REG - Kier Group PLC - Half-year Report
09/03/2023 07:00
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RNS Number : 3655S Kier Group PLC 09 March 2023
9 March 2023
Kier Group plc
Results for the period ended 31 December 2022
Strong performance: Order book increased 26%
Kier Group plc ("Kier", the "Company" or the "Group"), a leading UK
infrastructure services, construction and property group, announces its
results for the six months ended 31 December 2022 ("HY23" or the "period").
Highlights
(£m unless otherwise stated) Six months to Six months to Change
31 December 2022 31 December 2021
Adjusted results
Revenue1 1,537 1,536 -
Adjusted operating profit2 57.2 54.2 6%
Adjusted operating margin 3.7% 3.5% 20bps
Adjusted profit before tax3 45.8 43.0 7%
Adjusted basic earnings per share (note 8) 8.5p 7.8p 9%
Net debt4 (130.6) (131.3) 1%
Average month-end net debt (242.7) (190.8) (27)%
Statutory reported
Group revenue 1,526 1,482 3%
Profit from operations 38.3 25.3 51%
Profit before tax 25.4 12.7 100%
Basic earnings per share (note 8) 4.7p 2.2p 114%
1 Revenue of the Group and its share of revenue from joint ventures
2 Stated before adjusting items of £9.1m (HY22: £19.0m) and amortisation of
acquired intangible assets of £9.8m (HY22: £9.9m).
3 Stated before adjusting items of £10.6m (HY22: £20.4m) and amortisation of
acquired intangible assets of £9.8m (HY22: £9.9m).
4 Disclosed net of the effect of hedging instruments and excludes leases - see
note 11 to the preliminary financial statements.
HY23 Highlights
· Strong performance despite ongoing inflationary pressure
o Adjusted operating profit increased 6% to £57m (HY22: £54m)
o Margin improved 20 basis points to 3.7%; above medium-term target of c. 3.5%
o Adjusted basic EPS increased 9% to 8.5p (HY22: 7.8p)
o Net debt at 31 December 2022 of £(131)m: reflecting seasonal working
capital unwind
o Average month-end net debt of £(243)m from £(191)m: operating cash flow
used to reduce debt-like items
o Supply chain finance ("KEPS") repaid in full during the period (HY22: £69m,
HY19: £201m)
· High quality order book, increased 26% to £10.1bn (HY22: £8.0bn)
providing high degree of visibility
o 96% of expected FY23 revenue secured
· Reported profit from operations increased 51% to £38m (HY22: £25m)
· Continued commitment to Sustainability Framework and ESG targets
· Trading is in line with the Board's expectations and the Group
remains confident in achieving its medium-term value creation plan targets
Andrew Davies, Chief Executive, said:
"The strong performance of the Group over the last six months reflects our
enhanced resilience and strengthened financial position. Our order book has
increased significantly against the prior year, reflecting a large number of
contract wins across our divisions and this provides us with good, multi-year
revenue visibility. These awards reflect the bidding discipline and risk
management now embedded in the business.
Looking ahead, we expect to generate positive operating cashflow for the full
year and deliver a net cash position at the year-end. Current trading remains
in line with the Board's expectations despite political and economic
uncertainties. The Group is well positioned to continue benefiting from UK
Government infrastructure spending commitments and focused on the delivery of
a sustainable net cash position and a sustainable dividend, in line with our
medium-term value creation plan."
HY23 Results Presentation
Kier Group plc will host a presentation for analysts and investors at 9:00am
on 9 March 2023 at the offices of Peel Hunt, 100 Liverpool Street, London EC2M
2AT.
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/63e67e753e92bb0c008b700f/cdsvd
United Kingdom: +44 800 640 6441
United Kingdom (Local): +44 20 3936 2999
Conference password: 073819
An audio recording will be available on our website in due course.
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
Medium-Term Value Creation Plan
The Group is focused on delivering its medium-term targets over a three to
five year period:
Revenue: £4.0 - 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 cover through the cycle
The Group aims to achieve these medium-term targets through:
· volume growth and improved contract profitability
· continued management discipline
· deploying additional capital in the Property business
The Group continues to make good progress against these targets. Despite
political and economic uncertainties, our core markets have remained
favourable. We are a "strategic supplier" to the UK Government and over 90% of
our contracts are with the public sector and regulated companies.
Order Book
The Group continues to deliver against its medium-term value creation plan.
The order book at 31 December 2022 was £10.1bn, a significant increase of 26%
against the prior year, reflecting a large number of contract wins across all
divisions and providing multi-year revenue visibility.
The order book is 96% secured for FY23 which provides us with a high degree of
certainty against wider market conditions. The awards are high quality and
profitable reflecting the bidding discipline and risk management embedded in
the business.
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:
· Utilities
o reappointed to the £55m per annum, 3 year extension of the Network
Service Alliance framework by South West Water and Bournemouth Water
· Construction
o two Kier joint ventures have been appointed to all six lots of the £10bn
Offsite Construction Solutions framework; re-appointed to the North West
Construction Hub High Value Construction Framework; appointed on a £22m
investment programme by the Isle of Wight NHS Trust to redevelop St Mary's
Hospital and awarded three school projects by the Department for Education
o Kier Places - preferred bidder on a £75m housing maintenance contract for
10 years with RHP Group across its housing portfolio in Richmond, Hounslow,
Kingston and Hillingdon
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
· contracting through long-term frameworks
Our core businesses are well-placed to benefit from the announced and
committed UK Government spending plans to invest £600bn in infrastructure
over 5 years. We have secured places on long-term frameworks through which
much of the increased spend will be deployed.
This, combined with our nationwide coverage and project management expertise,
is expected to drive our strategic actions of disciplined growth, consistent
delivery and strong cash generation.
Financial Summary
Kier reported revenue of £1.5bn (HY22: £1.5bn) which reflects resilience in
Infrastructure Services, growth in Construction, offset by the anticipated
cyclical reduction in activity in the Property business.
The Group's HY23 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,
ability to mitigate risk through negotiations on fixed price contracts and an
average order size of c.£14m in our Construction business resulting in a
regular re-pricing of contracts.
The Group delivered adjusted operating profit of £57m which represents a 6%
increase on the prior year (HY22: £54m). Both our Infrastructure Services and
Construction divisions performed well in the first half of the year, partially
offset by the expected reduction in transactions within the Property division.
Group adjusted operating profit margin increased by 20 basis points to 3.7%
(HY22: 3.5%). Reported profit from operations increased 51% to £38m (HY22:
£25m) with a reduction in adjusting items.
Adjusted basic earnings per share increased 9% to 8.5p (HY22: 7.8p) and
reported earnings per share increased 114% to 4.7p (HY22: 2.2p).
The Group had a free cash outflow of £(88)m (HY22: £(110)m). This reflects
continued underlying working capital improvements offset by the usual seasonal
working capital unwind and the repayment of the supply chain finance facility
("KEPS") of £50m in July 2022.
The Group's net debt position at 31 December 2022 was £(131)m and remains
unchanged from HY22 in line with expectations. In the first half of the year,
in addition to the full repayment of KEPS, the Group paid adjusting items,
pension deficit obligations and purchased existing Kier shares for future
employee share based remuneration. During the second half of the year,
the Group is anticipating a reversal of the H1 seasonal working capital
outflow and a return to net cash.
As anticipated, average month-end net debt for the period was £(243)m (HY22:
£(191)m), higher than the prior year. The Group generated positive operating
cash flow which was used to reduce the average month-end KEPS balance, pay
adjusting items, tax and interest, pension deficit obligations and remaining
HMRC COVID-19 support.
The Group fully repaid its remaining £50m KEPS facility in July 2022 followed
by £54m of its Revolving Credit Facility ("RCF") and US Private Placement
("USPP") Notes which matured in December 2022.
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 - disciplined and non-speculative investment to support its
businesses
· Deleveraging - further deleveraging. 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
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 within Kier's contract
selection and delivery processes.
During 2022, we updated Performance Excellence to match the evolving needs of
Kier and its clients. Five new workstreams were established, 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
· 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.
Supply Chain Partners
We have also focused 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 July 2022 to 31
December 2022, the Group's aggregate average payment days was 34 days (HY22:
34 days) and the percentage of payments made to suppliers within 60 days was
87% (HY22: 92%).
We are committed to making 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 first half of the year
with Louisa Finlay's promotion to Chief People Officer replacing Helen
Redfern. Stuart Togwell was appointed as Group Managing Director,
Construction, replacing Liam Cummins.
