REG - Kier Group PLC - Results for the period ended 31 December 2023
07/03/2024 07:00
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RNS Number : 9052F Kier Group PLC 07 March 2024
7 March 2024
Kier Group plc
Results for the period ended 31 December 2023
Strong operational performance; Material debt reduction; Dividend resumed
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 2023 ("HY24" or the "period").
Highlights
(£m unless otherwise stated) Six months to Six months to Change
31 December 31 December
2023(1) 20221
Adjusted results
Revenue2 1,883 1,537 23%
Adjusted operating profit3 64.7 57.2 13%
Adjusted operating margin 3.4% 3.7% (30)bps
Adjusted profit before tax4 49.0 45.8 7%
Adjusted basic earnings per share (note 9) 8.7p 8.5p 2%
Net cash / (debt)5 17.0 (130.6) 113%
Average month-end net debt (136.5) (242.7) 44%
Statutory reported
Group revenue 1,862 1,526 22%
Profit from operations 44.1 38.3 15%
Profit before tax 27.0 25.4 6%
Basic earnings per share (note 9) 4.6p 4.7p (2)%
Interim dividend per share 1.67p - -
1 Continuing operations
2 Revenue of the Group and its share of revenue from joint ventures
3 Stated before adjusting items of £9.5m (HY23: £9.1m) and amortisation of
acquired intangible assets of £11.1m (HY23: £9.8m).
4 Stated before adjusting items of £10.9m (HY23: £10.6m) and amortisation of
acquired intangible assets of £11.1m (HY23: £9.8m).
5 Disclosed net of the effect of hedging instruments and excludes leases - see
note 13 to the preliminary financial statements.
HY24 Highlights
· Revenue growth and improved profitability driving material
deleveraging
o Revenue growth of 23% driven by Infrastructure Services and Construction
o Adjusted operating profit increased 13% to £64.7m (HY23: £57.2m)
o Adjusted operating margin at 3.4%, in-line with the medium-term target
o Adjusted basic EPS: 8.7p (HY23: 8.5p), up 2%
o Reported profit from operations increased 15% to £44.1m (HY23: £38.3m)
o Free Cash Flow of £(7.9)m materially improved over the prior period (HY23
£(87.8)m) following a strong Q1 performance
o Net cash at period-end of £17.0m, significantly higher than prior
period-end (HY23: net debt (£130.6m)
o Average month-end net debt materially reduced by £106.2m to £(136.5m)
· Resumption of dividends, with an interim dividend declared of 1.67p
per share
· High quality order book, increased 6% to £10.7bn (FY23: £10.1bn)
providing significant visibility
o 97% of expected FY24 revenue secured
· Acquisition of Buckingham Group's rail assets fully integrated into
the business and performing ahead of expectations as at the time of the
transaction
· Successful refinancing post period-end providing long-term debt
facilities and a strengthened maturity profile
· Sustainability strategy on track to deliver ESG targets
Andrew Davies, Chief Executive, said:
"The past two and a half years have seen the Group achieve significant
operational and financial progress and I am delighted that today marks a
return to paying dividends. The first half has seen the Group deliver strong
volume and profit growth, increased orders and material deleveraging. This
is testament to the hard work and commitment of our people who have enhanced
our resilience and strengthened our financial position in line with the
objectives set out in our medium-term value creation plan. Our order book
remains strong at £10.7bn and provides us with good, multi-year revenue
visibility. The contracts within our order book reflect the bidding discipline
and risk management now embedded in the business. I am also particularly
pleased to report that the Group significantly improved upon its year-end net
cash position with significantly lower average month-end net debt and has
confidence in sustaining this momentum going forward.
The second half of the financial year has started well, and we are trading
in-line with expectations. The Group is well positioned to continue benefiting
from UK Government infrastructure spending commitments and we are confident in
sustaining the strong cash generation achieved over the last 18 months,
allowing us to continue to significantly deleverage the Group. We remain
committed to delivering our medium-term value creation plan which will benefit
all stakeholders."
HY24 Results Presentation
Kier Group plc will host a presentation for analysts and investors at 9:00am
on 7 March 2024 at the offices of FTI Consulting, 200 Aldersgate Street,
London EC1A 4HD.
Analysts wishing to attend should contact FTI Consulting to register -
Connie.Gibson@fticonsulting.com (mailto: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/65c25190d0d52012009b361c/aerz
United Kingdom (Local): +44 20 3936 2999
United Kingdom (Toll-Free): +44 800 358 1035
Conference password: 010525
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
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 2023 for a discussion of the factors that could affect the Group's
future performance and the industry in which it operates. Following a review
by the Board of these risks, the Climate Change principal risk has been
replaced with a Sustainability principal risk 'Failure to identify and
effectively manage sustainability risks and opportunities' which incorporates
climate change and environmental incidents and aligns with Kier's Building for
a Sustainable World strategy. Subject to this change 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 X (formerly Twitter): @kiergroup
Connect with us on LinkedIn: Kier Group
Introduction
The Group has delivered a strong set of results for the six months to 31
December 2023. The material deleveraging is a clear demonstration of the
Group's commitment to our medium-term value creation plan launched two and a
half years ago.
At the last year end, we committed to recommence dividend payments once we had
clear line-of-sight of operating with a sustainable average month-end net cash
position, alongside an appropriate longer term debt structure.
Following the period end we completed a Senior Notes issue and combined with
an extended Revolving Credit Facility ("RCF"), have secured a long-debt debt
structure for the Group. Given the considerable progress Kier has made and the
Board's confidence in the Group's prospects, an interim dividend of 1.67p per
share has been declared - returning Kier to the dividend list.
The success for future years is underpinned by the year-end order book growing
to £10.7bn in HY24, an increase of 6% against the prior year comparative,
reflecting a large number of contract wins across Infrastructure Services and
Construction as well as providing multi-year revenue visibility. Long-term
framework positions, as well as pipeline opportunities and income from the
Property division, are excluded from the order book and represent an
additional opportunity. Given the order book strength and Kier's framework
positioning, approximately 97% of Group revenue for FY24 is already secured
which provides us with a high degree of confidence of further progress against
a backdrop of wider market uncertainty.
During the period, Kier won new, high quality and profitable work in our
markets reflecting the bidding discipline and risk management embedded in the
business.
Medium-term value creation plan
The Group is focused on delivering its medium-term targets over a three to
five year period:
Revenue: £4.0bn - £4.5bn
Adjusted operating profit margin: c.3.5%
Cash conversion of operating profit: c.90%
Balance sheet: Sustainable net cash position with capacity to invest
Dividend: Sustainable dividend policy: c.3 x earnings cover through the cycle
The Group aims to achieve these medium-term targets through:
· volume growth and improved contract profitability;
· continued management discipline; and
· deploying additional capital in the Property business.
The Group continues to make good progress against these targets with free
cashflow conversion and profit margins met consistently over the past
reporting period. Despite political and economic uncertainties, our core
markets have remained favourable. We are a "strategic supplier" to the UK
Government and c.93% of our contracts are with the public sector and regulated
companies.
Customers and winning new work
We remain focused on winning work through our long-standing client
relationships and regionally based operations.
Highlights include:
· Infrastructure services: appointed a place on the £3bn SCAPE
Utilities Framework aimed at delivering utilities, civil infrastructure and
transportation services work
· Construction: awarded five education projects worth a total of
c.£182m, four healthcare projects worth c.£81m, and awarded a new houseblock
for the Ministry of Justice at HMP Elmley worth over £100m
· Property: our Kier Property and Housing Growth Partnership ("HGP")
joint venture, acquired a development site in Tunbridge Wells, and Kier
Property sold its Logistics City scheme in Whiteley, Hampshire for £10.5m
Strategy
The Group's strategy continues to be focused on:
· UK Government, regulated industries and blue-chip customers;
· operating in the business-to-business market; and
· contracting through long-term frameworks.
Our core businesses are well-placed to benefit from the UK Government spending
commitments to invest in infrastructure and the significant investment plans
announced by regulated UK asset owners. We have secured places on the
long-term frameworks through which much of the increased spend will be
deployed.
This, combined with our regional coverage, customer relationships and project
management expertise, will enable our strategic actions of disciplined growth,
consistent delivery and strong cash generation.
Financial summary
Kier's revenue in the period of £1.9bn (HY23: £1.5bn) reflects strong growth
across Infrastructure Services and Construction. In particular, the strong
momentum seen towards the end of FY23 in Construction continued into HY24.
The Group's HY24 results reflect 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 as well as through procurement
strategies and negotiations on fixed price contracts. With over 400 live
projects at any given time, we are also regularly delivering on existing
contracts and pricing new contracts which mitigates against cost pressures. In
addition, we have an average order size of c.£20m in our Construction
business which given its modest size, limits our risk exposure in the event a
project does not go to plan.
The Group delivered adjusted operating profit of £64.7m which represents a
13.1% increase on the prior period (HY23: £57.2m). Both our Infrastructure
Services and Construction segments performed well in the period supplemented
with a contribution from Property. Group adjusted operating profit margin
fell by 30 basis points to 3.4% (HY23: 3.7%) due to the growth in volumes of
the lower margin Construction business. Reported profit from operations
increased 15.1% to £44.1m (HY23: £38.3m).
Adjusted earnings per share increased 2.4% to 8.7p (HY23: 8.5p) and reported
earnings per share reduced 2.1% to 4.6p (HY23: 4.7p) due to increased
amortisation and corporation tax offsetting profitable volume growth.
The Group generated £(7.9)m of free cash flow in HY24 (HY23: £(87.8)m), a
significant improvement over the prior year comparative. The Group's revenue
growth in Infrastructure Services and Construction converted to increased
profit and cash.
The Group's net cash position at 31 December 2023 was £17.0m (HY23: net debt
£(130.6)m) despite reducing supplier payment days by 1 day to 33 as the
strong volume growth translates into cash receipts.
