Kier cull: 1200 jobs axed, non-core divisions sell-off and frozen dividend
Cambridge and Sandy property group Kier saw its shares dip close to its 52-week low as the UK markets opened following news of 1200 job cuts, freezing of dividends and a sell-off of non-core business interests in a bid to slash debt and concentrate on strong cash generation.
The axe is being swung hard following a swift review of the company by new CEO Andrew Davies.
Davies said he was focusing on “resetting the operational structure of Kier, simplifying the portfolio, and emphasising cash generation in order to structurally reduce debt.”
Kier, which employed more than 20,000 people in 2018, intends to focus on its cash generating regional building, infrastructure, utilities and highways arms.
Davies said their performance was underpinned by long-term contracts and would deliver long-term sustainable revenues and margins.
In recent years, Kier 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 Kier today has debt levels that are way too high.
It also concluded that the group's portfolio is too diverse and contains a number of businesses that are incompatible with Kier's new strategy and working capital objectives.
Kier intends to sell or substantially exit non-core activities – notably Kier Living, Property, Facilities Management and Environmental Services. This would fundamentally restructure the group to reduce headcount by around 1,200 and deliver annual cost savings of some £55m from FY2021; it will cost around £28m to deliver the programme.
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.
Davies said Kier Living was a strong business but had limited operational synergies with other parts of the group and would require significant ongoing funding from Kier to deliver future growth.
Potential buyers are already expressing interest in taking the business, which at June 30, 2018, had a tangible net asset value of £120m. This value excluded certain land assets which were on the balance sheet at £60m but which are not expected to be included in the sale perimeter of Kier Living.
Also being sold is Kier Property, a property development business which focuses principally on non-speculative schemes across a number of sectors. The board has decided that the investment requirements of the Property business are incompatible with Kier's capital requirements.
Kier's Facilities Management and Environmental Services businesses are also being exited. In contrast, the board has concluded that Kier's Housing Maintenance and Middle East construction businesses will be retained .
Kier has committed debt facilities of £920m but says its actions will result in a significant reduction in the group's net debt during FY2020.
The board is suspending dividend payments for FY2019 and FY2020 and future payments are under review.
Davies said: “Since becoming chief executive on April 15, 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.
“The actions as a result of the review 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.”