Shares in Galliford Try (LSE:GFRD) took a battering this morning after the UK construction firm announced plans to raise £150m to cover the impact it has suffered from Carillion’s collapse last month. Galliford’s shares were off 18.3pc, or 181.5p, to 806p at the time of writing after it said Carillion’s demise has placed ‘additional financial obligations’ on its balance sheet which have the potential to affect its growth strategy.
These impacts arose from its joint venture with Carillion and fellow builder Balfour Beatty on a bypass in Scotland called the Aberdeen Wester Peripheral Route. Galliford’s costs for this project – which is still expected to complete in the summer – have now over-run by more than £150m after Carillion’s liquidation led it to bear the brunt of a sudden £25m exceptional charge.
Carillion entered liquidation last month after failing get the funding needed to secure its future. It had been battered by a difficult UK outsourcing market, rising debt and falling cash levels due to delays at its projects.
Galliford said it remains ’well within its financial covenants’ but decided that raising money to cover the impact of Carillion’s liquidation would stop it from having to divert capital from its housebuilding and regeneration projects.
According to the firm, using its own balance sheet to pay the charge would ‘reduce [its] ability to capitalise on the material growth opportunities these businesses would otherwise be well positioned to exploit’.
In order to allow it to continue to pursue the growth strategy it laid out in February last year, Galliford will raise £150m of new equity capital ‘in the coming weeks’. It said this will ensure it has access to enough money to maintain its strong growth trajectory and will demonstrate its continued and enhanced financial strength to shareholders, customers, suppliers, and other stakeholders.
Whether or not this has worked is another question, with £151m being wiped off the firm’s market value today at the time of writing.
Raising the money will also stop Galliford from breaking its current gearing policy of year-end net debt to net assets of no greater than 30pc. The group has £550m of debt facilities comprised of a £450m revolving credit facility, which matures in 2022.
Galliford also announced that it has decided to bring forward the planned increase in dividend cover to 2x pre-exceptional earnings per share to the current financial year.
However, this has resulted in an interim dividend of 28p per share, down from last year’s interim payment of 32p.
In its business update this morning, Galliford released strong half-year results today, reporting that year-on-year revenues for the first half of its 2018 financial year had risen by 14pc to £1.5bn.
Profits fell 11pc to £56.3m but rose 29pc to 81.3m after stripping out the charge related to Carillion. Likewise, earnings per share fell 9pc to 56.3p, but rose 31pc to 80.8p when Carillion’s collapse is not taken into consideration.
Chief executive Peter Truscott said the firm delivered ‘strong financial and operation performance’ and was boosted in particular by a 55pc jump in sales in its partnerships and regeneration business.
‘The market continues to be positive, underpinned by good mortgage availability, the Government’s ongoing commitment to Help-to-Buy, and the recent stamp duty cut for first-time buyers,’ he said.