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Costain profits hit by project delays and cancellations

28 Jun 19 The problem with relying on public sector infrastructure contracts for your workload is that you are at the mercy of political whim and that can be a risky place to be – particularly these days.

Watching and waiting for work to start
Watching and waiting for work to start

Costain has revealed today that its profits this year will take a hit from delays to several important public sector projects getting started and, in one case, a complete cancellation.

In a trading update ahead of posting its half-year results, Costain said: “The group has recently seen a number of delays to the timing of contract start dates and new awards.  Projects affected include the M6 Smart Motorway, Preston distributor road and HS2 Southern Section main works.  Additionally, the M4 Corridor around Newport project was cancelled by the Welsh government earlier this month.  Consequently, revenue for FY2019 will be lower than previously anticipated and underlying operating profit for the full year is expected to be in the range of £38.0m to £42.0m.”

The £150m M6 project was meant to have started this spring but it has been put on hold with no new start date yet given.

Costain has also been hit to the tune of nearly £10m by a contract completed more than 10 years ago.

“The H1 2019 results will include a one-off charge of £9.8 million in respect of a recent arbitration award in favour of Diamond Light Source Limited for the cost of remedial works deemed required to the roof at the National Synchrotron facility which was completed in August 2006,” the company revealed. It continued: “The subcontractor who installed the roof would have been contractually liable for the remedial works but went into administration in November 2017.  The nature of this contract is no longer within the group's strategy and, therefore, the underlying trading results will be reported before the impact from this one-off item.”

However, current contracts are all going to plan and new work is coming in, with tendering levels remaining high. New orders secured in the first six months of 2019 include the A19 improvement contract and long term AMP7 awards for Severn Trent Water, United Utilities and Yorkshire Water.

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Revenue secured to date for 2019 is £1.1bn plus about £900m for 2020 already.

Costain's order book is £4.2bn, compared with £3.7bn a year ago, and a preferred bidder position of £600m.

Average month-end net cash balance for the first half of 2019 is expected to be around £65m.

Chief executive Alex Vaughan said: "Despite delays to the timing of certain contract start dates and new awards, our markets are strong, as evidenced by the breadth of our new contract awards in the first half.

"We have a strong balance sheet, profitable operations and a broad range of capabilities to support the growth of the business. Costain is well placed to secure the opportunities ahead of us."

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