Working together for growth

Working together

for growth

Kier Group plc

Annual Report and Accounts

for the year ended 30 June 2004

1 Group highlights

2 Chairman’s statement

Divisional highlights

4 Kier Regional

7 Kier National

8 Kier Support Services

11 Kier Residential

12 Kier Property

15 Kier Project Investment

16 Chief executive’s review

Operating review

20 Kier Regional

24 Kier National

26 Kier Support Services

28 Kier Residential

30 Kier Property

32 Kier Project Investment

34 Financial review

37 Key policies and services

40 Board members

Financial statements

43 Directors’ report

44 Corporate governance statement

47 Directors’ remuneration report

53 Statement of directors’

responsibilities

54 Report of the independent auditors

55 Consolidated profit and

loss account

56 Consolidated balance sheet

57 Company balance sheet

58 Consolidated cash flow statement

59 Consolidated statement of total

recognised gains and losses

59 Reconciliation of movements

in shareholders’ funds

60 Notes to the financial statements

78 Principal operating subsidiaries

79 Principal joint arrangements,

joint ventures and associated

undertakings

80 Group principal businesses

82 Financial record

IBC Corporate information

For the twelfth year in succession, Kier Group is

pleased to report further growth in turnover, profit

and earnings per share. The Group is well placed

going forward and has high quality, well motivated

management teams in place to ensure that this

success continues.

Front cover

Work in progress by Kier Eastern

on a new headquarters building

for Liebherr in Bedfordshire.

Kier

Regional

Kier

National

Kier

Support Services

Kier

Residential

Kier

Property

Kier

Project Investment

Contents

1 Kier Group plc

Annual Report and Accounts 2004

+26.3%

Pre-tax profit up 26.3% to £43.2m*

(2003: £34.2m)

* Results above are shown after adding back £2.6m (2003: £0.9m) relating

to goodwill amortisation. After deducting goodwill amortisation results are:

• Pre-tax profit up 21.9% to £40.6m (2003: £33.3m)

• Earnings per share up 17.3% to 81.5p (2003: 69.5p)

Pre-tax profit

+21.8%

Earnings per share up 21.8% to 87.2p*

(2003: 71.6p)

Earnings per share

+15.9%

Dividend per share up 15.9% to 19.0p

(2003: 16.4p)

Dividend per share

£1.75bn

Construction & Services order books at £1.75bn

with improving quality and higher proportion of

negotiated and partnered contracts

Construction & Services order books

+43%

Homes order book and completions for the two

months to 31 August 2004 are 43% ahead

of last year

Homes order book plus completions to 31 August 2004

Prospects for Property

Continuing good opportunities in Property

Group highlights

Chairman’s statement

This is the last set of results upon which I shall

report before I retire from the Board at the Annual

General Meeting in November 2004. I am pleased

to announce that Kier Group has delivered another

record level of turnover and profit for the year

to 30 June 2004, its twelfth year of continuous

profits growth since our employee buy-out in

1992 and a year in which Kier was awarded

Building Magazine’s ‘Major Contractor of the Year’

for the fourth time in the last six years.

Financial performance

A strong financial performance was achieved across all reporting

segments. Overall operating profits, after deducting goodwill

amortisation of £2.6m (2003: £0.9m), rose 25.7% to £42.6m

(2003: £33.9m). Turnover grew by 2.1% to £1,476.5m (2003:

£1,445.6m) and profit before tax increased by 21.9% to £40.6m

(2003: £33.3m). Basic earnings per share at 81.5p rose 17.3%

(2003: 69.5p) and, after adding back goodwill amortisation,

adjusted earnings per share rose 21.8% to 87.2p (2003: 71.6p).

The Board proposes a final dividend for the year ended

30 June 2004 of 13.0p (2003: 11.2p) making 19.0p for the

year (2003: 16.4p) an increase of 15.9% and covered 4.3 times

by basic earnings per share. The dividend will be paid on

7 December 2004 to shareholders on the register on 1 October

2004 and there will be a scrip alternative.

A good cash performance was achieved in the Regional

business which recorded annual average cash balances ahead of

last year. Overall Group net cash (after borrowings) reduced, as

anticipated, by £54.4m to £7.6m at 30 June 2004 (2003: £62.0m).

