Early contracts delivered through Midlands manufacturing plant hit by cost inflation and delays

Laing O'Rourke

Laing O’Rourke’s European divison slumped to a £58m pre-tax loss in full-year results to March 2015, the contracting giant has said.

The contractor described the European result as “disappointing”, attributing the loss in part to cost inflation and delays hitting three of the first contracts to be delivered through its cutting-edge off-site manufacturing facility in Nottinghamshire.

In the notes to the results Laing O’Rourke said losses on the three factory-built projects amounted to £61.2m, which it classed as exceptional costs.

Laing O’Rourke said it had learned “significant lessons” from the first-generation of contracts delivered through its manufacturing plant - which it calls Design for Manufacture and Assembly (DFMA) - and the firm had committed to expanding its manufacturing facilities in the Midlands.

The firm added: “These three projects were substantially redesigned in order to demonstrate the benefits of DFMA, the impact of which become apparent during the year.”

Laing O’Rourke’s Europe hub comprises the UK business, and operations in the Middle East and Canada.

The pre-tax European loss compared to a £42m pre-tax profit the previous year. European revenue fell to £1.7bn, down from £2bn.

The firm made a profit overall thanks to “strong” performance in Australia. Pre-tax profit for the overall gloabl business fell 76% to £12.4m, down from £51.9m. Revenue dropped to £3.1bn, down from £3.6bn.

The firm said profit as measured as earnings before interest and tax - before exceptional costs were factored in - actually grew to £73.2m, up from £60.1m.

The firm said there was “good underlying growth” in its Infrastructure, Expanded, Crown House Technologies and Select Plant division, helping to offset some of the reduction in the UK Construction business.

Anna Stewart (pictured), group chief executive, 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.”

“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.”

Ray O’Rourke, group executive chairman, 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.

“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 (FID) 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.”