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Kier chief targets trebling of property profits

Kier aims to bring in a third of its profits from property, its chief executive told CN, as it grapples with a decline in UK construction.

Paul Sheffield said infrastructure jobs and new overseas work will be among the firm’s priorities, while it is also “looking at the rental model” following government announcements last week aimed at stimulating the new-build housing rental market.

Mr Sheffield was speaking after Kier reported £2.07 billion of revenue for the year ended 30 June 2012, as pre-tax profit, excluding exceptional items, rose by 2 per cent from £68.9 million to £70m.

Mr Sheffield said the firm is looking to double overseas turnover to around £200m by 2015. Non-UK jobs currently make up 5 per cent of the group revenue.

“It’s quite difficult to see growth in the domestic building market at the moment,” he said, but conceded it would be “foolish” to ignore traditional UK building, such as education, commercial or retail.

“I think we can only respond to what’s out there,” he added. “If you stop building office buildings or retail facilities you very quickly lose the expertise and experience.”

The CEO has described a £7 million redundancy programme last year as part of an “ongoing business process” that will “keep the shape of the business lean and efficient”. The company has shed about 200 staff in the past year.

He indicated that public sector employees who have transferred to Kier under housing maintenance contracts have then had to be let go, as pressure on local authority and housing association budgets force a cutback in work.

Kier said it will use its balance sheet to unlock developments in its £1bn pipeline, which includes £750m in development and £250m in affordable housing.

Kier now has a 50/50 public to private sector ratio, and Mr Sheffield said the firm has benefited from infrastructure work, including Crossrail, along with power, nuclear and waste. The company has also focused on construction in high-rise affordable housing schemes, care homes and student accommodation and the overseas market, including the Caribbean, Hong Kong and Middle East.

Property is currently less than 10 per cent of the business, but saw a 44 per cent rise in profit last year. The sector includes mixed-use developments, investments (including PFI) and affordable housing.

“We are looking for about a third of profit streams to come from that side,” said Mr Sheffield. “That’s the measure for us really.”

Asked about government initiatives to boost housing for rent, he added: “We are looking at the rental model. We have not got firm plans on that at the moment but where it will significantly help is… it will give quite a boost to the private rental landlords to put in money to build these schemes.”

Mr Sheffield declined to confirm how many jobs were lost through a £7m redundancy programme across the group, describing it as an “ongoing business process” to address the cost base, and stressing that the firm has also recruited in growth areas such as infrastructure.

Overall staff numbers are understood to be around 200 down on last year, when Kier employed 10,128 UK staff. The firm incurred £3.6m of exceptional costs last year relating to the sale of its plant business and investment in biomass joint venture Biogen. The construction margin held at 2.5 per cent.

Mr Sheffield said there is no intention to pull back from affordable housing maintenance, after the division, which mainly serves local authorities and housing associations, incurred £5m of redundancy costs for the year and saw a 20 per cent fall in revenue to £280m. Services still saw a 4.5 per cent margin.

“In any company as work patterns shift from one part of the company to the next, you have to respond to that,” he said.

“You can’t afford to carry more people than you need.”

Mr Sheffield said pressure on social housing budgets has contributed to the job cuts.

“People transfer across to our business and that’s on the assumption they will provide £20m of work each year,” he said. “If that comes down to £15m, you have not got enough work for the 300 people transferred, so you need to trim units to suit the volume of work coming through.”

Mr Sheffield said they have 30 to 40 housing maintenance contracts and “each and every one of those” has come under budget pressures.

“I do think it is going to grow again, as I say in 2013/14, so I think it’s the right place to be.”

Asked if he expects the £2bn Priority Schools programme to hit the ground next year now, he said:  “I’m sure it will.  It’s got to come.” But he said the schools sector ‘is going to be quite competitive… I think it’s going to be hard-fought.”

Mr Sheffield said firms now trying to enter complex infrastructure will find it tough as it requires a “certain level of expertise” and a need to “manage your risk carefully”.

“Not everybody has a track record in that sort of work, but certainly for some it should be a safe haven,” he said.

“They [new entrants] have got to be very careful that they understand what they’re getting into.”

Mr Sheffield also revealed to CN that the long-awaited enabling works at Hinkley Point C look set to start in January – but warned EDF could still “walk away” unless the government makes a clear stand on nuclear.

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