07/03/2024 - Galliford Try plc: Half year results statement

6 MARCH 2024

GALLIFORD TRY HOLDINGS PLC

HALF YEAR REPORT FOR THE SIX MONTHS ENDED 31 DECEMBER 2023

STRONG MOMENTUM AND CONTINUING GROWTH

Strategy and Outlook

• Secure outlook with £3.7bn (H1 2023: £3.5bn) high quality and focused order book.
• Excellent visibility over future revenue with 98% and 83% of projected FY24 and FY25 revenue secured.
• Sustainable Growth Strategy on track to achieve our targets ahead of plan.
• Capital Markets Event on 23 May 2024 to update strategy to 2030.

Financial and Operational Highlights

• 21% increase in revenue to £819m (H1 2023: £679m), with growth in both Building and Infrastructure.
• 2.5% divisional operating margin (H1 2023: 2.3%), with margin improvements in both Building and Infrastructure, showing good progress against our strategic target.
• 33% increase in profit before tax to £15.6m (H1 2023: £11.7m) before exceptional costs1.
• 33% increase in interim dividend to 4.0p per share (H1 2023: 3.0p).
• Strong balance sheet with operating cash inflow in the period, average month-end cash for the period of £150m (H1 2023: £154m) and a PPP asset portfolio of £43.5m (June 2023: £44.6m).
• Building business is making progress in Private Rented and Affordable Housing, recently appointed to the £3.2bn Communities & Housing Investment Consortium (CHIC) Newbuild Development Framework for affordable homes.
• Environment business continues to develop its capabilities including the acquisition of mechanical and electrical engineering specialists AVRS Systems.
• Highways business appointed to the Generation 5 Civil Engineering, Highways and Transportation Collaborative Framework 2024-2028.

1. Stated before exceptional items. Exceptional items of £2.6m relate only to our investment in cloud-based computer software (H1 2023: £4.5m).
2. Divisional operating margin is defined as pre-exceptional operating profit before amortisation as a percentage of revenue. It is stated for the combined Building and Infrastructure divisions.

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RISK MANAGEMENT AND ORDER BOOK

The Group's strategy is founded on commercial discipline and robust risk management. Our confidence in the Group's future performance is based on our high quality order book, underpinned by management's discipline and focus, and our robust long term pipeline of opportunities. Our sector focus means 81% of contracts are delivered through frameworks providing a reliable stream of long term future work built on relationships with clients on known terms, conditions and risk profile.

At 31 December 2023 the Group's order book was £3.7bn (H1 2023: £3.5bn) of which 87% is in the public and regulated sectors and 13% is in the private sector. 98% of projected revenue for the current financial year is secured, and 83% is already secured for the next financial year (H1 2023: 95% and 79% respectively).

OUTLOOK

The Group has a strong and consistent track record and a predominant focus on the public and regulated sectors. The UK's planned, and required, investment in economic and social infrastructure continues to support growth in our chosen markets. Our recent acquisition of AVRS Systems together with the acquired specialist businesses, MCS Control Systems and Ham Baker, further enhance our Environment business's client offering in the key areas of off-site build and asset optimisation.

Our future outlook is supported by recent framework and project wins as well as the robust and resilient pipeline of opportunities we see across our chosen sectors.

The Group enters the second half of the year with strong momentum and confidence for the financial year to 30 June 2024 and the longer term.

DIVIDEND AND CAPITAL ALLOCATION

The directors have reviewed the Group's results and outlook for the current financial year and have declared an interim dividend of 4.0p per share which will be paid on 12 April 2024 to shareholders on the register at the close of business on 15 March 2024.

The Group's capital allocation priorities are:

