‘This industry is absolutely fine…’ Andrew Davies on the naysayers, rescuing Kier and what the firm plans to do next

Andrew Davies has one or two things that he wants to get off his chest. The industry is not broken, as others have claimed, and it’s just not true that the industry can’t build large projects.

“This industry is absolutely fine,” Kier’s chief executive says. “I do get a little bit irritated. This industry is not broken. People should stop saying that. I get frustrated by people saying this stuff because it’s simply not true.

“We’re trying to attract people into the industry, trying to portray it as a great industry with career prospects – and there are great career prospects.”

It’s a really good time to be a tier one contractor in the UK now. We have stability with the government, we’ve been through the Budget

He goes on: “These bland statements, ‘the industry is broken’, it’s simply not true. The proof points are our performance, Morgan Sindall’s, Balfour Beatty’s, I would suggest.

“I would say it’s a really good time to be a tier one contractor in the UK now. We have stability with the government, we’ve been through the Budget. There are lots of known knowns now, as opposed to unknown unknowns.

“You look at our recovery, look at Morgan Sindall, Balfour Beatty. Look at the public companies who are contractors for government and the responsible way the big three are driving performance. This industry is absolutely fine.”

What about the county’s perceived problems building large-scale contracts? “People jump to conclusions about large projects. ‘The UK can’t do it.’ Not true.

“Look at the Elizabeth line – it was a massive success. Yes, it had its issues and there’s a lesson to be learnt, no question about that in terms of systems integration. HS2 needs to learn those lessons. Look at what we’re doing at Hinkley. But we do have to stop this dismal language that the industry is broken.”

Davies is not one to lecture or court the limelight, but he speaks from a position of strength, having painstakingly brought Kier – one of the “big four” UK builders along with Balfour Beatty, Morgan Sindall and privately-owned Laing O’Rourke  – back from the abyss over the past few years. And that makes him well worth listening to.

Before arriving at Kier, he had been due to take up the post of Carillion chief executive – his previous employer, Wates, had let him go early in order to help out their teetering rival – but a week before he was due to start, Carillion went bust. Carillion’s loss, then, was very much Kier’s gain.

The company’s woes came hard on the heels of the Carillion collapse and at his first annual results presentation with Kier, Davies was forced to preside over a £245m loss for the year to June 2019. At his most recent one, in September this year, he was able to say that the firm’s recovery was complete, the symbol of which for many was the payment of its first annual dividend in six years.

The firm’s average month-end net debt at one stage stood at close to £550m,  but it has since been hacked down to £116m. Analysts are expecting the company, which returned to the FTSE 250 list of the UK’s biggest quoted companies earlier this year, to return to a net cash position by early 2026.

Last week, in a trading update, Kier said it expected a “significant improvement” on the debt this current financial year.

“With Kier, I got in early enough to stabilise things,” Davies says. “The share price had collapsed, basically. Confidence was shot at that point.”

Within the space of a few weeks towards the end of 2018, the firm had dropped out of the FTSE 250 and bungled a rights issue to tackle its mounting debt. It was not fully taken up, leaving City institutions to pick up the slack.

They were trying to overgrow the business, acquiring companies using the balance sheet to do that

These setbacks eventually forced the board to act and chief executive Haydn Mursell went at the start of 2019 after four years as boss.

Under Mursell, the firm had gone on a spending spree, which left it with a near £400m debt pile from the cost of the acquisitions. May Gurney cost £221m, highways engineer Mouchel cost £265m and utilities contractor McNicholas, also known as Green Macs, was rumoured to cost a further £15m-£20m.

On his first day in the job in April 2019, Davies ordered a strategic review of the business. He says of the situation he inherited: “They were trying to overgrow the business, acquiring companies using the balance sheet to do that. They were not well integrated.

“There was northing wrong with the operating businesses in Kier. They just needed, frankly, to be tightened up and run properly.”

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So he put a plan in place which, bit by bit, saw a refinancing, its housing business sold, non-core divisions like environmental services shut down, problem contracts worked through, offices closed and staff numbers cut.

“Kier was paying its supply chain later than it should have been,” Davies says. “That was one of the first things we sorted out. You have to get a supply chain that wants to work for you.”

A second equity raise in 2021 brought in £241m, Kier Living went for £110m, a host of businesses shut down – “we exited a lot,” Davies admits – and problem contracts were dealt with. “We had some poor quality contracts because discipline had gone. It was not a well-run company.”

Among its problem jobs were the Broadmoor hospital scheme, the Mersey gateway bridge and a hotel project in the Caribbean. “What we were doing building a hotel in the Caribbean is beyond me,” says Davies, aghast. “There was a whole set of smaller projects that, when added up, were significant.”

Closing or selling off bits of the business took revenue down by around £1bn. “We took the cost base down further and faster as a percentage,” Davies says.

When he arrived, Kier’s workforce was around 19,000 people. Today it is nearer 10,000. While staff at the non-core business were TUPE’d across to new employers, the firm made around 1,700 staff redundant as well.

This included hundreds of staff at its former headquarters, Tempsford Hall, its historic home of more than 50 years which it left in 2020. “I think I went there twice,” Davies says.

The firm still owns the country house near Sandy in Bedfordshire – which once had 800 of its staff there – but now leases it to other businesses.

The redundancies saved over £100m. “Fundamentally we changed our cost base to get margin into our operation to give us the credibility to go to the banks – and that was the grand bargain we did in 2021.

“You need to put a plan in place which provides believability and stability. That’s what we did.

“Creditors gave us time because they wanted their money back. The supply chain… we paid them more progressively so they’re happy to work with you – and your employees, you give them faith.

