It faced bankruptcy and sold its most profitable arm, but now the company is growing again
The first line of the introduction to Kier’s latest results reads: “Over the past two years, Kier has undergone a transformation.”
At first glance, this statement might seem incorrect. The company’s share price has fallen 25 percent during that time, not to mention 74 percent since chief executive Andrew Davies took over in April 2019 and 92 percent over the past five years .
Kier’s revenue reached £3.38bn in the 12 months to 30 June 2023, up 3.7% on the previous year. But turnover is still down 19 per cent from 2018, when the company made a statutory profit of £88m compared to £51.9m.
this year.
But first appearances can be deceiving: the Kier that exists today is a markedly improved company than it was two or five years ago. Even Davies has admitted that the company was on the brink of bankruptcy, saying so Financial Times in 2021 that the government “de facto” saved it with public jobs, 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. That change 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 between £50 and £75 million in turnover. While deleveraging came at an initial cost, most notably the sale in 2021 of Kier’s housing group for £110m (hence the drop in group turnover over five years), the company has also been generating cash.
“We are generating £132 million in free cash flow [money that exceeds working capital and expenditure on fixed assets]” said Davies in an exclusive interview with Construction news. “And we’ve paid off debt-like items like now [money owed in respect of the] Kier Prepayment Scheme and Covid HM Customs and Revenue Loans”.
That’s not all. “The real focus is on profitability,” Davies said. “And 3.9 percent [adjusted profit margin] is a leader in the sector.”
While that claim is a stretch — the profit margin was just 1.65 percent when one-time losses such as fines and write-offs are included — the trajectory is clear. The company’s latest profit of £51.9m is comfortably the biggest since 2018. It is more than three times its pre-tax profit in 2022 (£15.9m) and nine times more greater than in 2021 (£5.6m). It’s a world away from the calamities of 2020 and 2019 (combined loss of £450m) and has been achieved without the company’s housebuilding division, which used to have Kier’s best margins but which now it seems to have sold at a good time, before the housing slowdown.
Davies acknowledged that inflationary pressures remain a challenge, but said the company’s “bid discipline and risk management” was working. Almost all contracts are being negotiated in two stages, many with target cost or reimbursable cost. Kier also has an average contract size of £16m in its construction division, “which given our modest size, limits our exposure to risk should a project not go to plan”, Davies said .
The next step for the business is to grow its income again – it wants to make between £4m and £4.5m. “We’ll be fine in three to five years,” Davies said. “We are in a very strong position with great momentum.”
