Infrastructure group Costain sees profits plunge in first half

A “lower level of capital project activity”, coupled with a costly roof repair bill, meant revenue and profits took a beating in the first half of 2019

Costain -
Costain warned on profits in June, and said today it is on track to meet those revised targets

Profits at Costain Group PLC (LON:COST) more than halved in the first half of the year amid a dearth of big contract wins.

Revenue slipped 22% to £599.2mln in the six months ended 30 June (H1 18: £772.9mln), which led to a 58% fall in pre-tax profits to £8.4mln (H1 18: £19.9mln).

Costain was also forced to pay out almost £10mln to fix the roof on a building it helped to construct over a decade ago, which contributed to the bottom line plunge.

READ: Costain falls as project delays hurt revenue

The liability would have fallen with the subcontractor that installed the roof, but that company went into administration in 2017, leaving Costain to foot the bill.

Margins improved to 3.5% (H1 18: 3%) as higher-margin work starts to account for a larger chunk of the business.

Over the longer-term, Costain wants to get margins up to between 6-7% and recently launched its ‘Leading Edge’ strategy to do just that.

Earlier this summer, the company, which is now valued at just £150mln, warned full-year profits would be lower than previously expected, owing to delays with some of its contracts, including the M6 Smart Motorway, as well as the cancellation of the M4 Corridor project around Newport.

Things haven’t got better – or worse – since then, and Costain bosses remain confident in meeting the revised operating profit target of between £38-42mln for the full year.

“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,” said chief executive Alex Vaughan.

“We therefore remain on track to deliver our revised expectations for the current year and growth in 2020.”

Quick facts: Costain

Price: 180 GBX

Market: LSE
Market Cap: £194.91 m

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