kier group plc annual report and accounts

Kier Group plcAnnual Report and Accountsfor the year ended 30 June 1999

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The Kier Group is a major force in construction. Its activities span building and civil engineeringcontracting, open-cast mining, facilities management,residential and commercial property development and PFI project investment.

Contents

Group highlights 1Board of directors 2Chairman’s statement 4Financial review 8Kier Regional 10Kier FM 15Kier National 16Kier Project Investment 21Kier Residential 22Kier Ventures 26Environment & Safety 27Kier Engineering Services 28Training and staff development 28

Directors’ report 29Corporate governance 33Statement of directors’ responsibilities 34Auditors’ report 35

Consolidated profit and loss account 36Consolidated balance sheet 37Company balance sheet 38Consolidated cash flow statement 39Consolidated statement of total recognised

gains and losses 40Reconciliation of movements in shareholders’ funds 40Notes to the financial statements 41Principal operating subsidiaries 54Principal joint arrangements, joint ventures

and other investments 55Financial record 57Group principal businesses 58Corporate information inside back cover


Kier Regional Mid-range construction contracts by locallymanaged business units across the UK.

ConstructionConstruction comprises Kier Regional, covering mid-range and smaller contractsacross the UK, Kier National, for major UK civilengineering and building projects, mining andinternational contracting, and Kier FM forfacilities management.

For seven successive years now, in both bad times and good, we havebeen able to increase pre-tax profitsand earnings per ordinary share.

Kier NationalMajor civil engineering, mining andbuilding projects in the UK and overseas.

Kier WesternKier SouthernWallisKier LondonMoss ConstructionFrench Kier Anglia

Marriott ConstructionKier NorthernMoss NorthernKier ScotlandIEI – Building Services

Engineers

Turnover by division

£ millions

Divisions

Operating segments

Principal businesses Kier ConstructionKier RailKier Mining

Kier PlantKier BuildKier International

99

£304.0m

98979695

0

100

200

300

400

99

£521.5m

98979695

0

200

400

600

The Kier Group structure


Contribution by operating segments…

Kier FMComprehensive facilities management services throughout the UK for both private and public sectors.

Kier ResidentialHigh quality private housebuilding.

Kier VenturesCommercial property development.

Caxton Facilities ManagementFM Contract Services

Twigden HomesBellwinch HomesKier Homes

● Construction● Homes & Property

…to turnover …to operating profit …to pre tax profit

99

£32.2m

98979695

0

10

20

30

40

Homes & PropertyHomes & Property comprises residential andcommercial property development interests.

Kier Ventures

99

£84.9m

98979695

0

30

60

90

99

£20.3m

98979695

0

5

10

15

20

25


1 Kier Group plc Annual report and accounts for the year ended 30 June 1999

Turnover

£962.9mIncrease 28%

Profit before tax

£13.8mIncrease 28%

Earnings per share

30.6pIncrease 35%

Financial summary 1999 1998 Increase£m £m %

Turnover 962.9 749.6 + 28.4

Results

Total operating profit 12.6 8.3 + 51.8

Profit before tax 13.8 10.8 + 27.7

Earnings per share (basic) 30.6p 22.7p + 34.8

Dividend per share 9.3p 8.0p + 16.2

Exceptional costs of £0.6m were incurred in 1998 relating to acquisitions.



David HomerAged 53, has extensive experience of theresidential development sector, including eightyears as a regional managing director with amajor national housebuilder. He joined KierGroup in 1994 as managing director of TwigdenHomes and was appointed to the Group Board on 1 January 1996.

Martin ScarthAged 56, joined the Group in 1966 and has heldmanagement positions in a number of theLondon and south eastern construction offices.A divisional director since 1988, he has sincethe buyout been the director responsible forregional construction.

Duncan Brand Aged 58, joined the Group in 1970 and hasheld both financial and general managementpositions in a number of the Group’s divisions.He has been finance director and companysecretary since 1992.

Colin BusbyAged 55, has been chairman and chief executive since leading the employee buyout in 1992. Hisservice with the Group began in 1969 and he heldsenior appointments in the international and UKconstruction divisions between 1978 and 1992.He is chairman of the Nomination Committee.

John DoddsAged 54, has been with the Group since 1970,working much of the time overseas, particularlyin Africa and Hong Kong. He also spent a periodcontrolling major civil engineering in the UK and since the buyout has been the directorresponsible for major projects, mining andinternational contracting.

Executive directors

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Peter WarryAged 50, was an executive director of BritishEnergy PLC and chief executive of its Englishgenerating company, Nuclear Electric Ltd.Previously he was a director of Norcros PLC andchairman of its Building Products Division. Hewas appointed to the Board on 1 June 1998 andis a member of the Audit Nomination andRemuneration Committees.

Independent non-executive directors

Graham CorbettAged 64, was chief financial officer of Eurotunneluntil retirement in 1996 and is currently a deputychairman of the Competition Commission. He isthe senior independent director, having been amember of the Board since 1996 and is chairmanof the Audit Committee and a member of theRemuneration and Nomination Committees.

Peter BerryAged 55, is executive chairman of The CrownAgents for Oversea Governments andAdministrations Limited. He is non-executivedirector of a number of quoted investmenttrusts. He was appointed to the Board in 1997and is chairman of the RemunerationCommittee and a member of the Audit andNomination Committees.

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This year, Kier has achieved new records in turnoverand profit and a big acceleration in its rate of growth.This means that for seven successive years now, inboth bad times and good, we have been able toincrease pre-tax profits and earnings per ordinaryshare. These are now almost double their totals of1996, the year of our stock-market flotation, with bothshowing a compound annual growth rate of 24%. OurConstruction and FM companies have made hugestrides this year, with organic turnover growth in theyear of 25%, and our Homes & Property companieshave taken full advantage of the significantinvestments we made in 1998 to grow their turnoverby 63%. This is consistent with our long-establishedstrategy to build a balanced business, with broadlybased ‘premier league’ construction and FM activitiescomplemented by regionally-strong, high quality homesand property businesses: this mix will be furtherenriched with project equity investment as our PFIportfolio develops and matures.

Year’s resultGroup turnover (including share of joint ventures) at£963m was 28% higher than 1998 (£750m). TotalGroup operating profit (including share of jointventures) was 52% up at £12.6m (1998: £8.3m), as aresult of improved operating margins. Net interestreceivable at £1.2m was down on the previous year(1998: £2.5m), with both interest rates and cashbalances lower. This resulted in profit before tax of£13.8m, an increase of 28% (1998: £10.8m).Earnings per share (undiluted) rose 35% to 30.6p(1998: 22.7p).

A final dividend will be recommended of 6.3p pershare (1998: 5.4p) payable on 14 December 1999 toshareholders on the Register at 8 October 1999. Thiswill bring the total dividend for the year to 9.3p per

A selection of theyear’s projects

share, an increase of 16% over the previous year(1998: 8.0p per share). There will be a scripalternative to the final dividend.

The year closed with net cash and liquid balances of £41.6m (1998: £49.3m) and total net assets at£33.5m, an increase of £7.7m. There was againstrong positive cash-flow in Construction and increasedcash investment in Homes & Property. As indicated lastyear, we operated with lower net cash balances duringthe year as a result of this investment.

Business strategyWe remain committed to building both the size andquality of our two business segments, Constructionand Homes & Property. In our short life as a quotedcompany, we have grown both by acquisition and bythe organic growth of our existing business. We intendto continue growing and have strategies in place toensure further organic growth. The acquisition routewill be followed when opportunities arise which allowus to enhance shareholder value.

In the meantime, the path to profit growth principallylies, for Construction, in improving our operatingmargins, and, in Homes & Property, by exploiting thestrengthened residential land-banks we have assembledover the past two years. A growing portfolio ofcommercial property positions is important for ourfuture and we continue to take on PFI investmentcommitments for their longer term prospects.

Our financial strategy is simple – to generate cashfrom our Construction segment and invest this inHomes & Property and thereby secure a high returnon shareholders’ funds.

We have established an extremely stable cash flowfrom our widely spread construction activities, whichhas stood the test of time since Kier Group wasformed in the early 1990s, and this has enabled us

Chairman’s statement

Refurbishment of two industrialunits at Holgate Park,includingmechanical and electrical servicesupgrade, by Kier Northern forEnglish Partnerships.

Charing Cross Station, a stationregeneration project demonstratingpartnership in action betweenRailtrack & Kier Rail.

Above

Construction of a three storeyhigh grade administration andgeneral medical facility at RAF Lakenheath Hospital byFrench Kier Anglia.

Left

Right



progressively to invest in Homes & Property. Thisinvestment has now reached £77m, from a standingstart in 1992, and earned a return on average capitalemployed this year of 18%. This in turn has helped usto a Group return on average shareholders’ funds ofaround 46%.

ConstructionGenerally, our construction divisions had an excellentyear, improving overall operating contributions by 25%to £4.0m, with strong operational cash flow. Acrossthe range of our UK operations, we have improved ourpenetration of markets.

The 25% growth in our construction turnover hasbeen achieved while output in the UK constructionmarket has grown by only around 2%. Our growth wasachieved in both the small-to-mid-range contracts inKier Regional and in the major projects of KierNational. The ability of our management teams toidentify client requirements and bring the whole

Group’s experience to bear in satisfying them iscontinuously improving, thanks to our ongoinginvestment in information technology, and this isundoubtedly a factor in our success.

The one construction sector that has not grown thisyear is international contracting. It has often been thecase that international construction markets move outof step with the UK. In the earlier 1990s when our UKmarkets were difficult and unrewarding, we madegood returns overseas. 1999 has seen the reverse,with aid funding becoming very patchy in most of ourtraditional markets (the Caribbean, Africa, the MiddleEast) and with Hong Kong, though still active, sufferingsevere competitive pressures. We have booked anoperating loss on our overseas operations this year of£1.5m. We are reviewing the structure and objectivesof our international operations and have appointed newsenior management which I believe will adapt theorganisation to the conditions expected to prevail overthe next period. A meaningful overseas construction

A high specification developmentof luxury apartments in the centre of Cheltenham built byMoss Construction on behalf ofCountryside Properties.

Above

Topping out of the HairmyresHospital in East Kilbride by Kier Build.

Below

Left

Repairs and redecoration to Hampton Court Palace by Wallis.

Sixfield Retail Park,Northampton by Marriott.

Left

This year, Kier has achieved newrecords in turnover and profit and abig acceleration in its rate of growth.

WINNER 1998&

WINNER 1999



Conversion of an early 19th century vicarage in Norfolk into aSue Ryder Home. Work by Riley Builders included new build,alterations and refurbishment.

Work in progress by Kier Construction atDamhead Creek Power Station in Kent.

Below

Right

Chairman’s statement continued

presence is an important part of our strategy toremain at the forefront of the UK industry, but it must,and will, earn its keep.

Facilities Management is developing and expandingalongside our construction businesses and playing anincreasing role in PFI projects, with a number of‘preferred contractor’ positions now moving towardsfinalisation. This aspect of the business will becomeincreasingly important as our FM businesses continue to grow.

The major objective now before our constructiondivisions is margin improvement. Operating margins,at around 0.5%, are unchanged this year, afterabsorbing the international loss. We expect to improveon this in future periods. Construction continues to bestrongly cash generative and, with risk managementever to the fore, provides a solid and stable core tothe whole of the Group’s business.

Homes & PropertyHomes & Property performed very strongly, with a52% advance in operating profit to £12.0m andimproved margins in Kier Residential, driven by furthercash investment in working capital of £19m.

Our acquisition of Bellwinch Homes, the South Easthousebuilder, just before the start of the year, hasproved a great success. It was quickly integrated intoKier Residential and its position confirmed as one ofour two homes brands in the South of England,alongside Twigden Homes. These two businessesbetween them have advanced our annual sales to over600 units (1998: 486), with, more significantly, anincrease in average selling prices of 27% to£130,400. Both brands have moved further up-market, with Bellwinch achieving over £750,000 perunit at selected sites. 10% of the units sold this yearwere 5 bedroom detached homes (1998: 2%).

Another significant move before the year began wasto establish Kier Homes as our housebuilder inScotland, with 18 acres at East Kilbride as its ‘anchor’site (acquired with our PFI deal on Hairmyres NHShospital). This has successfully opened its accountwith four units handed over by the end of the year, agood order book and construction under way on threesites: it will contribute to profit in its second full yearof operations and will provide an effective third leg toKier Residential, balancing the exposure to South EastEngland with the Scottish Central Belt.

