Costain Group PLC | Annual Report and Accounts 2023
2023
Annual Report and Accounts
Costain Group PLC
Creating a
sustainable future
Costain Group PLC
Costain House
Vanwall Business Park
Maidenhead
Berkshire
SL6 4UB
www.costain.com/investors/
2023 2023
2023
2023 2023 2023 2023
2023
2022 2022
2022
2022 2022
2022
2022
2022
2021 2021
2021
2021 2021
2021
2021
20232022
Adjusted operating
profit
2
£40.1m
Social contribution
£460k
Operating
profit
£26.8m
Adjusted basic
earnings per share
2
12.2p
Basic earnings
per share
8.1p
0.15 LTIR
£200k
278,985 tCO
2
e
£53.1m
£30.1m
2.6%
2.6%
9.6p
(£9.5m)
2021
2021
(0.8%)
0.09 LTIR
£391k
355,579 tCO
2
e
£72.9m
£36.3m
9.9p
£34.9m
2.5%
2023
20222021
£1,135.2m
£1,421.4m
£1,332.0m0.12 LTIR
£460k
319,233 tCO
2
e
£72.0m
£40.1m
3.0%
12.2p
£26.8m
2.0%
20232022
2021
(2.1p)
9.4p
8.1p
We shape, create and deliver solutions
that transform the performance of the
infrastructure ecosystem.
Overview
Highlights 1
Our Purpose 2
Chair’s Statement 4
For the latest investor relations
information visit our website /
www.costain.com/investors
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
Our ESG Performance 32
The Task Force on Climate-related
Financial Disclosures (TCFD) 34
Metrics 38
Gender and Ethnicity Pay Gap 39
Chief Financial Officer’s Review 40
Risk Management 43
Viability Statement 50
Governance
Board of Directors 52
Executive Board 54
Governance at a Glance 56
Chair’s Introduction 60
Board Evaluation 63
Our Governance Structure 64
S172 statement 66
Board Diversity 70
Purpose, Values and Culture 72
Workforce Engagement 74
Attendance and Composition 78
Other Board Matters 80
Audit and Risk Committee Report 82
Nomination Committee Report 88
Directors’ Remuneration Report 92
Remuneration at a Glance 92
Annual Statement by Chair of
the Remuneration Committee 94
Directors’ Remuneration Policy 97
Annual Report on Remuneration 101
Directors’ Report 118
Directors’ Responsibility Statement 124
Independent Auditor’s Report 125
Financial Statements
Consolidated Income Statement 135
Consolidated Statement
of Comprehensive Income 136
Consolidated Statement
of Financial Position 137
Company Statement
of Financial Position 138
Consolidated Statement
of Changes in Equity 139
Company Statement
of Changes in Equity 140
Consolidated Cash Flow Statement 141
Notes to the Financial Statements 142
Five-Year Financial Summary 186
Other Information
Financial Calendar and Other
Shareholder Information 187
Contact us 189
Non-financial highlights
Download the ESG Report here / www.costain.com/our-culture/performance-and-reports/
See our KPIs for more information on the above / pages 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 Adjusted free cash flow is defined as cash from operations, excluding cash flows relating to adjusting items and pension deficit contributions, less taxation and capital expenditure.
2 See notes 2 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Highlights
Adjusted free cash
flow
1
£72.0m
Safety
0.12 LTIR
Revenue
£1,332.0m
Adjusted operating
profit margin
2
3.0%
Environmental impact
319,233 tCO
2
e
Operating profit
margin
2.0%
Financial highlights
Costain Group PLC
Annual Report and Accounts 2023
Overview GovernanceStrategic Report Financial Statements
1
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 markets in the UK: Transport, Water,
Energy and Defence and everything we do is rooted in delivering
solutions and is organised around our customers.
See our operational review / pages 22 to 27
Transportation
Within the Transportation division, we support key customers such as Government transport agencies, as well as local and devolved authorities and private
regulated bodies. We report results in three sectors: Road, Rail and Integrated Transport.
Our ambition
Revenue and operating profit 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
infrastructure demands.
See our stakeholder engagement / pages 66 and 67
How we measure success
Our financial and non-financial KPIs are on pages 28 and 29.
See our risks / pages 43 to 49
Our Purpose
Improving
people’s lives
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 and Nuclear Energy.
Road Rail Integrated Transport
Water Energy Defence and Nuclear Energy
Costain Group PLC
Annual Report and Accounts 2023
2 3
Overview GovernanceStrategic Report Financial Statements
2023
2022
2021
£53.1m
£72.9m
£72.0m
Adjusted operating profit
1
£40.1m
202320222021
£30.1m
£36.3m
£40.1m
Alex discusses the priorities of the National Infrastructure
Commission’s Second National Infrastructure Assessment on
page 8 and we outline our market opportunities in more detail
on page 12. We are seeing greater opportunity in the multi-year
growth plans announced in areas such as Water and Energy;
we expect the Water sector’s AMP8 (Asset Management Plan)
programme to be at least twice the size of AMP7.
Sustainability
Costain’s Board continues its oversight of Environmental, Social
and Governance (ESG) matters. This year we completed a double
materiality assessment to help identify ESG focus areas, flagging
those with the greatest impact on Costain’s performance and
the issues on which we can have a significant impact, such as
climate change. We have developed an ESG programme to drive
deliverable actions and set long-term goals to 2030 against which
we can measure our progress. Our customers are increasingly
considering ESG matters in their decision-making and we are
working closely with them to mitigate their risks and realise their
opportunities in this area.
Through 2023, we have worked with the Science Based Targets
initiative (SBTi) to validate Costain’s near-term and net zero
ambitions. We are pleased to report that these were approved in
February 2024. During 2023, work has been ongoing to reduce
our emissions and engage collaboratively with our supply chain to
efficiently access accurate data. Carbon is a key issue for us; we
have updated our carbon management system to align with the
revised 2023 PAS 2080 standard and issued a low-carbon materials
mandate to our designers, engineers and supply chain.
We continue to trial the latest plant and equipment on our
projects, with positive feedback around the use of electric HGVs
and hydrogen-fuelled generators. We have also pioneered
innovative construction techniques such as the offsite 3D printing
of structures made with low-carbon concrete.
During 2023 we developed Costain’s first Social Value Plan which sets
out our approach to creating social, economic and environmental
value in our local communities. A proud moment for everyone at
Costain in 2023 was our 24/7 campaign with the Samaritans, with
more than £247k raised for our long-term charity partner. Further
details can be seen on page 73. Additional information on our ESG
policies and practices can be found on pages 32 to 38 and we also
publish a separate ESG Report which is available at www.costain.
com/our-culture/performance-and-reports.
Our people
Our outstanding team is at the heart of everything that we do
and essential to the success of our business. Our unique mix of
construction, consulting and digital experts embody our core values
and behaviours, which helps create a culture where everyone feels
included and respected. The Board and I are highly appreciative of
our people and would like to thank them for the work they do.
I was delighted to meet many of our highly skilled and valued
workforce at the sites I visited during 2023. On Costain’s impact
days, where we focussed on carbon reduction and embedding our
learning organisation model, I enjoyed visits to AWE Mensa and
Devonport. The quality and commitment of our teams that I met
at Anglian Water SPA, A30, Heathrow, HS2 (Victoria Road Crossover
Box) and Southern Water was hugely impressive. The Board’s
workforce engagement activities are set out in more detail on pages
74 to 77.
I am pleased to see improvements in areas where we have taken
targeted action and that we have retained our Best Companies
accreditation as a ‘A Very Good Company to Work For’ in our 2023
engagement survey. More details about these initiatives can be
found in our case study on page 75.
Our financial performance is especially pleasing as it has been
delivered against the backdrop of some rephasing and rescoping
of several large-scale national projects, clearly demonstrating the
resilience of our multi-sector strategic focus and the strength and
flexibility of Costain’s operational and financial management.
Importantly, we are delivering against our operational targets to
increase our adjusted profit margin, targeting a 3.5% margin run-
rate in the course of 2024 and 4.5% the year after. Alex Vaughan,
CEO, discusses our ongoing margin improvement and our
enhanced bidding and delivery discipline on page 7. Helen Willis,
CFO, expands on our financial performance in the Financial Review
on pages 40 to 42.
Our customers
There is a greater need than ever to update, connect and
integrate infrastructure ecosystems to meet the needs of the UK’s
growing population, the impact of climate change and the need
for increased economic and environmental resilience, all while
delivering growth for the wider economy.
We focus on long-term, strategic relationships with Tier 1
customers and Costain’s aim is to be the partner of choice for all
our customers as they meet these challenges. We bring together
a unique mix of engineering solutions for increasingly complex
problems. Our commitment to create connected, sustainable
infrastructure is core to all our activities with Costain focusing on
our four key markets of Transport, Water, Energy and Defence,
which is discussed on pages 13 and 14.
During 2023, the UK Government has had to balance its wish to
further invest in the country’s infrastructure with the impact of
inflation and rising costs on its spending plans. As a result, during
2023, we saw the Government and its agencies rephase and
rescope some large-scale infrastructure projects in Road and Rail.
We anticipate that changes may continue into 2024 and 2025.
During 2023 Costain delivered
a strong operational and
cash performance.
Chair’s Statement
During 2023 Costain delivered a strong set of financial results. The Group’s adjusted
operating profit
1
increased for the third year, our adjusted operating margin grew,
and we generated strong cash flow which exceeded market expectations.
“ We are delivering well on
our strategic objectives
with an increase in our
adjusted operating profit
and margin. We continue
to build a pipeline of future
opportunities for 2025
and beyond.”
Kate Rock
Chair
1 See notes 2 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 cash flows relating to adjusting items and pension deficit contributions, less taxation and capital expenditure.
Adjusted free cash flow
2
£72.0m
Costain Group PLC
Annual Report and Accounts 2023
4 5
Overview GovernanceStrategic Report Financial Statements
Financial strengthening
We have been successful in significantly increasing the financial
strength and stability of Costain. In June 2023, we were able to
announce that an agreement had been reached with the Trustees
of the Group’s defined benefit pension scheme on the 31 March
2022 triennial actuarial funding valuation, together with a new
reduced payment contribution plan.
The new contribution plan from the Group to the Costain
Pension Scheme runs from 1 July 2023 to 31 March 2027 and is
for a payment of £3.3m per year which will increase in line with
inflation (CPI) each 1 April. This replaces the previous contribution
plan to the Scheme, which from April 2023 would have increased
to an annual payment of £11.98m.
This reduction in payments to the defined benefit scheme has
provided better financial flexibility by retaining more cash in
Costain and reflects the strong funding level (97% funded at the
time of agreement) of the scheme. Importantly, if the pension
scheme funding level is above 101% as of 31 March each year,
then no contributions will be payable for the following year.
In July 2023, we successfully concluded negotiations with our
bank and surety facility providers for a new three-year agreement
of our bank and bonding facilities. The Group’s new facilities
agreement runs to September 2026 and comprises an £85m
sustainability-linked revolving credit facility (previously £125m),
and surety and bank bonding facilities totalling £270m (previously
£280m). It was good to see that National Westminster Bank
(NatWest) joined our banking group, alongside Lloyds Bank,
HSBC and Crédit Industriel et Commercial (CIC).
Capital allocation
Given the Group’s improved financial performance, net cash
position and growth prospects, the Board took the view that
it would resume dividend payments and declared an interim
dividend of 0.4p per ordinary share for the six months ended
30 June 2023. In line with our policy that dividends will
typically be paid 1/3 as interim and 2/3 as final dividends, the
Board is proposing a final dividend of 0.8p for the period to
31 December 2023.
The dividend payments for 2023 match broadly the £3.3m per
year plus inflation (CPI) payment to the defined benefit pension
scheme. Potential increased dividends may be considered by the
Board depending upon our underlying cash flow generation and
the pension scheme funding level (and any associated dividend
parity requirement) in line with the Group’s policy.
Board changes
We welcomed Steve Mogford and Amanda Fisher to the Board
on 1 November 2023 and 1 December 2023 respectively, as
independent non-executive directors. Steve and Amanda are
members of the Company’s Audit and Risk, Nomination and
Remuneration Committees.
Steve is an experienced executive and non-executive director with
extensive expertise in water, defence and complex joint ventures.
He was CEO of United Utilities Group PLC from 2011 until March
2023 and led significant growth during that period.
Amanda was CEO of Amey, the engineering and infrastructure
company, from 2019 until 2022 and has considerable expertise
in transportation, infrastructure and defence.
As part of these changes, Neil Crockett and Jacqueline de Rojas,
non-executive directors, stepped down from the Board on
31 October 2023. On behalf of the Board, I would like to thank
Neil and Jacqueline for their considerable contributions to
Costain during their tenure.
Separately, Bishoy Azmy has also decided to step down from the
Board with effect from 31 March 2024. We are very grateful for
his contribution to Costain, having joined the Board in June 2020
following the equity fund raise earlier that year. I fully understand
and appreciate that, as he sees Costain in a robust shape and well
set for future growth, he wishes to step down from the Board to
commit to his other significant global activities.
Looking ahead
The Board would like to thank our people, customers and
suppliers for their efforts and support during the year and their
long-term commitment to the Group.
While we are mindful of market conditions and the wider
economic and geopolitical challenges, we believe there is a
positive long-term outlook for UK infrastructure and good growth
prospects for the Group. These market drivers, combined with
the strategic progress made during the year, gives the Board
confidence in our future and that we will deliver increasing value
to all of our stakeholders.
Kate Rock
Chair
11 March 2024
Chair’s Statement continued Chief Executive Officer’s Statement
In 2023, we:
• Delivered another strong operational and
financial performance:
– An adjusted operating profit of £40.1m, up 10.5% on
last year
1
.
– A strong cash performance with a net cash position of
£164.4m
2
at the end of the year, well ahead of expectations,
resulting from an adjusted free cash inflow of £72.0m
3
. I note
that we have benefitted from positive year-end cash timings,
which if fully reversed in 2024 will result in us having cash at
approximately the same level at the end of this year.
– An improved adjusted operating margin of 3.0%
1
, an increase
on last year’s 2.6%. The margin in the second half of 2023
stood at 3.8%, demonstrating the increasing quality of our
business as we progress towards our stated margin goals.
– An order book and preferred bidder book with the
combined total standing at three times 2023 revenue.
– Won a number of key contracts on long-term programmes.
– Delivered an industry-leading Lost Time Injury Frequency Rate.
• Continued to strengthen our operational and
financial performance:
– Demonstrated predictable contract performance,
benefitting from strong risk management in work winning
and contract delivery.
– Our risk management of contracts in the year delivered a
positive performance against the backdrop of the rephasing
and rescoping of some major contracts.
– Finalised a new three-year agreement for our bank and
bonding facilities.
– Agreed a new payment plan with the Trustee of the
Company’s defined benefit pension scheme, based on the
31 March 2022 triennial actuarial funding valuation and
ongoing contributions to the Scheme.
– Further broadened our Tier 1 customer mix across our
growth markets.
Strong performance in
key national markets
1 See notes 2 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.
3 Free cash flow is defined as cash from operations, excluding adjusting items and
pension deficit contributions, less taxation and capital expenditure.
We delivered further growth in adjusted operating profit and margin, a continued
increase to our net cash position and have secured strong positions in our markets.
“ We delivered against
our strategic objectives in
key national markets.”
Alex Vaughan
Chief Executive Officer
Overview GovernanceStrategic Report Financial Statements
6 7
Costain Group PLC
Annual Report and Accounts 2023
2023
20232022
20222021 2021
Reported revenue
£1,332.0m
Net cash balance
2
£164.4m
£26.3m
£119.4m
£34.2m
£123.8m
£44.2m
£164.4m
2023
2022
2021
£1,178.6m
£1,421.4m
1,3325m
Chief Executive Officer’s Statement continued
• Increased our positioning in growing markets:
– In our markets, national needs are growing as set out in
the National Infrastructure Commission’s Second National
Infrastructure Assessment (SNIA).
– We are positioned on primary investment programmes,
and have already secured key positions in Energy, Water,
Defence, Aviation and Highway programmes for the next
five years.
• As a result of our improved operational and financial
performance, we were able to resume dividend payments,
outlined on page 6.
I’m grateful for the hard work and support of all our employees
and partners during the year, both to deliver this progress, and to
navigate the challenging operating environment. Thank you.
Our strategy
The Group benefits from being strategically positioned in four
key markets in which long-term investment continues to be
made (Transport, Water, Energy and Defence) providing us with
a strategic, diversified and resilient customer base. The National
Infrastructure Commission published its SNIA in October 2023,
which sets out the broad investment expected in infrastructure of
around £70bn per year across our markets, to be underpinned by
legislative and regulatory commitments.
We have explicitly 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 vision is to create connected, sustainable
infrastructure to help people and the planet to thrive and you can
read more about our strategy and markets on pages 10 to 14.
While we forecast long-term spending increases in our markets, due
to the present inflationary pressures on the UK Government, and
the pending general election, we expect the changing timescales
and spending levels that we have seen on some major infrastructure
programmes in 2023 to continue into 2024 and 2025.
At the end of 2023, our order book, where contracts are signed
and ready to proceed, was £2.1bn (FY22: £2.8bn), and our
preferred bidder book stands at £1.8bn (FY22: £1.6bn), see page
23 for further details. The total of order and preferred bidder
book of £3.9bn represents three times FY23 revenue, which is
market-leading.
At the end of 2023, we had more than £1bn of Group revenue
secured for 2024, representing more than 80% of forecast
revenue for the period. Our four chosen markets continue to offer
significant long-term opportunities for the Group, with water
investment, for example, set to double during the next regulatory
period, AMP8.
Strategic priorities
Right across the Group we are focused on three strategic
priorities that will deliver for all of our stakeholders: People,
Planet and Performance.
PEOPLE – Ensuring safety, diversity, inclusion, and positive social
impact for our people and the wider community are key values for
the Group.
For more details on our work with ESG issues, please see pages
32 to 38. Safety is always our number one priority, and our Lost
Time Injury Frequency Rate in FY23 was 0.12 (FY22: 0.09) which
remains industry-leading.
We continue to proactively address our gender pay gap and
in 2023 we launched a pilot programme to support women in
progressing in their careers, building on the feedback of our
employee networks. Following the success of the programme,
Costain will be rolling out a second intake in the first quarter
of 2024.
Costain plays a significant role in enhancing the prosperity of local
communities by channelling our spending with small and medium-
sized businesses (SMEs). In 2023 38% of Costain's spending was
with SMEs, exceeding the UK Government target of 33%, and
consistent with the FY22 performance of 38%.
1 See notes 2 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.
PLANET – Caring for the environment is not an add-on for Costain
– it is part of who we are. It is also a critical requirement of our
customers. We continue to implement our climate change action
plan, with an ambition to be net zero carbon by 2035. Absolute
greenhouse gas (GHG) emissions, including Scope 3, is one of
our key non-financial performance indicators (see page 29) and,
regardless of how much our business grows, we still reduce the
carbon dioxide we are releasing into the atmosphere.
Given the growth of ESG awareness and importance across
society, I note that 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.
PERFORMANCE – This is where we work with our customers to help
shape, create and deliver their broader infrastructure requirements.
The key measures of our development as a business are:
• Financial performance (see page 28 for further details).
• Customer wins.
We continue to operate strong risk management processes on
contracts at pre-contract and contract stages, ensuring a robust
operational performance. In addition, we have secured further
opportunities with our customers, demonstrating our strategic
progress. Our strategy provides for assured delivery, lower risk
contracts in our orderbook, and a broader business mix.
We delivered good growth in our adjusted operating margin
during the year and we remain on track to deliver on our
operational targets as outlined in March 2023:
• An adjusted operating margin run-rate of 3.5% during the
course of FY24, as we increase effectiveness within the
business through the implementation of our Transformation
programme and Operating Excellence Model (OEM), the
growth of our consultancy services, increased effectiveness
in procurement and ongoing focus on operating costs.
• An adjusted operating margin run-rate of 4.5% during the
course of FY25, to be reached by improving margins within
complex programme delivery (construction contracts), further
efficiencies from our Transformation programme, our OEM
and an increasing mix of higher-margin contracts.
• We continue to have an ambition for an adjusted
operating margin in excess of 5.0% as we increase our
mix of higher-margin business.
We have made good progress in securing new work that
demonstrates how we are working in deeper partnerships
with our customers. During 2023 we have:
• Expanded our presence in the Water sector with our first set
of AMP8 wins and were appointed by United Utilities in July to
extend our work as its Managed Service Provider for a further
two years. We have also had our AMP7 contracts extended
into AMP8 by Severn Trent Water and Thames Water. Post year-
end we began a new relationship with Northumbrian Water
Group when they appointed us to their AMP8 framework.
• Been appointed by NRS Ltd (previously known as Magnox)
to deliver its decommissioning programme, supporting the
Company across 11 sites and ensuring the safe and secure
closure of locations through to 2029.
• Further grown our delivery partner consultancy roles
building on our current positions with AWE, Babcock,
Cadent and National Highways. We are also increasing our
activity at Heathrow, where we are working as a solution
delivery partner, providing construction, consulting and
digital capabilities during its next regulatory period.
• Secured further strategic wins to provide consultancy advice
and support to bp and Yorkshire Water, and post year-end
with the Department for Transport (DfT), and Transport for
London (TfL).
Outlook
Our expectations for further progress in 2024 remain unchanged.
As a result of our continued strategic and operational
development, we remain on track to deliver an adjusted operating
margin run-rate of 3.5% during the course of FY24 and 4.5%
during the course of FY25, in line with our ambition to deliver
margins in excess of 5.0%.
We remain mindful of the macro-economic and geopolitical
backdrop and its importance for near-term government
priorities and timing of spending. Notwithstanding this, with
our increasingly broad high-quality customer base, further
improvements to our operational performance, opportunities for
higher-margin business, strong cash position and clear strategic
priorities, we are well positioned for further growth in profits and
cash generation.
Alex Vaughan
Chief Executive Officer
11 March 2024
For more information visit our website / www.costain.com
Adjusted profit before tax
1
£44.2m
Overview GovernanceStrategic Report Financial Statements
8 9
Costain Group PLC
Annual Report and Accounts 2023
We are at the forefront of helping meet many
of the UK’s infrastructure needs.
Our strategy focuses on transforming the UK’s infrastructure performance and safeguarding our planet.
Our ambition
Revenue and operating profit 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.
We form strategic relationships with Tier 1
customers, forging long-term partnerships
which deliver their business plans.
We have enacted a Transformation programme
within Costain to streamline our organisational
structure, digitise to increase efficiencies and
refine our procurement processes.
At the same time, we recognise our wider
responsibilities and report on ESG matters
on pages 32 to 39 and in our separate ESG
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 infrastructure ecosystem.
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,
sustainable infrastructure.
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
and digital partners.
3. We look to enhance the environmental and
social value that construction delivers with
an ambition to be net zero carbon by 2035.
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.
Our people strategy is focused on six 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.
• We value the health and wellbeing of our people, and the
safety of everyone working with us and around us is one of our
core values.
During 2023, we maintained our status as a ‘A Very Good
Company to Work For’ (Best Companies), achieving a ranking of
19 in their ‘Big Companies to Work For’ category. Key highlights
include the launch of our job architecture to improve transparency
of pay and reward, the launch of our new leadership framework,
launching our female empower programme and our ethnicity pay
listening circles, and piloting our career path framework with our
front-line management community, giving people more visibility
of how to grow their careers at Costain. We discuss our workforce
engagement survey in more detail on page 75.
Planet
In 2023 we developed and implemented an ESG programme to
accelerate our approach to enhance performance and at the
same time we are working with our customers to support them
in reaching their ESG objectives.
Going beyond protecting nature and the environment is crucial
to our strategic priority to safeguard our planet’s future. Not only
are we working with our customers to help decarbonise their
businesses and improve their resilience, but we are also shaping
solutions that deliver biodiversity net gain.
Driving an orderly transition to net zero is critical to both
Costain and our customers, all the while adapting to overcome
the physical climate risks that impact infrastructure. Please
see pages 34 and 35 for our Task Force on Climate-related
Financial Disclosures (TCFD).
We maintain our focus on maximising our social and
environmental contribution. Demonstrating social value
for money has significantly increased in importance to our
stakeholders. Every Costain complex project delivery contract
is required to maintain a local social value plan, targeting local
opportunities to create sustainable outcomes such as increased
employment opportunities, improving access to community
spaces and nature, and promoting local investment.
Performance
To meet the huge challenges and opportunities facing
infrastructure delivery in the UK, we need to transform the
performance of infrastructure delivery.
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 environmental impact. In addition, our consultancy
capabilities 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 of accountability.
To drive growth, assure project delivery and ensure the highest
safety and environmental performance, we focus on:
• Predictable performance: we are continuously improving
and standardising our approach to production thinking,
project controls and assurance, to enhance productivity
and drive consistent delivery of every contract to plan
with industry-leading safety and quality.
• People and sustainability: we are driving fairness,
consistency, and transparency of our rewards packages
to attract and retain talent, as well as continuing to
enhance our ESG reporting to meet our environmental
and social commitments.
• Market intelligence and agility: we are investing in our
business development skills and market insight knowledge
to ensure we develop a resilient customer base and remain
agile to respond to changing market conditions.
• Strategic partnerships: we are developing a range of strategic
partnerships to help us de-risk delivery, build long-term
capabilities, and win more work by increasing the value
we add for customers.
Our Strategy
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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.
£700bn infrastructure investment
expected over next decade.
Transportation markets
In line with the Second National Infrastructure Assessment (SNIA), we are strategically well
positioned in our four chosen markets. These markets benefit from significant, and increasing,
long-term strategic investment to meet the UK’s critical national needs, with the National
Infrastructure and Construction Pipeline projecting at least £700bn of infrastructure spending
during the next decade.
Market Overview
Policy, investment and regulation trends continue to reinforce
our strategy in terms of change in market needs and our need
to focus on expert delivery, predictability and productivity. The
SNIA, published in October 2023 by the National Infrastructure
Commission, highlighted a need to increase investment in
infrastructure quickly to meet critical national needs, as well
as identifying a pressing need to improve productivity and the
predictability of major infrastructure delivery in the UK.
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 as well as our strategic partners,
suppliers, and customers in each of our markets to shape the
future of infrastructure delivery.
Strategic investment programmes – expected infrastructure spend
1
Committed
investment
Investment
period 2024 2025 2026 2027 2028 2029 2030
National Highways £27bn 2020–2025 RIS2 RIS3
High Speed Rail £45–54bn 2018–2030 Phase 1 (London–West Midlands)
Integrated Rail Plan £54bn 2022–2050 IRP
Network Rail £43bn 2024–2029 CP7 CP8
Local and regional
transport
c£14bn 2022–2032 City Regional Sustainable Transport Settlements
c£8bn 2023–2026 TfL 2023 Business Plan
Ports and Aviation £7bn+ 2021–2040 Port and Airport expansion
Water £96bn 2025–2030 AMP7 AMP8
Energy
£12bn 2020–2030 10-Point Plan
£30bn 2021–2026 RIIO-2 RIIO-3
£25bn 2023–2028 RIIO-ED2 (Electricity Distribution) RIIO-ED3
Defence
£240bn 2022–2032 Defence Equipment Plan
£4bn 2020–2030 Defence Estates Optimisation
Nuclear
£8bn 2023–2025
Nuclear
Decommissioning
Authority
c£20bn 2023–2038 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 2023.
We estimate that the total annualised market spend for infrastructure in the UK is approximately £70bn per year across all the markets
during the period outlined above, with a c.30% increase from 2023 to 2030 driven by new customer spending cycles.
Road Rail Integrated Transport
National Highways has 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 and asset management
as they increase their focus on maintaining
the existing network as they prepare for
the Road Investment Strategy 3 (RIS3)
programme from 2025–2030.
We expect investment in the local road
network in the UK to match that of the
strategic road network between 2024
and 2030 through various local and
central government funding allocations,
such as the City Regional Sustainable
Transport Settlements (CRSTS), with a
focus on renewal and maintenance of
the existing road network for local and
regional authorities.
The SNIA, published in October 2023 by
the National Infrastructure Commission,
recommended that investment in rail
should be prioritised to support growth
across regions in the UK. This includes
a recommendation that spend on rail
enhancements (including through the
Integrated Rail Plan and successor
schemes) increases to an average of
almost £10bn per year for the next 10
years, as well as an increased spend on
renewals and maintenance to ensure
infrastructure is resilient to climate change
impacts. As such, the outlook for rail
investment in the UK remains positive. In
2023, the UK Government and its agencies
rephased and rescoped some large-scale
rail projects, and we anticipate these
changes to continue into 2024.
A core part of the delivery of this
investment comes through Network
Rail who have committed to a £43bn
investment programme in CP7 (control
period) between 2024 and 2029, and there
is an expected HS2 spend of £45–54bn
across its investment cycle. Through this
investment period, Network Rail is focused
on improving the efficiency, environmental
impact and resilience of the rail network, as
well as increasing the freight capacity.
Investment is increasingly being
decentralised through levelling up
investment and further devolution,
bringing decision-making closer to
local communities. This investment is
delivered through a range of funding
streams including the CRSTS, which
has committed c£14bn for sustainable
transport in city regions until 2032. The
decarbonisation challenge remains a big
driver, with local and regional authorities
needing to decarbonise their operations
and infrastructure and develop future,
low-carbon mass transit options. The
SNIA forecasts that the share of transport
investment on urban transport will
increase from around 40% today to 50%
in the 2040’s.
The aviation market has bounced
back following the COVID pandemic,
which, combined with a need to meet
the decarbonisation challenge, has
reinvigorated infrastructure investment
plans. Similarly, UK ports are committing
increasing investment to develop
infrastructure to support the energy
transition, decarbonise their operations
and get better use of their assets.
Rail committed spend
£142bn+
Please see page 24 for details on our progress in
the sector during 2023.
Please see page 25 for details on our progress in
the sector during 2023.
Please see page 25 for details on our progress in
the sector during 2023.
Road committed spend
£27bn
Integrated Transport committed spend
£29bn+
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Annual Report and Accounts 2023
S
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HELPING PEOPLE
AND THE PLANET
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Market Overview continued
Water committed spend
£96bn
Energy committed spend
£67bn
Defence and Nuclear Energy
committed spend
£272bn
Please see page 27 for details on our progress
in the sector during 2023.
Please see page 27 for details on our progress in
the sector during 2023.
Please see page 26 for details on our progress
in the sector during 2023.
We work to shape, create and deliver pioneering infrastructure solutions 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
Water Energy Defence and Nuclear Energy
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 Plan 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 AMP8, with AMP8 expected to be at
least double the investment of AMP7.
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.
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. We expect
significant growth in this sector given the
requirement for energy infrastructure
investment to support economic growth,
tackle climate change and enhance the
natural environment, as outlined in the
National Infrastructure Commission’s
recent SNIA.
We provide our customers in this
sector with a range of services including
engineering design, managed services
and programme management, solving our
customers’ complex energy challenges
through excellence in engineering and
delivery. Our strategic focus areas are
energy transition (hydrogen and carbon
capture), energy resilience (brownfield
modifications for enhanced longevity and
performance, energy storage and carbon
reduction) and energy connectivity (gas
and electricity networks).
We continue our contract with Cadent, are
working with bp on the net zero contract
at Teesside and continue to support bp as
it progresses the wider decarbonisation of
the region’s energy supply.
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
to assure the continued delivery of the
UK’s independent nuclear deterrent. Our
focus to date has been on supporting the
Continuous At Sea Deterrent Programme
and our ambition is to grow into a long-
term partner for our defence customers to
deliver their most complex infrastructure
engineering needs.
Our focus in the nuclear energy market
is to support the safe decommissioning
of nuclear power plants as well as
construction of new nuclear stations in the
UK. We are working closely with Sellafield,
Nuclear Restoration Services and EDF to
deliver this ambition.
Underpinned by our Environmental, Social and Governance (ESG) goals
Operating responsibly and with integrity is a key part of our strategy. Read more / pages 32 to 38
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.
INFLUENCE, SHAPE
AND ADVISE
CREATE AND DELIVER
MAINTAIN, OPTIMISE
AND REPURPOSE
Rethinking the approach to infrastructure. Engineering innovative solutions that are
sustainable, efficient and practical, and
deliver projects in a safer, greener, faster
and more efficient way.
Enhancing and maintaining existing
assets to ensure safe, efficient and
cost-effective operations.
Extending asset life or repurposing,
while delivering economic and
environmental value.
Developing strategic solutions designed
to optimise value and reduce risk.
Natural Resources markets
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Annual Report and Accounts 2023
Together we’re
focusing on…
Our people make us unique. Their expertise drives
our collaborative and innovative approach and
means we deliver for customers time and again.
People
Purpose in Action
We have a focus on excellent leadership
and wellbeing, as well as championing
diversity, inclusion, and positive
social impact for our people and the
communities we serve. This is brought to
life through some examples below.
Leadership
We have a relentless focus on ‘eliminating
harm’ in everything that we do, and we
have led the industry with forensic reviews
into any safety incidents that occur. Where
those reviews find that new procedures are
needed, we are rigorous in rolling those
procedures out to our partners and supply
chains. A good example of this, following
the Gatwick fatality in 2022 and the risk
associated with lifting practices, is our new
‘Hands off, step back’ procedure which has
been widely adopted.
Our values and behaviours are front and
centre in all our activities. Leaders are
encouraged to role model them and
recognise examples where our people
have demonstrated them in their activities.
One of our core behaviours is ‘Be caring’,
with leaders expected to extend our
‘eliminating harm’ approach to wellbeing.
For an example of one of our wellbeing
initiatives, please see the case study on
the facing page.
Wellbeing
Wellbeing goes hand in hand with a
progressive approach to diversity and
ensuring our sites and offices are inclusive
places to work. To assist with this, we have
launched our Empower programme, a
development programme aimed at tackling
barriers to women’s progression into senior
roles. The content of the programme was
drawn from feedback through our Women’s
network survey, which highlighted that
women in the business wanted a course
which focused on women and addressed
their experiences in the industry. We are
also running listening circles with employees
from different ethnic backgrounds to better
understand how to tackle ethnicity pay
gaps and identify interventions to improve
employee experiences.
Another aspect to an inclusive and thriving
workplace is developing our people. Not
only does this support more fulfilling
careers, it ensures our people are at the
cutting edge of knowledge and deliver
innovative, sustainable and value for
money solutions for our customers.
In 2023, we supported many of our engineers
to develop their expertise further by
achieving Professional Chartership status,
with a number of our senior leaders achieving
Fellowships. We’ve also incorporated training
for our teams on biodiversity, inclusive design,
and production thinking.
Positive social impact
Creating positive social impact through our
projects is not only important to us, it’s
increasingly important to our customers and
rightly demanded by the communities we
serve. We are working with our customers to
ensure that our projects take account of local
communities, boosting skills, improving the
environment and supporting businesses.
Working with Lancashire County Council
we completed a major new road scheme
linking parts of Preston and the Fylde to
the M55 motorway. Our approach centred
on collaboration, keeping local residents
and businesses firmly in mind at all times.
We scored highly in the Considerate
Constructors Scheme (45 out of 50),
with an excellent rating across categories
including Respect the Community, Care for
the Environment and Value their Workforce.
Championing wellbeing in Manchester
Company-wide workplace wellbeing
remains a focus. In 2023, we have
appointed a new Wellbeing manager
to help us renew our strategic
approach based on data-driven
priorities. Our first SHE impact day in
2024 is themed around wellbeing.
The Manchester office Mental Health
First Aider (MHFA) forum has been
recognised for their outstanding efforts
in raising wellbeing awareness and
orchestrating successful initiatives.
Lisa Thomas, chair of the Manchester
MHFA Forum, said, “We have really
worked hard to promote mental health
and wellbeing in our Manchester office.
It’s been great to see colleagues
attending our lunchtime chats
about stress and anxiety, joining
us for coffee and cake for Time to
Talk day, sharing their feedback in
a sleep survey, attending physical
health sessions and facilitating the
Graduates and Apprenticeships
tailored wellbeing sessions.”
Nearly 60% of the people working on the
scheme came from the local area, and 45%
of project spend was invested within a
25-mile radius.
The theme of supporting local communities
is also evident on the A30 scheme for
National Highways. That project has spent
more than £30m with local and regional
companies, provided STEM activities to
local students, employed local apprentices
and raised almost £30,000 for the Cornwall
Air Ambulance.
And on our M6 Smart Motorways
Programme we’re continuing to support
a local school with a bee-keeping
programme, installed a new pond,
created an allotment and refurbished an
old freight container to act as a school
shop which sells produce from the other
projects. We also supported a local
charity, focussed on alleviating poverty,
by offering work experience and upskilling
courses, and helped local students with
placements as well as STEM events. The
team has also supported a local rugby club
with a refurbished car park and provided
landscaping for a local country park.
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Annual Report and Accounts 2023
Planet
Together we’re
focusing on…
This has been achieved by using a conveyor
system and dedicated trains to transport spoil
to sustainable land deposition sites across the
UK, including a bird sanctuary. We also use
rail to deliver the vast majority of the 96,000
tunnel segments, and overall we have seen a
40% reduction in carbon emissions as a result.
The threat caused by carbon emissions and
resultant climate change is very real for many
of our customers. We are providing Network
Rail with specialist project management,
planning and risk-control services across a
variety of programmes, and supporting their
Weather Risk Task Force, which was set up
to combat the risk of climate change to the
railway and help mitigate the dangers of
landslips and flooding.
Energy transition solutions
Public authorities are also turning to us
for help in meeting their net zero targets.
We are drawing on our full breadth of
expertise to help Swindon Borough Council
turn their fleet and waste management
depot into a hub for sustainable operations,
with substantial additional power capacity
to support the transition of the Council’s
fleet to electric battery technology.
Our project team, which includes Mott
MacDonald and px Group, has completed
the first phase of the design for the CO
2
gathering pipelines, and we detail how
our expertise has overcome the particular
challenges of the project in the Performance
section below.
Biodiversity
Not only are we working with our customers
to help decarbonise their businesses and
mitigate the threats of climate change,
we are also positively improving the
environment by shaping solutions that
deliver biodiversity net gains on projects.
On the Preston Western Distributor Road
scheme, we designed the plan to restore
farmland and protect and enhance habitats
for species such as great crested newts,
bats and hedgehogs with a 10% biodiversity
net gain. The 600,000 cubic metres of soil
which was removed as part of the work
was kept on site, significantly reducing
the impact on the local road network.
Our expertise saw us remodel the soil to
create a landscape feature with replanted
trees that doubles as a noise barrier for
local residents.
Safeguarding the future of our planet is
something we take personally.
Right: Severn Trent Water facilities
Below: HS2 construction
We have also pioneered the use of electric
vehicles on project sites, partnering with
Enterprise Flex E-Rent to trial electric vans
on three of our road schemes. This supports
the approach taken to our own car fleet,
where the vast majority of cars used by
our people are ultra-low or low emission.
EV charging points are available at all our
offices, and installation of charging points
within site compounds is now a mandatory
element of site set-up.
Where carbon can’t be reduced, it can
often be removed, and carbon capture,
utilisation and storage is a growth area
for both us and the UK. In 2023 we
successfully completed a key milestone
in the journey towards the UK’s first fully
decarbonised industrial cluster, which will
eventually see up to 23m tonnes of CO
2
a
year emitted from a variety of industries
on Teesside captured, transported and
securely stored under the North Sea. This
will facilitate Net Zero Teesside Power’s
proposed combined cycle gas turbine
electricity generating station, which
will produce up to 860 megawatts of
low-carbon electricity, enough to power
up to 1.3m homes per year.
Climate change action
At the heart of this is our commitment
to cut our greenhouse gas emissions
in absolute terms even as we grow the
business, with a clear roadmap of our
ambition to achieve net zero by 2035.
During the upgrade of Gatwick Airport
station (more project details on the
following pages), we targeted reducing
carbon emissions during both the building
and operation of the new concourse. Our
innovative approach used almost 3,000m
3
of low-carbon concrete, saving 517 tonnes
of CO
2
emissions and £12,500 in costs. LED
lighting was used throughout the station,
escalators were fitted with reduced speed
technology to lower emissions when not in
use, and high-efficiency gearless lifts were
installed as well as a hybrid heating and
cooling system. An annual saving of nearly
£60,000 and 144 tonnes of carbon emissions
are expected from these features.
Also within Rail, our HS2 joint venture with
Skanska and STRABAG (SCS) has already
harnessed our state-of-the-art logistics
centre to remove over a million miles of
lorry journeys from London’s roads.
Our ambition to be net zero by 2035
runs through everything we do, and
we are driving biodiversity net gains
across our projects.
Purpose in Action continued
Using technology and training to cut emissions
On the M6 project we used a
combination of technology and
training to cut emissions from our
construction plant and van fleet by
nearly 40 percentage points. The
project, which upgrades J21a–26 as
part of the SMP Alliance for National
Highways, has seen us work with
partners to significantly cut the
scheme’s carbon footprint. Emissions
from vehicles idling on site were
reduced from 56% to 18% by the
end of June 2023, using innovative
enhanced idling sensors and
behavioural training.
A trial fitting site vans with idling
trackers took place between February
2023 and June 2023, resulting in
a reduction of around 25%, with
associated carbon emissions and costs
falling, on average, by 35kg and £4.19
per driver over the period of the trial.
Since switching from diesel fuel to
hydrotreated vegetable oil (HVO)
in February 2022 Scope 1 carbon
emissions reduced by 24% which is the
equivalent of 27,000 trees’ absorption
of CO
2
in one year. The steps taken
to reduce carbon won Costain a
prestigious Green Apple award.
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Performance
Together we’re
focusing on…
Pioneering performance
At Gatwick station, Network Rail chose us
to deliver a comprehensive reconfiguration
of the railway infrastructure around a live
railway line and without disrupting airport
operations. This challenging four-and-a-half-
year project was successfully delivered for
Network Rail and opened to the public in
late 2023. The upgrade was needed by the
airport to handle the growing number of
passengers using its facilities. We introduced
an enhanced one-way system between the
airport and the station, improving passenger
experience, and brought significant
improvements to accessibility, with wider
platforms, eight new escalators and five
new lifts. The work has also enabled journey
times between London and Brighton to be
reduced by five minutes.
We referenced our progress on the Net Zero
Teesside Power, a joint venture between
bp and Equinor, in the Planet section on
pages 18 and 19, and key to the success
on this ground-breaking project was using
our expertise to create a new geographic
information system (GIS) to act as a single
source to capture asset information and data
from a variety of sources and stakeholders.
Within the Water sector, we have seen
contract extensions across our portfolio,
with Severn Trent Water, Thames Water
and United Utilities all choosing to
continue their collaborative work with
us in areas such as asset management
and maintenance. Post year-end we were
selected by Northumbrian Water to help
them deliver their strategic infrastructure
upgrade programme, which will see us
assist the company deliver its business
plan over a potential 12-year period.
