defining value - laing o'rourke/media/lor/files/annual-review-2015/... · our product and...

LAING O’ROURKE’S STRATEGY IS A CONCISE ARTICULATION OF OUR CLIENT FOCUS, CORE SERVICE OFFERING, AND THE BENEFITS WE PROMISE TO DELIVER TO OUR CUSTOMERS TO SATISFY THEIR PARTICULAR NEEDS. IT DESCRIBES OUR AIM TO BECOME AN ENDURING ENGINEERING ENTERPRISE – A TRUSTED PARTNER FOR CLIENTS THROUGH THE OUTSTANDING PERFORMANCE OF OUR OPERATIONAL ASSETS, FINANCIAL RESOURCES AND HUMAN CAPITAL ON EXCITING PROJECTS IN ATTRACTIVE SECTORS, WHILE AT ALL TIMES MAINTAINING A RESOLUTE COMMITMENT TO THE HIGHEST STANDARDS OF SAFETY AND SUSTAINABILITY.

CLIENTS, MARKETS AND SECTORSWe expect our hubs and business units to create leading market positions in targeted sectors that play to our engineering and construction strengths. This ensures we have strong competitive positions which create earnings diversity and resilience. We engage and work with customers who prefer to build long-term, value-based partnerships, rather than one-off, transactional relationships. We listen to our customers, and focus on delivering the solution that is right for them. We are collaborative and responsive, and ensure our objectives are aligned with our customers.

VALUE PROPOSITION We integrate our leading technical expertise in engineering and construction, combining our capabilities in a unique approach that guarantees greater certainty for clients than they would be able to get elsewhere in the marketplace. As a learning organisation, we continually push the boundaries with technology, drive process and product innovations, and employ the best talent to ensure our unique approach is achieving the levels of efficiency and value our clients require.

ENABLING THE ORGANISATIONWe operate a lean and agile business model that does not tolerate waste and duplication, reducing the cost of delivering our services. We allocate our resources where they will achieve the best returns for our key stakeholder groups – customers, through the certainty of the value we create; employees, through safe, rewarding careers and continual professional development we provide; and shareholders, through the sustainable returns we generate.

The Group’s approach is underpinned by our unique character and is described in our value proposition – incorporating our vision and values, customer mission and service offering. Combined, they form a compelling guide to our stakeholder promises and how we will deliver them. They continue to unite us in pointing the way towards achieving future success that is in the common interest.

The Group Strategic Roadmap (GSR) creates the framework which defines the direction and shape we will pursue over the medium to long term to realise our vision. This provides a clear mechanism to enable the Board and Group Executive Committee to fully understand the operating environment and prevailing market forces, prioritise objectives and allocate the necessary financial and non-financial resources to achieve the required state.

CLIENTS, MARKETS AND SECTORS

ENABLING THE ORGANISATION

VALUE PROPOSITION

OUR STRATEGY

Laing O’Rourke | Annual Review 201512

DEFINING VALUE

OUR STRATEGY: CONTINUED

OUR GROUP STRATEGIC ROADMAP (GSR) DEFINES THE DIRECTION, SHAPE AND DELIVERY CULTURE OF THE GROUP OVER THE LONG TERM AS AN ENDURING ENGINEERING ENTERPRISE.

We operate in a complex and rapidly changing world – a world in which the cyclical structure of markets is creating significant new challenges and substantial new opportunities.

We refreshed our strategy during the year in review to ensure it maintains focus on specific high-value sectors, markets and client opportunities. We employ our value proposition, including our direct delivery model, to create certainty for clients and procure competitively to connect and integrate the supply chain.

We combine a deep understanding of global building and infrastructure markets with a proven track record in engineering and constructing high-performing capital assets. We have the people and skills to capture value at any point in the client value chain – from project definition right through to asset management.

CLIENTS, MARKETS AND SECTORSANALYSE, TARGET AND SECUREWe focus exclusively on markets, sectors and client opportunities with good growth potential that meet our financial targets and align with our business ethics and delivery approach. To achieve this, we maintain engineering and commercial discipline in the application of our value proposition and its ability to produce greater certainty in an industry that is often characterised by time, cost and quality issues. Therefore we will only commit resources to opportunities where there is a high likelihood of long-term relationships based on mutual respect and value creation.

