Last checked at 19 Feb 2009 07:00
GALLIFORD TRY PLC
INTERIM REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2008
Highlights
| 2008 £m | 2007 £m | |
| Group revenue | 774 | 898 |
| Profit (loss) before tax | ||
| - Pre exceptional* | 11.2 | 33.8 |
| - Post exceptional | (37.5) | 33.8 |
| Earnings per share | pence | pence |
| - Pre exceptional*
| 2.2 | 6.4 |
| - Post exceptional |
(7.0) |
6.4 |
| Dividend per share | 0.45 | 0.9 |
| ·; Record profits from construction, with excellent cash generation. |
| ·; Contracting order book maintained at £1.7 billion, with 90% in the public and regulated sectors. |
| ·; Worst housebuilding market for generations, £47.7 million housing asset writedowns. |
| ·; Total housing completions of 964 units (housebuilding 672, affordable housing and regeneration 292) |
| ·; Since 30 June 2008, total housing landbank down 18% to 7,600 plots, stock down 41% to 281 unit and part exchange properties down 28% to 46. |
| ·; Encouraging activity levels since the start of 2009, £306 million of total housing sales in hand, with £240 million for the current year representing over 80% of projected sales. |
| ·; £25 million cost savings programme to meet current market conditions. |
| ·; Net cash at period end of £1.8 million, with the Group operating in compliance with bank covenants. |
* Stated before an exceptional loss of £48.7 million comprising write downs of housing related assets of £47.7 million and redundancy costs of £1.0 million.
Commenting on the results, Greg Fitzgerald, Chief Executive said:
"The operational and financial benefits of working in both construction and housebuilding markets are continuing to mitigate the worst effects of the economic downturn. As the recession starts to impact opportunities in the construction market, we will benefit from our strong presence in the public and regulated sectors.
Our strategy in housebuilding to reduce our exposure to the market during the current downturn by focusing on cash generation was adopted early. We have reduced our costs to a level that will enable us to work through the current market, while conserving the resources required to take advantage of opportunities arising when the market improves."
For further enquiries please contact:
Greg Fitzgerald, Chief Executive 01895 855219
Frank Nelson, Finance Director 01895 855226
Louise Mantio, Communications Director 01895 855092
INTERIM MANAGEMENT REPORT
Overview and Results
The Group's construction business traded strongly during the period, delivering record results and excellent cash generation. Following the intensification of the financial sector crisis in mid-September 2008, the housing market deteriorated significantly from an already extremely difficult position, and we took further action to maintain sales, cut our cost base and reduce the level of capital in our housing business.
Group revenue for the half year to 31 December 2008 was £774 million (last year £898 million) on which the Group achieved a pre-exceptional profit before tax of £11.2 million (last year £33.8 million). After taking account of net exceptional costs of £48.7 million the Group incurred a pre tax post-exceptional loss of £37.5 million (last year profit of £33.8 million). Profit from operations, stated before finance costs, exceptional items, amortisation of intangible assets and share of joint ventures interest and tax, was £23.5 million (last year: £47.2 million).
Our focus on cash management, business efficiencies and cost savings is being driven across all our activities as the UK economy deteriorates. Our consistent approach to cash management in our contracting businesses continues to deliver excellent results and we are reducing the capital in our housebuilding business with minimal expenditure on land that is not contractually committed, and cutting back our build rate to meet current sales levels. Although the Group's borrowings do fluctuate significantly throughout the financial year, we are making our planned progress in debt reduction with net cash at 31 December 2008 of £1.8 million compared to net debts of £45.7 million at 31 December 2007 and £1.7 million at 30 June 2008. The Group has substantial headroom within its banking facilities, which are with four of the UK's main clearing banks and do not expire until 2012, and continues to operate within the covenants of those facilities.
Further to our Interim Management Statement of 7 November 2008 the Group has now completed a review of the carrying value of its housing assets in the Group's balance sheet in light of the significant further deterioration in the housing market during the period. Total exceptional costs of £48.7 million have accordingly been accounted for in the results reported today, comprising write-downs of housing related assets amounting to £47.7 million, and redundancy costs of £1.0 million. The income tax credit associated with these costs amounted to £14.3 million.
The Group has implemented a rigorous programme of savings to ensure its cost base is set at a level to both meet current market conditions and to maintain competitiveness across its businesses, with the objective of delivering annualised cost savings of £25 million. Significant reductions were made in our housebuilding businesses during the period to align our operational structure to the current market, including the successful introduction of a four-day working week to reduce cost whilst enabling us to preserve our geographical coverage. The measures implemented since June 2008 in housing amount to an annualised saving of £19 million, and the programme of overhead savings now being implemented across the Group is targeted to save £6 million.
Dividend
The Board has carefully considered the Group's results and prospects in the light of the current economic environment and, as noted in the trading update issued on 12 January 2009, an appropriate level of interim dividend. The Board has therefore declared an interim dividend of 0.45p per share, equal to half of the amount of the interim dividend paid for the previous financial year.
Construction
The Group's construction activities are organised into two divisions, building and infrastructure. Total construction profit from operations (stated before finance costs, exceptional items, amortisation and share of joint ventures interest and tax) rose 14% to £14.5 million on revenue of £540 million, including joint ventures, representing a margin of 2.7% (2007: £12.7 million on £589 million, representing 2.2%). Our total contracting order book (construction plus affordable housing build contracts) currently stands at £1.7 billion compared to £2.1 billion last year. 90% is in the public and regulated sectors and 91% has been secured on a basis other than on pure price competition.
Building
Profit from operations of £6.7 million on revenue of £275 million, including joint ventures, represented a margin of 2.4% (2007: £6.5 million on £339 million, representing 1.9%). Despite a lower contribution from the substantial PFI multi-school contracts as they complete, average cash balances in the division continued to be high.
