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Kier makes £73m provision to include loss-making May Gurney deals

Two loss-making contracts that had stung May Gurney’s profit before its takeover by Kier are now “stable”, according to Kier chief executive Haydn Mursell.

Construction News reported in February that May Gurney’s pre-tax profit plummeted in the year to 31 March 2013, falling from £21m in 2012 to a £51.1m loss a year later, driven by a £46.5m provision for future losses on kerbside recycling contracts.

In its full-year results last week, Kier said it had made provision of £73m for two loss-making contracts and balance sheet reviews, of which the loss-making contracts at May Gurney accounted for more than £50m.

Asked by Construction News whether the contracts would continue to incur significant future losses, Mr Mursell insisted the contracts were now stable and that they were in discussions with clients on their commercial position, but that losses were now “predictable and able to be forecast accurately”.

Kier is in discussions with the two clients about how to reduce its losses on the problem contracts.

Mr Mursell said: “We continue to optimise them and are in negotiations with both clients on the commercial position.

“We have a very strong team operating them. Both are responding in different fashions. We are trying to operate them at a better value for us in the long term.”

In its results for the year to 30 June 2014, Kier reported net debt of £123m, having reported cash of £60m the year before. It completed the acquisition of May Gurney in July 2013.

Mr Mursell said that, excluding provision for the acquisition of May Gurney, underlying cash had been “break-even” and that Kier had used and would continue to use operating cashflow to invest in capital expenditure, which could include housing and PFI schemes.

He said that despite targeting an increase in housebuilding volumes from 1,500 to 4,000 units a year, its aim was “not to grow private housbeuilding on our own land; it’s to grow the mixed-tenure business”.

Former Kier chief executive Paul Sheffield told Construction News in March he had not sought large housebuilding volumes as he didn’t want to expose the business to the next housing slump.

In his first interview, Kier Living’s executive managing director John Anderson told Construction News the group would reduce the number of units it builds on its own land to 25 per cent of its overall housebuilding, from around 40 per cent previously.

It will increase housebuilding through partnering with local authorities and registered social landlords to 75 per cent of its Kier Living arm, compared with 60 per cent previously.

Mr Mursell said Kier wanted to use its balance sheet to invest in capital housing projects with local authorities who could provide guaranteed occupancy rates to allow them to back housing masterplans financially.

“It’s a matter of us with our balance sheet helping to take people off [waiting lists] where [local authorities or RSLs] provide the demand and we use it to drive the capital project.

“The local authorities don’t have the financial resources to undertake these schemes.

“They have the assets and land, and control of planning, but not the financial wherewithal to build the houses but that’s where we, with a reasonably sized balance sheet, can help them.”

Kier is also able to bid for infrastructure projects worth more than £250m, Mr Mursell said, as it seeks to increase its presence in major infrastructure schemes.

“Infrastructure is a market growing quite markedly. We have a turnover of £400m so we will look at jobs that are larger in scale.

“We will look at jobs that are £250m or above if they are slightly simpler and where we have the skills – those jobs are coming to the forefront.”

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