Costain has reported an order book of £4.2 billion, including £0.9 billion of secured revenue, for 2021, according to its results for the half year ended 30 June 2020.

Over £2 billion of contracts and frameworks secured by the smart infrastructure solutions company in the first half is comprised of a greater proportion of integrated services.

All current contracts are now operational following the impact of COVID-19, with necessary safety measures in place.

Costain has also strengthened its balance sheet following a £100 million equity raising exercise, resulting in net cash of £141 million, enabling the Group to further capitalise on growing infrastructure market opportunities.

However, the Group has reported a pre-tax loss of £92.3 million against revenue of £548.7million. For the same period last year, Costain had reported a pre-tax profit of £8.4 million on revenue of £599.2 million.

The contractor has attributed the loss to two problem contracts for the loss – Costain has been involved in legal disputes about the National Grid Peterborough & Huntingdon gas-compression station contract ( £49.3 million) and the £45.4 million A465 Heads of the Valleys road adjudication defeat to the Welsh Government.

"There remains a strong pipeline of further opportunities which we are actively targeting"

Alex Vaughan, Chief Executive Officer, commented:

"We are now back on site across all of our operations with strict safety measures in place to protect our teams and the communities we work in. I would like to pay tribute to our people who have done everything they can to look after one another and to do the right thing by our clients, communities, society and to protect our business during this pandemic.

"We are clearly disappointed with the recent arbitration outcome in relation to the A465 contract which, together with the mutual termination of the Peterborough & Huntingdon contract, has resulted in significant revenue adjustments for these long-standing projects. We have in place clear actions to resolve the financial position on these contracts and importantly we have taken decisive action to prevent such issues from reoccurring.

"The equity raise in May has already helped us to capitalise on the immediate opportunities in our infrastructure markets as we successfully secured over £2 billion of contracts in the first half, many of which incorporate our consultancy and digital capabilities in line with our strategic focus. There remains a strong pipeline of further opportunities which we are actively targeting.

"Looking ahead, assuming no further sustained COVID-19 lockdowns, we are confident of delivering growth in profits and margins next year. Although we are mindful of the macro-economic uncertainties ahead, Costain is in a strong position with secured long-term programmes and a positive market backdrop, in particular the UK Government's drive to progress investment in infrastructure so that it is better, greener and faster in support of the nation's economic recovery."

As a result of the issues on the A465 and P&H contracts, Costain has implemented a number of significant changes to its contract selection and management processes. The Group said its contract management processes and procedures have been enhanced over the last 12 months so that contract risk and changes to contract costs are better monitored and managed throughout the life cycle of a project. The procedures include:

• Five stage gated approval process prior to signing any contract, including independent risk review prior to target cost approval
• Updated policies for the group’s commercial expectation and risk appetite for all new contracts
• Reduction in the acceptable level of downside risk on any new project
• Increased minimum level of acceptable profit for all new contracts
• Enhancement to the monitoring and administration of scope of workchanges to identify and escalate potential cost increases at an early stage
• Implementation of a group-wide Operating Excellence model on all new contracts and existing long-term frameworks

The company has a future ambition for 45% of its profits to be derived from complex programme delivery ( currently c 67%) and 55% from its consultancy and digital services ( currently c33%)

Costain said:

“Crucially, a greater proportion of the business we have won in the last six months comprises more of our integrated services including digital solutions and consultancy in line with our strategic intent and our margin growth targets.”

These include:

• Award of a position on Anglian Water’s Strategic Pipeline Alliance where Costain is leading the implementation of their industry leading digital twin as well as programme managing the solution development;
• A first programme Management Office consultancy appointment in water in supporting the delivery of Thames Water’s AMP7 programme
• Technical Services Framework for Yorkshire Water

The Group is also carrying out other AMP7 contract work for Severn Trent, South Staffs, Southern Water and United Utilities, together with ongoing work in its joint venture on the east section of the Thames Tideway tunnel.

Costain is also working with several clients to consider the impact of COVID-19 on the timing profile of their immediate term investment programme.

Under its One Costain operating model it operates across two core divisions of transportation & natural resources – the division under which Costain’s water sector sits. Operating margins in the division were impacted during the first half of the year, reducing to 2.3%.