Costain to close final salary pension plan

The building firm Costain today announced plans to close its final salary pension scheme to existing members, blaming "increasingly disproportionate risks and costs".

The Maidenhead firm said the scheme's deficit rose from £39.6 million at the end of last year to stand at £75.7 million in June, reflecting changes in assumptions for inflation and lower bond yields.

Costain is in consultation with around 800 current members over its plans to end future accrual, having already closed the scheme to new members in 2005.

It said: "The proposal to close the scheme follows the increasingly disproportionate risks and costs arising from a combination of factors including rising life expectancy, interest rate volatility and lower investment returns."

Costain has agreed to up monthly payments in to the pension scheme by £400,000 to £900,000, in addition to its commitment to match dividend payments with an equivalent contribution to the pension fund.

The firm reported a 31% drop in pre-tax profits to £6.9 million in the six months to June 30, weighed down by low interest earnings on its cash reserves and increased charges on the pension scheme.

But profits from operations were up 11% to £8.3 million in the period as the firm continued to buck the recessionary trend.

Costain has been largely shielded from the collapse in the housebuilding industry and commercial property development because its strength lies in civil engineering. The firm said its order book grew 25% in the period to reach a record £2.5 billion as it expanded its activity in new areas including nuclear.

Key contracts included a joint venture deal as part of London's Crossrail scheme, which could be worth up to £250 million over four years.

It also won a £397 million contract for municipal waste treatment for Greater Manchester - the largest deal of its kind in Europe.

Another recent deal was an £297 million contract for engineering, procurement and construction of Sellafield's "Evaporator D project". The firm said this is one of the largest nuclear projects in the UK and will expand the site's ability to process nuclear waste material.

Group revenues, including share of associates and joint ventures, rose 9% in the first six months to £508.2 million.

Chairman David Allvey said the firm enjoyed a good start to the year.

"Through our ongoing focus on customers with long-term investment programmes we have secured a number of major new contract wins totalling over £1 billion.

"As well as in established sectors such as water and highways, our strategy is also providing significant opportunities in new business areas, such as nuclear and waste, where tendering activity is increasing."

Costain announced a 10% increase in the interim dividend payment to shareholders today.Shares fell almost 8%.

Andy Brown of Panmure Gordon said the results were in line with expectations.

"We recognise that Costain has good exposure to infrastructure markets but our concerns reflect uncertainty in the Spanish development market, UK building performance and other international legacy issues," he said.

"So, for now, we stay cautious."