(Alliance News) - Infrastructure construction firm Costain Group PLC on Wednesday announced a fundraise amidst a weakening of its cash position, and it has also decided against a final dividend.
Shares were 22% lower on Wednesday morning in London at a price of 124.482 pence each.
Maidenhead-based Costain is to embark on a "fully underwritten" capital raise of up to GBP100 million, by issuing new shares, in the coming weeks. No further details were given.
The fundraise has been underwritten by HSBC Holdings PLC, Investec PLC and Liberum.
Costain has agreed with lenders to extend the maturity date of its existing GBP187.0 million facilities to September 2023, from the current date of June 2022. This is conditional on completing the capital raise.
Costain said its market has changed "significantly" over the past few years. Major clients are consolidating supply chains, while there are also new requirements for contractors to pay supplies earlier leading to increased capital requirements.
"The board believes there is a significant opportunity for the group to capitalise on the growing infrastructure market opportunities available to Costain, in line with its strategy. Also, having a strong balance sheet has become increasingly important to Costain's clients and other stakeholders," said Costain.
"For these reasons and to provide additional headroom in the current environment to effectively manage working capital flows in the business, the board has concluded it is in the best interests of the group to raise up to GBP100 million of new equity to strengthen the group's balance sheet."
As of the end of 2019 Costain's net cash position was GBP64.9 million, down significantly from GBP118.8 million a year prior. This fall was due to the new supplier payment agreements as well as "structural market changes".
Further, there were also cash outflows related to the A465 road contract, an arbitration charge, and delays to new contracts and a cancelation.
Costain also posted 2019 results on Wednesday, showing a GBP6.6 million pretax loss from a GBP40.2 million profit the year before. Underlying, pretax profit slumped to GBP14.6 million from GBP49.7 million in 2018.
Revenue including joint ventures and associates fell by 22% to GBP1.16 billion.
Costain has also decided against paying a final dividend. It paid an interim of 3.8p, meaning the 2019 total has fallen to nearly a fifth of the 15.15p paid for 2018.
"Recognising the importance to Costain of maintaining a strong and growing capital base, following the proposed capital raising, Costain will target a dividend cover of around three times underlying earnings, taking into account the free cash flow generated in the period," said Costain.
"The first dividend to be paid under the new policy is expected to be an interim dividend for the six months ending June 2020, payable in October."
Chief Executive Alex Vaughan said 2019 was a year of "transition" for Costain. Underlying financial performance was hit by delays in new contracts and starting new projects.
By George Collard; georgecollard@alliancenews.com
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Costain (COST)