14 September 2023

Kier Group plc

Strong financial performance and significantly improved cash generation:

intention to return to the dividend list in FY24

Kier Group plc ("Kier", the "Company" or the "Group"), a leading UK infrastructure services, construction and property group, announces its results for the year ended 30 June 2023 ("FY23" or the "year").

Highlights
(£m unless otherwise stated)	Year to 30 June 20231	Year to 30 June 20221	Change
Adjusted results
Revenue2	3,405.4	3,256.5	4.6%
Adjusted operating profit3	131.5	120.5	9.1%
Adjusted operating margin	3.9%	3.7%	20bps
Adjusted profit before tax4	104.8	94.1	11.4%
Adjusted basic earnings per share (note 9)	19.2p	16.8p	14.3%
Net cash5	64.1	2.9	2,110.3%
Average month-end net debt	(232.1)	(216.1)	(7.4)%
Statutory reported
Group revenue	3,380.7	3,143.9	7.5%
Profit from operations	81.5	45.1	80.7%
Profit before tax	51.9	15.9	226.4%
Basic earnings per share (note 9)	9.5p	2.9p	227.6%

¹Continuing operations

2Revenue of the Group and its share of revenue from joint ventures

3 Stated before adjusting items of £30.8m (FY22: £55.7m) and amortisation of acquired intangible assets of £19.2m (FY22: £19.7m).

4 Stated before adjusting items of £33.7m (FY22: £58.5m) and amortisation of acquired intangible assets of £19.2m (FY22: £19.7m).

5 Disclosed net of the effect of hedging instruments and excludes leases - see note 12 to the preliminary financial statements.

 

FY23 Highlights 

·    Strong financial performance despite ongoing inflationary pressures

 

o Revenue growth of 4.6% driven by strong operational delivery  

o Adjusted operating profit increased 9.1% to £131.5m (FY22: £120.5m)

o Adjusted operating margin at 3.9%, ahead of the medium-term target of c.3.5%

o Adjusted basic EPS: 19.2p (FY22: 16.8p), up 14.3%

o Reported profit from operations increased 80.7% to £81.5m (FY22: £45.1m)

o Free Cash Flow of £132.3m, driven by an operating cash conversion of 129.7% following a strong Q4 performance

o Net cash of £64.1m, significantly higher than prior year-end (FY22: £2.9m) and achieved after fully repaying £49.8m KEPS

o Strong cash generation and repayment of debt-like items. Average month-end net debt at £(232.1)m

·    Intention to resume dividend payments in FY24, commencing with an interim dividend  

 

·    High quality order book, increased 3.1% to £10.1bn (FY22: £9.8bn) providing significant visibility over FY24

 

·    Bolt-on acquisition of rail assets announced post year-end

 

·    Pension scheme triennial valuation agreed resulting in decreased deficit payments

 

·    Updated sustainability framework reinforces commitment to ESG targets

 

Andrew Davies, Chief Executive, said:

"The Group has achieved considerable operational and financial progress over the last two years. This is reflected in the significantly improved financial performance of the Group over the last year. It is testament to the hard work and commitment of our people who have enhanced our resilience and strengthened our financial position in line with the objectives set out in our medium-term value creation plan. Our order book remains strong at £10.1bn and provides us with good, multi-year revenue visibility. The contracts within our order book reflect the bidding discipline and risk management now embedded in the business. I am also particularly pleased to report, the Group significantly improved its year-end net cash position and has confidence in sustaining this momentum going forward. 

The new financial year has started well, and we are trading in line with our expectations. The Group is well positioned to continue benefiting from UK Government infrastructure spending commitments and we are confident in sustaining the strong cash generation evidenced this year. This, combined with our focus on operational delivery, gives the Group a clear line-of-sight to significantly de-lever.  As a result, the Group intends to resume dividend payments during FY24, with the first dividend to be declared alongside our interim results."

 

FY23 Results Presentation

Kier Group plc will host a presentation for analysts and investors at 9:00am on 14 September 2023 at the offices of FTI Consulting, 200 Aldersgate Street, London EC1A 4HD.

Analysts wishing to attend should contact FTI Consulting to register - [email protected]

Analysts unable to attend in person will be able to join the webcast using the details below:

Webcast: https://www.investis-live.com/kier/64d201c1383e901300a364b6/tyej 

United Kingdom: 0800 358 1035

United Kingdom (Local): 020 4587 0498

All other locations: 44 20 4587 0498

Conference password: 038464

An audio recording will be available on our website in due course.

Online Retail Investor Presentation

Andrew Davies, Chief Executive Officer and Simon Kesterton, Chief Financial Officer will be hosting a live online retail investor presentation at 10:30am on Thursday 28 September 2023.  To attend, please register via the following link: Zoom Webinar Registration - Kier Group investor presentation.

 

Further Information: Kier Group plc
Investor Relations	+44 (0) 7933 388 746
Kier Press office	+44 (0) 1767 355 096
FTI Consulting	+44 (0) 20 3727 1340
Richard Mountain

 

Cautionary Statement

This announcement does not constitute an offer of securities by the Company. Nothing in this announcement is intended to be, or intended to be construed as, a profit forecast or a guide as to the performance, financial or otherwise, of the Company or the Group whether in the current or any future financial year. This announcement may include statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', ''plans'', ''target'', ''aim'', ''may'', ''will'', ''would'', ''could'' or ''should'' or, in each case, their negative or other variations or comparable terminology. They may appear in a number of places throughout this announcement and include statements regarding the intentions, beliefs or current expectations of the directors, the Company or the Group concerning, amongst other things, the operating results, financial condition, prospects, growth, strategies and dividend policy of the Group or the industry in which it operates. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Group's actual operating results, financial condition, dividend policy or the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in this announcement. In addition, even if the operating results, financial condition and dividend policy of the Group, or the development of the industry in which it operates, are consistent with the forward-looking statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that could cause these differences include, but are not limited to, general economic and business conditions, industry trends, competition, changes in government and other regulation, changes in political and economic stability and changes in business strategy or development plans and other risks.

Other than in accordance with its legal or regulatory obligations, the Company does not accept any obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Principal Risks and Uncertainties

You are advised to read the section headed ''Principal risks and uncertainties'' in the Company's Annual Report and Accounts for the year ended 30 June 2022 for a discussion of the factors that could affect the Group's future performance and the industry in which it operates.

