TIDMKIE
RNS Number : 9240M
Kier Group PLC
19 September 2019
19 September 2019
Kier Group plc - FY2019 Results
Kier, a leading construction and infrastructure services
company, reports its
results for the year ended 30 June 2019
Commenting on the results, Andrew Davies, Chief Executive, said:
"Kier experienced a difficult year, resulting in a disappointing
financial performance. However, we are building firm foundations
for the future: we have a new management team in place, we have
defined our strategic priorities and we are taking decisive actions
to deliver them. We have a strong order book, reflecting the
strength of the underlying business, the quality of our people and
the Group's capabilities. The sale of Kier Living is progressing
well and we are exploring options to accelerate the release of
capital from our Property business. The re-shaping of the Group is
designed to reduce its overall indebtedness during FY2020 and to
restore Kier to robust financial health."
Financial Results
Year ended 30 Year ended 30 June
June 2019 2018
(GBPm, unless (GBPm, unless otherwise
otherwise stated) stated)(4)
============================== =================== =========================
Revenue(1; 2) 4,494 4,513
Operating profit(2) 124 187
Operating profit margin(2) 2.8% 4.1%
Profit before tax(2) 98 164
Basic earnings per share(5) 58.2p 136.8p
Full year dividend (interim) 4.9p 69.0p
Net debt(3) 167 186
=========================
Statutory Year ended 30 Year ended 30 June
June 2019 2018
------------------------------ ------------------- -------------------------
Group revenue 4,122 4,240
134
106
89.3p
=========================
Operating (loss)/profit (217)
=========================
(Loss)/profit before tax (245)
Basic (loss)/earnings per
share (158.5)p
============================== =================== =========================
(1) Group and share of joint ventures.
(2) Operating profit is stated before exceptional items of
GBP316.0m and amortisation of acquired intangible assets of
GBP24.8m in FY2019. In FY2018, operating profit is stated before
exceptional items of GBP27.0m and amortisation of acquired
intangible assets of GBP25.6m.
(3) Stated net of the effect of hedging instruments.
(4) Re-presented to re-classify the FY2018 provision relating to
the Mersey Gateway project as an exceptional item.
(5) Prior year earnings per share has been re-stated by an
adjustment factor of 1.0176 to reflect the rights issue in December
2018.
Decisive actions taken
-- GBP250m rights issue in December 2018 to strengthen the balance sheet
-- New management team appointed
-- Simplification of Group structure around four market-leading
businesses: Regional Building, Highways, Utilities and
Infrastructure
-- Re-shaping of the Group to reduce net debt:
-- Sale of Kier Living progressing well
-- Capital investment in Property to be reduced to GBP100m by 30
June 2020 (2019: GBP184m); exploring options to accelerate the
release of capital from the business
-- Exit of Environmental Services and Facilities Management businesses underway
-- Accelerated Future Proofing Kier (FPK) programme
-- Headcount reduction of c.1,200 by FY2020; c.650 headcount reduction in FY2019
-- Annual cost savings of c.GBP55m from FY2021
-- As announced on 17 June 2019, dividend suspended for FY2019 and FY2020
Exceptional Items (including amortisation of acquired intangible
assets)
-- Charges of GBP341m, principally relating to preparing
businesses for sale, restructuring and significant loss-making
contracts
Continued...........
o GBP275m of non-cash charges
o GBP34m of cash outflow in FY2019, reflected in 30 June 2019
net debt position
o GBP32m of cash outflows over the next seven years, principally
relating to FPK costs and the exit from the Environmental Services
business.
Credit/(charge) Cash (outflow)/inflow Cash (outflow))/inflow
2019 2019 future periods
(GBPm) (GBPm) (GBPm)
-------------------------------- ---------------- ---------------------- -----------------------
Restructuring charges,
including FPK (56) (45) (11)
Costs incurred in disposal
of operations or preparation
for business divestment
or closure (172) 22 (29)
Costs associated with previous
acquisitions (29) (11) (2)
Exceptional contract losses (50) - -
Other (9) - 10
-------------------------------- ---------------- ---------------------- -----------------------
Total exceptional items (316) (34) (32)
Amortisation of contract
rights (25) - -
-------------------------------- ---------------- ---------------------- -----------------------
Total (341) (34) (32)
-------------------------------- ---------------- ---------------------- -----------------------
Net debt in line with expectations
-- Net debt at 30 June 2019 of GBP167m (2018: GBP186m)
-- Average month-end net debt of GBP422m (2018: GBP375m)
Core businesses resilient in challenging year
-- Revenues of GBP4.5bn (2018: GBP4.5bn)
-- Order book of GBP9.4bn (2018: GBP9.8bn)
-- Good performance by Buildings; volumes up 6%
-- In Infrastructure Services, Highways and Utilities experiencing reduced volumes.
-S -
There will be a presentation for analysts and investors at 9.00
a.m. British Summer Time on 19 September 2019 at etc. venues, 200
Aldersgate London EC1A 4HD. A live webcast will be available at
https://www.investis-live.com/kier/5d51639a741a5211003943c9/nbsa
which will be recorded and made available later in the day on the
Kier website, www.kier.co.uk.
Enquiries:
Cynthia Alers, Head of Investor
Relations +44 (0)203 280 5960
Kier press office +44 (0)1767 355 096
Richard Mountain/Nick Hasell,
FTI Consulting +44 (0)203 727 1340
This announcement contains inside information for the purposes
of Market Abuse Regulation (Regulation (EU) No. 596/2014). The
person responsible for making this announcement on behalf of the
Company is Hugh Raven, General Counsel and Company Secretary.
Full-year overview
The Group's revenue was GBP4.5bn (2018: GBP4.5bn) and operating
profit decreased by 34% to GBP124m (2018: GBP187m). The Group's
order book at 30 June 2019 was GBP9.4bn (2018: GBP9.8bn)(1) , with
over GBP1.1bn of new awards won in the second-half of the year. Net
debt at 30 June 2019 was GBP167m (2018: GBP186m) and average
month-end net debt was GBP422m (2018: GBP375m).
In June 2019, we announced the results of a strategic review,
which identified the need to further simplify the Group, increase
the focus on cash generation and reduce net debt. We are making
good progress against our strategic priorities. In part, as a
result of this, the Group has reported GBP341m of charges,
including in respect of the costs of preparing to exit or sell
businesses, restructuring costs and significant contract losses.
The net cash outflow associated with these charges in FY2019 was
c.GBP34m, with an aggregate cash outflow of c.GBP32m forecast in
future years.
Regional Building performed well, winning new projects totalling
c.GBP1.9bn. Highways experienced overall volume pressures and a
change in the mix of work from maintenance to lower margin capital
expenditure projects. Utilities also experienced volume pressures,
principally as a result of delays in broadband installations in the
telecommunications sector. A reduction in housing completions in
Living and delays to several transactions in Property affected the
results of Developments & Housing.
(1.) Excluding HS2: order book GBP7.9bn (2018: GBP8.5bn).
Rights issue
During 2018, the banking sector indicated its intention to
reduce its exposure to the construction and related sectors and the
focus on service providers' balance sheets and the pressure to
improve the Group's supply-chain payment terms each increased. As a
result, the Group undertook a rights issue in December 2018, which
raised net proceeds of GBP250m, a significant proportion of which
was used to accelerate payments to the supply-chain, as a result of
which the Group reported average payment days to its supply-chain
partners of 41 for H2 FY2019 (H1: FY2019: 57 days).
Dividend
The interim dividend of 4.9p was paid on 17 May 2019. As
previously announced, the Company has suspended the final dividend
for FY2019 and the dividend for FY2020. The Board will continue to
review the Company's dividend policy for future financial
periods.
Strategic review
In April 2019, we began a strategic review of the Group, which
concluded that the Group needed to further simplify its structure,
better allocate its capital resources, identify additional steps to
improve cash generation and reduce net debt.
Kier has a number of high-quality, market-leading businesses, in
particular Regional Building, Highways, Utilities and
Infrastructure, which support the sustainability of our business
model. These businesses operate under long-term frameworks which
require strong client relationships and sector expertise. Once
appointed to a framework, we have the opportunity to tender for a
range of projects over a number of years, which provides good
visibility of future work, reduces risk and leverages our key
operational strengths. These businesses, which are inherently cash
generative, will be the future core of the Group.
Our Housing Maintenance business complements our Regional
Building business. Housing Maintenance will continue to seek
opportunities for planned maintenance work, including fire safety
risk assessment work, under frameworks for housing associations and
local authorities. The International business, which principally
operates in Dubai, continues to tender selectively for new
work.
We also concluded that several of our businesses were not
compatible with the Group's working capital objectives:
-- Residential: Kier Living is a strong business but has limited
operational synergies with other parts of the Group and would
require significant ongoing funding to deliver future growth. In
June 2019, we announced that we would be selling this business; the
sale process is progressing well;
-- Property: similarly, the investment requirements of the
Property business are not considered to be compatible with the
Group's capital requirements. As a result, we expect to have
reduced the capital invested in the business to GBP100m by 30 June
2020 (2019: GBP184m). We are also exploring options to accelerate
the release of capital from the business; and
-- Environmental Services and Facilities Management: these
businesses also have limited operational synergies with the Group's
core businesses and the Group will seek to exit them in due
course.
(1) Excluding HS2: order book GBP7.9bn (2018: GBP8.5bn).
Future Proofing Kier
In 2018, we launched the Future Proofing Kier programme ('FPK')
with the aim of reducing costs, simplifying the Group and creating
operational efficiencies. Approximately 650 people left the Group
in FY2019, the costs for which are included in the exceptional
charges taken in the year, with c.550 expected to leave in FY2020.
The Group expects to deliver annual cost savings of c.GBP55m from
FY2021.
Performance Excellence
Our Performance Excellence programme will be launched later this
year, comprising four principal elements which will each focus on
the basics required for an efficient and effective business:
-- People - focusing on talent management, culture and the development of our people
-- Process - establishing an operational framework, an assurance
process and consistent reporting
-- Projects - covering each stage of the contracting process,
from tendering to completion of a project
-- Cash - introducing disciplines to manage cash more rigorously across the Group.
Board changes
Haydn Mursell stood down as Chief Executive in January 2019,
with Andrew Davies joining as Chief Executive in April 2019. Bev
Dew will step down as Group Finance Director by 30 September 2019
and Simon Kesterton will then assume the role of Chief Financial
Officer. As announced today, Phil Cox will retire as Chairman and
step down from the Board once a successor has been appointed. The
search process for Mr. Cox's successor as Chairman has
commenced.
Safety, health and environment
The safety and wellbeing of our employees and suppliers remain
of paramount importance. The Group's overall SHE performance has
improved year-on-year, continuing the trend of the last few years,
although the rate of improvement has slowed recently. It is
essential that safety, health and wellbeing remain at the forefront
of our operations. We remain committed to our campaign to raise
awareness of doing the safety basics well.
Our people
The success of the Group depends on our people. The skills and
commitment of our employees and supply-chain are fundamental to our
business. We are grateful for the hard work and dedication of our
employees and the supply chain in a very challenging year both for
them and the Group. It is our ambition to remain an employer of
choice, attracting and retaining the best talent in our industry.
Kier is a member of the 5% Club, aiming to increase the number of
its apprentices, graduates, sponsored students and employees in
further education. We continue to sponsor several programmes to
train the next generation and fill the significant skills gap in
our industry.
Communities
We are proud of our role in delivering economic and social
infrastructure that benefits the UK. In 2018, Kier was the first
construction company in the UK to achieve the Social Value Mark of
Quality for businesses that are committed to achieving positive
social impact through their work. As a regionally focused business,
we seek to contribute to local communities through local
employment, procurement and SME spend.
Outlook
Kier experienced a difficult year, resulting in a disappointing
financial performance. However, we are building firm foundations
for the future: we have a new management team in place, we have
defined our strategic priorities and we are taking decisive actions
to deliver them. We have a strong order book, reflecting the
strength of the underlying business, the quality of our people and
the Group's capabilities. The sale of Kier Living is progressing
well and we are exploring options to accelerate the release of
capital from our Property business. The re-shaping of the Group is
designed to reduce its overall indebtedness during FY2020 and to
restore Kier to robust financial health.
Divisional Reviews
Buildings
Regional Building, Major Projects - Building, Facilities
Management, International
GBPm Year ended Year ended Change
30 June 30 June
2019 2018
Revenue(1) 1,883 1,778 +6%
----------- ----------- -------
Operating profit(2) 62 55 +13%
----------- ----------- -------
Operating margin(2) 3.3% 3.1%
----------- -----------
Order book GBP4.1bn GBP3.7bn
(secure and probable)
----------- -----------
(1) Group and share of joint ventures.
(2) Operating profit is stated before exceptional items and
amortisation of acquired intangible assets.
The Buildings business performed well, with revenue increasing
6% to GBP1,883m (2018: GBP1,778m). Profit before exceptionals
increased by 13% to GBP62m (2018: GBP55m), with operating margins
increasing to 3.3% (2018: 3.1%). The order book at 30 June 2019 was
GBP4.1bn and was 91% secured and probable for FY2020. Approximately
65% of Buildings' work is on long-term frameworks.
Regional Building
Regional Building maintained its market leading position with
over GBP1.4bn of contract awards in FY2019 (2018: GBP1.6bn). The
business covers all regions of the UK, delivering essential
buildings such as schools, hospitals, office buildings and
amenities centres for local authorities, councils and the private
sector.
During FY2019, the business re-secured positions on some of the
largest UK public sector construction frameworks, including the
GBP5bn Southern Construction Framework, the South East and Mid
Wales Collaborative Construction Framework, the North Wales
Construction Framework, the Suffolk County Council Framework, the
London Construction Programme and the Hampshire Intermediate
Construction Framework. In addition, Kier continues to be the
delivery partner on the second generation of the Scape Minor Works
Framework and, in July 2019, completed its 1,000(th) project under
the framework. The Group has recently been awarded a place on the
North West Construction Hub's Medium Value Framework, complementing
the place awarded in January 2019 on the North West Construction
Hub's High Value framework.
Major Projects - Buildings
Major Projects - Buildings completed a number of projects during
the year and construction work began for Argent on a flagship new
corporate headquarters at King's Cross, London, at RAF Lakenheath
and on the GBP250m Wellingborough prison. The business continues to
focus principally on the defence, science, commercial, custodial
and aviation sectors.
Discussions are continuing with the client on the Broadmoor
Hospital redevelopment project about the Group's entitlement to the
additional costs associated with the project. In light of the
uncertainty of the recovery of these costs, an exceptional charge
of GBP43.5m relating to the project has been included in the
financial statements.
International
The International business principally operates in Dubai. The
business traded in line with expectations, stabilising its
performance following the introduction of more rigorous bidding
disciplines.
Facilities Management
Facilities Management traded below expectations and therefore
has been focusing on reducing its overheads and managing and
exiting a number of under-performing contracts. As announced in
June 2019, the Group will seek to exit this business in due course.
As a result, the Group has included an exceptional charge of
GBP18.0m in the financial statements.
Buildings outlook
The broader macro-environment, including Brexit, is expected to
create market uncertainty which may, in turn, lead to delays in
decision-making by clients and therefore the business does not
expect its revenue to increase in FY2020.
The International business will continue to tender selectively
for new work. The Group will continue to prepare to exit the
Facilities Management business.
Infrastructure Services
Highways, Utilities, Infrastructure
GBPm Year ended Year ended Change
30 June 30 June
2019 2018(3)
Revenue(1) 1,671 1,733 -4%
----------- ----------- -------
Operating profit(2) 56 95 -41%
----------- ----------- -------
Operating margin(2) 3.4% 5.5%
----------- -----------
Order book GBP5.1bn GBP5.5bn
(secure and
probable)
----------- -----------
(1) Group and share of joint ventures.
(2) Operating profit is stated before exceptional items and
amortisation of acquired intangible assets.
(3) Re-presented to re-classify the FY2018 provision relating to
the Mersey Gateway project as an exceptional item.
