Costain, one of the UK’s leading engineering solutions providers, has announced that its forward order book has risen 25% to £ 3 billion with the publication today of its results for the year ended 31 December 2013.

Over 90% of the order book is repeat business  - the Group has increased to over £750 million the revenue secured for 2014 (2012: over £700 million secured for 2013) and in excess of a further £2.2 billion of revenue secured for 2015 and beyond. In addition, the Group has maintained a strong preferred bidder position of over £400 million.

The Group saw  a 12% increase in Group underlying operating profit to £27.4 million (2012: £24.5 million).

However, the Group’s net cash position at 31 December 2013 was £57.7 million (2012: £105.7 million). The reduction was expected given the Group’s rapid transformation and strategic focus on major customers who utilise target cost, cost reimbursable contracts. Over 90% of the order book now includes this lower risk form of contract, which is more suited to complex, long-term projects. The lower net cash position also reflects an increase in support service related activities, a reduction in advanced payments and a delayed contract. The Group  also incurred one-off transaction pre-tax costs of £3.7m in relation to its failed merger bid with May Gurney last year.

During the period the Group was successful in securing a number of major new contract awards and extensions to existing contracts – as a result Costain’s order book was up 25% to £3.0 billion as at 31 December 2013, compared to the start of the year (2012: £2.4 billion).

The Group also announced today that it is proposing to raise approximately £70.3 million (net of expenses) by way of a placing in aggregate of 33,382,068 new ordinary shares at an offer price of 225 pence per new ordinary share.

Future opportunities in regulated markets are "substantial"

In his Chief Executive’s Review, Andrew Wyllie said 2013 had been another year of significant progress in the transformation of Costain into a “full engineering service provider for major customers who continue to invest billions of pounds addressing essential national needs”, commenting:

“Costain is now established as a leading Tier One UK engineering solutions provider.Through the implementation of our ‘Engineering Tomorrow’ strategy, we are focused on providing innovative and cost effective solutions to customers who are increasingly seeking more strategic relationships through larger and longer-term contracts in order to meet their complex requirements.”

“This change in customer procurement approach, and associated supplier consolidation, along with the very substantial expenditure expected in the next few years is creating a dynamic marketplace which provides Costain with a tremendous opportunity to accelerate the development of the business.”

He went on to describe the UK transport, energy and water markets as defined by significant and long-term planned expenditure programmes underpinned by committed regulated spend and essential capital investment, adding that the future opportunities in these markets are substantial.

Significant bidding activity for AMP6

 In water, he said there remains an ongoing need for asset performance improvements, increased water standards and a greater focus on the combination of capital and operating costs, with continued regulated investment planned. The 5 year AMP6 period commencing in April 2015, is expected to include an investment level similar to the £21 billion invested over 5 years during AMP5.

 Andrew Wyllie commented:

“Alongside these planned levels of infrastructure investment, our major customers are consolidating their supply chains as they seek to derive business benefits by working in a more strategic and collaborative manner with a reduced number of preferred Tier One engineering solutions providers like Costain who have the ability to satisfy the full range of their service needs for increasingly complex and large scale projects. “

 Costain’s  ‘Engineering Tomorrow’ Strategy – the firm’s  commitment to identifying, developing and implementing innovative solutions to major national needs which enables it to win large and long-term, strategic contracts involving highly complex work across the full life cycle of its major customers’ assets – appears to be paying dividends.

Costain has secured over £1.5 billion worth of large, integrated and complex projects and contract extensions during the course of the year including a contract with EDF to design and deliver the water cooling systems for the new Hinkley Point C nuclear power station and the AMP6 programmes for Thames Water and Severn Trent.

The firm is also are increasing its investment in Research and Development, together with initiatives in place to encourage and support entrepreneurial members of staff to develop their ideas into business opportunities.

During the period, Costain completed the sale of its minority shareholdings in three joint venture companies to Severn Trent PLC for a total consideration of £12.0 million. Severn Trent will therefore become 100% owner of the three companies which provide services in the water sector. As a result of the transaction, Costain realised a profit of £9.1 million in 2013.

The Natural Resources division, which includes Water, together with  Oil & Gas, Nuclear Process and Waste sectors, saw its revenues for the year (including share of joint ventures and associates) fall from £437.7 million in 2012 to £397.6 million. Costain said the reduction in revenue reflected “the prioritisation of resources towards attractive opportunities for growth across the Group. “

However, the Group said that with customer spend in this market underpinned by regulatory and legislative requirements, it is expected to grow over the medium and long term to meet the energy and water needs of the UK’s rapidly growing population. The division finished the year with a forward order book of £1.1 billion (2012: £0.9 billion).

In Water, Costain said 2013 saw significant bidding activity associated with the next five year Asset Management Programme cycle (AMP6), with the Group securing the sector’s first AMP6 contract for Thames Water, whilst also retaining a place on the Severn Trent Water AMP6 Programme. The Group has also prequalified for further AMP6 long-term contract opportunities.

Costain said it has also continued the successful delivery of its AMP5 framework contracts with Northumbrian Water, Southern Water, United Utilities, Severn Trent and Welsh Water whilst also continuing to deliver large capital wastewater treatment schemes for Liverpool and Brighton & Hove, the latter of which won Major Project of the year at the 2013 British Construction Industry Awards. 

Costain to raise £75 million on markets

The Group also announced today that it is proposing  to raise approximately £75 million by way of a placing in aggregate of 33,382,068 new ordinary shares at an offer price of 225 pence per new ordinary share.

Costain said the proceeds will be utilised for the following:

• to demonstrate to customers the Group’s financial capacity to support the anticipated further increases in contract size and duration
• to invest in innovation and technology necessary to enhance the service offering to the customers;
• to finance bid costs associated with a greater number of large scale projects for which the Company is in a position to tender;
• to fund likely increased working capital requirements arising from the move in the market towards target cost, cost reimbursable contracts;
• to provide flexibility to make selected in-fill acquisitions to complement Costain’s existing capabilities as opportunities arise.

The capital raising has been fully underwritten by Investec Bank plc and Liberum Capital Limited.