We continue to successfully deliver
Southern Water’s capital programme,
driving a capital cost efficiency of 20%
from AMP6 to AMP7, and successfully
hitting 30 regulatory dates so far in the
AMP7 period. And on the Anglian Water
Strategic Pipeline Alliance, with our
partners, we have integrated the pipeline
route selection with a GIS, optimising
the material selection of the pipeline
and its alignment and achieving a 65%
reduction in capital carbon compared
with the original baseline.
Customers choose us because we
understand their business needs,
have the right expertise and
approach; and trust that we will
deliver. We provide solutions to their
most complex challenges, working
collaboratively to overcome obstacles
without compromising on innovation,
safety or environmental impact.
We shape, create and deliver pioneering solutions that
transform the performance of the infrastructure ecosystem;
meeting our customers’ strategic infrastructure needs.
Below: Gatwick Airport station
The team used laser scanning and
modelling techniques to design the
complex route for the new CO
2
gathering
network, which includes the crossing
of the River Tees as well as navigating
natural gas pipelines and high-voltage
infrastructure. The digital footprint that
has been generated is pioneering; it is
the first time that the assets, spanning
many decades, have been collectively
documented, enabling us to design
the integrated network accurately and
safely. Not only does this knowledge
help the many different stakeholders
to work together effectively, but this
digital footprint will be a legacy for the
local industry and asset owners beyond
completion of the project and first
commercial operations in 2027.
Continuing on the energy theme, we
are also focused on the hydrogen aspect
of energy transition and continue to
build on our long-standing experience in
hydrogen processing and transportation.
We anticipate further growth in this area.
In the area of energy connectivity, we
continue to enable Cadent to outperform
against their statutory obligations on gas
mains replacement in the East of England.
In our Defence sector, we continue to
support Babcock at Devonport, helping to
sustain the UK’s submarines for decades to
come. As Delivery Partner, together with
Mott MacDonald, we oversee the project
in delivering substantial upgrades to
existing infrastructure that will support
the future capability of the Royal Navy.
Similarly, our work as construction
Delivery Partner with the Atomic Weapons
Establishment (AWE) continues, as we
help to deliver one of Europe’s most
complex infrastructure projects. Despite
the complexity, our focus on safety has
seen AWE, Costain and the supply chain
reach more than six million working hours
without a lost time injury. While not
directly undertaking the construction work
at Devonport or AWE Mensa, our expertise
is ensuring we deliver some of the UK’s
most challenging and critical defence
projects effectively.
Purpose in Action continued
In addition, through the modelling of the
demand requirements for the pumping
stations, there was the delivery of further
operational cost efficiencies and additional
carbon savings.
And on Tideway, the London sewer
upgrade where we work on the eastern
section in a joint venture with VINCI
Construction Grands Projets and Bachy
Soletanche, we successfully delivered
the final section of secondary lining, a
vital step before activating the tunnel
in 2024. Following analysis, the linings
were reduced in thickness by up to
70mm, saving both cost and thousands
of tonnes of carbon.
Turning to Roads, on the M6, as well
as our success in cutting carbon
emissions as referenced above, we
were asked by National Highways to
retrofit 12 emergency areas (safety
lay-bys) in addition to the 10 emergency
areas already planned.
This required us to be agile, deploying
Lean principles (ISO 18404) to refine
construction techniques through
direct observation, reducing waste and
maximising value-adding production.
By doing it in this way, we have enabled
National Highways to utilise road space far
more effectively and avoided the need for
further traffic management after opening,
saving our customer money and reducing
inconvenience to the public.
We have also been chosen by Transport
for London (TfL) to support with some
of their most challenging projects. After
successfully delivering an upgrade to the
A40 ahead of time and under budget, TfL
has trusted us to provide detailed design
and construction services for the second
phase of the project.
Overview GovernanceStrategic Report Financial Statements
20 21
Costain Group PLC
Annual Report and Accounts 2023
2023 2023 2023
2022 2022 20222021 2021
2021
Adjusted profit before tax
1
£44.2m
£1,178.6m
£26.3m
£53.1m
£1,421.4m
£34.2m
£72.9m
£1,332.0m
£44.2m
£164.4m
We report both our statutory results, ‘reported’, and results
excluding adjusting items, ‘adjusted’. Key adjusting items for FY23
include the impact of Transformation and restructuring, and an
impairment of an intangible asset.
Reported and adjusted revenue was £1,332.0m in FY23 (FY22:
£1,421.4m), an expected reduction on the prior period. We saw
increased Natural Resources revenue in Defence and Nuclear
Energy, and Water. In Transportation, we saw continued growth
in Rail and growing activity on our Heathrow H7 contract, new
contracts with Transport for London, and the rephasing and
rescoping of certain contracts in Road, resulting in reduced
revenue for this sector.
Adjusted operating profit grew by 10.5% to £40.1m (FY22:
£36.3m), driven mainly by the expected increased profitability in
Natural Resources and the early benefits of our Transformation
programme across the Group. The adjusted operating margin
increased to 3.0% (FY22: 2.6%) reflecting the above. Our H2 23
adjusted operating margin was 3.8% (H2 22: 2.9%).
Reported operating profit decreased to £26.8m (FY22: £34.9m),
due to the previously announced impairment of an intangible
asset as we reposition our digital portfolio towards services and
the Group’s transformation and restructuring programme.
Net finance income amounted to £4.1m (FY22: £2.1m expense),
driven by higher interest income from bank deposits, higher
interest income on the net assets of the pension scheme, and
lower interest payable on bank overdrafts, loans, borrowings
and other similar charges. As a result, adjusted profit before
tax increased 29.2% to £44.2m (FY22: £34.2m), with adjusted
basic earnings per share (EPS) up by 23.2% at 12.2p (FY22: 9.9p).
Reported profit before tax was down 5.8% at £30.9m (FY22:
£32.8m) and reported basic earnings per share (EPS) was also
down 13.8% at 8.1p (FY22: 9.4p).
Adjustments to reported items
We incurred £8.0m (FY22: £5.7m) on transformation and
restructuring costs, and £5.3m (FY22: £nil) on the impairment of
an intangible asset relating to the repositioning of digital services.
Chief Executive
Officer’s introduction
Operational Review
We have delivered a 10.5% increase in
adjusted operating profits and strong
net free cash flow in the year.
In FY22 we incurred £1.4m of aged tunnel boring machine write-
off costs, and recognised an insurance receipt of £5.2m relating
to the Peterborough & Huntingdon contract, as well as a profit
of £0.5m on the sale of a non-core asset. We expect reduced
transformation and restructuring costs of around £5.0m in FY24
and thereafter such costs to be minimal and not to be separately
disclosed as adjusting items.
Cash flow and liquidity
During FY23 we completed the March 2022 review of our defined
benefit pension scheme, and the refinancing of our bank and
bonding facilities, with the positive outcomes of both increasing
our ability to generate cash for the Group.
Cash generated from operations in FY23 was £55.5m (FY22:
£16.7m). The FY22 comparison was impacted by the settlement of
the Peterborough & Huntingdon contract of £43.4m in February
2022 and a related, partially offsetting insurance receipt of £5.2m.
Adjusted free cash flow in FY23 of £72.0m reflected growth in
adjusted operating profit, increased financial income and positive
working capital timings, albeit at a lower level than seen in the prior
year, resulting in a strong net cash position at the end of FY23 of
£164.4m (FY22: £123.8m). We expect our FY24 year-end net cash
position to be broadly similar to that at the end of FY23, as the
adjusted net free cash flow from the business is likely to be offset
by the unwinding of cumulative working capital timing benefits of
£25.0m at the end of FY23.
During FY23 we paid more than 98% of invoices within
60 days (FY22: more than 98%). In January 2024, Costain was
re-confirmed as one of the top fastest-paying lead contractors
in construction on an average days-to-pay basis following the
submissions to the Government’s Duty to Report on Payment
Practices and Performance.
Business model resilience
Costain enjoys good forward visibility with our combined order
book and preferred bidder book representing around three times
our FY23 annual revenues, at £3.9bn (FY22: £4.4bn). We anticipate
a shift towards the preferred bidder book away from the order
book as we continue to secure long-term (5-to-10-year) framework
positions with our customers, providing a reliable and long-term
stream of future work.
Our order book stood at £2.1bn at the end of FY23 (FY22:
£2.8bn). This reflected the timing of certain major contract bids,
our customers’ five-year 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. The order book does not therefore
provide a complete picture of the Group’s potential future
revenue expectations.
The preferred bidder book comprises awards for which we have
been selected as the preferred partner and are in the final stages
prior to commencing the contract, or exclusive frameworks
where a further works order is required. The preferred bidder
book increased to £1.8bn at the end of FY23 (FY22: £1.6bn),
with contracts in Road, Water and Integrated Transport,
including Heathrow.
We note that some of our framework and consulting revenue
is not recorded in our order book, or preferred bidder book,
and is expected to represent an increasing proportion of our
future revenue.
We had in excess of £1bn of secured Group revenue for FY24 at
the end of FY23, representing more than 80% of forecast revenue
for the period. Awards have yet to be made on a significant
number of bids undertaken since H1 22 and we currently expect
awards on these bids to be made during FY24 and FY25.
1 See notes 1 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
2 Net cash is cash and cash equivalents.
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.
“ Our 2023 results show
strong operational and
financial performance
by the Group.”
Alex Vaughan
Chief Executive Officer
Net cash balance
2
£164.4m
Reported revenue
£1,332.0m
Overview GovernanceStrategic Report Financial Statements
22 23
Costain Group PLC
Annual Report and Accounts 2023
Operational Review continued
Rail revenue increased by 4.0% in FY23, principally as a result
of the volume of work in delivering HS2. The Skanska Costain
STRABAG JV contract to construct the southern section of route
for HS2 which has a twin bore tunnel now has three (of seven)
tunnel boring machines (TBMs) fully in operation. We are working
closely with HS2 Ltd to optimise our delivery schedule to best
progress the project delivery within the introduced near-term
financial constraints.
We have expanded our portfolio of work for Network Rail through
our framework contracts, where we are providing professional
consulting services on multiple projects. Our work to upgrade
Gatwick Airport Station concourse for Network Rail will complete
in H1 24 following the opening of the station in Q4 23.
We have several live tenders being progressed in Rail.
Integrated Transport provides a mix of consulting and complex
project delivery to sub-national bodies, Central Government,
and to customers in aviation and ports. Revenue decreased by
35.0% in FY23 on the prior year, reflecting the timing of complex
schemes delivery. During the year we successfully completed the
Edith Rigby Way (Preston Western distributor scheme) which links
the M55 with the A583 and we expect that design phase work we
have undertaken during 2023 will deliver revenue growth for this
sector during 2024.
During FY23, we continued work for TfL with design and feasibility
work for Gallows Corner, George Green/Green Man and the A40,
design work on the Piccadilly Line and continued support for TfL’s
CCTV service. In January 2024, we were awarded the Gallows
Corner Flyover Detailed Design and Build contract by TfL and the
design phase for Brent Cross. We have successfully expanded
services to a range of local authorities, including Bradford
and Cornwall.
Road revenue declined by 19.9% in FY23 as expected, compared
with the prior year driven by a reduction in schemes revenues as
they near completion, and the impact of previously announced
rephasing and rescoping of projects. 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 safety enhancements.
On RDP, our work to upgrade the A1 around Newcastle continues
to make good progress with the widening of the Birtley to Coal
House section, and in Cornwall our project continues to widen the
last section of the A30 to dual carriageway between Chiverton and
Carland Cross. We have led the work to submit the Development
Consent Order application for the A12 Chelmsford to A120
widening project, which was granted in January 2024, along
with a package of enabling works for the scheme. We continue
to develop the M60 Simister Island scheme in the North-West
through its development phase. We are continuing to deliver
highway maintenance activities on our Area 14 contract with
National Highways, which continues through to 2032 and we have
concluded our scheme development work on the A66.
Within the SMP Alliance, our delivery of the M6 Junction 21a–26
smart motorway upgrade continues and is progressing well,
and we are supporting the National Emergency Area Retrofit
programme for smart motorways through design and delivery of
additional stopping areas.
Our role as delivery assurance partner in a joint venture with Mott
MacDonald continues on the A303 Stonehenge Improvements
Scheme following the granting of a development consent order
(DCO) in July 2023.
We have a growing pipeline of opportunities in Road for local
government bodies, as well as National Highways, and see good
long-term prospects in this market.
“ Transportation delivered well on
its contracts, maintaining a stable
margin for the year.”
David Taylor
Interim Managing Director – Transportation
Transportation delivered a resilient
performance in 2023 with rephasing and
rescoping of contracts during the year.
Divisional results
Transportation FY23 adjusted
1
FY22 adjusted
1
Adjusted
1
change
Road 399.5 498.7 -19.9%
Rail 500.2 480.8 4.0%
Integrated Transport 43.4 66.8 -35.0%
Total revenue 943.1 1,046.3 -9.9%
Operating profit/(loss) 28.0 31.5 -11.1%
Operating margin 3.0% 3.0% 0.0pp
1 See notes 2 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Transportation highlights
• Reported and adjusted revenue of £943.1m,
was down 9.9% against prior year as a result
of the rephasing and rescoping of contracts.
• Adjusted operating margin
1
was 3.0%,
unchanged year-on-year.
• Revenue driven mainly by complex scheme
delivery for High Speed 2 (HS2) and National
Highways, which currently represent the
majority of Transportation activities.
• Revenue secured for FY24 is £687m.
During FY23, we increased the volume of our work at Heathrow 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. We continue to support other
aviation customers at East Midlands, Gatwick, Manchester and
Stansted airports.
We expect that Aviation, Ports, Local and Devolved Government
will offer strong growth opportunities for the business.
Lastly, I would like to welcome Jonathan Willcock, who will join
Costain in April 2024 to be the new managing director of the
Transportation division.
David Taylor
Interim Managing Director – Transportation
11 March 2024
Costain works with our customers to ensure that projects take
account of local communities and their needs including boosting
local skills, improving the environment and supporting businesses.
We cover our ESG activities in more detail in a separate report
which is available at www.costain.com/our-culture/performance-
and-reports/
People
For more examples, visit our website / www.costain.com/solutions/
Overview GovernanceStrategic Report Financial Statements
24 25
Costain Group PLC
Annual Report and Accounts 2023
Energy revenue decreased by 13.6% in FY23 on the prior year,
with civil nuclear-related revenue now included within the
Defence and Nuclear Energy sector. We expect significant growth
in this sector given the requirement for energy infrastructure
investment to support economic growth, tackle climate
change and enhance the natural environment, as outlined
in the National Infrastructure Commission’s recent SNIA. We
provide our customers in this sector with a range of services
including engineering design, managed services and programme
management, solving our customers’ complex energy challenges
through excellence in engineering and delivery.
Our strategic focus areas are energy transition (hydrogen and
carbon capture), energy resilience (brownfield modifications for
enhanced longevity and performance, energy storage and carbon
reduction) and energy connectivity (gas and electricity networks).
We continue with our contract with Cadent, managing the mains
replacement across the East of England and have performed well
in energy resilience. We continue to build our position in energy
transition and through FY23 we have strengthened our core
strategy to support the development of the industrial clusters
across the UK. Having completed delivery of the FEED (front end
engineering design) for bp on the track 1 net zero contract at
Teesside (part of the East Coast cluster), we continue to support
bp as it progresses the wider decarbonisation of the local region’s
energy supply and pursues innovative carbon capture and
storage solutions.
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.
Defence and Nuclear Energy supports several public and private
sector organisations, in a variety of customer-side, delivery
partnership roles, across the UK Defence Nuclear Enterprise.
Defence and Nuclear Energy includes nuclear energy-related
revenue previously included in Energy, following the reorganising
of the Natural Resources division. Reported and adjusted revenue
increased by £13.8m, 16.3% 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).
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 2.9% on the prior year with good visibility across our five-
year water AMP7 programmes through to 2025 and our recently
announced AMP8 projects. We continue to make good progress
in delivering on Tideway as it moves towards its commissioning
phase where, in a joint venture, we are responsible for the
eastern section.
The breadth of our service offering continues to grow with work
including wastewater to gas, water quality assurance and water
treatment, as well as design, maintenance, capital delivery and
strategic resource options. We have capital delivery programmes
for Anglian Water, Severn Trent Water, Southern Water, and
Thames Water in AMP7; recently won a Northumbrian Water
contract for AMP8; an AMP7 maintenance service provider
contract for United Utilities; a range of consultancy services for
Yorkshire Water, Thames Water, Southern Water; and digital
services to Anglian Water.
In July 2023, we were appointed by United Utilities to work as
its Managed Service Provider for a further two years, which
represented our first AMP8 programme win. Since then, we
have expanded our AMP8 work with programme extensions with
Severn Trent and Thames Water, and a new AMP8 contract with
Northumbrian Water Group, with the latter announced in January
2024. We expect to see continued growth in the Water sector,
and we aim to expand our current portfolio under the AMP8
programme. Alongside core AMP8 requirements, we continue
to engage with customers to understand their potential needs
for new value-added solutions 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 alongside AMP8.
“ Natural Resources delivered a
good performance in the year
with an improved performance
by the division.”
Sam White
Managing Director – Natural Resources
Natural Resources saw revenue growth
in the year together with positive margin
improvement.
Divisional results
Natural Resources FY23 adjusted
1
FY22 adjusted
1
Adjusted
1
change
Water 245.3 238.2 2.9%
Energy 45.6 52.6 -13.6%
Defence and Nuclear Energy 98.0 84.3 16.3%
Total revenue 388.9 375.1 3.7%
Operating profit/(loss) 21.8 15.0 45.3%
Operating margin (loss) 5.6% 4.0% +1.6pp
1 See notes 2 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Natural Resources highlights
• Adjusted revenue
1
was £388.9m, an increase
of 3.7% driven by increased activity levels in
Defence and Nuclear Energy, and Water.
• Adjusted operating profit
1
was £21.8m, up
£6.8m, and operating margin was 5.6%,
1.6 percentage points higher.
• Good progress in Water sector with wins
in AMP8 programmes.
• Revenue secured for FY24 is £338m.
In both contracts, we work as a construction delivery partner,
delivering major infrastructure projects, and providing expertise
in design and construction management and do not carry out any
construction work.
We also provide ongoing support to the Defence Nuclear
Organisation (DNO), helping it develop portfolio management
capabilities and developing its programme definition for future
infrastructure requirements. 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)
future strategic infrastructure needs.
During H1 23, we were awarded a place on a new six-year
framework for NRS Ltd (previously known as Magnox). In addition
to our work on decommissioning, through our work at Sellafield,
we also see opportunities for growth in support to the nuclear
fuel sector.
During H2 23, we secured a two-year contract extension to deliver
a project controls managed service across EDF’s eight UK nuclear
power stations. As part of this contract which has the option to
be extended, Costain will continue to develop and grow EDF’s
core project controls capabilities and provide specialist support
to improve project performance and deliver cost efficiencies.
Sam White
Managing Director – Natural Resources
11 March 2024
Planet
Reducing carbon in infrastructure
We continually aim to reduce carbon in our projects and we discuss
how we work with our customers to help them move to net zero on
pages 16 to 21.
Operational Review continued
Overview GovernanceStrategic Report Financial Statements
26 27
Costain Group PLC
Annual Report and Accounts 2023
Adjusted operating
profit margin
1
3.0%
Adjusted basic earnings
per share
1
(EPS)
12.2p
Adjusted free cash flow
£72.0m
Safety
0.12 LTIR
Social contribution
£460k
2023 2023 2023 2023 2023 2023 20232022 2022 2022 2022 2022 2022 20222021 2021 2021 2021 2021 2021
2021
£30.1m
2.6%
2.6%
9.6p
£53.1m
0.15 LTIR
£200k
278,985 tCO
2
e
0.09 LTIR
£391k
355,579 tCO
2
e
0.12 LTIR
£460k
319,233 tCO
2
e
£36.3m
9.9p
£72.9m
£40.1m
3.0%
12.2p
£72.0m
Environmental impact
319,233tCO
2
e
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 all our stakeholders.
Key Performance Indicators
How we’ve performed
Financial metrics
Measure
Non-financial metrics
Measure
Adjusted operating profit was
£40.1m (FY22: £36.3m) and
adjusted operating growth was
10.5%, reflecting increasing
efficiencies in the business and
growth in Natural Resources.
Adjusted operating margin was
3.0% for the year and 3.8%
in the second half as we saw
improvement in the business driven
by growth and increased margin in
the Natural Resources division.
Improvement in EPS is driven
by overall improvement
in profitability.
Strong net cash flow in the year,
driven by improved operating
profit, efficient working capital
management and the timing of
cash receipts.
Costain has again delivered
an industry-leading safety
performance. We continued to
follow our ‘Learning organisation
model’, ensuring we are embedding
the lessons we learn.
In 2023 we rolled out a new
approach to lifting following
the fatality on our Gatwick
Station project in July 2022. This
new approach is changing the
traditional industry behaviours.
During 2023, we have seen a year-
on-year 10% decrease in absolute
emissions, but with a 14% increase
against our 2021 baseline. When
normalised by turnover (tCO
2
e/£m)
emissions have reduced by 2%
compared to our 2021 baseline. As
part of our continual improvement,
we have updated our boundary and
quantification approach to allow
us to include additional Scope 3
categories in our 2023 reporting.
2023 saw the conclusion of Costain’s
24/7 campaign, where over £247k
was contributed to our charity
partner Samaritans (see page 73
for more information). Costain
continued to play an active role in
our local communities, delivering
employment programmes,
supporting the creation of warm
hubs, volunteering in schools and
delivering projects to improve
community spaces.
Performance Performance
Link to strategic priorities
Link to strategic priorities
Adjusted operating profit
1
. Adjusted operating profit margin
1
. Adjusted basic earnings
per share
1
.
Adjusted free cash flow is defined
as net cash flow from operating
activities, excluding cash flow
relating to adjusting items, less
capital expenditure.
Lost Time Injury Rate (LTIR). Absolute GHG emissions
(Scopes 1, 2 and 3).
Community investment.
Target Target
Double-digit compound growth in
the medium term.
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
5.0% thereafter.
We target EPS growth in line
with our strategy to grow
operating profit.
Cash conversion rate of 90%. Target is to keep LTIR less than 0.15. Net zero GHG emissions by 2035.Investment of 1% of absolute profit
in the medium term.
Relevance Relevance
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 is 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.
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 adjusted revenue.
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
basic weighted average number
of ordinary shares ranking for any
dividend in the period.
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.
Effective health and safety
management systems are critical in
preventing incidents which could
cause injury to people and damage
to property and reputation.
The main outcome metric we use to
measure safety performance is Lost
Time Injury Rate which is calculated
by dividing the number of Lost Time
Injuries by the number of hours
worked, multiplied by 100,000.
Climate change is the challenge
of our generation and we have an
ambition to become a net zero
business by 2035. 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 page 38.
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.
Social contribution is defined as
the sum of charitable/community
donations, employee fundraising,
and the social value resulting from
employee volunteering.
1 See notes 2 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
See our full GHG disclosure / page 33
Key to strategic
priorities
People
Planet
Performance
Adjusted operating profit
1
£40.1m
Overview GovernanceStrategic Report Financial Statements
28 29
Costain Group PLC
Annual Report and Accounts 2023
Our Stakeholders
Working together
to achieve our goals
Understanding what is important to our stakeholders is crucial to delivering shared value.
We have a responsibility to work together
with our customers and partners, our
people, our communities, and our supply
chain to minimise our environmental
impact and to generate positive
social value. We actively listen to our
stakeholders and take action to help
address their needs. We look beyond our
local impact and engage with stakeholders
to consider our wider societal contribution
and how this aligns to macro initiatives
such as the United Nations Sustainable
Development Goals.
We work with our stakeholders to
maintain our high standards of business
conduct, particularly with regards to
ethics and human rights issues. We take
a zero-tolerance approach to corruption
and bribery, and our independent
whistleblowing process ensures that we
can listen and react to any concerns that
are raised.
As an example of our ethical standards, in
2023 we updated our Code of Conduct to
include new rules on gifts and hospitality.
The Board and Executive Board of
Costain are accountable for Environmental,
Social and Governance (ESG), developing
and implementing policies that align with our
wider business objectives. The Board
recognises that it is essential that Costain
operates in a responsible manner.
The Board seeks to engage with
each of our key stakeholder groups
to help inform the strategic decision-
making process.
Please see page 51 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.
Data-driven materiality analysis
In 2023, we conducted a double
materiality assessment to help inform
Costain’s business planning, our
operations, guide our disclosure, and
help us identify stakeholder priorities
to enhance our engagement.
The process allowed us to both validate
known important issues and identify new
or emerging issues that may impact our
Company, as well as the potential impact
our business and operations may have on
the environment and society.
We conducted this assessment through
both stakeholder engagement and
the use of Datamaran, a software
analytics platform.
Through this smart, data-driven process,
we are able to: focus only on the key
issues that matter; monitor changes
and be agile when responding to
stakeholders; and advance internal
collaboration and leadership knowledge.
The analysis was used to develop an ESG
programme, focused on the issues that
are materially important to Costain.
What matters to our stakeholders
We are committed to identifying and addressing the material sustainability and ESG issues that affect
Costain and our stakeholders.
For our Section 172 Statement, which sets out how the Board takes stakeholder interests into account when making decisions, see our Governance
Report / pages 66 to 69
Our key stakeholder groups
Shareholders
Our shareholders’ views inform our
decision-making and their interests
underpin our commitment to
operating responsibly.
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.
Customers
Understanding our customers’ changing
requirements is fundamental to our
success. We support our customers by
offering them solutions to meet their
evolving needs.
Costain’s materially important ESG issues
Environment Social Governance
Carbon
Nature
Resource efficiency
Employee diversity and inclusion
Community and social value
Employee health and safety
Ethical corporate behaviour
Climate change resilience
Quality
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.
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.
Overview GovernanceStrategic Report Financial Statements
30 31
Costain Group PLC
Annual Report and Accounts 2023
2,329 941
2,551 967
2023
2022
4 4
4 4
2023
2022
19 10
19 10
2023
2022
Environmental, Social and Governance (ESG)
Our ESG Performance
OUR 2023 PROGRESS AND PERFORMANCE
2023 OBJECTIVES
Our ESG programme
In 2023, we created an ESG programme
to help us deliver sustainable business
activities in the short to medium term.
Our ESG programme sets out our
detailed goals, KPIs and plans on issues
such as climate change, nature, water
resources, health and safety, and diversity
and inclusion. We have used a ‘double
materiality’ assessment to highlight the
environmental and social issues that really
matter to us, and our business case for
action, but also the issues that matter to
our stakeholders too.
Costain’s ESG programme is not just
about environmental and social goals,
it is also about the governance enablers
and is fundamentally underpinned by
issue-specific implementation plans and
strategies (climate change action plan;
inclusion strategy; social value plan; and
safety, health and environment strategy).
Diversity of our workforce
Lost Time Injury Rate (LTIR)
0.12
2022: 0.09
Social contribution*
£460k
2022: £391k
• 4,100 hours volunteered in our local communities
(2022: 3,300).
• Costain’s Samaritans fundraising campaign
concluded, with over £247k raised since 2022.
• In total £377k was raised and/or donated to UK
charities in 2023.
• 13 reportable accidents in over 30 million
working hours.
Employees
Board members
Senior management
Male Female
Social
• 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 employee volunteering.
* Social contribution is defined as
the sum of charitable/ community
donations, employee fundraising,
and the social value resulting from
employee volunteering.
• £319m spent with small businesses and VCSEs,
equating to 18.4% of our total spend (2022: 17.5%)*.
• 50 SMEs took part in our supply chain academy,
taking the total number of businesses to 354
since 2012.
• Average Considerate Constructors Scheme score
for Costain contracts is 45.2/50. Industry average
is 40.3/50.
Spend with SMEs*
38%
2022: 38%
Governance
• >35% of our spend to be
with SMEs.
• >19% of our spend to be
with small businesses and
voluntary, community or
social enterprises (VCSEs).
• Have an average Considerate
Constructors Scheme score
of >42.
Environment
• Continue to ensure 100% of all
relevant designs and delivery
contracts have a carbon
baseline and reduction plan.
• Deliver a >6% reduction in our
Scope 1 and 2 emissions.
• All solutions proposed to
include a low carbon option
in line with PAS 2080.
2023 2022 % change
Scope 1 tCO
2
e (CO
2
equivalent emissions across all legal entities) 4,876 6,426* -24%
Scope 2 tCO
2
e (CO
2
equivalent emissions across all legal entities) 1,299 958* 36%
Scope 3 tCO
2
e (CO
2
equivalent emissions across all legal entities) 313,058 348,195* -10%
Total emissions 319,233 355,579* -10%
% of relevant contracts with carbon baseline and reduction plans 100% 100% 0%
% of solutions proposed to include low carbon options 57% n/a n/a
Major environmental incidents 0 2 -100%
Environmental incident frequency rate 0.18 0.10 n/a
* Restated figures for 2022 include additional data obtained after reporting.
• For a detailed breakdown of our emissions including totals of energy consumption as per the Streamlined
Energy and Carbon Reporting (SECR) requirements, see page 38 of this report for further details.
• Following the Environmental Agency’s investigation of a 2019 pollution incident, Costain’s offered
enforcement undertaking was accepted and a donation of £55,000 was made to the Tyne Rivers Trust to fund
the improvement of water quality in the River Don catchment. A completion certificate was issued by the
Environment Agency in 2023.
For detailed information on Costain’s environmental performance, please see our ESG Report /
www.costain.com/our-culture/performance-and-reports/
The ESG programme brings together
all our goals, targets, KPIs and enablers;
showing how we will create environmental,
social and economic value for all, now and
into a more sustainable future.
Our 2030 ESG goals
• A psychologically safe workplace
with an engaged, thriving and
representative workforce.
• In the period to 2030 our solutions and
social value programmes will improve
more than one million lives.
• Eliminating harm in all we do.
• Net zero carbon by 2035.
• Nature positive.
• 30% reduction in water use from
operations compared against a
2023 baseline.
• Our stakeholders rate us as an
ethical company.
• 30% of revenue from ‘green’ projects.
• Right first time.
Reporting progress
against our ESG goals
Our ESG goals are integral to our
strategic priorities of people, planet
and performance, underpinning how
we operate.
We welcome the sustainability disclosure
standards from the IFRS and are voluntarily
working to incorporate these requirements
where possible. Irrespective of the final
requirements of the UK Sustainability
Disclosure Standards, we recognise
reporting progress against our material
ESG issues is the demonstration of a
responsible business.
We are pleased to report progress against
our annual objectives within this report
and have produced a separate ESG Report
to share further information.
Find our 2023 ESG Report on our website /
www.costain.com/our-culture/performance-
and-reports/
Carbon transition plan
In 2020, Costain set out a climate
change action plan (transition plan)
which identified the steps we need
to take and the milestones we need
to achieve in meeting our ambition
to be net zero carbon by 2035. These
steps included:
• All operations, including supply chain,
will be net zero carbon by 2035
against our 2020 baseline.
• By the 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).
Through 2023, we have worked with the
Science Based Targets initiative (SBTi)
to validate Costain’s near-term and net
zero targets and we are pleased to report
these were approved in February 2024.
As a validation of the progress Costain
has made in implementing our plan,
Costain maintained a B rating with the
Carbon Disclosure Project (CDP), despite
the bar raising.
We report our progress against the plan
on pages 9 to 12 of our ESG Report.
Costain’s climate change action plan
is accessible on our website /
www.costain.com/what-we-do/climate-
change-solutions/
* Reported SME spend includes joint venture supplier spending
where payment has been processed through Costain.
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
The Task Force on Climate-related
Financial Disclosures (TCFD)
Environmental, Social and Governance (ESG) continued
Addressing climate change is the biggest challenge of the 21st century and businesses,
society and government all have a significant part to play.
Costain has set an ambition to lead UK infrastructure into a zero-
carbon future by supporting the Government in meeting its 2050
target. In 2019 Costain launched its climate change action plan,
with a route-map to meet our net zero carbon by 2035 ambition.
We are pleased to make climate related financial disclosures
consistent with the Task Force on Climate-related Financial
Disclosures (TCFD) recommendations and the requirements of
LR 9.8.6. Our disclosure covers 1 January to 31 December 2023.
Section Pages
Governance 35
Strategy 36
Risk management 37, 43, 45 and 49
Metrics and targets 38
We provide a more detailed update on the progress we have made against
Costain’s climate change action plan in our separate ESG Report /
www.costain.com/our-culture/performance-and-reports/
Costain’s TCFD timeline
• 2019: Launched our climate change action plan, setting an
ambition to be net zero by 2035.
• 2020: We committed to work towards compliance with TCFD
recommendations and became certified PAS 2080 compliant.
• 2021: Climate change was elevated to a principal risk.
• 2022: Costain voluntarily published Scope 3 emissions data,
despite recognising it was an incomplete data-set.
• 2023: Costain rated ‘B’ by the Carbon Disclosure Project (CDP).
• 2024: Costain’s near-term and net zero targets were approved by
the Science Based Targets initiative (SBTi).
• 2024: Costain to issue a carbon transition plan, replacing
the climate change action plan.
• 2024: Costain to launch its nature positive plan.
Climate related governance
Corporate governance is central to our responsible and value-oriented management and Board oversight activities. Currently, the Board has
overall accountability for ESG related activities and for ensuring that policies and strategies are aligned with the wider business objectives.
Our governance structure as set out below enables accountability and responsibilities for climate-related matters to be held at the right
level. This delegates appropriate authority to manage risks and opportunities as well as local decision-making for operational matters.
Core to Costain’s climate-related governance are the following accountable parties and their aligned responsibilities:
Forum Responsibilities
The Board The Board has ultimate responsibility for ESG issues. The Board sets and oversees Costain’s strategic priorities
and monitors the implementation of our strategy, which includes the climate change action plan. The Board
met ten times in 2023, discussing climate related matters in three meetings. The Board receives a report at
each meeting from the chief people and sustainability officer which provides updates on our ESG activities.
In August 2023 the Board reviewed and approved Costain’s ESG programme (see page 32).
The chief executive officer has accountability for Principal Risk – Climate change resilience.
The Audit and Risk
Committee – reports
to the Board
The Audit and Risk Committee meets four times per year and is responsible for supporting the Board in its
oversight of all risks, including climate change. The Audit and Risk Committee reviews PR 10 twice a year along
with our other principal risks.
Remuneration
Committee – reports
to the Board
The Remuneration Committee approves the annual incentive plan for the executive directors and senior
managers, which includes a weighting for safety, health and environmental (SHE) performance. The
Remuneration Committee approves the Long-Term Incentive Plan (LTIP) criteria, which for the first time in
2023 included an ESG weighting (climate change 15%).
The Executive Board
– reports to the Board
The Executive Board is responsible for the management of strategic risks and opportunities and monitoring
the progress of Costain’s ESG programme and climate change action plan, ensuring that the necessary
resources are available. The Executive Board met 10 times in 2023, with climate related matters discussed in
four meetings. The Executive Board receives a report at each meeting from the chief people and sustainability
officer providing updates on our ESG activities and the Group SHE director provides a detailed report setting
out our projects’ performance against agreed carbon reduction plans and biodiversity plans.
In May 2023 the Executive Board was briefed on the findings of Costain’s materiality assessment and in June
2023 recommended that Costain’s ESG programme be submitted to the Board for approval.
Executive Safety,
Health and
Environment (SHE)
Committee – reports
to the Executive Board
The Executive Safety, Health and Environmental (SHE) Committee is responsible for the delivery of Costain’s
climate change action plan and reports progress to the Executive Board. In 2023 the meeting structure was
updated to divide into two separate parts, following a review of Costain’s materially important ESG issues (see
page 57), to ensure topics such as climate change, carbon, nature and environmental performance were given
appropriate oversight. The Executive SHE Committee absorbed the responsibilities of Costain’s former climate
change steering group and expanded the membership. The Committee membership includes Costain’s two
divisional managing directors, the chief people and sustainability officer, chief engineer and procurement and
supply chain director. The Executive SHE Committee met eight times in 2023, with climate related matters
discussed at every meeting.
Operational
leadership – reports
to the Executive Board
Operational leadership reports to the Executive Board: risks and opportunities are managed by the
divisional leadership teams, with the managing directors responsible for taking a market-based approach
to these matters.
2023 progress
Low carbon materials mandate
Construction materials have significant
embodied carbon, while their extraction
and manufacture negatively impacts
the environment and society. Concrete,
steel, aggregate and asphalt account
for at least 70% of Costain’s annual
carbon emissions.
By reducing the volume of materials
we use and increasing our use of
more sustainable (transitional)
materials, we are able to reduce
our annual emissions.
In Q1 23 a low-carbon materials mandate
was introduced through technical briefing
notes and briefing sessions. By the end
of 2023, 67% of our design projects were
able to implement the mandate during
the period.
Climate resilience materials
risk assessment
Following physical climate scenario
analysis, our sustainable engineering team
developed a climate resilience materials
risk assessment to support engineers and
designers when considering the impact
that extreme temperature increases and
decreases, as well as extreme precipitation
and wind, have on manufacturing, delivery
and construction of key materials.
Data improvement project
We undertook a review of our approach
to Scope 3 data collection recognising
that obtaining data had been challenging.
Through screening and applying an
environmentally extended input-output
approach (EEIO) to our annual spend
inventory, we have updated our approach.
This spend-based approach has been
combined with our existing material and
product-based approach to enable a wider
Scope 3 inventory to be reported.
Monitoring reduction
All contracts achieved their target
to submit monthly emissions data
and monitor progress against their
annual action plans, with 66%
achieving a reduction against their
baseline. Progress against reductions
targets is monitored at a Group
and divisional level within monthly
safety, health and environmental
(SHE) dashboards.
Innovation in materials
In 2023 Costain led the use of 3D
printing in a UK road building project
for the first time. Costain’s A30
Chiverton to Carland Cross team
installed the first 3D printed curved
concrete headwall as part of a Digital
Roads of the Future Partnership
innovation project (a collaboration of
Costain, Versarien, the University of
Cambridge and National Highways).
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Environmental, Social and Governance (ESG) continued
Strategy
Costain’s strategy focuses on transforming infrastructure
performance and safeguarding our planet. We understand the
policy, investment and regulation trends that are reinforcing our
strategy in terms of changing market needs and how climate
change is driving this. We believe that 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 with our customers
who we have specifically chosen to partner with us to help shape
the future of infrastructure delivery and asset management. For
further information on Costain’s strategy and market overview
see pages 10 to 14.
On page 37 we have set out and described the climate-related
opportunities and risks to Costain over the short (0–3 years),
medium (3–10) and long term (10 years+).
Since its implementation in 2020, our climate change action plan
has shaped our strategy, reinforcing resilience and will enable us
to achieve a net zero future. We provide a detailed report of our
progress against our ambition in our ESG Report.
www.costain.com/our-culture/performance-and-reports/
Scenario analysis: resilience of strategy
In 2021 and 2022 we worked with sustainability consultants
Anthesis, to undertake quantitative and qualitative scenario
analysis, to help us develop our understanding of the transitional
and physical risks of climate change likely to impact our business.
The scenarios included quantifying the impact of extreme heat
and precipitation on productivity levels across our sites, and the
volatility of materials pricing due to transitional risks.
These scenarios were based on the Network for Greening the
Financial System (NGFS) global climate models to qualitatively
assess the possible implications of climate change on our business
up to 2050.
The scenarios are as follows:
1) Net zero 2050 (or an orderly transition) which limits warming
to 1.5°C through stringent climate policies and innovation,
reaching net zero CO
2
emissions around 2050. This scenario
is compatible with the long-term temperature goal of the
Paris Agreement.
2) Delayed transition (or a ‘disorderly transition’) assumes annual
emissions do not decrease until 2030. Strong policies are then
needed to limit warming to below 2°C.
3) Current policies (or a ‘hot house world’) assumes that only
currently implemented policies are preserved, leading
to a global warming of 3°C+ by 2100 and high associated
climate impacts.
Creating connected and sustainable infrastructure enabling people and the planet to thrive
for future generations is ingrained throughout everything that we do.
Climate risks and opportunities
The following table summarises the material climate-related risks and opportunities that have been identified across the short, medium
and long term. Costain’s processes for identifying, assessing and managing climate-related risks is the same as for all other Group risks
and further detail is included within the risk section of this report (see pages 43 to 49).
In 2023 following a review of our climate risks, we created two Group risks that serve as a subset of Principal Risk - climate change
resilience. These Group risks cover both the physical impact of climate change to Costain’s ability to operate and also transitional risks
of Costain’s net zero objective. For specific details on Costain’s Principal Risk - Climate change resilience, please see page 49.
Category Risks Opportunities
Policy and legal
• Policies such as carbon pricing mechanisms are likely to increase our
operational costs (eg asset and fleet costs) across our value chain.
This is because key materials such as cement and steel are carbon
intensive, and the price of these materials, for example, will be
significantly higher due to increased carbon prices. Elevated material
prices can be included in new and target cost contracts. However, in
short-term and fixed-cost contracts, the cost of materials may have to
be absorbed by us, impacting our short-term profitability.
• Delaying the political and regulatory transition to a low carbon
economy may result in more severe climate impacts such as more
frequent and intense flooding events. This could result in an increased
risk of litigation for our business which we believe will have a
financial impact.
• By developing low carbon alternatives, we
can proactively prepare ourselves to scale
up our offering in aggressive transition
scenarios. This can help us to remain
competitive in a rapidly changing market
and position ourselves as a leader in the
low carbon economy.
• Carbon pricing policies can create
financial incentives to us as a business.
By achieving our net zero objective ahead
of our competitors we could potentially
generate additional revenue through the
sale of carbon credits.
Market
• We rely on a wide range of inputs, such as raw materials, energy and
labour. The prices of these inputs can be volatile and subject to a
range of factors such as natural disasters, supply chain disruptions,
and geopolitical tensions as demonstrated across 2023. Notably, a
net zero 2050, or delayed transition to a low carbon economy could
also lead to changes in the prices of these inputs, particularly when
there is increased demand for sustainable materials and technologies.
However, with the advent of new technology these are likely to
become more available.
• The transition to a low carbon economy is unlikely to stop new
construction and infrastructure projects. However, market risks could
result in a slowdown in investment in infrastructure. Public body
investments in infrastructure may look to avoid a ‘lock-in’ of emissions
given the long-term nature of contracts. As a result, our order book
may be reduced if we cannot evidence sustainability credentials.
• Shift in customer buying behaviour
from constructing new assets to
maintaining infrastructure potentially
resulting in growth of Costain’s
maintenance capability.
• By driving our low carbon alternatives
on all projects, we can gain a competitive
advantage over peers by being seen as
a partner who can offer solutions to
customers’ net zero goals.