Average month-end net debt for the period ended 31 December 2023 was
£(136.5)m (HY23: £(242.7)m). As noted above the increased activity seen
across the Group which started in Q4 FY23 has translated into cash generation
and lower net debt as well as allowing us to deploy cash to our Property
business and paying pension deficit obligations.
During the period, the Group repaid £1.4m of its US Private Placement
("USPP") Notes in line with its repayment schedule and the Group's RCF reduced
by £20.0m in-line with the facility agreement.
In February 2024, we announced the completion of our £250m 5 year Senior
Notes. The proceeds of which were used to further reduce our USPP Notes by
£36m and lower the RCF to £261m. These revised long-term debt facilities
completed the last stage of the Group's recapitalisation and provides us with
both flexibility and optionality going forward whilst we continue to
deleverage.
Capital allocation
In addition to the medium-term value creation plan, the Group has clear
capital allocation priorities. The Group maintains a disciplined approach to
capital and continuously reviews capital allocation priorities with the aim of
maximising shareholder returns. The Group's capital allocation is underpinned
by its commitment to maintain a strong balance sheet. The capital priorities
are:
· Capex - investment to support its businesses
· 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
· Property - disciplined non-speculative investment in the Property
segment
· Dividend - the reinstatement of the dividend is key to ensuring
that shareholders share the benefits of the Group's growth. In the
medium-term, the Group is targeting a dividend cover of around three times
through the cycle
· Mergers and acquisitions - the Group will consider value
accretive acquisitions in core markets where there is potential to accelerate
the medium-term value creation plan
Dividend
The importance of dividends to the Group's shareholders has always been
recognised by the Board and was an important facet of the medium-term value
creation plan launched during FY21. Our stated aim is to deliver a dividend,
covered c.3x by adjusted earnings over the cycle and in a payment ratio of
approximately one-third interim dividend and two thirds final dividend.
The Group has continued to deliver strong operating and financial performance
resulting in material deleveraging during the period. This significant
improvement, combined with the strength of the order book and future prospects
of the Group have resulted in the Board declaring an interim dividend of 1.67p
per share. This represents a dividend cover of 4x as we progressively move to
the medium-term target. The interim dividend will be paid on 31 May 2024 to
shareholders on the register at close of business on 19 April 2024. The shares
will be marked ex-dividend on 18 April 2024. Kier has a Dividend Reinvestment
Plan ("DRIP"), which allows shareholders to reinvest their cash dividends in
our shares. The final election date for the DRIP is 9 May 2024.
Acquisition
On 4 September 2023, Kier agreed to acquire substantially all of the rail
assets of Buckingham Group Contracting Limited ("in Administration") and their
HS2 contract supplying Kier's HS2 joint venture, Eiffage Kier Ferrovial BAM
("EKFB"), for a total cash consideration of £9.4m.
The Group has previously stated it would consider value accretive acquisitions
in core markets where there is potential to accelerate the medium-term value
creation plan. This is an excellent example of an acquisition which provides a
cultural fit as well as accelerating Kier's broader rail strategy. The rail
assets consisted of design, build and project integration contracts for a
range of customers including Network Rail.
As part of the acquisition, Kier achieved positions on various frameworks and
projects including, the Control Period 6 ("CP6") North West & Central
framework for Network Rail, Transport for Greater Manchester ("TfGM")
framework, Transport for Wales ("TfW") framework, West Midlands Combined
Authority: Willenhall & Darlaston Project, East Midlands Railway: Etches
Park Project and Nexus' Whitley Bay Project.
The acquisition has been successfully integrated into the Group's
Transportation business and is performing ahead of expectations compared to
the time of the transaction.
Performance Excellence
Through our Performance Excellence culture, which was introduced in 2020, Kier
has embedded a strong operational and financial risk management framework
across the Group. It is essential to, and embedded into, Kier's contract
selection and delivery processes.
The Group's focus for FY24 is Digital and Simplification as we continuously
improve the operational performance of the business. The key tenets are as
follows:
· Site set-up - standardisation of site offices and enhancing site
connectivity
· Health, safety and wellbeing - simplifying health and safety,
data and sharing best practice
· Quality assurance - improving capability and digital tools
· Functions - simplifying processes and enhancing current systems
Supply chain partners
We continue to focus on maintaining and growing relationships with our key
stakeholders, including our supply chain. Many of our suppliers are long-term
partners of the Group and we value their contribution.
We were pleased to report that, in our latest Duty to Report on Payment
Practices and Reporting submission, covering the period from 1 July 2023 to 31
December 2023, the Group's aggregate average payment days improved to 33 days
(H2 FY23: 34 days) and the percentage of payments made to suppliers within 60
days was 88% (H2 FY23: 85%).
We are committed to further improvements in our payment practices and continue
to work with both customers and suppliers to achieve this. We are fully
committed to complying with the 30-day payment requirements for small and
medium-sized firms.
Environmental, Social and Governance ("ESG")
Kier's purpose is to sustainably deliver infrastructure which is vital to the
UK. As a "strategic supplier" to the UK Government, ESG is fundamental to our
ability to win work and secure positions on long-term frameworks. UK
Government contracts with a value of or above £5m require net zero carbon and
social value commitments.
Our evolved Building for a Sustainable World framework continues to cover
sustainability from both an environment and social perspective with a focus on
the three key pillars of Our People, Our Places and Our Planet. Our
framework follows the guiding principles of the 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 February 2024, Kier was provided the London Stock Exchange Green Economy
Mark. In order to obtain the Green Economy Mark, Kier was able to demonstrate
that over 50% of our revenue was derived from green products and services
in-line with the FTSE Russell Green Revenues Classification System. Climate
change has led to increased demand in Kier's end markets.
The Group is also pleased that the successful implementation of its Carbon
Reduction Plan has been recognised by the Science Based Targets Initiative
("SBTi") including our target to achieve net zero carbon across scopes 1, 2
and 3 by 2045.
In addition, our Infrastructure Services and Construction segments received
certification to PAS 2080, the leading standard for carbon management
solutions in buildings and infrastructure development. This demonstrates
Kier's commitment to designing and managing out carbon from the lifecycle of
UK infrastructure projects that we deliver for our customers.
The combined achievements represent a key milestone in the Group's ESG
strategy as Kier continues in its aim to deliver sustainable infrastructure
which is vital to the UK whilst operating as a responsible business in itself.
· Social
Delivering a legacy of social value continues to be a key priority for our
customers and for Kier. We continue to offer apprenticeships as a key means of
upskilling employees and bringing in diverse emerging talent to reduce the
industry skills gap.
At 31 December 2023, we had over 720 apprentices employed within Kier, which
equates to 7% of our workforce. In addition, c.9% of the workforce are on a
formal learning programme. These statistics represent an increase of 30% and
17% respectively compared with HY23.
As part of our drive to recruit diverse talent, Kier has placed 23 prison
leavers and eight Released on Temporary Licence ("ROTL") candidates in
employment either within our business or with our supply chain partners in the
first half of the year. Kier also remains committed to offering employment
opportunities to those who have served in our armed forces and has hired 24
veterans in the same period.
The Group's 12-month rolling Accident Incident Rate ("AIR") at HY24 of 108
represents a 23% increase on FY23. The 12-month rolling All Accident Incident
Rate ("AAIR") at HY24 of 301 represents a 6% reduction compared to HY23.
Whilst we are disappointed with the AIR performance, we remain focused on
improving it. Accordingly, we are targeting a 10% reduction in this metric and
have implemented a series of initiatives to address this including:
· Culture Programme - continued roll out of the programme and alignment
of our Behavioural Safety Programmes; and
· Sharing Best Practice - the instigation of regular forums for our
project leads, where key safety learnings and initiatives are discussed and
shared
Despite the recent AIR performance, we retain a strong overall safety record
and maintain highest standards in our industry. Safety remains our license to
operate and we continue to share and embed best practice across our divisions.
· Governance
Governance remains a core component of the Group's approach to operations. The
Group monitors governance matters through our annual audits and operating risk
framework.
Summary and outlook
The past two and a half years have seen the Group achieve significant
operational and financial progress and I am delighted that today marks a
return to the dividend list. The first half has seen the Group deliver strong
volume and profit growth, increased orders and material deleveraging. This is
testament to the hard work and commitment of our people who have enhanced our
resilience and strengthened our financial position in line with the objectives
set out in our medium-term value creation plan. Our order book remains strong
at £10.7bn and provides us with good, multi-year revenue visibility. The
contracts within our order book reflect the bidding discipline and risk
management now embedded in the business. I am also particularly pleased to
report that the Group significantly improved upon its year-end net cash
position with significantly lower average month-end net debt and has
confidence in sustaining this momentum going forward.
The second half of the financial year has started well, and we are trading
in-line with expectations. The Group is well positioned to continue benefiting
from UK Government infrastructure spending commitments and we are confident in
sustaining the strong cash generation evidenced over the last 18 months
allowing us to significantly deleverage the Group and deliver the medium-term
value creation plan which will benefit all stakeholders.
Operational Review
Infrastructure Services
Six months to 31 December 2023 Six months to 31 December 2022 Change
Revenue (£m) 944 816 16%
Adjusted operating profit (£m)6 44.0 33.8 30%
Adjusted operating margin (%) 4.7% 4.1% 60bps
Reported operating profit (£m) 32.4 22.0 47%
Order book (£bn) 6.7 5.8 16%
6 Stated before adjusting items of £(11.6)m (HY23: £(11.8)m).
· Key contract wins include:
o appointed a place on the £3bn SCAPE Utilities Framework aimed at
delivering utilities, civil infrastructure and transportation services work
· 96% of orders secured for FY24
Infrastructure Services revenue increased 16% against the prior period
primarily due to the continued ramp up of capital works on HS2. Adjusted
operating profit increased 30% to £44.0m due to higher HS2 volumes. Adjusting
items largely relate to acquisition related activity including costs related
to the Buckingham acquisition and the amortisation of contract rights from
this and previous acquisitions.
