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Costain’s energy arm back in profit after waste PFI exit

Costain’s energy and water business returned to profit in 2017 as the company exited its problem Manchester waste PFI contract.

The natural resources division, which operates in the water, power and oil and gas markets, reported profit before tax of £2.8m on revenue of £343.9m in the firm’s results for the year to 31 December 2017, released today.

This marked a recovery from the £12.6m pre-tax loss the division made in 2016, with the company having set aside £15.1m to cover losses on the Manchester contract.

Costain’s £397m waste contract covered design-and-build works on 46 facilities across Manchester as subcontractor to Viridor Laing, which had a £3bn, 25-year PFI deal with Greater Manchester Waste Disposal Authority to run disposal operations.

Costain’s group profit before tax for 2017 rose 26 per cent to £38.9m on revenue of £1.68bn – up 7 per cent on 2016.

It reported underlying profit before tax of £43.4m.

Revenue in infrastructure operations – Costain’s largest division – was up 8.1 per cent to £1.38bn in 2017; however, operating profit dropped 11.5 per cent to £50.1m.

This meant operating margins for the division slipped below the company’s 4 per cent target to 3.6 per cent, compared with 4.4 per cent the previous year.

Costain blamed this on the “high level of bid costs and the timing of returns on contracts”, adding that it expected margins to be above 4 per cent in 2018.

Chief executive Andrew Wyllie (pictured) said: “We have benefited from proactively aligning the business in a rapidly changing market environment and evolving client requirements, allowing us to differentiate Costain and deliver another strong trading result.

“There is a revolution taking place in the use of technology and innovation across infrastructure which is having a profound impact on the market and creating a wide range of exciting new opportunities for Costain.”

Among the new business opportunities identified was the National Infrastructure Commission’s proposal to boost development in the Cambridge-Milton Keynes-Oxford corridor, as well as the government’s proposal to ban the sale of new petrol and diesel cars from 2040.

Mr Wyllie added: “We are transforming Costain into the UK’s leading smart infrastructure solutions company and are looking to the future with confidence.”

The company’s order book remained at £3.9bn in 2017 as it pulled out of negotiations on the marine works for Hinkley Point C last year, which wiped out £350m of future work.

Mr Wyllie told Construction News in August that delays on the £18bn nuclear power station led to the company’s decision to pull out.

Long-term borrowing doubled from £30.1m to £60.6m, but total borrowing grew by just £1m to £71m and the company increased its net cash position from £140.2m to £177.7m.

Costain’s pension deficit also fell from £73.5m to £23.9m.

The firm agreed with the trustees to contribute £10m in the 12 months to 31 March 2017 and £9.6m per year from 2018 onward, which it said should clear the deficit by 2031.

Costain’s shares were up 4.8 per cent by mid-morning.

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