Business

UK builder Kier’s shares tumble 40% after profit warning

Construction company becomes the latest UK builder under pressure

Photograph: iStock

Mon Jun 3 2019 - 12:55

Shares in British builder Kier Group fell 40 per cent to their lowest in two decades on Monday after it warned on this year's profits in the latest setback for UK construction firms.

Former BAE Systems executive Andrew Davies, who took charge in April, is leading a strategic review to cut debt and simplify Keir's structure after the company failed to convince shareholders to back a new share issue.

A number of Britain’s biggest construction firms have come under pressure since the collapse of major government contractor Carillion last year forced regulators to tighten rules for private companies operating in the public sector.

Kier warned operating profit for 2019 would be about £25 million lower than a consensus estimate of £169 million, citing higher costs and persistent pressure on its highways, utilities and housing maintenance businesses.

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Revenue growth at its buildings unit would also be lower than previously forecast, the company said, adding it now expected revenue in the 2019 financial year to be flat compared to 2018, when it reported sales of $4.5 billion.

The company flagged higher-than-expected costs of £15 million, stemming from a restructuring plan which it launched last year to cut debt and divest non-core assets.

Kier said the higher costs reflected “an acceleration of the programme” of restructuring since the appointment of Davies, who had been due to become Carillion’s boss before it collapsed in 2018.

Shares in the company, which has contracts for major projects including London’s Crossrail link, were down 40.7 per cent to 165 pence by 0900 GMT, their lowest since February 1999.

Liberum analysts said they expected a roughly £250 million fall in revenues, with weaker volumes in the utilities business, a weakness in winning maintenance work and slower growth than expected in the buildings unit.

Kier also said last month its finance director Bev Dew would step down by the end of September, shortly after the company releases its full-year results.

The company, which had aimed to pay off this year all of the £180.5 million in debt it reported at the end of 2018, said it would likely still be in debt by the end of the year.

In March, Kier disclosed an accounting error that pushed up its 2018 debt by £50 million.

The Liberum analysts, who lowered their target price for the stock to 320 pence from 400 pence, said they expected a net cash estimate of £38 million to swing into a net debt of £36 million. – Reuters

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