Final Results

Kier Group PLC 13 September 2001 13 September 2001 KIER GROUP plc PRELIMINARY RESULTS FOR THE YEAR ENDED 30 JUNE 2001 Highlights - Turnover reaches £1.25bn - up 20.9% (2000: £1.03bn) - Operating profit £21.9m - up 40.4% (2000: £15.6m) - Compound growth in EPS of 25% over the five years since flotation - Operating profit in Construction & Services up 70.8% - Significant growth in Support Services division - turnover up 63.8% - Further investment in Homes with the £16.6m acquisition of Allison Homes - Maiden PFI investment returns reported Commenting, Colin Busby, Chairman, said: 'There is no doubt that demand is strong in both the construction and homes markets. At £1.25bn our Construction & Services order book is at record levels and housing sales are continuing at a healthy rate in the normally quieter summer months. The prospects for further growth in the current year are encouraging, and I am confident that the integrated business model we have created will continue to drive up returns.' Enquiries to: Kier Group plc Tel: 01767 640111 Colin Busby/Duncan Brand Bell Pottinger Financial Tel: 020 7353 9203 Caroline Sturdy CHAIRMAN'S STATEMENT Building Success 2001 has been another very successful year for the Kier Group, with turnover, profits and earnings per share all continuing to grow by over 20% p.a. Our strategy of building on the strength of our construction operation and levering up the returns through the complementary strength of our housebuilding, has again demonstrated its value. Since Kier's flotation on the London Stock Exchange five years ago, earnings per share have grown at 25% p.a compound as a result of this integrated strategy, and we are now recording the ninth consecutive increase in profit since the Group's formation through an employee buyout in 1992. The £16.6m acquisition of Allison Homes, announced yesterday, is further evidence of our commitment to this strategy, which we believe will enable our record to continue. I am also pleased to report that both our newer business areas, Support Services and Infrastructure Investment, are continuing to develop positively and will increasingly contribute to shareholder value. Results On a 20.9% increase in turnover to £1,251.1m (2000: £1,034.8m) Kier achieved operating profits of £21.9m compared to £15.6m last year, an increase of 40.4%. Profit before tax at £21.9m is increased by 23.7% (2000: £17.7m) and earnings per share at 48.0p rose by 20.6% (2000: 39.8p). On a like-for-like basis, before prior year profits from sale of investments, profit before tax increased by 27.3% and earnings per share by 25.3%. We are proposing a final dividend on the Ordinary Shares of 8.4p (2000: 7.3p) totalling 12.3p for the year, an increase of 15.0% over last year (2000: 10.7p). The dividend will be paid on 11 December 2001 to shareholders on the register on 5 October and there will be a scrip alternative. Construction cash flow was again very strong, with Group year-end net cash of £58.1m (2000: £40.4m), whilst Shareholders' funds increased by 29.9% to £57.8m (2000: £44.5m). The pre-tax return on average shareholders funds was 42.7% having exceeded 40% for four consecutive years. Construction and Services Construction in the UK Kier Regional's success in continuing to grow its share of the mid-range construction market (mainly contracts up to £15m) was outstanding, with turnover 22.6% ahead at £732.4m. This business, with its 27 regional offices serving all the key areas in the UK, has become the 'contractor of choice' to a growing number of construction's major client bodies. We have seen the negotiated and partnered proportion of the workload steadily increasing in recent years, and it now represents half of all orders. While this trend is expected to continue, we retain our commitment to the competitively tendered market, which daily gives us direct confirmation of current pricing levels and brings transparency to our dealings with clients. Kier National's UK workload in the major contract sector has grown considerably, particularly in the building sector. The civil engineering workload has also increased with the start of several contracts, including two on the Channel Tunnel Rail Link (in East London and north of Kings Cross). The highlight of the year has been the commissioning and handover of Scotland's first major PFI hospital at Hairmyres, East Kilbride, with its 352 in-patient and 52 day-care beds. This brand-new first-class