Galliford Try has been forced to set aside around £98m to cover the costs of two major legacy contracts in its construction business.
In a trading update this morning, the firm said it had reappraised costs to complete two major infrastructure joint venture projects since its half-year results issued on 21 February this year.
The firm now estimates that settling legacy contracts – which the group defines as those contracted 2014 or earlier – will cause non-recurring costs of around £98m, 80 per cent of which relates to the two joint venture infrastructure projects.
Galliford Try added that one of the projects was due to finish on site in summer this year, while the other project – which represents a larger proportion of the £98m costs – is due for completion in mid-2018.
Chief executive Peter Truscott (pictured) said the firm will be “no longer undertaking large infrastructure jobs on fixed-price contracts” once the two legacy contracts are settled.
“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,” he said.
The firm said the construction arm was still performing well, with the business set to deliver £1.8bn turnover and an operating margin of 2 per cent by 2021.
Galliford Try’s construction order book stood at £3.5bn, up from £3.4bn as of 31 December 2016.
The company also announced that its partnerships & regeneration arm had agreed terms on acquiring a mixed-tenure developer in Hampshire with a contracting, housebuilding and land acquisition division.
The group added that its overall outlook for 2017 was unchanged, despite the impact of legacy contracts on the construction business.
“Excluding the non-recurring charge, we remain confident in delivering a strong performance over the full year, and we plan to pay the dividend in line with previous guidance,” Mr Truscott added.
City analysts were similarly bullish, with analysts Peel Hunt retaining the company’s ‘Buy’ rating despite the hit from the two legacy contracts.