EARLY ENGAGEMENTActing as a long-term trusted partner we directly support our clients to invest, define and design their projects to validate their capital investment decisions from the very beginning. By ensuring the very earliest engagement, we have access to and influence over the architectural and design detailing stages of a project, allowing us to optimise the delivery approach and provide a world-class solution. By re-distributing time in the delivery schedule to the front-end in this way, greater levels of engineering and commercial insight ensure the design is fit for purpose and can be delivered using smart solutions that provide greater certainty against key client objectives.

DELIVERING VALUE

ANALYSE, TARGET AND SECURE

VALUE PROPOSITIONEXCELLENCE IN ENGINEERINGOur commitment to excellence in engineering is at the heart of our early engagement approach. Our Group-wide consultancy, the Engineering Excellence Group (EnEx.G) and our extensive project-focused engineering resources are responsible for creating smart client solutions. This generates greater certainty by influencing client-side partners to embrace standard design protocols, embedding more efficient and effective solutions into the final design, facilitated through our Design for Manufacture and Assembly (DfMA) methodology.

Our early engagement approach extends to close collaboration with architects, design and cost consultants and supply chain partners, improving predictability through the application of consistent standards and, where appropriate, a component-led solution, reducing the complexities and timescales associated with the traditional design process.

DIGITAL ENGINEERINGDigital engineering is a key enabler of this approach through the production of a detailed data-driven model. These models are allowing us to engineer and price projects to an unprecedented level of accuracy much earlier in the process, providing clients and investors with the cost predictability that justifies their investment decisions. Digital models are proving invaluable tools in de-risking the delivery stages of a project, by providing project teams with the ability to build and test virtually before commencing on site.

All projects share common elements, therefore major benefits come from using standardised components, without compromising the architectural intent of the agreed design. Our extensive product sets cover the full range of intelligent building and infrastructure components that can be technically configured to suit any project type. Driven by government and public-sector procurement requirements, a growing number of leading design consultants are adopting our approach as the industry’s default design process.

DESIGN FOR MANUFACTURE AND ASSEMBLY AND OFFSITE MANUFACTURINGOnce a design is completed, the specifications for the preassembled components are fed directly to our manufacturing facilities where both standardised structural and modular components are manufactured in a controlled factory environment. This assures much higher quality, greater design integrity and more reliable and resource-efficient delivery. Our significant investment in offsite manufacturing means that we have, in-house, some of the most advanced facilities in the world.

Our specialist delivery businesses manage the complex logistics involved in scheduling delivery, lifting and positioning, and installation of the offsite components. Intelligently engineered DfMA products are delivered to site ready to ‘plug and play’, allowing the testing and commissioning phases to commence at the point of manufacture. Thus, they are finalised much sooner, once again reducing build time, and handing control of the asset to the client much earlier than can be achieved via the traditional approach. This radically cuts waste, minimises offsite traffic and onsite labour, reduces programme duration, assures quality and delivers cost certainty.

DIRECT DELIVERYProject management provides the critical link between all activities on a project. Our project management professionals expertly integrate and oversee all the phases, from bidding and contract award negotiations to commissioning and maintenance, to ensure the project is delivered within budget, meets the schedule and achieves the required technical quality safely and sustainably.

Using a proprietary quality management system called The LOR Way, incorporating our proven Core and Enabling Processes, we resolve conflicts, establish priorities and verify readiness to proceed through key project gateways. Coupled with the know-how of our project managers, this process supports the identification and elimination of issues before they become problems.

Laing O’Rourke’s construction and infrastructure teams manage delivery of the project in parallel with the testing and commissioning phases with the client. With our directly employed workforce and substantial in-house resources, we can undertake the most complex engineering challenges with unmatched expertise. Our experience extends across international markets and regulatory environments. We have developed and embedded numerous innovative construction techniques into our approach over many years, and today we deploy one of the most technologically advanced safety and quality assurance processes in the world.

Our expertise in construction extends from the start to the finish of a project and covers supply chain management, procurement, materials consolidation for controlled site release, project controls and site administration to final commissioning and ongoing maintenance.