medical facility was delivered to the National Health Service three months early, within budget, and procured without any call on public funds. Support Services This area has seen rapid progress in the year, with organic growth continuing in facilities management while building maintenance activities have been greatly boosted by the successful outsourcing of London Borough of Islington's building services. This has resulted in a 63.8% turnover increase to £59.8m. To focus our resources and sharpen our presence in these markets we have created a new branded operating division. Caxton Integrated Services will lead our further penetration of the three principal outsourced service markets we have targeted: managed services for occupiers of commercial and industrial premises; long-term commitments for FM services to PFI and PPP projects; and large-scale building maintenance contracts, typically for local authorities and other social landlords. Each of these markets offers excellent growth prospects for the foreseeable future and also complements our other operating activities in regional construction and PFI project investment. Our medium term target remains that of bringing turnover in this division up to £150m p.a. Overseas Construction We have been pursuing our strategy to change the risk profile of our international construction operations, focusing on negotiated and target-cost contracts with established clients and avoiding open-tender markets. This is leading to significant improvements in returns, particularly from the Caribbean and the Americas: however, the legacy of major contracts on unremunerative terms has been felt in the Far East, leading to a further but smaller operating loss of £0.9m (2000: £1.2m). As these contracts are worked out, we expect overseas turnover to reduce and the results to complete their recovery. Construction & Services: Results for the year Overall, Construction & Services has delivered a 70.8% increase in operating profit to £11.1m (2000: £6.5m) on a 19.6% increase in turnover to £1,121.3m (2000: £937.4m), and an enhancement of the operating margin to 1% (2000: 0.7%). Margin improvement remains a prime objective for Kier and is expected to continue. Cash generation is also critical to our Construction performance and this year's result has been exceptional. Interest credited to Construction & Services on its cash balance rose to £8.1m (2000: £7.0m) providing overall pre-tax margins of 1.7% (2000: 1.4%). Homes & Property Kier Residential The results of our progressive increases in working capital for Kier Residential over recent years can be seen in the 35% increase in both house sales (2001: £110.4m, 2000: £81.6m) and operating profit (2001: £14.4m, 2000: £10.7m). 733 houses were sold (2000: 573) at an average selling price of £150,500 (2000: £142,300), with increases in each of our three operating regions. It was particularly pleasing to sell over 100 houses in Scotland in only the third year of that operation. We have acquired a good spread of sites for the new year, with 2353 plots owned and controlled at the year end (2000: 2127 plots). The acquisition of Allison Homes brings a further 949 such plots into the division. We believe the current round of consolidation among the national housebuilders will both provide further opportunities in the land market and allow us to emphasise the attractions in the sales market of our strategy of building strong local brands in selected regions. Allison Homes, trading in the eastern counties of England from its base in Spalding, Lincolnshire adds a fourth such brand to our collection, which already comprises Twigden Homes operating from St Neots in Cambridgeshire, Bellwinch Homes in the South East and Kier Homes in Scotland. Kier Commercial We continue to generate annual returns of up to £2m from our commercial property operations through a combination of development profit and rental income. We completed and sold a large distribution depot leased to GDA Hotpoint (developed in joint venture) retaining a 20% long-term interest in the investment to yield an annual rent of £240,000. Our joint venture with Norwich Union at Waltham Abbey has commenced construction of the large distribution facility for J Sainsbury alongside the M25. We are also well advanced on construction of a pre-let office in Cheltenham for Marlborough Stirling plc. Future projects are likely to include a 90,000 sq.ft. pre-let office for Government on the