Costain profit hit by £9.7m legacy job pay-out

21 August 2019 | By Neil Gerrard

Alex Vaughan

Costain has seen its 2019 half-year profit more than halved on the previous year after it was forced to pick up the bill for problems on a 13-year-old project.

The company had a reported pre-tax profit of £8.4m for the half year to 30 June 2019, compared to £19.9m in the same period a year before. Its reported revenue was also down to £594.1m in the 2019 half year from £758.7m in the same period a year before.

The dent in Costain’s reported pre-tax profit was as a result of a £9.7m one-off charge following an arbitration award in favour of Diamond Light Source Limited for the cost of remedial works to the roof at the National Synchrotron facility. Costain won a contract to build the building in 2004 and work was completed in 2006. But the subcontractor who installed the roof and would have been contractually liable for the remedial works went into administration in November 2017.

Costain’s underlying pre-tax profit, not including the cost of those remedial works, was £21.2m for the first half of 2019, down slightly on an underlying pre-tax profit of £23.2m in the same period in 2018.

The company pointed to an improved underlying operating margin of 4% this year, compared to 3.5% in the year before, as well as an order book as at 30 June of £4.2bn, up from 3.7bn last year.

Revenue for the full year is likely to be lower than previously anticipated and underlying profit is likely to fall in the range of £38-£42m after the company experienced a number of delays in the timing of contract start dates and new awards.

Higher margin services

The company has recently implemented its “Leading Edge” strategy, which sees it accelerating its delivery of higher margin services, placing greater emphasis on its relationships with its biggest clients, offering consultancy and advisory services and digital technology solutions.

In the first half of this year, Costain claimed that a third of its operating profit came from these higher-margin services, with two thirds from complex delivery activities. It said it wanted to shift the mix to higher-margin services accounting for 55% of its operating profit over the medium term.

Chief executive Alex Vaughan said: "While, as previously announced, delays to certain contract start dates and new awards, together with a contract cancellation will impact our full year performance, we are pleased that the group has continued to secure significant new work during the first half. We therefore remain on track to deliver our revised expectations for the current year and growth in 2020.

"We recently launched our 'Leading Edge' strategy for the development of the business which aims to accelerate the deployment of higher margin activities and deliver a blended divisional margin range of 6%-7% over the medium term. The group's structure has also been reorganised to better align it to our clients and the markets in which we operate.

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