• Private sector investment in
decarbonisation is likely to grow,
generating and increasing the
likelihood of new opportunities.
• Increased opportunity to support
infrastructure customers with the
decarbonisation of their assets and to
support the energy transition.
Physical
• Increasing severity of extreme weather (wind, precipitation and heat)
events across the UK is the single biggest physical risk across all time-
frames, potentially resulting in delays, damage to assets and increasing
project costs.
• Physical climate risks will also drive an increase in insurance costs and
indeed what is insurable.
• We have identified opportunities
to support existing customers’
infrastructure to become more
resilient to the physical elements of
climate change.
Technology
• Due to the nature of our business, many technologies related to plant
and equipment require significant amounts of energy to operate. The
development of innovative technologies to facilitate a low carbon
future will be required to support the transition to net zero emissions.
For example, diesel-free plant and equipment.
• There could be a skills-related risk, linked to training in order to
operate new or innovative technologies. When new technologies
continue to be developed, there is difficulty in predicting which ones
will be most relevant and which ones will become obsolete.
• We are already upskilling and developing
employees to meet customer needs,
while simultaneously reducing reliance
on an increasingly competitive external
hiring market. We need to ensure our
strategy remains ahead of competitors
and exploit some of the opportunities
from technological advancement.
These scenarios provided insight on transition pathways and
climate impacts which have been used in our business planning
and the development of our risks and opportunities. We have
shared the findings across the business and have commenced
a project to develop specific climate-related training for our
commercial and estimating teams to raise awareness of our risks.
2023 scenario analysis
We recognised that for many of our customers to reach net
zero emissions and/or to enhance infrastructure to become
more resilient to climate change this would in the medium term
result in an increase in capital expenditure on the construction
of infrastructure. While this is a market opportunity for Costain,
it has the potential to delay Costain’s own pathway to net zero
emissions through a growth in overall emissions.
For 2023 we carried out scenario analysis based on different
revenue projections over the short to medium term across each
of our sectors to understand the possible emissions intensity
profile for Costain. We found that our emissions are affected by
increases in revenue and specific types of construction activity.
We are using the findings of the analysis to shape Costain’s
carbon transition plan which will replace our climate change
action plan, and be compliant with the UK Transition Plan
Taskforce recommendations.
Resilience of Costain’s strategy
We have identified risks and opportunities (see page 37) that
could arise taking into consideration a 2°C or lower scenario.
We believe Costain’s strategy to be resilient to our various climate
risks and we are well placed to capitalise on the market opportunity
presented through our customers’ need to enhance the climate
resilience of their infrastructure. These opportunities by far
outweigh the identified risks. An example of these opportunities
coming to fruition is work secured for the medium term with
water customers (see page 26).
Impact on financial statements
We are currently monitoring our contractual position due to
disallowable costs arising from our transition to net zero. These
costs are mainly related to the additional price premium for
hydrotreated vegetable oil (HVO) fuel which is not supported
by certain customers. However, we do not believe these costs
are material.
Going concern and viability
While climate change resilience is one of Costain’s principal
risks, the prospective impact of climate change on the business’s
operating costs are not considered material within the time frame
over which going concern and viability are considered.
Please see the scenario analysis section for our viability
assessment. In the medium term, we do not currently
believe that any of these scenarios have an impact on
future viability assessments.
Short term Medium term Long term
Overview GovernanceStrategic Report Financial Statements
36 37
Costain Group PLC
Annual Report and Accounts 2023
Gender and Ethnicity Pay Gap
Ethnicity and gender pay gap statistics
Ethnicity pay gap 2023 All White All Asian All Black
All other
minority
Unknown/
Prefer not to say
Median n/a 13.87% 20.03% 16.95% 7.43%
Mean n/a 12.56% 21.31% 21.06% -2.13%
Gender pay gap 2022 2023 Change
Median 26.63% 24.42% -2.21%
Mean 18.67% 15.81% -2.86%
Employee population 31 December 2023 Total Male Female Black Asian
All other
minority
Unknown/
Prefer not to say
Number of employees 3,270 2,329 941 161 283 70 173
Percentage 100% 71.22% 28.78% 4.92% 8.65% 2.14% 5.29%
Inclusion is fundamental to how we approach doing business. Every employee should feel able to
participate, contribute and challenge the status quo, and this is how psychological safety will draw
out the benefits of diverse teams.
We use both quantitative and qualitative data to inform our
approach to inclusion. We are continuing to invest in our data
and reporting capabilities as well as maintaining our employee
feedback loops to identify targeted actions to address pay gaps.
Gender pay gap
We are pleased to report that in 2023, our gender pay gap has
reduced by 2.2% from 2022. We have also seen a 2% increase
in the proportion of women in the lower middle quartile and a
reduction of women in the lower quartile by 1.6%. Our analysis
credits the reduction to a drop in the ratio of women to men at
middle-management grades.
Acting on feedback from a survey of women in the business, in 2023
we piloted a development programme aimed at tackling barriers to
women’s progression into senior roles (see page 71). Following the
successful pilot we have launched for a second cohort in Q1 24.
We are tackling bias in career progression through our new job
architecture, creating transparency associated to job grade,
reward and benefits. In support of the job architecture, we are
rolling out a new career-path framework to improve transparency
and address any potential bias in promotion decisions.
Ensuring development programmes have diverse participation
remains a priority and Costain’s latest Emerging Leaders
programme cohort was 56% female with 20% of delegates from
an ethnic minority background.
Ethnicity pay gap
Our ethnicity pay gap has increased by 1.8% for Asian employees
and 1.5% for Mixed Heritage and Other Ethnicity employees, while
the gap has decreased by 0.3% for Black employees. We have seen
a 1.7% increase in the proportion of Asian colleagues and 1.2%
increase in the proportion of Black colleagues in the lower middle
pay quartile. There has also been an increase of 1.1% in the
proportion of Black colleagues in the upper middle pay quartile
since last year.
In 2023 we commissioned our first in a series of listening circles
with employees from different ethnic backgrounds to understand
the different experiences in career progression, development,
pay and reward reflected by our ethnicity pay gaps, as well as to
receive suggestions on how to tackle our ethnicity pay gaps.
The business received positive feedback following the conclusion
of the second cohort of our Mutual Mentoring scheme, which
pairs members of our Religion, Ethnicity and Cultural Heritage
network with senior leaders in the business to allow for a two-
way learning share. The scheme offered space for structured
conversations around stereotypes, microaggressions, role models
and access to career-boosting projects.
Costain for the first time has published an integrated gender and ethnicity
pay gap report which can be found on our website / www.costain.com/our-
culture/equality-diversity-and-inclusion
Environmental, Social and Governance (ESG) continued
Metrics
Greenhouse gas emissions
Our emissions data is calculated in line with the GHG Protocol
and is third-party accredited by Achilles in accordance with Toitu
Carbon Reduce scheme and ISO 14064-1. All of our emissions are
incurred in the UK. Where Costain operates in a joint venture, we
have divided emissions proportionately in line with our financial
share of each contract.
Emissions intensity
Metric tonnes of CO
2
e/£m
2023 2022
Scope 1 3.66 4.52*
Scope 2 0.97 0.67*
Scope 3 235.03 244.97*
Total 239.66 250.16*
Scope 1 (All indirect emissions from the activities under
our control)
Metric tonnes of CO
2
e/year
2023 2022 2021
Total 4,876 6,426* 11,561*
kWh 61,422,961 62,309,746* 48,040,659*
Scope 2 (Indirect emissions from our purchased and
used electricity)
Energy
2023 2022 2021
Metric tonnes of
CO
2
e/year 1,299 958* 1,032*
kWh 5,542,724 4,663,809* 4,787,774
Location-based tCO
2
e 1,299 958 1,302
Market-based tCO
2
e 187 56 1,697
Scope 3
Emission category
Metric tonnes of CO
2
e/year
2023 2022 2021
Purchased goods
and services 302,215 336,859 255,221
Capital goods 15 33 21
Fuel and energy-related
activities 3,275 4,760 5,148
Upstream
transportation
and distribution 4,668 3,259 3,099
Waste generated
in operations 325 952 1,156
Business travel 1,930 1,687 1,151
Employee commuting 579 565 503
Upstream leased assets 51 80 93
Total 313,058 348,195* 266,392*
Our performance
In 2023 absolute emissions reduced by 10% year-on-year but
increasing by 14% compared to our 2021 baseline. However, when
normalised by turnover (tCO
2
e/£m) emissions reduced by 2%
compared to our 2021 baseline.
The implementation of Costain’s hydrotreated vegetable oil (HVO)
fuel mandate has contributed to the 24% reduction in Scope 1
emissions, with HVO making up 88% of all purchased fuel.
Costain’s 36% increase in Scope 2 emissions is largely attributed
to: an increase in projects using mains-supplied electricity
rather than generators; and the significant scale of tunnelling
operations on our HS2 contract (REGO tariffs account for 100%
of Costain-purchased electricity). Through an improved building
management system in our Maidenhead office we were able to
reduce electricity consumption for the building by 6%.
*Restatement of data
We have restated data from 2021 and 2022 due to additional data
becoming available after previous reporting and changes to how
company car (EV) and fleet fuel emissions are reported. For Scope
1 and 2 emissions this has added an additional 176 tonnes of CO
2
e
representing less than 0.1% of Costain’s total emissions.
As part of our continual improvement, we have updated our
boundary and quantification approach to allow us to include
additional Scope 3 categories in our 2023 reporting. We have used
this approach to backdate our data to 2021 which accounts for the
significant increase in reported emissions.
Climate risk and opportunity-related metrics
Metrics 2023 2022
Board meetings where climate-related
matters were discussed 30% 30%
% of contracts compliant with 2023
low-carbon materials mandate 67% n/a
% of purchased fuel is HVO 89% 80%
Employees understanding their role
in helping Costain to meet net zero 68% 62%
Climate risk and opportunity-related targets
Targets 2023 2022
100% of all relevant designs and
delivery contracts have a carbon
baseline and reduction plan 100% 100%
Deliver a >6% year-on-year reduction
in our Scope 1 and 2 emissions -16% -41%
All solutions proposed to include a low-
carbon option in line with PAS 2080 57% n/a
More information on our performance can be found in our ESG Report /
www.costain.com/our-culture/performance-and-reports/
Overview GovernanceStrategic Report Financial Statements
38 39
Costain Group PLC
Annual Report and Accounts 2023
202320222021
£30.1m
£36.3m
£40.1m
Cash flow
The Group generated a £72.0m adjusted free cash inflow for the
year (FY22: £72.9m). The Group had a positive net cash balance
of £164.4m as of 31 December 2023 (H1 23: £132.1m, FY22:
£123.8m) comprising Costain cash balances of £105.2m (H1 23:
£77.6m, FY22: £67.3m), cash held by joint operations of £59.2m
(H1 23: £54.5m, FY22: £56.5m) and borrowings of £nil (H1 23:
£nil, FY22: £nil).
Adjusting items
We incurred £8.0m (FY22: £5.7m) on transformation and
restructuring costs, and £5.3m (FY22: £nil) on the impairment of
an intangible asset relating to the repositioning of digital services.
In FY22 we also incurred £1.4m of aged tunnel boring machine
write-off costs, and recognised an insurance receipt of £5.2m
relating to the Peterborough & Huntingdon contract, as well as a
profit of £0.5m on the sale of a non-core asset. We expect further
transformation costs of £5.0m in FY24 and thereafter such costs to
be minimal and not to be separately disclosed as adjusting items.
Net financial income/(expense)
Net finance income amounted to £4.1m (FY22: £2.1m expense).
The interest payable on bank overdrafts, loans and other similar
charges was £2.3m (FY22: £2.7m) and the interest income from
bank deposits amounted to £4.8m (FY22: £0.5m). In addition, the
net finance income/(expense) includes the interest income on
the net assets of the pension scheme of £3.2m (FY22: £1.3m), the
interest expense on lease liabilities of £1.5m (FY22: £1.2m) under
IFRS 16, and other interest expense of £0.1m (FY22: £nil).
Tax
The Group has a tax charge of £8.8m (FY22: £6.9m) which is an
effective tax rate of 28.5% (FY22: 21.0%). The FY23 rate is higher
than the blended statutory tax rate of 23.5% due to permanent
differences which include intangible impairments. The adjusted
effective tax rate is 24.2% (FY22: 20.5%). We expect the effective tax
rate to remain close to the statutory tax rate of 25% from 2024.
“ We have delivered adjusted operating profit
growth and increased cash generation,
with year-end net cash of £164.4m.”
Helen Willis
Chief Financial Officer
We delivered increased adjusted
operating profit and margin, together
with a strong cash performance.
Chief Financial Officer’s Review
Adjusted to reported reconciliation
Transportation Natural Resources Group
2023 2022 Change 2023 2022 Change 2023 2022 Change
Revenue £m
Adjusted
1
943.1 1,046.3 -9.9% 388.9 375.1 3.7% 1,332.0 1,421.4 -6.3%
Adjusting items – – – – – –
Reported 943.1 1,046.3 -9.9% 388.9 375.1 3.7% 1,332.0 1,421.4 -6.3%
Operating profit £m
Adjusted
1
28.0 31.5 -11.1% 21.8 15.0 45.3% 40.1 36.3 10.5%
Adjusting items (7.1) (1.4) (0.1) 4.5 (13.3) (1.4)
Reported 20.9 30.1 -30.6% 21.7 19.5 11.3% 26.8 34.9 -23.2%
1 See notes 2 to 4 of the financial statements for adjusted metric details and definitions, and reconciliation to reported metrics.
Adjusted free cash flow reconciliation
£m FY23 FY22
Cash flow from operations 55.5 16.7
Add back adjusting items 9.2 46.4
Add back pension deficit contributions 8.1 10.8
Less taxation (0.7) (0.5)
Less capital expenditure (0.1) (0.5)
Adjusted free cash flow 72.0 72.9
Net cash reconciliation
£m FY23 FY22
Cash and cash equivalents at the beginning of period 123.8 159.4
Net cash flow 40.6 (35.6)
Cash and cash equivalents at the end of period 164.4 123.8
Net cash 164.4 123.8
The average month-end net cash balance during the year was
£141.4m (FY22: £101.9m) and the average week-end net cash
balance during the year was £141.0m (FY22: £94.5m). Utilisation
of the total bonding facilities as of 31 December 2023 was £69.9m
(H1 23: £78.9m; FY22: £88.8m).
Adjusted operating profit
1
£40.1m
Administrative costs
The Group incurred administrative expenses of £78.0m in FY23,
an increase of £20.2m on the same period last year (FY22:
£57.8m). £5.3m of the increase relates to the impairment of an
intangible asset in FY23. £5.2m of the increase is driven by the
recognition of an insurance receipt relating to the Peterborough
& Huntingdon contract in FY22. £1.4m of the increase has
resulted from higher transformation and restructuring costs
driven by the repositioning of digital services in FY23, partially
offset by asset write-off costs seen in FY22.
£7.3m of the increase has resulted from a reclassification of
costs previously shown within cost of sales, now reflected
in administrative expenses, as we have improved alignment,
ownership and understanding of our cost base across the Group
as part of our Transformation programme. The £1.0m balance of
the increase has been driven by cost and wage inflation as well as
the timing of incremental investment that will facilitate further net
benefits from our Transformation programme into FY24, partially
offset by the year-on-year benefit of cost management actions
taken during FY23 and in the second half of FY22.
Overview GovernanceStrategic Report Financial Statements
40 41
Costain Group PLC
Annual Report and Accounts 2023
Chief Financial Officer’s Review continued
Financial resources
On 26 July 2023, we announced that we had successfully
concluded negotiations with our bank and surety facility providers
to refinance a new three-year agreement of our bank and bonding
facilities. The Group’s facilities agreement to September 2026
comprises an £85m sustainability-linked revolving credit facility
(RCF) (previously £125m), and surety and bank bonding facilities
totalling £270m (previously £280m).
Costain has agreed with its banks and sureties that it will not
declare a dividend should liquidity (undrawn revolving credit
facility, plus Costain cash balances) be less than, or expected
to be less than, £100m for the next twelve months (as certified
by Costain).
Capital allocation
We understand the importance of delivering long-term sustainable
value for shareholders and are committed to maintaining
a balanced approach between investment in the business,
maintaining a strong balance sheet and returns to shareholders.
Our capital allocation policy is as follows:
1. Investing for growth – disciplined investment in key areas such
as digital that 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 adjusted earnings. This will take
into account the cash flow generated in the period, and the
potential impact of the ‘dividend parity’ arrangement relating
to the defined benefit pension scheme, which continues until
31 March 2027.
Under the ‘dividend parity’ arrangement, an additional
matching contribution (the excess of the total dividend above
the Scheme contribution) to the Costain Pension Scheme will
be made when the total of the interim and final dividends for
a financial year paid to the shareholders of Costain are greater
than the contributions paid into the Scheme in the previous
Scheme financial year, which runs from 1 April to 31 March.
In addition, if the funding level is above 101% as at 31 March
each year, then no Scheme contributions will be payable in
respect of dividend parity for the following year.
3. Selective M&A – retaining optionality to pursue strategic
investments in technology, skills and capabilities to enhance
our ability to support customers.
4. Returning surplus capital – after ensuring a strong balance
sheet and cash position, identified surplus capital is returned to
shareholders through share buy backs or special dividends.
Dividend payments were resumed in FY23 with an interim
dividend of 0.4p per share for the six months ended 30 June 2023.
The Board is proposing a final dividend of 0.8p per share which,
if approved, will be paid on 28 May 2024 to shareholders on the
register at the close of business on 19 April 2024.
Pensions
On 30 June 2023, we announced that agreement has been
reached with the Trustee of the Company’s defined benefit
pension scheme on the 31 March 2022 triennial actuarial
funding valuation and ongoing contributions to the Scheme.
The contribution plan from the Group to the Costain Pension
Scheme runs from 1 July 2023 to 31 March 2027 and is for a
payment of £3.3m per year, payable in monthly instalments, which
will increase in line with inflation (CPI) each 1 April. This replaces
the previous contribution plan to the Scheme, which from April
2023 had increased to an annual payment of £11.98m paid in
monthly instalments.
As a result of the new contribution plan, the full year 2023
pension contribution payment by the Group was £8.1m, and
payments for 2024 and thereafter will be £3.3m annually,
plus inflationary increases as outlined above.
An assessment of the Scheme funding position will be carried out
each 31 March and, if the funding level (on a Technical Provisions
basis) is more than 101%, contributions will stop from the
following 1 July to 30 June. If the funding level falls below 101%
at the following 31 March, contributions will resume for the next
year starting 1 July to 30 June at the agreed new level.
As at 31 December 2023, the Group’s pension scheme was in
surplus in accordance with IAS 19 at £53.5m (H1 23: £58.7m
surplus, FY22: £60.2m surplus).
The movement in the IAS 19 valuation, being a slight reduction in
surplus from 30 June 2023 to 31 December 2023 was due to the
impact of an increase in the value of scheme assets being slightly
less than the increase in scheme liabilities, with the key drivers
being the performance of growth assets, and the impact on
liabilities from mortality assumption changes.
Cash contributions made to the scheme during the year amounted
to £8.1m (FY23: £10.8m) and the charge to operating profit in
respect of the administration cost of the UK Pension Scheme in
the year was £0.2m (FY22: £0.3m).
Helen Willis
Chief Financial Officer
11 March 2024
Risk Management
Our risk management process
The timely and thorough evaluation of risk is central to our business decision-making, and our approach is designed to ensure risks of
all categories are identified, fully understood, and actively managed to protect our business, our people and the value we deliver for
our customers.
Our process applies at all levels, from individual project risks to our Group-level principal risks. This approach ensures that risks
are considered throughout the lifecycle and that we are using learning from our operational activities to continuously improve our
management of risk.
Managing risk through the contract lifecycle
Risk management is central to the work we deliver for our customers, and in particular our construction project activities, where our
teams manage a broad range of risks including those related to design maturity, approvals and consents, existing asset condition and the
performance of third parties. Our lifecycle governance and risk management arrangements aim to ensure that we identify and explore
potential risks early, make bid decisions based on our risk appetite, set our contracts up for success, and deliver our commitments to
our customers.
Close
When a project is
closed, our teams
ensure that measures
are in place to
manage any residual
risks, and lessons
and performance
data are captured
for use in planning
future projects.
Shape and Win
Our work winning governance includes the early
screening of opportunities to identify key areas of risk,
and to ensure that we pursue opportunities which align
with our risk appetite. This approach also ensures that
higher-risk activities and contract types receive enhanced
assurance to ensure risks are properly understood and
mitigation strategies are robust. Risk analysis is used
to ensure our pricing and delivery plans recognise the
risks we’re taking on so that we have confidence in the
commitments we make to customers.
Deliver
Management of risk (including SHE, design,
technical, supplier and third-party risks) is a
central part of how we deliver our projects,
with ongoing monitoring of risk response and
changes in risk profile, integrated with other
project controls activities. Risk-based assurance
of our contracts is performed by our Internal
Audit and 2nd line of defence functional teams,
providing an independent view of risk status
and ensuring learning and good practice is
shared across our sectors.
Initiate
Designing and setting up the arrangements required – in accordance with our risk framework –
to enable effective management of risk for a specific activity, for example a new contract.
Close
Capturing key risk management lessons at the end of an activity, ensuring that any remaining risks have been addressed and closed or transferred.
Identify
Identifying and clearly defining the potential
threats and opportunities which could
impact the activity and/or our ability to
meet objectives.
Assess
Using best judgement, experience, industry
norms and lessons learned to assess the
likelihood and potential consequences
of the identified risks, considering any
existing control measures.
Plan
Developing and planning response actions
with specific owners and timescales, for
example to avoid or reduce a risk or to help
enhance or realise an opportunity.
Implement
Carrying out response actions,
monitoring risk trends and updating
the plan and risk assessment.
Overview GovernanceStrategic Report Financial Statements
42 43
Costain Group PLC
Annual Report and Accounts 2023
Risk Description and impact Key controls and mitigations Strategic Link
Safety,
health and
environment
We operate in natural, complex and
hazardous environments. Failure to
manage the inherent risk and hazards
could result in illness, injury or loss of
life. Failure to manage this risk could
also affect our reputation and result in
loss of business and financial penalties.
While some of our operational activities
involve significant hazards, we continue
to strive to reduce these risks and
prevent any potential for harm to our
people or to third parties.
Risk trend: Neutral
• Safety, health and environment (SHE) policy,
procedures and guidance combined with monitoring
and assurance.
• The Costain behavioural safety programme.
• Mandated accident and near miss reporting and
embedding of lessons learned.
• SHE assurance review process aligned with the
learning organisation model used throughout
delivery and during bid development to ensure
key risks are identified and appropriate mitigation
measures are in place.
• Full consideration of environmental aspects during
technical design review and approvals, updated
during mobilisation and monthly operational review.
• Reporting of environmental incidents and near
misses to ensure lessons learned.
• Continued environmental education programmes
for all applicable employees.
Risk Management continued
Principal risks
All principal risks are integrated with our strategic priorities. 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 at various times
throughout the year with the owners to update the risk status and review progress of response actions together with any supporting
metrics to review their effectiveness.
During 2023, the risk and assurance team led work to further develop the Group’s principal risks, to improve the definition of root causes
and assessment of controls, and to continue to strengthen mitigation plans, ensuring these are incorporated into business plans.
The table below sets out the principal risks faced by the Group, the link to our strategic priorities, change in the risk during 2023 and
relevant controls and mitigations.
Risk appetite and attitude
The Group’s risk appetite is aligned with our strategy, ensuring we continue to deliver predictable performance and pursue growth in
key markets. The Board’s attitude to key categories of risk the business faces is set out in the table below. This is underpinned by clearly
defined red lines and risk factors, which are used to evaluate risk through our contract lifecycle governance, ensuring that decisions are
made in accordance with our risk appetite.
Risk category Appetite Attitude statement
Safety,
health and
environment
Zero
We have no tolerance for harm to our people or partners, and will continually seek to reduce these
risks and avoid any detrimental impact on the environment.
Markets,
customers
and partners
Open
We are willing to consider a range of potential markets to achieve success in line with our strategy.
We work with customers with long-term investment plans with whom we can build strategic
relationships and secure repeat orders. We will partner with organisations which supplement our
capability with new skills and share our values.
Contract Cautious
While our contracts contain significant risks, we will ensure these risks are well understood,
provisioned for and manageable. We will only accept contracts where there is high confidence in
achieving the target margin.
Technical Cautious
We are prepared to accept performance and integration risk provided additional technical assurance
is implemented to ensure this is effectively managed. Our projects are delivered in accordance with
nationally recognised codes and technical standards.
Investment Cautious
We will invest in developing solutions or building capability where there is a clear addressable market
demand aligned with our business plan.
Information
security
Minimal
We will protect our systems, our data and our customers’ data to ensure we minimise the risk of
disruption to operations and prevent uncontrolled access to information.
Governance
The Board is responsible for defining risk appetite and determining the nature and extent of the risks the Group is willing to take to
achieve its long-term strategic objectives. On behalf of the Board, the Audit and Risk 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 and Risk Committee Report on
pages 82 to 87.
To undertake a robust assessment of the risks which could threaten business objectives, performance, sustainability, 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 oversees risk deep dives and receives presentations on these from the
Executive Board risk owner.
Link to strategic priority
Performance
Planet
People
Overview GovernanceStrategic Report Financial Statements
44 45
Costain Group PLC
Annual Report and Accounts 2023
Risk Description and impact Key controls and mitigations Strategic Link
Securing work
and responding
to changes
in customer
spending plans
Our future growth and profitability is
dependent on our ability to secure new
work in our competitive marketplace.
To be successful we need to maintain
strong customer relationships and
broaden our service offering by
delivering innovative solutions across
complex delivery, digital and consulting
activities. Unforeseen changes to our
core customers’ investment priorities
and spending plans could have a direct
impact on both live contracts and our
future pipeline.
Risk trend: Increasing
2023 saw a number of significant
changes in customer plans driven by
policy, funding and regulatory factors.
Policy decisions regarding the scope of
HS2, combined with the impact of issues
experienced on some of our Highways
projects, represented a partial
materialisation of this risk. A change in
government following the next general
election may result in further changes
to policy and spending plans.
• Directors’ quarterly progress review of Group and
divisional business plan, budget and objectives.
• Leverage market intelligence, data analysis and
bid learning to improve and better target work-
winning activities.
• Continual review and update of customer pursuit/
account plans based upon latest market intelligence.
• Implement improvements to work-winning process
including budgeting, opportunity prioritisation and
clarity on artifacts for gate approval.
• As part of the annual strategy review process,
changes in markets and customer 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, customer organisation change).
• Business development teams at sector and key
account level maintaining good customer and
stakeholder relationships at all levels.
• Customer zipper (stakeholder relationship map)
plans in place to shape relationships with
Government, local authorities and trade
bodies from Board downwards.
• Strengthening our customer mix and exploring
potential new market areas to increase resilience
to changes in specific areas.
Managing
our contracts
and economic
factors
The contractual environment is
becoming more complex with
significant pricing competition while
customers seek to transfer more
risk to contracting parties. Onerous
contract terms and conditions
can result in exposure to potential
financial losses, legal penalties and
reputational damage. In addition,
changes in the cost and availability
of key materials, plant and fuels,
along with other factors including
exchange rates, trade arrangements
and regulations can impact our delivery
and financial performance.
Risk trend: Increasing
Enhancements to existing contract
review processes have helped to
increase confidence in the management
of this risk in 2023, whereas continued
price inflation throughout 2023 has
affected a number of our contracts
and our work with key customers.
• Commercial review process which examines in depth
the performance of all contracts to assess progress
in achieving our strategic objectives.
• Early risk profiling of opportunities to ensure key
contract risks are identified and bid decisions are
aligned with risk appetite.
• Updated contract reviews form part of work-
winning governance to ensure robust management
of contract risks.
• Technical and design gate approvals.
• Assessment of the sensitivity of planned activities
to key economic factors, such as inflation during
proposal development, ensuring that appropriate
measures are incorporated into contracts to protect
the business from future volatility.
• Monthly financial contract and account reviews.
• Ongoing monitoring of supplier performance and
invoicing cost trends.
• Centralised procurement of materials and goods
sourced from outside the UK to ensure an optimised
approach to managing exchange rate movements.
Link to strategic priority
Performance
Planet
People
Risk Description and impact Key controls and mitigations Strategic Link
Project set-up,
mobilisation
and delivery
Working with our customers, we
manage some of the most complex
and challenging infrastructure
projects in the UK, and this relies on
rigorous planning, risk management
and execution in delivery. Failure to
effectively plan, mobilise and manage
these complex projects can result
in delays, impacting our customers
and our market reputation for
delivery excellence.
Risk trend: Neutral
• Robust planning, estimating and risk identification
and analysis during proposal development to form a
stable, deliverable baseline for delivery.
• Compliance with all aspects of the technical and
design gate approvals.
• New mobilisation process to ensure readiness for
delivery and that resourcing, process and systems
prerequisites are addressed promptly.
• Formal contract closure process to ensure that all
aspects of work are complete.
• Integrated project controls framework for all
complex delivery projects.
Procurement
and supply
chain
performance
A significant proportion of our work is
delivered through our supply chain, and
supplier selection and performance are
therefore critical to our ability to fulfil
our commitments to our customers.
Issues with supplier resourcing, product
quality or performance can adversely
affect project delivery, contract
performance and our reputation.
Risk trend: Neutral
• Procurement process for evaluating potential
options and selecting the appropriate supplier.
• Enhanced standards for monitoring supply
chain performance.
• Continued drive on prompt payment of
supplier invoices.
People:
attracting,
developing,
and retaining
talent
The successful implementation of our
strategy is dependent on our ability
to attract and retain the skills and
experience required to deliver our
portfolio of work, lead specialist teams
and continue to grow our market share.
In an increasingly tight skills market, we
have continued to focus on improving
our understanding of future skills needs
and on improving the Costain offer. We
also recognise that developing skills
and experience is essential in delivering
our current and future needs, building
resilience and providing development
opportunities for our people. Failure
to invest in these matters would
hamper our growth, reduce employee
engagement and increase attrition,
impacting costs and performance.
Risk trend: Neutral
• Strategic workforce planning including longer-term
demand forecasting for key skills aligned with Group
and divisional business plans.
• Investment in new people system to underpin a
more candidate-led automated experience, while
improving efficiency and effectiveness of the
attraction, recruitment and on-boarding processes.
• Existing learning and development curriculum and
targeted development programmes for core skills
and emerging leaders.
• Clear total reward strategy, regular review, and
external benchmarking of our offer, ensuring we
keep pace with market requirements.
• Targeted enhancement to talent management and
development in key functions to increase mobility
and visibility of opportunities.
• Employee communication and engagement channels
and forums – listening and acting on feedback.
Risk Management continued
Overview GovernanceStrategic Report Financial Statements
46 47
Costain Group PLC
Annual Report and Accounts 2023
Risk Management continued
Link to strategic priority
Performance
Planet
People
Risk Description and impact Key controls and mitigations Strategic Link
Financial
resilience:
maintaining a
strong balance
sheet, access
to banking
facilities and
managing our
legacy pension
scheme
A strong balance sheet is a prerequisite
for many of the opportunities we
pursue and the contracts we deliver
for our customers. Failure to manage
the legacy defined benefit pension
scheme so that the liabilities are within
a range appropriate to our capital
base could also adversely impact our
balance sheet.
Risk trend: Reducing
Loan arrangement agreements, a
revised cashflow process and the
triennial pension scheme valuation
have resulted in a reduction in this
risk in 2023.
• Monthly business review to monitor status of all
contracts and ensure performance is aligned
with expectations.
• Quarterly profit and cash forecast produced for
current and following fiscal year including
monitoring of covenant compliance and cash
headroom and liquidity.
• Ensuring alignment of customer and supply contract
payment terms to support effective control of
working capital.
• Regular monitoring in conjunction with the trustee,
of asset performance, pensions regulations,
Company covenants, scheme funding and
liability management.
• Provision of independent advice from a third-party
pensions expert to help manage potential risks.
Information
security:
systems
disruption
and data
protection
Our work is enabled by safe, secure and
resilient operating systems. Disruption
to these systems, for example as
a result of an outage or a targeted
cyber-attack, would impact our ability
to continue our normal operational
activities efficiently. Unauthorised
disclosure of Costain, customer or
third-party data could result in financial
penalties, loss of competitive advantage
or reputational damage.
Risk trend: Increasing
Cyber attacks on organisations like
Costain are increasingly frequent and
sophisticated. Costain has continued to
invest in cyber protection in 2023.
• Maintaining Cyber Essentials Plus (CE+) and
ISO 22301 (Security and Resilience) accreditation.
• Costain information security strategy integrates
information systems, personnel and physical
aspects in order to prevent, detect and respond to
information security threats and data loss.
• Continual focus on improving cyber resiliency in
technology and people, improving our security
education, training and awareness (SETA).
• Ensuring all employees comply with mobile device
management platform requirements.
• Review and update as necessary our system
configuration assessments and Automatic
Information Protection (AIP) protocols.
Risk Description and impact Key controls and mitigations Strategic Link
Climate
change and
sustainability
Protecting our planet is one of our
strategic priorities. Failure to deliver
on our Environmental, Social and
Governance (ESG) targets, and in
particular our net zero 2035 ambition,
could damage our reputation in the eyes
of our employees, customers and other
stakeholders. Our operational activities
and contract performance could also be
impacted by future changes in climate,
and an increase in the frequency of
major weather events in the UK.
Risk trend: Neutral
• Annual strategy and business planning cycle –
functional business plans reviewed for alignment
with climate change action plan.
• Rollout of greenhouse gas (GHG) emissions baseline
for in-flight operations.
• Embedding sustainability assurance into work-
winning governance and proposal development.
• Assessment of the potential contractual impact of
weather event delays, ensuring adequate provision
and/or protection is incorporated into agreements.
• Consideration of climate change impact on
materials, assets and product life as part of technical
design process and gate approvals.
Delivering the
benefits of our
Transformation
programme
Our Transformation programme
involves changes to our organisation,
processes and systems, which are
critical to increasing profitability
and resilience, and will provide a
platform for growth. Failure to manage
dependencies between concurrent
workstreams, embed changes
effectively and/or realise the required
benefits could impact our ability to
deliver our planned strategy, operating
results, and shareholder value.
Risk trend: Neutral
• Dedicated governance and gated approvals process
including alignment with change framework.
• Transformation Steering Committee responsible for
reviewing and approving new requests for change,
and amendments to the existing scope of initiatives.
• A central management office to coordinate
transformation efforts and monitor progress against
an integrated transformation plan.
• Sequencing of initiatives to reflect the capacity to
manage and absorb change.
• Benefits realisation plan in place for all initiatives.
Overview GovernanceStrategic Report Financial Statements
48 49
Costain Group PLC
Annual Report and Accounts 2023
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 thought leadership.
This results in a set of objectives and a clear implementation plan,
considering known and emerging risks and opportunities over
a broader horizon. This includes a five-year financial plan, with
strategic objectives including targets for key accounts and strategic
campaigns, resourcing and skills planning as well as research
and development activity to support our customers to address
complex infrastructure challenges.
The Board scrutinises and monitors the strategic and financial plans.
Assessing the Group’s viability
While the Group has a five-year strategic planning horizon,
our order book visibility is stronger over the medium-term
period and our implementation workstreams are focused on
the more immediate term. Therefore, the directors believe that
an appropriate period to consider the Group’s viability is over
three years.
The directors have assumed that the current revolving credit
facility remains in place with the same covenant requirements
through to September 2026 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 43 to 49). 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 the estimated work to be obtained and deliver it at
planned 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 within its banking facilities, not the
absolute value of net debt since, as evidenced by a reverse stress
testing of each of the covenants, the Group maintains a significant
cash headroom to absorb any further unforeseen losses.
In the event that the risks modelled in the severe but plausible
downside scenarios were to materialise together, the Group would
therefore be able to continue operating within its covenants and
the Group’s credit facilities would not be exhausted.
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 directors
confirm 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 2026.
Going concern
The Group’s going concern statement is detailed in note 2 of the
consolidated financial statements on page 143.
Strategic Report
Our 2023 Overview and Strategic Report on pages 1 to 51 have
been reviewed and approved by the Board of directors and signed
by order of the Board.
Nicole Geoghegan
Company Secretary
11 March 2024
Environmental, Social and Governance
(ESG) and risk management reporting
requirements and additional information
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 the 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 Executive
Board sponsor for this policy is the chief
financial officer.
Collaborative working
This policy sets out the approach that
Costain management shall take to ensure
a collaborative working environment
is maintained and relationships reflect
the requirements of ISO 44001:2017
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 ambition to
be net zero carbon by 2035. 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, receipt of gifts and
hospitality, 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, diversity
and inclusion, 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 information 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 the Carbon Disclosure Project (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 programme / pages 32 and 33
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 programme / pages 32 and 33
Our ESG Report 2023 / www.costain.com/our-culture
Anti-corruption and anti-bribery
Supplier code of conduct /
www.costain.com/suppliers
Policy embedding, due diligence
and outcomes
Risk management / pages 43 to 49
Description of principal risk and impact
on the business
Risk management / pages 43 to 49
Description of business model
Business model / page 15
Non-financial KPIs
See pages 29, 33 and 38
Employees
Our ESG programme / pages 32 and 33
Board composition and diversity / pages 70, 71 and 78
Gender and ethnicity pay gap / page 39
Overview GovernanceStrategic Report Financial Statements
50 51
Costain Group PLC
Annual Report and Accounts 2023
Board of Directors
Audit and Risk Committee Nomination Committee Remuneration Committee Chair
C
Dynamic and effective leadership
Bishoy Azmy
Non-Independent
Non-Executive Director
Amanda Fisher
Independent
Non-Executive Director
Tony Quinlan
ACA
Senior Independent Director
Fiona MacAulay
Independent
Non-Executive Director
Kate Rock
Non-Executive Chair
Alex Vaughan
FRICS, FICE
Chief Executive Officer
Helen Willis
ACA
Chief Financial Officer
Steve Mogford
Independent
Non-Executive Director
EXECUTIVE DIRECTORS NON-EXECUTIVE DIRECTORS
Kate was appointed to the Board
in November 2022 and became
chair of the Board and chair of
the Nomination Committee in
December 2022.
Alex was appointed to the Board
as CEO in May 2019.
Helen was appointed to the
Board as CFO in November
2020.
Bishoy was appointed to the
Board in June 2020.
Amanda was appointed to the
Board in December 2023.
Fiona was appointed to the Board
in April 2022 and became chair of
the Remuneration Committee in
May 2022.
Steve was appointed to the
Board in November 2023.
Tony was appointed to the Board
in February 2021, became chair of
the Audit and Risk Committee in
May 2021 and senior independent
director in January 2022.
Appointed 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
of government. 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
an infrastructure solutions
business through his leadership
of the development and growth
of the Group’s consultancy and
technology services. In his role
as managing director, 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.
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.
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 ESG, has completed
Diligent’s Climate Leadership
Program and is a member of
Chapter Zero, a community of
business leaders taking ownership
of the climate challenge. Fiona has
experience in operations, large
programmes, stakeholder and
global supply chain management
from BG Group, Mobil, Rockhopper
Exploration and Echo Energy.
Fiona is a past president of
American Association of Petroleum
Geologists Europe.
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
to Board discussions. Bishoy is
an active member of the Young
Presidents Organization and an
associate of the Chartered Institute
of Arbitrators. Bishoy has decided
to step down from the Board with
effect from 31 March 2024.
Amanda was CEO of Amey, the
engineering and infrastructure
company, from 2019 until 2022.
With considerable expertise in
transportation, infrastructure and
defence, Amanda restructured
the business, redefining the
strategy, building strong client
relationships and improving
contract risk and performance,
leading to its successful sale in
2022. Prior to Amey, Amanda held
two managing director positions
at Balfour Beatty plc, improving
their market share in key sectors,
and held a senior management
position at the construction
firm, Alfred McAlpine. Amanda
is a passionate advocate for ESG
including diversity and inclusion.
With a firm commitment to
ESG, Steve is an experienced
executive and non-executive
director with extensive expertise
in water and defence, together
with experience of contracting
and complex joint ventures. Steve
was chief executive officer of
United Utilities Group PLC from
2011 until March 2023 and led
significant growth during that
period. During 30 years at BAE
Systems Plc, Steve held various
senior positions before being
appointed chief operating officer
and a member of the board.
Steve was previously senior
independent director of G4S plc.
Skills and Competencies 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 and Risk
Committee. 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
London Authority.
External Appointments External Appointments
• Keller Group plc; senior
independent director and
non-executive director
with responsibility for
workforce engagement.
• The Prince’s Countryside
Fund; trustee.
• None• None • Hill & Smith Holdings PLC;
non-executive director, senior
independent director and
chair of the remuneration
committee.
• Associated British Ports;
non-executive director.
• Laird Thermal Systems
(Adparatus GmbH); chair and
advisory board member.
• Innovo Holdings Limited; CEO. • University of Plymouth;
independent external governor.
• Ferrexpo plc; non-executive
director, senior independent
director and chair of the
remuneration and ESG
committees.
• Chemring Group PLC;
non-executive director.
• Dowlais Group plc;
non-executive director.
• QinetiQ plc; non-executive
director and senior
independent director.
Overview GovernanceStrategic Report Financial Statements
52 53
Costain Group PLC
Annual Report and Accounts 2023
Executive Board
Running the business
EXECUTIVE BOARD
Catherine Warbrick
Chief People and
Sustainability Officer
Abida Lalani
Director of Strategy
and Transformation
Nicole Geoghegan
LLB
General Counsel and
Company Secretary
David Taylor
FRICS, FIoD
Group Commercial Director
currently serving as Interim
Managing Director –
Transportation
Alex Vaughan
FRICS, FICE
Chief Executive Officer
Helen Willis
ACA
Chief Financial Officer
Sam White
Managing Director –
Natural Resources
Appointed in July 2022. Appointed in October 2022.Appointed in May 2019. Appointed in January 2022.Appointed in November 2020. Appointed in January 2015.Appointed in September 2019.
Appointed
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.
Abida 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 Transport, Water, Energy and
Defence. Abida 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. Abida is
also the executive sponsor for
the Religious Ethnic and Cultural
Heritage (REACH) Network
at Costain.
For more information please
go to / page 52
Sam 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.
For more information please
go to / page 52
David joined the Company in
2009 and was appointed to
the Executive Board as Group
commercial director in January
2015 and interim managing
director of Transportation in
October 2023. He has held a
number of senior leadership
roles within the business and
is currently responsible for the
commercial, supply chain and
procurement functions. David
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 Business in the Community’s
(BITC) 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
UK operations.
Skills and Competencies
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.
External Appointments
• None • Chair of the board of trustees
at Volunteer Centre Camden.