The results demonstrate good performances across the Group's building operations from the South of England to Scotland. During the period we completed the major multi-school PFI projects at Northampton and in the Highlands of Scotland. Our redevelopment of the Centre Court at Wimbledon for the All England Lawn Tennis Club is on schedule with the retractable roof to be completed and operational for the 2009 Championships in June.
Since the new year, we have announced £36 million of new work for the education and hotel sectors in London and our appointment on the £103 million contract for the redevelopment of St Pancras Chambers. We were also delighted to announce last week the award of a £47 million contract in Wales for the custodial sector and this week our selection as a principal supply chain partner to deliver healthcare projects for NHS Scotland over the next four years, which is expected to generate up to £150 million of orders for the panel of five framework contractors each year.
The lack of development finance is curtailing the ability of commercial clients, in particular those in the property sector, to proceed with construction projects. However, although we expect overall construction activity levels to decline, the affect on Galliford Try will be mitigated by our sector spread across projects in the education, commercial, health, custodial, interiors, leisure and facilities management sectors. The division's total order book currently stands at £771 million, with 83% in the public and regulated sectors, and 83% secured on other than a pure price competitive basis.
Infrastructure
Profit from operations of £7.8 million was achieved on revenue of £265 million, including joint ventures, representing a margin of 2.9% (2007: £6.2 million on £250 million representing 2.5%). Cash management remained a key focus, with higher average balances achieved during the period than in the prior year.
The workload to be carried out through our long term framework contracts for 70% of the largest water utilities in the UK to deliver their five year AMP 4 regulatory cycle projects is reducing as the framework periods near an end. We have been successful in winning significant additional projects outside the existing frameworks while the procurement process for the new AMP 5 regulatory period is taking place, securing projects in joint venture totalling over £30 million for Yorkshire Water and £60 million for Scottish Water.
In Civil Engineering our work on the largest land based windfarm in Europe at Whitelee, in Glasgow, has been completed ahead of programme, and we continue to secure additional projects under our enabling works framework at Olympic Park in East London for the Olympic Delivery Authority. We are developing our onsite renewables operation, with local energy regeneration schemes being carried out for commercial clients and good progress being made in developing a service for the water utilities sector.
Work is progressing well on the £445 million M74 Highways project in Glasgow being carried out in four party joint venture and on our £60 million project on the M40 in Warwickshire.
The absolute size of our future order book continues to be dependent on the timing of framework awards and associated revenues, with our current order book of £780 million at a satisfactory level taking into account the AMP cycle for the water utilities. 85% of the order book is in frameworks, 95% is in the public and regulated sector and 96% has been secured on other than a pure price competitive basis.
PPP Investments
Total revenue, including joint ventures, was £4.9 million and profit from operations was £1.9 million (2007: £2.4 million and £0.4 million). The division incurred a loss before tax of £3.4 million (2007: £1.5 million).
Construction is progressing on our health project at St Andrews in Scotland and we are now in the operational phase of our Highland Schools project. We have a number of bids for new projects at the shortlist stage on which decisions are expected this financial year. In consortia with G4S we are on the final shortlist for two major prison projects, we are one of two for the Worcester library and history centre and one of three on a schools project in Moray, Scotland.
With the secondary market for PFI investments less affected by the credit crunch due to the security of the resultant income flows, we aim to continue with our strategy of taking significant equity holdings in schemes at bid stage, selling down a proportion on financial close and retaining the remainder until into the post-construction operational phase.
Housebuilding
Profit from operations was £3.5 million on revenue of £142 million, including joint ventures, representing a margin of 2.5% (2007: £32.6 million on £230 million representing 14.2%). Completions for the period were 672 units at an average sales price of £201,000 (2007: 890 at £231,000).
From a relatively encouraging start to the current financial year, the market deteriorated significantly following the intensification of financial sector crisis from September 2008, resulting in the worst conditions for selling homes in generations. The withdrawal of liquidity from the mortgage market and the effect of the relentless flow of negative economic news on consumer confidence took their toll on the market throughout the remainder of the half year.
To date in 2009 there has been little practical easing in the mortgage market and consumer confidence remains low. Nevertheless, we have been encouraged by the level of sales since 1 January, at discount levels that have stabilised. However, there remains a widespread use of incentive packages to attract visitors to our developments, including part exchange and shared equity, to which we carefully control our commitment. Cancellation rates since 1 January have dropped to 18% from around 30% in the previous six months. Sales reserved, contracted or completed currently stand at £205 million, of which £191 million is for the current financial year to 30 June 2009.
The thrust of our operational strategy through this period has been to concentrate on our cash position by maximising sales revenue at the expense of profit margin, only expending resources on work in progress to deliver short term sales, restricting expenditure on land to a minimum level, and meeting our contractual obligations. A number of our larger developments are carried out in joint venture, which both reduces the investment required and shares the project risk. Our most significant joint venture schemes are in Epsom, Chichester and around London. We have continued to progress planning consents on land owned or under contract to optimise its value, and at 31 December 2008 the Division's land bank stood at 4,800 plots compared to 5,500 at 30 June 2008 and 7,000 a year ago.
The actions we have taken to reduce our cost base over the period have resulted in a reduction of 43% in our housebuilding headcount with all remaining housebuilding staff now working a four day week. This strategy has enabled us to minimise office closures thereby retaining the key skills and geographic structure to be able to respond to the market when it eventually improves. The reduction in output, both on our sites and across the industry, has had a significant effect on our supply chain, with sub-contract prices falling and downward pressure on the cost of most materials helping to mitigate pressure on margins caused through reduced selling prices.
Notwithstanding the current state of the market the Board continues to believe that there remains an underlying imbalance between the supply and demand for homes in our geographical areas across the south and east of England which will support future growth when conditions improve.
