The chief executive of Galliford Try has said that the cost of a troublesome road project in Aberdeen – one of the contracts which sunk fellow contractor Carillion – will be more than £150m higher than it had initially thought.
Galliford said on Wednesday that it would raise the same amount via the stock market in order to be able to keep investing in its less troubled housebuilding and regeneration arms while the project in Scotland is completed.
Carillion’s demise has left Galliford and its other partner Balfour Beatty with responsibility for building the Aberdeen bypass, which is set to open later this year.
Peter Truscott, the business's chief executive, said final cost of the project will be "in excess of £150m more than the original estimate".
Galliford said on Wednesday that it was booking a £25m exceptional charge because of Carillion's demise, and would need the £150m to cover “additional financial obligations arising from this contract”.
Finance director Graham Prothero said: "We don't need to do it – we're not in any problems with our banks or banking covenants – but we've taken the decision that it's the right thing to do."
We don't need to do it, but we've taken the decision that it's the right thing to do
Galliford Try finance director Graham Prothero
Mr Truscott said that the company was mindful of maintaining its cash position, adding that it was "important to show a strong balance sheet in a post-Carillion world".
But analyst Neil Wilson of ETX Capital said the extra costs were not just down to Carillion’s collapse. “Old-fashioned cost over-runs are as much to blame... AWPR (the Aberdeen Western Peripheral Route) has been a fiasco start to finish," he said.
Aynesly Lammin, an analyst at Cannacord, said in a note: “The equity raising is fully underwritten and if it draws a line under all of its legacy issues within construction it could be a defining event, but recent events only make investors increasingly wary of risks within contracting businesses.”
Last May Galliford said it would be hit by £98m worth of unexpected costs after reappraising two “major infrastructure contracts”, one of which was the Aberdeen project.
The group also revealed strong half-year results today, with revenues up 14pc to £1.5bn in the six months to December. Pre-tax profits fell 11pc to £56.3m, but rose 29pc to £81.3m after stripping out the £25m charge.
But its interim dividend fell from 32p to 28p per share after it brought forward plans to boost its dividend cover to two times pre-exceptional earnings.
Mr Truscott said Galliford had “delivered a strong financial and operational performance”, with revenue growth across its three main areas of housebuilding, regeneration and infrastructure construction.
Sales in its partnerships and regeneration business were up 55pc at £223.5m, partly thanks to its acquisition of Southampton-based Drew Smith Group and new footholds in Bristol and Leicester.
Infrastructure construction revenues climbed 11pc to £823.6m, while those from its Linden Homes housebuilding arm climbed a more modest 7pc to £436.8m.
Mr Truscott dismissed claims that a lacklustre construction market had contributed to Carillion's downfall. "We're actually finding quite stable market conditions at the moment," he said.
Shares in Galliford Try fell 17pc in late trade to 820p.