Kier Group plc, a leading property, residential, construction and services group, is considering the possible sale of Mouchel Consulting  and the firm is also in advanced discussion over two potential extensions for existing contracts with South West Water and Bournemouth Water , according to its latest trading update.

Commenting on the outcome of the EU referendum, Kier said the result “has created some uncertainty albeit with no impact on the business to date.”

The Board, however, believes the Group's breadth of activities and strong order books provide both visibility and resilience. The acquisitions of May Gurney and Mouchel have significantly increased the level of visible, long-term earnings from the Group’s  Construction and Services divisions. The Property division has a healthy pipeline of projects totalling more than £1bn, largely comprising non-speculative schemes, and the Residential division's mixed tenure business has a pipeline of over £600m.

 The Group has also recently concluded the raising of £82m (€100m) of additional finance via the Schuldschein market. The placement has an average maturity of approximately five years and a blended interest rate of approximately 3% including fees. This fundraising further diversifies the Group's sources of funding and provides it with long-term, fixed-rate debt, thereby reducing the Group's exposure to increases in interest rates over the longer-term.

According to the update, the Mouchel business is performing well and the integration of the strategic highways and local authority highways maintenance businesses is now complete.

In addition, the Mouchel business services operations have been integrated with Kier's facilities management operations, creating Kier Workplace Services. These activities have delivered anticipated cost savings of £4m in FY16 and are expected to deliver additional savings of £5m in FY17, increasing the total anticipated annual cost synergies from the Mouchel acquisition to a total of £15m in FY17.

To achieve the higher level of savings, integration costs have increased by £29m to £44m, with these additional costs having been incurred during FY16. The Mouchel acquisition remains on track to deliver a ROCE in excess of our target of 15% in FY17.

 However,  as the result of a review which has been undertaken of those operations which do not meet the Group's strict financial hurdles and/or do not provide a long-term strategic fit with the Group's core businesses, Kier is expecting the following to be completed in the coming months:

An evaluation of the strategic options for the Mouchel Consulting business, including a possible sale. Mouchel Consulting's EBIT for FY16 was £8m and net assets were £25m at 30 June 2016. It is expected that a profit would be realised on the completion of any disposal;

In Construction the trading environment in the Caribbean remains challenging and, as a consequence, activities in the region are being wound down. A one-off exceptional charge of £18m will be incurred in the results for FY16, which relates to a write down in asset values, work in progress and redundancy arrangements. However, these will have no effect on future cash flow forecasts; and

In Services, the financial performance of the Environmental Services business continues to be affected by the low oil price and, consequently, the price of recyclates, despite stable operational performance at contract level. As a result, a provision of £35m will be taken in FY16, which provides for all future cash outflows on two environmental contracts of eight and ten years' duration, respectively.

 Exceptional charges from the above portfolio simplification, totalling £53m, will be reported in FY16. Any exceptional gain on the sale of Mouchel Consulting would be expected to be reported in FY17. In cash terms, the total effect of the above items is expected to be cash positive in FY17.

Kier said its Construction division has continued to perform well and underlying margins remain in line with management's expectations, with more than 85% of the targeted revenue for FY17 covered by the current order book.

Key successes in the period include the award of a new £600m highways framework in the East of England, with Kier being one of six contractors appointed to the major works lot. CEK, a joint venture partnership with Carillion and Eiffage established in June 2015, has pre-qualified for four of the seven HS2 Phase 1 civil engineering packages, each worth about £1bn. This further expands Kier's involvement in HS2, with CEK already pre-qualified to tender for all three enabling work packages, each worth more than £200m.

More than 85% of the Services division's targeted revenue for FY17 is covered by the current order book. Kier said underlying operating margins remain robust and in line with management's expectations.

 In utilities, a £105m five-year extension has been awarded to the Scottish Water contract for the provision of repair and maintenance services for the waste water network across Scotland. In addition, two extensions for existing contracts with South West Water and Bournemouth Water are in advanced discussion.