Interim results

RNS Number : 7556B

Kier Group PLC

24 February 2011

 



Kier Group plc
Interim Results for the
six months to 31 December 2010

24 February 2011

•        Strong first half performance

•        Total revenue up 9% to £1,097m (2009: £1,010m)

•        Underlying pre‑tax profits* up 26% to £31.3m (2009: £24.8m **)

•        Underlying EPS* up 33% to 63.5p (2009: 47.7p **)

•        Interim dividend increased by 8% to 20.0p (2009: 18.5p) reflecting the Board's confidence in the business

•        Construction margins at 2.7% (2009: 2.5%) and Support Services margins at 4.5% (2009: 4.4%)

•        Continued strength in the Group's net cash position of £144m at 31 December 2010 (30 June 2010: £175m), after c.£30m reinvestment in the Group

•        Robust order books for Construction and Support Services maintained at more than £4bn

•        Construction order books have secured targeted revenue for 2011 and 65% of the target for 2012

*  Underlying pre‑tax profits and EPS are stated before amortisation of intangible assets of £1.7m (2009: £1.4m) and before exceptional items

** Excluding 2009 Partnership Homes land profit of £7.1m

Commenting on the results, Phil White, Chairman said:

"I am very pleased to report strong results for Kier. The continued excellent cash performance, with average net cash of £138m for the period (2009: £71m), coupled with robust operating margins and more than £4bn of secured work in Construction and Support Services positions the Group well for the future. Our policy is to maintain a progressive dividend and given this strong performance the Board is pleased to increase the interim dividend by 8% to 20.0p.

"Dick Simkin, our executive director for Developments, today announces that he will retire at the end of the financial year. Dick joined Kier in 1989 and set up the Group's property business, the success of which led to his appointment to the Board in 2003, responsible for Developments. Ian Lawson, executive director for Support Services and Partnership Homes, will take over the role as executive director for Developments in addition to his current responsibilities from 1 July 2011. On behalf of the Board I would like to thank Dick for his excellent contribution to Kier and wish him well in his retirement."

Commenting on the results, Paul Sheffield, Chief Executive said:

"Kier continues to perform well and in line with expectations despite the current challenging economic environment. The Group has delivered good underlying profits and cash generation, and it has also maintained robust order books since the June year end.

"Our success is underpinned by our strong track record, geographic coverage, deep‑rooted customer relationships and an increasing number of framework agreements and collaborative partnerships.

"We continue to attract a wide variety of opportunities in our divisions and are encouraged by the prospects we see in markets such as power, infrastructure, commercial, mixed‑use regeneration and overseas.

"Through our integrated business model, talented staff and by working together our divisions create intelligent, value‑engineered solutions that, I believe, truly make Kier a service provider of choice."

Chief Executive's Review

Overview

Kier Group plc has continued to perform well and I am pleased to report strong interim results for the six months to 31 December 2010.

On a like‑for‑like basis, underlying profit before tax grew by 26% to £31.3m (2009: £24.8m excluding Partnership Homes land transactions) and our cash generation continues to be strong with net cash of £144m at 31 December 2010 with average balances £67m ahead of the same period in 2009.

In Construction we achieved strong revenues of £728m at a significant operating margin of 2.7% with good cash generation. Our focus continues to be the provision of intelligent, value engineered solutions working in partnership with our customers. Our increasing number of framework agreements, long‑standing customer relationships and consistently good execution underpin our awards and order books have been maintained at £2.1bn (30 June 2010: £2.1bn) at 31 December 2010. All of our targeted revenue for the current financial year and 65% of our targeted revenue for 2011/12 is secure or probable.

In Support Services our order books have remained robust at £2.0bn (June 2010: £2.1bn), operating margins have grown to a sustainable level of 4.5% (2009: 4.4%) and cash balances continued to increase. We remain focused on the growth of this division, particularly in Facilities Management and Environmental, so as to increase our scale and further improve operating efficiencies. The acquisition of Beco Limited in the period has given us a head start in the photovoltaic/greening market through the provision of design, installation and procurement knowledge coupled with a trained and accredited workforce throughout the UK. This fits well with our existing workforce which maintains approximately 250,000 homes across the country. We are eager to leverage Beco's skills with our scale and relationships to significantly progress opportunities in the retrofit and renewable energy sectors.

While market conditions for our Partnership Homes division remain challenging, the underlying financial performance of the division, excluding land transactions undertaken in 2009, showed considerable growth on the six months to 31 December 2009. We are currently opening more sites and consequently expect the Partnership Homes result to be marginally weighted towards the second half of this financial year. We continue with the transition of this division to an increasingly social housing and mixed‑tenure focus, while maintaining our current c.500 unit private development business. This will lead to a reduction in our land bank over the medium term, and provide us with further cash resources to pursue growth opportunities across the Group.

In Developments, we have achieved a £1.7m operating profit for the first half and we have identified opportunities to significantly expand our property and PFI portfolios. We are seeing increasing demand for asset management and property related services and are well placed with all our customers to offer turnkey solutions to optimise the value of their assets, which we believe will provide significant opportunities in the current resource constrained environment. The recent Whitehall publication 'Leaner and Greener' indicates a potential £7bn of savings for local authorities through improvement of their estate management processes.

In summary, our desire to provide better, more intelligent, value‑engineered solutions for our customers will continue to underpin strong performance and further growth for the Group. By working together, our divisions can create real synergies which put us in an enviable position and set us apart from others.

Financial Results

Total revenue for the six months to 31 December 2010 increased by 9% on the same period in 2009 to £1,097m (2009: £1,010m) resulting principally from growth in Construction and Support Services.

On a like‑for‑like basis, underlying profit before tax grew by 26% to £31.3m (2009: £24.8m excluding Partnership Homes land transactions) reflecting underlying growth in Construction, Support Services and Partnership Homes. Strong construction revenues converted into a robust operating profit of £19.8m (providing a 2.7% operating margin). In Support Services, after adding back amortisation, we have achieved operating profit of £10.9m which equates to an underlying and sustainable operating margin of 4.5% (up from 4.4% in the same period in 2009). In Partnership Homes, the £1.7m operating profit was ahead of the performance in the same period in 2009 after adjusting for the profit from land transactions. We will be opening more sites in the second half of this financial year and consequently we expect the underlying Partnership Homes result to be slightly second half weighted.

There have been no exceptional items in the period. However as a result of our ongoing strategy to make regular disposals of our PFI investments we believe it is no longer appropriate to include such disposals as an exceptional item in the Group's income statement and in the future, we will report them in the underlying profit before tax results.

