This article first appeared on GuruFocus .
Release Date: March 11, 2026
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
Positive Points
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Costain Group PLC ( FRA:5JY ) reported strong financial performance in 2025, with operating profits and margins growing, moving towards their ambition of 5% margins.
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The company has a record forward work position of 7 billion, which is over six times their annual revenues, providing a strong foundation for future growth.
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Costain Group PLC ( FRA:5JY ) has successfully diversified its customer base, reducing reliance on central government spend and increasing work with private and regulated bodies.
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The company has returned to the FTSE 250, reflecting its strong market position and financial health.
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Costain Group PLC ( FRA:5JY ) announced an increase in shareholder returns, including a new 20 million share buyback program for 2026, building on previous buybacks.
Negative Points
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Revenue for the year was down 16.4%, attributed to the completion of certain projects and rephasing of work, such as HS2.
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The company faces challenges in maintaining and growing its workforce to meet future demand, given the competitive labor market.
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There is a need for significant mobilization and investment in CapEx and personnel to achieve the anticipated growth in 2027.
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Energy costs remain a concern, with oil prices around $100, impacting operational costs.
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Despite a strong forward work position, the actual order book has only increased modestly, raising concerns about the conversion of framework agreements into secured work.
Q & A Highlights
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Q: In relation to the 5% margin aspiration, what needs to happen to achieve this? Is it structural margins from contracts or better execution? Also, regarding the forward work, is the greater weighting towards natural resources a shift in business focus? Lastly, how does Costain handle energy costs, especially with oil prices around $100? A: (Helen Willis, CFO) We've guided margins around 4% for 2026 and 2027. To reach 5%, there's still movement in the portfolio, and with a step change in business size, operating leverage will contribute. We'll continue to improve efficiency and grow consultancy. (Alex Vaughan, CEO) The forward work is currently weighted towards natural resources due to long-term frameworks, but we plan for two equally sized divisions. Regarding energy costs, all contracts have inflation protection, and we work to mitigate impacts for customers.
Q: With the big step up expected in FY27, what mobilization efforts are needed in terms of CapEx and personnel? Also, how was the 20 million share buyback figure determined? A: (Alex Vaughan, CEO) We benefit from long-term visibility, allowing us to plan mobilization effectively. We're designing work now for 2027, which helps in planning resources. We're recruiting significantly, with a focus on graduates and apprentices. (Helen Willis, CFO) The 20 million share buyback was determined based on cash generation and balance sheet strength. With the removal of pension fund dividend parity, we have more latitude to plan shareholder returns.
Q: Are private sector procurement practices aligning with the public sector's construction playbook? Also, what options are being considered for the pension scheme, and what are the assumptions for contract completions in 2026 and beyond? A: (Alex Vaughan, CEO) The sector recognizes the benefits of the construction playbook, and private sector customers are adopting similar practices. (Helen Willis, CFO) We're in actuarial surplus, allowing favorable agreements with the trustee. We're exploring options to move the pension from the balance sheet. Contract completions in 2025 were higher due to AMP transitions and road project completions. We expect a cautious 4% margin going forward, with potential upside at contract ends.
Q: How do you price consultancy services, and how does it impact margins? Additionally, how will you manage workforce growth amid increasing demand? A: (Alex Vaughan, CEO) Consultancy services are priced competitively, similar to industry standards, and contribute to higher margins. However, the volume isn't significant enough to solely drive margin improvements. We focus on delivering well and leveraging operating efficiencies. For workforce growth, long-term visibility helps us plan recruitment and training. We're also leading industry efforts to develop skills and attract talent.
Q: Regarding the forward work position, how confident are you in framework drawdowns translating into secured work? A: (Alex Vaughan, CEO) We have a strong track record of converting preferred bidder status into secured work. Preferred bidder status means we've signed contracts and been allocated work, ensuring high likelihood of conversion. We're confident in our ability to deliver on these commitments.
Q: How do you plan to maintain road capabilities after contract completions, and what does a step change in FY27 entail? A: (Alex Vaughan, CEO) We maintain road capabilities by moving teams across projects, ensuring knowledge transfer and skill development. The step change in FY27 involves significant growth in water, Sellafield, and road projects, leading to increased revenue and profit.
Q: Could you provide more detail on the early benefits from the transportation transformation program? A: (Helen Willis, CFO) The transformation program involved reassessing our cost base and reinvesting in key capabilities like risk management and business development. These investments are paying off, as seen in the quality of our forward work and operational improvements.
Q: How important is the margin aspiration in your bidding strategy, and what would make M&A attractive? A: (Alex Vaughan, CEO) We focus on positioning ourselves for long-term opportunities with customers, rather than strictly pursuing margin targets. M&A would be attractive if it enhances Costain's capabilities and market position, without compromising existing strengths.
For the complete transcript of the earnings call, please refer to the full earnings call transcript .