 

About Kier

Kier is a leading UK infrastructure services, construction and property group.

We provide specialist design and build capabilities and the knowledge, skills and intellectual capital of our people ensure we are able to project manage and integrate all aspects of a project.

We take pride in bringing specialist knowledge, sector-leading experience and fresh thinking to create workable solutions for our clients across the country.

Together, we have the scale and breadth of skills of a major company, while retaining a local focus and pride that comes from never being far from our clients, through a network of offices spanning across England, Wales, Scotland and Northern Ireland.

For further information and to subscribe to our news alerts, please visit: www.kier.co.uk

Follow us on X (formerly Twitter): @kiergroup

Connect with us on LinkedIn: Kier Group

 

 

 

Introduction

Over the last two years, Kier has undergone a transformation, rationalisation and recapitalisation. The Group announced and committed to a medium-term value creation plan in FY21 and our focus has been to deliver against the targets we set.

The medium-term plan focused on increasing revenue, increasing margin and increasing operating cash generation thus enabling debt reduction providing a stronger balance sheet with a commitment to reintroducing dividends at the appropriate time.   FY23 saw a significant improvement in the net cash balance to £64.1m which gives us a clear line-of-sight to an average net cash position and gives the Board confidence in announcing its intention to return to the dividend list in the current financial year.   

The success for future years is underpinned by the year-end order book growing to £10.1bn in FY23, an increase of 3.1% against the prior year, reflecting a large number of contract wins across all divisions and providing multi-year revenue visibility. Long-term framework positions, as well as pipeline opportunities and income from the Property division, are excluded from the order book and represent an additional opportunity. Given the order book strength and Kier's framework positioning, approximately 85% of Group revenue for FY24 is already secured which provides us with a high degree of confidence of further progress against a backdrop of wider market uncertainty.

Kier won new, high quality and profitable work in our markets reflecting the bidding discipline and risk management embedded in the business.

 

Medium-term value creation plan

The Group is focused on delivering its medium-term targets over a three to five year period:

 

Revenue:	£4.0bn - £4.5bn
Adjusted operating profit margin:	c.3.5%
Cash conversion of operating profit:	c.90%
Balance sheet:	Sustainable net cash position with capacity to invest
Dividend:	Sustainable dividend policy: c.3 x earnings cover through the cycle

 

The Group aims to achieve these medium-term targets through:

·    volume growth and improved contract profitability;

·    continued management discipline; and

·    deploying additional capital in the Property business.

The Group continues to make good progress against these targets with free cashflow conversion and profit margins met consistently over the past reporting period. Despite political and economic uncertainties, our core markets have remained favourable. We are a "strategic supplier" to the UK Government and c.94% of our contracts are with the public sector and regulated companies.

 

Customers and winning new work

We remain focused on winning work through our long-standing client relationships and regionally based operations.

Highlights in the year:

·    Highways: appointed by National Highways to carry out an essential maintenance programme on eight viaducts at Lune Gorge, spanning the M6

·    Utilities: reappointed to the £55m per annum, three-year extension of the Network Service Alliance framework by South West Water and Bournemouth Water

·    Construction: appointed to the £5.1bn Strategic Alliance Contract Framework in relation to the Defence Estate Optimisation ("DEO") Portfolio by the Ministry of Defence; re-appointed to the £4.5bn Southern Construction Framework

o Kier Places - appointed by L&Q for its Major Works Investment Programme to deliver housing maintenance across its estate

·    Property: started work on site at our Trade City scheme in Manchester

 

Strategy

The simplification and strengthening of the Group's balance sheet has resulted in Kier being well-placed to continue to pursue its strategic objectives successfully within its chosen markets and allow it to further enhance and capitalise on its position as a strategic partner to its customers.

The Group's strategy continues to be focused on:

·      UK Government, regulated industries and blue-chip customers;

·      operating in the business-to-business market; and

·      contracting through long-term frameworks.

Our core businesses are well-placed to benefit from the UK Government spending commitments to invest in infrastructure and the significant investment plans announced by regulated UK asset owners. We have secured places on the long-term frameworks through which much of the increased spend will be deployed.

This, combined with our regional coverage, customer relationships and project management expertise, will enable our strategic actions of disciplined growth, consistent delivery and strong cash generation.

 

Financial summary

Kier's revenue of £3.4bn (FY22: £3.3bn) reflects growth in both the Infrastructure Services and Construction segments, offset by the anticipated reduction in the Property business driven by market conditions.  

The Group's FY23 results demonstrate a strong performance despite continuing cost inflation relating to materials, wages and other costs. We remain successful in mitigating these pressures through having c. 60% of our order book under target cost or cost reimbursable contracts, procurement strategies and negotiations on fixed price contracts. With over 400 live projects at any given time, we are also regularly delivering existing contracts and pricing new contracts which mitigates against cost pressures. In addition, we have an average order size of c. £16m in our Construction business which given its modest size, limits our risk exposure in the event a project does not go to plan.   

The Group delivered adjusted operating profit of £131.5m which represents a 9.1% increase on the prior year (FY22: £120.5m). Both our Infrastructure Services and Construction segments performed well in the year, partially offset by the expected reduction within the Property segment.  Group adjusted operating profit margin increased by 20 basis points to 3.9% (FY22: 3.7%). Reported profit from operations increased 80.7% to £81.5m (FY22: £45.1m) with a reduction in adjusting items.

Adjusted earnings per share increased 14.3% to 19.2p (FY22: 16.8p) and reported earnings per share increased 227.6% to 9.5p (FY22: 2.9p) as revenue converted to profitability and adjusting items reduced.  

The Group generated £132.3m of free cash flow in FY23 (FY22: £54.6m), a significant increase over the prior year. The Group's revenue growth in Infrastructure Services and Construction converted to increased profit and cash. In addition, the Group experienced a seasonal working capital inflow of £80.3m, predominantly driven by Construction.

The Group's net cash position at 30 June 2023 was £64.1m (FY22: £2.9m) with supplier payment days remaining consistent with the prior year.

