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Costain chief executive denies firm is takeover target as profits fall but orders rise

Costain chief executive Andrew Wyllie has dismissed suggestions that the firm could be a takeover target.

Speaking to Construction News after Costain announced a pre-tax profit drop but a record order book in its first-half results, Mr Wyllie dismissed suggestions by analysts that it was attractive for takeover approaches.

Analysts as Liberum Capital said they “continue to like Costain’s exposure to civil infrastructure, customer focus and the increasing breadth of offering” and that “it is also a potential acquisition target”.

“I don’t spend any time thinking about that,” Mr Wyllie said. “My focus is on making Costain work as well as it can”.

In its results to 30 June, the contractor said revenue was down at £462.9m (H1 2012: £477.9m) while pre-tax profits were hit by its failed bid for May Gurney.

Reported pre-tax profits were £3.1m (including the £3.7m cost for the May Gurney bid and asset and employment costs), down from £14.7m in H1 2012; however, the 2012 figure had included £10.5m in PFI asset transfers.

The contractor’s net cash was £64.3m, down from £131.5m in H1 2012.

Group finance director Tony Bickerstaff said this was due to targeting blue-chip customers who “in more than 90 per cent of cases” used target cost-based, cost-reimbursable contracts, which include a lower level of advanced payments than typically paid on traditional lump-sum contracts.

He told Construction News that this was likely to help Costain avoid problem contracts that have plagued rival contractors, primarily away from the infrastructure market, as they were more collaborative and included “joint obligations”.

He insisted that the reduction in cash would not affect the firm, and pointed to the business continuing to be cash-positive.

Costain results

DOWN:

£67.2m – Net Cash: £64.3m (June 2012: £131.5m)

£4.7m – Natural resources profit: -£0.1m (£4.6m)

£7.9m – Adjusted pre-tax profit £8.4m (£16.3m)

UP:

20% – Order Book: £2.9bn (June 2012: £2.4bn)

7% – Interim dividend: 3.75p (3.5p)

£16.6m – Infrastructure revenue: £262.8m (£246.2m)


Mr Wyllie pointed to Costain “increasing its firepower” by taking its total banking and bonding facilities extension to £495m as a sign that it could still compete on further mergers and acquisitions after it acquired oil and gas project management firm EPC Offshore for an initial £9.6m this month.

It was revealed in May that Network Rail had awarded work worth £184.5m to Costain in the financial year to April 2013.

This was the largest amount awarded to a construction contractor, ahead of rivals including Babcock Rail, Balfour Beatty Civil Engineering and Carillion, with EDF Energy the only company to be awarded more, after it was paid £296.6m for electricity supply.

“What is clear is that there are very significant levels of [Network Rail] spending around upgrades and electrification,” Mr Wyllie said.

We formed a joint venture two years ago with Alstom and Babcock [ABC Electrification] to address what we saw as a growing part of the market.”

The joint venture was in January awarded a £48m deal with Network Rail for the West Coast Power Supply Upgrade phase three, part of an investment of around £300m by Network Rail in power upgrades.

Mr Wyllie said Network Rail was among many infrastructure clients looking to consolidate supply chains and award deals for a broader range of services through one relationship.

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