Costain targets 7% margin as ‘Uber of construction’

Aaron Morby 5 years ago

New Costain boss Alex Vaughan has set out an ambitious five-year plan to raise overall group margins to 6%-7%.

Alex Vaughan seeks to build confidence among investors after share price hammered
Alex Vaughan seeks to build confidence among investors after share price hammered

He unveiled his new strategic plan to investors yesterday in an attempt to restore confidence in the group after its share price slumped 38% in the wake of last week’s profit warning.

Vaughan said he planned to transform the construction group pushing disruptive technologies to make Costain the “Uber of construction”.

As part of Costain’s ‘Leading Edge’ strategy, Vaughan said he planned to expand higher-margin asset management, digital solutions and consultancy services, raising its contribution to group profit from 35% to 55% by 2024.

This would mark a significant transition from the present focus on complex programme delivery which generates two-thirds of profit.

The plan to broaden consultancy and asset management services, where Costain believes it can deliver 8%-10% margins, would lift overall group margins to around  6%-7%, setting a new industry standard.

He said: “I want to be clear we are going to continue to do complex programme delivery.

“This is a key requirement of our clients but it is also a route for Costain to be embedded working with clients on five-year long-term programmes that enables us to expand our footprint and broaden the service that we provide to help them meet these changing needs.

“Changing their focus on how they can exploit digital technology, how they can optimise the existing performance of their assets.

“Generally our business in a five-year programme will only touch 2% of a client’s assets.

“They have 98% of the rest of their assets, that is a significant opportunity for us to help optimise.”

The new strategy will see Costain enter aviation and defence work markets, supplementing its energy and transportation expertise.

The business is being restructured into five main service lines that offer Costain a potential market where £20bn is invested every year, said Vaughan.

Costain’s Leading Edge strategy

Five new service lines for customers

Shaping our future infrastructure
Consultancy and advisory
Digital technology solutions
Assets optimisation
Complex programme delivery

Four key Costain markets

Transportation (inc new aviation business)
Water (optimising asset management)
Energy (focus on decarbonising)

Vaughan said: “Costain aims to shape the future infrastructure we have in UK, in the same way that Apple has shaped the way we use our mobile phones and the way we buy music.

“Today we are working with five energy companies to shape how we are going to move from conventional gas heat to hydrogen gas heat.

He added that Costain aimed to be a true digital technology solution provider.

“In the same way that Amazon used digital technology to transform the way retail services are provided, we are today and will increasingly use technology to enhance the performance of our service.”

“My ambition is for Costain to be disruptive in the way that we deliver these services.

“Already we are automating the design process, moving away from a man-based system, bringing together data analytics and automating the design process, taking out the time it takes to start design from first principles.

“Already we’ve reduced cost of design by 18%. and we’re well on the way to providing a very different proposition.

“Our clients are demanding a revolution in the way we deliver complex programmes and Costain will be at the forefront of pioneering this,” he said.

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