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Costain takes £350m order book hit from Hinkley contract exit

A “mutual agreement” to end the marine works contract at Hinkley Point C has cut £350m from Costain’s order book, the contractor has confirmed.

It was revealed earlier this week that Balfour Beatty had been named as the preferred bidder for Hinkley’s tunnelling and marine works package, replacing Costain, which had initially agreed to take on the works.

Costain confirmed it was “unable to agree final terms and conditions on the overall completion of the works” and had “reached mutual agreement with the client to cease its involvement” in the contract as a result.

The contractor also confirmed the contract was worth £350m to its order book.

The announcement follows publication of Costain’s half-year results for the six months to 30 June 2017, which saw the contractor’s revenue rise to £874.5m, up from £791.4m for the same period a year earlier.

Profit before tax also rose to £15.7m, up from £11.3m, while the group’s net cash balance rose to £87.5m from £69.2m.

The company also confirmed that its place on two HS2 contracts – which Costain will deliver in a joint venture with Skanska and Strabag – is worth £600m to its order book.

Costain will deliver the civils packages with Skanska and Strabag on the Euston tunnels and approaches, as well as the Northolt tunnels, in a deal worth a combined £1.8bn to the joint venture.

Overall, the group said its order book stood at £3.7bn at 30 June 2017, down slightly from £3.9bn a year earlier.

Costain had also secured £1.5bn of revenue for 2017, and has also been named preferred bidder on more than £400m of work as of 30 June this year.

The company confirmed it would continue to target an operating margin of 4-5 per cent in its infrastructure division, which makes up the majority of the firm’s revenue at £694.1m.

The division also posted an operating profit of £27.4m, leaving it with an operating margin of 3.9 per cent.

Costain said the margin reflected ”the timing of returns across a range of contracts, together with the high level of bid costs in the period”.

The company added “progress was being made” to settle its problem waste PFI contract in Manchester, but did not release any additional detail, adding that “further announcements will be made when appropriate”.

Greater Manchester Waste Disposal Authority this May confirmed that it intended to terminate its 25-year PFI waste processing deal with Viridor Laing.

The joint venture between Viridor and John Laing was named preferred bidder in January 2007 for the £3bn PFI contract to deliver long-term waste management for the city.

As part of this deal, Costain was handed a £397m subcontract to design, construct and commission 46 waste facilities across Greater Manchester.

Costain incurred losses of £15.1m from the contract in its most recent full-year results.

Commenting on the results, chief executive Andrew Wyllie (pictured) said: “We are transforming rapidly to differentiate Costain as the UK’s leading smart infrastructure solutions company.

“We are delivering technology-based solutions demanded by our clients who are spending billions of pounds, underpinned by legislation and regulation, to meet ever more complex challenges to enhance the nation’s infrastructure.

“Costain is on course to deliver results for the year in line with the board’s expectations.”

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