27th Feb 2014 15:25
LONDON (Alliance News) - Construction and property group Kier Group PLC Thursday reported a 90% increase in profit for the recent half year, boosted by the acquisition of May Gurney and recovery in the UK construction market.
The company, which bought rival firm May Gurney Integrated Services PLC in July for GBP221 million, posted pretax profit of GBP36.8 million for the period ended December 31, 2013, up from GBP19.4 million a year earlier, as revenue jumped 47% to GBP1.43 billion from GBP976 million in the 2012 period.
On a like-for-like basis, revenue rose 12% to GBP1.09 billion from GBP976 million a year earlier.
In September the construction giant posted pretax profit of GBP43.0 million for the year ended June 30, 2013, down from GBP63.0 million a year earlier, which it blamed on tough trading conditions the industry had faced during the year.
However, the company said the construction market has picked up since, and it is seeing early signs of economic recovery across the country.
"This year our construction business is up 18% in terms of volumes compared with last year and that is bringing with it extra profit. The services business is obviously twice the size so that's bringing in profit, and the property division had a good year," Chief Executive Paul Sheffield said in a telephone interview.
"UK public sector building sector work is quite flat," Sheffield said. "It's not getting worse any more, but what we are seeing is growth in commercial property, significant growth in infrastructure projects ? so that's rail power water ? and we are seeing growth in our overseas business. Our overseas business is only 10% of our construction revenues but it is growing quite strongly, so there are three good areas of growth in the construction side."
Kier's main division - construction - saw revenue rise 18% to GBP742 million from GBP627 million a year earlier after it won a number of profitable contracts, while the services division, which now incorporates Norwich-based May Gurney, saw revenue rise 167% to GBP563 million from GBP211 million in the corresponding period.
Kier said it now has unrivalled access to local authorities for outsourcing and the ability to cross sell a broadened capability set to clients following the deal.
The property division didn't fare as well with revenue down to GBP127 million from GBP138 million due to a decline in private finance initiative contracts. But the division delivered a strong profit contribution of GBP11.1 million compared with GBP7.1 million a year earlier.
The affordable housing business has experienced good growth driven by the strengthening recovery in the housing market together with the delivery of the HCA Affordable Housing Grant Programme. Kier said the number of active developments in the business grew by 40% with 119 homes delivered while the forward order book currently stands at more than GBP400 million.
The Homes and Communities Agency's scheme aims to increase the supply of new affordable homes in England
Kier said margins were maintained despite market pressures with construction margins at 2.3%, up from 2.1% a year earlier, and services margins unchanged at 4.3%.
Sheffield said there is not a lot the firm can do to "insulate" itself from pressures on margins but operating efficiency of the business remains a key priority.
"The reality is that the construction supply chain has been squeezed for quite a few years and as soon as they see work and volumes increase then they are going to come along and push prices up," he told Alliance News. "The one area where we have control of our own destiny is making sure we are as efficient as we can be and manage our own cost base to make sure we get good procurement deals in place, that we have the best people, and we don't over commit."
Sheffield, who is stepping down in June, said the underlying performance of the group has been encouraging but highlighted that the May Gurney acquisition undoubtedly dressed the recent results.
"The acquisition has consolidated the group's position in support services, providing a range of complementary services to clients in the highways, transport and utilities sectors," he said in the company's earnings statement. "The integration remains on course, with good customer retention, new extended contracts and revenue synergies."
Sheffield will be replaced by Haydn Mursell, currently group finance director.
Commenting on his new role, Mursell told Alliance News: "I've been here for four years, so there wont be a change in material direction because I've been part of the team that has determined the current strategy. But as you expect as any new CEO, I will get around the business and get closer to the operations, which in a sense is a quasi form of business review. However, I am keen to maintain the consistent performance that Kier enjoys."
The company increased the interim dividend 5% to 22.5 pence from 21.5 pence a year earlier.
Kier shares were trading at 1,790.00 pence Thursday afternoon, down 34.00 pence or 1.9%.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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