Interim Results
Kier Group PLC
27 February 2008
Kier Group plc logo
27 February 2008
KIER GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS TO 31 DECEMBER 2007
•Pre-tax profits up 23.2% to £44.6m (2006: £36.2m)
•EPS* up 19.1% to 90.3p (2006: 75.8p)
•Dividend increased by 87.5% to 18.0p (2006: 9.6p)
•Net cash of £135.9m at 31 December 2007 (2006: £114.4m)
•Strong Construction and Support Services order books
•Homes order book together with completions to 1 February secure over 75%
of the full year target
* adjusted for amortisation of intangibles
Commenting on the results, John Dodds, Chief Executive, said:
"Our Construction and Support Services businesses have never been busier, our
order books are strong and, importantly, our enquiry levels remain high.
"We have experienced teams in place in all of our businesses, a strong balance
sheet and good cash resources and, in the absence of any significant market
setbacks, we are firmly on track for growth this year."
For further information, please contact:
John Dodds, Chief Executive
Deena Mattar, Finance Director
Kier Group plc Tel: 01767 640 111
Caroline Sturdy/Matthew Moth
Madano Partnership Tel: 020 7593 4000
Chief executive's review
Overview
I am very pleased to report that, for the six months to 31 December 2007, Kier
Group plc has delivered another strong set of interim results. Despite difficult
market conditions facing our Homes business, the Group has achieved record
levels of revenue and pre-tax profit for the period.
Our Construction and Support Services businesses, in particular, have been very
busy, each of them achieving new records of revenue and profits for the six
months with good market conditions providing plenty of opportunities and strong,
high-quality order books. Our Homes division sold 827 homes in the period
marginally more than last year's 819 homes with a relatively strong market in
Scotland. In Property the year commenced well with a number of key development
sales secured in the early part of the financial year.
Our Infrastructure Investment business has seen recent success through the sale
of our 50% Private Finance Initiative (PFI) investment in the Hairmyres District
General Hospital project in Scotland, Kier's first ever PFI contract. The sale
completed in February 2008 and contributes a profit of £16.2m in the second half
of this financial year, including profit previously deferred following a
refinancing in August 2004. This represents a return of around five times our
original investment. The value attributed to the equity sold implies a net
present value calculated using an average discount rate of less than five per
cent.
The markets in which we are currently operating are less predictable than we
have seen for some time, particularly for our Homes and Property businesses
where the impact of the 'credit crunch' has become more apparent. Our housing
order books are around 20% lower than they were a year ago, reflecting a dip in
visitor levels during November and December. We will be selling from an average
of 58 sites in the second half of the year compared with 53 in the first half
but expect overall completions to be marginally lower than last year. In
Property there are a number of opportunities in the pipeline for the second half
of the year. We are confident in the carrying values of our housing and our
property developments.
We are seeing little evidence of the credit shortage affecting our Construction
and Support Services businesses. Our Construction division continues to operate
in strong markets and is carrying order books at 31 December 2007 10% ahead of
last year at £1,616m, benefiting from both private and public sector spend
particularly in the education, prison and affordable housing sectors. A greater
proportion of our work is now generated through framework agreements, two-stage
bids and negotiation which create better quality, lower risk order books.
Support Services has seen strong growth in its order books at 31 December 2007
to £1,674m, 8.6% ahead of last year. This is before including a further £400m in
respect of our new contract in Stoke which commenced operation on 4 February
2008. The market for our PFI investments is, presently, unchanged with
continuing demand for secondary PFI investments.
Financial results
Revenue for the six months to 31 December 2007 was at a record £ 1,205.5m, 18.1%
ahead of last year's £1,020.5m; operating profit after the amortisation of
intangible assets and joint venture interest and tax was 16.5% ahead at £42.3m
(2006: £36.3m) and pre-tax profit was 23.2% ahead at £44.6m (2006: £36.2m),
benefiting from strong growth in both the Construction and Support Services
businesses.
Earnings per share, adjusted for the amortisation of intangible assets,
increased by 19.1% to 90.3p (2006: 75.8p).
The trading result was supported by a strong cash performance with £26.7m
generated from operating activities. Net funds at 31 December 2007 were £135.9m
(2006: £114.4m) and strong balances were maintained in the Construction division
which were £56.5m ahead of last year.
Following shareholder approval to rebase the total dividend for 2007 by 92.3% to
50p, the Board has declared an interim dividend for the year to 30 June 2008 of
18.0p (2006: 9.6p); an increase of 87.5%. The dividend is 4.9 times covered by
earnings per share and will be paid to shareholders on 2 May 2008 with the usual
scrip alternative.
Construction
The Construction segment comprises Kier Regional and Kier Construction. Kier
Regional encompasses our ten regional contracting businesses, our affordable
housing business and major building projects. Kier Construction comprises the
Group's infrastructure and overseas operations with civil engineering
infrastructure, rail, mining and remediation capability.
Overall revenue increased by 20.9% to £816.1m (2006: £675.2m) with good growth
in both Kier Regional and Kier Construction. Operating profit increased by 50.5%
to £14.3m (2006: £9.5m) and the operating margin increased to 1.8% from 1.4%
last year making positive progress towards our 2% target.
Cash generation in this division is fundamental to gauging the quality of the
work we are carrying out and our cash balances at 31 December 2007 were £17.7m
ahead of 30 June 2007 (after tax and dividends) with average balances £52.8m
ahead of those for the full year to 30 June 2007. The order book at 31 December
2007 was £1,616m (2006: £1,470m) supported by a healthy pipeline of orders which
are close to being awarded.
Kier Regional continues to make advancements in its key performance indicators
of revenue, profit margins and cash. Revenue grew by over 20% compared with the
same period last year, profit margins continue to increase and cash ended the
period at a record £350m (2006: £298m).