As a natural extension of our trusted relationship with clients, we provide integrated operational management, refurbishment and maintenance services. The extensive knowledge we acquire through designing and delivering buildings and infrastructure provides a unique insight into how capital assets can be more efficiently managed and maintained.

The multi-dimensional digital model transforms into the asset management system over the lifespan of the capital investment. This unique source of technical data creates smarter buildings and infrastructure by increasing the operating efficiency while reducing the running and maintenance costs for the client.

ENABLING THE ORGANISATIONHUMAN CAPITALOur people are at the heart of delivering our targets – and those of our clients and partners – and we will therefore continue to ensure all our people are enterprise-aligned, by focusing on future skills development in accordance with our value proposition. We aim to attract the very best in the industry who share our vision and values, to develop their careers, contribute to our success and, most importantly, share in it. We are pursuing a ‘grow our own’ human capital strategy through industry-leading reward and development programmes. This will ensure we build the next generation of talent, skilled in product innovation and process efficiency to help transform our industry.

PRODUCTIVITYOur relentless focus on productivity, through greater process efficiency enables us to reduce the cost of doing business and deliver improvements in cash generation and margin enhancement. It also allows us to prioritise investment in areas that will accelerate growth in our two operating hubs. We continuously review and update our product and project delivery processes to align with our enterprise thinking and value proposition. We constantly seek operational synergies to remove duplication and wasteful practices, allowing us to work smarter and do more with less. Our partners are integral to our success. We focus relentlessly on aligning them to our enterprise approach to assure the project delivery of highly engineered products that have quality and safety built in.

FINANCIAL PERFORMANCEWe drive our financial performance to make acceptable returns that allow us to reinvest in sustaining our own success. We focus on quality of earnings, cash generation and margin enhancement, and exercise strict discipline in selecting and pursuing project opportunities which meet or better these financial targets. Revenue growth is not a major driver of business development, shielding the business from pursuing potentially riskier opportunities which are predicated on lowest price procurement routes. Capital allocation is tightly controlled, and our investment appetite is driven by our excellence in engineering, human capital and manufacturing agendas.

Taken together, our business model and approach improve our competitiveness and are helping us achieve our goal of being the trusted partner for our customers as an enduring engineering enterprise.

VALUE CREATION

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See our KPIs from page


CLIENTS, MARKETS AND SECTORS

WE WILL BUILD CLOSER AND DEEPER RELATIONSHIPS WITH OUR CLIENTS IN KEY MARKETS TO BECOME THEIR TRUSTED PARTNER, CREATING MORE VALUE FOR THEM AND FOR US. OUR WAY OF WORKING WITH SUPPORTING PARTNERS, STAKEHOLDERS AND SUPPLIERS IS THE BASIS FOR SETTING HIGHER STANDARDS, GROWING OUR BUSINESS AND INCREASING QUALITY OF EARNINGS, AND ULTIMATELY REDEFINING OUR INDUSTRY.

KEY ELEMENTS CLIENTS MARKETS SECTORS

PRIORITIES We will be selective and discerning in assessing and accepting new business by balancing the need for portfolio diversity with the need for greater controls and finite capability.

We will enhance our customer interactions, moving from a transactional nature to one based on trusted relationships.

We will differentiate on the basis of technical capabilities in engineering and construction.

We will develop a ‘licence to operate’ in selective building and infrastructure sectors on a global basis and follow valued key clients to new markets on a project-by-project basis provided this is strategically aligned to our enterprise model.

We will leverage our talent, significant in-house resources and reputation for delivery. Our strategic focus is based on the pursuit of a varied building and infrastructure client portfolio spanning both public and private sectors that delivers acceptable margin returns and creates future market resilience.

We concentrate exclusively on regions and markets with good growth rates and socioeconomic environments that align with our value proposition.

This level of internationalisation will create a broader business base to shield us from economic fluctuations in, or an over-reliance on, any one market. We will extend our presence in infrastructure to create a more balanced earnings profile with growing markets.

We will increase our footprint in the UK and Australia, while seeking to strengthen our presence in Canada and the Middle East. We will only follow our clients into markets which are benefiting from the right combination of economic, social and environmental developments, and where we can be sure that the project will be profitable and successful in terms of deepening our relationship.

