Kier has posted 2.2% construction margins in its latest results, an increase from 2% a year ago, making it one of the best performers in the sector.
Margins among major contractors have been erratic during 2015, with rising staff and supplier costs putting pressure on the bottom line as the industry emerges from the recession.
Galliford Try, which announced its full-year results earlier this week, reported a construction margin of just 1.2%, and last month Interserve said its construction margin had dropped from 1.9% to 1.1% for the first half of 2015.
However, Carillion said in July it forecast a construction margin of “2.5% to 3%… over the next 12 to 18 months”, while Skanska reported a 2.4% margin for the first half of this year, after posting 3% in 2014.
Revenue in Kier’s construction business was up by 15% to £1.7bn (2014: £1.5bn) for the year to June 2015. Underlying operating profit increased 25% to £37.7m (2014: £30.2m).
Overall, group revenue rose 14% to £3.4bn and pre-tax-profit was up 17% to £85.9m. Group orders stand at £9.3bn.
Kier’s services division lifted its revenue 13% to £1.25bn, with an underlying profit of £58m. Its residential business grew turnover 10% to £257m, with operating profit up 45% to £11.2m. Property revenue totalled £126m, and underlying profit stood at £22.7m.
“Economic confidence is returning to our core markets. In construction, the regional building business has an established position on public and private sector frameworks and our infrastructure business is benefiting from continued greater investment by the UK government in infrastructure.”
Haydn Mursell, chief executive, Kier Group
The group said its healthy results were “underpinned by a strong performance in the construction division”, reflecting “significant market and contract growth over the period, particularly within the core regional building business”.
The order book of “secured and probable” work for construction stands at £3.3bn, equivalent to 95% of forecast revenue for the 2016 financial year.
Kier Group chief executive Haydn Mursell said: “Economic confidence is returning to our core markets. In construction, the regional building business has an established position on public and private sector frameworks and our infrastructure business is benefiting from continued greater investment by the UK government in infrastructure.”
Kier describes itself as “the industry’s leading regional builder” and was recently selected for the £1.5bn Scape National Minor Works Framework.
In services, the Mouchel acquisition has made Kier the sector leader in UK highways management and maintenance; it runs roughly one third of the country’s roads. The firm was recently awarded one of Highways England’s largest Smart Motorway Programme contracts worth up to £475m, in joint venture with Carillion. The initial £129.5m contract covers works on the M6, with future works on the M6, M20 and M23.
Kier said it was “contributing to the development and delivery” of the National Infrastructure Pipeline strategy, “particularly in the transport and power sectors”. It recently confirmed its joint venture partnership with Carillion and Eiffage for HS2.
Mursell said: “We are committed to offering a full, integrated approach to our clients by maximising the breadth and combination of capabilities available in the group, assisting them to address the budget challenges they face.
“We continue to simplify the portfolio and restructure our businesses and invest in our future growth. We continue to improve the quality of our earnings to reflect the changing demands of our markets. With a £9.3bn order book, a strong balance sheet and continued progress on our Vision 2020 goals this year, we look forward to the future with confidence.”
