It’s faced bankruptcy and sold its most profitable arm, but the firm is now growing again
The first line of the introduction to Kier’s latest results reads: “Over the last two years, Kier has undergone a transformation.”
At a glance, this claim could look wrong. The company’s share price has dropped 25 per cent in that time, not to mention 74 per cent since chief executive Andrew Davies took over in April 2019 and 92 per cent in the past five years.
Kier’s revenue reached £3.38bn in the 12 months to 30 June 2023, up 3.7 per cent on the previous year. But turnover has still dropped 19 per cent since 2018, when the firm made a statutory profit of £88m compared with £51.9m
this year.
But first appearances can be misleading – the Kier that exists today is a markedly improved firm than that of two or five years ago. Even Davies has admitted the company was on the brink of bankruptcy, telling the Financial Times in 2021 that the government “de facto” saved it with public jobs, most notably on HS2.
Kier reduced its net debt from more than £310m in 2020 to a net cash position of £64.1m in the year to this June. This turnaround was evidenced by Kier’s purchase of Buckingham’s rail division for up to £9.6m in September, which did not affect its net cash forecast for this year, but will add £50m to £75m of turnover. While de-leveraging came at an initial cost – most notably the 2021 sale of Kier’s housing arm for £110m (hence the group’s turnover drop over five years) – the firm has also been generating cash.
“We are generating £132m of free-flow cash [money that exceeds working capital and expenditure on fixed assets],” said Davies in an exclusive interview with Construction News. “And we have repaid debt-like items such as [money owed in respect of the] Kier Early Payments Scheme and Covid HM Revenue & Customs loans”.
That’s not all. “The real focus is on profitability,” Davies said. “And 3.9 per cent [adjusted profit margin] is industry-leading.”
While that claim is a stretch – the profit margin was only 1.65 per cent when you include one-off losses such as fines and write-downs – the trajectory is clear. The company’s latest £51.9m profit is comfortably its biggest since 2018. It is more than triple its pre-tax profit in 2022 (£15.9m) and nine times bigger than in 2021 (£5.6m). It’s a world away from the calamities of 2020 and 2019 (combined loss £450m) and achieved without the firm’s housebuilding division – which once had Kier’s best margins but now looks to have been sold at a good time, before the housing slowdown.
Davies acknowledged that inflationary pressures remain a challenge but said that the company’s “bidding discipline and risk management” was working. Almost all contracts are being negotiated on a two-stage basis, with many on a target-cost or cost-reimbursable basis. Kier also has an average contract size of £16m in its construction division, “which given our modest size, limits our risk exposure in the event a project does not go to plan”, said Davies.
The next step for the business is growing its revenue once again – it wants to earn between £4bn and £4.5bn. “We will be well within that in three to five years,” said Davies. “We are in a really strong position with strong momentum.”
