Margin progress drives profit growth at Costain

(Sharecast News) - Costain managed to increase underlying profits by more than a tenth in 2023 despite weaker top-line performance as the construction and engineering company saw an improvement in margins, helping it to resume a final dividend to shareholders. In addition to the 0.4p per share paid out for the first half, the company proposed a 0.8p final dividend, after having not paid a dividend since 2019.

Chief executive Alex Vaughan said the company experienced "good momentum" last year, as it delivered a 10.5% increase in adjusted operating profits to £40.1m.

Operating margins rose 40 basis points over the year to 3.0%, rising to 3.8% in the second half.

Statutory operating profit however fell to £26.8m from £34.9m the year before after accounting for the costs of repositioning its digital portfolio towards services in the first half, along with the group's transformation and restructuring programme.

Total revenues were down 6.3% to £1.33bn, with a reduction in volumes due to the rephasing and rescoping of certain projects in the Transportation division.

Looking ahead, the company said its expectations for "further progress" in 2024 remain unchanged, as it held on to guidance of an adjusted operating margin run-rate of 3.5% during the year, rising to 4.5% in 2025. Its longer-term ambition to grow margins to above 5.0% still remains.

"The quality and balance of our forward work across our two divisions gives us good visibility on future revenue and margin," Vaughan said.

"We have more than 80% of expected revenue secured for 2024 and our forward work stands at around three times 2023 revenue. We see continuing momentum in the business and remain confident in the group's growth prospects."

The stock was up 0.3% at 68.17p by 1101 GMT.