Final Results

KIER GROUP PLC 22 September 1999 PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 1999 - Seventh successive profit increase - 28% turnover advance to £963m (1998 : £750m) - Strong organic growth in Construction - Benefits of past investment coming through in Homes & Property - Operating profit up 52% at £12.6m (1998 : £8.3m) - Pre-tax profit up 28% at £13.8m (1998 : £10.8m) - Earnings per share up 35% at 30.6p (1998 : 22.7p) - Final dividend of 6.3p making 9.3p for year, up 16% (1998 : 8.0p) Chairman, Colin Busby, reports: 'This year, Kier has achieved new records in turnover and profit and a big acceleration in its rate of growth. This means that for seven successive years now, in both bad times and good, we have been able to increase pre-tax profits and earnings per ordinary share. These are now almost double their totals of 1996, the year of our stock-market flotation, with both showing a compound annual growth rate of 24%. Our Construction and FM companies have made huge strides this year, with organic turnover growth in the year of 25%, and our Homes & Property companies have taken full advantage of the significant investments we made in 1998 to grow their turnover by 63%. This is consistent with our long-established strategy to build a balanced business, with broadly based 'premier league' construction and FM activities complemented by regionally-strong, high quality homes and property businesses: this mix will be further enriched with project equity investment as our PFI portfolio develops and matures. YEAR'S RESULT Group turnover (including share of joint ventures) at £963m was 28% higher than 1998 (£750m). Total Group operating profit (including share of joint ventures) was 52% up at £12.6m (1998: £8.3m), as a result of improved operating margins. Net interest receivable at £1.2m was down on the previous year (1998: £2.5m), with both interest rates and cash balances lower. This resulted in profit before tax of £13.8m, an increase of 28% (1998: £10.8m). Earnings per share (undiluted) rose 35% to 30.6p (1998: 22.7p). A final dividend will be recommended of 6.3p per share (1998: 5.4p) payable on 14 December 1999 to shareholders on the Register at 8 October 1999. This will bring the total dividend for the year to 9.3p per share, an increase of 16% over the previous year (1998: 8.0p per share). There will be a scrip alternative to the final dividend. The year closed with net cash balances of £41.7m (1998: £49.3m) and total net assets at £33.5m, an increase of £7.7m. There was again strong positive cash-flow in Construction and increased cash investment in Homes & Property. As indicated last year, we operated with lower net cash balances during the year as a result of this investment. BUSINESS STRATEGY We remain committed to building both the size and quality of our two business segments, Construction and Homes & Property. In our short life as a quoted company, we have grown both by acquisition and by the organic growth of our existing business. We intend to continue growing and have strategies in place to ensure further organic growth. The acquisition route will be followed when opportunities arise which allow us to enhance shareholder value. In the meantime, the path to profit growth principally lies, for Construction, in improving our operating margins, and, in Homes & Property, by exploiting the strengthened residential land banks we have assembled over the past two years. A growing portfolio of commercial property positions is important for our future and we continue to take on PFI investment commitments for their longer term prospects. Our financial strategy is simple - to generate cash from our Construction segment and invest this in Homes & Property and thereby secure a high return on shareholders' funds. We have established an extremely stable cash flow from our widely spread construction activities, which has stood the test of time since Kier Group was formed in the early 1990s, and this has enabled us progressively to invest in Homes & Property. This investment has now reached £77m, from a standing start in 1992, and earned a return on average capital employed this year of 18%. This in turn has helped us to a Group return on average shareholders' funds of around 46%. CONSTRUCTION Generally, our construction divisions had an excellent year, improving overall operating contributions by 25% to £4.0m, with strong operational cash flow. Across the range of our UK operations, we have improved our penetration of markets. The 25% growth in our construction turnover has been achieved while output in the UK construction market has grown by only around 2%. Our growth was achieved in both the small-to-mid- range contracts in Kier Regional and in the major projects of Kier National. The ability of our management teams to identify client requirements and bring the whole Group's experience to bear in satisfying them is continuously improving, thanks to our ongoing investment in Information Technology, and this is undoubtedly a factor in our success. The one construction sector that has not grown this year is international contracting. It has often been the case that international construction markets move out of step with UK. In the earlier 1990s when our UK markets were difficult and unrewarding, we made good returns overseas. 