Costain slashes profit forecast following A465 dispute ruling

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Costain has reduced its profit forecast for the year following a legal defeat from the Welsh Government over the A465 Heads of the Valleys road project

In Costain’s half-year results statement in August, they reported that the Welsh Government had escalated a specific matter under the dispute resolution mechanism in the A465 Contract which Costain entered into in 2015.

The matter has now been determined at arbitration. The arbitration award effectively splits the responsibility for the design information between both parties. This partially reverses the decision of the initial adjudication and is contrary to the legal advice received by the group concerning the relevant provisions of the A465 Contract.

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

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, they now expect 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.

Alex Vaughan, chief executive officer, commented: “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.”

The group is progressing with its‘ Leading Edge’ strategy securing an increasing number of higher-margin contracts from across their blue-chip client base.

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