Firm sank into the red last year
Shares in Costain fell 24% this morning after the contractor announced a £100m rights issue to shore up its balance sheet after nosediving into the red last year.
The firm said it was facing growing demands on its cash from the government’s prompt payment code and the increased use of project bank accounts. The firm improved its average payment time in 2019 from 58 days to 34 days.
Costain said it had extended its borrowing facilities of £187m with its lenders from June 2022 to September 2023 – provided it raises the extra capital by the end of June this year.
Chief executive Alex Vaughan, who took over from Andrew Wyllie less than a year ago but has since had to preside over a number of profit warnings and now a full-year loss, said its cash position had dwindled after taking a £37m hit on a road scheme in south Wales, called the A465 Heads of the Valleys, and a £9.7m cost to fix a roof at the £260m National Synchrotron facility in Oxfordshire which Costain’s building business completed in 2006.
He added that delays to the start of jobs and a contract cancellation, thought to be the M4 widening scheme which was pulled by the Welsh government in May last year costing the firm £500m-worth of work, meant the firm slumped to a £6.6m pre-tax loss in 2019 from a £40.2m profit. Revenue was down from £1.5bn to £1.2bn.
Underlying operating profit also fell sharply, down to £17.9m from £52.5m.
The firm had £64.9m in the bank at the year-end and average month-end net cash of £41.2m in 2019, down from £77.1m a year earlier.
Last December, the contractor said an arbitration ruling about a row with the Welsh government over the A465, which runs between Gilwern, near Abergavenny, and Brynmawr, near Ebbw Vale, had reversed an initial adjudication which had found in Costain’s favour.
The firm gave no further update on when it expected to complete work on the five mile road, which involves upgrading it from a single three-lane carriageway to a dual two-lane carriageway, but has previously said it will be finished in the first half of 2021.
The firm’s order book stood at £4.2bn, which includes £1.1bn of HS2 contracts.