Affordable Housing and Regeneration
Profit from operations of £6.7 million was achieved on revenue of £99.5 million, including joint ventures, representing a margin of 6.7% (2007: £5.7 million on £94.5 million, representing 6.0%). During the period we achieved 292 completions at an average selling price of £125,000, with revenue from build contracts of £63 million (2007: 284 completions at £118,000, build contract revenue of £50 million).
The Group has developed an industry leading position in affordable housing through its combination of direct contracting, the delivery of affordable housing in conjunction with homes for sale, and carrying out major regeneration schemes in partnership with affordable housing providers and Government agencies. We operate across the south and south west of England, the eastern counties, the south Midlands and the north east of England.
The affordable housing market has not remained immune from the overall housing downturn with previous growth levels held back as a weakness in demand and reduced volumes have resulted from the affordable housing providers, particularly those that were dependent on private sector sales, adapting their business models to current market conditions. Our strategy is to mitigate direct sales exposure through our direct grant funded programme and to maximise cash generative opportunities.
Our lead developer status under the National Affordable Housing Programme has resulted in the award of £28 million of allocation for direct grant funding so far, one of the largest allocations to any private sector developer. We were also appointed lead developer for the first development agreement with the newly formed Homes and Communities Agency (HCA) to develop a site in Gloucester for around 350 homes. We continue to work closely with the HCA to renegotiate and rephase projects being carried out in partnership with them to meet the constraints resulting from the current market conditions.
We are also playing our part in helping deliver the Governments new housing initiatives in the current market, and have secured significant allocations under the Home Buy Direct Scheme for our developments, where Government assistance will enable those on middle incomes to commit to home purchase.
Affordable housing contracting is expected to slow in the short term as we complete a number of major projects and our clients hold back on commitment to schemes to meet their own funding constraints. Our strong relationships with affordable housing providers, with whom we have 38 frameworks in place, will stand us in good stead for when the market improves. Sales reserved, contracted or completed stand at £101 million, with £49 million for the current financial year. Our order book for affordable housing build contracts currently stands at £157 million, and our affordable housing land bank is currently at 2,800 plots, compared to 3,750 at 30 June 2008 and 4,100 a year ago.
Health, Safety and Environment
The health and safety of everyone affected by its operations remains the Group's highest priority. To 31 December 2008 the Group's 12 month accident incident rate improved to 5.2 (per 1000 people at risk) from 6.5 in the previous year. We have updated our action plan to continue to target areas for improvement, moving forward with the leadership element of our behavioural safety training programme to further help reduce our incident rate.
Board
We were delighted to welcome two non executive directors to the board since the start of the financial year. Peter Rogers, who is Chief Executive of Babcock International Group plc, joined the board on 1 July 2008 and Andrew Jenner, Finance Director of Serco Group plc, joined the board on 1 January 2009. Chris Bucknall and Jonathan Dawson, non executive directors since 2000 and 2004 respectively, retired from the board on 7 November 2008 and 31 December 2008 respectively. We thank them for their substantial contribution during a period of considerable growth.
Outlook
The operational and financial benefits of our business model of working in both construction and housebuilding markets are continuing to mitigate the worst effects of the economic downturn. Our construction businesses continue to deliver record performances with increased profits and excellent cash generation. As the recession starts to impact opportunities in the construction market, we will benefit from our strong presence in the public and regulated sectors, as well as from our spread of activities across the private sector.
Our strategy in housebuilding to reduce our exposure to the market during the current downturn by focusing on cash generation was adopted early. We have reduced our costs to a level that will enable us to work through the current market, while conserving the resources required to take advantage of opportunities arising when the market improves. We retain an industry leading position in affordable housing.
The Board continues to remain cautious on the prospects for the remainder of this financial year. It remains convinced that our concentration on managing our debt and our early adoption of policies designed to minimise the effect of the downturn will enable the Group to weather the current recession, and the underlying demand for our services will deliver sustainable growth in the long term.
Greg Fitzgerald
Chief Executive
19 February 2009
Forward looking statements - certain statements in this interim report are forward looking statements. Such statements should be treated with caution as they are based on current information and expectations and are subject to a number of risks and uncertainties that could cause actual events or outcomes to differ materially from expectations.
Consolidated income statement
for the half year ended 31 December 2008 (unaudited)
| Half year to 31 Dec 2008 | Year to 30 June 2008 | |||||||||
| Before excep-tional items | Excep-tional items | Total | Half year to 31 Dec 2007 | Before excep-tional items | Excep- tional items | Total | ||||
|
| Note | £m | £m | £m | £m | £m | £m | £m | ||
| Continuing operations | ||||||||||
| Revenue | 4 | 773.8 | - | 773.8 | 897.9 | 1831.9 | - | 1,831.9 | ||
| Cost of sales |
| (710.9) | (48.7) | (759.6) | (807.7) | (1,660.6) | (9.1) | (1,669.7) | ||
| Gross profit/(loss) | 62.9 | (48.7) | 14.2 | 90.2 | 171.3 | (9.1) | 162.2 | |||
| Administrative expenses | (44.0) | - | (44.0) | (48.3) | (90.7) | (2.4) | (93.1) | |||
| Share of post tax (losses)/profits from joint ventures |
| (1.7) | - | (1.7) | 0.6 | 2.0 | - | 2.0 | ||
| Profit/(loss) before finance costs | 4 | 17.2 | (48.7) | (31.5) | 42.5 | 82.6 | (11.5) | 71.1 | ||
| Finance income | 6 | 2.6 | - | 2.6 | 3.6 | 6.5 | - | 6.5 | ||
| Finance costs | 6 | (8.6) | - | (8.6) | (12.3) | (17.3) | - | (17.3) | ||
| Profit/(loss) before income tax | 11.2 | (48.7) | (37.5) | 33.8 | 71.8 | (11.5) | 60.3 | |||
| Income tax (expense)/credit | 7 | (3.1) | 14.3 | 11.2 | (9.9) | (21.2) | 3.4 | (17.8) | ||
| Profit/(loss) for the period from continuing operations |
| 8.1 | (34.4) | (26.3) | 23.9 | 50.6 | (8.1) | 42.5 | ||
| Earnings per share | 8 | |||||||||
| - basic | 2.2p | (7.0)p | 6.4p | 13.6p | 11.4p | |||||
| - diluted | 2.2p | (7.0)p | 6.3p | 13.6p | 11.4p | |||||
| Dividend per share | 9 | 0.45p | 0.9p | 3.0p | ||||||
The notes on pages 11 to 18 are an integral part of this condensed consolidated interim financial information.
