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Kier's streamlining exposes a new era of caution

Julie Palmer

Carillion’s collapse in January sent shockwaves through the industry and, indeed, the wider economy.

Significant job losses, a catastrophic impact on its supply chain, delays to important projects and the need for government intervention in the aftermath, all highlight what can happen when a company of Carillion’s size and influence fails.

It is against this background that we are seeing other strategically important businesses look to ensure they avoid the same fate.

Kier is a case in point.

The recent release of its full-year results show a rise in the net debt to £186m on the back of disappointing performance during the first two quarters of its financial year, combined bad weather affecting contract delivery.

On a positive note, stronger figures in Kier’s fourth quarter look to have reversed this trend.

Proactive response

However, it is the impact of the firm’s streamlining programme – ‘Future Proofing Kier’ – that is the most interesting aspect of its efforts to tackle ongoing operating and financial challenges.

By selling off non-core assets, shrinking management layers and reducing its cost base, the company is driving a proactive response that seeks to protect its future by taking action today. It will be interesting to see if others follow suit to avoid the catastrophe that brought a business the size of Carillion to its knees.

Proactively addressing financial pressure points could well be the way many organisations need to go.

“Nobody wants to see a repeat of Carillion, least of all the construction sector and the thousands of SMEs that feed into a major group like Kier”

Begbies Traynor’s Red Flag Research monitors the financial health of UK companies, and our most recent findings do not paint a particularly pretty picture.

According to the data, in Q2 2018 more than 60,000 construction companies were experiencing ‘significant’ financial distress – up 4 per cent from the corresponding period in 2017.

That said, the rate of decline has slowed when compared with the first quarter of 2018, and overall the levels of financial distress have increased at a slower rate year on year during the past four quarters.

Unstable stability

Such trends could be seen as tentative signs of returning stability across the sector. Yet any stability remains fragile given the current uncertainties linked to Brexit and its eventual outcome.

All of this could partly explain the strategic moves being made by companies like Kier, which is making a concerted effort to improve cash supplies and help steel itself against any further turbulence in the industry.

Nobody wants to see a repeat of Carillion, least of all the construction sector and the thousands of SMEs that feed into a major group like Kier.

Its futureproofing programme reflects an industry looking to learn and willing to choose a more robust model of higher cash and lower debt.

Julie Palmer is a partner at Begbies Traynor

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