27th Feb 2008 07:00
Kier Group PLC27 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, ourorder books are strong and, importantly, our enquiry levels remain high. "We have experienced teams in place in all of our businesses, a strong balancesheet and good cash resources and, in the absence of any significant marketsetbacks, we are firmly on track for growth this year." For further information, please contact: John Dodds, Chief ExecutiveDeena Mattar, Finance DirectorKier Group plc Tel: 01767 640 111 Caroline Sturdy/Matthew MothMadano 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, KierGroup plc has delivered another strong set of interim results. Despite difficultmarket conditions facing our Homes business, the Group has achieved recordlevels of revenue and pre-tax profit for the period. Our Construction and Support Services businesses, in particular, have been verybusy, each of them achieving new records of revenue and profits for the sixmonths with good market conditions providing plenty of opportunities and strong,high-quality order books. Our Homes division sold 827 homes in the periodmarginally more than last year's 819 homes with a relatively strong market inScotland. In Property the year commenced well with a number of key developmentsales secured in the early part of the financial year. Our Infrastructure Investment business has seen recent success through the saleof our 50% Private Finance Initiative (PFI) investment in the Hairmyres DistrictGeneral Hospital project in Scotland, Kier's first ever PFI contract. The salecompleted in February 2008 and contributes a profit of £16.2m in the second halfof this financial year, including profit previously deferred following arefinancing in August 2004. This represents a return of around five times ouroriginal investment. The value attributed to the equity sold implies a netpresent value calculated using an average discount rate of less than five percent. The markets in which we are currently operating are less predictable than wehave seen for some time, particularly for our Homes and Property businesseswhere the impact of the 'credit crunch' has become more apparent. Our housingorder books are around 20% lower than they were a year ago, reflecting a dip invisitor levels during November and December. We will be selling from an averageof 58 sites in the second half of the year compared with 53 in the first halfbut expect overall completions to be marginally lower than last year. InProperty there are a number of opportunities in the pipeline for the second halfof the year. We are confident in the carrying values of our housing and ourproperty developments. We are seeing little evidence of the credit shortage affecting our Constructionand Support Services businesses. Our Construction division continues to operatein strong markets and is carrying order books at 31 December 2007 10% ahead oflast year at £1,616m, benefiting from both private and public sector spendparticularly in the education, prison and affordable housing sectors. A greaterproportion of our work is now generated through framework agreements, two-stagebids and negotiation which create better quality, lower risk order books.Support Services has seen strong growth in its order books at 31 December 2007to £1,674m, 8.6% ahead of last year. This is before including a further £400m inrespect of our new contract in Stoke which commenced operation on 4 February2008. The market for our PFI investments is, presently, unchanged withcontinuing 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 ofintangible 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 Servicesbusinesses. 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 £26.7mgenerated from operating activities. Net funds at 31 December 2007 were £135.9m(2006: £114.4m) and strong balances were maintained in the Construction divisionwhich were £56.5m ahead of last year. Following shareholder approval to rebase the total dividend for 2007 by 92.3% to50p, the Board has declared an interim dividend for the year to 30 June 2008 of18.0p (2006: 9.6p); an increase of 87.5%. The dividend is 4.9 times covered byearnings per share and will be paid to shareholders on 2 May 2008 with the usualscrip alternative. Construction The Construction segment comprises Kier Regional and Kier Construction. KierRegional encompasses our ten regional contracting businesses, our affordablehousing business and major building projects. Kier Construction comprises theGroup's infrastructure and overseas operations with civil engineeringinfrastructure, rail, mining and remediation capability. Overall revenue increased by 20.9% to £816.1m (2006: £675.2m) with good growthin 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 thework we are carrying out and our cash balances at 31 December 2007 were £17.7mahead of 30 June 2007 (after tax and dividends) with average balances £52.8mahead of those for the full year to 30 June 2007. The order book at 31 December2007 was £1,616m (2006: £1,470m) supported by a healthy pipeline of orders whichare