Source - RNS
RNS Number : 7478M
Kier Group PLC
17 October 2016

17 October 2016


Kier Group plc


Publication of the 2016 Annual Report and the 2016 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 12.00 noon on Friday, 18 November 2016.


The Company has today posted, or made available, to shareholders the annual report and accounts for the year ended 30 June 2016 (the "Annual Report"), the notice of annual general meeting, the form of proxy and documentation relating to the scrip dividend alternative. 


These documents are available on the Company's website at and have been submitted to the National Storage Mechanism, where they are available for inspection at


The Company announced its results for the year ended 30 June 2016 on 22 September 2016. 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 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 2016.



For enquiries, please contact:


Beth Melges

Deputy Company Secretary

Tel: +44(0)1767 640 111



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.











The following information is extracted from pages 27 to 31 (inclusive) of the Annual Report.


Principal risks and uncertainties


The nature of the industries and the business environment in which the Group operates means that its operations are subject to a number of inherent risks and uncertainties.


The Board has carefully considered the Group's principal risks and the controls in place to mitigate these risks. This year, the risk of a significant decline in the property market following the EU Referendum result has been included as a principal risk.


The assessment of these risks and controls is a key part of the ongoing management of the business. The Board recognises that consistent and effective risk management is vital to achieving its strategic priorities.


Each principal risk is described on the following pages, together with a summary of the mitigating actions taken. An indication of the strategic priorities most likely to be affected by the risk has also been included.




1.  Contract delivery

The Group has several hundred live contracts at any point in time and the risks to which the Group is exposed are dependent on the nature of the work, the location, the duration and the legal form of the contract, amongst other matters. If these risks are not managed effectively, the Group may suffer contract losses, delays and potential reputational damage.



The Group has an increasing focus on longer-term service contracts. Potential risks are mitigated, controlled and managed through the Group's operating structure and procedures. These include regular contract reviews of financial performance against budget as well as assessing end-life forecasts. Project risk registers are also reviewed. The procurement function manages sub-contractor and supplier relationships across contracts.


Monthly reviews are supplemented by a quarterly review process, which operates across all divisions of the Group.


There has been a specific focus during the year on upgrading the key financial control environment across the Group. These improvements have had a positive impact on identifying potentially under-performing contracts.


A further development to mitigate this risk is a Group commercial training programme for all 'front line' staff, which is designed to ensure a consistent approach with respect to the management of contract risks across the Group.


2. People

The Group depends on members of its senior management team and on a flexible, highly skilled, diverse and well-motivated workforce.


If the Group does not succeed in attracting, developing and retaining skilled people, as well as understanding and embracing the diversity of those people, it may not be able to grow the business

as anticipated.


The Group monitors employee turnover closely. Pay and conditions are reviewed against the prevailing market to ensure that the Group remains competitive.


The Group has put in place succession planning and employee development processes. These include an ongoing talent review process and the completion of succession planning analysis across all business units.


Further mitigating actions to this risk include:


·    Conducting an employee engagement survey in 2016, with improvements noted in the engagement and enablement scores since the previous survey in 2014;

·    The completion of a refreshed leadership development programme for senior leaders. In addition, the leadership profiles and skills of the business leaders have been assessed to inform development programmes; and

·    A review of employee terms and conditions across all business units and the roll-out of a revised grading system.


3. Systems

The efficient operation of the Group is increasingly dependent on the proper operation, performance, security and development of its information technology systems. The Group is maintaining legacy systems prior to implementing an ERP system. If implementation is unsuccessful, this may impact the Group's efficiency and profitability.


The Group recognises that information technology plays a fundamental role in supporting its business. Information technology activity is managed by the Group's IT department in partnership with the business and according to agreed service levels. To mitigate system risks, significant investments are being made, subject to Board review and approval, such as the implementation of the new ERP system.


There is a dedicated project team which deals with the design and implementation of the new ERP system. The project to establish a single finance shared services centre is being implemented at the same time.


Key mitigations to the risk include:


·    Conducting an initial pilot for the ERP system across a small part of the Group so as to preserve business continuity;

·    Assessing the learning points from the pilot;

·    Conducting an independent assessment of the ERP system control environment; and

·    Providing independent project assurance on the delivery of the ERP system.