The enlarged residential division recorded anoperating margin of 11.9%, against last year’sTwigden margin of 10.4% and Bellwinch’s pre-acquisition level of around 6%.

Further growth in Kier Residential is underwritten byour land-bank, at just under 2,000 plots, whichincludes Waltham Park, the major brownfield site bythe M25, acquired a year ago and on which the first

The strength of this Groupresides in the skills, attitudes to work and commitment of its 6,500 employees.

Mechanical and electricalinstallations to offices andproduction facility by IEIfor Meggitt.

Left



New car showrooms in Sevenoaksfor Lancaster PLC by Wallis.

sales phases will begin construction this autumn, with the completion of extensive remediation andinfrastructure.

Kier Ventures, the commercial developer, hasprogressed a number of promising opportunities, withcertain sites being sold during the year to contributeto profit, and others secured that will yielddevelopment profit in the future. The Joint Ventureformed with Norwich Union to develop 49 acres ofcommercial land at Waltham Park has a number ofinteresting enquiries before it as remediation therecompletes to provide a unique commercial site directlylinked to the motorway network.

Private Finance InitiativeThe district general hospital at East Kilbride that we arebuilding under the PFI has made extremely goodprogress and is likely to be handed over early to enablethe concession period to commence during our 2001financial year: this project, in which we hold 50% of theequity, confirms our major interest in this sector. Weexpect to reach financial close on a second districtgeneral hospital, in South Wales, later this year, whichwill bring our FM division a 27-year facilitiesmanagement contract of £4m pa, again with Kierretaining significant equity investment. We are pursuinga number of new school projects which will bringconstruction, long-term FM and equity investment indue course. The PFI remains a significant cost in themeantime with its excessive lead-times to bring projectsto final close. It holds an important place in our long-term strategy, interfacing with all our operatinginterests and creating long-term investment assets.

EmployeesThe strength of this Group resides in the skills, attitudesto work and commitment of its 6,500 employees.

When we talk of being ‘customer focused’ we mean thatour employees are responding to the extra demandsput upon them to ensure customer satisfaction. In Aprilthis year, Kier was for the second year in successionvoted ‘Major Contractor of the Year’ at the Buildingmagazine annual awards. The citation particularlymentioned the professionalism and strong people culturethat characterised Kier. I thank the Kier people fortheir contribution and trust that our career development,training, safety and environmental programmescontinue to foster this response for the future.

ProspectsThere is a lot of confidence in all our businessestowards the future. In the UK, markets are currentlystable and order books at a good level. Our strategiesto increase construction margins and to expand homessales within the three regions of Kier Residential are inplace. Our commercial property opportunities showpromise and the PFI will continue to develop in a waythat adds long term value to our operation.

I therefore believe Kier will continue its progress in2000 and beyond.

C R W BusbyChairman

Demolition and newbuild offices in Yorkby Kier Northern.

Grafham Fishing Lodge inCambridgeshire built by Marriott.The new lodge includes restaurant,bar, shop and offices.

Above

Twigden’s showhouse at Brigstock,Northamptonshire. This site isincluded in the Rockingham ForestTrust Guidelines as a model forother developers to follow whenbuilding in this conservation area.

Left Right

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Turnover, orders and land-bankThe Group turnover, including share of joint ventures,increased by 28% to £962.9m.

The Construction segment increased by 25% to£857.7m. Within Construction, Kier Regional at £521.5mwas up 27%, Kier National at £304.0m grew by 22% andKier FM at £32.2m increased by 36%. These increaseswere achieved almost entirely by organic growth andreflect the record levels of order books at the start of theyear (£630m). Order intake has been substantial duringthe period, and the year ended with a firm order book of£569m, with a further £161m of orders confirmed in Julyand August. We expect construction turnover in 2000 toconsolidate at around the high levels achieved in 1999.

The turnover of Homes & Property increased by 63%to £105.2m, comprising house sales of £79.5m (1998:£49.9m), residential land sales of £5.4m (1998: £1.2m)and commercial development sales of £20.3m (1998:£13.4m). A total of 610 homes were sold in KierResidential (1998: 486) at an average sales price of£130,400 (1998: £102,800), including four in Scotland,the first to be delivered by the new operating subsidiaryformed in 1998. With a land-bank of 1,955 plots ownedwith outline (or better) planning consent at the year end(1998: 1,322 plots), Kier Residential is well placed tocontinue to increase its unit sales in 2000, subject tomarket conditions. The average cost of plots in stockwas £31,300 (1998: £32,500) which represented 24% ofachieved average selling price.

Operating profit, margins and returns on capitalGroup operating profit, including share of joint ventures,totalled £12.6m (1998: £8.3m), an increase of 52%.

In Construction a 25% increase was achieved at£4.0m. The margin on turnover of 0.47% is equal to1998’s. The result is stated after an operating loss of£1.5m in overseas construction, which has held theoverall margin below 0.5%. Margins on UK constructionimproved from 0.33% to 0.71%.

Homes & Property contributed operating profit of£12.0m (1998: £7.9m), an increase of 52%.Operating margins in Kier Residential reached 11.9%(1998: 10.4%) and in commercial property 9.3%(1998: 19.4%). Return on average capital employed inKier Residential was 16% (1998: 14%) and in Homes& Property overall, 18% (1998: 18%).

Central costs of £3.4m (1998: £2.8m) comprisethe net costs of promoting and bidding for PFIprojects of £1.0m (1998: £0.3m) and corporateoverheads of £2.4m (1998: £2.5m). Some of the PFIcosts will be recouped if projects now undernegotiation reach financial close.

Net interest receivable and treasury operationsNet interest receivable, including share of jointventures, totalled £1.2m (1998: £2.5m). Both interestrates and balances on deposit were lower than in1998. The Group’s liquid funds are invested largely inshort-term money market deposits with investmentgrade financial institutions where interest rates arechiefly influenced by UK base rates: these were onaverage 0.8% lower than in the previous year.

Balances fluctuated during the year due to seasonaland contract cycles and averaged £20m, which wassome £17m below 1998. Interest earned byConstruction rose to £7.0m (1998: £6.7m) due toincreased cash generation by the division, and interestcharged to Homes & Property rose to £3.0m (1998:£1.9m) following the substantial increase in land andwork in progress mainly as a result of the acquisitionof Bellwinch Homes, the work on remediating andservicing the land at Waltham Park and the start-up inScotland of Kier Homes. The central finance charge of£2.8m (1998: £2.3m) also reflects the increasedgroup investment in Homes & Property represented bythe acquisition of Bellwinch plc.

Profit before taxProfit before tax at £13.8m exceeded last year’s£10.8m by 28%. There were no exceptional orextraordinary charges or income this year. Last year’sresult included an exceptional charge of £0.6m arisingon the acquisition of Bellwinch plc. The increase inprofit before tax and exceptional charges was 21%.

TaxationThe corporation tax rate applicable to the period is30.75% (1998: 31%). The Group’s effective overall taxrate of 28% is lower than this as a result of substantialbrought forward losses in subsidiaries acquired in 1998which are available to offset current taxable profits inthose subsidiaries. Approximately £10m of tax lossesare available for offset against future periods.

Financial review

Compound growth in earningsper share since flotation in1996 has been 24% p.a.



DividendThe proposed final dividend of 6.3p (1998: 5.4p)makes 9.3p (1998: 8.0p) for the year, an increase of16%. The dividend is 3.3 times covered by currentundiluted earnings. Dividend growth since flotation in1996 has been 12.5% compound (based on thenotional 1996 dividend in our prospectus).

Total shareholder funds and share capitalRetained profits of £6.9m, together with proceeds of issue of 432,000 new shares (1.3% of shares inissue) of £0.8m, have increased shareholders’ fundsby 30% to £33.5m (1998: £25.8m). The pre-tax return on average shareholders’ funds was 46%(1998: 40%). The major proportion of the new shares issued were under the scrip alternative to the 1998 final and 1999 interim dividends. Thisscheme continues to prove attractive to a significantnumber of shareholders and has been retained for the 1999 final dividend, despite changes in thetaxation of dividends reducing somewhat its benefit to the Group.

Earnings per shareEarnings per share, on both a diluted and undilutedbasis, at 30.6p and 30.2p respectively, are increased by 35% on the previous year (1998: 22.7p and 22.4p respectively). Compoundgrowth in earnings per share since flotation in 1996 has been 24% p.a. The increase on previousyear in earnings per share (undiluted) beforeexceptional items is 24%.

Cash flow, facilities and foreign currencyexposuresNet cash outflow in the year of £7.1m (1998: inflow of £1.4m) comprised principally an inflow fromoperating activities of £18.8m (1998: £29.9m) andoutflows for capital expenditure and acquisitions of

£21.8m (1998: £26.7m). This demonstrates theGroup’s continuing ability to fund expansion fromoperational cash flow, while maintaining a healthyreserve of liquidity.

The operational cash inflow of £18.8m comprisedan inflow of £28.5m for Construction, offset byoutflows in Homes & Property of £7.4m principally to fund the increasing land-bank, and at the centre of £2.3m.

To protect its liquid position from seasonal andother fluctuations, the Group maintains a range ofbank facilities (on a stand-by uncommitted basis) of up to £25m. These were undrawn during the period.

The Group also has foreign currency risks arisingfrom its overseas operations. The Group has a number of overseas branches and subsidiariesoperating in a variety of countries and currencies. The Group’s currency exposure to overseas assets is hedged through intercompany balances andborrowings such that assets denominated in foreigncurrencies are matched, as far as possible, byliabilities. In addition, where there may be furtherexposure to foreign currency fluctuations, forwardexchange contracts are entered into to buy or sell the foreign currency as required.

D V BrandFinance Director

Profit before tax (£m) Dividend per share (p) Earnings per share (p)


Each of Kier Regional’s businesses has experienced agrowth in turnover during the year and many of thebusinesses have turned in excellent profit performances

Kier Regional

Above left Princess Park,Sutton Coldfield, a retail andleisure scheme by MossConstruction for CastlemoreSecurities Limited.

Left New cable stayedpedestrian footbridge at Royal Victoria Dock by Kier London.

Above Monks Fryton C of EPrimary School in Yorkshirebuilt by Kier Northern.



Turnover


Right Members of KierSouthern’s construction team at Watford where the company is extending a Tesco store under apartnering arrangement.




Kier Regional continued

Mid-range construction contracts by locally managedbusiness units across the UK

Kier Regional provides a comprehensive constructionservice, throughout the UK, via branded unitsoperating from 28 strategically located offices. It isthe diversity of workload and the inherent flexibility ofa decentralised structure that enables Kier Regional toadapt quickly to changing market conditions andoptimise performance.

The increase in market penetration by Kier Regionalhas been the most noteworthy feature of 1999.Turnover has increased by 27% to £521.5m andawards in the year were 10% up at £457m,significantly the highest levels since the Group wasformed in 1992. New build orders have seenconsiderable growth over the past five years and ourperformance in the leisure sector and commercial fit-outmarket has been impressive, in line with our strategicdevelopment plans. We have also seen a steady rise inour share of the industrial construction market.

An average value of contracts in progress of £2.1mand a high degree of activity from our small works andterm maintenance teams, demonstrates that we are intune with the market at all levels. 51.4% of the 362contracts awarded in the year were valued at£500,000 or less with the largest single contractbeing £13m.

The private sector continues to predominate andrepresents over 82% of awards. More retail andcommercial business has been won, these two areasaccounting for about 40% of Kier Regional’s awardsfor the last two years. Continued emphasis is placedon repeat business with key account clients. Almost30% of Kier Regional’s work was awarded on anegotiated basis.

Key indicators of performance are monitored on a regular basis. This process has enabled us toreduce our cost base to the benefit of our clients and the business.

Each of Kier Regional’s businesses has experienceda growth in turnover during the year and many of thebusinesses have turned in excellent profitperformances.

Kier WesternBristol, Plymouth, Truro, Exeter, NewportContinued its strong presence in the retail market with stores for J Sainsbury in Exeter and Sherborneand a further scheme in South Wales for PillarProperties. A major leisure development for Warnerswas recently completed at Cricket St.Thomas inSomerset which, together with a multiplex cinemacontract in Devon for Apollo, increases its presence in the hotel and leisure sector. On the industrial front,Kier Western has secured another project with Dyson Appliances.

