Chartered Institute of Building Magazine of the Chartered Institute of Building

News

Costain falls into red with £92m first-half loss

14 September 2020
Costain chief executive Alex Vaughan
Costain chief executive Alex Vaughan

Costain has made a pre-tax loss of £92.3m for the first half of its 2020 financial year, as a result of problems on contracts including the A465 Heads of the Valleys project in Wales and the mutual termination of its Peterborough & Huntingdon gas compressor upgrade contract for the National Grid.

Earlier this month, Costain announced that it would be forced to include a charge of £45m in its half-year results to 30 June after it lost an arbitration decision over a troubled Welsh roads job. Meanwhile, the contractor is to try to recover £49.3m from the National Grid after withdrawing from the £113m Peterborough and Huntingdon deal.

Costain’s revenue for the six-month period ending 30 June was £548.7m, down from £599.2m.

Chief executive Alex Vaughan said the first half of the year has been a “challenging period” due to the work to resolve the issues on the two contracts, at the same time as grappling with the covid-19 pandemic.

He added that as a result of the problem jobs, Costain had made a number of “significant changes” to its contract selection and management processes. It will no longer pursue energy EPC contracts and will instead focus on long-term investment programmes.

Instead, it aims to expand its consultancy and digital services, with a target to generate 55% of its profit from these areas, up from 33% currently. It plans to generate 45% of its profits from complex programme delivery, down from the current level of 67%. Vaughan added that he hoped the changes would lift Costain’s margins to 6% to 7% over the medium term.

Meanwhile, the company has introduced a range of procedures over the last 12 months which it said would allow it to better manage contract risk and monitor changes to contract costs.

Vaughan said: “We are now back on site across all of our operations with strict safety measures in place to protect our teams and the communities we work in. I would like to pay tribute to our people who have done everything they can to look after one another and to do the right thing by our clients, communities, society and to protect our business during this pandemic.

“We are clearly disappointed with the recent arbitration outcome in relation to the A465 contract which, together with the mutual termination of the Peterborough & Huntingdon contract, has resulted in significant revenue adjustments for these long-standing projects. We have in place clear actions to resolve the financial position on these contracts and importantly we have taken decisive action to prevent such issues from reoccurring.

“The equity raise in May has already helped us to capitalise on the immediate opportunities in our infrastructure markets as we successfully secured over £2bn of contracts in the first half, many of which incorporate our consultancy and digital capabilities in line with our strategic focus. There remains a strong pipeline of further opportunities which we are actively targeting.

“Looking ahead, assuming no further sustained covid-19 lockdowns, we are confident of delivering growth in profits and margins next year. Although we are mindful of the macro-economic uncertainties ahead, Costain is in a strong position with secured long-term programmes and a positive market backdrop, in particular the UK Government’s drive to progress investment in infrastructure so that it is better, greener and faster in support of the nation’s economic recovery.”

Leave a Reply