Slide 1: Results for the year ended 30 June 2018
Kier Group Results for the year ended 30 June 2018 20 September 2018 Kier Group plc – Full Year results for the year ended 30 June 2018 1
Slide 2: Disclaimer
Disclaimer No representation or warranty, express or implied, is made or given by or on behalf of Kier Group plc (the “Company” and, together with its subsidiaries and subsidiary undertakings, the “Group”) or any of its directors or any other person as to the accuracy, completeness or fairness of th
Slide 3: Haydn Mursell, Chief Executive
Haydn Mursell Chief Executive Kier Group plc – Full Year results for the year ended 30 June 2018 3
Slide 4: Agenda
Agenda ▪ Highlights of the year ▪ Financial and operational update ▪ Market positions ▪ Future Proofing Kier programme ▪ Summary and outlook Kier Group plc – Full Year results for the year ended 30 June 2018 4
Slide 5: Good performance in line with expectations
Good performance in line with expectations Financial highlights All divisions performing well ▪ Revenue up 5% ▪ Property 27% ROCE ▪ Profit up 10% ▪ Residential 15% ROCE ▪ Record Construction and Services order books of £10.2bn ▪ Construction 2% margin ▪ Full-year dividend up 2% ▪ Services 5% margin
Slide 6: Future Proofing Kier (FPK)
Future Proofing Kier (FPK) More efficient service provision to clients Future Proofing Kier programme launched ▪ Streamlining and efficiency programme ‒ Improve client service ▪ Areas of focus ▪ Cash flow ‒ Operational efficiency improvement of ‒ Profitability and cash generation £20m p.a. ‒ Disposa
Slide 7: Future Proofing Kier: Accelerated net debt reduction
Future Proofing Kier Accelerated net debt reduction Debt improvement plan underway ▪ Annual free cash flow of £20m-£40m to service debt reduction in FY19 and thereafter ▪ Investment in Property and Residential divisions stabilised ▪ Supplemented by FPK benefits One turn of EBITDA ‒ Annual £20m free
Slide 8: Financial update
Financial update Bev Dew, Finance Director Kier Group plc – Full Year results for the year ended 30 June 2018 8
Slide 9: Financial highlights
Financial highlights ▪ Good performance ▪ Operating profit1 of £160m up 10% ▪ Earnings per share1 of 116.7p up 9% ▪ Net debt of £186m, < 1x EBITDA ▪ Average net debt of £375m ▪ Record order book of £10.2bn ▪ Full year dividend of 69.0p up 2% 1 Arising on continuing operations, stated before non-unde
Slide 10: Income statement
Income statement EPS and dividend growth Year ending 30 June 2018 Year ending 30 June 2017 Change £m £m % Revenue1 4,493.3 4,265.2 +5 Operating profit 2 Property 34.0 25.8 +32 Residential 25.9 22.8 +14 Construction 41.9 39.8 +5 Services 93.0 87.0 +7 Corporate (34.8) (29.8) +17 Underlying operating p
Slide 11: Operating profit
Operating profit 1 Well diversified portfolio Property Residential Construction Services 13% 15% 17% 15% 19% 7% 12% 44% 13% 8% 49% 48% 13% 50% £108m £132m 52% £167m £175m £195m 28% 23% 29% 23% 22% FY14 FY15 FY16 FY17 FY18 1 Arising on continuing operations, stated before non-underlying items, exclud
Slide 12: Property performance
Property performance Growing ROCE driven by joint venture strategy Financials Average capital employed & ROCE Revenue1 Operating profit1 £m ROCE 140 27% 30% 5% 120 27% 17% 26% 28% 100 80 26% £218m £34.0m 60 23% 23% 24% 40 22% 20 +20% +32% 0 20% 2014 2015 2016 2017 2018 Operational highlights Asset b
Slide 13: Residential performance
Residential performance Joint ventures driving ROCE to achieve Vision 2020 target two years early Financials Average capital employed £m Revenue1 Operating profit1 300 250 8% 200 Total 150 Private £374m £25.9m 13% 100 50 Mixed tenure 0 +0% +14% 2014 2015 2016 2017 2018 Operational highlights ROCE ▪
Slide 14: Construction performance
Construction performance Record order book and stable margins Financials Underlying operating profit and margins £m Margin Revenue1 Operating profit1 50 2.2% 2.5% 2.0% 2.0% 2.0% 40 2.0% 2.0% 30 £2,053m £41.9m 20 1.5% 10 46% 22% 0 1.0% +2% +5% 2014 2015 2016 2017 2018 Operational highlights Contract
Slide 15: Services performance
Services performance Increasing revenue with robust margins Financials Underlying operating profit and margins Revenue1 Operating profit2 £m Margin 100 6.0% 80 4.8% 5.2% 5.2% 5.0% 4.6% 5.0% 60 41% £1,849m 48% £93.0m 40 4.0% 20 0 3.0% +10% +7% 2014 2015 2016 2017 2018 Operational highlights Sector re
