Kier Group Plc · LSE:KIE

Kier — FY2017 Earnings Presentation

63 slides from Kier's earnings presentation, Sep 21, 2017

1. Slide 1: Results for the year ended 30 June 2017

   Kier Group Results for the year ended 30 June 2017 21 September 2017 Kier Group plc – Full Year results for the year ended 30 June 2017 1

2. 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

3. Slide 3: Haydn Mursell, Chief Executive

   Haydn Mursell Chief Executive Kier Group plc – Full Year results for the year ended 30 June 2017 3

4. Slide 4: Agenda

   Agenda  Overview  Financials  Divisional update  Summary and outlook Kier Group plc – Full Year results for the year ended 30 June 2017 4

5. Slide 5: Good underlying performance

   Good underlying performance  Strong contributions from all divisions - Property 23% ROCE - Residential 11% ROCE - Construction 2.0% margin - Services 5.2% margin  Two-year portfolio simplification substantially complete  Well managed net debt position - 113% operating cash conversion - Net debt £

6. Slide 6: Stronger, simplified and focused

   Stronger, simplified and focused  Two-year portfolio simplification substantially completed - Geographical exits - Non-core disposals  No further charges in FY18  Group focused on 3 core verticals - Robust long-term fundamentals - Significant cross-sell opportunities Property & Investment  Repre

7. Slide 7: Positive macro environment

   Positive macro environment UK priorities  Regeneration of regional cities  Upgrading and investing in infrastructure  Provision of more affordable housing and its maintenance Our position  Regional builder with national coverage  Capex and maintenance infrastructure capabilities  End-to-end ho

8. Slide 8: Positive macro environment

   Positive macro environment Building Infrastructure Housing Property and Property and Mixed Tenure and Investment Investment Kier Living Invest Regional Building Infrastructure Kier Living Build Workplace Services Highways, Utilities Housing Maintenance Maintain >£1bn revenue from clients working wit

9. Slide 9: Vision 2020 targets remain on track

   Vision 2020 targets remain on track  Profit on track for £200m target - Increased returns from Property and Residential  Dividend per share moving towards 2x covered  Net debt Net debt 2017 2020 - Strict disciplines  Year end <1x EBITDA Year end <1x EBITDA <1x EBITDA  Average net debt increasin

10. Slide 10: Well positioned for future growth

    Well positioned for future growth  Leading market positions in robust and growing sectors - >90% of Group revenue and profit  Portfolio of businesses provides flexibility and resilience  Strong platform for future growth - Simplified and focused Group - Well managed balance sheet - Improved order

11. Slide 11: Financial update

    Financial update Bev Dew, Finance Director Kier Group plc – Full Year results for the year ended 30 June 2017 11

12. Slide 12: Financial highlights

    Financial highlights  Good performance in line with management expectations  Operating profit1 of £146m up 3%  Earnings per share1 of 106.8p up 7%  Well controlled and sustainable net debt position  Order book2 of c.£9.5bn with potential extensions of £2.5bn  Full year dividend of 67.5p up 5%

13. Slide 13: Revenue and underlying operating profit

    Revenue and underlying operating profit Revenue1 Underlying operating profit2 Property Residential Construction Services 4% 9% 15% 40% 13% £4,265m 49% £175m +5% +5% 47% 23% 1 Group and share of joint ventures from continuing operations. 2 Arising on continuing operations, stated before non-underlyin

14. Slide 14: Income statement

    Income statement Strong EPS and dividend growth Year ended 30 June Change 2 2017 2016 % Underlying operating profit 1 £m £m Group 145.0 149.9 -3 Joint ventures (JVs) results post tax 175 25.0 14.2 +76 Profit on disposal of joint ventures 5.4 2.6 +108 Corporate costs (29.8) (25.6) +16 Total operating

