Tighter contract risk controls paying off for Costain

Grant Prior 5 months ago
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Tighter contract tendering and risk controls are paying off for Costain as it returned to profit during the first half of this year.

Results for 2020 racked-up a £96.1m loss after the bottom line was wrecked by £94.7m of charges from two long-standing contracts in relation to the Peterborough & Huntingdon gas station job and the A465 Heads of the Valleys road road scheme.

That led to a complete overhaul of contract selection, tender and management processes which has paid off with a return to the black during the first six months of this year.

Interim results to June 30 2021 show a £9.1m pre-tax profit from a revenue of £556.8m with the improvement expected to continue for the rest of the year.

Alex Vaughan, chief executive officer, said: “We continue to be successful in winning new contracts, building on last year’s strong platform and making the most of the significant market opportunities. Our clients across all our chosen markets are continuing to progress their investment plans and to prioritise investment to meet their needs for decarbonisation, digitisation, levelling up and performance improvement.

“We are busy bidding for new work across all of our markets, combining Costain’s core strengths and our broader service offering in line with our strategy. Importantly, we are being selective in our approach to tendering, focussing on bidding discipline and risk management.

“We have good visibility on the completion of contracts for the remainder of this year which gives us confidence in delivering full year results in line with our expectations.”

Costain landed contracts worth £334.3m during the first half helping its order book hit £4bn.

The company said: “Our existing contracts are benefitting now from our enhanced risk management and ‘Operational Excellence Model’ which is providing us with greater project delivery assurance, contract margin performance and cash generation.”

Employee numbers have increased to 3,300 with over 650 people holding professional accreditations at a chartered or fellowship level – a 10% year-on-year increase.

Costain’s transport division saw margins hit 3.8% with an operating profit of £15.1 m from turnover of £403.9m.

The legal wrangle over the problem Peterborough & Huntingdon gas station job is ongoing with the final charge on results not expected to exceed £57.3m.

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