Kier woes point to restructuring

As net debt persists, costs spiral and a profit warning is issued, the construction group will need to employ drastic measures if it is to turn things around

Published on June 5, 2019by Nilushi Karunaratne

Kier (KIE) appears to have made an unfortunate habit of springing unpleasant surprises on its shareholders. This week, an unscheduled trading update has cautioned that underlying operating profit for FY2019 would fall around £25m short of expectations, while full-year revenue is expected to be broadly flat year on year. As the new chief executive accelerates the implementation of the 'Future Proofing Kier' programme, associated net costs will be £15m higher than previously expected.

Given the group is likely to report a net debt position at the end of June, this is expected to have an adverse impact on the FY2019 average month-end net debt position. Peel Hunt now forecasts net debt of £60m for FY2019 (from £15m net cash). Although an improvement from the £181m of net debt at the half-year stage, as lenders and clients become increasingly risk-averse towards the construction sector, further measures are required to address persistent debt. Arguably, the true scale of net debt is obscured by the group’s accounting of supply-chain financing as working capital rather than debt.