15. Slide 15: Underlying business operating profit

    Underlying business operating profit Year ended 30 June Change 2 2017 2016 % Performance by division £m £m Property 25.8 21.4 +21 Residential 22.8 20.3 +12 Construction 39.8 38.9 +2 Services 87.0 86.1 +1 Corporate (29.8) (25.6) +16 1 Total operating profit 145.6 141.1 +3 Net finance costs1 (19.5) (2

16. Slide 16: Property performance

    Property performance Year ended 30 June 2017 20161 Change £m £m % Revenue2 182 169 +8 Underlying operating profit3 25.8 21.4 +21 Average capital4 113 94 +20 Return on average capital (ROCE) 23% 23% - Underlying operating profit Return on average capital (ROCE) £m H1 H2 30.0% 26% 27% 30.0 25.0% 23% 2

17. Slide 17: Residential performance

    Residential performance Year ended 30 June 2017 2016 Change £m £m % Revenue1 376 353 +6 Underlying operating profit2 22.8 20.3 +12 Average capital3 Mixed tenure 39 39 - Private including Cross Keys JV (Kier owned land) 160 192 -17 Total average capital 199 231 -14 Return on average capital (ROCE) 11

18. Slide 18: Construction performance

    Construction performance Year ended 30 June 2017 20163 Change £m £m % Revenue1 2,019 1,901 +6 Underlying operating profit2 39.8 38.9 +2 Underlying operating margin2 2.0% 2.0% - Order book (secure and probable) £4.2bn £3.2bn +31 Revenue Underlying operating profit and margins £m H1 H2 £m 50 2.5% 2,50

19. Slide 19: Services performance

    Services performance Year ended 30 June 2017 2016 Change £m £m % Revenue1 1,688 1,656 +2 Underlying operating profit2 87.0 86.1 +1 Underlying operating margin2 5.2% 5.2% - Order book (secure and probable) £4.7bn £5.3bn -11 Revenue Underlying operating profit and margins £m H1 H2 £m 1,800 100 5.5% 1,

20. Slide 20: Portfolio simplification

    Portfolio simplification  The two-year portfolio simplification programme is substantially complete  A net non-underlying charge of £75m was incurred in FY17  Net cash generated of £67m in FY17  FY18 cash outflow of up to £15m forecast, in guidance Kier Group plc – Full Year results for the year

21. Slide 21: Construction and Services order book

    - Construction and Services order book Year ended 30 June 2017 20161 Change £bn £bn % Construction 4.2 3.2 +31 Services 4.7 5.3 -11 Total 8.9 8.5 +5 £bn 12.0 10.0 3.0 (2.0) 1.1 0.6 (1.7) 8.0 6.0 8.9 9.5 4.0 8.5 2.0 0.0 - Opening Construction Construction Services Services awards Services revenue Clo

22. Slide 22: Balance sheet summary

    Balance sheet summary Year ended 30 June Change 2017 2016 £m £m £m Intangible assets 803 795 +8 Property, plant and equipment 90 99 -9 Investment in JVs 184 130 +54 Development land and work in progress 260 315 -55 Net assets held for resale - 4 -4 Other working capital (551) (475) -76 1 Net debt (1

23. Slide 23: Group net debt

    Group net debt Strong operating cash conversion1 of 113% £m 100 164 4 50 67 0 (72) (50) (48) (100) (76) (99) (50) (110) (150) (200) June 2016 Operating Working Capex and Net Exceptionals Pension, Dividend June 2017 net debt 2 cash flows capital finance investment interest tax interest, tax net debt

24. Slide 24: Stable working capital

    Stable working capital Working capital flows FY15 FY16 FY17 £m 70 Previous working Debtor days 18 16 16 60 capital gains have been maintained 50 WIP days 55 50 44 40 30 20 Creditor days (33) (32) (38) 10 - Accrual days (19) (26) (19) FY15 FY16 FY17  Working capital improvement over the last three y

