Annual Financial Report

RNS Number : 3829C
Galliford Try Holdings PLC
10 October 2022
 

GALLIFORD TRY HOLDINGS PLC

 

PUBLICATION OF ANNUAL REPORT AND FINANCIAL STATEMENTS 2022 AND NOTICE OF 2022 ANNUAL GENERAL MEETING

 

Galliford Try Holdings plc has today, in accordance with LR 9.6.1 R of the Listing Rules, submitted to the Financial Conduct Authority's National Storage Mechanism copies of the following:

 

· The Annual Report and Financial Statements 2022 - prepared using the single electronic reporting format, specified in the TD ESEF Regulation.

· Notice of 2022 Annual General Meeting.

· Form of Proxy for the 2022 Annual General Meeting.

 

The documents will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism

 

The Annual Report and Financial Statements and Notice of Annual General Meeting are also available on the Galliford Try website at www.gallifordtry.co.uk/investors/reports-presentations/ .

 

A condensed set of the Group's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in Galliford Try Holdings plc's Final Results Announcement on 21 September 2022.  That information, together with the information set out below which is extracted from the Annual Report and Financial Statements 2022 constitute the material required by DTR 6.3.5 of the Disclosure Guidance and Transparency Rules which is required to be communicated to the media in full unedited text through a Regulatory Information Service.  This announcement is not a substitute for reading the full Annual Report and Financial Statements 2022.  Page and note references in the text below refer to page numbers and note references in the Annual Report and Financial Statements 2022.  To view the results announcement, slides of the results presentation and the results webcast please visit www.gallifordtry.co.uk/investors/reports-presentations/.

 

Our principal risks

At a Group level, the Board monitors risk using the following four principal risks, a detailed analysis of which is provided below:

 

Work winning.

Project delivery.

Resources.

Regulatory compliance.

 

This approach facilitates a targeted focus on the most significant risks and the actions being taken to manage them.

 

At an individual business unit level, our risk management process captures and monitors risks and mitigations using more detailed risk themes aligned to the four principal risks so that we can take more targeted actions to address issues that are specific to the regions and sectors in which they operate.

Work-winning

 

Risk description

 

We fail to secure an appropriate pipeline of projects to achieve our revenue and profitability targets.

 

Risk appetite

 

We aim to secure a forward order book that provides a high degree of certainty of current year plus following year revenue, while reflecting appropriate margin, cash and risk attributes.

Maintaining discipline in the projects that we bid for is a fundamental element of our internal control framework. We will only bid for projects where we are confident that we have the experience, knowledge and supply chain to deliver effectively and where the client relationships and commercial terms support a collaborative approach to managing risk.

 

Potential causes of risk

 

> A significant and sustained reduction in Government investment in building and infrastructure projects reduces the opportunity pipeline.

> Increased costs make some schemes economically unviable leading to delays or cancellation of projects.

> Delays to and/or reduced levels of private sector investment due to macro-economic conditions.

> Failure to secure positions on key procurement frameworks.

> Failure to meet the increasing sustainability expectations of our clients.

> Poor quality bid submissions.

> Failure to maintain discipline in project selection.

 

Current risk environment

 

> Pipeline in our chosen markets remains strong, supported by Government policy on infrastructure spending and levelling up.

> The long-term transition to low carbon buildings and infrastructure is creating market opportunity - net zero new builds and energy-efficient refurbishments and retrofits.

> Inflation is making it more challenging to agree contract values - increased risk that some opportunities may go away if they become unaffordable for the client.

> However clients appreciate the issues with inflation and are more receptive to a more collaborative approach to sharing the risk.

> Quality is becoming increasingly important to clients, not just price - clients across all sectors are looking for solutions that support their carbon reduction and social value objectives. This aligns well with our strengths, but we need to continue to develop our capability and offering.

 

Emerging risks

 

> Clients start to move away from the traditional main contractor/subcontractor model, instead opting for more self-delivery and enterprise delivery models.

> We innovate or adopt new technologies too early, incurring costs associated with being an early adopter, or too late, losing market share.

> Client attitudes to sustainability shift at differing rates, leaving some clients focused on construction cost and others on whole-life cost and carbon performance.

> Changes to planning policy and regulations to deliver the UK's net zero ambition limit the ability of our clients to pursue new build construction schemes.

> Shifts in Government policy and public spending could reduce the certainty of opportunities in the public and regulated sectors.

