TIDMKIE
RNS Number : 1127F
Kier Group PLC
05 March 2020
5 March 2020
Kier Group plc
Results for the six months ended 31 December 2019
Kier Group plc (the "Company" or the "Group"), a leading
construction and infrastructure services company, announces its
results for the six months ended 31 December 2019 (the
"period").
Key Points
-- Decisive management actions resulted in operating profit(1)
increasing by 3.4%2 on a like-for-like basis and margins of 2.5%
(H1 2019: 2.0%)
-- Operating profit of GBP46.7m
-- Challenging market conditions impacted Group revenue; down by 9%
-- Cost savings of GBP23m delivered in the period
-- Statutory operating loss reduced to GBP(24)m
-- Net debt(5) as at 31 December 2019 in line with expectations
at GBP242m, with average month-end net debt falling to GBP395m
-- Kier Living disposal:
o New management team in place from February 2020
o Sale process is progressing
-- Performance Excellence programme launched
Key Financial Highlights - Continuing Operations
6 months to
6 months to 31 31 December
December 2019 2018 3
Before exceptional items
Revenue (GBPm) 4 1,866 2,053
Operating profit (GBPm) 46.7 41.9
Operating margin 2.5% 2.0%
Profit before tax (GBPm) 30.7 30.2
Basic earnings per share (note
8) 15.0p 21.4p
Net debt (GBPm) 242.5 180.5
Statutory
Group revenue (GBPm) 1,819 1,983
(Loss) from operations (GBPm) (24.4) (32.5)
(Loss) before tax (GBPm) (41.2) (45.3)
Basic earnings per share (note
8) (22.1)p (38.4)p
Interim dividend per share - 4.9p
Andrew Davies, Chief Executive, said:
"I am pleased to report that many of the actions we outlined at
the beginning of the year have been executed successfully. In
particular, the decisive cost actions we have taken are now
benefiting the Group and have more than compensated for the
challenging market conditions we experienced in the period . These
actions resulted in an increase of 3.4% in operating profit before
exceptionals and the impact of IFRS 16.
The Group has been awarded places on several major frameworks
since 1 January 2020, following the awards of c.GBP1.7bn in the
period, and the Government has recently confirmed that the HS2
project will proceed. We have a new executive management team in
place; we are continuing to embed Performance Excellence; and our
cost reduction programme is expected to deliver benefits of at
least GBP65m by 30 June 2021. We expect to reduce the capital
invested in our non-core businesses and to progress the sale of
Living. The work to re-shape the Group continues, as we focus on
executing our strategic priorities and reducing net debt."
________________________
1 Stated before exceptional items of GBP59.3m (2018: GBP61.6m)
and amortisation of acquired intangible assets of GBP11.8m (2018:
GBP12.8m).
2 Excluding the impact of IFRS16.
3 Restated for (i) the changes in the disclosure of the results
of the Mining operations and the Mersey Gateway project and (ii)
the classification of the Living division as a discontinued
operation.
4 Revenue of the Group and its share of joint ventures.
5 Disclosed net of the effect of hedging instruments and
excludes leases - see note 10 to the interim financial
statements.
Further Information:
Kier Group plc +44 (0) 1767 355 096
Kier Press office
FTI Consulting +44 (0) 20 3727 1340
Richard Mountain / Nick Hasell
There will be a call for analysts and investors at 9:00 a.m. The
dial in details are:
UK +44 3333 000 804 PIN: 41577993#
UK (free) 0800 358 9473 PIN: 41577993#
Cautionary Statement
This announcement does not constitute an offer of securities by
the Company. Nothing in this announcement is intended to be, or
intended to be construed as, a profit forecast or a guide as to the
performance, financial or otherwise, of the Company or the Group
whether in the current or any future financial year. This
announcement may include statements that are, or may be deemed to
be, "forward-looking statements". These forward-looking statements
can be identified by the use of forward-looking terminology,
including the terms "believes", "estimates", "anticipates",
"expects", "intends", "plans", "target", "aim", "may", "will",
"would", "could" or "should" or, in each case, their negative or
other variations or comparable terminology. They may appear in a
number of places throughout this announcement and include
statements regarding the intentions, beliefs or current
expectations of the directors, the Company or the Group concerning,
amongst other things, the operating results, financial condition,
prospects, growth, strategies and dividend policy of the Group or
the industry in which it operates. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future and may be beyond the Company's ability to control or
predict. Forward-looking statements are not guarantees of future
performance. The Group's actual operating results, financial
condition, dividend policy or the development of the industry in
which it operates may differ materially from the impression created
by the forward-looking statements contained in this announcement.
In addition, even if the operating results, financial condition and
dividend policy of the Group, or the development of the industry in
which it operates, are consistent with the forward-looking
statements contained in this announcement, those results or
developments may not be indicative of results or developments in
subsequent periods. Important factors that could cause these
differences include, but are not limited to, general economic and
business conditions, industry trends, competition, changes in
government and other regulation, changes in political and economic
stability and changes in business strategy or development plans and
other risks.
Other than in accordance with its legal or regulatory
obligations, the Company does not accept any obligation to update
or revise publicly any forward-looking statement, whether as a
result of new information, future events or otherwise.
Principal Risks and Uncertainties
You are advised to read the section headed "Principal risks and
uncertainties" in the Company's Annual Report and Accounts for the
year ended 30 June 2019 for a discussion of the factors that could
affect the Group's future performance and the industry in which it
operates. The Board believes that these principal risks and
uncertainties will continue to apply to the Group in the
second-half of the financial year.
The Group is monitoring developments relating to the outbreak of
Coronavirus (COVID-19) and is taking steps to mitigate its
potential effect on the Group's operations, including ensuring that
business continuity plans are in place, encouraging increased
levels of office cleanliness and communicating Public Health
England's advice to its staff.
About Kier
Kier is a leading UK construction and infrastructure services
group. The services we offer to our clients fit in to two core
market propositions; Construction and Infrastructure Services.
We provide specialist design and build capabilities and the
knowledge, skills and intellectual capital of our people ensure we
are able to project manage and integrate all aspects of a
project.
We take pride in bringing specialist knowledge, sector-leading
experience and fresh thinking to create workable solutions for our
clients across the country.
Together, we have the scale and breadth of skills of a major
company, while retaining a local focus and pride that comes from
never being far from our clients, through a network of offices
spanning across England, Wales, Scotland and Northern Ireland.
For further information and to subscribe to our news alerts,
please visit: www.kier.co.uk
Follow us on Twitter: @kiergroup
Connect with us on LinkedIn: Kier Group
Results Summary
Kier's results for the period reflected the decisive cost
actions that we have taken to build the firm foundations for the
future of the Group. In the period, headcount has reduced by c.420,
the Group has exited its office at Foley Street in London and the
process to close its headquarters at Tempsford Hall in Bedfordshire
is underway.
Revenues in the period fell by 9% to GBP1,866m, primarily due to
challenging market conditions affecting both Infrastructure
Services and Construction, where revenues were down 10% and 7%,
respectively. Several long-term investment programmes, for example
the Road Investment Strategy 1, concluded during the period.
Group operating results, both before and after exceptional
items, increased in the period primarily due to the realisation of
significant overhead cost savings, a lower level of exceptional
items and the inclusion of GBP3.4m arising from the IFRS16
accounting change.
Group net debt as at 31 December 2019 was GBP242m, in line with
expectations, representing a cash outflow from 30 June 2019, which
was largely caused by the usual first-half unwind of working
capital, a reduction in the Kier Early Payment System utilisation
of GBP13m and exceptional payments required to access future
benefits of the cost saving programme. Average month-end net debt
for the period was GBP395m, a reduction of GBP27m from FY19.
The order book at 31 December 2019 was GBP7.9bn (30 June 2019(1)
: GBP7.9bn), with the Group winning orders of c.GBP1.7bn in the
period, including being appointed to all 20 lots of the four-year
GBP8bn Procure Partnerships Framework, as well as being appointed
to a number of other frameworks, including the GBP30bn Construction
Works and Associated Services Framework for the Crown Commercial
Service.
In addition, the Group has been appointed to a number of other
frameworks since, 1 January 2020, including the GBP2bn Hyde Main
Contractor Framework and the GBP1.2bn Islington New Build
Construction Framework.
Strategy
Last year's strategic review 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. During the period, the management team has focused
on achieving these strategic priorities.
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, make up the core of the Group.
Our Housing Maintenance business complements our Regional
Building business. Housing Maintenance will continue to seek
opportunities with housing associations, local authorities and
private landlords for planned maintenance contracts, including fire
safety works. The International business, which principally
operates in Dubai, continues to tender selectively for new
work.
The strategic review 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 requires
significant ongoing funding to deliver future growth. This business
is now classified as discontinued and is expected to be disposed of
within the next 12 months. There is a new management team in place
and the sales process is progressing.
-- Property: the investment requirements of the Property
business are not currently compatible with the Group's capital
allocation requirements. As a result, we are formalising plans to
reduce the capital invested in the business. During the period, the
capital invested in the business has reduced to GBP168m (2019:
GBP184m). We are also exploring options to accelerate the release
of capital from the business.
-- Environmental Services: the focus remains on winding down this business.
-- Facilities Management: the exit of this business has
progressed well, following the conclusion of several contracts
during the period, with further contracts planned to be exited
during the second-half of the year. Where losses have been incurred
in exiting business, these are disclosed within exceptional
items.
________________________
(1) Restated, principally to reflect the exclusion of HS2.
Cost Saving Programme
During the period, there have been a number of structural
changes to the Group, including an increase in the level of
divisional accountability, the removal of a number of layers of
management and a significant reduction in the central overhead.
These actions have resulted in the Group's headcount reducing by
c.1,200 and we expect a further c.50 to have left the business by
30 June 2020. These reductions in headcount will result in cost
savings of at least GBP65m by 30 June 2021.
Performance Excellence
Performance Excellence aims to embed a culture which is based on
the Group's refreshed values, builds on the strengths of the Group
and provides the platform to:
-- Deliver projects on time and to budget, thereby meeting our
clients' and customers' expectations;
-- Avoid entering into contracts with unacceptable risk profiles;
-- Introduce increased levels of resilience, and a consistency
of approach, across the Group; and
-- Substantially reduce the Group's overheads,
thereby enhancing the Group's ability to win new business with
attractive margins.
Performance Excellence will help to maintain and grow the
Group's relationships with its key stakeholders, including, for
example, the Group's supply chain. During the period, the Group
reported that 81% of invoices were paid within 60 days and the
average time to pay reduced to 38 days, an improvement over the
previous six months and significantly down from an average of 57
days a year ago.
Board and Management Changes
During the period, there have been a number of changes in senior
management, including the appointment of a new Chairman and Chief
Financial Officer. The executive team has been strengthened through
the appointment of new Group Managing Directors for the
Construction and Highways divisions. Central support functions have
been enhanced through the appointment of new HR, IT, Commercial and
Procurement Directors and a new Group Financial Controller.
Operational Review
Construction
6 months 6 months
to to
31 December 31 December
2019 2018 (1)
Revenue (GBPm) 844.0 909.3
Operating profit (GBPm)(2) 28.8 36.4
Operating margin 3.4% 4.0%
Order book (GBPbn) 2.6 2.6
-- Key contract awards include the GBP30bn Construction Works
and Associated Services Framework for the Crown Commercial Service
and the contract to build a new Town Hall as part of the GBP150m
Crawley Town Centre regeneration scheme
-- With 100% secured for the second half of FY20, the business looks well placed for FY21
The Construction segment comprises the Regional Building
business, the Strategic Projects business, the complementary
Housing Maintenance business, as well as the International
business. It covers all regions of the UK, delivering schools,
hospitals, office buildings and amenities centres of local
authorities, councils and the private sector.
Revenue decreased by 7% and operating profit fell 21%, primarily
due to the impact of the challenging market conditions. However,
since 1 January 2020, the Group has been awarded places on several
major frameworks, providing a good pipeline of potential work
although, due to the typical length of time between contract and
the commencement of works, we anticipate that Construction revenues
in the second-half of the financial year will be more in line with
those in the period than in the second-half of prior financial
years.
Regional Building continued to generate opportunities,
principally through frameworks. Key frameworks awarded in the
period included the GBP30bn Construction Works and Associated
Services Framework for the Crown Commercial Service, the GBP2bn
Hyde Main Contractor Framework and the GBP125m Norfolk County
Council Major Construction Work Framework. Contracts awarded in
January 2020 included the construction of a new Town Hall as part
of the GBP150m Crawley Town Centre regeneration scheme.
In Strategic Projects, work continues on the GBP250m
Wellingborough Prison and at RAF Lakenheath. The business continues
to focus on the defence, science, commercial, custodial and
aviation sectors.
________________________
1 Prior year comparative information re-presented to show the
new reporting segments - see note 1 to the interim financial
statements.
2 Stated before exceptional items and amortisation of acquired
intangible assets.
3 As at 30 June 2019.
Housing Maintenance specialises in working in occupied
properties, delivering maintenance, repairs, fire safety and
compliance services. Revenue and profit performance were both below
last year. The business now operates under a new operating
structure and this, combined with significant changes to contract
delivery with clear visibility of future work, is expected to
provide it with a clear path to recovery. New awards in the period
included fire safety works for the London Borough of Hammersmith
and Fulham and an GBP8m three-year agreement with housing
association Gentoo Group for planned maintenance work.
The Dubai-based International business traded well in the period
and its more rigorous bidding process resulted in its profit
growing from last year.