Average month-end net debt for the year ended 30 June 2023 was £(232.1)m (FY22: £(216.1)m). As outlined in our FY22 results, the Group expected an increase in average month-end net debt due to the anticipated repayment of debt-like items such as KEPS and lower activity in our Construction business until the fourth quarter of the year. The average month-end net debt balance of £(232.1)m was better than expected due to mitigating actions taken through the year.  The Group used positive operating cash flow to repay the average KEPS balance of £56.2m, to pay pension deficit obligations and to repay the remaining HMRC COVID-19 support of £6.1m.

The Group fully repaid its remaining £49.8m KEPS programme in July 2022 followed by a repayment of all its Schuldschein Notes and certain of the US Private Placement ('USPP') Notes totalling £43.8m.

The Group's Revolving Credit Facility ('RCF') also reduced by £40.0m, in line with the facility agreement.

Capital allocation

In addition to the medium-term value creation plan, the Group has set out its capital allocation priorities. The Group maintains a disciplined approach to capital and continuously reviews capital allocation priorities with the aim of maximising shareholder returns. The Group's capital allocation is underpinned by its commitment to maintain a strong balance sheet. The capital priorities are:

·      Capex - investment to support its businesses

·      Property - disciplined non-speculative investment in the Property segment

·      De-leveraging - further de-leveraging. Targeting a sustainable net cash position in the medium-term and a funding profile which is appropriate for the medium and long-term needs of the Group

·      Dividend - reinstating the dividend is key to ensuring that shareholders share the benefits of the Group's growth. In the medium-term, the Group is targeting a dividend cover of around three times through the cycle

·      Mergers and acquisitions - the Group will consider value accretive acquisitions in core markets where there is potential to accelerate the medium-term value creation plan.

 

Dividend

As part of the medium-term value creation plan, the Board intended to reinstate dividends when a near-term pathway to operating with an average net cash position was clear.

Given the Group's strong operational and financial performance over the last year, the year-end net cash position and confidence over further progress in the short term, the Board is able to confirm its intention to commence dividend payments to shareholders. Over time, we will progress to deliver a dividend, covered 3x by earnings and in a payment ratio of one-third interim dividend and two thirds final dividend. The first dividend is expected to be announced alongside the interim results.

 

Acquisition

On 4 September 2023, after the year-end, Kier agreed to acquire substantially all of the rail assets of Buckingham Group Contracting Limited ("in Administration") and their HS2 contract supplying Kier's HS2 joint venture, EKFB, for a total cash consideration of up to £9.6m.

The Group has previously stated it would consider value accretive acquisitions in core markets where there is potential to accelerate the medium-term value creation plan. This is an excellent example of an acquisition which provides a cultural fit as well as accelerates Kier's broader rail strategy.

Kier is delivering a number of projects across the rail sector including a £65m upgrade to Oxford Railway Station.  The acquisition provides Kier with new rail clients and increases our capabilities across the UK. The acquisition also brings c.180 employees to the Group consisting of high-quality individuals with expertise in the rail sector, further enhancing Kier's talent pool.

The rail assets consisted of design, build and project integration contracts for a range of customers including Network Rail. In addition, the Group acquired a limited amount of working capital in the form of trade debtors, work in progress and client retentions. The transaction was implemented by way of a purchase out of administration.

Kier observes a disciplined risk management process, a result of which is that historical contractual liabilities recognised prior to the completion date were not acquired. The acquisition also provides operational stability and defensiveness to Kier's HS2 joint venture, EKFB.

Given its modest size, the Group does not believe this will materially impact its forecasts for FY24, nor its year-end net cash or average net debt position. For FY25, the Group expects acquisition revenue of c.£50m-£75m.

 

Pension

During the year the Group agreed the triennial valuation for funding its defined benefit pension schemes. Given the Group's improved pension covenant and payments made under the existing schedule of contributions, the schemes are now in a significantly improved position, resulting in reducing deficit contributions to be made over the coming years concluding in FY28.

 

Performance Excellence

Through our Performance Excellence culture, which was introduced in 2020, Kier has embedded a strong operational and financial risk management framework across the Group. It is essential to, and embedded into, Kier's contract selection and delivery processes. 

Following the evolution of the Performance Excellence programme during 2022, the focus in 2023 has been on the five workstreams of Culture and Behaviours, Customers, Digital, Simplification and Wellbeing. These workstreams ensure we continue to meet our obligations to the environment and the communities we work within, as well as our investors and client expectations.

The key tenets are as follows:

·    measure clients' and customers' experiences objectively, using data to improve our external relationships

·    adopt a digital-first approach through a digitally enabled workforce increasing productivity

·    instil best practices in our workforce through behaviour, cultural programmes, and wellbeing initiatives

·    simplify processes across the Group; and

·    win new business with attractive margins.

Performance Excellence is also fundamental to the Group's overall approach to safety. We aim to continually improve the Group's processes and performance by operating through this framework.

The Group's focus for FY24 will be on Digital and Simplification.

 

Supply chain partners

We continue to focus on maintaining and growing relationships with our key stakeholders, including our supply chain. Many of our suppliers are long-term partners of the Group and we value their contribution.

We were pleased to report that, in our latest Duty to Report on Payment Practices and Reporting submission, covering the period from 1 January 2023 to 30 June 2023, the Group's aggregate average payment days was maintained at 34 days (H1: 34 days) and the percentage of payments made to suppliers within 60 days was 85% (H1: 87%).

We are committed to further improvements in our payment practices and continue to work with both customers and suppliers to achieve this. We are fully committed to complying with the 30-day payment requirements for small and medium sized firms.

 

Management change

The Group has continuously focused on the strength of its talent and succession management. This was demonstrated in the year with Louisa Finlay's promotion to Chief People Officer. Stuart Togwell was appointed as Group Managing Director, Construction.   

 

Environmental, Social and Governance ("ESG")

Kier's purpose is to sustainably deliver infrastructure which is vital to the UK. As a "strategic supplier" to the UK Government, ESG is fundamental to our ability to win work and secure positions on long-term frameworks. UK Government contracts with a value of or above £5m require net zero carbon and social value commitments.

In 2023 we reinforced our commitment to Kier's and Government's ESG targets through the launch of our refreshed sustainability framework, "Building for a Sustainable World" which covers sustainability from both an environment and social perspective. Our framework has evolved to focus on the three key pillars of People, Places and Planet with new metrics to monitor progress.  

