The Forth Road Bridge in east central Scotland, connecting Edinburgh to Fife © PA
Galliford Try, the UK construction group, has set aside £98m for one-off charges relating to a series of legacy contracts in a move that analysts say could wipe out two-thirds of its profits for the year.
In an unscheduled update on Wednesday, Galliford said trading since the start of 2017 had been “strong”, but added that its results for the year ending in June would be affected by exceptional costs of £98m after a reappraisal of two major infrastructure projects contracted more than three years ago.
Shares in Galliford were down 10 per cent on the news, trading at £13.16 by mid-afternoon in London.
Galliford said 80 per cent of the costs related to two joint venture projects, which broker Peel Hunt said were the replacement of the Forth Road Bridge and the construction of a road network near Aberdeen in Scotland.
It had been expecting some additional costs from the contracts, but the majority of the charge was not anticipated when Galliford released its first-half results in February.
In response to the update, analysts at HSBC cut their forecast for Galliford’s full-year pre-tax profit by 68 per cent, from £144m to £46m, and mid-size broker Peel Hunt cut its estimate by 63 per cent, from £157.5m to £59m.
Galliford reported pre-tax profits of £135m for its last financial year, and £63m for the six months to December 2016.
Finance director Graham Prothero said problems with contracts in the construction business related to deals agreed before a “tipping point” in the market at the end of 2014. “When these contracts were priced the market was flat on its back,” he said, adding that contracts entered into after the start of 2015 were “performing very well”.
Both contracts were entered into on a fixed-price basis between 2011 and 2014.
The company said the charges had arisen because of delays due to poor weather conditions, revised estimates of the costs to complete one project by the summer 2017 deadline, and issues over site readiness for the other project.
While Galliford still enters fixed-price contracts, it has since stopped taking on major infrastructure projects on that basis. Its construction division has changed its focus to smaller scale building projects, such as schools and hospital extensions.
The Forth Road Bridge and the Aberdeen project are two of the largest infrastructure projects in Scotland.
The bridge project involves a replacement bridge spanning nearly 3km across the Forth of Firth with new connecting roads, and involves construction groups from Germany, Spain and the US as well as Galliford Try. The consortium for the Aberdeen road construction project, where almost 100km of roads are being built, includes UK construction companies Balfour Beatty and Carillion.
Galliford said its underlying business, which covers its Linden Homes private housebuilding division and an affordable housing business as well as the construction unit, was still performing well and on track to meet growth targets. It also reassured investors that it expects to pay its final dividend in line with previous guidance.
Last month Galliford abandoned its pursuit of rival Bovis Homes after failing to reach an agreement with the board on terms for a takeover offer.
