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Kier embarks on £12m restructuring as profits tumble

Kier is restructuring its local office network as part of a £12 million programme aimed at “matching” the construction business to challenging market conditions.

The contractor revealed details of the restructure while reporting a 24 per cent drop in construction operating profit to £13.5m (2011: £17.8m), as revenue fell 13 per cent to £627m (2011: £720m) in the six months to 31 December 2012.

The firm reported a 2.1 per cent operating margin (2011: 2.5 per cent).

Kier said it is confronted with continued pressure on margins and cash and cost reduction in the public sector, where Kier gets half its work. It had announced an efficiency review in November.

The contractor booked a £4.4m cost relating to the closure and discontinuation of non-core activities, including the scaffolding business, and restructuring its network of offices.

The restructuring is continuing in the second half and is expected to cost £12m for the full financial year.

Chief executive Paul Sheffield said the office changes “will not compromise our commitment to a regional focus”.

“Our three divisions create a well-balanced business model, which coupled with our strong balance sheet, will continue to underpin our future performance.

“As we are exposed to today’s difficult environment, particularly in UK building, we are taking steps to restructure the business to reflect the scale of future opportunities.  This restructuring will continue through the second half of the financial year.”

Cash, one of the key areas of focus in the construction division, reduced to £313m (30 June 2012: £361m), mainly due to additional investment in mining operations and the tighter working capital environment across the sector.

It added “we are also seeing specific supply chain payment arrangements being introduced through public sector contracts”.

Kier added that cash generation “will continue to be constrained as government requires the use of project bank accounts and payment terms within framework arrangements are increasingly tightened.”

KPMG this week said that more construction companies must act now and undertake extensive restructuring this year.

Kier’s half-year round up

Order books for construction is at £2.1bn (2011: £2.2bn) and services £2.1bn (2011: £2.1bn) following approximately £800m of awards in the period.

Total group revenue fell 7 per cent on the same period in 2011 to £976m (2011: £1,046m) and underlying profit before tax decreased by 21 per cent to £27m (2011: £34m).

Group cash was £105m at 31 December 2012 (30 June 2012: £159m), after approximately £80m reinvestment in the group and issuance of 7-year and 10-year notes totalling £63m.

In services, underlying operating profit was £9m (2011: £9.8m), which equates to an operating margin of 4.3per cent (2011: 4.5 per cent), wth revenue of £211m (2011: £218m).

In property, there was a £7.1m (2011: £10m) operating profit on revenue of £138m (2011: £108m) after a “good performance across our private and affordable homes businesses”, the disposal of two PFI investments and progress in developments.

Kier is paying a 21.5p interim dividend, flat on a year earlier.

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