Costain Group has launched a £10 million share buyback scheme after the group’s pension pot was in surplus by more than 101 per cent for the second consecutive year.
Bosses said the move will lessen Costain’s share capital and aid its sustainable growth strategy by boosting the group’s cash performance, adding any ordinary shares purchased by the company will be cancelled.
In a first half trading update issued this week, Costain had increased its net cash position from £123.8 million at the end of FY2022 to £158.5 million at the end of last year and resumed dividend payments towards its target earnings.
The Board said in FY2025 the first half dividend will represent around 33 per cent of the full year dividend.
Trading, as of 31 March this year, was in line with expectations, with growth of existing frameworks, and a strong, high-quality forward order book more than four times annual revenue. Wins this year include new contracts in nuclear energy with Urenco and Sizewell C, as well as with Anglian Water as part of the Strategic Pipeline Alliance (SPA).
Costain Group bosses said the business remains on track to meet its 4.5 per cent adjusted operating margin during FY2025.
Chief executive, Alex Vaughan, said: “Over the past three years we have executed on our strategic plans, improved the quality and size of the group’s contract portfolio, delivered on our margin targets, significantly strengthened our net cash position and successfully refinanced our bank and bonding facilities, giving the group the financial strength and capability to support its future growth opportunities.
“Accordingly, with our defined benefits pension scheme in surplus for the second consecutive year, we are pleased to announce a further share buyback programme that is consistent with the group’s capital allocation framework.”
The share buyback explained
Contributions to the group pension scheme are in the amount of £3.3 million a year, adjusted for inflation, and run from 1 July 2023 to 31 March 2027. However, as the pot is in surplus, contributions will stop for a year.
Investec Bank and Panmure Liberum will oversee the share buyback across two tranches, buying Costain’s ordinary shares at 1 penny each, for up to £5 million each tranche, for a total of up to 26.8 million shares.
Under the terms of a new four-year refinancing agreement with several banks and financial service providers, Costain has increased the total of its revolving credit facility (RCF) from £85 million to £100 million and surety and bank bonding facilities from £270 million to £295 million.
The new arrangement will replace the previous facility agreements ending September next year, as announced in July 2023, and will now conclude in September 2029, including an option for Costain to extend the deal by a further year.
Costain did not drawdown on its RCF throughout 2024 and this year but had used £65.3 million of the total bonding facilities as of 31 December.
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