Infrastructure Services
6 months 6 months
to to
31 December 31 December
2019 2018 (1)
Revenue (GBPm) 783.2 870.7
Operating profit (GBPm)(2) 27.6 40.3
Operating margin 3.5% 4.6%
Order book (GBPbn) 4.3 4.3
-- Key contract wins include a 15-month award from Birmingham
Highways for highways maintenance services and a five-year contract
with Openreach to carry out network delivery works
-- Early works and contract mobilisation have commenced on HS2,
with construction currently expected to start later in 2020
The Infrastructure Services segment comprises the Highways,
Infrastructure and Utilities and Rail businesses.
The results have been impacted by the continuing change in the
mix of work in the Highways business from maintenance to lower
margin capital projects. The transition to the 2020-2025 AMP7
regulatory period has also adversely affected the Utilities'
performance in the period and we anticipate this effect to peak in
the second-half of the financial year.
The Highways business builds and maintains roads for Highways
England and a number of district and county councils. The business
was recently awarded a 15-month contract from Birmingham Highways
for the provision of interim maintenance services, commencing in
April 2020, and a contract extension with Northamptonshire County
Council, which provides greater certainty of workload for the
immediate future. Work continues on the M6, M20 and M23 Smart
Motorway projects, with completion of M20 and M23 targeted for the
second-half of the year, and work on the Windy Harbour scheme
awarded under the Highways England Regional Delivery Partnerships
Framework has commenced.
The Infrastructure business delivers major and complex
infrastructure and civil engineering projects, including the HS2
project in joint venture with Eiffage and the Luton DART rail
system at Luton Airport in joint venture with VolkerFitzpatrick.
Revenue and profit for the period were below the prior comparative
period, primarily due to phasing on some new projects. Following
the Government's recent announcement relating to HS2, early works
and contract mobilisation have continued, ahead of construction
starting later in 2020.
The Utilities business delivers long-term contracts providing
construction and maintenance services to the water, energy, rail
and telecommunications sectors. The business has primarily focused
on margin enhancement and has exited some lower return contracts,
resulting in revenue and profit being below the prior comparative
period. The business has been awarded key contracts with new
clients Openreach, to carry out fibre delivery works, Yorkshire
Water, for capital works, and Virgin Media, for the fibre network
civil engineering works programme. The business pipeline for
high-quality, long-term infrastructure works is strong.
Other
6 months 6 months
to to
31 December 31 December
2019 2018(1)
Revenue (GBPm) 233.3 273.3
Operating profit (GBPm)(2) 4.3 0.2
Operating margin 1.8% -%
Order book (GBPbn) 1.0 1.0
________________________
1 Prior year comparative information re-presented to show the
new reporting segments - see note 1 to the interim financial
statements.
2 Stated before exceptional items and amortisation of acquired
intangible assets.
3 As at 30 June 2019.
The Other segment comprises the businesses which are expected to
be divested, exited or restructured or are being evaluated, namely,
the Property, Environmental Services and Facilities Management
businesses.
The Property business invests and develops schemes and sites
across the UK. Profit before exceptional items was behind last year
principally due to delays in the completion of certain projects and
its reduced access to capital. Management is reviewing options to
further release capital from the business.
The Facilities Management business provides management and
maintenance solutions for its clients. With a number of contracts
exited in the period and further exits planned for the rest of the
year, the Group has made good progress in relation to exiting the
business.
The Environmental Services business provides waste collection
and recycling services. Plans are well advanced for the wind-down
and exit of the business, which is anticipated to have been
completed by the end of the financial year. Revenues were behind
the prior comparative period, although losses have significantly
reduced as contracts have been exited.
Corporate
6 months 6 months
to to
31 December 31 December
2019 2018 (1)
Operating profit (GBPm)(2) (14.0) (35.0)
The Corporate segment comprises the costs of the Group's central
functions. During the period, there has been a significant
reduction in these costs, following the implementation of the
Group's cost reduction programme.
Safety, Health and Environment ('SHE')
The safety and wellbeing of our employees and suppliers remain
of paramount importance. The Group's overall, SHE performance has
improved significantly year-on-year since 2015. The rate of
improvement has slowed recently and in, the last six months, our
average AIR has increased from 86 (six months ended 31 December
2018) to 114 (six months ended 31 December 2019). To address this,
we have relaunched our campaign to raise awareness of doing the
safety basics rigorously and effectively.
Summary and Outlook
M any of the actions outlined by the Group at the beginning of
the year have been executed successfully. In particular, the
decisive cost actions w hich have been taken are now benefiting the
Group and have more than compensated for the challenging market
conditions experienced in the period . These actions resulted in an
increase of 3.4% in operating profit before exceptionals and the
impact of IFRS 16.
The Group has been awarded places on several major frameworks
since 1 January 2020, following the awards of c.GBP1.7bn in the
period, and the Government has recently confirmed that the HS2
project will proceed. A new executive management team is in place;
the Group is continuing to embed Performance Excellence; and its
cost reduction programme is expected to deliver benefits of at
least GBP65m by 30 June 2021. The Group expects to reduce the
capital invested in its non-core businesses and to progress the
sale of Living. The work to re-shape the Group continues, as it
focuses on executing its strategic priorities and reducing net
debt.
Financial Review
Assets held for sale and discontinued operations
Following the Group's 2019 strategic review, the Board concluded
that Kier Living is not compatible with the Group's working capital
objectives and that it would seek to sell the business.
Accordingly, the assets and liabilities of Kier Living were
classified as held for sale, with assets of GBP229.9m and
liabilities of GBP104.9m at 31 December 2019.
The results for Kier Living for the period are classified as
discontinued, including restatement of the prior period
comparatives. Kier Living's profit before exceptional items and
after tax for the period was GBP4.0m (HY19: GBP9.8m, FY19:
GBP36.2m).
Earnings per share
Earnings per share ("EPS"), before exceptional items and
amortisation of acquired intangible assets, from continuing
operations were earnings of 15.0p (HY19: 21.4p, FY19: 30.9p). EPS,
after exceptional items and amortisation of acquired intangible
assets, from continuing operations were losses of 22.1p (HY19:
38.4p, FY19: 146.9p).
Exceptional items and amortisation of acquired intangible
assets
In the period, the Group reported charges of GBP71.1m before tax
and interest (HY19: GBP74.4m, FY19: GBP289.2m):
-- Amortisation of acquired intangible assets GBP11.8m (HY19: GBP12.8m, FY19: 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 associated with previous acquisitions GBP3.1m (HY19: GBP0.1m gain, FY19: GBP29.3m):
The Group has recognised a GBP3.1m charge in the period in
respect of the contracts acquired as part of the 2017 Mouchel
acquisition and its subsequent integration. These non-recurring
costs are expected to be completed in the financial year. The
charges have resulted in a cash outflow in the period of
GBP3.1m.
-- Restructuring costs GBP48.8m (HY19: GBPnil, FY19: GBP56.1m):
The Group has incurred restructuring costs in the period
totalling GBP48.8m. This includes GBP16.8m in respect of employee
exit costs associated with cost saving programmes and from
strategic decisions taken to reduce headcount. Fees of GBP18.1m
have been incurred in undertaking and implementing the conclusions
of the strategic review announced in June 2019 and the cost
reductions described above. GBP13.6m of impairment charges have
been recognised during the period and GBP3.5m of previous
impairment charges have been released in relation to the relocation
of corporate offices. GBP3.8m of one-off costs have been incurred
in preparation for outsourcing Fleet and IT activities. Of this
total, GBP9.6m relates to impairment of right of use asset, GBP6.9m
is held within accruals, GBP2.4m is a reduction of receivables and
the remainder resulted in a cash outflow in the period.
-- Costs relating to the preparation of businesses for sale
GBP7.4m (HY19: GBP26.9m, FY19: GBP120.4m):
The Group has incurred costs of GBP2.9m to exit contracts and
fair value adjustments of GBP2.1m on certain assets held for sale.
A further GBP2.4m has been incurred in impairing software. Of this
total, GBP2.4m has resulted in a cash outflow in the period,
GBP2.9m is held within accruals and the remaining GBP2.1m will
result in a lower cash inflow from disposal proceeds in the
second-half of the financial year.
In addition to the GBP71.1m of exceptional charges incurred from
continuing operations, GBP59.5m of charges, net of tax, have been
incurred from discontinued operations. This is a fair value
impairment of the net assets held for sale of the Living
division.
The classification used is consistent with FY19, although the
results for the period require restatement to align to the new
alternative performance measure presentation, which was adopted by
the Group for the first time at 30 June 2019. A reconciliation has
been included in note 1 to the interim financial statements.
Finance charges
Bank interest has fallen to GBP12.2m (HY19: GBP12.8m, FY19:
GBP24.7m). Finance costs now includes GBP3.7m of costs relating to
interest and finance charges for lease liabilities as a result of
the implementation of IFRS16. Under the previous GAAP, finance
leases charges were significantly lower (HY19: GBP0.1m, FY19:
GBP0.2m).
Balance sheet
Net assets
The Group had net assets of GBP386.3m at 31 December 2019 (HY19:
GBP696.1m, FY19: GBP519.6m).
Working capital
Working capital movements resulted in an outflow for the period
of GBP76m (HY19: GBP220m, FY19: GBP182m), which was significantly
lower than in previous years, despite a GBP13m reduction in the
utilisation of the Kier Early Payment Scheme ("KEPS") . 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 GBP741.5m (HY19: GBP829.9m,
FY19: GBP766.7m), of which goodwill represented GBP536.7m (HY19:
GBP549.6m, FY19: GBP536.7m). Planned disposals of businesses during
FY19 resulted in an impairment to goodwill of GBP8.0m. The
directors reviewed goodwill as at 31 December 2019, assuming a
pre-tax discount rate derived from a weighted average cost of
capital of 10.1%, and concluded that no impairment was
required.
Retirement benefits obligation
Kier operates a number of defined benefit pension schemes. At 31
December 2019, the reported surplus, which is the difference
between the aggregate value of the schemes' assets and the present
value of their future liabilities, was GBP2.9m (HY19: GBP16.5m
deficit, FY19: GBP19.5m surplus), 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'). One new accounting
standard was adopted by Kier during the period, namely, IFRS 16
('Leases'), further details of which are provided in note 17 to the
interim financial statements. Other than this standard, there has
been no significant changes to the Group's accounting policies
during the period.
The main impact of IFRS 16 has been 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 lease obligations. Operating lease charges
in respect of these leases, previously included in administrative
expenses, have been replaced by depreciation and interest costs.
The cash flow associated with these leases has not changed.
The Group has transitioned to IFRS 16 using the modified
retrospective approach whereby the cumulative impact of applying
the standard is accounted for as an adjustment to equity at the
start of the accounting period in which it is first applied (i.e. 1
July 2019).
IFRS 16 has introduced 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 was less than the additional lease borrowings
that came on to the balance sheet.
Additional lease liabilities of GBP187.9m have been brought onto
the balance sheet along with associated right-of-use assets of
GBP173.0m (including GBP7.6m of assets previously classified as
property, plant and equipment held under finance leases). In
addition, prepaid rental amounts of GBP2.1m, accruals of GBP0.2m
and onerous lease provisions of GBP4.4m have been removed from the
balance sheet and a deferred tax asset of GBP3.4m has been
recognised in respect of the transitional adjustments. The net
impact of these adjustments is a debit to opening reserves at 1
July 2019 of GBP16.6m.
In respect of the Income Statement for the six months ended 31
December 2019, depreciation and interest charges under IFRS 16 were
GBP0.1m more than the operating lease expenses that would have been
charged under the previous leases accounting standard. Due to the
differing methods of calculation, the impairment of the
right-of-use assets under IFRS 16 were GBP2.4m less than the
onerous lease provision that would have been calculated under the
previous accounting standards. Therefore, had IFRS 16 not been
introduced, total profit before tax would have been GBP2.3m lower
than the reported figure for the six-month period (see note
17).
Historically, Kier has not included finance lease liabilities
within its measure of net debt, due to their asset-backed nature.
Therefore, whilst IFRS 16 has brought additional lease liabilities
onto the balances sheet, the standard has had no effect on the
Group's net debt measure, which has been calculated consistently
with previous reporting periods.
Treasury facilities
Bank finance
The Group has committed debt facilities of GBP892m with a
further GBP20m of uncommitted overdrafts. Bank debt will mature in
July 2022 and US private placement notes mature between 2020 and
2024. The Group repaid debt of GBP30m during the period.
Supply chain finance
The Group offers its supply chain in the Construction and the
Residential businesses the opportunity to participate in KEPS. The
balance owed on this facility is included in trade creditors. The
balance at 31 December 2019 was GBP157m (HY19: GBP201m, FY19:
GBP170m). The Company plans to reduce further its use of KEPS
during the remainder of the financial year.
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 interim 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, Facilities Management
and Environmental Services; to restructure the Group by reducing
headcount by c.1,200 and deliver annual cost savings of c.GBP60m
from FY21; 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 4 March 2020, the Group continues to progress its disposal
of Kier Living and has taken cost reduction actions to realise
annualised benefits above its original FY21 target. The results of
these actions will result in reduced leverage and reduced costs
over the next 12 months.
At 31 December 2019, the Group had GBP892m of unsecured
committed facilities and GBP20m of uncommitted overdrafts. At 31
December 2019, KEPS utilisation was GBP157m.
The directors have reviewed the Group's short-term cash flow
forecasts to 30 June 2021, 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 and delivery of the business disposal
programme. 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. The Group's Brexit Task Force focuses on
responding to emerging Government pronouncements as Brexit
negotiations unfold. To date, this has looked closely in particular
at the UK points-based immigration strategy announced. Work has
been undertaken to understand the Group's exposure and to
communicate with its existing EEA workforce, in order to encourage
and support applications under the EU Settlement Scheme to secure
the right to remain. The Group is also working closely with its
supply chain to understand their level of preparedness.
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 responsible business, the health and welfare of our people
is paramount. We are closely monitoring and following Government
advice in relation to the outbreak of Coronavirus (COVID-19) and
have provided our employees with guidance and precautions to
follow. We are ready to implement business continuity plans if
necessary. This issue is owned at Group level and has been
escalated to, and considered by, the Safety, Health and Environment
Committee of the Board.