There has been a strong level of contract awards in the period with around 50%
arising from publicly funded sources and 50% privately funded (2006: 49% public;
51% private). Around 80% of our awards were gained through two-stage tenders or
negotiation, many of them through framework contracts, with only 20% of awards
competitively bid (2006: 65% two-stage and negotiation; 35% competitive).
Education has been a key driver of our public sector work representing around
23% of awards through a combination of conventional procurement and framework
agreements. We were delighted to have been awarded one of the first academy
projects under the 'Contractors' Framework for Academies and Other Educational
Facilities' and a major contract for Mid Kent College. Education is set to
remain a key sector for us as we have recently been appointed preferred bidder,
as part of the Land Securities Trillium consortium, on the Building Schools for
the Future programme in Kent. This will provide us, initially, with £100m of
schools work with a potential for around £150m more. Prisons have also provided
a significant amount of work, representing 10% of awards, under our framework
agreement with the Ministry of Justice. In health we were awarded £116m of
contracts under the ProCure 21 framework during 2007.
Our social housing business, Kier Partnership Homes, was also successful in
winning a number of contracts in the period and we are well placed to take
advantage of the growing affordable housing sector through our status as 'a
partner' with the Housing Corporation which qualifies us to apply directly for
housing grants. The Government continues to be committed to the affordable and
regeneration sector with a target to build 70,000 new social houses per annum
compared with the current total of 25,000 each year. Through Kier Partnership
Homes and Kier Property we are well positioned to respond to this increased
target.
In the private sector our awards were driven by commercial property, including a
number of projects for Kier Property and SEGRO (Slough Estates); food retail,
particularly projects for Tesco and Sainsbury; and the hotel and leisure sector.
Kier Construction has had a busy half-year on a number of projects including the
LNG Terminal in Milford Haven for South Hook LNG which is now nearing
completion. Our track record in power stations continues to grow with good
progress being made at Immingham and Langage and further opportunities close to
award including a gas fired power station at Staythorpe and a waste to energy
PFI project on which we are preferred bidder with Vosper Thornycroft.
At our private open cast coal mine, Greenburn in East Ayrshire, we have now
extracted 2.3m tonnes of coal since we began production in 2004 and have been
taking advantage of the very high prices for coal over recent months.
Overseas the building contracts for residential apartments and retail centres in
Romania are progressing well and further opportunities look promising. We marked
our return to contract phosphate mining in the Middle East with the signing of a
£128m, eight-year contract in the north of Saudi Arabia, of which our share is
25%. Kier, together with our partners Al-Qahtani of Saudi Arabia and Comedat of
Jordan, will establish and operate the open cast mine opening up, potentially,
the world's largest phosphate reserves. We have also recently been awarded £105m
of infrastructure contracts in Dubai.
Support Services
Support Services comprises Kier Building Maintenance, Kier Managed Services,
Kier Building Services Engineers and Kier Plant. Kier Building Maintenance
provides reactive and planned maintenance principally to local authority
clients, housing associations and Arms Length Management Organisations as well
as Street Services including refuse collection, street cleaning and grounds
maintenance principally to local authorities. Kier Managed Services provides
facilities management services to public and private sector clients. Kier
Building Services Engineers comprises our specialist mechanical and electrical
design, installation and maintenance business; and Kier Plant hires plant to
Kier Group companies and external clients.
Revenue in this segment increased by 25.6% to £179.3m (2006: £142.7m); operating
profit, before deducting the amortisation of intangibles of £1.0m (2006: £1.0m),
increased by 41.2% to £7.2m (2006: £5.1m) and the operating margin reached our
target of 4.0% earlier than expected. Cash generation within this business
remains strong with cash balances at 31 December 2007 of £18.9m (2006: £17.8m).
Order books at 31 December 2007 of £1,674m (2006: £1,542m) reflect the high
level of awards achieved last year.
Kier Building Maintenance is the largest division within Support Services with
revenue for the period at £134.3m (2006: £99.0m) representing a 35.7% increase
on last year following a number of significant contract awards in the second
half of the last financial year. New contracts awarded last year included Hull
(£17m per annum), Harlow (£25m per annum), Harrow (£22m per annum) and Liverpool
(£21m per annum). All have started well and are performing in line with our
expectations contributing to good visibility of earnings in this division over
the next five to ten years.
In February 2008 we were delighted to start work on a contract in partnership
with Stoke-on-Trent City Council to maintain its 20,000 housing stock and carry
out works through the Decent Homes programme. This brings the total number of
public sector homes we now look after to 207,000 representing around 10% of the
total public sector housing stock held by local authorities. The new contract
will provide us with annual revenue of £40m for ten years, extendable for a
further five years. It also provides a great opportunity to attract additional
work either through the contract or through third party work using the resources
available in the partnership, similar to that experienced in both our Sheffield
and Harlow contracts. A growing pipeline of new opportunities has emerged and we
are short-listed on a £60m per annum ten-year contract at North Tyneside and a
£10m per annum five-year contract at Camden. We have a strong track record of
delivery on high value Building Maintenance contracts which places us well in
this sector.
Homes
Kier Residential, our housebuilding division, comprises five companies; Allison
Homes operating throughout Lincolnshire and north Cambridgeshire; Bellwinch
Homes with sites in the south and south-east; Kier Homes, operating across the
central belt of Scotland; Kier Homes Northern (formerly Hugh Bourn Homes)
operating in north Lincolnshire; and Twigden Homes with activities in East
Anglia and Bedfordshire.
Kier Residential sold 827 homes in the six months to 31 December 2007,
marginally more than 2006's 819 homes, of which 15% were affordable housing
units, compared with 21% last year. Revenue in the six months to 31 December
2007 of £143.2m (2006: £151.8m) excluded land sales compared with the £8.3m of
land sales included in the prior period. Average sales prices fell marginally
from £175,200 to £173,200 reflecting a higher proportion of lower value Kier
Homes Northern sales in the period.
