REG - Kier Group PLC - Full Year Results for the year ended 30 June 2023
14/09/2023 07:15
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RNS Number : 3784M Kier Group PLC 14 September 2023
14 September 2023
Kier Group plc
Strong financial performance and significantly improved cash generation:
intention to return to the dividend list in FY24
Kier Group plc ("Kier", the "Company" or the "Group"), a leading UK
infrastructure services, construction and property group, announces its
results for the year ended 30 June 2023 ("FY23" or the "year").
Highlights
(£m unless otherwise stated) Year to Year to Change
30 June 2023(1) 30 June 2022(1)
Adjusted results
Revenue(2) 3,405.4 3,256.5 4.6%
Adjusted operating profit(3) 131.5 120.5 9.1%
Adjusted operating margin 3.9% 3.7% 20bps
Adjusted profit before tax(4) 104.8 94.1 11.4%
Adjusted basic earnings per share (note 9) 19.2p 16.8p 14.3%
Net cash(5) 64.1 2.9 2,110.3%
Average month-end net debt (232.1) (216.1) (7.4)%
Statutory reported
Group revenue 3,380.7 3,143.9 7.5%
Profit from operations 81.5 45.1 80.7%
Profit before tax 51.9 15.9 226.4%
Basic earnings per share (note 9) 9.5p 2.9p 227.6%
(1)Continuing operations
2Revenue of the Group and its share of revenue from joint ventures
3 Stated before adjusting items of £30.8m (FY22: £55.7m) and amortisation of
acquired intangible assets of £19.2m (FY22: £19.7m).
4 Stated before adjusting items of £33.7m (FY22: £58.5m) and amortisation of
acquired intangible assets of £19.2m (FY22: £19.7m).
5 Disclosed net of the effect of hedging instruments and excludes leases - see
note 12 to the preliminary financial statements.
FY23 Highlights
· Strong financial performance despite ongoing inflationary pressures
o Revenue growth of 4.6% driven by strong operational delivery
o Adjusted operating profit increased 9.1% to £131.5m (FY22: £120.5m)
o Adjusted operating margin at 3.9%, ahead of the medium-term target of c.3.5%
o Adjusted basic EPS: 19.2p (FY22: 16.8p), up 14.3%
o Reported profit from operations increased 80.7% to £81.5m (FY22: £45.1m)
o Free Cash Flow of £132.3m, driven by an operating cash conversion of 129.7%
following a strong Q4 performance
o Net cash of £64.1m, significantly higher than prior year-end (FY22: £2.9m)
and achieved after fully repaying £49.8m KEPS
o Strong cash generation and repayment of debt-like items. Average month-end
net debt at £(232.1)m
· Intention to resume dividend payments in FY24, commencing with an
interim dividend
· High quality order book, increased 3.1% to £10.1bn (FY22: £9.8bn)
providing significant visibility over FY24
· Bolt-on acquisition of rail assets announced post year-end
· Pension scheme triennial valuation agreed resulting in decreased
deficit payments
· Updated sustainability framework reinforces commitment to ESG targets
Andrew Davies, Chief Executive, said:
"The Group has achieved considerable operational and financial progress over
the last two years. This is reflected in the significantly improved financial
performance of the Group over the last year. It is testament to the hard work
and commitment of our people who have enhanced our resilience and
strengthened our financial position in line with the objectives set out in our
medium-term value creation plan. Our order book remains strong at £10.1bn and
provides us with good, multi-year revenue visibility. The contracts within our
order book reflect the bidding discipline and risk management now embedded in
the business. I am also particularly pleased to report, the Group
significantly improved its year-end net cash position and has confidence in
sustaining this momentum going forward.
The new financial year has started well, and we are trading in line with our
expectations. The Group is well positioned to continue benefiting from UK
Government infrastructure spending commitments and we are confident in
sustaining the strong cash generation evidenced this year. This, combined with
our focus on operational delivery, gives the Group a clear line-of-sight to
significantly de-lever. As a result, the Group intends to resume dividend
payments during FY24, with the first dividend to be declared alongside our
interim results."
FY23 Results Presentation
Kier Group plc will host a presentation for analysts and investors at 9:00am
on 14 September 2023 at the offices of FTI Consulting, 200 Aldersgate Street,
London EC1A 4HD.
Analysts wishing to attend should contact FTI Consulting to register -
Connie.Gibson@fticonsulting.com
Analysts unable to attend in person will be able to join the webcast using the
details below:
Webcast: https://www.investis-live.com/kier/64d201c1383e901300a364b6/tyej
(https://www.investis-live.com/kier/64d201c1383e901300a364b6/tyej)
United Kingdom: 0800 358 1035
United Kingdom (Local): 020 4587 0498
All other locations: 44 20 4587 0498
Conference password: 038464
An audio recording will be available on our website in due course.
Online Retail Investor Presentation
Andrew Davies, Chief Executive Officer and Simon Kesterton, Chief Financial
Officer will be hosting a live online retail investor presentation at 10:30am
on Thursday 28 September 2023. To attend, please register via the following
link: Zoom Webinar Registration - Kier Group investor presentation
(https://us06web.zoom.us/webinar/register/WN_43xcLFGlSTqFTqNIsyXLzA) .
Further Information:
Kier Group plc
Investor Relations +44 (0) 7933 388 746
Kier Press office +44 (0) 1767 355 096
FTI Consulting +44 (0) 20 3727 1340
Richard Mountain
Cautionary Statement
This announcement does not constitute an offer of securities by the Company.
Nothing in this announcement is intended to be, or intended to be construed
as, a profit forecast or a guide as to the performance, financial or
otherwise, of the Company or the Group whether in the current or any future
financial year. This announcement may include statements that are, or may be
deemed to be, ''forward-looking statements''. These forward-looking statements
can be identified by the use of forward-looking terminology, including the
terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'',
''plans'', ''target'', ''aim'', ''may'', ''will'', ''would'', ''could'' or
''should'' or, in each case, their negative or other variations or comparable
terminology. They may appear in a number of places throughout this
announcement and include statements regarding the intentions, beliefs or
current expectations of the directors, the Company or the Group concerning,
amongst other things, the operating results, financial condition, prospects,
growth, strategies and dividend policy of the Group or the industry in which
it operates. By their nature, forward-looking statements involve risks and
uncertainties because they relate to events and depend on circumstances that
may or may not occur in the future and may be beyond the Company's ability to
control or predict. Forward-looking statements are not guarantees of future
performance. The Group's actual operating results, financial condition,
dividend policy or the development of the industry in which it operates may
differ materially from the impression created by the forward-looking
statements contained in this announcement. In addition, even if the operating
results, financial condition and dividend policy of the Group, or the
development of the industry in which it operates, are consistent with the
forward-looking statements contained in this announcement, those results or
developments may not be indicative of results or developments in subsequent
periods. Important factors that could cause these differences include, but are
not limited to, general economic and business conditions, industry trends,
competition, changes in government and other regulation, changes in political
and economic stability and changes in business strategy or development plans
and other risks.
Other than in accordance with its legal or regulatory obligations, the Company
does not accept any obligation to update or revise publicly any
forward-looking statement, whether as a result of new information, future
events or otherwise.
Principal Risks and Uncertainties
You are advised to read the section headed ''Principal risks and
uncertainties'' in the Company's Annual Report and Accounts for the year ended
30 June 2022 for a discussion of the factors that could affect the Group's
future performance and the industry in which it operates.
About Kier
Kier is a leading UK infrastructure services, construction and property group.
We provide specialist design and build capabilities and the knowledge, skills
and intellectual capital of our people ensure we are able to project manage
and integrate all aspects of a project.
We take pride in bringing specialist knowledge, sector-leading experience and
fresh thinking to create workable solutions for our clients across the
country.
Together, we have the scale and breadth of skills of a major company, while
retaining a local focus and pride that comes from never being far from our
clients, through a network of offices spanning across England, Wales, Scotland
and Northern Ireland.
For further information and to subscribe to our news alerts, please visit:
www.kier.co.uk (http://www.kier.co.uk)
Follow us on X (formerly Twitter): @kiergroup
Connect with us on LinkedIn: Kier Group
Introduction
Over the last two years, Kier has undergone a transformation, rationalisation
and recapitalisation. The Group announced and committed to a medium-term value
creation plan in FY21 and our focus has been to deliver against the targets we
set.
The medium-term plan focused on increasing revenue, increasing margin and
increasing operating cash generation thus enabling debt reduction providing a
stronger balance sheet with a commitment to reintroducing dividends at the
appropriate time. FY23 saw a significant improvement in the net cash
balance to £64.1m which gives us a clear line-of-sight to an average net cash
position and gives the Board confidence in announcing its intention to return
to the dividend list in the current financial year.
The success for future years is underpinned by the year-end order book growing
to £10.1bn in FY23, an increase of 3.1% against the prior year, reflecting a
large number of contract wins across all divisions and providing multi-year
revenue visibility. Long-term framework positions, as well as pipeline
opportunities and income from the Property division, are excluded from the
order book and represent an additional opportunity. Given the order book
strength and Kier's framework positioning, approximately 85% of Group revenue
for FY24 is already secured which provides us with a high degree of confidence
of further progress against a backdrop of wider market uncertainty.
Kier won new, high quality and profitable work in our markets reflecting the
bidding discipline and risk management embedded in the business.
Medium-term value creation plan
The Group is focused on delivering its medium-term targets over a three to
five year period:
Revenue: £4.0bn - £4.5bn
Adjusted operating profit margin: c.3.5%
Cash conversion of operating profit: c.90%
Balance sheet: Sustainable net cash position with capacity to invest
Dividend: Sustainable dividend policy: c.3 x earnings cover through the cycle
The Group aims to achieve these medium-term targets through:
· volume growth and improved contract profitability;
· continued management discipline; and
· deploying additional capital in the Property business.
The Group continues to make good progress against these targets with free
cashflow conversion and profit margins met consistently over the past
reporting period. Despite political and economic uncertainties, our core
markets have remained favourable. We are a "strategic supplier" to the UK
Government and c.94% of our contracts are with the public sector and regulated
companies.
Customers and winning new work
We remain focused on winning work through our long-standing client
relationships and regionally based operations.
Highlights in the year:
· Highways: appointed by National Highways to carry out an essential
maintenance programme on eight viaducts at Lune Gorge, spanning the M6
· Utilities: reappointed to the £55m per annum, three-year extension
of the Network Service Alliance framework by South West Water and Bournemouth
Water
· Construction: appointed to the £5.1bn Strategic Alliance Contract
Framework in relation to the Defence Estate Optimisation ("DEO") Portfolio by
the Ministry of Defence; re-appointed to the £4.5bn Southern Construction
Framework
o Kier Places - appointed by L&Q for its Major Works Investment Programme
to deliver housing maintenance across its estate
· Property: started work on site at our Trade City scheme in Manchester
Strategy
The simplification and strengthening of the Group's balance sheet has resulted
in Kier being well-placed to continue to pursue its strategic objectives
successfully within its chosen markets and allow it to further enhance and
capitalise on its position as a strategic partner to its customers.
The Group's strategy continues to be focused on:
· UK Government, regulated industries and blue-chip customers;
· operating in the business-to-business market; and
· contracting through long-term frameworks.
Our core businesses are well-placed to benefit from the UK Government spending
commitments to invest in infrastructure and the significant investment plans
announced by regulated UK asset owners. We have secured places on the
long-term frameworks through which much of the increased spend will be
deployed.
