Contracts writedown knocks 27% off Costain
Andrew Wyllie, chief executive, defended the writedown, which came four months after the company set aside an initial £30 million for similar reasons.
He flagged the possibility of shutting COGAS, the oil and gas division, saying that it was underperforming and that Costain's strengths lay elsewhere in civil engineering and property development.
After pledging to reconsider its no-dividend policy in 2006, Costain yesterday said that it would not be in a position to pay dividends to investors again next year.
In its pre-close trading update yesterday, the company gave warning that it could be in breach of banking covenants, as it made provisions for £36 million to cover disputes with clients, including payouts on contracts settled to the company's disadvantage.
However, Costain added that the banks had indicated they would be prepared to waive the agreements if breaches arose.
Some analysts yesterday took a dire view of the announcement, with investors quickly dumping their Costain shares following the announcement and trading update. The share price fell by 27 per cent before closing at 47.50p, down 16.75p, or 26 per cent.
Costain also revealed £3 million in cost overruns at its nitrogen rejection plant for Pemex in Mexico, under COGAS.
Asked if Costain planned to close the division, Mr Wyllie said that all operations would be assessed on their performance. 'If they don't [perform] then we have choices. I wouldn't rule anything in, or out,' he said.
Costain set aside £30 million in August to cover disputes and costs associated with closing its international division.
Mike Foster, of KB Peel Hunt, said: 'We are surprised that the whole writedown would not have been made earlier. This could be a lot worse than stated - we took a relaxed view but now consider matters to be much worse.''
However, Numis Securities said: 'The majority of negative news is out in the market. The longer-term outlook is positive for Costain and the business is in a much cleaner state.'
Costain has said that it planned to bid for construction projects flowing from the 2012 London Olympics but would not tender for the stadium.