1999 has seen the reverse, with aid funding becoming very patchy in most of our traditional markets (the Caribbean, Africa, the Middle East) and with Hong Kong, though still active, suffering severe competitive pressures. We have booked an operating loss on our overseas operations this year of £1.5m. We are reviewing the structure and objectives of our international operations and have appointed new senior management which I believe will adapt the organisation to the conditions expected to prevail over the next period. A meaningful overseas construction presence is an important part of our strategy to remain at the forefront of the UK industry, but it must, and will, earn its keep. Facilities Management is developing and expanding alongside our construction businesses and playing an increasing role in PFI projects, with a number of 'preferred contractor' positions now moving towards finalisation. This aspect of the business will become increasingly important as our FM businesses continue to grow. The major objective now before our construction divisions is margin improvement. Operating margins, at around 0.5%, are unchanged this year, after absorbing the international loss. We expect to improve on this in future periods. Construction continues to be strongly cash generative and, with risk management ever to the fore, provides a solid and stable core to the whole of the Group's business. HOMES & PROPERTY Homes & Property performed very strongly, with a 52% advance in operating profit to £12.0m and improved margins in Kier Residential, driven by further cash investment in working capital of £19m. Our acquisition of Bellwinch Homes, the South East housebuilder, just before the start of the year, has proved a great success. It was quickly integrated into Kier Residential and its position confirmed as one of our two homes brands in the South of England, alongside Twigden Homes. These two businesses between them have advanced our annual sales to over 600 units (1998: 486), with, more significantly, an increase in average selling prices of 27% to £130.4k. Both brands have moved further upmarket, with Bellwinch achieving over £750k per unit at selected sites. 10% of the units sold this year were 5-bedroom detached homes (1998: 2%). Another significant move before the year began was to establish Kier Homes as our housebuilder in Scotland, with 18 acres at East Kilbride as its 'anchor' site (acquired with our PFI deal on Hairmyres NHS hospital). This has successfully opened its account with four units handed over by the end of the year, a good order book and construction under way on three sites: it will contribute to profit in its second full year of operations and will provide an effective third leg to Kier Residential, balancing the exposure to South East England with Scottish Central Belt. The enlarged residential division recorded an operating margin of 11.9%, against last year's Twigden margin of 10.4% and Bellwinch's pre-acquisition level of around 6%. Further growth in Kier Residential is underwritten by our land bank, at just under 2,000 plots, which includes Waltham Park, the major brownfield site by the M25, acquired a year ago and on which the first sales phases will begin construction this autumn, with the completion of extensive remediation and infrastructure. Kier Ventures, the commercial developer, has progressed a number of promising opportunities, with certain sites being sold during the year to contribute to profit, and others secured that will yield development profit in the future. The joint venture formed with Norwich Union to develop 49 acres of commercial land at Waltham Park has a number of interesting enquiries before it as remediation there completes to provide a unique commercial site directly linked to the motorway network. PRIVATE FINANCE INITIATIVE The district general hospital at East Kilbride that we are building under the PFI has made extremely good progress and is likely to be handed over early to enable the concession period to commence during our 2001 financial year: this project, in which we hold 50% of the equity, confirms our major interest in this sector. We expect to reach financial close on a second district general hospital, in South Wales, later this year, which will bring our FM division a 27-year facilities management contract of £4m pa, again with Kier retaining significant equity