Dedicated sector leaders will focus exclusively on tracking preferred opportunities and nurturing key client relationships to build understanding externally of our capability and increase our strike rate. Over the next few years, we will build up our capacity to deliver projects in key markets and sectors through organic development and, potentially, in-fill acquisitions.

We will enhance how we win work with the use of our SCOPE customer relationship management model – sharing knowledge and influencing major projects early, and boosting our presence with more innovative and proactive marketing.

Our plan is to target high-margin, technically complex projects that utilise more of the engineering excellence inherent within our value proposition.

We will remain disciplined in targeting opportunities and will only commit resources to projects that meet our financial objectives or where we have the potential to build longer-term strategic relationships.

2014/15 ACHIEVEMENTS

- Secured repeat business with long-term customers who value earlier engagement and certainty of our unique approach.

- Secured high-quality new business with blue-chip customers in key sectors.

- Re-organised and strengthened hub senior management teams to achieve better market coverage and penetration.

- Expanded geographic footprint with new office openings in Australia and Canada to capture opportunities in sectors where we have established delivery credibility.

- Increased presence in sectors by recruiting and exporting project talent to focus on opportunities in high-assurance sectors like economic infrastructure and natural resources.

- Re-established our presence in the Australian urban infrastructure market.

- Formalised our CRM framework with dedicated executive-level client contacts and specialist sector leaders.

- Introduced a clear customer perception and satisfaction measurement process to track and continuously improve our service offering.

KEY PERFORMANCE INDICATORS

- Managed Revenue

- EBIT

- Order Book

- Repeat Business

- Customer Satisfaction

- Quality

- Accident Frequency Rate


VALUE PROPOSITION

LAING O’ROURKE IS AN ENGINEERING-LED ORGANISATION WITH GLOBAL EXPERTISE IN DELIVERING MAJOR PROJECTS. WE WILL CONSISTENTLY OFFER A TRUE END-TO-END SERVICE THAT DELIVERS HIGH-QUALITY COMPLEX BUILDINGS AND INFRASTRUCTURE TO BUDGET, ON TIME, SAFELY AND SUSTAINABLY, EXCEEDING CUSTOMERS’ EXPECTATIONS. ULTIMATELY WE WILL BE RECOGNISED FOR INTELLIGENT ENGINEERING, DELIVERED SMARTLY, TO CREATE A WORLD BUILT BETTER.

KEY ELEMENTS

EXCELLENCE IN ENGINEERING

DIGITAL ENGINEERING

DfMA AND OFFSITE MANUFACTURING

DIRECT DELIVERY

PRIORITIES Through our engineering and technical resources we will engage with clients on projects at the very outset, to exert significant influence in the design and delivery of projects which set new standards in achieving absolute certainty of outcomes.

The Engineering Excellence Group (EnEx.G) will drive our innovation agenda, creating competitive advantage through the development of superior engineering solutions.

Our technical functions will integrate seamlessly with like-minded clients and supply chain organisations, partners and project teams at the earliest stages, examining challenges from new angles and seeking out transferable solutions from other sectors.

We will actively engage with clients ‘off project’, building long-term relationships based on advocacy and continuous thought leadership.

We will proactively deploy new skills and technologies ensuring that complex projects are ‘built’ twice – once virtually in a digital-engineering-enabled environment and then at the point of delivery on site, ensuring greater predictability of the time, cost, quality, safety and sustainability outcomes for clients. To meet the demand for more intelligent assets, we will create smarter, engineering-led solutions, constructed with a focus on whole-life value and long-term controlled performance, where the digitally engineered model transforms into the asset management system.

We will work to better coordinate the virtual model environment to integrate the design stages and reduce the risk of discipline interfaces, creating more informed decision making, and providing digital work packs that drive improved productivity through accessible, accurate, real-time data at the workface.

Design for Manufacture and Assembly (DfMA) and offsite manufacturing are transforming the process of construction, making it faster, cleaner, and more reliable. By taking much of the construction activity off site and into a controlled factory environment we will achieve consistently higher standards than traditional contractors can offer.

Our highly automated approach enhances quality and efficiency at every stage – both in the products themselves, which will be repeatedly honed to support optimum performance, and in the production process. This continued optimisation will also improve the sustainability credentials of our products, including energy efficiency and maintenance.