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 these interim financial statements.
Statement of directors' responsibilities
The directors confirm that these interim financial statements
have been prepared in accordance with International Accounting
Standard 34, 'Interim Financial Reporting', as adopted by the
European Union and that the interim management report includes a
fair review of the information required by DTR 4.2.7 and DTR 4.2.8,
namely:
-- an indication of important events that have occurred during
the first six months and their impact on the consolidated financial
statements, and a description of the principal risks and
uncertainties for the remaining six months of the financial year;
and
-- material related-party transactions in the first six months and any material changes in the related-party transactions described in the last annual report.
The Directors of Kier Group plc are listed on pages 54 and 55 of
its 2019 Annual Report and Accounts, with the following
exceptions:
-- Bev Dew (September 2019), Claudio Veritiero (November 2019),
Philip Cox (December 2019) and Adam Walker (December 2019) have
left the Board since the date on which the 2019 Annual Report and
Accounts were approved by the Board; and
-- Matthew Lester joined the Board as Chairman on 1 January 2020.
A list of the current d irectors is maintained on Kier Group
plc's website at: www.kier.co.uk.
Signed on 4 March 2020 on behalf of the Board.
Andrew Davies Simon Kesterton
Chief Executive Chief Financial Officer
Independent review report to Kier Group plc
Report on the interim financial statements
Our conclusion
We have reviewed Kier Group plc's interim financial statements
(the "interim financial statements") in the Interim Management
Report and Financial Statements of Kier Group plc for the 6-month
period ended 31 December 2019. Based on our review, nothing has
come to our attention that causes us to believe that the interim
financial statements are not prepared, in all material respects, in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
What we have reviewed
The interim financial statements comprise:
-- the Consolidated balance sheet as at 31 December 2019;
-- the Consolidated income statement and Consolidated statement
of comprehensive income for the period then ended;
-- the Consolidated cash flow statement for the period then ended;
-- the Consolidated statement of changes in equity for the period then ended; and
-- the explanatory notes to the interim financial statements.
The interim financial statements included in the Interim
Management Report and Financial Statements have been prepared in
accordance with International Accounting Standard 34, 'Interim
Financial Reporting', as adopted by the European Union and the
Disclosure Guidance and Transparency Rules sourcebook of the United
Kingdom's Financial Conduct Authority.
As disclosed in note 1 to the interim financial statements, the
financial reporting framework that has been applied in the
preparation of the full annual financial statements of the Group is
applicable law and International Financial Reporting Standards
(IFRSs) as adopted by the European Union.
Responsibilities for the interim financial statements and the
review
Our responsibilities and those of the directors
The Interim Management Report and Financial Statements,
including the interim financial statements, is the responsibility
of, and has been approved by, the directors. The directors are
responsible for preparing the Interim Management Report and
Financial Statements in accordance with the Disclosure Guidance and
Transparency Rules sourcebook of the United Kingdom's Financial
Conduct Authority.
Our responsibility is to express a conclusion on the interim
financial statements in the Interim Management Report and Financial
Statements based on our review. This report, including the
conclusion, has been prepared for and only for the company for the
purpose of complying with the Disclosure Guidance and Transparency
Rules sourcebook of the United Kingdom's Financial Conduct
Authority and for no other purpose. We do not, in giving this
conclusion, accept or assume responsibility for any other purpose
or to any other person to whom this report is shown or into whose
hands it may come save where expressly agreed by our prior consent
in writing.
What a review of interim financial statements involves
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, 'Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity' issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures.
A review is substantially less in scope than an audit conducted
in accordance with International Standards on Auditing (UK) and,
consequently, does not enable us to obtain assurance that we would
become aware of all significant matters that might be identified in
an audit. Accordingly, we do not express an audit opinion.
We have read the other information contained in the Interim
Management Report and Financial Statements and considered whether
it contains any apparent misstatements or material inconsistencies
with the information in the interim financial statements.
PricewaterhouseCoopers LLP
Chartered Accountants
London
4 March 2020
Consolidated income statement Kier Group plc
Interim Management
Report and Financial
Statements for
the six months
ended 31 December
2019
For the six months ended 31 December 2019
Unaudited
6 months
Unaudited to 31 Year
6 months December to 30
to 31 2018 June
December Restated(2, 2019
2019 3) Restated(3)
Exceptional Exceptional Exceptional
Before items Before items Before items
exceptional (note exceptional (note exceptional (note
Continuing items 3)(1) Total items 3)(1) Total items 3)(1) Total
operations Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Revenue
Group and share
of joint
ventures 2 1,866.0 - 1,866.0 2,053.3 (15.0) 2,038.3 4,121.0 (15.0) 4,106.0
Less share of
joint
ventures 2 (46.8) - (46.8) (55.1) - (55.1) (154.9) - (154.9)
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Group revenue 1,819.2 - 1,819.2 1,998.2 (15.0) 1,983.2 3,966.1 (15.0) 3,951.1
Cost of sales (1,657.7) - (1,657.7) (1,783.0) (39.8) (1,822.8) (3,598.5) (61.2) (3,659.7)
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Gross
profit/(loss) 161.5 - 161.5 215.2 (54.8) 160.4 367.6 (76.2) 291.4
Ad ministrative
expenses (120.2) (71.1) (191.3) (180.5) (18.8) (199.3) (292.0) (212.6) (504.6)
Share of
post-tax
results of
joint
ventures 5.5 - 5.5 7.2 - 7.2 10.1 - 10.1
Loss on disposal
of joint
ventures
and
subsidiaries 13 (0.1) - (0.1) - (0.8) (0.8) - (0.4) (0.4)
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Profit/(loss)
from
operations 2 46.7 (71.1) (24.4) 41.9 (74.4) (32.5) 85.7 (289.2) (203.5)
Finance income 0.3 - 0.3 1.0 - 1.0 0.2 - 0.2
Finance cost 4 (16.3) (0.8) (17.1) (12.7) (1.1) (13.8) (24.5) (1.7) (26.2)
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Profit/(loss)
before
tax 2 30.7 (71.9) (41.2) 30.2 (75.5) (45.3) 61.4 (290.9) (229.5)
Taxation 6 (6.5) 11.9 5.4 (7.6) 12.9 5.3 (20.2) 55.9 35.7
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Profit/(loss)
for
the period from
continuing
operations 24.2 (60.0) (35.8) 22.6 (62.6) (40.0) 41.2 (235.0) (193.8)
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Discontinued
operations
Profit/(loss)
for
the period from
discontinued
operations
(attributable
to
equity holders
of
the parent) 9 4.0 (59.5) (55.5) 9.8 - 9.8 36.2 (51.6) (15.4)
Profit/(loss)
for
the period 28.2 (119.5) (91.3) 32.4 (62.6) (30.2) 77.4 (286.6) (209.2)
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Attributable to:
Owners of the
parent 28.3 (119.5) (91.2) 31.8 (61.6) (29.8) 77.0 (286.6) (209.6)
Non-controlling
interests (0.1) - (0.1) 0.6 (1.0) (0.4) 0.4 - 0.4
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
28.2 (119.5) (91.3) 32.4 (62.6) (30.2) 77.4 (286.6) (209.2)
================ ===== =========== =========== ========= =========== =========== =========== =========== =========== ===========
Earnings per
share
Basic
earnings/(loss)
per share
From continuing
operations 8 15.0p (37.1)p (22.1)p 21.4p (59.8)p (38.4)p 30.9p (177.8)p (146.9)p
From
discontinued
operations 8 2.5p (36.8)p (34.3)p 9.5p - 9.5p 27.4p (39.0)p (11.6)p
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Total 17.5p (73.9)p (56.4)p 30.9p (59.8)p (28.9)p 58.3p (216.8)p (158.5)p
Diluted
earnings/(loss)
per share
From continuing
operations 8 15.0p (37.1)p (22.1)p 21.4p (59.8)p (38.4)p 30.9p (177.8)p (146.9)p
From
discontinued
operations 8 2.5p (36.8)p (34.3)p 9.5p - 9.5p 27.4p (39.0)p (11.6)p
---------------- ----- ----------- ----------- --------- ----------- ----------- ----------- ----------- ----------- -----------
Total 17.5p (73.9)p (56.4)p 30.9p (59.8)p (28.9)p 58.3p (216.8)p (158.5)p
================ ===== =========== =========== ========= =========== =========== =========== =========== =========== ===========
1 Reference to 'Exceptional items' includes exceptional items
and amortisation of acquired intangible assets, see note 1.
2 Comparative information for profit before exceptional items
and exceptional items has been re-presented to reflect the change
in the Group's Alternative Performance Measure, see note 1. This
has had no impact on the statutory reported results for the period
ended 31 December 2018.
3 Comparative information has been re-presented to classify the
Living division as a discontinued operation, see note 9. This has
had no impact on the statutory reported results for the period
ended 31 December 2018 or year ended 30 June 2019.
Consolidated statement of comprehensive income Kier Group plc
Interim Management
Report and Financial
Statements for
the six months
ended 31 December
2019
For the six months ended 31 December 2019
Unaudited
Unaudited 6 months Year
6 months to 31 to 30
to 31 December June
December 2018 2019
2019 Restated(1) Restated(1)
Notes GBPm GBPm GBPm
Loss for the period (91.3) (30.2) (209.2)
-------------------------------------------------------- ----- --------- ------------ ------------
Items that may be reclassified subsequently to the
income statement
Share of joint venture fair value movements on cash
flow hedging instruments - - 0.2
Fair value (loss)/gain on cash flow hedging instruments (6.6) 6.5 8.6
Fair value movements on cash flow hedging instruments
recycled to the income statement 6.1 (4.3) (4.3)
Deferred tax charge on fair value movements on cash
flow hedging instruments 0.1 (0.4) (0.7)
Foreign exchange (loss)/gain on long-term funding
of foreign operations (0.1) 4.6 0.9
Foreign exchange translation differences (2.0) (3.1) -
Foreign exchange movements recycled to the income
statement (0.2) (0.6) (0.7)
-------------------------------------------------------- ----- --------- ------------ ------------
Total items that may be reclassified subsequently
to the income statement (2.7) 2.7 4.0
-------------------------------------------------------- ----- --------- ------------ ------------
Items that will not be reclassified to the income
statement
Re-measurement of defined benefit liabilities 5 (29.0) (30.2) (22.9)
Deferred tax credit on actuarial losses on defined
benefit liabilities 5.0 5.1 3.9
Total items that will not be reclassified to the
income statement (24.0) (25.1) (19.0)
-------------------------------------------------------- ----- --------- ------------ ------------
Other comprehensive loss for the period (26.7) (22.4) (15.0)
-------------------------------------------------------- ----- --------- ------------ ------------
Total comprehensive loss for the period (118.0) (52.6) (224.2)
======================================================== ===== ========= ============ ============
Attributable to:
Equity holders of the parent (117.9) (52.2) (224.6)
Non-controlling interests - continuing operations (0.1) (0.4) 0.4
-------------------------------------------------------- ----- --------- ------------ ------------
(118.0) (52.6) (224.2)
======================================================== ===== ========= ============ ============
Total comprehensive loss attributable to equity shareholders
arises from:
Continuing operations (62.4) (62.0) (209.2)
Discontinued operations (55.5) 9.8 (15.4)
------------------------------------------------------------- ------- ------ -------
(117.9) (52.2) (224.6)
============================================================= ======= ====== =======
1 Comparative information has been re-presented to classify the
Living division as a discontinued operation, see note 9. This has
had no impact on the statutory report results for the period ended
31 December 2018 or year ended 30 June 2019.
Consolidated statement of changes in equity Kier Group plc
Interim Management
Report and Financial
Statements for
the six months
ended 31 December
2019
For the six months ended 31 December 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
Notes GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ------ ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
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(1) 1 - - - (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 for the
period - - - (29.8) - - - (29.8) (0.4) (30.2)
Other
comprehensive
(loss)/income - - - (25.1) 1.8 0.9 - (22.4) - (22.4)
Dividends paid 7 - - - (44.7) - - - (44.7) (1.6) (46.3)
Issue of own
shares 0.6 249.3 - - - - - 249.9 - 249.9
Share-based
payments 12 - - - 5.1 - - - 5.1 - 5.1
Purchase of
own shares - - - (0.5) - - - (0.5) - (0.5)
-------------- ------ ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 31 December
2018 1.6 684.3 2.7 (128.2) (3.2) 4.4 134.8 696.4 (0.3) 696.1
(Loss)/profit
for the
period - - - (179.8) - - - (179.8) 0.8 (179.0)
Other
comprehensive
income/(loss) - - - 6.1 2.0 (0.7) - 7.4 - 7.4
Dividends paid 7 - - - (7.9) - - - (7.9) - (7.9)
Share-based
payments 12 - - - 2.1 - - - 2.1 - 2.1
Sale of own
shares - - - 0.9 - - - 0.9 - 0.9
-------------- ------ ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 30 June
2019 1.6 684.3 2.7 (306.8) (1.2) 3.7 134.8 519.1 0.5 519.6
Impact of
adopting
IFRS 16 17 - - - (16.6) - - - (16.6) - (16.6)
-------------- ------ ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 1 July 2019 1.6 684.3 2.7 (323.4) (1.2) 3.7 134.8 502.5 0.5 503.0
Loss for the
period - - - (91.2) - - - (91.2) (0.1) (91.3)
Other
comprehensive
(loss)/income - - - (24.0) (0.4) (2.3) - (26.7) - (26.7)
Share-based
payments 12 - - - 2.2 - - - 2.2 - 2.2
Purchase of
own shares - - - (0.9) - - - (0.9) - (0.9)
-------------- ------ ------- ------- ---------- -------- ------- ----------- -------- ------------ --------------- -------
At 31 December
2019 1.6 684.3 2.7 (437.3) (1.6) 1.4 134.8 385.9 0.4 386.3
============== ====== ======= ======= ========== ======== ======= =========== ======== ============ =============== =======
1 Opening reserves impact of adopting IFRS15 adjusted from
expected position reported in 31 December 2018 interim results to
final position reported in 30 June 2019 results, see note 1.