We believe that to be a responsible business and to play a leading role in our industry, we must address both the impact of climate change and leave a lasting legacy in the communities in which we operate.

Environment

The Group has set out its pathway to become net zero carbon across all business operations by 2039 (scope 1 and 2), value chain (scope 3) by 2045 together with interim targets.

FY23 was another year of progress and we achieved an 18.7% year-on-year reduction in carbon emissions from our business operations (scope 1 and 2). We have worked with partners to refine our scope 3 carbon measurement.  This indicated a reduction of c.7% in scope 3 emissions in the year. The Group re-based its scope 3 emissions as it further expanded the categories included in its emissions reporting.   

The net zero carbon milestone plan for scope 1 and 2 has been updated as we evolve our Building for a Sustainable World framework. As Kier is a Tier 1 supplier, the majority of its carbon emissions relate to the use of fuel, either on our sites or travel to our sites.

Accordingly, our pathway to being net zero by 2039 includes the following key short- and medium-term actions: rolling out ultra-low emission and electric vehicles across our fleet; ensuring our sites and facilities use energy efficient technology; reviewing opportunities to self-deliver electricity; enhanced data management with the supply chain and increased usage of design to address scope 3.   

The plan is designed to help deliver our FY30 near-term targets of:

·    a 66% absolute reduction in scope 1 and 2 emissions; and

·    a 42% absolute reduction in scope 3 emissions.

As well as reducing our own carbon footprint, Kier continues to work with its clients to design out carbon from UK infrastructure projects and with our supply chain to reduce their carbon emissions.

Social

The Group's 12-month rolling Accident Incident Rate ('AIR') in FY23 of 88 represents a decrease of 23% compared to FY22 and indicates the focus given to it during the year and also our approach to risk which is improving our safety management.

 

The Group's 12-month rolling All Accident Incident Rate ('AAIR') in FY23 of 320 increased by 1%.

 

Following an investigation by the UK's national regulator for workplace health and safety, the Health and Safety Executive ('HSE'), on 23 January 2023 the Group was fined £4.4m for safety breaches in connection with two incidents in our Highways business dating back to March 2018 and January 2019. The incidents relate to work carried out on the M6 motorway.  Since these incidents occurred the Highways business has been very successful in transforming and improving its safety record. Throughout the year to June 2023, Kier had market leading safety performance as recognised by National Highways.

Kier is a people-based business and our performance depends upon our ability to attract and retain a dedicated workforce. During FY23 we had: 

·    646 apprentices participating in programmes, representing c.6% of our workforce

·    graduate intake of 115 of which 43% comprised of women; and  

·    developed and implemented a new health, safety and wellbeing strategy as well as launched a new behavioural programme

We continue to deliver apprenticeships as a key means of upskilling employees and bringing in diverse emerging talent to reduce the industry skills gap. We contribute to a variety of educational engagement activities, including playing a leading role in Open Doors Week and Teacher Encounters, to introduce students and teachers to the construction industry.  

Governance

Governance is a core component of the Group's approach to operations. Governance is delivered within Kier's Operating Framework. The laws, policies and procedures underpinning the Operating Framework are regularly reviewed and updates implemented as necessary. Within the Operating Framework is Kier's Code of Conduct which sets the corporate compliance agenda.

Integral to this is our management of risk. We ensure that risk management is adopted at every stage of the project lifecycle to ensure that the delivery of the Group's order backlog remains profitable and cash generative in line with our medium-term value creation plan.

Our people

I would like to thank our c.10,000 people for their dedication, contribution and commitment throughout the last year and this is reflected in the performance of the Group and the significantly improved financial position.

People are at the heart of our Group and we ensure that we pay them a competitive wage and offer support through the cost-of-living crisis.  Since April 2021 the Group has been an accredited Real Living Wage employer. The cost-of-living crisis has resulted in the Group accelerating the application of the Real Living Wage from April to January, for c.850 people and we are working to extend this to all those employed on a Kier site.  Kier employees received, on average, a 4% pay rise in FY23 and we intend to offer a further pay rise of up to 5% in FY24.

We have also focused on many other areas of employee welfare and support with other key initiatives such as:

·    Inflation support payment - we awarded c.800 employees with an inflation support payment of £300 in November 2022. This payment was in addition to the pay increases noted above and was targeted to provide financial support to those who we believe are most challenged with the high increases in food, energy and household bills

 

·    Enhanced sick pay - we have also implemented enhanced sick pay terms for our lowest paid employees, providing them with increased financial peace of mind if they are absent from work due to sickness

 

·    Financial support - financial support for employees is always an important area and has been magnified by the cost-of-living pressures. For our workforce that need additional financial support we have introduced support and guidance in the form of Salary Finance. Salary Finance provides education and a savings option through HMRC's Help to Save scheme as well as responsible loans

 

·    Mortgage advice - we have arranged a bespoke service, providing our employees with free professional mortgage and financial advice.

 

 

We are continuing to review the rising cost of living on our lowest paid employees and contingent workers. We will consider taking further steps as appropriate.

Focus has also been made on wellbeing including such initiatives as Employee Voice, a survey which enables employee engagement. We are currently extending our culture and behavioural programme across our people and by listening to them our surveys show a 65% employee engagement score for FY23, an increase from the previous year (FY22: 58%).

Summary and outlook                                

The Group has achieved considerable operational and financial progress over the last two years. This is reflected in the significantly improved financial performance of the Group over the last year. It is testament to the hard work and commitment of our people who have enhanced our resilience and strengthened our financial position in line with the objectives set out in our medium-term value creation plan. Our order book remains strong at £10.1bn and provides us with good, multi-year revenue visibility. The contracts within our order book reflect the bidding discipline and risk management now embedded in the business. I am also particularly pleased to report, the Group significantly improved its year-end net cash position and has confidence in sustaining this momentum going forward. 

The new financial year has started well, and we are trading in line with our expectations. The Group is well positioned to continue benefiting from UK Government infrastructure spending commitments and we are confident in sustaining the strong cash generation evidenced this year. This, combined with our focus on operational delivery, gives the Group a clear line-of-sight to significantly de-lever.  As a result, the Group intends to resume dividend payments during FY24, with the first dividend to be declared alongside our interim results.