Revenue in Infrastructure Services decreased by 4% to GBP1,671m
(2018: GBP1,733m). Profit before exceptionals decreased by 41% to
GBP56m (2018: GBP95m) and operating margins decreased to 3.4%
(2018: 5.5%). This reflected:
-- the re-presentation of the FY2018 results to reflect a GBP27m
exceptional charge relating to the Mersey Gateway project, which is
substantially higher than the GBP6m exceptional charge relating to
this project in FY2019;
-- GBP9.5m profit from the Group's share in KHSA Limited (the
Australian Highways business) in FY2018 as compared to GBP5.9m in
FY2019, reflecting its disposal in the year;
-- the re-presentation of Mining, which contributed a GBP4.4m loss in FY2019 (2018: nil); and
-- reduced profitability in Infrastructure and from the Group's
fleet operations of c.GBP20m compared to FY2018, driven by contract
provisions in Infrastructure and reduced income from the fleet
operations.
As announced in June 2019, profitability in Highways and
Utilities was adversely affected by lower than anticipated
volumes.
As at 30 June 2019, the order book on a like-for-like basis was
GBP5.1bn (2018: GBP5.5bn), adjusting for the disposal of the
Group's share in KHSA Limited to Downer Group in December 2018. The
order book is 92% secured and probable for 2020, with 80% of work
on long-term frameworks. The order books for Highways and Utilities
are 100% and 80% secured and probable, respectively, for FY2020.
The order book includes GBP1.5bn for HS2.
Highways
Highways reported lower overall volumes in FY2019 and a change
in the mix of work from maintenance to lower margin capital
expenditure projects.
Despite lower maintenance volumes, Highways maintained its
position as a sector leader, working with Highways England and a
number of district and county councils. Over the year, the Highways
business was granted two three-year extensions to 2021 and 2022,
respectively, on Highways England Areas 3 and 9 and a six-month
extension on Areas 6 and 8, which concludes in October 2019. Work
on the Smart Motorways programme continued, with the completion of
works on the M6 J16 - 19 alongside ongoing works on the M6 J13 -
15, M23 and M20 projects, each of which will complete in FY2020.
The business has continued to work on local authority contracts,
including for Transport for London, Shropshire, Suffolk, Surrey and
Northamptonshire. In November 2018, we were appointed as one of the
three providers to deliver schemes on the North of England GBP2bn
Regional Delivery Partnership framework and have begun work on two
schemes in Blackpool and Liverpool with a combined value of
c.GBP230m.
Utilities
The Utilities business, which focuses on the water,
telecommunication and energy sectors, experienced lower trading
volumes in FY2019, principally as a result of delays in broadband
installations in the telecommunications business.
In the water sector, transition to the 2020-2025 AMP7 regulatory
period is underway and we are engaging with both new and existing
clients on their requirements through their bid processes. Our
strong position in the water sector resulted in a new five-year
award from Severn Trent, covering civil and structural
engineering.
The Group has identified several opportunities in the
telecommunications market for super-fast broadband and 5G
construction, although delays have been experienced in beginning
work on new projects. New alternative fibre providers are entering
the market and they are expected to provide opportunities for the
business in the future. A GBP17.5m exceptional charge has been
taken in relation to a provision against WIP acquired with
McNicholas net of a GBP4m reduction in deferred consideration.
In the power sector, the Group continued to provide services to
UK Power Networks as part of the ED1SON Alliance and was appointed
to areas within the East and West Midlands frameworks and
re-appointed to the Western Power Distribution South West
framework.
Infrastructure
In the energy sector, work completed on the earthworks contract
at Hinkley Point C and new work totalling GBP43m was awarded from
the three-year GBP100m civils framework on which a place was
awarded during FY2019.
In transport, the Luton DART mass passenger transit project is
progressing well. Work on HS2 is in the early stage of on-site
investigations. The regional civils business continues to make good
progress with key nationwide clients, including National Grid,
Canal and River Trust and the Environment Agency. During FY2019, we
were awarded a position on the four-year Environment Agency
Collaborative Delivery framework in the North-West of England and
commenced work on the A13 GBP70m road-widening contract. In July
2019, we undertook emergency works on the Whaley Bridge dam.
Infrastructure Services outlook
In Highways, the change in the mix of work from maintenance to
lower margin capital expenditure projects and uncertainty over
volumes are expected to continue in FY2020. In addition, the
six-month extension on Highways England Areas 6 and 8 concludes in
October 2019 and the works on the M6 J13 - 15, M23 and M20 projects
will each complete in FY2020.
In Utilities, new regulatory periods are creating opportunities
in the water, power and gas sectors. In the telecommunications
sector, although significant sums are expected to be spent on the
construction and installation of ultrafast broadband across the UK
over the forthcoming years, the timing of contract awards for this
work remains uncertain.
In Infrastructure, although there is uncertainty in relation to
the HS2 project, work on the project continues. A postponement or
cancellation of the project is not expected to have a material
impact on the Group's financial performance.
Developments & Housing
Residential, Property, Housing Maintenance, Environmental
Services
GBPm unless indicated Year ended Year ended Change
30 June 30 June
2019 2018
Revenue(1) 940 1,002 -6%
Operating profit(2) 56 72 -22%
------------- ------------- -------
Residential (Kier
Living)
Completions 1,926 2,042 -6%
Ave selling price GBP194,000 GBP183,000 +6%
NAV (excl debt) GBP173.5m GBP180.0m -4%
ROCE 14% 15% -1%
------------- ------------- -------
Property
No. of Transactions 24 32 -25%
ROCE 18% 27% -9%
------------- ------------- -------
(1) Group and share of joint ventures.
(2) Operating profit is stated before exceptional items and
amortisation of acquired intangible assets.
Revenues in Developments & Housing decreased by 6% to
GBP940m (2018: GBP1,002m), with profit before exceptionals of
GBP56m (2018: GBP72m). As a result of the decisions to sell
Residential and to seek to exit Environmental Services, the Group
has included exceptional charges totalling GBP124.6m in the
financial statements.
Residential
Completed sales transactions decreased by 6% in FY2019 to 1926
(2018: 2042). The average selling price per property increased to
GBP194,000 (2018: 183,000). Return on capital employed (ROCE)
decreased to 14% (2018: 15%). Net asset value, excluding debt,
decreased by 4% to GBP173.5m (2018: GBP180.0m). The landbank at 30
June 2019 comprised 3,938 plots (2018: 3,897).
In June 2019, the Group announced that it intended to sell
Residential (branded Kier Living). The Kier Living sale excludes
certain land which was valued on the Group's balance sheet at
c.GBP60m. The Group has no immediate intention to develop this land
and, therefore, the Group has recorded an impairment charge of
GBP50m in the financial statements. The Residential business
operates a number of joint ventures ("JVs"), including with Homes
England. It is expected that any sale of the business will also
include Kier's interests in these JVs, together with its share of
the JVs' debt.
Property
Profit before exceptionals decreased to GBP29.7m (2018:
GBP34.0m), reflecting the reduced capital invested in this
business. The level of capital allocated to the Property business
is expected to have been reduced to GBP100m by 30 June 2020 (2019:
GBP184m).
As part of the Arena Central development in Birmingham, the
pre-let and forward funded 3 Arena Central is proceeding well. The
first phase of private residential and affordable housing in the
Watford Health Campus completed in September 2019.
Housing Maintenance
Housing Maintenance provides planned maintenance, capital works,
fire safety risk assessments and repairs services for housing
associations, local authorities and private rented sector clients.
In April 2019, a new five-year GBP8.6m contract was awarded by Muir
Housing Association to deliver a comprehensive repairs service.
Whilst certain local authorities have taken maintenance in-house,
which affected the business' volumes in FY2019, there has been an
increased demand for fire safety risk assessment work. We were
awarded a place on the four-year GBP50m Hyde Fire Safety framework,
a three-year GBP8m contract with Gentoo and a GBP5.7m contract by
the London Borough of Hammersmith & Fulham, in each case to
deliver fire safety repairs.
Environmental Services
In June 2019, we announced that we would seek to exit this
business in due course. We agreed an early termination of the
Cheshire West and Chester (CWaC) contract, with phased settlement
payments over 2020 to 2026. Plans are on course to close the
remainder of the business during FY2020 and, therefore, the Group
has taken an exceptional charge of GBP26.8m.
Developments & Housing outlook
The sale of Kier Living is progressing well. The Property
business will re-focus principally on mixed-use urban re-generation
schemes, operating within a reduced level of investment. The Group
is exploring options to accelerate the release of capital from our
Property business.
The Housing Maintenance business, which is complementary to the
Regional Building business, will focus in particular on fire risk
safety assessment services. The Group will continue to take steps
to close the Environmental Services business during FY2020.
Financial Review
Strengthening the Group's balance sheet
During 2018, the banking sector indicated its intention to
reduce its exposure to construction and related sectors, the focus
on service providers' balance sheets increased and there was an
increasing pressure to improve the Group's supply-chain payment
terms. As a result, the Group undertook a rights issue in December
2018, which raised net proceeds of GBP250m. The Group reported
average payment days to its supply-chain partners of 41 for the
second half of FY2019, a significant reduction from 57 days for the
first half of the year.
Alternative performance measures
The Group changed the presentation of its financial statements
for FY2019 to profit before exceptional items. In prior years, the
Group has reported underlying profit. The principal reason for the
change is to improve the transparency and clarity of the Group's
financial performance.
The Group reports average month-end net debt as a key
performance measure, using a 13-month, period-end basis, beginning
with June at the end of the immediately preceding financial year,
with each quarter in the financial year being divided into three
period ends of 4, 4 and 5 weeks. This is not a statutory
requirement.
Segmental reporting update
For FY2019, the Group reported by reference to three market
segments: Regional Buildings, Infrastructure Services (including
Highways and Utilities) and Developments & Housing. For FY2018,
the Group reported by reference to four operating divisions:
Property, Residential, Construction and Services.
Following the announcement of the conclusions of the strategic
review in June 2019, the Group will be focusing on four core
businesses: Regional Building, Highways, Utilities and
Infrastructure. For FY2020, the Group's segmental reporting will
relate to these businesses, together with the Group's Property and
Residential businesses as a non-core segment.
Financial performance before exceptional items
Revenue
The Group's revenues, including its share of joint ventures, was
maintained at GBP4.5bn (2018: GBP4.5bn). The Group's statutory
revenue of GBP4.1bn (2018: GBP4.2bn) was 2% lower than in
FY2018.
Operating profit
Buildings reported operating profit of GBP62m (2018: GBP55m),
which represented an operating margin of 3.3% (2018: 3.1%).
Infrastructure Services reported an operating profit of GBP56m
(2018: GBP95m), which represented an operating margin of 3.4%
(2018: 5.5%). Developments & Housing reported an operating
profit of GBP56m (2018: GBP72m), which represented an operating
margin of 6% (2018: 7.2%).
Group central costs of GBP50.2m (2018: GBP35.1m) increased
because the cost savings associated with the Group's investment in
its back-of-office functions were realised later in FY2019 or after
30 June 2019. The Group's profit before exceptional items of
GBP124.1m was materially lower than in FY2018 (GBP187m).
Order book
The Group's order book at 30 June 2019 was c.GBP9.4bn (2018:
GBP9.8bn). Excluding HS2, the order book was GBP7.9bn (2018:
GBP8.5bn). The Group's share of the order book of KHSA Limited
(Kier's Australian Highways business), which was disposed of in
December 2018, was c.GBP0.4bn in prior year. The Buildings order
book of GBP4.1bn reflects the number of positions on frameworks in
Regional Building and the decline in the Infrastructure Services'
orderbook to GBP5.1bn (2018: GBP5.5bn) reflects the volume
pressures experienced within this market segment in FY2019.
Net finance costs
Net finance costs before exceptional items were GBP26.5m (2018:
GBP23.1m) including GBP21.5m in respect of the Group's finance
facilities, which increased by 19%, principally as a result of the
increase in the Group's average month-end net debt from GBP375m to
GBP422m in FY2019. Other interest charges included GBP2.3m in
respect of charges relating to the unwinding of discounted onerous
provisions and deferred consideration.
Earnings per share
Earnings per share before exceptional items ("EPS") from
continuing operations were 58.2p (FY18: 136.8p). The weighted
average number of shares in issue for the period of 132.2m reflects
the shares issued in connection with the rights issue in December
2018. EPS for prior periods has been restated to reflect the
application of the adjustment factor of 1.0176, being the bonus
element of the new shares issued in connection with the rights
issue.
Exceptional charges (including amortisation of acquired
intangible assets)
In FY2019, the Group has reported charges of GBP341m:
Amortisation of acquired intangible assets (GBP24.8m)
Comprises the amortisation of acquired contract rights primarily
relating to the acquisitions of May Gurney in 2013, Mouchel in 2015
and McNicholas in 2017. These charges have no future cash
impact.
Costs relating to the preparation of businesses for sale
(GBP172m)
-- The total impairment associated with the Group's decision to
sell or exit Residential, Property, Environmental Services and
Facilities Management is GBP48m;
-- The Group has reviewed the carrying value of certain sites
not to be included in the sale of Residential and recognised a
non-cash charge of GBP50m;
-- Previously capitalised software assets associated with these
businesses to be exited totalled GBP10m and have been impaired in
full;
-- The Group has agreed to exit a series of contracts in
Facilities Management at a cost of GBP22m and, within Environmental
Services, the Cheshire West and Chester (CWaC) contract, in
relation to which a provision of GBP27m has been made representing
the value of future payments to be paid to the client from FY2020
to FY2026; and
-- A cost of GBP6.4m has been incurred in relation to the
disposal of certain businesses and a fair value charge of GBP8.4m
has also been recognised. The businesses sold in the year generated
a cash inflow of GBP28m and included the Group's share of its
Australian Highways joint venture, KHSA Limited, to Downer Group,
its pensions administration business and its joint venture with
Oldham Council, each of which was acquired in 2015 with the Mouchel
group.
Restructuring costs (GBP56.4m)
The Group has incurred restructuring costs in the year totalling
GBP56.4m (2018: nil). This total includes GBP20m in respect of
employee exit costs associated with FPK. In addition, as result of
a decrease in the Group's volumes in certain businesses (including
Highways and Utilities), c.GBP19m of charges were incurred in
reducing headcount in these businesses. Fees and internal costs of
c.GBP18m have been incurred in undertaking and implementing the
conclusions of the strategic review announced in June 2019 and the
cost reductions described above. Of this total, c.GBP26m was
committed but accrued at 30 June 2019 date and will represent a
cash outflow in FY2020.
Costs associated with previous acquisitions (GBP29.3m)
The Group has recognised a GBP29.3m charge in FY2019 in respect
of the 2017 acquisition of McNicholas, GBP21.5m of which represents
the impairment of assets in existence at 30 June 2019 which have
now been impaired, with a further GBP11.8m of costs of
restructuring and integration being incurred in FY2019. The Group
has released GBP4m of contingent consideration which is not
payable. GBP1m of these costs are accrued at 30 June 2019 and will
be expended in FY2020.
Exceptional contract losses (GBP49.9m)
The Group has recognised a GBP43.5m exceptional provision
relating to the Broadmoor Hospital Redevelopment in respect of
future recoveries from the client and other third parties. The
Group has also incurred charges of GBP6.4m in relation to the
Mersey Gateway project. The cashflows were fully reflected in
FY2019, with no future cash outflows associated with these
items.
Other (GBP8.7m)
The Group incurred a non-cash charge of GBP16m in FY2019
following a review of certain receivable balances in its
procurement function.
Following a court ruling relating to the Guaranteed Minimum
Pension in October 2018, the Group's actuaries recommended the
recognition of a GBP6.1m equalisation charge in respect of the
Group's final salary pension schemes. In addition, the Group has
undertaken a pension increase exchange exercise which has generated
a gain of GBP16.1m. Against this, fees of GBP1.5m were incurred.
Any future cash impact in respect of these items will be
incorporated within the future deficit recovery contributions.
Balance sheet
Net assets
The Group has net assets of GBP520m at 30 June 2019 (2018:
GBP601m).