Kier SouthernMaple Cross, Havant, SouthamptonSaw an interesting diversity of work including a new£2.5m centre for the RSPCA and a major



refurbishment of the Salvation Army headquarters atElephant and Castle, London. Work has continued forSmithKline Beecham, the University of SurreyGuildford, and on a third contract in Chertsey withCountryside Commercial Properties. The £4.7mMillennium Centre office scheme in Farnham forFarnham Estates was completed and a Tesco ExtraSuperstore is well under way in Watford.

WallisBromley, Maidstone, LewesContinued to strengthen its existing customer basewith further contracts for British Telecom, RoadChefand Pfizer during the year. The high qualityrefurbishment market has been a major feature of the Wallis workload with projects at Hampton Court,Imperial College and the University of Greenwich.These contracts have also involved our in-houseproduction divisions, Wallis Joinery and BroadmeadProducts. Wallis Interiors has bolstered its positionduring the year with fit-out projects for Liberty’s, Doc Marten and at the Rock Circus in Piccadilly.Maidstone office has enjoyed further superstoresuccess with Tesco and the Co-operative Wholesale Society.

Kier LondonLoughton, AbridgeHas negotiated an £8.5m office project for City andWest End Developments and has secured the first£6m stage of a two stage project at Imperial College.The scheme is adjacent to an existing contract, the£13m Queen Charlotte Hospital in Hammersmith.

Moss ConstructionCheltenham, Birmingham, NewburyContinues its successful partnering arrangement withArlington Property Developments at Oxford BusinessPark and is now also engaged at Gloucester BusinessPark. Completed projects include a 180-bed hotel at theNEC and a £6m warehouse for Waitrose. Interestingprojects currently under construction range from anindoor cricket centre at Edgbaston to a new Europeanheadquarters for Avon Rubber.

Left Repairs, alterationsand associated worksfor English Heritage atEltham Palace by Wallis.

Right Britain’s firstcontinuing care retirementcommunity at NewEarswick in York built byKier Northern for JosephRowntree Housing Trust.

Above right A new design & build leisure centre forQueens Moat House,Peterborough, by FrenchKier Anglia.

The increase in marketpenetration by Kier Regionalhas been the mostnoteworthy feature of 1999.



French Kier AngliaWisbech, Witham, NorwichAchieved a ‘double’ by the award of the £6m annexeas a follow-on to their RAF Lakenheath Hospitalproject. Other contracts included a recently awarded£3.8m project in Chelmsford for CountrysideCommercial Developments and a school in Wickford,Essex chosen as a demonstration project for the ideasencapsulated in the Egan report, ‘RethinkingConstruction’.

Marriott ConstructionRushden, Nottingham/ShepshedMaintained good levels of negotiated work and repeatbusiness on an increased turnover, with emphasis onthe industrial and commercial sectors. During the yearthe company has worked for a number of establishedclients including Pillar Properties, R Griggs Group,Helical Retail and Livingwell Health Clubs.

Kier NorthernBoston Spa, Durham, Carlisle Completed a £4.5m contract for refurbishment workand a multi-storey car park at Leeds Central Station.On the same site a £12m office development forTeesland Developments is also nearing completion.

Moss NorthernLiverpool, ManchesterContinued to operate successfully across a broad rangeof construction sectors. Recent major completionsinclude a Morrisons superstore at Nelson and the re-roofing of Piccadilly Railway Station in Manchester.New projects started during the year include furtherworks on the listed buildings of Manchester Museumof Science and Industry and a new B & Q Warehousedevelopment at Speke in Liverpool.

Kier Scotland/Kier Project ManagementGlasgowKier Project Management concluded a £15m contractfor the refurbishment of the Standard Lifeheadquarters in Edinburgh. It acted as fund projectmanager for the £34m Dynamic Earth project, amillennium-funded visitor attraction, also in Edinburgh.The building was opened by HM The Queen on 2 July.Work continues on the Hairmyres PFI Hospital, whereKier Project Management represents HDGH Ltd, thecompany formed to hold the PFI concession. Maincontractor activities this year included a stationrefurbishment for Railtrack, a distribution depot forRobert Wiseman Dairies (in association with MossNorthern) and a major design & build entertainmentcomplex including an 18-screen cinema for E & JGlasgow Ltd and operators Virgin.

IEI – Building Services EngineersBasingstokeContinued to grow turnover and profit. Projects havebeen completed for Arlington Property Developments,Countryside Commercial Developments, SloughEstates, Lend Lease and Whitecliff Properties.Schemes included offices, a bottling plant, anautomated warehouse and the refurbishment ofHamleys toy store.

Kier Regional continued

Above Extension to the GeffryeMuseum by Kier London.



Kier FM

Comprehensive facilities management servicesthroughout the UK for both public and private sectors

Within the Group, two specialist FM companiescomprise the core of our FM activities, turning over£32m in 1999. In addition, many of Kier Regional’soffices are active in term maintenance and facilitiesmanagement for clients within their area, with a further£12m of identified turnover this year.

Caxton Facilities Management Caxton Facilities Management saw its turnover increaseby a further 28% in the year, renewing all its majorcontracts on expiry, and adding a number of new ‘bluechip’ clients, including Coca-Cola & Schweppes, Wales& West Housing Association and Cardiff InternationalAirport. Management of 23 sites across the UK for theHealth and Safety Executive and MAFF offices atAberystwyth and Carmarthen were also awarded.

FM Contract ServicesFM Contract Services, operating in many of London’sboroughs, maintained its turnover with major housing-stock maintenance contracts at the London Boroughsof Camden and Sutton, among others, and with ongoingFM contracts for the London Borough of Bexley.

The PFI features largely in the many FM opportunitiesnow being pursued, with the potential long-term ordervalue of those projects where a Kier company iscurrently ‘preferred bidder’ now totalling £120m.

Bottom Many of KierRegional’s offices are activein term maintenance andfacilities management.

Below Cunningham, Ellis &Buckle in Cardiff, one of themany prestigious complexesmanaged by CaxtonFacilities Management.

Turnover

£32.2mIncrease 36%


Kier National

Kier National’s UK operations havecontinued to perform well, particularly inthe civil engineering and building sectors

Above Main civil works for390 MW CCGT power stationin Enfield for ABB PowerGeneration Limited by KierConstruction.

Above Smotherfly opencast coal-mine in Derbyshire. Work by Kier Mining includesreclamation of land.

Above right Work at Wimbledon Loopby Kier Rail as part of Railtrack’sstation regeneration programme.

Right Kier International, in joint venturewith Hyundai, is building 6.3 km ofrunning tunnels as part of the MassTransit Railway extension in Hong Kong.



Turnover




Kier National continued

Major civil engineering, mining and building projects in the UK and overseas

Kier National’s UK operations have continued toperform well, particularly in the civil engineering andbuilding sectors. Order books in these sectors remainstrong and turnover has continued to increase.Internationally the market place remains difficult andthis has been reflected in a disappointing trading result.

Continued emphasis has been placed on partneringthroughout the operations and the benefits areevidenced through repeat civil engineering work in thepower, defence and nuclear sectors and building workwith MAFF and the Ministry of Defence. Kier Defencehas been formed to cater specifically for the newprocurement requirements of both the Ministry ofDefence and Defence Estates.

Kier ConstructionOperating throughout the UK in the civil engineeringsector, Kier Construction has maintained its position asthe UK’s foremost power sector contractor. SaltendPower Station for Raytheon is now well advanced andEnfield for ABB has been completed. Further awardshave been secured at Damhead Creek for Raytheonand Shoreham for ABB.

Partnering remains an important part of thebusiness in the power sector as well as at Sellafieldand Devonport Dockyard. The first BNFL/contractoralliance has been secured for the renewal of thesurface water drainage and other contracts havebeen awarded resulting in a record level of work atSellafield. At Devonport Royal Dockyard theKier/Devonport Management Limited partnership hascompleted the 15 Dock project on time, overcomingsignificant early delays and incorporating majoradditional works.

Kier Rail Work has continued on the Station RegenerationProgramme for Railtrack Southern Zone and, despitethe proposed reduction in workload under theextended arm contract, Kier Rail has now completed238 stations with a further 34 in progress.

Progress on the £28m Brighton Station roofrefurbishment is well advanced and Kier Rail receivedthe Railtrack Chairman’s Environmental Award for 1999.

The division has been awarded further work atWillesden Station and is successfully expanding itsclient base through being selected as preferred bidderon the West Coast Train Care project.

Kier MiningDuring the year at the opencast site at Smotherfly in Derbyshire, Kier Mining completed the remaining132,000 tonnes of coal extraction for RJB Mining and the earthmoving fleet began the task of restoringthe land.

The Gasswater contract, awarded last year, forScottish Coal got under way in July and by Februarythe infrastructure and mining sequences were in place and coal production commenced. Two newDemag excavators have been purchased to assist

Continued emphasis has been placedon partnering throughout theoperations and the benefits areevidenced through repeat business



this contract together with a purpose-designed coalcrushing plant.

Overseas the Comedat phosphate mines in Jordan,which we operate through a joint venture company,have substantially exceeded production expectationsand during the year some 18.1m cubic metres ofoverburden had been removed and some 4.4m tonnesof phosphate produced and transported from the twoseparate orebodies. Negotiations are being carried outwith our client, Jordan Phosphate Mining Company, tosecure further works.

Kier Plant The Group’s plant hire company, which hirescontractors’ plant to Kier Group companies andexternal customers, continued to expand with furtherinvestment in new equipment. A strategic alliance has

been established with the Belgian tower cranecompany, Arcomet and the tower crane hire andoperational capability has been strengthened through increased resource. The operation has alsobenefited from increased investment in mobile siteaccommodation together with a general increase in utilisation rates.

Kier BuildDuring the year Kier Build, the Group’s majorbuilding projects arm, continued its planned growthand development with a number of significantawards, mainly design & build projects. Theseincluded a £36m office development for HilstoneCorporation at Northcliffe House (the old ‘Daily Mail’building south of Fleet Street), a £28m mixeddevelopment for Castlemore Securities at Grenfell

Left Kier Plant, the Group’splant hire company, hirescontractors’ plant to KierGroup companies andexternal customers.

Right Tesco Extra,Peterborough, part of a 27,770 m2 retaildevelopment by Kier Build.

Above Design andconstruction of £36mhospital for Medway NHS Trust by Kier Build.




Island, Maidenhead and an £18m project for MAFF atWeybridge.

The development for DERA at Porton Down is now well advanced and scheduled for completion laterin the year. In London good progress is also beingachieved on both the office development for Heronspanning City Thameslink, and the Wellcome Wingextension to the Science Museum.

This year has seen the completion of the challenging£25m retail development in Peterborough for Spen HillProperties which includes the largest Tesco on a singlefloor in the UK, which opened on time.

In health, good progress has been achieved atHairmyres, Scotland’s first PFI hospital. The MedwayHospital in Gillingham, a £36m design & build project,opened earlier this year.

Work has started on Project Paragon, a new design& build corporate Headquarters & Technology Centrefor TAG McLaren at Woking, which is a majordevelopment for the Formula One racing team.

Kier International Kier International has had a difficult year. Acombination of delays in contract awards withconsequent under-recovery of overheads together witha number of troublesome contracts has produced anunsatisfactory result for the year. Changes have beenimplemented to strengthen the management of thebusiness and to reshape and refocus the operations.We remain convinced that, with selective tendering andeffective risk management, international work canprovide satisfactory returns.

The operation in Hong Kong has suffered from theeffects of the slowdown in major contract awards.However awards have been more forthcoming thisyear. A further contract for MTRC has been secured injoint venture with Hyundai for the construction of fiveinter-linked tunnels extending over 6.5 kilometres. Acontract for KCRC, in joint venture with a localcontractor Zen Pacific, has been awarded for theconstruction of a station at Mei Foo, part of the WestRail Project, running up the West Side of Kowloon. Thecompleted, technically demanding, central subwayproject in Hong Kong for MTRC was recognised with aBritish Construction Industry Award during the year.

The strategic alliance with Commercial ContractingCompany of San Antonio, Texas currently operating inSuriname continues to secure further opportunitiesthrough its long-standing relationship with ALCOA.

The Caribbean operation has remained active,particularly in hotel building. In Barbados, workcontinues on an extension to the Garrison Hotel andprogress has continued on the refurbishment of theSandy Lane hotel. In Jamaica, work has completed onthe Couples hotel.

