Falling price of recyclables sees Kier take financial hit

Kier Group is setting aside £35 million to cover future expenses to its council collection services caused by the falling price of recyclates, a company trading update announced yesterday (4 July).

Since the last trading update in March, the group’s trading performance has remained in line with management’s expectations, with the EU referendum result creating ‘some uncertainty albeit with no impact on the business to date’.

However, the update states that the financial performance of the environmental services business ‘continues to be affected by the low oil price’ and therefore the price of recyclate, ‘despite stable operational performance at contract level’.

As a result, the group has announced that a provision of £35 million will be taken this year to provide for all future cash outflows on the business’s two environmental contracts in East Sussex and Cheshire West & Chester.

The two contracts were both agreed in 2012, with the former, with the East Sussex Joint Partnership running for 10 years (with an optional 10-year extension) and the other, with Cheshire West & Chester Council, running for eight.

The East Sussex contract, worth £120 million, requires Kier to deliver waste and recycling collections, street and beach cleansing to 200,000 properties over a 550 square mile area covered by the partnership councils of Eastbourne, Hastings, Rother and Wealden.

In 2013, Kier took over the £126 million Cheshire West & Chester contract when it completed the takeover of May Gurney, which had taken on the contract the previous year. The contract was one of around 20 transferred after the completion of the takeover, which was believed to be worth around £221 million.

Overall, the Kier Group, which operates divisions specialising in property, residential, construction and services including highways, water and waste, was left with a net debt position of less than £140 million at the end of June, beating forecasts of £150-170 million after an ‘improved cash performance’.

The trading update states: ‘The acquisitions of May Gurney and Mouchel [an international infrastructure and business services group, in 2015] have significantly increased the level of visible, long-term earnings from our construction and services divisions. The property division has a healthy pipeline of projects totalling more than £1 billion, largely comprising non-speculative schemes, and the residential division’s mixed tenure business has a pipeline of over £600m.’

The £35 million set aside for future expenses for the environmental services division contributes to £53 million of exceptional charges that will be accrued following a simplification of the group’s portfolio now that the integration of May Gurney and Mouchel is complete.

The trading update explains: ‘As a result, a review has been undertaken of those operations which do not meet the group’s strict financial hurdles and/or do not provide a long-term strategic fit with the group’s core businesses.’

Provisioning of the £35 million is expected to take place in the coming months.