Reality has bitten hard and fast for Kier’s new boss Andrew Davies.
Having insisted a fortnight ago that he would wait until July 30 to unveil his strategic rethink, he has seen his share price plummet amid fears he’s running out of cash. Time for Plan B.
The speed of the implosion may have taken him by surprise, but for veterans of Serco, Mitie, Capita, Interserve and, of course, Carillion, less so. Once suppliers fear you’re going under, they very rapidly demand early payment. At the same time, your clients exploit your weakness and delay paying you.
Within weeks, your cashflow disappears and debts rocket. In Kier’s case, by £90 million. Given the speed cash and confidence has been sucked out of the business, Davies had little choice but to launch his plan six weeks early.
The strategy — focus on its core, cash generative businesses and ditch the rest — was the only option he had.
But success is far from assured. Two of the three divisions he’s keeping are extremely high risk; highways building is hugely competitive while infrastructure is a nerve-jangling bet on HS2 and Crossrail 2 happening.
And you have to wonder how much he’ll get for his house-building and property arms. Developers are rarely charitable towards forced sellers.
Also, the facilities management business will fetch barely anything. It’s fundamentally just a collection of contracts. Why would rivals pay a premium for them now when they can just bid for the work when they come up for renewal?
Having said all that, Davies has made the best calls on the iffy bets he has to make. A better, sustainable Kier may emerge.
But it will be a long wait. Besides, logic dictates it will eventually merge with a rival in this troubled industry.
