Kier Group confident on future as government green-lights infrastructure

Construction company Kier Group said it remained on course to meet expectations for the year and looked forward to a rosy future after the government approved large infrastructure building projects such as Hinkley Point and Heathrow airport.

The company said it was encouraged by the government’s decisions to give the go ahead to build a new nuclear plant at Hinkley Point C in Somerset and a new runway at Heathrow airport, which “reflects the government’s commitment to further investment in infrastructure, a key sector for Kier”.

It said that with its broad offering and presence in sectors receiving government focus, it is well-positioned for the future and looks forward to the upcoming Autumn Statement.

The FTSE 250 company’s average net debt position for the six month to 31 December is expected to be in line with last year at £300m, up 7%, which is due to the proceeds of disposal of Mouchel Consulting to WSP Global for £75m and an investment of £100m since 1 July in the property and residential divisions.

It is expected to maintain a net debt to earnings before, interest, tax, depreciation and amortisation (EBITDA) ratio of less than one times at 30 June 2017.

Additional exceptional costs in this financial year are anticipated relating to the closure of the Caribbean operations, including those which relate to the settlement of a final contract account, which is not expected to affect its net debt.

The property division is on target to deliver a return on capital employed in excess of the 15% target, and investment in the division is to increase up to £175m in the current financial year. Since 1 July, the company has invested over £60m in new schemes, principally in the north of England and Scotland.

With a focus on rental income, the business gained a 50% stake in an occupied 90,000 square feet office building in Bothwell Street, Glasgow and bought an existing office building with short-term rental income and redevelopment potential at Headrow Court, Leeds. The pipeline has a valuation of more than £1bn.

The residential division continues to recycle capital from the company's private land bank into the mixed-tenure business and improve the division's return on capital employed through joint ventures, including Kier Northern Ventures, which has secured about 1,000 units, and the New Communities Partnership, which evaluates local authority land capable of providing homes.

The construction business is performing in line with expectations and the current order book represents 100% of targeted revenue for the current financial year, including two five-year construction frameworks worth up to £750m at Gatwick airport

The services order book represents targeted revenue for the current financial year and margin performance remains in line with expectations.

Shares in Kier Group were up 0.07% to 1,416p at 0800 GMT.