Costain margin up to 4% despite fall in profits

Aaron Morby 5 months ago
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Costain managed to raise its underlying operating margin in the first half of the year to 4% despite suffering a fall in profit and revenue.

Vaughan hails underlying margin improvement despite fall in revenue and profit

Pre-tax profit fell to just £8.4m compared to £20m previously after a £10m hit for remedial roof works on the Diamond Light Source at the National Synchrotron facility.

The subcontractor who installed the roof would have been contractually liable for the remedial works but went into administration in November 2017.

A string of contract delays also saw revenue drop by around a fifth to £594m.

Despite the setbacks, chief executive officer Alex Vaughan said Costain’s new Leading Edge strategy was on track to deliver target margins of 6-7%, driven by a stronger contribution from higher-margin services.

He said: “During the first half, the group’s business mix has been enhanced with around a third of operating profit derived from higher-margin services and two-thirds from complex delivery activities delivering a combined 4% divisional margin (before central costs) overall, increased from 3.5% a year ago. 

“Our ambition is to further shift this mix to 55% over the medium term, from higher margin services with divisional margins in our new target range.”

Vaughan said Costain already enjoyed a good level of secured revenue for 2020, up £50m at £900m compared to last year.

Vaughan has reorganised the group into two main divisions. The infrastructure division has been renamed ‘transportation’, which includes highways, rail and the new aviation sector.

The division saw turnover fall to £380m (2018: £531m) and underlying operating profit fall to £15m (2018: £19m).

This resulted from a lower level of large capital project activity compared to the prior year.

But Vaughan said that underlying operating margin at the division had increased to 3.8% from 3.5%.

Costain’s nuclear activities have been moved to the natural resources division, which comprises water, energy and defence.   

Revenue was also down to £216m from £239m previously with an 18% increase in underlying operating profit to £9.2m. Net margin was also up from 3.3% to 4.3%.

Vaughan said: “While 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.”

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