17th Sep 2015 12:56
LONDON (Alliance News) - Construction, property and services company Kier Group PLC delivered higher pretax profit and revenue for the full year on Thursday and said the coming year will be focused on integrating its Mouchel acquisition and working towards delivering its 'Vision 2020' strategic programme, which analysts said may result in profit taking a small hit.
Kier operates a construction arm, a residential building business, a services unit which comprises highway maintenance, facilities management and other business services, and a property development business. In April, it struck a deal to buy UK-based infrastructure and business services company Mouchel for GBP265.0 million, an acquisition which substantially grew its services order book and which the company will be looking to drive its growth in the 2016 financial year.
The company is also at the start of its so-called 'Vision 2020' five-year strategy programme, under which it plans to have a top-three position in all of its chosen markets by 2020. The Mouchel acquisition should accelerate its ambitions in this area, it said. The deal give it a market-leading position in the UK highways maintenance and management sector and also boosts its consulting and local authority business, while adding a public sector outsourcing unit to its services division.
The FTSE 250-listed company said its pretax profit for the year to the end of June was GBP39.5 million, up from GBP15.4 million a year earlier, as one-off charges booked fell to GBP31.6 million from GBP42.2 million and it posted higher revenue. The one-off charges primarily related to the acquisition of Mouchel.
Revenue for the Kier group was up to GBP3.4 billion from GBP2.9 billion a year earlier, with robust organic growth achieved in all of its divisions. Returns from its property business improved substantially, while its residential construction arm delivered 35% more units. Construction revenue grew 15%, and services revenue was up 13% in the year.
The GB265.0 million acquisition of Mouchel increased the size of Kier's order book substantially at the close of the financial year, up to GBP9.3 billion from GBP6.2 million, with the main beneficiary being its services division, where the order book increased to GBP6.0 billion from GBP3.7 billion.
Kier said it will pay a 55.2 pence per share full-year dividend, including a 36.0p final dividend, down from the 57.6 pence per share paid out a year earlier but only due to the company having issued shares over the year to pay for the Mouchel deal. In terms of the total payout, Kier will pay GBP47.3 million to its shareholders in dividends for the year, up from GBP39.4 million the year before.
"I am pleased to announce we have delivered solid growth and increased profitability. Economic confidence is returning to our core markets and, furthermore, the acquisition of Mouchel represents a major step in accelerating the group's five-year strategy," said Chief Executive Haydn Mursell.
But while the results came in broadly in line and brokers Numis and Investec said the company is delivering on all fronts, both said Kier's shares are in line with where they should be based on newsflow at present and both think the company's profit in the current financial year will be squeezed by the investments it will have to make for Vision 2020.
Numis has downgraded its rating on Kier to Add from Buy, and cut its pretax profit estimates for the company, though Numis analyst Howard Seymour said investors should not view this cut to forecasts out of context, as Kier remains a very strong company, albeit one with an important year ahead.
Shares in Kier were down 4.3% to 1,412.91 pence Thursday afternoon, one of the worst performers in the FTSE 250.
Kier said its construction revenue rose 15% in the year, as the group generated organic growth while also being selective about the contract it bids for. UK regional building work performed well, with better private sector opportunities and an expanded work book for the company in Scotland and Wales. Over the course of the year, the construction secured places on all the framework agreements it bid for and secured deals on framework deals in the health and biotech sectors, along with an expanded role at the Argent development at King's Cross in London.
Kier's infrastructure construction arm had a solid year, securing deals on the Mersey Gateway scheme and completing work on two energy-from-waste plants in Wakefield and Plymouth. The company is in the process of selling its UK mining operations in Ayrshire. The group's international construction arm performed well, winning deals in Dubai and a major project in Saudi Arabia, while also making progress on its rail contracts in Hong Kong.
The company's services unit delivered a 13% rise in revenue in the year and was the main beneficiary of the addition of Mouchel's order book to the business. The revenue growth was driven by the group winning an extension to its highways services contract with Northamptonshire County Council, along with a total of GBP700 million worth of contracts the company has snapped up from the new water industry regulatory cycle.
The highways maintenance business traded well and Kier expects to generate more business from the UK highways and maintenance and management sector following the Mouchel takeover, which has made in the market leader in this segment.
Its local authority and utilities businesses also did well in the year, though Kier said its housing maintenance arm experienced a tougher second half amid a General Election-related slowdown in activity in the UK. Facilities management trading was in line with the market, Kier said, and it added that the Mouchel acquisition will give it an expanded public sector outsourcing unit.
Kier's smaller residential housing business performed well, with revenue up 10% as its unit completions rose 35%, driven by a robust second half of the financial year helped by the UK's affordable funding programme. The property unit, meanwhile, which focuses on property development and structured finance, saw its revenue rise 24% but underlying operating profit surge 42%. That division delivered a 27% return on capital employed in the year, well above Kier's 15% target, though it does expect this to return to more normal levels in the coming year.
By Sam Unsted; [email protected]; @SamUAtAlliance
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