The effective tax rate of 24% compares favourably with the rate in 2009 following agreement on certain issues with HM Revenue & Customs. Adjusted earnings per share of 63.5p have benefitted from the lower effective tax rate and on a like‑for‑like basis underlying earnings per share grew by 33% (2009: 47.7p excluding Partnership Homes land transactions).

The management of cash continues to be of critical focus across the Group, and it is very pleasing that the trading result is supported by continued strong cash generation. Net cash balances in the period averaged £138m, higher than during the 2010 full year (£95m), and considerably ahead of 2009, ending the period at a net balance of £144m (2010: £175m). This is after c.£30m of reinvestment of cash in the business over the past six months to drive future growth.

The Group's cash balances were supported by very strong positions in Construction, with cash at £434m and Support Services, with cash at £51m, excluding Plant, and including a further £4m cash investment in Pure Recycling in the period. Partnership Homes' net debt position increased to £271m as expected, following deferred land payments and investment in work in progress. In Developments, the increase in net debt position to £31m reflects the £7m investment in Kent BSF during the period.

We have renewed our banking facilities, in addition to our own net cash position, during the period and now have £70m of undrawn banking facilities that run until 2014.

Net assets at 31 December 2010 increased to £124m (June 2010: £104m) primarily as a result of the decrease in the net liabilities of our pension schemes by £15m.

Taking into account the performance of the Group and its strong cash position, the Board is pleased to maintain the Group's progressive dividend policy and announces an increase to the interim dividend of 8% to 20.0p (2009: 18.5p). The interim dividend is more than twice covered by adjusted earnings per share and reflects the Board's confidence in the business going forward. The interim dividend will be paid to shareholders on 6 May 2011 and the scrip dividend alternative will be available.

Construction

The Construction division encompasses our UK regional contracting, civil engineering and overseas businesses, which are highly skilled in the construction of the full range of building projects, together with power, waste, water, nuclear, infrastructure, rail and mining projects.

Despite challenging market conditions, construction revenue increased by 7% to £728m (2009: £678m) underpinned by the increasing number of frameworks which now number more than 60, the flexibility of our workforce in being able to move between education, health, and commercial opportunities and our consistent track record of delivery.

Operating profit also rose considerably to £19.8m (2009: £16.9m) increasing operating margins to 2.7% (2009: 2.5%) reflecting the high quality work we carry out, largely through frameworks and collaborative partnerships which accounted for approximately 80% of our awards in the six‑month period. Cash levels, one of the key measures in this division, continued to be strong with cash balances of £434m at 31 December 2010 (30 June 2010: £418m).

Contract awards in the period continued at encouraging levels and, together with the secured position and the level of probable awards (comprising contracts on which we are at least preferred bidder or are in one‑to‑one negotiations), provided order books of £2.1bn (30 June 2010: £2.1bn). This secures all of our targeted revenue for the current financial year and 65% of the target for 2012.

In the period 63% of our awards were for UK public sector projects, compared to 75% for the same period in 2009, with education continuing to be our largest source of work accounting for some 34% (c.£260m) of awards (2009: 43%). The replacement Contractors' Framework for Academies is continuing to provide a steady stream of opportunities, albeit the current focus being more on delivery of economic designs following the Government challenge for the construction industry to deliver more for less.

During the period we secured a position as one of only six contractors selected for the prestigious six‑year £600m per annum ProCure 21+ Health Framework covering the whole of England which started in October 2010. Since then Kier has been selected as preferred bidder on four schemes worth over £20m.

In the power sector, where we are market leader, our major power station contract for EDF at West Burton is nearing completion. The much needed investment programme in power generation in the UK will provide significant opportunities for us as a result of our valuable experience and track record in gas, coal and nuclear projects.

In the transport sector we have recently been awarded Contracts 300 and 410, Western Running Tunnels and Western Station Caverns by Crossrail, in joint venture. These contracts are worth c.£480m and will run for approximately five years. We are particularly pleased that we were selected, having submitted an innovative bid saving a considerable sum and eliminating 90,000 truck movements through London.

The UK commercial property market is showing signs of recovery and we have secured more than £100m of new commercial awards, a mixture of new build and refurbishment, predominantly in London and the south‑east.

In our overseas operations, we secured £85m of new contracts in the period, including our share in the £125m tunnelling joint venture project in Hong Kong. We continue to explore opportunities in the Middle East, in Abu Dhabi and particularly in Saudi Arabia, where we are currently working on a phosphate mine. We have also secured a number of projects in Jamaica.

There are still uncertainties around the levels of public spending on construction work over the next couple of years. However, Kier, through its increasing number of frameworks and the flexibility and technical capability of its workforce, is very well placed to attract work, grow its market share and maintain strong operating margins.

Support Services

Support Services comprises three principal business streams: Building Maintenance, where we provide planned and reactive maintenance to approximately 250,000 homes across the UK; Facilities Management, providing hard and soft facilities management and maintenance to commercial properties; and Environmental, where we provide environmental services to local authorities including waste collection and recycling, street scene and grounds maintenance.

Revenue in Support Services increased by 6% to £243m (2009: £230m). Operating profit, before deducting the amortisation of intangible assets of £1.7m (2009: £1.3m), increased by 8% to £10.9m (2009: £10.1m) with growth in operating margin to a sustainable 4.5% (2009: 4.4%). Cash generation within this division remains strong with cash balances at 31 December 2010 of £32m (30 June 2010: £32m) net of our investment in the Plant business of £19m and after further investment in Pure Recycling of £4m during the six‑month period. The order books at 31 December 2010 of £2.0bn (30 June 2010: £2.1bn) remain robust reflecting a resilient market for building maintenance and facilities management contracts and long‑term visible revenues to 2020 and beyond.

Kier Building Maintenance, the largest part of this division, saw revenue levels ahead of last year at £179m (2009: £167m). We renewed our involvement with Homes for Islington (HFI) for Islington Council where we have won contracts to repair and maintain approximately 30,000 properties, for an initial four‑year period, extendable for up to 10 years. This commenced in October 2010. We have also been successful on a number of other frameworks including the East Midlands Property Alliance (Scape) Framework, an extensive 24‑hour emergency call out and repairs and maintenance framework due to start in April 2011.

We have been named preferred bidder on contracts with Lewisham Homes. This four‑year opportunity is extendable for up to 10 years and is due to commence in April 2011. Our level of coverage places us as one of the top providers of building maintenance services in the UK.