close to being awarded. Kier Regional continues to make advancements in its key performance indicatorsof revenue, profit margins and cash. Revenue grew by over 20% compared with thesame period last year, profit margins continue to increase and cash ended theperiod 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 ornegotiation, many of them through framework contracts, with only 20% of awardscompetitively bid (2006: 65% two-stage and negotiation; 35% competitive).Education has been a key driver of our public sector work representing around23% of awards through a combination of conventional procurement and frameworkagreements. We were delighted to have been awarded one of the first academyprojects under the 'Contractors' Framework for Academies and Other EducationalFacilities' and a major contract for Mid Kent College. Education is set toremain 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 forthe Future programme in Kent. This will provide us, initially, with £100m ofschools work with a potential for around £150m more. Prisons have also provideda significant amount of work, representing 10% of awards, under our frameworkagreement with the Ministry of Justice. In health we were awarded £116m ofcontracts under the ProCure 21 framework during 2007. Our social housing business, Kier Partnership Homes, was also successful inwinning a number of contracts in the period and we are well placed to takeadvantage of the growing affordable housing sector through our status as 'apartner' with the Housing Corporation which qualifies us to apply directly forhousing grants. The Government continues to be committed to the affordable andregeneration sector with a target to build 70,000 new social houses per annumcompared with the current total of 25,000 each year. Through Kier PartnershipHomes and Kier Property we are well positioned to respond to this increasedtarget. In the private sector our awards were driven by commercial property, including anumber 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 theLNG Terminal in Milford Haven for South Hook LNG which is now nearingcompletion. Our track record in power stations continues to grow with goodprogress being made at Immingham and Langage and further opportunities close toaward including a gas fired power station at Staythorpe and a waste to energyPFI project on which we are preferred bidder with Vosper Thornycroft. At our private open cast coal mine, Greenburn in East Ayrshire, we have nowextracted 2.3m tonnes of coal since we began production in 2004 and have beentaking advantage of the very high prices for coal over recent months. Overseas the building contracts for residential apartments and retail centres inRomania are progressing well and further opportunities look promising. We markedour 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 is25%. Kier, together with our partners Al-Qahtani of Saudi Arabia and Comedat ofJordan, will establish and operate the open cast mine opening up, potentially,the world's largest phosphate reserves. We have also recently been awarded £105mof infrastructure contracts in Dubai. Support Services Support Services comprises Kier Building Maintenance, Kier Managed Services,Kier Building Services Engineers and Kier Plant. Kier Building Maintenanceprovides reactive and planned maintenance principally to local authorityclients, housing associations and Arms Length Management Organisations as wellas Street Services including refuse collection, street cleaning and groundsmaintenance principally to local authorities. Kier Managed Services providesfacilities management services to public and private sector clients. KierBuilding Services Engineers comprises our specialist mechanical and electricaldesign, installation and maintenance business; and Kier Plant hires plant toKier Group companies and external clients. Revenue in this segment increased by 25.6% to £179.3m (2006: £142.7m); operatingprofit, 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 ourtarget of 4.0% earlier than expected. Cash generation within this businessremains 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 highlevel of awards achieved last year. Kier Building Maintenance is the largest division within Support Services withrevenue for the period at £134.3m (2006: £99.0m) representing a 35.7% increaseon last year following a number of significant contract awards in the secondhalf 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 ourexpectations contributing to good visibility of earnings in this division overthe next five to ten years. In February 2008 we were delighted to start work on a contract in partnershipwith Stoke-on-Trent City Council to maintain its 20,000 housing stock and carryout works through the Decent Homes programme. This brings the total number ofpublic sector homes we now look after to 207,000 representing around 10% of thetotal public sector housing stock held by local authorities. The new contractwill provide us with annual revenue of £40m for ten years, extendable for afurther five years. It also