Costain is reporting a continuing strong financial performance, a £4.3 billion forward order position plus continued growth and an expanding presence in the UK water sector, according to its latest set of results for the six months ended 30 June 2024 (H1 24).

The company is continuing to work on capital delivery programmes for Anglian Water, Severn Trent Water, Southern Water, and Thames Water in AMP7. Revenue during the H1 24 period increased by 11.8% on the same period last year (H1 23) with good visibility across its five-year AMP7 programmes through to 2025. Costain is also moving to the commissioning phase for Tideway, where in a joint venture, it is responsible for the eastern section.

Costain said the breadth of its service offering continues to grow with work including wastewater to gas, water quality assurance and water treatment, as well as design, maintenance, capital delivery and strategic resource options.

One of the UK’s leading sustainable infrastructure solutions companies, Costain has strongly expanded its presence in the water sector in the period, winning a series of major contracts including significant AMP8 agreements via a combination of the rollover of current contracts, contract extensions and new customer wins.

During H1 24 these include:

• major AMP8 contract win with Northumbrian Water where Costain will shape and deliver its strategic infrastructure upgrade programme over a potential 12-year period;
• major AMP8 contract win with United Utilities - where Costain will work with other partners to deliver a £3 billion programme to upgrade assets including water and wastewater treatment sites, pumping stations and reservoirs;
• contract extensions with Severn Trent Water which will see Costain improve water and wastewater treatment infrastructure across the Company’s portfolio;
• won additional contracts with Southern Water and Thames Water to support new strategic assets, water supply resilience and improved wastewater treatment.
• an AMP7 maintenance service provider contract for United Utilities.
• CMDP+ joint venture with MWH Treatment was awarded contracts by Southern Water as part its AMP7 investment programme.

Post the H1 24 period end, the CMDP+ joint venture with MWH Treatment won work with Southern Water on their AMP8 programme valued at least at £500 million to Costain. The contract will extend the company’s long-term continuous relationship with Southern Water to more than twenty years.

Markets and strategy

Commenting on its markets and strategy, Costain said that in line with the priorities of the National Infrastructure Commission’s Second National Infrastructure Assessment, it is “strategically well positioned” in its four chosen markets of Transport, Water, Energy and Defence. The markets are essential to ensuring the UK has the infrastructure to meet critical national needs of economic growth and social change, climate resilience, energy transition to net zero, environmental resilience and national security.

Within its chosen markets Costain works with a growing number of Tier 1 customers who choose to work with their partners through long-term strategic five-to-ten-year programmes of work, aligned to meeting their five-year business plan outcomes.

“The strategic nature of these contracts allows us to build strong long-lasting valued relationships, and for us to maintain consistency and continuity of workflows over the business plan period. Both ensure a good quality of work, service and an optimal risk profile,” the results report says.

Costain explains that in working with customers, its business is differentiated in seeking to meet their broader business needs - not merely their new capital infrastructure needs. This includes asset maintenance, extending the life of and optimising the performance of existing assets, advising on long term asset planning and overseeing development programmes. “We achieve this by working with our customers as construction, consulting and digital infrastructure partners,” the company says.

Reported and adjusted revenue was £639.3 million in H1 24 (H1 23: £664.4m), reflecting growth in Natural Resources, and as expected, a small reduction in Transportation.

The company had more than £538m of secured Group revenue for H2 24 at the end of H1 24, representing around 90% of forecast revenue for the period. Awards have yet to be made on a number of bids undertaken since 2022 and Costain currently expects further awards to be made during H2 24 and FY 25.

Adjusted operating profit rose 8.7% to £16.3m (H1 23: £15.0m) reflecting an increased operating margin in Transportation and increasing volumes and margin in Natural Resources, which has a greater mix of consultancy services. Reported operating profit was £13.9m (H1 23: £7.6m). Costain is on course to meet margin targets of 3.5% and 4.5% during FY 24 and FY 25 respectively, the results document says..

In line with Ofwat’s draft determination, Costain says that it expects water investment to at least double during the next regulatory period to its highest level for decades, saying “through recent contract awards we are well placed to capitalise on these opportunities.”

Alex Vaughan, Chief Executive Officer, commented:

“We are performing strongly and are progressing with our strategic priorities in our chosen growth markets, including broadening our customer and service mix. In the first half we have delivered a further significant increase in operating profit together with a sharp growth in earnings per share. The net cash balance grew to £166m, adjusted operating margin increased as expected, and due to the quality of our earnings, we remain on track to deliver our margin targets during FY 24 and FY 25.

“As a result of our strong performance and valued long-term relationships with our customers, we have increased our forward work position to a very healthy £4.3bn at the half year, with contract wins across all our sectors. Our focus on industry-leading solutions, predictable performance and long-term established customer relations has seen us win further significant Water contracts post period end and we expect further wins for the Group in the second half of the year. The quality and customer balance of our forward work position across our two divisions, together with strong highly visible market investment, gives us good visibility on future revenue and margin. We continue to deliver improvements in the business and remain confident in the Group’s prospects.

“As a result of our confidence in our long-term prospects, and our strong cash position, we have today announced a £10m share buyback which will commence with immediate effect.”