We're good? Right, good morning, everyone, and welcome to Costain's full-year results presentation. I'm Alex Vaughan, Chief Executive of the Costain Group, and I'm gonna take you through sort of the highlights of today's results and also take you through sort of an operational update. And then Helen Willis, our Group CFO, is gonna take you through the financial results, and then I'll come back and just give you a bit of an update on the strategy and the outlook for the business. Look, we're really pleased with the forward momentum that we've built through the business and the results that we've been able to announce this morning, you know, really strong continued growth in the business.
I think this has now become a real factor, and we feel that, you know, the assurance and delivery and winning of work in the business has become a real strength, and we're delighted with the progress that we've made. You know, I think delivering a 10.5% increase in adjusted operating profit to GBP 40.1 million has been really great. To achieve that milestone of 3% margins for the full year, really strong second half of the year, really sets us on our way to deliver those targets that we've set out for the full year 2024 and the full year 2025 as well. And cash generation has become a theme of our business.
It's just a core part of how we do business, and to be able to increase our net cash position by GBP 40 million in the year, that's 30%, again, gives us great strength. And, you know, that strong operational performance together with the strong cash position that we've held is why we're able to deliver such a growth in our EPS rate, also as a business. So, you know, a really strong financial performance, for the business that we're very proud of. And if I look at how we're developing the business, you know, there's a number of key themes for us.
If I look at the quality of the workload that we've got as a business that we've secured, really high quality, good, you know, good risk profile of that work, and that's why we're able to deliver the margins that we've got that really sets us up really well. We're also really well positioned in those markets that we just think there's gonna be really significant growth. So if I look at the water industry over the next 10 years and I look at the energy market moving forwards, those are places that the market is gonna really grow significantly grow investment, and we're really well placed in those markets, and, and that's really exciting for us. And we've made really good progress, you know, in broadening our customer base. So, you know, we've taken a decisive action, really, that we want to have a broader customer base.
I think it gives us greater resilience, more balance in the business, and we've, and that's been tremendous. Adding Northumbrian Water Group to our customer list together with growing our positions with Heathrow, Transport for London, and securing people like Associated British Ports, again, is just really good to be growing that. Those you know, the progress that we've made in those areas is fantastic as well. If we look forwards, you know, we've got a really strong volume of forward order book, about GBP 3.9 billion worth of work. You know, that's equivalent to three years' worth of revenue, which puts us in a really strong position. But in addition to that, we've got a high volume of bidding, and our pipeline every month is growing at a good rate, so we've got a lot of confidence about where the business is going.
So if I was to summarize, you know, we're really pleased with the transformation that we've taken the business through, you know, the assured delivery that we've got, you know, the efficiency, in the way that we run the business in terms of the quality of the work, how we're managing and holding ourselves to account on the whole risk profile of business that we take on and that we deliver, we're really pleased with the progress that we're making and very confident in where we're moving forwards for this year and for next year and moving forwards from that. If I now come onto the sort of operational review, you know, as expected, transportation's revenue was slightly down and profits are slightly down. That really links into the rephasing and rescoping of investment that the government announced about 18 months ago.
But the good news is that we maintained a 3% margin, which again shows the underlying quality of that work, and we've got a good resilient workload moving forwards in there. If I was to look at road, you know, we're currently supporting National Highways on 6 capital schemes, so we're still a major player with them, supporting them on their roads program. We've got the Area 14 Highway Maintenance contract that we're continuing to deliver. That's a very long term. That's a 15-year contract, so that's got quite a way to go, with a delivery assurance partner on the A303. And the good news was that that looks to be progressing now, and we're also helping National Highways as their key partner on their Digital Road Strategy.
So, you know, again, a really strong part of the business despite the fact that there has been a slowing down in the start of, of new schemes in that space. And from a rail point of view, HS2 is going really well, our contract there, S1 and S2, which goes from West Ruislip all the way through to Euston. Good progress there, good performance, and we're operating that contract—we have an annualized funding cap on how much we can spend, so we're managing that contract in line with that funding cap. And we've opened the Gatwick station, so a lot of fanfare. It's an amazing piece of infrastructure, and we are due to complete it and walk away from that contract in the first half.
We're continuing to deliver a lot of design work for Network Rail. So on our design framework, we're helping them with their future plans, looking at future infrastructure, and we're actively bidding a number of CP7 contracts for them as well as we come up to the next regulatory period. And I think integrated transport, we've just completed the Preston Western Distributor Road, which was a large, capital road scheme, and we're now really beginning to grow our positions with a broad range of customers. So in aviation, we're working with Gatwick, Heathrow, and Manchester Airports Group, and also Manchester Airports Group owns Stansted Airport as well. And those customers are significantly investing and increasing the capacity and quality of the airport experience.
