Results

Galliford Try plc

09/11/2019 | Press release | Distributed by Public on 09/11/2019 00:26

Final Results

07:00 AM WEDNESDAY 11 SEPTEMBER 2019

GALLIFORD TRY PLC

ANNUAL RESULTS STATEMENT FOR THE YEAR ENDED 30 JUNE 2019

GROUP PERFORMANCE IN LINE WITH EXPECTATIONS

Financial

2019

2018

Revenue1 (including share of joint ventures)

£2,863m

£3,132m

Group revenue1

£2,711m

£2,932m

Pre-exceptional profit before tax2,3

£155.5m

£188.7m

Profit before tax

£104.7m

£143.7m

Pre-exceptional earnings per share2,3

115.7p

158.4p

Earnings per share

78.5p

121.1p

Full year dividend per share

58.0p

77.0p

Net(debt)/cash

£(56.6)m

£98.2m

Pre-exceptional Group return on net assets4

22.1%

29.2%

Group return on net assets5

16.6%

24.9%

Group

· Strong progress against strategic operational targets in all three businesses

· Pre-exceptional profit before tax2,3 of £155.5m in line with previous guidance

· 6,507 total new homes built by Linden Homes and Partnerships & Regeneration (2018: 6,193)

· Average net debt at £186m (2018: £227m)

· Strong sales in hand across Linden Homes and Partnerships of £677m (2018: £698m)

· Full year dividend payment of 58.0p (2018: 77.0p), covered 2.0x by pre-exceptional profits

· Opportunity to strengthen and advance all three businesses through the potential transaction with Bovis Homes Group PLC

Linden Homes

· Maintained strong margin of 19.6% (2018:19.5%) and four-star housebuilder status

· Continued progress against objectives of standardisation of units and process

· 3,229 completions6 (2018: 3,442) at a lower average selling price, generating revenue of £820m (2018: £947m) and operating profit of £160.5m (2018: £184.4m)

· 0.56 sales rate per outlet per week (2018: 0.59) from lower average outlets with sales reserved, contracted or completed of £474m7 (2018: £510m)

· 12,600 plot landbank7,8 (2018: 11,830), estimated to be around 3.5 years' supply

Partnerships & Regeneration

· Excellent progress against strategy of extending geographic coverage and growing margins

· Strong profitable growth with mixed-tenure revenue up 55% to £192m, from 1,178 completions6 (2018: £124m and 751 completions respectively) and contracting revenue of £431m, up 23% (2018: £351m)

· 5.6% operating margin (2018: 5.0%), generating a 47% increase in operating profit to £34.8m (2018: £23.6m)

· £1.0bn7 contracting order book (2018: £1.2bn) and mixed-tenure sales reserved, contracted or completed of £203m7 (2018: £188m)

· 5,400 plot landbank7(2018: 3,760)

Construction

· Restructured and refocused to deliver improved future performance

· Pre-exceptional revenue of £1,387m as the business focuses on core sectors (2018: £1,687m)

· Results impacted by contract write-downs and restructuring costs previously announced

· £2.9bn7 order book (2018: £3.3bn), reflecting improved focus

Graham Prothero, Chief Executive, commented:

'The Group has continued to perform well and our talented teams across the businesses have delivered a good performance despite the challenges faced.

We continue to make great progress in Linden Homes, focusing on the benefits of standardising our range and rationalising process. We are building homes more cost effectively while delivering well-designed, high quality units which meet our customers' needs, as reflected in our improving satisfaction scores. We continue to head towards our target of 80% of completions being Linden Collection.

Partnerships & Regeneration has continued its excellent performance with both revenue growth and margin expansion, as we increase our delivery of affordable new homes. The acquisition of Strategic Team Group in Yorkshire accelerates our strategy of targeting growth in key regions around the country. We continue to see strong demand across the regions, and we are well placed to respond to this, working alongside Housing Associations, local authorities and other partners.

Construction's result for the year has been impacted by challenges with both legacy and some current projects and by the restructure, which is now complete. The business continues to see good demand in its Building and Infrastructure divisions and is focusing on disciplined growth across its core sectors of building, water and highways, which we believe will deliver improved margins.

The potential combination of our Linden Homes and Partnerships businesses with Bovis Homes represents a superb opportunity, enhancing the prospects for all three of our businesses to thrive as strategically focused and well-financed operations with excellent opportunities for growth. The transaction allows Construction to continue trading as a standalone well capitalised business.'

This announcement contains inside information.

Enquiries:

Galliford Try plc

Graham Prothero, Chief Executive

Andrew Duxbury, Finance Director

01895 855001

Tulchan Communications

James Macey White

Martin Pengelley

Elizabeth Snow

020 7353 4200

1'Revenue' includes share of joint ventures' revenue of £249.7m (2018: £200.7m) and excludes revenue from part exchange properties of £100.7m (2018: N/A9). 'Group revenue' where stated excludes share of joint ventures and includes revenue from sales of part-exchange properties.

2 Pre-exceptional measures exclude exceptional costs as described in note 5. All future references to pre-exceptional data or ratios are consistent with this definition.

3 Exceptional costs in 2019 were £50.8m. Exceptional costs in 2018 of £45.0m.

4 Pre-exceptional Group return on net assets represents pre-exceptional profit before tax, finance costs and amortisation divided by average pre-exceptional net assets.

5 Group return on net assets represents profit before tax, finance costs and amortisation divided by average net assets.

6 Completions net of joint venture partner share were 2,781 (2018: 2,903) for Linden Homes and 837 (2018: 564) for Partnerships & Regeneration.

7 As at 9 September 2019. All future references to this data are for the same period.

8 Linden Homes landbank includes 4,024 plots (2018: 3,276) representing Linden Homes share of plots held in joint ventures.

9 Following the introduction of IFRS15 with effect from 1 July 2018, Group revenue includes sales of part-exchange properties with a total of £100.7m in the year to 30 June 2019. (£98.7m in Linden Homes and £2.0m in Partnerships and Regeneration). Previous periods have not been restated to include part-exchange revenue (see notes 2 and 23).

Analyst Presentation

Galliford Try will hold its results presentation at 09:30 am on Wednesday 11 September 2019 at the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS. A live audio webcast will be available at https://webcast.openbriefing.com/gallifordtry-fyr19/

CURRENT TRADING AND OUTLOOK

The Group continues to trade well against the backdrop of continuing political and economic uncertainty. Linden Homes has seen improving demand after the traditional quieter summer weeks, with prices and margins remaining firm. Partnerships & Regeneration is achieving a good rate of unit sales and continues to see strong demand both from our Registered Provider and local authority partners. The restructuring of Construction is proving effective, and the core business is performing well.

BREXIT

The Group has continued to review the potential effects on our business of the UK's proposed exit from the European Union, under various scenarios. Depending on the circumstances of the exit, the biggest impact we foresee is the effect on our markets, and on the Linden Homes market in particular, of a potential severe decline in consumer confidence and economic activity in general. Such a decline in consumer confidence and economic activity could coincide with Linden Homes autumn selling season. We believe our business planning is as prepared as possible for this uncertainty. We have also considered the effects on our supply chain, and engaged with our suppliers, across all of our businesses. Where possible we have made specific arrangements where we foresee the potential for disruption to the import of critical materials and products, though noting that it is impractical to try to insulate our business entirely. We are alert to the risk of a further significant decline in the value of Sterling and will continue to use normal hedging arrangements for material purchases of imported products on specific contracts.

DIVIDEND

The directors are recommending a final dividend of 35.0 pence per share which, subject to approval at the AGM, will be paid on 4 December 2019 to shareholders on the register at 8 November 2019. This is in line with our policy of paying a dividend which is 2x covered by earnings. Together with the interim dividend of 23.0 pence per share paid in April, this will result in a total dividend for 2019 of 58.0 pence per share.

STRATEGY

The Group's three-part strategy comprises:

(1) Operating efficiencies to increase margins and develop stronger foundations for sustainable growth. We have streamlined operations across the group creating a leaner and more resilient business to support ability to grow.

(2) Maintain capital discipline. We continue to manage capital prudently and continue to pay dividends while reinvesting appropriately in a growing business.

(3) Operate sustainably to create longer-term value. We enhance our policies and procedures, embedding them in leadership and culture, implement programmes to improve employee and subcontractor safety behaviours and engage with employees to identify training and development needs.

The Group intends to publish revised medium term targets in Spring 2020.

FINANCIAL REVIEW

The Group delivered good underlying performance during the year. Linden Homes delivered steady sales and strong margins in tougher conditions. Partnerships & Regeneration delivered impressive top line growth and increased profitability. In Construction, the core business performed well but there were challenges with both legacy and some current projects.

Revenue for the year was £2,863m (2018: £3,132m). Group revenue, which excludes our share of joint ventures but includes part-exchange revenue, was £2,711m (2018: £2,932m).

Pre-exceptional profit from operations, which excludes our share of joint ventures' interest and tax, was £177.8m (2018: £213.1m). Pre-exceptional profit before income tax was £155.5m, compared with £188.7m in 2018, and includes the effect of contract write downs reported in May 2019. After exceptional costs (see note 5 and exceptional items), profit before income tax was £104.7m (2018: £143.7m).

The table below reconciles profit before income tax to our alternative performance measure of pre-exceptional profit before income tax, which is a key metric for us when monitoring performance of the business.

2019
£m

2018
£m

Profit before income tax

104.7

143.7

Exceptional charges

50.8

45.0

Pre-exceptional profit before income tax

155.5

188.7

Exceptional items in the year totalled £50.8m. Of this, £26.0m was in relation to additional costs to complete the Aberdeen Western Peripheral Route (AWPR) contract, which was concluded in early 2019, and £6.3m resulted from the impact of our updated accounting policy on claims from other parties (see below) on AWPR.

In addition, the exceptional charge included £6.7m against another legacy contract and £4.6m in respect of the restructure completed within the Construction business which has simplified the business and management structure. The remainder of our write downs announced in our Construction business on 21 May 2019 has been recognised in pre-exceptional operating costs.

Additionally, the Group incurred an impairment charge of £2.8m in respect of the new guidance on expected credit losses arising under IFRS9 in respect of three contracts with entities owned by a major infrastructure fund.

During the year, the High Court issued its judgment in the Guaranteed Minimum Pension (GMP) equalisation case with Lloyds Bank Plc. This resulted in an increased obligation in two of our defined benefit pension schemes via an amendment to the scheme benefits. This has been treated as a plan amendment and therefore a past service cost, resulting in an exceptional charge of £3.5m. Additionally, in July 2018 the Galliford Group Special Scheme completed a £7m insurance bulk annuity buyout transaction, securing its pensioner liabilities. The premium paid was £0.9m higher than the IAS 19 liabilities discharged and resulted in an exceptional charge of £0.9m.

Construction has two significant estimated claim recoveries assumed at 30 June 2019. The Group, through its joint arrangement, is continuing to negotiate a significant claim against the client on the AWPR contract, construction of which was concluded in early 2019, whilst preparing to pursue this through formal dispute resolution before December 2019 should its discussions with the client not reach a satisfactory conclusion. Over the last three financial years, we have recorded £152m of exceptional losses in relation to AWPR. Consultants have advised an expected recovery of around £100m to Galliford Try, although the total assessed value in respect of the claims under the contract is over twice that level. Consistent with 30 June 2018, in assessing the final losses on this contract, we have assumed recoveries from our share of the claims against the client. The contract recovery recorded in our balance sheet is determined from the consultant's estimate referred to above. Negotiations remain in progress with our client but the final outcome is unknown and when concluded could result in a material difference to the position assumed. There are also claims against other parties including designers and insurers against which no value is recognised in the balance sheet due to our accounting policy on downstream claims (note 2).

