRules.
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, 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. The new post-employment shareholding
requirements further align the interests of executive
directors with those of shareholders following the
endofemployment.
• Predictability – details of the potential values
thatmay be earned by executive directors
throughtheir remuneration arrangements are
setoutin 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 otherwise stated.
Costain Group PLC
Annual Report and Accounts 2022
94
Directors’ remuneration policy
The directors’ remuneration policy for which approval will be sought at the 2023 AGM, is set out below.
Element
Purpose and link
tostrategy Operation Performance metrics
Maximum
opportunity
Salary • To attract and
retain high-calibre
individuals.
• Reflects skills,
experience and
performance
inrole.
• Provides an
appropriate level
of basic fixed
income while
avoiding excessive
risk arising from
over reliance on
variableincome.
• 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 andresponsibilities.
• 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 ingeneral.
• Increases will usually not exceed the
average salary increases for the wider
workforce (in percentage terms).
• Higher increases may be awarded in
appropriate 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
andperformance.
• N/A • To avoid setting
expectations
of future salary
increases there
is no maximum
salary value set
under thepolicy.
Annual
Incentive
Plan
• To incentivise the
achievement of
key financial and
strategic targets
for the relevant
year without
encouraging
excessive
risktaking.
• Promotes greater
alignment with
shareholders.
• To facilitate
shareownership.
• Two thirds paid in cash.
• Deferral into shares of one third of earned
AIP; this vests following the end of a two
year deferral period, which ordinarily
ends 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 ending on the date
on which shares can first be acquired. The
benefit may assume the reinvestment of
dividends into Costain’s shares on such
basis as the Committee determines.
• 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.
• Not pensionable.
• The Committee considers and
approves the performance
measures and targets each year
and ensures they are aligned
with business strategy and are
sufficiently stretching.
• Financial metrics will comprise at
least 50% of AIP opportunity. Any
balance of the AIP opportunity
will be based on financial metrics
and/or non-financial metrics such
as safety and health targets and
personalobjectives.
• 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%. Subject to
the discretion to amend the pay-out
as referred to below, up to 60%
of the maximum potential will be
earned for on-target performance.
The targets applying to non-financial
measures are based on a sliding
scale between 0% and 100%.
• 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
unforeseencircumstances.
• Maximum: 150%
of salary.
• The combined
AIP and LTIP
maximum
opportunities
for any year may
not exceed 250%
ofsalary.
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Overview GovernanceStrategic Report Financial Statements
Element
Purpose and link
tostrategy 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, usually, over three years.
Awards may be granted as conditional
awards or nil or nominal cost options
or, as referred to below in relation to
‘Qualifying LTIP’ awards, as options
with an exercise price equal to the
market value of a share when the option
isgranted.
• Awards are subject to a further holding
period of two years following the end
of the performance period before they
arereleased.
• 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 ending on the date on which the
vested shares can first be acquired. The
benefit may assume the reinvestment of
dividends into Costain’s shares on such
basis as the Committeedetermines.
• Awards may be subject to malus and
clawback as describedbelow.
• The Committee may, at its discretion,
structure an LTIP award as a ‘Qualifying
LTIP’ award consisting of a tax qualifying
option with an exercise price equal to the
market value of a share when the option
is granted, and an ‘ordinary’ LTIP award,
with the ordinary award scaled back
at exercise to take account of any gain
made on the exercise of the tax qualifying
option. The provisions of this policy will
apply to a tax-qualifying option with any
amendments necessary to take account
ofthe applicable taxlegislation.
• The performance condition will
be based on one or more key
metrics aligned to the business
strategy, including but not
limited to EPS, return measures,
cash-based measures, strategic/
transformation measures and/or
environmentalmeasures.
• At least 75% of the opportunity will
be subject to financial and/or share
pricemeasures.
• Subject to the discretion to amend
the pay-out as referred to below,
up to 25% of the maximum is
earned for threshold performance,
rising to 100% for maximum
with straight line vesting usually
applying between thesepoints.
• 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 grantdate.
• 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%
ofsalary.
• If a Qualifying
LTIP award is
granted, the
value of shares
subject to the
tax-qualifying
option will not
count towards
the limits
referred to
above, reflecting
the provisions for
the scale back
of the ordinary
LTIPaward.
SAYE
Scheme
• Offered to all UK
employees, to
facilitate share
ownership and
provide further
alignment
withshareholders.
• Periodic grants which normally vest
after three or five years subject to
continuedservice.
• Operated under HMRC requirements as
atax qualifyingplan.
• Not subject to performance
conditions in line with
usualpractice.
• Participation
on the same
basis as all other
employees.
Pension • To aid retention
and remain
competitive in the
marketplace.
• Annual pension allowance.
• Paid as a cash contribution to the
Defined Contribution pension scheme,
personal pension arrangements and/or a
cashsupplement.
• 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
fuelallowance.
• Medical insurance.
• Life assurance.
• Other benefits as appropriate, for
example, relocation expenses and travel
and subsistence.
• N/A • N/A
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
96
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 (ie 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 has adopted a post-employment shareholding requirement. Shares are subject to this requirement only
if they are acquired from share plan awards (LTIPs and SDP awards) granted after 1 January 2023. Following employment,
an executive director must retain:
• for the first year after employment, such of their shares which are subject to the post-employment requirement as have
a value for these purposes equal to 200% of salary
• for the second year after employment, such of those shares as have a value for these purposes equal to 100% of salary
or in either case and if fewer, all of those shares. The Committee retains discretion to vary the application of the post-
employment shareholding requirement in compassionate circumstances.
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. For 2023, these non-
financial indicators include safety, health and environment targets, and personal objectives, with further information
included on page 92.
As set out above, at least 75% of the LTIP opportunity will be subject to financial and/or share price measures, with any
balance based on strategic/transformation measures and/or environmental measures. For 2023, the LTIP financial/share
price metrics which apply to 75% of the awards in aggregate are based on long-term earnings performance which is
aligned with the financial performance expected by our shareholders, and a TSR measure in order for there to be a clear
alignment of Executive Directors’ interests with value created for shareholders and having regard to the importance of
execution of the strategy translating to increases in Costain’s share price. The balance of the 2023 awards will be based
on environmental and social measures, with further information on page 93.
AIP and LTIP performance measures may be adjusted if the Committee considers that it would be appropriate to amend
the performance measures (eg to take into account 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.
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Directors’ remuneration report continued
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.
Illustration of application of remuneration Policy
2,000 2,000
1,800 1,800
1,600 1,600
1,400 1,400
1,200 1,200
1,000 1,000
800 800
600 600
400 400
200 200
0 0
Minimum
performance
Minimum
performance
Performance
in line with
expectations
Performance
in line with
expectations
Maximum
performance
Maximum
performance
Maximum
performance
(with 50% share
price increase
Maximum
performance
(with 50% share
price increase)
Alex Vaughan Helen Willis
Total remuneration (£000) Total remuneration (£000)
100%
100% 45%
35%
20%
31%
41%
28%
36%
36%
28%
44% 30%
42%
28%
37%
37%
26%
36%
20%
£518k
£440k
£985k
£1,413k
£1,608k
£1,175k
£1,690k
£1,925k
Base salary, benefits and pension AIP LTIP
The charts above set out an illustration of the remuneration that might be received by each of the two executive
directors for 2023 under the Policy set out above in four different performance scenarios.
Performance scenario
Fixed pay Variable pay
Base salary pension and benefits AIP LTIP
Minimum • Salary effective 1 April 2023 N/A N/A
On-Target • Pension contribution: 10% of salary 60% vesting (90% of salary) 50% vesting (50% of salary)
Maximum • Benefits as paid in 2022 100% vesting (150% of salary) 100% vesting (100% of salary)
Maximum plus share
price appreciation
As with the Maximum scenario, but assuming a 50% share
price increase for the purposes of the LTIP element.
Costain Group PLC
Annual Report and Accounts 2022
98
Service agreements and loss of office
The executive directors have service contracts that can be terminated by either party on the giving of 12 months’ notice.
There is no entitlement to the payment of a predetermined amount on termination of employment in any circumstances.
There are no liquidated damages provisions for compensation on termination within the executive directors’ service
agreements. The executive directors’ service agreements do contain provisions for payment in lieu of notice, but these
are at the Company’s sole discretion.
The Company seeks to avoid any payment for failure. The circumstances of the termination (taking into account the individual’s
performance) and an individual’s duty and opportunity to mitigate losses are taken into account in every case. Our policy is to
stop or reduce compensatory payments to former executive directors to the extent that they receive remuneration from other
employment during the compensation period and that any such payments would be paid monthly in arrears.
It is the Committee’s intention that any future service contracts will reflect the Policy.
Executive
directors Date of contract Expiry date Termination payment
Remuneration
entitlement
Compensation on termination
following a change of control
Alex
Vaughan
7 May 2019 Terminable
on 12months’
notice.
Base salary plus benefits
ordinarily paid monthly and
subject to mitigation. Benefits
provided in connection with
termination may include for
example, pension, outplacement
fees, payments in respect of
accrued holiday and legalfees.
No other specific
entitlements are
contained within
our contracts.
No additional provisions
other than those contained
in the ‘Termination
payment’column.
Helen Willis 30 November 2020
The treatment of any incentive payment on termination will be determined in accordance with the rules of the AIP, SDP
or LTIP. The principal provisions of the rules are summarised below. SAYE Scheme options may vest on termination in
accordance with the Scheme rules, which do not include any discretion on the part of the Committee.
AIP Ordinarily, there will be no entitlement to a bonus unless the participant is employed and not under notice at the bonus
paymentdate.
In the event of termination due to death, redundancy, injury, ill-health, disability or retirement (a ‘good leaver’) a time pro-rated
bonus may be earned. The Committee has discretion to pay the bonus following the end of the year (subject to assessment of the
performance measures) or at termination (subject to the Committee’s assessment of the performance measures at that time).
A good leaver will ordinarily only be entitled to a bonus calculated by reference to the proportion of their AIP award which would have
been paid in cash, and not to an SDP award. However, the Committee retains discretion to award the SDP element or to pay the whole
of the AIP award for the year of termination (and prior year) in cash (after assessment of performance and application of time pro-rating).
The Committee would only pay the whole of the bonus in cash where the termination was in compassionate circumstances (such as in
the event of death or due to ill-health).
SDP In the event of termination due to injury, disability, or any other reason at the Committee’s discretion, unvested SDP awards shall
continue and vest on the normal vesting date, unless, in exceptional circumstances, the Committee permits the award to vest at
cessation. If a participant dies, their unvested SDP awards will vest at that time.
Unvested SDP awards shall lapse on termination for any other reason.
LTIP Termination during the vesting period
Unvested LTIP awards will usually lapse on termination.
However, in the event of termination due to injury, disability, or any other reason at the Committee’s discretion, unvested LTIP awards
shall be retained. A retained award shall ordinarily continue and vest and be released on the normal timescale, although in exceptional
circumstances the Committee may permit the award to be released at vesting. The extent of vesting will be determined taking into account
the extent to which the performance conditions are satisfied and, unless the Committee determines otherwise, the proportion of the
vesting period that has elapsed at the date of cessation.
If a participant dies, their unvested LTIP awards will vest and be released at the date of cessation, with the extent of vesting determined
taking into account the extent to which the performance conditions are satisfied at that date (as assessed by the Committee) and, unless
the Committee determines otherwise, the proportion of the vesting period that has elapsed at the date ofcessation.
Termination during the holding period
If a participant is dismissed during the holding period for misconduct, their award will lapse.
If a participant ceases employment during the holding period other than due to dismissal for misconduct, their award will continue
and be released (to the extent vested by reference to the performance conditions) on the normal release date, although the
Committee has discretion to release the award at cessation.
Where a new director is granted a ‘buy out’ award as described below, the leaver provisions would be determined at the
time of grant.
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Directors’ remuneration report continued
Recruitment remuneration
In the cases of hiring/appointing a new executive director, the Committee will typically apply the provisions of the
policy set out above. However, the Committee retains the discretion to make payments or awards which are outside the
terms of the policy set out above to facilitate the hiring of candidates of the appropriate calibre required to implement
the Group’s strategy, subject to the principles and limits set out below. The individual will move over time onto a
remuneration package that is consistent with the approved policy.
The Committee will not use its discretion to make payments or awards outside the policy set out above to offer a
non-performance related incentive payment (for example a ‘guaranteed sign-on bonus’).
In determining appropriate remuneration, the Committee will take into consideration all relevant factors (including the
quantum and nature of remuneration) to ensure that arrangements are in the best interests of both the Company and
itsshareholders.
Circumstances in which the Committee may make payments or awards which are outside the terms of the policy set out
above include (but are not limited to) the following:
• an interim appointment is made to fill an executive director role on a short-term basis
• exceptional circumstances require that the chair or a non-executive director takes on an executive function on a
short-term basis
• an executive director is recruited at a time in the year when it would be inappropriate to provide a bonus or
long-term incentive award for that year as there would not be sufficient time to assess performance; subject to the
limit on variable remuneration set out below, the quantum in respect of the months employed during the year may
betransferred to the subsequent year so that reward is provided on a fair and appropriate basis or
• the executive director received benefits at their previous employer that the Committee considers it appropriate torecognise.
The Committee may also alter the performance measures, performance period, vesting period and holding period of the
annual bonus or long-term incentive if the Committee determines that the circumstances of the recruitment merit such
alteration. The rationale will be clearly explained.
The Committee may make an award in respect of hiring to ‘buy-out’ remuneration arrangements forfeited on leaving a
previous employer. In doing so the Committee will take account of relevant factors regarding the forfeited arrangements,
which may include any performance conditions attached to awards forfeited (and the likelihood of meeting those
conditions), the time over which they would have vested and the form of the awards (eg cash or shares). It will generally
seek to structure buy-out awards on a comparable basis to remuneration arrangements forfeited. These payments or
awards are excluded from the maximum level of variable remuneration referred to below. However, the Committee’s
intention is that the value awarded would be no higher than the expected value of the forfeited arrangements. Where
considered appropriate, buy-out awards will be subject to forfeiture or clawback on early departure.
Where necessary, the Company will pay appropriate relocation, travel and subsistence costs. The Committee will seek to
ensure that no more is paid than is necessary.
The maximum level of variable remuneration (excluding buy-out awards) which may be awarded to a new executive
director is 350% of base salary. Subject to this overall maximum, incentive awards may be granted within the first 12
months of appointment above the normal maximum annual award opportunities. The Committee will ensure that such
awards are linked to the achievement of appropriate and challenging performance measures and will be forfeited if
performance or, other than in exceptional circumstances, continued employment conditions are not met.
Any share awards referred to in this section will be granted as far as possible under the Company’s ordinary share plans.
If necessary, and subject to the limits referred to above, to facilitate the awards mentioned above, the Committee may
adopt a new arrangement in accordance with the provisions of the Listing Rules which allow for the grant of awards to
facilitate, in unusual circumstances, the recruitment of a director.
Where a position is filled internally, any ongoing remuneration obligations or outstanding variable pay elements shall be
allowed to continue according to the original terms.
