Costain Group H1 2026 Earnings Report

Costain Group EPS Results

• Actual EPS: GBX 5.70
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Costain Group Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Costain Group Announcement Details

• Quarter: H1 2026
• Date: 8/13/2026
• Time: Before Market Opens
• Conference Call Date: Thursday, August 13, 2026
• Conference Call Time: 4:00AM ET

Costain improves people's lives by creating connected, sustainable infrastructure that enables people and the planet to thrive. Through the delivery of predictable, best-in-class solutions across the transport, water, energy and defence markets, we are creating a sustainable future and securing a more prosperous, resilient and decarbonised UK. By bringing together our unique mix of construction, consultancy, engineering and digital services, we work strategically with our customers and suppliers to meet critical national needs. Together, our people transform the performance of the infrastructure that connects, protects and powers people's lives. Our 3,500 people manage a workforce of around 14,500 people and collaborate with customers, partners, communities and wider industry to make infrastructure fit for a better future. Our ambition is to become a net zero business by 2045, while enhancing biodiversity and natural capital, and we have plans in place to deliver this. We are committed to procure responsibly and to be an inclusive and accessible business for all, enabling us to be our best while focusing on the outcomes that we deliver for people and planet.

Costain Group H1 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Revenue rose 3.4% to just over £0.5 billion and adjusted operating profit increased 3% to £17.3 million, while the 3.2% operating margin was maintained. Management reiterated that 2026 remains on track and expects a step-change in growth during 2027.
• Positive Sentiment: Costain maintained its record £7 billion forward work position, with 91% of consensus revenue secured for both 2026 and 2027. New customers and market entries—including National Grid, Gatwick Airport, Dover Port, electricity transmission and reservoir programs—are broadening the portfolio.
• Positive Sentiment: The company reported net cash of £164.4 million and expects approximately £170 million at year-end, despite higher shareholder distributions. It plans roughly £34 million of shareholder returns in 2026 through a doubled interim dividend and a £20 million share buyback.
• Negative Sentiment: Adjusted free cash flow was a £1.4 million outflow in the first half because of working-capital timing, while lease spending increased as Costain invested ahead of planned growth. Transportation revenue also declined as several framework projects completed, although management expects recovery in the second half.
• Neutral Sentiment: Growth is expected to accelerate as water, roads, aviation, nuclear and energy-transmission projects move from design into construction. Management believes this staged delivery model will reduce execution risk and support its ambition to achieve margins above 5%, but the current margin remains 3.2%.

Presentation

[Alex Vaughan, CEO at Costain]

Right. Good morning, everyone, and thanks very much for joining Costain's 2026 half-year results presentation. I am going to start with sharing my reflections on the first half for the year. Then Helen Willis, our Chief Financial Officer, is going to come in and take you through the financial results and the financial performance of the business before I return to give you a bit of a strategic overview and update operational insight and an outlook for the business as we move forward. Look, we are really pleased to have reported another strong set of results for the business in the first half. It really reflects the quality, the resilience, and the balance of the portfolio of business that we have got, and also how our teams expertly deliver our services. We have returned to revenue growth in the first half.

[Alex Vaughan, CEO at Costain]

We have also grown operating profits and increased shareholder returns, again, thanks to the strong balance of cash and the strong cash generation in the business. I think as we said in our results statement, the revenue growth in the first half marks that beginning of a sustained period of growth for the business, built on the successful positioning of us in what are significant growing markets. I am going to use a phrase a lot, but this is a really exciting time for U.K. infrastructure. In our markets, we have continued to secure a good number of high-quality new contracts and extensions that underpins the fact that we have maintained our record forward work position of GBP 7 billion. For a business of our size, that is six times our annual revenue, which really underpins that confidence in the growth.

[Alex Vaughan, CEO at Costain]

The fact that the forward work visibility of 91%, not just for this year but for next year, gives us that confidence in how we are going to grow and move the business forwards. Our forward work also benefits from having added new customers. So we have now added Dover Port, Gatwick Airport, and National Grid in the first half of the year, and we have also accessed new market segments. So we have broken into the Great Grid Upgrade, and we have got a real presence already on the reservoir program. All of that really improves the strength of the group. We remain on track to deliver 2026 in line with expectations, and to deliver that step change in growth for 2027. I just wanted to reflect that our first half-year results mark a continuation of the progress that we have been making as a business, that momentum in the business.

[Alex Vaughan, CEO at Costain]

Based on 2026 consensus, we are going to be delivering a full year 2026. We are on track to make it six years worth of growth and industry-leading margins as a business. As a result of the quality of the contracts that we take on and their nature, and the fact that they are cash generative, this has continued to strengthen our balance sheet. This consistent cash position, which is a feature of the type of business that we do, while strengthening the balance sheets, also allowed us to increase returns to our shareholders. Over the past three years, we have returned GBP 31.5 million in terms of shareholder returns, and that trajectory is going to increase. Today, we have announced a doubling of the interim dividend that we have got, which combined with the GBP 20 million share buyback, means in 2026 alone, we will be giving GBP 34 million worth of shareholder returns.

[Alex Vaughan, CEO at Costain]

This continued momentum is now set to accelerate in the second half of this year, and as we have talked about, with a step change in 2027. For the second half of the year, we have pulled together this graph that shows that in water, we have spent last year and the beginning of this year just finalizing design solutions for a lot of the water infrastructure. In the second half, we are now getting into the delivery of that infrastructure, which is why you get the step-up, and you will see that really moving forwards into next year as well, where we will be at full operational level delivering that water infrastructure. Heathrow, we continue to expand the amount of work that we are doing to support their investment plans. From a road point of view, we have got the M60. We have spent four years in the design and consenting phase for the M60.

[Alex Vaughan, CEO at Costain]

We have now mobilized. We are on site. We have started construction activities and obviously the second half you are going to get that, then next year we are going to get a full year. We have also got the ramping up of the nuclear energy work we talked about last year, together with that Great Grid Upgrade. We have also got some of the local road contracts coming through. So a clear path for that increased growth coming through. The step change in 2027 really builds on our momentum, that clear visibility of that GBP 7 billion worth of forward work. Our business is in great shape, and we are really excited, and I will hand over to Helen.

