O

  UR

L  EADING
P  OSITIONS
Kier Group plc Annual Report and Accounts 2018
 CONTRIBUTING TO
THE UK’S
GROWTH
Contents
Strategic Report Kier invests in, builds and maintains the UK’s
2 At a glance essential assets. We operate across a wide range
4 Market positions
10 Investment case of sectors including bioscience, education, health,
12
14
Chairman’s statement
Chief Executive’s strategic review
highways, housing, power and energy, property,
20 Business model transport and utilities.
22 Our markets
28 Strategy dashboard
30 Key performance indicators Our market-leading positions in Infrastructure
32
36
Corporate responsibility
Risk management framework
Services, Buildings and Developments & Housing
38 Principal risks and uncertainties allow us to capitalise on a number of opportunities
44 Divisional review: Property
45 Divisional review: Residential in these growing markets.
46 Divisional review: Construction
48 Divisional review: Services
50 Financial review
Governance
Infrastructure WE PROVIDE
57
57
Corporate Governance Statement
Chairman’s introduction Services ESSENTIAL
59
60
Governance in action
Board statements
Turn to pages 4 to 5
for more information. INFRASTRUCTURE
SERVICES
62 Leadership
64 Board of Directors
66 Effectiveness
69 Nomination Committee report
71 Accountability
73 Risk Management and Audit Committee report
81
83
Safety, Health and Environment Committee report
Relations with shareholders and other stakeholders Buildings WE ARE THE
86
86
Directors’ Remuneration Report
Annual statement of the Chair of the Turn to pages 6 to 7 UK’S LARGEST
89
92
Remuneration Committee
Remuneration at a glance
Annual report on remuneration
for more information.
REGIONAL BUILDER
102 Directors’ remuneration policy – summary
108 Directors’ Report
110 Statements of Directors’ responsibilities
Financial Statements
111
118
Independent auditor’s report
Consolidated income statement Developments WE ARE A LEADING
119
120
Consolidated statement of comprehensive income
Consolidated statement of changes in equity
& Housing PROVIDER OF
121
122
123
Consolidated balance sheet
Consolidated cash flow statement
Notes to the consolidated financial statements
Turn to pages 8 to 9
for more information. AFFORDABLE HOUSING
176 Principal operating subsidiaries and business units
183 Company balance sheet
184 Company statement of changes in equity
185 Notes to the Company financial statements
Other Information
189 Financial record
190 Corporate information

Top left image: Sensor City, Liverpool.

Financial highlights

Strategic Report
Strong market-leading positions and record order books of
£10.2bn providing confidence for the future.
Group revenue1, 2 (£bn) Underlying profit before tax1, 2 (£m) Underlying earnings per share (p)

£4.5bn £136.9m 116.7p

Governance
18 4.5 18 136.9 18 116.7

17 4.3 17 126.1 17 106.8

16 4.1 16 116.4 16 99.5

15 3.3 15 89.8 15 101.6

14 2.9 14 74.1 14 88.1

Dividend per share (p) Order book (£bn) Net debt balances (£m)

69.0p £10.2bn £(185.7)m

Financial Statements
18 69.0 18 10.2 (185.7) 18

17 67.5 17 8.9 (110.1) 17

16 64.5 16 8.5 (98.9) 16

15 55.2 15 9.1 (140.8) 15

14 57.6 14 6.2 (122.8) 14

Average net debt (£m) Reported profit/(loss) before tax1, 3 Reported basic earnings/(loss)
(£m) per share1, 3 (p)

£375m £106.2m 90.8p

18 375 18 106.2 18 90.8

17 320 (14.2) 17 (27.2) 17

16 280 (34.9) 16 (25.7) 16

15 243 15 19.9 15 12.6

14 140 14 15.2 14 15.3

1
Continuing operations. Group and share of joint ventures.
2
Continuing operations. Stated before non-underlying items.
See note 4 to the consolidated financial statements.
3
Restated to reclassify the profit on disposal of Mouchel Consulting
within discontinued operations.

Kier Group plc | Report and Accounts 2018 1

Strategic Report
At a glance

WE ARE
KIER GROUP
We offer our clients access to specialist expertise supported by a
breadth of capabilities.

Our vision Our values

Our vision is to be a world-class, customer- Collaborative

focused company that invests in, builds, We work together: we consult to reach the
maintains and renews the places where right solution and achieve more as a team.
we live, work and play.
Enthusiastic
What we do We make things happen: we are resourceful
problem-solvers, who enjoy what we do and
We create spaces and places that generate get the job done.
opportunity and prosperity.
Forward-thinking
How we deliver
We look ahead: we positively challenge the
way we do things to excel, and we care about
We bring specialist knowledge, sector-leading
our clients and customers and the service
experience and fresh thinking to create
we provide.
workable solutions.

