Construction firm Kier has announced plans to streamline its business and offload some of its assets in its latest trading update.
In the update released today, the firm said it is aiming for “portfolio simplification” and in doing so would be looking to offload its Mouchel consulting business after integration costs spiralled from £15m to £44m.
Kier bought Mouchel in June 2015 for £265m, primarily for it its highway maintenance business. It said that “an evaluation of the strategic options for the Mouchel Consulting business, including a possible sale” is expected to be completed “in the coming months”.
Analyst Kevin Cammack of Cenkos Securities said that Kier would have no problem finding a buyer for Mouchel and given its £8m profit. He said that buying Mouchel had been a good move for Kier in that it had accelerated its gains in Highways England work.
“I’m not surprised they are selling the consultancy bit of the business which represents just 10% of Kier’s business,” said Cammack. “In a bigger group with a range of activity the hardest thing is to keep staff motivated and consultancy businesses tend to thrive on independence and in a separate environment.”
The planned split of a consultancy arm from a contractor follows the sale of Parsons Brinkerhoff sale from Balbour Beatty to WSP and goes against the call of Sir John Armitt, who in november laid out a vision of a more integreated industry whereby contractors had more in-house design capability.
Elsewhere, Kier also announced the company had been affected by results in its environmental services business, predominantly May Gurney’s bin rounds and waste recycling.
The company said: “The financial performance of the Environmental Services 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 10 years’ duration, respectively.”
The group added that overall trading is in line with expectations, and that uncertainty arising from the EU referendum has had no impact on its business. “The EU referendum 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.”
Cammack added: “Kier has a full order book and 2% margins and the biggest chunk of its business comes fromthe rgulated industry. It should net be too affected by what’s going on. But it has taken substantial losses in the Caribbean – and I don’t think it’s great that it has taken so many exceptional charges which amount to arond £200m over the last four years.”