[Helen Willis, CFO at Costain]

Morning, everyone. I am just relieved to have navigated the step there.

[Helen Willis, CFO at Costain]

All good so far. Thanks, Alex, and look, we have talked about momentum a lot, and it really does feel like that is coming through now. As Alex said, we are on track to deliver the sixth consecutive year of profit growth and with an industry-leading margin, which we intend to maintain. The balance sheet position continues to strengthen. We significantly increased shareholder returns, having resumed in 2023. We are winning the right work, and we have maintained that GBP 7 billion forward work book. Of course, we entered the FTSE 250 earlier this year. It really is exciting to be part of this. Even as a CFO, I can say that. Let me take you briefly through the headline financial results. Revenue up to just over GBP 0.5 billion, up 3.4% on prior year.

[Helen Willis, CFO at Costain]

Adjusted operating profit up 3%, up to GBP 17.3 million, with no adjusting items, so that falls through to GBP 17.3 million on reported as well. Adjusted operating margin consistent with the first half of last year at 3.2%. Adjusted basic earnings per share increased by 3.6% to GBP 0.057, and that is primarily reflecting the increase in adjusted operating profit and a reduced share count following the share buyback programs. The group has adopted a new target dividend cover, as Alex mentioned, to 2.5x adjusted earnings, and previously that was 3x earnings. That would be paid 1/3 H1 and 2/3 H2, as we have in the past. We continue to maintain a strong balance sheet, as I mentioned, and net cash was GBP 164.4 million at the end of the half, and that is GBP 20 million higher than half year last year. That is after the increased shareholder returns.

[Helen Willis, CFO at Costain]

Revenue, as I mentioned, is up 3.4% on the half. That was following the expected small reduction on Transportation, but more than offset by growth across all sectors in Natural Resources. Crucially, this marks a key inflection point, and we are confident of the step change in revenue growth in H2 this year, followed by sustained period of growth thereafter. In Transportation, revenues and rates, as I said, reduced in line with expectations as several of our RDP framework projects completed. We expect to return to growth in the second half, as Alex was mentioning, as we go into construction phase on the M60 and on the M5 thereafter. Integrated Transport increased almost 40% as we really are hitting our stride with the work at Heathrow. There was strong growth in Natural Resources across all sectors.

[Helen Willis, CFO at Costain]

In Water, we see the transition from design into construction phase as we are into AMP8 regulatory cycle, and we are scaling up to deliver a strong pipeline of work in the second half of 2026 and thereafter. Energy revenue increased by 25.7%, and that is driven by a range of services we provide, including design and delivery of the carbon capture program at BP and the management of gas mains replacement for Cadent. Revenue increased on Defence and Nuclear by 3.6%, driven by our current delivery partnership roles. Adjusted operating profit, as I mentioned, grew 3% in the first half to GBP 17.3 million, and that was really reflecting the increased revenue but maintaining the adjusted operating margin, so stable at 3.2%. We have seen the lower volumes, as I mentioned, in the RDP frameworks offset by Natural Resources revenue.

[Helen Willis, CFO at Costain]

It should be remembered that last year we had normal course of business contract closure benefits in Natural Resources, and so the level this year is a more normalized level, I would say. We have spoken about our targeted areas of investment in recent periods, and it is important to note that we have seen another period of increased operating profit despite continued investment across the business, ensuring that we are really well positioned for growth. I will take you through the cash walk. Moving from left to right, opening net cash of GBP 189.3 million and closing net cash of GBP 164.4 million. The first boxed area represents adjusted free cash flow at an outflow of GBP 1.4 million. This outflow reflects strong operating profit offset by the timing of working capital around the period ends, as well as a modest CapEx and tax outflow of GBP 3 million. Interest receipts were GBP 0.3 million.

[Helen Willis, CFO at Costain]

Lease expenditure is shown separately from cash from operations and was GBP 5.7 million for the first half, and we've seen an increase in lease expenditure in the period as we invest on contracts ahead of planned growth. There was significant increase in shareholder returns, which totaled GBP 15.4 million in the period. GBP 7.2 million was spent as part of the FY 2026 share buyback program, and dividend payments of GBP 8.2 million, almost a doubling against half year 2025 of GBP 4.9 million. Other financing costs of GBP 2.7 million reflect the purchase of treasury shares to fund our employee share schemes, an increase in the first half driven by both increased share price as well as volume of options and awards. We expect to see this continue in the second half as the first of our SAYE schemes for a number of years vests at the end of the year.

[Helen Willis, CFO at Costain]

We expect that adjusted free cash flow will increase in H2, reflecting the typical second half weighting of adjusted operating profit. We expect our FY 2026 year-end net cash position to be around GBP 170 million after the step-up in purchase of treasury shares I just mentioned, as well as enhanced shareholder returns in the form of the GBP 20 million share buyback program and significantly higher dividend payment. The net cash position at the end of half one comprised of Costain cash balances of GBP 94.8 million, cash held by joint operations of GBP 69.6 million, and borrowings of nil. The chart illustrates the maintenance of a significantly stronger balance through H1 when compared to FY 2025 and H1 2025. The group's average weekend net cash balance in the period was GBP 177.3 million, a GBP 25 million increase on H1 in the prior year, and GBP 28 million on the full year of 2025.

[Helen Willis, CFO at Costain]

In the first half of the year, we paid 97% of invoices within 60 days, as we have done in previous periods. You remember at the full year presentation, I confirmed that in 2025, the group successfully concluded negotiations with its bank and surety facility providers to refinance a new four-year agreement of those facilities to September 2029, comprising a revolving credit facility of GBP 100 million and surety and bank bonding facilities totaling GBP 295 million. Further to this, in May 2026, Costain exercised a one year, optional extension clause, and this agreement was extended by a further year to September 2030, and the RCF facility remains undrawn.

