Annual Report and Accounts 2022 ## Vital to the UK ## Business highlightsContents | Overview | Financial statements | | Our medium-term value creation plan: | | --- | --- | --- | --- | | 1 Who we are | 140 Independent auditors’ | | The Group is now focused on delivering its medium-term targets: | | 2 Vital to the UK | | report to the members of | – Revenue: £4.0bn–£4.5bn | | | | Kier Group plc | – Adjusted operating profit margin: c.3.5% | | Strategic report | 148 Consolidated income | | – Cash conversion of operating profit: c.90% | | | | statement | – Balance sheet: sustainable net cash position with capacity | 6 Chairman’s statement 149 Consolidated statement to invest 8 Chief Executive’s of comprehensive income – Dividend: sustainable dividend policy: c.3 x cover through review 150 Consolidated statement the cycle. 14 Our strategy of changes in equity 18 Operational review 151 Consolidated balance 24 Our marketplace Financial sheet 32 Our key stakeholders 152 Consolidated statement Total Group revenue – including Total Group revenue – excluding 36 Our business model of cash flows 1 1 40 Our key performance joint ventures joint ventures 153 Notes to the consolidated indicators financial statements 42 Building for a ## £3.3bn £3.1bn 219 Company balance sheet Sustainable World 220 Company statement of 2021: £3.3bn 2021: £3.3bn 66 TCFD report changes in equity 72 Risk management 1 221 Notes to the Company Profit from operations Adjusted operating profit 84 Financial review 1,2 financial statements from operations 90 Section 172 statement ## 90 Non-financial information £45.1m Other information ## statement £120.5m 2021: £43.7m 226 Financial record 2021: £100.3m Governance 227 Glossary of alternative performance measures | 92 Chairman’s introduction | | | 1,4 | | | | --- | --- | --- | --- | --- | --- | | | | Earnings per share | | Earnings per share before | | | | to corporate governance | | | | 1,4 | adjusting items 94 Board of Directors ## 2.9p 96 Corporate governance ## 16.8p 104 Risk Management 2021: 11.6p and Audit Committee 2021: 25.0p report 3 110 Environmental, Social Order book Net cash – 30 June and Governance Committee report ## £9.8bn £2.9m 112 Nomination Committee report 2021: £7.7bn 2021: £3.0m 114 Directors’ Remuneration report 3 135 Directors’ report Net debt – average 139 Statement of Directors’ responsibilities ## £(216.1)m 2021: £(431.9)m 1 See consolidated income statement on page 148. 2 See note 5 to the consolidated financial statements. 3 See note 21 to the consolidated financial statements. 4 See note 11 to the consolidated financial statements. ## Our purposeWho we are ## We are a leading Kier’s purpose is to ## provider of infrastructure sustainably deliver ## services, construction infrastructure which ## and property is vital to the UK. ## developments. We are ## committed to delivering ## for communities and ## leaving lasting legacies ## through our work. Governance Financial statements Other informationStrategic reportOverview Read more online www.kier.co.uk Kier Group plc | Annual Report and Accounts 2022 Kier Group plc | Annual Report and Accounts 2022 1 1 ## Vital to the UK Infrastructure services ## Vital to the economy Comprises our Highways, Infrastructure and Utilities businesses. ## and the businesses Highway s: builds and maintains roads for National Highways and local authorities. ## that need to deliver Infrastructure: delivers high value and complex infrastructure and civil engineering projects. ## 24/7 up and down Utilities: delivers long-term contracts ## the UK providing repairs, maintains and support of capital projects to the water, energy, and telecommunications sectors. Revenue – including joint ventures ## £1.7bn Adjusted operating profit ## £70.0m Roads maintained over ## 21,000km Broadband connections made when people needed it most ## 185,000 Maintains miles of rivers, canals, docks and reservoirs ## 2,000 2 Kier Group plc | Annual Report and Accounts 2022 Construction ## Vital to Comprises our Regional Building, Strategic Projects, Kier Places (Housing Maintenance and Facilities Management), ## schoolchildren and International businesses. Kier is a leading UK national builder, providing project delivery for the public and private ## around the UK sectors across a number of sectors including education, health, justice and defence. Revenue – including joint ventures ## £1.4bn Adjusted operating profit Governance Financial statements Other informationStrategic reportOverview ## £60.8m Completed education projects ## 45 Completed health projects ## 45 Provides facilities management for ## 2,171 buildings Kier Group plc | Annual Report and Accounts 2022 3 Vital to the UK continued Property ## Vital to society Our Property business invests and develops schemes and sites across the United Kingdom. It concentrates on ## and communities mixed-used commercial and residential development business delivered through joint venture partnerships. ## across the country Revenue – including joint ventures ## £144m Adjusted operating profit ## £17.6m Maintained residential units ## +5,000 Delivered ## 2,727 student bedrooms Delivered and in control, industrial space ## 2 ## 6.7m ft 4 Kier Group plc | Annual Report and Accounts 2022 Value accretive earnings-led business model ## Key investment – Aligned to the UK Government’s investment priorities and critical to the economic recovery of the UK – Integrator with design, project management, engineering, logistics, ## proposition supply chain management and ongoing maintenance capabilities Attractive market positions – Attractive market positions in growing markets – Focused on UK markets in infrastructure services and construction – Delivery capability at both national and regional levels in the UK Strong order book underpinned by frameworks – Established position in core markets underpinned by long-term contracts and framework agreements – High-quality order book with long-term revenue streams – Order book of £9.8bn – We have places on agreements with an advertised value of up to £124bn (OJEU values) across all of our core markets covering both national and regional geographies and market sectors – Contracts across a number of sectors including health, education, justice and defence Governance Financial statements Other informationStrategic reportOverview – Contracting with the UK Government, regulated and blue-chip clients – Long-standing customer and supplier relationships Management team with expertise and track record of delivery – Proven track record of operational and financial delivery – Successfully executed an ambitious self-help programme and right-sized the business – Performance Excellence embedded in organisation to manage risk – Financial discipline in quoting new contracts and capital allocation – Continuing focus on business improvement efficiencies and managing costs. Kier Group plc | Annual Report and Accounts 2022 5 ## Chairman’s statement ## “We are on track ## to deliver the ## medium-term value ## creation plan.” Matthew Lester Chairman Introduction Welcome to Kier’s FY22 Annual Report, my third as Chairman. The FY22 performance means the Group remains on track to deliver the medium-term value creation plan despite the wider economic and political backdrop. Following Kier’s restructuring and recapitalisation last year, the Executive team has continued to financially strengthen the Group through disciplined contract growth, increased earnings and operational delivery. The Group has reduced its cost base, rebuilt its order book and increased discipline from its risk management and Operating Framework, by embedding Performance Excellence processes. We achieved industry standard margins, have allocated capital to our Property business, as well as invested in our people and capabilities. With the UK Government’s commitment to £650bn of spending on infrastructure over 10 years, the Group continues to leverage the opportunities ahead. Strategic actions The key focus for FY22 was the continued delivery of the medium-term value creation plan. We planned for disciplined growth, consistent delivery and cash generation. I am pleased to say that we are tracking well against this. The year-end order book grew to £9.8bn, a significant increase of c.27% against the prior year (FY21: £7.7bn) reflecting a significant number of contract wins across all divisions. With the strengthened balance sheet, clients are returning to Kier and bidding activity continues to be strong. 6 Kier Group plc | Annual Report and Accounts 2022 Group revenue was broadly flat year over year at £3.3bn (FY21: £3.3bn) which reflected anticipated reduced volumes in the Construction division. Adjusted operating profit grew by 20% to £120.5m (FY21: £100.3m). Free cash flow was £54.6m. The balance sheet improved with average net debt declining from £(432)m to £(216)m. The Board continued to monitor performance with appropriate Key Performance Indicators ('KPIs'). A number of new Performance Excellence initiatives were embedded in the business. Particular focus was on our ability to win high-quality contracts and framework positions. I am proud to say that our client satisfaction rate remains high at 91%. This is further evidenced by the growth in our order book. We have regularly discussed how inflation and global supply chain issues impact our business model at the Board. FY22 has been subject to inflationary pressures. These additional costs have been mitigated through contractual protection, customer negotiations and operational efficiencies. Safety is a strategic matter at Kier and our licence to operate. This continues to be an area of focus for the Board given its importance. This year's performance is discussed in the Chief Executive's review and the ESG Committee Report. With the strong order book, strengthened balance sheet and consistent management discipline, we believe the business is on track to deliver the medium-term value creation plan. #### Culture The Board has focused on ensuring that the Group's purpose, values and strategy are aligned with our desired culture. We have looked at customer and supply chain feedback as well as employee engagement. Our customer satisfaction rate remains high, we continue to engage and pay our supply chain in-line with the UK Government Prompt Payment Code and our employee surveys indicate 63% employee engagement. More information on employee engagement is set out in the Corporate governance report. #### Our people On behalf of the Board, I would like to thank everyone that has contributed to Kier's performance in FY22 including our customers, supply chain partners and especially our hard working and dedicated employees. The Board has focused on ensuring we have the talent necessary to deliver the strategy and is very pleased with the progress made in this area. There has been relentless focus on operational delivery for our customers that has enabled us to achieve the progress made in the year. I had the privilege to present the Chairman's Award at our Pride of Kier Awards in June 2022. I was very humbled and proud of our people for their phenomenal achievements for going above and beyond. It was truly a celebratory evening, recognising the accomplishments of our great people. The Board has spent significant time engaging with employees and understanding their views including conducting site visits. Our project teams are continually delivering a wide range of projects from housing maintenance to significant large scale infrastructure projects as well as regenerating urban locations. I am proud of their dedication and professionalism. #### Environmental, Social and Governance (ESG) ESG is fundamental to Kier's ability to win work and secure positions on long-term frameworks. UK Government contracts require net zero carbon and social value commitments. Procurement Policy Note 06/21 requires a carbon reduction plan. Procurement Policy Note 06/20 requires the maximisation of social value and the Construction Playbook sets standards and sustainability considerations. We have partnered with a number of clients in achieving their net zero carbon ambition, for example St Sidwell's Point in Exeter, the UK's first Passivhaus standard leisure centre. Kier launched its Sustainability Framework in 2020 and in 2021 we transitioned our Safety, Health and Environment Committee to an ESG Committee. This is the first year of our ESG Committee in operation. During the year, the Committee agendas were broadened and realigned to increase focus on employee wellbeing and engagement and social matters. It also monitored progress against our ESG commitments. More information is set out in the ESG Committee report. In FY23 Kier will create a plan, with milestones, to enable the Board to monitor progress in achieving the carbon reduction and other social targets. The Group is committed to achieving net zero carbon (scope 1, 2 & 3) by 2045 and creating £5bn of social value by 2030. #### New Board member I am delighted to welcome Chris Browne who will be joining the Board on 15 September 2022. Chris Browne serves as a Non-Executive Director on other boards, including that of the airline, Norwegian, and of housebuilders, Vistry Group. She has held a number of senior leadership positions within the aviation industry, most recently as Chief Operating Officer of easyJet plc until June 2019. Chris has significant experience in commercial and operational areas. Following Chris's appointment, women will constitute 38% of Kier's Board. #### Conclusion The Group has a focused strategy, strengthened financial position and strong operational capability. The UK Government remains committed to infrastructure spending. Kier is well-placed to leverage its capability to continue winning high-quality work as demonstrated by the FY22 order book. The nature of our contracts and disciplined approach, means we are confident the Group can manage the inflationary environment. We are on track to deliver the medium-term value creation plan. The Board continues to monitor initiatives behind the plan and ensure it aligns to our desired culture. The Board will focus on the implementation of our ESG plan and on aligning this with our Remuneration policy. With the solid foundations that have now been put in place and given our performance in FY22, the Board has confidence that we can leverage our platform for future growth and start returning capital to shareholders over time. **Matthew Lester** Chairman Overview Strategic report Governance Regional statements Other information Kier Group plc | Annual Report and Accounts 2022 7 ## Chief Executive’s ## review ## “The Group’s strong ## performance over ## the year reflects ## our significantly ## enhanced resilience ## and strengthened ## financial position.” Andrew Davies Chief Executive Introduction Over the last two years Kier has undergone a transformation, rationalisation and recapitalisation and the Group is delivering against its medium-term value creation plan. The year-end order book in FY22 was £9.8bn, a significant increase of 27% against the prior year, reflecting a large number of contract wins across all divisions and providing multi-year revenue visibility. Long-term framework positions, as well as pipeline opportunities and fees from the Property division, are excluded from the order book and represent an additional opportunity. Given the order book increase and Kier’s framework positioning, approximately 85% of Group revenue for FY23 is already secured which provides us with a high degree of certainty against a backdrop of wider market uncertainty. 8 Kier Group plc | Annual Report and Accounts 2022 The Group continued to maximise value and opportunities. Kier won new, high-quality and profitable work in our markets reflecting the bidding discipline and risk management embedded in the business. #### Medium-Term Value Creation Plan The Group is focused on delivering its medium-term targets over a three to five year period: | Revenue: | £4.0–4.5bn | | --- | --- | | Adjusted operating profit margin: | c.3.5% | | Cash conversion of operating profit: | c.90% | | Balance sheet: | Sustainable net cash position with capacity to invest | | Dividend: | Sustainable dividend policy: c.3 x cover through the cycle | The Group aims to achieve these medium-term targets through: – volume growth and improved contract profitability; – continued management discipline; – deploying additional capital in the Property business; and – a recovery from COVID-19. The Group continues to make good progress against these targets. Despite political and economic uncertainties, our core markets have remained favourable. We are a 'strategic supplier' to the UK Government and over 90% of our contracts are with the public sector and regulated companies. #### Financial Summary Kier reported revenue of £3.3bn (FY21: £3.3bn) which reflected the anticipated reduced volumes in the Construction division. The Group's FY22 results reflect a strong operational performance despite increased cost inflation relating to materials, wages and other costs. We were successful in mitigating these pressures through having c.60% of our order book under target cost or cost reimbursable contracts; various procurement strategies; ability to mitigate risk through negotiations on fixed price contracts and an average order size of c.£13m in our Construction business resulting in a regular re-pricing of contracts. The Group delivered adjusted operating profit of £121m which represents a 20% increase on the prior year (FY21: £100m). All our divisions, Infrastructure Services, Construction and Property performed well during the year, after adjustments. Accordingly, Group adjusted operating profit margin increased by 70 basis points to 3.7% (FY21: 3.0%). Adjusted earnings per share was 16.8p (FY21: 25.0p). The decrease was driven by the dilution from the FY21 equity raise. The Group generated £55m of free cash flow in FY22 (FY21: £93m). Following the seasonal working capital outflow in H1 of £143m, as expected the full year showed a reversal of this situation. Free cash flow reduction from FY21 to FY22 was primarily due to lower working capital inflow from lower Construction volumes, a reduction in our working capital supply chain ('KEPS') facility and repayment of COVID-19 support to HMRC. The Group's net cash position at 30 June 2022 was £3m and remain unchanged from FY21. The Group has worked with its supply chain partners to reduce average payment days and pay in line with terms over the last two years. Average month-end net debt for the year was £216m (FY21: £432m), significantly improved year-over-year, primarily due to the equity raise and sale of the Group's housebuilding business, Kier Living. The average month-end net debt position was impacted by working capital, a £29m KEPS reduction, £21m of HMRC COVID-19 support repayment as well as from the cash impact of recent adjusting items. Subsequent to the year-end, the Group repaid the remainder of its £50m KEPS facility in full. #### Customers and winning new work We remain focused on winning work through our long-standing client relationships and regionally based operations. #### Highlights in the year: **Highways** – awarded £560m maintenance work and services contracts for North Northamptonshire and West Northamptonshire Councils for seven years (with an option for a further seven-year extension) **Infrastructure** – appointed to the £1.6bn Pagabo Civils and Infrastructure Framework for four years; Kier BAM Joint Venture appointed by Babcock International on a refurbishment project at Devonport's 10 dock facility in Plymouth. The project is expected to run for 10 years **Utilities** – awarded a place on Northern Ireland Water's £1.2bn Major Projects Partnership Framework in joint venture with BAM for four years (with an option for a further four-year extension) **Construction** – awarded a £500m contract to deliver new houseblock buildings across six prisons with Wates; awarded a £400m contract for HMP Full Sutton, a new prison in East Yorkshire; awarded a pre-construction services agreement to deliver HMP Glasgow, a new prison on a 54-acre site in Scotland; awarded a £32.5m refurbishment contract for Manchester Aquatics Centre; selected by Baring and LBS Properties to design and construct a £69m mixed-use sustainable building in London **Kier Places** – appointed to £35bn Crown Commercial Service's Facilities Management and Workplace Services Framework for four years **Property** – agreed an £80m equity residential 50:50 joint venture with Housing Growth Partnership to develop urban brownfield sites across the UK over five years. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 9 Chief Executive’s review continued Strategy In 2022, we have updated Performance Excellence to match The simplification and strengthening of the Group’s balance the evolving needs of Kier and its clients. Five new workstreams sheet has resulted in Kier being well-placed to continue to have been established, Culture and Behaviours, Customers, pursue its strategic objectives successfully within its chosen Digital, Simplification and Wellbeing. These workstreams markets and allow it to further enhance and capitalise on its ensure we continue to meet our obligations to the environment position as a strategic partner to its customers. and the communities we work within, as well as our investors and client expectations. The Group’s strategy continues to be focused on: – the UK Government, regulated industries and blue-chip The key tenets are as follows: customers; – measure clients’ and customers’ experiences objectively, – operating in the business-to-business market; and using data to improve our external relationships; – contracting through long-term frameworks. – adopt a digital-first approach through a digitally enabled workforce increasing productivity; Our core businesses are well-placed to benefit from the – instil best practices in our workforce through behaviour, announced and committed UK Government spending plans to cultural programmes, and wellbeing initiatives invest in infrastructure, decarbonisation and the post COVID-19 – simplify processes across the Group; and recovery. We have secured places on long-term frameworks – win new business with attractive margins. through which much of the increased spend will be deployed. Performance Excellence is also fundamental to the Group’s This, combined with our nationwide coverage and project overall approach to safety. management expertise, is expected to drive our strategic actions of disciplined growth, consistent delivery and Supply Chain Partners strong cash generation. We have also focused on maintaining and growing relationships with our key stakeholders, including our supply chain. Many of Capital Allocation our suppliers are long-term partners of the Group and we value In addition to the medium-term value creation plan, the Group their contribution. has set out its capital allocation priorities. The Group maintains a disciplined approach to capital and continuously reviews We were pleased to report that, in our latest Duty to Report capital allocation priorities with the aim of maximising on Payment Practices and Reporting submission covering the shareholder returns. The Group’s capital allocation is period from 1 January 2022 to 30 June 2022, the Group’s underpinned by its commitment to maintain a strong balance aggregate average payment days was 33 days (H1: 34 days) sheet. The capital priorities are: and the percentage of payments made to suppliers within – Capex – disciplined and non-speculative investment to 60 days was 89% (H1: 92%). support its businesses; – Deleveraging – further deleveraging. Targeting a sustainable We are committed to further improvements in our payment net cash position in the medium term and a funding profile practices and continue to work with both customers and which is appropriate for the medium and long-term needs suppliers to achieve this. We are fully committed to complying of the Group; with the 30-day payment requirements for small and medium- – Dividend – reinstating the dividend is key to ensuring that sized firms. shareholders share the benefits of Group’s growth. In the medium term, the Group is targeting a dividend cover of Management Change around three times cover through the cycle; and The Group has continued to strengthen its management team – Mergers and acquisitions – the Group will consider value through the year with the appointment of Andrew Bradshaw, accretive acquisitions in core markets where there is potential Group Managing Director, Infrastructure Services (Utilities) to to accelerate the medium-term value plan. the Executive Committee. Andrew replaced Barry McNicholas who retired from the business during the year. Performance Excellence Through our Performance Excellence culture, which was introduced in 2020, Kier has embedded a strong operational and financial risk management framework across the Group. It is essential to, and embedded into, Kier’s contract selection and delivery processes. 10 Kier Group plc | Annual Report and Accounts 2022 Executive Committee Executive Board members Corporate functions Group Managing Directors Andrew Davies Alpna Amar Andrew Bradshaw Chief Executive Corporate Development Director Group Managing Director Utilities Simon Kesterton Helen Redfern Liam Cummins Governance Financial statementsStrategic reportOverview Other information Chief Financial Officer Chief People Officer Group Managing Director Construction Sophie Timms Joe Incutti Corporate Affairs Director Group Managing Director Highways Stuart Togwell Mark Pengelly Group Commercial Director Group Managing Director Infrastructure Leigh Thomas Group Managing Director Property Kier Group plc | Annual Report and Accounts 2022 11 Chief Executive’s review continued Environmental, Social and Governance (‘ESG’) Social Kier’s purpose is to sustainably deliver infrastructure which is We have also made commitments on social value. We have vital to the UK. As a ‘strategic supplier’ to the UK Government, promised to create £5bn in social value by 2030. ESG is fundamental to our ability to win work and secure positions on long-term frameworks. The UK Government In order to record our social value creation, we moved to a new contracts above £5m require net zero carbon and social calculator called Thrive in FY22. Thrive has the ability to track value commitments. social value across our bidding activity and live projects. It links back to the UK Government’s Social Value Model. The calculator Last year, we launched our new sustainability framework, enables Kier to quantify and benchmark its positive contribution ‘Building for a Sustainable World’ which covers sustainability against other companies. from both an environment and social perspective. Our framework is based on ten pillars and follows the guiding Kier is a people based business and our performance depends principles of the 17 United Nation’s Sustainable Development upon our ability to attract and retain a dedicated workforce. Goals (‘SDGs’). During FY22 we had: – Over 590 apprentices participating in programmes, 6% of We believe that to be a responsible business and to play a our workforce; leading role in our industry, we must address both the impact – Graduate intake comprising 38% women; and of climate change and leave a lasting legacy in the communities – Developed and implemented a new health, safety and in which we operate. wellbeing strategy as well as launched a new behavioural programme. Environmental This year we published our first Task Force on Climate Related We are committed to becoming an inclusive business. Last Financial Disclosure (‘TCFD’) report. The report outlines our year, we launched our diversity and inclusion roadmap. As part assessment of climate related risks and opportunities with of our journey to becoming diverse, we began our Empower respect to our operations, against the four key areas of programme, a reverse mentoring initiative which enables Kier governance, strategy, risk management as well as metrics and employees from under-represented groups to mentor members targets. It highlights how we are managing these risks and of the Executive Committee and senior leadership teams. opportunities and their short, medium or long-term impact on the Group. We also have a number of other ongoing initiatives in the Group including continuous training for our employees as part of our For carbon emissions, we have set out our pathway to become Expect Respect campaign. net zero carbon across our business operations by 2039 (scope 1 and 2), value chain (scope 3) by 2045 together with interim The Group’s 12-month rolling Accident Incident Rate (‘AIR’) in targets. We achieved a 31% year-over-year reduction in carbon FY22 of 115 represents an increase of 9% compared to FY21. emissions from our business operations (scope 1 & 2) in FY22. We are disappointed with the AIR trend given our high We also started reporting on our scope 3 emissions for the standards. This continues to be a keen area of focus for us. first time. We retain a solid safety record that is c.58% better than the industry benchmark. Safety remains our licence to operate and we continue to embed best practice and make conditions as safe as possible for our workforce. The Group’s 12-month rolling All Accident Incident Rate (‘AAIR’) in FY22 of 316 represents a decrease of 5% against the prior year. During the year, we launched a behaviour programme focused on employee physical safety, mental safety and wellbeing. 12 Kier Group plc | Annual Report and Accounts 2022 Governance Summary and Outlook Governance is a core component of the Group’s approach to The Group is well positioned to continue benefiting from UK operations. Governance is delivered within Kier’s Operating Government infrastructure spending commitments and we have Framework. The laws, policies and procedures underpinning a significantly increased order book of £9.8bn which gives us the Operating Framework are regularly reviewed and updates certainty against the market backdrop. implemented as necessary. The Operating Framework was refreshed in FY22. Within the Operating Framework is Kier’s The new financial year has started well and we are trading Code of Conduct which sets the corporate compliance agenda. in line with our expectations despite continued inflationary pressure and see no change in the current market outlook. Integral to this is our management of risk. We ensure that risk We remain focused on the delivery of a sustainable net cash management is adopted at every stage of the project lifecycle. position and sustainable dividend policy in-line with our medium-term value creation plan. Our ESG Committee oversees the adoption of our sustainability framework and commitments, with this year being the first year of operation. Our approach to sustainability aims to safeguard Andrew Davies our business and build a resilient environment, resilient Chief Executive community and resilient profits over the long term. Our People The Group’s strong performance is attributable to the dedication of our c.10,000 employees across the UK. I would like to thank Governance Financial statementsStrategic reportOverview Other information them for their commitment and contribution throughout the year. The Group remains committed to creating a workplace that aligns with Kier’s values of collaboration, trust and focus. We are embracing new ways of working, as well as supporting and developing our people. During the year, we implemented a range of family-friendly policies including enhanced maternity leave, paternity leave, adoption and surrogacy. The Group is keen on listening to its workforce and has deployed strategies to engage with our employees. We have continued with our employee surveys which indicate a 63% employee engagement score for FY22. Kier Group plc | Annual Report and Accounts 2022 13 ## Our strategy Group strategic framework ## Our medium to long-term ## strategy focuses on leveraging ## our attractive market positions ## to deliver sustainable ## infrastructure services and ## construction to our customers. Purpose To sustainably deliver infrastructure which is vital to the UK Vision To be the UK’s leading infrastructure services and construction company Group strategy Focus on government, Operate in business to Contracting through regulated or blue chip business markets long-term frameworks client base Strategic ### Disciplined Growth + Consistent Delivery + Generate Cash actions An integrator and Breadth, depth and Supply chain Kier strategic partner diversity of talent partnerships Proposition – key building blocks Innovation and A culture of Delivering digitisation Performance Excellence sustainably Our values Collaborative Trusted Focused 14 Kier Group plc | Annual Report and Accounts 2022 ## 1 Objective 1 ## Leverage our attractive ## market share positions in ## growing markets | – Use Group’s strategically positioned and locally | | Infrastructure Projects | | | | --- | --- | --- | --- | --- | | established businesses in the UK to position the business | | | – Delivery partner on the largest section of the HS2 Phase 1 | | | in its core markets: | | | – Europe’s largest infrastructure project | | | | – Highways | | – 92% of contracts delivered under cost reimbursable | | | | – Utilities | | contracts | | | | – Infrastructure Projects | | – Continues to win new projects | | | | – Construction & Kier Places | | | – Appointed by Network Rail to deliver the design and | | | – Property | | | enabling works for the £65m Oxford railway station | improvement project; and Our progress this year: – Won a place on the £1.5bn Pagabo’s civils and infrastructure framework. Highways Construction & Kier Places – #1 UK national builder ## £1bn+ – Strategic supplier to the Department for Education (‘DfE’), Highways work awarded in 2022 NHS and Ministry of Justice – Continue to win work in our chosen markets by being – Market-leading position (top three strategic highways and awarded a place on: top three local highways) – the £30bn Procure23 Framework to provide health care – Established relationships with strategic clients on long- projects to the NHS in England and other public bodies; Governance Financial statementsStrategic reportOverview Other information term frameworks typically 6–11 years – the Procure Partnerships North West framework worth – Awarded over £1bn of work including: up to £1.8bn; and – Birmingham Highways contract extension; – Kier Places awarded £28m contract with whg to deliver – National Highways Schemes Delivery Framework; improvements to over 4,500 homes. – A66 Northern-Trans-Pennine scheme; – M6 Lune Gorge Structures; and Forward focus: – A417 Missing Link. – Strongly positioned in significant and growing markets to take maximum advantage of market opportunities e.g. Utilities National Infrastructure Spending Programme. Property ## 90%+ – Focused on unlocking Government land as well as over 90% of revenue comes from investing through both public and private partnerships long-term contracts – Proven track record of delivery in the urban regeneration and property development market – Top three contractor in water, energy and – Continue to deploy capital with target to delivering telecommunications sectors a consistent ROCE of 15%: – Fibre optic build partner to top three UK digital – Entered into a joint venture with PGIM Real Estate to infrastructure providers develop a portfolio of light industrial and urban logistics – More than 90% of revenue from long-term contracts warehouses across the UK; and and alliances – Partnering with Investec to develop a multi-unit 4.9 acre – Awarded several projects in the water industry: industrial scheme in Manchester under our Trade City JV. – deliver £66m improvement project at Mogden Sewage Treatment Works; and Forward focus: – an early works contract on a £75m improvement project – Significant market opportunities driven by the at Alderney Water Treatment Works. Government’s ‘Levelling Up’ agenda, hub programme and high street re-purposing driven by market changes. Strategic actions: – Disciplined Growth – Consistent Delivery – Generate Cash Kier Group plc | Annual Report and Accounts 2022 15 Our strategy continued ## 2 3 Objective 2 Objective 3 ## Maintain and enhance Resilient and well-balanced ## long-term customer ## portfolio ## relationships – The Group’s businesses operate under long-term – Access synergies across Group through integrated approach frameworks, which require strong client relationships and – Balanced portfolio of contracts between capital projects and sector expertise long-term maintenance operations serving common sectors – Maintain and enhance the Group’s relationship with the UK and customers Government, regulated and blue-chip client base – Expand Kier Property with a capital disciplined approach – ESG is fundamental to our ability to win work and secure – The business invests in and develops schemes, with a positions on long-term frameworks principal focus on mixed-use urban regeneration schemes – UK Government contracts require carbon reduction plan utilising surplus cash generated by other businesses commitment to achieve net zero (PPN 06/21) – Build platform to attract and retain talent – Ensure we have and retain our supply chain partners Our progress this year: | – Total orderbook of £9.8bn at 30 June 2022 | | Our progress this year: | | | | --- | --- | --- | --- | --- | | – Positions on £124bn of frameworks for the UK Government | | | – Kier Property has generated returns of 14% from £124m | | | and regulated entities | | | capital deployed. We’re looking to increase this to £170m over | | | – Carbon, waste and water reduction commitments and | | | the medium term | | | progress made in the year of: | | | – Support to employees provided in the year includes: | | | | – Scope 1 and 2 carbon intensity reduction of 31% from | | | – 769 employees benefited from introduction of the Real | | | June 21 to June 22 | | | Living Wage | | | – Waste diverted from landfill 90% | | | – 591 apprentices | | | – Water usage reductions 67% | | – Investing in supply chain partners with training and prompt | | payment Forward focus: – Supply Chain Sustainability School: providing partner value – Continue to align the Group to our customers’ needs through workshops, training and resources – Win new business with low-risk profiles and attractive – Prompt payment code: Average Days to Pay – 33 days for margins the six months to 30 June 2022 – Continue to deliver projects on time and to budget, thereby meeting clients’ and customers’ expectations Forward focus: – Infrastructure and Construction – focus on market opportunities driven by UK Government spending Strategic actions: – Kier Property – focus on employing capital efficiently – Disciplined Growth and delivering appropriate returns – Consistent Delivery – Generate Cash Strategic actions: – Disciplined Growth – Consistent Delivery – Generate Cash 16 Kier Group plc | Annual Report and Accounts 2022 ## 4 Objective 4 ## Deliver strong organic and ## acquisitive growth, profitability ## and cash generation – Leverage business model to access the growth opportunities from £650bn spend on infrastructure over the next 10 years – Continue to prioritise cost management and disciplined capital allocation – Selectively invest in acquisitive growth over the medium term adding to the Group’s existing range of capabilities in its core markets – Procurement by public bodies requires them to maximise social value under PPN 06/20 Our progress this year: – Adjusted Operating Profit of £121m in FY22 – Delivered Free Cash Flow of £55m (FY21: £93m) – Strengthened our culture of focus on sustainable earnings and cash – Social value worth £296m delivered in six months to June 2022 Forward focus: Governance Financial statementsStrategic reportOverview Other information – Continue to grow the business organically – Monitor risk at every stage of project delivery Strategic actions: – Disciplined Growth – Consistent Delivery – Generate Cash Kier Group plc | Annual Report and Accounts 2022 17 ## Operational review ## Infrastructure Services The Infrastructure Services segment comprises the Highways, Infrastructure and Utilities businesses. Infrastructure Services ## £1.56bn £1.2bn revenue increased 17% against the prior year, primarily due to | appointed to Pagabo | awarded a place | the ramp up of capital works on HS2. Adjusted operating profit | | --- | --- | --- | | Civils and infrastructure | on Northern Ireland | increased by 7% to £70m with a margin mix impact. Higher HS2 | | framework | Water’s Major Projects | volumes were offset by growth of costs in Utilities. | Framework in joint ventures with BAM The Highways business designs, builds and maintains roads for National Highways, Transport for London and a number of district and county councils. The business experienced a period Key highlights: of strong wins, including new contracts and contract extensions – Highways – awarded major highways maintenance works and in Highways Maintenance, alongside the design and build of services contracts by North Northamptonshire and West three National Highways Major Projects. Northamptonshire Council – Infrastructure – appointed to £1.6bn Pagabo Civils and The marketplace is seeing a shift towards major projects with infrastructure framework demand at unprecedented levels. Success in the Major Projects – Utilities – awarded a place on Northern Ireland Water’s market requires relevant experience alongside a suite of skills £1.2bn Major Projects Framework in joint venture with BAM and capabilities through the project life cycle, for which Kier is – 83% of orders secured for FY23 positioned strongly. Operational highlights Contracts won include both North Northamptonshire and West Northamptonshire Council, Birmingham Highways contract Revenue extension, National Highways Schemes Delivery Framework, A66 Northern-Trans-Pennine scheme, M6 Lune Gorge Structures and A417 Missing Link. The Infrastructure business delivers major and complex infrastructure and civil engineering projects, including the HS2 Adjusted operating profit* project in joint venture with Eiffage, Ferrovial and BAM Nuttall, the A13 dualling project and the Luton DART rail system in joint venture with VolkerFitzpatrick. Our long-term relationships with key customers and joint Adjusted operating margin venture partners ensures access to a good pipeline of work such as our joint venture with BAM being appointed by Babcock International on a refurbishment project at Devonport’s 10 dock facility in Plymouth which is expected to run for 10 years. The business was also appointed to all 12 Lots of Manchester Airport Group’s £700m Capital Works framework jointly with Reported operating profit our Construction business. The Utilities business delivers long-term contracts providing construction and maintenance services to the water, energy, and telecoms sectors. The Utilities business has seen higher activity Order book in the telecoms sector with the UK Government’s commitment to rolling out 5G connectivity to the UK. As a result, the business 2022 £5.6bn has increased its investment in contract mobilisation costs. The business has continued to win work including a place on Northern Ireland Water’s £1.2bn Major Projects Framework in * Stated before adjusting items of £21.9m (FY21: £23.9m). joint venture with BAM. Utilising the depth of the Kier offer, this combines Utilities and Infrastructure strengths to deliver a turnkey solution for our client. The pipeline for attractive high-quality, long-term infrastructure work remains strong with opportunities to provide decarbonisation solutions to the energy sector. | | 18 | Kier Group plc \| Annual Report and Accounts 2022 | | --- | --- | --- | | 2022 £1,667m 2022 £70.0m 2022 4.2% 2022 £48.1m | | | | 2021 £1,422m 2021 £65.3m 2021 4.6% 2021 £41.4m 2021 £4.4bn | | | ## Sellafield ## Retreatment Plant ## Project, Cumbria The challenge Kier was set challenging social impact targets by its client on its power plant decommissioning infrastructure project in Sellafield, Cumbria. The targets are designed to contribute towards local employment, education and training, while supporting charities through donations e.g. time and labour. The solution Governance Financial statementsStrategic reportOverview Other information Apprenticeships – we worked to upskill the workforce for in-demand trades by establishing partnerships with local colleges and have mentored young learners through apprenticeships and National Vocational Qualifications (‘NVQs’). Work placement – work placement opportunities were made available to young learners, in collaboration with our sub- contractors and Kier has also visited schools to deliver more than 90 hours of workshops and mock interviews, reaching c.450 children. Time and labour – Kier donated c.270 hours of time and labour, refurbishing a building used by Age UK in Cockermouth, enabling the site to be used as a safe space for the elderly. In addition, our team members donated 275 hours of time to deliver a makeover at Lowther Street Hostel in Whitehaven, which houses young people aged between 16 and 24 years. The team decorated, assembled furniture, installed a new outdoor shelter, removed litter and cleaned up the garden in support of Kier’s charity partner End Youth Homelessness. The impact The team exceeded their first year of social impact targets and won a social impact award for the positive effect it has had in the local area, benefiting young learners, those who have struggled to find employment and vulnerable people reliant on vital services. Kier Group plc | Annual Report and Accounts 2022 19 Operational review continued ## Construction The Construction segment comprises the Regional Building, Strategic Projects, Kier Places (including Housing Maintenance, ## 86% £33m Facilities Management and Environmental Services) as well | of orders secured | refurbishment contract | as our International business. Construction has national | | --- | --- | --- | | for FY23 | for Manchester Aquatics | coverage delivering schools, hospitals, defence, custodial | | | Centre | facilities and amenities centres for local authorities, councils | and the private sector. Revenue reduced by 19%, as anticipated, due to deferred ## £69m £400m orders and delayed project starts. During the year we also design and construct a HMP Full Sutton, a new successfully completed HMP Five Wells prison project in mixed-use sustainable prison in East Yorkshire Wellingborough which resulted in a ramp down of activity. building in London However, in anticipation of the reduced revenue, we re-aligned Key highlights: our cost base. Accordingly adjusted operating profit increased – Won a significant number of contracts during the second half 7% to £61m. Adjusting items of £39.0m include costs related to of the financial year such as a £500m contract to deliver new the restructuring of our Southern regional business and houseblock buildings across six prisons with Wates; awarded cladding rectification costs. a pre-construction services agreement to deliver HMP Glasgow, a new prison on a 54-acre site in Scotland Contract wins have been strong during the year as reflected – Margin improvement due to realignment of costs to in a significantly increased order book from £3.3bn to £4.2bn. anticipated lower revenue We were recently awarded a £500m contract to deliver new houseblock buildings across six prisons in conjunction with Wates and appointed by the MoJ to deliver a £400m prison Operational highlights in Full Sutton. Revenue As a regional contractor, we continue to be well placed to benefit from the £5bn ‘New Deal’ opportunities announced 2022 £1,441m by the Government which focus on areas such as health, education and custodial services, where our Construction business has specialist expertise. However, during the year, Adjusted operating profit* we have seen UK Government procurement delays driven by cost inflation. 2022 £60.8m Our Construction business has continued to see a few deferrals in project awards caused by procurement delays. In addition, whilst we recognise the risk of cost inflation, we continue to Adjusted operating margin mitigate this with our contractual agreements and ongoing tender selectivity and controls. 2022 4.2% Our Kier Places business specialises in working in occupied properties both residential and offices, delivering maintenance, repairs, fire safety and compliance services. The business has Reported operating profit benefited from increased work opportunities from existing customers, resulting in increases in both volumes and profitability. 2022 £21.8m It continues to win new work and was appointed to the £35bn CCS facilities management and workplace services framework Order book as well as securing a place on Lot 2 of the £600m YORbuild3 Minor Works framework for four years. 2022 £4.2bn The UAE-based International business is focused on managing its cost base and projects in line with the continued weakness in its markets. * Stated before adjusting items of £39.0m (FY21: £16.0m). 20 Kier Group plc | Annual Report and Accounts 2022 2021 £1,769m 2021 £56.7m 2021 3.2% 2021 £40.7m 2021 £3.3bn ## St Sidwell’s Point ## Leisure Centre, ## Devon The challenge Exeter City Council appointed Kier to build a new state-of-the- art leisure centre to replace the existing building. The building was required to incorporate a range of facilities and fit with Exeter’s wider green initiatives, including its aim to be net zero carbon by 2030. The solution Kier built St Sidwell’s Point using the ultra-energy efficient Passivhaus standard, making it the first leisure centre in the UK Governance Financial statementsStrategic reportOverview Other information to be built this way. Kier worked closely with its subcontractors to deliver a Passivhaus Passport training scheme, which equipped people working on the project with the knowledge and skills to meet the low carbon requirements. The impact The building has been modelled to withstand predicted changes in climate conditions up to 2080, it will save up to 70% on energy and carbon compared to the previous building. The selection of materials and design of the building mean that its half a million annual visitors enjoy improved air quality, optimal air temperatures and natural lighting. As well as the environmental benefits, we also created social value on St Sidwell’s Leisure Centre. For example, Kier worked closely with Exeter Council to showcase the range of opportunities in the construction market, inspiring those wanting to join the industry by conducting 42 events for schools, colleges, construction organisations and community groups. Kier Group plc | Annual Report and Accounts 2022 21 Operational review continued ## Property The Property business invests and develops primarily mixed-use commercial and residential schemes and sites across the UK. ## 8% £12m The business is a well-established urban regeneration and increase in revenue adjusted operating property developer and largely operates through joint ventures. profit increase Revenue increased 8% compared to the prior year due to the completion and sale of several properties particularly within the Key highlights: industrial sector. The revenue from our share of joint ventures – Announced an £80m equity residential joint venture with increased by 66%. Housing Growth Partnership to develop urban brownfield sites – Selected as a joint venture partner to Mole Valley District Adjusted operating profit increased from £5.7m to £17.6m. Council for the £350m regeneration of Leatherhead The improved profitability and improved margin percentage has town centre primarily been driven by industrial sector divestments. – Sold the newly built and 100% let Trade City scheme in Luton to abrdn The Group is focused on the controlled expansion of the Property business through selected investments and strategic Operational highlights joint ventures using a disciplined capital approach. Revenue We expect to increase the average capital employed over time with a target of £140m–£170m with a consistent rate of capital investment at the level expected to help smooth out the returns profile of the business. As at 30 June 2022 capital employed was £122m. Adjusted operating profit* In FY22, the Property business had a Return on Capital Employed (‘ROCE’) of 14% in FY22, a significant improvement on FY21. Adjusted operating margin* ## Corporate Adjusted operating loss* Reported operating profit Reported operating loss £(41.5)m 2022 ROCE 2022 14% * Stated before adjusting items of £13.6m (FY21: £13.3m). The Corporate segment comprises the costs of the Group’s * Stated before adjusted items of £0.9m (FY21: £3.4m). central functions and have increased marginally year-over-year due to inflationary pressures being offset by continuous improvement initiatives. | | 22 | Kier Group plc \| Annual Report and Accounts 2022 | | --- | --- | --- | | 2022 £144m 2022 £16.7m £(27.9)m 2022 2022 £17.6m 2022 12.2% | | | | 2021 4% 2021 £134m 2021 £2.3m 2021 £5.7m 2021 4.3% £(27.4)m 2021 £(40.7)m 2021 | | | ## Gravesend ## Trade City The challenge 2 Kier Property has delivered more than 6m ft of industrial space through its Trade City and Logistics City brands across 50+ schemes. In December 2021 it entered a £400m joint venture with PGIM Real Estate to develop a portfolio of light industrial and last mile urban logistics warehouses across the UK. The solution The Property team has a proven track record of delivering sustainable buildings, bringing economic life back to underutilised sites and maximising value. Working with our existing occupiers and listening to their Governance Financial statementsStrategic reportOverview Other information feedback we have been able to understand their drivers, allowing us to work with external specialist sustainability consultants to develop our product, ensuring it is sustainable, responsible, assessed and designed to meet BREEAM (Building Research Establishment Environmental Assessment Method) targets. The impact At Gravesend, we achieved 85% of available BREEAM credits in water and pollution and 10% reduction in carbon emissions. Our schemes have evolved to be market-leading in terms of environmental credentials, ensuring our developments, and the materials used, are sustainable and delivered to the highest institutional specification, targeting a minimum EPC rating of A and BREEAM Excellent. In December 2021 Gravesend was sold to Legal & General’s Industrial Property Investment Fund (IPIF). Kier Group plc | Annual Report and Accounts 2022 23 ## Our marketplace Market drivers Market driver ## Population growth – Population expansion with people living longer, net immigration and mini baby boom – Pressure on health, social and housing driving change Market driver ## Economic growth – UK economic growth expected to slow given rising cost of living – Construction industry historically used to stimulate economy Market driver ## Congested transport – Congested roads, rails and airports given population growth and increased travel Market driver ## ‘Levelling Up’ agenda – Increased spending in previously deprived areas to narrow the UK’s regional inequality Market driver ## Climate change – Energy supply shortage and rising demand driving investment – UK Government’s commitment to net zero carbon 24 Kier Group plc | Annual Report and Accounts 2022 ## National infrastructure ## strategy ## Highways Market Market Opportunity: – National Highways: Road Investment Strategy 2: £27bn ## In the National Infrastructure investment in England’s strategic roads from 2020–2025 – 60% increase on Roads Investment Strategy 1 from ## and Construction Pipeline, 2015–2020 ## published in September 2021, – Local Authorities: Requirement for investment in local authority roads increasing ## the UK Government set out how – Local Authorities: Major planned projects afford significant opportunities across wider Group ## £650bn of public and private – Project Speed and the new Acceleration Unit launched by ## investment will be implemented Department for Transport (‘DfT’) in August 2020 – Sir Peter Hendy’s Union Connectivity Review published in ## in projects across the UK over March 2021 – Managing the transport sector’s response to changes ## the next 10 years. resulting from climate change. Kier’s position Kier’s Market Positioning: ## Kier’s scale, leading delivery – Market-leading position (top three strategic highways and top three local highways) ## capability at both national and Governance Financial statementsStrategic reportOverview Other information – Integrator with unique in-house road design, construction ## regional levels, operational and maintenance capabilities. Long track record of successful delivery ## delivery, processes and – Established relationships with strategic clients on long-term frameworks of typically 6–11 years ## expertise enable Kier to take – Asset and investment management expertise. UK highways assets valued at £500bn driving ongoing demand for major ## advantage of the significant projects and maintenance. ## and committed UK Government ## and regulated industry spend ## over the medium and ## long term. ## Top 3 market leading position in strategic and local highways ## 6-11 years established relationships with strategic clients Kier Group plc | Annual Report and Accounts 2022 25 Our marketplace continued ## Infrastructure projectsUtilities | Market Opportunity: | | Market Opportunity: | | | --- | --- | --- | --- | | | – Water: England & Wales (Asset Management Plan 7 | – £37–£53bn forecast cost ranges for HS2 Phases 2a and 2b | | | | (‘AMP7’) – £50bn by 2024 | – Within rail there is also £50bn committed to Network Rail CP6 | | | | – Water: Northern Ireland Price Control 21 (‘NI PC21’) – £2.1bn | | – CP7 procurement now underway | | | from 2021–2027 | – Nuclear Power – £20bn for new nuclear build | | | | – Energy Distribution – GB Ofgem Pricing Framework ED1 | – Nuclear Power – White paper commitment to a new power | | | | (‘RIIO’) ED1 – £17bn by 2023 | | station c.£1.7bn | | | – Northern Ireland Regulatory Price Control for Electricity 6 | – Nuclear Power – Modular reactor commitment to support | | | | (‘NI RP6’) – £657m by 2024 | | energy policy | | | – Gas Distribution Price Control 2017 (‘GD17’) – £226m | – Water – AMP 7 Water commitment – £50bn | | | | by 2023 | – Water – Canal and Rivers Trust framework | | | | – Gas Distribution – GIIO-GD2 £30bn by 2026 | – Defence spending – £42bn in FY21 | | | | – Telecoms – roll out of fibre/5G connectivity by 2027 | – Government priority to strengthen national security | | – Telecoms – Significant investment required for upgrade to the network predominantly by private sector spending – Electric vehicle (‘EV’) – plans to roll out charging points Kier’s Market Positioning: Kier’s Market Positioning: – Key infrastructure provider of repairs, maintenance and – Customer-focused approach capital projects to water, energy and telecoms sectors – Targets customers that offer repeat business through – Long-standing customers operating in regulated industries frameworks, and ownership of large asset bases – Consistently delivering services to customers and executing – Acts as the major projects experts, working with the rest on direct-delivery model of the business to leverage capability and relationships – Well positioned to maximise infrastructure roll-out – Robust risk management processes opportunities in EV market given existing maintenance and installation capabilities ## £17bn £50bn energy distribution by 2023 committed to Network Rail CP6 ## £50bn £42bn England & Wales water asset management plan defence spending in FY21 by 2024 26 Kier Group plc | Annual Report and Accounts 2022 ## Construction | Education | | Defence | | --- | --- | --- | | Market Opportunity: | | Market Opportunity: | | | – 500 DfE school replacement projects over 10 years | – £3.2bn Defence Estate Optimisation Programme | | | – 209 further free school projects approved for DfE | – £1.75bn UK Strategic Command Pipeline | | | capital funding | – £1.37bn US Infrastructure Programme | | | – Commitment to additional SEND funding and further | – £1bn Clyde Programme | investment into Further Education | Health | Commercial | | | --- | --- | --- | | Market Opportunity: | Market Opportunity: | | | – £1.5bn additional funding for building and maintaining hospitals | | – Increase in refurbishment for agile working practices due | | – £3.7bn New Hospitals Programme to be delivered by 2025 | | to COVID-19 | – Regional focus | Justice | Kier’s Market Positioning: | | | | --- | --- | --- | --- | | Market Opportunity: | | – A leading UK builder with attractive market positions and | | | – 20,000 new prison places required | | regional footprint to take advantage of the UK Government’s | | | – £4bn committed over four years | | committed spend | Governance Financial statementsStrategic reportOverview Other information | | – c.£200m per annum of estate maintenance | | – Track record of successful delivery with design, operational | | and support capability – Long-standing collaborative relationships across chosen sectors and a ‘strategic supplier’ to the UK Government – Contracting through frameworks providing competitive advantage, consistency and visibility over revenue streams ## 500 £3.2bn DfE school replacement projects over 10 years Defence Estate Optimisation Programme ## £3.7bn Increased new Hospitals Programme to be delivered by 2025 refurbishment for agile working practices due to COVID-19 Kier Group plc | Annual Report and Accounts 2022 27 Our marketplace continued ## Property – Urban Regeneration ## and Property Developments Market drivers Market driver ## Climate change – Legislation change – driving obsolescence in real estate market – ESG – net zero carbon, wellbeing and attracting and retaining employees, a key driver of demand – Regional relocation – businesses relocating to regional cities due to growth of millennial population and improved infrastructure – Energy efficiency – crucial factor in home moves Market driver ## Population growth – Population growth – 65+ age group is expected to see highest rate of population growth over the next two decades – Households – increase in single person households – Ownership – increased demand for build to rent – Supply – shortage of housing and restrictive planning policies Market driver ## Changing consumer trends – Demand – significant demand for high-quality large scale warehouses – Logistic vacancy rate – rate currently < 3% – Global supply chains – stockpiling and onshoring – Technology – growth in AI, robotics and automation driving demand 28 Kier Group plc | Annual Report and Accounts 2022 Market Opportunity: – Urban regeneration: – High street repurposing – Supply shortage – one third of Local Authorities currently do not have a 5-year housing supply – Growth in urban population – Post-graduation retention rates in regional cities ‘Levelling Up’ Agenda: – ‘Levelling Up’ agenda – increased spending in previously deprived areas – Relocation of parts of the UK civil service – Devolution and city mayors driving regional growth Hub Programme: – National Infrastructure spending – £650bn committed over 10 years – This includes development and regeneration of local sites Governance Financial statementsStrategic reportOverview Other information Kier’s Market Positioning: – Well-established relationships with land-owners and local authorities providing access to a large land bank – Proven track record of delivery in the urban regeneration and property development market. Experienced team with in-house capability – Commercial and operational synergies with Kier’s other businesses – Potential to deliver consistent ROCE of 15% ## 15% potential ROCE Kier Group plc | Annual Report and Accounts 2022 29 Our marketplace continued ## Addressable market 9 1 8 2 ## £47bn 7 ## Kier’s addressable market 3 4 6 5 | Construction | Infrastructure Services | | | --- | --- | --- | | 1. Commercial 24% | 6. Infrastructure other new 18% | | | 2. Industrial 2% | 7. Infrastructure other repairs, | | | 3. Public non housing 12% | | maintenance and improvements 9% | | 4. Repair and maintenance private 2% | 8. Roads new 18% | | | 5. Repair and maintenance public 11% | 9. Roads repairs, maintenance and | | improvements 4% ## £24bn £23bn Construction Infrastructure Services 30 Kier Group plc | Annual Report and Accounts 2022 UK construction market The Construction segment specialises in the design, build The overall UK construction market is estimated to be worth and integration of projects for both the public and private sector. 1 £174bn in 2022, having recovered from the impacts of the Our work is delivered from regional offices but providing global COVID-19 pandemic. As the market benefits from national coverage for customers. The key sectors served expected and announced increases in Government spending include education, health, justice and defence. 1 current forecasts show that this is expected to grow to £181bn by 2024. The Property segment covers Urban Regeneration and Property Development. It delivers commercial, mixed-use Addressable market and residential developments by purchasing land or existing The Group’s addressable market is estimated at £23bn for properties, developing them and then subsequently selling Infrastructure Services and £24bn for Construction. The Group them on, allowing the capital to be returned or recycled. Its serves this market through its three segments: Infrastructure synergies with the Group are gained through its operations Services, Construction and Property. and client relationships. It therefore serves the Infrastructure Services and Construction market. The Infrastructure Services segment is focused upon three main markets, Highways, Utilities and Infrastructure. The importance of Frameworks Frameworks are our main route to market as nearly all major Highways – designs, constructs and maintains strategic and public sector work is awarded through to those companies local road networks. It provides its customers with services who have won places on Frameworks. Kier remains focused including the delivery of emergency response and reactive on maintaining and growing our positions on both local and maintenance to critical infrastructure. national frameworks. We have places on agreements with Governance Financial statementsStrategic reportOverview Other information an advertised value of up to £124bn (Official Journal of the Utilities – repairs and maintenance of essential services to the European Union (OJEU values)) as at 30 June 2022 across Water, Energy and Telecoms sectors. Its customers are largely all of our core markets covering both national and regional regulated by government agencies such as OFWAT for water geographies as well as market sectors. and OFGEM for gas and power companies. In our Infrastructure Services segment we have places on six Infrastructure – high value and complex construction and civil national and 27 regional frameworks with a total advertised engineering projects for sectors such as Nuclear, Roads and OJEU value of c.£16bn. Rail are services provided by our Infrastructure business. In Construction we have been awarded places on 16 national and 32 regional frameworks worth £108bn. Our positions on frameworks underpin the work we have undertaken across our core markets and we are well-placed to benefit from the UK Government’s continued commitment to infrastructure spending. 1 CPA Construction Industry Forecasts 2022–2024 Summer 2022 Edition. Kier Group plc | Annual Report and Accounts 2022 31 ## Our key stakeholders Our business performance comes from the contribution of both our internal and external stakeholders. Our values contribute to Kier benefiting all of them and our approaches to each one are set out in this section. Shareholders Our colleagues, customers, shareholders, supply chain partners, banks, lenders, sureties and insurers, pension trustees, joint The owners of the Group backed Kier with significant venture partners and the UK Government are all key stakeholders. investment during the 2021 capital raise and therefore We connect with them at all levels of our business through our engagement with them is very important. frontline operations, support teams and our businesses, our senior leadership team, the Executive Committee and the Their expectations are: Board and its committees. – To generate long-term sustainable shareholder returns through the execution of our strategy We engage with stakeholders in lots of different ways – from – To restart paying a dividend for which we have a policy virtual meetings and conferences to reviews, forums and which targets paying one at a dividend cover of around webcasts. To understand how well we’re engaging with different three times cover across the cycle. groups, the Board and its committees receive regular updates and use them to make better decisions, and provide feedback What we’ve done and constructive challenge on activities, programmes and We communicate regularly with shareholders through our initiatives being considered. website, the Annual Report, trading statements and we held a Capital Markets Day in May 2022. Shareholders had an opportunity to meet the Executive Management team at Kier and understand the Group’s operational capabilities. We manage relationships with institutional investors through an investor relations programme. It includes one-to-one conversations, roadshows, group meetings and conferences. During the year, the Chairman also met investors to discuss governance related matters. Ahead of the 2021 AGM, the Remuneration Committee chair consulted extensively with our largest shareholders and their representative bodies to discuss our executive remuneration. During the year we held our AGM which afforded a chance for the Board to meet and engage with shareholders in person. Read more about our values online www.kier.co.uk 32 Kier Group plc | Annual Report and Accounts 2022 Customers Colleagues Our business is based upon long-term relationships and our Kier is a people-based business and our performance regional structure helping us to win places on Frameworks as a Group depends upon our ability to attract and retain and winning high-quality and profitable work through our a dedicated workforce of c.10,000 employees. position as a key strategic partner. Their expectations are: Their expectations are: – Our workforce is skilled, motivated and competitively – To deliver projects on time and to budget using our compensated workforce, design and project management skills. We aim – The safety, health and wellbeing of all our employees is to meet our clients’ and customers’ expectations including our number one priority, and it remains of paramount pricing and scope of work with a risk-disciplined approach importance – Supporting our main customer base, the UK Government, – We have policies and programmes in place to provide an through our ESG activities, supporting our customers on inclusive work environment. their path to achieving net zero carbon emissions by 2050. What we’ve done Governance Financial statementsStrategic reportOverview Other information What we’ve done The Board receives regular updates from the Chief Executive We ensure that the Group maintains good relationships and the Chief People Officer on our colleagues, progress with all key customers including continued engagement by against key people strategy initiatives, culture and overall the Chief Executive and other members of the Executive sentiment within the organisation. Committee and other senior management. The Board receives regular reports covering customer feedback In FY21, we realigned the HR and Group safety, health, allowing the Group to more effectively plan and deploy environment and assurance (SHEA) functions to establish resources to those areas of key focus. We continue to win better links between our people and our Responsible work through our longstanding client relationships through Business goals. The changes will ensure greater alignment our regionally-based operations and our focused approach and a focus on driving better employee wellbeing and to key market segments. engagement. This change ensures that we can incorporate our Responsible Business Approach (incorporating health, Kier operates several regional forums, such as the Northern safety, wellbeing and sustainability) into our broader people Cities Forum, West Midlands Forum and the London and the strategy leading to Kier becoming a safe, sustainable and South East Forum, helping develop a proper local approach attractive place to work. benefiting customers. We engage with local and regional authorities such as the Greater Manchester Combined We have issued our Diversity & Inclusion (‘D&I)’ roadmap Authority, the Tees Valley Combined Authority and the West to ensure that everyone within the organisation has their Midlands Combined Authority with representatives of all Kier voice heard and the different experiences people bring will businesses serving their particular area to ensure we fully help make Kier a better business. It is important that we engage and collaborate maximising all stakeholders. reflect the diversity of the communities we serve and our inclusive culture champions diversity of thought, background and experience. We also ensure that all senior managers, as well as the Board, undertake visible leadership tours across the Group’s offices and sites. The Executive Committee also held roadshows across Kier to explain the strategy and our medium-term value creation plan to our employees. Kier Group plc | Annual Report and Accounts 2022 33 Our key stakeholders continued Supply chain partners UK Government Our supply chain partners are key to the success of the As a ‘strategic supplier’ to the UK Government, Kier has an Group. They help us deliver the products and solutions to important role in building and maintaining UK infrastructure. benefit our stakeholders. It is therefore imperative that the The UK Government has committed to spending £650bn on Group has an ethical, sustainable and resilient supply chain. national infrastructure over 10 years. Their expectations are: UK Government contracts require net zero carbon and social – Pay them in line with our agreed terms value commitments. In addition, as part of the Construction – Collaborate with them to benefit all stakeholders Playbook, contracting authorities are expected to consider – Help them optimise their own supply chains. sustainability and options that support the UK Government’s wider priorities. What we’ve done During the year, we have focused on investing in our supply Their expectations are: chain partners through two key methods – training and – Maximise social value effectively and comprehensively prompt payment. – Assist in the delivery of the carbon reduction plan – Competitive bidding. We are founding members of the Supply Chain Sustainability School which is available to everyone who works in the What we’ve done construction, and infrastructure sectors. It covers such As one of the UK Government’s ‘strategic suppliers’ we topics as Waste & Carbon, Fairness Inclusion and Respect regularly engage with representatives of the Cabinet Office and The Modern Slavery Act as well as many more as well as central, regional and local procurement bodies sustainability issues. as part of the bidding and delivery of projects. Through the Supply Chain Sustainability School, we have In addition, we provide feedback to the public policy provided our supply chain partners with access to workshops, development process through roundtable discussions. training and other resources such as online courses. We participate in stakeholder meetings, workshops and receptions. Our latest Duty to Report on Payment Practices and Reporting submission covering the period from 1 January Kier has committed to creating £5bn of social value by 2030 2022 to 30 June 2022, the Group’s aggregate average as well as net zero carbon targets. payment days was 33 days (H1: 34 days) and the percentage of payments made to suppliers within 60 days was 89% To capture social value creation, we are using a new (H1: 92%). calculator, Thrive. Alongside this we have launched a social deprivation mapping tool, LM3. This tool measures Kier’s We are committed to further improvements in our payment spend geographically. It uses the UK Government’s indices practices and continue to work with both customers and of deprivation in 2019 to show where our spend maps to suppliers to achieve this. We are fully committed to deprived areas. Kier’s spend is directed at supporting complying with the 3 those communities targeted by the UK Government’s day payment requirements for small and medium-sized firms. ‘Levelling Up’ agenda. To further support local supply chains, we have spent 48% of subcontracted expenditure with small and medium-sized For our carbon reduction plan, we are targeting net zero enterprises (SME’s). carbon across operations and supply chain by 2045. For further details on our progress to date, please see page 46. 34 Kier Group plc | Annual Report and Accounts 2022 Joint venture partners Banks, lenders, sureties and insurers In order to ensure that we offer stakeholders the best As providers of banking, debt and other financial support solutions we often use joint venture partners to deliver they are key stakeholders unpinning the growth of the Group. projects, such as with HS2 and Luton DART. The Property business will often form joint ventures with public and private Their expectations are: sector bodies to help them deliver their expected outcomes, – Commitment to generate cash from operations, reduce net such as the Solum joint venture with Network Rail to debt and strengthen the balance sheet develop underutilised land around stations in the south east – Meet our covenant obligations. of England. What we’ve done Their expectations are: The Group’s management has regular meetings with our – Kier and the partner work together to deliver the financial partners, ensuring stakeholders have sufficient agreed outcomes confidence in the performance of the Group. We report our – Risks to be shared and mitigated. covenant calculations every six months. Governance Financial statementsStrategic reportOverview Other information What we’ve done The Group ensure effective cash forecasting and working The Group has continued to deliver the HS2 project as capital management through robust quarterly forecasting, agreed through our EKFB joint venture and ensures that monthly management accounts and continued monitoring there is regular contact between our management teams of our financial position. and our delivery partners to ensure that we are meeting the expectations of another of our stakeholders, the UK Government. Pension Trustees The trustees are responsible for ensuring our colleagues’ pension schemes are run properly and that the benefits for the members are secure. Their expectations are: – Kier continues to fulfil our commitments under the deficit reduction plan – That clear and open communication is maintained between trustees and the Group. What we’ve done The Group has continued to make deficit reduction payments as agreed and regular meetings between the Group and the trustees have been maintained. Work has started on the latest triennial actuarial valuations for the Kier Group and May Gurney schemes, both for 31 March 2022, and the results of these will be reflected once completed. Kier Group plc | Annual Report and Accounts 2022 35 ## Our business model ## What we do Highways Infrastructure We design, construct We deliver major and and maintain roads in complex infrastructure and the UK regional civil engineering projects Our Highways business works nationally on We deliver a number of high motorways and other value, complex and often strategic roads for National critical UK civil engineering Highways and also for projects using extensive various local authorities. in-house capabilities, as well as joint venture structures to ## We hold attractive positions in ensure the best solutions are offered to customers, backed ## our markets where we operate up by our experience as a systems integrator. ## with scale, leading delivery ## capability at both national and ## regional levels, operational ## delivery processes and expertise. ## We are a long-established, ## leading UK infrastructure and ## construction supplier with c.100 ## years’ experience. Kier provides specialist design and build capabilities to manage and integrate all aspects of a project – ‘Strategic supplier’ to the UK Government with key strengths in education, health, justice and defence – Experienced in delivering large scale civil engineering projects, leading highways and utilities provider and established urban regeneration and property developer – Live projects – c.400 live projects across the UK at any given time – Order Book – A strong order book worth up to £9.8bn across key sectors – Frameworks – Places on long-term contracts worth up to £124bn and framework agreements, creating barriers to entry and long-term revenue streams. 36 Kier Group plc | Annual Report and Accounts 2022 | Utilities | Property | Kier Places | | Construction | | --- | --- | --- | --- | --- | | We repair and maintain | We invest in land, property | We provide housing and | | We design, integrate and | | and support capital | and brownfield sites to | facilities maintenance | | project manage the | | projects utilities | redesign and regenerate | services | | construction of buildings | | | towns and cities | | | for public and private | | Our Utilities business provides | | The business specialises in | | sectors including schools, | | repairs, maintenance and | Our Property business invests | providing two main services: | | hospitals and prisons | | capital projects to the water, | and develops sites across the | | – An integrated facilities | | | energy and telecoms markets. | UK acting as a mixed-use | | management service for | Our Construction business is | | | commercial and residential | | public sector clients with | a national building offering a | | Our Water business | developer, specialising in | | specialist teams who have | regional service through our | | manages and maintains | urban regeneration, last mile | | mechanical and electrical | 26 offices throughout the UK. | | assets for several companies | logistics and modern | | expertise. | The local footprint allows us to | | such as Anglian Water and | sustainable office | | – We also provide housing | provide consistent local teams | | Thames Water. | developments working in | | maintenance services for | who build client and site | | | joint venture with public and | | local authorities, housing | knowledge, support | | Our Energy business supports | private sector clients who | | associations and social | collaboration with national | | electricity connectivity for 12m | value our expertise as a | | landlords with capabilities | and local clients, SME’s | | properties including new | systems integrator. | | including maintenance, fire | and communities. | | connections for our customers | | | safety, remediation, capital | | | such as UK Power Networks | | | works and decarbonisation. | We have key relationships in | | and Western Power | | | | education, health, justice and | | Distribution. We are the only | | | | defence which is aligned to the | | gas distribution contractor in | | | | UK Government infrastructure | | Northern Ireland. | | | | spending priorities as well as | being key to delivering their Our customers include environment and social value Phoenix National Gas, Firmus commitments. Energy and SGN Natural Gas. Our Telecommunications business installs high-speed ## £5bn Governance Financial statementsStrategic reportOverview Other information fibre optic networks for major suppliers. delivered almost £5bn of primary, secondary and tertiary education facilities in the past 15 years ## 12m maintaining electricity to c. 12m properties Kier Group plc | Annual Report and Accounts 2022 37 Our business model continued ## How we do it Design and engineering Project management Performance A responsible approach capability excellence to sustainability – Managing highly complex | – Technical – preparing | projects across business | In FY20, we launched | ESG is fundamental to our | | | --- | --- | --- | --- | --- | | technical designs and | units | Performance Excellence to | ability to win work and secure | | | undertaking supporting | – Design, integration and | provide consistency in our | positions on long-term | | | work for capital projects, | delivery capabilities | approach to people, projects, | frameworks. To successfully | | | through our team of | – Working with multiple | processes, cash management | win contracts with the UK | | | designers. | stakeholders | and future ways of working. | Government, bidders have to | | | – Modern Methods of | | | show that they can meet net | | | Construction (‘MMC’) | | Our Performance Excellence | zero and social value | | | – utilising MMC to maximise | | culture, which is underpinned | commitments under | | | efficiency in timing and | | by our values; collaborative, | procurement policies such | | | labour costs. | | trusted and focused is | as PPN 06/20 and 06/21. | | | – Build – design support | | supporting our focus on | As over 90% of Kier’s revenue | | | ranging from initial scheme | | continuous improvement | is derived from the public | | | feasibility to as-build phases | | across the Group and helping | sector and regulated clients, | | | – Support – structural and | | us to deliver on our Purpose | our ability to win work is | | | civil engineering designers | | – to sustainably deliver | dependent on delivering on | | | providing technical advice | | infrastructure which is vital | our ESG commitments. Our | | | and support across our | | to the UK. | sustainability framework | | | network of UK offices. | | | Building for a Sustainable | | | | | Each business within the | World provides three key | | | | | Group has now certified | areas of focus: | | | | | compliance with Performance | | – Environment – pollution | | | | Excellence, providing | | prevention, sustainable | | | | assurance that the Group | | procurement, net zero | | | | does, and will continue to, | | carbon, zero avoidable | | | | share best practice and look | | waste and biosphere | | | | for continuous improvements | | protection | | | | across the Group and has | | – Social – building for | | | | applied the governance | | tomorrow, diversity and | | | | required under its Code of | | inclusion, our social value | | | | Conduct and Operating | | and purpose, employee | | | | Framework. | | wellbeing and retention and | protecting human rights – Governance – operating responsibility, governance, health and safety and risk mitigation. ## £296m social value output for 6 months to end June 2022 38 Kier Group plc | Annual Report and Accounts 2022 ## The value we create Shareholders People Supply chain Communities | We deliver financial | | Our people are at the | We are able to operate | | We are mindful of our | | | --- | --- | --- | --- | --- | --- | --- | | returns for reinvestment | | heart of our business | at scale through the | | impact on communities | | | back into the business | | Our purpose is to sustainably | collective strength of our | | and society | | | and for our shareholders | | deliver infrastructure which is | supply chain partnerships | | | – We benefit many | | | – Shareholder returns – we | vital to the UK, and our people | Our supply chain partners are | | | communities through the | | | aim to generate long-term | are at the heart of our business. | key to the success of the | | | creation of employment | | | sustainable shareholder | | Group. They help us deliver | | | and continued support | | | returns through the | Our people use their skills, | the products and solutions | | | of employees, | | | execution of our medium- | knowledge and creativity to | to benefit our stakeholders. | | | – Communities – we are | | | term plan | provide solutions to clients | It is therefore imperative that | | | focused on social | | | – Dividend – our medium- | and customers and we are | the Group has an ethical, | | | sustainability by ensuring | | | term plan outlines our | looking to bring a new | sustainable and resilient | | | our actions directly and | | | dividend policy. This policy | generation of talent into the | supply chain. During FY22 | | | positively impact the | | | targets dividend cover of | construction industry. We | Kier spent 48% of | | | communities we serve, and | | | around three times earnings | ensure that our employees | subcontracted expenditure | | | this in turn generates wider | | | across the cycle | have skills and experience | with SMEs. | | | value for society | | | – Financial strength | from a range of locations, | | | | – Measuring Social Value | | | – Investment – strong, | sectors and backgrounds to | | – Collaboration – we work to | | – Launched our new social | | | resilient and flexible balance | reflect the communities where | | build strong, collaborative | | value calculator during | | | sheet, providing capacity | we work. We have various | | relationships with our | | FY22 identified social value | | | to invest. | entry points to the Group, | | suppliers including investing | | output of £296m in 6 | | | | including graduate and | | in supply chain partners | | months to 30 June 2022 | | | | apprenticeship opportunities. | | with training and prompt | | – Social Deprivation | | | | Kier offers our colleagues | | payment, for example: | | Mapping Tool – introduced | | | | such things as; excellent | | – Supply Chain | | our LM3 tool to measure | | | | career development | | Sustainability School | | Kier’s spend in socially | | | | opportunities, a | | – Providing partner value | | deprived areas | | | | comprehensive rewards and | | through workshops, training | | – Kier Foundation – | | | | benefits package, enhanced | | and resources | | independent charity | Governance Financial statementsStrategic reportOverview Other information | family-friendly policies, an | – Prompt payment code | donated c.£2.4m to over | | --- | --- | --- | | exciting new Kier Green Car | – Average Days to Pay – | 700 charities. | | Scheme and much more. | 33 days for the 6 months to | | 30 June 2022 | – Workforce – ensure that | – High standards – we | | --- | --- | | our c.10,000 employees are | support our suppliers to | | skilled, motivated and | meet high standards of | | competitively compensated | compliance expected by | | – Safety – safety, health and | us and our customers | | wellbeing of all our | – Integrity – aim to operate | | employees is our number | with integrity with our | | one priority | suppliers. | – Equality, Diversity and Inclusion – we have policies and programmes in place to provide an inclusive work environment. Kier Group plc | Annual Report and Accounts 2022 39 # Our key performance indicators ## Financial Total Group revenue including joint ventures¹ No change £3.3bn | 2022 | £3.3bn | | --- | --- | | 2021 | £3.3bn | Revenue for the Group from continuing operations including joint ventures Group revenue was flat year over year which reflected volume growth in Infrastructure Services offset by the anticipated reduced revenues from Construction. Adjusted earnings per share¹,³ 16.8p | 2022 | 16.8p | | --- | --- | | 2021 | 25.0p | Earnings per share for the year generated from operations before adjusting items Adjusted earnings per share has fallen despite the increased profit due to the increased weighted average number of shares. Net cash – 30 June⁴ £2.9m | 2022 | £2.9m | | --- | --- | | 2021 | £3.0m | Net cash at the year-end date The net cash has remained consistent to the prior year. Cash – free cash flow⁴ £54.6m | 2022 | £54.6m | | --- | --- | | 2021 | £52.6m | Alternative cash flow measure to evaluate what is available for distribution The Group has delivered a strong free cash flow underpinned by profitable projects. Adjusted operating profit from operations¹,³ Increase £120.5m | 2022 | £120.5m | | --- | --- | | 2021 | £100.3m | Operating profit for the year before adjusting items Group profit before adjusting items has increased despite reduced revenue. This is principally due to management actions to reduce costs and increased property transactions compared to FY21. Order book £9.8bn | 2022 | £9.8bn | | --- | --- | | 2021 | £7.7bn | Secured and probable future contract revenue not currently recognised in the financial statements The order book has increased significantly as the Group continues to win new, high-quality and profitable work. Net debt – average⁴ £(216.1)m | £(216.1)m | 2022 | | --- | --- | | £(431.9)m | 2021 | Average monthly net debt for the year The average net debt has reduced significantly due to receipt of the capital raise, Kier Living sale proceeds and free cash flow generation. ¹ See consolidated income statement on page 148. ² See note 5 to the consolidated financial statements. ³ See note 11 to the consolidated financial statements. ⁴ See note 21 to the consolidated financial statements. 