Kier warns pressure on margins for 18 months

Aaron Morby 10 years ago
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Kier expects much tougher trading for at least another 18 months as pressure mounts on margins.

The firm also warned that constraints on council spending had meant that the long-awaited stream of outsourcing work was being reduced in scale.

Despite worsening construction market conditions, Kier managed to hold turnover around the £1bn mark in the first six months of the year.

Pre-tax profits edged up 9% to £32.3m, although margins slipped from 2.7% to 2.5%.

Paul Sheffield, chief executive said: “The next 18 months will remain challenging as external macroeconomic factors weigh heavily on the public sector and the confidence of the private sector to invest.

“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.

“We will, however, continue to focus on those markets where we see the most potential for future growth.”

At a glance

Construction
Turnover: £720m (2010: £728)
Operating profit: £17.8m (2010: £19.8)
Margin: 2.5% (2.7%)

Services
Turnover: £218m (2010: £243m)
Operating profit: £9.8m (2010: £10.9m)
Margin: 4.5% (4.5%)

Property
Turnover: £108 (2010: £126m)
Operating profit: £10m (2010: £3.4m)

He said that the services business has started to see the long anticipated increase in outsourcing work begin to come to market.

“However, budget pressures on local authorities mean that some opportunities are taking longer to materialise and are often reduced in scale.

“In maintenance, it is now more likely that it will be 2014 before we see the financial impact of a number of these public sector opportunities.”

He added that FM and environmental businesses provides the best opportunities for growth in the short term and Kier would continue to look for bolt-on acquisitions to its strengthen its position.

Sheffield said that the group had more than £4bn of secured and probable work in construction and services, and a growing property division, all of which provide a well balanced platform for the future.

Construction order books had achieved targeted revenue for 2012 and 68% of the target for 2013 secured or probable. Kier now is involved in more than 70 frameworks.

The amount of public sector contracts fell from 63% to 48% of work secured with schools accounting for the vast majority of new work.

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