Go online to find out more at www.kier.co.uk

Our corporate website has key information covering our sector
capabilities, markets, corporate responsibility and investor relations.

2 Kier Group plc | Report and Accounts 2018

Our business today

Strategic Report
Our four operating divisions are transitioning to a new reporting format focused on three
market positions. This change supports the way the Group works with clients and
underpins complementary capabilities.

PROPERTY RESIDENTIAL CONSTRUCTION SERVICES

Revenue £218m Revenue £374m Revenue £2.0bn Revenue £1.8bn

Governance
Operating profit £34.0m Operating profit £25.9m Operating profit £41.9m Operating profit £93.0m

Our focus tomorrow

From 1 July 2018, financial reporting will be under three key market positions.

Financial Statements
INFRASTRUCTURE BUILDINGS DEVELOPMENTS
SERVICES & HOUSING
Top three infrastructure The UK’s leading regional builder with A top three provider of
player in the UK with a number one key positions in education, health and affordable housing and related
position in UK strategic highways on numerous frameworks maintenance services. A top property
trader and developer

Revenue Revenue Revenue

c.£2bn c.£2bn c.£1bn

Turn to pages 4 to 5 Turn to pages 6 to 7 Turn to pages 8 to 9
for more information. for more information. for more information.

Our key market sectors

Power &
Bioscience Education Health Highways Housing Property Transport Utilities
Energy

Kier Group plc | Report and Accounts 2018 3

Strategic Report
Infrastructure Services

The barrel-vaulted glass roof at King’s Cross, London, refurbished by Kier.

 WE PROVIDE
ESSENTIAL
INFRASTRUCTURE
SERVICES
We are leveraging our skills to deliver for the
end-user – be they road users, water consumers,
residents or rail passengers.
The heritage of Kier rests in its track record Kier is the number one provider of strategic
of construction. However, today the Group’s maintenance and management of highways
capabilities are weighted more to services services. Key clients include Highways
with an increasing footprint in infrastructure England, Transport for London and a number
services. These services underpin the social of local authorities across the country.
and economic growth of the UK. Key In the utilities sector, the Group has
infrastructure projects include Crossrail, the specialist capabilities in the power and
Mersey Gateway bridge, Hinkley Point C and energy, water, telecommunications and
currently the roll-out of one of the UK’s largest rail sectors.
rail infrastructure projects, HS2.
In power and energy, clients include UK
Approximately 38% of the Group’s revenue is Power Networks and Western Power
in infrastructure services with a significant Distribution and in the water sector clients
presence across the UK in the highways and include Anglian Water and Thames Water.
utilities services sectors. In telecommunications, the Group is now
The provision of both capital projects as well the largest provider of domestic fibre
as the maintenance of those assets enables installation services for Virgin Media
the Group to offer clients an end-to-end following the acquisition of McNicholas,
solution and enhanced value. and in rail provides electrical and
mechanical services to Network Rail.

c.£2bn 38% 7%
Revenue % of Group share of a £29bn
revenue UK market

Turn to pages 22 to 23
for more information.

Kier Group plc | Report and Accounts 2018 5

Strategic Report
Buildings

The Elekta building, Crawley, Sussex.

 WE ARE
THE UK’S LARGEST
REGIONAL BUILDER
With growth in the UK’s population, more public
facilities including hospitals and schools are needed
as well as places to work, rest and play.

Kier is a national builder with a network of such as museums and hotels, and
regional offices which ensures that every developing commercial sites. Over 400
project contributes to the local economy, projects are undertaken each year.
utilising local skills and drawing on the With a focus on new building methods, Kier
local supply chain. has delivered over the last five years more
Our portfolio covers local and regional projects than £2bn of projects that have included
as well as major projects. We have the using off-site construction and modern
flexibility and expertise to build across a range methods of construction.
of projects from a £250k extension to a Kier is a leader in the education and health
strategic asset costing hundreds of millions sectors and has an established position on
of pounds. public frameworks and growing positions in
Our activities support local economies with the private sector.
work including town centre regenerations,
refurbishing transport hubs and interchanges,
building schools, civic and leisure facilities

c.£2bn 40% 3%
Revenue % of Group share of a c.£67bn
revenue market

Turn to pages 24 to 25
for more information.

Kier Group plc | Report and Accounts 2018 7

Strategic Report
Developments & Housing

A Kier affordable home.