[Helen Willis, CFO at Costain]

Our continuing strong financial performance, robust balance sheet and cash position, and the agreement reached with the trustee of the defined benefit pension scheme to remove the constraint to the dividend parity arrangement, has enabled us to significantly increase returns to shareholders. The graph shows the year-on-year increase in shareholder returns, having resumed returns in 2023. The board undertook a review of its options regarding dividend, and on the 10th of March 2026 confirmed its intention to pay a final dividend for FY 2025, in line with its target dividend cover of 3x adjusted earnings. The board regularly reviews its capital allocation policy, and following its latest review, the group has adopted a new target dividend cover of 2.5x adjusted earnings to be paid approximately 1/3 H1 and 2/3 H2.

[Helen Willis, CFO at Costain]

Based on the new target dividend cover of 2.5x and the completion of our GBP 20 million share buyback program this year, which will be our third share buyback program, we anticipate doubling shareholder returns in FY 2026 to circa GBP 34 million compared to GBP 17 million last year. As at 12th of August 2026, the group had purchased a total of 6.1 million shares for an aggregate consideration of GBP 12.1 million under the FY 2026 share buyback program. We shared this slide before at half year and full year results presentations, but I think it bears repeating. The effective management of risk in our portfolio continues to be central to how we manage our business. Over recent years, we have invested in strengthening our processes, controls, and assurance activities. We have invested in our systems, and we have invested in key capabilities across the business.

[Helen Willis, CFO at Costain]

This approach is applied to the opportunities we bid and win, all the way through to delivery on site and through to completion of our works. This approach has driven improvement in the quality of the forward work, the right risk profile, the right contractual terms, and hence the right conditions for predictable delivery results. It is this focus that has driven the path to higher margins as demonstrated by our continued margin progression over the last few years. Costain continues to secure further significant strategic program awards and extensions to existing contracts and enjoys good visibility on future work. We have maintained our record forward work position of GBP 7 billion in the first half of the year. Our forward work position is greater than 6x our FY 2025 revenues, and we have seen a year-on-year increase of 25% and an increase of 67% over the last six years.

[Helen Willis, CFO at Costain]

This forward work position is built on long-term programs that enable us to deliver a high consistency, continuity, and quality of work for our customers. As at the end of H1 2026, the forward work comprises order book of GBP 3.5 billion and preferred bid book of GBP 3.5 billion. It includes no single stage lump sum contracts and is predominantly target cost contracts where the scope, design, and cost are developed with and agreed with the customer. This disciplined approach to contract selection ensures that our forward work consists of the right risk profile underpinning our predictable delivery results. We also continue to transform the balance of our contract portfolio. Reliance on central government spend, shown in the light blue, has reduced significantly, with a proportion of forward work falling from 64% to 29%.

[Helen Willis, CFO at Costain]

This is mirrored by increases in private and regulated forward work from 30% to 48% and devolved government from 6% to 23%. All proportions, of course, of a much larger figure. The diversity of our forward work position continues to build, with additions in H1 2026 coming from target growth segments such as electricity transmission with National Grid, reservoir program management work, Thames Water and Anglian Water, devolved authority rail with TfL, and port infrastructure with Port of Dover. We continue to experience higher win rates than we have historically achieved, which, combined with a strong pipeline of bidding opportunities across all sectors, gives us confidence that our high quality contract portfolio will remain balanced and resilient going forward. This slide importantly illustrates the increased visibility for FY 2026 and FY 2027 revenues.

[Helen Willis, CFO at Costain]

The forward work position is comprised of GBP 1.9 billion of revenue across the second half of 2026 and FY 2027, GBP 1.7 billion over 2028 and 2029, and a further GBP 3.4 billion beyond that. The result is 91% of consensus revenues are already secured for both 2026 and 2027. Circa 50% of the forward work will convert and be delivered over the next four years. This visibility allows us to plan resources and supply chain to support the anticipated growth. The bar chart also shows a broadly equal split across the two divisions over the next four years, supporting growth over all of our sectors. We are on track for a sixth year of profit growth. High quality and volume of our forward work, together with growth on existing frameworks, gives us good visibility for the future and profit visibility of circa 90% of our consensus for 2026 and 2027.

[Helen Willis, CFO at Costain]

We are delivering industry-leading margins and have an ambition to deliver margins in excess of 5%. Our balance sheet continues to strengthen with net cash of GBP 164.4 million, and we expect the FY 2026 year-end cash to be approximately GBP 170 million after those enhanced shareholder returns. I will hand you over to Alex.

[Alex Vaughan, CEO at Costain]

Thank you. Right. Thanks very much, Helen. I am now going to provide you a brief update on the strategy and then cover the operational performance and business outlook. Our growth in revenues, operating profits, industry-leading margins, cash generation are derived from how we are expertly delivering the clear strategy we have got for the growth and value creation of Costain. We are focused on those markets where strategic long-term essential investment needs to be made. That is around transport in creating greater prosperity and growth for the business, road, rail, aviation, ports, water, energy, and defence. We explicitly choose to only work for customers who want to work with their partners in strategic long-term partnerships, where Costain has the chance to maximize the value that we can add to those customers.

[Alex Vaughan, CEO at Costain]

We enhance the value that we bring to customers by ensuring that we provide services that basically engineer pretty amazing solutions for them and expertly deliver them, whether that be as a construction partner or as a consultancy partner. This strategy, with our strategic focus on growth in strong markets, predictable best-in-class delivery, building that resilient customer mix, building a meaningful consultancy service, and being admired in everything that we do, is what is delivering a step change in our growth in revenues, operating profits, industry-leading margins, and will further enhance returns to our shareholders. I have talked about it being a really exciting place, infrastructure.

[Alex Vaughan, CEO at Costain]

Our market focus is built on the very clear visibility that we have on the investment that is going to be made in infrastructure, building on the government's infrastructure strategy that they launched last year to turn around and spend GBP 725 billion over the next 10 years on infrastructure. Our chosen markets represent the U.K.'s critical economic infrastructure, those essential national needs where the largest amount of non-discretionary investment is being made. Our chosen customers in our markets, as I have said, predominantly operate through five-year business plan regulated periods. Really strong, clear visibility of what infrastructure. Many of them select to work with us on those five years or longer periods, and we do have contracts where we have 15 years worth of work visibility ahead.

