Kier Group PLC updates
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The chief executive of the UK government’s largest construction company has admitted that a cabinet decision to “de facto” support the company on contracts for the HS2 rail line saved it from a Carillion-style collapse three years ago.
Andrew Davies, the CEO of Kier, said the business was “an absolute mess” and on the verge of bankruptcy when he took on the challenge of rebuilding the FTSE 250-listed company in April 2019.
“It was a tough love and there were no special favors,” Davies said in an interview with the Financial Times. “But the government actually saved us by giving us orders. The biggest was HS2. “
Kier is the UK Government’s second largest overall contractor, using thousands of subcontractors to build hospitals, schools and prisons. It is also the largest supplier to the Highways Agency and one of the largest contractors for the HS2 rail link, where it is building the line from the Chiltern Hills, northwest of London, to Birmingham.
“The talks have been tough, but the government has made it very clear that it does not want another collapse,” said Davies, a former executive director of BAE Systems. “We were important.”
The government said, “HS2 Ltd’s rigorous sourcing process is open to all bidders with the appropriate experience and credentials, and ensures good value for money for the taxpayer.”
Davies took over Kier after admitting “accounting errors” that wiped the millions in the stock price and with shareholders unwilling to support a cash emergency call.
The competitor Carillion had been liquidated a year earlier and Interserve was in the hands of the creditors. There were fears that a Kier collapse would disrupt government services more than its peers, as there were fewer joint ventures for partners to continue working in.
Now Davies says Kier is on the rise again after posting a profit of 9 million the previous year in the six months to the end of December. In April, it raised £ 241 million in a rights issue to pay off much of its £ 436 million net debt.
Like Carillion, Kier has pushed debt on his balance sheet and expanded into areas where he “has no experience and no know-how,” Davies said. He has narrowed the company’s focus, stripped it of its environmental services and home construction activities, and downsized the facility management business by cutting the number of employees from 16,000 to fewer than 12,000.
The company is now an infrastructure and construction company with a backlog of £ 8 billion focused almost entirely on winning contracts from government or regulated utilities, he said. It has yet to set plans to restore the dividend.
Still, Davies is optimistic that the company has weathered the pressures of the pandemic. Kier took £ 9 million vacation pay from the government, which she did not repay. For most of his contracts, including HS2, the government bears the brunt of material price increases or unexpected costs.
Stephen Rawlinson, an analyst at Applied Value, said Kier was “lucky enough to have the chance to rebuild.” “The Carillion collapse helped the government realize they didn’t want a repeat,” he said. “The balance sheet is still weak, but it’s profit work.”