Costain have reported a sharp drop in both revenue and profits for the first half of 2019, but confidently say the group remains on course to deliver a full-year performance in line with its revised expectations as margins increase.
The firm’s revenue in the first six months of 2019 dropped by 22% to £599.2m, compared to £772.9m in 2018. Pre-tax profit was £8.4m, less than half the £19.9m it made in the same period last year, due in part to a £9.7m payout after a legal dispute over a long-completed contract.
Underlying profit before tax was down to £19.5m, compared to £21.8m last year. The company’s net cash position at 30 June 2019 was £40.8m, compared to £77.7m last year. The average month-end net cash was £63.7m, compared to £90.8m last year, and is expected to be around £40m or £50m for the full year, with an anticipated increase in 2020 to £50-60m. Underlying operating profit for the full year is expected to be in the range of £38m to £42m, compared to £52.5m in 2018.
However, despite a fall in revenue, the company increased its operating profit margin to 4.00%, compared to 3.5% last year. The company also reported strong momentum in securing new work, with £1.1bn of new contract awards and extensions to existing contracts during the first half, with the order book, as at 30 June, standing at £4.2bn, compared to £3.7bn last year. This includes around £900m revenue secured for 2020, compared with around £850m last year.
Moving forward, the group says its new Leading Edge strategy is accelerating the group’s higher profit margins and pointed to what it described as a robust balance sheet, with total net assets of £178.4m including net cash of £40.8m, and a positive current asset ratio.
Alex Vaughan, Costain CEO, said: “While, as previously announced, delays to certain contract start dates and new awards, together with a contract cancellation will impact our full year performance, we are pleased that the group has continued to secure significant new work during the first half. We therefore remain on track to deliver our revised expectations for the current year and growth in 2020.
“We recently launched our Leading Edge strategy for the development of the business which aims to accelerate the deployment of higher margin activities and deliver a blended divisional margin range of 6%-7% over the medium term. The group's structure has also been reorganised to better align it to our clients and the markets in which we operate. With this enhanced strategy and strong market backdrop, underpinned by a robust balance sheet, we are focused on significantly enhancing the value of Costain.”