Chief executive Andrew Davies took over the helm at Kier (KIE) at a troubled time, to say the least. The imperative to unveil the early results of his strategic review - shortly after a profit warning in June - didn’t exactly make for an auspicious start. With a fundamental re-shaping of the business aiming to lay the foundations of a recovery, these turnaround efforts have come at a cost – some £341m in exceptional charges pushed the group into a hefty pre-tax loss in 2019, including £50m of contract losses and £172m linked to to preparations for business sales and closures.
Of the £56m incurred in restructuring costs, £20m supports the ‘Future Proofing Kier’ programme which involved wielding the axe on 650 jobs, with overall plans to reduce headcount by around 1,200 by FY2020. Targeted annual cost savings of £55m won’t come through until 2021, with the programme expected to contribute to £32m in cash outflows over the next seven years.
The December rights issue may have helped reduce net debt by 10 per cent to £167m but average month-end net debt increased by 13 per cent to £422m. Further debt reduction could accelerate through the planned disposal of the housebuilding arm: Kier Living. Having received “a number of offers”, broker Peel Hunt suggests a sale is possible in the first quarter of 2020, raising proceeds of £140m-£180m.
Lower overall volumes in the highways division were accompanied by a shift from maintenance to lower margin capital expenditure projects – both trends are expected to persist in 2020. Together with delayed broadband installations reducing activity in utilities, the infrastructure business saw adjusted operating profit plummet by over two-fifths to £56m. With a 2.1 per cent margin contraction, this has driven the group's adjusted operating profit margin down to just 2.8 per cent – not ideal in an industry already notorious for its wafer-thin margins.
Peel Hunt has revised its forecast downwards, and now expects adjusted pre-tax profit of £88m and EPS of 42.9p in 2020, rising to £94.5m and 46.1p in 2021.
| KIER (KIE) | ||||
| ORD PRICE: | 126p | MARKET VALUE: | £204m | |
| TOUCH: | 125-127p | 12-MONTH HIGH: | 1,109p | LOW: 58p |
| DIVIDEND YIELD: | 3.9% | PE RATIO: | NA | |
| NET ASSET VALUE: | 320p* | NET DEBT: | 32% | |
| Year to 30 Jun | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2015 | 3.28 | 39.5 | 40.2 | 55.2 |
| 2016 | 3.99 | -34.9 | -25.7 | 64.5 |
| 2017 | 4.28 | -14.2 | -27.2 | 67.5 |
| 2018** | 4.24 | 106 | 89.3 | 69.0 |
| 2019 | 4.12 | -245 | -159 | 4.9*** |
| % change | -3 | - | - | -93 |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £767m, or 473p a share, **Restated, ***No final dividend - interim dividend paid on 17 May | ||||