The Transportation business division provides design, engineering, delivery
and maintenance to support the movement of people, goods and equipment by
land, sea and air. It includes our highways business and infrastructure
projects business relating to rail, ports and air including our EKFB joint
venture which is delivering 80km of HS2. The business has benefited from the
start of contracts won in previous periods, the continued successful delivery
of assets for HS2 and the delivery of contracts acquired from Buckingham.
The Natural Resources, Nuclear & Networks division includes our water,
energy, nuclear and networks projects. The business is well positioned to
benefit from the anticipated increased opportunities afforded by the new water
spending cycle, AMP8 programme as well as opportunities in the energy and
environment sectors. During the period, we saw reduced activity and margins in
telecoms due to market conditions.
Construction
Six months to 31 December 2023 Six months to 31 December 2022 Change
Revenue (£m) 915 709 29%
Adjusted operating profit (£m)7 33.2 32.8 1%
Adjusted operating margin (%) 3.6% 4.6% (100)bps
Reported operating profit (£m) 25.1 25.6 (2)%
Order book (£bn) 4.0 4.3 (7)%
7 Stated before adjusting items of £(8.1)m (HY23: £(7.2)m)
· Key contract wins include:
o Five education projects worth a total of c.£182m,
o Four healthcare projects worth c.£81m; and
o Awarded a new houseblock for the Ministry of Justice at HMP Elmley worth
over £100m
· 99% of orders secured for FY24
The Construction segment comprises Regional Building, Strategic Projects and
Kier Places (including Housing Maintenance, Facilities Management and
Environmental Services). Construction has national coverage delivering
schools, hospitals, defence, custodial facilities and amenities centres for
local authorities, councils and the private sector.
Revenue increased 29% largely due to increased volume in our regional build
business.
Adjusted operating profit increased 1% to £33.2m driven by increased revenue.
The reduction in margin was driven by mix and increased overheads for site
starts, as anticipated. Adjusting items include £7.2m relating to fire and
cladding compliance costs.
As a regional contractor, we continue to be well placed to benefit from the UK
Government's focus on spending to improve under-invested assets such as
schools, hospitals and custodial services, where our Construction business has
specialist expertise.
Our Kier Places consists of facilities management and housing maintenance
services. The facilities management business specialises in working in
occupied properties including residential and offices delivering maintenance,
repairs, fire safety and compliance services, predominantly for the Ministry
of Justice and central Government. The housing maintenance business delivers
repairs and maintenance services for local authorities. We continue to grow
our capabilities and customers with a focus on decarbonising social housing
through retrofit and other interventions. These have allowed the business to
benefit from increased revenue volume and profitability.
Property
Six months to 31 December 2023 Six months to 31 December 2022 Change
Revenue (£m) 22.1 10.8 105%
Adjusted operating profit (£m) 8 4.6 4.7 (2)%
Adjusted operating margin (%) 20.8% 42.7% 2,190bps
Reported operating profit (£m) 4.6 4.4 5%
Capital employed (£m) 163 148 10%
ROCE (%) 5.9% 7.0% (110)bps
8 Stated before adjusting items of £nil (HY23: £(0.3)m)
· Our Kier Property and Housing Growth Partnership ("HGP") joint
venture, acquired a development site in Tunbridge Wells
· Sold its Logistics City scheme in Whiteley, Hampshire for £10.5m
The Property business invests and develops primarily mixed-use commercial and
residential schemes across the UK. The business is a well-established urban
regeneration and property developer and largely operates through joint
ventures and does not make speculative investments.
Adjusted operating profit of £4.6m during the period was driven by limited
transaction activity as a result of difficult market conditions. Property
recognised a fair value gain of £3.8m within other income related to two
sites that are held as investment properties.
As previously stated, 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 had previously limited the amount of
capital employed in our Property segment to £170m, excluding third party debt
and fair value gains.
However, the property market is showing tentative signs of recovery and the
Group is currently seeing many attractive investment opportunities. As at 31
December 2023, the capital employed in the Property segment was £163m
excluding third party debt and fair value gains. Due to the Group's increased
operating cash flows, the benefit of building out projects such as 19 Cornwall
Street in Birmingham and market conditions, we have reviewed the capital
employed in our Property segment and increased the range to between £160m and
£225m (previously £140m to £170m).
The Property division targets a return on capital employed of 15%. Property
transactions also provide a source of capital for the future as the cash is
recycled.
Corporate
Six months to 31 December 2023 Six months to 31 December 2022 Change
Adjusted operating loss (£m) 9 (17.1) (14.1) (21)%
Reported operating loss (£m) (18.0) (13.7) (31)%
9 Stated before adjusting items of £(0.9)m (HY23: £0.4m)
The Corporate segment comprises the costs of the Group's central functions
which have increased over the prior period due to investment in people and
culture to support the Group's growth.
Financial Review
Introduction
The Group performed well through the first half of the year with further
improvement in the order book, which has been converted into strong revenue
and profit growth in both Construction and Infrastructure Services. The
Group's focus on operational delivery and cash management has seen the Group
continue to deleverage materially with average month-end net debt improving
significantly. In February 2024, the Group completed a refinancing of its
principal debt facilities and has secured significant committed funding to
support its medium-term value creation plan. Given the strong operational and
financial performance, together with continued confidence over further
progress in the future, the Board is pleased to reinstate dividends.
The Group delivered strong volume growth of 23% giving total Group revenues of
£1,882.9m (HY23: £1,536.6m, FY23: £3,405.4m) and which helped deliver an
adjusted operating profit of £64.7m (HY23: £57.2m, FY23: £131.5m).
The continued strong operational performance led to a 15% increase in profit
from operations to £44.1m (HY23: £38.3m, FY23: £81.5m) and an increase in
profit before tax to £27.0m (HY23: £25.4m, FY23: £51.9m).
Adjusting items were £22.0m (HY23: £20.4m, FY23: £52.9m). The current
period charge includes £11.1m of amortisation of intangible contract rights
and £7.2m of fire and cladding compliance costs. As expected, the Group's
restructuring activities are now complete and no further restructuring costs
have been incurred in adjusting items in the period.
Net finance charges, excluding adjusting items, for the period were £15.7m
(HY23: £11.4m, FY23: £26.7m), with the benefit of lower average month-end
net debt offset by higher interest rates through the period. Net finance
charges are expected to increase with the completion of the Group's
refinancing in February 2024. Interest on the RCF facility remains at SONIA
plus c.2.5%, whilst the USPP notes incur fixed interest at c.5%.
Adjusted earnings per share increased to 8.7p (HY23: 8.5p, FY23: 19.2p).
The Group experienced a free cash outflow of £7.9m during the period,
significantly improved from the prior period (HY23: £87.8m outflow, FY23:
£132.3m inflow) driven by continued disciplined working capital management
and assisted by volume growth, particularly in Construction. Although there
was an expected H1 working capital outflow, this was significantly reduced
compared with the prior period. The prior period free cash outflow included
the repayment of the supply chain facility ("KEPS") of £49.8m.
Out of its free cashflow, the Group paid for the Buckingham acquisition,
adjusting items, and pension deficit obligations. Net cash at 31 December 2023
of £17.0m was significantly improved compared to the prior period (HY23:
£(130.6)m, FY23: £64.1m).
Average month-end net debt for the period ended 31 December 2023 was
£(136.5)m (HY23: £(242.7)m, FY23 £(232.1)m), reduced significantly from the
prior period and the prior year end.
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 £10.7bn, a 6% increase since the year-end
(HY23: £10.1bn, FY23: £10.1bn). 97% of revenue for FY24 is already secured
which provides certainty for the full year.
Summary of financial performance
Adjusted10 results Statutory reported results
31 Dec 31 Dec Change 31 Dec 31 Dec Change
2023 2022 % 2023 2022 %
Revenue (£m) - Total 1,882.9 1,536.6 22.5 1,882.9 1,536.6 22.5
Revenue (£m) - Excluding JV's 1,862.1 1,525.8 22.0 1,862.1 1,525.8 22.0
Profit from operations (£m)( ) 64.7 57.2 13.1 44.1 38.3 15.1
Profit before tax (£m) 49.0 45.8 7.0 27.0 25.4 6.3
Earnings per share (p) 8.7 8.5 2.4 4.6 4.7 (2.1)
Free cash flow (£m) (7.9) (87.8) 91.0
Net cash / (debt) (£m) 17.0 (130.6) 113.0
Net debt (£m) - average month-end (136.5) (242.7) 43.8
Order book (£bn) 10.7 10.1 5.9
10 Reference to 'Adjusted' excludes adjusting items, see note 3.
Revenue
The following table bridges the Group's revenue from the period ended 31
December 2022 to the period ended 31 December 2023.
£m
Revenue for the period ended 31 December 2022 1,536.6
Infrastructure Services 128.8
Construction 206.4
Property and Corporate 11.1
Revenue for the period ended 31 December 2023 1,882.9
The Group grew revenue across all segments, with Construction reporting
revenue growth of 29.1% compared to the prior period and Infrastructure
Services reporting revenue growth of 15.8% for the same period.
On 4 September 2023, the Group acquired substantially all of the rail assets
of Buckingham Group Contracting Limited from administration. The acquisition
has been successfully integrated into the Group's Transportation business,
within Infrastructure Services.
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 2022 57.2
Volume / price / mix changes 6.1
Management actions 5.4
Cost inflation (4.0)
Adjusted operating profit for the period ended 31 December 2023 64.7
A reconciliation of reported to adjusted operating profit is provided below:
Operating profit Profit before tax
31 Dec 31 Dec 31 Dec 31 Dec
2023 2022 2023 2022
£m
£m
£m £m
Reported profit 44.1 38.3 27.0 25.4
Amortisation of acquired intangible assets 11.1 9.8 11.1 9.8
Fire and cladding compliance costs 7.2 4.0 7.2 4.0
Legacy legal claims 1.1 1.5 1.1 1.5
Net financing costs - - 1.4 1.5
Redundancy and other people-related costs - 1.7 - 1.7
Professional fees and other non-people initiatives - 0.3 - 0.3
Other 1.2 1.6 1.2 1.6
Adjusted profit 64.7 57.2 49.0 45.8
Additional information about these items is as follows:
· Amortisation of acquired intangible
assets £11.1m (HY23: £9.8m):
Comprises the amortisation of acquired contract rights primarily through the
acquisitions of MRBL Limited (Mouchel Group), May Gurney Integrated Services
plc, McNicholas Construction Holdings Limited and the Buckingham Group. The
increase compared to prior period is due to the acquisition of the rail assets
of the Buckingham Group during the period.