Our Facilities Management business has continued its geographic growth and revenue reached £60m (2009: £59m) having been awarded a number of significant contracts. These included a £6m contract for Oasis Community Learning and a £7m contract for Kirklees and Calderdale NHS Primary Care Trusts. Our Environmental business has secured two eight‑year contracts across North and West Norfolk, each with annual values of £4m for waste collection and related services. We remain focused on the growth of our Facilities Management and Environmental businesses and aim to increase our scale and further improve operating efficiencies.

Since the acquisition of Pure Recycling in May 2010 the new materials recycling facility at Ettington is nearing completion. Contracts have now been secured for 80,000 tonnes per annum once the plant becomes operational in April 2011.

Following the acquisition of Beco, Kier has developed the capability to deliver photovoltaic installations under the Microgeneration Certification Scheme. We have completed photovoltaic installations for Stoke‑on‑Trent City Council in partnership with E.ON Energy, and are able to provide a full design, installation and monitoring service for photovoltaic panels. The wider retrofit/renewal energy agenda within social housing represents a growth opportunity that is being fully explored with our existing and new customers.

Kier's long‑term contracts and partnership arrangements mean it is very well placed to continue to offer intelligent, turnkey solutions for customers across their estates. While the current economic conditions continue to provide good outsourcing opportunities for Kier we recognise that significant upheaval in the public sector during 2011 is likely to delay the efficient procurement of outsourced services and growth in Support Services revenues is unlikely to be observed until well into 2012.

Partnership Homes

Kier Partnership Homes generated revenue of £60m (2009: £75m) in the six months to 31 December 2010 and an operating profit of £1.7m (2009: £(0.3)m excluding land transactions) on 464 completions (2009: 488 completions).

Private housing completions were broadly in line with expectations whilst affordable housing output was slightly behind, largely due to delays in funding decisions resulting from the general election and the subsequent budget. The housing market remains unpredictable and geographically sensitive. Visitor levels remain fairly steady and there is underlying demand for private sales. However, the shortage of available mortgage products together with demanding deposit requirements provides a challenging environment especially for first time buyers.

Our land bank of c.5,400 plots, all with planning permission, together with work in progress totals £347m. We continue to progress the development and disposal of our land bank, and therefore expect to see a reduction over the medium term, while maintaining sales of 500 private development units per annum. The reduction in the land bank will generate considerable cash proceeds, which will be used to pursue growth opportunities across the Group.

In affordable housing we expect to see some degree of uncertainty in the funding process over the next 12 months as the Homes and Communities Agency, registered providers and local authorities adjust to the way that affordable housing will be financed and delivered in the future. The Government's aspiration to deliver 150,000 new affordable homes over the next five years supported by an intermediate rent model is geographically focused on the Midlands area, where it has a target to build 20,000 affordable homes, and also the Greater London area where it aims to build 80,000 new homes. This represents two‑thirds of the anticipated national affordable housing output and will be the focus of our activities.

Our strategy continues to focus on mixed‑tenure regeneration development opportunities utilising public sector land and we have been successful in securing £74m of schemes via this route since July 2010. There also continues to be a steady flow of opportunities through local authority land initiatives where affordable housing is funded through cross subsidy from housing for private sale.

Developments

Our Developments division comprises Kier Property, which includes office, industrial, retail and mixed‑use development; Kier Project Investment, our PFI business; and Kier Asset Partnership Services, which undertakes local authority property management and development contracts.

Revenue for the period of £66m (2009: £27m) was ahead of the same period in 2009 reflecting progress on the University of Reading development site. Developments has achieved a £1.7m operating profit for the period and in October 2010, Kier Property successfully completed the new headquarters for Ordnance Survey in Southampton. This flagship building is a good example of the Kier integrated model having been built by the Construction division. Our Developments division has provided c.£500m of construction and facilities management work over the last four years.

Solum Regeneration, our joint venture with Network Rail, has begun its first scheme which is a £32m mixed‑use development at Epsom, where the hotel and affordable housing elements of the scheme have been pre‑let/sold. Planning permission has been granted for a £20m residential and hotel scheme at Walthamstow and we are aiming to start on site during the summer. With the success of the Solum joint venture, we are now focused on increasing the number of projects beyond the initial eight schemes with Network Rail and are also discussing similar development arrangements with other customers.

Kier Project Investment has had a busy first half of the year, with good progress being made on the £55m Police Investigation Centres in East Anglia and the completion of three Kent BSF schools in September 2010. We are currently on programme to reach financial close on the Gloucestershire Community Fire Safety PFI project (£22m) in March 2011 and are short‑listed on Woking Housing PFI (£34m); London Fire PFI (£42m); Staffordshire Fire PFI (£28m); West Yorkshire Police headquarters (£100m) and the Avon & Somerset Police headquarters (£70m).

Our portfolio of PFI projects totals 13 including the Gloucester Fire project at preferred bidder stage. Our committed equity investment in these schemes stands at £28m of which £23m has been invested to date. The directors' valuation of the committed investment at a discount rate of 7.5% is £51m.

Within Kier Asset Partnership Services (KAPS), the outsourcing contract of Sheffield City Council's property management services continues to perform well and in October 2010, KAPS secured another long‑term contract with Chesterfield Borough Council to deliver a broad range of property and engineering services. The growth outlook for the business is positive as KAPS is well placed to assist local authorities and public bodies make efficiency savings and realise value through the effective management and delivery of property related services combined with potential development opportunities. The recent Whitehall publication 'Leaner and Greener: Delivering Effective Estate Management' has highlighted potential savings of £7bn through improved estate management processes.

Pensions

The Group participates in two principal schemes: the Kier Group Pension Scheme which includes a defined benefit section, and a local government scheme on behalf of its employees in Kier Sheffield LLP.

At 31 December 2010 the position of the Kier Group Pension Scheme for accounting purposes was a net deficit of £48m (30 June 2010: net deficit of £57m). We are currently finalising the triennial actuarial valuation, on a March 2010 basis, and initial results indicate that the deficit will slightly increase as compared with the previous triennial valuation primarily as a result of a hardening of the mortality assumptions. This manageable increase is unlikely to increase the £8m per annum deficit contributions that we currently make, which may be supplemented by asset transfers not dissimilar to those we undertook in 2009, but more likely utilising our PFI assets rather than land.

Under the scheme relating to Kier Sheffield LLP there was a net deficit of £0.3m (30 June 2010: net deficit
of £6m).

Health, safety and environment

The focus on our Behavioural Safety Leadership Programme, which is now embedded within the Construction division, has led to a noticeable reduction in the number of reportable incidences over the period. Our overall Accident Incident Rate (AIR) is 295, which is 22% better than 2009 and 62% better than the Health and Safety Executive benchmark of 782. The programme will continue to encourage active discussion within the workforce on safety specific issues and is now being rolled out across the whole Group.