Separately, the Group has submitted claims of £54m, and recognised significant value, in respect of three contracts with entities owned by a major infrastructure fund of a blue-chip listed company. Costs were significantly impacted by client-driven scope changes, and our work on these three contracts formally ceased on the termination of our contracts in August 2018. We remain confident of our entitlement following two favourable adjudications, and have assessed recoverability in accordance with IFRS 15. We have also assessed the expected credit loss provision in accordance with IFRS 9 which was adopted by the Group on 1 July 2018 (note 2).

Average net debt during the year was £186m, in line with our guidance and well within our £550m of bank facilities, reflecting our continued rigorous approach to cash management. Average net debt in 2018, excluding the proceeds from the rights issue, was £227m. Year end net debt was £56.6m (2018: net cash £98.2m), the reduction reflecting the use of proceeds of the rights issue on AWPR and investment into housebuilding working capital.

Return on net assets is an important indicator of Group performance and we monitor it for each project and business. It is calculated as profit before tax, finance costs and amortisation, divided by average net assets. Our pre-exceptional return on net assets was 22.1% (2018: 29.2%), impacted by contract write downs, referred to above, while on a reported basis it was 16.6% (2018: 24.9%).

Throughout this statement the Group has presented financial performance measures which are used to manage the Group's performance. These measures are chosen to provide a balanced view of the Group's operations and are considered useful to investors as they provide relevant information on the Group's performance and are aligned to measures used internally to assess business performance in the Group's budgeting process and when determining compensation.

IFRS15 Revenue from Contracts became effective for the 2019 financial year (and is effective for claims we have with clients). We have reviewed our recognition of claims from other third parties in light of this standard (using the guidance in IAS 37 Provisions, Contingent Liabilities and Contingent Assets). Whilst the Group still expects to recover the amounts claimed from third parties that the Group had recognised at the 30 June 2018 balance sheet date, certain claims do not meet the virtually certain criteria of IAS 37. These claims have therefore been de-recognised at the transition date. More information can be found in note 2.

OPERATIONAL REVIEW

Total residential properties completed:

Private

Affordable

Mixed-tenure

Contracting

Total

Linden Homes

2,227

1,002

3,229

Partnerships & Regeneration

1,178

2,100

3,278

TOTAL

6,507

LINDEN HOMES

2019

2018

Revenue (£m)

820.4

947.3

Profit from operations (£m)

160.5

184.4

Operating profit margin (%)

19.6

19.5

Completions

3,229

3,442

Linden Homes made further strong progress this year, delivering on its strategic objectives, achieving good financial performance, and preparing for further growth and margin progression.

We achieved a strong four-star rating in the NHBC customer satisfaction survey, improving on last year, and continue to strive for five stars. To continue to improve the customer journey, we have introduced an online modular approach to training and development for the sales team.

Completions in the year amounted to 3,229 units (2018: 3,442 units), of which 2,227 were private housing (2018: 2,587) and 1,002 were affordable housing (2018: 855). Excluding our joint venture partners' share, completions were 2,781 units (2018: 2,903).

The average selling price across all units was £284,000 (2018: £310,000), in line with our plan. Average selling prices for private housing reduced from £367,000 to £351,000 (down 4%), while the average selling price for affordable housing was £134,000 (2018: £134,000).

There were 80 active selling sites (2018: 85), with sales per site per week of 0.56 (2018: 0.59). Cancellation rates were 18% (2018: 19%). Sales in hand are £474m (2018: £510m), reflecting the lower average selling prices and reduced unit numbers.

We introduced The Linden Collection, our third generation of standard layouts, in the previous financial year. With all of these layouts now having been built, we took the opportunity to review and optimise the range. Around 80% of our planning applications now use The Linden Collection, and we are already achieving the target we had set for the end of our plan period. Unit completions from The Linden Collection is 37.6% of total private completions.

Reflecting increased process standardisation and reduced costs, overheads were 4.4% of revenue in 2019 (2018: 4.1%), and an operating margin of 19.6%. Around 87% of Linden Homes' landbank relates to houses. The average cost per plot is £62,000 and the expected average selling price per plot is £303,000. The gross development value of our landbank is £3.6bn (2018: £3.4bn).

Conditions in the land market remain favourable, with good availability at attractive hurdle rates. We have a landbank of 12,600 plots (2018: 11,830 plots) representing around 3.5 years' supply, in line with target at an average margin of 24.4%.

The strategic land programme is progressing well and is delivering sites at very good margins. We continued to acquire further options over strategic land, however the focus has moved more towards working assets through the planning system. At 30 June 2019, the strategic land portfolio comprised 2,850 acres, sufficient to generate 13,240 plots (2018: 2,730 acres and 13,270 plots).

Strategic use of Joint Ventures

Working together with select partners remains a core part of the strategy for Linden Homes. Our joint ventures enable the business to secure larger sites for investment and provide additional points of sale, while at the same time enabling us to share location risk and invest less capital upfront. Reflecting this, we include our share of joint ventures in our key reporting metrics, however for clarity, we separate out the gross and net values in the table below:

Completions (units)

Revenue4

(Linden Homes)

ASP3

Gross

Net of JV partner

£m

£000

Direct - private

1,598

1,598

544

340

- affordable

735

735

95

130

JOs1 - private

48

24

4

167

2,381

2,357

643

n/a

JVs2 - private

581

291

126

433

JVs2 - affordable

267

133

24

181

848

424

150

n/a

Other income, including land sales

-

-

27

n/a

TOTAL

3,229

2,781

820

284

1Joint operations (JOs) proportionally consolidated within Linden Homes under IFRS11.

2JVs equity accounted under IFRS11.

3Private ASP £351k; affordable ASP £134k.

4 Excludes part-exchange.

PARTNERSHIPS & REGENERATION

2019

2018

Revenue (£m)

623.2

475.2

Profit from operations (£m)

34.8

23.6

Operating profit margin (%)

5.6

5.0

Equivalent contracting units

2,100

2,000

Mixed-tenure units

1,178

751

Partnerships & Regeneration made outstanding progress, with rapid growth in both contracting and higher margin mixed-tenure revenues.

Revenue grew by 31% to £623.2m (2018: £475.2m), completing 1,178 units at an average selling price of £217,000 (2018: 751 units and £220,000). Revenue from mixed-tenure developments rose by 55% to £191.5m (2018: £123.9m) with sales carried forward currently £203m (2018: £188m). Contracting revenue was 23% higher at £431.3m (2018: £351.3m). The operating margin improved further to 5.6% (2018: 5.0%) and RoNA was improved to 51.0% (2018: 48.2%).

The number of equivalent contracting units completed rose from 2,000 in 2018 to 2,100 and the contracting order book is £1.0bn, giving the business a total order book of £1.2bn (2018: £1.4bn). At the year end, the business also has work on the bench of a further £1.3bn associated with the land bank and schemes at preferred bidder stage.

Partnerships & Regeneration secured a number of major wins during the year. These included a partnership with Homes England to deliver 850 homes across the UK, under the Delivery Partner Panel. Homes England is looking to speed up the release of public land and incentivise housing providers to deliver homes more quickly. We were also selected by Enfield Council to build the first 725 homes at the £6.0bn Meridian Water development in the Lea Valley and signed a development agreement with Ealing Council to create a new mixed-use scheme, including 470 homes.

Our Yorkshire business opened during the year and was further enhanced with the acquisition of Strategic Team Group in July 2019, an established contracting and land-led developer in Yorkshire and the North West. This provides the business with an established operating platform and mature supply chain and client relations in this region. The purchase supports Partnerships' ambitious growth strategy, targeting growth in key regions around the country to increase the supply of new homes.

Customer service was a key focus area this year. During the year we introduced a mandatory third-party pre-handover inspection for all completed units to ensure homes are handed over defect free. We consider we are currently recording four-star standard.

CONSTRUCTION

Pre-exceptional 2019

2019

Pre-exceptional 2018

2018

Revenue (£m)

1,386.8

1,382.5

1,687.4

1,687.4

(Loss)/profit from operations (£m)

(15.0)

(61.5)

15.9

(29.1)

Operating profit margin (%)

(1.1)

(4.4)

0.9

(1.7)

Order book (£bn)

2.9

2.9

3.3

3.3

Construction's performance was impacted by the contract reviews conducted in the year and the business is now, following the strategic review of the business, structured to focus on its core strengths.

Revenue fell by 18% to £1,386.8m (2018: £1,687.4m) as the Aberdeen Western Peripheral Route (AWPR) concluded and the business implemented its strategy of strict risk management, selective bidding and focus on margins. The pre-exceptional loss from operations was £15.0m (2018: £15.9m profit), reflecting write downs on a number of contracts. The loss from operations was £61.5m (2018: £29.1m), after exceptional costs of £46.4m relating to the restructuring and contract write offs. The underlying portfolio of newer contracts is performing well, with margins that reflect their associated risk profile.

In April 2019, the Group announced a strategic review of our Construction business to allow it to be reduced in size with a view to focusing on the business's key strengths in markets and sectors with sustainable prospects for profitability and growth, where there is a track record of success.

That strategic review identified that conditions continued to be challenging in the infrastructure market, particularly in Scotland, and as a result, the business responded by simplifying its structure and concentrating on those areas with long-term growth and profitability potential such as its regional building operations, highways and water.

The business has continued to work through its legacy contracts, with the AWPR project completing in early 2019, delivering economic benefits to the region and receiving a positive reaction from all stakeholders. The joint venture continues to negotiate on the significant claim with the client, while preparing to pursue this through formal dispute resolution should these talks not reach a satisfactory conclusion as set out in the financial review.

In our Infrastructure business, cash continues to be negatively impacted by work in respect of three contracts with entities owned by a major infrastructure fund, where costs have been significantly impacted by client driven scope changes. Our work on all three projects formally ceased in August 2018. As set out in the financial review, the Group has submitted claims of £54m, and recognised significant value and based on two favourable adjudications, we remain confident on the recovery of our entitlement.

Both the Building and Infrastructure divisions were successful at winning new work during the year and were appointed to contracts and frameworks worth over £580m and £497m respectively.

Our order book is £2.9bn (2018: £3.3bn). Of this, 79% is in the public sector (2018: 75%), 4% is in regulated industries (2018: 9%) and 17% is in the private sector (2018: 16%). The business currently has secured 89% of planned revenue for the 2020 financial year (2018: 89%). Frameworks is an important part of our business model and they provide 81% of our order book (2018: 77%).

Building

Pre-exceptional

2019

2019

Pre-

exceptional 2018

2018

Revenue (£m)

859.8

859.8

1,038.0

1,038.0

(Loss)/profit from operations (£m)

(9.5)

(10.4)

11.6

11.6

Operating profit margin (%)

(1.1)

(1.2)

1.1

1.1

Order book (£m)

2,090

2,090

2,371

2,371

During the year, Building won contracts and positions on frameworks worth over £580m. This included being appointed contractor for the Winchburgh and Calderwood Education Bundle. The business was successfully reappointed to the North Wales Construction Partnership and to the Southern Construction Framework, which is a collaboration between Devon and Hampshire County Councils. It also won a contract to deliver the major new Assembly Bristol mixed-use development. The division has also been successful with private sector clients, in particular winning work to construct student residences and private rented schemes.

Infrastructure

Pre-exceptional 2019

2019

Pre-exceptional 2018

2018

Revenue (£m)

527.0

524.2

649.4

649.4

(Loss)/profit from operations (£m)

(5.5)

(51.0)

4.3

(40.7)

Operating profit margin (%)

(1.0)

(9.7)

0.7

(6.2)

Order book (£m)

779

779

948

948

Infrastructure won contracts and positions on frameworks worth over £497m during the year. This included winning two places on the Highways England Delivery Integration Partnership, on lot four in the South West, valued at £800m over six years, alongside one other supplier, and lot seven in the East of England, valued at £2.8bn alongside two other suppliers.