• None • None• None • None• None
Overview GovernanceStrategic Report Financial Statements
54 55
Costain Group PLC
Annual Report and Accounts 2023
Governance case study
A deep dive review of our Board and Committee governance
framework was undertaken in autumn 2023 to ensure Costain
has the right governance structure to support exceptional
financial and operating performance and business growth. The
review was led by the general counsel and company secretary,
in consultation with other corporate functions such as people
and sustainability. The review focused on committee structure,
including sub-committees below Executive Board level,
terms of reference, membership and attendance. The Board
endorsed the findings that our PLC-level governance structure
and Committee membership is fit for purpose and the only
change recommended at this level was to rename the Audit
Committee the Audit and Risk Committee to better describe
its activities.
As a result of the review, some changes have been made below
Board level to Executive sub-committee terms of reference
to ensure some ESG and other matters are appropriately
addressed. In addition, during 2023, other governance changes
were made at Executive level, for example a new People
Committee was established to ensure people matters not
reserved for the Board or its Committees are discussed and
approved promptly and by the appropriate senior leadership.
Governance at a Glance
Leading a
responsible business
Statistics from engagement survey
72%
of colleagues responded to
the survey
94%
agree that health and
safety is taken seriously
in the organisation
81%
agree that their line manager
exhibits the Costain behaviours
78%
agree that they feel included
and respected
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 2023 annual report.
1. Board leadership and Company purpose
A Effective Board / pages 52, 53 and 78
B Purpose, values and culture / pages 72 and 76
C Governance framework and Board resources /
pages 28, 29 and 43 to 49
D Stakeholder engagement / pages 30, 31, 66 and 67
E Workforce policies and practices / page 51
2. Division of responsibilities
F Board roles / pages 63 and 65
G Independence / pages 52, 53, 65, 78 and 79
H External appointments and conflicts of interest /
pages 52, 53, 80 and 122
I Key activities of the Board during 2023 /
pages 58 and 59
3. Composition, succession and evaluation
J Appointments to the Board / pages 88 to 91
K Board skills, experience and knowledge, service length /
pages 52, 53, chart adjacent and 78
L Annual Board evaluation / page 63
4. Audit, risk and internal control
M Financial reporting, external auditor and internal audit /
pages 82 to 87
N Review of the 2023 annual report / page 81
O Internal financial controls and risk management /
pages 43 to 49 and 81
5. Remuneration
P Linking remuneration with purpose and strategy /
pages 93 and 94
Q Remuneration policy review / pages 97 to 100
R Performance outcomes in 2023 / pages 92, 103 to 106
Strategic targets / pages 107 to 110
50%
(4 of 8)
Chair
*
1
Non-independent directors 3
Independent directors 4
* The chair was independent
on appointment.
Board
independence
<1 year 2
1–3 years 2
>3 years 2
Non-executive director
length of service
Board diversity –
gender
50%
(4 of 8)
Male 4
Female 4
Board diversity –
other ethnicity
12.5%
(1 of 8)
White British 7
Other ethnic groups
*
1
* All other ethnic groups combined
(excluding white minorities).
For more information / pages 60, 64 and 65
“ Our in-depth governance review has shown
our Board-level governance structure to
be fit for purpose with all relevant matters
appropriately considered at the Board and its
Committees. The separate review of principal
risks and the risk management framework
has enabled Costain to further shape its risk
mitigation priorities. I am confident we have
a robust governance structure which enables
sound decision-making and a sharp focus on
business performance and growth.”
Kate Rock
Chair
Overview GovernanceStrategic Report Financial Statements
56 57
Costain Group PLC
Annual Report and Accounts 2023
Governance at a Glance continued
The main areas of discussion of the
Board and Committees in 2023 are
shown in this timeline.
2023
key
activities
Board Audit and Risk
Committee
Nomination
Committee
Remuneration
Committee
• Executive share
plan grants
(written circulation)
April
• Costain’s business
and performance
• Trends compared with
peers/competitors
• Trends in core markets
• Growth opportunities
• Industry mega-trends
• Costain’s customer mix
and service offering
June (strategy)
• Market conditions,
Company valuation and
capital allocation
• Water AMP8 strategy
• ‘Climate change’ risk
• Digital strategy
and opportunities
• 2024 financial update
July
• ESG reporting
and assurance
• 2022 Gatwick fatality
investigation
January
• Remuneration policy
and consultation
• Share award outturns
• Share award targets
• Approval of new share
plan rules
• Share dilution
• Executive Board salary
and chair fee increases
February
• FY22 results
announcement, Annual
Report and Accounts
• External audit
• Contract judgements
• Capital allocation
• ESG Report
• Gender Pay Gap Report
• Modern slavery
statement
• Pension scheme matters
• Notice of AGM
• Transformation
programme
• 2022 employee
engagement survey
results and actions
• 2022 Board effectiveness
review actions
• Board skills and
competencies
March
• AGM trading
announcement
• AGM matters and voting
• ‘People’ risk
• 2023 forecast
• Corporate governance
presentation
• Non-executive director
role specification
• Pension triennial valuation
• Bank and sureties facility
agreement
• Market share purchase
programme for share plans
• Analyst and investor
feedback on FY22 results
• Group risk development
and assurance framework
• Internal audit report
• Whistleblowing
May
September
• Group business plan
• Transformation
programme
• 2023 forecast
• Director conflicts
of interest
November
• 2024 budget
• Risk appetite and
framework
• Risk management and
control systems
• ‘Cyber and technology’ risk
• Governance and
committee structure
• Internal audit report and
internal audit plan for 2024
• Whistleblowing
• Internal auditor
effectiveness
• Chair effectiveness
• Wider workforce salary
budget 2024
• 2023 employee
engagement survey results
• Board diversity policy
December
At each full Board meeting, the Board
considers a safety moment, a safety,
health and environment (SHE) report,
the CEO and CFO reports, an investor
relations update, a legal update, a people
and sustainability report and, if required
under the matters reserved for the
Board, work-winning approval(s).
• FY23 interim
results announcement
• Energy sector market
and growth
• ‘IT/cyber security’ risk
• Customer deep dive
• Property strategy
• ESG programme
• Capital allocation
and dividend
• 2023 forecast
• External auditor
effectiveness
• Internal audit report
• Risk appetite framework
• Sharesave grants approval
• Talent and succession
August
• HS2 safety incident
• HS2 deep dive
• ‘Project delivery’ risk
• Procurement and
supply chain
• Corporate affairs –
functional strategy
• Analyst and investor
feedback on FY23 interim
results
• Board refresh
(written circulation)
October
Overview GovernanceStrategic Report Financial Statements
58 59
Costain Group PLC
Annual Report and Accounts 2023
Chair’s Introduction
Dear shareholder
The Board has continued to maintain high standards of corporate
governance across the Group to support business performance.
It promotes Costain’s values, encourages diverse views and
constructive challenge, has acute awareness of Group risks and is
responsive to the views of shareholders and wider stakeholders.
The Board has demonstrated compliance with the 2018 UK
Corporate Governance Code (the 2018 Code) with one exception
relating to the Board’s annual performance review (see opposite).
Board and Committee governance
As also described on page 57, in autumn 2023 our company
secretary and general counsel, at my request and in consultation
with other corporate functions such as people and sustainability,
conducted a deep dive review of our Board and Committee
governance framework, including sub-committees below
Executive Board level. The Board endorsed the findings that our
PLC-level governance structure and Committee membership
is fit for purpose and the only change recommended at this
level was to rename the Audit Committee the Audit and Risk
Committee to better describe its activities. It was noted there
was no requirement for a separate Environmental, Social and
Governance (ESG) committee; instead it was important for ESG
to be appropriately reflected in Costain’s culture and business-as-
usual practices. Accordingly, some changes have been made below
Board level to Executive sub-committee terms of reference to
ensure some ESG and other matters are appropriately addressed.
The Board ensures the Company’s
governance processes support
business performance and growth.
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 2023 with one exception. In 2023 we did not conduct an
evaluation of the Board’s performance. Instead we decided
to defer the planned external Board and Committee
performance review until spring 2024 to enable time for
our new directors to settle in following the membership
refresh in autumn 2023 (see Nomination Committee
Report on pages 88 to 91). The senior independent director
conducted an assessment of chair effectiveness in 2023
(see page 63). Separately, we conducted a review of our
governance framework (see opposite).
The Audit and Risk Committee Report on pages 82 to 87,
the Nomination Committee Report on pages 88 to 91 and
the Directors’ Remuneration Report on pages 92 to 117
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
to support business performance.
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 2023, the Company is reporting in
accordance with the 2018 Code which sets out standards
of good practice in relation to the following principles:
(i) board leadership and company purpose;
(ii) division of responsibilities;
(iii) composition, succession and evaluation;
(iv) audit, risk and internal control; and
(v) remuneration.
“ The Board recognises the value of good
corporate governance to long-term
sustainable business success.”
Kate Rock
Chair
Stakeholder engagement
During the year we stepped up our engagement with
shareholders, including our retail investors. I met with some of
our largest shareholders in July to hear their views and to discuss
the opportunities and challenges for Costain. In April we hosted
our banks at HS2 Main Works at West Ruislip, a visit with a strong
ESG focus, and in September Costain held a Water sector seminar
on the industry impact of the AMP8 cycle, with analysts and
large investors in attendance. The session included an update
from David Black, CEO of Ofwat. We are now seeing an increasing
number of enquiries from prospective investors.
The Board is committed to increasing its visibility with the
Company’s workforce to gain additional insights into the culture
and concerns at different levels of the Company. Visits also
enhance our understanding of the business and its relationships
with significant stakeholders. I have visited several of our
operational sites and have been delighted to see first hand the
commitment of our employees to their work and to safety, and
evidence of the Costain values and behaviours in action.
In 2023, I also met with the chairs of two of our key customers, HS2
and AWE, to understand their key opportunities and challenges.
ESG
The Board continues to prioritise ESG matters and spent time in
the year understanding the International Sustainability Standards
Board (ISSB) reporting requirements, and reviewing and approving
Costain’s ESG programme. We also considered our customers
and levels of customer engagement, often in relation to the
social value of projects, relations with Government, and our
progress on decarbonising the business. We had a deep dive
on climate change risk and approved Costain’s revolving credit
facility which was updated to become sustainability-linked. For
further information on our ESG progress and initiatives, please
see pages 30 to 39, together with our separate ESG Report at
www.costain.com.
Overview GovernanceStrategic Report Financial Statements
60 61
Costain Group PLC
Annual Report and Accounts 2023
Chair’s Introduction continued
Strategy
The Board establishes the Group’s purpose, values and strategy,
ensuring the Company’s culture is aligned. 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.
In 2023, the Board continued to work hard to build stronger
investor and market confidence in the Company. We are now
seeing the benefits of our efforts. By means of implementing the
various elements of transformation and delivering our strategy,
we believe we can achieve strong growth. In June the Board came
together for a strategy session at which the ambition for 2030 was
agreed and growth opportunities were considered and prioritised.
Business improvements were identified, such as in operational
delivery performance, and we reviewed our portfolio, competitive
differentiators and customer relationships. Further details of our
strategy are on pages 10, 11 and 72.
Board refresh
Following a review of Board skills and competencies, to align with
our strategy and further strengthen our Board, Costain appointed
Steve Mogford and Amanda Fisher as independent non-executive
directors effective 1 November 2023 and 1 December 2023
respectively. As part of these changes, which were in line with
the Board’s succession plan, Neil Crockett and Jacqueline de
Rojas stepped down from the Board on 31 October 2023. The
appointments followed an extensive independent external search
process. Further details of all Nomination Committee matters,
including talent and succession reviews below Board level, are
provided in the Nomination Committee Report on pages 88 to 91.
Risk management
Effective risk management is a fundamental aspect of the Group’s
operating, financial and governance activities (see pages 43 to 49).
During the year, management undertook a comprehensive review
of the Company’s risk appetite and risk management framework,
the outcomes of which were endorsed by the Board, and Audit
and Risk Committee, as appropriate. The Board conducted reviews
of several of the Group’s risks, including people, climate change,
project and programme delivery, and IT/cyber security.
Further details of all Audit and Risk Committee matters are
provided in the Audit and Risk Committee Report on pages
82 to 87.
In addition, Board members use their engagement visits to sites
(see page 74) as an opportunity to lead a risk conversation.
Remuneration
Following a consultation with our largest investors and their
representative bodies concluding in March 2023, our new
remuneration policy was approved by shareholders at the 2023
AGM with a 97.17% vote in favour. During 2023, the Remuneration
Committee continued to have regard to the wider workforce, our
shareholders and other stakeholders and believes our incentive
outcomes are a fair reflection of the Group’s performance.
We 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.
Please see the Directors’ Remuneration Report on pages 92 to
117 for more information on the work of the Remuneration
Committee and implementation of the remuneration policy
in 2023.
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 72). Towards the end of 2023, the Company
again carried out a Group-wide employee engagement survey
with support from Best Companies. 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, for the second year, as a Best Companies 1 Star
organisation, meaning Costain has ‘very good’ levels of workforce
engagement (see page 75 for more information).
Kate Rock
Chair
11 March 2024
Board Evaluation
The Board has a formal process for the evaluation of the
effectiveness of the Board and its Committees. As set
out on page 61, the Board decided to defer the planned
external Board and Committee performance review in
autumn 2023 until spring 2024 to enable time for the new
directors to settle in following the membership refresh in
autumn 2023.
The procedures, effectiveness and development of the Board will
continue to be kept under review. The planned external evaluation
will support this process.
In autumn 2023, the senior independent director conducted an
assessment of chair effectiveness. Tony Quinlan conferred with
each director, including Neil Crockett and Jacqueline de Rojas who
stepped down from the Board at the end of October 2023, and
gave feedback to the chair.
Progress made in 2023 against the areas of focus that were identified during the 2022 internal Board and Committee performance
evaluation are shown below.
Areas of focus identified in 2022 Purpose, link to strategy and actions undertaken
Increase time on
strategic matters
• A strategy day was held in June 2023. The director of strategy and transformation held separate meetings with each
of the non-executive directors before the day to ensure directors’ views were captured and that the day was used to
best effect. The strategy session updated on Costain’s business and recent operational and financial performance, its
customer base, competitor trends, trends in Costain’s core markets and industry mega trends, and then prioritised
growth areas.
• 2024 and 2025 Board calendars also include a strategy only session.
• Also presented and discussed at Board meetings in 2023 were a market update, valuation and capital allocation discussion
by Rothschild & Co, financial advisers, and updates on digital strategy, Water AMP8 strategy and property strategy.
Embed ESG commitments • Presentations and papers were received in 2023 by the Board on ESG reporting and assurance from PwC, on
climate resilience and on the business’ longer-term ESG programme.
• Board members attended the two leadership impact days focused on carbon reduction and safety (see page 74).
• A sustainability-linked revolving credit facility was introduced.
• ESG targets were included in LTIP targets (see page 95).
• The Nomination Committee approved the refreshed diversity and inclusion policy (see page 70).
Refresh the risk appetite • An update on the review of risk appetite was presented to the August Audit and Risk Committee meeting and a
further update seeking specific approvals was presented to the December Board meeting.
Heighten engagement
with stakeholders
• Non-executive directors attended the April and October Company-wide leadership impact days and have
accompanied members of the leadership team on other site visits and engaged with the workforce (see page 74).
• The Board has engaged with members of the Executive Board and the senior leadership team at various Board and
Committee meetings and at other meetings, for example with the general counsel and company secretary, chief
people and sustainability officer, director of strategy and transformation, risk and assurance director, Group SHE
director, Group environmental director, MDs Transportation and Natural Resources, sector director Water, HS2
client director, procurement and supply chain director, head of digital product development and consultancy, and
the talent and development director.
• Various meetings were held by the chair with customers, major shareholders and Government.
• The Board received feedback from analysts and investors on the full and half-year results roadshows.
• The Board received a presentation on the results of the employee engagement survey 2022 and action plan. The
Remuneration Committee, in December 2023, received details of the headline results of the 2023 engagement
survey as an indicator of wider workforce experience (see page 102 of the Directors’ Remuneration Report).
• We hosted representatives from our banks at HS2 Main Works at West Ruislip.
• Costain, supported by the CEO of Ofwat, held a Water sector seminar on the industry impact of the AMP8 cycle
(see page 61).
Chair to reach out to other
directors immediately
prior to each meeting to
discuss the papers and
any proposals
• This has been actioned, leading to informed debate and constructive challenge at Board meetings.
• The chair engages with non-executive directors on a regular basis outside of Board meetings.
• The non-executive directors often meet for dinner prior to Board meetings, about half of occasions with the
executive directors present.
Continuous improvement
of Board papers
• Meeting agendas have improved to be more forward-looking, with stronger linkages to the strategy to ensure the
Board is focused on key matters.
• The general counsel and company secretary reviews each paper prior to submission and suggests changes, where
appropriate, to authors to ensure the papers are of a consistently high standard and meet the Board’s expectations.
• The general counsel and company secretary briefs new presenters on expectations of papers and presentations.
• Each paper clearly sets out the ‘ask’ of the Board.
Bring outside views into
the boardroom
• During 2023, the Board received a presentation from PwC on ESG reporting regulations and trends, from Slaughter
and May, the Company’s corporate legal advisers, on regulations and governance applicable to listed companies, from
Boston Consulting Group, who supported the Board’s strategy day in June, and from Rothschild & Co (see above).
Above: A30 Chiverton to Carland Cross
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Costain Group PLC
Annual Report and Accounts 2023
Our Governance Structure
Delivering effective decision-
making and meeting corporate
governance standards
The Group’s governance structure is established and overseen by the
Board. For details of the governance structure review in 2023 please
see pages 57 and 60.
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.
Key responsibilities:
• Monitors and reviews the composition of
the Board and its Committees to ensure
that the right structure, skills, diversity and
experience are in place for the effective
management of the Group.
• Reviews management development,
succession planning and the talent
pipeline in respect of the Company’s
senior executives.
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 (including the internal audit plan and
audit outcomes) and risk management.
• Oversees the Company’s
whistleblowing framework.
Remuneration
Committee
Audit and Risk
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 and risk, remuneration, and appointments and succession.
Each Committee plays a vital role in ensuring that high standards
of corporate governance are maintained throughout the Group.
Further information
The review of the governance framework (see pages 57 and 60), as approved by the Board in December 2023, has led to a small number of changes to the
matters reserved for the Board early in 2024, most notably in relation to approval of any contract for the Group where the customer is a special purpose
vehicle or joint venture and if the customer requires a lump sum or guaranteed maximum price under a complex delivery contract for a single stage design
and construction project. No changes were made to the terms of reference of Board Committees in 2023 other than to change the name of the Audit
Committee to the Audit and Risk Committee. The matters reserved for the Board and Committee terms of reference, which are reviewed at least 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 82, 88, and 101.
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. The CEO maintains constructive dialogue with the chair, the Group’s
shareholders on strategy and performance, and other stakeholders.
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 present from time to time as a matter of
good corporate governance.
Executive Board
Key responsibilities:
Accountable for the day-to-day
running of the business, delivering
the Group strategy, business
plan and budget and monitoring
the operational and financial
performance of the Group.
Key responsibilities:
• Responsible for approving significant levels of bid
resourcing and for approving (or endorsing to the Board)
certain investments.
Strategic
Investment Panel
Key responsibilities:
• Makes decisions in relation to people on behalf of the
Executive Board.
• Makes recommendations to the Executive Board (or Board,
as relevant) in relation to strategic people matters.
People
Committee
Key responsibilities:
• Responsible for setting and monitoring compliance with
the Group’s SHE policies.
• Acts as a consultation forum to enable best advice to
be given to the Executive Board (and to guide the Group
SHE director and chief people and sustainability officer)
on matters relating to safety, health, environmental
protection and climate change.
Safety, Health and
Environment (SHE)
Committee
Key responsibilities:
• Reviews and guides Costain’s approach to risk
management including trends.
• Considers any whistleblowing investigations and trends.
• Monitors delivery of the internal audit plan, reviews audit
outcomes and tracks actions to completion.
Risk and Assurance
Committee
Key responsibilities:
• Provides strategic direction, sets the priorities and
monitors the progress of Costain’s transformation agenda.
Transformation
Steering Committee
Key responsibilities:
• Review financial and operational performance of projects
to ensure economic and efficient delivery.
Monthly/Quarterly
Business Reviews
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64 65
Costain Group PLC
Annual Report and Accounts 2023
S172 Statement
Engaging with our stakeholders
Workforce
Customers
Communities
and environment
Suppliers
Shareholders
Our commitment
to stakeholders
We set out on page 30 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 68 and
69 (Principal decisions), shows how
the directors have performed their
duties under Section 172 Companies
Act 2006, having regard to a range of
stakeholder feedback.
In response to the results of the
2022 employee engagement
survey, we targeted certain actions
including in relation to fairness and
transparency of pay. Results of the
2023 survey showed improvements
in many of these targeted areas.
Signed by the Board
11 March 2024
• We engaged with and listened to feedback from role experts in constructing our
new job architecture.
• As in 2022, in our 2023 engagement survey we asked a set of core questions
about leadership, the Company, managers, teams, wellbeing, personal growth,
giving something back and fair deal. In addition, we asked questions about safety,
culture, advocacy, communication and career progression.
• Addressing some of our key risks and strategic priorities, the leadership impact
day themes were ‘my contribution to net zero’ and ‘embedding our learning
organisation model’.
• The Your Voice forum focused on key themes: job architecture, systems and
processes, reward and benefits, values and behaviours, communication and policies.
• We had a strategic Q&A session and lessons learned with the graduates as to how
we can improve the programme and their career experience in Costain.
• We are spending more time with our customers, ensuring we are helping them
meet their changing needs, working hard to secure the new work we can shape
and that we are well placed to support them.
• Javier Echave, CFO at Heathrow Airport and chair of the Business in the
Community (BITC) Wellbeing Leadership Group, presented to the Executive Board
on the potential opportunity and organisational benefits from putting wellbeing
and employees who thrive at the heart of business strategy.
• A senior representative from the Department for Transport presented to
the Executive Board and discussed decarbonising infrastructure, pipeline
predictability and skills strategies.
• With Southern Water leadership we discussed the challenges and opportunities
of delivering their AMP8 plan and AMP7 close-out plans.
• We talked to shareholders about our share price, dividend reinstatement, trading,
results announcements, new pensions funding arrangements and bank and
bonding facility refinancing.
• At the ‘meet the Company live’ session, we responded to a broad range of
questions with 57% of responders more positive towards the Company following
the presentation and 86% believing the Company to be undervalued.
• We engaged with investors on their enquiries based on media reports about
Government funding on projects including smart motorways and HS2.
• 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 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 SHE strategy
and our ESG programme.
• We invited suppliers to attend our second walk and talk event 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 materials and labour shortages.
• We discussed strategic alignment across various topics including wellbeing,
carbon, inclusion, safety, environmental and ethical business.
• The CEO and chief people and sustainability officer discussed with the
Government the New Model Institute for Technology and Engineering (NMITE).
• 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 work and maintain a service level
agreement for customer contact.
• Costain senior leaders took part in various BITC events including climate change,
skills and employment, wellbeing and inclusion.
• Some of our high-profile projects continue to attract some level of protester
interest and in those cases we have made efforts to de-escalate tensions and
engage in productive conversations.
DISCUSSIONS AND ACTIONS
• We have used workforce feedback (for example from the engagement survey,
Your Voice, the employee networks and line manager briefings) to inform
our actions.
• Using feedback from the 2022 and 2023 engagement surveys, we have
implemented and continue to implement targeted actions (see page 75).
• We have introduced a Q&A into every leadership and Board site visit.
• Employee feedback has generally been very positive to the new job
architecture, which enables transparency in pay and reward and targeted
action to normalise salaries against the market where necessary.
• The successful pilot with front-line managers of tools to support and
accelerate career development will now be rolled out Company-wide.
• The female Empower programme has been extended to a second cohort
with lessons learned applied.
• Following our 24/7 campaign, we presented Samaritans with £247,000.
• In an award judged by customers and peers, Costain has retained its silver
medal rating in the Financial Times UK’s Leading Management Consultants
2023 in the category Construction and Infrastructure.
• We have undertaken working groups to better support our customers with
upcoming projects.
• We refreshed our four-year strategic business plan to take into account
our customers’ changing requirements.
• The use of various engagement channels resulted in closer customer
relationships.
• 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 and accreditations.
• In considering bonus outturns, LTIP 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 appropriate adjustments and our new
policy received a vote in favour of over 97%.
• The Board received an update from its financial advisers on market challenges,
the competitive landscape and any opportunities for growth.
• Costain continues to rank within the top four of construction’s fastest-paying
main contractors. This attracts businesses to work with us. We submit our
statistics on prompt payment performance publicly every six months.
• 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 shaping industry training materials.
• Undertaken a review of our strategic supply chain, resulting in a consolidated
labour supply chain through the creation of a strategic labour desk.
• Refreshed our list of strategic suppliers.
• The Group’s new bank and bonding facilities agreement comprises a
sustainability-linked revolving credit facility.
• On NMITE, Costain has agreed to support the ongoing development of this
higher education approach, encouraging greater diversity and inclusion.
• Costain’s community relations continue to be recognised by the Considerate
Constructors Scheme, averaging 45.2 compared to the industry average of
40.3 (out of 50). Every contract has an individual or team responsible for
community/stakeholder relations.
• Achieved Platinum level membership through this year’s employer audit of the
5% club with over 10% employees ‘earning and learning’.
OUTCOMES
• Board members took part in site visits and Q&A sessions with our people.
• We held two Company-wide leadership impact days where our people
stopped their usual activities and took part in discussions.
• We conducted our regular Group-wide engagement survey.
• We launched our job architecture with line managers via webinars and
piloted the career path framework with front-line managers.
• We rolled out a refreshed code of conduct and gifts and hospitality policy.
• We concluded our Samaritans 24/7 fundraising campaign in 2023 with
several Company and employee-led events.
• The CEO attended a ‘Costain connected’ event at our HS2 contract with over
400 employees participating.
• Developed skills, capabilities and talent, such as with the Empower, First-Time
Line Managers, Emerging Leaders and Accelerate development programmes.
• The CEO met with 40 Costain graduates on completion of their programme.
• The Board received presentations on major customers including National
Highways and HS2 to understand opportunities and challenges.
• We took our customers, such as National Highways leadership, on site visits to
flagship projects, helping to showcase our capabilities and the quality of work
across our portfolio.
• We attended strategic customer events such as the opening of Gatwick station.
• We attended a number of events with industry associations.
• Our chair met with the chair of AWE and the chair of HS2.
• Strong CEO and CFO customer engagement, for example with Heathrow,
Southern Water and Cadent.
• Our CFO attended a roundtable with Government on sector opportunities
and challenges and actions to boost infrastructure investment and delivery.
• We consulted with our largest shareholders on the remuneration policy renewal.
• We stepped up our engagement with shareholders, including smaller retail
shareholders, and the chair met with some of our largest investors in July.
Post interim results, we held our first ever ‘meet the Company live’ session
with retail investors.
• We hosted a Water sector briefing with current and potential investors and
analysts, with the CEO of Ofwat present, followed by a Q&A session.
• Our Annual General Meeting (AGM) took place in person in London.
Questions could be asked before and during the meeting.
• We issued other regular announcements and streamed webcasts to
accompany results announcements.
• Appointment of new procurement and supply chain director in 2023.
• Supply chain managers provide a crucial link with suppliers, developing
strong, enduring relationships to ensure 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 (see page 33 for further details).
• We facilitated a series of strategic supplier engagement sessions focused on
the alignment of their organisation with Costain.
• We hosted our banks at HS2 Main Works, a visit with a strong ESG focus.
• The Board is updated at each meeting with a SHE and ESG Report.
• Costain took part in the Manchester Pride parade, with colleagues, friends
and family to demonstrate our commitment to an inclusive workforce.
• We facilitated an opening ceremony for the Preston Western Distributor
Road, which opened to traffic in June 2023.
• Costain has five senior leaders serving as regional board members
or campaign leadership members for BITC, and the chief people and
sustainability officer is a member of the Prince’s Trust Built Environment
Leadership Group.
HOW WE ENGAGED
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Costain Group PLC
Annual Report and Accounts 2023
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 sustainability and environmental performance 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 5 of our ESG Report at www.costain.com. The Board received a presentation on
ESG reporting and assurance and separately on climate change risk.
The Board noted social value from projects, including HS2, together with the focus on
carbon reduction on infrastructure projects.
Safety
The Board noted the findings of the full investigation report on the 2022 Gatwick fatality.
The Board noted how successful implementation of actions arising from this tragic
incident would be measured.
The Board noted and discussed other safety incidents in the year.
The Board monitored progress with legal proceedings in relation to other safety incidents.
Strategy Financing
The Board approved new bank and bonding facilities as announced on 26 July 2023, the
revolving credit facility of which is sustainability-linked (see pages 6, 42 and 83).
Delivery of strategy
The strategy, four-year business plan and 2024 budget were approved by the Board. A
strategy day was held in June. The business plan takes into account our customers’ changing
requirements and Costain’s enhanced ways of working resulting from the transformation.
The Board reviewed in depth opportunities and risks associated with AMP8, digital, the
Energy sector strategy, Costain’s property strategy, procurement and supply chain, and
certain customers.
The Board received updates on progress with the Transformation programme:
project design, people, timescales, benefits, risks, KPIs and investment requirements.
The Board supported the aim to reduce process complexity, improve systems and
deliver efficiencies.
Communications
strategy
Following the appointment of a new director of corporate affairs and a restructuring of
the corporate affairs function, the Board noted the corporate affairs and communications
strategic plan.
Market conditions
and trends,
Company valuation
and capital allocation
In order to assess the opportunities and risks, the Board received an update from
its financial advisers on the market, including for growth, and on financing, capital
allocation and investor considerations.
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.
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 and Audit and Risk Committee, as appropriate, considered the detailed work undertaken
in 2023 by the risk and assurance function to further review and define Group risk. The risk appetite
framework was also reviewed in detail, including where changes would be required to the matters
reserved for the Board. A number of risks were reviewed by the Board. (For more information see
pages 43 to 49, 62, 83 and 84).
The Audit and Risk Committee reviewed contract judgements and received regular
whistleblowing reports.
Margin The Board contemplated the impact of multiple factors on margin.
Pension The Board approved a new contribution plan with the trustee of the defined benefit pension
scheme (see pages 6 and 83).
Dividends Having regard to what it considered, in good faith, to be for the benefit of its shareholders,
the Board reinstated dividends including the scrip.
Culture and
governance
Board changes To further align with the strategy and enhance its skillset following a Board competency
review, the Board approved the appointments of Steve Mogford and Amanda Fisher as
non-executive directors (see Nomination Committee Report on pages 88 to 91). The Board
approved actual or potential situational conflicts of interest. As part of these Board changes,
Neil Crockett and Jacqueline de Rojas stepped down from the Board.
Governance A comprehensive review of the Company’s governance structure was undertaken (see pages 57
and 60).
Progress was made in increasing the quality and transparency of information provided to the Board.
The Board allotted shares in connection with the Company’s share plans and scrip dividend.
The effectiveness of the internal and external auditor were reviewed in detail.
The Board reviewed and approved the ESG and gender and ethnicity pay gap reports, and the
modern slavery statement.
The Board received a presentation on public limited company governance by external legal advisers.
Internal audit reports were reviewed and progress against actions noted.
People For the first time in four years, the Board made an invitation under the SAYE Scheme with
24% take-up.
The Board endorsed the launch of the job architecture, to improve transparency of pay and
reward, the launch of our new leadership framework, our female Empower programme and
our ethnicity pay listening circles, and piloting our career path framework with our front-line
supervisors, giving people more visibility of how to grow their careers at Costain.
The Board conducted an in-depth review of talent and succession planning and approved a
new diversity and inclusion policy (see Nomination Committee Report on pages 88 to 91).
In making the following principal decisions in 2023, the Board, in accordance with Section 172(1), considered the outcome of
stakeholder engagement (as set out on pages 66 and 67), 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.
Shareholders Customers Communities and environmentWorkforce Suppliers
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Board Diversity
Gender representation at 31 December 2023
Employee representation
Number of
Board members
Percentage of
the Board
Number of senior
positions on the
Board (chair, SID
CEO and CFO)
Number in
executive
management
Percentage
of executive
management
Number in senior
management
Male 4 of 8 50% 2 of 4 3 of 7 42.9% 19 of 29
Female 4 of 8 50% 2 of 4 4 of 7 57.1% 10 of 29
Other categories 0 of 8 0% 0 of 4 0 of 7 0% 0 of 29
Not specified/Prefer not to say 0 of 8 0% 0 of 4 0 of 7 0% 0 of 29
Ethnicity representation at 31 December 2023
Employee representation
Number of
Board members
Percentage
of the Board
Number of senior
positions on the
Board (chair, SID
CEO and CFO)
Number in
executive
management
Percentage
of executive
management
Number in senior
management
Asian/Asian British 0 of 8 0% 0 of 4 1 of 7 14.3% 1 of 29
Black/African/Caribbean/
Black British
0 of 8 0% 0 of 4 0 of 7 0% 0 of 29
Mixed/Multiple Ethnic Groups 0 of 8 0% 0 of 4 0 of 7 0% 0 of 29
White British or other White
(including minority-white groups)
7 of 8 87.5% 4 of 4 6 of 7 85.7% 21 of 29
Other ethnic groups,
including Arab
1 of 8 12.5% 0 of 4 0 of 7 0% 6 of 29
Not specified/Prefer not to say 0 of 8 0% 0 of 4 0 of 7 0% 1 of 29
Equality, diversity and inclusion
Costain is committed to maintaining a diverse Board. We recognise
that diversity at all levels of the organisation is fundamental to
effective decision-making and delivering high performance. Costain
is committed to a culture of inclusion and has an Executive team
that visibly champions equality, diversity and inclusion.
In 2023, a refreshed diversity and inclusion policy was approved.
The Board endorses the objectives and actions set out in the 2021
inclusion strategy, which is located at www.costain.com/our-culture/
equality-diversity-and-inclusion. Our inclusion strategy is due to
conclude in 2024 and a new plan will be developed to inform the
direction of our future progress and will include ethnicity targets
up to 2027.
The Board remains committed to maintaining a positive position
compared to the targets set out in Listing Rules LR 9.8.6 (9), and
chooses a reference date of 31 December (see table below):
• By 2025 women to make up at least 40% of a company’s
board positions – achieved by Costain in 2017 and maintained
(with a brief dip in 2022).
• At least one of the senior Board positions (chair, senior
independent director (SID), CEO or CFO) is a woman – achieved
by Costain in 2018 and maintained, with the chair and CFO
positions currently held by women.
• At least one member of the Board is from a minority ethnic
background – maintained since 2017, currently with one.
The Board places high emphasis on the importance of increasing
diversity in senior management and throughout the wider
workforce. For 2024, the LTIP grants will include performance
metrics relating to the diversity of the c.200 leaders forming
employee band A–C (a population that includes our Executive
Board, divisional, operational, and functional leaders). Increasing
our overall gender diversity is also a KPI linked to Costain’s
revolving credit facility.
Addressing the underrepresentation of women and people from
ethnic minority backgrounds in senior and management roles is
fundamental to reducing our gender and ethnicity pay gaps and
provides a useful indicator of the progress the business is making to
have a workforce reflective of society.
We collate diversity data as part of our onboarding process, asking
employees to self-report. 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 the categories listed. We provide a ‘prefer not to say’ for
non-mandatory fields for those employees who would prefer to not
disclose their characteristics.
Initiatives
In 2023 our targeted actions included specific development
programmes for diverse talent, such as Empower, our new
programme which focuses on the progression of women in the
business (see opposite), as well as our Mutual Mentoring scheme,
which pairs members of our religion, ethnicity and cultural heritage
network with senior leaders in the business to allow
for a two-way learning share.
We are actively making our reward and benefits more competitive,
such as enhancing our parental and carer leave offering above the
industry standard and we mandate diverse shortlists for senior
appointments. Progress in meeting the Company’s objectives is
monitored by the Board and targets are included in the performance
measures of the Executive Board and senior management.
We use both quantitative and qualitative data to inform our
approach to inclusion. We are continuing to invest in our data and
reporting capabilities as well as maintaining our employee feedback
loops to identify targeted actions to address our pay gaps.
We are committed to continuous improvement and regularly
benchmark ourselves against external standards to identify
opportunities to become a more inclusive employer.
We continue to evolve our way of working to be best practice
by being a Stonewall Diversity Champion, a member of Working
Families, a Disability Confident Employer, a member of the Valuable
500, a signatory of the Armed Forces Covenant, and a member
organisation of Business in the Community (BITC). This year we
became a member of the Business Disability Forum to support
our commitment to becoming a Disability Confident Leader by
the end of 2024.
Note: As at the date of this report, 11 March 2024, gender representation remains unchanged in all categories shown in the table above.
Note: As at the date of this report, 11 March 2024, ethnicity representation remains unchanged in all categories shown in the table above.
The Empower programme
In 2023 we piloted Empower, a development programme aimed
at tackling barriers to women’s progression into senior roles.
The programme was a response to our data showing a drop in
the ratio of women to men at middle management grades. The
content of the programme was drawn from feedback through a
survey by our women’s network, highlighting that women in the
business wanted a programme that addressed the experiences
of women in the industry.
Empower, sponsored by our general counsel and company
secretary, Nicole Geoghegan, supported women to more
confidently champion themselves, deliver on their potential
and be empowered to progress their careers, by:
• recognising the intersectional impacts of ethnicity and
gender through speakers and workshops led by women
from an intersectional background (the cohort itself was
30% from an ethnic minority background)
• equipping delegates with tools to reflect, challenge
imposter syndrome and lean into their strengths
• developing a feeling of being invested in and seen by senior
leaders, with a strong support network
• creating connections with inspiring women, learning
from their career journeys to define and drive their
career success
• engaging line managers to support and advocate for the
delegates during and after the programme.
Following the successful pilot in 2023, we have launched
another programme in 2024, which we are continually
improving based on feedback and perceived impact.
Employee bands A–C
and Executive Board
Baseline Target
31 December 2023 2024 2025 2026
Female 19% 22% 25% 28%
Ethnic minority 7% 9% 11% 13%
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Purpose, Values and Culture
MISSION
We shape, create and deliver
pioneering solutions that
transform the performance of
the infrastructure ecosystem
Addressing this requires a new kind of company that brings
together a unique mix of experts. As construction, consulting
and digital partners we engineer solutions to the most complex
problems. Together, our people transform the performance of the
infrastructure that connects, protects and powers people’s lives.
Everything we do is rooted in delivery and organised around our
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 our customers.
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 planet thrive.
See page 75
See pages 11, 16 and 17
See page 86
See pages 16, 29 and 45
See page 85 See page 74
See pages 8, 70 and 71See pages 39, 70, 71 and 89
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
engagement surveys
Health and
wellbeing performance
Whistleblowing reports
Safety performance, initiatives
and trends, including both
leading and lagging indicators
Internal audit reports
and findings
Engagement visits
to site
Employee
networks
Progress in respect of diversity
and inclusion including gender
and ethnicity pay gap reports
PURPOSE
Improving people’s lives
(see pages 2 and 16 to 21 for
more on purpose and purpose
in action)
VISION
To create connected, sustainable
infrastructure enabling people
and the planet to thrive
Costain partners with Samaritans as they help millions of
people every year in the prevention of suicide. Following the
pandemic, Costain wanted teams to reconnect while raising
awareness and funds for Samaritans.
The Costain 24/7 fundraising campaign was launched in
April 2022 and ran until June 2023. With an ambitious target
of raising £247,000, projects and offices appointed 24/7
champions to drive local fundraising activities. Colleagues got
together in their teams and individually to raise money for
the campaign.
Initiatives included:
• Supply chain walk and talk events.
• The Executive team walked 247km over six weekends.
• Quiz nights and raffles.
• Ride London cycle challenge.
• London Marathon and Great North Run.
• Walk 50 miles with your dog challenge.
• Coronation-themed office parties.
Key outcomes:
• £247,000 could help Samaritans to answer 49,400
calls for help via phone or email.
• Employee education sessions held across Costain.
• Fostered links with local Samaritans branches which saw
the Horsham branch providing outreach support to over
200 colleagues on our Gatwick station project.
• The Preston branch managed an outreach stall at the
Preston Western Distributor Road stand down day.
• Teams held ‘Brew Monday’ events to challenge the myth
that Blue Monday is the most depressing day of the year.
£247,000
raised for Samaritans helping
Samaritans be there 24/7 for
anyone struggling to cope
People
“ We have been overwhelmed by the support of
Costain employees across the Group. This latest
fundraising campaign to raise £247,000 is a huge
achievement and will have a massive impact on
our ability to recruit more volunteers and answer
calls from people struggling to cope. Throughout
the campaign, I’ve had the privilege of meeting
with some fantastic people who have joined
in the 24/7 campaign by running marathons,
organising bake sales, giving their time as
listening volunteers and spreading the message
that whatever you’re going through a Samaritan
will be there to listen.”
Julie Bentley
CEO Samaritans
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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 Costain’s extensive supply chain.
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, engagement surveys
and the Your Voice forum. In addition, the Board continues to use
a number of recognised indicators of culture (see page 72).
A ‘Very Good Company to Work For’
Costain is delighted to have maintained the Best Companies
1-star accreditation, meaning Costain is 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,
the Company, managers, teams, wellbeing, personal growth,
giving something back and fair deal. In addition, Costain
asked some bespoke questions to obtain feedback on
important topics for our business.
The data from the survey has been used to establish our
people priorities in 2024 which includes supporting and
engaging with middle managers, wellbeing, building team
connections and enhancing our listening culture.
Group, divisional, sector and functional results have
been communicated and a local review of action plans is
underway. In 2023, Costain has responded to feedback and
has provided engagement results at project and corporate
team level to increase understanding and improve
engagement in their teams.
The Board will monitor progress against the actions
throughout the rest of 2024. Later in 2024 Costain intends to
re-run the survey to measure performance against our 2023
benchmark to ensure continuous improvement.
In 2023, Costain ran its second annual Group-wide engagement survey with Best Companies. The survey helps
Costain 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.
72%
of colleagues responded to the survey (70% in 2022,
69% Big Companies Average, Accreditation 2023)
81%
agree that their line manager exhibits the Costain
behaviours (curious, caring, collaborative and
courageous) (81% in 2022)
94%
agree that health and safety is taken seriously
in the organisation (93% in 2022)
78%
agree that they feel included and respected
(75% in 2022)
We are continuing to focus on:
• the wellbeing of our teams
• increasing fairness and transparency of pay
• improving our systems and processes
• increasing visibility of career opportunities
and development.