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
Interim Management
Report and Financial
Statements for
the six months
ended 31 December
2019
A t 31 December 2019
Unaudited
31 December
Unaudited 2018
31 December Restated 30 June
2019 (1) 2019
Notes GBPm GBPm GBPm
------------------------------------------------- ----- ------------- ------------ ---------
Non-current assets
Intangible assets 14 741.5 829.9 766.7
Property, plant and equipment 53.3 83.7 57.3
Right-of-use assets 17 149.6 - -
Investments in and loans to joint ventures 116.8 238.3 237.9
Capitalised mobilisation costs 2.2 2.9 3.3
Deferred tax assets 58.7 14.0 47.7
Contract assets 21.7 21.2 25.2
Trade and other receivables 34.3 15.6 29.0
Retirement benefit assets 5 55.2 33.4 58.4
Other financial assets 17.5 20.6 22.1
------------------------------------------------- ----- ------------- ------------ ---------
Non-current assets 1,250.8 1,259.6 1,247.6
------------------------------------------------- ----- ------------- ------------ ---------
Current assets
Inventories 54.7 286.5 217.9
Contract assets 359.5 444.6 466.0
Trade and other receivables 357.6 466.5 372.9
Corporation tax receivable 10.3 11.4 9.1
Other financial assets - 1.1 2.0
Cash and cash equivalents 10 390.8 434.0 311.7
------------------------------------------------- ----- ------------- ------------ ---------
Current assets 1,172.9 1,644.1 1,379.6
Assets held for sale as part of a disposal group 9 234.0 12.0 14.6
------------------------------------------------- ----- ------------- ------------ ---------
Total assets 2,657.7 2,915.7 2,641.8
================================================= ===== ============= ============ =========
Current liabilities
Borrowings 10 (0.3) (49.7) (30.3)
Finance lease obligations 17 - (2.3) (1.1)
Lease liabilities 17 (26.5) - -
Trade and other payables 11 (1,052.7) (1,271.7) (1,311.0)
Contract liabilities (134.4) (127.3) (134.0)
Provisions (24.4) (17.8) (25.0)
Current liabilities (1,238.3) (1,468.8) (1,501.4)
------------------------------------------------- ----- ------------- ------------ ---------
Liabilities held for sale as part of a disposal
group 9 (106.0) - (1.5)
------------------------------------------------- ----- ------------- ------------ ---------
Non-current liabilities
Borrowings 10 (651.8) (589.4) (473.6)
Finance lease obligations - (2.1) (2.0)
Lease liabilities 17 (149.6) - -
Trade and other payables (26.0) (34.3) (39.5)
Retirement benefit obligations 5 (52.3) (49.9) (38.9)
Provisions (47.4) (75.1) (65.3)
Non-current liabilities (927.1) (750.8) (619.3)
------------------------------------------------- ----- ------------- ------------ ---------
Total liabilities (2,271.4) (2,219.6) (2,122.2)
================================================= ===== ============= ============ =========
Net assets 2 386.3 696.1 519.6
================================================= ===== ============= ============ =========
Equity
Share capital 1.6 1.6 1.6
Share premium 684.3 684.3 684.3
Capital redemption reserve 2.7 2.7 2.7
Retained earnings (437.3) (128.2) (306.8)
Cash flow hedge reserve (1.6) (3.2) (1.2)
Translation reserve 1.4 4.4 3.7
Merger reserve 134.8 134.8 134.8
------------------------------------------------- ----- ------------- ------------ ---------
Equity attributable to owners of the parent 385.9 696.4 519.1
Non-controlling interests 0.4 (0.3) 0.5
------------------------------------------------- ----- ------------- ------------ ---------
Total equity 386.3 696.1 519.6
================================================= ===== ============= ============ =========
1 31 December 2018 balance sheet reclassed to move GBP20.6m of
'Other financial assets' from current assets to non-current assets
to reflect the maturity date of the derivative instruments and
opening reserves impact of adopting IFRS15 from unaudited position
reported in 31 December 2018 interim results to final position
reported in 30 June 2019 final results, see note 1.
Consolidated cash flow statement Kier Group plc
Interim Management
Report and Financial
Statements for
the six months
ended 31 December
2019
For the six months ended 31 December 2019
Unaudited Unaudited
6 months 6 months Year
to 31 to 31 to 30
December December June
2019 2018 2019
Notes GBPm GBPm GBPm
--------------------------------------------------------- ------- ----------- --------- -------
Cash flow from operating activities
Loss before tax - continuing operations (41.2) (45.3) (229.5)
(Loss)/profit before tax - discontinued operations (54.5) 9.8 (15.4)
Exceptional items excluding impairment, amortisation
and finance costs 3 59.3 62.5 268.8
Net finance cost 16.8 14.6 28.2
Share of post-tax trading results of joint ventures (16.2) (14.2) (30.7)
Normal cash contributions to pension fund in excess
of pension charge 0.1 0.2 0.3
Equity settled share-based payments charge 2.2 5.1 7.2
Amortisation of intangible assets less negative
goodwill recognised 14 15.3 25.1 38.7
Impairment of goodwill, intangible assets, assets
held for sale, and property, plant and equipment 59.5 - 47.8
Research and development expenditure credit (3.0) (3.3) (7.8)
Depreciation charges 4.7 7.1 15.5
Depreciation of right of use assets 18.1 - -
Loss on disposal of joint ventures and subsidiaries 0.1 - 0.4
Loss/(profit) on disposal of property, plant and
equipment and intangible assets 4.0 1.4 (0.2)
--------------------------------------------------------- ------- ----------- --------- -------
Operating cash inflows before movements in working
capital 65.2 63.0 123.3
Deficit contributions to pension fund (12.2) (11.9) (24.2)
Decrease/(increase) in inventories 25.5 (35.7) 8.8
(Increase)/decrease in receivables (30.5) (15.6) 94.1
Decrease/(increase) in contract assets 107.6 (50.1) (97.2)
(187.7)
Decrease in payables ) (48.9) (103.8)
Increase/(decrease) in contract liabilities 2.6 (68.1) (61.4)
Decrease in provisions (8.1) (1.8) (3.2)
--------------------------------------------------------- ------- ----------- --------- -------
Cash outflow from operating activities before
exceptional items (37.6) (169.1) (63.6)
Cash outflow from operating activities (exceptional
items) 3 (35.4) (13.3) (60.8)
--------------------------------------------------------- ------- ----------- --------- -------
Cash outflow from operating activities (73.0) (182.4) (124.4)
Dividends received from joint ventures 25.2 25.1 31.4
Interest received 0.3 1.0 0.2
Income tax received 4.9 11.1 10.1
Net cash outflow from operating activities (42.6) (145.2) (82.7)
--------------------------------------------------------- ------- ----------- --------- -------
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 0.5 - -
Proceeds from sale of subsidiaries and joint ventures,
net of cash disposed 13 14.1 12.0 18.7
Purchase of property, plant and equipment (0.9) (5.5) (11.6)
Purchase of intangible assets 14 (2.3) (11.2) (19.8)
Purchase of capitalised mobilisation costs - (1.8) (0.9)
Acquisition of subsidiaries, net of cash acquired - - (29.0)
Investment in joint ventures (9.5) (35.2) (52.0)
Classification from assets held for sale - (2.1) (2.2)
Net cash from/(used) in investing activities 1.9 (43.8) (96.8)
--------------------------------------------------------- ------- ----------- --------- -------
Cash flows from financing activities
Issue of shares - 255.5 249.9
(Purchase)/sale of own shares (0.9) (0.5) 0.4
Interest paid (16.2) (12.1) (24.3)
Principal elements of lease payments (December
2018 & June 2019: Finance lease repayments) (19.7) (2.7) (4.5)
Drawdown of borrowings 184.1 96.7 -
Repayment of borrowings (30.0) - (39.2)
Loan repayment from joint ventures 4.7 - 31.3
Dividends paid to equity holders of the parent 7 - (44.7) (52.6)
Dividends paid to non-controlling interests - (1.6) (1.6)
--------------------------------------------------------- ------- ----------- --------- -------
Net cash from financing activities 122.0 290.6 159.4
--------------------------------------------------------- ------- ----------- --------- -------
Increase/(decrease) in cash, cash equivalents
and overdraft 81.3 101.6 (20.1)
Effect of change in foreign exchange rates (2.2) 1.5 0.9
Opening cash, cash equivalents and overdraft 311.7 330.9 330.9
--------------------------------------------------------- ------- ----------- --------- -------
Closing cash, cash equivalents and overdraft 10 390.8 434.0 311.7
========================================================= ======= =========== ========= =======
Notes to the financial statements Kier Group plc
Interim Management
Report and Financial
Statements for
the six months
ended 31 December
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 condensed interim consolidated financial statements (interim
financial statements) for the six months ended 31 December 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 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 six months ended 31 December 2019. Statutory
financial statements for the year ended 30 June 2019 were approved
by the Board of Directors on 26 September 2019 and delivered to the
Registrar of Companies. The auditor's report on these accounts was
unqualified, did not contain an emphasis of matter paragraph and
did not contain a statement under section 498 of the Companies Act
2006.
The directors continue to adopt the going concern basis in
preparing the Group's interim 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, Facilities Management
and Environmental Services; to restructure the Group by reducing
headcount by c.1,200 and deliver annual cost savings of c.GBP60m
from FY21; 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 5 March 2020, the Group is continuing its disposal of Kier
Living and has taken cost reduction actions to realise annualised
benefits above its original FY21 target. The results of these
actions will result in reduced leverage and reduced costs over the
next 12 months.
At 31 December 2019, the Group had GBP892m of unsecured
committed facilities and GBP20m of uncommitted overdrafts.
Kier Group plc, in partnership with a number of its banks, makes
early invoice discounting programmes available to selected
suppliers. At 31 December 2019, GBP157m was drawn against these
uncommitted facilities.
The directors have reviewed the Group's cash flow forecasts to
30 June 2021, 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 and delivery of the business disposal
programme. 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. The Group's Brexit Task Force is focused on
responding to emerging Government pronouncements as Brexit
negotiations unfold. To date, this has looked closely in particular
at the UK points-based immigration strategy announced. Work has
been undertaken to understand the Group's exposure and to
communicate with its existing EEA workforce, in order to encourage
and support applications under the EU Settlement Scheme to secure
the right to remain. The Group is also working closely with its
supply chain to understand their level of preparedness.
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 responsible business, the health and welfare of our people
is paramount. We are closely monitoring and following Government
advice in relation to COVID-19 and have provided our employees with
guidance and precautions to follow. We are ready to implement
business continuity plans if necessary. This issue is owned at
Group level and has been escalated to, and considered by, the ExCo
Group Risk Committee.
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 these interim financial statements.
Significant accounting policies
Except for IFRS 16 and IFRIC 23 as described below, the
accounting policies applied by the Group in these interim financial
statements are consistent with those applied by the Group in its
financial statements as at, and for the year ended, 30 June
2019.
The Group has applied IFRS 16 'Leases' effective for the year
ended 30 June 2020. The standard has been applied retrospectively
at 1 July 2019 by adjusting the opening balance sheet at that date.
Comparative periods have not been restated. Further details on the
transitional impact on adoption of these standards is described in
note 17.
IFRIC 23 'Uncertainty over income tax treatments' is also
effective for the first time for the year ended 30 June 2020. IFRIC
23 clarifies the accounting for uncertainties in income taxes. The
new accounting guidance has not caused the Group to make any
adjustment to its tax balances on adoption, i.e. the Group has not
recognised any new or derecognised any existing tax balances as a
result of IFRIC 23.
The Group has considered the impact of IBOR reform on its hedge
accounting. The Group has elected to early adopt amendments to IAS
39, IFRS 9, and IFRS 7 'Interest Rate Benchmark Reform' issued in
September 2019. In accordance with the transition provisions, the
amendments have been adopted retrospectively to hedging
relationships that existed at the start of the reporting. The
amendments provide temporary relief from applying specific hedge
accounting requirements to hedging relationships directly affected
by IBOR reform. The adoption of these amendments has not had a
material impact on these financial statements.
The Group adopted IFRS 15 'Revenue from Contracts with
Customers' for the year ended 30 June 2019. The impact of adopting
the standard has been taken to reserves on the date of initial
application (1 July 2018). In the interim financial statements for
the period ended 31 December 2018, the debit adjustment to reserves
was GBP43.1m (net of the associated tax effect). However, following
a subsequent in-depth review of the accounting treatment within the
Group's Highways services contracts, additional transition
adjustments relating to mobilisation costs and timing differences
resulting from the change to percentage of completion were
identified. As a result, in the financial statements for the year
ended 30 June 2019, the debit adjustment was increased by GBP17.5m
to GBP60.6m. The prior year comparative information has been
updated to reflect this increase.
