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Costain reveals £75m capital raising plan

Costain’s has announced a £75m capital-raising plan which could support new acquisitions.

The contractor said it would raise £25m through a firm placing – an issue of shares to institutions willing to buy substantial shares. 

It will raise the remaining £50.1m though a placing and an open offer where shareholders are able to buy the new shares at a discount. 

Costain said the extra capital would allow it to expand more quickly. In particular, it said the money would demonstrate its financial capacity to support larger, longer contracts being offered in the energy, infrastructure and water markets. 

The funding would give the contractor extra working capital to bid for target-cost and cost-reimbursable contracts, which, while lower-risk, tend to have higher bid costs and working capital requirements. 

Chief executive Andrew Wyllie said the proposed capital raising would demonstrate the group’s financial capacity to deliver a greater number of longer, larger contracts; invest in innovation and technology; and bid costs for projects. 

He added that where opportunities arose, the group could make acquisitions.

Costain non-executive chairman David Allvey said the £75m capital raise provided Costain with “the opportunity to accelerate our growth in the medium and long term in rapidly evolving markets in which it is expected that more than £400bn will be spent in the next 10 years”.

The plans are conditional on gaining shareholder approval and are underwritten by banks Investec and Liberum Capital. 

The capital raise was announced on the day Costain revealed its pre-tax profits had almost halved to £12.9m between 2012 and 2013 because of £18.1m in one-off costs, including its failed bid for May Gurney. 

The costs, revealed in its full-year 2013 results, included the £3.7m it spent on its unsuccessful bid for May Gurney, which was taken over by Kier in July 2013, and a £9.8m writedown on land in Spain held by a leisure and real estate joint venture, Alcaidesa Holding SA.

However, its pre-tax profits excluding these costs rose almost £3m to £31m. 

The group’s turnover, excluding joint ventures, rose by £36.8m to £885.2m in 2013. 

Profits from infrastructure were up £8m to £30.1m. Profits in natural resources – which covers the water, oil and gas, nuclear process and waste sectors – fell £8m to £9.5m on the back of lower revenues, but its order book rose by £200m to £1.1bn. 

The natural resources group was formed in 2012 and is led by managing director Alex Vaughan. 

Costain’s order book grew by a quarter to £3bn, with repeat orders accounting for more than 90 per cent of work. 

Its cash balance dropped to £57.7m from £105.7m, which it attributed to reasons including a lower level of advanced payments as it seeks target-cost deals rather than lump-sum contracts.

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