Interim Results - 6 Months to 31 December 1999

Kier Group PLC 16 March 2000 Kier Group plc Interim Results For the six months to 31 December 1999 Highlights * Kier's growth continues into eighth year * Record interim pre-tax profits £6.1m, up 30% (1998: £4.7m) * Operating margins improve, operating profit up 18% at £4.7m (1998: £4.0m) * Earnings per share up 31% to 13.8p (1998: 10.5p) * UK markets stable and strong position carried into second half Chairman's Statement Kier Group's interim results to 31 December 1999 confirm that our profits are still growing strongly. Pre-tax profit at £6.1m is 30% ahead of 1998's £4.7m and basic EPS at 13.8p is 31% ahead. Returns have improved in both Construction and Homes & Property and these excellent results augur well for the full year. Across the business, total operating profit is up 18% to £4.7m, achieved from turnover up just 4% to £484.7m. Profit of £0.5m (1998: NIL) arose on disposal of our investment in property development at Oxford. Adjusted EPS, excluding this investment profit, was 12.5p, up 19% on 1998. Net interest receivable and similar income is increased from £0.7m to £0.9m, including this year £0.3m dividend income (1998: NIL). Kier's liquidity remains strong with £39.2m of net liquid funds in the December balance sheet (1998: £27.4m). An interim dividend of 3.4p will be paid on 17 May 2000 to shareholders on the register at 31 March 2000. This represents a 13% increase on 1998 (3.0p). There will again be a scrip dividend alternative. Construction The gradual improvement in operating margins and the continuing strong cash flow from our construction business is firm evidence that our strategy to maintain the quality and improve the returns from Construction is working. Kier Regional, our network of 28 construction offices across the UK, offering a construction service from the smallest contract up to the £12m-£15m level, has again proved a solid backbone to the business. Operations in the period were at a similar volume to last year, but with orders at a record level, we expect an exceptionally busy second half. Negotiated and partnered work now accounts for 40% of turnover, while we also continue to pursue traditionally tendered work to ensure we remain fully competitive. Spread of risk remains a feature, and the outlying offices such as Norwich, Durham, Carlisle and Newport are now contributing to the growth. Kier National, dealing with major projects, saw growth principally in Kier Build, with contracts from major office developers a feature, both in London and provincial centres. Kier Rail is also progressing, and is to refurbish and upgrade the chain of depots required to service the new West Coast Mainline trains. The civil engineering market remains short of opportunities, restricting growth in this field, although we remain prominently involved in power generation projects . The international contracting markets in which we operate remain less buoyant than the UK. The new team installed last year in Kier International is making headway in its task but the return to profitability in this sector has still to be achieved. In the FM sector, our activities remain modest relative to construction, but grew at 10% in the period. Their expansion remains an objective, which we believe the introduction of the 'Best Value' programme to local authorities will facilitate. We are currently short-listed on two major local authority 'externalisation' projects. Overall, our construction and FM operations increased total operating profit by 57% to £2.2m, a notable achievement. Total turnover was £438.6m (1998: £416.7m). Homes & Property Both our residential and commercial property companies contributed strongly to the interim result and are well placed for satisfactory results over the year as a whole. In Kier Residential, development of our three homes brands continued (Bellwinch and Twigden in South East England and Kier Homes in Scotland). All have experienced a generally firm underlying market little affected by the several interest rate rises so far announced. Prices have moved ahead in most locations, and with land increasingly scarce (and expensive) and the planning process increasingly problematic, our emphasis continues to be on quality not quantity. We sold 253 homes in the period (1998: 307) at an average sales price of £143,800 (1998: £121,900) achieving approximately the same turnover as last year. A major project completed in the period was the remediation and provision of access and services to Waltham Park, the 30 acre residential site by the M25, following which we have sold parts of this valuable site to other developers so as to redeploy capital. This contributed £7.4m to our turnover. At 31 December our consented land-bank totalled 1,650 plots (1998: 1,543) with a further 230 under contract, at an average plot cost of £33,600 (1998: £31,200). Orders carried over into January are well ahead of last year, as have been reservations so far in 2000, so we anticipate a strong spring