Galliford Try takes further £26m hit on AWPR
Galliford Try has again written off exceptional costs from completion delays to the Aberdeen Western Peripheral Route (AWPR), sinking its construction division into the red in the first half of its financial year.
In a trading update this morning the contractor reported it had taken a further £26 million hit on its delayed Aberdeen bypass project.
Galliford Try said its work on the troubled £745m road project is now complete but that it remains in “constructive dialogue” with client Transport Scotland regarding “significant and recognised claims”. Today’s financial statements include an estimate for these recoveries, it added.
Chief executive Peter Truscott said: “Our estimated final costs to complete the AWPR contract have increased as a result of higher than anticipated direct costs, and further delay to completion.
“Constructive dialogue with the client on the significant claims in respect of the contract are continuing.
“Our provisioning for the loss on this project reflects our current estimate of the final costs, and is reduced by an estimate of our share of significant claims against the client and others, which are yet to be agreed and concluded.”
It is understood that Transport Scotland is seeking technical and commercial assurances regarding future maintenance issues and the construction of the Don Crossing.
Mr Truscott added: “This inherent uncertainty will be resolved only when the project is complete and the claims finally settled.”
The project saw first-half operating losses at Galliford Try’s construction division widen from £17.8m to £19.7m.
In the six months to 31st December 2018 the overall group made a pre-tax profit of £53.8m, down 4% from the same period a year before. Revenue was down 5% to £1,418m.
The housing business Linden Homes’ revenue slipped 10% to £392m, as the softening market saw average selling prices fall 5%. Profits fell 5% as a result to £77m.
Mr Truscott concluded: “Galliford Try has delivered a strong financial and operational performance in the first half, with further progress against our 2021 strategy. The group is well capitalised and average net debt is below previous guidance, driven by focused working capital management over the period.
“Linden Homes delivered a strong performance in the first half, despite the continuing political uncertainty and its impact on confidence. The business continues to pursue its successful strategy of product standardisation and improved process efficiency, resulting in continued margin growth. We are seeing good demand, in particular for smaller and mid-range family houses, supported by Help-to-Buy and a strong mortgage market. We have seen a positive start to the spring selling season, despite the headwinds to consumer confidence arising from political uncertainty, which is key to the strength of the market over the coming months.
“Partnerships & Regeneration is performing very strongly, both at revenue and margin levels. Opportunities for the business continue to grow, underpinned by our strong relationships with providers and funders, our growing geographical footprint and by cross-party political support for affordable housing. The business has been encouraged by the successes it has seen in the first half of the year, with new projects commenced across both contracting and mixed-tenure resulting in strong levels of sales reserved, contracted or completed as well as a solid contracting order book.
“Construction’s performance continues to be encouraging, particularly on newer contracts, reflecting the business’s careful approach to project selection and risk management. We continue to prioritise the quality of each opportunity over volume. We are seeing projects deferred as a result of macro uncertainty, but with 96% of revenue secured for the current financial year and 66% secured for the following year the business has confidence in its prospects.
“The group enters the second half of the year with a solid foundation, underpinned by a strong balance sheet and our focus on high-quality earnings which will drive further margin improvements over time. Our mix of residential development creates a robust proposition in more uncertain markets. We remain cautious of the impact of the current political uncertainty on consumer and business confidence, and the medium-term outlook for the macro economy, but believe our focused strategic objectives, strong order book and disciplined approach will deliver a full year out-turn toward the upper end of the analysts’ current range.”