TIDMKIE
RNS Number : 4345C
Kier Group PLC
17 June 2019
17 June 2019
Kier Group plc
Conclusions of strategic review, significant refocusing of Kier
and update on indebtedness
On 15 April 2019, Kier Group plc ("Kier" or the "Group")
announced that Andrew Davies, Chief Executive, would lead a
strategic review which aims to further simplify the Group, better
allocate capital resources across the Group and identify additional
steps to improve cash generation and reduce leverage. This work has
been accelerated over the last month due in part to the ongoing
speculation regarding the Group's financial position. As a result,
the Board is now announcing the conclusions of the strategic review
and providing an update on the Group's indebtedness.
Strategic focus
Kier has a number of high-quality, market-leading businesses, in
particular Regional Building, Infrastructure, Utilities and
Highways, which are valued by our customers. The performance of
these businesses is underpinned by long-term contracts and
positions on frameworks for Government and regulated clients.
Together these businesses are expected to deliver long-term,
sustainable revenues and margins and, with a renewed focus on their
inherently cash generative characteristics, will be the core
activities of the Group in the future.
In recent years, the Group has grown substantially, including
through acquisitions. This strategy added a number of highly
attractive businesses to the Group, including Highways, Utilities
and Rail. However, the strategic review concluded that, during this
period, there was insufficient focus on cash generation and that
the Group today has debt levels that are too high. It also
concluded that the Group's portfolio is too diverse and contains a
number of businesses that are incompatible with the Group's new
strategy and working capital objectives.
Kier is therefore today announcing a new strategy for the Group
that will:
-- focus on Regional Building, Infrastructure, Utilities and Highways;
-- simplify the Group's portfolio by selling or substantially
exiting non-core activities: Kier Living, Property, Facilities
Management and Environmental Services;
-- fundamentally restructure the Group to reduce headcount by
c.1,200 and deliver annual cost savings of c.GBP55m from FY2021;
and
-- embed a culture of performance excellence with a particular
focus on cash generation to deliver reduced average net debt.
Residential ("Kier Living")
Kier Living is a housebuilding business which operates across
England and Wales, with a principal focus on the affordable segment
of the housing market. In FY2018, Kier Living completed 2,042 units
and in the six months ended 31 December 2018, the business
completed 842 units. At 31 December 2018, Kier Living had a land
bank of 4,739 plots.
Kier Living is a strong business but has limited operational
synergies with other parts of the Group and would require
significant ongoing funding from Kier to deliver future growth. The
Board has therefore determined that Kier Living is non-core and has
commenced a process to sell the business. In recent weeks, Kier has
received a number of inbound expressions of interest in Kier
Living.
As at 30 June 2018, Kier Living had a tangible net asset value
of GBP120m. This value excluded certain land assets which were on
the Group balance sheet at GBP60m but which are not expected to be
included in the sale perimeter of Kier Living. This land comprises
sites where there is no immediate intention of development and
therefore the Group will review the carrying value of this land
when producing its accounts for FY2019.
The Kier Living business operates a number of joint ventures
("JVs"), including with Homes England. It is expected that any sale
of the business will also include Kier's interests in these JVs,
together with its share of the JVs' net debt.
The sale of Kier Living is expected to provide financial
benefits beyond a reduction in net debt due to the release of
associated working capital and a reduction in the Group's use of
supply chain financing and off-balance sheet debt.
Property
Kier Property is a property development business which focuses
principally on non-speculative schemes across a number of sectors.
The business operates attractive mixed-use schemes, with
developments being delivered through long-term joint ventures with
Government or regulated partners. Current examples of these schemes
include the Watford Health Campus, a joint venture with Watford
Borough Council, and Solum Regeneration, a joint venture with
Network Rail.
However, the Board has concluded that the investment
requirements of the Property business are incompatible with the
Group's capital requirements. As a result, the Board will
accelerate a reduction in the level of capital invested in the
business, which may extend to its sale. At a minimum, the average
level of capital allocated to the Property business is expected to
be reduced to GBP100m in FY2020. In the six months ended 31
December 2018, the average level of capital invested in the
business was GBP184m.
These steps will deliver financial benefits to the Group which
include a reduction in the level of capital invested in the
business and reducing the level of working capital volatility
within the Group.
Other activities
The Board has concluded that Kier's Facilities Management and
Environmental Services businesses have limited operational
synergies with Kier's core businesses. Kier will seek to exit these
businesses in due course.
In contrast, the Board has concluded that Kier's Housing
Maintenance and Middle East construction businesses will be
retained by the Group and will be managed in a way that is
consistent with the Group's financial objectives.