The outflow represents an expected increase in working capital

brought about by an unwinding of the advance cash held at 30

June 2003 on the sale of the office development at Whitehall,

further investment in housing and property development, a

planned reduction in turnover in the National construction

business and the cash effect of the losses reported in Kier

Partnership Homes and Kier National last year. Since 30 June

2004 Kier Property has completed the sale of the National Trust’s

headquarters building to private investors, ahead of construction

completion, and we have refinanced one of our early PFI projects,

Hairmyres Hospital. Together these transactions provided £26m of

cash which, along with strong trading, has resulted in Group net

funds of £41.6m at 31 August 2004. During the year we increased

our unsecured borrowing facilities by an additional £30m to

£80m to provide flexibility for seasonal and monthly working

capital requirements.

Shareholders’ funds increased by £23.7m to £116.4m

(2003: £92.7m). Pre-tax return on shareholders’ funds was 38.8%,

having been at around this level for seven consecutive years.

2 Kier Group plc

Annual Report and Accounts 2004

Colin Busby

Chairman

+21.9%

Increase in profit before tax to £40.6m

(2003: £33.3m)

Twelfth year

of continuous profitable growth

Pensions

The FRS 17 deficit in the Kier Group Pension Scheme, after

accounting for deferred tax, has reduced during the year from

a net £79.7m to £67.2m at 30 June 2004. The market value of

scheme assets rose by 11% whilst liabilities increased by 4%,

resulting from a combination of increases in the assumptions

regarding salary and price inflation offset by a marginal upward

movement in yields. The Group’s strategy continues to be to

address the deficit over time and recent changes have included

increases in pension contributions, changes in early retirement

terms and a revised approach to investment strategy. Given that

the Scheme is likely to enjoy positive net cash flows, excluding

sales of investments, for some years, the Group plans to continue

to take a considered and measured approach to future funding

requirements. The Group also participates in another defined

benefit scheme on behalf of its employees in Kier Sheffield LLP.

At 30 June 2004 this scheme showed a surplus, after deferred tax,

of £6.4m (2003: £5.1m).

The Board

I shall be retiring from the Board and leaving the Group in the

autumn after 35 years with Kier. During that time Kier has been

through many ownership changes both private and public. In

1992 I was privileged, along with my Board colleagues at the

time, to have led Kier in the first true employee buy-out of

a major construction business and, in 1996, to its flotation.

Since then the business has evolved into a multi-disciplinary

Group with strong management teams.

Over the years I have been fortunate to have worked with

some very talented people throughout our organisation, many

of whom have risen to senior positions. Managing succession

has been crucial and I am pleased that I am leaving a balanced

Board, ably led by Group chief executive John Dodds, which

has the skills, talent and vision to take the business forward to

the next stages. The Group is in good financial shape and in

safe hands.

I am handing over my non-executive chairmanship to non-

executive director Peter Warry who joined the Board in 1998.

Peter, aged 55, is also chairman of Victrex plc and BSS Group plc.

He has a good understanding of the workings of Kier and will

continue to provide sound advice and guidance in his new role.

I wish him every success.

I should like to thank my colleagues and fellow employees for

all their hard work and the shareholders for their support over the

years and I wish the Group a successful and prosperous future.

Prospects

Our order books in Construction & Services have been

maintained at around £1.75bn, containing a higher proportion

of negotiated and partnered contracts, and hence are of a better

quality, than ever before. In Homes the order book together

with unit completions to 31 August 2004 were 43% ahead

of last year. Our property development business continues to

attract good opportunities to fuel its portfolio. A number of

Private Finance Initiative opportunities are available and are

being selectively pursued.

All of our markets remain sound. In Construction & Services

the market continues to benefit from increased government

investment in education, health and affordable housing as well

as ample private sector opportunities. In housing the fundamental

shortage of new homes continues and demand is supported by

high employment and a strong economy. However we are

beginning to see signs of the upward trend in interest rates

returning the market to more sustainable levels of house price

inflation. The Property business will expand further as the

portfolio is developed and there are plenty of opportunities

available to enhance the business.

Kier’s businesses are well positioned to take advantage of

market opportunities as they emerge; prospects are good and the

Board is confident that the Group will continue to deliver further

improved performance and growth into 2005 and beyond.