A number of roadshows have been undertaken to identify the health and safety needs of higher risk groups such as machine operators and crane drivers. Our general safety focus which involves basic 'don't walk by' values, coupled with our behavioural leadership programme has assisted the positive reduction in our overall AIR.

Our environmental teams have continued to challenge the creation of waste and are engaged with our supply chain to seek improved savings. All business units are currently working on a strategy of carbon reduction initiatives.

Corporate responsibility remains an important element in the way Kier delivers its business. It is also increasingly important to our customers, where our approach to local communities and the environment represent a vital element in their selection of service providers. Kier's commitment to improving its corporate responsibility is demonstrated by its recent improvements in both the 2010 Carbon Disclosure Project and the Business in the Community (BITC) Corporate Responsibility Index.

As part of its environmental management activities, Kier also continues to be at the forefront of the industry with regard to implementing good practice in managing its site waste and has seen the percentage of construction, demolition and excavation waste diverted from landfill increase from 64% in 2009 to 75% in 2010.

Prospects

We have worked hard over the last few years to position ourselves to be able to capitalise on the growth markets we see ahead of us today. We have a diverse range of skills, track record and capabilities that are recognised by our customers as being leading edge and we are able to bring innovative solutions to any of our sectors to help create real value.

Our involvement in an increasing number of long‑term frameworks is continuing to provide a substantial stream of high quality work, while our flexible workforce is able to address a wide range of opportunities and sectors. Our financial strength is of increasing importance to our stakeholders and it creates opportunity for further growth.

Despite the uncertainties that exist around the short‑term outlook for the construction sector, we believe Kier is well placed to attract work, grow our market share and maintain robust operating margins. Our Support Services offering is diverse and places us at the heart of many local authorities where we are well positioned to help meet the challenges of tightening budgets and cuts to local services. We can offer turnkey solutions to our customers that will optimise the value of their asset portfolios.

By working together our divisions are creating value which puts us in an enviable position, sets us apart from others and gives us confidence for the future.

Consolidated income statement

for the six months ended 31 December 2010

		Unaudited
		6 months to
		31 December
		2010	Unaudited 6 months to 31 December 2009
					Before
				Exceptional	exceptional
		Total	Total	items*	items
	Notes	£m	£m	£m	£m
Revenue
Group and share of joint ventures	5	1,096.7	1,009.8	-	1,009.8
Less share of joint ventures		(47.6)	(20.1)	-	(20.1)
Group revenue		1,049.1	989.7	-	989.7
Cost of sales		(951.7)	(888.4)	-	(888.4)
Gross profit		97.4	101.3	-	101.3
Administrative expenses		(68.3)	(69.7)	-	(69.7)
Provision for fine imposed by the Office of Fair Trading		-	(18.0)	(18.0)	-
Share of post tax results of joint ventures		0.6	(0.6)	-	(0.6)
Profit on disposal of joint ventures		-	4.2	4.2	-
Profit from operations	5	29.7	17.2	(13.8)	31.0
Finance income		1.8	1.6	-	1.6
Finance cost		(1.9)	(2.1)	-	(2.1)
Profit before tax	5	29.6	16.7	(13.8)	30.5
Income tax	7	(7.0)	(8.9)	(0.4)	(8.5)
Profit for the period		22.6	7.8	(14.2)	22.0
Attributable to:
Equity holders of the parent		22.3	7.4	(14.2)	21.6
Minority interests		0.3	0.4	-	0.4
		22.6	7.8	(14.2)	22.0
Earnings per share
- basic	9	60.3p	20.2p		58.9p
- diluted		59.6p	20.0p		58.4p
Adjusted earnings per share (excluding the amortisation of intangible assets)
- basic	9	63.5p			61.6p
- diluted		62.8p			61.1p

There were no exceptional items during the six months ended 31 December 2010.

*Exceptional items in the prior period for the six months ended 31 December 2009 relate to provision for a fine imposed by the Office of Fair Trading and profit on disposal of joint ventures (note 6).

All results are derived from continuing operations.

Consolidated income statement continued

for the year ended 30 June 2010

				Before
			Exceptional	exceptional
		Total	items*	items
	Notes	£m	£m	£m
Revenue
Group and share of joint ventures	5	2,098.7	-	2,098.7
Less share of joint ventures		(42.7)	-	(42.7)
Group revenue		2,056.0	-	2,056.0
Cost of sales		(1,847.0)	-	(1,847.0)
Gross profit		209.0	-	209.0
Administrative expenses		(151.2)	-	(151.2)
Credit on retirement benefit obligation		16.0	16.0	-
Provision for fine imposed by the Office of Fair Trading		(18.0)	(18.0)	-
Share of post tax profits from joint ventures		(1.3)	-	(1.3)
Profit on disposal of joint ventures		4.2	4.2	-
Profit from operations	5	58.7	2.2	56.5
Finance income		3.1	-	3.1
Finance cost		(4.1)	-	(4.1)
Profit before tax	5	57.7	2.2	55.5
Income tax	7	(17.2)	(4.9)	(12.3)
Profit for the year		40.5	(2.7)	43.2
Attributable to:
Equity holders of the parent		39.7	(2.7)	42.4
Minority interests		0.8	-	0.8
		40.5	(2.7)	43.2
Earnings per share
- basic	9	108.2p		115.5p
- diluted		107.3p		114.6p
Adjusted earnings per share (excluding the amortisation of intangible assets)
- basic	9			121.3p
- diluted				120.3p

*Exceptional items relate to a pensions past service credit, provision for a fine imposed by the Office of Fair Trading and profit on disposal of joint ventures (note 6).

All results are derived from continuing operations.

