TIDMGFRD
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 GBP98 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
GBP98 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 GBP1,128 million, of
which GBP893 million relates to the current financial year (2016:
GBP1,071 million and GBP813 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 GBP980 million (31
December 2016: GBP925 million) with several new contract awards,
including the business' largest ever contract at Great Eastern
Quays (GBP128 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 GBP127
million, up 35% over last year (2016: GBP94 million), of which
GBP77 million (2016: GBP60 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 GBP1.8
billion, with an improvement in the operating margin to over
2.0%.
Construction's order book is GBP3.5 billion, up slightly from
GBP3.4 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 (GallifordTry@tulchangroup.com).
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 GBP2.5 billion.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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