Shares in house builder Galliford Try sank more than 20 per cent this morning after it issued a plea to raise £150 million to fill a budget hole in the wake of the collapse of construction giant Carillion.
The company said it had taken on an immediate exceptional charge of £25 million related to the Aberdeen Western Peripheral Route project following the compulsory liquidation of Carillion in January.
It also revealed plans to raise around £150 million in capital to bolster its balance sheets due to ‘additional financial obligations’ linked to the the Aberdeen project and several other legacy contracts.
House builder: Galliford Try is the firm behind housing developer Linden Homes which it claims had a strong first half to the financial year.
‘The group has sufficient financial resources to meet its obligations, including the estimated impact of Carillion’s liquidation,’ Galliford Try said in a statement.
‘However, this would involve diverting capital away from the Linden Homes and Partnerships and Regeneration businesses, thereby reducing their ability to capitalise on the material growth opportunities these businesses would otherwise be well positioned to exploit.’
The FTSE 250 company’s share price slumped on the news despite reporting group revenue of £1.4 billion in the six months to 31 December last year.
RIVAL SNAPS UP WORK
Serco has snapped up a series of healthcare contracts on the cheap from fallen rival Carillion.
The outsourcing firm said it would now pay £29.7million, down from the £47.7million it previously expected to pay in December.
It comes after Carillion’s dramatic collapse last month. The contracts were worth less because they now require extra investment and come with none of the usual warranties.
They bolster Serco’s healthcare business, expanding it to five hospital trusts and 20 public sector organisations. Nearly 1,500 staff work on the contracts.
It traded at a low of 781.50p on Wednesday morning after opening at 883p.
While the firm said it had healthy profit margins and rising revenue, profits in the first half of the 2018 financial year fell 11 per cent to £56.3 million, down from £63 million reported in the comparable 2017 period.
Its three key business arms, Linden Homes, regeneration and construction all performed well it said with a ‘high quality’ order book of £3.5 billion and a ‘minimal’ pension deficit of £2.7 million.
It has been boosted by government policies such as help-to-buy and a relaxation of stamp duty for first time buyers as well as low interest rates boosting mortgage applications.
Its construction business relies heavily on public sector contractors but it said it benefits from an ‘encouraging pipeline of opportunities’ in the UK infrastructure space.
Galliford boss Peter Truscott said the firm remained wary of political developments, but insisted the group had a solid foundation.
Collapsed: The failure of construction giant Carillion has left Galliford picking up the pieces of the Aberdeen Western Peripheral Route, a major project linking north east Scotland
‘We enter the second half of the year with a solid foundation to build on and strong fundamentals for the housing market,’ he said.
‘While we remain cautious of the impact of the current political uncertainty and the medium-term outlook for the macro economy, we believe our focused strategy, strong order book and disciplined approach will deliver further growth and shareholder value.’
The group has faced problems before, reporting a 60 per cent collapse in profits in September last year which forced it to pledge to stop bidding for large, risky projects after losing out on two Scottish legacy contracts.
Neil Wilson, a senior analyst at ETX Capital, said more issues than simply Carillion’s collapse have come into play with the simple problem that the Aberdeen road project has over-run.
‘Old-fashioned cost over-runs are as much to blame as Carillion’s departure,’ he said, branding the project a ‘fiasco from start to finish’.
Wilson added: ‘[Galliford] management stresses that it no longer undertakes ‘fixed-price, all risk major projects of this nature’ and has changed its tendering process.
‘This is welcome and a positive outcome from Carillion’s collapse is that other firms are now going to be more much judicious in their approach to winning work.’