25. Slide 25: Contracting cash balance

    Contracting cash balance Net cash Construction & Services £m 450 400 FY 17 350 300 FY 16 250 200 150 100 50 - Jun Oct Dec Mar Jun  Average net cash in Construction and Services increased by £60m to £200m Kier Group plc – Full Year results for the year ended 30 June 2017 25

26. Slide 26: Well managed Group net debt

    Well managed Group net debt Discipline 2017 2016 Net debt : EBITDA1 <1x 0.7 0.7 Peak Group net debt: Property & Residential division asset cost <1x 0.9 0.8  Cash is a key metric  Vision 2020 target of net debt: EBITDA1 <1x maintained at June 2017  Net debt growth in line with EBITDA1 growth, main

27. Slide 27: Asset backed Group net debt

    Asset backed Group net debt Net Debt (£m) Asset value (£m) - - Jun Oct Dec Mar Jun (100) Net debt FY16 100 Net debt FY17 (200) 200 (300) 300 (400) 400 Assets FY16 (500) Assets FY17 500 (600) 600  The quantum and timing of investments and disposals in Property and Residential increased average net d

28. Slide 28: Net debt summary

    Net debt summary  The Group continues to have strong operational cash conversion  We have and will continue to invest in Property and Residential assets  Working capital is stable  The Construction and Services contracting divisions are generating cash in excess of profit  Average net debt will

29. Slide 29: Pensions

    Pensions Strong performance with asset gain of £72m At 30 June At 30 June Change 2017 2016 £m £m £m Group Pension Schemes: Market value of assets 1,560 1,488 +72 Present value of liabilities (1,638) (1,570) -68 Deficit in the scheme (78) (82) +4 Deferred tax 13 15 -2 Net pension liability on Kier Gr

30. Slide 30: Financial summary

    Financial summary  Good performance in line with management expectations  Earnings per share1 to 106.8p up 7%  Well controlled and sustainable net debt position  Investing for growth in Property and Residential divisions  Order book2 of c.£9.5bn with potential extensions of £2.5bn  Full year d

31. Slide 31: Operational update

    Operational update Haydn Mursell, Chief Executive Kier Group plc – Full Year results for the year ended 30 June 2017 31

32. Slide 32: Improving trading environment

    Improving trading environment  Property ‒ £1.4bn pipeline ‒ All development schemes for 2018 identified  Residential ‒ £400m mixed tenure pipeline ‒ 68% of target revenue secured for 2018, ahead of prior year  Construction ‒ Margins improving above 2% ‒ Stable working capital ‒ >90% of target rev

33. Slide 33: Disciplined Group risk management

    Disciplined Group risk management  Careful selection on ‘where to’ operate Average project size £5m-£10m  Pre-contract / Pre-investment review  Group commercial standards ‒ Risk and value based >65% frameworks  Monthly committee for all capital investment appraisals  Post contract and reporting

34. Slide 34: What differentiates Kier

    What differentiates Kier  Capabilities to Invest, Build and Maintain all asset classes ‒ >£1bn revenue from clients working with two or more parts of the Group ‒ Integrated and complementary fit between businesses Building Infrastructure Housing Property and Property and Mixed Tenure and Investment

35. Slide 35: Property

    Property Student Accommodation, Princes Gate Retail Park, Catterick Motel One, Newcastle Glasgow Kier Group plc – Full Year results for the year ended 30 June 2017 35

36. Slide 36: Property

    Property  Good FY17 performance Vision 2020 Target ‒ Improving ROCE on larger capital base ‒ Non-speculative approach maintained Top 3 trader developer ‒ Post Brexit opportunity taken in the UK  Increased pipeline £1.4bn GDV ‒ 10 year visibility £200m average capital ‒ National coverage; 80% outsi

37. Slide 37: Residential

    Residential Elsea Park, Bourne Pennance Field, Falmouth Canalside View, Aylesbury Balaam Wood, Birmingham Kier Group plc – Full Year results for the year ended 30 June 2017 37