Kier International has successfully explored newmarkets with its first awards in India for two powerprojects, one for Marubeni and the other in jointventure with the international Belgian contractor Besixfor Enron. These technically demanding projectscomprise offshore works for two major powerstations, one of which will complete next year, and theother in 2002. Negotiations continue towards acontract award for a housing and water supply projectin Romania. The strengthening order book in certainareas together with a refocus on specific geographicallocations should provide a firm platform for the futuredevelopment of the international business.

Below Shing Mun Valley Sports Ground in Hong Kong by Kier International.

Kier National continued



Kier Project Investment

Investment and Concession Management under thePrivate Finance Initiative

Kier Project Investment continues its focused pursuitof concessions under the Government’s PrivateFinance Initiative (PFI). Sectors targeted are health,education and MOD accommodation where the Groupcan utilise its traditional strengths in construction,facilities management and commercial and residentialdevelopment to provide competitive delivery of theservices required by the public sector.

The concession to construct and manage the non-clinical facilities of the new hospital at Hairmyres, East Lanarkshire, signed last year, is proceeding well.It is probable that this facility will be available sixmonths ahead of programme, a demonstration of theefficiencies which can be achieved when comparedwith traditional procurement methods, to the benefit ofboth the taxpayer and the concessionaire.

Kier is involved in a number of projects which areshortlisted or at preferred bidder stage. The processof bringing PFI deals to financial close is still toolengthy and expensive. It is hoped that the advent ofPartnerships UK as the new Government-sponsoredfunding and investment partner will assist the publicsector in streamlining its procedures to achievequicker and consequently cheaper contracts.

Notwithstanding the frustrations and delays currentlyinherent in the process, we expect to achieve financialclose on a number of projects in the coming year.

We believe that PFI, in addition to providingprofitable work for the Group’s core business, alsogenerates opportunities for investment which willproduce good returns in the form of dividends over along period and an investment which will providecapital growth over time.

Above Construction andmanagement of the non-clinicalfacilities of the new Hairmyres &Stonehouse NHS Trust Hospitalin East Lanarkshire, Scotland.

PFI, in addition to providingprofitable work for the Group’score business, also generatesopportunities for investment


Kier Residential

A key strength in Kier Residential, inaddition to its expertise in development of greenfield and complex brownfield sites,is its strategic land portfolio

Below Kier Homes’ ‘Tantallon’show house at Weymss Bay,Scotland.

Below Bellwinch Homes’‘Lancaster’ Edwardian stylehouse type at Cedar Grange,Buckinghamshire.

Above right A TwigdenHomes’ ‘Aragon’ Tudor stylehouse type at Reigate.

Right Twigdens Homes’show house at ‘TheFairways’ Brampton,Cambridgeshire, a selectdevelopment of 4 and 5bedroom executive homes.



Turnover

£84.9mIncrease 66%




Kier Residential

High quality private residential development in SouthEast England and Scotland

Kier Residential has achieved a number of milestonesin the year with the consolidation of the Bellwinchbrand, commencement of trading in the Central Belt ofScotland through Kier Homes and the conversion ofanother substantial parcel of strategic land in theSouth East, which were all targeted at the beginning ofthe year. These have enabled Kier Residential tofurther strengthen its trading assets to provide a solidplatform for continued growth.

This year’s trading achieved 610 unit completions(1998: 486 units) with average sale prices increasing27% to £130,400 per unit (1998: £102,800). Duringthe year Kier Residential also improved its product mixwith the introduction of its very successful Tudordesigns which have produced sales values in excessof £750,000 per unit on select developments.

We remain very sensitive to changing marketrequirements, with a determination to keep our house

styles and specifications ahead of the competition.We are therefore continually developing new rangesand specifications to suit each of our operating areasand their respective planning requirements. There isalso a focus on quality and this commitment hasproduced three NHBC Pride in the Job Awards for oursite managers in the year. A continuous trainingprogramme with our own staff and partneringinitiatives with subcontractors will maintain productquality at a high level.

Twigden HomesDuring the year Twigden Homes has substantiallycompleted its significant development at Sandy,Bedfordshire where in excess of 500 homes havebeen built and sold since this former strategic sitecommenced in 1994. Work has begun on theinfrastructure for a further major development from the strategic land portfolio at Royston,Hertfordshire, where 288 plots were acquired in January 1999.

Bellwinch HomesBellwinch Homes has increased market awareness andprofile of the brand name in its area of operationsfrom north of London to the South Coast. This,combined with improved specification and house typedesigns has already, in its first year with KierResidential, improved operating performance.Bellwinch Homes has developed a new range ofhomes under the Essex Design Guide, comprising 1 and 2 bedroom apartments up to 5 bedroomdetached homes, specifically for its new developmentat Waltham Park. This landmark brownfielddevelopment will commence production in September1999 with complementary development phases byboth Twigden Homes and Bellwinch Homes. KierResidential has continued to invest in new land forfuture growth at Bellwinch Homes and a further 350plots have been acquired in the year since acquisition.



Kier HomesIn the Central Belt of Scotland Kier Homes has furtherinvested in prime locations and work has commencedon a scheme near Erskine, which will provide threeyears’ production and also on a select development onthe Inverclyde coast, in addition to the successfulscheme at East Kilbride.

The year has seen a significant increase in tradingassets with stock of land held for development up by£16m (36%). Land acquired in the year exceeded1200 plots with planning permission with a futureaverage sales price in the region of £135,000 perunit. The resultant land bank at 30 June 1999comprised 1955 plots at an average cost of £31,300per plot (1998: 1322 at £32,500).

A key strength in Kier Residential, in addition to itsexpertise in development of greenfield and complexbrownfield sites, is its strategic land portfolio. Acombination of outright ownership, option andcollaboration agreements has the potential to produceup to 5000 residential plots in the future. It is KierResidential’s intention to further strengthen itsstrategic land team and promote existing option sitesand identify further strategic land opportunities.

Left Twigden Homesdevelopment atBrigstock, Northants.

Top right BellwinchHomes’ ‘York’ Tudorstyle 5 bedroomexecutive home inCobham, Surrey.

Key to mapsTwigden HomesBellwinch HomesKier Homes

Centre right Dining room of the show house atBrigstock, Northants.

Right One of a series ofapartment blocks in alandscaped setting near the centre of Norwich, by Twigden Homes.



Commercial property development

During the course of the financial year, Kier Ventureshas seen significant activity. The development of 49acres on the M25 at Waltham Abbey, where we are injoint venture with Norwich Union Life and PensionsLimited, has progressed well during the year withremediation and recontouring of the land nowcomplete. The M25 link road will open in the autumn.

Healthy interest has been shown from majoroccupiers with large space requirements and alsofrom hoteliers. Negotiations are currently under waywhich are likely to lead to development projectscommencing in the new financial year.

At Haverhill a seven acre site with an existingdevelopment consent has been purchased. TwigdenHomes has taken half of the site and development ofthe balance has commenced with the pre-letting of 35,000 sq.ft. to Great Mills. The remaining unit of10,000 sq.ft. will be marketed in the autumn. Followingconstruction by French Kier Anglia, Great Mills tookoccupation of its unit in August. Terms have also beenagreed for the development of a fast food outlet,subject to planning permission being granted.

Detailed negotiations are also proceeding with majoroccupiers for land in Northamptonshire where planningpermission has been given for a large distributionfacility. We hope to announce completion of ournegotiations in the autumn of 1999.

Disposal of a two acre industrial site in Park Royalhas been made to an owner occupier. The site hadpreviously been held on an income producing basis.

At Cheshunt, a town centre site has been securedand a planning application for a 38,000 sq.ft. foodstore was made in December 1998. We are confidentof securing a sale to a major retailer.

New offices for Kier Ventures have been opened inLondon and Birmingham and the Company continuesto seek out development opportunities where valuecan be added and risk managed to secure acceptabledevelopment returns.

Left and above HaverhillRetail Park, Suffolk, a nineacre mixed development.

Kier Ventures Turnover

£20.3mIncrease 51%



Kier and SafetyMany construction operations are potentiallydangerous to those engaged in them or to membersof the public. Kier has a vigorous and proactiveapproach to safety, designed to prevent accidentsand, where they do occur, to learn lessons rapidly andspread best practice across all our operations.

There is a designated director responsible for healthand safety matters on the Group Board and on eachsubsidiary board. In the UK, 37 full-time safetyadvisors operate under the leadership of the Group’shealth and safety manager, reporting directly to theGroup safety director.

The safety advisors’ roles are:• to monitor Group operations to ensure safe

working practices• to educate and train staff at all levels in safety

awareness and best practice• to investigate and report any incidents that occur• to liaise with the Health and Safety Executive

(HSE) and other public organisations and to ensurecompliance with legislation on health and safety issues.

Kier believes its safety record is among the best in theindustry and seeks to maintain a close and co-operative relationship with the HSE. Nonetheless,incidents do occur, some of them serious, which theGroup greatly regrets.

The Group’s ‘incidence rate’ (a measure of frequencyof reportable accidents per 100,000 employees) was902 during the year. The benchmark in theconstruction industry, as measured by the HSE, was1508. Kier is in the top ten of major contractors bythis measure.

British Safety Council Moss Northern 1996, 1997 & 1998

French Kier Anglia 1996, 1997 & 1998

Caxton Facilities Management 1997 & 1998

ROSPA Bronze Award Kier Construction 1998

Resident engineer

Main Contractor Shield Kier Construction Sellafield

SED Safety Award Kier Plant 1998 & 1999

Awards given by clients Kier London Contract 4026 for

one year accident free.

French Kier Anglia Anglian Water

Contractor award.

Kier and the EnvironmentEnvironmental awareness is on the increase and as a leading UK construction group, Kier recognises itsresponsibilities to contribute to environmentalimprovement and sustainable development. Our policyis to promote and achieve protection and enhancementof the natural environment whilst providing improvementand necessary maintenance of the built environment.

During the past year we have reviewed our positionon the environment and, after extensive externalconsultation and internal discussion, have decided tolaunch a revised Environmental Policy and strategy forthe Millennium. Our revised Kier Group EnvironmentalPolicy document will shortly be published and will setout our aims and objectives in this area. It will besupported by the aims and objectives of individualoperating companies derived from internal environmentalsurveys and external benchmarking data. This will befollowed by further awareness and training sessions.Already more than fifty such internal courses havebeen held with key personnel. On the Group Board and on all subsidiary boards, directors have beennominated to carry the new policy forward.

Other environmental achievements this year includethe award to Kier Rail of the Railtrack ‘Chairman’sEnvironment Award 1999’ for Brighton Station. BothKier Rail and Kier Construction Civil EngineeringDivision became registered to ISO 14001 forenvironmental management. The Group also joined twoBritish Research Establishment steering groups: theBRE Environmental Body and the BRE & ManchesterUniversity Steering Group for Construction andDemolition Waste Assessment.

Environment & Safety

Below Colin Busby (right)pictured receiving the‘Chairman’s EnvironmentAward’ from Railtrackchairman Sir Robert Horton.

The Group’s safety record has been recognised by many awards in recent years including:



The recruitment, development and retention of bright,skilled and committed people is vital for Kier to remainin the forefront of the industry and to continueprofitable growth. Kier’s employment policiesrecognise this and extensive training and staffdevelopment programmes are carried out under thedirection of the Group’s training and personneldepartments at our Tempsford Hall headquarters.

During 1999 training courses covering 40 differentsubjects were delivered to all levels of staff fromgraduates to directors.

Kier has recruited additional graduates fromselected universities regularly over the past decade.This year we are providing career opportunities toover 50 young men and women in disciplines includingbuilding, civil engineering and quantity surveying. Manyof our directors and senior managers originally joinedthe Kier organisation as trainees or graduates andhave developed successful careers within the Group.

Kier Engineering Services

Kier Engineering Services provides technical adviceand engineering support to all Group companies inboth permanent and temporary work designs.Overseas engineering support has been provided forprojects in India, Hong Kong and the Caribbean. Thedepartment also provides valuable in-house training forgraduate engineers.

Kier’s commitment totraining and staffdevelopment

Left and below Training coursescovering 40 different subjectswere delivered to all levels ofstaff from graduates to directors.


Directors’ report

The directors present their annual report and audited financial statements for the year ended 30 June 1999.