Crown Estate in Whitehall, where we are preferred developer. This activity, which frequently interacts with our other operations, particularly Construction and Residential, forms an important part of our overall strategy to offer an integrated range of property, construction and development services to a wide customer base in both the public and private sectors. Homes & Property: Results for the year The segment increased turnover by 29.5% to £126.1m (2000: £97.4m) and operating profit by 22.7% to £16.2m (2000: £13.2m), a very satisfactory result for shareholders. Infrastructure Investment Our portfolio of PFI projects, in which we typically hold a 50% stake, is taking shape. In the healthcare sector one major hospital is now operational while two others are currently under construction. In the local services sector, we have a stake in a library project under construction and believe we are about to close financially our first schools project. Over the next two years, as these projects become operational, our total committed investment will be £9.2m, with an expected long-term average yield in excess of 15%. There is a pipeline of further projects where we are short-listed from which we expect to add further committed schemes to the portfolio. Now that our first investment is operational, we have disclosed details of its results separately under a new segmental heading 'Infrastructure Investment'. Kier People In the last three years we have taken Group turnover from £750m to £1.25bn through organic growth of existing businesses. Such a progression has set huge challenges to management and staff throughout the Group. Kier people have responded with enthusiasm and their skill, energy and professionalism have ensured that profit and cash flow have followed the same curve. The directors express their thanks to all Kier's employees for their magnificent efforts over the past year - efforts which also secured for us the title 'Major Contractor of the Year' in the 'Building' magazine awards for the third time in four years. We continue to place great emphasis on recruiting the best from the universities each year, and on a very broad programme of training, to ensure we retain our distinctive character in the market as our workforce continues to grow. Board of Directors Graham Corbett retired from the Board last November when he took up his appointment as chairman of the Postal Services Commission: we were pleased to appoint Simon Leathes as a non-executive director in March. His experience in the industry and knowledge of the City are already contributing significantly in the Boardroom. I must pay tribute to our finance director, Duncan Brand, who will not be offering himself for re-election at the Annual General Meeting having reached retirement age. Duncan has served Kier with great distinction for over 30 years and has been a member of the Board since the employee buy-out in 1992. A stalwart, his experience and knowledge, as well as his enduring humour, have contributed immeasurably to the Board and he has been instrumental in guiding the advancement of the Group into its present form. I personally would like to thank Duncan for his contribution and wish him well for his retirement; he will be greatly missed by all. In September we have appointed Deena Mattar as an executive director. Deena, who joined us from KPMG in 1998, will become Finance Director of the Group following our AGM in November, when Duncan will retire from the Board. In her time at KPMG Deena specialised in the Construction sector where she accumulated her knowledge of the industry. She also played a part in all our major transactions, including the 1992 employee buyout and the 1996 flotation. Prospects There is no doubt that demand is strong in both the construction and homes markets. At £1.2bn our Construction & Services order book is at record levels and housing sales have continued at a healthy rate in the normally quieter summer months. Allison Homes represents a significant increase in our residential operations and will maintain our growth in this sector. The prospects for further growth in the current year are encouraging, and I am confident that the integrated business model we have created will continue to drive up returns. In the medium and longer term, some of our markets may be affected by any worldwide economic slowdown. We fully expect that renewal of the UK's public services, whether in the form of private or publicly