Kier Group plc, the integrated construction, services and property group, has announced an increase in revenues, profits and forward order book with the publication this morning of its results for the six month period ended 31 December 2013  - with the acquisition of May Gurney playing a key role.

During the period, Group revenues rose to more than £1.4bn (2012: £1.0bn) and underlying profit before tax* up 90% to £36.8m (2012: £19.4m) following the acquisition of May Gurney in July 2013.

Group revenue for the six months ended 31 December 2013 increased by 47% to £1,432m (2012: £976m) and underlying operating profit increased by 96% to £44.4m (2012: £22.7m). On a like-for-like basis Group revenue was up 12% to £1,094m (2012: £976m) and underlying operating profit up 34% to £30.4m (2012: £22.7m). Operating margins remained stable, with "resilient" margins both in the Construction division of 2.3% (2012: 2.1%) and in the Services division of 4.3% (2012: 4.3%), in line with half-year expectations. 

The firm won more than £1.5bn of new work in the period with 100% of the forecast Construction division revenue and 97% of the Services division revenue for 2014 secured and probable -  framework and negotiated work account for 60% of the  awards.

May Gurney acquisition "has transformed scale and diversity" of Services division

The statement said that the successful integration of May Gurney in line with expectations had created a broadened capability for the Group. In his Review, Chief Executive Paul Sheffield said that the acquisition of May Gurney in July 2013 has transformed the scale and diversity of the Services business, creating a division that now has annual revenue of over £1.0bn and has a market-leading position in a number of support services sectors. 

Commenting on the results, Paul Sheffield said:

"The underlying performance of the Group has been encouraging in the period. Given the continuing financial pressures in the markets, margins in our Construction and Services divisions remain resilient."

"We are pleased with the performance of the May Gurney business which is operating in line with our expectations. The acquisition has consolidated the Group's position in support services, providing a range of complementary services to clients in the highways, transport and utilities sectors. The integration remains on course, with good customer retention, new extended contracts and revenue synergies. We are on track to deliver the anticipated £5m cost savings in this financial year. The Construction and Property divisions continue to strengthen."

However, Kier cautioned that pressure on operating margins, cash and payment terms was continuing and the operating efficiency of the business remains a key priority.

Growing order book of over £6 billion

The Kier Board said the May Gurney business acquisition had consolidated the Group's position in support services, providing a range of complementary services to clients in the highways, transport and utilities sectors, commenting:

"We are seeing the early signs of economic recovery across the country. Our wider portfolio of offerings, strong cost management, a growing order book of over £6bn together with our strong capital structure, positions us well for the future." 

Revenue in the Construction division, which comprises the UK building, civil engineering and overseas businesses, was up 18% at £742m (2012:£627m), while operating profits rose 28% to £17.3m (2012:£13.5m). Kier said that while operating margins remained robust at 2.3% (2012: 2.1%), payment terms, particularly within the public sector, remained challenging. The company’s cash position at 31 December 2013 of £272m reflects the shorter payment terms and the increasing proportion of infrastructure work which has an irregular cash profile and milestone payments.

 The order book of secured or probable work, at £2.5bn, represents 100% of the forecast revenue for the current financial year and 66% of the following financial year with the availability of new work set to increase.

The statement said that the UK infrastructure business is going” from strength to strength”  - including the award in October of Thames Water’s £177m Deephams sewage treatment works upgrade contract in north London, as part of a three-way joint venture.

AMP6 - Kier is "well-positioned for further growth in the utilities sector"

Kier said that following the acquisition of May Gurney, the Services division, which comprises seven businesses; housing maintenance, environmental, facilities management, highways maintenance, utilities, fleet & passenger services and waterways services, had been transformed in scale and diversity. The division now has revenue of over one billion pounds per year and occupies market leading positions in a number of operational segments such as highways and utilities. 

The statement said:

“The Group now has unrivalled access to local authorities for outsourcing and the ability to cross sell a broadened capability set to clients. In the first six months, the division has leveraged its position in key market sectors such as utilities, highways and water while both cost and revenue synergies were also achieved. All customer contracts were retained and multiple small value extension contracts were awarded. During the period new work of more than £450m was secured, underpinning the £3.6bn order book and reflecting the seasonality of awards.”

 Revenue in the Services division was up 167% to £563m (2012: £211m). Underlying operating profit increased by 171% to £24.4m (2012: £9.0m) following the acquisition of May Gurney with operating margins remaining stable at 4.3% (2012: 4.3%), in line with expectations.

Looking ahead, the Group said that key opportunities exist in the defence, utility, housing maintenance, highways maintenance and FM sectors, commenting:

“ The conclusion of the bidding on the AMP6 water frameworks is awaited with Kier well positioned with its partners for further growth in the utilities sector. With increased Government focus on regulated sectors such as telecoms and water, further opportunities will arise.”

Paul Sheffield is stepping down as Chief Executive of Kier with effect from 30 June. He will be replaced by Haydn Mursell, currently Group Finance Director.