So that presents well, continuing to grow our position with TfL, both as a design partner but as a contractor, and did digital support to how they operate all of their cameras in London. And we're also growing our position with a number of other devolved governments. So, you know, and I was up in Manchester last week, and they've got a big integrated transport conference there, and you just look at the plans for Transport of the North and the significant investment that's gonna come around integrated transport, presents a significant market for us moving, moving forwards. And if I look at natural resources, look, as expected, really strong performance in this division, growth in everything, and really strong margins at 5.5%-6%, which is fantastic.
That's really come through really strong operational rigor in how we deliver the business, onboarding the right type of contracts, and a really good mix of good value construction work but also high value consultancy work that's great. Water is going really well for us, really strong operational performance across the six regulated water companies that we work for, progress delivering AMP7, and we're actually beginning to see increased investment coming through from AMP7. So we're seeing the water companies wanting to exit AMP7 getting towards a level that they're gonna have to start AMP8, which I think's a positive dynamic. Our contract here for Tideway in London is going well as well. You know, we're really excited about the opportunity AMP8 presents.
We've already secured the opportunity for three extensions, working with Thames Water, Severn Trent Water, and United Utilities. And really pleasingly, we've also won a new customer. Northumbrian Water Group, one of the leading innovative water companies in the sector, has chosen us to work with them on the next 12 years, which is an exciting opportunity. And if I look at energy, you know, energy, we tackle the market in three areas. We've got resilience marketplace, looking at how we can help with production improvements. We've got the energy transition, and then we've got energy networks and a huge opportunity in this space, and we're helping BP.
So we've completed the FEED for their carbon capture project, and we're supporting them around the whole Teesside industrial cluster, which is hoping to be the first time that there's a real size in industrial clusters as we move into that space. And then defense and nuclear energy is around the CAS so in defense, it's around the CASD, so the submarine program. We're supporting a number of customers in that space, you know, BAE, Rolls-Royce, Babcock, AWE, on that program. And there's good long-term visibility and good strong performance. All of that is from a consultancy point of view. And in the nuclear energy, it's around decommissioning, so most of our work is around decommissioning, at Sellafield and with Magnox, really exciting space. So we're really pleased overall with the operational performance of the business, which comes out in the strong financial results.
With that, I'll hand you over to Helen. Helen.
Thanks, Alex. Morning, everyone. So I'm really pleased to be standing here delivering this set of results. It's really strong, exceeding market expectations on adjusted operating profit, on cash, and adjusted EPS. You'll remember from previous results announcements that in order to provide clarity on the performance of the group and provisions, and divisions, sorry, we've reported revenue, operating profit, and earnings per share on an adjusted basis as well as on a statutory basis. And I'll take you through the differences between these statutory reported and adjusted metrics as we progress through the slides. So for now, I'll just focus on the adjusted metrics, which are in line with how management monitors and manages a business on a day-to-day basis.
So adjusted revenue of GBP 1.3 billion reflects growth in natural resources and resilient, strong operating performance in transportation, where we surely saw a reduction in volumes due to rephasing and rescoping of certain projects in the division. Adjusted operating profit was GBP 40.1 million for the year, ahead of expectations and up 10% on last year. And we returned an adjusted operating margin of 3% for the year, up 40 basis points against FY22. Positively, our second half adjusted operating margin was 3.8%, and I'll walk you through our pathway towards higher margins on a later slide. Adjusted basic earnings per share for the year was GBP 0.12 compared to GBP 0.09 last year, a growth of 23%, supported by a net finance income in the year of GBP 4.1 million as compared to GBP 2.1 million expense the previous year. And I'll talk through this on a later slide.
We returned a strong free cash flow of GBP 72 million for the year. This level of free cash flow is consistent with that seen in FY22 and includes further positive working capital movements during the year, resulting with a full-year 2023 net cash position of GBP 164.4 million. Now turning to the revenue walk and focusing to start with in the middle of the slide, you'll see the adjusted revenue is reduced by 6%, reflecting the growth in natural resources more than offset by the reduced volumes in transportation. Adjusted revenue in transportation was down 10%, where we saw continued growth in rail and growing activity with Heathrow H7 contract as well as new contracts with TfL. That was more than offset by the rephasing and rescoping of certain contracts in roads.
This was offset by 4% adjusted revenue growth in natural resources driven by increased revenues in water and defense and nuclear energy. As the bars at the right and the left-hand side of the chart show, there were no contract adjustments in FY23 or in FY22 and therefore no impact on reported revenue in either year, a demonstration that there were no contract issues in either of those two financial years. Moving now to the operating profit walk, I'll cover the adjusting items on the far left and the far right of the chart on the next slide. The middle section walks you through adjusted operating profit increasing by 10.5% to GBP 40.1 million for FY23, ahead of market expectations. Profit and transportation did reduce by GBP 3.5 million in the year in line with reduction in revenues.