“ Our Best Companies to Work For Lists
recognise and celebrate all of the organisations
who are helping to make the world a better
workplace. The Lists represent the commitment
that these organisations show every day
to their employees and how they have put
investing in their people strategies at the
forefront of their company culture.
Companies that prioritise their employees
and organisational health will inevitably
find success. By continuing to innovate their
practices, improve their business strategies,
and find new ways to show their employees
how valued they are, these organisations are
leading the way in engagement.
To make the Best Companies List is a
remarkable accomplishment and Costain
should be proud of all they have achieved
this year.”
Jonathan Austin
Founder and CEO of Best Companies
We made the list
Costain was also ranked in the Top 25 of the UK’s
Best Big Companies to Work For List.
As part of these visits a Q&A session is normally held by the
Board member with members of the site team (including
employees and representatives of the supply chain and
customers). At the end of each visit the non-executive
director returns a form to the general counsel and company
secretary capturing key information and feedback from
the visit. Relevant themes are then discussed at Board
meetings and appropriate actions agreed.
The first of our biannual Company-wide leadership impact
days, which bring together the whole Company, including
joint venture partners, the supply chain and customers,
was held in April and was focused on ‘my contribution to
net zero’, in particular how everyone must contribute to
reducing carbon emissions and delivering Costain’s climate
change action plan to support progress towards our 2035
net zero ambition.
The chair, Kate Rock, accompanied Sam White, MD Natural
Resources, to Devonport, a joint venture with Babcock,
taking part in discussions on environmental issues and a
roundtable on how to innovate and improve our approach.
The Q&A covered a number of topics from financial results,
shareholders, how to work in a joint venture but still feel part
of Costain, employee share plan participation and strategy.
Tony Quinlan accompanied Nicole Geoghegan, general
counsel and company secretary, to AWE Mensa, again
reporting a high level of engagement and a motivated
team. The visit led to a broader discussion on more generic
developments and on opportunities for efficiencies.
The second 2023 impact day, in October, focused
on ‘embedding our learning organisation model to
eliminate harm’.
This topic was selected following the Company’s rapid
response to a sharp rise in safety and environmental
incidents across the business at the beginning of 2023
which the leadership teams arrested and reversed by taking
concerted action to drive improved performance in our key
safety, health and environmental leading indicators using our
learning organisation model approach.
The impact day therefore celebrated this success and
provided practical activities to enable all employees to
understand how applying the learning organisation model
can help drive even better SHE performance.
Fiona MacAulay accompanied David Taylor, interim MD
Transportation and Laura Hughes, energy sector director,
at Tideway for this impact day with a wide-ranging and
open discussion with the senior leadership team on site and
virtually with other centres of the project. Fiona observed
the team were receptive to ideas and to recognising areas
for potential improvement. There was a lengthy discussion
on how the project adopted the joint venture partnership
attitudes to safety, health and environment.
Kate Rock also took part in the October impact day,
accompanying Sam White and Richard Scott, corporate
affairs director, at AWE Mensa. Kate also visited two HS2
sites, Anglian Water SPA, A30, Heathrow and Southern Water
during 2023, each time accompanying at least one member
of senior management.
In addition, each member of senior management, including
Executive Board members, completes a site visit monthly
and feeds back all observations to the SHE team. To improve
the effectiveness of these visits, they now all include a Q&A
and the schedule for these visits is published internally on
the intranet to enable strong attendance and engagement.
Engagement visits to site
Our non-executive directors carry out engagement visits 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.
Key highlights
Engagement
survey
Recognition
Leadership
initiatives,
briefings and blogs
Engagement
visits to site
Employee forum -
Your Voice
Career pathways
WORKFORCE
ENGAGEMENT
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Workforce Engagement continued
The tools brought to life our new job architecture
and included competency assessments, aligned
learning and professional development pathways.
The tools enabled improved performance,
development and talent conversations and will
be extended to all colleagues through 2024.
“ The career pathways framework
has been a valuable asset to me,
offering a well-defined path for
advancing my career at Costain.
This structured approach has given
me a clear understanding of the
skills and experience required
for progression.”
Career pathways
We successfully piloted a comprehensive
set of tools to support career development
in the organisation with our front-line
manager population.
Your Voice comprises colleagues from across the business
representing all sectors and capabilities, along with
representatives from the people function, and a rolling
Executive Board member. The Group meets quarterly to
discuss ideas and share feedback.
In 2023, Your Voice has provided feedback to the business
on important changes, including a review of the revised
expenses policy and job architecture briefings. Your Voice
also listened to feedback from colleagues to identify key
themes from across the organisation, sharing this feedback
to help make Costain an even better place to work.
Employee forum: Your Voice
Our colleague forum Your Voice continued to meet in 2023 and this year was sponsored by Sam White, managing director
of Natural Resources.
These face-to-face events have been part of an
overall engagement plan for this population and
have been well received as a means of building
connections across the organisation.
Following on from the launch of our refreshed
values and behaviours in 2022, we have brought
leaders together from across the organisation
to co-create our leadership framework. This
provides a clear articulation of the critical
leadership capabilities needed to underpin
Costain’s success moving forward and will
enable a strategic approach to leadership
recruitment, development, performance
management and talent management.
Leadership
initiatives
Two senior leadership conferences were
held in 2023, with a focus on uniting the
team around the business plans for 2023
and 2024, shaping and then launching our
new leadership framework and developing
coaching and communication capabilities.
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 values and behaviours opposite). The
format is then a short update from the CEO on such
matters as safety, health and environment, customers, bid
wins, organisational changes, and from the chief people
and sustainability officer on people matters such as the
engagement survey and job architecture. 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
session are communicated to the Board by the CEO via his
Board Report and weekly update.
Additionally, there are fortnightly blogs (Costain Connected)
from our CEO and other members of the Executive Board to
all employees, together with some video briefings.
These blogs and videos covered topics such as:
• Safety and wellbeing.
• Priorities for 2023.
• Engagement survey and outcomes.
• Job architecture.
• Career opportunities and development programmes.
• Transformation updates including on digital.
• Interviews with new senior leaders.
• Importance of integrity, code of conduct training,
gifts and hospitality.
• Revised expenses policy.
• ESG Report and ESG programme.
• Costain in the community.
• Project delivery – commercial foresight.
• Launch of the Company’s Sharesave plan.
• Feedback from leadership engagement visits.
• Celebrating success – work won, Costain award winners,
industry recognition, Samaritans 24/7 campaign.
• End of year performance reviews and objective setting.
• Updates on financial and operating performance.
• Pensions webinars.
Leadership briefings and blogs
Every quarter, our awards
panel (comprising employees
from across the organisation)
reviews, shortlists and chooses
its winner for each category.
In 2023, 554 nominations were
received across our integrity,
customer focus, safety and
wellbeing, environmental and
social responsibility, and ‘being
Costain’ award categories.
Recognising our colleagues and teams who
are making a difference
In 2023, Costain updated its colleague awards to embed the refreshed values and behaviours. Our values reflect what we
stand for so it’s important that we recognise and reward colleagues who demonstrate our values and make a difference.
Spotlight on one of our
environmental and social
responsibility winners
This award recognises people who are helping
both the environment and communities to
thrive. During a 12-month secondment, Breffni
Quinlivan managed a large environmental team
covering targets and delivering an ambitious
environmental strategy.
She focused on setting up the right support
systems and measures to track how the
team were improving their environmental
performance. The measures that were
implemented provided real visibility and drove
a clear direction across all site teams. With
the support of leadership, Breffni organised a
performance and innovation day to highlight
environmental compliance.
BEHAVIOURSVALUES
INTEGRITY
CUSTOMER
FOCUS
SAFETY AND
WELLBEING
ENVIRONMENTAL
AND SOCIAL
RESPONSIBILITY
BE
COURAGEOUS
BE
CARING
BE
CURIOUS
BE
COLLABORATIVE
IMPROVING
PEOPLE’S LIVES
“ All this work during the secondment
prepared me for my current role – delivering
KPIs for reducing carbon on the project.
We have tough requirements and are constantly
pushing the bar. For example, a key challenge
is to measure concrete specifications for every
concrete pour across the project site, and there
are hundreds! I believe having a sustainability
working group on site is essential. Attitudes have
really changed; everyone understands why we
need to measure and keep reducing our carbon
measures and improve impacts on sustainability.”
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8
Strategy/M&A
6
ESG (including safety)
5
Technology/Digital
5
Communications/Marketing/
Investor relations
3
Sector: Natural Resources
6
Construction/Engineering/
Complex delivery
3
Consultancy
5
Long-term contracting
4
Finance/Audit/Banking
8
General management
8
Risk management
4
Government/Political relations
6
People (eg culture, EDI,
succession, talent, reward)
6
PLC – Corporate governance
5
Sector: Transportation
Attendance and Composition
Meeting attendance
The Board meets regularly, with seven scheduled full meetings
during the year together with a separate strategy session. The
directors’ attendance record at these meetings and Board
Committee meetings for the year ended 31 December 2023 is
shown in the table below. Also shown below is the directors’
attendance record at a scheduled brief update meeting.
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 as members. The table
below does not indicate regular attendance as non-members.
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
and strategy meetings
Maximum 8
Other brief update
Board meetings
Maximum 1
Audit and Risk
Committee
Maximum 4
Remuneration
Committee
Maximum 2*
Nomination
Committee
Maximum 2
#
Executive directors
Alex Vaughan 8/8 1/1 – – –
Helen Willis 8/8 1/1 – – –
Non-executive directors
Kate Rock 8/8 1/1 – – 2/2
Bishoy Azmy
1
0/8 0/1 – – 0/2
Neil Crockett
2
6/6 1/1 3/3 1/1 1/1
Jacqueline de Rojas
2
6/6 1/1 3/3 1/1 1/1
Amanda Fisher
3
1/1 – 1/1 1/1 1/1
Fiona MacAulay 8/8 1/1 4/4 2/2 2/2
Steve Mogford
4
2/2 – 1/1 1/1 1/1
Tony Quinlan 8/8 1/1 4/4 2/2 2/2
* Matters in relation to the executive share plan grants in April 2023 were agreed by written circulation.
# Matters in relation to the Board refresh were agreed by written circulation. In addition, the Committee reviewed Executive Board talent and succession as part of the August 2023 Board meeting.
1 Bishoy Azmy, who is Dubai-based, is the designated representative director of our largest shareholder, ASGC Construction L.L.C. (ASGC). He is a non-independent director. Following an
accident in early 2023 and a period of recovery, in September 2023 Mr Azmy appointed Kate Teh, the London-based general counsel and company secretary of Innovo Holding Limited,
a company connected to ASGC, as his representative to attend Costain meetings where he was unable to attend. This has enabled ASGC to continue to input at meetings. Ms Teh, who
does not vote at meetings, attended two Board meetings and one Nomination Committee meeting in the relevant period. Bishoy has continued to meet with Board members on a
number of matters and accordingly his knowledge and experience have been available to Costain to support delivery of the strategy. Bishoy has decided to step down from the Board
with effect from 31 March 2024. This does not impact ASGC’s right under the relationship agreement between it and the Company to nominate a representative director.
2 Stepped down from the Board on 31 October 2023 and was not eligible to attend any meetings after that date.
3 Joined the Board on 1 December 2023 and was not eligible to attend any meetings prior to that date.
4 Joined the Board on 1 November 2023 and was not eligible to attend any meetings prior to that date.
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 52 and 53.
The non-executive directors, following a refresh in 2023
(see Nomination Committee Report on pages 88 to 91), have
a range of business, construction, risk management, sector and
financial experience that is relevant to the Company to support
the delivery of the strategy. 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 reviewed regularly.
Board independence
Having due regard to the conduct of directors, the Board
considers that each of its independent non-executive directors
standing for election or 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. The
Board confirms that the 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.
Bishoy Azmy is a non-independent non-executive director
and represents the shareholder ASGC (see opposite for
more information).
The current terms of appointment of all the directors are set out
in the Directors’ Remuneration Report on page 114.
At the time of her original appointment as a director in November
2022, Kate Rock, chair, was considered independent by the Board.
Board induction
On appointment, new members of the Board take part in a
tailored induction programme, organised by the general counsel
and company secretary.
The induction programme for new non-executive directors covers
the following activities and meetings:
1. Meetings with Board members and other
external stakeholders
As part of the on-boarding 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. Steve Mogford and
Amanda Fisher have each undertaken a comprehensive, formal
induction programme tailored to their needs and which has
taken into account their bespoke requests for meetings and
more information.
2. Meetings with senior management and employees
A newly appointed director will spend time meeting the chief
executive officer and chief financial officer. As both Steve
and Amanda joined at the time of the business planning and
budget cycles, additional meetings were held with them to
update them on the process and outputs for these documents.
They will also have meetings with the other members of the
Executive Board and members of the senior leadership team.
Following feedback from Steve and Amanda, for future
appointments adjustments will be made to the timing of
some induction meetings.
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 at some sites the supply chain.
They learn about the nature of each of the projects including
health and wellbeing, safety and environment aspects, and obtain
insights from the workforce. A feedback form is then returned to
the general counsel and company secretary (see page 74).
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 (which is supplemented by a meeting with expert
external legal advisers) and the Group’s corporate governance
practices and procedures. Newly appointed directors also
undertake the Company’s online health and safety, inclusion,
information security, competition law and anti-bribery and
corruption awareness training modules.
Ongoing Board training
As regards the continuing professional development of the
executive and non-executive directors, independent of any formal
training arranged by the Company, they 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, ESG, audit, risk and remuneration
issues. In addition, Board site visits are considered essential to
ensure that directors have a thorough understanding of business
operations and issues that affect the Group and its workforce.
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
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 (see pages 58, 59 and 63).
Between Board meetings, the chair and non-executive directors
have access to the chief executive officer, chief financial officer
and general counsel and company secretary to progress the
Company’s business. The chair and non-executive directors also
receive a weekly report from the chief executive officer, monthly
management accounts, internal audit reports and regular
management reports and information, which enable them to
scrutinise the Group and management’s performance against
agreed objectives. The Board is also kept up to date on legal,
regulatory and governance matters by both the general counsel
and company secretary and external advisers.
The general counsel and company secretary is responsible
for ensuring that Board procedures and applicable rules and
regulations are followed. The appointment and removal of the
general counsel and company secretary is a matter reserved for
Board approval.
The Board also obtains advice from professional advisers as and
when required at the expense of the Company.
Corporate responsibility
The Board receives reports on corporate responsibility and
monitors progress on a regular basis.
Directors’ external appointments
The non-executive directors may serve on a number of other
company boards provided they continue to demonstrate the
requisite commitment to discharge their duties to the Company
effectively. Such external appointments are seen as being
beneficial to the overall decision-making process of the Board
as a whole. The Company may encourage, when appropriate,
the executive directors to take up non-executive positions,
with the prior consent of the Board, in the belief that such
appointments broaden their skills and enhance the contribution
which they can make to the Company’s performance. Generally,
no more than one such appointment may be undertaken by the
executive directors. At present neither executive director has such
an appointment.
Remuneration
Following a consultation with our largest investors and their
representative bodies in March 2023, our new remuneration
policy was approved by shareholders at the AGM in 2023
with a 97.17% vote in favour. Details of how the Company has
implemented its policy in 2023, together with the activities of the
Remuneration Committee, can be found on pages 101 to 117 of
the Directors’ Remuneration Report.
Shareholder communication and engagement
The Company remains committed to maintaining good
relationships with both institutional and private shareholders.
There continues to be regular dialogue with institutional investors
through our CEO, CFO and investor relations director, and our
chair meets with some of our largest shareholders. In September
2023 we hosted a Water sector seminar with current and potential
investors and analysts. David Black, CEO of Ofwat and Sam White,
MD Natural Resources, gave updates ahead of a facilitated
Q&A session.
Fiona MacAulay also met with shareholders in the year, in respect
of the 2023 remuneration policy review. Additional details of how
the Company engages with shareholders can be found on pages
61, 66 and 67.
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
Panmure Liberum, 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 AGM is 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 has also given shareholders an opportunity to listen
to a presentation from the chief executive officer on the current
trading performance and developments within the business. Our
recent AGMs have seen low attendance rates and so we have
decided to hold the meeting at our offices in Maidenhead in 2024.
At any time, shareholders may raise issues or concerns by
contacting investor relations (see contact details on page 189).
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 124 together with the statement on the
status of the Company as a going concern in note 2 to the financial
statements on page 143 and the financial viability statement on
page 50.
As can be seen on page 85, the preparation of this annual report
involved input from a number of functions across the Group. The
Board was involved 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 our announcement on 30 June
2023 regarding a new payment plan with the final salary pension
scheme trustee (see page 6).
Business model
The Overview and Strategic Report on pages 1 to 51 give details of
the Company’s business model.
Going concern and viability
As mentioned above, the Group’s going concern statement is
detailed in note 2 to the financial statements on page 143 and
the long-term viability statement is set out on page 50.
Risk and internal control
Risk management
The Board is responsible for undertaking a robust assessment
of the principal risks facing the Group. This includes those
risks that would threaten its business model, sustainability,
future performance, solvency and liquidity and ensuring that
appropriate mitigating actions are in place to manage them.
The Group’s approach to risk management ensures that, on an
ongoing basis, the risks to the Group’s objectives are identified,
assessed and managed.
The Board and Audit and Risk Committee, as appropriate,
considered the detailed work undertaken in 2023 of the risk
and assurance function to further review and define Group
risks. This included the approach to principal risk selection
and details of the underlying Group risks including mitigations,
together with contract risk assurance. In respect of the latter,
risk assurance reviews will be conducted for contracts which
are not covered by other measures such as an internal audit,
all contracts having been subject to a risk profile assessment.
The risk appetite framework was also reviewed in detail, leading to
some changes to the matters reserved for the Board. These review
processes and outcomes are described in more detail on pages 43
to 49 of the Strategic Report and in the Audit and Risk Committee
Report on pages 82 to 87.
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 and Risk 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 85
and 86 of the Audit and Risk 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
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, together with the CEO and CFO.
The reports are also shared with the Audit and Risk Committee
and the external auditor. The Audit and Risk Committee scrutinises
the internal audit activity. Further details can be found on page 85
of the Audit and Risk Committee Report.
Overview GovernanceStrategic Report Financial Statements
80 81
Costain Group PLC
Annual Report and Accounts 2023
Audit and Risk Committee Report
The Committee has open and challenging dialogue
with management and the internal and external
auditors, and has an appropriate level of scrutiny.
Meetings held
4
Committee members Attendance
Tony Quinlan 100%
Neil Crockett
1
100%
Jacqueline de Rojas
1
100%
Amanda Fisher
2
100%
Fiona MacAulay 100%
Steve Mogford
3
100%
1 Stepped down from the Board on 31 October 2023.
2 Joined the Board on 1 December 2023.
3 Joined the Board on 1 November 2023.
“ On behalf of the Board, I am pleased
to present my report as chair of the
renamed Audit and Risk Committee, which
describes how the Committee carried out
its responsibilities during the year. This
year the Committee continued its focus
on key contract judgements, and on risk
management and internal controls.”
Tony Quinlan
Committee Chair
Governance of the Committee
I have been chair of the Audit and Risk Committee, previously
known as 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 78 and their biographies are shown on pages 52 and 53.
The general counsel and company secretary is secretary to
the Committee.
The Board considers that I possess the necessary recent and
relevant financial experience to effectively chair the Committee
and am competent in accounting and auditing. In addition,
the Committee as a whole possesses relevant skills and
competence and sector knowledge to meaningfully discharge the
responsibilities of the Committee.
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 and another senior representative
from Mazars (the Group’s internal auditor), the risk and assurance
director, 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. In 2023,
the Committee met privately, with no management present,
with the external auditor and the lead internal audit partner
immediately after each Committee meeting. The Committee
typically meets four times a year.
This report sets out primary areas of the Committee’s focus
in 2023.
Activities
In accordance with its terms of reference and in compliance
with the 2018 Code, on behalf of the whole Board, in 2023
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 audit and review
• provided advice on whether the annual report, taken
as a whole, was fair, balanced and understandable, and
provided the information necessary for investors to assess
the Company’s position and performance, business model
and strategy
• reviewed the Company’s internal financial controls and
internal control and risk management systems, and the
processes for management of the principal risks facing
the Group
• monitored and reviewed the effectiveness of the internal
audit function
• reviewed the effectiveness of the external audit process
and made recommendations to the Board in relation to the
reappointment and remuneration of the external auditor
• ensured that an appropriate relationship between the
Group and the external auditor was maintained, and
reviewed non-audit services and fees and the external
auditor’s independence
• reviewed its terms of reference, which resulted in its name
being changed to the Audit and Risk Committee to better
reflect the content of the existing terms of reference and
duties of the Committee. The change is also consistent with
more frequently seen market practice (see also page 57).
In addition, the Committee expended time as follows:
Provisions
The Committee reviewed the significant judgements relating to
provisions, including the rectification provision discussed in the
Significant accounting matters below, litigation and other risks.
The Committee received detailed reports including relevant
legal advice.
Banking arrangements
As announced on 26 July 2023, the Company successfully
concluded negotiations with its bank and surety facility providers
for a new three-year agreement of its bank and bonding facilities
(see pages 6 and 42). Its facilities agreement now comprises
an undrawn £85m sustainability-linked revolving credit facility
and surety and bank bonding facilities totalling £270m, with
the reduction in facilities reflecting the Group’s positive cash
generation and cash position.
The sustainability linkage includes three key performance
indicators relating to reduction in greenhouse gas emissions,
spend with small, local businesses and charities, and an increase
in gender diversity.
Materiality
The Committee considered the auditor’s year-end materiality
benchmark. PricewaterhouseCoopers LLP (PwC) set this at
£5.3m taking into account the sector and nature of the Company’s
contracting activities.
Pension
At the end of June 2023, Costain announced an agreement had
been reached with the trustee of the Company’s defined benefit
pension scheme on the 31 March 2022 triennial actuarial funding
valuation and ongoing contributions to the scheme. The new
contribution plan from the Group to the scheme runs from 1 July
2023 to 31 March 2027 and is for a payment of £3.3m per year,
payable in monthly instalments, which will increase in line with
inflation (CPI) each 1 April. This replaces the previous contribution
plan to the scheme, which from April 2023 had increased to an
annual payment of £11.98m paid in monthly instalments. More
specific details of the agreement, including the ‘dividend parity’
arrangement, are set out on page 42.
Risk management
During 2023, the Group’s principal risks (including emerging
risks) were fully refreshed and reviewed by the Committee,
along with developments to the risk management framework
(see pages 43 to 49). This refresh has enabled the Group to
further shape its risk mitigation priorities. Deep dive principal risk
presentations, identifying controls, mitigations and action owners,
were received by the Board, for example at its May meeting on
‘people’, in July on ‘climate change’, in October on ‘plan, set up,
mobilise and deliver our projects and programmes successfully’
and in December on ‘disruption to our operating system and
unauthorised access to data’.
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82 83
Costain Group PLC
Annual Report and Accounts 2023
Audit and Risk Committee Report continued
During 2023, the Committee considered the outcome of a project
to further refine the Group’s risk appetite. This project considered
customer and market, contract and commercial, technical,
safety, health and environment, cyber and investment risks. The
outcomes were approved by the Board in December and promote
a clear and consistent approach to risk, with defined escalation
routes for identified risk triggers across the Group’s activities.
From 2024, a new ‘risk community of practice’, a forum for
people within Costain who have risk management responsibilities,
covering both contract and project delivery, has been established.
The community will focus on specific risk topics, areas of concern
and improvement, best practice and sharing risk solutions.
Significant accounting matters
The Committee, or the Board where scheduling of meetings was
more suited, 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 150 to 151 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 from Contracts
with Customers, which requires that revenue is only recognised
when it is considered highly probable not to reverse.
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 Group’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. This included consideration of
inflation impacts on both costs and revenues. As a result of its
review and having discussed this area in detail with management
and with the external auditor, the Committee concluded the
accounting position taken in the Group’s long-term contracts to
be appropriate.
In 2021, Costain recognised a provision 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
was £17.0m, of which costs of £4.8m had been incurred and
accordingly, a provision of £12.2m was recognised. During 2023,
progress in design and procurement has enabled management to
validate the assessed programme and the revised estimated total
cost is £19.3m. Costs of £7.7m have been incurred to date and
therefore the provision recognised in the statement of financial
position at 31 December 2023 is £11.6m. 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.
As reported in 2022, 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 continue to
make interim payments on account during 2023. Accordingly, an
insurance receivable of £12.7m is 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 whether the ‘virtually
certain’ criteria has been met and having discussed this both with
management and the external auditor continues to consider this
to be the appropriate judgement.
(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 174 to 177 of the financial statements.
(C) The carrying value of goodwill
As set out in note 12 on page 161 of the financial statements,
the Group’s statement of financial position includes goodwill of
£45.1m, which is allocated across both the Natural Resources and
Transportation segments, and is subject to an annual impairment
assessment. The Committee focused on the carrying value of
goodwill within each segment 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 and
that there was no reasonable possible change in assumptions that
would give rise to an impairment.
(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 (see page 50) should
be recommended to the Board for approval. Please see note 2 on
page 143 of the financial statements for going concern information.
(E) Adjusting items
As set out in notes 2 and 3 of the financial statements from pages
146 to 153, management has used judgement to determine the
items classified as adjusting items. The Committee has robustly
reviewed and challenged each of the adjusting items, including
as to the details of each item and whether they were genuinely
exceptional, and discussed these with the Company’s external
auditor to inform the judgement.
(F) Accounting and other regulatory developments
There are no changes to the Group’s accounting policies in 2023.
In relation to IFRS 17 ‘Insurance Contracts’, effective for years
beginning on or after 1 January 2023, there is no material effect
of the introduction of the standard. IFRS 17 replaces IFRS 4 and,
therefore, the Group has elected to apply IFRS 9 to guarantee
contracts previously accounted for under IFRS 4 but, given the
nature of the guarantees, there is no material impact to these
financial statements.
The Company has adopted Financial Reporting Standard 101
‘Reduced Disclosure Framework’ in 2023, permitting certain
disclosure exemptions in this annual report (see note 2 on
page 142).
There are no other new standards in 2023, only amendments to
existing standards (as disclosed in note 2). These amendments did
not have any impact on the amounts recognised in prior or current
periods and are not expected to significantly affect future periods.
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 Group’s internal
financial controls and internal control 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 2023 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 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 closing out actions to address
issues raised by internal audit within the agreed timetable and the
timely completion of such actions is reviewed by the Committee.
Where internal or external circumstances give rise to an increased
level of risk, the audit plan will be modified accordingly during the
year, if appropriate.
The lead internal audit partner from Mazars reports to the CFO
and has a direct relationship with the Committee chair with whom
he has regular briefings without management present. 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 internal audit function (see below).
At the December meeting, the Committee received a report
from Mazars which covered progress against the 2023 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 2024 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 and with the Committee without
management present. The 2023 review concluded positive
progress had been made in Mazars’ first year as internal auditor
with a constructive relationship with management and production
of audit reports of a high standard, with such reports benefitting
from Mazars’ independent perspective. Areas for further focus
have been identified such as speed of delivery of reports and
enhanced focus on action completion to agreed timescales,
together with increasing the profile and visibility of Mazars.
The Committee is satisfied the function is competent to deliver
the 2024 internal audit plan.
Internal control and risk
Details of the Group’s internal control and risk management
framework are more fully set out on pages 43 and 44 in the
Strategic Report and on page 81 in the Governance Report.
The Group’s principal risks are set out on pages 45 to 49.
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 malfeasance allegations; the Group’s approach to
anti-bribery and corruption, and whistleblowing; and reports
from both the internal and external auditors.
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Audit and Risk Committee Report continued
The review did not identify any significant weaknesses in the
system of internal control and risk management.
Improvements introduced in 2023 were as follows:
• Direct support to live contracts to improve understanding of
risk and ensure robust mitigation strategies. This has included
risk identification, analysis and preparations to support
customer contract delivery.
• Major bid risk support to ensure thorough evaluation, planning
and pricing of risk including confidence modelling (quantitative
cost and schedule risk analysis), including support to certain
large bids.
• Introducing a risk-based approach to assess our main contracts
(considering contract, technical, deliverability and reputational
factors) and using this to shape assurance coverage and
priorities, including internal audit and assurance, and to plan
2024 activities.
External auditor
The Company’s external auditor is PwC. The audit partner is
Andrew Paynter. After a competitive tender process in 2016, PwC
were appointed as auditor from the 2017 audit.
Any issues in relation to the financial statements have been
communicated to the Committee by the Auditor and addressed.
There were no interactions with the FRC’s Corporate Reporting
Review team or Audit Quality Review team in the year.
Effectiveness of the external audit process
Following the end of the 2022 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 and risk functions. Based on the
responses to the questionnaires, the general counsel and
company secretary produced a report for consideration by
the Committee. The Committee confirmed that it remained
satisfied with the efficiency and effectiveness of the external
audit in respect of the year ended 31 December 2022. It was
noted there was strong cooperation between PwC and Costain
and that both PwC and Costain were committed to bringing
continuous improvement to the process.
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 2023, the Committee considered and
approved the external audit plan for the audit of the Group for
the year ended 31 December 2023. The Committee considered
significant risk areas for the audit, the proposed scope and the
materiality threshold. 11 subsidiary companies sought exemption
from audit for 2023 as permitted under the relevant regulations,
thereby improving Costain’s efficiency.
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, the Company or members of the Committee,
that bear on the external auditor’s 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 2024.
Non-audit fees
The policy on the provision of non-audit services by the external
auditor (which, as above, 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 2023, the value of non-audit work performed by PwC for the
Group was less than £0.1m (2022: less than £0.1m) other than
in relation to the review of the half-year financial statements.
Whistleblowing and counter-fraud/integrity
Costain’s internal specialist fraud investigator continues the
valuable work of whistleblowing investigation, promoting Costain’s
‘integrity’ value and mitigating risk of malfeasance.
During 2023, including as part of the onboarding of all new staff,
a refreshed code of conduct training was rolled out Company-
wide, which included details of the Company’s whistleblowing line
provided by an independent third party. This included a module
on changes to the gifts and hospitality policy. The communication
cascade included a video from the general counsel and company
secretary setting out the importance of the training and highlighting
the changes to the policy.
During 2023, the Committee received six-monthly reports on
the nature and number of referrals to the whistleblowing line,
the outcomes of the resulting investigations and any process
improvements that were recommended. There were 34 reports,
most of which were made via the whistleblowing line, in 2023.
Committee effectiveness review
As described on page 63, the planned external review of the effectiveness of the Board and its Committees was deferred until 2024 to
enable sufficient time for the newly appointed non-executive directors to settle into their role.
Below is a summary of the agreed areas of focus that arose from the internal review of the Committee in 2022 and the actions taken in 2023.
Area of focus Actions taken
Continue to challenge the Company’s
approach to identification and mitigation of
risk (to ensure continuous improvement)
A review of the restructuring of risks and risk assurance framework was undertaken
in May.
Work was then undertaken to refine the risks and assess the effectiveness of mitigations.
Various presentations were received at the PLC Board on specific Group risks (see pages 58
and 59, and 83).
Ensure management continues to improve
financial reporting on contract risks
and contingencies
New quarterly forecast ‘deep dive’ presented to the Board in May, August and
November 2023.
The internal auditor selected several contracts for audit and a new contract risk rating
process was agreed at the May Committee meeting.
Monitor closely the effectiveness of the
counter-fraud function
Whistleblowing report received six-monthly, and Committee conversations held regarding
the holistic steps taken to support business integrity.
The Committee chair met with the internal specialist fraud investigator to update on his
work and findings.
The internal specialist fraud investigator has been facilitating workshops with different
functions in Costain to identify Costain’s fraud risks, their probability and consequence
and any material gaps in controls. The outcome of this work to be submitted to the
Committee in spring 2024.
Code of conduct training, including a new approach to gifts and hospitality, has been
rolled out Costain-wide, including to Board members.
The Committee noted the positive progress made in the collaboration between the risk,
internal audit, whistleblowing and continuous improvement functions.
Tony Quinlan
Committee Chair
11 March 2024
Overview GovernanceStrategic Report Financial Statements
86 87
Costain Group PLC
Annual Report and Accounts 2023
Nomination Committee Report
In 2023 the Committee reviewed Board skills
and competencies resulting in a refreshed
Board well placed to support our growth.
Meetings held
2*
Committee members Attendance
Kate Rock 100%
Bishoy Azmy
1
0%
Neil Crockett
2
100%
Jacqueline de Rojas
2
100%
Amanda Fisher
3
100%
Fiona MacAulay 100%
Steve Mogford
4
100%
Tony Quinlan 100%
1 Bishoy Azmy is the designated representative director of our largest shareholder,
ASGC Construction L.L.C. Mr Azmy appointed Kate Teh as his representative and she
attended the December meeting of the Committee (see page 78 for more information).
2 Stepped down from the Board on 31 October 2023.
3 Joined the Board on 1 December 2023.
4 Joined the Board on 1 November 2023.
The composition of our Board and Executive Board can be
found on pages 52 and 53, and 54 and 55 respectively of this
annual report.
* In addition, the Committee reviewed Executive Board talent and succession planning at
the August 2023 Board meeting.
Governance of the Committee
The Nomination Committee (the Committee) is comprised of
myself as chair together with the other non-executive directors.
The members of the Committee, together with their biographies,
are shown on pages 52 and 53 and details of their attendance
at Committee meetings is shown here and on page 78. Neil
Crockett and Jacqueline de Rojas stepped down from the Board
and as members of the Committee on 31 October 2023. Steve
Mogford and Amanda Fisher became members of the Committee
on joining the Board on 1 November 2023 and 1 December
2023 respectively. The general counsel and company secretary is
secretary to the Committee.
Only members of the Committee have the right to attend
Committee meetings. Other individuals, such as the chief
executive officer, chief financial officer, chief people and
sustainability officer, members of senior management and
external advisers may be invited to attend meetings as and
when appropriate.
The outcome of all Committee meetings is reported to the Board
for its consideration. The Committee may take independent
professional advice on any matters covered by its terms of
reference at the Company’s expense.
Role of the Committee
In accordance with its terms of reference, which remain
unchanged following an in-depth governance review in autumn
2023 (see page 57), 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
• recommending to the Board the reappointment of those
directors who are offering themselves for re-election at the
Annual General Meeting following due consideration of the
Board’s policy on independence and the results of periodic
Board performance reviews
• formulating plans for succession for both the executive
directors and non-executive directors
• reviewing succession planning arrangements and development
plans for other senior employees
• reviewing periodically the effectiveness of the Committee’s
own performance, which forms part of the regular evaluation
and development work conducted by the Board to ensure it
continues to improve its overall effectiveness.
Board diversity
The Company recognises the importance of diversity at the Board
and all levels of the Group. In December 2023, the Committee
approved a refreshed diversity and inclusion policy to reflect the
2023 FTSE Women Leaders Review and changes to the Listing
Rules. The policy applies to the Board Committees and covers
broader diversity aspects such as sexual orientation, disability
and socio-economic background. 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 in achieving these objectives, can be
found on pages 70 and 71.
Over the last few years, we have increased the diversity of our
workforce, reduced our gender pay gap and created a more
inclusive environment. However, while progress has been made
and strengths recognised, there continues to be a lack of ethnic
diversity in Costain senior leadership roles, together with lower
levels of diversity in contract leadership roles. This is a trend
reflected across the industry. However, across the total workforce,
our diversity is improving. The limited diversity within the talent
pools identified for senior management succession emphasises
the need for our continued focus on our equality, diversity and
inclusion (EDI) targets and ambition, and why we have decided
to extend the EDI targets in our 2024 LTIP to a wider leadership
population (see page 110 of the Directors’ Remuneration Report).
By appreciating and celebrating our differences, we are creating
a more dynamic and inspiring workplace for our employees.
We work hard to ensure our workforce reflects the diverse
communities we serve, and that we create an inclusive culture
where each employee can truly thrive and 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 39 and our separate integrated gender and
ethnicity pay gap report at www.costain.com.
Following changes in the year, female representation at Board
level remains at 50% and the representation of ethnic minorities
has decreased to 12.5%.
Our principles on Board diversity also apply to the Executive
Board and currently 57% (four of seven) of our Executive Board
are female. This will decrease to 50% on the appointment of
Jonathan Willcock as MD, Transportation, who will join the
Company in April 2024.
Committee effectiveness review
As described on page 63, the planned external review of the
effectiveness of the Board and its Committees was deferred until
2024 to enable sufficient time for the newly appointed non-
executive directors to settle into their role.
Following the 2022 internal review of the Committee’s
effectiveness, areas identified for additional focus by the
Committee in 2023 were as follows:
• continue to test whether the Board has the right mix of skills
and experience to support Costain’s strategy
• talent and succession planning and pipeline for the Executive
Board, including increased engagement by the Board with
management and emerging leaders.
Progress against these actions is set out overleaf.
Overview GovernanceStrategic Report Financial Statements
88 89
Costain Group PLC
Annual Report and Accounts 2023
Nomination Committee Report continued
Activities in 2023
The focus of the Committee during the year has been on
considering the Board’s structure and composition, and reviewing
the alignment of skills and competencies of the Board with the
strategic direction of the Group. At our meeting in March 2023,
we identified the need for increased competencies of the Board
specifically in relation to construction and contracting skills and
experience. The Board also took into account the impending
expiry of Jacqueline de Rojas’ second term in office.
Following a rigorous search and recruitment process (see
opposite), the Committee recommended the appointment of
Steve Mogford and Amanda Fisher as independent non-executive
directors and members of the Audit and Risk, Nomination
and Remuneration Committees from 1 November 2023 and
1 December 2023 respectively. As part of these changes,
Neil Crockett and Jacqueline de Rojas stepped down from the
Board on 31 October 2023. Our new directors are immediately
bringing fresh insights, perspectives and constructive challenge
and, accordingly, the refreshed Board is well placed to support our
growth and delivery of our business plan.
The Committee has also reviewed Executive Board composition,
succession and development, ensuring we have the right balance
of skills, experience and diversity at the most senior levels of
the business. The Committee (by means of attendance at the
August Board meeting as there was no scheduled Nomination
Committee meeting at that time) was updated on actions taken to
develop a robust pipeline of talent to support internal succession
planning within the leadership population. There have been a
number of changes in the senior leadership population reflecting
a commitment to have the right leadership capability in place
to deliver the business plan and meet the strategic ambitions of
the Group. The Committee was also updated on progress with
further key management hires, including Jonathan Willcock as
MD, Transportation.
The Board and Committee reviewed succession gaps, readiness for
promotion and ‘emergency succession’ and confirmed succession
plans are based on merit and objective criteria and promote
diversity of gender, social and ethnic backgrounds, cognitive and
personal strengths. Costain has a renewed focus on ensuring that
robust development plans are in place to underpin performance,
delivery and retention, and to accelerate development and
potential where possible.
Election and re-election of directors
At the 2023 and 2024 AGMs, all our directors in post at the time
stood or are standing for election or re-election, as required by
the 2018 Code.
The Committee considered all Board members’ other
appointments and commitments and the impact on their
time availability in view of general investor concerns
regarding overboarding. Similarly, all new external appointments
have been approved by the Board, as required under the 2018
Code, as have any actual or potential conflicts of interest.
For example, in 2023, Fiona MacAulay advised the Committee
that she would step down as non-executive chair of IOG plc at
its forthcoming AGM. Ms MacAulay sought the Committee’s
formal approval, for recommendation to the Board, to her
appointment to the board of Dowlais Group plc from April 2023.
This change represented a reduction overall in Ms MacAulay’s
time commitments. On the recommendation of the Committee,
the Board approved Ms MacAulay’s appointment to the board of
Dowlais Group plc.
The Committee, on behalf of the Board, is satisfied that Board
members have sufficient time, knowledge and commitment
to discharge their roles at Costain effectively. This has been
evidenced during the past year when Board members have again
contributed fully and effectively. Please see page 78 for specific
information relating to Bishoy Azmy, non-independent
non-executive director representing ASGC.
Appointment of directors
There is a formal, rigorous and transparent procedure for the
appointment of new directors to the Board, examples of which
are detailed opposite.
Kate Rock
Committee Chair
11 March 2024
Non-executive director succession
Steve Mogford and Amanda Fisher were appointed to the Board
on 1 November 2023 and 1 December 2023 respectively to
further strengthen the Board, align its skills, knowledge and
experience to the strategy and create the optimal balance of
competencies. Details of their recruitment and appointment
process are set out below.
1. Following a comprehensive review of the skills and
competencies of the Board, noting the expiry dates of
current letters of appointment and the skills required
to support Costain’s strategy, the chair, on behalf of
the Committee and supported by the chief people and
sustainability officer, agreed:
• a specification for the role and responsibilities for a non-
executive director with construction and contracting skills,
and sector experience, as shared with the Board at its
May meeting
• 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 chair and chief people and sustainability officer
participated in a meeting at the end of May 2023 where
they considered the formal appraisals of the candidates and
agreed a diverse short-list of three candidates to progress to
interview.
4. The chair and senior independent director undertook first
interviews and then recommended that certain other
directors meet and interview the candidates. Interviewer and
interviewee feedback was collated.
5. Over a period of two months, the remaining members of
the Board then met with the preferred two candidates and
reported back to the chair and chief people and sustainability
officer on their views.
6. In July and August 2023, the Board considered further the
strategy of the Group and it was agreed that, to support the
delivery of the business plan, it would be beneficial to appoint
two new directors with construction and/or contracting
experience, together with customer relationship expertise.
7. On 11 October 2023, following individual conversations
between the chair and all Board members, the Committee
agreed by written circulation to recommend to the Board
the appointment of Steve Mogford and Amanda Fisher as
independent non-executive directors. Steve and Amanda
bring a wealth of experience in key markets, including
Energy, Water, Highways and Rail and have driven improved
profitability and increased market share as former chief
executive officer of United Utilities Group PLC (UU) and
Amey respectively (see biographies on page 53). In addition
to having the right skills, knowledge and experience, careful
consideration was given to whether each could devote
sufficient time to their role.
8. The Board, also by written circulation on 11 October 2023,
approved the appointments in principle and delegated
authority to the chair to finalise the appointments and
announcement. In making its decision, the Board noted that
Steve had signed a letter from UU, a customer of Costain,
confirming he will not breach any confidentiality in relation
to UU and will absent himself from certain discussions.
Steve also signed a letter from Costain to ensure there
would be no adverse impacts in connection with the Utilities
Contracts Regulations 2016, Costain’s articles of association
and other relevant legislation in relation to any potential
situational conflicts.
9. In the evening of 16 October 2023, the chair confirmed all
aspects of the appointments had been concluded including
execution of letters of appointment. The chair had also
received, and now accepted, letters of resignation from
Neil Crockett and Jacqueline de Rojas.
