REG - Galliford Try Hldgs - Annual Financial Report

Galliford Try HoldingsAnnouncement

10/10/2022 16:00

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RNS Number : 3829C  Galliford Try Holdings PLC  10 October 2022

GALLIFORD TRY HOLDINGS PLC

 

PUBLICATION OF ANNUAL REPORT AND FINANCIAL STATEMENTS 2022 AND NOTICE OF 2022
ANNUAL GENERAL MEETING

 

Galliford Try Holdings plc has today, in accordance with LR 9.6.1 R of the
Listing Rules, submitted to the Financial Conduct Authority's National Storage
Mechanism copies of the following:

 

·      The Annual Report and Financial Statements 2022 - prepared using
the single electronic reporting format, specified in the TD ESEF Regulation.

·      Notice of 2022 Annual General Meeting.

·      Form of Proxy for the 2022 Annual General Meeting.

 

The documents will shortly be available for inspection at
https://data.fca.org.uk/#/nsm/nationalstoragemechanism
(https://data.fca.org.uk/#/nsm/nationalstoragemechanism)

 

The Annual Report and Financial Statements and Notice of Annual General
Meeting are also available on the Galliford Try website at
www.gallifordtry.co.uk/investors/reports-presentations/
(http://www.gallifordtry.co.uk/investors/reports-presentations/) .

 

A condensed set of the Group's financial statements and information on
important events that have occurred during the financial year and their impact
on the financial statements were included in Galliford Try Holdings plc's
Final Results Announcement on 21 September 2022.  That information, together
with the information set out below which is extracted from the Annual Report
and Financial Statements 2022 constitute the material required by DTR 6.3.5 of
the Disclosure Guidance and Transparency Rules which is required to be
communicated to the media in full unedited text through a Regulatory
Information Service.  This announcement is not a substitute for reading the
full Annual Report and Financial Statements 2022.  Page and note references
in the text below refer to page numbers and note references in the Annual
Report and Financial Statements 2022.  To view the results announcement,
slides of the results presentation and the results webcast please visit
www.gallifordtry.co.uk/investors/reports-presentations/.

 

Our principal risks

At a Group level, the Board monitors risk using the following four principal
risks, a detailed analysis of which is provided below:

 

Work winning.

Project delivery.

Resources.

Regulatory compliance.

 

This approach facilitates a targeted focus on the most significant risks and
the actions being taken to manage them.

 

At an individual business unit level, our risk management process captures and
monitors risks and mitigations using more detailed risk themes aligned to the
four principal risks so that we can take more targeted actions to address
issues that are specific to the regions and sectors in which they operate.

Work-winning

 

Risk description

 

We fail to secure an appropriate pipeline of projects to achieve our revenue
and profitability targets.

 

Risk appetite

 

We aim to secure a forward order book that provides a high degree of certainty
of current year plus following year revenue, while reflecting appropriate
margin, cash and risk attributes.

Maintaining discipline in the projects that we bid for is a fundamental
element of our internal control framework. We will only bid for projects where
we are confident that we have the experience, knowledge and supply chain to
deliver effectively and where the client relationships and commercial terms
support a collaborative approach to managing risk.

 

Potential causes of risk

 

> A significant and sustained reduction in Government investment in
building and infrastructure projects reduces the opportunity pipeline.

> Increased costs make some schemes economically unviable leading to delays
or cancellation of projects.

> Delays to and/or reduced levels of private sector investment due to
macro-economic conditions.

> Failure to secure positions on key procurement frameworks.

> Failure to meet the increasing sustainability expectations of our
clients.

> Poor quality bid submissions.

> Failure to maintain discipline in project selection.

 

Current risk environment

 

> Pipeline in our chosen markets remains strong, supported by Government
policy on infrastructure spending and levelling up.

> The long-term transition to low carbon buildings and infrastructure is
creating market opportunity - net zero new builds and energy-efficient
refurbishments and retrofits.

> Inflation is making it more challenging to agree contract values -
increased risk that some opportunities may go away if they become unaffordable
for the client.

> However clients appreciate the issues with inflation and are more
receptive to a more collaborative approach to sharing the risk.

