Interim Management Statement

RNS Number : 0657W

Kier Group PLC

12 November 2010

 



                                                                                     

KIER GROUP plc

INTERIM MANAGEMENT STATEMENT AND AGM STATEMENT

This statement covers the period from 1 July 2010 to the date of this announcement and constitutes Kier's Interim Management Statement as required by the UK Listing Authority's Disclosure and Transparency Rules.

Kier Group plc, the integrated construction, support services, social housing and property services group, is today holding its Annual General Meeting at the Brewery, Chiswell Street in London at 11.00am where the following comments will be made regarding current trading, financial performance and the outlook for the financial year. 

Current trading

We are pleased to report that the Group has made a good start to the new financial year with first quarter trading broadly in line with our expectations. Our cash position remains strong and we have healthy order books in Construction and Support Services.  

Construction

Our Construction division continues to perform well, benefitting from strong, high quality order books which are generating healthy margins and cash balances. Despite the competitive marketplace, our presence on over 50 public and private sector frameworks puts us in a strong position to win further work through 2010/11 and beyond, delivering value solutions to our clients.

Our order books of secured and probable work remain at levels in line with previous years, with nearly all of our expected construction revenue for the year to 30 June 2011 secured and 51% of our targeted construction revenue for the year to 30 June 2012. This, coupled with our absolute focus on underlying operating cost, provides us with confidence that we can sustain good operating margins and strong cash flows.

Recently we have been appointed as a construction partner on the West Midlands Framework and on both the high and medium value frameworks in the North West Construction Hub (NWCH). The latter is available to all local authorities and other public sector organisations across the north-west region to procure and deliver a range of construction projects during its four-year term.

The much needed reinvestment programme in power generation in the UK will provide significant opportunity for Kier and we are well positioned to win work given our valuable experience and track record with gas, coal and nuclear technologies. In the power sector, where we are market leader, we are currently working on an advanced works package for EDF at Hinkley, and we expect the first significant packages of work for the new station to be awarded later this year.

The education sector continues to provide a good flow of new work despite the Government's recently announced cutbacks. Since 1 July 2010, we have secured two new academy school projects, (East Sussex and Worcester) valued at £28m and we have reached financial close on a further £97m.

As announced in September, we were pleased to have been selected as one of only six contractors on the NHS ProCure 21+ health framework, worth up to £4.5bn over the next six years. We have now won the first two contracts to have been awarded under this new framework valued at £8m and are currently active on a further £100m of opportunities.

In infrastructure, following our successful entry onto the civil engineering, demolition and enabling frameworks for Crossrail, we have submitted a number of bids (ranging from £250m to £400m) in joint venture, the results of which are expected in the first half of 2011.

We are also beginning to see signs of recovery in the UK commercial property market, both through our Developments business and through our long-standing client base, with three new commercial awards in London valued at £84m.

New work has been forthcoming overseas: in Hong Kong, we have recently been awarded a £125m tunnelling project for the Mass Transit Railway Corporation in joint venture, whilst in the Caribbean we have been awarded or are at preferred bidder on £25m of work on a range of infrastructure projects.

Support Services

The Support Services division has traded in line with our expectations and we continue to have good long-term visibility of revenues. This is largely driven through our Building Maintenance business where we operate large, long-term contracts for the repairs and maintenance of social housing units.

We have a strong pipeline of opportunities and believe that pressures on government spending will increase our opportunity in this sector.We are offering our local authority partners innovative funding and development solutions, and assisting them in their desire to bundle several services into one contract.

Our Street Services business has been awarded several new contracts in the period including the £68m waste collection and related services contract spread over eight years for North Norfolk District Council and the Borough Council of King's Lynn and West Norfolk, and our recycling plant (Pure), which we acquired in May, has now been granted an environmental licence to process 80,000 tonnes of waste per annum, which is ahead of our expectations.

We are also pursuing growth in the photovoltaic (PV) sector and are currently installing one of the UK's largest photovoltaic arrays on King's Cross station. The contract includes the installation of a new glazed roof comprising over 15,000sq m of glazing, of which 2,500sq m is made up of PV panels that will generate 10% of the station's electricity requirements.In Stoke, we are installing PV panels to council-owned homes across our area of operation. This is an area where we would expect to see significant growth in activity over the next few months.

Partnership Homes

The Comprehensive Spending Review has introduced changes to the funding of new build social housing from a capital grant to an affordable rent basis of up to 80% of market rent. These changes will promote social housing development in the medium term, however there is likely to be a hiatus while these funding models are established. In the short term our Partnership Homes business continues to respond well to opportunities in the social housing market with a number of framework successes and scheme completions in the period, including achieving preferred bidder status on the c.£30m Tavy Bridge regeneration scheme for Gallions Housing Association.

