GALLIFORD TRY PLC
PUBLICATION OF ANNUAL REPORT AND FINANCIAL STATEMENTS 2016 & NOTICE OF 2016 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 2016
· Notice of 2016 Annual General Meeting
· Form of Proxy for the 2016 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.
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 14 September 2016. That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2016 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 2016. Page and note references in the text below refer to page numbers in the Annual Report and Financial Statements 2016. To view the results announcement, slides of the results presentation and the results webcast please visit www.gallifordtry.co.uk/investors.
Principal risks
Identifying, evaluating and managing our principal risks and uncertainties is integral to the way we do business and to achieving our strategy.
Roles and responsibilities
The Board has overall responsibility for the Group's systems of risk management and internal control, which are subject to ongoing monitoring processes alongside a formal and robust annual review. It is also responsible for determining the overall level of risk which it is willing to accept in pursuing the Group's strategy. The Board has delegated implementation of risk management and internal control, together with their day-to-day operation, to the Group's executive management. The process is overseen by the Risk Committee, which is chaired by the Group Finance Director and managed on a day-to-day basis by the Director of Risk and Internal Audit. The Risk Committee is also attended by the Chairman. Although they are not absolute assurance against the risk of material misstatement or loss, the Group's systems of risk management and internal control are designed to identify, manage, mitigate, monitor and report on risks to which the Group is exposed.
Risk identification, assessment and mitigation
We develop and maintain risk registers at business unit, divisional and Group level, which identify key operational, financial and strategic risks applicable to that level within the organisation, and which are assessed and consolidated into a Group-wide register using a standardised methodology. The methodology requires each identified risk to be assessed and measured using a risk matrix which quantifies the likelihood and impact of each risk (the inherent risk), the effect of the mitigating actions (to determine the residual risk) and the desirable risk profile (the target risk), as aligned to the Group's risk appetite. The methodology evaluates the impact of each risk on the Group's profitability and reputation.
Risk management, risk reporting, internal controls and internal audit
The material components of the Group's established framework of internal controls comprise the following:
> organisational structure: each business has its own management board and each business unit is led by a managing director and management team;
> contractual review and commitments: the Group has clearly defined policies and procedures for entering into contractual commitments which apply across its business units and operations and are enforced through the Group's legal authorities matrix;
> investment in land and development: land expenditure approval is subject to clearly defined policies and procedures, with significant investments approved at Executive and main Board levels under Group policies and procedures;
> operational activity: there are established frameworks to manage and control all site operations including health, safety and environmental procedures, regular performance monitoring, quality and external accountability to stakeholders;
> financial planning framework: the Group reviews and refines its business plan on an annual basis, following specific Board meetings held to consider strategy. A detailed annual budget is prepared for each financial year which is approved by the Board;
> operational and financial reporting: we continue to improve the Group's reporting and financial systems as a result of implementing both Oracle and Hyperion systems. An exacting profit and cash reporting and forecasting regime is in place across the Group. As well as the emphasis placed on cash flow, income and balance sheet reporting, health, safety and environmental matters are prioritised within monthly operational reports;
> Code of Conduct: the Group requires its employees to operate ethically and with demonstrable integrity. Group standards are set out in a Code of Conduct issued to all employees, and supported by specific training modules in key areas;
> pension plan administration: the administration of the Group's fully closed final salary and ongoing defined contribution pension plans is outsourced to professional service providers. Each of the final salary schemes has an independent scheme secretary and a proportion of independent trustees to provide additional layers of external scrutiny; and
> assurance provided by non-audit functions: a number of other Group functions provide assurance in areas including, but not limited to, health, safety and environment; legal contract review and compliance; and construction industry regulation.
The Group's governance reporting structure shown on page 57 clarifies the effective Group, business and operational board structures upon which the delegated authorities matrices and corporate and finance manuals are overlaid.
The Risk Committee and the Board review the risk registers and associated mitigating actions on a regular basis. For example, during the last year the ongoing review included consideration of the impact of possible outcomes of June's EU referendum and the Group's exposure to the London market. In addition to this process, which has been in place throughout the past year, we undertake an annual review of our risk management processes in the context of market developments, projects secured and Group strategy to ensure that they remain up-to-date and relevant. This also encompasses a review of the internal controls 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 results, and any 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.