Operating profit from housing sales was in line with last year at £20.1m (2006:
£20.2m) with no profit arising from land sales (2006: £0.2m) giving an operating
margin on housing sales broadly consistent with last year at 14.0% (2006:
14.1%). The land bank at 31 December 2007 contained 6,294 plots with planning
consent (2006: 7,004) including two large new sites, acquired by our Scottish
based business; specifically 326 units at Winston Barracks, Lanark and 195 units
at Hawkehead, Paisley. In addition to the land with planning consent the land
bank also contains a further 12,400 plots of strategic land mostly held under
option.
There is no doubt that the markets in which we operate have become much tougher
in recent months. Mortgage availability is reduced and we saw a significant
reduction in visitor levels to our sites in the run-up to Christmas and over the
Christmas period. January saw a return of visitors to our sites with a slight
increase in the number of reservations compared with the earlier period. Our
order books at 1 February 2008 are 20% lower than they were at this time last
year although we are planning to open a number of new sites in the second half
of the financial year which will increase the average by five sites over the
first half. Completions to 1 February 2008 combined with our order book for the
current year secure over 75% of our projected unit sales for the year. We have
reviewed our incentive packages and, whilst we are not prepared to accept
material margin erosion we are realistic about market conditions and cash
lock-up. In this regard we are reducing our exposure to part-exchange properties
by lowering our limit on the amount of part-exchange property we are prepared to
hold. Despite the slowdown in the market and the marginal price reductions our
carrying values of land and work in progress are robust.
Property
Our Property development activity covers commercial, offices, industrial, retail
and mixed-use sectors largely on a non-speculative basis. It operates through
Kier Ventures, a wholly owned subsidiary; and Kier Developments, a 50% joint
venture with the Bank of Scotland.
Revenue for the six months to 31 December 2007 of £58.3m (2006: £43.5m) was
34.0% ahead of last year with operating profit 18.5% lower at £7.5m (2006:
£9.2m), before joint venture interest and tax.
Within our wholly owned business we completed on the sale of a £40m headquarters
building in Milton Keynes, pre-let to Electronic Data Systems, on which Kier
Regional is the contractor and we are recognising development profit in
accordance with the stage of completion of the works. Good progress is being
made at the new 70,000sq ft UK Supreme Court development for the Ministry of
Justice in London's Parliament Square where Wallis, our specialist refurbishment
contracting business, is carrying out the work, and we are on programme for
completion in the spring of 2009. In our joint venture with the Bank of Scotland
we sold a number of developments including a 22-unit 'Trade City' Industrial
Park at Hemel Hempstead and a number of industrial units at our Brooklands
development in Weybridge.
At Western International Market, near Heathrow, construction of a new market for
the fruit and vegetable traders has now been completed and the site currently
occupied by the traders will soon be released for redevelopment into
distribution units; marketing will commence on that development shortly.
The commercial property market is tougher than we have seen for some time with
exit yields shifting upwards, particularly on secondary sites. However, the
carrying values of the developments in our portfolio continue to be
substantiated and will provide us with a good revenue stream. This market may
also provide us with potential acquisition opportunities at sensible prices.
Infrastructure Investment
Kier Project Investment (KPI) manages the Group's interests procured under PFI.
The core strength of KPI is the ability to bring together the diverse range of
skills and resources within the Group and combine these with a financial package
that will deliver high quality buildings and services to meet public sector
needs.
Kier Regional has made good construction progress on two schools for Oldham
Metropolitan Council, which were handed over in February 2008, and a number of
schools for Norfolk County Council. The Garrett Anderson Health Centre in
Ipswich, also being built by Kier Regional, is close to completion. Kier Managed
Services will provide the facilities management services to all these projects
when they are completed. We are also close to completion on the North Kent
Police Headquarters for Kent County Council.
In early February 2008 we were pleased to announce the sale of our 50%
investment in Hairmyres District General Hospital in East Kilbride, Scotland.
Hairmyres was our first PFI project and included Innisfree as our equity partner
to whom we have now sold our share of the investment. The hospital was completed
by Kier Build in 2001 and, as it has successfully operated for nearly seven
years, the time was right to exit our investment. The sale gave us proceeds of
£13.8m which, when combined with a refinancing gain deferred from August 2004,
gives us a profit of £16.2m. The profit will be recognised in the second half of
the financial year and represents a return of around five times our original
investment. The value attributed to the equity sold implies a net present value
calculated using an average discount rate of less than five per cent.
Following the equity sale, our portfolio includes 12 projects in which we have
invested, or have commitments to invest, a total of £18.5m. The directors'
valuation of the committed investment is approximately £39m based on discounting
the cash flows at 7%.
Health & Safety
In employing over 23,000 people (including subcontractors) across our UK and
international operations every day, we can never allow our focus on their health
and safety to falter. In an effort to raise, yet again, the very high standards
we demand of our project teams, we are setting new targets relating to site
presentation and branding and the way in which we communicate with our workforce
to ensure risks are understood and managed. Our Accident Incidence Rate of 693
per 100,000 staff and subcontractors compares favourably with a Health & Safety
Executive (HSE) target rate of 946 per 100,000. The HSE target for 2008 is set
at 865.
Prospects
We are reporting at a time of uncertainty in both the world and the UK economy
with the 'credit crunch' having a particular effect on our Homes and Property
businesses. Our Construction and Support Services businesses, on the other hand,
have never been busier, our order books are strong and, importantly, our enquiry
levels remain high.
We have experienced teams in place in all of our businesses, a strong balance
sheet and good cash resources and, in the absence of any significant market
setbacks, we are firmly on track for growth this year.
