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Galliford Try chief targets 'aggressive' construction growth

Galliford Try chief executive Greg Fitzgerald wants to “aggressively” grow the company into a top-five contractor, and insists he won’t “lose sleep” over its turnover unless it drops below £750 million.

Back in 2009 the company was probably a “contractor with a housebuilder [arm]”, he says, but that today the reverse is true.

After doubling housing output in just three years to 3,000 units annually, the firm is now keen to nearly double its construction turnover, which includes
building affordable housing and infrastructure, to £1.5bn.

This forms part of a five-year-plan to be implemented post-2014 that will see an increased focus on £100m-plus infrastructure and London commercial projects.

For now, Mr Fitzgerald tells Construction News he is relaxed about the decline in construction turnover – expected to come in at about £900m this year, down from £925m in the year to 30 June 2012.

“I see a couple of years where there’ll be fewer competitors than there are today”

Greg Fitzgerald, Galliford Try

“I wouldn’t start to get nervous until we got to the £700m, £750m kind of level. If it came in [above that] I wouldn’t lose much sleep about it,” he says.

But he adds that he doesn’t expect turnover to drop to that level – which would call into question whether company overheads could be supported – and is instead expecting modest growth in construction margins over the next 18 months.

Supply chain review

Galliford Try’s 2012 group turnover stood at £1.5bn, up 17 per cent on the year before, with pre-tax profits jumping from £35.1m in 2011 to £63.1m in 2012.

Mr Fitzgerald wants to safeguard the business, keep offices open and retain “core skills”, using housebuilding revenue as a crutch if necessary.

“I see a couple of years where there will be fewer competitors than there are today,” he says, adding that keeping offices open and capacity intact means that construction will be able to match the housing arm’s recent growth.

However, Galliford’s subcontractors and materials suppliers are coming under review over the next six months, in a move that he says will “probably” involve slimming down its supply chain.

The firm will be stepping up the monitoring of subcontractors’ financial health and reviewing its suppliers on the basis of value for money, their ability to perform and the strength of their balance sheet, after having to advance supplier payment at times to keep certain firms afloat.

Mr Fitzgerald says there were “numerous examples” of Galliford “spoonfeeding” subcontractors with weak balance sheets through forward payment to make sure they don’t go bust mid-project.

“Generally it’s that they’ve overstretched themselves and priced too many schemes at or below cost,” he says. “When that happens it’s no good for anybody. [Supporting subcontractors is] the right thing to do as well.”

He adds Galliford Try will “probably” sign the Prompt Payment Code, but doesn’t want to sign up to something before “reviewing the consequences.”

Sustaining growth

The supply chain review comes as Galliford is looking to boost housebuilding margins from around 12 per cent to 17 or 18 per cent through greater efficiency, after its housebuilding “crusade” that doubled unit output in three years, funded by a £125m rights issue in 2009.

“You’ve got twice as many people that we had two-and-a-half years ago – maybe we weren’t quite as efficient as I’d like us to be”

Greg Fitzgerald, Galliford Try

“We’ve grown very rapidly when other housebuilders have basically gone back,” he says, but admits he was “getting concerned about our efficiency”.

“[We have] got twice as many people working for the group than we had two-and-a-half years ago – maybe we weren’t quite as efficient as I’d like us to be.”

This has led to what Mr Fitzgerald describes as a “very detailed” efficiency drive covering production, business and planning, from development to post-sale, which he says is already showing “initial signs” of progress.

Galliford Try is pushing training, boosting independent pre-construction checks and re-jigging the construction process, where problems had been thrown up by construction teams beginning work before full drawings and information were provided, in order to boost production figures.

Budget-backed expansion

With the Budget’s housing measures such as the Help to Buy scheme helping to boost demand by 10 per cent, Mr Fitzgerald says, Galliford Try is considering further expansion – up to 3,500 units this financial year.

Despite 10,700 plots and a pipeline in excess of 3,000 plots with terms agreed, Mr Fitzgerald still wants to grow Galliford’s land bank “considerably” in the coming months, and says the opportunity is there to do so, although prices are creeping up.

The firm’s affordable housing business, Galliford Partnerships, is also bucking the downward trend.

Mr Fitzgerald describes it as the company’s “main growth area”, with payment terms “better than any other sector” as well as stronger margins than construction.

“Three or four occasions I’ve said forget all the risk management stuff. This scheme isn’t going to generate cash, so we’re not going to do it”

Greg Fitzgerald, Galliford Try

Accordingly, its partnerships division is beefing up its headcount and presence in the Midlands, having traditionally been strong in the South and North-east.

A satellite office there is set to become a fully fledged regional operation on 1 July, and another in the North-west is earmarked for similar expansion in 2014.

Mr Fitzgerald refuses to rule out the acquisition of local housebuilders, but stressed his preference for organic growth and land purchases.

Conversely, construction is suffering in the regions, with Scotland and the South-east notable exceptions.

Mr Fitzgerald added that there were “undoubtedly” signs of recovery in the leisure sector, while communications infrastructure and water remain strong, as does the commercial market in the South-east and the Scottish PFI, oil and gas sectors.

Rejecting bids

While he says opportunities are rising across the business, pricing levels remain stubbornly low, causing Galliford to tighten its scrutiny and contract checks in the past year, and to opt out of some bids where clients want to pay on completion or in phases, making projects cash-negative.

“I can think of three or four occasions over the past 12 months or so where I’ve said forget all the checks and balances, the risk management stuff; this scheme isn’t going to generate cash, so we’re not going to do it,” he says.

Since the business needs cash to feed its housing arm, unsustainable pricing levels are leading the firm to bid only where there’s a barrier to entry, or where “we can add something for the client which maybe some of our competitors can’t”.

Bidding uncertainty is made worse when public sector clients allow doubt to spread over whether or not projects will go ahead, while costing “an enormous amount of money” through sluggish bid processes and inter-departmental procedure.

“If [bid costs] are £1m, you think twice about it,” Mr Fitzgerald suggests. “You think, ‘is the client going to change his mind? Does [the affordability of the project] stack up?’”

Instead, Galliford is looking for repeat clients with clear project pipelines, such as the Environment Agency, utilities firms, Department for Transport and commercial clients like the All England Club at Wimbledon.

The vote of confidence in Galliford’s construction arm will be welcomed by an industry eagerly searching for green shoots, and will be keenly watched as an auger for the ability of the sector to bounce back.

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