Financial Statements
Consolidated income statement
For the year ended 30 June 2018

2018 20172
Non- Non-
underlying underlying
Underlying items Underlying items
items1 (note 4) Total items1 (note 4) Total
Notes £m £m £m £m £m £m
Continuing operations
Revenue3
Group and share of joint ventures 2 4,493.3 19.5 4,512.8 4,265.2 17.1 4,282.3
Less share of joint ventures 2 (273.2) – (273.2) (153.5) – (153.5)
Group revenue 4,220.1 19.5 4,239.6 4,111.7 17.1 4,128.8
Cost of sales (3,818.2) (19.5) (3,837.7) (3,728.3) (111.8) (3,840.1)
Gross profit/(loss) 401.9 – 401.9 383.4 (94.7) 288.7
Administrative expenses (288.1) (25.6) (313.7) (268.2) (33.7) (301.9)
Share of post-tax results of joint ventures 14 42.7 – 42.7 25.0 – 25.0
Profit/(loss) on disposal of joint ventures
and subsidiaries 30 3.5 – 3.5 5.4 (9.0) (3.6)
Profit/(loss) from operations 2,3 160.0 (25.6) 134.4 145.6 (137.4) 8.2
Finance income 5 0.9 – 0.9 1.8 – 1.8
Finance costs 5 (24.0) (5.1) (29.1) (21.3) (2.9) (24.2)
Profit/(loss) before tax 2 136.9 (30.7) 106.2 126.1 (140.3) (14.2)
Taxation 9a (23.3) 5.6 (17.7) (21.9) 10.9 (11.0)
Profit/(loss) for the year from
continuing operations 113.6 (25.1) 88.5 104.2 (129.4) (25.2)

Discontinued operations
(Loss)/profit for the year from discontinued
operations (attributable to equity holders of
the parent) 19 (1.0) – (1.0) (4.1) 41.1 37.0
Profit/(loss) for the year 112.6 (25.1) 87.5 100.1 (88.3) 11.8

Attributable to:
Owners of the parent 112.4 (25.1) 87.3 99.0 (88.3) 10.7
Non-controlling interests 0.2 – 0.2 1.1 – 1.1
112.6 (25.1) 87.5 100.1 (88.3) 11.8

Basic earnings/(loss) per share

– From continuing operations 11 116.7p (25.9)p 90.8p 106.8p (134.0)p (27.2)p
– From discontinued operations 11 (1.0)p – (1.0)p (4.2)p 42.5p 38.3p
Total 115.7p (25.9)p 89.8p 102.6p (91.5)p 11.1p
Diluted earnings/(loss) per share
– From continuing operations 11 115.4p (25.6)p 89.8p 106.8p (134.0)p (27.2)p
– From discontinued operations 11 (1.0)p – (1.0)p (4.2)p 42.5p 38.3p
Total 114.4p (25.6)p 88.8p 102.6p (91.5)p 11.1p
1
Stated before non-underlying items (see note 4).
2
Restated to reclassify the profit on disposal of Mouchel Consulting within discontinued operations (see note 1).
3
Non-underlying revenue relates exclusively to UK Mining operations.

118 Kier Group plc | Report and Accounts

Accounts 2018
2018
Consolidated statement of comprehensive income
For the year ended 30 June 2018

2018 20171

Strategic Report
Notes £m £m
Profit for the year 87.5 11.8
Items that may be reclassified subsequently to the income statement
Share of joint venture fair value movements on cash flow hedging instruments 14 0.4 (2.2)
Deferred tax on share of joint venture fair value movements on cash flow hedging instruments 9c (0.1) 0.4
Share of joint venture fair value movements on cash flow hedging instruments recycled to the
income statement2 14 2.3 –
Deferred tax on share of joint venture fair value movements on cash flow hedging instruments
recycled to the income statement2 14 (0.4) –
Fair value (loss)/gain on cash flow hedging instruments 27 (3.4) 1.6

Governance
Fair value movements on cash flow hedging instruments recycled to the income statement 5 1.6 (4.2)
Deferred tax on fair value movements on cash flow hedging instruments 9c 0.3 0.4
Foreign exchange (losses)/gains on long-term funding of foreign operations (0.2) 1.7
Foreign exchange translation differences (0.3) 1.1
Foreign exchange movements recycled to the income statement3 (0.9) (3.7)
Total items that may be reclassified subsequently to the income statement (0.7) (4.9)
Items that will not be reclassified to the income statement
Remeasurement of defined benefit liabilities 8 79.8 (29.3)
Deferred tax (charge)/credit on actuarial gains/(losses) on defined benefit liabilities 9c (13.6) 2.1
Total items that will not be reclassified to the income statement 66.2 (27.2)