10. On 17 October 2023, we announced the appointments
of Steve Mogford and Amanda Fisher as independent
non-executive directors and members of the Audit and
Risk, Nomination and Remuneration Committees from
1 November 2023 and 1 December 2023 respectively
and that, as part of these changes, Neil Crockett and
Jacqueline de Rojas would step down from the Board
on 31 October 2023.
11. Having successfully secured two experienced and highly
regarded candidates and discharged its announcement
obligations, the Committee tasked the general counsel and
company secretary with preparing and executing a detailed
and tailored induction plan for both Steve and Amanda
(see page 79).
Amanda Fisher
Independent
Non-Executive Director
Independent
Non-Executive Director
Steve Mogford
Overview GovernanceStrategic Report Financial Statements
90 91
Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report
Remuneration at a Glance
Actual remuneration of our executive directors for 2023 and application of policy for 2024
CEO – Alex Vaughan CFO – Helen Willis
Base salaries
2023 £468,800
2024 £515,700
2023 £389,300
2024 £428,300
Pension 10% of salary in line with wider workforce 10% of salary in line with wider workforce
AIP – maximum opportunity
2023: 150% of salary
2024: 150% of salary
2023: 150% of salary
2024: 150% of salary
LTIP – maximum opportunity
2023: 100% of salary
2024: 100% of salary
2023: 100% of salary
2024: 100% of salary
Single figure total for 2023 £1,358,611 £ 1,137,692
How was our performance reflected in executive director pay for 2023?
AIP – Award earned by executive directors for 2023
Adjusted operating
profit
1
(max
opportunity: 40%)
Profit secured
for 2024 (max
opportunity: 15%)
Cash flow
2
(max
opportunity: 15%)
Safety, health
and environment
(max opportunity:
10%)
Personal
performance (max
opportunity: 20%)
Total achieved
(% max)
Actual pay-out
(% of salary)
3
Alex Vaughan 32.2% 7.2% 15.0% 8.4% 15.0% 77. 8 % 116.7%
Helen Willis 32.2% 7.2% 15.0% 8.4% 15.0% 77.8% 116.7%
LTIP – Award vesting for performance over the three years ending 31 December 2023
Aggregate adjusted EPS
4
for financial years ended
31 December 2021, 2022 and 2023 (two thirds of the award)
Cash conversion
(one third of the award) Total Achieved
Alex Vaughan
30.4 pence
(maximum vesting level: 32.4p or more)
158%
(maximum vesting level: 100%
average cash conversion)
74.5%
Helen Willis
Ensuring shareholder alignment
33% of AIP bonus is
automatically deferred
into Costain shares
with a two-year
holding period.
Subject to performance
targets being met, LTIP
shares vest after three
years but will only be
released after five years.
Share Ownership Guidelines are set at 200% of salary for the executive directors.
Progress toward holding requirement
Balance of 200% holding requirement
163%Alex Vaughan
60% 140%
37%
Helen Willis
1 See definition on page 96. Previously known as adjusted EBITA. Target underpinned by 90% cash conversion.
2 Measured as average month-end cash balances, pre-acquisition and investments.
3 33% of the value of the AIP award for 2023 will be deferred into shares under the Share Deferral Plan (SDP).
4 Measured as adjusted basic earnings per share (see definition on page 96), further adjusted to exclude pension scheme interest.
Alignment of our Remuneration Policy with our strategy
People Planet Performance
Executive directors’ role-specific
objectives under the AIP are linked to
talent development, succession, engagement
and progressing the Group’s inclusion strategy.
Having an equality, diversity and inclusion
(EDI) measure in the LTIP is aligned
with our goal to enhance the proportion
of female and ethnically diverse talent in
senior leadership roles.
We hold ourselves accountable to the
highest safety, health and environment
standards and are committed to operating
sustainably, ethically and inclusively.
The incorporation of 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 strategy, are embedded
within the executive remuneration
framework through the AIP and LTIP.
AIP performance metrics – 2024 LTIP performance metrics – 2024
40% Adjusted operating profit with
90% cash conversion
1
15% Profit secured for 2025
15% Cash flow
2
10% Safety, health and environment
20% Personal performance
50% Aggregate adjusted EPS
4
25% Absolute TSR
15% Carbon emissions reduction
10% Social: EDI
Wider workforce
All employee share plan – first
SAYE (Sharesave) Scheme grant
since 2019 with 24% take-up of
eligible employees.
Following our one-off response to the cost-of-living crisis in 2023, the
annual salary review budget for April 2024 has returned to more normal
levels, to 4% overall, with targeted higher increases for those who have
been identified in the new job architecture as underpaid, and those with
higher performance.
Promotions in 2023: 15%.
Number of people redeployed
in 2023: 343.
We are committed to paying
the real living wage to all
employees.
Achieved Best Companies 1-Star status for the second consecutive
year – a ‘Very Good Company to Work For’ with 94% of employees
agreeing that health and safety is taken seriously and 81% of employees
agreeing that their line manager exhibits the Costain behaviours
(see page 75 in the Governance Report for more information).
Launched career path framework and leadership framework to
increase visibility of career opportunities and define leadership
behaviours (see page 77).
Pilot for Empower programme (see page 71).
Percentage of females in
senior management positions:
34% at 31 December 2023 (see
page 70).
2024 target: Disability
confident level 3; 22% female
and 9% BAME in wider
leadership positions.
Overview GovernanceStrategic Report Financial Statements
92 93
Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
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. 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
I am pleased to present our Directors’ Remuneration Report for the year ended 31 December 2023. Our report explains the work of the
Committee and how we have implemented our remuneration policy. A summary of how the pay for our executive directors is aligned
with delivering our strategy and our performance in 2023 is shown in the ‘Remuneration at a glance’ section on pages 92 and 93.
The Annual Report on Remuneration (on pages 101 to 117) describes how the policy has been applied for the period ended
31 December 2023, and how we intend to implement the policy for the 2024 financial period and is subject to an advisory vote at
the 2024 AGM.
2023 remuneration in the context of our business performance and outcomes for our
key stakeholders
Our new remuneration policy was approved at the 2023 AGM with over 97% of the votes cast in favour of it. We were pleased to see
similarly strong support for the 2022 Directors’ Remuneration Report, with 99% of votes cast in favour of it. Our policy is designed
to be simple and transparent, aligned with delivering our strategy, and ultimately supporting the creation of long-term sustainable
shareholder value.
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 revenue performance in 2023 reflects growth in Natural Resources and a resilient operating performance in Transportation,
with a reduction in volumes due to the rephasing and rescoping of certain projects in the division.
• Our growth in adjusted operating profit reflects growth and increased margin in Natural Resources, benefits from our
Transformation programme, with a consistent margin performance in Transportation.
• Strong adjusted free cash flow reflects increased operating cashflow and financial income, together with positive working capital
movements in FY23, resulting in an increased FY23 net cash position to £164.4m (FY22: £123.8m).
• The Board resumed dividend payments.
• We value the health and wellbeing of our people, and the safety of everyone working with us and around us is one of our core
values. Our LTIR rate was 0.12 (FY22: 0.09), maintaining our industry-leading performance.
• Costain’s long-term net zero targets were approved in February 2024 by the Science Based Targets initiative (SBTi) and we are
working towards our 2035 net zero ambition.
• We have seen increased participation in our engagement survey in 2023 and feedback from our engagement surveys and employee
engagement channels indicates that employee engagement and satisfaction scores remain high. The results of our Best Companies
survey determined for the second consecutive year that Costain is a ‘Very Good Company to Work For’.
• The all-employee pay rise for 2023 was 6% (excluding promotions, the graduate half-year review and the structured increases
for our apprentices). Increases were targeted to provide meaningful awards with a focus on delivering higher increases to those
on lower incomes. Our latest all-employee engagement survey showed our scores for ‘a fair deal’, related to pay and reward,
had increased.
Executive director base salary increases and variable pay outcomes for the year ended
31 December 2023
Alex Vaughan and Helen Willis received salary increases for 2023 of 5%, below the increases awarded to the wider workforce. As set
out in the Directors’ Remuneration Report last year, Alex’s base salary is positioned at the lower end of the market, and he declined an
increase in line with or slightly ahead of the wider workforce rate for 2023 (see opposite for current market positioning of Alex’s salary).
The 2023 AIP was subject to a mixture of financial and non-financial performance measures aligned with key strategic priorities. For FY23,
a rebalancing of the performance measures applied such that 70% was based on financial measures (adjusted operating profit (previously
known as adjusted EBITA), profit secured for 2024 and cash flow), and 30% on non-financial measures (safety, health and environment
and personal performance). An increased weighting on measurable and robust personal objectives (from 10% of the award to 20%)
provided a focus on the execution of our strategic priorities and is aligned with our Transformation programme.
Based on performance against these measures, Alex Vaughan and Helen Willis each earned an AIP equal to 116.7% of salary. One third of
the AIP earned will be deferred into shares for two years. Further details are set out on pages 104 and 105.
The LTIP award granted in April 2021 was subject to adjusted EPS performance for two thirds of the award and cash conversion performance
for the balance of the award. Aggregate adjusted EPS performance over 2021, 2022 and 2023 was 30.4p and as a result 61.8% of this
element vested. Average cash conversion over the period was 158% and as a result 100% of this element vested. The 2021 LTIP award is
therefore due to vest at 74.5% in April 2024. LTIP awards which vest will be subject to a two-year holding period. Further details are set out
on page 106. The Committee is satisfied that no windfall gains occurred in respect of the 2021 LTIP as the share price at grant (61p) was
higher than the price in the previous year. As such, no adjustments have been made.
In line with good practice, these incentive outcomes were reviewed in the broader context of the stakeholder experience. The Committee
considered that these outcomes are a fair reflection of the Group’s underlying financial performance achieved in 2023 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 and therefore no discretion was exercised.
2023 LTIP awards
LTIP awards were granted to the executive directors in April 2023 at a level of 100% of salary. Awards are subject to adjusted EPS
performance as regards 50% of the award, absolute TSR performance as regards 25% of the award and ESG performance as regards 25%
of the award. Further details, including the performance targets, are set out on pages 107 and 108. The Committee retains the 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 2024
• Executive Director base salary increases:
– During the year, the Committee reviewed executive director salaries in light of Company performance, changes to scope of role,
individual performance, market competitiveness and the approach for the wider workforce. For 2024, the annual salary review budget
for the wider workforce is 4% with targeted higher increases (up to 9%) for those identified as being paid below market and high
performers, in line with our new salary budget matrix.
– As highlighted in recent Directors’ Remuneration Reports, Alex Vaughan’s 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 and experience gained in role. When he was appointed as CEO in May 2019, his base salary was set lower than his
predecessor’s. For 2020, 2021, 2022 and 2023 the base salary increases for Alex were 0%, 2%, 3% and 5% respectively, below the
increases for the wider workforce each year. Alex has previously declined higher increases proposed by the Committee which
has resulted in his salary continuing to fall below a market competitive level. It is clear from the review in 2023 that Alex’s base
salary remains significantly below the market competitive rate. The Committee believes it is important for executive director pay
to reflect individual performance, experience and responsibilities. Recognising Alex’s strong performance despite challenging
market conditions and his positioning against the market, the Committee has chosen to implement a stepped increase of 10%
in 2024 (base salary of £515,700 effective from 1 April 2024) and a further 4% in 2025 (even if that is below the wider workforce
increase in 2025).
– During 2023, Helen Willis’ role expanded to include responsibility for the internal IT function. In recognition of the increased
scope of her responsibilities and exceptional performance, the Committee concluded it was appropriate to award a 10% increase
for 2024 (base salary of £428,300 effective from 1 April 2024).
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
• AIP: The maximum AIP opportunity for executive directors will be 150% of salary. The AIP will continue to be weighted 70% on
financial measures, 10% safety, health and environment and 20% personal performance. Details of the AIP performance measures
are provided on page 109 and targets with performance against them will be provided in the 2024 Directors’ Remuneration Report.
One third of the AIP earned will be deferred into shares for two years.
• LTIP: The maximum LTIP opportunity for executive directors will be 100% of salary. Vesting will be subject to adjusted EPS
performance as regards 50% of the award, TSR performance as regards 25% of the award and ESG performance as regards 25% of
the award. Details of the LTIP performance measures and targets are provided on pages 109 and 110. LTIP awards which vest are
subject to a two-year holding period, thereby ensuring long-term alignment of the executive directors’ and shareholders’ interests.
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 2023 demonstrate our commitment to ensuring
that executive directors’ reward is aligned with performance and the outcomes for all our stakeholders.
We look forward to receiving your support at our 2024 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 2024.
Fiona MacAulay
Committee Chair
11 March 2024
Definitions used in this report
AIP: Annual Incentive Plan.
Adjusted operating profit (previously known as adjusted EBITA): Adjusted operating profit excludes adjusting items, which are
significant items of income and expenditure that the Board considers do not reflect the long-term performance of the Group. See notes 2
to 4 of the financial statements on pages 142 to 155 for adjusted metric details and definitions.
Adjusted EPS: Adjusted earnings per share is calculated using adjusted profit. See notes 2 to 4 of the financial statements on pages
142 to 155 for adjusted metric details and definitions. Underlying earnings per share is then further adjusted by the Remuneration
Committee to exclude pension interest 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 plans approved in 2014 and 2023).
SDP: Share Deferral Plan (and including where relevant the plans approved in 2014 and 2023).
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 Guidance and
Transparency Rules.
In this report we describe how the principles of good
governance relating to directors’ remuneration, as set out in the
2018 UK Corporate Governance Code, are applied in practice.
The Committee, when determining the 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 post-
employment shareholding requirements further align the
interests of executive directors with those of shareholders
following the end of employment.
• Predictability – details of the potential values that may be
earned by executive directors through their remuneration
arrangements are set out in the 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.
Directors’ Remuneration Policy
Our remuneration policy was approved by shareholders at our AGM on 11 May 2023, supported by over 97% of the votes cast.
We have set out below the policy table and the full remuneration policy is available in the 2022 Annual Report on the Company’s
website at www.costain.com.
Element
Purpose and link
to strategy Operation Performance metrics Maximum opportunity
Salary • To attract and
retain high-calibre
individuals.
• Reflects skills,
experience and
performance in role.
• Provides an
appropriate level of
basic fixed income
while avoiding
excessive risk arising
from over reliance on
variable income.
• Generally reviewed annually (with any
change usually effective from 1 April) but
exceptionally at other times of the year.
• Set with reference to individual performance,
experience and responsibilities.
• Reflects the market rate for the individual
and their role, determined with reference to
remuneration levels in companies of similar
size and complexity, taking into account pay
levels within the Company in general.
• Increases will usually 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
and performance.
• n/a • To avoid setting
expectations
of future salary
increases there is
no maximum salary
value set under
the policy.
Annual
Incentive
Plan
• To incentivise the
achievement of
key financial and
strategic targets for
the relevant year
without encouraging
excessive risk taking.
• Promotes greater
alignment with
shareholders.
• To facilitate
share ownership.
• 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 personal objectives.
• In setting financial parameters, the
Committee takes into account the
Company’s internal budgets and,
where applicable, brokers’ forecasts.
The targets applying to financial
measures are based on a sliding scale
between 0% and 100%. 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
unforeseen circumstances.
• Maximum: 150%
of salary.
• The combined AIP
and LTIP maximum
opportunities
for any year may
not exceed 250%
of salary.
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Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
Element
Purpose and link
to strategy Operation Performance metrics Maximum opportunity
Long-Term
Incentive
Plan
• Aligned to main
strategic objectives
of delivering
sustainable
performance which
in turn should deliver
enhanced returns.
• Annual grant of performance shares, which
vest subject to performance measured, 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 is granted.
• Awards are subject to a further holding
period of two years following the end of the
performance period before they are released.
• 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 Committee determines.
• Awards may be subject to malus and clawback
as described below.
• 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 of the
applicable tax legislation.
• 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 environmental measures.
• At least 75% of the opportunity will
be subject to financial and/or share
price measures.
• 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 these points.
• The Committee has discretion to
vary the formulaic vesting outturn if
it considers that the level of vesting
that would otherwise apply is not
appropriate, including where that level
would materially deviate from the
intention of the policy, is unreflective
of underlying financial or non-financial
performance of the Group or executive
director over the vesting period or
is not appropriate in the context of
circumstances that were unexpected
or unforeseen at the grant date.
• LTIP awards with
a face value of not
more than 150%
of salary.
• The combined AIP
and LTIP maximum
opportunities
for any year may
not exceed 250%
of salary.
• 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
LTIP award.
SAYE
Scheme
• Offered to all UK
employees, to
facilitate share
ownership and
provide further
alignment
with shareholders.
• Periodic grants which normally vest after three
or five years subject to continued service.
• Operated under HMRC requirements as a
tax- qualifying plan.
• Not subject to performance conditions
in line with usual practice.
• 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 cash supplement.
• n/a • A percentage
of base salary
not exceeding
the pension
contribution
available to the
majority of the
wider workforce
(which is
currently 10%).
Other
Benefits
• To aid retention and
be competitive in the
marketplace.
• Healthcare benefits
to minimise business
disruption.
• Company car (or car allowance) and
fuel allowance.
• Medical insurance.
• Life assurance.
• Other benefits as appropriate, for
example, relocation expenses and
travel and subsistence.
• n/a • n/a
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 and 2024, these non-financial indicators include
safety, health and environment targets, and personal objectives, with further information on pages 93, and 104 and 105.
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 and 2024, 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 and 2024 awards are based on environmental and social measures, with further information on pages 107
to 110.
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.
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.
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
Remuneration policy for chair and non-executive directors
Element
Purpose and link
to strategy 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 1 April.
• Remuneration for non-executive directors, other than the chair, comprises a basic
annual fee for acting as non-executive director of the Company and additional fees for
undertaking other roles such as senior independent director, and chair of the Audit and
Risk 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 of association.
• The chair and non-executive directors do not participate in any variable pay or share
scheme arrangement, although their fees may be paid in cash or shares.
• May be entitled to benefits such as travel and subsistence and secretarial support, or
other benefits as appropriate.
• n/a
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 is granted.
Consideration of employee views
There is no employee representation on the Committee. However, the Company liaises actively with employees through engagement
surveys, site visits with Q&A sessions 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. 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 Committee’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.
The Annual Report on Remuneration set out on pages 101 to 117 provides details of how our remuneration policy was implemented
in the year ended 31 December 2023 and how we intend for it to apply for the year ending 31 December 2024. This Annual Report on
Remuneration will be subject to an advisory vote at the 2024 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 shown on pages 52 and 53 and details of their attendance at Committee meetings is shown below.
The Committee is chaired by Fiona MacAulay. 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 100%
Neil Crockett
1
100%
Jacqueline de Rojas
1
100%
Amanda Fisher
2
100%
Steve Mogford
3
100%
Tony Quinlan 100%
1 Stepped down from the Board on 31 October 2023.
2 Joined the Board on 1 December 2023.
3 Joined the Board on 1 November 2023.
Terms of reference
The Committee’s terms of reference, which remain unchanged following a governance structure review in autumn 2023 (see page 57),
are available on the Company’s website at www.costain.com.
Remuneration Committee activity
The following table sets out the key remuneration issues which the Committee covered over the course of the year.
Date Key agenda items
7 February 2023 Reviewed responses to the remuneration policy consultation from large investors and the proxy voting advisory
agencies and received an update from the Committee chair on her meetings with certain investors, held at their
request in relation to the consultation.
Consideration given to the extent to which the performance measures were likely to have been met with regard
to the LTIP granted in 2020.
Determined the level of pay-out of the 2022 AIP, including exercising the Committee’s discretion to reduce the
safety, health and environment outturn to zero in recognition of the fatality at Gatwick.
Approved the 2023 AIP performance measures and list of participants.
Approved in principle performance targets for the 2023 LTIP grant.
Reviewed and approved the executive directors’ and senior executives’ salary increases for 2023 against
benchmarked data.
Noted the results of the 2022 employment engagement survey, which set out the workforce experience,
including reward and compensation.
Reviewed the draft Directors’ Remuneration Report in the 2022 Annual Report.
6 April 2023
(by written circulation)
Approved the grant of awards under the 2023 LTIP and determined quantum, performance targets, participants
and other terms.
Approved the grant of awards under the 2023 SDP in relation to the 2022 bonus pay-out.
Annual Report on Remuneration
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
Date Key agenda items
12 December 2023 Received a governance update and market trends paper from the Committee’s advisers.
Determined 4.0% annual salary increase for the wider workforce for 2024.
Received benchmarking data for the CEO, CFO and senior managers.
Reviewed potential CEO and CFO salary increases for 2024 for further consideration at the February 2024 meeting.
Considered pay increases to those senior managers with additional interim responsibilities pending the arrival of a
new senior hire.
Considered the treatment of executive share awards to departing senior managers.
Consideration given to the extent to which the performance measures were likely to have been met with regard to
the LTIP granted in 2021 due to vest in April 2024, together with progress meeting the performance measures of
other outstanding LTIPs.
Reviewed and discussed the proposed performance targets for the 2024 LTIP and preliminary list of participants.
Approved the 2024 AIP structure and preliminary list of participants, with targets to be finalised at the next meeting.
Noted the summary results of the 2023 employment engagement survey, which set out the workforce experience,
including reward and compensation. Noted improvements in some scores reflected targeted action during 2023
and noted planned actions for 2024.
Agreed no changes required to the Committee’s terms of reference or its membership.
Implementation of policy in the year to 31 December 2023
Single total figure of remuneration for each director
This table and associated notes have been audited by PwC LLP.
2023
Fixed Variable
Salary and
fees
£
Taxable
benefits
£
Pension*
£
Subtotal
£
Annual
incentive
£
LTIP
£
Subtotal
£
Total
£
Executive directors
Alex Vaughan 463,225 2,842 46,322 512,389 547,089 299,133
#
846,222 1,358,611
Helen Willis 384,705 11,789 38,470 434,964 454,313 248,415
#
702,728 1,137,692
Non-executive chair
Kate Rock
1
195,000 – – 195,000 – – – 195,000
Non-executive directors
Bishoy Azmy
2
52,100 – – 52,100 – – – 52,100
Neil Crockett
3
42,450 – – 42,450 – – – 42,450
Jacqueline de Rojas
3
42,450 – – 42,450 – – – 42,450
Amanda Fisher
4
4,300 – – 4,300 – – – 4,300
Fiona MacAulay
5
60,400 – – 60,400 – – – 60,400
Steve Mogford
6
8,600 – – 8,600 – – – 8,600
Tony Quinlan 69,125 – – 69,125 – – – 69,125
2022
Fixed Variable
Salary and
fees
£
Taxable
benefits
£
Pension**
£
Subtotal
£
Annual
incentive
£
LTIP
£
Subtotal
£
Total
£
Executive directors
Alex Vaughan 443,250 2,623 44,325 490,198 482,220 244,376
##
726,596 1,216,794
Helen Willis 368,100 11,928 36,810 416,838 400,464 114,137
##
514,601 931,439
Non-executive chair
Kate Rock
1
20,367 – – 20,367 – – – 20,367
Non-executive directors
Bishoy Azmy
2
48,000 – – 48,000 – – – 48,000
Neil Crockett
3
49,050 – – 49,050 – – – 49,050
Jacqueline de Rojas
3
51,358 – – 51,358 – – – 51,358
Amanda Fisher
4
– – – – – – – –
Fiona MacAulay
5
41,211 – – 41,211 – – – 41,211
Steve Mogford
6
– – – – – – – –
Tony Quinlan 65,725 – – 65,725 – – – 65,725
* A pension contribution of £9,721 and £2,083 was paid into the Company’s Group Flexible Retirement Plan for Alex Vaughan and Helen Willis respectively and the balance was paid to
them directly as a taxable cash sum.
** 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.
# 2021 LTIP award of 710,655 shares (Alex Vaughan) and 590,163 shares (Helen Willis) vested at 74.5%. Value calculated based on average share price over the three months ended
31 December 2023 being 56.1p per share. Amounts include £2,118 and £1,759 for Alex Vaughan and Helen Willis respectively representing dividends paid and accrued on their awards
and which will be converted to shares on vesting.
## 2020 LTIP award of 553,909 shares (Alex Vaughan) and 258,705 shares (Helen Willis) vested at 81.1%. Value calculated based on share price on vesting on 4 April 2023 being 54.4p per
share. In accordance with the applicable regulations, the value included in the 2022 Directors’ Remuneration Report was based on the average share price over the three months ended
31 December 2022 being 38.8p per share.
1 Appointed to the Board on 1 November 2022.
2 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 was paid in March 2023 backdated to April 2022 and is therefore reflected in the 2023 remuneration.
3 Stepped down from the Board on 31 October 2023.
4 Appointed to the Board on 1 December 2023.
5 Appointed to the Board on 6 April 2022.
6 Appointed to the Board on 1 November 2023.
Committee effectiveness review
As described on page 63, the planned external review of the effectiveness of the Board and its Committees was deferred until 2024 to
enable sufficient time for the newly appointed non-executive directors to settle into their role.
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. The objective was achieved successfully with a
vote in favour of the new policy of over 97%.
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 and the chief people and sustainability officer were invited to attend meetings of the Committee.
No individual 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, or to review its services and fees, 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 £33,120 charged on a
time and materials basis (2022: £44,214) for the year ended 31 December 2023 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, having regard to the other services provided by Deloitte LLP to the Group. 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 2023
Last year’s Remuneration Report was approved by shareholders with a 99.75% (2022 AGM: 87.94%) vote in favour (including discretionary votes,
and with 107,476 votes withheld).
Voting on the remuneration policy at the AGM in 2023
The current policy was approved by shareholders with a 97.17% vote in favour (including discretionary votes, and with 111,182 votes
withheld) at the Company’s AGM on 11 May 2023 and can be found in the 2022 annual report at www.costain.com/investors.
Voting on the Costain 2023 Long-Term Incentive Plan and Costain 2023 Share Deferral Plan
at the AGM in 2023
The Costain 2023 Long-Term Incentive Plan and Costain 2023 Share Deferral Plan were approved by shareholders with respectively a
99.79% and 99.77% vote in favour (including discretionary votes, and with 282,766 votes and 211,822 votes withheld respectively).
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
Additional notes to the single total figure of remuneration
(a) Annual salaries for executive directors
The annual salaries with effect from 1 April 2023 were £468,800 for Alex Vaughan and £389,300 for Helen Willis.
(b) Taxable benefits provided to executive directors
The main benefits available to the executive directors during 2023, and their approximate values, were a car benefit of £1,366
(2022: £1,195) for Alex Vaughan and car allowance of £10,500 (2022: £10,500) for Helen Willis, together with private medical insurance
for Alex Vaughan of £1,476 (2022: £1,428) and Helen Willis of £1,289 (2022: £1,428). This package of benefits was unchanged from 2021
and 2022.
(c) Determination of the 2023 annual incentive
The maximum AIP opportunity for the chief executive and the chief financial officer for the year ended 31 December 2023 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 2023 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 £42.9m for adjusted operating profit
(previously known as adjusted EBITA).
The achievement of the performance measures has been reviewed, with appropriate input from the Audit and Risk Committee, following
the end of the 2023 financial year. As shown in the table below, Alex Vaughan and Helen Willis both earned an AIP award equal to 77.8%
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 94 to 96, in line with good practice these
outcomes were reviewed in the context of the broader stakeholder experience.
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 2023. The Committee also noted the good progress made on our journey to grow the
business, manage risks and improve returns for the benefit of our shareholders, employees, suppliers, customers and communities. This
included significant net free cash flow, key contract wins, completion of the pension scheme contribution plan review, refinancing a new
three-year agreement of bank and bonding facilities and the return of dividend payments.
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-outAlex Vaughan Alex Vaughan Helen Willis Helen Willis Threshold Maximum
Actual
performance
Adjusted operating profit
(with 90% cash conversion)
1
40% 32.2% 40% 32.2% £35.1m £42.9m £40.1m 32.2%
Profit secured for 2024 15% 7.2% 15% 7. 2% £74.9m £91.5m £81.5m 7.2%
Cash flow
2
15% 15.0% 15% 15.0% £113.4m £138.6m £141.4m 15.0%
Safety, health and environment
3
10% 8.4% 10% 8.4% n/a AFR 0.04
EIFR 0.11
AFR 0.04
EIFR 0.18
8.4%
Personal performance 20% 15.0% 20% 15.0% see personal performance section opposite 15.0%
Total 100% 77.8% 100% 77.8% 7 7.8%
1 See definition on page 96. Previously known as adjusted EBITA. Target underpinned by 90% cash conversion.
2 Measured as average month-end cash balances, pre-acquisition and investments.
3 Includes Accident Frequency Rate (AFR) and Environmental Incident Frequency Rate (EIFR) targets and the requirement for all contracts to deliver carbon actions, and for the executive
directors to conduct a minimum of 12 engagement visits each year.
Personal performance
Personal performance was based on progress towards delivery of the strategy and corporate activities critical to the strategic
transformation of the business which were the personal responsibility of the executive directors. Details of Alex Vaughan’s and Helen
Willis’ performance against their personal objectives are set out below.
Alex Vaughan
Objective Achievement during the year Maximum Award
Performance
Further broadened our Tier 1 customer mix across our growth markets.
Demonstrated predictable contract performance, continuing to improve and standardise
our approach to production thinking, project controls and assurance, safety and quality.
Continued to strengthen risk management at pre-contract and contract stages.
10% 7%
People
Implemented targeted actions from our 2022 employee engagement plan, increased
participation in our 2023 survey and maintained our Best Companies status as a ‘Very
Good Company to Work For’.
Targeted action included:
• increased transparency of pay and reward through the launch of our job architecture.
• increased visibility of career opportunities through our career path frameworks piloted in
2023 for full roll-out in 2024.
• launched our female Empower programme and our ethnicity pay listening circles.
5% 5%
Planet
Approval of our near-term and net zero ambitions by the Science Based Targets initiative.
4% reduction in emissions normalised by turnover compared to our 2021 baseline, 24%
reduction in Scope 1 emissions, improved measurement of Scope 3 emissions.
Developed and launched our ESG programme setting clear goals and KPIs on material
sustainability issues.
5% 3%
20% 15%
Helen Willis
Objective Achievement during the year Maximum Award
Performance
Demonstrated predictable contract performance, continuing to improve and standardise
our approach to production thinking, project controls and assurance, safety and quality.
Finalised a new three-year agreement for our bank and bonding facilities including a
sustainability-linked revolving credit facility.
Agreed a new lower cost contribution plan with the trustee of the Company’s defined
benefit pension scheme.
10% 7%
People
Implemented targeted actions from our 2022 employee engagement plan, increased
participation in our 2023 survey and maintained our Best Companies status as a ‘Very
Good Company to Work For’.
Targeted action included:
• increased transparency of pay and reward through the launch of our job architecture.
• increased visibility of career opportunities through our career path frameworks piloted in
2023 for full roll-out in 2024.
• launched our female Empower programme and our ethnicity pay listening circles.
5% 5%
Planet
Approval of our near-term and net zero ambitions by the Science Based Targets initiative.
4% reduction in emissions normalised by turnover compared to our 2021 baseline, 24%
reduction in Scope 1 emissions, improved measurement of Scope 3 emissions.
Developed and launched our ESG programme setting clear goals and KPIs on material
sustainability issues.
5% 3%
20% 15%
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Directors’ Remuneration Report continued
(d) Vesting of the April 2021 LTIP award
The LTIP awards granted on 8 April 2021 to Alex Vaughan and Helen Willis were based on aggregate adjusted EPS and cash conversion
performance for the three years ended 31 December 2023.
Performance against the measures and the resulting vesting outcome is shown below. Aggregate adjusted EPS for the three financial
years (relating to two thirds of the award), calculated on an adjusted basis approved by the Committee, was 30.4 pence as a result of
which this element of the LTIP awards is due to vest at 61.8%. Cash conversion performance targets (relating to one third of the award)
were achieved to the full extent and so 100% of this element of the award is due to vest. Therefore, the 2021 LTIP is due to vest over a
total of 74.5%, with the remaining 25.5% of the award to lapse.
The award vests in April 2024 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 measure (relating to two thirds of the award)
Aggregate adjusted EPS for the financial years ended 31 December 2021, 2022 and 2023 Vesting level for awards
Below 27.9 pence 0%
27.9 pence 15%
Between 27.9 pence and 32.4 pence 15–100% pro-rata
32.4 pence or more 100%
Actual performance: 30.4 pence Vesting outcome: 61.8%
For the purposes of the LTIP, adjusted EPS is further adjusted by the Committee to exclude pension interest to ensure that the
performance measures are assessed on a consistent basis year-to-year. For definition see page 96.
(B) Cash conversion performance measure (relating to one third of the award)
Average cash conversion for the financial years ended 31 December 2021, 2022 and 2023 Vesting level for awards
Below 80% 0%
80% 15%
Between 80% and 100% 15–100% pro-rata
100% or more 100%
Actual performance: 158% 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 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 this Scheme until 31 May 2022 and
then rejoined (capped) from May 2023. Helen Willis has been a participant (also capped) since August 2023.
(f) Chair
Kate Rock was appointed to the Board as a non-executive director on 1 November 2022. With effect from her appointment as chair on
1 December 2022, the basic annual fee for Kate Rock has been £195,000 (until 1 April 2024).
(g) Non-executive directors
Remuneration for non-executive directors, other than the 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 Risk and Remuneration Committees. The
annual fees set with effect from 1 April 2023 were as follows:
2023 Fees Basic Fee
Senior
independent
director
Audit and Risk
Committee chair
Remuneration
Committee chair
Fees £51,600 £8,500 £10,000 £10,000
Grants made during the year
These tables and the associated footnotes have been audited by PwC LLP.
2023 LTIP grant
Grants were made under the LTIP on 6 April 2023 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 2023 LTIP are as follows:
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, adjusted EPS shall be further adjusted by the Committee to
exclude pension interest to ensure that the performance measures are assessed on a consistent basis year-to-year. For definition see
page 96.
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 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%
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Improvement in 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%
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 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 2023 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 849,275 £468,800 31 December 2025 25%
Helen Willis 705,253 £389,300 31 December 2025 25%
1 Valued using the mid-market closing share price on the business day prior to the date of grant (5 April 2023), being 55.2 pence.
2023 SDP grant
The Company granted awards under the SDP to the executive directors on 6 April 2023, details of which are shown on page 116.
All-employee share plan
During 2023, for the first time since 2019, the Company invited employees to participate in the SAYE Scheme. SAYE Scheme awards were
granted to the executive directors during 2023 as set out on page 116.
Exit payments made during the year and payments made to past directors
No executive directors departed in 2023 and no payments have been made to past directors.
Implementation of policy in the year to 31 December 2024
Salary
As set out in the chair’s statement, the chief executive officer and chief financial officer will receive a salary increase in 2024 of 10%.
These increases will take effect from 1 April 2024.
Salary
2024
Salary
2023 % change
Alex Vaughan £515,700 £468,800 10%
Helen Willis £428,300 £389,300 10%
Chair’s fee
The chair’s basic annual fee will be increased in 2024 by 4% to £202,800 per annum.
Non-executive director fees
Non-executive directors’ basic fees will be increased by 4% including fees for the senior independent director, Audit and Risk Committee
chair and Remuneration Committee chair, with effect from 1 April 2024, as shown in the table below.
2024 Fees Basic Fee
Senior
independent
director
Audit and Risk
Committee chair
Remuneration
Committee chair
Fees £53,700 £8,800 £10,400 £10,400
2024 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 and Risk 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 31 December 2024 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 2024 AIP are as detailed below:
Performance measures
2024 AIP opportunity – maximum percentage of bonus
Chief executive officer Chief financial officer
Adjusted operating profit (with 90% cash conversion) 40% 40%
Profit secured for 2025 15% 15%
Cash flow 15% 15%
Safety, health and environment 10% 10%
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 2024, 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.
2024 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 2024.
The LTIP will be subject to the achievement of performance measures unchanged from 2023 as set out below. 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 below.
Adjusted EPS performance measure (50% of the award)
Aggregate adjusted EPS over the financial years ending 31 December 2024, 2025 and 2026 Vesting level for awards
Below 32.2 pence 0%
32.2 pence 25%
Between 32.2 pence and 39.4 pence 25–100% pro-rata
39.4 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, adjusted EPS shall be further adjusted by the Committee
to exclude pension interest to ensure that the performance measures are assessed on a consistent basis year-to-year (see page 96 for
definition). When setting the EPS targets, the Committee considered a range of factors including internal and external forecasts, market
conditions and the impact of other relevant factors including bank interest and tax rates. The Committee considers the proposed targets
to be appropriately stretching.
TSR performance measure (25% of the award)
TSR growth over the financial years ending 31 December 2024, 2025 and 2026 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.
Directors’ Remuneration Report continued
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
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 wider leadership
1
gender diversity (5% weighting) Vesting level for awards
Below 22% 0%
22% 25%
Between 22% and 28% 25–100% pro-rata
28% or more 100%
Improvement in wider leadership
1
ethnic diversity (5% weighting) Vesting level for awards
Below 9% 0%
9% 25%
Between 9% and 13% 25–100% pro-rata
13% or more 100%
1 Employee bands A-C and Executive Board, which is a wider population than for the equivalent 2023 LTIP performance measure.
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. In line with the new remuneration policy approved in 2023, it is proposed that the
awards will be granted as ‘Qualifying LTIP’ awards, enabling part of the awards to be delivered in a manner which is tax efficient for the
participant and the Group. The application of discretions to the tax-qualifying option part of a ‘Qualifying LTIP’ award will be as permitted
by the applicable tax legislation.
Other information
Performance graph
The graph below shows the value, to 31 December 2023, of £100 invested in Costain Group PLC on 1 January 2014 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
2014
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
31 Dec
2023
FTSE SmallCap Index
Costain Group PLC
Change in chief executive officer’s remuneration
Year ending 31 December
2014 2015 2016 2017 2018 2019
1
2020 2021 2022 2023
Chief executive officer AW AW AW AW AW AW AV AV AV AV AV
Total remuneration £1,329,007 £1,414,381 £1,089,943 £1,707,094 £1,560,601 £211,927 £312,242 £4 47,710 £980,793 £1,146,715 £1,358,611
AIP (%) 71.6% 79.8% 75.4% 81% 62.6% Nil Nil Nil 73% 72% 77.8%
LTIP vesting (%) 50% 50% Nil 79.1% 100% Nil Nil Nil 25% 81.1% 74.5%
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.
CEO pay ratio
The table below shows, for 2019 to 2023, 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
2023 Option B 35:1 19:1 15:1
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.
Directors’ Remuneration Report continued
Overview GovernanceStrategic Report Financial Statements
110 111
Costain Group PLC
Annual Report and Accounts 2023
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
2023
Total pay and benefits £1,358,611 £39,058 £72,612 £88,740
Salary component £463,225 £37,046 £65,073 £78,746
2022
Total pay and benefits £1,146,715 £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 £7 7, 235
Salary component £431,375 £39,470 £46,476 £57, 330
2020
Total pay and benefits £4 47,710 £34,016 £57, 5 8 0 £73,844
Salary component £393,125 £32,948 £45,934 £61,669
2019
Total pay and benefits £524,169 £30,923 £50,903 £75,304
Salary component £445,319 £29,837 £45,170 £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 difference in ratios from 2022 to 2023 reflects the CEO’s pay
increase for 2023, which was below the workforce average, and the AIP and LTIP outcomes based on strong Company performance. 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.
Annual percentage change in remuneration of directors compared to all employees
The table below shows the annual percentage change in each 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
Kate
Rock
4
Bishoy
Azmy
5
Neil
Crockett
6
Jacqueline
de Rojas
7
Amanda
Fisher
8
Fiona
MacAulay
9
Tony
Quinlan
10
Steve
Mogford
11
Salary/fees 2022 – 2023 6.6
12
4.5 4.5 n/a 8.5
13
n/a n/a n/a n/a 5.2
14
n/a
2021 – 2022 3.6
12
3 2 n/a 0.5 n/a 8 n/a n/a n/a n/a
2020 – 2021
15
5
12
10 n/a n/a n/a n/a 3 n/a n/a n/a n/a
2019 – 2020
15
(0.8)
12,16
n/a n/a n/a n/a n/a (1) n/a n/a n/a n/a
Taxable
benefits
2022 – 2023 0.0
17
4.7 3.1 n/a – n/a n/a n/a n/a – n/a
2021 – 2022 0.2
17
(80)
18
1 n/a – n/a – n/a n/a n/a n/a
2020 – 2021 (6)
17
(16) n/a n/a n/a n/a – n/a n/a n/a n/a
2019 – 2020 6.2
17
n/a n/a n/a n/a n/a – n/a n/a n/a n/a
Annual
bonus
2022 – 2023 55.8
19
13.5 13.4 n/a – n/a n/a n/a n/a – n/a
2021 – 2022 (7)
19
2 2 n/a – n/a – n/a n/a n/a n/a
2020 – 2021 236
19
n/a
20
n/a n/a n/a n/a – n/a n/a n/a n/a
2019 – 2020 (18)
19
n/a n/a 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 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.
5 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.
6 Neil Crockett was appointed to the Board on 6 October 2021 and stepped down from the Board on 31 October 2023 and therefore annual change in remuneration is not applicable for
the financial years shown.
7 Jacqueline de Rojas stepped down from the Board on 31 October 2023 and therefore annual change in remuneration is not applicable between 2022 and 2023.
8 Amanda Fisher was appointed to the Board on 1 December 2023 and therefore annual change in remuneration is not applicable for the financial years shown.
9 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.
10 Tony Quinlan was appointed to the Board on 1 February 2021 and therefore annual change in remuneration between 2020 and 2021 and between 2021 and 2022 is not applicable.
11 Steve Mogford was appointed to the Board on 1 November 2023 and therefore annual change in remuneration is not applicable for the financial years shown.
12 Average salary for employees is calculated based on the annual monthly UK salary bill divided by the average number of monthly paid UK employees.
13 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 was paid in March 2023 backdated to April 2022 and is therefore reflected in the 2023 remuneration.
14 Tony Quinlan received the following fee increases with effect from 1 April 2023: non-executive director’s basic (4.5%), senior independent director (23.2%) and Audit and Risk
Committee chair (1%).
15 The Board agreed to a 30% reduction in their 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.
16 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.
17 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.
18 Alex Vaughan changed to a fully electric car in 2022.
19 Bonus figures are calculated on the total bonus payments made to monthly employees divided by the average number of monthly paid employees.
20 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.
Directors’ Remuneration Report continued
Overview GovernanceStrategic Report Financial Statements
112 113
Costain Group PLC
Annual Report and Accounts 2023
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 2022 to the financial year ended 31 December 2023.
2023
£m
2022
£m % change
Overall expenditure on pay 235.9 230.4 2.4%
Dividends and share buybacks 1.1 nil n/a
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 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
Amanda Fisher 1 December 2023 1 December 2023 1 December 2026
Fiona MacAulay 6 April 2022 6 April 2022 6 April 2025
Steve Mogford 1 November 2023 1 November 2023 1 November 2026
Tony Quinlan 1 February 2021 1 February 2024 1 February 2027
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 Construction L.L.C. which has a 15.06% shareholding in the Company.