Ross MacKenzie was appointed as Interim Group Managing Director,
Infrastructure Projects, replacing Mark Pengelly. Mark Pengelly has been
appointed as the Interim Managing Director of our HS2 joint venture, Eiffage,
Kier, Ferrovial and BAM ("EKFB").
In addition, Andrew Davies was appointed as Chair to the EKFB board.
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 above £5m require net zero carbon and social value
commitments.
Our Building for a Sustainable World framework covers sustainability from both
an environment and social perspective. Our framework is based on ten pillars
and follows the guiding principles of the 17 United Nations Sustainable
Development Goals ("SDGs").
· Environmental
Under the Group's sustainability framework, Kier has set out our pathway to
become net zero carbon across our business operations by 2039 (Scope 1 and 2)
and value chain (Scope 3) by 2045.
In the first half of the year, the Group launched battery storage units in
place of generators to supply power across a number of our operational sites.
Early trials have indicated a significant reduction in carbon as well as a
cost saving opportunity.
· Social
We have also made commitments on social value. Our target is to create £5bn
in social value by 2030. Our people are our greatest asset. At 31 December
2022, we had 559 apprentices employed within the organisation, which equates
to 6% of our workforce. In addition, 7.5% of the workforce are on a formal
learning programme.
In January 2023, we committed to offering paid internships to talented
under-represented individuals in partnership with "10,000 Black Interns". We
have initially pledged to offering 10 placements.
We continue to deliver training programmes as a key means of upskilling our
employees and bringing in early careers recruits to reduce the industry skills
gap.
The Group's 12-month rolling Accident Incident Rate ("AIR") at HY23 of 101
represents a decrease of c.12%, compared to FY22. The improvement demonstrates
our commitment to continuously improve our safety performance and ensure our
people and valued supply chain go home safe and well every day.
The 12-month rolling All Accident Incident Rate ("AAIR") at HY23 of 331
represents a slight increase of c.5% compared to the end of FY22. Whilst we
are disappointed with this performance, we remain focused on improving this
metric and believe that overall we retain a strong safety record and maintain
the highest standards in our industry.
Recent initiatives such as our re-aligned health, safety and wellbeing
structure along with our focus on safety mindsets, behaviours and raising the
profile of our people's wellbeing has had a positive impact on our safety
performance. Safety remains our license to operate and we continue to embed
best practice and make conditions as safe as possible for our workforce.
On 23 January 2023, the UK's national regulator for workplace health and
safety, Health and Safety Executive ("HSE") fined the Group £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 then the Highways business has been very successful in transforming its
safety record over the last four years. At 31 December 2022, it was the
highest ranked Tier 1 contractor for health and safety by National Highways
and lost time incidents significantly reduced from 39 to 6 from FY19 to FY22.
· Governance
Governance remains a core component of the Group's approach to operations. The
Group monitors governance matters through Annual BSI audits on ISO14001, 45001
& 9001 compliance, Integrated Operational Assurance Statement, processes
and operating assurance statements.
Summary and Outlook
The performance of the Group over the last six months reflects our
significantly enhanced resilience and strengthened financial position. Our
order book has increased significantly against the prior year, reflecting a
large number of contract wins across our divisions and this provides us with
good, multi-year revenue visibility. These awards reflect the bidding
discipline and risk management now embedded in the business.
Looking ahead, we expect to generate positive operating cash flow for the full
year and deliver a net cash position at the year end. Current trading remains
in line with the Board's expectations. The Group is well positioned to
continue benefiting from UK Government infrastructure spending commitments and
focused on the delivery of a sustainable net cash position and a sustainable
dividend, in line with our medium-term value creation plan.
Operational Review
Infrastructure Services
Six months to Six months to Change
31 December 2022 31 December 2021
Revenue (£m) 816 777 5%
Adjusted operating profit (£m)5 33.8 32.9 3%
Adjusted operating margin 4.1% 4.2% (10)bps
Reported operating profit (£m) 22.0 22.5 (2)%
Order book (£bn) 5.8 4.5 29%
5 Stated before adjusting items of £11.8m (HY22: £10.4m)
The Infrastructure Services segment comprises the Highways, Infrastructure and
Utilities businesses.
Infrastructure Services revenue increased 5% against the comparative period,
primarily due to the continued ramp up of capital works on HS2. Adjusted
operating profit increased 3% to £34m due to mix. Higher HS2 volumes were
offset by continued growth costs in Utilities. 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 district and county councils.
The business is focused upon the successful delivery of the significant number
of wins from FY22 which included new contracts and contract extensions in
Highways Maintenance, alongside the design and build of three National
Highways Major Projects.
The marketplace is seeing a shift towards major projects. Success in the Major
Projects market requires relevant experience alongside a suite of skills and
capabilities through the project life cycle, for which Kier is well
positioned.
The Infrastructure business delivers major and complex infrastructure and
civil engineering projects, including HS2, Devonport 10 dock facility, Oxford
Railway Station and ongoing works at Sellafield and Hinkley Point C.
Infrastructure benefited from a ramp up in HS2 volumes during the period.
The Utilities business delivers long-term contracts providing construction and
maintenance services to the water, energy, and telecoms sectors. The Utilities
business has seen higher activity in the telecoms sector with the UK
Government's commitment to rolling out 5G connectivity to the UK. As a result,
the business has increased its investment in contract mobilisation costs. The
ramp up has resulted in an adverse impact on margins. The Utilities business
is currently undertaking a strategic review aimed at reviewing its back-office
and regionally based support levels.
The Utilities business has continued to win work including being reappointed
to the £55m per annum, 3 year extension of the Network Service Alliance
framework by South West Water and Bournemouth Water.
97% of orders have been secured for FY23.
Construction
Six months to Six months to Change
31 December 2022 31 December 2021
Revenue (£m) 709 681 4%
Adjusted operating profit (£m)6 32.8 26.3 25%
Adjusted operating margin 4.6% 3.9% 70bps
Reported operating profit (£m) 25.6 12.8 100%
Order book (£bn) 4.3 3.5 23%
6 Stated before adjusting items of £7.2m (HY22: £13.5m)
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 4% due largely to the start of works on the new custodial
facility, HMP Full Sutton in Yorkshire and growth in Kier Places as we benefit
from increased facilities and housing management contracts.
Adjusted operating profit increased 25% to £33m driven by increased volume
and the impact of prior year's restructuring. Adjusting items include £4.0m
relating to fire cladding costs.
The order book significantly increased from £3.5bn to £4.3bn reflecting a
period of strong bidding activity.
We were recently re-appointed to the North West Construction Hub High Value
Construction Framework, appointed on a £22m investment programme by the Isle
of Wight NHS Trust to redevelop St Mary's Hospital and awarded three school
projects by the Department for Education.
In January 2023, two Kier joint ventures were appointed to all six lots of the
£10bn Offsite Construction Solutions framework.
As a regional contractor, we continue to be well placed to benefit from UK
Government spending commitments focused on areas such as health, education and
custodial services, where our Construction business has specialist expertise.
However, during the year, we have seen UK Government procurement delays driven
by cost inflation.
Our Kier Places business specialises in working in occupied properties both
residential and offices, delivering maintenance, repairs, fire safety and
compliance services. The business has benefited from increased work
opportunities from existing customers, resulting in increases in both volumes
and profitability.
It continues to win new work and is the preferred bidder on a £75m housing
maintenance contract for 10 years with RHP Group across its housing portfolio
in Richmond, Hounslow, Kingston and Hillingdon.
The continued soft markets served by our UAE-based International business
result in an ongoing focus on managing its cost base and projects.
95% of orders have been secured for FY23.
Property
Six months to Six months to Change
31 December 2022 31 December 2021
Revenue (£m) 11 76 (86)%
Adjusted operating profit (£m)7 4.7 10.4 (55)%
Adjusted operating margin 43% 14% 2,900bps
Reported operating profit (£m) 4.4 9.8 (55)%
ROCE % 7% 15% (800)bps
7 Stated before adjusting items of £0.3m (HY22: £0.6m)
· Andover development in Partnership with Test Valley Borough
Council was fully let
· Solum Regeneration, the Kier joint venture with Network Rail,
sold its final residential block at Twickenham Gateway development
The Property business invests and develops primarily mixed-use commercial and
residential schemes and sites across the UK. The business is a
well-established urban regeneration and property developer and largely
operates through joint ventures.
Revenue of £11m and adjusted operating profit of £4.7m in the first half of
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 £6.3m related to a transaction in
its investment property portfolio in the first half of 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.
