Contract delays and cancellation to hit profits at Costain

Costain has revealed that its half-year results will be lower than expected due to a number of delays and a cancelled project.

Contract delays and cancellation to hit profits at Costain

Alex Vaughan

In a trading update ahead of announcing results for the six months ended 30 June 2019 on August 21, the smart infrastructure solutions company said trading on current contracts during the first half has overall been in line with expectations. New orders secured in the first six months of this year include the A19 improvement contract and long term AMP7 awards for Severn Trent Water, United Utilities and Yorkshire Water which have strengthened the group’s position in the water market.

However, the contract said it has recently seen a number of delays to the timing of contract start dates and new awards. Projects affected include the M6 Smart Motorway, Preston distributor road and HS2 Southern Section main works. Additionally, the M4 Corridor around Newport project was cancelled by the Welsh Government last month.

Consequently, it said revenue for FY2019 will be lower than previously anticipated and underlying operating profit for the full year is expected to be in the range of £38m to £42m. 

Revenue secured to date for FY2019 is £1.1 billion with the group’s operating divisions expected to trade within the target margin range for the year. Revenue secured for FY2020 is c£900m (compared to c£850m for FY2019 at the same stage last year) and is also higher margin business overall.

The group’s order book is £4.2bn (30 June 2018: £3.7bn). The group also has a preferred bidder position of c£600m (30 June 2018: c£400m) and tendering levels remain high.

Costain said it has a robust balance sheet including a strong net asset position and positive net cash, and expects to report an average month-end net cash balance for H12019 of c£65m.

The H12019 results will include a one-off charge of £9.8m in respect of a recent arbitration award in favour of Diamond Light Source Limited for the cost of remedial works deemed required to the roof at the National Synchrotron facility which was completed in August 2006. The sub-contractor who installed the roof would have been contractually liable for the remedial works but went into administration in November 2017. The nature of this contract is no longer within the group’s strategy and, therefore, the underlying trading results will be reported before the impact from this one-off item. The cash cost of the award was incurred in the first half of the year.

Chief executive officer Alex Vaughan will set out his ‘Leading Edge’ strategy for the business and its medium-term development tomorrow.

He said: “Despite delays to the timing of certain contract start dates and new awards, our markets are strong, as evidenced by the breadth of our new contract awards in the first half.

“We have a strong balance sheet, profitable operations and a broad range of capabilities to support the growth of the business. Costain is well placed to secure the opportunities ahead of us.”

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