• Strong balance sheet to support operations
  A strong balance sheet is an important element in delivering the Group's Sustainable Growth Strategy, as it provides a competitive advantage in the market, supports the Group's disciplined approach, and provides confidence to our clients and supply chain. The current outlook across our markets is encouraging and supports our strategy. However, the Group also ensures that it is prepared for any adverse change in market conditions that may arise. Our strong balance sheet is particularly important for the Group to continue to operate its disciplined approach to contract selection and focus on operating margin, irrespective of any short term economic concerns. The management of past inflationary pressures demonstrates the value and importance of the Group's risk management framework and focus.
• Invest in the business
  We are able to allocate capital to assist the development of our adjacent markets, as demonstrated by our acquisition of AVRS Systems. Our strong cash balance enables the Group to react quickly to strategic opportunities, including bolt-on acquisitions that enhance our capabilities and increase value, and to continue to invest in enablers of growth such as digital capabilities.
• Paying sustainable dividends to shareholders
  The Board understands the importance of dividends to shareholders and in setting its dividend considers the Group's profitability, its strong balance sheet, high-quality order book and longer term prospects. Consistent with this approach the Group expects dividend per share to increase in line with earnings as the business grows.
  The Board's confidence in the outlook led to an improved dividend policy, announced in September 2023, of earnings covering the dividend by 1.8 times. Alongside dividend growth from our operational performance, this improvement reflects the low-risk nature of the PPP asset portfolio and its annuity interest income and provides a sustainable increase in dividend to shareholders while retaining capital to invest in growing the business.
• Returning excess cash
  We continue to assess the cash requirements of the business to ensure the Group remains well positioned to deliver on its Sustainable Growth Strategy and has sufficient funds to invest in the business. In September 2022, having reviewed the Group's strong cash performance and ongoing capital requirements the Group launched a share buyback programme of up to a maximum of £15m. On 17 November 2023 we announced the completion of the share buyback programme with a total of 8,404,148 shares repurchased and subsequently cancelled, representing approximately 7.5% of issued share capital. In addition to this, the Group paid a special dividend of 12.0 pence per share (amounting to £12.5m) on 27 October 2023 as announced on 8 June 2023. As previously announced, where average month-end cash and PPP assets increase above the level required, the Board will consider making additional returns to shareholders.

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FINANCIAL REVIEW

During the first half of the year, the Group delivered a strong performance resulting in a significant increase in revenue and profit before tax, as well as improved divisional operating margin. Our operating performance, strong financial position and high quality order book provide confidence in our future performance.

Revenue for the half year to 31 December 2023 increased 21% to £819.1m (H1 2023: £679.2m). This reflects revenue increases in both Building and Infrastructure. The procurement delays experienced by our Building business in 2022 have ended and the contracts awarded in 2023 are now on site, resulting in increased revenue in Building. Our Environment business continues to benefit from high levels of AMP7 spending by our water sector clients.

Pre-exceptional operating profit before amortisation increased by 31% to £14.1m (H1 2023: £10.8m). The combined divisional operating

margin was 2.5% (H1 2023: 2.3%), with improvement in both Building and Infrastructure as we make further progress towards our 3.0%

target. Building generated a profit of £10.6m (H1 2023: £9.3m), representing an operating margin of 2.4% (H1 2023: 2.3%).

Infrastructure generated a profit of £9.3m (H1 2023: £6.5m), representing an operating margin of 2.6% (H1 2023: 2.3%).

There was a £5.8m pre-exceptional operating cost in aggregate across Investments and Central Costs (H1 2023: £(5.0)m). Investments includes initial development fees from its first co-development Private Rental Scheme reaching financial close, while the comparative period included a £3.6m one-off profit on the disposal of an interest in a joint venture entity. Central Costs were slightly lower at £6.1m (H1 2023: £6.5m). Net interest income was £2.7m (H1 2023: £2.4m), with the increase largely a result of improved interest rates partly offset by increased IFRS16 lease interest charges.

Pre-exceptional profit before tax was £15.6m (H1 2023: £11.7m). Exceptional items of £2.6m (H1 2023: £4.5m) have been incurred in the period, enhancing our digital and data capabilities, in relation to our investment in cloud-based digital finance and commercial systems. The new systems successfully went into operation in September 2023. Full details are set out in note 6 to the financial information. Post-exceptional profit before tax was £13.0m (H1 2023: £7.2m).

The pre-exceptional taxation charge of £2.3m reflects a forecast effective tax rate of 19.7% (H1 2023: 19.6%) for the year to 30 June 2024, after allowing for prior year tax adjustments, which compares to the standard effective tax rate of 25.0%.

Based on pre-exceptional earnings per share of 13.2p (H1 2023: 8.8p), and the outlook for the remainder of the financial year, the

Board has declared an interim dividend of 4.0p per share (H1 2023: 3.0p).

The Group is well capitalised, maintaining its focus on disciplined cash management in line with the Board's key capital allocation objectives. The Group operates with daily net cash, no debt facilities, and no defined benefit pension liabilities. Average month end cash balances for the first half year were strong at £150m and the Board anticipates that average cash for the full year to 30 June 2024 will be at a similar level.

The Group also benefits from a PPP asset portfolio of £43.5m, reflecting a blended 7.3% discount rate and generating interest income.