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 longer than the 12 months as required under provision C.1.3 of the Code in relation to the adoption of the going concern basis. The Board conducted this review for a period of three years in line with its typical business planning and risk management review period.
The Group's business plan 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 below and overleaf, and the cyclical nature of the markets in which the Group operates, and incorporates an appropriate level of flexibility to provide 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 this 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.
Risk heat map - effects of mitigation on inherent risks and residual risks
The heat map shows the principal risks the Group faces by impact and likelihood, before and after mitigating actions are taken into account, illustrating the effects of the Group's risk management process in mitigating the identified risks.
To view the Risk Heat Map please see page 19 of the Annual Report and Financial Statement 2016, which can be found at:
http://www.gallifordtry.co.uk/~/media/Files/G/GallifordTry/reports/2016/ara-2016.pdf
Principal risks continued
Principal risks
The directors have carried out a robust assessment of the principal risks facing the Group, including those that would threaten its business model, future performance, solvency or liquidity. Our consideration of the key risks and uncertainties relating to the Group's operations, along with their potential impact and the mitigations in place, is set out below and on the previous page. There may be other risks and uncertainties besides those listed below which may also adversely affect the Group and its performance. More detail can be found in the Audit Committee Report on pages 58 and 59.
| Category | Description of inherent risk | Inherent risk trend in the year | Mitigation |
| a. Economic | The biggest risk is the macro-economic environment and the possibility of an economic downturn. The result of the recent EU referendum has the potential to distort some of our markets. While this is certainly not an inevitable outcome, we must be mindful of the potential risks and plan for the Group's future accordingly. The Construction and Partnerships businesses are very well placed to deal with any uncertainty due to the nature of their businesses and their late cycle and hybrid nature respectively. Linden Homes, while more exposed to a potential slowdown and changes in consumer confidence, has a great brand, and is solidly positioned, with an appropriate landbank, good locations and well-designed homes. Improvement in the construction market increases the workload in our supply chain, enabling it to seek increased prices which could impact our margins. House price inflation can mitigate this effect but the effect can be amplified by a house price fall. The input costs to our business can also be affected by fluctuations in foreign exchange rates. | ^ | We manage the impact of macro-economic risks, including by building a strong order book and maintaining an appropriately sized landbank. We have been doing that successfully and had a Construction order book of £3.5 billion and sales carried forward position in Linden of £380 million at the year end. We monitor closely political and economic developments: we have modelled a range of macro-economic scenarios and planned measures which can be implemented should the macro-economic environment improve or deteriorate as against our internal models. We also regularly monitor actual supply chain costs against costs assumed at tender, with regular reforecasting of the likely effect on margin, and with realistic increased supply chain costs fed back into tenders going forward. We also regularly review fixed price assumptions in bids. Land purchases at appropriate margins are reviewed in the context of three-year market forecasts, and we monitor sales rates on an ongoing basis. |
| b. Government | A reduction in Government spending on infrastructure projects or affordable housing development, including schemes such as Help to Buy, would directly affect our business. Other initiatives relating to project bank accounts or payment terms may impact the cost of doing business. Government may also impose future taxes or levies that are not incorporated into our plans. | < > | The Group regularly engages with Government and the Homes & Communities Agency (HCA), both directly and via our membership of industry bodies. Prudent pricing models, increased hurdle rates and other contingencies are built into our land appraisal process, including removal of any Government support. Support for Help to Buy appears to be in place until 2020. The Group monitors on an ongoing basis economic and political conditions and developments; and it plans for different economic scenarios. |
| c. Health and Safety (H&S) | A catastrophic incident with fatalities and/or significant injuries can, in addition to its impact on victims and corporate reputation, lead to fines or prosecutions for individual members of staff or directors. A high cumulative level of H&S prosecutions would reduce our ability to win work. | ^ | We have operational controls in place, including a H&S site risk assessment for every site. We have processes in place which allow us to respond promptly and appropriately to incidents. During the year, we implemented the 'Golden Rules', a new H&S database, and reinvigorated our award-winning 'Challenging Beliefs, Affecting Behaviour' safety programme. |
