Interim Results
Kier Group PLC
17 March 2003
KIER GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2002
• Record interim results for Kier
• Turnover up 4.5% at £723.6m (2001: £692.5m)
• Operating profit up 39.1% at £12.8m (2001: £9.2m)
• Earnings per share up 23.5% at 25.2p (2001: 20.4p)
• Dividend per share up 15.6% at 5.2p (2001: 4.5p)
• Strong cash performance - £45.3m generated from operating
activities
• Strong order books in Construction and Homes
• £30.3m debt private placing provides longer term financial
structure
Commenting, Colin Busby, Chairman, said:
'Despite uncertainties regarding the global economy I am encouraged by our
own particular markets. The Construction market is firmly underpinned by public
sector spending plans, in the Support Services area there are considerable
opportunities for further outsourcing contracts. The fundamentals of low
interest rates, undersupply and high demand continue to support our areas of
operation in housebuilding.
'We are not immune to the economic environment but our order books in
Construction & Services and Homes are strong and in Property the portfolio will
continue to provide good opportunities all of which place us well for a further
successful performance this year and into the future.'
Enquiries to:
Colin Busby, Chairman
Kier Group plc Tel: 01767 640111
Caroline Sturdy/Bella Jowett
Bell Pottinger Financial Tel: 020 7861 3889
CHAIRMAN STATEMENT
OVERVIEW
I am pleased to report further strong progress in Kier's turnover, profits and
earnings per share in the first half of the year to 30 June 2003. Turnover
increased on last year, benefiting from a record performance in Homes &
Property. Operating profit showed impressive growth, reflecting a healthy
performance from the Homes and Regional construction divisions, and pre-tax
profit increased by over 25%, providing further growth in earnings per share and
enabling a 15% increase in the dividend.
Cash generation was excellent in the first half of the year with £45.3m
generated from operating activities.
The UK Construction market remains resilient with sectors such as retail, health
and education proving strong and the commercial sector still providing
opportunities in our areas of operation. Our order books in the Regional
contracting business were at record levels at the end of January 2003 with a
healthy pipeline of further opportunities. Much opportunity is available within
the Support Services sector and good progress is being made during the preferred
bidder stage to conclude negotiations and finalise the £640m outsourcing
contract for Sheffield City Council during April 2003.
Our Homes division has made an excellent start to the year with turnover over
40% ahead of last year. Our order book at the end of February was 30% ahead of
the same time last year, which, bearing in mind the particularly buoyant market
this time last year provides confidence for the full year. Our Property division
is performing well. Our joint venture with the Bank of Scotland has provided its
first profit in this reporting period, ahead of expectations. We have also made
further good progress in our PFI activities.
With our markets remaining sound we believe we are well positioned to continue
the growth in profits and earnings per share achieved since our flotation in
1996.
During February 2003 we completed a private placing of debt with three
institutions (US and UK) raising a total of £30.3m. This was our first exposure
to this type of fund raising and we met a very favourable reaction in the
capital markets. The fund raising is part of a strategy to lengthen the maturity
of borrowings and to provide an appropriate structure to support the continuing
development of the Group. The private placement is for 10 years at a fixed
interest rate of 6.4%.
RESULTS
Turnover at £723.6m (2001: £692.5m) shows a 4.5% increase with operating profit
up 39.1% at £12.8m (2001: £9.2m) and pre-tax profit up 25.5% to £11.8m (2001:
£9.4m). Basic earnings per share have increased by 23.5% to 25.2p (2001: 20.4p).
Net interest payable at £1.0m (including joint ventures) compares with net
receivable of £0.2m last year.
Operating profit includes a loss of £2.3m relating to our 49% investment in
Belan Limited, which has now been sold. In November 2002 we disposed of the
investment and acquired 100% of the shares in Partnerships First Limited
(Belan's social housing subsidiary) for no net consideration. This operation has
now been included within Kier Regional where it will benefit from Regional's
well-established management controls.
The Board has declared an interim dividend of 5.2p (2001: 4.5p), an increase of
15.6%. This continues our record of growing the dividend by 15% per annum,
achieved since the flotation in 1996, and provides dividend cover of over four
times. The dividend will be paid to shareholders on 15 May 2003 with the usual
scrip alternative.
We achieved another strong cash performance with an inflow of £27.4m during the
six months to 31 December 2002. This is after securing the sale of the
development opportunity at Whitehall at the end of December, which included a
significant advance payment to fund the construction of the development.