Slide 16: Disciplined risk management
Disciplined risk management Well established processes £7-8m >70% Average buildings Lower risk contract Frameworks models project size ▪ Disciplined selection on ‘where to’ operate ▪ Fortnightly committee for all capital investment ‒ Sectors appraisals ‒ Geographies ▪ Post contract and reporting pro
Slide 17: Construction and Services order book
Construction and Services order book Strong visibility of workload with 90% of FY19 revenue secured At 30 June 2018 At 30 June 2017 Change £bn £bn % Construction 5.0 4.2 +19 Services 5.2 4.7 +11 Total 10.2 8.9 +15 £bn 14.0 12.0 2.7 (2.0) 1.9 (1.9) 10.0 0.6 8.0 6.0 10.2 4.0 8.9 2.0 0.0 June 2017 Cons
Slide 18: Group net debt
Group net debt Strong operating cash conversion1 of 107% £m 100 171 50 (17) (26) - 21 (50) (67) (32) (100) (110) (58) (150) (200) (68) (186) 3 June 2017 Operating Working capital McNicholas Capex and Discretionary Non-underlying Pension, Dividends June 2018 2 net debt cash flows movement acquisition
Slide 19: Contracting working capital flows
Contracting working capital flows Improving working capital management Working capital flows WIP Trade receivables Accruals Trade payables1 WC as a % revenue Working capital days Working capital as % of revenue 100 12% 80 8% 60 40 4% 20 - 0% (20) -4% (40) (60) -8% (80) (100) -12% FY14 FY15 FY16 FY17
Slide 20: Construction and Services cash balances
Construction and Services cash balances Stable average net cash in Construction and Services Construction cash balance1 Services cash balance1 Net cash Net cash £m £m 400 FY 18 200 350 150 FY 18 300 FY 17 100 250 200 50 FY 17 150 - June Oct Dec March June 100 (50) 50 - (100) June Oct Dec March June
Slide 21: Debt improvement plan underway
Debt improvement plan underway Average net debt expected to decrease ▪ Strong operational cash conversion maintained Average net debt drivers £m ‒ >100% for last five years before working capital FY17 320 ▪ No new cash investment in Property and Residential ‒ Asset base sufficient to achieve Vision
Slide 22: Joint ventures
Joint ventures Capital efficient model ▪ Joint ventures provide capital efficient sources of Joint venture financials £m funding Investment on balance sheet 226 ‒ 29 JV assets in Property Kier committed investment 27 ‒ 9 trading assets in Residential ▪ Loan to value 35% Partners investment 104 ‒ Bas
Slide 23: Pensions
Pensions Strong performance with pension schemes now in surplus At 30 June 2018 At 30 June 2017 Change £m £m £m Group Pension Schemes: Market value of assets 1,681 1,637 +44 Present value of liabilities (1,673) (1,721) +48 Asset/(liability) in the schemes 8 (84) +92 Deferred tax (1) 14 -15 Net pensi
Slide 24: Guidance
Guidance FY19 FY20 £200m before Future Proofing Kier programme Operating profit1 On track for Vision 2020 targets benefits Finance costs Proportional with average net debt Tax rate c.19% c.£40m-£60m after benefits of Future Proofing Kier Free cash flow c.£20m-£40m pa (excluding disposal proceeds) (e
Slide 25: Financial summary
Financial summary ▪ Good performance ▪ All divisions performing well ▪ Earnings per share1 of 116.7p up 9% ▪ Stable net investment in Property and Residential divisions ▪ Record order book of c.£10.2bn ▪ Pension now in surplus ▪ Full year dividend of 69.0p up 2% ▪ Average net debt to reduce, driven
Slide 26: Market positions
Market positions Kier Group plc – Full Year results for the year ended 30 June 2018 26
Slide 27: Market-leading positions
Market-leading positions ▪ Focus on UK markets with robust, long-term fundamentals ▪ Leading positions to support optimum trading performance ▪ Asset businesses with enhanced returns, utilising free cash flow Infrastructure Services Buildings Developments & Housing c.£2bn c.£2bn c.£1bn Major Revenue
Slide 28: Well-diversified portfolio
Well-diversified portfolio Significant opportunity for growth FY18 Reporting structure FY19 Reporting structure 5% 8% 22% Property 41% FY18 Infrastructure Services FY18 38% Residential Buildings revenue revenue Construction Developments & Housing Services 46% 40% Strong balance and diversification o
Slide 29: Infrastructure Services
Infrastructure Services FY18 Revenue Future Highways – Maintenance Stable Construction Highways 1% Services 6% Rail Highways – Capital Growth 25% Power 14% Water Rail Growth Telco £1.7bn £1.7bn 54% Other Power Growth 20% 75% Water Growth 5% Telco Growth Markets £bn Capital works Maintenance 12 10 8
