Driving profit growth by focusing on the biggest clients - at home and abroad - is keeping Costain chief executive Andrew Wyllie fired up as he celebrates seven years at the helm. Mark Hansford meets him.
Costain is a very different beast to the one that Andrew Wyllie first took charge of as chief executive seven years ago this month. In 2005 it was a pure civil engineering contractor, UK focused and highly dependent on the traditional markets of roads, railways and water. Today, it is moving ever closer to being a fully-fledged full service provider, able to do all things for its select group of clients. The strategy is clear: do well for major customers with an absolute obligation to spend money, and repeat work from these will see the firm right.
And Wyllie believes strongly that his approach is the right one.
“Uniquely, in our sector we are focused on the big 40 or 50 clients,” he says. “Uniquely,” he reiterates. “A lot of our peers say they work for the big clients, and they do. But they also work on other stuff,” he says. By moulding itself exclusively around these clients, Costain can provide exactly what they need.
“What we believe big customers want is for us to bring an increasingly integrated service”
The evidence would say the approach is working: pretax profit for the first six months of 2012 - even excluding £7.8M earned from the sale of stakes in PFI projects - was £10.1M, comfortably up on the same period last year.
Turnover, at £478M, was up on last year too. Significantly, the order book was up to £2.4bn - a £100M increase on 2011 - and all this is driven by 90% repeat orders from these major clients.
So what do these clients want? “The trend as we see it is that without exception these clients are looking to consolidate their supply chains,” he says. “They all use different terminology, but the sophisticated organisations are looking to work for a smaller number of organisations that can work on bigger projects for a longer time.”
The firm’s recent £450M win to rebuild London Bridge station for Network Rail is a perfect example, says Wyllie. “Five or 10 years ago I suspect that would have been a series of £50M contracts,” he says. “But now the customer is saying, ‘London Bridge; in four year’s time: we want this’.”
“So it is incumbent on us to provide this service to these customers,” he says. “They want you to demonstrate you’ve got the skills and track record to do that.”
Full range of services
Fundamentally, this means offering clients the full range of services, from scheme concept and design through to project delivery and then operations and maintenance.
“The ability to mobilise a range of services is key,” says Wyllie. “But what we believe big customers want is for us to bring an increasingly integrated service.”
But it is not about providing commodity services at any stage, stresses Wyllie. “For example, we are not talking about commodity design,” he says. That sort of work is subcontracted to consultants. “We are talking about bright people you can stick in front of the chief executive of a company and propose a series of engineering solutions.”
But these kind of people are always in short supply, and Wyllie knows Costain must grow rapidly - both organically and through acquisition - to ensure his big clients get the access to services they need.
“We have to grow. That is non-negotiable for us,” he says. “We won our fifth contract on Crossrail this year on the back of success on the first four and on demonstrating to the client that we’ve got a fifth A-team, and that we will not be diluting our four existing A-teams,” he says.
Organic growth is already happening. “Our strategy means we need a lot of recruitment and we have got a lot of vacancies. But we have no difficulty filling them,” he says. “Our graduate intake this year is the highest quality intake yet,” he adds.
“But we do recognise the need to grow quite quickly, and we are going to do that through 50% organic growth and 50% mergers and acquisitions,” he says.
“I’ve moved once in 20 years and you can make of that what you will. There is a great opportunity here”
Two years ago Wyllie was aiming to inject energy into this growth through “transformational transactions”, which led to a takeover bid for consultant Mouchel. That deal eventually fell apart in March 2011 at due diligence stage and instead Wyllie has focused his efforts on more niche acquisitions such as oil and gas specialist ClerkMaxwell and industrial firm Promanex.
“Mouchel at the time would have added significantly to our requirements,” explains Wyllie. “But the two acquisitions since have been good. ClerkMaxwell was very much about adding front end expertise and Promanex has added to our operations and maintenance expertise.”
These acquisitions, plus organic growth, meant Costain finished last year with around 1,000 more staff than it started with.
But Wyllie is not ruling out another go at a bigger firm. “We have no preconceived ideas about scale, but we are clear on what the skills will be,” he says. “We have openly said the focus is consulting and operations and maintenance.