Laing O’Rourke has a unique integrated delivery capability, bringing together the people, technologies and processes under one roof to enable a full-service approach. Owning our own supply chain and directly employing the necessary skills helps to reduce the risks normally associated with a traditional delivery approach.

Through the integration of our core competencies in project management and construction delivery, the specialist knowledge, shared values and level of control we maintain deliver the value inherent in our value proposition.

At the same time we respect the value of all resources and endeavour to deliver more with less by completing projects quicker and without need for reworking.

In parallel we will minimise the amount of energy and materials we consume, helping us to comply with sustainability best practice.


- Continued investment in recruiting and upskilling engineering talent, prioritising design management, to meet technical requirements of our early engagement approach.

- Accelerated digital engineering and DfMA deployment across both hubs through greater alignment of our core engineering, manufacturing and delivery businesses.

- Expanded building and MEP component sets to achieve defect-free quality, improving time and predictability of commissioning process.

- Strengthened capabilities in logistics management as utilisation levels of DfMA on projects increase.

- New Group-wide organisational structure rolled out, placing accountability for margin performance closer to project delivery.


- EBIT

- Order Book

- Repeat Business


- Quality


- Employee Engagement

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KEY ELEMENTS HUMAN CAPITAL PRODUCTIVITY FINANCIAL PERFORMANCE

PRIORITIES The long-term success of our industry depends on its ability to attract the very best talent. We will create an industry-leading, meritocratic culture based on the performance and development of our people.

We will prioritise investment in our human capital practices to sustain our position as a recognised employer of choice. We will continue to recruit young talent across all our development programmes, including graduates, scholars, cadets and apprentices, as part of the ‘grow our own’ human capital strategy.

We will derive additional value from our network of alliances with prestigious universities.

We believe that a strong leadership capability is vital to any organisation, and will work to build the skills of our senior executives, functional leaders and key project delivery teams. Our ‘Guns’ and ‘Young Guns’ programmes are designed to fast-track high-potential employees into leadership roles.

We will ensure integrity, honesty, respect and expertise in all our interactions to build and sustain our reputation as a trusted partner.

Protecting the health and safety of everyone involved in or affected by our operations is, and will remain, a core business value. We will continue to lead the industry by investing to further develop and embed our behaviour-based safety culture to eliminate all harm from our operations.

Our projects, business units and supporting functions will reduce operating costs by removing duplication and activities that do not add value – to achieve zero or negative overhead growth. This will ensure we are continually challenging ourselves to deliver superior levels of performance at an acceptable cost. We will have balanced team structures that are resourced to be efficient, effective and in control.

In parallel we will invest in state-of-the-art plant, equipment, services and technologies that enhance our value proposition, allowing us to deliver more with less.

We will share this knowledge and the associated processes, encouraging the supply chain to adopt and comply with Laing O’Rourke’s policies and best practices.

Our DfMA approach will drive up productivity levels, addressing the skills gap in our industry by creating more sustainable careers. It will ensure our people are trained in more future-proofed and exportable skill-sets, deployed in cleaner and safer working environments.

We will drive strong financial performance based on stretching but achievable monetary goals. This will deliver future investment flexibility for the organisation. We will strengthen our capital structure and will always consider more efficient options that are aligned to our operating model.

The Group will continue to focus on its core business, disposing of non-core assets, recycling PFI/PPP assets and building internal capability through our specialist businesses, while continuing to invest in our unique value proposition to clients. Our globally diversified revenue and profit sources will be well balanced and we will work to extend our sector diversification in both hubs with high-value long-term client relationships. Delivery of legacy contracts during 2016 will not be without challenges, however the European market will continue to improve during the year, and we expect the full benefits to be realised in 2017 and beyond. In Australia we anticipate further reduction of activity in natural resources and will therefore maintain investment in urban infrastructure and geographically into Victoria and South Australia which are already seeing success.

We will invest for the long term in areas that support our engineering enterprise model, including, but not restricted to, excellence in engineering, our human capital agenda and manufacturing capability.


- Increased productivity and reduced associated overheads through further efficiency gains following Group-wide organisational restructure and better integration of our delivery businesses.

