Kier targets leaner office network

Kier will rationalise its extensive network of regional offices, with different parts of the business brought under one roof, in a bid to cut costs amid the ongoing contraction in the construction industry.

Speaking to Building following the announcement of the firm’s half-year results, Kier chief executive Paul Sheffield said the restructure, which is expected to cost the firm £12m this year, would see the business consolidate its regional offices across the UK.

In its results for the six months to 31 December 2012, Kier reported interim profit of £20.9m, down by 35% on the £32.3m recorded in the same period in 2011, on revenue of £976m, which was down by 6.8%.

Kier’s construction business operated at a 2.1% operating margin over the period, down on the 2.5% recorded at the same point last year, with revenue also down by more than 10% to £627m. Operating profit in the construction business for the period stood at £13.5m, down from £17.8m over the same period last year.

Sheffield said the results showed a “solid” performance in a “difficult environment” and that the firm was restructuring to reflect the “scale of future opportunities”.

Kier’s construction business currently operates across eight regions, with around 28 offices, while the services business comprises 34 offices.

Sheffield said the restructure would retain the existing structure of eight regions, but would involve the consolidation of offices within those regions.

He said: “We have a very extensive network of offices across the country. We’re having a review of extent of the network and we believe there is a slightly more efficient way to run the business that we believe will not weaken out regional presence. And that is a process we will go through over the next six months.

“We won’t be reducing the regional structure. But we’ve obviously also got a services division and in some parts of the country we might have a services office 15 miles away from a construction division office and actually by putting them both into one office we will get savings and efficiencies.

“So in terms of the regional network of construction companies we’re not going to move away from the eight that we currently have but there will be some rationalisation of some of the offices.”

Sheffield said the restructure would involve redundancies, would not be drawn on the number of job losses. “I’m afraid it can’t be avoided, but we’re very mindful of the human aspects of this and it’s not something I want to go into now,” he added.

He said the restructure would be completed by the end of the financial year, but declined to give a figure on the annualised savings the firm was targeting through the shake-up. “We know what the annualised saving is going to be through the reduction of office costs and people, but not all of that drops through to the bottom line of the business,” he said.

“We will be protecting the business to make sure we remain efficient and can service our customers in same way that we do today. But I’m not going to be drawn on a figure at the moment.

“The whole process will make us a leaner and more efficient business. Quite a lot of the savings that will inevitably drop out of this will actually be to the benefit of our customers.

“They’re not necessarily going to stick to the bottom line of our operation but I would expect it to make us more efficient and to help maintain margins at a sensible level in the future.”

He said the £4.4m in costs already incurred in the first half of the year through the restructure was in part through the disposal of “two peripheral business units” - including £2.1m write-down related to the sale of the firm’s scaffolding business - as well as a reduction in head count, but he declined to give a further breakdown of the costs or the number of redundancies.

He said the remaining costs of the restructure, expected to amount to around £7.6m, would be incurred through redundancies and the property costs as a result of office closures. “Not all of that [£7.6m] is people. Some of that is if we are going to move away from some offices, offices might well have two three four years of rentals that we have to pay,” he said.

He added: “We are having to approach this as every business is: the building market in the UK is very tough, it’s been difficult for a couple of years and it’s going to be very tough for the next two years.

“We have to do what every professionally run organisation does and constantly review our cost base and I don’t think any of our staff would expect us to do anything different. We just need to mindful of how we deal with it.

“The message is really it’s going to be a really difficult couple of years. There is a genuine drive from the government to get investment into the economy and the construction sector and we want to be there to benefit when that work comes through in a couple of year’s time.”