40 Kier Group plc | Annual Report and Accounts 2022 ## Non-financial Safety – Group Accident Incidence Rate (‘AIR’) Increase Payment performance Decrease ## 115 33 days 2022 115 Achieve year-on-year improvement in the Group Maintain a good relationship with supply AIR. Remain below the Health and Safety Executive chain partners benchmark for the UK We have continued to work proactively with our supply chain The Group’s 12-month rolling Accident Incident Rate (‘AIR’) partners and are pleased to report that average days to pay of 115 and 12-month rolling All Accident Incident Rate (‘AAIR’) has improved from 34 days at 30 June 2021 to 33 days at of 316 represent an increase of 9% and a decrease of 5% 30 June 2022. respectively compared to FY21. We retain a solid safety record and maintain high safety Scope 1 and 2 carbon intensity Decrease standards in our industry. We plan to address the AIR through our new behavioural programme. ## Our restructured approach is designed to create a greater focus 11.9 tCO e/£1m 2 on workplace wellbeing. Investing in this will ensure our people stay healthy, energised, valued and supported. 2 Customer experience No change Reduce our consumption of energy and greenhouse gas emissions per £m revenue We have achieved a 31% decrease in our carbon intensity for business operations compared with FY21 and a 48% decrease ## 91% against our FY19 baseline. 2022 91% We will continue to build on these successful reductions in line Governance Financial statementsStrategic reportOverview Other information with our pathway to net zero. We will continue to incorporate low carbon technologies, materials, and ways of working into our Deliver a high level of customer satisfaction which operations and continue to work with our supply chain to trial is key to supporting sustainable long-term growth new technologies for a more sustainable future. across our markets and client base We remain stable with 91% customer satisfaction. Our focus on working in partnership with our clients and customers will Baselined scope 3 carbon intensity New continue in FY23 as a workstream of our Performance Excellence culture. ## 293.5 tCO e/£1m 2 Employee engagement Increase 2022 293.5 tCO 2 e/£1m ## 63% Reduce the greenhouse gas emissions via our indirect operations per £m revenue 2022 63% This year we have introduced scope 3 reporting to progress towards net zero carbon by 2045. During FY23 we will develop interim targets aligned to our pathway to net zero following this Achieve continuous improvement scores in baseline year. employee engagement surveys We have continued with our quarterly pulse surveys to record employee engagement. Topics explored this year have included employees’ connection to Kier, recognition, support and confidence in the business. We have seen a positive set of employee engagement results which demonstrate the impact that our actions are having on employee engagement. Our emotional engagement index is 63% for the last 12 months. | | | | Kier Group plc \| Annual Report and Accounts 2022 | 41 | | --- | --- | --- | --- | --- | | 2022 11.9 tCO 2022 33 days | e/£1m | | | | | 2021 105 2021 59% 2021 17.2 tCO 2021 91% 2021 34 days 2021 N/A | | 2 e/£1m | | | # Building for a Sustainable World ![img-0.jpeg](img-0.jpeg) **Andrew Davies** Chief Executive ## Dear shareholder Welcome to Kier's FY22 ESG report. As a reminder, Kier's purpose is to sustainably deliver infrastructure which is vital to the UK. As a 'strategic supplier' to the UK Government, environmental, social and governance is fundamental to our ability to win work and secure positions on long-term frameworks. The UK Government contracts above £5m require net zero carbon and social value commitments. Our ESG report outlines our commitments and our progress against those commitments. ## Sustainability framework Last year, we launched our new sustainability framework, 'Building for a Sustainable World' which covers sustainability from both an environmental and social perspective. Our framework is based on ten pillars and follows the guiding principles of the 17 United Nation's Sustainable Development Goals ('SDGs'). We believe that to be a responsible business and to play a leading role in our industry, we must address both the impact of climate change and leave a lasting legacy in the communities in which we operate. ## Environmental This year we published our first Task Force on Climate Related Financial Disclosure ('TCFD') report. The report outlines our assessment of climate-related risks and opportunities with respect to our operations, against the four key areas of governance, strategy, risk management as well as metrics and targets. It highlights how we are managing these risks and opportunities and their short, medium or long-term impact on the Group. You can find this from page 66 onwards. ## Carbon emissions We have set out our pathway to become net zero carbon for business operations by 2039 (scope 1 & 2), value chain (scope 3) by 2045 together with interim targets. We achieved a 31% year-over-year reduction in carbon emissions from our business operations (scope 1 & 2) in FY22. We also started reporting on our scope 3 emissions for the first time. ## Waste We have committed to being single-use plastic-free by 2030 as well as targeting to eliminate avoidable waste by 2035. We achieved a 29% year-over-year reduction in the volume of non-hazardous construction waste in FY22. ## Water We have committed to reducing our water usage over the long term. We achieved a 67% year-over-year reduction in FY22. ## Social We also make commitments on social value. Our target is to create £5bn in social value by 2030. ## Thrive In order to record our social value creation, we moved to a new social value calculator in FY22. Thrive has over 100 social value metrics and has the ability to track social value targets across our bidding activity and live projects. It links back to the UK Government's Social Value Model. Thrive will enable Kier to quantify and benchmark its positive contribution against other companies. ## Kier Foundation We celebrated 10 years of our independent registered charity, The Kier Foundation. Our charity has raised £2m for over 700 charities with the support of our employees. ## Diversity and Inclusion We launched our diversity and inclusion roadmap last year. As part of our journey to becoming a more diverse workplace, in FY22 we began our Empower programme, a reverse mentoring initiative which enables Kier employees from under-represented groups to mentor members of the Executive Committee and senior leadership teams. In addition, we continue to train employees as part of our Expect Respect campaign. ## Governance Our ESG Committee oversees the adoption of our sustainability framework and commitments. This is the first year our ESG Committee has been in operation. We believe our approach to sustainability aims to safeguard our business and build a resilient environment, resilient community and resilient profits over the long term. **Andrew Davies** Chief Executive 42 Kier Group plc | Annual Report and Accounts 2022 2022 highlights | Environmental | | | | Social | Governance | | --- | --- | --- | --- | --- | --- | | Carbon – scope 1 & 2 – reduction in | | | | Social value – generated £296m of | ESG committee – first year of operation | | carbon intensity of 48% against our FY19 | | | | social value in 6 months to June 2022 | for ESG Committee and first year of | | baseline. This represents a 31% | | | | predominantly by supporting Small | reporting in accordance with TCFD. | | reduction against our FY21 performance, | | | | Medium Enterprises (‘SMEs’). | | | from 58,622 tCO | | 2 e to 38,635 tCO | 2 e | | Ethics – existing policies and procedures | | | – Scope 3 – this is the first year of | | | Safety – 12-month AIR 115 increased 9% | continue to provide a consistent basis for | | | reporting scope 3 emissions. For data | | | and the 12-month AAIR 316 decreased | responsible business practices, for | | | gathering purposes, the baseline has | | | 5% compared to the prior year. | example, our Code of Conduct. | been realigned to the 12 months | ended 31 March 2022. We will be | | Supplier payments | | Risk – continue to monitor governance | | --- | --- | --- | --- | --- | | reporting on this basis going forward. | | | – Days – year-over-year payment days | matters through annual BSI audits on | | Accordingly, our scope 3 emissions | | | reduction from 34 to 33 | IS014001, 45001 & 9001 compliance, | | were 907,501 tCO | 2 e | | – Invoices – 89% of invoices paid within | Integrated Operational Assurance | | – Established commitment to achieve net | | | 60 days. Consistent with prior year | Statement and processes as well as | | zero by 2045 | | | – SMEs – £908m of expenditure across | operating assurance statements. | | – Our Pathways to Net Zero include a | | | the Group which includes spend | | | series of interim milestones to reduce | | | through several public sector | Internal policy centre continues to | | carbon emissions by 65% from | | | frameworks | support the Group’s efforts in governance | Governance Financial statementsStrategic reportOverview Other information | business operations by 2030 and to | | focus areas such as modern slavery, | | --- | --- | --- | | become net zero carbon in our | Employees | anti-bribery and corruption, data | | business operations by 2039 | – Apprenticeships – 591 apprentices | protection and whistleblowing matters. | participating in apprenticeship Waste – a 29% year-over-year reduction programmes in FY22, 6% of our in the volume of non-hazardous workforce 3 construction waste from 4.9 m /£100k – Graduates – graduate intake 3 | revenue in FY21 to 4.5 m | | /£100k revenue | comprising 38% women in FY22 | | --- | --- | --- | --- | | in FY22. | | | – Diversity and inclusion – launched | | | – Construction waste (materials and | | Empower programme, targeted at Kier | | | packaging) diverted from landfill – 90% | | employees from under-represented | | | of total FY22 waste | | groups. Designed to reduce barriers | in progressing to leadership roles. Sustainable procurement Continued to deliver Expect Respect – Collaboration with supply chain Training for all employees partners on reducing fuel requirements – Wellbeing – developed and through use of sustainable fuels implemented new health, safety and – Continued supply chain training and wellbeing strategy and launched new education behavioural programme. – Procurement function graded as ‘mature’ against the ISO 20400 framework for sustainable procurement – Ensured adherence to UK Government Prompt Payment Code Biosphere Protection: – Water – a 67% year-over-year reduction in the cost of water as a percentage of our operational spend from 0.03% in FY21 to 0.01% in FY22 – Biosphere: Recommendations from biosphere assessment incorporated into FY23 plan Kier Group plc | Annual Report and Accounts 2022 43 Building for a Sustainable World continued Our sustainability framework ## Our approach to sustainability The framework is governed ## is based on ten pillars – five for through Sustainability ## environmental sustainability Leadership Forums established ## and five for social sustainability. at Group level and for each ## core business. - A R E S I L I E N A L T E N T N E V M I R N O O N R M I Z e E V o r o a z e r v o N N e t i d a T E N n w a b l r b o s t e a e c B | | n | | | 2 2 | p | i o | | | --- | --- | --- | --- | --- | --- | --- | --- | | | i o | n | CO CO | | r | s | | | t | | i o | | | o | p | | | u | t | | | | | t e | h | | l l | n | | | | | c | e | | o | e | | | | | t | r | | P | v | | | | | i o | e | | e | | | | | | | n | r p S U S T A I N A A L B I T L I N T Y E E M L N E O M I R E N V T t N S B e l n E t u ??? o b e m i l d a m n e o i i r n r r g a u o t f s c w o u o r r S p S O S C T I N A E L M S L E U E S T ) A I C R N A B T Y ( I L I h P u r y o t n m t i e s i o a c r s n t e i n i v l u r i g D c g n i h t s & 2 CO E m b p l a l e o y c i i n e e r s o e g w e l O u l u & l - v a e n & g a s e g e m r p o e n t p u S O Y C I T I A N L U - M M A R C O E S I L I E N T Long-term targets ## 2030 2045 2030 2035 2030 | reduce carbon | net zero for | single-use plastic- | elimination of | create £5bn | | --- | --- | --- | --- | --- | | emissions from | business operations | free by 2030 | avoidable waste | of social value | | business operations | and value carbon | | by 2035 | by 2030 | | by 65% by 2030 | by 2045 | | | | 44 Kier Group plc | Annual Report and Accounts 2022 A ) ( ( ( B B B B B B B B B B I I I L L I L I L L I A B I A L B A I L B I ) A A Y T C ( T ) T T R T Y S E L E M E N T E C N Y T E I R L Y ( T C I Y S T S E M ) N E E T S E T S A A A A A B B A A B B B I B S I I I L I R ( L T I Y L I ( T L I T ( L I T I Y L ) C E R Y C R Y C ( R N M E M L ) E E L ) E L N E E M E S T S N B L Y L I T C I T I Y R C C ( ( ( ) ) ) ## Pollution prevention The working group has increased focus on air pollution Relevant SDGs prevention, including prioritising low air emission plant and equipment. We continue to deliver on our avoidable pollution incident reduction targets and seek to employ innovation, new technology and best practice in pollution prevention. Non-Road Mobile Machinery (‘NRMM’) Strategic objective NRMM consists of any mobile machinery, transportable Protecting the environments that we work within is important industrial equipment or vehicle fitted with an internal combustion to Kier. We continue to train, support and audit our projects to engine not intended for passenger or goods transport by road. minimise the risk of pollution. Our NRMM has to meet tight emissions standards for particulates and nitrous oxides in London as set by Greater Why it is important London Authority. We work across a wide variety of rural and urban habitats in the UK, which can be vulnerable to pollution. To prevent damage to The standards are tightening and other geographies outside these environments or negative impact on the communities in of London have started to introduce similar requirements. which we work, it is essential that we minimise pollution. In FY22, we were 100% compliant with the NRMM regulation Target within London. In addition, we sampled 30 projects in the UK Prevent pollution from all operations within our control and (outside of London) against the NRMM requirements. Although measure all environmental incidents across the Group. the NRMM requirements were not applicable to these projects, Governance Financial statementsStrategic reportOverview Other information this exercise was undertaken to address air quality on a national Progress in FY22 scale. Of the 30 sampled projects, 26 sites had NRMM Our All Environment Incidence Rate (‘AEIR’) remained stable qualifying plant (37–560 kW) and 60% of these were in line with from 220 in FY21 to 227 in FY22. the London NRMM requirements. We will continue the exercise next year in order to reduce our impact on local air quality. We plan to widen our reporting next year to include our HS2 joint venture, EKFB within our AEIR metric. Priorities for FY23 – Develop air quality management standards and guidance; Supply chain collaboration – Promotion of further NRMM compliance; Our pollution prevention working group has collaborated with – Develop standardised water management plan and guidance; our supply chain partners and delivered key initiatives such as: and – A pollution prevention equipment catalogue; – Further development of pollution prevention training. – A bespoke spill response training programme; and – 24-hour access to an emergency response spill contractor. Kier Group plc | Annual Report and Accounts 2022 45 Building for a Sustainable World continued # Net zero carbon ![img-1.jpeg](img-1.jpeg) # Relevant SDGs # Strategic objective We have set the target of achieving net zero carbon across our business operations (scope 1 & 2) and value chain (scope 3) by 2045. Our pathway to achieving this target is aligned to the Science Based Targets initiative ('SBT') with the Business Ambition for 1.5°C. We are signatories to the following public commitments to ensure we are transparent and accountable for our carbon reduction performance: - World Green Building Council; - We Mean Business Coalition's Race to Zero; - Contractors Declare; and - Supply Chain Sustainability School's Plant Charter. We are aligned to the following: - Climate Group's Renewable Energy 100 ('RE100'); - Energy Productivity 100 ('EP100'); and - Electric Vehicles 100 ('EV100'). We are committed to delivering energy efficiency through improvements in technologies and innovation. To align with the requirements of these commitments, and to maintain progress towards our net zero carbon target, we are also working to the following interim targets: - 65% reduction in business operations carbon (scope 1 & 2) by 2030; - 100% electric vehicles or alternative zero-carbon fuels for our own fleet by 2030; - 100% renewable electricity by 2030; - Net zero offices by 2030; - 40% reduction in project embodied carbon by 2030; - Net zero business operations carbon (scope 1 & 2) by 2039, without offsetting; and - Net zero for onsite plant and equipment by 2040. # Why it is important As a responsible business, it is our duty to reduce and avoid any negative impact we have on the climate. With the diverse range of public sector and blue chip customers we work with and sectors that we work in, we have a unique opportunity to change the landscape of the UK-built environment for the better. It therefore remains a strategic objective for us to deliver on our net zero commitments and support our clients in doing the same. # Target - Scope 1 & 2 – a year-over-year reduction in carbon intensity - Scope 3 – now that we have reported on our scope 3 emissions, a year-over-year reduction in scope 3 emissions. # Progress in FY22 # Business operations (scope 1 & 2) During FY22, we saw the benefits of some of the initiatives we implemented last year such as the electrification of our fleet. In FY21 we signed up to EV100, committing to the electrification of our 3,730 fleet of vehicles and supporting our employees to adopt electric vehicles ('EVs') by installing charging infrastructure at 30 of our locations by 2030. We also refreshed our company car list, providing at least five electric vehicle options for every car grade, and further options for plug-in hybrid electric vehicles ('PHEV') and hybrid vehicles. We also launched the Green Car Scheme which allows employees to lease ultra-low emission vehicles through a salary sacrifice scheme. 46 Kier Group plc | Annual Report and Accounts 2022 Our Utilities business has been supporting the wider Group with Value chain (scope 3) the installation of EV charging infrastructure across our estate, This year we have reached a significant milestone by reporting and our employees continue to benefit from discounted rates for our scope 3, value chain carbon emissions. home chargers. The categories we report against within scope 3 have been | Collectively, these activities have seen the uptake of EV and | aligned to the ENCORD Construction CO | 2 e Measurement | | --- | --- | --- | | PHEV company car orders increase to 20% and 57% respectively, | Protocol: | | | in the past 12 months. This compares to 9% in the previous | – Vehicle fuel (excluding scope 1 & 2 vehicle fuel); | | | 12 months for EVs, and 51% for PHEVs. | – Public transport; | | – Subcontractors & suppliers; We continue to work collaboratively with our supply chain to – Waste; and identify opportunities and run trials to substitute the use of – Materials. carbon intensive plant and equipment. Where trials demonstrate environmental benefit, we have and will continue to embed We have also included four additional categories to reflect our these practices into our standard way of working. carbon footprint including employees, equipment, property & assets, water and other. Following several successful trials throughout the business, we have introduced a requirement for battery storage units to With our scope 3 carbon comprising 96% of our total carbon be used, where appropriate, in conjunction with all generators. footprint, the value chain carbon reporting has been important in helping us to identify ways to accelerate our net zero Through collaboration with our supply chain partner, all projects carbon strategy. Governance Financial statementsStrategic reportOverview Other information requiring generators for temporary power are individually assessed, and battery storage units are used to significantly reduce fuel consumption. Alternative fuels will form a key aspect of our strategy over time to tackle the unavoidable energy demands of our sites. In June 2022 we started trials of hydrogen generators in Construction and Highways in partnership with our supply chain. These trials are a key step towards a transition to net zero off-grid power. As a strategic supplier to the UK Government, in September 2021 we also published our Carbon Reduction Plan in line with Procurement Policy Note 06/21, setting out our net zero targets, commitments, pathways, and performance. Kier Group plc | Annual Report and Accounts 2022 47 Building for a Sustainable World continued ![img-2.jpeg](img-2.jpeg) Table 1: GHG emissions data on financial year basis (scope 1 & 2) | GHG emissions data | Year ended 30 June 2019 (FY Baseline) | | Year ended 30 June 2021 | | Year ended 30 June 2022 | | | --- | --- | --- | --- | --- | --- | --- | | | UK | Global | UK | Global | UK | Global | | Scope 1 (tonnes CO_{2}e) | | | | | | | | Combustion of fuel and operation of facilities | 74,139 | 86,839 | 44,315 | 53,175 | 33,199 | 34,748 | | Scope 2 (tonnes CO_{2}e) | | | | | | | | Electricity purchased | | | | | | | | – Location-based | 8,430 | 8,468 | 5,416 | 5,447 | 3,865 | 3,887 | | – Market-based | 7,014 | 7,051 | 356 | 387 | 308 | 329 | | Total scope 1 & 2 (tonnes CO_{2}e) | | | | | | | | – Location-based | 82,569 | 95,307 | 49,731 | 58,622 | 37,065 | 38,635 | | – Market-based | 81,153 | 93,890 | 44,671 | 53,562 | 33,507 | 33,507 | | Intensity measurement (tonnes CO_{2}e per £m revenue) | | | | | | | | – Location-based | 20.0 | 22.7 | 14.8 | 17.2 | 11.4 | 11.9 | | – Market-based | 19.7 | 22.4 | 13.3 | 15.7 | 10.3 | 10.8 | | Energy Usage | | | | | | | | Energy consumption | | | | | | | | Total energy consumed (kWh) | 322,631,000 | 374,771,000 | 206,212,000 | 243,203,000 | 159,169,114 | 165,784,911 | Notes to Table 1: 1. Location-based uses the average emissions intensity from the grid where we source the energy. 2. Market-based uses the emissions intensity based specifically on the energy mix procured. Table 1 above details our statutory carbon footprint for FY22 (scope 1 & 2). Total emissions from our business operations carbon (scope 1 & 2) for the year was 38,635 tCO$_{2}$e which equates to 11.9 tonnes per £m revenue. This represents a 31% decrease in carbon intensity compared with FY21, and a 48% reduction against FY19. This decrease is due, in part, to the carbon reduction initiatives undertaken by our businesses, primarily relating to fleet electrification and use of alternative fuel sources. Scope 1 fugitive emissions are not included as the data is not available. Reported data excludes joint ventures as well as historic and international operations which are not operating. Reporting follows the requirements of The Companies (Directors' Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. Our carbon footprint was quantified by reviewing all operational data available in line with the Greenhouse Gases Protocol standard. We have applied the most relevant emission factors sourced from DEFRA's 2020 UK Greenhouse Gas ('GHG') Conversion Factors for Company Reporting and other equivalent data sources for our emissions outside of the United Kingdom. 48 Kier Group plc | Annual Report and Accounts 2022 GHG emissions data (scope 3) Our scope 3 emissions reporting excludes parts of the business This is our first year of reporting scope 3 carbon emissions. where insufficient data is available. However, the scale of these exclusions is not material. Given the volume and timing of data collation, we have re-aligned our GHG emissions data reporting to the 12 months Market-based emissions have been calculated since FY21 ending 31 March instead of our previous year ending 30 June. using more detailed tariff level data (where this was available), We plan on reporting on this basis going forward. to show the benefit on the carbon footprint that we have had by purchasing primarily green energy tariffs. In previous years the Accordingly, for comparability, we have restated our prior year market-based figure was based on supplier averages as GHG emissions (scope 1 & 2) reported data from 30 June to published via fuel mix disclosures on their websites. 31 March for baseline, 2021 and 2022. See Table 2. We continue to improve our reporting practices to provide increased accuracy into our scope 3 emissions. Table 2: Restated GHG emissions data (scope 1, 2 & 3) | | Year ended | | Year ended | | Year ended | | --- | --- | --- | --- | --- | --- | | | 31 March 2019 | 31 March 2021 | | 31 March 2022 | | | (Restated Baseline) | | | (Restated) | | | GHG emissions data UK Global UK Global UK Global Scope 1 (tonnes CO 2 e) Combustion of fuel and operation Governance Financial statementsStrategic reportOverview Other information of facilities 77,468 89,490 45,075 56,117 36,113 38,643 Scope 2 (tonnes CO 2 e) Electricity purchased – Location-based 7,132 7,170 5,274 5,304 4,543 4,569 – Market-based 5,934 5,970 346 387 298 324 Scope 3 (tonnes CO 2 e) n/a n/a n/a n/a n/a 907,501 Total scope 1 & 2 (tonnes CO 2 e) – Location-based 84,600 96,660 50,349 61,421 40,656 43,212 – Market-based 83,402 95,460 45,421 56,504 36,411 38,967 Total scope 1, 2 & 3 (tonnes CO 2 e) – Location-based 84,600 96,660 50,349 61,421 948,157 950,713 – Market-based 83,402 95,460 45,421 56,504 943,912 946,468 Intensity measurement (tonnes CO 2 e per £m revenue) Scope 1 & 2 – Location-based 21.0 24.0 13.3 16.2 12.6 13.3 – Market-based 20.7 23.7 12.0 14.9 11.2 12.0 Scope 1, 2 & 3 – Location-based 21.0 24.0 13.3 16.2 292.7 293.5 – Market-based 20.7 23.7 12.0 14.9 291.4 292.2 Energy Usage Energy consumption (scope 1 & 2) Total energy consumed (kWh) 330,568,000 380,090,000 210,794,000 256,835,000 169,551,000 179,465,000 Notes to Table 2: 1 Location-based uses the average emissions intensity from the grid where we source the energy. 2 Market-based uses the emissions intensity based specifically on the energy mix procured. Kier Group plc | Annual Report and Accounts 2022 49 Building for a Sustainable World continued Our carbon summary | Our commitments: | | 2030 interim targets: | | Carbon reduction plan FY23: | | --- | --- | --- | --- | --- | | Our pathway is aligned to the Science | | These commitments also mean that by | | To achieve our targets, we have | | Based Targets initiative (‘SBTi’) which | | 2030 we must achieve the following | | produced a carbon reduction action plan | | provides companies with a pathway for | | interim targets: | | for FY23, focusing on activities including: | | reducing carbon emissions based on the | | | – A 65% reduction in our business | – Installing telematics on vehicles | | latest climate science. | | | operations carbon | – Conducting driver engagement and | | | | | – 100% electric vehicles or be using | behaviour change campaigns to target | | We have reconfirmed our commitment | | | alternative zero-carbon fuels for our | idling, inefficient driving of vehicles and | | to SBTis and the Business Ambition for | | | own fleet | vehicle care | | 1.5°C. Additionally, we remain aligned to | | | – 100% renewable energy | – Electrification of our commercial | | these public commitments to ensure we | | | – Net zero offices | vehicles | | are transparent and accountable for our | | | – 40% reduction in our project embodied | – Mandating battery storage units to | | carbon reduction performance: | | | carbon (this includes the energy we | support generator down-sizing and | | | – World Green Building Council | | use as part of our business operations, | fuel reductions | | | – We Mean Business Coalition’s Race | | within our value chain, and also other | – Rolling out Flywheel technology to | | | to Zero | | carbon emitting activities such as | minimise fuel consumption for tower | | | – Contractors Declare | | the materials we buy and the waste | crane operation | | | – Supply Chain Sustainability School’s | | we produce) | – Sizing generators correctly relevant to | | | Plant Charter | | | their purpose and phase of the project | | | – Climate Group’s Renewable Energy | Net zero for our onsite plant equipment | | – Electrification of mobile plant where | | | 100 (‘RE100’), Energy Productivity 100 | by 2040. | | possible | | | (‘EP100’) and Electric Vehicle 100 | | | – Continue trialling the use of alternative | | | (‘EV100’) | | | fuels such as Hydrotreated Vegetable | Oil (‘HVO’), hydrogen and biofuels 50 Kier Group plc | Annual Report and Accounts 2022 # Zero avoidable waste ![img-3.jpeg](img-3.jpeg) # Relevant SDGs # Strategic objective We define avoidable waste as waste being generated at every stage of a project's life cycle and, at the end of life, recovering products, components and materials at the highest possible level of the waste hierarchy while ensuring minimal environmental impact. Our objectives are to achieve zero avoidable waste by FY35 and single-use plastic-free by FY30. To deliver these objectives we challenge our projects, waste contractors, materials providers and suppliers to implement circular solutions and project specific waste reduction plans. # Why it is important Delivering our zero avoidable Waste strategy will contribute significantly to our scope 3 carbon reduction. Supported by data, a reduction in our waste will reduce costs to our business and in turn our clients. We have committed to developing our zero avoidable waste strategy in line with the Green Construction Board's working interpretation of Zero Avoidable Waste in Construction, published in February 2020 and the supporting route map to zero avoidable waste in Construction launched in July 2021. # Target - To reduce year-over-year construction waste from our Construction business as well as demolition and excavation waste from our Infrastructure Services and Construction business units. Sustainable and compliant reuse and repurposing of material. # Progress in FY22 Construction waste (Construction only): - Reduction in volume of non-hazardous construction waste from \(4.9\mathrm{m}^3 /\mathrm{E}100\mathrm{k}\) revenue in FY21 to \(4.47\mathrm{m}^3 /\mathrm{E}100\mathrm{k}\) revenue in FY22, a year-over-year reduction of \(29\%\) from FY21. Construction waste reporting covers \(48\%\) of the Group by revenue for FY22 - Diversion from landfill (materials and packaging) - 90% of total FY22 landfill waste (FY21: 87%). # Demolition and excavation waste (Highways, Utilities, Infrastructure, Construction): Demolition waste diversion from landfill \(95\%\) of total FY22 demolition waste (FY21: 91%) Excavation waste diversion from landfill \(86\%\) of total FY22 excavation waste (FY21: 83%). Throughout the year a number of waste reduction initiatives have been delivered and these have contributed to the delivery of our waste reduction target. We have continued to improve our data collection and accuracy, while developing the waste audit process to validate data collection. # CL:AIRE protocol Our projects on the Environment Agency Collaborative Delivery Framework in the South West have been using the CL:AIRE protocol, a Code of Practice that promotes sustainable remediation of contaminated land and groundwater to assist in the reduction of classified waste. This facilitates the ease of reuse which in turn benefits both the project and the environment and enables the use of excavation arisings from other, local contractors. The protocol has significantly reduced costs related to importing fill materials and reduced carbon associated with transport. On the Environment Agency's Par & St Blazey Flood Alleviation Scheme, Kier used the CL:AIRE protocol to reclassify excavated material and reuse 2,600t of fill material from the local area, resulting in a reduction of 12,200 HGV km and 11tCO2e related to transport distances. # Washing service Our A13 project successfully trialled both the Hard Hat Recycling Scheme and Personal protective equipment commercial washing services from a supply chain partner. As well as preventing used PPE (Personal Protective Equipment) going to landfill, the washing service provided a cost saving of over £300. This initiative is scalable for the business and when rolled out fully will contribute to reducing waste volumes and cost savings. # Priorities for FY2023 - Further develop our waste reduction strategy. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 51 Building for a Sustainable World continued ## Biosphere protection Progress in FY22 Relevant SDGs In FY22 the cost of water as a percentage of operational spend was 0.01% in comparison to 0.03% in FY21. As part of our commitment to mitigate the impact of our operations, we need to measure our use and conservation of water. Our water consumption baseline was set in FY21. Strategic objective The biosphere, which is defined as the parts of Earth where life Assessment exists, provides basic life support systems and all the resources We have undertaken a biosphere impact assessment of we rely on as a business. our operations. The assessment examined our key activities across a sample of our sites and assessed our impact and We focus on the impact that our operations have on the planet’s dependencies on nature. The key recommendations from this biosphere and introduce new ways of working to ultimately have study have been used to populate an action plan for a positive impact. progression in FY23. Why it is important Competitions The biosphere and the protection of life on land and water is To help raise the awareness of biodiversity loss, we have linked to all aspects of our operations. The work we undertake continued to sponsor and promote the CIRIA BIG Biodiversity can have a lasting positive or negative impact upon the Challenge, encouraging biodiversity improvements both environment. We take this responsibly seriously and constantly internally and within our supply chain. strive to ensure the impact is positive. We have also launched two biodiversity competitions: To deliver on our responsibilities, it’s key to understand the – Kier Depots in Bloom (internal); and impact that our operations can have on nature. As we – Business in Bloom (external). understand more and more, we can then develop our bio- diversity strategy further to mitigate any negative impacts and These competitions encourage the creation of green space for further develop the positive impacts. the use of both wildlife and people within predominately grey landscapes such as depots and site compounds. They improve The initiatives we develop to further protect nature and better not just the spaces themselves but also the wellbeing of those serve the environments we operate in will also help us to who use them. robustly report on nature-related financial disclosures. Priorities for FY23 Target – Further develop our biodiversity strategy; – To reduce the year-over-year cost of water. – Develop a Kier Group biodiversity handbook; and – Launch Kier Depots in Bloom competition. 52 Kier Group plc | Annual Report and Accounts 2022 ## Sustainable procurement Shared fuel requirements Relevant SDGs We have been working in partnership with our key supply chain partners to consolidate our shared fuel requirements, to remove duplication. We wanted to provide a cost-effective offering to our supply chain; particularly small and medium-sized enterprises, to help them reduce their costs and make sustainable fuels more accessible. This will be implemented Strategic objective over the next year to help build a more resilient supply chain. Sustainable procurement considers economic, environmental, and social impacts alongside the more traditional quality and Supply Chain Sustainability School price elements when procuring goods and services. Our industry has a number of key enablers who provide support and guidance to main contractors and the supply chain. Kier At Kier we understand that procurement decisions have a was a founding member of the Supply Chain Sustainability significant ripple effect through the value chain, and having School and in the last year we’ve doubled the value our visibility of, and understanding those impacts is critical to employees and our supply chain partners generate from building ethical, sustainable and resilient supply chains. working with the school. We actively participate in working groups and have plans to further embed it within our business, Why it is important aligning it with our learning and development strategy next year. Sustainable procurement is linked to a number of the pillars across both the social and environmental aspects of our Standards framework and is a key enabler to successfully delivering on During the year we’ve been working closely with Governance Financial statementsStrategic reportOverview Other information our objectives. Constructionline (who work with construction buyers and suppliers) on a number of initiatives to break down the barriers Target for entry into our industry without compromising on standards. – Targeted spend of £2bn with our valued supply chain We have been an instrumental part in Constructionline now including Voluntary, Community and Social Enterprises offering free Gold Memberships to social enterprises, providing (‘VCSEs’) across the UK’s socially deprived areas by 2030. them with both the financial and technical support they need to meet the Common Assessment Standard. Progress in FY22 – £880k spent with VCSEs in FY22. Other During the year we worked with Action Sustainability to provide Technology initiative an independent assessment against the ISO 20400 framework for During the year, Kier completed the construction of the sustainable procurement. It was assessed as a mature function. Shakespeare North Playhouse, through collaborating across the supply chain, the project trialled the use of the PUNCH Over the next two years we’ll be developing our systems and Flybrid Ltd Flywheel technology to assess if the innovation processes further to achieve a ‘Leading’ rating, cementing the could reduce the energy required to power a static crane. function as a procurement centre of excellence. The main objectives of the trial were to reduce greenhouse gas Priorities for FY23 emissions, and provide social value benefits to the surrounding – Launch supply chain excellence initiatives; and community, including reduced air pollution and less traffic – Develop a sustainable procurement toolkit for our movements and congestion. The trial showed that the fuel supply chain. consumption was reduced by around 40%. This technology is now being used across the industry on multiple projects saving a significant amount of carbon emissions. We’ve also been working to embed this technology with our suppliers and within our procurement processes ensuring that its use is considered on every project. Kier Group plc | Annual Report and Accounts 2022 53 Building for a Sustainable World continued ## Building for tomorrow Forums Relevant SDGs We are working on how we can make ourselves more visible and involved in the sustainability conversation which involves actively engaging with the UK Government and third parties. This includes joining organisations such as Future Cities becoming a ConstructZero Business Champion and ensuring our experts are engaged in forums such as the Greater Strategic objective Birmingham Chamber of Commerce Good Business Forum to Drive innovation for our stakeholders, industry and discuss our sustainability goals with stakeholders and peers communities. outside of Kier. Why it is important UK Government Building for Tomorrow ensures that we never stand still when it During the year we also brought together local authority leaders comes to ESG and that we keep driving forward future-focused and chief executives at the Local Government Association Kier initiatives both within the Group and externally. Conference in Harrogate to discuss how Kier could work with local government to co-create solutions that support Taking inspiration from teams and individuals within Kier, as well decarbonisation and placemaking. as learning from best practice in other organisations, means that we can deepen our understanding and credentials when it By bringing together Kier’s collective capability from across its comes to supporting clients, supply chain and employees to business streams, we believe we can play a much greater deliver on their sustainability ambitions too. strategic role in both these areas to support current and future local authority clients to reach their environmental and Targets community targets. – Establish the Kier ‘Sustainability Lab’ to generate sustainability ideas and innovations; Priorities for FY23 – Establish Kier as a leading sustainability business within the – Establish a digital offering for Kier employees to contribute built environment and beyond; and ideas to the Sustainability Lab; and – Develop partnerships to drive forward sustainability initiatives. – Develop and launch a workstream with key clients to understand their perception of our commitment to and action Progress in FY22 on sustainability. Sustainability Lab Established in 2021, Kier’s Sustainability Lab is an employee- led innovation hub that brings together experts and advocates from right across Kier’s business to drive forward new initiatives or to bring critical mass to existing ones. Throughout the year, this has supported: – A No Vehicle Idling trial in Kier Highways which was successful and has now been expanded across Kier’s entire vehicle fleet in each business; – Expansion of the use of Passivhaus standards in building design to deliver energy savings and improved health and wellbeing outcomes for occupants. As Passivhaus is still in its infancy, Kier developed ‘Passivhaus Passports’, a specialist certification for its operatives to improve the skills’ base to support greater uptake of Passivhaus principles across our projects and the industry as a whole; – Leading discussions with local authorities to support the expansion of electric vehicle infrastructure; – Working with social sustainability experts to link social deprivation mapping to Kier’s local spend; and – Working in partnership with the Ocean Conservation Trust, a leading conservation charity, to provide practical support and expertise to protect stored carbon and ocean habitats. 54 Kier Group plc | Annual Report and Accounts 2022 ## Ocean ## Conservation ## Trust We have supported global conservation charity, the Ocean Conservation Trust (‘OCT’) through a design and engineering led competition to design solutions that protect seagrass beds. In recent years, up to 90% of the UK’s seagrass has disappeared. While causes are varied, damage by boat moorings as anchors and chains that drag across the seabed, contribute towards this and it is particularly problematic in tourist hotspots. Governance Financial statementsStrategic reportOverview Other information The competition provided an exciting opportunity to draw upon the engineering expertise that Kier has across the Group to design an Advanced Mooring System, which would keep boats safely secured, while protecting vital seagrass habitats from damage caused by moorings. Kier Group plc | Annual Report and Accounts 2022 55 Building for a Sustainable World continued ## Diversity & inclusion Policies Relevant SDGs We continue to support the review and development of policies to ensure we are an inclusive business where people can bring their whole selves to work. In the past year we have reviewed and introduced policies or guidance such as: – Family-friendly policies – enhanced maternity leave, paternity leave, adoption, surrogacy, pregnancy loss policy; and Strategic objective – Gender expression and gender identity policies. Provide a working environment where everyone has their voice heard. Where the different experiences people bring will make Developing our people for a better business. Expect Respect Over the year we have upskilled our people giving them the Why it is important knowledge and skills to help us become an inclusive business. It is important that we reflect the diversity of the communities This has included D&I awareness training for all employees; we serve and our inclusive culture champions diversity of Expect Respect Training for all employees which educates and thought, background and experience. empowers employees to build an inclusive workforce; upskilling webinars for line managers; inclusive recruitment training for Targets recruiting managers and training for business leaders on – Our Diversity & Inclusion (‘D&I’) roadmap outlines the D&I driving change. milestones we are aiming to achieve from now until FY26. This can be found on our website; Empower programme – We continue to drive progress against this roadmap and During the year we have launched our new Empower regularly review the plan to ensure it meets the aims of the programme. This is targeted at Kier employees from under- business; and represented groups and is designed to break down barriers in – In the long term, our aim is to be a workplace where everyone progressing to leadership roles. This programme involves belongs, and we truly believe that being an inclusive reverse mentoring where participants are paired with a member workplace is morally and ethically the right thing to do. We of our Executive Committee and senior leadership teams. The want to increase the amount of people we employ from aim is for leaders to understand the employee experience for under-represented groups and to improve our data reporting. under-represented groups. It aims to raise awareness, reduce those barriers and make Kier a more inclusive place to work. Progress in FY22 Employee networks Developing leaders A fundamental part of the roadmap are our employee networks Our management development programmes, in partnership and these comprise groups that are committed to creating a with Cranfield University, give our high potential employees the diverse and inclusive workplace through clear action plans. opportunity to further their careers. We want to build an environment where all our employees can develop their skills We now have six established employee networks who act as and talent as they move up the organisation. the voice of our people. The Kier Inclusion Network, Racial Inclusion Network, Gender Inclusion Network, Ability Network All abilities (Disability & Neurodiversity), LGBT+ & Allies Network and the Our Highways business is a Disability Confident Leader and Armed Forces Network. has achieved Masters in Diversity. Our HS2 joint venture is a Disability Confident Employer, enabling people of all abilities to These networks are voluntary groups of employees that come come into the workplace. together periodically based on shared identity or life experiences. They create a supportive environment to bring people together. There are now over 550 employees engaged in the networks, which is 6% of employees. Each network has at least one Executive Committee sponsor and follows an action plan to support the development of the network. 56 Kier Group plc | Annual Report and Accounts 2022 Gender pay gap Gender diversity Our D&I roadmap outlines where we want to be by 2026, including reducing our gender pay gap by 25%. Board Senior managers We are passionate about developing our people and providing them with the tools, knowledge and drive to progress in their careers into more senior roles across the business. Our FY22 gender diversity at Board and senior managers level as a percentage of the workforce and our overall gender diversity remains similar to FY21. With our D&I roadmap in place, we are targeting incremental change over the long term. Our FY22 ethnic diversity remains similar to FY21. Similar to gender, we are aiming for our roadmap to have an effect Male 71% Male 87% over time. Female 29% Female 13% All employees Approximately 25% of our ethnicity diversity is not disclosed by % our employees. We aim to make further progress in improving our data collation going forward. Governance Financial statementsStrategic reportOverview Other information We know there’s more to do in attracting people from diverse Male 76% backgrounds into Kier, and we are committed to breaking down Female 24% the barriers to entry at Kier and our wider industry. The aim is for Kier to be an inclusive, supportive place to work and the work we are doing in this space is going to have a positive impact for our employees. Priorities for FY23 – Continue to drive the D&I roadmap; and – Improve data reporting for ethnic diversity. Ethnic diversity % White 67% Ethnic minority 8% Not disclosed 25% Kier Group plc | Annual Report and Accounts 2022 57 Building for a Sustainable World continued ## Our social purpose & value Thrive Relevant SDGs In order to measure our social value creation, we transitioned to a new social value calculator, Thrive, in January 2022. Thrive replaces Kier’s existing tool and uses the Impact Evaluation Standard (‘IES’), a collection of metrics, and proxy values designed in conjunction with a consortium of social value Strategic objective experts to measure our social value creation. This pillar focuses on opportunities to provide both social and environmental value for the communities our operations impact, We continue to engage with teams across the Group to ensure focusing on the most vulnerable and disadvantaged members we capture data on a wide range of metrics from spend with of our society. small and medium-sized enterprises to training hours. Why it’s important LM3 This is an important part of delivering on our social purpose, Alongside Thrive we launched LM3, which has been developed which is tackling inequality by giving individuals and by the New Economic Foundation. communities tools and opportunities to create brighter futures. It is also key to winning work by ensuring we deliver on the This maps our local spend data from Thrive and overlays it on commitments made through both Procurement Policy Note to Office for National Statistics deprivation data to highlight (‘PPN’) 06/20 Social Value Model and additional client requests. where we have positively impacted regional areas in the UK. Targets The measures used are identified by the UK Government’s – Working with our supply chain, employees and the community 2019 Indices of Deprivation and it has given us the opportunity to generate £5bn of social value to see where we can better distribute our spend to continue – Create brighter futures for 500,000 individuals by 2030. benefiting the communities we operate in and deliver meaningful social value to the most challenged geographies. Progress in FY22 – £296m social value for six months to June 2022. This year we have been embedding the new Thrive tool. As such, throughout this next year we will continue to refine the reporting process to provide an accurate baseline in FY23. 58 Kier Group plc | Annual Report and Accounts 2022 The Kier Foundation Volunteer days The Kier Foundation is an independent registered charity with Each Kier employee is able to use two paid days leave a year a vision to build a dynamic and engaging charity that will be a to volunteer for causes close to their hearts. force for change and lead the way in social impact and employee wellbeing across Kier. Members of Kier Highways senior leadership team recently lent a hand at the Welcome change community garden in Birmingham. In May 2022, charity champions, fundraisers and charities met The garden is open to the public for a few hours every day and to celebrate 10 years of the Kier Foundation. In the past provides a safe space for people who are feeling lonely, need decade, thanks to the support of Kier employees, the support, or anybody wishing to volunteer and learn a new skill. Foundation has raised over £2m for over 700 different charities. The team worked to transform the space so that it could be Since Kier’s partnership began with our current charity partner, ready for the community to begin planting. End Youth Homelessness (‘EYH’) in August 2020, Kier has raised c.£300,000. Priorities for FY23 – Continue to capture social value creation using Thrive; and This has supported over 160 young people by providing – Continue to encourage employees to use their volunteer days personalised support to help them on their skills, education to work with causes and community projects. and training journey. We have funded support to help young people find and keep a home of their own through the EYH housing fund. Governance Financial statementsStrategic reportOverview Other information Through our Christmas campaign we paid for 600 young homeless people to have somewhere safe to stay on Christmas Eve and to enjoy a dinner on Christmas day. Kier people donated over 440 Christmas presents for the young people to open and enjoy. As well as this we have also supported EYH with £84,000 worth of volunteer work through our Do-It-Yourself challenge programme to improve their living environments in shared accommodation. We have extended our partnership with EYH until June 2023. Kier Group plc | Annual Report and Accounts 2022 59 Building for a Sustainable World continued ## Employee wellbeing ## & engagement Progress in FY22 Relevant SDGs – 63% employee engagement achieved in FY22 compared to 59% in FY21. During the year we realigned the HR and Group Safety, Health, Environment and Assurance (‘SHEA’) functions to establish an improved connection between our employees and our Responsible Strategic objective Business goals. We are targeting to increase alignment over We will create a culture where our people are empowered and time and to improve employee wellbeing and engagement. where positive mental, physical and financial wellbeing is proactively supported. The changes mean we can incorporate health, safety, wellbeing and sustainability into our broader people strategy. The aim is to Why it is important make Kier a safe, sustainable and attractive place to work. Safety is our licence to operate. We’re committed to investing in our people to create a positive safety culture where everyone We have also refined our meaning of Health, Safety and feels trusted, empowered and acts with integrity. Engaging with Wellbeing to reflect our continuously changing business: our supply chain as a responsible contractor and delivering best in class service to our clients. Health at Kier A positive working environment promoting physical, mental and The wellbeing of our people has never been more important. social health. Proactively engaging with our people to lessen The challenges the world has faced in recent years has levels of stress and anxiety, cultivating employee satisfaction provided a sharper lens for Kier to view the importance of our and engagement in a thriving workplace. greatest asset, our people. Safety at Kier Targets Safety at Kier is our licence to operate. A key priority for the – Improved year-over-year safety, wellbeing and engagement; business is to ensure each and every person on our projects, in and our offices and members of the public we interact with go home – At least 50% of our colleagues feel emotionally engaged safe every day. with Kier. Wellbeing at Kier Supporting our people to feel well, happy, and positive at work, building relationships, learning new skills and enhancing life experiences. A positive healthy state – physically, emotionally, and economically. 60 Kier Group plc | Annual Report and Accounts 2022 Safety Health checks The Group’s 12-monthly rolling Accident Incident Rate (‘AIR’) To complement the checks already available to our people we of 115 represents an increase of 9% compared to 105 in FY21. are rolling out mobile health checks across the Group. The aim The AIR rate is calculated by headcount and therefore volume is to enable our site-based teams to access health checks that adjusted. It equates to 28 RIDDOR incidents in FY22 compared can signpost the early signs of ill health or issues. We believe to 29 in FY21. these preventative measures will allow our people to act early and remain healthy and energised. We are disappointed with the AIR trend given our high standards. This will continue to be an area of focus. We retain a Financial support solid safety record that is c.58% better than industry benchmark. Working closely with our rewards team, we are supporting our people with savings and financial advice. Through the course of The Group’s 12-month rolling All Accident Incident Rate (‘AAIR’) FY23, we will be aiming to level-up and align the health support of 316 represents a decrease of 5% compared to FY21. we offer employees across the Group. In May 2022 we launched a new behavioural programme Perform across Kier. The programme is designed to create an We have now run two complete years of Perform; our performance environment where our people feel empowered and where we review cycle, which uses our values as a framework to ensure focus on our people’s physical and mental safety and wellbeing. every employee is clear on what they need to deliver and the expected behaviours. Our restructured approach to safety is designed to create an increased focus on workplace wellbeing. We believe that The Perform process encourages our employees to take Governance Financial statementsStrategic reportOverview Other information investing in this will ensure our people stay healthy, energised, personal responsibility for their own performance, development valued and supported, which in turn will result in improved safety. and wellbeing, supported by their manager through regular review conversations. Wellbeing Our revised Health, Safety and Wellbeing strategy is made Kier believes that all leaders have a leadership objective up of four strategic pillars; Behaviour, Operational Safety, focused on creating high performing teams where everyone can Engineering Safety and Health and Wellbeing. bring their best selves to work, and mandatory manager objectives are in place from FY23 onwards. Our focus and investment on wellbeing is summarised below: Your Voice Surveys Your Voice is a regular series of anonymous, quick online Our annual Your Voice surveys remain ongoing and we surveys that give employees the opportunity to say how they continue to review wellbeing questions to add to this so we get feel about working for Kier, what is going well and what could a better understanding of the wellbeing in our workplaces. improve. The aim of Your Voice is to: – Ensure employees feel connected to Kier, even more so with Training and Upskilling a shift to agile working; As part of the strategy to complement our already established – Help employees understand, and feel recognised for, how Mental Health First Aider training we are rolling out a framework their roles deliver value to Kier; and of wellbeing training. This provides content and support for – Ensure employees feel supported by creating a safe senior leaders, line managers and supervisor levels. environment for concerns around mental, physical and financial health. Champions We are creating wellbeing champion roles. The aim is for the In addition, understanding the variances in how different groups initiative to include training for those selected along with experience working at Kier is important to future actions. structured support from trained professionals. The initiative is designed to enable champions to raise current issues in their business units and receive advice and support on how to signpost the right networks to their teams. Kier Group plc | Annual Report and Accounts 2022 61 Building for a Sustainable World continued Topics explored this year have included employees’ connection ### to Kier, recognition, support and confidence in the business. We Apprenticeships have seen a positive set of employee engagement results which demonstrate the impact that our actions are having on We currently have 591 apprentices employed within the employee engagement. organisation, which equates to 6% of our UK workforce. We continue to deliver apprenticeships as a key means of upskilling To further support employee voice, our leadership teams and employees and bringing in diverse emerging talent to reduce Board play a key part in engagement. They undertake Visible the industry skills gap. Leadership Tours (‘VLTs’) which were broadened out in FY22 to encompass feedback on employee wellbeing, diversity and 59% of our apprentices are new recruits and we have a high inclusion as well as employee engagement. number of early careers apprenticeship recruits each year via our Kier Degree Scheme. In addition, we recruit a number These visits allow leadership and employees to understand one of apprentices into projects where we have a trade or another’s views, and the content of these conversations feeds technical requirement. into decision-making processes that reflect the views of the workforce on corporate governance, people-related matters, The other 41% of our apprenticeship population is made up of and cultural engagement. upskills, predominantly through our management apprenticeships. Re-employment rate for apprentices in FY22 was 97%. All Pride of Kier apprentices will be employed on permanent contracts of Each year we hold our Pride of Kier annual awards programme. employment from 1 July 2022. These are internal awards with eight categories, and the awards are designed to recognise outstanding work from colleagues Our graduate intake comprised 38% women in FY22. across the Group, with individual and team awards. The development of our people through apprenticeships Employees are encouraged to nominate either themselves or remains a key strategic priority. During the year we: others and the judging process is rigorous with our Executive Committee and other senior leaders from our business units Early careers taking part. This year we had over 300 nominations. Introduced more structure to early careers and apprenticeship programmes including quarterly CEO engagement webinars, Highways Awards site visits, and a structured industrial placement programme. In FY22, our Highways business won the ‘Construction Company of the year’ award at the National Centre for Diversity Programme quality 2022 FREDIE Awards. Our Highways business is now ranked Improved the quality of apprenticeship programmes as the second Most Inclusive Workplace in the UK. through a strategic review of suppliers and adopted flexible delivery models. In addition, our Highways business’ sustainable world strategy has been shortlisted for the Chartered Institute of Highways and Digital academy Transportation (‘CIHT’) Awards 2022. Implemented a digital academy which will upskill existing and new employees through a level 3 digital apprenticeship programme and digital leadership development. Supply chain Supported the development of skills in our supply chain by sharing some historical apprenticeship levy surplus. We came in 72nd place in the Top 100 Apprentice Employers in June 2022. 62 Kier Group plc | Annual Report and Accounts 2022 Talent attraction and development ## Parin Pathani: ‘I’m Proud’ campaign To attract and retain the most talented people to deliver our business goals, we have enhanced our employer brand through ## Trainee Quantity our ‘I’m Proud’ campaign. We have seen our Glassdoor company rating increase to 4.2 out of 5. ## Surveyor Cranfield Management School We have an established talent management process to support the development of internal talent. In addition to our management development programmes, we run two bespoke fast potential “As I approached the end of my time at sixth form, I knew leadership development programmes in collaboration with university wasn’t the route for me. However, I was unsure Cranfield School of Management. about what career path I wanted to pursue. Instead, I decided to look and apply for apprenticeships and quantity We recently introduced a positive action development surveying became of interest to me. I wanted to earn money programme too. The two leadership programmes are while learning and gain experience without ending up with detailed below: student debt that could take years to clear. Building Leaders I joined the Kier degree programme, which would enable Fast potential senior leadership development programme me to work towards becoming a qualified quantity surveyor, targeted at leaders with the potential to take on the most senior Governance Financial statementsStrategic reportOverview Other information while gaining on-site experience at the same time and a roles across Kier in the future. Cohort 1 concluded in October degree at the end of the programme. 2021 with a 50% promotion rate, and cohort 2 started in February 2022. When I joined Kier as part of the Infrastructure business, my first project was at Hinkley Point C – a nuclear power station, Raising Leaders which was three hours away from home, so I was able to Started in June 2021 and is our fast potential junior talent experience living away for the first time as well as being part development programme targeted at junior and middle of a large project. managers with potential to progress into more senior roles. As at the end of FY22, 107 employees were in the process So far, I’ve achieved my Level 4 Certificate of Higher Education of completing or had completed the programme of which which has taken two years to complete. The final three years 48% were female and 4% from ethnic diverse backgrounds. of my apprenticeship will involve me working to attain my Over 30% of participants have been promoted since starting BSc Hons in Construction Quantity Surveying Practice. the programme. I strongly believe that doing an apprenticeship – the 7% of our employees are undertaking formal learning combination of work and studying – is a great way of starting programmes, this includes apprenticeships, our graduate your professional career.” programmes, non-apprenticeship leadership and management programmes. Kier Group plc | Annual Report and Accounts 2022 63 Building for a Sustainable World continued “It was refreshing to know that Kier wasn’t interested in our qualifications, only our personalities and how we work together. I was offered an operative position and was over the moon.” Making Ground participant Armed Forces and Prison Leavers Agile working Alongside being re-awarded the Defence Employer Recognition We continue to operate using the Kier way of working, which Scheme (‘ERS’) Gold Award, we refreshed our pledges to the outlines Kier’s approach to agile working. We do not expect Armed Forces community. employees to work from their normal place of work full-time unless there is a business or wellbeing need for them to do so. We have held the award since 2016 and were one of the first However, we appreciate that one size does not fit all and are companies to sign the Armed Forces Covenant in 2013 and encouraging employees to speak to their manager and team to since then, we’ve partnered with BuildForce, Project Recce and implement the Kier way of working in a way that makes sense the Career Transition Partnership to increase awareness of the for their team and business. We know that agile working on wide-ranging roles available within the construction industry. sites can be tricky to implement and are working with a social consultancy to pilot agile working on sites across the business. Making Ground is our entry into employment programme for both serving and ex-prisoners. It is designed to create multiple Priorities for FY23 entry routes into the workplace, and our ambition is to identify – Rolling out further mental health training for supervisors; and develop people that want to have a long-lasting and – Train our wellbeing champions to communicate, signpost and sustainable career in construction. promote wellbeing; – Launch a new professional development scheme; and We know that prisons are full of people looking for an – Further support employees during significant life changes. opportunity to succeed, and we want to give them that chance where possible. 64 Kier Group plc | Annual Report and Accounts 2022 ## Protecting human rights Modern slavery focus Relevant SDGs All our employees undertake mandatory training at various intervals through their time with Kier on how to spot the signs of modern slavery in our offices, sites and depots. We continue to make our online training material available to our supply chain. Strategic objective We are committed to protecting the human rights of all those Our modern slavery statement sets out where we are and what we encounter in the course of our business and in the wider we have done to monitor and enhance the effectiveness of our communities where we operate. This commitment influences actions against modern slavery and human trafficking. how we do business, driving ethical behaviour through our policies, procedures and governance. We continue to collaborate with the Gangmaster and Labour Abuse Authority (‘GLAA’) to develop further training for our Why it is important employees linking up our approach to mental health with People are our greatest asset. We believe everyone should modern slavery considerations. have the right to life, personal liberty, private and family life, work, food, education and the highest attainable standard of During the year we were the first UK contractor to train our health. Taking our responsibility to protect human rights seriously Mental Health First Aiders (‘MHFAs’) to spot the signs of is the right thing to do for our people, for our customers, for our modern slavery and exploitation. supply chain and for a strong resilient business. Governance Financial statementsStrategic reportOverview Other information With c.1,000 colleagues having become MHFAs at Kier, Target this new training is being delivered through Jericho, a social – Help eradicate modern slavery in our business through training. enterprise based in the Midlands, which is an organisation that creates positive change in society including supporting victims Progress in FY22 of modern slavery. – Training was undertaken by c1,400 colleagues in FY22. Priorities for FY23 We have a series of policies that underpin our commitment to – Increase focus on modern slavery risk in our projects; and human rights in the way we operate and do business including: – Develop support for vulnerable and disadvantaged – Code of Conduct; communities through our projects. – Anti-Bribery and Corruption; – Competition Law; Supplier payment days – Anti-Slavery and Human Trafficking; We continue to work with our supply chain partners to achieve – Strategy for Responsible Procurement; and a year-over-year reduction in payment days from 34 to 33. – Whistleblowing. We continue to adhere to the UK Government’s Prompt Payment Code. Links to the relevant policies can be found on our website. Our invoices paid within 60 days remains strong at 89%, Procedures consistent with FY21. In our contractual arrangements we require minimum obligations compliant with our policies and the law, we also We have over £900m of expenditure with SME’s across include mechanics to manage issues should these arise. the Group which includes spend through several public We implement procedures to assess that those different sector frameworks. organisations are appropriate for Kier to work with. Our procurement procedures require appropriate due diligence and ongoing review of our supply chain. Kier Group plc | Annual Report and Accounts 2022 65 ## TCFD report In this report, we detail our climate-related financial ## In 2021, we launched our disclosures consistent with all of the TCFD Recommendations ## pathway to net zero, which and Recommended Disclosures as outlined in ‘Implementing the Recommendations of the Task Force on Climate-related ## sets out how our businesses Financial Disclosures’ published in October 2021 by the TCFD. The report covers our governance of climate change and ## will achieve net zero carbon demonstrates how Kier incorporates climate-related risks and opportunities into the Group’s risk management, strategic ## emissions by 2045 across planning and decision-making processes aligned to our net ## our own operations and zero ambition. ## value chain. Recommendation Recommended disclosures Pages Governance a) Describe the Board’s oversight of climate-related risks and opportunities 67 Disclose the organisation’s b) Describe management’s role in assessing and managing climate-related 67 governance around climate- risks and opportunities related risks and opportunities Strategy a) Describe the climate-related risks and opportunities the organisation has 68–71 Disclose the actual and potential identified over the short, medium, and long term impacts of climate-related risks b) Describe the impact of climate-related risks and opportunities on the 68–71 and opportunities on the organisation’s businesses, strategy, and financial planning organisation’s businesses, c) Describe the resilience of the organisation’s strategy, taking into 67, 71 strategy, and financial planning consideration different climate-related scenarios, including a 2°C or where such information lower scenario is material Risk management a) Describe the organisation’s processes for identifying and assessing 67 Disclose how the organisation climate-related risks identifies, assesses, and b) Describe the organisation’s processes for managing climate-related risks 67 manages climate-related risks c) Describe how processes for identifying, assessing, and managing 67 climate-related risks are integrated into the organisation’s overall risk management Metrics and targets a) Disclose the metrics used by the organisation to assess climate-related 71 Disclose the metrics and targets risks and opportunities in line with its strategy and risk management used to assess and manage process relevant climate-related risks and b) Disclose scope 1, scope 2, and, if appropriate, scope 3 greenhouse gas 48–49 opportunities where such (‘GHG’) emissions, and the related risks information is material c) Describe the targets used by the organisation to manage climate-related 71 risks and opportunities and performance against targets 66 Kier Group plc | Annual Report and Accounts 2022 Governance Prioritisation of risks is primarily based on the risk score Board level oversight of our climate change strategy is provided resulting from a 3x3 matrix encompassing impact and by our ESG Committee, which is led by Non-Executive Director likelihood, combined with a supplemental measure of risk Alison Atkinson. The ESG Committee oversees all ESG matters velocity, which provides an additional perspective to and is responsible for the oversight of climate-related risks and risk likelihood. opportunities of the Group. Net Zero Carbon is one of the ten pillars of the Group’s Building for a Sustainable World Risk impact (quantification) is defined as: framework, the environmental aspects of which have been in – low (the exposure is well-understood, with a relatively low place since 2020. The framework ensures sustainable action cost of mitigation, <£10m), is driven through our core business decisions, annual budget – medium (risk may be tolerated provided that the benefits are process and our strategic objectives. In addition, last year, the considered to outweigh the consequence, £10m-£50m), or Board recognised climate change as a principal risk for the – high (risk threatens the viability of the Group or there is a business and the climate-related risks we have outlined below reasonable likelihood of danger to people or material provide further details of that principal risk and are incorporated reputational damage (>£50m). into our risk management structure. The Group’s net zero targets and commitment to the Science Based Targets initiative Likelihood is defined as: and Business Ambition for 1.5°C provide our overall short- and – improbable (the risk is not foreseen as likely to occur or may long-term targets for climate change management and the occur in exceptional circumstances), Board monitors our progress against these and against several – possible (a relatively infrequent occurrence for the Group), or underlying interim targets (see page 50) which make up our net – probable (a relatively frequent occurrence for the Group). zero transition plan. The Remuneration Committee will be considering the introduction of ESG targets as part of the The Chief Executive has ultimate responsibility for climate- remuneration policy review. related risks, and the Board has overall responsibility for risk management across the Group. The Chief Executive, Chief At management level, climate-related responsibilities sit with Financial Officer and Executive Committee, carry out a our Group Sustainability Leadership Forum (‘SLF”) which quarterly risk review where the response, mitigations and oversees progress against all pillars of the Building for a controls of risks are assessed. The Group’s Risk Management Sustainable World framework. The Group SLF is led by the and Audit Committee (‘RMAC’) considers principal risks and Chief Executive and includes the Chief People Officer who is reviews the effectiveness of the systems of risk management responsible for Kier’s approach to health, safety and wellbeing and internal control. The climate-related risk and opportunity and driving forward Kier’s ESG strategies, and the Group register was reviewed and approved by the RMAC during the Health, Safety and Wellbeing and Sustainability Director, who financial year. is also responsible for environmental and social sustainability. The Group SLF meets quarterly and monitors risks, opportunities, Strategy and progress against our sustainability KPIs as well as Climate change is reshaping the world we operate in. Although providing a quarterly report to the ESG Committee. this generates risks for our business, the transition to a net zero world also provides compelling opportunities. We outline our Governance Financial statementsStrategic reportOverview Other information The Group SLF is informed by a Group-wide Environmental relevant climate-related risks and opportunities and how each Working Group, which manages our broad environmental impact our activities and strategy. Our evaluation of the risks agenda, and a Net Zero Carbon Working Group convened and opportunities covers all of our business streams although specifically to co-ordinate delivery of our net zero projects. some risks and opportunities are specific to particular divisions, In turn, each of our five core business streams has its own and this is reflected in our assessment of magnitude. Sustainability Leadership Forum, made up of key cross- functional individuals from the business stream, which develop We have used scenario analysis to improve our understanding and deliver strategies and action plans for achieving the Building of the behaviour of certain risks to different climate outcomes, for a Sustainable World framework objectives. The Group’s which helps assess the resilience of our business to climate Net Zero Hub provides a centralised database for monitoring change. We selected three climate-related scenarios, looking emissions data and projects around our climate management, forward out to 2050: a scenario focused on a low carbon e.g., tracking fuel use and emissions generation, quantification transition (SDS: limiting the global temperature rise to 1.65°C), of embedded carbon in materials and data on our projects for a scenario with a combination of physical and transitions risks emissions reduction (including costings and carbon reduction (STEPS: 2°C to 3°C temperature rise) and an extreme physical potential). Each of Kier’s business streams has a transition risk scenario (RCP 8.5: 4°C to 5°C temperature rise). We have pathway to net zero, tracked in the Net Zero Hub. quantified our risks and disclose these in line with the low, medium and high definitions for risk impact above. Risk management We consider climate-related risks and opportunities in all physical and transition risk categories, current and emerging, regulatory requirements whether they occur within our own operations, or upstream and downstream of the Group and whether they first occur within the short- (0–1 year), medium (1–5 years) or long term (over 5 years) time horizons. Risks that first occur in short or medium-term may persist into the long- term. Climate-related risks and opportunities relevant to us were identified with the help of external consultants, CEN-ESG. Climate-related risks and opportunities are assessed on the existing Group risk management framework to determine their relative significance in relation to other Group risks and allow for integration into the Group risk management framework. Kier Group plc | Annual Report and Accounts 2022 67 TCFD report continued ### Risks Six key climate-related risks have been identified. 5. Extreme weather | | | | | | events (floods, | 6. Risk to Kier | | --- | --- | --- | --- | --- | --- | --- | | | 1. Carbon pricing in | 2. Carbon pricing in the | 3. Regulatory risk and | 4. Cost of capital linked | temperature extremes, | achieving their own net | | Risk | own operations | value chain | industry standards | to sustainability criteria | heavy winds) | zero targets | | Type Transition | | Transition | Transition (Market | Transition | Physical (Acute | Transition | | | (Current and | (Emerging | and Reputation) | (Market) | and Chronic) | (Emerging | | | Emerging | Regulation) | | | | Regulation) | Regulation) Area Own operations Upstream Downstream Own Operations Own operations Own Operations/ Upstream/ Downstream Primary Higher costs Increased cost of Lost revenue Higher cost of Lost revenue/ Lower profit potential associated with purchased goods capital disruption margins through financial energy use and services and increased costs impact inbound and lower transportation revenue Time horizon Medium term Medium term Short term Medium term Short term Long term Likelihood Certain Certain Certain Likely Possible Possible Magnitude Low Low Low Low Low Low Divisions Highways, Construction, Highways, Highways, Highways, Highways, impacted Utilities, Property Utilities, Utilities, Construction, Utilities, Infrastructure, Infrastructure, Infrastructure, Property Infrastructure, Construction, Construction, Construction, Construction, Property Property Property Property renewable electricity use by 2030. To help achieve this, we use 1) Carbon pricing in own operations the Net Zero Hub, which collates all projects across divisions that In the drive to make businesses more responsible for their are aimed at reducing the carbon footprint of the Group. Key energy use and carbon emissions, an increase in carbon prices projects aimed at reducing scope 1 and 2 emissions include and a wider scope of industries covered by carbon schemes is reducing fleet emissions, alternative fuel sources and projects expected over the medium term. Carbon pricing in the UK is via to reduce energy use (see Opportunities for further detail). carbon taxes and the emissions trading scheme (‘UK ETS’) with an implicit form of carbon pricing within fuel excise duty. Kier is 2) Carbon pricing in the value chain not required to participate in UK ETS currently but does pay the The expected increase in the scope and level of carbon pricing Climate Change Levy. The forecast for UK carbon prices under could impact input costs as the cost of embedded carbon is our transition risk scenarios is as follows: factored into water, waste and transportation but more importantly into the cost of materials in the supply chain. Carbon Price estimates (US$/tCO 2 e) We have quantified our upstream scope 3 emissions using 2030 2040 2050 ENCORD categories this year for the first time. This uses a STEPS 65 75 90 screening methodology primarily based on spend data and a set of expenditure category carbon cost conversion factors. SDS 120 170 200 Our Construction and Property divisions are the most exposed Source: IEA (2021), World Energy Outlook 2021 to carbon pricing in supply chains due to the volume and mix of raw materials used as well as the emissions associated with These could lead to increased operational costs in the business suppliers and subcontractors. We have modelled the risk impact associated with our fleet (Highways, Utilities) and with power of a full pass through into the cost of materials of the above generation at project sites (Infrastructure, Construction) which carbon price scenarios based on our upstream scope 3. The accounts for the majority of our scope 1 emissions. We have risk impact would be high, but this assumes no mitigation and modelled the risk impact of the above carbon prices under both that cost increases cannot be passed onto clients, which we STEPS and SDS scenarios, across all time periods and based believe to be unrealistic, thus lowering the risk impact to on our combined scope 1 and scope 2 market-based emissions low-to-medium. for the UK for April 2021–March 2022 of 38,967 tCO 2 e, the impact is low (see page 67 for definition). Mitigation: Our target of net zero including scope 3 by 2045 would reduce This also assumes we will be subject to 100% of the forecast this risk impact to low over time. In order to achieve our scope 3 carbon prices, when it is not clear what the form of carbon price target, we are working closely with suppliers and subcontractors application will be (e.g., via emissions trading scheme or direct to ‘design out’ carbon products and processes through various carbon taxes), where in our energy value chains carbon prices in-house design functions. The Net Zero Hub logs opportunities would be applied and whether any cost increases could be to reduce carbon emissions in the supply chain, including passed onto our customers. alternative, lower carbon raw materials. We regularly engage with suppliers and subcontractors to ensure they meet our expected Mitigation: environmental standards (e.g., PAS 2080 to manage infrastructure Our plans reduce the impact of the above risk materially. We carbon or Environmental Product Declarations (‘EPD’) to have set a net zero target across business operations by 2039, determine environmental impacts and whole life carbon). with an interim target of 65% reduction in business operations (scope 1 and 2) emissions by 2030, net zero offices and 100% 68 Kier Group plc | Annual Report and Accounts 2022 3) Regulatory risk and industry standards 5) Extreme weather events All of our business streams are exposed to regulatory pressures An increase in the severity and frequency of extreme weather and industry standards related to climate change. Our clients events could impact assets and operational activities across include the UK Government, regulated industries, local the business. We are exposed to extreme weather conditions authorities, and large corporates. Our clients have their own in different ways. Acknowledging the challenges involved in obligations with respect to regulations and net zero, plus modelling weather conditions accurately, we considered industry standards are evolving and require suppliers and extreme weather risks collectively. Extremes in temperature contractors to meet increasingly stringent emissions and energy (heatwaves and icy conditions) can lead to damage to plant management standards. For instance, the Procurement Policy and/or equipment and result in unsafe working conditions for Note 06/21 (‘PPN 06/21’) requires all suppliers who bid for employees and can also necessitate changes to design. For government contracts with a total value exceeding £5m to example, within Construction, buildings need to be designed demonstrate that they are taking action to reduce their carbon to stay cooler in summer and warmer in winter which impacts emissions in line with UK 2050 Net Zero targets (we meet these insulation and heating/cooling design, within Highways, roads requirements). National Highways requires all Tier 1 contractors must withstand higher temperature extremes without melting (of which we are one) to ensure PAS 2080 is in place by 2024 or becoming unsafe for use. Similarly, consideration for severe and The Environment Agency has a 2030 net zero target which weather (storms, heavy winds) is required in design, e.g., to means they require all contractors to reduce embodied carbon ensure structures can withstand increased wind load. The in the design phase. We may be at risk of losing contracts increased frequency and changing pattern of flooding creates if they do not meet the latest standards or face penalties if a risk whilst our employees are on site although flooding also contracts are in progress and standards are not met. creates a long-term opportunity resulting from the repair or rebuild of structures. Whilst there needs to be consideration We expect this trend to increase and that tighter conditions in for physical climate-related risks in design on projects, we are contracts could be expected under the SDS scenario. However, not asset owners and our involvement on sites is only whilst the exposure to this risk may increase, we are well temporary, which limits our exposure to long-term climate prepared for all regulatory requirements and our pathway to net impacts. In assessing the risk impact that we face from zero reduces the risk impact to low. extreme weather, we considered our own offices and premises, which means the risk impact is low. These risks are Mitigation: more likely to manifest themselves in the extreme climate risk We regularly engage with key clients to incorporate their future scenario (RCP 8.5), but nonetheless the magnitude and carbon reduction plans into our design and planning and report impact are likely to remain low. in full on our net zero process, performance and ambition. We monitor all regulatory and reporting requirements and continue Mitigation: to assess the viability of lower carbon alternatives for materials We continue to closely monitor and model weather events (e.g., low carbon options for cement) and technologies, and (short and long term) and integrate this risk into the project where possible will integrate lower embodied carbon into design and delivery schedule. We have ISO 14001 engineering plans. We provide resources and training to staff certification across most divisions and employees are trained on new technologies in order to develop a diversified range of in environmental compliance. Regular site inspections Governance Financial statementsStrategic reportOverview Other information raw materials and processes to meet client needs. minimise risk, and emergency response procedures are also in place. 