 

Mitigations

 

> We manage the potential impact of an economic downturn by building a high-quality order book with projects that meet our strict risk profile.

> We concentrate on sectors where we have core strengths and clients with long-term growth and profitability potential.

> We focus on securing positions on key procurement frameworks (page 13) and repeat business with key clients through a centralised, dedicated pre-construction team. This allows for strategic planning, better collaboration and reduced risk of project failure.

> Each time we bid for a contract, we follow our internal "heat map" process, identifying risks across a range of criteria including the client and their advisors, project location and our local supply chain, our technical experience, our internal resources and capacity, the procurement method, contractual terms, and conditions and price.

> All contracts over £25m in value, or which have a heightened risk indicator on any other measure, are reviewed by the Executive Board prior to approval to bid. We typically target lower-risk contract types.

> We carry out peer reviews of bids where relevant to ensure robust review and challenge of risks and assumptions and to promote knowledge sharing across the business.

> Adjacent markets strategy, including PRS and nmcn acquisition, expand our target markets in a risk-managed way.

 

Key risk indicators

 

> Percentage of planned revenue secured.

> Percentage of pipeline in frameworks.

> Order book by client type.

> Percentage of repeat business with existing clients.

 

Link to our strategic priorities

 

Progressive culture
Socially responsible delivery
Quality and innovation
Sustainable financial returns

 

 

Project delivery

 

Risk description

 

We fail to deliver projects safely, on time, in agreement with contractual terms, and to a high quality for our clients.

 

Risk appetite

 

We prioritise health and safety above everything else and believe that nothing is so important that we cannot take the time to do it safely.

We will not tolerate poor quality and strive to deliver high quality buildings and infrastructure for our clients that provide safe environments for the occupiers and users of the assets.

We aim to provide realistic and transparent forecasts of project performance with potential risks to programme and margins identified and addressed before they materialise.

 

Potential causes of risk

 

> Changing regulations.

> Non-compliance with health and safety regulations and/or poor safety behaviours.

> Programme delays and cost escalation.

> Poor control of client and subcontractor variations and claims processes.

> Contractual notices not given as per contract requirements.

> Poor record-keeping and document management.

> Poor design quality and/or co-ordination.

> Failure to comply with quality control procedures.

> Extended periods of adverse weather conditions.

> Subcontractor poor performance and/or insolvency.

> Unrealistic estimates, including cost to complete, inflation estimates, outcomes of disputes and final value included in project forecasts.

 

 

 

Current risk environment

 

> Our Accident Frequency Rate improved from 0.08 to 0.06 in the year.

> Covid outbreaks are no longer a significant risk to programmes but there remains the risk of isolated examples of disruption.

> Staff shortages increase the sense of workers feeling stretched which could impact on safety and wellbeing.

> Short-notice delays, cancellations or incomplete deliveries are causing disruption to programmes, but are manageable.

> Storing materials on site reduces the available space which needs to be planned properly to maintain safe site operations. It also increases the risk of theft.

> Relatively benign weather conditions across the year with periods of extreme heat managed through pragmatic guidance on modifications to working practices.

> Continue to drive initiatives to improve quality through training, tools, quality alerts.

 

Emerging risks

 

> PI cover for construction contractors and/or insurance cover becomes prohibitively expensive.

> We fail to adapt our processes to meet the requirements of our clients to have better and more reliable data about the assets we design and build for them.

> The country fails to learn from Covid-19 and any potential new global pandemic has a significant/similar impact on the construction industry that it had with Covid-19.

> Building designs and construction methodologies fail to adapt to the physical effects of climate change, including more regular and more extreme weather events, leading to reduced productivity, programme delays and cost overruns.

 

Mitigations

 

> Continued reinforcement of our behavioural safety programme Challenging Beliefs, Affecting Behaviour, and the introduction of Lead Indicators which target no harm.

> A values-driven approach to project delivery focusing on close collaboration and client satisfaction to enable achievement of end goals for both parties.

> Robust review and approval of contractual terms, pre-contract to ensure we do not sign up to contracts with onerous terms. This includes the employment of margin thresholds and escalation to the Board of any contracts that do not meet our criteria.

> Rigorous quality control in our business management system policies and procedures and digitalisation to improve data, quality and efficiency.

> Due diligence to select competent designers and subcontractors to work with and use specialist consultants at key review stages.

> Comprehensive commercial training.