However, it's important to note that operating margin for the division was consistent on the previous year at 3% as the overall operating performance offset inflation and cost pressures impacting margins in road. GBP 6.8 million of growth was delivered in natural resources due to the improved operational performance, with an operating margin for the division of 5.6%, 1.6 percentage points compared higher compared to the previous year. Central costs were GBP 0.5 million lower than last year with cost and wage inflation as well as a timing of incremental investment that will facilitate further net benefits from our transformation program in FY 2024 being partially offset by the year-on-year benefit of cost management actions taken during 2023 and the second half of FY 2022. So just for completeness, I'll take you through the adjusting items. So we have a table giving you FY 2022 and FY 2023.
During this year, we incurred transformation and restructuring costs of GBP 8 million as well as a GBP 5.3 million charge on the impairment of an intangible asset relating to the repositioning of digital towards services growth as we announced in the half-year. This compares to a net GBP 1.4 million of adjusting items in FY22 with GBP 5.7 million of costs relating to the ongoing transformation and restructuring of our business. We also recognise GBP 1.4 million of aged tunnel boring machine write-off costs, and these were partially offset by the recognition of an insurance receipt of GBP 5.2 million relating to the Peterborough and Huntingdon contract as well as profit of GBP 0.5 million recognised on the sale of a non-core asset. We expect reduced transformation and restructuring costs of around GBP 5 million for FY24 and thereafter such costs to be minimal and not to be separately disclosed as adjusting items.
Net finance income for the year amounted to GBP 4.1 million as compared to a full year expense of GBP 2.1 million in FY22. Interest income from bank deposits in FY23 amounted to GBP 4.8 million, up GBP 4.3 million from FY22 as we were able to place higher amounts on deposit at higher interest rates. In addition, interest income on the net assets of the pension scheme of GBP 3.2 million in FY23 was up GBP 1.9 million compared to the previous year due to higher interest rates partially offset by the slightly lower pension net asset position. Interest payable on bank overdrafts, loans, and other similar charges was GBP 2.3 million for the year, lower than the previous year on the repayment of the term loan during 2022, partially offset by in-year charges on the amend and extend facility that was in place through the first half of 2023.
The interest expense on lease liabilities of GBP 1.5 million in FY23 was largely consistent with the GBP 1.2 million charge seen last year. The balance sheet is strengthened with net assets increasing to 211 point sorry, from GBP 211.2 million at the end of last year to GBP 219.4 million at the end of FY23. This was driven by strong underlying cash flows - and more of that on the next slide - and improved working capital. Non-current assets balance reduced in the prior year-end position driven by the impairment of an intangible asset relating to the repositioning of digital towards services growth. Trade receivables and other current assets balance decreased on the year-end position. We saw decreased contract assets and decreased trade receivables on our continued good working capital management. Trade payables and other liabilities decreased on FY22 with increased subcontractor accruals more than offset by decreased trade payables.
It's been another year of strong cash generation driven by predictable execution and tight working capital management. This has resulted in adjusted free cash flow of GBP 72 million as shown on the cash flow walk on the screen. The red bar to the left of the chart shows cash flow on adjusting items of GBP 9.2 million, which principally represent payments relating to our transformation program in the year as well as final costs on the A465. It's worth noting that our operating lease expenditure, which is really a cost of us doing business, is shown outside the cash from operations under IFRS 16. We made cash contribution payments to the pension scheme of GBP 8.1 million over the course of the year.
And as a reminder, reduced payments have been agreed with a deficit contributions of GBP 3.3 million a year from the 1st of July 2023 to the 31st of March 2027, increasing in line with CPI inflation. This replaces a previous contribution plan to the scheme, which from April 2023 had increased to an annual payment of GBP 11.98 million paid in monthly installments. Then after lease payments of GBP 12.6 million, net interest receipts of GBP 0.9 million, and dividend payments of GBP 1.1 million, and other financing payments of the GBP 1.3 million on the acquisition of treasury shares, we've ended 2023 at a net cash position of GBP 164.4 million.
We expect our 2024 year-end net cash position to be broadly similar to that at the end of 2023 as the underlying adjusted net free cash flow from the business is likely to be offset by the unwinding of cumulative working capital timing benefits at the end of the year that I mentioned earlier. The Prompt Payment Code continues to be a focus for us, and it's important to note that during FY23, we paid more than 98% of invoices within 60 days. In January 2024, Costain was reconfirmed as one of the fastest-paying lead contractors in construction on an average days-to-pay basis following the submissions to the government's duty to report on payment practices and performance. The net cash position for the end of FY23 is comprised of Costain cash balances of GBP 105.2 million, cash held by joint operations of GBP 59.2 million, and borrowings of NIL.
