Galliford Try sets new margin target amid 23% profit boost
Galliford Try has unveiled a new strategy to achieve a 2% profit margin by 2021 as the contractor unveiled a double digit rise in interim profit.
Problem legacy contracts saw construction margins at the firm dip to 0.4% during the six months to December 31 2016 as the division enjoyed steady revenue of £742 million.
Being more selective about its workload has already improved margins in the housebuilding division, Linden Homes, and at Galliford Try Partnerships & Regeneration.
The firm has now said it wants to hike overall full year profit 60% by 2021 and has given its three businesses turnover targets which will see the group racking up revenue of close to £4bn.
For the six months to 31st December 2016, Galliford Try reported revenue up 3% to £1,308m and pre-tax profit up 19% to £63.0m.
Construction contributed revenue of £742.0m (up from £738.6m for the same period the previous year), with cash balance of £110.8m (down from £154.7m) reflecting delayed cash flows on some legacy projects.
The construction operating margin for the half-year was 0.4% (down from 1.2%) and operating profit down 68% at £2.7m. This was attributed to “the resolution of legacy contracts”. Margins on new projects support improving returns in future years for the division, however.
Being more selective about that work is taken on has resulted in a slightly slimmer order book of £3.4 billion (2016: £3.7bn).
New financial targets that the board has set for 2021 include full-year construction revenue of £1.8bn, operating margin of at least 2% and net cash of £200m
Revenue at Linden Homes was up 12% to £407.6m, with the operating margin rising to 18.2% from 17.0%.
Linden Homes’ 2021 target is to increase units built from 3,078 last year to 5,000, hiking revenue from £800m to £1.25-1.35bn with an operating profit margin of 19-20%.
Partnerships & Regeneration generated £144.3m revenue in the half-year, with an operating margin of 3.4% (2015: 3.0%).
Chief executive Peter Truscott said: “The group delivered another strong performance in the first half. Our reorganised management teams have settled well and are making positive strides towards their respective operating and financial targets.
“We continue to see robust demand and pricing in residential markets, for both Linden Homes and Partnerships & Regeneration, driving good rates of sale, and the land market remains benign in all regions. Linden Homes continues to achieve margin improvement, including much improved overhead efficiency. Partnerships achieved a higher proportion of mixed tenure development revenue, resulting also in first-half margin growth. Construction is making steady progress in resolving legacy contracts, and the contribution from newer work is encouraging, demonstrating that the underlying business is strong.
“Whilst we remain alert to potential uncertainties in the wider economy, we continue to see opportunity in all of our markets. We enter the new calendar year with strong order books: both Linden Homes and Partnerships are at record levels, and whilst Construction is lower than the prior year, it remains both at a very comfortable level and, more importantly, of high quality. Our improved debt facilities have further strengthened the balance sheet, providing financial flexibility to underpin our strategy for growth.”
He added: “When I joined Galliford Try in October 2015 I inherited three strong businesses with talented employees, excellent market reputations, and great potential. Over the last 16 months we have focused on enhancing the strengths of each business, to build a solid platform for further disciplined and profitable expansion. I am encouraged by the opportunities for improvement and growth in all three businesses.”