UK construction, services and property group Kier has announced that the Group’s underlying operating profit for the 2019 financial year will be lower than previous expectations to a combined amount of £40m.
Shares in the company, which employs 20,000 people and works on major government contracts including HS2 and Crossrail, have fallen 40% as a result of the profit warning.
The share price is now at 167p, less than half the amount Kier was trading at when it launched a £264m emergency fundraising in December 2018.
Speaking to The Guardian, Ian Forrest, an investment research analyst at the stockbroker the Share Centre, said: “The shares are now down 85% over the past year and there are clearly fears in the market that the company could be heading for the same fate as Carillion.”
In a financial year interim results Kier also revealed that is likely to report a net debt position as at 30 June 2019, which would have an adverse impact on its yearly average month-end net debt position.
Kier continues to experience volume pressures within its highways, utilities and housing maintenance businesses. In addition, whilst continuing with double digit growth in its orderbook, the company confirmed that buildings business’ revenue growth for Financial year 2019 will be lower than previously forecast.
Against the background of the revised guidance in respect of this, Kier will provide updated guidance for the financial year 2020 with its 2019 preliminary results announcement on 19 September this year.
The net costs associated with Kier’s future proofing programme for the financial year of 2019 are now expected to be around £15m higher than previously forecast. These net costs are in addition to the £25m reduction in operating profit identified. Kier will provide a further update on its futureproofing programme when it announces the conclusions of the strategic review. This increase in cost was attributed to an acceleration of the programme following the appointment of Andrew Davies as chief executive.
On 15 April 2019, Kier announced that Andrew Davies would lead a strategic review to consider ways of further simplifying the company, the allocation of capital resources and additional steps to improve cash generation and reduce leverage. Kier has confirmed that the conclusions of this review will be announced on 30 July 2019.
Similarly to Kier, Carillion had large construction contracts for public sector funded projects before entering administration in early 2018. In February this year independent plant hire group Hawk Plant entered administration with the loss of 83 jobs. In its 2017 results, filed in November 2018, managing director and majority shareholder Mike Hawkins said that the liquidation of Carillion had disrupted its contract pipeline.