Net debt
The Group's net debt at 30 June 2019 was GBP167m (2018:
GBP186m). The Group's average month-end net debt increased to
GBP422m (2018: GBP375m). Net debt was at its highest between
September 2018 and November 2018, at an average of c.GBP560m, but
reduced following the rights issue in December 2018 and the average
in the second half of the year was c.GBP376m. The suspension of the
dividend, disposals and savings achieved via FPK have further made
positive contributions to the Group's net debt position.
The Group places significant value on the relationship with its
supply-chain and, during FY2019, reduced its average payment days
from 57 days to 41 days.
Working capital
Working capital movements resulted in an outflow for the year of
GBP182m (2018: outflow of GBP17m). We anticipate that the re-shaped
Group, following the implementation of the strategic actions, will
have an improved working capital profile in the medium term.
Goodwill
The Group held intangible assets of GBP767m (2018: GBP862m) at
30 June 2019, of which goodwill represented GBP536.7m (2018:
GBP560m). Disposals of businesses during FY2019 resulted in a
reduction in goodwill of GBP10.7m.
The Group has reviewed goodwill as at 30 June 2019, assuming a
pre-tax weighted average cost of capital of 10.1%, which is higher
than in previous years and reflects an increasing risk weighting.
The Group has impaired GBP8m of goodwill in respect of Developments
& Housing, principally reflecting the impact of the Group's
intention to dispose of Residential.
Retirement benefit obligation
Kier operates a number of defined benefit pension schemes. At
the year end, the reported surplus, which is the difference between
the aggregate value of the scheme's assets and the present value of
their future liabilities, was GBP19.5m (2018: GBP7.9m) before
accounting for deferred tax.
Accounting policies
The Group's annual consolidated financial statements are
prepared in accordance with International Financial Reporting
Standards as adopted by the EU ('IFRS'). Two new accounting
standards were adopted by Kier during the year ended 30 June 2019;
IFRS 15 ('Revenue from Contracts with Customers') and IFRS 9
('Financial Instruments'). Other than these two new standards,
there have been no significant changes to the Group's accounting
policies during FY2019.
The Group is currently concluding its project to assess the
impact of IFRS 16 ('Leases'), which the Group will adopt in FY2020.
The principal impact of IFRS 16 will be to move the Group's larger,
longer term operating leases, primarily in respect of property,
onto the balance sheet, with a consequential increase in
non-current assets and finance lease obligations. Operating lease
charges included in administrative expenses will be replaced by
depreciation and interest costs.
IFRS 16 introduces a new category of non-current assets for
'right of use assets' associated with leases. At the date of
initial application of IFRS 16, the carrying value of the Group's
right of use assets is expected to be less than the additional
lease borrowings that will be coming on to the balance sheet. The
Group is therefore anticipating an adjustment to reserves on
transition.
Impact of IFRS 15
The Group has elected to use the cumulative catch-up method of
transition, wherein the results of FY2018 are not restated but the
initial impact of adopting the standard is taken to opening
reserves. The Group has made an adjustment to opening reserves of
GBP60.6m, net of tax, as a result of the transition to IFRS 15.
Whilst the replacement of IAS 11 and IAS 18 by IFRS 15 can impact
on the timing of revenue and profit recognition on individual
contracts in a particular accounting period, it does not change the
overall revenue, profit or cash generated over the life of the
contract. The areas where the new standard gave rise to a
transitional adjustment on adoption were as follows:
-- The change from revenue recognition based on external
progress valuation to an input measure of progress, to better
reflect the pattern of transfer of control to the customer
(GBP28.1m);
-- Following the withdrawal of IAS 11, certain claims receivable
from non-customer third parties now fall under the IAS 37 and
require recovery to be "virtually certain" before an asset may be
recognised (GBP26.0m);
-- Disaggregation of performance criteria relating to a single IT service contract (GBP3.4m);
-- Derecognition of certain variable revenue items in
determining forecast project outcome on a contract in the Middle
East (GBP9.7m)
-- New guidance on which pre-contract costs can be capitalised (GBP5.8m); and
-- A deferred tax credit has been recognised in respect of the above adjustments (-GBP12.4m).
Due to the above timing differences on the reporting of revenue
and profits arising from the above adjustments, the Group's profit
reported under IFRS 15 for the FY2019 is GBP20.6m higher, net of
tax, than it would have been under previous accounting
standards.
Impact of IFRS 9
The adoption of IFRS 9 has had no material impact on the Group's
financial statements.
The Group has implemented an expected credit loss impairment
model with respect to trade receivables and contract assets using
the simplified approach. Trade receivables and contract assets have
been grouped on the basis of their shared risk characteristics and
a provision matrix has been developed and applied to these balances
to generate the loss allowance. The majority of the Group's
receivables are with utility companies, transport agencies,
government agencies and local authorities and the incidence of
credit loss is low. There has therefore been no material adjustment
as a result of transition from the previous bad debt provision
under IAS 39 to the loss allowance under IFRS 9.
As permitted by IFRS 9, the Group has chosen to delay the
adoption of the standard for hedge accounting and therefore the
Group's hedge accounting continues to be performed in accordance
with IAS 39 for FY2019.
FRC Corporate Reporting Review
On 30 July 2018, the Company received a letter from the FRC's
Corporate Reporting Review Team (CRRT) raising a number of points
on the Company's 2017 Annual Report. Details regarding the CRRT's
enquiry were disclosed on page 78 of the 2018 Annual Report.
During the year, the Company has continued to engage with the
FRC, principally in relation to: (i) the Company's accounting
treatment of certain joint ventures; and (ii) the basis of revenue
recognition of certain contract claims.
The CRRT has considered the accounting treatment of certain
joint ventures in the Property and Residential businesses and, in
particular, the effect of certain pre-emption rights which could
enable Kier to take control in the event of a deadlock situation
arising between Kier and its joint venture partners. The Company
does not believe that these pre-emptive rights are substantive
rights and, consequently, these investments have historically been
accounted for as joint ventures under the equity accounting method
and not consolidated into the Group's financial statements.
However, the Company acknowledges that this is an area of
significant accounting judgement and, in agreement with its joint
venture partners, is amending the relevant agreements to remove
these pre-emption rights.
The other principal point of discussion with the FRC was in
respect of the basis of revenue recognition of certain contract
claims.
Further details relating to the engagement with the CRRT and the
impact on the Group's balance sheet and income statement, had the
relevant joint ventures been consolidated at 30 June 2017, 30 June
2018 and 30 June 2019 respectively, will be disclosed in note 1 to
the 2019 financial statements ('Significant accounting
judgements').
Treasury facilities
Bank finance
The Group has committed debt facilities of GBP922m with a
further GBP20m of uncommitted overdrafts. Bank debt will mature in
June 2022 and US private placement (USPP) notes mature between 2019
and 2024. The Group has repaid debt of GBP12m during the year.
Debts of GBP25m and $8m are due to be repaid in December 2019.
Supply chain finance
The Group offers its supply chain in the Construction and the
Residential business the opportunity to participate in the Kier
Early Payment Scheme (KEPS). The balance owed on this facility is
included in trade creditors. The balance at 30 June 2019 was
GBP170m (2018: GBP185m). The Company plans to reduce further its
use of KEPS during FY2020.
Leasing
At 30 June 2019, the Group had GBP3.1m (2018: GBP7.1m) of
finance lease.
Financial instruments
The Group's financial instruments comprise cash and liquid
investments. The Group, largely through its PFI and Property joint
ventures, enters into derivative transactions (principally interest
rate swaps) to manage interest rate risks arising from its
operations and its sources of finance. The US dollar denominated
USPP notes have been hedged with fixed cross-currency swaps at
inception to mitigate the foreign exchange risk. The Group does not
enter into speculative transactions. There are minor foreign
currency risks arising from the Group's operations.
The Group has a limited number of international operations in
different currencies. 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 there may be further exposure to
currency fluctuations, forward exchange contracts are completed to
buy and sell foreign currency.
Going concern
The directors continue to adopt the going concern basis in
preparing the Group's 2019 financial statements.
The Group announced the conclusions of its strategic review in
June 2019, which set out the Group's plans to focus on its core
businesses of Regional Building, Highways, Utilities and
Infrastructure; to simplify the Group by selling or substantially
exiting non-core activities, including Kier Living, Property,
Facilities Management and Environmental Services; to restructure
the Group by reducing headcount by c.1,200 and deliver annual cost
savings of c.GBP55m from FY2021; and to embed a culture of
performance excellence with a particular focus on cash generation
to deliver a reduction in average month-end net debt.
As at 19 September 2019, the Group has received a number of
offers for its Residential business and has taken cost reduction
actions to realise significant annualised benefits. The results of
these actions will result in reduced leverage and reduced costs
over the next 12 months.
At 30 June 2019, the Group had GBP922m of unsecured committed
facilities, GBP20m of uncommitted overdrafts and GBP195m of
uncommitted supply chain financing facilities.
The directors have reviewed the Group's short-term cash flow
forecasts to 31 December 2020 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 included consideration of the risks to the Group
relating to pension funding, working capital, supply chain finance,
volume reductions, margin erosion, project specific risks, delivery
of the cost reduction plans, delivery of the business disposal
programme and the recoverability of work in progress and debtor
balances. This stress-testing also considered a combination of the
individual downside profit and cashflow scenarios.
The Board undertook this assessment in the context of
macro-economic and political risks affecting the UK economy,
including Brexit. Brexit has the potential to disrupt the Group's
operations, particularly in relation to materials, people and the
supply-chain. The Group has established a 'Brexit task force' and
has in place business continuity plans to mitigate the risks
associated with Brexit. 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 health, education and utilities, which are
considered to be more insulated from macro-economic factors. In
addition, significant cost reduction actions have already been
taken to improve the Group's profitability. However, in light of
the current macro-economic and political risks affecting the UK
economy, and other risks to business performance, the Board has
also planned further mitigating actions which could be taken and
are within its control to ensure that the Group remains in
compliance with its debt facilities and covenant requirements in
severe but plausible downside business scenarios over the forecast
period.
As a result, the directors are satisfied that the Group has
adequate resources to meet its obligations as they fall due and,
for this reason, they continue to adopt the going concern basis in
preparing the Group's 2019 financial statements.
- E N D S -
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. 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 2018 and the section of the
Company's rights issue prospectus dated 30 November 2018 entitle
"Risk factors" for a further discussion of the factors that could
affect the Group's future performance and the industry in which it
operates. 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.
Consolidated income statement Kier Group plc
Financial Statements
for the year
ended 30 June
2019
For the year ended 30 June 2019
2019 2018
Exceptional
Exceptional Before items
Before items exceptional (note
exceptional (note items 3)(1,
items 3)(1) Total (3) 3) Total
Continuing operations Notes GBPm GBPm GBPm GBPm GBPm GBPm
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Revenue
Group and share of joint
ventures 2 4,494.4 (15.0) 4,479.4 4,512.8 - 4,512.8
Less share of joint ventures 2 (357.7) - (357.7) (273.2) - (273.2)
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Group revenue 4,136.7 (15.0) 4,121.7 4,239.6 - 4,239.6
Cost of sales (3,753.5) (111.2) (3,864.7) (3,810.7) (27.0) (3,837.7)
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Gross profit/(loss) 383.2 (126.2) 257.0 428.9 (27.0) 401.9
Administrative expenses (289.8) (214.2) (504.0) (288.1) (25.6) (313.7)
Share of post-tax results of
joint ventures 30.7 - 30.7 42.7 - 42.7
(Loss)/profit on disposal of
joint ventures and
subsidiaries - (0.4) (0.4) 3.5 - 3.5
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Profit/(loss) from operations 2 124.1 (340.8) (216.7) 187.0 (52.6) 134.4
Finance income 0.2 - 0.2 0.9 - 0.9
Finance cost (26.7) (1.7) (28.4) (24.0) (5.1) (29.1)
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Profit/(loss) before tax 2 97.6 (342.5) (244.9) 163.9 (57.7) 106.2
Taxation 5 (20.2) 55.9 35.7 (28.4) 10.7 (17.7)
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Profit/(loss) for the year
from continuing operations 77.4 (286.6) (209.2) 135.5 (47.0) 88.5
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Discontinued operations
Loss for the year from
discontinued
operations (attributable to
equity holders of the
parent) - - - (1.0) - (1.0)
Profit/(loss) for the year 77.4 (286.6) (209.2) 134.5 (47.0) 87.5
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Attributable to:
Owners of the parent 77.0 (286.6) (209.6) 134.3 (47.0) 87.3
Non-controlling interests 0.4 - 0.4 0.2 - 0.2
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
77.4 (286.6) (209.2) 134.5 (47.0) 87.5
============================= ===== ============ =========== ========= ============ =========== =========
Earnings per share(2)
Basic earnings/(loss) per
share
From continuing operations 7 58.2p (216.7)p (158.5)p 136.8p (47.5)p 89.3p
From discontinued operations 7 - - - (1.0)p - (1.0)p
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Total 58.2p (216.7)p (158.5)p 135.8p (47.5)p 88.3p
Diluted earnings/(loss) per
share
From continuing operations 7 58.2p (216.7)p (158.5)p 135.3p (47.0)p 88.3p
From discontinued operations 7 - - - (1.0)p - (1.0)p
----------------------------- ----- ------------ ----------- --------- ------------ ----------- ---------
Total 58.2p (216.7)p (158.5)p 134.3p (47.0)p 87.3p
============================= ===== ============ =========== ========= ============ =========== =========
(1) Reference to 'Exceptional items' includes exceptional items
of GBP316.0m and amortisation of acquired intangible assets of
GBP24.8m, see page 20 and Note 3.
(2) Earnings per share for the year to 30 June 2018 restated as
a result of the rights issue which completed on 20 December 2018,
see note 7 to the financial statements.
(3) The prior year comparative information has been re-presented
to reflect the change in the Group's Alternative Performance
Measure. This has had no impact on the statutory reported results
for the year ended 30 June 2018.
Consolidated statement of comprehensive income Kier Group plc
Financial Statements
for the year
ended 30 June
2019
For the year ended 30 June 2019
2019 2018
Notes GBPm GBPm
(Loss)/profit for the year (209.2) 87.5
----------------------------------------------------------- ----- ------- ------
Items that may be reclassified subsequently to the
income statement
Share of joint venture fair value movements on cash
flow hedging instruments 0.2 0.4
Deferred tax charge on share of joint venture fair
value movements on cash flow hedging instruments 5 - (0.1)
Share of joint venture fair value movements on cash
flow hedging instruments recycled to the income statement - 2.3
Deferred tax on share of joint venture fair value
movements on cash flow hedging instruments recycled
to the income statement - (0.4)
Fair value gain/(loss) on cash flow hedging instruments 8.6 (3.4)
Fair value movements on cash flow hedging instruments
recycled to the income statement (4.3) 1.6
Deferred tax (charge)/credit on fair value movements
on cash flow hedging instruments 5 (0.7) 0.3
Foreign exchange gains/(losses) on long-term funding
of foreign operations 0.9 (0.2)
Foreign exchange translation differences - (0.3)
Foreign exchange movements recycled to the income
statement (0.7) (0.9)
----------------------------------------------------------- ----- ------- ------
Total items that may be reclassified subsequently
to the income statement 4.0 (0.7)
----------------------------------------------------------- ----- ------- ------
Items that will not be reclassified to the income
statement
Re-measurement of defined benefit liabilities 4 (22.9) 79.8
Deferred tax credit/(charge) on actuarial (losses)/gains
on defined benefit liabilities 5 3.9 (13.6)
Total items that will not be reclassified to the
income statement (19.0) 66.2
----------------------------------------------------------- ----- ------- ------
Other comprehensive (loss)/income for the year (15.0) 65.5
----------------------------------------------------------- ----- ------- ------
Total comprehensive (loss)/income for the year (224.2) 153.0
=========================================================== ===== ======= ======
Attributable to:
Owners of the parent (224.6) 152.8
Non-controlling interests - continuing operations 0.4 0.2
----------------------------------------------------------- ----- ------- ------
(224.2) 153.0
=========================================================== ===== ======= ======
Total comprehensive (loss)/ income attributable to
equity shareholders arises from:
Continuing operations (224.6) 153.8
Discontinued operations - (1.0)
---------------------------------------------------- ------- -----
(224.6) 152.8
=================================================== ======= =====
Consolidated statement of changes in equity Kier Group plc
Financial Statements
for the year
ended 30 June
2019
For the year ended 30 June 2019
Equity
Cash attributable
Capital flow to owners
Share Share redemption Retained hedge Translation Merger of Non-controlling Total
capital premium reserve earnings reserve reserve reserve the parent interests equity
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 1 July 2017 1.0 434.8 2.7 (63.9) (5.7) 4.7 134.8 508.4 3.0 511.4
Profit for the
year - - - 87.3 - - - 87.3 0.2 87.5
Other
comprehensive
income/(loss) - - - 66.2 0.7 (1.4) - 65.5 - 65.5
Dividends paid - - - (66.1) - - - (66.1) (1.5) (67.6)
Issue of own
shares - 0.2 - - - - - 0.2 - 0.2
Share-based
payments - - - 5.4 - - - 5.4 - 5.4
Purchase of
own
shares - - - (1.3) - - - (1.3) - (1.3)
-------------- ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 30 June
2018 1.0 435.0 2.7 27.6 (5.0) 3.3 134.8 599.4 1.7 601.1
Impact of
adopting
IFRS 15 (note
16) - - - (60.8) - 0.2 - (60.6) - (60.6)
-------------- ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 1 July 2018 1.0 435.0 2.7 (33.2) (5.0) 3.5 134.8 538.8 1.7 540.5
(Loss)/ profit
for the year - - - (209.6) - - - (209.6) 0.4 (209.2)
Other
comprehensive
(loss)/income - - - (19.0) 3.8 0.2 - (15.0) - (15.0)
Dividends paid - - - (52.6) - - - (52.6) (1.6) (54.2)
Issue of own
shares 0.6 249.3 - - - - - 249.9 - 249.9
Share-based
payments - - - 7.2 - - - 7.2 - 7.2
Purchase of
own
shares - - - 0.4 - - - 0.4 - 0.4
-------------- ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 30 June
2019 1.6 684.3 2.7 (306.8) (1.2) 3.7 134.8 519.1 0.5 519.6
============== ======= ======= ========== ======== ======= =========== ======== ============ =============== =======
The numbers in the table above are shown net of tax as
applicable.
