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Thu March 21 2019

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Turnover down as Costain seeks quality

6 Mar Costain’s strategy of shunning bog-standard building work in favour of leading the smart technology revolution has resulted in a 14% slide in group revenues for 2018.

Andrew Wyllie, Costain chief executive, until May 2019
Andrew Wyllie, Costain chief executive, until May 2019

Costain's  annual results for 2018 show total revenue, including share of joint ventures and associates, down 14% to £1,489.3m (2017: £1,728.9m). This was due to “a lower level of capital project activity in the year”, the company said.

Pre-tax profit for 2018 the year was down nearly 4% to £40.2m (2017: £41.8m). However, stripping out one-off costs such as an £8.6m pension charge and £3m amortisation of acquired assets, underlying operating profit was up 7% to £52.5m (2017: £49.1m).

The Infrastructure division, which operates in the highways, rail and nuclear markets, delivered revenue of £1,093.6m (2017: £1,379.7m) and underlying operating profit of £46.0m (2017: £52.4m).

The Natural Resources division, which operates in the water, power and oil & gas markets, generated revenue of £390.3m (2017: £343.9m) and made an underlying operating profit of £14.1m (2017: £5.0m).

Delivering his last set of results before stepping down in May, chief executive Andrew Wyllie shared his vision for the business. “We are entering a new era for Costain, an era defined by the start of the Fourth Industrial Revolution,” he said. “The Fourth Industrial Revolution is now having a global impact and is characterised by a fusion of technology breakthroughs that are blurring the lines between the physical, digital and biological spheres. These breakthroughs are occurring in a number of fields including artificial intelligence, robotics, nanotechnology, quantum computing and biotechnology.

“These developments are creating a range of new possibilities, and consequently we are now seeing a stream of new policy announcements, product developments and service enhancements.

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“In highways for example, we have recently seen the introduction of a UK ban on the sale of petrol and diesel cars from 2040, accelerated in Scotland to 2032. In the year, we saw the introduction of the UK's first ‘Electric Streets’ scheme, banning the use of petrol and diesel vehicles on nine roads in the City of London. During the year BMW also launched the trial of its ReachNow ‘mobility as a service’ offering in Seattle to compete with Uber and Lyft. The foremost vehicle manufacturers have launched various new electric models in the last year.

“All of these developments are having a profound impact on transport infrastructure, and the associated market participants, and are stimulating a fundamental re-think about how national infrastructure is provided. We are therefore seeing a rapid change in the spending patterns of our clients, with the deployment of emerging technology being core to their next generation of infrastructure solutions.

“We are strategically positioning Costain at the forefront of this revolution, transforming the business into a leading smart infrastructure solutions company. This differentiation is allowing us to seize the wide array of exciting opportunities being created for our business. Our considerable expertise across the integration of technology, consultancy, asset optimisation and complex delivery services places Costain well in this rapidly-evolving market. During the year, we have benefited from the start of a new generation of smart infrastructure contract awards including delivering the first phase of the A2/M2 Connected Corridor and participating in the Midlands Future Mobility testbed programme."

As for how the business is performing, he said: “The group ended the year with a record higher-quality order book of £4.2bn, reflecting our differentiation and strong market positions. We secured over £1.8bn of new contract awards and extensions to existing contracts during the year. The order book, which contains over 90% target cost, cost reimbursable contracts continues to evolve to reflect our strategic positioning in a rapidly-changing market environment.”

Chairman Paul Golby said: “This has been another strong performance for Costain, with further growth in underlying profit at enhanced margins… This success has been driven by providing smart infrastructure solutions that expertly integrate consultancy, complex delivery, technology and asset optimisation services. Costain is at the forefront of the rapidly-evolving UK infrastructure market, working with our clients on a long-term, strategic basis to deliver their progressively larger and more complex investment programmes. This increasingly differentiated strategic positioning underpins our ambition for continued growth."

Costain has also announced an impending change in leadership. Alex Vaughn, 49, managing director of the Natural Resources division, will take over from Andrew Wyllie as chief executive in May. Although he is still only 56, Mr Wylie has been in the job for 14 years and now wants to pursue a non-executive career, he said.

MPU

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