The Group has introduced robust protection for cyber security threats and made a number of improvements to front-office systems during the year.


4. Tender pricing

The work for which Kier tenders is often complex and long-term with significant associated risks. Tender assumptions may be inaccurate or the risks associated with the tender may not be fully understood. If tenders are under-priced, contract losses and potential reputational damage will result. If tenders are over-priced, order books may suffer.


The Group's appetite for long-term, large, competitively-tendered construction contracts is limited. This is influenced by the desire to maintain quality of workload and to manage risk. Tenders for contracts are subject to a governance structure which includes Group-wide standing orders, with approval by the Chief Executive/Finance Director, other Executive Directors or divisional directors, depending upon the value and nature of the contract. Tenders with defined specific risks are reviewed by the Group's Risk Review Committee.


Current mitigations include the Group-wide commercial training programme for all 'front line' staff, which is designed to ensure a consistent approach with respect to the management of contract risks across the Group.


5. Funding

The Property and Residential divisions require finance to be provided by the Group and external sources. The Construction and Services divisions rely on Group bonding facilities. Without these, revenue and profit would reduce.


A Group-wide initiative has increased the focus on cash forecasting and working capital management, with regular reviews with managing directors and finance directors, identification of cash generating opportunities and improved reporting on cash performance.


Borrowing facilities have recently been renegotiated and extended. The Group has strong, long-term relationships with the providers of its bonding lines and has an in-house team which monitors headroom and advises on bond terms and conditions.


The Group's Investment Committee is responsible for approving capital investment and optimising the allocation of capital.


The Property division utilises 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 joint ventures, the Group can ensure that the Property division is not over-exposed to any one sector, geographical location or individual property.


The Residential division works with housing associations and is seeking to develop joint venture relationships, in each case to mitigate its funding risks.


6. The market

The Group's strategy depends on the level of expenditure within both the public and private sectors. Smaller markets will likely result in lower revenue for the Group.


The Group has:


·    A wide regional network of offices across the UK, which is well integrated into local communities, the client base and the supply chain;

·    A high number of framework agreements and partnerships with Government, local authorities and the private sector; and

·    An integrated offer, with Property typically peaking earlier in an economic cycle and Services later, which provides a natural mitigation against the effects of a recession.


The Group also carries out monthly and quarterly reviews of its workload and forecasts its overhead levels as a percentage of future work in order to maintain an appropriate ratio of overhead costs to revenue.


There have been a number of market assessments of trading sensitivities during the year (particularly before and after the EU Referendum vote). The Group has undertaken contingency planning to consider and assess the associated market risk of the result of the EU Referendum vote.


7. Change

The Group has recently grown significantly, principally through the acquisitions of May Gurney and Mouchel. This growth has resulted in a number of areas of change within the Group. Each of these areas needs careful management.


Two of the most significant change programmes are the implementation of the ERP system and the establishment of the single finance shared services centre. Unless carefully managed, these programmes risk diverting management's attention away from core operations, causing a loss of focus on key market opportunities, a loss of control of the existing business and an adverse effect on the Group's operational and financial performance.



The Group's change programmes are tightly controlled by appropriate project governance.


Significant progress has been made during the year with respect to the integration of the legacy Mouchel businesses. In particular, the operating models of the Kier and Mouchel businesses have, where appropriate, been integrated.


There is a steering committee for both the ERP system and single finance shared services centre projects, together with independent project assurance. There have also been regular updates to the Board on progress throughout the year.


During the year, the Board approved a new Code of Conduct, one of the aims of which is to promote a consistent set of behaviours to support the management of change throughout the Group as it continues to grow.

8. Safety

The Group's activities are inherently complex and potentially hazardous and require the continuous monitoring and management of health, safety and environmental risks.


Failure to manage these risks could result in injury to employees, sub-contractors or members of the public or damage to the environment. This could also expose the Group to significant potential liability, particularly in the light of new sentencing guidelines, and to reputational damage.



