Costain : FY21 Results Announcement

RESULTS FOR THE TWELVE MONTHS ENDED 31 DECEMBER 2021 9 MARCH 2022

Strong performance in 2021; well positioned to deliver further progress this year

Alex Vaughan, chief executive officer, commented:

"We have delivered an improved operating performance and results in line with market expectations, including significant growth in adjusted operating profit and margin, and good free cash flow generation.

"Infrastructure is facing enormous change, underpinned by significant committed investment and generating huge opportunities for us and, in my mind, addressing these changes requires a different approach. We have aligned our services to meet the changing needs of our clients, allowing us to shape, create and deliver pioneering solutions that transform the performance of the infrastructure ecosystem.

"Looking ahead, while we are mindful of the macro-economic backdrop, we have already secured more than £1bn of Group revenue for 2022 and have entered the new year with good momentum. We expect to deliver further progress in 2022 and remain confident in the Group's strategy and longer-term prospects."

Financial summary

£m		FY21		FY21		FY21		FY20	FY20	Adjusted1
	adjusted1		adjustments1		reported		adjusted1	reported	change
Group revenue		1,178.6		(43.4)		1,135.2		1,070.5	978.4	10.1%
Operating profit /		30.1		(39.6)		(9.5)		18.0	(92.0)	67.2%
(loss)
Operating margin		2.6%		(3.4)%		(0.8)%		1.7%	(9.4)%	0.9pp
Profit/(loss) before
	26.3		(39.6)		(13.3)		13.9	(96.1)	189.2%
tax
Basic
earnings/(loss) per		9.6p		(11.7)p		(2.1)p		5.8p	(36.7)p	65.5%
share
Dividend per share						-			-
Free cash flow2		38.9						31.6		23.1%
Net cash balance3						119.4			102.9

1. Before impact of significant contract provisions and other items of £39.6m (FY20: £110.0m) (see note 3).
2. Free cash flow is defined as cash flow from operating activities, excluding adjusting items, less capital expenditure.
3. Net cash balance is cash and cash equivalents less interest-bearing loans and borrowings (before arrangement fees of £0.6m in FY21 (£1.2m in FY20)).

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Highlights

Financial performance

• Adjusted1 Group revenue up 10% reflecting strong growth in Transportation from National Highways and HS2.
• Improved profitability with adjusted operating profit1 up 67% to £30.1m and an adjusted operating margin of 2.6%. Reported operating loss of £9.5m (FY20: £92.0m), the difference to FY21 adjusted profits reflecting £39.6m of adjusting items mainly related to legacy contract issues.
• Strong cash generation with a year end net cash position of £119.4m and £38.9m free cash flow, driven by strong cash collection.
• The Board does not consider it appropriate to recommend a final dividend this year.

Operating performance

• Strong safety performance with LTIR of 0.15 in line with pre-COVID levels.
• Transportation building good momentum with a strong pipeline and £764m of revenue secured for FY22.
• Natural Resources impacted by slower than expected investment in water and energy in H1. Trading improved in H2 and we expect this momentum to continue into FY22.
• Good visibility for FY22 with more than £1bn of Group revenue already secured2 for 2022 at year end, incorporating our broadening mix of construction, consulting and digital services.
• Solid order book2 position:

• 1. £3.4bn at end of FY21 (FY20: £4.3bn), reflecting the market cycles. o Preferred bidder book of £0.9bn (FY20: £1.2bn).
     o Around 50 further frameworks for higher margin consulting and digital services that will yield meaningful revenues in the year.
• Pipeline remains strong driven by significant committed infrastructure investment and structural growth drivers from Levelling Up, net zero, climate resilience and customer service needs and underpinned by our secured framework positions.
• Peterborough & Huntington (P&H) contract settlement concluded post year end, impacting reported operating profitability in FY21, with cash payment made in FY22.

1. Before impact of significant contract provisions and other items of £39.6m (FY20: £110.0m) (see financial statements note 3).
2. Order book and secured revenue includes revenue from contracts which are partially or fully unsatisfied and probable revenue from water frameworks included at allocated volume.

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Additional business information

	FY21	FY20	Change
Transportation adjusted1 revenue (£m)	864.2	724.2	19.3%
Road	408.9	315.2	29.7%
Rail	356.4	306.3	16.3%
Integrated transport	99.0	102.6	-3.6%

Natural Resources adjusted1 revenue (£m)	314.4		345.1	-8.9%
Water	200.0		223.0	-10.3%
Energy	72.0		87.5	-17.7%
Defence	42.4		34.6	22.3%
Non-financial
Order book2 at 31 December (£bn)		3.4		4.3	-20.9%
Revenue secured2 for following year (£m)		1,034		1,039	-0.5%
Lost time injury rate (LTIR)		0.15		0.09	0.06
Community investment (£k)		200		211	-5.2%
Absolute GHG emissions (scope 1-3) tCO2e		49,000		32,165	52%

1Before impact of significant contract provisions and other items of £39.6m (FY20: £110.0m) (see financial statements note 3).