During the year, the group's average month-end net cash balance was GBP 141.4 million, and the average weekend net cash balance was GBP 141 million. Both are demonstration of our continued strong underlying cash flows. Utilization of the total bonding facilities as of the 31st of December was GBP 69.9 million, lower than the GBP 88.8 million at the end of FY22. On the 26th of July 2023, we announced that we'd successfully concluded negotiations with our bank and surety facility providers to refinance a new three-year agreement of our bank and bonding facilities. The group's new facilities agreement runs to September 26th and comprises a GBP 85 million sustainability-linked revolving credit facility, which was previously GBP 125 million, and surety and bank bonding facilities totaling GBP 270 million. And this is backed by a group of four banks and five sureties with NatWest joining the banking group.
Costain enjoys good forward visibility with our combined order book and preferred bidder book representing around 3 times our FY 2023 annual revenues at GBP 3.9 billion, down from GBP 4.4 billion at the end of 2022. This holistic view is increasingly important, and we anticipate a shift towards the preferred bidder book away from the order book as we continue to secure long-term 5- to 10-year framework positions with our customers, providing a reliable and long-term stream of future work. Our order books are at GBP 2.1 billion at the end of FY 2023 as compared to GBP 2.8 billion at the end of 2022. This reflects the timing of certain major contract bids, our customers' 5-year investment programs, maintaining discipline in contract selections, and a shorter lead time of consulting and digital work.
The order book evolves as contracts progress and as new contracts are added at periods aligned to our customers' strategic procurement windows, which are typically every five years. The order book does not therefore provide a complete picture of the group's potential future revenue expectations. I mentioned at half-year, it's important to note that our order book no longer includes any single-stage fixed-price construction contracts. The preferred bidder book comprises awards for which we've been selected as a preferred partner and are in the final stages prior to commencing the contract or exclusive frameworks where further works orders required. The preferred bidder book increased to GBP 1.8 billion at the end of FY23 with contracts in road, water, and integrated transport, including Heathrow.
We note that some of our framework and consulting revenues not recorded in our order book or preferred bidder and is expected to represent an increasing proportion of our future revenue. So we're transforming our business in terms of assured delivery, lower risk contracts in our order book, improved operational effectiveness, cost control, and broader business mix. We've invested in how we procure. We've invested in our gating and governance in our bidding activities. And we've invested in how we monitor performance. A key part of the transformation has been to build risk and assurance skills and processes across the business to help and to help bring this to life. Some specific examples of these are a refreshed risk appetite definition that you'll see on the screen, integrated into contract governance to ensure we pursue the right opportunities and identify key risks early.
Strengthened central risk and assurance team with the expertise to support the business in making informed decisions, developing effective response strategies, and provisioning appropriately for risk. Another example is improved coverage and quality of assurance across the portfolio, providing better visibility of performance and ensuring contracts receive support when required. This focus drives a path to higher margins as demonstrated by our full-year and second-half margins for FY23. We remain on track to deliver, firstly, adjusted operating profit margin of 3.5% during FY24 as we increase effectiveness within the business through the implementation of our transformation plan and the operating excellence model, growth of consultancy services, and increased effectiveness of procurement and ongoing control of operating costs.
Secondly, adjusted operating profit margin of 4.5% during FY25 by improving margins with complex program delivery, further efficiencies from our transformation program, and an increasing mix of higher margin contracts. Given the group's improved financial performance, strong net cash position, and growth prospects, dividend payments were resumed in FY23 with an interim dividend of GBP 0.004 per share for the six months ended 30th of June 2023. The board is proposing a final dividend of GBP 0.008 per share, which, if approved, will be paid on the 28th of March 2024 to shareholders on the register at the close of business on the 19th of April 2024. We expect that dividends will typically be paid one-third as interim and two-thirds as final dividends.
Under the Dividend Parity Agreement with the Costain Pension Scheme, an additional matching contribution, the excess of total dividend above scheme contribution, will be made when dividends for the financial year paid to the shareholders of Costain Group PLC are greater than the contributions paid to the pension scheme in the previous scheme financial year. So our pipeline of future opportunities remains strong across our markets. We remain mindful of the macroeconomic and geopolitical which is not easy to say, geopolitical backdrop. And notwithstanding this, with our increasingly broad customer base, further improvements to our operational performance, opportunities for higher margin business, strong cash position, and clear strategic priorities, we are well positioned.
As a result of our continued strategic and operational development, we will remain on track to deliver an adjusted operating margin run rate of 3.5% during the course of FY 2024 and 4.5% during the course of FY 2025. And in, we're in line with our ambition to deliver margins in excess of 5%. We remain confident in the group's strategy and long-term prospects. And with that, I'll hand it to Alex. Right.
Thank you, Helen. I'm just gonna give you an update sort of on our strategy and, and sort of business outlook.
