Last week we reported that analysts from Company Watch had given Kier鈥檚 finances a Health Score of just 14 out of 100, putting firmly in the danger zone of vulnerable companies. ()
However, Mr Mursell, Kier鈥檚 finance director until taking over from Paul Sheffield as chief executive in July, said that Company Watch鈥檚 analysis was 鈥渇ar from reflective of Kier鈥檚 actual operational health or financial performance鈥�.
He said that the low Health-Score was 鈥渓argely a reflection of our acquisition of May Gurney鈥�, a takeover that took place in July 2013.
He added: 鈥淚t鈥檚 important to take the wider financial and operational context into account, rather than relying on certain ratios in isolation. In reality we posted a strong set of preliminary results on 18 September, receiving a very positive reaction from our investors.鈥�
Mr Mursell has been described by Kier chairman Phil White as 鈥渁 driving force behind our acquisition of May Gurney and he has played an integral role in enabling the business to reap the rewards of that strategic investment鈥�.
In a robust defence of Kier鈥檚 latest accounts, Mr Mursell said: 鈥淭he increase in gross debt results mainly from the cash impact of the acquisition totalling circa 拢110m, comprising cash consideration of 拢39m, debt acquired of 拢37m and one-off exceptional integration costs of circa 拢30m.聽 And the substantial increase in our intangible assets (including goodwill) of circa 拢300m represents the future profits that will be generated by the acquired business from 拢1.7bn of well-established long term contracts.
鈥淚n return the acquisition has been transformational for the group, generating substantial growth, major new contract wins and wider operational synergies.聽 In the first year of integration we increased the margin of our Services division to 4.8%. Our combined offering has given us unrivalled breadth and scale, supporting a raft of high value contract wins across core sectors, like 拢250m of work from AMP6 and 拢107m contract from a major energy provider in utilities, to major expansions and extensions of our highways contracts and a range of maintenance contracts from housing association clients. The acquisition has enabled us to fully address substantial markets, ahead of the majority of our competitors, and these are markets which continue to grow and offer new scope.
鈥淗owever we are not complacent about managing the cost impact of the acquisition. We have already delivered 拢5m of cost synergies and are on track to deliver 拢15m of savings in the current year and 拢20m in FY16.聽 Given the excellent long-term visibility of revenues on contracts, which have contributed to our 拢6.2bn order book, we look forward to leveraging the benefits of acquiring May Gurney long after any acquisition costs have been absorbed by the business.
鈥淲e also maintain some of the best construction margins compared to our genuine peer group, well above those quoted in the digest as an average for the industry. I can appreciate the desire to aggregate the overall industry鈥檚 performance to try to track wider trends, but it can be misleading, when there are a wide variety of operating models in use.聽 For example at Kier we are able to leverage our specialist sector expertise and position on large scale frameworks to secure stronger margins.
鈥淓qually the critique on a perceived lack of working capital or liquidity fails to take into account the way that Kier Group uses cash generated by the Construction and Services divisions to channel back into our higher margin Property division.聽 This model enables us to generate strong margins of 15% on capital invested, which is not only financially sound but also provides investment in a related market, which generates additional work for our Construction division.
鈥淯ltimately it has all led to a record turnover and increased profits, which has resulted in increased underlying earnings per share.聽 And the increased dividend, well that reflects the board鈥檚 confidence in the Kier Group going forward.鈥�
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