Kier Group bucks the trend in construction industry

More evidence that the large publicly quoted contractors are bucking the gloomy trend in the sector and gaining market share emerged with results from Kier Group today showing its underlying full year pre-tax profits rose 24 per cent to £68.9 million, its order book increased to £4.3 billion and its construction margins have improved. 

Figures compiled by construction analysis specialist Glenigan suggest the group remains amongst the most successful UK contractors at winning new work both by value and number of new contracts.

Kier has jumped from fifth place a year ago to second in Glenigan’s league table - which measures the success of the top 50 contractors in winning construction contract leads worth over £500,000 – with 198 new UK contracts worth some £1,962 million in the year to August 2011. During the previous year, Kier won 196 new projects worth some £1,308.8 million.  

Only Laing O’Rourke won more work by value on Glenigan figures, with contracts worth £2,171 million during the year to August 2011. Amongst other rivals towards the top of the table, Balfour Beatty was in third place with work worth £1,949 million, Morgan Sindall in fourth with work worth £1,899 million and Royal BAM in fifth with work worth £1,553 million.

In August alone, Kier ranked fourth in Glenigan’s league table for winning work with 14 new contracts worth £72.5 million. The league in August was headed by Bowmer & Kirkland (work worth £159.8 million), Balfour Beatty (£101.5 million) and Royal BAM (£91 million).

Kier’s results for the year to end-June were slightly ahead of City forecasts and the group said it faced a strong pipeline of further opportunities. Group turnover rose by 4 per cent to £2,179 million and its balance sheet remained healthy with net cash of £165 million. Although it expects the next 12 months will be challenging, the group expects a good performance in the current financial year and the full year dividend was increased by 10 per cent.

Kier’s performance is in contrast to the overall market. The Glenigan index, which tracks all large construction projects across the UK, was down by 8% in July compared to the month a year ago, as public and private sector new starts have slowed.

Kier said its diverse skills and integrated business model have provided greater resilience. It is benefiting from long-term client relationships and framework contracts as well as growing demand for ‘bundled’ services at the local level. Operating profits at the construction division rose to £39.3 million from £36.2 million on a turnover up 2 per cent at £1,445 million. Margins at the division rose to 2.7 per cent from 2.6 per cent. The group’s construction order book rose to £2.3 billion from £2.1 billion previously, which is 95 per cent of its targeted revenue for 2012.

The group’s mix of work has shifted towards the private sector and its public sector workload has fallen from 74 per cent to 56 per cent. The firm is focusing on growing revenues in infrastructure markets, particularly power, waste and transport. It also sees growth opportunities in commercial work, mainly in London and the South East, in mixed-use urban regeneration and overseas, notably in Hong Kong, the Middle East and the Caribbean. 

Profits at the group’s services business rose slightly to £21.7 million from £21.4 million on revenues up 3 per cent at £484 million although the order book dipped to £2, 030 million. Cost pressures are creating market opportunities in the public and private sectors and revenues at the division are expected to growth this year, whilst margins are expected to stay resilient at 4.5 per cent.  

A construction industry league table compiled by Glenigan which monitors housebuilders’ activity showed Kier applied to build on three new sites in the year to June 2011, providing a total of 484 units.

Kier’s partnership homes business which is focused on the mixed-tenure affordable housing market saw 998 completions (2010: 1,060) during the year. Together with land sales, this generated revenue of £153 million and profits rose to £4.2 million from £2.8 million. Kier’s land bank is valued at £159 million, down from £210 million after write downs and its plot numbers fell to 4,800 from 5,700. The group is paring back its investment in land by developing private homes or selling plots.

The group’s property division, which focuses on non-speculative schemes, increased profits to £11.1 million from £4.5 million on revenues which increased to £97 million from £53 million. Kier is looking to expand the portfolio and is exploring innovative funding routes to support growth.