4) Cost of capital linked to sustainability criteria Providers of capital (investors and banks) are increasingly 6) Risk to achieving our net zero targets incorporating sustainability into their assessments. UK lenders We are reliant on third parties to help us reduce our scope 3 are factoring in ESG criteria into borrowing costs. Investors are emissions, which account for 96% of our total Group emissions. aligning their portfolios to net zero and companies face This creates a risk that we may not be able to deliver to our net disinvestment if plans are insufficient. This is already a feature zero ambition. For instance, the development of zero emission in the current market, and it is likely this risk rises under SDS, commercial vehicles with sufficient range is required for the which is a more stringent transition scenario. electrification of our fleet. Reducing our embedded carbon in materials requires both the development of novel low-carbon Mitigation: materials and our clients accepting low-carbon alternatives, Our debt facilities are secured into the medium term, so the potentially at higher cost or complexity than the standard near-term risk impact is low. Kier will remain in continued product. Our ambition may also result in us having to turn dialogue with lenders and investors to ensure climate change down contracts that inhibit us from meeting our net zero disclosure is in line with requirements. We regularly assess targets or may require us to absorb some of the costs related covenants on lending and the possibility of using green finance to low carbon solutions which clients are unwilling to accept. to fund certain construction and infrastructure projects linked to achieving targeted BREEAM (‘Building Research Establishment Under the SDS scenario, we expect this risk to be materially Environmental Assessment Method’) ratings and other lower, as there is broader alignment of decarbonisation across environmental targets. We recognise the requirement for the economy, whereas under the RCP 8.5 scenario the risk to transparency and best practice in our climate change reporting us meeting our net zero plans increases. and have made the commitment to the Science Based Targets initiative to ensure a robust net zero transition plan. Mitigation: Continued supplier and client engagement and education, as well as detailed analysis of carbon footprint of a contract over its lifetime will assist in achieving our goals. In addition, a rigorous client and partner screening process will ensure we choose to work with clients whose goals are aligned to ours. Kier Group plc | Annual Report and Accounts 2022 69 TCFD report continued ### Opportunities Five climate-related opportunities were identified, which are discussed in greater detail below. | | | 2. Resource efficient | | | 5. Net zero transition – | | --- | --- | --- | --- | --- | --- | | Opportunity 1.Transportation emissions | | materials and design 3. Energy savings 4. Waste reduction | | | market growth | | Type Resource | | Products & | Resource | Resource | Business | | | Efficiency | Services | Efficiency/Energy | Efficiency | development | Source Primary potential Decreased costs Decreased costs Decreased costs Decreased costs Increased sales financial impact Time horizon Short/Medium Medium term Short/Medium Short/Medium Medium term term term term Likelihood Possible Certain Certain Certain Certain Magnitude Low High Medium High High Divisions Highways, Utilities Construction, Highways, Utilities, Highways, Utilities, Highways, Utilities, impacted Property Infrastructure, Infrastructure, Infrastructure, Construction, Construction, Construction, Property Property Property 1) Transportation emissions 3) Energy savings Planned improvements in fleet specification and use patterns We are working hard to generate energy savings from both is a significant opportunity for us, with vehicle emissions our offices and project sites. Energy savings (both fuel and (Highways, Utilities) accounting for around half of our scope 1 electricity) on project sites can be derived from accommodation emissions in FY22. Initiatives include the use of telematics to and equipment. There is an opportunity to reduce site fuel improve driver efficiency, substitution of Hydrotreated Vegetable consumption through switching to alternative and renewable Oil ‘HVO’ as an alternative to diesel, and an increase in the energy sources and even scheduling battery pack charging proportion of hybrid or electric vehicles in use, in line with our overnight to reduce emissions. Kier recently trialled the new target for achieving 100% electrification or using alternative PUNCH Flybrid flywheel technology where a flywheel energy zero carbon fuels for our own fleet by 2030. An example of this storage system decreases fuel use by reducing the generator is our use of HVO to replace diesel on the jet-lane of the A331 size needed to power cranes onsite. Another example of using (Infrastructure) with the aim to have all site vehicles running renewable energy sources is on the South Perot project, on HVO fuel, providing a 90% ‘wheel to well’ reduction in working with the Environmental Agency to achieve their 2030 GHG emissions. net zero target, where a solar pod powers office cabins and a welfare unit. Within our own premises, all new electricity 2) Resource efficient materials and design contracts are procured on renewable tariffs, and we are using We aim to reduce the carbon footprint over the lifetime of our energy efficient LED lighting, heating and cooling. contracts by using more energy efficient or recycled raw materials and by embracing modern methods of construction 4) Waste reduction and product design. These create significant emission saving Reduction in waste will reduce a key component of our scope 3 opportunities, but they can increase project duration and cost, emissions. We aim to achieve zero avoidable waste by 2035 and hence are subject to client approval. This is relevant for and eliminate single use plastics by 2030. This builds on the Construction and Property. We are exploring this opportunity Government’s ‘Resources and Waste Strategy’, which presents through several initiatives and continued investment in R&D the government’s long-term approach to minimise waste, on new product development through the Net Zero Hub. promote resource efficiency and move towards a circular For example, our development of substitutes like Ground economy. An example of this was seen in the Helston Flood Granulated Blast Furnace Ash (‘GGBS’) as a replacement for Alleviation Scheme, where soils from a local development site Ordinary Portland Cement, which has high embodied carbon. was used to create flood banks, using the CEEQUAL design St Sidwell’s Point leisure centre in Exeter, which has been and specification process and engaging with the Environment designed and built to Passivhaus standards is an example of Agency Waste team to gain project approval. This resulted in an efficient design with a low carbon footprint. Passivhaus carbon savings from raw materials, lower HGV use and minimises energy use through passive energy saving measures avoidance of landfill waste. Another example was in National including excellent insulation, having an airtight structure and Highways repairs, where recycling all existing tar bound heat recovery systems. The construction process targets material in situ into the new carriageways using Aggregate minimal disruption to the environment, and efficient Industries’ ‘Foamix’ solution, means less removal of road tar, microfiltration systems reduce use of chemicals, and enables which is classed as hazardous waste. This has the advantage re-use of water. It is estimated the Passivhaus standard will of reducing carbon emissions due to lower transport, reducing reduce energy costs of the centre by 70% per annum compared costs and landfill waste. to a standard design. 70 Kier Group plc | Annual Report and Accounts 2022 5) Net zero transition – market growth opportunity ### Scenarios The trend towards low-carbon infrastructure, transport systems, renewables, and energy efficient buildings is creating a market We have analysed and quantified how each of our climate- growth opportunity for Kier. The UK Government has pledged to related risks and opportunities behaves under the three achieve net zero by 2050 and created a ‘Ten Point Plan for a scenarios outlined in the table below. When taken in aggregate, Green Industrial Revolution’. Following on from this many Local we concluded that our risk mitigation strategies, strategy, Authorities have now set net zero targets for 2030. The disclosure, and ambition make our business resilient to climate Environment Agency are working with National Highways, change. We will continue to develop our analysis as new data Network Rail and Homes England on long-term adaptive is made available both internally and externally and we will pathways to align strategy in coastal and flood risk areas. continue to monitor our climate exposures and action plans This creates a large commercial opportunity for Kier to expand through Kier’s risk management framework, Net Zero Hub and existing revenue streams. The most significant government governance structure. The opportunities identified continue to spending programme is the National Infrastructure Spending be developed in line with the Group strategy and objectives. Programme – the Government’s so called, ‘Roadmap to 2030’ which details plans to maximise the impact of £650bn planned infrastructure spending. Additionally there are an increasing ### Metrics and targets number of initiatives like the Green Homes Grant, a £2bn programme to improve energy efficiency, the Ministry of We monitor and report on scopes 1, 2 and 3 greenhouse Justice’s £1bn New Prison Programme, and a multitude of net gas (‘GHG’) emissions as well as energy consumption. The zero Building projects (for example the Winterstoke Academy calculation of our carbon footprint is in line with the Greenhouse facility, which includes sports pitches, car and cycle parks, and Gas Protocol Corporate Accounting and Reporting Standard external social and learning spaces), targets net zero carbon in and the ENCORD Construction CO 2 e Measurement Protocol, regulated energy, a 10% biodiversity net gain and a BREEAM as reported on pages 48 and 49. excellent rating), which point to a growing addressable market for Kier. The Group’s Building for a Sustainable World framework contains clear targets associated with climate change which are This market opportunity increases under the SDS scenario, SBTi aligned and in line with the UK Government’s commitment where net zero emissions requirements for new buildings to net zero by 2050. Targets are set from 31 March 2019 as a and infrastructure are brought in sooner and the transition baseline for scopes 1 and 2 and 31 March 2022 for scope 3, to renewable energy is faster. Kier is well paced for this and include a 2045 net zero target across own operations and opportunity and our ‘Building for a Sustainable World’ strategy value chain (i.e., from scopes 1, 2 and 3) and interim emissions will mean we maintain our reputation and credentials as a targets, as well as additional targets on renewable energy use pioneer in low carbon construction. and waste reduction, as outlined on pages 46 and 51. Governance Financial statementsStrategic reportOverview Other information ### Scenarios Scenario Temperature range Source Overview Sustainable Global IEA World Energy A co-ordinated global low carbon transition, which limits the 1 Development temperatures rise Model global temperatures rise to 1.65°C by 2100 from pre-industrial (‘SDS’) by 1.65°C by 2100, levels. It assumes current net zero pledges are achieved in full with 50% and there are extensive efforts to realise near-term emissions probability reductions. The SDS is based on a surge in clean energy policies and investment but is also associated with higher costs of carbon. Expect rapid market growth for low carbon infrastructure solutions. Stated Policies Global IEA World Energy A more conservative pathway, where it is not taken for granted 1 | Scenario | temperatures rise | Model | that governments will reach all announced goals. This scenario | | --- | --- | --- | --- | | (‘STEPS’) | by 2.6°C by 2100, | | outlines a combination of physical and transitions risk impacts | | | with 50% | | as temperatures rise by 2.6°C by 2100 from pre-industrial | | | probability | | levels. Carbon prices and regulatory pressure expected to | increase from current levels. Expected market growth opportunities expected to exceed risks. 2 RCP 8.5 Global IPCC A ‘worst-case’ climate change scenario, where energy intensive temperatures rise growth and fossil fuel consumption continue to grow throughout between 4.1–4.8°C the century, with limited global response to mitigating climate by 2100 change risk. High physical climate risks are expected (extreme weather), with limited transition risks and lower opportunities for low carbon growth. 1 IEA (2021), World Energy Outlook 2021, IEA, Paris. 2 IPCC, 2014: Climate Change 2014: Synthesis Report. Contribution of Working Groups I, II and III to the Fifth Assessment Report of the Intergovernmental Panel on Climate Change. Kier Group plc | Annual Report and Accounts 2022 71 ## Risk management ## The improved risk management Our risk management initiatives ## framework we had put in place ## has allowed Kier to identify and ## manage the evolving external ## risk landscape collaboratively ## 2022 ## with our clients 1 2 Integrating the Risk appetite Risk is an inherent part of our Business operations and we three lines of development continue to ensure that all business decisions take into account defence model into the challenging environment we operate within. This requires a a risk structure deliberate and well thought through approach to risk management within Commercial which is adopted at every stage of our project life cycle to ensure appropriate strategies are adopted in line with our risk appetite. Our Group Managing Directors are accountable within their business streams for owning and delivering the process of mitigating and managing identified operational risks and we ll 1. Integrating the three lines of defence into a risk have been able to drive consistency in our approach through structure within Commercial the newly implemented ‘Risk Standard’. Kier retains an effective three lines of defence operating model with clear, distinguishable accountability between the business Risk culture remains a key priority and the Safety behavioural teams, risk and internal audit. In addition to this, a commercial programme will be used to reinforce the way we wish to focus has been applied at an operational level. operate collaboratively. 2. Risk appetite development New risks and uncertainties have emerged and are well Risk appetite (‘RA’) statements have been reviewed and now publicised around cost of living, geopolitical issues and cyber contain articulation of qualitative risk appetite statements. which will be managed the same way as COVID-19 was through This, in addition to the existing RA information, provides further our established risk framework. context of risks and the proposed baselined standards being aspired to with regards to mitigation and management of risks. We are forming a stronger link between our risk framework and An explanation of why the level of risk appetite has been the ESG strategy to provide a resilient company capable of chosen for each principal risk and uncertainty (‘PRU’) has been delivering our mid-term strategy. added this year. Material developments have been made with delivering a holistic risk understanding by aligning operational risk practices and functional risk delivery, through tech-enabled dashboards which give the business functions access to consolidated risk data to help drive their risk-based decision-making. 72 Kier Group plc | Annual Report and Accounts 2022 Our risk management initiatives Forward-looking priorities ## 2023 | 3 | 4 5 | | 6 | | --- | --- | --- | --- | | Risk maturity | Risk register | Deloitte advisory | Forward-looking | | assessment | Enhancements | review of Kier | priorities | Group’s risk, controls and assurance framework ll Governance Financial statementsStrategic reportOverview Other information 3. Risk maturity assessment – Further refinement to KRIs – including increased volumes An assessment of risk maturity (at an organisational level) of KRIs and monitoring of these was undertaken across various stakeholders in the business – Business stream post-implementation effectiveness review – which demonstrated positive and tangible improvements in of the ‘Risk Standard’ various categories – e.g., risk governance, reporting, – Control Self Assessment (‘CSA’) – Further independent identification and assessment, culture etc. A plan to bridge any assessment of effectiveness of the CSA process by gaps across the risk maturity assessment categories has been Internal Audit devised and will begin with the sharing of risk information – Power BI sharing of risk information across the organisation across business areas. ensuring lessons learnt and coordinated risk register management 4. Risk register enhancements – Further work on identifying and managing physical and Key Risk Indicators (‘KRIs’) are now in place for all principle transformation risks in relation to TCFD PRUs with risk appetite thresholds to monitor and report – Heightened focus on climate risk evidenced by this now against in relation to these KRIs. being a bi-annual standing agenda item at the Group Risk Committee requiring formal reassessment of risks Further unification of risk register formats across the Group and mitigations has been a key activity over the last year – enabling a true – BEIS consultation (The Department of Business, Energy holistic view of risk and common themes. and Industrial Strategy consultation on ‘restoring trust in audit and corporate governance’) – the working group continues to 5. Deloitte advisory review of Kier Group’s risk, focus on improvements within our internal control framework, controls and assurance framework including improved risk and control matrices for the relevant There is one action remaining from the 2020 Deloitte risk, functions. We continue to keep a watching brief on the final internal control and assurance management roadmap, outputs and requirements from the review. following their review of the effectiveness of Kier’s risk management and internal controls, which relates to the standardisation of functional risk and control matrices. Kier Group plc | Annual Report and Accounts 2022 73 Risk management continued ## Risk management ## At HMP Five Wells Overview This has resulted in: The new build resettlement prison HMP Five Wells in – A reduction in on-site labour of a third compared to Wellingborough, Northants has set a new standard for traditional construction excellence in integration, collaborative working, product – Prefabricated MEP saved 54,000 working hours on site innovation, skills and training, and a pioneering approach to – Construction was 22% faster than traditional construction. offsite manufacture and digital technologies. This vast £253m project delivered 1,715 prison places through a Project Contract approach Partnering Contract (‘PPC2000’). It is the first in a series of new The use of the PPC2000 contractually enshrined collaboration, build prisons as part of the Ministry of Justice’s (‘MoJ’) New supporting all project partners to have an equal voice. Use of Prisons Programme, providing thousands of safe, secure and PPC2000’s ‘escalation hierarchy’ ensured effective decision- decent prison places with a focus on rehabilitation. making and proactive engagement at all levels of the project team. Through the use of a Partnering Advisor, partnering team Design standardisation driving expediency surveys showed 100% satisfaction for ‘working together’, A core feature of the prison transformation programme was exemplified by the joint approach taken by MoJ and Kier during to optimise how the MoJ’s assets are designed, procured, the COVID-19 pandemic to maintain productivity and ensure delivered and operated through a ‘platform’ approach; additional welfare provision for site personnel. a rules-based approach to design that uses standardised components and processes to maximise efficiencies across COVID-19 a number of assets. The use of a diverse supply chain – with each precast component being manufactured by at least two of the three The outcome is that HMP Five Wells represents a step change manufacturers – providing resilience and flexibility. During in the evolution of the Design for Manufacture and Assembly COVID-19 one supplier was unable to maintain manufacture (‘DfMA’); achieving a platform for delivering future prisons more so supply of panels was transferred to another manufacturer quickly and efficiently with better outcomes. to create an extra four-weeks’ buffer stock and maintain on-site productivity during the pandemic. Modern Methods of Construction to de-risk delivery HMP Five Wells incorporates repeatable, standardised components across 13 buildings on site. Circa 80% of the design has been standardised, leaving just 20% as site-specific design. HMP Five Wells has optimised the precast structure and increased the number of cast-in components; greatly enabled by our digital approach. The project incorporates 15,183 precast panels plus over 60,000 sub-components. Three precast suppliers across six factories manufactured the components that are the best possible fit for their production facilities. 19,680 conduits, 2,110 underfloor heating mats, 1,682 shower trays and drainage were all cast into the panels, and we also made extensive use of prefabricated Mechanical, Electrical and Plumbing (‘MEP’), including over 3km of four-storey MEP risers. 74 Kier Group plc | Annual Report and Accounts 2022 ## How we manage risk Introduction Our risk management framework The Group recognises that a robust and consistent approach to the management of risk is fundamental to the Group’s operations. During FY22, the Group has further developed its O t h e risk management, internal controls, mitigating actions and risk e r t e G i t r o standards. The Group Risk Committee combined with the Risk m u p m - o w Management and Audit Committee (‘RMAC’) ensures key C i d t e n B second line risk and audit governance within our three lines e u c n s i o m i o n m t t e of defence model. s c s n s m e m v f u t a n d A it e n u n I k d a t m i t n e s i e C e Oversight g a R o s a m g The Board retains overall responsibility for how the Group p n e u a m m o M i manages risk and for the Group’s systems of risk management r t e k t n G e s i Board t and internal controls. The Board determines its appetite with e R respect to the Group’s principal risks and, via the RMAC, assesses the effectiveness of the systems of risk management G r s and internal control which are designed to mitigate the impact of o e u ti p i those risks on the Group’s operations. The Board reviews risk r T o e h as part of its strategy development sessions. t n u d G e r o e A u t e r p i t d R R i s k o m m e C t i s a Risk management process k g C l e The Group Commercial Director continues to ensure that the o e m D m p i t o u risk management principles of the Group are operationally t e r e G reflected within the business streams and manages the process to allow the Group Risk Committee to consider both top-down and bottom-up risks. A risk standard is in the process of being rolled out to all business streams to further refine these processes. Board Overall responsibility for risk management across the Group, and oversight of the internal control framework. Assesses the Risk assessment and risk appetite emerging and principal risks facing the Group and its appetite During the year, the Board undertook an assessment of the with respect to those risks. Sets the Group’s culture relating to Group’s emerging and principal risks, together with its appetite risk management. for the nature and extent of the risks that the Group is willing and able to take including those that would threaten its business Risk Management and Audit Committee model, future performance, solvency or liquidity, so as to inform Responsibility for overseeing the management of the Group’s Governance Financial statementsStrategic reportOverview Other information the parameters within which the business is authorised to systems of risk management and internal control. operate. Risk appetite qualitative statements are now in place to provide further risk context and aspiring standards of mitigation. Group Risk Committee Acts as the link between the business and the Board/the RMAC with respect to risk management. In addition, supporting rationale for the various risk appetite level allocation is also now in place. Business management Identifies and assesses risk. Oversees the management of risk On behalf of the Board, the Risk Management and Audit within the business. Committee monitored the systems required to mitigate and manage these risks. Group Risk function Consolidates risk information, reports across the Group and monitors risks and response plans. Investment Committee Reviews risks relating to the Group’s investment decisions. Other Group-wide committees E.g. Group Information Security Board, Group Sustainability Leadership Forum. Group Tender Risk Committee Provides independent review and risk mitigation recommendations in relation to trading opportunities and tenders undertaken by all Group businesses. Group Delegated Authorities The Board delegates the responsibility for the day-to-day management of Kier and its subsidiaries to the Executive Directors and other members of Kier Group’s management, as set out in the Group’s Delegated Authorities. Kier Group plc | Annual Report and Accounts 2022 75 Risk management continued ## How we manage risk continued Risk management process Three lines of defence operating model 1. 1st line: Business Teams – Design operational risk and compliance frameworks – Identification, assessment, management, monitoring and reporting of risks/issues, controls and action plans – Risk owners – Risk leads 2. 2nd line: Risk & Compliance – Design strategic risk and compliance frameworks – Monitor adherence to the risk and compliance frameworks – Provide support and challenge to the first line – Risk monitoring and reporting 3. 3rd line: Internal Audit Team – Independent oversight of Risk & Compliance and first line business teams – Review frameworks and applications objectively This established three lines of defence model has now also been integrated within our various operational business streams, for a best practice approach. A ‘Risk Management Standard’ has been designed to support this approach throughout the Board organisation, which allows for an enhanced operational specific As part of the Board’s overall responsibility for risk, there risk management focus at business stream level. This risk is a structured flow of risk information for its notification standard sets out various processes – e.g., how we work with and approval. The Board is provided with regular updates our supply chain partners, procurement, the process to manage Top downBottom up on risk management of critical contracts, ensuring the number of new risks that have emerged during the year. effective awareness of risk management actions. Areas of focus Group Risk Team In the FY21 Annual Report we highlighted areas of focus for the Provides risk challenge and support to the first line teams. Group’s risk management to be developed during the FY22 Provides a Group-wide risk update on principal and financial year. emerging risks. Provides assurance of risk management Area of focus Examples of progress made in 2022 framework and policy. Consolidates risk information and reports across the Group and monitors risk and High-impact These more remote risks are now response plans. low-likelihood risk considered as part of the risk assessment and management process and reviewed Internal Audit Team analysis regularly via market intelligence and Internal Audit supports the Group through independent internal reporting review and objective assessment, and by promoting and Integrating the three Now complete supporting continuous improvement in the quality of lines of defence into business operations, the control environment and overall new risk structure under risk management. Commercial Group Commercial Team Responding to BEIS The first phase BEIS response has Responsible for risk processes, controls and risk systems. consultation on been considered by the working party Risk management frameworks, risk policy, corporate risk restoring audit trust and who will continue to consider the register and Risk Committee. corporate governance impact of the final BEIS requirements. requirements for an enhanced control Business management environment once published. P l a n Commercial Directors are on point for identifying, assessing, managing, and mitigating current and Principal areas of focus for FY23 emerging risks and are pivotal in ensuring the right – Climate Change – physical and transition risks cultures and behaviours are demonstrated throughout – BEIS preparedness business streams. – Cyber security response – new ransomware threats. Risk Reporting & Insight The Group uses a series of methods to review its I m operations to assist in the early identification of both risk p n and opportunities and then a systematic approach to the l e r Risk management m a recording and management of them. Risk and internal e process e L n audit work support each other by reviewing the t effectiveness of any changes made within operations to mitigate risks or benefit from our opportunities. Various market insight intelligence is also used with regards to pricing and lead times to enable real time analysis, mitigation and action planning. 76 Kier Group plc | Annual Report and Accounts 2022 M e a s u r e ## Principal risks and uncertainties Introduction New Principal Risk Reason for change During the year, the Board identified the PRUs facing the Macroeconomic Risk Examples may include political Group and assessed its appetite with respect to such risks. instability, rises in interest Understanding the Group’s risk profile, and how the Group rates, energy prices, inflation/ manages risk, is central to the Board’s decision-making cost of living. process. The following section contains information about the potential impact of the principal risks identified by the Board, Risk Appetite the plans to mitigate them and the threats created by them. Low The Company has a very low appetite for risk that is likely to The Board’s assessment of risk have adverse consequences and aims to eliminate, or The Board’s assessment of the PRUs facing the Group; their substantially reduce, such risks. potential impact; the mitigating actions proposed in respect of such risks; their change in risk profile during the year (in terms Medium of either impact or likelihood); and an indication of the Board’s The Company has some appetite for risk and balances its risk appetite with respect to each such risk are summarised mitigation efforts with its view of the potential rewards of below. The risks are not listed in any order of priority. Not all the an opportunity. potential impacts of the risks or mitigating actions are listed. Risks are plotted on a net basis, including current mitigations. High The Company has a greater risk appetite where there is a clear Changes to the principal risks and uncertainties opportunity for a greater than normal reward. The PRUs listed in the FY21 Annual Report have been reviewed to assess their continued relevance in FY22. Throughout the year, risk appetite attaching to the principal risks and uncertainties was assessed (via the monitoring of corporate risk register and risk appetite discussions undertaken by the Risk Committee). Last year’s principal risks and uncertainties remain relevant and one new principal risk has been added. Risk heatmap The following chart sets out the Group’s principal risks and the Board’s appetite with respect to each such risk: Principal risks Movement in 2022 Governance Financial statementsStrategic reportOverview Other information 11 10 Health and safety ProbablePossibleImprobable 1 No change Risk appetite: low Legislation and regulation 2 Risk appetite: low No change Funding | | | 7 | 46 | 3 | | | | --- | --- | --- | --- | --- | --- | --- | | | | | | | Risk appetite: low | Decrease | | Likelihood | 5 | | | | | | Maintaining an order book within 4 selected markets Decrease Risk appetite: low Contract management 2 3 1 9 8 5 Risk appetite: low Decrease People 6 Risk appetite: medium No change Low Medium High Impact Supply chain 7 Risk appetite: low Decrease Impact Likelihood Strategy | Low – The exposure is well | Improbable – the risk is not | 8 | | | | --- | --- | --- | --- | --- | | understood with a relatively low | foreseen as likely to occur or | | Risk appetite: low | Decrease | | cost of mitigation. | may occur in exceptional | | | | | | circumstances. | | Cyber, IT security and data protection | | 9 Medium – risk may be tolerated Risk appetite: low Increase | provided that the benefits are | Possible – a relatively infrequent | | | | | --- | --- | --- | --- | --- | | considered to outweigh the costs. | occurrence for the Group. | | | | | | | 10 | Climate change | | | | | | Risk appetite: medium | No change | | High – risk threatens the viability of | Probable – a relatively frequent | | | | | the Group or there is a reasonable | occurrence for the Group. | | | | Macroeconomic likelihood of danger to people or 11 Risk appetite: low New risk for 2022 material reputational damage. Kier Group plc | Annual Report and Accounts 2022 77 Risk management continued ## Principal risks and uncertainties continued Principal risk Description Impact/actions | Health and safety | Failure to maintain a safe working | Potential impact | | | --- | --- | --- | --- | | | environment and prevent a major | | – An increase in safety or environmental | | 1 | incident | | incidents on site | – The failure to meet clients’ expectations, The Group’s operations are complex and adversely affecting the ability to bid for and win Level of impact potentially hazardous and require the new work High continuous management of health, safety, – Financial penalties arising from fines, legal wellbeing and sustainability matters. action, and project delays Risk owner – An unhealthy employee population with Chief People Officer Risk Appetite Statement heightened risk of stress. Resulting in greater We create and enable a working environment levels of absence and less operational Link to strategy which ensures the health, safety and wellbeing resilience. – Disciplined growth of all our valued employees and stakeholders. – Consistent delivery We continue to maintain the various Mitigating actions environments within which we operate. Our – Continued focus on the five SHE basics Board risk Appetite appetite for this risk will always remain low. – Implementing the responsible business Low approach which includes the launch of the Risk Appetite Rationale Group’s new Health, Safety & Wellbeing Safety is, and will always be, our licence to strategy, alongside the consistent delivery operate. The health and wellbeing of our of our ‘Building for a Sustainable World’ people has a direct impact on our operations. framework – Embed the four strategic pillars and associated The Group will always have a low appetite for objectives of the Health, Safety & Wellbeing risk when it comes to protecting our most strategy (behaviour, operational safety, health important asset, our people. and wellbeing and engineering safety) – Setting a tone from the top, through activities such as senior management visible leadership tours. | Legislation and | Failure to comply with and manage | Potential impact | | | --- | --- | --- | --- | | Regulation | effectively current legislation and | | – Penalties for failing to adhere to legislation | | | regulation and any changes to them | | or regulation | | 2 | | | – Increased operating costs of compliance | | | The sectors in which the Group operates are | | – The loss of business | | | subject to increasing scrutiny from | | – Reputational damage. | Level of impact stakeholders, oversight from regulators and Medium requirements including those introduced by Mitigating actions new legislation or regulation. – Appropriate policies that are regularly Risk owner reviewed and relevant training and awareness Group Legal & Risk Appetite Statement programmes to support policy implementation Compliance Director We ensure compliance with legal and – Regular engagement with Government and regulatory requirements, and continue to Government agencies with respect to the Link to strategy identify and plan for the implementation of new Group’s continued compliance – Disciplined growth requirements via horizon scanning and – Monitoring of, and planning for, the impact – Consistent delivery subsequent policy/procedure implementation. of new legislation and regulations – Generate cash The risk appetite surrounding legislation and – Collaborative engagement with external regulation risk is low. stakeholders. Board risk Appetite Low Risk Appetite Rationale In order to continue to operate in our chosen markets, Kier must comply with all applicable legislation and regulation. To win high-quality work from our intended client base, we must be able to demonstrate compliance. Therefore, it is fundamental to Kier’s continued success that we remain compliant. 78 Kier Group plc | Annual Report and Accounts 2022 ## Principal risks and uncertainties continued Principal risk Description Impact/actions | Funding | Failure to maintain adequate financial | Potential impact | | --- | --- | --- | | | liquidity and/or comply with financial | – The loss of confidence by other stakeholders | | 3 | covenants | (for example, investors, clients, subcontractors, | and employees) Failure to maintain adequate financial liquidity – Conducting existing business becomes Level of impact and or comply with financial covenants increasingly challenging High resulting in an inability to execute the Group’s – The loss of future business. strategy effectively. Risk owner Mitigating actions Chief Financial Officer Risk Appetite Statement – Effective cash forecasting and working capital Ensuring the Group operates responsibly management in combination with continued Link to strategy within its agreed borrowing covenants is a key monitoring and prudent financial planning to – Disciplined growth component of the Group’s financial planning ensure cash generation and covenant – Consistent delivery and monitoring processes. The Group is compliance is maintained – Generate cash targeting a sustainable net cash position in the – Continued collaborative engagement with medium term. The risk appetite for funding customers, suppliers, HMRC, pension scheme Board risk Appetite is low. trustees, banks, lenders and sureties. Low – Through financial planning the Group ensures Risk Appetite Rationale that appropriate levels of headroom under Our risk appetite is low as having access to committed facilities and their financial committed funding is critical to ensuring covenants are in place to accommodate operational stability. reasonable downside. | Maintaining an order | A general market or sector downturn | Potential impact | | --- | --- | --- | | book within selected | materially and adversely affects the | – A failure of one or more of the Group’s | | markets | Group’s ability to secure work – UK | businesses | | | Government spending, certainty and | – Increased competition for new work | | 4 | timing, including competitiveness of | – A decrease in stakeholder confidence in | | | current market | the Group. | Level of impact The Group strategy sets out specific sectors Mitigating actions Medium that it wishes to trade within. The pipeline of – To continue to secure long-term frameworks Governance Financial statementsStrategic reportOverview Other information work could be adversely affected by a general within each of our business streams Risk owner or sector downturn or cause a delay to projects – Tailoring the Kier offer to meet customer needs Group Commercial going to site. The Group manages the impact – Maintaining an efficient cost base. Director of an economic downturn by building a strong order book. It concentrates on sectors with Link to strategy long-term frameworks and customers who – Disciplined growth prefer repeat procurement. – Generate cash Risk Appetite Statement Board risk Appetite We are disciplined by operating in selected Low markets and focus on business where opportunities are right for us in terms of our skills, expertise and suitability – enabling optimal delivery and benefits for our stakeholders. We ensure a strong order book of current and future activity and we are also prudent in our reporting of our order book. Risk appetite for order book risk is low. Risk Appetite Rationale We have a low appetite to move away from our selected markets because of the higher risk of securing a loss making project and the additional costs associated with serving too many sectors. Kier Group plc | Annual Report and Accounts 2022 79 Risk management continued ## Principal risks and uncertainties continued Principal risk Description Impact/actions | Contract | Failure to manage contracts effectively | Potential impact | | | --- | --- | --- | --- | | management | at each stage of a project’s life cycle. | | – A failure to manage project delivery and WIP | | | The business suffers a significant loss | | and, ultimately, to meet the Group’s financial | | 5 | as a result of failing to follow the | | targets | | | contract administration | | – The Group incurring losses on individual | contracts Level of impact We start by ensuring we agree appropriate risk – The Group failing to win new work because Medium sharing with our clients and that this is of reputational projects. adequately reflected in our contracts. Risk owner Mitigating actions Group Commercial The Group has a large number of contracts in – Tender peer review through the Group Tender Director progress at any one time. Changes to contracts Risk Committee may lead to additional costs being incurred, – Kier standards for contract amendments Link to strategy delays and delayed receipt of cash. – Commercial Handbook explains how we – Disciplined growth manage change – Generate cash Risk Appetite Statement – In built escalation to identify unacceptable We are disciplined with our project selection levels of unagreed change. Board risk Appetite to ensure we select projects under frameworks Low or with clients who provide repeat business. We then proactively manage contracts at each stage of a project’s life cycle gateway. Frameworks, policies and standards are in place and are consistently effective throughout the business. Risk appetite is low in relation to contract management risk. In conjunction with our operating framework, we operate a robust tender management process with gateways and approvals at all stages of this activity, governed via our GTRC committee. The Group has a low risk appetite in relation to tender management. Risk Appetite Rationale The Group has a low risk appetite in relation to tender and change management because of the increased risk of a loss making project or unacceptable WIP. | People | Failure to attract and retain key | Potential impact | | | --- | --- | --- | --- | | | employees | | – An adverse effect on the delivery of the | | 6 | | | Group’s purpose and strategy | | | The Group’s employees are critical to its ability | | – A lack of operational leadership, potentially | | | to deliver the medium-term plan. The Group | | leading to poor project performance | Level of impact needs to identify, retain and motivate people – An erosion of the Group’s employer brand. Medium with the right skills, experience and behaviours and to identify tomorrow’s leaders. Mitigating actions Risk owner – People strategy aligned to the medium-term Chief People Officer Risk Appetite Statement business plan We ensure we develop a workforce with the – Diversity and Inclusion roadmap Link to strategy required competencies, skills and capabilities – Health, safety and wellbeing strategy – Disciplined growth to deliver on our business plan. We ensure we – New leadership development offer – Consistent delivery have a compelling employee proposition to – Listening to feedback from employees, – Generate cash ensure people are attracted, developed and including the use of engagement surveys retained in order to deliver operations. The – Create an effective, inclusive work Board risk Appetite Group has a medium risk appetite for people environment, through our Performance Medium related risk. Excellence culture. Risk Appetite Rationale While there are market fluctuations outside of our control, we do have appetite for people risk to a degree. We have strong mitigating controls and actions to ensure we have a workforce with strong competencies, skills and capabilities. 80 Kier Group plc | Annual Report and Accounts 2022 ## Principal risks and uncertainties continued Principal risk Description Impact/actions | Supply Chain | Failure to maintain effective working | Potential impact | | --- | --- | --- | | | relationships with the supply chain, | – Unavailability of appropriate resources, | | 7 | supply chain insolvencies, capacity, | impacting on project delivery and cost | | | pricing, inflation volatility | – Use of suppliers from outside the | preferred supplier list increases cost and Level of impact The Group relies upon its partners for the decreases quality Medium delivery of its projects. Maintaining a close – Poor relationships lead to lack of confidence working relationship is a priority for the Group. in the Group and adverse publicity. Risk owner Group Commercial Risk Appetite Statement Mitigating actions Director We continue to have positive relationships with – We are updating the Kier subcontract to reflect our supply chain and subcontractors. Our the principles of the Construction Playbook Link to strategy supply chain and subcontractors are risk – Place a Procurement Director directly into – Disciplined growth assessed and vetted for good financial and each business to deliver their supply chain – Consistent delivery reputational standing – who also mirror our management strategy business operating standards (e.g. health – Continue to meet prompt payment reporting Board risk Appetite and safety). requirements. Low We have a strong relationship with our suppliers and product associations and maintain a constant dialogue over the availability of products and alternatives. Risk appetite in relation to supply chain is low. Risk Appetite Rationale We have a low appetite to exposing ourselves to unmanageable supply chain risk because of the impact on our ability to deliver to customers. Strategy Failure to deliver the Group’s strategy Potential impact – An adverse impact on the Group’s net debt | 8 | The Group fails to deliver its strategy in terms | and liquidity | Governance Financial statementsStrategic reportOverview Other information | | --- | --- | --- | --- | | | of medium-term strategic objectives – £4bn– | – Failure to secure positions on national and | | | | 4.5bn turnover, 3.5% margin, 90% cash | regional frameworks | | Level of impact conversion and a net cash balance. – Failure to meet stakeholders’ expectations may High lead to a decline in confidence in the Group. Risk Appetite Statement Risk owner We have business plans that underpin the Mitigating actions Chief Executive medium-term strategic objectives. All of our – Delivery of the balance sheet strategy operational performance management reviews – Delivery of our Performance Excellence culture Link to strategy are geared towards the achievement of this – Continued focus on cash management – Disciplined growth plan. Performance excellence is in place to – Effective communication with stakeholders. – Consistent delivery ensure we have the necessary focus on those – Generate cash capabilities to meet the strategic plan. Risk appetite surrounding strategy risk remains low. Board risk Appetite Low Risk Appetite Rationale Delivery of the Group’s medium-term strategic objectives is critical to delivering our investment case. Kier Group plc | Annual Report and Accounts 2022 81 Risk management continued ## Principal risks and uncertainties continued Principal risk Description Impact/actions Cyber, IT security and Kier is exposed to cyber, IT security or Potential impact data Protection data protection breaches – Operational impact – e.g., delivery of projects, key systems outage, failure to win work, loss of | 9 | Failure to keep up to date with modern attack | confidential and/or other data | | --- | --- | --- | | | landscape as well as protecting infrastructure | – Financial impact – regulatory fines/ | | | from current conventional cyber/loss of data | prosecutions | Level of impact risks could cause outages, heavy reputational – Reputational/brand damage. High damage, or financial fines. Mitigating actions Risk owner Risk Appetite Statement – Mandatory training and awareness for all staff Chief Information Officer We ensure that effective security is in place to – Vulnerabilities, access and incident prevent the loss of data/sensitive information. management Link to strategy Any potential loss of data regarding key IT – ISO 27001 and cyber essentials accreditation – Disciplined growth infrastructure and systems is carefully – Information security cyber business continuity – Consistent delivery protected against – including cyber-attack plan, system alerts. Patching/updates and – Generate cash counter measures. Risk appetite is low. monitoring – Data loss prevention tools Board risk Appetite Risk Appetite Rationale – Partner/suppliers follow Group minimum Low Kier regularly needs to send data to customers standards re cyber, security and data and clients. The geopolitical pressures have – Investment in IT infrastructure. increased the level of UK exposure to state sponsored events and ransomware sophistication, so our partners and ourselves are at a heightened state of vigilance. Climate change Failure to identify and effectively Potential impact manage climate change risks and – Failure to meet client and investor expectations 10 opportunities or regulatory requirements – Loss of opportunity to contribute to UK The Group’s operations are subject to physical climate action policy and direction Level of impact and transition climate change risks. Whilst – Reputational damage Low some climate resilience measures offer – Failure to prepare/plan for physical and opportunities to innovate and expand/enhance financial impacts of more extreme and frequent Risk owner capabilities. weather conditions affecting operations and Chief People Officer supply chain. Risk Appetite Statement Link to strategy We are committed to addressing climate Mitigating actions – Disciplined growth change and have clear goals and objectives in – Implementing and delivering against the Group’s – Consistent deliver place with regards to waste, energy, carbon sustainability framework, ‘Building for a and biodiversity. Ensuring compliance with the Sustainable World’. With a focus on reviewing Board risk Appetite statutory reporting elements that are the next three years of the framework, Medium associated with Task Force on Climate related particularly: Financial Disclosures (‘TCFD’). – Implementing each business stream’s pathway to Net Zero Carbon. To ensure delivery of the Risk Appetite Rationale Group’s overall pathway to Net Zero Carbon in Due to the cost associated with the speed at line with Science-Based Targets which we achieve net zero carbon, our appetite – Delivery against short, medium and long-term to achieve certain reduction targets needs to Zero Avoidable Waste Targets be balanced against the cost to the business. – Implementation of our Sustainable Procurement strategy – Maintain the Sustainability Leadership Forum (‘SLF’); chaired by our Chief Executive and supported by business stream SLFs that are led by a managing director or commercial director – Maintain the climate risk and opportunities register and net zero management system, to align with TCFD reporting and managing the financial risk of climate change – Embrace modern methods of construction and product innovation to deliver low-carbon solutions for climate resilience – Work with our supply chain to help deliver our strategic objectives against waste, packaging, carbon and innovation. 82 Kier Group plc | Annual Report and Accounts 2022 ## Principal risks and uncertainties continued Principal risk Description Impact/actions | Macroeconomic | Changes in macroeconomic conditions | Potential impact | | --- | --- | --- | | | negatively impact on Kier, its workforce | – Reduced revenue or margins | | 11 | and its clients | – Project affordability | – Availability of labour and materials Examples may include political instability, rises – Increased supply chain insolvency risk. Level of impact in interest rates, energy prices, inflation/cost Low of living. Mitigating actions – Various market insight and intelligence relating Risk owner Risk Appetite Statement to pricing, lead times Chief Executive We are disciplined by operating in selected – Kier risk management framework markets and focus on business where – Supply chain management Link to strategy opportunities have an acceptable risk. We – Kier Operating framework and performance – Disciplined growth continue to deliver our contracts, supported by excellence processes – Consistent delivery our risk management framework, Operating – Kier Commercial Standards – Generate cash Framework and Performance Excellence – Use of financial derivative instruments to processes. Our macroeconomic risk appetite hedge exposure to fluctuations in interest and Board risk Appetite level is low. exchange rates. Low Risk Appetite Rationale Because economic conditions are outside of our control, our risk appetite is low. Our selected markets offer a counter cyclical opportunity and we also a have a robust tender process, operating model, financial position, and a strong order book. Emerging risks and opportunities The Group has identified the following as principal, emerging risks and opportunities: – Global Recession Stagflation, energy prices, cost of living and interest rates are all contributing factors to what could pose a global recession risk. – Climate change Governance Financial statementsStrategic reportOverview Other information Opportunities arising through ESG and remedial works in relation to energy efficiency (for example electric charging points), modern methods of construction and other opportunities regarding construction. Kier Group plc | Annual Report and Accounts 2022 83 ## Financial review ## “The Group performed ## well during the year ## despite inflationary ## pressure, delivering an ## adjusted operating ## profit of £120.5m.” Simon Kesterton Chief Financial Officer Introduction The Group performed well during the year, despite inflationary pressure, delivering an adjusted operating profit of £120.5m (FY21: £100.3m). This represents a 70 basis points operating margin increase year-over- year to 3.7% with the Group exceeding its medium-term plan margin target of c.3.5% (FY21: 3.0%). The continued strong operational performance led to an increased statutory profit before tax from continuing operations of £15.9m (FY21: £5.6m), despite an anticipated reduction in revenue. 84 Kier Group plc | Annual Report and Accounts 2022 ## Summary of financial performance | | Adjusted results | | | Statutory reported results | | | | --- | --- | --- | --- | --- | --- | --- | | | 30 Jun 22 | 30 Jun 21^{1} | change | 30 Jun 22 | 30 Jun 21^{1} | change | | Revenue (£m) – Total | 3,256.5 | 3,328.5 | (2.2)% | 3,256.5 | 3,328.5 | (2.2)% | | Revenue (£m) – Excluding JV's | 3,143.9 | 3,261.0 | (3.6)% | 3,143.9 | 3,261.0 | (3.6)% | | Profit from operations (£m) | 120.5 | 100.3 | 20.1% | 45.1 | 43.7 | 3.2% | | Profit before tax (£m) | 94.1 | 65.4 | 43.9% | 15.9 | 5.6 | 183.9% | | Earnings per share (p) | 16.8 | 25.0 | (32.8)% | 2.9 | 11.6 | (75.0)% | | Free cash flow (£m) | 54.6 | 92.6 | (41.0)% | | | | | Net cash (£m) | 2.9 | 3.0 | (0.1) | | | | | Net debt (£m) – average month-end | (216.1) | (431.9) | 215.8 | | | | | Order book (£bn) | 9.8 | 7.7 | 2.1 | | | | | Supply Chain Financing (£m) | 49.8 | 79.1 | (29.3) | | | | $^{1}$ Reference to 'Adjusted' excludes adjusting items, see note 5. Adjusted earnings per share were 16.8p from continuing operations (FY21: 25.0p). This decreased compared to prior year as a result of the dilution from the FY21 equity raise. The Group generated a free cash inflow of £54.6m (FY21: £92.6m) in the financial year which included a £29.3m repayment of its supply chain finance facility ('KEPS') and the repayment of its deferred HMRC obligations agreed during the pandemic (£20.6m). Net cash at 30 June 2022 of £2.9m remains at a similar level to prior year. The Group remains well placed to benefit from the UK Government's commitment to national infrastructure spending. The order book increased by c.27% to £9.8bn at 30 June 2022 (FY21: £7.7bn). 85% of revenue for FY23 is already secured which provides a level of certainty against the backdrop of wider market uncertainty. The Group continued to win new, high-quality and profitable work in its markets on terms and rates which reflect the bidding discipline and risk management introduced under the Group's Performance Excellence programme. The order book continues to be underpinned by significant long-term framework agreements and new awards exceeded the prior year. ### Revenue from continuing operations The following table bridges the Group's revenue from the year ended 30 June 2021 to the year ended 30 June 2022. | | £m | | --- | --- | | **Revenue for the year ended 30 June 2021** | **3,328.5** | | Infrastructure Services | 245.0 | | Construction | (328.3) | | Property and Corporate | 11.3 | | **Revenue for the year ended 30 June 2022** | **3,256.5** | The Group experienced strong growth in Infrastructure Services, primarily due to the ramp up in HS2. Construction revenue decreased as anticipated due initially to delays in work being awarded and then further as projects overcame inflationary pressures. There were also additional transactions in Property compared to the prior year driven by market demand. The Group continues to focus on delivering high-quality and high-margin work. ### Alternative performance measures ('APMs') The Directors continue to consider that it is appropriate to present an income statement that shows the Group's statutory results only. The Directors, however, still believe it is appropriate to disclose those items which are one-off, material or non-recurring in size or nature. The Group is disclosing as supplementary information an 'adjusted profit' APM. The Directors consider doing so clarifies the presentation of the financial statements and better reflects the internal management reporting and is therefore consistent with the requirements of IFRS 8. ### Adjusted Operating Profit | | £m | | --- | --- | | **Adjusted operating profit for the year ended 30 June 2021** | **100.3** | | Volume/price/mix changes | 1.1 | | Additional property transactions | 11.9 | | Cost inflation | (8.1) | | Management actions | 15.3 | | **Adjusted operating profit for the year ended 30 June 2022** | **120.5** | Adjusted operating profit improved compared to the prior year despite the reduction in revenue. The main reasons for this were management actions to reduce costs and increased property transactions compared to FY21, which offset lower volume and inflationary pressures. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 85 **Financial review** continued A reconciliation of reported to adjusted operating profit is provided below: | | Operating profit | | Profit before tax | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Reported profit from continuing operations** | **45.1** | 43.7 | **15.9** | 5.6 | | Amortisation of acquired intangible assets | 19.7 | 21.0 | 19.7 | 21.0 | | Restructuring and related charges | 40.0 | 31.6 | 40.0 | 31.6 | | Preparation for business divestment or closure | – | 0.5 | – | 0.5 | | Other | 15.7 | 3.5 | 18.5 | 6.7 | | **Adjusted profit from continuing operations** | **120.5** | 100.3 | **94.1** | 65.4 | Additional information about these items is as follows: - Amortisation of acquired intangible assets £19.7m (FY21: £21.0m): Comprises the amortisation of acquired contract rights primarily relating to the historical acquisitions of May Gurney in 2013, Mouchel in 2015 and McNicholas in 2017. - Restructuring and related charges £40.0m (FY21: £31.6m): The Group incurred restructuring costs and related charges in the year totalling £40.0m. The Group completed its strategic restructuring of its Regional Southern Build business, which has included the closure of offices, a down-sizing of personnel and the withdrawal/early settlement of certain contract positions. As a result of these restructuring activities, a cost of £22.2m was charged in the current year, which represents an extension of the prior year charges. This restructuring is now complete and no future charges are anticipated. In addition, £6.5m was incurred on redundancies and other people related costs. A total of £7.1m has been charged in respect of professional adviser fees and other non-people initiatives. Of this amount, £3.8m was incurred on financial and legal advisor fees, £1.1m on fire cladding consultation services, £1.0m on closure costs relating to Trade Direct and a further £2.2m on other restructuring activities. This was offset by a £1.1m credit as a result of finalisation of costs incurred on the equity raise in the prior year. A further £4.2m relates to fair value movements on the Group's vacated properties. This includes a £5.2m impairment in relation to Fountain Street, Manchester, which has been recognised upon transfer from right-of-use assets to investment properties. This is offset by a net £0.3m fair value uplift on the Group's other investment properties. Following a fire, the land at our recycling plant has been transferred to investment property and has been included at fair value, which has resulted in a £0.7m credit. - Other costs £18.5m (FY21: £6.7m): Other costs include £5.2m in relation to the fire at the Pure Recycling site in Warwickshire, of which £4.1m represents an impairment of the property, plant and equipment. Following the fire, the building has been demolished and the majority of the contracts terminated. The discussions with the insurer are ongoing and as such no insurance proceeds have been recognised in the year. Legal and compliance costs of £8.8m include £7.8m of fire compliance and cladding claims that have arisen during the year. In addition, £2.2m relates to a software impairment and £2.8m relates to the IFRS 16 interest charge on leased properties that were previously vacated. These are offset by a credit of £0.5m as a result of a Pension Increase Exchange exercise undertaken on one of the Group's pension schemes. #### Earnings per share Earnings per share ('EPS'), before adjusting items, from continuing operations amounted to 16.8p (FY21: 25.0p). EPS, after adjusting items, from continuing operations amounted to 2.9p (FY21: 11.6p). #### Finance charges The Group's finance charges include interest on the Group's bank borrowings, finance charges relating to IFRS 16 leases and forward funding costs relating to development contracts in Property. The Group chooses to forward fund certain developments in Property to de-risk the portfolio. Interest on bank borrowings amounted to £18.9m (FY21: £23.2m), finance lease charges were £6.5m (FY21: £6.7m) and forward funding costs came to £0.5m. Finance costs have significantly decreased to £29.9m (FY21: £41.8m) due to a reduction in bank interest primarily as a result of the Group's improved average month end net debt position as well as a decrease in forward funding interest within Property. The Group continues to exclude lease liabilities from its definition of net cash/(debt). 86 Kier Group plc | Annual Report and Accounts 2022 ## Balance sheet ### Net assets The Group had net assets of £554.6m at 30 June 2022 (FY21: £435.0m). The primary driver for this is the increase in the pension scheme asset during the year. ### Goodwill The Group held intangible assets of £669.1m (FY21: £697.2m) of which goodwill represented £536.7m (FY21: £536.7m). The Group completed its review of goodwill at 30 June 2022, assuming a pre-tax discount rate derived from a weighted average cost of capital of 9.0% (FY21: 9.1%), and concluded that no impairment was required. The Infrastructure Services Cash Generating Unit ('CGU') comprises £516.3m of the total goodwill balance. Whilst no impairment is noted and management believe the discounted cash flows applied is underpinned by the order book and current pipeline prospects, this CGU is sensitive to changes in key assumptions. The key assumptions in the value in use calculations are the forecast revenues and operating margins, the discount rates applied to future cash flows and the terminal growth rate assumptions applied. Further details of the sensitivities of these assumptions are disclosed in note 12 of the financial statements. ### Deferred tax asset The Group has a deferred tax asset of £108.8m recognised at 30 June 2022 (FY21: £138.0m) primarily due to prior year losses. The asset has decreased in the year primarily due to the deferred tax charge in relation to the movement in the pension scheme asset. Based on the Group's forecasts, it is expected that the deferred tax asset will be utilised over a period of approximately 10 years. An adjusted tax credit of £16.3m (FY21: £31.7m) has been included within adjusting items, of which £14.8m (FY21: £12.2m) represents the tax impact of adjusting items. ## Free cash flow and Net debt | | 2022 £m | 2021 £m | | --- | --- | --- | | Operating profit | 45.1 | 43.7 | | Depreciation of owned assets | 6.6 | 6.4 | | Depreciation of right-of-use assets | 30.0 | 33.7 | | Amortisation | 28.0 | 30.9 | | **EBITDA** | **109.7** | **114.7** | | Adjusting items excluding adjusting amortisation and interest | 55.7 | 35.6 | | **Adjusted EBITDA** | **165.4** | **150.3** | | Working capital inflow | 3.7 | 109.9 | | Net capital expenditure including finance lease capital payments | (46.5) | (47.0) | | Joint Venture dividends less profits | 5.9 | 6.6 | | Repayment of KEPS | (29.3) | (46.4) | | Other free cash flow items | 9.0 | 7.0 | | **Operating free cash flow** | **108.2** | **180.4** | | Net interest and tax | (32.8) | (26.8) | | **Free cash flow before COVID-19** | **75.4** | **153.6** | | Net COVID-19 tax repayment | (20.8) | (61.0) | | **Free cash flow** | **54.6** | **92.6** | | | 2022 £m | 2021 £m | | --- | --- | --- | | **Net cash at 30 June** | **3.0** | **(310.3)** | | Free cash flow | 54.6 | 92.6 | | Adjusting items | (41.2) | (72.1) | | Pension deficit payments and fees | (15.0) | (37.0) | | Sales proceeds | – | 120.8 | | Equity raise (net of fees) | (6.1) | 224.8 | | Purchase of own shares | (7.0) | – | | Other | 14.6 | (4.4) | | **Net cash at 30 June** | **2.9** | **3.0** | The Group experienced a free cash inflow during the year, which included a working capital inflow before the repayment of the Group's supply chain facility (KEPS) of £29.3m. Working capital is driven by seasonality in the business with summer being a higher period of activity compared to winter months. Accordingly, in H2, the Group had a reversal of the H1 working capital outflow. The working capital inflow in FY22 remained lower than FY21 due to the anticipated lower Construction business volumes. We delivered free cash flow conversion, defined as operating free cash flow as a percentage of adjusted operating profit of 90% for the year. This is in line with the Group's medium-term value creation plan. The Group's average month end net debt has significantly reduced to £216.1m from £431.9m as a result of the successful capital raise, the sale of Kier Living and free cash flow generation. This was partially impacted by a £38.0m reduction in the average month end KEPS balance, repayment of HMRC Government support of £20.8m and adjusting items of £41.2m. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 87 ## Financial review continued We anticipate continued progress towards our medium-term plan target of achieving a sustainable net cash position. In FY23, we notwithstanding positive cash flow, expect an increase in average month-end net debt attributable to the HMRC COVID-19 debt repayment and the repayment of KEPS as well as the impact of lower activity in our Construction business until the fourth quarter of the year. In FY24 we expect the reported net debt to decrease with free cash flow generation given the Group's increased order book, expected revenue conversion and associated working capital inflow. The Group also expects a significant reduction in adjusting items. ### Government support As of 30 June 2022, the Group's remaining total indirect tax deferred amounted to £nil (FY21: £20.8m). ### Contract assets & liabilities Contract assets represents the Group's right to consideration in exchange for works which have already been performed. Similarly, a contract liability is recognised when a customer pays consideration before work is performed. At 30 June 2022, contract assets amounted to £397.5m (FY21: £366.4m). The increase in contract assets is due to the timing of invoicing, the effect of new contracts and significant increases in volumes on HS2. Contract liabilities were £67.3m (FY21: £59.9m). ### Retirement benefits obligation Kier operates a number of defined benefit pension schemes. At 30 June 2022, the reported surplus, which is the difference between the aggregate value of the schemes' assets and the present value of their future liabilities, was £194.7m (FY21: £46.2m), before accounting for deferred tax, with the movement in the year primarily as a result of actuarial gains of £136.3m. The Group started the process of its triennial pension valuation in March 2022. ### Right-of-use assets and lease liabilities At 30 June 2022 the Group had right-of-use assets of £80.6m (FY21: £96.5m) and associated lease liabilities of £157.6m (FY21: £163.8m). ### Accounting policies The Group's annual consolidated financial statements are prepared in accordance with International Financial Reporting Standards as adopted by the UK ("IFRS"). There have been no significant changes to the Group's accounting policies during the year. ### Treasury facilities #### Bank finance The Group has committed debt facilities of £654.0m with a further £18.0m of uncommitted overdrafts. These are legacy facilities that have undergone a number of amendments and extensions in recent years. The borrowings comprise of £535.0m Revolving Credit Facility ("RCF"), eq.£111.1 US Private Placement ("USPP") Notes, eq.£7.9m Schuldschein Notes as well as £18.0m of overdrafts. Following the sale of Kier Living and the equity raise in FY21, the Group successfully extended a number of its committed facilities, including £475.0m of the RCF and eq.£73.3m of the USPP Notes to January 2025. The Group has eq.£32.6m of USPP Notes and £20.0m of its RCF maturing in December 2022. The Schuldschein Notes are maturing in May 2023 and further £20.0m of the RCF is expected to be repaid in June 2023. During the year the Group took out a £100m fixed interest rate swap through to September 2023. ### Supply chain finance The Group offers its supply chain in the Construction business the opportunity to participate in KEPS. The balance owed on this facility is included in trade payables. The balance at 30 June 2022 was £49.8m (FY21: £79.1m). The Group has reduced KEPS over the years. The total reduction since FY19 has been £170.4m which includes the £49.8m, outstanding at 30 June 2022. KEPS was fully repaid subsequent to the year end. ### Financial instruments The Group's financial instruments comprise cash and liquid investments. The Group selectively enters into derivative transactions (interest rate and currency swaps) to manage interest rate and currency risks arising from its sources of finance. The US dollar denominated USPP notes were hedged with fixed cross-currency swaps at inception to mitigate the foreign exchange risk. One non-recourse, project specific, property joint venture loan is hedged using an interest rate derivative to fix the cost of borrowing. There are minor foreign currency risks arising from the Group's operations both in the UK and through its limited number of international activities. Currency exposure to international assets is hedged through inter-company balances and borrowings, so that assets denominated in foreign currencies are matched, as far as possible, by liabilities. Where exposures to currency fluctuations are identified, forward exchange contracts are completed to buy and sell foreign currency. The Group does not enter into speculative transactions. ### Going concern The Directors are satisfied that the Group has adequate resources to meet its obligations as they fall due for a period of at least twelve months from the date of approving these financial statements and, for this reason, they continue to adopt the going concern basis in preparing these financial statements. Further information on this assessment is detailed in note 1 of the consolidated financial statements on pages 153 and 154. 88 Kier Group plc | Annual Report and Accounts 2022 Viability statement Key assumptions The UK Corporate Governance Code requires the Board to The key assumptions within the model used to support the explain how it has assessed the prospects of the Group, over viability statement include: what period it has done so and why it considers that period to No material changes to Group operations, including no material be appropriate. acquisitions or disposals; – The Group maintains its position as one of the leading Assessment period providers of construction and infrastructure services to Consistent with the practice of previous years, the Board has Government and regulated entities; assessed the prospects of the Group over a period of three – The Group’s revolving credit facility is refinanced on years from 30 June 2022, taking account of its current position substantially the same terms (noted that it is currently and the potential impact of the Group’s principal risks and scheduled to expire in January 2025); uncertainties (the ‘PRUs’) which is set out in this Annual Report – The Group operates within its financial covenants under its and certain other risks referred to below. The Board has principal debt facilities during the review period; identified a three-year period as being a period over which it – The Group’s other facilities are repaid on their respective believes it is able to forecast the Group’s performance with maturity dates during the review period; and reasonable certainty, principally because: – The Group makes payments to the pension schemes in line – The Group’s internal forecasting covers a three-year period; with the deficit recovery plan. – The tender process and delivery programme for a number of the Group’s projects can, together, take a period of up to Stress-testing approximately three years; and Management assessed the financial impact of a number of – The visibility of the Group’s secured work and bidding severe but plausible downside scenarios (both individually and opportunities can reasonably be assessed over a in combination) by overlaying them against the three-year three-year period. business plan. These scenarios included: – An adverse impact on the Group’s forecasts, including a Within this assessment period, the Group’s revolving credit lower than forecast volume, an erosion of forecast margins facility is scheduled to expire (January 2025). Management and a reduction in the win rate of any revenue which is to would expect to re-finance this facility in the upcoming be obtained; financial year. – A certain level of loss-making contracts having an impact on the Group’s reported profit and cash over the review period; Assessment process – The removal of the Group’s supply chain finance facility, The work required to support the viability statement was which is uncommitted; and undertaken by management, with the following being a – The application of certain, additional macroeconomic factors summary of the key elements of the assessment process: which may impact the Group, including increases in inflation – The model used as the basis of the assessment included a and a rise in interest rates. number of key assumptions (please see ‘Key assumptions’ below) and was subject to stress-testing (please see Management also considered offsetting mitigating actions that ‘Stress-testing’ below); could be taken in such a scenario. Governance Financial statementsStrategic reportOverview – The process considered the Group’s current performance and future prospects, strategy, the PRUs and the mitigation Viability statement of the PRUs; The Board therefore has a reasonable expectation that the – The process included a review of certain other risks relating Group has adequate resources to continue to operate and to the Group, including macroeconomic and political risks to meet its liabilities as they fall due across the three-year affecting the UK (and global) economy, and risks relating to review period. the Group’s trading, the Group’s pensions, the availability of the Group’s finance facilities, systemic margin erosion, the execution of the Group’s strategy, the supply chain, Simon Kesterton inflationary impacts and certain project specific risks; and Chief Financial Officer – The process assessed the continuing impact of COVID-19, including ongoing adverse effects and the likelihood of further 15 September 2022 waves and further lockdowns. The Directors note that the actions taken in the prior financial year (namely the equity raise and the disposal of Living) have strengthened the balance sheet. Other information Kier Group plc | Annual Report and Accounts 2022 89 ## Section 172 statement The Board of Directors believe that during the year, they have acted to promote the long-term success of the Group that has generated value for shareholders and contributed to the wider society, whilst considering the interests of a range of stakeholders as set out in section 172(1) (a) to (f) of the Companies Act 2006. As part of our decision-making process, we look at how we will potentially impact our stakeholders. We see stakeholder engagement as key to the delivery of our purpose and strategy and therefore our long-term sustainable success. Although there are often competing interests and priorities involved, having an understanding of what matters to our stakeholders allows the Board to consider a wide range of factors. Matters considered by the Board Below are examples of decisions taken by the Board during the year and how stakeholder views and inputs, as well as other section 172 (1) considerations, were considered. Section 172 factor Additional information Pages | Consequences of decisions in the long term Our strategy | | | 14–17 | | | --- | --- | --- | --- | --- | | | Our marketplace | | 24–31 | | | | Our business model | | 36–39 | | | | Risk management | | 72–83 | | | Interests of the Company’s employees Our key stakeholders | | | | 33 | | | Building for a Sustainable World | | 56–65 | | | Foster the Company’s business relationships | Our key stakeholders | | 32–35 | | | with suppliers, customers and others | Our business model | | 36–39 | | | | Protecting Human Rights | | | 65 | | | Supplier payment days | | | 65 | | Impact of operations on communities and the environment Building for a Sustainable World | | | 42–65 | | | | TCFD report | | 66–71 | | | High standards of business conduct Protecting Human Rights | | | | 65 | | | Code of Conduct | | | 90 | | | Anti-Bribery and Corruption | | | 90 | | Acting fairly between members Our key stakeholders | | | 32–35 | | | | Directors’ report | 135–138 | | | ## Non-financial information statement The table below summarises how we comply with non-financial performance reporting requirements and is produced to comply with sections 414CA and 414CB of the Companies Act 2006. Reporting requirements Kier policy/standards 1 Read more on pages Anti-corruption and Anti-Bribery and Corruption (including Gifts and Hospitality) Policy 65 anti-bribery Kier has a no tolerance approach to all forms of bribery and corruption and is committed to complying with all applicable anti-bribery and corruption laws. In addition to ensuring that our employees and contractors comply with the Anti-Bribery and Corruption Policy, we require all third parties engaging with a member of the Group to comply with this policy in order to ensure compliance with applicable anti-bribery and corruption laws and preserve our own and our customers’ reputations. Employees Code of Conduct 56–64 Kier is committed to developing a culture within the Group where everyone does the right thing and takes personal responsibility for their actions. The Code of Conduct sets out the standards of behaviour and business conduct expected from all employees and provides direction on a number of issues employees encounter in their day-to-day activities. Diversity and Inclusion Policy The Diversity and Inclusion Policy applies to all aspects of Kier’s relationship with its employees and to relations between employees at all levels and covers recruitment, disability, development and training, bullying and harassment, victimisation and human rights. The policy also sets out the ‘5 Respect Basics’ included in Kier’s Expect Respect campaign and details of how employees can make a complaint under the policy. Health, Safety and Wellbeing Policy Kier recognises its responsibility under health and safety legislation and ensures that all workplace risks are identified and mitigated to an acceptable level and that a framework to support the wellbeing of staff is provided. Kier is committed to the provision of strong, visible and active leadership, the engagement of the workforce in the promotion and achievement of safe and healthy conditions and the formal assessment and review of the Group’s performance. The Health, Safety and Wellbeing Policy sets out how the Group identifies risks and mitigates them to an acceptable level. 90 Kier Group plc | Annual Report and Accounts 2022 | Reporting requirements Kier policy/standards | | 1 | Read more on pages | | | --- | --- | --- | --- | --- | | Employees | Whistleblowing Policy | | | 100 | | (continued) | The Whistleblowing Policy encourages Kier’s employees to report suspected wrongdoing, | | | | in the knowledge that their concerns will be taken seriously and investigated and that their confidentiality will be respected. Kier believes that a culture of openness and accountability is essential. Environmental Sustainability Policy 42–55 matters Kier is committed to preventing environmental and social harm and having a positive impact on the communities and environments in which it operates. Kier’s Sustainability Policy sets out its ambitions for corporate social responsibility and environmental management and recognises that sustainable value creation is fundamental to business success. Human rights Code of Conduct 65 Please see previous page. Anti-Slavery and Human Trafficking Policy Kier has a zero-tolerance approach to modern slavery and is committed to acting ethically and with integrity in all its business dealings and relationships and to implementing and enforcing effective systems and controls to ensure modern slavery is not taking place anywhere within its businesses or across its supply chain. The Anti-Slavery and Human Trafficking Policy sets out the systems and controls that are in place to prevent modern slavery from taking place in the Group’s business and across its supply chain. Kier’s supply chain partners must hold their suppliers to the same standards. Data Protection Policy Kier’s data protection standards are underpinned by this policy as well as the Code of Conduct (see previous page). The policy states that anyone processing Personal Data must comply with the six principles for processing Personal Data contained within data protection legislation. Employees are encouraged to report any data breaches immediately after becoming aware of any data incident and to speak up about any concern or suspicion of a violation of this policy, via the Speak-Up line run by an independent company if they prefer. Social matters Sustainability Policy 56–65 Please see above. Business model Description of the Group’s business model. 36–39 Governance Financial statementsStrategic reportOverview Non-financial KPIs Description of the non-financial key performance indicators relevant to the Group’s business. 41 Principal risks Description of the principal risks relating to the matters set out in section 414CB(1) of the 72–83 Companies Act 2006 arising in relation to the Group’s operations, and how those principal risks are managed. ¹ All Kier Group policies are available on the Kier website: https://www.kier.co.uk/investors/corporate-governance/group-policies/, except for the Diversity and Inclusion Policy, which is not published externally but is available to employees through the Kier intranet. Implementation of policies Online training on key policies is carried out across the Group. The training modules include scenarios and tests to enhance the understanding of, and compliance with, the policies by all employees. In addition, senior managers are required to confirm, periodically, that they are not aware of any breach of such policies having made enquiries of their teams. All employees, contractors and third parties are encouraged to report any circumstances where there is a suspected or actual breach of any of the policies, applicable laws, or the standards as set out in the Code of Conduct, either through their managers, the confidential ‘Speak-Up’ helpline (which is run by an independent company, Safecall) or directly to the Corporate Compliance team. Further information on the confidential helpline can be found on page 100. Kier views infringements of the policies, procedures and related guidance seriously and reserves the right to take disciplinary action in the event of non-compliance. All reported incidences of actual or suspected breach of any of the policies are promptly and thoroughly investigated. Other information The Board and the Risk Management and Audit Committee receive compliance updates from the Group Legal and Compliance Director. ` This Strategic report on pages 1–91 (inclusive) was approved by the Board and signed on its behalf by: Andrew Davies Simon Kesterton Chief Executive Chief Financial Officer 14 September 2022 Kier Group plc | Annual Report and Accounts 2022 91 ## Chairman’s introduction to corporate governance Diversity & inclusion As I have set out in my Chairman’s statement, Chris Browne will be joining the Board as a Non-Executive Director with effect from 15 September 2022. Following her appointment, we will have 38% women on our Board. We note the upcoming disclosure requirements and the target for 40% of women on boards and the recommendations requiring females to occupy at least one of the roles of Chair, Senior Independent Director, Chief Executive and Chief Financial Officer. The Nomination Committee will consider these further in FY23. I will point out, that we will consider such recommendations carefully in the context of the size of the Board that is appropriate for Kier’s size and scope of operations. Matthew Lester Chairman The Board believes that diversity is as important at the executive leadership level of Kier to bring diversity in thought, background and experience to make us a better business. Dear shareholder Although the gender diversity of senior management has The Board has focused on continuing to build solid foundations, increased over the last two years, there have been continued and enhancing our governance systems and processes, targeted initiatives and talent development programmes with ensuring we promote long-term success and generate value senior sponsorship and support to ensure we retain and for our shareholders and stakeholders. develop managers, with the goal of increasing a diverse pipeline of talent at senior management levels to reflect the diverse Based on the feedback from the Board effectiveness customers and communities we serve. The Board will continue evaluation last year, the Board meeting structure and agendas to challenge management on the actions undertaken to drive have been re-shaped to support this. We increased our progress against our Diversity and Inclusion roadmap understanding of the business by inviting the senior leadership (see pages 56 and 57 for more information on our progress team to discuss their business units. The Commercial Director in this area). regularly presents on upcoming major projects and contracts and additionally, delivers an update on order book progress Succession planning supported with appropriate KPIs. The Board also held a As indicated in our Annual Report last year, the Nomination Strategy Day with members of the Executive Committee Committee has spent some time reviewing the long-term presenting on their areas of responsibility. This also enables succession planning for the Board and the Executive the Board to ensure we have the appropriate leadership and Committee members and was briefed on the process financial and strategic resources to achieve our medium-term undertaken to identity and support our talents during the year. value creation plan. The Nomination Committee report provides insight on the work undertaken during the year to maintain an effective succession Engaging with our stakeholders plan and ensure it has a diverse pipeline. The Board continues to listen to and understand the views of all stakeholders and considers their views in any decisions we Remuneration make. During the year, the Board received regular updates on The Board acknowledged the 73.93% votes received conversations and meetings that Andrew Davies and his senior supporting the Remuneration Report contained in the 2021 leadership team have had with customers and clients and on Annual Report and the Remuneration Committee have the feedback they have received. Key engagement activities considered the feedback received in their decisions taken with the Cabinet Office and local authorities were also reported. during the year. More information can be found in the Directors’ Engagement with shareholders is usually led by Andrew Davies Remuneration report. and Simon Kesterton following our results announcement and roadshows. The Board also receives regular updates from the Code compliance Investor Relations team. The Chief People Officer keeps the The Board considers that it has complied with the provisions Board informed on people matters such as results of employee of the UK Corporate Governance Code during the year. The engagement surveys, recruitment and training programmes, following pages describe how the Company has applied the with the focus this year being our wellbeing programme. More Code’s principles. I hope you will find them useful. Information information on our engagement with key stakeholders can be on our AGM arrangements this year will be provided in the found on pages 32–35. Notice of Annual General Meeting. Employee engagement and culture As I said last year, the Board was unable to spend much time Matthew Lester engaging with our colleagues due to the pandemic. I am Chairman pleased to report that during the year, the Non-Executive Directors and myself made 20 site visits as part of our Visible Leadership Tours (‘VLTs’). This provided an opportunity for us to hear firsthand our employees’ views and obtain feedback on a range of issues such as culture and its alignment with our values, the impact of our safety and wellbeing programmes, the huge interest in talent development programmes and progress of our diversity and inclusion initiatives. It also enabled us to deepen our understanding of the operation of the business. We will continue with our VLTs in the coming year and believe this approach is the best method for us to engage with our workforce. Further information on our VLTs and the outcome of our engagement can be found on page 102 and 103. 