Under the terms of a fully underwritten rights issue, ordinary
shareholders of the Company on the register at the close of
business on 30 November 2018 were offered 64,455,707 new ordinary
shares of 1 pence each on the basis of 33 new ordinary shares for
every existing 50 ordinary shares held. The new shares were fully
subscribed on 20 December 2018, resulting in proceeds on issue of
GBP249.9m, net of expenses of GBP13.7m, that were charged against
the share premium account.
Consolidated balance sheet Kier Group plc
Financial Statements
for the year
ended 30 June
2019
At 30 June 2019
2019 2018(1)
Notes GBPm GBPm
------------------------------------------------------ ----- --------- ---------
Non-current assets
Intangible assets 13 766.7 862.2
Property, plant and equipment 57.3 91.6
Investments in and loans to joint ventures 237.9 226.1
Capitalised mobilisation costs 16 3.3 -
Deferred tax assets 5 47.7 -
Contract assets 16 25.2 -
Trade and other receivables 29.0 49.2
Retirement benefit assets 4 58.4 39.5
Other financial assets 22.1 15.2
------------------------------------------------------ ----- --------- ---------
Non-current assets 1,247.6 1,283.8
------------------------------------------------------ ----- --------- ---------
Current assets
Inventories 217.9 575.0
Contract assets 16 485.2 -
Trade and other receivables 385.4 603.0
Corporation tax receivable 9.1 15.4
Other financial assets 2.0 -
Cash and cash equivalents 9 311.7 330.9
------------------------------------------------------ ----- --------- ---------
Current assets 1,411.3 1,524.3
Assets held for sale as part of a disposal group 8 14.6 1.3
====================================================== ===== ========= =========
Total assets 2,673.5 2,809.4
====================================================== ===== ========= =========
Current liabilities
Borrowings 9 (30.3) (12.0)
Finance lease obligations (1.1) (4.0)
Trade and other payables 10 (1,342.7) (1,526.8)
Contract liabilities 16 (134.0) -
Provisions (25.0) (15.4)
Current liabilities (1,533.1) (1,558.2)
------------------------------------------------------ ----- --------- ---------
Liabilities held for sale as part of a disposal group 8 (1.5) (3.4)
------------------------------------------------------ ----- --------- ---------
Non-current liabilities
Borrowings 9 (473.6) (524.9)
Finance lease obligations (2.0) (3.1)
Trade and other payables (39.5) (24.2)
Retirement benefit obligations 4 (38.9) (31.6)
Provisions (65.3) (52.1)
Deferred tax liability - (10.8)
Non-current liabilities (619.3) (646.7)
------------------------------------------------------ ----- --------- ---------
Total liabilities (2,153.9) (2,208.3)
====================================================== ===== ========= =========
Net assets 2 519.6 601.1
====================================================== ===== ========= =========
Equity
Share capital 1.6 1.0
Share premium 684.3 435.0
Capital redemption reserve 2.7 2.7
Retained earnings (306.8) 27.6
Cash flow hedge reserve (1.2) (5.0)
Translation reserve 3.7 3.3
Merger reserve 134.8 134.8
------------------------------------------------------ ----- --------- ---------
Equity attributable to owners of the parent 519.1 599.4
Non-controlling interests 0.5 1.7
------------------------------------------------------ ----- --------- ---------
Total equity 519.6 601.1
====================================================== ===== ========= =========
(1) 2018 balance sheet reclassed to move GBP15.2m of 'Other
financial assets' from current assets to non-current assets.
Consolidated cash flow statement Kier Group plc
Financial Statements
for the year
ended 30 June
2019
For the year ended 30 June 2019
2019 2018
Notes GBPm GBPm
--------------------------------------------------------- ------- ------- -------
Cash flow from operating activities
(Loss)/profit before tax - continuing operations (244.9) 106.2
- discontinued operations - (1.0)
Exceptional items excluding impairment, amortisation
and finance costs 3 268.8 -
Net finance cost 28.2 28.2
Share of post-tax trading results of joint ventures (30.7) (42.7)
Normal cash contributions to pension fund in excess
of pension charge 0.3 0.8
Equity settled share-based payments charge 7.2 5.4
Amortisation of intangible assets less negative
goodwill recognised 38.7 37.7
Impairment of goodwill and intangible assets 47.8 -
Research and development expenditure credit (7.8) (8.6)
Depreciation charges 15.5 19.1
Loss/(profit) on disposal of joint ventures and
subsidiaries 0.4 (3.5)
Loss/(profit) on disposal of property, plant and
equipment and intangible assets (0.2) (0.8)
--------------------------------------------------------- ------- ------- -------
Operating cash inflows before movements in working
capital 123.3 140.8
Deficit contributions to pension fund (24.2) (26.6)
Decrease in inventories 8.8 33.4
Decrease/(increase) in receivables 97.7 (29.4)
Increase in contract assets (116.4) -
(Decrease)/increase in payables (88.2) 32.5
Decrease in contract liabilities (61.4) -
Decrease in provisions (3.2) (9.9)
--------------------------------------------------------- ------- ------- -------
Cash (outflow)/ inflow from operating activities
before exceptional items (63.6) 140.8
Cash outflow from operating activities (exceptional
items) 3 (60.8) (32.0)
--------------------------------------------------------- ------- ------- -------
Cash (outflow)/ inflow from operating activities (124.4) 108.8
Dividends received from joint ventures 31.4 30.5
Interest received 0.2 0.9
Income tax received/ (paid) 5b 10.1 (9.9)
Net cash (outflow)/inflow from operating activities (82.7) 130.3
--------------------------------------------------------- ------- ------- -------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment - 3.6
Proceeds from sale of subsidiary and joint ventures,
net of cash disposed 12 18.7 5.0
Purchase of property, plant and equipment (11.6) (22.1)
Purchase of intangible assets (19.8) (41.2)
Purchase of capitalised mobilisation costs (0.9) -
Acquisition of subsidiaries 12 (29.0) (16.7)
Investment in joint ventures (52.0) (77.6)
Return of equity from joint ventures 25.2 40.6
Loan repayment from joint ventures 6.1 -
Classification (from)/to assets held for sale (2.2) 2.1
(65.5)
Net cash used in investing activities ) (106.3)
--------------------------------------------------------- ------- ------- -------
Cash flows from financing activities
Issue of shares 249.9 0.2
Purchase of own shares 0.4 (1.3)
Interest paid (24.3) (21.7)
Cash outflow incurred raising finance - (2.0)
Inflow from finance leases on property, plant and
equipment - 2.5
Finance lease repayments (4.5) (10.2)
Repayment of borrowings (39.2) (91.3)
Dividends paid to equity holders of the parent 6 (52.6) (66.1)
Dividends paid to non-controlling interests (1.6) (1.5)
--------------------------------------------------------- ------- ------- -------
Net cash from/(used in) financing activities 128.1 (191.4)
--------------------------------------------------------- ------- ------- -------
Decrease in cash, cash equivalents and overdraft (20.1) (167.4)
Effect of change in foreign exchange rates 0.9 (1.5)
Opening cash, cash equivalents and overdraft 330.9 499.8
--------------------------------------------------------- ------- ------- -------
Closing cash, cash equivalents and overdraft 9 311.7 330.9
========================================================= ======= ======= =======
Notes to the financial statements Kier Group plc
Financial Statements
for the year
ended 30 June
2019
1 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 address of its registered office is
Tempsford Hall, Sandy, Bedfordshire, SG19 2BD.
The preliminary consolidated financial statements (financial
statements) for the year ended 30 June 2019 comprise the Company
and its subsidiaries (together referred to as the Group) and the
Group's interest in jointly controlled entities.
Basis of preparation
The financial statements included in this Preliminary
announcement have been prepared in accordance with the Disclosure
and Transparency Rules of the Financial Conduct Authority, and the
principles of International Financial Reporting Standards (IFRS) as
adopted by the European Union but do not comply with the full
disclosure requirements of these standards.
The unaudited financial information contained in this
announcement does not constitute the Company's statutory accounts
as at and for the year ended 30 June 2019, but is derived from
those accounts, which have been prepared in accordance with
International Financial Reporting Standards (IFRSs) adopted by the
European Union and therefore comply with Article 4 of the EU IAS
Regulation. The Company's statutory accounts as at and for the year
ended 30 June 2019 will be approved by the Board of Directors and
reported on by the auditors and then subsequently delivered to the
Registrar of Companies following the Company's Annual General
Meeting on 15 November 2019. Accordingly the financial information
for 2019 is presented as unaudited in this announcement.
Going concern
The directors continue to adopt the going concern basis in
preparing the Group's 2019 financial statements.
The Group announced the conclusions of its strategic review in
June 2019, which set out the Group's plans to focus on its core
businesses of Regional Building, Infrastructure, Utilities and
Highways; to simplify the Group by selling or substantially exiting
non-core activities, including Kier Living, Property, Facilities
Management and Environmental Services; to restructure the Group by
reducing headcount by c.1,200 and deliver annual cost savings of
c.GBP55m from FY2021; and to embed a culture of performance
excellence with a particular focus on cash generation to deliver a
reduction in average month-end net debt.
As at 19 September 2019, the Group has received a number of
offers for its Residential business and has taken cost reduction
actions to realise significant annualised benefits. The results of
these actions will result in reduced leverage and reduced costs
over the next 12 months.
At 30 June 2019, the Group had GBP922m of unsecured committed
facilities, GBP20m of uncommitted overdrafts and GBP195m of
uncommitted supply chain financing facilities.
The directors have reviewed the Group's short-term cash flow
forecasts to 31 December 2020 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 included consideration of the risks to the Group
relating to pension funding, working capital, supply chain finance,
volume reductions, margin erosion, project specific risks, delivery
of the cost reduction plans, delivery of the business disposal
programme and the recoverability of work in progress and debtor
balances. This stress-testing also considered a combination of the
individual downside profit and cashflow scenarios.
The Board undertook this assessment in the context of
macro-economic and political risks affecting the UK economy,
including Brexit. Brexit has the potential to disrupt the Group's
operations, particularly in relation to materials, people and the
supply-chain. The Group has established a 'Brexit task force' and
has in place business continuity plans to mitigate the risks
associated with Brexit. 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 health, education and utilities, which are
considered to be more insulated from macro-economic factors. In
addition, significant cost reduction actions have already been
taken to improve the Group's profitability. However, in light of
the current macro-economic and political risks affecting the UK
economy, and other risks to business performance, the Board has
also planned further mitigating actions which could be taken and
are within its control to ensure that the Group remains in
compliance with its debt facilities and covenant requirements in
severe but plausible downside business scenarios over the forecast
period.
As a result, the directors are satisfied that the Group has
adequate resources to meet its obligations as they fall due and,
for this reason, they continue to adopt the going concern basis in
preparing the Group's 2019 financial statements.
Significant accounting policies
Except as described below, the accounting policies applied by
the Group in these financial statements are consistent with those
applied by the Group in its financial statements as at, and for the
year ended, 30 June 2018.
The Group has applied IFRS 9 'Financial Instruments' and IFRS 15
'Revenue from Contracts with Customers' effective for the year
ending 30 June 2019. Both standards have been applied
retrospectively at 1 July 2018 by adjusting the opening balance
sheet at that date. Further details on the transitional impact on
adoption of these standards is described in note 16.
Standards issued but not yet effective
The Group continues to work on assessing the impact of IFRS 16
'Leases'. The main impact of IFRS 16 will be to move the Group's
larger, longer-term operating leases, primarily in respect of
property, onto the balance sheet, with a consequential increase in
non-current assets and finance lease obligations. Operating lease
charges included in administrative expenses will be replaced by
depreciation and interest costs.
The Group will be adopting IFRS 16 for the first time in the
year ending 30 June 2020. Whilst our work over the impact of IFRS
16 is ongoing, material lease liabilities are expected to be
brought onto the balance sheet along with associated right-of-use
assets. In addition, prepaid rental amounts will be removed from
the balance sheet. The net impact of these adjustments is expected
to result in a material charge to opening reserves at 1 July 2019.
We will provide further details of the quantitative impact in our
Annual Report.
Segmental reporting
From 1 July 2018, the Group changed its reporting format to
focus on three market positions to comprise Infrastructure
Services, Buildings and Developments & Housing. This is the
basis on which the Group reports its primary segmental information
for the year ended 30 June 2019. Corporate includes unrecovered
overheads and the charge for defined benefit pension schemes. The
change in reporting structure has also resulted in a change to the
Group's previously reported cash generating units ('CGU').
In accordance with IAS 36 'Impairment of Assets' the Group has
reallocated the carrying value of the Group's goodwill as at 1 July
2018 to each of the Group's new CGUs as follows:
GBPm
------------------------- ------
Infrastructure Services 527.0
Buildings 20.4
Developments & Housing 12.8
------------------------- ------
560.2
------------------------- ------
Segment information is based on the information 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 the same
as those of the Group. The Group evaluates segment information
based on profit or loss from operations before exceptional items,
amortisation of acquired intangible contract rights, interest and
income tax expense. The segment results that are reported to the
Chief Executive include items directly attributable to a segment as
well as those that can be allocated on a reasonable basis.
Exceptional items and amortisation of acquired intangible
assets
During the year, the Directors have reviewed the previous
accounting presentation for disclosed non-underlying items. As part
of this review, the Directors have changed the Group's Alternative
Performance Measure to 'Profit before exceptional items and
amortisation of acquired intangible assets' to improve the
transparency and clarity of the Group's financial performance.
Items which are significant by virtue of their size and/or
nature are now presented as exceptional items within their relevant
consolidated income statement category.
Exceptional items are items of financial performance which the
Group believes should be separately identified on the face of the
Income Statement to provide additional useful information and to
assist in understanding the financial performance achieved by the
Group and are highlighted separately in the notes to the
consolidated financial statements.
Separate presentation of these items is intended to enhance
understanding of the financial performance of the Group in the year
and the extent to which results are influenced by material unusual
and/or non-recurring items.
