Outsourcing specialist Kier Group has revised its debt up by £50m after an accounting error, alarming investors and raising further concerns over the financial health of the industry.
Shares in the contractor, which employs 20,000 people on work ranging from rubbish collection for local authorities to building houses and schools, fell 13 per cent after it said it had revised its net debt as at December 31 up to £180.5m.
At the end of last year, shareholders had refused to buy into an emergency cash call that aimed to reduce Kier’s £624m debt, leaving the banks and brokers that had underwritten the deal nursing almost £7m in losses.
The company’s finance director, Bev Dew, said of the latest news: “It’s absolutely an error. The timing of this is absolutely unfortunate. In the wake of the rights issue, we are aware of the concerns around debt.”
There are already several inquiries under way into accounting practices in the outsourcing and construction industry.
Stephen Rawlinson, an independent analyst, said it was concerning that “yet again there have been errors in fact and judgment that have flattered performance”. “This has become a familiar playbook in the industry,” he added.
Rival contractor Interserve, which faces a vote on Friday that will determine whether the debt-laden company goes into administration, is under investigation by the Financial Conduct Authority over the accuracy of statements it made between July 2016 and February 2017.
The City watchdog is also looking at why the directors of Carillion made positive statements about the company’s future ahead of its collapse in January last year. The company is also under investigation by the Insolvency Service and the pensions regulator. Mitie, another outsourcer, was also subject to an FCA investigation, though this was dropped last year.
Kier said borrowing in the half year to December increased because the company had to reclassify £40.2m as debt that had formerly been booked on the balance sheet as assets held for sale plus associated liabilities. The company has since sold some of the assets, which include student accommodation, for £9.8m, while the remainder are expected to be offloaded by June. A further £10.3m of the revision related to “hedging activities”.
The company also warned of a £25m loss on the refurbishment of Broadmoor Hospital, a Ministry of Justice project in Berkshire that the company had previously denied was in trouble. It was originally due to be completed in February 2017, but Kier said there had been numerous changes to the contract, including to security requirements, and a 60 per cent rise in costs. It is due to be completed imminently.
Kier is still searching for a new chief executive after Haydn Mursell was ousted in January by activist shareholder Neil Woodford following the rights issue. The company, which also has contracts to build the UK’s new high-speed railway line, said it remained focused on reducing its net debt.
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