黑洞社区

Kier鈥檚 拢264m rights issue, announced on Friday afternoon, might help to stop subcontractors deserting it after the firm鈥檚 boss said the injection of new money would remove the threat to its future.

Chief executive Haydn Mursell admitted the government has also leaned on the group to shake up its payment terms, which, according to government data, takes 54 days to settle up with its suppliers.

Mursell (pictured) said the rights issue, which will see nearly 65 million new shares hit the market next month, had 鈥渃ompletely de-risked鈥� the firm.

Asked why suppliers would want to work with the group he said they should 鈥渓ook at us and see that we鈥檙e now a much stronger business. We鈥檝e removed the shadow created by our debt position.鈥�

Mursell told 黑洞社区 there was a lot of confidence in the business, 鈥渂ut the credit market has changed recently鈥�.

The firm鈥檚 lenders include Santander which is understood to have lost 拢200m on Carillion following its collapse at the start of this year.

The Spanish banking giant had become increasingly wary of debt facilities continuing in a post-Carillion environment unless the group鈥檚 balance sheet could be sorted out, Mursell said.

Kier had ruled out offloading any of its operations to bolster the balance sheet, such as its housing arm which last year generated a 拢26m pre-tax profit on turnover of 拢374m. Being a distressed seller of assets 鈥渨ould destroy their value鈥�, Mursell added, while the usual churn period of two to three years wasn鈥檛 likely to be acceptable to the banks.

鈥淭he rights issue was the correct route for us to take [to raise cash],鈥� Mursell said, who added that there would be no jobs cut among its 20,000-strong workforce.

鈥淲e鈥檙e not like Carillion. We have one of the strongest balance sheets in the sector and instead of a pension deficit we have a surplus,鈥� he added.

Mursell, who over the summer began the Future Proofing Kier initiative to save 拢20m a year in cost savings from 2020, also admitted that around 5% of the group鈥檚 500 active projects were expected to lose money. 

Kier鈥檚 net debt at the end of its last year end in June was 拢186m, and between 拢180m and 拢200m of the 拢250m net proceeds from the rights issue will go towards putting the firm in a net cash position next year, Mursell said. The remaining funds will boost working capital which together with overall cash generation and Kier鈥檚 鈥楩uture Proofing鈥� programme would generate 拢200m between now and the end of the 2021 financial year.

The chief executive acknowledged that the government had expressed concerns about its payment terms to suppliers and said he had been in talks with the Cabinet Office on the day of the rights issue.

Kier paid its suppliers in 54 days, 鈥渨hich is pretty standard鈥�, according to Mursell, and receives payments from clients in between 49 and 50 days. Balfour Beatty also pays its subbies in 54 days, according to recent research by Build UK, while among the contractors only Murphy Group was longer, at 66 days, according to the Build UK survey.

鈥淲e鈥檝e not got a problem [improving our payment terms] but we need to be paid on time as well. We have a very close relationship [with government] and derive around half of our 拢4.5bn annual turnover from public sector projects,鈥� Mursell added.

He also said the firm had no plans to draw up a 鈥榣iving will鈥� like that requested of Interserve by the government in case it went bust.

Kier sprang the rights issue on an unsuspecting market on Friday afternoon, although Mursell said there was nothing sinister about the timing. 鈥淲e鈥檇 worked last night [Thursday] and today [Friday] on the deal and it was a complicated transaction that needed i鈥檚 dotted and t鈥檚 crossed.鈥�

The group鈥檚 shares fell by a third by the end of trading on Friday, ending the day at 507p, as investors digested the deal. But Mursell said this was a 鈥渕athematical adjustment鈥� for the rights issue and once normal trading of the underwritten new shares he expected the group鈥檚 overall stock to be trading at around 615p a share.

鈥淭he business is doing really well and the rights issue is a structural move to see off the debt risk,鈥� he added.

Mursell also said he had the full support of Kier鈥檚 board and did not expect his position as chief executive to change.

Kier declined to comment on a presentation by an investor who has been shorting the group鈥檚 stock recently and who took issue with the way it booked revenue and profits from jobs it undertook, other than to say its recent trading statement 鈥渄emonstrates the strength in performance鈥�.