We expect to increase the average capital employed targeting £170m with a
consistent rate of capital investment at the level expected to help smooth out
the returns profile of the business over the medium-term. As at 31 December
2022, capital employed was £158m.
Corporate
Six months to Six months to
31 December 2022 31 December 2021 Change
Adjusted operating loss (£m)8 (14.1) (15.4) 8%
Reported operating loss (£m) (13.7) (19.8) 31%
8 Stated before adjusting items of £(0.4)m (HY22: £4.4m)
The Corporate segment comprises the costs of the Group's central functions and
have reduced when compared to the prior year due to continuous improvement
initiatives.
Financial Review
Introduction
The Group performed well through the first half of the year and delivered an
adjusted operating profit of £57.2m (HY22: £54.2m, FY22: £120.5m). This
represents a 20 basis points operating margin increase over the prior period
to 3.7% with the Group exceeding its medium-term plan margin target of c.3.5%.
The continued strong operational performance, together with lower adjusting
items led to a 51% increase in profit from operations to £38.3m (HY22:
£25.3m, FY22: £45.1m) and a 100% increase in profit before tax to £25.4m
(HY22: 12.7m, FY22: £15.9m).
Adjusted earnings per share increased 9.0% to 8.5p (HY22: 7.8p, FY22: 16.8p).
As anticipated, the Group experienced a free cash outflow of £87.8m during
the period (HY22: £109.7m, FY22: £54.6m inflow) driven by seasonal working
capital and repayment of the Group's supply chain finance facility ("KEPS")
(HY22: £69.3m, FY22: £49.8m).
Net debt at 31 December 2022 of £(130.6)m remained at a similar level to the
period year (HY22: £(131.3)m, FY22: £2.9m). In the first half of the year,
the Group repaid KEPS, adjusting items, pension deficit obligations and
purchased existing Kier shares for future employee share based remuneration.
Average month-end net debt for the period ended 31 December 2022 was
£(242.7)m (HY22: £(190.8)m, FY22 £(216.1)m), higher than the prior year.
Positive operating cash flow was used to reduce the average month-end KEPS
balance, pay adjusting items, tax and interest, pension deficit obligations
and remaining HMRC COVID-19 support.
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, a 3% increase since the year-end and
26% higher than the prior period. (HY22: £8.0bn, FY22: £9.8bn). 96% of
revenue for FY23 is already secured which provides certainty for the full
year.
Summary of financial performance
Adjusted9 results Statutory reported results
31 Dec 31 Dec Change 31 Dec 31 Dec Change
2022 2021 % 2022 2021 %
Revenue (£m) - Total 1,536.6 1,536.2 - 1,536.6 1,536.2 -
Revenue (£m) - Excluding JV's 1,525.8 1,482.2 2.9 1,525.8 1,482.2 2.9
Profit from operations (£m)( ) 57.2 54.2 5.5 38.3 25.3 51.4
Profit before tax (£m) 45.8 43.0 6.5 25.4 12.7 100.0
Earnings per share (p) 8.5 7.8 9.0 4.7 2.2 113.6
Free cash flow (£m) (87.8) (109.7) 20.0
Net debt (£m) (130.6) (131.3) 0.5
Net debt (£m) - average month-end (242.7) (190.8) (27.2)
Order book (£bn) 10.1 8.0 26.3
Supply chain finance (£m) - 69.3 (100.0)
9 Reference to 'Adjusted' excludes adjusting items, see note 3.
Revenue
The following table bridges the Group's revenue from the period ended 31
December 2021 to the period ended 31 December 2022.
£m
Revenue for the period ended 31 December 2021 1,536.2
Infrastructure Services 38.5
Construction 28.1
Property and Corporate (66.2)
Revenue for the period ended 31 December 2022 1,536.6
The Group grew revenue in both Infrastructure Services and Construction,
offset by lower revenue in Property. There were increased transactions in
Property in the prior financial year driven by market demand. 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 non-recurring 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 period ended 31 December 2021 54.2
Volume / price / mix changes 4.1
Fewer property transactions (5.7)
Cost inflation (4.5)
Management actions 9.1
Adjusted operating profit for the period ended 31 December 2022 57.2
A reconciliation of reported to adjusted operating profit is provided below:
Operating profit Profit before tax
31 Dec 31 Dec 31 Dec 31 Dec
2022 2021 2022 2021
£m
£m
£m £m
Reported profit 38.3 25.3 25.4 12.7
Amortisation of acquired intangible assets 9.8 9.9 9.8 9.9
Restructuring and related charges 3.6 11.8 3.6 11.8
Other 5.5 7.2 7.0 8.6
Adjusted profit 57.2 54.2 45.8 43.0
Additional information about these items is as follows:
· Amortisation of acquired intangible
assets £9.8m (HY22: £9.9m):
o 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 £3.6m (HY22: £11.8m):
o Restructuring costs include £3.7m incurred on downsizing of personnel and
other people related costs within the Group, including those related to the
re-sizing of the International business.
· Other costs £7.0m (HY22: £8.6m)
o Legal and compliance costs include £4.0m incurred on fire compliance and
cladding claims. A further £1.5m was incurred in relation to the fine from
HSE in relation to historical safety issues. In addition, £1.5m of finance
costs relate to the IFRS 16 interest charge on leased properties that were
previously vacated.
Earnings per share
Earnings per share ("EPS"), before adjusting items, from continuing operations
amounted to 8.5p (HY22: 7.8p, FY22: 16.8p). EPS, after adjusting items, from
continuing operations amounted to 4.7p (HY22: 2.2p, FY22: 2.9p).
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.
Interest on bank borrowings amounted to £11.9m (HY22: £9.6m, FY22: £18.9m)
and finance lease charges were £4.7m (HY22: £3.3m, FY22: £6.5m). Interest
costs have increased during the period 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 £1.8m as at 31 December 2022. The swap
expires in September 2023.
In February 2023, the Group entered into a further 3 year fixed interest rate
swap of £100m reducing to £75m in its second year and £50m in its third
year.
The overall cost of borrowing for the Group has decreased compared to previous
years as a result of the Group's significantly improved average month end debt
position.
The Group had a net interest credit of £3.8m (HY22: £0.4m, FY22: £1.0m) in
relation to the defined benefit pension schemes which has arisen due to the
combination of the large overall pension surplus and relatively high discount
rate (derived from corporate bond yields), at the start of the financial year.
The Group continues to exclude lease liabilities from its definition of net
cash/(debt).
Balance sheet
Net assets
The Group had net assets of £482.6m at 31 December 2022 (HY22: £509.1m,
FY22: £554.6m). The primary driver for this is the decrease in the pension
scheme surplus during the period.
Goodwill
The Group held intangible assets of £655.3m (HY22: £683.7m,
FY22: £669.1m) of which goodwill represented £536.7m (HY22: £536.7m,
FY22: £536.7m). No impairment triggers were identified in the period.
Deferred tax asset
The Group has a deferred tax asset of £133.7m recognised at 31 December
2022 (HY22: £116.9m, FY22: £108.8m) primarily due to historical losses. The
asset has increased in the year due to the deferred tax credit in relation to
the movement in the pension scheme asset.
Based on the Group's forecasts, it is expected that the deferred tax asset
will be utilised over a period of approximately 11 years.
An adjusted tax credit of £3.9m (HY22: £5.6m, FY22: £14.8m) has been
included within adjusting items, representing the tax impact of adjusting
items.
Right-of-use assets and lease liabilities
At 31 December 2022, the Group had right-of-use assets of £122.0m (HY22:
£88.5m, FY22: £80.6m) and associated lease liabilities of £197.9m (HY22:
£167.8m, 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 owns a number of office buildings which were formally 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. 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. The Group recognised a fair value gain of £6.3m related
to a transaction in the period 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 31
December 2022, total contract assets amounted to £336.5m (HY22: £332.6m,
FY22: £397.5m).
Contract liabilities were £73.3m (HY22: £55.7m, FY22: £67.3m).
Retirement benefits obligation
Kier operates a number of defined benefit pension schemes. At 31 December
2022, the reported surplus, which is the difference between the aggregate
value of the schemes' assets and the present value of their future
liabilities, was £91.1m (HY22: £133.9m, FY22: £194.7m), before
accounting for deferred tax, with the movement in the year primarily as a
result of actuarial losses of £112.4m (HY22: £81.6m gains, FY22: £136.3m
gains). A change in financial assumptions, resulting from higher corporate
bond yields, has reduced the pension schemes' liabilities. 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.
