Kier doubles profit despite £4m fire safety provision

Kier’s profit has doubled due to increased workload – despite a £4m fire safety provision

The contractor’s pre-tax profit was £25.4m in the six months to 31 December 2022, double the £12.7m it had registered in the same period the year prior.

Revenue across the group was up 4 per cent to £1.53bn in comparison to £1.48bn, which Kier said was “due largely” to it starting work on the new prison site at HMP Full Sutton in Yorkshire. Kier snapped up a £400m contract to build the site in August.

Kier’s profit increase was most pronounced at its construction branch, which it put down to “increased volume and the impact of [the] prior year’s restructuring”. Operating profit at its construction division doubled to £25.6m.

But that was tempered by a £4.0m provision related to fire safety remediation works – £1.7m of which was newly made in December. Kier said all the buildings which needed remediation were “signed off by approved inspectors as compliant with the relevant Building Regulations at the time of completion”. It further warned the estimate “may be updated” as more inspections are completed, work progresses and if legislation or regulation changes.

Kier is one of a growing number of contractors putting together provisions for fire safety remediation. Last month Morgan Sindall made a provision of £48.9m to deal with the historic fire issues affecting its properties.

Kier also made a provision of £1.5m regarding a £4.4m Health and Safety Executive (HSE) fine issued in January, which came after two health and safety breaches committed while working on the M6 motorway.

The fine is among the highest ever received by a contractor for a health and safety breach. Kier has not said when it will pay the remaining money for the fine.

Kier Construction’s order book increased by more than a fifth to £4.3m from £3.5m the year prior, which the firm said reflected “a period of strong bidding activity”.

Kier chief executive Andrew Davies said the firm’s overall company-wide book had “increased significantly” in comparison to the prior year thanks to a “large number of contract wins”.

“This provides us with good, multi-year revenue visibility,” he added. “These awards reflect the bidding discipline and risk management now embedded in the business.”

Looking ahead, the group expects to generate “positive operating cash flow” in the year to June 2023, and deliver positive net cash. Its average net debt at month end is currently £243m.

“The group is well positioned to continue benefiting from UK government infrastructure spending commitments and focused on the delivery of a sustainable net cash position and a sustainable dividend, in line with our medium-term value creation plan,” Kier added.

Though the sector could face additional “macroeconomic and geopolitical risks” affecting the economy such as increasing labour costs, material costs and high interest rates, it said inflationary pressures were “partly mitigated” by six in ten of its contracts coming in at cost or generating extra revenue.