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Galliford Try holds talks with clients over cost inflation

Galliford Try construction chief executive Ken Gillespie has admitted that there are “uncomfortable” conversations being had between contractors and clients as cost inflation rises in the industry.

Mr Gillespie said it had 82 per cent of construction revenue for 2012/13 secured under contract, or recoverable from clients under inflation indices as part of the terms of its contracts.

But he said it was the remaining 18 per cent of work where there was a risk of inflation movement.

He said: “The challenge for any construction company now is to make sure it can do what it is contracted to do at that price.

“You have to keep a clear eye on what you are winning. We have always seen inflation at the point of recovery as [an important] issue.”

But he added that although these conversations could be “uncomfortable”, Galliford Try had a “very established client base” with which it could have frank discussions.

The company opened a new office in Chelmsford to cover Housing in the East of England this year, and Mr Gillespie said that, while there were regions it was interested in expanding into, the firm didn’t want to move too early despite signs of improvement in the market.

It will keep an eye on potential office locations in regions including East Anglia, the East Midlands and the south coast, but does not have definite plans to open new offices at the moment.

Mr Gillespie said there were a “cautious 12 months ahead” where firms needed to ensure they don’t “end up with a raft of work [at rising costs] that you can’t deliver at that price”.

The chief executive was speaking to Construction News after Galliford Try posted record profits of £74.1m in the year to 30 June 2013, up 17 per cent on 2012 and at the top end of analysts’ expectations.

The firm said the profits were achieved primarily by an improved margin in housebuilding of 13.1 per cent (2012: 11.8 per cent).

A reduction in construction margin to 1.7 per cent (2012: 2 per cent) was constrained, it said, by its “disciplined approach in continuing challenging markets”.

In July, Construction News reported that analysts expected the firm to post adjusted profit before tax for the year ending 30 June of between £72m and £75m.

In housing, Galliford Try said the South-east remained the strongest market and had led house price growth, but that there was improving demand in some regional centres.

The firm is combining its housing and construction divisions to build multi-use schemes, including its work building 147 apartments at Gloucestershire County Cricket Club (pictured), where it is also carrying out improvements to the cricket ground.

At 30 June 2013, its landbank was a record 11,300 plots. The gross development value of its landbank increased 14 per cent to £2.76bn (2012: £2.43bn).

At the year end, Galliford Try’s order book was £1.7bn compared with £1.65bn in 2012.

Of this, 41 per cent was in the public sector, 38 per cent was in regulated industries and 21 per cent was in the private sector.

More than half (53 per cent) of its order book was in frameworks and 58 per cent was secured on a basis other than price competition.

Chief executive Greg Fitzgerald said that the construction division had performed “impressively” due to “disciplined contract selection, protecting margin and prioritising cash management”.

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