Problem jobs in London and Australia behind record-breaking deficit
Problem jobs in the UK and the cost of a dispute in Australia helped send Laing O’Rourke crashing to its worst set of results since the business was formed in 2001.
The country’s biggest private contractor racked up an eye-watering pre-tax loss of £288m, eclipsing the £246m it lost seven years ago, on turnover up £500m to £3.6bn for the year to March 2023.
In anticipation of negative headlines, chief operating officer Cathal O’Rourke and group finance chief Rowan Baker have spent the past few weeks visiting key clients to warn them bad news was coming and to calm fears about the state of the business. “Clients have been very supportive and we’re delighted with the way it’s gone,” Baker added.
She said the firm was on course to make a pre-tax profit this year and had last month extended its credit facility to April 2026 with HSBC – before the accounts were signed off.
A note in the accounts about the business as a going concern added: “The directors also carefully considered the forecast period to be reviewed as part of the going concern assessment and, due to the lead time for securing new projects, the period of visibility on future cash flows and management’s usual forecast cycle, concluded that considering a 17-month period to March 2025 was appropriate.”
The firm’s Europe hub, which also includes work in Canada and the Middle East, sank to a pre-tax loss of £149m on revenue up 19% to £2.2bn.
O’Rourke said business in the UK had been hit by “continued inflationary pressures, challenging delivery on projects experiencing significant change and delays to capital investment in UK public sector work”.
It declined to name which jobs in the UK had caused it the most problems but it is understood the losses are to do with its scheme at Olympia and its work at the former Whiteleys shopping centre in Bayswater – with the bulk of these losses being blamed on the Olympia job.
Both were signed on fixed-price terms and Baker admitted: “We are reducing our exposure to fixed-price. There is a place for fixed-price where we completely understand the design and the costing of the job.”
The Olympia scheme, believed to be £600m, was signed with client Yoo Capital in May 2021 but a few months later dozens of design changes were submitted to the local council.
The scale of these is in dispute but in his chairman’s statement, Sir John Parker, referenced “factors impacting Laing O’Rourke’s UK profitability” as including “new clients, with high-value projects, requesting major design changes post-contract”.
Chief executive Ray O’Rourke used his statement in the accounts to admit the surge in construction costs had been unprecedented but added: “We have sought to collaborate with clients to manage the impacts of this and keep projects on track but our commitment to finding solutions in a difficult environment has not always been reciprocated. Inequitable risk-sharing adds to the ongoing turbulence across construction.”
But there was a crumb of comfort for the firm’s Europe business with the news that its scheme to build a PFI hospital in Canada – the job behind much of the £246m loss in 2016 – had not shipped any more money with cumulative losses on this job staying at just over £219m. “It doesn’t take up management time anymore,” Baker added.
How 2024 is shaping up
Laing O’Rourke’s finance chief has said the firm has drawn a line under 2023’s results, adding it is on track for a pre-tax profit for the year to March 2024.
The firm’s order book stands at £10.5bn with income in the six months to 30 September hitting £1.9bn, a rise of 22% on the same period last year, which Rowan Baker said gave an indication of the firm’s run-rate for full-year turnover which is expected to nudge the £4bn mark. Earnings in the first half were £31m, she said.
Baker added that new COO Cathal O’Rourke was looking to introduce changes made at its Australia division into its UK arm. The firm said the rise in underlying profit at Australia was in part “underpinned by its collaborative contracting model and a disciplined focus on priority sectors”.
“We will be profitable in 2024. 2023 has been challenging but we are feeling confident and things are resilient,” she said.
The firm recently signed on the dotted line for the first phase of a £700m tech and life sciences scheme in Oxford called Oxford North. The firm has been working on the job a while but formally inked the deal last week for a client team which includes Stanhope.
Although not named, a £144m provision in Australia is understood to relate to a pay dispute with its Japanese partner on a huge gas station job in northern Australia. Signed in 2010, it was building four cryogenic tanks at the LNG Tanks Project in Darwin for lead construction partner Kawasaki Heavy Industries before its contract was ended in 2017.
The firm also racked up a further £15.7m in legal costs on top of the £17m legal bill the dispute has cost it in the previous four years.
Baker said the bust-up was in arbitration with a formal outcome expected by the middle of 2025. “The £144m is a balanced view [of the cost],” she added.
The underlying performance of its Australia business improved, with pre-exceptional earnings jumping 27% to £91m.
Baker said the group business was concentrating on six sectors in the future – nuclear, defence, data centres, rail, healthcare and science and research. But she admitted the firm was now thinking twice about taking on mixed-use commercial schemes. “It’s about more collaborative contracting and mitigating risk,” she said.
The number of employees at the year-end was 10,603, a rise of 3% on last time.
Ups and downs: Laing O’Rourke in numbers since 2016
|Pre-tax profit (loss)
Laing O’Rourke’s financial year end is 31 March