Principal Activities and Business ReviewThe Group’s principal activities are construction and residential and commercial development.

A review of the Group’s business and progress is given within the Chairman’s Statement, Financial Review and Review ofOperations on pages 4 to 28.

Results and DividendsThe Group profit for the year after taxation was £9.9m (1998: £7.2m).

An interim dividend of 3.0p per share (1998: 2.6p) amounting to £1.0m was paid on 12 May 1999. The directors propose a finaldividend of 6.3p per share (1998: 5.4p per share) amounting to £2.0m payable on 14 December 1999 to shareholders on theRegister of Members at the close of business on 8 October 1999.

Share CapitalDetails of shares allotted by the Company during the year appear in note 19 to the financial statements.

DirectorsThe directors of the Company during the year are listed on pages 2 and 3.

At the forthcoming Annual General Meeting resolutions will be proposed for the re-election of Mr J Dodds and Mr D Homer asdirectors of the Company. At that date, the unexpired terms of the contracts of employment with the Company of Messrs Doddsand Homer will be twelve months.

Service AgreementsThe executive directors of the Company have twelve month rolling term contracts and are permitted to hold externalappointments only with the approval of the Board of Directors.

Remuneration PolicyThe remuneration policy in respect of executive directors is to ensure that individual remuneration reflects the performance of theCompany, the performance of each director, and the interests of the shareholders; and that the overall remuneration packageenables the Company to attract and retain high calibre executives. In each case, the emphasis is on performance over the longerterm. The Remuneration Committee retains external advisers and also consults a number of surveys which analyse levels ofremuneration in broadly comparable companies.



Directors’ report continued

Directors’ EmolumentsThe value of all emoluments receivable by each director in respect of the year ended 30 June 1999 was as follows:

Salary Total& Fees Benefits Bonus 1999 1998

£000 £000 £000 £000 £000

C R W Busby 223 14 22 259 240P F Berry 19 – – 19 17D V Brand 155 8 16 179 170P G Corbett 19 – – 19 18J Dodds 155 7 16 178 167D Homer 142 7 14 163 149M P W Scarth 164 7 16 187 175P T Warry 19 – – 19 1

896 43 84 1,023 937

A bonus is paid to executive directors at a percentage of annualised basic salary (not exceeding 10%) if Group pre-tax profitattains a pre-set target.

Benefits comprise the provision of a motor car, fuel, mobile phone and private medical insurance.

Mr Berry’s remuneration is paid to The Crown Agents for Oversea Governments and Administration Limited.

Directors’ PensionsExecutive directors participate in the Kier Group Pension Scheme which is a defined benefit scheme. The main terms andparameters of the scheme are disclosed in note 6 to the financial statements. Only the basic remuneration excluding anyconditional payments is pensionable. Pension benefits earned by the directors during the year are disclosed below.

Increase in accrued Transfer value Accumulated totalpension over of increase in accrued pension at

the year accrued pension year end£000 £000 £000

C R W Busby 13 103 130D V Brand 20 92 109J Dodds 9 71 85D Homer (see below) 3 16 48M P W Scarth 9 69 100

The change in accrued pension during the year excludes any increase for inflation.

Transfer values have been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11 lessdirectors’ contributions.

Members of the Scheme have the option to pay Additional Voluntary Contributions; neither the contributions nor the resultingbenefits are included in the above table.

The accumulated total accrued pension of the chairman, who is the highest paid director, as at 30 June 1998 was £116,000.




The Company operates a funded unapproved retirement benefit scheme (‘FURBS’) for the benefit of Mr Homer. As Mr Homerjoined the Company after 1 June 1989 his benefits from the Kier Group Pension Scheme are based on a capped annual salary in accordance with Inland Revenue requirements, currently £90,600. During the year the Company contributed £43,000 (1998: £40,000) to the FURBS, a defined contribution scheme. The amounts payable on retirement from the FURBS are notincluded in the table set out above.

Directors’ Interests and Share OptionsThe directors of the Company are shown below. They had the following beneficial interest (including interests of dependent familymembers) in the Ordinary Shares of the Company:

30 June 1999 1 July 1998Options Options

Ordinary Performance Ordinary PerformanceShares Related Sharesave Shares Related Sharesave

C R W Busby (chairman) 624,066 84,470 986 603,297 76,470 986P F Berry (non-executive) 3,800 – – 3,800 – –D V Brand 488,977 84,470 476,560 76,470 –P G Corbett (non-executive) 1,975 – – 1,975 – –J Dodds 550,364 84,470 – 539,160 76,470 –D Homer 56,315 84,470 986 56,315 76,470 986M P W Scarth 394,924 84,470 986 390,564 76,470 986P T Warry (non-executive) 4,755 – – – – –

At 21 September 1999 the following directors had acquired beneficial interests in further Ordinary Shares: Mr CRW Busby,12,762 shares; Mr MPW Scarth, 8 shares. There had been no changes in the interests of the other directors since 30 June 1999.

The exercise prices of options granted to directors is 189.5p for options granted this year and 170p for other options. The market price of the Ordinary Shares at 30 June 1999 was 279p. The range during the year was 189.5p to 279.0p. All Performance Related Options expire ten years after the date that they were granted.

The Performance Related Options were granted on 5 December 1996, 6 December 1996 and 14 October 1998 and becomeexercisable after three years subject to the Company’s total shareholder return over this period outperforming 75% of a peergroup of 20 selected companies in the building and construction sector. Options do not become exercisable if the Company isbelow the median position of the peer group. If the Company is at the median position, 50 per cent of the shares could beacquired on exercise, between median and next quartile the amounts exercisable are pro rated.

The Sharesave Scheme Options were granted on 14 January 1997 and become exercisable in March 2000.

During the year 8,000 performance related options were granted to each of the executive directors and no options wereexercised or lapsed.

Substantial ShareholdingsAt 21 September 1999 the Company had been notified of the following interests in the ordinary share capital of the Company:

Standard Life Group 7.1%Electra Investment Trust Plc 6.4 %Fleming Mercantile Investment Trust Plc 4.5%

EmployeesThe companies in the Group are equal opportunity employers. The Group provides relevant information on matters of concern toemployees through newsletters and formal and informal meetings with local management. The Company operates a Sharesavescheme for all eligible employees and makes available a dealing service to enable employees to buy and sell its shares with aminimum of formality and on attractive commission terms. The Group encourages and assists, whenever practicable, therecruitment, training, and career development of disabled people and the retention of those who become disabled during thecourse of their employment and who can be employed in a safe working environment.




Combined CodeA statement on Corporate Governance is set out on pages 33 and 34.

Going Concern BasisAfter making enquiries, the directors have a reasonable expectation that the Group has adequate resources to continue inoperational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing thefinancial statements.

DonationsGroup donations to charity in the United Kingdom were £21,000 (1998: £7,000). No political donations were made (1998: nil).

Year 2000 StatementThe Group has established a working party chaired by the Group finance director, to manage the business risks relevant to Year2000 compliance.

Under the guidance of the working party, all critical systems operating within the Group have been identified and where necessaryare being modified or replaced. The process has been helped by the introduction of a new Group-wide business system which has facilitated the move to compliant systems. Additional costs of ensuring systems are Year 2000 compliant are not considered material.

It is recognised that the Year 2000 problem is a complex issue, and while the Board has identified and acted upon known issues,there will always be a risk associated with our dependency on third parties. In consultation with our major trading partners, wehave identified critical areas and sought confirmation that these risks have been mitigated.

Policy on Payment of CreditorsThe Group agrees payments with its suppliers and subcontractors on an individual contract basis rather than following a standardcode. The policy is to abide by these agreed terms whenever it is satisfied that the suppliers or subcontractors have providedthe goods or services in accordance with the contract terms and conditions. The aggregate amount owed to trade creditors bythe Company at the end of the year was nil.

Subsidiary trading companies within the Group, acting in accordance with the above policy, exhibit creditor days averaging 38(1998: 43) in respect of suppliers of invoiced goods and services and 26 (1998: 27) in respect of certified amounts due tosubcontractors. These figures exclude amounts not currently due for payment but included within trade creditors.

AuditorsA resolution for the reappointment of the auditors, KPMG Audit Plc, will be proposed at the Annual General Meeting.

By Order of the Board

D V BrandSecretary 22 September 1999

Tempsford HallSandyBedfordshireSG19 2BD



Corporate governance

The CodeThe Board recognises the importance of high standards of corporate conduct and is committed to managing the Group’soperations in accordance with the best principles of corporate governance as contained within Section 1 of the Combined Codeissued by the Committee on Corporate Governance and has complied with the Code throughout the year except in relation to theNomination Committee which was established on 18 August 1999.

Board of DirectorsThe Board of Kier Group plc comprises five executive and three independent non-executive directors.

The roles of chairman and chief executive are held by one director. The Board considers this arrangement provides effectiveleadership and is appropriate for the governance of Kier Group plc in view of the balanced nature of the Board, which has astrong and independent non-executive element, including a recognised senior member, and a well established and experiencedexecutive element. This coupled with clear board procedures for decision making ensures that there is no undue concentration ofpower in any one individual.

The Board has nominated Mr P G Corbett as the senior independent director for the purposes of Provision A.2.1 of the Combined Code.

The Board meets regularly throughout the year and has responsibility for the strategic and financial policies of the Groupincluding monitoring and reviewing business performance.

Audit Committee The Audit Committee comprises the three non-executive directors under the chairmanship of Mr P G Corbett. The Committeemeets generally three times a year and will usually request the attendance of the Group finance director.

The Committee’s objects are to keep under review the Company’s accounting and financial policies and controls to satisfy itselfthat appropriate audit arrangements are in force and relationships with external auditors are properly managed and to ensure theintegrity of the financial statements and other information published by the Company.

Remuneration CommitteeThe Remuneration Committee comprises the three non-executive directors under the chairmanship of Mr P F Berry.

The Remuneration Committee which meets generally three times per year makes recommendations to the Board on theCompany’s framework of executive remuneration and determines on its behalf specific remuneration packages for each of theexecutive directors.

Nomination CommitteeThe Nomination Committee comprises the chairman and three non-executive directors. It is responsible for monitoring thecomposition and balance of the Board and making recommendations to the Board on new Board appointments.

Internal Financial ControlThe combined code has introduced a requirement that the directors review the effectiveness of the Group’s system of internalcontrol. This extends the directors’ review to cover all controls – including operational, compliance and risk management – as wellas financial controls. The Institute of Chartered Accountants in England & Wales has established a working party to provideguidance on the new requirements and a Consultation Draft was published in April 1999. The directors will seek to ensure that theGroup complies with this guidance when it is finalised. Until then, in accordance with Stock Exchange advice, the directors havecontinued to follow the existing guidance issued in December 1994, for the review of the effectiveness of internal financial control.

The Board of Directors has overall responsibility for the Group’s system of internal financial control.

The directors have established an internal control framework which is designed to provide reasonable but not absolute assuranceagainst material misstatement or loss. In reviewing the effectiveness of internal financial controls which have been developed andrefined over many years the directors have considered the key risks and exposures within the Group.



Corporate governance continued

The principal financial controls are:-

• an established management structure operating throughout the Group;

• clearly defined operating guidelines and procedures with authorisation limits set at appropriate levels;

• a comprehensive budgeting system which is regularly reviewed and updated;

• regular comparison of actual results against latest forecasts; and

• a system of self-examination and self-certification of financial controls by subsidiaries.

The Board receives regular reports from all operating units to monitor their performance and all directors are properly briefed onissues arising at Board meetings.

During the course of the year members of the Board visit all companies and monitor the control framework of each business.The Audit Committee reviews the appropriateness and effectiveness of internal financial controls.

Relations with ShareholdersThe Board uses the Annual General Meeting (AGM) to communicate with private investors and encourages their attendance andparticipation in the AGM. The Group also has a regular dialogue with institutional investors to assist in the understanding of theGroup’s objectives.

Company law requires the directors to prepare financial statements for each financial year which give a true and fair view of thestate of affairs of the Company and the Group and of the profit or loss for that period. In preparing those financial statements thedirectors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been followed, subject to any material departures disclosed and explainedin the financial statements; and

• prepare the financial statements on a going concern basis unless it is inappropriate to presume that the Group will continue in business.

The directors are responsible for the maintenance of proper accounting records which disclose with reasonable accuracy at anytime the financial position of the Company and to enable them to ensure that the financial statements comply with the CompaniesAct 1985. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of theGroup and to prevent and detect fraud and other irregularities.