92 Kier Group plc | Annual Report and Accounts 2022 ## The UK Corporate Governance Code – compliance Information on how we have applied the Principles of the 2018 UK Corporate Governance Code (the 'Code') is provided in this Governance report and the Directors' Remuneration report and a guide is provided in the table below. The Code can be found at www.frc.org.uk. ### Section 1: Board leadership and company purpose | | Where to find further information | | --- | --- | | Principle A: Board's role and Company's long-term sustainable success, generating value for shareholders and contributing to wider society | Pages 92–100 | | Principle B: Company's purpose, values, strategy and culture | Pages 14–17 and 100 | | Principle C: resources, prudent and effective controls | Pages 96, 97 and 106 | | Principle D: shareholder and stakeholder engagement | Pages 32–35 | | Principle E: workforce policies and practices and workforce concerns | Pages 100, 102 and 103 | ### Section 2: Division of responsibilities | Principle F: Chairman's role | Page 98 | | --- | --- | | Principle G: Board balance and division of responsibilities | Page 98 | | Principle H: Non-Executive Directors' time and role | Page 98 | | Principle I: information and resources | Page 97 | ### Section 3: Composition, succession, and evaluation | Principle J: Board appointments | Pages 112 and 113 | | --- | --- | | Principle K: Board and Committee composition, skills and tenure | Pages 94 and 95 | | Principle L: Board evaluation | Page 100 | ### Section 4: Audit, risk and internal control | Principle M: policies and procedures for internal and external audit | Pages 106, 107 and 109 | | --- | --- | | Principle N: fair, balanced and understandable | Page 109 | | Principle O: risk and internal control framework, principal risks and risk assessment and management | Pages 72–83, 106 | ### Section 5: Remuneration | Principle P: remuneration policies and practices | Pages 114–134 | | --- | --- | | Principle Q: Director and senior management remuneration | Pages 114–134 | | Principle R: independent judgement and discretion on remuneration | Pages 114–134 | The Board is required to state whether it has complied with the provisions in the Code or if not explain why, the actions it has taken to ensure good governance and timeframes for non-compliance. The Board considers that it complied with the provisions in the Code. Overview Strategic report Governance Financial statements Other information Kler Group plc | Annual Report and Accounts 2022 93 ## Board of Directors Matthew Lester Andrew Davies Simon Kesterton Justin Atkinson Alison Atkinson Chris Browne Clive Watson Dame Heather Rabbatts Chairman Chief Executive Chief Financial Officer Senior Independent Director FREng, MICE CEng OBE Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director N R N NE R RA NE R RA NE R RA NE R RA NE R RA Age 59 Age 58 Age 48 Age 61 Age 52 Age 62 Age 64 Age 66 Tenure 2 years 8 months Tenure 3 years 5 months Tenure 3 years Tenure 6 years 11 months Tenure 1 Year 9 months Tenure Appointed with effect Tenure 2 years 5 months Tenure 2 years 5 months from 15 September 2022 Independent Yes Independent No Independent No Independent Yes Independent Yes Independent Yes Independent Yes Independent Yes (on appointment) | Relevant skills | | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and experience | | | and experience | | and experience | | and experience | | and experience | | and experience | | and experience | | and experience | | | | – A chartered accountant, | | | – Strong track record of | | – A member of the Chartered | | – A chartered accountant, | | – Significant operational | | – Significant commercial and | | – Significant experience in | | – Significant operational | | | having trained and qualified | | | business leadership across | | Institute of Management | | having trained and qualified | | experience in large scale | | operational experience | | financial matters, through | | experience in the local | | | at Arthur Anderson | | | a number of sectors | | Accountants | | at a predecessor firm | | national infrastructure | | through senior leadership | | senior finance positions | | government and, in | | | – Substantial strategic and | | | – Significant experience of | | – Broad range of financial, | | of PwC | | – Senior experience of | | positions in the aviation | | both in the UK and | | particular, the entertainment | | | financial experience, | | | mergers and acquisitions | | strategic and IT leadership | | – Formerly Chief Executive | | oversight of civil engineering | | industry | | overseas, latterly as the | | and sports sectors | | | through senior finance roles | | | and strategy development | | experience in his former | | of Keller Group plc and | | and contracting through her | | – Most recently as Chief | | Group Finance Director of | | – Experience of the contracting | | | at Diageo plc and as Group | | | and implementation | | senior roles in the | | previously Keller’s Group | | roles at AWE plc, and | | Operating Officer of easyJet | | Spectris plc | | sector through her previous | | | Finance Director of ICAP | | | – Significant operational | | engineering and | | Finance Director and Chief | | previously at Halcrow | | plc until June 2019, and she | | – Experience of the | | role as a Non-Executive | | | plc and Chief Financial | | | and corporate experience | | manufacturing industries | | Operating Officer | | – Member of the Royal | | also served as their | | engineering sector through | | Director of Crossrail Limited | | | Officer of Royal Mail plc | | | through senior roles and | | – Formerly Chief Financial | | – Significant operational, | | Academy of Engineering | | non-executive director from | | his roles at Borealis AG | | – Significant experience of | | | – Significant non-executive | | | over 28 years with BAE | | Officer, Europe and Chief | | financial and strategic | | | | January to September 2016 | | and as a Non-Executive | | remuneration matters, having | | | director experience at Man | | | Systems plc | | Strategic Officer at IAC | | experience | | | | – Experience of the | | Director at Spirax-Sarco | | served on a number of | | | Group plc, Barclays PLC | | | – Formerly Chief Executive | | Group and Group Finance | | – In-depth knowledge of the | | | | construction sector through | | Engineering plc | | Remuneration Committees | | | and Capita plc | | | Officer of Wates Group | | Director of RPC Group plc | | construction sector, both in | | | | her role as a Non-Executive | | – Detailed knowledge | | – Experience of risk | | | | | | Limited | | – Significant experience | | the UK and internationally | | | | Director of Vistry Group plc | | of systems of risk | | management through her | | | | | | | | of the implementation of | | | | | | | | management and | | previous role as the Chair | | | | | | | | cost reduction, M&A and | | | | | | | | internal control | | of the Audit Committee of | | | | | | | | profitability improvement | | | | | | | | | | Grosvenor Great Britain | | | | | | | | programmes | | | | | | | | | | & Ireland | | Principal current | | | Principal current | | Principal current | | Principal current | | Principal current external | | Principal current external | | Principal current external | | Principal current external | | | external appointments | | | external appointments | | external appointments | | external appointments | | appointments | | appointments | | appointments | | appointments | | | | – Non-Executive Director | | | – Non-Executive Director of | | – None | | – Chairman of Forterra plc | | – Chief Executive Officer | | – Non-Executive Director of | | – Senior Independent Director | | – Non-Executive Director | | | of Intermediate Capital | | | Chemring Group PLC and | | | | and formerly the Senior | | of AWE plc | | Vistry Group plc | | and Chair of the Audit and | | of Associated British | | | Group plc and Chair of the | | | Senior Independent Director | | | | Independent Director | | | | – Non-Executive Director of | | Risk Committee of | | Foods plc | | | Audit Committee | | | | | | | and Chair of the Audit | | | | Norwegian Air Shuttle AS | | Breedon Group plc | | – Chair of Soho Theatre | | | | | | | | | | Committee | | | | – Non-Executive Director of | | – Chair of the Audit and Risk | | Company Limited | | | | | | | | | | – Non-Executive Director of | | | | Constellium SE | | Committee of discoverIE | | | | | | | | | | | | James Fisher & Sons plc | | | | | | Group plc | | | | | | | | | | | | and Chairman of the Audit | | | | | | – Senior Independent | | | | Board Committees key | | | Tenure of Non-Executive Directors | | | | | Committee | | | | | | Director and Chair of the | | | | | | | (as at 14 September 2022) | | | | | | | | | | | Audit and Risk Committee | | | | | | Environmental, Social and | | | | | | | | | | | | of Trifast plc | | | E Governance Committee N Nomination Committee R Remuneration Committee Risk Management and Audit RA Committee Less than 3 years: 4 Chair of the Committee 3–6 years: 0 Over 6 years: 1 94 Kier Group plc | Annual Report and Accounts 2022 Matthew Lester Andrew Davies Simon Kesterton Justin Atkinson Alison Atkinson Chris Browne Clive Watson Dame Heather Rabbatts Chairman Chief Executive Chief Financial Officer Senior Independent Director FREng, MICE CEng OBE Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director N R N NE R RA NE R RA NE R RA NE R RA NE R RA Age 59 Age 58 Age 48 Age 61 Age 52 Age 62 Age 64 Age 66 Tenure 2 years 8 months Tenure 3 years 5 months Tenure 3 years Tenure 6 years 11 months Tenure 1 Year 9 months Tenure Appointed with effect Tenure 2 years 5 months Tenure 2 years 5 months from 15 September 2022 Independent Yes Independent No Independent No Independent Yes Independent Yes Independent Yes Independent Yes Independent Yes (on appointment) | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | Relevant skills | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | and experience | | and experience | | and experience | | and experience | | and experience | | and experience | | and experience | | and experience | | | | – A chartered accountant, | | – Strong track record of | | – A member of the Chartered | | – A chartered accountant, | | – Significant operational | | – Significant commercial and | | – Significant experience in | | – Significant operational | | | having trained and qualified | | business leadership across | | Institute of Management | | having trained and qualified | | experience in large scale | | operational experience | | financial matters, through | | experience in the local | | | at Arthur Anderson | | a number of sectors | | Accountants | | at a predecessor firm | | national infrastructure | | through senior leadership | | senior finance positions | | government and, in | | | – Substantial strategic and | | – Significant experience of | | – Broad range of financial, | | of PwC | | – Senior experience of | | positions in the aviation | | both in the UK and | | particular, the entertainment | | | financial experience, | | mergers and acquisitions | | strategic and IT leadership | | – Formerly Chief Executive | | oversight of civil engineering | | industry | | overseas, latterly as the | | and sports sectors | | | through senior finance roles | | and strategy development | | experience in his former | | of Keller Group plc and | | and contracting through her | | – Most recently as Chief | | Group Finance Director of | | – Experience of the contracting | | | at Diageo plc and as Group | | and implementation | | senior roles in the | | previously Keller’s Group | | roles at AWE plc, and | | Operating Officer of easyJet | | Spectris plc | | sector through her previous | | | Finance Director of ICAP | | – Significant operational | | engineering and | | Finance Director and Chief | | previously at Halcrow | | plc until June 2019, and she | | – Experience of the | | role as a Non-Executive | | | plc and Chief Financial | | and corporate experience | | manufacturing industries | | Operating Officer | | – Member of the Royal | | also served as their | | engineering sector through | | Director of Crossrail Limited | | | Officer of Royal Mail plc | | through senior roles and | | – Formerly Chief Financial | | – Significant operational, | | Academy of Engineering | | non-executive director from | | his roles at Borealis AG | | – Significant experience of | | | – Significant non-executive | | over 28 years with BAE | | Officer, Europe and Chief | | financial and strategic | | | | January to September 2016 | | and as a Non-Executive | | remuneration matters, having | Governance Financial statementsStrategic reportOverview Other information director experience at Man Systems plc Strategic Officer at IAC experience – Experience of the Director at Spirax-Sarco served on a number of Group plc, Barclays PLC – Formerly Chief Executive Group and Group Finance – In-depth knowledge of the construction sector through Engineering plc Remuneration Committees and Capita plc Officer of Wates Group Director of RPC Group plc construction sector, both in her role as a Non-Executive – Detailed knowledge – Experience of risk Limited – Significant experience the UK and internationally Director of Vistry Group plc of systems of risk management through her of the implementation of management and previous role as the Chair cost reduction, M&A and internal control of the Audit Committee of profitability improvement Grosvenor Great Britain programmes & Ireland Principal current Principal current Principal current Principal current Principal current external Principal current external Principal current external Principal current external external appointments external appointments external appointments external appointments appointments appointments appointments appointments – Non-Executive Director – Non-Executive Director of – None – Chairman of Forterra plc – Chief Executive Officer – Non-Executive Director of – Senior Independent Director – Non-Executive Director of Intermediate Capital Chemring Group PLC and and formerly the Senior of AWE plc Vistry Group plc and Chair of the Audit and of Associated British Group plc and Chair of the Senior Independent Director Independent Director – Non-Executive Director of Risk Committee of Foods plc Audit Committee and Chair of the Audit Norwegian Air Shuttle AS Breedon Group plc – Chair of Soho Theatre Committee – Non-Executive Director of – Chair of the Audit and Risk Company Limited – Non-Executive Director of Constellium SE Committee of discoverIE James Fisher & Sons plc Group plc and Chairman of the Audit – Senior Independent Committee Director and Chair of the Audit and Risk Committee of Trifast plc Kier Group plc | Annual Report and Accounts 2022 95 ## Corporate governance ### The Governance framework at Kier Board – Accountable to shareholders and responsible for the long-term success of the Group – Provide leadership of the Group, establishing the purpose, values and strategy – Monitors the implementation of the strategy, safety, financial, operational, environmental and social performance of the Group – Ensures that appropriate risk management systems and internal controls are in place – Sets the Group’s ethics and culture – Ensures good corporate governance practices are in place Board Committees | Environmental, Social and | | Nomination Committee | | Remuneration Committee | | Risk Management and | | --- | --- | --- | --- | --- | --- | --- | | Governance Committee | | | – Makes recommendations to | – Sets the Group’s | | Audit Committee | | | – Reviews the Group’s | | the Board regarding the | | Remuneration Policy for | – Oversees financial reporting | | | strategy with respect to | | structure, size, composition | | Directors | procedures, systems of | | | safety, environment, social | | and succession needs of the | – Sets and monitors the level | | internal controls and risk | | | and ethical business practice | | Board and its Committees | | and structure of | management, the internal | | | | | – Oversees succession | | remuneration for the | audit function and the | | See page 110 | | | planning for Directors and | | Executive Directors and | effectiveness of the external | | | | | the Executive Committee | | other senior executives | auditor | | | | See page 112 | | See page 114 | | See page 104 | Executive Committee – Discusses Group and business units’ performance – Reviews and approves material operational matters such as safety, IT, digital, business assurance and compliance, HR, environment, social and wellbeing See page 11 The Executive Committee is also supported by several Operational Committees and steering groups including the Group Risk Committee, the Investment Committee, the Group Tender Risk Committee and Sustainable Leadership Forums. 96 Kier Group plc | Annual Report and Accounts 2022 The Board – the Group’s strategy; The Board is responsible for the effective leadership and – mergers, acquisitions and disposals of a material size promotes the long-term sustainable success of the Group, and nature; generating value for shareholders and contributing to the wider – material changes to the Group’s structure and capital; society. It is responsible for setting the Group’s purpose ‘to – the payment of dividends; sustainably deliver infrastructure which is vital to the UK’ and – the approval of material Group policies; and the strategy for achieving this. The purpose sets out why Kier – material contract tenders and material investments. exists, the market segments we operate in across the UK and acts as a guide to everything we do. Our strategic actions are The Executive Directors have significant commercial, financial set out on page 14. We continue to be guided by our values in and operational experience of the markets and sectors within what we do and our culture for how we undertake our activities. which the Group operates. The diverse range of skills and leadership experience of the Non-Executive Directors enables The Board has delegated certain of its responsibilities to Board them to provide strategic guidance and constructive challenge Committees in order to provide focus on those matters and to the Executive Directors. In addition, they scrutinise and allow the Board sufficient time on its agendas to consider hold to account the performance of management and the strategic, operational, financial and governance matters. The Executive Directors. principal activities of each of these Committees during the year are set out in their respective reports in this Annual Report. Biographies of the Board are set out on pages 94–95. The decisions which can only be made by the Board are clearly defined in the schedule of matters reserved for the Board, which is available on Kier’s website at www.kier.co.uk/ corporategovernance. The matters requiring Board approval include, amongst others: The Executive Committee Group delegations The Executive Committee is chaired by the Chief Executive The businesses are led by the Group’s managing directors, and ordinarily meets monthly. It oversees the implementation each of whom sits on the Executive Committee. They are of the strategy and its operations, including, for example, responsible and accountable for the performance of the monitoring of business stream performance, consideration of respective business streams, in line with the Operating government and customers, people, environment, safety and Framework and the Group’s Delegations of Authority as well wellbeing, and Performance Excellence matters. as contributing to the implementation of the strategy set by the Board. Within the business units, governance is delegated to business unit operating boards. In addition, the legal subsidiaries within the business units and their holding Governance Financial statementsStrategic reportOverview Other information companies have their own boards of directors to oversee the operational performance of those companies, in line with their statutory duties. Kier Group plc | Annual Report and Accounts 2022 97 Corporate governance continued ### Division of responsibilities Chairman Chief Executive Responsible for the effective operation, leadership and Responsible for proposing strategy to the Board governance of the Board and delivering it – Chairs Board meetings, Nomination Committee meetings – Runs the business and the Annual General Meeting – Ensures the Board is aware of current business issues – Sets the Board agenda with the Chief Executive and – Communicates the Board’s expectations with regard to Company Secretary values, behaviours and culture – Facilitates active engagement by all Directors – Ensures the Directors receive accurate, timely and clear information – Sets the tone and style of Board discussions Chief Financial Officer Non-Executive Directors Responsible for the Group’s financial affairs Responsible for overseeing the delivery of the strategy – Contributes to the management of the Group’s business – Advise and constructively challenge the Executive Directors – Supports the Chief Executive with the development and – Scrutinise the performance of management in achieving implementation of the strategy agreed objectives and goals and monitor the reporting of performance – Perform their duties diligently and use best endeavours to promote, protect, develop and extend the business of the Group – Devote time to develop and refresh knowledge and skills Senior Independent Director Company Secretary Responsible for ensuring that the Chairman’s performance Responsible for maintaining the governance and listing rules is evaluated compliance framework – Acts as a sounding board for the Chairman and supports – Supports the Chairman, Chief Executive and Committee him in the delivery of his objectives Chairs in setting agenda items for Board and Committee – Serves as an intermediary with the Chairman for other meetings Directors if necessary – Assists the Chairman and the Chief Executive in ensuring – Maintains a comprehensive understanding of the major that the Directors are provided with relevant information in issues of shareholders and is available if shareholders have a timely manner any concerns that they have been unable to resolve through – Organises inductions for new Directors and ongoing training the normal channels for all Directors – Advises the Board on developments in corporate governance, legislation and regulation 98 Kier Group plc | Annual Report and Accounts 2022 ### Board principal activities for the year ended 30 June 2022 The Board held seven scheduled meetings during the year and a meeting to discuss strategy. The principal activities held by the Board during the financial year were as follows: Strategy Business/operational – Received an update from the Executive Committee on the – Received updates on the progress of our key contracts and progress of the implementation of the Strategy including projects, and order books ESG, people, IT and digital strategies and culture change – Received regular updates on our Health and Safety metrics, within each business unit IT performance – Monitored progress against the medium-term value – Received regular updates on the progress of our Performance creation plan Excellence workstreams – Undertook deep dives into certain business units to understand their challenges, opportunities and meet the management team – The Board received an in-depth update on Health and Safety matters including legislative and market updates and key trends Financial Leadership and people – Approved the full-year results and the Annual Report and – Received updates on the Group’s people agenda including financial statements for the 2021 financial year progress on diversity and inclusion, Expect Respect – Approved the half-year results for the 2022 financial year campaign, employee engagement surveys, and development – Agreed the Viability Statement as disclosed in the and talent programmes Annual Report – The Board received training on diversity and inclusion with – Approved the going concern basis of accounting in particular focus on racial and ethnic diversities preparing the half-year and full-year results – Approved the Group’s Tax Strategy statement – Approved the budget for the 2023 financial year – Regularly reviewed the Group’s financial performance and forecasts Internal control and risk management Governance and stakeholders – Considered and agreed the Group’s risk appetite and – Received feedback from institutional investors and analysts principal risks – Approved the Modern Slavery Statement Governance Financial statementsStrategic reportOverview Other information – Assessed the effectiveness of our internal control and risk – Received updates on our whistleblowing programme and management systems compliance matters – Received regular updates from our Investor Relations team on the views of our shareholders and received an update on capital markets from our brokers as part of its Strategy day – The Board completed the Code of Conduct and Share Dealing training programme Engagement activities with other key stakeholders are set out on pages 32–35 in the Strategic report. How the Board took account of these engagements and the matters set out in section 172 of the Companies Act 2006 in Board discussions and decision- making are set out on page 90. ### Board and Committee meeting attendance Details of attendance by each Director at the principal Board meetings during the financial year are as follows: Director Board Matthew Lester 8/8 Alison Atkinson 8/8 Justin Atkinson 8/8 Andrew Davies 8/8 Simon Kesterton 8/8 Dame Heather Rabbatts 8/8 Clive Watson 8/8 In addition, there were two unscheduled Board calls during the year. Attendance at Board Committee meetings is set out in the respective Committee sections. Kier Group plc | Annual Report and Accounts 2022 99 Corporate governance continued – Promptness of payments to suppliers ### Board evaluation – Attitudes to regulators, internal and external auditors The Board made good progress on the recommendations and and compliance agreed areas of focus from last year’s externally facilitated – Information from internal audit on the impact of policies review. These include appointment of a further Non-Executive and processes. Director, site visits by Non-Executive Directors, succession planning for Board and Executives and enhancing diversity The Board also received updates on the progress of the and inclusion. The Board’s work on these areas is reported behavioural programme that was launched during the year. throughout the Corporate Governance report. ### Whistleblowing 2022 Board evaluation In order that employees can report any matters of concern in This year’s Board evaluation took the form of a questionnaire confidence, the Group makes available an externally-hosted, and feedback was sought from all the Board members. The confidential whistleblowing helpline, provided by Safecall. questionnaire sought input on a range of matters including During the year, the Board reviewed reports which provided culture, engagement with stakeholders, effective oversight of details of the issues reported to the helpline and how targets and objectives, quality of discussion and papers. Please management had investigated them. There were 40 calls made see pages 106, 111, 113 and 130 for information about the in FY22 (FY21: 48). The reduction is primarily due to the effectiveness evaluation of each of the Committees conducted decreased number of employees following the sale of Kier this year. Living and a general downward trend following the pandemic. The outcome of the evaluation was discussed by the Board No issues which were material in the context of the Group and showed that the Board is operating well. The review were reported to the helpline or via other means during the identified areas that could improve the Board’s performance year. The Chairman will personally be informed of any issues such as continued focus and monitoring of the delivery of our raised concerning any members of the Board or senior medium-term value-creation and plan and strategy; and management, even if not ordinarily qualifying as being regarded succession planning. as material, noting that there were no such cases to be advised of in FY22. ### Culture The Board recognises the important role that it plays in ### Conflicts of interest assessing and monitoring the Group’s culture, so as to ensure The Board has a number of measures to manage conflicts of that policy, practices and behaviour throughout the Group are interest so as to ensure that the influence of third parties does aligned with its purpose, values and strategy. The Board not compromise or override its judgement. For example, the receives updates and monitors the delivery of each of the five Board’s agreement is required before a Director may accept Performance Excellence workstreams – People, Processes, any additional board commitments, whether paid or unpaid, Project Execution, Cash Management and Future of Work. so as to ensure that potential conflicts of interest are identified As part of the Strategy Day, the Board was updated of the at an early stage and that the relevant Director will continue to evolution of culture change within each business unit. be able to dedicate sufficient time to the Group. The Chief People Officer regularly attended Board meetings to ### Annual General Meeting inform the Board of people matters and assist the Board with its oversight of culture in the Group. The reports to the Board (via The AGM gives all shareholders the opportunity to ask HR or in other reports such as the Chief Executive’s reports) questions of the Board. The details of the 2022 AGM are set included matters relating to culture such as: out in the Notice of the AGM. Votes received in respect of each – Employee pulse surveys resolution put to the AGM, together with the number of – Turnover and absenteeism rates abstentions, are announced through a regulatory information – Training data service and published on Kier’s website. Shareholders may – Senior recruitment, reward and promotion decisions submit proxy votes and any questions either electronically or – Whistleblowing, grievance and ‘speak-up’ data by post. – Board interaction with senior management and workforce – Health and safety data 100 Kier Group plc | Annual Report and Accounts 2022 ## Governance ## in action: ## HS2 Board visit Excavation to 30 June 2022 ## 2 ## 9 million m equivalent to 3,600 Olympic-sized swimming pools Engagement with community during the year Governance Financial statementsStrategic reportOverview Other information ## 5,000 people over 650 events CO 2 savings achieved (against a 50% target) ## 33% Kier Group plc | Annual Report and Accounts 2022 101 Corporate governance continued ## Site visits: ## Engaging with ## our people Due to the nature and locations of the business and that Kier’s workforce comprises individuals with a wide range of skills and experiences, the Board concluded that each Board member has responsibility for engaging with the workforce and subsequently reporting back to the Board (both directly and via the Chief People Officer’s report). The Board was pleased that it was able to resume face-to-face meetings with our workforce following difficulties due to COVID-19 last year. During the financial year, the Chairman and Non-Executive Directors undertook a total of 20 visits. 102 Kier Group plc | Annual Report and Accounts 2022 These visits are structured in a way to allow the Directors to get an overview of the project, speak directly to the workforce by way of question-and-answer sessions and provide visible leadership to the workforce on site. The Board had the opportunity to listen to employees’ views on a wide range of areas such as Kier’s performance, visibility of leadership, impact of our safety and wellbeing programmes, diversity and inclusion initiatives and talent development programmes. Some of the Chairman’s site visits also took the form of two-day visits to a regional location, which included presentations from the regional business team on their recent projects, performance, challenges and opportunities in the region and deeper engagement with a small group of the workforce and the management team. Governance Financial statementsStrategic reportOverview Other information Kier Group plc | Annual Report and Accounts 2022 103 ## Risk Management and ## Audit Committee report ### Committee membership and attendance Name Attendance Clive Watson (Chairman) 4/4 Justin Atkinson 4/4 Alison Atkinson 4/4 Dame Heather Rabbatts 3/4 * Dame Heather Rabbatts was unable to attend a meeting due to a prior commitment. The Chief Executive, Chief Financial Officer, Commercial Director and Group Legal and Compliance Director also attended the Committee’s meetings during the year. The secretary of the Committee is the Company Secretary. ## “The Committee has ### Key activities during the year ## continued to oversee – Reviewed the Group’s financial results prior to announcement, external ## the development of audit findings and ancillary matters including Going Concern and the Viability Statement ## the Group’s risk – Reviewed the assessment of the Group’s system of risk management and internal control ## management and – Evaluated the effectiveness of the internal and external auditors ## internal control – Reviewed the progress against the FY22 internal audit plan, approved the FY23 internal audit plan ## systems and continued – Received risk management updates, reviewed the corporate risk register and reviewed and approved the Kier risk maturity assessment ## its usual review of – Reviewed and approved the Group’s tax strategy – Received regular updates on fraud prevention and detection processes ## accounting judgements ## and key disclosures.” ### Role of the Committee Clive Watson – Monitoring the Group’s financial reporting procedures and the external audit Chairman of the Risk Management and – Reviewing the integrity of the Group’s financial statements and challenging Audit Committee significant financial and other judgements – Reviewing the adequacy and effectiveness of the Group’s risk management and internal control systems – Advising the Board on the emerging and principal risks facing the Company (including those that would threaten its business model, future performance, solvency or liquidity and reputation), the identification of emerging risks and the management and mitigation of such risks – Reviewing the effectiveness of the Group’s Internal Audit function, agreeing the list of audits to be conducted each year and reviewing the results of those audits – Reviewing the independence and objectivity of the external auditor, assessing its effectiveness and approving the provision of non-audit services The Committee undertakes these significant tasks on behalf of the Board and provides independent oversight on financial matters. This also frees the Board’s available time to focus on strategic matters in line with its duties and responsibilities and matters reserved. The Committee’s Terms of Reference were updated during the year. Further details of the Committee’s responsibilities can be found on the Company’s website. 104 Kier Group plc | Annual Report and Accounts 2022 Clive Watson Chairman of the Risk Management and Audit Committee Dear shareholder Composition of the Committee I am pleased to present the work of the Risk Management and In line with UK Corporate Governance Code recommendations, Audit Committee (‘RMAC’) for the year. the Board has confirmed that all members of the Committee are Non-Executive Directors and have been appointed to the The Committee has continued its usual review of accounting Committee based on their individual financial and commercial judgements and key disclosures on key accounting matters experience. The Committee members provide shareholders including contract accounting and adjusting items whilst and other stakeholders with assurance that oversight, and overseeing the effectiveness of our external auditor. During the where appropriate, challenge is appropriately provided. As a year, the Group had engagement with the FRC in relation to chartered accountant and having formerly been the Finance their audit of the Group’s FY17 financial statements. The Director of a listed company together with my experience as the Committee will continue to monitor and challenge the audit Chair of the Audit Committees of other listed companies, I am quality, the effectiveness of the external audit and PwC’s considered by the Board to have recent and relevant financial performance. Information on the audit effectiveness, tenure experience in accounting and auditing. In addition, Justin and tender is set out on pages 107 and 109. Atkinson is also a qualified accountant. The Group’s systems of risk management and internal control During the year under review, the following have also attended continue to develop during the year under the co-sourced Committee meetings: model with Deloitte. Management has been working on the – the Chairman, the Chief Executive, Chief Financial Officer implementation of controls and processes to strengthen our and the Group Commercial Director; risk, controls and assurance framework and whilst significant – the Group Financial Controller together with representatives progress has been made, the work will continue in the from PwC as external auditors; and Governance Financial statementsStrategic reportOverview Other information coming year. – the Group Head of Risk and Internal Audit, other members of the Risk and Internal Audit function and representatives Our role has expanded to monitor the Group’s fraud prevention from Deloitte, the Group’s co-sourced internal audit and detection processes and in light of the current geopolitical services provider. climate, this will remain an area of focus in the forthcoming year. The Committee will additionally continue to monitor the Outside of the formal meetings, the Chair of the Committee held progression of the Audit Reform Bill that was announced in discussions with members of management (including the Chief May 2022 and the impact that this legislation will have on the Financial Officer and the Group Financial Controller) and with overall Group. our external auditors. Information on the following pages sets out in detail the The Committee meetings also provide the opportunity for the composition of the Committee, its activities and priorities Non-Executive Directors to meet privately without the Executive going forward. I hope that you will find this report useful in Directors present and no concerns were raised. understanding our work. Clive Watson Chairman of the Risk Management and Audit Committee Kier Group plc | Annual Report and Accounts 2022 105 Risk Management and Audit Committee report continued Annual evaluation Annual review of the effectiveness of the systems The Committee has made good progress in the of risk management and internal control recommendations to implement the areas of development from The Board conducted its formal annual review of the the prior year’s externally-facilitated evaluation that included the effectiveness of the Group’s systems of risk management and rigour and structure of papers and to increase the time internal control following management’s assessment of the key allocated for Risk and Internal Audit matters as the Group elements of these systems, taking into account the FRC’s continues to develop the ‘three lines of defence model’. Guidance. This year’s review covered existing risk management practice and processes; risk appetite and culture; consideration This year’s evaluation was performed by way of questionnaire of the review of the operation of the three lines of defence; the and feedback was sought from the Committee members and Operating Framework and its policies, minimum standards and regular attendees. The outcome of this evaluation was procedures in relation to managing technical, commercial, legal discussed by the Committee. It was concluded that the and financial risks; compliance controls; financial monitoring, Committee is operating effectively but agreed to maintain focus reporting and internal control processes. It was concluded that, on improving discussion on risk management to get further overall, the systems of risk management and internal controls insights. The tender process for external audit services will also are functioning effectively. be an area of focus for the Committee. Internal audit Systems of risk management and internal control During the year, the Committee monitored progress against The Board has ultimate responsibility for the Group’s systems the FY22 internal audit plan and the integration of Deloitte as of risk management and internal control, including those co-source provider. Before each audit, the scope of review, established to identify, manage and monitor risks. The Board timetable and resources required were agreed with has delegated the responsibility for overseeing management’s management. Updates were provided to management and implementation of those systems to the RMAC. members of the Committee on the status of ongoing audits at Committee meetings during the year. The Group Head of Risk and Internal Audit and the Commercial Director report to the RMAC on strategic risk issues and The audits undertaken in FY22 covered a range of areas, oversees the Group’s risk management framework. The Group including IT outsource, financial reporting controls, retention Risk Committee provides executive management leadership of workforce, environmental sustainability framework and and oversight of the Group’s risk management framework and procure-to-pay financial controls. Other elements of the Group’s to act as a link between the RMAC and the business in relation internal control environment were selected for review so as to to the management of risk. assess the Group’s exposure to its principal risks and uncertainties and develop ways to remedy any identified Information on how the Group identifies, manages and monitors weaknesses in the Group’s systems of risk management and risks, including a description of the principal aspects of the internal control. Results from these audits were discussed Group’s systems of risk management and internal controls and by the Committee, together with the follow-up actions taken the risk management framework, is set out on pages 72–83. by management. During the year, the Committee has overseen the continued The Committee received, considered and approved the annual development of the Group’s systems of risk management and internal audit plan, which was constructed using a risk-based internal control, together with the development of the Internal approach with input from senior management and previous Audit function under the co-sourced model with Deloitte that audit findings. The audits will focus on a number of areas was introduced in FY21. Management has been working on the including environmental sustainability as we develop our implementation of controls and processes to strengthen our Sustainability Framework, diversity, equality and inclusion risk, controls and assurance framework in view of the upcoming (to include the protection of human rights) and specific Audit Reform Bill. Whilst significant progress has been made, aspects of the Group’s financial controls. the work will continue in the coming year. A review of the ‘three lines of defence model’ was undertaken and the Committee received updates on how it has been implemented in our risk management and the work undertaken to improve the second line of defence. 106 Kier Group plc | Annual Report and Accounts 2022 Internal Audit function effectiveness External audit To assess the effectiveness of the Internal Audit function, FY22 audit members of the Committee and senior management completed The Committee has taken the following key steps in overseeing a questionnaire addressing various aspects of the Internal Audit the FY22 external audit by PwC: function’s performance. The feedback was reviewed by the – Reviewed the PwC FY22 audit plan, resources and audit risk Committee. The Committee concluded that, overall the Internal assessments; Audit function was operating effectively within its remit. – Agreed the materiality level for the audit; – Reviewed and agreed the timetable for the Annual Report Financial reporting and audit plans, including the key areas of focus; The Group has clear policies and procedures which are – Agreed and approved the final audit fee; designed to ensure the reliability and accuracy of financial – Discussed and reviewed the Going Concern and reporting, including the progress for preparing the Group’s Viability Statement; interim and annual financial statements. The Group’s financial – Discussed and reviewed the audit findings, significant issues reporting policies and procedures cover financial planning and and other accounting judgements; reporting, preparation of financial information and monitoring – Approved the representation letter, following a review and control of capital expenditure. The Group’s financial by management; and statements preparation process includes reviews at business – Noted PwC’s independence and agreed to propose the and Group levels. The Committee reviewed the accounting reappointment of PwC at the 2022 Annual General Meeting. judgements, assumptions and estimates as set out in the papers prepared by management and determined, with the External auditor effectiveness and audit quality input from the external auditor, the appropriateness of these. The Code requires the RMAC to undertake an annual The significant issues considered by the Committee in relation assessment of the effectiveness of the external audit. This was to this year’s financial statements are listed on page 108. performed through the use of a questionnaire which was issued to key stakeholders, including members of the Committee and Engagement with the FRC those involved in the FY21 audit. During the year, the FRC published their Decision Notice following an investigation into PwC’s FY17 audit of the Group. The review and qualitative assessment focused on feedback Kier had the opportunity to engage with the FRC prior to its and insights, planning and communication, and the quality and publication. PwC updated the Committee on the background experience of the audit team. The Committee considered the as to why this matter was investigated, the findings contained feedback received and its wider knowledge and concluded that in the Decision Notice, some of the remedial actions PwC has the external audit process for the FY21 financial year was already taken around these issues and the further next steps effective and that PwC provided an appropriate independent which PwC has agreed with the FRC. challenge to management. As part of this review, it was noted that lessons had been learnt from the FY20 effectiveness assessment and that the areas that had been identified as areas of focus had largely been Governance Financial statementsStrategic reportOverview Other information delivered upon through the FY21 audit. PwC and management jointly identified a number of areas of focus which were used to develop an audit improvement plan for the FY22 financial year. The Committee will formally assess PwC’s performance in relation to the FY22 audit following its completion. Kier Group plc | Annual Report and Accounts 2022 107 Risk Management and Audit Committee report continued ## Significant matters and accounting judgements relating to the financial statements The Committee reviewed the following significant matters and other accounting judgements relating to the 2022 financial statements: | Contract accounting | The Group has significant long-term contracts in the Infrastructure Services and Construction businesses. Accounting for long-term contracts has continued to be a key area of focus for the FY22 audit. An assessment of the likely profit on long-term contracts requires significant judgement because of the inherent uncertainty in preparing estimates of the forecast costs and revenue. Recoverability of work-in-progress on long-term contracts involves significant estimates, including an estimate of the end-of-life outcome of the projects. During the year, the Board reviewed management's latest assessment of the forecast costs of, and revenues from, certain of the Group's long-term contracts and the Committee discussed PwC's audit of management's assessment of the performance of certain of the Group's contracts so as to satisfy themselves as to the positions taken in the 2022 financial statements. | | --- | --- | | Impairment of goodwill | The review of the carrying value of goodwill in Infrastructure Services was identified as a key area of focus for the FY22 audit. Having discussed the review with management and PwC, the Committee agreed that, although there was no requirement to take an impairment charge with respect to the Infrastructure Services business, specific disclosures would be included in the notes to the 2022 financial statements as to the potential sensitivity of the available headroom in the impairment model to changes in key assumptions. | | Presentation of the Group's financial performance | As stated in its accounting policy, the Group has an alternative performance measure of 'adjusted operating profit' which is consistent with the measures used by management to assess the Group's financial performance and aid the understanding of the performance of the Group. The Committee i) reviewed the policy wording during the year and confirmed its ongoing application; ii) reviewed the individual items excluded from adjusted operating profit, and iii) agreed the classification of, and disclosures relating to the adjusting items presented in the 2022 financial statements, ensuring that APMs are presented with equal or lesser prominence than statutory figures and on a consistent basis year-on-year. | | Going concern/Viability Statement | In conjunction with PwC, the Committee reviewed and assessed the work undertaken to support the adoption of the going concern basis for the 2022 financial statements and the viability statement. In particular, the Committee and the Board reviewed the Group's cash flow forecasts over the period ending 31 December 2023, in assessing the going concern basis; and over a period of three years from 30 June 2022 for the viability statement, which are included in the Group's three-year strategic plan together with the assumptions on which such forecasts are based. The Committee also considered the stress-testing of these forecasts for severe but plausible downside scenarios that could have an impact on the Group and the availability of mitigating actions, in the event that such scenarios occurred. For further information on the work to support the going concern basis of preparation for the 2022 financial statements, please see 'Going concern' on pages 153 and 154 and further information on the work to support the viability statement can be found on page 89. | | Carrying value of investments in Kier Limited | In light of the carrying value of the Company's investment in its principal operating subsidiary, Kier Limited, relative to the Company's market capitalisation, the carrying value of this investment was identified as a key area of focus for the 2022 audit. Following PwC's review, the Committee concluded that no impairment was required against the carrying value of the investment held by the Company in Kier Limited. | | Retirement benefit obligations | The Group operates a number of defined benefit pension schemes. The Committee reviewed the assumptions made by management in determining the defined benefit surplus at 30 June 2022. This included considering the advice from independent qualified actuaries, together with the views of PwC's pension specialists, and concluded that they were appropriate. | 108 Kier Group plc | Annual Report and Accounts 2022 ### Provision of non-audit services During the year, PwC provided certain non-audit services to the Group. The Committee monitors these services to ensure that the associated fees are not of a level that would affect PwC's independence and objectivity. The Chief Financial Officer had authority to approve up to £10,000 on individual assignments. However, following an annual review, the Committee amended the approval limit to £50,000. For non-audit fees above £50,000, these must be approved in advance by the Committee and if approval is required urgently, this may be provided by the Chair of the Committee with subsequent reporting of the approval to the Committee. The Company's non-audit services policy reflects the FRC's revised Ethical Standard for Auditors (2019). The policy provides that the Committee expects that the level of non-audit fees in any one financial year will not exceed 15% of the audit fees payable in relation to the previous year. The Committee may approve non-audit fees in excess of this figure, up to 70% of the average of audit fees paid in the previous three years, subject to the Committee being satisfied that (i) there is clear evidence that the auditor's skills and experience make it the most appropriate firm to provide the relevant services and (ii) the auditor's independence and objectivity would not be compromised by the appointment. The total non-audit fees paid to PwC in FY22 were £152,000. These non-audit fees related to PwC's work in relation to their review of the Group's 2022 half-year results. The total non-audit fees subject to the FRC's 70% non-audit fee cap, which excluded amounts attributable to public reporting workstreams required by legislation, was £152,000. This represented 5% of the average audit fees over the previous three years. ### External auditor independence The Committee concluded that PwC's independence and objectivity were not compromised by the provision of these services. As part of the FY22 audit, PwC confirmed that it was independent within the meaning of applicable regulatory and professional requirements. Taking this into account and having considered the steps taken by PwC to preserve its independence, the Committee concluded that PwC continues to demonstrate appropriate independence and objectivity. A resolution to re-appoint PwC as the external auditor will be proposed at the 2022 Annual General Meeting. ### Tenure PwC was appointed as external auditors in 2014 for the financial year ended 30 June 2015 following a competitive tender process. In accordance with audit regulation, PwC operate a policy of rotating the Audit Partner every five years. Andrew Paynter was appointed as the lead audit partner in January 2019. Under the current tenure rules, the last year that PwC can audit the financials without a formal competitive tender process having taken place is FY24. Accordingly, the Committee has determined that it is in the best interests of shareholders to commence a competitive tender of external audit services, with the tender to take place in 2023 following which a recommendation would be proposed at the Company's 2023 Annual General Meeting. For this financial year, the Committee considers that the Group has complied with the Competition and Markets Authority's Statutory Audit Services for Large Companies Market Investigation (Mandatory Use of Competitive Tender Processes and Audit Committee Responsibilities) Order 2014. There are no contractual obligations that restrict the Committee's choice of external auditor. ## 2022 Annual Report – fair, balanced and understandable statement The Board and Committee discussed the 'fair, balanced and understandable' statement and the work undertaken to support it which included: | Who | How assurance was provided | | --- | --- | | Annual Report Working group | The working group comprised individuals involved in the drafting of the Annual Report Material disclosure items were discussed by the working group. The working group members reviewed the sections drafted by them in light of the 'fair, balanced and understandable' requirement. | | Key contributors to the Annual Report | Certain key contributors to sections of the Annual Report (for example managing directors and finance directors within the business) were asked to confirm the accuracy of the information provided. | | External review | Feedback was provided by PwC, and Willis Towers Watson, who reviewed the Directors' Remuneration report, to enhance the quality of our reporting. | | The Committee and the Board | Drafts of the Annual Report were circulated to individual members of the Board, the Committee and the full Board for review. | The Directors consider that this Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group's position, performance, business model and strategy. Overview Strategic report Geometries Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 109 ## Environmental, Social ## and Governance ## Committee report ### Committee membership and attendance Name Attendance Alison Atkinson (Chair) 3/3 Justin Atkinson 3/3 Dame Heather Rabbatts 3/3 Clive Watson 3/3 The Chairman, Chief Executive, Chief Financial Officer, Chief People Officer, Commercial Director and Group Legal and Compliance Director also attended the Committee’s meetings during the year. The secretary of the Committee is the Company Secretary. ## “Our new Health, Safety ### Key activities during the year ## and Wellbeing strategy – Reviewed the Group’s approach and re-alignment of the health, safety, ## has been developed wellbeing and environmental and social sustainability functions and agendas to establish better focus to our purpose, core strategic objectives ## which ensures safety and client drivers – Monitored the performance of our safety targets and oversaw the launch of ## remains our licence the revised health, safety and wellbeing strategy along with the behaviour ## to operate, helping culture programme – Reviewed the progress on our wellbeing programmes ## to maintain Kier as a – Reviewed the governance framework concerning ethical business practice – Reviewed our response to TCFD disclosure requirements and our climate- ## safe, sustainable and related risk assessment and opportunities ## attractive place to work.” ### Role of the Committee Alison Atkinson Chair of the ESG Committee – Reviewing the Group’s strategy and policies with respect to environment, social and governance matters – Reviewing the initiatives and monitoring performance against the health, safety, wellbeing and environmental and social sustainability targets – Reviewing the corporate policies and monitoring their implementation relating to responsible and ethical business practice and our proactive risk management approach – Reviewing external reporting of sustainability performance The Committee’s Terms of Reference were updated during the year. Further details of the Committee’s responsibilities can be found on the Company’s website. 110 Kier Group plc | Annual Report and Accounts 2022 Alison Atkinson Chair of the ESG Committee Dear shareholder support to our people. Wellbeing is also one of our FY23 This is my first ESG Committee report following the broadening Performance Excellence workstreams and this will be a of the Health and Safety terms of reference to include wider continued area of focus in the 2023 financial year. environmental and social matters that are fundamental to Kier’s purpose. While good progress has been made in transforming The Committee was kept informed on the excellent activities the Group safety performance, the Accident Incident Rate under the social element of the ESG agenda such as our work on (‘AIR’) has remained static at best. To further improve safety, our communities, Kier Foundation – an independent registered targeting a zero AIR, a focus on behaviours, health and charity, apprenticeship schemes, sustainable procurement and wellbeing is fundamental to improvements. the implementation of our new social value calculator, Thrive, and our progress against the achievement of our social value target. During the year, the SHE (Safety, Health, Environment) and Social functions were restructured and re-aligned to report into the Chief The Committee received a presentation, from the consultant People Officer. This aligns to our Responsible Business approach who supported Kier, on our response to TCFD (Task-force on and links our people, health, safety and wellbeing, environmental Climate-related Financial Disclosure), which came into force and social agendas. These changes ensure greater alignment this year. The integration of the climate-related risks and of strategic priorities and a focus on driving better employee opportunities into our overall risk management and action plans wellbeing and engagement. Our new Health, Safety and Wellbeing to mitigate the risks will be monitored by the Committee. Strategy has been developed to place safety as our cornerstone of ESG and remains our licence to operate. It integrates our Data gathering of our scope 3 emissions took place during the behaviours and wellbeing programmes that complement our financial year which will enable Kier to have a baseline of our full people strategy. This maintains Kier as a safe, sustainable and carbon footprint to support KPI management and monitoring. Governance Financial statementsStrategic reportOverview Other information attractive place to work. Under this restructure, the safety agenda The Committee will continue to monitor progress against the was reviewed. We also took a holistic view of forward-facing achievement of our environment targets and ambition to threats and opportunities to ensure the basics are in place, achieve net zero by 2045. understood and measured. One of the outcomes from this review was the launch of our culture programme designed to create an The Group Legal and Compliance Director oversees the environment where our people feel empowered and where we Governance element of this Committee’s remit. This primarily focus on our people’s physical and mental safety and wellbeing. focuses on ethical business practice such as the business assurance framework encompassing certifications, policies Principal activities during 2022 financial year and procedures, Code of Conduct and Modern Slavery. The Group’s 12-month rolling Accident Incident Rate (‘AIR’) of 115 represents an increase of 9% compared to 105 in FY21. Annual evaluation This AIR rate is calculated by headcount and therefore volume Suggestions from the prior year externally-facilitated evaluation adjusted and equates to 28 RIDDOR incidents in FY22 were taken forward, notably focused on Kier’s culture around compared to 29 in FY21. This further demonstrates the static safety and sustainability with supporting papers to include forward- nature of our RIDDOR incident rate currently. While we are looking elements and providing broader context to the issues. disappointed with this plateau, our safety performance continues to be an area of focus and we do still retain a solid This year’s evaluation was performed by way of a questionnaire and safety record that is c.58% better than industry benchmark. feedback was sought from its Committee members and regular attendees. The outcome of this evaluation was that although a Our All Accident Incident Rate (‘AAIR’) of 316, which captures relatively new Committee, it is making good progress and areas for all incidents, represents a decrease of 5% when compared to improving the Committee’s performance next year were identified. FY21. This reduction demonstrates our wider commitment to reducing all incidents across our projects. A key focus Conclusion throughout this coming year will be the review of our metrics For the coming year, the Committee will continue to monitor the and targets. Ensuring a greater emphasis on leading indicators implementation of the ESG strategy (under the health, safety and so that action plans can be developed to mitigate all incidents. wellbeing strategy and Building for a Sustainable World Framework), as part of our reframed responsible business approach. As set out Much focus has been given to our wellbeing programme this in the Chairman’s statement, we will oversee the development year as we look to develop a broader proposition incorporating of a plan with milestones to deliver our ESG ambition and align reward, benefits and occupational health in Kier. Investing in the ESG performance targets with our remuneration policies. our people’s health and wellbeing to ensure they stay healthy, energised, valued and supported will in turn drive strong performance, including across our safety metrics. The Alison Atkinson Committee received updates on the activities to strengthen Chair of the ESG Committee Kier Group plc | Annual Report and Accounts 2022 111 ## Nomination Committee ## report ### Committee membership and attendance Name Attendance Matthew Lester (Chairman) 2/2 Alison Atkinson 2/2 Justin Atkinson 2/2 Andrew Davies (from November 2021) 2/2 Dame Heather Rabbatts 2/2 Clive Watson 2/2 The Chief People Officer attended the Committee’s meetings during the year by invitation. The secretary of the Committee is the Company Secretary. ## “The Committee will ## continue to oversee the ### Key activities during the year ## succession planning – Led the search for the appointment of Chris Browne as a Non-Executive ## for the Executive Director – Long-term succession planning for Executive Directors and Executive ## Committee members Committee members – Deepened its understanding of the development of a diverse pipeline for ## and established succession of Executive Committee members ## succession plans for ## Board changes.” Role of the Committee – Providing a formal, rigorous and transparent procedure for the appointment Matthew Lester of new Directors to the Board Chairman of the Nomination Committee – Maintaining an effective succession plan for the Board and senior management – Overseeing the development of a diverse pipeline for succession to these bodies The Committee’s Terms of Reference were updated during the year. Further details of the Committee’s responsibilities can be found on the Company’s website. Direct reports to the Executive Committee that are women ## 37% 112 Kier Group plc | Annual Report and Accounts 2022 Matthew Lester Chairman of the Nomination Committee Dear shareholder The diversity policy has been implemented through During the 2022 financial year, the Nomination Committee consideration of shortlisting candidates and instructing search focused on the long-term succession planning for Executive firms to take diversity into account for shortlisting before putting Directors and Executive Committee members. An overview of candidates forwards. Accordingly, candidate lists reflected the the talent process which Kier undertakes annually was received benefits of diversity and priority was given to search firms which and was endorsed as being thorough and fit for purpose. have signed up to the Voluntary Code of Conduct for Executive The improvement in the diversity of the internal talent pool was Search Firms. noted and work is continuing in this area; further information on the journey of our Diversity and Inclusion roadmap is set out The Board is conscious of the FTSE 350 target of 33% women on pages 56 and 57. representation on boards and leadership teams and also notes the upcoming disclosure requirements and target for 40% of The Nomination Committee led the search for the appointment women on boards and the recommendations requiring females of Chris Browne as a Non-Executive Director during the year to occupy at least one of the roles of Chair, Senior Independent and she will join the Board with effect from 15 September 2022. Director, Chief Executive and Chief Financial Officer. The Chris has in-depth experience in commercial and operational Committee will consider these further in FY23. As at the date of areas including ESG and digital topics which are particularly this report, 29% of the Board, 27% of the Executive Committee valuable to the Board currently. Further information on the and 37% of direct reports to the Executive Committee are women. appointment process is set out below. The Board’s policy on diversity and inclusion requires the In relation to senior management, the Committee noted the Company to develop and implement policies, programmes appointment of Andrew Bradshaw to the Executive Committee and initiatives which are designed to implement diversity and Governance Financial statementsStrategic reportOverview Other information as Group Managing Director, Utilities following the retirement inclusion at all levels of the organisation, including at senior of Barry McNicholas; and the appointment of Helen Redfern management level. as Chief People Officer in recognition of her expanded responsibilities for Kier’s health, safety and wellbeing and Appointment process of Chris Browne environmental and social sustainability strategies, alongside The Chairman led the search together with support from the our diversity and inclusion roadmap. Chief People Officer and the Company Secretary. Egon Zehnder, a signatory to the Voluntary Code of Conduct for In the year ahead, the Committee will continue to oversee the Executive Search Firms, was instructed to identify a diverse succession planning for the Executive Committee members long-list of potential candidates for the non-executive role and ensure that we have a steady supply of talent for executive search in the year. A sub-set of the Committee comprising the positions and established succession plans for Board changes. Senior Independent Director and the Chief Executive also It will monitor and support the specific development plans for supported the search process. The outcome of which key individuals, which include a programme for the Non- culminated in the recommendation to the Board to approve Executive Directors to get to know these people better. the appointment of Chris Browne as a Non-Executive Director. Her biography can be found on page 95. Diversity policy The Company has a Board diversity policy. Diversity includes Annual evaluation diversity of skills, background, knowledge, experience and This year’s evaluation was performed by way of a questionnaire perspective, amongst a number of factors. In particular, the and the output was reported to the Committee. This concluded Board recognises the role that gender diversity has to play in that the Committee is increasingly effective and has very good contributing to the Board’s perspective and decision-making. visibility of the strengths and challenges for succession. As part of the diversity policy, Kier will develop and implement policies, programmes and initiatives designed to promote The Committee reviewed the performance of the Chief diversity and inclusion at all levels of the organisation, with a Executive and reported its conclusions to the Remuneration clear goal of having a workforce that is representative of society, Committee. The Senior Independent Director, led the review including at a senior management level. of the performance of the Chairman which included getting feedback from the Board and the Company Secretary. The outcome of the review was reported to the Chairman. Matthew Lester Chairman of the Nomination Committee Kier Group plc | Annual Report and Accounts 2022 113 ## Directors’ Remuneration ## report ### Committee membership and attendance Name Attendance Dame Heather Rabbatts (Chair) 3/3 Alison Atkinson 3/3 Justin Atkinson 3/3 Matthew Lester 3/3 Clive Watson 3/3 The Chief Executive, the Chief Financial Officer and the Chief People Officer also attended the meetings during the year. Willis Towers Watson, independent adviser, was also in attendance. The secretary of the Committee is the Company Secretary. ## “The Committee’s ### Key activities during the year ## approach to ## remuneration seeks to – Consulted with key shareholders following the voting outcome of the 2021 AGM ## support the strategy – Assessed and approved the FY22 bonus payment and vesting of the 2019 LTIP share awards to ensure an outcome that was fair and robust ## and promote long- – Reviewed and approved the performance conditions of the FY23 bonus award and share awards to ensure they are sufficiently stretching ## term success, aligned – Approved the FY23 base salary of the Executive Directors and senior ## to our purpose and management to ensure they align with the workforce remuneration – Kept up to date on the market practice and proxy advisers’ and ## values and clearly shareholders’ views on remuneration matters ## linked to the successful ## delivery of the Group’s Role of the Committee ## long-term strategy by – Setting the remuneration policy relating to the Executive Directors and the Non-Executive Directors, for approval by shareholders; ## the Executive Directors – Setting the remuneration of the Chair, the Executive Directors and senior ## and Senior management; – Reviewing and aligning workforce remuneration and related policies; ## Management.” – Approving the design of, and determining targets for, any annual performance-based bonus schemes applicable to the Executive Directors and senior management; Dame Heather Rabbatts – Approving annual bonus payments made to the Executive Directors and Chair of the Remuneration Committee senior management; – Approving the design of, and determining the performance measures for, all share or share-based plans applicable to the Executive Directors and senior management; – Reviewing the vesting of all share or share-based plans applicable to the Executive Directors and senior management; – Considering payments to former Directors to ensure that they are within the terms of the remuneration policy; – Engaging with our investors on remuneration matters and maintaining awareness of broader investor expectations and best practices; – Appointing remuneration consultants and setting their terms of reference; and – Determine the policy for pension arrangements for the Executive Directors and senior management. The Committee’s Terms of Reference were updated during the year. Further details of the Committee’s responsibilities can be found on the Company’s website. 114 Kier Group plc | Annual Report and Accounts 2022 Dame Heather Rabbatts Chair of the Remuneration Committee | Dear shareholder | Group performance | | --- | --- | | On behalf of the Board, I am pleased to present the annual | The Group’s FY22 results reflect a strong operational | | statement for the 2022 (FY22) financial year. | performance despite inflationary pressures: | – Delivered both an adjusted operating profit of £120.5m and The Directors’ remuneration report for FY22 is divided into three an increased margin of 3.7%; principal sections: – Net cash position of £2.9m at the end of the financial year; – This annual statement, which summarises the Committee’s – An increase in the order book of 27% to £9.8bn; and activities and decisions taken during the year; – Delivering against its medium-term value creation plan. – The annual report on remuneration, which provides details of the remuneration paid to the Board in the 2022 financial year Shareholder experience and to be paid in the 2023 financial year (FY23); and. Our share price has reduced during the second half of FY22 – A summary of the key elements of the remuneration policy, which we believe is due to wider economic concerns and world which was approved by 97.81% of our shareholders and events and doesn’t reflect the underlying performance of the subsequently adopted at the 2020 Annual General Meeting. business. The performance of the Group does demonstrate our strengthened financial position and significantly enhanced I am grateful for the opportunity to meet with many shareholders resilience. Whilst no dividend will be paid for this year, the FY22 over the course of the last year to discuss our executive financial performance is an important step towards enabling remuneration. Whilst we received support from a significant dividends to resume. number of our shareholders, including our largest, on the changes made to executive pay, we are acutely aware of the Employee experience sensitivities with this issue and shareholder feedback will Our business only operates and grows through the hard work Governance Financial statementsStrategic reportOverview Other information continue to form a key part of the Committee’s considerations. and dedication of our c.10,000 employees. During FY22 we introduced a range of industry-leading policies to support our In line with the commitments made to shareholders during the employees through life-events including increased pay for consultation, the deferred element of the FY22 net bonus maternity, paternity and shared parental leave, paid leave for payable to the Chief Executive is increased to 50% and no pay pregnancy loss, and the introduction of menopause support and increase is made to the Chief Executive for FY23. guidance. Further enhancements are being introduced in early FY23 to sick pay, life assurance and annual leave to ensure our As the Committee commences its review of the Remuneration policies are competitive as well as fair and equitable. Policy, we will be liaising with shareholders again in due course and details of the proposed policy will be set out in the Support for employee wellbeing is always an important area FY23 report. and has been magnified by cost of living pressures. A number of financial and wellbeing measures have been introduced to The Remuneration Committee reviews executive pay in the support employees including in the most underserved and context of the Group’s results and pay across the business and under-supported areas of healthcare, such as menopause, details of the pay increase for the Chief Financial Officer is set fertility, pregnancy, new parents, and men’s health. In addition, out below. As always, for the executives, the Committee our employee benefits offering has been enhanced to provide remains committed to the principle of pay for performance. more support to employees including easy access to financial support products. The Remuneration Committee carefully considered the experiences of our key stakeholders, as well as overall Group Following the introduction of the Real Living Wage to all of performance, when making decisions on executive remuneration. the Group’s direct employees in FY21, the Real Living Wage We have outlined below the key drivers of our decisions. Accreditation was achieved in FY22. From the start of FY23, the Real Living Wage is being extended to Kier’s contingent workers, in line with the plan developed. Kier Group plc | Annual Report and Accounts 2022 115 ## Directors' Remuneration report continued As part of driving forward our sustainability objectives, the Kier Green Car Scheme launched in FY22 and enables all employees to lease an ultra-low emission vehicle through a tax efficient salary sacrifice scheme. Everyone at Kier has a part to play in building an inclusive workplace. Our employee networks are a safe place for people to share their experiences and come together to drive Diversity & Inclusion across the business. The networks are open to all employees, fostering a culture of allyship. All our networks have executive sponsorship meaning that networks are empowered to drive Diversity & Inclusion at Kier. ### FY22 outcomes The annual bonus targets were adjusted operating profit (40%), the Group's free cash flow performance (40%), safety targets (10%) and personal objectives (10%). The personal objectives related to driving business simplification and enabling future growth through IT improvements, employee engagement and the wind down of completed overseas projects. The Committee has reviewed performance against the targets during year. When assessing outcome against the adjusted operating profit target, the Committee took into consideration a number of factors, including those set out in the section above. The adjusted operating profit target had been set at £115.1m which compared with actual achievement of £120.5m. The Committee considered this a good level of performance taking into account the economic issues in the second half of FY22 and was a fair reflection of performance. The Committee therefore agreed that it would be appropriate to award a payment of 100% of the maximum opportunity for this element of the bonus. When considering the outcome of the free cash flow target, the Committee took into account the achievement of £108.2m against the target of £103.2m. The Committee therefore agreed that it would be appropriate to award a payment of 72% of the maximum opportunity for this element of the bonus. The target reduction in the Group's accident incidence rate ('AIR') and all accident incidence rate ('AAIR') had not been achieved and therefore no payment for this element of the bonus would be made. It was noted that there had been an increase in incidents in specific areas of the business. All safety incidents recorded have some level of human factor attributed and the Group is undertaking a cultural programme to review the human focused approach to improve safety performance. As a business, safety standards remained good and significantly better than the HSE benchmark, but of course this is an area that the Board wants to see continuous improvement. The Committee also reviewed the extent to which the Executive Directors had satisfied their personal objectives (see page 121 for further information). The Executive Directors were awarded 100% of the maximum opportunity of this element of the bonus. The total bonus payment for the Chief Executive and Chief Financial Officer was 78.8% of the maximum opportunity. The Committee is satisfied that these payments reflect the performance of the Group and the Executive Directors during the year and noted that the bonus outcome is consistent with that for the broader employee population that are eligible to receive a bonus. For this bonus payment, one-half of net bonus payment received by the Chief Executive and one-third for the Chief Financial Officer will be in Kier shares with legal ownership deferred for three years. ### Vesting of LTIP award The targets for the LTIP award made in 2019 were Adjusted Earnings Per Share ('EPS') (50%), Total Shareholder Return ('TSR') (25%) and Net Debt:EBITDA (25%). Details of the performances measures are on page 122. The EPS target had previously been adjusted to take account of corporate transactions (see the 2021 Annual Report page 105). The FY22 EPS achieved was 16.8p and the Committee therefore agreed that this performance measure target element had been met in full. The TSR element which measured shareholder return against a comparator group had not achieved the minimum vesting level and no payment was due in respect of this element. The Committee indicated in its FY21 report that the performance of the Net Debt:EBITDA element would be assessed by the Committee at the end of the performance period to ensure the outcome is fair and robust, given the corporate transactions and management actions on debt that took place during the performance period. When considering the vesting outcome for this element, the Committee recognised that the target was set at the start of the implementation of a new strategy, shortly after the appointment of the Chief Executive and Chief Financial Officer. The Executive Directors led on the successful sale of Kier Living and the capital raise in 2021. In addition, significant improvements were made to the Group's financial position over the performance period, including: reduced bond usage; paying down the supply chain finance facility (Kier Early Payment Scheme); Group-wide cost savings; and reducing leverage, with average net debt down to £216m. The Committee also noted the significant order book growth of £2.1bn. The Committee carefully considered and assessed the overall reduction in indebtedness, improvement in metrics such as supplier payment days and strength of underlying cash generation over the three-year performance period, and felt it was appropriate to use their judgement to vest this element in full. The LTIP award will vest at 75% of maximum opportunity. The net shares vesting (after tax) will be subject to a two-year holding period before being made available to the Executive Directors. 116 Kier Group plc | Annual Report and Accounts 2022 ## Looking forward – FY23 ### Remuneration across the Group In determining the FY23 remuneration of the Executive Directors and senior management (being the members of the Executive Committee and the Company Secretary), the Committee reviewed the workforce's remuneration and took into account the approach to remuneration across the Group as a whole. In particular, the Committee reviewed: - Salary information relating to the workforce, noting that, on average, increases of up to 4% will be awarded across the majority of the Group with effect from 1 October 2022; - The other elements of remuneration payable to the workforce for example: - The bonus opportunities to be made available to certain levels of employee in FY23; - Vouchers given to all employees in the Group at Christmas 2021 as a gesture of thanks for their continued commitment; - Discretionary recognition payments made to over 3,600 employees during 2021; and - The Real Living Wage increases made to over 700 employees in April 2022 and the inclusion of contingent workers from FY23. ### Base salaries As disclosed in my FY21 report, no increase in the Chief Executive's salary would be made for FY23. The Committee decided that, in line with the average increase in base salaries across the workforce, the base salary of the Chief Financial Officer will increase by 4% to £524,035 (FY22: £503,880) with effect from 1 October 2022. ### Annual bonus The maximum bonus opportunity for each of the Chief Executive and the Chief Financial Officer will remain 125% of base salary. The FY23 bonus targets will be related to adjusted operating profit, free cash flow, the Group's safety performance and personal objectives, with a maximum of 25% of the opportunity relating to the non-financial targets as permitted by the approved policy. The actual measures, targets, weightings, and performance against them will be disclosed in the FY23 Annual Report. ### LTIP awards As we advised during the shareholder consultation, for the 2023 financial year, the Chief Executive and the Chief Financial Officer will be granted LTIP awards of 175% of base salary. This is reduced from the 200% of base salary awards made for the 2022 financial year. The Committee considered that a 175% award for both the Chief Executive and for the Chief Financial Officer was justified to incentivise the achievement of the medium-term targets of the Group and to continue to align with the interests of shareholders. The performance conditions will relate to EPS, TSR outperformance and the Group's free cash flow over the performance period. The Committee considered the introduction of ESG targets for the FY23 award but determined it was prudent for the introduction of new performance measures to form part of the Policy review, which will consider the most appropriate targets and their respective weightings for the FY24 award onwards. ## Pension contributions The pension contributions/cash allowance payable by the Company to each of the Chief Executive and the Chief Financial Officer in FY23 will remain at 7.5% of their respective base salaries, which is aligned with Company pension contributions made available to the wider workforce. ### Inflationary support We know that the current cost of living crisis is challenging for our people and against a backdrop of high inflation, we have considered what we can do to provide additional support for their financial wellbeing. We have reviewed our current benefits package and in addition to the great range of benefits already offered, in particular, the shopping discounts that are already available, we are making further improvements to the financial wellbeing benefits offered. Additionally, we have also decided to award c.875 employees with an inflationary support payment of £300, which will be made in November. This payment is in addition to the pay increases I have already mentioned and are targeted to provide financial support to those who we believe are most challenged with the high increases in food, energy and other household bills. ### Dame Heather Rabbatts Chair of the Remuneration Committee Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 117 Directors’ Remuneration report continued Remuneration at a glance ### Approach to remuneration at Kier Remuneration framework There are three elements to the framework for the Executive Align with strategy and incentivise and reward Directors’ remuneration: performance: 1. Over two-thirds of the Executive Directors’ maximum Fixed element: remuneration opportunity is variable and relates to the Group’s Comprises base salary, taxable benefits (private health performance against its strategic priorities; insurance and a company car or car allowance) and pension contributions Align Executive Directors’ interests with those of shareholders: Approximately half of the Executive Directors’ maximum 2. remuneration opportunity is satisfied in shares and the Short-term element: Executive Directors’ are encouraged to build up shareholdings An annual bonus, which incentivises and rewards the delivery in the Company of at least two years’ base salary over a period of a balanced selection of financial and non-financial targets in of up to five years; and a financial year, with payments being satisfied in cash (two- thirds), which are subject to clawback, and shares (one-third), Support the delivery of the Group’s strategy and promote which are deferred for three years its long-term success: To achieve this aim, the Group needs to attract and retain talented management. The Committee therefore considers practices in comparable businesses so as to ensure that 3. Long-term element: remuneration at Kier remains competitive, enabling it to attract The LTIP incentivises financial performance over a three-year and retain talented individuals, but without paying more than is period, promoting long-term sustainable value creation necessary. for shareholders. Vested shares are subject to a two-year holding period ### Strategic alignment of remuneration For the Executive Directors’ and senior management, a significant part of their total remuneration opportunity should be performance related, and those performance targets should be directly connected to the delivery of the Group’s strategy and long-term returns. The following table illustrates how that is achieved: Strategic actions Disciplined growth Consistent delivery Generate cash Progress against actions £120.5m adjusted operating profit £108.2m free cash flow How strategy links to remuneration Annual bonus targets ## 40% 40% 10% 10% Group adjusted Group free cash flow Health & safety Personal objectives operating profit LTIP – Performance conditions ## 50% 25% 25% Group adjusted earnings per share Group free cash flow Total shareholder return 118 Kier Group plc | Annual Report and Accounts 2022 ### Summary of the Executive Directors’ FY22 remuneration outcome Andrew Davies Simon Kesterton Salary Salary Benefits Benefits Pensions Pensions Bonus Bonus LTIP LTIP ### Summary of the Executive Directors’ FY23 remuneration Element Chief Executive Chief Financial Officer 1 Base salary £750,000 £524,035 Pension 7.5% of salary Benefits Private health insurance and a company car or car allowance Bonus 125% of salary 2 Bonus targets Will relate to adjusted operating profit, free cash flow, the Group’s safety performance and personal objectives, with a maximum of 25% of the opportunity relating to the non-financial targets Governance Financial statementsStrategic reportOverview Other information Deferred Shares One-third of any net bonus annual payment to be satisfied by an allocation of shares (legal ownership deferred for three years) LTIP 175% of salary 2 LTIP performance conditions Awards will be subject to the Group’s performance over a three-year period to 30 June 2025: 50% Adjusted Earnings Per Share 25% Total Shareholder Return 25% Free Cash Flow Holding period Any vested LTIP shares must be held for two years after vesting (after payment of tax) Malus and clawback Clawback will apply to any cash bonuses paid and to the post-vesting holding period for any LTIP shares. Malus will apply to any deferred shares (in the three-year deferral period) and LTIP awards (prior to vesting) 1 With effect from 1 October 2022. 2 The actual bonus targets (and performance against them) and details of the LTIP awards will be disclosed in the 2023 Annual Report. Kier Group plc | Annual Report and Accounts 2022 119 Directors’ Remuneration report continued Annual report on remuneration Compliance statement Introduction This Directors’ remuneration report complies with the This section of the report sets out the annual report on Companies Act 2006, Schedule 8 of the Large and Medium- remuneration for the 2022 financial year. sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended) and the Listing Rules of the The following information contained in this section of the report Financial Conduct Authority and applies the main principles has been audited: the table containing the total single figure of relating to remuneration which are set out in the UK Corporate remuneration for Directors and accompanying notes on this Governance Code (July 2018 edition). page, the pension entitlements referred to on page 121, the incentive awards made during the 2022 financial year referred to on page 122, the payments for loss of office referred to on page 123, the payments to past Directors referred to on page 123 and the statement of Directors’ shareholdings and share interests set out on page 123. Directors’ remuneration for the 2022 financial year The following table provides details of the Directors’ remuneration for the 2022 financial year, together with their remuneration for the 2021 financial year, in each case before deductions for income tax and national insurance contributions (where relevant): Fixed Pay Variable Pay Total | | Taxable | | | | Total | | LTIP | | Share | | Total | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Salary/fee | | 1 | Pension | 2 | | | | 3 | | | | | | | benefits | | | | fixed pay | Bonus | Vesting | | Schemes | variable pay | | Total | | (£000) | (£000) | | (£000) | | (£000) | (£000) | (£000) | | (£000) | | (£000) | (£000) | 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 Executive Directors Andrew Davies 750 595 15 14 56 45 821 654 739 669 685 – – – 1,424 669 2,245 1,323 Simon Kesterton 499 482 15 14 37 36 551 532 496 606 478 – – – 974 606 1,525 1,138 Non- Executive Directors Alison Atkinson 67 34 – – – – 67 34 – – – – – – – 67 34 Justin Atkinson 67 62 – – – – 67 62 – – – – – – – 67 62 Matthew Lester 235 235 – – – – 235 235 – – – – – – – 235 235 Heather Rabbatts 67 62 – – – – 67 62 – – – – – – – 67 62 Clive Watson 67 62 – – – – 67 62 – – – – – – – 67 62 Total 1,752 1,532 30 28 93 81 1,875 1,641 1,235 1,275 1,163 – – – 2,398 1,275 4,273 2,916 1 Comprises private health insurance and a company car or a car allowance. 2 Comprises the payment of employer pension contributions and/or a cash allowance. 3 The award granted in 2019 will vest at 75%. The value is calculated using the Company’s average share price for the three-month period ended 30 June 2022 of £0.76. All figures in the above table have been rounded to the nearest £1,000. 120 Kier Group plc | Annual Report and Accounts 2022 ## Notes to the single figure table ### Pension entitlements The Executive Directors are eligible to participate in the Kier Retirement Savings Plan, a defined contribution plan. The contributions payable to the Executive Directors are subject to the annual allowance, with the balance being payable as a cash allowance. Cash allowances are subject to tax and national insurance deductions and are excluded when determining annual bonus and long-term incentive arrangements. The pension contributions paid on behalf of, and the cash allowances paid to, the Executive Directors in respect of the 2022 financial year were: | Director | Employer pension contribution | Pension contribution | Cash allowance | Total | | --- | --- | --- | --- | --- | | Andrew Davies | 7.5% | – | £56,250 | £56,250 | | Simon Kesterton | 7.5% | – | £37,428 | £37,428 | ### Annual bonus – 2022 financial year The bonus payments to the Executive Directors in respect of the 2022 financial year, in each case before deductions for income tax and national insurance, were: #### Financial performance (aggregate weighting: 80%) | Target | Opportunity | Threshold target | On target | Stretch target | Actual performance | Actual performance as a % of opportunity | | --- | --- | --- | --- | --- | --- | --- | | Group adjusted operating profit | 40% | £105m | £115.1m | £120.4m | £120.5m | 100% | | Group year-end free cash flow | 40% | £84m | £103.2m | £114.4m | £108.2m | 72% | #### Non-financial performance (aggregate weighting: 20%) ##### Health and safety (maximum opportunity: 10%) | Target | Opportunity | Lower threshold | Upper threshold | Actual performance | Actual performance as a % of opportunity | | --- | --- | --- | --- | --- | --- | | Reduction in the Group's Accident Incidence Rate | 5% | 95 | 100 | 115 | Nil | | Reduction in the Group's All Accident Incidence Rate | 5% | 290 | 310 | 320 | Nil | ##### Personal objectives (maximum opportunity: 10%) A maximum of 10% of the total bonus opportunity related to the satisfaction of personal objectives. The Committee assessed performance against those objectives as follows: | Summary of key performance indicators | Progress | % Payment | | --- | --- | --- | | Drive business simplification and enable future growth through IT improvements | Significant tangible IT service improvements and cost savings achieved through Group-wide initiative | | | Andrew Davies Simon Kesterton | Projects wind downs successfully completed in international business including significant cash collection | 100% | | Successful wind down of completed projects in the international business | Through surveys that focused on employee wellbeing, early careers development and employee sentiment of working at Kier. The employee engagement index for the surveys were: November 2021 – 60%, March 2022 – 68% and June 2022 – 63%. | | | Deliver an employee engagement index of no less than 55% | | | #### Total outcome | Director | Bonus payable as % of opportunity | Opportunity as % of salary | Bonus payable as % of salary | Total bonus | | --- | --- | --- | --- | --- | | Andrew Davies | 78.8% | 125% | 98.5% | £738,750 | | Simon Kesterton | 78.8% | 125% | 98.5% | £496,322 | 50% of the total net bonus payment to the Chief Executive and 33% of the total net bonus payment to the Chief Financial Officer will be satisfied by an allocation of shares with legal ownership deferred for three years. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 121 Directors’ Remuneration report continued LTIP awards – performance period ended 30 June 2022 The three-year performance period of the LTIP awards granted in 2019 ended on 30 June 2022. Performance against the performance conditions of those awards was as follows: | | | | Actual | Level of | | | --- | --- | --- | --- | --- | --- | | Performance Conditions Weighting Targets | | Performance | | Vesting | 1 | | Adjusted Earnings | 50% 0% vesting if EPS is less than 9.8p | | | | | 2 Per Share 25% vesting if EPS is equal to 9.8p 100% vesting if EPS is 14.8p Straight-line vesting between these points 16.8p 100% Total Shareholder 25% 0% vesting for performance below median constituent of the 3 Return comparator group 25% vesting for performance in line with median constituent of the comparator group 100% vesting for outperformance of the median constituent of the comparator group by 10% or more Below Straight-line vesting between these points Threshold 0% 4 Net Debt:EBITDA 25% 0% vesting for net debt:EBITDA greater than 1.5 25% vesting if net debt:EBITDA is equal to 1.5 100% vesting if net debt:EBITDA is 0.5 or lower Straight-line vesting between these points See note 4 100% Total 75% 1 Expressed as a percentage of maximum opportunity. 2 Previous adjustments to this target set out on page 105 of the 2021 Annual Report. 3 Against a comparator group of Balfour Beatty, Costain, Galliford Try, Henry Boot, Mears, MITIE, MJ Gleeson, Morgan Sindall, Renew Holdings and SEGRO. 4 The Committee determined the level of vesting for this performance condition as set out on page 116. The vesting of these awards will result in the allocation of the following number of shares: Maximum number Number of shares Director of shares vesting 1,2 Value 3 Andrew Davies 1,201,302 900,976 £684,742 Simon Kesterton 839,145 629,358 £478,312 1 The vesting date is 28 October 2022. 2 The net number of vesting shares (after payment of tax) are subject to a two-year holding period. 3 The value of an award is calculated by multiplying the number of vested shares by the Group’s average share price for the three-month period ended 30 June 2022 of £0.76. The values are stated before deductions for income tax and national insurance contributions. Incentive awards made during the 2022 financial year The following incentive awards were made to those persons who, during the 2022 financial year, served as a Director: Difference | | | | | Potential | | | between | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | | award | | | exercise | | | | | | | for threshold | Performance | Vesting | price and | Performance | | Award | 1 | Basis of award Director Face Value | 2 | | | | | | | | | | | performance | Period | Date | face value | Measures | Awards are based 50% on adjusted | | Percentage | Andrew | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | £1,499,999 | | | | | EPS for financial year ending | | | of base | Davies | | | 1 July | | | | | | | | | 25% | | | | 30 June 2024, 25% on TSR | | | salary for the | | | | 2021 – | 28 October | | | | LTIP | | | | of face | | | n/a | performance against a comparator | | | year ended | | | | 30 June | 2024 | | | | | | | | value | | | | group and 25% on adjusted Free | | | 30 June | Simon | | | 2024 | | | | | | | | £1,007,759 | | | | | Cash Flow. See table below for | | | 2022 | Kesterton | | | | | | | further detail 1/3 of the net Andrew £118,256 | Deferred | bonus for the | Davies | | 29 October | | Continuous service condition | | --- | --- | --- | --- | --- | --- | --- | | | | | n/a n/a | | n/a | | | Shares | year ended | Simon | | 2024 | | (subject to malus) | £106,993 30 June 2021 Kesterton 1 The LTIP awards made to Andrew Davies and Simon Kesterton were 200% of base salary and were at nil cost. 2 For the LTIP awards, ‘face value’ is calculated using the market price of a share in the capital of the Company on 27 October 2021 of 108.4p. For the deferred share awards, ‘face value’ is calculated using the market price of a share in the capital of the Company on 28 October 2021 of 108.4p. 122 Kier Group plc | Annual Report and Accounts 2022 No persons who, during the 2022 financial year, served as a Director received awards under the Share Incentive Plan. The performance conditions (and respective weightings) and targets for the LTIP awards which were granted during the 2022 financial year are set out in the table below. The awards will, subject to the satisfaction of the performance conditions, vest on the third anniversary of the grant date (28 October 2024). Performance condition Weighting Targets 1 Adjusted Earnings Per Share 50% 0% vesting for below 17.7p 25% vesting for 17.7p 100% vesting for 20.7p Straight-line vesting between these points 2 TSR outperformance 25% 0% vesting for performance below median constituent of comparator group 25% vesting for performance in line with median constituent of comparator group 100% vesting for performance equal to upper quartile of comparator group Straight-line vesting between these points 3 Adjusted Free Cash Flow 25% 0% vesting for below 68.0% 25% vesting for 68.0% 100% vesting for 95.0% Straight-line vesting between these point 1 For the financial year ending 30 June 2024. 2 The comparator group comprises FTSE 250 Index excluding investment trusts. 3 Target measured by reference to the average of the Group’s adjusted Free Cash Flow for each of the 2022, 2023 and 2024 financial years. Payments for loss of office No payments were made for loss of office during the 2022 financial year. Payments to past Directors No payments were made to past Directors during the 2022 financial year. Directors’ shareholdings and share interests The Committee encourages the Executive Directors to build up a shareholding in the Company of at least two years’ base salary, to be accumulated over a period of up to five years. Executive Directors are therefore encouraged to retain any shares allocated to them as part of the annual bonus arrangements and upon the vesting of LTIP awards until this shareholding has been reached. The Executive Directors are required to retain shares equal in value to 100% of base salary for a period of two years from the date on which employment is terminated (or if the number of shares owned at such date is less than such value, the shares then owned). Governance Financial statementsStrategic reportOverview Other information The following table sets out details, as at 30 June 2022, of the shareholdings and share interests of those persons (together with, where relevant, the shareholdings and share interests of their connected persons) who, during the 2022 financial year, served as a Director: Shares held Options held | | | | | | Unvested and | | | Unvested and | | | | Unvested and | | | | | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Owned | | Vested but | | | subject to | | | subject to | | Vested | | subject to | | Shareholding | | | Current | | | | | outright or | | | subject to a | | performance | | | | continued | | but not | | continued | | | guideline | shareholding | | | Guideline | | | | vested | 1 | | 2 | | | 3 | | | 4 | | | | 5 | | | | | 6 | | met? | | | | holding period | | | | conditions | | employment | | | exercised | employment | | | (% of salary) | | (% of salary) | | | | | Alison Atkinson – – – – – – n/a n/a n/a Justin Atkinson 46,096 – – – – – n/a n/a n/a Andrew Davies 159,275 109,092 3,739,881 – – 5,625 200 24.3% No Simon Kesterton 159,024 98,702 2,709,162 – – 5,625 200 34.7% No Matthew Lester 117,531 – – – – – n/a n/a n/a Heather Rabbatts – – – – – – n/a n/a n/a Clive Watson 41,176 – – – – – n/a n/a n/a 1 Comprising shares held legally or beneficially by the relevant Director or their connected persons. 2 Comprising deferred shares allocated to the relevant Director in connection with annual bonuses. See ‘Deferred shares’ below. 3 Comprising unvested LTIP awards. 4 Comprising matching shares purchased after 30 June 2019 (or the date that was three years prior to the date of leaving the Board, as the case may be) under the SIP. See ‘Share Incentive Plan’ on page 124. 5 Comprising options under the SAYE schemes. See ‘Save As You Earn schemes’ on page 124. 6 Calculated by reference to (i) shares owned outright or vested by the Director or his/her connected persons and (ii) deferred shares allocated in connection with annual bonuses, using the closing market price of a share in the capital of the Company on 30 June 2022 of £0.679 and (iii) the gross base salaries for the year ended 30 June 2022. There have been no changes in the interests of the Directors (or their connected persons) in the ordinary shares in the capital of the Company since 30 June 2022. Kier Group plc | Annual Report and Accounts 2022 123 Directors’ Remuneration report continued Deferred shares Those persons who, during the 2022 financial year, served as a Director beneficially owned, at 30 June 2022, shares in the capital of the Company as a result of awards of deferred shares. Cumulative Total Director 2020 award 2021 award 2022 award 30 June 2022 Andrew Davies – – 109,092 109,092 Simon Kesterton – – 98,702 98,702 Date of award n/a n/a 29 October 2021 – 1 Share price used for award n/a n/a 108.4 pence – End of holding period n/a n/a 29 October 2024 – 1 The market price of a share from the business day immediately prior to the date of the award. LTIP awards Those persons who, during the year ended 30 June 2022, served as a Director held LTIP awards over the following maximum numbers of shares in the capital of the Company at 30 June 2022: Cumulative total Cumulative total Director 2020 award 1,3 2021 award 1,4 2022 award 30 June 2021 1 30 June 2022 Andrew Davies 1,201,302 1,154,816 1,383,763 2,356,118 3,739,881 Simon Kesterton 839,145 940,350 929,667 1,779,495 2,709,162 Date of award 28 October 2019 18 December 2020 28 October 2021 – – 2 Share price used for award 115.8 pence 78.3 pence 108.4 pence – – End of performance period 30 June 2022 30 June 2023 30 June 2024 – – 1 Adjusted to take account of the 2021 capital raise. 2 The market price of a share from the business day immediately prior to the date of the award. 3 See ‘LTIP Awards – Performance Period ended 30 June 2022’ on page 122 for vesting outcome. 4 Net Debt:EBITDA performance condition to be assessed for actual performance relative to original target at the end of the performance period. See page 99 of the 2021 Annual Report. The performance conditions for the awards granted during the 2022 financial year are set out on page 123. Share Incentive Plan No persons who, during the 2022 financial year, served as a Director had options under the Share Incentive Plan at 30 June 2022. Save As You Earn scheme Those persons who, during the 2022 financial year, served as a Director had options under the Kier Group plc 2016 Sharesave Scheme at 30 June 2022: | | Maximum number | | | | | | | | Maximum number | | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | of shares | | | | | | | | of shares | | | | | | | receivable at | | | | | | | | receivable at | | | | | | | | | | 1 July | Awarded during | | Exercised during | | | | 30 June | | | | | Director Date Granted | | | | | | | | | | | | | 1 | Exercise price Exercise period | | | | | | 2021 | | the year | | the year | | | | 2022 | | | Andrew Davies 29 October 2021 – 5,625 – 5,625 £0.96 1 December 2024 – 31 May 2025 Simon Kesterton 29 October 2021 – 5,625 – 5,625 £0.96 1 December 2024 – 31 May 2025 1 Assumes that each Director continues to save at the current rate until the commencement of the exercise period. 124 Kier Group plc | Annual Report and Accounts 2022 Total shareholder return The graph below shows the value, at 30 June 2022, of £100 invested in shares in the capital of the Company on 30 June 2012, compared with the value of £100 invested in (i) the FTSE 250 (excluding Investment trusts) selected as the comparator group for the 2021 LTIP award (see page 123) and (ii) the FTSE 350 (excluding investment trusts). The LTIP comparator group was chosen because it includes companies of a similar size and complexity to the Group and the FTSE 350 was chosen to illustrate the Group’s performance against a broad equity market index of the UK’s leading companies. The other points plotted are the values at 30 June during the 10-year period. £275 £225 £175 £150 £125 £100 £75 £50 £25 £0 FTSE 250 Index (excluding investment trusts) FTSE 350 Index (excluding investment trusts) Kier Chief Executive’s remuneration The table below sets out the total remuneration of the Chief Executive paid with respect to each financial year indicated: Chief Executive single figure Annual bonus payout against LTIP vesting against Chief Executive Year of remuneration (£000) 1 maximum opportunity (%) maximum opportunity (%) Paul Sheffield 2013 £987 49% 31% 2014 £1,099 68% 33% Haydn Mursell 2015 £1,079 92% – 2016 £1,311 90% 34% 2017 £1,199 48% 29% 2018 £1,459 75% 24% 2 Governance Financial statementsStrategic reportOverview Other information 2019 £423 – – 2 Andrew Davies 2019 £140 – – 3 2020 £613 – – 2021 £1,323 90% – 2022 £2,245 78.8% 75% 1 All figures are rounded to the nearest £1,000. 2 Haydn Mursell stood down as Chief Executive on 22 January 2019 and Andrew Davies was appointed with effect from 15 April 2019. 3 Includes the temporary reduction in base salary and employer pension contributions and/or a cash allowance in response to COVID-19. Workforce Remuneration All Employees Executive Directors Pay review boundaries approved by Pay rise is normally consistent with all- Salary | | | | Remuneration Committee | | | | | employee increases | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | 750 employees eligible for a bonus | | | | Maximum opportunity: 125% of base salary | | | | | Maximum opportunity: 80% of base salary | | | | Bonus | Group targets: Profit, Cash Flow, Health & | | | | Group targets: Profit, Cash Flow, Health & Safety | | | | | | | Safety, personal objectives | | | | Executive Committee: 25% of net bonus | | | Deferred Bonus | | | | | 33% of net bonus deferred for 3 years deferred for 3 years shares Awarded to leadership and strategic managers Maximum award: 200% of base salary Maximum award: 100% of base salary 3-year performance period, 2-year holding period 3-year performance period Long Term Targets: Earnings Per Share, Shareholder Return, Targets: Earnings Per Share, Shareholder Return, Incentive Plan Cash Flow £250 Cash Flow 7.5% matched employer pension 7.5% employer pension contributions Pension £200 contributions for majority of employees or cash allowance Maximum contributions: £6,000 pa. Maximum contributions: £6,000 pa. Sharesave | | | 3-year saving period | | | | | 3-year saving period | | --- | --- | --- | --- | --- | --- | --- | --- | | | Maximum contributions: £1,800 pa. Group | | Share Incentive | | | Maximum contributions: £1,800 pa. Group | | | funded matching shares provided on 1:2 basis | | | | Plan | funded matching shares provided on 1:2 basis | | | Kier Group plc | Annual Report and Accounts 2022 125 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Directors’ Remuneration report continued ## Employee benefits Providing employees with a range of employee benefits and support is critical to the Group attracting and retaining a diverse and motivated workforce. New benefits and policies introduced during the financial year include: Family Friendly Policies We have extended both our maternity and paternity leave policies. Employees now need to work for Kier for 26 weeks to be eligible for the enhanced leave (halved from 52 weeks) and we have increased maternity leave from 20 weeks at full pay to 26 weeks at full pay, with paternity leave increasing from two weeks to eight weeks at full pay and flexibility on when the time off can be taken. We have also introduced a pregnancy loss policy, which outlines that all employees, regardless of length of service and whether it is they, their partner or surrogate that directly experiences the loss, is entitled to two weeks’ paid leave in case of a pregnancy loss. It also outlines accommodations that employees can request on their return to work. Kier’s menopause guidance also launched, supporting conversations between those experiencing menopause symptoms and their colleagues and outlining reasonable accommodations. Green Car Scheme As part of driving forward the Group’s sustainability objectives, the Kier Green Car Scheme was launched in 2021. This is open to all employees and enables participants to get a brand new ultra-low emission vehicle using a salary sacrifice scheme. It provides employees with a high-quality benefit of a vehicle with fully comprehensive business insurance, servicing, maintenance, tyres, road side assistance and no deposit to pay, all for a fixed monthly amount. As it is a salary sacrifice scheme it offers significant tax savings to employees. 126 Kier Group plc | Annual Report and Accounts 2022 ## Percentage change in Directors' remuneration The table below shows the percentage changes in base salary or fees, taxable benefits and annual bonus of each Director in the financial year indicated, as compared to the previous financial year, together with the approximate comparative average figures for those employees who were eligible for salary reviews on 1 October of each year and who were not subject to collective agreements. In respect of the 2022 financial year, this section of the employee population (comprising approximately 5,900 individuals across a number of levels) is considered to be the most appropriate group for comparison purposes, as its remuneration is controlled by the Group and is subject to similar external market forces as those that relate to the Executive Directors' remuneration. Approximately 750 employees are eligible to receive a bonus. | | Base salary/fee^{1,2} | | Taxable benefits^{1} | | Annual bonus^{1,2} | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 | 2021 | 2022 | 2021 | 2022 | 2021 | | **Executive Directors** | | | | | | | | Andrew Davies | 26.1% | 6.7% | 7.1% | 7.7% | 10.5% | n/a | | Simon Kesterton | 3.5% | 8.2% | 7.1% | 7.7% | (18.2)% | n/a | | **Chairman** | | | | | | | | Matthew Lester | 0% | 4.9% | n/a | n/a | n/a | n/a | | **Non-Executive Directors** | | | | | | | | Alison Atkinson | 8.1% | -% | n/a | n/a | n/a | n/a | | Justin Atkinson | 8.1% | 6.9% | n/a | n/a | n/a | n/a | | Heather Rabbatts | 8.1% | 6.9% | n/a | n/a | n/a | n/a | | Clive Watson | 8.1% | 6.9% | n/a | n/a | n/a | n/a | | Other employees | 6.56% | 4.73% | (6.6)% | (0.57)% | 8.0% | n/a | 1 Base salary/fee and taxable benefits as shown in the table on page 120 and the 2021 Annual Report. 2 Calculated on an annualised basis where base salary/fee or taxable benefits paid for part of financial year. 3 Calculations include the temporary reductions in base salary/fee which were taken in response to COVID-19. 4 No bonus was paid in the 2020 financial year so comparison is not possible. 5 Other employees' percentage change calculated for employees subject to Group bonus targets. ## Pay ratio of Chief Executive to average employee The table below shows the ratio of the Chief Executive's total remuneration for the year ended 30 June 2022, using the information set out in the single total figure table on page 120, to the total remuneration of a lower quartile, median and upper quartile employee. | | 25th percentile pay ratio (Chief Executive: UK employees) | Median pay ratio (Chief Executive: UK employees) | 75th percentile (Chief Executive: UK employees) | | --- | --- | --- | --- | | 2022 | 89:1 | 61:1 | 36:1 | | 2021 | 50:1 | 36:1 | 22:1 | | 2020 | 24:1 | 20:1 | 10:1 | Further details of the remuneration of the Chief Executive in the 2022 financial year and those individuals whose remuneration in the 2022 financial year was at the median, 25th percentile and 75th percentile amongst UK-based employees are as follows: | | Chief Executive | 25th percentile | Median | 75th percentile | | --- | --- | --- | --- | --- | | Salary | £750,000 | £23,515 | £35,398 | £53,725 | | Total remuneration | £2,244,261 | £25,090 | £36,814 | £62,393 | The median, lower and upper quartile figures used to determine the above ratios were calculated by reference to the full-time equivalent, annualised remuneration of the Group's UK-based employees (comprising salary, benefits, pension, annual bonus and share-based and other incentives), based on the Group's gender pay gap data at April 2022, to determine 'best equivalents' in accordance with Option B in the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended). The Committee selected this calculation methodology as it was considered to produce the most accurate and representative result. The Committee noted the increase in the median total pay Chief Executive pay ratio was due to a combination of increase in salary which had been subject to comprehensive shareholder consultation and both the annual bonus payment and LTIP vesting for the 2022 financial year. It considers that the median pay ratio for 2022 disclosed in the above table is consistent with the pay, reward and the progression opportunities available to UK-based employees across the business. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 127 Directors’ Remuneration report continued Relative importance of spend on pay The graph below shows the percentage changes in the total employee remuneration and adjusted profit before tax between the 2021 and 2022 financial years: | Total employee remuneration | Adjusted profit before tax | | --- | --- | | (£m) | (£m) | | 2022 £607.0m | 2022 £94.1m | Employee remuneration is remuneration paid to or receivable by all employees of the Group (as stated in note 7 to the 2022 consolidated financial statements on page 172). The adjusted profit before tax as stated as supplementary information in the 2022 consolidated income statement on page 148. No dividends were paid during the financial year. Executive Directors’ external appointment Andrew Davies is a non-executive director of Chemring plc and is entitled to retain those fees. Implementation of the Remuneration policy in 2023 Executive Directors’ base salary The base salaries of the Executive Directors for the 2023 financial year are as follows: From 1 October From 1 October Percentage Director 2021 2022 increase Andrew Davies £750,000 £750,000 0% Simon Kesterton £503,880 £524,035 4% Annual bonus In the 2023 financial year, the maximum annual bonus opportunity for each of the Chief Executive and the Chief Financial Officer will be 125% of base salary. The bonus targets will relate to adjusted operating profit, free cash flow, health, safety and wellbeing and personal objectives. The actual bonus targets and performance against them will be disclosed in the 2023 Annual Report. One-third of net bonus payment for the Chief Executive and Chief Financial Officer will be satisfied by an allocation of shares, deferred for three years. Clawback provisions will apply for a three-year period following any bonus payment. LTIP awards In the 2023 financial year, the Chief Executive and the Chief Financial Officer will be granted an LTIP award of 175% of base salary. The performance conditions for these awards will relate to Adjusted EPS (50%), TSR performance (25%) and Adjusted Free Cash Flow (25%) over the three-year period ending 30 June 2025. The actual performance conditions will be disclosed in the 2023 Annual Report. A two-year holding period will apply to any vested awards. Pension and taxable benefits The pension contributions or cash allowances payable on behalf of or to the Executive Directors in the 2023 financial year are: Percentage Director of salary Andrew Davies 7.5% Simon Kesterton 7.5% The Executive Directors will also continue to receive private health insurance and either a company car or a car allowance, which will be £13,900 per annum (2022: £13,900). 128 Kier Group plc | Annual Report and Accounts 2022 2021 £618.7m 2021 £65.4m ## Non-Executive Directors' fees There will be no increase in the fees payable to the Non-Executive Directors for the 2023 financial year. The total fees payable to the Non-Executive Directors with effect from 1 October 2022 are as follows: | Director | Base fee | Chair of Board committee fee | Senior Independent Director fee | Total fee | | --- | --- | --- | --- | --- | | Alison Atkinson | £57,000 | £12,000 | – | £69,000 | | Justin Atkinson | £57,000 | – | £12,000 | £69,000 | | Matthew Lester^{1} | £235,000 | – | – | £235,000 | | Heather Rabbatts | £57,000 | £12,000 | – | £69,000 | | Clive Watson | £57,000 | £12,000 | – | £69,000 | $^{1}$ Matthew Lester does not receive a fee for his work as the Chair of the Nomination Committee. ## How the Remuneration policy aligns with the 2018 Corporate Governance Code The Committee has determined the policy in line with the Code as set out below: | Principle | Committee Approach | | --- | --- | | **Clarity** Remuneration arrangements should be transparent and promote effective engagement with shareholders and the workforce. | The Group's remuneration arrangements are clearly communicated to shareholders and the workforce, for example, through this Directors' remuneration report, the engagement process with shareholders and an Employee Benefit Forum being introduced for FY23. | | **Simplicity** Remuneration structures should avoid complexity and their rationale and operation should be easy to understand. | The remuneration structures are straightforward with a small number of performance measures which are tied to the Group's strategy. | | **Risk** Remuneration arrangements should ensure reputational and other risks from excessive rewards, and behavioural risks that can arise from target-based incentive plans, are identified and mitigated. | The reputational and other risks that may result from excessive rewards is clearly understood. The Committee has the discretion to adjust annual bonus payments and vesting levels of LTIPs to address this issue. Wide ranging malus and clawback provisions apply to the incentives. | | **Predictability** The range of possible values of rewards to individual directors and any other limits or discretions should be identified and explained at the time of approving the policy. | The Committee maintains caps on the maximum incentive opportunities as reflected in the Group's remuneration policy. | | **Proportionality** The link between individual awards, the delivery of strategy and the long-term performance of the Company should be clear. Outcomes should not reward poor performance. | Discretion can be applied in relation to variable remuneration to ensure that rewards reflect the long-term performance of the Group; and the performance measurements attached to awards are carefully chosen. | | **Alignment to culture** Incentive schemes should drive behaviours consistent with Company purpose, values and strategy. | The Committee reviews the incentive schemes to ensure alignment with the strategy and medium-term value creation. | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 129 ## Directors' Remuneration report ### Annual Evaluation The Committee made good progress on the recommendations and agreed areas of focus from last year's externally facilitated review and will continue to ensure sufficient time is scheduled into the agenda pre and post-meeting for planning and actions. This year, the Committee carried out an internally facilitated review of its effectiveness and the output was discussed by the Committee. This concluded that the Committee is operating effectively. The review identified areas to focus this financial year including enhancing quality of papers to assist the Committee in monitoring performance targets. ### Advisers During the 2022 financial year, Willis Towers Watson ('WTW') acted as its independent adviser. During the year, fees paid to WTW for advice to the Committee were £43,400 (excluding VAT). During the year, WTW also provided rewards and benefits advice to management. WTW is a signatory of and adheres to the Code of Conduct for Remuneration Consultants which has been developed by the Remuneration Consultants Group. There are no connections between WTW and either the Company or any of the Directors. The Committee was satisfied that the advice it received from WTW is objective and independent. The Committee also received support from the Chief People Officer (Helen Redfern) and the Company Secretary. ### Shareholder voting The Directors' remuneration report was subject to shareholder votes at the 2021 AGM. The results of the vote on the resolution were: #### Directors' remuneration report | Votes for^{1} | Percentage votes for | Votes against^{2} | Percentage votes against | Votes withheld | | --- | --- | --- | --- | --- | | 182,346,972 | 73.93% | 64,290,024 | 26.07% | 39,592,985 | $^{1}$ Includes those votes for which discretion was given to the Chairman. $^{2}$ Does not include votes withheld. The Committee consulted with the Company's largest shareholders prior to the AGM. Notwithstanding that a significant number of shareholders supported the resolution, the Committee recognised that not all shareholders agreed with the decisions taken and since the AGM result, re-engaged with the largest shareholders to further understand the reasons behind the voting result. The Committee will take into account all feedback received in future decision-making. See page 115 for more information. The Directors' Remuneration Policy was subject to shareholder vote at the 2020 AGM. The results of the votes on the resolution were: #### Remuneration Policy | Votes for^{1} | Percentage votes for | Votes against^{2} | Percentage votes against | Votes withheld | | --- | --- | --- | --- | --- | | 54,809,976 | 97.81% | 1,225,075 | 2.19% | 34,828 | $^{1}$ Includes those votes for which discretion was given to the Chairman. $^{2}$ Does not include votes withheld. 130 Kier Group plc | Annual Report and Accounts 2022 Directors’ Remuneration Policy summary Introduction The Company’s remuneration policy, which was approved at the AGM on 17 December 2020, will continue to apply in the 2023 financial year. The full policy is set out on pages 105–112 (inclusive) of the 2020 Annual Report, which can be found on Kier’s website at www.kier.co.uk/investors. Remuneration policy table The Group’s policy for the key elements of an Executive Director’s remuneration is set out in the table below: Element and link to strategy Operation Opportunity Performance measures Base salary Salaries are reviewed Any increase will typically be Continued strong To attract and retain Executive annually by reference to a in line with those awarded to performance. Directors of the calibre number of factors, including the wider employee required to deliver the an individual’s experience, population. The Committee Group’s strategy performance and role within has discretion to award higher the Group, the external market increases in circumstances (including FTSE companies of that it considers appropriate, a similar size and sector such as a material change in peers) and any increase the complexity of the business awarded to the wider or an individual’s responsibility. employee population. Details of salary changes will be disclosed in the Annual Report. Benefits Benefits are reviewed from Benefits are set at a level None. To provide benefits which are time to time and typically which the Committee competitive with the market include, but are not limited to, considers appropriate in light a company car or car of the market and an allowance, private health individual’s circumstances. insurance and life assurance. SAYE schemes One or more HMRC-approved The maximum amount that None. To encourage ownership of schemes allowing all may be saved is the limit the Company’s shares employees, including prescribed by HMRC (or such Executive Directors, to save other lower limit as up to the maximum limit determined by the Committee) Governance Financial statementsStrategic reportOverview Other information | specified by HMRC rules. | at the time employees are | | --- | --- | | Options are granted at up to | invited to participate in a | | a 20% discount. | scheme. Typically, employees | are invited to participate on an annual basis. Share Incentive Plan An HMRC-approved scheme Participants can purchase None. To encourage ownership of which is open to all UK tax shares up to the prevailing the Company’s shares resident employees of limit approved by HMRC (or participating Group such other lower limit as companies. Executive determined by the Company) Directors are eligible to at the time they are invited participate. to participate. The Company may match The Company currently offers shares purchased with an to match purchases made award of free shares. through the plan at the rate of Matching shares may be one free share for every two forfeited if employees leave shares purchased, but may within three years of their increase this to the prevailing award, in accordance with limit approved by HMRC. the SIP rules. Kier Group plc | Annual Report and Accounts 2022 131 Directors’ Remuneration report continued Element and link to strategy Operation Opportunity Performance measures Pension Executive Directors participate The maximum employer None. To provide a retirement in a defined contribution contributions for the Executive benefit which is competitive scheme. Director will be aligned with with the market those made available to the workforce, being, at the date of this policy, 7.5% of pensionable salary. Executive Directors may elect to receive all or part of the employer contribution as a taxable cash supplement. | Annual bonus | The Company operates a | The maximum potential bonus | The Committee determines | | --- | --- | --- | --- | | To reward the delivery of | discretionary bonus scheme. | for the Executive Directors in | the bonus targets and their | | near-term performance | | respect of the financial year | relative weightings each year. | | targets and business strategy | Whether a bonus is awarded | ending 30 June 2021 is 125% | The weighting towards | | | and the amount (if any) of | of base salary. | non-financial targets will be no | | | bonus awarded will be | | higher than 25% of the | | | determined at the | ‘Threshold’ performance, for | maximum potential bonus. | | | Committee’s discretion. | which an element of bonus | | | | | may become payable under | The bonus targets for the | | | Payments under the bonus | each component of the annual | 2021 financial year will relate | | | scheme are based on an | bonus, is set by the Committee | to profit, net debt, the Group’s | | | assessment of performance | each financial year. | safety performance and | | | against targets over the year. | | personal objectives. | The level of bonus for One-third of any net payment achieving threshold Actual bonus targets (and is satisfied by an allocation of performance varies by performance against each of Kier Group plc shares, which performance target, and may these targets), and any use by is deferred for three years vary for a target from year to the Committee of its discretion (subject to early release for year, to ensure that it is with respect to bonus ‘good leavers’ and upon a aligned with the Committee’s payments, will be disclosed in takeover) and is subject to a assessment of the degree of the Annual Report immediately malus provision. Dividend difficulty (or ‘stretch’) in following the end of the payments accrue on deferred achieving it. relevant performance period. bonus shares over the deferral period. Malus and, in the case of the cash element of a bonus, clawback will apply. 132 Kier Group plc | Annual Report and Accounts 2022 Element and link to strategy Operation Opportunity Performance measures | LTIP awards | Awards are granted annually | The maximum award is 200% | Prior to granting an award, the | | --- | --- | --- | --- | | To reward the sustained | and will typically vest, subject | of base salary. | Committee sets performance | | strong performance by the | to the achievement of | | conditions which it considers | | Group over the longer-term | performance conditions, on the | The Committee may grant | to be appropriately stretching. | | | third anniversary of the date of | awards of up to the maximum | | | | grant. A two-year post-vesting | permitted when it considers it | In line with the awards granted | | | holding period applies. | appropriate to do so. The | in recent years, the | | | | reasons for an award in | performance conditions for | | | A malus provision applies to | excess of 150% of salary will | the LTIP awards to be granted | | | awards pre-vesting and a | be disclosed in the relevant | in the 2021 financial year are | | | clawback provision applies to | Annual Report. | expected to relate to EPS | | | the post-vesting holding period. | | growth and/or TSR | | | | On achieving the threshold | outperformance and/or the | | | Dividend equivalents may | performance level for each | Group’s Net Debt:EBITDA | | | apply to awards. | element of the award, 25% of | performance over the | | | | the relevant element of the | performance period. | | | The awards are subject to the | award will vest. | | | | LTIP rules and the Committee | | The performance conditions | | | may adjust or amend the | Vesting is on a straight-line | relating to an award, and their | | | awards only in accordance | basis between threshold | respective weightings, will be | | | with the LTIP rules. | and maximum levels of | disclosed in the Annual | | | | performance. | Report immediately following | | | The LTIP rules permit the | | its grant. | Committee to exercise its discretion to modify any performance condition(s) when it deems it fair and reasonable to do so. Any use of Committee discretion with respect to modifying any performance condition(s) will be disclosed in the relevant Annual Report. The Committee may adjust the number of shares which Governance Financial statementsStrategic reportOverview Other information will vest if, in its discretion, it determines that it would be appropriate to do so in order to override the formulaic outcome of any performance condition, taking into account such factors as it considers relevant, including but not limited to: (i) the performance of the Company or of any member of the Group; (ii) the conduct or performance of a participant; and/or (iii) any circumstances or events which have occurred since the award was granted. Kier Group plc | Annual Report and Accounts 2022 133 Directors’ Remuneration report continued Executive Director shareholding guidelines The Committee encourages Executive Directors to accumulate a shareholding in the Company of at least 200% of base salary over a period of up to five years. Executive Directors are therefore required to retain any shares allocated to them as part of the annual bonus plan and upon the vesting of LTIP awards until they reach this level of shareholding. A post-employment shareholding requirement also applies, pursuant to which, for a period of two years after the date on which employment terminates, an Executive Director is required to retain shares in the Company allocated as part of the annual bonus plan and upon the vesting of LTIP awards which are equal in value to 200% of base salary (or, if the number of such shares owned at such date is less than such value, such shares then owned). Non-Executive Director remuneration policy General The Non-Executive Directors’ remuneration (including that of the Chairman) reflects the anticipated time commitment to fulfil their duties. Non-Executive Directors do not receive bonuses, long-term incentive awards, a pension or compensation on termination of their appointments. The policy on Non-Executive Directors’ remuneration is as follows: Element and link to strategy Operation Opportunity Performance measures Fees Fee levels are reviewed Fees may be increased in None. To attract and retain annually with reference to line with the outcome of the Non-Executive Directors individual experience, the annual review and will not of the calibre required and external market and the normally exceed the increase with appropriate skills expected time commitment awarded to the wider and experience required of the Director. employee population. Higher increases may be awarded Additional fees are payable should there be a material to the Chairs of the Board’s change to the requirements committees and to the Senior of the role, such as additional Independent Director. time commitment. Any changes to fees will be disclosed in the annual report on remuneration for the relevant year. Benefits Reasonable and necessary Expenses (including, without None. To reimburse Non-Executive expenses are reimbursed, limitation, travel and Directors for expenses together with any tax due subsistence) incurred in on them. connection with Kier business and any tax payable thereon. 134 Kier Group plc | Annual Report and Accounts 2022 ## Directors’ report Introduction This Directors’ report and the Strategic report on pages 1–91 (inclusive) together comprise the ‘management report’ for the purposes of Disclosure Guidance and Transparency Rule 4.1.5R. Information incorporated by reference The following information is provided in other appropriate sections of this Annual Report and the financial statements and is incorporated into this Directors’ report by reference: Information Reported in Pages | Corporate governance Corporate governance | | 92–113 (inclusive) | | | --- | --- | --- | --- | | | Statement of Directors’ responsibilities | | 139 | | Directors Board of Directors | | 94–95 (inclusive) | | | | Directors’ Remuneration report – Directors’ | 123–124 (inclusive) | | shareholdings and share interests Employee engagement Employee wellbeing & engagement 60–64 (inclusive) Our key stakeholders 33 Employment of disabled persons Diversity & inclusion 56 Engagement with suppliers, customers and others Our key stakeholders 32–35 (inclusive) Financial instruments Consolidated financial statements – note 29 204–208 (inclusive) Going concern Financial review 88 Greenhouse gas emissions Building for a Sustainable World 46–50 (inclusive) Important events since the end of the financial year n/a n/a Likely future developments Chief Executive’s review 8–13 (inclusive) Results and dividends Financial review 84–88 (inclusive) Disclosures required under Listing Rule 9.8.4R The table below sets out the location of information required to be disclosed under Listing Rule 9.8.4R, where applicable. Information required to be disclosed Page(s) (1) Amount of interest capitalised n/a (2) Publication of unaudited financial information n/a (4) Long-term incentive schemes n/a (5)–(11) Miscellaneous n/a Governance Financial statementsStrategic reportOverview Other information (12)–(13) Waiver of dividends 137 (14) Agreement with controlling shareholders n/a Political donations The Company made no political donations during the year (FY21: nil). Research and development The Group undertakes research and development activities when providing services to its clients. The total amount of the direct expenditure incurred by the Group when undertaking such activities is not readily identifiable, as the investment is typically included in the relevant project. Share capital As at 30 June 2022, the issued share capital of the Company consisted of 446,241,682 ordinary shares of 1 pence each. During the 2022 financial year, the Company issued 75,983 ordinary shares of 1 pence in connection with the exercise of options under the Kier Group plc Sharesave Scheme 2016 (the ‘Scheme’). Between 1 July 2022 and 13 September 2022, 19,950 ordinary shares of 1 pence each were issued in connection with the exercise of options under the Scheme. Further details of changes to the ordinary shares issued and of options and awards granted during the year are set out in notes 26 and 27 to the consolidated financial statements. Subject to the provisions of the articles of association of the Company (the ‘Articles’) and prevailing legislation, shares may be issued with such rights or restrictions as the Company may by ordinary resolution determine or, if the Company has not so determined, as the Directors may decide. Kier Group plc | Annual Report and Accounts 2022 135 **Directors' report** continued ### Restrictions on transfer of securities in the Company There are no restrictions on the transfer of securities in the Company, other than those that are set out in the Articles or apply as a result of the operation of law or regulation. The Company is not aware of any agreements between holders of securities that may result in restrictions on the transfer of securities in the Company. ### Substantial holdings The information below has been provided under requests made to shareholders under section 793 of the Companies Act 2006. As such this information is regarded by the Company as providing an up-to-date representation of our major shareholders' interests. | Shareholder | Interest | | --- | --- | | Schroder Investment Management | 10.54% | | M&G Investments | 9.85% | | abrdn (Standard Life) | 7.27% | | JO Hambro Capital Management | 6.46% | | Hargreaves Lansdown Asset Management | 4.77% | | Aviva Investors | 3.81% | | BMO Global Asset Management | 3.07% | In addition, we have included below, the interests in the share capital of the Company which have been notified to the Company as at 13 September 2022 under Rule 5.1 of the Disclosure Guidance and Transparency Rules. The information in the table below is based on the latest notifications that have been made to the Company by the relevant shareholders; accordingly, it may not accurately represent the actual interests of the relevant shareholders in the share capital of the Company. | Shareholder^{1} | Interest^{2} | | --- | --- | | M&G Plc | 9.93% | | abrdn plc | 8.28% | | Pendal Group Limited | 5.04% | | Brewin Dolphin Limited | 5.01% | | Charles Stanley Group plc | 5.00% | | BlackRock, Inc | Below 5% | | Rathbone Investment Management Limited | 4.93% | | Jupiter Fund Management PLC | 4.78% | | Aviva plc | 4.77% | | Schroders plc | 4.75% | | Norges Bank | 3.03% | $^{1}$ The most recent notification received by the Company from Woodford Investment Management Limited in July 2019 indicated a shareholding of 22,961,145 shares, which would represent 5.13% of the Company's issued share capital as at 13 September 2022. Although the Company believes that the number of shares held by Woodford Investment Management Limited has decreased significantly since that time, it has not received an updated notification of change in shareholding pursuant to the Disclosure Guidance and Transparency Rules. $^{2}$ Subject to rounding. ### Securities carrying special rights No person holds securities in the Company carrying special rights with regard to control of the Company. 136 Kier Group plc | Annual Report and Accounts 2022 ### Rights under employee share schemes As at 30 June 2022, JTC Employer Solutions Trustee Limited ('JTC'), as the trustee of the Kier Group 1999 Employee Benefit Trust, owned 7,389,628 shares (1.66% of the Company's issued share capital at that date). These shares are made available to satisfy share-based awards granted to senior management under the Group's remuneration arrangements. JTC does not exercise any voting rights in respect of these shares and waives any dividends payable. In addition, as at 30 June 2022, JTC held 435,728 shares (0.10% of the Company's issued share capital at that date) in a nominee capacity on behalf of senior management in connection with the Company's deferred bonus arrangements. JTC votes to the extent instructed by the holders of the beneficial interests in these shares (the 'Beneficial Holders') and distributes any dividends received to the Beneficial Holders. As at 30 June 2022, Equiniti Limited ('Equiniti') held 6,513,655 shares (1.46% of the Company's issued share capital at that date) on trust for the benefit of members of the SIP. Equiniti does not exercise any voting rights in respect of the shares held by the trust (although beneficiaries may authorise Equiniti to vote in accordance with their instructions). Equiniti distributes dividends received to beneficiaries under the trust. As at 30 June 2022, the trustee of the May Gurney Limited Employee Share Ownership Trust and the trustee of the May Gurney Integrated Services PLC Employee Benefit Trust held, respectively, 146,359 and 19,045 shares (in aggregate, 0.04% of the Company's issued share capital at that date). These shares are made available to satisfy awards of shares under the Group's remuneration arrangements. Neither of the trustees exercises any voting rights in respect of shares held by its respective trust and each waives dividends payable with respect to such shares. ### Restrictions on voting rights No shareholder will, unless the Board otherwise determines, be entitled to vote at any general meeting unless all calls or other sums then payable by the shareholder in respect of that share have been paid or if that shareholder has been served with a disenfranchisement notice. The Company is not aware of any agreements between holders of securities that may result in restrictions on voting rights. ### Appointment and replacement of Directors Directors may be appointed by the Company by ordinary resolution or by the Board. A Director appointed by the Board holds office until the next AGM of the Company after his/her appointment and is then eligible to stand for election. Each of the Directors will stand for election or re-election by shareholders at the 2022 AGM. Further information about the Directors' skills and experience can be found on pages 94 and 95. The Company may by ordinary resolution, of which special notice has been given, remove any Director before the expiry of the Director's period of office. ### Directors' insurance and indemnities The Directors have the benefit of the indemnity provisions contained in the Articles and the Company maintains Directors' and officers' liability insurance for the benefit of the Directors and the Company's officers. The Company and Kier Limited have also entered into qualifying third-party indemnity arrangements in a form and scope which comply with the Companies Act 2006. Each of these arrangements remain in force as at the date of this Annual Report. ### Amendment of Articles The Articles may be amended by a special resolution of the Company's shareholders. ### Powers of the Directors Subject to the Articles, applicable law and any directions given by shareholders, the Company's business is managed by the Board, which may exercise all the powers of the Company. ### Powers in relation to the Company issuing its shares The Directors were granted authority at the AGM on 19 November 2021 to allot shares in the Company (i) up to an aggregate nominal amount of £1,487,258 and (ii) up to an aggregate nominal amount of £2,974,517 in connection with a rights issue. The Directors were also granted authority to allot shares (i) non-pre-emptively and wholly for cash up to an aggregate nominal amount of £223,088 and (ii) for the purposes of financing an acquisition or other capital investment up to a further nominal amount of £223,088. ### Powers in relation to the Company buying back its shares The Company may only buy back shares if the Articles do not prohibit it from doing so and it has received the requisite authority from shareholders in general meeting. The Articles do not contain any such prohibition and the Company does not propose to seek such authority at the 2022 AGM. Overview Strategic report Governance Strategic statements Other information Kier Group plc | Annual Report and Accounts 2022 137 Directors’ report continued Change of control The Group’s loan facility agreements with its UK lending banks, the note purchase agreements relating to the Group’s US private placements of notes and the Group’s Schuldschein loan agreements each contain provisions under which, in the event of a change of control of the Company, the Company may be required to repay all outstanding amounts borrowed. Certain of the Group’s commercial arrangements, including certain of its joint venture agreements, contract bond agreements and other commercial agreements entered into in the ordinary course of business, include change of control provisions. Certain of the Group’s employee share schemes or remuneration arrangements contain provisions relating to a change of control of the Company. Outstanding awards or options may become exercisable or vest upon a change of control. There are no agreements between the Company and the Directors providing for compensation for loss of office that occurs as a result of a takeover bid (other than those referred to above). Subsidiaries and branches A list of the Group’s subsidiaries and the branches through which the Group operates are listed in note 32 to the consolidated financial statements. Auditors The Board has decided that PricewaterhouseCoopers LLP will be proposed as the Group’s auditors for the financial year ending 30 June 2023. A resolution relating to this re-appointment will be proposed at the forthcoming AGM. AGM The Company’s 2022 AGM is scheduled to be held on 17 November 2022. Please see the Notice of AGM for further information. This Directors’ report was approved by the Board and signed on its behalf by: Jaime Tham Company Secretary 14 September 2022 2nd Floor, Optimum House, Clippers Quay, Salford M50 3XP 138 Kier Group plc | Annual Report and Accounts 2022 ## Statement of Directors’ responsibilities The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’) and the Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 ‘Reduced Disclosure Framework’, and applicable law). Under company law, Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Company and of the profit or loss of the Group for that period. In preparing the financial statements, the Directors are required to: – select suitable accounting policies and then apply them consistently; – state whether applicable IFRSs as issued by the International Accounting Standards Board (‘IASB) have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 101, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements; – make judgements and accounting estimates that are reasonable and prudent; and – prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The Directors are also responsible for keeping adequate accounting records that are sufficient to show and explain the Group’s and Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements and the Directors’ remuneration report comply with the Companies Act 2006. The Directors are responsible for the maintenance and integrity of the Company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. Directors’ confirmations The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group’s and Company’s position and performance, business model and strategy. Each of the Directors, whose names and functions are listed in the Annual Report confirm that, to the best of their knowledge: Governance Financial statementsStrategic reportOverview Other information – the Group financial statements, which have been prepared in accordance with IFRSs as issued by the International Accounting Standards Board (‘IASB’), give a true and fair view of the assets, liabilities, financial position and profit of the Group; – the Company financial statements, which have been prepared in accordance with United Kingdom Accounting Standards, comprising FRS 101, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and – the Annual Report includes a fair review of the development and performance of the business and the position of the Group and Company, together with a description of the principal risks and uncertainties that it faces. In the case of each Director in office at the date the Directors’ report is approved: – so far as the Director is aware, there is no relevant audit information of which the Group’s and Company’s auditors are unaware; and – they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group’s and Company’s auditors are aware of that information. Signed on behalf of the Board by: Andrew Davies Simon Kesterton Chief Executive Chief Financial Officer 14 September 2022 Kier Group plc | Annual Report and Accounts 2022 139 # Independent auditors' report to the members of Kier Group plc ## Report on the audit of the financial statements ### Opinion In our opinion: - Kier Group plc's Group financial statements and Company financial statements (the 'financial statements') give a true and fair view of the state of the Group's and of the Company's affairs as at 30 June 2022 and of the Group's profit and the Group's cash flows for the year then ended; - the Group financial statements have been properly prepared in accordance with UK-adopted international accounting standards; - the Company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 101 'Reduced Disclosure Framework', and applicable law); and - the financial statements have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report and Accounts 2022 (the 'Annual Report'), which comprise: the Consolidated and Company balance sheets as at 30 June 2022; the Consolidated income statement, the Consolidated statement of comprehensive income, the Consolidated and Company statement of changes in equity and the Consolidated statement of cash flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Risk Management and Audit Committee ('RMAC'). ### Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ('ISAs (UK)') and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ### Independence We remained independent of the Group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided. Other than those disclosed in note 4 to the financial statements, we have provided no non-audit services to the Company in the period under audit. ### Our audit approach #### Overview ##### Audit scope - The Group is primarily UK based and we have conducted audit work across all three of the Group's divisions and achieved coverage over 99% (2021: 98%) of Group revenues. ##### Key audit matters - Contract accounting (Group) - Presentation of the Group's financial performance (Group) - Impairment of goodwill (Group) - Carrying value of investments in Group companies and recoverability of amounts owed by subsidiaries (parent) ##### Materiality - Overall Group materiality: £11.0m based on 0.35% of total revenue (2021: £7.7m based on a three-year average of 5% of statutory results before tax from continuing operations). - Overall Company materiality: £9.9m (2021: £6.9m) based on 1% of total assets limited by the application of component materiality. - Performance materiality: £8.3m (2021: £5.8m) (Group) and £7.4m (2021: £5.2m) (Company). ##### The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. ##### Key audit matters Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. Carrying value of property development inventory and COVID-19, which were key audit matters last year, are no longer included. We have reassessed and reduced our risk assessment of the recoverability of property development inventory on the basis of improved performance of the sectors in which Kier Property primarily operates. We reviewed and agreed with management's assessment that the likely impact of COVID-19 on the Group was now considered to be low and as a result have not included this as a key audit matter in our current year audit report. Otherwise, the key audit matters below are consistent with last year. 140 Kier Group plc | Annual Report and Accounts 2022 Key audit matter How our audit addressed the key audit matter Contract accounting (Group) We focused our work on those contracts with the greatest estimation Refer to page 108 (Risk Management and uncertainty over the final contract values and therefore profit or loss outcome. Audit Committee report) and page 162 Our work included the following procedures: (Accounting policy). – We challenged management’s forecasts, in particular assessing the appropriateness of the key assumptions, which included the expected The Group has significant long-term contracts recovery of variations, claims and compensation events from clients, to in its Infrastructure Services and Construction determine the basis on which the associated revenue was considered businesses. The recognition of revenue in to be ‘highly probable’ of not reversing; respect of construction contracts in accordance – We also challenged those assumptions in respect of estimated recoveries with IFRS 15 is based on the stage of completion from subcontractors, designers, and insurers included in the forecasts, of contract activity. to determine whether these could be considered ‘virtually certain’ of recoverability; Profits or losses on contracts is a significant risk – We attended contract review meetings virtually or via a conference call, and for our audit because of the inherent uncertainty inspected minutes of meetings that considered value cost reconciliations in preparing suitable estimates of the forecast (‘VCRs’) in order to understand the controls operated by management; costs and revenue on contracts. An error in the – We substantively tested a sample of costs incurred to date to check that contract forecast could result in a material these had been recorded accurately; variance in the amount of profit or loss (e.g. for – We performed a margin analysis on the end-of-life forecasts (‘ELFs’) to any onerous contracts) recognised to date and, assess the performance of the contract portfolios year on year, and tested therefore, the current financial year. forecast cash flow calculations supporting the recognition of these amounts; – We inspected correspondence and meeting minutes with customers The Group operates in an industry in which concerning variations, claims and compensation events, and obtained contracts allow a route to recovery that may third-party assessments of these from legal or technical experts contracted become disputed or become subject to contract by the Group, if applicable, to assess whether this information was consistent resolution procedures. The settlement process with the estimates made; can be time consuming and can result in an – We discussed the status of certain third-party claims with the Group’s internal outcome that varies from the amount claimed. legal counsel, external solicitors and, where relevant, external experts, and These contract issues may exist in the supply assessed the objectivity and independence of these third parties; chain, or with customers. – We inspected correspondence with insurers relating to recognised insurance claims as well as assessments of these undertaken by the insurers and the These estimates include the expected recovery Group’s external solicitors, where applicable, to assess whether this of costs arising from, for example, variations to information supported the position taken on the contract; the contract requested by the customer, – We obtained an understanding of the relevant contractual clauses and terms compensation events, and claims made both by and conditions and agreed forecast revenue to signed contracts, signed and against the Group for delays or other variations, agreed compensation events or other corroborative and additional costs arising or projected to arise. supporting documentation; Governance Financial statementsStrategic reportOverview Other information – We reconciled revenue recognised with amounts applied for and amounts The Group’s accounting policy is to recognise certified by clients and agreed on a sample basis the amounts received to additional contractual revenue from customers cash. Where there were reconciling items we understood the nature of these only when these amounts are considered highly items to ensure these were appropriate; probable of no significant reversal. Claims – We agreed forecast costs to complete to supporting evidence (such as receivable from third parties (other than the orders signed with subcontractors, performed look back testing and Group’s customers), suppliers or insurance assessed the appropriateness of forecast run rates) and applied industry recoveries are recognised only when they are knowledge and experience to challenge the completeness and accuracy determined to be ‘virtually certain’. of the forecast costs to completion including any cost contingencies held; – We assessed the recoverability of balance sheet items by comparing these to external certification of the value of work performed and subsequent cash receipts; – For the residual contract population (‘the tail’) we performed targeted risk-based procedures including for example testing costs to come, material unagreed change, reviewing the contract forecast report for unusual items and recalculating the percentage of completion; – We considered significant write-offs of contract assets during the year and obtained evidence in respect of a sample of contracts which demonstrated that the write-offs were driven by events during the 2022 financial year; – We reviewed the outcome of prior year forecasts against current year outcomes to assess management’s judgements and forecasting accuracy; and – We considered the adequacy of the disclosures in the financial statements in relation to specific contracts and also the disclosures in respect of significant judgements and estimates. Overall based on these procedures, we are satisfied that the work in progress relating to the Group’s contracts is appropriately stated and that revenue and profits/losses have been recorded appropriately. Kier Group plc | Annual Report and Accounts 2022 141 Independent auditors’ report to the members of Kier Group plc continued Key audit matter How our audit addressed the key audit matter Presentation of the Group’s financial We considered whether the presentation of adjusted operating profit is performance (Group) appropriate. In doing this we performed the following procedures: Refer to page 108 (Risk Management and – We obtained the latest internal Board reporting to evaluate whether the Audit Committee report) and page 163 nature and quantum of the adjustments presented, for the Group and in (Accounting policy). respect of the segments, was consistent with those highlighted and adjusted in the financial statements; Consistent with the prior year, the Directors – We ensured that the Group’s APMs were appropriately reconciled to the present in note 5 to the accounts, the Group’s relevant statutory measures; principal Alternative Performance Measure as – We reviewed the definition and classification of adjusting items in the Group’s ‘Adjusted Operating Profit’ such that the Group’s Annual Report, including the sub-categorisation of these items. In particular: APM is consistent with how management – We challenged whether it was appropriate to continue to present certain reviews the performance of the business. costs within the Regional Southern Build business as restructuring and related charges on the basis that certain of these costs related to contract The Group’s adjusted profit from operations of and tender positions. We accepted this judgement on the basis that the costs £120.5m is stated after charging: recorded in the year represented a continuation of the ongoing strategic – £19.7m of amortisation of acquired intangibles; restructuring of this regional business, noting that this is expected to be – £40.0m of restructuring and related charges; concluded shortly; and – We challenged whether immaterial items, for example redundancy costs and – £15.7m of other adjusting items. costs incurred resizing the international operations, were adjusting in line with the Group’s accounting policy. We accepted the treatment on the basis The determination of which items are treated that these items are excluded in the results reported to and reviewed by the as ‘adjusting’ is judgemental and needs to be Board (the Group’s Chief Operating Decision Maker) and they are not consistent with how the Directors review the dissimilar to costs that are often excluded from headline profits; segmental performance of the business. – We tested the completeness and accuracy of the £7.8m of fire and cladding Users of the financial statements could be costs recorded as adjusting items to ensure there was sufficient evidence to misled if amounts are not classified and support the positions recorded; and disclosed in a transparent manner and – We reviewed management’s disclosures and ensured that sufficient disclosure consistent with the way in which the Board was provided to justify why individual items were treated as adjusting. is reviewing segmental performance. Overall based on these procedures we were satisfied with the presentation of the Group’s profit before adjusting items, and that the reasons for the use of this APM has been properly disclosed. We also ensured that there was appropriate balance in the Group’s Annual Report between references to the adjusted profit and the Group’s statutory profit for the year. 142 Kier Group plc | Annual Report and Accounts 2022 | Key audit matter | How our audit addressed the key audit matter | | --- | --- | | **Impairment of goodwill (Group)** Refer to page 108 (Risk Management and Audit Committee report) and page 163 (Accounting policy). The Group has £536.7m of goodwill on its balance sheet at 30 June 2022 of which £516.3m related to the Infrastructure Services cash generating unit ('CGU') and £20.4m related to the Construction CGU. The audit of goodwill was a focus area given the value of the Group's assets in comparison to its market capitalisation. The carrying value of goodwill is required to be supported by the higher of future cash flows (value in use) or the fair value less cost to sell of each CGU. There is a risk that the assets will be impaired if the cash flows do not meet the Group's forecast projections. The impairment reviews performed by the Group contain a number of estimates including discount rates, growth rates and expected changes to revenue and operating margins during the forecast periods. Changes in these assumptions could lead to an impairment to the carrying value of the assets. We determined there to be a significant audit risk that the carrying value of goodwill allocated to Infrastructure Services may not be supportable when compared to its recoverable amount. The headroom in management's assessment is £154m (22%) (2021: £118m). | In evaluating the Directors' annual impairment assessment for goodwill in respect of Infrastructure Services, we performed the following procedures: - – We tested the integrity of management's model and assessed the allocation of goodwill and acquired intangibles to Cash Generating Units ('CGUs'), and considered the Directors' conclusion that the significant majority of goodwill related to Infrastructure Services; - – We evaluated whether the basis of allocation of corporate assets and central costs to the CGUs was reasonable; - – We obtained the Board-approved three-year forecasts which formed the basis of the model used in the Directors' impairment calculation. We considered whether the planned growth rates and expected operating margins in the impairment model were consistent with the Board-approved cash flows; - – We tested certain contracts in the Group's pipeline to provide evidence of the associated revenue forecast in the cash flow model; - – We challenged management's forecasts and compared future cash flow performance to historic levels as part of our assessment as to whether the planned performance was considered achievable; - – We challenged the assumption within the forecasts that the business's cash flows would be earned into perpetuity, including considering whether the impact of climate change posed a risk to the Group's long-term operations and associated impairment assessments; - – We challenged management's assumptions in respect of inflation, current labour and material shortages and how the potential impact of climate change had been reflected in future cash flows; - – We tested the discount rate and long-term growth rate applied with the support of our internal valuation experts; and - – We sensitised key assumptions including, the short-term and long-term growth rates applied to revenue, forecast operating profits and margins, the discount rate and established the impact of reasonably possible changes in these assumptions. We then ensured that these sensitivities were appropriately disclosed in accordance with IAS 36, 'Impairment of assets'. Based on the procedures performed, we were satisfied with the carrying value of Infrastructure Services goodwill, and with the associated disclosures included in the financial statements. | | **Carrying value of investments in Group companies and recoverability of amounts owed by subsidiaries (parent)** Refer to page 108 (Risk Management and Audit Committee report) and page 222 (Company notes to the financial statements). The Company holds investments in subsidiaries of £437.8m (2021: £429.2m) the largest of which is in Kier Limited of £415.5m (2021: £412.2m) and net amounts owed by subsidiary undertakings of £1,406.6m (2021: £1,291.8m). We have focused on these areas due to the magnitude of the investments in, and net amounts owed by, subsidiary undertakings, when for example compared to the Group's market capitalisation (which remains below the carrying value of the investments in subsidiaries). The Directors' assessment of the carrying value of investments was that no impairment was required. Similarly, all amounts owed by subsidiary undertakings were assessed as being recoverable. | We reviewed the Directors' impairment assessment of the carrying value of the investment in Kier Limited and net amounts owed by subsidiary undertakings. In respect of the investment in Kier Limited, we agreed the forecast cash flows used in this assessment to the forecasts used in the assessment of impairment of goodwill and other intangible assets. Our work performed on those cash flows is set out in the Goodwill Key Audit Matter above. We verified that the aggregate net current assets of subsidiary undertakings were sufficient to support amounts owed by subsidiary undertakings and whether, in accordance with IFRS 9, an expected credit loss was required. As a result of these procedures, we were satisfied with the Directors' conclusion that no impairment was required against the carrying value of the investments in subsidiaries or the net amounts owed by subsidiary undertakings. | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 143 Independent auditors' report to the members of Kier Group plc continued #### How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the Group and the Company, the accounting processes and controls, and the industry in which they operate. The Group's operations and reporting process are structured into three divisions represented by Infrastructure Services, Construction and Property. The Group audit partner, supported by other UK engagement leaders, led UK-based teams responsible for the audit of each of these divisions. The three divisions include a number of reporting units in the Group's consolidation, each of which is considered to be a financial component. The significant majority of the Group's operations are concentrated in the UK and account for 99% of the Group's revenue, with the remaining 1% generated from overseas businesses. We instructed a component team in Dubai to perform specified audit procedures on the Group's Middle East construction business. Our audit approach was designed to obtain coverage over 99% of the Group's revenue. We are satisfied that we obtained appropriate audit coverage over the Group's income statement, balance sheet and cash flows through our audit work on the UK and overseas operations. In planning our audit, we made enquiries with management to understand the extent of the potential impact of climate change risk on the Group's financial statements. Management concluded that there was no material impact on the financial statements. Our evaluation of this conclusion included challenging key judgements and estimates in areas where we considered that there was greatest potential for climate change impact. We particularly considered how climate change risks (and opportunities) could impact the assumptions made in areas such as goodwill impairment, recoverability of contract assets (see key audit matters above) and the valuation of investment property. We also considered the consistency of the disclosures in relation to climate change made within the Annual Report. #### Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: | | Financial statements – Group | Financial statements – Company | | --- | --- | --- | | **Overall materiality** | £11.0m (2021: £7.7m). | £9.9m (2021: £8.9m). | | **How we determined it** | 0.35% of total revenue (2021: based on a three-year average of 5% of statutory results before tax from continuing operations) | 1% of total assets capped at 90% of Group materiality | | **Rationale for benchmark applied** | This year, we re-evaluated the way in which we determined materiality, and we considered different benchmarks based on a number of profit measures and revenue, taking into account the fluctuating performance of the business over the last few years and the overall scale of the business. This gave us a range within which to determine materiality. Based on our professional judgement, we concluded that an amount of £11.0m was appropriate, representing 0.35% of the Group's revenue. | The Company primarily holds intercompany receivables, investments in subsidiaries and debt. We, therefore, believe that total assets is the primary measure for shareholders of the financial statements of the ultimate holding Company of the Group. | For each component in the scope of our Group audit, we allocated a materiality that was less than our overall Group materiality. The range of materiality allocated across components was between £1m and £9.9m. Certain components were audited to a local statutory audit materiality that was also less than the allocated component materiality. We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2021: 75%) of overall materiality, amounting to £8.3m (2021: £5.8m) for the Group financial statements and £7.4m (2021: £5.2m) for the Company financial statements. In determining the performance materiality, we considered a number of factors – the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls – and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Risk Management and Audit Committee ('RMAC') that we would report to them misstatements identified during our audit above £0.6m (Group audit) (2021: £0.4m) and £0.6m (Company audit) (2021: £0.4m) as well as misstatements below those amounts that, in our view, warranted reporting for qualitative reasons. 144 Kier Group plc | Annual Report and Accounts 2022 Conclusions relating to going concern Reporting on other information Our evaluation of the Directors’ assessment of the Group’s and The other information comprises all of the information in the the Company’s ability to continue to adopt the going concern Annual Report other than the financial statements and our basis of accounting included: auditors’ report thereon. The Directors are responsible for the – Reviewing management’s going concern paper to ensure it other information, which includes reporting based on the Task was based upon the latest Board approved forecasts and that Force on Climate-related Financial Disclosures (‘TCFD’) the cash flow assumptions were consistent with our recommendations. Our opinion on the financial statements does understanding of the outlook for the Group’s businesses and not cover the other information and, accordingly, we do not the wider market; express an audit opinion or, except to the extent otherwise – Testing, on a sample basis, significant contracts in the explicitly stated in this report, any form of assurance thereon. Group’s pipeline to obtain evidence in support of the revenue forecasts in the going concern model; In connection with our audit of the financial statements, our – Performing sensitivity analysis over management’s forecasts, responsibility is to read the other information and, in doing so, particularly with respect to the rising inflationary and interest consider whether the other information is materially inconsistent rate environment, in order to determine whether under severe with the financial statements or our knowledge obtained in the but plausible scenarios the Group’s peak debt could exceed audit, or otherwise appears to be materially misstated. If we its lending limits and/or the Group could breach covenant identify an apparent material inconsistency or material limits. This included consideration as to whether management misstatement, we are required to perform procedures to has mitigating actions available to it, and within its control, to conclude whether there is a material misstatement of the prevent such a situation occurring; financial statements or a material misstatement of the other – Comparison of the prior year forecasts against current year information. If, based on the work we have performed, we actual performance to assess management’s ability to conclude that there is a material misstatement of this other forecast accurately; information, we are required to report that fact. We have nothing – Reviewing management’s covenant calculations, covering the to report based on these responsibilities. period from 30 June 2022 to 31 December 2023 ensuring that the covenant thresholds and definitions were consistent with With respect to the Strategic report and Directors’ report, we the financing agreements; also considered whether the disclosures required by the UK – Considering the forecasts and downside sensitivities Companies Act 2006 have been included. prepared, including whether they appropriately reflected the ongoing macroeconomic risks, such as inflationary pressures Based on our work undertaken in the course of the audit, the and increasing interest rates, on the Group’s operations; and Companies Act 2006 requires us also to report certain opinions – Inspecting lending limits and availability of finance, ensuring and matters as described below. that the accounting for these arrangements is appropriate. Strategic report and Directors’ report Based on the work we have performed, we have not identified In our opinion, based on the work undertaken in the course of any material uncertainties relating to events or conditions that, the audit, the information given in the Strategic report and individually or collectively, may cast significant doubt on the Directors’ report for the year ended 30 June 2022 is consistent Governance Financial statementsStrategic reportOverview Other information Group’s and the Company’s ability to continue as a going with the financial statements and has been prepared in concern for a period of at least twelve months from when the accordance with applicable legal requirements. financial statements are authorised for issue. In light of the knowledge and understanding of the Group and In auditing the financial statements, we have concluded that the Company and their environment obtained in the course of the Directors’ use of the going concern basis of accounting in the audit, we did not identify any material misstatements in the preparation of the financial statements is appropriate. Strategic report and Directors’ report. However, because not all future events or conditions can be Directors’ Remuneration predicted, this conclusion is not a guarantee as to the Group’s In our opinion, the part of the Directors’ Remuneration report to and the Company’s ability to continue as a going concern. be audited has been properly prepared in accordance with the Companies Act 2006. In relation to the Directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material Corporate governance statement to add or draw attention to in relation to the Directors’ statement The Listing Rules require us to review the Directors’ statements in the financial statements about whether the Directors in relation to going concern, longer-term viability and that part of considered it appropriate to adopt the going concern basis the corporate governance statement relating to the Company’s of accounting. compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional Our responsibilities and the responsibilities of the Directors with responsibilities with respect to the corporate governance respect to going concern are described in the relevant sections statement as other information are described in the Reporting of this report. on other information section of this report. Kier Group plc | Annual Report and Accounts 2022 145 Independent auditors’ report to the members of Kier Group plc continued Based on the work undertaken as part of our audit, we have Responsibilities for the financial statements and concluded that each of the following elements of the corporate the audit governance statement is materially consistent with the financial Responsibilities of the Directors for the financial statements and our knowledge obtained during the audit, statements and we have nothing material to add or draw attention to in As explained more fully in the Statement of Directors’ relation to: responsibilities, the Directors are responsible for the – The Directors’ confirmation that they have carried out a preparation of the financial statements in accordance with the robust assessment of the emerging and principal risks; applicable framework and for being satisfied that they give a – The disclosures in the Annual Report that describe those true and fair view. The Directors are also responsible for such principal risks, what procedures are in place to identify internal control as they determine is necessary to enable the emerging risks and an explanation of how these are being preparation of financial statements that are free from material managed or mitigated; misstatement, whether due to fraud or error. – The Directors’ statement in the financial statements about whether they considered it appropriate to adopt the going In preparing the financial statements, the Directors are concern basis of accounting in preparing them, and their responsible for assessing the Group’s and the Company’s identification of any material uncertainties to the Group’s ability to continue as a going concern, disclosing, as applicable, and Company’s ability to continue to do so over a period of matters related to going concern and using the going concern at least twelve months from the date of approval of the basis of accounting unless the Directors either intend to financial statements; liquidate the Group or the Company or to cease operations, – The Directors’ explanation as to their assessment of the or have no realistic alternative but to do so. Group’s and Company’s prospects, the period this assessment covers and why the period is appropriate; and Auditors’ responsibilities for the audit of the financial – The Directors’ statement as to whether they have a statements reasonable expectation that the Company will be able to Our objectives are to obtain reasonable assurance about continue in operation and meet its liabilities as they fall due whether the financial statements as a whole are free from over the period of its assessment, including any related material misstatement, whether due to fraud or error, and to disclosures drawing attention to any necessary qualifications issue an auditors’ report that includes our opinion. Reasonable or assumptions. assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will Our review of the Directors’ statement regarding the longer-term always detect a material misstatement when it exists. viability of the Group was substantially less in scope than an Misstatements can arise from fraud or error and are considered audit and only consisted of making inquiries and considering material if, individually or in the aggregate, they could the Directors’ process supporting their statement; checking that reasonably be expected to influence the economic decisions of the statement is in alignment with the relevant provisions of the users taken on the basis of these financial statements. UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our Irregularities, including fraud, are instances of non-compliance knowledge and understanding of the Group and Company and with laws and regulations. We design procedures in line with their environment obtained in the course of the audit. our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. In addition, based on the work undertaken as part of our audit, The extent to which our procedures are capable of detecting we have concluded that each of the following elements of the irregularities, including fraud, is detailed below. corporate governance statement is materially consistent with the financial statements and our knowledge obtained during Based on our understanding of the Group and industry, we the audit: identified that the principal risks of non-compliance with laws – The Directors’ statement that they consider the Annual and regulations related to UK pensions and employment Report, taken as a whole, is fair, balanced and legislation, data protection legislation, the Health and Safety understandable, and provides the information necessary for Executive legislation and equivalent local laws. Fire Safety Act the members to assess the Group’s and Company’s position, 2021, anti-bribery and corruption legislation, environmental performance, business model and strategy; legislation, construction laws and regulations applicable to – The section of the Annual Report that describes the review overseas operations, and we considered the extent to which of effectiveness of risk management and internal control non-compliance might have a material effect on the financial systems; and statements. We also considered those laws and regulations – The section of the Annual Report describing the work of the that have a direct impact on the financial statements such as Risk Management and Audit Committee (‘RMAC’). the Companies Act 2006, Listing Rules and tax legislation. We evaluated management’s incentives and opportunities for We have nothing to report in respect of our responsibility to fraudulent manipulation of the financial statements (including report when the Directors’ statement relating to the Company’s the risk of override of controls), and determined that the compliance with the Code does not properly disclose a principal risks were related to fraudulent financial reporting departure from a relevant provision of the Code specified under and management bias in long-term contracting accounting the Listing Rules for review by the auditors. estimates. The Group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit procedures in response to such risks in their work. Audit procedures performed by the Group engagement team and/or component auditors included: 146 Kier Group plc | Annual Report and Accounts 2022 – Discussions with management, Internal Audit and internal ### legal counsel, including consideration of known or suspected Other required reporting instances of non-compliance with laws and regulation and fraud; Companies Act 2006 exception reporting – Assessment of matters reported on the Group’s Under the Companies Act 2006 we are required to report to you whistleblowing helpline and the results of management’s if, in our opinion: investigation of such matters; – we have not obtained all the information and explanations we – Reading key correspondence with external legal advisers; require for our audit; or – Review of external press releases; – adequate accounting records have not been kept by the – Challenging assumptions and judgements made by Company, or returns adequate for our audit have not been management in the estimates involved in accounting for received from branches not visited by us; or long-term contracts; and – certain disclosures of Directors’ remuneration specified by – Identifying and testing journal entries, in particular any journal law are not made; or entries posted with unusual account combinations, unusual – the Company financial statements and the part of the words and unusual users. Directors’ Remuneration report to be audited are not in agreement with the accounting records and returns. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of We have no exceptions to report arising from this responsibility. non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial Appointment statements. Also, the risk of not detecting a material Following the recommendation of the Risk Management and misstatement due to fraud is higher than the risk of not Audit Committee (‘RMAC’), we were appointed by the members detecting one resulting from error, as fraud may involve on 24 September 2014 to audit the financial statements for the deliberate concealment by, for example, forgery or intentional year ended 30 June 2015 and subsequent financial periods. misrepresentations, or through collusion. The period of total uninterrupted engagement is eight years, covering the years ended 30 June 2015 to 30 June 2022. Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited ### Other matter number of items for testing, rather than testing complete populations. We will often seek to target particular items for As required by the Financial Conduct Authority Disclosure testing based on their size or risk characteristics. In other Guidance and Transparency Rule 4.1.14R, these financial cases, we will use audit sampling to enable us to draw statements form part of the ESEF-prepared annual financial a conclusion about the population from which the sample report filed on the National Storage Mechanism of the Financial is selected. Conduct Authority in accordance with the ESEF Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides A further description of our responsibilities for the audit of the no assurance over whether the annual financial report has been Governance Financial statementsStrategic reportOverview Other information financial statements is located on the FRC’s website at: prepared using the single electronic format specified in the www.frc.org.uk/auditorsresponsibilities. This description forms ESEF RTS. part of our auditors’ report. Use of this report Andrew Paynter (Senior Statutory Auditor) This report, including the opinions, has been prepared for and for and on behalf of PricewaterhouseCoopers LLP only for the Company’s members as a body in accordance with Chartered Accountants and Statutory Auditors Chapter 3 of Part 16 of the Companies Act 2006 and for no London other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other 14 September 2022 person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Kier Group plc | Annual Report and Accounts 2022 147 # Consolidated income statement For the year ended 30 June 2022 | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Continuing operations** | | | | | **Revenue** | 2 | | | | Group and share of joint ventures^{1} | 3 | 3,256.5 | 3,328.5 | | Less share of joint ventures | 3 | (112.6) | (67.5) | | **Group revenue** | | **3,143.9** | **3,261.0** | | Cost of sales | | (2,879.9) | (2,976.9) | | **Gross profit** | | **264.0** | **284.1** | | Administrative expenses | | (245.5) | (240.1) | | Share of post-tax results of joint ventures | 15 | 26.6 | (0.3) | | **Profit from operations** | 3, 4 | **45.1** | **43.7** | | Finance income | 6 | 0.7 | 3.7 | | Finance costs | 6 | (29.9) | (41.8) | | **Profit before tax** | 3 | **15.9** | **5.6** | | Taxation | 9 | (3.2) | 17.4 | | **Profit for the year from continuing operations** | 3 | **12.7** | **23.0** | | **Discontinued operations** | | | | | Loss for the year from discontinued operations (attributable to equity holders of the parent) | 22 | – | (24.8) | | **Profit/(loss) for the year** | 3 | **12.7** | **(1.6)** | | **Attributable to:** | | | | | Owners of the parent | | 12.7 | (0.3) | | Non-controlling interests | | – | (1.3) | | | | **12.7** | **(1.6)** | | **Earnings per share from continuing operations** | | | | | – Basic | 11 | 2.9p | 11.6p | | – Diluted | 11 | 2.8p | 11.4p | | **Total earnings/(loss) per share** | | | | | – Basic | 11 | 2.9p | (0.1)p | | – Diluted | 11 | 2.8p | (0.1)p | | **Supplementary information from continuing operations** | | | | | Adjusted^{2} operating profit | 5 | 120.5 | 100.3 | | Adjusted^{2} profit before tax | 5 | 94.1 | 65.4 | | Adjusted^{2} earnings per share | 11 | 16.8p | 25.0p | | Adjusted^{2} diluted earnings per share | 11 | 16.4p | 24.6p | $^{1}$ Group revenue including joint ventures is an alternative performance measure, see page 227. $^{2}$ Reference to 'adjusted' excludes adjusting items, see notes 1 and 5. These are alternative performance measures, see page 227. 148 Kier Group plc | Annual Report and Accounts 2022 # Consolidated statement of comprehensive income For the year ended 30 June 2022 | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Profit/(loss) for the year** | | **12.7** | (1.6) | | **Items that may be reclassified subsequently to the income statement** | | | | | Fair value movements on cash flow hedging instruments | | 6.4 | (16.6) | | Fair value movements on cash flow hedging instruments recycled to the income statement | 6 | (7.4) | 15.0 | | Deferred tax on fair value movements on cash flow hedging instruments | 9 | 0.2 | 0.3 | | Foreign exchange translation differences | | 3.9 | (3.2) | | Foreign exchange movements recycled to the income statement | 6 | – | 0.1 | | **Total items that may be reclassified subsequently to the income statement** | | **3.1** | (4.4) | | **Items that will not be reclassified to the income statement** | | | | | Re-measurement of retirement benefit assets and obligations | 8 | 136.3 | (29.8) | | Deferred tax on re-measurement of retirement benefit assets and obligations | 9 | (34.7) | 4.8 | | **Total items that will not be reclassified to the income statement** | | **101.6** | (25.0) | | **Other comprehensive income/(loss) for the year** | | **104.7** | (29.4) | | **Total comprehensive income/(loss) for the year** | | **117.4** | (31.0) | | **Attributable to:** | | | | | Equity holders of the parent | | 117.4 | (29.7) | | Non-controlling interests – continuing operations | | – | (1.3) | | | | **117.4** | (31.0) | | **Total comprehensive income/(loss) attributable to equity shareholders arises from:** | | | | | Continuing operations | | 117.4 | (5.1) | | Discontinued operations | | – | (24.6) | | | | **117.4** | (29.7) | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 149 # Consolidated statement of changes in equity For the year ended 30 June 2022 | | Note | Share capital £m | Share premium £m | Capital redemption reserve £m | Accumulated losses £m | Cash flow hedge reserve £m | Translation reserve £m | Merger reserve £m | Equity attributable to owners of the parent £m | Non-controlling interests £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | **At 1 July 2020** | | 1.6 | 684.3 | 2.7 | (592.0) | 1.2 | 8.1 | 134.8 | 240.7 | 0.1 | 240.8 | | Loss for the year | | – | – | – | (0.3) | – | – | – | (0.3) | (1.3) | (1.6) | | Other comprehensive losses | | – | – | – | (25.0) | (1.3) | (3.1) | – | (29.4) | – | (29.4) | | **Total comprehensive loss for the year** | | – | – | – | (25.3) | (1.3) | (3.1) | – | (29.7) | (1.3) | (31.0) | | Issue of own shares | 26 | 2.9 | – | – | – | – | – | 215.8 | 218.7 | – | 218.7 | | Share-based payments | 27 | – | – | – | 7.0 | – | – | – | 7.0 | – | 7.0 | | Purchase of own shares | 27 | – | – | – | (0.5) | – | – | – | (0.5) | – | (0.5) | | **At 30 June 2021** | | 4.5 | 684.3 | 2.7 | (610.8) | (0.1) | 5.0 | 350.6 | 436.2 | (1.2) | 435.0 | | Profit for the year | | – | – | – | 12.7 | – | – | – | 12.7 | – | 12.7 | | Other comprehensive income/(loss) | | – | – | – | 101.6 | (0.8) | 3.9 | – | 104.7 | – | 104.7 | | **Total comprehensive income/(loss) for the year** | | – | – | – | 114.3 | (0.8) | 3.9 | – | 117.4 | – | 117.4 | | Issue of own shares | | – | – | – | – | – | – | – | – | 0.6 | 0.6 | | Share-based payments | 27 | – | – | – | 8.6 | – | – | – | 8.6 | – | 8.6 | | Purchase of own shares | 27 | – | – | – | (7.0) | – | – | – | (7.0) | – | (7.0) | | **At 30 June 2022** | | 4.5 | 684.3 | 2.7 | (494.9) | (0.9) | 8.9 | 350.6 | 555.2 | (0.6) | 554.6 | The numbers in the table above are shown net of tax as applicable. 160 Kier Group plc | Annual Report and Accounts 2022 # Consolidated balance sheet As at 30 June 2022 | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Non-current assets** | | | | | Intangible assets | 12 | 669.1 | 697.2 | | Property, plant and equipment | 13 | 32.7 | 43.3 | | Right-of-use assets | 23 | 80.6 | 96.5 | | Investment properties | 14 | 60.4 | 49.6 | | Investments in and loans to joint ventures | 15 | 82.3 | 98.9 | | Capitalised mobilisation costs | 16 | 11.6 | 3.8 | | Deferred tax assets | 17 | 108.8 | 138.0 | | Contract assets | 18 | 31.2 | 30.7 | | Trade and other receivables | 19 | 17.0 | 24.1 | | Retirement benefit assets | 8 | 199.2 | 87.2 | | Other financial assets | 29 | 8.5 | 11.4 | | **Non-current assets** | | **1,301.4** | **1,280.7** | | **Current assets** | | | | | Inventories | 20 | 56.8 | 54.7 | | Contract assets | 18 | 366.3 | 335.7 | | Trade and other receivables | 19 | 202.9 | 203.1 | | Corporation tax receivable | | 10.0 | 13.6 | | Other financial assets | 29 | 3.7 | 2.0 | | Cash and cash equivalents | 21 | 297.7 | 391.2 | | **Current assets** | | **937.4** | **1,000.3** | | **Total assets** | | **2,238.8** | **2,281.0** | | **Current liabilities** | | | | | Borrowings | 21 | (40.5) | (38.2) | | Lease liabilities | 23 | (25.9) | (27.4) | | Trade and other payables | 24 | (1,065.7) | (1,093.1) | | Contract liabilities | 18 | (67.3) | (59.9) | | Provisions | 25 | (22.2) | (14.9) | | **Current liabilities** | | **(1,221.6)** | **(1,233.5)** | | **Non-current liabilities** | | | | | Borrowings | 21 | (266.5) | (362.3) | | Lease liabilities | 23 | (131.7) | (136.4) | | Trade and other payables | 24 | (34.1) | (39.9) | | Retirement benefit obligations | 8 | (4.5) | (41.0) | | Provisions | 25 | (25.8) | (32.9) | | **Non-current liabilities** | | **(462.6)** | **(612.5)** | | **Total liabilities** | | **(1,684.2)** | **(1,846.0)** | | **Net assets** | 3 | **554.6** | **435.0** | | **Equity** | | | | | Share capital | 26 | 4.5 | 4.5 | | Share premium | | 684.3 | 684.3 | | Capital redemption reserve | | 2.7 | 2.7 | | Accumulated losses | | (494.9) | (610.8) | | Cash flow hedge reserve | | (0.9) | (0.1) | | Translation reserve | | 8.9 | 5.0 | | Merger reserve | 26 | 350.6 | 350.6 | | **Equity attributable to owners of the parent** | | **555.2** | **436.2** | | **Non-controlling interests** | | **(0.6)** | **(1.2)** | | **Total equity** | | **554.6** | **435.0** | The financial statements of Kier Group plc, company registration number 2708030, on pages 148–218 were approved by the Board of Directors on 14 September 2022 and were signed on its behalf by: Chief Executive Chief Financial Officer Overview Strategy in report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 151 # Consolidated statement of cash flows For the year ended 30 June 2022 | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Cash flows from operating activities** | | | | | Profit/(loss) before tax – continuing operations | | 15.9 | 5.6 | | – discontinued operations | 22 | – | (24.6) | | Net finance cost | 6 | 29.2 | 38.1 | | Share of post-tax trading results of joint ventures | 15 | (26.6) | 0.3 | | Difference between pension funding contributions paid and the pension cost (credit)/charge | 8 | (0.4) | 0.7 | | Equity-settled share-based payments charge | 27 | 8.6 | 7.0 | | Amortisation and impairment of intangible assets and mobilisation costs | 12,16 | 30.3 | 30.9 | | Reversal of impairment of assets held for sale and intangible assets | 5,12 | – | (5.4) | | Change in fair value of investment properties | 14 | (0.2) | 0.3 | | Research and development expenditure credit | 9 | (20.7) | (13.3) | | Depreciation and impairment of property, plant and equipment | 13 | 10.7 | 6.4 | | Depreciation and impairment of right-of-use assets | 23 | 35.2 | 33.7 | | Loss on disposal of joint ventures and subsidiaries | 22 | – | 12.1 | | Loss/(profit) on disposal of property, plant and equipment and intangible assets | | 0.8 | (0.2) | | Operating cash inflows before movements in working capital and pension deficit contributions | | 82.8 | 91.6 | | Deficit contributions to pension funds | 8 | (10.8) | (37.0) | | (Increase)/decrease in inventories | 21 | (2.1) | 3.9 | | Decrease in receivables | 21 | 7.3 | 43.0 | | Increase in contract assets | 21 | (31.6) | (95.3) | | (Decrease)/increase in payables | 21 | (12.4) | 100.7 | | Increase/(decrease) in contract liabilities | | 7.4 | (48.8) | | Increase/(decrease) in provisions | 21 | 0.2 | (31.3) | | **Cash inflow from operating activities** | | **40.8** | **26.8** | | Dividends received from joint ventures | 15 | 32.5 | 6.3 | | Interest received | 6 | 0.7 | 3.7 | | Income tax received | 9 | – | 11.2 | | Net cash inflow from operating activities | | 74.0 | 48.0 | | **Cash flows from investing activities** | | | | | Proceeds from sale of property, plant and equipment | | 4.2 | 2.5 | | Proceeds from sale of subsidiaries and joint ventures, net of cash disposed | 22 | – | 120.8 | | Purchase of property, plant and equipment | 13 | (6.0) | (3.3) | | Purchase of intangible assets | 12 | (0.7) | (3.1) | | Purchase of capitalised mobilisation costs | 16 | (10.2) | (3.5) | | Investment in joint ventures | 15 | (16.8) | (9.2) | | Loan repayment and return of equity from joint ventures | 15 | 27.5 | 9.3 | | Net cash (used in)/from investing activities | | (2.0) | 113.5 | | **Cash flows from financing activities** | | | | | Issue of shares net of associated transaction costs | 26 | (6.1) | 224.8 | | Issue of shares to non-controlling interest | | 0.6 | – | | Purchase of own shares | 27 | (7.0) | (0.5) | | Interest paid | | (28.8) | (28.4) | | Principal elements of lease payments | 23 | (33.8) | (39.6) | | Repayment of borrowings | 21 | (101.8) | (337.4) | | Settlement of derivative financial instruments | | 7.5 | – | | Net cash used in financing activities | | (169.4) | (181.1) | | Decrease in cash, cash equivalents and overdraft | | (97.4) | (19.6) | | Effect of change in foreign exchange rates | | 3.9 | (3.1) | | Opening cash, cash equivalents and overdraft | | 391.2 | 413.9 | | Closing cash, cash equivalents and overdraft | 21 | 297.7 | 391.2 | | Supplementary information | | | | | Adjusted cash flow from operating activities | 5 | 82.0 | 98.9 | 152 Kier Group plc | Annual Report and Accounts 2022 # Notes to the consolidated financial statements For the year ended 30 June 2022 ## 1 Significant accounting policies Kier Group plc (the 'Company') is a public limited company which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The Company's registered number is 2708030. The consolidated financial statements of the Company for the year ended 30 June 2022 comprise the Company and its subsidiaries (together referred to as the Group) and the Group's interest in joint arrangements. The consolidated financial statements were approved by the Directors on 14 September 2022. ### Statement of compliance On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. Kier Group plc transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 July 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework. The Group's consolidated financial statements have been prepared in accordance with UK-adopted International Accounting Standards effective for accounting periods beginning on or after 1 July 2021 and with the requirements of the Companies Act 2006 as applicable to companies reporting under those standards. The Company has elected to prepare its parent company financial statements in accordance with the FRS 101 'Reduced Disclosure Framework'. These are presented on pages 219–225. ### Basis of preparation The financial statements are presented in pounds sterling. They have been prepared on the historical cost basis except for investment properties, defined benefit pension plans and derivative financial instruments which are stated at their fair value, and the IFRS 2 share-based payments charge which is based on the fair value of the options granted. The following new amendments to standards are effective for the financial year ended 30 June 2022 onwards: - Amendments to IFRS 7 'Financial Instruments: Disclosures', IFRS 4 'Insurance Contracts', IFRS 16 'Leases' and IFRS 9 'Financial Instruments' for interest rate benchmark reform (phase 2) - Amendments to IFRS 4 'Insurance Contracts' in relation to the deferral of IFRS 9 - Amendments to IFRS 16 'Leases' for extension of COVID-19 related rent concessions None of the above amendments to standards has had a material effect on the Group's financial statements for the current period nor is expected to do so for future periods. The following new standards and amendments to standards have been issued but were not yet effective and therefore have not been applied in these financial statements: - IFRS 17 'Insurance Contracts' - Amendments to IAS 1 'Presentation of Financial Statements' on classification of liabilities - Narrow-scope amendments to IFRS 3, IAS 16, IAS 37 and annual improvements on IFRS 1, IFRS 9, IAS 41 and IFRS 16 (published May 2020) - Narrow-scope amendments to IAS 1, Practice statement 2 and IAS 8 (published February 2021) - Amendments to IAS 12 'Income Taxes' on deferred tax related to assets and liabilities arising from a single transaction. IFRS 17 will replace IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by entities that issue insurance contracts. The new standard will first be applied by the Group in the accounting year ended 30 June 2024. Whilst the Group does have its own captive insurance company, Tempsford Insurance Company Limited, this company does not issue insurance contracts to parties outside of the Group and therefore the Group has concluded that this arrangement will not have a material impact on the Group's consolidated financial statements. However, the widely drawn definition of an insurance contract means that a number of relatively common contracts entered into by non-insurers may be considered to be insurance contracts, even if they are not typically thought of in those terms. Some contracts that provide a service for a fixed fee may meet the definition of an insurance contract, where the level of service provided depends on uncertain future events (for example, reactive repair and maintenance services). Therefore, the Group is currently evaluating its fixed fee service contracts to establish whether the Group will need to adopt a different accounting treatment for any of these contracts under IFRS 17 and, if that's the case, whether it will have any significant effect on the Group's financial statements. No significant net impact from the adoption of the above amendments to standards is expected. The Group has chosen not to adopt any of the above standards or amendments earlier than required. ### Going concern The Directors continue to adopt the going concern basis in preparing the Group's financial statements. The Group performed well through the year ended 30 June 2022 and produced results in line with the Board's expectations. Average net debt compared to the prior year has reduced significantly following the sale of Kier Living and the equity raise in the last quarter of FY21. The Group continues to win new, high-quality and profitable business in its markets on terms and at rates which reflect the new bidding disciplines and risk management practices introduced under the Group's Performance Excellence programme. As a result, the order book as at 30 June 2022 increased to £9.8bn (2021: £7.7bn). As at 30 June 2022, the Group had £654.0m of unsecured committed facilities and £18.0m of uncommitted overdrafts. Additionally, as at 30 June 2022, the Group had invoices outstanding to the value of £49.8m under uncommitted supply chain financing facilities ('KEPS'). As from 10 July 2022, the Group had no outstanding invoices under the KEPS facilities. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 153 **Notes to the consolidated financial statements continued** For the year ended 30 June 2022 ## 1 Significant accounting policies continued Financial covenant certificates for June 2022 have been prepared with no breaches noted. The Directors have reviewed the Group's cash flow forecasts for the period to 31 December 2023, which are included in the Group's three-year strategic plan, on the basis of certain key assumptions and including a number of stressed but plausible downside scenarios. These scenarios included the consideration of risks which may arise to the Group's available liquidity and its ongoing compliance with financial covenants within the Group's principal debt facilities as a result of or in light of the following factors or circumstances: - Potential reductions in trading volumes; - Potential future challenges in respect of ongoing projects; - The availability of supply-chain finance; - Project inflation and subcontractor insolvency; - Reduced investment/delays in Property transactions and cost of adoption of green legislation; and - Plausible changes in the interest rate environment. The Board also continues to monitor the ongoing impact of COVID-19, however at present the risk of ongoing material impact has been deemed low. The Board also considered the macroeconomic and political risks affecting the UK economy, including the availability of labour, increased supply chain costs and increased interest rates. The Board noted that the Group's forecasts are underpinned by a significant proportion of revenue that is either secured or considered probable, often as part of long-term framework agreements, and that the Group operates primarily in sectors such as infrastructure, health, education and utilities, which are considered likely to remain largely unaffected by macroeconomic factors. Although inflationary pressures remain a risk, both in the supply chain and the labour market, this is partly mitigated by c.60% of contracts being target cost or cost plus. The Board has also considered the potential impact of climate change and does not consider the Group's operations are at risk from physical climate-related risks such as hurricanes and temperature changes in the short term. In the medium term the Board has concluded that any adverse financial impacts from required changes to operations in line with ESG requirements will be offset by opportunities which present the Group with additional volumes and profits, such as replacement of non-sustainable buildings, construction of new 'clean' power plants and 'green' building conversions. As such, the longevity of the Group's business model means that climate change has no material adverse impact on going concern. Having reviewed the Group's cash flow forecasts, the Directors consider that the Group is expected to continue to have available liquidity headroom under its finance facilities and operate within its financial covenants over the going concern period, including in a downside scenario. The Directors also note that the risk associated with going concern has reduced following the corporate actions taken in the previous financial year and in light of the Group's execution of its strategic milestones, its most recent trading performance and latest forecasts, and the associated improved headroom over liquidity and covenant limits. As a result, the Directors are satisfied that the Group has adequate resources to meet its obligations as they fall due for a period of at least twelve months from the date of approving these financial statements and, for this reason, they continue to adopt the going concern basis in preparing these financial statements. ## Changes in significant accounting policies Following the introduction of IFRS 9, which was effective from 1 July 2018, the Group chose to continue to apply the hedge accounting requirements of IAS 39. The Group has elected to adopt the general hedge accounting model in IFRS 9, with effect from 1 July 2021. This requires the Group to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy, and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. The Group uses forward foreign exchange contracts to hedge the variability in cash flows arising from changes in foreign exchange rates relating to foreign currency borrowings. The Group's risk management strategies and hedge documentation are aligned with the requirements of IFRS 9. All hedging relationships designated under IAS 39 at 30 June 2021 met the criteria for hedge accounting under IFRS 9 at 1 July 2021 and are therefore regarded as continuing hedging relationships. The transition from IAS 39 to IFRS 9 hedge accounting requirements has not had a material effect on the Group's financial statements. ## Basis of consolidation ### (a) Subsidiaries The consolidated financial statements comprise the financial statements of the Company and subsidiaries controlled by the Company drawn up to 30 June 2022. Control exists when the Group has direct or indirect power to govern the financial and operating policies of an entity so as to obtain economic benefits from its activities. Subsidiaries are included in the consolidated financial statements from the date that control transfers to the Group until the date that control ceases. Business combinations are accounted for using the acquisition method as at the acquisition date, which is the date on which control is transferred to the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. If a business combination is achieved in stages, the acquisition date carrying value of the acquirer's previously held equity interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such remeasurements are recognised in profit or loss. The Group measures goodwill at the acquisition date as: - The fair value of the consideration transferred; plus - The recognised amount of any non-controlling interests in the acquiree; plus - If the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree; less - The net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. 154 Kier Group plc | Annual Report and Accounts 2022 When the result is negative, a ‘bargain purchase’ gain is The assets and liabilities of overseas subsidiary undertakings recognised immediately in the income statement. are translated at the rate of exchange ruling at the balance sheet date. Trading profits or losses are translated at average Provisional fair values allocated at a reporting date are finalised rates prevailing during the accounting period. Differences on within 12 months of the acquisition date. exchange arising from the retranslation of net investments in overseas subsidiary undertakings at the year-end rates are The consideration transferred does not include amounts related recognised in other comprehensive income. All other translation to the settlement of pre-existing relationships. Such amounts differences are reflected in the income statement. are generally recognised in the income statement. Costs related to the acquisition, other than those associated with the issue of Revenue and profit recognition debt or equity securities, that the Group incurs in connection Revenue comprises the fair value of the consideration received or with a business combination are expensed as incurred. Any receivable, net of value added tax, rebates and discounts and after contingent consideration payable is recognised at fair value at eliminating sales within the Group. It also includes the Group’s the acquisition date. Subsequent changes to the fair value of proportion of work carried out under jointly controlled operations. the contingent consideration are recognised in the income statement unless the contingent consideration is classified as The general principles for revenue and profit recognition across equity, in which case settlement is accounted for within reserves. the Group are as follows: – Provision is made for any unavoidable future net losses Accounting policies of subsidiaries are adjusted where arising from contract obligations, as soon as they become necessary to ensure consistency with those used by the Group. apparent; All intra-Group transactions, balances, income and expenses – Additional consideration for contract modifications (variations) are eliminated on consolidation. is only included in revenue (or the forecast contract out-turn) if the scope of the modification has been approved by the (b) Joint arrangements customer. If the scope of the modification has been approved A joint arrangement is a contractual arrangement whereby the but the parties have not yet determined the corresponding Group undertakes an economic activity that is subject to joint change in the contract price, an estimate of the change to the control with third parties. transaction price is made and included in calculating revenue to the extent that any increase in price is highly probable not The Group’s interests in joint ventures are accounted for using to reverse; the equity method. Under this method the Group’s share of the – Contract modifications are treated as separate contracts if profits less losses of joint ventures is included in the consolidated the scope of the contract increases because of the addition income statement and its interest in their net assets is included of promised goods or services that are distinct, and the price in investments in the consolidated balance sheet. Where the of the contract increases by an amount of consideration that share of losses exceeds the Group’s interest in the entity and reflects the Group’s stand-alone selling prices of the there is no obligation to fund these losses the carrying amount additional promised goods or services and any appropriate is reduced to nil, following which no further losses are adjustments to that price to reflect the circumstances of the recognised. Interest in the entity is the carrying amount of the particular contract; Governance Financial statementsStrategic reportOverview investment together with any long-term interests that, in – Variable consideration amounts (gain-share amounts, KPI substance, form part of the net investment in the entity. bonuses, milestone bonuses, compensation event claims, etc.) are included in revenue (or forecasts to completion) From time to time the Group undertakes contracts jointly with only to the extent that it is highly probable that a significant other parties. These fall under the category of joint operations reversal of the amount in cumulative revenue recognised will as defined by IFRS 11. In accordance with IFRS 11, the Group not occur; accounts for its own share of sales, profits, assets, liabilities and – Refund liabilities (liquidated damages, pain-share amounts, cash flows measured according to the terms of the agreements. KPI penalties, etc.) are accounted for as a reduction in revenue (or in forecasting contract out-turns) as soon as it is Foreign currencies expected that the Group will be required to refund some or all Transactions denominated in foreign currencies are recorded of the consideration it has received from the customer; at the exchange rates in effect when they take place. Resulting – Where revenue that has been recognised is subsequently monetary foreign currency denominated assets and liabilities determined not to be recoverable due to the inability of a are translated at the exchange rates ruling at the balance sheet customer to meet its payment obligations, these amounts are date. Exchange differences arising from foreign currency charged to administrative expenses as a credit loss; transactions are reflected in the income statement. – Claims against third parties (such as insurance recoveries and claims for cost reimbursements) outside of normal Items included in the financial statements of each of the Group’s supplier price adjustments are recognised only when the subsidiaries are measured using the currency of the primary realisation of income is virtually certain. The associated economic environment in which each entity operates (the income is accounted for as reduction in costs rather than Other information functional currency). The consolidated financial statements are revenue; and presented in GBP, which is the Group’s presentation currency. – Contract mobilisation is not considered to be a separate performance obligation in most situations, as the customer receives little or no benefit from mobilisation activities. Any consideration received from the customer in relation to the mobilisation phase of a contract is deferred and recognised as additional revenue relating to the performance obligations in the contract that benefit the customer. Kier Group plc | Annual Report and Accounts 2022 155 Notes to the consolidated financial statements continued For the year ended 30 June 2022 1 Significant accounting policies continued (c) Property development If the timing of payments agreed with the customer provides the Revenue in respect of property developments is recorded on Group or the customer with a significant benefit of financing the unconditional exchange of contracts on disposal of finished transfer of goods or services, the amount of consideration is developments. Profit taken is subject to any amounts adjusted for the effects of the time value of money. The Group necessary to cover residual commitments relating to does not make an adjustment for the time value of money in the development performance. following circumstances: – When the Group expects, at contract inception, that the Where developments are sold in advance of construction being period between the entity transferring a good or service and completed, revenue and profit are recognised at the point of the customer paying for it will be one year or less; or sale, reflecting the transfer of control to the customer in its – Where the timing of the payments is for commercial rather current stage of completion. Thereafter, revenue for construction than financing reasons, e.g. construction contract retentions. services provided to the customer to complete the property is recognised over time in line with the percentage of completion, Revenue and profit recognition policies applied to specific consistent with the Group’s accounting policy for recognition of businesses are as follows: revenue on construction contracts (see above). (a) Construction contracts Where consideration is paid in advance of the development’s Revenue is recognised on construction services over time as construction phase at a price less than market value, revenue the benefit is transferred to the customer. The Group uses an is recognised on a discounted basis to reflect a financing input method to measure progress. The percentage of completion component of the transaction. This revenue and forward is measured using cost incurred to date as a proportion of the funded interest unwinds as the construction takes place. estimated full costs of completing the contract and is applied to the total expected contract revenue to determine the revenue (d) Private Finance Initiative (‘PFI’) service to be recognised to date. concession agreements Revenue relating to construction or upgrade services under The assessment of the final outcome of each contract is a service concession agreement is recognised based on the determined by regular review of the revenues and costs to stage of completion of the work performed, consistent with complete that contract. Consistent contract review procedures the Group’s accounting policy on recognising revenue on are in place in respect of contract forecasting. construction contracts (see above). (b) Services Operation or service revenue is recognised in the period in Revenue and profit from services rendered, which include which the services were provided by the Group. When the facilities management, highways maintenance, utilities Group provides more than one service in a service concession maintenance, street cleaning and recycling, is recognised over agreement, the consideration received is allocated by reference time as the service is performed. to the relative stand-alone selling prices of the services delivered. Progress on capital works and infrastructure renewal projects in Pre-contract and contract mobilisation costs the Highways and Utilities businesses is measured using costs Pre-contract costs to obtain a contract that would have been incurred as a percentage of the estimated full costs of incurred irrespective of whether the contract was obtained are completing the performance obligation. recognised as an expense when incurred, unless those costs are explicitly chargeable to the customer irrespective of whether Where the contract includes bundled services, and those the contract is obtained. services are distinct, the transaction price is allocated to each performance obligation identified in the contract based on the Mobilisation costs incurred in respect of a specific contract that relative stand-alone selling prices of each of the performance has been won or an anticipated contract that is expected to be obligations. Revenue is then recognised independently when won (e.g. when the Group has secured preferred bidder status) each of the performance obligations is satisfied. are carried forward in the balance sheet as capitalised mobilisation costs if: the costs generate or enhance resources Any variable consideration (e.g. performance bonus) of the Group that will be used in satisfying (or in continuing to attributable to a single performance obligation is allocated satisfy) performance obligations in the future; and the costs are entirely to that performance obligation. Where variable expected to be recovered (i.e. the contract is expected to be consideration is attributable to the entire contract and is not sufficiently profitable to cover the mobilisation costs). specific to part of the contract, the consideration is allocated based on the stand-alone selling prices of each of the The vast majority of contracts incurring significant mobilisation performance obligations within the contract. costs are contracts that exceed 12 months in duration. The Group’s policy is therefore to show its capitalised mobilisation Service contracts are reviewed monthly to assess their future costs as a non-current asset, amortised over the expected operational performance and profitability. contract duration. 156 Kier Group plc | Annual Report and Accounts 2022 Warranties and rectification costs Finance income and costs The Group does not offer extended insurance-type warranties Interest receivable and payable on bank balances is credited or at an additional cost to the customer (which would represent charged to the income statement as incurred using the effective separate performance obligations). Standard industry interest rate method. Interest receivable is presented within assurance-type warranties are provided and are accounted operating cash flows in the cash flow statement. for as rectification cost provisions based on the estimated costs of making good any latent defects. Borrowing costs are capitalised where the Group constructs qualifying assets. All other borrowing costs are written off to the Alternative performance measures income statement as incurred. IAS 1 permits an entity to present additional information for specific items to enable users to better assess the entity’s Borrowing costs incurred within the Group’s jointly controlled financial performance. The Directors have considered the entities relating to the construction of assets in PFI and PPP requirements of applicable accounting standards, along with projects are capitalised until the relevant assets are brought into additional guidance around alternative performance measures operational use. (‘APMs’) and believe it is appropriate to inform users regarding various items and disclose those items which are deemed Notional interest payable, representing the unwinding of the one-off, material or non-recurring in size or nature, in alignment discount on long-term liabilities, is charged to finance costs. with the Group’s internal management reporting. Taxation As such, the Group is disclosing as supplementary information Income tax comprises current and deferred tax. Income tax an ‘Adjusted Profit’ APM which is reconciled to statutory profit is recognised in the income statement except to the extent that in the notes to the financial statements and is consistent with it relates to items recognised directly in equity, in which case it IFRS 8 segmental reporting. is recognised in equity. Separate presentation of these items is intended to enhance Current tax is the expected tax payable on taxable income for understanding of the financial performance of the Group in the the year, using tax rates enacted or substantively enacted at the particular year under review and the extent to which results balance sheet date, and any adjustment to tax payable in are influenced by material unusual and/or non-recurring items. respect of previous years. The Directors review segmental results under an adjusted items basis to analyse the performance of operating segments. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying The Directors exercise judgement in determining the amounts of assets and liabilities for financial reporting purposes classification of certain items as adjusting using quantitative and the amounts used for taxation purposes. The deferred tax and qualitative factors. In assessing whether an item is an provision is based on the expected manner of realisation or adjusting item, the Directors give consideration, both settlement of the carrying amount of the assets and liabilities, individually and collectively, as to an item’s size, the specific using tax rates enacted or substantively enacted at the balance circumstances which have led to the item arising and if the item sheet date. Governance Financial statementsStrategic reportOverview is likely to recur, or whether the matter forms part of a group of similar items. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against Amortisation of acquired intangible assets and certain financing which the asset can be utilised. Deferred tax assets are costs are also included as adjusting items on the basis of being reduced to the extent that it is no longer probable that the ongoing non-cash items generated from acquisition related activity. related tax benefit will be realised or where other temporary differences are available. A full reconciliation from statutory numbers to adjusted profit measures has been presented in note 5. The Group participates in the UK government’s Research and Development Expenditure Credit (‘RDEC’) tax incentive The Group presents revenue including from joint venture scheme. Credits receivable under the RDEC scheme are arrangements as an alternative performance measure. recognised within operating profit and are treated as taxable The Directors believe this is a useful measure as it provides income. Amounts receivable in respect of RDEC claims are visibility over the scale of the Group’s operations, particularly included on the balance sheet within the corporation tax within its Property business where a significant proportion of receivable balance or as a reduction in the corporation tax developments are set up in joint ventures. payable balance, as appropriate. The Group also presents adjusted cash flow from operations, free cash flow and net debt as alternative performance measures. The Directors consider that these provide useful Other information information about the Group’s liquidity and debt profile. A glossary of alternative performance measures is included on page 227. Kier Group plc | Annual Report and Accounts 2022 157 Notes to the consolidated financial statements continued For the year ended 30 June 2022 1 Significant accounting policies continued Leases Goodwill and other intangible assets Assets and liabilities arising from a lease are initially measured Goodwill arising on consolidation represents the excess of the on a present value basis. Lease liabilities include the net consideration over the Group’s interest in the fair value of the present value of the following lease payments: identifiable assets and liabilities of a subsidiary. – Fixed payments (including in-substance fixed payments), less any lease incentives receivable; Goodwill is recognised as an asset and reviewed for impairment – Variable lease payments that are based on an index or a at least annually. Any impairment is recognised immediately rate, initially measured using the index or rate as at the in the income statement and is not subsequently reversed. commencement date; Negative goodwill is recognised in the income statement – Amounts expected to be payable by the Group under immediately. On disposal of a subsidiary or jointly controlled residual value guarantees; entity, the attributable carrying amount of goodwill is included – The exercise price of a purchase option if the Group is in the determination of the profit or loss on disposal. reasonably certain to exercise that option; and – Payments of penalties for terminating the lease, if the lease Other intangible assets which comprise contract rights and term reflects the Group exercising that option. computer software are stated at cost less accumulated amortisation and impairment losses. Amortisation is charged to Lease payments to be made under reasonably certain administrative expenses in the income statement on a straight- extension options are also included in the measurement line basis over the expected useful lives of the assets, which are of the liability. principally as follows: The lease payments are discounted using the interest rate Contract rights Over the remaining contract life implicit in the lease. If that rate cannot be readily determined, Computer software 3–10 years which is generally the case for leases in the Group, the lessee’s incremental borrowing rate is used, being the rate that the Internally generated intangible assets developed by the Group individual lessee would have to pay to borrow the funds are recognised only if all of the following conditions are met: necessary to obtain an asset of similar value to the right-of-use – An asset is created that can be identified; asset in a similar economic environment with similar terms, – It is probable that the asset created will generate future security and conditions. economic benefits; and – The development cost of the asset can be measured reliably. Most Group companies do not have any recent independent third-party financing to use as a starting point for the Other research expenditure is written off in the period in which incremental borrowing rate. Therefore, the Group uses a it is incurred. build-up approach that starts with a risk-free interest rate adjusted for credit risk, lease term, country, currency Software as a service and security. Costs incurred relating to software as a service (‘SaaS’) that provide future benefit to the Group are included within The Group is exposed to potential future increases in variable prepayments and written off over the period to which they lease payments based on an index or rate, which are not relate. All other costs in respect of SaaS are expensed to the included in the lease liability until they take effect. When income statement as incurred. adjustments to lease payments based on an index or rate take effect, the lease liability is reassessed and adjusted against the Property, plant and equipment and depreciation right-of-use asset. The cost of an acquired asset comprises the purchase price, any directly attributable costs and the estimated costs of Lease payments are allocated between principal and finance dismantling and removing the item at the end of its life. cost. The finance cost is charged to profit or loss over the lease Depreciation is based on historical or deemed cost, including period so as to produce a constant periodic rate of interest on expenditure that is directly attributable to the acquisition of the the remaining balance of the liability for each period. items, less the estimated residual value, and the estimated economic lives of the assets concerned. Freehold land is not Right-of-use assets are measured at cost comprising the depreciated. Other tangible assets are depreciated to residual following: values in equal annual instalments over the period of their – The amount of the initial measurement of lease liability; estimated economic lives, which are principally as follows: – Any lease payments made at or before the commencement date less any lease incentives received; Land and buildings 25–50 years or period of lease – Any initial direct costs; and Plant and equipment 3–12 years – Any restoration costs. Mining asset ‘Coaling life’ – see page 159 Right-of-use assets are generally depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis. If the Group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset’s useful life. 158 Kier Group plc | Annual Report and Accounts 2022 The Group has elected to use the following recognition Investment properties exemptions, as permitted by the standard: Investment properties, principally office buildings and land, – Leases of low-value items – The Group has defined low-value are held for the purpose of earning rentals and/or for capital items as assets that have a value when new of less than appreciation and are not occupied by the Group. Investment c.£5,000. Low-value items comprise IT equipment and small properties are measured using the fair value model. Gains and items of plant. losses arising from a change in the fair value of investment – Short-term leases – Leases with a lease term of less than properties are recognised in the income statement in the period 12 months at inception. in which they arise. For leases in the above categories, a lease liability or right-of- Rental income in respect of investment properties is credited to use asset is not recognised. Instead, the Group recognises the ‘other income’ within administrative expenses and is disclosed related lease payments as an expense on a straight-line basis in note 14. Amounts recognised in the income statement in over the lease term. respect of investment properties are treated as adjusting items, as the investment properties have come about through vacating Contracts may contain both lease and non-lease components. corporate offices following a restructure of the Group’s The Group allocates the consideration in the contract to the property portfolio. lease and non-lease components based on their relative standalone prices. Mining assets and provisions Opencast expenditure incurred prior to the commencement of Leased properties that meet the definition of investment operating an opencast site is capitalised and the cost less the properties are presented within ‘investment properties’ rather residual value is depreciated over the ‘coaling life’ of the site on than ‘right-of-use assets’ on the balance sheet. a coal extraction basis. The Group enters into lease agreements as a lessor with The cost of restoration is recognised as a provision as soon as respect to its investment properties. Leases for which the Group the restoration liability arises. The amount provided represents is a lessor are classified as finance or operating leases. the present value of the anticipated costs. Costs are charged against the provision as incurred and the unwinding of the Whenever the terms of the lease transfer substantially all the discount is included within finance costs. A tangible asset is risks and rewards of ownership to the lessee, the contract is created for an amount equivalent to the initial provision and classified as a finance lease. All other leases are classified as depreciated on a coal extraction basis over the life of the asset. operating leases. Where there is a subsequent change to the estimated When the Group is an intermediate lessor, it accounts for restoration costs or discount rate, the present value of the the head lease and the sub-lease as two separate contracts. change is recognised as a change in the restoration provision The sub-lease is classified as a finance or operating lease by with a corresponding change in the cost of the tangible asset reference to the right-of-use asset arising from the head lease. until the asset is fully depreciated when the remaining adjustment is taken to the income statement. Governance Financial statementsStrategic reportOverview Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial Inventories direct costs incurred in negotiating and arranging an operating Inventories, including land held for and in the course of lease are added to the carrying amount of the leased asset and development, are valued at the lower of cost and net realisable recognised on a straight-line basis over the lease term. value. Cost comprises direct materials and, where appropriate, labour and production overheads which have been incurred in Amounts due from lessees under finance leases are recognised bringing the inventories and work in progress to their present as receivables at the amount of the Group’s net investment in location and condition. Cost in certain circumstances also the leases. Finance lease income is allocated to accounting includes notional interest as explained in the accounting policy periods so as to reflect a constant periodic rate of return on the for finance income and costs. Net realisable value represents Group’s net investment outstanding in respect of the leases. the estimated selling price less all estimated costs of completion Finance lease income is calculated with reference to the gross and costs to be incurred in marketing, selling and distribution. carrying amount of the lease receivables, except for credit- impaired financial assets for which interest income is calculated Inventories are valued on a first in, first out (‘FIFO’) basis. with reference to their amortised cost (i.e. after a deduction of the loss allowance). Land inventory is recognised at the time a commitment to purchase the land is made, generally at exchange of When a contract includes both lease and non-lease unconditional contracts. components, the Group applies IFRS 15 to allocate the consideration under the contract to each component. Other information Kier Group plc | Annual Report and Accounts 2022 159 Notes to the consolidated financial statements continued For the year ended 30 June 2022 1 Significant accounting policies continued Contingent liabilities Property inventory, which represents all development land and The Group discloses a contingent liability in circumstances work in progress, is included at cost less any losses foreseen in where it has a possible obligation depending on whether completing and disposing of the development less any amounts some uncertain future event occurs, or has a present obligation received or receivable as progress payments or part disposals. but payment is not probable, or the amount cannot be Where a property is being developed, cost includes cost of measured reliably. acquisition and development to date, including directly attributable fees, expenses and finance charges net of rental or other Government grants income attributable to the development. Where development Government grant income is recognised at the point that there property is not being actively developed, net rental income and is reasonable assurance that the Group will comply with the finance costs are taken to the income statement. conditions attached to it, and that the grant will be received. Contract assets and liabilities Employee benefits When the Group transfers goods or services to a customer (a) Retirement benefit obligations before the customer pays consideration or before payment is For defined contribution pension schemes operated by the due, the amount of revenue associated with the transfer of Group, amounts payable are charged to the income statement goods or services is accrued and presented as a contract asset as they fall due. in the balance sheet (excluding any amounts presented as a receivable). A contract asset represents the Group’s right to The Group accounts for defined benefit obligations in accordance consideration in exchange for goods or services that the Group with IAS 19. Obligations are measured at discounted present has transferred to a customer. value while plan assets are measured at fair value. The operating and financing costs of such plans are recognised Contract assets are reduced by appropriate allowances for separately in the income statement; current service costs are expected credit losses calculated using the simplified approach spread systematically over the lives of employees and financing (as with trade receivables). costs are recognised in full in the period in which they arise. Remeasurements of the net defined pension liability, including If a customer pays consideration, or the Group has a right to an actuarial gains and losses, are recognised immediately in other amount of consideration that is unconditional (i.e. a receivable), comprehensive income. before the Group transfers a good or service to the customer, the amount is presented as a contract liability on the balance The net finance cost is calculated by applying the discount rate sheet. A contract liability represents the Group’s obligation to to the net balance of the defined benefit obligation and the fair transfer goods or services to a customer for which the entity value of plan assets. This cost is included in finance costs in the has received consideration (or an amount of consideration is income statement. due) from the customer. Where the calculations result in a surplus to the Group, the Assets held for sale recognised asset is limited to the present value of any available Assets classified as held for sale are measured at the lower of future refunds from the plan or reductions in future contributions their carrying amount and fair value less costs to sell. to the plan, that the Group has the unconditional right to realise. Assets are classified as held for sale if their carrying amount will (b) Share-based payments be recovered through a sale transaction rather than through Share-based payments granted but not vested are valued at the continuing use. This condition is regarded as met only when the fair value of the shares at the date of grant. This applies to the sale is highly probable, and the assets are available for sale in Sharesave, Conditional Share Award Plan and Long-Term their present condition. Incentive Plan (‘LTIP’) schemes. The fair value of these schemes at the date of award is calculated using the Black- Share capital Scholes model apart from the total shareholder return element The ordinary share capital of the Company is recorded as of the LTIP which is based on a Stochastic model. Awards that the proceeds received, net of directly attributable incremental are subject to a post-vesting holding period are valued using the issue costs. Finnerty model. Merger reserve The cost to the Group of awards to employees under the LTIP Where equity raises are effected through a structure which is scheme is spread on a straight-line basis over the relevant eligible for merger relief under section 612 of the Companies performance period. The scheme awards to senior employees Act 2006, the Group transfers the excess of the net proceeds a number of shares which will vest after three years if particular over the nominal value of the share capital issued to the criteria are met. The cost of the scheme is based on the fair merger reserve. value of the shares at the date the options are granted. Provisions Shares purchased and held in trust in connection with the Provisions are recognised when the Group has a present legal Group’s share schemes are deducted from retained earnings. or constructive obligation as a result of a past event, and where No gain or loss is recognised within the income statement it is probable that an outflow will be required to settle the on the market value of these shares compared with the obligation and the amount can be reliably estimated. original cost. 160 Kier Group plc | Annual Report and Accounts 2022 Financial instruments (d) Private Finance Initiative (‘PFI’) assets Financial assets and financial liabilities are recognised in the Under the terms of a PFI or similar project, where the risks and Group’s balance sheet when the Group becomes a party to the rewards of ownership remain largely with the purchaser of the contractual provisions of the instrument. An assessment of associated services, the Group’s interest in the asset is classified whether a financial asset is impaired is made at least at each as a financial asset and included at its amortised cost within reporting date. The principal financial assets and liabilities of investment in joint ventures. the Group are as follows: (e) Derivative financial instruments (a) Trade receivables and trade payables Derivatives are initially recognised at fair value on the date that Given the varied activities of the Group it is not practicable to the contract is entered into and subsequently remeasured in identify a common operating cycle. The Group has therefore future periods at their fair value. The method of recognising the allocated receivables and payables due within 12 months of the resulting change in fair value depends on whether the derivative balance sheet date to current with the remainder included in is designated as a hedging instrument and whether the hedging non-current. relationship is effective. A trade receivable is recognised when the Group has a right to For cash flow hedges, the effective portion of changes in the consideration that is unconditional (subject only to the passage fair value of these derivatives is recognised in the cash flow of time before payment is due). Trade receivables do not carry hedge reserve within equity. Any ineffective portion is interest and are stated at their initial cost reduced by recognised immediately in the income statement. Amounts appropriate allowances for expected credit losses. accumulated in equity are recycled to the income statement in the periods when the hedged items will affect profit or loss. The Group applies the simplified approach to measurement of expected credit losses in respect of trade receivables, which If the hedging instrument no longer meets the criteria for hedge requires expected lifetime losses to be recognised from initial accounting, expires or is sold, terminated or exercised, the recognition of the receivables. hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until Trade payables on normal terms are not interest-bearing and the forecast transaction occurs. When the forecast transaction are stated at their nominal value. Trade payables on extended is no longer expected to occur, the cumulative gain or loss and terms, particularly in respect of land purchases, are discounted deferred costs of hedging that were reported in equity are and recorded at their present value. immediately reclassified to profit or loss. Amounts owing under supply chain finance arrangements are The Group enters into forward contracts in order to hedge included within trade payables rather than bank debt. The against transactional foreign currency exposures. In cases purpose of supply chain finance is purely to grant subcontractors where these derivative instruments are significant, hedge and suppliers access to credit and improve their cash flows. accounting is applied as described above. Where hedge There have been no changes to the underlying terms of the accounting is not applied, changes in fair value of derivatives supply chain finance arrangements. are recognised in the income statement. The fair values of Governance Financial statementsStrategic reportOverview derivative instruments have been derived from proprietary The designation in trade payables is due to the assignment of models used by the bank counterparties using mid-market invoice rather than a novation, the Group acting as an agent mark to market valuations for trades at the close of business with fees related to supply chain finance being borne by the on the balance sheet date. supplier and the final payment date to the bank being set by the Group with interest accrued for any late payments. (b) Cash and cash equivalents Cash and cash equivalents in the cash flow statement comprise cash at bank and in hand, including bank deposits with original maturities of three months or less, net of bank overdrafts where legal right of set off exists. (c) Bank and other borrowings Interest-bearing bank and other borrowings are recorded at the fair value of the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the income statement using the effective interest method and are added to the carrying value of the Other information instrument to the extent that they are not settled in the period in which they arise. Kier Group plc | Annual Report and Accounts 2022 161 Notes to the consolidated financial statements continued For the year ended 30 June 2022 # 1 Significant accounting policies continued # Critical accounting estimates and judgements Management considers that their use of estimates, assumptions and judgements in the application of the Group's accounting policies are inter-related and therefore discuss them together below with the major sources of estimation uncertainty and significant judgements separately identified: # (a) Revenue and profit recognition The estimation techniques used for revenue and profit recognition in respect of property development, construction contracts and services contracts require forecasts to be made of the outcome of long-term contracts which require assessments and judgements to be made on the recovery of pre-contract costs, changes in the scope of work, contract programmes, maintenance and defects liabilities and changes in costs. There are two contracts (2021: three contracts) that the Group considers require significant accounting estimates and, as at 30 June 2022, the Group has included estimated recoveries from customers with a combined value of £11.4m (2021: £12.3m). These recoveries are recognised on the basis that they are considered highly probable not to reverse, however, there is clearly a range of factors affecting potential outcomes once these contracts are finalised and the Group estimates the values on these contracts could collectively range from an upside of £10.0m (2021: £12.0m) to a downside, including the risk of counterclaims being levied against the Group, of £12.2m (2021: £14.2m). Over 500 construction contracts (2021: over 500) were income generating during the year within the Group's Construction and Infrastructure Services operating divisions. Of these, none (2021: one) individually had a material impact on operating profit. The key judgements and estimates relating to determining the revenue and profit of material contracts are: - costs to complete; - achieving the planned build programme; and - recoverability of claims and variations in accordance with IFRS 15. Each contract is treated on its merits and subject to a regular review of the revenue and costs to complete that contract, determined by a combination of management judgement and external professional assistance, backed up by judgements papers for the contracts that have a material impact on the income statement. The level of estimation uncertainty in the Group's construction businesses is reduced by the effect of its substantial portfolio and significant experience of the division's management team. The level of estimation is further reduced by the combination of the modest scale and short contract durations of the Group's projects. Nevertheless, the profit recognition in the Construction business is a critical estimate, due to the inherent uncertainties in any construction project over revenues and costs. The level of estimation and uncertainty differs between the Group's construction businesses, particularly between Regional Building, Major Projects – Building and Infrastructure. Regional Building operates around 350 sites (2021: 400) each year with an average project size of £12.9m (2021: £11.6m) and with average revenue in the year of £3.3m (2021: £3.9m). These projects typically operate under framework contracts where costs are known with a greater degree of certainty. Infrastructure manages around 30 sites with projects ranging from a relatively small number of higher value major Infrastructure civil engineering projects to a larger number of more modest minor signalling upgrades and replacements. The major infrastructure civil engineering projects typically include two stage Design and Build, Construct only and Target Cost contracts. The nature and length of these contracts means there can be a greater level of estimation and uncertainty. The blended portfolio risk of the overall construction businesses is mitigated by the relative sizes of the Regional Building, Major Projects – Building and Infrastructure businesses. Construction revenue for the year is £1.4bn (2021: £1.6bn) with an associated adjusted operating profit margin of 4.2% (2021: 3.2%). The historic profit margins in the construction businesses typically range from 2.0% to 4.4%. A potential downside risk in margin would be 2.4% (2021: 1.2%). Given the short-term average duration (approximately 12 months) of the construction portfolio, the impact of such a decrease in margin across projects in delivery at the year-end would be a decrease in operating profit of £34.6m (2021: £21.2m). # (b) Life cycle assets The Group has a number of ongoing contracts where life cycle funds are established to meet contractual obligations. The key sensitivity in the calculation is the percentage of the funds build-up required for future maintenance. A reasonably likely change would be an increase or decrease of 10% in the percentage of funds build-up required. Such a change would result in a profit impact of approximately £1m in any one year. # (c) Defined benefit pension scheme valuations In determining the valuation of defined benefit pension scheme assets and liabilities, a number of key assumptions have been made. The key assumptions, which are given below, are largely dependent on factors outside the control of the Group: - expected return on plan assets; - inflation rate; - mortality; - discount rate; and - salary and pension increases. Details of the assumptions used and sensitivity to changes in these assumptions are included in note 8. 162 Kier Group plc | Annual Report and Accounts 2022 #### (d) Goodwill Determining whether goodwill is impaired requires an estimation of the value in use of cash generating units ('CGUs') to which the goodwill has been allocated. The value in use calculation requires an estimate to be made of the timing and amount of future cash flows expected to arise from the CGU and the application of a suitable discount rate in order to calculate the net present value. Cash flow forecasts for the next three years are based on the Group's budgets and forecasts. Other key inputs in assessing each CGU are revenue growth, operating margin, discount rate and terminal growth rate. The assumptions are set out in note 12 together with an assessment of the impact of reasonably possible sensitivities. In undertaking the assessment, the potential net impact of climate change on the forecasts has been considered. At present, it has been concluded that it will not be significant. #### (e) Joint ventures In accordance with IFRS 11 para 7, joint ventures are identified where the control of an arrangement is shared and decisions around activities require unanimous consent if the action significantly affects the investee's return. The key judgement involved in determining joint control is that the board structure and the mechanisms in the reserved matters do not give any one party majority control over relevant activities, regardless of the economic split between partners. #### (f) Adjusting items Adjusting items are items of financial performance which the Group believes should be separately presented to assist in understanding the financial performance achieved by the Group in accordance with the accounting policy set out on page 157. Determining whether an item is classified as an adjusting item requires judgement. Total adjusting items of £78.2m were charged to the income statement in respect of continuing operations for the year ended 30 June 2022 (2021: £59.8m). There were no discontinued operations during the year (2021: £24.8m of additional adjusting items for discontinued operations). The items that comprise this are set out in note 5 together with an explanation of their nature and consideration points as to why the Directors have treated these as adjusting items. #### (g) Property leases The Group continues to rationalise its property portfolio and has exited its leased corporate office in Foley Street, London. The property is now being sublet for the remaining period of the lease and the associated right-of-use asset is classified as an investment property. Given the length of the underlying leases and the uncertainty in the property market, in calculating the fair value of the right-of-use asset judgement has been exercised in the following areas: - Length of time to fully sublet the property – assumption is within 12 months; - Sub-rental amounts – assumption is based on management's current best estimate of market rental values; and - Discount rate – assumption reflects the specific risks of the investment property. #### (h) Taxation The Group is predominantly UK-based and all entities are UK resident for tax purposes and therefore subject to UK tax regulations. Deferred tax liabilities are generally provided for in full and deferred tax assets are recognised to the extent that it is judged probable that future taxable profit will arise against which the temporary differences will be utilised. In particular, the Group has exercised judgement in recognising a deferred tax asset of £105.6m (2021: £108.6m) in respect of tax losses. The critical judgements in assessing the recoverability of the deferred tax asset relate to the taxable profit forecasts. These forecasts are based on the same Board-approved information used to support the going concern and goodwill impairment assessments. The critical judgements related to these forecasts are the same as those described in the goodwill section of this note. In assessing the recoverability, the Group has considered various sensitivities regarding future profitability, those of which are also disclosed within the goodwill section of this note. The basis for recognising this tax asset is set out in note 17 together with the period in which it is expected to be utilised. #### (i) Land and property valuations The recoverability of property development work in progress is an area which requires significant judgement due to the ongoing volatility in property valuations. An assessment of the net realisable value of inventory is carried out at each balance sheet date and is dependent upon the Group's estimate of forecast selling prices and build/development costs (by reference to current prices), which may require significant judgement. Where applicable, third-party valuations are used to support the position as at the balance sheet date. In valuing work in progress at the lower of cost and net realisable value the Group has already recognised any expected downside, and any upside is contingent on the Group's continued development of the projects as it is not in the business of selling partly developed sites. At 30 June 2022, the value of land and work in progress held for development was £43.0m (2021: £39.1m). #### (j) Fire and cladding The Group has undertaken a review of all of its current and legacy constructed buildings where it has used cladding solutions and continues to assess the action required in line with the latest updates to Government guidance, as it applies, to multi-storey and multi-occupied residential buildings. The buildings, including the cladding works, were signed off by approved inspectors as compliant with the relevant Building Regulations at the time of completion. We recognise that Government guidance on the retrospective review of building materials continues to evolve. In preparing the financial statements, currently available information has been considered, including the current best estimate of the extent and future costs of work required, based on the reviews and physical inspections undertaken. Where an obligation has been established and a reliable estimate of the costs to rectify is available, a provision has been made (see note 25). No provision has been made where an obligation has not been established. These estimates may be updated as further inspections are completed and as work progresses or if Government legislation and regulation further evolves. Overview Strategic report Governance Financial statements Other information Xler Group plc | Annual Report and Accounts 2022 163 Notes to the consolidated financial statements continued For the year ended 30 June 2022 2 Revenue Whilst the bulk of consideration associated with construction Revenue is entirely derived from contracts with customers. contracts is fixed, variable consideration elements can exist (milestone bonuses, gain share, event claims, etc.). The Group Infrastructure Services only recognises revenue for these amounts if they are highly The Group derives revenue from capital infrastructure projects probable not to reverse. as well as the maintenance of infrastructure assets across various sectors including highways, rail, water, gas and Liquidated and ascertained damages (‘LADs’) clauses are often domestic fibre installation. present in construction contracts. Where it is anticipated that a LADs clause will be triggered (e.g. through overrunning works), Capital projects can range from the construction of power revenue is constrained to reflect the expected amount of station infrastructure, roads, railways, bridges and tunnels, over the deduction. a period of several years (e.g. Hinkley Point C, Sellafield SRP and HS2), to small schemes completed in a matter of days. Modifications to the scope of construction work are agreed in Revenue is recognised over time as the construction services principle with the customer before additional work is carried out. are rendered to the customer. Each capital project is typically However, the price is not always determined until the final a single performance obligation. account stage. In these circumstances the Group treats the revenue associated with the modification as variable The Group also provides maintenance services for the UK road, consideration and only recognises amounts that are highly rail and utilities infrastructure through both routine, preventative probable not to reverse. maintenance as well as reactive repairs. These services are generally delivered under framework contracts of between five The Group’s obligation to repair building faults under standard to eight years, however, individual performance obligations industry warranty terms is recognised as a provision under the framework are normally determined on an annual, (see note 25). monthly or ad hoc basis. Revenue is recognised over time as the maintenance services are rendered to the customer. For the Group’s construction activities in the Middle East, in some circumstances, customers pay upfront amounts to protect Where multiple services are supplied under a single contract the Group against payment default. Payments on account are they are treated as separate performance obligations and not normally made more than 12 months in advance of the revenue is recognised separately as each performance service delivery. obligation is satisfied. The Group also provides maintenance services to local Services are normally invoiced monthly in arrears under normal authorities and private landlords with large housing portfolios. commercial credit terms. Under some contracts, amounts are Revenue for maintenance services is recognised over time as held back as a retention for periods that can exceed 12 months. the services are rendered. Services are either invoiced monthly However, as the purpose of the retentions is to ensure that the or shortly after completion of individual performance performance obligations on the contract are carried out to a obligations. Normal commercial payment terms apply. satisfactory standard, the Group does not deem there to be a significant financing component in the timing of the cash flows The Group also provides facilities management and on these amounts. maintenance services for commercial property owners, and waste and recycling collection services for local authority and The Group’s obligation to make good faulty workmanship under commercial customers. standard industry warranty terms is recognised as a provision (see note 25). Facilities management and maintenance services revenue is recognised over time as the services are rendered. Invoices for Construction services rendered are typically raised monthly. Typically, normal The Group undertakes over 350 building projects each year, commercial payment terms apply, with the exception of the PFI providing construction services in the private, education and life cycle contracts, as noted below. health sectors and on public sector frameworks. Projects range from minor extensions costing less than £0.5m to the The Group has a number of long-term PFI life cycle contracts construction of major strategic assets costing hundreds of to maintain properties over periods of 25–30 years. A fund is millions of pounds. The construction of a building, including any established at the start of the contract and amounts are drawn associated design work, is normally accounted for as a single down by the Group as maintenance work is performed. The performance obligation as the services provided are normally Group is also entitled to share in any surplus left in the fund at highly interrelated. Revenue is recognised over time as the the end of the contract. Revenue is recognised over time to performance obligation is satisfied. reflect the rendering of the service including an assessment of the appropriate proportion of the likely surplus in the fund, Invoices are typically raised monthly, based on valuations of the subject to being highly probable not to reverse. As the surplus work completed, and have normal commercial payment terms. amount will not be paid until the end of the contracts, the It is common in the construction industry for an amount to be contract asset associated with the surplus recognised to date held back as a retention for periods that can exceed 12 months. is shown as a non-current asset in the balance sheet. Due to However, as the purpose of the retentions is to ensure that the the length of time between performance of the services and performance obligations on the contract are carried out to a payment of the surplus, the Group considers there to be a satisfactory standard, the Group does not deem there to be a significant financing component within this element of the significant financing component in the timing of the cash flows transaction price and has therefore adjusted for the time value on these amounts. of money in measuring the revenue recognised in respect of end-of-contract surpluses. 164 Kier Group plc | Annual Report and Accounts 2022 Environmental services contracts with local authorities, for domestic waste and recyclate collections and operation of household waste and recycling centres, have a typical duration of between 7 and 10 years. Contracts with commercial customers are typically for 12 months. Revenue from environmental services contracts is recognised over time as the services are performed. Invoices are raised monthly in arrears and normal commercial payment terms apply. Revenue for the sale of recyclate materials is recognised at the point in time that the materials are transferred to the customer. Property The Group undertakes property development on its own sites as well as a service for customers. Revenue in respect of property developments is recorded on unconditional exchange of contracts. In most cases payment is received on legal completion. Where developments are sold in advance of construction being completed, revenue and profit are recognised at the point of sale, reflecting the transfer of control to the customer in its current stage of completion. Thereafter, revenue for construction services provided to the customer to complete the property development is recognised over time as the construction services are rendered. Construction services are normally invoiced monthly based on valuations under normal commercial payment terms. Occasionally the Group will sell land that it has previously acquired for potential commercial property or housing developments. Revenue from land sales and land exchanges is recognised on the unconditional exchange of contracts. Transaction price allocated to remaining performance obligations The following table includes revenue expected to be recognised in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at the reporting date. At 30 June 2022 2025 2023 2024 onwards £m £m £m Infrastructure Services 955.4 676.5 493.7 Construction 752.9 255.8 2.0 Property – – – Total transaction price allocated to remaining performance obligations 1,708.3 932.3 495.7 At 30 June 2021 | | | | 2024 | Governance Financial statementsStrategic reportOverview | | --- | --- | --- | --- | --- | | 2022 | 2023 | onwards | | | | £m | £m | | £m | | Infrastructure Services 617.2 565.7 681.2 Construction 847.4 286.5 152.2 Property 13.1 – – Total transaction price allocated to remaining performance obligations 1,477.7 852.2 833.4 The above transaction prices only include variable consideration if it is highly probable not to reverse and exclude any estimate of revenue from framework contracts for which a firm commitment or order has not been received at the reporting date. The Group applies the practical expedient in paragraph 121 of IFRS 15 and does not disclose information about remaining performance obligations that have original expected durations of one year or less. Other information Kier Group plc | Annual Report and Accounts 2022 165 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ### 3 Segmental reporting The Group operates three divisions: Infrastructure Services, Construction and Property, which is the basis on which the Group manages and reports its primary segmental information. Corporate principally includes unrecovered overheads and the charge for defined benefit pension schemes. Segment information is based on the information provided to the Chief Executive, together with the Board, who is the Chief Operating Decision Maker. The segments are strategic business units with separate management and have different core customers and offer different services. The segments are discussed in the Operational Review on pages 18–23. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies (note 1). The Group evaluates segmental information on the basis of profit or loss from operations before adjusting items (see note 5), interest and tax expense. The segmental results that are reported to the Chief Executive include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. #### Year to 30 June 2022 | Continuing operations | Infrastructure Services £m | Construction £m | Property £m | Corporate £m | Group £m | | --- | --- | --- | --- | --- | --- | | **Revenue^{1}** | | | | | | | Group and share of joint ventures | 1,666.6 | 1,440.8 | 144.3 | 4.8 | 3,256.5 | | Less share of joint ventures | – | (3.1) | (109.5) | – | (112.6) | | **Group revenue** | **1,666.6** | **1,437.7** | **34.8** | **4.8** | **3,143.9** | | **Timing of revenue^{1}** | | | | | | | Products and services transferred at a point in time | 5.3 | 1.5 | 90.7 | – | 97.5 | | Products and services transferred over time | 1,661.3 | 1,439.3 | 53.6 | 4.8 | 3,159.0 | | **Group and share of joint ventures** | **1,666.6** | **1,440.8** | **144.3** | **4.8** | **3,256.5** | | **Profit for the year** | | | | | | | Operating profit/(loss) before adjusting items^{2} | 70.0 | 60.8 | 17.6 | (27.9) | 120.5 | | Adjusting items^{2} | (21.9) | (39.0) | (0.9) | (13.6) | (75.4) | | **Profit/(loss) from operations** | **48.1** | **21.8** | **16.7** | **(41.5)** | **45.1** | | Net finance income/(costs)^{2} | 2.1 | (4.1) | (1.6) | (25.6) | (29.2) | | **Profit/(loss) before tax from continuing operations** | **50.2** | **17.7** | **15.1** | **(67.1)** | **15.9** | | Taxation | | | | | (3.2) | | **Profit for the year from continuing operations** | | | | | **12.7** | | Result for the year from discontinued operations | | | | | – | | **Profit for the year** | | | | | **12.7** | | **Balance sheet** | | | | | | | Operating assets^{4} | 925.5 | 442.6 | 144.0 | 416.8 | 1,928.9 | | Operating liabilities^{4} | (466.0) | (706.2) | (25.9) | (179.1) | (1,377.2) | | **Net operating assets/(liabilities)^{4}** | **459.5** | **(263.6)** | **118.1** | **237.7** | **551.7** | | Cash, cash equivalents and borrowings | 440.2 | 504.0 | (90.3) | (863.2) | (9.3) | | Net financial assets | – | – | – | 12.2 | 12.2 | | **Net assets/(liabilities)** | **899.7** | **240.4** | **27.8** | **(613.3)** | **554.6** | | **Other information** | | | | | | | Inter-segmental revenue | 25.7 | – | – | 43.6 | 69.3 | | Capital expenditure on property, plant, equipment and intangible assets | 2.6 | 0.4 | – | 3.7 | 6.7 | | Depreciation of property, plant and equipment | (0.9) | (0.4) | (0.2) | (5.1) | (6.6) | | Amortisation of computer software | (0.7) | (1.2) | – | (4.1) | (6.0) | 166 Kier Group plc | Annual Report and Accounts 2022 # Year to 30 June 2021 | Continuing operations | Infrastructure Services £m | Construction £m | Property £m | Corporate £m | Group £m | | --- | --- | --- | --- | --- | --- | | **Revenue^{5}** | | | | | | | Group and share of joint ventures | 1,421.6 | 1,769.1 | 133.6 | 4.2 | 3,328.5 | | Less share of joint ventures | – | (1.5) | (66.0) | – | (67.5) | | **Group revenue** | **1,421.6** | **1,767.6** | **67.6** | **4.2** | **3,261.0** | | **Timing of revenue^{5}** | | | | | | | Products and services transferred at a point in time | 5.2 | 9.2 | 59.0 | – | 73.4 | | Products and services transferred over time | 1,416.4 | 1,759.9 | 74.6 | 4.2 | 3,255.1 | | **Group and share of joint ventures** | **1,421.6** | **1,769.1** | **133.6** | **4.2** | **3,328.5** | | **Loss for the year** | | | | | | | Operating profit/(loss) before adjusting items^{2} | 65.3 | 56.7 | 5.7 | (27.4) | 100.3 | | Adjusting items^{2} | (23.9) | (16.0) | (3.4) | (13.3) | (56.6) | | **Profit/(loss) from operations** | **41.4** | **40.7** | **2.3** | **(40.7)** | **43.7** | | Net finance costs^{2} | – | (3.9) | (10.8) | (23.4) | (38.1) | | **Profit/(loss) before tax from continuing operations** | **41.4** | **36.8** | **(8.5)** | **(64.1)** | **5.6** | | Taxation | | | | | 17.4 | | **Profit for the year from continuing operations** | | | | | **23.0** | | Loss for the year from discontinued operations^{5} | | | | | (24.6) | | **Loss for the year** | | | | | **(1.6)** | | **Balance sheet** | | | | | | | Operating assets^{4} | 945.3 | 459.6 | 167.0 | 304.5 | 1,876.4 | | Operating liabilities^{4} | (457.0) | (749.0) | (24.0) | (215.5) | (1,445.5) | | **Net operating assets/(liabilities)^{4}** | **488.3** | **(289.4)** | **143.0** | **89.0** | **430.9** | | Cash, cash equivalents and borrowings | 346.7 | 480.7 | (126.4) | (710.3) | (9.3) | | Net financial assets | – | – | – | 13.4 | 13.4 | | **Net assets/(liabilities)** | **835.0** | **191.3** | **16.6** | **(607.9)** | **435.0** | | **Other information** | | | | | | | Inter-segmental revenue | 20.1 | 0.3 | – | 46.7 | 67.1 | | Capital expenditure on property, plant, equipment and intangible assets | 1.7 | 0.5 | – | 4.2 | 6.4 | | Depreciation of property, plant and equipment | (1.2) | (0.8) | – | (4.4) | (6.4) | | Amortisation of computer software | (0.4) | (1.3) | – | (6.6) | (8.3) | $^{1}$ Revenue is stated after the exclusion of inter-segmental revenue. Over 96% of the Group's revenue is derived from UK-based customers. 11% of the Group's revenue was received from National Highways (2021: 12%). Group revenue including joint ventures is an alternative performance measure, see page 227. $^{2}$ See notes 1 and 5 for adjusting items. $^{3}$ Interest was (charged)/credited to the divisions at a notional rate of 4.0%. $^{4}$ Net operating assets/(liabilities) represent assets excluding cash, cash equivalents, bank overdrafts, borrowings, financial assets and liabilities, and interest-bearing inter-company loans. $^{5}$ See note 22(b). Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 167 Notes to the consolidated financial statements continued For the year ended 30 June 2022 #### 4 Profit from operations Profit from operations is stated after charging/(crediting): | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Auditors' remuneration: | | | | | Fees payable for the audit of the parent company and consolidated financial statements | | 1.9 | 1.8 | | Fees payable to the Company's auditors for other services^{1}: | | | | | Audit of the Company's subsidiaries, pursuant to legislation | | 1.2 | 1.9 | | Audit related assurance services | | 0.2 | 0.5 | | Amortisation of intangible assets | 12 | 25.7 | 29.3 | | Impairment/(impairment reversal) of intangible assets | 12 | 2.2 | (2.4) | | Loss on disposal of computer software | 12 | 0.9 | 0.5 | | Depreciation of property, plant and equipment | 13 | 6.6 | 6.4 | | Profit on sale of property, plant and equipment | | (0.1) | (1.0) | | Impairment of property, plant and equipment | 13 | 4.1 | – | | Depreciation of right-of-use assets | 23 | 30.0 | 33.7 | | Impairment of right-of-use assets | 23 | 5.2 | – | | Fair value adjustment to investment properties | 14 | (0.2) | 0.3 | | Amortisation of capitalised mobilisation costs | 16 | 2.4 | 1.6 | | Expenses relating to short-term leases and leases of low-value assets | 23 | 98.9 | 86.1 | | Net Research and Development Expenditure Credit receivable^{2} | 9 | (18.6) | (12.0) | | Net (profit)/loss from operations related to mining | | (0.2) | 0.4 | $^{1}$ The auditors' remuneration relates to amounts paid to PricewaterhouseCoopers LLP ('PwC'). A summary of other services provided by PwC during the year is provided on page 109. Included in the 2022 audit fees are £0.2m for prior year work (2021: £0.9m). In 2022, the fees relating to other assurance services primarily related to the review of the interim statements. Also included are £2,000 (2021: £2,000) for a subscription service providing factual updates and changes to applicable law, regulation or accounting and auditing standards. $^{2}$ Includes £20.7m of receipts (2021: £13.3m) and £2.1m of fees payable to consultants (2021: £1.3m). 168 Kier Group plc | Annual Report and Accounts 2022 ## 5 Adjusting items The Group's policy in respect of adjusting items is described in note 1. These items are explained in detail below: | | Operating profit | | Profit before tax | | | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Reported profit from continuing operations** | **45.1** | 43.7 | **15.9** | 5.6 | | Amortisation of acquired intangible assets | 19.7 | 21.0 | 19.7 | 21.0 | | Restructuring and related charges | 40.0 | 31.6 | 40.0 | 31.6 | | Preparation for business divestment or closure | – | 0.5 | – | 0.5 | | Other^{1} | 15.7 | 3.5 | 18.5 | 6.7 | | **Adjusted profit from continuing operations** | **120.5** | 100.3 | **94.1** | 65.4 | $^{1}$ Operating profit adjusting items exclude net financing costs of £2.8m (2021: £3.2m), see note 5(d). ### (a) Amortisation of acquired intangible assets The Group has amortised contract rights, acquired primarily through the acquisitions of MRBL Limited (Mouchel Group), May Gurney Integrated Services PLC and McNicholas Construction Holdings Limited. | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Amortisation of acquired intangible assets | 12 | (19.7) | (21.0) | ### (b) Restructuring and related charges The Group has incurred significant restructuring charges relating to costs of organisational change associated with the Group's cost saving programmes and the Group's Strategic report. These are discussed further in the Financial review and are considered to be adjusting items on the basis of their size and the fact that they relate to significant changes to the Group's activities or workforce. | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Restructure of Regional Southern Build business^{1} | | (22.2) | (13.6) | | Redundancy and other people related costs^{2} | 7 | (6.5) | (5.4) | | Professional adviser fees and other costs incurred implementing non-people initiatives^{3} | | (7.1) | (11.9) | | Impairments and other costs relating to investment properties^{4} | | (4.2) | (0.7) | | **Total charge before tax** | | **(40.0)** | **(31.6)** | $^{1}$ The Group has completed its strategic restructuring of its Regional Southern Build business. The current year costs predominantly relate to five remaining projects. These projects are due to complete in FY23 although no additional cost is expected to be incurred. These costs consist of charges in respect of the recoverability of assets and increased project costs due to settlements and delays, which have been directly impacted by this restructuring programme and represent an extension of costs incurred in the prior years. $^{2}$ Costs of £4.7m in respect of roles made redundant as a result of the ongoing implementation of cost saving programmes and from strategic decisions taken to reduce headcount in a number of the Group's principal operating divisions. The current year charge also includes £1.8m of costs incurred in the re-sizing of the International operations. The Directors consider this to be an adjusting item due to its nature and size. $^{3}$ This includes a credit of £1.1m as a result of the finalisation of costs incurred on the equity raise in the prior year. This is offset by £3.8m of aborted acquisition costs and £4.4m of various other non-people related initiatives undertaken in the year. $^{4}$ Includes an impairment of £5.2m in respect of a corporate property in Fountain Street, Manchester, which was vacated during the year and is now held as an investment property. Following a fire, the land at a recycling plant has been transferred to investment property and has been included at fair value, which has resulted in a £0.7m credit. Also included is a further £2.0m credit in relation to fair value adjustments to Tempaford Hall and net costs in respect of other investment properties of £1.7m. ### (c) Costs incurred in preparation for business divestment or closure The Group has incurred various charges driven by the change in strategic direction of the Group and the decision to exit certain divisions deemed non-core to its ongoing operations. Most of these charges are non-cash and are considered to be adjusting items on the basis that they relate to a major restructuring of the Group following the Strategic Review. | | 2022 £m | 2021 £m | | --- | --- | --- | | Business closure and sales costs | – | (3.5) | | Fair value reversal of assets held for sale | – | 3.0 | | **Total charge before tax** | **–** | **(0.5)** | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 169 **Notes to the consolidated financial statements continued** For the year ended 30 June 2022 # **5 Adjusting items continued** # **d) Other adjusting items** Other adjusting items are analysed below: | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Net financing costs^{1} | | (2.8) | (3.2) | | Legal compliance^{2} | | (8.8) | (3.0) | | Recycling Plant impairment and associated costs^{3} | | (5.2) | – | | Software impairment^{4} | | (2.2) | – | | Pension credit/(charge)^{5} | 8 | 0.5 | (0.5) | | **Total charge before tax** | | **(18.5)** | **(6.7)** | $^{1}$ Net financing costs relate to IFRS 16 interest charges on investment properties. $^{2}$ The Group has incurred £7.8m of costs in the year in complying with the updated fire compliance regulations. Of these amounts, £5.2m are provided for at year-end. This is considered to be an adjusting item since it relates to a specific and significant legal issue which is not considered to be reflective of the underlying performance of the business. The remaining charge relates to a settlement made in respect of an out of period claim that was rectified during the year and so was treated as an adjusting item. $^{3}$ During the year, a fire occurred at one of the Group's recycling plants in Warwickshire. Following the fire, the building has been demolished and the majority of the contracts terminated. The fire is considered a one-off, significant event and as such all costs relating to the business are considered to be adjusting items in accordance with the Group's policy. These costs include a £4.1m impairment of the property, plant and equipment. $^{4}$ During the year, the Group impaired some software related to one of its design businesses. This impairment has been treated as an adjusting item due to its nature. $^{5}$ During the year, a Pension Increase Exchange ('PIE') exercise was undertaken which generated a £0.5m credit to the income statement. In the prior year, a charge of £0.5m in respect of GMP was incurred. # **(e) Taxation** Adjusting items in respect of taxation are analysed below: | | 2022 £m | 2021 £m | | --- | --- | --- | | Deferred tax credit as a result of the change in tax rate^{1} | 5.1 | 25.5 | | Tax impact of adjusting items^{2} | 14.8 | 12.2 | | Other tax charges^{3} | (3.6) | (6.0) | | **Total tax credit** | **16.3** | **31.7** | $^{1}$ In the prior year, the change in tax rate from 19% to 25% led to a significant deferred tax credit in the income statement. This was a one-off event that is out of the Group's control and so is considered to be an adjusting item. During the year, the Group now expects additional amounts to reverse at the 25% tax rate. $^{2}$ The tax impact of the adjusting items charged to continuing operations has also been included as an adjusting item. $^{3}$ During the year, historical tax balances were identified mainly as a result of historic acquisitions and were written off. In the prior year, other tax charges primarily consisted of the write-off of losses in legal entities which have ceased to trade or are going to be wound up and therefore can no longer be used within the Group. # **(f) Discontinued operations** The Group disposed of Kier Living in May 2021. Adjusting items within discontinued operations in relation to this disposal are analysed below: | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Loss on disposal of Kier Living | 22 | – | (12.1) | | Closure costs relating to non-core businesses^{1} | | – | (1.0) | | Charges in relation to the Eastern region^{2} | | – | (6.5) | | Other disposal related costs^{3} | | – | (5.2) | | **Total charge before tax** | | – | **(24.8)** | | Tax on adjusting items (discontinued) | | – | 0.5 | | **Total charge after tax** | | – | **(24.3)** | $^{1}$ Prior year costs were incurred in respect of Living's decision to exit the affordable housing market as well as the Welsh and Northern regions. $^{2}$ In preparing the Kier Living business for disposal in the prior year, the Group identified £6.5m of historic costs within a Kier Living joint venture that had built up in prior years within work in progress and that were considered irrecoverable. These were written off in arriving at the loss from discontinued operations in the year. $^{3}$ Other disposal related costs in the prior year included management incentives and impairment charges as a result of the disposal of Kier Living. 170 Kier Group plc | Annual Report and Accounts 2022 ### (g) Adjusted cash flow | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Reported cash inflow from operating activities | | 40.8 | 26.8 | | Add: Cash outflow from operating activities (adjusting items) | 5h | 41.2 | 72.1 | | **Adjusted cash inflow from operating activities** | | **82.0** | **98.9** | ### (h) Cash outflow from operating activities (adjusting items) | | 2022 £m | 2021 £m | | --- | --- | --- | | Adjusting items reported in the income statement | 78.2 | 84.7 | | Less: non-cash items incurred in the year | (38.4) | (45.3) | | Add: payment of prior year accruals and provisions | 1.4 | 21.2 | | Add: disposal fees included within loss on disposal | – | 11.5 | | **Cash outflow from operating activities (adjusting items)** | **41.2** | **72.1** | ## 6 Finance income and costs | | 2022 £m | 2021 £m | | --- | --- | --- | | **Finance income** | | | | Interest receivable on loans to related parties | 0.7 | 3.7 | | | 0.7 | 3.7 | | **Finance costs** | | | | Bank interest | (18.9) | (23.2) | | Interest payable on leases | (6.5) | (6.7) | | Forward funding interest^{1} | (0.5) | (8.8) | | Foreign exchange (losses)/gains on foreign denominated borrowings | (9.9) | 15.0 | | Fair value gains/(losses) on cash flow hedges recycled from other comprehensive income^{2} | 7.4 | (15.0) | | Discount unwind^{3} | (0.7) | (1.1) | | Net interest on net defined benefit obligation | 1.0 | 0.9 | | Recycling of translation reserve | – | (0.1) | | Other | (1.8) | (2.8) | | | (29.9) | (41.8) | | **Net finance costs** | **(29.2)** | **(38.1)** | $^{1}$ The forward funding interest costs of £6.8m in the year to 30 June 2021 reflected an alignment of the accounting treatment across all forward funding development contracts. The charge of £6.8m included £3.9m that represented a cumulative catch up of interest costs that would have been recognised in previous reporting periods if the Group had always applied this accounting treatment to all applicable contracts. An offsetting credit was included within revenue, with a corresponding impact on the Group's operating profit. There is no impact on the statutory profit for the year from continuing operations. $^{2}$ Fair value gains/(losses) arise from movements in cross-currency swaps which hedge the currency risk on foreign denominated borrowings, see note 29. $^{3}$ Unwind of discount in respect of acquired intangible assets. Overview Strategic report Governance Financial statements Other information Xler Group plc | Annual Report and Accounts 2022 171 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 7 Information relating to Directors and employees | | Note | 2022 No. | 2021 No. | | --- | --- | --- | --- | | Monthly average number of people employed during the year including Executive Directors by geographical location was: | | | | | United Kingdom | | 10,018 | 10,742 | | Rest of world | | 249 | 968 | | | | 10,267 | 11,710 | | Monthly average number of people employed during the year including Executive Directors by segment was: | | | | | Infrastructure Services | | 5,895 | 5,847 | | Construction | | 3,780 | 4,879 | | Property | | 62 | 58 | | Corporate | | 530 | 518 | | Discontinued operations | | – | 408 | | | | 10,267 | 11,710 | | | | £m | £m | | Group staff costs by geographical location are as follows: | | | | | United Kingdom | | 602.8 | 607.2 | | Rest of world | | 4.2 | 11.5 | | | | 607.0 | 618.7 | | Group staff costs by segment are as follows: | | | | | Infrastructure Services | | 328.2 | 298.9 | | Construction | | 222.3 | 238.8 | | Property | | 10.5 | 8.7 | | Corporate | | 46.0 | 44.8 | | Discontinued operations | | – | 27.5 | | | | 607.0 | 618.7 | | Comprising: | | | | | Wages and salaries | | 522.8 | 536.1 | | Social security costs | | 53.3 | 51.6 | | Defined benefit pension scheme net credit to the income statement | 8 | (1.4) | (0.2) | | Contributions to defined contribution pension schemes | | 23.7 | 24.2 | | Share-based payments charge | 27 | 8.6 | 7.0 | | | | 607.0 | 618.7 | \* Prior period costs have been restated by £17.6m to include accrued bonuses. There is no impact to the prior year consolidated income statement. The amounts disclosed above are in relation to the entirety of the Group's Directors and employees, including those employed by the parts of the business classified as discontinued operations. Information relating to Directors' emoluments, pension entitlements, share options and LTIP interests appears in the Directors' remuneration report on pages 114–134. Redundancy costs incurred during the year of £4.7m (2021: £5.4m) have been classed as an adjusting item, see note 5, and are included in the disclosures above. 172 Kier Group plc | Annual Report and Accounts 2022 ## 8 Retirement benefit obligations The Group operates a number of pension schemes for eligible employees as described below. For the defined benefit schemes, the assets of all schemes are held in trust separate from the assets of the Group. The Trustees are responsible for investing the assets and delegate day-to-day decisions to independent professional investment managers. The schemes are established under UK trust law and have a corporate trustee that is required to run the schemes in accordance with the schemes' Trust Deed and Rules and to comply with all relevant legislation. Responsibility for the governance of the schemes lies with the Trustees. The Group has agreed deficit recovery plans with the trustees of each of its defined benefit schemes which constitute minimum funding requirements for the purposes of IFRIC 14. These minimum funding requirements do not give rise to any additional liabilities on the Group's balance sheet as the Group has determined that it has a right to benefit from any surplus created by overpaid contributions, through either a reduction in future contributions or refunds of the surpluses on winding up of the schemes. Details of the contributions agreed for each of the schemes are provided in the individual scheme information sections below. The pension obligations of the Group are valued separately for accounting and funding purposes. The accounting valuations under IAS 19 require 'best estimate' assumptions to be used whereas the funding valuations use more prudent assumptions. A further difference arises from the differing dates of the valuations. The accounting pension deficit or surplus is calculated at the balance sheet date (30 June) each year, whereas the actuarial valuations are carried out on a triennial basis at 31 March, or in the case of one scheme, 31 December. The differing bases and timings of the valuations can result in materially different pension deficit amounts. The date of the latest triennial funding valuation for each scheme is noted in the individual scheme information sections below. The Group incurred fees totalling £4.2m (2021: £4.1m) in respect of the running and administration of the defined benefit schemes. ### Kier Group scheme This is the principal scheme and includes a defined benefit section and a defined contribution section. The defined benefit section of the scheme was closed to new entrants on 1 January 2002; existing members continued to accrue benefits for service until the scheme was closed to future accrual on 28 February 2015. As at 30 June 2022, the scheme had 2,178 deferred members (2021: 2,263), and 2,874 retirees (2021: 2,855). The most recent triennial valuation of the Kier Group scheme was carried out by the trustees' independent actuaries as at 31 March 2019. At the valuation date the pension scheme's assets were less than the technical provisions and therefore the scheme was in deficit. The triennial valuation as at 31 March 2022 has not yet been finalised. ### Other defined benefit schemes #### Acquired with the May Gurney Group The May Gurney defined benefit scheme was acquired with May Gurney on 8 July 2013 and is closed to future accrual. As at 30 June 2022, the scheme had 278 deferred members (2021: 285) and 290 retirees (2021: 287). The most recent triennial valuation of the May Gurney scheme was carried out by the trustees' independent actuaries as at 31 March 2019. At the valuation date the pension scheme's assets were less than the technical provisions and therefore the scheme was in deficit. The triennial valuation as at 31 March 2022 has not yet been finalised. #### Acquired with the Mouchel Group The Group acquired four defined benefit pension schemes with the Mouchel Group on 8 June 2015: the Mouchel Superannuation Fund, Mouchel Staff Pension Scheme, Mouchel Business Services Limited Pension Scheme (Final Salary Section) and EM Highways Prudential Platinum Scheme. These schemes were closed to new entrants in 2001 and were closed to future accrual between 2010 and 2017, with the exception of the EM Highways Prudential Platinum Scheme which remains open to future accrual. As at 30 June 2022, the Mouchel schemes had a total of 18 active members (2021: 18), 1,638 deferred members (2021: 1,684), and 1,646 retirees (2021: 1,622). The EM Highways Prudential Platinum Scheme is a multi-employer scheme, however, Kier's share is separately identifiable. Therefore, the movements in the period are determined by reference to the change in valuation of this separate section. The EM Highways scheme was formally valued by independent actuaries as at 31 December 2018. At the valuation date the assets of the pension scheme were greater than the technical provisions and therefore the scheme had a funding surplus. The trustees therefore agreed a schedule of contributions with Kier in January 2020 that no longer required contributions to the past deficit. The most recent triennial valuations of the remaining Mouchel schemes were carried out by the trustees' independent actuaries as at 31 March 2019. At the valuation date the assets of each of the pension schemes were less than the respective technical provisions and therefore the schemes were in deficit. The triennial valuations as at 31 March 2022 have not yet been finalised. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 173 **Notes to the consolidated financial statements continued** For the year ended 30 June 2022 ## 8 Retirement benefit obligations continued The McNicholas defined benefit pension scheme was acquired with the McNicholas Group on 12 July 2017. The scheme is closed to new entrants and no benefits have accrued since 30 April 2012. As at 30 June 2022, the scheme had a total of 56 deferred members (2021: 57) and 80 retirees (2021: 79). During the year, the Group launched a member options exercise, offering a Pension Increase Exchange ('PIE') to members of the McNicholas pension scheme, in order to provide more flexibility and choice for members, reduce risk, and reduce cost in the Group's defined benefit pension schemes. The offering included a bulk PIE exercise, offering members who are already drawing a pension a one-off increase in pension in lieu of future annual increases on part of their pension and the introduction of a PIE option at the point of retirement. The terms are such that the IAS 19 pension liabilities are reduced if pensioners take up the PIE option. A combined gain, based on an assumed rate of take-up for both the bulk PIE exercise and the introduction of the at retirement option, of £0.5m has been recognised as a past service gain in the year to 30 June 2022. ### Contributions to defined benefit schemes The aggregate contributions payable in the year ended 30 June 2022 in respect of the Group's defined benefit pension schemes amounted to £10.8m (2021: £37.0m), which included regular past service deficit contributions of £9.9m (2021: £27.1m), current service employer contributions of £0.2m (2021: £0.2m) and additional deficit payments totalling £0.7m made in respect of the proceeds received from the Group's June 2022 equity raise (2021: £9.7m of additional payments made in respect of the proceeds received from the sale of Kier Living Limited). The Group agreed the latest deficit recovery plans with the trustees of the Kier Group scheme, May Gurney scheme, Mouchel Superannuation Fund, Mouchel Staff Pension Scheme and Mouchel Business Services Limited Pension Scheme (Final Salary Section) on 18 September 2020, and agreed a revised schedule of contributions with the McNicholas scheme on 26 May 2022. Based on these contribution plans, the Group expects to make the following contributions over the next five years: | | 2023 £m | 2024 £m | 2025 £m | 2026 £m | 2027 £m | | --- | --- | --- | --- | --- | --- | | Deficit contributions | 9.9 | 9.9 | 9.9 | 9.0 | 9.0 | In addition to the above contributions, the Group has agreed with the trustees of the Kier Group scheme, May Gurney scheme, Mouchel Superannuation Fund, Mouchel Staff Pension Scheme and Mouchel Business Services Limited Pension Scheme (Final Salary Section) that additional deficit contributions will be payable in certain circumstances, including in the event of the Group meeting certain financial targets. With the exception of the EM Highways Prudential Platinum Scheme, the Group has also agreed to meet each of the scheme's expenses including the Pension Protection Fund levy. ### Contributions to defined contribution schemes Contributions are also made to a number of defined contribution arrangements. The Group paid contributions to these arrangements of £23.7m (2021: £24.2m) during the year. The Group makes contributions to local Government defined benefit pension schemes in respect of certain employees who have transferred to the Group under TUPE transfer arrangements. The Group is unable to identify its share of the underlying assets and liabilities in the schemes on a consistent and reasonable basis and consequently the pension costs for these schemes are treated as if they were defined contribution schemes. ### IAS 19 'Employee Benefits' disclosures The Group recognises any actuarial gains or losses through the statement of comprehensive income as required under IAS 19. The weighted average duration of the schemes' liabilities is 15 years (2021: 18 years). The IAS 19 accounting valuations at 30 June 2022 of the Kier Group scheme, May Gurney scheme, Mouchel Superannuation Fund, Mouchel Business Services Limited Pension Scheme and the EM Highways Prudential Platinum Scheme, indicated that the assets of each of these schemes exceeded their respective scheme liabilities. The Group has recognised these surpluses as retirement benefit assets on its balance sheet under IAS 19 and IFRIC 14, as the Group has determined that it has a right to benefit from any surpluses, through either reduced contributions or a refund of the surpluses on winding up of the schemes. 174 Kier Group plc | Annual Report and Accounts 2022 The principal assumptions used by the independent qualified actuaries are shown below. This set of assumptions was used to value all of the defined benefit schemes, and has been based on the weighted average duration of the schemes’ liabilities. 2022 2021 % % Discount rate 3.90 1.90 Inflation rate (Retail Price Index (‘RPI’)) 3.15 3.15 Inflation rate (Consumer Price Index (‘CPI’)) 2.65 2.60 Rate of general increases in pensionable salaries 3.15 3.15 Rate of increase in pensions payments liable for Limited Price Indexation – RPI subject to minimum of 0% and a maximum 5% 3.05 3.05 – RPI subject to minimum of 0% and a maximum 2.5% 2.15 2.15 The mortality assumptions used were as follows: | 2022 | 2022 | 2021 | 2021 | | --- | --- | --- | --- | | Male | Female | Male | Female | | years | years | years | years | Life expectancy for a male/female currently aged 60 – Kier Group scheme 27.4 29.2 27.4 29.1 – Acquired schemes 26.8–27.7 29.2–30.0 26.8–27.6 29.1–29.9 Life expectancy for a male/female member aged 60, in 20 years’ time – Kier Group scheme 28.7 30.6 28.7 30.6 – Acquired schemes 28.2–28.8 29.8–31.0 28.1–28.8 29.7–30.9 The assets, liabilities and net pension liabilities for the defined benefit arrangements are shown below. The assets are invested with professional investment managers and are measured based on quoted market valuations at the balance sheet date. 2022 2021 Kier Acquired Kier Acquired Group schemes Total Group schemes Total £m £m £m £m £m £m Equities 152.1 74.1 226.2 415.8 69.4 485.2 Corporate bonds 187.9 97.0 284.9 795.8 100.6 896.4 Governance Financial statementsStrategic reportOverview Cash 21.1 94.6 115.7 20.4 100.1 120.5 Land and property 19.8 1.3 21.1 – 3.1 3.1 Absolute return 64.4 34.6 99.0 41.2 35.0 76.2 Annuity policies – 1.0 1.0 – 1.1 1.1 Multi-asset 92.7 44.7 137.4 – 65.5 65.5 Liability-driven investments 510.0 161.7 671.7 – 261.9 261.9 Total market value of assets 1,048.0 509.0 1,557.0 1,273.2 636.7 1,909.9 Present value of liabilities (877.8) (484.5) (1,362.3) (1,194.6) (669.1) (1,863.7) Surplus/(deficit) 170.2 24.5 194.7 78.6 (32.4) 46.2 Related deferred tax (liability)/asset (42.6) (6.7) (49.3) (19.7) 7.1 (12.6) Net pension asset/(liability) 127.6 17.8 145.4 58.9 (25.3) 33.6 Other information Kier Group plc | Annual Report and Accounts 2022 175 Notes to the consolidated financial statements continued For the year ended 30 June 2022 # **8 Retirement benefit obligations continued** Amounts recognised in the financial statements in respect of these defined benefit schemes are as follows: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Kier Group £m | Acquired schemes £m | Total £m | Kier Group £m | Acquired schemes £m | Total £m | | **(Charged)/credited to operating profit in the income statement** | | | | | | | | Current service cost | – | (0.1) | (0.1) | – | (0.2) | (0.2) | | Past service gain/(cost) | – | 0.5 | 0.5 | (0.4) | (0.1) | (0.5) | | Net interest on net defined benefit obligation | 1.5 | (0.5) | 1.0 | 1.5 | (0.6) | 0.9 | | **Pension income/(expense) recognised in the income statement** | **1.5** | **(0.1)** | **1.4** | **1.1** | **(0.9)** | **0.2** | | **Remeasurement in comprehensive gain/(loss)** | | | | | | | | Actual return less than that recognised in net interest | (208.4) | (131.5) | (339.9) | (14.3) | (12.3) | (26.6) | | Actuarial gains/(losses) due to changes in financial assumptions | 302.7 | 182.4 | 485.1 | (24.9) | 1.1 | (23.8) | | Actuarial gains due to changes in demographic assumptions | 0.9 | 0.6 | 1.5 | 1.3 | 0.1 | 1.4 | | Actuarial (losses)/gains due to liability experience | (5.6) | (4.8) | (10.4) | 11.7 | 7.5 | 19.2 | | **Total amount recognised in full** | **89.6** | **46.7** | **136.3** | **(26.2)** | **(3.6)** | **(29.8)** | | **Changes in the fair value of scheme assets** | | | | | | | | Fair value at 1 July | 1,273.2 | 636.7 | 1,909.9 | 1,300.5 | 637.4 | 1,937.9 | | Interest income on scheme assets | 23.8 | 12.0 | 35.8 | 20.5 | 10.2 | 30.7 | | Remeasurement losses on scheme assets | (208.4) | (131.5) | (339.9) | (14.3) | (12.3) | (26.6) | | Contributions by the employer | 0.5 | 10.3 | 10.8 | 13.9 | 23.1 | 37.0 | | Net benefits paid out | (41.1) | (18.5) | (59.6) | (47.4) | (21.7) | (69.1) | | **Fair value at 30 June** | **1,048.0** | **509.0** | **1,557.0** | **1,273.2** | **636.7** | **1,909.9** | | **Changes in the present value of the defined benefit obligation** | | | | | | | | Fair value at 1 July | (1,194.6) | (669.1) | (1,863.7) | (1,210.7) | (688.4) | (1,899.1) | | Current service cost | – | (0.1) | (0.1) | – | (0.2) | (0.2) | | Interest expense on scheme liabilities | (22.3) | (12.5) | (34.8) | (19.0) | (10.8) | (29.8) | | Past service gain/(cost) | – | 0.5 | 0.5 | (0.4) | (0.1) | (0.5) | | Actuarial gains/(losses) due to changes in financial assumptions | 302.7 | 182.4 | 485.1 | (24.9) | 1.1 | (23.8) | | Actuarial gains due to changes in demographic assumptions | 0.9 | 0.6 | 1.5 | 1.3 | 0.1 | 1.4 | | Actuarial (losses)/gains due to liability experience | (5.6) | (4.8) | (10.4) | 11.7 | 7.5 | 19.2 | | Net benefits paid out | 41.1 | 18.5 | 59.6 | 47.4 | 21.7 | 69.1 | | **Fair value at 30 June** | **(877.8)** | **(484.5)** | **(1,362.3)** | **(1,194.6)** | **(669.1)** | **(1,863.7)** | | **Amounts included in the balance sheet** | | | | | | | | Fair value of scheme assets | 1,048.0 | 509.0 | 1,557.0 | 1,273.2 | 636.7 | 1,909.9 | | Net present value of the defined benefit obligation | (877.8) | (484.5) | (1,362.3) | (1,194.6) | (669.1) | (1,863.7) | | **Net surplus/(deficit)** | **170.2** | **24.5** | **194.7** | **78.6** | **(32.4)** | **46.2** | | Related deferred tax (liability)/asset | (42.6) | (6.7) | (49.3) | (19.7) | 7.1 | (12.6) | | **Net pension asset/(liability)** | **127.6** | **17.8** | **145.4** | **58.9** | **(25.3)** | **33.6** | 176 Kier Group plc | Annual Report and Accounts 2022 The net surplus/(deficit) above is split between retirement benefit assets and obligations in the statement of financial position based on whether the individual pension schemes have a net surplus or deficit, as follows: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Kier Group £m | Acquired schemes £m | Total £m | Kier Group £m | Acquired schemes £m | Total £m | | Retirement benefit assets | 170.2 | 29.0 | 199.2 | 78.6 | 8.6 | 87.2 | | Retirement benefit obligation | – | (4.5) | (4.5) | – | (41.0) | (41.0) | | Net surplus/(deficit) | 170.2 | 24.5 | 194.7 | 78.6 | (32.4) | 46.2 | The movements in the net retirement benefit surplus/(deficit) are summarised as follows: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Kier Group £m | Acquired schemes £m | Total £m | Kier Group £m | Acquired schemes £m | Total £m | | Opening net surplus/(deficit) | 78.6 | (32.4) | 46.2 | 89.8 | (51.0) | 38.8 | | Current service cost | – | (0.1) | (0.1) | – | (0.2) | (0.2) | | Past service gain/(cost) | – | 0.5 | 0.5 | (0.4) | (0.1) | (0.5) | | Net interest on net defined benefit obligation | 1.5 | (0.5) | 1.0 | 1.5 | (0.6) | 0.9 | | Contributions by the employer | 0.5 | 10.3 | 10.8 | 13.9 | 23.1 | 37.0 | | Actual return less than that recognised in net interest | (208.4) | (131.5) | (339.9) | (14.3) | (12.3) | (26.6) | | Actuarial gains/(losses) due to changes in financial assumptions | 302.7 | 182.4 | 485.1 | (24.9) | 1.1 | (23.8) | | Actuarial gains due to changes in demographic assumptions | 0.9 | 0.6 | 1.5 | 1.3 | 0.1 | 1.4 | | Actuarial (losses)/gains due to liability experience | (5.6) | (4.8) | (10.4) | 11.7 | 7.5 | 19.2 | | Closing net surplus/(deficit) | 170.2 | 24.5 | 194.7 | 78.6 | (32.4) | 46.2 | History of experience gains and losses for defined benefit schemes in aggregate: | | 2022 £m | 2021 £m | 2020 £m | 2019 £m | 2018 £m | | --- | --- | --- | --- | --- | --- | | Fair value of scheme assets | 1,557.0 | 1,909.9 | 1,937.9 | 1,789.4 | 1,681.2 | | Net present value of the defined benefit obligation | (1,362.3) | (1,863.7) | (1,899.1) | (1,769.9) | (1,673.3) | | Net surplus | 194.7 | 46.2 | 38.8 | 19.5 | 7.9 | | Related deferred tax liability | (49.3) | (12.6) | (7.4) | (3.3) | (1.3) | | Net pension asset | 145.4 | 33.6 | 31.4 | 16.2 | 6.6 | | Difference between expected and actual return on scheme assets | (339.9) | (26.6) | 177.6 | 113.9 | 19.2 | | Experience (losses)/gains on scheme liabilities | (10.4) | 19.2 | 40.2 | (5.6) | (0.7) | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 177 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 8 Retirement benefit obligations continued ### Risk exposure As IAS 19 actual assumptions are driven by market conditions, there is a risk that significant changes in financial market conditions could lead to volatility in the defined benefit obligation disclosed in the balance sheet from year to year. In addition, the asset position may also be volatile as it will be influenced by changes in market conditions. However, the risk of significant changes to the overall balance sheet position has been mitigated to an extent due to the asset hedging strategies in place for the schemes as described below. The following schemes: Kier Group Pension Scheme, May Gurney Pension Scheme, Mouchel Business Services Limited Pension Scheme (Final Salary Section), Mouchel Superannuation Fund and Mouchel Staff Pension Scheme (the 'Schemes'), have aligned their investments so that the liability hedging instruments are managed by BMO including cash, physical gifts, gift repurchase agreements as well as interest and inflation swaps. In combination, the liability hedging assets are designed to hedge each Scheme's sensitivity to changes in interest rate and inflation by 100% of the value of the technical provisions liabilities. The Schemes also have allocations to cash flow matching assets that are designed to fully match scheme benefit cash flows over the next five years. This reduces the risk that the Trustee will need to divest from assets to meet cash flow needs. The Kier Group Pension Scheme uses a combination of GBP hedged share classes and a currency hedging strategy in place with SSGA to hedge its currency risk. As at 31 March 2022 (the scheme's year-end date), SSGA was used to hedge 100% exposure to two global property and one hedge fund allocation, all denominated in US dollars. The remainder of the Schemes primarily use GBP hedged share classes to manage their currency exposure. The unhedged currency exposures mainly relate to a global property allocation and are small in value relative to the size of the Schemes. ### Pension sensitivity The following table shows the change in the net surplus or deficit arising from a change in the significant actuarial assumptions used to determine the Group's retirement benefit obligations: | Kier Group scheme: | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | +0.25%/+1 year £m | -0.25%/-1 year £m | +0.25%/+1 year £m | -0.25%/-1 year £m | | Discount rate (+/-0.25%) | 47.6 | (48.4) | 76.8 | (81.6) | | Inflation rate (+/-0.25%) | (36.5) | 35.2 | (58.1) | 56.4 | | Members assumed to be one year older/younger in age (+/-1 year) | 40.0 | (39.8) | 70.1 | (71.0) | The sensitivity analyses above have been determined based on reasonably possible changes in the respective assumptions occurring at the end of the reporting period and may not be representative of the actual change, which is based on a change in a key assumption while holding all other assumptions constant. When calculating the sensitivity to the assumption, the same method used to calculate the liability recognised in the balance sheet has been applied. The inflation sensitivities shown above include the impact of both RPI and CPI inflation. The methods and types of assumptions used in preparing the sensitivity analyses did not change compared with the previous year. 178 Kier Group plc | Annual Report and Accounts 2022 ## 9 Taxation Taxation in respect of continuing operations is analysed below. Taxation that is relevant to discontinued operations is considered within note 22. ### (a) Recognised in the income statement | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current tax** | | | | UK corporation tax | 5.1 | 4.2 | | Adjustments in respect of prior years | 3.4 | 1.0 | | **Total current tax charge** | **8.5** | **5.2** | | **Deferred tax** | | | | Origination and reversal of temporary differences | 0.6 | – | | Adjustments in respect of prior years | (0.8) | 2.9 | | Rate change effect on deferred tax | (5.1) | (25.5) | | **Total deferred tax** | **(5.3)** | **(22.6)** | | **Total tax charge/(credit) in the income statement** | **3.2** | **(17.4)** | | **Reconciliation of effective tax rate** | | | | Profit before tax | 15.9 | 5.6 | | Tax on joint ventures included above | 0.1 | (1.4) | | **Profit before tax including joint ventures** | **16.0** | **4.2** | | Income tax at UK corporation tax rate of 19.0% (2021: 19.0%) | 3.0 | 0.8 | | Non-deductible expenses and unusable tax losses | 0.8 | 0.8 | | Income not taxable | – | (0.9) | | Impact of Group relief and consortium relief | 0.2 | – | | Effect of change in UK corporation tax rate | (5.1) | (25.5) | | Share-based payment deduction | 1.6 | – | | Utilisation of tax losses | 0.2 | 3.1 | | Adjustments in respect of prior years | 2.6 | 2.9 | | **Total tax (including joint ventures)** | **3.3** | **(18.8)** | | Tax on joint ventures | (0.1) | 1.4 | | **Group tax charge/(credit) from continuing operations** | **3.2** | **(17.4)** | Kier Group and its subsidiaries are based predominantly in the UK and are subject to UK corporation tax. However, the Group does operate and pay taxes in jurisdictions where the tax rate is higher than the UK's statutory rate. The Group does not have an aggressive tax policy and since 1 July 2012 Kier has not entered into any tax avoidance schemes which were or should have been notified under the Disclosure of Tax Avoidance Scheme ('DOTAS') rules. The Group tax charge including joint ventures of £3.3m (2021: £18.8m credit) shown in the table above equates to an effective tax rate of 20.6% (2021: 447.6%) on profit before tax including joint ventures of £16.0m (2021: £4.2m). This effective rate is different from the standard rate of corporation tax of 19.0% (2021: 19.0%) due to items shown in the table above. The non-deductible expenses included before adjusting items mainly relate to depreciation on non-qualifying assets, entertaining and legal and professional fees not eligible for tax relief. In accordance with UK tax legislation, capital gains arising on disposal of certain investments, including some of the joint ventures disposed of during the year, are not subject to tax. Tax relief on expenses not recognised in the income statement includes the impact of the tax deduction received in respect of the cost of shares exercised under the Group's employee Save As You Earn scheme and Long-Term Incentive Plan. The Group provides for future liabilities in respect of uncertain tax positions where additional tax may become payable in future periods and such provisions are based on management's assessment of exposure. At the balance sheet date, a deferred tax liability of £2.0m (2021: £2.0m) has been recognised in respect of uncertain tax positions. The net charge of £2.6m (2021: £2.9m) in respect of prior years' results arise from differences between the estimates of taxation included in the previous years' financial statements and the actual tax liabilities calculated in the tax returns submitted to and agreed by HMRC. The amounts also include historic tax balances written off, as explained in note 5. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 179 **Notes to the consolidated financial statements continued** For the year ended 30 June 2022 # **9 Taxation continued** # **(b) Recognised in the cash flow statement** The cash flow statement shows that no tax was received during the year (2021: £11.2m). # **(c) Recognised in the statement of comprehensive income** | | 2022 £m | 2021 £m | | --- | --- | --- | | **Deferred tax charge/(credit) (including effect of change in tax rate)** | | | | Fair value movements on cash flow hedging instruments | (0.2) | (0.3) | | Actuarial gains/(losses) on defined benefit pension schemes | 34.7 | (4.8) | | **Total tax charge/(credit) in the statement of comprehensive income** | **34.5** | **(5.1)** | The deferred tax movements on the defined benefit pension scheme comprised £25.9m charge (2021: £5.9m credit) on current year actuarial movements and £8.8m charge (2021: £1.1m) in respect of the movements in tax rates at which deferred tax is being recognised. # **(d) Factors that may affect future tax charges** The deferred tax balance as at the year-end has mainly been recognised at 25.0% (2021: 25.0%), which is the enacted corporation tax rate effective from 1 April 2023. The deferred tax which is expected to be reversed before at a rate of 19.0% has been calculated as £3.0m (2021: £8.4m) and has been reflected in the closing deferred tax balance. Further disclosures in respect of the recoverability of the deferred tax asset have been included in note 17. # **(e) Tax losses** At the balance sheet date, the Group has unused tax losses of £639.4m (2021: £659.9m) available for offset against future profits. A deferred tax asset has been recognised on £430.1m (2021: £452.3m) of these losses. No deferred tax asset has been recognised in respect of the remaining losses due to the unpredictability of future profit streams against which these losses could be offset. Under present tax legislation, these losses may be carried forward indefinitely. # **(f) RDEC** The Research and Development Expenditure Credit ('RDEC') of £20.7m was included in operating profit during the year (2021: £13.3m). Included in the corporation tax asset at 30 June 2022 were RDEC receivables of £12.0m (2021: £12.4m). # **10 Dividends** The Group's focus on cash generation and reducing net debt has required a suspension in dividend payments. No interim or final dividends have been declared during the year (2021: £nil). The parent company of the Group, Kier Group plc, is a non-trading holding company which derives its distributable reserves in part from dividends received from its subsidiaries. In determining the level of dividend payable in any year, in addition to the stated policy, the Board considers a number of other factors, including the following: - the level of distributable reserves in the parent company, Kier Group plc; - the level of distributable reserves in Kier Group plc's subsidiaries that are available to be distributed to Kier Group plc; - the availability of cash resources; - the Group's borrowing covenants; - future cash commitments and investment plans to support the long-term growth of the Group; and - potential strategic opportunities under consideration. The Board reviews the level of distributable reserves in the parent company at least twice a year ahead of announcing proposed interim and final dividends. Distributable reserves can be significantly impacted by movements in pension liabilities. The reserves of Kier Group plc are not directly affected by these movements as the pension surpluses and liabilities are on the balance sheets of a certain number of the Company's subsidiaries. However, movements in the pension liabilities do have an effect on the level of distributable reserves in Kier Group plc's subsidiaries that are available to be paid up to the parent. Actuarial gains only increase the distributable reserves to the extent that they represent reversals of previous actuarial losses, otherwise they are treated as unrealised and are not distributable. 180 Kier Group plc | Annual Report and Accounts 2022 ## 11. Earnings per share ### (a) Reconciliation of earnings used in calculating earnings per share Profit attributable to the ordinary equity holders of the Company used in calculating basic earnings per share. | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Continuing operations** | | | | | Profit for the year from continuing operations | | 12.7 | 23.0 | | Less: non-controlling interest share | | – | 1.3 | | **Profit (after tax and minority interests), being net gains attributable to equity holders of the parent (A)** | | 12.7 | 24.3 | | Adjusting items (excluding tax) | 5 | 78.2 | 59.8 | | Tax impact of adjusting items | 5 | (16.3) | (31.7) | | **Adjusted profit after tax from continuing operations (B)** | | 74.6 | 52.4 | | **Discontinued operations** | | | | | Loss (after tax and non-controlling interests), being net loss attributable to equity holders of the parent (C) | | – | (24.6) | ### (b) Weighted average number of shares used as the denominator | | 2022 million | 2021 million | | --- | --- | --- | | **Weighted average number of shares used as the denominator in calculating basic earnings per share (D)** | 443.3 | 210.3 | | Adjustments for calculation of diluted earnings per share | | | | Impact of share options | 11.8 | 2.0 | | **Weighted average number of shares used as the denominator in calculating diluted earnings per share (E)** | 455.1 | 212.3 | Options granted to employees under the Sharesave, CSAP and LTIP schemes are considered to be potential ordinary shares. They have been included in the determination of diluted earnings per share if the required performance obligations would have been met based on the Group's performance up to the reporting date, and to the extent to which they are dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the share option schemes are set out in note 27. ### (c) Basic earnings per share | | 2022 pence | 2021 pence | | --- | --- | --- | | **From continuing operations attributable to the ordinary equity holders of the company (A/D)** | 2.9 | 11.6 | | From discontinued operations (C/D) | – | (11.7) | | **Total basic earnings per share attributable to the ordinary equity holders of the company** | 2.9 | (0.1) | | **Adjusted from continuing operations attributable to the ordinary equity holders of the company (B/D)** | 16.8 | 25.0 | ### (d) Diluted earnings per share | | 2022 pence | 2021 pence | | --- | --- | --- | | From continuing operations attributable to the ordinary equity holders of the company (A/E) | 2.8 | 11.4 | | From discontinued operations (C/E) | – | (11.5) | | **Total diluted earnings per share attributable to the ordinary equity holders of the company** | 2.8 | (0.1) | | **Adjusted from continuing operations attributable to the ordinary equity holders of the company (B/E)** | 16.4 | 24.6 | Overview Strategy/Impact Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 101 Notes to the consolidated financial statements continued For the year ended 30 June 2022 12 Intangible assets | | | | Intangible | | Computer | | | | --- | --- | --- | --- | --- | --- | --- | --- | | Goodwill | | | | | | 1 | Total | | | | contract rights | | | software | | | | | £m | | | £m | | £m | £m | Cost At 1 July 2020 538.8 259.4 125.4 923.6 Additions – – 3.1 3.1 Disposals – – (1.1) (1.1) Transfers from property, plant and equipment – – 0.9 0.9 At 30 June 2021 538.8 259.4 128.3 926.5 2 Prior year reclassification – – 4.5 4.5 At 1 July 2021 538.8 259.4 132.8 931.0 Additions – – 0.7 0.7 Disposals – (7.2) (0.9) (8.1) At 30 June 2022 538.8 252.2 132.6 923.6 Accumulated amortisation and impairment At 1 July 2020 (2.1) (134.7) (66.2) (203.0) Charge for the year – (21.0) (8.3) (29.3) Impairment reversal – – 2.4 2.4 Disposals – – 0.6 0.6 At 30 June 2021 (2.1) (155.7) (71.5) (229.3) 2 Prior year reclassification – – (4.5) (4.5) At 1 July 2021 (2.1) (155.7) (76.0) (233.8) Charge for the year – (19.7) (6.0) (25.7) Disposals – 7.2 – 7.2 Impairment – – (2.2) (2.2) At 30 June 2022 (2.1) (168.2) (84.2) (254.5) Net book value At 30 June 2022 536.7 84.0 48.4 669.1 At 30 June 2021 536.7 103.7 56.8 697.2 1 Computer software mainly relates to the Group’s ERP software and is being amortised. 2 Prior year reclassification amends fully depreciated software disposals which were overstated in previous reporting periods. There was no impact on the consolidated balance sheet. Goodwill largely relates to the Infrastructure Services cash generating unit (‘CGU’) and has been built up through acquisitions, primarily MRBL Limited (Mouchel Group) (£299.2m), May Gurney Integrated Services PLC (£194.7m) and McNicholas Construction (Holdings) Limited (£42.8m). These balances have been subject to an annual impairment review based upon the projected profits of each CGU. The intangible contract rights were recognised on the acquisition of: – North Tyneside Council – Cost £nil (2021: £7.2m). Net book value £nil (2021: £nil). – Stewart Milne – Cost £1.0m (2021: £1.0m). Net book value £nil (2021: £0.1m). – May Gurney Integrated Services plc – Cost £106.8m (2021: £106.8m). Net book value £37.7m (2021: £45.4m). – MRBL Limited (Mouchel Group) – Cost £127.1m (2021: £127.1m). Net book value £45.0m (2021: £56.7m). – McNicholas Construction (Holdings) Limited – Cost £12.1m (2021: £12.1m). Net book value £nil (2021: £0.2m). – Kier Education Services Limited – Cost £2.8m (2021: £2.8m). Net book value £nil (2021: £nil). – Certain business and assets of Babcock Civil Infrastructure Limited – Cost £1.6m (2021: £1.6m). Net book value £1.3m (2021: £1.3m) – Solum Regeneration LLP joint venture – Cost £0.4m (2021: £0.4m). Net book value £nil (2021: £nil). – Watford Health Campus LLP joint venture – Cost £0.4m (2021: £0.4m). Net book value £nil (2021: £nil). Contract rights on May Gurney and Mouchel are amortised on a straight-line basis over the expected total contract duration. All other contract rights are amortised on a straight-line basis over the remaining contract life. 182 Kier Group plc | Annual Report and Accounts 2022 ## Carrying amounts of goodwill and intangible contract rights by CGU | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Goodwill £m | Intangible contract rights £m | Total £m | Goodwill £m | Intangible contract rights £m | Total £m | | Infrastructure Services | 516.3 | 82.7 | 599.0 | 516.3 | 102.2 | 618.5 | | Construction | 20.4 | 1.3 | 21.7 | 20.4 | 1.5 | 21.9 | | | 536.7 | 84.0 | 620.7 | 536.7 | 103.7 | 640.4 | For impairment testing purposes, goodwill has been allocated to the above two CGUs, being the lowest level at which management monitors goodwill. There is no goodwill attributed to the Property CGU. The recoverable amount of the goodwill and intangibles has been determined based on value in use calculations, which use cash flow projections based on the Group's forecasts approved by management, covering a three-year period. The resulting cash flows are discounted to present value, with the discount rate used in the value in use calculations based on the Group's weighted average cost of capital, adjusted as necessary to reflect the risk associated with the assets being tested. The cost of equity is calculated using observable market data from the Group's competitors. This data is used to calculate an average unlevered beta value after excluding any outliers. The average beta is then applied to the UK's equity risk premium and a risk free rate added. The cost of debt is calculated by taking the weighted average interest rate of the Group's debt and adjusting for the tax rate. The cost of equity and cost of debt are then combined using the Group's debt/equity split. Pre-tax discount rates have been applied to the cash flows for each CGU that are derived from the Group's weighted average cost of capital of 9.0% (2021: 9.1%). The Infrastructure Services CGU impairment review is sensitive to changes in the following key assumptions: discount rate, revenue growth rate, operating margin and perpetual growth rates. Management considers that a reasonably possible change in any single assumption could give rise to an impairment of the carrying value of goodwill and intangibles. ### Infrastructure Services CGU Forecast revenue growth rates and operating profit margins are based on historical experience, adjusted for the impact of expected changes to contract portfolio and profitability. Based on the value in use calculation, these assumptions detailed below derived a recoverable amount for the Infrastructure Services CGU that is £153.0m (2021: £117.0m) above the carrying value of CGU assets, an increase of £36.0m from the prior year. The pre-tax discount rate used is 11.1% (2021: 11.2%). An increase in discount rate of 2.2% (2021: 1.3%) would eliminate headroom. A 0.5% increase in discount rate would reduce headroom by £41.3m (2021: £49.8m). A terminal revenue growth rate of 2.0% (2021: 2.0%) has been applied into perpetuity. This would need to reduce by 2.3% (2021: 1.5%) to eliminate headroom. A 0.5% reduction would reduce headroom by £41.7m (2021: £42.8m). Forecast revenue growth rates from FY23 to FY25 range from 4.1% to 7.7% (2021: FY22 to FY24 range from 2.3% to 31.8% which included, in particular, the impact of the Group's HS2 contract). A reduction of 5.6% (2021: 5.1%) to the average growth rate would be required for headroom to be eliminated. A 0.5% reduction in growth rate in each year would reduce headroom by £18.4m (2021: £12.0m). A fixed operating margin of 5.0%, consistent with the margin in FY25, has been applied into perpetuity (2021: 4.4%). A reduction of 0.9% (2021: 0.7%) in margin would be required to eliminate headroom. A 0.5% reduction in operating margin would reduce headroom by £87.0m (2021: £87.3m). Forecast operating margins from FY23 to FY25 range from 5.0% to 5.3% (2021: FY22 to FY24 4.4%). A reduction of 0.8% (2021: 2.3%) in operating margin would be required to eliminate headroom. A 0.5% reduction in margins would result in a reduction in headroom by £84.2m (2021: £25.0m). In terms of the possible impacts of climate change, the two key assumptions that could be sensitive to this are the growth rate and discount rates noted above. If climate change has a negative impact on revenues and/or the operating costs of the Group, there could be a potential impact on the discounted cash flow growth rates used within the valuation model. Lower future growth rates would reduce the level of the discounted cash flow valuation and hence the amount of headroom available to the Group above an impairment trigger. At present, the material short- to medium-term risks presented by possible climate change impacts are considered to be factored into the growth and discount rates where they are known and can be quantified. Using the current assumptions, no reasonably foreseeable change in the assumptions used within the value-in-use calculations would cause an impairment. Therefore, at present, changes in the long-term assumptions due to the impact of climate change would also not be expected to trigger an impairment. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 183 Notes to the consolidated financial statements continued For the year ended 30 June 2022 13 Property, plant and equipment | Land and | | Plant and | | Mining | | | | --- | --- | --- | --- | --- | --- | --- | | buildings | | | | | 3 | Total | | | | equipment | | asset | | | | | £m | | £m | | £m | £m | Cost At 1 July 2020 36.0 38.0 4.8 78.8 Additions – 3.3 – 3.3 Disposals (4.1) (9.5) – (13.6) 1 Transfers 0.4 10.6 – 11.0 Currency realignment – (0.7) – (0.7) At 30 June 2021 32.3 41.7 4.8 78.8 2 Prior year reclassification – 15.7 – 15.7 At 1 July 2021 32.3 57.4 4.8 94.5 Additions 0.3 5.7 – 6.0 Disposals (5.3) (9.8) – (15.1) 1 Transfers (2.4) – – (2.4) Currency realignment – 0.7 – 0.7 At 30 June 2022 24.9 54.0 4.8 83.7 Accumulated depreciation and impairment At 1 July 2020 (11.1) (20.6) (4.8) (36.5) Charge for the year (0.6) (5.8) – (6.4) Disposals 2.9 9.2 – 12.1 1 Transfers (0.4) (4.8) – (5.2) Currency realignment – 0.5 – 0.5 At 30 June 2021 (9.2) (21.5) (4.8) (35.5) 2 Prior year reclassification – (15.7) – (15.7) At 1 July 2021 (9.2) (37.2) (4.8) (51.2) Charge for the year (0.8) (5.8) – (6.6) Impairment – (4.1) – (4.1) Disposals 2.0 9.0 – 11.0 1 Transfers 0.4 – – 0.4 Currency realignment – (0.5) – (0.5) At 30 June 2022 (7.6) (38.6) (4.8) (51.0) Net book value At 30 June 2022 17.3 15.4 – 32.7 At 30 June 2021 23.1 20.2 – 43.3 1 Includes transfers between asset classes, assets held for sale and intangible assets as follows: – Net book value of land and buildings transferred to investment properties was £2.0m (2021: £nil), from assets held for sale was £nil (2021: £2.0m), and to plant and equipment was £nil (2021: £2.0m). – Net book value of intangible assets transferred from plant and equipment was £nil (2021: £0.9m). – Net book value of plant and equipment transferred from assets held for sale was £nil (2021: £4.7m). 2 The prior year reclassification amends fully depreciated plant and equipment disposals which were overstated in previous reporting periods. There was no impact on the consolidated balance sheet. 3 The mining asset represents the stripping activity at the UK Mining operations site. The asset has been depreciated over the expected useful life of the coal that becomes more accessible as a result of the stripping activity. 184 Kier Group plc | Annual Report and Accounts 2022 ## 14 Investment properties | | Owned assets £m | Right-of-use assets £m | Total £m | | --- | --- | --- | --- | | **At 1 July 2020** | 8.3 | 41.5 | 49.8 | | Additions | – | 0.1 | 0.1 | | Fair value loss recognised in administrative expenses | – | (0.3) | (0.3) | | **At 30 June 2021** | 8.3 | 41.3 | 49.6 | | Transfers | 2.0 | 6.1 | 8.1 | | Additions | – | 2.5 | 2.5 | | Fair value gain/(loss) recognised in administrative expenses | 2.7 | (2.5) | 0.2 | | **At 30 June 2022** | **13.0** | **47.4** | **60.4** | Investment properties comprise office buildings that were formerly utilised by the Group that have been vacated and are now leased out (or intended to be leased out) to third parties under operating leases. The investment properties include properties held as right-of-use assets, as well as a property owned by the Group. The investment properties are carried at fair value. Changes in fair values are presented in the profit or loss within administrative expenses. ### (b) Amounts recognised in the income statement | | 2022 £m | 2021 £m | | --- | --- | --- | | Rental income from operating leases | 2.4 | 0.8 | | Direct operating expenses for property that generated rental income | (1.4) | (1.2) | | Direct operating expenses for property that did not generate rental income | (0.6) | (0.6) | | Fair value adjustment | 0.2 | (0.3) | | **Total gain/(loss) recognised in the income statement** | **0.6** | **(1.3)** | The profit or losses relating to investment properties are included in adjusting items (see note 5). ### (c) Leasing arrangements The investment properties are leased to tenants under operating leases with rentals payable either monthly or quarterly. Lease payments for some contracts include provisions for RPI increases. One contract entitles the Group to an element of variable lease rentals (in addition to the based rent payments) based on a share of the tenant's revenue in carrying out their business of providing serviced offices and hot desking space at the premises. Although the Group is exposed to changes in the residual value at the end of the current leases, the Group intends to enter into new operating leases and therefore will not immediately realise any reduction in residual value at the end of these leases. Some of the leases include a tenant option to renew the lease for a further period. Expectations about the future residual values are reflected in the fair value of the properties. Minimum lease payments receivable on leases of investment properties are as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Less than one year | 2.8 | 1.5 | | One to two years | 3.0 | 1.5 | | Two to three years | 2.3 | 1.7 | | Three to four years | 2.1 | 1.5 | | Four to five years | 1.3 | 1.4 | | Over five years | 1.1 | 2.3 | | **Total** | **12.6** | **9.9** | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 185 Notes to the consolidated financial statements continued For the year ended 30 June 2022 14 Investment properties continued d) Measurement of fair values The fair value of the owned investment property was determined as at 30 June 2022 by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of the property being valued. The fair values of the right-of-use investment properties have been determined by the Group without the use of an independent valuer. The fair value measurements for all of the investment properties have been categorised as Level 3 fair values (as defined in note 29), based on the inputs to the valuation techniques used. | Investment | Valuation | Significant | | Inter-relationship between key unobservable | | | --- | --- | --- | --- | --- | --- | | property | technique | unobservable inputs | | inputs and fair value measurement | | | Owned assets Market approach: The fair value | | The external valuation is | | The estimated fair value | | | | has been determined by adopting | performed every two years. The | | would increase/(decrease) if: | | | | an investment approach and | last valuation was carried out as at | | | – Expected market rental growth | | | assuming continued use as offices. | 30 June 2022, using the following | | | were higher/(lower); | | | | inputs: | | | – The occupancy rate was higher/ | | | | | – Expected market rental growth | | (lower); | | | | | of 0% (2021: 0%); | | – Void periods were shorter/ | | | | | – Occupancy rate average of 95% | | (longer); or | | | | | (2021: 95%); | | – Rent-free periods | | | | | – Void periods of 24 months to 36 | | were shorter/(longer). | months (2021: 24 months to 36 months); and – Rent-free periods of 12 months on a 5-year lease (2021: 12 months on a 5-year lease). In years where no valuation is performed, the fair value is reviewed taking into consideration any changes in market conditions and any offers received on the property and adjustments made accordingly. | Right-of-use | Income approach using discounted | – Expected market rental growth | The estimated fair value | | | --- | --- | --- | --- | --- | | assets | cash flows: The valuation model | of 1% to 2% (2021: 1%); | would increase/(decrease) if: | | | | considers the present value of net | – Occupancy rate average | | – Expected market rental growth | | | cash flows to be generated from | of 93% to 99% (2021: average of | | were higher/(lower); | | | the property, taking into account | 97%); | | – The occupancy rate was | | | the expected rental growth rate, | – Rent-free/void periods of | | higher/(lower); | | | void periods, occupancy rate, | 6–9 months at the end of each | | – Rent-free/void periods were | | | lease incentive costs such as | tenancy (2021: 6 months); and | | shorter/(longer); or | | | rent-free periods and other costs | – Risk-adjusted discount rate of | | – The risk-adjusted discount rate | | | not paid by tenants. The expected | 4.2% (2021: 4.2%). | | was lower/(higher). | net cash flows are discounted using risk-adjusted discount rates. 186 Kier Group plc | Annual Report and Accounts 2022 ## 15 Investments in and loans to joint ventures ### (a) Movements in year | | 2022 £m | 2021 £m | | --- | --- | --- | | **Investments in joint ventures** | | | | At 1 July | 98.9 | 105.6 | | Additions | 16.8 | 9.2 | | Loan repayments | (7.5) | (7.7) | | Share of: | | | | Operating profit/(loss) | 26.4 | (0.1) | | Finance costs | 0.4 | (1.6) | | Taxation | (0.2) | 1.4 | | Post-tax results of joint ventures – continuing operations | 26.6 | (0.3) | | Dividends received | (32.5) | (6.3) | | Return of equity | (20.0) | (1.6) | | **At 30 June** | **82.3** | **98.9** | ### (b) Analysis of investments in and loans to joint ventures | | 2022 £m | 2021 £m | | --- | --- | --- | | **Non-current assets** | | | | Investment properties | 42.5 | 42.5 | | Other non-current assets | – | 0.6 | | **Non-current assets** | **42.5** | **43.1** | | **Current assets** | | | | Cash and trade receivables | 130.4 | 157.9 | | **Current assets** | **130.4** | **157.9** | | **Total assets** | **172.9** | **201.0** | | **Current liabilities** | | | | Trade and other payables | (19.8) | (17.7) | | **Current liabilities** | **(19.8)** | **(17.7)** | | **Non-current liabilities** | | | | Borrowings | (70.7) | (83.7) | | Deferred tax liabilities | (0.1) | (0.1) | | Other non-current liabilities | – | (0.6) | | **Non-current liabilities** | **(70.8)** | **(84.4)** | | **Total liabilities** | **(90.6)** | **(102.1)** | | **At 30 June** | **82.3** | **98.9** | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 187 Notes to the consolidated financial statements continued For the year ended 30 June 2022 15 Investments in and loans to joint ventures continued (c) Interests in joint ventures Set out below are the joint ventures of the Group as at 30 June 2022 which, in the opinion of the Directors, are material to the Group. See note 32 for the full list of joint ventures. All of the entities are private entities and therefore do not have a quoted fair value. The country of incorporation or registration is also their principal place of business. All are measured under the equity method. | | | | % of ownership | | % of ownership | | | | Carrying | | | Carrying | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Place of business/country of | | interest/voting | | interest/voting | | Nature of | amount 2022 | | | amount 2021 | | | | Name of entity | | incorporation | | rights 2022 | | rights 2021 | relationship | | | £m | | | £m | 1 Kier Trade City England and Wales 90% / 50% 90% / 50% Property division 6.8 11.1 2 Solum Regeneration England and Wales 50% / 50% 50% / 50% Property division 21.3 31.7 3 Kier Cornwall Street England and Wales 90% / 50% 90% / 50% Property division 7.2 12.5 4 Kier (Newcastle) England and Wales 75% / 50% 75% / 50% Property division 8.4 8.2 5 Kier (Southampton) England and Wales 75% / 50% 75% / 50% Property division 11.3 10.8 6 Watford Health Campus England and Wales 50% / 50% 50% / 50% Property division 9.9 9.2 7 Kier Richmond England and Wales 90% / 50% 90% / 50% Property division 7.7 7.7 8 Winsford England and Wales 50% / 50% 50% / 50% Property division 0.4 2.3 9 Kier Maidenhead England and Wales 90% / 50% 90% / 50% Property division 0.7 3.2 10 Kier PGIM Logistics England and Wales 25.5% / 25.5% – / – Property division 7.4 – Immaterial joint ventures 1.2 2.2 82.3 98.9 1 Kier Trade City consists of Kier Trade City Holdco 1 LLP, Kier Trade City Holdco 2 LLP and Kier Trade City LLP. 2 Solum Regeneration consists of Solum Regeneration (Bishops) LLP, Solum Regeneration (Epsom) Limited Partnership, Solum Regeneration (Guildford) LLP, Solum Regeneration (Haywards) LLP, Solum Regeneration (Kingswood) LLP, Solum Regeneration (Maidstone) LLP, Solum Regeneration (Redhill) LLP, Solum Regeneration (Surbiton) LLP, Solum Regeneration (Twickenham) LLP, Solum Regeneration (Walthamstow) LLP, Solum Regeneration Epsom (GP Subsidiary) Limited, Solum Regeneration Epsom (GP) Limited, Solum Regeneration Epsom (Residential) LLP, Solum Regeneration Holding 1 LLP and Solum Regeneration Holding 2 LLP. 3 Kier Cornwall Street consists of Kier Cornwall Street Holdings 1 LLP, Kier Cornwall Street Holdings 2 LLP and Kier Cornwall Street LLP. 4 Kier (Newcastle) consists of Kier (Newcastle) Investment Limited, Kier (Newcastle) Operation Limited and Magnetic Limited. 5 Kier (Southampton) consists of Kier (Southampton) Development Limited, Kier (Southampton) Investment Limited and Kier (Southampton) Operations Limited. 6 Watford Health Campus consists of Watford Health Campus Limited, Watford Health Campus Partnership LLP, Watford Riverwell (Family Housing) LLP and Watford Woodlands LLP. 7 Kier Richmond consists of Kier Richmond Holdings Limited and Kier Richmond Limited. 8 Winsford consists of Winsford Holdings 1 LLP, Winsford Holdings 2 LLP and Winsford Devco LLP. 9 Kier Maidenhead consists of Kier Maidenhead Holdings 1 LLP, Kier Maidenhead Holdings 2 LLP and Kier Maidenhead LLP. 10 Kier PGIM Logistics consists of Kier PGIM Logistics Holdco Ltd, Kier PGIM Logistics (Bognor) Ltd, Kier PGIM Logistics (Bracknell) Ltd, Kier PGIM Logistics (Knowsley) Ltd, Kier PGIM Logistics (St. Albans) Ltd, Kier PGIM Logistics Propco 4 Ltd, Kier PGIM Logistics Propco 5 Ltd, Kier PGIM Logistics Propco 7 Ltd and Kier PGIM Logistics Propco 8 Ltd. (d) Borrowing facilities and guarantees to joint ventures The Group has provided guarantees to support borrowing facilities of joint ventures as follows: 2022 2021 | Borrowing | | | | | | Drawn | | Borrowing | | | | | | Drawn | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | facility | | Guarantees | | at 30 June | | | | facility | | Guarantees | | at 30 June | | | | | | £m | | £m | | | £m | | | £m | | £m | | | £m | Kier Trade City LLP 17.8 3.1 7.6 27.4 6.5 21.6 Kier PGIM Logistics (Bognor) Ltd 27.0 1.4 2.8 – – – 44.8 4.5 10.4 27.4 6.5 21.6 Other than as disclosed above the liabilities of the joint ventures are without recourse to the Group. Details of the Group’s interests in joint ventures are given in note 32. 188 Kier Group plc | Annual Report and Accounts 2022 # **(e) Summarised financial information for joint ventures** The tables below provide summarised financial information for those joint ventures that are material to the Group. The information disclosed reflects the amounts presented in the financial statements of the relevant joint ventures and not the Group's share of those amounts. They have been amended to reflect adjustments made by the entity when using the equity method, including fair value adjustments and modifications for differences in accounting policy. | | Kier Trade City | | Solum Regeneration | | Kier Cornwall Street | | Kier (Newcastle) | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | **Summarised balance sheet** | | | | | | | | | | **Current assets** | | | | | | | | | | Cash and cash equivalents | 0.3 | – | 0.6 | 1.0 | 1.8 | 3.2 | 0.7 | 0.4 | | Other current assets | 16.0 | 35.3 | 51.7 | 65.8 | 34.4 | 37.6 | 2.8 | 3.1 | | **Current assets** | **16.3** | **35.3** | **52.3** | **66.8** | **36.2** | **40.8** | **3.5** | **3.5** | | **Non-current assets** | – | – | – | – | – | – | 25.1 | 25.1 | | **Current liabilities** | | | | | | | | | | Other current liabilities | (1.3) | (1.4) | (9.7) | (3.4) | (3.2) | (1.9) | (5.2) | (5.2) | | **Total current liabilities** | **(1.3)** | **(1.4)** | **(9.7)** | **(3.4)** | **(3.2)** | **(1.9)** | **(5.2)** | **(5.2)** | | **Non-current liabilities** | | | | | | | | | | Financial liabilities (excluding trade payables) | (7.5) | (21.6) | – | – | (25.0) | (25.0) | (12.1) | (12.4) | | Other non-current liabilities | – | – | – | – | – | – | (0.1) | (0.1) | | **Total non-current liabilities** | **(7.5)** | **(21.6)** | – | – | **(25.0)** | **(25.0)** | **(12.2)** | **(12.5)** | | **Net assets** | **7.5** | **12.3** | **42.6** | **63.4** | **8.0** | **13.9** | **11.2** | **10.9** | | **Reconciliation to carrying amounts:** | | | | | | | | | | **Net assets at 1 July** | **12.3** | **20.2** | **63.4** | **66.3** | **13.9** | **15.4** | **10.9** | **9.9** | | Capital introduced | 4.5 | – | 9.4 | 4.9 | – | – | – | 1.3 | | Profit/(loss) for the year | 20.3 | 5.3 | (2.0) | (7.5) | (5.9) | (1.5) | 0.3 | (0.3) | | Loan repayments | (8.3) | (8.5) | – | – | – | – | – | – | | Return of equity | – | – | (27.8) | – | – | – | – | – | | Dividends paid | (21.3) | (4.7) | (0.4) | (0.3) | – | – | – | – | | **Net assets at 30 June** | **7.5** | **12.3** | **42.6** | **63.4** | **8.0** | **13.9** | **11.2** | **10.9** | | Group's share (%) | 90% | 90% | 50% | 50% | 90% | 90% | 75% | 75% | | **Investment in joint venture** | **6.8** | **11.1** | **21.3** | **31.7** | **7.2** | **12.5** | **8.4** | **8.2** | | **Summarised income statement** | | | | | | | | | | Revenue | 50.1 | 20.8 | 35.3 | 49.5 | 0.6 | 0.8 | 1.9 | 1.3 | | Finance income | – | – | – | – | 0.4 | – | – | – | | Finance costs | – | – | – | – | – | (1.4) | – | – | | Taxation | – | – | – | – | – | – | (0.1) | – | | **Profit/(loss) for the year from continuing operations** | **20.3** | **5.3** | **(2.0)** | **(7.5)** | **(5.9)** | **(1.5)** | **0.3** | **(0.3)** | | **Profit/(loss) for the year** | **20.3** | **5.3** | **(2.0)** | **(7.5)** | **(5.9)** | **(1.5)** | **0.3** | **(0.3)** | | **Total comprehensive income/(expense)** | **20.3** | **5.3** | **(2.0)** | **(7.5)** | **(5.9)** | **(1.5)** | **0.3** | **(0.3)** | | **Dividends received from joint ventures** | **19.2** | **4.2** | **0.2** | **0.1** | – | – | – | – | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 189 Notes to the consolidated financial statements continued For the year ended 30 June 2022 15 Investments in and loans to joint ventures continued | | | | Kier | | | Watford | | | | Kier | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | (Southampton) | | | Health Campus | | | | Richmond | | | | 2022 | | 2021 | 2022 | | | 2021 | 2022 | | 2021 | | Summarised balance sheet | £m | | £m | £m | | | £m | £m | | £m | Current assets Cash and cash equivalents 1.1 1.1 0.4 0.6 0.4 – Other current assets 2.7 3.2 36.7 35.8 15.6 19.4 Current assets 3.8 4.3 37.1 36.4 16.0 19.4 Non-current assets 31.5 31.5 – – – – Current liabilities Other current liabilities (2.4) (3.5) (7.2) (9.0) – – Total current liabilities (2.4) (3.5) (7.2) (9.0) – – Non-current liabilities Financial liabilities (excluding trade payables) (17.9) (17.8) (10.2) (9.0) (7.5) (10.8) Other non-current liabilities – – – – – – Total non-current liabilities (17.9) (17.8) (10.2) (9.0) (7.5) (10.8) Net assets 15.0 14.5 19.7 18.4 8.5 8.6 Reconciliation to carrying amounts: Net assets at 1 July 14.5 11.4 18.4 20.1 8.6 7.9 Capital introduced – 2.9 1.1 0.8 – – Profit/(loss) for the year 0.5 0.2 2.8 1.6 (0.1) 0.7 Return of equity – – – (3.4) – – Dividends paid – – (2.6) (0.7) – – Net assets at 30 June 15.0 14.5 19.7 18.4 8.5 8.6 Group’s share (%) 75% 75% 50% 50% 90% 90% Investment in joint venture 11.3 10.8 9.9 9.2 7.7 7.7 Summarised income statement Revenue 2.7 1.5 19.0 18.6 4.3 1.1 Depreciation and amortisation (0.1) (0.1) – – – – Finance costs – (0.5) – – – – Taxation (0.1) 0.5 – – – (0.1) Profit/(loss) for the year from continuing operations 0.5 0.2 2.8 1.6 (0.1) 0.7 Profit/(loss) for the year 0.5 0.2 2.8 1.6 (0.1) 0.7 Total comprehensive income/(expense) 0.5 0.2 2.8 1.6 (0.1) 0.7 Dividends received from joint ventures – – 1.3 0.4 – – 190 Kier Group plc | Annual Report and Accounts 2022 | | | | | | | Kier | | | Kier | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | Winsford | | | Maidenhead | | | PGIM Logistics | | | | 2022 | | 2021 | 2022 | | 2021 | 2022 | | 2021 | | Summarised balance sheet | £m | | £m | £m | | £m | £m | | £m | Current assets Cash and cash equivalents 0.4 0.1 – – 4.0 – Other current assets 0.7 8.0 1.0 8.8 54.2 – Current assets 1.1 8.1 1.0 8.8 58.2 – Current liabilities Other current liabilities (0.4) (1.3) (0.2) (1.0) (1.5) – Total current liabilities (0.4) (1.3) (0.2) (1.0) (1.5) – Non-current liabilities Financial liabilities (excluding trade payables) – (2.1) – (4.3) (27.7) – Total non-current liabilities – (2.1) – (4.3) (27.7) – Net assets 0.7 4.7 0.8 3.5 29.0 – Reconciliation to carrying amounts: Net assets at 1 July 4.7 4.7 3.5 – – – Capital introduced – – – 3.5 29.1 – Profit/(loss) for the year 11.1 – 8.3 – (0.1) – Return of equity (4.8) – (3.6) – – – Dividends paid (10.3) – (7.4) – – – Net assets at 30 June 0.7 4.7 0.8 3.5 29.0 – Group’s share (%) 50% 50% 90% 90% 25.5% – Investment in joint venture 0.4 2.3 0.7 3.2 7.4 – Summarised income statement Revenue 22.7 0.1 19.6 – – – Governance Financial statementsStrategic reportOverview Profit/(loss) for the year from continuing operations 11.1 – 8.3 – (0.1) – Profit/(loss) for the year 11.1 – 8.3 – (0.1) – Total comprehensive income/(expense) 11.1 – 8.3 – (0.1) – Dividends received from joint ventures 5.1 – 6.6 – – – (f) Individually immaterial joint ventures In addition to the interests in joint ventures disclosed above, the Group also has interests in a number of individually immaterial joint ventures that are accounted for using the equity method. 2022 2021 £m £m Aggregate carrying amount of individually immaterial joint ventures 1.2 2.2 Dividends received from individually immaterial joint ventures 0.1 1.6 Aggregate amounts of the Group’s share of: Loss from continuing operations (0.3) (1.3) Other information Total comprehensive expense (0.3) (1.3) Kier Group plc | Annual Report and Accounts 2022 191 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 16 Capitalised mobilisation costs | | 2022 £m | 2021 £m | | --- | --- | --- | | At 1 July | 3.8 | 1.9 | | Additions | 10.2 | 3.5 | | Amortisation | (2.4) | (1.6) | | At 30 June | 11.6 | 3.8 | Mobilisation costs have increased during the year due to a number of successful framework agreement bids, predominantly within the construction business. ## 17 Deferred tax The following are the major deferred tax assets and liabilities recognised by the Group and movements thereon during the current and prior reporting year: | | Intangible assets £m | Property, plant and equipment £m | Short-term temporary differences £m | Retirement benefit obligations £m | Tax losses £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | | **At 1 July 2020** | (23.4) | 31.8 | 15.4 | (7.4) | 94.6 | 111.0 | | (Charged)/credited to income statement – continuing | (0.2) | 4.8 | 13.6 | (10.0) | 14.4 | 22.6 | | Credited to income statement – discontinued | – | – | – | – | 0.4 | 0.4 | | Acquisitions and disposals | – | (0.3) | – | – | (0.8) | (1.1) | | Credited directly to comprehensive income | – | – | 0.3 | 4.8 | – | 5.1 | | **At 1 July 2021** | (23.6) | 36.3 | 29.3 | (12.6) | 108.6 | 138.0 | | Credited/(charged) to income statement – continuing | 3.8 | (1.5) | 8.0 | (2.0) | (3.0) | 5.3 | | Credited/(charged) directly to comprehensive income | – | – | 0.2 | (34.7) | – | (34.5) | | **At 30 June 2022** | (19.8) | 34.8 | 37.5 | (49.3) | 105.6 | 108.8 | Deferred tax assets and liabilities are attributed to temporary differences relating to the following: | | Assets | | Liabilities | | Total | | | --- | --- | --- | --- | --- | --- | --- | | | 2022 £m | 2021 £m | 2022 £m | 2021 £m | 2022 £m | 2021 £m | | Property, plant and equipment | 34.8 | 36.3 | – | – | 34.8 | 36.3 | | Intangible assets | – | – | (19.8) | (23.6) | (19.8) | (23.6) | | Retirement benefit obligations | – | – | (49.3) | (12.6) | (49.3) | (12.6) | | Other short-term timing differences | 37.5 | 29.3 | – | – | 37.5 | 29.3 | | Tax losses | 105.6 | 108.6 | – | – | 105.6 | 108.6 | | **Total** | 177.9 | 174.2 | (69.1) | (36.2) | 108.8 | 138.0 | | Set-off tax | (69.1) | (36.2) | 69.1 | 36.2 | – | – | | Net tax assets | 108.8 | 138.0 | – | – | 108.8 | 138.0 | When considering the recoverability of net deferred tax assets, the taxable profit forecasts are based on the same Board-approved information used to support the going concern and goodwill impairment assessments. More information on these forecasts and the methodology applied are included in notes 1 and 12. The following evidence has been considered when assessing whether these forecasts are achievable and realistic: - The business traded in line with Board expectations in 2022; - The Group has substantially completed its restructuring activities and is focusing on the achievement of the medium-term growth strategy; and - The Group's core businesses are well-placed to benefit from the announced and committed UK Government spending plans to invest in infrastructure, decarbonisation and spending to support post COVID-19 recovery. When considering the length of time over which the losses are expected to be utilised, the Group has taken into account that generally only 50% of profits in each year can be offset by brought forward losses. Based on these forecasts, the Group is expected to utilise its deferred tax asset over a period of approximately 10 years. 192 Kier Group plc | Annual Report and Accounts 2022 ## 18 Contract assets and liabilities | | 2022 £m | 2021 £m | | --- | --- | --- | | **At 1 July** | **335.7** | 249.7 | | Revenue adjustments recognised in the period for performance obligations satisfied in previous periods due to changes in the transaction price arising from changes in estimates of variable revenue^{1} | – | (9.0) | | Transferred to receivables | (313.3) | (223.8) | | Balance remaining in relation to contract assets at the start of the year | 22.4 | 16.9 | | Increase related to services provided in the year | 343.9 | 318.8 | | **At 30 June** | **366.3** | 335.7 | $^{1}$ The 2021 movement includes an amount of £8.5m in respect of downward revisions of estimated variable income relating to the Regional Southern Build business, following a full review of its projects in the year, see note 5. Current contract assets have increased by £30.6m in the year due to the timing of invoicing, the effect of new contracts and significant increases in volumes on HS2. ### (b) Non-current contract assets | | 2022 £m | 2021 £m | | --- | --- | --- | | **At 1 July** | **30.7** | 28.8 | | Increase related to services provided in the year | 0.5 | 1.9 | | **At 30 June** | **31.2** | 30.7 | ### (c) Current contract liabilities | | 2022 £m | 2021 £m | | --- | --- | --- | | **At 1 July** | **(59.9)** | (108.7) | | Revenue recognised in the year that was included in contract liabilities at the beginning of the year | 50.5 | 105.2 | | Contract liabilities repaid | – | 1.4 | | Balance remaining in relation to contract liabilities at the start of the year | (9.4) | (2.1) | | Increase due to cash received or invoices raised in the year for performance obligations not recognised in revenue | (57.9) | (57.8) | | **At 30 June** | **(67.3)** | (59.9) | Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 193 Notes to the consolidated financial statements continued For the year ended 30 June 2022 19 Trade and other receivables 2022 2021 £m £m Current: Trade receivables 72.2 50.7 Construction contract retentions 72.4 84.8 Amounts receivable from joint ventures 4.0 1.7 Other receivables 15.8 3.5 Prepayments 30.2 42.9 Accrued income 8.3 8.0 Other taxation and social security – 11.5 202.9 203.1 Non-current: Construction contract retentions 17.0 24.1 17.0 24.1 Construction contract retentions are amounts withheld by the customer until they are satisfied with the quality of the work undertaken. 20 Inventories 2022 2021 £m £m Raw materials and consumables 13.8 14.9 Land and work in progress held for development 43.0 39.1 Other work in progress – 0.7 56.8 54.7 As at 30 June 2022, £1.5m of provisions are held against inventory relating to land and work in progress for development (2021: £2.8m). 21 Net cash 2022 2021 £m £m Cash and cash equivalents – bank balances and cash in hand 297.7 391.2 Borrowings due within one year (40.5) (38.2) Borrowings due after one year (266.5) (362.3) Impact of cross-currency hedging 12.2 12.3 Net cash 2.9 3.0 Average month-end net debt was £216.1m (2021: £431.9m). Net cash excludes lease liabilities. Cash and cash equivalents are subject to Group-wide cash pooling arrangements. On a gross basis, cash and cash equivalents were £1,546.4m (2021: £1,411.7m) and overdrafts were £1,248.7m (2021: £1,020.5m). Cash and cash equivalents include £74.4m (2021: £75.1m) being the Group’s share of cash and cash equivalents held by joint operations and £39.9m (2021: £43.2m) of bank balances that are not part of the Group-wide cash pooling arrangement. Information on borrowings is detailed in note 29. 194 Kier Group plc | Annual Report and Accounts 2022 # **(a) Reconciliation of working capital between the consolidated balance sheet and consolidated cash flow statement** | | 2022 | | | | | 2021 | | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Inventories £m | Trade and other receivables £m | Contract assets £m | Trade and other payables £m | Provisions £m | Inventories £m | Trade and other receivables £m | Contract assets £m | Trade and other payables £m | Provisions £m | | 1 July balance sheet | 54.7 | 227.2 | 366.4 | (1,133.0) | (47.8) | 60.0 | 269.3 | 278.5 | (1,004.0) | (72.3) | | 30 June balance sheet | 56.8 | 219.9 | 397.5 | (1,099.8) | (48.0) | 54.7 | 227.2 | 366.4 | (1,133.0) | (47.8) | | Movement per balance sheet | 2.1 | (7.3) | 31.1 | 33.2 | (0.2) | (5.3) | (42.1) | 87.9 | (129.0) | 24.5 | | Transfers to and from assets held for sale | – | – | – | – | – | 1.4 | (1.0) | (1.4) | (0.5) | – | | Forward funding interest | – | – | 0.5 | – | – | – | – | 8.8 | – | – | | Disposal of subsidiary | – | – | – | – | – | – | – | – | 15.4 | 6.5 | | Discount unwind^{1} | – | – | – | 0.7 | – | – | – | – | 0.8 | 0.3 | | Unpaid adviser fees in respect of the equity raise^{2} | – | – | – | (6.1) | – | – | – | – | 6.1 | – | | Other | – | – | – | (15.4) | – | – | 0.1 | – | 6.5 | – | | Movement per cash flow statement | 2.1 | (7.3) | 31.6 | 12.4 | (0.2) | (3.9) | (43.0) | 95.3 | (100.7) | 31.3 | $^{1}$ Discount unwind primarily relates to onerous loss-making contracts and deferred consideration. $^{2}$ Unpaid adviser fees of £6.1m in respect of the equity raise have been disclosed within the issue of shares net of transaction costs, on the cash flow statement. # **(b) Reconciliation of movements in net cash/(borrowings)** | | Cash and cash equivalents £m | Borrowings due within one year £m | Borrowings due after one year £m | Impact of cross- currency hedging £m | Total £m | | --- | --- | --- | --- | --- | --- | | **Net cash/(borrowings) as at 1 July 2020** | 413.9 | (61.6) | (689.8) | 27.2 | (310.3) | | Cash flows | (19.6) | 61.6 | 275.8 | – | 317.8 | | Transfers | – | (38.2) | 38.2 | – | – | | Foreign exchange movements | (3.1) | – | 13.5 | (14.9) | (4.5) | | **Net cash/(borrowings) as at 30 June 2021** | 391.2 | (38.2) | (362.3) | 12.3 | 3.0 | | Cash flows | (97.4) | 38.2 | 63.6 | – | 4.4 | | Transfers | – | (40.5) | 40.5 | – | – | | Foreign exchange movements | 3.9 | – | (8.3) | (0.1) | (4.5) | | **Net cash/(borrowings) as at 30 June 2022** | 297.7 | (40.5) | (266.5) | 12.2 | 2.9 | # **(c) Free cash flow** | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | Net cash/(debt) at 1 July | 21 | 3.0 | (310.3) | | Net cash at 30 June | 21 | 2.9 | 3.0 | | **Decrease/(increase) in net cash/(debt)** | | (0.1) | 313.3 | | Adjusted for: | | | | | Payments in respect of adjusting items | 5 | 41.2 | 72.1 | | Pension deficit payments and fees | 8 | 15.0 | 37.0 | | Acquisitions and disposals | 22 | – | (120.8) | | Equity raise | 26 | 6.1 | (224.8) | | Discontinued operations | 22 | – | 11.4 | | Purchase of own shares | | 7.0 | – | | Other items | | (14.6) | 4.4 | | **Free cash flow** | | 54.6 | 92.6 | $^{1}$ The £6.1m settled during the year relates to the payment of accrued costs previously recorded in equity. See glossary of alternative performance measures on page 227. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 195 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 22 Disposals and discontinued operations ### (a) Disposals The Group completed the disposal of Kier Living Limited in the prior year. The disposal represents one of the final milestones in management’s strategy to simplify the Group and to create a strong, resilient and flexible balance sheet. | | 2021 £m | | --- | --- | | Sale proceeds | 110.0 | | Working capital adjustment^{1} | 10.8 | | **Total consideration** | **120.8** | | Book value of net assets disposed of | (116.7) | | Sale costs | (9.7) | | Liabilities recognised on disposal^{2} | (6.5) | | **Loss on disposal** | **(12.1)** | $^{1}$ The disposal was subject to a ‘locked box’ mechanism. The adjustment represents the movement in the Kier Living Limited working capital since the ‘locked box’ date. $^{2}$ As part of the disposal the Group retained some obligations to fulfil existing contracts. The Group recognised liabilities on disposal of Kier Living Limited which represent the costs of completing the outstanding work. In addition, a piece of land owned by Kier Limited was transferred to Kier Living Limited on disposal, generating a Stamp Duty Land Tax liability. ### (b) Discontinued operations The results for Kier Living Limited in the prior year were classified as discontinued up to its disposal. | | 2021 £m | | --- | --- | | **Results of discontinued operations** | | | Revenue | 98.3 | | Share of post-tax results of joint ventures | 12.2 | | Operating costs | (105.2) | | **Operating profit** | **5.3** | | Finance costs | (5.1) | | **Profit before tax and adjusting items** | **0.2** | | Tax | (0.5) | | **Loss for the year before adjusting items** | **(0.3)** | | Adjusting items net of tax (note 5) | (24.3) | | **Loss from discontinued operations after tax** | **(24.6)** | | | 2021 £m | | --- | --- | | **Cash flows from discontinued operations** | | | Operating cash outflows | (24.9) | | Investing cash inflows | 8.4 | | Financing cash inflows^{3} | 74.6 | | **Total cash flows including intercompany transactions** | **58.1** | | Intercompany cash flows | (69.5) | | **Total cash flows** | **(11.4)** | $^{3}$ The cash flows include intercompany transactions, primarily the Group repaying Kier Living Limited’s overdraft of £72.7m prior to its disposal. 196 Kier Group plc | Annual Report and Accounts 2022 ## 23 Leases ### (a) Group as a lessee The Group has lease contracts for various properties, and items of plant, machinery, vehicles and other equipment used in its operations and for administration of the Group's business. Leases of properties have durations of between one and 44 years. Leases of plant and machinery and other equipment generally have lease terms between one and three years, while motor vehicles generally have lease terms between three and six years. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease agreements do not impose any covenants other than the security interests in the leased assets that are held by the lessor. Leased assets may not be used as security for borrowing purposes. A number of property leases contain extension or termination options. In these circumstances, the Group makes a judgement about the period for which it is reasonably certain to lease the property. The Group's accounting policies for leases are set out in note 1. The Group has elected not to recognise right-of-use assets and lease liabilities for short-term leases and leases of low-value assets. The expense included in the income statements relating to these leases was £98.9m (2021: £86.1m). The assets leased under short-term leases are predominantly small items of plant and equipment and therefore are also of low value. The utilisation of these assets varies depending on the nature and levels of the Group's activities. ### (b) Right-of-use assets Set out below are the carrying amounts of right-of-use assets recognised in respect of the Group's leases and the movements during the year: | | Land and buildings £m | Motor vehicles £m | Plant and equipment £m | Total £m | | --- | --- | --- | --- | --- | | **At 1 July 2020** | 69.7 | 19.8 | 11.4 | 100.9 | | Additions | 5.7 | 14.0 | 14.8 | 34.5 | | Depreciation | (9.8) | (14.1) | (9.8) | (33.7) | | Disposals | (1.0) | (0.1) | (4.1) | (5.2) | | **At 30 June 2021** | 64.6 | 19.6 | 12.3 | 96.5 | | Additions | 2.8 | 13.2 | 17.1 | 33.1 | | Depreciation | (7.9) | (11.8) | (10.3) | (30.0) | | Impairment^{1} | (5.2) | – | – | (5.2) | | Transferred to investment properties^{1} | (6.1) | – | – | (6.1) | | Disposals | (0.9) | (1.7) | (5.1) | (7.7) | | **At 30 June 2022** | **47.3** | **19.3** | **14.0** | **80.6** | $^{1}$ During the year ended 30 June 2022, the Group vacated its property in Fountain Street, Manchester, which resulted in an impairment of the associated right-of-use asset. As the property was no longer occupied by the Group and was being held for the purpose of earning rental income, the asset was reclassified as an investment property. ### (c) Lease liabilities | | 2022 £m | 2021 £m | | --- | --- | --- | | Current | 25.9 | 27.4 | | Non-current | 131.7 | 136.4 | | | **157.6** | **163.8** | The maturity profile of the contractual cash flows associated with the lease liabilities is presented in note 29. The interest expense in respect of lease liabilities is included within finance costs in the income statement and is disclosed in note 6. ### (d) Amounts recognised in the statement of cash flows | | 2022 £m | 2021 £m | | --- | --- | --- | | Principal elements of lease payments^{1} | 33.8 | 39.6 | | Interest paid^{1} | 6.5 | 6.7 | | Payments for short-term leases and leases of low-value assets^{2} | 98.9 | 86.1 | | **Total cash outflow for leases** | **139.2** | **132.4** | $^{1}$ Included within cash flows from financing activities within the statement of cash flows. $^{2}$ Included within operating cash flows within the statement of cash flows. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 197 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 24 Trade and other payables | | 2022 £m | 2021 £m | | --- | --- | --- | | **Current:** | | | | Trade payables^{1} | 354.2 | 330.3 | | Sub-contract retentions | 32.7 | 39.1 | | Other taxation and social security^{2} | 122.1 | 144.2 | | Other payables | 28.9 | 47.3 | | Accruals | 527.4 | 531.8 | | Deferred income | 0.4 | 0.4 | | | **1,065.7** | **1,093.1** | | **Non-current:** | | | | Trade payables | 11.0 | 14.1 | | Sub-contract retentions | 23.1 | 25.8 | | | **34.1** | **39.9** | $^{1}$ Included within the trade payables balance is £49.8m (2021: £79.1m) relating to payments due to suppliers who are on bank-supported supply chain finance arrangements. $^{2}$ As at 30 June 2022, there was no remaining tax deferred under the Government's COVID-19 support schemes (2021: £20.8m). ## 25 Provisions | | Insurance claims £m | Restoration of mining sites £m | HSE regulatory £m | Onerous contracts £m | Redundancy and site closure £m | Warranty, rectification and other contractual obligations £m | Total £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **At 1 July 2020** | 23.3 | 2.4 | 3.2 | 3.2 | 5.9 | 34.3 | 72.3 | | Transfers between provision classes | – | – | – | 3.7 | (1.0) | (2.7) | – | | Transfers to payables | – | – | – | – | – | (10.1) | (10.1) | | (Credited)/charged to income statement | (1.5) | 0.3 | (0.7) | (0.9) | 1.6 | 0.7 | (0.5) | | Utilised | – | (1.9) | – | (0.8) | (2.6) | (8.4) | (13.7) | | Unwinding of discount | – | – | – | 0.3 | – | – | 0.3 | | Currency realignment | – | – | – | – | (0.5) | – | (0.5) | | **At 30 June 2021** | 21.8 | 0.8 | 2.5 | 5.5 | 3.4 | 13.8 | 47.8 | | (Credited)/charged to income statement | (3.4) | (0.5) | 0.5 | 3.7 | 0.9 | 5.1 | 6.3 | | Utilised | – | (0.1) | – | (0.4) | (2.7) | (3.5) | (6.7) | | Unwinding of discount | – | – | – | 0.2 | – | – | 0.2 | | Currency realignment | – | – | – | – | 0.4 | – | 0.4 | | **At 30 June 2022** | **18.4** | **0.2** | **3.0** | **9.0** | **2.0** | **15.4** | **48.0** | Insurance provisions are held in the Group's insurance captive in respect of legal and other disputes in various Group companies. Restoration of mining sites provisions represent the cost of restoration of opencast mining sites. HSE regulatory provisions are in respect of potential fines arising from changes to safety, health and environmental legislation and regulation. Onerous contracts provisions are for loss-making contracts that the Group is legally obligated to complete. Redundancy and site closure provisions are in respect of redundancy costs and office closures. Site closure provisions relate to adoption costs payable to local authorities on completion of development sites. Warranty and rectification provisions are for potential claims against work completed by the Group. This includes provisions in respect of fire compliance and cladding. 198 Kier Group plc | Annual Report and Accounts 2022 It is anticipated that the amounts provided will be utilised as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Due within one year | **22.2** | 14.9 | | Due after one year | **25.8** | 32.9 | | | **48.0** | 47.8 | Due to the nature of the provision for insurance claims, the timing of any potential future outflows in respect of these liabilities is uncertain and as such they are classified as due after one year. ## 26 Share capital and reserves ### Share capital The share capital of the Company comprises: | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Number | £m | Number | £m | | Authorised, issued and fully paid ordinary shares of 1 pence each | **446,241,682** | **4.5** | 446,165,699 | 4.5 | The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. During the year, 75,983 shares were issued under the Sharesave Scheme (2021: none). ### Firm Placing and Placing and Open Offer On 18 June 2021 the Group issued new share capital by way of: - a Firm Placing of 141,851,386 Firm Placing Shares; - a Placing and Open Offer of 141,851,386 Open Offer Shares; and - Director Subscriptions of 347,057 Subscription Shares. All of the above shares were issued at £0.85 per share. The total new shares of 284,049,829 generated proceeds of £207.8m after deducting costs of £33.6m, of which £22.7m were deducted from equity. These costs were fully paid as at 30 June 2022 (2021: £6.1m unpaid). Under the capital raise arrangements, Kier Group plc was transferred 100 fixed rate redeemable preference shares in its subsidiary company, Kite (Jersey) Limited, which were subsequently redeemed for cash. Following the receipt of the cash proceeds of the capital raise through this cashbox structure, the Group obtained merger relief for the new shares issued by Kier Group plc. The excess of the net proceeds received over the nominal value of the new shares was transferred to the merger reserve. ### Cash flow hedge reserve This reserve comprises the effective portion of the cumulative net change in the fair value of the cash flow hedging instruments related to hedged transactions that have not yet occurred, net of any related deferred tax. ### Translation reserve This reserve comprises the cumulative difference on exchange arising from the retranslation of net investments in overseas subsidiary undertakings. In accordance with the transitional provisions of IFRS 1, this reserve was set to nil at 1 July 2004. ### Merger reserve £134.8m of the merger reserve arose on the shares issued at a premium to acquire May Gurney on 8 July 2013. The movement in the prior year of £215.8m relates to the issue of new share capital as described above. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 199 Notes to the consolidated financial statements continued For the year ended 30 June 2022 27 Share-based payments The Group operates a number of share-based payment schemes for eligible employees as described below. Sharesave Scheme Options over the Company’s ordinary shares at 30 June 2022 were as follows: | Sharesave | | Sharesave | | Sharesave | | Sharesave | | | --- | --- | --- | --- | --- | --- | --- | --- | | Scheme | | Scheme | | Scheme | | Scheme | | | 1 November | | 13 November | | 15 February | | 29 October | | | | 2018 | | 2019 | | 2021 | | 2021 Total | Number of awards outstanding at 30 June 2022 Directors – – – 11,250 11,250 1 Employees 3,080 4,370,088 8,100,909 6,964,535 19,438,612 3,080 4,370,088 8,100,909 6,975,785 19,449,862 1 Exercise price (pence) 647.2 86.4 56.5 96.0 1 Where the options were granted before the rights issue that completed on 20 December 2018 and/or the share issue that completed on 18 June 2021, the numbers of options and the exercise prices have been adjusted to take account of the dilution resulting from the new shares. Options to acquire shares in the capital of Kier Group plc have been granted to eligible employees who enter into a Sharesave (SAYE) contract. The number of options granted to each participating employee are the number of shares which have an aggregate option price not exceeding the projected proceeds of the employee’s Sharesave contract. Participation in the Kier Sharesave Scheme is offered to all employees of the Group who have been employed for a continuous period determined by the Board. Under the Sharesave contract, participating employees save a regular sum each month for three years up to a maximum of £500 per month. 7,943,643 options were granted in the year (2021: 8,634,038) under the Sharesave Scheme, which will all be equity settled. 75,983 Sharesave Scheme options were exercised during the year (2021: no share options were exercised). The weighted average market price of Kier Group plc shares at the date of exercise of Sharesave Scheme options during the year was 103.0p (2021: no shares options were exercised). Conditional Share Award Plan There were no outstanding awards over the Company’s ordinary shares at 30 June 2022. In 2017, the Group established a Conditional Share Award Plan (‘CSAP’) under which senior employees receive awards of shares subject only to service conditions, i.e. the requirement for participants to remain in employment with the Group over the vesting period. Participants are entitled to receive dividend equivalents on these awards. Awards under the CSAP are all equity settled. No new awards were granted under the CSAP in the year (2021: nil). 650,951 awards vested under the CSAP in the year (2021: 515,093). In accordance with the rules of the scheme, a further 9,777 shares were provided to recipients of the vesting CSAP shares, equivalent to the dividends that would have been received during the vesting period (2021: 72,562). The market price of Kier Group plc shares at the date of exercise of the CSAP options during the year was 108.2p (2021: 47.3p). 200 Kier Group plc | Annual Report and Accounts 2022 Long-Term Incentive Plan Awards over the Company’s ordinary shares at 30 June 2022 were as follows: | LTIP | | LTIP | | LTIP | | LTIP | | LTIP | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | award | | award | | award | | award | | award | | 28 Oct | 16 March | | 18 December | | 28 October | | 20 April | | | 2019 | | 2020 | | 2020 | | 2021 | | 2022 Total | Number of awards outstanding at 30 June 2022 1 Directors 2,040,447 – 2,095,166 2,313,430 – 6,449,043 1 Employees 9,317,778 602,577 15,560,039 5,588,506 305,871 31,374,771 11,358,225 602,577 17,655,205 7,901,936 305,871 37,823,814 Exercise price (pence) nil nil nil nil nil 1 Where the options were granted before the share issue that completed on 18 June 2021, the number of options has been adjusted to take account of the dilution resulting from the new shares. The Group has established a Long-Term Incentive Plan (‘LTIP’) under which Directors and senior employees can receive awards of shares. Awards made under the scheme are normally able to vest following the third anniversary of the date of the grant. Vesting may be in full or in part (with the balance of the award lapsing) and is subject to the Group achieving specific performance targets. Participants are entitled to receive dividend equivalents on these awards. Awards under the LTIP are all equity settled. The awards made to Directors are subject to a two-year post-vesting holding period and malus and clawback provisions. No LTIP awards were exercised during the year (2021: nil). 8,570,392 options were granted in the year (2021: 17,856,246) under the LTIP. Shares held in trusts The CSAP and LTIP awards, which are taken as shares, are intended to be satisfied from shares held by the Kier Group 1999 Employee Benefit Trust and May Gurney Group Trustees Ltd Employee Share Ownership Trust or the issue of new shares. The shares held by the trusts are accounted for as a deduction from equity within retained earnings. The movements in the number and historical cost value of shares held by the trusts are as follows: 2022 2021 | | | Historic cost | | | Historic cost | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Number | | value | Number | | value | | | | of shares | | £m | of shares | | £m | | | At 1 July 708,965 2.6 306,317 2.3 | | | | | | | Governance Financial statementsStrategic reportOverview | Acquired during the year 7,942,521 7.5 990,303 0.5 Issued in satisfaction of share scheme awards (650,951) (2.0) (515,093) (0.2) Issued in satisfaction of dividend equivalents for share scheme awards (9,777) – (72,562) – Issued in satisfaction of deferred bonus schemes (435,728) (0.4) – – At 30 June 7,555,030 7.7 708,965 2.6 The market value of these shares at 30 June 2022 was £5.1m (2021: £0.9m). The shares acquired by the trusts in the year at a cost of £7.5m (2021: £0.5m), net of cash received by the trusts in respect of the deferred bonus schemes of £0.5m (2021: nil) is reflected in the statement of changes in equity as a net purchase of own shares of £7.0m (2021: £0.5m). Further description of the above share schemes and the terms and conditions of each scheme are included in the Directors’ remuneration report on pages 114–134. Other information Kier Group plc | Annual Report and Accounts 2022 201 Notes to the consolidated financial statements continued For the year ended 30 June 2022 27 Share-based payments continued Fair value of share-based payments The fair value per option granted has been calculated using the Black-Scholes model for all options apart from the total shareholder return (‘TSR’) element of the LTIP which is based on a Stochastic model. For awards made to the Directors which are subject to a two-year holding period post-vesting, the Finnerty model is used. The following assumptions were used in calculating the fair values: Sharesave Scheme 1 November 13 November 15 February 29 October Date of grant 2018 2019 2021 2021 Share price at grant (pence) 924.0 86.5 77.5 106.8 Exercise price (pence) – at grant 770.0 101.0 66.0 96.0 Exercise price (pence) – adjusted for rights/share issues 647.2 86.4 56.5 96.0 Expected term (years) 3.3 3.3 3.3 3.3 Expected volatility 28.1% 68.5% 80.2% 82.7% Dividend yield 7.3% 0.0% 0.0% 0.0% Risk-free interest rate 0.8% 0.5% 0.0% 0.7% Value per option (pence) – at grant 137.0 37.0 44.6 61.9 Value per option (pence) – adjusted for rights/share issues 115.2 31.7 38.1 61.9 Long-Term Incentive Plan | | | | 28 October | | | | | | 18 December | | | | 28 October | | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | 28 October | | | 2019 | 16 March | | 18 December | | | 2020 | 28 October | | | 2021 | 20 April | | | Date of grant | | 2019 | (Directors) | | | 2020 | | 2020 | (Directors) | | | 2021 | (Directors) | | | 2022 | Share price at grant (pence) 116.0 116.0 80.0 81.0 81.0 108.4 108.4 80.8 Exercise price (pence) nil nil nil nil nil nil nil nil Expected term (years) 3.0 3.0 3.0 3.0 3.0 3.0 3.0 2.5 Holding period (years) n/a 2.0 n/a n/a 2.0 n/a 2.0 n/a Expected volatility 74.7% 85.5% 74.7% 90.7% 92.4% 83.2% 66.6% 83.2% Risk-free interest rate 0.5% 0.5% 0.5% 0.0% 0.0% 0.7% 0.8% 0.7% Value per option (pence) – at grant – Market condition (25%) 76.0 66.0 52.0 58.4 50.6 85.2 76.3 63.5 – Non-market condition (75%) 116.0 101.0 80.0 81.0 70.1 108.4 97.0 80.8 Value per option (pence) – adjusted for rights/share issues – Market condition (25%) 65.0 56.5 44.5 50.0 43.3 85.2 76.3 63.5 – Non-market condition (75%) 99.2 86.4 68.4 69.2 59.9 108.4 97.0 80.8 The value per option represents the fair value of the option less any consideration payable. The fair value of the proportion of the awards subject to performance conditions that are market conditions under IFRS 2 ‘Share-based Payments’ (the TSR – total shareholder return element) incorporates an assessment of the number of shares that will vest. The performance conditions linked to adjusted earnings per share, adjusted operating profit, the net debt to earnings before interest, tax, depreciation and amortisation ratio (Net Debt:EBITDA) and free cash flow, are non-market conditions under IFRS 2. Therefore, the fair value of these elements do not include an assessment of the number of shares that will vest. Instead, the amount charged is based on the fair values factored by a ‘true-up’ for the number of awards that are expected to vest. The expected volatility is based on historical volatility over the period of time commensurate with the expected award term immediately prior to the date of grant. The risk-free rate of return is the yield on UK Government securities over a term consistent with the expected term. A charge of £8.6m relating to share-based payments has been recognised in the income statement as employee costs (2021: £7.0m). Included in other payables is an amount of £1.0m (2021: £1.0m) relating to provisions for employer’s national insurance in respect of share-based payments expected to vest in the future. 202 Kier Group plc | Annual Report and Accounts 2022 ## Summary of movements in the number of options A reconciliation of option movements is shown below: | | 2022 | | 2021 | | | --- | --- | --- | --- | --- | | | Number of options | Weighted average exercise price | Number of options | Weighted average exercise price | | **Outstanding at 1 July** | **47,929,960** | **23.9p** | 20,446,809 | 46.9p | | Granted | 16,514,035 | 46.2p | 26,490,284 | 21.5p | | Lapsed or forfeited | (6,443,385) | 61.5p | (5,429,098) | 70.6p | | Exercised | (726,934) | 7.5p | (515,093) | – | | Adjustment for share issue | – | – | 6,937,058 | – | | **Outstanding at 30 June** | **57,273,676** | **26.3p** | 47,929,960 | 23.9p | | Exercisable at 30 June | 294,805 | 81.7p | 6,126 | 234.6p | The options outstanding at 30 June 2022 have a weighted average remaining contractual life of 1.43 years (2021: 2.08 years). ### 28 Guarantees, contingent liabilities and contingent assets The Company has given guarantees and entered into counter-indemnities in respect of bonds relating to certain of the Group's own contracts. The Company has also given guarantees in respect of certain contractual obligations of its subsidiaries and joint ventures, which were entered into in the normal course of business, as well as certain of the Group's other obligations (for example, in respect of the Group's finance facilities and its pension schemes). Financial guarantees over the obligations of the Company's subsidiaries and joint ventures are initially measured at fair value, based on the premium received from the joint venture or the differential in the interest rate of the borrowing including and excluding the guarantee. Subsequent to initial recognition, financial guarantee contracts are measured at the higher of the initial fair value measurement (adjusted for any income amounts recognised) and the amount determined in accordance with the expected credit loss model. Details of financial guarantees provided to support joint ventures are disclosed in note 15 (d). Performance guarantees are treated as a contingent liability until such time as it becomes probable that payment will be required under its terms. Provisions are made for the Directors' best estimate of known legal claims, investigations and legal actions relating to the Group which are considered more likely than not to result in an outflow of economic benefit. If the Directors consider that a claim, investigation or action relating to the Group is unlikely to succeed, no provision is made. If the Directors cannot make a reliable estimate of a potential, material obligation, no provision is made but details of the claim are disclosed. As at 30 June 2022, the Group had contingent assets of £3.2m (2021: £4.5m) in relation to claims against third parties for the reimbursement of costs on construction contracts. Under IAS 37 these amounts may only be recognised when the economic benefit arising from the claims is virtually certain. It is probable that these amounts will be recognised in future periods when the uncertainty over their recoverability has been removed. ### Fire and cladding review As disclosed in note 1 of the financial statements, the Group has undertaken a review of all of its current and legacy constructed buildings where it has used cladding solutions and continues to assess the action required in line with the latest updates to Government guidance, as it applies, to multi-storey and multi-occupied residential buildings. The buildings, including the cladding works, were signed off by approved inspectors as compliant with the relevant Building Regulations at the time of completion. We recognise that Government guidance on the retrospective review of building materials continues to evolve. In preparing the financial statements, currently available information has been considered, including the current best estimate of the extent and future costs of work required, based on the reviews and physical inspections undertaken. Where an obligation has been established and a reliable estimate of the costs to rectify is available, a provision has been made (see note 25). No provision has been made where an obligation has not been established. These estimates may be updated as further inspections are completed and as work progresses or if Government legislation and regulation further evolves. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 203 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 29 Financial instruments The following table summarises the Group's financial instruments as at 30 June 2022: | | 2022 | | | 2021 | | | | --- | --- | --- | --- | --- | --- | --- | | | Financial assets at amortised cost £m | Financial liabilities at amortised cost £m | Derivatives £m | Financial assets at amortised cost £m | Financial liabilities at amortised cost £m | Derivatives £m | | **Financial assets** | | | | | | | | Trade and other receivables (less prepayments) | 189.7 | – | – | 184.3 | – | – | | Cash and cash equivalents | 297.7 | – | – | 391.2 | – | – | | Equity loans provided to joint ventures | 105.4 | – | – | 115.9 | – | – | | Other financial assets | – | – | 12.2 | – | – | 13.4 | | **Total** | **592.8** | **–** | **12.2** | **691.4** | **–** | **13.4** | | **Financial liabilities** | | | | | | | | Borrowings | – | (307.0) | – | – | (400.5) | – | | Lease liabilities | – | (157.6) | – | – | (163.8) | – | | Trade and other payables^{1} | – | (977.3) | – | – | (988.4) | – | | **Total** | **–** | **(1,441.9)** | **–** | **–** | **(1,552.7)** | **–** | | **Net** | **592.8** | **(1,441.9)** | **12.2** | **691.4** | **(1,552.7)** | **13.4** | $^{1}$ Trade and other payables exclude other taxes and social security and deferred income. ### Capital risk management The Group's capital management objectives are to ensure the Group's ability to continue as a going concern and to optimise the capital structure in order to minimise the cost of capital whilst maintaining a strong balance sheet to support business development and tender qualification. The Group's capital management strategy is to use a blend of capital types with different risk, return and maturity profiles to support the operating divisions and deliver the Group's capital management objectives. During the prior year, the Group took action to strengthen the balance sheet and reduce the level of debt. This is in line with the capital risk management strategy announced in 2019. The disposal of Kier Living and the new equity raise represented the final steps in the completion of the strategic review whereby new medium-term financial targets were communicated. These medium-term targets focus on volume growth, increased profitability and a positive cash generation. They also include an expected return to a sustainable dividend policy. The capital structure of the Group comprises: equity, consisting of share capital, share premium, retained earnings and other reserves as disclosed in the consolidated statement of changes in equity; and cash, cash equivalents and borrowings as disclosed in note 21 and described further below. The Group forecasts and monitors short, medium and longer-term capital needs on a regular basis and adjusts its capital structure as required through the payment of dividends to shareholders, the issue of new share capital and the increase of repayment of borrowings. All investment decisions typically require a pre-tax annualised return of at least 15.0% to ensure such investments are value enhancing for shareholders. ### Financial risk management Financial risk management is an integral part of the way the Group is managed. In the course of its business, the Group is exposed primarily to credit risk, market risk and liquidity risk. The overall aim of the Group's financial risk management policies is to minimise any potential adverse effects on financial performance and net assets. The Group's treasury team manages the principal financial risks within policies and operating limits approved by the Board. The treasury function is not a profit centre and does not enter into speculative transactions. Derivative financial instruments are used to hedge exposure to fluctuations in interest and exchange rates and some commodity prices. 204 Kier Group plc | Annual Report and Accounts 2022 ## Credit risk Credit risk arises on financial instruments such as trade receivables, short-term bank deposits and interest rate and currency hedges. Policies and procedures exist to ensure that customers have an appropriate credit history. The Group's most significant clients are public or regulated industry entities which generally have high credit ratings or are of a high credit quality due to the nature of the client. Short-term bank deposits and hedging transactions are executed only with highly credit-rated authorised counterparties based on ratings issued by the major ratings agencies. Counterparty exposure positions are monitored regularly so that credit exposures to any one counterparty are within acceptable limits. At the balance sheet date there were no significant concentrations of credit risk. Trade and other receivables and contract assets included in the balance sheet are stated net of expected credit loss ('ECL') provisions which have been calculated using a provision matrix grouping trade receivables and contract assets on the basis of their shared credit risk characteristics. An analysis of the provision held against trade receivables is set out below: | | 2022 £m | 2021 £m | | --- | --- | --- | | **Provision as at 1 July** | **2.3** | 4.2 | | Credited to the income statement | (0.6) | (1.3) | | Charged to the income statement | 0.5 | – | | Utilised in the year | (0.1) | (0.6) | | **Provision as at 30 June** | **2.1** | 2.3 | There were £19.7m (2021: £21.5m) of trade receivables that were overdue at the balance sheet date that have not been provided against, of which £8.2m (2021: £7.7m) had been received by the end of August 2022. There are no indications as at 30 June 2022 that the debtors will not meet their payment obligations in respect of the amount of trade receivables recognised in the balance sheet that are overdue and unprovided. The proportion of trade receivables at 30 June 2022 that were overdue for payment was 28% (2021: 42%). Credit terms vary across the Group; the average age of trade receivables was as follows: | Infrastructure Services | 7 days (2021: 8 days) | | --- | --- | | Construction | 13 days (2021: 10 days) | | Property | 4 days (2021: 34 days) | Overall, the Group considers that it is not exposed to significant credit risk. Equity loans to joint ventures of £105.4m (2021: £115.9m) are considered under the general ECL model and have been compared to future cash flows and net assets of the joint venture to ensure that they are still expected to be fully recoverable. ## Market risk ### Interest rate risk The Group has borrowing facilities to finance short-term working capital and term loans to finance medium-term capital requirements, which carry interest at floating rates, at a margin over SONIA. The Group's borrowings, excluding the effect of derivatives, can be analysed as follows: | | 2022 £m | 2021 £m | | --- | --- | --- | | Fixed rate | **131.2** | 161.8 | | Variable rate | **177.9** | 241.6 | | Cost of raising finance | **(2.1)** | (2.9) | | | **307.0** | 400.5 | In addition, one of the Group's joint ventures has entered into interest rate swaps in order to mitigate significant interest rate risk. Interest rate risk also arises on the Group's borrowings where they are not at fixed interest rates. A 50 basis point increase/decrease in the interest rate would lead to a circa £1.8m increase (2021: £1.3m) or £1.8m decrease (2021: £1.3m) in the Group's net finance cost. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 205 **Notes to the consolidated financial statements continued** For the year ended 30 June 2022 ## 29 Financial instruments continued ### Foreign currency risk The Group operates primarily within the UK such that its exposure through its trading operations to currency risk is not considered to be significant. Where material foreign currency exposures are identified, these are hedged using forward foreign exchange contracts or swaps. Changes in foreign exchange rates affect the carrying amount of the liability relating to foreign currency denominated debt on the Group's balance sheet. The utilisation of derivatives ensures that the movement recognised in profit and loss offset by movements on the derivative which are recycled from other comprehensive income. As at 30 June 2022 the Group had equivalent £45.7m of debt denominated in Euros and US Dollars at fixed currency rates using derivatives. A 5% increase/decrease in the US dollar to sterling exchange rate combined with a 5% increase/decrease in the euro to sterling exchange rate would lead to a £2.8m decrease (2021: £4.7m) or £2.9m increase (2021: £4.9m) in the carrying amount of the liability on the Group's balance sheet, with the movement recognised in other comprehensive income. As at 30 June 2022 the Group had unhedged debt outstanding of US$39.1m. A 5% increase/decrease in the US dollar to sterling exchange rate would lead to a decrease of £1.7m/increase of £1.5m in the carrying amount of the liability. ### Liquidity risk The Group's policy on liquidity risk is to ensure the sufficient borrowing facilities are available to fund operations over the medium term. The Group's principal borrowing facilities are provided by a syndicate of relationship banks and established investors, and in the case of a number of the loan notes, in the form of unsecured committed borrowing facilities. The amount of committed borrowing facilities available to the Group is reviewed regularly and is designed to exceed forecast peak gross debt levels. ### Derivative financial instruments As at 30 June 2022 the Group had four derivatives outstanding: a nominal value €10.0m hedge and three US$ hedges with a combined nominal value of US$60.0m. The Group has assessed the effectiveness of these swaps and concluded that they are 100% effective. Therefore, no amount in relation to hedge ineffectiveness has been charged or credited to the income statement in relation to any cross-currency or interest rate swaps. The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair value of the related hedging instruments: | Continuing operations | Fair value £m | Total £m | Expected cash flows | | | | --- | --- | --- | --- | --- | --- | | | | | 0–1 years £m | 1–2 years £m | 2–5 years £m | | Cross-currency swaps: asset | | | | | | | Gross settled inflows | – | 62.3 | 27.1 | 1.5 | 33.7 | | Gross settled outflows | – | (49.1) | (22.2) | (1.1) | (25.8) | | | 12.2 | 13.2 | 4.9 | 0.4 | 7.9 | In addition to the above, one of the Group's property joint ventures has entered into an interest rate derivative as a means of hedging interest rate risk. The interest-bearing debt and associated interest rate derivative with this joint venture has a term of less than one year remaining and is without recourse to the Group. At 30 June 2022, the aggregate amount outstanding on this interest-bearing debt against which an interest rate derivative is held is £15.0m (2021: £15.0m). The Group's share of the total net fair value asset of this interest rate derivative at 30 June 2022 amounted to £0.1m (2021: share of the total net fair value liability is £0.3m) which have met the criteria for hedging accounting. As at 30 June 2022, the Group had a £100m notional fixed rate derivative whereby the Group pays 1.9% and receives monthly compounded SONIA through to September 2023. This derivative commenced on 1 April 2022. 206 Kier Group plc | Annual Report and Accounts 2022 Financial liabilities – analysis of maturity dates At 30 June 2022, the Group had the following financial liabilities at amortised cost together with the maturity profile of their contractual cash flows: Continuing operations | | Trade and other | | | | | | Lease | | | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | | | 1 | Borrowings | | | | | | | | | payables | | | | liabilities | | | Total | | 30 June 2022 | | | £m | | £m | | | £m | £m | Carrying value 977.3 307.0 157.6 1,441.9 Contractual undiscounted cash flows Less than one year 944.3 55.5 31.5 1,031.3 One to two years 25.4 9.4 24.2 59.0 Two to three years 8.0 269.2 17.4 294.6 Three to four years 1.7 – 13.1 14.8 Four to five years 0.2 – 11.4 11.6 Over five years 0.7 – 106.7 107.4 980.3 334.1 204.3 1,518.7 30 June 2021 Carrying value 988.4 400.5 163.8 1,552.7 Contractual undiscounted cash flows Less than one year 948.5 35.3 33.1 1,016.9 One to two years 39.9 51.2 23.7 114.8 Two to three years – 9.5 18.0 27.5 Three to four years – 307.4 13.9 321.3 Four to five years – – 11.6 11.6 Over five years – – 113.9 113.9 988.4 403.4 214.2 1,606.0 1 Trade and other payables exclude other taxes and social security and deferred income. Governance Financial statementsStrategic reportOverview There is no material difference between the carrying value and fair value of the Group’s financial assets and liabilities. Other information Kier Group plc | Annual Report and Accounts 2022 207 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ## 29 Financial instruments continued # Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The Group uses cross-currency and interest rate swaps for hedging. These derivatives are classified as level 2. The prices of derivative transactions have been derived from proprietary models used by the bank counterparties using mid-market mark to market valuations for trades at the close of business on 30 June 2022. Level 3 – Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The following table presents the Group's financial assets and liabilities that are measured at fair value at 30 June 2022: | | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | --- | --- | --- | --- | --- | | **Assets** | | | | | | Derivatives used for hedging – Cross-currency swaps | – | 12.2 | – | 12.2 | There were no transfers between levels 1 and 2 during the year ended 30 June 2022. The following table presents the Group's financial assets and liabilities that are measured at fair value at 30 June 2021: | | Level 1 £m | Level 2 £m | Level 3 £m | Total £m | | --- | --- | --- | --- | --- | | **Assets** | | | | | | Derivatives used for hedging – Cross-currency swaps | – | 13.4 | – | 13.4 | There were no transfers between levels 1 and 2 during the year ended 30 June 2021. # Borrowings and borrowing facilities As at 30 June 2022, the Group had the following unsecured committed facilities after the effect of derivatives: - Revolving credit facility of £535.0m (2021: £535.0m), at a margin over SONIA, due for renewal in January 2025, £177.9m drawn at 30 June 2022 (2021: £241.6m); - Four loan notes, principal amounts of £20.0m, US$20.0m, £21.2m and $79.1m, with fixed coupons of between 4.6% and 5.4% repayable in two repayments, December 2022 and January 2025, fully drawn at 30 June 2022, totalling £111.1m, which includes elements at both fixed and floating currency rates (2021: £141.7m); and - Principal amount of €10.0m (2021: €10.0m), with fixed coupon of 2.3%, repayable in May 2023, fully drawn at 30 June 2022 totalling £7.9m at hedged rates (2021: £7.9m). In addition, the Group has unsecured overdraft facilities of £18.0m (2021: £18.0m), at a margin over base rate, repayable on demand, undrawn at 30 June 2022 and 2021. Included within borrowings are capitalised loan fees of £1.9m (2021: £2.9m). The Group repaid and reduced total available facilities by £38.2m (2021: £189.0m) in the year ended 30 June 2022. 208 Kier Group plc | Annual Report and Accounts 2022 ### 30 Financial and capital commitment | | 2022 £m | 2021 £m | | --- | --- | --- | | Commitments for capital expenditure | 18.9 | 1.8 | | | 18.9 | 1.8 | Capital commitments recognised during the year ended 30 June 2022 relate to land acquisition. ### 31 Related parties #### Identity of related parties The Group has a related party relationship with its joint ventures, key management personnel and pension schemes in which its employees participate. #### Transactions with key management personnel The Group's key management personnel are the Executive and Non-Executive Directors as identified in the Directors' remuneration report on pages 114–134. In addition to their salaries, the Group also provides non-cash benefits to Directors and contributes to their pension arrangements as disclosed on page 120. Key management personnel also participate in the Group's share option programme (see note 27). Key management personnel compensation comprises: | | 2022 £m | 2021 £m | | --- | --- | --- | | Emoluments as analysed in the Directors' remuneration report | 4.3 | 2.9 | | Employer's national insurance contributions | 0.6 | 0.4 | | Total short-term employment benefits | 4.9 | 3.3 | | Share-based payment charge | 1.1 | 0.6 | | | 6.0 | 3.9 | #### Transactions with pension schemes Details of transactions between the Group and pension schemes in which its employees participate are detailed in note 8. #### Transactions with joint ventures | | 2022 £m | 2021 £m | | --- | --- | --- | | Construction services and materials | 23.2 | 163.8 | | Staff and associated costs | 2.4 | 7.9 | | Management services | 1.0 | 12.1 | | Interest on loans to joint ventures | 0.7 | 1.2 | | Plant hire | 0.2 | 1.4 | | | 27.5 | 186.4 | Total transactions with joint ventures in the prior year of £186.4m included £136.9m of transactions with Kier Living Limited joint ventures. The Group disposed of Kier Living Limited in the prior year, see note 22. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 209 Notes to the consolidated financial statements continued For the year ended 30 June 2022 31 Related parties continued Equity and other shareholder loans due from joint ventures are analysed below: 2022 2021 £m £m Kier (Southampton) Investment Limited 12.2 12.2 Kier (Newcastle) Investment Ltd 11.1 11.1 Kier Richmond Holdings Limited 9.9 9.9 Solum Regeneration (Twickenham) LLP 9.2 16.2 Watford Health Campus Partnership LLP 9.0 8.4 Solum Regeneration (Guildford) LLP 8.7 8.9 Kier PGIM Logistics Holdco Limited 7.4 – Kier Trade City Holdco 1 LLP 6.8 10.1 Solum Regeneration (Bishops) LLP 6.7 7.0 Kier Cornwall Street Holdings 1 LLP 6.5 6.5 Kier Cornwall Street Holdings 2 LLP 6.5 6.5 50 Bothwell Street Holdco 1 LLP 5.2 5.6 Solum Regeneration (Redhill) LLP 2.3 2.1 Solum Regeneration (Epsom) Limited Partnership 1.5 1.5 Solum Regeneration (Surbiton) LLP 0.8 0.4 Solum Regeneration (Maidstone) LLP 0.7 0.7 Solum Regeneration Holding 1 LLP 0.7 0.7 Solum Regeneration Holding 2 LLP 0.2 0.2 Kier Maidenhead Holdings 1 LLP – 3.3 Winsford Holdings 1 LLP – 2.4 Solum Regeneration (Kingswood) LLP – 2.2 105.4 115.9 Trading balances and other loans due from/(to) joint ventures are analysed below: 2022 2021 £m £m Kier Cornwall Street LLP 2.0 0.8 Dragon Lane LLP 0.1 0.3 Kier Trade City LLP (0.3) (1.1) Kier Maidenhead LLP (0.4) (0.6) Kier Reading LLP (0.4) – Lysander Student Operations Limited (0.5) (0.6) Solum Regeneration (Twickenham) LLP (6.7) – Winsford Devco LLP – 0.8 Kier (Southampton) Investment Limited – 0.4 Watford Health Campus Partnership LLP – 0.3 Hackney Schools for the Future 2 Limited – 0.2 Team Van Oord Limited – 0.1 Kier Richmond Limited – 0.1 (6.2) 0.7 210 Kier Group plc | Annual Report and Accounts 2022 32 Subsidiaries and other undertakings A full list of subsidiaries, branches, associated undertakings, and joint arrangements as at 30 June 2022 is detailed below. Unless stated otherwise, all undertakings are wholly owned and held indirectly by Kier Group plc. Subsidiaries Registered Share % held Company name office 1 class(es) held by Group 2020 Liverpool Limited 1 Ordinary 100% A C Chesters & Son Limited 1 Ordinary 100% AK Student Living Limited 1 A Ordinary 100% B Ordinary 100% Arena Central Developments LLP 1 – 100% Arena Central Management Limited 1 A Ordinary 100% 3 25% Caribbean Construction Company Limited 2 Ordinary 100% Caxton Integrated Services Holdings Limited 1 Ordinary 100% ClearBOX Limited 1 Ordinary 75% Dudley Coles Limited 1 Ordinary 100% FDT (Holdings) Ltd 1 Ordinary 100% FDT Associates Ltd 1 Ordinary A 100% Gravesend Coldharbour Road Management Company Limited 1 Ordinary A 100% Ordinary B 100% Heart of Wales Property Services Limited 3 Ordinary 50% J L Kier & Company (London) Limited 1 Ordinary 100% J L Kier & Company Limited 1 Ordinary 100% Kier (Catterick) Limited 1 A Ordinary 100% B Ordinary 100% Kier (Kent) PSP Limited 1 A Ordinary 100% B Ordinary 100% Kier (Malaysia) SDN. BHD. 4 Ordinary 100% Kier (NR) Limited 1 Ordinary 100% Kier Asset Partnership Services Limited 1 Ordinary 100% Governance Financial statementsStrategic reportOverview Kier Benefits Limited 1 Ordinary 100% Kier Build Limited 1 Ordinary 100% Kier Business Services Limited 1 Ordinary 100% Kier Caribbean and Industrial Limited 1 Ordinary 100% Kier CB Limited 1 Ordinary 100% Kier Commercial Investments Limited 1 Ordinary 100% Kier Commercial UKSC Limited 1 Ordinary 100% Kier Construction Limited 1 Ordinary 100% Kier Construction Limited 5 Ordinary 100% 9 Kier Construction LLC 6 Ordinary 49% Kier Construction SA 7 Ordinary 100% Kier Developments Limited 1 A Ordinary 100% B Ordinary 100% C Ordinary 100% Kier Dormant Holdings Limited 1 Ordinary 100% 9 Kier Dubai LLC 8 Ordinary 49% Kier Education Investments Limited 1 B Ordinary 100% Other information M Ordinary 100% Kier Education Services Limited 1 B Ordinary 100% M Ordinary 100% Kier Energy Solutions Limited 1 Ordinary 100% A Ordinary 100% Kier Group plc | Annual Report and Accounts 2022 211 Notes to the consolidated financial statements continued For the year ended 30 June 2022 32 Subsidiaries and other undertakings continued Subsidiaries continued Registered Share % held Company name office 1 class(es) held by Group Kier Ewan Limited 1 Ordinary 100% Kier Facilities Services Limited 1 Ordinary 100% Kier Finance & Treasury Holdings Limited 1 Ordinary 100% Kier Finance Limited 1 Ordinary 100% Kier Fleet Services Limited 1 Ordinary 100% 2 Kier Group Trustees Limited 1 Ordinary 100% Kier Harlow Limited 1 A Ordinary 100% B Ordinary 100% Kier HGP Holdings 2 Limited 1 Ordinary 100% Kier HGP Holdings LLP 1 – 100% Kier Highways Limited 1 A Ordinary 100% B Ordinary 100% Kier Holdco 2 Limited 1 Ordinary 100% Kier Holdings Limited 1 Ordinary 100% Irredeemable preference 100% Kier Infrastructure and Overseas Limited 1 Ordinary 100% Kier Infrastructure and Overseas Limited – Hong Kong Branch Kier Infrastructure and Overseas Limited – Jamaica Branch Kier Infrastructure and Overseas Limited – Trinidad Branch Kier Infrastructure Pty Ltd 9 Ordinary 100% Kier Insurance Management Services Limited 1 Ordinary 100% Kier Integrated Services (Estates) Limited 1 Ordinary 100% Kier Integrated Services (Holdings) Limited 1 Ordinary 100% Deferred 100% Kier Integrated Services (Trustees) Limited 1 Ordinary 100% Kier Integrated Services Group Limited 1 Ordinary 100% Kier Integrated Services Limited 1 Ordinary 100% Kier International (Investments) Limited 1 Ordinary 100% Kier International Limited 1 Ordinary 100% Kier International Limited – India Branch Kier International Limited – Jamaica Branch Kier International Limited 10 Ordinary 100% Kier Islington Limited 1 Ordinary 100% Islington 100% Kier Jamaica Development Limited 1 Ordinary 100% 2 Kier Limited 1 Ordinary 100% Kier Management Consulting Limited 1 Ordinary 100% A Ordinary 100% B Ordinary 100% Kier MBS Limited 1 Ordinary 100% Kier Midlands Limited 1 Ordinary 100% Kier Minerals Limited 1 Ordinary 100% Kier Mining Investments Limited 1 Ordinary 100% Kier National Limited 1 Ordinary 100% 5 Kier North Tyneside Limited 1 B Ordinary 100% 3 80% Kier Overseas (Four) Limited 1 Ordinary 100% Kier Overseas (Nine) Limited 1 Ordinary 100% Kier Overseas (Seventeen) Limited 1 Ordinary 100% Kier Overseas (Twenty-Three) Limited 1 Ordinary 100% 212 Kier Group plc | Annual Report and Accounts 2022 Registered Share % held Company name office 1 class(es) held by Group Kier Parkman Ewan Associates Limited 1 Ordinary A 100% Kier Parkman GB Limited 1 Ordinary 100% Kier Parkman ServiGroup Limited 1 Ordinary 100% Kier Plant Limited 1 Ordinary 100% Kier Professional Services Limited 1 Ordinary 100% Kier Project Investment Limited 1 Ordinary 100% Kier Property Developments Limited 1 Ordinary 100% Kier Property Limited 1 Ordinary 100% Kier Property Management Company Limited 1 Ordinary 100% Kier Rail Limited 1 Ordinary 100% Kier Recycling CIC 1 Ordinary 100% Kier Services Limited 1 Ordinary 100% Kier Sheffield LLP 1 – 80.1% Kier South East Limited 1 Ordinary 100% Kier Southern Limited 1 Ordinary 100% Kier Stoke Limited 1 A Ordinary 100% Kier Sydenham Limited 1 Ordinary 100% Kier Thurrock Limited 1 Ordinary 100% Kier Traffic Support Limited 1 Ordinary 100% Kier UKSC LLP 1 – 100% Kier Ventures Limited 1 Ordinary 100% Kier Ventures UKSC Limited 1 Ordinary 100% Kier York Street LLP 1 – 100% Liferange Limited 1 Ordinary 100% McNicholas Construction (Holdings) Limited 1 Ordinary 100% McNicholas Construction Services Limited 1 Ordinary 100% MPHBS Limited 1 Ordinary 100% MRBL Limited 1 Ordinary A 100% Ordinary B 100% Deferred B 100% Governance Financial statementsStrategic reportOverview Parkman Consultants Limited 1 Ordinary 100% Parkman Consultants Limited – Abu Dhabi Branch Parkman Holdings Limited 1 Ordinary 100% Parkman Kenya Limited 11 Ordinary 100% Parkman Nigeria Limited 12 Ordinary 100% Pure Buildings Limited 1 Ordinary 100% Pure Recycling Warwick Limited 1 Ordinary A 100% Ordinary B 100% Saudi Kier Construction Limited 13 Ordinary 100% T Cartledge Limited 1 Ordinary 100% T H Construction Limited 1 Ordinary 100% T J Brent Limited 1 Ordinary 100% Ordinary B 100% Ordinary C 100% 2 Tempsford Insurance Company Limited 14 Ordinary 100% The Impact Partnership (Rochdale Borough) Limited 1 Ordinary 80.1% Tor2 Limited 1 PSP Shares 100% 3 80.01% Other information Kier Group plc | Annual Report and Accounts 2022 213 Notes to the consolidated financial statements continued For the year ended 30 June 2022 32 Subsidiaries and other undertakings continued Subsidiaries continued Registered Share % held Company name office 1 class(es) held by Group TradeDirect Logistics Limited 1 Ordinary 100% Turriff Contractors Limited 15 Ordinary 100% Turriff Group Limited 15 Ordinary 100% Ordinary A 100% Ordinary B 100% Usherlink Limited 1 Ordinary 100% W. & C. French (Construction) Limited 1 Ordinary 100% Wallis Limited 1 Ordinary 100% Wallis Western Limited 1 Ordinary 100% William Moss Construction Limited (in liquidation) 16 Ordinary 100% William Moss Group Limited (The) 1 Ordinary 100% 1 See list of registered office details and explanatory notes on page 218. Listed below are subsidiaries controlled and consolidated by the Group, which under Section 479A of the Companies Act 2006 (the ‘Act’) are exempt from the requirements of the Act relating to the audit of accounts. Company registration Company name number Year-end 2020 Liverpool Limited 04782302 31 March 2022 Kier (Catterick) Limited 07372563 30 June 2022 Kier Asset Partnership Services Limited 06928701 30 June 2022 Kier Commercial Investments Limited 04002798 30 June 2022 Kier Dormant Holdings Limited 03913684 30 June 2022 Kier Finance Limited 05887689 30 June 2022 Kier Harlow Limited 05961079 30 June 2022 Kier Holdings Limited 05887559 30 June 2022 Kier Islington Limited 03922885 30 June 2022 Kier MBS Limited 11632543 30 June 2022 Kier Parkman ServiGroup Limited 04979378 30 June 2022 Kier Plant Limited 04233359 30 June 2022 Kier Professional Services Limited 08881783 30 June 2022 Kier Recycling CIC 03153490 30 June 2022 Kier Stoke Limited 06391459 30 June 2022 Kier Thurrock Limited 08922437 30 June 2022 Parkman Holdings Limited 02946586 30 June 2022 TradeDirect Logistics Limited 11400572 30 June 2022 214 Kier Group plc | Annual Report and Accounts 2022 Joint ventures Registered Interest Company name office 1 held Property 3 Sovereign Square Holdings 1 LLP 1 50% 3 Sovereign Square Holdings 2 LLP 1 50% 3 Sovereign Square LLP 1 50% 50 Bothwell Street Holdco 1 LLP 17 50% 50 Bothwell Street Holdco 2 LLP 17 50% 50 Bothwell Street LLP 17 50% Dragon Lane Holdings 1 LLP 1 50% Dragon Lane Holdings 2 LLP 1 50% Dragon Lane LLP 1 50% Kent LEP 1 Limited 1 80% Kier (Newcastle) Investment Ltd 1 75% Kier (Newcastle) Operation Limited 1 75% Kier (Southampton) Development Limited 1 75% Kier (Southampton) Investment Limited 1 75% Kier (Southampton) Operations Limited 1 75% Kier Cornwall Street Holdings 1 LLP 1 90% Kier Cornwall Street Holdings 2 LLP 1 90% Kier Cornwall Street LLP 1 90% Kier Foley Street Holdco 1 LLP 1 90% Kier Foley Street Holdco 2 LLP 1 90% Kier Foley Street LLP 1 90% Kier Maidenhead Holdings 1 LLP 1 90% Kier Maidenhead Holdings 2 LLP 1 90% Kier Maidenhead LLP 1 90% Kier PGIM Logistics (Bognor) Ltd 1 25.5% Kier PGIM Logistics (Bracknell) Ltd 1 25.5% Kier PGIM Logistics (Knowsley) Ltd 1 25.5% Governance Financial statementsStrategic reportOverview Kier PGIM Logistics (St. Albans) Ltd 1 25.5% Kier PGIM Logistics Holdco Ltd 1 25.5% Kier PGIM Logistics Propco 4 Ltd 1 25.5% Kier PGIM Logistics Propco 5 Ltd 1 25.5% Kier PGIM Logistics Propco 7 Ltd 1 25.5% Kier PGIM Logistics Propco 8 Ltd 1 25.5% Kier Reading Holdco 1 LLP 1 90% Kier Reading Holdco 2 LLP 1 90% Kier Reading LLP 1 90% Kier Richmond Holdings Limited 1 90% Kier Richmond Limited 1 90% Kier Sydenham GP Holdco Limited 1 50% Kier Sydenham GP Limited 1 50% Kier Sydenham LP 1 50% Kier Sydenham Nominee Limited 1 50% Kier Trade City Holdco 1 LLP 1 90% Kier Trade City Holdco 2 LLP 1 90% Other information Kier Trade City LLP 1 90% Kier Warth Limited 1 50% Lysander Student Properties Investments Limited 1 75% Lysander Student Properties Limited 1 75% Lysander Student Properties Operations Limited 1 75% 1 See list of registered office details and explanatory notes on page 218. Kier Group plc | Annual Report and Accounts 2022 215 Notes to the consolidated financial statements continued For the year ended 30 June 2022 32 Subsidiaries and other undertakings continued Joint ventures continued Registered Interest Company name office 1 held Magnetic Limited 1 75% Penda Limited 1 50% Premier Inn Kier Limited 1 50% Solum Regeneration (Bishops) LLP 1 50% Solum Regeneration (Epsom) Limited Partnership 1 50% Solum Regeneration (Guildford) LLP 1 50% Solum Regeneration (Haywards) LLP 1 50% Solum Regeneration (Kingswood) LLP 1 50% Solum Regeneration (Maidstone) LLP 1 50% Solum Regeneration (Redhill) LLP 1 50% Solum Regeneration (Surbiton) LLP 1 50% Solum Regeneration (Twickenham) LLP 1 50% Solum Regeneration (Walthamstow) LLP 1 50% Solum Regeneration Epsom (GP Subsidiary) Limited 1 50% Solum Regeneration Epsom (GP) Limited 1 50% Solum Regeneration Epsom (Residential) LLP 1 50% Solum Regeneration Holding 1 LLP 1 50% Solum Regeneration Holding 2 LLP 1 50% Transcend Property Limited 18 50% Tri-Link 140 Holdings 1 LLP 1 50% Tri-Link 140 Holdings 2 LLP 1 50% Tri-Link 140 LLP 1 50% Watford Health Campus Limited 1 50% Watford Health Campus Partnership LLP 1 50% Watford Riverwell (Family Housing) LLP 1 50% Watford Riverwell Management Company Limited 19 50% Watford Woodlands LLP 1 50% Winsford Devco LLP 1 50% Winsford Holdings 1 LLP 1 50% Winsford Holdings 2 LLP 1 50% Construction Kier Graham Defence Limited 1 50% Services 2020 Knowsley Limited 1 80.1% Hackney Schools for the Future Limited 1 80% Team Van Oord Limited 20 25% 1 See list of registered office details and explanatory notes on page 218. 216 Kier Group plc | Annual Report and Accounts 2022 Joint operation name Description Trading address UK | Crossrail Contracts | a joint arrangement between Kier | BAM Ferrovial Kier JV C435, The London | | --- | --- | --- | | 300/410/435 | Infrastructure and Overseas Limited, BAM | School of Beauty, 18-19 Long Lane, | | | Nuttall Limited and Ferrovial Agroman | London, EC1A 9LP | (UK) Limited Deephams a joint arrangement between Kier Infrastructure Deephams Sewage Treatment Wales, and Overseas Limited, J Murphy & Sons Pickett’s Lock Lane, Edmonton, N9 0BA Limited, and Aecom Limited Devonport a joint arrangement between Kier St. James House, Knoll Road, Camberley, Infrastructure and Overseas Limited Surrey, GU15 3XW and BAM Nuttall Limited Hercules a joint arrangement between Kier Construction Hercules Site Offices, The Wessex Building, Limited, Kier Living Limited and Balfour Beatty MOD Lyneham, Calne Road, Lyneham, Chippenham, SN15 4PZ | Hinkley Framework a joint arrangement between Kier | | J23 P&R HPC Postal Consolidation Centre, | | --- | --- | --- | | | Infrastructure and Overseas Limited and BAM | Huntsworth Business Centre, North Petherton, | | | Nuttall Limited | Somerset, TA6 6TS | | HS2 a joint arrangement between Kier | | 5th Floor, Exchange House, Midsummer | | | Infrastructure and Overseas Limited, Eiffage | Boulevard, Milton Keynes, MK9 2EA | Génie Civil, Ferrovial Agroman (UK) Limited and BAM Nuttall Limited | KCD a joint arrangement between Kier Integrated | | Thames Water Offices, Clear Water Court, | | --- | --- | --- | | | Services Limited and Clancy Docwra Limited | Vastern Rd, Reading, RG1 8DB | | Kier WSP a joint arrangement between Kier Integrated | | Northamptonshire Highways, Highways Depot, | | | Services Limited and WSP UK Limited | Harborough Rd, Brixworth, Northants, NN6 9BX | | Luton People Mover a joint arrangement between Kier | | Hertford Road, Hoddesdon, EN11 9BX | Infrastructure and Overseas Limited and VolkerFitzpatrick Limited Mersey Gateway a joint arrangement between Kier Infrastructure Forward Point, Tan House Lane, and Overseas Limited, Samsung C&T ECUK Widnes, WA8 0SL Limited and FCC Construccion S.A. | RAF Lakenheath a joint arrangement between Kier Construction | | Hertford Road, Hoddesdon, EN11 9BX | | | --- | --- | --- | --- | | | Limited and VolkerFitzpatrick Limited | | Governance Financial statementsStrategic reportOverview | | Tarmac Kier JV a joint arrangement between Kier Highways | | 2nd Floor, Optimum House, Clippers Quay | | | | Limited and Tarmac Trading Limited | Salford, M50 3XP | | International The following joint operations, in which the Group participation is between 30% and 65%, operate overseas in the territory indicated: MTRC Contract 824 a joint arrangement between Kier Tower B, 6/F, Manulife Financial Centre, 223 Infrastructure and Overseas Limited Wai Yip Street, Kwun Tong, Kowloon, Hong Kong and Kaden Construction Limited MTRC Contract 901 a joint arrangement between Kier Room 905, 9/F, King’s Road, Infrastructure and Overseas Limited, North Point, Hong Kong Laing O’Rourke Hong Kong Limited and Kaden Construction Limited | Saadiyat Rotana Hotel and | a joint arrangement between Kier Construction | P.O. Box 2153, Abu Dhabi | | --- | --- | --- | | Resort Complex | LLC and Ali and Sons Contracting Co LLC | | | Kier ACC a joint arrangement between Kier Dubai LLC | | P.O. Box 24461, Dubai | and Arabian Construction Co.SAL Other information Kier Group plc | Annual Report and Accounts 2022 217 Notes to the consolidated financial statements continued For the year ended 30 June 2022 ### 32 Subsidiaries and other undertakings continued | Number | Address | | --- | --- | | 1 | 2nd Floor, Optimum House, Clippers Quay, Salford, M50 3XP, UK | | 2 | Harbour Head, Harbour View, Kingston 17, Jamaica | | 3 | Unit 31, Ddole Road Industrial Estate, Llandrindod Wells, Powys, LD1 6DF, UK | | 4 | 9-5 & 7-5, Jalan 8/146, Bandar Tasik Selatan, Kuala Lumpur, 57000, Malaysia | | 5 | c/o Grant Thornton, Cnr Bank Street and West Independence Sq Street, Basseterre, Saint Kitts and Nevis | | 6 | Unit 869, Al Gaith Tower, Hamdan Street, PO Box 61967, Abu Dhabi, United Arab Emirates | | 7 | 151 Angle Avenue, Jean Paul II et Impasse Duverger, Turgeau, Port-au-Prince, Haiti | | 8 | 905 and 906, 9th Floor, Thuraya Tower, Tecom, P.O. Box 24461, Dubai, United Arab Emirates | | 9 | Suite 1, Level 30, 360 Collins Street, Melbourne, VIC 3000, Australia | | 10 | 6th Floor, Emperor Commercial Centre, 39 Des Voeux Road Central, Hong Kong | | 11 | 5th Floor, Agip House, P.O. Box 41425, Nairobi, Kenya | | 12 | 9, N/Azikiwe St., Lagos, Nigeria | | 13 | PO Box 667, 4th Floor, ATCO Building, King Khaled Road, Dammam-31421, Kingdom of Saudi Arabia | | 14 | PO Box 33, Dorey Court, Admiral Park, St Peter Port, GY1 4AT, Guernsey | | 15 | Campsie House, Buchanan Business Park, Cumbernauld Road, Stepps, Glasgow, G33 6HZ, UK | | 16 | 1 More London Place, London, SE1 2AF, UK | | 17 | Renoir House 135-137 New Bond Street, Mayfair, London, England, W1S 2TQ, UK | | 18 | 1 Kingsway, London, WC2B 6AN, UK | | 19 | 11 Little Park Farm Road, Fareham, Hampshire, PO15 5SN, UK | | 20 | Bankside House, Henfield Road, Small Dole, Henfield, West Sussex, BN5 9XQ, UK | #### Explanatory notes 1. The share capital of all entities is wholly owned and held indirectly by Kier Group plc unless indicated otherwise. 2. Shares held directly by Kier Group plc. 3. Total interest in entity held by the Group as there are other share class(es) held by a third party. 4. In some jurisdictions in which the Group operates, share classes are not defined and in these instances, for the purposes of disclosure, these holdings have been classified as ordinary shares. 5. The Group has entered into a partnership arrangement with North Tyneside Council whereby the Council has a participating ownership interest and receives a minority share of the profits of Kier North Tyneside Limited. 6. Joint operations are contracted agreements to co-operate on a specific project which is an extension of the Group's existing business. Joint ventures are ongoing businesses carrying on their own trade. 7. Interests in the above joint ventures are held by subsidiary undertakings. 8. The joint ventures where the Group has an interest in excess of 50% are still considered joint ventures as the Group has joint control. 9. Accounted for as a subsidiary as control is achieved through an agreement between shareholders. 10. Where companies are shown as being in liquidation, in all cases this is a members voluntary liquidation. 218 Kier Group plc | Annual Report and Accounts 2022 # Company balance sheet As at 30 June 2022 | | Note | 2022 £m | 2021 £m | | --- | --- | --- | --- | | **Non-current assets** | | | | | Investments | 6 | 437.8 | 429.2 | | Amounts due from subsidiary undertakings | 7 | 1,467.5 | 1,411.9 | | Other financial assets | 9 | 8.5 | 11.4 | | **Non-current assets** | | **1,913.8** | **1,852.5** | | **Current assets** | | | | | Debtors | 7 | 3.3 | 3.1 | | Other financial assets | 9 | 3.7 | 2.0 | | **Current assets** | | **7.0** | **5.1** | | **Total assets** | | **1,920.8** | **1,857.6** | | **Current liabilities** | | | | | Bank overdraft | | (415.8) | (214.1) | | Creditors: amounts falling due within one year | 8 | (52.3) | (54.8) | | Provisions for liabilities | | (1.2) | — | | **Current liabilities** | | **(469.3)** | **(268.9)** | | **Non-current liabilities** | | | | | Creditors: amounts falling due after more than one year | 8 | (266.5) | (362.3) | | Amounts due to subsidiary undertakings | 8 | (60.9) | (120.1) | | Provisions for liabilities | | (2.2) | (6.1) | | **Non-current liabilities** | | **(329.6)** | **(488.5)** | | **Total liabilities** | | **(798.9)** | **(757.4)** | | **Net assets** | | **1,121.9** | **1,100.2** | | **Shareholders' funds** | | | | | Called up share capital | 10 | 4.5 | 4.5 | | Share premium account | | 684.3 | 684.3 | | Merger reserve | | 350.6 | 350.6 | | Capital redemption reserve | | 2.7 | 2.7 | | Profit and loss account | | 79.7 | 57.2 | | Cash flow hedge reserve | | 0.1 | 0.9 | | **Total equity** | | **1,121.9** | **1,100.2** | The profit for the year was £20.6m (2021: £68.7m loss). The financial statements of Kier Group plc, company registration number 2708030, on pages 219–225 were approved by the Board of Directors on 14 September 2022 and were signed on its behalf by: **Andrew Davies** Chief Executive **Simon Kesterton** Chief Financial Officer Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 219 ## Company statement of changes in equity For the year ended 30 June 2022 | | Called up share capital £m | Share premium account £m | Merger reserve £m | Capital redemption reserve £m | Profit and loss account £m | Cash flow hedge reserve £m | Total equity £m | | --- | --- | --- | --- | --- | --- | --- | --- | | **At 1 July 2020** | 1.6 | 684.3 | 134.8 | 2.7 | 119.2 | 2.2 | 944.8 | | Loss for the year | – | – | – | – | (68.7) | – | (68.7) | | Other comprehensive expense | – | – | – | – | – | (1.3) | (1.3) | | **Total comprehensive loss for the year** | – | – | – | – | (68.7) | (1.3) | (70.0) | | Issue of own shares | 2.9 | – | 215.8 | – | (0.3) | – | 218.4 | | Share-based payments | – | – | – | – | 7.0 | – | 7.0 | | **At 30 June 2021** | 4.5 | 684.3 | 350.6 | 2.7 | 57.2 | 0.9 | 1,100.2 | | Profit for the year | – | – | – | – | 20.6 | – | 20.6 | | Other comprehensive expense | – | – | – | – | – | (0.8) | (0.8) | | Total comprehensive income for the year | – | – | – | – | 20.6 | (0.8) | 19.8 | | Purchase of own shares | – | – | – | – | (6.7) | – | (6.7) | | Share-based payments | – | – | – | – | 8.6 | – | 8.6 | | **At 30 June 2022** | **4.5** | **684.3** | **350.6** | **2.7** | **79.7** | **0.1** | **1,121.9** | Included in the profit and loss account is the balance on the share scheme reserve which comprises the investment in own shares of £6.9m (2021: £0.1m) and a credit balance on the share scheme reserve of £15.5m (2021: £11.7m). Details of the shares held by the Kier Group 1999 Employee Benefit Trust and of the share-based payment scheme are included in note 27 to the consolidated financial statements. 220 Kier Group plc | Annual Report and Accounts 2022 # Notes to the Company financial statements For the year ended 30 June 2022 ## 1 Accounting policies The principal accounting policies are summarised below. Other than where new accounting policies have been adopted (as noted below), they have been applied consistently throughout the year and the preceding year. ### Basis of preparation The financial statements have been prepared in accordance with Financial Reporting Standard 101 'Reduced Disclosure Framework' ('FRS 101') and the Companies Act 2006. The financial statements have been prepared under the historical cost convention, except for derivative financial instruments which are stated at their fair value. Kier Group plc is a company incorporated in the United Kingdom under the Companies Act. The address of the registered office is 2nd Floor, Optimum House, Clippers Quay, Salford, M50 3XP. The Company's financial statements are included in the Kier Group plc consolidated financial statements for the year ended 30 June 2022. As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own profit and loss account. None of the standards, interpretations or amendments effective for the first time from 1 July 2021 have a material effect on the Company's financial statements. The Company has taken advantage of the following disclosure exemptions in preparing these financial statements, as permitted by FRS 101: - The requirement of paragraphs 45(b) and 46–52 of IFRS 2 'Share-Based Payments' - The requirements of IFRS 7 'Financial Instruments: Disclosures' - The requirements of paragraphs 91–99 of IFRS 13 'Fair Value Measurement' - The requirement in paragraph 38 of IAS 1 'Presentation of Financial Statements' to present comparative information in respect of paragraph 79(a)(iv) of IAS 1 - The requirement of paragraphs 10(d), 10(f), 16, 38A, 38B, 38C, 38D, 40A, 40B, 40C, 40D, 111 and 134–136 of IAS 1 'Presentation of Financial Statements' - The requirements of IAS 7 'Statement of Cash Flows' - The requirements of paragraphs 30 and 31 of IAS 8 'Accounting Policies, Changes in Accounting Estimates and Errors' - The requirement of paragraphs 17 and 18A of IAS 24 'Related Party Disclosures' - The requirements in IAS 24 'Related Party Disclosures' to disclose related party transactions entered into between two or more members of a group - The requirements of paragraphs 134(d) to 134(f) and 135(c) to 135(e) of IAS 36 'Impairment of Assets'. These financial statements are separate financial statements. Where required, equivalent disclosures are given in the Annual Report and Accounts of the Group as shown in notes 1–10. ## Changes in significant accounting policies Following the introduction of IFRS 9, which was effective from 1 July 2018, the Company chose to continue to apply the hedge accounting requirements of IAS 39. The Company has elected to adopt the general hedge accounting model in IFRS 9, with effect from 1 July 2021. This requires the Company to ensure that hedge accounting relationships are aligned with its risk management objectives and strategy, and to apply a more qualitative and forward-looking approach to assessing hedge effectiveness. The Company uses forward foreign exchange contracts to hedge the variability in cash flows arising from changes in foreign exchange rates relating to foreign currency borrowings. The Company's risk management strategies and hedge documentation are aligned with the requirements of IFRS 9. All hedging relationships designated under IAS 39 at 30 June 2021 met the criteria for hedge accounting under IFRS 9 at 1 July 2021 and are therefore regarded as continuing hedging relationships. The transition from IAS 39 to IFRS 9 hedge accounting requirements has not had a material effect on the Company's financial statements. ## Going concern The Directors have made enquiries and have a reasonable expectation that the Company has adequate resources to continue in existence for the foreseeable future. For this reason, they adopt the going concern basis in preparing the financial statements. See also pages 153–154. ## Fixed asset investments Investments in subsidiary undertakings are included in the balance sheet at cost less any provision for impairment. ## Taxation Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity. Current tax is the expected tax payable on taxable income for the year, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The deferred tax provision is based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. ## Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of a past event, and where it is probable that an outflow will be required to settle the obligation and the amount can be reliably estimated. Overview Strategic report Governance Financial statements Other information Kier Group plc | Annual Report and Accounts 2022 221 Notes to the Company financial statements continued For the year ended 30 June 2022 1 Accounting policies continued The Company enters into forward contracts in order to hedge Financial instruments against transactional foreign currency exposures. In cases Financial assets and financial liabilities are recognised in the where these derivative instruments are significant, hedge Company’s balance sheet when the Company becomes a party accounting is applied as described above. Where hedge to the contractual provisions of the instrument. The principal accounting is not applied, changes in fair value of derivatives financial assets and liabilities of the Company are as follows: are recognised in the income statement. The fair values of derivative instruments have been derived from proprietary (a) Cash and cash equivalents models used by the bank counterparties using mid-market mark Cash and cash equivalents comprise cash at bank and in hand, to market valuations for trades at the close of business on the including bank deposits with original maturities of three months balance sheet date. or less, net of bank overdrafts where legal right of set-off exists. Bank overdrafts are included within financial liabilities in current Share-based payments liabilities in the balance sheet. Share-based payments granted but not vested are valued at the fair value of the shares at the date of grant. This applies to (b) Bank and other borrowings the Sharesave, Conditional Share Award Plan and Long-Term Interest-bearing bank and other borrowings are recorded at Incentive Plan (‘LTIP’) schemes. The fair value of these the fair value of the proceeds received, net of direct issue costs. schemes at the date of award is calculated using the Black- Finance charges, including premiums payable on settlement Scholes model apart from the total shareholder return element or redemption and direct issue costs, are accounted for on an of the LTIP which is based on a Stochastic model. Awards that accruals basis in the income statement using the effective are subject to a post-vesting holding period are valued using interest method and are added to the carrying value of the the Finnerty model. instrument to the extent that they are not settled in the period in which they arise. The cost to the Company of awards to employees under the LTIP scheme is spread on a straight-line basis over the relevant (c) Amounts due from subsidiary undertakings performance period. The scheme awards to senior employees Amounts due from subsidiaries are initially recorded at their fair of the Company a number of shares which will vest after three value. Subsequent to initial recognition, the loans are measured years if particular criteria are met. The cost of the scheme is based at amortised cost. In accordance with IFRS 9, the Company has on the fair value of the shares at the date the options are granted. undertaken an exercise of calculating the expected credit losses on the amounts due from subsidiaries. The Directors regard the Shares purchased and held in trust in connection with the relevant subsidiaries as having a relatively low probability of Company’s share schemes are deducted from retained default on the loans and do not consider that there has been earnings. No gain or loss is recognised within the income a significant increase in credit risk since the loan was first statement on the market value of these shares compared with recognised. By virtue of their participation in Group bank pooling the original cost. arrangements, the subsidiaries had access to sufficient facilities to enable them to repay the loans, if demanded, at the reporting Critical accounting judgements and key sources date. Only immaterial amounts of expected credit losses were of estimation uncertainty calculated and, therefore, the Company has chosen not to adjust In the application of the Company accounting policies which the value of the loans for any expected credit loss provisions. are described above, the Directors are required to make judgements, estimates and assumptions about the carrying (d) Derivative financial instruments amounts of assets and liabilities that are not readily apparent Derivatives are initially recognised at fair value on the date that from other sources. The estimates are based on historical the contract is entered into and subsequently remeasured in experience and the factors that are considered to be relevant. future periods at their fair value. The method of recognising the Actual results may differ from those estimates. resulting change in fair value depends on whether the derivative is designated as a hedging instrument and whether the hedging The estimates are reviewed on an ongoing basis. Revisions to relationship is effective. accounting estimates are recognised in the period in which the estimate is revised. For cash flow hedges, the effective portion of changes in the fair value of these derivatives is recognised in the cash flow There are no critical judgements, apart from those involving hedge reserve within equity. Any ineffective portion is estimates, that the Directors have made in the process of recognised immediately in the income statement. Amounts applying the Company’s accounting policies and that have accumulated in equity are recycled to the income statement in a significant effect on the amounts recognised in the the periods when the hedged items will affect profit or loss. financial statements. If the hedging instrument no longer meets the criteria for hedge Valuation of investments accounting, expires or is sold, terminated or exercised, the The Company tests annually whether its investments have hedge accounting is discontinued prospectively. The cumulative suffered any impairment. The recoverable amounts of gain or loss previously recognised in equity remains there until subsidiaries are determined based on value in use calculations the forecast transaction occurs. When the forecast transaction or fair value less cost to sell, if held for sale. These calculations is no longer expected to occur, the cumulative gain or loss and require the use of estimates. deferred costs of hedging that were reported in equity are immediately reclassified to profit or loss. Considerable headroom exists when comparing the book value of the investments with their recoverable amounts. Therefore, the Directors have determined that the investment value is not particularly sensitive to changes in the assumptions used in the value in use calculations. Any reasonable adjustment to any of the assumptions would not result in an impairment of the investments. 222 Kier Group plc | Annual Report and Accounts 2022 2 Profit/(loss) for the year As permitted by section 408 of the Companies Act 2006, the Company has elected not to present its own profit and loss account for the year. The profit for the year was £20.6m (2021: £68.7m loss). The auditors’ remuneration for audit services to the Company was £0.1m (2021: £0.1m). 3 Information relating to Directors and employees Information relating to Directors’ emoluments, pension entitlements, share options and LTIP interests appears in the Directors’ remuneration report on pages 114–134. The Company has no employees other than the Directors. 4 Dividends No dividends have been paid by the Company (2021: £nil). See note 10 to the consolidated financial statements. 5 Disposals The loss on disposal incurred by the Company in the prior year was: 2021 £m Sale proceeds 110.0 1 Working capital adjustment 10.8 Total consideration 120.8 Book value of investment disposed of (110.0) Sale costs (9.7) 2 Overdraft settled (72.7) 3 Liabilities recognised on disposal (6.5) Kier Living Limited accruals assumed (1.8) Loss on disposal (79.9) 1 The disposal was subject to a ‘locked box’ mechanism. The adjustment represents the movement in the Kier Living Limited working capital since the ‘locked box’ date. 2 A condition of the disposal was the settlement of the Kier Living Limited overdraft prior to disposal. 3 As part of the disposal the Company retained some obligations to fulfil existing contracts. The Company recognised liabilities on disposal of Kier Living Limited which represent the costs of completing the outstanding work. In addition, a piece of land owned by Kier Limited was transferred to Kier Living Limited on disposal, generating a Stamp Duty Land Tax liability. | 6 Investments | | | Governance Financial statementsStrategic reportOverview | | --- | --- | --- | --- | | | 2022 | 2021 | | | | £m | £m | | At 1 July 429.2 532.2 Capital contributions 8.6 7.0 Disposal – (110.0) At 30 June 437.8 429.2 Details of the Company’s subsidiaries at 30 June 2022 are provided in note 32 to the consolidated financial statements. Capital contributions of £8.6m were made during the year ended 30 June 2022 in relation to share-based payments on behalf of subsidiaries (2021: £7.0m). Certain subsidiaries of the Group have opted to take advantage of a statutory exemption from having an audit in respect of their individual statutory accounts. Strict criteria must be met for this exemption to be taken and it must be agreed to by the directors of those subsidiary companies. Listed in note 32 are subsidiaries controlled and consolidated by the Group where the directors have taken advantage of the exemption from having an audit of the companies’ individual financial statements in accordance with Section 479A of the Companies Act 2006. Other information In order to facilitate the adoption of this exemption, Kier Group plc, the ultimate parent company of the subsidiaries concerned, undertakes to provide a guarantee under Section 479C of the Companies Act 2006 in respect of those subsidiaries. Kier Group plc | Annual Report and Accounts 2022 223 Notes to the Company financial statements continued For the year ended 30 June 2022 7 Debtors 2022 2021 £m £m Amounts falling due within one year: Other debtors – 0.1 Deferred tax 3.3 3.0 3.3 3.1 Amounts falling due after more than one year: 1 Amounts due from subsidiary undertakings 1,467.5 1,411.9 1,467.5 1,411.9 1 The amounts due from subsidiary undertakings incur interest at 4.0% and are repayable between one and four years. 8 Creditors 2022 2021 £m £m Amounts falling due within one year: Borrowings 40.5 38.2 Corporation tax 9.9 12.1 Other creditors 1.9 4.5 52.3 54.8 Amounts falling due after more than one year: Borrowings 266.5 362.3 1 Amounts due to subsidiary undertakings 60.9 120.1 327.4 482.4 1 The amounts due to subsidiary undertakings incur interest at 4.0% and are repayable after one year. Further details on borrowings are included in note 21 to the consolidated financial statements. 224 Kier Group plc | Annual Report and Accounts 2022 9 Other financial assets The Company has the following cross-currency swaps: – Two cross-currency swaps taken out in 2013 to hedge the currency risk on a US dollar-denominated loan, nominal value US$20.0m. – One cross-currency swap taken out in 2014 to hedge the currency risk on a US dollar-denominated loan, nominal value US$40.0m. – One cross-currency swap taken out in 2016 to hedge the currency risk on a euro-denominated loan, nominal value €10.0m In FY21, the Company had two additional interest rate swaps with a total value of $64m. They both expired during the year. The Company has assessed the effectiveness of these swaps and concluded that they are 100% effective. Therefore, no amount in relation to hedge ineffectiveness has been charged or credited to the income statement in relation to any cross-currency swap. The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair value of the related hedging instruments: Expected | Fair | | | | | | cash flows | | | --- | --- | --- | --- | --- | --- | --- | --- | | value | Total | 0–1 year | | 1–2 years | | 2–5 years | | | £m | £m | | £m | | £m | | £m | Cross-currency swaps: asset Gross settled inflows – 62.3 27.1 1.5 33.7 Gross settled outflows – (49.1) (22.2) (1.1) (25.8) 12.2 13.2 4.9 0.4 7.9 Fair value estimation The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: Level 1 – Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 – Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). The Company uses cross-currency and interest rate swaps for hedging. These derivatives are classified as level 2. The prices of derivative transactions have been derived from proprietary models used by the bank counterparties using mid-market mark to market valuations for trades at the close of business on 30 June 2022. Level 3 – Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). | The following table presents the Company’s financial assets and liabilities that are measured at fair value at 30 June 2022. | | | | | | | | Governance Financial statementsStrategic reportOverview | | --- | --- | --- | --- | --- | --- | --- | --- | --- | | | Level 1 | | Level 2 | | Level 3 | | Total | | | | | £m | | £m | | £m | £m | | Assets Derivatives used for hedging – Cross-currency swaps – 12.2 – 12.2 The following table presents the Company’s financial assets and liabilities that are measured at fair value at 30 June 2021: Level 1 Level 2 Level 3 Total £m £m £m £m Assets Derivatives used for hedging – Cross-currency swaps – 13.4 – 13.4 There were no transfers between levels 1 and 2 during the year. 10 Called up share capital Details of the share capital of the Company are included in note 26 to the consolidated financial statements. Other information Kier Group plc | Annual Report and Accounts 2022 225 # Financial record ## Continuing operations | Year ended 30 June | 2022 £m | 2021 £m | 2020 £m | 2019 £m | 2018 £m | | --- | --- | --- | --- | --- | --- | | Revenue: Group and share of joint ventures | **3,256.5** | 3,328.5 | 3,475.6 | 4,106.0 | 4,512.8 | | Less share of joint ventures | **(112.6)** | (67.5) | (53.1) | (154.9) | (273.2) | | **Group revenue** | **3,143.9** | 3,261.0 | 3,422.5 | 3,951.1 | 4,239.6 | | **Profit** | | | | | | | Group operating profit^{1} | **93.6** | 96.4 | 41.0 | 75.6 | 140.8 | | Share of post-tax results of joint ventures | **26.9** | 3.9 | (0.2) | 10.1 | 42.7 | | Profit on disposal of joint ventures | – | – | 0.6 | – | 3.5 | | **Operating profit before adjusting items** | **120.5** | 100.3 | 41.4 | 85.7 | 187.0 | | Net finance costs before adjusting items | **(26.4)** | (34.9) | (24.5) | (24.3) | (23.1) | | **Profit before adjusting items and tax** | **94.1** | 65.4 | 16.9 | 61.4 | 163.9 | | Amortisation of acquired intangible assets relating to contract rights | **(19.7)** | (21.0) | (23.7) | (24.8) | (25.6) | | Adjusting finance costs | **(2.8)** | (3.2) | (5.2) | (1.7) | (5.1) | | Other adjusting items | **(55.7)** | (35.6) | (213.3) | (264.4) | (27.0) | | **Profit/(loss) before tax** | **15.9** | 5.6 | (225.3) | (229.5) | 106.2 | | Basic earnings per share before adjusting items | **16.8p** | 25.0p | 12.2p | 24.8p | 109.8p | | Dividend per share | – | – | – | 3.9p | 54.4p | | **At 30 June** | | | | | | | **Shareholders' funds (£m)** | **554.6** | 435.0 | 240.8 | 519.6 | 601.1 | | **Net assets per share** | **125.1p** | 206.8p | 119.4p | 257.2p | 486.5p | $^{1}$ Stated before adjusting items. See note 5 for reference to adjusting items. 226 Kier Group plc | Annual Report and Accounts 2022 ## Glossary of alternative performance measures The Group presents various alternative performance measures (‘APMs’) as the performance of the Group is reported and measured on this basis internally. This includes key performance indicators (‘KPIs’) which are included on page 40. APM Purpose Reference Total Group revenue Revenue from the Group from continuing KPIs operations including joint ventures Consolidated income statement Adjusted operating profit Operating profit for the year from continuing KPIs operations before adjusting items Note 5 Adjusted profit before tax Profit before tax for the year from continuing Note 5 operations before adjusting items Adjusted earnings per share Earnings per share for the year generated from KPIs continuing operations before adjusting items Note 11 Adjusted diluted earnings per share Diluted earnings per share for the year generated Note 11 from continuing operations before adjusting items Adjusted cash flow from Cash flow from operating activities for the year Note 5 operating activities before adjusting items Net cash The Group’s net cash at the year-end date KPIs Note 21 Average net debt The Group’s net cash/(debt) as an average of the KPIs month end positions up to the previous year-end Note 21 date | Free cash flow An alternative cash flow measure to evaluate what | | KPIs | | --- | --- | --- | | | is available for distribution | Note 21(c) | | Adjusted operating margin Operating margin calculated as a percentage of | | Operational review | | | adjusted operating profit over total group revenue | (pages 18–23) | | Order book Secured and probable future contract revenue not | | KPIs | currently recognised in the financial statements GovernanceStrategic reportOverview Other informationFinancial statements Kier Group plc | Annual Report and Accounts 2022 227 ### www.kier.co.uk Our corporate website has key information covering our capabilities, markets, corporate responsibility and investor relations. ### Join the conversation Engage with us and keep up with the latest news and developments via social media. 228 Kier Group plc | Annual Report and Accounts 2022 Consultancy, design and production by Gather Gather.london Printed by Pureprint ® ® Pureprint are a CarbonNeutral company with FSC chain of custody and an ISO 14001 certified environmental management system diverting 100% of dry waste from landfill. 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