> We have introduced standardised formats (value cost analysis and cost and value reconciliation) for monitoring and reporting project performance and forecasts.

> Monthly cross-disciplinary contract review meetings on all projects enable a robust assessment of programme status, risks and commercial forecasts and are investing in upgrading our existing ERP systems.

> A programme of commercial 'health checks' to provide an independent assessment of the project team's reported project performance and forecast outturn.

> Operational controls including health and safety site risk assessments, which are monitored through a regular audit process.

> Introduction of Technical and Business Support Forums that drive process improvements across health and safety, digitalisation, carbon reduction, procurement, design management, mechanical and electrical, and commercial activities.

> Escalation processes to respond promptly and appropriately to incidents.

 

 

 

Key risk indicators

 

> RIDDOR and AFR scores.

> Forecast project margins.

 

Resources 

 

Risk description

 

We fail to secure the right people and other resources necessary to deliver our projects and manage our business.

 

Risk appetite

 

We aim to recruit employees from a diverse talent pool who are aligned to our values and behaviours.

We seek to work with financially resilient subcontractors, suppliers and joint venture partners who share our values in relation to safety, quality and sustainability.

 

Potential causes

 

> We are unable to attract, retain and/or develop the right staff to meet our future needs, we mismatch our staffing levels to peaks and troughs in activity or lack diversity.

> Lack of capacity in the supply chain due to high levels of activity in the construction sector.

> Subcontractor and/or client insolvency.

> Failure to comply with fair payment practices.

> Lack of geographical coverage.

 

Current risk environment

 

> Material cost inflation is being driven by short term supply/demand imbalances and high energy prices, exacerbated by the conflict in Ukraine. However we take measures to manage material cost inflation (early procurement, supply chain engagement, risk allowances in tenders etc).

> Long lead times for bulk items like steel and bricks are now factored into our programmes and procurement planning. However, we are seeing more short-notice delays, cancellations or incomplete deliveries.

> Subcontractor insolvency is an increasing risk, but we manage by being selective in who we work with, monitoring our exposure and ensuring we pay our suppliers promptly.

> It remains a competitive market for talent. Large infrastructure schemes and a mismatch between skilled worker supply and demand is driving salaries up and increases the risk of employees leaving for higher reward packages. We are working hard on developing our employee value proposition as part of the broader 'retain and gain' people strategy.

> We continue to develop our own people and provide them with the opportunities for progression. The results of our staff survey indicate that we have high levels of engagement and satisfaction within our staff and we continue to improve the way we promote the business and develop our employee offering.

> Continued focus on wellbeing.

> Strong balance sheet and net cash position gives confidence to clients and allows us to continually improve our prompt payment performance.

 

Emerging risks

 

> There is a generational shortage of skills as more experienced staff retire and are not replaced in sufficient numbers because the construction sector cannot compete with other sectors in attracting talent.

> Innovations in the use of technology will require us to attract a workforce with a different set of skills.

> Depletion or increased scarcity of non-renewable materials may lead to greater volatility in prices and more regular disruption to supply.

> The drive towards net zero construction may lead to an increased risk of defects and quality issues as we start to use new, low carbon materials whose long-term performance is unproven.

 

Mitigations

 

> The Group has an established HR strategy based on best practice principles and relevant legislation which, among other things, includes the regular review of remuneration and benefits packages to ensure we remain competitive.

> Our succession planning and talent management processes enable continuity and identification of future leaders.

> We operate graduate and trainee programmes to develop our own pipeline of talent.

> We develop long-term relationships with key suppliers and subcontractors to ensure that we remain a priority customer when resources and materials are in short supply.

> Our Advantage through Alignment programme facilitates greater engagement with our key supply chain members and provides them with greater visibility of our pipeline of projects.

> We are committed to paying 95% of supply chain invoices within 60 days, and achieving the new standards of the Prompt Payment Code.

> We monitor subcontractor financial strength using a credit tracker on the Dun & Bradstreet portal.

> Each business unit reviews its cash forecast weekly and monthly, and the Group prepares a detailed daily cash book forecast for the following eight-week period to highlight any risk of intra-month fluctuations. These forecasts are reviewed at business unit, division and Group level.

 

Key risk indicators

 

> Material and trade shortages.

> Voluntary staff churn rate.

> Prompt Payment Code performance statistics.

> Average month-end cash.