Consequently we finished the calendar year with net funds of £73.8m (December
2001: £58.6m).
CONSTRUCTION & SERVICES
Turnover in this segment was slightly below the same period last year with
growth in Kier Regional and Support Services offset by a reduction in Kier
National's turnover in line with the strategy to reduce risk. Operating profit
was marginally down on last year at £5.5m (2001: £5.7m) with margins remaining
at similar levels. Pre-tax profit in this segment, however, rose from £9.4m last
year to £9.8m. Order books have been maintained at around £1.2bn, having
increased in Kier Regional and Support Services and reduced, as planned, within
Kier National.
CONSTRUCTION
Kier Regional had an excellent performance in the first half of the year, with
turnover in the period of £385.4m (2001: £377.2m) and operating profit ahead of
last year. With the widest regional network of locally based businesses of any
UK contractor Kier Regional's broad portfolio of contracts provides low-risk
construction turnover, predictable margins and excellent cash flow. The major
strength of this business is in its flexibility to react to changing client
requirements and to continue to win profitable work in whichever sector it is
available. Accordingly Kier Regional has seen a record value of awards in the
six-month period to 31 December 2002. Although many in the industry have
reported a weakening in the commercial sector, awards in this area have remained
strong reflecting the nature of the Regional business and its strength outside,
as well as within, the London area. I do anticipate a cooling in the commercial
sector, but with retail still buoyant and leisure, health and education
providing more work I expect further growth within this business this year.
In November Kier Regional's portfolio of businesses was enhanced by the
acquisition of
Partnerships First Limited (following the disposal of our 49% holding in Belan
Limited). This business will benefit from the proposed spending on social
housing and it provides another string to Kier Regional's bow.
Within Kier National, the Group's major projects business, turnover reduced from
£211.9m last year to £190.5m. Action has been taken to further reduce risk, with
the focus now very much on negotiated and partnered work in the UK, as well as
overseas. Kier International benefited significantly from this approach, which
was implemented some years ago. It achieved a strong performance in the six
months to December 2002. The UK businesses have been following this approach
resulting in downsizing and some organisational changes. I am confident that we
can achieve our objective of a more profitable, lower risk, albeit smaller,
major projects division within the Group.
SUPPORT SERVICES
We are making excellent progress in growing our Support Services business with a
rise in turnover over last year to £46.8m (2001: £37.0m) and increased profits.
Our contract for the London Borough of Islington is performing well and our
latest 'best value' contract for Greenwich although smaller, is also doing well.
Our bid team is working hard to close the contract for Sheffield City Council,
on which we are preferred bidder and which will provide an estimated £640m of
turnover over ten years. The award of this contract moves us forward
significantly and closer to our target of £200m of turnover per annum within
three years.
HOMES & PROPERTY
In Homes & Property operating profit increased sharply to £14.2m (2001: £7.5m),
an increase of 89.3% on turnover up 53.4% at £97.9m (2001: £63.8m) with both
divisions contributing positively to these results.
Homes
With completions 29.5% ahead of last year at 500 (2001: 386), Kier Residential
has seen a very strong six months to 31 December 2002. This increase, coupled
with a rise in average selling prices from £164,400 to £181,200, resulted in a
42.7% increase in turnover to £90.6m (2001: £63.5m). Operating profit rose by
45.3% to £10.9m (2001: £7.5m) with margins improved from 11.8% last year to
12.1%. Excluding Allison Homes, acquired in September 2001, turnover has
increased by 27.7% and operating profit by 23.2%.
The land bank at 31 December 2002 stood at 3,740 plots with planning consent
(2001: 3,038) and 12,000 strategic plots (2001: 11,400). The average plot cost
of consented land is £41,600 compared with £39,400 last year.
Conditions in our areas of operation continue to be encouraging underpinned by
low mortgage rates and an undersupply of housing. At 28 February 2003 our order
book of reservations and exchanged contracts was 29.5% ahead of the same time
last year at £61.4m (February 2002 £47.4m) and, together with completions for
the year to date, secures over 85% of our projected unit sales for the current
year.
Property
The Group's property activities are divided into two, those that are engaged in
directly by the Group and those that operate through the joint venture with the
Bank of Scotland (Kier Developments). Both activities are performing extremely
well. Within the Kier owned opportunities, the significant event during the six
months to December 2002 was securing the sale of the Whitehall office
development, which is being constructed by Kier. At Waltham Point, where we are
in joint venture with Morley Fund management, the 700,000 sq. ft regional
distribution centre for J Sainsbury, situated alongside the M25, was sold
providing profit for the half year.
