Laing O’Rourke suffered a £66.9m pre-tax loss in its 2017 financial year but underlying profit and cashflow were both positive as its turnaround strategy continues.
The company released its long-overdue results for the year to 31 March 2017 this morning, revealing a pre-tax loss that was 72 per cent lower than the £245.6m loss reported in December 2016 for its previous financial year.
Revenue for the year to March 2017 was up 26 per cent to £3.17bn while underlying operating profit – which excludes the results of its JVs and exceptional items – stood at £35m. This compared with an underlying loss of £82m in the previous 12 months.
Chief executive Ray O’Rourke said: “The group has responded strongly to recent challenges, not only by restructuring the UK business, but also through new processes and controls on project selection, operational delivery, digital data and risk and assurance.”
He added: “We will continue to build on this momentum, backed by recent high-profile project wins.”
The biggest contributor to the FY 2017 losses was its Canadian hospital JV, which caused the company to delay publishing its results.
The JV, which is delivering the Centre Hospitalier de l’Université de Montréal, has faced serious losses after missing completion deadlines.
Laing O’Rourke is now working to reduce its exposure on the job. Following its delivery of the project’s first phase, the firm struck a deal in October last year for another contractor to carry out phase two.
O’Rourke also highlighted AUS$70m (£39.4m) of losses incurred by its Australian business on a contract to deliver cryogenic tanks for Kawasaki Heavy Industries.
The company has since exited the contract, which it signed up to in 2012, and now plans to make claims worth as much as AUS$185m (£104m) on the project related to “delays and other matters”.
Overall the group’s Australian operations generated a pre-tax profit of £20.2m on revenue of £922m.
In contrast, its European business, which includes Canada and the UAE, suffered a £68.4m pre-tax loss on revenue of £2.25bn.
Laing O’Rourke balance sheet
Laing O’Rourke has carried out a restructuring of the business since 2016, and stated in today’s results that it was seeing “improved results arising from the actions and discipline introduced during the year”.
This helped operating cashflow jump to £115.8m in FY 2017, compared with a cash outflow of £317m in its previous year.
But borrowings also increased by 18 per cent to £266.7m, leaving the company with net funds of £65.5m – up 44 per cent on 2016.
Poor performance over the last couple of years has dented the balance sheet, however, and Laing O’Rourke’s net assets are now down to £313m – 49 per cent lower than where they stood five years ago.
This brought its retained earnings down to £9m from an average of £230m over the previous four years, reducing its headroom for investment and paying down debt.
The board claimed that changes enacted since 2016, which include adopting a more selective approach to projects and delivery, will continue to improve profitability and cashflow, helping to rebuild the balance sheet.
It had been claimed that the firm risked breaching financial covenants relating to liquidity, net worth and estimated final losses on the Canada hospital JV not topping a certain amount, which were agreed in April 2016.
Laing O’Rourke said that, since agreeing to revise the final loss target on the Canada job with its lenders, it had managed to pass the covenant tests last month and has now agreed an extension of its refinancing to April 2019.
Looking ahead, the company highlighted major contract wins in the UAE, where it said its businesses had “performed acceptably in difficult market conditions”, as well as contracts on Hinkley Pont C and HS2.
Last month Construction News revealed the firm was pulling out of the race for the £1.65bn redevelopment of London Euston station for HS2.
It withdrew its turnkey bid after JV partners Canary Wharf Group and MTR failed in a bid to become master developer for the £4bn Euston revamp, a role that went to Lendlease.
Laing O’Rourke’s order book shrank during the year to 31 March 2017 from £9.7bn to £8.9bn, though the company said the quality of future work had improved and offered better margins.
The group also reported improved performance for its design for manufacturing and assembly (DfMA) offsite operations with no repeat of the previous year’s £43.3m exceptional cost.
It said problems with the first generation of DfMA, which is central to the firm’s plans to boost its productivity, had been worked out and were not appearing on the new jobs.
Mr O’Rourke said: “We have set a new strategic mission and are absolutely aligned with the UK government’s industrial strategy, which calls for construction to demonstrate productivity in line with the aviation and automotive engineering sectors by 2025.
“Indeed, our aim is to outperform that timetable, with our ongoing investments in advanced manufacturing leading a step-change in safety, quality and efficiency.
“The market is already responding to our DfMA 70:60:30 offsite manufacturing capability in a remarkable way, and we have a series of negotiated projects now in our robust and growing global pipeline.”
Its offsite division received a major boost last month when it signed a partnership deal with Stanhope to use Laing O’Rourke’s manufacturing facilities on up to £2bn of housing schemes in London and South-east.
The board said it expected profitability and cash generation to improve in the current financial year to 30 April 2018.