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Galliford Try reports full year profit slump but confident outlook despite Brexit uncertainty

Galliford's full year profits were hit by an exceptional charge related to legacy contracts and its failed Bovis Homes bid
Galliford Try's revenue rose on an increase in completions and average selling prices

Housebuilder Galliford Try plc (LON:GFRD) reported a 57% decline in full year profits but hiked its full year dividend, saying it was confident of delivering its financial targets despite Brexit uncertainty. 

In the year to 30 June, pre-tax profit fell 57% to £58.7mln from £135mln last year, but this was in line with expectations laid out in a trading statement in July.

Profits were hit by a £98.3mln exceptional charge related to losses of two infrastructure joint venture projects, costs of sales in construction and professional fees for Galliford’s £1.2bn takeover approach of Bovis Homes, which it abandoned in April.  

The one-off charge was announced in May when the group issued a profit warning.

Excluding exceptional items, pre-tax profit rose 9% to £147.6mln, supported by a 7% increase in revenue to £2.6mln.

The group said it decided to base its dividend payment on earnings before the off-one charge. The total dividend for the year was lifted 17% to 96p each.

Shares rose 2.05% to 1,387p initially before falling back 0.22% to 1,360p in morning trading.

READ: Galliford Try shares soar as it expects full year profits to reach top end of market forecasts

Linden Homes revenue growth

The Linden Homes business completed 3,296 homes in the year, compared to 3,078 last year, delivering revenue growth of 11% to £937mln. The sales rate per outlet each week remained unchanged at 0.62.

Average selling prices for private housing rose by 6% to £354,000.

However, the company warned that it expects average selling prices to fall through to 2021 as a result of its shift away from the south east and growth into new regions where prices of homes are lower.

Galliford ended the period with landbank of 11,250 plots at a value of £3.4bn, down from 11,700 last year at a value of £3.6bn.

Galliford supported by government's affordable homes programme

The Partnerships & Regeneration business, which builds affordable housing including social and share ownership homes, saw revenue rise 23% to £82mln as the company completed 594 homes, up from 526 last year.  The average selling price of affordable homes rose to £121,000 from £113,000. 

The division received £18.8mln under the government’s affordable homes programme during the year, to deliver shared ownership homes. 

The order book for affordable housing grew to £1.05bn from £865mln, boosted by the government’s reforms.

Construction division swings to loss but order book stronger

In construction, revenue rose £1.52bn from £1.50bn last year, buoyed by demand for defence, education and defence.

The division posted a pre-exceptional loss from operations of £0.9mln, compared to a profit of £15.8mln last year, and margins fell to 0.0% from 1.1%. The reported loss from operations was £88.8mln, hit by the one-off charge for legacy contracts.

Of the two large infrastructure joint ventures that resulted in an exceptional charge, one is largely complete while the other is expected to conclude in mid 2018.

Galliford said it has put in place “rigorous processes to ensure a more disciplined approach towards project selection”.

The order book for construction is £3.6bn, up from £3.5bn a year ago, including 74% in public sector projects, 13% in regulated industries and 13% in the private sector.

"The highlight of results is that the outlook for Construction has got no worse, with most of the legacy contracts now complete" according to analysts at Liberum, which rated the stock at 'buy' with a 1,460p target price. 

"The shares are one of our most preferred in the sector."

Galliford cautious about Brexit but confident on outlook 

Chief executive Peter Truscott said the group remains cautious about the impact of political uncertainty and the medium-term outlook for the economy as it enters the new financial year.

“However, all three businesses have clearly defined plans as part of our 2021 strategy, providing the group with confidence in its ability to deliver a strong performance even in a period of lower growth in the wider economy,” he said.

“Our strong group order book and disciplined approach to land acquisition and contract selection provide us with solid foundations to deliver further growth in fiscal year 2018."

Galliford said it was track to achieve its financial targets through 2021, which include 60% growth in profit before tax, a five-year compound annual growth rate of at least 5%, a dividend cover of 2x earnings and return on investment of least 25%.

"One-off costs relating to legacy contracts in its construction business depressed the group’s reported figures but the underlying portfolio of newer contracts is performing well," said Russ Mould, investment director at AJ Bell.

"The group remains cautious about the impact of current political uncertainty and the medium-term outlook for the macro economy but confidence in its strong underlying performance is reflected in a proposed 17% increase in its full-year dividend."

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