A reconciliation from the reported balance sheet as at 31
December 2018 included in the interim financial statements to the
revised comparative amounts is as follows:
IFRS15
Previously transition
reported adjustment Total(1)
GBPm GBPm GBPm
---------------------------------------- ----------- ------------ ----------
Non-current assets
Capitalised mobilisation costs 8.6 (5.7) 2.9
Deferred tax assets 13.4 0.6 14.0
Other 1,222.1 - 1,222.1
----------------------------------------- ----------- ------------ ----------
Non-current assets 1,244.1 (5.1) 1,239.0
Current assets
Contract assets 456.5 (11.9) 444.6
Corporation tax receivable 8.5 2.9 11.4
Other 1,208.7 - 1,208.7
----------------------------------------- ----------- ------------ ----------
Current assets 1,673.7 (9.0) 1,664.7
Assets held as part of a disposal group 12.0 - 12.0
----------------------------------------- ----------- ------------ ----------
Total assets 2,929.8 (14.1) 2,915.7
Current liabilities
Trade and other payables (1,270.3) (1.4) (1,271.7)
Contract liabilities (125.3) (2.0) (127.3)
Other (69.8) - (69.8)
----------------------------------------- ----------- ------------ ----------
Current liabilities (1,465.4) (3.4) (1,468.8)
Non-current liabilities (750.8) - (750.8)
----------------------------------------- ----------- ------------ ----------
Total liabilities (2,216.2) (3.4) (2,219.6)
----------------------------------------- ----------- ------------ ----------
Net assets 713.6 (17.5) 696.1
========================================= =========== ============ ==========
1 In addition, 31 December 2018 balance sheet reclassed to move
GBP20.6m of 'Other financial assets' from current assets to
non-current assets to reflect the maturity date of the derivative
instruments.
Segmental reporting
From 1 July 2019, the Group changed its reporting format to
focus on two market positions of 'Infrastructure Services' and
'Construction'. This is the basis on which the Group reports its
primary segmental information for the six months ended 31 December
2019. The Group is simplifying its portfolio by selling or
substantially exiting the following activities which are deemed to
be 'non-core' and are now presented as 'Other': Property,
Facilities Management and Environmental Services. '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
2019 to each of the Group's new CGUs as follows:
GBPm
------------------------- ------
Infrastructure Services 516.3
Construction 20.4
Other -
------------------------- ------
536.7
========================= ======
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
In the financial statements for the year ended 30 June 2019, the
Directors reviewed the previous accounting presentation for
disclosed non-underlying items. As part of this review, the
Directors 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 and detailed separately in
note 3.
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
period 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 the associated
unwinding of discounts including within finance 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 period has been conducted to
align to the revised presentation. A charge of GBP3.7m in relation
to the Mersey Gateway project within the Infrastructure division
has been identified as meeting the revised exceptional
classification. The results for the six months ended 31 December
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. The loss from the Mining operations for the six
months ended 31 December 2019 was GBP0.3m (31 December 2018:
GBP0.9m, 30 June 2019: GBP4.3m).
A reconciliation from the reported results in the 31 December
2018 interim financial statements to the revised comparative
amounts is as follows:
Profit
Previously before Previously
reported Mersey exceptional reported Mersey Exceptional
underlying Mining Gateway items non-underlying Mining Gateway items
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
--------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Revenue
Group and share
of joint
ventures 2,201.5 2.3 - 2,203.8 (12.7) (2.3) - (15.0)
Less share of
joint ventures (124.1) - - (124.1) - - - -
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Group revenue 2,077.4 2.3 - 2,079.7 (12.7) (2.3) - (15.0)
Cost of sales (1,857.7) (3.2) 3.7 (1,857.2) (39.3) 3.2 (3.7) (39.8)
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Gross
profit/(loss) 219.7 (0.9) 3.7 222.5 (52.0) 0.9 (3.7) (54.8)
Ad ministrative
expenses (182.1) (1.1) - (183.2) (19.9) 1.1 - (18.8)
Share of
post-tax
results
of joint
ventures 14.2 - - 14.2 - - - -
Loss on disposal
of joint
ventures and
subsidiaries - - - - (0.8) - - (0.8)
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Profit/(loss)
from operations 51.8 (2.0) 3.7 53.5 (72.7) 2.0 (3.7) (74.4)
Finance income 1.0 - - 1.0 - - - -
Finance cost (13.8) (0.7) - (14.5) (1.8) 0.7 - (1.1)
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Profit/(loss)
before tax 39.0 (2.7) 3.7 40.0 (74.5) 2.7 (3.7) (75.5)
Taxation (7.6) - - (7.6) 12.9 - - 12.9
---------------- ----------- ------ --------- ------------ -------------- -------- --------- -----------
Profit/(loss)
for the year
from continuing
operations 31.4 (2.7) 3.7 32.4 (61.6) 2.7 (3.7) (62.6)
================ =========== ====== ========= ============ ============== ======== ========= ===========
1 In addition, the 31 December 2018 results have been restated
to present the results of Kier Living as discontinued - see note
9b.
There has been no impact to the statutory report results for the
period ended 31 December 2018.
2 Segmental reporting
For the six months ended 31 December Infrastructure
2019 Services Construction Other Corporate Group
Continuing operations GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- -------------- ------------ ------- --------- ---------
Revenue(1)
Group and share of joint ventures 783.2 844.0 233.3 5.5 1,866.0
Less share of joint ventures - - (46.8) - (46.8)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Group revenue 783.2 844.0 186.5 5.5 1,819.2
============================================= ============== ============ ======= ========= =========
Profit
Group operating profit/(loss) 27.6 28.8 (1.1) (14.0) 41.3
Share of post-tax results of joint ventures - - 5.5 - 5.5
Loss on disposal of joint ventures - - (0.1) - (0.1)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Operating profit before exceptional items 27.6 28.8 4.3 (14.0) 46.7
Net finance (costs)/income before exceptional
items(2) (1.1) 1.8 (8.9) (7.8) (16.0)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Profit/(loss) before tax and exceptional
items 26.5 30.6 (4.6) (21.8) 30.7
Exceptional items and amortisation of
acquired intangible assets
Amortisation of acquired intangible assets
relating to contract rights (1.8) - - (10.0) (11.8)
Net finance costs - - (0.8) - (0.8)
Other exceptional items (6.3) (13.6) (2.0) (37.4) (59.3)
Profit/(loss) before tax from continuing
operations 18.4 17.0 (7.4) (69.2) (41.2)
============================================= ============== ============ ======= ========= =========
Taxation 5.4
============================================= ============== ============ ======= ========= =========
Loss for the period from continuing
operations (35.8)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Loss for the period from discontinued
operations (55.5)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Loss for the period (91.3)
============================================= ============== ============ ======= ========= =========
Balance sheet
Operating assets (3) 977.1 490.9 320.7 226.7 2,015.4
Operating liabilities (3) (383.2) (694.7) (189.8) (245.6) (1,513.3)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net operating assets/(liabilities)(3) 593.9 (203.8) 130.9 (18.9) 502.1
Cash, cash equivalents and borrowings 265.2 377.2 (379.9) (523.8) (261.3)
Net financial assets - - - 17.5 17.5
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets/(liabilities) excluding net
assets held for sale 859.1 173.4 (249.0) (525.2) 258.3
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets held for sale 128.0
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets/(liabilities) 386.3
============================================= ============== ============ ======= ========= =========
For the six months ended 31 December Infrastructure
2018 (4) Services Construction Other Corporate Group
Continuing operations GBPm GBPm GBPm GBPm GBPm
--------------------------------------------- -------------- ------------ ------- --------- ---------
Revenue(1)
Group and share of joint ventures 870.7 909.3 273.3 - 2,053.3
Less share of joint ventures - - (55.1) - (55.1)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Group revenue 870.7 909.3 218.2 - 1,998.2
============================================= ============== ============ ======= ========= =========
Profit
Group operating profit/(loss) 40.3 36.4 (7.0) (35.0) 34.7
Share of post-tax results of joint ventures - - 7.2 - 7.2
Operating profit/(loss) before exceptional
items 40.3 36.4 0.2 (35.0) 41.9
Net finance (costs)/income before exceptional
items(2) (0.7) 4.1 (8.8) (6.3) (11.7)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Profit/(loss) before tax and exceptional
items 39.6 40.5 (8.6) (41.3) 30.2
Exceptional items and amortisation of
acquired intangible assets
Revenue - (15.0) - - (15.0)
Amortisation of acquired intangible assets
relating to contract rights (0.2) (0.4) (2.3) (9.9) (12.8)
Net finance costs (0.3) - (0.8) - (1.1)
Other exceptional items (6.4) (10.0) (25.5) (4.7) (46.6)
Profit/(loss) before tax from continuing
operations 32.7 15.1 (37.2) (55.9) (45.3)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Taxation 5.3
--------------------------------------------- -------------- ------------ ------- --------- ---------
Loss for the period from continuing
operations (40.0)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Profit for the period from discontinued
operations 9.8
--------------------------------------------- -------------- ------------ ------- --------- ---------
Loss for the period (30.2)
Balance sheet
Operating assets (3) 1,062.6 497.8 766.3 121.3 2,448.0
Operating liabilities (3) (377.3) (707.0) (363.9) (132.3) (1,580.5)
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net operating assets/(liabilities)(3) 685.3 (209.2) 402.4 (11.0) 867.5
Cash, cash equivalents and borrowings 204.7 307.9 (500.0) (217.7) (205.1)
Net financial assets - - - 21.7 21.7
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets/(liabilities) excluding net
assets held for sale 890.0 98.7 (97.6) (207.0) 684.1
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets held for sale 12.0
--------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets/(liabilities) 696.1
============================================= ============== ============ ======= ========= =========
Infrastructure
For the year ended 30 June 2019 (4) Services Construction Other Corporate Group
Continuing operations GBPm GBPm GBPm GBPm GBPm
----------------------------------------------- -------------- ------------ ------- --------- ---------
Revenue(1)
Group and share of joint ventures 1,669.1 1,864.3 584.7 2.9 4,121.0
Less share of joint ventures - - (154.9) - (154.9)
----------------------------------------------- -------------- ------------ ------- --------- ---------
Group revenue 1,669.1 1,864.3 429.8 2.9 3,966.1
=============================================== ============== ============ ======= ========= =========
Profit
Group operating profit/(loss) 53.3 67.2 2.2 (47.1) 75.6
Share of post-tax results of joint ventures - - 10.1 - 10.1
Operating profit/(loss) before exceptional
items 53.3 67.2 12.3 (47.1) 85.7
Net finance (costs)/income before exceptional
items(2) (1.4) 6.9 (18.6) (11.2) (24.3)
----------------------------------------------- -------------- ------------ ------- --------- ---------
Profit/(loss) before tax and exceptional
items 51.9 74.1 (6.3) (58.3) 61.4
Exceptional items and amortisation of
acquired intangible assets
Revenue - (15.0) - - (15.0)
Amortisation of acquired intangible assets
relating to contract rights (0.3) (0.6) (3.3) (20.6) (24.8)
Net finance costs - - (1.1) (0.6) (1.7)
Other exceptional items (56.3) (28.5) (75.3) (89.3) (249.4)
(Loss)/profit before tax from continuing
operations (4.7) 30.0 (86.0) (168.8) (229.5)
=============================================== ============== ============ ======= ========= =========
Taxation 35.7
=============================================== ============== ============ ======= ========= =========
Loss for the period from continuing operations (193.8)
=============================================== ============== ============ ======= ========= =========
Loss for the period from discontinued
operations (15.4)
=============================================== ============== ============ ======= ========= =========
Loss for the period (209.2)
=============================================== ============== ============ ======= ========= =========
Balance sheet
Operating assets (3) 1,033.5 507.7 614.7 135.5 2,291.4
Operating liabilities (3) (403.1) (749.2) (314.4) (150.1) (1,616.8)
----------------------------------------------- -------------- ------------ ------- --------- ---------
Net operating assets/(liabilities)(3) 630.4 (241.5) 300.3 (14.6) 674.6
Cash, cash equivalents and borrowings 267.4 362.2 (372.7) (449.1) (192.2)
Net financial assets - - - 24.1 24.1
----------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets/(liabilities) excluding net
assets held for sale 897.8 120.7 (72.4) (439.6) 506.5
----------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets held for sale 13.1
----------------------------------------------- -------------- ------------ ------- --------- ---------
Net assets/(liabilities) 519.6
=============================================== ============== ============ ======= ========= =========
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 comparative information re -presented to show the
new reporting segment s focused on the Group's t wo market
positions of Infrastructure Services and Construction, see note
1.
3 Exceptional items
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
meet the criteria as set out in note 1, and the amortisation of
acquired intangible assets.
Loss before taxation is stated after (charging)/crediting
exceptional items and amortisation of acquired intangible
assets:
Unaudited
Costs Preparation Unaudited 6 months Year
Amortisation associated for 6 months to 31 to 30
of acquired with business Exceptional to 31 December June
intangible previous Restructuring divestment contract Discontinued December 2018(1, 2019
Continuing assets acquisitions charges or closure losses operations Other 2019 2) Total(2)
operations GBPm GBPm 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 - - - - - - - - (39.8) (61.2)
-------------- ------------ ------------ ------------- ------------ ------------ ------------ ------ ---------- --------- --------
Gross
profit/(loss) - - - - - - - - (54.8) (76.2)
Ad
ministrative
expenses (11.8) (3.1) (48.8) (7.4) - - - (71.1) (18.8) (212.6)
Loss on
disposal
of joint
ventures
and
subsidiaries - - - - - - - - (0.8) (0.4)
Profit/(loss)
from
operations (11.8) (3.1) (48.8) (7.4) - - - (71.1) (74.4) (289.2)
Net finance
charges - - - - - - (0.8) (0.8) (1.1) (1.7)
-------------- ------------ ------------ ------------- ------------ ------------ ------------ ------ ---------- --------- --------
Profit/(loss)
before tax (11.8) (3.1) (48.8) (7.4) - - (0.8) (71.9) (75.5) (290.9)
Associated
tax credit 2.0 0.5 8.1 1.2 - - 0.1 11.9 12.9 55.9
Loss from
discontinued
operations - - - - - (59.5) - (59.5) - (51.6)
-------------- ------------ ------------ ------------- ------------ ------------ ------------ ------ ---------- --------- --------
Charged
against
profit for
the year (9.8) (2.6) (40.7) (6.2) - (59.5) (0.7) (119.5) (62.6) (286.6)
-------------- ------------ ------------ ------------- ------------ ------------ ------------ ------ ---------- --------- --------
1 Comparative information of exceptional items has been
re-presented to reflect the change in the Group's Alternative
Performance Measure, see note 1.