2Order book and secured revenue includes revenue from contracts which are partially or fully unsatisfied and probable revenue from water frameworks included at allocated volume.

Enquiries
Investors and analysts
Louise Bryant, Costain	[phone]
Financial media - MHP	[e-mail]
Tim Rowntree	[phone]
Peter Hewer	[phone]

Analyst & investor presentation

A presentation of our results by Alex Vaughan (CEO) and Helen Willis (CFO) will be at 10.00am.

Please go tohttps://webcasting.brrmedia.co.uk/broadcast/6203df0c636d105baf47a75d

to register for the event.

To register a question please call 0800 279 6877 or [phone] with confirmation code: 7995124.

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Board changes

Tony Quinlan joined the Board as a non-executive director on 1 February 2021. Jane Lodge, who was senior independent director and chair of the audit committee, stepped down from the Board after nine years' service on 6 May 2021. Alison Wood became senior independent director and Tony Quinlan was appointed chair of the audit committee on 6 May 2021. Neil Crockett joined the Board as a non-executive director on 6 October 2021.

On 12 January 2022, Tony Quinlan also became the Company's senior independent director and Jacqueline de Rojas became remuneration committee chair on an interim basis, following the announcement that Alison Wood would step down as a non-executive director. A search for an additional non-executive director to become Remuneration Committee chair on appointment is well advanced and we will update the market in due course.

As announced separately today, Paul Golby has indicated his intention to step down as chair and from the Board within the next 12 months. Paul joined the Board as chair and non-executive director in 2016. The Nomination Committee, led by Tony Quinlan as senior independent director, will begin a search for Paul's successor.

Use of alternative performance measures

Throughout this release we use a number of 'adjusted' measures to provide users with a clearer picture of the underlying performance of the business. To aid understanding of the underlying and overall performance of the Group, certain amounts that the Board considers to be material or non-recurring in size or nature, or related to the accounting treatment of acquisitions, are adjusted because they are not long term in nature and will not reflect the long-term performance of the Group. This is in line with how management monitors and manages the business on a day-to-day basis. These adjustments are discussed in further detail in Note 1 on page 24.

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GROUP TRADING PERFORMANCE

We report both our statutory results, 'reported', and results excluding adjusting items, 'adjusted'. Key adjusting items for FY21 include the Peterborough & Huntingdon settlement payment, partially offset by a provision release relating to the A465 contract. Reported Group revenue was up 16.0%, while the reported operating loss reduced significantly from £92.0m to £9.5m.

Adjusted group revenue was up 10.1% to £1,178.6m (FY20: £1,070.5m). This was driven by Transportation where additional work from National Highways and HS2 resulted in divisional revenue growth of 19.3%. This more than offset an 8.9% decline in Natural Resources revenue, reflecting delays in AMP7 water investment and slower than anticipated investment in the energy market, particularly in H1.

Group adjusted operating profit grew strongly, up 67.2% to £30.1m (FY20: £18.0m), in line

with market expectations. The adjusted operating margin was 2.6% (FY20: 1.7%), driven by improvements across Transportation, partly offset by the weaker performance in Natural Resources. The improvement reflects the conclusion of lower margin work and an increased proportion of consulting and digital services.

Adjusted profit before tax was up 189.2% to £26.3m (FY20: £13.9m), while adjusted basic

earnings per share (EPS) was up 65.5% to 9.6p (FY20: 5.8p), due to improved profitability, partially offset by the annualised impact on the weighted average number of shares due to the equity raise in FY20. Reported loss before tax was £13.3m (FY20: £96.1m loss) and diluted basic loss per share (EPS) was 2.1p (FY20: 36.7p loss).

Our secured revenue for FY22 at year-end is more than £1bn. Our order book stood at £3.4bn at the year-end (FY20: £4.3bn), reflecting our clients five year investment programmes, greater discipline in contract selection and the shorter lead time of consulting and digital work. The order book evolves as contracts wind down and new contracts are added, therefore it does not provide a complete picture of potential future revenue. In addition to the contracted order book, we have a further £0.9bn of contracts where we are preferred bidder and around 50 further secured frameworks for higher margin consulting and digital services that will yield meaningful revenue each year.

Adjustments to reported items

A significant contract provision was made in the year, with the net charge to the income statement amounting to £39.2m. Within this, £43.4m was taken in relation to the settlement of the Peterborough & Huntingdon contract, which was offset by other movements including a provision release in relation to the A465 contract. Payment of £43.4m in settlement of the Peterborough & Huntingdon contract was made after the financial year-end, please see below for more details.

Cashflow and liquidity

Cash generated from operations was £29.5m (FY20: £47.0m outflow) driven by an improvement in operating profit and efficient working capital management. This has resulted in a £38.9m free cash inflow for the year (FY20: £31.6m). Net cash at the year-end was £119.4m (FY20: £102.9m).

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