Statement of directors’ responsibilities


Report of the auditors, KPMG Audit Plc, to the members of Kier Group plc

We have audited the financial statements on pages 36 to 56.

Respective Responsibilities of Directors and AuditorsThe directors are responsible for preparing the Annual Report, including as described on page 34 of the financial statements. Ourresponsibilities as independent auditors, are established by statute, the Auditing Practices Board, the Listing Rules of the LondonStock Exchange, and by our profession’s ethical guidance.

We report to you our opinion as to whether the financial statements give a true and fair view and are properly prepared inaccordance with the Companies Act. We also report to you, if, in our opinion, the Directors’ Report is not consistent with thefinancial statements, if the Company has not kept proper accounting records, if we have not received all the information andexplanations we require for our audit, or if information specified by Law of the Listing Rules regarding Directors’ remuneration andtransactions with the Company is not disclosed.

We review whether the statement on pages 33 and 34 reflects the Company’s compliance with those provisions of the CombinedCode specified for our review by the Stock Exchange, and we report if it does not. We are not required to form an opinion on theeffectiveness of the Company’s corporate governance procedures or its internal controls.

We read the other information contained in the Annual Report, including the corporate governance statement, and considerwhether it is consistent with the audited financial statements. We consider the implications for our report if we become aware ofany apparent misstatements or material inconsistencies with the financial statements.

Basis of Audit OpinionWe conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit includesexamination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes anassessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, andof whether the accounting policies are appropriate to the Group’s circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in orderto provide us with sufficient evidence to give reasonable assurance that the financial statements are free from materialmisstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overalladequacy of the presentation of information in the financial statements.

OpinionIn our opinion the financial statements give a true and fair view of the state of affairs of the Company and the Group as at 30 June 1999 and of the profit of the Group for the year then ended and have been properly prepared in accordance with theCompanies Act 1985.

KPMG Audit PlcChartered AccountantsRegistered AuditorLondon

22 September 1999



Consolidated profit and loss accountfor the year ended 30 June 1999

1999 1998Notes £m £m

Turnover – Continuing operationsGroup and share of joint ventures 2 962.9 749.6Less share of joint ventures turnover (8.4) (7.4)

Group turnover 954.5 742.2

Cost of sales (904.4) (698.6)

Gross profit 50.1 43.6Administrative expenses (1998 includes exceptional

charge of £0.6m) (39.2) (36.1)

Operating profit – Continuing operations – Group 10.9 7.5

Share of operating profit – joint ventures 1.7 0.8

Total operating profit: Group and share of joint ventures 2 12.6 8.3

Net interest receivable – Group 3 1.4 2.7Net interest payable – joint ventures (0.2) (0.2)

Profit on ordinary activities before taxation 2 13.8 10.8

Taxation on profit on ordinary activities 7 (3.9) (3.6)

Profit for the year 9.9 7.2Dividends 8 (3.0) (2.6)

Retained profit for the Group and its share of joint ventures 20 6.9 4.6

Earnings per Ordinary Share 9– basic 30.6p 22.7p– diluted 30.2p 22.4p



Consolidated balance sheetat 30 June 1999

1999 1998Notes £m £m

Fixed assetsTangible assets 10 46.3 41.5Investments 11

Investments in joint venturesShare of gross assets 43.2 11.3Share of gross liabilities (41.0) (10.1)

2.2 1.2Other fixed asset investment 0.9 0.9

3.1 2.1

49.4 43.6

Current assetsStock 12 115.7 86.5Debtors due within one year 13 158.7 129.4Debtors due after more than one year 13 8.6 7.5Short term investments 0.6 –Cash at bank and in hand 44.1 59.1

327.7 282.5

Current liabilitiesCreditors – amounts falling due within one year 14 (332.8) (291.2)

Net current liabilities 15 (5.1) (8.7)

Total assets less current liabilities 44.3 34.9

Creditors – amounts falling due after more than one year 14 (5.3) (6.4)

Provisions for liabilities and charges 16 (5.5) (2.7)

Net assets 33.5 25.8

Capital and reservesCalled up share capital 19 0.3 0.3Share premium account 20 9.4 8.6Capital redemption reserve 20 2.7 2.7Profit and loss account 20 21.1 14.2

Equity shareholders’ funds 33.5 25.8



Company balance sheetat 30 June 1999

1999 1998Notes £m £m

Fixed assetsInvestments 11 55.0 54.0

Current assetsDebtors 13 6.7 4.9Cash at bank and in hand 36.6 51.8

43.3 56.7

Current liabilitiesCreditors – amounts falling due within one year 14 (59.3) (71.4)

Net current liabilities (16.0) (14.7)

Total assets less current liabilities 39.0 39.3

Creditors – amounts falling due after more than one year 14 (16.3) (17.5)

Net assets 22.7 21.8

Capital and reservesCalled up share capital 19 0.3 0.3Share premium account 20 9.4 8.6Merger relief reserve 20 1.2 1.2Capital redemption reserve 20 2.7 2.7Profit and loss account 20 9.1 9.0

Equity shareholders’ funds 22.7 21.8

The financial statements were approved by the board of directors on 22 September 1999 and were signed on its behalf by:

C R W Busby

D V Brand

Directors



Consolidated cash flow statementfor the year ended 30 June 1999

1999 1998Notes £m £m

Net cash inflow from operating activities 21 18.8 29.9

Returns on investments and servicing of financeInterest received 1.5 2.8Interest paid (0.2) (0.1)

1.3 2.7

TaxationUK corporation tax paid (3.2) (1.9)Overseas tax paid (0.3) (0.5)

(3.5) (2.4)

Capital expenditurePurchase of tangible fixed assets (12.3) (9.9)Sale of tangible fixed assets 0.6 1.3

(11.7) (8.6)

AcquisitionsPurchase of joint ventures – (1.6)Purchase of subsidiaries (10.1) (6.6)Net overdrafts acquired with subsidiaries – (9.9)

(10.1) (18.1)

Equity dividends paid (1.9) (2.1)

Cash (outflow)/inflow before use of liquid resources and financing (7.1) 1.4

Management of liquid resourcesNet withdrawal from short term bank deposits 14.9 15.4Purchase of short term investments (0.6) –

14.3 15.4

Increase in cash during the year 7.2 16.8

Reconciliation of net cash flow to movement in net fundsIncrease in cash during the year 7.2 16.8Cash inflow from movement in liquid resources (14.3) (15.4)

Movement in net funds in period 21 (7.1) 1.4Net funds at 1 July 49.3 47.9

Net funds at 30 June 42.2 49.3



Consolidated statement of total recognised gains and lossesfor the year ended 30 June 1999

Reconciliation of movements in shareholders’ fundsfor the year ended 30 June 1999

1999 1998£m £m

Profit for the year 9.9 7.2Currency translation – (0.1)

Total recognised gains and losses for the year 9.9 7.1

Group Company1999 1998 1999 1998

£m £m £m £m

Shareholders’ funds at 1 July 25.8 27.6 21.8 20.5Issue and conversion of shares

Share premium 0.8 0.2 0.8 0.2Merger relief reserve – 1.2 – 1.2Goodwill written off on acquisition – (7.7) – –

Total recognised gains and losses for the year 9.9 7.1 3.1 2.5Dividends (3.0) (2.6) (3.0) (2.6)

Shareholders’ funds at 30 June 33.5 25.8 22.7 21.8



Notes to the financial statements

1 Accounting policiesConventionThe financial statements are prepared under the historical cost convention and in accordance with applicable accountingstandards. The following accounting policies have been applied consistently in dealing with items which are considered materialin relation to the Group’s financial statements.

ConsolidationThe Group financial statements consolidate the financial statements of the Company and its subsidiary undertakings. The resultsof subsidiary undertakings acquired or disposed of during the year are included from or up to the date of acquisition or disposal.On the acquisition of a subsidiary undertaking fair values are attributed to the net assets acquired. Purchased goodwill arising onacquisition is now capitalised and amortised over its useful economic life in accordance with FRS 10. On disposal of a businessany associated goodwill that has been written off will be reversed.

As permitted by section 230 of the Companies Act 1985, a separate profit and loss account dealing with the results of theCompany has not been presented.

TurnoverTurnover arises from increases in valuations on contracts, the sale of houses, land, commercial property and goods and servicesprovided, and excludes intra group trading and value added tax.

ProfitsProfits in respect of long term contracts are recognised on a percentage of completion basis where the contract’s ultimateoutcome can be foreseen with reasonable certainty. Profits in respect of short term contracts are taken when the contract iscompleted. Provision is made for all foreseeable contract losses.

Profits in respect of house sales are taken at the time of legal completion of the sale. Profits in respect of land sales and landexchanges are taken on the unconditional exchange of contract.

Tangible fixed assetsFreehold property is not depreciated. It is the Group’s policy to maintain its properties in a good state of repair and accordinglythe directors consider that, in the case of the majority of these properties, the lives of the assets are so long and residualvalues, based on prices prevailing at the time of acquisition, are so high that their depreciation is insignificant. Any permanentdiminution in the value of such properties is charged to the profit and loss account as appropriate. For other assets depreciationis provided in order to write off the cost less residual value over the estimated lives of the assets. The rates of depreciation areas follows:

Leasehold property – over the term of the leasePlant, vehicles and fixtures – 10% to 33% per annum

Leased assetsAssets acquired under finance leases are capitalised and appropriately depreciated and the capital element of outstanding leaserentals is included in creditors. Operating lease rentals are charged to the profit and loss account on a straight line basis over theperiod of the lease.



Notes to the financial statements continued

1 Accounting policies continuedStockStock and work in progress is stated at the lower of cost, which includes attributable overheads, and net realisable value.

Deferred taxationDeferred taxation is provided at expected future corporation tax rates in respect of timing differences between profits computedfor taxation and accounts purposes unless it is probable that the taxation will not become payable in the foreseeable future.

No provision is made in respect of tax liabilities which would arise if properties were sold in their existing state at their bookvalues unless it is intended to dispose of those assets.

Joint arrangements and joint venturesInterests in joint arrangements are accounted for by recognising the Group’s share of assets and liabilities, profits, lossesand cash flows, measured according to the terms of the arrangement. Interests in joint ventures are accounted for underthe gross equity method.

Foreign currenciesTransactions denominated in foreign currencies are recorded at the exchange rates in effect when they take place. Resultingforeign currency denominated assets and liabilities are translated at the exchange rates ruling at the balance sheet date unlessthey are covered by forward foreign exchange contracts in which case the contract rates are used. Exchange differences arisingfrom foreign currency transactions are reflected in the profit and loss account.

The assets and liabilities of overseas subsidiary undertakings are translated at the rate of exchange ruling at the balance sheetdate. Trading profits or losses are translated at average rates prevailing during the accounting period. Differences on exchangearising from the retranslation of net investments in overseas subsidiary undertakings at the year end rates are taken directly toreserves. All other translation differences are reflected in the profit and loss account.

Pension costsThe pension costs charged against profits are based on an actuarial method and actuarial assumptions designed to spread theanticipated pension costs over the service lives of the employees in the pension schemes, in a way that seeks to ensure that theregular pension cost represents a substantially level percentage of the current and expected future pensionable salary roll in thelight of current actuarial assumptions.

Variations from regular costs are spread over the average remaining service lives of current employees in the pension schemes.




2 Turnover, profit and segmental information

Segmental analysis of the results is shown below:

Turnover Operating profit Profit before tax1999 1998 1999 1998 1999 1998

£m £m £m £m £m £m

Construction 857.7 685.1 4.0 3.2 11.0 9.9Homes & Property 105.2 64.5 12.0 7.9 9.0 6.0Corporate Overhead/Finance – – (3.4) (2.8) (6.2) (5.1)

962.9 749.6 12.6 8.3 13.8 10.8

Construction segment includes joint venture turnover of £8.4m (1998: £7.4m) and operating profit of £1.7m (1998: £0.8m)

Net operating assets Net assets1999 1998 1999 1998

£m £m £m £m

Construction (87.3) (72.3) 50.2 52.0Homes & Property 76.9 58.1 21.0 15.7Corporate Overhead/Finance 1.7 (9.3) (37.7) (41.9)

(8.7) (23.5) 33.5 25.8

Geographical analysis of the results is as follows:

Turnover Operating profit Profit before tax1999 1998 1999 1998 1999 1998

£m £m £m £m £m £m

United Kingdom 884.9 679.3 14.1 7.1 15.9 10.0Rest of World 78.0 70.3 (1.5) 1.2 (2.1) 0.8

962.9 749.6 12.6 8.3 13.8 10.8

Rest of World includes joint venture turnover of £8.4m (1998: £7.4m) and operating profit of £1.7m (1998: £0.8m)

Net operating assets Net assets1999 1998 1999 1998

£m £m £m £m

United Kingdom (11.6) (29.4) 30.9 21.5Rest of World 2.9 5.9 2.6 4.3

(8.7) (23.5) 33.5 25.8

The above analysis of turnover shows the geographical segments from which the products or services are supplied and is notmaterially different from the geographical segments to which products or services are supplied.




