Laing O’Rourke ‘not for sale’ despite £245m loss and is back to profit this year, vows construction giant
Construction giant Laing O’Rourke is not in any takeover talks, company insiders said after trade press reports of industry-wide rumours about an unspecified Chinese bid.
The latest reports follow the group’s posting of an historic £245m loss because of its involvement in a Private Finance Initiative hospital in Montreal, delays in the sales of its Australian subsidiary and comments that the company’s head, Ray O’Rourke, can only spend a limited number of days in the UK because he is non-resident for tax purposes. He lives in the Channel Islands.
A Laing O’Rourke spokesperson told the Irish World that the company would return to profit this year and that it is proud of the quality of its £10 billion order book:
‘As we stated in the Group’s recently released trading update, the Group returned to profit at the half year and is on track to report a profit for the full year in line with trading plans set at the start of 2016, as it completes legacy projects secured during the recession and commences delivery of its highest-ever quality £10bn order-book.
‘As a privately owned Group, we never comment on market speculation from analysts nor broader industry commentators. Similarly, we will not be commenting on the commercial performance of individual projects outside of our reporting requirements.
‘In his leadership role as executive Chairman and CEO, Ray O’Rourke travels extensively across all our international operations and is managing the business in a hands-on way, supported by an extremely capable senior leadership team. The Chair’s choice of residence is very much a private matter for him and his family, and therefore we will not be commenting further.
‘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. There is nothing further to report at this stage, as ever with such processes it’s essential that the time is taken to ensure the proper steps are taken by all parties involved. Further updates will be given when appropriate’
The shock £245 million loss was the infrastructure giant’s first in 15 years of trading which the company attributed to an ill-fated private finance initiative (PFI) contract at the Centre Hospitalier de l’Université de Montréal.
Founder and chairman Ray O’Rourke also pointed towards the fallout from austerity measures introduced in 2010, which slashed £2.7 billion from its order book. But despite this setback, Mr O’Rourke was confident that the company would be able to draw a line under its difficulties and return to profit when its full-year results to 31 March 2017 are announced.
“We all know that when recession starts, our industry in particular enters a race to the bottom – regrettably, Laing O’Rourke joined in,” he said. “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 $2.1 billion hospital PFI scheme was won in 2011 and it is understood that the contractor’s losses on that project have been capped, dependent on them hitting delivery milestones.
Mr O’Rourke emphasised that the company was adequately financed and announced that the group had a £45 billion pipeline of work. Revenue projections are at £3 billion in the year to 31 March 2017, rising to £4 billion by full year 2020.
“As a private company, the responsibility for its performance rests with me as founder.
“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 said. “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 profitably in the coming years.”
Ray O’Rourke sets out the background to this difficult trading period FY16 and provides clarity for the Group’s future plans.
Ray O’Rourke’s full statement is below:
“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 31st 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 6 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* – £3.0 bn
· FY18 – £3.4 bn
· FY19 – £3.7 bn
· FY20 – £4.0 bn
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.”