Analysis: a results statement about FY 27, delivered in FY 26 numbers

The reported half is close to flat. Revenue, adjusted operating profit and adjusted earnings each moved by between 3.0% and 3.6%, and the margin did not move at all. Almost everything else in the announcement is about a period that has not started.

The company’s own framing is explicit: it expects revenue growth in H2 26 over H1 26 and a step change in FY 27 and beyond, with a medium-term ambition of operating margins above 5.0%. The evidential basis for that is a spending cycle rather than a pipeline of company-specific wins. Costain says the water industry is transitioning from design to construction in AMP8, and that its customers will deliver about £100bn of investment in that cycle against about £50bn in AMP7.

The government’s own numbers frame the same period. The UK Infrastructure 10 Year Strategy, published on 19 June 2025, states that the government is funding at least £725 billion of infrastructure over the next decade, and that water companies will deliver £104 billion of total expenditure through Price Review 24, including £44 billion in new infrastructure and resources, covering 30 major projects among them 9 new reservoirs and 9 large-scale water transfer schemes. Costain has positions on the AMP8 programmes of United Utilities, Southern Water, Severn Trent Water, Thames Water and Northumbrian Water, and provides constructability advice to Thames Water and Anglian Water on new strategic reservoirs.

That alignment is the basis of the company’s stated growth expectation and also its main exposure. A contractor whose growth thesis rests on a regulated capital cycle inherits the cycle’s timing risk. The H1 26 divisional margin already shows the cost of a transition period: Water revenue grew 15.1% while the Natural Resources margin fell 80 basis points, because the prior year included contract completions that the design phase of the new cycle does not repeat.

The forward work figure needs the same care. At £7.0bn it is roughly six and a half times annualised H1 revenue, but the definition includes preferred bidder positions and framework volumes at allocated levels, not only signed contracts. Several of the H1 additions are framework places, including the National Grid Dynamic Market and the Gatwick and Dover frameworks, where revenue arrives through task orders that have yet to be issued. Costain says it is still tendering the initial projects under the Gatwick frameworks. The 91% visibility figure is against consensus forecasts compiled by the company, not against a fixed contracted number.

What is unambiguous is the balance sheet decision. Cutting target dividend cover from 3 times to 2.5 times while running a £20m buyback, against £164.4m of net cash of which £69.6m sits in joint operations, raises distributions in a half whose reported figures were close to flat. The policy change is dated and quantified, so its effect can be measured against the FY 27 outcome.

The results themselves sit within a fixed disclosure framework. Under the FCA’s Disclosure Guidance and Transparency Rules, an issuer must make public a half-yearly financial report covering the first six months of the financial year no later than three months after the period end, comprising a condensed set of financial statements prepared under IAS 34, an interim management report and responsibility statements, and must keep it available for at least ten years. The adjusted measures Costain leads with sit outside that requirement, which is why the reconciliation to reported operating profit matters: on this occasion the two figures were identical.

A reader would look next at whether H2 26 revenue exceeds H1 26 as guided, whether the Natural Resources margin recovers as AMP8 construction volumes arrive, and whether framework places convert into task orders at Gatwick, Dover and on the National Grid Dynamic Market.

What the documents say

Costain Group PLC (LSE: COST) reported revenue of £543.1m for the six months to 30 June 2026, up 3.4% from £525.4m, and doubled its interim dividend to 2.0p a share from 1.0p. The UK infrastructure solutions specialist published the results on 13 August 2026 and held its forward work position at £7.0bn, the same level as at the end of FY 25.

The half-year numbers

Adjusted operating profit rose 3.0% to £17.3m from £16.8m, with the adjusted operating margin unchanged at 3.2%. Reported operating profit rose 5.5% to £17.3m from £16.4m, the two measures converging because there were no adjusting items in the period against £0.4m a year earlier. Adjusted profit before tax was £19.2m against £18.6m, and adjusted earnings per share were 5.7p against 5.5p.

Net cash was £164.4m at the half-year, against £144.9m a year earlier and £189.3m at the FY 25 year end. The reduction from December reflects an £8.2m dividend payment, up from £4.9m, and £7.6m spent on the £20m buyback programme launched on 10 March 2026, which represented 38% of the FY 26 programme at the half-year point. By 12 August 2026 the group had bought 6.1m shares for £12.1m under that programme. Costain expects to end FY 26 with net cash of approximately £170m. Period-end cash included £69.6m held by joint operations, and the average month-end net cash balance was £176.0m.

The dividend decision was a policy change rather than a payout decision. Costain moved its target dividend cover to 2.5 times adjusted earnings from 3 times, and the doubled interim dividend follows from that.

Where the revenue came from

The divisional split shows two businesses moving in opposite directions. Transportation revenue fell 3.2%, with Road revenue down 32.6% to £55.6m as several historic Regional Delivery Partnerships projects completed during FY 25, offset by Integrated Transport revenue up 39.5% to £68.2m on growing volumes at Heathrow, where Costain is upgrading Terminal 2 baggage handling and replacing cladding on the main road tunnel. Rail revenue was stable as work on the HS2 Euston tunnels progressed.

Natural Resources revenue rose 13.3% to £237.1m, with growth in all three of Water, Energy, and Defence and Nuclear Energy. Water revenue grew 15.1% to £136.9m, Energy revenue rose 25.7% to £37.2m, and Defence and Nuclear Energy revenue rose 3.6% to £63.0m. Divisional adjusted operating profit rose to £16.4m from £16.1m, but the divisional margin fell 80bps to 6.9% from 7.7%, which the company attributed to the non-repeat of contract completions in the prior year as Water moved from the AMP7 to the AMP8 regulatory cycle.

Consultancy services grew to 18.2% of group revenue from 16.5%, with new business won at Manchester Airports Group and the Government Commercial Agency.

The order book and its composition

Forward work of £7.0bn compares with £5.6bn a year earlier and is unchanged on FY 25. Costain defines the measure as the total of order book and preferred bidder book, including revenue from contracts partially or fully unsatisfied plus probable revenue from frameworks at allocated volume. It says the position gives visibility of 91% of both FY 26 and FY 27 consensus forecast revenues.

Customer mix has shifted. Private and regulated customers now account for 48% of forward work against 30% in FY 23, devolved government customers 23% against 6%, and central government customers 29% against 64%. Additions in the half came from electricity transmission with National Grid, where Costain won a place on the Dynamic Market framework for the Great Grid Upgrade, reservoir programme management with Thames Water and Anglian Water, devolved authority rail with Transport for London, and port infrastructure with the Port of Dover Harbour Board on a six-year utilities framework. The group also won two capital projects frameworks at London Gatwick Airport plus a contract to upgrade the North Terminal international departure lounge, and a four-year technical assurance consultancy framework with Yorkshire Water.