Costain operating profit down a third to £7.6m

A sharp fall in profits at Costain’s transportation division dragged down group profits from operations by a third in the first half of the year.

Costain’s overall performance was also impacted by added costs of repositioning digital services towards growth and the firm’s ongoing Transformation programme.

Group revenue remained flat at £664m as falls in highways work were offset by rail and turnover at the natural resources division remained stable in the six months to June.

Reported operating profit fell 36% to £7.6m.

After adjustments, operating margin at the business was slightly ahead at 2.5% due to the transformation programme.

Alex Vaughan, chief executive officer, said the outlook remained good despite a more challenging macro-economic backdrop and the firm now intended to reinstate dividend payments.

Costain’s order book was slightly down on the prior half at £2.5bn (2022 H1: £2.7bn), reflecting market cycles and rephased timing on major contract bids.

Vaughan said: “Costain’s performance in the first half of 2023 demonstrates the strength and resilience of our business, with an increase in adjusted operating profit supported by the robust growth in Natural Resources, resilience in Transportation and continued positive cash generation.

“Our Transformation programme to create efficiencies within the group is on track, with further benefits to come in H2 23 and FY 24.

“The increase in operating performance and the positive outcomes regarding the pension review and refinancing, enables the board to consider the resumption of dividend payments, including the payment of an interim dividend in respect of the period to 30 June 2023.

“There remains a positive outlook across our markets, while recognising the short-term rephasing of the government’s transport spending.

“We expect that the sectoral growth we have seen in Natural Resources, together with the rephasing and rescoping of some infrastructure projects in Rail and Road to continue for the remainder of the year and into 2024.

“While we are mindful of the macro-economic backdrop, recognising the timing of customer procurement cycles, the quality of our secured and preferred bidder work gives us good visibility on future revenue, with more than 90% of revenue secured for the remainder of 2023. Our expectations for 2023 remain unchanged and we continue to be confident in the Group’s long-term prospects.”

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