The Group is in the process of finalising its triennial pension valuation for
31 March 2022.
Free cash flow and Net debt
31 Dec 31 Dec
2022 2021
£m £m
Operating profit 38.3 25.3
Depreciation of owned assets 2.7 3.3
Depreciation of right-of-use assets 21.8 15.4
Amortisation 19.0 13.8
EBITDA 81.8 57.8
Adjusting items excluding adjusting amortisation and interest 9.1 19.0
Adjusted EBITDA 90.9 76.8
Working capital outflow (78.7) (133.2)
Net capital expenditure including finance lease capital payments (27.1) (19.6)
Joint Venture dividends less profits (2.2) 0.1
Repayment of KEPS (49.8) (9.8)
Other free cash flow items (2.9) 2.2
Operating free cash flow (69.8) (83.5)
Net interest and tax (18.0) (10.1)
Free cash flow before COVID-19 (87.8) (93.6)
Net COVID-19 tax repayment - (16.1)
Free cash flow (87.8) (109.7)
2022 2021
£m £m
Net cash at 1 July 2.9 3.0
Free cash flow (87.8) (109.7)
Adjusting items (22.7) (15.6)
Pension deficit payments and fees (6.6) (7.4)
Fees paid in respect of prior year equity raise - (6.1)
Net purchase of own shares (11.9) (1.8)
Other (4.5) 6.3
Net debt at 31 December (130.6) (131.3)
As expected, the Group experienced a free cash outflow during the year, driven
by a seasonal working capital outflow and the repayment of £49.8m of KEPS in
July 2022. Working capital is seasonal in the business with summer being a
higher period of activity compared to winter months. Accordingly, during the
second half of the year, the Group is anticipating a reversal of the H1
working capital outflow and a return to net cash.
The average month-end net debt position is higher than the comparative period
at £(242.7)m, (HY22: £190.8m). Positive operating cash flow was used to
reduce the average month-end KEPS balance, pay adjusting items, tax and
interest, pension deficit obligations, remaining HMRC COVID-19 support and
purchase existing Kier shares on behalf of employees.
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 (HY22: £1.8m; FY22: £7.0m).
For the full year 2023, we expect, as previously outlined that notwithstanding
positive free cash flow, an increase in average month-end net debt
attributable to the repayment of debt-like items such as KEPS and the HMRC
COVID-19 support as well as the impact of lower activity in our Construction
business until the fourth quarter of the year.
In FY24, we expect the average net debt to decrease with free cash flow
generation given the Group's increased order book, expected revenue conversion
and associated working capital inflow. The Group also expects a significant
reduction in adjusting items.
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 £601.4m with a
further £18.0m of uncommitted overdrafts.
The facilities comprise £515.0m Revolving Credit Facility ("RCF"), £78.5m US
Private Placement ("USPP") Notes, £7.9m Schuldschein Notes as well as
£18.0m of overdrafts.
During the period, the Group repaid £34.1m of USPP Notes and reduced the RCF
by £20.0m. We expect to reduce a further £40.0m of the RCF, £7.9m of
Schuldschein Notes and £3.4m of USPP Notes in the calendar year 2023.
The Group has a £100m fixed interest rate swap through to September 2023. In
February 2023, the Group entered into a further 3 year fixed interest rate
swap at £100m reducing to £75m in its second year and £50m in its third
year.
Supply chain finance
The Group's supply chain finance scheme was fully paid down in July 2022
(HY22: £69.3m, 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 condensed
consolidated financial statements.
Statement of directors' responsibilities
The Directors confirm that these condensed interim financial statements have
been prepared in accordance with UK adopted International Accounting Standard
34, 'Interim Financial Reporting', and the Disclosure Guidance and
Transparency Rules sourcebook of the UK's Financial Conduct Authority and that
the interim management report includes a fair review of the information
required by DTR 4.2.7 and DTR 4.2.8, namely:
· an indication of important events that have occurred during the
first six months and their impact on the consolidated financial statements,
and a description of the principal risks and uncertainties for the remaining
six months of the financial year; and
· material related-party transactions in the first six months and
any material changes in the related-party transactions described in the last
annual report.
There have been no changes to the directors of Kier Group plc as listed on
pages 94 and 95 of the 2022 Annual Report and Accounts. Chris Browne OBE
joined the Board as a Non-executive Director on 15 September 2022. A list of
the current directors is also maintained on Kier Group plc's website at:
www.kier.co.uk.
Signed on 8 March 2023 on behalf of the Board.
Andrew Davies Simon Kesterton
Chief Executive Chief Financial Officer
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. The Board believes
that these principal risks and uncertainties will continue to apply to the
Group in the second half of the financial year.
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 Twitter: @kiergroup
Connect with us on LinkedIn: Kier Group
Independent review report to Kier Group plc
Report on the condensed consolidated interim financial statements
Our conclusion
We have reviewed Kier Group plc's condensed consolidated interim financial
statements (the "interim financial statements") in the Condensed interim
results of Kier Group plc for the 6 month period ended 31 December 2022 (the
"period").
Based on our review, nothing has come to our attention that causes us to
believe that the interim financial statements are not prepared, in all
material respects, in accordance with UK adopted International Accounting
Standard 34, 'Interim Financial Reporting' and the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial Conduct
Authority.
The interim financial statements comprise:
· the Condensed consolidated balance sheet as at
31 December 2022;
· the Condensed consolidated income statement and Condensed
consolidated statement of comprehensive income for the period then ended;
· the Condensed consolidated statement of cash flows for the period
then ended;
· the Condensed consolidated statement of changes in equity for the
period then ended; and
· the explanatory notes to the interim financial statements.
The interim financial statements included in the Condensed interim results of
Kier Group plc have been prepared in accordance with UK adopted International
Accounting Standard 34, 'Interim Financial Reporting' and the Disclosure
Guidance and Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Basis for conclusion
We conducted our review in accordance with International Standard on Review
Engagements (UK) 2410, 'Review of Interim Financial Information Performed by
the Independent Auditor of the Entity' issued by the Financial Reporting
Council for use in the United Kingdom ("ISRE (UK) 2410"). A review of interim
financial information consists of making enquiries, primarily of persons
responsible for financial and accounting matters, and applying analytical and
other review procedures.
A review is substantially less in scope than an audit conducted in accordance
with International Standards on Auditing (UK) and, consequently, does not
enable us to obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do not express
an audit opinion.
We have read the other information contained in the Condensed interim results
and considered whether it contains any apparent misstatements or material
inconsistencies with the information in the interim financial statements.
Conclusions relating to going concern
Based on our review procedures, which are less extensive than those performed
in an audit as described in the Basis for conclusion section of this report,
nothing has come to our attention to suggest that the directors have
inappropriately adopted the going concern basis of accounting or that the
directors have identified material uncertainties relating to going concern
that are not appropriately disclosed. This conclusion is based on the review
procedures performed in accordance with ISRE (UK) 2410. However, future events
or conditions may cause the group to cease to continue as a going concern.
Responsibilities for the interim financial statements and the review
Our responsibilities and those of the directors
The Condensed interim results, including the interim financial statements, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the Condensed interim results in accordance with
the Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority. In preparing the Condensed interim
results, including the interim financial statements, the directors are
responsible for assessing the group's ability to continue as a going concern,
disclosing, as applicable, matters related to going concern and using the
going concern basis of accounting unless the directors either intend to
liquidate the group or to cease operations, or have no realistic alternative
but to do so.
Our responsibility is to express a conclusion on the interim financial
statements in the Condensed interim results based on our review. Our
conclusion, including our Conclusions relating to going concern, is based on
procedures that are less extensive than audit procedures, as described in the
Basis for conclusion paragraph of this report. This report, including the
conclusion, has been prepared for and only for the company for the purpose of
complying with the Disclosure Guidance and Transparency Rules sourcebook of
the United Kingdom's Financial Conduct Authority and for no other purpose. We
do not, in giving this conclusion, accept or assume responsibility for any
other purpose or to any other person to whom this report is shown or into
whose hands it may come save where expressly agreed by our prior consent in
writing.
