Engineering group Costain has announced a strong performance, maintaining its record £3.9 billion forward order book, significant increases in both revenue and underlying operating profit and a recommended 15% increase in the final dividend, according to its final results for the year ended 31st December published this morning.
Revenues, including Costain’s share of joint ventures and associates, increased to £1.7 billion (2015: £1.3 billion), while underlying operating profit rose 24% to £41.1 million (2015: £33.2 million) Over £1.2 billion of revenues are secured for 2017, with £2.7 billion of revenue secured for 2018 and beyond. More than 90% of Costain’s order book comprises repeat business.
Costain has two core operating and reporting divisions within the business - Infrastructure and Natural Resources. The Infrastructure division delivered increases in revenue and operating profit and maintained a record order book. The Natural Resources division, which operates in the water, power and oil & gas markets, saw an increase in revenue with the overall result impacted by further costs in relation to the legacy Greater Manchester Waste PFI contract awarded to Costain in 2007.
The Board has recommended a final dividend payment of 8.4 pence per share (2015: 7.25 pence), increasing the total dividend for the year by 15% to 12.7 pence per share (2015: 11.0 pence).
Dr Paul Golby CBE, Chairman, commented:
“I am pleased to report that Costain has delivered another strong result, with continued growth in both revenue and profit, and has maintained a record high quality forward order book."
“Our major customers are committed to spending billions of pounds to improve people’s lives by enhancing the UK’s energy, water and transportation infrastructures. In order to deliver solutions to their increasingly complex requirements, Costain will continue to provide the broadest range of innovative integrated services and technology-based solutions.”
Success directly attributed to Costain's "engineering Tomorrow" strategy
Dr Golby said the Group’s continuing success was the direct result of its ‘Engineering Tomorrow’ strategy which involves focusing on blue chip customers in chosen sectors whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.
”The increasingly complex demands of the Group’s blue chip customers present engineering challenges which require an even greater emphasis on technology-based solutions. Costain’s unique and focused ‘Engineering Tomorrow’ strategy has successfully positioned the business as one of only a few companies able to provide those solutions.” he added.
AMP6 spend contributes to rise in revenues in Natural Resources Division
Revenue in the Natural Resources division, which operates in the water, power and oil & gas markets, has increased as a consequence of the expected cyclical growth in spend in the AMP 6 programmes in the water sector, the full benefit from the integration of the acquisition of the Rhead Group in August 2015 and despite the impact of the continued difficult oil and gas market conditions.
A significant number of new orders and contract extensions secured during the period included a joint venture contract for the East works package of the Thames Tideway Tunnel in London. Costain said the project has now successfully mobilised and is progressing well.
The Group is now in year two of the AMP6 five year programmes for Thames Water, Severn Trent and Southern Water with a focus on improving and maintaining water quality standards, supply resilience and meeting anticipated demographic shifts. Costain said the programmes are utilising the full range of integrated capabilities available in the Group to deliver improved customer service, innovative solutions and achieve significant total expenditure efficiency savings.
In Glasgow, Costain is improving water quality and resilience of supply through the delivery of the Shieldhall Tunnel for Scottish Water, reducing flooding issues in the city’s wastewater network. This is one of the largest infrastructure investments in Scotland and the main tunnel drive and associated works are progressing well.
Operating loss in Natural Resources as a result of legacy waste PFI contract
Revenues in the Natural Resources Division as a whole (including share of joint ventures and associations) increased to £377.3 million (2015: £317.6 million) with an operating loss (before other items), including the impact of the increased costs and provisions on the legacy waste PFI contract, of £8.6 million (2015: £11.1 million loss). The division has a forward order book of £1.0 billion (2015: £1.1 billion).
Reported loss from operations was £12.6 million (2015: £13.4 million loss). Excluding the impact of the legacy waste contract the division generated an underlying operating profit of £6.5 million in 2016.
The loss in the period includes further costs and provisions arising in the year totalling £15.1 million in relation to the completion of the legacy Greater Manchester Waste Disposal Authority PFI contract awarded in 2007.
Costain said it has received significant payments from, and remains in discussions on further payments with contract counterparties and the Group’s insurers regarding the issues that have arisen on this contract. It has been the Group’s policy since 2009 not to pursue fixed price contracts of this nature.
Commenting on Brexit, Chief Executive Andre Wylie said there had been no adverse impact on Costain following the referendum vote in June 2016, saying:
“We are reinforcing our strategic focus on our major customers who are already committed to spending billions of pounds addressing critical UK infrastructure needs and we will continue to accelerate the growth of the business, investing both organically and by acquisition, in people and skills and in innovation and capabilities.”
In July 2016 Costain completed the £17 million acquisition of Simulations Systems Ltd (SSL), which has been fully integrated and which will be earnings enhancing in 2017.