Costain posted a pre-tax profit of £500 000 for the year to 31 December 1998, against a £7.4m loss for 1997. The return to the black came on reduced turnover of £392m, compared with £576m for the previous year.
Commenting on the figures, Costain chief executive John Armitt said: “I’d much rather be a profitable medium-sized contractor than a less profitable big boy.
“You’ve got to achieve a certain level of turnover, but the key thing is profit; that must be the most important factor.” He added: “We’ve done what we said we would do and our shop is in order. “We said we would break even, and in fact we’ve made a slight profit. We’ve improved our client base and reduced costs. We’re now financially stable and operating on improved margins.” Armitt said he expected to see a further reduction in costs next year.
Costain is currently in the throes of a reorganisation that will see its civil engineering and construction operations merge into a single UK business.
Armitt said the firm’s relationship with Skanska, which holds a 7.6% stake in the group and has an option to increase this to 40%, enabled Costain to bid for large-scale projects at home and abroad.
“Our relationship with Skanska continues to strengthen and we’re happy to have them as a shareholder. They bring considerable financial strength,” he said.
Armitt said he was optimistic about the UK construction market, but expressed some reservations about the latest government proposals for private finance initiative projects. His principal area of concern is the plan to set up a “Government Investment Bank” to finance PFI schemes.
“As contractors, we like to be involved as much as possible. Now the government is saying it just wants construction costs from us and they’ll sort out the finance.
“It might cost us less in tendering, but it does remove our expertise in putting together a total package, and does not build on the relationship that contractors have formed with banks. However, PFI is a movable feast, and we must be adaptable.” Armitt added that the PFI model was being used for schemes around the world and UK contractors were seen as having an “extra edge” in competing for overseas projects because of their experience of working with banks in the UK.
But Armitt said that, whatever guise PFI took in the future, it would continue to be an attractive source of work for major contractors. He said: “There is more long-term risk with PFI but, as a contractor, you’re in control from the beginning, from procurement through to delivery. That has always been the attraction of PFI for me.”