Operational restructuring and Future Proofing Kier programme
As announced on 3 June 2019, since the arrival of Andrew Davies
as Chief Executive, the Group has accelerated the Future Proofing
Kier programme and as part of the strategic review considered the
scope of the programme.
As a result of the programme, c.1,200 full time employees
("FTEs") have left or will leave the Group. Under the accelerated
programme, c.650 FTEs will have left the Group by 30 June 2019 and
an additional c.550 FTEs are expected to leave during FY2020.
Following the completion of the programme, Kier expects to
deliver annual sustainable cost savings of c.GBP55m from FY2021.
The costs of delivering the programme are expected to be c.GBP28m
during FY2019 and c.GBP28m during FY2020. The reduced cost base
will provide clear foundations for Kier's improved competitiveness
and future growth; it will also enable investment in the Group's
processes and delivery capabilities.
Capital structure and current indebtedness
The disposals and other actions outlined above are expected to
deliver a material reduction in the overall indebtedness of the
Group. They will also reduce the historical volatility in the
Group's working capital profile. Going forward, Kier will focus on
managing its retained businesses to deliver long-term profits and a
sustained reduction in the Group's underlying debt levels rather
than targeting lower debt positions at reporting dates.
The Group has committed debt facilities of GBP920m, with its
bank debt not maturing until June 2022 and the majority of its
private placement debt maturing between 2021 and 2024. While some
of the recent external commentary has had an adverse effect on
confidence, with a consequential impact on the Group's working
capital position, the Group's liquidity headroom is able to absorb
the volatility that this has caused. However, it will result in
reported net debt at 30 June 2019 being higher than current market
expectations and an increase in FY2019 average month-end net debt
to GBP420m-GBP450m.
Kier is in regular dialogue with its largest customers who
continue to be supportive during this period of volatility. Kier
understands that certain suppliers have experienced a reduction in
the level of trade credit insurance available to them; Kier is
working with those suppliers to mitigate the impact of this.
The Board considers that the revised strategy outlined above,
together with the related actions which are now underway, will
result in a significant reduction in the Group's net debt during
FY2020.
Dividend policy
The Board is suspending dividend payments for FY2019 and FY2020.
The Board will continue to review dividend policy for future
financial periods.
Andrew Davies, Chief Executive of Kier, said "Since becoming
Chief Executive on 15 April, I have visited many of our key
locations and spent time with all of our businesses, meeting the
leadership teams and many of our dedicated people in the process. I
have also met with many of our clients. Kier has a number of
high-quality, market-leading businesses, in particular Regional
Building, Infrastructure, Utilities and Highways. I believe that
these businesses will deliver long-term, sustainable revenues and
margins and are inherently cash generative.
As previously announced, I have been leading a strategic review
which has resulted in the actions being announced today. These
actions are focused on resetting the operational structure of Kier,
simplifying the portfolio, and emphasising cash generation in order
to structurally reduce debt. By making these changes, we will
reinforce the foundations from which our core activities can
flourish in the future, to the benefit of all of our
stakeholders."
A conference call with Andrew Davies (Chief Executive) and Bev
Dew (Finance Director) for analysts and investors will be held at
8.00 a.m. (BST) today. Dial-in details are as follows:
Telephone number: 0800 358 6374 or +44 (0)330 336 9104
Passcode: 016830
This announcement contains inside information for the purposes
of Market Abuse Regulation (Regulation (EU) No. 596/2014). The
person responsible for making this announcement on behalf of the
Company is Hugh Raven, General Counsel and Company Secretary.
- ENDS -
For further information, please contact:
Kier press office +44 (0)1767 355 096
Richard Mountain/Nick Hasell, FTI Consulting +44 (0)20 3727 1340
This announcement does not constitute an offer of securities by
Kier Group plc (the "Company" and, together with its subsidiaries,
the "Group"). This announcement may include statements that are, or
may be deemed to be, "forward-looking statements". By their nature,
forward-looking statements involve risks and uncertainties because
they relate to events and depend on circumstances that may or may
not occur in the future and may be beyond the Company's or the
Group's ability to control or predict. Forward-looking statements
are not guarantees of future performance. You are advised to read
the section headed "Principal risks and uncertainties" in the
Company's Annual Report and Accounts for the year ended 30 June
2018 and the section of the Company's rights issue prospectus dated
30 November 2018 entitled "Risk factors" for a further discussion
of the factors that could affect the Company's or the Group's
future performance and the industry in which it operates. Other
than in accordance with its legal or regulatory obligations, the
Company does not accept any obligation to update or revise publicly
any forward-looking statement, whether as a result of new
information, future events or otherwise.
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END
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