The Lemon Fool

From close to the end of https://www.investegate.co.uk/kier-grou ... 00064345C/:

Dividend policy

The Board is suspending dividend payments for FY2019 and FY2020. The Board will continue to review dividend policy for future financial periods.

In this case, the fears JoyofBrex8889 expressed in viewtopic.php?f=15&t=17933&p=226388&hilit=Kier#p226426 have unfortunately been realised...

Gengulphus

There's a Woodford link as well.

https://www.thisismoney.co.uk/money/mar ... again.html

It is surely also significant that they say re debt that

'Going forward, Kier will focus on managing its retained businesses to deliver long-term profits and a sustained reduction in the Group's underlying debt levels rather than targeting lower debt positions at reporting dates.'

In other words they have been manipulating debt levels to ensure that they look better than they actually are on the reporting dates. Balance Sheet numbers are only a moment in time.

But I guess most focus will be on no dividends for the next couple of years.

Dod

Dod101 wrote:In other words they have been manipulating debt levels to ensure that they look better than they actually are on the reporting dates. Balance Sheet numbers are only a moment in time.

There was an earlier thread on this.

viewtopic.php?f=15&t=16694&p=207017&hilit=kier+group#p207017

Described as "hedging activities", code then for balance sheet manipulation.

Chaps: We have seen this before. It mirrors Carillion. Credit insurance for suppliers is now getting withdrawn. Desperate firesales of assets promised to shore up a balance sheet with negative NTAV. A debt to equity swap will probably wipeout existing shareholders. We saw with Carillion how this ends. Just saying.

JoyofBrex8889 wrote:Chaps: We have seen this before. It mirrors Carillion. Credit insurance for suppliers is now getting withdrawn. Desperate firesales of assets promised to shore up a balance sheet with negative NTAV. A debt to equity swap will probably wipeout existing shareholders. We saw with Carillion how this ends. Just saying.

The problem is of course that these situations tend to feed on themselves, and with debt levels still far too high despite the earlier rights issue this is really the last chance saloon because they cannot have another rights issue. The share price is down another 18% or so today. Poor Woody will now know that nothing is going right for him and it is mostly his own fault.

My earlier comments on the manipulation of debt levels is sadly I think, par for the course with this type of company or at least has been. That is one reason why I have steered clear of the sector. As I have said in previous threads, the culture is all wrong and has been for a long while. Chickens are now though coming home to roost.

Dod

Dod101 wrote:
My earlier comments on the manipulation of debt levels is sadly I think, par for the course with this type of company or at least has been.

Are you saying then that they are reporting profits as earned long before they see any cash? That can be a legitimate accounting treatment. Financial soundness would suggest that they should treat themselves as a growth business and defer distribution as dividends until the money is safely banked. What they seem to have done instead is to distribute regardless. You need to pay dividends in cash, which means borrowing or other sleight of hand if the money is not there.

Alaric wrote:

Dod101 wrote:
My earlier comments on the manipulation of debt levels is sadly I think, par for the course with this type of company or at least has been.

Are you saying then that they are reporting profits as earned long before they see any cash? That can be a legitimate accounting treatment. Financial soundness would suggest that they should treat themselves as a growth business and defer distribution as dividends until the money is safely banked. What they seem to have done instead is to distribute regardless. You need to pay dividends in cash, which means borrowing or other sleight of hand if the money is not there.

I am not saying that but for all I know that may have come into it but what I am saying is (and it is actually what they have admitted in today's announcement) they targeted, that is deliberately tried, to report lower debt positions at reporting dates. That would suggest that they wanted to reassure the market and possibly their lenders that the average debt was lower than it actually was. Kidology I am afraid, and it tends to be found out. I would have been fired in my company had I tried that, but here was the top management actively trying to deceive the public investors (and possibly their lenders for all I know)

Dod

Interesting contrast with Morgan Sindall who published their daily net cash/debt position for the last financial year. I think it was net cash throughout.

Dod101 wrote:It is surely also significant that they say re debt that

'Going forward, Kier will focus on managing its retained businesses to deliver long-term profits and a sustained reduction in the Group's underlying debt levels rather than targeting lower debt positions at reporting dates.'

In other words they have been manipulating debt levels to ensure that they look better than they actually are on the reporting dates. Balance Sheet numbers are only a moment in time.

But I guess most focus will be on no dividends for the next couple of years.

Dod

I have relied upon the construction industry for my income for the last 40 years. Today 650 people were told they needed to find work elsewhere. Another 550 leave not long afterwards. So today I feel for all those people. I've experienced the same fate in the past.

