Costain: back in the fold

Costain's string of losses is behind it at long last. The construction group announced last week that it was at last out of the red, its 1998 turnover of £390 million yielding a pre-tax profit of £500,000.

John Armitt, chief executive, said: "We have done what we set out to do for 1998, which is to break even. In fact we have done a little better than this, achieving a solid recovery."

In the previous year Costain had made a pre-tax loss of £7.4 million on a turnover of £580 million. This marked a considerable turnaround for a group which had run up a cumulative loss over the three-year period 1994-96 of £380 million.

Costain is still battling to pull down overhead costs. The target is to end the year 2000 with overheads running 30 per cent lower than the 1998 level, a figure which itself represents an 18 per cent fall on 1997.

After a bill for cost-cutting of £600,000 in 1998, more drastic action this year will lead to a £4 million charge as Costain offices are closed and staff levels cut back.

When Armitt arrived as chief executive, the group had six business streams. The latest rationalisation will lead to just three: UK Civil Engineering and Construction, International, and Costain Oil Gas and Process.

Stewart Atkinson, who joined from Amec in the summer, is now MD of both the UK Civil Engineering and the Construction operations. "The company plans to consolidate staff within a reduced number of locations," said Armitt.

Skanska has a 7.6 per cent stake in Costain, with an option to lift this figure to 40 per cent. "The relationship continues to improve," said Armitt. "Together, we have bid 11 projects, winning five schemes in the UK plus one in Tanzania to build a £24 million shopping mall in Dar es Salaam."

Costain/Skanska has won £100 million-worth of new business in the last six months, including a £70 million Capital Shopping Centres project in Uxbridge. In addition, the pairing is also in the frame for the £150 million widening of the A2(M) and a £50 million bridge at Doncaster.

A Costain/Skanska/Ballast Nedam joint venture is chasing the £400 million scheme to build the second Penang crossing in Malaysia. Skanska has brought robustness to Costain's future, the Swedish group notching a £400 million profit in the last financial year, from a turnover of £6 billion - 70 per cent is from outside Sweden.

As a result of selling off businesses, Costain is now "constantly in surplus cash," said Armitt. In 1998 this contributed £3 million to profits.

At the operating level, construction made a loss of £2.7 million (loss of £3.8 million in 1997). John Campbell, finance director, said: "Contracts are making money but are not covering sufficient overheads."

On transport, Costain says the Newbury bypass was a "successful" project which made a profit. "The road opened on schedule with targets being met, a satisfied client and much acclaim from the local population," said Armitt.

Costain has won a £20 million contract to design and construct the Freeport Container Port's phase II terminal in the Bahamas, its third award from the HPH Group.

In commercial development, Costain completed two major commercial developments in London: new headquarters for ABN AMRO and a similar building for Deutsche Bank. The latter was delayed and the resulting losses have been "significant."

PFI continues to form a key part of Costain's future plans. It has a £1 million equity stake in the Bridgend Prison in South Wales. "If we won one or two schemes each year, we'd look to invest £2-3 million of equity per annum," said Armitt.