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Kier Group

Analysing companies' finances and value from their financial statements using ratios and formulae
AsleepInYorkshire
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Kier Group

#231520

Postby AsleepInYorkshire » June 23rd, 2019, 12:00 pm

Kier Group
http://tools.morningstar.co.uk/uk/stock ... 0P00007OJ4]3]0]E0WWE$$ALL
https://www.londonstockexchange.com/exc ... ml?lang=en

A Tier 1 Construction Group
Strategic Review Conclusions & Indebtedness Update 17th June 2019

RNS
https://www.londonstockexchange.com/exc ... 12396.html

Retaining
- Regional Building
- Infrastructure
- Utilities
- Highways

Sell or Exit
- Kier Living (NAV £120M excl £60M for some land, not for imminent development, retained on Group Balance Sheet)
- Property (Reduce allocated capital from £184M to £100M by 2020)
- Facilities Management (Exit in due course. No back up figures)
- Environmental Services (Exit in due course. No back up figures)

Residential ("Kier Living")
- The sale of Kier Living is expected to provide financial benefits beyond a reduction in net debt due to the release of associated working capital and a reduction in the Group's use of supply chain financing and off-balance sheet debt.

Property
- At a minimum, the average level of capital allocated to the Property business is expected to be reduced to £100m in FY2020. In the six months ended 31 December 2018, the average level of capital invested in the business was £184m.

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

I've been looking over the numbers this week. The way Kier have been reporting [with the benefit of hindsight] seems to indicate [solely in my humble opinion] they have been "trying to polish the proverbial turd."

September 20th 2018 RNS
Final Results Year Ending 30th June 2018
https://www.londonstockexchange.com/exc ... 97536.html Kier Group plc, a leading infrastructure services, buildings and developments & housing group, announces its year end results for the year ended 30 June 2018. Strong market-leading positions and record order books of £10.2bn providing confidence for the future

November 16th 2018 RNS
Kier Group AGM Trading Update
https://www.londonstockexchange.com/exc ... 2GBGBXSTMM
The Board is confident that the Group will meet its FY19 expectations, with the full-year results being weighted towards the second half of the financial year.

November 30th 2018 RNS
Kier Group - Announcement of Rights Issue

https://www.londonstockexchange.com/exc ... 87421.html
Use of proceeds
The net proceeds of the Rights Issue of approximately £250 million will enable the Group to accelerate its net debt reduction programme announced on 20 September 2018, allowing it to forecast a net cash position as at 30 June 2019 and to target an annualised average net debt:EBITDA ratio of less than 1x.

The net proceeds will be used to pay down part of the balance drawn under the Group's revolving credit facility. The Group may draw additional amounts from the revolving credit facility in the future for working capital purposes
(including to make payments to the supply chain).

January 22nd 2019 RNS
Kier Group - CEO Leaving Immediately
https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/KIE/13942027.html
The Board is confident that the Group will meet its expectations for the financial year ending 30 June 2019, with the full-year results being weighted towards the second half of the financial year, as usual.

January 22nd 2019 RNS
Kier Update Trading Update

https://www.londonstockexchange.com/exc ... 42050.html
Balance Sheet
The Group's balance sheet at 31 December 2018 has been strengthened following the receipt of the £250m net cash proceeds of the recent rights issue and the Group remains on track to report a net cash position at the year-end (30 June 2019). As at 31 December 2018, the Group's net debt was c.£130m (31 December 2017: £239m), reflecting the rights issue proceeds and the acceleration of supply chain payments, as expected. The average month-end net debt for the six months ended 31 December 2018 was c.£370m, as compared with £410m for the six months ended 30 June 2018.

March 20th 2019 RNS
Results for the six months ended 31 December 2018

https://www.londonstockexchange.com/exc ... 08302.html
the Group is maintaining its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected."