 

Operational Review

Infrastructure Services

	Year ended 30 June 2023	Year ended 30 June 2022	Change
Revenue (£m)	1,712.3	1,666.6	2.7%
Adjusted operating profit (£m)6	79.8	70.0	14.0%
Adjusted operating margin (%)	4.7%	4.2%	50bps
Reported operating profit (£m)	57.2	48.1	18.9%
Order book (£bn)	5.8	5.6	3.6%

6Stated before adjusting items of £22.6m (FY22: £21.9m).

 

·      Key contract wins include:

o Highways: appointed by National Highways to carry out an essential maintenance programme on eight viaducts at Lune Gorge, spanning the M6

 

o Utilities: reappointed to the £55m per annum, three-year extension of the Network Service Alliance framework by South West Water and Bournemouth Water  

 

·      76% of orders secured for FY24

 

Infrastructure Services segment comprised the Highways, Infrastructure and Utilities businesses.

Infrastructure Services revenue increased 2.7% against the prior year primarily due to the continued ramp up of capital works on HS2. Adjusted operating profit increased 14.0% to £79.8m due to higher HS2 volumes. Adjusting items include £1.5m for the HSE fine in relation to Highways.

The Highways business designs, builds and maintains roads for National Highways, Transport for London and a number of city, county and district councils. The business experienced a period of strong wins, including new contracts and contract extensions in maintenance projects, alongside the design and build of three National Highways major capital projects as the business has transitioned from one predominantly maintenance focused to both maintenance and capital works.

The Infrastructure Projects business delivers major and complex infrastructure and civil engineering projects, including HS2, Devonport, Oxford Railway Station, Mogden Sewage and Treatment Works and Hinkley Point C.  Infrastructure experienced a ramp up in HS2 volumes during the period.

The Utilities business provides construction and maintenance services under long-term contracts, to the water, energy, and telecoms sectors. The Utilities business had anticipated higher volumes in the telecoms sector with the UK Government's commitment to rolling out 5G connectivity to the UK. However, changes to market conditions has resulted in reduced activity, which in turn has had an adverse impact on the telecoms margin. 

Re-alignment

From 1 July 2023 the announced re-alignment of the Infrastructure Services segment took effect and the three business units became two.  This change ensures we are able to support our growth ambitions and align our capabilities, skills and expertise to the evolving needs of our clients.

•    Transportation: this business division provides design, engineering, delivery and maintenance to support the movement of people, goods and equipment by land, sea and air.  It includes our existing highways business and infrastructure projects relating to rail, ports and air.

 

•    Natural Resources, Nuclear & Networks: this business division includes our existing utilities business and infrastructure projects related to water, energy, nuclear and networks.

The re-alignment positions Kier in an even stronger standing to pursue our strategic objectives within our chosen markets given the UK Government's commitment to £600bn of public sector spending and the significant investment plans by UK asset owners in the regulated sector.

 

Construction

	Year ended 30 June 2023	Year ended 30 June 2022	Change
Revenue (£m)	1,652.5	1,440.8	14.7%
Adjusted operating profit (£m)7	69.5	60.8	14.3%
Adjusted operating margin (%)	4.2%	4.2%	- bps
Reported operating profit (£m)	46.4	21.8	112.8%
Order book (£bn)	4.3	4.2	2.4%

7 Stated before adjusting items of £23.1m (FY22: £39.0m)

·      Key contract wins include:

o The £5.1bn Strategic Alliance  Framework Contract in relation to the Defence Estate Optimisation ("DEO") Portfolio by the Ministry of Defence

 

o Re-appointment to the £4.5bn Southern Construction Framework

 

o Kier Places appointed by L&Q for its Major Works Investment Programme to deliver housing maintenance across its estate

 

·    95% of orders secured for FY24

·    Significant growth in volumes in the second half of the year

The Construction segment comprises Regional Building, Strategic Projects, Kier Places (including Housing Maintenance, Facilities Management and Environmental Services), as well as our International business. Construction has national coverage delivering schools, hospitals, defence, custodial facilities and amenities centres for local authorities, councils and the private sector.

Revenue increased 14.7% due largely to the start of works on the new custodial facility, HMP Millsike in East Yorkshire, and growth in Kier Places as we benefit from increased facilities and housing management contracts.

Adjusted operating profit increased 14.3% to £69.5m driven by increased volume and the impact of the prior year's restructuring. Adjusting items include £12.6m relating to fire cladding costs, £5.2m of restructuring and related charges and a net £5.3m in relation to historical insurance claims. Adjusting items are significantly lower than last year, resulting in reported operating profit growing 112.8% to £46.4m.

As a regional contractor, we continue to be well placed to benefit from the UK Government's focus on spending to improve under-invested assets such as schools, hospitals and custodial services, where our Construction business has specialist expertise.

Our Kier Places business specialises in working in occupied properties including residential, offices, and other facilities delivering maintenance, repairs, fire safety and compliance services.

It is focused on central Government for our facilities management work and delivering housing maintenance services for local authorities.  The net zero agenda alongside changes to building safety regulations continue to drive opportunities within the housing maintenance business. These have allowed the business to benefit from increased revenue volume and profitability including those from long-term maintenance contracts. 

The UAE-based International business is focused on managing its cost base and projects in line with the continued weakness in its markets.

 

Property

	Year ended 30 June 2023	Year ended 30 June 2022	Change
Revenue (£m)	37.6	144.3	(73.9)%
Adjusted operating profit (£m)8	12.8	17.6	(27.3)%
Adjusted operating margin (%)	34.0%	12.2%	2,180bps
Reported operating profit (£m)	14.3	16.7	(14.4)%
Capital employed - new (£m)	150	122	23.0%
ROCE - new (%)	9.4%	13.7%	(430)bps
Capital employed (£m)	175	122	43.4%
ROCE (%)	8.6%	13.7%	(510)bps

⁸Stated before adjusting items of £(1.5)m (FY22: £0.9m)

 

·      Commenced redevelopment work at 19 Cornwall Street Birmingham to transform it into an office operating at net zero carbon

·      Entered a Joint Venture partnership with Countryside to deliver a housing development in South Wokingham

·      Benefitted from planning consent for a wind farm to be developed on the former Greenburn Mine site

The Property business invests and develops primarily mixed-use commercial and residential schemes across the UK. The business is a well-established urban regeneration and property developer and largely operates through joint ventures and does not make speculative investments.