“If you do get into these issues, you’ve got to deal with them very quickly and you’ve got to be very clear with all of your stakeholders what your plan is. And then you’ve got to have some proof points as to why it works.”

He says the steps taken to fix its balance sheet in 2021 led to clients coming back. “It’s no coincidence that at that point in time our order book absolutely rocketed because people returned to Kier. That’s what happened.”

London is a minority [of our work] but it’s deeply important to us and we value those clients enormously

Davies adds that he was in regular contact with the Cabinet Office as soon as he began righting the ship. “We [later] got letters from very senior Cabinet Office officials saying how pleased they were when we did the [2021] equity raise and restored our balance sheet to health.”

Around 70% of its income, which stood at £4bn in the year to this June, is from the government. A further 23% is from regulated industries, such as water, with the remainder from the private sector – including its work for clients such as Derwent and Stanhope in London.

“They’re top-quality developers,” he says. “London is a minority [of our work] but it’s deeply important to us and we value those clients enormously. To have a good quality business in London, you need a good mix of public and private.”

But Kier’s mainstays are public sector jobs like schools, hospitals, defence, water, roads, rail. “We’re the biggest supplier to government in the UK. [With the Budget] the government has put certainty into our marketplace.

“Hospitals, schools, defence, justice – our end markets have all been mentioned. There is loads to go at.”

At last week’s trading update, Kier said its order book stood at £10.9bn, with 95% of its revenue in its current financial year already secured.

One area where Davies wants to see Kier get into more is property. “Because of the issues Kier had, we’ve been unable to allocate the capital to it. But, by generating strong cashflow, you can allocate more money to it.”

Its property business buys up land for developments such as residential, logistics and offices. It either flips the land to another developer or builds it out.

“What we don’t do is hold onto land. We’re not a property company,” Davies says.

Nor does it automatically follow that Kier’s construction divisions will be whistled up to build new homes or offices. “We don’t use our property business to feed the other businesses.”

He is expecting group revenue to grow by something like 5% every year, which on a £4bn revenue is £200m and more again as income goes up. “You can only grow as fast as your markets grow.”

Nevertheless, he is pleased with what he has seen in the Budget. “We’ve got a stable government who have set out their priorities and how they’re going to pay for it. If you look at where I am as a company, I’ve got a sustainable growth strategy and a client who has got a demand for what I do.”

Kier has been working on a 72km long stretch of railway on HS2 and Davies has some timely words on how the industry – and especially clients – deal with risk and risk transfer in general.

“The country decided it wanted to build a high speed rail network, and to do that it had to let a certain type of contract,” he says. “Otherwise, it could let a contract that was risk bearing onto the industry.

“But, frankly, the industry couldn’t take those risks because there were so many unknowns – so many planning unknowns, so many environmental unknowns, inflationary unknowns, protestor unknowns, ground condition unknowns.”

The project has come in for criticism for its spiraling costs, with the implication that contractors are picking up easy money. Davies says this is unfair and, anyway, contractors can’t just be expected to take on a heap of risk and told it’s all on them if it goes wrong.

“What the UK needs to learn to do is manage within an affordability environment and not announce these projects too early without due diligence and what the cost may actually be. We have to learn to manage expectations of cost and risk, that’s the issue we’ve got to learn better as a country.

“You can’t just dump risk. You think you’re transferring risk but, of course,  you’re not because it will come back to you.

“If you want to transfer risk onto industry, that’s fine. But industry may price it as such that it’s unaffordable because it has to mitigate against all those risks and it may not understand all those risks.

If you look at the public companies who are contractors for government and the responsible way the big three are driving performance, this industry is absolutely fine

“As a chief executive of a public company, I wouldn’t accept unbounded risk. I wouldn’t do it. I’ll only get into fixed price contracts when I understand the risk and, by the way, in [Kier] construction we’re overwhelmingly on fixed price contracts. But 99% of them we get there through a negotiated process of risk allocation.

“Ultimately, if the risk breaks [a] company, it goes straight back to the client with bells and whistles, because they then have to start again.”

Davies is speaking two months after ISG sank into administration, the most high-profile collapse of several in the past year or so – including Buckingham last September which saw Kier pay £10m for its rail business and 180 staff. Kier has taken on around 70 former ISG staff and is being sounded out about picking up some of ISG’s government contracts. “Absolutely no private,” Davies adds.

“This is not a systemic failure,” he says of ISG’s implosion. “This is a company failure. This industry is not broken.

“If you look at the public companies who are contractors for government and the responsible way the big three [Kier, Morgan Sindall, Balfour Beatty] are driving performance, this industry is absolutely fine. These are responsible companies with excellent balance sheets, excellent liquidity, they pay their suppliers on time. My point is that the government has now – in those three – a totally reliable, trustworthy set of suppliers.”

He ends by reeling off a list of figures: there are around 35,000 people working on its sites every day; it has around 1,000 contracts of which 400 will be live. “It’s an awful lot,” he admits.

But Davies, who turned 61 last month, says he is undaunted and, Kier shareholders might be relieved to hear, is not going anywhere. “It’s still huge fun, it’s a good time to be in this industry,” he says. “It’s a great time to be a CEO of a tier one contractor, it really is.”

Kier’s recovery, he underlines, is complete. “It’s all behind us,” he says of the turnaround.

Davies’s attention has now turned to shaping the future, rather than fixing the past. But he is not taking his eye off the ball.

“You’ve got to consistently deliver, deliver, deliver. It is now all about performance. Keep recruiting great people and keep training great people – it’s common sense.”