Detailed policies and procedures exist to mitigate such risks and are subject to review and monitoring by the operating businesses and SHE specialists. Each business has a director who is responsible for co-ordinating health and safety activities. The SHE audit programme identifies common areas of non-compliance across the Group, helping to drive improvements. Compliance is monitored in a number of ways including audit, leadership tours and inspections.


The Group's behavioural change programme is designed to develop behaviours at supervisor and workforce level, while the Visible Leadership Programme is encouraging engagement by management with employees working on the Group's site.

9. Reputation

The Group's ability to tender for new business and its relationship with customers, supply chain partners, employees and other stakeholders depends in large part on the good reputation that it has established and how it is perceived by others. The Group's growth targets may not be achieved if its reputation is adversely affected.


With the increasing profile of the Group, the ability to monitor and measure the Group's reputation through client and customer feedback is key.


The steps taken by the Group to maintain, protect and enhance its reputation include Group-wide customer satisfaction monitoring, maintaining relations with Government, effective leadership, community engagement and striving to operate a safe and sustainable business.


In addition, the management of the Group's principal risks, as described in this section of the Annual Report, assists to maintain and protect its reputation.


10. Property market

Following the EU Referendum vote, the Group has identified the potential for a significant decline in the UK property market as a potential risk to the Property and Residential divisions. If this decline occurred, then the financial performance of the Property and Residential divisions would likely be adversely affected.


The risk mitigation strategies include work-in-progress monitoring, carrying a robust forward order book in the Residential division and minimising exposure to the cyclical market by purchasing schemes with an appropriate lifecycle. In addition, the Government has put in place further controls since the last market downturn, such as the Mortgage Credit Directive and the Help to Buy scheme, which have assisted to mitigate the risks associated with the residential market.


On new developments, the business is careful to control speculative risk. The Kier Property division operates a largely non-speculative approach to investments.


The Group has undertaken contingency planning to consider and assess the associated market risk of the result of the EU Referendum vote.


11. Compliance

The Group is subject to a number of complex, demanding and evolving legal and regulatory requirements. A breach of laws or regulations could lead to disputes, investigations or legal proceedings, resulting in a disruption of business ranging from additional costs incurred on a project or in the overall management of the breach, to civil and/or criminal penalties as well as reputational damage.

The Group monitors and responds to legal and regulatory developments and conducts risk assessments to assess material changes to applicable law and regulation.


The Group mitigates the compliance risk in a number of ways, including requiring that all of its subsidiaries, employees, suppliers and sub-contractors comply with applicable laws and regulations, updating its policies to ensure that it complies with changes in legislation and regulation and providing training on relevant issues.


The Group operates and encourages the use of a whistleblowing helpline, enabling employees to raise concerns.


Examples of current or future changes in law and regulation which are considered as likely to be relevant to the Group include:


·    The Modern Slavery Act 2015: a working group was established during the year to address the requirements of the legislation (please see further details on page 25);

·    COP21: our CR Leadership Group is taking steps to ensure compliance; and

·    General Data Protection Regulation: steps are being considered to ensure compliance with the regulations, which come into force in 2018.




Related party transactions


The following information is extracted from note 29 to the Company's consolidated financial statements for the year ended 30 June 2016.


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 66 to 85 (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 76. Key management personnel also participate in the Group's share option programme (see note 25).


Key management personnel compensation comprised:







Emoluments as analysed in the directors' remuneration report



Termination payments



Employer's national insurance contributions



Total short-term employment benefits



Share-based payment charge







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






Staff and associated costs



Management services



Interest on loans to joint ventures







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






Saudi Comedat Company Limited



Staffordshire Property Partnership



Kier Trade City Holdco 1 LLP



Kier Reading Holdco 1 LLP



3 Sovereign Square Holdings 1 LLP



Salford Village Limited



Biogen Holdings Limited



Kier Hammersmith Holdco Limited



Watford Health Campus Partnership LLP



Tri-Link 140 Holdings LLP



Kier Foley Street LLP



Blue3 (London) (Holdings) Limited



Kier (Newcastle) Investment Limited



Lysander Student Properties Investments Limited



Blue3 (Staffs) Holding Limited







Directors' responsibility statement

Each of the Directors, whose names and functions are set out on pages 52 and 53, 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.



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