Mouchel is an infrastructure and engineering company, predominantly involved in building and servicing highways as well as infrastructure for utilities companies. There are obvious synergies and the preliminary results offered an opportunity for Kier to update shareholders on how Mouchel has been integrated into Kier’s business.
The results were broadly positive. Both revenue and underlying profit rose due to Mouchel’s contribution, but importantly like-for-like revenue was up 8%. The progress in integrating Mouchel is well underway and expected to be cash positive in the 2017 financial year, despite significant costs. The recent results follow on from the announcement from the UK government that Hinkley Nuclear Power Station is going ahead, a project in which Kier has won a significant contract as part of a joint venture.
Kier has laid out a “Vision 2020” plan of key targets to reach by 2020. This, among other objectives, involves reducing the debt and achieving double-digit profit growth on average each year. These may seem ambitious in this sector, as it can be hard to predict cash flows due to large projects providing lumpy income. However the company currently has an order book of £8.7bn and has gradually increased the amount of service contracts compared with the less predictable capital projects. This has helped smooth the company’s income and with a management proven to be highly competent at bidding for new projects Kier is a strong company in the sector. Time will tell whether they are able to achieve their ambitious targets.
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