- Increased investment in, and promotion of, our leading entry-level training programmes for apprentices, scholars, cadets and graduates to bridge growing skills gap.

- Further investment in manufacturing platform, and associated technology interfaces to support development of value proposition.

- World-class senior leadership team in place to drive next stage of strategy execution to 2020.

- Restructured balance sheet by reducing non-core assets and levels of indebtedness, creating a more stable net funds position and better investment capacity.


- Managed Revenue

- EBIT

- Net Funds


- Quality


- Employee Engagement



WE WILL FOCUS ON COST EFFICIENCY AND MARGIN ENHANCEMENT ACROSS ALL OUR BUSINESS ACTIVITIES TO IMPROVE THE PRODUCTIVITY OF THE GROUP AND ENHANCE OUR ABILITY TO INVEST IN AND DETERMINE OUR OWN FUTURE. TO ACHIEVE THIS WE WILL RECRUIT, RETAIN AND DEVELOP THE VERY BEST PEOPLE FOR THE JOB.


MEASURING OUR PERFORMANCE


THE BOARD AND GROUP EXECUTIVE COMMITTEE USE A BALANCED RANGE OF FINANCIAL AND OPERATIONAL INDICATORS ACROSS OUR BUSINESS UNITS TO MEASURE THE GROUP’S PERFORMANCE AGAINST KEY GROUP STRATEGIC ROADMAP (GSR) TARGETS, HELPING TO GUIDE OUR THINKING AND DECISION-MAKING AT EVERY STAGE OF DEVELOPMENT.

FINANCIAL PERFORMANCEThe Group sets stretching but achievable financial performance targets as part of its annual strategic planning process to improve performance from both a cost and sales perspective to drive appropriate financial returns, with complementary capital structures. These are derived from the Group’s consolidated financial statements.

MANAGED REVENUE

£3.85bn

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4.3

4.4

4.4

3.9

3.3

3.5

3.6

3.6 3.1

MANAGED REVENUETOTAL REVENUE

NET FUNDS

£370m

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321

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370

EARNINGS BEFORE INTEREST AND TAX(EBIT)

£73.2m

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51 54

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73

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58 53

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EBIT PRE-EXCEPTIONAL ITEMSEBIT POST-EXCEPTIONAL ITEMS

Definition: Managed revenue represents the amount of sales generated from the provision of engineering and construction-related services, including the Group’s share of joint ventures, associates and inter-segment sales.

Performance: Managed revenue decreased by 12.7 per cent to £3.85 billion (2014: £4.41 billion) during the year. This was a result of reduced revenue from natural resources projects in the Australia Hub, selective bidding during periods of intense market competition in the latter stages of the global recession, and adverse foreign exchange movements in the trading period. This also reflects an increased focus on quality of earnings over volume of sales across our work-winning activities globally.

Definition: Earnings before interest and tax (EBIT) is a measure of a company’s profit that includes all expenses except interest and income tax expenses. It is the difference between operating revenues and operating expenses, and is a key measure of the operating profitability of all revenue-generating business units.

Performance: Pre-exceptional earnings before interest and tax improved 21.8 per cent to £73.2 million (2014: £60.1 million) despite continuing market challenges facing our industry globally. The performance benefitted from our geographic diversity, with strong performances in Australia and Hong Kong. The improvement was also attributed to a reduction in overheads as we accelerated technical integration of our delivery businesses, and drove productivity improvements in parallel.

This helped to offset a disappointing performance in the UK construction business in the Europe Hub, where three exceptional loss-making projects created additional margin pressure.

Definition: Net funds position at the year-end is a key factor in evaluating the Group’s cash and liquidity position. The Group’s capacity to generate positive net cash balances is an important measure of its ability to invest in business growth and serves as a strong attractor to outside investment.

Performance: The Group ended the financial year with a strong net funds position of £370.4 million (2014: £409 million), despite the reduction in Group revenue and the weaker Australian dollar adversely impacting foreign exchange translations. This is a strong performance in the current market and indicates the underlying strength of the result and the resilience of our enterprise model.

