Costain, the engineering solutions provider, has announced a record £3.2 billion order book alongside an increase in underlying operating profit with the publication of its results for the first six months of 2014.

The record forward order book saw an increase of 10% to £3.2 billion (2013: £2.9 billion) with over £700 million of new contracts and extensions secured in the first half of 2014. Over £950 million of revenue was secured for FY 2014 by 30 June (2013: over £850 million secured for FY 2013).

Over £800 million of revenue is secured for 2015 (2013: over £700 million secured for 2014), and in excess of a further £1.8 billion of revenue secured for 2016 and beyond. The Group has also maintained a strong preferred bidder position of over £400 million.

Revenue, including the Group’s share of joint ventures and associates, for the half-year ended 30 June 2014 increased to £529.1 million (2013: £462.9 million), while Costain’s underlying operating profit rose 5% to £11.2 million (2013: £10.7 million).

The Group reported a strong first half with an increase in revenue, operating profit and order book in its Infrastructure Division, which covers the highways, rail and power sectors. Revenue increased to £358.7 million (2013: £262.8 million) while operating profit rose to £16.9 million (2013: £14.4 million). The forward order book for the division has grown to £2.2 billion (2013: £1.7 billion) – Costain said the level of tendering activity remains high with a significant opportunity pipeline.

However, the Group’s Natural Resources Division, which is focused on the oil & gas, nuclear process and water markets, saw a fall in revenue for the year down to £169.4 million (2013: £199.2 million), with a loss from operations of £ 2.6 million (2013: £0.1 million loss). The loss for the year to date includes additional costs for the completion of the waste PFI contract awarded in 2007 for the Greater Manchester Waste Disposal Authority as described below. Costain is not pursuing any further contracts in the waste sector. Excluding these costs the division generated an operating profit, with trading in line with expectations.

Commenting on its work in the water sector, Costain said:

“We continue to deliver successfully the Water AMP-5 frameworks for United Utilities, Southern Water, Severn Trent Water, Welsh Water and Northumbrian Water. We have also continued with the delivery of large waste water treatment plants at Liverpool and the award winning Brighton & Hove scheme. Good progress is also being made in the early mobilisation and development of AMP-6 appointments for Thames Water and Severn Trent Water.”

David Allvey, Chairman, commented:

“We have delivered a strong performance in the first half of the year. As well as increases in revenue and underlying operating profit, our order book continued to grow and now stands at a record £3.2 billion.Costain has an established reputation for innovation that enables the Group to win large, long term contracts addressing the UK’s essential energy, water and transportation needs.The successful capital raise earlier this year is enabling us to take advantage of a growing number of opportunities to accelerate the Group’s development."

In March the Group successfully completed a capital raise of £70.3 million in order to enable the business to take greater advantage of opportunities in its chosen markets and accelerate its medium and long term growth prospects. Costain said the proceeds would be utilised:

• 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 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.

Costain describes itself as “one of a select group of companies with the integrated consulting, project delivery and operational capability required to meet the increasingly complex and challenging needs of major blue chip customers.”

The joint statement by Chairman David Allvey and Chief Executive Andrew Wyllie said:

“ ..the increasingly strategic nature of our long-term customer relationships has ensured that over 90% of the order book comprises target cost, cost reimbursable, collaborative forms of contract.”

“Although the transition to this form of contract has altered the cash flow dynamics, it has substantially improved the risk profile of the Group and provides increased visibility over long term margins for the projects in our order book.”

“The opportunities across all our markets are substantial as investment by our customers in transportation, energy and water resources is expected to grow significantly and, as anticipated, supplier consolidation is continuing. As a consequence, the level of tendering activity across the Group’s targeted markets remains high.”