Construction group posts record profit but legacy jobs continue to drag
Clients that put work on hold due to the Brexit vote are starting to recommit to development, according to Galliford Try’s new construction chief executive Bill Hocking.
Hocking (pictured), who joined from Skanska last September and took over running construction from Ken Gillespie this summer, said the EU referendum had impacted on four of its jobs, each worth around £20m-£50m.
Of these four jobs, clients had recommitted to two of them while the other two had been cancelled, Hocking told Building.
“There’s been a bit of a hiatus,” Hocking said. “But it’s been very limited. Two jobs have now been confirmed to kick off again in March next year.”
Hocking said it was difficult to say what the long term impact of the referendum result would be, but he was “more encouraged now” than in the immediate aftermath, adding: “In a year or so’s time we’ll have a better idea of what Brexit will look like.”
Hocking said the firm had seen no impact from the Brexit vote so far on “people wanting to get in or out of the UK construction industry”, but he said he would be “concerned” by any attempts to tighten the immigration system, given major programmes like HS2 and Crossrail 2 are in the pipeline.
Imports are obviously more due to the drop in value of sterling. That cost pressure is coming in and we’re pricing that into our tenders now, as are our competitors
Commenting on the prospect of a drop in tender prices, as forecast by several QSs including Arcadis this morning, Hocking said: “I don’t see another crunch coming.”
He added: “Imports are obviously more due to the drop in value of sterling. That cost pressure is coming in and we’re pricing that into our tenders now, as are our competitors. But I’m hoping the government will loosen its grip on fiscal policy and start spending.”
In results for the year to June 2016 posted this morning, Galliford Try posted record pre-tax profit of £135m, up from £114m the previous year.
However, legacy construction jobs won in a tighter market continued to hold back profit.
Margins at the firm’s construction division - which hit £1.5bn revenue over the year, two years ahead of its 2018 target - sllipped back to 1.1%, down from 1.2%.
The firm said it was continuing to close out problem contracts at lower margins than its newer work and consequently this would “hold back” profit this financial year as well.
Hocking said it was “difficult to call accurately” when all the firm’s legacy jobs would close out, but said work won over the past two years was in line with the firm’s target of hitting 2% to 2.5% construction margins by 2018.
With the construction divison now having hit its £1.5bn revenue target, Hocking said his focus would be “more on the bottom line than the top line” and making it a “leaner” operation.
The construction order book dipped to £3.5bn, down from £3.8bn.
Overall revenue rose 10% to £2.67bn, up from £2.43bn.
Linden Homes continued to grow, with completions up to 3,078, up from 2,769. The division’s profit margin also increased to 17.5%, up from 16%.
The firm increased its dividend 21% to 82p.
This week Galliford Try announced its regeneration arm had opened a new office in Bristol and kicked off with a £42m contract to build a 261-home retirement village in nearby Stoke Gifford. Galliford Try Partnerships plans to also open a new central southern office this year.
Other major wins over the past six months include a £12m Hilton hotel overlooking the world famous Old Trafford cricket ground (pictured) and a prized spot on the £5bn P22 health framework.
Gillespie stepped down from the board over the summer ahead of retiring next February.