Kier Group Plc · LSE:KIE
Kier — H1 FY2018 Earnings Presentation
46 slides from Kier's earnings presentation, Mar 15, 2018
Slide 1: Kier Group Interim results for the six months ended 31 December 2017
Kier Group Interim results for the six months ended 31 December 2017 15 March 2018 Kier Group plc – Interim results for the six months ended 31 December 2017 1
Slide 2: Disclaimer
Disclaimer No representation or warranty, expressed 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
Slide 3: Haydn Mursell, Chief Executive
Haydn Mursell Chief Executive Kier Group plc – Interim results for the six months ended 31 December 2017 3
Slide 4: Agenda
Agenda ▪ Overview ▪ Highlights ▪ Vision 2020 progress ▪ Financial and operational overview ▪ A market and client-led strategy ▪ Summary and outlook Kier Group plc – Interim results for the six months ended 31 December 2017 4
Slide 5: Highlights
Highlights ▪ Good first half performance ▪ Two-year portfolio simplification concluded ▪ Investment levels in Property and Residential sufficient to deliver Vision 2020 targets ▪ Robust order books and pipelines ▪ Increased future visibility ▪ Interim dividend of 23.0p per share ▪ On course to deliv
Slide 6: On track with Vision 2020 targets
On track with Vision 2020 targets Key metrics 2020 target December 2017 Annual average operating profit growth >10% On target Property – ROCE >15% Ahead Residential – ROCE to 15% Improving and on track Construction – EBITA to 2.5% On track Services – EBITA to 5.0% On track Net debt: EBITDA 1:1 Achie
Slide 7: Corporate responsibility
Corporate responsibility Accident incidence rate (AIR) – December 2017 450 HSE Benchmark 400 350 300 250 200 150 100 97 50 0 Jun 14 Dec 14 Jun 15 Dec 15 Jun 16 Dec 16 Jun 17 Dec 17 Safety Environment ▪ Industry-leading AIR <100 ▪ 30x30 energy strategy launched and in progress ▪ Workforce health and
Slide 8: Market-leading positions
Market-leading positions Strong long-term fundamentals Infrastructure Services Buildings Developments & Housing c.£2bn c.£2bn c.£1bn Revenue Revenue Revenue Invest, build and maintain all asset classes Repeat clients and clients working with 2+ businesses > 50% of revenue Kier Group plc – Interim re
Slide 9: Bev Dew: Financial and operational review
Bev Dew Financial and operational review Kier Group plc – Interim results for the six months ended 31 December 2017 9
Slide 10: Financial highlights
Financial highlights ▪ Good performance in line with management expectations ▪ Operating profit1 of £60.0m up 5% ▪ Earnings per share1 of 41.0p up 3% ▪ Net debt of £239m in line with expectations ▪ Order book of c.£9.5bn with potential extensions of c.£2.5bn ▪ Interim dividend of 23p up 2% 1 Arising
Slide 11: Operating profit
1 Operating profit Progression towards Services Property Residential Construction Services 10% 11% 15% 21% 25% 9% 11% 41% 11% 1% 47% 50% £51m £57m 1% 56% £70m £74m 54% £82m 25% 31% 28% 33% 20% HY14 HY15 HY16 HY17 HY18 1 Arising on continuing operations, stated before non-underlying items, excluding
Slide 12: Income statement
Income statement EPS and dividend growth 3 Six months to 31 Dec 2017 Six months to 31 Dec 2016 Change £m £m % Revenue1 2,154 2,001 +8 Operating profit 2 Property 12.2 7.7 +58 Residential 8.7 8.1 +7 Construction 16.7 20.8 -20 Services 44.4 37.2 +19 Corporate (22.0) (16.5) +33 Underlying operating pro
Slide 13: Property performance