PricewaterhouseCoopers LLP
Chartered Accountants
London
8 March 2023
Financial statements
Condensed consolidated income statement
For the six months ended 31 December 2022
Note Unaudited Unaudited Year to
six months to 31 December 2022 six months to 31 December 2021 30 June
£m
£m 2022
£m
Continuing operations
Revenue
Group and share of joint ventures(1) 2 1,536.6 1,536.2 3,256.5
Less share of joint ventures 2 (10.8) (54.0) (112.6)
Group revenue 1,525.8 1,482.2 3,143.9
Cost of sales (1,395.2) (1,350.9) (2,879.9)
Gross profit 130.6 131.3 264.0
Administrative expenses (101.5) (116.9) (245.5)
Share of post-tax results of joint ventures 3.2 10.9 26.6
Other income 10 6.0 - -
Profit from operations 2 38.3 25.3 45.1
Finance income 4 0.6 0.3 0.7
Finance costs 4 (13.5) (12.9) (29.9)
Profit before tax 2 25.4 12.7 15.9
Taxation 6 (5.0) (2.7) (3.2)
Profit for the period 2 20.4 10.0 12.7
Attributable to:
Owners of the parent 20.5 9.6 12.7
Non-controlling interests (0.1) 0.4 -
20.4 10.0 12.7
Earnings per share from continuing operations
- Basic 8 4.7p 2.2p 2.9p
- Diluted 8 4.7p 2.1p 2.8p
Supplementary information from continuing operations
Adjusted2 operating profit 3 57.2 54.2 120.5
Adjusted2 profit before tax 3 45.8 43.0 94.1
Adjusted2 earnings per share 8 8.5p 7.8p 16.8p
Adjusted2 diluted earnings per share 8 8.5p 7.5p 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 six months ended 31 December 2022
Note Unaudited Unaudited Year to
six months to 31 December 2022 six months to 31 December 2021 30 June
£m
£m 2022
£m
Profit for the period 20.4 10.0 12.7
Items that may be reclassified subsequently to the income statement
Fair value movements on cash flow hedging instruments 0.7 1.8 6.4
Fair value movements on cash flow hedging instruments recycled to the income 4 (0.9) (2.4) (7.4)
statement
Deferred tax on fair value movements on cash flow hedging instruments - 0.1 0.2
Foreign exchange translation differences 1.2 0.6 3.9
Total items that may be reclassified subsequently to the income statement 1.0 0.1 3.1
Items that will not be reclassified to the income statement
Re-measurement of retirement benefit assets and obligations 5 (112.4) 81.6 136.3
Deferred tax on re-measurement of retirement benefit assets and obligations 28.1 (20.4) (34.7)
Total items that will not be reclassified to the income statement (84.3) 61.2 101.6
Other comprehensive (loss)/income for the period (83.3) 61.3 104.7
Total comprehensive (loss)/income for the period (62.9) 71.3 117.4
Attributable to:
Equity holders of the parent (62.8) 70.9 117.4
Non-controlling interests - continuing operations (0.1) 0.4 -
(62.9) 71.3 117.4
Total comprehensive (loss)/income attributable to equity shareholders arises
from:
Continuing operations (62.8) 70.9 117.4
Financial statements
Condensed consolidated statement of changes in equity
For the six months ended 31 December 2022
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 period - - - 9.6 - - - 9.6 0.4 10.0
Other comprehensive (loss)/income - - - 61.2 (0.5) 0.6 - 61.3 - 61.3
Total comprehensive income/(loss) for the period - - - 70.8 (0.5) 0.6 - 70.9 0.4 71.3
Issue of own shares - - - - - - - - 0.6 0.6
Share-based payments 14 - - - 4.0 - - - 4.0 - 4.0
Purchase of own shares - - - (1.8) - - - (1.8) - (1.8)
At 31 December 2021 4.5 684.3 2.7 (537.8) (0.6) 5.6 350.6 509.3 (0.2) 509.1
Profit/(loss) for the period - - - 3.1 - - - 3.1 (0.4) 2.7
Other comprehensive income/(loss) - - - 40.4 (0.3) 3.3 - 43.4 - 43.4
Total comprehensive income/(loss) for the period - - - 43.5 (0.3) 3.3 - 46.5 (0.4) 46.1
Share-based payments 14 - - - 4.6 - - - 4.6 - 4.6
Purchase of own shares - - - (5.2) - - - (5.2) - (5.2)
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 period - - - 20.5 - - - 20.5 (0.1) 20.4
Other comprehensive (loss)/income - - - (84.3) (0.2) 1.2 - (83.3) - (83.3)
Total comprehensive (loss)/income for the period - - - (63.8) (0.2) 1.2 - (62.8) (0.1) (62.9)
Transactions with non-controlling interests - - - (0.9) - - - (0.9) - (0.9)
Issue of own shares - - - - - - - - 0.3 0.3
Share-based payments 14 - - - 3.4 - - - 3.4 - 3.4
Purchase of own shares 14 - - - (11.9) - - - (11.9) - (11.9)
At 31 December 2022 4.5 684.3 2.7 (568.1) (1.1) 10.1 350.6 483.0 (0.4) 482.6
The numbers in the table above are shown net of tax as applicable.
Financial statements
Condensed consolidated balance sheet
As at 31 December 2022
Note Unaudited Unaudited 30 June
31 December 2022 31 December 2021 2022
£m
£m
£m
Non-current assets
Intangible assets 9 655.3 683.7 669.1
Property, plant and equipment 32.2 37.5 32.7
Right-of-use assets 122.0 88.5 80.6
Investment properties 10 89.3 63.0 60.4
Investments in and loans to joint ventures 66.7 96.5 82.3
Capitalised mobilisation costs 7.7 3.5 11.6
Deferred tax assets 6 133.7 116.9 108.8
Contract assets 31.7 30.7 31.2
Trade and other receivables 15.1 15.5 17.0
Retirement benefit assets 5 116.8 151.7 199.2
Other financial assets 8.1 5.5 8.5
Non-current assets 1,278.6 1,293.0 1,301.4
Current assets
Inventories 77.2 56.7 56.8
Contract assets 304.8 301.9 366.3
Trade and other receivables 206.5 240.2 202.9
Corporation tax receivable 14.8 12.0 10.0
Other financial assets 2.7 2.3 3.7
Cash and cash equivalents 11 316.7 300.1 297.7
Current assets 922.7 913.2 937.4
Total assets 2,201.3 2,206.2 2,238.8
Current liabilities
Borrowings 11 (7.9) (32.6) (40.5)
Lease liabilities (39.7) (30.0) (25.9)
Trade and other payables 12 (886.4) (934.2) (1,065.7)
Contract liabilities (73.3) (55.7) (67.3)
Provisions (18.8) (14.4) (22.2)
Current liabilities (1,026.1) (1,066.9) (1,221.6)
Non-current liabilities
Borrowings 11 (448.5) (406.0) (266.5)
Lease liabilities (158.2) (137.8) (131.7)
Trade and other payables 12 (34.1) (35.9) (34.1)
Retirement benefit obligations 5 (25.7) (17.8) (4.5)
Provisions (26.1) (32.7) (25.8)
Non-current liabilities (692.6) (630.2) (462.6)
Total liabilities (1,718.7) (1,697.1) (1,684.2)
Net assets 2 482.6 509.1 554.6
Equity
Share capital 13 4.5 4.5 4.5
Share premium 684.3 684.3 684.3
Capital redemption reserve 2.7 2.7 2.7
Accumulated losses (568.1) (537.8) (494.9)
Cash flow hedge reserve 13 (1.1) (0.6) (0.9)
Translation reserve 13 10.1 5.6 8.9
Merger reserve 350.6 350.6 350.6
Equity attributable to owners of the parent 483.0 509.3 555.2
Non-controlling interests (0.4) (0.2) (0.6)
Total equity 482.6 509.1 554.6
Financial statements
Condensed consolidated statement of cash flows
For the six months ended 31 December 2022
Note Unaudited Unaudited Year to
six months to 31 December 2022 six months to 31 December 2021 30 June
£m
£m 2022
£m
Cash flows from operating activities
Profit before tax 25.4 12.7 15.9
Net finance cost 4 12.9 12.6 29.2
Share of post-tax trading results of joint ventures (3.2) (10.9) (26.6)
Difference between pension funding contributions paid and the pension cost - 0.1 (0.4)
(credit)/charge
Equity-settled share-based payments charge 14 3.4 4.0 8.6
Amortisation and impairment of intangible assets and mobilisation costs 19.0 13.8 30.3
Change in fair value of investment properties 10 (6.0) (4.0) (0.2)
Research and development expenditure credit 6 (9.5) (6.9) (20.7)
Depreciation and impairment of property, plant and equipment 2.7 7.4 10.7
Depreciation and impairment of right-of-use assets 21.8 20.6 35.2
(Profit)/loss on disposal of property, plant and equipment and intangible (0.1) (0.1) 0.8
assets
Operating cash inflows before movements in working capital and pension 66.4 49.3 82.8
deficit contributions
Deficit contributions to pension funds 5 (5.0) (5.8) (10.8)
Increase in inventories (20.4) (2.0) (2.1)
(Increase)/decrease in receivables (1.7) (29.7) 7.3
Decrease/(increase) in contract assets 61.0 33.4 (31.6)
Decrease in payables (177.0) (149.5) (12.4)
Increase/(decrease) in contract liabilities 6.0 (4.2) 7.4
(Decrease)/increase in provisions (3.1) (0.7) 0.2
Cash (outflow)/inflow from operating activities (73.8) (109.2) 40.8
Dividends received from joint ventures 0.7 10.9 32.5
Interest received 4 0.6 0.3 0.7
Net cash (outflow)/inflow from operating activities (72.5) (98.0) 74.0
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.3 1.2 4.2
Purchase of property, plant and equipment (2.8) (3.5) (6.0)
Purchase of intangible assets 9 (0.3) (0.6) (0.7)
Purchase of capitalised mobilisation costs (1.0) (0.2) (10.2)
Investment in joint ventures (15.6) (7.4) (16.8)
Loan repayment and return of equity from joint ventures 12.1 9.7 27.5
Acquisition of subsidiaries (0.9) - -
Net cash used in investing activities (8.2) (0.8) (2.0)
Cash flows from financing activities
Issue of shares net of associated transaction costs - (6.1) (6.1)
Issue of shares to non-controlling interest 0.3 0.6 0.6
Net purchase of own shares (11.9) (1.8) (7.0)
Interest paid (18.0) (11.9) (28.8)
Principal elements of lease payments (22.5) (16.4) (33.8)
Drawdown of borrowings 180.2 76.3 -
Repayment of borrowings (32.7) (41.1) (101.8)
Settlement of derivative financial instruments 4.0 7.5 7.5
Transactions with non-controlling interests (0.9) - -
Net cash from/(used in) financing activities 98.5 7.1 (169.4)
Increase/(decrease) in cash, cash equivalents and overdraft 17.8 (91.7) (97.4)
Effect of change in foreign exchange rates 1.2 0.6 3.9
Opening cash, cash equivalents and overdraft 297.7 391.2 391.2
Closing cash, cash equivalents and overdraft 11 316.7 300.1 297.7
Supplementary information
Adjusted cash flow from operating activities 3(e) (51.1) (93.6) 82.0
Financial statements
Notes to the condensed consolidated financial statements
For the period ended 31 December 2022
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 interim condensed consolidated financial statements (financial statements)
for the period ended 31 December 2022 comprise the Company and its
subsidiaries (together referred to as the Group) and the Group's interest in
jointly controlled entities.
