Interim Results
Kier Group PLC
22 March 2004
22 March 2004
KIER GROUP PLC
INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2003
•Pre-tax profit up 37.3% to £16.2m* (2002: £11.8m)
•Earnings per share up 29.4% to 32.6p* (2002: 25.2p)
•Dividend per share up 15.4% to 6.0p per share (2002: 5.2p)
•Construction & Services order books at healthy levels - £1.57bn
•Acquisition of Tudor Homes in January 2004
•Homes order book 35% ahead of last year
•Two new PFI contracts achieve financial close - £70m capital value
*Calculated after deducting goodwill amortisation of £1.3m (£1.0m after tax)
(2002: £nil)
Commenting on the results John Dodds, Chief Executive, said
"Another excellent set of interim results was achieved for Kier Group plc with
pre-tax profits over 37% ahead of last year and earnings per share 29% ahead.
"Our order books remain strong and significant opportunities are available in
all of our market places which we believe will lead to continued growth."
Enquiries to:
John Dodds, Chief Executive
Deena Mattar, Finance Director
Kier Group plc Tel: 01767 640111
Caroline Sturdy/Sarah Landgrebe
Bell Pottinger Financial Tel: 020 7861 3232
CHIEF EXECUTIVE'S REVIEW
OVERVIEW
I am pleased to report another period of strong growth in Kier Group's profits
and earnings per share. Once again operating profit has shown an impressive
increase reflecting a healthy performance from all segments, particularly Homes
& Property. Pre-tax profit increased by over 37%, providing further growth in
earnings per share and supporting a 15% increase in the dividend.
Our well established, integrated business model operates across a number of
construction related, complementary markets all of which are providing good
opportunities for growth. Our Construction businesses enjoy strong order books
as they continue to benefit from increased public spending and from further
investment in the private sector. In Support Services the building maintenance
contract for Sheffield City Council is performing well and further opportunities
continue to emerge.
The markets within which our Homes businesses operate are robust providing
completions 12.4% ahead of last year and order books at the end of February 35%
ahead. We were delighted to announce the acquisition of Tudor Homes in January
2004, at asset value, reflecting our continued commitment to growing the housing
business through identification of high quality land banks purchased off market.
Tudor Homes has provided us with 350 units with planning consent which have been
integrated with Allison Homes' operations, enhancing its area of activity.
Opportunities within Property continue to flow. As is usual with property
development the timing of transactions and resultant profit recognition
fluctuate. Profits were strong in the first half of the year as a number of
developments were sold. We do not expect this performance to be repeated in the
second half.
Good progress is being made in our PFI activities and we have recently achieved
financial close on two projects with a combined capital value of £70m bringing
our total number of secured PFI projects to eight.
An evolving feature of our Group is the benefit that can be derived from our
businesses adding value by working together to provide an integrated service. An
increasing number of opportunities are emerging for a mixture of residential and
commercial development. These enable our Homes and Property businesses to work
together to develop the schemes, our Contracting businesses to provide the
construction and our Support Services businesses to manage the completed
properties - a rare offering in our sector.
Our order books remain strong and significant opportunities are available in all
of our market places which we believe will lead to continued growth.
RESULTS
Turnover at £726.6m (2002: £723.6m) showed a marginal increase on last year;
operating profit at £17.0m (2002: £12.8m) was 32.8% ahead and pre-tax profit was
37.3% up on last year at £16.2m (2002: £11.8m).
Basic earnings per share increased by 29.4% to 32.6p (2002: 25.2p). Net interest
payable (including that payable by joint ventures) of £0.8m (2002: £1.0m)
reflected a higher average cash balance during the period
The cash position at 31 December 2003, net of debt, of £26.7m reflected an
expected outflow in the six months from 30 June 2003. This was a result of the
continued unwinding of the advance payment that was received in December 2002 on
the sale of the Whitehall office development and the planned reduction in
turnover within the major projects division.
The Board has declared an interim dividend of 6.0p (2002: 5.2p), an increase of
15.4% continuing the dividend growth record of 15% or more per annum achieved
since 1997. The dividend will be paid to shareholders on 20 May 2004 with the
usual scrip alternative.
CONSTRUCTION & SERVICES
Construction & Services recorded an operating profit of £5.9m (2002: £5.5m),
7.3% ahead of last year which, on turnover of £602.6m (2002: £622.7m), increased
the interim margin slightly to 1.0% (2002: 0.9%). Order books are at a healthy
£1.57bn (2002: £1.24bn) and reflect growth in Support Services offset by the
planned reduction in the major projects workload.
