Shares in Galliford Try dropped as much as 10 per cent on Wednesday morning after the FTSE 250 housebuilder and construction business announced costs relating to a series of legacy contracts that analysts say could wipe out two-thirds of its forecasted profits for the year.
In an unscheduled update this morning, Galliford said trading since the start of 2017 had been “strong”, but said its full-year results will be affected by one-off costs after it completed a reappraisal of costs related to two major infrastructure joint venture projects contracted more than three years ago.
Galliford said it expects to report non-recurring charges of around £98m, with 80 per cent of the costs related to two particular projects. The company has since stopped taking on infrastructure projects on similar fixed-price contracts.
The company had been expecting some additional costs from the projects, but the majority of the charge was not expected when Galliford released its first-half results earlier this year. In response to the update, HSBC cut its forecast for Galliford’s full-year profit before tax by 68 per cent, from £144m to £46m.
Shares in the group were down 9 per cent at publication time, to £13.31, making it the worst-performing stock on the FTSE All-Share.
Galliford said its underlying business is still performing well and on track to meet growth targets, and it reassured investors that it expects to pay its final dividend in line with previous guidance.
Peter Truscott, Galliford Try chief executive, said:
The impact of the legacy projects in construction, in particular the two large infrastructure projects, is regrettable. However, as described in our recent strategy presentation, Galliford Try is no longer undertaking large infrastructure jobs on fixed price contracts. There are no other similarly procured major projects in our current portfolio and we are encouraged by the performance of the underlying portfolio of newer work.
The group continues to make good progress on our strategy to 2021, supported by the strong leadership of our reorganised management teams. Whilst we remain cautious of continuing macroeconomic uncertainty, all three businesses are focused on exciting targets and clearly defined plans to improve operating efficiency and grow both margins and revenue.