PPP Investments

2019

2018

Revenue (£m)

31.5

21.7

Profit from operations (£m)

4.5

6.8

Directors' valuation (£m)

41.6

32.6

PPP Investments reported revenue of £31.5m (2018: £21.7m), with a profit from operations of £4.5m (2018: £6.8m).

During the year, we invested £22.7m in equity and sold investments that generated an aggregate profit on disposal of £6.9m (2018: £5.5m). The secondary market was strong during the year, with good interest in acquiring our investments. At the year end, the directors' valuation of our PPP portfolio was £41.6m, equivalent to the fair value included in the balance sheet following the implementation of IRFS9 on 1 July 2018 and a value invested of £34.9m (2018 valuation: £32.6m, value invested: £26.1m).

PPP Investments supports our Building, Infrastructure and facilities management divisions, enabling them to be named preferred bidder on more than £222m of work during the year. The most significant project was the Winchburgh and Calderwood education campus, for West Lothian Council, valued at £72m.

With little public-private partnership activity in the year, PPP Investments focused on progressing development style projects. At the year-end it was preferred bidder on four private rented sector schemes, with a total capital value of around £175m. Once secured, these will provide additional work for the Construction business. PPP Investments also continues to review opportunities in the student housing market.

HEALTH & SAFETY

Health and safety remains the Group's top priority and we are committed to achieving industry leading health, safety and environmental standards. Our systems are both OHSAS 18001 and ISO 14001 compliant and are subject to regular audit.

Each of the businesses has worked to adapt our Challenging Beliefs, Affecting Behaviour safety programme during the year. Linden Homes developed 'Think Safe-Act Safe' training material and adapted it for presenting to our supply chain. Partnerships & Regeneration introduced a number of changes, including adding new material to training modules and new tools for coaching and developing a module aimed at engaging the workforce. Construction has developed an app and website to make accessing information easier and for sharing best practice.

Construction continued to roll out its virtual reality training for health and safety, with interactive films covering underground services, the plant/pedestrian interface and falling objects. This initiative was awarded Best Use of Technology: Health, Safety & Wellbeing at New Civil Engineer magazine's Techfest. The key initiative for 2020 is to streamline the business management system, fully incorporating health and safety into the business's operational requirements. Wellbeing will also be a continued focus. Construction has appointed a new wellbeing lead and was shortlisted for the Mates in Mind Impact Awards, with its Assurance Director receiving the inaugural Individual Champion Award.

OPERATING SUSTAINABLY

Our approach to operating sustainably is guided by our Sustainability and Social Value Policy, the aim of which is to assess our sustainability risks and opportunities, and thereafter take appropriate steps to mitigate negative impacts and enhance positive impacts. The Executive Board owns the policy and it is implemented through the businesses, which adopt their own specific approaches while remaining in line the policy. The policy focuses on our sustainability impacts in relation to six fundamental areas. These areas cover the manufactured, intellectual, human, social and relationship, and natural capitals.

Our overall performance as a responsible business is reflected by our membership of the FTSE4Good Index, an exclusive investor index consisting only of companies that effectively manage their environmental, social and governance risks. We were independently assessed to have achieved a score of 3.2 out of 5 (2018: 3.5), which is above the sector average score of 2.4 out of the companies that were assessed. We have also achieved Gold status in the Supply Chain Sustainability School.

We recognise the important role our developments play in shaping communities, and the planning obligations which we fulfil also shape and help to develop these communities. In the last financial year, we have committed over £26.7m through planning obligations, which have been used to fund community infrastructure projects, covering critical areas such as public transport, homes and vital community facilities. We are committed to a policy of effectively managing our environmental performance to minimise the impact of our business processes on the natural environment and the community at large. We have an Environmental Policy, which sets out our commitment to integrating the assessment, management and control of environmental issues into the management of our business. We also have an Energy Policy, which recognises the impact of energy use on climate change and commits us to effectively and efficiently managing our energy use, and a Biodiversity Policy, which commits us to protecting and, where appropriate enhancing, biodiversity during our construction activities. Our Responsible Sourcing Policy requires us to consider our preferred suppliers' environmental impacts, among other issues.

Our people play a critical role in achieving our vision, strategy and objectives. The introduction of our Employee Forum this financial year will ensure the employee voice is represented at Board level. We intend to run a pulse employee survey in the 2020 financial year that will combine with this to ensure we are responsive to employee feedback.

Our recently established Stakeholder Steering Committee also reviews and oversees the management of relationships with the Group's key stakeholders including current and potential staff, collating their views and reporting these views to the Board.

We draw on a diverse range of skills and talents and look to recruit from all sectors of the community. We firmly believe that every employee has an equal right to opportunities within the Group and we treat employees based on merit. We value difference and promote respect and dignity for all. All staff must complete a refreshed course covering 'Diversity in the Workplace' when joining the business.

This year we sponsored the Women in Construction Summit hosted in London, 2018's Inspire Summit which encourages women into our industry, and the Women in Property National Student Awards. We are proud to be a Disability Confident Employer, an accreditation given to organisations that pledge to actively seek out and hire skilled disabled people, and to positively change attitudes, behaviours and cultures, within their businesses, supply chain and local communities.

We were delighted to be recognised as both a 'Top Graduate Employer' and 'Top Apprentice Employer' in the Construction & Civil Engineering sector, once again appearing in TheJobCrowd's league table - the UK's only graduate and apprentice employer ranking system based on employee feedback.

This year, we reinforced our commitment to being a responsible business with a refresh of our Code of Conduct, entitled Doing the Right Thing. The Code defines the behaviours we expect in the workplace, the strong ethical standards we adhere to, our responsibilities to our stakeholders and how we make decisions that maintain our integrity.

BOARD

On 26 March 2019, Peter Truscott stepped down as Chief Executive and left the business. In accordance with the Board's succession plans, Peter was immediately succeeded by Graham Prothero, previously Group Finance Director. Also, on 26 March 2019 Andrew Duxbury, previously Finance Director of Linden Homes and formerly the Group's Financial Controller, joined the Board as Graham's successor.

As previously announced, Marisa Cassoni, non-executive director, was appointed Chair of the Remuneration Committee on 13 February 2019 replacing Terry Miller as interim Chair. Terry remains a member of the Audit, Nomination and Remuneration Committees and chairs the newly formed Stakeholder Steering Committee and Employee Forum.

Consolidated income statement

for the year ended 30 June 2019

Notes

2019

2018

Pre-exceptional items £m

Unaudited

Exceptional items (note 4) £m Unaudited

Total £m Unaudited

Pre- exceptional

items

£m

Exceptional items (note4) £m

Total

£m

Group revenue1

2

2,713.5

(2.8)

2,710.7

2,931.6

-

2,931.6

Cost of sales1

(2,425.8)

(42.0)

(2,467.8)

(2,601.4)

(45.0)

(2,646.4)

Gross profit

287.7

(44.8)

242.9

330.2

(45.0)

285.2

Administrative expenses

(146.8)

(6.0)

(152.8)

(154.6)

-

(154.6)

Share of post tax profits from joint ventures

20.5

-

20.5

20.6

-

20.6

Profit/(loss) before finance costs

161.4

(50.8)

110.6

196.2

(45.0)

151.2

Profit/(loss) from operations

3

177.8

(50.8)

127.0

213.1

(45.0)

168.1

Share of joint ventures' interest and tax

(12.9)

-

(12.9)

(13.4)

-

(13.4)

Amortisation of intangibles

(3.5)

-

(3.5)

(3.5)

-

(3.5)

Profit/(loss) before finance costs

161.4

(50.8)

110.6

196.2

(45.0)

151.2

Finance income

6

13.2

-

13.2

10.2

-

10.2

Finance costs

6

(19.1)

-

(19.1)

(17.7)

-

(17.7)

Profit/(loss) before income tax

155.5

(50.8)

104.7

188.7

(45.0)

143.7

Income tax expense

7

(27.4)

9.6

(17.8)

(34.0)

8.6

(25.4)

Profit/(loss) for the year

128.1

(41.2)

86.9

154.7

(36.4)

118.3

Earnings per share

- Basic

9

115.7p

78.5p

158.4p

121.1p

- Diluted

9

115.6p

78.4p

157.8p

120.6p

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (note 23). Consequently, sales from part-exchange properties were included in Group revenue with effect from 1 July 2018; this was £100.7m in the period (30 June 2018: £nil; these were recorded in cost of sales in previous periods).

Consolidated statement of comprehensive income

for the year ended 30 June 2019

Notes

2019

£m Unaudited

2018

£m

Profit for the year

86.9

118.3

Other comprehensive income/(expense):

Items that will not be reclassified to profit or loss

Actuarial (losses)/gains recognised on retirement benefit obligations

(2.4)

4.0

Deferred tax on items recognised in equity that will not be reclassified

7 & 18

-

(1.9)

Current tax through equity

7

0.7

1.2

Total items that will not be reclassified to profit or loss

(1.7)

3.3

Items that may be reclassified subsequently to profit or loss

Movement in fair value of cash flow hedges:

- Movement arising during the financial year

0.9

1.9

- Reclassification adjustments for amounts included in profit or loss

(0.4)

(0.8)

Net movement in fair value of PPP and other investments

11

0.8

-

Deferred tax on items recognised in equity that may be reclassified

7 & 18

(0.1)

(0.3)

Total items that may be reclassified subsequently to profit or loss

1.2

0.8

Other comprehensive (expense)/income for the year net of tax

(0.5)

4.1

Total comprehensive income for the year

86.4

122.4

Balance sheet

at 30 June 2019

Notes

2019 £m

Unaudited

2018

£m

Assets

Non-current assets

Intangible assets

11.8

15.3

Goodwill

10

159.6

159.6

Property, plant and equipment

16.2

16.7

Investments in joint ventures

67.0

49.9

PPP and other investments

11

41.6

26.8

Trade and other receivables

13

238.4

148.9

Retirement benefit asset

20

7.0

7.0

Deferred income tax assets

18

1.3

-

Total non-current assets

542.9

424.2

Current assets

Inventories

-

0.2

Developments

12

876.7

724.9

Trade and other receivables1

13

754.3

838.6

Cash and cash equivalents

14

591.2

912.4

Total current assets

2,222.2

2,476.1

Total assets

2,765.1

2,900.3

Liabilities

Current liabilities

Financial liabilities

- Borrowings

14

(547.8)

(617.1)

Trade and other payables1

15

(1,253.1)

(1,174.6)

Current income tax liabilities

(8.3)

(10.0)

Provisions for other liabilities and charges

(0.4)

(0.3)

Total current liabilities

(1,809.6)

(1,802.0)

Net current assets

412.6

674.1

Non-current liabilities

Financial liabilities

- Borrowings

15

(100.0)

(197.1)

- Derivative financial liabilities

(0.4)

(0.9)

Deferred income tax liabilities

18

-

(0.7)

Other non-current liabilities

16

(103.0)

(122.3)

Provisions for other liabilities and charges

(0.4)

(0.8)

Total non-current liabilities

(203.8)

(321.8)

Total liabilities

(2,013.4)

(2,123.8)

Net assets

751.7

776.5

Equity

Ordinary shares

55.5

55.5

Share premium

197.7

197.6

Other reserves

4.8

4.8

Retained earnings

493.7

518.6

Total equity attributable to owners of the Company

751.7

776.5

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (note 23).

