Update on Trading and Legacy Contracts

RNS Number : 9765D

Galliford Try PLC

03 May 2017

 

GALLIFORD TRY PLC

UPDATE ON TRADING AND LEGACY CONTRACTS

3 MAY 2017

Galliford Try plc, the housebuilding, regeneration and construction group, today issues an update on Group trading and legacy contracts in Construction for the period 1 January to 2 May 2017. All figures are as at 30 April 2017, unless otherwise stated, and all comparatives relate to the prior year equivalent period.

Overview

·      Strong trading performance in the period, but overall result will be impacted by non-recurring costs in Construction

·      Non-recurring costs of circa £98 million expected following a reappraisal of costs to complete and recoveries from legacy contracts in Construction

·      Underlying business in Construction performing well, while Linden Homes and Galliford Try Partnerships & Regeneration continue to make strong progress

·      Group outlook for FY 2017 and future years is otherwise unchanged

·      Balance Sheet and cash position remain robust, and the Group expects to pay final dividend in line with previous guidance

·      Good progress towards 2021 strategic targets to deliver sustainable growth and strong returns across all three businesses

Review of legacy contracts in Construction

A reappraisal of costs to complete and recoveries from two major infrastructure joint venture projects has substantially increased the anticipated liability to conclude the legacy contracts (contracted in 2014 and earlier) in the Group's Construction business since Galliford Try reported its half year results on 21 February 2017.  The Group estimates non-recurring costs of circa £98 million, some 80% of which relates to our share of the two joint venture projects.  A thorough review process has been performed to determine the anticipated liability.  One of these projects will finish on site in Summer 2017, while the other, which represents the larger proportion of the estimated non-recurring costs, is scheduled to complete in mid-2018.

Linden Homes

Linden Homes is enjoying good trading conditions and continues to perform well, building on the strong first half performance.  The business is making good progress towards its strategic priorities, driving volume growth and margin improvement, helped by increased product standardisation and operational efficiencies.  Reflecting this, sales rates for the period since 1 January 2017 were 0.75, having increased from 0.73 unit sales per outlet per week in the prior period, and 0.56 in H1 2017.  The business enters the final months of the year with a strong forward order book.  Sales reserved, exchanged or completed are currently £1,128 million, of which £893 million relates to the current financial year (2016: £1,071 million and £813 million, respectively), up 5% over last year.

Linden Homes continues to pursue and acquire prime sites in good locations at attractive hurdle rates.  The Group's landbank is 14,200 plots (2016: 15,100), of which 11,300 relate to Linden Homes, having decreased from 12,400 in the prior period in line with our strategy to hold a shorter landbank, equivalent to 3.5 years.  97% of plots have been secured for 2018, together with 76% of plots secured for 2019.

We note the recent commentary around leasehold rents. The Group has sold very few houses under leasehold tenure and generally only when there are specific constraints on freehold disposal, such as where the land is acquired on a leasehold basis from, for example a Local Authority or the Homes and Communities Agency.  The Company's standard lease provides that the Ground Rent is set at market rate with reviews linked to RPI, no more frequently than every five years.

Galliford Try Partnerships & Regeneration

Performance in Partnerships & Regeneration strengthened in the period.  The order book increased by 6% to £980 million (31 December 2016: £925 million) with several new contract awards, including the business' largest ever contract at Great Eastern Quays (£128 million), demonstrating the strength of our expertise in delivering large-scale regeneration projects.  Reflecting good growth in higher-margin mixed-tenure revenue, the business expects to report an increased operating margin. In line with its strategy for national expansion, the business has agreed terms to acquire a mixed-tenure developer in Hampshire with strong contracting, housebuilding and land acquisition capabilities.  The acquisition is expected to accelerate Partnership & Regeneration's growth across the southern region.

Sales reserved, contracted or completed, stand at £127 million, up 35% over last year (2016: £94 million), of which £77 million (2016: £60 million) relate to the current financial year. The business' landbank has increased, currently at 2,900 plots, up from 2,700 in the prior year.

Construction

Whilst Construction's result will be impacted by the non-recurring charge, the underlying business continues to perform well.  As set out in our recent Strategy presentation, the business is focused on improving operating performance and risk management processes to support margin improvement.  Significant progress has been made through a strong focus on selective bidding and ensuring that new work contains sufficient allowances for risk, margin and inflation. 85% of workload is now within frameworks, lower risk public and regulated sector and two-stage negotiated work.  This focus is expected to deliver turnover growth by 2021 to £1.8 billion, with an improvement in the operating margin to over 2.0%.

Construction's order book is £3.5 billion, up slightly from £3.4 billion in 31 December 2016.  73% of next year's revenue has been secured, compared to 76% in the prior period.

Group financial position

The Group continues to maintain a strong balance sheet and focus on cash management.  The debt private placement announced on 21 February 2017 further diversified Galliford Try's sources of funding, and together with the recent facility extension to 2022, provides great flexibility to support the Group's strategy for growth.  We have reviewed the impact of the non-recurring charge on cash and reserves, and the Group expects to pay a final dividend in line with previous guidance, subject to confirmation of the detail of this review.  The Group maintains its target to deliver a five-year compound annual growth rate in the dividend of at least 5%, whilst rebuilding dividend cover to 2.0x.

Outlook

Excluding the non-recurring charge, the Group's outlook for FY 2017 and future years is unchanged.  In Linden Homes the business is expected to report an improvement in the full year operating margin against the prior year.  Partnerships & Regeneration remains on track to deliver revenue growth as the business benefits from geographic expansion and further margin improvement from a higher proportion of mixed-tenure revenue.  Construction's underlying portfolio of newer projects continues to perform well, supporting the margin progress set out in the Strategy.

Peter Truscott, Chief Executive, commented:

"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.

Excluding the non-recurring charge, we remain confident in delivering a strong performance over the full year, and we plan to pay the dividend in line with previous guidance.  The Group continues to make good progress on our Strategy to 2021, supported by the strong leadership of our reorganised management teams.  Whilst 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."

This announcement contains inside information. 

The person responsible for this announcement on behalf of Galliford Try is Kevin Corbett, General Counsel & Company Secretary.

Conference call

A conference call for Analysts and Institutional Investors will be held at 10:00 BST today.  To request dial-in details, please contact Tulchan Communications ([e-mail]).

For further enquiries please contact:

Galliford Try -                                   Peter Truscott, Chief Executive                                       01895 855001

                                                           Graham Prothero, Finance Director

Tulchan Communications -         James Macey White / Martin Pengelley                         0207 353 4200

Notes to Editors

Galliford Try plc is a leading UK housebuilding, regeneration and construction group. It is listed on the London Stock Exchange and a member of the FTSE 250.  Housebuilding - through our Linden Homes business - develops private and affordable homes in prime locations. Galliford Try Partnerships - our regeneration business - delivers mixed-tenure solutions working with housing association, local authority and private sector partners.  Operating as Galliford Try and Morrison Construction, our Construction business carries out building and infrastructure with clients in the public, private and regulated sectors. At the end of the last financial year to 30 June 2016, the Group generated revenue of £2.5 billion.

 

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