April 15th 2019 RNS
Appointment of Chief Executive & Strategic Review

https://www.londonstockexchange.com/exc ... 40305.html
Kier also announces that Andrew Davies will lead a strategic review of the Group which will consider ways of further simplifying Kier to create a more focused group, the allocation of capital resources across the Group and additional steps to improve cash generation and reduce leverage.

May 7th 2019 RNS
Board Change

https://www.londonstockexchange.com/exc ... 63762.html
Kier Group plc (the "Company") announces that its Finance Director, Bev Dew, will stand down from the board of directors

June 3rd 2019 RNS
Update on trading, FPK programme, strategic review

The Group's underlying operating profit for FY2019 will be c. £25 million lower than previous expectations and that the Group is likely to report a net debt position as at 30 June 2019

June 17th 2019
Conclusions of strategic review, significant refocusing of Kier and update on indebtedness

In recent years, the Group has grown substantially, including through acquisitions. This strategy added a number of highly attractive businesses to the Group, including Highways, Utilities and Rail. However, the strategic review concluded that, during this period, there was insufficient focus on cash generation and that the Group today has debt levels that are too high. It also concluded that the Group's portfolio is too diverse and contains a number of businesses that are incompatible with the Group's new strategy and working capital objectives.

In my opinion the outgoing CEO has convinced himself that growth was more important than a robust balance sheet. However, he's had the support of the board and as such they need to accept full responsibility accordingly. I perceive a severe miscalculation of risks associated with plans and visions and complete intransigence when those risks have unfolded to become reality. Not all stakeholders are now in a good financial place. All of course nothing more than my humble opinion.

Numbers
I genuinely cannot establish how much debt Kier have. That may be due to my lack of financial acumen when it comes to reading a balance sheet.
I've attempted to work through where Kier are heading financially. Caveated accordingly - could be like trying to plat fog .

Net debt (544) http://tools.morningstar.co.uk/uk/stock ... encyId=BAS
Debt Reduction (Over 2 Reporting Years)
- Sell Kier Living +150 (Noting there should be some debt with the sale so NAV £120+ some debt)
- Reduce Property Cash Allocation +84 (as RNS)
- Reduce O/H Costs +55 (as RNS)
- Margin (Revised) +120 (Reduced turnover reducing margins)
- Reorganisation costs (speculative) -20

Revised debt 155
Margins 60pa
Reinstated dividend @ x2 cover 30pa
Dividend 13p (if reinstated in 3 years time)

I'd welcome feedback on the numbers - it's more probable that there will a a much broader range over which these number could fall. And I could have the wrong debt levels at the top of the calculation which would [obviously] have an impact.
I don't hold this stock

AiY

JoyofBrex8889
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Re: Kier Group

#231527

Postby JoyofBrex8889 » June 23rd, 2019, 12:25 pm

The words one never wants to hear about a company: "off-balance sheet debt"

If its off balance-sheet HTF can we value the business?

My honest opinion: When one invests one is investing with a management team. The sequence of management comments here:everything rosy to - oh crap firesale because cash is too tight to mention, all in a short period. It is not encouraging me to buy in.

I have other shares where when the management team make a statement I know I can trust them: That things are just as described and they will make plans happen with a reasonable degree of confidence. Here, not so much.

So if I dont have faith in management, why would I bother? The new guys will kitchen sink the bad, and that could well result in more short term weakness in the share price, and who knows what other skeletons will be exposed when the new broom sweeps through?

In short, its just too risky.

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Re: Kier Group

#231534

Postby monabri » June 23rd, 2019, 12:59 pm

Here's a company with very low margins ( ROCE of 3%!) just about to flog off what is (currently) the most profitable part of the business ...house building. To what extent has the jewel in the crown been propping up the rest of the business?

What's left after the sale ..,lots of probably low margin contracts to carry out and bags of room to screw up on one or two contracts ( Interserve Energy for Waste, anyone?).

Then we have the share price fall and the failed rights issue ...