External directorships
Neither of the executive directors held external directorships in the year.
The following tables and the associated footnotes have been audited by PwC LLP.
Share awards under the Long-Term Incentive Plan (LTIP)
Details of the executive directors’ participation in the LTIP are as follows:
Director
Date
granted
Balance at
1 January
2023
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
2023
Actual/
expected
vesting/
release date
Alex
Vaughan
07.05.19
1
34,735 – 325p – – – – – 34,735 May 2024
07.10.20
2
553,909 – 42.2p 449,220 104,689 – – – 449,220 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
06.04.23
5
– 849,275 55.2p – – – – – 849,275 April 2028
Helen
Willis
30.11.20
2
258,705 – 53.7p 209,809 48,896 – – – 209,809 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
06.04.23
5
– 705,253 55.2p – – – – – 705,253 April 2028
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 aggregate 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 May 2020,
with vesting on a straight-line basis between the two and
(b) a cash conversion target (relating to 25% of the award) of 80% (for 15% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between the two.
The award will normally vest three years after grant, subject to the satisfaction of the performance conditions over the three-year financial period ending 31 December 2021, but will
not normally be released and become exercisable until the fifth anniversary of the date of grant (with no further performance conditions applying) provided, ordinarily, the individual
remains an employee or officer of the Company. This award vested at 25% based on performance during the year.
2 Performance targets are as follows:
(a) an aggregate 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 vested at 81.1% based on performance during the year.
3 Performance targets are as follows:
(a) an aggregate 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 31 December 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. This award is due to vest at 74.5% based on performance during the year.
4 Performance targets are as follows:
(a) an aggregate 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 31 December 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.
5 Performance targets are as follows:
(a) an aggregate adjusted EPS target (relating to 50% of the award) of 30.6p (for 25% vesting) and 35.6p (for 100% vesting), with vesting on a straight-line basis between the two
(b) a TSR growth target (relating to 25% of the award) of 50% (for 25% vesting) and 100% (for 100% vesting), with vesting on a straight-line basis between the two and
(c) an ESG target (relating to 25% of the award) of (i) environmental (15% weighting); reduction in Scope 1 and 2 carbon emissions of 16.2% (for 25% vesting) and 19.8%
(for 100% vesting), with vesting on a straight-line basis between the two, (ii) gender diversity of AIP population (5% weighting); improvement of 36% (for 25% vesting)
and 39% (for 100% vesting), with vesting on a straight-line basis between the two and (iii) ethnic diversity of AIP population (5% weighting); improvement of 6%
(for 25% vesting) and 9% (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 2025, 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.
Note: for definition of the aggregate adjusted EPS target see page 96.
The LTIP awards, which are expressed as options, have a nil exercise price. At 29 December 2023, the last business day of 2023, the
derived mid-market price of the ordinary shares in the Company, as advised by the Company’s brokers, was 63.4 pence. The range of the
closing share price of the ordinary shares during 2023 was 39.3 pence to 65.0 pence.
Directors’ Remuneration Report continued
Overview GovernanceStrategic Report Financial Statements
114 115
Costain Group PLC
Annual Report and Accounts 2023
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
2023
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
2023
1
Actual/
expected
vesting date
Alex
Vaughan
06.04.22 597,836 – 39.7p – – – – – 597, 8 36 April 2024
06.04.23 – 291,195 55.2p – – – – – 291,195 April 2025
Helen
Willis
06.04.22 496,473 – 39.7p – – – – – 496,473 April 2024
06.04.23 – 241,826 55.2p – – – – – 241,826 April 2025
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 (Sharesave)
Details of the executive directors’ SAYE Scheme options are as follows:
Director
Date
granted
Balance at
1 January
2023
Granted
during
year
Exercise
price
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
2023
Exercised/
exercisable
from/to
Alex
Vaughan
23.09.19 1,485
1
– 111.40p
2
– 1,485 – – – – Nov 2022
May 2023
19.10.23 – 6,974 50p – – – – – 6,974 Dec 2026
Jun 2027
Helen
Willis
19.10.23 – 6,974 50p – – – – – 6,974 Dec 2026
Jun 2027
1 Adjusted number of shares under option following the capital raising in May 2020 (adjustment factor of 1.0625). Option still outstanding as at 31 December 2022, the market price of a
share being lower than the option price and therefore not exercised.
2 Exercise price adjusted for the capital raising in May 2020 (adjustment factor of 0.9412).
No executive director exercised a SAYE Scheme 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’ shareholdings
Details of the directors’ share interests in the Company as at 31 December 2023, and at the date of this report, are as set out below.
Director
Beneficially
owned
Outstanding
SDP awards
Outstanding
LTIP awards
Outstanding
SAYE Scheme
awards
Shareholding
guidelines (% of
salary/ fee)
1
Actual shareholding
as at 31.12.23 (% of
salary/fee)
1,2
Actual shareholding
as at 11.03.24 (% of
salary/fee)
1,2
Alex Vaughan 252,239
3
889,031 3,168,570 6,974 200% 163.17% 163.17%
Helen Willis – 738,299 2,439,230 6,974 200% 59.71% 59.71%
Kate Rock 100,000
4
– – – n/a n/a n/a
Bishoy Azmy – – – – n/a n/a n/a
Amanda Fisher – – – – n/a n/a n/a
Fiona MacAulay – – – – n/a n/a n/a
Steve Mogford – – – – n/a n/a n/a
Tony Quinlan 25,000 – – – n/a n/a n/a
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. With effect from approval of the new remuneration policy in 2023, non-executive directors are not expected to build and maintain a shareholding.
2 For executive directors, based on the calculation methodology set out in the Company’s Share Ownership Guidelines.
3 Part held by persons closely associated.
4 Kate Rock purchased 50,000 shares on 6 September 2023 at a price of 59.2p per share taking her total to 100,000 shares.
By Order of the Board
Fiona MacAulay
Committee Chair
11 March 2024
Directors’ Remuneration Report continued
Overview GovernanceStrategic Report Financial Statements
116 117
Costain Group PLC
Annual Report and Accounts 2023
Directors’ Report
The directors of the Company present their report together with the
audited consolidated accounts for the year ended 31 December 2023.
The Governance Report on pages 52 to 117 and the Strategic
Report on pages 7 to 51 (and in particular pages 10 to 33, 38, 70
and 71, and 74 to 77 with regard to information about employee
involvement, diversity, greenhouse gas emissions and measures
in relation to increasing the Company’s energy efficiency) 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 pages 34
to 38.
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 2024 AGM will be held on Thursday 16 May 2024
at Costain House, Vanwall Business Park, Maidenhead, Berkshire,
SL6 4UB. A circular incorporating the Notice of AGM accompanies
this annual report.
Profit, dividend payments and dividend policy
The profit after tax for the financial year ended 31 December 2023
was £22.1m (2022: £25.9m). An interim dividend of 0.4 pence per
ordinary share was paid on 27 October 2023 (2022: no interim
dividend). Subject to approval at the 2024 AGM, a final dividend
of 0.8 pence for the year ended 31 December 2023 will be paid
on 28 May 2024 (2022: no final dividend) to shareholders on the
register of members at close of business on 19 April 2024. The
total dividend paid for the year will therefore be 1.2 pence per
ordinary share (2022: nil).
Dividends and other distributions
The Company may, by ordinary resolution, from time to time,
declare dividends not exceeding the amount recommended by
the Board. Subject to the Companies Act 2006, the Board may pay
interim dividends, and also any fixed rate dividend, whenever the
financial position of the Company, in the opinion of the Board,
justifies its payment.
If the directors act in good faith, they are not liable for any loss
that shareholders may suffer because a lawful dividend has
been paid on other shares which rank equally with or behind
their shares.
The Board may withhold payment of all or any part of any
dividends or other monies payable in respect of the Company’s
shares from a person with a 0.25% or more interest in a class
of the Company’s shares, if such a person has been served with
a restriction notice after failure to provide the Company with
information concerning interests in those shares required to be
provided under the Companies Act 2006.
Share capital
The Company’s share capital consists of ordinary shares with a
nominal value of 50 pence each.
The issued share capital of the Company as at 31 December 2023
was £138,359,442.50, consisting of 276,718,885 ordinary shares
of 50 pence each. Further details of the share capital of the
Company can be found in note 22 on page 179.
The awards granted in October and November 2020 under the
2014 Long-Term Incentive Plan (LTIP) matured as at 31 December
2022, resulting in 81.1% vesting. Details regarding the vesting of
the 2020 LTIP awards can be found in the Directors’ Remuneration
Report on pages 103 and 115. Details regarding the 2021 LTIP
awards that are due to vest in April 2024 can also be found in the
Directors’ Remuneration Report on pages 95 and 106.
There were no share options granted under the Company’s Save
As You Earn (SAYE) Scheme in 2020, therefore, no SAYE Scheme
maturity took place in 2023. In October 2023, a grant of 4,952,787
shares was made under the SAYE Scheme. Further details of the
SAYE Scheme can be found on pages 98 and 116 in the Directors’
Remuneration Report.
In advance of the 2014 Long-Term Incentive Plan and 2014 Share
Deferral Plan reaching the end of their 10-year lives in May
2024, and to coincide with the adoption of the new directors’
remuneration policy, at the 2023 AGM shareholders approved
the Costain 2023 Long-Term Incentive Plan and the Costain 2023
Share Deferral Plan. The first grants under the new plan rules will
be made in 2024.
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 was last renewed
for a three-year period at the 2022 AGM (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. Further
information on the scrip dividend scheme is set out on page 187.
Details about joining the scrip dividend scheme, including the
scrip dividend mandate form, can be found on the Company’s
website at www.costain.com.
The following ordinary shares were issued in 2023:
Purpose Recipient
Number of
shares
Nominal
value
LTIP awards Employee share trust 1,600,000 £800,000
Scrip dividend scheme Scrip participants 34,144 £17,07 2
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 2023, 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, 2 5 0,19 0 9.91 n/a n/a 9.91
Ennismore Fund
Management Limited 05.04.2023 22,022,829 7.96 n/a n/a 7.96
KBI Global Investors Ltd* 13.05.2020 7,258,503 6.70 n/a n/a 6.70
Gresham House Asset
Management Limited 23.09.2020 15,018,286 5.46 n/a n/a 5.46
Artemis Investment
Management LLP 02.06.2020 8,469,850 3.08 n/a n/a 3.08
* Notification prior to the capital raising completed 29 May 2020 (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 2023 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).
Overview GovernanceStrategic Report Financial Statements
118 119
Costain Group PLC
Annual Report and Accounts 2023
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 11 May 2023, shareholders granted
an authority to the directors to allot ordinary shares up to an
aggregate nominal amount of £45.8m.
As this authority is due to expire on 16 May 2024, 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 employee 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 2023 or during the period from
1 January 2024 to the date of this report.
At the forthcoming AGM, authority will again 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 them if any call or
other sum then payable by them in respect of that share remains
unpaid or if a member has been served with a restriction notice
(as defined in the articles of association) after failure to provide
the Company with information concerning interests in those
shares required to be provided under the Companies Act 2006.
The Company is not aware of any agreement between holders of
securities that may result in restrictions of voting rights.
Employee Share Trust
As at 31 December 2023, Buck Trustees (Guernsey) Limited (Buck),
as trustee of the Costain Group Employee Trust, held 1.40% (2022:
0.16%) 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 LTIP, Share Deferral Plan and SAYE
Scheme (the latter in respect of ‘good leavers’ who leave the
employment of the Company before their contract matures). To
satisfy future vestings of share awards, Buck undertook a market
share purchase programme during May and June 2023 purchasing
a total of 2,200,000 ordinary shares. For details of share-based
payments see note 21 on pages 177 and 178. The trustee does
not exercise any right to vote or to receive a dividend in respect of
its 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.
Political donations
No political donations were made during the year ended
31 December 2023 (2022: 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 2023 AGM. The Board is proposing the
reappointment of PwC as auditor from the conclusion of the AGM
in May 2024 until the conclusion of the next general meeting at
which the accounts are laid before the Company. See page 86 of
the Audit and Risk 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 168 to 172. 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 employee 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 its
Highways, Integrated Transport, Aviation, Energy, Defence,
Water and Rail sectors. The Group’s engineers and technical staff
in these sectors seek to develop and deliver technical advances,
for example in hydrogen, decarbonisation, carbon capture and
use of 3D printed solutions (see pages 5, 14, 18, 27 and 34). 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 180 to 183. The Company has two
overseas branches, one in Abu Dhabi and one in Saudi Arabia.
Directors
Biographies of the Board are given on pages 52 and 53 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. Steve Mogford and Amanda Fisher joined the
Board on 1 November 2023 and 1 December 2023 respectively
as independent non-executive directors. Steve and Amanda are
members of the Audit and Risk, Nomination and Remuneration
Committees. Neil Crockett and Jacqueline de Rojas, non-executive
directors, stepped down from the Board on 31 October 2023.
The directors shall be not less than two and not more than 18
in number. The Company may by ordinary resolution vary the
minimum and/or maximum number of directors.
Appointment and replacement of directors
The appointment and replacement of directors is governed by the
Company’s articles, the 2018 UK Corporate Governance Code, the
Companies Act 2006 and related legislation. The articles may be
amended by a special resolution of the Company’s shareholders.
Directors may be appointed by the Company by ordinary
resolution or by the Board. At every AGM of the Company,
all directors are required to retire from office and may offer
themselves for reappointment by the members.
The Board, or any Committee authorised by the Board, may
from time to time appoint one or more directors to hold any
employment or executive office for such period and on such terms
as they may determine and may also revoke or terminate any
such appointment.
The Company may, by special resolution, remove any director before
the expiration of their 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 terminable on three months’ and one month’s
notice respectively. 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. Bishoy has decided to step down from the Board with
effect from 31 March 2024.
All contracts and letters of appointment are available for
inspection at the Company’s registered office, by appointment,
during normal business hours.
Directors’ Report continued
Overview GovernanceStrategic Report Financial Statements
120 121
Costain Group PLC
Annual Report and Accounts 2023
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 or potential situational conflict of interest of Kate Rock,
a director of Keller Group plc, and of Tony Quinlan, a director
of Hill & Smith Holdings PLC, both non-material suppliers to
the Company in terms of value of goods and services. On Steve
Mogford’s appointment, the Board reviewed the potential
business and contractual relationships between United Utilities
Group PLC (UU) and Costain in respect of him being a recent
former CEO and continuing shareholder of UU. The Board noted
that Steve had signed a letter from UU confirming he will not
breach any confidentiality in relation to UU and will absent
himself from certain discussions. Steve has also signed a letter
from Costain to ensure there would be no adverse impacts in
connection with the Utilities Contract Regulations 2016, Costain’s
articles of association and other relevant legislation in relation to
any potential situational conflicts.
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 undertakings, 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 2023, are contained in
the Directors’ Remuneration Report, which appears on pages 92
to 117.
Directors’ indemnity
Costain Group PLC maintains liability insurance for its directors
and officers. There are no subsisting indemnities in favour of its
directors during 2023.
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 70 and 71 and the Nomination
Committee Report on page 89. 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 157.
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 employee engagement
surveys are run by the Company, the results of which are
communicated to employees (see page 75).
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 employee webinars, as well as via the
employee forum ‘Your Voice’ (see pages 74 to 77 for engagement
with workforce).
The Company operates, when considered appropriate, an all-
employee share plan (the SAYE Scheme) enabling employees to
become shareholders and build a stake in the future success of
the Company. As mentioned on page 118, a grant was made under
the SAYE Scheme in 2023.
Further information on the Company’s approach to investing in
and rewarding its workforce can be found on pages 74 to 77 and
92 to 117.
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 66 to 69 and the Workforce
engagement section on pages 74 to 77 of the Governance Report.
Additionally, the Company engages with subcontractors via the
twice-yearly safety, health and environment (SHE) impact days,
an annual supply chain conference and monthly leadership
engagement visits to projects and sites.
Additional information regarding the Company’s charitable giving
can be found on page 33.
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 (where
not exempted by FRS 101), 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 page 184. There have been no
other related party transactions during the year.
Disclosure of information to auditor
Each of the directors confirms 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 Group’s and Company’s
external auditor is unaware and that each director has taken all
the steps that they ought to have taken as a director to make
themself aware of any relevant audit information and to establish
that the Group’s and 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
11 March 2024
Directors’ Report continued
Overview GovernanceStrategic Report Financial Statements
122 123
Costain Group PLC
Annual Report and Accounts 2023
Directors’ Responsibility Statement
Statement of directors’ responsibilities in respect of the financial statements
The directors are responsible for preparing the annual report
and accounts 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 financial statements in accordance with
UK-adopted international accounting standards and the Company
financial statements in accordance with United Kingdom Generally
Accepted Accounting Practice (United Kingdom Accounting
Standards, comprising FRS 101 ‘Reduced Disclosure Framework’,
and applicable law).
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 Company and of
the profit or loss of the Group for that period. In preparing the
financial statements, the directors are required to:
• select suitable accounting policies and then apply
them consistently
• state whether applicable UK-adopted international accounting
standards have been followed for the Group financial
statements and FRS 101 has been followed for the Company
financial statements, 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
Company will continue in business.
The directors are responsible for safeguarding the assets of the
Group and 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 Company’s transactions and disclose with reasonable
accuracy at any time the financial position of the Group and
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 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, taken
as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
and 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 financial statements, which have been prepared
in accordance with UK-adopted international accounting
standards, give a true and fair view of the assets, liabilities,
financial position and profits or losses of the Group and
• the Company financial statements, which have been prepared
in accordance with FRS 101, give a true and fair view of the
assets, liabilities and financial position of the Company and
• the Strategic Report includes a fair review of the development
and performance of the business and the position of the Group
and Company, together with a description of the principal risks
and uncertainties that they face.
By Order of the Board
Nicole Geoghegan
Company Secretary
11 March 2024
Independent Auditors’ Report to the Members of Costain Group PLC
Report on the audit of the financial statements
Opinion
In our opinion:
• Costain Group PLC’s Group financial statements and Company financial statements (the ‘financial statements’) give a true and fair
view of the state of the Group’s and of the Company’s affairs as at 31 December 2023 and of the Group’s profit and the Group’s cash
flows for the year then ended;
• the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards as
applied in accordance with the provisions of the Companies Act 2006;
• the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting
Practice (United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure Framework’, and applicable law); and
• the financial statements 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 2023; the
Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Changes in
Equity, the Company Statement of Changes in Equity and the Consolidated 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 Costain Group PLC Audit and Risk 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 note 5, 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).
• Presentation of the Group’s financial performance (Group).
• Carrying value of investments in Group companies (Parent).
Materiality
• Overall Group materiality: £5,300,000 (2022: £5,600,000) based on 0.4% of the Group’s revenue.
• Overall Company materiality: £2,380,000 (2022: £2,200,000) based on 1% of total assets.
• Performance materiality: £3,975,000 (2022: £4,200,000) (Group) and £1,785,000 (2022: £1,650,000) (Parent).
Overview GovernanceStrategic Report Financial Statements
124 125
Costain Group PLC
Annual Report and Accounts 2023
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 financial statements.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we
do not provide a separate opinion on these matters.
This is not a complete list of all risks identified by our audit.
The presentation of the Group’s financial performance and Impairment of goodwill in respect of the Transportation division are new key
audit matters this year. Valuation of defined benefit pension scheme obligations (Group) and recoverability of intercompany receivables
(Parent only), which were key audit matters last year, are no longer included because of the reduction of audit risk relative to other areas
of estimation and judgement in the financial statements. Otherwise, the key audit matters remain consistent with the prior year.
Key audit matter How our audit addressed the key audit matter
Contract accounting (Group)
Refer to page 82 (Audit and Risk Committee Report),
pages 142 to 151, note 2 (Summary of significant
accounting policies, significant areas of judgement
and estimation).
The Group has significant long-term contracts in
its Transportation and Natural Resources divisions.
The recognition of revenue in relation to long-term
construction contracts is in accordance with IFRS
15 and is based on either the measure of progress
calculated using the stage of completion (determined
by the cost incurred to date as a proportion of total
estimated cost) or as costs/time are incurred for
activity based contracts. Greater audit effort is
directed towards those long-term contracts that
recognise revenue by reference to the stage of
completion given the increased estimation required.
Profit or losses on stage of completion 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.
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 targeted risk-based 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, in particular high levels of
unbilled contract work in progress; 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
supporting documentation;
• 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
and other related contract incentives, 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;
Key audit matter How our audit addressed the key audit matter
The Group’s portfolio of contracts typically use
standard forms of construction contracts, however,
given the complex nature and programmes of work
undertaken, certain contracts are further tailored to
include, for example, incentive or other mechanisms
that require estimates to be made. These estimates
include but are not limited to project or alliance
pain/gain mechanisms and programme and
cost incentives.
These estimates also include the determination of
the expected recovery of costs arising from, for
example, variations to the contract requested by the
customer, compensation events, and claims made
both by and against the Group for delays or other
additional costs arising or projected to arise.
The Group’s accounting policy is to recognise
additional contractual amounts receivable from
customers only when these amounts are considered
‘highly probable of no 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 ‘virtually certain’.
On the basis of the significant estimates, judgements
and inherent uncertainty involved in determining
the appropriate revenue recognition and associated
profit, we identified Contract Accounting as a
Key Audit Matter and were particularly focussed
on the existence/occurrence and accuracy of
revenue recognition.
• 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
estimates made;
• Reconciling revenue recognised with amounts applied for and amounts certified
by clients, agreeing the amounts received to cash to ensure any reconciling items
were appropriate;
• 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 historical cost run-rate and
industry experience to challenge the completeness and accuracy of the forecast
costs to complete, including any cost contingencies held;
• Assessing management’s estimates and any associated risks in relation to
forecasts of disallowed costs or actual withheld costs and the associated impact
on the project’s forecast outturn;
• Assessing the recoverability of balance sheet items (in particular work in
progress), for example by obtaining evidence of the value of work performed
and, where applicable comparing this to subsequent invoicing and cash receipts;
• For the residual contract population (the tail), performing targeted risk based
procedures including, for example testing cost to come, any material unagreed
change and 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 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 and estimates.
Based on all of the evidence obtained in the above procedures, we concluded that
the recognition of contract revenues and profits/losses and the amounts held as
contract assets and liabilities were appropriate. We also reviewed the disclosures of
estimation uncertainty in relation to significant ongoing contracts included in the
financial statements and satisfied ourselves that these were appropriate.
Overview GovernanceStrategic Report Financial Statements
126 127
Costain Group PLC
Annual Report and Accounts 2023
Key audit matter How our audit addressed the key audit matter
Water contract rectification provision
and insurance recovery (Group)
Refer to page 82 (Audit and Risk Committee Report),
pages 142 to 151, note 2 (Summary of significant
accounting policies – significant areas of judgement
and estimation), and page 173 note 20 – Provisions.
At 31 December 2023 the Group held a provision of
£11.6m (2022: £12.2m) in respect of the estimated
future costs to fulfil the final design solution 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 final design solution. In addition, an
insurance receivable of £12.7m has been recognised
at the balance sheet date (2022: £13.4m).
Forecasting the cost of the rectification works
required to remediate the water treatment plant
has required estimation uncertainty in relation to
the quantum of provision to be recognised. A £2.2m
charge has been recognised in 2023 for additional
costs estimated during the year.
In addition, in accordance with accounting standards,
an insurance recovery can be recognised to the
extent it is considered ‘virtually certain’. Cash
payments of £3.0m have been received from insurers
during the year ended 31 December 2023.
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 cost estimates in the final design solution and the
rationale for the cost estimate 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.
Insurance recovery
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,
the following:
• 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 costs of the claim by insurers;
• Obtaining evidence that the levels of insurance cover available were sufficient to
cover the expected costs of the final design solution rectification;
• Obtaining evidence of the insurers’ loss adjuster’s recommendation as to the
level of insurance reserve to be held by insurers;
• Obtaining evidence of interim payments made by insurers in the year and
agreeing the receipt of cash to Costain’s bank account;
• 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 they were
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 concluded that the accounting treatment adopted in respect
of the rectification provision and its associated insurance recovery was appropriate.
Independent Auditors’ Report to the Members of Costain Group PLC continued
Key audit matter How our audit addressed the key audit matter
Impairment of Goodwill (Group)
Refer to page 82 (Audit and Risk Committee Report),
pages 142 to 151, note 2 (Summary of significant
accounting policies – significant areas of
judgement and estimation), and page 161
note 12 – Intangible Assets.
At 31 December 2023, the Group had £45.1m
of goodwill (2022: £45.1m). Goodwill has been
allocated to the applicable Cash Generating Units
(CGUs) of the Transportation division £15.5m (2022:
£15.5m) and the Natural Resources division £29.6m
(2022: £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. In particular the cash flows include
estimation uncertainty primarily in respect of the
amount of work that is currently unsecured (work
to be obtained) and anticipated cost savings arising
from the ongoing Board approved Transformation
programme. Changes in these estimates and
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
and Transportation divisions may not be supportable
when compared to their recoverable amounts,
given the level of estimation of uncertainty in future
cash flows, primarily in respect of the amount of
unsecured revenue that is included in the cash
flow forecasts.
Accordingly, we determined this to be a Key
Audit Matter.
We obtained management’s future cash flow forecasts, which were consistent with
the Board approved budget and business plan. We evaluated management’s basis
for determining the relevant CGUs as the Transportation and Natural Resources
divisions. In evaluating management’s impairment assessment for goodwill in
respect of the CGUs 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 for the period from FY24-FY27, testing the integrity of the
underlying calculations and assessing how both internal and external drivers of
performance were incorporated into the projections;
• Comparing the 2023 actual financial performance to budget and understanding
the drivers of forecast profitability and of working capital movements;
• Testing certain contracts in the Group’s pipeline to validate the associated
secured and to be obtained revenue forecast included 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;
• Assessing the appropriateness of Transformation programme savings included
within the forecasts assumed by management;
• Challenging and verifying the allocation of central costs and assets to the
divisions, and ensuring that these were allocated on a reasonable and consistent
basis;
• 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;
• Assessing and, where appropriate, challenging the discount rate and long-term
growth rates, with the support of our valuations experts; and
• Undertaking stress testing of management’s forecasts and assessing whether any
reasonably possible changes in assumptions would give rise to an impairment,
and ensuring that, where appropriate, disclosures were made in accordance with
IAS 36, ‘Impairment of Assets’.
We concluded that management’s assessment that no impairment was required
and that the carrying value of goodwill in the Natural Resources or Transportation
divisions was supportable.
Overview GovernanceStrategic Report Financial Statements
128 129
Costain Group PLC
Annual Report and Accounts 2023
Independent Auditors’ Report to the Members of Costain Group PLC continued
Key audit matter How our audit addressed the key audit matter
Presentation of the Group’s financial
performance (Group)
Refer to page 82 (Audit and Risk Committee Report),
and page 151, note 3 (Reconciliation of reported
operating profit to adjusted operating profit).
Consistent with the prior year, the directors present
in note 3 to the accounts, the Group’s principal
Alternative Performance Measure (APM) as ‘Adjusted
Operating Profit’ such that the Group’s APM is
consistent with how management reviews the
performance of the business.
The Group’s adjusted operating profit from
operations of £40.1m is stated after charging:
• £5.3m of impairment of intangible assets;
• £6.2m of transformation costs; and
• £1.8m of restructuring costs.
The determination of which items are treated as
‘adjusted’ is judgemental and needs to be consistent
with how the directors review the performance of the
business. Users of the financial statements could be
misled if amounts are not classified and disclosed in
a transparent manner and consistent with the way in
which the Board reviews and monitors performance.
In view of the increased quantum of adjusting items
for FY23 we determined this to be a Key Audit Matter.
We considered whether the presentation of Adjusting Operating Profit is
appropriate. Our audit procedures included, but were not limited to the following:
• Obtaining the latest internal Board reporting to evaluate whether the nature and
quantum of the adjustments presented for the Group, was consistent with those
highlighted and adjusted in the financial statements;
• Ensuring that the Group’s APMs were appropriately reconciled to the relevant
statutory measures;
• Critically assessing whether the items attributable to the Transformation
programme and restructuring represented incremental expenditure to the
Group; and
• Reviewing the definition and classification of adjusting items in the Group’s
Annual Report and assessing whether the costs presented were classified as
adjusting items in line with the Group’s accounting policy.
Based on these procedures we were satisfied with the presentation of the Group’s
profit before adjusting items and that the reasons for the use of this APM has
been appropriately disclosed. We also considered whether there was appropriate
balance in the Group’s Annual Report between references to adjusted profit
measures and the Group’s statutory profit and were satisfied that this was the case.
Carrying value of investments in Group
companies (Parent)
The Company holds an investment in subsidiaries of
£155.6m (2022: £153.4m) as disclosed in note 14.
An impairment assessment of the Company’s
investments in subsidiaries is performed on an
annual basis.
The directors assessment of the carrying value of the
investment in its subsidiaries was that no impairment
was required.
This area was identified as a Key Audit Matter given
the materiality of these balances.
In evaluating the directors’ assessment of the carrying value of investments, our
audit procedures included, but were not limited to the following:
• Assessing the accounting policy for investments in subsidiaries to ensure this
was compliant with United Kingdom Generally Accepted Accounting Practice
(United Kingdom Accounting Standards, including FRS 101 ‘Reduced Disclosure
Framework’, and applicable law); and
• Obtaining management’s impairment assessment for the recoverability of
investments in subsidiaries and validating the conclusions reached by management.
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 the underlying net assets of the subsidiaries, or where
applicable, future cash flow forecasts.
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, either due to the size of the balances or their risk characteristics. In total, our scope accounted for 98%
(2022: 97%) of Group revenues and 97% (2022: 99%) 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 to contract accounting and goodwill impairment assessments. 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 – Company
Overall materiality £5,300,000 (2022: £5,600,000). £2,3680,000 (2022: £2,200,000).
How we determined it based on 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 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 £5.3m was
appropriate, which represents approximately 0.4% of the Group’s revenue.
The Parent Company primarily holds
cash, investments in subsidiaries and
intercompany payables. 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 £4.8m and £3.1m. 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% (2022: 75%) of overall materiality, amounting to £3,975,000 (2022: £4,200,000) for the Group financial
statements and £1,785,000 (2022: £1,650,000) 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 Costain Group PLC Audit and Risk Committee that we would report to them misstatements identified during our
audit above £265,000 (Group audit) (2022: £280,000) and £119,000 (Company audit) (2022: £110,000) as well as misstatements below
those amounts that, in our view, warranted reporting for qualitative reasons.
Conclusions relating to going concern
Our evaluation of the directors’ assessment of the Group’s and the Company’s ability to continue to adopt the going concern basis of
accounting included:
• assessing the appropriateness of the Group’s cash flow, liquidity and covenant forecasts in the context of the Group’s 2023 financial
position and its banking and related facilities which were re-negotiated in July 2023;
• 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 (eg by comparing forecast revenue 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 financial statements.
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
Independent Auditors’ Report to the Members of Costain Group PLC continued
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. 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.
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 2023 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 Costain Group PLC Audit and Risk Committee.
We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the Company’s compliance
with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review
by the auditors.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ responsibility 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, construction laws and those governed by the Financial Conduct Authority and we considered the extent to
which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have
a direct impact on the financial statements such as the Companies Act 2006 and tax legislation. 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;
• Assessment of matters reported on the Group’s whistleblowing helpline and the results of management’s investigation of
such matters;
Overview GovernanceStrategic Report Financial Statements
132 133
Costain Group PLC
Annual Report and Accounts 2023
• 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, unusual
descriptions or postings by senior management.
There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-
compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements.
Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error,
as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing
techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations.
We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit
sampling to enable us to draw a conclusion about the population from which the sample is selected.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3
of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for
any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by
our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not obtained all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the Company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the Company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with the
accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the Costain Group PLC Audit and Risk 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 seven years, covering the years ended 31 December 2017 to 31 December 2023.
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
11 March 2024
Independent Auditors’ Report to the Members of Costain Group PLC continued
| 2023 | 2022 | ||
| Note(s) | £m | £m | |
| Continuing operations | |||
Revenue | |||
Cost of sales | ( | ( | |
Gross profit | |||
Administrative expenses | ( | ( | |
Operating profit | |||
Finance income | 8 | ||
Finance expense | 8 | ( | ( |
Net finance income/(expense) | ( | ||
Profit before tax | 4/5 | ||
Taxation | 9 | ( | ( |
Profit for the year attributable to equity holders of the Parent | |||
| Earnings per share | |||
Basic | 10 | ||
Diluted | 10 |
The Consolidated Income Statement shows the income and expenses from continuing operations.
Consolidated Income Statement
Year ended 31 December 2023
Overview GovernanceStrategic Report Financial Statements
135134
Costain Group PLC
Annual Report and Accounts 2023
Consolidated Statement of Comprehensive Income
Year ended 31 December 2023
| 2023 | 2022 | |
| £m | £m | |
Profit for the year | ||
| 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 for the year | ( | ( |
Total comprehensive income for the year attributable to equity holders of the Parent |
| 2023 | 2022 | ||
| (as restated)* | |||
| 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 | ||
Cash and cash equivalents | 17 | ||
Total current assets | |||
Total assets | |||
| Liabilities | |||
| Non-current liabilities | |||
Other payables | 19 | ||
Lease liabilities | 13 | ||
Provisions for other liabilities and charges | 20 | ||
Total non-current liabilities | |||
| Current liabilities | |||
Trade and other payables | 19 | ||
Taxation | 9 | ||
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 | |||
Treasury shares | ( | ||
Retained earnings | |||
Total equity |
* See note 26 for more information on restatement.
Registered number: 1393773
Consolidated Statement of Financial Position
As at 31 December 2023
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
136 137
Company Statement of Financial Position
As at 31 December 2023
Note
2023
£m
2022
£m
Assets
Non-current assets
Investments in subsidiaries 14 155.6 153.4
Total non-current assets 155.6 153.4
Current assets
Trade and other receivables 16 0.9 70.3
Cash and cash equivalents 17 81.8 0.1
Total current assets 82.7 70.4
Total assets 238.3 223.8
Liabilities
Non-current liabilities
Provisions for other liabilities and charges 20 0.6 0.7
Total non-current liabilities 0.6 0.7
Current liabilities
Trade and other payables 19 40.8 27.4
Taxation 9 – 1.2
Provisions for other liabilities and charges 20 0.1 0.1
Total current liabilities 40.9 28.7
Total liabilities 41.5 29.4
Net assets 196.8 194.4
Equity
Share capital 22 138.3 137.5
Share premium 16.4 16.4
Retained earnings 42.1 40.5
Total equity 196.8 194.4
The profit for the year was £1.3 million (2022: £2.1 million).
The financial statements on pages 135 to 185 were approved by the Board of directors on 11 March 2024 and were signed on its
behalf by:
A Vaughan H Willis
Director Director
Registered number: 1393773
| Share | Share | Translation | Treasury | Retained | Total | |
| capital | premium | reserve | shares | earnings | equity | |
| £m | £m | £m | £m | £m | £m | |
At 1 January 2022 | ||||||
Profit for the year | ||||||
Other comprehensive expense | ( | ( | ||||
Equity-settled share-based payments | ||||||
At 31 December 2022 | ||||||
At 1 January 2023 | ||||||
Profit for the year | ||||||
Other comprehensive expense | ( | ( | ||||
Issue of ordinary shares under employee share option plans | ( | ( | ||||
Shares purchased to satisfy employee share schemes | ( | ( | ||||
Equity-settled share-based payments | ||||||
Acquisition of treasury shares | ( | ( | ||||
Dividends paid | ( | ( | ||||
At 31 December 2023 | ( |
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.
Treasury Shares
Treasury shares are shares in Costain Group PLC that are held by an Employee Benefit Trust for the purpose of issuing shares under the
Costain employee share schemes (see note 21 for further information on these schemes).
Consolidated Statement of Changes in Equity
Year ended 31 December 2023
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
138 139
Company Statement of Changes in Equity
Year ended 31 December 2023
Share
capital
£m
Share
premium
£m
Retained
earnings
£m
Total
equity
£m
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
At 1 January 2023 137.5 16.4 40.5 194.4
Total comprehensive income – – 1.3 1.3
Issue of ordinary shares under employee share option plans 0.8 – (0.8) –
Equity-settled share-based payments granted to employees of subsidiaries – – 2.2 2.2
Dividends paid – – (1.1) (1.1)
At 31 December 2023 138.3 16.4 42.1 196.8
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.
| 2023 | 2022 | ||
| Note(s) | £m | £m | |
| Cash flows generated from/(used by) operating activities | |||
Profit 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 | ||
Impairment of intangible assets | 5/12 | ||
Amortisation of intangible assets | 5/12 | ||
Shares purchased to satisfy employee share schemes | ( | ||
Share-based payments expense | 6/21 | ||
Cash generated from operations before changes in working capital and provisions | |||
Decrease in inventories | |||
Decrease/(increase) in receivables | ( | ||
(Decrease)/increase in payables | ( | ||
Movement in provisions and employee benefits | ( | ( | |
Cash generated from operations | |||
Interest received | |||
Interest paid | ( | ( | |
Taxation paid | ( | ( | |
Net cash generated from operating activities | |||
| Cash flows generated from/(used by) investing activities | |||
Additions to owned 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 generated from/(used by) financing activities | |||
Ordinary dividends paid | 11 | ( | |
Acquisition of treasury shares | ( | ||
Repayments of lease liabilities – principal | 17 | ( | ( |
Repayment of loans | 17 | ( | |
Net cash used by financing activities | ( | ( | |
Net increase/(decrease) 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 |
Consolidated Cash Flow Statement
Year ended 31 December 2023
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140 141
Notes to the Financial Statements
1 General information
of its registered office and principal place of business is disclosed on page 187 of this annual report. The principal activities of the
Company and its subsidiary undertakings (collectively referred to as ‘the Group’) are described in the Strategic Report.
The consolidated financial statements of the Company for the year ended 31 December 2023 comprise the Group and the Group’s
interests in associates, joint ventures and joint operations. The Parent Company financial statements present information about the
Company as a separate entity and not about its Group.
The financial statements were authorised for issue by the directors on 11 March 2024.
2 Summary of significant accounting policies
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Annual Report and Accounts 2023
142 143
Notes to the Financial Statements continued
2 Summary of significant accounting policies continued
New and amended standards adopted by the Group continued
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Notes to the Financial Statements continued
2 Summary of significant accounting policies continued
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Notes to the Financial Statements continued
2 Summary of significant accounting policies continued
Taxation continued
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Notes to the Financial Statements continued
3 Reconciliation of reported operating profit to adjusted operating profit
Adjusted operating profit and adjusted earnings per share are presented as non-GAAP alternative performance measurements. The
Board considers the adjusted measures better reflect the underlying trading performance of the Group for the reasons described in
note 2.
The profit adjustments represent amounts included in the income statement.
During the year, the Group restructured its digital hardware activities to focus on service capabilities. As a result, the capitalised
development costs of products being developed under the Group’s manufacturing capabilities were impaired by £5.3m to £nil as the
Group has exited this manufacturing.
2 Summary of significant accounting policies continued
Financial assets and liabilities continued
(c) Derivative financial instruments continued
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Notes to the Financial Statements continued
| Other | ||||
| Adjusted | P&H | items | Total | |
| 2022 | £m | £m | £m | £m |
Revenue | 1,421.4 | – | – | 1,421.4 |
Cost of sales | (1,328.7) | – | – | (1,328.7) |
Gross profit | 92.7 | – | – | 92.7 |
Administrative expenses before adjusting items | (56.4) | – | – | (56.4) |
| Adjusting items: | ||||
P&H insurance recovery | – | 5.2 | – | 5.2 |
Transformation costs | – | – | (5.7) | (5.7) |
Tunnel boring machines impairment | – | – | (1.4) | (1.4) |
Profit on disposal of other investment | – | – | 0.5 | 0.5 |
Administrative expenses | (56.4) | 5.2 | (6.6) | (57.8) |
Operating profit/(loss) | 36.3 | 5.2 | (6.6) | 34.9 |
Net finance expense | (2.1) | – | – | (2.1) |
Profit/(loss) before tax | 34.2 | 5.2 | (6.6) | 32.8 |
Taxation | (7.0) | (1.0) | 1.1 | (6.9) |
Profit/(loss) for the year attributable to equity holders of the Parent | 27. 2 | 4.2 | (5.5) | 25.9 |
Basic earnings per share | 9.9p | 9.4p |
4 Operating segments
The Group has two business segments: Natural Resources and Transportation. These segments are strategic business units with separate
management and have different customers or offer different services. Segmental information is provided to the chief executive who is the
chief operating decision maker. The segments are discussed in the Strategic Report section of this annual report.
Intersegment sales and transfers are not material.
3 Reconciliation of reported operating profit to adjusted operating profit continued
Other costs in relation to the restructuring of £1.8m, including in relation to rent and rates on a property used for the Group’s digital
activities, which was vacated before the break clause in the lease, were also recognised.
The Board considers these items ‘adjusting’ on the basis of their magnitude and that they arise from a one-off pivot in business strategy
away from digital manufacturing that will not recur in the future.
£6.2m was incurred on the Group’s Transformation programme in 2023 (2022: £5.7m). Costs incurred were in-line with the programme
budget and include the cost of people and advisors supporting our Transformation initiatives, as well as the one-off cost of actions to
support operating model changes required.
The programme, which began in 2022 and concludes in 2024, is bringing simplicity, clarity and focus to how we work, by driving improved
efficiency and effectiveness across the business. This critically includes improving how we manage customer projects in a more efficient,
safe and green way, enabling us to deliver greater value to both our customers and stakeholders.
While the primary objective of the programme was to transform the organisation to accelerate our strategic ambition, efficiency and cost
saving actions have allowed us to start to deliver savings through 2023. Savings from the programme are expected to exceed our cost of
delivery within the next few years.
The Board considers the costs of the Transformation programme are ‘adjusting’ on the basis of their magnitude and that it is a one-
off programme, which is not in the ordinary course of business and therefore is not reflective of the type of costs to be incurred on a
recurring basis in future.
In 2022, a £5.2m insurance receipt was recognised in relation to the Peterborough & Huntingdon (P&H) contract outcome.
In 2022, the Group sold a minor stake in a hotel company for £0.5m. The investment was impaired to nil in 2020 reflecting the significant
impact of COVID-19 in that sector, so the profit realised in 2022 was also £0.5m. This cost was recognised as an ‘adjusting item’ and
therefore the related profit was also treated as such.
