Costain confident after meeting first-half expectations
By Josh White
Date: Wednesday 24 Aug 2022
(Sharecast News) - Infrastructure engineering company Costain said on Wednesday that its reported and adjusted group revenue was up 19.5% in its first half to £665.2m, reflecting primarily volume growth and inflation protection mechanisms within contracts.
The London-listed firm reported a 21.7% improvement in adjusted operating profit year-on-year, to £14m for the six months ended 30 June, in line with management expectations and with growth across both divisions.
Its adjusted operating margin was unchanged at 2.1%, as volume increases, an improved mix and operational improvements were offset by targeted up-front investment in the company's digital and consultancy capability, and the timing of increased bid activity on a series of "major opportunities", primarily in transportation.
Costain reported "strong" adjusted free cash flow of £34.4m, which it put down to increased adjusted profitability and continued enhanced working capital management.
The company's first-half net cash position of £95.9m, down from £119.4m at the start of the period, was after the previously-disclosed payment of £43.4m relating to the Peterborough & Huntingdon contract.
Looking ahead, Costain said it had good visibility of contract revenue, with around £560m secured for the second half representing approximately 90% of expected group revenue for the period, and long-term contracts in place, together with a "broadening mix" of consultancy-led services.
The board described the order book as "high quality", at £2.7bn at period end, down from £4bn a year earlier, reflecting the timing of major contract bids and client procurement.
Costain said it expected the full-year order book to "strongly increase", with award decisions on further high-quality contracts expected in the second half, and into the start of the 2023 financial year.
Its preferred bidder book totalled £0.8bn, down from £0.9bn, while the company said it was currently appointed to more than 50 frameworks for higher-margin consulting and digital services that were expected to drive revenue growth.
"In the first half of the year we delivered a strong operating performance reflecting volume increases and the inflation recovery mechanisms built into our contracts," said chief executive officer Alex Vaughan.
"Our adjusted operating profit increased by 22% year-on-year, and we had a strong adjusted free cash performance, ending the period with £95.9m, with a positive net cash flow expected in the second half.
"Despite material availability and inflation challenges, we have managed the supply chain pressures effectively, while delivering a robust operational performance with new contracts being won on attractive commercial terms with appropriate risk."
Vaughan said the firm's four chosen markets of transport, water, energy and defence remained resilient, with the pipeline of potential new business healthy.
"We undertook a very high level of bidding activity in the first half, with award decisions expected in the second half, and in the first half of 2023.
Alex Vaughan noted that in July, the company experienced a fatality on one of its rail projects.
"We are shocked and saddened by this tragic incident and we, and our subcontractor, are working with the authorities and our client in an investigation to fully understand its causes."
Costain was focussed on supporting the family and on the wellbeing of its colleagues, the CEO said.
"While we remain mindful of the macroeconomic backdrop, we are pleased with the quality and scale of our order book, including secured multi-year infrastructure programmes, the volume of preferred bidder work and the additional long-term framework contracts which will deliver continued progress in 2023 and beyond."
At 0834 BST, shares in Costain were up 3.8% at 41p.
Reporting by Josh White at Sharecast.com.
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