Revenue of £37.6m and adjusted operating profit of £12.8m during the year was driven by lower transaction activity as a result of market conditions, in contrast to a higher level of transactions in the prior year. Property recognised a fair value gain of £13.2m within other income related to two transactions in its investment property unit during the year.

The Group has focused on the controlled expansion of the Property business through select investments and strategic joint ventures using a disciplined capital approach. 

In order to make the reported capital employed meaningful, we plan on amending the definition so that it excludes fair value gains and third party debt.  We believe this better reflects the Group's investment in the Property segment.

As at 30 June 2023, Kier's capital employed in the Property segment was £175m, including third party debt and fair value gains.  Excluding these items, it would have been £150m.  Due to the Group's increased operating cash flows, the benefit of building out projects such as 19 Cornwall Street in Birmingham and market conditions we are reviewing the upper end of capital employed in our Property segment, which is currently at £170m. 

 

Corporate

	Year ended 30 June 2023	Year ended 30 June 2022	Change
Adjusted operating loss (£m)9	(30.6)	(27.9)	(9.7)%
Reported operating loss (£m)	(36.4)	(41.5)	12.3%

⁹Stated before adjusting items of £5.8m (FY22: £13.6m)

 

The Corporate segment comprises the costs of the Group's central functions which have increased over the prior year due to inflation and investment in people to support the Group's growth.

 

Financial Review

Introduction

The Group performed well during the year and delivered an adjusted operating profit of £131.5m (FY22: £120.5m). This represents a 20 basis points operating margin increase over the prior period to 3.9% (FY22: 3.7%) with the Group exceeding its medium-term value creation plan margin target of c.3.5% ahead of time.

The continued strong operational performance, together with lower adjusting items, led to a significant increase in profit from operations to £81.5m (FY22: £45.1m) and a 226.4% increase in profit before tax to £51.9m (FY22: £15.9m).

Adjusting items reduced by 32.4% to £52.9m (FY22: £78.2m).  The current year charge includes £19.2m of amortisation of intangible contract rights, £12.6m of fire and cladding costs, £13.0m of restructuring and related charges and a net £5.3m in relation to historical insurance claims.  The Group believes its restructuring activities are now substantially complete.

Adjusted earnings per share increased 14.3% to 19.2p (FY22: 16.8p).

The Group generated a free cash inflow of £132.3m during the year (FY22: £54.6m) driven by a strong working capital performance, in particular driven by growth in Q4 within the Construction business.

Net cash at 30 June 2023 of £64.1m increased significantly compared to the prior year (FY22: £2.9m), driven by the strong free cash flow performance. The net cash increase was achieved despite the Group repaying its supply chain facility ('KEPS'), adjusting items, pension deficit obligations and purchasing existing Kier shares for future employee share-based remuneration.

Average month-end net debt for the year ended 30 June 2023 was £(232.1)m (FY22: £(216.1)m). As outlined in our FY22 results, the Group expected an increase in average month-end net debt due to the anticipated repayment of debt-like items such as KEPS and lower activity in our Construction business until the fourth quarter of the year. The average month-end net debt balance of £(232.1)m was better than expected due to mitigating actions taken through the year.  The Group used positive operating cash flow to repay the average KEPS balance of £56.2m, to pay pension deficit obligations and to repay the remaining HMRC COVID-19 support of £6.1m.

The Group continued to win new, high-quality and profitable work in its markets on terms and rates which reflect the Group's bidding discipline and risk management.

The order book has increased to £10.1bn (FY22: £9.8bn), a 3.1% increase compared to the prior year end. c.85% of revenue for FY24 is already secured which provides certainty of further progress over next year.

 

Summary of financial performance

	Adjusted10 results			Reported results
	30 Jun 23	30 Jun 22	change %	30 Jun 23	30 Jun 22	change %
Revenue (£m) - Total	3,405.4	3,256.5	4.6	3,405.4	3,256.5	4.6
Revenue (£m) - Excluding JV's	3,380.7	3,143.9	7.5	3,380.7	3,143.9	7.5
Profit from operations (£m)	131.5	120.5	9.1	81.5	45.1	80.7
Profit before tax (£m)	104.8	94.1	11.4	51.9	15.9	226.4
Earnings per share (p)	19.2	16.8	14.3	9.5	2.9	227.6
Free cash flow (£m)	132.3	54.6	142.3
Net cash (£m)	64.1	2.9	2,110.3
Net debt (£m) - average month end	(232.1)	(216.1)	(7.4)
Order book (£bn)	10.1	9.8	3.1
Supply Chain Financing (£m)	-	(49.8)	100.0

¹⁰Reference to 'Adjusted' excludes adjusting items, see note 5. 

 

 

Revenue

The following table bridges the Group's revenue from the year ended 30 June 2022 to the year ended 30 June 2023.

	£m
Revenue for the year ended 30 June 2022	3,256.5
Infrastructure Services	45.7
Construction	211.7
Property and Corporate	(108.5)
Revenue for the year ended 30 June 2023	3,405.4

 

The Group grew revenue in both Infrastructure Services and Construction, which more than offsets the lower revenue in Property. In particular the growth within Infrastructure Services was driven by the ramp up of HS2. Utilities had anticipated higher volumes in the telecoms sector, however, changes to market conditions has resulted in reduced activity. This has had an adverse impact on the telecoms margin. Construction's improved performance was driven by its Kier Places business as well as HMP Millsike, in East Yorkshire.

Property transactions were down as expected due to a deterioration in market conditions. The deterioration was anticipated and therefore the Group accelerated the sale of certain portfolio items in the second half of the prior year to take advantage of the market conditions at the time.  

The Group continues to focus on delivering high-quality and high-margin work.

 

Alternative performance measures ('APMs')

The Directors continue to consider that it is appropriate to present an income statement that shows the Group's statutory results only. The Directors, however, still believe it is appropriate to disclose those items which are one-off, material or nonrecurring in size or nature. The Group is disclosing as supplementary information an 'adjusted profit' APM. The Directors consider doing so clarifies the presentation of the financial statements and better reflects the internal management reporting and is therefore consistent with the requirements of IFRS 8.