sales season, for which we are well prepared. Our commercial property team has made progress on a number of larger schemes and is now concluding an important pre-let on a major distribution site near Northampton which we are developing in joint venture. The period's result includes a dividend of £0.3m from our participation in the Arlington Business Park on Oxford's Eastern Bypass, representing our interest in several successful development phases over recent years. Our long term investment in this project was repurchased by Arlington Securities plc during December on terms showing a satisfactory investment gain of £0.5m. Our close association with Arlington Securities will continue through the partnering relationship of our Construction division at Oxford and on other projects. Homes & Property contributed operating profit of £4.7m (1998: £4.4m) in addition to the dividend and investment profit mentioned above. Turnover was £46.1m (1998: £49.3m). Private Finance Initiative/Private Public Partnership We continue to develop our portfolio of PFI and PPP projects with both operational and equity participation. We are watching with interest the increasing acceptance of partnering principles across more areas of public sector procurement. We know partnering works in the private sector and more and more of our teams have experience of it. We have a lot to bring to the table as local authorities and spending agencies consider their strategies for procuring both new-build and maintenance in the light of 'Best Value' and similar initiatives. Progress on the construction phase at the major PFI hospital in East Kilbride has been ahead of expectation and occupation is now expected to begin in February 2001, over three months early. Kier, besides constructing this, holds 50% of the equity in this project. Our Welsh PFI hospital project has recently achieved commercial close. Upon finalisation of the finance package, this will generate a 27 year contract for our FM division. We will hold 25% of the equity in this project. We continue to progress a number of smaller 'preferred bidder' positions and are well represented in the larger health projects currently going through competitive selection processes. Bidding costs remain high and account for the increase in central charges in our interim results. We are confident these will be rewarded with both operational and investment returns over future years. Prospects Both the Construction and Homes & Property segments of our business are carrying a strong position forward into the second half of the year, having recorded solid advances in the first half. Construction opportunities remain attractive in the majority of our markets where our position is buttressed by our teams' proven ability to adopt the best modern practices in the construction process. We should continue to increase our share of UK markets and to improve steadily our returns, in line with the strategy outlined last year. Our Homes activities also will continue to benefit from the well spread land-bank in South East England and the growing maturity of the Scottish operation. While the rate of our growth is dependent on general economic conditions, current national policies will, I believe, deliver shallow economic cycles which will not disrupt the forward progress of our markets. I therefore expect this year's outturn to be satisfactory to shareholders, and I am optimistic for the medium to longer term. Colin Busby Chairman For further information, please contact: Colin Busby/Duncan Brand Kier Group plc Tel: 01767 640111 Jerry Wood/Caroline Sturdy Bell Pottinger Financial Tel: 020 7353 9203 Consolidated Profit and Loss Account Notes Unaudited Unaudited 6 months 6 months Year to to to 31 31 30 June December December 1999 1998 1999 £m £m £m Total turnover 1 484.7 466.0 962.9 ---------- ---------- ---------- Operating profit - Group 4.2 3.4 10.9 Share of operating profit - joint ventures 0.5 0.6 1.7 ---------- ---------- ---------- Total operating profit - Group and share of joint ventures 1 4.7 4.0 12.6 Profit on disposal of fixed asset investment 2 0.5 - - Income from investments 0.3 - - Net interest receivable 0.6 0.7 1.2 ---------- --------- ---------- Profit on ordinary activities before taxation 1 6.1 4.7 3.8 Taxation 3 (1.6) (1.3) (3.9) ---------- ---------- ---------- Profit on ordinary activities after taxation 4.5 3.4 9.9 Ordinary dividend 4 (1.1) (1.0) (3.0) ---------- ---------- ---------- Retained profit attributable to ordinary shareholders 3.4 2.4 6.9 ---------- ---------- ---------- Earnings per share 5 Undiluted 13.8p 10.5p 30.6p Undiluted before profit on disposal of fixed asset investment 12.5p 10.5p 30.6p Diluted 13.5p 10.4p 30.2p Dividend per share 3.4p 3.0p 9.3p Consolidated Balance Sheet Unaudited Unaudited 31 December 31 December 30 June 1999 1998 1999 £m £m £m Fixed assets 48.0 47.6 49.4 ---------- ---------- ---------- Current assets Stock 122.0 100.9 115.7 Debtors 155.1 153.0 167.3 Short term investments 0.6 - 0.6 Cash at