The Group is able to adopt appropriate discipline and risk management when sourcing new work supported by our strong balance sheet which is also important in providing confidence to our clients, staff and supply chain. We are committed to pursuing a collaborative and open approach with our supply chain. Our performance under the Prompt Payment Code continues to remain strong, with 97% of invoices paid within 60 days in the period (H1 2023: 98%) and average payment being made in 24 days (H1 2023: 26 days).

OPERATIONAL REVIEW

Building

The Group's Building business operates through regional offices, serving a range of public and commercial clients across the UK, with a focus on our core and proven strengths in the Education, Defence and Custodial, Health and Commercial sectors. Building has a substantial presence in Scotland operating as Morrison Construction. Our Facilities Management business complements these operations by providing building maintenance services and we continue to grow the capabilities of this operation, with a specific focus on decarbonising existing buildings through retrofit and other enhancements.

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Building's revenue was up 12% to £446.0m (H1 2023: £399.7m) with operating profit before amortisation of £10.6m (H1 2023: £9.3m),

resulting in an improved operating margin of 2.4% (H1 2023: 2.3%). Revenue has grown, as expected, as we now benefit from the volume of new work that was delayed by inflation and public sector procurement challenges in 2022. We continue to target margin progression, with the improvement in the period reflecting the performance of projects across the business and our strategy of focusing on bottom line growth.

Building has won a place on the £2.5bn Lot 2 of the eight-year framework, for new build projects worth more than £10m, and the £650m Lot 3, for regeneration projects, on behalf of the Communities & Housing Investment Consortium (CHIC). Galliford Try anticipates accessing the framework to build low and medium rise affordable apartments, building on its existing capabilities in the build to rent market.

Building currently has an order book of £2.2bn (H1 2023: £2.1bn), including 27% in Education, 31% in Defence and Custodial, 15% in Facilities Management and 4% in Health.

Infrastructure

Our Infrastructure businesses, primarily Highways and Environment (incorporating principally our activities in water and wastewater), carry out critical engineering projects across the UK. This business has established long-term relationships with customers where we have a strong track record on delivery, focusing on public and regulated sector work and bids with early contractor involvement.

Infrastructure revenue was up 31% to £362.0m (H1 2023: £276.6m) with operating profit before amortisation and exceptional items of

£9.3m (H1 2023: £6.5m), resulting in an improved operating margin of 2.6% (H1 2023: 2.3%).

Our growing Environment business, including the acquisition of AVRS Systems in the period, provides enhanced and specialist service delivery across UK operations including water, engineering, off-site build and asset optimisation, and asset security. This enhanced capability puts the Environment business in a strong position to support our clients accelerate the use of digital technologies as well as improve efficiencies across the lifecycle of the UK's water and wastewater infrastructure. The increase in revenue reflects the particularly high level of activity across our Environment business, as we continue to deliver on our AMP7 frameworks.

Our growing Highways business delivers vital infrastructure across the strategic road network, helping connect communities through a range of integrated transport solutions. The Highways business has secured a place on Lot 4 of the new £500m Generation 5 (Gen5) Civil Engineering, Highways and Transportation Collaborative Framework 2024-2028, managed by Hampshire County Council. The four-year framework, for projects worth from £20-£175m, comprises civil engineering, transportation and infrastructure development- related construction.

Infrastructure currently has an order book of £1.5bn (H1 2023: £1.4bn) comprising £562m in Highways and £894m in Environment.

Investments

Investments delivers major building and infrastructure projects through public private partnerships and the co-development of Private Rented Sector (PRS) projects, generating work for the wider Group in the process. The business reached financial close, and has commenced construction, on its first PRS scheme in Cardiff during the period.

For the first half of the financial year, revenue was £11.1m (H1 2023: £2.9m) with an operating profit of £0.3m (H1 2023: £1.5m). This includes the recognition of initial development fees related to the financial close of the PRS scheme referred to above as well as the ongoing project management fees associated with the construction of the scheme itself. In H1 2023, operating profit included £3.6m relating to the profit on disposal of our interest in a joint venture arrangement.

At 31 December 2023 the Group directors' valuation of our PPP portfolio was £43.5m (H1 2023: £46.1m), reflecting a blended 7.3%

discount rate (H1 2023: 7.1%). These assets contribute to our balance sheet strength and generated interest income in the period of

£1.9m (H1 2023: £2.0m).