Consolidated statement of changes in equity

for the year ended 30 June 2019

Notes

Ordinary shares

£m Unaudited

Share premium

£m Unaudited

Other

reserves

£m Unaudited

Retained earnings

£m Unaudited

Total shareholders' equity

£m Unaudited

Consolidated statement

At 1 July 2017

41.4

194.5

4.8

334.8

575.5

Profit for the year

-

-

-

118.3

118.3

Other comprehensive (expense)

-

-

-

4.1

4.1

Total comprehensive income for the year

-

-

-

122.4

122.4

Transactions with owners:

Dividends

8

-

-

-

(75.9)

(75.9)

Share-based payments

-

-

-

2.8

2.8

Purchase of own shares

-

-

-

(1.5)

(1.5)

Issue of shares

14.1

3.1

-

136.0

153.2

At 30 June 2018

55.5

197.6

4.8

518.6

776.5

Adjustment as a result of transition to IFRS 9 and IFRS 15

on 1 July 2018

5,11,17 & 23

-

-

-

(32.3)

(32.3)

Adjusted equity at 1 July 2018

55.5

197.6

4.8

486.3

744.2

Profit for the year

-

-

-

86.9

86.9

Other comprehensive expense

-

-

-

(0.5)

(0.5)

Total comprehensive income for the year

-

-

-

86.4

86.4

Transactions with owners:

Dividends

8

-

-

-

(79.9)

(79.9)

Share-based payments

-

-

-

0.9

0.9

Purchase of own shares

-

-

-

-

-

Issue of shares

-

0.1

-

-

0.1

At 30 June 2019

55.5

197.7

4.8

493.7

751.7

Statement of cash flows

for the year ended 30 June 2019

Notes

2019

£m

Unaudited

2018

£m

Restated1

Cash flows from operating activities

Continuing operations

Pre-exceptional profit before finance costs

161.4

196.2

Exceptional items

5

(50.8)

(45.0)

Profit before finance costs

110.6

151.2

Adjustments for:

Depreciation and amortisation

7.0

7.1

Profit on sale of subsidiaries

-

(2.1)

Profit on sale of PPP and other investments

11

(6.9)

(5.5)

Share-based payments

19

0.9

2.8

Share of post-tax profits from joint ventures

(20.5)

(20.6)

Movement on provisions

(0.3)

(0.4)

Impact of Guaranteed Minimum Pension (GMP) equalisation

4 & 20

3.5

-

Other non-cash movements

-

0.6

Net cash generated/(used in) from operations before pension deficit payments and changes in working capital

94.3

133.1

Deficit funding payments to pension schemes

20

(7.2)

(6.8)

Net cash generated/(used in) from operations before changes in working capital

87.1

126.3

Decrease in inventories

0.2

0.4

(Increase) in developments

(151.8)

(2.3)

(Increase) in trade and other receivables

(39.9)

(3.2)

Increase/(decrease) in trade and other payables

57.5

(16.0)

Net cash (used in)/generated from operations

(46.9)

105.2

Interest received

14.6

10.2

Interest paid

(19.1)

(16.2)

Income tax (paid)/received

(8.2)

(15.6)

Net cash (used in)/generated from operating activities

(59.6)

83.6

Cash flows from investing activities

Dividends received from joint ventures

3.4

2.1

Movement in net working capital balances due from joint ventures

(13.6)

(56.3)

Acquisition of PPP and other investments

(22.7)

(10.9)

Proceeds from disposal of PPP and other investments

21.1

14.0

Proceeds from disposal of subsidiaries

-

2.1

Business combinations - deferred consideration

(1.0)

(13.7)

Cash acquired with acquired subsidiary undertakings

1.4

-

Acquisition of property, plant and equipment

(3.7)

(4.6)

Proceeds from sale of property, plant and equipment

0.8

0.5

Net cash (used in)/generated from investing activities

(14.3)

(66.8)

Cash flows from financing activities

Net proceeds from issue of ordinary share capital

0.1

153.2

Purchase of own shares

-

(1.5)

(Decrease)/increase in borrowings

(0.1)

(0.9)

Dividends paid to Company shareholders

8

(79.9)

(75.9)

Net cash (used in)/generated from financing activities

(79.9)

74.9

Net (decrease)/increase in cash and cash equivalents

(153.8)

91.7

Cash and cash equivalents at 1 July

14

295.4

203.7

Cash and cash equivalents at 30 June

14

141.6

295.4

1 See note 1

Notes to the consolidated financial statements

1 Basis of preparation

The unaudited financial information set out above does not constitute the statutory accounts of Galliford Try plc for the year ended 30 June 2019, but is derived from those statutory accounts, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) adopted by the European Union and therefore they comply with Article 4 of the EU IAS Regulation. Statutory financial statements for 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered following the Company's Annual General Meeting.

IFRS 16 Leases was issued in January 2016 and will be effective for the Group from 1 July 2019. IFRS 16 eliminates the classification of leases as either operating leases or finance leases and instead introduces a single lessee accounting model. This new standard, will require the Group to recognise a long-term depreciating right of use asset and corresponding lease liability for all leases with exceptions for short-term and low-value leases. The only exceptions are short-term (less than 12 months' duration) and low-value leases which will continue to be expensed as incurred (taking the practical expedient under IFRS 16). The operating lease rental expense currently charged to operating profit in the income statement will be replaced by an amortisation charge for the 'right of use' assets recognised in operating profit and an interest charge on the lease liabilities recognised in finance costs.

The Group is adopting the modified retrospective approach for IFRS 16, recognising the right of use asset as if IFRS 16 had always been applied (but using the incremental borrowing rate as at the date of initial application of 1 July 2019), with a resulting transition adjustment recognised to opening retained earnings.

On adoption of IFRS 16, the Group expects to recognise a right of use asset of £43.9m, and corresponding lease liability of £45.5m on 1 July 2019, with a change in opening retained earnings of £1.6m for the year-ended 30 June 2020. Reported profit is expected to be £1.1m lower.

Whilst the Group regards joint ventures as extensions of our core operations and previously presented loans and advances to and from joint ventures within operating cash flows, to be consistent with other working capital movements, the Directors acknowledge the specific requirements of IAS 7 paragraph 16(e) to present such movements within investing activities. Consequently, and as agreed in discussion with the FRC, we have restated the consolidated cash flow statement. This has resulted in £53.2m of net cash used in operating activities being reclassified as net cash used in investing activities.

2 Accounting policies

(a) Basis of accounting

Adoption of new and received standards by the Group.

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 30 June 2018.

(i) IFRS 9 Financial Instruments

IFRS 9 Financial Instruments came into effect for financial years starting on or after 1 January 2018 replacing IAS 39 Financial Instruments: Recognition and measurement. The Group has used an exemption not to restate comparative information for prior periods with respect to classification and measurement (including impairment) requirements. Equity investments, previously classified as available for sale are classified as financial assets at fair value through other comprehensive income, with recycling of gains and losses. This is because the business model for these assets is to hold for collecting contractual cash flows (which meet the criteria of solely payments of principal and interest on the principal outstanding) and also to sell the financial asset. This resulted in a small fair value uplift in the value of the Group's PPP and other investments (of £5.5m) which was recognised in equity on adoption of the standard on 1 July 2018 (note 11). The Group has adopted the IFRS9 expected credit loss approach to the assessment of financial assets impairment.

The Group also assessed its assets for any exceptional credit losses which resulted in an impairment charge of £11.2m recognised in equity on adoption of the standard on 1 July 2018 (notes 5 and 17).

The Group has experienced a low level of default events on its debtors historically and currently has no reason to expect this to change significantly in future; trade debtors are held under standards terms agreed with the customer.

The Company has no reason to expect any impairment or losses on its intercompany balances.

(ii) IFRS 15 Revenue from Contracts with Customers

The directors have completed their comprehensive assessment of the impact of IFRS 15 Revenue from Contracts with Customers. The assessment was comprehensive, including workshops and reviews with representatives from both financial and commercial functions across all of the Group's divisions, the resolution of a detailed log (considering all possible project scenarios and associated potential issues) and the production of accounting assessment papers for each contract type utilised with the Group.

The Group has adopted the standard from 1 July 2018 using the modified retrospective approach. The Group has reviewed its opening equity position as at 1 July 2018 and concluded that the recognition of expected reimbursements resulting from certain third-party claims (previously accounted for under IAS 11 Construction Contracts) would now be accounted for under IAS 37 Provisions, Contingent Liabilities and Contingent Assets. The requirements of IAS 37 are more stringent than IAS 11, requiring recovery to be virtually certain before an asset can be recognised. Whilst the Group still expects to recover the amounts claimed from third parties that the Group had recognised at the 30 June 2018 balance sheet date, certain claims do not meet the virtually certain criteria of IAS 37. These claims have therefore been de-recognised at the transition date and will be accounted for in future periods, in line with the requirements of IAS 37.

Additionally, the Group's financial statements will be adjusted in respect of revenue associated with the sale of part-exchange properties, which will result in an equivalent increase in both revenue and cost of sales and therefore no overall change to equity. Further detail and analysis on the Group's various revenue streams can be found in note 3 and on the Group's adoption of IFRS 15, in note 23.

In line with the requirements of the standard with regards to the transition option adopted, the Group has not restated its comparative information which continues to be reported under previous revenue standards, IAS 11 and IAS 18. To aid comparability, as required by IFRS 15, the Group has also stated any differences in its results for the year to 30 June 2019 under IAS 11 and IAS 18 (in note 23).

(b) Revenue and profit

Revenue is recognised when the Group transfers control of goods or services to customers. Revenue comprises the fair value of the consideration received or receivable net of rebates, discounts and value added tax. Where consideration is subject to variability, the Group estimates the amount receivable. Revenue recognised is constrained to the amount which is highly probable not to result in a significant reversal in future periods.

Sales within the Group are eliminated. Revenue also includes the Group's proportion of work carried out under jointly controlled operations.

Where a modification to an existing contract occurs, the Group assesses the nature of the modification and whether it represents a separate performance obligation required to be satisfied or whether it is a modification to the existing performance obligation.

Revenue is recognised as follows:

(i) Linden Homes

The Group sells private housing units and associated land, inclusive of customer options, incentives and warranties. In most instances, the contract with the customer is assessed to only contain one performance obligation. Revenue from the sale of individual private housing units, net of incentives, is recognised at the point of legal completion. Contract consideration for private house sales may include part-exchange properties at fair value. The onwards sale of part-exchange properties is separately recognised as revenue, on legal completion.

Sales of land where title transfers prior to construction beginning (or at 'golden brick') are considered to be a distinct performance obligation. Revenue from land sales is recognised at a point in time, being the unconditional exchange of contracts or at 'golden brick,' provided that the Group does not retain legal title to the land or have a right of repurchase.

Revenue from affordable housing development is recognised over time.

(ii) Partnerships & Regeneration

Development of multiple units on the same site (inclusive of design and construction activities contracted for at the same time, and mobilisation activities) is considered to be a single performance obligation. Where a contract comprises units across multiple sites, typically each site will represent a distinct performance obligation. Revenue is accounted for on an over time basis. The amount of revenue recognised is calculated based on total costs incurred as a proportion of total estimated costs to complete.

Private and affordable housing unit sales are accounted for in the same way as within Linden Homes, as stated above.

(iii) Construction services

Revenue comprises the value of construction services transferred to a customer during the period. The results for the period include adjustments for the outcome of contracts, including jointly controlled operations, executed in both the current and preceding years.

Fixed price contracts - the amount of revenue recognised is calculated based on total costs incurred as a proportion of total estimated costs to complete. The estimated final value includes variations, compensation events and claims against customers where it is highly probable that there will not be a significant reversal. Provision will be made against any potential loss as soon as it is identified.

Cost-reimbursable contracts - revenue is recognised based upon costs incurred to date plus any agreed fee. Where contracts include a target price, consideration is given to the impact on revenue of the mechanism for distributing any savings or additional costs compared to the target price. Any revenue over and above the target price is recognised once it is highly probable that there will not be a significant reversal. Revenue includes any variations and compensation events where it is highly probable that there will not be a significant reversal.

Framework agreements - each work order under a framework agreement is considered a performance obligation. Revenue is recognised over time as the services are delivered.

Facilities management - management services and facilities management contracts typically represent a single series performance obligation. Revenue is recognised over time as control passes to the customer and is typically measured on a straight line basis.

