Galliford Try on Thursday warned that it was “unlikely to recommend” an increase in its annual dividend when it reports full year results in September, which it still expects to show a pre-tax profit of at least £60m.

The construction and housebuilding group increased its interim dividend in February by 12.5 per cent from 0.8p to 0.9p, so it is likely to reduce the final payment. The group normally aims to have a progressive dividend policy.

It said in May that difficulties in the housing market meant profits for the year to June would be lower than previous expectations, at not less than £60m, which compares with £60.2m the previous year.

In opening trading the shares rose 2p or 6.2 per cent to 34½p. They have fallen 80 per cent over the past year, a lesser decline than some pure housebuilding companies have suffered.

The average sale price of Galliford Try’s houses fell 12 per cent over the year to £193,000 as the group increased discounts and incentives to secure buyers. It said house sales rose from a pro forma 2,433 in 2006-07 to 2,524 in the year to June adjusting for the inclusion of Linden Homes which it acquired in March 2007.

Galliford Try has some protection from the private housing market through a sizeable “affordable” housing business, which had performed well.

Meanwhile its construction activities had “delivered an excellent performance”, the group said, and its order book stood at £1.9bn at the year end. Of that 87 per cent was work for the public and regulated sectors. These are expected to be less vulnerable to an economic downturn.

Unlike some other housebuilding groups, Galliford Try has a low level of debt. At the end of June it had net debt of less than £5m, “substantially better than previously forecast”, the company said, with gearing under 2 per cent. Last year the group arranged a £450m bank facility, which runs to 2012.

Following the Linden acquisition, Galliford Try has been making land sales, which totalled £23m in the first half and continued in the second half. As a result its landbank stood at 9,300 plots at the year end, of which 3,600 were for affordable housing, down from 11,100 a year earlier.

It said it margins in the private housing business would continue to be under pressure in the new financial year as incentives to buyers increased. The group had made cost savings worth £12m in a full year, while it had also cut back on work in progress. These should mean the cost base matches the level of business, it said.

Howard Seymour, analyst at Numis Securities said that Galliford Try, “deserves an element of re-rating on this news” as the “management action to run the housing business for cash is proving successful.” However, he cut his profit forecast for the new financial year by 19 per cent to £36.5m reflecting the margin pressure.

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