Slide 30: Infrastructure Services
Infrastructure Services Highways Utilities ▪ Repairs and maintenance stable ▪ Leading player in the UK with McNicholas ‒ Areas 3, 6, 8 and 9 extensions achieved ▪ AMP7 totex c.£44bn, similar to AMP6 ▪ RIS2 up to £30bn ‒ Anglian, Thames, Severn Trent, South West Water, etc ‒ Significantly increased s
Slide 31: Buildings
Buildings ▪ £67bn addressable market FY18 Revenue ▪ Disciplined approach Construction Education ‒ Contract selection Services / Maintenance 9% 9% Health Other public ‒ Terms & conditions Private FM ‒ Cash generation 29% 45% £1.8bn £1.8bn ‒ Supply chain partners ▪ Focus on frameworks 91% 7% 10% ‒ >70
Slide 32: Buildings
Buildings Future ▪ Growth forecast to be ahead of market ‒ 20%+ over next two years ‒ National coverage ‒ Strength of our market positions ▪ e.g. Education and Health ‒ New sectors ▪ Aviation, Bioscience, Defence ‒ 90% secured for FY19 Tender activity Pre-tender pipeline for FY18 revenue for FY20+ F
Slide 33: Developments & Housing
Developments & Housing Property Developments FY18 Revenue ▪ Top 3 trader developer Property Housing – New build ▪ 32 schemes traded this year, c.80% outside M25 Housing - Maintenance 33% 30% ▪ Stable capital investment £1.0bn ▪ Capital efficient joint ventures increasing ‒ Client preferred route to
Slide 34: Developments & Housing
Developments & Housing Housing – new build Secured pipeline – new build £m ▪ Vision 2020 target of 15% ROCE achieved two 500 Revenue level 2018 years early 400 ▪ Stable capital investment 300 200 ▪ Average house price c.£240k 100 ▪ Secured pipeline of £2bn over next 5+ years 0 ▪ Help to Buy accounts
Slide 35: Future Proofing Kier programme
Future Proofing Kier programme Kier Group plc – Full Year results for the year ended 30 June 2018 35
Slide 36: Future Proofing Kier programme (FPK)
Future Proofing Kier programme (FPK) Simplify and streamline to accelerate growth People | Processes | Portfolio ▪ Focus on core operations with strong growth prospects ‒ Where we have or can achieve market-leading positions ‒ Where we can achieve superior and stable returns ‒ Exit activities where
Slide 37: Future Proofing Kier programme: Good progress to date
Future Proofing Kier programme Good progress to date Further potential within Kier Drive productivity and efficiencies Actions to date ▪ Significant investment in new ▪ Remove unnecessary ▪ Senior management changes systems over past two years processes and automate completed ▪ Opportunity to fully
Slide 38: Future Proofing Kier programme: Significant profit and cash flow benefit
Future Proofing Kier programme Significant profit and cash flow benefit ▪ FY19 Net benefit in FY20 ‒ Neutral financial impact on profit and cash flow ‒ Savings delivered = costs of implementation ‒ Phasing ▪ Costs likely to exceed savings in H1 ▪ FY20 ‒ Profit and cash flow benefits of at least £20m
Slide 39: Future Proofing Kier programme: Net cash by June 2021
Future Proofing Kier programme Net cash by June 2021 2018 2021 target ▪ Existing £20m-£40m free cash in Assets – cost £500m £500m FY19 and thereafter Assets – value £650m £650m ▪ FPK cash flow benefits ‒ £20m annually in FY20 Average net (debt) £(375)m £(250)m ‒ £30m-£50m from non-core disposals Yea
Slide 40: Robust and diversified business model
Robust and diversified business model Supporting strong market-leading positions Infrastructure Services Buildings Developments & Housing ▪ Significant government and ▪ Key sector growth – ▪ Significant long-term Drivers of regulated sectors Aviation, Bioscience, demand for affordable above market i
Slide 41: Summary and outlook
Summary and outlook ▪ Good 2018 trading performance Strong platform ‒ All divisions contributed well ‒ Excellent safety record ▪ Market leading positions ▪ Well-diversified business model ▪ Sustainable growth ‒ Greater resilience, reduced cyclicality ▪ Improving returns ▪ Record order books and pipe
Slide 42: Appendices
Appendices Kier Group plc – Full Year results for the year ended 30 June 2018 42
Slide 43: Reporting structure
Reporting structure Four divisions realigned to three markets 2018 revenue 2018 revenue Infrastructure Vision 2020 FY18 Actual Services FY18 Actual equivalent Services 5% 41% 4% 4.0%-4.5% margin 38% margin margin Infrastructure Facilities management Buildings 2% 3% 2.5%-3.0% margin Construction 46%
