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Laing O’Rourke loses millions on offsite construction

4 Sep 15 Laing O’Rourke’s UK-based European division made a loss of £58m before tax in the year to 31st March 2015.

Ray O'Rourke
Ray O'Rourke

The loss was primarily attributed to start-up costs and early snags with the new offsite manufacturing initiative.

The current financial year is expected to be ‘equally challenging’, with no margin improvement kicking in until 2016/17.

The company’s Australia business, however, had a record year last year, posting profit after tax of £76.5m, up £43.5m on the previous year, on revenues of £1.5bn.

Across the group, revenue decreased 13% to £3.85bn (2013/14: £4.41bn), reflecting selective bidding and adverse foreign exchange movements, directors said. Profit after tax overall was £20.1m (2013/14: £41.9m).

In its annual report, Laing O’Rourke said that: “The Europe Hub results were particularly affected by three first-generation DfMA UK construction contracts, adversely impacted by input cost inflation and delays in delivery using new construction methods. Significant lessons have been learned from these projects, all of which were secured during the recession.

“There was good underlying growth in Infrastructure, Expanded, Crown House Technologies and Select Plant, helping to offset some of the reduction in the UK Construction business.”

However, the company remains totally committed to its DfMA (Design for Manufacture & Assembly) programme. Group executive chairman Ray O’Rourke said: “Laing O’Rourke will be highly selective in pursuing opportunities that align with our value proposition. We will focus on our engineering and manufacturing capabilities. We will create certainty for our customers from the earliest engagement.

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“Our investment programme supports the development of construction techniques to deliver quality, certainty and value for our customers. In May 2015, the board ratified the final investment decision to build and operate a new Advanced Manufacturing Facility (AMF) alongside our existing factory at Explore Industrial Park in the East Midlands. The new facility will use intelligent design, precision engineering and fully automated processes to deliver modular solutions that will revolutionise house-building in the UK.”

Group chief executive Anna Stewart said: “As I said last year, we expected a challenging two years as we worked through the portfolio of projects secured in recessionary times, which are being delivered in a period of acute skills shortage and resource cost inflation. Our financial results, although profitable, pay testimony to this and have also inevitably been impacted by our continuing programme of investments. Our private ownership is supportive of the long-term ambitions of the business and we are confident our strategy is both attractive and commercially prudent, through the cycles.

“Our profit after tax, at £20.1m on reduced managed revenue of £3.85bn, is however disappointing, albeit parts of the group, such as the Australia hub, have enjoyed a record year. Cash generation and management continues to be strong, with net cash of £370m, while at the same time we are recognised as one of the industry’s fairest employers and best payers.

“We expect the 2015/16 period to be equally challenging with margin improvements yielding enhanced financial performance in the 2016/17 year. Unfortunately, we are a three-year cycle business so will emerge from recession later than most other sectors.

“However, it is difficult not to be excited by the increasingly attractive market opportunities, as our economies recover from the financial crisis. Although uncertainty remains, particularly within Europe, and the UK’s relationship with Europe, the election outcomes in most of our geographies would seem to create the environment for medium to long-term stability.”

Group order book was £9.2bn by the end of March 2015, up from £7.4bn a year previously.

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