Costain Group PLC · LSE:COST
Costain — FY2019 Earnings Presentation
38 slides from Costain's earnings presentation, March 2020
Slide 1: Results for the year ended 31 December 2019
Results for the year ended 31 December 2019
Slide 2: Welcome
Welcome Dr Paul Golby CBE Chair
Slide 3: Alex Vaughan, Chief Executive Officer
Alex Vaughan Chief Executive Officer
Slide 4: Highlights
Highlights Full year results in line with revised expectations - underlying operating profit of £17.9 million Reduction due to previously announced contract delays, a contract cancellation and the impact of the A465 contract arbitration outcome Continued momentum in securing new work £1.7 billion of
Slide 5: Costain's investment proposition
Costain’s investment proposition One of the UK’s leading smart infrastructure solutions providers Long-term track Strong track record for delivering integrated services across the asset record life cycle A c £23bn p.a. addressable market across transportation, water, energy Sustainable and and defen
Slide 6: Market backdrop and strengthening the balance sheet
Market backdrop and strengthening the balance sheet Take advantage of business growth opportunities through Growing infrastructure investment in bid costs, innovation and technology, enhancing the market with significant execution of the Group’s Leading Edge strategy to grow higher opportunities val
Slide 7: Tony Bickerstaff, Chief Financial Officer
§ § Tony Bickerstaff Chief Financial Officer
Slide 8: 2019 underlying performance
2019 underlying performance Underlying2 operating profit Net cash position Order book Dividend per share £17.9m £64.9m £4.2bn 3.8p (FY 2018 : £52.5m) (FY 2018 : £118.8m) (FY 2018 : £4.2bn) (FY 2018 : 15.15p) Note : Impact of A465 £20m, Cash held in joint operations HS2 delay and cancellation of incl
Slide 9: Profitability track record
Profitability track record Revenue1 Underlying2 operating profit £1.7bn £1.6bn 4.0% £1.5bn £16.0m £1.3bn Contract delays/ cancellation £1.2bn £1.1bn 3.0% A465 arbitration £20.0m outcome £52.5m £49.1m 2.0% £41.1m £33.2m £28.7m 1.0% £17.9m 0.0% 2014 2015 2016 2017 2018 2019 2014 2015 2016 2017 2018 20
Slide 10: Segmental income statement
Segmental income statement 2019 2018 Underlying2 Underlying2 operating operating Revenue1 profit Margin Revenue1 profit Margin £m £m £m £m £m £m Transportation 722.9 9.7 1.3% 1,004.1 41.4 4.1% Natural Resources 434.4 15.4 3.5% 479.8 18.7 3.9% Alcaidesa (Spain) 5.6 (0.7) 5.4 (0.7) Central costs (6.5)
Slide 11: Divisional margin profile
Divisional margin profile TRANSPORTATION FY 2018 margin 4.1% 2019 service split of: Rail margin decrease Highways margin increase (0.8%) 1.4% c1/3 in higher value services Investment in technology capability (0.6%) c 2/3 in complex programme delivery Underlying FY 2019 margin 4.1% delivering at simi
Slide 12: Contract update
Contract update HS2 A465 Peterborough & Huntingdon Southern section enabling works Highways scheme for the Welsh The upgrade of National Grid’s (JV with Skanska) Government (WG), improving the Peterborough and Huntingdon % complete 68% A465 road compressor stations % complete 94% % complete 65% Esti
Slide 13: How we manage contract risk
How we manage contract risk Five gate approval process for opportunities before Contract selection contract signing. Updated policies to reflect acceptable and bidding profit and risk profile for new contracts Augmented contract monitoring and administration Commercial procedures to better address s
Slide 14: 2019 cash bridge
2019 cash bridge Structural Contract Normal course of business £85m £119m market change Performance £(2)m £(22)m £(47)m Cash position principally impacted by: £(30)m • Structural market changes £(15)m £35m £65m £84m including: £(7)m £38m o supplier payment activity o increased use of project £34m £(
Slide 15: Positive net cash position
Positive net cash position 2019 2018 £m £m Net cash1 at beginning of period 118.8 177.7 FY2019 average month end net cash1 balance of: Cash from operations 26.0 60.3 £41.2m (2018: £77.1m) Changes in working capital including average month end net cash1 in joint (33.2) (82.5) (excluding pension defic
Slide 16: Balance sheet
Balance sheet 31 December 31 December Target balance sheet measures 2019 2018 £m £m Net assets > £200m Assets Current asset ratio > 1.3 Non current assets High positive net cash 112.3 107.3 (excluding pension net surplus) Trade and other receivables 254.4 278.0 No structural debt Cash and cash equiv
Slide 17: £1.7bn of work secured in 2019
£1.7bn of work secured in 2019 Order book bridge £4.2bn £1.0bn £4.2bn Order book of £4.2 billion (as at £3.7bn 31 December 2019) with over £0.7bn 90% being repeat orders and underpinning medium term £(1.2)bn growth. £(0.5)bn • Over £1.7bn of new contract awards and extensions secured in 2019 • Strat
Slide 18: Long term, higher quality order book
Long term, higher quality order book c £940m of work secured for 2020 Included in our order book: Formal contracts – construction delivery phase (c £0.8bn) • M1 Smart motorway programme • A19 Testo’s junction 2020 • Thames Tideway Tunnel – East • Peterborough & Huntingdon Early Contractor Involvemen
Slide 19: Alex Vaughan, Chief Executive Officer
§ § Alex Vaughan Chief Executive Officer
Slide 20: Clear purpose, vision and strategy
