Laing O'Rourke's European profit plummets

Laing O’Rourke’s profit across its European operations nearly halved last year to £36m after the firm wrote off £23m from the value of land and property assets across its operations.

However, the firm’s Australian business, which includes South-east Asia and New Zealand, bounced back into the black after two years of losses, reporting profit of £25m, helping the overall group to more than double pre-tax profit compared to last year.

In its results for the year to 31 March, published today (attached right), the UK’s largest private contractor reported total revenue, including share of joint ventures, of £1.95bn in its European hub, up 11% from £1.75bn the previous year.

But operating profit fell 46% to £36m (2012: £66.6m) in the European business, which includes the Middle East and Canada, after the deduction of £15.4m in exceptional items.

In the notes to the accounts the firm said the exceptional items across the group included a £23.3m write down on the value of its residential and mixed use development assets, following a review. The firm said the valuations of the assets had “incorporated forecast selling prices based on recent market conditions”.

The firm added: “In certain instances the directors assumed appropriate planning consents will be granted … As a result of the review, the Group recognised exceptional impairments of £23.3m.”

However, the firm’s Australian business bounced back from losses in 2011 and 2012, with an operating profit of £24.5m, up from a loss of £34.5m the previous year.

Total revenue in the Australian business was up 16% to £1.6bn (2012: £1.38bn).

The performance of the Australian business helped the group to more than double profit, with pre-tax profit of £57m up from £23.4m the previous year.

The group reported an operating profit of £59m, up from £9.4m in 2012.

Overall total group revenue edged up from £3.54bn last year to £3.57bn.

The number of staff across the group also rose over the period from 14,858 last year to 15,351.

However this is still a fall of 57% on the overall headcount of 35,753 in 2009.

The group’s order book remained flat at £8.2bn, of which £5.6bn is in the European business and £2.6bn is in the Australian business.

Writing the accounts, Laing O’Rourke chief executive Anna Stewart said the firm was “delighted” about the “recovery enjoyed by our Australian business this year”.

She said: “We expect Australia to be a rich market of opportunity for the Group over the next few years and believe that our offering, which reduces the need for onsite workers, could be particularly attractive for the remote, fly-in,fly-out locations where many of these projects are based.”

She added: “The construction sector in the UK continues to decline in terms of market volume and, although there has been a shift from building to infrastructure, spend overall is down.

“We do not expect this trend to change materially and foresee few signs of significant stimulus prior to the 2015 general election.

“We will continue to reinforce our prudent practices of recent years while focusing on offering innovative engineering solutions as the best opportunity for an acceptable return at an affordable sales price for our clients.”

“We are comfortable working in the Middle East at our current scale but will only grow volume if we see a relaxation in the contracting and payment practices in some of the more traditional territories. We can see the obvious demand from fixed-date event commitments, as well as the international supply chain capability which has swarmed into the region.

“We have been following a focused approach in Canada which generated early profitability for that business. We will selectively consider opportunities to work with existing customers in new territories, should the combination provide a sensible proposition with low barriers to entry.

“Additionally, we will exit businesses if the dynamics are such that we cannot operate them profitably. To this end, we disposed of our stone quarrying operations in Germany during the year.”