Fees payable to a newly-appointed chair or non-executive director will be in line with the fee policy in place at the time
of appointment.
Costain Group PLC
Annual Report and Accounts 2022
100
External directorships
The Company encourages executive directors to take up non-executive appointments, with the prior consent of the
Company, in the belief that such appointments broaden their skills and the contribution which they can make to the
Company’s performance. Generally, no more than one such appointment may be undertaken. There must be no
conflict of interest and the time devoted to the external appointment must be reasonable in relation to the individual’s
commitment to the Company. Fees paid for external appointments may be retained by the individual concerned.
Chair and other non-executive directors
The non-executive directors have letters of appointment. The 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, or three months for the chair, without compensation for loss of office. Each non-
executive director is subject to re-election at the AGM each year. For details of each non-executive director’s original
appointment see page 116.
Remuneration policy for chair and non-executive directors
Element
Purpose and link
tostrategy Operation
Maximum
opportunity
Fees and
relevant
benefits
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 typically reviewed annually and any
increase is usually effective from 1April.
• 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
chair of the Audit and Remuneration Committees. Additional fees may also be
paid for additional time commitments.
• Overall fees will remain within the limit set out in the Company’s Articles
ofAssociation.
• 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
Legacy arrangements
The Committee retains discretion to make any remuneration payment or payment for loss of office outside the policy
in this report where the terms of the payment were agreed before the policy came into effect provided, in the case
of a payment whose terms were agreed after 7 May 2014 (the date of approval of the Company’s first Directors’
Remuneration Policy) and before this policy came into effect, the payment was permitted under the policy applying
at the date the payment was agreed. For these purposes, ‘payment’ includes the satisfaction of awards of variable
remuneration and, in relation to an award over shares, the terms of the payment are agreed at the time the award
isgranted.
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’. The chief people
and sustainability officer briefs the Board on employees’ views, ensuring that the Committee’s decisions are taken with
appropriate insight to employees’ views.
Consideration of shareholder views
The Committee consulted with shareholders in relation to the development of this Policy as discussed in the Committee
chair’s statement on page 89. On an ongoing basis, 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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Overview GovernanceStrategic Report Financial Statements
Annual Report on Remuneration
The Annual Report on Remuneration set out on pages 102 to 119 provides details of how our remuneration policy
was implemented in the year ended 31 December 2022 and how we intend for the new Policy (see pages 95 to 101),
subject to approval by shareholders at the 2023 AGM, to apply for the year ending 31 December 2023. This Annual
Report on Remuneration will be subject to an advisory vote at the 2023 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 46 and 47 and details of their attendance at
Committee meetings is shown below. The Committee was chaired from 12 January 2022 on an interim basis by
Jacqueline de Rojas pending the departure of Alison Wood, with Fiona MacAulay taking over as Committee chair
from 5May 2022. The general counsel and company secretary delegates to the deputy company secretary all
company secretarial matters in relation to this Committee.
Committee members
Director Attendance
Fiona MacAulay
1
100%
Jacqueline de Rojas
2
100%
Neil Crockett 100%
Tony Quinlan 100%
Alison Wood
3
–
1 Appointed to the Board on 6 April 2022 and as chair of the Committee on 5 May 2022. Fiona attended the Committee meeting on 5 April 2022 by invitation.
2 Chair of the Committee on an interim basis from 12 January 2022 to 5 May 2022.
3 Stepped down as chair of the Committee on 12 January 2022 and from the Board on 28 January 2022. No Committee meetings were held before 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
10 February 2022 Consideration given to the extent to which the performance measures were likely to have been
met with regard to the LTIP granted in 2019.
Determined the level of pay-out of the 2021 AIP.
Contemplated whether to defer more than the usual third of bonus into shares in recognition of
the wider stakeholder experience.
Approved the 2022 AIP performance measures and list of participants.
Approved indicative performance targets for the 2022 LTIP grant.
Reviewed and approved the chair’s fee increase of 3% for 2022 against benchmarked data.
Reviewed and approved the executive directors’ and senior executives’ salary increases for 2022
against benchmarked data.
Noted the 2021 people dashboard on key HR metrics across the workforce, which set out the
workforce experience, including reward and compensation.
Reviewed the draft Directors’ Remuneration Report in the 2021 annual report.
Directors’ remuneration report continued
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Annual Report and Accounts 2022
102
Date Key agenda items
3 March 2022 Update on outstanding matters from the previous meeting:
• Approval of deferral of one half of the bonus for executive directors (usual one third).
• Finalised the 2022 AIP targets.
Reviewed again the draft Directors’ Remuneration Report in the 2021 annual report.
5 April 2022 Approved the grant of awards under the 2022 LTIP and determined quantum, performance
targets, participants and other terms.
Approved the grant of awards under the 2022 SDP in relation to the 2021 bonus pay-out.
5 October 2022 Considered measures taken to date in respect of the cost-of-living crisis.
Considered in detail proposals for the new remuneration policy.
Received benchmarking data for the CEO, CFO and senior managers.
Reviewed progress against actions arising from the 2021 internal Committee evaluation.
Considered the current level of dilution against the limits set out in the share plan rules.
Considered pay increases to those senior managers promoted or taking on increased
responsibilities.
Considered the treatment of executive share awards to departing senior managers.
13 December 2022 Endorsed further measures to be taken in respect of the cost-of-living crisis.
Received a governance update and market trends paper from the Committee’s advisers.
Approved the consultation letter to be issued to our largest shareholders and their
representative bodies in respect of the proposed remuneration policy.
Reviewed and discussed the proposed revised performance targets for the 2023 LTIP and list
of participants.
Approved a revised 2023 AIP structure and list of participants, with targets to be finalised at the
next meeting.
Determined 6.0% annual salary increase for the wider workforce for 2023.
Reviewed potential CEO and CFO salary increases for 2023 for final approval at the February
2023 meeting.
Agreed no changes required to the Committee’s terms of reference other than role title changes
to reflect the transformation project.
Considered the treatment of executive share awards to departing senior managers.
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Committee effectiveness review
In 2022, the review of the effectiveness of the Board and its Committees was conducted internally. The evaluation
process is discussed in greater detail in the Governance Report on page 55. 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.
The area the Committee identified for additional focus in 2023 was in relation to concluding the consultation on
the remuneration Policy and finalising the remuneration framework for approval by shareholders at the 2023 AGM.
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 chief people and sustainability officer (previously the Group HR
director) and the general counsel and company secretary were invited to attend various meetings of the Committee.
Noindividual was 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 £44,214 (2021: £27,300) for the year ended 31 December 2022 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 2022
Last year’s Remuneration Report was approved by shareholders with a 87.94% (2021 AGM: 98.18%) 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 AGM on 19 June 2020 and can be found in the 2019 annual report at www.costain.com/investors. A new
policy is being submitted for approval by shareholders at the 2023 AGM.
Voting on the Costain 2022 Sharesave Plan at the AGM in 2022
The Sharesave Plan 2022 was approved by shareholders with a 99.72% vote in favour (including discretionary votes).
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
104
Implementation of policy in the year to 31 December 2022
Single total figure of remuneration for each director
This table and the associated footnotes have been audited by PwC LLP.
2022
Fixed Variable
Total
£
Salary and
fees
6
£
Taxable
benefits
£
Pension*
£
Subtotal
£
Annual
incentive
£
LTIP
£
Subtotal
£
Executive directors
Alex Vaughan 443,250 2,623 44,325 49 0,198 482,220 174,297
#
656,517 1,14 6,715
Helen Willis 368,100 11,928 36,810 416,838 400,464 81,406
#
481,870 898,708
Non-executive chair
Kate Rock
1
20,367 – – 20,367 – – – 20,367
Paul Golby
2
159,783 – – 159,783 – – – 159,783
Non-executive directors
Bishoy Azmy
3
48,000 – – 48,000 – – – 48,000
Neil Crockett
4
49,050 – – 49,050 – – – 49,050
Jacqueline de Rojas 51,358 – – 51,358 – – – 51,358
Fiona MacAulay
5
41,211 – – 41,211 – – – 41,211
Tony Quinlan
6
65,725 – – 65,725 – – – 65,725
Alison Wood
7
3,692 – – 3,692 – – – 3,692
2021
Fixed Variable
Total
£
Salary and
fees
£
Taxable
benefits
£
Pension**
£ Subtotal
Annual
incentive
£
LTIP
£ Subtotal
Executive directors
Alex Vaughan 431,375 12,892 43,138 487,405 474,683 13,894
##
488,577 975,982
Helen Willis 360,000 11, 855 36,000 4 07, 85 5 394,200 – 394,200 802,055
Non-executive chair
Kate Rock
1
– – – – – – – –
Paul Golby
2
169,770 – – 169,770 – – – 169,770
Non-executive directors
Bishoy Azmy
3
47,762 – – 47,762 – – – 47,76 2
Neil Crockett
4
11, 323 – – 11, 323 – – – 11,323
Jacqueline de Rojas 47,762 – – 47,762 – – – 47,76 2
Fiona MacAulay
5
– – – – – – – –
Tony Quinlan
6
50,106 – – 50,106 – – – 50,106
Alison Wood
7
59,258 – – 59, 258 – – – 59,258
# 2020 LTIP award of 553,909 shares (Alex Vaughan) and 258,705 shares (Helen Willis) vested at 81.1%. Value calculated based on average share price over the three
months ended 31 December 2022 being 38.8p per share.
## 2019 LTIP award of 138,942 shares vested at 25%. Value calculated based on share price at first business date after vesting on 9 May 2022 being 40.0p per share. In
accordance with the applicable regulations, the value included in the 2021 Directors’ Remuneration Report was based on the average share price over the three months
ended 31 December 2021 being 53.85p per share.
1 Appointed to the Board on 1 November 2022.
2 Stepped down from the Board on 1 December 2022.
3 The non-executive director basic annual fee was increased to £49,400 from 1 April 2022. Due to an administrative error, the increase was not paid to Bishoy Azmy
and the previous fee of £48,000 continued to be paid. The correct fee will be paid in March 2023 backdated to April 2022 and this will be reflected in the Directors’
Remuneration Report for 2023.
4 Appointed to the Board on 6 October 2021.
5 Appointed to the Board on 6 April 2022.
6 Appointed to the Board on 1 February 2021.
7 Stepped down from the Board on 28 January 2022.
* A pension contribution of £1,667 was paid into the Company’s Group Flexible Retirement Plan for Alex Vaughan and the balance was paid to him directly as a taxable
cash sum. The amount quoted for Helen Willis was paid directly as a taxable cash sum.
** 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
cash sum. The amount quoted for Helen Willis was paid directly as a taxable cash sum.
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Additional notes to the single total figure of remuneration
(a) Annual salaries for executive directors
The annual salaries with effect from 1 April 2022 were £446,500 for Alex Vaughan and £370,800 for Helen Willis.
(b) Taxable benefits provided to executive directors
The main benefits available to the executive directors during 2022, and their approximate values, were a car benefit
of £1,195 (2021: £11,537) for Alex Vaughan, noting a fully electric car selected in 2021, and car allowance of £10,500
(2021: £10,500) for Helen Willis, together with private medical insurance for Alex Vaughan of £1,428 (2021: £1,355) and
Helen Willis of £1,428 (2021: £1,355). This package of benefits was unchanged from 2021.
(c) Determination of the 2022 annual incentive
The maximum AIP opportunity for the chief executive and the chief financial officer for the year ended 31 December
2022 remained unchanged from previous years 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 2022 AIP continued to align with the Company’s
strategy while not encouraging inappropriate business risks to be taken. These included inter alia a target maximum
of£37.0m for Group adjusted EBITA.
The achievement of the performance measures has been reviewed, with appropriate input from the Audit Committee,
following the end of the 2022 financial year. As shown in the table below, Alex Vaughan and Helen Willis both earned
an AIP award equal to 72% 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 89 to 94, in line with good
practice these outcomes were reviewed in the context of the broader stakeholder experience. Taking into account
the safety incident in July when the Group experienced a fatality on one of its rail contracts, management and the
Remuneration Committee exercised discretion to reduce the pay-out under the Group safety, health and environment
element of the 2022 AIP from 7.5% to 0%.
The Committee considered that the AIP outcomes, after taking into account these decisions, are a fair reflection of the
Group’s underlying financial performance achieved in 2022. 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.
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
106
Performance measures
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
%
Pay-out
Alex
Vaughan
Alex
Vaughan
Helen
Willis
Helen
Willis Threshold Maximum
Actual
performance
Group adjusted EBITA (with
90% cash conversion)
1
50% 43% 50% 43% £31.5m £ 37.0 m £36.3m 43%
ESG (including safety,
health andenvironment
2
) 10% 0% 10% 0% n/a
LTIR 0.15
AFR 0.04
LTIR 0.09
AFR 0.05 0%
3
Profit secured for 2023 15% 4% 15% 4% £71.9m £87.9 m £75.9m 4%
Cash flow
4
15% 15% 15% 15% £105.5m £128.9m £142.6m 15%
Personal performance 10% 10% 10% 10% see personal performance section below 10%
Total 100% 72% 100% 72% 72%
1 Earnings before interest, tax and amortisation; calculated on an adjusted basis.
2 Includes Lost Time Injury Rate (LTIR) and Accident Frequency Rate (AFR) targets and the requirement for all contracts to have a carbon baseline with an associated
reduction plan.
3 The percentage pay-out assessed against the targets set for this element of the bonus was 7.5% out of a maximum of 10%. Taking into account the safety incident in July
when the Group experienced a fatality on one of its rail contracts, management and the Remuneration Committee exercised discretion to reduce the pay-out under this
element to 0%.
4 Measured as average month end cash balances, pre-acquisition and investments. Actual performance was adjusted to exclude the impact of the £43.4m payment
relating to the Peterborough & Huntingdon contract in February 2022 which was one-off in nature in accordance with the target set.
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 and Helen Willis’ performance against their personal objectives are set out below.
Alex Vaughan
Objective Achievement during the year Maximum Award
Performance Strengthened the resilience of Costain by embedding risk management, broadened the
customer mix in our growth markets and lower risk contract portfolio.
Improved contract margin resilience through enhanced contract delivery via our
Operational Excellence Model, financial reviews and senior management ownership.
Continued to build our expertise for example we are now one of the leading Delivery
Partner consultancies in the UK.
5% 5%
People Successful appointments made to strengthen the executive team. Launch of accelerator
programme to support Executive Board succession.
Launched our refreshed values and behaviours and embedded them throughout the
employee lifecycle.
Completed Best Companies employee engagement survey achieving a 1 star rating,
recognised as a ‘Very Good Company’ to work for.
2.5% 2.5%
Planet Submitted our climate change action plan to the Science-Based Target Initiative.
Reduction in combined Scope 1 and 2 emissions.
Introduced ESG metrics into our long term incentive plan for senior managers.
2.5% 2.5%
10% 10%
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Overview GovernanceStrategic Report Financial Statements
Helen Willis
Objective Achievement during the year Maximum Award
Performance Strengthened the resilience of Costain by embedding risk management, broadened the
customer mix in our growth markets and lower risk contract portfolio.