(iv) Recoveries from claims against third-parties

The recognition of expected reimbursements resulting from certain third-party claims (previously accounted for under IAS 11 Construction Contracts) is accounted in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets. This requires recovery to be virtually certain before an asset can be recognised.

3 Segmental reporting

Segmental reporting is presented in the consolidated financial statements in respect of the Group's business segments, which are the primary basis of segmental reporting. The business segmental reporting reflects the Group's management and internal reporting structure. Segmental 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, segment reporting is not required by geographical region.

The chief operating decision-makers ('CODM') have been identified as the Group's Chief Executive and Finance Director. The CODM review the Group's internal reporting in order to assess performance and allocate resources. Management has determined the operating segments as Linden Homes, Partnerships & Regeneration; Construction & Investments and Central. Previously, Construction & Investments was split into further sub-segments of Building, Infrastructure and PPP Investments. However, the CODM no longer review and assess performance and allocate resources at this further sub-segmental level and so these sub-segments will be removed from this disclosure next year. However, to maintain appropriate disclosure, these balances have been included in this note in the current year of transition. The business of each segment is described in the Strategic Report.

The CODM assess the performance of the operating segments based on a measure of adjusted earnings before finance costs, amortisation, exceptional items and taxation. This measurement basis excludes the effects of non-recurring expenditure from the operating segments, such as restructuring costs and impairments when the impairment is the result of an isolated, one-off event. Interest income and expenditure are included in the result for each operating segment that is reviewed by the CODM. Other information provided to them is measured in a manner consistent with that in the financial statements.

Primary reporting format - business segments

Secondary reporting format - business sub-segments

Linden Homes £m

Partnerships & Regeneration
£m

Construction & Investments
£m

Central £m

Total
£m

Construction

PPP Investments
£m

Construction & Investments
£m

Building £m

Infrastructure
£m

Total
£m

Year ended 30 June 2019

Group revenue

758.7

551.9

1,399.5

0.6

2,710.7

858.3

524.2

1,382.5

17.0

1,399.5

Share of joint ventures' revenue

160.4

73.3

16.0

-

249.7

1.5

-

1.5

14.5

16.0

Part-exchange revenue

(98.7)

(2.0)

-

-

(100.7)

-

-

-

-

-

Exceptional items (note 5)

-

-

2.8

-

2.8

-

2.8

2.8

-

2.8

Pre-exceptional Group revenue and share of joint ventures' revenue excluding part-exchange revenue

820.4

623.2

1,418.3

0.6

2,862.5

859.8

527.0

1,386.8

31.5

1,418.3

Segment result:

Pre-exceptional profit/(loss) from operations before share of joint ventures' profit

135.6

26.9

(11.1)

(7.0)

144.4

(9.8)

(5.5)

(15.3)

4.2

(11.1)

Share of joint ventures' profit

24.9

7.9

0.6

-

33.4

0.3

-

0.3

0.3

0.6

Pre-exceptional profit/(loss) from operations*

160.5

34.8

(10.5)

(7.0)

177.8

(9.5)

(5.5)

(15.0)

4.5

(10.5)

Exceptional items (note 5)

-

-

(46.4)

(4.4)

(50.8)

(0.9)

(45.5)

(46.4)

-

(46.4)

Share of joint ventures' interest and tax

(9.3)

(3.4)

(0.2)

-

(12.9)

(0.1)

-

(0.1)

(0.1)

(0.2)

Profit/(loss) before finance costs, amortisation and taxation

151.2

31.4

(57.1)

(11.4)

114.1

(10.5)

(51.0)

(61.5)

4.4

(57.1)

Finance income

7.8

1.6

3.4

0.4

13.2

-

-

-

3.4

3.4

Finance (costs)

(44.0)

(3.4)

(10.0)

38.3

(19.1)

(1.4)

(7.0)

(8.4)

(1.6)

(10.0)

Profit/(loss) before amortisation and taxation

115.0

29.6

(63.7)

27.3

108.2

(11.9)

(58.0)

(69.9)

6.2

(63.7)

Amortisation of intangibles

-

(1.4)

(1.0)

(1.1)

(3.5)

(1.0)

-

(1.0)

-

(1.0)

Profit/(loss) before taxation

115.0

28.2

(64.7)

26.2

104.7

(12.9)

(58.0)

(70.9)

6.2

(64.7)

Income tax expense

(17.8)

Profit for the year

86.9

Primary reporting format - business segments

Secondary reporting format - business sub-segments

Linden Homes

£m

Partnerships & Regeneration
£m

Construction & Investments
£m

Central £m

Total
£m

Construction

PPP Investments
£m

Construction & Investments
£m

Building

£m

Infrastructure
£m

Total
£m

Year ended 30 June 2018

Group revenue

769.3

459.7

1,701.9

0.7

2,931.6

1,036.9

649.4

1,686.3

15.6

1,701.9

Share of joint ventures' revenue

178.0

15.5

7.2

-

200.7

1.1

-

1.1

6.1

7.2

Group revenue and share of joint ventures' revenue

947.3

475.2

1,709.1

0.7

3,132.3

1,038.0

649.4

1,687.4

21.7

1,709.1

Segment result:

Pre-exceptional profit/(loss) from operations before share of joint ventures' profit

152.1

22.3

22.3

(17.6)

179.1

11.4

4.3

15.7

6.6

22.3

Share of joint ventures' profit

32.3

1.3

0.4

-

34.0

0.2

-

0.2

0.2

0.4

Pre-exceptional profit/(loss) from operations*

184.4

23.6

22.7

(17.6)

213.1

11.6

4.3

15.9

6.8

22.7

Exceptional items (note 5)

-

-

(45.0)

-

(45.0)

-

(45.0)

(45.0)

-

(45.0)

Share of joint ventures' interest and tax

(13.1)

(0.1)

(0.2)

-

(13.4)

-

-

-

(0.2)

(0.2)

Profit/(loss) before finance costs, amortisation and taxation

171.3

23.5

(22.5)

(17.6)

154.7

11.6

(40.7)

(29.1)

6.6

(22.5)

Finance income

7.4

1.8

2.1

(1.1)

10.2

-

-

-

2.1

2.1

Finance (costs)

(41.6)

(5.5)

(7.0)

36.4

(17.7)

-

(5.4)

(5.4)

(1.6)

(7.0)

Profit/(loss) before amortisation and taxation

137.1

19.8

(27.4)

17.7

147.2

11.6

(46.1)

(34.5)

7.1

(27.4)

Amortisation of intangibles

-

(1.4)

(1.0)

(1.1)

(3.5)

(1.0)

-

(1.0)

-

(1.0)

Profit/(loss) before taxation

137.1

18.4

(28.4)

16.6

143.7

10.6

(46.1)

(35.5)

7.1

(28.4)

Income tax expense

(25.4)

Profit for the year

118.3

* Pre-exceptional profit from operations is stated before finance costs, amortisation, exceptional items, share of joint ventures' interest and tax and taxation.

Inter-segment revenue, which is priced on an arm's length basis, is eliminated from Group revenue above. In the year to 30 June 2019 this amounted to £92.1m (2018: £93.6m) of which £23.2m (2018: £17.8m) was in Building, £28.2m (2018: £35.5m) was in Infrastructure, £22.4m (2018: £17.9m) was in Partnerships & Regeneration and £18.3m (2018: £22.3m) was in Central.

Balance Sheet

Notes

Primary reporting format - business segments

Secondary reporting format - business sub-segments

Linden Homes
£m

Partnerships & Regeneration
£m

Construction & Investments
£m

Central £m

Total
£m

Construction

PPP Investments £m

Construction & Investments £m

Building
£m

Infrastructure
£m

Total
£m

30 June 2019

Goodwill & intangible assets

52.5

32.3

81.8

4.8

171.4

44.6

37.2

81.8

-

81.8

Working capital employed

759.2

57.0

28.6

(207.9)

639.9

(73.5)

54.5

(19.0)

47.6

28.6

Net (debt)/cash

14

(567.1)

(9.3)

(38.0)

557.8

(56.6)

77.4

(93.2)

(15.8)

(22.2)

(38.0)

Net assets

244.6

80.0

72.4

354.7

751.7

48.5

(1.5)

47.0

25.4

72.4

Total Group liabilities

(2,013.4)

Total Group assets

2,765.1

30 June 2018

Goodwill & intangible assets

52.5

33.7

82.8

5.9

174.9

45.6

37.2

82.8

-

82.8

Working capital employed

623.1

64.7

62.7

(247.1)

503.4

(82.3)

119.0

36.7

26.0

62.7

Net (debt)/cash

14

(463.1)

(41.8)

(37.2)

640.3

98.2

101.0

(127.0)

(26.0)

(11.2)

(37.2)

Net assets

212.5

56.6

108.3

399.1

776.5

64.3

29.2

93.5

14.8

108.3

Total Group liabilities

(2,123.8)

Total Group assets

2,900.3

Return on net assets for Linden Homes is calculated as Linden Homes EBITA divided by average of the aggregate of Linden Homes and Central net assets.

4 Revenue

Nature of revenue streams

The following should be read in conjunction with the Group's new accounting policy applied from 1 July 2018 as detailed in note 1.

(i) Linden Homes and Partnerships & Regeneration segments

The Group develops high-quality homes over a national footprint, for sale under the Linden Homes brand. The Partnerships & Regeneration segment is a specialist regeneration business which carries out contracting, land-led solutions and development for local authorities and Registered Providers as well as selling private housing units.

Revenue stream

Nature, timing of satisfaction of performance obligations and significant payment terms

Nature of change in accounting policy

Private development

Individual customers obtain control of a unit once the sale is legally complete (unconditional sale). This is typically the same time that the customer has paid.

Revenue is therefore recognised on the sale of individual units (net of incentives), at a point in time.

Contracts for onward sale of part-exchange properties are entered into with a different customer and therefore represent separate revenue contracts.

Under IAS 18 revenue was recognised when the risks and rewards were transferred to the customer which was assessed to be at legal completion.

Under IFRS 15, there is no change to the point of revenue recognition as the performance obligation is deemed to be satisfied at the point when legal title is transferred to the purchaser.

Under IAS18, part-exchange properties are recognised at fair value as revenue and in inventory and subsequent sale proceeds on disposal of the part-exchange property are presented net, against cost of sales.

Under IFRS15, these unit sales represent separate revenue contracts and are therefore recognised separately within revenue, at the point of legal completion.

Unit sales to Registered Providers/Investors in the Private Rented Sector (PRS)

This represents sales of (affordable) housing units to Housing Associations (HAs) and other Registered Providers/PRS, treated as a single performance obligation. The Group receives payments from the customer during the building of the units (based on a schedule of value that reflects the timing and performance of service delivery), indicating that the customer controls all the work in progress as the house is being built. The units are built on the customer land. Therefore, revenue on performance obligations to construct these units is recognised over time (the period of construction) based on an output model (certification of work done to date). Un-invoiced amounts are presented as contract assets.

Management do not expect a financing component to exist in respect of HA contracts.

These contracts were previously accounted for under IAS 11 and as such were recognised over time when certain milestones in the development were reached.

There is no change to the timing of revenue recognition under IFRS 15, as the conditions of the sale dictate that the revenue should continue to be recognised over time.

Revenue stream

Nature, timing of satisfaction of performance obligations and significant payment terms

Nature of change in accounting policy

Land sales

The sale of land, whether or not in conjunction with the sale of a number of housing units, is assessed to be a distinct performance obligation to the sale of any related units and control is deemed to pass to the customer on the unconditional exchange of contracts.

Revenue is therefore recognised at a point in time (unconditional exchange of contracts).

These contracts were previously accounted for under IAS 18 and as such were recognised at unconditional exchange.

There is no change to the timing of revenue recognition under IFRS 15, as the conditions of the sale dictate that the revenue should continue to be recognised at a point in time.