This, combined with our regional coverage, customer relationships and project
management expertise, will enable our strategic actions of disciplined growth,
consistent delivery and strong cash generation.
Financial summary
Kier's revenue of £3.4bn (FY22: £3.3bn) reflects growth in both the
Infrastructure Services and Construction segments, offset by the anticipated
reduction in the Property business driven by market conditions.
The Group's FY23 results demonstrate a strong performance despite continuing
cost inflation relating to materials, wages and other costs. We remain
successful in mitigating these pressures through having c. 60% of our order
book under target cost or cost reimbursable contracts, procurement strategies
and negotiations on fixed price contracts. With over 400 live projects at any
given time, we are also regularly delivering existing contracts and pricing
new contracts which mitigates against cost pressures. In addition, we have an
average order size of c. £16m in our Construction business which given its
modest size, limits our risk exposure in the event a project does not go to
plan.
The Group delivered adjusted operating profit of £131.5m which represents a
9.1% increase on the prior year (FY22: £120.5m). Both our Infrastructure
Services and Construction segments performed well in the year, partially
offset by the expected reduction within the Property segment. Group adjusted
operating profit margin increased by 20 basis points to 3.9% (FY22: 3.7%).
Reported profit from operations increased 80.7% to £81.5m (FY22: £45.1m)
with a reduction in adjusting items.
Adjusted earnings per share increased 14.3% to 19.2p (FY22: 16.8p) and
reported earnings per share increased 227.6% to 9.5p (FY22: 2.9p) as revenue
converted to profitability and adjusting items reduced.
The Group generated £132.3m of free cash flow in FY23 (FY22: £54.6m), a
significant increase over the prior year. The Group's revenue growth in
Infrastructure Services and Construction converted to increased profit and
cash. In addition, the Group experienced a seasonal working capital inflow of
£80.3m, predominantly driven by Construction.
The Group's net cash position at 30 June 2023 was £64.1m (FY22: £2.9m) with
supplier payment days remaining consistent with the prior year.
Average month-end net debt for the year ended 30 June 2023 was £(232.1)m
(FY22: £(216.1)m). As outlined in our FY22 results, the Group expected an
increase in average month-end net debt due to the anticipated repayment of
debt-like items such as KEPS and lower activity in our Construction business
until the fourth quarter of the year. The average month-end net debt balance
of £(232.1)m was better than expected due to mitigating actions taken through
the year. The Group used positive operating cash flow to repay the average
KEPS balance of £56.2m, to pay pension deficit obligations and to repay the
remaining HMRC COVID-19 support of £6.1m.
The Group fully repaid its remaining £49.8m KEPS programme in July 2022
followed by a repayment of all its Schuldschein Notes and certain of the US
Private Placement ('USPP') Notes totalling £43.8m.
The Group's Revolving Credit Facility ('RCF') also reduced by £40.0m, in line
with the facility agreement.
Capital allocation
In addition to the medium-term value creation plan, the Group has set out its
capital allocation priorities. The Group maintains a disciplined approach to
capital and continuously reviews capital allocation priorities with the aim of
maximising shareholder returns. The Group's capital allocation is underpinned
by its commitment to maintain a strong balance sheet. The capital priorities
are:
· Capex - investment to support its businesses
· Property - disciplined non-speculative investment in the Property
segment
· De-leveraging - further de-leveraging. Targeting a sustainable
net cash position in the medium-term and a funding profile which is
appropriate for the medium and long-term needs of the Group
· Dividend - reinstating the dividend is key to ensuring that
shareholders share the benefits of the Group's growth. In the medium-term, the
Group is targeting a dividend cover of around three times through the cycle
· Mergers and acquisitions - the Group will consider value
accretive acquisitions in core markets where there is potential to accelerate
the medium-term value creation plan.
Dividend
As part of the medium-term value creation plan, the Board intended to
reinstate dividends when a near-term pathway to operating with an average net
cash position was clear.
Given the Group's strong operational and financial performance over the last
year, the year-end net cash position and confidence over further progress in
the short term, the Board is able to confirm its intention to commence
dividend payments to shareholders. Over time, we will progress to deliver a
dividend, covered 3x by earnings and in a payment ratio of one-third interim
dividend and two thirds final dividend. The first dividend is expected to be
announced alongside the interim results.
Acquisition
On 4 September 2023, after the year-end, Kier agreed to acquire substantially
all of the rail assets of Buckingham Group Contracting Limited ("in
Administration") and their HS2 contract supplying Kier's HS2 joint venture,
EKFB, for a total cash consideration of up to £9.6m.
The Group has previously stated it would consider value accretive acquisitions
in core markets where there is potential to accelerate the medium-term value
creation plan. This is an excellent example of an acquisition which provides a
cultural fit as well as accelerates Kier's broader rail strategy.
Kier is delivering a number of projects across the rail sector including a
£65m upgrade to Oxford Railway Station. The acquisition provides Kier with
new rail clients and increases our capabilities across the UK. The acquisition
also brings c.180 employees to the Group consisting of high-quality
individuals with expertise in the rail sector, further enhancing Kier's talent
pool.
The rail assets consisted of design, build and project integration contracts
for a range of customers including Network Rail. In addition, the Group
acquired a limited amount of working capital in the form of trade debtors,
work in progress and client retentions. The transaction was implemented by way
of a purchase out of administration.
Kier observes a disciplined risk management process, a result of which is that
historical contractual liabilities recognised prior to the completion date
were not acquired. The acquisition also provides operational stability and
defensiveness to Kier's HS2 joint venture, EKFB.
Given its modest size, the Group does not believe this will materially impact
its forecasts for FY24, nor its year-end net cash or average net debt
position. For FY25, the Group expects acquisition revenue of c.£50m-£75m.
Pension
During the year the Group agreed the triennial valuation for funding its
defined benefit pension schemes. Given the Group's improved pension covenant
and payments made under the existing schedule of contributions, the schemes
are now in a significantly improved position, resulting in reducing deficit
contributions to be made over the coming years concluding in FY28.
Performance Excellence
Through our Performance Excellence culture, which was introduced in 2020, Kier
has embedded a strong operational and financial risk management framework
across the Group. It is essential to, and embedded into, Kier's contract
selection and delivery processes.
Following the evolution of the Performance Excellence programme during 2022,
the focus in 2023 has been on the five workstreams of Culture and Behaviours,
Customers, Digital, Simplification and Wellbeing. These workstreams ensure we
continue to meet our obligations to the environment and the communities we
work within, as well as our investors and client expectations.
The key tenets are as follows:
· measure clients' and customers' experiences objectively, using data
to improve our external relationships
· adopt a digital-first approach through a digitally enabled workforce
increasing productivity
· instil best practices in our workforce through behaviour, cultural
programmes, and wellbeing initiatives
· simplify processes across the Group; and
· win new business with attractive margins.
Performance Excellence is also fundamental to the Group's overall approach
to safety. We aim to continually improve the Group's processes and
performance by operating through this framework.
The Group's focus for FY24 will be on Digital and Simplification.
Supply chain partners
We continue to focus on maintaining and growing relationships with our key
stakeholders, including our supply chain. Many of our suppliers are long-term
partners of the Group and we value their contribution.
We were pleased to report that, in our latest Duty to Report on Payment
Practices and Reporting submission, covering the period from 1 January 2023 to
30 June 2023, the Group's aggregate average payment days was maintained at 34
days (H1: 34 days) and the percentage of payments made to suppliers within 60
days was 85% (H1: 87%).
We are committed to further improvements in our payment practices and continue
to work with both customers and suppliers to achieve this. We are fully
committed to complying with the 30-day payment requirements for small and
medium sized firms.
Management change
The Group has continuously focused on the strength of its talent and
succession management. This was demonstrated in the year with Louisa Finlay's
promotion to Chief People Officer. Stuart Togwell was appointed as Group
Managing Director, Construction.
Environmental, Social and Governance ("ESG")
Kier's purpose is to sustainably deliver infrastructure which is vital to the
UK. As a "strategic supplier" to the UK Government, ESG is fundamental to our
ability to win work and secure positions on long-term frameworks. UK
Government contracts with a value of or above £5m require net zero carbon and
social value commitments.
In 2023 we reinforced our commitment to Kier's and Government's ESG targets
through the launch of our refreshed sustainability framework, "Building for a
Sustainable World" which covers sustainability from both an environment and
social perspective. Our framework has evolved to focus on the three key
pillars of People, Places and Planet with new metrics to monitor progress.
We believe that to be a responsible business and to play a leading role in our
industry, we must address both the impact of climate change and leave a
lasting legacy in the communities in which we operate.
Environment
The Group has set out its pathway to become net zero carbon across all
business operations by 2039 (scope 1 and 2), value chain (scope 3) by 2045
together with interim targets.
FY23 was another year of progress and we achieved an 18.7% year-on-year
reduction in carbon emissions from our business operations (scope 1 and 2). We
have worked with partners to refine our scope 3 carbon measurement. This
indicated a reduction of c.7% in scope 3 emissions in the year. The Group
re-based its scope 3 emissions as it further expanded the categories included
in its emissions reporting.
The net zero carbon milestone plan for scope 1 and 2 has been updated as we
evolve our Building for a Sustainable World framework. As Kier is a Tier 1
supplier, the majority of its carbon emissions relate to the use of fuel,
either on our sites or travel to our sites.
Accordingly, our pathway to being net zero by 2039 includes the following key
short- and medium-term actions: rolling out ultra-low emission and electric
vehicles across our fleet; ensuring our sites and facilities use energy
efficient technology; reviewing opportunities to self-deliver electricity;
enhanced data management with the supply chain and increased usage of design
to address scope 3.
The plan is designed to help deliver our FY30 near-term targets of:
· a 66% absolute reduction in scope 1 and 2 emissions; and
· a 42% absolute reduction in scope 3 emissions.
As well as reducing our own carbon footprint, Kier continues to work with its
clients to design out carbon from UK infrastructure projects and with our
supply chain to reduce their carbon emissions.
Social
The Group's 12-month rolling Accident Incident Rate ('AIR') in FY23 of 88
represents a decrease of 23% compared to FY22 and indicates the focus given to
it during the year and also our approach to risk which is improving our safety
management.
The Group's 12-month rolling All Accident Incident Rate ('AAIR') in FY23 of
320 increased by 1%.
Following an investigation by the UK's national regulator for workplace health
and safety, the Health and Safety Executive ('HSE'), on 23 January 2023 the
Group was fined £4.4m for safety breaches in connection with two incidents in
our Highways business dating back to March 2018 and January 2019. The
incidents relate to work carried out on the M6 motorway. Since these
incidents occurred the Highways business has been very successful in
transforming and improving its safety record. Throughout the year to June
2023, Kier had market leading safety performance as recognised by National
Highways.
Kier is a people-based business and our performance depends upon our ability
to attract and retain a dedicated workforce. During FY23 we had:
· 646 apprentices participating in programmes, representing c.6% of our
workforce
· graduate intake of 115 of which 43% comprised of women; and
· developed and implemented a new health, safety and wellbeing strategy
as well as launched a new behavioural programme
We continue to deliver apprenticeships as a key means of upskilling employees
and bringing in diverse emerging talent to reduce the industry skills gap. We
contribute to a variety of educational engagement activities, including
playing a leading role in Open Doors Week and Teacher Encounters, to introduce
students and teachers to the construction industry.
Governance
Governance is a core component of the Group's approach to operations.
