Kier posts DB pension deficit of £14m amid losses

The overall post-tax DB pension position of UK construction company, Kier Group, moved from a surplus of £8m to a deficit of £14m over six months, as of 31 December 2018.

According to its six months results report, the movement was “primarily driven by the recent performance of the schemes’ assets” and a guaranteed minimum pension equalisation charge of £6.1m.

The firm’s results announcement revealed that the company posted pre-tax losses of £35m during the six month period, reportedly due to losses on the Broadmoor psychiatric hospital redevelopment project and on a waste collection contract in Cheshire.

Kier operates four DB pension schemes, which had total assets of £1,652m and liabilities of around £1,668m, as of 31 December 2018, and related deferred tax assets of £2.8m.

This represents a £29m fall in assets and £5m reduction in liabilities in comparison to 30 June 2018.

However, the deficit had improved in comparison to the end of 2017, when Kier posted a DB pension deficit of £19.3m.

The firm made deficit contributions to its pension funds of £11.9m in the second half of 2018, while it made £2.5m in profit on disposal of its pension administration business on 31 October 2018.

Kier’s four DB pension schemes are the Kier Group Pension Scheme, the Mouchel Pension Schemes, the May Gurney Pension Scheme and the McNicholas Pension Scheme.

It has launched a “member options exercise”, which offers a pension increase exchange (PIE) to members of the Kier Group Pension Scheme and the Mouchel Business Services Limited Pension Scheme “in order to provide more flexibility and choice for members, reduce risk, and reduce cost in the groups DB pension schemes”.

The PIE offers members who are already drawing a pension a one-off increase in pension in lieu of future annual increases on part of their pension and, at the point of retirement, “as 'business as usual' on the same terms as the bulk exercise”, Kier will pay for members to take financial advice at point of retirement, including on the PIE at retirement option.

Commenting in the PIE, the report stated: “The actual financial impact will depend upon take-up of the options (or an assumption of future take-up) and prevailing market conditions when the exercises are recognised. Kier is directly meeting the costs of implementing the exercises.”

Kier executive chairman, Philip Cox commented: "Our regional building and property development businesses continue to operate well, although we are experiencing some volume pressures in the highways, utilities and housing maintenance markets.

“The group has a significantly strengthened balance sheet following the completion of the rights issue in December 2018. The board continues to focus on simplifying the group, improving cash flow generation and net debt reduction, and forecasts a net cash position at 30 June 2019.

“Whilst the board notes the current political and economic uncertainty in the UK, and the implications for third party investment, the group is maintaining its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected."

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