The accounting policies adopted are consistent with those of the previous
financial year and corresponding interim reporting period.
Basis of preparation
The interim condensed consolidated financial statements for the half year
ended 31 December 2022 have been prepared in accordance with the UK-adopted
International Accounting Standard 34, 'Interim Financial Reporting' and the
Disclosure Guidance and Transparency Rules sourcebook of the United Kingdom's
Financial Conduct Authority.
The unaudited financial information contained in this announcement does not
constitute the Company's statutory accounts as at and for the six months ended
31 December 2022. Statutory financial statements for the year ended 30 June
2022 were approved by the Board of Directors on 14 September 2022 and
delivered to the Registrar of Companies. The auditor's report on these
accounts was unqualified, did not contain an emphasis of matter paragraph and
did not contain a statement under section 498 of the Companies Act 2006.
Going concern
The Directors continue to adopt the going concern basis in preparing the
Group's interim financial statements.
The Group performed well through the half year ended 31 December 2022 and
produced results in line with the Board's expectations.
As at 31 December 2022, the Group had £601.4m of unsecured committed
facilities (30 June 2022: £654.0m) and £18.0m of uncommitted overdrafts (30
June 2022: £18.0m). Following the repayment of the outstanding KEPS facility,
the Group had no uncommitted supply chain financing facilities at 31 December
2022 (30 June 2022: £49.8m).
Financial covenant certificates for December 2022 have been prepared with no
breaches noted. The Directors have reviewed the Group's cash flow forecasts
for the period to 30 June 2024, which are included in the Group's three-year
strategic plan, on the basis of certain key assumptions, including a number of
stressed but plausible downside scenarios and available mitigants under
management control.
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 over and above the Group's net zero carbon
commitment and waste reduction policies; and
· Plausible changes in the interest rate environment, noting the
fixed interest rate swaps currently in place.
The Board also considered the macroeconomic and geopolitical risks affecting
the UK economy, including the availability of labour, increased supply chain
costs and increased interest rates. 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% (30 June 2022: 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 downside scenario. The Directors also
consider that the risk associated with going concern remains low following
corporate actions taken in previous financial years and in light of the
Group's execution of its strategic milestones, its most recent trading
performance and latest forecasts, and the continued focus on improving
headroom over liquidity and covenant limits.
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 twelve
months from the date of approving these interim financial statements and, for
this reason, they continue to adopt the going concern basis in preparing these
interim financial statements.
Segmental reporting
The Group operates three divisions: Infrastructure Services, Construction and
Property, which is the basis on which the Group manages and reports its
primary segmental information. Corporate includes unrecovered overheads and
the charge for defined benefit pension schemes.
Segmental information is based on the information, which is provided to the
Chief Executive, together with the Board, who is the Chief Operating Decision
Maker. The segments are strategic business units with separate management and
have different core customers and offer different services.
The accounting policies of the operating segments are consistent across the
Group. The Group evaluates segmental information on the basis of profit or
loss from operations before adjusting items (see note 3), interest and tax
expense. The segmental results reported to the Chief Executive include items
directly attributable to a segment as well as those that can be allocated on a
reasonable basis.
2 Segmental reporting
Unaudited six months to 31 December 2022
Continuing operations Infrastructure Services Construction Property Corporate Group
£m
£m
£m
£m
£m
Revenue1
Group and share of joint ventures 815.6 709.0 10.8 1.2 1,536.6
Less share of joint ventures - (1.4) (9.4) - (10.8)
Group revenue 815.6 707.6 1.4 1.2 1,525.8
Profit for the period
Operating profit/(loss) before adjusting items2 33.8 32.8 4.7 (14.1) 57.2
Adjusting items2 (11.8) (7.2) (0.3) 0.4 (18.9)
Profit/(loss) from operations 22.0 25.6 4.4 (13.7) 38.3
Net finance income/(costs)3 0.3 (2.4) (0.2) (10.6) (12.9)
Profit/(loss) before tax 22.3 23.2 4.2 (24.3) 25.4
Taxation (5.0)
Profit for the period 20.4
Balance sheet
Operating assets4 927.6 417.6 180.1 348.5 1,873.8
Operating liabilities4 (417.4) (594.2) (14.1) (236.6) (1,262.3)
Net operating assets/(liabilities)4 510.2 (176.6) 166.0 111.9 611.5
Cash, cash equivalents and borrowings 267.8 342.5 (133.4) (616.6) (139.7)
Net financial assets - - - 10.8 10.8
Net assets/(liabilities) 778.0 165.9 32.6 (493.9) 482.6
Unaudited six months to 31 December 2021
Continuing operations Infrastructure Services Construction Property Corporate Group
£m
£m
£m
£m
£m
Revenue1
Group and share of joint ventures 777.1 680.9 75.6 2.6 1,536.2
Less share of joint ventures - (1.4) (52.6) - (54.0)
Group revenue 777.1 679.5 23.0 2.6 1,482.2
Profit for the period
Operating profit/(loss) before adjusting items2 32.9 26.3 10.4 (15.4) 54.2
Adjusting items2 (10.4) (13.5) (0.6) (4.4) (28.9)
Profit/(loss) from operations 22.5 12.8 9.8 (19.8) 25.3
Net finance income/(costs)3 0.5 (2.0) (1.2) (9.9) (12.6)
Profit/(loss) before tax 23.0 10.8 8.6 (29.7) 12.7
Taxation (2.7)
Profit for the period 10.0
Balance sheet
Operating assets4 911.3 427.4 162.4 397.1 1,898.2
Operating liabilities4 (385.7) (643.7) (15.9) (213.1) (1,258.4)
Net operating assets/(liabilities)4 525.6 (216.3) 146.5 184.0 639.8
Cash, cash equivalents and borrowings 257.8 333.0 (122.7) (606.6) (138.5)
Net financial assets - - - 7.8 7.8
Net assets/(liabilities) 783.4 116.7 23.8 (414.8) 509.1
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
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
(1 ) Revenue is stated after the exclusion of inter-segmental
revenue. Over 90% of the Group's revenue is derived from UK-based customers
(31 December 2021: 90%; 30 June 2022: 90%). 16% of the Group's revenue was
received from HS2 Limited (31 December 2021: 11% from National Highways, 30
June 2022: 11% from National Highways). 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:
Operating profit Profit before tax
Unaudited Unaudited six months to 31 December 2021 Year to 30 June Unaudited Unaudited six months to 31 December 2021 Year to 30 June
£m
£m
six months to 2022 six months to 31 December 2022 2022
£m
31 December 2022 £m £m
£m
Reported profit from continuing operations 38.3 25.3 45.1 25.4 12.7 15.9
Amortisation of acquired intangible assets 9.8 9.9 19.7 9.8 9.9 19.7
Restructuring and related charges 3.6 11.8 40.0 3.6 11.8 40.0
Other(1) 5.5 7.2 15.7 7.0 8.6 18.5
Adjusted profit from continuing operations 57.2 54.2 120.5 45.8 43.0 94.1
(1 ) Operating profit adjusting items exclude net financing costs of
£1.5m (six months ended 31 December 2021: £1.4m; year ended 30 June 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 Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
£m
£m
£m
Amortisation of acquired intangible assets 9 (9.8) (9.9) (19.7)
(b) Restructuring and related charges
The Group has incurred 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.
