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What does shareholder revolt mean for the Kier Group share price?

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It’s always hard to justify paying the head of a company big money when that firm itself is doing badly. It is no wonder, then, that earlier this month shareholders in struggling contractor and construction firm Kier Group (LSE: KIE) decided not to stand for it.

At its annual general meeting (AGM), Kier shareholders rejected the directors’ pay report after it emerged CEO Andrew Davis could be set to receive more than £1m in bonuses, despite the company itself offering only profit warnings and a falling share price.

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Kier Group has seen its share price fall about 90% over the past year, leaving its valuation at less than £200m from a height of over £1bn. What is worse, the company has announced it may be forced to let go 1,200 of its 19,000 workforce by next June. With high levels of debt, low levels of cash, and generally negative investor sentiment, executive pay was always set to come under scrutiny.

Kier paid its board about £2.1m for the full-year to June, which admittedly is far less than the £5.5m paid the previous year (lower as the company did not pay any bonuses for the year 2018–19), but still hard to justify when it reported losses of £245m.

Selling debt cheap

Of fundamentally even more concern for Kier Group however, is talk recently that its lenders have been selling off their debt in the company for as little as 70 pence on the pound. When lenders are willing to take such a large hit on the money a company owes them, it is not a great indication of their expectations for that firm.

Comparisons are once again being made with the now-bust Carillion, whose large debt levels and negative investor sentiment (particularly short selling) led to its demise. Indeed Kier is one of the most shorted stocks on the market at the moment, and has seen a number of brokers downgrade their ratings on its shares.

Another concern I have is what my colleague Rupert Hargreaves calls “off-balance sheet debt”. With the known levels of debt already causing such problems, any leverage the firm has that is more obscure to shareholders could be very bad news.

Holding out hope

For the most part, Kier is hoping that restructuring plans and efforts to sell off some areas of its business will be enough to get things back on track. This is far from certain, however, not least because of how long the process is taking.

Add to this the uncertainty surrounding Brexit, as well as the overall weakness in the construction sector, and Kier seems to have a lot going against it. Subcontractors have been demanding early payments from the firm (another similarity with Carillion), and earlier this month Kier lost its government prompt payment code status.

Saving the money in executive pay is a drop in the ocean compared to its other issues, but all the other risks for Kier at the moment are keeping me far away from this one.

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Karl has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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