3 Kier Group plc

Annual Report and Accounts 2004

A fully

integrated

team

Kier Regional

4 Kier Group plc

Annual Report and Accounts 2004

Performance

> Turnover up 9.4% to

£862.0m

> Good operating margin

> Strong cash balances

throughout the year

> Growing amount

of negotiated and

partnered work

> Good progress in

framework contracting

> Excellent health & safety

performance

> Waste reduction strategy

successfully implemented

The future

> Major projects capability

within Kier Regional

> Remain focused on

customer satisfaction

> Continue sustainable,

controlled growth

> Continue to bid selectively

> More intra-Group

collaboration on mixed

use schemes

> Further framework

contracting opportunities

> Monitoring of waste

across all businesses

Another successful year for Kier Regional

whose unrivalled network of regional

construction businesses saw brisk activity

across all main market sectors and a

further increase in negotiated work.

Turnover increased by 9.4% to

£862.0m

Kier

Regional

Centaur building, Cheltenham

Racecourse

Moss Construction completed

this striking new building in time

for the National Hunt Festival.

The National businesses have redefined their

risk profile and consequently seen a reduction

in turnover this year. However, order books

are being rebuilt with higher quality contracts

for the future.

Kier

National

Mei Foo Station, Hong Kong

This major station for the Kowloon

Canton Railway Corporation is

now complete. The project won

‘International Performance of the

Year’ in the ‘Quality in Construction

Awards 2004’.

Planned reduction in turnover to

£168.7m

Kier National

7 Kier Group plc

Annual Report and Accounts 2004

Kier Support Services

8 Kier Group plc

Annual Report and Accounts 2004

Kier

Support Services

Solid progress has been made within the

Support Services division, paving the way

for further growth and opportunities. The

public private partnerships within the building

maintenance arm continue to raise standards

in quality of product and service.

New van fleet (Kier Sheffield)

The rationalisation programme

this year resulted in investment

to improve one central depot

to meet the needs of the business.

IT systems were renewed and a

new van fleet introduced.

Turnover increased by 51.0% to

£174.3m

Performance

> 19.8% increase in

turnover to £215.7m

(2003: £180.1m)

> 17% increase in housing

completions to 1,158

(2003: 990)

> 2.4% increase in average

selling price to £186,300

(2003: £181,900) with

a reduction in average

house size generating

an increase in average

income per square foot

> At 30 June 2004 we held

4,961 consented plots

(2003: 3,700 plots)

The future

> We have achieved our

target holding of over

four years’ supply of land

> Our approach to assessing

viability of land for

acquisition remains

cautious and we have

a land-bank containing

good quality sites, held

at prudent values, in

desirable locations

> We anticipate the market

returning to lower levels

of price inflation over

the forthcoming year

which should produce

a more consistent and

sustainable market

+17%

Increase in the number of successfully delivered

unit completions

Kier

Residential

Twigden Homes

The interior of a Twidgen Homes’

show home at Fairfield Park,

Arlesey, Bedfordshire.

Turnover increased by 19.8% to

£215.7m

Kier Residential

11 Kier Group plc

Annual Report and Accounts 2004

Kier Property

12 Kier Group plc

Annual Report and Accounts 2004

*Before elimination of intra-Group profit

Kier

Property

Kier Property has achieved record profits

following a very busy year. Both parts

of the division – Kier Ventures and Kier

Developments – have had notable success

and, increasingly, are interacting with other

parts of Kier Group to mutual benefit.

+32.8%

Increase in operating profit to £8.1m* (2003: £6.1m)

National Trust HQ

Kier Ventures started development

during the year of the National

Trust‘s new 90,000sq ft central

office in Swindon.

Turnover increased by 119.8% to

£46.6m

Kier Project Investment manages the Group’s

interests in projects procured under the Private

Finance Initiative. It continues to develop a

portfolio of infrastructure project investments,

yielding long-term income stream returns of

around 15%, while maintaining a flow of

negotiated construction and operational

support services contracts for the Group’s

other operating divisions.

£17.9m

Book value of committed investment

Kier

Project Investment

Greenwich Care Homes, London

Kier London completed the

construction of three new

neighbourhood resource centres

for the London Borough of

Greenwich. The first of these

homes has been registered and

is now fully operational, with the

other two to follow shortly.

