Galliford Try says that, while it has the resources to cover the Aberdeen cost over-run, it would leave its house-building and development divisions underfunded.
A prospectus containing full details of the rights issue is published today. The one-for-three issue of 27,741,204 new ordinary shares of 50 pence each will raise gross proceeds of £157.6m. The issue price of 568 pence per rights issue share represents a 32.8% discount to yesterday’s ordinary share closing price of 937.5 pence.
The rights issue is fully underwritten by HSBC, Barclays and Peel Hunt.
Back in May 2017, Galliford Try first revealed that its construction business was facing head winds, with an extra £98m needed to complete legacy contracts. Approximately 80% of that was for two large infrastructure joint ventures, with the vast majority attributable to the Aberdeen Western Peripheral Route (AWPR), a 58km road around Aberdeen being built in joint venture with Carillion and Balfour Beatty.
On 15th January 2018, Galliford Try announced that, as a result of the compulsory liquidation of Carillion, it expected to incur additional costs related to AWPR of between £30m and £40m, and in its half year results to 31st December 2017 announced a related £25m exceptional cost.
The over-run costs on AWPR, compounded by Carillion's compulsory liquidation, are expected to absorb more than £150m of the company’s cash (prior to any recoveries). However, the total exceptional costs and final cash impacts of the AWPR contract “cannot currently be predicted with certainty” Galliford Try says, because they “are ultimately dependent on completion of the project and agreement of any associated recoveries”.
It added: “The group currently has sufficient financial resources to meet its obligations, including the estimated impact of Carillion's liquidation. However, this would involve diverting capital away from the Linden Homes and Partnerships & Regeneration businesses, thereby reducing their ability to capitalise on the material growth opportunities these businesses are well positioned to deliver.”
Under the envisaged timetable, it is anticipated that trading in the new shares will begin on 16th April 2018.
Chief executive Peter Truscott said: "Following the group's strong financial and operational performance in the first half, with revenue growth across all three of our businesses and excellent progress against our 2021 strategy, we are pleased today to announce the terms of the group's fully underwritten rights issue.
“We see excellent opportunities and demand for both our private and affordable homes businesses and our Construction business continues to benefit from the current and planned investment in the nation's infrastructure.
“The rights issue proceeds will strengthen the group's balance sheet and ensure that the group's businesses are in a position, with the appropriate capital, to deliver on their respective growth opportunities in line with the group's stated 2021 strategy."