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Environment, Social and Governance (ESG)

Sustainability underpins our long-term success as it helps us to win work, engages our employees, benefits communities and the environment, and makes us more efficient. This is why our sustainability commitments are an integral part of delivering our growth strategy. We monitor progress against the six pillars of our sustainability strategy, which are mapped to the UN Sustainable Development Goals, as set out below:

Health and Safety

The health, safety and wellbeing of our staff, subcontractors, suppliers, clients and the public remains the Group's top priority.

We continue to focus on our pursuit of 'no harm' through our Back to Basics approach of Right Person, Right Planning, Right Tools and Equipment and Right Workplace. Pleasingly, our accident frequency rate fell in the period.

Our behavioural safety programme, Challenging Beliefs, Affecting Behaviour (CBAB), based on awareness, training, coaching and visible leadership, forms the backbone of our approach. This year, we launched our latest CBAB update module which focuses on the correlation between quality and health and safety and the parallels between both. We also continued our quarterly CBAB Coach Forums on site, which cover the role of the Coach and what tools we can utilise to continue pushing the message with regard to driving a positive safety culture.

We were delighted that our 'Choose the Safe Path' training programme, aligned to CBAB, which involves employees determining the outcome of site-based scenarios to prevent incidents using immersive virtual reality technology won the prestigious Princess Royal Training Award delivered by City and Guilds Foundation.

People

In line with our retain and gain people strategy and as part of our aim to become a destination employer, we recently launched our, Grow Together People Pledge, (our Employee Value Proposition), which encapsulates a promise to our people, both existing and potential employees, to support our journey to be a progressive and people orientated employer.

We continue to place a focus on the future of the construction industry, and we are proud to be one of only 20 employers to have been awarded the new Platinum membership of The 5% Club which recognises the business's commitment to inclusion and social mobility, future growth of 'earn as you learn' opportunities and the quality of training and development. We have also been voted the best Construction and Civil Engineering company for Graduates, and number two for Apprentices, by The Job Crowd.

Equity, Diversity, and Inclusion (ED&I) continues to be a key focus and our ED&I team continues to work in conjunction with The Clear Assured Company, a global diversity and inclusion specialist to ensure we continuously embed the most inclusive practices across our organisation. Key developments in this area have been the design and commencement of Inclusive Leadership Training modules and a commitment to support the construction industry to achieve a more equal gender by taking steps to understand the potential barriers to the employment and progression of women in our industry and take action on these.

We continue to recognise the importance of positive health and wellbeing, and have recently launched the next evolution of our 'Be Well' wellbeing programme to ensure it continues to be up to date, is accessible to all, including our supply chain, and the approach is truly embedded within the business.

Environment and Climate Change

We recognise the importance of the climate change agenda and the role we have to play in decarbonising the economy for a greener, more sustainable future.

Our near-term carbon reduction targets have been validated by the Science Based Targets Initiative (SBTi) and we are determined to be aligned with a 1.5°C trajectory, the most ambitious designation available through the SBTi process. Our near-term SBTs support our ambition to achieve net zero carbon across our own operations (Scope 1 and 2) by 2030 and across all activities (Scope 1, 2 and 3) by 2045 at the latest.

We continue to participate in the Carbon Disclosure Project (CDP), a global disclosure system for organisations to manage their environmental impacts and in 2023, we achieved an improved score of B 'Management level', (2022 score: C 'Awareness level'), recognising the progress we are making in embedding climate action into our governance, strategy and operations.

We are on target to achieve PAS 2080 Carbon Management in Buildings and Infrastructure certification by 2025 and continue to embed carbon management into our management and operational processes.

We recognise that managing our environmental impact goes beyond reducing carbon emissions and we have established cross- business working groups on issues including biodiversity, waste and green site set up. All our businesses are developing environmental strategies tailored to the nature of their operations, which will include objectives, baselines and targets for areas such as waste, energy use and water consumption.

We have also reviewed and updated our biodiversity strategy, which now includes the ambition to deliver a biodiversity net gain of 10% across the business.

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Communities

Delivering a legacy of positive social value outcomes is the right thing to do as a responsible business and remains an important priority for our clients. Since we began reporting social value in 2022, we have delivered over £650m in social and local economic value through a combination of providing work for the local supply chain, providing opportunities for training and apprenticeships and job creation.

Last year, we took part in 'Unlocking Construction', which is developed by New Futures Network - part of HM Prisons and Probation Service, to promote careers and opportunities within the industry to prison leavers, aimed at helping sectors like construction fill skills gaps, while promoting positive change to prisoners, reducing the likelihood of repeat offending and benefiting wider society. We have now appointed an Outreach Partner who is building relationships with prisons to increase our engagement, delivering employability workshops and Release on Temporary Licence work placements.

