Company Announcements

GALLIFORD TRY PLC

PUBLICATION OF ANNUAL REPORT AND FINANCIAL STATEMENTS 2019 AND NOTICE OF 2019 ANNUAL GENERAL MEETING

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

·      The Annual Report and Financial Statements 2019

·      Notice of 2019 Annual General Meeting

·      Form of Proxy for the 2019 Annual General Meeting

The documents will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.

The Annual Report and Financial Statements and Notice of Annual General Meeting are also available on the Galliford Try plc website at www.gallifordtry.co.uk/investors/reports-and-presentations/2019.

A condensed set of the Group's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in Galliford Try plc's Final Results Announcement on 11 September 2019.  That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2019 constitute the material required by DTR 6.3.5 of the Disclosure Guidance and Transparency Rules which is required to be communicated to the media in full unedited text through a Regulatory Information Service.  This announcement is not a substitute for reading the full Annual Report and Financial Statements 2019.  Page and note references in the text below refer to page numbers and note references in the Annual Report and Financial Statements 2019.  To view the results announcement, slides of the results presentation and the results webcast please visit www.gallifordtry.co.uk/investors.

Principal risks

The ability to identify, assess and manage risks and uncertainties is critical to achieving our strategy of sustainable growth and is an integral element of our management processes.

Our approach to risk and internal controls

Risks and uncertainties are inherent in what we do. In Construction & Investments and Partnerships & Regeneration we deliver value to our clients by managing complex construction projects that require us to co-ordinate many different stakeholders and manage a diverse range of risks. Our housebuilding businesses are also exposed to the housing market risk and the additional risks associated with being a consumer-facing business. All our businesses operate in a dynamic environment where changes in regulation, Government policy or technology can have a significant impact on our business.

The Board has overall responsibility for maintaining oversight of the Group's processes for identifying, assessing, managing and reporting on principal risks and the system of internal controls designed to manage them. The Board has reviewed the principal risks and uncertainties, including those that would threaten its business model, future performance, solvency or liquidity, together with the key mitigations in place, and the most significant risks are presented on pages 28 to 31. There may be other risks and uncertainties besides those listed which may also adversely affect the Group and its performance.

The Audit Committee has reviewed the risk management process and internal control framework, together with the findings of the Internal Audit function over the past year, which may indicate weaknesses that have had, could have had, or may have in the future, a material impact on the results, and remedial actions taken. Based on these assessments, the Board is satisfied with the effectiveness of the Group's systems of risk management and internal control, as detailed on page 62.

Risk appetite

Our risk appetite, defined as the nature and level of risks that we are prepared to be exposed to is discussed and agreed by the Board and is expressed in our Group strategy. This attitude to risk is then applied by the businesses and business units in their annual business plans and day-to-day operations. For example, at Group level, we have stated that we will not bid for major projects on a fixed-price, all-risk basis. At the business unit level, this appetite informs how opportunities are assessed and is enforced through the governance and review controls over bidding.

Emerging risks

During the year, we have developed our approach to identifying and managing emerging risks. Although this remains an evolving process, we have agreed the following key design features of our approach:

·      At a Group level, the emerging risk process is aligned to the strategic planning cycle. Emerging risks are identified and assessed as part of the annual strategy away day and at the Group's Risk Committee, and mitigating responses incorporated into the strategic plan.

·      At a divisional level, the emerging risk process is aligned with the annual business planning cycle with strategic responses incorporated into annual business plans.

·      At a business unit level, management continue to focus solely on principal risks, although these may include risks that are longer term and less certain in nature.

·      Emerging risks are assessed in terms of timeline and velocity as opposed to impact and likelihood.

In addition to developing our proposed approach, we have also performed an initial exercise to identify key emerging risks. While there are differences between the three businesses, some of the more common emerging risk themes are:

·      Potential for new competitors with radically different business models to enter the market.

·      Failure to make the right strategic decisions in relation to the investment in and adoption of modern methods of construction.

·      Radical reform of land and planning regulation.

·      Increased frequency of extreme weather conditions.

·      Uncertain evolution of the structure of the construction value chain and the role of tier one contractors.

·      Failure to adapt to the changing expectations of the workforce of the future.

Risk management governance structure and process

The Group's risk management and governance structure is designed to facilitate both a bottom-up and top-down view of risk.

Audit Committee

Responsible for keeping under review the adequacy and effectiveness of the group's risk management processes and systems of internal control, and for reviewing and approving statements included in the Annual Report concerning internal controls, risk management and the Viability statement.

Risk and Internal Audit

Facilitates the identification, reporting and management of risk throughout the governance structure.

Executive Risk Committee

Chaired by: General Counsel and Company Secretary. Managed by: Director of Risk and Internal Audit. Meets three times a year and reviews the latest versions of each of the three divisional risk registers. Regularly attended by non-executive directors.

plc Board

Sets out frameworks to identify, report and manage risks.

Executive Board

Responsible for implementing risk management and internal control, together with their day-to-day operation.

Divisional Risk Registers

Linden Homes

Galliford Try Partnerships

Construction &Investments

Group Services

Business unit Boards

Review the risk register twice a year. One review is facilitated by the Group Risk and Internal Audit function and includes an assessment of the likelihood and impact of each risk. The same process is used to identify and assess key risks at a divisional level.

Business unit Risk Registers

Captures the principal risks applicable to that business, the key mitigations in place and what further action is required to manage the risk.