funded schemes, will ensure continuing demand for Construction & Services. For housing it remains our view that the market, although subject to some cyclical and regional fluctuations, will maintain a level of activity to support the further expansion of our Homes division. We are also moving ahead with the development of Support Services, Infrastructure Investment and Commercial Property, and will continue to 'build success' from our integrated and complementary businesses. Consolidated Profit and Loss Account For the year ended 30 June 2001 Notes 2001 2000 £m £m Turnover - Continuing operations Group and share of joint ventures 1 1,251.1 1,034.8 Less share of joint ventures turnover (18.7) (8.3) ---------- ---------- Group turnover 1,232.4 1,026.5 Cost of sales (1,156.3) (966.4) ---------- ---------- Gross profit 76.1 60.1 Administrative expenses (56.2) (44.9) ---------- ---------- Operating profit - Continuing operations - Group 19.9 15.2 Share of operating profit - joint ventures 2.0 0.4 ---------- ---------- Total operating profit: Group and share of joint 1 21.9 15.6 ventures Profit on disposal of fixed asset investment - 0.5 Income from investments - 0.3 Net interest receivable - Group 1.0 1.3 Net interest payable - joint ventures (1.0) - ---------- ---------- Profit on ordinary activities before taxation 1 21.9 17.7 Taxation on profit on ordinary activities 2 (5.9) (4.6) ---------- ---------- Profit for the year 16.0 13.1 Dividends 3 (4.1) (3.5) ---------- ---------- Retained profit for the Group and its share of 11.9 9.6 joint ventures ====== ====== Earnings per ordinary share 4 - basic 48.0p 39.8p - diluted 47.1p 39.3p ---------- ---------- Adjusted earnings per ordinary share 4 (excluding profit on sale of fixed asset investment in 2000) - basic 48.0p 38.3p - diluted 47.1p 37.8p ---------- ---------- Dividend per ordinary share 12.3p 10.7p ---------- ---------- Consolidated Balance Sheet - At 30 June 2001 Notes 2001 2000 £m £m Fixed assets Tangible assets 46.3 43.6 Investments Investments in joint ventures 86.2 57.8 Share of gross assets (78.9) (55.2) Share of gross liabilities ---------- ---------- 7.3 2.6 Investment in own shares 1.1 0.6 8.4 3.2 ---------- ---------- 54.7 46.8 Current assets ---------- ---------- Stock 164.4 149.5 Debtors due within one year 201.8 175.3 Debtors due after more than one year 11.3 11.8 Short term investments - 0.8 Cash at bank and in hand 60.9 47.4 ---------- ---------- 438.4 384.8 Current liabilities Creditors - amounts falling due within one year (416.8) (373.4) ---------- ---------- Net current assets 21.6 11.4 ---------- ---------- Total assets less current liabilities 76.3 58.2 Creditors: amounts falling due after more than one (12.8) (8.6) year Provisions for liabilities and charges (5.7) (5.1) ---------- ---------- Net assets 57.8 44.5 ---------- ---------- Capital and reserves Called up share capital 0.3 0.3 Share premium account 12.0 10.8 Capital redemption reserve 2.7 2.7 Profit and loss account 42.8 30.7 ---------- ---------- Equity shareholders' funds 1 57.8 44.5 ---------- ---------- Consolidated Cash Flow Statement - For the year ended 30 June 2001 Notes 2001 2000 £m £m Net cash inflow from operating activities 5 38.5 8.1 ---------- ---------- Returns on investments and servicing of finance Interest received 3.6 4.2 Interest paid (2.2) (4.0) Interest from investments - 0.3 Income from joint ventures 0.9 - ---------- ---------- 2.3 0.5 Taxation ---------- ---------- UK corporation tax paid (4.7) (3.7) Overseas tax paid (0.3) (0.7) ---------- ---------- (5.0) (4.4) ---------- ---------- Capital expenditure and financial investment Purchase of tangible fixed assets (24.5) (6.6) Sale of tangible fixed assets 13.8 1.5 Sale of fixed asset investment - 1.5 Investment in joint ventures (4.4) - ---------- ---------- (15.1) (3.6) ---------- ---------- Financing Issue of ordinary share capital 0.4 1.2 Purchase of own shares (0.5) (0.6) ---------- ---------- (0.1) 0.6 ---------- ---------- Equity dividends paid (2.9) (3.0) ---------- ---------- Cash inflow/(outflow) before use of liquid 17.7 (1.8) resources ---------- ---------- Management of liquid resources Net decrease/(increase) in short term bank deposits 17.6 (16.2) Sale/(purchase) of short term investment 0.8 (0.2) ---------- ---------- 18.4 (16.4) ---------- ---------- Increase/(decrease) in cash during the year 36.1 (18.2) ====== ====== Reconciliation of net cash flow to movement in net funds