Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to the newest version of your browser.

Your browser appears to have cookies disabled. For the best experience of Construction News, please enable cookies in your browser.

Welcome to the Construction News site. As we have relaunched, you will have to sign in once now and agree for us to use cookies, so you won't need to log in each time you visit our site.
Learn more

Laing O'Rourke records shock £245.6m loss, targets £4bn revenue by 2020 and return to profit in 2017

An ill-fated Canadian hospital PFI has forced Laing O’Rourke into a shock £245m loss, the group’s first loss in 15 years of trading.

The Centre Hospitalier de l’Université de Montréal PFI contract is believed to be the principal contributor to the losses in the year to 31 March 2016, which Laing O’Rourke announced today.

In a trading statement (see below), Mr O’Rourke cited problems contributing to a headwind at the contractor dating back to austerity measures introduced by the then government in 2010, which slashed £2.7bn from its order book.

The decision by the government to axe programmes such as Building Schools for the Future came at the same time the firm pressed ahead with its advanced manufacturing facility at Steetley in Nottinghamshire. 

Mr O’Rourke said that despite the losses the company was drawing a line under its difficulties, would return to profit in its full-year results to 31 March 2017 and was adequately financed.

He said: “We all know that when recession starts, our industry in particular enters a race to the bottom – regrettably Laing O’Rourke joined in.

“I can reconcile the losses to a number of projects that are now complete and handed over and a particularly difficult large project in Canada, on which I am pleased to announce we are on track to deliver in accordance with the mutually agreed revised timetable.”

The $2.1bn Canadian hospital PFI scheme (£1.27bn in today’s prices) was won in 2011 by Laing O’Rourke in joint venture with equity partners Innisfree, the UK infrastructure investor, OHL of Spain and France’s Dalkia.

”We all know that when recession starts, our industry in particular enters a race to the bottom – regrettably Laing O’Rourke joined in”

Ray O’Rourke, Laing O’Rourke

It is understood the contractor’s losses on that scheme have now been capped, dependant on the contractor hitting delivery milestones, and that the UK problem contracts referred to in last year’s results have also now been completed and handed over.

In his letter, Mr O’Rourke said the group had a £45bn pipeline of work, of which almost a quarter was secured or had the contractor as preferred bidder.

The company has revenue projections of £3bn in the year to 31 March 2017, rising to £4bn by full-year 2020.

Mr O’Rourke said: “As a private company, the responsibility for its performance rests with me as founder.

“In making this announcement, I want to assure all our stakeholders that our company is adequately financed, has returned to profit in FY17 and is therefore well-positioned to move forward from these less-than-satisfactory results.”

Mr O’Rourke stepped back in as chief executive last year, after Anna Stewart was forced to stand down due to ill health.

He announced his new leadership team in May 2016.

He added: “I am delighted that having returned to profit at the half year, we are on track to report a profit for the full year [to 31 March 2017] in line with trading plans set at the start of 2016 and are in a position to grow profitability in the coming years.”

Laing O’Rourke announced in January that it would sell its Australian business, but has not found a suitable buyer and is now expected to retain it.

Mr O’Rourke said the Australian business has “continued to perform well over the past year, securing significant infrastructure projects mainly through collaborative contracts, in markets that also have record spends forecast up to 2020 and beyond”.

“I am delighted that having returned to profit at the half year, we are on track to report a profit for the full year”

Ray O’Rourke, Laing O’Rourke chairman and CEO

The company announced in April it has secured new medium-term banking facilities until 2018. It has said it will push for 5 per cent margins by 2018.

Since then, Laing O’Rourke has won work on major projects including HS2, Manchester Airport’s £1bn redevelopment and the £350m Manchester Metrolink extension.

Laing O’Rourke’s full results have not yet been released.

Ray O’Rourke statement

It is with humility that I have to report our first loss in 15 years of trading as Laing O’Rourke.

In the trading period to 31 March 2016 the group made a loss of £245.6m. The genesis of this deterioration in profitability is rooted in the fact that coming out of a recession that had a negative impact over some six years (2009-14), it would have been difficult to avoid the severe headwinds our industry has endured through this period, which drove margins down to painful levels, alongside revenue reductions.

In October 2010 the austerity measures announced by government in the UK had a big impact on our forward order book (£2.7bn was removed from our pipeline across Health (PFI/PP/ProCure21), Schools (BSF) and Military Accommodation (Metrix) against which we had made our Final Investment Decision (FID), to proceed with our major Manufacturing Facility at Steetley, Nottinghamshire.

We all know that when recession starts, our industry in particular enters a race to the bottom – regrettably Laing O’Rourke joined in.

I can reconcile the losses to a number of projects that are now complete and handed over and a particularly difficult large project in Canada, on which I am pleased to announce we are on track to deliver the project in accordance with the mutually agreed revised timetable.

Nevertheless, in the period 2010-16, we have continued to invest in our people, manufacturing, digital technology and engineering excellence, based on our firm belief that this is the future; I am pleased to say we continue to believe in this strategy as the market in the UK dramatically improves with the advent of the New Nuclear Programme, High Speed 2, Heathrow Runway and Terminals, Thames Tideway and the government’s drive for more living accommodation - 1 million more homes by 2020.

In addition to this, our Australian business has continued to perform well over the past year, securing significant infrastructure projects mainly through collaborative contracts, in markets that also have record spends forecast up to 2020 and beyond. These welcome developments are reflected in our record order book.

As a private company, the responsibility for its performance rests with me as founder. In making this announcement, I want to assure all our stakeholders that our company is adequately financed, has returned to profit in FY17 and is therefore well-positioned to move forward from these less than satisfactory results.

The following chronology is pertinent in order to provide clarity as to our future plans:

• In Summer 2015, we acknowledged a number of our major projects taken during recessionary years in the UK were loss-making. There were a number of contributing factors, including inadequate pricing, supply chain failures, coupled with difficult contract conditions, with a number of clients also facing the impact of austerity.

• The board, together with the Executive Leadership Team, resolved to ‘clear the decks’ and focus on a number of key areas, to return the Group to profitable trading in FY17 (31 March 2017).

• We resolved not to change strategy and to continue our pursuit of DfMA, Digital Engineering and Engineering Excellence, in order to drive improvements in productivity, quality and schedule.

Our order book success continues to demonstrate that the market is attracted to our delivery model.

The addressable pipeline of projects we have in the Group - Australia; Middle East; UK, exceeds £45bn, with a £10bn backlog of secured and preferred contracts.

Given we are in this unusual place, I feel committed to give our stakeholders guidance on our anticipated revenue flows for the coming years:

• FY17 (to 31 March) - £3bn

• FY18 - £3.4bn

• FY19 - £3.7bn

• FY20 - £4bn

I am delighted that having returned to profit at the half year, we are on track to report a profit for the full year in line with trading plans set at the start of 2016 and are in a position to grow profitability in the coming years.

I extend a particular thanks to all our people past and present, without whom none of this success would have been possible.

Through this announcement, I take the opportunity to thank all our stakeholders for the tremendous support they have given us as we navigated through these difficult trading conditions.

Ray O’Rourke

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Links may be included in your comments but HTML is not permitted.