Kier’s trading update this morning revealed a £9bn order book but a £73m hit from the firm’s ongoing portfolio simplification.
In a trading update to the City, the contractor revealed a total exceptional charge of £73m in its accounts for the year to 30 June 2017, primarily relating to its exit from two international businesses in Hong Kong and the Caribbean.
However, it was far from bad news across the board, with the group reporting a £9bn order book in construction and services, a £1.4bn development pipeline and net debt below initial expectations.
Kier chief executive Haydn Mursell (pictured) outlined the results in a call with City analysts and investors this morning: here are the five key takeaways.
HS2 High Speed 2 train track design CGI 1
HS2 is Kier’s biggest short-term opportunity, according to Mr Mursell, who says he expects to win one package of the project’s £11.8bn civils work. The contractor is shortlisted alongside its joint venture partners Carillion and Eiffage on the project, which has seven main lots from north to south.
Mr Mursell said he expected Kier to win one of the smaller packages, with lots ranging between £600m and £1.5bn in size, which he described as “our fair share”. He added that any such contract award would not impact profit until 2019, and if the firm did win more than one package it would consequently outperform its forecast expectations in both 2019 and 2020.
Hong Kong Admiralty Station Entrance
Portfolio simplification not over
Mr Mursell said Kier had been “very deliberate” in its wording regarding its portfolio simplification programme, which was described as “nearing a conclusion” rather than finishing outright.
He said the firm had more work to do, including the completion of its final project in the Caribbean, which is expected within the next three months.
The chief executive also confirmed Kier had made a final agreement to close its Hong Kong business.
In 2010, Kier secured £125m work as part of a joint venture with Hong Kong firm Kaden Construction and Spanish contractor Obras Subterraneas SA to construct a 2.6 km tunnel for the region’s high-speed line. The project was due to finish in May 2015 but was delayed by nearly two years. It was finally handed over in Q1 2017.
Kier also worked alongside Laing O’Rourke on a four-year £200m deal to build Hong Kong’s Admiralty Station (pictured), which it signed in 2011.
“We have a very high degree of confidence that we have put through the profit and loss [account] in the period are the best estimates of the outcomes on those two jobs [in Hong Kong], but we just need to sign and seal them,” Mr Mursell said.
Kier worker_man with van
Regional building boosts construction
Kier reported a £9bn combined order book from its services and construction arms, with construction in particular buoyed by regional markets.
“The bulk of the organic growth [in construction] is coming through regional building, although it is slightly lower margin,” Mr Mursell said, adding that the construction arm is on course to deliver margins of 2 per cent this year.
The construction business has been primarily driven by frameworks, especially in the health and education sectors, with Kier winning a place on Prime’s £500m healthcare framework as well as the £4bn ProCure22 deal in the past 12 months.
Mr Mursell also sees opportunities in a number of major projects and sectors, with the firm looking closely at the life sciences and medical sectors, alongside prisons work for the Ministry of Justice.
He added that the group had not seen any material change to its trading due to political uncertainty in the last 12-18 months, with the group “getting used” to political upheaval. Many of the firm’s smaller jobs, particularly through frameworks, had continued “regardless of market conditions”, he said.
“I think that’s a reflection of the fact that a lot of the services and activities we perform are essential services; everyday services of relatively modest value, and not necessarily major projects.”
CREDIT Metropolitan Police_Grenfell Tower fire London_flat
Source: Metropolitan Police
Reacting to the Grenfell fire
Mr Mursell revealed the group was undertaking “a thorough review” across its regional building business and its housing maintenance business in the wake of the Grenfell fire.
In the wake of the tragedy, the government has said 95 tower blocks in 32 local authorities have now failed tests on cladding.
“As you can imagine, we do 400-500 projects a year, so this review is going to be comprehensive and is still ongoing,” he said. “In the main, we as a group don’t target the high-rise residential sector – it’s not a core market for us.
“Typically the work we do is new build, not refurbishment, and to date on the review we haven’t identified any high-rise projects where the type of work that was undertaken on Grenfell was undertaken [by Kier]. Nothing has been brought to our attention and therefore we don’t have any cause for concern at this time.”
Dubai Expo 2020_Laing O Rourke_Project Star_Emaar Properties and Dubai World Trade Centre
Dubai Expo opportunities
Despite its exit from Hong Kong and the Caribbean, Mr Mursell said Kier would maintain an international focus in the Middle East, primarily in Dubai.
Mr Mursell said the company’s activity in the region was “underpinned” by access to UK export finance – the government’s funding programme to support British contractors working abroad. “More than 85 per cent of our work [in the Middle East] is procured using that,” he said.
He also pointed to opportunities around the Dubai 2020 Expo, which will will take place between October 2020 and April 2021.
It has already attracted fellow contractor Laing O’Rourke, which bagged a deal to deliver Project Star (pictured), a mixed-use project including two hotels and a mall over a gross floor area of 216,340 sq m.
“There’s a reasonable pipeline of work [from the 2020 Expo] in the region, and we’ll take stock as we get nearer to that date, but as of now we’re happy with our performance in the Middle East,” Mr Mursell added.
Kier trading update: 5 things we learned