· Fire and cladding compliance costs £7.2m (HY23: £4.0m):
The Group continues to review 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 charge incurred in the period is for those projects where the Group has
confirmed liability and has a reasonable estimate of the cost to rectify the
issues identified.
· Legacy legal claims £1.1m (HY23: £1.5m) and Other £1.2m
(HY23: £1.6m):
Legacy legal claims in the period relate to the disposal of Kier Living in May
2021. Included within other are legal fees and implementation costs in respect
of the Buckingham acquisition, along with costs associated with the
down-sizing of the International business. These were offset by fair value
movements and associated costs relating to vacated leased properties.
Earnings per share
Earnings per share ("EPS"), before adjusting items, amounted to 8.7p (HY23:
8.5p, FY23: 19.2p). EPS, after adjusting items, from continuing operations
amounted to 4.6p (HY23: 4.7p, FY23: 9.5p).
Finance income and charges
The Group's finance charges include interest on the Group's bank borrowings
and finance charges relating to leases recorded under IFRS 16.
Net finance charges for the period were £15.7m (HY23: £11.4m, FY23: £26.7m)
before adjusting items of £1.4m (HY23: £1.5m, FY23: £2.9m).
Interest on bank borrowings amounted to £14.7m (HY23: £11.9m, FY23:
£29.0m). Although average month-end net debt has decreased, the impact of
this on the interest charge has been more than offset by the higher interest
rates throughout the period. The Group was able to partially mitigate the risk
of higher interest rates with a fixed interest rate swap of £100m, which
expired in September 2023, and an additional 3 year fixed interest rate swap
of £100m, taken out in February 2023, which reduces to £75m in its second
year and £50m in its third year.
Lease interest was £4.8m (HY23: £4.7m, FY23: £9.5m).
The Group had a net interest credit of £2.8m (HY23: £3.8m, FY23: £7.8m) in
relation to the defined benefit pension schemes which has arisen due to the
combination of the 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).
Dividend
The Board recognises the importance of a sustainable dividend policy to
shareholders. Given the strong operational and financial performance in FY23
and throughout HY24, together with continued confidence over further progress
in the short-term, the Board believes that now is the appropriate time to
reinstate dividends.
Over time, the Board's target is to progress to deliver a dividend, covered
c.3x by adjusted earnings and in a payment ratio of approximately one-third
interim dividend and two thirds final dividend.
As a result, the Board has declared an interim dividend of 1.67p per share.
Balance sheet
Net assets
The Group had net assets of £517.1m at 31 December 2023 (HY23: £482.6m,
FY23: £513.0m).
Goodwill
The Group held intangible assets of £645.5m (HY23: £655.3m,
FY23: £645.0m) of which goodwill represented £540.9m (HY23: £536.7m,
FY23: £536.7m). The increase in goodwill in the period is due to the
Buckingham acquisition. No impairment triggers were identified in the period.
Deferred tax asset
The Group has a deferred tax asset of £128.6m recognised at 31 December
2023 (HY23: £133.7m, FY23: £128.8m) primarily due to historical losses.
Based on the Group's forecasts, it is expected that the deferred tax asset
will be utilised over a period of approximately 10 years.
An adjusted tax credit of £4.1m (HY23: £3.9m, FY23: £9.1m) has been
included within adjusting items, representing the tax impact of adjusting
items.
Right-of-use assets and lease liabilities
At 31 December 2023, the Group had right-of-use assets of £94.8m (HY23:
£122.0m, FY23: £105.4m) and associated lease liabilities
of £173.9m (HY23: £197.9m, FY23: £182.6m). The movements at each
balance sheet date, reflect operational equipment requirements less associated
depreciation and lease repayments.
Investment properties
As at 31 December 2023, the Group had investment properties of £102.2m (HY23:
£89.3m, FY23: £98.4m). The Group has long-term leases on two office
buildings which were formerly utilised by the Group that have been vacated and
are now leased out (or intended to be leased out) to third parties under
operating leases, as well as two freehold properties no longer used by the
business that are being held for capital appreciation. These are all held as
investment properties.
In addition, the Group's Property business invests and develops primarily
mixed-use commercial and residential schemes and sites across the UK. Two of
these sites are held as investment properties and during the period the Group
recognised an overall fair value gain of £3.8m across these sites which has
been recognised in Other income.
Contract assets & liabilities
Contract assets represents the Group's right to consideration in exchange for
works which have already been performed. Similarly, a contract liability is
recognised when a customer pays consideration before work is performed. At 31
December 2023, total contract assets amounted to £323.1m (HY23: £336.5m,
FY23: £401.9m).
Contract liabilities were £119.2m (HY23: £73.3m, FY23: £90.5m).
Retirement benefits obligation
Kier operates a number of defined benefit pension schemes. At 31 December
2023, the reported surplus, which is the difference between the aggregate
value of the schemes' assets and the present value of their future
liabilities, was £96.4m (HY23: £91.1m, FY23: £104.5m), before accounting
for deferred tax, with the movement in the period primarily as a result of
actuarial losses of £15.1m (HY23: £112.4m losses, FY23: £107.8m losses).
The net movement is due to changes in financial assumptions, with lower
corporate bond yields, increasing pension schemes' liabilities, which has been
partially offset by both higher than assumed asset returns and a change in
demographic assumptions, which has led to a decrease in the schemes'
liabilities.
In FY23, the Group agreed the triennial valuation for funding six of its seven
defined benefit pension schemes. Given the Group's improved covenant and
payments made under the existing schedule of contributions, the schemes are in
a significantly improved position. Accordingly, deficit payments will decrease
from £10m in FY23 to £9m in FY24, £8m in FY25, £5m in FY26, £4m in FY27
and £1m in FY28. Once the pension schemes are in actuarial surplus, they will
cover their own administration expenses. In FY23, expenses amounted to £2.9m.
The largest of the six schemes is already in surplus.
Free cash flow and Net debt
31 Dec 31 Dec
2023 2022
£m £m
Operating profit 44.1 38.3
Depreciation of owned assets 3.5 2.7
Depreciation of right-of-use assets 18.7 21.8
Amortisation 16.4 19.0
EBITDA 82.7 81.8
Adjusting items excluding adjusting amortisation and interest 9.5 9.1
Adjusted EBITDA 92.2 90.9
Working capital outflow (46.4) (78.7)
Net capital expenditure including finance lease capital payments (26.3) (27.1)
Joint Venture dividends less profits (5.9) (2.2)
Repayment of KEPS - (49.8)
Other free cash flow items (1.2) (2.9)
Operating free cash flow 12.4 (69.8)
Net interest and tax (20.3) (18.0)
Free cash flow (7.9) (87.8)
2023 2022
£m £m
Net cash at 1 July 64.1 2.9
Free cash flow (7.9) (87.8)
Adjusting items (16.1) (22.7)
Pension deficit payments and fees (5.0) (6.6)
Net purchase of own shares (3.7) (11.9)
Acquisition of Buckingham (9.4) -
Other (5.0) (4.5)
Net cash / (debt) at 31 December 17.0 (130.6)
As expected, the Group experienced a free cash outflow during the period
driven by a seasonal working capital outflow, however, this was significantly
reduced compared to the prior period assisted by volume growth, particularly
in Construction. Working capital is seasonal in the business with summer being
a higher period of activity compared to winter months. As a result of the
improved free cash flow performance, the Group delivered a net cash position
at 31 December 2023 with the Group anticipating this improvement to continue
through into H2.
The average month-end net debt position is better than the comparative period
at £(136.5)m, (HY23: £(242.7)m, FY23: £(232.1)m). The business generated
operating profit and positive working capital which was used to pay adjusting
items, tax and interest, pension deficit obligations, invest in our Property
business, purchase existing Kier shares on behalf of employees and acquire the
rail assets of the Buckingham Group.
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 £3.7m (HY23: £11.9m, FY23: £11.9m).
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 period.
Treasury facilities
Bank finance
At 31 December 2023, the Group had committed debt facilities
of £548.2m with a further £18.0m of uncommitted overdrafts as at 31
December 2023.
The facilities comprised £475.0m RCF, £73.2m USPP Notes as well as
£18.0m of overdrafts.
The Group has a fixed interest rate swap through to February 2026, initially
contracted at £100m but which in February 2024 reduced to £75m in its second
year, and will reduce further to £50m in its third year.
In February 2024 the Group completed a refinancing of its principal debt
facilities. This included the issuance of a 5 Year £250m Senior Notes,
maturing February 2029 and an extension of its RCF, with a committed facility
of £150m from January 2025 to March 2027.
The proceeds of the Senior Notes were used to reduce the USPP notes by £36m
and lower the RCF to £261m. The remainder of its USPP notes and reduction in
the RCF of £111m in January 2025 will be met from operating free cash flow.
With £400m of facilities, post January 2025, the Group has secured
significant committed funding to support its medium-term value creation plan.
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.
The directors of Kier Group plc are as listed on pages 94 and 95 of the 2023
Annual Report and Accounts, with the exception of the following change:
Mohammed Saddiq joined the Board as a Non-executive Director on 1 January
2024.
A list of the current directors is also maintained on Kier Group plc's website
at: www.kier.co.uk.
Signed on 6 March 2024 on behalf of the Board.
Andrew Davies Simon Kesterton
Chief Executive Chief Financial Officer
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 unaudited results for
the half year of Kier Group plc for the 6 month period ended
31 December 2023 (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 2023;
· 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 unaudited results for the
half year 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 unaudited results for the
half year 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 unaudited results for the half year, including the interim financial
statements, is the responsibility of, and has been approved by the directors.
