Galliford Try Holdings PLC's (LSE:GFRD) new chief financial officer, Kris Hampson, explains the business model and recent good numbers for the contractor.
Kris Hampson: Galliford Try is a leading UK construction group.
We operate nationally across the UK and we construct critical economic and social infrastructure.
What do we mean by that? We mean schools, prisons, roads, affordable housing, and mid-rise residential blocks, as well as water infrastructure.
And just to be clear, we're not a housebuilder.
And why do we say that? Because our sectors are not cyclical.
They have sustainable growth opportunities, currently in the UK, driven by ageing social and economic infrastructure that needs to be repaired, improved, and replaced in many cases.
We have a reputation for delivering high-quality products using modern methods of construction, such as offsite manufacturing.
We also use digital tools, including virtual models of the projects we're building.
It’s also worth pointing out that we operate in a very socially and environmentally responsible manner, delivering social value alongside all the projects that we build.
Proactive: Today's trading update for the first half of fiscal 2025 saw a continuation of Galliford Try’s strong performance, with an upgrade in your expectation for the full year. What have been the drivers of this strong trading?
Kris Hampson: 2024 was a very strong year. We grew strongly during that year.
What we're seeing in the new financial period is a continuation of that.
Our strategy and our model continue to work. We've won a number of key projects and places on strategic frameworks in water, building, highways, and our specialist services businesses.
We’re pleased to see that our order book now stands at £3.90 billion.
Our balance sheet remains very strong, with our average month-end cash rising to £176.40 million.
This is a key part of our model, in that customers, colleagues, and suppliers are very attracted to that strong balance sheet.
So we're very encouraged by our performance for the first six months.
Given those continued project wins and improved framework participation, we anticipate revenue and profit before tax for the full year to be at the top end of expectations.
Proactive: You've won a number of frameworks in the water sector under AMP8, where the overall market size has doubled to £104 billion in expenditure over the next five years. How well placed are Galliford to benefit from this huge opportunity? And what does this mean for your margins?
Kris Hampson: Galliford Try is superbly well placed to capitalize on this opportunity, both in our asset creation, which is mainly above-ground works in water treatment and wastewater, and in our higher-margin asset management businesses.
This includes asset maintenance, replacement, and our water technologies businesses. We've acquired four water technologies businesses in the last few years, and these provide high margins.
Across all of these categories, we're better positioned to improve revenues and drive higher margins.
The switch from AMP7 to AMP8 has been smooth, and we have secured all of the desired places on the new and existing frameworks. We now have 54 frameworks across all of the 13 major water companies.
The niche water businesses that I referenced earlier give us higher blended margins. Increased expenditure over the next five years forms an important part of our strategy toward 2030.
Proactive: Your new strategy to 2030 has set the target of reaching a 4% margin. Why do you believe there's still a lot of growth opportunity ahead for Galliford Try?
Kris Hampson: The fundamentals of the sector are very strong. We have national infrastructure that needs replacing, remediating, or improving.
Our strategy is really separated into two or three key parts.
Firstly, we continue to grow revenue and increase margins in our three core businesses: building, infrastructure (predominantly highways), and environment (predominantly water and wastewater).
These are all big, long-term, non-cyclical markets in the public and regulated sectors. We have great opportunities for disciplined growth, and our quality differentiation allows us to deliver better “right-first-time” projects to customers at higher margins.
Secondly, our higher-margin AMP8 frameworks will flow through in the coming years, and we must continue to execute these projects well to see those margins materialize.
Next, we’re focused on growth in our specialist businesses in adjacent high-margin markets across all of our business sectors.
We’ve also re-entered the affordable housing market, which involves mid-rise blocks of flats for RPs and local councils.
This is expected to unlock growth within the next 18 months.
We’re leveraging our geographical and client footprint across the UK, selling more of our specialist high-margin services to our existing client base.
As all of this comes together, we’ll continue to grow shareholder returns over the long term.
Proactive: Could you summarise the investment case for the business?
Kris Hampson: There’s really good momentum in the business and a track record of delivering profit growth, revenue growth, and increasing shareholder returns over the last four years.
We operate in robust markets with long-term structural growth drivers and have a high-quality, carefully selected, and growing order book.
Our strong culture of risk management and commercial discipline means we are very selective about the work we take on.
As a result, our cash position remains very robust, which differentiates us.
Customers want to work with us because they know we have the resources to deliver projects.
Suppliers want to work with us because they know they will get paid. Colleagues see Galliford Try as a high-quality, responsible, and attractive place to work.
We believe we have the right culture, excellent teams, and a strong financial position to deliver our strategy. We are very encouraged by our performance and confident about the future.