Consolidated statement of comprehensive income

for the six months ended 31 December 2010

		Unaudited	Unaudited
		6 months to	6 months to	Year to
		31 December	31 December	30 June
		2010	2009	2010
		£m	£m	£m
Profit for the period		22.6	7.8	40.5
Other comprehensive income/(loss)
Share of joint venture recycling of cash flow hedge movements		-	2.2	2.2
Share of joint venture fair value movements in cash flow hedging instruments		(3.5)	1.2	(5.1)
Fair value movements in cash flow hedging instruments		-	0.4	0.9
Actuarial gains and losses on defined benefit pension schemes		14.5	(15.4)	(10.2)
Other comprehensive income/(loss) before taxation		11.0	(11.6)	(12.2)
Deferred tax on items recognised directly in equity (including effect of change in tax rate)
Share of joint venture cash flow hedging instruments		0.8	(1.0)	0.8
Group cash flow hedging instruments		-	(0.1)	(0.3)
Actuarial gains and losses on defined benefit pension schemes		(6.2)	4.3	2.9
Taxation (charge)/credit on other comprehensive income/(loss)		(5.4)	3.2	3.4
Other comprehensive income/(loss) for the period		5.6	(8.4)	(8.8)
Total comprehensive income/(loss) for the period		28.2	(0.6)	31.7
Attributable to:
Equity holders of the parent		27.9	(1.0)	30.9
Minority interests		0.3	0.4	0.8
		28.2	(0.6)	31.7

Consolidated statement of changes in equity
for the six months ended 31 December 2010

							Attributable
			Capital		Cash flow		to equity
	Share	Share	redemption	Retained	hedge	Translation	holders of	Minority	Total
	capital	premium	reserve	earnings	reserve	reserve	the parent	interests	equity
	£m	£m	£m	£m	£m	£m	£m	£m	£m
At 30 June 2009	0.4	36.1	2.7	59.1	(9.8)	0.2	88.7	0.6	89.3
Profit for the period	-	-	-	7.4	-	-	7.4	0.4	7.8
Other comprehensive income/(loss) for the period	-	-	-	(11.1)	2.7	-	(8.4)	-	(8.4)
Dividends paid	-	-	-	(13.6)	-	-	(13.6)	(0.4)	(14.0)
Share‑based payments charge	-	-	-	0.8	-	-	0.8	-	0.8
At 31 December 2009	0.4	36.1	2.7	42.6	(7.1)	0.2	74.9	0.6	75.5
Profit for the period	-	-	-	32.3	-	-	32.3	0.4	32.7
Other comprehensive income/(loss) for the period	-	-	-	3.8	(4.2)	-	(0.4)	-	(0.4)
Dividends paid	-	-	-	(6.8)	-	-	(6.8)	(0.1)	(6.9)
Issue of own shares	-	2.7	-	-	-	-	2.7	-	2.7
Share-based payments charge	-	-	-	0.6	-	-	0.6	-	0.6
At 30 June 2010	0.4	38.8	2.7	72.5	(11.3)	0.2	103.3	0.9	104.2
Profit for the period	-	-	-	22.3	-	-	22.3	0.3	22.6
Other comprehensive income for the period	-	-	-	8.3	(2.7)	-	5.6	-	5.6
Dividends paid	-	-	-	(14.6)	-	-	(14.6)	(0.4)	(15.0)
Issue of own shares	-	5.0	-	-	-	-	5.0	-	5.0
Share-based payments charge	-	-	-	1.4	-	-	1.4	-	1.4
At 31 December 2010	0.4	43.8	2.7	89.9	(14.0)	0.2	123.0	0.8	123.8

Consolidated balance sheet

at 31 December 2010

		Unaudited	Unaudited
		31 December	31 December	30 June
		2010	2009	2010
	Notes	£m	£m	£m
Non-current assets
Intangible assets		28.6	22.2	27.7
Property, plant and equipment	10	87.5	81.9	84.4
Investment in joint ventures		28.3	29.0	23.9
Deferred tax assets		17.7	31.7	24.4
Trade and other receivables		20.0	19.2	15.3
Non-current assets		182.1	184.0	175.7
Current assets
Inventories		419.7	421.6	406.8
Trade and other receivables		282.3	283.1	330.1
Income tax receivable		-	2.1	-
Cash and cash equivalents		174.5	160.9	205.5
Current assets		876.5	867.7	942.4
Total assets		1,058.6	1,051.7	1,118.1
Current liabilities
Other financial liabilities		(0.1)	(0.3)	(0.2)
Trade and other payables		(751.2)	(750.2)	(811.5)
Tax liabilities		(1.2)	-	(0.8)
Provisions		(19.5)	(5.6)	(5.5)
Current liabilities		(772.0)	(756.1)	(818.0)
Non-current liabilities
Long-term borrowings		(30.3)	(30.2)	(30.3)
Other financial liabilities		-	(0.2)	(0.1)
Trade and other payables		(20.1)	(14.7)	(19.6)
Retirement benefit obligations	11	(65.6)	(113.2)	(87.2)
Provisions		(43.3)	(55.6)	(55.5)
Deferred tax liabilities		(3.5)	(6.2)	(3.2)
Non-current liabilities		(162.8)	(220.1)	(195.9)
Total liabilities		(934.8)	(976.2)	(1,013.9)
Net assets		123.8	75.5	104.2
Equity
Share capital		0.4	0.4	0.4
Share premium		43.8	36.1	38.8
Capital redemption reserve		2.7	2.7	2.7
Retained earnings		89.9	42.6	72.5
Cash flow hedge reserve		(14.0)	(7.1)	(11.3)
Translation reserve		0.2	0.2	0.2
Equity attributable to equity holders of the parent		123.0	74.9	103.3
Minority interests		0.8	0.6	0.9
Total equity		123.8	75.5	104.2

