Costain pulls out of bidding more waste contracts

Costain is well on course to see turnover top £1bn again after delivering strong growth at the infrastructure division in the first half of the year.

The firm lifted orders by 10% this year to a record £3.2bn, completing its transformation in to a major engineering services player.

But Costain also revealed it had decided to exit the waste sector after it suffered losses during the first half of the year at the natural resources division from extra costs on its Greater Manchester Waste PFI job.

This weighed down a positive overall operating performance at the water, oil & gas, and nuclear process arm.

David Allvey, Chairman, said: “The increasingly strategic nature of our long-term customer relationships has ensured that over 90% of the order book comprises target cost, cost reimbursable, collaborative forms of contract.

“Although the transition to this form of contract has altered the cash flow dynamics, it has substantially improved the risk profile of the group and provides increased visibility over long-term margins for the projects in our order book.”

Over £800m of revenue has been secured for 2015  and a further £1.8bn for 2016 and beyond.

He added that tendering activity was high across all Costain’s target markets as customers in transportation, energy and water resources continue to invest heavily and supplier consolidation continued.

Group turnover in the first half of the year jumped 14% to £529m, with pre-tax profit edging up to ££5.8m from £3.1m in the first  half last year.

Underlying operating margin slipped a little to around 2%.

The Infrastructure division had a strong first half of the year with increases in revenue to £359m, making a £17m profit and increasing its order book to £2.2bn.

But the Natural Resources division suffered a £5m loss due to provisions to complete the legacy Greater Manchester Waste PFI contract awarded in 2007. Turnover also slipped back to £169m from £199m in the first six months last year.

Of the forty-six waste facilities under the contract, thirty-six have reached final acceptance, three are seeking to obtain final acceptance, six are currently in the post-completion period and one remains to be completed.

Design faults have been identified at four sites, including the site that remains to be completed and remedial work and testing is on-going in respect of that site which is expected to be completed in the second half of 2014.

Costain said it was in discussions with relevant contract counterparties and the group’s insurers regarding the issues that have arisen.

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