Improved contract margin resilience through enhanced contract delivery via our
Operational Excellence Model, financial reviews and senior management ownership.
Continued to build our expertise for example we are now one of the leading Delivery
Partner consultancies in the UK.
5% 5%
People Worked with the people and finance teams to implemented programmatic cost-of-
living support measures.
Launched our refreshed values and behaviours and embedded them throughout the
employee lifecycle.
Completed Best Companies employee engagement survey achieving a 1 star rating,
recognised as a ‘Very Good Company’ to work for.
2.5% 2.5%
Planet Significant progress towards converting revolving credit facility to a sustainability-
linked revolving credit facility with three ESG key performance indicators (converted in
2023 – see page 38).
Reduction in combined Scope 1 and 2 emissions.
Introduced ESG metrics into our long term incentive plan for senior managers.
2.5% 2.5%
10% 10%
(d) Vesting of the October/November 2020 LTIP award
The LTIP awards granted on 7 October 2020 and 30 November 2020 to Alex Vaughan and Helen Willis respectively
were based on adjusted EPS (two thirds) and cash conversion (one third) performance for the three years ended
31December 2022.
At the time of grant of the awards, the Committee took into account market conditions and reduced the quantum of
awards from 100% of salary to 55% of salary.
Performance against the measures and the resulting vesting outcome is shown below. Aggregate adjusted EPS for the
three financial years, calculated on an adjusted basis approved by the Committee, was 25.3 pence as a result of which
this element of the LTIP awards is due to vest at 71.7%. Cash conversion performance targets were achieved to the full
extent and so 100% of this element of the award is due to vest. Therefore, the 2020 LTIP is due to vest over a total of
81.1%, with the remaining 18.9% of the award lapsed.
The award vests in April 2023 but is subject to a further holding period of two years following the end of the
performance period, thereby ensuring long-term alignment of the executive directors’ and shareholders’ interests.
(A) Adjusted EPS performance measures (relating to two thirds of the award)
Aggregate adjusted EPS for the financial years ended 31 December 2020, 2021 and 2022 Vesting level for awards
Below 22.6 pence 0%
22.6 pence 15%
Between 22.6 pence and 26.7 pence 15–100% pro-rata
26.7 pence or more 100%
Actual performance: 25.3 pence Vesting outcome: 71.7%
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.
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
108
(B) Cash conversion performance measures (relating to one third of the award)
Average cash conversion for the financial years ended 31 December 2020, 2021 and 2022 Vesting level for awards
Below 80% 0%
80% 15%
Between 80% and 100% 15–100% pro-rata
100% 100%
Actual performance: 178% 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 £2,743 (2021: £2,411) and for Helen Willis £2,054 (2021: £2,021).
The Group offers a Group Flexible Retirement Plan which was set up in 2009 with Standard Life for employees and senior
management. This was switched to Scottish Widows with effect from 1 May 2022. Alex Vaughan was a participant of
these schemes until 31 May 2022.
(f) Chair
With effect from her appointment as chair on 1 December 2022, the basic annual fee for Kate Rock was £195,000. Kate
received the basic annual non-executive fee of £49,400 (pro-rated) from her appointment as a director on 1 November
2022 until her appointment as chair. Remuneration for the former chair, Paul Golby, comprised a basic annual fee of
£175,700 from 1 April 2022.
(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 2022 were as follows:
2022 Fees Basic Fee
Senior independent
director
Audit Committee
chair
Remuneration
Committee chair
Fees £49,400 £6,900 £9,90 0 £7, 4 0 0
Grants made during the year
These tables and the associated footnotes have been audited by PwC LLP.
2022 LTIP Grant
Grants were made under the LTIP on 6 April 2022 to Alex Vaughan, Helen Willis and other members of the senior
leadership team. The grant level for the executive directors remained at 100% of salary.
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 2022 LTIP are as follows:
(A) Adjusted EPS performance measure (relating to two thirds of the award)
Aggregate adjusted EPS over the financial years ended 31 December 2022, 2023 and 2024 Vesting level
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%
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Overview GovernanceStrategic Report Financial Statements
(B) Cash conversion performance measure (relating to one third of the award)
Average cash conversion for the financial years ended 31 December 2022, 2023 and 2024 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 2022 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 1,124,685 £446,500 31 December 2024 15%
Helen Willis 934,005 £370,800 31 December 2024 15%
1 Valued using the mid-market closing share price on the business day prior to the date of grant (5 April 2022), being 39.7 pence.
2022 SDP Grant
The Company granted awards under the SDP to the executive directors on 6 April 2022, details of which are shown on
page 118.
All-employee share plan
As in 2020 and 2021, the Company did not invite employees to participate in the SAYE scheme in 2022 and therefore no
SAYE awards were granted to the executive directors during 2022.
Exit payments made during the year and payments made to past directors
No executive directors departed in 2022 and no payments have been made to past directors.
Implementation of policy in the year to 31 December 2023
Salary
As set out in the chair’s statement, the chief executive officer and chief financial officer will receive a salary increase in
2023 of 5.0%. These increases will take effect from 1 April 2023.
Salary 2023 Salary 2022 % change
Alex Vaughan 468,800 £446,500 5%
Helen Willis 389,300 £370,800 5%
Chair’s fee
The chair’s basic annual fee will not be subject to an increase in 2023, Kate Rock having assumed the position on
1December 2022.
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
110
Non-executive director fees
Non-executive directors’ basic fees will be increased by 4.5% with an increase of 23.2%, 1% and 35.1% respectively for
senior independent director, Audit Committee chair and Remuneration Committee chair, with effect from 1 April 2023,
as shown in the table below. The fees for the senior independent director and Remuneration Committee chair have
been increased by a higher amount than the wider workforce to ensure they are closer to market median for these
roles when assessed against appropriate benchmarks, and having taken into account the time commitment required
and complexity of the roles. With a lower increase of 1% for Audit Committee chair, this fee continues to reflect market
median for the role.
2023 Fees Basic Fee
Senior independent
director
Audit Committee
chair
Remuneration
Committee
chair
Fees £51,600 £8,500 £10,000 £10,000
2023 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 2023 will remain unchanged from previous years 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 2023 AIP are as detailed below and on page 92 in the Committee chair’s statement:
Performance measures
2023 AIP opportunity –
maximum percentage of bonus
Chief executive officer Chief financial officer
Group adjusted EBITA (with 90% cash conversion) 40% 40%
Safety, health and environment 10% 10%
Profit secured for 2024 15% 15%
Cash flow (average month end cash balance) 15% 15%
Personal performance 20% 20%
Total 100% 100%
The Committee has chosen not to disclose in advance the performance targets for the year ending 31 December
2023, 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.
2023 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 April
2023. The LTIP will be subject to the achievement of performance measures as set out in the chair’s statement on page 93.
LTIP shares which vest after three years will be subject to a further holding period of two years following the end of the
performance period, thereby ensuring long-term alignment of the executive directors’ and shareholders’ interests.
The proposed targets are set out overleaf.
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Overview GovernanceStrategic Report Financial Statements
Adjusted EPS performance measure (50% of the award)
Aggregate adjusted EPS over the financial years ending 31 December 2023, 2024 and 2025 Vesting level for awards
Below 30.6 pence 0%
30.6 pence 25%
Between 30.6 pence and 35.6 pence 25–100% pro-rata
35.6 pence or more 100%
The Committee believes that adjusted EPS remains an appropriate metric to use under the LTIP, as growth in adjusted
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.
TSR performance measure (25% of the award)
TSR growth over the financial years ending 31 December 2023, 2024 and 2025 Vesting level for awards
Less than 50% 0%
50% 25%
More than 50% but less than 100% 25–100% pro-rata
100% or more 100%
The Committee believes that the use of a TSR element in the LTIP provides a clear alignment of executive directors’
interests with value created for shareholders and reflects the importance of execution of the strategy translating to
increases in our share price.
For these purposes TSR will be based on a one month average prior to the start of the performance period and at the
end of the performance period.
ESG performance measures (25% of the award)
Environmental: Reduction in Scope 1 and 2 carbon emissions compared to 2021 baseline (15% weighting) Vesting level for awards
Below 16.2% 0%
16.2%
25%
Between 16.2% and 19.8%
25–100% pro-rata
19.8% or more
100%
Social: Equality, diversity and inclusion (EDI)
Improvement in leadership (AIP population) gender diversity (5% weighting) Vesting level for awards
Below 36% 0%
36%
25%
Between 36% and 39%
25–100% pro-rata
39% or more
100%
Improvement in leadership (AIP population) ethnic diversity (5% weighting) Vesting level for awards
Below 6% 0%
6%
25%
Between 6% and 9%
25–100% pro-rata
9% or more
100%
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
112
The Committee has the discretionary power to vary these targets should circumstances change so that the original
targets are no longer considered appropriate (eg 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. This specifically 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.
Other information
Performance graph
The graph below shows the value, to 31 December 2022, of £100 invested in Costain Group PLC on 1 January 2013
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.
300
250
200
150
100
50
0
1 Jan
2013
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
31 Dec
2022
FTSE SmallCap Index
Costain Group PLC
Change in chief executive officer’s remuneration
Year ending 31 December
2013 2014 2015 2016 2017 2018 2019
1
2020 2021 2022
Chief executive
officer AW AW AW AW AW AW AW AV AV AV AV
Total
remuneration £1,251,239 £1, 329,007 £1,414,381 £1,089,943 £1,707,0 94 £1,560,601 £211,927 £312,242 £4 47,710 £980,793 £1,146,715
AIP (%) 75% 71.6% 79.8% 75.4% 81% 62.6% Nil Nil Nil 73% 72%
LTIP vesting (%) 50% 50% 50% Nil% 79.1% 100% Nil Nil Nil 25% 81.1%
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.
113
Overview GovernanceStrategic Report Financial Statements
CEO pay ratio
The table below shows, for 2019 to 2022, 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
2022 Option B 23:1 19:1 14:1
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 the latest gender pay reporting and the calculations were performed as at the final day of the
relevant financial year. 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
2022
Total pay and benefits £1,14 6,715 £50,792 £61,412 £82 ,181
Salary component £443,250 £39,282 £56,237 £68,483
2021
Total pay and benefits £980,793 £45,166 £56,596 £77, 235
Salary component £431,375 £39,470 £46,476 £ 57, 3 30
2020
Total pay and benefits £4 47, 710 £34,016 £57,580 £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 £60,137
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.
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 2022 compared to 2021 due to a higher bonus being paid to the CEO in respect of 2022. 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 2022
114
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.
Average
employee
1
Executive directors Non-executive chair Non-executive directors
Alex
Vaughan
2
Helen
Willis
3
Paul
Golby
4
Kate
Rock
5
Bishoy
Azmy
6
Neil
Crockett
7
Jacqueline
de Rojas
Fiona
MacAulay
8
Tony
Quinlan
9
Alison
Wood
10
Salary/
fees
2021 –
2022
3.6
11
3 2 n/a n/a 0.5 n/a 8 n/a n/a n/a
2020 –
2021
12
5
11
10 n/a 10 n/a n/a n/a 3 n/a n/a 14
2019 –
2020
12
(0.8)
13
n/a n/a (7) n/a n/a n/a (1) n/a n/a (4)
Taxable
benefits
2021 –
2022
0.2
14
(80)
15
1 n/a n/a – n/a – n/a n/a n/a
2020 –
2021
(6)
14
(16) n/a – n/a n/a n/a – n/a n/a –
2019 –
2020
6.2
14
n/a n/a – n/a n/a n/a – n/a n/a –
Annual
bonus
2021 –
2022
(7) 2 2 n/a n/a – n/a – n/a n/a n/a
2020 –
2021
236
16
n/a
17
n/a – n/a n/a n/a – n/a n/a –
2019 –
2020
(18) n/a n/a – 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 on 30 November 2020 and therefore annual change in remuneration between 2019 and 2020 and between 2020 and 2021 is
not applicable.
4 Paul Golby stepped down from the Board on 1 December 2022 and therefore annual change in remuneration is not applicable between 2021 and 2022.
5 Kate Rock was appointed to the Board on 1 November 2022 and therefore annual change in remuneration is not applicable for the financial years shown.
6 Bishoy Azmy was appointed to the Board on 19 June 2020 and therefore annual change in remuneration between 2019 and 2020 and between 2020 and 2021 is
not applicable.
7 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.
8 Fiona MacAulay was appointed to the Board on 6 April 2022 and therefore annual change in remuneration is not applicable for the financial years shown.
9 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.
10 Alison Wood became senior independent director with effect from 6 May 2021 and received a corresponding fee increase. She stepped down from the Board on
28 January 2022 and therefore annual change in remuneration between 2021 and 2022 is not applicable.
11 Average salary for employees is calculated based on the annual monthly UK salary bill divided by the average number of monthly paid UK employees.
12 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.
13 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.
14 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.
15 Alex Vaughan changed to a fully electric car in 2022.
16 Bonus figures are calculated on the total bonus payments made to monthly employees divided by the average number of monthly paid employees.
17 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.
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Overview GovernanceStrategic Report Financial Statements
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 2021 to the financial year ended
31December 2022.
2022
£m
2021
£m
%
change
Overall expenditure on pay 230.4 200.3 15%
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, with three months for the chair. Each non-executive
director is subject to re-election at the AGM each year.
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
Kate Rock 1 November 2022 1 November 2022 1 November 2025
Bishoy Azmy 19 June 2020 19 June 2020 n/a
3
Neil Crockett 6 October 2021 6 October 2021 6 October 2024
Jacqueline de Rojas 20 November 2017 12 January 2022
4
20 November 2023
Fiona MacAulay 6 April 2022 6 April 2022 6 April 2025
Tony Quinlan 1 February 2021 12 January 2022
5
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, with three months for the chair).
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 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.
4 Jacqueline de Rojas was appointed chair of the Remuneration Committee, on an interim basis, with effect from 12 January 2022.
5 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.
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
116
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
2022
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
2022
Actual/
expected
vesting/
release date
Alex
Vaughan
07. 05.19
1
138,942 – 325p 34,735 104,207 – – – 34,735 May 2024
07.10. 20
2
553,909 – 42.2p – – – – – 553,909 April 2025
08.04.21
3
710,655 – 61.0p – – – – – 710,655 April 2026
06.04.22
4
– 1,124,685 39.7p – – – – – 1,124,685 April 2027
Helen
Willis
30.11. 20
2
258,705 – 53.7p – – – – – 258,705 April 2025
08.04.21
3
590,163 – 61.0p – – – – – 590,163 April 2026
06.04.22
4
– 934,005 39.7p – – – – – 934,005 April 2027
a Awards under the LTIP are structured as options with a nil exercise price. 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 adjusted 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
May2020, 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 31December
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 vested at 25% based on performance during the year.
2 Performance targets are as follows:
(a) an adjusted 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. This award is due to vest at 81.1% based on performance during the year.
3 Performance targets are as follows:
(a) an adjusted 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.