> Quality is becoming increasingly important to clients, not just price -
clients across all sectors are looking for solutions that support their carbon
reduction and social value objectives. This aligns well with our strengths,
but we need to continue to develop our capability and offering.

 

Emerging risks

 

> Clients start to move away from the traditional main
contractor/subcontractor model, instead opting for more self-delivery and
enterprise delivery models.

> We innovate or adopt new technologies too early, incurring costs
associated with being an early adopter, or too late, losing market share.

> Client attitudes to sustainability shift at differing rates, leaving some
clients focused on construction cost and others on whole-life cost and carbon
performance.

> Changes to planning policy and regulations to deliver the UK's net zero
ambition limit the ability of our clients to pursue new build construction
schemes.

> Shifts in Government policy and public spending could reduce the
certainty of opportunities in the public and regulated sectors.

 

Mitigations

 

> We manage the potential impact of an economic downturn by building a
high-quality order book with projects that meet our strict risk profile.

> We concentrate on sectors where we have core strengths and clients with
long-term growth and profitability potential.

> We focus on securing positions on key procurement frameworks (page 13)
and repeat business with key clients through a centralised, dedicated
pre-construction team. This allows for strategic planning, better
collaboration and reduced risk of project failure.

> Each time we bid for a contract, we follow our internal "heat map"
process, identifying risks across a range of criteria including the client and
their advisors, project location and our local supply chain, our technical
experience, our internal resources and capacity, the procurement method,
contractual terms, and conditions and price.

> All contracts over £25m in value, or which have a heightened risk
indicator on any other measure, are reviewed by the Executive Board prior to
approval to bid. We typically target lower-risk contract types.

> We carry out peer reviews of bids where relevant to ensure robust review
and challenge of risks and assumptions and to promote knowledge sharing across
the business.

> Adjacent markets strategy, including PRS and nmcn acquisition, expand our
target markets in a risk-managed way.

 

Key risk indicators

 

> Percentage of planned revenue secured.

> Percentage of pipeline in frameworks.

> Order book by client type.

> Percentage of repeat business with existing clients.

 

Link to our strategic priorities

 

Progressive culture

Socially responsible delivery

Quality and innovation

Sustainable financial returns

 

 
Project delivery

 

Risk description

 

We fail to deliver projects safely, on time, in agreement with contractual
terms, and to a high quality for our clients.

 

Risk appetite

 

We prioritise health and safety above everything else and believe that nothing
is so important that we cannot take the time to do it safely.

We will not tolerate poor quality and strive to deliver high quality buildings
and infrastructure for our clients that provide safe environments for the
occupiers and users of the assets.

We aim to provide realistic and transparent forecasts of project performance
with potential risks to programme and margins identified and addressed before
they materialise.

 

Potential causes of risk

 

> Changing regulations.

> Non-compliance with health and safety regulations and/or poor safety
behaviours.

> Programme delays and cost escalation.

> Poor control of client and subcontractor variations and claims processes.

> Contractual notices not given as per contract requirements.

> Poor record-keeping and document management.

> Poor design quality and/or co-ordination.

> Failure to comply with quality control procedures.

> Extended periods of adverse weather conditions.

> Subcontractor poor performance and/or insolvency.

> Unrealistic estimates, including cost to complete, inflation estimates,
outcomes of disputes and final value included in project forecasts.

 

 

 

Current risk environment

 

> Our Accident Frequency Rate improved from 0.08 to 0.06 in the year.

> Covid outbreaks are no longer a significant risk to programmes but there
remains the risk of isolated examples of disruption.

> Staff shortages increase the sense of workers feeling stretched which
could impact on safety and wellbeing.

> Short-notice delays, cancellations or incomplete deliveries are causing
disruption to programmes, but are manageable.

> Storing materials on site reduces the available space which needs to be
planned properly to maintain safe site operations. It also increases the risk
of theft.

> Relatively benign weather conditions across the year with periods of
extreme heat managed through pragmatic guidance on modifications to working
practices.

> Continue to drive initiatives to improve quality through training, tools,
quality alerts.