Within Kier Developments significant progress was made on some early
opportunities
including disposals at Didcot, Enfield, South Audley Street (London),
Borehamwood and Exeter providing the Group with joint venture operating profit
of £1.1m in the six months under review.
INFRASTRUCTURE INVESTMENT
In October 2002 we were pleased to announce the award of our first PFI care
homes project, Greenwich Care Homes, which is now under construction, and in
December 2002 we were appointed preferred bidder on Hinchingbrooke Hospital, our
fourth PFI hospital. These two projects bring our committed investment to nearly
£12m with an expected long-term average yield in excess of 15%.
The bidding and overhead costs of PFI remain high but are beginning to reduce as
the bidding process becomes more efficient. However we are continuing our
cautious approach and have contained overhead and bidding costs at similar
levels to last year with £0.7m charged to profits.
BOARD OF DIRECTORS
At the Company's AGM in November 2002, I was pleased to announce the addition to
our Board of two new members, Dick Side, Managing Director of the Regional
construction division and Dick Simkin, Managing Director of the Property
division. These appointments are well deserved and form part of a wider
succession plan, further details of which are given below.
In order to meet the growing needs of the business we have decided to separate
my role of Chairman and Chief Executive. I am delighted to announce that, from 1
May 2003, John Dodds, with whom I have worked closely for many years and in whom
I have the greatest confidence, will become the Chief Executive of the Group and
I shall retain the role of Chairman. John has been a member of the Board since
the employee buy-out in 1992. He has vast knowledge of the construction industry
both in the UK and overseas and in-depth knowledge of Kier. His responsibilities
to date have included Kier National, Property and the Group's PFI activities,
which, by their nature, have spanned all divisions of the Group. I wish John
every success in this new role.
On 7 May 2003 Martin Scarth, who has been the Board member responsible for Kier
Regional since the employee buy-out in 1992 and more recently has been
responsible for the Support Services division, will be retiring. Martin has been
with Kier for over 40 years and has played a significant role in developing our
highly successful Regional business into the market leader in UK Regional
Construction.
On 30 June 2003 David Homer, Managing Director of Kier Residential, will also be
retiring. David joined the Group in 1994 and was appointed to the Board prior to
flotation in 1996. During this time he has built up a thriving, premium quality,
regional housebuilding business, which has grown threefold since his appointment
and has made a significant contribution to Group profits.
Both Martin and David have been fundamental to the growth and success of the
Group each representing the key elements in our business model, the cash
generative activities and the cash consumptive activities. Their lively and
enthusiastic input will be missed. I personally would like to thank Martin and
David for their hard work and commitment and I wish them well for their
retirement.
HEALTH AND SAFETY
Kier is totally committed to improving health and safety standards and is
actively involved in setting and delivering the targets outlined in the Major
Contractors' Group charter.
We are currently assessing the requirements of the occupational health targets
in order to raise awareness throughout the Group and our supply chain.
PROSPECTS
Despite uncertainties regarding the global economy I am encouraged by our own
particular markets. The Construction market is firmly underpinned by public
sector spending plans, in the Support Services area there are considerable
opportunities for further outsourcing contracts. The housing market continues to
be dogged by media speculation much of which is influenced by the London market
to which we are not exposed. However the fundamentals of low interest rates,
undersupply and high demand continue to support our areas of operation.
We are not immune to the economic environment but our order books in
Construction & Services and Homes are strong and in Property the portfolio will
continue to provide good opportunities all of which place us well for a further
successful performance this year and into the future.
