Challenging year pushes Costain deeper into the red

(Sharecast News) - Costain called 2020 an "exceptionally challenging" year on Tuesday, after the infrastructure specialist tumbled to a near £100m loss.

Group revenues in the 12 months to 31 December eased to £978.4m from £1.2bn a year previously, while operating profits fell to £18.0m from £37.9m.

The pre-tax loss widened from £6.6m in 2019 to £96.1m. The statutory reported loss per share was 36.7p, compared to 2.3p per share a year ago.

Costain said: "Last year was an exceptionally challenging year, as we worked hard to successfully manage the operational impact from Covid-19 and maintain operations for our clients."

The firm was also hit by £94.7m of charges relating to two long-standing, problematic contracts, the A465 Heads of the Valley with the Welsh government and the Peterborough & Huntingdon gas compressor project with National Grid.

The A465 was delayed by two years and cost £100m more than budget. It was beset with legal disputes, but Costain finally settled with the Welsh government in February, while a termination and settlement agreement was reached with National Grid in June to cease work on the P&H contract following a change in scope.

A further £5.0m was also taken to settle the legacy contract ASF South with Highways England.

Alex Vaughan, chief executive, said: "The significant charges reported at the half year relating to the two contacts are clearly disappointing, and importantly, we have taken robust steps to prevent such issues from reoccurring.

"Last year, we continued to be successful in winning new contracts and preferred bidder positions worth over £2.3bn, with an increasing proportion of this work incorporating our broader service offering in line with our strategy.

"The UK government has provided a clear strategic framework for UK infrastructure investment. I am confident that Costain is in a good position to capitalise on the opportunities in front of us and to grow our profits in 2021."

Joe Brent, analyst at Liberum, said: "Problem contracts are being de-risked. We reduce our full-year 2021 EPS by 3% but leave 2022 unchanged.

"The order book is stable at the 2020 first half level of £4.2bn, and there is £1.2bn of work at preferred bidder. Costain is well-placed to benefit from the National Infrastructure Strategy."