How did it get to this? I don't know. My perception is (and I'm repeating what's out there already) is that Kier have expanded into "service areas" and not been able to deliver cost savings in their overhead base. They may, therefore, have "bought" contracts assuming they could reduce [at least] this overhead cost. I'm aware they have been using their bank to pay their accounts in a "modern overdraft facility". I can't recall it's exact name but they offer to pay their supply chain through a discounted structure. For example a company wanting to be paid at 30 days will present an invoice to Kier's bank and accept (again by example) a discount of 7.5%. A supplier able to wait 90 days will get paid in full. I suspect it's this "mechanism" which has been distorting their net monthly average debt. And I note the new CEO has thrown it out with the bath water. I'm sure someone will come along and put some proper terminology to all of this.

Where from here? Not good I think.

The housing arm will not clear all the debts (reducing them by about 25%). Many of the roads contracts aren't profitable as I understand it and they will struggle to achieve that last bit of discount when asking their supply chain for prices. They are now high risk for an already embattled supply chain.

The only good side I can see is the new CEO. His record at Wates was good. But ... he's done most of his time at British Aerospace and I wonder if he really has got enough depth of knowledge of construction to pull that proverbial rabbit out of the bag.

I still wouldn't be surprised if they did call it a day and sold up or are later forced to call administrators in

AiY

Is AIY writing about invoice factoring? I think it sounds as if it goes much deeper than that. The CEO said that they were 'targeting lower debt positions at reporting dates'. That does not mean in itself that they were being dishonest (neither is invoice factoring) but it does mean that they were deliberately manipulating the figures to suit. I have no particular interest in all of this in any sense except to try to learn something. I have never held Keir shares nor any shares in the construction or support services industries.

Althugh if Mucklow and Gleeson are regarded as in that sector then I have held them but I think these small family type companies are very different.

Dod

Dod101 wrote:Is AIY writing about invoice factoring? I think it sounds as if it goes much deeper than that. The CEO said that they were 'targeting lower debt positions at reporting dates'. That does not mean in itself that they were being dishonest (neither is invoice factoring) but it does mean that they were deliberately manipulating the figures to suit. I have no particular interest in all of this in any sense except to try to learn something. I have never held Keir shares nor any shares in the construction or support services industries.

Althugh if Mucklow and Gleeson are regarded as in that sector then I have held them but I think these small family type companies are very different.

Dod

Yes. Invoice factoring. Thank you

AiY

I used to have some involvement in construction bonding, and I recall in the 80s and no doubt prior, companies buying business in a Micawberish attempt to maintain cashflow and hoping to make a profit on variations.
And taking credit for monies not yet earned**.
And getting into territories and types of work for which they lacked the expertise.
And engaging in joint ventures with incompetents.
And then going bust.
Some things never seem to change.

Having had a full dose of Carillion, at least I missed this one.

V8

** if reporting profits as earned long before they see any cash, is a legitimate accounting treatment, I think that tells us something about accountants and perhaps illustrates why Luni always said not to waste time poring over accounts.

AsleepInYorkshire wrote:

Dod101 wrote:Is AIY writing about invoice factoring? I think it sounds as if it goes much deeper than that. The CEO said that they were 'targeting lower debt positions at reporting dates'. That does not mean in itself that they were being dishonest (neither is invoice factoring) but it does mean that they were deliberately manipulating the figures to suit. I have no particular interest in all of this in any sense except to try to learn something. I have never held Keir shares nor any shares in the construction or support services industries.

Althugh if Mucklow and Gleeson are regarded as in that sector then I have held them but I think these small family type companies are very different.

Dod

Yes. Invoice factoring. Thank you

AiY

Sorry. Sorry. Sorry. It's not Invoice Factoring. It's Supply Chain Finance, sometimes referred to as "Reverse Factoring"

https://primerevenue.com/what-is-supply-chain-finance/

AiY

AsleepInYorkshire wrote:

Dod101 wrote: I can't recall it's exact name but they offer to pay their supply chain through a discounted structure. For example a company wanting to be paid at 30 days will present an invoice to Kier's bank and accept (again by example) a discount of 7.5%. A supplier able to wait 90 days will get paid in full. I suspect it's this "mechanism" which has been distorting their net monthly average debt. And I note the new CEO has thrown it out with the bath water.

