Andrew Wyllie: Yes, we can

Not everyone can say they are doing their dream job, but Costain chief executive Andrew Wyllie can. It’s something he had wanted to do ever since he set off for university. “I’m immensely proud of my job. I find being an engineer in the UK an enormously rewarding experience. To be able to take my daughter up to St Pancras station and say, ’I’m involved with the delivery of this’ - you cannot fail to be impressed by the scale and magnificence of the project.”

But Wyllie, of course, is a lot more than an ordinary engineer. Heading one of the largest construction firms in the UK, with a turnover topping £1bn, is quite a task, but perhaps even that is not enough. He’s set his sights on positioning the firm as a major player in delivering the £200bn investment in infrastructure which Treasury body Infrastructure UK says is needed over the next 10 years. Wyllie began work on this five years ago when Costain became one of the first contractors to make a serious foray into the infrastructure sector.

But the market has changed dramatically since Wyllie first set out his vision for the company. With competition for infrastructure projects hotting up, as other sources of work plummet, pressure is on companies like Costain to expand, diversify their offering and compete with even larger multinationals. So with its much-publicised takeover bid for consultant Mouchel looking decidedly shaky, how does Wyllie plan on securing Costain’s place at the heart of the UK’s infrastructure market?

Unrequited love

There can be little doubt that Wyllie’s self-confessed passion for his role has been tested in recent months. Costain has been rebuffed by its takeover target, Mouchel, four times since December, when it offered £118m for the £633m turnover firm. Despite upping its initial offer to £170m and making a further undisclosed approach, Mouchel has spurned Costain’s every advance and has now got into bed with rival Interserve, despite the fact there is no firm bid on the table. But if he’s concerned, Wyllie isn’t showing it.

As a chief executive of a company like Costain, I have to be available 24/7. And I wouldn’t have it any other way

“We are still in an offer period with regard to Mouchel, so we are extremely limited on what we can say. I really can’t talk about the specifics.”

But the rationale behind the bid for Mouchel is evident throughout the interview. He wants Costain to take as big a share as possible of top clients’ spending and he sees a takeover of Mouchel as the way to do it.

According to Wyllie, being able to offer big spending clients a full service, consisting of consulting and project design, construction, management and maintenance, forms part of his core strategy. “You’ve got customers whose procurement behaviour is continuing to change,” he explains. “If you’re a procurement director of a major customer responsible for the assets of your business, you have three fundamental blocks.

“There’s the front end design solution, the consultancy bit, then you’ve got project delivery and then operations and maintenance. What’s happening increasingly is that customers are turning to performance-based specification. They want one solution for the whole project and we can deliver that.”

Keeping his options open

Although Costain has been winning work along these lines already, it certainly wouldn’t hurt to beef up its consultancy business. In its results for 2010, released last week, Costain reported an essentially flat turnover at £1.02bn, but its profits increased by 54%, ending the year at £27.9m, compared with £18.1m in 2009. Analysts can see the rationale for a combination of the two businesses but have questioned why Costain didn’t go hostile and buy some Mouchel shares in the market.

Andy Brown, analyst at Panmure Gordon, says: “Mouchel may have got away from them now but they could have bought some shares on the open market, which would have strengthened their bargaining position. If they [Costain] are unsuccessful, they do have other options.”

This is a view shared by Cenkos analyst Kevin Cammack: “My guess is that if Mouchel slips away, Costain will not risk being the bridesmaid a second time and will seek an off-market deal for a professional practice of a much smaller scale.”
This might be the case but we won’t be getting an answer any time soon. Wyllie himself won’t comment on alternative potential targets, other than to say he still has a range of “options”.

Infrastructure push

The quest for growth is the latest step in a strategy that Wyllie has been masterminding since taking the helm in 2005. He particularly wants to see Costain delivering core infrastructure projects in the UK over the next 20 years.

Wyllie’s opinion is that the UK has no option but to invest in its infrastructure. Whether it’s nuclear power stations, waste processing facilities or new rail networks, he’s interested in helping deliver it. But despite this desire to work in three core sectors - environment, infrastructure and energy and process - he is a realist when it comes down to who will pay for it. “We are in a period of economic uncertainty and we believe that the money that is available is going to be prioritised,” he says. “The private sector has a huge part to play, both physically and financially. There are some big national needs that have to be addressed, irrespective of the economic conditions.

“If we are going to achieve the economic growth that we all desire, we will have to have a transport infrastructure to ensure reliable journey times so goods and services can get moved around the country as efficiently as possible. So there is going to be a need for investment in priority schemes that address that requirement.”

From a business perspective, infrastructure is also attractive because of the sheer scale of the programmes on offer from individual clients. Wyllie says: “Over the last four or five years, we have been implementing a very clear strategy. And that is to focus the entirety of the efforts of the business on the big spending customers in the sector. In round terms, 20% of the organisations spend around 80% of the money.

“The trend that we see in the market place is that those big spending customers, irrespective of whether they are privately owned, publically owned, regulated or whatever, are looking to work with fewer tier one contractors or ’service providers’.”

Targeting these clients is core to Wyllie’s strategy and one of the reasons he will never turn off his Blackberry. “As a chief executive of a company like Costain, I have to be available 24/7 and I wouldn’t have it any other way.”

The future

With such massive investment needed in the UK’s infrastructure, all that is needed is the funds and determination to make it happen. And happen it will; the only question is “when?”. While there may be a delay in addressing the UK’s infrastructure needs, given the dire state of the nation’s finances and the impact of spending cuts, when the button is pressed, Costain will have positioned itself to secure a big slice of the action - especially if it defies the odds and bags Mouchel.

Even if it fails, the mood is likely to remain upbeat: “Organisations with the scale, the resources, the financial clout and the ability to facilitate funding are going to be essential players in that market,” says Wyllie. “And that is exactly where we are setting out our stall.”