Kier Group plc (10I.F) Earnings Call Transcript & Summary

Good morning, and welcome to Kier Group Full Year 2025 Bondholder Call. The Group CEO, Andrew Davies; and CFO, Simon Kesterton, will share some brief opening remarks on the group's performance before giving the bondholders the opportunity to ask any questions. [Operator Instructions] Please, Andrew and Simon, go ahead.

Okay. Good morning, everyone. Perhaps we could just find out who's online, first. We know we've got people to talk to.

Yes. I believe that we've got HSBC and S&P and a couple of our internal colleagues at the moment. I don't think we've got any of the investors on currently.

Right. So...

I think -- as S&P have dialed in, I think you should give them an intro on how you feel the numbers have gone down.

Perfect. Okay. Good morning, everyone then. So I think you've got the pack, which we distributed, and we should have online, which we're using the results presentation and therefore, with all the debt and equity calls. The page I suggest we start at is Page 11, if you could go to in your pack, which is headlined Our Access to U.K. Infrastructure via Frameworks. That is sort of summarizes what we see in the market at the moment with the opportunity that Kier has. So the government has announced a pipeline of GBP 725 billion worth of investment it would like to make in Infrastructure in the U.K. over 10 years. And it set itself up organization with organizations like NISTA based in treasury to monitor, to approve that investment. It's also underpinned that investment with a 3-year spending commitment, which they settled as part of the spending review in June 2025. And that's important because that gives us a high degree of confidence for certainly the next 3 years, if not for 10 years, in the scope of the opportunity we've got ahead of us. So the question then comes is, how do you access that pipeline of work? And if you go down the slide, you see that the addressable market, which we estimate is about GBP 156 billion, and that's made up of the framework positions we've got in the sectors we've outlined there like health, education, affordable housing, defense, et cetera, et cetera. And so that GBP 156 billion is the value -- the advertised value of the frameworks, which Kier has positions on. And the frameworks can be anything from 5 to 10 years. They can have anywhere sort of 5 to sort of 10 people or entities on them as well. But clearly, you're not going to access all GBP 156 billion. But the point here is the framework the [indiscernible] to get access to that GBP 725 billion opportunity. If you're not on the framework, invariably, you simply cannot bid for those contracts within that pipeline. The Kier got an extremely strong position in frameworks, and that really our hopper, which then feeds our order book. Our order book of GBP 11 billion is made up of contracted income and also income, which we deem probable and that's really positioned where we're in a 2-stage negotiation with the client on an exclusive basis for a funded contract. And really what you're doing there is you're allocating risks, getting pricing right, the terms and conditions right, getting a program, fitness, et cetera. It's [indiscernible] always end up in a contract. It's very rare, they don't. So Simon and the finance team have very high degrees of confidence that, that GBP 11 billion order book is absolutely real and is fed by the GBP 156 billion addressable market and framework position we have. So the point we're saying there is that we got very strong visibility of our future revenues. And if you just turn the page to Page 12, what this really says that translates into 91% coverage of our FY '26 revenues and 70% for FY '27. And of course, if you look at the graph below, the reality is whilst we did burn through the 91% to 70%, it's underpinned by those framework positions. So we're very confident in our revenue forecast that sort of certainly 5 years and indeed, the government's commitment through 10 years. So question we always put is, so how is government going to report this? And that's a very valid question, and we think they will have to embrace private finance in many ways. But let's not forget some of our frameworks, of course, with water companies or energy companies, which are privately funded. So they're out with government finances. And we have very, very high degree of confidence because given the state of the water industry, infrastructure and the environmental and social pressures on them as well as the regulatory pressures that money will get spent, and we'll probably touch on that a little bit later. So I think the outlook, the hopper, the framework positions of the order book give us a very high degree of confidence in the visibility of future -- the medium-term future revenues. If we then just go back, and this is where it gets probably more relevant and interesting, the highlights on Page 4. We're turning that record order book of GBP 11 billion visibility giving us into good growth. And we're turning that revenue into profit, I believe, in cash. So our free cash flow in the last year was GBP 155 million, slightly less than the prior year. But that prior year, we had very strong working capital inflows due to the recovery in revenues, which we've had over the last 2 years. So GBP 155 million is back on where we wanted to be, an excellent performance and ahead of our conversion in our long-term target. And that's giving us options in how to allocate our capital to some of those options, and we've elected to increase our dividend, final dividend of 5.2, which means a 7.2 annual dividend. That's a 38% increase. But more tellingly, we've met our target of a 3x cover on dividend. We're halfway through our GBP 20 million buyback. And we've invested our investment in Property, now GBP 200 million, which when that matures that investment will go to 15% ROCE by probably the back end of FY '27, certainly by FY '28 as well. And why are we confident? Well, on Page 5, this is the track record of delivery we've had, really consistent delivery for the last 5 years. You can see all of the graph going consistently in the right direction and probably telling you one on the bottom right, the average month-end net debt reduced through various methods was GBP 582 million, a monthly net debt figure in FY '21, down to GBP 49 million, which is exactly where we want it to be, allowing us to then make these investment choices and allocation of capital choices. So our performance has been excellent over the last 4, 5 years, giving us very strong confidence that Simon and Stuart, my successor as CEO, will really drive the performance on in this business and turn our future revenues into, as we say, good profit and cash back profits. I'll probably just stop there the introduction and really sort of open up for questions. So anyone who wants to talk about, any of the numbers and specifics?

[indiscernible] questions, please.

[Operator Instructions] We currently have no questions. I will hand back to Mark.

Thanks, Claire. It's Mark here, everyone. I will take the lack of questions as really ringing endorsement of Andrew and Simon stewardship of this company. As always, you have my e-mail address, you have our Investor Relations e-mail address. If there are any questions subsequently that you'd like to ask, please don't hesitate to get in touch. I think as you can tell from our numbers, we're quite proud of them, and I'm happy to talk about them. So please ask any questions you have down the line. Thank you very much all, and have a good day.

Thank you all.

Bye.

This concludes today's call. Thank you for joining. You may now disconnect your lines.