Consolidated statement of recognised income and expense
for the half year ended 31 December 2008 (unaudited)
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| (Loss)/profit for the period | (26.3) | 23.9 | 42.5 |
| Net losses on movement in fair value of available for sale financial assets | - | - | (0.3) |
| Realisation of gains on available for sale financial assets | - | - | (1.1) |
| Actuarial gains and losses on retirement benefit obligations | 15.5 | (7.0) | (11.8) |
| Deferred tax on items taken to equity | (4.3) | 3.5 | 1.9 |
| Net gains/(losses) recognised directly in equity | 11.2 | (3.5) | (11.3) |
| Total recognised (expense)/income for the period | (15.1) | 20.4 | 31.2 |
The notes on pages 11 to 18 are an integral part of this condensed consolidated interim financial information.
Consolidated balance sheet
at 31 December 2008 (unaudited)
| Note | 31 Dec 2008 £m | 31 Dec 2007 £m | 30 June 2008 £m | |
| Non current assets | ||||
| Intangible assets | 9.2 | 11.2 | 10.2 | |
| Goodwill | 10 | 115.0 | 114.4 | 115.0 |
| Property, plant and equipment | 8.7 | 7.1 | 8.0 | |
| Investments in joint ventures | 10.6 | 8.9 | 12.5 | |
| Financial assets | ||||
| - Available for sale financial assets | 5.8 | 3.9 | 3.6 | |
| - Derivative financial assets | - | - | 0.7 | |
| Trade and other receivables | 22.5 | 3.1 | 23.0 | |
| Deferred income tax assets | 7.1 | 9.8 | 10.7 | |
| Total non current assets | 178.9 | 158.4 | 183.7 | |
| Current assets | ||||
| Inventories | 1.8 | 0.8 | 1.7 | |
| Developments | 488.6 | 678.8 | 610.3 | |
| Trade and other receivables | 248.3 | 291.2 | 308.7 | |
| Cash and cash equivalents | 11 | 133.1 | 86.3 | 134.4 |
| 871.8 | 1,057.1 | 1,055.1 | ||
| Non current assets classified as held for sale | - | 4.5 | - | |
| Total current assets | 871.8 | 1,061.6 | 1,055.1 | |
| Total assets | 1,050.7 | 1,220.0 | 1,238.8 | |
| Current liabilities | ||||
| Financial liabilities - borrowings | 13 | (13.9) | (17.3) | (15.8) |
| Trade and other payables | (571.9) | (685.9) | (704.9) | |
| Current income tax liabilities | (4.3) | (8.2) | (10.3) | |
| Provisions for other liabilities and charges | (1.4) | (1.7) | (2.5) | |
| (591.5) | (713.1) | (733.5) | ||
| Liabilities directly associated with non current assets classified as held for sale | - | (4.5) | - | |
| Total current liabilities | (591.5) | (717.6) | (733.5) | |
| Net current assets | 280.3 | 344.0 | 321.6 | |
| Non current liabilities | ||||
| Financial liabilities | ||||
| - Borrowings | 13 | (117.4) | (114.7) | (120.3) |
| - Derivative financial liabilities | (3.0) | (0.6) | - | |
| Retirement benefit obligations | 14 | (8.7) | (26.8) | (27.4) |
| Deferred income tax liabilities | (16.1) | (17.5) | (17.4) | |
| Other non current liabilities | (10.9) | (25.4) | (14.5) | |
| Provisions for other liabilities and charges | (0.3) | (0.3) | (0.4) | |
| Total non current liabilities | (156.4) | (185.3) | (180.0) | |
| Total liabilities | (747.9) | (902.9) | (913.5) | |
| Net assets | 302.8 | 317.1 | 325.3 | |
| Shareholders' equity | ||||
| Ordinary shares | 18.9 | 18.8 | 18.9 | |
| Share premium | 190.8 | 190.7 | 190.8 | |
| Other reserves | 5.3 | 6.7 | 5.3 | |
| Retained earnings | 87.8 | 100.9 | 110.3 | |
| Total shareholders' equity | 302.8 | 317.1 | 325.3 |
The notes on pages 11 to 18 are an integral part of this condensed consolidated interim financial information.
