Costain reports £20m profit on turnover of £880m

After diving into the red last year to the tune of £62m, Costain is back with a pre-tax profit of £20m.

Andrew Wyllie, chief executive, said: “The construction market has continued to consolidate and polarise towards a smaller number of larger contractors. Our strategy will ensue that Costain is one of those larger contractors.”

Costain’s latest annual results cover the year to 31 December 2007. Turnover was marginally down at £880m (figure in the previous year: £890m).

Over the past ten years, Costain has been running through quicksand. At long last it seems to have found itself on firmer ground.

Last year, Wyllie had to bite the bullet hard and tackle major issues. The result was that Costain’s international division was closed and further money was put aside to cover losses on several disputed contracts.

With his hands untied, Wyllie has been able to show what Costain can achieve: the latest figures show a 3.7% profit margin in the civil engineering division where turnover ran to £540m.

Segmental analysis (by turnover) shows civils to been the largest of Costain’s five divisions:

• £540m – civil engineering
• £250m – building
• £62m – oil, gas and process
• £18m – property development
• £4m – property development

Civil engineering

The profit margin doubled as Costain doubled its profit from £10m in the previous year to the latest figure of £20m.

The highlight was the successful completion, in joint venture, of the £800m St Pancras International Station.

Building

The margin of just 0.3% as the division made a profit of £800,000 on turnover running to £250m might seem small beer, but in the previous year this business had to take a hit of £26m, so in comparative terms, things were much, much better.

In order to fund PFI bidding for education projects, and in line with a strategy of actively trading its PFI equity portfolio, the group sold its shareholding in Bridgend Prison PFI project.

Costain’s cash position has strengthened to £130m.

During 2007 the balance sheet was strengthened as a result of a £60m Rights Issue. Also, Costain’s operational capability was given added firepower through increased banking facilities of £200m.

At the end of 2007, the deficit in the UK pension fund ran to £36m, down from the £48m figure a year earlier.

There is an in-principle agreement with the Pensions Regulator that on resumption of dividend payments to Costain shareholders, the group would match any dividends pound for pound by a payment into the pension fund.

The Regulator has given the green light for a £3m payment into the fund that opens the doors for a dividend, something shareholders might well have started to think they would never see again.