Contracting to Registered Providers/PRS

This represents the building of a number of (affordable) units on the customer's land with any design phase treated alongside the construction phase as a single performance obligation. This is because the two stages are not distinct in the context of the contract, given that each is highly interdependent on the other (and are typically contracted together within a single contract).

Payment terms are based on a schedule of value that reflects the timing and performance of service delivery.

Revenue is therefore recognised over time (the period of construction) based on an input model (reference to costs incurred to date). Un-invoiced amounts are presented as contract assets.

Under IAS 11, revenue was accounted for under a contract accounting model based on percentage of completion, using cost as a measure of progress (cost incurred to date compared to the contract's total expected cost) - this is the input method.

There is no change to the timing of revenue recognition under IFRS 15, as the conditions of the contract dictate that the revenue should continue to be recognised over time.

(ii) Building & Infrastructure segments

Our Construction business operates nationwide, working with clients predominantly in the public and regulated sectors, such as health, education and defence markets within the Building segment and road, rail, airports, water and flood alleviation markets within the Infrastructure segment (as well as private commercial clients). Projects include the construction of assets (with services including design and build, construction only and refurbishment) in addition to the maintenance, renewal, upgrading and managing of services across utility and infrastructure assets.

Revenue stream

Nature, timing of satisfaction of performance obligations and significant payment terms

Nature of change in accounting policy

Fixed-price

A number of projects within these segments are undertaken using fixed-price contracts.

Contracts are typically accounted for as a single performance obligation; even when a contract (or multiple combined contracts) includes both design and build elements, they are considered to form a single performance obligation as the two elements are not distinct in the context of the contract given that each is highly interdependent on the other.

The Group typically receives payments from the customer based on a contractual schedule of value that reflects the timing and performance of service delivery. Revenue is therefore recognised over time (the period of construction) based on an input model (reference to costs incurred to date). Un-invoiced amounts are presented as contract assets.

Management do not expect a financing component to exist.

These contracts were previously accounted for under IAS 11 and as such were recognised over time as control passes to the customer as the asset is constructed/service is provided.

There is no change to the timing of revenue recognition under IFRS 15, with revenue continuing to be recognised over time, as control passes to the customer as the asset is constructed/service is provided.

Cost-reimbursable

A number of projects within these segments are undertaken using open-book/cost-plus (possibly with a pain/gain share mechanism) contracts.

Contracts are typically accounted for as a single performance obligation with the majority of these contracts including a build phase only.

The Group typically receives payments from the customer based on actual costs incurred. Revenue is therefore recognised over time (the period of construction) based on an input model (reference to costs incurred to date). Un-invoiced amounts are presented as contract assets.

Management do not expect a financing component to exist.

These contracts were previously accounted for under IAS 11 and as such were recognised over time as control passes to the customer as the asset is constructed/service is provided.

There is no change to the timing of revenue recognition under IFRS 15, with revenue continuing to be recognised over time, as control passes to the customer as the asset is constructed/service is provided.

Framework

Projects within the Infrastructure segment can be undertaken under an overall framework agreement (possibly granted on a regulatory cycle, such as for water contracts), with work performed under individual work orders submitted by the customer and governed by the terms of the framework agreement (often including a schedule of rates and a pain/gain element).

Individual work orders will typically consist of a single deliverable or job and are anticipated to comprise only a single deliverable (and consequently performance obligation).

Revenue is therefore recognised over time based on an input model (reference to costs incurred to date).

These contracts were previously accounted for under IAS 11 and as such were recognised over time as control passes to the customer as the asset is constructed/service is provided (for each individual work order issued under the arrangement.

There is no change to the timing of revenue recognition under IFRS 15, with revenue continuing to be recognised over time, as control passes to the customer as the asset is constructed/service is provided.

(iii) Investments segment

Through public private partnerships, the business leads bid consortia and arranges finance, makes equity investments (which are recycled, typically once the underlying construction phase is completed) and manages construction through to operations.

Revenue stream

Nature, timing of satisfaction of performance obligations and significant payment terms

Nature of change in accounting policy

PPP Investments

The Group has investments in a number of PPP Special Purpose Vehicles (SPVs), delivering major building and infrastructure projects.

The business additionally provides management services to the SPVs under Management Service Agreements (MSA). Revenue for these services is typically recognised over time as and when the service is delivered to the customer.

Revenue for reaching project financial close (such as success fees) are recognised at a point in time, at financial close (when control is deemed to pass to the customer).

The underlying construction work is accounted for within the Building and Infrastructure segments while the equity investments are accounted for under IAS 28.

Under IFRS 15, where a range of management services are provided under an MSA, these are taken to represent a single performance obligation as they represent a single bundle of services being sought by the customer.

Disaggregation of revenue

As part of the implementation of IFRS 15 on 1 July 2018, the Group has assessed the appropriate presentation of the disaggregation of its revenue streams (analysing the varying risk profiles and effect of economic factors on the nature, amount, timing and uncertainty of revenue). The material differences in risk between the different revenue streams have been captured by the Group's operating segments (as noted and explained above) as this best depicts how the nature, timing and amount of revenue and cash flows are affected by economic factors. Therefore, the Group has presented this disaggregation in line with the segmental analysis as shown in note 3.

The Group derives its revenue from contracts with customers for the transfer of goods and services, both at a point in time and over time. The split is disclosed in the table below, which is consistent with the revenue information that is disclosed for each reportable segment under IFRS 8 'Operating Segments'.

Year ended 30 June 2019

Primary reporting format - business segments

Secondary reporting format - business sub-segments

Linden Homes
£m

Partnerships & Regeneration
£m

Construction & Investments
£m

Central
£m

Total
£m

Construction

PPP Investments
£m

Construction & Investments
£m

Building
£m

Infrastructure
£m

Total
£m

Over time

86.3

482.5

1,394.6

0.6

1,964.0

858.3

524.2

1,382.5

12.1

1,394.6

Point in time

672.4

69.4

4.9

-

746.7

-

-

-

4.9

4.9

Group revenue

758.7

551.9

1,399.5

0.6

2,710.7

858.3

524.2

1,382.5

17.0

1,399.5

Revenue on existing contracts, where performance obligations are unsatisfied or partially unsatisfied at the balance sheet date, is expected to be recognised as follows:

Group revenue

2020
£m

2021
£m

2022 onwards £m

Total
£m

Linden Homes

49.3

31.9

31.5

112.7

Partnerships & Regeneration

436.3

252.2

78.0

766.5

Building

575.9

128.5

4.8

709.2

Infrastructure

316.1

75.4

1.0

392.5

Total Construction

892.0

203.9

5.8

1,101.7

PPP Investments

2.1

1.8

25.4

29.3

Central

-

-

-

-

Total transaction price allocated to performance obligations yet to be satisfied

1,379.7

489.8

140.7

2,010.2

As permitted under the transitional provisions in IFRS 15, the transaction price allocated to (partially) unsatisfied performance obligations as of 30 June 2018 is not disclosed.

Any element of variable consideration is estimated at a value that is highly probable not to result in future reversal.

5 Exceptional items

2019
£m

2018
£m

Group revenue - expected credit loss per IFRS9 in respect of legacy contract

2.8

-

Cost of sales - charge in respect of legacy contracts

39.0

45.0

Cost of sales - restructure costs

3.0

-

Administrative expenses - pension costs (note 20)

4.4

-

Administrative expenses - restructure costs

1.6

-

Loss from operations

50.8

45.0

Exceptional items in the year totalled £50.8m. Of this, £32.3m was in relation to additional costs to complete the AWPR contract, of which £26.0 was accrued in the first half of the year. The Group is pursuing a significant claim against the client and others, which is yet to be concluded. Once settled, this is expected to provide an upside to the Group's cash position.

In addition, the exceptional charge included £6.7m in respect of other legacy contracts and £4.6m in respect of the restructure announced in May 2019, completed within the Construction business, which has simplified the business and the management structure.

As detailed in the financial review, the Group has assumed recovery of contract assets in respect of its contracts in accordance with IFRS 15. Furthermore, in accordance with IFRS 9 Financial Instruments (which was adopted on 1 July 2018) the Group has performed an assessment of the expected credit loss on both adoption of the standard (at 1 July 2018) and at the closing balance sheet date (30 June 2019) based on the Group's estimated provision matrices. This resulted in an impairment charge of £11.2m on adoption of IFRS 9 (at 1 July 2018) and an exceptional impairment charge of £2.8m in the year.

During the period, the High Court issued its judgment in the Guaranteed Minimum Pension (GMP) equalisation case with Lloyds Bank Plc. This resulted in an increased obligation in two of the Group's defined benefit pension schemes via an amendment to the scheme benefits which has been treated as a plan amendment and therefore a past service cost, resulting in a charge of £3.5m which has been expensed in the income statement. Additionally, in July 2018, the Galliford Group Special Scheme completed a £7m insurance bulk annuity buyout transaction, securing the pensioner liabilities of the scheme. The premium paid was £0.9m higher than the IAS 19 liabilities discharged and therefore, a settlement charge of £0.9m was expensed to the income statement. Further detail on these two items is included in note 20.

In 2018, an exceptional charge of £45.0m was incurred, in respect of additional costs on the AWPR contract.

2019
£m

2018
£m

Profit before income tax

104.7

143.7

Expected credit loss in respect of legacy contract

2.8

-

Charge in respect of legacy contracts

39.0

45.0

Pension costs

4.4

-

Restructure costs

4.6

-

Pre-exceptional profit before income tax

155.5

188.7

6 Net finance costs

Group

2019
£m

2018
£m

Interest receivable on bank deposits

0.2

-

Interest receivable from joint ventures

12.7

10.1

Net finance income on retirement benefit obligations

0.2

-

Other

0.1

0.1

Finance income

13.2

10.2

Interest payable on borrowings

(16.4)

(17.3)

Unwind of discounted payables

(0.5)

(0.4)

Other

(2.2)

-

Finance costs

(19.1)

(17.7)

Net finance costs

(5.9)

(7.5)

7 Income tax expense

Group

Note

2019
£m

2018
£m

Analysis of expense in year

Current year's income tax

Current tax

10.4

25.3

Deferred tax

18

6.6

(0.1)

Adjustments in respect of prior years

Current tax

0.7

0.2

Deferred tax

18

0.1

-

Income tax expense

17.8

25.4

Tax on items recognised in other comprehensive income

Current tax (credit) for retirement benefit obligations

(0.4)

(1.3)

Current tax (credit)/expense for share-based payments

(0.3)

0.1

Deferred tax expense for share-based payments

18

-

0.1

Deferred tax expense on derivative financial instruments

0.1

0.2

Deferred tax expense on retirement benefit obligations

18

-

1.9

Tax recognised in other comprehensive income

(0.6)

1.0

Total taxation

17.2

26.4

The standard rate of corporation tax in the UK changed from 20.0% to 19.0% with effect from 1 April 2017. Accordingly, the Group's profits for the financial year to 30 June 2019 were taxed at a standard rate of 19.0%, and for the period to 30 June 2018 are taxed at a blended standard rate of 19.0%.

The UK corporation tax rate is due to be reduced to 17.0% in April 2020. We have recognised deferred tax at 19.0% as it is likely that most assets and liabilities will have reversed within one year. Had the 17.0% rate been applied to those balances that may reverse post April 2020 then the effect on the deferred tax balances would not have been significant.

8 Dividends

Group and Company

2019

2018

£m

pence per share

£m

pence per share

Previous year final

54.4

49.0

52.6

64.0

Current year interim

25.5

23.0

23.3

28.0

Dividend recognised in the year

79.9

72.0

75.9

92.0

The following dividends were declared by the Company in respect of each accounting period presented:

2019

2018

£m

pence per share

£m

pence per share

Interim

25.5

23.0

23.3

28.0

Final

38.9

35.0

54.4

49.0

Dividend relating to the year

64.4

58.0

77.7

77.0

The directors are proposing a final dividend in respect of the financial year ended 30 June 2019 of 35.0 pence per share, bringing the total dividend in respect of 2019 to 58.0 pence per share (2018: 77.0p). The final dividend will absorb approximately £38.9m of equity. Subject to shareholder approval at the AGM to be held on 12 November 2019, the dividend will be paid on 4 December 2019 to shareholders who are on the register of members on 8 November 2019.