[Alex Vaughan, CEO at Costain]

As Helen has outlined, we continue to demonstrate a proven track record of winning more than our fair share of the work in these positions, and this drives the growth in the business. Having outlined the sort of strategy that we have got and talked about the scale of investment that has been made in infrastructure, in the full year results for 2025, I set out a case study that brought our strategy to life around our nuclear energy market. I am now going to share with you our water market as an example, just to talk you through how we have uniquely differentiated ourself in the market in how we access that water market. Firstly, the market investment in water is significant in scale, as you can see, and it has increased significantly to GBP 104 billion for this regulated period.

[Alex Vaughan, CEO at Costain]

Today, the regulators announced another GBP 3.4 billion, GBP 3.2 billion for our customers to support the growth in data centers, et cetera, to support economic growth. So huge investment in this market. What is driving that investment is the urgent need to maintain and optimize what is a very old-aged asset base for us to meet even tighter regulatory standards by reducing water abstraction from rivers, but also to improve the water quality in the natural habitat for them to respond to the challenges of climate change, perfectly timed for today, it is pretty hot out there. So we have either got high levels of rainfall that we cannot deal with or we have now got two years worth of extreme drought and a shortage of water with higher temperatures. It is also to support the growth in demand.

[Alex Vaughan, CEO at Costain]

That GBP 3.4 billion is to support data centers, housing, et cetera, that is driving that growth. It is also to ensure that we meet the 25-year plans to have a sustainable long-term supply of clean water for the U.K. So it is a pretty important sector. Operating in the water sector requires you to have a differentiated expertise. You need to have an intimate understanding of the water industry, the water process, and the expertise. It really benefits to have really mature relationships with the customers who operate in this place and positively, that is why the customers choose to work with their partners in those long-term partnerships, five to 10 years. Through our unique strategy, we have successfully positioned ourself in all three of the critical market elements. We are involved in maintaining the existing infrastructure, optimizing its performance, and repurposing it to meet the changing needs of the customer.

[Alex Vaughan, CEO at Costain]

And trust me, today, the phone calls we get, they've got very changing needs of how they can produce as much water as they can. The contract we've got with United Utilities, we are delivering a wide range of replacement, refurbishment, asset upgrade services across their whole estate in the northwest of England. We secured the contract originally in 2019. We've since had two further extensions that's now taken it through to 2029. That's going to be a 10-year partnership and we're obviously working to expand this across the other water companies. But at the moment, United Utilities are the only people buying this type of service. Moving to the regulatory capital delivery programs, we're working with the five major water companies across England, Northumbrian Water, Severn Trent Water, Southern Water, Thames Water and United Utilities. Interestingly, GBP 3.3 billion of this GBP 3.4 billion worth of investment.

[Alex Vaughan, CEO at Costain]

So this is where the significant investment is being made. And we work in designing and coming up with pretty incredible solutions to meet their needs and then expertly delivering large programs of capital programs for them. We're also the technical assurance partner for Yorkshire Water. As a result of our expertise and reputations, we've worked with all of these companies on multiple regulatory cycles. And the current contracts we've got for United Utilities, Southern Water and Northumbrian Water go into the next decade, so they're pretty long in nature. And some of the relationships we've got span more than 30 years of a proven and trusted partnership. We're also coming to the third one. We're also a key partner building the U.K.'s future strategic water assets.

[Alex Vaughan, CEO at Costain]

As you know, we've just completed the Thames Tideway project, a pretty major strategic infrastructure asset that's going to allow the U.K.'s capital to grow and expand and flourish in a sustainable way. And we're already a partner to Anglian Water, delivering their strategic pipeline alliance, which is to take water from some of the wet areas on the East Coast to some of those areas where there is not a lot of water. And we've been doing that. The original contract began in 2020, and it's now been extended to last until 2030 as we drive further capital investment. And the market, as you'll have seen, is now preparing for a long-awaited period of significant investment in reservoirs, 15 years too late, but we're getting on with it and we've already secured an important role in this market.

[Alex Vaughan, CEO at Costain]

We are already the enabling works partner for Anglian Water and Thames Water on their reservoir scheme, supporting the development of what is going to be a GBP 50 billion market investment. Our focus on this critical investment, our markets, our customers and service has resulted in Costain building the strongest ever breadth and scale of water service that exists. This case study again shows how we position ourselves under our strategy in our markets and is typical of all the markets that we operate in and I believe underpins the strength of our strategy. I'm now going to talk about each of the divisions. Transportation has been an incredible successful journey over the last couple of years. We've now built a very broad Transportation business. We're exposed in the roads market on the strategic highway and the local and devolved highway networks.

[Alex Vaughan, CEO at Costain]

We're involved in rail right across from the strategic infrastructure on HS2 to supporting Transport for London upgrade their rail infrastructure. We've broken into the aviation market where we now work for all three of the major airport operators, Heathrow Airport, Gatwick Airport and Manchester Airports Group. We're also now we've broken into the ports market that we're beginning to see expand as it supports trade with the rest of the world, but also to support the offshore wind market. So huge success. In roads, we've completed a number of contracts, but we're now mobilizing those two strategic highways on the M5 and the M60, as well as some of the devolved work that we've got. On rail, the HS2 contracts, just to remind you, we've got three contracts for HS2.

[Alex Vaughan, CEO at Costain]

We're in the middle of delivering the major civils program at the moment, with two tunneling machines making their way to Euston as we speak, at great pace. We've also got the two systems contracts, one for the HV power upgrade that's going to power the whole of HS2, and the second one, the tunnel fit-out from an M&E point of view. We've also had a breakthrough contract with Transport for London, which has been great because we've been working with them on roads, and they told me that we were doing an all right job. Actually, they said we were doing a good job. Now we've broken through into their rail, and we've won a leading position on upgrading their stations and the step-free access program that they've got running there. Also in local roads, we're making good headway.