The Directors exercise judgement in determining the
classification of certain items as exceptional using quantitative
and qualitative factors. In assessing whether an item is
exceptional, the Directors give consideration, both individually
and collectively, as to whether the item is unusual by virtue of
its size, the specific circumstances which have led to the item
arising and if the item is likely to recur, or whether the matter
forms part of a group of similar items. No single criteria alone
classifies an item as exceptional and management must therefore
exercise judgement as to whether, on balance, classifying as such
will help users of the financial statements understand the Group's
business performance.
Amortisation of acquired intangible assets and certain financing
costs are also included alongside exceptional items on the basis of
being ongoing non-cash items generated from acquisition related
activity.
As a result of the Group's change in its Alternative Performance
Measure, a review of the comparative year has been conducted to
align to the revised presentation. A material charge of GBP27.0m in
relation to the Mersey Gateway project within the Infrastructure
division has been identified as meeting the revised exceptional
classification. The results for the year ended 30 June 2018 have
been re-presented accordingly. The results from the Mining
operations, which were previously disclosed as non-underlying, do
not meet the definition for exceptional items and therefore have
been re-presented within profit before exceptional items.
A reconciliation from the reported results in the 30 June 2018
Annual Report to the revised comparative amounts is as follows:
Profit
Previously before Previously
reported Mersey exceptional reported Mersey Exceptional
Continuing underlying Mining Gateway items non-underlying Mining Gateway items
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Revenue
Group and share
of joint
ventures 4,493.3 19.5 - 4,512.8 19.5 (19.5) - -
Less share of
joint ventures (273.2) - - (273.2) - - - -
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Group revenue 4,220.1 19.5 - 4,239.6 19.5 (19.5) - -
Cost of sales (3,818.2) (19.5) 27.0 (3,810.7) (19.5) 19.5 (27.0) (27.0)
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Gross
profit/(loss) 401.9 - 27.0 428.9 - - (27.0) (27.0)
Administrative
expenses (288.1) - - (288.1) (25.6) - - (25.6)
Share of
post-tax
results of
joint ventures 42.7 - - 42.7 - - - -
(Loss)/profit on
disposal of
joint ventures
and
subsidiaries 3.5 - - 3.5 - - - -
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Profit/(loss)
from operations 160.0 - 27.0 187.0 (25.6) - (27.0) (52.6)
Finance income 0.9 - - 0.9 - - - -
Finance cost (24.0) - - (24.0) (5.1) - - (5.1)
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Profit/(loss)
before tax 136.9 - 27.0 163.9 (30.7) - (27.0) (57.7)
Taxation (23.3) - (5.1) (28.4) 5.6 - 5.1 10.7
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Profit/(loss)
for the year
from continuing
operations 113.6 - 21.9 135.5 (25.1) - (21.9) (47.0)
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
2 Segmental reporting
Infrastructure Developments
Year to 30 June 2019 Services Buildings & Housing Corporate Group
Continuing operations GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- -------------- --------- ------------ --------- ---------
Revenue(1)
Group and share of joint ventures 1,670.7 1,882.7 939.8 1.2 4,494.4
Less share of joint ventures - - (357.7) - (357.7)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Group revenue 1,670.7 1,882.7 582.1 1.2 4,136.7
============================================== ============== ========= ============ ========= =========
Timing of revenue(1)
Products and services transferred at
a point in time 4.0 - 319.3 - 323.3
Products and services transferred over
time 1,666.7 1,882.7 620.5 1.2 4,171.1
---------------------------------------------- -------------- --------- ------------ --------- ---------
Group and share of joint ventures 1,670.7 1,882.7 939.8 1.2 4,494.4
============================================== ============== ========= ============ ========= =========
Profit
Group operating profit/(loss) 56.4 62.4 24.8 (50.2) 93.4
Share of post-tax results of joint ventures - - 30.7 - 30.7
Operating profit/(loss) before exceptional
items 56.4 62.4 55.5 (50.2) 124.1
Net finance (costs)/income before exceptional
items(2) (5.7) 4.4 (18.3) (6.9) (26.5)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Profit/(loss) before tax and exceptional
items 50.7 66.8 37.2 (57.1) 97.6
Exceptional items and amortisation of
acquired intangible assets
Revenue - (15.0) - - (15.0)
Amortisation of acquired intangible assets
relating to contract rights (20.9) - (3.9) - (24.8)
Net finance costs - - (1.1) (0.6) (1.7)
Other exceptional items (39.9) (47.2) (103.8) (110.1) (301.0)
(Loss)/profit before tax from continuing
operations (10.1) 4.6 (71.6) (167.8) (244.9)
============================================== ============== ========= ============ ========= =========
Balance sheet
Operating assets(3) 994.7 569.5 574.2 184.8 2,323.2
Operating liabilities(3) (359.5) (775.9) (307.1) (206.1) (1,648.6)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net operating assets/(liabilities)(3) 635.2 (206.4) 267.1 (21.3) 674.6
Cash, cash equivalents and borrowings 139.1 298.2 (308.7) (320.8) (192.2)
Net financial assets - - - 24.1 24.1
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net assets/(liabilities) excluding net
assets held for sale 774.3 91.8 (41.6) (318.0) 506.5
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net assets/(liabilities) held for sale - - 13.1 - 13.1
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net assets/(liabilities) 774.3 91.8 (28.5) (318.0) 519.6
============================================== ============== ========= ============ ========= =========
Other information
Inter-segmental revenue 67.2 2.2 2.5 0.5 72.4
Capital expenditure on property, plant,
equipment and intangible assets 2.1 5.5 5.3 18.5 31.4
Depreciation of property, plant and equipment (1.9) (0.8) (6.6) (6.2) (15.5)
Amortisation of computer software (1.5) (2.9) (1.9) (10.1) (16.4)
============================================== ============== ========= ============ ========= =========
Infrastructure Developments
Services Buildings & Housing Corporate Group
Year to 30 June 2018(4) GBPm GBPm GBPm GBPm GBPm
---------------------------------------------- -------------- --------- ------------ --------- ---------
Revenue(1)
Group and share of joint ventures 1,733.4 1,777.5 1,001.9 - 4,512.8
Less share of joint ventures - - (273.2) - (273.2)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Group revenue 1,733.4 1,777.5 728.7 - 4,239.6
============================================== ============== ========= ============ ========= =========
Timing of revenue(1)
Products and services transferred at
a point in time 5.2 - 421.2 - 426.4
Products and services transferred over
time 1,728.2 1,777.5 580.7 - 4,086.4
---------------------------------------------- -------------- --------- ------------ --------- ---------
Group and share of joint ventures 1,733.4 1,777.5 1,001.9 - 4,512.8
============================================== ============== ========= ============ ========= =========
Profit
Group operating profit/(loss) 95.3 54.7 25.9 (35.1) 140.8
Share of post-tax result of joint ventures - - 42.7 - 42.7
Profit on disposal of joint ventures
and subsidiaries - - 3.5 - 3.5
---------------------------------------------- -------------- --------- ------------ --------- ---------
Operating profit/(loss) before exceptional
items 95.3 54.7 72.1 (35.1) 187.0
Net finance (costs)/income before exceptional
items(2) (3.8) 7.0 (17.0) (9.3) (23.1)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Profit/(loss) before tax and exceptional
items 91.5 61.7 55.1 (44.4) 163.9
Exceptional items and amortisation of
acquired intangible assets
Exceptional contract losses (27.0) - - - (27.0)
Amortisation of acquired intangible assets
relating to contract rights (25.0) - (0.6) - (25.6)
Net finance costs (1.4) - (3.7) - (5.1)
Profit/(loss) before tax from continuing
operations 38.1 61.7 50.8 (44.4) 106.2
============================================== ============== ========= ============ ========= =========
Balance sheet
Operating assets(3) 1,142.8 504.3 715.8 99.1 2,462.0
Operating liabilities(3) (522.9) (752.9) (310.7) (81.5) (1,668.0)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net operating assets/(liabilities)(3) 619.9 (248.6) 405.1 17.6 794.0
Cash, cash equivalents and borrowings 141.1 340.0 (343.7) (343.4) (206.0)
Net financial assets - - - 15.2 15.2
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net assets/(liabilities) excluding net
liabilities held for sale 761.0 91.4 61.4 (310.6) 603.2
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net liabilities held for sale - - (2.1) - (2.1)
---------------------------------------------- -------------- --------- ------------ --------- ---------
Net assets/(liabilities) 761.0 91.4 59.3 (310.6) 601.1
============================================== ============== ========= ============ ========= =========
Other information
Inter-segmental revenue 71.3 2.2 1.4 10.1 85.0
Capital expenditure on property, plant,
equipment and intangible assets 4.5 4.6 3.0 51.2 63.3
Depreciation of property, plant and equipment (8.3) (0.8) (4.8) (5.2) (19.1)
Amortisation of computer software (0.5) (0.9) (0.3) (12.2) (13.9)
---------------------------------------------- -------------- --------- ------------ --------- ---------
(1) Revenue is stated after the exclusion of inter-segmental
revenue and before exceptional items. Over 90% of the Group's
revenue is derived from UK based customers.
(2) Interest was (charged)/credited to the divisions at a
notional rate of 4.0%.
(3) Net operating assets/(liabilities) excludes cash, cash
equivalents, bank overdrafts, borrowings, financial assets and
liabilities, assets and liabilities classified as held for sale and
interest-bearing inter-company loans.
(4) Prior year restated to show the new reporting segments
focused on the Group's three market positions of Infrastructure
Services, Buildings and Developments & Housing.
3 Exceptional items and amortisation of acquired intangible
assets
The Directors consider that alternative performance measures
referred to in these results provide useful information for readers
of the accounts on the Group's financial performance. The
adjustments made to statutory loss/profit are to exclude
exceptional items, which are significant in size and/or nature and
meeting the criteria as set out on page 20, and the amortisation of
acquired intangible assets.
(Loss)/profit before taxation is stated after
(charging)/crediting exceptional items and amortisation of acquired
intangible assets:
Amortisation Costs Preparation
of acquired associated for business Exceptional
intangible with previous Restructuring divestment contract 2019 2018
Continuing assets acquisitions charges or closure losses Other Total Total
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ ------------ ------------- ------------- ------------- ------------- ------- ------- ------
Revenue
Group and share of
joint ventures - - - - (15.0) - (15.0) -
Less share of
joint
ventures - - - - - - - -
------------------ ------------ ------------- ------------- ------------- ------------- ------- ------- ------
Group revenue - - - - (15.0) - (15.0) -
Cost of sales - - - (76.9) (34.3) - (111.2) (27.0)
------------------ ------------ ------------- ------------- ------------- ------------- ------- ------- ------
Gross
profit/(loss) - - - (76.9) (49.3) - (126.2) (27.0)
Administrative
expenses (24.8) (29.3) (56.4) (94.4) (0.6) (8.7) (214.2) (25.6)
Loss/(profit) on
disposal
of joint ventures
and subsidiaries - - - (0.4) - - (0.4)
Profit/(loss) from
operations (24.8) (29.3) (56.4) (171.7) (49.9) (8.7) (340.8) (52.6)
Net finance
credits/(charges) - - - - - (1.7) (1.7) (5.1)
------------------ ------------ ------------- ------------- ------------- ------------- ------- ------- ------
Profit/(loss)
before
tax (24.8) (29.3) (56.4) (171.7) (49.9) (10.4) (342.5) (57.7)
Associated tax
credit/charge 4.1 4.8 9.2 28.0 8.2 1.6 55.9 10.7
------------------ ------------ ------------- ------------- ------------- ------------- ------- ------- ------
Charged against
profit
for the year (20.7) (24.5) (47.2) (143.7) (41.7) (8.8) (286.6) (47.0)
------------------ ------------ ------------- ------------- ------------- ------------- ------- ------- ------
Amortisation of acquired intangible assets
Amortisation of intangible assets before tax is GBP24.8m (2018:
GBP25.6m).
Costs associated with previous acquisitions
2019 2018
GBPm GBPm
------------------------------------------------------------ ------- ------
Impairment of McNicholas assets included at acquisition(1) (21.5) -
Integration costs relating to the McNicholas acquisition(2) (11.8) -
Release of deferred and contingent consideration(3) 4.0 -
Total before tax (29.3) -
------------------------------------------------------------ ------- ------
(1) A provision against WIP acquired with McNicholas in respect
of a major customer contract. The charge is considered to be
exceptional on the basis of its size and the fact that these assets
were acquired, as a result of which the associated income has never
been recorded by the Group.
(2) Costs incurred to integrate the McNicholas acquisition into
the Utilities business including significant double-running of
people and lease costs. These are considered to be exceptional on
the basis of their size, the fact that they relate to a recent
major acquisition and that the integration is now substantially
complete.
(3) The Group has released contingent consideration relating to
the McNicholas acquisition which is not payable.
Restructuring charges
The Group has incurred significant restructuring charges
relating to costs of organisational change associated with the
Group's Future Proofing Kier project and, latterly, the Group's
Strategic Review programme announced following the appointment of
Andrew Davies as CEO. These are discussed further in the Financial
Review. These are considered to be exceptional on the basis of
their size and the fact that they relate to major restructuring
activities.
2019 2018
GBPm GBPm
-------------------------------------------------------- ------- ------
Future Proofing Kier redundancies(1) (20.0) -
Strategic headcount reductions(2) (18.7) -
Professional advisor fees associated with restructuring
programme (9.7) -
Costs incurred implementing non-people initiatives(3) (8.0) -
Total before tax (56.4) -
-------------------------------------------------------- ------- ------
(1) Costs in respect of roles made redundant as a result of the
Future Proofing Kier project.
(2) Redundancy costs arising from strategic decisions taken to
reduce headcount in a number of the Group's principal operating
divisions following the announcement of the strategic review.
(3) The Group incurred various costs in running the
restructuring activities during the year. These include the
incremental costs of teams involved in the management of the
restructuring activities, costs incurred implementing non-people
initiatives and certain external fees.
Due to the substantial nature of the project and the fact that,
as previously communicated, a further 550 heads are expected to
leave the business by end of FY20, the Group expects to incur
further redundancy costs in the coming financial year.
Costs incurred in the disposal of operations or in preparation
for business divestment or closure
The Group has incurred various charges driven by the change in
strategic direction of the Group and the decision to exit certain
divisions deemed non-core to its ongoing operations. Most of these
charges are non-cash and are considered to be exceptional on the
basis that they relate to a major restructuring of the Group
following the Strategic Review that took place earlier this
year.
2019 2018
GBPm GBPm
-------------------------------------------------------- -------- ------
Impairment of residential development sites(1) (50.0) -
Impairment of D&H goodwill and other assets(2) (47.8) -
Environmental Waste contract termination provision(3) (26.8) -
Facilities Management exit costs, impairments and other
onerous contracts(4) (22.4) -
Impairment of ERP computer software(5) (9.9) -
Fair value adjustment of disposal group - note 8 (8.4) -
Loss on disposal of subsidiaries, joint-ventures and
other assets, with associated fees - note 12 (6) (6.4) -
Total before tax (171.7) -
-------------------------------------------------------- -------- ------
(1) This impairment charge has been triggered by the Group's
decision to dispose of its Residential division and the subsequent
decision to sell certain mothballed land banks. Previously the
Group had intended to develop these sites and had therefore
maintained a carrying value of these assets above their market
valuations at GBP60.0m, on a development value basis.
(2) During the year, the Directors assessed the recoverability
assets within the Development and Housing CGU. A non-cash
impairment of goodwill (GBP8.0m) and other assets (GBP39.7m) has
been triggered by the impairment of the Developments and Housing
CGU following the decision to dispose of various non-core
divisions. See note 13.
(3) In securing the termination of its largest loss-making
environmental waste contract, the Group has agreed to pay the local
authority GBP27.3m over a period of six years. The Group agreed to
this payment to help it exit the Environmental business by reducing
a significant future central overhead that would have otherwise
still been needed to service the loss-making contract.