 

Adjusted Operating Profit

	£m
Adjusted operating profit for the year ended 30 June 2022	120.5
Volume / price / mix changes	9.2
Fewer property transactions, net of valuation gains	(4.8)
Cost inflation	(7.2)
Management actions	13.8
Adjusted operating profit for the year ended 30 June 2023	131.5

 

Adjusted operating profit improved compared to the prior year. The main reasons for this were an improvement in volume, price and mix changes as well as management actions to reduce costs. These were offset by inflationary pressures and lower property transactions compared to FY22.

A reconciliation of reported to adjusted operating profit is provided below:

	Operating profit		Profit before tax
	30 Jun 23 £m	30 Jun 22 £m	30 Jun 23 £m	30 Jun 22 £m
Reported profit	81.5	45.1	51.9	15.9
Amortisation of acquired intangibles	19.2	19.7	19.2	19.7
Restructuring and related charges	13.0	40.0	13.0	40.0
Other	17.8	15.7	20.7	18.5
Adjusted profit	131.5	120.5	104.8	94.1

 

Additional information about these items is as follows:

• Amortisation of acquired intangible assets £19.2m (FY22: £19.7m):

Comprises the amortisation of acquired contract rights primarily through the acquisitions of MRBL Limited (Mouchel Group), May Gurney Integrated Services PLC and McNicholas Construction Holdings Limited.

• Restructuring and related charges £13.0m (FY22: £40.0m):

Restructuring costs include £7.6m incurred on redundancy and other people-related costs within the Group, including those related to the re-sizing of the International business. A further £4.9m was incurred on professional advisor fees and other non-people related activities, including £1.6m of vacant property costs. The Group's restructuring is now substantially complete and there will be no further restructuring charges recognised in adjusting items.  

• Other costs £20.7m (FY22: £18.5m)

Legal and compliance costs include £12.6m incurred on fire compliance and cladding claims.

A further £5.3m was incurred on insurance-related matters. This is made up of a provision of £8.0m against an insurance-related receivable.  This is offset by £2.7m of insurance proceeds received following the fire at the Pure Recycling plant in July 2021.

A further £1.5m was incurred as a result of the fine from HSE in relation to historical safety issues. In addition, £2.9m of finance costs relate to the IFRS 16 interest charge on leased properties that were previously vacated. 

Offsetting these costs was a £1.6m profit on the sale of mothballed land which had previously been impaired through adjusting items.

 

Earnings per share

Earnings per share ('EPS') before and after adjusting items have both increased significantly compared to prior year. EPS before adjusting items amounted to 19.2p (FY22: 16.8p). EPS after adjusting items amounted to 9.5p (FY22: 2.9p). There was a significant reduction in adjusting items in the year.

 

Finance income and charges

The Group's finance charges include interest on the Group's bank borrowings and finance charges relating to IFRS 16 leases.

Net finance charges for the year were £26.7m (FY22: £26.4m) before adjusting items of £2.9m (FY22: £2.8m).

Interest on bank borrowings amounted to £29.0m (FY22: £18.9m) and have increased during the year due to the higher average month-end net debt and increased interest rates.   The Group was able to partially mitigate the risk of higher interest rates with a fixed interest rate swap of £100m, which resulted in a fair value gain of £1.1m as at 30 June 2023, and which expires in September 2023; and another three-year fixed interest rate swap of £100m reducing to £75m in its second year and £50m in its third year and which expires in February 2026.

Finance lease charges were £9.5m (FY22: £6.5m) driven by the ramp up of HS2.

The Group had a net interest credit of £7.8m (FY22: £1.0m) in relation to the defined benefit pension schemes which has arisen due to the combination of the overall pension surplus and the discount rate (derived from corporate bond yields), at the start of the financial year. We anticipate this will reduce to c.£5.5m in FY24.

The Group continues to exclude lease liabilities from its definition of net cash/(debt).

 

Dividend

As part of the medium-term value creation plan, the Board intended to reinstate dividends when a near-term pathway to operating with an average net cash position was clear.

Given the Group's strong operational and financial performance over the last year, the year-end net cash position and confidence over further progress in the short term, the Board is able to confirm its intention to commence dividend payments to shareholders. Over time, we will progress to deliver a dividend, covered 3x by earnings and in a payment ratio of one-third interim dividend and two thirds final dividend. The first dividend is expected to be announced alongside the interim results.

 

Balance sheet

Net assets

The Group had net assets of £513.0m at 30 June 2023 (FY22: £554.6m). The primary driver for this is the decrease in the pension scheme surplus during the period, offset by the retained profit for the year.

Goodwill

The Group held intangible assets of £645.0m (FY22: £669.1m) of which goodwill represented £536.7m (FY22: £536.7m).

The Group completed its annual review of goodwill assuming a pre-tax discount rate of 13.1% (FY22: 11.1%), and concluded that no impairment was required.

The Infrastructure Services group of Cash Generating Units ('CGU') comprise £516.3m of the total goodwill balance. Whilst no impairment is noted and management believes the discounted cash flows applied is underpinned by the order book and current pipeline prospects, this CGU is sensitive to changes in key assumptions. The key assumptions in the value in use calculations are the forecast revenues and operating margins, the discount rates applied to future cash flows and the terminal growth rate assumptions applied.

Deferred tax asset

The Group has a deferred tax asset of £128.8m recognised at 30 June 2023 (FY22: £108.8m) primarily due to historical losses. The asset has increased in the year predominantly due to the deferred tax debit in relation to the movement in the pension scheme asset. In addition, tax losses of £10.8m have been used against current year profits.

Based on the Group's forecasts, it is expected that the deferred tax asset will be utilised over a period of approximately ten years.

An adjusted tax credit of £9.1m (FY22: £14.8m) has been included within adjusting items, representing the tax impact of adjusting items.

Right-of-use assets and lease liabilities

At 30 June 2023, the Group had right-of-use assets of £105.4m (FY22: £80.6m) and associated lease liabilities of £182.6m (FY22: £157.6m). The increase in the period is principally due to the levels of hired plant and equipment required for major Infrastructure projects, including HS2 and Hinkley Point C.

Investment properties

The Group has long term leases on two office buildings which were formerly utilised by the Group that have been vacated and are now leased out (or intended to be leased out) to third parties under operating leases, as well as two freehold properties no longer used by the business that are being held for capital appreciation. These are all held as investment properties.

