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Kier predicts 18 months of pressure despite 9pc profit hike

Kier reported a nine per cent rise in profits for the six months to December 2011 this morning - but says the next 18 months will see pressure on construction margins and a delay in outsourcing rewards.

The contractor saw £34m of pre tax profits, up from £31.3m last time, on revenue of £1.046 billion, down four per cent on £1.097m.

Construction margin was 2.5 per cent, down slightly on 2.7 per cent last year, with £720m revenue (2010: £728) and £17.8m of profits (2010:£19.8m).

Service margin was flat at 4.5 per cent, with revenue down from £243m to £218m and profits dropping from £10.9m to £9.8m as budget pressures affected local authority spend and maintenance, despite growth in FM and environmental services.

Chairman Phil White said: “As we look to the medium term, conditions continue to be difficult in the UK construction market and we are inevitably seeing greater pressure on our current operating margins.

“In services, public sector outsourcing opportunities are taking longer to come to market and are often reduced in scale, which means the financial effect of any public sector outsourcing is not likely to be recognised until 2014.”

Chief executive Paul Sheffield said the next 18 months will remain challenging as “external macro economic factors weigh heavily on the public sector and the confidence of the private sector to invest.”

Construction has been buoyed by power, transport and waste, along with the overseas market.

Property – which covers development and private finance initiative assets - saw profits treble (from £3.4m to £10m) and is expected to be “a strong platform for attractive returns over the medium term”. Three PFIs were sold in the last six months, taking the portfolio to eight.

Kier also has £131m in the bank, down from £165m after reinvesting £33m in the group. The order book is £4bn, with £830m awarded in the last six months.

The contractor has hit construction target revenue for this year and 68 per cent secured for 2013. In services, 95 per cent of revenue is secured for this year, and 76 per cent for 2013.

Shareholders are set to receive an interim dividend of 21.5 pence, compared with 20p last year.

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