4 Performance targets are as follows:
(a) an adjusted EPS target (relating to two thirds of the award) of 27.5p (for 15% vesting) and 33.7p (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 31December
2024, 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 2022, the derived mid-market
price of the ordinary shares in the Company, as advised by the Company’s brokers, was 39.38 pence. The range of the
closing share price of the ordinary shares during 2022 was 32.7 pence to 56.0 pence.
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Overview GovernanceStrategic Report Financial Statements
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
1 January
2022
Granted
during
year
1
Share price
at date of
grant
Vested
during
year
Lapsed
during
year
Market
price at
date of
exercise
Average
market
price
2
Value of
shares at
date of sale/
retention of
balance
3
Balance
at 31
December
2022
1
Actual/
expected
vesting date
Alex
Vaughan
06.04.22 – 597, 8 36 39.7p – – – – – 597, 8 36 April 2024
Helen
Willis
06.04.22 – 496,473 39.7p – – – – – 496,473 April 2024
1 Awards under the SDP are structured as options with a nil exercise price.
2 At date of sale/retention of balance.
3 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
2022
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
2022
Exercised/
exercisable
from/to
Alex
Vaughan
24.09.18 1,396 – 316.90p – 1,396 – – – – Nov 2021
May 2022
23.09.19 1,485 – 111.40 p – – – – – 1,485
3
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 2022, 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 2022 and therefore there was no gain on exercise.
The Company granted no options under the SAYE Scheme in 2020, 2021 or 2022.
Directors’ remuneration report continued
Costain Group PLC
Annual Report and Accounts 2022
118
Directors’ shareholdings
Details of the directors’ share interests in the Company as at 31 December 2022, 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)
1
Actual shareholding
as at 31.12.22 (% of
salary/fee)
2
Actual shareholding
as at 13.03.23 (% of
salary/fee)
2
Alex Vaughan 252,239
3
597, 8 36 2,423,984 1,485 200% 122.95% 122.95%
Helen Willis – 496,473 1,782,873 – 200% 27.02 % 27.02 %
Kate Rock 50,000
4
– – – 100% 9.87% 9.87%
Bishoy Azmy –
5
– – – 100% 100%+
5
100%+
5
Neil Crockett 20,000 – – – 100% 22.59% 22.59%
Jacqueline de Rojas 12,828
6
– – – 100% 48.92% 48.92%
Fiona MacAulay – – – – 100% 0% 0%
Tony Quinlan 25,000 – – – 100% 24.30% 24.30%
1 The executive directors are expected to build and maintain a shareholding of not less than 200% of base annual salary through the retention of vested share awards
or through open market purchases. Subject to approval of the new remuneration policy at the 2023 AGM, the non-executive directors will not be expected to build
and maintain a shareholding. At present the non-executive directors are expected to build and maintain a shareholding of 100% of their annual fee.
2 Based on the calculation methodology set out in the Company’s Share Ownership Guidelines.
3 Part held by persons closely associated.
4 Kate Rock was appointed to the Board on 1 November 2022 at which time she had no share interests. Kate purchased 50,000 shares on 21 December 2022 at a price
of 38.5p per share.
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 Held by persons closely associated.
Signed by order of the Board
Fiona MacAulay
Committee Chair
13 March 2023
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Overview GovernanceStrategic Report Financial Statements
Directors’ report
The Governance Report on pages 46 to 119 and the
Strategic Report on pages 7 to 45 (and in particular
pages 10 to 33, 64 and 65 and 68 to 71 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 34 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 2023 AGM will be held on Thursday
11May 2023 at No. 11 Cavendish Square, London
W1G 0AN. A circular incorporating the Notice of
AGM accompanies this annual report.
Profit/(loss), dividend payments
and dividend policy
The profit after tax for the financial year ended
31December 2022 was £25.9m (2021: loss £5.8m).
No interim dividend was paid during the year ended
31 December 2022 (2021: no interim dividend).
The Company will pay no final dividend in respect of the
year ended 31 December 2022 (2021: no final dividend).
The total dividend paid for the year will therefore be nil
(2021: nil).
During the last two years, the Group has made very
significant progress in its operating cash generation,
demonstrated by our strong year end cash position
and operating cash flow in FY22.
A strong balance sheet is fundamental to our ability to
win business and manage risk. At the same time, the
Board recognises the importance of dividends to
shareholders and remains committed to returning to
dividend payments whenappropriate.
The directors submit to the members their report and audited accounts of the Company
for the year ended 31 December 2022.
The Board regularly reviews the Company’s capital and its
potential uses, including whether there is surplus capital
available to distribute to our shareholders.
Looking forward over the next financial year, the Board
has concluded that the priorities, and best returns,
for the Company’s capital are to invest in our organic
opportunities and to build further its capital base.
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
itspayment.
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 2022 was
£137,542,370.50, consisting of 275,084,741 ordinary shares
of 50 pence each. Further details of the share capital of
the Company can be found in note 22 on page 187.
The awards granted in May 2019 under the 2014 Long-
Term Incentive Plan (LTIP) matured as at 31 December
2021, resulting in 25% vesting. Further details regarding
the vesting of the 2019 LTIP awards can be found in the
Directors’ Remuneration Report on pages 105 and 117.
Details regarding the 2020 LTIP awards that are due to
vest in April 2023 can also be found in the Directors’
Remuneration Report on page 108.
Costain Group PLC
Annual Report and Accounts 2022
120
Share options granted under the Company’s Save As
You Earn Scheme (SAYE) in September 2019 (at a post
capital raising adjusted option price of 111.4p) matured
as at 1 November 2022. 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 2022.
Further details of the SAYE Scheme can be found on
pages 96 and 110 of the Directors’ Remuneration Report.
At the 2022 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 2025 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.
In 2022, 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 195. 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 2022 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
(details as at the date of notification):
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 %
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, 25 0,190 9.91 n/a n/a 9.91
Ennismore Fund
Management Limited 16.06.2022 22,022,829 8.01 n/a n/a 8.01
KBI Global Investors Ltd* 13.05.2020 7, 258, 5 03 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 (ie 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 2022 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).
121
Overview GovernanceStrategic Report Financial Statements
Directors’ report continued
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.
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 5 May 2022,
shareholders granted an authority to the directors to allot
ordinary shares up to an aggregate nominal amount of
£45.8m. 135,000 shares, having a nominal value of £67,500,
were allotted in 2022 to the Employee Share Trust to satisfy
awards under the Company’s Long-Term Incentive Plan.
As this authority is due to expire on 11 May 2023,
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 2022 or during the period
from 1 January 2023 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
Act2006.
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 2022, Buck Trustees (Guernsey)
Limited, as trustee of the Costain Group Employee Trust,
held 0.16% (2021: 0.13%) 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.
Costain Group PLC
Annual Report and Accounts 2022
122
Political donations
No political donations were made during the year ended
31 December 2022 (2021: 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 auditor
PricewaterhouseCoopers LLP (PwC) were reappointed as
auditor of the Company at the 2022 AGM. The Board is
proposing the reappointment of PwC as auditor from the
conclusion of the AGM in May 2023 until the conclusion
of the next general meeting at which the accounts are
laid before the Company. See page 80 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 173 to 179. 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.
Events after the reporting date
There are no reportable events after the reporting date.
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
Page 33 of the Strategic Report 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 further 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 188 to 191. The Company
has two overseas branches, one in Abu Dhabi and one in
Saudi Arabia.
Directors
Biographies of the Board are given on pages 46 and
47 and include details of the skills, competencies and
a brief career history of directors in post as at the date
of this report and the Committees on which they serve.
With Alison Wood stepping down from the Board on
28 January 2022, Tony Quinlan assumed the additional
responsibilities of senior independent director on 12
January 2022. Jacqueline de Rojas became Remuneration
Committee chair on an interim basis from 12 January
2022 to 5 May 2022 when Fiona MacAulay assumed the
chairship of the Committee having joined the Board on
6 April 2022. On 9 March 2022, Costain announced that
Paul Golby had decided to step down as chair and non-
executive director and as announced on 27 September
2022, Kate Rock joined the Board as an independent
non-executive director on 1 November 2022. Kate
subsequently succeeded Paul as chair of the Board and
chair of the Nomination Committee on 1 December 2022
when Paul stepped down from the Board.
Paul Golby was not involved in, nor did he attend
meetings in connection with, the search for and
appointment of his replacement as chair.
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.
123
Overview GovernanceStrategic Report Financial Statements
Directors’ report continued
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, 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, by appointment, during
normal businesshours.
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, a
director of Hill & Smith Holdings PLC, and of Kate Rock, a
director of Keller Group plc, both non-material suppliers
to the Company in terms of value ofgoods and services.
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 2022, are contained in the Directors’
Remuneration Report, which appears on pages 86 to 119.
Directors’ indemnity
Costain Group PLC maintains liability insurance for its
directors and officers. There are no subsisting indemnities
in favour of its directors during 2022.
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 64 and 65 and the
Nomination Committee Report on page 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 161.
The Company maintains a strong communication network
and employees are encouraged to discuss with directors
and 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 (see page 69).
Costain Group PLC
Annual Report and Accounts 2022
124
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 when directors and
senior managers visit sites, at the staff roadshow, as well as
via the employee forum ‘Your Voice’ (see pages 68 to 71 for
engagement with workforce).
The Company operates, when considered appropriate 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 2022.
Stakeholder engagement
For more information on how the directors have engaged
with the workforce, customers, 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 (Section 172) on
pages 58 to 61 and the Workforce engagement section on
pages 68 to 71 of the Governance Report.
Additionally, the Company engages with subcontractors
via the twice-yearly safety, health and environment impact
days, an annual supply chain conference and monthly
leadership engagement visits to projects and sites.
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.
Transactions with related parties
Transactions between the Company, its subsidiaries, joint
ventures and associates, joint operations, the Costain
Pension Scheme and with its directors and executive
officers, which are related parties are set out in note 25 to
the financial statements on pages 192 and 193. There have
been no other related party transactions during the year.
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
Nicole Geoghegan
Company Secretary
13 March 2023
125
Overview GovernanceStrategic Report Financial Statements
Directors’ responsibility statement
Statement of directors’ responsibilities in respect of the financial 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
themconsistently;
• 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
Kate Rock
Chair
Alex Vaughan
Chief Executive Officer
13 March 2023
Costain Group PLC
Annual Report and Accounts 2022
126
Independent auditors’ report to the members of Costain Group PLC
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 2022 and of the
Group’s profit 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 as applied in
accordance with the provisions of the Companies Act 2006; 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 31 December 2022; the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income,
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 and note 5 to the financial statements, 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
four legal entities requiring a full scope audit, either due to their size or their risk characteristics.
Key audit matters
• Contract accounting (Group)
• Water contract rectification provision and insurance recovery (Group)
• Impairment of goodwill (Group)
• Valuation of defined benefit pension scheme obligations and pension assets (Group)
• Carrying value of investments in Group companies and recoverability of amounts owed by subsidiaries (Parent Company)
Materiality
• Overall Group materiality: £5,600,000 (2021: £4,500,000) based on 0.4% of the Group's revenue.
• Overall Company materiality: £2,2000,000 (2021: £3,000,000) based on 1% of total assets.
• Performance materiality: £4,200,000 (2021: £3,375,000) (Group) and £1,650,000 (2021: £2,250,000) (Parent Company).
Report on the audit of the financial statements
127
Overview GovernanceStrategic Report Financial Statements
Independent auditors’ report to the members of Costain Group PLC continued
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the
financialstatements.
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 thesematters.
This is not a complete list of all risks identified by our audit.
The key audit matters below are consistent with last year with the exception of a new KAM being included in relation to a
water contract rectification provision and the related insurance recovery. In addition, the carrying value of investments in
Group companies and recoverability of amounts owed by subsidiaries has been included as a separate KAM. In the prior
year, this was included within the impairment of goodwill KAM.
Key audit matter How our audit addressed the key audit matter
Contract Accounting (Group)
Refer to page 78 (Audit Committee Report), pages 153
to 155, note 2 (Summary of significant accounting policies
and significant areas of judgement andestimation).
The Group has significant 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
either the stage of completion of contract activity or as
costs are incurred for cost plus contracts.
Profit or losses on contracts is a significant 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 profit or loss recognised to date
and, therefore, the current financial year.
The Group 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.
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 costsarising 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 significant reversal. Claims
on third parties (other than the Group’s customers),
suppliers or insurance recoveries are recognised only
when they are determined to be ‘virtuallycertain’.
We focussed our work on those contracts with the greatest estimation uncertainty
over the final contract values and, therefore, profit 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 significant balance sheet exposure; and
• contracts identified through our discussions with management, review of Board
minutes, review of legal reports and review of publicly available information.
Our audit procedures were tailored according to the specific risk profile of each
contract and included, but were not limited to, the following procedures:
• Obtaining an understanding of the relevant contractual clauses and
terms and conditions and agreeing forecast revenue to signed contracts,
signed variations, agreed compensation events or other corroborative and
supportingdocumentation;
• Challenging management’s forecasts, in particular the appropriateness of
key assumptions, including the expected recovery of variations, claims and
compensation events from clients, as well as, for example, pain/gain mechanisms,
to determine the basis on which the associated revenue was considered to be
‘highly probable’ of not reversing;
• Challenging 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;
• Substantively testing a sample of actual costs incurred to date to check that these
had been recorded accurately;
• Performing a margin analysis on the end-of-life forecasts to assess the performance
of the contract portfolios year on year;
• Inspecting correspondence and meeting minutes with customers concerning
variations, claims and compensation events, and obtaining 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 estimatesmade;
• Reconciling revenue recognised with amounts applied for and amounts certified
by clients, agreeing the amounts received to cash to ensure any reconciling items
wereappropriate;
• Agreeing forecast costs to complete to supporting evidence (such as orders
signed with subcontractors, performing look back testing and assessing the
appropriateness of forecast run rates) and applying industry knowledge and
experience to challenge the completeness and accuracy of the forecast costs
tocomplete, including any cost contingencies held;
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Annual Report and Accounts 2022
128
Key audit matter How our audit addressed the key audit matter
On the basis of the significant estimates, judgements
and inherent uncertainty involved in determining the
appropriate revenue recognition and associated profit,
we have identified Contract Accounting as a Key Audit
Matter and are particularly focussed on the existence /
occurrence and accuracy of revenuerecognition.
• Assessing the recoverability of balance sheet items by comparing these to external
certification of the value of work performed and subsequent cashreceipts;
• For the residual contract population (“the tail”), performing 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;
• Assessing the potential impact of other identified risks including the impact of current
economic, inflation and climate change related costs on the costs incurred and cost to
complete; and
• Considering the adequacy of the disclosures in the financial statements in relation
to specific contracts and also the disclosures in respect of significant judgements
andestimates.
Based on all of the evidence obtained in the above procedures, we concluded on the
appropriateness of the recognition of contract revenues and profits / losses and of the
amounts held as contract assets and liabilities. Given the degree of estimation, we also
reviewed the disclosures around significant ongoing contracts included in note 2 to the
financial statements.
Water contract rectification provision and insurance
recovery (Group)
Refer to page 78 (Audit Committee Report), pages
153 to 155, note 2 (Significant areas of judgement and
estimation), and page 180 note 20 – Provisions.