Property performance Stable capital generating continued long-term strong returns Financials ROCE & average capital employed £m ROCE Revenue1 120 29% 100 27% 25% £138m +200% 80 23% 60 Operating profit1 40 21% 19% 20 17% 0 15% £12.2m +58% 2014 2015 2016 2017 HY18 Operational highlights Equity investe
Slide 14: Residential performance
Residential performance Stable capital with ROCE increasing Financials Average capital employed £m Revenue1 300 250 £166m -2% 200 Total Operating profit1 150 Private 100 50 Mixed tenure £8.7m +7% 0 2014 2015 2016 2017 2018 Operational highlights ROCE ▪ 3 year land bank, equity invested c.£300m: 12%
Slide 15: Construction performance
Construction performance Robust order book Financials Underlying operating profit and margins £m H1 FY Revenue1 50 40 2.0% 2.0% £949m -7% 30 2.2% 2.0% Operating profit1 20 2.1% 2.2% 2.0% 1.9% 1.8% 10 £16.7m -20% 0 2014 2015 2016 2017 2018 Operational highlights Contract size distribution Number ▪ Or
Slide 16: Services performance
Services performance Increasing revenue with stable high quality margins Financials Underlying operating profit and margins £m Revenue1 100 H1 FY 80 5.2% 5.2% 4.8% £901m +17% 4.6% 60 Operating profit2 40 4.3% 4.2% 4.7% 4.8% 4.9% 20 £44.4m +19% 0 2014 2015 2016 2017 2018 Operational highlights Sector
Slide 17: Construction and Services order book
- Construction and Services order book At 31 Dec 2017 At 30 June 2017 Change At 31 Dec 2016 £bn £bn % £bn Construction 4.7 4.2 +12 3.3 Services 4.8 4.7 +2 5.6 Total 9.5 8.9 +7 8.9 £bn 11 1.1 ( 0.9 ) 0.7 ( 0.9 ) 10 0.6 9 8 7 9.5 8.9 6 5 4 June 2017 Acquisition of McNicholas Construction awards Constr
Slide 18: Group net debt
Group net debt Strong operating cash conversion1 of 125% £m (0)- (50) (100) (58) (110) 84 (24) (150) (38) (3) (22) (200) (24) (250) (44) (239) June 2017 net Operating cash Working capital McNicholas Capex Discretionary Non-underlying Pension, interest, Dividends December 2017 debt 2 flows movement a
Slide 19: Contracting – working capital flows
Contracting – working capital flows Improving working capital Working capital flows WIP Debtors Accruals Creditors WC as a % revenue Working capital days Working capital as % of revenue 100 12% 10% 80 8% 60 6% 40 4% 20 2% 0 0% -2% -20 -4% -40 -6% -60 -8% -80 -10% FY14 HY15 FY15 HY16 FY16 HY17 FY17 H
Slide 20: Contracting cash balance
Contracting cash balance Improving net cash Construction Services £m £m 300 200 FY17 250 150 FY18 200 100 FY17 FY18 150 50 100 - 50 -50 - -100 June Oct Dec March June June Oct Dec March June ▪ Average net cash in Construction and Services has increased. Kier Group plc – Interim results for the six m
Slide 21: Capital structure summary
Capital structure summary ▪ The Group continues to have strong operational cash conversion ▪ H1 average net debt £350m ▪ Cash conversion >100% for 5 years ▪ Assets (at cost) £500m ▪ Investment in Property and Residential sufficient to ▪ On track: net debt <1x EBITDA achieve Vision 2020 targets ▪ Cap
Slide 22: Pensions
Pensions Strong performance with asset gain of £90m ▪ Pension deficit reduced to £19m driven by asset gain ▪ Triennial valuation concluded ▪ Annual deficit reduction payments reduced to £21m until 2020 At 31 Dec 2017 At 30 June 2017 Change At 31 Dec 2016 £m £m £m £m Group Pension Schemes: Market val
Slide 23: Guidance
Guidance FY18 FY19-20 Operating profit Property ROCE > 15% ROCE >15% Residential ROCE improving 15% Construction Margin c. 2% 2.5% Services Margin c. 5% 5% Central costs £35-40m incl. McNicholas integration costs and parallel running costs Reducing to 2020 Finance costs Growing in line with average