In addition, the Group's Property business invests and develops primarily mixed-use commercial and residential schemes and sites across the UK. One of these sites is held as an investment property, along with the Group's former mine at Greenburn, Scotland, which was granted planning permission for a wind farm during the year.

The Group recognised an overall fair value gain of £11.4m across these sites which has been recognised in Other income.

Contract assets & liabilities

Contract assets represents the Group's right to consideration in exchange for works which have already been performed. Similarly, a contract liability is recognised when a customer pays consideration before work is performed. At 30 June 2023, total contract assets amounted to £401.9m (FY22: £397.5m).

Contract liabilities were £90.5m (FY22: £67.3m).

Retirement benefits obligation

Kier operates a number of defined benefit pension schemes. At 30 June 2023, the reported surplus, which is the difference between the aggregate value of the schemes' assets and the present value of their future liabilities, was £104.5m (FY22: £194.7m), before accounting for deferred tax, with the movement in the year primarily as a result of actuarial losses of £107.8m (FY22: £136.3m gains). A change in financial assumptions, resulting from higher corporate bond yields, has reduced the pension schemes' liabilities. This is partly offset by an experience loss of £51.4m. However, there has also been a fall in the schemes' asset values, largely due to the level of liability hedging in the asset portfolio. High inflation rates have also impacted the pension surplus through higher annual pension increases awarded.

During the year the Group agreed the triennial valuation for funding six of its seven defined benefit pension schemes. Given the Group's improved covenant and payments made under the existing schedule of contributions, the schemes are in a significantly improved position.

Accordingly, deficit payments will decrease from £10m in FY23 to £9m in FY24, £8m in FY25, £5m in FY26, £4m in FY27 and £1m in FY28.

Once the pension schemes are in actuarial surplus, they will cover their own administration expenses. In FY23, expenses amounted to £2.9m (FY22: £4.2m). The largest of the six schemes is already in surplus.   

Free cash flow and Net debt

 

 

	2023	2022
	£m	£m
Operating profit	81.5	45.1
Depreciation of owned assets	6.1	6.6
Depreciation of right-of-use assets	43.7	30.0
Amortisation	33.9	28.0
EBITDA	165.2	109.7
Adjusting items excluding adjusting amortisation and interest	30.8	55.7
Adjusted EBITDA	196.0	165.4
Working capital inflow	80.3	3.7
Net capital expenditure including finance lease capital payments	(51.4)	(46.5)
Joint Venture dividends less profits	0.7	5.9
Repayment of KEPS	(49.8)	(29.3)
Other free cash flow items	(5.2)	9.0
Operating free cash flow	170.6	108.2
Net interest and tax	(38.3)	(32.8)
Free cash flow before COVID-19	132.3	75.4
Net COVID-19 tax repayment	-	(20.8)
Free cash flow	132.3	54.6

 

 

	2023	2022
	£m	£m
Net cash at 30 June 2022	2.9	3.0
Free cash flow	132.3	54.6
Adjusting items	(27.0)	(41.2)
Pension deficit payments and fees	(12.8)	(15.0)
Fees paid in respect of prior year equity raise	-	(6.1)
Purchase of own shares	(11.9)	(7.0)
Other	(19.4)	14.6
Net cash at 30 June 2023	64.1	2.9

 

The Group has delivered a strong free cash flow for the year, driven by the underlying business performance and good working capital management. This performance was achieved despite the repayment of £49.8m of KEPS in July 2022.

The average month-end net debt position is higher than the comparative period at £(232.1)m, (FY22: £216.1m). Positive operating cash flow was used to pay off the average KEPS balance, pay adjusting items, tax and interest, pension deficit obligations, purchase existing Kier shares on behalf of employees and the remaining HMRC COVID-19 support.

The purchase of existing shares relates to the Group's employee benefit trusts which acquire Kier shares from the market for use in settling the Long-Term Incentive Plan ('LTIP') share schemes when they vest. The trusts purchased and sold shares at a net cost of £11.9m (FY22: £7.0m). This buyback reduced the dilution impact of the LTIP issuance and the 2021 equity fund raising.

Given the extent of Free Cash Flow ('FCF') generation, we have a line-of-sight to further significant net debt reduction for FY24 and FY25.

 

Accounting policies

The Group's annual consolidated financial statements are prepared in accordance with UK-adopted International Accounting Standards and with the requirements of the Companies Act 2006. There have been no significant changes to the Group's accounting policies during the year.

 

Treasury facilities

Bank finance

The Group has committed debt facilities of £569.4m with a further £18.0m of uncommitted overdrafts.

The facilities comprise £495.0m Revolving Credit Facility ('RCF'), £74.4m US Private Placement ("USPP") Notes as well as £18.0m of overdrafts.

During the year, the Group repaid £35.6m of USPP Notes and the remaining £8.2m of Schuldschein Notes. It also reduced the RCF facility by £40.0m. We expect to reduce a further £20.0m of the RCF and repay £1.7m of USPP Notes in the calendar year 2023.

The Group's revolving credit facility is scheduled to expire on 31 January 2025. The Board is confident in the Group's ability to refinance during FY24.

Supply chain finance

The Group's supply chain finance scheme ('KEPS') was fully paid down in July 2022 (FY22: £49.8m).

Financial instruments

The Group's financial instruments mainly comprise cash and liquid investments. The Group selectively enters into derivative transactions (interest rate and currency swaps) to manage interest rate and currency risks arising from its sources of finance. The US dollar denominated USPP notes were hedged with fixed cross-currency swaps at inception to mitigate the foreign exchange risk. One non-recourse, project-specific, property joint venture loan is hedged using an interest rate derivative to fix the cost of borrowing.

There are minor foreign currency risks arising from the Group's operations both in the UK and through its limited number of international activities. Currency exposure to international assets is hedged through inter-company balances and borrowings, so that assets denominated in foreign currencies are matched, as far as possible, by liabilities. Where exposures to currency fluctuations are identified, forward exchange contracts are completed to buy and sell foreign currency.

The Group does not enter into speculative transactions.

 

Going concern

The Directors are satisfied that the Group has adequate resources to meet its obligations as they fall due for a period of at least twelve months from the date of approving these financial statements and, for this reason, they continue to adopt the going concern basis in preparing these financial statements.

Further information on this assessment is detailed in note 1 of the consolidated financial statements on pages 23 and 24.