Too many red flags.

..............................................................
For info

Housebuilders ROCE
Taylor Wimpey..22%
Persimmon..31%
Barratt Dev ...18%
Crest Nicholson..14%

TheMotorcycleBoy
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Re: Kier Group

#231554

Postby TheMotorcycleBoy » June 23rd, 2019, 2:53 pm

I can't write very well, cos I'm on the tablet :? Apollogies in advance

1. For AiY, the way id use to calculate net debt the latest AR (google kier investor relations and fol?ow yer nose)

Then open the latest AR and search for "group" or "consolidated" balance sheet. Look at the current assets section and tkae as positive
i. Cash and equivalwnts
ii. Marketable investments
and for negatives look in the current and noncurrent liabilties and grab
i. lines marked borrowings,debts or loans
ii. Check out any other liabilities that have an "interest" component (see if there is a numbered note and if so go there and if int. ismentioned)

Sometimes people may consider pension liabilty as debt too.

2. For JoyOfbrex consider that an obligation to pay a rent or lease (what about machinry?) As off balance sheet debt perhaps?

3. For monabri a friend of a friend, works in kier. He does surveying and drawings (buildings perhaps?). Apparently this is of the "better" parts.

HTH
Matt

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Re: Kier Group

#231562

Postby JoyofBrex8889 » June 23rd, 2019, 4:02 pm

If return on capital employed is below the cost of capital it really can only end badly. ROCE 3% is a sign of a not very good business. However the 2018 AR claims ROCE of 15%.

As the AR is a ridiculous 196 pages long, I really can’t be bothered to dig to check their calcs. Warren Buffet can succinctly deliver the Berkshire Hathaway Annual Report in about a dozen pages, including the accounts, and that is a truly vast enterprise. 200 pages of corporate pseudo-PowerPoint is really not endearing Kier to me.

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Re: Kier Group

#231565

Postby TheMotorcycleBoy » June 23rd, 2019, 4:23 pm

JoyofBrex8889 wrote:If return on capital employed is below the cost of capital it really can only end badly. ROCE 3% is a sign of a not very good business. However the 2018 AR claims ROCE of 15%.

As the AR is a ridiculous 196 pages long, I really can’t be bothered to dig to check their calcs. Warren Buffet can succinctly deliver the Berkshire Hathaway Annual Report in about a dozen pages, including the accounts, and that is a truly vast enterprise. 200 pages of corporate pseudo-PowerPoint is really not endearing Kier to me.

The Uk firms usually do very waffly ARs.

FWIW, I just download the .pdf to PC, open in a regular PDF viewer, then search for a key word e.g. "income statement" or "balance sheet" etc.

Simples.

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Re: Kier Group

#231568

Postby Alaric » June 23rd, 2019, 4:45 pm

TheMotorcycleBoy wrote:The Uk firms usually do very waffly ARs..


From
https://www.kier.co.uk/media/3676/kier- ... _final.pdf
page 11, Intangible Assets (£ million) 829.9. That's a big slug of "could be worth absolutely anything" if you marked to market.

Page 146 of the Report & Accounts gives a breakdown as of 30th June 2018.

Goodwill 560
Intangible Contract Rights 275
Computer Software 152

That's not to say the accounting treatment is in any way invalid, it's just that "intangibles" can disappear at the stroke of a pen. Later in the report it discloses that it had been making acquisitions at a greater cost than book value. Goodwill is the balancing item to prevent the posting of an immediate loss.

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Re: Kier Group

#231573

Postby TheMotorcycleBoy » June 23rd, 2019, 5:20 pm

From 2018 AR see page 121:

Current liabilities
Borrowings (12.0)
Finance lease obligations (4.0)

Non Current liabilities
Borrowings 20 (524.9)
Finance lease obligations (3.1)

About -544 gross debt

From Curret assets
Cash 330.9

:. net debt abot 214

Total equity 601

So debt ratio about 34% not too bad.

