Interim Management Statement

RNS Number : 6008U

Kier Group PLC

16 May 2008

 

                            16 May 2008

KIER GROUP PLC

INTERIM MANAGEMENT STATEMENT

This interim management statement is made in accordance with the UK Listing Authority's Disclosure and Transparency Rules; it covers the period from 1 January 2008 to date.

In our Interim Statement issued on 27 February 2008 we noted that, whilst there was little evidence of the credit shortage affecting our Construction and Support Services businesses, it was clearly having an effect on our Homes and Property businesses. Market conditions since then have deteriorated further for Homes and Property but there is limited evidence of a slow down in the markets for Construction and Support Services both of which continue to perform strongly and have record order books. These mixed market experiences reinforce the benefit of having a spread of businesses which are not solely reliant upon one sector of the market.

Our Construction division continues its strong performance again reaching record levels of cash and order books.  Kier Regional was pleased to have recently been appointed by BAA plc as one of five framework contractors which, between us, will deliver some £650m of projects over the next five years at major UK airports.  We have continued to see a strong flow of work in the education sector both on framework agreements and through traditional methods of procurement and we are making good progress in advancing the Kent Building Schools for the Future project towards financial close which will give us an initial £100m of schools work with a potential for £150m more. We are involved in numerous other framework agreements for both the public and private sectors which underpin our revenue growth expectations for this year and next. Kier Construction, our infrastructure business, is poised to benefit from increasing expenditure on power and utilities in the UK and has recently secured significant contract awards in Dubai. Our mining business has recently secured orders for delivery in 2009 at prices significantly in excess of our budget.

In Support Services our Building Maintenance business continues its success with a recent appointment as preferred bidder for East Durham Homes to carry out decent homes work on 3,500 homes in Peterlee, County Durham. This contract will provide revenues of £6.5m per annum over four years.  Our £40m per annum 10-year contract in Stoke which commenced in February 2008 is progressing as anticipated.  There is a strong pipeline of further contracts on which we are bidding including a £60m per annum ten-year contract for North Tyneside on which we are shortlisted.

Conditions in the housing market have deteriorated further over the last two months as mortgage availability and mortgage terms have continued to tighten. This is reflected in our reservation levels for that period which are around 35% lower than they were at the same time in 2007 leading us to reduce our expectations for sales for the year to 30 June 2008. Although we are not including any further reservations in our projected sales target, around 16% of the unit sales are yet to progress to the contract stage.  Margins continue to be under pressure due both to volume reductions and selling prices as we endeavour to maintain a sensible balance between discounting properties and reducing work in progress.

It is very difficult to make predictions on the level of sales for 2009 due to current uncertainties in the market, but our projections are for fewer sales than this year. The profits arising from our housing business continue to form a progressively smaller proportion of overall Group profits before tax.  We continue to review and adjust our cost base in line with our reduced level of trading. 

Conditions for our Property business have also continued to deteriorate over the last few months as yields have continued to shift upwards and occupier demand is now beginning to slow. Although we are confident that we can achieve our target sales and profits for the current year, next year is less predictable. Notwithstanding these more difficult market conditions we were pleased to announce in April that we have been appointed preferred bidder to create a property regeneration partnership by way of a joint venture between Kier Property Limited and Network Rail. The joint venture will work towards the sustainable regeneration of its initial portfolio of six station sites at Enfield Town, Epsom, Guildford, Maidstone East, Twickenham and Walthamstow and a further site at Wembley Cutting which have a gross development value in excess of £500m.  

In our PFI business we were pleased to announce the sale of our investment in Hairmyres in February 2008 which has generated a profit of £16.2m for the year. The secondary market for investments remains good and we are exploring other potential disposals for 2009.

 Whilst the markets for our homes and property developments have continued to deteriorate over recent months, Kier's strength is in its diversity which allows us to benefit from those markets which remain sound; construction and support services.  Barring any further significant market setbacks for our Residential business overall profit before tax for this year is anticipated to be in line with expectations, our balance sheet is strong and our cash balances remain high.  

- ENDS -

For further information, please contact:

John Dodds, Chief Executive

Deena Mattar, Finance Director

Kier Group plc                                                                            Tel: [phone]

Caroline Sturdy

Madano Partnership                                                                   Tel: [phone]

 

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