(4) Following the announcement of the Group's intention to exit
the Facilities Management division, a number of charges have been
recognised. These include costs incurred in exiting contracts
(GBP9.6m) and contract exit charges (GBP3.6m). In addition, an
impairment of software (GBP4.8m) has also been incurred as a result
of the decision to abandon some functionality of certain assets
following the announcement of the intention to exit the division
and an onerous contract (GBP4.4m) has been recognised in respect of
a vacated property.
(5) A cost of GBP9.9m has been written-off due to software
functionality which will no longer be utilised within the
Group.
(6) Comprises adviser fees along with the loss on disposal is
the net impact of a gain on sale of Unity (GBP2.5m) and losses on
disposal of KHSA Limited (GBP1.4m), the Group's pension
administration business (GBP1.9) and Living's shared equity
portfolio (GBP1.3m).
Exceptional contract losses
The Group has incurred significant losses of GBP43.5m relating
to the Broadmoor Hospital development project in respect of future
recoveries of costs from the client and other third parties. The
loss is split between revenue (GBP15m) and cost of sales
(GBP28.5m).
The Group has incurred significant charges in relation to the
completion of the Mersey Gateway project, for which an exceptional
charge of GBP27.0m was incurred in the year ended 30 June 2018,
with further costs of GBP6.4m incurred in the current year.
The charges in relation to Broadmoor and Mersey Gateway have
been classified as exceptional items on the basis of the highly
material size of the charges incurred in the current and prior
years. In the view of the Directors, both of these contract losses
are also considered exceptional on the basis that they arose from
contractual arrangements that would not typically be agreed to by
the respective businesses.
Other exceptional items
Other exceptional items are analysed below:
2019 2018
GBPm GBPm
------------------------------------------------- ------- ------
Procurement charge(1) (16.1) -
Pension increase exchange pension gain - note 4 16.1 -
GMP Pension charge - note 4 (6.1) -
External fees(2) (2.6) -
Net financing costs (3) (1.7) (5.1)
Total before tax (10.4) (5.1)
------------------------------------------------- ------- ------
(1) The Group has incurred a charge in relation to certain aged
procurement recoveries that have been written off as a result of
changes in the Group's commercial landscape over the course of the
financial year. The charge is deemed exceptional on the basis of
its size. None of the associated income was recognised during this
financial year.
(2) External fees include GBP1.5m in relation to the pension
increase exchange gain and GBP1.1m of other fees.
(3) Net financial costs relate to discount unwinding of acquired
intangible assets and other exceptional provisions.
4 Retirement benefit obligations
The amounts recognised in the financial statements in respect of
the Group's defined benefit schemes are as follows:
2019 2018
Kier May Mouchel Kier May Mouchel
Group Gurney Pension McNicholas Group Gurney Pension McNicholas
Pension Pension Schemes(1. Pension Pension Pension Schemes(1, Pension
Scheme Scheme 2) Scheme Total Scheme Scheme 2) Scheme Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Opening
surplus/(deficit) 25.2 (1.1) (8.8) (7.4) 7.9 (31.1) (5.9) (47.6) - (84.6)
Acquired deficit - - - - - - - - (10.9) (10.9)
Credit/(charge) to
income
statement 11.7 (0.5) (0.6) (0.3) 10.3 (1.0) (0.2) (1.6) (0.2) (3.0)
Employer
contributions 12.2 1.8 9.0 1.2 24.2 13.4 2.4 9.2 1.6 26.6
Actuarial
gains/(losses) (9.7) 1.2 (14.2) (0.2) (22.9) 43.9 2.6 31.2 2.1 79.8
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Closing
surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5 25.2 (1.1) (8.8) (7.4) 7.9
================== ========= ======= ========== ========== ========= ========= ======= ========== ========== =========
Comprising:
Total market
value of
assets 1,189.8 81.0 492.6 26.0 1,789.4 1,120.0 75.1 463.4 22.7 1,681.2
Present value
of liabilities (1,150.4) (79.6) (507.2) (32.7) (1,769.9) (1,094.8) (76.2) (472.2) (30.1) (1,673.3)
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Net
surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5 25.2 (1.1) (8.8) (7.4) 7.9
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Related deferred
tax
(liability)/asset (6.7) (0.2) 2.5 1.1 (3.3) (4.3) 0.2 1.5 1.3 (1.3)
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Net pension
asset/(liability) 32.7 1.2 (12.1) (5.6) 16.2 20.9 (0.9) (7.3) (6.1) 6.6
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Presentation of net surplus/(deficit) above in the Consolidated balance
sheet:
Retirement benefit
assets 39.4 1.4 17.6 - 58.4 25.2 - 14.3 - 39.5
Retirement benefit
obligations - - (32.2) (6.7) (38.9) - (1.1) (23.1) (7.4) (31.6)
------------------ --------- ------- ---------- ---------- --------- --------- ------- ---------- ---------- ---------
Net
surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5 25.2 (1.1) (8.8) (7.4) 7.9
================== ========= ======= ========== ========== ========= ========= ======= ========== ========== =========
(1) This comprises of schemes in a net surplus and net deficit
position: GBP17.6m and GBP32.2m at 30 June 2019 (2018: GBP14.3m
surplus and GBP23.1m deficit).
(2) The Mouchel figures comprise four individual schemes
(Mouchel Superannuation Fund, Mouchel Staff Pension Scheme, Mouchel
Business Services Limited Pension Scheme (Final Salary Section) and
EM Highways Prudential Platinum Scheme) which have been grouped
together because they were purchased as part of the Mouchel Group.
The composition of these schemes has not changed since the prior
year.
On 26 October 2018, the High Court ruled in the Lloyds Banking
Group case that pension schemes must equalise Guaranteed Minimum
Pensions (GMP) between male and female members. Amounts charged to
the income statement for the year to 30 June 2019 include an
exceptional GMP charge of GBP6.1m (2018: GBPnil).
During the year, the Group launched a member options exercise,
offering a Pension Increase Exchange (PIE) to members of the Kier
Group Pension Scheme and the Mouchel Business Services Limited
Pension Scheme. The initiative was carried out with support from
the Trustees of the pension schemes, in order to provide more
flexibility and choice for members, reduce risk, and reduce cost in
the Group's defined benefit pension schemes. The PIE offering was
introduced as follows:
A bulk PIE exercise, offering members who are already drawing a
pension a one-off increase in pension in lieu of future annual
increases on part of their pension, supported with independent
financial advice paid for by Kier. The terms are such that the IAS
19 pension liabilities are reduced if pensioners take this option,
with the gain of GBP6.8m recognised as a one-off exceptional income
credit recognised during the year to 30 June 2019.
PIE option at the point of retirement as 'business as usual' on
the same terms as the bulk exercise. Kier will pay for members to
take financial advice at the point of retirement, including on the
PIE at retirement option. A reduction in IAS 19 pension liabilities
can be recognised based on an assumed rate of future take-up. The
PIE at retirement option has resulted in a further exceptional
income credit of GBP9.3m recognised during the year to 30 June
2019.
A combined gain for both the bulk PIE exercise and the
introduction of the at retirement option of GBP16.1m has been
recognised as an exceptional gain disclosed net of associated fees
of GBP1.5m in the year to 30 June 2019.
Kier is directly meeting the costs of implementing the PIE
exercises and has incurred an exceptional cost of GBP1.5m in the
year to 30 June 2019.
5 Taxation
a) Recognised in the income statement
2019 2018
Exceptional Exceptional
Before items Before items
exceptional (note exceptional (note
items 3)(1) Total items 3) Total
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Current tax
expense/(credit)
UK corporation tax 2.7 - 2.7 10.5 (6.3) 4.2
Adjustments in respect of
prior
years 2.9 - 2.9 0.1 - 0.1
Foreign tax relief (0.3) - (0.3) (1.6) - (1.6)
--------------------------- ------------ ----------- ------- ------------ ----------- -----
5.3 - 5.3 9.0 (6.3) 2.7
Foreign tax suffered 2.4 - 2.4 2.6 - 2.6
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Total current tax 7.7 - 7.7 11.6 (6.3) 5.3
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Deferred tax
expense/(credit)
Origination and reversal of
temporary
differences 17.5 (62.5) (45.0) 21.6 (4.4) 17.2
Adjustments in respect of
prior
years (2.3) - (2.3) (3.0) - (3.0)
Rate change effect on
deferred
tax (2.7) 6.6 3.9 (1.8) - (1.8)
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Total deferred tax 12.5 (55.9) (43.4) 16.8 (4.4) 12.4
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Total tax charge/(credit)
in the
income statement 20.2 (55.9) (35.7) 28.4 (10.7) 17.7
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Reconciliation of effective
tax
rate
Profit/(loss) before tax 97.6 (342.5) (244.9) 163.9 (57.7) 106.2
Add: tax on joint ventures
included
above - - - 0.1 - 0.1
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Adjusted profit/(loss)
before tax 97.6 (342.5) (244.9) 164.0 (57.7) 106.3
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Income tax at UK
corporation tax
rate of 19.00% (2018:
19.00%) 18.5 (65.1) (46.6) 31.1 (10.9) 20.2
Non-deductible expenses and
unusable
tax losses 1.7 3.2 4.9 0.7 0.1 0.8
Income not taxable (1.1) (0.7) (1.8) (0.3) - (0.3)
Effect of tax rates in
foreign
jurisdictions 1.3 - 1.3 1.1 - 1.1
Effect of change in UK
corporation
tax rate (2.6) 6.6 4.0 (1.9) 0.1 (1.8)
Share based payments
deduction 1.4 - 1.4 1.5 - 1.5
Capital gains not taxed - 0.1 0.1 (0.5) - (0.5)
Utilisation of tax losses 0.4 - 0.4 (0.3) - (0.3)
Adjustments in respect of
prior
years 0.6 - 0.6 (2.9) - (2.9)
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Total tax (including joint
ventures) 20.2 (55.9) (35.7) 28.5 (10.7) 17.8
Tax on joint ventures - - - (0.1) - (0.1)
--------------------------- ------------ ----------- ------- ------------ ----------- -----
Group tax charge/(credit) 20.2 (55.9) (35.7) 28.4 (10.7) 17.7
--------------------------- ------------ ----------- ------- ------------ ----------- -----
(1) Reference to 'Exceptional items' includes exceptional items
and amortisation of acquired intangible assets, see page 20.
Kier Group and its subsidiaries are based predominantly in the
UK and are subject to UK corporation tax. However, the Group does
operate and pay taxes in jurisdictions where the tax rate is higher
than the UK's statutory rate. The Group does not have an aggressive
tax policy and since 1st July 2012 Kier has not entered into any
tax avoidance schemes which were or should have been notified under
the Disclosure of Tax Avoidance Scheme (DOTAS) rules.
The Group tax charge before exceptional items and amortisation
of acquired intangible assets of GBP20.2m (2018: GBP28.4m) shown in
the table above equates to an effective tax rate of 20.6% (2018:
17.3%) on adjusted profit before tax of GBP97.6m (2018: GBP163.9m).
This effective rate is higher than the standard rate of corporation
tax of 19.0% (2018: 19.0%) due to items shown in the table above.
The non-deductible expenses included before exceptional items and
amortisation of acquired intangible assets mainly relate to
depreciation on non-qualifying assets.
In accordance with UK tax legislation, capital gains arising on
disposal of certain investments, including some of the joint
ventures disposed of during the year, are not subject to tax.
Tax relief on expenses not recognised in the income statement
includes the impact of the tax deduction received in respect of the
cost of shares exercised under the Group's employee Save As You
Earn Scheme and Long Term Incentive Plan.
The Group provides for future liabilities in respect of
uncertain tax positions where additional tax may become payable in
future periods and such provisions are based on management's
assessment of exposure. At the balance sheet date, a deferred tax
liability of GBP3.4m (2018: GBP5.5m) has been recognised in respect
of uncertain tax positions.
The net charge of GBP0.6m (2018: GBP2.9m credit) in respect of
prior year's results arise from differences between the estimates
of taxation included in the previous year's financial statements
and the actual tax liabilities calculated in the tax returns
submitted to and agreed by HMRC.
b) Recognised in the cash flow statement
The cash flow statement shows cash received of GBP10.1m during
the year (2018: GBP9.9m paid).
c) Recognised in the statement of comprehensive income
2019 2018
GBPm GBPm
------------------------------------------------------------ ----- -----
Deferred tax (credit)/charge (including effect of change
in tax rate)
Share of fair value movements on joint venture cash flow
hedging instruments - 0.1
Fair value movements on cash flow hedging instruments 0.7 (0.3)
Actuarial gains/(losses) on defined benefit pension schemes (3.9) 13.6
------------------------------------------------------------ ----- -----
Total tax (credit)/charge in the statement of comprehensive
income (3.2) 13.4
------------------------------------------------------------ ----- -----
d) Factors that may affect future tax charges
The deferred tax balance as at the year-end has been recognised
at 17.0% which is the enacted corporation tax rate that will be
effective from 1 April 2020.
e) Tax losses
At the balance sheet date, the Group has unused tax losses of
GBP514.6m (2018: GBP217.4m) available for offset against future
profits. A deferred tax asset has been recognised on GBP348.5m
(2018: GBP39.4m) of these losses.
No deferred tax asset has been recognised in respect of the
remaining losses due to the unpredictability of future profit
streams against which these losses could be offset. Under present
tax legislation, these losses may be carried forward
indefinitely.
6 Dividends
Amounts recognised as distributions to equity holders in 2019 2018
the year: GBPm GBPm
--------------------------------------------------------- ------ ------
Final dividend for the year ended 30 June 2018 of 46.0
pence (2017: 45.0 pence) 44.7 43.7
Interim dividend for the year ended 30 June 2019 of 4.9
pence (2018: 23.0 pence) 7.9 22.4
--------------------------------------------------------- ------ ------
52.6 66.1
========================================================= ====== ======
The Group's focus on cash generation and reducing net debt has
required a suspension in dividend payments for the second half of
FY19 and the whole of FY20. The last dividend declared was the FY19
interim dividend of 4.9 pence per share (2018: 23.0 pence). The
total dividend for the year is therefore 4.9 pence (2018: 69.0
pence). This was approved and paid before the balance sheet
date.
The parent company of the Group, Kier Group plc, is a
non-trading holding company which derives its distributable
reserves in part from dividends received from its subsidiaries. In
determining the level of dividend payable in any year, in addition
to the stated policy, the Board considers a number of other
factors, including the following:
the level of distributable reserves in the parent company, Kier
Group plc;
the level of distributable reserves in Kier Group plc's
subsidiaries that are available to be distributed to Kier Group
plc;
the availability of cash resources;
the Group's borrowing covenants;
future cash commitments and investment plans to support the
long-term growth of the Group; and
potential strategic opportunities under consideration.
The Board reviews the level of distributable reserves in the
parent company at least twice a year ahead of announcing proposed
interim and final dividends. The dividends paid out during the year
total 4.9 pence per share (2018: 69.0 pence) on an earnings per
share before exceptional items and amortisation of acquired
intangible assets of 58.2 pence (2018: 136.8 pence), giving a
dividend cover of 11.9x (2018: 2.0x).
7 Earnings per share
A reconciliation of profit and earnings per share, as reported
in the income statement, to profit and earnings per share before
exceptional items and amortisation of acquired intangible assets is
set out below. The adjustments are made to illustrate the impact of
exceptional items and amortisation of acquired intangible
assets.
