Last updated 14 March 2023
Costain Group Plc
Costain is a UK contractor with a history that dates back to 1865. The group was suspended from the London Stock Exchange for a significant period during the 1990s but survived after a rescue partly aided by Swedish group Skanska and has since prospered. The management retrenched, paid down debts and enabling the group’s shares to return to the dividend list.
This enabled Costain to push through major changes including a retreat from overseas work and a focus on long-term infrastructure work, often through framework contracts. Today, Costain turns over around £1.4 billion a year.
Financials
In the 2022 calendar year, turnover at Costain rose 21% to £1,421.4 million (2021: £1,135.2 million) and the group returned to the black. Before tax, Costain made a reported profit of £32.8 million (2021:£13.3 million loss) and at an operating level, a profit of £34.9 million (2021: £9.5 million loss) was returned.
To view the financials for Costain Plc, visit Companies House and use Company ID 01393773.
Operations
Costain’s strategy is to target customers with committed long-term capital and operational spending plans, which the management believe will enable the business to pursue and win work.
The group is now comprised of just two divisions, Transportation, and Natural Resources, and works for many blue chip clients, including the Department for Transport, and utilities such as EDF, National Grid and Southern Water.
Costain has expanded into consultancy, while the contracting operation works in joint venture to reduce risk on major projects and continues to do so, with the HS2 Euston contract won in JV with Dragados, while the Edinburgh to Glasgow Improvement Programme was secured with Morgan Sindall. Costain also operates in joint venture with other companies, notably Alstom on rail projects, Colas, Jacobs and Galliford Try in the roads sector with Mott MacDonald and with Arup in the water sector.
Transportation
This division works across the highways, rail, power and airports sectors. Highways have produced significant growth and major roadworks schemes range from a £100 million job at junction 33 of the M6 (Project ID: 20170825) to a £340 million job at Simister Island on the M60 in Manchester (Project ID: 19342018). Costain also works on a number of term maintenance work contracts including Area 14 for North East England (Project ID: 14054983).
Costain is also a member of the A-One+ grouping that includes French-owned contractor Colas and consultant Halcrow. A-One+ has a number of long-term asset support contracts with National Highways, including a place on the £5 billion Collaborative Delivery Framework (Project ID 13307916). In 2021, Costain also won a place on Transport for London’s £800 million Surface Transport Infrastructure Construction Framework, which runs until 2027 (Project ID: 20056714). In 2022, revenue from roads rose to £498.7 million (2021: £426.3 million).
Rail is a core sector and Network Rail a major client, producing major contracts including the five-year £1.2 billion CP5 Southern Workbank Infrastructure deal (Project ID: 13051014). Costain’s work on the HS2 rail link includes the £1.3 billion Chiltern & Colne Valley section (Project ID: 17259576) and the £1.4 billion HS2 Northolt Tunnels (Project ID: 17259571). Revenue form rail work in 2022 leapt 35% to £480.8 million (2021: £356.4 million).
Elsewhere, Costain is also managing a £650 million programme of renewals at Heathrow Terminal 2 and wider asset efficiency improvements (Project ID: 17118811). Other revenue at this division, categorised as integrtaed transport, fell to £66.8 million in 2022 (2021: £81.5 million).
In 2022, overall revenue at this division rose 21% to £1,046.3 million (2021: £864.2 million) but operating profits fell back to £30.1 million (2021: £49.8 million).
Natural Resources
This division was renamed Natural Resources (from Environmental) and was established in late 2012 to incorporate energy & process and environmental operations. Regular long-term work comes through the frameworks for United Utilities, Southern Water, Severn Trent Water, Welsh Water and Northumbrian Water.
In utilities, Costain is working in a joint venture to deliver a £400 million pipeline from Bury St Edmunds to Colchester for Anglian Water (Project ID: 21560368), and on major framework agreements including Anglian Water’s AMP7, which is expected to produce spending of £350 million from 2020-2025 (Project ID: 18389136). In 2022, revenue from water-related work rose to £238.2 million (2021: £200.0 million).
This division also works in the energy sector for Centrica and INEOS, and the oil and nuclear process sectors, including major work at Hinckley Point (Project ID 10516890), and Carbon Capture schemes, such as the £400 million Acorn CCS in Peterhead (Project ID: 20126242). Costain is also working on the £450 million Net Zero Teesside Project (Project ID: 19064235). In 2022, revenue from energy work increased to £79.0 million (2021: £28.6 million). The other business stream is defence, where revenue increased by a third to £57.9 million (2021: £42.4 million).
Overall in 2022, revenue at the natural resources division rose 19% to £375.1 million (2021: £271.0 million) and the business returned to the black with an operating profit of £19.5 million (2021: £50.6 million).
Glenigan Data
In 2022, Costain won £112.5 million-worth of work (2021: £619.0 million) and was ranked in 74th position in Glenigan’s ranking of the industry’s top 100 contractors (2021: 26th).
Conclusion: Back in black
With a return to the black, Costain looks to have finally emerged from a hangover from a change in strategy made more than a decade ago. Having passed the £1 billion mark in 2010, Costain’s revenue began to slip backwards as the management changed strategy. The building sector was exited, overseas work – the area that made the Costain brand – was left behind and a profit was regularly returned but the group’s strategy of pursuing a handful of major projects had weaknesses.
In 2020, the group racked up £94.7m of exceptional items from two long-standing contracts in relation to the Peterborough & Huntingdon compressor stations projects and over-runs on the A465 road scheme in Wales (Project ID: 00403293) and a one-off charge of £5.0m in relation to closing out a legacy contract. As a result, a slump into the red in 2019 worsened significantly.
In February 2022, Costain reached a £43.4 million final settlement with National Grid over the Peterborough and Huntingdon gas compressor stations. This payment was made and the group was back in the black in 2022 but a near term fall in revenue seems likely.
Secured revenue for 2023 is marginally down, while an order book that the company put at £4.2 billion in 2020 has reduced in successive years and at the end of 2022 was down at £2.8 billion (£3.4 billion) but the preferred bidder has leapt to £1.6 billion (2021: £0.9 billion).
Glenigan’s data also shows the short-term order book slumping in 2022, as the group took on fewer larger projects. As a result, the risk profile reduced as these larger schemes are naturally riskier. The average contract won in 2021 was valued by Glenigan at £28.1 million (2021: £123.8 million).
Roads provided the largest tranche of revenue again and the group has also taken on a number of term maintenance deals, which should be less risky. Costain was ranked the most successful contractor in the highways sector in 2021 with awards, including term maintenance work and a share of framework agreements, totalling £751.3 million (2020: £1,032.4 million), but did not added to this workload in 2022.
The Leading Edge strategy of pursuing complex higher-margin work and a targeted margin of 6-7% looks questionable, but net cash has strengthened to £123.8 million (2021: £119.4 million) and the client roster is full of blue chip clients, many regulated by government.
While margins may be slightly lower, there is on the whole little risk of non-payment. With the National Infrastructure Plan and a renewed government commitment to infrastructure spending – in England and Scotland at least – this should ensure a continued strengthening.
Winning Work With Costain Group Plc
Costain prefers that suppliers register through an external validation system, such as Achilles. The preferred option is Building Confidence, alternatively UVDB, FPAL or RISQS. To register internally as a new plant, materials or subcontract supplier companies must fill out a questionnaire, which can be viewed here. Costain has a sustainable procurement policy can be seen here.
Key Costain procurement contacts include:
Group head of supply chain – Richard Howell, tel: 01628-842444
Head of Supply Chain Management – Sarah Jane Waith, tel: 01628-842444