Galliford Try tanks as it takes £98m hit from legacy contracts

Shares in Galliford Try tanked on Wednesday as the company said it has set aside £98m to cover the cost of two major legacy contracts.

In a trading update for 1 January to 2 May, Galliford said that following a reappraisal, it now expects non-recurring costs of around £98m, 80% of which relates to its share of two joint venture infrastructure projects.

The group said a thorough review process has been performed to determine the anticipated liability. One of these projects will finish on site in summer 2017, while the other, which represents the larger proportion of the estimated non-recurring costs, is due to complete in mid-2018.

Chief executive Peter Truscott said: "The impact of the legacy projects in Construction, in particular the two large infrastructure projects, is regrettable. However, as described in our recent Strategy presentation, Galliford Try is no longer undertaking large infrastructure jobs on fixed price contracts.

"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."

Still, Galliford said the underlying business in Construction is performing well, while Linden Homes and Galliford Try Partnerships & Regeneration continue to make strong progress.

Meanwhile, the outlook for full-year 2017 and future years is unchanged and the company said its balance sheet and cash position remain robust.

Canaccord Genuity said: "While it is a big negative headline today, assuming that these losses on legacy contracts are the last provisions to be made it should provide more clarity and reassurance over the likely margin trajectory as the underlying Construction business targets and delivers margins of around 2%.

"The housing businesses continue to perform well and after the recent share price fall, valuation is starting to look more tempting - assuming that the Construction business does not deliver any further negative headlines."

At 0850 BST, the shares were down 9.9% to 1,317p.