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Kier Group PLC (KIE)

  Print      Mail a friend       Annual reports

Wednesday 11 October, 2017

Kier Group PLC

Annual Financial Report

RNS Number : 3685T
Kier Group PLC
11 October 2017
 

11 October 2017

 

Kier Group plc

 

Publication of the 2017 Annual Report and the 2017 Notice of Annual General Meeting

 

Kier Group plc (the "Company") announces that its annual general meeting will be held at the Andaz Hotel, 40 Liverpool Street, London EC2M 7QN at 12 noon on Friday, 17 November 2017.

 

The Company has today posted, or made available, to shareholders the annual report and accounts for the year ended 30 June 2017 (the "Annual Report"), the notice of annual general meeting and the form of proxy.

 

These documents are available on the Company's website at www.kier.co.uk/investor-relations and have been submitted to the National Storage Mechanism, where they are available for inspection at www.morningstar.co.uk/uk/NSM.

 

The Company announced its results for the year ended 30 June 2017 on 21 September 2017. Additional information has been extracted from the Annual Report in unedited full text and is included in the Appendix to this announcement for the purposes of compliance with the Disclosure Guidance and Transparency Rules. Page numbers and note references in the Appendix refer to page numbers in the Annual Report and the notes to the Company's consolidated financial statements for the year ended 30 June 2017 as included in the Annual Report.

 

For enquiries, please contact:

 

Beth Melges

Deputy Company Secretary

Tel: +44(0)1767 640 111

 

The Company's Legal Entity Identifier is 2138002RKCU2OM4Y7O48.

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 of companies of which the Company is the holding company (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.  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.  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.

 

APPENDIX

Risks

The following information is extracted from pages 37 to 41 (inclusive) of the Annual Report.

Principle risks and uncertainties

The following section sets out the Board's assessment of the principal risks and uncertainties (PRUs) that may impact the delivery of our six strategic priorities, their movement during the year and the relevant controls and mitigations in place. The Board considers these to be the most significant risks facing Kier. Not all risks facing our organisation are listed and risks are not listed in any order of priority.

 

Description

Key mitigations/controls

1. Health and safety

Major health and safety incident

 

The Group's activities are inherently complex and potentially hazardous and require the continuous monitoring and management of health, safety and environmental risks. The Board has assessed that this risk remains high but unchanged from last year. Failure to meet safety standards and/or ineffective management of safety requirements could result in the following:

 

·      injury/death to employees, members of the public or third parties;

·      reduced ability to bid for and win work;

·      reputational damage;

·      financial penalties arising from fines, claims, legal action, project delays; and

·      failure to meet investor expectations.

 

 

 

 

Updated Safety, Health and Environment (SHE) management system aligned to the needs of the operational businesses under a framework of Group governance.

 

Behavioural change programme focusing on operational safety.

 

Robust major incident response protocols.

 

Visible leadership programme designed to promote a 'safety-first' culture.

 

Revised accident investigation protocols to ensure robust investigation and implementation of lessons learnt.

 

2. Sustainability

Breadth of sustainability requirements

 

With the increasing importance of sustainability and social value in clients' evaluation of contract awards, and the emergence of greater stakeholder awareness, progressive legislation, and enforcement activity, this risk is included as a new PRU.

 

If the Group were unable to meet its sustainability requirements, the following risks may occur:

 

·      non-compliance with legislation;

·      bid exclusion;

·      reputational damage;

·      failure to meet customer expectations;

·      significant financial penalties/loss of contracts; and

·      significant failure to meet investor expectations.

 

 

 

 

The Group's commitment to sustainability is articulated within a strategy for a sustainable business, Responsible Business, Positive Outcomes (RBPO).

 

The Group operates a management structure including Board committees, and a Corporate Responsibility Leadership Group (CRLG) which meets quarterly. Between them they review the progress with identified, and emerging, issues across the areas covered by our strategy for a sustainable business.

 

Membership of the CRLG is drawn from our Group services functions, together with representatives from the operating businesses. It is responsible for assessing sustainability risk and setting appropriate policies and direction for Kier.

 

The Group has recognised that delivering strong performance across the non-financial focus areas covered by RBPO helps to create value for our business, our investors, our clients and wider society. For example, improving safety and wellbeing leads to less lost time through injury or illness; improved environmental performance can reduce waste of energy and materials, leading to cost savings; and choosing the right subcontractors and supplier partners can lead to an economic boost for the community in which we are operating.