Consolidated income statement
for the six months ended 31 December 2007
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2007 2006 2007
Notes £m £m £m
------------------------------------- ---- ------- ------- -------
Revenue
Group and share of joint ventures 5 1,205.5 1,020.5 2,127.9
Less share of joint ventures (30.9) (40.7) (62.5)
------------------------------------- ---- ------- ------- -------
Group revenue 1,174.6 979.8 2,065.4
Cost of sales (1,071.4) (889.4) (1,874.6)
------------------------------------- ---- ------- ------- -------
Gross profit 103.2 90.4 190.8
Administrative expenses (61.3) (55.9) (115.9)
Share of post tax profits from joint
ventures 0.4 1.8 3.0
------------------------------------- ---- ------- ------- -------
Profit from operations 5 42.3 36.3 77.9
Finance income 5.4 3.3 6.9
Finance cost (3.1) (3.4) (7.2)
------------------------------------- ---- ------- ------- -------
Profit before tax 5 44.6 36.2 77.6
Taxation 6 (12.3) (9.9) (21.3)
------------------------------------- ---- ------- ------- -------
Profit for the period 32.3 26.3 56.3
------------------------------------- ---- ------- ------- -------
Attributable to:
Equity holders of the parent 31.8 26.3 55.5
Minority interests 0.5 - 0.8
------------------------------------- ---- ------- ------- -------
32.3 26.3 56.3
------------------------------------- ---- ------- ------- -------
Earnings per share
- basic 8 88.3p 73.9p 155.0p
- diluted 87.8p 72.9p 152.9p
------------------------------------- ---- ------- ------- -------
Adjusted earnings per share (excluding
the amortisation of intangible assets)
- basic 8 90.3p 75.8p 158.9p
- diluted 89.8p 74.8p 156.7p
------------------------------------- ---- ------- ------- -------
Consolidated statement of recognised income and expense
for the six months ended 31 December 2007
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2007 2006 2007
£m £m £m
------------------------------------- ------- ------- -------
Foreign exchange translation differences - - (0.4)
Fair value movements in cash flow
hedging instruments (13.2) - 13.1
Actuarial gains and losses on defined
benefit pension schemes (17.0) 10.2 22.5
Deferred tax on items recognised
directly in equity 8.5 (3.1) (12.1)
------------------------------------- ------- ------- -------
Income and expense recognised directly
in equity (21.7) 7.1 23.1
Profit for the period 32.3 26.3 56.3
------------------------------------- ------- ------- -------
Total recognised income and expense for
the period 10.6 33.4 79.4
------------------------------------- ------- ------- -------
Attributable to:
Equity holders of the parent 10.1 33.4 78.6
Minority interests 0.5 - 0.8
------------------------------------- ------- ------- -------
10.6 33.4 79.4
------------------------------------- ------- ------- -------
Consolidated balance sheet
at 31 December 2007
Unaudited Unaudited
31 December 31 December 30 June
2007 2006 2007
Notes £m £m £m
------------------------------------- ---- ------- ------- -------
Non-current assets
Intangible assets 12.6 13.8 13.6
Property, plant and equipment 9 84.6 80.3 83.4
Investment in joint ventures 37.3 28.0 40.7
Retirement benefit surplus 10 6.3 6.8 6.8
Deferred tax assets 11.5 14.4 8.7
Other financial assets - 0.2 0.2
Trade and other receivables 14.8 17.4 10.3
------------------------------------- ---- ------- ------- -------
Non-current assets 167.1 160.9 163.7
------------------------------------- ---- ------- ------- -------
Current assets
Inventories 482.9 443.3 460.1
Other financial assets 0.6 0.3 0.3
Trade and other receivables 300.3 258.7 319.4
Cash and cash equivalents 166.1 144.6 178.6
------------------------------------- ---- ------- ------- -------
Current assets 949.9 846.9 958.4
------------------------------------- ---- ------- ------- -------
Total assets 1,117.0 1,007.8 1,122.1
------------------------------------- ---- ------- ------- -------
Current liabilities
Trade and other payables (779.0) (700.1) (791.8)
Tax liabilities (9.4) (3.3) (3.4)
Provisions (1.2) (1.2) (2.4)
Joint venture investment classified
as held for sale 14 (5.1) - -
------------------------------------- ---- ------- ------- -------
Current liabilities (794.7) (704.6) (797.6)
------------------------------------- ---- ------- ------- -------
Non-current liabilities
Long-term borrowings (30.2) (30.2) (30.2)
Trade and other payables (36.4) (51.3) (50.0)
Retirement benefit obligations 10 (40.8) (48.1) (30.6)
Provisions (24.3) (21.4) (20.2)
Deferred tax liabilities (10.7) (12.7) (10.5)
------------------------------------- ---- ------- ------- -------
Non-current liabilities (142.4) (163.7) (141.5)
------------------------------------- ---- ------- ------- -------
Total liabilities (937.1) (868.3) (939.1)
------------------------------------- ---- ------- ------- -------
Net assets 179.9 139.5 183.0
------------------------------------- ---- ------- ------- -------
Equity
Share capital 0.4 0.4 0.4
Share premium 32.5 22.7 27.0
Capital redemption reserve 2.7 2.7 2.7
Retained earnings 146.9 116.3 145.7
Cash flow hedge reserve (2.5) (2.4) 7.0
Translation reserve (0.6) (0.2) (0.6)
------------------------------------- ---- ------- ------- -------
Equity attributable to equity holders
of the parent 179.4 139.5 182.2
Minority interests 0.5 - 0.8
------------------------------------- ---- ------- ------- -------
Total equity 11 179.9 139.5 183.0
------------------------------------- ---- ------- ------- -------
Consolidated statement of cash flows
for the six months ended 31 December 2007
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2007 2006 2007
£m £m £m
------------------------------------- ---- ------- ------- -------
Cash flows from operating activities
Profit before tax 44.6 36.2 77.6
Adjustments Share of post tax profits from (0.4) (1.8) (3.0)
joint ventures
Normal contributions to pension (3.2) (0.7) (2.9)
fund in excess of pension
charge