 

Emerging risks

 

> PI cover for construction contractors and/or insurance cover becomes
prohibitively expensive.

> We fail to adapt our processes to meet the requirements of our clients to
have better and more reliable data about the assets we design and build for
them.

> The country fails to learn from Covid-19 and any potential new global
pandemic has a significant/similar impact on the construction industry that it
had with Covid-19.

> Building designs and construction methodologies fail to adapt to the
physical effects of climate change, including more regular and more extreme
weather events, leading to reduced productivity, programme delays and cost
overruns.

 

Mitigations

 

> Continued reinforcement of our behavioural safety programme Challenging
Beliefs, Affecting Behaviour, and the introduction of Lead Indicators which
target no harm.

> A values-driven approach to project delivery focusing on close
collaboration and client satisfaction to enable achievement of end goals for
both parties.

> Robust review and approval of contractual terms, pre-contract to ensure
we do not sign up to contracts with onerous terms. This includes the
employment of margin thresholds and escalation to the Board of any contracts
that do not meet our criteria.

> Rigorous quality control in our business management system policies and
procedures and digitalisation to improve data, quality and efficiency.

> Due diligence to select competent designers and subcontractors to work
with and use specialist consultants at key review stages.

> Comprehensive commercial training.

> We have introduced standardised formats (value cost analysis and cost and
value reconciliation) for monitoring and reporting project performance and
forecasts.

> Monthly cross-disciplinary contract review meetings on all projects
enable a robust assessment of programme status, risks and commercial forecasts
and are investing in upgrading our existing ERP systems.

> A programme of commercial 'health checks' to provide an independent
assessment of the project team's reported project performance and forecast
outturn.

> Operational controls including health and safety site risk assessments,
which are monitored through a regular audit process.

> Introduction of Technical and Business Support Forums that drive process
improvements across health and safety, digitalisation, carbon reduction,
procurement, design management, mechanical and electrical, and commercial
activities.

> Escalation processes to respond promptly and appropriately to incidents.

 

 

 

Key risk indicators

 

> RIDDOR and AFR scores.

> Forecast project margins.

 

Resources

 

Risk description

 

We fail to secure the right people and other resources necessary to deliver
our projects and manage our business.

 

Risk appetite

 

We aim to recruit employees from a diverse talent pool who are aligned to our
values and behaviours.

We seek to work with financially resilient subcontractors, suppliers and joint
venture partners who share our values in relation to safety, quality and
sustainability.

 

Potential causes

 

> We are unable to attract, retain and/or develop the right staff to meet
our future needs, we mismatch our staffing levels to peaks and troughs in
activity or lack diversity.

> Lack of capacity in the supply chain due to high levels of activity in
the construction sector.

> Subcontractor and/or client insolvency.

> Failure to comply with fair payment practices.

> Lack of geographical coverage.

 

Current risk environment

 

> Material cost inflation is being driven by short term supply/demand
imbalances and high energy prices, exacerbated by the conflict in Ukraine.
However we take measures to manage material cost inflation (early procurement,
supply chain engagement, risk allowances in tenders etc).

> Long lead times for bulk items like steel and bricks are now factored
into our programmes and procurement planning. However, we are seeing more
short-notice delays, cancellations or incomplete deliveries.

> Subcontractor insolvency is an increasing risk, but we manage by being
selective in who we work with, monitoring our exposure and ensuring we pay our
suppliers promptly.

> It remains a competitive market for talent. Large infrastructure schemes
and a mismatch between skilled worker supply and demand is driving salaries up
and increases the risk of employees leaving for higher reward packages. We are
working hard on developing our employee value proposition as part of the
broader 'retain and gain' people strategy.

> We continue to develop our own people and provide them with the
opportunities for progression. The results of our staff survey indicate that
we have high levels of engagement and satisfaction within our staff and we
continue to improve the way we promote the business and develop our employee
offering.

> Continued focus on wellbeing.

> Strong balance sheet and net cash position gives confidence to clients
and allows us to continually improve our prompt payment performance.

