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Wed July 17 2019

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Galliford Try’s construction losses widen

13 Feb Galliford Try has written off further exceptional costs of £26m for continuing delays on the Aberdeen Western Peripheral Route (AWPR).

Balmedie Junction on the Aberdeen Western Peripheral Route
Balmedie Junction on the Aberdeen Western Peripheral Route

In the six months to 31st December 2018 Galliford Try made a pre-tax profit of £53.8m, down 4% from the same period a year before. Revenue was down 5% to £1,418m.

Galliford Try’s Construction division, however, which accounts for roughly half the revenues, saw its first-half operating losses widen from £17.8m last time to £19.7m this time.

The £26m hit on the Aberdeen bypass project, which Galliford Try has been delivering in a two-way joint venture with Balfour Beatty since the demise of Carillion, follows an exceptional charge of £45m taken in its accounts for the year ending 30th June 2018. The contractors originally agreed a fixed price of £550m for the job.

The AWPR saga now appears to nearing completion. The new road was supposed to be fully open last summer but the final handover is now ‘in progress’. It is now down to the lawyers to sort it all out.

“Our provisioning for the loss on this project reflects our current estimate of the final costs, and is reduced by an estimate of our share of significant claims against the client and others, which are yet to be agreed and concluded,” the company said. “This inherent uncertainty will be resolved only when the project is complete and the claims finally settled.”

It also appears that Galliford Try Construction has at least one particularly tricky client. “In our infrastructure business, cash continues to be negatively impacted by work in progress in respect of three contracts for a single client, where costs have been significantly impacted by client driven scope changes,” the half-year report says. “The work in progress balance has increased to circa £38m, although our work on all three projects formally ceased in August 2018.  Based on two favourable adjudications, we remain confident of the recovery of our entitlement.”

Linden Homes generated £392.1m revenue, down 10% on last time, and contributed an operating profit of £76.8m, down 5%. The margin on house-building thus improved from 18.5% to 19.6%.

Partnerships & Regeneration's revenue during the six months to 31st December 2018 increased by 27% to £284.9m and operating profit was up by 34% to £5.1m.

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Construction delivered revenue of £718.4m and a pre-exceptional margin of 0.9% (H1 2018: £823.6m and 0.9% respectively).

The profit and loss account for the half-year also includes an exceptional charge of £4.4m in respect of pension costs.

Chief executive Peter Truscott said: "Galliford Try has delivered a strong financial and operational performance in the first half, with further progress against our 2021 strategy. The group is well capitalised and average net debt is below previous guidance, driven by focused working capital management over the period.

“We were delighted to achieve completion of the AWPR with final handover in progress, successfully delivering a vital and major piece of infrastructure to the local community. We continue constructive dialogue with our client regarding important and recognised claims.

“Linden Homes delivered a strong performance in the first half, despite the continuing political uncertainty and its impact on confidence. The business continues to pursue its successful strategy of product standardisation and improved process efficiency, resulting in continued margin growth.  We are seeing good demand, in particular for smaller and mid-range family houses, supported by Help-to-Buy and a strong mortgage market.  We have seen a positive start to the spring selling season, despite the headwinds to consumer confidence arising from political uncertainty, which is key to the strength of the market over the coming months.

“Partnerships & Regeneration is performing very strongly, both at revenue and margin levels. Opportunities for the business continue to grow, underpinned by our strong relationships with providers and funders, our growing geographical footprint and by cross-party political support for affordable housing. The business has been encouraged by the successes it has seen in the first half of the year, with new projects commenced across both contracting and mixed-tenure resulting in strong levels of sales reserved, contracted or completed as well as a solid contracting order book.”

“Construction's performance continues to be encouraging, particularly on newer contracts, reflecting the business's careful approach to project selection and risk management.  We continue to prioritise the quality of each opportunity over volume.  We are seeing projects deferred as a result of macro uncertainty, but with 96% of revenue secured for the current financial year and 66% secured for the following year the business has confidence in its prospects.”

He concluded: “The group enters the second half of the year with a solid foundation, underpinned by a strong balance sheet and our focus on high-quality earnings which will drive further margin improvements over time.  Our mix of residential development creates a robust proposition in more uncertain markets.  We remain cautious of the impact of the current political uncertainty on consumer and business confidence, and the medium-term outlook for the macro economy, but believe our focused strategic objectives, strong order book and disciplined approach will deliver a full year out-turn toward the upper end of the analysts' current range."

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