38. Slide 38: Residential

    Residential Mixed Tenure  National coverage  Increased interest in funding solutions and joint ventures Land rich, cash constrained. Land transferred to geared JV. Develop and ‒ New Communities Partnership (NCP) and share returns Northern Ventures (NV)  Secured place on all 5 regional panels of t

39. Slide 39: Residential outlook

    Residential outlook  Shortage of housing in the UK ‒ Affordable and private  Well positioned ‒ Modest value range ‒ National coverage, outside London ‒ Provision of new build and maintenance  On track with Vision 2020 targets ‒ >15% ROCE on £200m capital base following Cross Keys joint venture V2

40. Slide 40: Construction

    Construction Hinkley Point C Royal Stoke University Hospital, Mersey Gateway David Ross Sports Village North Midlands NHS Trust Kier Group plc – Full Year results for the year ended 30 June 2017 40

41. Slide 41: Construction: UK Building

    Construction UK Building Revenue Future trend  Market leader with national coverage Sector June June Short Medium 2017 2016 term term  Framework focus  50/50 private/public sector Education 39% 31%  Strong organic growth Commercial,  Consistent, good margin residential and 20% 21% mixed use  C

42. Slide 42: Construction: UK Infrastructure and International

    Construction UK Infrastructure Revenue Future trend  Significant medium term pipeline June June Short Medium Sector ‒ Considerable transport activity 2017 2016 term term  Selective bidding with a focus on Transportation 9% 11% lower risk work  HS2 award £1.5bn in JV Power, industrial, 10% 8% ‒ C2

43. Slide 43: Construction outlook

    Construction outlook  Secured >£3bn of work, a record level Strong  Order book at £4.2bn financials  >90% target revenue secured for 2018 on increasing revenues  Solid platform for growth Well ‒ short-term Building; medium-term Infrastructure positioned  Middle East market provides some diversi

44. Slide 44: Services

    Services Housing Maintenance Workplace Services Highways Utilities Kier Group plc – Full Year results for the year ended 30 June 2017 44

45. Slide 45: Infrastructure Services

    Infrastructure Services Highways Revenue Future trend  Performing well Sector June June Short Medium 2017 2016 term term  Areas 1,2, 6, 8 & 13 awarded (£230m) ‒ Design and maintenance Highways 46% 45%  Leading Highways provider  Selective bidding approach for local Utilities 16% 15% authority co

46. Slide 46: Property Services

    Property Services Housing Maintenance Revenue Future trend  Top 3 UK player June June Short Medium  Client budget pressures present Sector 2017 2016 term term challenges and opportunities ‒ Large scale outsourcing potential due Housing maintenance - 11% 12% to mergers public ‒ More involved mainte

47. Slide 47: Services outlook

    Services outlook  Secured >£1bn of new work Strong  Order book £4.7bn, potential extensions of £2.5bn financials  >90% target revenue secured for 2018  Leading UK Highways maintenance  Top 3 player in UK Housing Maintenance  Provision of essential every-day services Well  Ability to provide c

48. Slide 48: Group Summary and Outlook

    Group Summary and Outlook Kier Group plc – Full Year results for the year ended 30 June 2017 48

49. Slide 49: Summary and outlook

    Summary and outlook Strong platform for future growth  Good underlying performance ‒ Profit in-line; net debt ahead of expectations  An improving trading and macro environment ‒ Well positioned in robust end markets ‒ Increased order book and visibility  Stronger, simplified and focused ‒ Portfol

50. Slide 50: Questions & Answers

    Questions & Answers Kier Group plc – Full Year results for the year ended 30 June 2017 50

51. Slide 51: Appendices

    Appendices Kier Group plc – Full Year results for the year ended 30 June 2017 51

52. Slide 52: Safety, Health and Environment

    Safety, Health and Environment 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, health and environmental issues Curr

