Kier Group to restructure

Kier Group has set out its restructuring plans and will get back to focusing on its traditional core businesses of construction and civil engineering.

It is quitting house-building – Kier Living is up for sale – and getting out of property development because they eat up too much cash.

The board has also concluded that the facilities management and environmental services businesses “have limited operational synergies” with the core businesses. So out will go things like the local authority waste collection activities that Kier acquired when it took over May Gurney. Kier says it “will seek to exit these businesses in due course”.

As part of the strategic review that was launched last year, around 650 full time employees will have left Kier by the end of June 2019. A further 550 will go in the next financial year. An acceleration of the review was announced when Andrew Davies joined as chief executive in April 2019.

The conclusions of the review have been published today. It says:

“Kier has a number of high-quality, market-leading businesses, in particular Regional Building infrastructure, Utilities and Highways, which are valued by customers. The performance of these businesses is underpinned by long-term contracts and positions on framework for government and regulated clients. Together these businesses are expected to deliver long-term, sustainable revenues and margins and, with a renewed focus on their inherently cash generative characteristics, will be the core activities of the group in the future.

“In recent years, the group has grown substantially, including through acquisitions. This strategy added a number of highly attractive businesses to the group, including Highways, Utilities and Rail. However, the strategic review concluded that, during this period, there was insufficient focus on cash generation and that the group today has debt levels that are too high. It also concluded that the group’s portfolio is too diverse and contains a number of businesses that are incompatible with the group’s new strategy and working capital objectives.

“Kier is therefore today announcing a new strategy for the group that will:

focus on Regional Building, Infrastructure, Utilities and Highways. simplify the group’s portfolio by selling or substantially exiting non-core activities: Kier Living, Property, Facilities Management and Environmental Services fundamentally restructure the Group to reduce headcount by c1,200 and deliver annual cost savings of c.£55m from FY2021 embed a culture of performance excellence with a particular focus on cash generation to deliver reduced average net debt”.

The Housing Maintenance and Middle East construction businesses are being kept.

Acquisitions made by Kier in recent years have included Mouchel, McNicolas and bits of Stewart Milne, as well as May Gurney.

Chief executive Andrew Davies said “Since becoming chief executive on 15th April, I have visited many of our key locations and spent time with all of our businesses, meeting the leadership teams and many of our dedicated people in the process. I have also met with many of our clients. Kier has a number of high-quality, market-leading businesses, in particular T-Regional Building, Infrastructure, Utilities and Highways. I believe that these businesses will deliver long-term, sustainable revenues and margins and are inherently cash generative.

“As previously announced, I have been leading a strategic review which has resulted in the actions being announced to-day. These actions are focused on resetting the operational structure of Kier, simplifying the portfolio, and emphasising cash generation in order to structurally reduce debt. By making these changes, we will reinforce the foundations from which our core activities can flourish in the future, to the benefit of all of our stakeholders”.

Kier Living was described as a strong business but with limited operational synergies with other parts of the group and one that requires “significant ongoing funding” to deliver future growth. “The board has therefore determined that Kier Living is non-core and has commenced a process to sell the business”, it said, it has already been getting offers for the business.

The board said that the sale of Kier Living would provide financial benefits beyond a reduction in net debt due to the release of associated working capital and a reduction in the use of supply chain financing and off=balance sheet debt.

In the year to 30th June 2018 Kier Living generated revenue of £175m, down 27% on the previous year due to taking on a higher proportion of projects in joint venture. Gross profit for the year was £19m, down from £31m the previous year, also due to joint venture activity.