Consolidated cash flow statement
for the half year ended 31 December 2008 (unaudited)
| Note | Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Cash flows from operating activities | ||||
| Net cash generated from operations | 11 | 12.5 | 86.0 | 149.6 |
| Interest received | 3.7 | 3.6 | 4.5 | |
| Interest paid | (3.7) | (9.5) | (14.6) | |
| Income tax received/(paid) | 2.9 | (6.7) | (16.0) | |
| Net cash generated from operations | 15.4 | 73.4 | 123.5 | |
| Cash flows from investing activities | ||||
| Dividends received from joint ventures | 2.5 | - | - | |
| Acquisition of subsidiaries (net of cash acquired) | - | (6.0) | (6.1) | |
| Acquisition of investments in joint ventures | (2.4) | (1.9) | (4.5) | |
| Acquisition of available for sale financial assets | (2.2) | (0.7) | (2.9) | |
| Proceeds from sale of investments | - | - | 3.9 | |
| Acquisition of property, plant and equipment | (2.0) | (1.1) | (3.3) | |
| Proceeds from sale of property, plant and equipment | 0.1 | - | 0.3 | |
| Net cash used in investing activities | (4.0) | (9.7) | (12.6) | |
| Cash flows from financing activities | ||||
| Net proceeds from issue of ordinary share capital | - | 0.1 | 0.3 | |
| Purchase of own shares | - | (2.5) | (2.5) | |
| Repayment of borrowings | 13 | (6.0) | (34.7) | (34.2) |
| Increase in borrowings | 1.2 | 28.5 | 32.1 | |
| Dividends paid to Company shareholders | 9 | (7.9) | (8.3) | (11.7) |
| Net cash used in financing activities | (12.7) | (16.9) | (16.0) | |
| Net (decrease)/increase in cash and cash equivalents | (1.3) | 46.8 | 94.9 | |
| Cash and cash equivalents at beginning of period | 134.4 | 39.5 | 39.5 | |
| Cash and cash equivalents at end of period | 11 | 133.1 | 86.3 | 134.4 |
The notes on pages 11 to 18 are an integral part of this condensed consolidated interim financial information.
Notes to the condensed consolidated interim financial information
1 Basis of preparation
The company is a public limited company incorporated and domiciled in the UK. The address of its registered office is Cowley Business Park, Cowley, Uxbridge, Middlesex, UB8 2AL. The company has its primary listing on the London Stock Exchange. This condensed consolidated interim financial information was approved for issue on 19 February 2009.
This condensed consolidated interim financial information for the half year ended 31 December 2008 has been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority and with IAS 34, "Interim financial reporting" as adopted by the European Union. The condensed consolidated interim financial information should be read in conjunction with the annual financial statements for the year ended 30 June 2008, which have been prepared in accordance with IFRSs and IFRICs as adopted by the European Union and the Companies Act 1985 applicable to companies reporting under IFRS.
The Group's activities, together with the factors likely to affect the future development, performance and position of the business are set out in this Interim Report. The annual financial statements for the year ended 30 June 2008 included the Group's objectives, policies and processes for managing capital, its financial risk management objectives, details of its financial instruments and hedging activities and its exposure to credit risk and liquidity risk.
The Group meets its day to day working capital requirements through its bank facilities which do not expire until February 2012. The current economic conditions do create some uncertainty, as outlined in note 3, and the Group's borrowings do fluctuate significantly throughout the financial year, but the Group is making its planned progress in debt reduction with net cash at 31 December 2008 of £1.8 million compared to net debts of £45.7 million at 31 December 2007 and £1.7 million at 30 June 2008. The Group's forecasts, taking into account the board's future expectations of the Group's performance, indicate that there is substantial headroom within these bank facilities and the Group will continue to operate within the covenants of those facilities.
After making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the condensed consolidated interim financial information.
This condensed consolidated interim financial information does not constitute statutory accounts for the purposes of Section 243 of the Companies Act 2006. A copy of the statutory accounts for the year ended 30 June 2008 were approved by the Board of directors on 11 September 2008 and delivered to the Registrar of Companies. The report of the auditors on those accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain any statement under Section 498 of the Companies Act 2006.
This condensed consolidated interim financial information has been reviewed, not audited.
2 Accounting policies
The accounting policies and critical accounting estimates and judgements applied are consistent with those described in the annual financial statements for the year ended 30 June 2008.
The same accounting policies and methods of computation are followed in the condensed consolidated interim financial information as in the annual financial statements for the year ended 30 June 2008.
At the date of signing this condensed consolidated interim financial information IFRIC 12, "Service concession agreements," which is effective for accounting periods beginning on or after 1 January 2008 has not been applied as it has not yet been endorsed by the EU. On adopting IFRIC 12 it is not expected that there will be a material impact on the Group's financial statements. There were no other new standards or interpretations issued during the period that are expected to have a material effect on the Group's financial statements.
3 Principal risks and uncertainties
The significant deterioration in the UK's economic conditions that occurred during the period following the financial sector crisis in September 2008 has increased the level of uncertainty within the markets in which the Group operates. The macroeconomic effects, in particular reduced liquidity, initially impacted the Group's housebuilding activities and is subsequently also affecting the market for financing construction projects, particularly those in the private sector. The impact on housebuilding resulted in the further review of the carrying value of assets in the Group's balance sheet which led to the exceptional write down of housing related assets (note 5). The Group's investments in its housing joint ventures are continually kept under review, as they are financed by individual project specific bank facilities, some of which are being renegotiated to meet the changed market requirements, and by shareholder loans (note 16 related party transactions).
Subject to the above the directors consider that the nature of the principal risks and uncertainties which may have a material effect on the Group's performance in the second half of the year is unchanged from those identified on page 23 of the annual financial statements for the year ended 30 June 2008. These include the macroeconomic conditions in the UK and Government policies as they affect the market sectors in which the Group operates; project related risks, health safety and environmental risks and human resources risks.
4 Business segment reporting
Segment reporting is presented in the condensed consolidated interim financial information in respect of the Group's business segments which are the primary basis of segment reporting. The business segment reporting reflects the Group's management and internal reporting structure. Segment results include items directly attributable to the segment as well as those that can be allocated on a reasonable basis. As the Group has no material activities outside the UK, segmental reporting is not required by geographical region. Inter-segment revenue is not material.