Increase/(decrease) in cash during the year 36.1 (18.2) Cash (inflow)/outflow from movement in liquid (18.4) 16.4 resources ---------- ---------- Movement in net funds in period 17.7 (1.8) Net funds at 1 July 40.4 42.2 ---------- ---------- Net funds at 30 June 5 58.1 40.4 ====== ====== Notes to the Financial Statements 1. Turnover, profit and segmental information Segmental analysis of the results is shown below: Turnover Operating Profit before Profit tax 2001 2000 2001 2000 2001 2000 £m £m £m £m £m £m Construction 1,121.3 937.4 11.1 6.5 19.2 13.5 & Services Homes & 126.1 97.4 16.2 13.2 11.2 10.0 Property Infrastructure 3.7 - 0.9 - 0.2 - Investment Corporate - - (6.3) (4.1) (8.7) (5.8) overhead/ Finance ---------- --------- ---------- -------- --------- ------ 1,251.1 1,034.8 21.9 15.6 21.9 17.7 ---------- --------- ---------- -------- --------- ------ Net operating Net assets assets 2001 2000 2001 2000 £m £m £m £m Construction & (110.3) (98.8) 56.7 52.4 Services Homes & Property 103.0 100.2 30.8 25.0 Infrastructure 5.5 1.0 - - Investment Corporate 1.5 1.7 (29.7) (32.9) overhead/Finance ---------- --------- -------- ------- (0.3) 4.1 57.8 44.5 ---------- --------- -------- ------- Geographical analysis of the results is as follows: Turnover Operating Profit Profit before tax 2001 2000 2001 2000 2001 2000 £m £m £m £m £m £m United 1,149.4 944.7 22.8 16.8 23.0 19.4 Kingdom Rest of 101.7 90.1 (0.9) (1.2) (1.1) (1.7) World ---------- ----------- ----------- ---------- ----------- ---------- 1,251.1 1,034.8 21.9 15.6 21.9 17.7 ---------- ---------- ----------- ----------- ----------- ---------- Net operating assets Net assets 2001 2000 2001 2000 £m £m £m £m United (8.9) 6.2 57.1 43.1 Kingdom Rest of 8.6 (2.1) 0.7 1.4 World ----------- ----------- ----------- ---------- (0.3) 4.1 57.8 44.5 ----------- ------------ ----------- ---------- 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 assets excluding cash, bank overdrafts and interest bearing inter-company loans. 2. Taxation 2001 2000 £m £m UK corporation tax at 30% 5.3 4.2 Overseas taxation 0.3 0.2 Joint venture taxation 0.3 0.1 Deferred tax - 0.1 ------------- ----------- 5.9 4.6 ------------- ----------- 3. Dividends 2001 2000 £m £m Ordinary shares Paid 3.9p (2000: 3.4p) 1.3 1.1 Proposed 8.4p (2000: 7.3p) 2.8 2.4 ------------ ---------- 4.1 3.5 ------------ ---------- 4. Earnings per share Earnings per share is calculated as follows: 2001 2000 Basic Diluted Basic Diluted £m £m £m £m Profit after tax 16.0 16.0 13.1 13.1 Less: profit on disposal of - - (0.5) (0.5) fixed asset investment ------------ ------------ ------------ ------------ Adjusted profit after tax 16.0 16.0 12.6 12.6 ------------ ------------ ------------ ------------ Million Million Million Million Weighted average number of 33.2 33.2 32.9 32.9 shares Weighted average number of - 0.4 - 0.3 unexercised options- dilutive effect Weighted average impact of - 0.2 - 0.1 LTIP ------------ ------------ ------------ ------------ Weighted average number of shares used for EPS 33.2 33.8 32.9 33.3 ------------ ------------ ------------ ------------ Pence Pence Pence Pence Earnings per share 48.0 47.1 39.8 39.3 Adjusted earnings per share 48.0 47.1 38.3 37.8 (after excluding profit on sale of fixed asset investment) 5. Cash Flow Notes Reconciliation of operating profit to operating cash flows 2001 2000 £m £m Group operating profit 19.9 15.2 Depreciation charges 7.6 7.8 (Increase) in stocks (14.9) (33.8) (Increase) in debtors (27.3) (17.3) Increase in creditors 52.6 36.7 Increase/(decrease) in provisions 0.6 (0.5) ---------- ---------- Net cash inflow from operating activities 38.5 8.1 ---------- ---------- Analysis of changes in net funds 1 July 2000 Movement 30 June 2001 £m £m £m Cash at bank and in hand 19.5 31.1 50.6 Bank overdrafts (7.8) 5.0 (2.8) Short term bank deposits 27.9 (17.6) 10.3 Short term investment 0.8 (0.8) - ---------- ---------- ---------- 40.4 17.7 58.1 ---------- --------- ---------- Net funds include £23.3m (2000: £22.8m) being the Group's share of cash and liquid resources held by joint arrangements. 6. Statutory Accounts The financial information set out above does not constitute statutory accounts for the years ended 30 June 2001 or 2000 but is derived from those accounts. Statutory accounts for 2000 have been delivered to the Registrar of Companies and those for 2001 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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