Kier shares plummet after £25m profit warning

Construction and services company Kier shocked investors this morning with the news that its operating profit will be £25m lower than previously forecast this year.

The group, which is listed as one of the government’s top external suppliers of public services, also said the cost of its “Future Proofing Kier” company reform programme, launched at a difficult time for outsourcers, will be around £15m higher than expected. Shares fell 40% after today’s announcement.

The collapse of Carillion in January 2018 followed by Interserve’s administration in March has piled the pressure on the outsourcing industry and the Cabinet Office has since been forced to write a new rule book for how it procures public services from the private sector.

The outsourcing firm added today that it was likely to report a net debt position as of 30 June, having previously forecast it would be in the black. Kier’s net debt at the end of last year was £180.5m.

Kier said: “The group continues to experience volume pressures within its highways, utilities and housing maintenance businesses”. It said the higher costs of its reform programme “reflects an acceleration of the programme following the appointment of Andrew Davies as chief executive”.

Kier will provide updated guidance for full-year 2020, with its full-year 2019 preliminary results announcement on 19 September.

The news will add to nervousness in government circles about the outsourcing sector and raise further questions about major project delivery. New measures announced in February included changes to how government allocates risk between itself and its suppliers, to ensure contracts are set-up for success and the public are provided with the best possible service.

The government is also taking steps to improve the design of outsourcing projects from their inception. New complex contracts will be piloted with the private sector before rolling out fully, enabling the government to learn from experience and deliver better public services.