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Cash-rich construction earns Kier 11m interest
21:00 21 Sep 2005
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The 1bn turnover in Kier's construction division produced an operating profit of 15m last year. And with the business being cash-positive to the tune of more than 200m, there was an additional 11m bonus from the interest earned on the sum.
Since June 1998, the cash generated by Kier Regional, one of the group's construction activities, has increased steadily from 83m to 235m.
Chief executive John Dodds said: "We made a 1.4% operating margin in construction activities, plus a 1.1% margin from interest on the cash in the business.
"Some risks in construction are under our control and others are under our influence. We are risk averse. We're not heroes and, generally, we avoid large contracts like the plague.
"The tunnels we built on CTRL were an exception, but that contract, a joint venture, was target cost re-reimbursable.
"A good example of how we try to influence clients can be found in ProCure 21, where we have 160m-worth of work. Most is won under negotiation and will have a fixed margin. You spend an inordinate time with your construction team negotiating with each trust.
"It might be slow but you get paid for this element of the work and when you start, the risk profile has been dramatically changed.
"At the moment, 59% of our construction work is negotiated on a one-to-one basis or comes through a two-stage bid where you spend several months developing the scheme before reaching a final cost," said Dodds.
The 26m pre-tax profit Kier made in its construction businesses was 1m higher than the figure achieved by the group's housing operation.
Latest annual results (12 months to 30 June 2005) show group turnover higher at 1.6bn (1.5bn).
The group's pre-tax profit was up by nearly half to 58m, although the latest figure was enhanced by exceptional items running to 6.7m, part of which was the 2.1m exceptional profit when Kier's 25.5% investment in the Neath Port Talbot Hospital PFI concession was sold to Secondary Market Infrastructure Fund UK for 5m.
Kier's pension scheme has a deficit of 82m. Liabilities rose by 90m during the past 12 months to 510m. The main problem was the reduction on bond yields - a 1% change in bond yield hits Kier's scheme's deficit figure to the tune of 75m as 40% of the scheme's assets are in bonds.
There has been a big push to cut back the deficit. In addition to the normal 12.5m annual contribution, Kier put in an extra 12m during the past year. "We are being responsible," Dodds said.
Since June 1998, the cash generated by Kier Regional, one of the group's construction activities, has increased steadily from 83m to 235m.
Chief executive John Dodds said: "We made a 1.4% operating margin in construction activities, plus a 1.1% margin from interest on the cash in the business.
"Some risks in construction are under our control and others are under our influence. We are risk averse. We're not heroes and, generally, we avoid large contracts like the plague.
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"The tunnels we built on CTRL were an exception, but that contract, a joint venture, was target cost re-reimbursable.
"A good example of how we try to influence clients can be found in ProCure 21, where we have 160m-worth of work. Most is won under negotiation and will have a fixed margin. You spend an inordinate time with your construction team negotiating with each trust.
"It might be slow but you get paid for this element of the work and when you start, the risk profile has been dramatically changed.
"At the moment, 59% of our construction work is negotiated on a one-to-one basis or comes through a two-stage bid where you spend several months developing the scheme before reaching a final cost," said Dodds.
The 26m pre-tax profit Kier made in its construction businesses was 1m higher than the figure achieved by the group's housing operation.
Latest annual results (12 months to 30 June 2005) show group turnover higher at 1.6bn (1.5bn).
The group's pre-tax profit was up by nearly half to 58m, although the latest figure was enhanced by exceptional items running to 6.7m, part of which was the 2.1m exceptional profit when Kier's 25.5% investment in the Neath Port Talbot Hospital PFI concession was sold to Secondary Market Infrastructure Fund UK for 5m.
Kier's pension scheme has a deficit of 82m. Liabilities rose by 90m during the past 12 months to 510m. The main problem was the reduction on bond yields - a 1% change in bond yield hits Kier's scheme's deficit figure to the tune of 75m as 40% of the scheme's assets are in bonds.
There has been a big push to cut back the deficit. In addition to the normal 12.5m annual contribution, Kier put in an extra 12m during the past year. "We are being responsible," Dodds said.
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