ASGC, the UAE construction group, has committed to invest £25m into Costain, as part of the company’s £100m cash-raising share issue
This investment will provide a competitive advantage in a sector where clients and suppliers are increasingly scrutinising their partners’ balance sheets. On completion of the capital raising, ASGC will hold approximately 15.2% of Costain’s enlarged share capital.
Intention to raise gross proceeds of approximately £100m through a Firm Placing and Placing and Open Offer £80m to be raised through Firm Placing and £20m to be raised through the Placing and Open Offer.
This will allow for business growth opportunities through the investment required in bid costs and innovation and technology, enhancing the execution of Costain’s ‘Leading Edge Strategy’ to grow higher-value services with increased margins.
Costain’s Leading Edge strategy
Costain’s Leading Edge strategy, launched in 2019, closely aligns its services to meet the changing needs of its markets and clients and differentiates the group through its long-term strategic client relationships and ability to meet their wider, evolving needs.
Strategically, the directors believe that as a result of its unique client focus, Costain is well-positioned to benefit from these long term positive market dynamics.
The aim of the Leading Edge strategy is to broaden the group’s services provided to clients, accelerate the deployment of higher-margin activities and deliver a divisional operating profit margin in the range of 6 to 7% over the medium-term.
Banking partners have agreed, subject to the completion of the capital raising, to extend the group’s existing debt facilities to 24 September 2023. The renewed facilities, in addition to the investment, will give additional balance sheet strength.
Prompt Payment Code
the introduction of the Prompt Payment Code whereby contractors are required to pay their suppliers earlier has also resulted in higher working capital requirements. In response, Costain has implemented revised processes to ensure that suppliers are paid promptly, with the average time taken to pay invoices reduced to 34 days from 58 days.
Reasons for capital raising
Costain’s markets have changed significantly over the last five years which has led to a change in the nature of the relationship between Costain, its clients and its suppliers.
There has been an increase in the use of joint operation delivery structures and project bank accounts, as clients and partners respond to the impact of the failure of contractors in the sector by requiring increased direct control over their financial risk profiles.
This has resulted in an increase in the level of Costain’s balance sheet cash being held in such joint operation structures and project bank accounts, rather than being freely available for the group to use for general working capital purposes
The board said it believes there is a significant opportunity for the group to capitalise on the growing infrastructure market opportunities available to the group, in line with the Costain’s strategy.