2 Turnover, profit and segmental information continuedNet operating assets represent net assets excluding cash, bank overdrafts and interest bearing inter-company loans (see note 14).

In 1998 Homes & Property operating profit included exceptional costs of £0.6m.

Profit on ordinary activities before taxation is stated after charging:

1999 1998£m £m

Remuneration of auditors – audit fees 0.6 0.5– other fees 0.2 0.2

Hire of plant and machinery 20.7 15.5Operating lease rentals:

Land and buildings 0.7 0.6Plant and machinery 4.7 4.3

Depreciation of tangible fixed assets 6.7 4.5

Remuneration of the auditors in respect of the Company for audit amounted to £3,600 (1998: £3,500).

3 Net interest receivable – Group

1999 1998£m £m

Interest receivable 1.6 2.9Interest payable on bank loans, overdrafts and other

loans repayable within five years (0.2) (0.2)

1.4 2.7




4 Information relating to employees

1999 1998No No

Average number of persons employed during the year includingexecutive directors was:United Kingdom 4,224 3,681Rest of World 2,329 1,742

6,553 5,423

£m £m

Group staff costs are as follows:United Kingdom 108.1 86.1Rest of World 16.6 15.3

124.7 101.4

Wages and salaries 109.4 88.8Social security costs 8.0 6.9Other pension costs (note 6) 7.3 5.7

124.7 101.4

5 Information relating to directorsInformation relating to directors’ emoluments and share options appears in the Directors’ Report.

6 PensionsThe principal UK pension scheme is the Kier Group Pension Scheme which is a defined benefit scheme. The assets of theScheme are held under trust separately from those of the Group and invested directly on the advice of independent professionalinvestment managers. Pension costs are assessed on the advice of an independent qualified actuary using the projected methodand the following main assumptions;

• investment returns will be 8.6% per annum• salary increases will be 7% - 7.5% per annum• present and future pensions will increase at the rates set in the scheme rules• equity dividend growth will be 4.5% per annum

The same method and assumptions were used for the regular actuarial valuation of the Scheme as at 1 April 1997 which showedthat the market value of the Scheme’s assets was £191.7m and that the actuarial value of these assets represented 96% of thevalue of the benefits which had accrued to members, after allowing for projected future increases in salaries.

The deficit of £6.5m is being spread over 15 years (the average future working lifetime of the active members). In accordancewith the recommendation of the actuaries, during the year to 30 June 1999 the Company contributed to the Scheme at 12.5% ofProtected Pay up to 31 March 1999 and 14% of Protected Pay thereafter.

The contributions paid during the year, and the pension charge, amounted to £7.0m (1998: £5.6m).

Contributions are also made in respect of former members of the Kier Group Retirement Benefit Scheme, to two smallerschemes operating in recently acquired subsidiaries and to an industry-wide scheme. The pension costs for these have beentaken as the actual contributions paid over the year.




7 Taxation

1999 1998£m £m

UK corporation tax at 30.75% (1998: 31.0%) 2.2 2.5Overseas taxation 0.1 0.2Joint venture taxation 0.5 0.2Deferred tax 1.1 0.7

3.9 3.6

8 Dividends

1999 1998£m £m

Ordinary SharesPaid 3.0 pence (1998: 2.6 pence) 1.0 0.8Proposed 6.3 pence (1998: 5.4 pence) 2.0 1.8

3.0 2.6

9 Earnings per shareEarnings per share is calculated as follows:

1999 1998Basic Diluted Basic Diluted

£m £m £m £m

Profit after tax 9.9 9.9 7.2 7.2

million million million million

Weighted average number of shares 32.4 32.4 31.8 31.8Weighted average number of unexercised options

– dilutive effect – 0.4 – 0.3

Weighted average number of shares used for EPS 32.4 32.8 31.8 32.1

pence pence pence pence

Earnings per share 30.6 30.2 22.7 22.4




10 Tangible fixed assetsPlant

Land and vehiclesbuildings & fixtures Total

Group £m £m £m

CostAt 1 July 1998 19.6 56.2 75.8Additions 0.2 12.1 12.3Disposals – (5.2) (5.2)

At 30 June 1999 19.8 63.1 82.9

Accumulated depreciationAt 1 July 1998 0.5 33.8 34.3Charge for the year 0.2 6.5 6.7Disposals – (4.4) (4.4)

At 30 June 1999 0.7 35.9 36.6

Net book valueAt 30 June 1999 19.1 27.2 46.3

At 30 June 1998 19.1 22.4 41.5

The net book value of land and buildings comprises freeholds of £18.4m (1998: £17.8m), and long leaseholds of £0.7m (1998: £1.3m). The net book value of fixed assets includes an amount of £0.5m (1998: £0.5m) in respect of assets held underfinance leases on which there is accumulated depreciation of £3.5m (1998: £3.5m).

The net book value of land and buildings includes an investment property carried at £1.1m (1998: £1.1m). An officer of asubsidiary of the Company has valued the investment property at 30 June 1999 concluding that there is no material differencebetween the carrying value and the open market value of the property.




11 InvestmentsGroup Company

1999 1998 1999 1998£m £m £m £m

Interest in subsidiary undertakingsAt 1 July – – 53.1 38.9Additions – – 14.9 18.8Disposals (13.9) (4.6)

At 30 June – – 54.1 53.1

Interest in joint venturesAt 1 July 1.2 – – –Acquired during year – 0.8 – –Share of retained profit 1.0 0.4 – –

At 30 June 2.2 1.2 – –

Interest in Oxford Business Park (South) LimitedShares at cost 0.1 0.1 0.1 0.1Loans 0.8 0.8 0.8 0.8

0.9 0.9 0.9 0.9

Total investments 3.1 2.1 55.0 54.0

Details of the Group’s principal operating subsidiaries are given on page 54.

Interest in joint ventures represents the Group’s interest in 50% of the share capital of The Jordan Economic Development andTrading Company and 50% of the share capital of H DGH Holdings Limited.

The Group holds 30% (1998: 30%) of the voting shares and 10% (1998: 10%) of the non-voting shares of Oxford Business Park(South) Limited. At 30 June 1999 Oxford Business Park (South) Limited had bank borrowings outstanding of £10.2m (1998: £12.2m) of which 10% has been guaranteed by the Company.

12 StockGroup

1999 1998£m £m

Raw materials and consumables 0.9 0.9Long term contract balances 14.8 10.9Land and work in progress held for development 96.0 71.9Other work in progress 4.0 2.8

115.7 86.5

Long term contract balances and other work in progress is stated net of payments receivable on account of £4.4m (1998: £0.3m).




13 DebtorsGroup Company

1999 1998 1999 1998£m £m £m £m

Amounts falling due within one year:Trade debtors 135.3 100.5 – –Amounts recoverable on contracts 12.7 17.9 – –Amounts due from subsidiary undertakings – – 5.0 3.8Other debtors 3.7 4.3 0.9 0.7Prepayments and accrued income 3.2 3.1 – –Advance corporation tax 0.1 0.5 0.1 –Corporation tax – – 0.7 0.4Other taxation 3.7 3.1 – –

158.7 129.4 6.7 4.9

Amounts falling due after one year:Trade debtors – 0.1 – –Amounts recoverable on contracts 8.6 7.4 – –

8.6 7.5 – –

Total debtors 167.3 136.9 6.7 4.9

14 CreditorsGroup Company

1999 1998 1999 1998£m £m £m £m

Amounts falling due within one year:Bank loans and overdrafts 2.5 9.8 34.1 56.3Payments received on account 6.5 2.1 – –Trade creditors 226.6 174.1 – –Amounts due to subsidiary undertakings – – 21.4 2.3Proposed dividend 2.0 1.8 2.0 1.8Advance corporation tax – 0.5 – –Corporation tax 2.2 3.0 – –Other taxation and social security costs 9.2 9.4 – –Other creditors 6.1 14.6 0.9 11.0Accruals and deferred income 77.7 75.9 0.9 –

332.8 291.2 59.3 71.4




14 Creditors continued

Group Company1999 1998 1999 1998

£m £m £m £m

Amounts falling due after more than one year:Trade creditors 4.9 4.0 – –Amounts due to subsidiary undertakings – – 16.3 17.5Accruals and deferred income 0.4 2.4 – –

5.3 6.4 16.3 17.5

The amount of £16.3m (1998: £17.5m) due to subsidiary undertakings relates to loans which were made to the Company inaccordance with the provisions of Sections 151 to 158 of the Companies Act 1985. The loans bear interest at 1% over bankbase rate and are fully repayable by 3 July 2006.

15 Net current liabilitiesGroup net current liabilities are stated after including, within accruals and deferred income, advance payments and balancesrelated to work in progress which the directors do not consider will have a cash effect within the normal trade credit period.

16 Provisions for liabilities and charges

ProvisionsDeferred for contract

tax losses TotalGroup £m £m £m

At 1 July 1998 0.7 2.0 2.7Profit and loss account 1.1 1.7 2.8

At 30 June 1999 1.8 3.7 5.5

Deferred taxation in respect of capital allowances and short term timing differences, is fully provided as follows:

1999 1998£m £m

Capital allowances 1.6 1.2Short term timing differences 0.2 (0.5)

1.8 0.7




17 Obligations under leasing agreementsThe annual instalments under non-cancellable operating leases entered into by the Group are set out below:

Land and buildings Plant and machinery1999 1998 1999 1998

£m £m £m £m

Operating leases expiring:Within one year 0.1 – 0.3 0.4Between one and five years 0.3 0.2 4.3 3.2In five years or more 0.4 0.4 – –

0.8 0.6 4.6 3.6

18 Financial instrumentsThe Group has no financial assets or liabilities with a maturity date of greater than one year. There is no difference between thecarrying value and the fair value of the Group’s aggregate short-term financial assets and liabilities.

As at 30 June 1999, the Group has short-term financial assets and liabilities denominated in the following currencies:

Financial Financial assets liabilities Aggregate

£m £m £m

Cash and overdraftsCurrencySterling 38.3 (2.1) 36.2US Dollar 2.5 (0.1) 2.4Hong Kong Dollar 1.7 (0.3) 1.4Other 1.7 - 1.7

Total 44.2 (2.5) 41.7

Book value Fair value£m £m

Forward rate contractsUS $6.0m forward sale – –




19 Share capitalThe share capital of the Company comprises:

1999 1998No £m No £m

Ordinary Shares of 1p eachAuthorised 45,000,000 0.4 45,000,000 0.4

Issued and fully paid 32,673,496 0.3 32,241,057 0.3

During the year 432,439 Ordinary Shares were issued at a total premium of £0.8m.

As at 30 June 1999 there were options outstanding to subscribe for Ordinary Shares as follows:

Period OptionNo exercisable Price

Sharesave 788,863 2000 170pPerformance related 723,515 1999-2006 170pPerformance related 12,000 2001-2008 250pPerformance related 99,331 2001-2008 189.5p

20 ReservesThe movement on reserves is as follows:

Merger CapitalShare relief redemption Profit &

premium reserve reserve lossGroup £m £m £m £m

At 1 July 1998 8.6 – 2.7 14.2Issue of shares 0.8 – – –Profit for the year – – – 9.9Dividends – – – (3.0)

At 30 June 1999 9.4 – 2.7 21.1

Merger CapitalShare relief redemption Profit &

premium reserve reserve lossCompany £m £m £m £m

At 1 July 1998 8.6 1.2 2.7 9.0Issue of shares 0.8 – – –Profit for the year – – – 3.1Dividends – – – (3.0)

At 30 June 1999 9.4 1.2 2.7 9.1

The cumulative amount charged to profit and loss reserve in respect of goodwill is £9.1m (1998: £9.1m).