Governance is delivered within Kier's Operating Framework. The laws, policies
and procedures underpinning the Operating Framework are regularly reviewed and
updates implemented as necessary. Within the Operating Framework is Kier's
Code of Conduct which sets the corporate compliance agenda.
Integral to this is our management of risk. We ensure that risk management is
adopted at every stage of the project lifecycle to ensure that the delivery of
the Group's order backlog remains profitable and cash generative in line with
our medium-term value creation plan.
Our people
I would like to thank our c.10,000 people for their dedication, contribution
and commitment throughout the last year and this is reflected in the
performance of the Group and the significantly improved financial position.
People are at the heart of our Group and we ensure that we pay them a
competitive wage and offer support through the cost-of-living crisis. Since
April 2021 the Group has been an accredited Real Living Wage employer. The
cost-of-living crisis has resulted in the Group accelerating the application
of the Real Living Wage from April to January, for c.850 people and we are
working to extend this to all those employed on a Kier site. Kier employees
received, on average, a 4% pay rise in FY23 and we intend to offer a further
pay rise of up to 5% in FY24.
We have also focused on many other areas of employee welfare and support with
other key initiatives such as:
· Inflation support payment - we awarded c.800 employees with an
inflation support payment of £300 in November 2022. This payment was in
addition to the pay increases noted above and was targeted to provide
financial support to those who we believe are most challenged with the high
increases in food, energy and household bills
· Enhanced sick pay - we have also implemented enhanced sick pay terms
for our lowest paid employees, providing them with increased financial peace
of mind if they are absent from work due to sickness
· Financial support - financial support for employees is always an
important area and has been magnified by the cost-of-living pressures. For our
workforce that need additional financial support we have introduced support
and guidance in the form of Salary Finance. Salary Finance provides education
and a savings option through HMRC's Help to Save scheme as well as responsible
loans
· Mortgage advice - we have arranged a bespoke service, providing our
employees with free professional mortgage and financial advice.
We are continuing to review the rising cost of living on our lowest paid
employees and contingent workers. We will consider taking further steps as
appropriate.
Focus has also been made on wellbeing including such initiatives as Employee
Voice, a survey which enables employee engagement. We are currently extending
our culture and behavioural programme across our people and by listening to
them our surveys show a 65% employee engagement score for FY23, an increase
from the previous year (FY22: 58%).
Summary and outlook
The Group has achieved considerable operational and financial progress over
the last two years. This is reflected in the significantly improved financial
performance of the Group over the last year. It is testament to the hard work
and commitment of our people who have enhanced our resilience and
strengthened our financial position in line with the objectives set out in our
medium-term value creation plan. Our order book remains strong at £10.1bn and
provides us with good, multi-year revenue visibility. The contracts within our
order book reflect the bidding discipline and risk management now embedded in
the business. I am also particularly pleased to report, the Group
significantly improved its year-end net cash position and has confidence in
sustaining this momentum going forward.
The new financial year has started well, and we are trading in line with our
expectations. The Group is well positioned to continue benefiting from UK
Government infrastructure spending commitments and we are confident in
sustaining the strong cash generation evidenced this year. This, combined with
our focus on operational delivery, gives the Group a clear line-of-sight to
significantly de-lever. As a result, the Group intends to resume dividend
payments during FY24, with the first dividend to be declared alongside our
interim results.
Operational Review
Infrastructure Services
Year ended Year ended Change
30 June 2023 30 June 2022
Revenue (£m) 1,712.3 1,666.6 2.7%
Adjusted operating profit (£m)(6) 79.8 70.0 14.0%
Adjusted operating margin (%) 4.7% 4.2% 50bps
Reported operating profit (£m) 57.2 48.1 18.9%
Order book (£bn) 5.8 5.6 3.6%
6Stated before adjusting items of £22.6m (FY22: £21.9m).
· Key contract wins include:
o Highways: appointed by National Highways to carry out an essential
maintenance programme on eight viaducts at Lune Gorge, spanning the M6
o Utilities: reappointed to the £55m per annum, three-year extension of the
Network Service Alliance framework by South West Water and Bournemouth Water
· 76% of orders secured for FY24
Infrastructure Services segment comprised the Highways, Infrastructure and
Utilities businesses.
Infrastructure Services revenue increased 2.7% against the prior year
primarily due to the continued ramp up of capital works on HS2. Adjusted
operating profit increased 14.0% to £79.8m due to higher HS2 volumes.
Adjusting items include £1.5m for the HSE fine in relation to Highways.
The Highways business designs, builds and maintains roads for National
Highways, Transport for London and a number of city, county and district
councils. The business experienced a period of strong wins, including new
contracts and contract extensions in maintenance projects, alongside the
design and build of three National Highways major capital projects as the
business has transitioned from one predominantly maintenance focused to both
maintenance and capital works.
The Infrastructure Projects business delivers major and complex infrastructure
and civil engineering projects, including HS2, Devonport, Oxford Railway
Station, Mogden Sewage and Treatment Works and Hinkley Point C.
Infrastructure experienced a ramp up in HS2 volumes during the period.
The Utilities business provides construction and maintenance services under
long-term contracts, to the water, energy, and telecoms sectors. The Utilities
business had anticipated higher volumes in the telecoms sector with the UK
Government's commitment to rolling out 5G connectivity to the UK. However,
changes to market conditions has resulted in reduced activity, which in turn
has had an adverse impact on the telecoms margin.
Re-alignment
From 1 July 2023 the announced re-alignment of the Infrastructure Services
segment took effect and the three business units became two. This change
ensures we are able to support our growth ambitions and align our
capabilities, skills and expertise to the evolving needs of our clients.
• Transportation: this business division provides design, engineering,
delivery and maintenance to support the movement of people, goods and
equipment by land, sea and air. It includes our existing highways business
and infrastructure projects relating to rail, ports and air.
• Natural Resources, Nuclear & Networks: this business division
includes our existing utilities business and infrastructure projects related
to water, energy, nuclear and networks.
The re-alignment positions Kier in an even stronger standing to pursue our
strategic objectives within our chosen markets given the UK Government's
commitment to £600bn of public sector spending and the significant investment
plans by UK asset owners in the regulated sector.
Construction
Year ended Year ended Change
30 June 2023 30 June 2022
Revenue (£m) 1,652.5 1,440.8 14.7%
Adjusted operating profit (£m)(7) 69.5 60.8 14.3%
Adjusted operating margin (%) 4.2% 4.2% - bps
Reported operating profit (£m) 46.4 21.8 112.8%
Order book (£bn) 4.3 4.2 2.4%
7 Stated before adjusting items of £23.1m (FY22: £39.0m)
· Key contract wins include:
o The £5.1bn Strategic Alliance Framework Contract in relation to the
Defence Estate Optimisation ("DEO") Portfolio by the Ministry of Defence
o Re-appointment to the £4.5bn Southern Construction Framework
o Kier Places appointed by L&Q for its Major Works Investment Programme to
deliver housing maintenance across its estate
· 95% of orders secured for FY24
· Significant growth in volumes in the second half of the year
The Construction segment comprises Regional Building, Strategic Projects, Kier
Places (including Housing Maintenance, Facilities Management and Environmental
Services), as well as our International business. Construction has national
coverage delivering schools, hospitals, defence, custodial facilities and
amenities centres for local authorities, councils and the private sector.
Revenue increased 14.7% due largely to the start of works on the new custodial
facility, HMP Millsike in East Yorkshire, and growth in Kier Places as we
benefit from increased facilities and housing management contracts.
Adjusted operating profit increased 14.3% to £69.5m driven by increased
volume and the impact of the prior year's restructuring. Adjusting items
include £12.6m relating to fire cladding costs, £5.2m of restructuring and
related charges and a net £5.3m in relation to historical insurance claims.
Adjusting items are significantly lower than last year, resulting in reported
operating profit growing 112.8% to £46.4m.
As a regional contractor, we continue to be well placed to benefit from the UK
Government's focus on spending to improve under-invested assets such as
schools, hospitals and custodial services, where our Construction business has
specialist expertise.
Our Kier Places business specialises in working in occupied properties
including residential, offices, and other facilities delivering maintenance,
repairs, fire safety and compliance services.
It is focused on central Government for our facilities management work and
delivering housing maintenance services for local authorities. The net zero
agenda alongside changes to building safety regulations continue to drive
opportunities within the housing maintenance business. These have allowed the
business to benefit from increased revenue volume and profitability including
those from long-term maintenance contracts.
The UAE-based International business is focused on managing its cost base and
projects in line with the continued weakness in its markets.
Property
Year ended Year ended Change
30 June 2023 30 June 2022
Revenue (£m) 37.6 144.3 (73.9)%
Adjusted operating profit (£m)(8) 12.8 17.6 (27.3)%
Adjusted operating margin (%) 34.0% 12.2% 2,180bps
Reported operating profit (£m) 14.3 16.7 (14.4)%
Capital employed - new (£m) 150 122 23.0%
ROCE - new (%) 9.4% 13.7% (430)bps
Capital employed (£m) 175 122 43.4%
ROCE (%) 8.6% 13.7% (510)bps
(8)Stated before adjusting items of £(1.5)m (FY22: £0.9m)
· Commenced redevelopment work at 19 Cornwall Street Birmingham to
transform it into an office operating at net zero carbon
· Entered a Joint Venture partnership with Countryside to deliver a
housing development in South Wokingham
· Benefitted from planning consent for a wind farm to be developed
on the former Greenburn Mine site
The Property business invests and develops primarily mixed-use commercial and
residential schemes across the UK. The business is a well-established urban
regeneration and property developer and largely operates through joint
ventures and does not make speculative investments.
Revenue of £37.6m and adjusted operating profit of £12.8m during the year
was driven by lower transaction activity as a result of market conditions, in
contrast to a higher level of transactions in the prior year. Property
recognised a fair value gain of £13.2m within other income related to two
transactions in its investment property unit during the year.
The Group has focused on the controlled expansion of the Property business
through select investments and strategic joint ventures using a disciplined
capital approach.
In order to make the reported capital employed meaningful, we plan on amending
the definition so that it excludes fair value gains and third party debt. We
believe this better reflects the Group's investment in the Property segment.
As at 30 June 2023, Kier's capital employed in the Property segment was
£175m, including third party debt and fair value gains. Excluding these
items, it would have been £150m. Due to the Group's increased operating
cash flows, the benefit of building out projects such as 19 Cornwall Street in
Birmingham and market conditions we are reviewing the upper end of capital
employed in our Property segment, which is currently at £170m.
Corporate
Year ended Year ended
30 June 2023 30 June 2022 Change
Adjusted operating loss (£m)(9) (30.6) (27.9) (9.7)%
Reported operating loss (£m) (36.4) (41.5) 12.3%
(9)Stated before adjusting items of £5.8m (FY22: £13.6m)
The Corporate segment comprises the costs of the Group's central functions
which have increased over the prior year due to inflation and investment in
people to support the Group's growth.
Financial Review
Introduction
The Group performed well during the year and delivered an adjusted operating
profit of £131.5m (FY22: £120.5m). This represents a 20 basis points
operating margin increase over the prior period to 3.9% (FY22: 3.7%) with the
Group exceeding its medium-term value creation plan margin target of c.3.5%
ahead of time.
The continued strong operational performance, together with lower adjusting
items, led to a significant increase in profit from operations to £81.5m
(FY22: £45.1m) and a 226.4% increase in profit before tax to £51.9m (FY22:
£15.9m).