provides a great opportunity to attract additionalwork either through the contract or through third party work using the resourcesavailable in the partnership, similar to that experienced in both our Sheffieldand Harlow contracts. A growing pipeline of new opportunities has emerged and weare 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 ofdelivery on high value Building Maintenance contracts which places us well inthis sector. Homes Kier Residential, our housebuilding division, comprises five companies; AllisonHomes operating throughout Lincolnshire and north Cambridgeshire; BellwinchHomes with sites in the south and south-east; Kier Homes, operating across thecentral belt of Scotland; Kier Homes Northern (formerly Hugh Bourn Homes)operating in north Lincolnshire; and Twigden Homes with activities in EastAnglia 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 housingunits, compared with 21% last year. Revenue in the six months to 31 December2007 of £143.2m (2006: £151.8m) excluded land sales compared with the £8.3m ofland sales included in the prior period. Average sales prices fell marginallyfrom £175,200 to £173,200 reflecting a higher proportion of lower value KierHomes 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 operatingmargin 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 planningconsent (2006: 7,004) including two large new sites, acquired by our Scottishbased business; specifically 326 units at Winston Barracks, Lanark and 195 unitsat Hawkehead, Paisley. In addition to the land with planning consent the landbank also contains a further 12,400 plots of strategic land mostly held underoption. There is no doubt that the markets in which we operate have become much tougherin recent months. Mortgage availability is reduced and we saw a significantreduction in visitor levels to our sites in the run-up to Christmas and over theChristmas period. January saw a return of visitors to our sites with a slightincrease in the number of reservations compared with the earlier period. Ourorder books at 1 February 2008 are 20% lower than they were at this time lastyear although we are planning to open a number of new sites in the second halfof the financial year which will increase the average by five sites over thefirst half. Completions to 1 February 2008 combined with our order book for thecurrent year secure over 75% of our projected unit sales for the year. We havereviewed our incentive packages and, whilst we are not prepared to acceptmaterial margin erosion we are realistic about market conditions and cashlock-up. In this regard we are reducing our exposure to part-exchange propertiesby lowering our limit on the amount of part-exchange property we are prepared tohold. Despite the slowdown in the market and the marginal price reductions ourcarrying values of land and work in progress are robust. Property Our Property development activity covers commercial, offices, industrial, retailand mixed-use sectors largely on a non-speculative basis. It operates throughKier Ventures, a wholly owned subsidiary; and Kier Developments, a 50% jointventure with the Bank of Scotland. Revenue for the six months to 31 December 2007 of £58.3m (2006: £43.5m) was34.0% 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 headquartersbuilding in Milton Keynes, pre-let to Electronic Data Systems, on which KierRegional is the contractor and we are recognising development profit inaccordance with the stage of completion of the works. Good progress is beingmade at the new 70,000sq ft UK Supreme Court development for the Ministry ofJustice in London's Parliament Square where Wallis, our specialist refurbishmentcontracting business, is carrying out the work, and we are on programme forcompletion in the spring of 2009. In our joint venture with the Bank of Scotlandwe sold a number of developments including a 22-unit 'Trade City' IndustrialPark at Hemel Hempstead and a number of industrial units at our Brooklandsdevelopment in Weybridge. At Western International Market, near Heathrow, construction of a new market forthe fruit and vegetable traders has now been completed and the site currentlyoccupied by the traders will soon be released for redevelopment intodistribution units; marketing will commence on that development shortly. The commercial property market is tougher than we have seen for some time withexit yields shifting upwards, particularly on secondary sites. However, thecarrying values of the developments in our portfolio continue to besubstantiated and will provide us with a good revenue stream. This market mayalso 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 ofskills and resources within the Group and combine these with a financial packagethat will deliver high quality buildings and services to meet public sectorneeds. Kier Regional has made good construction progress on two schools for OldhamMetropolitan Council, which were handed over in February 2008, and a number ofschools for Norfolk County Council. The Garrett Anderson Health Centre inIpswich, also being built