Interest cover see page 118
operatingprofit/interest = 160.0/23.1 = 6.95 (over 5 so not too bad)

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Re: Kier Group

#231576

Postby TheMotorcycleBoy » June 23rd, 2019, 5:23 pm

Worse problem? Intangible assets are 862 bigger than equity 601. So if they contracts hold little value, then I guess they'd not be an attractive takeover target.

AsleepInYorkshire
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Re: Kier Group

#231583

Postby AsleepInYorkshire » June 23rd, 2019, 5:59 pm

Alaric wrote:
TheMotorcycleBoy wrote:The Uk firms usually do very waffly ARs..


From
https://www.kier.co.uk/media/3676/kier- ... _final.pdf
page 11, Intangible Assets (£ million) 829.9. That's a big slug of "could be worth absolutely anything" if you marked to market.

Page 146 of the Report & Accounts gives a breakdown as of 30th June 2018.

Goodwill 560
Intangible Contract Rights 275
Computer Software 152

That's not to say the accounting treatment is in any way invalid, it's just that "intangibles" can disappear at the stroke of a pen. Later in the report it discloses that it had been making acquisitions at a greater cost than book value. Goodwill is the balancing item to prevent the posting of an immediate loss.


Yes. I too think the intangibles look heavy. I'm not entirely sure how to view these either in the present or as part of a projection of future earnings. Would it be correct to say that although they could erode in value it wouldn't mean a direct increase in debt or a decrease in earnings?

AiY

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Re: Kier Group

#231584

Postby Alaric » June 23rd, 2019, 6:06 pm

AsleepInYorkshire wrote: Would it be correct to say that although they could erode in value it wouldn't mean a direct increase in debt or a decrease in earnings?



I think that's correct. A way of looking at it is to view them as if Keir was an Investment Trust like Woodford Patient Capital holding unquoted Companies. If the accounts of the IT thought the holdings were worth what they had purchased them for, but the market disagreed, you would likely see the IT go to a discount against NAV. Similarly it would seem with the Keir share price.

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Re: Kier Group

#231590

Postby AsleepInYorkshire » June 23rd, 2019, 6:28 pm

Alaric wrote:
AsleepInYorkshire wrote: Would it be correct to say that although they could erode in value it wouldn't mean a direct increase in debt or a decrease in earnings?

I think that's correct. A way of looking at it is to view them as if Keir was an Investment Trust like Woodford Patient Capital holding unquoted Companies. If the accounts of the IT thought the holdings were worth what they had purchased them for, but the market disagreed, you would likely see the IT go to a discount against NAV. Similarly it would seem with the Keir share price.

Many years ago. Too many to really want to be accurate about I worked for a large volume house builder. Beazer. The company was bought by Hanson Group. At the time we were called into a meeting with our then MD. He said that the two main assets of a House Builder were the land it owned and it's employees. I've carried that comment with me since as I think it accurately described (or at least for me) how to value a house builder. I'm not entirely sure if it relates to a Civils Company although I suspect it isn't too far from the truth. And what lingers at the front of my mind is the massive hit Warren Buffett has taken recently on the value of a brand, viz, Heinz. I'm struggling to think of anything in the way of an intangible that would be worth significant amounts when I look at Kier. With thanks to MBB for providing the breakdown.

Noting that my debt figure in the opening post looks correct (or thereabouts) has anyone else looked at any rough projections of earnings?

AiY

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Re: Kier Group

#231596

Postby TheMotorcycleBoy » June 23rd, 2019, 6:54 pm

Intangibles aren't necessarily bad. For instance a software package developed in-house is a good example of one. So too is a licence for Windows 10.