Consolidated cash flow statement

for the six months ended 31 December 2010

			Unaudited	Unaudited
			6 months to	6 months to	Year to
			31 December	31 December	30 June
			2010	2009	2010
			£m	£m	£m
Cash flows from operating activities
Profit before tax			29.6	16.7	57.7
Non cash exceptional items
	Credits on retirement benefit obligation		-	-	(16.0)
	Provision for fine imposed by the Office of Fair Trading		-	18.0	18.0
	Profit on disposal of joint ventures		-	(4.2)	(4.2)
Other adjustments
	Share of post tax results of joint ventures		(0.6)	0.6	1.3
	Normal contributions to pension fund in excess of pension charge		(3.1)	(0.7)	(0.5)
	Equity settled share-based payments charge		1.4	0.8	1.4
	Amortisation and impairment of intangible assets		1.7	1.4	6.8
	Depreciation charges		7.2	8.9	14.7
	Profit on disposal of property, plant & equipment		(0.6)	(0.2)	(0.7)
	Net finance cost		0.1	0.5	1.0
Operating cash flows before movements in working capital			35.7	41.8	79.5
Special contributions to pension fund			(4.0)	(17.2)	(21.2)
Payment of restructuring costs			-	(0.8)	(1.2)
(Increase)/decrease in inventories			(12.5)	3.0	17.8
Decrease in receivables			43.9	44.1	1.0
(Decrease)/increase in payables			(61.8)	(27.8)	30.1
Increase in provisions			1.5	4.1	5.4
Cash inflow from operating activities			2.8	47.2	111.4
Dividends received from joint ventures			0.1	0.3	0.8
Interest received			1.7	2.4	3.9
Income taxes (paid)/received			(5.8)	2.2	(1.1)
Net cash generated from/(used in) operating activities			(1.2)	52.1	115.0
Cash flows from investing activities
Proceeds from sale of property, plant & equipment			1.1	0.5	2.2
Proceeds from sale of joint ventures			-	7.3	7.3
Purchases of property, plant & equipment			(10.9)	(3.9)	(11.0)
Purchase of intangible assets			-	-	(1.4)
Acquisition of subsidiaries, including net borrowings acquired			(1.8)	(2.6)	(8.1)
Investment in joint ventures			(6.6)	-	(0.6)
Net cash generated from/(used in) investing activities			(18.2)	1.3	(11.6)
Cash flows from financing activities
Proceeds from issue of share capital			0.1	-	-
Interest paid			(1.6)	(1.2)	(2.4)
Dividends paid to equity shareholders			(9.7)	(13.6)	(17.7)
Dividends paid to minority interests			(0.4)	(0.4)	(0.5)
Net cash used in financing activities			(11.6)	(15.2)	(20.6)
(Decrease)/increase in cash and cash equivalents			(31.0)	38.2	82.8
Opening cash and cash equivalents			205.5	122.7	122.7
Closing cash and cash equivalents			174.5	160.9	205.5
Reconciliation of net cash flow to movement in net funds
(Decrease)/increase in cash and cash equivalents			(31.0)	38.2	82.8
Increase in long‑term borrowings			-	-	(0.1)
Opening net funds			175.2	92.5	92.5
Closing net funds			144.2	130.7	175.2
Net funds consist of:
Cash and cash equivalents			174.5	160.9	205.5
Long‑term borrowings			(30.3)	(30.2)	(30.3)
Net funds			144.2	130.7	175.2

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 2010 comprise the Company and its subsidiaries (together referred to as the Group) and the Group's interest in jointly controlled entities.

The comparative figures for the financial year ended 30 June 2010 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the Registrar of Companies. The report of the auditors was (i) unqualified, (ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

2. Statement of compliance

These interim condensed 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 2010.

These interim condensed financial statements were approved by the directors on 23 February 2011.

3. Significant accounting policies

Except as disclosed below, 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 the year ended, 30 June 2010.

The following amendments to standards or interpretations are mandatory for the first time for the financial year ending 30 June 2011:

IAS 32         'Amendments to financial instruments - classification of rights issues'

IFRS 1         'Amendment - additional exemptions for first time adopters'

IFRS 1         'Amendment - exemption from IFRS 7 comparatives'

IFRS 2         'Amendments to share-based payments - group cash settled'

IFRIC 17       'Distributions of non-cash assets to owners'

IFRIC 18       'Transfer of assets from customers'

IFRIC 19       'Extinguishing financial liabilities with equity instruments'

Improvements to IFRS's (2009)

The adoption of these amendments and interpretations has not resulted in changes to the Group's accounting policies and has not had a material impact on amounts reported for the current or prior years.

The following new standards, amendments to standards and interpretations have been issued, but are not effective for the financial year ending 30 June 2011:

IAS 24         'Related party disclosures (revised 2009)'

IFRIC 14       'Amendment - prepayments of a minimum funding requirement'

Improvements to IFRS's (2010)

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 adopt any of the above standards and interpretations early.

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 2010.

5. Segmental analysis

The Group comprises four divisions: Construction, Support Services, Partnership Homes and Developments and it is on this basis that the Group reports its primary segmental information.

Notes to the interim financial statements continued

5. Segmental analysis continued

		Support	Partnership
Six months to 31 December 2010	Construction	Services	Homes	Developments	Centre	Group
	£m	£m	£m	£m	£m	£m
Revenue1
Group and share of joint ventures	728.4	242.5	60.0	65.8	-	1,096.7
Less share of joint ventures	(0.9)	-	-	(46.7)	-	(47.6)
Group revenue	727.5	242.5	60.0	19.1	-	1,049.1
Profit
Group operating profit	19.8	9.2	1.7	0.3	(1.9)	29.1
Share of joint ventures' operating profit	-	-	-	1.4	-	1.4
Group and share of joint ventures	19.8	9.2	1.7	1.7	(1.9)	30.5
Share of joint ventures - finance cost	-	-	-	(0.7)	-	(0.7)
- tax	-	-	-	(0.1)	-	(0.1)
Profit from operations	19.8	9.2	1.7	0.9	(1.9)	29.7
Finance income/(cost)2	7.5	(0.1)	(6.2)	0.7	(2.0)	(0.1)
Profit before tax	27.3	9.1	(4.5)	1.6	(3.9)	29.6
Balance sheet
Total assets	290.5	121.4	374.7	59.6	37.9	884.1
Total liabilities	(596.1)	(118.7)	(27.2)	(16.5)	(146.0)	(904.5)
Net operating assets/(liabilities)	(305.6)	2.7	347.5	43.1	(108.1)	(20.4)
Cash net of debt	433.8	31.7	(270.5)	(31.0)	(19.8)	144.2
Net assets	128.2	34.4	77.0	12.1	(127.9)	123.8

Six months to 31 December 2009
Revenue1
Group and share of joint ventures	678.3		229.7		74.6	27.2	-	1,009.8
Less share of joint ventures	(0.7)		-		-	(19.4)	-	(20.1)
Group revenue	677.6		229.7		74.6	7.8	-	989.7
Profit
Group operating profit	16.9		8.8		6.8	2.4	(3.3)	31.6
Share of joint ventures' operating profit	-		-		-	-	-	-
Group and share of joint ventures	16.9		8.8		6.8	2.4	(3.3)	31.6
Share of joint ventures - finance cost	-		-		-	(0.6)	-	(0.6)
- tax	-		-		-	-	-	-
Profit from operations before exceptional items	16.9		8.8		6.8	1.8	(3.3)	31.0
Provision for fine imposed by the Office of Fair Trading	(18.0)		-		-	-	-	(18.0)
Profit on disposal of joint ventures	-		-		-	4.2	-	4.2
Profit from operations	(1.1)		8.8		6.8	6.0	(3.3)	17.2
Finance income/(cost)2	7.1		0.2		(6.8)	(0.2)	(0.8)	(0.5)
Profit before tax	6.0		9.0		-	5.8	(4.1)	16.7
Balance sheet
Total assets	292.6		108.1		377.4	62.4	50.3	890.8
Total liabilities	(577.1)		(120.5)		(51.6)	(20.7)	(176.1)	(946.0)
Net operating assets/(liabilities)	(284.5)		(12.4)		325.8	41.7	(125.8)	(55.2)
Cash net of debt	397.8		42.1		(251.1)	(20.5)	(37.6)	130.7
Net assets	113.3		29.7		74.7	21.2	(163.4)	75.5