by Kier Regional, is close to completion. Kier ManagedServices will provide the facilities management services to all these projectswhen they are completed. We are also close to completion on the North KentPolice 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 partnerto whom we have now sold our share of the investment. The hospital was completedby Kier Build in 2001 and, as it has successfully operated for nearly sevenyears, 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 ofthe financial year and represents a return of around five times our originalinvestment. The value attributed to the equity sold implies a net present valuecalculated using an average discount rate of less than five per cent. Following the equity sale, our portfolio includes 12 projects in which we haveinvested, or have commitments to invest, a total of £18.5m. The directors'valuation of the committed investment is approximately £39m based on discountingthe cash flows at 7%. Health & Safety In employing over 23,000 people (including subcontractors) across our UK andinternational operations every day, we can never allow our focus on their healthand safety to falter. In an effort to raise, yet again, the very high standardswe demand of our project teams, we are setting new targets relating to sitepresentation and branding and the way in which we communicate with our workforceto ensure risks are understood and managed. Our Accident Incidence Rate of 693per 100,000 staff and subcontractors compares favourably with a Health & SafetyExecutive (HSE) target rate of 946 per 100,000. The HSE target for 2008 is setat 865. Prospects We are reporting at a time of uncertainty in both the world and the UK economywith the 'credit crunch' having a particular effect on our Homes and Propertybusinesses. Our Construction and Support Services businesses, on the other hand,have never been busier, our order books are strong and, importantly, our enquirylevels remain high. We have experienced teams in place in all of our businesses, a strong balancesheet and good cash resources and, in the absence of any significant marketsetbacks, 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------------------------------------- ---- ------- ------- -------RevenueGroup and share of joint ventures 5 1,205.5 1,020.5 2,127.9Less share of joint ventures (30.9) (40.7) (62.5)------------------------------------- ---- ------- ------- -------Group revenue 1,174.6 979.8 2,065.4Cost of sales (1,071.4) (889.4) (1,874.6)------------------------------------- ---- ------- ------- -------Gross profit 103.2 90.4 190.8Administrative 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 77.9Finance income 5.4 3.3 6.9Finance cost (3.1) (3.4) (7.2)------------------------------------- ---- ------- ------- -------Profit before tax 5 44.6 36.2 77.6Taxation 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 55.5Minority 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 (excludingthe 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 flowhedging instruments (13.2) - 13.1Actuarial gains and losses on definedbenefit pension schemes (17.0) 10.2 22.5Deferred tax on items recogniseddirectly in equity 8.5 (3.1) (12.1)------------------------------------- ------- ------- -------Income and expense recognised directlyin equity (21.7) 7.1 23.1Profit for the period 32.3 26.3 56.3------------------------------------- ------- ------- -------Total recognised income and expense forthe period 10.6 33.4 79.4------------------------------------- ------- ------- -------Attributable to:Equity holders of the parent 10.1 33.4 78.6Minority 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 assetsIntangible assets 12.6 13.8 13.6Property, plant and equipment 9 84.6 80.3 83.4Investment in joint ventures 37.3 28.0 40.7Retirement benefit surplus 10 6.3 6.8 6.8Deferred tax assets 11.5 14.4 8.7Other financial assets - 0.2 0.2Trade and other receivables 14.8 17.4 10.3------------------------------------- ---- ------- ------- -------Non-current assets 167.1 160.9 163.7------------------------------------- ---- ------- ------- -------Current assetsInventories 482.9 443.3 460.1Other financial assets 0.6 0.3 0.3Trade and other receivables 300.3 258.7 319.4Cash 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 liabilitiesTrade 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 classifiedas held for sale 14 (5.1) - -------------------------------------- ---- ------- ------- -------Current liabilities (794.7) (704.6) (797.6)------------------------------------- ---- ------- ------- -------Non-current liabilitiesLong-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------------------------------------- ---- ------- ------- -------EquityShare capital 0.4 0.4 0.4Share premium 32.5 22.7 27.0Capital redemption reserve 2.7 2.7 2.7Retained earnings 146.9 116.3 145.7Cash flow hedge reserve (2.5) (2.4) 7.0Translation reserve (0.6) (0.2) (0.6)------------------------------------- ---- ------- ------- -------Equity attributable to equity holdersof the parent 179.4 139.5 