Poor performance at oil, gas and construction divisions hit bottom line despite rise in revenue

Lorraine Cushnie

Shares in Costain fell more than 5% as it announced a pre-tax loss of 拢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 鈥渃losed the operation鈥� earlier last month because of security risks in the region. 鈥淚t was not a big operation and the contract was completed,鈥� he added.

The group made a 拢21.9m operating loss for the first six months to 30 June 2006, compared with a 拢7.8m profit last year. Revenues grew 26% to 拢436m up from 拢345m.

The company took a 拢12m hit on contract claims in its construction division. Overall, the construction arm made a 拢7.9m pre-tax loss on revenues of 拢158m. Bickerstaff admitted Costain was 鈥渘ot happy with the margins for the building division鈥�.

In a statement, the company said it did not expect to recover the costs but Bickerstaff said it had not given up the fight. 鈥淲e are not giving up on the claims and we vigorously pursue all contracts,鈥� 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 拢1.1m on revenues of 拢31m.

When the writedowns are excluded, Costain made an underlying profit of 拢10.1m, up from 拢7.7m last year.

The results are a blow for Costain鈥檚 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 鈥渧ery clear idea鈥� of Costain鈥檚 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 好色先生TV. The three firms will provide M&E expertise on Costain鈥檚 projects.

David Jefferies, Costain鈥檚 chairman, said: 鈥淭he overall underlying performance from the majority of our core activities remains encouraging for the second half of the year.鈥