Laing O’Rourke edges back into black as new boss says margins have to improve

Laing O’Rourke edged back into the black last year with new chief executive Cathal O’Rourke pledging to get the company’s margins closer to 5% in the long run.

In the 12 months to March 2024, the country’s biggest private contractor posted a pre-tax profit of £18m on £4.3bn turnover, up 19% on last time, after racking up the biggest reverse in its history the year before with a £288m pre-tax loss.

O’Rourke, who succeeded his father Ray as chief executive at the beginning of July after returning from Australia last year as chief operating officer, said average industry margins of between 2.5% and 3% were “not sustainable” and added: “This acts as a significant handbrake on the sector’s ability to invest in the transformative technologies that will create step-change.

“The benefits of modern methods of construction can only be fully realised if we also have modern methods of procurement and contracting.”

He said that the firm’s business in Australia had managed to turn in margins of 4% and 5% during his time in charge and added that the 5% figure – often cited many times in the past by contractors – was not a pipedream.

“Finding a way to get a decent return means getting smarter,” he said. “We need to innovate and take costs out of projects.”

The firm has said it won’t bid single-stage, lump sum work and has increasingly moved into negotiated jobs such as frameworks and public sector deals.

But O’Rourke said it hadn’t turned its back on commercial schemes after running into problems on several high-profile jobs in the sector in the past few years. “It depends what the model is. If it sits within our model of direct delivery, we will look at it.”

One of those problem jobs, a £600m mixed-use scheme at Olympia is believed to have been resolved although O’Rourke declined to say whether it had reached an agreement with the client Yoo Capital on costs – but added that the pair were “completely aligned to the successful opening of a London icon”.

In the accounts, Laing O’Rourke said its “cash management in FY24 was impacted by significant under valuations and ongoing negotiations on one major contract, which have now been resolved” – believed to be a reference to the Olympia job.

Olympia is expected to be finished late next year while the firm has completed work on another London job believed to have been responsible for some of 2023’s losses, the mixed-use scheme at the former Whiteleys shopping centre in Bayswater.

The firm’s biggest business, its Europe hub, which also includes work in Canada and the Middle East, posted a pre-tax profit of £17m from a £168m loss last time on income up 14% to £2.5bn. The firm said that losses on a PFI hospital scheme in Canada, which has seen it ship £219m since 2016, remained unchanged for the second year in a row.

But the Europe arm was blighted by £26m of exceptional items including £5.2m of redundancy costs, which saw 200 jobs cut last year, and £19m in provisions to meet defects for fire safety work as required by new government legislation.

O’Rourke said the firm would consider whether to recoup some of that £19m from other firms. “If there are obligations due to us and those firms are still around, we will look at that.”

Revenue from the Australia hub was up a quarter to £1.5bn with the firm posting a pre-tax profit of £40m from a £102m loss last time.

Although not named, a pay dispute with its Japanese partner on a huge gas station job in northern Australia cost it a further £6.6m in legal costs taking the amount it has shelled out on lawyers’ bills over the bust-up to nearly £40m since the dispute began seven years ago.

Signed in 2010, the firm 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.

After its year-end, the firm made a “without admission” £36m payment to Kawasaki “in respect of the ongoing arbitration” with the dispute finally expected to be resolved in September next year. Another post balance sheet event was the sale of a joinery business in the Middle East for AED25m (£5m).

The firm is due to finish its job to rebuild Everton stadium later this year and O’Rourke said he hoped it would “change the narrative” around stadia jobs, which have long been associated with losing money.

Asked if the company would be prepared to look at any rebuild of Manchester United’s Old Trafford ground, O’Rourke, who added the firm had not been approached about potential work, said: “If they came in with the right terms, we could do it.” The club is expected to decide by the end of this year whether to press ahead with a rebuilding scheme or not.

Laing O’Rourke’s order book stood at £10.8bn, £800m more than 2023’s figure.

Meanwhile, group chief financial officer Rowan Baker will leave at the end of the month after four years at the business. She is being replaced by her deputy Paul Teasdale who joined O’Rourke in 2018 from Lendlease. Baker has joined FTSE 250 firm, components manufacturer Essentra.