 

The Group delivers business-wide training programmes to ensure its employees are competent and qualified. We operate a programme of audits to review our contracts and measure performance against expectations, assessing and reporting on recommendations for improvement.

 

3. Funding

Availability of funding

 

The Group has a variety of funding needs met by external sources. We have clear metrics to measure volatility and sensitivity in the key indicators of funding risk and have recently undertaken a review which has strengthened our ability to manage this risk. The Board assesses this PRU as unchanged from last year. If this funding were not available or curtailed there is a risk that we could experience:

 

·      failure of business or one stream of the business;

·      smaller gains or margins;

·      failure to achieve profit expectations;

·      loss of investor confidence; and

·      reduced cash generation due to reduced volume growth.

 

 

 

 

The Group's Investment Committee, chaired by the Group Financial Controller, is responsible for approving capital investment and optimising the allocation of capital.

 

Cash forecasting and working capital management remain key performance indicators for the business, with their ability to generate positive cash flow demonstrated in the year.

 

The core borrowing facility was recently renegotiated, extending tenure and liquidity. The Group has access to committed funding that substantially exceeds both peak borrowing and projected funding requirements over the next three years. The average tenure of committed funding exceeds four years.

 

Availability of bonding capacity is essential to the Group's ability to win work. Kier has strong, long-term relationships with the providers of this service and has a dedicated in-house team to monitor headroom and advise on bond terms and conditions.

 

The Property division uses a number of joint ventures to manage risk and enhance returns. Joint venture partners are carefully selected to mitigate operational risk within projects. By entering into joint ventures, the Group can ensure that the Property division is not over-exposed to any one sector, geographical location or individual development.

 

4. Market and sector performance

Market downturn impacts customer expenditure

 

The Group's strategy depends on the economic performance of the UK, in particular, and the markets and sectors in which it operates. Kier has a breadth of capabilities and operates across a number of diverse market sectors. The Board has extended this PRU (previously 'the market') to reflect the importance of our sector decision-making and performance, as well as the general performance of the economies in which we operate.

 

Reduced economic activity and expenditure in public, regulated and private sectors would likely result in lower growth or lower revenue for the Group.

 

Further, investment allocation across the market sectors in which the Group operates is of clear importance; if the Group were to invest too heavily in the wrong sector, the following risks would occur:

 

·      failure of business or one stream of the business;

·      reputational impact of inappropriate selections; and

·      failure to meet financial expectations.

 

 

 

 

The Group regularly evaluates future market performance including the impact of macro-economic factors (e.g. population growth, austerity) and the associated market risk of specific events (e.g. Brexit) together with its strategy in those markets.

 

The Group's strategy is aligned to three core market segments (buildings, infrastructure and housing) which are underpinned by solid long-term fundamentals and where the Group is able to establish a leading market position. The Group's operating structure is largely aligned to these three segments.

 

The Group regularly reviews its business portfolio, which has resulted in exit from market sectors and disposals (e.g. Caribbean, Mouchel Consulting and Biogen). The Group carries out monthly and quarterly reviews of its secured workload and prospective pipeline, and forecasts its overhead levels as a percentage of future work in order to maintain an appropriate ratio of overhead costs to revenue.

 

The Group has well-established sector sales capability in key areas, and during the year invested in a new customer relationship management system to improve pipeline visibility.

 

5. Operating model

Operating model inefficiency

 

To build and sustain long-term confidence we must maintain and evolve our operating model to maximise growth and minimise risk. The Board has assessed this as a new PRU.

 

Failure to maintain operating model efficiency could result in the following risks:

 

·      failure of business or one stream of the   business;

·      failure to deliver required growth and profitability;

·      failure to remain competitive; and

·      failure to meet investor expectations.

 

 

 

 

We maintain a disciplined focus on honing the portfolio by divesting non-core businesses and making acquisitions in line with strategy.

 

The Group measures its component businesses against a series of balanced score-cards throughout the year.

 

As a key part of our control processes, we challenge our business units' performance and amend plans on a quarterly basis to ensure that we are on track to meet investor expectations.

 

We constantly strive to anticipate changes within our business environment and customer requirements as well as implementing efficiencies where appropriate. The recent enterprise resource planning (ERP) implementation and opening of our finance shared services centre are prime examples of this.

 

We have made ongoing investment in systems to improve our efficiency and management information for example, strengthening back-office systems through the roll-out of Oracle ERP and shared services. These improvements also enable integrated trading/cross-selling and scalability of front-line systems in services businesses, creating operational efficiencies and enhancing competitiveness in certain sectors.