Construction
An excellent result was recorded for Kier Regional during the period and
although Kier Partnership Homes reported a further small loss its result was
broadly in line with our expectations.
The wide geographic network of operating businesses, together with their ability
to focus on local requirements and react with a high degree of flexibility to
differing demands, enabled Kier Regional to take advantage of a sustained supply
of good quality opportunities. A record level of monthly awards was booked in
December 2003. The order book is supported by a good pipeline and we anticipate
the growth in turnover achieved in the first half of the year to continue into
the second half.
As anticipated the proportion of public sector awards has increased and now
accounts for 34% of total awards for the six months to 31 December 2003. We
reported in September 2003 that we had secured a place as one of the 12
preferred contractors involved in the NHS Estates 'ProCure21' initiative. A
significant number of contracts are under negotiation through this procurement
route. We are preferred bidder on six projects, two of which are expected to
commence in early April 2004. We are also short-listed on two further projects.
Private sector awards during the period were driven largely by retail and
commercial projects.
Turnover within the major projects business continued its planned reduction to
levels commensurate with its redefined risk profile and the order book has
reduced. The two loss-making building contracts on which we reported last year
are now completed but not without further losses. I am confident that, with a
smaller, more tightly controlled and refocused operation, we will improve the
profitability of this business in due course.
Support Services
Good results were achieved from our major long-term building maintenance
contracts for Sheffield City Council and the London Borough of Islington which
between them accounted for nearly 60% of the £85.7m turnover for the period
(2002: £46.8m). Our managed services business continues to secure a cross
section of contracts for a list of good quality clients and includes an
increasing order book of long-term PFI services. With further opportunities
emerging we remain confident of achieving our short-term turnover target of
£200m per annum.
HOMES & PROPERTY
Operating profit within Homes & Property increased by 19.7% to £17.0m (2002:
£14.2m) on turnover up 22.2% to £119.6m (2002: £97.9m). Pre-tax profit rose to
£13.2m (2002: £10.1m) an increase of 30.7% reflecting an increase in housing
completions, the sale of a number of property developments and the benefit of
interest on the advance cash received on the sale of the Whitehall development.
Homes
Kier Residential had a successful six months to 31 December 2003 with
completions 12.4% up on last year at 562 (2002: 500). Turnover was 14.7% ahead
at £103.9m (2002: £90.6m) reflecting an increase in average selling prices to
£184,800 (2002: £181,200). Operating profit increased by 18.3% to £12.9m (2002:
£10.9m) with margins improved from 12.1% last year to 12.4%.
Investment in land slowed during the six months to 31 December 2003 largely due
to extended periods of negotiation and delays in closing land purchase
contracts. At 31 December 2003 the land bank stood at 3,358 plots with planning
consent (2002: 3,740) representing just over three years' forward trading. In
January 2004 we were pleased to acquire the land and work in progress from Tudor
Homes (East Anglia) Limited providing us with a further 350 units of consented
land purchased at asset value off market. Additional sites have also been
acquired since the end of December bringing the total land bank, with planning
consent, to 3,805 at the end of February 2004. With further investment planned
in the period to 30 June 2004 our aim is to maintain the land bank at between
three and a half and four years' supply. In addition to the consented land a
further 15,000 plots of strategic land are held (2002: 12,000 plots).
All of our markets continue to be robust which, when coupled with an increase in
the average number of outlets, provided a good start to the calendar year.
Housing reservations were particularly strong during the second half of January
and through February. At 29 February 2004 the order book of reservations and
exchanged contracts was 34.9% ahead of the same time last year at £82.8m
(February 2003: £61.4m) and, together with completions for the current year,
secures over 90% of projected unit sales for the current year.
Property
An excellent performance was achieved by the Property division in the period.
Operating profit was 24.2% ahead of last year at £4.1m (2002: £3.3m) and pre-tax
profit was 71.4% ahead at £3.6m (2002: £2.1m). A number of developments were
sold during the period by Kier Developments (our joint venture company) which,
when coupled with an element of rental income, provided healthy profits in the
six months to 31 December 2003.