[Alex Vaughan, CEO at Costain]

From an integrated transport, I've talked about the aviation, and I've talked about Port of Dover already. It's really pleasing to see us making this progress. If I look at the pipeline in Transportation, it's incredibly strong. The future opportunities right across this broader business that we've built are very strong, and we see a very positive outlook for Transportation. Natural Resources is clearly benefiting from strong delivery performance and significant investment right across water, energy, defence and nuclear energy. In energy, we're focused on future-proofing the existing gas network, supporting gas capacity resilience, and now growth of the U.K.'s electricity network. Our performance for Cadent Gas has continued to be excellent, and we're progressing the delivery of BP's landmark great carbon capture and storage project in Teesside. Importantly, we've also broken into the electricity transmission distribution market in the first half, targeting those substation upgrade programs.

[Alex Vaughan, CEO at Costain]

In Defence, which again, on the back of the strategic investment plan for Defence, where the CASD program investment has been ring-fenced, we're now actively continuing to deliver the AWE program and Devonport upgrade. There's a strong pipeline of opportunities that have come straight at us on the back of that, which present huge opportunities for us in Defence, where we have a great position. In Nuclear energy, we've won the work last year, huge amount of work working for Sellafield, Urenco, and NRS, who are part of the decommissioning, and how we're driving growth in that market as well. Again, there's an outstanding pipeline of future opportunities across all of our market segments in Natural Resources, and we see a positive outlook for this division as well.

[Alex Vaughan, CEO at Costain]

In final summary, and to close, the quality and balance of our contract portfolio and broader customer and service mix is delivering growth in revenue, operating profit, and strong cash generation. Our strong balance sheet is increasing the net cash position, is allowing us to increase returns to shareholders via dividends and share buybacks. We will continue to benefit from the committed growing investment in target markets that we've chosen to operate in and have demonstrated our ability to enter new growth market segments and expand our serving offering with existing and new customers. As I've said before, our record forward work position of GBP 7 billion over 6x our annual revenue gives us excellent visibility of the future revenue and underpins our future growth that we've been talking about.

[Alex Vaughan, CEO at Costain]

Bringing this all together, as Helen has said, we're now at that key inflection point as a business, with growth coming in the second half of this year, a step change in 2027, followed by a period of continued growth thereafter. The business is in great shape. It has a team who pride themselves on solving the most complex challenges and delivering them to best-in-class standards predictably. We have a growing momentum, and we continue to take advantage of the significant opportunities ahead. This is a very exciting time for the U.K., and it's a very exciting time for U.K. infrastructure. Thank you very much. Finally, as I hope you're aware, we'll be hosting a capital markets event on the 19th of November here in London, where we're going to discuss more some of these growth drivers and bring that to life in more detail.

[Alex Vaughan, CEO at Costain]

I hope to see as many of you as you can attend that event. Thank you very much. We'll take your questions. But first, we're just going to move and sit over here. Charlie, you're going to hand the mic out.

[Ed Prest, Analyst at Berenberg]

Thanks. Hi, it's Ed Prest from Berenberg. I seem to have sat in the best seat.

[Alex Vaughan, CEO at Costain]

Sorry?

[Ed Prest, Analyst at Berenberg]

I seem to have sat in the best seat.

[Alex Vaughan, CEO at Costain]

You are all right. Yeah.

[Ed Prest, Analyst at Berenberg]

Three from me, please. Firstly, you note that Costain continues to achieve higher win rates than it has historically. From your perspective, what is driving this? Is this down to a broader change in market dynamics, or is it a change in the perception of Costain from customers? Secondly, consultancy. You note in the statement that at 18.2%, that is an increase on where it was last year. Do you have an optimum level for consultancy revenue in mind? Is there still further increase to go, or do you expect some normalization to come? Thirdly, energy transmission. Are you able to talk about the competitive dynamics here? How difficult will the incumbents be to compete against, or does the massive growth in the sector represent an opportunity that you are able to capitalize on?

[Alex Vaughan, CEO at Costain]

You are all right if I take those three?

[Helen Willis, CFO at Costain]

Absolutely.

[Alex Vaughan, CEO at Costain]

Yeah. Look, what do I think is behind the higher win rate? I think a massive part of that is the insight that we have in the customers, because we have worked for a lot of these customers for a long time. We get to understand their business. I think we work really hard on really getting underneath what is it that they want, what is their ambition from the investment, what do they need. I do think we are really good at coming up with solutions. We talk about ourselves as an infrastructure solutions business. We have got amazing people that come up with faster, more efficient, better solutions, and we work really hard on that. Therefore, the value we add. We put a lot of hard work into it.

[Alex Vaughan, CEO at Costain]

I was asked on a media call earlier, "Do you ever turn work down?" There is a lot of work we turn down every single month. We are very selective on what meets our risk appetite, but also where do we think we can win. If we do not think we have got a reason to beat someone else, why should we bid it? We are pretty rigorous on that. I hope that answers your first question. Second one, optimum volume of consultancy. I think we are going to say more about that at the Capital Markets Day, definitely. Look, if we look at the decision-making tree, it is not just about growing consultancy.

[Alex Vaughan, CEO at Costain]

It comes down to where can we have the best position with the customer, where can we maximize the value, and therefore the return that we can get out of it, and how best should Costain position ourselves, and that is how we drive it. We are certainly growing our engineering and design that grew 60% last year. That is going to grow because we actually think we are a better designer than the traditional designers, and that is something that we are investing in to grow. In terms of the delivery partner and some of the other services, there is that decision to make whether we go for a capital program or whether we go for consultancy, and that is based on where do we think is the best position to go there.

[Alex Vaughan, CEO at Costain]

I would not give you a fixed percentage at this stage, but as I say, we will say more at the Capital Markets Day on that. Energy transmission. Look, every market is competitive. I would love it if they were not, but they are not. They are competitive. I think we have got a great offer. We have got a great proposition, and we have certainly been successful so far on a couple of opportunities, which we will certainly say more again at the Capital Markets Day. But yeah, look, competition is strong and healthy as always.

