Laing O’Rourke’s group finance director Stewart McIntyre has said the company’s next results will see a return to profit as losses on its Canadian hospital JV are reduced.
Mr McIntyre told Construction News: “We will have a pre-tax profit in FY 18 [the year to 31 March 2018].”
The finance chief was speaking to CN after the contractor posted a pre-tax loss of £67m in its accounts for the year to 31 March 2017 on Monday – its second successive annual loss.
Laing O’Rourke has not recorded a group pre-tax profit since FY 2015, with a PFI contract to deliver the Centre Hospitalier de l’Université de Montréal (CHUM) in Canada contributing heavily to its consecutive losses.
Mr McIntyre said the company had now booked all its expected losses on the Canada job in its FY 2017 results, and did not expect significant extra costs.
“All our losses for phase one and assignation of phase two up to February 2018 have been reflected in the March 2017 numbers,” he said, adding that “we do not kick losses down the line”.
Mr McIntyre said he expected any future costs incurred on the hospital after February 2018 to be in the range of a couple of million pounds, “if that”.
Looking back, Mr McIntyre said the CHUM scheme, which was signed in 2011, was a “pretty ambitious project to take on”.
He said: “We went into a project in Canada with a JV partner we hadn’t worked with before, with an architect we hadn’t worked with before, into French-speaking Quebec to build what is the second largest hospital in the world as a PFI contract.
“It had all sorts of delays: weather, supply chain issues, subcontractor delivery model.
“It was a combination of factors over a long number of years on a very, very complex project.”
Laing O’Rourke has been subject to significant claims from subcontractors on the job, which Mr McIntyre said were now progressing through “normal commercial processes” and would not have an impact on future profits.
“We’ve recognised what our expected outcome is in the numbers we’ve posted for FY 17,” he said.
With phase one completed in October 2017 and delivery of phase two handed over to a local Canadian contractor on 22 December, Laing O’Rourke has concluded its Canadian venture.
“We have no further work in Canada, we have no further operations in Canada, we have ceased all business operations in Canada,” Mr McIntyre said.
Its FY 2017 results showed a significant improvement in operational cashflow and underlying profit compared with FY 2016, but a decrease in net assets to £313m, which had stood at £615m back in 2013.
The main change in its balance sheet has been the depletion of cash and cash equivalents, which Mr McIntyre said was due to “covering losses on these projects as they unwind”.
He said he now expected this trend to reverse. “Total assets actually went up £120m from 2016 to 2017. That’s part of that cycle as we go through that turnaround.
“We have delivered the plans that we were expected to do and we’re going to see a turnaround in these assets as we go through the next stage and back into profitability.”
The finance boss said that, while the business wanted to boost profitability, it had no interest in major increases in turnover.
“We are not going to chase volume growth,” he said. “You’ll see going forward, on an annualised basis, we’ll have an increase in turnover of RPI, or thereabouts.”
The company has a margin target “north of 4 per cent” and expected its design for manufacturing and assembly (DfMA) process, in which it has invested heavily over recent years, to start making a significant contribution to cashflow and profitability from its 2018 results onwards.
Mr McIntyre said DfMA delivery had been a “key plank in securing the most recent project wins” and that a couple of projects in the past 12 months that used DfMA had seen higher margins than would have been achieved with traditional delivery methods.
The FD also predicted an industry-wide change in approach to pricing and risk following the collapse of Carillion.
“I am a passionate believer that from bad can come good,” he said.
“I think the opportunity to have more robust challenges around pricing and margins in this sector will be a good thing in the long run.”
Mr McIntyre said the importance of good relationships with the supply chain remained paramount.
Laing O’Rourke had 2,000 suppliers, he added, and 80 per cent of its inputs came from 20 per cent of those suppliers, many of whom the company had worked with for years.
He claimed Laing O’Rourke was one of the better payers in the industry, with an average term of around 50 days, which was something the company tracked on a regular basis using external monitors while measuring itself against other tier one contractors.
Mr McIntyre said: “We are in the upper-quarter performers when it comes to creditor payments days.”
He added: “The relationship both client side and [with] subcontractors is absolutely fundamental.
“And you have to work at that, you have to maintain that dialogue, keep them informed of what’s happening, let them know what’s happening in your pipeline.”