 

We have implemented a programme of enhanced customer engagement to work as closely as possible with our customers, particularly where the business environment is changing, so we can continue to support them as their priorities evolve.

 

6. Contract management

Ineffective contract management

 

Kier recognises that effective contract management is at the heart of its business model and is critical to ongoing success and growth. The Board has assessed that given the potential impact of this risk and current external factors, this risk has risen in significance since last year and remains an important focus for the Group.

 

The Group has a number of large and complex contracts in play at any given time. Dependent on the nature, location and duration of the work and the legal framework of the contract, there is a risk that ineffective contract management and lack of ownership could result in:

 

·      failure of the business or one stream of the business;

·      financial impact of failure to deliver on contracts;

·      reputational damage;

·      subcontractor performance impact;

·      wastage of resources; and

·      poor management information, reporting, contract data and transparency.

 

 

 

 

The Group maintains a strong focus on longer-term service contracts. Potential risks are mitigated, controlled and managed through the Group's operating structure, procedures and standing orders. Enhanced emphasis and focus on pre-contract controls has improved the quality of the Group's portfolio of contracts.

 

Monthly operational and financial contract reviews are held at both business unit and business stream levels. These reviews are supplemented by a formal quarterly review process, which operates across all divisions of the Group and is attended by ExCo members.

               

The operational and commercial functions manage subcontractor performance and relationships across all contracts.

 

In further mitigation of this risk, the Group's commercial training programme for all front line staff has progressed positively. This programme is designed to ensure a consistent approach to the management of contract risks across the Group. There has also been a focus on upgrading key financial controls across the Group. These improvements have had a positive impact on identifying potentially under-performing contracts.

 

7. Customers

Loss of a key customer relationship

 

Kier recognises the need to engage effectively with customers and strives to deliver a tailored service that exceeds expectations. Given the importance of customer satisfaction, the Board has identified this as a new PRU.

 

If we fail to deliver a differentiated customer experience which focuses on proactive relationship management, the following could occur:

 

·      failure of the business or one stream of the business;

·      reputational damage; and

·      loss of a key customer or decline in customer loyalty.

 

 

 

 

Customer satisfaction surveys are undertaken alongside independent customer surveys designed to better understand clients needs and expectations.

 

Each business unit/stream has a dedicated business development team which participates in a quarterly review of clients across the UK through eight regional client forums.

 

We have developed key client plans and relationship mapping through the allocation of key account managers to each key client.

 

Regular reviews are scheduled at management meetings covering customer relations and the future pipeline of opportunities supported by the Group's new CRM system. Senior leaders across the Group support key client relationships through regular 1:1 meetings.

 

8. People

Availability and retention of the right people

 

Our people remain a key pillar of our business. Ensuring the right people are in the right roles is critical to our future success and growth. The Board has assessed that the level of risk in this area is the same as last year. We need to attract and retain the right talent to enable achievement of our strategic aims. Failure to do this risks our delivery and growth as follows:

 

·      failure to meet a specific business need or contract requirement;

·      reputation damage, both corporate brand and employment brand;

·      loss of project specialisms;

·      over-reliance on key staff; and

·      loss of key skills.

 

 

 

 

Focus on reduction of voluntary turnover of employees, in particular new hire turnover, through better hiring for fit, improved induction and on-boarding, and employee engagement initiatives.

 

Launch of market-benchmarked reward and benefits offer.

 

Strategic workforce plan implemented to provide insight on forecast skills needs and headcount and insight on skills and retention hot spots or systemic issues to target.

 

Employer brand embedded in talent attraction and reflected in internal employer value offer.

 

Talent fast-track programme in place to retain and progress key talent at all levels.

 

Balanced Business strategy agreed with the ExCo to drive inclusion and diversity.

 

Targeted action taken to improve the diversity mix and inclusive work climate (including internal target-setting).

 

9. Innovation

Insufficient innovation to maintain market position

 

We operate in an increasingly dynamic and changing environment. To counter the risks associated with this and, most importantly, to exploit the opportunities it presents, we must embrace innovation and capitalise on technology advancements to ensure we maintain our market position.