At 31 December 2022 the Group held a provision of
£12.2m (2021: £6.2m) in respect of the estimated future
costs of rectifying a previously installed water treatment
plant associated with a contract in the water sector. This
provision represents management’s best estimate of the
remaining costs to be incurred in respect of the most
likely rectification solution which has a total estimated
cost of £17.0m. Costs of £4.8m have been incurred to the
balance sheet date. In addition, an insurance receivable
of £13.4m has been recognised at the balance sheet date.
Forecasting the cost of the rectification works required to
remediate the water treatment plant requires estimation
uncertainty in relation to the quantum of provision to
berecognised.
In addition, in accordance with accounting standards,
an insurance recovery should only be recognised to the
extent it is virtually certain.
As at 31 December 2022, Costain’s insurers have
confirmed that insurance cover is available for the costs
which Costain is legally liable to pay in undertaking
rectification works to bring the facility to the required
standard. As a result, an insurance recovery asset of
£13.4m has been recognised. In the prior year the
expected insurance recovery did not meet the virtually
certain threshold, and accordingly no reimbursement
asset was recognised.
Whilst the provision represents management’s best
estimate of the cost of rectifying the plant, agreement
as to the final solution has yet to be concluded, such that
cost estimates can not yet be finalised. It is, therefore,
reasonably foreseeable that adjustments to the amounts
recognised as a provision may be required.
However, given the close relationship between the
insurance policy and the liability, management does
not consider that any increase in the cost of the
rectification works will result in a net impact to the
Group’s financial position.
On the basis of the significant estimation uncertainty
involved in determining the appropriate provision to be
recognised and the “virtually certain” threshold required
to include an insurance recovery on the balance sheet, we
have identified this as a Key Audit Matter.
In addressing the risk that the provision has been recorded appropriately, our audit
procedures included, but were not limited to, the following:
Rectification provision
• Enquiring with management to understand the rationale behind the provision
recognised and whether it met the requirements of IAS 37 for the recognition of a
constructive or contractual obligation;
• Challenging management to ensure an appropriate provision has been recognised
for the required rectification works, including understanding the basis for the
quantum recognised;
• Understanding the range of potential solutions available and the rationale for the
most likely solution identified which has been used by management as the basis for
quantifying the provision;
• Sample testing management’s model including testing the key assumptions,
obtaining supporting evidence including cost rates, quotes, market prices to assess
the accuracy of the data and range of potential outcomes;
• Reviewing correspondence between the customer, designer, management and
other relevant parties; and
• Reviewing the disclosures included in the financial statements, including those
related to estimation uncertainty required by IAS 1 and those required by IAS
37. These disclosures were considered particularly important given the inherent
estimation uncertainty involved in arriving at the quantum of provision recorded.
Insurance recovery
Accounting standards require that an insurance recovery be recognised only to the
extent that it can be considered virtually certain.
In addressing the risk that the recognition of an asset for the insurance recovery has
been recorded appropriately, on the basis that it is considered by management to be
virtually certain, our audit procedures included, but were not limited to, thefollowing:
• Obtaining correspondence from the insurers’ loss adjuster (being the insurers’
representative) confirming Costain’s entitlement to reimbursement of rectification
costs and the acceptance of the claim by insurers;
• Obtaining evidence that the levels of insurance cover available were sufficient to
cover the expected costs of rectification;
• Obtaining evidence of an interim payment made by insurers pre year-end and
agreeing the receipt of cash to Costain’s bank account;
• Obtaining evidence of the insurers’ loss adjuster’s recommendation as to the level
of insurance reserve to be held by insurers;
• Verifying the computation of the insurance excess deductible and understanding
the insurance agreement’s terms and conditions;
• Meeting with a representative of the insurers’ loss adjuster to confirm he was not
aware of any facts or foreseeable circumstances that might result in insurers not
settling the value of the claim as anticipated;
• Performing procedures to identify whether there was any contrary evidence that
might cast doubt on management’s assumption that recovery from insurers was
virtually certain. No contrary evidence was identified; and
• Reviewing management’s disclosures in the financial statements setting out the
basis for their conclusion that the insurance recovery was considered virtually
certain and had been recognised appropriately as a receivable in the Group’s
balance sheet. This disclosure is included as a significant judgement.
Based on our work we considered that management’s accounting treatment and
related disclosures were appropriate.
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Key audit matter How our audit addressed the key audit matter
Impairment of goodwill (Group)
Refer to page 79 (Audit Committee Report), pages
153 and 155, note 2 (Significant areas of judgement
and estimation), and pages 165-166 note 12 –
Intangible Assets.
At 31 December 2022 the Group had £45.1m of goodwill
(2021: £45.1m). Goodwill has been allocated to the
applicable cash generating units of the Transportation
segment £15.5m (2021: £15.5m) and the Natural
Resources segment £29.6m (2021: £29.6m). The carrying
value of goodwill is contingent on future cash flows and
there is a risk that the assets will be impaired if these cash
flows 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 in the carrying value of the assets.
We determined there to be risk that the carrying
value of goodwill allocated to the Natural Resources
business may not be supportable when compared to its
recoverable amount, given an impairment of £9.0m was
booked in the 2020 financial statements and the current
headroom, whilst increased from the prior year, had
been calculated as £31.3m in the Directors impairment
assessment. Accordingly, we determined this to be a
Key Audit Matter.
There was sufficient headroom to support the carrying
value of goodwill in the Transportation business.
We obtained the directors’ future cash flow forecasts, which were prepared to a
sufficiently detailed level. We evaluated management’s basis for determining the
relevant CGUs as Transportation and Natural Resources. In evaluating the Directors’
impairment assessment for goodwill in respect of the Natural Resources CGU our
audit procedures included, but were not limited to the following:
• Comparing the short term cash flow forecasts to the latest Board approved
budgets and forecasts from FY23–FY26, testing the integrity of the underlying
calculations and assessing how both internal and external drivers of performance
were incorporated into theprojections;
• Comparing the 2022 financial performance to budget and understanding the drivers
of the projected improvements in profitability and of working capital movements;
• Assessing and where appropriate, challenging, the discount rate and long term
growth rates, with the support of our valuations experts;
• Testing certain contracts in the Group’s pipeline to provide evidence of the
associated secured and to be obtained revenue forecast in the cash flow model
and challenging the short term growth forecasts assumed by management;
• Assessing the operating margin assumptions both in the context of historic
performance and taking into account the current inflationary environment and
potential climate change related risks;
• Challenging management’s forecasts and comparing future cash flow performance
to historic levels as part of our assessment as to whether the forecast performance
was considered achievable;
• Performing sensitivity analysis in respect of the key drivers of the cash flow
forecasts, in particular assessing the extent to which changes in revenue growth
and margin assumptions could lead to an impairment; and
• Ensuring that reasonably possible changes in assumptions were appropriately
disclosed in accordance with IAS 36, ‘Impairment of Assets’.
We concluded that management’s assessment that no impairment was required in
respect of the Natural Resources Goodwill was supportable.
Valuation of defined benefit pension scheme
obligations (Group)
Refer to page 78 (Audit Committee Report), pages to
153 and 155, note 2 (Significant areas of judgement and
estimation), and pages 182-185 note 21 – Employee
Benefits. The Group has significant retirement
benefit obligations.
At 31 December 2022 the present value of these
obligations was £527.0m (2021: £837.5m) offset by
plan assets at fair value of £587.2m (2021: £904.6m) in
respect of funded schemes. Therefore, a net pension
asset of £60.3m (2021: £67.1m) has been recognised on
the Group’s balance sheet. These retirement benefit
obligations were determined based on a number
of actuarial assumptions and calculations, which
were subject to significant judgement and estimate.
Changes in these assumptions can have a material
impact on the quantum of obligations recorded in the
Consolidated statement of financial position.
In view of the materiality of both the defined benefit
obligations and the related pension assets and the
sensitivity to small changes in valuation assumptions,
we focussed on these as a Key Audit Matter.
We obtained the actuarial valuation at 31 December 2022 and tested the valuation of
the pension liabilities as follows:
• 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 2022. 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;
• agreed the underlying census data to supporting documents to confirm
completeness and accuracy;
• confirmed 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
• reviewed the scheme rules and legal advice previously obtained by the Group to
confirm that no asset restrictions applied to the scheme.
We did not identify any issues within our testing and were satisfied the assumptions
applied are within an appropriate range. We are satisfied that the recognition of a
pension asset is appropriate in accordance with IFRIC 14, IAS 19 – The Limit on a
Defined Benefit Asset, Minimum Funding Requirements and their Interaction.
Carrying value of investments in Group companies
and recoverability of amounts owed by subsidiaries
(Parent Company)
The Company holds an investment in subsidiaries
of £153.4m (2021: £152.3m) and amounts owed by
subsidiary undertakings of £69.4m (2021: £71.9m) as
disclosed in note 16.
We have focussed on this area due to the magnitude of
the investments balance in, and the amounts owed by,
subsidiary undertakings, when for example compared to
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. Similarly, all amounts owned by subsidiary
undertakings were assessed as being recoverable.
In evaluating the Directors assessment of the carrying value of investments and
amounts owed by subsidiary undertakings, our audit procedures included, but were not
limited to the following:
• Assessing the accounting policy for investments in, and amounts due from,
subsidiaries to ensure they were compliant with IFRS;
• Verifying that the aggregate current assets of subsidiary undertakings were
sufficient to support amounts owed by subsidiary undertakings and / or whether, in
accordance with IFRS 9, an expected credit loss was required; and
• Obtaining management’s impairment assessment for the recoverability of
investments in subsidiary undertakings and assessing the conclusions reached
bymanagement.
We determined that management’s conclusion that the Company’s investments in
subsidiaries were recoverable to be reasonable and noted that the carrying values
were supported by future cash flow forecasts. We were also satisfied that no provision
was required in respect of amounts owed by subsidiary undertakings.
Independent auditors’ report to the members of Costain Group PLC continued
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Annual Report and Accounts 2022
130
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 four legal entities requiring full scope audit; Costain Limited (financially significant
component), 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% (2021: 97%) of Group
revenues and 99% (2021: 88%) of Group profit before tax. The percentage of Group profit before tax is calculated on an
absolute basis, which aggregates component profits and losses.
The impact of climate risk on our audit
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.
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 – Parent Company
Overall materiality £5,600,000 (2021: £4,500,000). £2,200,000 (2021: £3,000,000).
How we determined it 0.4% of the Group’s revenue 1% of total assets
Rationale for
benchmark applied
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 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 £5.6m was
appropriate, which represents approximately 0.4% of the Group’s revenue.
The Parent 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 £5.0 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% (2021: 75%%) of overall
materiality, amounting to £4,200,000 (2021: £3,375,000) for the Group financial statements and £1,650,000 (2021:
£2,250,000) 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 upper 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
£280,000 (Group audit) (2021: £250,000) and £110,000 (Company audit) (2021: £200,000) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
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Overview GovernanceStrategic Report Financial Statements
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
2022 financial position and its banking and related facilities which were amended and extended in November 2022;
• 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 and assessing the disclosures provided relating to the going concern basis of preparation in the
financialstatements.
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 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.
Independent auditors’ report to the members of Costain Group PLC continued
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Annual Report and Accounts 2022
132
Strategic report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report
and Directors’ report for the year ended 31 December 2022 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 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 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;
• 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 and Company 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.
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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 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 Companies Act 2006, tax legislation 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. 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 and impairment of goodwill (see the 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.
Independent auditors’ report to the members of Costain Group PLC continued
Costain Group PLC
Annual Report and Accounts 2022
134
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; or
• a corporate governance statement has not been prepared by the Company.
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 six years, covering the years ended 31 December 2017 to 31 December 2022.
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
13 March 2023
135
Overview GovernanceStrategic Report Financial Statements
The Consolidated Income Statement shows the income and expenses from continuing operations.
| Consolidated Income Statement | |||
| Year ended 31 December 2022 | |||
| 2022 | 2021 | ||
| Note(s) | £m | £m | |
| Continuing operations | |||
Revenue | |||
Cost of sales | ( | ( | |
Gross profit | |||
Administrative expenses | ( | ( | |
Operating profit/(loss) | ( | ||
Share of results of joint ventures and associates | 14 | ||
Profit/(loss) from operations | 4/5 | ( | |
Finance income | 8 | ||
Finance expense | 8 | ( | ( |
Net finance expense | ( | ( | |
Profit/(loss) before tax | 4/5 | ( | |
Taxation | 9 | ( | |
Profit/(loss) for the year attributable to equity holders of the Parent | ( | ||
| Earnings/(loss) per share | |||
Basic | 10 | ( | |
Diluted | 10 | ( |
Costain Group PLC
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136
| Consolidated Statement of Comprehensive Income | ||
| Year ended 31 December 2022 | ||
| 2022 | 2021 | |
| £m | £m | |
Profit/(loss) for the year | ( | |
| Items that may be reclassified subsequently to profit or loss: | ||
| Cash flow hedges: | ||
Effective portion of changes in fair value during year | ||
Total items that may be reclassified subsequently to profit or loss | ||
| Items that will not be reclassified to profit or loss: | ||
Remeasurement of retirement benefit asset | ( | |
Tax recognised on remeasurement of retirement benefit asset | ( | |
Total items that will not be reclassified to profit or loss | ( | |
Other comprehensive (expense)/income for the year | ( | |
| Total comprehensive income for the year | ||
attributable to equity holders of the Parent |
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137
| Consolidated Statement of Financial Position | ||||
| As at 31 December 2022 | ||||
| 2022 | 2021 | |||
| Note | £m | £m | ||
| Assets | ||||
| Non-current assets | ||||
Intangible assets | 12 | |||
Property, plant and equipment | 13 | |||
Equity accounted investments | 14 | |||
Retirement benefit asset | 21 | |||
Trade and other receivables | 16 | |||
Insurance recovery asset | 20 | |||
Deferred tax | 9 | |||
Total non-current assets | ||||
| Current assets | ||||
Inventories | ||||
Trade and other receivables | 16 | |||
Insurance recovery asset | 20 | |||
Taxation | 9 | |||
Cash and cash equivalents | 17 | |||
Total current assets | ||||
Total assets | ||||
| Liabilities | ||||
| Non-current liabilities | ||||
Other payables | 19 | |||
Interest-bearing loans and borrowings | 17 | |||
Lease liabilities | 13 | |||
Provisions for other liabilities and charges | 20 | |||
Total non-current liabilities | ||||
| Current liabilities | ||||
Trade and other payables | 19 | |||
Taxation | 9 | |||
Interest-bearing loans and borrowings | 17 | |||
Lease liabilities | 13 | |||
Provisions for other liabilities and charges | 20 | |||
Total current liabilities | ||||
Total liabilities | ||||
Net assets | ||||
| Equity | ||||
Share capital | 22 | |||
Share premium | ||||
Translation reserve | ||||
Hedging reserve | ||||
Retained earnings | ||||
Total equity | ||||
The financial statements on pages 136 to 193 were approved by the Board of directors on 13 March 2023 and were signed on its behalf by: | ||||
A Vaughan | H Willis | |||
Director | Director | |||
| Registered number: 1393773 |
Costain Group PLC
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138
Company Statement of Financial Position
As at 31 December 2022
Note
2022
£m
2021
£m
Assets
Non-current assets
Investments in subsidiaries 14 153.4 152.3
Deferred tax 9
– 1.0
Total non-current assets 153.4 153.3
Current assets
Trade and other receivables 16 70.3 71.9
Cash and cash equivalents 17 0.1 75.0
Total current assets 70.4 146.9
Total assets 223.8 300.2
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 17 – 32.0
Provisions for other liabilities and charges 20 0.7 0.7
Total non-current liabilities 0.7 32.7
Current liabilities
Trade and other payables 19 27.4 27. 3
Taxation 9 1.2 1.6
Interest-bearing loans and borrowings 17 – 7.4
Provisions for other liabilities and charges 20 0.1 40.0
Total current liabilities 28.7 76.3
Total liabilities 29.4 109.0
Net assets 194.4 191.2
Equity
Share capital 22 137.5 137.5
Share premium 16.4 16.4
Hedging reserve – –
Retained earnings 40.5 37. 3
Total equity 194.4 191.2
The profit for the year was £2.1 million (2021: loss of £39.4 million).