| Construction | PPP | Affordable housing & | House- | ||||||
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|
| Building | Infrastructure | Total | Investments | regeneration | building | Group | Total |
| £m | £m | £m | £m | £m | £m | £m | £m | ||
| Half year ended 31 December 2008
| |||||||||
| Group revenue and share of joint venture revenue | 274.6 | 265.4 | 540.0 | 4.9 | 99.5 | 141.7 | 0.9 | 787.0 | |
| Share of joint ventures' revenue |
| - | (6.2) | (6.2) | (4.2) | (1.2) | (1.6) | - | (13.2) |
| Segment revenue |
| 274.6 | 259.2 | 533.8 | 0.7 | 98.3 | 140.1 | 0.9 | 773.8 |
| Segment result: | |||||||||
| Profit/(loss) before joint ventures | 6.7 | 7.8 | 14.5 | (1.3) | 6.5 | 3.3 | (3.1) | 19.9 | |
| Share of joint ventures' profit |
| - | - | - | 3.2 | 0.2 | 0.2 | - | 3.6 |
| Profit/(loss) from operations * | 6.7 | 7.8 | 14.5 | 1.9 | 6.7 | 3.5 | (3.1) | 23.5 | |
| Share of joint ventures' interest and tax |
| - | - | - | (5.0) | (0.2) | (0.1) | - | (5.3) |
| Profit/(loss) before finance costs, amortisation and exceptional item | 6.7 | 7.8 | 14.5 | (3.1) | 6.5 | 3.4 | (3.1) | 18.2 | |
| Amortisation of intangibles | (0.2) | (0.3) | (0.5) | - | - | (0.5) | - | (1.0) | |
| Net exceptional item |
| - | - | - | - | (10.3) | (38.4) | - | (48.7) |
| Profit/(loss) before finance costs | 6.5 | 7.5 | 14.0 | (3.1) | (3.8) | (35.5) | (3.1) | (31.5) | |
| Net finance costs | 2.4 | 1.0 | 3.4 | (0.3) | (3.7) | (11.8) | 6.4 | (6.0) | |
| Profit/(loss) before taxation | 8.9 | 8.5 | 17.4 | (3.4) | (7.5) | (47.3) | 3.3 | (37.5) | |
| Income tax credit |
| 11.2 | |||||||
| Loss for the period from continuing operations |
| (26.3) | |||||||
| Half year ended 31 December 2007
| |||||||||
| Group revenue and share of joint venture revenue | 339.2 | 250.1 | 589.3 | 2.4 | 94.5 | 230.0 | 0.2 | 916.4 | |
| Share of joint ventures' revenue |
| (2.1) | (3.1) | (5.2) | (1.5) | (1.2) | (10.6) | - | (18.5) |
| Segment revenue |
| 337.1 | 247.0 | 584.1 | 0.9 | 93.3 | 219.4 | 0.2 | 897.9 |
| Segment result: | |||||||||
| Profit/(loss) before joint ventures | 6.4 | 6.2 | 12.6 | (0.7) | 5.7 | 29.5 | (4.2) | 42.9 | |
| Share of joint ventures' profit |
| 0.1 | - | 0.1 | 1.1 | - | 3.1 | - | 4.3 |
| Profit/(loss) from operations * | 6.5 | 6.2 | 12.7 | 0.4 | 5.7 | 32.6 | (4.2) | 47.2 | |
| Share of joint ventures' interest and tax |
| - | - | - | (1.6) | - | (2.1) | - | (3.7) |
| Profit/(loss) before finance costs, amortisation | 6.5 | 6.2 | 12.7 | (1.2) | 5.7 | 30.5 | (4.2) | 43.5 | |
| Amortisation of intangibles |
| (0.1) | (0.2) | (0.3) | - | - | (0.7) | - | (1.0) |
| Profit/(loss) before finance costs | 6.4 | 6.0 | 12.4 | (1.2) | 5.7 | 29.8 | (4.2) | 42.5 | |
| Net finance costs | 2.7 | 0.6 | 3.3 | (0.3) | (2.2) | (15.9) | 6.4 | (8.7) | |
| Profit/(loss) before taxation | 9.1 | 6.6 | 15.7 | (1.5) | 3.5 | 13.9 | 2.2 | 33.8 | |
| Income tax expense |
| (9.9) | |||||||
| Profit for the period from continuing operations |
| 23.9 | |||||||
* Profit from operations is stated before finance costs, exceptional items, amortisation of intangible assets and share of joint ventures' interest and tax.
5 Net exceptional item
In light of the significant further deterioration in the housing market during the period, the Group has completed a review of the carrying value of its housing assets. Total exceptional costs of £48.7 million have been accounted for in the period comprising write-downs of housing related assets of £47.7 million and redundancy costs of £1.0 million (31 Dec 2007: £Nil). All of these costs have been included within cost of sales.
These amounts have been treated as exceptional items in accordance with the Group's accounting policy. The income tax credit associated with the net exceptional item amounted to £14.3 million (31 Dec 2007: £Nil).
6 Net finance costs
| | Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m |
| | | |
| Interest payable on borrowings | (3.5) | (7.2) |
| Unwinding of discounted payables | (0.9) | (3.1) |
| Fair value losses on financing activities – interest rate swaps | (3.7) | (2.0) |
| Net finance cost on retirement benefit obligations | (0.5) | - |
| Finance costs | (8.6) | (12.3) |
| Finance income | 2.6 | 3.6 |
| Net finance costs | (6.0) | (8.7) |
7 Income tax (expense)/credit
The income tax (expense)/credit for the period reflects the estimated effective rate for the full financial year to 30 June 2008 on pre-exceptional items of 27.7% and on exceptional items of 29.4% (30 June 2008: 29%).