So the National Infrastructure Commission launched last year its second National Infrastructure Assessment, and that set out the significant amount of infrastructure that is gonna be needed to meet some of the big challenges for the UK, how we drive economic growth, how we deliver positive social change, and how we meet our decarbonization targets, all critical priorities. In February this year, the government released its construction pipeline building on that National Infrastructure Assessment to turn around and talk about the GBP 700 billion worth of investment that is needed over the next 10 years to deliver the infrastructure that we need. What's important is that 70% of that investment, 70% of the GBP 700 billion, is gonna come from the private sector. So it's coming from customers like the regulated water companies, the energy companies, the aviation companies that I talked about earlier.
So that's a really important aspect when we look at the security of investment moving forward. Now, we've purposely positioned ourselves, as you know, in those markets where we believe and you can see from the national infrastructure assessment and if you look at the construction pipeline where the majority of long-term strategic investment is gonna be made. It's gonna be made in those areas. And we've chosen to work with those blue-chip customers, tier-one customers who are gonna work with their supply chains on long-term strategic partnerships where, through collaboration and through working together, we can really deliver outcomes in a much better way. And we got consistency and continuity of workload. So strategically, you know, that's why we've positioned the business where we've positioned it.
Now, as you know, the majority of our customers invest through five-year investment programs, so we're coming to the end of a number of those. But if I look at companies like National Highways who are coming to the end of RIS2, we're in the last year of RIS2, there's gonna be significant investment coming through in RIS3, which they're already planning. And a lot of that now is gonna be delivering the projects that were deferred in RIS2 will come through in RIS3, but we anticipate that being the same level of investment that we've seen. If I look at Network Rail, you know, they're gonna be embarking upon a GBP 43 billion investment program as part of their CP7. And as I said earlier, we're actively involved in bidding a number of those activities. Ports, aviation, significant investment as I talked about earlier.
Then water, as I've said before, and I'm gonna talk about in a little bit more detail shortly, significant investment in that area. And then we see the energy space, defense, and nuclear, significant investment coming through. So, you know, really good prospects moving forward for the next 5 years and beyond and beyond that. If I talk about water as a bit of a deep dive on that slide, over the last 10 years, we've put a lot of work into developing our water business. You know, we've broadened our customer mix, and we've certainly broadened the services that we provide to customers in this water market. And we've made, you know, we've made really significant progress in the operational improvements.
We're really pleased to have secured extensions from customers from AMP7 into AMP8, although AMP7 is still getting busier for us, as I said earlier. We're delighted to be able to attract our eighth customer in the water sector who's chosen to work with Costain and chosen to work with Costain in a strategic alliance for 12 years, which I think shows the value. I think the breadth of capability that we provide is pretty important. You know, we go from working with Ofwat, so we're one of Ofwat's partners in shaping future change within the water sector, so turning wastewater into hydrogen, looking at digital networks. We are designing new solutions for water companies, so we are the designer now. We also help optimize the existing asset performance. We're working for a number of water companies today.
And you can see in the press that discharges are quite a big challenge. We're helping them optimize the existing infrastructure to be able to alleviate that risk for them and therefore bring forward improvements in their operational performance as well as as well as being a big capital delivery partner, delivering these programs and providing maintenance transformation services to help water companies move from a fix and fail to a planned preventative maintenance culture. So a significant broad range of services for a larger number of customer base. In a marketplace that in AMP8 is set to double, the investment is gonna double. And if you speak to the chief execs of water companies, what frightens them most is what AMP8 is what AMP9 looks like because that investment is gonna get bigger in AMP9 than it is in AMP8.
So a significant market opportunity for us that we're looking forward to playing a very proactive role and not just the work that we've won, but we're very active bidding. I think Sam's been kept up at night going through a huge number of tender reviews as we bid for further work in AMP8. And I think this comes, you know, some of what I've talked about in water comes to the essence of our strategy and why we're a very different type of business to most others that you see in our marketplace. You know, we've been very keen to focus on how we can support our customers meet their whole ecosystem needs rather than just their capital delivery needs. We've got great project management capability. We've got great change control, commercial management, design management, operational delivery expertise, right?
But that doesn't mean you just have to deliver capital projects as I've talked about. So we use that expertise to work with customers to help influence and shape and advise them on their future strategies. We're doing a lot of that work that I talked about earlier for Network Rail. We're helping them think about their future master plans, helping them think about what investment they're gonna make. We're working with BP on their whole carbon capture strategy and now looking at their hydrogen strategy as part of that Teesside, Teesside cluster. Working with the Department of Transport, we secured, we're one of 6 partners for the Department of Transport's big investment programme, helping them look at, at future infrastructure.
