When Kier published its annual results last month, many expected the worst. Some had already taken a punt that the contractor was in deep trouble, by shorting its shares in anticipation of bad news and taking the chance to make a financial killing. In the end, the company calmed market nerves with its numbers, showing a 5% jump in turnover to £4.5bn and a 9% rise in pre-tax profit to £137m. While it admitted a 17% increase in year-end net debt to £375m, the firm offered enough in the way of assurances on how it would reduce this over the next two years to ease the pressure on chief executive Haydn Mursell and his colleagues. The shorters have mostly drifted off.

Concerns around Kier may have abated but issues around the way contractors operate remain. They are often heavily indebted, operating in volatile and competitive markets on wafer-thin margins. 

Companies working in the public sector are expected to deliver projects to a high standard, on time and within budget against a backdrop of government spending still being ruthlessly cut back in pursuit of balancing the nation’s books. The flow of government money was not always so sluggish. A decade ago, lured by decent margins for a raft of public sector projects, a number of firms – Carillion being an obvious example – took advantage of historically cheap capital and piled into facilities management operations, some bolting on lucrative activity through acquisitions paid for with borrowed money.

Average net debt has risen […] but many failures can actually be attributed to poor working capital management, contract performance visibility and inappropriate maintenance of cash or liquidity buffers

Michael McCartney, EY

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