The financial statements on pages 136 to 193 were approved by the Board of directors on 13 March 2023 and were
signed on its behalf by:
A Vaughan H Willis
Director Director
Registered number: 1393773
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139
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 comprised the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that had not yet occurred.
| Consolidated Statement of Changes in Equity | ||||||
| Year ended 31 December 2022 | ||||||
| Share | Share | Translation | Hedging | Retained | Total | |
| capital | premium | reserve | reserve | earnings | equity | |
| £m | £m | £m | £m | £m | £m | |
At 1 January 2021 | ( | |||||
Loss for the year | – | – | – | – | ( | ( |
Other comprehensive income | – | – | – | |||
Shares purchased to satisfy employee share schemes | – | – | – | – | ( | ( |
Equity-settled share-based payments | – | – | – | – | ||
At 31 December 2021 | ||||||
At 1 January 2022 | ||||||
Profit for the year | – | – | – | – | ||
Other comprehensive expense | – | – | – | – | ( | ( |
Equity-settled share-based payments | – | – | – | – | ||
At 31 December 2022 |
Costain Group PLC
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Company Statement of Changes in Equity
Year ended 31 December 2022
Share
capital
£m
Share
premium
£m
Hedging
reserve
£m
Retained
earnings
£m
Total
equity
£m
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
At 1 January 2022 137.5 16.4 – 37.3 191.2
Total comprehensive income – – – 2.1 2 .1
Equity-settled share-based payments granted to employees of
subsidiaries – – – 1.1 1.1
At 31 December 2022 137.5 16.4 – 40.5 194.4
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 comprised the effective portion of the cumulative net change in the fair value of cash flow hedging
instruments related to hedged transactions that had not yet occurred.
Overview GovernanceStrategic Report Financial Statements
141
| Consolidated Cash Flow Statement | |||
| Year ended 31 December 2022 | |||
| 2022 | 2021 | ||
| Note(s) | £m | £m | |
| Cash flows from/(used by) operating activities | |||
Profit/(loss) for the year | ( | ||
| Adjustments for: | |||
Finance income | 8 | ( | ( |
Finance expense | 8 | ||
Taxation | 9 | ( | |
Profit on disposals of property, plant and equipment | ( | ||
Impairment of investment in joint venture | 14 | ||
Depreciation and impairment of property, plant and equipment | 5/13 | ||
Amortisation of intangible assets | 5/12 | ||
Shares purchased to satisfy employee share schemes | ( | ||
Share-based payments expense | 6/21 | ||
Cash from operations before changes in working capital and provisions | |||
Decrease in inventories | |||
(Increase)/decrease in receivables | ( | ||
Increase/(decrease) in payables | ( | ||
Movement in provisions and employee benefits | ( | ||
Cash from operations | |||
Interest received | |||
Interest paid | ( | ( | |
Taxation (paid)/received | ( | ||
Net cash from operating activities | |||
| Cash flows from/(used by) investing activities | |||
Additions to property, plant and equipment | 13 | ( | ( |
Additions to intangible assets | 12 | ( | ( |
Proceeds on disposals of property, plant and equipment | |||
Addition to cost of investment in joint venture | 14 | ( | |
Net cash used by investing activities | ( | ( | |
| Cash flows from/(used by) financing activities | |||
Repayments of lease liabilities - principal | 18 | ( | ( |
Repayment of loans | 17 | ( | ( |
Net cash used by financing activities | ( | ( | |
Net (decrease)/increase in cash and cash equivalents | ( | ||
Cash and cash equivalents at beginning of the year | 17 | ||
Cash and cash equivalents at end of the year | 17 |
Costain Group PLC
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142
Company Cash Flow Statement
Year ended 31 December 2022
Note
2022
£m
2021
£m
Cash flows from/(used by) operating activities
Profit/(loss) for the year 2.1 (39.4)
Adjustments for:
Finance income (3.6) (2.7)
Finance expense 2.9 3.2
Taxation 0.6 (0.4)
Cash from/(used by) operations before changes in working capital and
provisions 2.0 (39.3)
Decrease in receivables 2.2 63.9
Increase/(decrease) in payables 0.1 (0.6)
Movement in provisions (39.9) 39.9
Cash (used by)/from operations (35.6) 63.9
Interest received 2.6 1.7
Interest paid (2.9) (3.2)
Taxation paid – (0.5)
Net cash (used by)/cash from operating activities (35.9) 61.9
Cash flows from/(used by) investing activities
Dividends received 1.0 1.0
Net cash from investing activities 1.0 1.0
Cash flows from/(used by) financing activities
Issue of ordinary share capital 22 – –
Repayment of loans 17 (40.0) (8.0)
Net cash used by financing activities (40.0) (8.0)
Net (decrease)/increase in cash and cash equivalents (74.9) 54.9
Cash and cash equivalents at beginning of the year 17 75.0 20.1
Cash and cash equivalents at end of the year 17 0.1 75.0
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Notes to the Financial Statements continued
Costain Group PLC
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156
| Other | |||||
| Adjusted | P&H | A465 | items | Total | |
| 2021 | £m | £m | £m | £m | £m |
Revenue before contract adjustments | 1,178.6 | – | – | – | 1,178.6 |
Contract adjustments | – | (43.4) | – | (43.4) | |
Revenue | 1,178.6 | (43.4) | – | – | 1,135.2 |
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 items | (49.3) | – | – | – | (49.3) |
Amortisation of acquired intangible assets | – | – | – | (0.4) | (0.4) |
Administrative expenses | (49.3) | – | – | (0.4) | (49.7) |
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 year 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 | |||
Overview GovernanceStrategic Report Financial Statements
157
| Natural | ||||
| Resources | Transportation | Central costs | Total | |
| 2022 | £m | £m | £m | £m |
| Segment revenue | ||||
Adjusted revenue | 375.1 | 1,046.3 | – | 1,421.4 |
Contract adjustments | – | – | – | – |
Total revenue | 375.1 | 1,046.3 | – | 1,421.4 |
| Segment profit/(loss) | ||||
Adjusted operating profit/(loss) | 15.0 | 31.5 | (10.2) | 36.3 |
Contract adjustments | – | – | – | – |
Operating profit/(loss) before other items | 15.0 | 31.5 | (10.2) | 36.3 |
Share of results of joint ventures and associates | – | – | – | – |
Profit/(loss) from operations before other items | 15.0 | 31.5 | (10.2) | 36.3 |
| Other items: | ||||
P&H insurance recovery | 5.2 | – | – | 5.2 |
Transformation costs | (0.7) | – | (5.0) | (5.7) |
Tunnel boring machines impairment | – | (1.4) | – | (1.4) |
Profit on disposal of other investment | – | – | 0.5 | 0.5 |
Profit/(loss) from operations | 19.5 | 30.1 | (14.7) | 34.9 |
Net finance expense | (2.1) | |||
Profit before tax | 32.8 | |||
| Segment profit/(loss) is stated after charging the following: | ||||
Depreciation and impairment | 2.4 | 8.9 | – | 11.3 |
Amortisation and impairment | 0.1 | 0.5 | – | 0.6 |
| Segment assets | ||||
Reportable segment assets | 118.7 | 164.0 | 1.0 | 283.7 |
| Unallocated assets: | ||||
Retirement benefit asset | 60.2 | |||
Deferred tax | 14.5 | |||
Cash and cash equivalents | 123.8 | |||
Total assets | 482.2 | |||
| Expenditure on non-current assets | ||||
Property, plant and equipment | 3.4 | 13.6 | – | 17.0 |
Intangible assets | – | 0.3 | – | 0.3 |
| Segment liabilities | ||||
Reportable segment liabilities | 69.7 | 157.3 | 43.8 | 270.8 |
| Unallocated liabilities: | ||||
Taxation | 0.2 | |||
Total liabilities | 271.0 |
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| Natural | ||||
| Resources | Transportation | Central costs | Total | |
| 2021 | £m | £m | £m | £m |
| Segment revenue | ||||
Adjusted revenue | 314.4 | 864.2 | – | 1,178.6 |
Contract adjustments | (43.4) | – | – | (43.4) |
Total 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 (loss)/profit before other items | (50.2) | 49.8 | (8.7) | (9.1) |
Share of results of joint ventures and associates | – | – | – | – |
(Loss)/profit from operations before other items | (50.2) | 49.8 | (8.7) | (9.1) |
Amortisation of acquired intangible assets | (0.4) | – | – | (0.4) |
(Loss)/profit 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 | |||
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| 5 Other operating expenses and income | ||
| 2022 | 2021 | |
| £m | £m | |
| Profit/(loss) before tax is stated after charging: | ||
Amortisation and impairment of intangible assets (note 12) | 0.6 | 1.1 |
Depreciation and impairment of property, plant and equipment (note 13) | 11.3 | 12.9 |
Transformation costs (note 3) | 5.7 | – |
Expenses relating to short-term leases and leases of low value assets | 62.4 | 41.3 |
| and after crediting: | ||
RDEC grant income | 5.5 | 3.0 |
P&H insurance recovery (note 3) | 5.2 | – |
Profit on disposal of other investment (notes 3 and 26) | 0.5 | – |
| Auditors’ remuneration | ||
| 2022 | 2021 | |
| £m | £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 in respect of: | ||
Audit of financial statements of subsidiaries of the Company | 1.0 | 1.0 |
1.1 | 1.1 |
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| 6 Employee benefit expense | ||
| 2022 | 2021 | |
| Group | £m | £m |
Wages and salaries | 230.4 | 200.3 |
Social security costs | 26.4 | 21.4 |
Other pension costs – defined contribution schemes (note 21) | 11.7 | 10.4 |
Share-based payments expense (note 21) | 1.1 | 1.1 |
269.6 | 233.2 |
| 2022 | 2021 | |
| Number | Number | |
| Average number of persons employed | ||
Natural Resources | 1,718 | 1,549 |
Transportation | 1,787 | 1,741 |
Central | 20 | 21 |
3,525 | 3,311 |
| 2022 | 2021 | |
| £m | £m | |
Remuneration | 1.9 | 1.2 |
Post-employment benefits | 0.1 | – |
2.0 | 1.2 |
| 8 Net finance expense | ||
| 2022 | 2021 | |
| £m | £m | |
Interest income from bank deposits | 0.5 | 0.1 |
Interest income on the net assets of the defined benefit pension scheme (note 21) | 1.3 | – |
Finance income | 1.8 | 0.1 |
Interest payable on interest bearing bank loans, borrowings and other similar charges | (2.7) | (3.0) |
Interest expense on lease liabilities | (1.2) | (0.9) |
Finance expense | (3.9) | (3.9) |
Net finance expense | (2.1) | (3.8) |
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161
| 2022 | 2021 | |
| £m | £m | |
| On profit/(loss) for the year | ||
UK corporation tax at 19% (2021: 19%) | (4.6) | – |
Adjustment in respect of prior years | 0.3 | 0.1 |
Current tax (charge)/credit for the year | (4.3) | 0.1 |
Deferred tax (charge)/credit for the current year | (2.5) | 8.4 |
Adjustment in respect of prior years | (0.1) | (1.0) |
Deferred tax (charge)/credit for the year | (2.6) | 7.4 |
Tax (charge)/credit in the consolidated income statement | (6.9) | 7.5 |
| 2022 | 2021 | |
| £m | £m | |
| Tax reconciliation | ||
Profit/(loss) before tax | 32.8 | (13.3) |
Taxation at 19% (2021: 19%) | (6.2) | 2.5 |
Amounts qualifying for tax relief and disallowed expenses | (1.0) | (0.3) |
Rate adjustment relating to UK deferred taxation | 0.1 | 6.2 |
Adjustments in respect of prior years | 0.2 | (0.9) |
Tax (charge)/credit in the consolidated income statement | (6.9) | 7.5 |
Effective rate of tax | 21.0% | 56.4% |
| 2022 | 2021 | |
| £m | £m | |
| Tax in other comprehensive income | ||
Current tax – Retirement benefit assets | 2.2 | – |
Deferred tax – Retirement benefit assets | 1.7 | (15.6) |
Tax credit/(charge) in other comprehensive income | 3.9 | (15.6) |
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| 2022 | 2021 | |
| £m | £m | |
| Deferred tax asset recognised | ||
Accelerated capital allowances | 2.1 | 0.8 |
Short-term temporary differences | 3.2 | 2.7 |
Retirement benefit assets | (15.0) | (16.7) |
Tax losses | 24.2 | 28.6 |
Deferred tax asset | 14.5 | 15.4 |
| 2022 | 2021 | |
| £m | £m | |
| Analysis of deferred tax movements | ||
At 1 January | 15.4 | 23.6 |
| Deferred tax in consolidated income statement | ||
Accelerated capital allowances | 1.3 | (0.3) |
Short-term temporary differences | 0.5 | 1.2 |
Retirement benefit assets | – | (2.2) |
Tax losses | (4.4) | 8.7 |
(2.6) | 7.4 | |
| Deferred tax in other comprehensive income | ||
Retirement benefit assets | 1.7 | (15.6) |
At 31 December | 14.5 | 15.4 |
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| The following gross value items are available as deferred tax assets: | ||||
Group | Company | |||
| 2022 | 2021 | 2022 | 2021 | |
| £m | £m | £m | £m | |
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 |
| 2022 | 2021 | |
| Number | Number | |
| (millions) | (millions) | |
Weighted average number of ordinary shares in issue for basic earnings per share calculation | 275.0 | 274.9 |
Dilutive potential ordinary shares arising from employee share schemes | 1.7 | 5.1 |
Weighted average number of ordinary shares in issue for diluted earnings per share calculation | 276.7 | 280.0 |
Notes to the Financial Statements continued
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| Other | |||||
| Customer | acquired | Other | |||
| Goodwill | relationships | intangibles | intangibles | Total | |
| Group | £m | £m | £m | £m | £m |
| Cost | |||||
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 |
At 1 January 2022 | 54.1 | 15.4 | 9.7 | 15.9 | 95.1 |
Additions | – | – | – | 0.3 | 0.3 |
At 31 December 2022 | 54.1 | 15.4 | 9.7 | 16.2 | 95.4 |
| Accumulated amortisation and impairment | |||||
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 |
At 1 January 2022 | 9.0 | 15.4 | 9.7 | 8.5 | 42.6 |
Charge in year | – | – | – | 0.6 | 0.6 |
At 31 December 2022 | 9.0 | 15.4 | 9.7 | 9.1 | 43.2 |
| Net book value | |||||
At 31 December 2022 | 45.1 | – | – | 7.1 | 52.2 |
At 31 December 2021 | 45.1 | – | – | 7.4 | 52.5 |
