An estimated £98 million (€116.29 million) in non-recurring costs is expected to hit UK contractor Galliford Try’s business, as a result of two major infrastructure joint-venture projects contracted in 2014 and earlier.
A reappraisal of costs to complete, and recoveries from, the two projects was said to have substantially increased the expected liability to conclude the legacy contracts in the group’s construction business since Galliford Try reported its half year results on 21 February, 2017.
The company said that apart from this, it saw a strong trading performance in the period from 1 January to 2 May this year.
It said that underlying business in construction was performing well, while Linden Homes and Galliford Try Partnerships & Regeneration continued to make strong progress.
Some 80% of the estimated non-recurring costs were said to relate to the company’s share of the two joint-venture projects. It said a thorough review process had been performed to determine the liability. One of these projects is expected to finish on site in the summer of 2017, while the other, which represents the larger proportion of the estimated non-recurring costs, is scheduled to complete in mid-2018.
Galliford Try said that as set out in its recent strategy presentation, the business was focused on improving operating performance and risk management processes to support margin improvement.
It said significant progress had been made through a strong focus on selective bidding and ensuring that new work contained sufficient allowances for risk, margin and inflation.
It added that 85% of workload was now within frameworks, lower risk public and regulated sector, and two-stage negotiated work. This focus was expected to deliver turnover growth by 2021 to £1.8 billion (€2.14 billion), with an improvement in the operating margin to over 2.0%.
Construction’s order book is £3.5 billion (€4.15 billion), up slightly from £3.4 billion (€4.03 billion), at 31 December, 2016. The company said that 73% of next year’s revenue had been secured, compared to 76% in the previous period.
Galliford Try said its Linden Homes division was enjoying good trading conditions and continued to perform well, building on a strong first half performance. It said the business was making good progress towards its strategic priorities, driving volume growth and margin improvement, helped by increased product standardisation and operational efficiencies.
Performance in the Partnerships & Regeneration division was said to have strengthened in the period. The order book increased by 6% to £980 million (€1.16 billion) compared to £925 million (€1.10 billion) at 31 December, 2016, with several new contract awards, including its largest-ever contract, at Great Eastern Quays, London, UK, worth £128 million (€151.83 million).
Galliford Try said that the group continued to maintain a strong balance sheet and focus on cash management. Excluding the non-recurring charge, the group’s outlook for the full year 2017 and future years was unchanged, it said.
CEO Peter Truscott said, “The impact of the legacy projects in construction, in particular the two large infrastructure projects, is regrettable. However, as described in our recent strategy presentation, Galliford Try is no longer undertaking large infrastructure jobs on fixed price contracts.
“There are no other similarly procured major projects in our current portfolio and we are encouraged by the performance of the underlying portfolio of newer work.”
He said the group continued to make good progress on its strategy to 2021.
“While we remain cautious of continuing macroeconomic uncertainty, all three businesses are focused on exciting targets and clearly defined plans to improve operating efficiency and grow both margins and revenue.”