Costain profits hit by delays on major projects

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Costain has issued a trading update for the previous six months which has revealed that profits are expected to be affected by delays on major projects

Costain has seen a number of delays to the timing of contract start dates and new awards. The projects affected include the M6 Smart Motorway, Preston distributor road and HS2 Southern Section main works.

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.

The M4 Corridor around Newport project was cancelled by the Welsh government earlier this month. Consequently, 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 £38.0m to £42.0m.

Revenue secured to date for FY2019 is £1.1bn 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.

Costain’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 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 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.

Alex Vaughan, chief executive officer, will on 2 July 2019 set out in a presentation at The London Stock Exchange his ‘Leading Edge’ strategy for the business and its medium-term development.

Vaughan commented: “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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