FY25 results: record £7.0bn forward work and bigger shareholder returns
Costain has posted a confident set of FY25 numbers. While revenue fell as expected with the lull in Transportation, profitability and cash generation improved, setting up a step-change from FY27. The Company is increasing the dividend and launching a £20m share buyback in FY26, supported by a strong £189.3m net cash position.
| Key metric | FY25 | FY24 |
|---|---|---|
| Revenue | £1,045.7m | £1,251.1m |
| Adjusted operating profit | £47.1m | £43.1m |
| Adjusted operating margin | 4.5% | 3.4% |
| Reported operating profit | £44.8m | £31.1m |
| Adjusted EPS | 14.5p | 14.6p |
| Reported EPS | 13.9p | 11.3p |
| Adjusted free cash flow | £63.1m | £27.1m |
| Net cash | £189.3m | £158.5m |
| Dividend per share | 4.2p | 2.4p |
| Forward work position | £7.0bn | £5.4bn |
Forward work – Costain’s combined order book and preferred bidder book – has risen 30% to a record £7.0bn, nearly seven times FY25 revenue. That includes £1.1bn already lined up for FY26, equating to about 90% of forecast revenue for the year. Importantly, there are no single-stage lump sum contracts, with most work on long-term, target-cost programmes that typically carry lower risk.
Quality of earnings improved despite lower revenue
Revenue declined 16.4% to £1,045.7m, as already flagged, mainly due to the wind-down of historic Regional Delivery Partnership road projects and the revised HS2 schedule that shifted activity into FY26 and beyond. Against that, Natural Resources grew and the margin mix improved.
Adjusted operating profit rose 9.3% to £47.1m and the margin stepped up to 4.5% from 3.4%. Reported operating profit jumped 44.1% to £44.8m as adjusting items fell to £2.3m. Adjusted EPS was broadly flat at 14.5p, held back by a higher adjusted effective tax rate and lower net finance income.
Consultancy now a bigger piece of the pie
Consultancy services expanded to 17% of Group revenue (FY24: 12%). That is helpful for margins and resilience, and fits Costain’s strategy of supporting customers earlier in the project lifecycle, not just in construction and maintenance.
Cash, balance sheet and returns: the engine is humming
Adjusted free cash flow more than doubled to £63.1m and net cash ended FY25 at £189.3m after a £10m buyback and higher dividends. Facilities were refinanced out to September 2029, with a £100m undrawn revolving credit facility and £295m of bonding lines. The pension scheme is in surplus and, crucially, the dividend parity constraint has been removed.
- Final dividend proposed at 3.2p, taking the FY25 total to 4.2p – up 75% year-on-year.
- £20m share buyback to be executed during FY26.
- FY26 year-end net cash expected to be around £175m after working capital unwind and the enhanced shareholder returns.
My take: this is sensible capital discipline. The business is investing in systems and digitalisation at roughly £10m per year, while returning surplus cash and keeping robust liquidity.
Order book quality and risk discipline
Costain highlights three pillars of risk control: selective bidding, embedded commercial assurance and close collaboration with strategic supply chain partners. The result is a forward work position weighted to long-term programmes on target-cost terms rather than fixed-price, one-off jobs. That should support more predictable margins.
There are still typical contracting uncertainties. Management discloses a small number of material contracts with estimation ranges – upside of £15.8m or downside of £13.4m – and notes HS2 is moving to an integrated programme. FY25 results reflect the current contractual position.
Segment performance: Transportation vs Natural Resources
Transportation – revenue dip but better margins
- Revenue down 28.4% to £605.3m as RDP road schemes completed and HS2 activity shifted right.
- Operating margin improved 60bps to 4.1% helped by contract completions and fewer legacy low-margin roads projects.
- Forward work for FY26 of £616m at year end.
Within Transportation
- Road revenue £165.8m, down 49.8% after completion of historic projects including the A30 and A1 upgrades; new wins include a design-and-build junction on the M5.
- Rail revenue £344.3m, down 25.1%, with HS2 timing effects. The Northolt tunnel drives completed safely and on schedule.
- Integrated Transport up 71.2% to £95.2m, driven by Heathrow’s Terminal 2 baggage upgrade and other airport works. New framework places at London Gatwick broaden exposure.
Natural Resources – growth and strong margins
- Revenue up 8.7% to £440.4m; operating margin rose to 7.9% from 5.9%.
- Water broadly flat at £250.8m as AMP7 wrapped up and AMP8 mobilised. Costain hit 100% of regulatory dates across 100+ projects.
- Energy up 39.0% to £64.2m with activity in hydrogen, carbon capture and grid-related programmes.
- Defence and Nuclear Energy up 16.5% to £125.4m, including a 15-year utilities upgrade partnership at Sellafield worth up to £1bn and a 10-year framework with Sizewell C.
- Forward work for FY26 of £500m at year end.
Outlook: steady in FY26, step change targeted in FY27+
Management expects progress in both revenue and adjusted operating profit in FY26, with an adjusted operating margin of around 4.0% for the full year. That is a touch lower than FY25’s 4.5% as prior-year contract completions will not repeat and Costain is investing to support growth. The bigger prize is earmarked for FY27 and beyond, as investment accelerates across water, energy networks and aviation under UK regulatory cycles and the government’s 10-year Infrastructure Strategy.
Ambition remains to deliver improving operating margins in excess of 5.0%.
My view for investors
- Positives: record £7.0bn forward work, higher-quality earnings mix, strong cash, larger dividend and £20m buyback, and good visibility with 90% of FY26 revenue effectively secured.
- Watch-fors: timing volatility around HS2, the normal risks of long-term contracts, and a guided margin dip in FY26 before the expected upswing in FY27.
Overall, this reads like a well-managed transition year. Costain is prioritising disciplined bidding and cash generation, while positioning for the multi-year upswing in AMP8, the Great Grid Upgrade and airport investment. If management delivers on the FY27 margin step-up, today’s record forward work position could translate into meaningfully higher earnings.
Quick jargon buster
- Adjusted metrics – exclude items the Board views as non-recurring or not reflective of underlying performance.
- Forward work position – order book plus preferred bidder work on frameworks, including allocated volumes.
- AMP7/AMP8 – five-year water industry investment cycles running to 2025 and 2025-2030 respectively.
- Target-cost contracts – client and contractor agree budgets and share over or under-spends, reducing risk versus fixed-price lump sum.