So that's a really important [aspect]. This allows us great business development for us, but it allows us really to help influence and get known as a business that has a positive view on where things should go. And absolutely, we create, so we design, and we deliver, the infrastructure solutions, you know, mainly as a contractor, as you'll see us on HS2 or on highway schemes or in water, but also increasingly as a delivery partner, so program manager where we're supporting Babcock, Cadent, AWE, and National Highways on the A303 in that program management role, but very much around that creation and delivery. And then increasingly important, if you look at the age of infrastructure assets, is that maintain, optimize, and repurpose infrastructure.
I've talked about what we're doing in water around maintenance, but, you know, and I've talked before about for EDF, we're helping them extend the life of their existing nuclear fleet, even more critical now that, I think he's gonna be a little bit a little bit later. So a big demand there. But the fact that we're helping Anglian Water to do that, we're helping Transport for London optimize, the you know, what they get out of every single camera in London, you know, a really important part of this work. So we are different from most other businesses that we are very focused around our customers and very focused about what is their business plan challenge, what are their needs, and how can we use our expertise to help them deliver that. And that is delivering a real change in our organization.
Our purpose is about improving people's lives, and I think that really links into the whole ESG agenda and sustainability agenda for us. This is a point of clear differentiation. This is also a point of having permission to work with the customers that we choose to work with. You have to be a responsible business. You have to be a leading business, around this agenda. It's also about making sure that we develop the best skills, in our sector for ourselves, but also we support our supply chain to develop and our SMEs, which is something David has really been driving is around that whole developing our, our SMEs so that we've got a stronger, supply chain moving forwards.
You can see there are a whole number of activities around, you know, climate resilience and around addressing climate change and getting towards net zero as quick as we can, skills development. This is a real point of differentiation for us and is a fundamental requisite of us being able to grow the business with our customers, but also be able to work with our banking group in a positive way because this is really important to them as well as it is to many of our new staff, the younger generation that are turning up and looking at people like me and saying, you know, "You need to be very different." So fantastic opportunity, and I and I'm very proud of the progress that we've made.
So if I can conclude, look, I'm very, very proud of the momentum that we've built over the last few years and the operational performance and financial results that we've delivered in 2023, a lot of hard work by a truly amazing team that works with Costain. It's a really strong platform for growth, and it's given us real momentum coming into this year. We've got over GBP 1 billion worth of revenue secured for this year, and we've got clarity of how we're gonna deliver further progression in both operating profits and margins through 2024 and then into 2025. We've got a really good quality workload for the business, which sets us up well. But what you know, our bid teams are not sleeping just because of the sheer volume of work. David and Sam, I keeping them very busy.
We've got a huge pipeline of opportunities, a lot of bids we've already submitted, a lot of bids we're working on today, and that gives us a lot of confidence looking at where the business, so we're on track, and the transformation that we've delivered in this business gives us a lot of confidence that we will continue to deliver growth in earnings and margins moving forward.
So thank you very much. With that, we'll take your questions, but I will sit down first. There you go. Q&A slide. If you could say your name, your organisation, and then we'll go for questions. You can go for more than one at a time. I saw that was quite a challenge for some previously, but. I'll take it one at a time. So Lewis Sherborne, Investec.
Obviously, really good margin performance in the natural resources division, that 5.6 percentage points. You mentioned improved operational performance, and you detailed sort of a good blend of work from construction and consultancy. Just interested to get more detail on that and maybe the split between construction and consultancy work.
Yeah. No, I'll take that. I think Sam's looking at it and saying well, I was gonna pass it to him. But, yeah, look, I think definitely, one of the biggest changes that's happened in natural resources has been improved operational performance. Makes a big difference. If we can consistently deliver every contract really well, then we can deliver our tender margins, and that's given us a big boost. But in, you know, in defense and nuclear energy and in energy, all of our work is consultancy work, so that gives us the higher margin as well.
What you'll see is in water, with the growth of doing our own design and the asset optimization, there's a lot more consultancy work coming through there, which then gives us that higher margin, which is why that margin of was it 5.8? Is it? 5.6. 5.6. Sorry, overstated. 5.6 is coming through. Second question's just on the order book. Obviously, very strong, GBP 3.9 billion, 3 times revenue cover, but that's not including, obviously, the work that you've got in the framework agreements. Just want to sort of speak a little bit about the benefits of being part of a framework agreement and what percentage of your work pulling through is actually from framework agreements. Okay. So just to sort of clarify, so the GBP 3.9 billion is a combination of order book.
An order book is what we have been given full instructions to get on with, so we're able to deliver that work. Then we've got what we call preferred bidder, and I think we're slightly different to many others, and we're just trying to be clear with everyone. So the preferred bidder includes those frameworks where we need another works order before we can actually get on the work, but where the customer has awarded us the framework and we have that position. We only include sort of up to five years' worth of work within that framework in there. So some of the frameworks you'll see, we get our 12 years, then we don't include the whole 12. We only include the next regulatory period 'cause we think that's a more conservative value to take.
