Galliford Try plc (LON:GFRD) reckons the collapse of fellow construction company Carillion PLC (LON:CLLN) will hit profits by as much as £40mln this year.
FTSE 250-listed Galliford is working with Carillion and Balfour Beatty plc (LON:BBY) to build the £550mln Aberdeen Western Peripheral Route road.
Project dogged by delays
The decision to award the contract to the consortium was widely welcomed by the Scottish government back in December 2014.
Things haven’t gone smoothly though: a project which, on the surface, should have been relatively simple has been dogged by delays, pushing up costs and hampering already-thin margins.
With Carillion now going into liquidation, it is up to Galliford and Balfour to foot the remainder of the bill and complete the project.
Galliford reckons Carillion’s share of the remaining costs at the project will be between £60-80mln, which itself and Balfour will split.
Broker cuts EPS estimate
That means each firm will have to take a one-off hit of up to £40mln this year, perhaps more if those estimates are a little askew.
Galliford said: “The companies will discuss the position urgently with the Official Receiver of Carillion and Transport Scotland, to minimise any impact on the project.”
As a result of the expected cash outflow, City broker Liberum has cut the firm’s earnings per share estimates for this financial year by 1%, while it expects net debt in June to be £98mln – up from £63mln
Balfour expects additional costs from other Carillion JVs
Balfour is likely to take a bigger hit as a result of Carillion’s failure to fulfil its obligations due at its various joint venture projects.
As well as the 36-mile road in Aberdeen, the two companies were also working together on the A14 in Cambridgeshire and the M60 Junction 8 to M62 Junction 20 scheme.
As a result, Balfour has warned investors that it expects profits to be dented by up to £45mln in 2018.
Balfour Beatty shares are down 2.9% to 298.7p late on Monday, although Galliford tops the FTSE 250 losers – down 6.3% to £11.97.