[Ed Prest, Analyst at Berenberg]

Cool. Thank you.

[Alex Vaughan, CEO at Costain]

Thanks.

[Aynsley Lammin, Analyst at Investec]

Thanks very much. Aynsley Lammin from Investec. Two for me, please. When we look at the visibility and secured work for next year, you have 90%. One, just how unusual is that? What is driving that visibility? Also, if we think about the margin, if there is a bit of cost inflation, how well-protected you are in terms of contract terms to pass on and deliver the margins you expect. The second question, just on share capital returns, obviously reduced the dividend coverage to 2.5x. A bit more around your thinking there. The share price had a good run. Does that mean there is less chance of share buybacks? Is going to be more dividends? Could that go down further? Just any color or insight there. Thanks.

[Alex Vaughan, CEO at Costain]

I will take the first one, you take the second one. You all right with that?

[Helen Willis, CFO at Costain]

Yep.

[Alex Vaughan, CEO at Costain]

Yes. Look, in terms of visibility, I think what is great around the visibility is we have won the frameworks. We have now spent 18 months doing a lot of design work, preparation work, and we are now into starting the delivery. We have had long-term visibility of this work, and it is one of the points that Helen makes. We get asked a question about do you have the capacity to be able to deliver all this infrastructure? Well, because we have been able to see it coming for three years, and sometimes longer, we are able to plan. Because we have done that work, one of the great things is that we co-develop the solutions with the customer. We can identify risk, we can eliminate risk, make sure we are not carrying that risk. So effectively, the design is complete. We are then able to deliver it.

[Alex Vaughan, CEO at Costain]

We are in that phase now of now going to site and delivering a lot of that work we have spent the last 18 months, and that is what gives you that visibility and that confidence. Just coming back to your cost inflation point. The big drivers on cost inflation are the same thing that affects everyone at the moment. It is energy prices and energy-intensive industries. As do our clients, actually, we have protection from inflation, and our clients do as well in their budgets. So we are seeing that come through. But we do not just sit back and accept that happening. We work really hard with the clients to determine and go, "Okay, well, what are we going to do?" Because at the end of the day, they have got to try and manage their cash flow and their budget as well.

[Alex Vaughan, CEO at Costain]

But we have got protection, and at the moment, it is limited to energy prices. Share capital.

[Helen Willis, CFO at Costain]

Yeah. Share capital allocation, capital allocation rather in the divvy versus share buyback. Obviously, this has been the first year that we have been able to be unconstrained in how we have returned, how we plan to return to shareholders. We had the dividend parity removed in January that we announced. So this has been the first year where we have been able to set those levels without constraint. Obviously, GBP 20 million buyback program this year, 10 previous year, 10 before that. I think three times policy was set way back when we did the capital raise, before I joined even.

[Alex Vaughan, CEO at Costain]

Before you, yes.

[Helen Willis, CFO at Costain]

Even before me.

[Alex Vaughan, CEO at Costain]

Pre-Helen.

[Helen Willis, CFO at Costain]

Looking at the market, looking at the level of returns we want to make, we felt 2.5x was a sensible progression. I guess you could say it's a sign of our increasing confidence. Obviously, we've got the cash balance to back it up. The growth is coming. You should really view it as a sign of that confidence. How are we seeing that capital allocation going forward? I guess, Capital Markets Day, we'll talk a bit more about that. That's not easy to say. I think we have got still the same policy. We are still investing in the business. That's really important. We do recognize the importance of those returns. We have talked a bit about M&A in the past, and we're actively looking at that.

[Helen Willis, CFO at Costain]

We won't rush into anything, but we're well set to consider all of those elements of our policy.

[Max Hayes, Analyst at Cavendish]

Hi there, Max Hayes from Cavendish. Just two questions. You've spoken about AMP8 contracts moving from design to delivery during the second half. Just looking at the wider portfolio, how should we think about the timing of other projects in other verticals, similarly moving from design to delivery over the next few years? Then as they move into those larger delivery phases, just how you continue to build margin. Thank you.

[Alex Vaughan, CEO at Costain]

Yeah. Look, thanks, Max. Look, AMP8, I have talked about, as you said. The M60 is another classic example. We spent four years working on the design, consenting. It is a project that is going to be delivered in a lot of people's back garden, or right next to people's back garden. So it has taken a lot of planning. So we have completed that. It is the same with a number of the nuclear energy projects. A lot of work has been in the design phase. So we have this, and this is what we have got to look at, you have this period within the regulatory period that you get allocated the work, you then start designing and develop solutions, and then you spend.

[Alex Vaughan, CEO at Costain]

That is why you always see that curve is sort of like a wave, which actually the customers are now going to help flatten out, that we get that. It is the same for Gatwick. We have won the contract. We are spending the time at the moment, but next year, we will go into the delivery phase of those contracts. So it is a pretty similar message right across the book, if that helps. The really important thing about how do we drive margins is really getting value out of that stage 1. The fact that we spend so much time, to spend four years on the M60, really working through the design, what is the best way to deliver it, how do we assure it, how do we make it predictable, means that when you get to the delivery phase, you have eliminated the uncertainty.

[Alex Vaughan, CEO at Costain]

You have not got design challenges, you have not got ground conditions, you have not got procurement challenges. You have done all of that work, which sort of means that you just go and execute it. We call it assembly now. You just go and assemble the solution. So that is really what is going to drive the margins. Helen has a great phrase.

[Helen Willis, CFO at Costain]

Well, I will just build slightly, and then I will give the magic phrase.

[Alex Vaughan, CEO at Costain]

When you get-

[Helen Willis, CFO at Costain]

I will.

[Alex Vaughan, CEO at Costain]

Helen's got a great phrase in the business, which is what really helps us-

[Helen Willis, CFO at Costain]

Yeah.