investment. We are pursuing a number of new school projects which will bring construction, long-term FM and equity investment in due course. The PFI remains a significant cost in the meantime, with its excessive lead- times to bring projects to financial close. It holds an important place in our long-term strategy, interfacing with all our operating interests and creating long-term investment assets. EMPLOYEES The strength of this Group resides in the skills, attitudes to work and commitment of its 6,500 employees. When we talk of being 'customer focused' we mean that our employees are responding to the extra demands put upon them to ensure customer satisfaction. In April this year, Kier was for the second year in succession voted 'Major Contractor of the Year' at the Building magazine annual awards. The citation particularly mentioned the professionalism and strong people culture that characterised Kier. I thank the Kier people for their contribution and trust that our career development, training, safety and environmental programmes continue to foster this response for the future. PROSPECTS There is a lot of confidence in all our businesses towards the future. In the UK, markets are currently stable and order books at a good level. Our strategies to increase construction margins and to expand homes sales within the three regions of Kier Residential are in place. Our commercial property opportunities show promise and the PFI will continue to develop in a way that adds long term value to our operation. I therefore believe Kier will continue its progress in 2000 and beyond.' C R W BUSBY Chairman For further information please contact: Colin Busby/Duncan Brand Jerry Wood/Caroline Sturdy Kier Group plc Bell Pottinger Financial Ltd Tel: 01767 640111 Tel: 0171 353 9203 CONSOLIDATED PROFIT AND LOSS ACCOUNT For the year ended 30 June 1999 NOTES 1999 1998 £m £m 1 Turnover - Continuing operations Group and share of joint ventures 962.9 749.6 Less share of joint ventures turnover (8.4) (7.4) Group turnover 954.5 742.2 Cost of sales (904.4) (698.6) ------- ------- Gross profit 50.1 43.6 Administrative expenses (1998 includes exceptional charge of £0.6m) (39.2) (36.1) Operating profit - Continuing Operations -Group 10.9 7.5 Share of operating profit - joint ventures 1.7 0.8 ------ ------ 1 Total operating profit: Group and share of joint ventures 12.6 8.3 Net interest receivable - Group 1.4 2.7 Net interest payable - joint ventures (0.2) (0.2) ------- ------- Profit on ordinary activities before 13.8 10.8 taxation 2 Taxation on profit on ordinary activities (3.9) (3.6) ------- ------- Profit for the year 9.9 7.2 3 Dividends Equity (3.0) (2.6) ------- ------- Retained profit for the Group and its share of joint ventures 6.9 4.6 ======= ====== 4 Earnings per Ordinary Share 30.6p 22.7p - basic ======= ======= - diluted 30.2p 22.4p ======= ======= CONSOLIDATED BALANCE SHEET At 30 June 1999 1999 1998 £m £m Fixed assets Tangible assets 46.3 41.5 Investments Investments in joint ventures ------ ------ Share of gross assets 43.2 11.3 Share of gross liabilities (41.0) (10.1) ------ ------ 2.2 1.2 Other fixed asset investment 0.9 0.9 ------ ------ 3.1 2.1 ------ ------ 49.4 43.6 ------ ------ Current assets Stock 115.7 86.5 Debtors due within one year 158.7 129.4 Debtors due after more than one year 8.6 7.5 Short term investments 0.6 - Cash at bank and in hand 44.1 59.1 ------ ------ 327.7 282.5 ------ ------ Current liabilities Creditors - amounts falling due within one year (332.8) (291.2) ------ ------ Net current liabilities (5.1) (8.7) ------- ------ Total assets less current liabilities 44.3 34.9 Creditors - amounts falling due after more than one year (5.3) (6.4) Provisions for liabilities and charges (5.5) (2.7) ------ ------ Net assets 33.5 25.8 ====== ====== Capital and reserves Called up share capital 0.3 0.3 Share premium account 9.4 8.6 Capital redemption reserve 2.7 2.7 Profit and loss account 21.1 14.2 ------ ------ Equity shareholders' funds 33.5 25.8 ====== ====== CONSOLIDATED CASH FLOW STATEMENT For the year ended 30 June 1999 NOTES 1999 1998 £m £m 5 Net cash inflow from operating activities 18.8 29.9 Returns on investments and servicing of finance Interest received 1.5 2.8 Interest paid (0.2) (0.1) -------- -------- 1.3 2.7 -------- -------- Taxation UK corporation tax paid (3.2) (1.9) Overseas tax paid (0.3) (0.5) -------- -------- (3.5) (2.4) -------- -------- Capital expenditure and financial investment Purchase of tangible fixed assets (12.3) (9.9) Sale of tangible fixed assets 0.7 1.3 -------- -------- (11.6) (8.6) Acquisitions Purchase of joint ventures - (1.6) Purchase of subsidiaries (10.1) (6.6) Net overdrafts acquired with subsidiaries - (9.9) -------- -------- (10.1) (18.1) -------- -------- Equity dividends paid (1.9) (2.1) -------- -------- Cash (outflow)/inflow before use