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
£m
£m
£m
Restructure of Regional Southern Build business - (6.0) (22.2)
Redundancy and other people related costs1 (3.7) (4.1) (6.5)
Professional adviser fees and other costs incurred implementing non-people (0.3) (0.3) (7.1)
initiatives2
Impairments and other costs relating to investment properties3 0.4 (1.4) (4.2)
Total charge before tax (3.6) (11.8) (40.0)
(1 ) The charge in the period includes £2.0m of costs incurred in
the re-sizing of the International operations. A further £1.7m relates to
roles made redundant as a result of the ongoing implementation of cost saving
programmes.
(2 ) This includes £1.4m of advisor fees in relation to non-people
activities incurred in the period. This is offset by a credit of £1.1m due
to a release of accrued costs no longer required.
(3 ) This consists of a credit of £1.0m in relation to rental income
and the movement in fair value of leased properties, offset by a write down of
£0.6m in relation to land at the Pure Recycling site.
(c) Other adjusting items
Other adjusting items are analysed below:
Unaudited Unaudited Year to
six months to 31 December 2022 six months to 31 December 2021 30 June
£m
£m
2022
£m
Net financing costs1 (1.5) (1.4) (2.8)
Legal compliance2 (5.5) (2.2) (8.8)
Recycling Plant impairment and associated costs - (5.0) (5.2)
Software impairment - - (2.2)
Pension credit - - 0.5
Total charge before tax (7.0) (8.6) (18.5)
(1 ) Net financing costs relate to IFRS 16 interest charges on
investment properties.
(2 ) During the period, the Group has incurred £4.0m of costs
complying with the updated fire compliance regulations. Of these amounts,
£1.7m was provided for at 31 December 2022. 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.
(d) Taxation
Adjusting items in respect of taxation are analysed below:
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
£m
£m
£m
Deferred tax credit as a result of the change in tax rate1 - - 5.1
Tax impact of adjusting items2 3.9 5.6 14.8
Other tax charges3 - - (3.6)
Total tax credit 3.9 5.6 16.3
(1 ) The change in tax rate from 19% to 25% led to a deferred tax
credit in the income statement in the prior year. This was a one-off event
that is out of the Group's control and so is considered to be an adjusting
item.
(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
Unaudited Unaudited Year to
six months to 31 December six months to 31 December 2021 30 June
£m
2022 2022
£m
£m
Reported cash (outflow)/inflow from operating activities (73.8) (109.2) 40.8
Add: Cash outflow from operating activities (adjusting items) 22.7 15.6 41.2
Adjusted cash (outflow)/inflow from operating activities (51.1) (93.6) 82.0
(f) Cash outflow from operating activities (adjusting items)
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
£m
£m
£m
Adjusting items reported in the income statement 20.4 30.3 78.2
Less: non-cash items incurred in the year (12.9) (17.9) (38.4)
Add: payment of prior year accruals and provisions 15.2 3.2 1.4
Cash outflow from operating activities (adjusting items) 22.7 15.6 41.2
4 Finance income and costs
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
£m
£m
£m
Finance income 0.1 - -
Bank deposits
Interest receivable on loans to related parties 0.5 0.3 0.7
0.6 0.3 0.7
Finance costs
Bank interest (11.9) (9.6) (18.9)
Interest payable on leases (4.7) (3.3) (6.5)
Forward funding interest - (0.5) (0.5)
Foreign exchange losses on foreign denominated borrowings (1.2) (1.9) (9.9)
Fair value gains on cash flow hedges recycled from other comprehensive 0.9 2.4 7.4
income(1)
Net interest on net defined benefit obligation 3.8 0.4 1.0
Other (0.4) (0.4) (2.5)
(13.5) (12.9) (29.9)
Net finance costs (12.9) (12.6) (29.2)
(1 ) Fair value gains/(losses) arise from movements in cross-currency
swaps which hedge the currency risk on foreign denominated borrowings.
5 Retirement benefit obligations
The principal assumptions used by the independent qualified actuaries are
shown below.
Unaudited Unaudited 30 June 2022
31 December 2022 31 December 2021 %
%
%
Discount rate 4.95 1.90 3.90
Inflation rate (Retail Price Index) 3.10 3.30 3.15
Inflation rate (Consumer Price Index) 2.60 2.75 2.65
The amounts recognised in the financial statements in respect of the Group's
defined benefit schemes are as follows:
Unaudited Unaudited Year to
six months to six months to 30 June
31 December 31 December 2022
2022 2021
Kier Acquired schemes Total Kier Acquired schemes Total Kier Acquired schemes Total
Group
£m
£m
Group
£m
£m
Group
£m
£m
£m
£m
£m
Opening net surplus/(deficit) 170.2 24.5 194.7 78.6 (32.4) 46.2 78.6 (32.4) 46.2
Credit/(charge) to income statement 3.3 0.5 3.8 0.7 (0.4) 0.3 1.5 (0.1) 1.4
Employer contributions 0.2 4.8 5.0 0.3 5.5 5.8 0.5 10.3 10.8
Actuarial (losses)/gains (64.4) (48.0) (112.4) 54.2 27.4 81.6 89.6 46.7 136.3
Closing net surplus/(deficit) 109.3 (18.2) 91.1 133.8 0.1 133.9 170.2 24.5 194.7
Comprising:
Fair value of scheme assets 888.7 413.2 1,301.9 1,339.1 679.1 2,018.2 1,048.0 509.0 1,557.0
Net present value of the defined benefit obligation (779.4) (431.4) (1,210.8) (1,205.3) (679.0) (1,884.3) (877.8) (484.5) (1,362.3)
Net surplus/(deficit) 109.3 (18.2) 91.1 133.8 0.1 133.9 170.2 24.5 194.7
Presentation of net surplus/(deficit) in the Consolidated balance sheet:
Retirement benefit assets 109.3 7.5 116.8 133.8 17.9 151.7 170.2 29.0 199.2
Retirement benefit obligations - (25.7) (25.7) - (17.8) (17.8) - (4.5) (4.5)
Net surplus/(deficit) 109.3 (18.2) 91.1 133.8 0.1 133.9 170.2 24.5 194.7
6 Taxation
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
£m
£m £m
Profit before tax 25.4 12.7 15.9
Add: tax on joint ventures included above 1.6 - 0.1
Profit before tax including joint ventures 27.0 12.7 16.0
Current tax (2.0) (2.1) (8.5)
Deferred tax (3.0) (0.6) 5.3
Total tax charge in the income statement (5.0) (2.7) (3.2)
Tax on joint ventures (1.6) - (0.1)
Total tax (including joint ventures) (6.6) (2.7) (3.3)
Effective tax rate 24.4% 21.3% 20.6%
The deferred tax asset includes £104.6m of tax losses (31 December 2021:
£108.9m; 30 June 2022; £105.6m) and £29.1m of other deferred tax assets and
liabilities (31 December 2021: £8.0m; 30 June 2022: £3.2m). The increase in
the net deferred tax asset is primarily due to actuarial losses on the defined
benefit pension scheme during the period.
At 31 December 2022, the Group had unused tax losses of £203.6m (31 December
2021: £203.6m; 30 June 2022; £203.6m).
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 so far 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 to support the 'levelling up'
agenda.
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 11 years (31 December 2021: 12 years, 30 June 2022: 10 years).
