Costain Group PLC (COST) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Costain Group PLC Half year results Q&A session. [Operator Instructions] And I'd now like to hand you over to the team from Costain Group PLC. Matt.

Good morning, Zane. Thank you very much, and good morning, everyone. Thank you for joining us this morning for our investor meet Q&A session following the announcement of our half year results for 2026 last Thursday. Hopefully, you would have all seen in the presentation that is on the website and may have listened to the recording of the webcast from Thursday analyst presentation. So this morning, we are just in the limited to questions and answers. You can answer your questions on to the platform whilst we're speaking now. I'm joined by Alex Vaughan, Chief Executive Officer; and Helen Willis, Chief Financial Officer. Alex is going to make some introductory comments and take you through the sort of highlights from the last week, and then we'll get into Q&A straight away. So over to you, Alex.

Thank you, Matt, and good morning, everyone. Thanks very much for taking the time to join us this morning. Just going to give you a very brief sort of overview of the half year results. So it's been widely appreciated as another strong performance in the first half of 2026 for the business, which was great. Four things I would draw out. The first thing a good financial performance in the first half. So revenue was up. We've had growth in operating profit, and we're continuing to deliver those industry-leading margins that we've been talking about. We've also maintained our strong cash generation for the business. And all of that is part of the momentum that we've been maintaining over the last 5 years. We had a good increase in a good track record of increasing adjusted operating profit together with margins, generating cash. So the business is in good health. Second thing is we're continuing to win more high-quality work. The outlook in all of our markets continues to be very positive and is stable. So to remind you, that is transportation, which is road, rail, aviation and ports, water, energy, defense and nuclear energy. So the outlook in all of those markets continues to be very favorable, and we have got good position in those markets. We've secured further new work and extensions in the first half of the year, and we were able to maintain our record forward work position at GBP 7 billion that's over 6x our annual revenue, which by any measure is a very high level of forward work. So it continues to be really healthy. And that is -- that supports a really balanced and growing portfolio of markets and customers right across the business. So we've got a much more resilient business, broadening that customer base. And we've successfully broken into a number of additional market segments in the first half, accessing the great grid upgrade in energy and water reservoirs in water. So overall, positive markets, winning our fair share and continuing to strengthen the quality of that forward work. The third thing, we're on track to deliver increased growth. So we set out in our results statement and in the presentation that we've got a route map to deliver growth in the second half of this year with visibility of 91% of the work in the second half, and a step change in growth in profits in 2027. And we said in the results statement that we have got visibility of 91% of the consensus numbers. And if you want to find those, they're on our website under the investor area, the consensus numbers. So good progress and on track to deliver that increased growth that we've been talking about. And then finally, what does all of that mean? All of that means that the business is in the greatest health and shape that it's been for a long, long time and that we are delivering an increase in shareholder returns. So we've increased the dividend from 3x cover to 2.5x cover. So that's doubling the interim dividend and the buyback that we are in the middle of is progressing really well. So overall, really positive update.

Great. Thank you very much, Alex. So we do have some questions that have come in while you were speaking. So let me start with one from David. I was asked whether the amount of business we've been doing with HS2 has increased in reducing or remaining about the same over the last sort of 6-month period?

Yes, David. Just to remind you, we've got 3 contracts with HS2. We've got the main civils contract, which is the contract that we're on the ground delivering at the moment, and we're about sort of 60% of the way through that. And the value of that hasn't increased in the period. We just continue to deliver against the program, and the schedule and the budget for that. And then we've got 2 system contracts, which will follow the civils contracts right across the entire program. One is that the M&E fit-out of all of the tunnels. And on HS2, there's a significant volume of tunnels. And then the other one is the high-voltage power supply for the HS2 line. So the delivery is on track, online, very strong and making good progress. Thank you.

Great. Thank you, Alex. I'll give you -- the next one, I'll give to Helen to start with, and then I'm sure Alex will add. It's from Rajid who asks, are we becoming more selective on contract opportunities and really how are we thinking about risk as the order book strengthens? And are there contracts you would walk away from that you might previously have pursued?

Thanks, Rajid. So this is a really great question. That consideration of risk is sort of foundational for us. So we've been talking over the last 2 years about the investments we've been making on how we manage ourselves as a business and how we think about and manage risks. So we have been very selective on what we will bid and win. And if I think about what's making up that record forward work book of GBP 7 billion, it's absolutely on the terms that we have wanted and the right risk profile. So no fixed-price lump sum as an example. So really foundational for us. If we win the right work on the right terms, with the right risk profile, then we absolutely will be able to deliver predictably. So that view of risk, that consideration of risk, has been a constant for us over the last few years and will continue to be.

Great. [Audio Gap] All without taking on additional risk, et cetera. So just perhaps building on your last answer there, Helen, in the context of how we get to those sort of 5% margins.

Absolutely. So you see that we've got to 4.5% margin last year and if you look at the consensus that Alex has mentioned on our website, you'll see that margin is anticipated to be about 4% for this year and next year. We think about that as an underlying rate. How will it move between that and our ambition of greater than 5%? I think there's a continuation of improvement in the portfolio, but that's by and large done. But in addition to that, as we scale up, we will get reasonably significant operating leverage as we have greater revenue base to cover our costs. So that will be the next big dial mover for us.

Great. And then another margin question has just come in as well from Richard, this time bringing us a little bit back to the near term. So Richard said that the operating margin in the second half of last year was 5.8% and he's asking how close to that do you think will be in the second half of this year?