Adjusting items reduced by 32.4% to £52.9m (FY22: £78.2m). The current
year charge includes £19.2m of amortisation of intangible contract rights,
£12.6m of fire and cladding costs, £13.0m of restructuring and related
charges and a net £5.3m in relation to historical insurance claims. The
Group believes its restructuring activities are now substantially complete.
Adjusted earnings per share increased 14.3% to 19.2p (FY22: 16.8p).
The Group generated a free cash inflow of £132.3m during the year (FY22:
£54.6m) driven by a strong working capital performance, in particular driven
by growth in Q4 within the Construction business.
Net cash at 30 June 2023 of £64.1m increased significantly compared to the
prior year (FY22: £2.9m), driven by the strong free cash flow performance.
The net cash increase was achieved despite the Group repaying its supply chain
facility ('KEPS'), adjusting items, pension deficit obligations and purchasing
existing Kier shares for future employee share-based remuneration.
Average month-end net debt for the year ended 30 June 2023 was £(232.1)m
(FY22: £(216.1)m). As outlined in our FY22 results, the Group expected an
increase in average month-end net debt due to the anticipated repayment of
debt-like items such as KEPS and lower activity in our Construction business
until the fourth quarter of the year. The average month-end net debt balance
of £(232.1)m was better than expected due to mitigating actions taken through
the year. The Group used positive operating cash flow to repay the average
KEPS balance of £56.2m, to pay pension deficit obligations and to repay the
remaining HMRC COVID-19 support of £6.1m.
The Group continued to win new, high-quality and profitable work in its
markets on terms and rates which reflect the Group's bidding discipline and
risk management.
The order book has increased to £10.1bn (FY22: £9.8bn), a 3.1% increase
compared to the prior year end. c.85% of revenue for FY24 is already secured
which provides certainty of further progress over next year.
Summary of financial performance
Adjusted(10)( )results Reported results
30 Jun 23 30 Jun 22 change 30 Jun 23 30 Jun 22 change
% %
Revenue (£m) - Total 3,405.4 3,256.5 4.6 3,405.4 3,256.5 4.6
Revenue (£m) - Excluding JV's 3,380.7 3,143.9 7.5 3,380.7 3,143.9 7.5
Profit from operations (£m)( ) 131.5 120.5 9.1 81.5 45.1 80.7
Profit before tax (£m) 104.8 94.1 11.4 51.9 15.9 226.4
Earnings per share (p) 19.2 16.8 14.3 9.5 2.9 227.6
Free cash flow (£m) 132.3 54.6 142.3
Net cash (£m) 64.1 2.9 2,110.3
Net debt (£m) - average month end (232.1) (216.1) (7.4)
Order book (£bn) 10.1 9.8 3.1
Supply Chain Financing (£m) - (49.8) 100.0
(10)Reference to 'Adjusted' excludes adjusting items, see note 5.
Revenue
The following table bridges the Group's revenue from the year ended 30 June
2022 to the year ended 30 June 2023.
£m
Revenue for the year ended 30 June 2022 3,256.5
Infrastructure Services 45.7
Construction 211.7
Property and Corporate (108.5)
Revenue for the year ended 30 June 2023 3,405.4
The Group grew revenue in both Infrastructure Services and Construction, which
more than offsets the lower revenue in Property. In particular the growth
within Infrastructure Services was driven by the ramp up of HS2. Utilities had
anticipated higher volumes in the telecoms sector, however, changes to market
conditions has resulted in reduced activity. This has had an adverse impact on
the telecoms margin. Construction's improved performance was driven by its
Kier Places business as well as HMP Millsike, in East Yorkshire.
Property transactions were down as expected due to a deterioration in market
conditions. The deterioration was anticipated and therefore the Group
accelerated the sale of certain portfolio items in the second half of the
prior year to take advantage of the market conditions at the time.
The Group continues to focus on delivering high-quality and high-margin work.
Alternative performance measures ('APMs')
The Directors continue to consider that it is appropriate to present an income
statement that shows the Group's statutory results only. The Directors,
however, still believe it is appropriate to disclose those items which are
one-off, material or nonrecurring in size or nature. The Group is disclosing
as supplementary information an 'adjusted profit' APM. The Directors consider
doing so clarifies the presentation of the financial statements and better
reflects the internal management reporting and is therefore consistent with
the requirements of IFRS 8.
Adjusted Operating Profit
£m
Adjusted operating profit for the year ended 30 June 2022 120.5
Volume / price / mix changes 9.2
Fewer property transactions, net of valuation gains (4.8)
Cost inflation (7.2)
Management actions 13.8
Adjusted operating profit for the year ended 30 June 2023 131.5
Adjusted operating profit improved compared to the prior year. The main
reasons for this were an improvement in volume, price and mix changes as well
as management actions to reduce costs. These were offset by inflationary
pressures and lower property transactions compared to FY22.
A reconciliation of reported to adjusted operating profit is provided below:
Operating profit Profit before tax
30 Jun 23 30 Jun 22 30 Jun 23 30 Jun 22
£m £m £m £m
Reported profit 81.5 45.1 51.9 15.9
Amortisation of acquired intangibles 19.2 19.7 19.2 19.7
Restructuring and related charges 13.0 40.0 13.0 40.0
Other( ) 17.8 15.7 20.7 18.5
Adjusted profit 131.5 120.5 104.8 94.1
Additional information about these items is as follows:
• Amortisation of acquired intangible assets £19.2m (FY22: £19.7m):
Comprises the amortisation of acquired contract rights primarily through the
acquisitions of MRBL Limited (Mouchel Group), May Gurney Integrated Services
PLC and McNicholas Construction Holdings Limited.
• Restructuring and related charges £13.0m (FY22: £40.0m):
Restructuring costs include £7.6m incurred on redundancy and other
people-related costs within the Group, including those related to the
re-sizing of the International business. A further £4.9m was incurred on
professional advisor fees and other non-people related activities, including
£1.6m of vacant property costs. The Group's restructuring is now
substantially complete and there will be no further restructuring charges
recognised in adjusting items.
• Other costs £20.7m (FY22: £18.5m)
Legal and compliance costs include £12.6m incurred on fire compliance and
cladding claims.
A further £5.3m was incurred on insurance-related matters. This is made up of
a provision of £8.0m against an insurance-related receivable. This is
offset by £2.7m of insurance proceeds received following the fire at the Pure
Recycling plant in July 2021.
A further £1.5m was incurred as a result of the fine from HSE in relation to
historical safety issues. In addition, £2.9m of finance costs relate to the
IFRS 16 interest charge on leased properties that were previously vacated.
Offsetting these costs was a £1.6m profit on the sale of mothballed land
which had previously been impaired through adjusting items.
Earnings per share
Earnings per share ('EPS') before and after adjusting items have both
increased significantly compared to prior year. EPS before adjusting items
amounted to 19.2p (FY22: 16.8p). EPS after adjusting items amounted to 9.5p
(FY22: 2.9p). There was a significant reduction in adjusting items in the
year.
Finance income and charges
The Group's finance charges include interest on the Group's bank borrowings
and finance charges relating to IFRS 16 leases.
Net finance charges for the year were £26.7m (FY22: £26.4m) before adjusting
items of £2.9m (FY22: £2.8m).
Interest on bank borrowings amounted to £29.0m (FY22: £18.9m) and have
increased during the year due to the higher average month-end net debt and
increased interest rates. The Group was able to partially mitigate the
risk of higher interest rates with a fixed interest rate swap of £100m, which
resulted in a fair value gain of £1.1m as at 30 June 2023, and which expires
in September 2023; and another three-year fixed interest rate swap of £100m
reducing to £75m in its second year and £50m in its third year and which
expires in February 2026.
Finance lease charges were £9.5m (FY22: £6.5m) driven by the ramp up of HS2.
The Group had a net interest credit of £7.8m (FY22: £1.0m) in relation to
the defined benefit pension schemes which has arisen due to the combination of
the overall pension surplus and the discount rate (derived from corporate bond
yields), at the start of the financial year. We anticipate this will reduce to
c.£5.5m in FY24.
The Group continues to exclude lease liabilities from its definition of net
cash/(debt).
Dividend
As part of the medium-term value creation plan, the Board intended to
reinstate dividends when a near-term pathway to operating with an average net
cash position was clear.
Given the Group's strong operational and financial performance over the last
year, the year-end net cash position and confidence over further progress in
the short term, the Board is able to confirm its intention to commence
dividend payments to shareholders. Over time, we will progress to deliver a
dividend, covered 3x by earnings and in a payment ratio of one-third interim
dividend and two thirds final dividend. The first dividend is expected to be
announced alongside the interim results.
Balance sheet
Net assets
The Group had net assets of £513.0m at 30 June 2023 (FY22: £554.6m). The
primary driver for this is the decrease in the pension scheme surplus during
the period, offset by the retained profit for the year.
Goodwill
The Group held intangible assets of £645.0m (FY22: £669.1m) of which
goodwill represented £536.7m (FY22: £536.7m).
The Group completed its annual review of goodwill assuming a pre-tax discount
rate of 13.1% (FY22: 11.1%), and concluded that no impairment was required.
The Infrastructure Services group of Cash Generating Units ('CGU') comprise
£516.3m of the total goodwill balance. Whilst no impairment is noted and
management believes the discounted cash flows applied is underpinned by the
order book and current pipeline prospects, this CGU is sensitive to changes in
key assumptions. The key assumptions in the value in use calculations are the
forecast revenues and operating margins, the discount rates applied to future
cash flows and the terminal growth rate assumptions applied.
Deferred tax asset
The Group has a deferred tax asset of £128.8m recognised at 30 June 2023
(FY22: £108.8m) primarily due to historical losses. The asset has increased
in the year predominantly due to the deferred tax debit in relation to the
movement in the pension scheme asset. In addition, tax losses of £10.8m have
been used against current year profits.
Based on the Group's forecasts, it is expected that the deferred tax asset
will be utilised over a period of approximately ten years.
An adjusted tax credit of £9.1m (FY22: £14.8m) has been included within
adjusting items, representing the tax impact of adjusting items.
Right-of-use assets and lease liabilities
At 30 June 2023, the Group had right-of-use assets of £105.4m (FY22: £80.6m)
and associated lease liabilities of £182.6m (FY22: £157.6m). The increase in
the period is principally due to the levels of hired plant and equipment
required for major Infrastructure projects, including HS2 and Hinkley Point C.
Investment properties
The Group has long term leases on two office buildings which were formerly
utilised by the Group that have been vacated and are now leased out (or
intended to be leased out) to third parties under operating leases, as well as
two freehold properties no longer used by the business that are being held for
capital appreciation. These are all held as investment properties.
In addition, the Group's Property business invests and develops primarily
mixed-use commercial and residential schemes and sites across the UK. One of
these sites is held as an investment property, along with the Group's former
mine at Greenburn, Scotland, which was granted planning permission for a wind
farm during the year.
The Group recognised an overall fair value gain of £11.4m across these sites
which has been recognised in Other income.
Contract assets & liabilities
Contract assets represents the Group's right to consideration in exchange for
works which have already been performed. Similarly, a contract liability is
recognised when a customer pays consideration before work is performed. At 30
June 2023, total contract assets amounted to £401.9m (FY22: £397.5m).
Contract liabilities were £90.5m (FY22: £67.3m).