182.2Minority 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 activitiesProfit 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 inworking capital 49.2 43.4 92.2Special 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) 10.1 104.9Increase in provisions 2.6 3.4 3.2------------------------------------- ---- ------- ------- -------Cash inflow from operating activities 26.7 44.7 114.8Dividends received from joint ventures 0.5 0.5 0.6Interest received 4.9 3.1 6.8Income taxes paid (4.1) (7.4) (16.9)------------------------------------- ---- ------- ------- -------Net cash generated fromoperating activities 28.0 40.9 105.3------------------------------------- ---- ------- ------- -------Cash flows from investing activitiesProceeds from sale of property, plant &equipment 0.8 0.9 1.5Purchases of property, plant & equipment (10.7) (7.7) (19.7)Acquisition of subsidiaries, including netborrowings 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 activitiesProceeds from the issue of share capital - - 3.1Purchase 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 cashand cash equivalents (12.5) 3.3 37.3Opening 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 movementin net funds (Decrease)/increase in cashand cash equivalents (12.5) 3.3 37.3Increase 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 166.1 144.6 178.6Long-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. Thecondensed consolidated interim financial statements (interim financialstatements) of the Company as at, and for the six months ended, 31 December 2007comprise 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 constitutestatutory accounts, as defined in section 240 of the Companies Act 1985. Thestatutory accounts for the year to 30 June 2007 have been delivered to theRegistrar of Companies. The auditors' report on those accounts was unqualifiedand 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 withInternational 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 informationrequired for the full annual financial statements, and should be read inconjunction with the financial statements of the Group as at, and for the yearended, 30 June 2007. These interim financial statements were approved by the directors on 26 February2008. 3. Significant accounting policies The accounting policies applied by the Group in these interim financialstatements are consistent with those applied by the Group in its financialstatements as at, and for year ended, 30 June 2007. The following amendments to standards or interpretations are mandatory for thefirst time for the financial year ending 30 June 2008: IFRIC 10 'Interim financial reporting and impairment'. This interpretation hasnot had any impact on the timing or recognition of impairment losses as theGroup already accounted for such amounts using principles consistent with IFRIC10. IFRS 7 'Financial Instruments: Disclosures', and the related amendments to IAS 1'Presentation of Financial Statements' on capital disclosures. As this interimmanagement report contains only condensed financial statements, full disclosuresas required by IFRS 7 and IAS 1 will be given in the annual financialstatements. IFRIC 11 'IFRS 2 - Group and treasury share transactions'. The directors do notexpect this interpretation to impact the Group. The following new standards, amendments to standards and interpretations havebeen 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 andcancellations'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 fundingrequirements and their interaction.' The directors have considered the impact of these new standards andinterpretations in future periods and no significant impact is expected. TheGroup has chosen not to early adopt any of the above standards andinterpretations. 4. Estimates and financial risk management The preparation of interim financial statements requires the directors to makejudgements, estimates and assumptions that affect the application of theaccounting policies and the reported amounts of assets and liabilities, incomeand expenses. Actual results may differ from these estimates. In preparing these interim financial statements, the significant judgements madeby the directors in applying the Group's accounting policies and the key sourcesof estimation uncertainty together with the Group's financial risk managementobjectives and policies were the same as those that applied to the financialstatements 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 segmentalinformation. Support Infrastructure Construction Services Homes Property Investment Centre GroupSix months to 31 £m £m £m £m £m £m £mDecember 2007 ----------------------- ------- ------- ------- ------- ------- ------- -------RevenueGroup and share of jointventures 816.1 179.3 143.2 58.3 8.6 - 1,205.5Less 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----------------------- ------- ------- ------- ------- ------- ------- -------ProfitGroup operating profit 14.3 6.2 19.9 5.7 (0.6) (3.6) 41.9Share of joint ventures'operating profit - - 0.2 1.8 0.8 - 