2 Comparative information has been re-presented to classify the
Living division as a discontinued operation, see note 9.
a) Amortisation of acquired intangible assets
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
------------------------------------------------ ------------ ---------- -------
Amortisation of intangible assets and deferred
consideration (11.8) (12.8) (24.8)
------------------------------------------------ ------------ ---------- -------
b) Costs associated with previous acquisitions
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
------------------------------------------------------------- ------------ ---------- -------
McNicholas acquired contract provision and exit
costs(1) (3.8) - (21.5)
McNicholas acquired contract settlement(2) 3.5 - -
Integration costs relating to the McNicholas acquisition(3) (2.8) (5.4) (11.8)
Release of deferred and contingent consideration(4) - 5.5 4.0
Total before tax (3.1) 0.1 (29.3)
------------------------------------------------------------- ------------ ---------- -------
1 Provision to WIP and exit costs in relation to a contract
acquired with McNicholas in respect of a major customer. 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 Revenue received in settlement of a contract acquired with
McNicholas.
3 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 major
acquisition and that these are non-recurring costs and are due to
be completed in FY20.
4 The Group released contingent consideration in FY19 relating
to the McNicholas acquisition which is not payable.
c) Restructuring charges
The Group has incurred significant restructuring charges
relating to costs of organisational change associated with the
Group's cost saving programmes 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 significant changes to the Group's
activities or workforce.
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
------------------------------------------------------ ------------ ---------- -------
Redundancy costs(1) (16.8) - (38.4)
Professional advisor fees and other costs incurred
implementing non-people initiatives(2) (18.1) - (13.3)
Lease impairments (June 2019: onerous lease)(3) (10.1) - (4.4)
Costs in preparation for outsourcing arrangements(4) (3.8) - -
Total before tax (48.8) - (56.1)
------------------------------------------------------ ------------ ---------- -------
1 Costs in respect of roles made redundant as a result of cost
saving programmes and from strategic decisions taken to reduce
headcount in a number of the Group's principal operating divisions
following the announcement of the strategic review.
2 The Group incurred various costs in running the restructuring
activities during the year. These included the professional advisor
fees, incremental costs of teams involved in the management of the
restructuring activities and costs incurred implementing non-people
initiatives.
3 The Group has incurred impairment charges on a corporate
office lease of GBP13.6m, which is being exited as part of the cost
saving programme. Another corporate office lease will be utilised
instead, this was previously impaired (FY19: onerous rent). The
lease impairment on this office was released in HY20 by
GBP3.5m.
4 The Group is currently engaged in reviewing its central
activities. As a result, one off costs have been incurred in
preparation for activities to be outsourced to external providers
for Fleet and IT.
d) 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 in 2019.
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
------------------------------------------------------- ------------ ---------- --------
Impairment of D&H goodwill and other assets(1) - - (47.8)
Environmental Waste contract termination provision(2) - (26.0) (26.8)
Closure costs relating to non-core businesses(3) (2.9) - (23.1)
Impairment of ERP computer software(4) (2.4) - (7.3)
Fair value impairment of Pure Recycling Warwick
Limited - note 9 (2.1) - (8.4)
Loss on disposal of subsidiaries, joint-ventures
and other assets, with associated fees(5) - (0.9) (7.0)
Total before tax (7.4) (26.9) (120.4)
------------------------------------------------------- ------------ ---------- --------
1 A non-cash impairment of goodwill (GBP8.0m) and other assets
(GBP39.8m) was made in FY19 to the Group's previous Developments
& Housing CGU, following the decision to dispose of various
non-core divisions. See note 14 for the goodwill and other
intangible impairments.
2 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.
3 Following the announcement of the Group's intention to exit
parts of the Group, a number of charges were recognised in FY19.
These include costs incurred in exiting contracts (GBP9.6m) and
onerous contract charges (GBP3.6m). In addition, an impairment of
software (GBP5.5m) was incurred as a result of the decision to
abandon some functionality of certain assets following the
announcement of the intention to exit the division. A further
GBP2.9m has been incurred in Facilities Management and Kier
Business Services during the period in relation to closure
activities.
4 A cost of GBP7.3m was written-off in FY19 due to software
functionality which will no longer be utilised within the Group. A
further GBP2.4m of software was written off in HY20.
5 Comprises advisers fees associated with divestments along with
the loss on disposal of Unity (GBP1.9m), gain on the disposal of
the Group's pension administration business (GBP2.5m) and loss on
disposal of KHSA Limited (GBP1.4m).
e) Exceptional contract losses
The charges in relation to Broadmoor and Mersey Gateway have
been classified as an exceptional item 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.
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
----------------------- ------------- ---------- -------
Broadmoor Hospital(1) - (25.0) (43.5)
Mersey Gateway (2) - (3.7) (6.4)
Total before tax - (28.7) (49.9)
----------------------- ------------- ---------- -------
1 The Group incurred significant losses in FY19 relating to the
Broadmoor Hospital development project in respect of future
recoveries of costs from the client and other third parties.
2 The Group incurred significant charges in FY19 in relation to
the completion of the Mersey Gateway project.
f) Discontinued operations
Exceptional items within discontinued operations are analysed
below:
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
------------------------------------------------ ------------ ---------- -------
Fair value adjustment of Kier Living - note 9 (59.5) - -
Impairment of residential development sites(1) - - (50.0)
Loss on disposal of assets(2) - - (1.3)
Redundancy costs(3) - - (0.3)
Total after tax (59.5) - (51.6)
------------------------------------------------ ------------ ---------- -------
1 This impairment charge was triggered in FY19 by the Group's
decision to dispose of its Living 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 Loss on disposal of Living's shared equity portfolio
(GBP1.3m).
3 Costs in respect of roles made redundant as a result of cost
saving programmes and from strategic decisions taken to reduce
headcount in a number of the Group's principal operating divisions
following the announcement of the strategic review.
g) Other exceptional items
Other exceptional items are analysed below:
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
------------------------------------------------ ------------ ---------- -------
Procurement charge(1) - - (17.2)
Pension increase exchange pension gain (net of
fees) - note 5 - - 14.6
GMP Pension charge - note 5 - (6.1) (6.1)
Net financing costs (2) (0.8) (1.1) (1.7)
Total before tax (0.8) (7.2) (10.4)
------------------------------------------------ ------------ ---------- -------
1 The Group incurred a material charge in FY19 in relation to
certain aged receivables, driven by a management review of
contractual terms following the impact of the changing credit
market. This review was driven by the changing commercial
landscape, as a result of which, management has determined that the
assets should be written off. The charge is deemed exceptional on
the basis of its size.
2 Net financing costs relate to discount unwinding of acquired
intangible assets.
4 Finance costs
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
---------------------------------------------------- ------------ ---------- -------
Bank interest (12.2) (12.8) (24.7)
Interest and finance charges for lease liabilities
(December 2018 and June 2019: Finance leases) (3.7) (0.1) (0.2)
Discount unwind(1) (0.9) (1.1) (1.9)
Pension (interest)/credit (0.3) 0.2 0.6
---------------------------------------------------- ------------ ---------- -------
Total (17.1) (13.8) (26.2)
==================================================== ============ ========== =======
1 GBP0.8m of the discount unwind relates to acquired intangible
assets and is included within exceptional items and amortisation of
acquired intangible assets (31 December 2018: GBP1.1m, 30 June
2019: GBP1.7m).
5 Retirement benefit obligations
The amounts recognised in the financial statements in respect of
the Group's defined benefit schemes are as follows:
Unaudited
6 months
to 31
December
2019
Kier May Mouchel
Group Gurney Pension McNicholas
Pension Pension Schemes(1, Pension
Scheme Scheme 2) Scheme Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- --------- -------- ----------- ---------- -----------
Opening surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5
Credit/(charge) to income statement 0.5 - (0.2) (0.1) 0.2
Employer contributions 6.2 1.0 4.4 0.6 12.2
Actuarial losses (4.9) (1.3) (22.3) (0.5) (29.0)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Closing surplus/(deficit) 41.2 1.1 (32.7) (6.7) 2.9
============================================= ========= ======== =========== ========== ===========
Comprising:
Total market value of assets 1,191.2 79.0 483.6 26.3 1,780.1
Present value of liabilities (1,150.0) (77.9) (516.3) (33.0) (1,777.2)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Net surplus/(deficit) 41.2 1.1 (32.7) (6.7) 2.9
--------------------------------------------- --------- -------- ----------- ---------- -----------
Related deferred tax (liability)/asset (7.0) (0.2) 5.6 1.1 (0.5)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Net pension asset/(liability) 34.2 0.9 (27.1) (5.6) 2.4
--------------------------------------------- --------- -------- ----------- ---------- -----------
Presentation of net surplus/(deficit) above
in the Consolidated balance sheet:
Retirement benefit assets 41.2 1.1 12.9 - 55.2
Retirement benefit obligations - - (45.6) (6.7) (52.3)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Net surplus/(deficit) 41.2 1.1 (32.7) (6.7) 2.9
============================================= ========= ======== =========== ========== ===========
The amounts recognised in the financial statements in respect of
the Group's defined benefit schemes are as follows:
Unaudited
6 months
to 31
December
2018
Kier May Mouchel
Group Gurney Pension McNicholas
Pension Pension Schemes(1, Pension
Scheme Scheme 2) Scheme Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- --------- -------- ----------- ---------- -----------
Opening surplus/(deficit) 25.2 (1.1) (8.8) (7.4) 7.9
Charge to income statement(3) (3.8) (0.6) (1.5) (0.2) (6.1)
Employer contributions 6.0 0.8 4.5 0.6 11.9
Actuarial losses (5.9) (0.1) (23.7) (0.5) (30.2)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Closing surplus/(deficit) 21.5 (1.0) (29.5) (7.5) (16.5)
============================================= ========= ======== =========== ========== ===========
Comprising:
Total market value of assets 1,112.2 74.5 442.4 22.9 1,652.0
Present value of liabilities (1,090.7) (75.5) (471.9) (30.4) (1,668.5)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Net surplus/(deficit) 21.5 (1.0) (29.5) (7.5) (16.5)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Related deferred tax (liability)/asset (3.7) 0.2 5.0 1.3 2.8
--------------------------------------------- --------- -------- ----------- ---------- -----------
Net pension asset/(liability) 17.8 (0.8) (24.5) (6.2) (13.7)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Presentation of net surplus/(deficit) above
in the Consolidated balance sheet:
Retirement benefit assets 21.5 - 11.9 - 33.4
Retirement benefit obligations - (1.0) (41.4) (7.5) (49.9)
--------------------------------------------- --------- -------- ----------- ---------- -----------
Net surplus/(deficit) 21.5 (1.0) (29.5) (7.5) (16.5)
============================================= ========= ======== =========== ========== ===========
The amounts recognised in the financial statements in respect of
the Group's defined benefit schemes are as follows:
Year
to 30
June
2019
Kier May Mouchel
Group Gurney Pension McNicholas
Pension Pension Schemes(1, Pension
Scheme Scheme 2) Scheme Total
GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- --------- -------- ----------- ---------- ---------
Opening surplus/(deficit) 25.2 (1.1) (8.8) (7.4) 7.9
Credit/(charge) to income statement(3, 4) 11.7 (0.5) (0.6) (0.3) 10.3
Employer contributions 12.2 1.8 9.0 1.2 24.2
Actuarial (losses)/gains (9.7) 1.2 (14.2) (0.2) (22.9)
--------------------------------------------- --------- -------- ----------- ---------- ---------
Closing surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5
============================================= ========= ======== =========== ========== =========
Comprising:
Total market value of assets 1,189.8 81.0 492.6 26.0 1,789.4
Present value of liabilities (1,150.4) (79.6) (507.2) (32.7) (1,769.9)
--------------------------------------------- --------- -------- ----------- ---------- ---------
Net surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5
--------------------------------------------- --------- -------- ----------- ---------- ---------
Related deferred tax (liability)/asset (6.7) (0.2) 2.5 1.1 (3.3)
--------------------------------------------- --------- -------- ----------- ---------- ---------
Net pension asset/(liability) 32.7 1.2 (12.1) (5.6) 16.2
--------------------------------------------- --------- -------- ----------- ---------- ---------
Presentation of net surplus/(deficit) above
in the Consolidated balance sheet:
Retirement benefit assets 39.4 1.4 17.6 - 58.4
Retirement benefit obligations - - (32.2) (6.7) (38.9)
--------------------------------------------- --------- -------- ----------- ---------- ---------
Net surplus/(deficit) 39.4 1.4 (14.6) (6.7) 19.5
============================================= ========= ======== =========== ========== =========
1 This comprises of schemes in a net surplus and net deficit
position: GBP12.9m surplus and GBP45.6m deficit at 31 December 2019
(31 December 2018: GBP11.9m surplus and GBP41.4m deficit, 30 June
2019: GBP17.6m surplus and GBP32.2m 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.
3 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.
4 In 2019, 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. A gain of GBP16.1m was
recognised as an exceptional gain in the year to 30 June 2019.