Share-based payments charge 1.6 1.6 3.9
Amortisation of intangible 1.0 1.0 2.0
assets
Depreciation charges 8.5 7.3 15.0
Profit on disposal of property, (0.6) (0.3) (0.7)
plant & equipment
Net finance (income)/cost (2.3) 0.1 0.3
-------- ------------------------------- ---- ------- ------- -------
Operating cash flows before movements in
working capital 49.2 43.4 92.2
Special contributions to pension fund (3.0) (8.0) (11.0)
Increase in inventories (22.8) (2.8) (20.1)
Decrease/(increase) in receivables 15.5 (1.4) (54.4)
(Decrease)/increase in payables (14.8) 10.1 104.9
Increase in provisions 2.6 3.4 3.2
------------------------------------- ---- ------- ------- -------
Cash inflow from operating activities 26.7 44.7 114.8
Dividends received from joint ventures 0.5 0.5 0.6
Interest received 4.9 3.1 6.8
Income taxes paid (4.1) (7.4) (16.9)
------------------------------------- ---- ------- ------- -------
Net cash generated from
operating activities 28.0 40.9 105.3
------------------------------------- ---- ------- ------- -------
Cash flows from investing activities
Proceeds from sale of property, plant &
equipment 0.8 0.9 1.5
Purchases of property, plant & equipment (10.7) (7.7) (19.7)
Acquisition of subsidiaries, including net
borrowings acquired (12.9) (20.0) (28.0)
Investment in joint ventures (1.2) (5.4) (7.7)
------------------------------------- ---- ------- ------- -------
Net cash used in investing activities (24.0) (32.2) (53.9)
------------------------------------- ---- ------- ------- -------
Cash flows from financing activities
Proceeds from the issue of share capital - - 3.1
Purchase of own shares (5.5) (0.4) (8.7)
Interest paid (1.2) (1.3) (2.6)
Dividends paid to equity shareholders (9.0) (3.7) (5.9)
Distributions to minority interests (0.8) - -
------------------------------------- ---- ------- ------- -------
Net cash used in financing activities (16.5) (5.4) (14.1)
------------------------------------- ---- ------- ------- -------
(Decrease)/increase in cash
and cash equivalents (12.5) 3.3 37.3
Opening cash and cash equivalents 178.6 141.3 141.3
------------------------------------- ---- ------- ------- -------
Closing cash and cash equivalents 166.1 144.6 178.6
------------------------------------- ---- ------- ------- -------
Reconciliation of net cash flow to movement
in net funds
(Decrease)/increase in cash
and cash equivalents (12.5) 3.3 37.3
Increase in long term borrowings - (0.1) (0.1)
Opening net funds 148.4 111.2 111.2
------------------------------------- ---- ------- ------- -------
Closing net funds 135.9 114.4 148.4
------------------------------------- ---- ------- ------- -------
Net funds consist of:
Cash and cash equivalents 166.1 144.6 178.6
Long-term borrowings (30.2) (30.2) (30.2)
------------------------------------- ---- ------- ------- -------
Net funds 135.9 114.4 148.4
------------------------------------- ---- ------- ------- -------
Notes to the interim financial statements
1. Reporting entity
Kier Group plc (the Company) is a company domiciled in the United Kingdom. The
condensed consolidated interim financial statements (interim financial
statements) of the Company as at, and for the six months ended, 31 December 2007
comprise the Company and its subsidiaries (together referred to as the Group)
and the Group's interest in jointly controlled entities.
The interim financial information in this statement does not constitute
statutory accounts, as defined in section 240 of the Companies Act 1985. The
statutory accounts for the year to 30 June 2007 have been delivered to the
Registrar of Companies. The auditors' report on those accounts was unqualified
and did not contain a statement under section 237 of the Companies Act 1985.
2. Statement of compliance
These interim financial statements have been prepared in accordance with
International Financial Reporting Standard IAS 34 'Interim Financial Reporting'
as adopted by the European Union and the Disclosure and Transparency Rules (DTR)
of the Financial Services Authority. They do not include all of the information
required for the full annual financial statements, and should be read in
conjunction with the financial statements of the Group as at, and for the year
ended, 30 June 2007.
These interim financial statements were approved by the directors on 26 February
2008.
3. Significant accounting policies
The accounting policies applied by the Group in these interim financial
statements are consistent with those applied by the Group in its financial
statements as at, and for year ended, 30 June 2007.
The following amendments to standards or interpretations are mandatory for the
first time for the financial year ending 30 June 2008:
IFRIC 10 'Interim financial reporting and impairment'. This interpretation has
not had any impact on the timing or recognition of impairment losses as the
Group already accounted for such amounts using principles consistent with IFRIC
10.
IFRS 7 'Financial Instruments: Disclosures', and the related amendments to IAS 1
'Presentation of Financial Statements' on capital disclosures. As this interim
management report contains only condensed financial statements, full disclosures
as required by IFRS 7 and IAS 1 will be given in the annual financial
statements.
IFRIC 11 'IFRS 2 - Group and treasury share transactions'. The directors do not
expect this interpretation to impact the Group.
The following new standards, amendments to standards and interpretations have
been issued, but are not effective for the financial year ending 30 June 2008:
IAS 23 'Amendments to borrowing costs'
IAS 27R 'Consolidated and separate financial statements'
IFRS 2 'Amendments to share based payments: vesting conditions and
cancellations'
IFRS 3R 'Business combinations'
IFRS 8 'Operating segments'
IFRIC 12 'Service concession arrangements'
IFRIC 14 'IAS 19 - the limit on a defined benefit asset, minimum funding
requirements and their interaction.'
