(Reuters) - British builder Galliford Try announced on Tuesday it will review its core construction business, weeks after it installed a new CEO and causing a profit warning that sent its shares down 20 percent.
Galliford, known for construction projects ranging from the redevelopment of the Wimbledon tennis venue to hospitals and city bypasses, said that the review would reduce the construction business, to focus on more profitable sectors, and crimp earnings this year.
Galliford shares tumbled 21.4 percent in early trade to 577 pence, wiping out a 16 percent gain since the start of this year that reflected rising profits at the group’s other main businesses. The shares were down 19 percent by 0823 GMT.
The decision to review the construction business comes weeks after former finance director Graham Prothero took over as the builder’s chief executive.
The unit, which does not include house building, is Galliford’s biggest business accounting for around a third of group sales. In February the unit reported lower revenue for the six months ended Dec. 31, hurt by cautious bidding and project delays.
Galliford’s involvement in the $1 billion Queensferry Crossing joint venture project across the Firth of Forth from Edinburgh - one of Scotland’s biggest infrastructure projects - will cause the biggest hit to earnings this year, the company said, as the project recently increased its estimated final costs.
Graphic: Galliford trails UK builders (tmsnrt.rs/2XmQQzV)
“This (construction) division has been a serial underperformer for the last two or three years and they’re entirely right to look at a strategic review of it,” Liberum analyst Charlie Campbell said.
“We are probably expecting construction to make about 10 percent of group profit next year, so if it ends up being half the size that we think it means 5 percent,” he added.
Galliford said in February that Britain’s impending exit from the European Union was distracting the government from embarking on major projects, while private sector clients were also dragging their heels on starting work.
Prothero took over as chief executive after Galliford lost its former CEO to housebuilder Crest Nicholson at the end of last month.
On Tuesday, Galliford said that it would now focus on markets and sectors with sustainable prospects for profitability and growth, where it has a “track record of success”.
The outcome of the review will reduce pretax profit, excluding exceptional items, for the year ending June 30 by 30 million pounds to 40 million pounds below the current consensus forecast of 156 million pounds, Galliford said.
The housebuilding, regeneration and construction firm said the review would not affect the completed construction of the Aberdeen motorway bypass, the Aberdeen Western Peripheral Route, which got into trouble after joint venture partner Carillion collapsed under a mass of debt.
Galliford said that most of its construction projects had performed well and the planned changes would not have a significant impact on its previous forecast for net debt this year.
The company said it will announce conclusions of the review when it gives a trading update on May 21.
(This story refiles to fix typo in first paragraph.)
Reporting by Tanishaa Nadkar in Bengaluru; Editing by Bernard Orr and Susan Fenton