6 Taxation
Unaudited Unaudited
6 months 6 months Year
to 31 to 31 to 30
December December June
2019 2018 2019
Exceptional Exceptional Exceptional
Before items Before items Before items
exceptional (note exceptional (note exceptional (note
items 3)(1) Total items 3) Total items 3) Total
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
----------------- ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- -------
Profit/(loss)
before
tax 30.7 (71.9) (41.2) 30.2 (75.5) (45.3) 61.4 (290.9) (229.5)
Add: tax on joint
ventures
included above - - - 0.5 - 0.5 - - -
------------------ ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- -------
Adjusted
profit/(loss)
before tax 30.7 (71.9) (41.2) 30.7 (75.5) (44.8) 61.4 (290.9) (229.5)
------------------ ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- -------
Current tax 1.8 - 1.8 - - - (5.3) - (5.3)
Deferred tax (8.3) 11.9 3.6 (4.9) 12.9 8.0 (12.5) 55.9 43.4
Overseas tax - - - (2.7) - (2.7) (2.4) - (2.4)
Total income tax
(expense)/credit
in the income
statement (6.5) 11.9 5.4 (7.6) 12.9 5.3 (20.2) 55.9 35.7
Tax on joint
ventures - - - (0.5) - (0.5) - - -
Effective tax
(charge)/credit (6.5) 11.9 5.4 (8.1) 12.9 4.8 (20.2) 55.9 35.7
------------------ ----------- ----------- --------- ----------- ----------- --------- ----------- ----------- -------
Effective tax rate 21.2% 16.6% 13.1% 26.4% 17.1% 10.7% 32.9% 19.2% 15.6%
================== =========== =========== ========= =========== =========== ========= =========== =========== =======
1 Reference to 'Exceptional items' includes exceptional items
and amortisation of acquired intangible assets, see note 1.
The taxation charge for the six months ended 31 December 2019
has been calculated at 21.2% (six months ended 31 December 2018:
26.4%, year ended 30 June 2019: 32.9%) of adjusted profit before
tax, being profits adjusted for the Group's share in equity
accounted joint ventures and excluding exceptional items and
amortisation of acquired intangible assets. Exceptional items are
taxed at their underlying rate.
7 Dividends
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
Amounts recognised as distributions to equity holders 2019 2018 Total
in the year: GBPm GBPm GBPm
------------------------------------------------------ ----------- --------- ------
Final dividend for the year ended 30 June 2019 of
nil (2018: 46.0 pence) - 44.7 44.7
Interim dividend for the year ended 30 June 2020
of nil (2019: 4.9 pence) - - 7.9
------------------------------------------------------ ----------- --------- ------
- 44.7 52.6
====================================================== =========== ========= ======
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.
8 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
.
Unaudited Year
Unaudited 6 months to 30
6 months to 31 June
to 31 December 2019
December 2018 Total
2019 Restated Restated
(2) (2)
-------------------------------------------- ------- ----------- ------- --------- ------- ---------
Basic Diluted Basic Diluted Basic Diluted
GBPm GBPm GBPm GBPm GBPm GBPm
-------------------------------------------- ------- ----------- ------- --------- ------- ---------
(Loss)/earnings
Continuing operations
Loss (after tax and non-controlling
interests), being net losses attributable
to equity holders of the parent (35.7) (35.7) (39.6) (39.6) (194.2) (194.2)
Impact of exceptional items (1)
net of tax:
Amortisation of intangible assets
- net of tax credit of GBP2.0m
(31 December 2018: GBP2.1m, 30
June 2019: GBP4.2m) 9.8 9.8 10.7 10.7 20.5 20.5
Acquisition discount unwind - net
of tax credit of GBP0.1m (31 December
2018: GBP0.3m, 30 June 2019: GBP0.3m) 0.7 0.7 1.5 1.5 1.4 1.4
Other exceptional items (1) - net
of tax credit of GBP9.8m (31 December
2018: GBP10.5m, 30 June 2019: GBP51.4m) 49.5 49.5 49.4 49.4 213.1 213.1
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
Earnings from continuing operations
before exceptional items (1) 24.3 24.3 22.0 22.0 40.8 40.8
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
Discontinued operations
Earnings (after tax and non-controlling
interests), being net profits attributable
to equity holders of the parent 4.0 4.0 9.8 9.8 36.2 36.2
Exceptional items from discontinued
operations (59.5) (59.5) - - (51.6) (51.6)
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
(Loss)/earnings from discontinued
operations (55.5) (55.5) 9.8 9.8 (15.4) (15.4)
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
million million million million million million
-------------------------------------------- ------- ----------- ------- --------- ------- ---------
Weighted average number of shares
used for earnings per share 161.8 161.8 103.1 103.1 132.2 132.2
============================================= ======= =========== ======= ========= ======= =========
Basic Basic Basic Basic Basic Basic
-------------------------------------------- ------- ----------- ------- --------- ------- ---------
Earnings per share pence pence pence pence pence pence
============================================ ======= =========== ======= ========= ======= =========
Continuing operations
-------------------------------------------- ------- ----------- ------- --------- ------- ---------
Loss (after tax and non-controlling
interests), being net losses attributable
to equity holders of the parent (22.1) (22.1) (38.4) (38.4) (146.9) (146.9)
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
Impact of exceptional items (1)
net of tax:
-------------------------------------------- ------- ----------- ------- --------- ------- ---------
Amortisation of intangible assets
- net of tax credit 6.1 6.1 10.4 10.4 15.5 15.5
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
Acquisition discount unwind - net
of tax credit 0.4 0.4 1.5 1.5 1.1 1.1
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
Other exceptional items (1) - net
of tax credit 30.6 30.6 47.9 47.9 161.2 161.2
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
Earnings from continuing operations
before exceptional items 15.0 15.0 21.4 21.4 30.9 30.9
============================================= ======= =========== ======= ========= ======= =========
Discontinued operations
Earnings (after tax and non-controlling
interests), being net profits attributable
to equity holders of the parent 2.5 2.5 9.5 9.5 27.4 27.4
Exceptional items from discontinued
operations (36.8) (36.8) - - (39.0) (39.0)
--------------------------------------------- ------- ----------- ------- --------- ------- ---------
(Loss)/earnings from discontinued
operations (34.3) (34.3) 9.5 9.5 (11.6) (11.6)
============================================= ======= =========== ======= ========= ======= =========
Total earnings per share
Statutory (56.4) (56.4) (28.9) (28.9) (158.5) (158.5)
Before exceptional items (1) 17.5 17.5 30.9 30.9 58.3 58.3
============================================= ======= =========== ======= ========= ======= =========
1 Reference to 'Exceptional items' includes exceptional items
and amortisation of acquired intangible assets, see note 1.
2 Re-presented to show the Living Division as a discontinued
operation, see note 9.
9 Assets and liabilities held for sale and discontinued
operations
a) Assets held for sale
In June 2019, the Group announced results of its strategic
review and concluded that the Group needed to simplify its
structure, better allocate its capital resources and reduce net
debt. The Directors concluded that Kier Living is not compatible
with the Group's working capital objectives and that the division
should be sold. Accordingly, the assets and liabilities of Kier
Living are classified as held for sale, with assets of GBP229.9m
and liabilities of GBP104.9m at 31 December 2019. The sale process
is progressing and is expected to complete within the next 12
months.
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. The assets have
been included at their fair value as at 31 December 2019 of GBP4.1m
of assets and GBP1.1m of liabilities.
The Group's investment in its joint venture interest in Kier
Hammersmith Holdco Limited ('KHL') of GBP8.4m was classified as
held for sale at 30 June 2019. The disposal was completed on 26
September 2019. See note 13 to the consolidated financial
statements for further details.
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
Assets of disposal group classified as held for 2019 2018 Total
sale GBPm GBPm GBPm
------------------------------------------------ ----------- --------- ------
Investments in and loans to joint ventures 54.4 12.0 8.4
Inventories 137.6 - -
Trade and other receivables 38.4 - 0.1
Other assets 3.6 - 6.1
Total 234.0 12.0 14.6
================================================ =========== ========= ======
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
Liabilities of disposal group classified as held 2019 2018 Total
for sale GBPm GBPm GBPm
------------------------------------------------- ----------- --------- ------
Trade and other payables (96.7) - (1.5)
Other liabilities (9.3) - -
Total (106.0) - (1.5)
================================================= =========== ========= ======
b) Discontinued operations
Results for Kier Living for the period are classified as
discontinued. Prior period results of Kier Living are also
restated.
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
Results of discontinued operations GBPm GBPm GBPm
---------------------------------------------------------- ----------- --------- -------
Revenue 54.4 81.5 170.6
Operating costs (48.4) (70.0) (132.2)
---------------------------------------------------------- ----------- --------- -------
Operating profit 6.0 11.5 38.4
Finance cost (1.0) (1.7) (2.2)
---------------------------------------------------------- ----------- --------- -------
Profit before tax and exceptional items 5.0 9.8 36.2
Tax (1.0) - -
---------------------------------------------------------- ----------- --------- -------
Profit for the period 4.0 9.8 36.2
Exceptional items net of tax (59.5) - (51.6)
---------------------------------------------------------- ----------- --------- -------
(Loss)/profit for the period from discontinued operations
after tax (55.5) 9.8 (15.4)
========================================================== =========== ========= =======
10 Cash, cash equivalents, overdraft and borrowings
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
--------------------------------------------------- ----------- --------- -------
Net debt consists of:
Cash and cash equivalents - bank balances and cash
in hand 390.8 434.0 311.7
Borrowings due within one year (0.3) (49.7) (30.3)
Borrowings due after one year (651.8) (589.4) (473.6)
Impact of cross-currency hedging 18.8 24.6 25.0
--------------------------------------------------- ----------- --------- -------
Net debt (242.5) (180.5) (167.2)
=================================================== =========== ========= =======
Average month-end net debt for the six months to 31 December
2019 was GBP395m (six months to 31 December 2018: GBP430m, year to
30 June 2019: GBP422m). Net debt excludes lease liabilities (31
December 2018 & 30 June 2019: finance lease obligations).
1 1 Trade and other payables
Unaudited Unaudited Year
6 months 6 months to 30
to 31 to 31 June
December December 2019
2019 2018 Total
GBPm GBPm GBPm
----------------------------------- ----------- --------- -------
Trade payables 35 1.2 515 .7 545.9
Accruals 457.5 483.6 540.0
Sub-contract retentions 41.8 55.5 45.0
Other taxation and social security 61.0 83.7 74.6
Other payables 141.2 133.2 105.5
1,052.7 1,271.7 1,311.0
=================================== =========== ========= =======
Included within the trade and other payables balance is
GBP157.1m (31 December 2018: GBP200.5m, 30 June 2019: GBP170.2m)
relating to payments due to suppliers who are on bank-supported
supply chain finance arrangements.
1 2 Share-based payments
The Group has established a long-term incentive plan ("LTIP")
under which directors and senior employees can receive awards of
shares subject to the Group achieving targets. Further details of
the LTIP schemes were disclosed in the 2019 annual financial
statements. No shares have vested under the LTIP schemes during the
six months to 31 December 2019 (six months to 31 December 2018 and
year ended 30 June 2019: 269,461 shares vested).
The Group has also established a SAYE Sharesave scheme. Options
to acquire shares in the capital of Kier Group plc are granted to
eligible employees who enter into a Sharesave contract, saving a
regular sum each month. Participation in the scheme is offered to
all employees of the Group who have been employed for a continuous
period determined by the Board.
During the six months to 31 December 2019 grants were made under
the LTIP and Sharesave schemes as follows:
LTIP
subject
to a holding
LTIP period Sharesave
28 October 28 October 13 November
Grant date 2019 2019 2019
Shares granted 10,959,826 2,265,801 7,199,823
Share price at grant GBP1.16 GBP1.16 GBP0.87
Exercise price nil nil GBP1.01
Option life 3 years 3 years 3 years
Holding period n/a 2 years n/a
Expected volatility 74.68% 85.53% 68.50%
Dividend yield n/a n/a 0.00%
Risk-free interest rate 0.49% 0.51% 0.49%
Value per option:
LTIP - TSR element (1) 76p - -
LTIP - EPS and Net Debt:EBITDA element (2) 116p - -
LTIP subject to a holding period - TSR element
(3) - 66p -
LTIP subject to a holding period - EPS and
Net Debt:EBITDA element (3) - 101p -
Sharesave (2) - - 37p
1 Based upon a stochastic model.
2 Based upon the Black-Scholes model.
3 LTIP awards provided to the Board directors are subject to a 2
year post vesting holding period. The Finnerty model has been used
to estimate a discount for the lack of marketability of these
shares.
The fair value of the TSR element incorporates an assessment of
the number of shares that will be awarded, as the performance
conditions are market conditions under IFRS 2 'Share-based
payments'.
The performance conditions of the EPS and Net Debt:EBITDA
elements are non-market conditions under IFRS 2. The fair value
therefore does not include an assessment of the number of shares
that will be awarded. Instead the amount charged for these elements
is based on the fair value factored by a 'true up' for the number
of awards that are expected to vest. The Group's share-based
payment charge for the six months to 31 December 2019 was GBP2.2m
(six months to 31 December 2018: GBP5.1m, year to 30 June 2019:
GBP7.2m).
1 3 Acquisitions and disposals
The Group has completed the following joint venture disposals
during the period, in chronological order:
a) Kier Hammersmith Holdco Limited
On 26 September 2019 the Group, through its subsidiary Kier
Property Development Limited, disposed of its interest in Kier
Hammersmith HoldCo Limited for a total consideration of GBP9.1m.
The business was classified as held for sale as at 30 June
2019.
Unaudited
6 months
to 31
December
2019
GBPm
-------------------------- ----------
Sale proceeds 9.1
Book value of net assets (8.4)
Sale costs (0.9)
-------------------------- ----------
Loss on disposal (0.2)
-------------------------- ----------
b) Strawberry Percy LLP
On 11 November 2019 the Group, through its subsidiary Kier
Property Development Limited, disposed of its interest in
Strawberry Percy LLP for a total consideration of GBP3.6m.