The directors have considered the impact of these new standards and
interpretations in future periods and no significant impact is expected. The
Group has chosen not to early adopt any of the above standards and
interpretations.
4. Estimates and financial risk management
The preparation of interim financial statements requires the directors to make
judgements, estimates and assumptions that affect the application of the
accounting policies and the reported amounts of assets and liabilities, income
and expenses. Actual results may differ from these estimates.
In preparing these interim financial statements, the significant judgements made
by the directors in applying the Group's accounting policies and the key sources
of estimation uncertainty together with the Group's financial risk management
objectives and policies were the same as those that applied to the financial
statements as at, and for the year ended, 30 June 2007.
Notes to the interim financial statements continued
5 Segmental analysis
For management purposes the Group is organised into five operating divisions,
Construction, Support Services, Homes, Property and Infrastructure Investment.
These divisions are the basis on which the Group reports its primary segmental
information.
Support Infrastructure
Construction Services Homes Property Investment Centre Group
Six months to 31 £m £m £m £m £m £m £m
December 2007
----------------------- ------- ------- ------- ------- ------- ------- -------
Revenue
Group and share of joint
ventures 816.1 179.3 143.2 58.3 8.6 - 1,205.5
Less share of joint ventures - - - (23.0) (7.9) - (30.9)
----------------------- ------- ------- ------- ------- ------- ------- -------
Group revenue 816.1 179.3 143.2 35.3 0.7 - 1,174.6
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit
Group operating profit 14.3 6.2 19.9 5.7 (0.6) (3.6) 41.9
Share of joint ventures'
operating profit - - 0.2 1.8 0.8 - 2.8
----------------------- ------- ------- ------- ------- ------- ------- -------
Group and share of joint
ventures 14.3 6.2 20.1 7.5 0.2 (3.6) 44.7
Share of joint
ventures - finance cost - - - (0.6) (0.9) - (1.5)
- tax - - - (0.8) (0.1) - (0.9)
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit from operations 14.3 6.2 20.1 6.1 (0.8) (3.6) 42.3
Finance income/(cost) 10.3 0.1 (7.9) (0.9) 0.9 (0.2) 2.3
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit before tax 24.6 6.3 12.2 5.2 0.1 (3.8) 44.6
----------------------- ------- ------- ------- ------- ------- ------- -------
Balance sheet
Total assets 304.8 98.5 445.9 57.7 12.2 31.8 950.9
Total liabilities (596.3) (101.4) (92.5) (10.0) (10.2) (96.5) (906.9)
----------------------- ------- ------- ------- ------- ------- ------- -------
Net operating
assets/(liabilities) (291.5) (2.9) 353.4 47.7 2.0 (64.7) 44.0
Cash, net of debt 378.9 18.9 (216.3) (25.2) (8.4) (12.0) 135.9
----------------------- ------- ------- ------- ------- ------- ------- -------
Net assets 87.4 16.0 137.1 22.5 (6.4) (76.7) 179.9
----------------------- ------- ------- ------- ------- ------- ------- -------
Six months to 31 December 2006
Revenue
Group and share of joint
ventures 675.2 142.7 151.8 43.5 7.3 - 1,020.5
Less share of
joint ventures - - - (34.1) (6.6) - (40.7)
----------------------- ------- ------- ------- ------- ------- ------- -------
Group revenue 675.2 142.7 151.8 9.4 0.7 - 979.8
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit
Group operating profit 9.5 4.1 20.4 5.6 (0.3) (4.8) 34.5
Share of joint ventures'
operating profit - - - 3.6 0.8 - 4.4
----------------------- ------- ------- ------- ------- ------- ------- -------
Group and share of joint
ventures 9.5 4.1 20.4 9.2 0.5 (4.8) 38.9
Share of joint
ventures - finance cost - - - (1.2) (0.5) - (1.7)
- tax - - - (0.7) (0.2) - (0.9)
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit from operations 9.5 4.1 20.4 7.3 (0.2) (4.8) 36.3
Finance income/(cost) 7.8 - (6.9) (0.7) 0.7 (1.0) (0.1)
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit before tax 17.3 4.1 13.5 6.6 0.5 (5.8) 36.2
----------------------- ------- ------- ------- ------- ------- ------- -------
Balance sheet
Total assets 275.2 76.7 425.3 48.6 4.0 33.4 863.2
Total liabilities (516.2) (82.8) (138.6) (5.9) (4.6) (90.0) (838.1)
----------------------- ------- ------- ------- ------- ------- ------- -------
Net operating assets/
(liabilities) (241.0) (6.1) 286.7 42.7 (0.6) (56.6) 25.1
Cash, net of debt 322.4 17.8 (163.0) (23.8) (5.7) (33.3) 114.4
----------------------- ------- ------- ------- ------- ------- ------- -------
Net assets 81.4 11.7 123.7 18.9 (6.3) (89.9) 139.5
----------------------- ------- ------- ------- ------- ------- ------- -------
Notes to the interim financial statements continued
5 Segmental analysis continued
Support Infrastructure
Construction Services Homes Property Investment Centre Group
Year to 30 June 2007 £m £m £m £m £m £m £m
----------------------- ------- ------- ------- ------- ------- ------- -------
Revenue
Group and
share of joint ventures 1,411.2 315.5 325.1 61.3 14.8 - 2,127.9
Less share of
joint ventures - - - (48.7) (13.8) - (62.5)
----------------------- ------- ------- ------- ------- ------- ------- -------
Group revenue 1,411.2 315.5 325.1 12.6 1.0 - 2,065.4
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit
Group operating profit 21.9 10.2 47.4 6.9 (1.1) (10.4) 74.9
Share of joint ventures'
operating profit - - 0.4 5.2 1.7 - 7.3
----------------------- ------- ------- ------- ------- ------- ------- -------
Group and share of joint
ventures 21.9 10.2 47.8 12.1 0.6 (10.4) 82.2
Share of joint
ventures - finance cost - - - (1.7) (1.2) - (2.9)
- tax - - (0.1) (1.1) (0.2) - (1.4)
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit from operations 21.9 10.2 47.7 9.3 (0.8) (10.4) 77.9
Finance income/(cost) 16.2 0.3 (14.9) (1.7) 1.5 (1.7) (0.3)
----------------------- ------- ------- ------- ------- ------- ------- -------
Profit before tax 38.1 10.5 32.8 7.6 0.7 (12.1) 77.6
----------------------- ------- ------- ------- ------- ------- ------- -------
Balance sheet
Total assets 325.2 95.0 418.8 61.9 15.3 27.3 943.5
Total liabilities (603.0) (96.4) (123.3) (4.5) (4.8) (76.9) (908.9)
----------------------- ------- ------- ------- ------- ------- ------- -------
Net operating assets/
(liabilities) (277.8) (1.4) 295.5 57.4 10.5 (49.6) 34.6
Cash, net of debt 361.2 15.8 (163.9) (36.8) (7.6) (20.3) 148.4
----------------------- ------- ------- ------- ------- ------- ------- -------
Net assets 83.4 14.4 131.6 20.6 2.9 (69.9) 183.0
----------------------- ------- ------- ------- ------- ------- ------- -------
6 Taxation
The taxation charge for the six months ended 31 December 2007 has been
calculated at 29% (June 2007 29%, December 2006 29%) of underlying profit before
tax, being profits adjusted for the Group's share of tax in equity accounted
joint ventures. This represents the estimated effective rate of tax for the
year.