Retirement benefits obligation
Kier operates a number of defined benefit pension schemes. At 30 June 2023,
the reported surplus, which is the difference between the aggregate value of
the schemes' assets and the present value of their future liabilities, was
£104.5m (FY22: £194.7m), before accounting for deferred tax, with the
movement in the year primarily as a result of actuarial losses of £107.8m
(FY22: £136.3m gains). A change in financial assumptions, resulting from
higher corporate bond yields, has reduced the pension schemes' liabilities.
This is partly offset by an experience loss of £51.4m. However, there has
also been a fall in the schemes' asset values, largely due to the level of
liability hedging in the asset portfolio. High inflation rates have also
impacted the pension surplus through higher annual pension increases awarded.
During the year the Group agreed the triennial valuation for funding six of
its seven defined benefit pension schemes. Given the Group's improved covenant
and payments made under the existing schedule of contributions, the schemes
are in a significantly improved position.
Accordingly, deficit payments will decrease from £10m in FY23 to £9m in
FY24, £8m in FY25, £5m in FY26, £4m in FY27 and £1m in FY28.
Once the pension schemes are in actuarial surplus, they will cover their own
administration expenses. In FY23, expenses amounted to £2.9m (FY22: £4.2m).
The largest of the six schemes is already in surplus.
Free cash flow and Net debt
2023 2022
£m £m
Operating profit 81.5 45.1
Depreciation of owned assets 6.1 6.6
Depreciation of right-of-use assets 43.7 30.0
Amortisation 33.9 28.0
EBITDA 165.2 109.7
Adjusting items excluding adjusting amortisation and interest 30.8 55.7
Adjusted EBITDA 196.0 165.4
Working capital inflow 80.3 3.7
Net capital expenditure including finance lease capital payments (51.4) (46.5)
Joint Venture dividends less profits 0.7 5.9
Repayment of KEPS (49.8) (29.3)
Other free cash flow items (5.2) 9.0
Operating free cash flow 170.6 108.2
Net interest and tax (38.3) (32.8)
Free cash flow before COVID-19 132.3 75.4
Net COVID-19 tax repayment - (20.8)
Free cash flow 132.3 54.6
2023 2022
£m £m
Net cash at 30 June 2022 2.9 3.0
Free cash flow 132.3 54.6
Adjusting items (27.0) (41.2)
Pension deficit payments and fees (12.8) (15.0)
Fees paid in respect of prior year equity raise - (6.1)
Purchase of own shares (11.9) (7.0)
Other (19.4) 14.6
Net cash at 30 June 2023 64.1 2.9
The Group has delivered a strong free cash flow for the year, driven by the
underlying business performance and good working capital management. This
performance was achieved despite the repayment of £49.8m of KEPS in July
2022.
The average month-end net debt position is higher than the comparative period
at £(232.1)m, (FY22: £216.1m). Positive operating cash flow was used to pay
off the average KEPS balance, pay adjusting items, tax and interest, pension
deficit obligations, purchase existing Kier shares on behalf of employees and
the remaining HMRC COVID-19 support.
The purchase of existing shares relates to the Group's employee benefit trusts
which acquire Kier shares from the market for use in settling the Long-Term
Incentive Plan ('LTIP') share schemes when they vest. The trusts purchased and
sold shares at a net cost of £11.9m (FY22: £7.0m). This buyback reduced the
dilution impact of the LTIP issuance and the 2021 equity fund raising.
Given the extent of Free Cash Flow ('FCF') generation, we have a line-of-sight
to further significant net debt reduction for FY24 and FY25.
Accounting policies
The Group's annual consolidated financial statements are prepared in
accordance with UK-adopted International Accounting Standards and with the
requirements of the Companies Act 2006. There have been no significant changes
to the Group's accounting policies during the year.
Treasury facilities
Bank finance
The Group has committed debt facilities of £569.4m with a further £18.0m of
uncommitted overdrafts.
The facilities comprise £495.0m Revolving Credit Facility ('RCF'), £74.4m US
Private Placement ("USPP") Notes as well as £18.0m of overdrafts.
During the year, the Group repaid £35.6m of USPP Notes and the remaining
£8.2m of Schuldschein Notes. It also reduced the RCF facility by £40.0m. We
expect to reduce a further £20.0m of the RCF and repay £1.7m of USPP Notes
in the calendar year 2023.
The Group's revolving credit facility is scheduled to expire on 31 January
2025. The Board is confident in the Group's ability to refinance during FY24.
Supply chain finance
The Group's supply chain finance scheme ('KEPS') was fully paid down in July
2022 (FY22: £49.8m).
Financial instruments
The Group's financial instruments mainly comprise cash and liquid investments.
The Group selectively enters into derivative transactions (interest rate and
currency swaps) to manage interest rate and currency risks arising from its
sources of finance. The US dollar denominated USPP notes were hedged with
fixed cross-currency swaps at inception to mitigate the foreign exchange risk.
One non-recourse, project-specific, property joint venture loan is hedged
using an interest rate derivative to fix the cost of borrowing.
There are minor foreign currency risks arising from the Group's operations
both in the UK and through its limited number of international activities.
Currency exposure to international assets is hedged through inter-company
balances and borrowings, so that assets denominated in foreign currencies are
matched, as far as possible, by liabilities. Where exposures to currency
fluctuations are identified, forward exchange contracts are completed to buy
and sell foreign currency.
The Group does not enter into speculative transactions.
Going concern
The Directors are satisfied that the Group has adequate resources to meet its
obligations as they fall due for a period of at least twelve months from the
date of approving these financial statements and, for this reason, they
continue to adopt the going concern basis in preparing these financial
statements.
Further information on this assessment is detailed in note 1 of the
consolidated financial statements on pages 23 and 24.
Financial statements
Condensed consolidated income statement
For the year ended 30 June 2023
Note 2023 2022
£m
£m
Continuing operations
Revenue
Group and share of joint ventures(1) 2 3,405.4 3,256.5
Less share of joint ventures 2 (24.7) (112.6)
Group revenue 3,380.7 3,143.9
Cost of sales (3,074.4) (2,879.9)
Gross profit 306.3 264.0
Administrative expenses (240.0) (245.5)
Share of post-tax results of joint ventures 1.1 26.6
Other income 4 14.1 -
Profit from operations 2 81.5 45.1
Finance income 5 9.4 0.7
Finance costs 5 (39.0) (29.9)
Profit before tax 2 51.9 15.9
Taxation 7 (10.9) (3.2)
Profit for the year 2 41.0 12.7
Attributable to:
Owners of the parent 41.1 12.7
Non-controlling interests (0.1) -
41.0 12.7
Earnings per share
- Basic 9 9.5p 2.9p
- Diluted 9 9.3p 2.8p
Supplementary information
Adjusted2 operating profit 3 131.5 120.5
Adjusted2 profit before tax 3 104.8 94.1
Adjusted2 basic earnings per share 9 19.2p 16.8p
Adjusted2 diluted earnings per share 9 18.8p 16.4p
(1 ) Group revenue including joint ventures is an alternative
performance measure.
(2 ) Reference to 'adjusted' excludes adjusting items, see note 3.
These are alternative performance measures.
Financial statements
Condensed consolidated statement of comprehensive income
For the year ended 30 June 2023
Note 2023 2022
£m
£m
Profit for the year 41.0 12.7
Items that may be reclassified subsequently to the income statement
Fair value movements on cash flow hedging instruments 2.1 6.4
Fair value movements on cash flow hedging instruments recycled to the income 5 1.2 (7.4)
statement
Deferred tax on fair value movements on cash flow hedging instruments (0.8) 0.2
Foreign exchange translation differences 0.3 3.9
Total items that may be reclassified subsequently to the income statement 2.8 3.1
Items that will not be reclassified to the income statement
Re-measurement of retirement benefit assets and obligations 6 (107.8) 136.3
Tax on re-measurement of retirement benefit assets and obligations 26.5 (34.7)
Total items that will not be reclassified to the income statement (81.3) 101.6
Other comprehensive (loss)/income for the year (78.5) 104.7
Total comprehensive (loss)/income for the year (37.5) 117.4
Attributable to:
Equity holders of the parent (37.4) 117.4
Non-controlling interests (0.1) -
(37.5) 117.4
Financial statements
Condensed consolidated statement of changes in equity
As at 30 June 2023
Note Share capital Share Capital Accumulated losses Cash flow Translation Merger Equity attributable to owners of Non- Total
£m
premium
redemption
£m
hedge
reserve
reserve
the parent
controlling
equity
£m
reserve
reserve
£m
£m
£m
interests
£m
£m
£m
£m
At 1 July 2021 4.5 684.3 2.7 (610.8) (0.1) 5.0 350.6 436.2 (1.2) 435.0
Profit for the year - - - 12.7 - - - 12.7 - 12.7
Other comprehensive income/(loss) - - - 101.6 (0.8) 3.9 - 104.7 - 104.7
Total comprehensive income/(loss) for the year - - - 114.3 (0.8) 3.9 - 117.4 - 117.4
Issue of own shares - - - - - - - - 0.6 0.6
Share-based payments 15 - - - 8.6 - - - 8.6 - 8.6
Purchase of own shares - - - (7.0) - - - (7.0) - (7.0)
At 30 June 2022 4.5 684.3 2.7 (494.9) (0.9) 8.9 350.6 555.2 (0.6) 554.6
Profit/(loss) for the year - - - 41.1 - - - 41.1 (0.1) 41.0
Other comprehensive (loss)/income - - - (81.3) 2.5 0.3 - (78.5) - (78.5)
Total comprehensive (loss)/income for the year - - - (40.2) 2.5 0.3 - (37.4) (0.1) (37.5)
Issue of own shares - - - - - - - - 0.3 0.3
Changes in ownership of subsidiary - - - (0.9) - - - (0.9) - (0.9)
Share-based payments 15 - - - 8.4 - - - 8.4 - 8.4
Purchase of own shares - - - (11.9) - - - (11.9) - (11.9)
At 30 June 2023 4.5 684.3 2.7 (539.5) 1.6 9.2 350.6 513.4 (0.4) 513.0
The numbers in the table above are shown net of tax as applicable.