53. Slide 53: Joint venture impact on interest and tax

    Joint venture impact on interest and tax FY17 FY162 £m £m Reported1 JV int & tax Adjusted Reported1 JV int & tax Adjusted EBIT 145.6 7.2 152.8 141.1 2.4 143.5 Interest (19.5) (6.5) (26.0) (24.7) (2.2) (26.9) Profit before tax 126.1 0.7 126.8 116.4 0.2 116.6 Intangibles £44m Residential Tax (21.9) (0

54. Slide 54: Residential performance

    Residential performance Year ended 30 June 2017 2016 Change £m £m % Revenue1 Mixed tenure 202 187 +8 Private (Kier owned land) 174 166 +5 Total 376 353 +6 Underlying operating profit2 Mixed tenure 6.7 6.0 +12 Private (Kier owned land) 16.1 14.3 +13 Total 22.8 20.3 +12 Average capital3 Mixed tenure (

55. Slide 55: Portfolio simplification

    Portfolio simplification P & L £m Cash £m 3 year 3 year FY16 FY17 FY18 FY16 FY17 FY18 total total £ Closure of businesses Caribbean (23) (60) (83) (18) (43) (17) (78) Hong Kong (26) (26) (11) 14 3 Sale of non-core operations Mouchel Consulting 40 40 59 59 Biogen (5) (8) (13) 10 10 Other Cross Keys (

56. Slide 56: Free cash flow

    Free cash flow FY17 FY16 £m £m Underlying operating profit 145.6 141.1 Depreciation & amortisation 27.4 27.1 Underlying EBITDA 173.0 168.2 Working capital movement 3.6 55.0 Capex (59.8) (34.9) Net interest (17.3) (18.7) Tax (3.8) (1.8) Pension (28.6) (23.9) Exceptionals 66.6 (83.0) All other movemen

57. Slide 57: Financing Facilities

    Financing Facilities Current 30 June 2017 30 June 2016 Facility type £m £m £m RCF 670 400 380 US Private Placement1 183 183 183 Schuldschein Loan Notes1 81 81 81 Bilateral Bank Loans - 50 30 Overdraft Facilities 53 45 45 Other Finance 16 16 28 Total 1,003 775 747 1 Stated net of effect of derivative

58. Slide 58: Property: PFI / PPP and Investments portfolio

    Property: PFI / PPP and Investments portfolio (as at 30 June 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 accommod

59. Slide 59: HS2 – Civil Packages

    HS2 – Civil Packages  CEK JV (Carillion, Eiffage, Kier) Birmingham Delta Junction + 4 Rail Interfaces & Coleshill to + 77 Bridges  WCML Tie in + 42 Viaducts Secured two lots: C2 and C3 Washwood Heath Depot  2 stage ECI process Burton Green Brackley to South Portal Long + Major Earthworks (9m cubi

60. Slide 60: HS2 future opportunities

    HS2 future opportunities HS2 presents £35bn of future market opportunities Contract Total Detail Civils Rail Power M&E Description Opportunity Stations Construction  Old Oak Common Station  Euston Station Approx. £2.4bn Award expected   PHASE 1  Birmingham in 2018-2020 Stations Interchange Stat

61. Slide 61: Kier Highways - Services by Area

    Kier Highways - Services by Area Renewal Area Design M&R Schemes DCP Date South West July DSC (Areas P 2022 1&2) Area 7 DSC P April 2021 Nov Area 3 ASC1 P P P P 2018 July Area 9 ASC1 P P P P 2019 Area 6 & 8 P P P P April 2019 ASC Area 13 M&R1 P P April 2027 1 Counts towards 5 area maximum. NB: Area

62. Slide 62: Services order book (inc. possible extensions)

    Services order book (inc. possible extensions)1 £bn 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 - FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY28 FY29 Future Secured & probable order book roll out Possible extensions 1 Including McNicholas. Kier Group plc – Full Year results for the year ended 30

63. Slide 63: Kier Group plc – Full Year results for the year ended 30 June 2017

    Kier Group plc – Full Year results for the year ended 30 June 2017 63

Kier Group — FY2017 Earnings Presentation on 6ix