Galliford Try was a joint venture partner of Carillion on the loss-making Aberdeen Western Peripheral Route (AWPR) contract. It was a fixed price job. The contractors have to pay for any cost overruns and there have been a lot. Balfour Beatty is the third member of the Aberdeen Roads joint venture. With Carillion no longer alongside, Galliford Try and Balfour Beatty now have to shoulder a greater burden.
Galliford Try said that the over-run costs on AWPR, compounded by the compulsory liquidation of Carillion, have increased its total cash commitments on the project by more than £150m.
The board said that their finances were strong enough to cover this loss but it would mean diverting funds from its lucrative house-building and development activities “thereby reducing their ability to capitalise on the material growth opportunities these businesses would otherwise be well positioned to exploit”. In other words, the opportunity cost would be too great.
It continued: “Galliford Try therefore intends to raise £150m of new equity capital in the coming weeks to strengthen further the group's balance sheet and ensure that the group's businesses can continue to pursue their respective growth opportunities”.
Galliford Try said that it is making progress in resolving both AWPR, the construction of which is expected to complete during summer 2018, and other legacy contracts. It no longer undertakes fixed price, all risk major projects of this nature, and has improved its tendering and project selection processes, it said.
Galliford Try also announced its interim results today for the six months ended 31st December 2017, which showed an exceptional charge of £25m being taken in the Construction division arising from Carillion’s demise.
But thanks to the strength of its Linden Homes business, Galliford Try made £56.3m pre-tax profit in the first half on revenue of £1,495m.
Linden Homes made an operating profit of £80.9m in the period; Partnerships & Regeneration chipped in £10.8m; but Construction made an operating loss of £17.8m.
While the group pre-tax profit figure was down 11% on last year, net debt was also substantially reduced from £113.8m to £84.9m.
Chief executive Peter Truscott said: “We continue to maintain strict control over net debt, which is consequently better than our guided level. We enter the second half of the year with a solid foundation to build on and strong fundamentals for the housing market. While we remain cautious of the impact of the current political uncertainty and the medium-term outlook for the macro economy, we believe our focused strategy, strong order book and disciplined approach will deliver further growth and shareholder value."