 

Emerging risks

 

> There is a generational shortage of skills as more experienced staff
retire and are not replaced in sufficient numbers because the construction
sector cannot compete with other sectors in attracting talent.

> Innovations in the use of technology will require us to attract a
workforce with a different set of skills.

> Depletion or increased scarcity of non-renewable materials may lead to
greater volatility in prices and more regular disruption to supply.

> The drive towards net zero construction may lead to an increased risk of
defects and quality issues as we start to use new, low carbon materials whose
long-term performance is unproven.

 

Mitigations

 

> The Group has an established HR strategy based on best practice
principles and relevant legislation which, among other things, includes the
regular review of remuneration and benefits packages to ensure we remain
competitive.

> Our succession planning and talent management processes enable continuity
and identification of future leaders.

> We operate graduate and trainee programmes to develop our own pipeline of
talent.

> We develop long-term relationships with key suppliers and subcontractors
to ensure that we remain a priority customer when resources and materials are
in short supply.

> Our Advantage through Alignment programme facilitates greater engagement
with our key supply chain members and provides them with greater visibility of
our pipeline of projects.

> We are committed to paying 95% of supply chain invoices within 60 days,
and achieving the new standards of the Prompt Payment Code.

> We monitor subcontractor financial strength using a credit tracker on the
Dun & Bradstreet portal.

> Each business unit reviews its cash forecast weekly and monthly, and the
Group prepares a detailed daily cash book forecast for the following
eight-week period to highlight any risk of intra-month fluctuations. These
forecasts are reviewed at business unit, division and Group level.

 

Key risk indicators

 

> Material and trade shortages.

> Voluntary staff churn rate.

> Prompt Payment Code performance statistics.

> Average month-end cash.

 

Link to our strategic priorities

 

Progressive culture

Socially responsible delivery

Quality and innovation

Sustainable financial returns

 

Regulatory compliance

 

Risk description

 

We fail to comply with requirements of the various legal and regulatory
regimes in which we operate, resulting in a high-profile breach and regulatory
censure.

 

Our risk appetite

 

We have zero tolerance for non-compliance with regulations. We expect all
employees and subcontractors to be aware of all regulations relevant to their
role and to comply at all times. We also expect our people to speak up if they
observe or suspect non-compliance.

 

Potential causes

 

> Failure to update our procedures to reflect changes to key legislation
and regulations.

> Failure to provide sufficient and effective training to all staff.

> Failure to implement effective compliance monitoring processes.

 

Current risk environment

 

> Building Safety Act - while we welcome the drive for greater quality and
consistency, the Act has the potential for significant consequences in
relation to extended liabilities.

> Continue to invest in cyber security surveillance tools, recognising the
potential risk of cyber-attacks linked to the conflict in Ukraine.

> Seeking recognition of our information security standards and procedures
through ISO 27001 accreditation.

> The regulatory landscape in relation to ESG reporting is evolving quickly
and will require us to monitor and publish more information and comply with
new standards (ie ISSB).

 

Emerging risks

 

> Greater devolution or even full independence may lead to very different
regulatory regimes in Scotland and the rest of the UK.

> Climate-change/carbon related legislation eg a ban on diesel.

 

Mitigations

 

> Galliford Try has comprehensive policies and guidance at every level
including our Code of Conduct, mandatory regulatory and cyber security
e-learning for all employees, an anonymous and independent whistleblowing
helpline, regular legal updates and briefings, six-monthly compliance
declarations, and conflict of interest registers and authorisations.

> The Ethics and Compliance Committee, provides ongoing monitoring and
oversight of policy and compliance activity in relation to key areas of
legislation.

> We continue to review the detail of the Building Safety Act and are
preparing through training, continued investment in digital tools to support
quality, and a proactive approach to managing claims.

 

Key risk indicators

Number of external enforcement cases.

