Lancsville overcomes big hits and well on track with cash

Lancsville has survived two big cash-calls that could have sunk a less robust group.

The first came last year when Mark Henry, managing director, called the Bank of Ireland to say he had bought £10m-worth of new plant as agreed, only to be told that the bank had (without any warning) pulled out of the asset finance market.

That left an immediate scramble for £10m of cash.

The second hit, this time also for around £10m, came a few months later when credit insurer Euler Hermes said Lancsville was overtrading and dropped the cover it had provided for subcontractors working for the group.

Without the safety of credit cover, Lancsville’s subcontractors wanted to be paid earlier.

Turnover had shot up from £9m in 2001, the year before Mark took over from his father William Henry, to £138m as a result of diversification and a rapid expansion policy.

The London-based group had moved beyond its core business of concrete frames and into main contracting.

After working with both Bowmer & Kirkland and also Amec Construction before taking over the reins at Lancsville, Mark Henry decided the group could do more than structural alterations and concrete frame projects, and made a push into D&B residential, commercial, healthcare and leisure, taking on contracts within the range £2m to £40m.

However, despite the turnover rocketing and the surge to 600 direct employees as well as another 200 subcontractors, Lancsville had no finance director.

“Declan Sherry came in with me and we both drove the expansion hard,” said Henry. “He had been at O’Rourke Civil Engineering for 12 years and joined as construction director.

“I’d interviewed 27 people for finance director but none had what I was looking for. I knew it was needed, that we were hugely lacking financial management.

“But then 12 months ago we appointed Gordon Wright who had previously been finance director at Bison, the precast concrete manufacturer and before that Fairbriar, the residential developer.”

Wright has made a big difference. “I found the information was already there in the organisation but it needed organising,” he said. “The financial software needed enhancing a little though the basics were good. My changes gave more clarification.”

Wright has overseen a step away from riskier projects.

Lancsville had previously been drawn close to the flame by some private residential developers who offered a share of the action in return for a bid at slightly less than open market value.

“Some turned out to be a raging success where we make a fortune – this was a year or two ago, mind – and others were not so good,” said Henry. “We ended up getting ourselves heavily exposed. We’ve got out of all that.”

Wright’s input into Lancsville’s current three-year business plan has put the accent firmly on consolidation.

Turnover of £138m in 2008 should be followed by figures of £130m in 2009 and then £100m in 2010.

“The big change will be the cut-back in live projects,” he says. “We’ve been running at 40-50 but we’re switching to larger projects but fewer of them – just 20.” 

Lancsville will stay in main contracting, including residential and work for developers and commercial clients, but concrete specialist work will rise to 50% of total group turnover.

It was to build a firmer presence in this sector that Henry decided to spend heavily on plant last year, lifting the value of the equipment to a tally of £22m.

“It was the right decision to switch to owning rather than hiring,” said Henry. “When the Bank of Ireland pulled out we had to pay in cash. I found some. And yes, the cash-flow was tight for a while as we were pinching our subcontractors rather hard.

“But we now have an advantage over many of our competitors who are highly-geared.”

The second hit for another £9m-£10m when Euler Hermes said Lancsville was over-trading posed a further difficulty.

This was why Agilo came into the picture with an £11m loan. Agilo’s website might say that it invests in distressed companies and special situation, but Henry says Lancsville doesn’t fall into that category.

“Of the initial £11m, we’ve already paid £2m down. In fact we paid early,” says Henry. “It is a term loan through to 1 June and we’re on track to pay the other £9m before that date.”

When Henry put out the call he got five offers in all - four of them wanted an equity stake. “Agilo was the only one that didn’t,” he reports.

The London market is getting more competitive, especially in concrete subcontracting and less so in main contracting, said Henry.

“In these conditions, having our own plant is a great strategic advantage because our competitors are still hiring. That’s what kills the potential for a profit. Around 12% of the contract value goes in hire. So if you buy £10m-worth and your next bid includes £1m-worth of that, then every time you use the same kit beyond that then it’s effectively free.”

While owning plant has boosted cash-flow, things haven’t been helped by three clients going down leaving Lancsville with a £3m hit on its profit and loss account.