2.8----------------------- ------- ------- ------- ------- ------- ------- -------Group and share of jointventures 14.3 6.2 20.1 7.5 0.2 (3.6) 44.7Share of jointventures - 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) 42.3Finance 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 sheetTotal assets 304.8 98.5 445.9 57.7 12.2 31.8 950.9Total liabilities (596.3) (101.4) (92.5) (10.0) (10.2) (96.5) (906.9)----------------------- ------- ------- ------- ------- ------- ------- -------Net operatingassets/(liabilities) (291.5) (2.9) 353.4 47.7 2.0 (64.7) 44.0Cash, 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 RevenueGroup and share of jointventures 675.2 142.7 151.8 43.5 7.3 - 1,020.5Less share ofjoint ventures - - - (34.1) (6.6) - (40.7)----------------------- ------- ------- ------- ------- ------- ------- -------Group revenue 675.2 142.7 151.8 9.4 0.7 - 979.8----------------------- ------- ------- ------- ------- ------- ------- -------ProfitGroup operating profit 9.5 4.1 20.4 5.6 (0.3) (4.8) 34.5Share of joint ventures'operating profit - - - 3.6 0.8 - 4.4----------------------- ------- ------- ------- ------- ------- ------- -------Group and share of jointventures 9.5 4.1 20.4 9.2 0.5 (4.8) 38.9Share of jointventures - 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) 36.3Finance 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 sheetTotal assets 275.2 76.7 425.3 48.6 4.0 33.4 863.2Total 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) 25.1Cash, 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 GroupYear to 30 June 2007 £m £m £m £m £m £m £m----------------------- ------- ------- ------- ------- ------- ------- -------Revenue Group andshare of joint ventures 1,411.2 315.5 325.1 61.3 14.8 - 2,127.9Less share ofjoint ventures - - - (48.7) (13.8) - (62.5)----------------------- ------- ------- ------- ------- ------- ------- -------Group revenue 1,411.2 315.5 325.1 12.6 1.0 - 2,065.4----------------------- ------- ------- ------- ------- ------- ------- -------ProfitGroup operating profit 21.9 10.2 47.4 6.9 (1.1) (10.4) 74.9Share of joint ventures'operating profit - - 0.4 5.2 1.7 - 7.3----------------------- ------- ------- ------- ------- ------- ------- -------Group and share of jointventures 21.9 10.2 47.8 12.1 0.6 (10.4) 82.2Share of jointventures - 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) 77.9Finance 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 sheetTotal assets 325.2 95.0 418.8 61.9 15.3 27.3 943.5Total 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) 34.6Cash, 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 beencalculated at 29% (June 2007 29%, December 2006 29%) of underlying profit beforetax, being profits adjusted for the Group's share of tax in equity accountedjoint ventures. This represents the estimated effective rate of tax for theyear. Unaudited Unaudited 31 December 31 December 30 June 2007 2006 2007 £m £m £m ---------------------------------------- ------- ------- -------Profit before tax 44.6 36.2 77.6Add: 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 17.1Deferred tax 2.2 1.9 4.2---------------------------------------- ------- ------- -------Total income tax expense in the incomestatement 12.3 9.9 21.3Add: 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 30June 2007 of 40.4 pence (2006: 17.8 pence) 14.5 6.3 6.3Interim dividend for the year ended 30June 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 beenapproved at the balance sheet date and so has not been included as a liabilityin these financial statements. The dividend totalling £6.5m will be paid on 2May 2008 to shareholders on the register at the close of business on 14 March2008. 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 minorityinterests), being net profitsattributable to equity holders of theparent 31.8 26.3 55.5Add: amortisation of intangible assets 1.0 1.0 2.0Less: tax on the amortisation ofintangible assets (0.3) (0.3) (0.6)---------------------------------------- ------- ------- -------Adjusted earnings 32.5 27.0 56.9---------------------------------------- ------- ------- ------- million million million---------------------------------------- ------- ------- -------Weighted average number of shares used forearnings 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 theamortisation 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 acost of £10.2m (2006: £9.6m). Assets with a carrying amount of £0.5m weredisposed 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 theGroup's defined benefit schemes are as follows: Unaudited Unaudited 31 December 31 December 30 June 2007 2006 2007 £m £m £m ---------------------------------------- ------- ------- -------Kier Group Pension SchemeOpening deficit (30.6) (67.0) (67.0)Charge to operating profit (3.9) (5.9) (11.3)Employer contributions 9.5 14.7 24.0Actuarial (losses)/gain (15.8) 10.1 23.7---------------------------------------- ------- ------- -------Closing deficit (40.8) (48.1) (30.6)---------------------------------------- ------- ------- -------ComprisingTotal