Financial statements
Condensed consolidated balance sheet
As at 30 June 2023
Note 2023 2022
£m
£m
Non-current assets
Intangible assets 10 645.0 669.1
Property, plant and equipment 29.8 32.7
Right-of-use assets 105.4 80.6
Investment properties 11 98.4 60.4
Investments in and loans to joint ventures 78.6 82.3
Capitalised mobilisation costs 6.3 11.6
Deferred tax assets 7 128.8 108.8
Contract assets 43.7 31.2
Trade and other receivables 18.5 17.0
Retirement benefit assets 6 129.3 199.2
Other financial assets 9.7 8.5
Non-current assets 1,293.5 1,301.4
Current assets
Inventories 72.9 56.8
Contract assets 358.2 366.3
Trade and other receivables 189.2 202.9
Corporation tax receivable 13.4 10.0
Other financial assets 1.0 3.7
Cash and cash equivalents 12 376.9 297.7
Current assets 1,011.6 937.4
Total assets 2,305.1 2,238.8
Current liabilities
Borrowings 12 - (40.5)
Lease liabilities (36.2) (25.9)
Trade and other payables 13 (1,075.0) (1,065.7)
Contract liabilities (90.5) (67.3)
Provisions (38.2) (22.2)
Current liabilities (1,239.9) (1,221.6)
Non-current liabilities
Borrowings 12 (319.1) (266.5)
Lease liabilities (146.4) (131.7)
Trade and other payables 13 (36.9) (34.1)
Retirement benefit obligations 6 (24.8) (4.5)
Provisions (25.0) (25.8)
Non-current liabilities (552.2) (462.6)
Total liabilities (1,792.1) (1,684.2)
Net assets 2 513.0 554.6
Equity
Share capital 14 4.5 4.5
Share premium 684.3 684.3
Capital redemption reserve 2.7 2.7
Accumulated losses (539.5) (494.9)
Cash flow hedge reserve 1.6 (0.9)
Translation reserve 9.2 8.9
Merger reserve 350.6 350.6
Equity attributable to owners of the parent 513.4 555.2
Non-controlling interests (0.4) (0.6)
Total equity 513.0 554.6
Financial statements
Condensed consolidated statement of cash flows
For the year ended 30 June 2023
Note 2023 2022
£m
£m
Cash flows from operating activities
Profit before tax 51.9 15.9
Net finance cost 5 29.6 29.2
Share of post-tax trading results of joint ventures (1.1) (26.6)
Pension cost charge/(credit) 0.1 (0.4)
Equity-settled share-based payments charge 15 8.4 8.6
Amortisation and impairment of intangible assets and mobilisation costs 33.9 30.3
Change in fair value of investment properties 11 (11.4) (0.2)
Research and development expenditure credit 7 (22.8) (20.7)
Depreciation and impairment of property, plant and equipment 6.1 10.7
Depreciation and impairment of right-of-use assets 43.7 35.2
(Profit)/loss on disposal of property, plant and equipment and intangible (1.8) 0.8
assets
Operating cash inflows before movements in working capital and pension 136.6 82.8
deficit contributions
Deficit contributions to pension funds 6 (9.9) (10.8)
Increase in inventories (18.8) (2.1)
Decrease in receivables 12.2 7.3
Increase in contract assets (4.4) (31.6)
Increase/(decrease) in payables 26.1 (12.4)
Increase in contract liabilities 23.2 7.4
Increase in provisions 15.2 0.2
Cash inflow from operating activities 180.2 40.8
Dividends received from joint ventures 1.8 32.5
Interest received 5 1.6 0.7
Income tax paid (0.1) -
Net cash inflow from operating activities 183.5 74.0
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 2.6 4.2
Purchase of property, plant and equipment (3.9) (6.0)
Purchase of intangible assets 10 (2.7) (0.7)
Purchase of capitalised mobilisation costs (1.8) (10.2)
Acquisition of joint venture debt (0.9) -
Investment in joint ventures (35.7) (16.8)
Loan repayment and return of equity from joint ventures 17.1 27.5
Net cash used in investing activities (25.3) (2.0)
Cash flows from financing activities
Issue of shares net of associated transaction costs - (6.1)
Issue of shares to non-controlling interest 0.3 0.6
Purchase of own shares (11.9) (7.0)
Interest paid (39.5) (28.8)
Principal elements of lease payments (45.6) (33.8)
Drawdown of borrowings 56.8 -
Repayment of borrowings (43.2) (101.8)
Settlement of derivative financial instruments 4.7 7.5
Changes in ownership interests of subsidiaries (0.9) -
Net cash used in financing activities (79.3) (169.4)
Increase/(decrease) in cash, cash equivalents and overdraft 78.9 (97.4)
Effect of change in foreign exchange rates 0.3 3.9
Opening cash, cash equivalents and overdraft 297.7 391.2
Closing cash, cash equivalents and overdraft 12 376.9 297.7
Supplementary information
Adjusted(1) cash inflow from operating activities 3(e) 207.2 82.0
(1 ) Reference to 'adjusted' excludes adjusting items, see note 3.
This is an alternative performance measure.
Financial statements
Notes to the condensed consolidated financial statements
For the year ended 30 June 2023
1 Significant accounting policies
Reporting entity
Kier Group plc (the Company) is a public limited company which is listed on
the London Stock Exchange and incorporated and domiciled in the UK. The
Company's registered number is 2708030. The address of its registered office
is 2(nd) Floor, Optimum House, Clippers Quay, Salford, M50 3XP.
The consolidated financial statements (financial statements) for the year
ended 30 June 2023 comprise the Company and its subsidiaries (together
referred to as the Group) and the Group's interest in jointly controlled
entities.
Basis of preparation
These results have been prepared in accordance with the UK Financial Conduct
Authority and in accordance with the UK-adopted International Accounting
Standards effective for accounting periods beginning on or after 1 July 2022
and with the requirements of the Companies Act 2006 as applicable to companies
reporting under those standards.
The financial information contained in this preliminary announcement does not
constitute the Company's statutory accounts as at and for the year ended 30
June 2023, but is derived from those statutory accounts. The Company's
statutory accounts as at and for the year ended 30 June 2023 were approved by
the Board on 13 September 2023 and received an unqualified audit report. These
will be delivered to the Registrar of Companies following the Company's Annual
General Meeting on 16 November 2023.
Going concern
The Directors continue to adopt the going concern basis in preparing the
Group's financial statements.
The Group performed well through the year ended 30 June 2023 and produced
results in line with the Board's expectations.
The Group continues to win new, high quality and profitable business in its
markets on terms and at rates which reflect the new bidding disciplines and
risk management practices introduced under the Group's Performance Excellence
programme. At 30 June 23, the order book was £10.1bn (2022: £9.8bn).
As at 30 June 2023, the Group had £569.4m of unsecured committed facilities
and £18.0m of uncommitted overdrafts. During the year the Group repaid the
final amount of £49.8m of uncommitted supply chain financing facilities
('KEPS') and as at 30 June 2023 the Group had no outstanding invoices on these
facilities.
Financial covenant certificates for June 2023 have been prepared with no
breaches noted. The Directors have reviewed the Group's cash flow forecasts
for the period to 31 December 2024, which are included in the Group's
three-year strategic plan, on the basis of certain key assumptions and
including a number of stressed but plausible downside scenarios.
These scenarios included the consideration of risks which may arise to the
Group's available liquidity and its ongoing compliance with financial
covenants within the Group's principal debt facilities as a result of or in
light of the following factors or circumstances:
· Potential reductions in trading volumes;
· Potential future challenges in respect of ongoing
projects;
· Project inflation and subcontractor insolvency;
· Reduced investment/delays in Property
transactions and cost of adoption of green legislation;
· Plausible changes in the interest rate
environment; and
· The availability of mitigating actions that could
be taken by management in such a scenario.
During the year there has been a significant increase in bank base rates which
directly impacts the cost of the Revolving Credit Facility ('RCF'). Rates have
increased from 1.0% at June 2022 to 5.0% at June 2023. Inflation has remained
higher than expected which could potentially put further upward pressure on
interest rates. The increase in interest rates has, however, been partly
mitigated by entering into fixed rate swaps at advantageous rates.
The RCF facility extends to 31 January 2025. Working with lenders and its
advisors, the Board is confident in the Group's ability to access a number of
available funding markets to achieve an appropriate capital structure to
support the Group's strategic objectives; and would expect to complete a
re-financing in the current financial year.
The Board also considered the macroeconomic and political risks affecting the
UK economy, including the availability of labour and inflationary pressures
leading to increased supply chain costs. The Board noted that the Group's
forecasts are underpinned by a significant proportion of revenue that is
either secured or considered probable, often as part of long-term framework
agreements, and that the Group operates primarily in sectors such as
infrastructure, health, education and utilities, which are considered likely
to remain largely unaffected by macroeconomic factors. Although inflationary
pressures remain a risk, both in the supply chain and the labour market, this
is partly mitigated by c.60% of contracts being target cost or cost plus.
The Board has also considered the potential impact of climate change and does
not consider the Group's operations are at risk from physical climate-related
risks such as hurricanes and temperature changes in the short term. In the
medium term the Board has concluded that any adverse financial impacts from
required changes to operations in line with ESG requirements will be offset by
opportunities which present the Group with additional volumes and profits,
such as replacement of non-sustainable buildings, construction of new 'clean'
power plants and 'green' building conversions. As such, the longevity of the
Group's business model means that climate change has no material adverse
impact on going concern.
Having reviewed the Group's cash flow forecasts, the Directors consider that
the Group is expected to continue to have available liquidity headroom under
its finance facilities and operate within its financial covenants over the
going concern period, including in a severe but plausible downside scenario.
As a result, the Directors are satisfied that the Group has adequate resources
to meet its obligations as they fall due for a period of at least 12 months
from the date of approving these financial statements and, for this reason,
they continue to adopt the going concern basis in preparing these financial
statements.
2 Segmental reporting
Year to 30 June 2023
Continuing operations Infrastructure Services Construction Property Corporate Group
£m
£m
£m
£m
£m
Revenue1
Group and share of joint ventures 1,712.3 1,652.5 37.6 3.0 3,405.4
Less share of joint ventures - (2.4) (22.3) - (24.7)
Group revenue 1,712.3 1,650.1 15.3 3.0 3,380.7
Timing of revenue1
Products and services transferred at a point in time 3.9 0.8 21.5 - 26.2
Products and services transferred over time 1,708.4 1,651.7 16.1 3.0 3,379.2
Group and share of joint ventures 1,712.3 1,652.5 37.6 3.0 3,405.4
Profit for the year
Operating profit/(loss) before adjusting items2 79.8 69.5 12.8 (30.6) 131.5
Adjusting items2 (22.6) (23.1) 1.5 (5.8) (50.0)
Profit/(loss) from operations 57.2 46.4 14.3 (36.4) 81.5
Net finance income/(costs)3 1.4 (4.3) (0.6) (26.1) (29.6)
Profit/(loss) before tax 58.6 42.1 13.7 (62.5) 51.9
Taxation (10.9)
Profit for the year 41.0
Balance sheet
Operating assets4 973.7 413.1 188.5 342.3 1,917.6
Operating liabilities4 (511.7) (732.7) (18.5) (210.2) (1,473.1)
Net operating assets/(liabilities)4 462.0 (319.6) 170.0 132.1 444.5
Cash, cash equivalents and borrowings 456.6 594.5 (134.1) (859.2) 57.8
Net financial assets - - - 10.7 10.7
Net assets/(liabilities) 918.6 274.9 35.9 (716.4) 513.0
Other information
Inter-segmental revenue 31.5 0.1 - 40.5 72.1
Capital expenditure on property, plant, equipment and intangible assets 0.7 0.1 - 5.8 6.6
Depreciation of property, plant and equipment (0.9) (0.4) (0.2) (4.6) (6.1)
Amortisation of computer software (1.4) (0.8) - (5.4) (7.6)
Year to 30 June 2022
Continuing operations Infrastructure Services Construction Property Corporate Group
£m
£m
£m
£m
£m
Revenue1
Group and share of joint ventures 1,666.6 1,440.8 144.3 4.8 3,256.5
Less share of joint ventures - (3.1) (109.5) - (112.6)
Group revenue 1,666.6 1,437.7 34.8 4.8 3,143.9
Timing of revenue1
Products and services transferred at a point in time 5.3 1.5 90.7 - 97.5
Products and services transferred over time 1,661.3 1,439.3 53.6 4.8 3,159.0
Group and share of joint ventures 1,666.6 1,440.8 144.3 4.8 3,256.5
Profit for the year
Operating profit/(loss) before adjusting items2 70.0 60.8 17.6 (27.9) 120.5
Adjusting items2 (21.9) (39.0) (0.9) (13.6) (75.4)
Profit/(loss) from operations 48.1 21.8 16.7 (41.5) 45.1
Net finance income/(costs)3 2.1 (4.1) (1.6) (25.6) (29.2)
Profit/(loss) before tax 50.2 17.7 15.1 (67.1) 15.9
Taxation (3.2)
Profit for the year 12.7
Balance sheet
Operating assets4 925.5 442.6 144.0 416.8 1,928.9
Operating liabilities4 (466.0) (706.2) (25.9) (179.1) (1,377.2)
Net operating assets/(liabilities)4 459.5 (263.6) 118.1 237.7 551.7
Cash, cash equivalents and borrowings 440.2 504.0 (90.3) (863.2) (9.3)
Net financial assets - - - 12.2 12.2
Net assets/(liabilities) 899.7 240.4 27.8 (613.3) 554.6
Other information
Inter-segmental revenue 25.7 - - 43.6 69.3
Capital expenditure on property, plant, equipment and intangible assets 2.6 0.4 - 3.7 6.7
Depreciation of property, plant and equipment (0.9) (0.4) (0.2) (5.1) (6.6)
Amortisation of computer software (0.7) (1.2) - (4.1) (6.0)
(1 ) Revenue is stated after the exclusion of
inter-segmental revenue. 100% of the Group's revenue is derived from UK-based
customers. 15% of the Group's revenue was received from High Speed Two (HS2)
Limited (2022: 10%). Group revenue including joint ventures is an alternative
performance measure.