8 Earnings per share
Basic earnings per share is calculated using the profit after taxation and the weighted average number of ordinary shares in issue during the period less the weighted average number of shares held by the Galliford Try Employee Share Trust which have not unconditionally vested in employees. For diluted earnings per share the weighted average number of ordinary shares is adjusted to assume conversion of all potentially dilutive ordinary shares.
| Half year to 31 Dec 2008 | Half year to 31 Dec 2007 | ||||||
| Earnings £m | Weighted average number of shares | Per share amount pence | Earn ings £m | Weighted average number of shares | Per share amount pence | ||
| Basic | |||||||
| Earnings attributable to ordinary shareholders | (26.3) | 373,302,787 | (7.0) | 23.9 | 373,538,911 | 6.4 | |
| Effect of dilutive securities | |||||||
| Options | - | 4,227,065 | |||||
| Diluted | (26.3) | 373,302,787 | (7.0) | 23.9 | 377,765,976 | 6.3 | |
Earnings adjusted for post tax exceptional items of £34.4 million (31 Dec 2007:£nil) amount to £8.1 million (31 Dec 2007: £23.9 million). The basic earnings per share calculated on this adjusted basis is 2.2p (31 Dec 2007: 6.4p) (diluted 2.2p (31 Dec 2007: 6.3p)).
9 Dividends
| | | Half year to 31 Dec 2008 | | Half year to 31 Dec 2007 | | Year to 30 June 2008 | |||
| | £m | Pence per share | £m | Pence per share | £m | Pence per share | |||
| Declared dividends for the period | | | | | | | |||
| Interim | 1.7 | 0.45 | 3.4 | 0.9 | 3.4 | 0.9 | |||
| Final | - | - | - | - | 7.9 | 2.1 | |||
| | 1.7 | 0.45 | 3.4 | 0.9 | 11.3 | 3.0 | |||
| Recognised dividends for the period | | | | | | | |||
| Previous period final | 7.9 | 2.1 | 8.3 | 2.2 | 8.3 | 2.2 | |||
| Current period interim | - | - | - | - | 3.4 | 0.9 | |||
| | 7.9 | 2.1 | 8.3 | 2.2 | 11.7 | 3.1 | |||
The interim dividend for 2009 of 0.45 pence per share was approved by the board on 19 February 2009 and has not been included as a liability as at 31 December 2008. This interim dividend will be paid on 14 April 2009 to shareholders on the register at the close of business on 13 March 2009.
10 Goodwill
Goodwill is allocated to the Group's cash-generating units (CGUs) identified according to business segment. The goodwill is attributable to the following business segments:
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Building | 18.0 | 17.4 | 18.0 |
| Infrastructure | 37.2 | 37.2 | 37.2 |
| PPP Investments | 1.9 | 1.9 | 1.9 |
| Affordable housing and regeneration | 12.5 | 12.5 | 12.5 |
| Housebuilding | 45.4 | 45.4 | 45.4 |
| Total | 115.0 | 114.4 | 115.0 |
As stated in the annual financial statements for the year ended 30 June 2008, detailed impairment reviews were carried out for all business segments. In light of current market conditions within Housebuilding, the calculations within this division have been updated based on current forecasts. The calculations are based on pre tax cash flow projections using future financial budgets approved by the board based on past performance and its expectation of market developments. The key assumptions within these latest forecasts relate to revenue growth and the future gross margin achievable. Future budgeted revenue is based on management's knowledge of actual results from prior years, latest forecasts for the current year along with the existing secured revenue and management's future expectation of the market. In establishing future gross margins, the margins currently being achieved have been considered in conjunction with expected inflation rates in each cost category. Cash flows beyond a four year period have been extrapolated using an estimated growth rate of 2.5 per cent per annum. The growth rate used is the Group's estimate of the average long term growth rate within Housebuilding. A pre tax discount rate of 10.4 per cent has been applied to the future cash flows.
Following the impairment test carried out during the period, no impairments have been identified. The impairment test carried out indicates that an increase of more than 15 per cent in the pre tax discount rate or a reduction of more than 25 per cent in the forecast operating profits of the CGU would give rise to an impairment.
11 Cash flows from operating activities
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Cash flows generated from operating activities | |||
| (Loss)/profit for the period | (26.3) | 23.9 | 42.5 |
| Adjustments for: | |||
| Income tax | (11.2) | 9.9 | 17.8 |
| Depreciation | 1.2 | 0.9 | 2.1 |
| Amortisation of intangible assets | 1.0 | 1.0 | 2.0 |
| Share based payments | 0.5 | 0.8 | 1.4 |
| Profit on sale of property, plant and equipment | (0.1) | - | (0.1) |
| Profit on sale of investments | - | - | (2.8) |
| Net finance costs | 6.0 | 8.7 | 10.8 |
| Share of post tax losses/(profits) from joint ventures | 1.7 | (0.6) | (2.0) |
| Movement in retirement benefit obligations | (3.7) | (4.0) | (7.3) |
| (Decrease)/increase in provisions for liabilities and charges | (1.2) | (0.5) | 0.4 |
| (32.1) | 40.1 | 64.8 | |
| Changes in working capital: | |||
| Increase in inventories | (0.1) | (0.2) | (1.1) |
| Decrease in developments | 121.7 | 26.1 | 94.6 |
| Decrease/(increase) in trade and other receivables | 60.0 | (5.1) | (41.5) |
| (Decrease)/Increase in payables | (137.0) | 25.1 | 32.8 |
| Cash generated from continuing operations | 12.5 | 86.0 | 149.6 |
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Cash and cash equivalents | 133.1 | 86.3 | 133.1 |
| Short term bank deposits | - | - | 1.3 |
| Cash and cash equivalents | 133.1 | 86.3 | 134.4 |
12 Net cash/(debt)
Net cash/(debt) is made up as follows:
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Cash and cash equivalents | 133.1 | 86.3 | 134.4 |
| Financial liabilities - borrowings | |||
| Current | (13.9) | (17.3) | (15.8) |
| Non current | (117.4) | (114.7) | (120.3) |
| Net cash/(debt) | 1.8 | (45.7) | (1.7) |
13 Borrowings and loans
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Non-current | 117.4 | 114.7 | 120.3 |
| Current | 13.9 | 17.3 | 15.8 |
| 131.3 | 132.0 | 136.1 |
The movement in borrowings is analysed as follows:
| £m | |
| At 30 June 2007 | 138.2 |
| Repayment of borrowings | (34.7) |
| Increase in borrowings | 28.5 |
| At 31 December 2007 | 132.0 |
| Increase in borrowings | 3.4 |
| Increase due to acquisition of subsidiary | 0.7 |
| At 30 June 2008 | 136.1 |
| Repayment of borrowings | (6.0) |
| Increase in borrowings | 1.2 |
| At 31 December 2008 | 131.3 |
14 Defined benefit plans
The amounts recognised in the income statement were as follows:
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | |
| Interest costs | (4.9) | (4.4) |
| Expected return on plan assets | 4.4 | 4.8 |
| (Charge)/credit to income statement | (0.5) | 0.4 |
An actuarial gain of £15.5 million (2007: expense £7.0 million) has been taken to the consolidated statement of recognised income and expense. The principal actuarial assumptions used to calculate the liabilities as at 31 December 2008 have been set in a consistent manner to those adopted at 30 June 2008. These assumptions will change as market conditions change over time.