Within Kier Ventures, our wholly-owned property business, good progress has been
made on the office development in Whitehall and profits are being booked as
anticipated. The advance cash receipt in respect of the sale is continuing to
unwind in line with progress on construction and has benefited profit before tax
through a credit to interest in the period; the effect of this will lessen as
the year progresses.
Opportunities continue to emerge for pre-let development projects including the
80,000sq ft office development in Swindon pre-let to the National Trust on which
construction has started and the 3.8 acre industrial development at Enfield
where pre-lets have been achieved to Renault and Selco.
INFRASTRUCTURE INVESTMENT
We are very pleased to have recently achieved financial close on two PFI
projects: a diagnosis and treatment centre at Hinchingbrooke, Cambridgeshire and
eight schools at Waltham Forest bringing the total number of secured PFI
projects to eight. These two new projects have a combined capital value of £70m
with Kier Regional the appointed contractor for both. On completion of the
construction Kier Support Services will be carrying out the facilities
management services for 28 to 30 years. We were also pleased to be appointed
preferred bidder on Oldham Library in December 2003, a project with a capital
value of £18m for which we shall be providing both the construction and support
services.
The PFI process remains slow, particularly in health projects, and this is
reflected in high bidding costs. Our approach to PFI remains cautious and
focused on projects in which we have particular expertise, predominantly those
within the sectors of health, education, libraries and care homes.
HEALTH & SAFETY
Kier's commitment to Health & Safety continues to reap rewards with improvements
achieved throughout the Group and our supply chains. The accident incident rate
for the year to 31 December 2003 was 659 (2002: 725) per 100,000 staff and
contractors and continues to compare favourably with the Health & Safety
Executive average for our sector of 1,097.
PROSPECTS
There are good prospects for growth arising out of all our markets. The
Construction market is benefiting from increased public spending evidenced by
the increasing proportion of work we are being awarded for government and local
authority funded schemes and an increasing number of opportunities beginning to
flow in the Support Services market for outsourcing contracts. In Homes,
reservations are continuing at a healthy rate in all of our areas of operation
with the prospect of modest interest rate increases having no apparent effect.
Our Property businesses continue to attract a wide range of new developments.
There is mounting opportunity for our business units to work together on mixed
use schemes which require the combined skills of residential and commercial
development and we are very keen to maximise the value that this will create.
We are very proud of our track record of accomplishment over the past 11 years.
Kier has shown growth in profits in every financial year since 1992 with an
average return on shareholders' funds of approximately 40% since the Group was
floated in 1996.
Kier continues on its path with a good reputation, sound financial strength, a
rising generation of talented people and favourable markets all of which place
us well for another successful performance. Building on the progress that has
been achieved there still remains further great potential and the prospects for
the Group remain very bright.
Consolidated Profit and Loss account
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2003 2002 2003
Notes £m £m £m
Total turnover 1 726.6 723.6 1,445.6
------------ ------------ ----------
Operating profit - Group 14.7 13.5 33.1
Share of operating profit - joint 2.3 1.6 3.1
ventures
Share of operating loss - associates - (2.3) (2.3)
(Belan)
------------ ------------ ----------
Total operating profit - Group and share
of joint ventures and associates 1 17.0 12.8 33.9
Net interest receivable - Group 0.2 0.1 0.6
Net interest payable - joint ventures and (1.0) (1.1) (1.2)
associates
------------ ------------ ----------
Profit on ordinary activities before 1 16.2 11.8 33.3
taxation
Taxation 2 (4.8) (3.3) (9.5)
------------ ------------ ----------
Profit on ordinary activities after 11.4 8.5 23.8
taxation
Ordinary dividend 3 (2.2) (1.8) (5.6)
------------ ------------ ----------
Retained profit attributable to
ordinary shareholders 9.2 6.7 18.2
------------ ------------ ----------
Earnings per share
- basic 4 32.6p 25.2p 69.5p
- diluted 32.4p 24.8p 68.2p
------------ ------------ ----------
Adjusted earnings per share (excluding
goodwill amortisation)
- basic 4 35.4p 25.2p 71.6p
- diluted 35.2p 24.8p 70.2p
------------ ------------ ----------
Dividend per share 3 6.0p 5.2p 16.4p
------------ ------------ ----------
Operating profit - Group includes a charge of £1.3m for the amortisation of
goodwill (June 2003 £0.9m, December 2002 £nil).