Unaudited Unaudited
31 December 31 December 30 June
2007 2006 2007
£m £m £m
---------------------------------------- ------- ------- -------
Profit before tax 44.6 36.2 77.6
Add: tax on joint ventures 0.9 0.9 1.4
---------------------------------------- ------- ------- -------
Underlying profit before tax 45.5 37.1 79.0
---------------------------------------- ------- ------- -------
Current tax 10.1 8.0 17.1
Deferred tax 2.2 1.9 4.2
---------------------------------------- ------- ------- -------
Total income tax expense in the income
statement 12.3 9.9 21.3
Add: tax on joint ventures 0.9 0.9 1.4
---------------------------------------- ------- ------- -------
Underlying tax charge 13.2 10.8 22.7
---------------------------------------- ------- ------- -------
Rate 29% 29% 29%
---------------------------------------- ------- ------- -------
7 Dividends
Amounts recognised as distributions to equity holders in the period.
Unaudited Unaudited
31 December 31 December 30 June
2007 2006 2007
£m £m £m
---------------------------------------- ------- ------- -------
Final dividend for the year ended 30
June 2007 of 40.4 pence (2006: 17.8 pence) 14.5 6.3 6.3
Interim dividend for the year ended 30
June 2007 of 9.6 pence - - 3.5
---------------------------------------- ------- ------- -------
14.5 6.3 9.8
---------------------------------------- ------- ------- -------
The proposed interim dividend of 18.0 pence (2007: 9.6 pence) had not been
approved at the balance sheet date and so has not been included as a liability
in these financial statements. The dividend totalling £6.5m will be paid on 2
May 2008 to shareholders on the register at the close of business on 14 March
2008. A scrip dividend alternative will be offered.
Notes to the interim financial statements continued
8 Earnings per share
Unaudited Unaudited
31 December 31 December 30 June
2007 2006 2007
£m £m £m
---------------------------------------- ------- ------- -------
Earnings (after tax and minority
interests), being net profits
attributable to equity holders of the
parent 31.8 26.3 55.5
Add: amortisation of intangible assets 1.0 1.0 2.0
Less: tax on the amortisation of
intangible assets (0.3) (0.3) (0.6)
---------------------------------------- ------- ------- -------
Adjusted earnings 32.5 27.0 56.9
---------------------------------------- ------- ------- -------
million million million
---------------------------------------- ------- ------- -------
Weighted average number of shares used for
earnings per share
- basic 36.0 35.6 35.8
- diluted 36.2 36.1 36.3
pence pence pence
---------------------------------------- ------- ------- -------
Earnings per share
- basic 88.3 73.9 155.0
- diluted 87.8 72.9 152.9
Adjusted earnings per share (excluding the
amortisation of intangible assets)
- basic 90.3 75.8 158.9
- diluted 89.8 74.8 156.7
---------------------------------------- ------- ------- -------
9 Property, plant and equipment
During the six months ended 31 December 2007 the Group acquired assets with a
cost of £10.2m (2006: £9.6m). Assets with a carrying amount of £0.5m were
disposed of during the period (2006: £0.6m) resulting in a gain on disposal of
£0.6m (2006: £0.3m), which is included within gross profit.