 

Link to our strategic priorities

 

Progressive culture
Socially responsible delivery
Quality and innovation
Sustainable financial returns

 

Regulatory compliance

 

Risk description

 

We fail to comply with requirements of the various legal and regulatory regimes in which we operate, resulting in a high-profile breach and regulatory censure.

 

Our risk appetite

 

We have zero tolerance for non-compliance with regulations. We expect all employees and subcontractors to be aware of all regulations relevant to their role and to comply at all times. We also expect our people to speak up if they observe or suspect non-compliance.

 

Potential causes

 

> Failure to update our procedures to reflect changes to key legislation and regulations.

> Failure to provide sufficient and effective training to all staff.

> Failure to implement effective compliance monitoring processes.

 

Current risk environment

 

> Building Safety Act - while we welcome the drive for greater quality and consistency, the Act has the potential for significant consequences in relation to extended liabilities.

> Continue to invest in cyber security surveillance tools, recognising the potential risk of cyber-attacks linked to the conflict in Ukraine.

> Seeking recognition of our information security standards and procedures through ISO 27001 accreditation.

> The regulatory landscape in relation to ESG reporting is evolving quickly and will require us to monitor and publish more information and comply with new standards (ie ISSB).

 

Emerging risks

 

> Greater devolution or even full independence may lead to very different regulatory regimes in Scotland and the rest of the UK.

> Climate-change/carbon related legislation eg a ban on diesel.

 

Mitigations

 

> Galliford Try has comprehensive policies and guidance at every level including our Code of Conduct, mandatory regulatory and cyber security e-learning for all employees, an anonymous and independent whistleblowing helpline, regular legal updates and briefings, six-monthly compliance declarations, and conflict of interest registers and authorisations.

> The Ethics and Compliance Committee, provides ongoing monitoring and oversight of policy and compliance activity in relation to key areas of legislation.

> We continue to review the detail of the Building Safety Act and are preparing through training, continued investment in digital tools to support quality, and a proactive approach to managing claims.

 

Key risk indicators

Number of external enforcement cases.

 

 



 

Viability Statement

 

As required by provision 31 of the UK Corporate Governance Code, the Board has assessed the prospects and financial viability of the Group, taking account of the Group's current position and the potential impact of the principal risks to the Group's ability to deliver its business plan. The assessment of prospects has been made using a period of five years, which is just beyond our strategic plan period. The assessment of viability has been made using a period of three years, which aligns with our budget period and provides reasonable visibility of future revenue from the existing order book. Since the sale of the housebuilding businesses and the recapitalisation of the business in January 2020, the Group no longer has any debt facilities and associated covenants, therefore viability has been assessed in terms of the headroom against available cash reserves.

Assessment of prospects

 

As outlined in our Strategic report, the long-term prospects of the business are supported by a strategy which builds on our existing strengths and the growth opportunities in our target markets.

Our alignment to the UK's continued investment in social and economic infrastructure is a fundamental driver of demand for our services and plays to our strengths in the health, education, defence, highways and environment markets. Our ability to achieve sustainable growth within these markets is underpinned by our position on the most significant procurement frameworks, our commitment to supporting the decarbonisation of the built environment and our investment in digital technologies to drive continuous improvement in quality and productivity.

Our people remain the key to our success and our focus on attracting and retaining a more diverse workforce as well as increasing the proportion of apprentices and graduates help us access the skills and expertise required to deliver on our sustainable growth strategy.

Assessment of viability

 

The base case for the cash flow projections modelled in our assessment of viability is the budget for the three years from 1 July 2022 which incorporates appropriate contingencies against plausible day-to-day downside risks, primarily the Group's principal risks as disclosed previously. The base case shows strong levels of average month-end net cash and assumes that the Group continues to operate without debt facilities.

Against this base case, we have stress-tested the forecasts and modelled the impact on cash flow and liquidity of a number of downside scenarios related to our principal risks, including a combined downside scenario that includes a number of these sensitivities occurring together. The scenarios modelled, and their link to the underlying principal risks, are described in the table below.

Although we have not included a further national lockdown scenario in our stress testing, the business and our cash performance has shown a high degree of resilience throughout the Covid-19 pandemic. Our sites largely remained open and the adherence to stringent risk mitigation measures in our sites and offices, together with good engagement with our clients and supply chain, minimised the disruption to project delivery.

 

Scenario modelled

Link to principal risks

Scenario 1

Reduction in construction volumes

Our cash performance is correlated with earnings growth and therefore reliant on construction activity being in line with our assumptions.