Financial Statements
Other comprehensive income/(loss) for the year 65.5 (32.1)
Total comprehensive income/(loss) for the year 153.0 (20.3)
Attributable to:
Equity holders of the parent 152.8 (21.4)
Non-controlling interests – continuing operations 0.2 1.1
153.0 (20.3)

Total comprehensive income/(loss) attributable to equity shareholders arises from:

Continuing operations 153.8 (58.4)
Discontinued operations (1.0) 37.0
152.8 (21.4)
1
Restated to reclassify the profit on disposal of Mouchel Consulting within discontinued operations (see note 1).
2
Amounts previously booked in the cash flow hedge reserve, arising from the fair value movements on cash flow hedging instruments, have been recycled to
the income statement following the sale of the Group’s interest in Evolution (Woking) Holdings Limited.
3
Amounts previously booked in the translation reserve, arising from retranslation of the results and balance sheet of the Group’s Hong Kong and Middle East
operations, have been recycled to the income statement following the closure of those operations.

Kier Group plc | Report and Accounts 2018

2018 119
Financial Statements
Consolidated statement of changes in equity
For the year ended 30 June 2018

Equity
Capital Cash flow attributable Non-
Share Share redemption Retained hedge Translation Merger to owners of controlling Total
capital premium reserve earnings reserve reserve reserve the parent interests equity
£m £m £m £m £m £m £m £m £m £m
At 1 July 2016 1.0 418.0 2.7 13.5 (1.7) 5.6 134.8 573.9 2.2 576.1
Profit for the year – – – 10.7 – – – 10.7 1.1 11.8
Other comprehensive (loss) – – – (27.2) (4.0) (0.9) – (32.1) – (32.1)
Dividends paid – – – (63.0) – – – (63.0) (0.3) (63.3)
Issue of own shares – 16.8 – – – – – 16.8 – 16.8
Purchase of own shares – – – (0.6) – – – (0.6) – (0.6)
Share-based payments – – – 2.7 – – – 2.7 – 2.7
At 30 June 2017 1.0 434.8 2.7 (63.9) (5.7) 4.7 134.8 508.4 3.0 511.4
Profit for the year – – – 87.3 – – – 87.3 0.2 87.5
Other comprehensive income – – – 66.2 0.7 (1.4) – 65.5 – 65.5
Dividends paid – – – (66.1) – – – (66.1) (1.5) (67.6)
Issue of own shares – 0.2 – – – – – 0.2 – 0.2
Purchase of own shares – – – (1.3) – – – (1.3) – (1.3)
Share-based payments – – – 5.4 – – – 5.4 – 5.4
At 30 June 2018 1.0 435.0 2.7 27.6 (5.0) 3.3 134.8 599.4 1.7 601.1
The numbers in the table above are shown net of tax as applicable.

120 Kier Group plc | Report and Accounts

Accounts 2018
2018
Consolidated balance sheet
At 30 June 2018

2018 20171

Strategic Report
Notes £m £m
Non-current assets
Intangible assets 12 862.2 802.8
Property, plant and equipment 13 91.6 90.4
Investments in and loans to joint ventures 14 226.1 184.4
Deferred tax assets 15 – 11.6
Trade and other receivables 18 49.2 55.3
Retirement benefit assets 8 39.5 4.6
Non-current assets 1,268.6 1,149.1
Current assets

Governance
Inventories 16 575.0 593.9
Trade and other receivables 18 603.0 514.0
Corporation tax receivable 15.4 0.9
Other financial assets 27 15.2 18.9
Cash and cash equivalents 20 330.9 499.8
Current assets 1,539.5 1,627.5
Assets held for sale as part of a disposal group 19 1.3 –
Total assets 2,809.4 2,776.6
Current liabilities

