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Kier鈥檚 management has promised to address the contractor鈥檚 spiralling debt after reporting a 17% increase in net debt in its latest results.

With speculation rife around its debt position and investors shorting its shares amid concerns about its future, the contractor said average net debt had risen to around 拢375m, which it said was the result of the timing of investment in property and residential assets throughout the 12 months to the end of June, the acquisition of McNicholas and the creation of its joint venture with Homes England.

It also blamed weak construction volumes in the first half followed by a strong recovery late in the second six months.

Kier鈥檚 chief executive Haydn Mursell (pictured) said the 鈥楩uture Proofing Kier鈥� programme, launched in June, would streamline the business, 鈥渆nabling us to deliver a more efficient service to clients, respond to changes in our markets and capitalise on growth opportunities, whilst, importantly, also accelerating the reduction of the group鈥檚 net debt position.

鈥淢anagement recognises the need to address [the situation] and a net debt improvement plan is underway, driven by expected overall free cash flows of 拢20m to 拢40m a year and the additional benefits of the 鈥楩uture Proofing Kier鈥� programme of at least 拢20m in the 2020 financial year.鈥�

Mursell said the firm was aiming for a net debt position of around 拢250m and a year-end net cash position at the end of its 2021 financial year.

The contractor reported overall annual turnover for the 12 months to the end of June 2018 of 拢4.5bn, up 5%, and operating profit of 拢160m, an operating margin of 3.6%, slightly ahead of last year鈥檚 3.4%. Pre-tax profit came in at 拢137m, up 9%.

Kier鈥檚 services division, which generates more than half its operating profit, saw turnover rise by 10% to 拢1.85bn, with operating profit up 7% at 拢93m, while its order book grew just under 11% to 拢5.2bn.

The group鈥檚 construction arm generated 拢2.1bn in revenue, level on a like-for-like basis with last year, while operating profit rose 5% to 拢42m and operating margins of 2%, level with last year. The division鈥檚 order book rose 19% to 拢5bn.

Kier, which is on site with a 13-storey scheme to build a 192-bed hotel on London鈥檚 Blackfriars Road that will be operated by hip hotel group Hoxton, said the combined construction and services order book of 拢10.2bn grew 15%, including the McNicholas order book.

Residential activity generated an operating profit of 拢26m, up 14%, on flat turnover of 拢374m, while its property division saw turnover rise by a fifth to 拢218m and operating profit increase by nearly a third to 拢34m.

The group said its supply chain in the construction and open market residential business could take part in an early payment scheme and choose to access payment from a group of banks after 21 days rather than the contractor鈥檚 normal 60 day payment terms. Kier then pays the participating banks directly after around 90 days. 

Kier said the 拢185m early payment balance was 6% lower than last year鈥檚 figure.

Despite its debt situation, Kier rewarded investors with a 2% increase in the dividend payout to 69p a share.

The City liked the figures, nudging the group鈥檚 share price up by 3.3% in afternoon trading. 

Cenkos analyst Kevin Cammack said the good news was that there were 鈥渘o surprises at all that I can see in the numbers鈥�. 

He went on: 鈥淧lus there were no exceptionals, and the group is setting targets on debt reduction by 2021 that include full elimination of its year end 拢186m position and a reduction in average debt of 拢125m to 拢250m.鈥