These skills may also need to be internationally-focused, with the big news that Wyllie and Costain are changing tack on working abroad.
Yes, that’s right - now he is taking the firm abroad; a move he has publicly resisted until now, although he accepts working in overseas markets is in the company DNA. After all, Costain was the first UK contractor to win the Queen’s Award for Export Achievement in 1971 and has built some spectacular projects around the world including 17km of the Trans-Iranian railway in 1935, The American Embassy in Turkey in 1951 and Hong Kong’s first cross-harbour tunnel in 1972. During the 1970s more than half the group’s turnover came from international operations in 25 countries.
But thus far in Wyllie’s reign, global ambitions that were already scaled back have been non-existent, barring work to support clients in the oil and gas industry. Caution has always been the watchword, particularly with the focus on major UK clients. But the demands of these very clients has meant this view has shifted.
“We are in a world where we still have more significant opportunities with these clients in the UK than we have got resources to bid,” says Wyllie. “So until very recently we have said ‘no, the UK is our focus’.”
“But we are aware that a lot of our clients work internationally and when they tap you on the shoulder and ask you for help you feel obliged to act,” he says.
To this end the firm’s highways director of six years Tim Bowen has been moved to Abu Dhabi to take on the role of executive director for the Middle East and to scout out wider opportunities.
“Tim will be based in Abu Dhabi, where we have an oil and gas operation, to look at the opportunity to sell our consultancy capability, our project management skills and our operations and maintenance knowledge,” explains Wyllie. “What we are not doing is selling a commodity product,” he stresses.
The move clearly piques Wyllie’s interest. “It is a quite interesting evolution of the business,” he notes. “The brand still has a very strong reputation around the world.”
Wyllie is immensely proud of Costain’s engineering heritage, even if the firm’s snazzy new corporate headquarters on a Maidenhead business park belies the group’s Merseyside roots - the contractor was founded in Liverpool in 1865 by Richard Costain, a 26 year old jobbing builder from the Isle of Man.
“Costain is a fundamentally different business now,” explains Wyllie. “How can you talk to a customer about maintaining a £1bn asset if you haven’t got a well maintained one yourself?” he asks. “We wouldn’t dream of having a building like our old HQ now,” he states.
But if Wyllie has no attachment to the old HQ, the same cannot be said of his attachment to old-timers. “I write a letter to everyone who’s done five or 10 years with us every six months. It’s a huge pile of letters and it’s hugely important. Long service is hugely important to us.”
With long service comes expertise. And Costain’s strategy needs that. “The decider in contracts is increasingly what you can do at the front end,” explains Wyllie. “So when a project comes along, we’ll say to a customer, ‘employ us for a few months to develop an idea, and see if you like it’. What we want to do through that is then deliver it.”
This need for front end involvement even extends to Wyllie regularly getting his hands dirty.
“I make it my business to have a relationship with the 40 to 50 chief executives who are our customers. As a predominantly UK-based business I can do that,” he says.
It is perhaps this regular contact with the real world that is keeping Wyllie keen - after all, with seven years now behind him he has significantly passed the average tenure of a chief executive.
But Wyllie has set himself a medium-term objective of doubling profits, and he’s clear he’s not going anywhere soon. “I’ve moved once in 20 years and you can make of that what you will,” he says. “There is a great opportunity here.”
Andrew Wyllie became Costain chief executive in September 2005. Prior to taking up this role, he worked for Taylor Woodrow where he was managing director of the construction business and was a member of the group executive committee.
He worked for several years on a variety of major contracts in Saudi Arabia, Ghana, the Falklands and Malaysia, as well as projects in the United Kingdom.
In addition, Wyllie is a non-executive director on the board of Scottish Water, which is the UK’s fourth largest water utility providing a service to five million customers in Scotland.
He has an MBA from London Business School, is a Fellow of the Royal Academy of Engineering, the ICE, the Institute of Directors and the British American Project. He is also a member of the CBI Construction Council and a Companion of the Chartered Management Institute.
He is a former pupil of Dunfermline High School and a graduate of the University of Strathclyde.