9 Earnings Per Share

Basic and diluted earnings per share (EPS)

Basic EPS is calculated by dividing the earnings attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year, excluding those held by the Trust, which are treated as cancelled.

Under normal circumstances, the average number of shares is diluted by reference to the average number of potential ordinary shares held under option in the year. The dilutive effect amounts to the number of ordinary shares which would be purchased using the aggregate difference in value between the market value of shares and the share option price. Only shares that have met their cumulative performance criteria are included in the dilution calculation. The Group has two classes of potentially dilutive ordinary shares: those share options granted to employees where the exercise price is less than the average market price of the Company's ordinary shares during the year and the contingently issuable shares under the Group's long-term incentive plans. A loss per share cannot be reduced through dilution, hence this dilution is only applied where the Group has reported a profit.

The earnings and weighted average number of shares used in the calculations are set out below.

2019

2018

Earnings
£m

Weighted

average number of shares

Per share amount pence

Earnings
£m

Weighted average number of shares

Per share amount pence

Basic EPS - pre-exceptional

Earnings attributable to ordinary shareholders pre-exceptional items

128.1

110,704,829

115.7

154.7

97,695,511

158.4

Basic EPS

Earnings attributable to ordinary shareholders post-exceptional items

86.9

110,704,829

78.5

118.3

97,695,511

121.1

Effect of dilutive securities:

Options

94,166

378,183

Diluted EPS - pre-exceptional

128.1

110,798,995

115.6

154.7

98,073,694

157.8

Diluted EPS

86.9

110,798,995

78.4

118.3

98,073,694

120.6

10 Goodwill

£m

Cost

At 1 July 2017

161.0

Adjustment in respect of acquisition completed in 2017

(0.7)

At 30 June 2018 and 30 June 2019

160.3

Aggregate impairment at 1 July 2017, 1 July 2018 and 30 June 2019

(0.7)

Net book amount

At 30 June 2019

159.6

At 30 June 2018

159.6

At 30 June 2017

160.3

The change in goodwill in the year to 30 June 2018 arose from the finalisation of the acquisition accounting in respect of the acquisition of Drew Smith completed in May 2017.

Goodwill is allocated to the Group's CGUs identified according to business segment. The goodwill is attributable to the following business segments:

2019
£m

2018
£m

Linden Homes

52.5

52.5

Partnerships & Regeneration

29.9

29.9

Building

40.0

40.0

Infrastructure

37.2

37.2

159.6

159.6

Impairment review of goodwill and key assumptions

Goodwill is tested for impairment at least annually. The recoverable amount of a CGU is determined based on value in use calculations. These calculations use pre-tax cash flow projections based on future financial budgets approved by the Board, based on past performance and its expectation of market developments. The key assumptions within these budgets relate to revenue and the future profit margin achievable, in line with our strategy as set out in the Strategic report. Future budgeted revenue is based on management's knowledge of actual results from prior years and latest forecasts for the current year, along with the existing secured works, management's expectation of the future level of work available within the market sector and expected changes in selling volumes and prices for completed houses. In establishing future profit margins, the margins currently being achieved are considered in conjunction with expected inflation rates in each cost category and to reflect the current market value of land being acquired.

11 PPP and other investments

2019
£m

2018
£m

At 1 July

26.8

25.0

Effect of change in accounting policy1

5.5

-

Restated at 1 July

32.3

25.0

Additions

22.7

10.9

Disposals and subordinated loan repayments

(14.2)

(9.1)

Movement in fair value

0.8

-

At 30 June

41.6

26.8

1 The Group adopted IFRS 9 Financial Instruments on 1 July 2018 with the cumulative effect of initial application recognised as an adjustment to opening equity (note 2).

12 Developments

2019
£m

2018
£m

Land

552.9

465.8

Work in progress

323.8

259.1

876.7

724.9

On 28 June 2019, the Group acquired the remaining 50% share of its joint venture, Linden Homes (Sherford) LLP, for a consideration of £1 (plus £28.2m of intercompany receivables due from Linden Homes (Sherford) LLP). The fair value of the net liabilities acquired were £2.0m (plus £28.2m of intercompany payables), resulting in goodwill on acquisition of £2.0m, which was immediately impaired to £nil. The fair value of the net liabilities acquired of £2.0m included £83.8m of developments (note 12), £1.3m of trade and other receivables (note 13), £1.4m of cash (note 14), £21.0m of development land payables (notes 15 & 16) and £69.6m of trade and other payables (notes 15 & 16). The fair value of the equity interest previously held was £nil.

13 Trade and other receivables

2019
£m

2018
£m

Amounts falling due within one year:

Trade receivables

169.6

198.7

Less: provision for impairment of receivables

(0.4)

(0.1)

Trade receivables - net

169.2

198.6

Amounts recoverable on construction contracts1

-

349.7

Contract assets1,2

412.8

-

Amounts owed by subsidiary undertakings

-

-

Amounts due from joint ventures

93.5

166.3

Other receivables

4.9

13.7

Prepayments and accrued income1

73.9

110.3

754.3

838.6

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (note 23).

2 Includes impairment of £11.2m on adoption of IFRS9 Financial Instruments on 1 July 2018 (note 5).

Prepayments and accrued income includes £nil (2018: £4.5m) of accrued income.

2019
£m

2018
£m

Amounts falling due in more than one year:

Amounts due from joint ventures

238.1

144.9

Other receivables

0.3

4.0

238.4

148.9

14 Cash and cash equivalents

2019
£m

2018
£m

Net cash/(debt)

Cash and cash equivalents excluding bank overdrafts

591.2

912.4

Current borrowings - bank overdrafts

(449.6)

(617.0)

Cash and cash equivalents per the statements of cashflows

141.6

295.4

Current borrowings - obligations under finance leases and hire purchase contracts

-

(0.1)

Current borrowings

(98.2)

-

Non-current borrowings

(100.0)

(197.1)

Net (debt)/cash

(56.6)

98.2

15 Trade and other payables

2019
£m

2018
£m

Payments received on account on construction contracts1

-

83.6

Trade payables1

284.9

433.8

Development land payables

150.5

65.6

Contract liabilities1

228.5

-

Amounts due to subsidiary undertakings

-

-

Amounts due to joint ventures

24.8

18.0

Other taxation and social security payable

11.1

13.9

Other payables

25.0

25.4

Accruals and deferred income1

528.3

534.3

1,253.1

1,174.6

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (note 23).

16 Other non-current liabilities

2019
£m

2018
£m

Development land payables

66.4

78.8

Contract liabilities1

26.1

-

Accruals and deferred income1

10.5

43.5

103.0

122.3

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (note 23).

17 Contract balances

Contract assets and liabilities are included within 'trade and other receivables' and 'trade and other payables' respectively on the face of the balance sheet. Where there is a corresponding contract asset and liability in relation to the same contract, the balance shown is the net position. The timing of work performed (and thus revenue recognised), billing profiles and cash collection, results in trade receivables (amounts billed to date and unpaid), contract assets (unbilled amounts where revenue has been recognised) and customer advances and deposits (contract liabilities), where no corresponding work has yet to be performed, being recognised on the Group's balance sheet.

The reconciliation of the opening to closing contract balances is shown below:

Contract asset

£m

Contract liability
£m

1 July 2018

-

-

Adjustment as a result of transitioning to IFRS 92 and IFRS 151 on 1 July 2018

343.0

(228.8)

1 July 2018 as restated

343.0

(228.8)

Revenue recognised

Of which relates to performance obligations

- Satisfied in the current year

2,637.2

76.3

- Expected credit loss per IFRS 9

(2.8)

-

Total revenue recognised

2,634.4

76.3

Transfers in the period from contract assets to trade receivables

(2,564.6)

-

Net cash received in advance of performance obligations being fully satisfied

-

(102.1)

30 June 2019

412.8

(254.6)

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (note 23).

2 Includes impairment of £11.2m on adoption of IFRS 9 Financial Instruments on 1 July 2018 (note 5).

Revenue allocated to performance obligations that are unsatisfied at 30 June, are expected to be recognised as disclosed in note 4.

18 Deferred income tax

Deferred income tax is calculated in full on temporary differences under the liability method, using a tax rate of 19.0% (2018: 19.0%).

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current income tax assets against current income tax liabilities. The net deferred tax position at 30 June was:

2019
£m

2018
£m

Deferred income tax assets - non-current

5.7

3.6

Deferred income tax assets

5.7

3.6

Deferred income tax liabilities - non-current

(4.4)

(4.3)

Deferred income tax liabilities

(4.4)

(4.3)

Net deferred income tax

1.3

(0.7)

The movement for the year in the net deferred income tax account is as shown below:

2019
£m

2018
£m

At 1 July

(0.7)

2.0

Effect of change in accounting policy1,2

8.8

-

Restated at 1 July

8.1

2.0

Income statement

Current year's deferred income tax

(6.6)

0.1

Adjustment in respect of prior years

(0.1)

-

(Expense) recognised in equity

(0.1)

(2.2)

On acquisition of subsidiaries

-

(0.6)

At 30 June

(1.3)

(0.7)

1 The Group adopted IFRS 15 Revenue from Contracts with Customers on 1 July 2018 using the modified retrospective approach with the cumulative effect of initial application recognised as an adjustment to opening equity (notes 1 and 23).

2 The Group adopted IFRS 9 Financial Instruments on 1 July 2018 (notes 5 and 17)

19 Share-based payments

The Company operates performance-related share incentive plans for executives, details of which are set out in the Directors' remuneration report. The Company also operates sharesave schemes. The total charge for the year relating to employee share-based payment plans was £0.9m (2018: £2.8m), all of which related to equity-settled share-based payment transactions. After deferred tax, the total charge was £0.8m (2018: £2.5m).

20 Retirement benefit assets

All employees are entitled to join the Galliford Try Pension Scheme, a defined contribution scheme established as a stakeholder plan, with a company contribution based on a scale dependent on the employee's age and the amount they choose to contribute. The Group also operates three defined benefit pension schemes, as detailed below.

Pension costs for the schemes were as follows:

2019
£m

2018
£m

Defined benefit schemes - expense recognised in the income statement

0.6

0.6

Defined contribution schemes

21.8

18.7

Total included within employee benefit expenses

22.4

19.3

An independent actuary performs detailed triennial valuations together with periodic interim reviews. The most recent completed formal actuarial valuation for the Galliford Try Final Salary Pension Scheme was as at 30 June 2018 and was prepared by LCP the scheme actuary. The Galliford Try Final Salary Pension Scheme closed to future accrual with effect from 31 March 2007. In June 2016 the Galliford Try Final Salary Pension Scheme completed a £95m insurance buy-in transaction. In July 2018, the Galliford Group Special Scheme completed a £7m insurance bulk annuity buyout transaction, securing the pensioner liabilities of the scheme. The premium paid was £0.9m higher than the IAS 19 liabilities discharged and therefore, a settlement charge of £0.9m was expensed to the income statement; this was treated as an exceptional item (note 5). The IAS 19 accounting result for the Galliford Try Final Salary Pension Scheme has been calculated using a roll forward approach based on the liabilities calculated for the 30 June 2018 actuarial valuation, and incorporates the insurance buy-in referred to above.

The deficit recovery funding plan agreed with the Trustees in 2019 requires the Company to pay contributions of £389,583 per calendar month until January 2021, with potential additional payments being linked to dividend payments of the Company.