of liquid resources and financing (7.0) 1.4 Management of liquid resources Net withdrawal from short term bank deposits 14.9 15.4 Purchase of short term investment (0.6) - ------ ------ 14.3 15.4 ------ ------ Increase in cash during the year 7.3 16.8 ====== ====== Reconciliation of net cash flow to movement in net funds Increase in cash during the year 7.3 16.8 Cash inflow from movement in liquid resources (14.3) (15.4) ------ ------ 5 Movement in net funds in period (7.0) 1.4 Net funds at 1 July 49.3 47.9 ------ ------ Net funds at 30 June 42.3 49.3 ====== ====== NOTES TO THE FINANCIAL STATEMENTS 1 Turnover, profit and segmental information Segmental analysis of the results is shown below: Operating Profit before tax Turnover profit 1999 1998 1999 1998 1999 1998 £m £m £m £m £m £m Construction 857.7 685.1 4.0 3.2 11.0 9.9 Homes & Property 105.2 64.5 12.0 7.9 9.0 6.0 Corporate - - (3.4) (2.8) (6.2) (5.1) Overhead/Finance ---- ---- ---- ---- ---- ---- 962.9 749.6 12.6 8.3 13.8 10.8 ===== ===== ===== ===== ===== ===== Construction segment includes joint venture turnover of £8.4m (1998: £7.4m) and operating profit of £1.7m (1998: £0.8m) Net operating Net assets assets 1999 1998 1999 1998 £m £m £m £m Construction (85.3) (72.3) 52.2 52.0 Homes & Property 76.9 58.1 21.0 15.7 Corporate overhead/Finance (0.4) (9.3) (39.7) (41.9) ------ ------ ----- ------ (8.8) (23.5) 33.5 25.8 ====== ====== ===== ===== Geographical analysis of the results is as follows: Turnover Operating Profit before Profit tax 1999 1998 1999 1998 1999 1998 £m £m £m £m £m £m United Kingdom 884.9 679.3 14.1 7.1 15.9 10.0 Rest of World 78.0 70.3 (1.5) 1.2 (2.1) 0.8 ----- ----- ----- ---- ----- ----- 962.9 749.6 12.6 8.3 13.8 10.8 ===== ===== ===== ===== ===== ===== Rest of World includes joint venture turnover of £8.4m (1998: £7.4m) and operating profit of £1.7m (1998: £0.8m) NOTES TO THE FINANCIAL STATEMENTS 1 Turnover, profit and segmental information (continued) Net operating Net assets assets 1999 1998 1999 1998 £m £m £m £m United Kingdom (11.7) (29.4) 30.9 21.5 Rest of World 2.9 5.9 2.6 4.3 ------ ------ ------ ------ (8.8) (23.5) 33.5 25.8 ====== ====== ====== ====== The above analysis of turnover shows the geographical segments from which the products or services are supplied and is not materially different from the geographical segments to which products or services are supplied. Net operating assets represent net assets excluding cash, bank overdrafts and interest bearing inter-company loans. In 1998 Homes & Property included exceptional costs of £0.6m. 2 Taxation 1999 1998 £m £m UK corporation tax at 30.75% 2.2 2.5 (1998: 31.0%) Overseas taxation 0.1 0.2 Joint venture taxation 0.5 0.2 Deferred tax 1.1 0.7 ---- ---- 3.9 3.6 ==== ==== 3 Dividends 1999 1998 £m £m Ordinary Shares Paid 3.0 pence (1998 2.6 pence) 1.0 0.8 Proposed 6.3 pence (1998 5.4 pence) 2.0 1.8 ----- ---- 3.0 2.6 ===== ==== NOTES TO THE FINANCIAL STATEMENTS 4 Earnings per share Earnings per share is calculated as follows: 1999 1998 Basic Diluted Basic Diluted £m £m £m £m Profit after tax 9.9 9.9 7.2 7.2 ===== ===== ===== ===== million million million million Weighted average number of shares 32.4 32.4 31.8 31.8 Weighted average number of unexercised options - dilutive effect - 0.4 - 0.3 ------ ------ ------ ------ Weighted average number of shares used for EPS 32.4 32.8 31.8 32.1 ====== ====== ====== ====== pence pence pence pence Earnings per share 30.6 30.2 22.7 22.4 ====== ====== ====== ====== 5 Cashflow notes Reconciliation of operating profit to operating cash flows 1999 1998 £m £m Group operating profit 10.9 7.5 Depreciation charges 6.7 4.5 (Increase) in stocks (29.2) (1.8) (Increase)/decrease in debtors (30.2) (26.0) Increase in creditors 58.9 47.3 Increase/(decrease) in provisions 1.7 (1.6) ------ ------ Net cash inflow from operating 18.8 29.9 activities ====== ====== Analysis of changes in net funds 1 July 1998 Movement 30 June 1999 £m £m £m Cash at bank and in hand 33.1 (0.6) 32.5 Bank overdrafts (9.8) 7.3 (2.5) Short term bank deposits 26.0 (14.3) 11.7 Short term investment - 0.6 0.6 ------ ------ ------ 49.3 (7.0) 42.3 ====== ====== ====== Net funds include £5.2m (1998: £5.6m) being the Group's share of cash and liquid resources held by joint arrangements. NOTES TO THE FINANCIAL STATEMENTS 6 Statutory Accounts The financial information set out above does not constitute statutory accounts for the years ended 30 June 1999 or 1998 but is derived from those accounts. Statutory accounts for 1998 have been delivered to the Registrar of Companies and those for 1999 will be delivered following the Company's Annual General Meeting. The auditors have reported on those accounts, their reports were unqualified and did not contain statements under section 237(2) or (3) of the Companies Act 1985.

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