It is interesting to see the tone used by Ray O’Rourke in his letter to customers today, announcing Laing O’Rourke’s loss of £245m.
This is not a statement honed by PR professionals. Using the word ‘humility’ to describe the circumstances in which he is writing shows that this either came from Mr O’Rourke’s pen, or he had a heavy hand in writing it.
Describing how Laing O’Rourke “regrettably” entered a race to the bottom with the rest of the industry when recession started was a frank admission.
Last year there were problems with DfMA jobs in the UK. This year, the full weight of a disastrous Canadian hospital PFI is the problem.
But the letter also points to the fact that the business has returned to profit in trading so far this year and that its legacy contracts in the UK are complete. It also suggests the sale of its Australian arm will no longer go ahead, indicating it’s not under severe pressure to generate extra cash.
It added medium-term financing in February and has continued to pick up wins with important clients in Manchester, for HS2 and elsewhere.
The contractor is sitting on a £10bn pipeline, either secured or at preferred bidder stage, and others are finally rowing in behind its preference for offsite manufacturing and engineering, which has seen Mr O’Rourke continue to invest in his people and vision in recent years despite the difficulties.
The question of whether it can achieve its 5 per cent margin target largely depends on the major infrastructure clients it will work for and whether Mr O’Rourke believes he has the right people around him.
On the latter question, the group’s restructure and naming of its key people suggested he has. Given the number of arrivals and departures in recent years, naming his top team suggested the chief executive feels he’s on the right track.
On the clients it works with, Laing O’Rourke needs a fundamental shift in mindset towards a manufacturing vision, based on the assumption that contractors are entitled to make proper margins, rather than the 1-2 per cent they make now.
It’s the big theme of 2017, following the Modernise or Die report, that the industry needs to embrace new ways of working and fast.
Of the big providers it works with – HS2, EDF at Hinkley Point, Heathrow – all will be under pressure to deliver best value and that inevitably leads to a race to the bottom that has contributed to Laing O’Rourke’s loss.
Which of these major clients will back Ray O’Rourke’s vision of the future? The answer will be the key to its future success.