In 2022, the Group fully impaired tunnel boring machines held at net book value of £1.4m which were outmoded and no longer core
to operations.
| Intangible | Other | |||
| Adjusted | impairment | items | Total | |
| 2023 | £m | £m | £m | £m |
Revenue | 1,332.0 | – | – | 1,332.0 |
Cost of sales | (1,227.2) | – | – | (1,227.2) |
Gross profit | 104.8 | – | – | 104.8 |
Administrative expenses before adjusting items | (64.7) | – | – | (64.7) |
| Adjusting items: | ||||
Restructuring costs | – | – | (1.8) | (1.8) |
Transformation costs | – | – | (6.2) | (6.2) |
Impairment of intangible asset | – | (5.3) | – | (5.3) |
Administrative expenses | (64.7) | (5.3) | (8.0) | (78.0) |
Operating profit/(loss) | 40.1 | (5.3) | (8.0) | 26.8 |
Net finance income | 4.1 | – | – | 4.1 |
Profit/(loss) before tax | 44.2 | (5.3) | (8.0) | 30.9 |
Taxation | (10.7) | – | 1.9 | (8.8) |
Profit/(loss) for the year attributable to equity holders of the Parent | 33.5 | (5.3) | (6.1) | 22.1 |
Basic earnings per share | 12.2p | 8.1p |
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Notes to the Financial Statements continued
| Natural | Central | |||
| Resources | Transportation | costs | Total | |
| 2022 | £m | £m | £m | £m |
| Segment revenue | ||||
Total revenue | 375.1 | 1,046.3 | – | 1,421.4 |
| Segment profit/(loss) | ||||
Operating profit/(loss) before other items | 15.0 | 31.5 | (10.2) | 36.3 |
Share of results of joint ventures and associates | – | – | – | – |
Operating profit/(loss) before adjusting items | 15.0 | 31.5 | (10.2) | 36.3 |
| Adjusting 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 | 0.1 | 0.5 | – | 0.6 |
| Segment assets | ||||
Reportable segment assets (as restated)* | 120.9 | 167.2 | 1.0 | 289.1 |
| Unallocated assets: | ||||
Retirement benefit asset | 60.2 | |||
Deferred tax | 14.5 | |||
Cash and cash equivalents | 123.8 | |||
Total assets (as restated)* | 487.6 | |||
| Additions to non-current assets | ||||
Property, plant and equipment (as restated)* | 5.6 | 16.8 | – | 22.4 |
Intangible assets | – | 0.3 | – | 0.3 |
| Segment liabilities | ||||
Reportable segment liabilities (as restated)* | 71.9 | 160.5 | 43.8 | 276.2 |
| Unallocated liabilities: | ||||
Taxation | 0.2 | |||
Total liabilities (as restated)* | 276.4 |
* See note 26 for more information on restatement.
4 Operating segments continued
| Natural | Central | |||
| Resources | Transportation | costs | Total | |
| 2023 | £m | £m | £m | £m |
| Segment revenue | ||||
Total revenue | 388.9 | 943.1 | – | 1,332.0 |
| Segment profit/(loss) | ||||
Operating profit/(loss) before adjusting items | 21.8 | 28.0 | (9.7) | 40.1 |
| Adjusting items: | ||||
Restructuring costs | – | (1.8) | – | (1.8) |
Transformation costs | (0.1) | – | (6.1) | (6.2) |
Impairment of intangible asset | – | (5.3) | – | (5.3) |
Profit/(loss) from operations | 21.7 | 20.9 | (15.8) | 26.8 |
Net finance income | 4.1 | |||
Profit before tax | 30.9 | |||
| Segment profit/(loss) is stated after charging the following: | ||||
Depreciation | 4.5 | 10.3 | – | 14.8 |
Amortisation and impairment | 0.2 | 6.4 | – | 6.6 |
| Segment assets | ||||
Reportable segment assets | 121.6 | 116.4 | 0.9 | 238.9 |
| Unallocated assets: | ||||
Retirement benefit asset | 53.5 | |||
Deferred tax | 11.8 | |||
Cash and cash equivalents | 164.4 | |||
Total assets | 468.6 | |||
| Additions to non-current assets | ||||
Property, plant and equipment | 4.1 | 6.1 | – | 10.2 |
Intangible assets | – | 0.1 | – | 0.1 |
| Segment liabilities | ||||
Reportable segment liabilities | 91.9 | 148.1 | 8.6 | 248.6 |
| Unallocated liabilities: | ||||
Taxation | 0.6 | |||
Total liabilities | 249.2 |
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Notes to the Financial Statements continued
| 2023 | 2022 | |
| £m | £m | |
Wages and salaries | 235.9 | 230.4 |
Social security costs | 25.7 | 26.4 |
Other pension costs – defined contribution schemes (note 21) | 12.6 | 11.7 |
Share-based payments expense (note 21) | 2.2 | 1.1 |
276.4 | 269.6 |
| 2023 | 2022 | |
| Number | Number | |
| Monthly average number of persons employed | ||
Natural Resources | 1,620 | 1,718 |
Transportation | 1,753 | 1,787 |
Central | 21 | 20 |
3,394 | 3,525 |
7 Remuneration of directors
Details of the directors’ remuneration, pension entitlements, interest in the Long-Term Incentive Plans, Annual Incentive Plans and share
options are included in the Directors’ Remuneration Report.
For the purpose of the disclosure required by Schedule 5 to the Companies Act 2006, the total aggregate emoluments of the directors in
respect of 2023 and 2022 are detailed below:
| 2023 | 2022 | |
| £m | £m | |
Remuneration | 2.0 | 1.9 |
Post-employment benefits | 0.1 | 0.1 |
2.1 | 2.0 |
8 Finance income/(expense)
| 2023 | 2022 | |
| £m | £m | |
Interest income from bank deposits | 4.8 | 0.5 |
Interest income on the net assets of the defined benefit pension scheme (note 21) | 3.2 | 1.3 |
Finance income | 8.0 | 1.8 |
Interest payable on interest bearing bank loans, borrowings and other similar charges | (2.3) | (2.7) |
Interest expense on lease liabilities | (1.5) | (1.2) |
Other interest | (0.1) | – |
Finance expense | (3.9) | (3.9) |
Net finance income/(expense) | 4.1 | (2.1) |
Other similar charges includes arrangement and commitment fees payable.
| 2023 | 2022 | |
| £m | £m | |
| Profit before tax is stated after charging: | ||
Amortisation and impairment of intangible assets (note 12) | 6.6 | 0.6 |
Depreciation and impairment of property, plant and equipment (note 13) | 14.8 | 11.3 |
Restructuring costs (note 3) | 1.8 | – |
Transformation costs (note 3) | 6.2 | 5.7 |
Expenses relating to short-term leases and leases of low value assets | 54.8 | 62.4 |
| and after crediting: | ||
RDEC grant income | 5.7 | 5.5 |
P&H insurance recovery (note 3) | – | 5.2 |
Profit on disposal of other investment (note 3) | – | 0.5 |
| 2023 | 2022 | |
| £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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Notes to the Financial Statements continued
| 2023 | 2022 | |
| £m | £m | |
| Analysis of deferred tax movements | ||
At 1 January | 14.5 | 15.4 |
| Deferred tax in consolidated income statement | ||
Accelerated capital allowances | 0.1 | 1.3 |
Short-term temporary differences | (1.6) | 0.5 |
Tax losses | (2.9) | (4.4) |
(4.4) | (2.6) | |
| Deferred tax in other comprehensive income | ||
Retirement benefit assets | 1.7 | 1.7 |
At 31 December | 11.8 | 14.5 |
Group | Company | |||
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Management expenses and charges incurred by Parent Company | 54.4 | 54.7 | 54.2 | 54.7 |
Capital losses | 270.6 | 270.6 | 241.0 | 241.0 |
| 2023 | 2022 | |
| £m | £m | |
| On profit for the year | ||
UK corporation tax at blended rate of 23.5% (2022: statutory rate of 19.0%) | (5.4) | (4.6) |
Adjustment in respect of prior years | 1.0 | 0.3 |
Current tax charge for the year | (4.4) | (4.3) |
Deferred tax charge for the current year | (3.2) | (2.5) |
Adjustment in respect of prior years | (1.2) | (0.1) |
Deferred tax charge for the year | (4.4) | (2.6) |
Tax charge in the consolidated income statement | (8.8) | (6.9) |
| 2023 | 2022 | |
| £m | £m | |
| Tax reconciliation | ||
Profit before tax | 30.9 | 32.8 |
Taxation at 23.5% (2022: 19.0%) | (7. 2) | (6.2) |
Amounts qualifying for tax relief and disallowed expenses | (1.4) | (1.0) |
Rate adjustment relating to UK deferred taxation | – | 0.1 |
Adjustments in respect of prior years | (0.2) | 0.2 |
Tax charge in the consolidated income statement | (8.8) | (6.9) |
Effective rate of tax | 28.5% | 21.0% |
| 2023 | 2022 | |
| £m | £m | |
| Tax in other comprehensive income | ||
Current tax – Retirement benefit assets | 2.6 | 2.2 |
Deferred tax – Retirement benefit assets | 1.7 | 1.7 |
Tax credit in other comprehensive income | 4.3 | 3.9 |
| 2023 | 2022 | |
| £m | £m | |
| Deferred tax asset recognised | ||
Accelerated capital allowances | 2.2 | 2.1 |
Short-term temporary differences | 1.6 | 3.2 |
Retirement benefit assets | (13.3) | (15.0) |
Tax losses | 21.3 | 24.2 |
Deferred tax asset | 11.8 | 14.5 |
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Notes to the Financial Statements continued
12 Intangible assets
| Customer | Other acquired | Other | |||
| Goodwill | relationships | intangibles | intangibles | Total | |
| Group | £m | £m | £m | £m | £m |
| Cost | |||||
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 |
At 1 January 2023 | 54.1 | 15.4 | 9.7 | 16.2 | 95.4 |
Additions | – | – | – | 0.1 | 0.1 |
Disposals | – | – | – | (0.1) | (0.1) |
At 31 December 2023 | 54.1 | 15.4 | 9.7 | 16.2 | 95.4 |
| Accumulated amortisation and impairment | |||||
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 |
At 1 January 2023 | 9.0 | 15.4 | 9.7 | 9.1 | 43.2 |
Charge in year | – | – | – | 1.3 | 1.3 |
Impairment in year | – | – | – | 5.3 | 5.3 |
Disposals | – | – | – | (0.1) | (0.1) |
At 31 December 2023 | 9.0 | 15.4 | 9.7 | 15.6 | 49.7 |
| Net book value | |||||
At 31 December 2023 | 45.1 | – | – | 0.6 | 45.7 |
At 31 December 2022 | 45.1 | – | – | 7.1 | 52.2 |
At 1 January 2022 | 45.1 | – | – | 7.4 | 52.5 |
For more information on the intangible impairment, see note 3.
Goodwill has been allocated to the applicable cash generating units of the Transportation segment (£15.5m (2022: £15.5m)) and the
Natural Resources segment (£29.6m (2022: £29.6m)).
As described in note 2, the Group reviews the value of goodwill and in the absence of any identified impairment risks, tests are based on
internal value in use calculations of the cash generating unit (CGU). The key assumptions for these calculations are: operating margins,
discount rates and growth rates.
Discount rates have been estimated based on pre-tax rates that reflect current market assessments of the time value of money and
the risks specific to the CGU. The rates used to discount the forecast cash flows for the Transportation and Natural Resources CGUs
were 15.8% and 15.7% respectively. In 2022, the rate used to discount the forecast cash flows for both the Transportation and Natural
Resources CGUs was 15.5%.
The value in use calculations use the Group’s four-year cash flow forecasts, which are based on the expected revenues and profitability
of each CGU, taking into account the current level of secured and anticipated orders, extrapolated for future years by the expected
growth rate applicable to each CGU, 2.0% for both Transportation and Natural Resources (2022: 1.5% for both Transportation and
Natural Resources).
At 31 December 2023, based on the internal value in use calculations, management concluded that the recoverable value of both the
Natural Resources and the Transportation cash generating units exceeded their respective carrying amounts with substantial headroom.
The directors consider that there is no reasonable possible change in assumptions that would give rise to an impairment, for example,
a 30.0% reduction in absolute business unit operating profit, a 1.0% decrease in growth rate and a 1.0% increase in discount rate in
combination would not result in an impairment.
10 Earnings per share
The calculation of earnings per share is based on profit of £22.1m (2022: £25.9m) and the number of shares set out below.
| 2023 | 2022 | |
| Number | Number | |
| (millions) | (millions) | |
Weighted average number of ordinary shares in issue for basic earnings per share calculation | 273.6 | 275.0 |
Dilutive potential ordinary shares arising from employee share schemes | 8.5 | 1.7 |
Weighted average number of ordinary shares in issue for diluted earnings per share calculation | 282.1 | 276.7 |
At 31 December 2023, nil options were excluded from the weighted average number of ordinary shares calculation because they were
anti-dilutive (2022: nil options were excluded).
| Dividend | |||
| per share | 2023 | 2022 | |
| pence | £m | £m | |
Interim dividend for the year ended 31 December 2023 | 0.4 | 1.1 | – |
Dividends settled in cash | 1.1 | – | |
Dividends settled in shares | – | – | |
Amount recognised as distributions to equity holders in the year | 1.1 | – |
Overview GovernanceStrategic Report Financial Statements
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Annual Report and Accounts 2023
160 161
Notes to the Financial Statements continued
14 Investments in subsidiaries, equity accounted joint ventures and associates
Group
Details of subsidiary undertakings, joint ventures, joint operations and associates are shown in note 24.
Certain subsidiaries of the Group (as indicated in note 24) have opted to take advantage of the audit exemption under Section 479A
of the Companies Act 2006 for the year ended 31 December 2023. In order to take advantage of this exemption, Costain Group PLC
undertakes to provide a Parent Company guarantee in respect of debts and liabilities of these subsidiaries at the balance sheet date in
accordance with Section 479C of the Companies Act 2006. The Company has assessed the probability of loss under these guarantees
as remote.
Investments in joint ventures | £m |
| Cost | |
At 1 January 2022 | 14.4 |
Additions | 6.5 |
At 31 December 2022 | 20.9 |
At 1 January 2023 | 20.9 |
At 31 December 2023 | 20.9 |
| Share of post-acquisition reserves | |
At 1 January 2022 | (14.0) |
At 31 December 2022 | (14.0) |
At 1 January 2023 | (14.0) |
At 31 December 2023 | (14.0) |
| Impairment | |
At 1 January 2022 | – |
Impairment in year | (6.5) |
At 31 December 2022 | (6.5) |
At 1 January 2023 | (6.5) |
At 31 December 2023 | (6.5) |
| Net book value | |
At 31 December 2023 | 0.4 |
At 31 December 2022 | 0.4 |
At 1 January 2022 | 0.4 |
13 Property, plant and equipment
| 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 2022 | 0.6 | 27.0 | 14.1 | 29.4 | 71.1 |
Additions (as restated)* | – | 0.2 | 9.1 | 13.1 | 22.4 |
Disposals | (0.6) | (2.6) | (1.4) | (14.2) | (18.8) |
At 31 December 2022 (as restated)* | – | 24.6 | 21.8 | 28.3 | 74.7 |
At 1 January 2023 | – | 24.6 | 21.8 | 28.3 | 74.7 |
Additions | – | – | 0.5 | 9.7 | 10.2 |
Disposals | – | (9.6) | (2.8) | (5.3) | (17.7) |
At 31 December 2023 | – | 15.0 | 19.5 | 32.7 | 67. 2 |
| Accumulated depreciation and impairment | |||||
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 |
At 1 January 2023 | – | 23.3 | 7.6 | 11.8 | 42.7 |
Charge in year | – | 0.9 | 4.8 | 9.1 | 14.8 |
Disposals | – | (9.6) | (2.6) | (4.9) | (17.1) |
At 31 December 2023 | – | 14.6 | 9.8 | 16.0 | 40.4 |
| Net book value | |||||
At 31 December 2023 | – | 0.4 | 9.7 | 16.7 | 26.8 |
At 31 December 2022 (as restated)* | – | 1.3 | 14.2 | 16.5 | 32.0 |
At 1 January 2022 | – | 5.4 | 8.0 | 18.6 | 32.0 |
| 2023 | 2022 | |
| £m | £m | |
Interest expense (included in finance expense) | 1.5 | 1.2 |
Expense relating to short-term leases (included in cost of sales and administrative expenses) | 54.8 | 62.4 |
| 2023 | 2022 | |
| (as restated)* | ||
| £m | £m | |
Current | 10.3 | 11.0 |
Non-current | 14.0 | 18.5 |
24.3 | 29.5 |
* See note 26 for more information on restatement.
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
162 163
Notes to the Financial Statements continued
Company
Investments in subsidiaries | £m |
| Cost | |
At 1 January 2022 | 426.0 |
Additions | 1.1 |
At 31 December 2022 | 427.1 |
At 1 January 2023 | 427.1 |
Additions | 2.2 |
At 31 December 2023 | 429.3 |
Amounts written off At 1 January 2022 | (273.7) |
At 31 December 2022 | (273.7) |
At 1 January 2023 | (273.7) |
At 31 December 2023 | (273.7) |
| Net book value | |
At 31 December 2023 | 155.6 |
At 31 December 2022 | 153.4 |
At 1 January 2022 | 152.3 |
Additions relate to the increase in the cost of investments in subsidiaries by the equivalent amount of the equity-settled
share-based payment charge in relation to employees of subsidiaries included in the income statement (£2.2m (2022: £1.1m)).
Details of the Company’s subsidiaries are set out in note 24.
| 2023 | 2022 | |
| £m | £m | |
Contract assets | 26.9 | 50.8 |
Non-current assets recognised relating to customer retentions | 4.2 | 3.4 |
Contract liabilities | (5.1) | (1.4) |
14 Investments in subsidiaries, equity accounted joint ventures and associates continued
Group continued
2023 | 2022 | |
| Joint ventures | Joint ventures | |
| £m | £m | |
Revenue | – | (0.8) |
Profit before tax | – | – |
Taxation | – | – |
Profit for the year | – | – |
Non-current assets | – | – |
Trade and other receivables | 0.9 | 6.1 |
Cash and cash equivalents | – | (0.1) |
Trade and other payables – current | (0.5) | (5.6) |
Non-current liabilities | – | – |
Investments in joint ventures and associates | 0.4 | 0.4 |
Dividends received by Group | – | – |
2023 | 2022 | |
| Joint ventures | Joint ventures | |
| £m | £m | |
Revenue | 0.1 | (1.9) |
Profit before tax | – | – |
Taxation | – | – |
Profit for the year | – | – |
Non-current assets | – | – |
Trade and other receivables | 2.0 | 17.4 |
Cash and cash equivalents | 0.1 | (0.3) |
Trade and other payables – current | (0.9) | (16.1) |
Non-current liabilities | – | – |
Equity | 1.2 | 1.0 |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
164 165
Notes to the Financial Statements continued
Group | Company | |||
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
Cash and cash equivalents | 164.4 | 123.8 | 81.8 | 0.1 |
Cash and cash equivalents in the cash flow statement | 164.4 | 123.8 | 81.8 | 0.1 |
Group | Company | |||
| 2023 | 2022 | 2023 | 2022 | |
| (as restated)* | ||||
| £m | £m | £m | £m | |
Cash and cash equivalents | 164.4 | 123.8 | 81.8 | 0.1 |
Net cash before lease liabilities | 164.4 | 123.8 | 81.8 | 0.1 |
Lease liabilities (note 13) (as restated)* | (24.3) | (29.5) | – | – |
Net cash | 140.1 | 94.3 | 81.8 | 0.1 |
| Cash and cash | Borrowings – | Borrowings – | Lease liabilities | ||
| equivalents | current | non-current | (as restated)* | Total | |
| Group | £m | £m | £m | £m | £m |
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 (as restated)* | – | – | – | (22.2) | (22.2) |
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 (as restated)* | 123.8 | – | – | (29.5) | 94.3 |
Net cash/(debt) at 1 January 2023 | 123.8 | – | – | (29.5) | 94.3 |
Cash flows | 40.6 | – | – | 12.6 | 53.2 |
New leases | – | – | – | (10.2) | (10.2) |
Disposal of leases | – | – | – | 2.8 | 2.8 |
Interest expense | – | – | – | (1.5) | (1.5) |
Interest payments (presented as operating cash flows) | – | – | – | 1.5 | 1.5 |
Net cash/(debt) at 31 December 2023 | 164.4 | – | – | (24.3) | 140.1 |
| Cash and cash | Borrowings – | Borrowings – | ||
| equivalents | current | non-current | Total | |
| Company | £m | £m | £m | £m |
Net cash/(debt) at 1 January 2022 | 75.0 | (7.4) | (32.0) | 35.6 |
Cash flows | (74.9) | 7.4 | 32.0 | (35.5) |
Net cash at 31 December 2022 | 0.1 | – | – | 0.1 |
Net cash/(debt) at 1 January 2023 | 0.1 | – | – | 0.1 |
Cash flows | 81.7 | – | – | 81.7 |
Net cash at 31 December 2023 | 81.8 | – | – | 81.8 |
15 Assets and liabilities related to contracts with customers continued
| 2023 | 2022 | |
| £m | £m | |
| Aggregate amount of the transaction price allocated to long-term | ||
contracts that are partially or fully unsatisfied as at 31 December | 1,826.2 | 1,812.6 |
Group | Company | |||
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Amounts included in current assets | ||||
Trade receivables | 92.5 | 98.3 | – | – |
Other receivables | 6.6 | 6.8 | – | – |
Contract assets | 26.9 | 50.8 | – | – |
Prepayments and accrued income | 23.1 | 31.3 | 0.9 | 0.9 |
Amounts owed by joint ventures and associates | – | 0.2 | – | – |
Amounts owed by subsidiary undertakings | – | – | – | 69.4 |
149.1 | 187.4 | 0.9 | 70.3 | |
| Amounts included in non-current assets | ||||
Other receivables | 4.2 | 3.5 | – | – |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
166 167
Notes to the Financial Statements continued
| Less than | 60 to 120 days | More than 120 days | |||
| Current | 60 days past due | past due | past due | Total | |
| 31 December 2023 | |||||
| Group 1 | |||||
Expected loss rate | 0.00% | 0.10% | 0.25% | 0.50% | |
£m | £m | £m | £m | £m | |
Trade receivables | 78.5 | 11.9 | 1.7 | 0.2 | 92.3 |
Contract assets | 13.8 | 6.4 | 2.0 | 4.7 | 26.9 |
Loss allowance | – | – | – | – | – |
| Group 2 | |||||
Expected loss rate | 1.0% | 2.0% | 15.0% | 30.0% | |
£m | £m | £m | £m | £m | |
Trade receivables | 0.1 | – | – | 0.1 | 0.2 |
Contract assets | – | – | – | – | – |
Loss allowance | – | – | – | – | – |
| 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 | – | – | – | – | – |
| Group and Company | ||
| 2023 | 2022 | |
| £m | £m | |
Expiring between one and five years | 270.0 | 280.0 |
Element of above facilities available for borrowings | – | – |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
168 169
Notes to the Financial Statements continued
2023 | 2022 | |||||
| Between | ||||||
| Between | Within | one and | ||||
| Within | one and | Total (as | one year (as | five years (as | ||
| Total | one year | five years | restated)* | restated)* | restated)* | |
| £m | £m | £m | £m | £m | £m | |
Lease liabilities – pounds sterling | 24.3 | 10.3 | 14.0 | 29.5 | 11.0 | 18.5 |
Trade and other payables – pounds sterling | 104.8 | 102.6 | 2.2 | 140.6 | 139.5 | 1.1 |
Total financial liabilities not measured at fair value | 129.1 | 112.9 | 16.2 | 170.1 | 150.5 | 19.6 |
2023 | 2022 | |||
| Current | Non-current | Current | Non-current | |
| £m | £m | £m | £m | |
Trade and other receivables (as above) | 110.1 | 5.9 | 114.7 | 7.5 |
Contract assets | 26.9 | – | 50.8 | – |
Prepayments and accrued income | 23.1 | – | 31.3 | – |
160.1 | 5.9 | 196.8 | 7.5 |
2023 | 2022 | |||
| Current | Non-current | Current | Non-current | |
| £m | £m | £m | £m | |
Trade and other payables (as above) | 102.6 | 2.2 | 139.5 | 1.1 |
Contract liabilities | 5.1 | – | 1.4 | – |
Accruals and deferred income | 100.1 | – | 91.6 | – |
207. 8 | 2.2 | 232.5 | 1.1 |
2023 | 2022 | |
| Financial assets | ||
Cash and cash equivalents | 0.00% to 5.15% | 0.00% to 3.40% |
18 Financial instruments – Fair values and risk management continued
Risk management continued
c) Credit risk continued
2023 | 2022 | |||||||
| 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 | 163.9 | 163.9 | – | – | 123.2 | 123.2 | – | – |
other | 0.5 | 0.5 | – | – | 0.6 | 0.6 | – | – |
164.4 | 164.4 | – | – | 123.8 | 123.8 | – | – | |
| Trade, other receivables and amounts owed | ||||||||
| by joint ventures and associates: | ||||||||
pounds sterling | 103.3 | 99.1 | 4.2 | – | 108.8 | 105.3 | 3.5 | – |
| Insurance recovery asset: | ||||||||
pounds sterling | 12.7 | 11.0 | 1.7 | – | 13.4 | 9.4 | 4.0 | – |
116.0 | 110.1 | 5.9 | – | 122.2 | 114.7 | 7.5 | – | |
| Total financial assets | ||||||||
not measured at fair value | 280.4 | 274.5 | 5.9 | – | 246.0 | 238.5 | 7.5 | – |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
170 171
Notes to the Financial Statements continued
– | – | – | – |
| Expected credit | Funding | ||
| loss provision | obligations | Total | |
| Company | £m | £m | £m |
| Current | |||
At 1 January 2022 | 40.0 | – | 40.0 |
Reclassified from non-current | – | 0.1 | 0.1 |
Reclassified to amounts owed by subsidiary undertakings | (40.0) | – | (40.0) |
At 31 December 2022 | – | 0.1 | 0.1 |
At 1 January 2023 | – | 0.1 | 0.1 |
Reclassified from non-current | – | 0.1 | 0.1 |
Utilised | – | (0.1) | (0.1) |
At 31 December 2023 | – | 0.1 | 0.1 |
| Non-current | |||
At 1 January 2022 | – | 0.7 | 0.7 |
Provided | – | 0.1 | 0.1 |
Reclassified to current | – | (0.1) | (0.1) |
At 31 December 2022 | – | 0.7 | 0.7 |
At 1 January 2023 | – | 0.7 | 0.7 |
Reclassified to current | – | (0.1) | (0.1) |
At 31 December 2023 | – | 0.6 | 0.6 |
18 Financial instruments – Fair values and risk management continued
Type | Valuation technique | Significant unobservable inputs |
Other financial liabilities (as above) | Discounted cash flow | Not applicable |
Group | Company | |||
| 2023 | 2022 | 2023 | 2022 | |
| £m | £m | £m | £m | |
| Current liabilities | ||||
Trade payables | 69.3 | 97.5 | – | – |
Other payables | 24.1 | 33.4 | 0.1 | 0.1 |
Social security | 8.6 | 7.9 | – | – |
Contract liabilities | 5.1 | 1.4 | – | – |
Accruals and deferred income | 100.1 | 91.6 | 0.5 | 0.9 |
Amounts owed to joint ventures and associates | 0.6 | 0.7 | – | – |
Amounts owed to subsidiary undertakings | – | – | 40.2 | 26.4 |
207.8 | 232.5 | 40.8 | 27.4 | |
| Non-current liabilities | ||||
Other payables | 2.2 | 1.1 | – | – |
2.2 | 1.1 | – | – |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
172 173
Notes to the Financial Statements continued
| 2023 | 2022 | |
| Movements in present value of defined benefit obligations | £m | £m |
At 1 January | 527.1 | 837.5 |
Interest cost | 25.5 | 14.8 |
Remeasurements – demographic assumptions | (1.0) | (0.3) |
Remeasurements – financial assumptions | 14.8 | (321.4) |
Remeasurements – experience adjustments | 10.5 | 29.7 |
Benefits paid | (34.3) | (33.2) |
At 31 December | 542.6 | 527.1 |
| 2023 | 2022 | |
| Movements in fair value of scheme assets | £m | £m |
At 1 January | 587.3 | 904.6 |
Interest income | 28.7 | 16.1 |
Remeasurements – return on assets | 6.5 | (310.7) |
Contributions by employer | 8.1 | 10.8 |
Administrative expenses | (0.2) | (0.3) |
Benefits paid | (34.3) | (33.2) |
At 31 December | 596.1 | 587.3 |
| 2023 | 2022 | |
| Expense recognised in the income statement | £m | £m |
Administrative expenses paid by the pension scheme | (0.2) | (0.3) |
Administrative expenses paid directly by the Group | (1.8) | (1.2) |
Interest income on the net assets of the defined benefit pension scheme | 3.2 | 1.3 |
1.2 | (0.2) |
| 2023 | 2022 | |
| Fair value of scheme assets | £m | £m |
Global equities | 99.5 | 109.8 |
Multi-asset growth funds | 65.9 | 56.1 |
Multi-credit fund | 96.6 | 110.9 |
LDI plus collateral | 323.8 | 307. 2 |
Cash | 10.3 | 3.3 |
596.1 | 587.3 |
20 Provisions for other liabilities and charges continued
Company
Provisions in the Company relate to funding obligations to a non-trading overseas subsidiary, which eliminate on consolidation.
21 Employee benefits
Pensions
The Group operates a defined benefit pension scheme in the UK; contributions are paid by subsidiary undertakings. There are also
two defined contribution pension schemes in place in the UK, to which contributions are made by both subsidiary undertakings and
employees. The total pension charge in the income statement is £11.4m, comprising £14.6m included in operating costs less £3.2m
interest income included in net finance income (2022: £11.9m, comprising £13.2m included in operating costs less £1.3m interest income
included in net finance expense).
| 2023 | 2022 | 2021 | |
| £m | £m | £m | |
Present value of defined benefit obligations | (542.6) | (527.1) | (837. 5) |
Fair value of scheme assets | 596.1 | 587.3 | 904.6 |
Recognised asset for defined benefit obligations | 53.5 | 60.2 | 67.1 |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
174 175
Notes to the Financial Statements continued
21 Employee benefits continued
Pensions continued
| 2023 | 2022 | 2021 | |
| Principal actuarial assumptions (expressed as weighted averages) | % | % | % |
Discount rate | 4.75 | 5.00 | 1.80 |
Future pension increases | 2.90 | 2.90 | 3.25 |
Inflation assumption | 3.05 | 3.10 | 3.40 |
2023 | 2022 | |||
| Male | Female | Male | Female | |
| (years) | (years) | (years) | (years) | |
Currently aged 65 | 22.0 | 23.8 | 21.9 | 23.9 |
Non-retirees currently aged 45 | 22.9 | 25.1 | 22.9 | 25.1 |
| 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 reduces pension increases), decreases | 15.8 | 0.8 |
pension liability and increases pension income/reduces pension cost by Increasing life expectancy by one year, increases pension liability | 14.0 | 0.7 |
and reduces pension income/increases pension cost by | 19.2 | 0.9 |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
176 177
Notes to the Financial Statements continued
2023 | 2022 | |||
| 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 | 275.1 | 137. 5 | 275.0 | 137.5 |
Issued in year (see below) | 1.6 | 0.8 | 0.1 | – |
| Shares in issue at end of year – | ||||
ordinary shares of 50p each, fully paid | 276.7 | 138.3 | 275.1 | 137.5 |
21 Employee benefits continued
Share-based payments continued
LTIP | AIP | SAYE | ||
| Weighted average | ||||
| Number | Number | Number | exercise price | |
| (m) | (m) | (m) | (p) | |
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 |
Outstanding at 1 January 2023 | 12.5 | 2.3 | 0.8 | 118.4 |
Forfeited during the year | (2.0) | (0.4) | (0.8) | 113.8 |
Exercised during the year | (0.6) | – | – | – |
Granted during the year | 3.7 | 1.5 | 4.9 | 50.0 |
Outstanding at 31 December 2023 | 13.6 | 3.4 | 4.9 | 50.0 |
Exercisable at the end of the period | 1.0 | 1.0 | – | – |
2023 | 2022 | |
Expected volatility | 46.0% | 20.0% |
Expected life (years) | 3.5 | 3.0 |
Risk-free interest rate | 3.2% | 1.2% |
Expected dividend yield | 2.3% | 0.0% |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
178 179
Notes to the Financial Statements continued
| Registered | |||
| Percentage of | office/principal | ||
| Status | equity held | place of business | |
| Other subsidiaries owned directly by Costain Group PLC | |||
Costain Civil Engineering Limited | Holding Company | 100 | (1) |
Costain Investments Limited | Dormant | 100 | (8) |
Costain USA Inc. | Holding Company | 100 | (5) |
County & District Properties Limited* | Trading | 100 | (1) |
Renown Investments (Holdings) Limited* | Trading | 100 | (1) |
Lysander Services Limited* | Trading | 100 | (1) |
| Other subsidiaries owned indirectly by Costain Group PLC | |||
Brunswick Infrastructure Services Limited | Dormant | 100 | (1) |
Calvert & Russell Limited* | Trading | 100 | (1) |
CLM Engineering (Overseas) Limited | Dormant | 100 | (1) |
COGAP (Middle East) Limited* | Holding Company | 100 | (1) |
Construction Study Centre Limited* | Trading | 100 | (1) |
Costain Alcaidesa Limited* | Holding Company | 100 | (1) |
Costain America Inc. | Holding Company | 100 | (5) |
Costain Building & Civil Engineering Limited* | Holding Company | 100 | (1) |
Costain Construction Limited | Dormant | 100 | (1) |
Costain de Venezuela CA | Dormant | 100 | (15) |
Costain Energy Solutions Limited | Dormant | 100 | (1) |
Costain Engineering & Construction (Overseas) Limited* | Holding Company | 100 | (1) |
Costain Engineering Services Inc. | Dormant | 100 | (5) |
Costain International Limited* | Dormant | 100 | (1) |
Costain Management Design Limited | Dormant | 100 | (1) |
Costain Minerals Inc. | Dormant | 100 | (5) |
Costain Mining Services Inc. | Dormant | 100 | (5) |
Costain Oil, Gas & Process (Nigeria) Limited | Dormant | 95 | (16) |
Costain Oil, Gas & Process (Overseas) Limited | Dormant | 100 | (1) |
Costain Process Construction Limited | Dormant | 100 | (1) |
Costain Upstream Limited* | Trading | 100 | (2) |
JBCC Rhead PTE Limited | Dormant | 100 | (12) |
Promanex (Civils & Industrial Services) Limited | Dormant | 100 | (1) |
Promanex (Construction & Maintenance Services) Limited | Dormant | 100 | (1) |
Promanex (Total FM & Environmental Services) Limited* | Dormant | 100 | (1) |
Sunland Mining Corporation (II) | Dormant | 100 | (5) |
Westminster Plant Co. Limited | Dormant | 100 | (1) |
| Registered office/ | |||
| Percentage of | principal place of | ||
| Activity | equity held | 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) |
Richard Costain Limited | Service Company | 100 | (1) |
| Issued share | Registered | ||||
| capital | Percentage of | office/principal | |||
| 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 | 50 | 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 |
Galliford-Costain-Atkins Joint Venture – United Utilities | Engineering | 42.5 | 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 |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
180 181
Notes to the Financial Statements continued
| Percentage | Country | ||
| Activity | interest | of business | |
| Other joint operations, including completed continued | |||
24 Subsidiary undertakings, joint ventures, associates and joint operations continued
| 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) |
Costain Abu Dhabi Co WLL | Dormant | 49 | (9) |
China Harbour-Costain Mexico S de RL de CV | Dormant | 50 | (13) |
Gravitas Offshore Limited | Dissolved 4 April 2023 | 45 | (6) |
Jalal Costain WLL | Dormant | 49 | (10) |
Nesma-Costain Process Co. Limited | Dormant | 50 | (11) |
| Percentage | Country | ||
| Activity | interest | of 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 Improvement Programme | Rail Engineering | 33.3 | UK |
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 Management | Civil Engineering | 33.3 | UK |
| 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 |
Overview GovernanceStrategic Report Financial Statements
Costain Group PLC
Annual Report and Accounts 2023
182 183
Notes to the Financial Statements continued
As reported | As restated | |
| 2022 | 2022 | |
| £m | £m | |
Right-of-use assets | 25.3 | 30.7 |
Lease liabilities – current | 9.1 | 11.0 |
Lease liabilities – non-current | 15.0 | 18.5 |
27 Events after the reporting date
There are no events after the reporting date.
2023 | 2022 | |||||
| Joint ventures | Joint | Joint ventures | Joint | |||
| and associates | operations | Total | and associates | operations | Total | |
| £m | £m | £m | £m | £m | £m | |
Joint operations revenue | – | 564.6 | 564.6 | – | 599.1 | 599.1 |
Services of Group employees | – | 98.4 | 98.3 | 0.6 | 81.2 | 81.8 |
Construction services and materials | – | 20.9 | 20.9 | – | 17.2 | 17.2 |
– | 683.9 | 683.9 | 0.6 | 697.5 | 698.1 |
| Group | ||
| 2023 | 2022 | |
| £m | £m | |
Directors’ emoluments | 1.3 | 1.9 |
Executive officers’ emoluments | 2.0 | 2.1 |
Post-employment benefits | 0.1 | 0.1 |
Termination benefits | 0.2 | 0.6 |
Share-based payments | 1.5 | 0.8 |
5.1 | 5.5 |
Overview GovernanceStrategic Report Financial Statements
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Annual Report and Accounts 2023
184 185
Financial Calendar and Other Shareholder Information
Financial calendar
1
Full-year results 2023 12 March 2024
Annual General Meeting 16 May 2024
Final Dividend payment date
2
28 May 2024
Half-year end 2024 30 June 2024
Half-year results 2024 21 August 2024
Financial year-end 2024 31 December 2024
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.
2 Subject to shareholder approval at the Annual General Meeting to be held on 16 May 2024.
Scrip dividend scheme
Subject to shareholder approval of the final dividend at the 2024 Annual General Meeting, a scrip dividend scheme will be offered in
respect of the final dividend. Those shareholders who have already elected to join the scheme will automatically have their dividend 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 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.co.uk/overseas.
Analysis of shareholders
as at 6 March 2024
Total number
of holdings
Percentage
of holders
Total number
of shares
Percentage
of issued capital
Shareholdings 100,000 and more 134 1.72 265,851,739 96.07
Shareholdings 50,000–99,999 43 0.55 3,215,477 1.16
Shareholdings 25,000–49,999 51 0.65 1,847,844 0.67
Shareholdings 5,000–24,999 295 3.78 3,091,119 1.12
Shareholdings 1–4,999 7,2 9 0 93.30 2,712,706 0.98
Totals 7,813 100 276,718,885 100
Secretary
Nicole Geoghegan
Registered Office
Costain House, Vanwall Business Park, Maidenhead, Berkshire, SL6 4UB, United Kingdom
Telephone 01628 842444
www.costain.com
Company Number 1393773
* Lines are open Monday to Friday 08.30am to 5.30pm, excluding public holidays in England and Wales.
Five-Year Financial Summary
2023
£m
2022
(as restated)**
£m
2021
£m
2020
£m
2019
£m
Revenue and profit
Revenue 1,332.0 1,421.4 1,135.2 978.4 1,155.6
Contract adjustments – – 43.4 92.1 20.0
Adjusted revenue 1,332.0 1,421.4 1,178.6 1,070.5 1,175.6
Adjusted operating profit 40.1 36.3 30.1 18.0 37.9
Adjusting items – contract adjustments – – (39.2) (99.7) (20.0)
Adjusting items – other (13.3) (1.4) (0.4) (10.3) (21.1)
Operating profit/(loss) 26.8 34.9 (9.5) (92.0) (3.2)
Share of results of joint ventures and associates – – – 0.2 0.3
Profit/(loss) from operations 26.8 34.9 (9.5) (91.8) (2.9)
Finance income 8.0 1.8 0.1 0.8 1.0
Finance expense (3.9) (3.9) (3.9) (5.1) (4.7)
Net finance income/(expense) 4.1 (2.1) (3.8) (4.3) (3.7)
Profit/(loss) before tax 30.9 32.8 (13.3) (96.1) (6.6)
Taxation (8.8) (6.9) 7.5 18.1 3.7
Profit/(loss) for the year attributable to equity holders of the Parent 22.1 25.9 (5.8) (78.0) (2.9)
Earnings/(loss) per share – basic* 8.1p 9.4p (2.1)p (36.7)p (2.3)p
Earnings/(loss) per share – diluted* 7.8p 9.4p (2.1)p (36.7)p (2.3)p
Dividends per ordinary share
Final 0.8p – – – –
Interim 0.4p – – – 3.8p
Summarised consolidated statement of financial position
Intangible assets 45.7 52.2 52.5 52.1 59.0
Property, plant and equipment 26.8 32.0 32.0 39.9 44.1
Investments in and loans to equity accounted joint ventures
and associates 0.4 0.4 0.4 0.4 2.5
Retirement benefit asset 53.5 60.2 67.1 – 4.9
Other non-current assets 17.7 22.0 20.9 27.1 6.7
Total non-current assets 144.1 166.8 172.9 119.5 117.2
Current assets 324.5 320.8 359.5 370.4 435.3
Total assets 468.6 487.6 532.4 489.9 552.5
Current liabilities 233.0 253.1 281.4 266.3 328.9
Retirement benefit obligations – – – 5.6 –
Other non-current liabilities 16.2 23.3 52.0 61.5 65.9
Total liabilities 249.2 276.4 333.4 333.4 394.8
Equity attributable to equity holders of the Parent 219.4 211.2 199.0 156.5 157.7
* The Loss per share figures for 2019 have been restated for the capital raise in 2020.
** See note 26 for more information on restatement.
Overview GovernanceStrategic Report Financial Statements
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Costain Group PLC
Annual Report and Accounts 2023
186
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
Accreditations
ISO 9001 Quality Management System.
ISO 14001 Environmental Management.
ISO 45001 Occupational Health and Safety.
ISO 27001 Information Security Management.
ISO 22301 Business Continuity Management.
ISO 44001 Collaborative Business Relationships.
ISO 20000-1 IT Service Management.
PAS 2080 Carbon Management in Infrastructure.
TickITplus Systems and Software Development and Support.
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 Number printed on your notice of availability, 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.
Financial Calendar and Other Shareholder Information continued
Overview GovernanceStrategic Report Financial Statements
189
Costain Group PLC
Annual Report and Accounts 2023
188
Costain Group PLC | Annual Report and Accounts 2023
2023
Annual Report and Accounts
Costain Group PLC
Creating a
sustainable future
Costain Group PLC