¹Revenue is stated after the exclusion of inter-segmental revenue

²Interest is (charged)/credited to the divisions at a notional rate of 4.5% (2009: 4.5%) and 4.0% (2009: 4.0%)

Notes to the interim financial statements continued

5. Segmental analysis continued

		Support	Partnership
Year to 30 June 2010	Construction	Services	Homes	Developments	Centre	Group
	£m	£m	£m	£m	£m	£m
Revenue1
Group and share of joint ventures	1,417.0	470.7	157.7	53.3	-	2,098.7
Less share of joint ventures	(1.7)	-	-	(41.0)	-	(42.7)
Group revenue	1,415.3	470.7	157.7	12.3	-	2,056.0
Profit
Group operating profit	36.2	18.5	9.9	0.4	(7.2)	57.8
Share of joint ventures' operating profit	-	-	-	(0.1)	-	(0.1)
Group and share of joint ventures	36.2	18.5	9.9	0.3	(7.2)	57.7
Share of joint ventures   - finance cost	-	-	-	(1.3)	-	(1.3)
- tax	-	-	-	0.1	-	0.1
Profit from operations before exceptional items	36.2	18.5	9.9	(0.9)	(7.2)	56.5
Past service credit on retirement benefit obligation	-	-	-	-	16.0	16.0
Provision for fine imposed by the Office of Fair Trading	(18.0)	-	-	-	-	(18.0)
Profit on disposal of joint ventures	-	-	-	4.2	-	4.2
Profit from operations	18.2	18.5	9.9	3.3	8.8	58.7
Finance income/(cost)2	14.0	0.3	(13.2)	0.2	(2.3)	(1.0)
Profit before tax	32.2	18.8	(3.3)	3.5	6.5	57.7
Balance sheet
Total assets	322.3	125.6	368.2	51.9	44.6	912.6
Liabilities excluding long‑term debt	(631.9)	(129.3)	(39.4)	(18.6)	(164.4)	(983.6)
Net operating assets/(liabilities)	(309.6)	(3.7)	328.8	33.3	(119.8)	(71.0)
Cash, net of debt	417.8	32.3	(248.5)	(19.8)	(6.6)	175.2
Net assets	108.2	28.6	80.3	13.5	(126.4)	104.2

¹Revenue is stated after the exclusion of inter-segmental revenue

²Interest is (charged)/credited to the divisions at a notional rate of 4.5% and 4.0%

6. Exceptional items

	Unaudited	Unaudited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2010	2009	2010
	£m	£m	£m
Pension credit	-	-	16.0
Provision for fine imposed by the Office of Fair Trading	-	(18.0)	(18.0)
Profit on disposal of investment in joint ventures	-	4.2	4.2
Exceptional items before tax	-	(13.8)	2.2
Taxation	-	(0.4)	(4.9)
Exceptional items after tax	-	(14.2)	(2.7)

Notes to the interim financial statements continued

7. Income tax

The taxation charge for the six months ended 31 December 2010 has been calculated at 24% (June 2010: 22%, December 2009: 28%) of underlying profit before tax, being profits adjusted for the Group's share of tax in equity accounted joint ventures and excluding exceptional items. This represents the estimated effective rate of tax for the year. Exceptional items are taxed at their underlying rate.

The estimated effective rate of tax of 24% for the year to June 2011 reflects the reduction in the UK corporation tax rate from 28% to 27% with effect from 1 April 2011. In addition to reducing the Group's future tax charge this reduction in tax rate has had the effect of reducing the net deferred tax asset of £21.5m (Group £21.2m, joint ventures £0.3m) held at 30 June 2010 by £1.4m, with £1.0m being credited to the income statement and £2.4m being charged directly to the statement of comprehensive income.

	31 December	31 December
	2010	2009
				Before
			Exceptional	exceptional
	Total	Total	items	items
Six months to 31 December	£m	£m	£m	£m
Profit before tax	29.6	16.7	(13.8)	30.5
Adjust: tax on joint ventures included above	0.1	-	-	-
Underlying profit before tax	29.7	16.7	(13.8)	30.5
Current tax	6.2	2.3	0.4	1.9
Deferred tax (including effect of change in tax rate)	0.8	6.6	-	6.6
Total income tax expense in the income statement	7.0	8.9	0.4	8.5
Tax on joint ventures	0.1	-	-	-
Underlying tax charge	7.1	8.9	0.4	8.5
Rate	24%	53%		28%

			Before
		Exceptional	exceptional
Year to 30 June 2010	Total	items	items
	£m	£m	£m
Profit before tax	57.7	2.2	55.5
Adjust: tax on joint ventures included above	(0.1)	-	(0.1)
Underlying profit before tax	57.6	2.2	55.4
Current tax	8.5	0.4	8.1
Deferred tax	8.7	4.5	4.2
Total income tax expense in the income statement	17.2	4.9	12.3
Tax on joint ventures	(0.1)	-	(0.1)
Underlying tax charge	17.1	4.9	12.2
Rate	30%		22%

8. Dividends

Amounts recognised as distributions to equity holders in the period.

	Unaudited	Unaudited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2010	2009	2010
	£m	£m	£m
Final dividend for the year ended 30 June 2010 of 39.5 pence (2009: 37.0 pence)	14.6	13.6	13.6
Interim dividend for the year ended 30 June 2010 of 18.5 pence	-	-	6.8
	14.6	13.6	20.4

The proposed interim dividend of 20.0 pence (2010: 18.5 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 £7.5m will be paid on 6 May 2011 to shareholders on the register at the close of business on 4 March 2011. A scrip dividend alternative will be offered.