AiY

Supply chain financing as someone has already pointed out. I don't think the new CEO has thrown it out. I think maybe there's some confusion with the scheme Kier had brought in which required suppliers pay Kier a fee of 1.5% of the invoice in order to work for them (so Kier could supposedly build a prefferred supply chain adhering to their standards). This has been been removed in the last week and was pretty pointless as suppliers had responded by simply raising their prices 1.5%

Gan020 wrote:Supply chain financing as someone has already pointed out. I don't think the new CEO has thrown it out.

Is it something you can manipulate so that it operates differently when a set of accounts is due? There was reference to the accounts being presented so as to window-dress the cash, rather than have a continuous policy of reducing debt.

Alaric wrote:

Gan020 wrote:Supply chain financing as someone has already pointed out. I don't think the new CEO has thrown it out.

Is it something you can manipulate so that it operates differently when a set of accounts is due? There was reference to the accounts being presented so as to window-dress the cash, rather than have a continuous policy of reducing debt.

I don't know about that but if Accounts are being prepared soon, it's not a problem to set one financial team a task of aggressively chasing Client invoices, perhaps 'encouraging' them to pay early, whilst at the same time having the payments team let a number of (over)due invoices coming in to slip by an extra week or two to defer cash going out. Both improve the cash position on a specific date. If you're a supplier expecting to be paid after 90 days, then you're just going to shrug if told it's 90 days + 2 weeks for this month's payment run. What can you do.

Supply chain financing is the same as invoice factoring except looking at it from the other side. I do not think that the manipulation of debt statements had much to do with the cash position of Kier; it was much more to give the impression that debt was under control and reducing. Alaric seems to have a fixation with cash flow but that is simply one part of the picture.

The fact is though that Kier is in a spot of bother with way too much debt and no real way of reducing it except by a fire sale. Not a comfortable position to be in and as JoyofBrex has said it may end up in a disaster. I would say get out whilst you can to any holders.

Dod

AndyPandy wrote:

Alaric wrote:

Gan020 wrote:Supply chain financing as someone has already pointed out. I don't think the new CEO has thrown it out.

Is it something you can manipulate so that it operates differently when a set of accounts is due? There was reference to the accounts being presented so as to window-dress the cash, rather than have a continuous policy of reducing debt.

I don't know about that but if Accounts are being prepared soon, it's not a problem to set one financial team a task of aggressively chasing Client invoices, perhaps 'encouraging' them to pay early, whilst at the same time having the payments team let a number of (over)due invoices coming in to slip by an extra week or two to defer cash going out. Both improve the cash position on a specific date. If you're a supplier expecting to be paid after 90 days, then you're just going to shrug if told it's 90 days + 2 weeks for this month's payment run. What can you do.

I can assure you

1 ) At year end the QS/Accounts department ensure all monies are banked
2 ) Monies due out are often paid a day or two late - improving the cash at hand position
3 ) Margins are also "window dressed" if management "so desire"

AiY

Dod101 wrote:It is surely also significant that they say re debt that

'Going forward, Kier will focus on managing its retained businesses to deliver long-term profits and a sustained reduction in the Group's underlying debt levels rather than targeting lower debt positions at reporting dates.'

In other words they have been manipulating debt levels to ensure that they look better than they actually are on the reporting dates. Balance Sheet numbers are only a moment in time.

and later:

Dod101 wrote:I am not saying that but for all I know that may have come into it but what I am saying is (and it is actually what they have admitted in today's announcement) they targeted, that is deliberately tried, to report lower debt positions at reporting dates. That would suggest that they wanted to reassure the market and possibly their lenders that the average debt was lower than it actually was. Kidology I am afraid, and it tends to be found out. I would have been fired in my company had I tried that, but here was the top management actively trying to deceive the public investors (and possibly their lenders for all I know)

No, they have not actually admitted that they tried to report lower debt positions at reporting dates - the passage you quote from the RNS only says that they are changing their target. That could be for as little reason as that their review has identified the potential in the old target for that type of balance sheet manipulation and is taking pre-emptive action to avoid it, and there are also intermediate possibilities such as that those who set the old target failed to understand how great a temptation it would produce to manipulate the balance sheet - a somewhat grey area about how deliberate it was.

Of course, "innocent until proved guilty" is not a sensible criterion to apply to investment decisions, and in such cases, it is very reasonable to base one's investment decisions on strong suspicions of bad behaviour even when it's not actually admitted to or otherwise proved to have happened. In this case, the bit of the RNS you quote would certainly count as such a case in my view, and so I will make my investment decisions about Kier as though they had admitted to trying to report lower debt positions at reporting dates in the past. But I won't allow myself to get muddled about the fact of whether they actually have admitted to it: they haven't.

Gengulphus