Kier raises operating margin to 3.7%

Aaron Morby 2 weeks ago

Kier has kept its planned operational transformation on track and delivered an adjusted operating margin of 3.7% across the business.

Kier chief reports £40m of continued restructuring costs buy says underlying business is performing strongly
Kier chief reports £40m of continued restructuring costs buy says underlying business is performing strongly

Reporting improved results for the year to June 2022 this morning, Kier said a period of strong work winning had seen the forward order book swell 27% to £9.8bn, reflecting a large number of contract wins across all divisions.

Andrew Davies, chief executive, said much of this order intake was buttressed from inflationary headwinds with around 60% for target reimbursable or cost reimbursable contracts.

The construction business average order size stands at £13m reducing exposure with regular re-pricing of contracts.

But Kier’s reported pre-tax profit continued to be impacted by restructuring and other costs, which ran to £56m over the year.

This included £22m in extra costs relating to five remaining projects at the firm’s southern construction business, which are due to complete this year.

A further £6.7m in additional cost stemmed from redundancies under the present cost-saving programme and re-sizing the international business.

Some £7.5m and £4.2m was booked against professional adviser fees and property write-downs, respectively.

Other costs of £18m, include £7.8m of fire compliance and cladding claims that have arisen during the year.

The construction division struggled most over the year with operating profit nearly halved at £23m.

The raft of extra costs saw actual reported group pre-tax profit creep up to £16m, improved from £5.6m previously.

Revenue was marginally down at £3.26bn, dampened by an expected fall in construction activity.

Kier division trading
Op. Profit 22: 21 Revenue 22: 21 Ad. op margin
Infrastructure £48m £41m £1.67bn £1.42bn 7%
Construction £23m £41m £1.44bn £1.77bn 4.2%
Property £17m £2.3m £144m £134m 12%

But Davies said that the underlying business was performing strongly following the recent prolonged restructuring.

Over the year, adjusted operating profit jumped 20% to £120m with adjusted operating margin hitting 3.7% across the group.

Kier’s now strong order book amounted to 85% of this year’s revenue target.

Davies said: “Over the last two years Kier has undergone a transformation, rationalisation and recapitalisation and the group is delivering against its medium-term value creation plan.

“The performance over the last 12 months reflects our significantly enhanced resilience and strengthened financial position.

“The group is well positioned to continue benefiting from UK Government infrastructure spending commitments and we have a significantly increased order book of £9.8bn which gives us certainty against the market backdrop.

“The new financial year has started well and we are trading in line with our expectations, despite continued inflationary pressure and see no change in the current market outlook.

“We remain focused on the delivery of a sustainable net cash position and sustainable dividend policy, in-line with our medium-term value creation plan.”

Proceeds from the sale house building business Kier Living saw average month-end net debt for the year reduce to £216m from £432m a year before.

The speed in the reduction of debt was impacted by a £29m repayment of Kier’s supply chain finance facility and £21m repayment of its deferred HMRC obligations agreed during the pandemic.

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