The amounts recognised in the balance sheet were as follows:
| Half year to 31 Dec 2008 £m | Half year to 31 Dec 2007 £m | Year to 30 June 2008 £m | |
| Present value of funded obligations | - | (3.9) | - |
| Fair value of plan assets | - | 5.2 | - |
| Asset | - | 1.3 | - |
| Present value of funded obligations | (130.9) | (162.8) | (161.0) |
| Fair value of plan assets | 122.2 | 134.7 | 133.6 |
| Liability | (8.7) | (28.1) | (27.4) |
| Net liability in the balance sheet | (8.7) | (26.8) | (27.4) |
The pension fund asset disclosed at 31 December 2007 relates to the Kendall Cross Holdings Limited scheme that was acquired in November 2007. As at 30 June 2008 these disclosures were made showing the net position of the Group and hence the disclosure at 31 December 2007 has been restated accordingly.
15 Contingent liabilities
Disputes arise in the normal course of business, some of which lead to litigation or arbitration procedures. The directors make proper provision in the financial statements when they believe a liability exists. Whilst the outcome of disputes and arbitration is never certain, the directors believe that the resolution of all existing actions will not have a material adverse effect on the Group's financial position.
Galliford Try plc has entered into guarantees and counter indemnities in respect of bank and performance bonds issued on behalf of Group undertakings in the normal course of business amounting to £115.9 million (2007: £174.0 million).
As part of its investigation into alleged anti competitive practice in the construction industry, the Office of Fair Trading (OFT) issued a Statement of Objections to the Company in April 2008 alleging breaches of the 1998 Competition Act. The Company submitted formal representations on the Statement of Objections and is awaiting the OFT's decision. If the Group is found to have infringed competition law it may be liable to a fine, although subject to continued co-operation with the investigation, it has been provisionally granted a reduction in any fine that may ultimately be imposed. No provision has been made for any potential fine in relation to this matter as the result of the investigation is not yet known and any potential fine is not quantifiable.
16 Related party transactions
Transactions between the Company and its subsidiaries, which are related parties, have been eliminated on consolidation and are not included within this note. Transactions between the Group and its joint ventures and jointly controlled operations and assets are disclosed as follows:
| Sales to related parties | Purchases from related parties | Amounts owed by related parties | Amounts owed to related parties | |||||
| Trading transactions | 31 Dec 2008 £m | 31 Dec 2007 £m | 31 Dec 2008 £m | 31 Dec 2007 £m | 31 Dec 2008 £m | 31 Dec 2007 £m | 31 Dec 2008 £m | 31 Dec 2007 £m |
| Joint ventures | 15.1 | 33.0 | - | - | 7.6 | 2.9 | 0.8 | 2.0 |
| Jointly controlled operations and assets | 69.4 | 32.5 | - | 0.7 | 3.1 | 11.5 | - | 11.1 |
| Loans to related parties | Loans from related parties | Injection of equity funding | ||||||
| Non- trading transactions | 31 Dec 2008 £m | 31 Dec 2007 £m | 31 Dec 2008 £m | 31 Dec 2007 £m | 31 Dec 2008 £m | 31 Dec 2007 £m | ||
| Joint ventures | 31.5 | 9.3 | - | - | 2.4 | 1.9 | ||
| Jointly controlled operations and assets | - | - | - | 4.9 | - | - | ||
Statement of directors' responsibilities
The directors' confirm that this condensed consolidated interim financial information has been prepared in accordance with IAS 34 as adopted by the European Union, and that the interim management report herein includes a fair review of the information required by DTR 4.2.7 and DTR 4.2.8.
The directors of Galliford Try plc are:
David Calverley, Non executive Chairman
Greg Fitzgerald Chief Executive
Frank Nelson Finance Director
Amanda Burton Senior Independent director
Peter Rogers Non executive director, appointed 1 July 2008
Andrew Jenner Non executive director, appointed 1 January 2009
Signed on behalf of the Board
Greg Fitzgerald
Chief Executive
Frank Nelson
Finance Director
19 February 2009
Independent review report to Galliford Try plc
Introduction
We have been engaged by the Company to review the condensed consolidated interim financial information in the interim report for the six months ended 31 December 2008, which comprises the consolidated income statement, consolidated statement of recognised income and expense, consolidated balance sheet, consolidated cash flow statement and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed consolidated interim financial information.
Directors' responsibilities
The interim report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the interim report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRSs as adopted by the European Union. The condensed consolidated interim financial information included in this interim report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed consolidated interim financial information in the interim report based on our review. This report, including the conclusion, has been prepared for and only for the Company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the condensed consolidated interim financial information in the interim report for the six months ended 31 December 2008 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.
PricewaterhouseCoopers LLP Chartered AccountantsLondon
19 February 2009
Notes:
(a) The maintenance and integrity of the Galliford Try plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report for the six months ended 31 December 2008 since it was initially presented on the website.
(b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions.