Kier Group plc annual report and accounts for the year ended 30 June 2003 building the business For the eleventh year in succession, Kier Group is pleased to report further growth in turnover, profit and earnings per share. The Group is well placed going forward and has high quality, well motivated management teams in place to ensure that this success continues. Contents Group highlights 1 Kier Group structure 2 Board members 4 Chairman’s statement 6 Chief executive’s review 9 Financial review 13 Kier Regional 16 Kier National 20 Kier Support Services 24 Kier Residential 28 Kier Property 32 Kier Project Investment 36 Key policies and services 40 Financial statements Directors’ report 45 Corporate governance statement 47 Directors’ remuneration report 49 Statement of directors’ responsibilities 55 Report of the independent auditors 56 Consolidated profit and loss account 57 Consolidated balance sheet 58 Company balance sheet 59 Consolidated cash flow statement 60 Consolidated statement of total recognised gains and losses 61 Reconciliation of movements in shareholders’ funds 61 Notes to the financial statements 62 Principal operating subsidiaries 79 Principal joint arrangements, joint ventures and associated undertakings 80 Group principal businesses 82 Financial record 84 Corporate information inside back cover 2003: £1,445.6m Turnover £1,445.6m increase 4.5% 2003: £33.3m Profit before tax £33.3m increase 18.9% 2003: 16.4p Dividends 16.4p increase 15.5% Highlights Contribution by operating sector ! Growth continues for eleventh successive year Turnover ! 23.2% compound annual growth in earnings per share over seven years Operating profit ! Operating profit up 29.4% to £33.9m ! Profit before tax at £33.3m up 18.9% ! Profit before tax Dividend increased by 15.5% to 16.4p ! Construction & Services Strong cash performance: £53.5m generated Homes & Property Infrastructure Investment from operating activities 1Kier Group plc Annual report and accounts for the year ended 30 June 2003 Kier Group structure Construction & Services Kier Regional Kier National Kier Support Services Mid-range construction projects delivered Major building, civil engineering & Outsourcing of managed services, by locally managed business units across mining projects and plant hire in the UK including FM services for PFI and PPP the UK and overseas projects, and building maintenance for commercial clients, local authorities and other social landlords Turnover Turnover Turnover £787.6m £334.9m £115.4m Principal businesses Principal businesses Principal businesses IEI Building Services Engineers Kier Build Caxton Consulting Kier Eastern Kier Construction Caxton Islington Kier London Kier Plant Caxton Facilities Management Kier Northern Kier Building Maintenance Kier North West Kier Sheffield Kier Partnership Homes Kier Scotland Kier Southern Kier Western Marriott Construction Moss Construction Wallis 2Kier Group plc Annual report and accounts for the year ended 30 June 2003 Homes & Property Infrastructure Investment Kier Residential Kier Property Kier Project Investment High quality private housebuilding Commercial property development Promotes and manages the Group’s interests in the Private Finance Initiative, creating concession holding businesses in healthcare, education and other local services Turnover Turnover Turnover £180.1m £21.2m £6.4m Principal businesses Principal businesses Principal businesses Allison Homes Kier Developments Kier Project Investment Bellwinch Homes Kier Ventures Academy Services (Tendring) Kier Homes Kier Whitehall Place ASK (Greenwich) Kier Land Baglan Moor Healthcare Twigden Homes Information Resources (Bournemouth) Prospect Healthcare (Hairmyres) Prospect Healthcare (Reading) 3Kier Group plc Annual report and accounts for the year ended 30 June 2003 Board members Executive directors Non- executive directors Colin Busby Robert Gregory Peter Berry Aged 59, led the employee buy-out in Aged 49, has extensive knowledge of Aged 59, is chairman of The Crown 1992 and was both chairman and chief working within Kier and during the 1980s Agents for Oversea Governments and executive until May 2003 when his role spent a number of years working on Administrations Limited. He is also became exclusively that of chairman. His financial assignments in the UK and in the chairman of Martin Currie Portfolio service with the Group began in 1969 and UAE. He joined Kier Residential in Investment Trust plc, a non-executive he held senior appointments in the January 1994 as finance director of director of Henderson TR Pacific international and UK construction Twigden Homes and was a key player in Investment Trust PLC and an advisor to the divisions between 1978 and 1992. He is the Group’s housebuilding acquisitions Corporation of London on