market value of assets 535.3 514.6 506.7Present 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 LLPOpening surplus 11.9 6.8 6.8Credit/(charge) to operating profit 0.1 (0.8) (0.4)Employer contributions 0.6 0.8 1.6Actuarial (losses)/gain (3.4) - 3.9---------------------------------------- ------- ------- -------Closing surplus 9.2 6.8 11.9---------------------------------------- ------- ------- -------ComprisingTotal market value of assets 140.6 129.8 136.7Present value of liabilities (131.4) (123.0) (124.8)---------------------------------------- ------- ------- -------Surplus 9.2 6.8 11.9Restriction on pension surplus (2.9) - (5.1)---------------------------------------- ------- ------- ------- 6.3 6.8 6.8Related 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 183.0 108.5 108.5Recognised income and expense for the period 10.6 33.4 79.4Dividends 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 7.0Purchase of own shares (5.5) (0.4) (8.7)Share-based payments charge 1.6 1.6 3.9Deferred 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 whichdirectors and senior employees can receive awards of shares subject to the Groupachieving earnings per share growth targets. Full details of the plan aredisclosed in the annual financial statements. On 21 September 2007 293,229 shares vested, valued at 1,815.0p in satisfactionof 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 1,984.0pExercise price nilOption life 3 yearsDividend 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 partytransactions since the last annual financial statements as at, and for the yearended, 30 June 2007. 14 Subsequent event Subsequent to the interim balance sheet date, the Group sold its investment inProspect Healthcare (Hairmyres) Group Limited for £13.8m. The consideration wasreceived wholly in cash on 8 February 2008. The sale will result in therecognition of a profit of £16.2m in the results for the financial year ending30 June 2008. Statement of directors' responsibilities The directors confirm that the interim management report includes a fair reviewof the information required by DTR 4.2.7 and DTR 4.2.8. The directors also confirm that the interim financial statements have beenprepared 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 LawsonD E Mattar (finance director)M O'FarrellM P SheffieldR W SideR W SimkinC V Geoghegan (non-executive) appointed 1 July 2007S W Leathes (non-executive). Signed on behalf of the Board J DoddsD 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 financialstatements in the interim financial report for the six months ended 31 December2007 which comprises the consolidated balance sheet of Kier Group plc as at 31December 2007, the related consolidated statements of income, recognised incomeand expense, cash flows for the six month period then ended and the relatedexplanatory notes. We have read the other information contained in the interimfinancial report and considered whether it contains any apparent misstatementsor material inconsistencies with the information in the condensed set offinancial statements. This report is made solely to the Company in accordance with the terms of ourengagement to assist the Company in meeting the requirements of the Disclosureand 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 thosematters 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 assumeresponsibility to anyone other than the Company for our review work, for thisreport, 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 financialreport in accordance with the DTR of the UK FSA. The annual financial statements of the Group are prepared in accordance withInternational Financial Reporting Standards as adopted by the European Union.The condensed set of financial statements included in this interim financialreport 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 condensedset 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 ReviewEngagements (UK and Ireland) 2410 Review of Interim Financial InformationPerformed by the Independent Auditor of the Entity issued by the AuditingPractices Board for use in the UK. A review of interim financial informationconsists of making enquiries, primarily of persons responsible for financial andaccounting matters, and applying analytical and other review procedures. Areview is substantially less in scope than an audit conducted in accordance withInternational Standards on Auditing (UK and Ireland) and consequently does notenable us to obtain assurance that we would become aware of all significantmatters that might be identified in an audit. Accordingly, we do not express anaudit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believethat the condensed set of financial statements in the interim financial reportfor the six months ended 31 December 2007 is not prepared, in all materialrespects, in accordance with IAS 34 as adopted by the European Union and the DTRof the UK FSA. KPMG Audit PlcChartered AccountantsRegistered AuditorLondon 26 February 2008 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Kier