The directors are responsible for preparing the unaudited results for the half
year in accordance with the Disclosure Guidance and Transparency Rules
sourcebook of the United Kingdom's Financial Conduct Authority. In preparing
the unaudited results for the half year, 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 unaudited results for the half year 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
6 March 2024
Financial statements
Condensed consolidated income statement
For the six months ended 31 December 2023
Note Unaudited Unaudited Year to
six months to 31 December 2023 six months to 31 December 2022 30 June
£m
£m 2023
£m
Continuing operations
Revenue
Group and share of joint ventures(1) 2 1,882.9 1,536.6 3,405.4
Less share of joint ventures 2 (20.8) (10.8) (24.7)
Group revenue 1,862.1 1,525.8 3,380.7
Cost of sales (1,715.1) (1,395.2) (3,074.4)
Gross profit 147.0 130.6 306.3
Administrative expenses (112.6) (101.5) (240.0)
Share of post-tax profits of joint ventures 5.9 3.2 1.1
Other income 4 3.8 6.0 14.1
Profit from operations 2 44.1 38.3 81.5
Finance income 5 4.0 0.6 9.4
Finance costs 5 (21.1) (13.5) (39.0)
Profit before tax 2 27.0 25.4 51.9
Taxation 7 (7.4) (5.0) (10.9)
Profit for the period 2 19.6 20.4 41.0
Attributable to:
Owners of the parent 19.6 20.5 41.1
Non-controlling interests - (0.1) (0.1)
19.6 20.4 41.0
Earnings per share from continuing operations
- Basic 9 4.6p 4.7p 9.5p
- Diluted 9 4.4p 4.7p 9.3p
Supplementary information from continuing operations
Adjusted2 operating profit 3 64.7 57.2 131.5
Adjusted2 profit before tax 3 49.0 45.8 104.8
Adjusted2 earnings per share 9 8.7p 8.5p 19.2p
Adjusted2 diluted earnings per share 9 8.5p 8.5p 18.8p
(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 2023
Note Unaudited Unaudited Year to
six months to 31 December 2023 six months to 31 December 2022 30 June
£m
£m 2023
£m
Profit for the period 19.6 20.4 41.0
Items that may be reclassified subsequently to the income statement
Fair value movements on cash flow hedging instruments (3.1) 0.7 2.1
Fair value movements on cash flow hedging instruments recycled to the income 5 0.1 (0.9) 1.2
statement
Deferred tax on fair value movements on cash flow hedging instruments 0.8 - (0.8)
Foreign exchange translation differences - 1.2 0.3
Foreign exchange movements recycled to the income statement (2.8) - -
Total items that may be reclassified subsequently to the income statement (5.0) 1.0 2.8
Items that will not be reclassified to the income statement
Re-measurement of retirement benefit assets and obligations 6 (15.1) (112.4) (107.8)
Deferred tax on re-measurement of retirement benefit assets and obligations 3.8 28.1 26.5
Total items that will not be reclassified to the income statement (11.3) (84.3) (81.3)
Other comprehensive loss for the period (16.3) (83.3) (78.5)
Total comprehensive income/(loss) for the period 3.3 (62.9) (37.5)
Attributable to:
Equity holders of the parent 3.3 (62.8) (37.4)
Non-controlling interests - continuing operations - (0.1) (0.1)
3.3 (62.9) (37.5)
Financial statements
Condensed consolidated statement of changes in equity
For the six months ended 31 December 2023
Note Share capital Share Capital (Accumulated losses)/ Cash flow Translation Merger Equity attributable to owners of Non- Total
£m
premium
redemption
hedge
reserve
reserve
the parent
controlling
equity
£m
reserve retained earnings
reserve
£m
£m
£m
interests
£m
£m
£m
£m
£m
1 July 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 income/(loss) - - - (84.3) (0.2) 1.2 - (83.3) - (83.3)
Total comprehensive income/(loss) 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 16 - - - 3.4 - - - 3.4 - 3.4
Purchase of own shares 16 - - - (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
Profit for the period - - - 20.6 - - - 20.6 - 20.6
Other comprehensive income/(loss) - - - 3.0 2.7 (0.9) - 4.8 - 4.8
Total comprehensive income/(loss) for the period - - - 23.6 2.7 (0.9) - 25.4 - 25.4
Share-based payments 16 - - - 5.0 - - - 5.0 - 5.0
At 30 June 2023 4.5 684.3 2.7 (539.5) 1.6 9.2 350.6 513.4 (0.4) 513.0
Profit for the period - - - 19.6 - - - 19.6 - 19.6
Other comprehensive loss - - - (11.3) (2.2) (2.8) - (16.3) - (16.3)
Total comprehensive income/(loss) for the period - - - 8.3 (2.2) (2.8) - 3.3 - 3.3
Issue of own shares - 0.1 - - - - - 0.1 - 0.1
Capital reduction 15 - (684.4) (2.7) 687.1 - - - - - -
Share-based payments 16 - - - 4.4 - - - 4.4 - 4.4
Purchase of own shares 16 - - - (3.7) - - - (3.7) - (3.7)
At 31 December 2023 4.5 - - 156.6 (0.6) 6.4 350.6 517.5 (0.4) 517.1
The numbers in the table above are shown net of tax as applicable.
Financial statements
Condensed consolidated balance sheet
As at 31 December 2023
Note Unaudited Unaudited 30 June
31 December 2023 31 December 2022 2023
£m
£m
£m
Non-current assets
Intangible assets 11 645.5 655.3 645.0
Property, plant and equipment 29.6 32.2 29.8
Right-of-use assets 94.8 122.0 105.4
Investment properties 12 102.2 89.3 98.4
Investments in and loans to joint ventures 89.4 66.7 78.6
Capitalised mobilisation costs 5.0 7.7 6.3
Deferred tax assets 7 128.6 133.7 128.8
Contract assets 48.5 31.7 43.7
Trade and other receivables 17.6 15.1 18.5
Retirement benefit assets 6 125.0 116.8 129.3
Other financial assets 0.4 8.1 9.7
Non-current assets 1,286.6 1,278.6 1,293.5
Current assets
Inventories 74.2 77.2 72.9
Contract assets 274.6 304.8 358.2
Trade and other receivables 216.1 206.5 189.2
Corporation tax receivable 23.9 14.8 13.4
Other financial assets 6.2 2.7 1.0
Cash and cash equivalents 13 327.3 316.7 376.9
Current assets 922.3 922.7 1,011.6
Total assets 2,208.9 2,201.3 2,305.1
Current liabilities
Borrowings 13 - (7.9) -
Lease liabilities (35.3) (39.7) (36.2)
Trade and other payables 14 (972.5) (886.4) (1,075.0)
Contract liabilities (119.2) (73.3) (90.5)
Provisions (29.7) (18.8) (38.2)
Current liabilities (1,156.7) (1,026.1) (1,239.9)
Non-current liabilities
Borrowings 13 (316.5) (448.5) (319.1)
Lease liabilities (138.6) (158.2) (146.4)
Trade and other payables 14 (27.4) (34.1) (36.9)
Retirement benefit obligations 6 (28.6) (25.7) (24.8)
Provisions (24.0) (26.1) (25.0)
Non-current liabilities (535.1) (692.6) (552.2)
Total liabilities (1,691.8) (1,718.7) (1,792.1)
Net assets 2 517.1 482.6 513.0
Equity
Share capital 15 4.5 4.5 4.5
Share premium 15 - 684.3 684.3
Capital redemption reserve 15 - 2.7 2.7
Retained earnings/(accumulated losses) 156.6 (568.1) (539.5)
Cash flow hedge reserve 15 (0.6) (1.1) 1.6
Translation reserve 15 6.4 10.1 9.2
Merger reserve 350.6 350.6 350.6
Equity attributable to owners of the parent 517.5 483.0 513.4
Non-controlling interests (0.4) (0.4) (0.4)
Total equity 517.1 482.6 513.0
Financial statements
Condensed consolidated statement of cash flows
For the six months ended 31 December 2023
Note Unaudited Unaudited Year to
six months to 31 December 2023 six months to 31 December 2022 30 June
£m
£m 2023
£m
Cash flows from operating activities
Profit before tax 27.0 25.4 51.9
Net finance cost 5 17.1 12.9 29.6
Share of post-tax trading results of joint ventures (5.9) (3.2) (1.1)
Difference between pension funding contributions paid and the pension cost 0.4 - 0.1
charge
Equity-settled share-based payments charge 16 4.4 3.4 8.4
Amortisation of intangible assets and mobilisation costs 16.4 19.0 33.9
Change in fair value of investment properties 12 (3.8) (6.0) (11.4)
Research and development expenditure credit 7 (11.9) (9.5) (22.8)
Depreciation of property, plant and equipment 3.5 2.7 6.1
Depreciation of right-of-use assets 18.7 21.8 43.7
Recycling of foreign exchange movements to the Income Statement (2.8) - -
Profit on disposal of property, plant and equipment and intangible assets (0.6) (0.1) (1.8)
Operating cash inflows before movements in working capital and pension 62.5 66.4 136.6
deficit contributions
Deficit contributions to pension funds 6 (4.6) (5.0) (9.9)
Increase in inventories (1.3) (20.4) (18.8)
(Increase)/decrease in receivables (22.1) (1.7) 12.2
Decrease/(increase) in contract assets 78.8 61.0 (4.4)
(Decrease)/increase in payables (110.4) (177.0) 26.1
Increase in contract liabilities 28.7 6.0 23.2
(Decrease)/increase in provisions (12.7) (3.1) 15.2
Cash inflow/(outflow) from operating activities 18.9 (73.8) 180.2
Dividends received from joint ventures - 0.7 1.8
Interest received 5 1.2 0.6 1.6
Income tax paid (3.0) - (0.1)
Net cash inflow/(outflow) from operating activities 17.1 (72.5) 183.5
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 1.0 0.3 2.6
Purchase of property, plant and equipment (3.4) (2.8) (3.9)
Purchase of intangible assets 11 (4.4) (0.3) (2.7)
Purchase of capitalised mobilisation costs (0.1) (1.0) (1.8)
Acquisition of joint venture debt - (0.9) (0.9)
Investment in joint ventures (13.0) (15.6) (35.7)
Loan repayment and return of equity from joint ventures 8.1 12.1 17.1
Acquisition of business 10 (9.4) - -
Net cash used in investing activities (21.2) (8.2) (25.3)
Cash flows from financing activities
Issue of shares 0.1 - -
Issue of shares to non-controlling interest - 0.3 0.3
Net purchase of own shares (3.7) (11.9) (11.9)
Interest paid (19.6) (18.0) (39.5)
Principal elements of lease payments (19.4) (22.5) (45.6)
Drawdown of borrowings - 180.2 56.8
Repayment of borrowings (2.9) (32.7) (43.2)
Settlement of derivative financial instruments - 4.0 4.7
Transactions with non-controlling interests - (0.9) (0.9)
Net cash (used in)/generated from financing activities (45.5) 98.5 (79.3)
(Decrease)/increase in cash and cash equivalents (49.6) 17.8 78.9
Effect of change in foreign exchange rates - 1.2 0.3
Opening cash and cash equivalents 376.9 297.7 297.7
Closing cash and cash equivalents 13 327.3 316.7 376.9
Supplementary information
Adjusted cash flow generated from/(used in) operating activities 3(b) 35.0 (51.1) 207.2
Financial statements
Notes to the condensed consolidated financial statements
For the period ended 31 December 2023
1 Significant accounting policies
Reporting entity
Kier Group plc (the Company) is a public limited company which is listed on
the London Stock Exchange and incorporated and domiciled in the UK. The
Company's registered number is 2708030. The address of its registered office
is 2(nd) Floor, Optimum House, Clippers Quay, Salford, M50 3XP.
