Kier seeks Chief Executive to push shares to previous highs

22 January 2019, 19:23 | Updated: 22 January 2019, 22:29

If you're running a heavily-indebted company, and you're obliged to ask shareholders for money to save the business, it is not exactly a vote of confidence when most decide against putting their hand in their pocket.

So Haydn Mursell, the chief executive of construction services group Kier, must have known he was on borrowed time when, in December, just 38% of Kier's investors took up their rights to buy new shares in the company at a deeply discounted price.

It was the lowest take-up of a rights issue by a UK company in six years (the typical take-up is around 95%) and saddled the five bookrunners to the deal - Peel Hunt, Santander, Citi, Numis Securities and HSBC - and their sub-underwriters with nearly £135m worth of Kier shares that they had to buy at 409p each - compared with the 740p at which they were trading before the cash call was announced.

The share price then plunged further in anticipation of the brokers and underwriters selling their unwanted shares - sinking to as low as 335p on 20 December.

They have since recovered some ground but, shortly after Christmas, it emerged that Neil Woodford, the company's biggest shareholder, was agitating for change.

Mr Woodford, who had not taken up his rights to all the shares to which he had been entitled in the cash call, was said to be calling for either Mr Mursell or Bev Dew, the company's chief financial officer, to be replaced.

Today, he got his wish, with news that Mr Mursell had stepped down with immediate effect after more than four years in charge.

Philip Cox, the chairman, will run the business on an interim basis until a successor can be found.

So where does this leave Kier?

The first point to make is that Kier, as with other outsourcing groups and contractors, has been working hard in recent weeks to stress that it is not another Carillion.

That appears to be borne out by the numbers in the trading statement issued today that accompanied news of Mr Mursell's departure.

Kier received £250m in cash following the rights issue and it said today that it "remains on track to report a net cash position at the year-end" of 30 June 2019.

It said that, at the end 2018, its net debt stood at £130m - down from £239m.

Secondly, the company - which employs 20,000 people - could also point to having won new contracts, including more than £500m worth of regional building contracts during November and December that include a new research facility for the Pirbright Institute in Surrey and a new hospital for Frimley Health NHS Foundation Trust.

Its order book now stands at £10bn.

So this does not exactly look like a company teetering on the brink.

Kier is winning new business and expects to have eliminated its debts by the end of its financial year.

Carillion, when it went under, had £1.5bn worth of debt and next to no cash left in the bank.

That is why, a year ago, it went into liquidation rather than administration - there were no assets or a viable business left for an administrator to sell on.

Under those circumstances, you might think it odd that Mr Mursell has been shown the door, as it is possible to argue that it was his decision to raise money from shareholders while it still had the chance to that prevented matters from getting worse.

But shareholders have lost a lot of money on his watch.

Shares of Kier were trading at 1393p each when he became chief executive.

Tonight, even after rallying after the pre-Christmas panic, they still stand at 527.5p.

It has also been a rollercoaster ride for the business.

Mr Mursell embarked on a break-neck expansion, paying £265m in June 2015 for the infrastructure services group Mouchel and £180m in July 2017 for its rival McNicholas.

Those deals made it the UK's second-largest construction contractor after Balfour Beatty and saw its annual sales rocket from £2.9bn to £4.2bn.

But its debts more than doubled during the period, to more than £536m, while many in the construction industry are sceptical about the wisdom of both deals.

After the chaotic rights issue, meanwhile, it was not unreasonable for shareholders to demand that someone resigned.

The irony is that Mr Mursell's last major decision, to raise money for the company, has probably prevented it from becoming another Carillion.

It may even turn out to have provided Kier with a solid platform for growth in future.