Slide 44: Reporting structure
Reporting structure Four divisions realigned to three markets Operating Operating Order book Pipeline Revenue ROCE profit margin £b £bn £m % £m % Property 1.5 218.0 34.0 27 Residential 2.0 374.3 25.9 15 Construction 5.0 2,052.5 41.9 2.0 Services 5.2 1,848.5 93.0 5.0 Corporate (34.8) Group 10.2 3.5 4
Slide 45: IFRS 15
IFRS 15 ▪ Expected impact of c.£20m to opening reserves driven by: ‒ Move to use of cost as the measure of progress rather than revenue ‒ De-recognition of certain claims and milestones in forecasting project outcomes ▪ Under IFRS 15 the hurdle for recognition of revenue is substantially higher than
Slide 46: Free cash flow
Free cash flow 30 June 2018 30 June 2017 £m £m Underlying operating profit 160.0 145.6 Depreciation & amortisation 33.0 27.4 Underlying EBITDA 193.0 173.0 JV dividends and return of equity, less share of profits 24.9 (5.7) Working capital movement 26.6 (48.7) Capex (67.4) (70.8) Net interest (20.8)
Slide 47: Joint venture financials – capital efficient developments for Kier
Joint venture financials – capital efficient developments for Kier JOINT VENTURE – £50m GDV1 OWNED – £50m GDV1 £30m SPV non-recourse debt £40m Kier equity £10m equity £9m Kier / £1m JV partner £3m finance costs £7m operating profit £10m Kier operating profit £6.3m Kier / £0.7m JV partner Kier cash f
Slide 48: Joint venture impact on interest and tax
Joint venture impact on interest and tax FY18 FY17 £m £m Reported1 JV int & tax Adjusted Reported1 JV int & tax Adjusted EBIT 160.0 8.3 168.3 145.6 7.2 152.8 Interest (23.1) (8.0) (31.1) (19.5) (6.5) (26.0) Profit before tax 136.9 0.3 137.2 126.1 0.7 126.8 Intangibles £44m Residential Tax (23.3) (0.
Slide 49: Joint venture reporting
Joint venture reporting Profit and cash 30 June 2018 30 June 2017 £m £m Share of post tax results of joint ventures 42.7 25.0 Profit Generated Profit on disposal of joint ventures 3.5 5.4 Total 46.2 30.4 Dividends received and return of equity from joint ventures 71.1 23.2 Cash Received Proceeds fro
Slide 50: Investments portfolio (as at 30 June 2018)
Investments portfolio (as at 30 June 2018) Project Status Capital value £m Kier equity/loan stock £m Equity % Local Authority Social Power, Harlow In operation 1.1 1.1 100.0 Glasgow (direct let) In operation 22 3.9 75.0 Student accommodation Newcastle (direct let) In operation 31 9.8 75.0 Southampto
Slide 51: Disciplined risk management
Disciplined risk management Application across contracting businesses INFRASTRUCTURE SERVICES BUILDINGS Two stage and Lower value Cost plus Target cost frameworks works £7-8m average; <£2m average JV to manage JV to manage <12 month duration Long-standing client Schedule of rates resource resource r
Slide 52: Supply chain finance illustrated
Supply chain finance illustrated Draw down Normal Invoice possible Kier pays payment date bank pays bank terms supplier Day 0 21 60 75 90 Supply chain benefit at <2% interest cost Potential working capital effect £30-60m £150 – 170m average utilisation* * Included in trade payables. Kier Group plc –
Slide 53: Financing facilities
Financing facilities 30 June 2018 30 June 2017 Facility type Maturity £m £m RCF 2022 670 400 US Private Placement1 2019-2024 183 183 Schuldschein Loan Notes1 2019-2023 81 81 Bilateral Bank Loans - 50 Overdraft Facilities On demand 53 45 Other Finance 2019 onwards 26 16 Total 1,013 775 1 Stated net o
Slide 54: Kier Highways – Services by Area
Kier Highways – Services by Area Renewal Area Design M&R Schemes DCP Date South West DSC July P (Areas 1&2) 2022 Area 7 DSC P April 2021 Area 3 ASC P P P P 2021 Area 9 ASC P P P P 2022 September Area 6 & 8 ASC P P P P 2019 Area 13 M&R P P April 2027 Kier Group plc – Full Year results for the year en
Slide 55: Safety, Health and Environment
Safety, Health and Environment ▪ Kier Group AIR 96 (2017: 130) ▪ Vision 2020 Targets ‒ Accident incidence rate of zero ‒ Best in sector safety performance ‒ Workforce health and wellbeing improved ‒ Minimise the impact of our activities on the environment ‒ All employees take ownership of safety, he
Slide 56: Kier Group plc – Full Year results for the year ended 30 June 2018
Kier Group plc – Full Year results for the year ended 30 June 2018 56