September 20, 2018 / 6:32 AM / 8 months ago

Builder Kier's strong order book helps it ride out Brexit uncertainty

(Reuters) - Builder Kier Group (KIE.L) reported a higher-than-expected rise in annual profit, as it expanded its order book and shrugged off the hit to Britain’s construction sector from the country’s impending exit from the European Union.

Kier’s shares rose as much as 8.6 percent on Thursday, and were trading 5.5 percent higher at 1085.15 pence at 0820 GMT.

Britain’s economy has slowed since the Brexit vote in June 2016 and growth in construction activity slowed in August after reaching a two-year high the month before.

Kier’s order book was worth about 10.2 billion pounds ($13 billion) at the end of June, up from 8.9 billion pounds a year earlier and helped by demand for its construction and services businesses, it said. The company’s activities range from building power stations to outsourcing work for local councils.

“There remain many moving parts and many strings to Kier’s bow and all are moving in the right direction ... that construction did not move backwards is a good result in our view given the current challenges in the UK construction markets,” Jefferies analyst Anthony Codling said.

Construction relies heavily on labour from the EU, with more than a quarter of London's construction workers coming from elsewhere in the EU, according to figures here in June from the Office for National Statistics.

Kier’s Chief Executive Haydn Mursell said the firm had a “natural mitigation” in that only 10 percent of its construction work was done in London, with the rest from other areas of the UK where the labour force is predominantly domestic.

“I think those that are doing very large projects, yes there may be a greater exposure because large projects tend to be in London, South East or in urban areas where the pressure on labour (from Brexit) is greater,” he told Reuters.

The firm is also insulated as the majority of its contracts are long term, up to five years, going beyond the “Brexit window”, Mursell said. These projects are modest in value, between 7 million pounds and 8 million pounds, but Kier takes on a lot of such contracts.

Kier, which has business in the UK, Australia, New Zealand and the Middle East, reported a 9 percent rise in underlying pretax profit to 137 million pounds, higher than analyst estimates of 130.01 million pounds, according to Thomson Reuters I/B/E/S.

Kier launched a cost-savings plan in July including the sale of non-core assets. On Thursday it said it expected that to be reflected in the 2020 financial year with profit and cash flow improvements of at least 20 million pounds in the year ending June 2020, with proceeds of 30 million pounds to 50 million pounds from the disposals.

It did not give full-year guidance for the 2019 financial year.

“Where we cannot achieve a market leading position in a particular sector then we will dispose those operations ... We are already engaging with a number of buyers,” Mursell said.

He declined to comment on which assets were up for sale or who the buyers were.

Reporting by Noor Zainab Hussain in Bengaluru; Editing by Gopakumar Warrier and Susan Fenton

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