The interim condensed consolidated financial statements (financial statements)
for the period ended 31 December 2023 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 2023 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 2023. Statutory financial statements for the year ended 30 June
2023 were approved by the Board of Directors on 13 September 2023 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.
A number of new or amended standards became applicable for the current
reporting period, including IFRS 17 'Insurance Contracts'. The Group did not
have to change its accounting policies or make retrospective adjustments as a
result of adopting these standards.
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 2023 and
delivered strong volume and adjusted operating profit growth, with the
associated cash generation leading to material deleveraging with an over
£106m reduction in average month end debt in the period. The Group continues
to win new, high quality and profitable business in its markets on terms and
at rates which reflect the bidding disciplines and risk management practices
introduced under the Group's Performance Excellence programme and which
provides good, multi-year revenue visibility. At 31 December 2023, the order
book was £10.7bn (FY23: £10.1bn).
As at 31 December 2023, the Group had £548.2m of unsecured committed
facilities and £18.0m of uncommitted overdrafts. In February 2024, the Group
completed a refinancing of its principal debt facilities. This included the
issuance of 5 Year £250m Senior Notes maturing February 2029; and an
extension of its RCF, with a committed facility of £150m to March 2027.
With £400m of facilities, post January 2025, the Group has lowered its
facilities and secured significant committed funding to support its
medium-term value creation plan.
Financial covenant certificates for December 2023 have been prepared with no
breaches noted. The Directors have reviewed the Group's cash flow forecasts
for the period to 30 June 2025, which are included in the Group's three-year
strategic plan, on the basis of certain key assumptions and including a number
of stressed but plausible downside scenarios.
These scenarios included the consideration of risks which may arise to the
Group's available liquidity and its ongoing compliance with financial
covenants within the Group's principal debt facilities as a result of or in
light of the following factors or circumstances:
· Potential reductions in trading volumes;
· Potential future challenges in respect of ongoing projects;
· Reduced investment/delays in Property transactions and cost of
adoption of green legislation;
· Plausible changes in the interest rate environment; and
· The availability of mitigating actions that could be taken by
management in such a scenario.
The Board also considered the macroeconomic and political risks affecting the
UK economy. 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 road, rail, water, energy, prisons,
health and education, which are considered likely to remain largely unaffected
by macroeconomic factors. Although inflationary pressures remain a risk, both
in the supply chain and the labour market, this is partly mitigated by c.60%
of contracts being target cost or cost plus.
The Board has also considered the potential impact of climate change and does
not consider the Group's operations are at risk from physical climate-related
risks such as hurricanes and temperature changes in the short-term. In the
medium-term the Board has concluded that any adverse financial impacts from
required changes to operations in line with ESG requirements will be offset by
opportunities which present the Group with additional volumes and profits,
such as construction of sustainable buildings, climate impact and water
management, as well as nuclear infrastructure. As such, the longevity of the
Group's business model means that climate change has no material adverse
impact on going concern.
Having reviewed the Group's cash flow forecasts, the Directors consider that
the Group is expected to continue to have available liquidity headroom under
its finance facilities and operate within its financial covenants over the
going concern period, including in a severe but plausible downside scenario.
As a result, the Directors are satisfied that the Group has adequate resources
to meet its obligations as they fall due for a period of at least 12 months
from the date of approving these interim financial statements and, for this
reason, they continue to adopt the going concern basis in preparing these
interim financial statements.
2 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.
Unaudited six months to 31 December 2023
Continuing operations Infrastructure Services Construction Property Corporate Group
£m
£m
£m
£m
£m
Revenue1
Group and share of joint ventures 944.4 915.4 22.1 1.0 1,882.9
Less share of joint ventures - (1.4) (19.4) - (20.8)
Group revenue 944.4 914.0 2.7 1.0 1,862.1
Profit for the period
Operating profit/(loss) before adjusting items2 44.0 33.2 4.6 (17.1) 64.7
Adjusting items2 (11.6) (8.1) - (0.9) (20.6)
Profit/(loss) from operations 32.4 25.1 4.6 (18.0) 44.1
Net finance income/(costs)3 1.8 0.2 (1.0) (18.1) (17.1)
Profit/(loss) before tax 34.2 25.3 3.6 (36.1) 27.0
Taxation (7.4)
Profit for the period 19.6
Balance sheet
Operating assets4 900.7 407.8 206.5 359.9 1,874.9
Operating liabilities4 (419.2) (712.6) (14.5) (228.9) (1,375.2)
Net operating assets/(liabilities)4 481.5 (304.8) 192.0 131.0 499.7
Cash, cash equivalents and borrowings 280.8 463.1 (153.8) (579.3) 10.8
Net financial assets - - - 6.6 6.6
Net assets/(liabilities) 762.3 158.3 38.2 (441.7) 517.1
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
Year to 30 June 2023
Continuing operations Infrastructure Services Construction Property Corporate Group
£m
£m
£m
£m
£m
Revenue1
Group and share of joint ventures 1,712.3 1,652.5 37.6 3.0 3,405.4
Less share of joint ventures - (2.4) (22.3) - (24.7)
Group revenue 1,712.3 1,650.1 15.3 3.0 3,380.7
Profit for the year
Operating profit/(loss) before adjusting items2 79.8 69.5 12.8 (30.6) 131.5
Adjusting items2 (22.6) (23.1) 1.5 (5.8) (50.0)
Profit/(loss) from operations 57.2 46.4 14.3 (36.4) 81.5
Net finance income/(costs)3 1.4 (4.3) (0.6) (26.1) (29.6)
Profit/(loss) before tax 58.6 42.1 13.7 (62.5) 51.9
Taxation (10.9)
Profit for the year 41.0
Balance sheet
Operating assets4 973.7 413.1 188.5 342.3 1,917.6
Operating liabilities4 (511.7) (732.7) (18.5) (210.2) (1,473.1)
Net operating assets/(liabilities)4 462.0 (319.6) 170.0 132.1 444.5
Cash, cash equivalents and borrowings 456.6 594.5 (134.1) (859.2) 57.8
Net financial assets - - - 10.7 10.7
Net assets/(liabilities) 918.6 274.9 35.9 (716.4) 513.0
(1 ) Revenue is stated after the exclusion of inter-segmental
revenue. 100% of the Group's revenue is derived from UK-based customers (31
December 2022: 90%; 30 June 2023: 100%). 16% of the Group's revenue was
received from High Speed Two (HS2) Limited (31 December 2022: 16%; 30 June
2023: 15%). 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 2022 Year to 30 June Unaudited Unaudited six months to 31 December 2022 Year to 30 June
£m
£m
six months to 2023 six months to 31 December 2023 2023
£m
31 December 2023 £m £m
£m
Reported profit from continuing operations 44.1 38.3 81.5 27.0 25.4 51.9
Amortisation of acquired intangible assets(1) 11.1 9.8 19.2 11.1 9.8 19.2
Fire and cladding compliance costs(2) 7.2 4.0 12.6 7.2 4.0 12.6
Legacy legal claims(3) 1.1 1.5 1.5 1.1 1.5 1.5
Net financing costs(4) - - - 1.4 1.5 2.9
Insurance-related items - - 5.3 - - 5.3
Redundancy and other people related costs - 1.7 4.8 - 1.7 4.8
Professional adviser fees and other costs incurred implementing non-people - 0.3 4.9 - 0.3 4.9
initiatives
Other(5) 1.2 1.6 1.7 1.2 1.6 1.7
Adjusted profit from continuing operations 64.7 57.2 131.5 49.0 45.8 104.8
(1 ) Comprises the amortised contract rights relating to previous
acquisitions of MRBL Limited (Mouchel Group), May Gurney Integrated Services
plc and McNicholas Construction Holdings Limited, along with the amortisation
of contract rights acquired as part of the Group's acquisition of the
Buckingham Group rail business in HY24.
(2 ) Fire and cladding compliance costs consist of costs incurred in
complying with the updated fire and cladding compliance regulations on legacy
projects.
(3 ) Legacy legal claims related to the disposal of Kier Living in
May 2021. The prior period charge of £1.5m relates to a HSE fine for
historical safety issues.
(4 ) Net financing costs relate to IFRS 16 interest charges on leased
investment properties previously used as offices.