 

Given the depth and pace of change in this arena this risk/opportunity has increased in focus and importance from last year and is now listed as a PRU. Failure to manage this risk could result in:

 

·      loss of new and current business to competitors;

·      new market entrants lead the way on innovation to our detriment;

·      loss of staff due to lack of innovation or failure to act on ideas;

·      innovation costs not being managed effectively; and

·      negative internal and external publicity.

 

 

 

 

The delivery of the Group's services already incorporates innovation and technology at a number of levels, whether through the built environment it is delivering (e.g. smart motorways, energy-efficient buildings) or the way in which it delivers its services (e.g. BIM, digital technology, predictive data, new construction methods).

 

Given the heightened importance of this area, the Group has revised one of its strategic objectives in the year (Embracing innovation and technology across our business) and launched its #[email protected] plan. This has included the appointment of a Group Innovation Director and the launch of a Group-wide Innovation Forum.

 

As part of its plans to further promote innovation and technology, the Group will:

 

·      ensure that employees in every business have access to online innovation and idea-sharing platforms;

·      establish a clear digital strategy supported by an information management strategy and digital life skills programme;

·      launch a £1m pa seed fund (the Kier Accelerator) to encourage new ideas/investment; Increase the rotation of candidates across its graduate/early career programme to further increase vibrancy of thinking and seeding of ideas;

·      increased external marketing activity to position our existing innovation; and

·      align leadership and development programmes to include a clear focus on innovation and technology.

 

Additional macro-economic risks

Brexit

 

The UK's departure from the EU ('Brexit'), will impact Kier in a number of ways. Although these risks are yet to be fully understood and quantified, we are mindful of the many areas of potential risk and uncertainty, including issues around the free movement of people, delays in major infrastructure investment and trade restrictions.

 

We are actively monitoring the UK Government's position on the various matters for negotiation and the potential impact these may have on Kier, and will act accordingly through various working parties and task forces. In last year's Annual Report, we referred to the risk of a significant decline in the property market following the EU referendum result. Instead, greater volatility materialised in this market providing a number of opportunities post the Brexit vote for our Property division. Our largely non-speculative approach to property investment provides mitigation against market volatility. We will continue to monitor changes in the property market and respond accordingly.

 

 

 

Related party transactions

The following information is extracted from note 29 to the Company's consolidated financial statements for the year ended 30 June 2017.

Related parties

Identity of related parties

 

The Group has a related party relationship with its joint ventures, key management personnel and pension schemes in which its employees participate.

 

Transactions with key management personnel

The Group's key management personnel are the executive and non-executive directors as identified in the directors' remuneration report on pages 82 to 101 (inclusive).

 

In addition to their salaries, the Group also provides non-cash benefits to directors and contributes to their pension arrangements as disclosed on page 94. Key management personnel also participate in the Group's share option programme (see note 25).

 

Key management personnel compensation comprised:

 


2017
£m

2016
£m

Emoluments as analysed in the directors' remuneration report

4.5

4.9

Employer's national insurance contributions

0.7

0.7

Total short-term employment benefits

5.2

5.6

Share-based payment charge

0.4

0.8


5.6

6.4

Transactions with pension schemes

 

Details of transactions between the Group and pension schemes in which its employees participate are detailed in note 8.

Transactions with joint ventures


2017
£m

2016
£m

Construction services and materials

0.1

-

Management services

3.2

3.0

Interest on loans to joint ventures

0.8

0.3


4.1

3.3

Amounts due from/(to) joint ventures are analysed below:


2017
£m

2016
£m

Saudi Comedat Company Limited

-

(0.4)

Staffordshire Property Partnership

0.1

-

Kier Trade City Holdco 1 LLP

10.7

10.3

Kier Reading Holdco 1 LLP

15.0

15.0

Kier Sovereign LLP

0.3

3.0

Tri-link 140 Holdings LLP

1.4

1.4

Kier Foley Street LLP

20.9

20.9

Blue3 (London) (Holdings) Limited

-

2.1

Kier (Newcastle) Investment Limited

-

4.8

Lysander Student Properties Investments Limited

-

3.3

Blue3 (Staffs) Holding Limited

-

2.3

Winsford Devco LLP

1.1

-

50 Bothwell Street Holdco 1 LLP

4.7

-


54.2

62.7

 

 

Directors' responsibility statement

 

The following statement is extracted from page 104 of the Annual Report.

 

Each of the Directors, whose names and functions are set out on pages 66 and 67, confirms that to the best of his or her knowledge:

·      the financial statements contained in this Annual Report, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation as a whole; and

·      the management report contained in this Annual Report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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