The Group continued to hold significant cash balances compared to its tier-one competitor peer group, and this performance has been achieved in parallel with continued investment in core areas of the business, and the continuation of the Group’s debt reduction strategy over the course of the year. As a result, the Group’s concerted efforts to repay long-term funding and divest itself of leveraged non-core assets, resulted in debt reducing by £96.6 million during the year.

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KEY PERFORMANCE INDICATORS: CONTINUED

ORDER BOOK

£9.2bn(2014: £7.4bn)

REPEAT BUSINESS

67% (2014: 67%)68% – EUROPE HUB66% – AUSTRALIA HUB

CUSTOMER SATISFACTION

80%

OPERATIONAL PERFORMANCE

THE GROUP SETS AND TRACKS OPERATIONAL PERFORMANCE THROUGH ALIGNMENT TO THE GROUP STRATEGIC ROADMAP (GSR) AND OUR VISION TO TRANSFORM THE ORGANISATION INTO ONE RECOGNISED GLOBALLY AS AN ENDURING ENGINEERING ENTERPRISE OF CONSIDERABLE SCALE. THESE RESULTS FORM PART OF A CONTINUOUS MONITORING AND IMPROVEMENT CYCLE THAT HELPS GUIDE THE IMMEDIATE NEXT STEPS IN OUR STRATEGY REALISATION.

CLIENTS, MARKETS AND SECTORS VALUE PROPOSITION

To assess progress towards our aim of becoming an enduring engineering enterprise, we continuously track the marketing, adoption and application of the core elements of our value proposition across our targeted clients, sectors and markets. We also use qualitative client satisfaction survey results as key indicators of our engineering and delivery performance on projects.

The Group’s desire is to fully understand the needs of its clients and deliver on its promises throughout the life of the engineering and construction services provided. Engineering excellence is fundamental to our strategy – through

Definition: Order book represents the value of work outstanding on secured contracts. It is a key measure of our success in winning new work and also provides visibility of future earnings.

Performance: The Group order book increased to £9.2 billion (2014: £7.4 billion). The strong performance is directly attributable to the improving market conditions, particularly in the UK, and the Group’s selective focus on high-quality, profitable work rather than volume. This disciplined approach resulted in some major successes during the year, in targeted key sectors such as commercial building, power, water, rail, healthcare and accommodation.

We are rebuilding future workload beyond 2015 and, encouragingly, our medium-term pipeline of higher-certainty opportunities includes significant prospects in all our core markets. In addition, at year-end, we had a pipeline of ‘in-bid’ opportunities worth approximately £7.4 billion in the Europe Hub, with over AUD$30 billion (£16 billion) of upcoming opportunities being closely tracked in the Australia Hub. We will continue to take a cautious approach, maintaining selectivity to avoid bidding for lower-margin work at a time when price competition in the market remains intense.

Definition: All of our key clients and strategic partners have a dedicated executive-level relationship contact. Client satisfaction data is collected from key clients and strategic partners relating to their perception of the Group’s operational performance on their projects as part of the Quality Management System. In 2014/15 the Group undertook its first global client perception study and developed a new method of gathering and reporting client feedback at project level – a first in our industry. This provides clients with an opportunity to share their views on strengths and weaknesses of the Group’s value proposition and supports our continuous improvement process by allowing us to track and manage client engagement and drive further improvement across all aspects of our business.

Performance: The Group’s goal is a year-on-year improvement in client satisfaction on its major projects, with a targeted 20 per cent overall uplift by 2020 from the 2015 benchmark. As a result previous years’ data has not been included for comparison purposes due to its incompatibility with the new approach.

The newly published client perception feedback is derived from over 150 detailed interviews with 103 of our key clients and strategic partners, representing major existing and potential clients, plus consultants, partners and influencers. When asked to rate their experience of working with Laing O’Rourke, the average score was 8 out of 10 (or 80 per cent). When asked to rate the quality of Laing O’Rourke’s people, the average score was 4 out of 5 (or 80 per cent).

Definition: Repeat business* ratio is the value of external contracting turnover in the year generated from repeat clients as a proportion of total external contracting turnover in the year. It is a measure of the progress against our ‘trusted partner’ objective, client satisfaction levels and is a driver of revenue and earnings growth, as retention helps increase the lifetime value of a client, reduces marketing costs and provides key insights into client behaviour, which supports continuous improvements in our value proposition.