At 1 January 2021 | 45.1 | 0.4 | – | 6.6 | 52.1 |
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| 2022 | 2022 | 2021 | 2021 | |
| Transportation | Natural Resources | Transportation | Natural Resources | |
| Growth rates | % | % | % | % |
Year 5 | 1.5 | 1.5 | 1.9 | 1.9 |
Long-term average | 1.5 | 1.5 | 1.9 | 1.9 |
Notes to the Financial Statements continued
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| Right-of-use assets | |||||
| Land and | Plant and | Land and | Vehicles, plant | ||
| buildings | equipment | buildings | and equipment | Total | |
| Group | £m | £m | £m | £m | £m |
| Cost | |||||
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 |
At 1 January 2022 | 0.6 | 27.0 | 14.1 | 29.4 | 71.1 |
Additions | – | 0.2 | 0.7 | 16.1 | 17.0 |
Disposals | (0.6) | (2.6) | (1.4) | (14.2) | (18.8) |
At 31 December 2022 | – | 24.6 | 13.4 | 31.3 | 69.3 |
| Accumulated depreciation and impairment | |||||
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 |
At 1 January 2022 | 0.6 | 21.6 | 6.1 | 10.8 | 39.1 |
Charge in year | – | 2.9 | 2 .1 | 4.9 | 9.9 |
Impairment in year | – | 1.4 | – | – | 1.4 |
Disposals | (0.6) | (2.6) | (0.6) | (3.9) | (7.7) |
At 31 December 2022 | – | 23.3 | 7.6 | 11.8 | 42.7 |
| Net book value | |||||
At 31 December 2022 | – | 1.3 | 5.8 | 19.5 | 26.6 |
At 31 December 2021 | – | 5.4 | 8.0 | 18.6 | 32.0 |
At 1 January 2021 | – | 7.2 | 12.1 | 20.6 | 39.9 |
| Leased assets | ||
| Other amounts recognised in the income statement: | ||
| 2022 | 2021 | |
| £m | £m | |
Interest expense (included in finance expense) | 1.2 | 0.9 |
Expense relating to short-term leases (included in cost of sales and administrative expenses) | 62.4 | 41.3 |
| The lease liabilities relating to these right-of-use assets are as follows: | 2022 | 2021 |
| £m | £m | |
Current | 9.1 | 8.6 |
Non-current | 15.0 | 18.2 |
24 .1 | 26.8 |
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Investments in joint ventures | £m |
| Cost | |
At 1 January 2021 | 14.4 |
At 31 December 2021 | 14.4 |
At 1 January 2022 | 14.4 |
Additions | 6.5 |
At 31 December 2022 | 20.9 |
| Share of post-acquisition reserves | |
At 1 January 2021 | (14.0) |
At 31 December 2021 | (14.0) |
At 1 January 2022 | (14.0) |
At 31 December 2022 | (14.0) |
| Impairment | |
At 1 January 2021 | – |
At 31 December 2021 | – |
At 1 January 2022 | – |
Impairment in year | (6.5) |
At 31 December 2022 | (6.5) |
| Net book value | |
At 31 December 2022 | 0.4 |
At 31 December 2021 | 0.4 |
At 1 January 2021 | 0.4 |
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| Analysis of Group share of revenue, income and assets and liabilities of joint ventures | ||
2022 | 2021 | |
| Joint ventures | Joint ventures | |
| £m | £m | |
Revenue | (0.8) | (4.1) |
Profit before tax | – | – |
Taxation | – | – |
Profit for the year | – | – |
Non-current assets | – | – |
Trade and other receivables | 6.1 | 6.0 |
Cash and cash equivalents | (0.1) | (0.1) |
Trade and other payables – current | (5.6) | (5.5) |
Non-current liabilities | – | – |
Investments in joint ventures and associates | 0.4 | 0.4 |
Dividends received by Group | – | – |
| Analysis of the total revenue, income, assets and liabilities of joint ventures | ||
2022 | 2021 | |
| Joint ventures | Joint ventures | |
| £m | £m | |
Revenue | (1.9) | (12.1) |
Profit before tax | – | – |
Taxation | – | – |
Profit for the year | – | – |
Non-current assets | – | – |
Trade and other receivables | 17.4 | 17. 3 |
Cash and cash equivalents | (0.3) | (0.3) |
Trade and other payables – current | (16.1) | (16.1) |
Non-current liabilities | – | – |
Equity | 1.0 | 0.9 |
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| The Group has recognised the following assets and liabilities related to contracts with customers, in addition to amounts | ||
| included in trade receivables: | ||
| 2022 | 2021 | |
| £m | £m | |
Contract assets | 50.8 | 39.9 |
Non-current assets recognised relating to customer retentions | 3.4 | 5.5 |
Contract liabilities | (1.4) | (10.7) |
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| Unsatisfied long-term contracts | ||
| The following table shows unsatisfied performance obligations resulting from long-term contracts: | ||
| 2022 | 2021 | |
| £m | £m | |
| Aggregate amount of the transaction price allocated to long-term | ||
contracts that are partially or fully unsatisfied as at 31 December | 1,812.6 | 2,633.5 |
| Group Company | ||
| 2022 | 2021 | |
| £m | £m | |
| Amounts included in current assets | ||
Trade receivables | 98.3 | 120.0 |
Other receivables | 6.8 | 4.5 |
Contract assets | 50.8 | 39.9 |
Prepayments and accrued income | 31.3 | 34.5 |
Amounts owed by joint ventures and associates | 0.2 | 0.7 |
Amounts owed by subsidiary undertakings | – | – |
187.4 | 199.6 | |
| Amounts included in non-current assets | ||
Other receivables | 3.5 | 5.5 |
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| Group Company | ||
| 2022 | 2021 | |
| £m | £m | |
Cash and cash equivalents | 123.8 | 159.4 |
Cash and cash equivalents in the cash flow statement | 123.8 | 159.4 |
| Interest-bearing loans and borrowings | ||
| Group Company | ||
| 2022 | 2021 | |
| £m | £m | |
| Current | ||
Term Loan | – | 7.4 |
– | 7.4 | |
| Non-current | ||
Term Loan | – | 32.0 |
– | 32.0 | |
| Group Company | ||
| 2022 | 2021 | |
| £m | £m | |
Cash and cash equivalents | 123.8 | 159.4 |
Borrowings – current | – | (7.4) |
Borrowings – non-current | – | (32.0) |
Net cash before lease liabilities | 123.8 | 120.0 |
Lease liabilities (note 13) | (24.1) | (26.8) |
Net cash | 99.7 | 93.2 |
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| Cash and cash | Borrowings – | Borrowings – | Lease | ||
| equivalents | current | non-current | liabilities | Total | |
| Group | £m | £m | £m | £m | £m |
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 |
Net cash/(debt) at 1 January 2022 | 159.4 | (7.4) | (32.0) | (26.8) | 93.2 |
Cash flows | (35.6) | 7.4 | 32.0 | 8.4 | 12.2 |
New leases | – | – | – | (16.8) | (16.8) |
Disposal of leases | – | – | – | 11.1 | 11.1 |
Interest expense | – | – | – | (1.2) | (1.2) |
| Interest payments (presented as operating | |||||
cash flows) | – | – | – | 1.2 | 1.2 |
Net cash/(debt) at 31 December 2022 | 123.8 | – | – | (2 4.1) | 99.7 |
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| 2022. The unsecured bonding facilities are set out below: | ||
| Group and Company | ||
| 2022 | 2021 | |
| £m | £m | |
Expiring between one and five years | 280.0 | 310.0 |
Element of above facilities available for borrowings | – | 2.5 |
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| On this basis, the loss allowance as at 31 December 2022 and 31 December 2021 was determined as follows for both | |||||
| trade receivables and contract assets: | |||||
| Less than | 60 to 120 days | More than 120 days | |||
| Current | 60 days past due | past due | past due | Total | |
| 31 December 2022 | |||||
| Group 1 | |||||
Expected loss rate | 0.00% | 0.10% | 0.25% | 0.50% | |
£m | £m | £m | £m | £m | |
Trade receivables | 94.3 | 2 .1 | 0.7 | 0.2 | 97.3 |
Contract assets | 34.0 | 15.2 | 1.3 | 0.2 | 50.8 |
Loss allowance | – | – | – | – | – |
| Group 2 | |||||
Expected loss rate | 1.0% | 2.0% | 15.0% | 30.0% | |
£m | £m | £m | £m | £m | |
Trade receivables | 0.7 | 0.2 | – | 0.1 | 1.0 |
Contract assets | – | – | – | – | – |
Loss allowance | – | – | – | – | – |
| 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 | 8.3 | 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 | – | – | – | – | – |
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2022 | 2021 | |||||||
| Between | Between | |||||||
| Carrying | Contractual | Within one | one and | Carrying | Contractual | Within one | one and | |
| amount | cash flows | year | five years | amount | cash flows | year | five years | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Foreign exchange contracts: | ||||||||
Purchases | – | – | – | – | – | (0.2) | (0.2) | – |
Sales | – | – | – | – | – | 1.0 | 1.0 | – |
– | – | – | – | – | 0.8 | 0.8 | – | |
Interest rate swaps | – | – | – | – | – | – | – | – |
– | – | – | – | – | 0.8 | 0.8 | – | |
Notes to the Financial Statements continued
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| The movements on the hedging reserve by classification are set out below. | ||
| Interest | Total hedge | |
| rate swaps | reserves | |
| £m | £m | |
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 | – | – |
At 1 January 2022 | – | – |
At 31 December 2022 | – | – |
| a) Currency and maturity of financial assets | ||||||||
| Financial assets not measured at fair value | ||||||||
2022 | 2021 | |||||||
| Between | Between | |||||||
| Within | one and | After five | Within | one and | After five | |||
| Total | one year | five years | years | Total | one year | five years | years | |
| £m | £m | £m | £m | £m | £m | £m | £m | |
| Cash and cash equivalents: | ||||||||
pounds sterling | 123.2 | 123.2 | – | – | 158.8 | 158.8 | – | – |
other | 0.6 | 0.6 | – | – | 0.6 | 0.6 | – | – |
123.8 | 123.8 | – | – | 159.4 | 159.4 | – | – | |
| Trade, other receivables and amounts | ||||||||
| owed by joint ventures and associates: | ||||||||
pounds sterling | 108.8 | 105.3 | 3.5 | – | 130.7 | 125.2 | 5.5 | – |
| Insurance recovery asset: | ||||||||
pounds sterling | 13.4 | 9.4 | 4.0 | – | – | – | – | – |
122.2 | 114.7 | 7.5 | – | 130.7 | 125.2 | 5.5 | – | |
| Total financial assets | ||||||||
not measured at fair value | 246.0 | 238.5 | 7.5 | – | 290.1 | 284.6 | 5.5 | – |
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| b) Currency and maturity of financial liabilities | ||||||
| Financial liabilities not measured at fair value | ||||||
2022 | 2021 | |||||
| Between | Between | |||||
| Within | one and | Within | one and | |||
| Total | one year | five years | Total | one year | five years | |
| £m | £m | £m | £m | £m | £m | |
Term Loan – pounds sterling | – | – | – | 39.4 | 7.4 | 32.0 |
Lease liabilities – pounds sterling | 24 .1 | 9.1 | 15.0 | 26.8 | 8.6 | 18.2 |
Trade and other payables – pounds sterling | 140.6 | 139.5 | 1.1 | 116.0 | 114.2 | 1.8 |
Total financial liabilities not measured at fair value | 164.7 | 148.6 | 16.1 | 182.2 | 130.2 | 52.0 |
| c) Reconciliation of trade and other receivables and trade and other payables to the statement of financial position | ||||
2022 | 2021 | |||
| Current | Non-current | Current | Non-current | |
| £m | £m | £m | £m | |
Trade and other receivables (as above) | 114.7 | 7.5 | 125.2 | 5.5 |
Contract assets | 50.8 | – | 39.9 | – |
Prepayments and accrued income | 31.3 | – | 34.5 | – |
196.8 | 7.5 | 199.6 | 5.5 | |
2022 | 2021 | |||
| Current | Non-current | Current | Non-current | |
| £m | £m | £m | £m | |
Trade and other payables (as above) | 139.5 | 1.1 | 114.2 | 1.8 |
Contract liabilities | 1.4 | – | 10.7 | – |
Accruals and deferred income | 91.6 | – | 90.2 | – |
232.5 | 1.1 | 215.1 | 1.8 | |
| d) Effective interest rates of financial assets and liabilities | ||
2022 | 2021 | |
| Financial assets | ||
Cash and cash equivalents | 0.0% to 3.4% | 0.0% to 0.3% |
Notes to the Financial Statements continued
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| Financial instruments measured at fair value | |||
| Inter relationship between | |||
| Significant | significant unobservable inputs | ||
Type | Valuation technique | unobservable inputs | and fair value measurement |
Cash flow hedges | Market comparison technique: The fair values are based | Not applicable. | Not applicable. |
| 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. | |||
| 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. |
| Group Company | ||
| 2022 | 2021 | |
| £m | £m | |
| Current liabilities | ||
Trade payables | 97.5 | 83.0 |
Other payables | 33.4 | 23.2 |
Social security | 7.9 | 7. 6 |
Contract liabilities | 1.4 | 10.7 |
Accruals and deferred income | 91.6 | 90.2 |
Amounts owed to joint ventures and associates | 0.7 | 0.4 |
Amounts owed to subsidiary undertakings | – | – |
232.5 | 215.1 | |
| Non-current liabilities | ||
Other payables | 1.1 | 1.8 |
1.1 | 1.8 | |
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| Rectification | Onerous | |||
| provision | contract | Other | Total | |
| Group | £m | £m | £m | £m |
| Current | ||||
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 |
At 1 January 2022 | 6.2 | 43.4 | 0.7 | 50.3 |
Provided | 7.1 | – | 0.6 | 7.7 |
Utilised | (4.8) | (43.4) | (0.4) | (48.6) |
At 31 December 2022 | 8.5 | – | 0.9 | 9.4 |
| Non-current | ||||
At 1 January 2021 | – | – | – | – |
At 31 December 2021 | – | – | – | – |
At 1 January 2022 | – | – | – | – |
Provided | 3.7 | – | – | 3.7 |
At 31 December 2022 | 3.7 | – | – | 3.7 |
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| 2022 | 2021 | 2020 | |
| £m | £m | £m | |
Present value of defined benefit obligations | (527.1) | (837.5) | (886.5) |
Fair value of scheme assets | 587.3 | 904.6 | 880.9 |
Recognised asset/(liability) for defined benefit obligations | 60.2 | 67.1 | (5.6) |
| Movements in present value of defined benefit obligations | ||
| 2022 | 2021 | |
| £m | £m | |
At 1 January | 837.5 | 886.5 |
Interest cost | 14.8 | 11.7 |
Remeasurements – demographic assumptions | (0.3) | (5.4) |
Remeasurements – financial assumptions | (321.4) | (16.1) |
Remeasurements – experience adjustments | 29.7 | (6.5) |
Benefits paid | (33.2) | (32.7) |
At 31 December | 527.1 | 837. 5 |
| Movements in fair value of scheme assets | ||
| 2022 | 2021 | |
| £m | £m | |
At 1 January | 904.6 | 880.9 |
Interest income | 16.1 | 11.7 |
Remeasurements – return on assets | (310.7) | 34.6 |