2018(2)
2019
---------------------------------------------------- ---------------- -------------------
Basic Diluted Basic Diluted(3)
GBPm GBPm GBPm GBPm
---------------------------------------------------- ------- ------- ------- ----------
(Loss)/earnings
Continuing operations
Earnings (after tax and non-controlling interests),
being net profits attributable to equity holders
of the parent (209.6) (209.6) 88.3 88.3
Impact of exceptional items(1) net of tax:
Amortisation of intangible assets - net of
tax credit of GBP4.2m (2018: GBP4.7m) 20.5 20.5 20.9 20.9
Acquisition discount unwind(4) - net of tax
credit of GBP0.3m (2018: GBP0.9m) 1.4 1.4 2.8 2.8
Other exceptional items(1) - net of tax credit
of GBP51.4m (2018: GBP3.4m) 264.7 264.7 23.3 23.3
----------------------------------------------------- ------- ------- ------- ----------
Earnings from continuing operations before
exceptional items(1) 77.0 77.0 135.3 135.3
----------------------------------------------------- ------- ------- ------- ----------
Discontinued operations
Loss (after tax and non-controlling interests),
being net loss attributable to equity holders
of the parent - - (1.0) (1.0)
----------------------------------------------------- ------- ------- ------- ----------
Loss from discontinued operations - - (1.0) (1.0)
----------------------------------------------------- ------- ------- ------- ----------
million million million million
---------------------------------------------------- ------- ------- ------- ----------
Weighted average number of shares used for
earnings per share 132.2 132.2 98.9 100.0
===================================================== ======= ======= ======= ==========
Basic Diluted Basic Diluted
---------------------------------------------------- ------- ------- ------- ----------
Earnings per share pence pence pence pence
==================================================== ======= ======= ======= ==========
Continuing operations
---------------------------------------------------- ------- ------- ------- ----------
(Loss)/earnings (after tax and non-controlling
interests), being net profits attributable
to equity holders of the parent (158.5) (158.5) 89.3 88.3
----------------------------------------------------- ------- ------- ------- ----------
Impact of exceptional items(1) net of tax:
---------------------------------------------------- ------- ------- ------- ----------
Amortisation of intangible assets - net of
tax credit of GBP4.2m (2018: GBP4.7m) 15.5 15.5 21.1 20.9
----------------------------------------------------- ------- ------- ------- ----------
Acquisition discount unwind(4) - net of tax
credit of GBP0.3m (2018: GBP0.9m) 1.0 1.0 2.8 2.8
----------------------------------------------------- ------- ------- ------- ----------
Other exceptional items(1) - net of tax credit
of GBP51.4m (2018: GBP3.4m) 200.2 200.2 23.6 23.3
----------------------------------------------------- ------- ------- ------- ----------
Earnings from continuing operations before
exceptional items 58.2 58.2 136.8 135.3
----------------------------------------------------- ------- ------- ------- ----------
Discontinued operations
---------------------------------------------------- ------- ------- ------- ----------
Loss (after tax and non-controlling interests),
being net loss attributable to equity holders
of the parent - - (1.0) (1.0)
----------------------------------------------------- ------- ------- ------- ----------
Loss from discontinued operations - - (1.0) (1.0)
----------------------------------------------------- ------- ------- ------- ----------
Total earnings per share
Statutory (158.5) (158.5) 88.3 87.3
Before exceptional items(1) 58.2 58.2 135.3 134.3
----------------------------------------------------- ------- ------- ------- ----------
(1) Reference to 'Exceptional items' includes exceptional items
and amortisation of acquired intangible assets, see page 20.
(2) Restated as a result of the rights issue which completed on
20 December 2018 and the re-presentation of the Group's revised
Alternative Performance Measure.
(3) In calculating the diluted earnings per share for 2018, the
weighted average number of ordinary shares used as the denominator
in calculating the basic earnings per share was adjusted by 1.1
million shares in relation to share options. No dilution was
required in 2019 due to the net loss position.
(4) Unwind of discount in respect of deferred consideration.
8 Assets and liabilities held for sale
In December 2018, the Group began a formal sales process to
dispose of its interest in Pure Recycling Warwick Limited ('Pure').
Heads of terms were signed in June 2019 with a view to completing
the sale before the end of the next financial year. After the
balance sheet date, an interested buyer was identified, and the
assets were impaired to their realisable fair value. The remaining
value classified as held for sale as at 30 June 2019 is GBP6.2m of
assets and GBP1.5m of liabilities.
The Group's investment in its joint venture interest in Kier
Hammersmith Limited ('KHL') of GBP8.4m has been classified as held
for sale. The Group's interest in this joint venture is being
actively marketed and discussions are well advanced as at 30 June
2019. The transaction is expected to complete in the first half of
the next financial year.
The Group's investment in its joint venture interest in
Strawberry Percy LLP ('SPL') had previously been classified as held
for sale at 31 December 2018. However, the sale is no longer
expected to take place therefore the assets and liabilities of SPL
have not been classified as held for sale as at 30 June 2019.
During the prior year the pensions administration business was
deemed non-core to the Kier Group portfolio. The Group exchanged
contracts to dispose of the business on 17 September 2018 and
therefore its assets and liabilities were classified as held for
sale as at 30 June 2018. The disposal was completed on 31 October
2018.
2019 2018
Assets of disposal group classified as held for sale GBPm GBPm
----------------------------------------------------- ----- -----
Intangible assets - computer software 0.5 0.1
Property, plant and equipment 4.8 -
Investments in and loans to joint ventures 8.4 -
Contract assets 0.5 -
Trade and other receivables 0.1 1.2
Corporation tax receivable 0.3 -
14.6 1.3
===================================================== ===== =====
Liabilities of disposal group classified as held for 2019 2018
sale GBPm GBPm
----------------------------------------------------- ----- -----
Overdrafts - (2.2)
Trade and other payables (1.5) (1.2)
----------------------------------------------------- ----- -----
Total (1.5) (3.4)
===================================================== ===== =====
9 Cash, cash equivalents, overdraft and borrowings
2019 2018
GBPm GBPm
--------------------------------------------------- ------- -------
Net debt consists of:
Cash and cash equivalents - bank balances and cash
in hand 311.7 330.9
Borrowings due within one year (30.3) (12.0)
Borrowings due after one year (473.6) (524.9)
Impact of cross-currency hedging 25.0 20.3
--------------------------------------------------- ------- -------
Net debt (167.2) (185.7)
=================================================== ======= =======
Average net debt on a monthly basis was GBP422m (2018:
GBP375m).
10 Trade and other payables
Included within the trade and other payables balance is
GBP170.2m (2018: GBP184.8m) relating to payments due to suppliers
who are on bank-supported supply chain finance arrangements.
11 Share-based payments
The Group has established a Long-Term Incentive Plan (LTIP)
under which directors can receive awards of shares. Senior
employees also participate in LTIP awards granted before the
introduction of the CSAP, which replaced the LTIP awards for senior
employees who were not main board directors. The market price of
Kier Group plc shares at the date of exercise of LTIP options was
886 pence (2018: 1,078 pence).
2018
2019
------------------------------------------- ----------------- ---------- -----
Number Value Number Value
of shares GBPm of shares GBPm
------------------------------------------- ---------- ----- ---------- -----
At 1 July 251,701 2.5 368,067 4.0
Acquired during the year 385,721 1.0 153,340 1.6
Issued in satisfaction of awards and other
schemes (269,307) (1.0) (239,514) (2.8)
Issued in satisfaction of deferred bonus
schemes (61,798) (0.2) (30,192) (0.3)
-------------------------------------------- ---------- ----- ---------- -----
At 30 June 306,317 2.3 251,701 2.5
-------------------------------------------- ---------- ----- ---------- -----
The Group's share-based payment charge for the year was GBP7.2m
(2018: GBP5.4m).
12 Acquisitions and disposals
The Group has completed the following acquisitions and disposals
during the year, in chronological order:
(a) Disposal of Unity
On 2 July 2018, the Group, through its subsidiary MPHBS Limited
('MPHBS'), disposed of its interest in The Unity Partnership
Limited ('Unity') for a total consideration of GBP1.5m. Unity was a
partnership between MPHBS and Oldham Metropolitan Borough Council
('OMBC') and delivered property, highways, transactional services,
information and communication technology and business services.
GBPm
------------------------------- ------
Consideration 1.5
Cost of disposal (0.4)
Book value of net assets sold (3.0)
------------------------------- ------
Loss on disposal (1.9)
------------------------------- ------
(b) Disposal of the Group's pension administration business
On 31 October 2018, the Group disposed of its pension's
administration business, which was deemed non-core to the Kier
Group portfolio, for a total consideration of GBP3.7m. The business
was classified as held for sale as at 30 June 2018.
GBPm
------------------------------- ------
Consideration 3.7
Cost of disposal (0.9)
Book value of net assets sold (0.3)
------------------------------- ------
Gain on disposal 2.5
------------------------------- ------
(c) Disposal of KHSA Limited
On 21 December 2018, the Group, through its subsidiary Kier
Holdings Limited, disposed of its interest in KHSA Limited ('KHSA')
for a total consideration of AUS$43.7m (GBP24.5m), of which
AUS$41.7m (GBP23.4m) was received on completion, and the balance of
AUS$2.0m (GBP1.1m) is deferred subject to satisfaction of future
contractual commitments. KHSA, which was acquired as part of the
Mouchel group of companies in 2015, was a joint operation providing
road asset management and maintenance services in Australia.
GBPm
--------------------------------------------------------------- -------
Cash consideration 24.5
Cost of disposal (1.7)
Book value of assets sold excluding goodwill and intangible
contract rights (6.9)
--------------------------------------------------------------- -------
Profit on disposal excluding goodwill and intangible contract
rights 15.9
Goodwill disposed (10.8)
Intangible contract rights disposed (net of related deferred
tax liability of GBP1.3m) (6.5)
--------------------------------------------------------------- -------
Loss on disposal (1.4)
--------------------------------------------------------------- -------
(d) Acquisition of Arena Central
On 22 February 2019 the Group acquired control of Arena Central
Developments LLP ('Arena Central') through two of its subsidiary
companies, Kier Property Developments Limited and Kier Ventures
Limited, who each acquired a 50% share. Arena Central is a 9.2-acre
mixed-use city centre development in Birmingham, providing office
space, retail, leisure and residential buildings. The Group has the
rights to develop three further phases of the sites existing master
plan. The development includes three office buildings totalling
526,009 square foot, phased over five to seven years, known as 5
Centenary Square, 4 Arena Central and 5 Arena Central. The total
consideration paid was GBP29.7m of cash paid on acquisition.
GBP0.9m of acquisition costs were incurred in the year and expensed
to the income statement.
The fair values attributable to the transaction are set out
below:
Fair value
to the
Group
GBPm
----------------------------- -----------
Inventories 24.6
Trade and other receivables 11.0
Cash and cash equivalents 0.7
Trade and other payables (3.3)
Deferred tax liabilities (2.5)
----------------------------- -----------
30.5
Negative goodwill (0.8)
----------------------------- -----------
Total assets acquired 29.7
----------------------------- -----------
Satisfied by:
Cash consideration 29.7
----------------------------- -----------
Total consideration 29.7
----------------------------- -----------
The Arena Central business contributed GBP17.9m to Group revenue
and GBP1.1m to profit before exceptional items and taxation for the
year to 30 June 2019. If the business was part of the Group for the
full year, then GBP21.1m of revenue and GBP1.1m of profit before
exceptional items for the year ended 30 June 2019 would have been
recognised.
(e) Disposal of Social Power (Harlow) Holdings Limited
On 14 June 2019, the Group, through its subsidiary Kier Project
Investment Limited, disposed of its investment in Social Power
(Harlow) Holdings Limited for proceeds of GBP1.0m.
2019
GBPm
-------------------------- ------
Sale proceeds 1.0
Cost of disposal (0.1)
Carrying value of assets (0.7)
--------------------------- ------
Gain on disposal 0.2
--------------------------- ------
13 Goodwill and intangible assets
Intangible
contract Computer
Goodwill rights software Total
GBPm GBPm GBPm GBPm
----------------------------------------- ----------- ------------- ----------- --------
Cost
At 1 July 2017 517.4 283.4 112.2 913.0
Additions - 1.6 39.6 41.2
Acquired 42.8 15.0 - 57.8
Disposals - (25.5) - (25.5)
Transfers to assets held for sale - - (0.2) (0.2)
----------------------------------------- ----------- ------------- ----------- --------
At 30 June 2018 560.2 274.5 151.6 986.3
----------------------------------------- ----------- ------------- ----------- --------
Additions - - 19.8 19.8
Disposals (10.7) (15.1) (15.6) (41.4)
Transfers to assets held for sale (4.8) - (0.8) (5.6)
----------------------------------------- ----------- ------------- ----------- --------
At 30 June 2019 544.7 259.4 155.0 959.1
----------------------------------------- ----------- ------------- ----------- --------
Accumulated amortisation and impairment
At 1 July 2017 - (92.7) (17.5) (110.2)
Charge for the year - (25.6) (13.9) (39.5)
Disposals - 25.5 - 25.5
Transfers to assets held for sale - - 0.1 0.1
----------------------------------------- ----------- ------------- ----------- --------
At 30 June 2018 - (92.8) (31.3) (124.1)
----------------------------------------- ----------- ------------- ----------- --------
Charge for the year - (25.0) (16.4) (41.4)
Disposals - 7.0 4.1 11.1
Impairment(3) (8.0) (0.2) (29.5) (37.7)
Transfer from tangible fixed assets - - (0.3) (0.3)
----------------------------------------- ----------- ------------- ----------- --------
At 30 June 2019 (8.0) (111.0) (73.4) (192.4)
----------------------------------------- ----------- ------------- ----------- --------
Net book value
At 30 June 2019 536.7 148.4 81.6 766.7
----------------------------------------- ----------- ------------- ----------- --------
At 30 June 2018 560.2 181.7 120.3 862.2
----------------------------------------- ----------- ------------- ----------- --------
Following the Strategic Review, the Directors assessed the
recoverability of the goodwill allocated to the Developments &
Housing CGU and concluded an impairment of GBP8.0m was required. A
further GBP39.7m impairment was required to reduce a portion of the
remaining assets allocated to this segment. This resulted in
additional impairments of intangible assets totalling GBP29.7m and
of Property, Plant & Equipment totalling GBP10m. These
impairments have been recorded as an exceptional item.
14 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 as
at, and for the year ended, 30 June 2018.
Details of contributions made to the pension schemes by the
Group are detailed in note 4.
15 Guarantees, contingent liabilities and contingent assets
The Company has given guarantees and entered into
counter-indemnities in respect of bonds relating to certain of the
Group's own contracts. The Company has also given guarantees in
respect of certain contractual obligations of its subsidiaries and
joint ventures, which were entered into in the normal course of
business, as well as certain of the Group's other obligations (for
example, in respect of the Group's finance facilities and its
pension schemes). Financial guarantees over the obligations of the
Company's subsidiaries and joint ventures are measured at fair
value. The fair value measurement is based on the premium received
from the joint venture or the differential in the interest rate of
the borrowing including and excluding the guarantee. 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.
16 Changes in accounting policies
The Group has adopted IFRS 9 'Financial Instruments' and IFRS 15
'Revenue from Contracts with Customers' with effect from 1 July
2018 using the cumulative effect method, and as such comparative
information has not been restated.
IFRS 9 'Financial Instruments'
IFRS 9 replaced IAS 39 'Financial Instruments: Recognition and
Measurement. All financial instruments classified as trade and
other receivables under IAS 39, as well as contract assets
recognised in accordance with IFRS 15, have been classified and
measured at amortised cost under IFRS 9.
IFRS 9 requires the Group to recognise expected credit losses
('ECL') whereby expected losses as well as incurred losses are
provided for. The Group applies the simplified approach when
determining ECL provisions for contract assets and trade
receivables. In making the assessment of credit risk and estimating
ECL provisions, the Group uses reasonable and supportable
information about past events, current conditions and forecasts of
future events and economic conditions.
The adoption of IFRS 9 has had no material impact on the Group's
financial statements.
IFRS 15 'Revenue from Contracts with Customers'
IFRS 15 replaces IAS 18 'Revenue' and IAS 11 'Construction
Contracts' and introduces a 5-step model to account for revenue,
with new guidance provided in areas on which previous IFRSs were
silent.
It is important to note that, whilst the change from the old
revenue recognition standards to IFRS 15 can impact on the timing
of revenue and profit recognition on individual contracts in a
particular accounting period, it does not change the overall
revenue, profit or cash generated over the life of the
contract.
The adoption of IFRS 15 has resulted in additional line items
being disclosed on the Group's Consolidated balance sheet and
Consolidated cash flow statement as follows:
Consolidated balance sheet: Capitalised mobilisation costs and
contract assets have been included within non-current assets;
contract assets have been included within current assets; and
contract liabilities have been included within current
liabilities.