10 Retirement benefit obligations
The amounts recognised in the interim financial statements in respect of the
Group's defined benefit schemes are as follows:
Unaudited Unaudited
31 December 31 December 30 June
2007 2006 2007
£m £m £m
---------------------------------------- ------- ------- -------
Kier Group Pension Scheme
Opening deficit (30.6) (67.0) (67.0)
Charge to operating profit (3.9) (5.9) (11.3)
Employer contributions 9.5 14.7 24.0
Actuarial (losses)/gain (15.8) 10.1 23.7
---------------------------------------- ------- ------- -------
Closing deficit (40.8) (48.1) (30.6)
---------------------------------------- ------- ------- -------
Comprising
Total market value of assets 535.3 514.6 506.7
Present value of liabilities (576.1) (562.7) (537.3)
---------------------------------------- ------- ------- -------
Deficit (40.8) (48.1) (30.6)
Related deferred tax asset 11.5 14.4 8.7
---------------------------------------- ------- ------- -------
Net pension liability (29.3) (33.7) (21.9)
---------------------------------------- ------- ------- -------
Kier Sheffield LLP
Opening surplus 11.9 6.8 6.8
Credit/(charge) to operating profit 0.1 (0.8) (0.4)
Employer contributions 0.6 0.8 1.6
Actuarial (losses)/gain (3.4) - 3.9
---------------------------------------- ------- ------- -------
Closing surplus 9.2 6.8 11.9
---------------------------------------- ------- ------- -------
Comprising
Total market value of assets 140.6 129.8 136.7
Present value of liabilities (131.4) (123.0) (124.8)
---------------------------------------- ------- ------- -------
Surplus 9.2 6.8 11.9
Restriction on pension surplus (2.9) - (5.1)
---------------------------------------- ------- ------- -------
6.3 6.8 6.8
Related deferred tax liability (1.8) (2.0) (1.9)
---------------------------------------- ------- ------- -------
Net pension asset 4.5 4.8 4.9
---------------------------------------- ------- ------- -------
Notes to the interim financial statements continued
11 Reconciliation of changes in total equity
Unaudited Unaudited
31 December 31 December 30 June
2007 2006 2007
£m £m £m
---------------------------------------- ------- ------- -------
Opening equity 183.0 108.5 108.5
Recognised income and expense for the period 10.6 33.4 79.4
Dividends paid to equity holders of the parent (14.5) (6.3) (9.8)
Distributions to minority interests (0.8) - -
Issue of own shares 5.5 2.7 7.0
Purchase of own shares (5.5) (0.4) (8.7)
Share-based payments charge 1.6 1.6 3.9
Deferred tax on share-based payments - - 2.7
---------------------------------------- ------- ------- -------
Closing shareholders' equity 179.9 139.5 183.0
---------------------------------------- ------- ------- -------
12 Share based payments
The Group has established a Long-Term Incentive Plan (LTIP) under which
directors and senior employees can receive awards of shares subject to the Group
achieving earnings per share growth targets. Full details of the plan are
disclosed in the annual financial statements.
On 21 September 2007 293,229 shares vested, valued at 1,815.0p in satisfaction
of conditional awards made under the LTIP in 2004
(directors 127,648, employees 165,581).
On 16 October 2007 a further grant was made under the LTIP as follows:
Shares awarded - directors 92,516
- employees 125,874
-------
218,390
-------
Share price at grant 1,984.0p
Exercise price nil
Option life 3 years
Dividend yield 2.5%
Fair value per option based upon the Black-Scholes model 1,840.0p
13 Related parties
There have been no significant changes in the nature and amount of related party
transactions since the last annual financial statements as at, and for the year
ended, 30 June 2007.
14 Subsequent event
Subsequent to the interim balance sheet date, the Group sold its investment in
Prospect Healthcare (Hairmyres) Group Limited for £13.8m. The consideration was
received wholly in cash on 8 February 2008. The sale will result in the
recognition of a profit of £16.2m in the results for the financial year ending
30 June 2008.
Statement of directors' responsibilities
The directors confirm that the interim management report includes a fair review
of the information required by DTR 4.2.7 and DTR 4.2.8.
The directors also confirm that the interim financial statements have been
prepared in accordance with IAS 34 as adopted by the European Union.
The directors of Kier Group plc are:
P M White (non-executive chairman)
J Dodds (chief executive)
I M Lawson
D E Mattar (finance director)
M O'Farrell
M P Sheffield
R W Side
R W Simkin
C V Geoghegan (non-executive) appointed 1 July 2007
S W Leathes (non-executive).
Signed on behalf of the Board
J Dodds
D E Mattar
26 February 2008
Independent review report to Kier Group plc
Introduction
We have been engaged by the Company to review the condensed set of financial
statements in the interim financial report for the six months ended 31 December
2007 which comprises the consolidated balance sheet of Kier Group plc as at 31
December 2007, the related consolidated statements of income, recognised income
and expense, cash flows for the six month period then ended and the related
explanatory notes. We have read the other information contained in the interim
financial report and considered whether it contains any apparent misstatements
or material inconsistencies with the information in the condensed set of
financial statements.
This report is made solely to the Company in accordance with the terms of our
engagement to assist the Company in meeting the requirements of the Disclosure
and Transparency Rules (DTR) of the UK's Financial Services Authority (UK FSA).
Our review has been undertaken so that we might state to the Company those
matters we are required to state to it in this report and for no other purpose.
To the fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company for our review work, for this
report, or for the conclusions we have reached.
Directors' responsibilities
The interim financial report is the responsibility of, and has been approved by,
the directors. The directors are responsible for preparing the interim financial
report in accordance with the DTR of the UK FSA.
The annual financial statements of the Group are prepared in accordance with
International Financial Reporting Standards as adopted by the European Union.
The condensed set of financial statements included in this interim financial
report has been prepared in accordance with IAS 34 'Interim Financial Reporting'
as adopted by the European Union.
Our responsibility
Our responsibility is to express to the Company a conclusion on the condensed
set of financial statements in the interim financial report based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review
Engagements (UK and Ireland) 2410 Review of Interim Financial Information
Performed by the Independent Auditor of the Entity issued by the Auditing
Practices Board for use in the UK. A review of interim financial information
consists of making enquiries, primarily of persons responsible for financial and
accounting matters, and applying analytical and other review procedures. A
review is substantially less in scope than an audit conducted in accordance with
International Standards on Auditing (UK and Ireland) and consequently does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express an
audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe
that the condensed set of financial statements in the interim financial report
for the six months ended 31 December 2007 is not prepared, in all material
respects, in accordance with IAS 34 as adopted by the European Union and the DTR
of the UK FSA.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
London
26 February 2008
This information is provided by RNS
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