In terms of the private housing market, continued lack of confidence coupled with the low availability of mortgage finance has resulted in a slow start to the year for our private sales. As expected, we have been trading from a smaller number of private development sites over recent months and we continue to selectively open new sites which will provide more opportunity for increased sales in the New Year. We therefore expect overall sales for the year to 30 June 2011 to be second-half biased.

Our focus is increasingly towards the development of mixed-tenure affordable housing where our skills in marketing and selling private homes combine effectively with our well established relationships with local authorities and housing associations in order to deliver this type of development. We continue to seek to reduce our cash investment in this division by developing our existing land bank of homes for sale, or disposing of land as the opportunity arises. Our land bank remains a valuable asset. We remain flexible and adaptable to the rapidly changing housing environment and the opportunities that it presents.

Developments

Our Developments business, which includes financial and planning expertise, is a key catalyst for generating integrated opportunities across the Group. We continue to seek long-term partnerships with local authorities and other bodies, such as those established with Network Rail and Sheffield City Council, in order to maximise the value of their property assets. This capability puts us in a good position to help local authorities rationalise their property portfolios and create revenue streams to help counteract the spending cutbacks imposed upon them in the Comprehensive Spending Review. A recent example of this is our new contract with Chesterfield City Council which started in October.

Our joint venture with Network Rail, Solum Regeneration, is making good progress and has started on the £20m mixed-use scheme at Epsom. Our construction team has been selected as contractor at Twickenham and we expect to be on site at Walthamstow in the New Year. Solum Regeneration remains a key area of focus for us to grow over the medium term and provides an opportunity for ongoing cash investment.

The general property market remains cautious; however, yields on prime properties are low and we will continue to pursue opportunities to take advantage of this within our portfolio. Our property business achieved practical completion at Ordnance Survey's new headquarters in Southampton, built by Kier Regional during the period.

Corporate responsibility

We have been commended by the Carbon Disclosure Project, which represents leading institutional investors, for our approach to climate change disclosure. We were placed among the top 10% of the FTSE 350 in respect of carbon disclosure and we are now one of only 37 companies named on the Carbon Disclosure Leadership Index. This index highlights the constituent companies within the FTSE 350 Index that have displayed the most professional approach to corporate governance in respect of climate change disclosure practices.

Comprehensive Spending Review

It is still too early to calculate the full implications of the October Comprehensive Spending Review. However, we continue to assess the effects on our key market sectors, as well as the possible threats and opportunities that arise for each of our businesses.

Two key themes evident at this stage are a greater focus on maintenance - including life cycle costs - than new building across all departments, which aligns well with the integrated service offering across our Construction and Support Services divisions; and local authorities' need to adopt a different business model to fund their social housing plans, which will provide us with further opportunities through the combination of our Developments and Partnership Homes divisions.

In education and health we remain well positioned as a result of our presence on national and local frameworks, such as NHS ProCure 21+, which will ensure that we will have access to much of the remaining capital investment. In infrastructure, despite reduced capital funding in the transport sector, major capital projects in which we are involved, such as Crossrail, are going ahead. We still see growth opportunities in a number of our construction markets that will counter the inevitable reductions in public sector expenditure.

Board changes

Deena Mattar, our Group finance director for over nine years, previously notified the Board of her intention to step down at the conclusion of the Annual General Meeting on 12 November. The Board would like to thank Deena for her dedicated support for the business as it has grown over these years. A resolution has been proposed at this meeting to elect Haydn Mursell as Group finance director.

In September 2010 we announced that Simon Leathes, non-executive director and chairman of the Audit Committee, would be stepping down from the Board at the Company's Annual General Meeting after ten years. He is being replaced as chairman of the Audit Committee and member of the Nomination and Remuneration Committees by Richard Bailey, a director of Rothschild, who was appointed as a non-executive director of the company with effect from 1 October 2010. The Board thanks Simon for his contribution to Kier and welcomes Richard to his new role.

Conclusion

The Group's overall financial performance to date is broadly in line with our expectations, our net cash position remains strong and we have healthy order books in Construction and Support Services. 

Kier's integrated business model continues to provide many unique opportunities brought about by our financing and planning skills as well as our strong track record of construction delivery and client service.

The current economic environment and the results of the Comprehensive Spending Review will continue to pose challenges for our industry over the next twelve months. However, Kier with its established client relationships and financial strength, is well placed to attract work through its wide network of local offices and through the numerous frameworks in which it is involved in both the public and private sectors. We are also encouraged by the prospects we see in markets such as power, infrastructure, waste, mixed-use regeneration schemes and overseas.

We have a strong balance sheet, an excellent track record of service delivery and very talented, capable staff, all of which give us confidence that the Group will make further progress in this financial year.

Ends

Contacts:

Haydn Mursell
Group Finance Director
Kier Group                      01767 640111

Faeth Birch
Conor McClafferty
Finsbury                         020 7251 3801

 

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