| d. Over-reliance | Direct or indirect over-reliance on a single customer or vendor, such as the HCA in Housebuilding, may leave us exposed, especially if there is a large degree of regulation surrounding this customer or vendor. | ˅ | We carefully monitor and maintain relationships at every level of the organisation up to Executive Board level. Where customers or suppliers have regulated contractual commitments, we undertake annual (and, as necessary, independent) audits, to ensure we are meeting our requirements. |
| Category | Description of inherent risk | Inherent risk trend in the year | Mitigation |
| e. Legal and regulatory compliance | Legal and regulatory failure, for example involvement in blacklisting, cover pricing, bribery or other fraudulent activity, or non-compliance with law (including for example the Bribery Act, Fraud Act, Competition Act, Money Laundering Regulations, and Proceeds of Crime Act) could lead to disbarment from bidding for certain public or regulated sector work, fines, jail, and reputational damage. | < > | The Group has comprehensive policies and guidance in place at every level, including the recently reinvigorated Code of Conduct, mandatory e-learning for all employees, regular Board legal updates and briefings, six-monthly compliance declarations and conflicts of interest registers and authorisations. In addition, an anonymous and independent whistleblowing helpline is available to all staff, with strict policies to ensure anonymity and regular reporting of helpline use provided to the Board. |
| f. Land acquisition | If the assumptions used in the land acquisition process are wrong, subsequent financial results may be affected | < > | There are comprehensive land acquisition policies and procedures in place. The Group monitors on an ongoing basis economic and political conditions and developments; and it plans for different economic scenarios. |
| g. People and supply chain | The ability to attract, develop, retain and build relationships with diverse and high-quality employees and supply chain impacts every level of the Group, from developing and building our products to succession planning to the Board. | ˅ | The Group has an established HR strategy based on best practice, Investors in People principles and relevant legislation which, among other things, includes the regular review of remuneration and benefits packages to ensure we remain competitive. Our succession planning and talent management processes enable continuity and identify future leaders. The Group aims to develop long-term relationships with subcontractors to ensure we are a preferred customer in the supply of people and skills, as well as materials. Key initiatives this year include rolling out the 'Advantage through Alignment' initiative throughout our Construction business supply chain. The Group monitors on an ongoing basis economic and political conditions and developments; and it plans for different economic scenarios. |
| h. Business management systems | The stability, performance and successful operation of current and legacy third party business management systems, such as our Oracle finance system and electronic document management systems, are critical to the successful operation of the business, both in Group locations and on-site project offices and sales outlets. | < > | Our IT governance structure prioritises resources on the most critical and added value improvements. Specific improvement forums, for example the Procurement Improvement Group, further refine and optimise core processes. Relationships with third parties are given the highest level of management attention, with contingency solutions reviewed as appropriate. |
| i. Business continuity | Loss of our Shared Service Centre or IT infrastructure, especially our financial system, including a natural disaster or malicious attack, may affect our ability to carry on day-to-day business. | < > | Disaster recovery plans have remained in place throughout the year, and are tested on a regular basis, including penetration tests in respect of cybercrime. |
Statement of directors' responsibilities
The directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and 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 (IFRS) as adopted by the European Union. 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 the Company and of the profit or loss of the Group for that period.
In preparing those 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 Company will continue in business.
The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and the Group 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 Company and the Group 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 Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Each of the directors whose names and functions are listed on pages 50 and 51, confirms that to the best of their knowledge:
> the Group financial statements, which have been prepared in accordance with IFRS 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 49 includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.
For further enquiries:
| Galliford Try plc | Kevin Corbett, Company Secretary | 01895 855001 |
| | | |
| | Clara Melia, Investor Relations | 07748 171 236 |
| | | |
| Tulchan Communications | James Macey White | 0207 353 4200 |
| | Martin Pengelley | |
| | Matt Low | |
Notes to Editors
Galliford Try plc is a leading UK housebuilding and construction group. It is listed on the London Stock Exchange and a member of the FTSE 250. Housebuilding - through our Linden Homes and Galliford Try Partnerships businesses - sells distinctive homes to the public and affordable homes to housing associations and local authority providers. The construction business carries out building and infrastructure work across the UK with clients ranging from major Government departments through to regulated utilities and private sector companies. At the end of the last financial year to 30 June 2016, the Group generated revenue of £2.5 billion.