Poor performance at oil, gas and construction divisions hit bottom line despite rise in revenue
Shares in Costain fell more than 5% as it announced a pre-tax loss of £20.7m in the first half owing to building contract write-downs and a poor performance in its oil and gas division.
The engineering group has also revealed that it has pulled out of Iraq. Tony Bickerstaff, the financial director, said Costain had “closed the operation” earlier last month because of security risks in the region. “It was not a big operation and the contract was completed,” he added.
The group made a £21.9m operating loss for the first six months to 30 June 2006, compared with a £7.8m profit last year. Revenues grew 26% to £436m up from £345m.
The company took a £12m hit on contract claims in its construction division. Overall, the construction arm made a £7.9m pre-tax loss on revenues of £158m. Bickerstaff admitted Costain was “not happy with the margins for the building division”.
In a statement, the company said it did not expect to recover the costs but Bickerstaff said it had not given up the fight. “We are not giving up on the claims and we vigorously pursue all contracts,” he said.
The engineering group has about 10 contentious contracts.
Lacklustre performance at COGAP, its coal, oil, gas and process arm, also had an impact on the figures. COGAP suffered a loss of £1.1m on revenues of £31m.
When the writedowns are excluded, Costain made an underlying profit of £10.1m, up from £7.7m last year.
The results are a blow for Costain’s new management team. Andre Wyllie, who was appointed chief executive in September 2005, undertook a strategic review of the business. This included cutting from 15 to 10 the sectors under which it operates. Wyllie also shut down the international division.
However Bickerstaff said the management had a “very clear idea” of Costain’s direction.
The focus is now on winning repeat business from major clients.
Bickerstaff also revealed that the group had formed a strategic alliance with NG Bailey, Lorne Stewart and Shepherd Building. The three firms will provide M&E expertise on Costain’s projects.
David Jefferies, Costain’s chairman, said: “The overall underlying performance from the majority of our core activities remains encouraging for the second half of the year.”