Costain is to CUT its suppliers from 8000 to 800 in a drive to increase margins. The contractor, whose future was under a cloud last week after joint-venture partner and stakeholder Skanska bought Kvaerner, said it was also eliminating small contracts to improve profit.
The axing of suppliers, including both subcontractors and materials firms, is being led by commercial director Kenneth Bruce.
Chief executive John Armitt said the drive, started in early 2000, was one of continuous refinement. He said: “We have been looking at how many times we have used suppliers in the past five years. Some we have used only twice. I am not sure it’s a process that can end – it’s continuous. The whole issue of business process is trying to make it sharper and more focused so we can improve our profit margins.”
Armitt added that the firm was now concentrating on contracts valued at more than £2m as the returns on these were better.
The drive started when Costain hired consultant KPMG in February to examine its risk management strategy in an attempt to avoid bidding for loss-making jobs. Armitt said the firm’s focus on key markets such as civil engineering, roads and water was beginning to pay off. It led to pre-tax profit for the six months to 30 June jumping to £2.1m, more than 10 times the £200 000 it reported in 1999. Turnover slipped from £199.6m to £195.6m.
Armitt said there were significant growth opportunities for the firm, especially with the government’s recent Comprehensive Spending Review. He said: “We have an improved cash situation and increase in work in-take. There are good reasons for being confident about Costain’s future and its ability to achieve considerable success in the immediate future.”
Armitt continued to play down the impact of the £358m acquisition of Kvaerner’s construction division by Skanska, which has a 7.6% stake in Costain. He said: “Although everyone thinks we do an enormous amount of work with Skanska, only 6% of our turnover last year was with it. A lot of what we are doing is in our own right or with other partners.”
Armitt did concede that discussions would take place with clients on to how to resolve Skanska’s relationship with Costain. Last week, analysts predicted that Skanska would end further co-operation with Costain.