(2 ) See note 3 for adjusting items.
(3 ) Interest was (charged)/credited to the divisions
at a notional rate of 4.0%.
(4 ) Net operating assets/(liabilities) represent
assets excluding cash, cash equivalents, bank overdrafts, borrowings,
financial assets and liabilities, and interest-bearing inter-company loans.
3 Adjusting items
These items are explained in detail below:
Profit from operations Profit before tax
2023 2022 2023 2022
£m
£m
£m
£m
Reported profit from operations 81.5 45.1 51.9 15.9
Amortisation of acquired intangible assets 19.2 19.7 19.2 19.7
Restructuring and related charges 13.0 40.0 13.0 40.0
Other(1) 17.8 15.7 20.7 18.5
Adjusted profit from operations 131.5 120.5 104.8 94.1
(1 ) Operating profit adjusting items exclude net financing costs of
£2.9m (2022: £2.8m), see note 3(c).
(a) Amortisation of acquired intangible assets
The Group has amortised contract rights, acquired primarily through the
acquisitions of MRBL Limited (Mouchel Group), May Gurney Integrated Services
PLC and McNicholas Construction Holdings Limited.
Note 2023 2022
£m
£m
Amortisation of acquired intangible assets 10 (19.2) (19.7)
(b) Restructuring and related charges
The Group has incurred significant restructuring charges relating to costs of
organisational change associated with the Group's cost saving programmes and
the Group's Strategic Review. These are discussed further in the Financial
Review and are considered to be adjusting items on the basis of their size and
the fact that they relate to significant changes to the Group's activities or
workforce.
2023 2022
£m
£m
Redundancy and other people-related costs1 (7.6) (6.5)
Professional adviser fees and other costs incurred implementing non-people (4.9) (7.1)
initiatives2
Impairments and other costs relating to investment properties3 (0.5) (4.2)
Restructure of Regional Southern Build business4 - (22.2)
Total charge before tax (13.0) (40.0)
(1 ) Costs of £4.8m in respect of roles made redundant as a
result of the ongoing implementation of cost saving programmes and from
strategic decisions taken to reduce headcount in a number of the Group's
principal operating divisions. The current year charge also includes £2.8m of
costs incurred in the re-sizing of the International operations. The Directors
consider this to be an adjusting item due to its nature and size.
(2 ) This includes £1.6m of vacant property costs along with a
further £4.8m of other non-people related initiatives undertaken in the
year. This is offset by a credit of £1.5m as a result of the finalisation
of aborted acquisition costs from the prior year.
(3 ) Investment property costs include £1.5m in respect of its
investment properties vacated as part of the corporate review of Group
premises. This is offset by a credit of £1.0m due to a revaluation of the
land at the Pure recycling plant.
(4 ) In the prior year the Group completed its strategic
restructuring of its Regional Southern Build business.
(c) Other adjusting items
Other adjusting items are analysed below:
2023 2022
£m
£m
Net financing costs1 (2.9) (2.8)
Legal compliance2 (14.1) (8.8)
Insurance-related items(3) (5.3) (5.2)
Profit on sale of previously impaired land(4) 1.6 -
Software impairment5 - (2.2)
Pension credit6 - 0.5
Total charge before tax (20.7) (18.5)
(1 ) Net financing costs relate to IFRS 16 interest charges on
leased investment properties previously used as offices.
(2 ) The Group has provided for an additional; £12.6m of costs
in the year in complying with the updated fire compliance regulations,
resulting in a year-end provision of £15.5m. In addition, following the
Health and Safety Executive ('HSE') decision in January 2023 to fine the Group
for historical safety issues, the Group provided for a further £1.5m to cover
these costs.
(3 ) A provision of £8.0m has been made for additional costs
associated with an insurance-related receivable. Offsetting this is a credit
of £2.7m in relation to insurance proceeds received in respect of the fire at
the Group's recycling plant in Warwickshire, to offset the prior year
impairment and associated costs.
(4 ) In June 2023 the Group sold some of its land that was
previously impaired through adjusting items. The profit of £1.6m has been
credited to adjusting items so as to be consistent with the original
accounting treatment.
(5 ) During the prior year, the Group impaired some software
related to one of its design businesses. This impairment was treated as an
adjusting item due to its nature.
(6 ) During the prior year, a Pension Increase Exchange ('PIE')
exercise was undertaken which generated a £0.5m credit to the income
statement.
(d) Taxation
Adjusting items in respect of taxation are analysed below:
2023 2022
£m
£m
Deferred tax credit as a result of the change in tax rate1 2.0 5.1
Tax impact of adjusting items2 9.1 14.8
Other tax charges3 - (3.6)
Total tax credit 11.1 16.3
(1 ) Benefits arising from change in tax rate to 25%.
(2 ) The tax impact of the adjusting items charged to continuing
operations has also been included as an adjusting item.
(3 ) During the prior year, historical tax balances were identified
mainly as a result of historic acquisitions and were written off.
(e) Adjusted cash flow
2023 2022
£m
£m
Note
Reported cash inflow from operating activities 180.2 40.8
Add: Cash outflow from operating activities (adjusting items) 3(f) 27.0 41.2
Adjusted cash inflow from operating activities 207.2 82.0
(f) Cash outflow from operating activities (adjusting
items)
2023 2022
£m
£m
Adjusting items reported in the income statement 52.9 78.2
Less: non-cash items incurred in the year (39.0) (38.4)
Add: payment of prior year accruals and provisions 13.1 1.4
Cash outflow from operating activities (adjusting items) 27.0 41.2
4 Other income
2023 2022
£m
£m
Recycling Plant insurance proceeds 2.7 -
Fair value gain on investment properties 11.4 -
Other income 14.1 -
5 Finance income and costs
2023 2022
£m
£m
Finance income
Bank deposits 0.5 -
Interest receivable on loans to related parties 1.1 0.7
Net interest on net defined benefit obligation 7.8 -
9.4 0.7
Finance costs
Bank interest (29.0) (18.9)
Interest payable on leases (9.5) (6.5)
Forward funding interest - (0.5)
Foreign exchange gains/(losses) on foreign denominated borrowings 2.5 (9.9)
Fair value (losses)/ gains on cash flow hedges recycled from other (1.2) 7.4
comprehensive income(1)
Net interest on net defined benefit obligation - 1.0
Other (1.8) (2.5)
(39.0) (29.9)
Net finance costs (29.6) (29.2)
(1 ) Fair value (losses)/gains arise from
movements in cross-currency swaps which hedge the currency risk on foreign
denominated borrowings.
6 Retirement benefit obligations
The principal assumptions used by the independent qualified actuaries are
shown below.
2023 2022
%
%
Discount rate 5.30 3.90
Inflation rate (Retail Price Index) 3.20 3.15
Inflation rate (Consumer Price Index)(1) 2.30-2.75 2.65
(1 ) CPI rates for 2023 have been based on individual
scheme expected durations.
The amounts recognised in the financial statements in respect of the Group's
defined benefit schemes are as follows:
2023 2022
Kier Acquired schemes Total Kier Acquired schemes Total
Group
£m
£m
Group
£m
£m
£m
£m
Opening net surplus/(deficit) 170.2 24.5 194.7 78.6 (32.4) 46.2
Credit/(charge) to income statement 6.6 1.1 7.7 1.5 (0.1) 1.4
Employer contributions 0.4 9.5 9.9 0.5 10.3 10.8
Actuarial (losses)/gains (59.7) (48.1) (107.8) 89.6 46.7 136.3
Closing net surplus/(deficit) 117.5 (13.0) 104.5 170.2 24.5 194.7
Comprising:
Fair value of scheme assets 850.9 396.8 1,247.7 1,048.0 509.0 1,557.0
Net present value of the defined benefit obligation (733.4) (409.8) (1,143.2) (877.8) (484.5) (1,362.3)
Net surplus/(deficit) 117.5 (13.0) 104.5 170.2 24.5 194.7
Presentation of net surplus/(deficit) in the Consolidated balance sheet:
Retirement benefit assets 117.5 11.8 129.3 170.2 29.0 199.2
Retirement benefit obligations - (24.8) (24.8) - (4.5) (4.5)
Net surplus/(deficit) 117.5 (13.0) 104.5 170.2 24.5 194.7
7 Taxation
2023 2022
£m
£m
Profit before tax 51.9 15.9
Less: Income from joint venture companies (3.6) (0.8)
Adjusted profit before tax 48.3 15.1
Current tax (7.3) (8.5)
Deferred tax (3.6) 5.3
Total tax charge in the income statement (10.9) (3.2)
Effective tax rate 22.6% 21.2%
The Deferred Tax Asset includes £106.2m of tax losses (2022: £105.6m), and
£22.6m of other deferred tax assets and liabilities (2022: £3.2m).
When considering the recoverability of net deferred tax assets, the taxable
profit forecasts are based on the same Board-approved information used to
support the going concern and goodwill impairment assessments.
The following evidence has been considered when assessing whether these
forecasts are achievable and realistic:
· The business traded in line with Board
expectations in 2023;
· The Group has substantially completed its
restructuring activities and is focusing on the achievement of the medium-term
growth strategy; and
· The Group's core businesses are well-placed to
benefit from the announced and committed UK Government spending plans to
invest in infrastructure, decarbonisation and spending.
When considering the length of time over which the losses are expected to be
utilised, the Group has taken into account that generally only 50% of profits
in each year can be offset by brought forward losses.
Based on these forecasts, the Group is expected to utilise its deferred tax
asset over a period of approximately 10 years.
The Research and Development Expenditure Credit ('RDEC') of £22.8m was
included in operating profit during the year (2022: £20.7m). Included in the
corporation tax asset at 30 June 2023 were RDEC receivables of £16.1m (2022:
£12.0m).
8 Dividends
The Group's focus on cash generation and reducing net debt has required a
suspension in dividend payments. No interim or final dividends have been
declared during the year (2022: £nil).
9 Earnings per share
a) Reconciliation of earnings used in calculating
earnings per share
Profit attributable to the ordinary equity holders of the company used in
calculating basic earnings per share.
