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Kier doubles cash reserves to £175m after strong construction performance

16 Sep 10 Kier has almost doubled its cash reserves to a record £175.2m, after a strong performances from its construction business during the year to 30 June 2010.

Kier has almost doubled its cash reserves to a record £175.2m (2009: £92.5m), after a strong performances from its construction business, which generated £111.4m from operating activities during the year to 30 June 2010.

The group enjoyed a healthy 12 months, with revenue flat at £2.10bn, compared to £2.15bn a year ago, but profit before tax up to £57.7m (2009: £24.8m).

Exceptional items boosted the profit figure by £2.2m. This comprised a £16m gain from budget changes affecting its pension scheme, £4.2m raised by selling two PFI equity stakes, offset by a provision of £18m for the Office of Fair Trading's fine following its bid-rigging investigation.

During the year, chief executive John Dodds retired, and was succeeded by construction boss Paul Sheffield. Former Mowlem and Amec director Steve Bowcott is the new managing director of the construction division.

Operations

In Construction, overall revenue for the division was 5% below last year at £1.42bn (2009: £1.50bn). Marginal growth in UK revenue was offset by a decline in overseas operations, particularly in Dubai and Romania.

Operating profit declined to £36.2m from £39.1m, at an identical margin to a year ago, 2.6%.

The Construction order book grew 10% to £1.32bn (2009: £1.19bn). Kier is targeting areas of “non-discretionary investment”, such as power, where it claims to be the civils market leader, plus utilities, and waste.

Revenue in Support Services rose 7.5% to £470.7m (2009: £437.9m). Operating profit increased by 19.6% to £21.4m (2009: £17.9m) with strong growth in the operating margin to 4.5% (2009: 4.1%).

Cash balances stood at £32.3m (2009: £36.7m) after investment of £5.4m in the newly acquired waste recycling business and £3.4m in the new North Tyneside contract. The order book is £2.13bn, down from 2009's £2.29bn.

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In Partnership Homes, Kier said “market conditions continued to be challenging”, with “little improvement in the availability of mortgage finance”.

It completed 1,060 units (2009: 1,141), with a change of mix: 499 came from private development sales and 561 through affordable housing (2009: 467 private and 674 affordable ).

These unit sales, together with land sales, generated revenue of £157.7m (2009: £150.8m). Operating profit grew from £1.1m in 2009 to £9.9m in 2010, boosted by land transactions.

Outlook

Paul Sheffield, chief executive, said: “The current economic climate will continue to pose challenges to our business over the next 12 months and the October Spending Review will, we hope, provide further clarity on public sector expenditure plans.

“We are encouraged by the prospects we see in markets such as power, utilities and waste. Our construction order books of secure and probable contracts are robust, providing 98% of our targeted revenue for 2011, much of it won through framework agreements, providing confidence that we can sustain healthy operating margins and strong cash flows.

“Our integrated business model provides us with opportunities drawing on the strength of our relationships with public and private sector clients. We have a strong balance sheet, a good track record of service delivery and very talented, capable staff, all of which give us confidence for the future.”

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