The value of the building company John Laing halved yesterday after it announced a deeply discounted rights issue, the sale of its construction business for a nominal £1 and the departure of its long-serving executive chairman Sir Martin Laing.
Shares in the group tumbled from 233.5p to 116.5p – wiping almost £115m from its stock market value – as investors reacted to the shocking news and worse-than-expected first-half losses.
The decision to sell the construction division, which accumulated losses of £82m in the six months to the end of June, marks the end of Laing's 150-year involvement in contracting.
Mr Laing's decision to step down as executive chairman next January means that, for the first time since the company was founded in Cumbria in 1849, it will not be run by a member of the Laing family. Sir Martin is, however, staying on as a non-executive director.
Under the terms of the rights issue, Laing is raising £73m through an offer of nine shares for every 13 held at a price of 100p – a 57 per cent discount to yesterday's opening share price. ING Barings is underwriting the issue.
The cash will be used to provide working capital to enable Laing to develop its two remaining core businesses of housebuilding and PFI infrastructure projects.
The buyer of the construction business is rival Irish contractor, O'Rourke. Laing will suffer a £30m loss on the sale of the business and has also been forced to take a £64.7m provision to cover liabilities relating to 13 construction projects. The sale will also result in a net cash outflow of about £104m.
The construction division has lost £180m in the past three-and-a-half years. The company said the final straw was the Millennium Stadium contract in Cardiff on which Laing lost £34m. It also ran up heavy losses on the National Physical Laboratory in Teddington, Middlesex, although none of the liabilities relating to this contract are being kept by Laing.
The company said that the potential returns from the construction business could no longer justify the risks of continued involvement in the industry. "The margins are wafer thin and you have to have huge volumes of work just to grind out modest profits," said one Laing source. "In construction you are always looking ahead to where the next order is coming from and looking over your shoulder at the same time because of the liabilities that remain from completed jobs."
In the first-half of the year, Laing's construction losses reached £81.9m – exceeding the total losses made by the division in the whole of the previous year. The division employs just more than 5,000 staff and operatives.
The group's interim pre-tax loss was £37.8m compared with a profit of £28.9m for the same period last year although continuing businesses recorded an operating profit of £44.3m.
Sir Martin, who is a fifth-generation member of the family, said that with the disposal of the construction business, the company was entering a new era. Headhunters have been appointed to find a replacement for him, probably from outside the group.Reuse content