The most recent actuarial valuation of the Galliford Group Special Scheme was prepared using the defined accrued benefit method as at 1 April 2016. No further contributions are expected to be required for this Scheme and in July 2018, an insurance bulk annuity buyout transaction was completed for £7m, securing the pensioner liabilities of the scheme. Options for winding-up the scheme are now being reviewed and it is expected that this transaction will be completed during the coming year.

The Kendall Cross (Holdings) Limited Scheme is funded and provides benefits based on final pensionable salaries. The Scheme was closed to new members and to future accrual for existing members prior to the date of the acquisition by Galliford Try plc in November 2007. The most recent actuarial valuation of the Scheme was prepared as at 13 November 2017. No further contributions are expected to be required for this Scheme.

On 26 October 2018, the High Court issued its judgment in the GMP equalisation case with Lloyds Bank Plc. The key implication of this case is the need for pension schemes to equalise benefits for the effect of unequal GMPs accrued between May 1990 and April 1997; this applies to UK pension schemes who were contracted out of the State Earnings Related Pension Scheme (SERPS) during this period and who provide GMPs and therefore includes the Galliford Try Final Salary Pension Scheme and the Kendall Cross (Holdings) Ltd Pension & Assurance Scheme, resulting in an increase to the IAS 19 defined benefit obligations for both. The wording in the Court ruling implies that trustees should effect this increased obligation by an amendment to the scheme benefits which would be treated as a plan amendment and therefore a past service costs expensed in the income statement, recognised at the date that they occurred (being the date of the Lloyds GMP judgment, 26 October 2018). This has been estimated at 30 June 2019 to be equivalent to c 1.6% of the schemes liabilities, resulting in an expense in the income statement and an increase in liabilities of £3.5m. This has been treated as an exceptional item (note 5).

The principal actuarial assumptions used in the calculation of the disclosure items are as follows:

2019

2018

Rate of increase in pensionable salaries

n/a

n/a

Rate of increase in pensions in payment

3.10%

3.00%

Discount rate

2.25%

2.70%

Retail price inflation

3.25%

3.15%

Consumer price inflation

2.25%

2.15%

The fair value of the assets and present value of the obligations at 30 June of the Group's defined benefit arrangements are as follows:

2019

£m

2018

£m

Fair value of plan assets

245.7

235.6

Present value of defined benefit obligation

(238.7)

(228.6)

Surplus in scheme recognised as a non-current asset

7.0

7.0

21 Guarantees and contingent liabilities

Galliford Try plc has entered into financial guarantees and counter indemnities in respect of bank and performance bonds issued in the normal course of business on behalf of Group undertakings, including joint arrangements, amounting to £239.2m (2018: £381.3m).

22 Post balance sheet events

On 10 September 2019, the Group announced the proposed sale of the Group's housebuilding businesses, Linden Homes and Partnerships & Regeneration to Bovis Homes Group PLC. The Board believes the proposal will result in the Group becoming a well-capitalised standalone construction-focused group, benefiting from the recent operational restructuring which refocused the business to deliver improved future performance. The division's strengths in UK building and infrastructure, particularly in the highways and water sectors, along with the spread of work for both public and private clients provide a strong foundation for the future as an independent construction group.

Additionally, on 1 July 2019, the Group acquired Strategic Team Group for approximately £11.0m (of which £2.0m is deferred) delivering a mature operating platform in Yorkshire and expanding the Group's presence in Cheshire.

23 Impact of the adoption of IFRS 15 Revenue from Contacts with Customers

The Group has adopted IFRS 15 from 1 July 2018 and as a result, has changed its accounting policy for revenue recognition as detailed in note 2. The Group has applied IFRS 15 using the modified retrospective approach of initially applying the new standard as an adjustment to the opening balance of equity as at 1 July 2018. Therefore, the comparative information has not been restated and continues to be reported under IAS 11 and IAS 18. The details of any changes are set out below.

(i) Part-exchange properties - historically, under IAS 18, the purchase and sale of part-exchange properties was treated as a linked transaction with the sale of the new build unit, and as such the net impact of the purchase and sale of a part exchange property was recognised in cost of sales. Under IFRS 15, this is now a separate transaction as it can no longer be linked with the sale of the new build house (see updated accounting policy, notes 2 and 4). Accordingly, these sales are now recorded in revenue rather than as a reduction to cost of sales. However, this accounting change results in equivalent but offsetting increases in revenue and cost of sales and therefore no change in operating profit or net assets.

(ii) IAS 11 'Construction Contracts' permitted the recognition of expected reimbursements resulting from claims against a third party (as well as the customer) if it was probable that the claim would be accepted. Certain third-party claims (such as insurance recoveries and claims for cost reimbursements) are not covered by similar provisions in IFRS 15, which only deals with claims against the customer. Following the withdrawal of IAS 11, in order to recognise an asset for these third-party claims the Group will need to comply with the requirements of IAS 37 'Provisions, Contingent Liabilities and Contingent Assets'. The requirements of IAS 37 are more stringent than IAS 11, requiring recovery to be virtually certain before an asset can be recognised. Whilst the Group still expects to recover the amounts claimed from third parties that the Group had recognised at the 30 June 2018 balance sheet date, certain claims do not meet the virtually certain criteria of IAS 37. These claims have therefore been de-recognised at the transition date and will be accounted for in future periods, in line with the requirements of IAS 37.

(iii) The Group's notes to the accounts (specifically 'trade and other receivables', 'trade and other payables' and 'other non-current liabilities') are impacted as a result of moving away from IAS 11 balance sheet captions to those prescribed by IFRS 15. The main reclassification adjustment is in relation to reclassifying 'Amounts recoverable on construction contracts' and 'Payments received on account on construction contracts' to 'Contract Assets' or 'Contract Liabilities'. Additionally, the relevant accrued income balances which were previously presented within 'Prepayments and accrued income' and deferred income balances which were previously presented within 'Accruals and deferred income' for contracts that were ongoing at that time in line with the requirements of IAS 11, have now been presented within 'Contract assets' or 'Contract liabilities' as appropriate. This has not resulted in any change to the balances disclosed in the balance sheet.

Impact on the financial statements on transition at 1 July 2018

As noted above, the adjustments to the Group's consolidated income statement and balance sheet on the adoption of IFRS 15 were to revenue and cost of sales in respect of accounting for part-exchange properties and accounting for certain third-party claims (such as insurance recoveries and claims for cost reimbursements). The effect on the Group's consolidated income statement for the year ended 30 June 2018 is to increase revenue by £83.5m, with an equal increase in cost of sales (see adjustment (i) above). Therefore, this had no impact on the consolidated balance sheet as at 30 June 2018. However, the cumulative effect of adjustment (ii) to the Group's consolidated balance sheet as at 30 June 2018, was as follows:

30 June 2018 £m

Adjustment (ii) £m

1 July 2018 £m

Assets

Non-current assets

Intangible assets

15.3

-

15.3

Goodwill

159.6

-

159.6

Property, plant and equipment

16.7

-

16.7

Investments in joint ventures

49.9

-

49.9

PPP and other investments

26.8

-

26.8

Trade and other receivables

148.9

-

148.9

Deferred income tax asset

-

6.0

6.0

Retirement benefit asset

7.0

-

7.0

Total non-current assets

424.2

6.0

430.2

Current assets

Inventories

0.2

-

0.2

Developments

724.9

-

724.9

Trade and other receivables

838.6

(31.7)

806.9

Cash and cash equivalents

912.4

-

912.4

Total current assets

2,476.1

(31.7)

2,444.4

Total assets

2,900.3

(25.7)

2,874.6

Liabilities

Current liabilities

Financial liabilities

- Borrowings

(617.1)

-

(617.1)

Trade and other payables

(1,174.6)

(3.7)

(1,178.3)

Current income tax liabilities

(10.0)

-

(10.0)

Provisions for other liabilities and charges

(0.3)

-

(0.3)

Total current liabilities

(1,802.0)

(3.7)

(1,805.7)

Net current assets

674.1

(35.4)

638.7

Non-current liabilities

Financial liabilities

- Borrowings

(197.1)

-

(197.1)

- Derivative financial liabilities

(0.9)

-

(0.9)

Deferred income tax liabilities

(0.7)

0.7

-

Other non-current liabilities

(122.3)

-

(122.3)

Provisions for other liabilities and charges

(0.8)

-

(0.8)

Total non-current liabilities

(321.8)

0.7

(321.1)

Total liabilities

(2,123.8)

(3.0)

(2,126.8)

Net assets

776.5

(28.7)

747.8

Equity

Ordinary shares

55.5

-

55.5

Share premium

197.6

-

197.6

Other reserves

4.8

-

4.8

Retained earnings

518.6

(28.7)

489.9

Total equity attributable to owners of the Company

776.5

(28.7)

747.8

Impact of adopting IFRS 15 on the Group's 2019 annual results

Impact on Group's consolidated income statement for the twelve months to 30 June 2019

The Group's consolidated income statement for the twelve months ending 30 June 2019 is impacted by adjustments (i) and (ii) as noted in the transition adjustments above, namely sales from part-exchange properties now recorded in revenue rather than as a reduction in cost of sales and a timing difference on the recognition of certain claims from third parties. The Group would have recognised £100.7m less revenue (and an equivalent reduction in cost of sales and therefore no change in profit) in the year if it were to continue to apply previous accounting standards in respect of sales of part-exchange properties. However, in respect of third-party claims, the Group would have recognised an additional profit of £2.8m if it had continued to apply IAS 11 and IAS 18 in the year.

Impact on Group's consolidated balance sheet at 30 June 2019

As a result of the adoption of IFRS 15 on 1 July 2018, the Group's consolidated balance sheet as at 30 June 2019 has been impacted by adjustment (ii) above, resulting in a cumulative reduction in net assets of £31.5m, as detailed below:

30 June 2019 as reported under IFRS 15 £m

Adjustment (ii) £m

30 June 2019 reported under IAS 11/IAS 18 £m

Assets

Non-current assets

Intangible assets

11.8

-

11.8

Goodwill

159.6

-

159.6

Property, plant and equipment

16.2

-

16.2

Investments in joint ventures

67.0

-

67.0

PPP and other investments

41.6

-

41.6

Trade and other receivables

238.4

-

238.4

Retirement benefit asset

7.0

-

7.0

Deferred income tax assets

1.3

-

1.3

Total non-current assets

542.9

-

542.9

Current assets

Inventories

-

-

-

Developments

876.7

-

876.7

Trade and other receivables

754.3

35.1

789.4

Cash and cash equivalents

591.2

-

591.2

Total current assets

2,222.2

35.1

2,257.3

Total assets

2,765.1

35.1

2,800.2

Liabilities

Current liabilities

Financial liabilities

- Borrowings

(547.8)

-

(547.8)

Trade and other payables

(1,253.1)

3.7

(1,249.4)

Current income tax liabilities

(8.3)

(7.3)

(15.6)

Provisions for other liabilities and charges

(0.4)

-

(0.4)

Total current liabilities

(1,809.6)

(3.6)

(1,813.2)

Net current assets

412.6

31.5

444.1

Non-current liabilities

Financial liabilities

- Borrowings

(100.0)

-

(100.0)

- Derivative financial liabilities

(0.4)

-

(0.4)

Deferred income tax liabilities

-

-

-

Other non-current liabilities

(103.0)

-

(103.0)

Provisions for other liabilities and charges

(0.4)

-

(0.4)

Total non-current liabilities

(203.8)

-

(203.8)

Total liabilities

(2,013.4)

(3.6)

(2,017.0)

Net assets

751.7

31.5

783.2

Equity

Ordinary shares

55.5

-

55.5

Share premium

197.7

-

197.7

Other reserves

4.8

-

4.8

Retained earnings

493.7

31.5

525.2

Total equity attributable to owners of the Company

751.7

31.5

783.2

The areas of the balance sheet impacted by the adoption of IFRS 15 and the nature of the adjustments are consistent with the transitional adjustments noted above.