Viability statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, the Board has assessed the prospects of the Group over a period of three years in line with its typical business planning and risk management review period. The Group's budget includes information in relation to the Group's revenues, profits, cash flows, dividends, net debt and other key financial and non-financial metrics. The plan considers the potential impact of the principal risks to the business as described from pages 28 to 31, the cyclical nature of the markets in which the Group operates, and incorporates an appropriate level of flexibility to mitigate against these risks. This is achieved through the preparation of sensitivity analyses on a range of scenarios, including variations in revenue, house prices, sales rates, build costs, cash generation and access to financing. Based on the results of its review and analysis, the Board has a reasonable expectation that the Group will be able to continue in operation and meet its liabilities as they fall due over the three-year period of its assessment.

1 Drive operating efficiencies

To increase margins, respond faster to changing market conditions and have strong foundations for delivering further top-line growth.

2 Maintain capital discipline

To appropriately invest in growth opportunities, maintain a robust balance sheet and continue to pay strong dividends.

3 Operate sustainably

To create longer-term value by balancing financial performance with our obligations to all our stakeholders.

Across our 12 principal risks, we have assessed the following six risks as increasing.

Across our 12 principal risks, the following six risks remain unchanged.

Monitoring Brexit, and planning for possible disruption

We have looked closely at the various risks that arise from the many possible permutations of Brexit, and have a plan to mitigate them.

The terms on which we leave the EU are still uncertain and a 'no-deal scenario' remains one possible outcome. Throughout the year, the Board has monitored the developments in the withdrawal process and updated its assessment of the potential impacts of a no-deal Brexit for our businesses, reviewed the actions already taken and assessed what further action should be taken to prepare for this outcome.

The nature of this risk is such that the potential impacts are difficult to predict with a high degree of certainty. However, there are broadly three ways in which the business could suffer a significant negative impact in the event of a no-deal Brexit, as detailed below in addition to the risks described on pages 28 to 31.

A significant reduction in the volume and price of house sales

The short-term disruption to existing trade and regulatory arrangements, uncertainty around the long-term relationship with the EU and the potential political fall-out from a no-deal Brexit, are all likely to contribute to reduced levels of investment and output in the UK economy. In this context, it is possible that reduced consumer confidence will exacerbate the current challenging conditions in the housing market, possibly leading to a downturn, which clearly would have an adverse effect on volumes, revenue and margins in our housebuilding businesses.

Although a no-deal Brexit may trigger a reduction in activity in the housing market, a downturn in the market would not be a new risk for the business. The potential strategic and tactical responses to protect margin in a difficult market are well-understood by our housebuilding businesses and are under constant review. Therefore, although this is likely to have the biggest impact, it is not necessary to define any specific Brexit-related actions, over and above the actions we are already taking to manage the housing market risk as part of the business as usual management process.

Programme delays due to disruption to our supply chains

The precise effect of leaving the single market and customs union and reverting to trade based on World Trade Organisation rules is uncertain. However, most commentators are predicting that some degree of disruption to the transit of goods entering the UK from the EU would be likely, due to the requirement to introduce additional checks at either the EU or UK border. This could result in delays to our build programmes if either we, our subcontractors or their suppliers are unable to get imported materials into the country and on to our sites when required.

Cost increases due to tariffs, devaluation of sterling or alternative sourcing

There is a risk that the cost of materials we import from EU27 countries increases due to the imposition of customs duties, a devaluation in sterling or possibly the pass-through of increased customs administration costs. Even if we seek to source these materials from UK suppliers, we may not be able to do so at the same or lower cost than the comparable EU alternatives.

In addition to the above three risks, there are longer-term impacts of leaving the EU, either with or without a withdrawal agreement. For example, the effect of the end of free movement of labour on the availability of skilled tradesmen in our supply chain.

Actions taken

In the event of a no-deal Brexit, the Board has taken proportionate and targeted actions to ensure that we have understood the potential risks and, where appropriate, put in place contingency plans.

Examples of the actions we have taken include:

§ Communicating the details of the Government's Settled Status scheme to all directly-employed and subcontractor staff through our 'Get Settled' communications programme.

§ Ongoing engagement with our key supply chain partners to understand the status of their no-deal contingency plans, specifically in relation to the import of materials from the EU.

§ Assessing the risk on a project by project basis and where appropriate, stockpiling sensible levels of materials that are critical to the build programme.

Related party transactions

Group

Transactions between the Group and its joint ventures and jointly controlled operations are disclosed as follows:

Sales to related parties are based on terms that would be available to unrelated third parties. Receivables are due within seven years (2018: seven years) and are unsecured, with interest rates varying from bank base rate plus 1.75% to 10%. Payables are due within one year (2018: one year) and are interest free.

Company

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

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

Statement of directors' responsibilities

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

Company law requires the directors to prepare financial statements for each financial year. Under company law the directors have prepared the Group and Parent Company financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the EU. Under company law, the directors must not approve the financial statements, unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group and Parent Company for that period.

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

·      select suitable accounting policies and then apply them consistently;

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

·      state whether applicable IFRSs as adopted by the EU have been followed, subject to any material departures disclosed and explained in the financial statements; and

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

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

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

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

Each of the directors, whose names and functions are listed on pages 54 and 55 confirms that to the best of their knowledge:

·      the Parent Company financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Parent Company;

·      the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and

·      the Strategic Report contained in pages 1 to 53 includes a fair review of the development and performance of the business and the position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces.

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

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

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

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Notes to Editors

Galliford Try plc is a leading UK housebuilding, regeneration and construction group. It is listed on the London Stock Exchange and a member of the FTSE 250.  Housebuilding - through our Linden Homes business - develops private and affordable homes in prime locations. Galliford Try Partnerships - our regeneration business - delivers mixed-tenure solutions working with housing association, local authority and private sector partners.  Operating as Galliford Try and Morrison Construction, our Construction business carries out building and infrastructure with clients in the public, private and regulated sectors. At the end of the last financial year to 30 June 2019, the Group generated revenue of £2.8 billion.