Consolidated Balance Sheet
Unaudited Unaudited
31 December 31 December 30 June
2003 2002 2003
Notes £m £m £m
Fixed assets
Intangible fixed assets 19.9 5.2 21.1
Tangible fixed assets 60.1 49.2 53.0
Investments in joint ventures
Share of gross assets 160.6 159.2 159.1
Share of gross liabilities (156.7) (155.8) (155.8)
Loans provided to joint ventures 28.0 27.8 27.4
31.9 31.2 30.7
------------ ------------ ----------
111.9 85.6 104.8
------------ ------------ ----------
Current assets
Stock 269.0 249.8 261.3
Debtors 216.2 214.2 205.2
Cash at bank and in hand 56.8 78.6 92.5
------------ ------------ ----------
542.0 542.6 559.0
------------ ------------ ----------
Current liabilities
Creditors - amounts falling due within one year (477.1) (496.7) (496.1)
------------ ------------ ----------
Net current assets 64.9 45.9 62.9
Total assets less current liabilities 176.8 131.5 167.7
Creditors - amounts falling due after
more than one year (60.1) (38.2) (62.7)
Provisions for liabilities and charges (13.7) (12.9) (13.1)
------------ ------------ ----------
Net assets 103.0 80.4 91.9
------------ ------------ ----------
Capital and reserves
Called up share capital 0.3 0.3 0.3
Share premium account 17.0 14.6 15.2
Capital redemption reserve 2.7 2.7 2.7
Investment in own shares (1.1) (1.5) (1.5)
Profit and loss account 84.1 64.3 75.2
------------ ------------ ----------
Equity shareholders' funds 5 103.0 80.4 91.9
------------ ------------ ----------
The balance sheets at 30 June 2003 and 31 December 2002 have been restated in
accordance with UITF 37 and 38 which require investment in own shares to be
shown as a deduction from shareholders' funds.
Consolidated Cash Flow Statement
Unaudited Unaudited
6 months to 6 months to Year to
31 December 31 December 30 June
2003 2002 2003
£m £m £m
Operating activities
Operating profit 14.7 13.5 33.1
Amortisation of goodwill 1.3 - 0.9
Loss/(profit) on sale of fixed assets - 0.3 (0.8)
Depreciation charges 3.8 3.9 8.1
(Increase)/decrease in working capital (37.5) 27.6 12.2
------------ ------------ ------------
Net cash (outflow)/inflow from operating (17.7) 45.3 53.5
activities
Dividends received from joint ventures 0.3 - 1.1
Returns on investments and servicing of finance 0.8 0.8 0.3
Taxation paid (5.3) (2.5) (7.7)
Capital expenditure and financial investment (10.9) (4.4) (8.6)
Acquisitions, investments and disposals (0.4) (9.5) (19.0)
Equity dividends paid (3.5) (2.5) (3.8)
------------ ------------ ------------
Cash (outflow)/inflow before management of liquid (36.7) 27.2 15.8
resources and financing
Management of liquid resources
Net decrease/(increase) in short-term bank 23.9 (27.8) (34.3)
deposits
Financing
Share capital 1.4 0.2 (0.2)
Net proceeds of private placement of loan notes - - 30.1
------------ ------------ ------------
(Decrease)/increase in cash during the period (11.4) (0.4) 11.4
------------ ------------ ------------
Reconciliation of net cash flow to movement in
net funds
(Decrease)/increase in cash during the period (11.4) (0.4) 11.4
Cash (inflow)/outflow from management of liquid (23.9) 27.8 34.3
resources
Increase in long term borrowings - - (30.1)
------------ ------------ ------------
Movement in net funds in the period (35.3) 27.4 15.6
------------ ------------ ------------
Opening cash, net of debt 62.0 46.4 46.4
------------ ------------ ------------
Closing cash, net of debt 26.7 73.8 62.0
------------ ------------ ------------
Analysis of closing cash, net of debt
Cash at bank and in hand 29.7 34.1 41.5
Bank overdrafts - (4.8) (0.4)
Short-term bank deposits 27.1 44.5 51.0
Long-term borrowings (30.1) - (30.1)
------------ ------------ ------------
26.7 73.8 62.0
------------ ------------ ------------
Notes
1 Segmental information Unaudited Unaudited
31 December 31 December 30 June
2003 2002 2003
£m £m £m
Turnover
Construction & Services 602.6 622.7 1,237.9
Homes & Property 119.6 97.9 201.3
Infrastructure Investment 4.4 3.0 6.4