Income tax expense is recognised based on management's estimate of the
weighted average effective annual income tax rate expected for the full
financial year. The estimated average annual tax rate used for the year to 30
June 2023 is 24.82%, compared to 21.26% for the six months ended 31 December
2021. The tax rate was higher due to an increase in non-deductible expenses
and prior-year adjustments.
The Research and Development Expenditure Credit (RDEC) of £9.5m was included
in operating profit during the period (31 December 2021: £6.9m; 30 June 2022;
£20.7m). Included in the corporation tax asset at 31 December 2022 were RDEC
receivables of £16.9m (31 December 2021: £7.9m: 30 June 2022: £12.0m).
7 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 period (31 December 2021: £nil; 30 June 2022: £nil).
8 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 Unaudited Unaudited Year to 30 June
six months to six months to 31 December 2021 2022
31 December 2022 £m £m
£m
Continuing operations
Profit for the period 20.4 10.0 12.7
Less: non-controlling interest share 0.1 (0.4) -
Profit (after tax and minority interests), being net gains attributable to 20.5 9.6 12.7
equity holders of the parent (A)
Adjusting items (excluding tax) 3 20.4 30.3 78.2
Tax impact of adjusting items 3 (3.9) (5.6) (16.3)
Adjusted profit after tax (B) 37.0 34.3 74.6
b) Weighted average number of shares used as the
denominator
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
million million million
Weighted average number of shares used as the denominator in calculating basic 433.0 445.3 443.3
earnings per share (C)
Adjustments for calculation of diluted earnings per share
Impact of share options 4.2 13.6 11.8
Weighted average number of shares used as the denominator in calculating 437.2 458.9 455.1
diluted earnings per share (D)
The weighted average number of shares is lower than the number of shares in
issue (per note 13) primarily due to shares that are held by the Group's
employee benefit trusts (see note 14), which are excluded from the
calculation.
Options granted to employees under the Sharesave, Conditional Share Award 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 14.
c) Basic earnings per share
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
pence
pence pence
From continuing operations attributable to the ordinary equity holders of the 4.7 2.2 2.9
company (A/C)
Total basic earnings per share attributable to the ordinary equity holders of 4.7 2.2 2.9
the company
Adjusted from continuing operations attributable to the ordinary equity 8.5 7.8 16.8
holders of the company (B/C)
d) Diluted earnings per share
Unaudited Unaudited Year to 30 June
six months to 31 December 2022 six months to 31 December 2021 2022
pence
pence pence
From continuing operations attributable to the ordinary equity holders of the 4.7 2.1 2.8
company (A/D)
Total diluted earnings per share attributable to the ordinary equity holders 4.7 2.1 2.8
of the company
Adjusted from continuing operations attributable to the ordinary equity 8.5 7.5 16.4
holders of the company (B/D)
9 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 - - 0.6 0.6
Disposals - (7.2) (0.1) (7.3)
Transfers to property, plant and equipment - - (0.6) (0.6)
At 31 December 2021 538.8 252.2 132.7 923.7
Additions - - 0.1 0.1
Disposals - - (0.8) (0.8)
Transfers from property, plant and equipment - - 0.6 0.6
At 30 June 2022 538.8 252.2 132.6 923.6
Additions - - 0.3 0.3
At 31 December 2022 538.8 252.2 132.9 923.9
Accumulated amortisation and impairment
At 1 July 2021 (2.1) (155.7) (76.0) (233.8)
Charge for the period - (9.9) (3.5) (13.4)
Disposals - 7.2 - 7.2
At 31 December 2021 (2.1) (158.4) (79.5) (240.0)
Charge for the period - (9.8) (2.5) (12.3)
Impairment - - (2.2) (2.2)
At 30 June 2022 (2.1) (168.2) (84.2) (254.5)
Charge for the period - (9.8) (4.3) (14.1)
At 31 December 2022 (2.1) (178.0) (88.5) (268.6)
Net book value
At 31 December 2022 536.7 74.2 44.4 655.3
At 30 June 2022 536.7 84.0 48.4 669.1
At 31 December 2021 536.7 93.8 53.2 683.7
(1 ) Computer software mainly relates to the Group's ERP software and
is being amortised.
10 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 - 1.3 1.3
Fair value gain recognised in administrative expenses 3.4 0.6 4.0
At 31 December 2021 13.7 49.3 63.0
Additions - 1.2 1.2
Fair value loss recognised in administrative expenses (0.7) (3.1) (3.8)
At 30 June 2022 13.0 47.4 60.4
Additions 22.9 - 22.9
Fair value gain 5.7 0.3 6.0
At 31 December 2022 41.6 47.7 89.3
11 Net (debt)/cash
Unaudited Unaudited 31 December 2021 Year to 30 June
£m
31 December 2022 2022
£m £m
Cash and cash equivalents - bank balances and cash in hand 316.7 300.1 297.7
Borrowings due within one year (7.9) (32.6) (40.5)
Borrowings due after one year (448.5) (406.0) (266.5)
Impact of cross-currency hedging 9.1 7.2 12.2
Net (debt)/cash (130.6) (131.3) 2.9
Average month-end net debt for the six months ended 31 December 2022 was
£242.7m (six months ended 31 December 2021: £190.8m; year ended 30 June
2022: £216.1m). Net debt excludes lease liabilities.
12 Trade and other payables
Unaudited Unaudited 30 June
31 December 2022 31 December 2021 2022
£m
£m £m
Current:
Trade payables1 274.5 338.8 354.2
Sub-contract retentions 26.7 42.3 32.7
Other taxation and social security 127.4 106.3 122.1
Other payables 18.7 39.6 29.3
Accruals 439.1 407.2 527.4
886.4 934.2 1,065.7
Non-current:
Trade payables 9.4 14.5 11.0
Sub-contract retentions 24.7 21.4 23.1
34.1 35.9 34.1
(1 ) Included within the trade payables balance is £nil (31 December
2021: £69.3m; 30 June 2022: £49.8m) relating to payments due to suppliers
who are on bank-supported supply chain finance arrangements
13 Share capital and reserves
Share capital
The share capital of the Company comprises:
Unaudited Unaudited 30 June
31 December 31 December 2022
2022 2021
Number £m Number £m Number £m
Authorised, issued and fully paid ordinary shares of 1 pence each 446,305,548 4.5 446,206,186 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 six months to 31 December 2022, 63,866 shares were issued under the
Sharesave Scheme (six months to 31 December 2021: 40,487; year ended 30 June
2022: 75,983).
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.
14 Share-based payments
The Group has an established long-term incentive plan (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. 8,339,894
shares vested under the LTIP schemes during the six months to 31 December 2022
(six months to 31 December 2021 and year ended 30 June 2022: no share awards
vested). 15,492,751 new awards were granted under the LTIP during the six
months to 31 December 2022 (six months to 31 December 2021: 8,264,521; year
ended 30 June 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 Conditional Share Award Plan (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 also entitled to receive
dividend equivalents on these awards. No new awards were granted under the
CSAP during the six months to 31 December 2022 (six months to 31 December 2021
and year ended 30 June 2022: no awards granted) and no shares vested under
the CSAP during the six months to 31 December 2022 (six months to 31 December
2021 and year ended 30 June 2022: 650,951 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 six months to 31
December 2022 (six months to 31 December 2021 and year ended 30 June 2022:
7,943,643). 63,866 Sharesave options were exercised during the six months to
31 December 2022 (six months to 31 December 2021: 40,487; year ended 30 June
2022: 75,983).
The following assumptions were used in calculating the fair values of the
grants made under the share-based payment schemes during the six months to 31
December 2022:
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 six months to 31 December 2022 was £3.4m (six months to 31 December 2021:
£4.0m; year ended 30 June 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 six months to 31 December 2022 at a
cost of £12.4m (six months to 31 December 2021: £1.8m; year ended 30 June
2022: £7.5m), net of shares transferred to deferred bonus recipients for
proceeds of £0.5m (six months to 31 December 2021: nil; year ended 30 June
2022: £0.5m), are reflected in the statement of changes in equity as a
purchase of own shares.
At 31 December 2022, a total of 17,001,979 shares were held by the trusts (31
December 2021: 1,654,737 shares; 30 June 2022: 7,555,030 shares), with an
historic cost value of £11.2m (31 December 2021: £2.4m; year ended 30 June
2022: £7.7m).
15 Guarantees and contingent liabilities
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.
We recognise that Government guidance on the retrospective review of building
materials continues to evolve. 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 or if Government legislation and regulation further evolves.
16 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 5.
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