(5 ) Other costs consist of charges in respect of the re-sizing of
the International business and costs incurred on the acquisition of Buckingham
Group's rail division.
(a) Taxation
The tax impact of the above adjusting items was a credit of £4.1m (six months
ended 31 December 2022: £3.9m; year ended 30 June 2023: £9.1m). In addition,
a credit of £2.0m was recognised in the year ended 30 June 2023 relating to
the change in tax rate to 25%.
(b) Adjusted cash flow
Note Unaudited Unaudited Year to 30 June
six months to 31 December six months to 31 December 2022 2023
£m
2023 £m
£m
Reported cash inflow/(outflow) from operating activities 18.9 (73.8) 180.2
Add: Cash outflow from operating activities (adjusting items) 3(c) 16.1 22.7 27.0
Adjusted cash inflow/(outflow) from operating activities 35.0 (51.1) 207.2
(c) Cash outflow from operating activities (adjusting items)
Unaudited Unaudited Year to 30 June
six months to 31 December 2023 six months to 31 December 2022 2023
£m
£m
£m
Adjusting items reported in the income statement 22.0 20.4 52.9
Less: non-cash items incurred in the period (14.8) (12.9) (39.0)
Add: payment of prior year accruals and provisions 8.9 15.2 13.1
Cash outflow from operating activities (adjusting items) 16.1 22.7 27.0
4 Other income
Unaudited Unaudited Year to 30 June
six months to 31 December 2023 six months to 31 December 2022 2023
£m
£m
£m
Recycling Plant insurance proceeds - - 2.7
Fair value gain on investment properties 3.8 6.0 11.4
Other income 3.8 6.0 14.1
5 Finance income and costs
Unaudited Unaudited Year to 30 June
six months to 31 December 2023 six months to 31 December 2022 2023
£m
£m
£m
Finance income 0.5
Bank deposits 1.2 0.1
Interest receivable on loans to related parties - 0.5 1.1
Net interest on net defined benefit assets 2.8 - 7.8
4.0 0.6 9.4
Finance costs
Bank interest (14.7) (11.9) (29.0)
Interest payable on leases (4.8) (4.7) (9.5)
Foreign exchange gains/(losses) on foreign denominated borrowings 0.2 (1.2) 2.5
Fair value (losses)/gains on cash flow hedges recycled from other (0.1) 0.9 (1.2)
comprehensive income(1)
Net interest on net defined benefit assets - 3.8 -
Other (1.7) (0.4) (1.8)
(21.1) (13.5) (39.0)
Net finance costs (17.1) (12.9) (29.6)
(1 ) Fair value (losses)/gains arise from movements in cross-currency
swaps which hedge the currency risk on foreign denominated borrowings.
6 Retirement benefit assets and obligations
The principal assumptions used by the independent qualified actuaries are
shown below.
Unaudited Unaudited 30 June 2023
31 December 2023 31 December 2022 %
%
%
Discount rate 4.60 4.95 5.30
Inflation rate (Retail Price Index) 3.05 3.10 3.20
Inflation rate (Consumer Price Index) 2.20-2.65 2.60 2.30-2.75
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 2023
2023 2022
Kier Acquired schemes Total Kier Acquired schemes Total Kier Acquired schemes Total
Group plc
£m
£m
Group plc
£m
£m
Group plc
£m
£m
£m
£m
£m
Opening net surplus/(deficit) 117.5 (13.0) 104.5 170.2 24.5 194.7 170.2 24.5 194.7
Credit/(charge) to income statement 2.8 (0.4) 2.4 3.3 0.5 3.8 6.6 1.1 7.7
Employer contributions - 4.6 4.6 0.2 4.8 5.0 0.4 9.5 9.9
Actuarial losses (4.2) (10.9) (15.1) (64.4) (48.0) (112.4) (59.7) (48.1) (107.8)
Closing net surplus/(deficit) 116.1 (19.7) 96.4 109.3 (18.2) 91.1 117.5 (13.0) 104.5
Comprising:
Fair value of scheme assets 886.6 416.1 1,302.7 888.7 413.2 1,301.9 850.9 396.8 1,247.7
Net present value of the defined benefit obligation (770.5) (435.8) (1,206.3) (779.4) (431.4) (1,210.8) (733.4) (409.8) (1,143.2)
Net surplus/(deficit) 116.1 (19.7) 96.4 109.3 (18.2) 91.1 117.5 (13.0) 104.5
Presentation of net surplus/(deficit) in the Consolidated balance sheet:
Retirement benefit assets 116.1 8.9 125.0 109.3 7.5 116.8 117.5 11.8 129.3
Retirement benefit obligations - (28.6) (28.6) - (25.7) (25.7) - (24.8) (24.8)
Net surplus/(deficit) 116.1 (19.7) 96.4 109.3 (18.2) 91.1 117.5 (13.0) 104.5
Pension scheme contingent liabilities
In June 2023, in the case of Virgin Media vs NTL Pension Trustees II Limited,
the High Court judged that amendments made to the Virgin Media scheme were
invalid because they were not accompanied by the correct actuarial
confirmation. If upheld, the High Court's decision could have wider ranging
implications, affecting other schemes that were contracted-out on a
salary-related basis, and made amendments between April 1997 and April 2016.
There is still further uncertainty with a Court of Appeal hearing for the case
set for 25 June 2024, as well as the potential for overriding government
legislation to be introduced. As a result, the Group and the Trustees of the
Group's pension schemes have not yet investigated the potential implications
for the Group's accounts in detail. The Group considers the amount of any
potential impact on the schemes' defined benefit obligation cannot yet be
measured with sufficient reliability and therefore no allowance for this case
has been made in calculating the defined benefit obligations at the reporting
date.
7 Taxation
Unaudited Unaudited Year to 30 June
six months to 31 December 2023 six months to 31 December 2022 2023
£m
£m £m
Profit before tax 27.0 25.4 51.9
Less: (Loss)/profit from joint venture companies 0.9 (3.6) (3.6)
Profit before tax excluding income from joint ventures 27.9 21.8 48.3
Current tax (3.8) (2.0) (7.3)
Deferred tax (3.6) (3.0) (3.6)
Total tax charge in the income statement (7.4) (5.0) (10.9)
Effective tax rate 26.5% 22.9% 22.6%
As at 31 December 2023, the Group had a deferred tax asset of £128.6m, which
includes £107.3m in relation to tax losses (31 December 2022: £104.6m; 30
June 2023: £106.2m), and £21.3m of other temporary differences (31 December
2022: £29.1m; 30 June 2023: £22.6m).
At 31 December 2023, the Group had unused tax losses of £175.4m (six months
ended 31 December 2022: £203.6m; year ended 30 June 2023; £187.7m). There
were no other temporary differences (six months ended 31 December 2022: £nil;
year ended 30 June 2023; £nil) on which deferred tax had not been recognised.
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 2024;
· The Group has substantially completed its restructuring activities
and is focusing on the achievement of the medium-term value creation plan; and
· The Group's core businesses are well-placed to benefit from the
announced and committed UK Government spending plans to invest in
infrastructure, decarbonisation and spending.
When considering the length of time over which the losses are expected to be
utilised, the Group has taken into account that only 50% of taxable profits in
each year can be offset by brought forward losses, after the annual £5m
deductions allowance.
Based on these forecasts, the Group is expected to utilise its deferred tax
asset over a period of approximately 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 2024 is 26.5%, compared to 22.9% for the six months ended 31 December
2022. The estimated average annual tax rate was higher largely due to the
increase in UK corporation tax to 25% which was effective from 1 April 2023.
The Research and Development Expenditure Credit ("RDEC") of £11.9m was
included in operating profit during the period (31 December 2022: £9.5m; 30
June 2023: £22.8m). Included in the corporation tax asset at 31 December 2023
were RDEC receivables of £23.9m (31 December 2022: £16.9m; 30 June 2023:
£16.1m).
On 20 June 2023, Finance (No2) Act 2023 was substantively enacted in the UK,
introducing a global minimum effective tax rate of 15%. The legislation
implements a domestic top-up tax and a multinational top-up tax, effective for
accounting periods starting on or after 31 December 2023. The Group applied
the exception under the IAS12 amendment to recognising and disclosing
information about deferred tax assets and liabilities related to top-up income
taxes.
8 Dividends
The proposed interim dividend for the year ending 30 June 2024 of 1.67p pence
per share (2023: nil p) has not yet been paid and so has not been included as
a liability in these financial statements. The dividend totalling
approximately £7m will be paid on 31 May 2024 to shareholders on the register
at the close of business on 19 April 2024.
9 Earnings per share
a) Reconciliation of earnings
used in calculating earnings per share
Profit attributable to the ordinary equity holders of the company used in
calculating basic earnings per share.
Note Unaudited Unaudited Year to 30 June
six months to six months to 31 December 2022 2023
31 December 2023 £m £m
£m
Continuing operations
Profit for the period 19.6 20.4 41.0
Less: non-controlling interest share - 0.1 0.1
Profit (after tax and minority interests), being net gains attributable to 41.1
equity holders of the parent (A)
19.6 20.5
Adjusting items (excluding tax) 3 22.0 20.4 52.9
Tax impact of adjusting items 3 (4.1) (3.9) (11.1)
Adjusted profit after tax (B) 37.5 37.0 82.9
b) Weighted average number of shares used as the
denominator
Unaudited Unaudited
six months to 31 December 2023 six months to 31 December 2022 Year to 30 June
million million 2023
million
Weighted average number of shares used as the denominator in calculating basic 429.8 433.0 431.2
earnings per share (C)
Adjustments for calculation of diluted earnings per share:
Impact of share options 11.5 4.2 10.3
Weighted average number of shares used as the denominator in calculating 441.3 437.2 441.5
diluted earnings per share (D)
The weighted average number of shares is lower than the number of shares in
issue (per note 15) primarily due to shares that are held by the Group's
employee benefit trusts (see note 16), which are excluded from the
calculation.
