Costain unveils massive list of financial hits

Costain is set to breach its banking covenants as a result of unveiling a string of financial hits that run to a staggering £50m.

The biggest woes have surfaced in Costain’s building division where the write-down on disputed contract values runs to £26m.

In a statement to the Stock Exchange, Costain said that the difficult decision would “provide a platform on which to deliver its stated strategy”.

Costain had warned its bankers of what was in the air because the charges are expected to result in a breach of the group’s financial covenants.

After hearing of the provisions being taken on disputed contracts, Costain’s bankers have “indicated that it is their intention to negotiate waivers for any financial covenant breaches of the banking facilities which may arise”.

Costain’s plan to pay its long-suffering shareholders a dividend has been scrapped.

The group’s civil engineering division, which accounts for 80% of the forward orderbook, escapes unscathed and so does the property division.

However the nitrogen rejection plant project for Pemex in Mexico, where Costain’s COGAP division is a subcontractor, has suffered from £3m-worth of cost over-runs.

The building division continued to under-perform during the second half of the year. Further cost over-runs and re-assessments of contract values will trigger a £5m hit.

The number of contracts subject to dispute, combined with a review of recent claim recovery history, makes sorry reading.

Costain said that it has concluded that “where recovery is no longer probable, or the outcome can no longer be measured reliably, it is appropriate to write-down a significant amount of the disputed contract values”.

It added: “As a result, the board has determined that a further £36m provision in respect of disputed contracts will be made in the [next] accounts.”