We have modelled a reduction in construction volumes that would equate to a 10% reduction in monthly cash receipts offset by a proportionate reduction in payments, relative to our base case forecast.

>  Work-winning

Scenario 2

Deterioration in working capital

We have modelled the impact of a deterioration in our working capital, which could be caused by delays in receiving payments from clients and/or earlier payments to our supply chain.

>  Resources

Scenario 3

Irrecoverable cost increases

There is a risk of a prolonged period of materials cost inflation and therefore we have modelled the impact of failing to fully mitigate these cost increases on our projects.

>  Resources

>  Project delivery

Scenario 4

'Perfect storm'

We also tested the unlikely but plausible scenario where all of scenarios 1-3 combine at the same time.

>  Work-winning

>  Resources

>  Project delivery

As part of the viability assessment, the Board also considered the mitigations and interventions available to manage the impact of one or more of the downside scenarios occurring. The base case already includes significant cash contingencies and the Board has considered further mitigating actions that are available to it.

Based on the results of this analysis, the Board has concluded that it has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of its assessment.

 

29 Related party transactions

 

Transactions between the Group and its related parties are disclosed as follows:

Group


Sales to
related parties

Amounts owed by
related parties

2022
£m

2021
£m

2022
£m

2021
£m

Trading transactions





Related parties

97.3

110.5

38.4

42.2

 


Interest and dividend income from related parties

2022
£m

2021
£m

Non-trading transactions



Related parties

4.6

4.4

Sales to related parties are based on terms that would be available to unrelated third parties. Amounts owed by related parties consist predominantly of subordinated debt within the PPP and Other Investments portfolio, that if held to maturity would be due over the next 26 years (2021: 27 years). These receivables are unsecured, with interest rates varying between a range of 9% and 12%. Payables are due within one year (2021: one year) and are interest free.

Company

Transactions between the Company and its subsidiaries which are related parties, which are eliminated on consolidation, are disclosed as follows:


Interest and dividend income from related parties

2022
£m

2021
£m

Non-trading transactions



Subsidiary undertakings

15.0

2.0

The Company has provided performance guarantees in respect of certain operational contracts entered into between joint ventures and a Group undertaking.

 

 



 

Statement of directors' responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each financial year. Under company law the directors have prepared the Group and Parent Company financial statements in accordance with UK adopted International accounting standards. Under company law, the directors must not approve the financial statements, unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group and Parent Company for that period.

 

In preparing the financial statements, the directors are required to:

 

> select suitable accounting policies and then apply them consistently;

> make judgments and accounting estimates that are reasonable and prudent;

> state whether they have been prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006; and

> prepare the financial statements on the going concern basis, unless it is inappropriate to presume that the Group and Parent Company will continue in business.

 

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and the Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

 

The directors are responsible for the maintenance and integrity of the Group and Parent Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

 

The directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company's performance, position, business model and strategy.

 

Each of the directors, whose names and functions are listed on pages 68 and 69, confirms that to the best of their knowledge:

 

> the Parent Company financial statements, which have been prepared in accordance with UK adopted International Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Parent Company;

> the Group financial statements, which have been prepared in accordance with UK adopted International Accounting Standards, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

> the Strategic report contained on pages 1 to 61 includes a fair review of the development and performance of the business and the position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces.

 

In the case of each director in office at the date the Directors' Report is approved:

 

> so far as the director is aware, there is no relevant audit information of which the Group and Group's auditors are unaware; and

> they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and to establish that the Group and Group's auditors are aware of that information.

 

For and on behalf of the Board

 

Bill Hocking

Chief Executive

21 September 2022

Forward-looking statements

 

Forward-looking statements have been made by the directors in good faith using information up until the date on which they approved this Annual Report. Forward-looking statements should be regarded with caution due to uncertainties in economic trends and business risks. The Group's businesses are generally not affected by seasonality.

 

 

For further enquiries:

 

Galliford Try Holdings plc

Kevin Corbett, Company Secretary

01895 855001


Clara Melia, Investor Relations

020 3289 5520

Tulchan Communications

James Macey White

0207 353 4200


Ed Cropley

 

 

Notes to Editors

Galliford Try Holdings plc is a leading UK construction group listed on the London Stock Exchange. Operating as Galliford Try and Morrison Construction, the group carries out building and infrastructure projects with clients in the public, private and regulated sectors across the UK.

 

 

 

 

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