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Kier’s biggest challenge is yet to come

Kier chief executive Andrew Davies completed a couple more steps from the playbook of a ‘CEO doing a turnaround’ this morning. He announced a whacking great writedown and insisted that things would be different from here on out.

Aside from facing up to Kier’s problems by making the writedowns, there were other encouraging signs of progress.

A new commercial director has been appointed with the explicit task of instilling bid discipline, so hopefully there will be no more Broadmoor Hospitals or Mersey Gateways. Although loss-making jobs have not been as big a problem for Kier as some of its peers.

The company is also making efforts to be more transparent with its reporting, starting by presenting its order book minus the HS2 work, which no longer looks certain.

I have taken issue with Kier’s habit for financial restatements before. It was good to see its small mining operation, Kier Minerals, brought back into the profit before exceptional items figure after doing the hokey-cokey for a few years with it being, at various points, excluded and included in the pre-tax numbers.

And crucially for Kier PLC, the market responded well to Mr Davies’ actions, with its share price actually up marginally at the end of the day.

We can be under no illusions though: the hardest part of Kier’s turnaround is yet to come.

Disposing of its housebuilding interests is the massive hurdle that must be cleared before it can be seen as being on any sort of home stretch towards prosperity and stability. Doing so will help reduce its debt.

Mr Davies revealed little about how that was progressing other than to say that Kier had “a handful of very engaged buyers” interested and that enquiries about its housing assets were made before Kier had even said it wanted to sell them.

The impression given is that selling the business will be fairly trivial. But it appears to be far from that.

As I have pointed out before, Kier is a seller in a buyers’ market.

The state of the market was made clear this week when low-cost housebuilder MJ Gleeson canned its planned sale of land. It didn’t do that because there were too many buyers.

As one analyst put it to me this morning, if the buyers for Kier Living are so “engaged”, then why hasn’t there been a concrete offer months after Kier said it was up for sale?

Kier might have to cut its price, and with average month end net debt still uncomfortably high at £422m, it can’t afford to hang around for too long.

Mr Davies faces other challenges, too. As the company disclosed today, work levels for the highways maintenance business are down and expected to be down next year too.

And of course, this is all happening in a market rife with uncertainty and worrying signs that it could tip into a bigger downturn over the next year.

In his first appearance this morning as Kier CEO, Mr Davies availed himself well, laying down a clear marker for where the business is and where he wants to take it.

But navigating the route will provide a much sterner test.

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