bank and in hand 39.0 31.3 44.1 ---------- ---------- ---------- 316.7 285.2 327.7 ---------- ---------- ---------- Current liabilities Creditors - amounts falling due within one year (316.0) (293.3) (332.8) ---------- ---------- ---------- Net current assets/(liabilities) 0.7 (8.1) (5.1) Total assets less current liabilities 48.7 39.5 44.3 Creditors - amounts falling due after more than one year (5.9) (8.5) (5.3) Provisions for liabilities and charges (5.9) (2.1) (5.5) ---------- ---------- ---------- Net assets 36.9 28.9 33.5 ---------- ---------- ---------- Capital and reserves Called up share capital 0.3 0.3 0.3 Share premium account 9.6 9.2 9.4 Other reserves 2.7 2.7 2.7 Profit and loss account 24.3 16.7 21.1 ---------- ---------- ---------- Shareholders' funds 36.9 28.9 33.5 ---------- ---------- ---------- Consolidated Cash Flow Statement Unaudited Unaudited 6 months to 6 months to Year to 31 December 31 December 30 June 1999 1998 1999 £m £m £m Operating activities Operating profit 4.2 3.4 10.9 Depreciation charges 3.8 3.1 6.7 (Increase)/decrease in working capital (8.3) (11.0) 1.2 ---------- ---------- ---------- Net cash (outflow)/inflow from operating activities (0.3) (4.5) 18.8 Returns on investments and servicing of finance 0.7 0.9 1.3 Taxation (0.2) (0.4) (3.5) Capital and investment expenditure (1.4) (6.8) (11.7) Acquisitions - (10.0) (10.1) Equity dividends paid (1.8) (1.1) (1.9) ---------- ---------- ---------- Cash (outflow) before management of liquid resources and financing (3.0) (21.9) (7.1) Management of liquid resources (13.4) (1.1) 14.3 ---------- ---------- ---------- (Decrease)/increase in cash in the period (16.4) (23.0) 7.2 Increase/(decrease) in liquid resources 13.4 1.1 (14.3) ---------- ---------- ----------- (Decrease) in net funds (3.0) (21.9) (7.1) Opening net funds 42.2 49.3 49.3 ---------- ---------- ---------- Closing net funds 39.2 27.4 42.2 ---------- ---------- ---------- Analysis of closing net funds Cash at bank and in hand 13.9 4.2 32.4 Bank overdrafts (0.4) (3.9) (2.5) Short term bank deposits 25.1 27.1 11.7 Short term investments 0.6 - 0.6 ---------- ---------- ---------- Closing net funds 39.2 27.4 42.2 ---------- ---------- ---------- Notes 1 Segmental information Unaudited Unaudited 6 months to 6 months to Year to 31 December 31 December 30 June 1999 1998 1999 £m £m £m Turnover Construction 438.6 416.7 857.7 Homes & Property 46.1 49.3 105.2 ---------- ---------- ---------- 484.7 466.0 962.9 ---------- ---------- ---------- United Kingdom 438.1 430.3 884.9 Rest of World 46.6 35.7 78.0 ---------- ---------- ---------- 484.7 466.0 962.9 ---------- ---------- ---------- Operating profit Construction 2.2 1.4 4.0 Homes & Property 4.7 4.4 12.0 Corporate overhead/Finance (2.2) (1.8) (3.4) ---------- ---------- ---------- 4.7 4.0 12.6 ---------- ---------- ---------- United Kingdom 7.0 3.4 14.1 Rest of World (2.3) 0.6 (1.5) ---------- ---------- ---------- 4.7 4.0 12.6 ---------- ---------- ---------- Profit before tax Construction 5.6 5.4 11.0 Homes & Property 3.9 2.7 9.0 Corporate overhead/Finance (3.4) (3.4) (6.2) ---------- --------- ---------- 6.1 4.7 13.8 ---------- ---------- ---------- United Kingdom 8.7 4.5 15.9 Rest of World (2.6) 0.2 (2.1) ---------- ---------- ---------- 6.1 4.7 13.8 ---------- ---------- ---------- Net assets Construction 50.7 49.5 50.2 Homes & Property 22.5 17.1 21.0 Corporate overhead/Finance (36.3) (37.7) (37.7) ---------- ---------- ---------- 36.9 28.9 33.5 ---------- ---------- ---------- United Kingdom 36.3 24.5 30.9 Rest of World 0.6 4.4 2.6 ---------- ---------- ---------- 36.9 28.9 33.5 ---------- ---------- ---------- 2 Profit on disposal of fixed asset investment During the period, the Group realised a profit on the disposal of its 10% shareholding in Oxford Business Park (South) Limited, a company engaged in commercial property development, which had been held as a fixed asset investment. 3 Taxation The corporation tax rate of 26.2% (June 1999 28.3%, December 1998 27.7%) 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. 4 Dividends per ordinary share The interim dividend of 3.4p (December 1998 3.0p) per ordinary share will be paid on 17 May 2000 to shareholders on the register at the close of business on 31 March 2000. A scrip dividend alternative will be offered. 5 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 1999 1998 1999 £m £m £m Basic 32.7 32.3 32.4 Diluted 33.3 32.7 32.8 The diluted earnings per share takes account of the dilutive effect of options and is calculated in accordance with FRS 14. 6 Reconciliation of movements in shareholders' funds £m Shareholders' funds at 30 June 1999 33.5 Issue of new ordinary shares 0.2 Currency translation (0.2) Retained profit for period 3.4 Shareholders' funds at 31 December 1999 36.9 7 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 1999 and the abridged consolidated balance sheet at 30 June 1999 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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