Repair job slashes Costain profits despite new work flooding in
Orders have flooded in during the first half at infrastructure group Costain, despite a historic Oxfordshire project came back to bite it more than a decade on from its completion.
The London listed construction firm was forced to pay £9.7m to repair the roof of a high-tech science centre, the National Synchrotron facility, which it finished building in summer 2006.
Read more: Costain shares sink 40 per cent on profit warning
Shares rose 10 per cent this morning as the firm announced it had gained momentum in winning new work, with more than £1bn of contract awards in the first half.
The figures
Pre-tax profit was £8.4m for the first six months of the year, a 55 per cent drop on the same period in 2018. Revenue was £594.1m, a 21.7 per cent drop year-on-year.
Underlying profit was £19.5m, down from £21.8m the year before. Net cash was £40.8m, down 47 per cent on the same time last year.
Why it’s interesting
Costain had already warned full-year profits would be worse than expected because of a number of contract delays on building motorways.
Later start dates for projects like the M6 smart motorway and the southern section of High-Speed Rail 2 were set to push revenue “lower than anticipated”, Costain said in a trading update.
The firm said it should not have been the company to foot the bill for the Oxfordshire repairs. It said: “The sub-contractor on the project, who undertook the installation of the roof, would have been contractually liable for the remedial works but went into administration in November 2017.”
Margins improved to 3.5 per cent as higher-margin work starts to account for a larger chunk of the business. Over the longer-term, the firm said it plans to raise margins to between six and seven per cent, via a new growth strategy.
Read more: Costain awarded Network Rail contract for ‘Meerkat’ technology at level crossings
What Costain said
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.
“The sub-contractor on the project, who undertook the installation of the roof, would have been contractually liable for the remedial works but went into administration in November 2017.”
Main image: Getty