Struggling construction and services firm Kier has announced it will cut 1,200 jobs, exit non-core business activities and suspend dividend payments in an effort to turn the business around.

The Group, which numbers several of the UK water companies amongst its utilities clients, will be fundamentally restructured and will aim to deliver annual cost savings of around ££55 million from 2021.

The measures are the outcome of the strategic review launched in April 2019 by new Chief Executive Andrew Davies – the work had been accelerated over the last month due in part to the ongoing speculation regarding the Group's financial position.

Since the arrival of Andrew Davies as Chief Executive the Group has accelerated the Future Proofing Kier programme. As a result around 1,200 full time employees (FTEs) have left or will leave the Group - c.650 FTEs will have left the Group by 30 June 2019 and an additional 550 are expected to leave during 2020.

The new strategy will focus on Regional Building, Infrastructure, Utilities and Highway where the performance of the businesses is underpinned by long-term contracts and positions on frameworks for Government and regulated clients.

“Together these businesses are expected to deliver long-term, sustainable revenues and margins and, with a renewed focus on their inherently cash generative characteristics, will be the core activities of the Group in the future.”, Kier said.

The Group now plans to simplify its portfolio by selling or substantially exiting non-core activities: Kier Living, Property, Facilities Management and Environmental Services. In recent weeks, Kier has received a number of expressions of interest in Kier Living – the Group has already started a process to sell the business.

The Board has concluded that Kier's Facilities Management and Environmental Services businesses have limited operational synergies with Kier's core businesses and will “seek to exit these businesses in due course.”

In contrast, the Board has concluded that Kier's Housing Maintenance and Middle East construction businesses will be retained by the Group and will be managed in a way that is consistent with the Group's financial objectives.

Following the completion of the programme, Kier expects to deliver annual sustainable cost savings of c.£55 m from FY2021. The Board said the reduced cost base would provide “clear foundations for Kier's improved competitiveness and future growth” and also enable investment in the Group's processes and delivery capabilities.

The measures are expected to deliver a material reduction in the overall indebtedness of the Group which currently has committed debt facilities of £920m - its bank debt matures in June 2022 and the majority of its private placement debt matures between 2021 and 2024. Kier said that “some of the recent external commentary has had an adverse effect on confidence, with a consequential impact on the Group's working capital position.” While the Group's liquidity headroom means it is “able to absorb the volatility that this has caused”, the Board said it will result in reported net debt at 30 June 2019 being higher than current market expectations and an increase in FY2019 average month-end net debt to £420m-£450m.

Kier said it is in regular dialogue with its largest customers who “continue to be supportive during this period of volatility.” Commenting on supply chain issues, Kier said it understood that certain suppliers had experienced a reduction in the level of trade credit insurance available to them and was working with those suppliers to mitigate the impact.

Andrew Davies, Chief Executive of Kier, commented:

"Since becoming Chief Executive on 15 April, I have visited many of our key locations and spent time with all of our businesses, meeting the leadership teams and many of our dedicated people in the process. I have also met with many of our clients. Kier has a number of high-quality, market-leading businesses, in particular Regional Building, Infrastructure, Utilities and Highways. I believe that these businesses will deliver long-term, sustainable revenues and margins and are inherently cash generative.

As previously announced, I have been leading a strategic review which has resulted in the actions being announced today. These actions are focused on resetting the operational structure of Kier, simplifying the portfolio, and emphasising cash generation in order to structurally reduce debt. By making these changes, we will reinforce the foundations from which our core activities can flourish in the future, to the benefit of all of our stakeholders."