------------ ------------ ----------
726.6 723.6 1,445.6
------------ ------------ ----------
United Kingdom 698.9 681.5 1,368.2
Rest of World 27.7 42.1 77.4
------------ ------------ ----------
726.6 723.6 1,445.6
------------ ------------ ----------
Operating profit
Construction & Services 5.9 5.5 12.9
Homes & Property 17.0 14.2 32.4
Infrastructure Investment (1.3) (0.2) (0.5)
Corporate Overhead/Finance (4.6) (4.4) (8.6)
Investment in Belan - (2.3) (2.3)
------------ ------------ ----------
17.0 12.8 33.9
------------ ------------ ----------
United Kingdom 15.3 8.9 26.1
Rest of World 1.7 3.9 7.8
------------ ------------ ----------
17.0 12.8 33.9
------------ ------------ ----------
Profit before tax
Construction & Services 9.9 9.8 21.2
Homes & Property 13.2 10.1 24.5
Infrastructure Investment (1.2) - 0.7
Corporate Overhead/Finance (5.7) (5.8) (10.8)
Investment in Belan - (2.3) (2.3)
------------ ------------ ----------
16.2 11.8 33.3
------------ ------------ ----------
United Kingdom 14.5 7.9 25.4
Rest of World 1.7 3.9 7.9
------------ ------------ ----------
16.2 11.8 33.3
------------ ------------ ----------
Net operating assets
Construction & Services (114.0) (134.6) (143.8)
Homes & Property 185.8 137.9 165.0
Infrastructure Investment 12.3 8.2 11.1
Corporate Overhead/Finance (7.8) (4.9) (2.4)
------------ ------------ ----------
76.3 6.6 29.9
------------ ------------ ----------
United Kingdom 85.6 13.3 39.9
Rest of World (9.3) (6.7) (10.0)
------------ ------------ ----------
76.3 6.6 29.9
------------ ------------ ----------
Net operating assets at 30 June 2003 and 31 December 2002 have been restated in
accordance with UITF 37 and 38.
2 Taxation
The corporation tax rate of 29.5% (June 2003: 28.5%, December 2002: 28.0%) is
based on the estimated effective percentage tax rate for the full year. The tax
charge is calculated in accordance with FRS 19.
3 Dividends per ordinary share
The interim dividend of 6.0p (December 2002: 5.2p) per ordinary share will be
paid on 20 May 2004 to shareholders on the register at the close of business on
2 April 2004. A scrip dividend alternative will be offered.
4 Earnings per share
Earnings per share is calculated as follows:
Unaudited Unaudited
31 December 31 December 30 June
2003 2002 2003
£m £m £m
Profit after tax 11.4 8.5 23.8
Add: Goodwill amortisation 1.3 - 0.9
Less: Tax on goodwill amortisation (0.3) - (0.2)
---------- ---------- ----------
Adjusted profit after tax 12.4 8.5 24.5
---------- ---------- ----------
Million Million Million
Weighted average number of shares used for EPS
Basic 35.0 34.0 34.2
---------- ---------- ----------
Diluted 35.2 34.7 34.9
---------- ---------- ----------
Pence Pence Pence
Earnings per share
Basic 32.6 25.2 69.5
Diluted 32.4 24.8 68.2
---------- ---------- ----------
Adjusted earnings per share after excluding
goodwill amortisation
Basic 35.4 25.2 71.6
Diluted 35.2 24.8 70.2
---------- ---------- ----------
The diluted earnings per share takes account of the dilutive effect of options
and is calculated in accordance with FRS 14.
5 Reconciliation of movements in shareholders' funds
£m
Shareholders' funds at 30 June 2003 91.9
Issue of shares 2.2
Retained profit for period 9.2
Currency translation (0.3)
------------
Shareholders' funds at 31 December 2003 103.0
------------
6 Status
The interim results do not constitute statutory accounts within the meaning of
section 240 of the Companies Act 1985.
The abridged consolidated profit and loss account for the year to 30 June 2003
and the abridged consolidated balance sheet at 30 June 2003 have been extracted
from the latest published accounts of Kier Group plc on which the report of the
auditors was unqualified and which have been delivered to the Registrar of
Companies.
Copies of this interim statement will be sent to shareholders and are available
for inspection at the Company's registered office.
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