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TWST: In order to begin our interview, would you give us a quick overview of the Costain Group touching on its different business segments and core markets?

Mr. McCole: Costain is probably the oldest construction company in the UK. It was spawned in 1865. It was a member of the FTSE 100 at one stage, but it’s gone through a fairly turbulent history. In the 1990’s they decided to invest in US deep cast mining and the Californian housing market. These investments didn’t perform well causing the Company to endure major restructuring and downsizing and it’s now really just coming through the end of that process to establish itself again as a major player within the UK and international construction market. Essentially, the core markets that Costain are focused on are civil engineering, building construction, and what we call in this business “asset management,” which is effectively managing the capital expenditure programs of large organizations such as the water utility market in the UK which has sizable capital expenditure programs and is regulated by government. The tariffs set by the government for water effectively dictates how much money these utility companies spend, to deliver a better standard. So Costain, is right in the thick of that. We’ve got about 20% of the UK market currently in water utility, so from a standing start it’s been quite an exciting year. Our experience in the UK is that some of our competition have converted from straight construction civil engineering companies to support service companies on the basis that the support service sector rating was much higher historically than traditional construction. A number of our competitors have gone down the facilities management route and one or two have come unstuck, particularly within areas like railway maintenance. Another part of the business which we call COGAP, Costain Oil, Gas and Process is focused on areas such as the Middle East and the North Sea, developing and maintaining LPG, LNG clients. One of our biggest contracts, for example, is for the ADGAS Organization Abu Dhabi, maintaining the ADGAS Das Island, petrol chemical plant in the Middle East. Overall, we’re not huge players in the market. We will deliver about £65-70 million per annum so we’re not in the forefront of the world. We have got a fairly good niche client base there which we’re just chipping away at, nothing too adventurous.

TWST: How does Costain try to gain a competitive advantage?

Mr. McCole: Effectively, we are sticking to the knitting, if I can use that expression. What we have in this business is a core experienced resource: people who’ve been all over the world building and constructing recognized projects. What we’re selling in the marketplace basically, is experience, reputation and quality. As I said Costain is probably the oldest organization in the sector, and we have a very highly recognized brand. A lot of work that’s undertaken in the UK is done under joint venture where two or three construction companies will get together. A good example is what they call the Channel Tunnel Rail Link Program, which is effectively building the infrastructure to mobilize high-speed trains from the coast out of the channel tunnel into central London. It’s a massive contract and Costain’s at the forefront. Effectively we sit at the head of the table on most of these joint venture processes because of the level of expertise that we have. We punch well above our weight against some of our larger competition.

TWST: Over the last year or two, what are some of the most important decisions Costain has made?

Mr. McCole: Well, the main decision has really been people. Costain found themselves in a slightly unusual shareholding arrangement. We’ve got three major shareholders with 73% of the shares so we’ve got a very small free float in the market, and historically these major shareholders have had significant representation on the main board. Over the last 18 months a new management team has been appointed. We’ve got a new non-executive Chairman, David Jefferies who is the ex-Chief Executive of the National Grid in the UK. Our Chief Executive is Stuart Doughty, who has massive experience of the construction industry having held chief executive positions with most of the competition, e.g. Laings, McAlpines, and Tarmac. We’ve also got two fairly heavy hitting non-executive directors, David Allvey, who was the Financial Director for Barclays Bank and BAT, and John Bryant who was Chief Executive of British Steel. We have now reduced the major shareholders’ representation down to one each so we’ve got a much more balanced approach to guiding the business. As I said earlier, we see asset management as a major area of focus for Costain developing long term relationships with our client base and de-risking the business.