Kier has launched a “streamlining” programme to simplify its business that will see non-core assets sold off.
The company’s Future Proofing Kier programme will complement these disposals with investment in back-office systems, as well as the removal of certain “operational layers” that had built up amid acquisitions and organic growth over the past three years.
The programme was launched in June and is expected to have a “neutral” cost impact for the current business year to June 2019, before “enhancing” profit in the 2020 financial year.
Kier revealed details of the programme in a scheduled trading update this morning.
Following the end of its trading year on 30 June, Kier said underlying profit would be “in line with expectations” but that net debt was expected to be higher than forecast.
Average month-end net debt is expected to be around £375m, up from the £350m forecast in its half-year results to 31 December 2017 that were released in March.
In a call with analysts this morning, finance director Bev Dew said net debt would come down by around £20m-£40m a year over the medium term.
Chief executive Haydn Mursell said Kier’s construction business experienced slower-than-expected activity in its first three quarters of its last financial year.
“In the first half [of the financial year] we experienced some delays in getting onto site, so we’ve seen a slight reduction in turnover,” he said.
“We then started to convert those contracts into construction starts, but then we ran into the poor weather in February and March.”
This led to construction turnover dipping below £100m a month for the first time in two-and-a-half years.
Activity picked up in the second quarter of 2018, however, with turnover rebounding to around £175m per month.
Overall the trading performance had not had a “material” effect on working capital.
Mr Mursell said: “We’re paying people in the same timescales we always pay people and our customers are paying us very sensibly.”
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Looking ahead, the company’s order book stood at more than £10bn and today it announced a three-year extension to its Highways England contracts for Area 3 and Area 9, which it expected to generate around £250m of revenue a year.
Kier’s shares were up 4.2 per cent by mid-morning. However, as of last night at least 6.1 per cent of the company’s stock was being shorted, according to the Financial Conduct Authority.
Applied Value analyst Stephen Rawlinson said a recent research note from Barclays had raised questions for investors about the financial stability of some of Kier’s joint ventures and its net debt.
Kier is now the most shorted contractor on the stock exchange, ahead of Interserve with 5.8 per cent of its stock shorted, and Balfour Beatty at 3.1 per cent.