The frameworks that are outside of the workload that we've got are the consultancy frameworks. So for Network Rail, for the Department of Transport, for National Highways, for some of the water companies, that's, that's excluded, and that gives us extra revenue during the year as we get work call-offs on that. Is that? Yeah. That's very helpful.
Thanks. And then just the last question just on rail, just with quite a significant part of your revenue coming from HS2 in that division, how do you see the medium-term outlook in that sector looking past this, and how do you sort of manage that transition smoothly as the work progresses?
Yeah. No, great question. And I know it's on people's minds.
So look, our HS2 contract for HS2, because we have slowed down, and David spends a huge amount of time on this, is gonna last a bit longer, so HS2's certainly gonna last. And we're hopeful of securing further work for HS2 for the systems contracts, so that will continue going. But if we look at our business plan moving forward, we've got a transition from having big programs like HS2 to much more work with people like Heathrow, Transport for London, some of the devolved authorities, Manchester Airports Group. So our plans show that we will more than replace that work as we reshape the business, and that will be more work of a sort of smaller contract size, sort of GBP 20-30 million. So, I think we'll end up transitioning to a sort of much more balanced, much more resilient business, moving forward.
Thanks.
Good morning. Joe Brent from Liberum. Can I just, sort of firstly follow up on that HS2 question? Could you tell me when the peak revenues will be, firstly, if you're in the systems work and secondly, if you don't?
Well, I think we've passed the peak already. So the peak was last year, from an HS2. So we're, we're basically operating on, as I've tried to say, a sort of annual cap of spend, so that will continue, at least for another two years, coming through. And look, you know, if the systems contracts come in, then that will give us an uplift on, on those numbers. But, you know, we're obviously we don't bank on, on winning all of those. So, in our forecast, we're just working on, on what we've got. Thank you.
Then with regards to the regulatory cycle, it feels that, CP7, RIS2, AMP8, they're all kind of, you know, around the end, and therefore, naturally, the order book would be down just for that alone. Am I right in thinking that as the regulatory cycles change, you should sort of see an uplift in the order book?
Yeah. I think what you'll see, Joe, is you'll see an uplift in the preferred bidder book. I think we're gonna maintain a so if we look at water frameworks, we'll be putting those into the preferred bidder, same as CP7 'cause CP7 will be frameworks, and, RIS2 will be, you know, using the framework we've got, but we'll be on a contract-by-contract basis. So that's why Helen in her presentation talked about it's gonna be a bigger feature, of that.
Certainly, we would expect those numbers to be going up on the basis of securing all the work for AMP8, CP7, and RIS2.
Thank you. And finally, you talked in your opening remarks about prospects like pipeline of bids. Could you just put some color around that and talk us through what most excites you in the pipeline?
Well, God, blindly. I've gotta be careful I don't upset any of my valued customers. Look, I think I think what we're excited about is the big thing that excites me is the broad range of customers and markets that are coming through. So there's no real concentration in one area, which helps us maintain the balance of the business. In terms of scale, definitely, if I look at the amount of roads work that David is currently working on, bidding at the moment is quite significant.
So there's a lot of work coming out, and I think that's linked into some of the government announcements recently. Certainly, Sam, from a water point of view, it's really exciting. And then if we have a look at sort of the electric networks point of view, that also presents a significant opportunity for us as well. So those are the sort of where the significant opportunities are, but we're also seeing, you know, a lot of volume coming through from the integrated transport side. So for Heathrow's expansion plans and how much they're spending and Manchester Airport, what they wanna do at Stansted Airport, and things like that. Thank you.
Good morning. Andrew Nussey from Peel Hunt. Again, a couple of questions. Maybe take each one in turn. But if we just start with the bidding environment, if we go back to August, there was a lot of bidding activity as well, and sort of the order book and preferred bidder book has progressed, but perhaps maybe not as quite as quickly as we thought. Has there been a slower environment for making decisions around contracts?
Thanks, Andrew. Good question. There are a couple of areas where the procurement has been a much slower process than we'd have anticipated and where the procurement process is behind, where it was forecast to be. So there has been some impact on that. As you say, we'd have expected that to have progressed more, but it hasn't.
But I think overall, you know, as I say, I just think the volume of work that we've got ahead of us is very exciting for us.
And secondly, in transportation, you suggested in rail that as HS2 begins to potentially wind down, it'll be replaced by smaller programs. Does that logic apply to road as well? You become less involved in some of the major capital programs, but maybe more smaller-type, specialist-type activity.
I think so certainly, I think, what I would talk about in transportation, the replacement will be that you'll be on large frameworks but delivering a number of small programs. So if I look at something like Heathrow, we're on a 5-year framework there, and it gets procured in lots of small, smaller contracts.
