Costain Group (LON:COST) outlined what management described as another strong year of performance in 2025, highlighting profit growth, improved margins, strong cash generation, and a record forward work position as the company returned to the FTSE 250.
Chief Executive Alex Vaughan said the group grew operating profits and margins and made progress toward its longer-term ambition of operating margins “in excess of 5%.” He added that actions taken around the company’s legacy defined benefit pension scheme helped strengthen the balance sheet and “unlocked additional returns to shareholders,” including an increase in dividends and a new share buyback program for 2026.
Financial results: profit and margin improvement despite lower revenue
Despite the lower revenue, adjusted operating profit increased 9.3% to £47.1 million, slightly ahead of consensus expectations, while reported operating profit rose to £44.8 million. Adjusted operating margin improved 110 basis points to 4.5% from 3.4% the prior year. Adjusted basic earnings per share was broadly flat at 14.5 pence, which Willis attributed to operating profit growth and a lower share count offset by a higher effective tax rate.
Willis said margin improvement primarily reflected “normal course of business contract completions,” alongside the reduced weighting of historic road framework projects that operated at below-normal margins. She also noted central costs increased due to higher share-based payments and continued investment in capabilities.
Cash generation, balance sheet strength, and shareholder returns
Costain ended the year with net cash of £189.3 million, up from £158.5 million at the start of the period. Willis reported adjusted free cash flow of £63.1 million, reflecting strong operating profit, partially offset by £2.8 million of capital expenditure and a £0.7 million tax outflow. The company also reported net interest receipts of £1.3 million, lower than the prior year due to accelerated arrangement fees related to refinancing. Operating lease expenditure was £10.8 million for the year.
Dividend payments totaled £7.3 million, following an increased final dividend declared for FY 2024. Willis added that no cash contributions were made to the defined benefit pension scheme following annual assessments in March 2024 and March 2025, and that Costain subsequently agreed the triennial valuation with the pension trustee with “no cash contributions required.”
The board increased the FY 2025 dividend to 4.2 pence per share from 2.4 pence in FY 2024. Management also announced a new £20 million share buyback program for FY 2026, following two prior £10 million buybacks completed in 2024 and 2025. Willis said anticipated shareholder returns for FY 2026 were expected to be “circa £32 million,” almost double FY 2025, and guided to a FY 2026 year-end net cash position of around £175 million after the higher dividends and the new buyback.
On financing, Willis said Costain refinanced its bank and bonding facilities under a new four-year agreement running to September 2029, with an option to extend by a further year, on more favorable terms and with an additional bank joining the lending group.
Record £7 billion forward work position and changing customer mix
Management emphasized a record forward work position of £7.0 billion at year-end, up 30% year-on-year, following £2.6 billion of awards over the past 12 months. Willis said the forward work position represented almost seven times FY 2025 revenue and provided confidence in growth in 2026 and what management described as a “step change” in 2027 and beyond.
Willis described the forward work as built on long-term programs and said it includes “no single stage lump sum contracts,” with the portfolio predominantly made up of target cost contracts where scope, design, and cost are developed with customers. She also highlighted diversification in the customer base, with central government exposure falling as a proportion of forward work from 64% in FY 2023 to 31% in FY 2025, while private and regulated work increased to 51% and devolved government to 17%.
Costain said it had secured about 90% of forecast FY 2026 revenue, with visibility into 2027 supported by a significant pipeline and what management described as a strong win rate.
Strategy and operating update: growth focus and long-term infrastructure investment
Vaughan reiterated the company’s strategy of focusing on UK markets with long-term, non-discretionary infrastructure investment: transportation (road, rail, aviation, ports), water, energy, and defense. He cited the government’s published national infrastructure strategy and pipeline updates, referencing commitments of £725 billion over 10 years and an updated pipeline of £710 billion of committed investment.
He also provided an example of how Costain is positioning itself in nuclear energy, describing work across operating the existing fleet, decommissioning, and supporting future nuclear generation. Vaughan said Costain’s nuclear energy forward work had grown from 2% in 2023 to 18% in 2025. He cited contract extensions including EDF support for AGR life extension now extended to 2030, work with Sellafield extended through to 2040, and a framework with Nuclear Restoration Services through to 2029. He also pointed to new partnerships with Urenco and support services for Sizewell C.
Across the divisions, management highlighted several commercial developments discussed during the presentation:
- Transportation: expected road revenue reductions in 2025 tied to completion of historic frameworks, with new schemes on the M60 and M5 starting in 2026; continued HS2 activity including the launch of a tunnel boring machine and rail systems contracts in design and planning; and aviation expansion, including two long-term frameworks awarded by Gatwick, alongside continued work at Heathrow and consultancy work with Manchester Airports Group.
- Natural resources: stable water revenue during the transition from AMP7 to AMP8 and commissioning of the Tideway contract; a five-year extension to Anglian Water’s Strategic Pipeline Alliance; work on the SESRO reservoir scheme; energy revenue up 39% including work supporting gas networks and electricity network upgrades, commencement of BP’s carbon capture and storage project at Teesside, early design contracts for underground gas and hydrogen storage in Cheshire, and a first contract with National Grid on a large substation program; and continued defense and nuclear growth driven by delivery partnership roles.
Key Q&A themes: margins, execution, staffing, and capital allocation
During the Q&A, management said the path from around 4% margins toward the 5% ambition would come from continued portfolio mix improvement, better efficiency, growth in consultancy, and operating leverage as the business scales. Willis said the company was guiding 2026 and 2027 “around 4%,” with upside potentially arising at contract ends given Costain’s cautious approach to revenue and profit recognition.
Asked about exposure to energy cost volatility, Vaughan said Costain’s contracts include inflation protection and that the company would work with customers to mitigate impacts while continuing to drive efficiency.
On mobilization for the expected 2027 step change, Vaughan said long-term visibility allows Costain to plan resources in advance, noting the company is recruiting “the most graduates and apprentices we’ve ever recruited.” He also discussed working with the supply chain and emphasized that forward visibility helps partners scale.
On capital allocation and the £20 million buyback, Willis said the removal of dividend parity constraints in the pension arrangements provided more flexibility to plan returns across FY 2026. She added that management continues to consider M&A, but had not seen opportunities that were “particularly attractive,” emphasizing that any acquisition would need to make Costain better rather than introduce integration risk.
Looking ahead, management said the record forward work position, broader customer mix, and contract quality support confidence in further progress in 2026 and a step change in performance in 2027 and beyond.
About Costain Group (LON:COST)
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.
