Kier Group to cut 1,200 jobs and sell housing division

Julia Kollewe
Photograph: HS2/PA

Kier Group is to cut 1,200 jobs in the UK, suspend dividend payments and sell its housebuilding and property businesses as it battles to reduce its debt pile.

Shares in the troubled construction and services company tumbled to a new low of 114.9p on Monday, down 12%, after crashing 35% on Friday, as its mounting problems prompted comparisons with Carillion, a former rival that collapsed last year.

Kier shocked the market with a profits warning a fortnight ago and the new chief executive, Andrew Davies, has brought forward his turnaround plan for the business, which employs 19,000 people in the UK and works on large infrastructure projects such as HS2 and London’s delayed Crossrail. He also suspended dividend payments for this year and 2020.


Kier builds and maintains infrastructure and buildings for the public and private sector, such as roads, rail, schools, hospitals, student housing, prisons, offices and homes. It took on Carillion’s share in HS2, the high-speed rail project that will connect London with other major cities.


Employees


19,000


Annual turnover


£4.5bn


Construction contracts


  • HS2 – in joint venture to build 80km of the new high-speed rail link between the Chiltern Tunnel and Long Itchington Wood.
  • London’s Crossrail – Farringdon Station.
  • Highways England – smart motorway programme including M6, M20, M23.
  • Highways England regional road construction contracts worth £2bn (November 2018).
  • Building part of Facebook’s new headquarters in London’s King’s Cross (December 2018).
  • Luton Dart – new rail transit system from Luton Parkway to Luton airport.
  • £253m contract to build Wellingborough prison in Northamptonshire (May 2019).
  • Site preparation and infrastructure for the new nuclear power station at Hinkley Point C in Somerset.
  • £98m contract at Heatherwood hospital in Ascot, Berkshire (January 2019).
  • Ryanair hangar at Stansted airport.
  • Restoring and extending the Grade A-listed Aberdeen Music Hall.
  • North Wales Construction Framework 2 projects worth £108m (May 2019).


Maintenance work


  • Roads – Kier manages and maintains roads for Highways England.
  • Housing – Kier maintains and repairs 350,000 homes every year for local authorities, housing associations and private landlords.
  • Utilities – installs and maintains connections in water, energy and telecommunications.
  • Waste collection – pulling out of contracts with local councils. 
    Julia Kollewe


The plan involves selling its homebuilding business, Kier Living, and its property development unit, and shutting or selling its recycling and rubbish-processing operations. Kier wants to focus on infrastructure, regional construction, utilities and road maintenance.

Davies said the current portfolio was too diverse and debts too high but he also told analysts and investors: “At its heart there is a great business in Kier, particularly around the four core groups. We will administer self-help to this business.”

Kier said 650 employees will have left the group by 30 June and a further 550 are expected to leave in the coming year. The job cuts will mainly affect its head office at Tempsford Hall in Bedfordshire. The firm aims to save £55m a year from 2021 but the restructuring will cost £56m over the next two years.

The group estimated its average month-end net debt at £420m to £450m – higher than the £360m expected by analysts. It said two insurers had stopped providing trade credit insurance to some of its subcontractors and that it was working with its suppliers to mitigate the impact.

A report last week suggested Kier’s housing division may raise only £100m to £150m, less than half the firm’s previous valuation, sending its shares tumbling. Liberum, the housebroker, has valued housing at £315m, the property division at £254m and the facilities management and environmental operations at £10m.

Russ Mould, the investment director at stockbroker AJ Bell, said: “These all seem like sensible steps but delivering on this plan will not be easy. The turnaround programme delivered by Leo Quinn at rival group Balfour Beatty offers Kier something of a template.”

Kier has been through a turbulent few months and it launched a £264m emergency fundraising in December that was shunned by investors, forcing its lenders to step in and buy leftover stock. Kier’s former boss Haydn Mursell, who left in January after pressure from shareholders, said the firm needed to raise more money because banks had reined in lending to the construction sector since the failure of Carillion.

The shares have lost 90% of their value in the past year. Kier’s share price fall has piled more pressure on one of its largest shareholders, Woodford Investment Management.

It is run by the star fund manager Neil Woodford, who was forced to suspend his flagship fund after a surge in withdrawals – on the same day Kier issued its profit warning. Woodford held almost 16% of Kier as of 5 June after reducing his shareholding from 20%.