By small, I mean the sort of GBP 10 million-30 million contracts. We'll be interested in winning a sizable framework that we then secure a position on. I think also our sweet spot for us wouldn't be the smaller highway schemes. We would be in the north of GBP 100 million highway schemes. That's where Costain's sweet spot is, really, from a competitive proposition point of view, Andrew.
And just sort of last question around preferred bidder. I mean, should we think if you've got a preferred bidder or work in the preferred bidder book, there's pretty much 100% certainty that that will convert into revenues at some point?
That's our view of what we've put in preferred bidder.
Yeah. Okay. Thank you.
Sorry. If there are no further questions from the room, we have a few on the webcast. Our first question is from Richard Bushnell. Your dividend payout is constrained by the agreement with the pension fund trustees. Does that agreement include the company's purchase of its shares? If not, and given the size of your cash balance, would you consider buying in shares?
I'll take that and give Alex the rest. So thank you for the question, Richard. I yes, the matching does apply to dividends and other possible arrangements like a special or a buyback. So, so yes, the constraint is still applicable. I think it's important to note that we have the annual check on the pension valuation, so we check every March, under the new agreement. If the a if the valuation actuarial valuation tips into surplus, we pause the pension contribution and we pause the dividend dividend matching, and therefore, that constraint is removed for that, that, that year. So there is some flexibility for us.
And, of course, we could choose to pay more in dividend, but we would have to match that with additional contributions into the pension scheme. So that is the consideration that the board needs to take. But we would hope that the scheme is coming closer and closer to surplus, and therefore, this will become a non-event, an issue that just goes away for us. So I hope that answers the question.
Thank you. The next question is from Luke Johnson. Please, can you explain how the net cash position is invested and what yield you are getting?
So net cash position, we are all cash, no borrowings. We have Costain cash, as I explained, and then cash in our joint operations. Our treasury team work very hard to manage cash very tightly on a weekly basis and therefore maximize those two balances.
Then we also look to maximize the return as we put those, those moneys on, on deposit. And you'll see from that, that swing of GBP 6 million from 2022 to 2023 that, that that's been that's been very successful in the year. That's a, a real contributor to, to our bottom line.
We have another question from Luke Johnson. Is the pension scheme surplus included in net cash? If not, are there any plans to hedge the liabilities to lock in this position?
So, thank you, Luke. So the pension scheme is shown as a separate item on the balance sheet, the surplus. Important to note that the accounting, surplus is different to the actuarial surplus. I won't get into the technicals, on, on that, but you'll see it separately on the balance sheet.
We work very closely with the board of trustees to make sure that the assets and liabilities of the scheme are hedged to the greatest extent possible, and we look to reduce the size of the scheme with all of the actions that we take in our investment strategy that we work with the trustees.
The next question is from Alastair Stewart from Progressive Equity Research. Could you provide some color on the need to improve electricity distribution, including some future housing developments being held back? How does the greater degree of competition for you in this sector compare with water?
Well, right. I won't get into the detail, Alistair, on housing, but I think, you know, there's two elements of network improvement. One is also gas.
So we're doing a lot of work for people like Cadent, on upgrading the gas networks, which are pretty important from an immediate-term point of view. But from an electricity distribution, very clearly, the source of electricity is changing, and therefore, the networks need to be upgraded to cope with that. And also, the distribution of where electricity goes, is changing. And certainly, we can see from an EV car point of view, etc., the need for greater distribution and greater demand. And so that is why there's significant investment. You know, it's quite an aged asset, and it needs to be invested in, but I will defer to others on the housing, but yeah.
Our final question is from Philip Levy. He says, "How constrained are you by workforce availability?"
Good question. It isn't a constraint for us at the moment. Thanks, Philip. It isn't a constraint for us at the moment. We're working really hard on developing our team, bringing in graduates, apprentices, etc., and developing our supply chain. I think the benefit we have is that because we have long-term visibility of workload and we can maintain continuity and consistency, that makes it an attractive place for skills to want to come and work. And that really helps as compared to people that might have one-off jobs in one-off places. But it is something we're very vigilant of, and that's why we work really hard on upgrading the way we work to drive better productivity. So, you know, we look at telematics on our plants and the data that allows us to turn around and improve productivity.
David and I visited a contract on one of the sections on HS2 really recently where we were able to remove 90,000 hours in terms of the amount of, you know, work that we were doing to drive productivity. So those are some of the key things, recognizing that there isn't an endless supply of skills as well.
There are no further questions on the webcast, so I'd like to hand back over to Alex for any closing remarks.
Okay. Thank you very much. Right. Well, look, again, thanks very much for taking the time to join us today and, for your questions. Really, really great opportunity to sort of answer any more as we come out of here. Look, we're really excited, as you can tell, by the momentum that we've built in our business and the strong operational performance.
If we look ahead, just the strong opportunities that are ahead. So we look forward to that, and we look forward to updating you again on the next step of our progress. So thank you very much for your time. Thank you.