Firm reassesses value of loss-making waste collection contracts
Kier has downgraded the fair value of the assets it acquired in the May Gurney takeover last July by £45m.
The firm said the downgrade was driven by its revaluation of long-term loss-making waste disposal contracts.
The value of May Gurney on Kier’s balance sheet remains £222m, but a larger portion of this is now listed as goodwill than at the time of the takeover in June 2013.
Goodwill now comprises £192m of May Gurney’s value, up from £147m it estimated in September 2013.
The firm said waste collection contracts with Bristol and Cheshire West and Chester councils “continued to be challenging”.
It added: “This and other areas have necessitated a total £68m fair value adjustment of which £52m predominantly relates to the long duration loss-making environmental contracts.”
These fair value adjustments were partially offset by an increase in the valuation of May Gurney’s intangible assets and tax liabilities and a lessening of its pension obiligations, leading to total downward adjustment of £45m.
The news comes as May Gurney’s final set of accounts were published revealing the same problem contracts had tipped the firm £51m into the red.
In accounts filed at Companies House, May Gurney reported it made a £51m pre-tax loss in the year to 31 March 2013, down from a pre-tax profit of £21m the year before.
Speaking to Building, Haydn Mursell, Kier’s group finance director, said: “When we did due diligence we knew the contracts that would be challenging but the provision [this week] is not materially different to when we did due diligence.”
Earlier this month, chief executive Paul Sheffield announced he would be leaving the business at the end of June and Mursell would takeover as chief executive.
Mursell, said he would not be making any major changes to the firm’s strategy.
He said: “My primary focus, in the short term, is to bed down May Gurney and get the performance exactly where we want it. There’s no indication at the moment that that won’t be exactly where we expect it to be.”
“I will get out and about the business and talk to as many people as I can. I wouldn’t expect a significant change in strategic direction.”
Mursell said he would focus on growing the business organically.
He said: “In construction our growth is going to come from our infrastructure business that has grown from around £150m of revenue three years ago to near on £400m this year.”
He said the upcoming AMP6 regulated spending period in the water sector, which runs from April 2015 to March 2020, showed “a lot of promise”.
“I also want to see our overseas business grow, particularly in the Middle East with the opportunities that we can see,” he said. “Our residential presence will pick-up and the public sector will be reasonably stable.”