[Alex Vaughan, CEO at Costain]

-drive that.

[Helen Willis, CFO at Costain]

Just one build on that. I think it is the quality of the portfolio gradually coming through. You have three elements. The portfolio delivering exactly as Alex has described. We have talked about still the tail end. I mentioned in the presentation about the RDP frameworks, which were signed back in 2016. As everything comes on in the right risk profile and right terms, as we have been working very hard on, you see that quality of the portfolio increase in the predictable delivery, making sure we are reaching all the milestones and gain shares, that gradually pushes that margin up. The biggest piece is as we grow in scale, we will get, I think, a reasonably significant operating leverage uplift as well. Various factors contributing.

[Max Hayes, Analyst at Cavendish]

Makes sense. Thanks.

[Analyst]

Good morning. It is all happening on the right of the room today. Three questions, if I may. Firstly, a very helpful case study on water. Can we just revisit the nuclear one at the full year and remind us how that is progressing and what share of the order book is nuclear? Secondly, your FY 2027 visibility of 91% is pretty standout. Can you give us an indication of what the same number would have been a year ago, roughly? Thirdly, no talk about the pension, which is good news. Do you have any plans for the pension?

[Alex Vaughan, CEO at Costain]

Okay. Let me talk about the first one, and I will let you-

[Helen Willis, CFO at Costain]

I'll do the second.

[Alex Vaughan, CEO at Costain]

-do the difficult ones.

[Helen Willis, CFO at Costain]

Yeah.

[Alex Vaughan, CEO at Costain]

Yeah, look, what we're trying to do with these case studies is sort of bring the strategy to life. I think what it shows is a really strategic focus on what is the investment, what is it trying to solve, and therefore, where can Costain add best value, and not just sitting there saying, "Right, what do they want to build?" It's the wider challenges. I hope that came across in that. For nuclear, we're making great progress. If I look at for Urenco, we're now moving into the delivery phase, having spent time with them on a lot of the uranium enrichment. It's not one big project, it's a sort of series of about 30 individual projects on a program of work with them. We're doing that.

[Alex Vaughan, CEO at Costain]

We've got in North Wales, we're doing some decommissioning work of existing old power stations for NRS, doing that. Clearly with Sellafield, we've got this 15-year program, and we've been helping to mobilize. The first half of this year has been all about mobilizing it, get the client's team ready, get our team ready. We've now got the pipeline of opportunities that we're starting to develop and design to be able to deliver that. We've got a pipeline of some pretty exciting stuff, which hopefully we'll be able to talk about soon. The U.K. government has made a very clear state that it wants to have a sovereign capability around that nuclear capability. They don't want to become reliant on other nations for the supply of anything within the nuclear area.

[Alex Vaughan, CEO at Costain]

What you are going to see is quite significant investment supporting the fact that we have Sizewell C, but we have SMRs, and that is a market that we are targeting to build a position in, but also some of the wider. You have seen uranium enrichment with Urenco is a clear thing that the government is saying, "Right, we are going to produce that ourselves," but there is a lot of other nuclear energy capability they want to build ourselves that we are actively engaged on. Yeah, pretty an exciting place to be.

[Helen Willis, CFO at Costain]

Visibility. It is fairly usual for us to be at around about the 90% for current year, but the 91% for next year is much higher. We have not given a number before, so I am not going to do that now. But it is significantly better, and I think it comes from where we are in the growth trajectory, where we are in terms of design going into construction. As Alex was describing on water and, for example, roads, we have landed those call-off contracts within the frameworks. We have landed the design. We are actively going into construction. So that gives you really solid visibility into next year, and indeed the further year. Yes, it is bigger. It is nice to have that visibility, but really crucially planning the resources around it. We need to know we have got the right people in place, the right supply chain.

[Helen Willis, CFO at Costain]

That is one of the reasons that we pay so well as well. There is a lot of work out there, which is great, but obviously, we have got some competitors who want the best as well, so we do everything we can to make sure we have got the best of both of those. Pension plans. It is great not to have to talk about it too much. No cash contributions ongoing with the triennial we landed in January. We are looking at, so what do we do with it? Buy-in, buy-out versus run on, and we are actively doing some analysis at the moment. No concrete plans, but we are obviously looking at it and keeping it under consideration as you would expect.

[Andrew Nussey, Analyst at Peel Hunt]

Good morning, Andrew Nussey from Peel Hunt. A couple of questions, actually three. If we start off with customer diversification, activity diversification, which has been a key part of the strategy. Can you reassure us that on the day one risk-adjusted margin is acceptable and it has not been work secured in the hope of future workloads coming from that customer? Second question on road. If we look beyond the M60 and the M5, do you still see that as a growth market for Costain, particularly given the news flow around focus on asset renewal and replacement rather than miles of new tarmac? Then the third question. GBP 70 million of cash tied up in joint operations. If that could be restructured in a way with your partners, would that then lead to a review of the capital allocation strategy?

[Alex Vaughan, CEO at Costain]

Oh. Secret's out. I'll let you cover the last one. Just in terms of customer diversification, we very purposely turned around a couple of years ago and decided that this business needed to diversify. If you look back at Helen's slide, almost 70% of the business was the Department for Transport. Very big in rail, very big in road. To grow the business, we felt we needed to break into other markets, which we've successfully done, as you can see. We've grown. Again, if we look at the quality of the customers that we're buying, we're being very selective about who wants to work with their partners in strategic long-term relationships, not one-off contracts. Every opportunity that we look at in winning those frameworks has the same risk appetite applied to it as we do on any of our other work.

[Alex Vaughan, CEO at Costain]

We're very clear about we really always want a stage 1 that we basically get to jointly create the solution together before we commit to what the price and the budget is. That's a common way of working with customers, even the new customers. Then we can get into executing and delivering it. There's no discount or adjustment made for a future growth opportunity. We look at every opportunity on its merits against our criteria. Generally, everything. If you look at this TfL rail contract, it's a program of work that's going to be delivered over the next five years worth of work to go and deliver it, and it'll be in that same style, as will Dover, as will National Grid. We certainly don't sacrifice returns just to get in with a customer. The road market.