 

 

 

Viability Statement

 

As required by provision 31 of the UK Corporate Governance Code, the Board has
assessed the prospects and financial viability of the Group, taking account of
the Group's current position and the potential impact of the principal risks
to the Group's ability to deliver its business plan. The assessment of
prospects has been made using a period of five years, which is just beyond our
strategic plan period. The assessment of viability has been made using a
period of three years, which aligns with our budget period and provides
reasonable visibility of future revenue from the existing order book. Since
the sale of the housebuilding businesses and the recapitalisation of the
business in January 2020, the Group no longer has any debt facilities and
associated covenants, therefore viability has been assessed in terms of the
headroom against available cash reserves.

Assessment of prospects

 

As outlined in our Strategic report, the long-term prospects of the business
are supported by a strategy which builds on our existing strengths and the
growth opportunities in our target markets.

Our alignment to the UK's continued investment in social and economic
infrastructure is a fundamental driver of demand for our services and plays to
our strengths in the health, education, defence, highways and environment
markets. Our ability to achieve sustainable growth within these markets is
underpinned by our position on the most significant procurement frameworks,
our commitment to supporting the decarbonisation of the built environment and
our investment in digital technologies to drive continuous improvement in
quality and productivity.

Our people remain the key to our success and our focus on attracting and
retaining a more diverse workforce as well as increasing the proportion of
apprentices and graduates help us access the skills and expertise required to
deliver on our sustainable growth strategy.

Assessment of viability

 

The base case for the cash flow projections modelled in our assessment of
viability is the budget for the three years from 1 July 2022 which
incorporates appropriate contingencies against plausible day-to-day downside
risks, primarily the Group's principal risks as disclosed previously. The base
case shows strong levels of average month-end net cash and assumes that the
Group continues to operate without debt facilities.

Against this base case, we have stress-tested the forecasts and modelled the
impact on cash flow and liquidity of a number of downside scenarios related to
our principal risks, including a combined downside scenario that includes a
number of these sensitivities occurring together. The scenarios modelled, and
their link to the underlying principal risks, are described in the table
below.

Although we have not included a further national lockdown scenario in our
stress testing, the business and our cash performance has shown a high degree
of resilience throughout the Covid-19 pandemic. Our sites largely remained
open and the adherence to stringent risk mitigation measures in our sites and
offices, together with good engagement with our clients and supply chain,
minimised the disruption to project delivery.

 

 Scenario modelled                                                               Link to principal risks
 Scenario 1                                                                      >  Work-winning

 Reduction in construction volumes

 Our cash performance is correlated with earnings growth and therefore reliant
 on construction activity being in line with our assumptions.

 We have modelled a reduction in construction volumes that would equate to a
 10% reduction in monthly cash receipts offset by a proportionate reduction in
 payments, relative to our base case forecast.
 Scenario 2                                                                      >  Resources

 Deterioration in working capital

 We have modelled the impact of a deterioration in our working capital, which
 could be caused by delays in receiving payments from clients and/or earlier
 payments to our supply chain.
 Scenario 3                                                                      >  Resources

 Irrecoverable cost increases                                                    >  Project delivery

 There is a risk of a prolonged period of materials cost inflation and
 therefore we have modelled the impact of failing to fully mitigate these cost
 increases on our projects.
 Scenario 4                                                                      >  Work-winning

 'Perfect storm'                                                                 >  Resources

 We also tested the unlikely but plausible scenario where all of scenarios 1-3   >  Project delivery
 combine at the same time.

As part of the viability assessment, the Board also considered the mitigations
and interventions available to manage the impact of one or more of the
downside scenarios occurring. The base case already includes significant cash
contingencies and the Board has considered further mitigating actions that are
available to it.

Based on the results of this analysis, the Board has concluded that it has a
reasonable expectation that the Group will be able to continue in operation
and meet its liabilities as they fall due over the three-year period of its
assessment.

 

29 Related party transactions

 

Transactions between the Group and its related parties are disclosed as
follows:

Group
                       Sales to              Amounts owed by

related parties
related parties
                       2022       2021       2022       2021

£m
£m
£m
£m
 Trading transactions
 Related parties       97.3       110.5      38.4       42.2

 

                           Interest and dividend income from related parties
                           2022                       2021

£m
£m
 Non-trading transactions
 Related parties           4.6                        4.4

Sales to related parties are based on terms that would be available to
unrelated third parties. Amounts owed by related parties consist predominantly
of subordinated debt within the PPP and Other Investments portfolio, that if
held to maturity would be due over the next 26 years (2021: 27 years). These
receivables are unsecured, with interest rates varying between a range of 9%
and 12%. Payables are due within one year (2021: one year) and are interest
free.

