2020 was the second year running that Costain failed to make a profit, having lost £6.6m before tax in 2019.
Turnover was £978m down 15% from 2019’s £1,156m – and down 43% on 2017’s turnover of £1,729m.
However, chief executive Alex Vaughan said he was pleased to be able to report an adjusted operating profit of £18.0m (down from £37.9m in 2019), given the challenges of the year.
The reasons behind Costain’s financial problems have been well reported: the Peterborough & Huntingdon gas compressor project for National Grid; and the A465 Heads of the Valley road construction job for he Welsh government. Together these incurred £94.7m of charges in 2020.
“Clear lessons have been learnt from these events and we have taken decisive action to prevent such issues reoccurring,” Alex Vaughan said. “We have strengthened the senior leadership team, introduced greater accountability from top to bottom, improved our governance and controls and completed a root and branch exercise to identify and manage potential contract risk. As a result, Costain is a more resilient business and one which we are convinced will move forward with confidence to capitalise on the many opportunities ahead of us.”
Those senior leadership team changes include Helen Willis joining as chief financial officer in November 2020, Sue Kershaw becoming managing director of the transportation division in March 2020, and Sharon Harris appointed general counsel and company secretary in October 2020. Other new members of the leadership team completed their first year, including Nathan Marsh in the newly-created position of chief digital officer, Maxine Mayhew as managing director of the natural resources division and Catherine Warbrick as human resources director.
“These changes have brought a refreshed approach and diversified the experience of our executive management team, placing us in an even stronger position to take advantage of the market opportunity open to us,” Alex Vaughan said.
On the new approach to risk management, he explained: “The group's contract selection, tender and contract management processes and behaviours have been enhanced over the past 18 months, resulting in lower contract risk and better cost management throughout the lifecycle of our projects. In reassessing our contract selection criteria we have decided not to pursue one-off energy EPC contracts, focusing instead on long term investment programmes.
“To enhance tender governance the group has updated its policies for commercial expectations and risk appetite for all new contracts, including reducing the acceptable level of downside risk and increasing the minimum level of acceptable profit for all new contracts. The group has also implemented a five-gated approval process prior to signing any contract, including independent risk and assurance review prior to target cost and contract conditions approval.”