Notes to the interim financial statements continued

9. Earnings per share

	Unaudited	Unaudited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2010	2009	2010
	£m	£m	£m
Earnings (after tax and minority interests), being net profits attributable to equity holders of the parent	22.3	7.4	39.7
Exclude: exceptional items	-	13.8	(2.2)
Tax thereon	-	0.4	4.9
Underlying earnings	22.3	21.6	42.4
Add: amortisation of intangible assets	1.7	1.4	2.9
Less: tax on the amortisation of intangible assets	(0.5)	(0.4)	(0.8)
Adjusted earnings	23.5	22.6	44.5
	million	million	million
Weighted average number of shares used for earnings per share
- basic	37.0	36.7	36.7
- diluted	37.4	37.0	37.0
	pence	pence	pence
Earnings per share
- basic	60.3	20.2	108.2
- diluted	59.6	20.0	107.3
Underlying earnings per share (excluding exceptional items)
- basic	60.3	58.9	115.5
- diluted	59.6	58.4	114.6
Adjusted earnings per share (excluding exceptional items and the amortisation of intangible assets)
- basic	63.5	61.6	121.3
- diluted	62.8	61.1	120.3

10. Property, plant and equipment

During the six months ended 31 December 2010 the Group acquired assets with a cost of £10.8m (2009: £4.1m). Assets with a carrying amount of £0.5m were disposed of during the period (2009: £0.3m) resulting in a gain on disposal of £0.6m (2009: £0.2m), which is included within gross profit.

11. 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
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2010	2009	2010
	£m	£m	£m
Kier Group Pension Scheme
Opening deficit	(78.6)	(96.1)	(96.1)
Charge to operating profit	(2.1)	(5.1)	(9.1)
Employer contributions	9.4	23.0	32.5
Actuarial gains/(losses)	6.1	(9.4)	(5.9)
Closing deficit	(65.2)	(87.6)	(78.6)
Comprising
Total market value of assets	666.5	591.8	611.2
Present value of liabilities	(731.7)	(679.4)	(689.8)
Deficit	(65.2)	(87.6)	(78.6)
Related deferred tax asset	17.6	24.5	22.0
Net pension liability	(47.6)	(63.1)	(56.6)

During the prior period in December 2009 the Group agreed to make a special cash contribution to the Kier Group Pension Scheme amounting to £13.2m which was settled through a transfer of residential land at market value as determined by DTZ an independent firm of chartered surveyors. This amount has been included as a contribution received by the scheme.

Notes to the interim financial statements continued

11. Retirement benefit obligations continued

	Unaudited	Unaudited
	6 months to	6 months to	Year to
	31 December	31 December	30 June
	2010	2009	2010
	£m	£m	£m
Kier Sheffield LLP
Opening deficit	(8.6)	(18.6)	(18.6)
Charge to operating profit	(0.7)	(1.5)	13.2
Employer contributions	0.5	0.5	1.1
Actuarial gains/(losses)	8.4	(6.0)	(4.3)
Closing deficit	(0.4)	(25.6)	(8.6)
Comprising
Total market value of assets	154.1	135.3	135.1
Present value of liabilities	(154.5)	(160.9)	(143.7)
Deficit	(0.4)	(25.6)	(8.6)
Related deferred tax asset	0.1	7.2	2.4
Net pension liability	(0.3)	(18.4)	(6.2)

The charge to operating profit in the year to June 2010 includes a past service credit of £16.0m due to changes announced in the budget in June 2010 requiring public sector pension schemes to use the Consumer Prices Index in place of the Retail Prices Index to determine future pension increases.

12. Acquisitions

Acquisition of investment in Beco Limited

On 22 November 2010 the Group, through its subsidiary Kier Limited, purchased the entire issued share capital of Beco Limited (Beco). The consideration representing the fair value of the net assets acquired is payable wholly in cash.

The fair value of the consideration for the purchase was £2.4m of which £1.3m was paid in cash in November 2010. The balance of £1.1m is due in instalments by November 2013. £0.7m of this balance is contingent on the results of the business acquired. It has been discounted to its present value of £1.0m.

The book and fair values of the identifiable net assets acquired and the goodwill arising from the transaction are as follows:

	Book value	Adjustments	Fair value
	£m	£m	£m
Intangible assets	0.6	(0.6)	-
Inventories	0.4	-	0.4
Receivables	0.8	-	0.8
Payables	(1.0)	-	(1.0)
Bank overdraft and loans	(0.5)	-	(0.5)
Identifiable net assets	0.3	(0.6)	(0.3)
Goodwill			2.6
Total consideration			2.3

The acquisition of Beco resulted in £2.6m of goodwill. This goodwill was paid as the acquisition gave the Group immediate access to the solar photovoltaic market through Beco's industry accreditation and the knowledge and experience of its staff.

The cash outflow in respect of this acquisition during the six months ended 31 December 2010 was £1.8m, being £1.3m of consideration and £0.5m for the repayment of bank overdrafts and loans acquired.

Notes to the interim financial statements continued

13. 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 targets.

No shares have vested under this LTIP during the six months to 31 December 2010.

At the annual general meeting on 12 November 2010 the shareholders approved the following changes to the existing LTIP:

·        The introduction of a total shareholder return (TSR) outperformance measure for 50% of future awards in order to provide an external assessment of long-term performance and increase alignment with shareholders interests; and

·        The remaining 50% of awards will continue to be based on earnings per share (EPS) growth.

Full details of the new plan were disclosed in the 2010 annual financial statements.

On 16 December 2010 grants were made under the new LTIP as follows:

Shares granted       - directors	137,075
- employees	504,643
	641,718
Share price at grant	1,372p
Exercise price	nil
Option life	3 years
Dividend yield	4.23%
Fair value per option
- TSR element (based upon a stochastic model)	775p
- EPS element (based upon the Black-Scholes model)	1,209p

The fair value of the TSR element incorporates an assessment of the number of shares that will be awarded as the performance conditions are market conditions under IFRS 2 'Share-based payments'.

The performance conditions of the EPS element are non-market conditions under IFRS 2. The fair value therefore does not include an assessment of the number of shares that will be awarded. Instead the amount charged for this element is based on the fair value factored by a 'true up' for the number of awards that are expected to vest.

14. 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 2010.

Responsibility statement of the directors in respect of the interim financial report

We confirm that to the best of our knowledge:

• the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union;

• the interim management report includes a fair review of the information required by:

(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and

(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.

Signed on behalf of the Board

M P Sheffield
Chief Executive

H J Mursell
Finance Director

23 February 2011

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 half-yearly financial report for the six months ended 31 December 2010 which comprises the consolidated income statement, the consolidated statement of comprehensive income, the consolidated balance sheet, the consolidated statement of changes in equity, the consolidated cash flow statement, and the related explanatory notes. We have read the other information contained in the half-yearly 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 half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTR of the UK FSA.

As disclosed in note 2, 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 half-yearly 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 half-yearly 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 half‑yearly financial report for the six months ended 31 December 2010 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.

Andrew Marshall
for and on behalf of KPMG Audit Plc
Chartered Accountants
15 Canada Square
London E14 5GL

23 February 2011

 

END

 

 

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