Engineering and construction business Costain has announced a strong performance, a significant increase in profit before tax, a robust order book and further potential acquisitions in the pipeline with the publication of its preliminary results for the year ended 31 December 2010.

Revenue, including the Group‟s share of joint ventures and associates, for the year was £1,022.5 million (2009: £1,061.1 million). Profit from operations was £29.4 million (2009: £20.8 million), an increase of 41% - including the benefit of a transaction which transferred the Group’s interest in a portfolio of six PFI investments into the Costain Pension Scheme. Profit before tax was £27.9 million (2009: £18.1 million), an increase of 54%. The Group finished the year with a forward order book of £2.4 billion (2009: £2.6 billion).

David Allvey, Chairman, commented:

“We have delivered another excellent performance. Once again, the Group has demonstrated its resilience in a continuing difficult economic environment. We are confident that our position in markets underpinned by strategic capital expenditure, regulatory commitment or essential maintenance requirements will continue to stand us in good stead.

“Through our “Choosing Costain” strategy, we are making good progress in achieving our vision of building Costain into one of the UK‟s top solutions providers, with the scale and resources to successfully meet the increasingly complex and challenging needs of major customers.

“To expedite the delivery of our strategy, we said that we would look at appropriate acquisition opportunities, an example of which is Mouchel Group plc, as well as organic growth. We are actively progressing a number of opportunities ranging from bolt-on to transformational transactions, and all of which must meet a strict set of criteria in the event that they were to be concluded.

“We look to the future with confidence, reinforced by our robust year-end order book, enhanced cash balance and the ongoing support of our customers committed to long-term capital investment programmes. That confidence is reflected in the Board‟s recommendation to increase the total dividend for the year.”

Customers drive for major cost savings

David Alvey said that the fundamental dynamic driving the marketplace is the fact that, irrespective of the economic environment, the UK urgently requires billions of pounds to be invested in its basic infrastructure. Although customers, both in the public and private sectors, continued to place significant contracts they were also continuing to drive for major cost savings in the process.

While economic conditions are expected to remain challenging, the level of tendering and estimating remained high, with a good pipeline of opportunities and “fully occupied” bidding teams.

 Acquisitions in the pipeline

When the Group launched its “Choosing Costain” strategy last year, Costain said it would also look at appropriate acquisition opportunities as well as organic growth to expedite delivery of the strategy. Costain is currently “actively progressing” a number of opportunities ranging from bolt-on to transformational transactions.

The Group said it was still currently in an offer period in relation to Mouchel Group plc – despite the recent announcement that Mouchel has entered a “co-operation agreement” with Interserve.

UK's engineering and construction sector landscape is being reshaped

Commenting on the results, Chief Executive Andrew Wyllie said:

“Over the next decade there will be very substantial investment in the UK‟s critical transport, energy, water and waste infrastructures. We believe that spending will be prioritised on meeting a number of identified essential national needs including ensuring energy security, the provision of a sustainable water supply, meeting the demanding requirements of European waste legislation and creating key transport infrastructure capable of supporting necessary economic growth.

The sheer scale of the investment required, and the time in which it needs to be delivered, is driving a reshaping of the UK‟s engineering and construction sector landscape. Customers require suppliers of broad capability and scale with whom they can have the confidence to place large, multi-year contracts.

Costain is changing rapidly, and our on-going commitment to providing our customers with the increasingly full-service offering they are demanding, from front-end engineering consultancy and design, through construction to back-end care and maintenance, ensures that we are well placed to provide valuable and cost effective solutions to meeting those national needs.”

Enlarged division focuses on water and waste market

During the year Costain integrated the scaled-back Community division into an enlarged Environment division which, together with the Infrastructure and Energy and Process divisions, form the core focus for the development of the Group’s operations.

The enlarged division is focused on the water and waste markets as well as the specific requirements of a number of long term customers. The division has a £1.2 billion order book, and Costain expects further opportunities in sectors where investment is driven largely by legislation and regulatory requirements.

Costain secured over £900 million of new orders across the business during the year, including its Welsh Water AMP 5 contract.

The Environment division includes Costain‟s water, waste, marine and education activities. In 2010, the Environment and Community business units were combined into a single, enlarged Environment division accounting for c. 50% of the Group‟s forward order book. The division‟s year-end order book was £1.2 billion (2009: £1.4 billion).

UK water market is core to Costain's business

Describing the UK water market as core to Costain’s business, the Board said that following “outstanding performance” on its AMP-4 contracts, Costain was re-appointed on AMP-5 frameworks with Southern Water, United Utilities and Welsh Water. The Group was also successful in securing a new ten-year £400 million contract with Severn Trent and has been chosen for Northumbrian Water‟s preferred contractor and consultant select list to carry out its major water infrastructure upgrade and maintenance framework.

In addition to long-term asset management contracts, Costain has also continued to design, secure and deliver major complex capital works infrastructure. Construction commenced on the Brighton and Hove waste water treatment works for Southern Water and in a further expansion of its operations and maintenance (O&M) activities, Costain secured the contract to deliver Severn Trent‟s minor works O&M services.

"Choosing Costain” strategy

Last year the Group unveiled its “Choosing Costain” strategy, the latest stage in its strategic development intended to take advantage of new opportunities arising from the ongoing structural changes in the sector through the further expansion of Costain’s market position across the design and engineering, construction, and operations and maintenance spectrum.

The strategy is focused on targeting blue-chip customers in chosen sectors whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements. Through “Choosing Costain‟, the Group said it was continuing to develop its scale and resources to meet the increasingly complex delivery programmes and outsourcing needs of major customers.

Over the next decade, the Costain Board believes that the programmes will be primarily in three growth markets:-

• Infrastructure - particularly Highways, Rail and Airports
• Environment - particularly Water and Waste
• Energy & Process - particularly Nuclear, Power, Hydrocarbons & Chemicals