Shares in infrastructure firm Costain (COST) slipped 5% to 54.5p after it reported a ‘resilient’ first half but cautioned it was still waiting for a court decision on one contract and had put aside tens of millions of pounds for the termination of another contract, which would impact its earnings.
The firm said it had performed steadily through the pandemic and made ‘strong progress with its strategic objectives.’ All of its contracts are now operational with the necessary safety measures in place.
Both the Transportation and Natural Resource businesses were profitable through the first half and the company said it expected to deliver operating profits for the period of £5.7 million.
However, this figure was before provisions for the A465 ‘Heads of the Valley’ and Peterborough & Huntingdon (P&H) contracts. The A465 contract is currently in arbitration and should be settled by 9 September, giving the firm a better idea of its financial position.
Meanwhile work is due to stop on the P&H contract for National Grid (NG.) by the end of August, after which there will be an 18-month legal process for the firm to recover its costs and establish whether it has any liability to the network operator for completing the project.
So far Costain has undertaken £42 million worth of work which it hasn’t been paid for, with another £7.3 million due to be completed, all of which will have to be recovered through the resolution process.
Therefore it needs to take a one-off charge of £49.3 million to first half earnings to adjust for ‘revenue recognised’ on the P&H contract to the level of cash actually received. The firm said the majority of the cash impact of the charge would be incurred in the first half, ‘with £15 million of cash out remaining in order to complete our works.’
Chief executive Alex Vaughan said the firm had ‘taken action to address the type of risk arising from these contracts’ and it would no longer bid on Energy EPC contracts and other one-off capital projects but focus on long-term investment programmes.