Financial Statements
Borrowings 20 (12.0) (50.0)
Finance lease obligations 21 (4.0) (9.1)
Trade and other payables 22 (1,526.8) (1,433.7)
Provisions 23 (15.4) (19.0)
Current liabilities (1,558.2) (1,511.8)
Liabilities held for sale as part of a disposal group 19 (3.4) –
Non-current liabilities
Borrowings 20 (524.9) (581.8)
Finance lease obligations 21 (3.1) (5.2)
Other financial liabilities 27 – (0.3)
Trade and other payables 22 (24.2) (16.6)
Retirement benefit obligations 8 (31.6) (89.2)
Provisions 23 (52.1) (60.3)
Deferred tax liability 15 (10.8) –
Non-current liabilities (646.7) (753.4)
Total liabilities (2,208.3) (2,265.2)
Net assets 2 601.1 511.4
Equity
Share capital 24 1.0 1.0
Share premium 435.0 434.8
Capital redemption reserve 2.7 2.7
Retained earnings 27.6 (63.9)
Cash flow hedge reserve 24 (5.0) (5.7)
Translation reserve 24 3.3 4.7
Merger reserve 24 134.8 134.8
Equity attributable to owners of the parent 599.4 508.4
Non-controlling interests 1.7 3.0
Total equity 601.1 511.4
1
Prior periods restated to show pension schemes in surplus and deficit positions separately and to move £17.1m from current to non-current other receivables
in regard to PFI lifecycle funds.
The financial statements on pages 118 to 182 were approved by the Board of Directors on 19 September 2018 and were signed on its
behalf by:

Haydn Mursell Bev Dew

Chief Executive Finance Director
Kier Group plc | Report and Accounts 2018 121
Financial Statements
Consolidated cash flow statement
For the year ended 30 June 2018

2018 20171
Notes £m £m
Cash flows from operating activities
Profit/(loss) before tax – continuing operations 106.2 (14.2)
– discontinued operations 19 (1.0) 38.2
Non-underlying items excluding amortisation and finance costs 4 – 75.1
Net finance cost 5 28.2 22.4
Share of post-tax trading results of joint ventures 14 (42.7) (23.5)
Normal cash contributions to pension fund in excess of pension charge 0.8 2.7
Equity settled share-based payments charge 25 5.4 2.7
Amortisation of intangible assets less negative goodwill recognised 12 37.7 30.1
Research and development expenditure credit (8.6) (4.7)
Depreciation charges 13 19.1 19.7
Profit on disposal of joint ventures 30d,e (3.5) (5.4)
Profit on disposal of property, plant and equipment and intangible assets (0.8) (1.0)
Operating cash flows before movements in working capital 140.8 142.1
Deficit contributions to pension funds (26.6) (31.3)
Decrease/(increase) in inventories 20a 33.4 (51.2)
Increase in receivables 20a (29.4) (47.2)
Increase in payables 20a 32.5 72.6
Decrease in provisions 20a (9.9) (22.9)
Cash inflow from operating activities before non-underlying items 140.8 62.1
Cash outflow from operating activities (non-underlying items) (32.0) (2.0)
Cash inflow from operating activities 108.8 60.1
Dividends received from joint ventures 14 30.5 17.6
Interest received 5 0.9 1.8
Income tax paid 9b (9.9) (3.8)
Net cash inflow from operating activities 130.3 75.7
Cash flows from investing activities
Proceeds from sale of property, plant and equipment 3.6 1.4
Proceeds from sale of joint ventures 30e 4.9 26.0
Proceeds from sale of subsidiary 30b 0.1 –
Proceeds from sale of joint ventures (non-underlying) – 9.7
Proceeds from sale of subsidiary (non-underlying) 19b – 58.9
Purchase of property, plant and equipment 13 (22.1) (15.8)
Purchase of intangible assets 12 (41.2) (44.4)
Acquisition of subsidiaries 30a,d (16.7) –
Investment in joint ventures 14 (71.5) (49.3)
Return of equity from joint ventures 14 40.6 5.6
Classification to assets held for resale 2.1 –
Net borrowings acquired with subsidiaries 30a,d (6.1) –
Net cash used in investing activities (106.3) (7.9)
Cash flows from financing activities
Issue of shares 24 0.2 3.2
Purchase of own shares (1.3) (0.6)
Interest paid (21.7) (19.1)
Cash (outflow)/inflow incurred from raising finance (2.0) 0.9
Inflow from finance leases on property, plant and equipment 21 2.5 1.7
Inflow from new borrowings – 368.5
Finance lease repayments 21 (10.2) (13.7)
Repayment of borrowings (91.3) (45.0)
Dividends paid to equity holders of the parent 10 (66.1) (49.4)
Dividends paid to minority interests (1.5) (0.3)
Net cash (used in)/from financing activities (191.4) 246.2
(Decrease)/increase in cash, cash equivalents and overdraft (167.4) 314.0
Effect of change in foreign exchange rates (1.5) (0.9)
Opening cash, cash equivalents and overdraft 499.8 186.7
Closing cash, cash equivalents and overdraft 20 330.9 499.8
1
Restated to reclassify the sales proceeds from the sales of Mouchel Consulting and Biogen as investing activities and to separately classify the profit and
return of equity components of dividends from joint ventures in operating and investing activities respectively.
122 Kier Group plc | Report and Accounts 2018
2018