Working in partnership with the Department for Work and Pensions, we have developed the Mentoring the Next Generation programme which aims to encourage more females to explore a career in construction through face-to-face presentations, mentoring, careers awareness and skill-building over the course of a structured three-year programme. At the end of the programme, we offer interviews for roles at Galliford Try.

We continue to take part in the Considerate Constructors Scheme (CCS), which assesses sites on criteria including being considerate of local neighbourhoods and the public and we achieved an average CCS audit score of 42.7 in the six months to December 2023, which remained above the industry average of 40.4.

Clients

Providing excellent service for our clients includes the ability to unlock new and innovative methods to deliver high quality, low carbon, value for money projects. Our approach is reflected by the fact that 88% of our order book is repeat business (H1 2023: 92%).

A key aspect of our drive for excellence is how we embrace modern methods of construction, use resources more efficiently and analyse sustainable alternatives. Our Morrison Construction business is using lower carbon Electric Arc Furnace steel, reducing the embodied carbon of projects. Electric Arc Furnace steel significantly reduces the quantity of fossil fuels by using electrical processes and higher percentages of recycled content. The process creates a 77% carbon saving compared to traditional alternatives. The first scheme to feature this steel is our Easthouses Primary School project for Midlothian Council.

Our Infrastructure business has trialled a concrete monitoring system on our A303 project for National Highways. The sensors placed in the concrete pour provide real time monitoring for anyone involved in the project. The system demonstrates when the concrete reaches the correct strength, helping to accelerate the construction programme, improve quality and reduce costs.

Our focus on providing excellent service for our clients has seen our business named Contractor of the Year for the third time at the Education Estates Awards. The award recognises the success of the business, and the progress we have made in producing Net Zero Carbon in Operation schools for the Department for Education.

Supply Chain

As a signatory of the Prompt Payment Code, we are committed to paying 95% of supply chain invoices within 60 days. We continue to outperform this target, with 97% of invoices paid within 60 days in the latest six months to 31 December 2023 (January to June 2023: 98%) and the average days to pay now 24 days (January to June 2023: 26 days), maintaining our position in the top 10 contractors in Build UK's league table. The implementation of a new ERP system during H1 2024 has had a short-term negative impact on performance against the target of paying 95% of invoices from suppliers with fewer than 50 employees within 30 days, with 81% paid within 30 days (January to June 2023: 87%), however we expect this metric to improve again over the next financial year.

We continue to enhance our procedures to minimise the risk of modern slavery within our operations and supply chain and use the UK Government Modern Slavery Assessment tool to assess our performance and identify opportunities for improvement. As part of this ongoing improvement, we will be commencing an audit of our preferred supplier labour agencies to assess their compliance, financial stability, and ethical practices.

We continue to retain Gold status from the Supply Chain Sustainability School, an award-winning collaboration designed to upskill its members through free training and resources covering sustainability, off-site manufacturing, Building Information Modelling (BIM), Lean and Management.

PRINCIPAL RISKS AND UNCERTAINTIES

The directors consider that the principal risks and uncertainties which may have a material impact on the Group's performance in the second half of the financial year remain primarily the same as those outlined on pages 53 to 56 of the Group's annual report and financial statements for the year ended 30 June 2023. Those risks the Group considers to be of particular importance and highlighted as the principal risks in focus within the 30 June 2023 annual report are; work winning, project delivery, resources and regulatory compliance.

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BOARD

As previously announced Andrew Duxbury, Group Finance Director, will leave the Group during the year. The Group is making good progress on securing Andrew's replacement and we expect to provide an update shortly. As previously announced, Marisa Cassoni, Non-executive Director and Chair of the Audit Committee, was appointed Senior Independent Director with effect from 1 November 2023. Also, as previously announced, Kevin Boyd joined the Board as a Non-executive director on 1 March 2024. On appointment Kevin became a member of the audit, remuneration and nomination committees.

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Condensed consolidated income statement

for the half year ended 31 December 2023 (unaudited)

Earnings per share

Basic

• Profit from continuing operations attributable to ordinary shareholders

Diluted

• Profit from continuing operations attributable to ordinary shareholders

The notes are an integral part of the condensed consolidated financial statements.

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Condensed consolidated statement of comprehensive income for the half year ended 31 December 2023 (unaudited)

The notes are an integral part of the condensed consolidated financial statements.

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