Consolidated cash flow statement: Increase in contract assets
and decrease in contract liabilities have been included within cash
flow from operating activities; and payment of capitalised
mobilisation costs have been included within cash flows from
investing activities.
Transition adjustments
The table below summarises the impact of the adoption of IFRS 15
at the date of first application:
Consolidated balance sheet
Impact
of adopting
30 June IFRS 1 July
Adjustment 2018 15 2018
reference GBPm GBPm GBPm
------------------------------------------------ ----------- --------- ------------ ---------
Non-current assets
Intangible assets E 862.2 (0.9) 861.3
Property, plant and equipment E 91.6 (2.8) 88.8
Investment in and loans to joint ventures 226.1 - 226.1
Capitalised mobilisation costs E - 2.4 2.4
Deferred tax asset A-E - 1.6 1.6
Contract assets F - 21.1 21.1
Trade and other receivables F 49.2 (21.1) 28.1
Other non-current assets 39.5 - 39.5
------------------------------------------------------------- --------- ------------ ---------
Non-current assets 1,268.6 0.3 1,268.9
------------------------------------------------------------- --------- ------------ ---------
Current assets
Inventories A,E,F 575.0 (322.9) 252.1
Contract assets A,F - 409.6 409.6
Trade and other receivables F 603.0 (150.0) 453.0
Other current assets 361.5 - 361.5
------------------------------------------------------------- --------- ------------ ---------
Current assets 1,539.5 (63.3) 1,476.2
Assets held for sale as part of a disposal
group 1.3 - 1.3
============================================================= ========= ============ =========
Total assets 2,809.4 (63.0) 2,746.4
============================================================= ========= ============ =========
Current liabilities
Trade and other payables A,F (1,526.8) 187.0 (1,339.8)
Contract liabilities F - (195.4) (195.4)
Other current liabilities (31.4) - (31.4)
Current liabilities (1,558.2) (8.4) (1,566.6)
------------------------------------------------------------- --------- ------------ ---------
Liabilities held for sale as part of a disposal
group (3.4) - (3.4)
------------------------------------------------------------- --------- ------------ ---------
Non-current liabilities
Deferred tax liability A-D (10.8) 10.8 -
Other non-current liabilities (635.9) - (635.9)
------------------------------------------------------------- --------- ------------ ---------
Non-current liabilities (646.7) 10.8 (635.9)
------------------------------------------------------------- --------- ------------ ---------
Total liabilities (2,208.3) 2.4 (2,205.9)
============================================================= ========= ============ =========
Net assets 601.1 (60.6) 540.5
============================================================= ========= ============ =========
Equity
Retained earnings A-E 27.6 (60.8) (33.2)
Other equity 571.8 0.2 572.0
Equity attributable to owners of the parent 599.4 (60.6) 538.8
Non-controlling interests 1.7 - 1.7
------------------------------------------------------------- --------- ------------ ---------
Total equity 601.1 (60.6) 540.5
============================================================= ========= ============ =========
The table below provides a breakdown of the movement in the
opening retained earnings by each of the principle adjustments.
Explanatory notes for each of the adjustments are provided below
the table.
Impact on reserves
Impact
of adopting
IFRS 15
Adjustment GBPm
Change in method of calculating the percentage
A of completion on construction contracts (28.1)
B Third party claims (26.0)
Derecognition of certain variable revenue
C items (9.7)
Disaggregation of performance obligations
D and other adjustments (3.4)
E Capitalised mobilisation costs (5.8)
(73.0)
Deferred tax credit on the above (at 17.0%) 12.4
--------------------------------------------------- ------------
Total adjustment to reserves (60.6)
=================================================== ============
A - Change in the method of calculating the percentage of
completion on construction contracts
IFRS 15 requires a consistent revenue recognition method for
contracts and performance obligations with similar characteristics.
Previously, the Group used an output measure of progress (based on
external valuations) in its construction businesses and input
methods in its services businesses. For its construction
businesses, the Group has chosen to move to using the percentage of
completion method, using cost incurred to date as a proportion of
the estimated full costs of completing the contract, applied to the
total expected contract revenue. The Group believes that moving to
this input measure of progress better reflects the pattern of
transfer of control to the customer and achieves consistency with
other businesses within the Group. Contracts were found, on
average, to have a lower percentage of completion when compared to
the previous measure.
B - Third-party claims
IAS 11 'Construction Contracts' permitted the recognition of
expected cost reimbursements resulting from claims against a third
party (as well as the customer) if it was probable that the claim
would be accepted. Certain third-party claims (such as insurance
recoveries and claims for cost reimbursements) are not covered by
similar provisions in IFRS 15, which only deals with claims against
the customer. Following the withdrawal of IAS 11, in order to
recognise an asset for these third-party claims the Group will need
to comply with the requirements of IAS 37 'Provisions, Contingent
Liabilities and Contingent Assets'. The requirements of IAS 37 are
more stringent than IAS 11, requiring recovery to be virtually
certain before an asset can be recognised. Whilst the Group still
expects to recover the amounts claimed from third parties that the
Group had recognised at the 30 June 2018 balance sheet date,
certain claims do not meet the virtually certain criteria of IAS
37. These claims have therefore been de-recognised at the
transition date and will be accounted for in future periods, when
the uncertainty over their recovery has been removed.
C - Derecognition of certain variable revenue items
IFRS 15 introduces a requirement for recognition of variable
consideration (for example pain/gain shares and milestone payments)
that is "highly probable not to reverse". The Group has therefore
reviewed its construction contracts and concluded that recognition
of some of these items will occur later in the projects.
D - Disaggregation of performance obligations
IFRS 15 introduces a clear link between the value provided to
the customer and the timing of revenue recognition. One of the
principles of the new standard is that individual performance
obligations within contracts should be identified and accounted for
separately. In the majority of cases, the Group's previous
accounting treatment was consistent with the principles of IFRS 15.
However, on some contracts in the IT business support area, it has
been necessary to disaggregate contracts and performance
obligations and account for them separately. This gives rise to
changes in the timing of revenue recognition. The Group will
potentially recognise lower profits in the early years of these
contracts, where there are higher operating costs compared to the
level of service delivered to the customer, with a compensating
increase in profits in later years. The impact on the Group on
transition to IFRS 15 reflects the fact that these contracts are in
the latter stages of their contract life cycles at the transition
date.
E - Capitalised mobilisation costs
IFRS 15 contains new guidance on which pre-contract costs can
and can't be capitalised. Some costs that the Group had previously
capitalised can no longer be carried forward on the balance sheet
and therefore an adjustment has been made to remove these assets.
In addition, under IFRS 15 a specific category has been introduced
in non-current assets for capitalised mobilisation costs. There
have therefore been presentational changes as the amounts that can
continue to be capitalised have been reallocated to the new
category.
F - Other balance sheet adjustments
The introduction of IFRS 15 does not only affect the timing of
revenues and profit recognition in the income statement. The new
standard introduces 'contract assets' and contract liabilities' as
new balance sheet categories. There are therefore a number of
presentational changes as accrued revenue amounts for work
undertaken, but not yet certified/invoiced, have been reclassified
as contract assets and amounts received or certified in advance of
completing performance obligations have been reclassified as
contract liabilities.
Conversely, balances within the IAS 11 related balance sheet
headings of 'amounts recoverable on contracts' within inventories
and 'construction contract balances' within trade and other
payables have been eliminated either through the adoption of the
new method of calculating the percentage of completion on
construction contracts (which no longer necessitates adjustments to
cost of sales) or else by reclassification to more appropriate
balance sheet categories, including contract assets and contract
liabilities.
Impact on the results for the year ended 30 June 2019
The tables below summarise the impact of the adoption of IFRS 15
on the Group's consolidated income statement for the year ended 30
June 2019, and the consolidated balance sheet for the year then
ended. With the exception of the impact of changes to the income
statement, there was no material impact on the Group's consolidated
other comprehensive income. There was no material impact on the
Group's net cash flows from operating activities, investing
activities and financing activities.
Consolidated income statement - year to 30 June 2019
Amounts without
adoption of IFRS Impact of adopting
15 IFRS 15 As reported
Exceptional Exceptional
Before items Before Before items
exceptional (note exceptional Exceptional exceptional (note
Continuing Adjustment items 3)(1) Total items items(1) Total items 3)(1) Total
operations reference GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----------- ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Group revenue A,C,D 4,034.3 (15.0) 4,019.3 102.4 - 102.4 4,136.7 (15.0) 4,121.7
A,B,
Cost of sales E (3,675.9) (111.2) (3,787.1) (77.6) - (77.6) (3,753.5) (111.2) (3,864.7)
---------------- ------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Gross profit/(loss) 358.4 (126.2) 232.2 24.8 - 24.8 383.2 (126.2) 257.0
Administrative
expenses (289.8) (214.2) (504.0) - - - (289.8) (214.2) (504.0)
Share of
post-tax
results of
joint ventures A 30.7 - 30.7 - - - 30.7 - 30.7
Loss on disposal
of joint ventures
and subsidiaries - (0.4) (0.4) - - - - (0.4) (0.4)
------------------------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Profit/(loss)
from operations 99.3 (340.8) (241.5) 24.8 - 24.8 124.1 (340.8) (216.7)
Finance income 0.2 - 0.2 - - - 0.2 - 0.2
Finance cost (26.7) (1.7) (28.4) - - - (26.7) (1.7) (28.4)
------------------------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Profit/(loss)
before tax 72.8 (342.5) (269.7) 24.8 - 24.8 97.6 (342.5) (244.9)
Taxation A-E (16.0) 55.9 39.9 (4.2) - (4.2) (20.2) 55.9 35.7
---------------- ------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Profit/(loss)
for the year
from continuing
operations 56.8 (286.6) (229.8) 20.6 - 20.6 77.4 (286.6) (209.2)
------------------------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Discontinued
operations
Profit for
the year from
discontinued
operations - - - - - - - - -
Profit/(loss)
for the period 56.8 (286.6) (229.8) 20.6 - 20.6 77.4 (286.6) (209.2)
------------------------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Attributable
to:
Owners of the
parent 56.4 (286.6) (230.2) 20.6 - 20.6 77.0 (286.6) (209.6)
Non-controlling
interests 0.4 - 0.4 - - - 0.4 - 0.4
------------------------------ ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
56.8 (286.6) (229.8) 20.6 - 20.6 77.4 (286.6) (209.2)
============================ =========== =========== ========= =========== =========== ====== =========== =========== =========
Earnings per
share
Basic earnings
per share
From continuing
operations 42.6p (216.7)p (174.1)p 15.6p - 15.6p 58.2p (216.7)p (158.5)p
From
discontinued
operations - - - - - - - - -
---------------- ----------- ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Total 42.6p (216.7)p (174.1)p 15.6p - 15.6p 58.2p (216.7)p (158.5)p
Diluted earnings
per share
From continuing
operations 42.6p (216.7)p (174.1)p 15.6p - 15.6p 58.2p (216.7)p (158.5)p
From
discontinued
operations - - - - - - - - -
---------------- ----------- ----------- ----------- --------- ----------- ----------- ------ ----------- ----------- ---------
Total 42.6p (216.7)p (174.1)p 15.6p - 15.6p 58.2p (216.7)p (158.5)p
============================== =========== =========== ========= =========== =========== ====== =========== =========== =========
(1) Reference to 'Exceptional items' includes exceptional items
and amortisation of acquired intangible assets, see page 20.
Impact on profit for the year
Impact
of
IFRS 15
Adjustment GBPm
Change in method of calculating the percentage
A of completion on construction contracts 12.2
B Third party claims 7.3
C Derecognition of certain variable revenue items 4.6
Disaggregation of performance obligations and other
D adjustments 3.4
E Capitalised mobilisation costs (2.7)
24.8
Tax charge on the above (4.2)
-------------------------------------------------------- --------
Total impact on profit for the year 20.6
======================================================== ========
A - Change in the method of calculating the percentage of
completion on construction contracts
Additional profit has been recognised in relation to the
relative percentage of completion of construction jobs, under the
old and new calculation methods, at 30 June 2019 compared with 30
June 2018. The additional profit recognised in the year reflects
the fact that the cumulative impact of IFRS 15 compared to the old
percentage of completion measurement basis is, on average, less
marked at 30 June 2019, than at 30 June 2018, i.e. there has been
an acceleration of work when measured on a cost basis compared to
the previous, external valuation, basis.
B - Third-party claims
One of the third-party claims that was derecognised as an IFRS
15 transitional adjustment, was settled in the year to 30 June
2019. This has resulted in a difference in the timing of the
accounting for the outcome of the settlement.
C - Derecognition of certain variable revenue items
The small additional credit to the income statement is a result
of the timing difference on when certain claims (accounted for as
variable consideration) should be recognised under IFRS 15 compared
to the previous standards.
D - Disaggregation of performance obligations
As described in the transitional adjustments section above, it
has been necessary to disaggregate contracts and performance
obligations in relation to some contracts in the IT business
support area, and account for them separately. This gives rise to
changes in the timing of revenue recognition. On these contracts a
transitional adjustment has been made to reflect the fact that less
revenue and profit would have been recognised in the earlier years
of these contracts. Conversely, more profit is recognised in the
later years under IFRS 15. The impact on the income statement for
the year to 30 June 2019 reflects the fact that these contracts are
in the latter stages of their contract life cycles.
E - Capitalised mobilisation costs
Some costs that would have been capitalised in the year under
the Group's old accounting policy, have been expensed to the Income
Statement. The adjustment is net of amortisation charges that would
have been charged under the previous policy.
Consolidated balance sheet - as at 30 June 2019
Amounts
without Impact
adoption of adopting
of IFRS IFRS
Adjustment 15 15 As reported
reference GBPm GBPm GBPm
------------------------------------------------ ------------- --------- ------------ -----------
Non-current assets
Intangible assets E 766.9 (0.2) 766.7
Property, plant and equipment E 64.5 (7.2) 57.3
Investment in and loans to joint ventures 237.9 - 237.9
Capitalised mobilisation costs E - 3.3 3.3
Deferred tax asset A-E 39.5 8.2 47.7
Contract assets F - 25.2 25.2
Trade and other receivables F 54.2 (25.2) 29.0
Retirement benefit assets 58.4 - 58.4
Other financial assets 22.1 - 22.1
--------------------------------------------------------------- --------- ------------ -----------
Non-current assets 1,243.5 4.1 1,247.6
--------------------------------------------------------------- --------- ------------ -----------
Current assets
Inventories A,E,F 653.7 (435.8) 217.9
Contract assets A,F - 485.2 485.2
Trade and other receivables F 410.4 (25.0) 385.4
Other current assets 322.8 - 322.8
--------------------------------------------------------------- --------- ------------ -----------
Current assets 1,386.9 24.4 1,411.3
Assets held for sale as part of a disposal
group 14.6 - 14.6
=============================================================== ========= ============ ===========
Total assets 2,645.0 28.5 2,673.5
=============================================================== ========= ============ ===========
Current liabilities
Trade and other payables A,F (1,408.0) 65.3 (1,342.7)
Contract liabilities F - (134.0) (134.0)
Other current liabilities (56.4) - (56.4)
Current liabilities (1,464.4) (68.7) (1,533.1)
--------------------------------------------------------------- --------- ------------ -----------
Liabilities held for sale as part of a disposal
group (1.5) - (1.5)
--------------------------------------------------------------- --------- ------------ -----------
Non-current liabilities (619.3) - (619.3)
--------------------------------------------------------------- --------- ------------ -----------
Total liabilities (2,085.2) (68.7) (2,153.9)
=============================================================== ========= ============ ===========
Net assets 559.8 (40.2) 519.6
=============================================================== ========= ============ ===========
Equity
Retained earnings A-E (266.6) (40.2) (306.8)
Other equity A,C 825.9 - 825.9
Equity attributable to owners of the parent 559.3 (40.2) 519.1
Non-controlling interests 0.5 - 0.5
--------------------------------------------------------------- --------- ------------ -----------
Total equity 559.8 (40.2) 519.6
=============================================================== ========= ============ ===========
The areas of the balance sheet impacted by the adoption of IFRS
15 and the nature of the adjustments are consistent with the
transitional adjustments noted above.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR GGUBWBUPBUCB
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