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Kier chief focuses on smarter building to avoid margin cuts

Kier is using alternative building methods to avoid “the margin-slashing game”, according to chief executive Paul Sheffield.

The firm boosted turnover to £1.1 billion in the final six months of 2010, up 9 per cent from the same period a year previously.

Speaking to Construction News, Mr Sheffield said “ultra-competitive” contracts accounted for only about 20 per cent of the firm’s work. He said the ability to secure places on long-term frameworks had been a particular strength.

“It’s about finding better solutions,” he explained. “We try to dismantle the designs and come up with something more efficient, rather than slashing margins.

He added: “If you’re playing the margin-slashing game at the moment then good luck to you.”

The firm’s construction margins are up 0.2 percentage points to 2.7 per cent, while support services margins are up 0.1 percentage points.

Mr Sheffield, who was appointed to the top role at Kier in April 2010, held up the £480 million Crossrail western running tunnels contract as an example of innovation securing work.

A Kier/Bam Nuttall/Ferrovial Agroman joint venture landed two large contracts by combining the western running tunnels with the £250m early access shafts and sprayed concrete lining works for the Bond Street and Tottenham Court road station tunnels.

The station works were originally scheduled for completion before the running tunnels, but the joint venture tendered to reverse this sequence by digging the running tunnels first, then excavating what it had already completed for the stations works.

The move will make considerable savings and eliminate 90,000 truck movements through London.

Although the education sector still accounts for 34 per cent of Kier’s work, it is reducing its reliance on the public sector.

In the final six months of 2010, 63 per cent of contract wins were for public sector contracts, compared with 75 per cent for the same period in 2009.

Mr Sheffield added that encouraging signs were appearing in the UK commercial market, particularly in London and the South-east, but beginning to extend along the M4 corridor.

He said Kier was particularly well placed to benefit from an early resurgence in the secondary retail and commercial markets.

These are being driven by falling prices of struggling high street retail parks creating interest among large developers (CN 24 Feb, p5).

“There’s nobody better placed to capitalise on that than us. We’re so widely spread and deeply rooted - there’s not much moves without us knowing about it.”

Kier shares rose this week as the firm announced it had secured targeted revenue for 2011 and 65 per cent of its target for 2012.

Investors were likely to be attracted by such an unusual visibility of earnings, analysts said.

Underlying pre-tax profits were up 26 per cent to £31.3m.

Mr Sheffield named the power, infrastructure, commercial, mixed-use regeneration and overseas markets as growing opportunities for the contractor.

He said the firm was looking to expand the asset management and investment section of the business, starting with local government schemes.

“The starting point is certainly within government, but not necessarily restricted to it,” he said. “Local authorities want a single point of ownership.

“It is early days, but we are seeing demand from councils increase and more opportunities to sell and develop.”

Kier chairman Phil White this week announced the retirement of executive director for developments Dick Simkin. Executive director for support services and partnership homes Ian Lawson will take over his role from 1 July 2011.

 

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