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Galliford Try promises better margins, cost savings after review

FILE PHOTO: A builder assembles scaffolding as he works on new homes, in south London June 3, 2014. REUTERS/Andrew Winning

By Tanishaa Nadkar and Noor Zainab Hussain

(Reuters) - UK construction firm Galliford Try unveiled a retrenchment programme on Tuesday that it said would deliver 15 million pounds of savings a year from 2021 and a faster rise in operating margins, driving its shares 10% higher.

The programme follows a strategic review, announced last month after Galliford installed a new chief executive and issued a profit warning. The results of the review are already being implemented and will see a reduction in revenue from the group's main construction business and the loss of 350 jobs across the United Kingdom, it said.

The company, known for projects ranging from the redevelopment of the Wimbledon tennis venue to hospitals and city bypasses, said those moves, initially reported by the BBC in April, would accelerate progress towards a 2% target for operating margins by 2021.

Galliford is among those picking up the pieces, and bearing extra costs, of the collapse last year of infrastructure and outsourcing group Carillion.

Its shares, which fell 46.2% in 2018, were 9.2% higher at 582 pence, taking them to the top of London's midcap index. They rose as much as 13.9% in early trade.

"We have made some difficult decisions in response to the challenges faced by the group's construction business," Chief Executive Officer Graham Prothero said, adding that the review would deliver a more stable business going forward.

The construction unit, which does not include housebuilding brand Linden Homes, is Galliford's biggest business, accounting for around a third of group sales. In February it reported lower revenue for the six months ended Dec. 31, hurt by cautious bidding and project delays.

The company, which employs 5,485 people according to its 2018 annual report, said it had already stopped bidding on fixed-price major projects in 2016.

Annual construction revenue will fall to about 1.3 billion pounds, it said, compared to reported pre-exceptional revenue of 1.69 billion pounds in 2018.

The review will result in a writedown of about 40 million pounds this year, which was also previously flagged by Prothero after his promotion from group finance chief last month.

Galliford said it expects annual pretax profit to be in line with analysts' expectations of 112.7 million pounds to 123.3 million pounds, compared to 143.7 million pounds reported last year.

"Galliford's trading update should be taken well because there are no further incremental contract issues, and because part of the exceptional cost identified in April has a payback through future cost reduction," Liberum analysts said.

Galliford said the order book for its construction unit stood at 3 billion pounds as at May 17.

(Reporting by Tanishaa Nadkar in Bengaluru; editing by Gopakumar Warrier and Susan Fenton)