Clear purpose, vision and strategy Our vision is to Our purpose is be the Our ‘Leading Edge’ to improve people’s UK’s leading smart strategy enables us to lives infrastructure achieve our purpose solutions company and vision 20
Slide 21: Our responsible business commitment
Our responsible business commitment Our goals: • A clear plan to deliver low carbon whole life solutions to every client by 2023 and to be net zero by 2035 Create a greener • A gender pay gap of <5% and a 50% reduction in future our BAME pay gap • Eliminate harm – continue to improve our industry le
Slide 22: Our significant market opportunity
Our significant market opportunity TRANSPORTATION Highways England & local Ofwat: authorities (2020 – 2025) AMP 7 (2020 – 2025) c £29bn c £50bn WATER Aviation: Network Rail: Airport expansion CP6 (2019 – 2024) c £7bn c £47bn Defence: Energy £23bn p.a. ENERGY MoD Equipment Infrastructure: addressable
Slide 23: Changing investment priorities
Changing investment priorities • UK Government, regulators and clients collectively spending in excess of £1 billion in innovation programmes Increase • Enhancing asset management practices capacity is key to increasing the effectiveness and efficiency of asset use Enhance customer • Water industry
Slide 24: A business model aligned to our market opportunity
A business model aligned to our market opportunity Transportation Highways | Rail | Aviation Natural Resources Water | Energy | Defence 24
Slide 25: The future shape of Costain
The future shape of Costain 8-10% 55% margin Increased 35% divisional margins 6-7% 2019 underlying divisional margin c 4%* 45% 3-5% 65% margin 2019 Ambition to evolve our service mix 2024 Broadening our services I Increasing profit Increasing margins I Increasing revenue Note: * Underlying margin ex
Slide 26: Case study: the progress we have made in water
Case study: The progress we have made in water z AMP6 2015 -2020 • Capital delivery framework • Capital delivery framework, incentivisation based z • Maintenance services AMP7 2020 -2025 • Capital delivery • Capital delivery and advisory • Digital twin development • Assurance consultancy and technic
Slide 27: Growth in our consultancy services
Growth in our consultancy services >150 consultancy contracts won in 2019 >30 long-term frameworks Pale Blue Dot AWE EDF project controls Network Rail design and consultancy framework Technical consultancy Five-year management Professional services Multi-disciplinary design services for UK’s first s
Slide 28: Implementation priorities
Implementation priorities Progress our Leading Edge strategy to align with changing client and market dynamics Accelerate deployment of our higher margin services Enhance our contract risk management Improve operational efficiency to deliver £20m p.a. of savings within 3 years to underpin investment
Slide 29: Summary
Summary • Challenging year but good progress implementing Leading Edge strategy • Strong momentum securing higher value contracts • Positive infrastructure market backdrop provides significant opportunities • Capital raise will provide financial strength and allow us to capitalise on these growth op
Slide 30: Q&A
COSTAIN Q&A aan
Slide 31: Appendices
[ COSTAIN Appendices
Slide 32: Disclaimer
Disclaimer This document has been prepared by Costain Group PLC (“Costain”, or the “Company”) solely for use at a presentation in connection with the proposed firm placing and placing and open offer of new ordinary shares of the Company (the “Equity Issue”). For the purposes of this notice, “present
Slide 33: Other items and tax
Other items and tax Other Items • Amortisation of acquired intangible assets - £2.3m (2018: £3.0m) • Employment related and other deferred consideration - £0.2m (2018: £0.4m) • Loss on sale of Alcaidesa Holding S.A.U which owns and operates two golf courses in Spain - £3.0m • Impairment of Alcaidesa
Slide 34: Legacy pension obligation
Legacy pension obligation Legacy defined benefit pension scheme (closed fully to future accrual in 2009) • As at 31 December 2019, the Group’s pension scheme surplus in accordance with IAS 19, was £4.9 million (2018: £4.2 million deficit). The position of the scheme has improved in the year because
Slide 35: IFRS 16 impact
IFRS 16 impact Balance sheet impact £m Income statement impact £m Fixed assets opening adjustment 33.0 Decrease in operating costs 14.9 Additions in 2019 13.8 Increase in depreciation (14.0) Disposals in 2019 (3.1) Increase in finance costs (1.3) Depreciation (14.0) Net impact on income statement (0
Slide 36: Long term and broader order book
Long term and broader order book c £940m of work secured for 2020 vs over £870m for 2019 2020 2019 2021 2020 Dec 19 2022 Dec 18 2021 2023 2022 2024+ 2023+ £m - 200 400 600 800 1,000 1,200 36
Slide 37: Enhancing the business since 2014
Enhancing the business since 2014 Balance sheet cash bridge 2014 to 2018 Since Costain’s £74m equity raise in 2014, the Company Normal course of business £208m £57m has delivered a significant transformation in business performance: £(54)m • Significant operating cash flow • Increasing margin and qu
Slide 38: Our integrated leading edge services
Our integrated leading edge services We transform business We work with our clients in performance and infrastructure their business and investment intelligence through the planning to develop solutions development of leading edge to meet changing needs. digital technology solutions. We combine our