Laing O’Rourke’s European business suffers £58m pre-tax loss

Anna Stewart
Anna Stewart

Laing O’Rourke has announced a £58 million pre-tax loss for its European division following problems with off-site prefabrication on several UK contracts.

Unveiling its full-year results to March 2015 yesterday, the contractor attributed the loss in part to cost inflation and delays hitting three of the first contracts to be delivered through its cutting-edge off-site manufacturing facility in Staffordshire.

The impact on those unnamed jobs led to a write-off of £61.2m, which it classed as exceptional costs.

Anna Stewart, group chief executive, said the firm had learned “significant lessons” from the projects, all of which were secured during the recession, and committed to expanding its manufacturing facilities in the Midlands.

She said: “As I said last year, we expected a challenging two years as we worked through the portfolio of projects secured in recessionary times, which are being delivered in a period of acute skills shortage and resource cost inflation. Our financial results, although profitable, pay testimony to this and have also inevitably been impacted by our continuing programme of investments. Our private ownership is supportive of the long-term ambitions of the business and we are confident our strategy is both attractive and commercially prudent, through the cycles.

“Our profit after tax, at £20.1m on reduced managed revenue of £3.85bn, is however disappointing, albeit parts of the Group, such as the Australia Hub, have enjoyed a record year. Cash generation and management continues to be strong, with net cash of £370m, while at the same time we are recognised as one of the industry’s fairest employers and best payers.

“We expect the 2015/16 period to be equally challenging with margin improvements yielding enhanced financial performance in the 2016/17 year. Unfortunately, we are a three-year cycle business so will emerge from recession later than most other sectors.

“However, it is difficult not to be excited by the increasingly attractive market opportunities, as our economies recover from the financial crisis. Although uncertainty remains, particularly within Europe, and the UK’s relationship with Europe, the Election outcomes in most of our geographies would seem to create the environment for medium to long-term stability.”

Stewart McIntyre, group finance director, said: “Laing O’Rourke continues to focus on its established objective to deepen its capability as an enduring engineering enterprise. Our focused investment in innovation through our excellence in engineering capabilities, digital engineering, design for manufacture and assembly (DfMA) approach and our specialist direct delivery businesses is having a significantly positive impact on the way we generate value and benefit to our clients.”

Ray O’Rourke, group executive chairman, added: “Laing O’Rourke will be highly selective in pursuing opportunities that align with our value proposition. We will focus on our engineering and manufacturing capabilities. We will create certainty for our customers from the earliest engagement.

“Our investment programme supports the development of construction techniques to deliver quality, certainty and value for our customers. In May 2015, the Board ratified the Final Investment Decision (FID) to build and operate a new Advanced Manufacturing Facility (AMF) alongside our existing factory at Explore Industrial Park in the East Midlands. The new facility will use intelligent design, precision engineering and fully automated processes to deliver modular solutions that will revolutionise house-building in the UK.”

The company’s Australia business, however, had a record year last year, posting profit after tax of £76.5m, up £43.5m on the previous year, on revenues of £1.5 billion.

Across the group, revenue decreased 13 per cent to £3.85bn (2013/14: £4.41bn), reflecting selective bidding and adverse foreign exchange movements, directors said. Profit after tax overall was £20.1m (2013/14: £41.9m).

Group order book was £9.2bn by the end of March 2015, up from £7.4bn a year previously.

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