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Thu April 18 2019

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Kier's problems mount up to £35m first-half loss

20 Mar Kier has reported a first-half pre-tax loss of £35.5m after taking massive provisions on two loss making contracts.

Trouble on the bins – Kier expects to pay £26m to escape a contract
Trouble on the bins – Kier expects to pay £26m to escape a contract

For the six months ended 31st December 2018, Kier made an operating loss of £20.9m on revenue of £2.2bn (FY18 H1: £48.1m profit, £2.1bn revenue).

Underlying operating profit was £51.8m (FY18 H1: £60.6m).

After raising £250m in an under-subscribed rights issue in December, Kier’s net debt ended the period at £180.5m, down from £238.5m a year before. 

Some of Kier’s problems have come with its acquisitions. It took on bin rounds when it acquired May Gurney in 2013. It is now looking to get out of one particular loss-making waste collection contract and has made provision for £26m client compensation it expects to pay to escape – but this would be more than offset by the savings resulting from terminating the deal, Kier said. Kier did not name the client but it is understood to be Cheshire West & Chester Council.

Kier has already terminated several council waste contracts recently and is also trying to get out of other loss-making and under-performing facilities management contracts.

Elsewhere, as previously reported, Kier has booked a £25m provision for the Broadmoor Hospital redevelopment project.

There were also costs involved in various disposals. In November 2018 it sold interests in Kier Highways Services Australia, its pension administration business and The Unity Partnership Ltd for £29.7m cash but at a total loss of £0.8m after the application of non-cash goodwill and contract rights of £17.3m, net of deferred tax.

A £6.1m equalisation charge has been booked in respect of the company’s final salary pension schemes on the back of the October court ruling on guaranteed minimum pensions.

There was also £5.4m of non-recurring costs relating to the integration of the McNicholas business (acquired in July 2017) into Kier’s utilities business. These costs have been offset by the reversal of a provision for deferred consideration of £5.5m, Kier said.

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In addition to all this, £14m was spent on a restructuring programme called Future Proofing Kier, or FPK. Savings of £4m have been delivered so far and by June it is expected to have paid for itself. The board expects net savings of £20m to accrue in fiscal 2020.

To maintain cashflow Kier has been assiduously kept new orders coming in. It won £2.1bn of new contracts during the July-December 2018 period to take its order book to around £10bn, up from £9.8bn a year before.

The Buildings businesses delivered a 10% revenue increase to £914.7m (FY18 H1: £832.1m), generating an underlying operating profit increase of 74% to £30.8m (FY18 H1: £17.7m).

In Infrastructure Services, revenues increased by 8% to £867.7m (FY18 H1: £801.5m), generating an underlying operating profit of £37.2m (FY18 H1:  £39.3m) and an operating margin of 4.3% (FY18 H1:  4.9%).

Since the departure of chief executive Haydn Mursell in January, chairman Philip Cox has been in day-today charge as executive chairman. As previously reported, former Wates CEO Andrew Davies joins on 15th April to take over as Mr Mursell’s replacement.

Philip Cox said of Kier’s trading position: "Our regional building and property development businesses continue to operate well, although we are experiencing some volume pressures in the highways, utilities and housing maintenance markets.

“The group has a significantly strengthened balance sheet following the completion of the rights issue in December 2018.  The board continues to focus on simplifying the Group, improving cash flow generation and net debt reduction, and forecasts a net cash position at 30th June 2019.”

He added: “Whilst the board notes the current political and economic uncertainty in the UK, and the implications for third party investment, the group is maintaining its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected."

MPU

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