Contributions by employer | 10.8 | 10.4 |
Administrative expenses | (0.3) | (0.3) |
Benefits paid | (33.2) | (32.7) |
At 31 December | 587.3 | 904.6 |
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| Expense recognised in the income statement | ||
| 2022 | 2021 | |
| £m | £m | |
Administrative expenses paid by the pension scheme | (0.3) | (0.3) |
Administrative expenses paid directly by the Group | (1.2) | (1.0) |
Interest income on the net assets of the defined benefit pension scheme | 1.3 | – |
(0.2) | (1.3 |
| 2022 | 2021 | |
| Fair value of scheme assets | £m | £m |
Global equities | 109.8 | 137. 2 |
Multi-asset growth funds | 56.1 | 133.7 |
Multi-credit fund | 110.9 | 118.1 |
LDI plus collateral | 307.2 | 494.6 |
Property | – | 4.4 |
Cash | 3.3 | 16.6 |
587.3 | 904.6 |
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| Principal actuarial assumptions (expressed as weighted averages) | |||
| 2022 | 2021 | 2020 | |
| % | % | % | |
Discount rate | 5.00 | 1.80 | 1.35 |
Future pension increases | 2.90 | 3.25 | 2.85 |
Inflation assumption | 3.10 | 3.40 | 2.95 |
| Weighted average life expectancies from age 65, as per mortality tables, used to determine benefits at 31 December | ||||
| 2022 and 31 December 2021 are: | ||||
2022 | 2021 | |||
| Male | Female | Male | Female | |
| (years) | (years) | (years) | (years) | |
Currently aged 65 | 21.9 | 23.9 | 22.1 | 24.0 |
Non-retirees currently aged 45 | 22.9 | 25.1 | 23.1 | 25.3 |
| Pension liability | Pension cost | |
| £m | £m | |
| Increasing the discount rate by 0.25%, decreases pension liability and increases pension | ||
income/reduces pension cost by Decreasing inflation by 0.25% (which decreases pension increases), decreases pension | 15.4 | 0.8 |
liability and increases pension income/reduces pension cost by Increasing life expectancy by one year, increases pension liability and reduces pension | 13.5 | 0.7 |
income/increases pension cost by | 17.9 | 0.9 |
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LTIP | DSBP | AIP | SAYE | ||
| Weighted average | |||||
| Number | Number | Number | Number | exercise price | |
| (m) | (m) | (m) | (m) | (p) | |
Outstanding at 1 January 2021 | 3.8 | – | 0.4 | 2.1 | 229.5 |
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 |
Outstanding at 1 January 2022 | 5.5 | – | 0.2 | 1.3 | 191.9 |
Forfeited during the year | (2.3) | – | – | (0.5) | 278.7 |
Exercised during the year | – | – | (0.1) | – | – |
Granted during the year | 9.3 | – | 2.2 | – | – |
Outstanding at 31 December 2022 | 12.5 | – | 2.3 | 0.8 | 118.4 |
Exercisable at the end of the period | 0.1 | – | 0.1 | 0.7 | 118.4 |
| options granted during the year was £3.6m (2021: £1.7m). The assumptions used in valuing the grants were: | ||
2022 | 2021 | |
Expected volatility | 20% | 20% |
Expected life (years) | 3.0 | 3.0 |
Risk-free interest rate | 1.2% | 1.2% |
Expected dividend yield | 0.0% | 0.0% |
Notes to the Financial Statements continued
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2022 | 2021 | |||
| Number | Nominal value | Number | Nominal value | |
| (millions) | £m | (millions) | £m | |
| Issued share capital | ||||
| Shares in issue at beginning of year – | ||||
ordinary shares of 50p each, fully paid | 275.0 | 137.5 | 275.0 | 137. 5 |
Issued in year (see below) | 0.1 | – | – | |
| Shares in issue at end of year – | ||||
ordinary shares of 50p each, fully paid | 275.1 | 137.5 | 275.0 | 137.5 |
Overview GovernanceStrategic Report Financial Statements
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| Activity | equity held | 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 | £m | equity held | place of business | Reporting date | |
| Principal joint ventures | |||||
ABC Electrification Ltd | Rail Electrification | 19.6 | 33.3 | (7) | 31 March |
4Delivery Limited | Civil Engineering | – | 40 | (3) | 31 March |
| Percentage | Country of | ||
| Activity | interest | business | |
| Major joint operations | |||
A-one+ Joint Venture – ASC area 12 – Highways England | Engineering and Maintenance | 33.3 | UK |
CH2M-Costain Joint Venture – Area 14 M&R contract | Engineering and Maintenance | 50 | UK |
Costain-Atkins-Black & Veatch Joint Venture – Thames Water AMP6 | Engineering | 70 | UK |
Costain-CH2M UK – ESCC JV – East Sussex highway maintenance | Engineering and Maintenance | 50 | 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 – HS2 Enabling works | Civil Engineering | 50 | UK |
| Costain-Skanska Joint Venture – A14 Cambridge to Huntingdon | Civil Engineering | 50 | UK |
| Improvement Scheme | |||
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 | Engineering | 33.3 | UK |
| outside AMP6 |
Costain Group PLC
Annual Report and Accounts 2022
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| * Denotes that the entity has taken the audit exemption under Section 479A of the Companies Act 2006 for the financial year ended 31 December 2022. |
Overview GovernanceStrategic Report Financial Statements
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| Registered | |||
| Percentage of | office/principal | ||
| Status | equity held | 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) |
| Percentage | Country of | ||
| Activity | interest | business | |
| Other joint operations, including completed | |||
| ACTUS Joint Venture – Trawsfynydd nuclear power station | Civil Engineering | 25 | UK |
| active waste retrieval | |||
| Alstom-Babcock-Costain Joint Venture – Edinburgh to Glasgow | Rail Engineering | 33.3 | UK |
| Rail Improvement Programme | |||
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 |
| Amec-Costain-Jacobs Joint Venture – Magnox ILW | Civil Engineering | 33.3 | UK |
| Management Programme | |||
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 |
ATC Joint Venture – C610 – Crossrail | Rail Engineering | 32.5 | UK |
ATC Joint Venture – C695 – Crossrail | Rail Engineering | 32.5 | UK |
| Balfour Beatty-BmJV-Carillion-Costain Joint Venture – | Civil Engineering | 29 | UK |
| National Major Projects – Highways England | |||
| CosMott Joint Venture – Devonport Major Infrastructure | Consultancy | 50 | UK |
| Programme – Construction Delivery Partner | |||
Costain Arup Joint Venture – Yorkshire Water | Consultancy | 50 | UK |
| Costain-Dalekovod Joint Venture – National Grid HV Overhead | Engineering | 60 | UK |
| Line System | |||
Costain-Hochtief Joint Venture – Reading station | Civil Engineering | 50 | 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 |
Costain Group PLC
Annual Report and Accounts 2022
190
| Percentage | Country of | ||
| Activity | interest | business | |
| Other joint operations, including completed continued | |||
Costain-Skanska C336 Joint Venture – Paddington New Yard – Crossrail | Civil Engineering | 50 | UK |
Costain-Skanska C360 Joint Venture – Eleanor Street – Crossrail | Civil Engineering | 50 | UK |
Costain-Skanska C405 Joint Venture – Paddington – Crossrail | Civil Engineering | 50 | UK |
Costain-Skanska C411 Joint Venture – Bond Street – Crossrail | Civil Engineering | 50 | UK |
Costain-Skanska C412 Joint Venture – Bond Street – Crossrail | Civil Engineering | 50 | UK |
Costain-Skanska Joint Venture – A14 Ellington to Fen Ditton | Civil Engineering | 50 | UK |
Costain-Skanska Joint Venture – Crossrail Civils Framework Enabling Works | Civil Engineering | 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-Taylor Woodrow Joint Venture – King's Cross re-development & Phase II | Civil Engineering | 50 | UK |
| Northern works | |||
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 | Engineering | 50 | UK |
| (Shell Green) Extension Project Stage 2 | |||
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 |
Overview GovernanceStrategic Report Financial Statements
191
| Sales of goods and services | ||||||
2022 | 2021 | |||||
| Joint ventures | Joint | Joint ventures | Joint | |||
| and associates | operations | Total | and associates | operations | Total | |
| £m | £m | £m | £m | £m | £m | |
Services of Group employees | 0.6 | 81.2 | 81.8 | 0.4 | 81.4 | 81.8 |
Construction services and materials | – | 17. 2 | 17. 2 | – | 17.3 | 17. 3 |
0.6 | 98.4 | 99.0 | 0.4 | 98.7 | 99.1 |
| Group | ||
| 2022 | 2021 | |
| £m | £m | |
Directors’ emoluments | 1.9 | 1.2 |
Executive officers’ emoluments | 2.1 | 1.5 |
Post-employment benefits | 0.1 | – |
Termination benefits | 0.6 | – |
Share-based payments | 0.8 | 0.6 |
5.5 | 3.3 | |
Notes to the Financial Statements continued
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Overview GovernanceStrategic Report Financial Statements
193
Five-Year Financial Summary
2022
£m
2021
£m
2020
£m
2019
£m
2018
£m
Revenue and profit
Revenue 1,421.4 1,135.2 978.4 1,155.6 1,463.7
Contract adjustments – 43.4 92.1 20.0 –
Adjusted revenue 1,421.4 1,178.6 1,070.5 1,175.6 1,463.7
Adjusted operating profit/(loss) 36.3 30.1 18.0 37.9 52.5
Adjusting items - contract adjustments – (39.2) (99.7) (20.0) –
Adjusting items - other (1.4) (0.4) (10.3) (21.1) (9.4)
Operating profit/(loss) 34.9 (9.5) (92.0) (3.2) 43.1
Share of results of joint ventures and associates – – 0.2 0.3 0.3
Profit/(loss) from operations 34.9 (9.5) (91.8) (2.9) 43.4
Finance income 1.8 0.1 0.8 1.0 0.4
Finance expense (3.9) (3.9) (5.1) (4.7) (3.6)
Net finance expense (2.1) (3.8) (4.3) (3.7) (3.2)
Profit/(loss) before tax 32.8 (13.3) (96.1) (6.6) 40.2
Taxation (6.9) 7. 5 18.1 3.7 (7.4)
Profit/(loss) for the year attributable
to equity holders of the Parent 25.9 (5.8) (78.0) (2.9) 32.8
Earnings/(loss) per share – basic * 9.4p (2.1)p (36.7)p (2.3)p 30.9p
Earnings/(loss) per share – diluted * 9.4p (2.1)p (36.7)p (2.3)p 30.2p
Dividends per ordinary share
Final – – – – 10.00p
Interim – – – 3.80p 5.15p
Summarised consolidated statement of financial position
Intangible assets 52.2 52.5 52.1 59.0 58.5
Property, plant and equipment 26.6 32.0 39.9 44.1 40.0
Investments in and loans to equity accounted joint ventures
and associates 0.4 0.4 0.4 2.5 2.5
Retirement benefit asset 60.2 67.1 – 4.9 –
Other non-current assets 22.0 20.9 27.1 6.7 6.3
Total non-current assets 161.4 172.9 119.5 117. 2 107.3
Current assets 320.8 359.5 370.4 435.3 467. 3
Total assets 482.2 532.4 489.9 552.5 574.6
Current liabilities 251.2 281.4 266.3 328.9 326.7
Retirement benefit obligations – – 5.6 – 4.2
Other non-current liabilities 19.8 52.0 61.5 65.9 61.4
Total liabilities 271.0 333.4 333.4 394.8 392.3
Equity attributable to equity holders of the Parent 211.2 199.0 156.5 157.7 182.3
* The Loss per share figures for 2019 have been restated for the capital raise in 2020.
Costain Group PLC
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Financial calendar and other shareholder information
Financial calendar
1
Full-year results 2022 14 March 2023
Annual General Meeting 11 May 2023
Half-year end 2023 30 June 2023
Half-year results 2023 23 August 2023
Financial year-end 2023 31 December 2023
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 2022. Those shareholders who have
already elected to join the scrip dividend scheme will automatically have their future dividends sent to them in this form.
Shareholders wishing to join the scheme for all future dividends should return a completed mandate form to the
Registrar, EQ. 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 becoming 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 7 March 2023
Total number
of holdings
Percentage
of holders
Total number
of shares
Percentage
Issued capital
Shareholdings 100,000 and more 125 1.57 264,086,388 96.00
Shareholdings 50,000–99,999 44 0.55 3,270,035 1.19
Shareholdings 25,000–49,999 43 0.54 1, 617,78 9 0.59
Shareholdings 5,000–24,999 313 3.92 3, 219,077 1.17
Shareholdings 1–4,999 7,455 93.42 2,891,452 1.05
Totals 7,980 100 275,084,741 100
Secretary
Nicole Geoghegan
Registered Office
Telephone 01628 842444
www.costain.com
Company Number 1393773
Overview GovernanceStrategic Report Financial Statements
195
Financial calendar and other shareholder information continued
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
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.
When dividends are paid, if you have them 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.
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.
* Lines are open Monday to Friday 08.30am to 5.30pm, excluding public holidays in England and Wales.
Costain Group PLC
Annual Report and Accounts 2022
196
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
Disclaimer
Printed by a CarbonNeutral® Company certified to ISO 14001
environmental management system.
Printed on material from well-managed, FSC™ certified forests and
other controlled sources.
100% of the inks used are HP Indigo ElectroInk which complies with RoHS
legislation and meets the chemical requirements of the Nordic Ecolabel
(Nordic Swan) for printing companies, 95% of press chemicals are recycled
for further use and, on average 99% of any waste associated with this
production will be recycled and the remaining 1% used to generate energy.
The paper is Carbon Balanced with World Land Trust, an international
conservation charity, which offsets carbon emissions through the
purchase and preservation of high conservation value land. Through
protecting standing forests, under threat of clearance, carbon is
locked-in, that would otherwise be released.
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.
TickITplus Systems and Software Development and Support.
CBP00019082504183028
Overview GovernanceStrategic Report Financial Statements
197
Costain Group PLC
Costain House
Vanwall Business Park
Maidenhead
Berkshire
SL6 4UB
www.costain.com/investors/