21 Cash flow notesReconciliation of operating profit to operating cash flows

1999 1998£m £m

Group operating profit 10.9 7.5Depreciation charges 6.7 4.5(Increase) in stocks (29.2) (1.8)(Increase) in debtors (30.2) (26.0)Increase in creditors 58.9 47.3Increase/(decrease) in provisions 1.7 (1.6)

Net cash inflow from operating activities 18.8 29.9

Analysis of changes in net funds

30 June1 July 1998 Movement 1999

£m £m £m

Cash at bank and in hand 33.1 (0.7) 32.4Bank overdrafts (9.8) 7.3 (2.5)Short term bank deposits 26.0 (14.3) 11.7Short term investments – 0.6 0.6

49.3 (7.1) 42.2

Net funds include £5.2m (1998: £5.6m) being the Group’s share of cash and liquid resources held by joint arrangements.

22 Capital commitments

1999 1998Group £m £m

Contracted for but not provided in the accounts 1.1 0.4

23 Transactions with related partiesSales of goods and services to joint arrangements and joint ventures

1999 1998£m £m

Construction services and materials 23.0 11.0Staff and associated costs 2.1 4.6Management services 0.6 0.4Plant hire 0.1 0.6

25.8 16.6

24 Contingent liabilitiesThere are contingent liabilities in respect of performance bonds, guarantees and claims under contracting and other agreements, including joint arrangements and joint ventures, entered into in the normal course of business, and commitments to support subsidiaries.



Principal operating subsidiaries

Construction

Kier Regional Limited Kier LondonKier NorthernKier ScotlandKier SouthernKier WesternFrench Kier AngliaMarriott ConstructionMoss ConstructionMoss NorthernWallis

Kier National Limited Kier Build LimitedKier Construction LimitedKier International Limited

Facilities Management Caxton Facilities Management LimitedFM Contract Services Limited

Homes & Property

Kier Residential Limited Twigden Homes LimitedBellwinch Homes LimitedKier Homes Limited

Commercial Property Kier Ventures Limited

Group Services and Project InvestmentKier Limited Kier Project Investment Limited

NOTES:i Each company is registered in England and Wales and, with the exception of Kier International Limited, operates

principally within the United Kingdom. Kier International Limited operates principally in the Far East, Middle East, Africa andthe Caribbean.

ii The ordinary share capital of each company is wholly owned. Kier Group plc holds directly all the shares of Kier Limited andKier Residential Limited. The shares of the other companies are held by subsidiary undertakings.

iii A full list of the Group’s subsidiaries is included in the Company’s Annual Return.



Principal joint arrangements, joint ventures and other investments

Joint arrangements

Building and/or civil engineering construction

The following joint arrangements, in which the Group participation is between 43% and 63%, operate in England:

Kier/Hochtief two joint arrangements between Kier Construction Limited and Hochtief (UK) Construction Ltd

Miller/Kier a joint arrangement between The Miller Group Limited and Kier Construction Limited

Norwest/Kier/ a joint arrangement between Norwest Holst Construction Limited, Kier Construction LimitedCampenon Bernard and Campenon Bernard SGE

Christiani/Kier a joint arrangement between Christiani & Nielsen Limited and Kier Construction Limited

Kier/CHE two joint arrangements between Kier Build Limited and Carillion Construction Limited (trading as Crown House Engineering)

Longley/Kier a joint arrangement between Henry Jones, a division of Kier Regional Limited, and James Longley and Co Limited

The following joint arrangements, in which the Group participation is between 40% and 51%, operate overseas, in the territory indicated:

Hong KongKier/Sun Fook Kong two joint arrangements between Kier Hong Kong Limited and Sun Fook Kong (Civil) Limited

Kier/Sun Fook Kong/ a joint arrangement between Kier Hong Kong Limited, Sun Fook Kong (Civil) Limited andChina Fujian China Fujian Corporation

Kier/Hyundai a joint arrangement between Kier International Limited and Hyundai Engineering & Construction Co Limited

SurinameKier/CCC a joint arrangement between Kier International Limited and CCC Group Inc

IndiaKier/Besix a joint arrangement between Kier International Limited and Besix SA

BarbadosKier/Why Dig a joint arrangement between Kier International Limited and Why Dig Technologies Limited



Principal joint arrangements, joint ventures and other investments continued

Commercial Property Development

The Group has a 25% participation in a joint arrangement in England between Kier Ventures Limited and Norwich Union Life andPensions Limited.

Joint ventures Interest held

Long term concession holding under thePrivate Finance Initiative

H DGH Holdings Limited 50%

International construction and contract mining

Incorporated and operating in the Hashemite Kingdom of JordanThe Jordan Economic Development and Trading Company Limited 50%

Other Investments

Commercial Property Development

Oxford Business Park (South) Limited 30% of voting shares10% of non-voting shares

NOTES:i The terms ‘joint arrangement’ and ‘joint venture’ are defined by FRS9. Joint arrangements are contracted agreements to co-

operate on a specific project which is an extension of the Group’s existing business. Joint ventures are ongoing businessescarrying on their own trade.

ii Except where otherwise stated the companies are incorporated and operate in the United Kingdom.



Financial record

1999 1998 1997 1996 1995Year ending 30 June £m £m £m £m £m

Turnover: Group and share of joint ventures 962.9 749.6 677.2 614.6 585.7

Group operating profit 10.9 7.5 6.9 5.1 4.8Joint ventures – share of operating profit 1.7 0.8 – – 0.2Total net interest receivable 1.2 2.5 1.7 2.2 2.0

Profit before tax 13.8 10.8 8.6 7.3 7.0Taxation (3.9) (3.6) (2.9) (2.6) (2.6)

Profit after tax 9.9 7.2 5.7 4.7 4.4Dividends (3.0) (2.6) (1.7) (0.8) (0.5)

Retained profit for the year 6.9 4.6 4.0 3.9 3.9

Earnings per Ordinary Share– undiluted 30.6p 22.7p 18.7p 16.1p 14.6p

Dividend per Ordinary Share 9.3p 8.0p 4.6p 1.6p –

1999 1998 1997 1996 1995At 30 June £m £m £m £m £m

Shareholders’ funds 33.5 25.8 27.6 24.0 21.2Assets per Ordinary Share 102.5p 80.1p 87.2p 69.0p 58.5p



Group principal businesses

Kier RegionalTempsford HallSandyBedfordshireSG19 2BD

C R W Busby, Chairman

M P W Scarth, MD

R W Side, Deputy MD

P P J CullenM J DesmondJ S FrenchR J C Turner

Kier London188 High RoadLoughtonEssexIG10 1DH

R W Side, Chairman

G C Lindsey-Smith, MD

D R AveryP J EverardN W MeixnerC J RileyJ F Spray

Kier NorthernLyndon House198 High StreetBoston SpaWest YorkshireLS23 6BT

M P W Scarth, Chairman

A Grey, MD

M A AshtonA J AveryM J Brackstone P A Sloane

Kier SouthernMaple Lodge CloseMaple CrossRickmansworthHertsWD3 2SJ

J S French, Chairman

D M BrownG C BurridgeP H DurriganN A MeekM MintramM W OrrG D WilloughbyJ D Yates

French Kier Anglia53 South BrinkWisbechCambridgeshirePE14 0RA

R W Side, Chairman

J R Bradley, MD

R W KidgerB J PainterC J RileyJ C Simson

Marriott ConstructionMarriott HouseRushdenNorthamptonshireNN10 9EA

R W Side, Chairman

R W Murphy MD

G ClarkP HawesJ S HenkeM M Rooke

Moss NorthernYardley RoadKnowsley Industrial ParkLiverpoolL33 7ST


L Wilkinson, MD

M A AshtonA MillsP A Sloane

Moss Construction96 Leckhampton RoadCheltenhamGloucestershireGL53 0BP

P P J Cullen, Chairman & MD

R C ButlerB D ClarkeB E LaenenK A MorrantM M Rooke

Wallis47 Homesdale RoadBromleyKentBR2 9TN

R W Side, Chairman

M Wright, MD

R H Bush A R ChilcottJ R GilbertF HillG J Mountier

Kier WesternThe Old MillChapel LaneWarmleyBristolBS15 4NG

J S French, Chairman

M J HambridgeG E KnowlesR A MorettiJ B SheenS B TysonP R Young

Kier ScotlandCathkin House15 Woodside TerraceGlasgowG3 7XH

P P J Cullen, Chairman

A H Stewart, MD

R AbrahamsD T Harvie

IEI Building Services EngineersGreytown House11-19 Wote StreetBasingstokeHampshireRG21 7NE

J S FrenchR P ManningD W Stiff

Caxton FacilitiesManagementConway HouseSt Mellons Business ParkFortran RoadSt MellonsCardiffCF3 0LT

C Thomas, Chairman & MD

J J CadwalladerJ F HillC S PortonM P W Scarth

FM Contract ServicesThames RoadCrayfordKentDA1 5QJ


W R Fairhall, MD

P W HaydayT P KnightsA J K McCarthy



Group principal businesses continued

Kier NationalTempsford HallSandyBedfordshireSG19 2BD


J Dodds, MD

R GorringeR A HallerD E MattarR V SallisG A Shennan

Kier BuildTempsford HallSandyBedfordshireSG19 2BD

J Dodds, Chairman

R V Sallis, MD

J J ArmitageM DobsonJ H FozzardW G MerryC M W ParkerC Willats

Kier ConstructionTempsford HallSandyBedfordshireSG19 2BD

J Dodds, Chairman

R A Haller, MD

A E Arnaud, MD Plant

P H H McMeekin, MD Mining

M P Sheffield, MD Civil Eng

G R BurnP H GrayB R PalmerN A PatesT W TaggR A Williams

Kier InternationalTempsford HallSandyBedfordshireSG19 2BD

J Dodds, Chairman

G A Shennan, MD

D J Durey, Deputy MD

T G ElliottR G M FrancisN W HammondD RainfordP J StanilandJ R Young

Kier ResidentialThe ShrubberyChurch StreetSt NeotsCambridgeshirePE19 2BU

CRW Busby, Chairman

D Homer, MD

D V BrandK DixonR W GregoryR P Page W R Reid

Twigden HomesThe ShrubberyChurch StreetSt NeotsCambridgeshirePE19 2BU

D Homer, Chairman

K Dixon, MD

G D BakerR W GregoryJ G HodgettsA E JonesA P Walkerdine

Bellwinch HomesMalcolm HouseEmpire WayWembleyMiddlesexHA9 0LW

D Homer, Chairman

R P Page, MD

R W GregoryD F LomasS J Whitehead

Kier HomesTrojan HousePegasus AvenuePhoenix Business ParkLinwood RoadPaisleyPA1 2BH

D Homer Chairman

W R Reid MD

R W Gregory

Kier Ventures Tempsford HallSandyBedfordshireSG19 2BD


R W Simkin, MD

J A J ByrneI P Woods

Kier EngineeringServicesTempsford HallSandyBedfordshireSG19 2BD


R A Haller, MD

J DoddsM P W Scarth

Kier Project InvestmentTempsford HallSandyBedfordshireSG19 2BD


C L Mitchell, MD

G BarnesI P Woods



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AuditorsKPMG Audit Plc8 Salisbury SquareLondon EC4Y 8BB

BankersNational Westminster Bank plc National Westminster HouseTrinity Gardens9-11 Bromham RoadBedford MK40 2UQ

Barclays Bank plc54 Lombard StreetLondon EC3V 9EX

RegistrarsIRG plcBourne House34 Beckenham RoadBeckenhamKent BR3 4TU

StockbrokerDeutsche Bank AG1 Great Winchester StreetLondon EC2N 2EQ

Directors and advisors

C R W Busby FCA, Chairman

D V Brand MA FCA

J DoddsD HomerM P W Scarth MICE MCIOB

P F Berry CMG MA

P G Corbett CBE FCA

P T Warry MA LLB

D V Brand, Secretary

Headquarters andregistered officeKier Group plcTempsford HallSandyBedfordshire SG19 2BD

Tel 01767 640111www.kier.co.uk

Registered numberEngland 2708030


Kier Group plcTempsford HallSandyBedfordshireSG19 2BD

Telephone 01767 640111Fax 01767 640002

www.kier.co.uk


kier group plc annual report and accounts

Documents