Costain’s focus on margins pays off

By Helen Wright25 August 2011

Crossrail is planned for completion in 2017.

Crossrail is planned for completion in 2017.

UK contractor Costain reported a 23% increase in first half gross profit to £10.1 million (€11.4 million) despite a £64.9 million (€73.5 million) year-on-year drop in revenues to £468.5 million (€531 million) after its strategic decision to withdraw from lower margin activities paid off.

Under its "Choosing Costain" strategy, the company has been focusing on working with blue chip customers whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.

Two of the group's three core divisions - infrastructure and environment - saw revenues fall as the company turned away from smaller business, while the energy and process division reported a small increase in revenues.

Tough competition

Costain's infrastructure division, however, was also impacted by tough competition and increased costs. Operating profit slipped to £5.7 million (€6.5 million) from £8 million (€9 million) in the first half of 2010, while revenues were £219.4 million (€249 million), compared to £223.8 million (€253.5 million) in the first six months of last year.

Costain said its infrastructure focus was on sectors where substantial investment was expected in order to meet national needs over the next five years.

The company highlighted the £10 billion (€11.3 billion) in funding that is expected to be granted to the UK Highways Agency through to 2015, as well as the £37 billion (€42 billion) of government expenditure that is expected to be granted to Network Rail, London Underground and Crossrail.

Costain has now secured four Crossrail contracts, and said it is well positioned to capitalise on further opportunities.

Chairman David Allvey said, "Despite continuing challenging market conditions, we see significant opportunity for the continued successful implementation of our strategy and the delivery of the Board's ambition of doubling profit over the medium term."

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