Costain back in profit with margins restored to 2.5%

Aaron Morby 1 year ago
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Costain delivered a business turnaround last year with pre-tax profit rebounding to £33m from a loss of £13m previously.

Alex Vaughan is confident selective tendering and rise in consultancy work will lift operating margins further
Alex Vaughan is confident selective tendering and rise in consultancy work will lift operating margins further

Revenues jumped by a fifth to £1.42bn with the surge improving cash levels and restoring operating margin to 2.5%.

Alex Vaughan, chief executive officer, said: “Our performance in 2022 delivered strong growth in revenue and operating profits, with significant free cash flow, ending the year with a net cash position of £123.8m.

“I am pleased that we have grown our core complex programme delivery revenue and further strengthened our consultancy market position.

“Consequently, we are seeing good opportunities emerge in our chosen sectors, at margins we aspire to.

He added: “Costain has effectively negotiated the challenges of material availability and inflation, as well as delays to some contract awards, delivering a robust operational performance.

“We expect to increase margins as we enact further operational improvements in the business during 2023 and beyond, and as we continue to grow the scale of our consultancy services.”

Across the two main trading divisions revenue was up over the year, although the largest, Transportation, saw a slide in operating profit to £30m from £50m in 2021, due to cost inflation and increased bidding activity.

Costain divisional trading
Profit Revenue
2022 2021 2022 2021
Transportation £30m £50m £1.05bn £864m
Natural resources £20m -£51m £375m £271m

Costain’s order book has also slipped to £2.8bn from £3.4bn a year ago.

Vaughan said that this reduction reflected the timing of major contract bids, client investment programmes, maintained discipline in contract selection and the shorter lead time of consulting and digital work.

The group’s work visibility still remained strong with Costain’s preferred bidder book up to £1.6bn (FY21: £0.9bn), driven by road, water and integrated transport work, including Heathrow and the A66 contract.

He said that 80% of this year’s forecast revenue was secured and margins were now expected to grow steadily over the next two years to 3.5% and 4.5% respectively, helped by a good revenue mix and increased consultancy work.

 

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