Slide 24: Financial summary
Financial summary ▪ Good performance in line with management expectations ▪ Earnings per share1 of 41.0p up 3% ▪ Net debt position in line with expectations ▪ Stable investment in Property and Residential divisions ▪ Order book of c.£9.5bn with potential extensions of c.£2.5bn ▪ Pension deficit redu
Slide 25: A market and client-led strategy
A market and client-led strategy Haydn Mursell, Chief Executive Kier Group plc – Interim results for the six months ended 31 December 2017 25
Slide 26: Strategy focused on market-leading positions
Strategy focused on market-leading positions Infrastructure Services Buildings Developments & Housing c.£2bn c.£2bn c.£1bn Revenue Revenue Revenue Major projects Private commercial & other Housing - Maintenance Property Development General Civils & other Build Utilities & Power Gen Housing - New Bui
Slide 27: Infrastructure Services
Infrastructure Services Markets Position1 Approach and performance ▪ Highways 1 Kier £1.7bn ▪ Long-term order book ▪ Rail ▪ Beyond 2020 2 Costain £1.6bn ▪ Energy (Power generation & distribution) ▪ Lower risk contracts ▪ Water 3 Balfour Beatty £1.5bn ▪ Maintenance focus ▪ Telecoms 4 Amey £1.2bn ▪ Es
Slide 28: Infrastructure Services
Infrastructure Services Markets Highways ▪ Market size: £26bn ▪ Market leader in the UK ▪ Kier 7% share ▪ Repairs and maintenance stable ▪ Maintenance ▪ Areas 3 and 9 extensions in negotiation ▪ Stable ▪ Capital works increasing ▪ Capital works ▪ Smart Motorways - 100% share of schemes ▪ 8% pa growt
Slide 29: Infrastructure Services
Infrastructure Services Utilities Others ▪ Top 3 player in the UK ▪ Energy ▪ Build and maintain utility networks ▪ Hinkley ▪ McNicholas performing well ▪ Rail ▪ Strengthened positions in Telco and Energy ▪ HS2, Crossrail ▪ Strong near-term pipeline ▪ CP6 c.£36bn (CP5 £30bn) on renewals, total market
Slide 30: Buildings
Buildings Markets Approach and performance ▪ Building ▪ 70% framework awards ▪ Education ▪ Long-standing and repeat clients ▪ Health ▪ Similar across Building and FM ▪ Commercial ▪ National coverage ▪ Facilities Management (FM) ▪ Modest value contracts ▪ c.30% from Building clients ▪ Average project
Slide 31: Buildings
Buildings Markets Position1 Building ▪ Value of market £62bn 1 Kier £1.9bn ▪ Focus on frameworks ▪ Kier 3% share ▪ Leading Education and Health provider 2 Balfour Beatty £1.5bn ▪ Disciplined approach ▪ ESFA framework & P22 framework ▪ Contract selection 3 Galliford Try £1.0bn ▪ Fewer than 5 projects
Slide 32: Developments & Housing
Developments & Housing Markets Property developments ▪ Property developments ▪ Housing ▪ Top 3 trader developer ▪ Mixed-use ▪ New build ▪ Quick turnover of schemes ▪ Offices ▪ Maintenance ▪ Student accommodation ▪ Capital efficient joint ventures ▪ Retail and leisure ▪ Non-speculative approach ▪ Ind
Slide 33: Developments & Housing
Developments & Housing Housing – new build Housing Data1 ▪ Achieved Vision 2020 capital levels Government target Nov 17 ▪ On track for 15% ROCE by 2020 300,000 ▪ Severe affordable housing shortage in UK 250,000 200,000 ▪ Average private house price c.£240k 150,000 ▪ Help to Buy accounts for 50% of s
Slide 34: Robust business model
Robust business model Infrastructure Developments & Buildings Services Housing c£2bn c£2bn c£1bn Revenue Revenue Revenue Major ▪ Three market verticals projects Private commercial & other Housing - Maintenance Property Development General Civils & other Build Housing - New Build Central Government E