Performance: Repeat business was maintained at 67 per cent of our revenue (2014: 67 per cent). In both the European and Australian businesses we have seen a shift into new sectors with new clients, reflecting the Group’s strategy of focusing on higher-margin, complex engineering projects in core building and infrastructure sectors. We aim to achieve ‘trusted partner’ status with our key clients, through our unique value proposition and the quality of Laing O’Rourke’s delivery.

* Repeat business represents clients with whom we have a previous relationship, having delivered more than one project. All healthcare and education projects in the UK have been aggregated under National Health Service and Department for Education respectively.


ACCIDENT FREQUENCY RATE

0.12(2014: 0.13)

EMPLOYEE ENGAGEMENT

72% (2014: 64%)

QUALITY

98% (2014: 97%)RIGHT FIRST TIME ACROSS OUR GLOBAL MANUFACTURING FACILITIES


extensive deployment of our unique value proposition embracing excellence in engineering, digital engineering, Design for Manufacture and Assembly (DfMA), offsite manufacturing and integrated direct delivery, across all our key sectors and markets.

We are refining our business systems and processes to optimise our assets, capabilities and risk appetite. By working according to our governance framework and complying with the high standards set out in our Global Code of Conduct, the Group will sustain long-term business success.

Definition: ‘Right first time’ is a measure of output quality from our manufacturing facilities and is calculated as the number of products produced less those rejected for quality or non-conformance. It is a key measure of operational efficiency and effectiveness as the impact on projects of defective products – in terms of client satisfaction and the costs and delays of rectifications – can be substantial.

Performance: 98 per cent of product output from our UK and Australian manufacturing facilities was approved as ‘right first time’ quality standard (2014: 97 per cent). This figure is significantly in excess of what can be achieved using traditional in-situ construction and demonstrates the value of our Design for Manufacture and Assembly strategy. As our manufacturing output increases with the addition of advanced manufacturing capabilities, we will continue to work hard to maintain and improve on this ratio, but also to increase the proportion of our industry utilising manufactured components to continue to drive improvements in quality and efficiency.

Definition: The elimination of all accidents from our business is an objective of the highest strategic significance. Our health and safety performance determines our strength as a business. It is not an isolated measure but one that defines our success in all other areas of our operations. For this reason, it is central to business improvement – a precondition of our continued growth and licence to operate.

Accident Frequency Rate (AFR) is an industry-standard measurement equivalent to one reportable lost-time incident resulting in more than seven working days’ absence per 100,000 hours worked (see footnote on page 72).

The Group’s health and safety approach is aligned globally through our Mission Zero programme.

Performance: AFR reduced to 0.12 in the year (2014: 0.13). This reflects an industry-leading performance relative to our peers, validating the investment in leadership time and resources given to all aspects of safety management. Sadly, however, there were two fatalities in our UK operations during the year. In July, factory worker Richard Reddish died following an incident at Explore Industrial Park. Regrettably, this was followed in October by an incident at the Heathrow Terminal 2A Multi-Storey Car Park project, where construction worker Philip Griffiths also lost his life. The Laing O’Rourke leadership team – and colleagues everywhere – share a collective determination to learn the lessons and prevent anything like this from happening again.

Harm of any kind in our workplaces – especially the loss of life – is a matter for the deepest regret, shared by colleagues in every part of the business.

Definition: The Group’s pursuit of industry-leading financial and operational performance is dependent on the quality and commitment of its people. It is critical that the Group attracts, develops and retains the best talent to ensure project delivery within the tight tolerances of quality, time, cost, safety and sustainability required to provide certainty for our clients.

Employee engagement is an all-encompassing metric which determines the level of understanding and commitment of the Group’s employee base to our strategic goals, and hence provides a direct correlation to service levels, client satisfaction, business growth and financial performance.

We increasingly use our employee engagement survey – Shape – to assess individual motivation and organisational processes in this regard.

Performance: Employee engagement is measured every two years and in the recently completed 2015 survey the Group achieved an overall score of 72 per cent – the highest ever on a like-for-like basis, 18 per cent above the global norm for comparator large companies. This is a clear endorsement of our strategic direction and the executive team tasked with leading its implementation.

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