Note 2023 2022
£m
£m
Continuing operations
Profit for the year 41.0 12.7
Less: non-controlling interest share 0.1 -
Profit (after tax and minority interests), being net gains attributable to 41.1 12.7
equity holders of the parent (A)
Adjusting items (excluding tax) 3 52.9 78.2
Tax impact of adjusting items 3 (11.1) (16.3)
Adjusted profit after tax (B) 82.9 74.6
b) Weighted average number of shares used as the
denominator
2023 2022
million
million
Weighted average number of shares used as the denominator in calculating basic 431.2 443.3
earnings per share (C)
Adjustments for calculation of diluted earnings per share
Impact of share options 10.3 11.8
Weighted average number of shares used as the denominator in calculating 441.5 455.1
diluted earnings per share (D)
The weighted average number of shares is lower than the number of shares in
issue (per note 14) primarily due to shares that are held by the Group's
employee benefit trusts (see note 15), which are excluded from the
calculation.
Options granted to employees under the Sharesave, Conditional Share Awards
Plan ('CSAP') and Long Term Incentive Plan ('LTIP') schemes are considered to
be potential ordinary shares. They have been included in the determination of
diluted earnings per share if the required performance obligations would have
been met based on the Group's performance up to the reporting date, and to
the extent to which they are dilutive. The options have not been included in
the determination of basic earnings per share. Details relating to the share
option schemes are set out in note 15.
c) Basic earnings per share
2023 2022
pence
pence
Total basic earnings per share attributable to the ordinary equity holders of 9.5 2.9
the Company (A/C)
Adjusted basic earnings per share attributable to the ordinary equity holders 19.2 16.8
of the Company (B/C)
d) Diluted earnings per share
2023 2022
pence
pence
Total diluted earnings per share attributable to the ordinary equity holders 9.3 2.8
of the Company (A/C)
Adjusted diluted earnings per share from continuing operations attributable to 18.8 16.4
the ordinary equity holders of the Company (B/D)
10 Intangible assets
Goodwill Intangible Computer Total
£m
contract rights
£m
£m software1
£m
Cost
At 1 July 2021 538.8 259.4 132.8 931.0
Additions - - 0.7 0.7
Disposals - (7.2) (0.9) (8.1)
At 30 June 2022 538.8 252.2 132.6 923.6
Additions - - 2.7 2.7
Disposals - (16.5) (9.6) (26.1)
At 30 June 2023 538.8 235.7 125.7 900.2
Accumulated amortisation and impairment
At 1 July 2021 (2.1) (155.7) (76.0) (233.8)
Charge for the year - (19.7) (6.0) (25.7)
Disposals - 7.2 - 7.2
Impairment - - (2.2) (2.2)
At 30 June 2022 (2.1) (168.2) (84.2) (254.5)
Charge for the year - (19.2) (7.6) (26.8)
Disposals - 16.5 9.6 26.1
At 30 June 2023 (2.1) (170.9) (82.2) (255.2)
Net book value
At 30 June 2023 536.7 64.8 43.5 645.0
At 30 June 2022 536.7 84.0 48.4 669.1
(1 ) Computer software mainly relates to the Group's ERP software and
is being amortised.
11 Investment properties
Owned assets Right-of-use assets Total
£m
£m
£m
At 1 July 2021 8.3 41.3 49.6
Transfers 2.0 6.1 8.1
Additions - 2.5 2.5
Fair value gain/(loss) recognised in administrative expenses 2.7 (2.5) 0.2
At 30 June 2022 13.0 47.4 60.4
Transfers 2.7 - 2.7
Additions 22.8 1.1 23.9
Fair value gain/(loss) recognised in other income 14.4 (3.0) 11.4
At 30 June 2023 52.9 45.5 98.4
12 Net cash
2023 2022
£m
£m
Cash and cash equivalents - bank balances and cash in hand 376.9 297.7
Borrowings due within one year - (40.5)
Borrowings due after one year (319.1) (266.5)
Impact of cross-currency hedging 6.3 12.2
Net cash 64.1 2.9
Average month-end net debt was £232.1m (2022: £216.1m). Net debt excludes
lease liabilities.
13 Trade and other payables
2023 2022
£m
£m
Current:
Trade payables1 310.0 354.2
Accruals 585.1 527.4
Sub-contract retentions 22.5 32.7
Other taxation and social security2 138.4 122.1
Other payables and deferred income 19.0 29.3
1,075.0 1,065.7
Non-current:
Trade payables 5.1 11.0
Sub-contract retentions 31.8 23.1
36.9 34.1
(1 ) There are no payments due to suppliers who are on
bank-supported supply chain finance arrangements (2022: £49.8m).
14 Share capital and reserves
Share capital
The share capital of the Company comprises:
2023 2022
Number £m Number £m
Authorised, issued and fully-paid ordinary shares of 1 pence each 446,314,435 4.5 446,241,682 4.5
The holders of ordinary shares are entitled to receive dividends as declared
from time to time and are entitled to one vote per share at meetings of the
Company.
During the year, 72,753 shares were issued under the Sharesave Scheme (2022:
75,893).
Cash flow hedge reserve
This reserve comprises the effective portion of the cumulative net change in
the fair value of the cash flow hedging instruments related to hedged
transactions that have not yet occurred, net of any related deferred tax.
Translation reserve
This reserve comprises the cumulative difference on exchange arising from the
retranslation of net investments in overseas subsidiary undertakings. In
accordance with the transitional provisions of IFRS 1, this reserve was set to
nil at 1 July 2004.
15 Share-based payments
The Group has an established LTIP under which directors and senior employees
can receive awards of shares subject to the Group achieving certain
performance targets. Participants are entitled to receive dividend equivalents
on these awards. Further details of the LTIP schemes were disclosed in
the 2022 annual financial statements. 8,432,381 shares vested under the LTIP
schemes during the year (2022: no share awards vested). 15,492,751 new awards
were granted under the LTIP during the year (2022: 8,570,392). Awards made to
members of the Board are subject to a two-year holding period post vesting.
The Group previously operated a CSAP, under which senior employees received
awards of shares subject only to service conditions, i.e. the requirement for
participants to remain in employment with the Group over the vesting period.
Participants were entitled to receive dividend equivalents on these awards. No
new awards were granted under the CSAP during the year (2022: no awards
granted) and no shares vested under the CSAP during the year (2022: 650,951
shares vested plus a further 9,777 shares equivalent to the dividends that
would have been received during the vesting period).
The Group also has an established Sharesave ('SAYE') scheme. Options to
acquire shares in the capital of Kier Group plc are granted to eligible
employees who enter into a Sharesave contract, saving a regular sum each
month. Participation in the scheme is offered to all employees of the Group
who have been employed for a continuous period determined by the Board.
8,730,264 options were granted under the Sharesave scheme during the year
(2022: 7,943,643). 72,753 Sharesave Scheme options were exercised during the
year (2022: 75,983).
The assumptions used in calculating the fair values of the shares granted
under the share-based payment schemes during the year were as follows:
LTIP LTIP Sharesave
subject to a holding period
Grant date 21 October 21 October 2 November
2022 2022 2022
Shares granted 11,890,876 3,601,875 8,730,264
Share price at grant 60.0p 60.0p 58.2p
Exercise price nil nil 55.0p
Expected term 3 years 3 years 3.3 years
Holding period n/a 2 years n/a
Expected volatility 53.7% 44.5% 62.1%
Risk-free interest rate 3.83% 4.14% 3.13%
Dividend yield n/a n/a 0.0%
Value per option:
LTIP - TSR element (25%)(1,3) 41.2p 38.1p -
LTIP - EPS (50%) and free cash flow ('FCF') (25%) elements (2,3) 60.0p 55.6p -
Sharesave (2) - - 27.6p
(1 ) Based upon a stochastic model.
(2 ) Based upon the Black-Scholes model.
(3 ) LTIP awards provided to the Board directors are subject to a 2
year post vesting holding period. The Finnerty model has been used to estimate
a discount for the lack of marketability of these shares during the holding
period.
The fair value of the total shareholder return ('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 earnings per share ('EPS') and free cash
flow ('FCF') elements 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 these elements is based on the fair
value factored by a 'true up' for the number of awards that are expected to
vest.
The share-based payment charge recognised in the Group's income statement for
the year was £8.4m (2022: £8.6m).
Shares held in trusts
The Group's employee benefit trusts acquire shares in the Group from the
market, that are intended to be used in settling LTIP awards vesting in the
future. The shares held by the trusts are accounted for as a deduction from
equity within retained earnings.
Shares acquired by the trusts during the year at a cost of £12.4m (2022:
£7.5m), net of shares transferred to deferred bonus recipients for proceeds
of £0.5m (2022: £0.5m), are reflected in the statement of changes in equity
as a purchase of own shares.
At 30 June 2023, a total of 16,952,961 shares were held by the trusts (2022:
7,555,030 shares), with an historic cost value of £11.2m (2022: £7.7m).
16 Guarantees, contingent liabilities and contingent assets
The Company has given guarantees and entered into counter-indemnities in
respect of bonds relating to certain of the Group's own contracts. The Company
has also given guarantees in respect of certain contractual obligations of its
subsidiaries and joint ventures, which were entered into in the normal course
of business, as well as certain of the Group's other obligations (for example,
in respect of the Group's finance facilities and its pension schemes).
Financial guarantees over the obligations of the Company's subsidiaries and
joint ventures are initially measured at fair value, based on the premium
received from the joint venture or the differential in the interest rate of
the borrowing including and excluding the guarantee. Subsequent to initial
recognition, financial guarantee contracts are measured at the higher of the
initial fair value measurement (adjusted for any income amounts recognised)
and the amount determined in accordance with the expected credit loss model.
Performance guarantees are treated as a contingent liability until such time
as it becomes probable that payment will be required under its terms.
Provisions are made for the Directors' best estimate of known legal claims,
investigations and legal actions relating to the Group which are considered
more likely than not to result in an outflow of economic benefit. If the
Directors consider that a claim, investigation or action relating to the Group
is unlikely to succeed, no provision is made. If the Directors cannot make a
reliable estimate of a potential, material obligation, no provision is made
but details of the claim are disclosed.
Fire and cladding review
The Group has undertaken a review of all of its current and legacy constructed
buildings where it has used cladding solutions and continues to assess the
action required in line with the latest updates to Government guidance, as it
applies, to multi-storey and multi-occupied residential buildings. The
buildings, including the cladding works, were signed off by approved
inspectors as compliant with the relevant Building Regulations at the time of
completion.
In preparing the financial statements, currently available information has
been considered, including the current best estimate of the extent and future
costs of work required, based on the reviews and physical inspections
undertaken.
Where an obligation has been established and a reliable estimate of the costs
to rectify is available, a provision has been made. No provision has been made
where an obligation has not been established.
These estimates may be updated as further inspections are completed and as
work progresses which could give rise to the recognition of further
liabilities. Such liabilities, should they arise, are expected to be covered
materially by the Group's insurance arrangements thereby limiting the net
exposure. Any insurance recovery must be considered virtually certain before a
corresponding asset is recognised and so this could potentially lead to an
asymmetry in the recognition of assets and liabilities
17 Related parties
The Group has related party relationships with its joint ventures, key
management personnel and pension schemes in which its employees participate.
There have been no significant changes in the nature of related party
transactions since the last annual financial statements for the year ended 30
June 2022.
Details of contributions made to the pension schemes by the Group are detailed
in note 6.
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