Company

Transactions between the Company and its subsidiaries which are related
parties, which are eliminated on consolidation, are disclosed as follows:

                           Interest and dividend income from related parties
                           2022                       2021

£m
£m
 Non-trading transactions
 Subsidiary undertakings   15.0                       2.0

The Company has provided performance guarantees in respect of certain
operational contracts entered into between joint ventures and a Group
undertaking.

 

 

 

Statement of directors' responsibilities

The directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.

 

Company law requires the directors to prepare financial statements for each
financial year. Under company law the directors have prepared the Group and
Parent Company financial statements in accordance with UK adopted
International accounting standards. Under company law, the directors must not
approve the financial statements, unless they are satisfied that they give a
true and fair view of the state of affairs of the Group and Parent Company and
of the profit or loss of the Group and Parent Company for that period.

 

In preparing the financial statements, the directors are required to:

 

> select suitable accounting policies and then apply them consistently;

> make judgments and accounting estimates that are reasonable and prudent;

> state whether they have been prepared in accordance with UK-adopted
International Accounting Standards and with the requirements of the Companies
Act 2006; and

> prepare the financial statements on the going concern basis, unless it is
inappropriate to presume that the Group and Parent Company will continue in
business.

 

The directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and Parent Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Parent Company and enable them to ensure that the financial
statements and the Directors' Remuneration Report comply with the Companies
Act 2006 and, as regards the Group financial statements, Article 4 of the IAS
Regulation. They are also responsible for safeguarding the assets of the Group
and the Parent Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.

 

The directors are responsible for the maintenance and integrity of the Group
and Parent Company's website. Legislation in the UK governing the preparation
and dissemination of financial statements may differ from legislation in other
jurisdictions.

 

The directors consider that the Annual Report and Accounts, taken as a whole,
is fair, balanced and understandable and provides the information necessary
for shareholders to assess the Group and Parent Company's performance,
position, business model and strategy.

 

Each of the directors, whose names and functions are listed on pages 68 and
69, confirms that to the best of their knowledge:

 

> the Parent Company financial statements, which have been prepared in
accordance with UK adopted International Accounting Standards, give a true and
fair view of the assets, liabilities, financial position and profit of the
Parent Company;

> the Group financial statements, which have been prepared in accordance
with UK adopted International Accounting Standards, give a true and fair view
of the assets, liabilities, financial position and profit of the Group; and

> the Strategic report contained on pages 1 to 61 includes a fair review of
the development and performance of the business and the position of the Group
and Parent Company, together with a description of the principal risks and
uncertainties that it faces.

 

In the case of each director in office at the date the Directors' Report is
approved:

 

> so far as the director is aware, there is no relevant audit information
of which the Group and Group's auditors are unaware; and

> they have taken all the steps that they ought to have taken as a director
in order to make themselves aware of any relevant audit information and to
establish that the Group and Group's auditors are aware of that information.

 

For and on behalf of the Board

 

Bill Hocking

Chief Executive

21 September 2022

Forward-looking statements

 

Forward-looking statements have been made by the directors in good faith using
information up until the date on which they approved this Annual Report.
Forward-looking statements should be regarded with caution due to
uncertainties in economic trends and business risks. The Group's businesses
are generally not affected by seasonality.

 

 

For further enquiries:

 

 Galliford Try Holdings plc  Kevin Corbett, Company Secretary  01895 855001
                             Clara Melia, Investor Relations   020 3289 5520
 Tulchan Communications      James Macey White                 0207 353 4200
                             Ed Cropley

 

Notes to Editors

Galliford Try Holdings plc is a leading UK construction group listed on the
London Stock Exchange. Operating as Galliford Try and Morrison Construction,
the group carries out building and infrastructure projects with clients in the
public, private and regulated sectors across the UK.

 

 

 

 

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