Shares in infrastructure firm Kier Group (KIE) fall 6% to 454p in early trade after the company delivers a sub-optimal set of first half results and promises a better second half.

Revenue for the six months to 31 December is up just 2% to £2.2bn as income from the Infrastructure Services and Building divisions offset a 19% slump in Development & Housing revenue.

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The Infrastructure business, which includes work on motorways, railways and utility networks, increased turnover by 8% in the first half but operating margins were down and the company sees ‘pressure on volumes in the second half’ which isn’t encouraging.

The Building division, which includes work on hospitals, schools and government properties, also put in a solid first half performance with revenues up 10%. Margins increased from 2.1% to 3.4% although from an investor's viewpoint they hardly anything to shout about.

The Developments & Housing business was hit by lower housing completions and the termination of council-run maintenance contracts as local authorities come under increasing pressure over budgets.

PROVISIONS PILE UP, EARNINGS + DIVI CRUSHED

Underlying operating profit for the first half is down 15% to £51.8m but Kier has taken what it calls ‘non-underlying charges’ of almost £60m, mostly due to the decision to terminate a waste collection contract (£26m) and expected losses on the redevelopment of Broadmoor Hospital (£25m).

On top of these charges there are £10m of costs for the Future Proofing Kier programme designed to streamline operations. Management hope that the restructuring will generate £20m of net savings in 2020 but so far other than the disposal of non-core assets there seems to be little tangible benefit for shareholders.

As if to underline to point, earnings per share are minus 28.9p on an accounting basis and the interim dividend has been slashed from 23p a year ago to just 4.9p. The company is also encouraging shareholders to sign up to its dividend reinvestment plan (or DRIP, appropriately) in order to conserve its cash.

NEW CEO HAS PLENTY TO DO

Earlier this week Kier announced that Andrew Davies would take over as chief executive after Haydn Mursell stepped down in January in the wake of a wholly underwhelming rights issue.

Just 40% of shares in the £250m offering were taken up by investors, leaving the firm’s brokers Citigroup, HSBC (HSBA), Numis (NUM:AIM) and Peel Hunt to step in and take them on their books.

Davies was chief executive officer (CEO) of privately-owned construction and property services group Wates from 2014 to 2018, although he was announced as the new CEO of Carillion just months before it collapsed into insolvency in January 2018 before he'd even had a chance to take up the role.

Clearly running an outsourcing firm is not for the faint-hearted and all of Davies’s strategic and leadership skills will be required as Kier attempts to turn itself around.


Issue Date: 20 Mar 2019