Unaudited
6 months
to 31
December
2019
GBPm
-------------------------- ----------
Sale proceeds 3.6
Book value of net assets (3.6)
Sale costs (0.3)
-------------------------- ----------
Loss on disposal (0.3)
-------------------------- ----------
c) South West Hub
On 23 December 2019 the Group, through its subsidiary Kier
Project Investment Limited, disposed of its interest in Hub SW QMA
Hold Co Limited for a total consideration of GBP1.4m.
Unaudited
6 months
to 31
December
2019
GBPm
-------------------------- ----------
Sale proceeds 1.4
Book value of net assets (1.0)
-------------------------- ----------
Profit on disposal 0.4
-------------------------- ----------
1 4 Goodwill and intangible assets
Intangible
contract Computer
Goodwill rights software Total
GBPm GBPm GBPm GBPm
-------------------------------------------- ----------- ------------- ----------- --------
Cost
At 1 July 2018 560.2 274.5 151.6 986.3
Additions - - 11.2 11.2
Disposals (10.6) (15.1) (0.2) (25.9)
At 31 December 2018 549.6 259.4 162.6 971.6
-------------------------------------------- ----------- ------------- ----------- --------
Additions - - 8.6 8.6
Disposals (0.1) - (15.4) (15.5)
Transfers to assets held for sale (4.8) - (0.8) (5.6)
-------------------------------------------- ----------- ------------- ----------- --------
At 30 June 2019 544.7 259.4 155.0 959.1
-------------------------------------------- ----------- ------------- ----------- --------
Additions - - 2.3 2.3
Transfers to property, plant and equipment - - (8.1) (8.1)
Transfers to assets held for sale - - (10.7) (10.7)
At 31 December 2019 544.7 259.4 138.5 942.6
-------------------------------------------- ----------- ------------- ----------- --------
Accumulated amortisation and impairment
At 1 July 2018 - (92.8) (31.3) (124.1)
Charge for the period - (12.8) (11.3) (24.1)
Disposals - 6.9 (0.4) 6.5
At 31 December 2018 - (98.7) (43.0) (141.7)
-------------------------------------------- ----------- ------------- ----------- --------
Charge for the period - (12.2) (4.0) (16.2)
Disposals - 0.1 3.2 3.3
Impairment (8.0) (0.2) (29.6) (37.8)
At 30 June 2019 (8.0) (111.0) (73.4) (192.4)
-------------------------------------------- ----------- ------------- ----------- --------
Charge for the period - (11.8) (3.5) (15.3)
Impairment - - (2.4) (2.4)
Transfers to assets held for sale - - 9.0 9.0
-------------------------------------------- ----------- ------------- ----------- --------
At 31 December 2019 (8.0) (122.8) (70.3) (201.1)
-------------------------------------------- ----------- ------------- ----------- --------
Net book value
At 31 December 2019 536.7 136.6 68.2 741.5
============================================ =========== ============= =========== ========
At 30 June 2019 536.7 148.4 81.6 766.7
-------------------------------------------- ----------- ------------- ----------- --------
At 31 December 2018 549.6 160.7 119.6 829.9
-------------------------------------------- ----------- ------------- ----------- --------
(1) As at 30 June 2019, following the Strategic Review,
impairments were recognised of GBP8.0m to goodwill and GBP29.8m to
other intangible assets. These impairments were recorded as
exceptional items in the year ended 30 June 2019.
1 5 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 2019.
Details of contributions made to the pension schemes by the
Group are detailed in note 5.
1 6 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.
17 Changes in accounting policies
IFRS 16 'Leases'
The Group has adopted IFRS 16 'Leases' with effect from 1 July
2019 using the modified retrospective (cumulative catch-up) method,
and as such comparative information has not been restated. The
reclassifications and the adjustments arising from the new lease
accounting rules are therefore recognised in the opening balance
sheet on 1 July 2019.
The main impact of IFRS 16 has been 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 lease obligations. The associated operating
lease charges previously included in administrative expenses have
been replaced by depreciation and interest costs.
The Group's financing covenants are linked to the accounting
standards in force at the time the facilities were agreed (frozen
GAAP).
Measurement of lease liabilities and right-of-use assets
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as at 1 July 2019. The weighted average lessee's incremental
borrowing rate applied to the lease liabilities on 1 July 2019 was
3.87%.
The right-of-use assets associated with the vehicle, plant and
the larger property leases were measured on a retrospective basis
as if
the new rules had always been applied. Other right-of-use assets
were measured at the amount equal to the lease liability, adjusted
by the amount of any prepaid or accrued lease payments relating to
that lease recognised in the balance sheet as at 30 June 2019.
For leases previously classified as finance leases the Group
recognised the carrying amount of the lease asset and lease
liability immediately before transition as the carrying amount of
the right of use asset and the lease liability at the date of
initial application. The measurement principles of IFRS 16 are only
applied after that date. This did not result in any measurement
adjustments immediately after the date of initial application.
Practical expedients applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- Application of a single discount rate to a portfolio of
leases with reasonably similar characteristics;
-- Reliance on previous assessments on whether leases are
onerous as an alternative to performing an impairment review. The
Group has adjusted the carrying amount of the right-of-use asset at
the date of initial application by the previous carrying amount of
its onerous lease provisions at 30 June 2019 up to a maximum of the
associated right-of-use asset value;
-- Exclusion of initial direct costs for the measurement of the
right-of-use asset at the date of initial application; and
-- Hindsight has been used in determining the lease term where
the contract contains options to extend or terminate the lease.
As a further practical expedient, the standard permits
accounting for operating leases with a remaining lease term of less
than 12 months as at 1 July 2019 as short-term leases. This
practical expedient can be applied on a lease by lease basis. The
Group has chosen to apply this practical expedient to its sundry
plant and equipment leases but not its property or vehicle fleet
lease portfolios (which form the bulk of its leases). The Group
believes this approach will help comparability in the financial
periods immediately following adoption of IFRS 16.
The Group has also elected not to reassess whether a contract
is, or contains, a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
Group relied on its assessment made applying IAS 17 and IFRIC 4
'Determining whether an Arrangement contains a Lease'.
Lease liabilities reconciliation
Plant
Property and machinery Total
GBPm GBPm GBPm
---------------------------------------------- ----------- ---------------- --------
Future minimum lease payments under
operating leases at 30 June 2019 (1) 167.5 52.1 219.6
Restatement (2) 25.1 - 25.1
---------------------------------------------- ----------- ---------------- --------
Future minimum lease payments under
operating leases at 30 June 2019 (restated) 192.6 52.1 244.7
Impact of discounting (3) (47.1) (3.2) (50.3)
Short-term leases - (1.0) (1.0)
Low-value items - (1.5) (1.5)
Adjustments as a result of a different
treatment of extension and termination
options (4.0) - (4.0)
Additional lease liability at 1 July
2019 141.5 46.4 187.9
---------------------------------------------- ----------- ---------------- --------
Finance lease liability at 30 June
2019 (4) - 3.1 3.1
Total lease liability at 1 July 2019 141.5 49.5 191.0
============================================== =========== ================ ========
1 As disclosed in note 29 to the Group's Annual Report and
Accounts for the year ended 30 June 2019. Amounts relate to
non-cancellable leases and are undiscounted.
2 A detailed review of leases was undertaken as part of the
adoption of IFRS 16 and as a result the future minimum lease
payments under operating leases has been restated to reflect leases
not previously identified and future rental increases that were
excluded from the 2019 Annual Report.
3 Using the incremental borrowing rate at the date of initial
application (1 July 2019).
4 As disclosed in note 22 to the Group's Annual Report and
Accounts for the year ended 30 June 2019.
Adjustments recognised in the balance sheet on 1 July 2019
The change in accounting policy affected the following items in
the balance sheet on 1 July 2019:
-- Property, plant and equipment - decrease by GBP7.6m;
-- Right-of-use assets - increase by GBP173.0m;
-- Deferred tax assets - increase by GBP3.4m;
-- Prepayments - decrease by GBP2.1m;
-- Provisions - decrease by GBP4.4m;
-- Lease liabilities - increase by GBP187.9m; and
-- Accruals - decrease by GBP0.2m.
The net impact on retained earnings on 1 July 2019 was a
decrease of GBP16.6m.
Impact of IFRS 16 on the income statement for the six months
ended 31 December 2019
Amounts without
adoption of IFRS Impact of adopting
16 IFRS 16 As reported
Exceptional Exceptional Exceptional
Before items Before items Before items
exceptional (note exceptional (note exceptional (note
Continuing items 3) Total items 3) Total items 3) Total
operations GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
-------------- ----------- ----------- ------ ----------- ----------- ----- ----------- ----------- ------
Profit/(loss)
from
operations 43.3 (73.5) (30.2) 3.4 2.4 5.8 46.7 (71.1) (24.4)
Net finance
costs (12.5) (0.8) (13.3) (3.5) - (3.5) (16.0) (0.8) (16.8)
Profit/(loss)
before
taxation 30.8 (74.3) (43.5) (0.1) 2.4 2.3 30.7 (71.9) (41.2)
---------------- ----------- ----------- ------ ----------- ----------- ----- ----------- ----------- ------
Depreciation and interest charges under IFRS 16 were GBP0.1m
more than the operating lease expenses that would have been charged
under the previous leases accounting standard. Due to the differing
methods of calculation, the impairment of the right-of-use assets
under IFRS 16 were GBP2.4m less than the onerous lease provision
that would have been calculated under the previous accounting
standards.
Lessor accounting
The Group did not need to make any adjustments to the accounting
for assets held as lessor under operating leases as a result of the
adoption of IFRS 16.
Accounting policy adopted
The Group has applied the following accounting policy in respect
of leases from 1 July 2019.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- Fixed payments (including in-substance fixed payments), less
any lease incentives receivable;
-- Variable lease payment that are based on an index or a rate,
initially measured using the index or rate as at the commencement
date;
-- Amounts expected to be payable by the Group under residual value guarantees;
-- The exercise price of a purchase option if the Group is
reasonably certain to exercise that option; and
-- Payments of penalties for terminating the lease, if the lease
term reflects the group exercising that option.
Lease payments to be made under reasonably certain extension
options are also included in the measurement of the liability.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be readily determined,
which is generally the case for leases in the Group, the lessee's
incremental borrowing rate is used, being the rate that the
individual lessee would have to pay to borrow the funds necessary
to obtain an asset of similar value to the right-of-use asset in a
similar economic environment with similar terms, security and
conditions.
Most Group companies do not have any recent independent
third-party financing to use as a starting point for the
incremental borrowing rate. Therefore, the Group uses a build-up
approach that starts with a risk-free interest rate adjusted for
credit risk, lease term, country, currency and security.
The Group is exposed to potential future increases in variable
lease payments based on an index or rate, which are not included in
the lease liability until they take effect. When adjustments to
lease payments based on an index or rate take effect, the lease
liability is reassessed and adjusted against the right-of-use
asset.
Lease payments are allocated between principal and finance cost.
The finance cost is charged to profit or loss over the lease period
so as to produce a constant periodic rate of interest on the
remaining balance of the liability for each period.
Right-of-use assets are measured at cost comprising the
following:
-- The amount of the initial measurement of lease liability;
-- Any lease payments made at or before the commencement date
less any lease incentives received;
-- Any initial direct costs; and
-- Any restoration costs.
Right-of-use assets are generally depreciated over the shorter
of the asset's useful life and the lease term on a straight-line
basis. If the Group is reasonably certain to exercise a purchase
option, the right-of-use asset is depreciated over the underlying
asset's useful life.
The Group has elected to use the following recognition
exemptions, as permitted by the standard:
-- Leases of low-value items - The Group has defined low value
items as assets that have a value when new of less than cGBP5,000.
Low value items comprise IT equipment and small items of plant.
-- Short-term leases - Leases with a lease term of less than 12 months at inception.
For leases in the above categories, a lease liability or
right-of-use asset is not recognised. Instead, the Group recognises
the related lease payments as an expense on a straight-line basis
over the lease term.
Contracts may contain both lease and non-lease components. The
Group allocates the consideration in the contract to the lease and
non-lease components based on their relative stand-alone prices.
However, for vehicle leases including a maintenance element, the
Group has elected not to separate lease and non-lease components
and instead accounts for these as a single lease component.
Judgements and estimates
The lease liabilities that were brought onto the balance sheet
on transition to IFRS 16 have been measured at the present value of
the remaining lease payments, discounted using the Group's
incremental borrowing rates as at 1 July 2019. Some judgement has
been required in determining the Group's incremental borrowing
rates due to a lack of observable rates from recent independent
third-party financing at the transition date. Had the discount
rates used at 1 July 2019 been determined to be 0.5% higher than
the rates used, it would have resulted in a reduction in lease
liabilities of cGBP5.4m at the transition date; whilst a 0.5%
decrease in the discount rates used at transition would have
resulted in an increase of cGBP6.4m. However, in each case, the
impact on reserves at the transition date would have been mitigated
to a large extent by corresponding adjustments to the values of the
associated right-of-use assets.
Another factor which affects the level of lease liabilities on
the balance sheet is the lease term. IFRS 16 defines the lease term
as the non-cancellable period of a lease, together with; periods
covered by an option to extend the lease if the lessee is
reasonably certain to exercise that option; and periods covered by
an option to terminate the lease if the lessee is reasonably
certain not to exercise that option. Therefore, judgement is
sometimes required in determining whether the Group is reasonably
certain to extend a lease in the future. With regard to the Group's
14 largest property leases (which account for 66% of the total
lease liabilities at the transition date) only 3 contain break or
extension options. A change in assumptions to base the liability on
the minimum and maximum possible periods for these leases would
have resulted in a GBP1.7m reduction or GBP0.6m increase to the
lease liability, respectively.
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
IR SSFSMIESSESD
(END) Dow Jones Newswires
March 05, 2020 02:00 ET (07:00 GMT)
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