international chairman of the Nomination Committee and the start up of housing activities in and economic development. He was and in June 2003 was appointed president Scotland. He was promoted to finance appointed to the Board in 1997 and is of the Chartered Institute of Building for a director of Kier Residential in 1998 and to senior independent director, chairman of 12-month term. managing director of Allison Homes, the Remuneration Committee and a following its acquisition in September member of the Audit and Nomination John Dodds 2001 and joined the Board in July 2003. Committees. Aged 58, was appointed chief executive in May 2003 and has been with the Dick Side Peter Warry Group since 1970, working much of the Aged 56, joined Wallis in 1983 as Aged 54, is chairman of Victrex PLC and a time overseas, particularly in Africa and managing director of its Construction non-executive director of BSS Group PLC Hong Kong. He also spent time Division. His 20-year career with the and of the Office of the Rail Regulator. controlling major civil engineering in the Group has been spent in regional Previously he was an executive director of UK and since the buy-out has been contracting and he was appointed British Energy PLC and chief executive of responsible for major projects, mining and managing director of Kier Regional in its English generating company. He was international contracting. He is also 2001. In January 2003 he became main appointed to the Board in 1998 and is a responsible for the Group’s infrastructure board director responsible for the Group’s member of the Audit, Nomination and investment activities and is the director regional construction division. Remuneration Committees. with overall responsibility for health & safety and environmental matters. Dick Simkin Simon Leathes Aged 55, joined the Group in 1989 and Aged 55, is vice chairman for support Deena Mattar has made a significant contribution to services at Barclays Capital, the Aged 38, was appointed to the Board as strengthening Kier’s presence in the investment banking division of an executive director in September 2001. property sector. He played a key part in Barclays PLC. He previously held senior She joined Kier in 1998 from KPMG the Group’s acquisition of Laing Property appointments at Lend Lease Corporation, where she developed an in-depth and was appointed to the Board in Hambros PLC and SG Warburg Group plc. knowledge of construction. She held the January 2003 as director responsible for He was appointed to the Board in March role of finance director of Kier National, the Group’s property division. 2001 and is chairman of the Audit the Group’s major building and civil Committee and a member of the engineering projects arm, until July 2001 Nomination and Remuneration and was appointed Group finance Committees. director in November 2001. 4Kier Group plc Annual report and accounts for the year ended 30 June 2003 FROM LEFT Colin Busby Deena Mattar John Dodds FROM LEFT Dick Simkin Dick Side Robert Gregory FROM LEFT Peter Berry Peter Warry Simon Leathes 5Kier Group plc Annual report and accounts for the year ended 30 June 2003 Chairman’s statement “Our integrated business model... has provided consistent growth in overall profits...” Overview Financial performance Operating profit, including the Group’s I am pleased to report that Kier share of joint ventures, rose 29.4% to £33.9m (2002: £26.2m) on turnover up Group plc has achieved another 4.5% at £1,445.6m (2002: £1,382.7m). Profit before tax increased by 18.9% to excellent performance this year £33.3m (2002: £28.0m) and earnings per share of 69.5p rose 15.1% (2002: 60.4p). with turnover and profit at record Profit before tax increased by 22.0% and earnings per share by 19.2% after levels. Our integrated business adjusting for the exceptional profit of £0.7m on the partial disposal of an model, the fundamentals of interest in a subsidiary undertaking in 2002. The cash performance has again which have remained unchanged been excellent with a record £53.5m generated from operating activities. for 10 years, has provided Our Construction & Services segment has consistent growth in overall seen a modest growth in profits during the year. Kier Regional continues to be the profits with compound growth in contractor of choice for many of our clients and has achieved an outstanding earnings per share of 23.2% per performance in the year, enhanced by profits arising on the finalisation of annum over the seven years since accounts on a number of contracts. However this performance was tempered flotation. by post acquisition losses recorded within Partnerships First, the social housing business acquired in November 2002 as a strategic long-term investment to take advantage of opportunities arising from