Kier Group plc
Consolidated Profit and Loss account
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2002 2001 2002
Notes £m £m £m
Total turnover 1 723.6 692.5 1,382.7
----------- ----------- ----------
Operating profit - Group 13.5 9.1 24.8
Share of operating profit - joint ventures 1.6 0.2 1.4
Share of operating loss - associates (Belan) (2.3) (0.1) -
----------- ----------- ----------
Total operating profit - Group and share
of joint ventures and associates 1 12.8 9.2 26.2
Profit on disposal of interest in subsidiary
undertaking - - 0.7
Net interest receivable - Group 0.1 0.5 1.9
Net interest payable - joint ventures and associates (1.1) (0.3) (0.8)
----------- ----------- ----------
Profit on ordinary activities before taxation 1 11.8 9.4 28.0
Taxation 2 (3.3) (2.6) (7.7)
----------- ----------- ----------
Profit on ordinary activities after taxation 8.5 6.8 20.3
Ordinary dividend 3 (1.8) (1.5) (4.8)
----------- ----------- ----------
Retained profit attributable to
ordinary shareholders 6.7 5.3 15.5
----------- ----------- ----------
Earnings per share
- basic 4 25.2p 20.4p 60.4p
- diluted 24.8p 20.0p 58.8p
----------- ----------- ----------
Adjusted earnings per share
(excluding profit on disposal of interest in subsidiary undertaking)
- basic 25.2p 20.4p 58.3p
- diluted 24.8p 20.0p 56.7p
----------- ----------- ----------
Dividend per share 3 5.2p 4.5p 14.2p
----------- ----------- ----------
The presentation of the profit and loss account for the six months ended 31
December 2001 has been altered to reflect a change in accounting basis within a
PFI special purpose vehicle. An adjustment of £1.5m has been made to 'Share of
operating profit - joint ventures - and 'Net interest payable - joint ventures'.
There is no effect on the profit before tax for the Group. Turnover and cost of
sales have been reduced by £1.4m as a result of this change.
Kier Group plc
Consolidated Balance Sheet
Unaudited Unaudited
31 December 31 December 30 June
2002 2001 2002
£m £m £m
Fixed assets
Intangible fixed assets 5.2 - -
Tangible fixed assets 49.2 47.3 48.9
------------------------------------------------------------
Investments
Investments in joint ventures
Share of gross assets 159.2 96.0 143.1
Share of gross liabilities (155.8) (91.8) (139.8)
Loans provided to joint ventures 27.8 4.3 21.9
----------- ----------- ----------
Investment in joint ventures 31.2 8.5 25.2
Investment in associates - 2.3 2.3
Investment in own shares 1.5 1.5 1.6
32.7 12.3 29.1
----------- ----------- ----------
87.1 59.6 78.0
----------- ----------- ----------
Current assets
Stock 249.8 210.9 251.3
Debtors 214.2 202.3 209.2
Cash at bank and in hand 78.6 66.9 49.2
----------- ----------- ----------
542.6 480.1 509.7
----------- ----------- ----------
Current liabilities
Creditors - amounts falling due within one year (496.7) (450.6) (488.2)
----------- ----------- ----------
Net current assets 45.9 29.5 21.5
Total assets less current liabilities 133.0 89.1 99.5
Creditors - amounts falling due after more
than one year (38.2) (17.4) (18.0)
Provisions for liabilities and charges (12.9) (7.9) (7.0)
----------- ----------- ----------
Net assets 81.9 63.8 74.5
----------- ----------- ----------
Capital and reserves
Called up share capital 0.3 0.3 0.3
Share premium account 14.6 12.9 13.7
Capital redemption reserve 2.7 2.7 2.7
Profit and loss account 64.3 47.9 57.8
----------- ----------- ----------
Equity shareholders' funds 81.9 63.8 74.5
----------- ----------- ----------
Kier Group plc
Consolidated Cash Flow Statement
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2002 2001 2002
£m £m £m
Operating activities
Operating profit 13.5 9.1 24.8
Loss/(profit) on sale of fixed assets 0.3 (0.1) -
Depreciation charges 3.9 3.6 7.3
Decrease in working capital 27.6 21.2 17.9
----------- ----------- ----------
Net cash inflow from operating activities 45.3 33.8 50.0
Returns on investments and servicing of finance 0.8 0.3 1.7
Taxation (2.5) (1.5) (6.8)
Capital expenditure and financial investment (4.4) (4.9) (9.4)
Acquisitions, investments and disposals (9.5) (24.9) (44.0)
Equity dividends paid (2.5) (2.1) (3.2)
Financing - share capital 0.2 (0.2) -
----------- ----------- ----------
Cash inflow/(outflow) before use of liquid resources 27.4 0.5 (11.7)
Net increase in short-term bank deposits (27.8) (28.7) (6.4)
----------- ----------- ----------
Decrease in cash in the period (0.4) (28.2) (18.1)