Slide 35: Future growth
Future growth Growth opportunity How ▪ Leading market positions Infrastructure Services ✓ ▪ UK under investment – fibre rollout, CP6, HS2+, Smart Motorways ▪ Capital works 8% pa growth; maintenance contracts extended to 2022 ▪ Leading market positions Buildings ✓ ▪ Growing population – schools, heal
Slide 36: Contracting risk management approach
Approach Contracting risk management approach <£10m >70% Average Frameworks Lower risk contract models project size ▪ Careful selection on ‘where to’ operate ▪ Committee for capital investment appraisals ▪ Sectors ▪ Post contract and reporting processes ▪ Geographies ▪ Contract types / Procurement r
Slide 37: Approach: Infrastructure Services and Buildings
Approach Infrastructure Services and Buildings INFRASTRUCTURE SERVICES BUILDINGS Two stage Cost bidding and Lower value reimbursable/ Target cost frameworks works plus <£7-8m average; <£2m average JV to manage <12 month duration Schedule of rates JV to manage resource Long-standing client resource r
Slide 38: Summary and outlook
Summary and outlook On course for Vision 2020 targets ▪ Good first half performance ▪ Leading market positions in long-term growth markets focused on UK priorities ▪ Proven track record of financial and operational delivery ▪ Disciplined bid and risk management ▪ Strengthening order books/pipelines
Slide 39: Appendices
Appendices Kier Group plc – Interim results for the six months ended 31 December 2017 39
Slide 40: Supply chain finance illustrated
Supply chain finance illustrated Draw down Normal Kier Invoice possible payment pays date bank pays terms bank supplier Day 0 21 60 75 90 Supply chain benefit at <2% interest cost Potential working capital effect £150 – 170m average utilisation* * Included in trade payables Kier Group plc – Interim
Slide 41: Investments portfolio (as at December 2017)
Investments portfolio (as at 31 December 2017) Project Status Capital value £m Kier equity/loan stock £m Equity % Woking housing In operation 31 2.0 50.0 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 (dir
Slide 42: Free cashflow
Free cashflow 6 months to 31 Dec 2017 6 months to 31 Dec 2016 £m £m Underlying operating profit 60.0 57.3 Depreciation & amortisation 14.5 13.3 Underlying EBITDA 74.5 70.6 JV dividends less share of profits 29.2 (5.0) Working capital movement (56.3) (15.4) Capex (37.8) (30.4) Net interest (10.2) (9.
Slide 43: Kier Strategic Highways - current contracts
Kier Strategic Highways - current contracts Local authority planned and reactive maintenance contracts Area Duration ▪ Surrey Area 3 2018 – in negotiation for 3 year extension ▪ Suffolk Area 6 2019 ▪ Lincolnshire Area 7 (design services) 2021 ▪ Northamptonshire Area 8 2019 ▪ Torbay Area 9 2019 – in
Slide 44: Our risk management gateway process
Our risk management gateway process Controls and intervention points EXTERNAL PRE-QUAL MARKET TENDER STAGE 1 STAGE 2 Emphasis on lower risk Screened and risk based contracts Mandatory focus Continual focus on project bidding process ▪ Two stage tenders on cash flow “End Life” performance ▪ Framework
Slide 45: Strong UK regional presence
Strong UK regional presence Kier Group plc – Interim results for the six months ended 31 December 2017 45
Slide 46: Kier Group plc – Interim results for the six months ended 31 December 2017
Kier Group plc – Interim results for the six months ended 31 December 2017 46