[Alex Vaughan, CEO at Costain]

Look, definitely the type of work, so great new build apart from the M5, which is going to be a great new build, but it's being funded by a data center who needs the access. The M60 is exactly what you've just talked about. It's an existing junction that requires a total redesign and a rephasing because it is, if you listen to a travel program, it is every single day Simister Island will be on the news talking about how it's gridlocking Manchester because it's where three motorways come and converge, and that needs to be reconfigured. That is exactly the type of work that National Highways are going to be doing on their strategic network. It is about are there assets under distress that need doing, or are there congestion pinch points that need. That type of project will continue.

[Alex Vaughan, CEO at Costain]

But we're seeing a lot more money being given also to the local roads. The contract we've won for Norfolk County Council is to allow access for 4,000 new homes. We're seeing a lot of that going around the country about what unlocks either data centers, homes, or other economic drivers in the U.K. Also we do maintenance, so we maintain all of the highway infrastructure in the northeast of the country. So we grit the roads, we maintain them, we cut the grass. There's a whole load of work that we do there that will continue as well. We're pretty confident that that market is going to continue to be an attractive place for us, as well as the other exciting things that we've added to make us a much broader Transportation business.

[Helen Willis, CFO at Costain]

GBP 70 million of cash tied up in joint operations. Yes, we always talk about our cash as what is liquid. Cash does flow through from joint operations into ours, but obviously it is not fully liquid. It is a chunk of cash. It is from a couple of joint operations, one of which you will not be surprised to hear is HS2 with our JV arrangements with SCS, in SCS. Clearly, it would fundamentally change our liquid cash balance and therefore would lead us to consider it. But we do have to negotiate that. We do have to think about what is appropriate for ourselves and our joint venture partners in those operations. It is absolutely something we are looking at, but not something we have any certainty on yet.

[Jonny Coubrough, Analyst at Deutsche Numis]

Jonny Coubrough from Deutsche Numis. I am just looking at your market pipeline, slide 20, and the reservoir program is not on there. Is that beyond 2032? I think you mentioned, Alex, GBP 50 billion program. Is that right? Could this replace your HS2 workload on a run rate basis as we go into the 2030s? Probably a follow-up question from Andrew, would this be JV'd and what would the cash dynamics be? Sorry, last one, more broadly, generally you have not seen big working capital swings in your business, but we are seeing some infrastructure markets like power become more cash generative. Are you seeing that in any of yours and could that be the case in water, for example?

[Alex Vaughan, CEO at Costain]

Yeah. Look, the reservoirs is not on there because the regulator has not necessarily provided the capital for this. What we have put on there is what the regulators have basically signed off, even though everyone knows I was in meetings with DEFRA last week talking to them about the reservoir program. It is critical, those 23 reservoirs do need to be built. Where Costain positions itself is quite key. There will be some reservoirs that we will not go for. For example, Whitehorse for Thames Water, because they are looking for a DBFO partner. The terms and conditions are likely to be fixed price lump sum. That is a type of contract that we would not go for. Whereas there are others that are being funded by the water companies, and they want to work in a similar way to the way we deliver the water infrastructure at the moment.

[Alex Vaughan, CEO at Costain]

But again, where we have positioned ourself with Whitehorse at the moment is we are the client's enabling works partner. So we have been doing all of the trials to prove the design of the reservoir. Also we are overseeing all the archeological surveys and service diversions and all of that at the moment. Again, getting in there. So where exactly we choose to position ourself will depend on risk profile, and also where we think we can add the most value. Yeah, that is sort of still up in the air. In terms of it replacing HS2, our HS2 contracts are going to continue until late in the 2030s. The growth in the balanced portfolio of the business is what fulfills any decline in HS2. This is not about one major project being replaced by another major project.

[Alex Vaughan, CEO at Costain]

If I look at the growth at Gatwick, I look at the growth in energy and right across, when we look at our business, we can see an even more balanced portfolio of business in the future even without HS2 in it. Although at the moment we have still got HS2 in it for a long, long time.

[Helen Willis, CFO at Costain]

I think there are the frameworks that we have won, I think it is important to recognize that there are call-off contracts within the framework. Even though they are very large framework values, there is a much steadier stream of work that comes through from there, and they are all to a stage where we are designing and then going into construction. That diversity of customer sector, procurement cycles, and so on just all helps to smooth the overall shape for Costain so we do not have any cliff edges at all. Reservoirs, I guess we would view that as an additional opportunity.

[Alex Vaughan, CEO at Costain]

Yeah.

[Helen Willis, CFO at Costain]

Absolutely we will look at it. But it is all about the risk profile, as Alex said.

[Alex Vaughan, CEO at Costain]

Working capital swings.

[Helen Willis, CFO at Costain]

Working capital swings. We wouldn't take anything on that is going to put us under stress. Everything that we're looking at at the moment is very similar in cash shape. It tends to be that we pay out our suppliers and then we receive in on a monthly basis. As I've said before, the real key in this sector is managing the design, managing the scope, managing how you deliver on the ground such that you don't have issues with the customer, you don't have balances tied up in work in progress. Then the cash does flow in a fairly steady fashion.

[Alex Vaughan, CEO at Costain]

Are we done? Rather than me standing there, if you don't mind, I'll just conclude now. Look, thanks very much for taking the time to join us. I hope it's a bit cooler out there for you when you do get out there. Look, it's a really exciting time for Costain. We've made tremendous progress in building a much broader business. Strength in the performance is coming through, and we've got a really exciting future. Thank you very much. See you soon.

Participants

Analysts

• Alex Vaughan, CEO at Costain
• Helen Willis, CFO at Costain
• Ed Prest, Analyst at Berenberg
• Aynsley Lammin, Analyst at Investec
• Max Hayes, Analyst at Cavendish
• Analyst
• Andrew Nussey, Analyst at Peel Hunt
• Jonny Coubrough, Analyst at Deutsche Numis