Cash outflow from movement in liquid resources 27.8 28.7 6.4
----------- ----------- ----------
Increase/(decrease) in net funds 27.4 0.5 (11.7)
Opening net funds 46.4 58.1 58.1
----------- ----------- ----------
Closing net funds 73.8 58.6 46.4
----------- ----------- ----------
Analysis of closing net funds
Cash at bank and in hand 34.1 27.9 32.5
Bank overdrafts (4.8) (8.3) (2.8)
Short-term bank deposits 44.5 39.0 16.7
----------- ----------- ----------
Closing net funds 73.8 58.6 46.4
----------- ----------- ----------
Notes
1. Segmental information Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2002 2001 2002
£m £m £m
Turnover
Construction & Services 622.7 626.1 1,218.4
Homes & Property 97.9 63.8 158.8
Infrastructure Investment 3.0 2.6 5.5
----------- ----------- ----------
723.6 692.5 1,382.7
----------- ----------- ----------
United Kingdom 681.5 654.5 1,310.7
Rest of World 42.1 38.0 72.0
----------- ----------- ----------
723.6 692.5 1,382.7
----------- ----------- ----------
Operating profit
Construction & Services 5.5 5.7 12.5
Homes & Property 14.2 7.5 22.2
Infrastructure Investment (0.2) (0.4) (0.6)
Corporate Overhead/Finance (4.4) (3.5) (7.9)
Investment in Belan (2.3) (0.1) -
----------- ----------- ----------
12.8 9.2 26.2
----------- ----------- ----------
United Kingdom 8.9 8.5 19.9
Rest of World 3.9 0.7 6.3
----------- ----------- ----------
12.8 9.2 26.2
----------- ----------- ----------
Profit before tax
Construction & Services 9.8 9.4 20.8
Homes & Property 10.1 5.3 17.6
Infrastructure Investment - (0.5) (0.2)
Corporate Overhead/Finance (5.8) (4.6) (10.0)
Investment in Belan (2.3) (0.2) (0.2)
----------- ----------- ----------
11.8 9.4 28.0
----------- ----------- ----------
United Kingdom 7.9 8.9 21.3
Rest of World 3.9 0.5 6.7
----------- ----------- ----------
11.8 9.4 28.0
----------- ----------- ----------
Net operating assets
Construction & Services (134.6) (139.8) (146.0)
Homes & Property 137.9 144.9 168.8
Infrastructure Investment 8.2 5.6 6.7
Corporate Overhead/Finance (3.4) (5.5) (1.4)
----------- ----------- ----------
8.1 5.2 28.1
----------- ----------- ----------
United Kingdom 14.8 14.5 29.5
Rest of World (6.7) (9.3) (1.4)
----------- ----------- ----------
8.1 5.2 28.1
----------- ----------- ----------
Corporate Overhead/Finance operating profit and profit before tax for the six
months ended 31 December 2001 have been restated to reflect a change in
presentation of PFI bidding costs and investment income which are now
charged/credited to Infrastructure Investment.
Notes continued
2 Taxation
The corporation tax rate of 28.0% (June 2002: 27.5%, December 2001: 27.5%) is
based on the estimated effective percentage tax rate for the full year, and is
calculated after taking into consideration tax losses brought forward from
previous years. The tax charge is calculated in accordance with FRS 19.
3 Dividends per ordinary share
The interim dividend of 5.2p (December 2001: 4.5p) per ordinary share will be
paid on 15 May 2003 to shareholders on the register at the close of business on
28 March 2003. A scrip dividend alternative will be offered.
4 Earnings per share
Earnings per share is calculated by dividing the profit for the period after
taxation by the following weighted average number of shares.
31 December 31 December 30 June
2002 2001 2002
million million million
Basic 34.0 33.5 33.6
------------ ---------- ------------
Diluted 34.7 34.2 34.5
------------ ---------- ------------
The diluted earnings per share takes account of the dilutive effect of options
and is calculated in accordance with FRS 14.
5 Reconciliation of movements in shareholders' funds
£m
Shareholders' funds at 30 June 2002 74.5
Issue of new ordinary shares 0.9
Retained profit for period 6.7
Currency (0.2)
---------
Shareholders' funds at 31 December 2002 81.9
---------
6 Status
The interim results do not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985.
The abridged consolidated profit and loss account for the year to 30 June 2002
and the abridged consolidated balance sheet at 30 June 2002 have been extracted
from the latest published accounts of Kier Group plc on which the report of the
auditors was unqualified and which have been delivered to the Registrar of
Companies.
Copies of this interim statement will be sent to shareholders and are available
for inspection at the Company's registered office.
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