In a trading update posted today (4 July), the Bedfordshire-based company indicated that financial performance across its whole portfolio for the year ended 30 June 2016 has remained in line with expectations.
Kier’s portfolio includes divisions across property, residential, construction and Service sectors including highways, water and waste.
The Group also recorded a net debt of £140 million despite having previously forecasted a position of £150-170 million. This includes £44 million spent during its integration with highways maintenance business Mouchel this year, as well as £25 million on new systems and upgrades.
However, the Group concedes that its Environmental Services business continues to be affected by the low price of oil – and a subsequent drop in the price for the sale of recyclables – despite ‘stable operational performance’ at contract level.
‘Hurdles’
The division has been subject to a review, undertaken across all of Kier’s operations which do not meet the ‘strict financial hurdles’ or ‘long-term strategic fit’ of its core businesses.
Kier states: “As a result, a provision of £35 million will be taken in FY16, which provides for all future cash outflows on two environmental contracts of eight and ten years’ duration, respectively.”
The two contracts concerned include Kier’s eight-year arrangement with Cheshire West & Chester which began in 2012, and its 10-year deal with the East Sussex Joint Partnership which began the same year.
Cheshire West & Chester was previously contracted to May Gurney before the company was purchased by Kier. The acquisition was completed at an estimated cost of £221 million in 2013, and included transfer of a number of waste and recycling collection contracts (see letsrecycle.com story).
The £120 million East Sussex deal meanwhile sees Kier conduct waste collections, street cleansing and beach cleaning across four authorities: Eastbourne borough, Hastings borough, Rother district and Wealden district council (see letsrecycle.com story).
Charges
The Group expects the streamlining of its portfolio, including Environmental Services, to incur exceptional charges in 2016 of £53 million – but expects this to be offset by the sale of Mouchel Consulting to be reported in 2017.
More than 85% of the Services division’s targeted revenue for the 2017 financial year is covered by the current order book. Underlying operating margins remain ‘robust’ and in line with management’s expectations.
Kier goes on to suggest that the acquisition of May Gurney has ‘significantly increased’ the level of visible, long-term earnings from its Service division.
Kier concludes: “Current trading is positive and the Group will continue its disciplined approach to winning work and risk management.”
It adds that the UK’s referendum result to leave the EU has ‘created some uncertainty’ but with no impact on the business to date.
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