Costain profit slips following restructure

Costain has reported a fall in profit after spending £8m on restructuring.

The contractor made a pre-tax profit of £30.9m in the year to 31 December 2023, in comparison with £32.8m the year before. Turnover at the contractor was also down, to £1.33bn from £1.42bn in 2022.

Costain said the profit fall was due to “impairment of an intangible asset as we reposition our digital portfolio towards services and the group’s transformation and restructuring programme”.

Without those adjustments, Costain would have seen profit increase to £44.2m, the group said.

Costain said its restructuring programme, which cost £8m in 2023, will add “simplicity, clarity and focus to how we work, by driving improved efficiency and effectiveness across the business”.

The company said that it expects to spend another £5m on “transformation and restructuring” next year, but added that thereafter costs would be “minimal”, with savings expected to exceed costs within the next few years.

The contractor spent a further £5.3m restructuring its digital focus, and a further £1.8m ending a building lease early.

The contractor’s cash position increased by nearly a third, to £164.4m from £123.8m.

“We’re in a good place [with] strong operating profits and a really strong cash and balance sheet,” Costain chief executive Alex Vaughan told Construction News.

The infrastructure specialist said its “strong financial footing” led to it reinstating an interim dividend of 0.4 pence, while its board is proposing a final dividend of 0.8 pence per share.

Vaughan also said Costain had “significantly reduced” legacy pension-scheme costs, adding: “The burden on the business is a lot lower.”

During 2023 the group saw increased revenue in the defence and nuclear-energy sectors, with continued growth in rail driven by projects at Heathrow Airport and Transport for London (TfL).

But Costain did report a drop in revenue in its road business, which came in at £399.5m compared with £498.7m the year before. Vaughan put that down to a government decision last year to rephase highways work hit by soaring inflation.

“It has affected some of the contracts that we were going to work on and some of the contracts we are working on – it’s just slowed them down,” he said.

But he highlighted that there is still a “significant amount of work going on”, with Costain involved in six highway schemes. Looking ahead, the government’s infrastructure pipeline has provided for “significant highways work”.

“We’ve just had to deal with the hyperinflation and the impact on government budgets. But, if we look forward, we can see all of that highway work beginning to come through which is positive,” Vaughan said.

Costain also expects to see “significant growth” in the water and energy sectors, as the UK moves to tackle the climate crisis following calls from the National Infrastructure Commission last year.

The commission warned that a “significant increase” in infrastructure spending was needed for the UK to adequately tackle its climate and energy challenges.

Vaughan said: “In particular, if you look at areas that are going to significantly increase from where they are today, that is water in AMP8 [the investment programme from 2025-2030] compared to AMP7 and then energy moving forward.

“I think we’ve got a leading position in water. And we’ve currently got eight of the largest water companies that we work with. We’ve already got eight positions that we’ve secured for the next period.

“So it just feels like a really strong opportunity for us.”

By the end of 2023, Costain had already secured more than 80 per cent of its forecast revenue for 2024, equal to more than £1bn of work.

“We have an excellent pipeline of opportunities and are driving high levels of tendering activity,” Vaughan said in a statement.

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