(Note those two examples would appear on the BS, but the esoteric "worth of the employees" like that MD referred would not,in general)

Matt

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Re: Kier Group

#231598

Postby Alaric » June 23rd, 2019, 7:02 pm

TheMotorcycleBoy wrote:(Note those two examples would appear on the BS, but the esoteric "worth of the employees" like that MD referred would not,in general)


It can do though. It's when one Company buys another Company. If it pays over the odds according to the net asset value of the Company taken over, the difference gets posted to "goodwill". A plausible reason for seemingly paying over the odds could be to gain access to the employees.

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Re: Kier Group

#231602

Postby TheMotorcycleBoy » June 23rd, 2019, 7:32 pm

Alaric wrote:
TheMotorcycleBoy wrote:(Note those two examples would appear on the BS, but the esoteric "worth of the employees" like that MD referred would not,in general)


It can do though. It's when one Company buys another Company. If it pays over the odds according to the net asset value of the Company taken over, the difference gets posted to "goodwill". A plausible reason for seemingly paying over the odds could be to gain access to the employees.

My post was talking of intangibles due the firm itself, as opposed to "accounting goodwill" formed after an acquisition.

I believe that the unvalued (ie not on the balance sheet) worth of ones brands or employees is called "economic goodwill". I think!

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Re: Kier Group

#232029

Postby TheMotorcycleBoy » June 25th, 2019, 7:17 pm


AsleepInYorkshire
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Re: Kier Group

#232044

Postby AsleepInYorkshire » June 25th, 2019, 8:44 pm

TheMotorcycleBoy wrote:From ii latest short position on K
https://www.ii.co.uk/discussion/t/8-82- ... ed/1149204


I don't agree with the shorters on this one - but I think that's probably more subjective than analytical. They probably have far better insight than I do. It would be interesting to look deeper into the future income streams and understand the potential for customers to place contracts elsewhere. Unless "government" can prove substantially that Kier are either likely to default or have already defaulted then I don't think they will have either the authority or more likely the appetite to re-tender work streams already with Kier.

There's always the chance that Kier haven't fessed up everything, especially if the new CEO hasn't looked under all the carpets yet.

AiY

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Re: Kier Group

#232062

Postby Crazbe7 » June 25th, 2019, 11:07 pm

Fairly safe to say that the largest contracts that Kier has on its books going forward are two sections of HS2 in a 50:50 JV with Effiage of France following the demise of Carillion as the third member of the JV. The indicative value for Lots C2 & C3 was £1.4Bn, but this will have undoubtedly increased as the design has progressed.

If HS2 is delayed or postponed, Kier like all Tier 1 contractors will be scrabbling around to secure any major construction projects they can find.

It would be a great time to be a client for major infrastructure but not an ideal scenario for investors in Tier 1 contractors.

Crazbe7

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Re: Kier Group

#232065

Postby AsleepInYorkshire » June 25th, 2019, 11:18 pm

Crazbe7 wrote:Fairly safe to say that the largest contracts that Kier has on its books going forward are two sections of HS2 in a 50:50 JV with Effiage of France following the demise of Carillion as the third member of the JV. The indicative value for Lots C2 & C3 was £1.4Bn, but this will have undoubtedly increased as the design has progressed.

If HS2 is delayed or postponed, Kier like all Tier 1 contractors will be scrabbling around to secure any major construction projects they can find.

It would be a great time to be a client for major infrastructure but not an ideal scenario for investors in Tier 1 contractors.

Crazbe7


Good point. If HS2 is delayed can Kier claim loss and expense? If not I'd suggest the shorters have found the weakness in Kier's turnaround strategy.

AiY

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Re: Kier Group

#232086

Postby Crazbe7 » June 26th, 2019, 7:20 am

Good point. If HS2 is delayed can Kier claim loss and expense?

No, because like all HS2 civils contractors they are being paid to develop the final target cost through an Early Contractor Involvement (ECI) phase.

They have only been awarded a contract for the ECI phase. No design and build contracts have been awarded for the construction phase, although I'm sure some are banking on contracts being awarded.

Crazbe7


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