Options granted to employees under the Sharesave, Conditional Share Awards
Plan ("CSAP") and Long Term Incentive Plan ("LTIP") schemes are considered to
be potential ordinary shares. They have been included in the determination of
diluted earnings per share if the required performance obligations would have
been met based on the Group's performance up to the reporting date, and to
the extent to which they are dilutive. The options have not been included in
the determination of basic earnings per share. Details relating to the share
option schemes are set out in note 16.
c) Basic earnings per share
Unaudited Unaudited Year to 30 June
six months to 31 December 2023 six months to 31 December 2022 2023
pence
pence pence
From continuing operations attributable to the ordinary equity holders of the 4.6 4.7 9.5
company (A/C)
Adjusted from continuing operations attributable to the ordinary equity 8.7 8.5 19.2
holders of the company (B/C)
d) Diluted earnings per share
Unaudited Unaudited Year to 30 June
six months to 31 December 2023 six months to 31 December 2022 2023
pence
pence pence
From continuing operations attributable to the ordinary equity holders of the 4.4 4.7 9.3
company (A/D)
Adjusted from continuing operations attributable to the ordinary equity 8.5 8.5 18.8
holders of the company (B/D)
10 Acquisition
On 4 September 2023, the Group acquired the rail assets of the Buckingham
Group, primarily consisting of 180 employees and a number of customer
contracts.
The purchase has been accounted for as a business combination in accordance
with IFRS 3. The provisional fair value amounts recognised in respect of the
identifiable assets acquired and liabilities assumed are set out in the table
below:
Unaudited
Fair value total
£m
Intangible assets 7.5
Trade and other receivables 0.9
Provisions (3.2)
Total identifiable assets and liabilities 5.2
Goodwill 4.2
Consideration payable 9.4
Adjustments to the acquired balance sheet primarily relate to intangible
assets in relation to customer contracts along with the recognition of
necessary provisions.
The goodwill recognised includes certain intangible assets that cannot be
separately identified and measured due to their nature. This includes control
over the acquired business and the skills and experience of the assembled
workforce. Goodwill also represents the opportunity for Kier's Infrastructure
segment to grow its business within the rail market.
Consideration consisted of £9.4m cash.
11 Intangible assets
Unaudited Unaudited Unaudited Unaudited
Goodwill Intangible Computer Total
£m
contract rights
£m
£m software
£m
Cost
At 1 July 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
Additions - - 2.4 2.4
Disposals - (16.5) (9.6) (26.1)
At 30 June 2023 538.8 235.7 125.7 900.2
Additions - - 4.4 4.4
Arising on acquisition 4.2 7.5 - 11.7
Disposals - - (0.6) (0.6)
At 31 December 2023 543.0 243.2 129.5 915.7
Accumulated amortisation
At 1 July 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)
Charge for the period - (9.4) (3.3) (12.7)
Disposals - 16.5 9.6 26.1
At 30 June 2023 (2.1) (170.9) (82.2) (255.2)
Charge for the period - (11.1) (3.9) (15.0)
At 31 December 2023 (2.1) (182.0) (86.1) (270.2)
Net book value
At 31 December 2023 540.9 61.2 43.4 645.5
At 30 June 2023 536.7 64.8 43.5 645.0
At 31 December 2022 536.7 74.2 44.4 655.3
12 Investment properties
Unaudited Unaudited Unaudited
Owned assets Right-of-use assets Total
£m
£m
£m
At 1 July 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
Transfers 2.7 - 2.7
Additions - 1.1 1.1
Fair value gain/(loss) 8.6 (3.3) 5.3
At 30 June 2023 52.9 45.5 98.4
Fair value gain 3.7 0.1 3.8
At 31 December 2023 56.6 45.6 102.2
13 Net cash/(debt)
Unaudited Unaudited 31 December 2022 Year to 30 June
£m
31 December 2023 2023
£m £m
Cash and cash equivalents - bank balances and cash in hand 327.3 316.7 376.9
Borrowings due within one year - (7.9) -
Borrowings due after one year (316.5) (448.5) (319.1)
Impact of cross-currency hedging 6.2 9.1 6.3
Net cash/(debt) 17.0 (130.6) 64.1
Average month-end net debt for the six months ended 31 December 2023 was
£136.5m (six months ended 31 December 2022: £242.7m; year ended 30 June
2023: £232.1m). Net debt excludes lease liabilities.
14 Trade and other payables
Unaudited Unaudited 30 June
31 December 2023 31 December 2022 2023
£m
£m £m
Current:
Trade payables 303.1 274.5 310.0
Accruals 484.7 439.1 585.1
Sub-contract retentions 33.1 26.7 22.5
Other taxation and social security 134.8 127.4 138.4
Other payables and deferred income 16.8 18.7 19.0
972.5 886.4 1,075.0
Non-current:
Trade payables 3.9 9.4 5.1
Sub-contract retentions 23.5 24.7 31.8
27.4 34.1 36.9
15 Share capital and reserves
Share capital
The share capital of the Company comprises:
Unaudited Unaudited 30 June
31 December 31 December 2023
2023 2022
Number £m Number £m Number £m
Authorised, issued and fully paid ordinary shares of 1 pence each 446,416,044 4.5 446,305,548 4.5 446,314,435 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 2023, 101,609 shares were issued under
the Sharesave Scheme (six months to 31 December 2022: 63,866; year ended 30
June 2023: 72,753).
Share premium account
On 22 December 2023, the Company completed a capital reduction exercise,
resulting in £684.4m of share premium being cancelled and transferred to
retained earnings.
Capital redemption reserve
On 22 December 2023, the Company completed a capital reduction exercise,
resulting in £2.7m of capital redemption being cancelled and transferred to
retained earnings.
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.
16 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. Awards made to members of the
Board are subject to a two-year holding period post vesting. Further details
of the LTIP schemes were disclosed in the 2023 annual financial statements.
8,695,601 shares vested under the LTIP schemes during the six months to 31
December 2023 (six months to 31 December 2022: 8,339,894; year ended 30 June
2023: 8,432,381). 9,088,937 new awards were granted under the LTIP during the
six months to 31 December 2023 (six months to 31 December 2022 and year ended
30 June 2023: 15,492,751).
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. 6,841,037
options were granted under the Sharesave scheme during the six months to 31
December 2023 (six months to 31 December 2022 and year ended 30 June 2023:
8,730,264). 101,609 Sharesave options were exercised during the six months to
31 December 2023 (six months to 31 December 2022: 63,866; year ended 30 June
2023: 72,753).
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 2023:
LTIP LTIP Sharesave
subject to a holding period
Grant date 17 November 17 November 31 October
2023 2023 2023
Shares granted 6,740,256 2,348,681 6,841,037
Share price at grant 107.8p 107.8p 100.8p
Exercise price nil nil 90.0p
Expected term 3 years 3 years 3.3 years
Holding period n/a 2 years n/a
Expected volatility 37.9% 32.9% 43.7%
Risk-free interest rate 4.23% 3.97% 4.50%
Dividend yield n/a n/a 0.0%
Value per option:
LTIP - Market condition (25%)(1,3) 88.8p 83.0p -
LTIP - Non-market conditions (75%)(2,3) 107.8p 100.8p -
Sharesave (2) - - 40.7p
(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 value per option represents the fair value of the option less any
consideration payable. The fair value of the proportion of the awards subject
to performance conditions that are market conditions under IFRS 2 'Share-based
Payments' (the total shareholder return 'TSR' element) incorporates an
assessment of the number of shares that will vest.
Performance conditions linked to adjusted earnings per share, free cash flow
and carbon reduction are non-market conditions under IFRS 2. Therefore, the
fair value of these elements do not include an assessment of the number of
shares that will vest. Instead, the amount charged is based on the fair values
factored by a 'true-up' for the number of awards that are expected to vest.
The expected volatility is based on historical volatility over the period of
time commensurate with the expected award term immediately prior to the date
of grant. The risk-free rate of return is the yield on UK Government
securities over a term consistent with the expected term.
The share-based payment charge recognised in the Group's income statement for
the six months to 31 December 2023 was £4.4m (six months to 31 December 2022:
£3.4m; year ended 30 June 2023: £8.4m).
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 2023 at a
cost of £4.1m (six months to 31 December 2022 and year ended 30 June 2023:
£12.4m), net of shares transferred to deferred bonus recipients for proceeds
of £0.4m (six months to 31 December 2022 and year ended 30 June 2023:
£0.5m), are reflected in the statement of changes in equity as a net purchase
of own shares of £3.7m (six months to 31 December 2022 and year ended 30 June
2023: £11.9m).
At 31 December 2023, a total of 11,804,281 shares were held by the trusts (31
December 2022: 17,001,979 shares; 30 June 2023: 16,952,961 shares), with an
historic cost value of £9.0m (31 December 2022: £11.2m; year ended 30 June
2023: £11.2m).
17 Guarantees and contingent liabilities
The Company has given guarantees and entered into counter-indemnities in
respect of Senior Notes 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 compliance review
The Group monitors the position on all of its current and legacy constructed
buildings where it has used cladding solutions and continues to assess the
action required in line with the latest updates to Government guidance, as it
applies, to multi-storey and multi-occupied residential buildings. The
buildings, including the cladding works, were signed off by approved
inspectors as compliant with the relevant Building Regulations at the time of
completion.
In preparing the financial statements, currently available information has
been considered, including the current best estimate of the extent and future
costs of work required, based on the reviews and physical inspections
undertaken.
Where an obligation has been established and a reliable estimate of the costs
to rectify is available, a provision has been made. No provision has been made
where an obligation has not been established.
These estimates may be updated as further inspections are completed and as
work progresses which could give rise to the recognition of further
liabilities. Such liabilities, should they arise, are expected to be covered
materially by the Group's insurance arrangements thereby limiting the net
exposure. Any insurance recovery must be considered virtually certain before a
corresponding asset is recognised and so this could potentially lead to an
asymmetry in the recognition of assets and liabilities.
18 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 2023.
Details of contributions made to the pension schemes by the Group are detailed
in note 6.
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