Chairman’s statement

I am pleased to report impressive results for Kier Group plc for the year ended 30 June 2011. Underlying profit before tax, before the amortisation of intangible assets and exceptional items, improved 24% to £68.9m (2010: £55.5m excluding Homes land transaction) and earnings per share on the same basis increased 26% to 148.4p (2010: 117.7p), enhanced by a 2% reduction in the effective tax rate.

Overall, revenue increased to £2,179m (2010: £2,099m) displaying underlying growth in all four divisions of the Group and the strength of our business.

Particularly pleasing were the operating margins, which increased in our Construction division to 2.7% (2010: 2.6%) and remained strong in our Services division at 4.5% (2010: 4.5%). The Homes and Property divisions also saw an increase in underlying operating margin.

There were exceptional items that totalled a net credit before tax of £7.0m (2010: charge of £2.0m). These comprised inflation changes to the Kier Group Pension Scheme, a reduction in the fine levied by the Office of Fair Trading, a write-down in the value of land and work in progress following recent land sales and a further review, and external costs relating to two acquisitions in the year.

The Group’s cash performance has remained exceptionally strong, particularly within our Construction and Services divisions, with average Group month-end net cash of £129m (2010: £95m). In our Property division, following the £35m first-stage payment for the property portfolio from Lloyds, we were pleased to see the early sale of two assets recoup much of that outlay and support a Group net cash position at 30 June of £165m (2010: £175m).

Taking into account the performance of the Group and its cash position, and continuing the Group’s progressive dividend policy, the Board proposes to increase the total dividend for the year by 10% to 64p (2010: 58p), which is more than twice covered by adjusted earnings per share and reflects the Board’s confidence in the business going forward. The final dividend of 44p will be paid on 30 November 2011 to shareholders on the register on 23 September 2011 and there will be a scrip dividend alternative.

Board changes

As we announced at the time of our interim results in February, Dick Simkin, the executive director for the Property division, retired at the end of the 2011 financial year and Ian Lawson, executive director for the Services and Homes divisions, has taken over the role from 1 July 2011. We would like to thank Dick for his excellent contribution to the Group and we wish him well in his retirement.

In September 2010, we announced that Simon Leathes, non-executive director and chairman of the Audit Committee, would also be stepping down from the Board at the Company’s 2010 annual general meeting after nearly ten years. Richard Bailey, who joined the Board on 1 October 2010, has succeeded him.

Recently there has been debate generally about board diversity and, in particular, the representation of women in the boardrooms of FTSE companies. The Board acknowledges the recommendations from Lord Davies of Abersoch’s report entitled ‘Women on Boards’, which highlights the value of effective diversity policies. As a Board, we are considering how best to implement the key recommendations of this report, whilst recognising the importance of maintaining an appropriate balance of independence, skills and experience. In addition, the Group’s corporate responsibility committee, which is chaired by the chief executive and reports regularly to the Board, is currently reviewing the Group’s diversity, equality and inclusion policies.

Outlook

Over the last few years, we have positioned ourselves to capitalise on what we perceive as the growth markets. Whilst market conditions in 2012 will remain challenging, our order books in the Construction and Services divisions were at a healthy level of £4.3bn. The Construction order book (secured and probable) stood at £2.3bn (June 2010: £2.1bn) and represented 95% of the division’s targeted revenue for 2012 and 46% of its targeted revenue for 2013, which was slightly ahead of normal, and we expect our operating margins to remain firmly above 2%. Our order book in Services stood at £2.0bn (2010: £2.1bn), giving good forward visibility of workload which, coupled with a strong pipeline of further opportunities, will translate into revenue growth for the division in the year to June 2013. Moreover, we expect our operating margins to be maintained at a resilient 4.5%.

The Property division remains a key generator of integrated opportunities for the Group. With increased scale, particularly following the acquisition of the property portfolio from Lloyds, the division is actively working on a variety of development schemes. When coupled with the recent disposals of three of our Private Finance Initiative (PFI) investments, in line with our strategy of selectively disposing of our mature PFI investments, it now means that the Property division is, and will continue to be, one of the key contributors to the Group’s performance.

Our refocused Homes division is continuing to pursue the growing opportunities in the mixed tenure market and we remain committed to developing and disposing of parcels of land over time in order to reduce the disproportionate size of our land bank and to realise cash, which will be invested in the Group’s future growth.

Our integrated business model continues to provide a good breadth of opportunities and, with our strong track record of delivery, the Group is well placed to make further progress in the new financial year.

Phil White
Chairman