Unfavourable arbitration ruling hits profits at Costain

The outcome of an arbitration case over a motorway project has seen Costain issue a new £20 million profit warning.

Unfavourable arbitration ruling hits profits at Costain

The infrastructure firm said that a decision made in arbitration regarding its contract with the Welsh Government to build the A465 road had split responsibility for design information, partially reversing a previous decision that had been more favourable to the group.

As a result, Costain said its profit for 2019 will be around £20m lower than previously expected.

It said today: “Costain has assessed the implications of this determination and is engaged in discussions with the Welsh Government to reach agreement on a financial settlement. As a result, the group now expects FY19 underlying operating profit to be in the range of £17m - £19m and the year-end net cash position to be c£20m, with the net cash position being impacted by c£40m of cash currently withheld on the A465 contract. We continue to fulfil our obligations under the A465 contract, with completion scheduled in H1 2021.”

Elsewhere in the business, Costain has performed in line with expectations in the second half of the year. It is making good progress with its ‘Leading Edge’ strategy securing an increasing number of higher-margin contracts from across its blue-chip client base.

The group has secured c£600m of new work during the second half, including contract awards and extensions to existing contracts.

Costain expects to finish the year with an order book of £4.2 billion (31 December 2018: £4.2bn). 

Alex Vaughan, chief executive officer, said: “Clearly the situation regarding the A465 contract is disappointing. Elsewhere, the business is performing in line with expectations. We have secured a number of new contracts to maintain our healthy order book.

“We have also made good progress with our Leading Edge strategy, accelerating the deployment of higher-margin services to our blue-chip client base. We are confident this strategy will enhance our offer to clients, deliver higher margins and generate long term shareholder value.”

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