Turnover increased by 43.8% to

£9.2m

Kier Project Investment

15 Kier Group plc

Annual Report and Accounts 2004

Construction & Services

Construction & Services recorded an operating profit of £15.6m

(2003: £12.9m) an increase of 20.9% on marginally lower

turnover of £1,205.0m (2003: £1,237.9m). Growth in turnover

from Kier Regional and Kier Support Services was offset by a

planned reduction in Kier National’s turnover, largely within the

major building projects business. The operating margin of 1.3%

(after deducting goodwill amortisation) continues to grow. After

adding back goodwill amortisation (largely arising within Kier

Support Services) we have achieved our previously stated short-

term target of 1.5%.

Construction

Kier Regional achieved another strong financial performance in

the year; turnover increased by 9.4% to £862.0m (2003: £787.6m)

and cash was, on average, £12m ahead of the previous year,

reaching a record year-end balance of £169m. The strength of the

Regional business lies in its ability to operate on a local level,

through 31 offices, as well as nationally for major clients in both

the private and public sectors. This provides flexibility, allowing

the business to respond quickly to changing local markets as well

as providing a nationally co-ordinated service through Kier Retail,

Kier Health and Kier Custodial.

The year to 30 June 2004 saw a record £849m of awards

(2003: £760m) of which 36% were for the public sector (2003:

31%) particularly education (21%) and health (7%). Further

awards for Kier Health under the ProCure21 initiative for NHS

Estates are pending finalisation of contract negotiation. Kier

Custodial has been appointed as preferred contractor for new-

build prison work under the HM Prisons framework; one of the

few selected for all six regions, and is well placed to benefit from

a good proportion of the £150m of work expected to be awarded

annually for the next 10 years.

Progress continues to be made in Kier Partnership Homes, our

social housing business which we acquired in November 2002,

following the losses it reported in the year to 30 June 2003.

We have implemented management changes and a geographic

realignment of the business which is now well positioned to

take advantage of the growing level of government spending on

16 Kier Group plc

Annual Report and Accounts 2004

Chief executive’s review

Kier has had another successful year to 30 June

2004 and has once again achieved excellent

results, providing compound annual growth in

earnings per share of 23.5% (before goodwill

amortisation) since its flotation on the London

Stock Exchange in 1996.

This is the twelfth year in succession in which

Kier has delivered increased profit brought about

through both organic growth and acquisition.

Twelve years ago our profits arose almost

exclusively from construction activities. By

undertaking strategic investments in housing,

property, support services and the Private

Finance Initiative and investing in our people,

we have developed a business model comprising

complementary activities. They provide a balanced

cash profile enabling the funds generated by

construction operations to be invested in the

cash-consuming activities, while operationally

we are able to combine complementary skills to

offer a fully integrated service to clients throughout

the UK. In 2004 we have again seen many

examples in which our businesses have worked

together to provide a total in-house solution for

the delivery of mixed-use developments. As one

of the few Groups able to do this we intend to

continue to use our skills to generate profit growth

from these markets.

John Dodds

Chief Executive

+25.7%

Increase in operating profit to £42.6m

(2003: £33.9m)

23.5%

Compound annual growth in earnings

per share for eight years

social housing and to work with other Kier businesses on urban

regeneration projects. Whilst Kier Partnership Homes made a

modest loss in the year we are confident that the changes that

have been implemented will result in a business that will make

a worthwhile contribution to Group profit.

The majority of the turnover in Regional comprises contracts

with a value of less than £10m, on average £1.9m. These

relatively low value contracts, 52% of which are negotiated

or partnered (2003: 42%), continue to improve the quality of

the forward workload, which stood at £512m at 30 June 2004

(2003: £430m), and will maintain Kier Regional’s robust and

consistent financial performance.

Turnover within our major projects business continued its

planned reduction, in line with a lower risk profile, to £168.7m

(2003: £334.9m). Within the major building business the focus

during the last year has been on closing out current contracts

and rebuilding the order book with higher quality contracts taken

on under two-stage tender, negotiated or partnered terms where

the risks can be more appropriately identified and managed.

The civil engineering and overseas business has continued to

make good progress on its two major contracts for the Channel

Tunnel Rail Link. Our framework agreement for United Utilities

is progressing well and we are hopeful of further work under their

Asset Management Programme 4. A good result was, once again,

achieved overseas. In Hong Kong, Mei Foo, a major station for

the Kowloon Canton Railway Corporation, is now complete,

winning ’International Performance of the Year’ in the ‘Quality

in Construction Awards 2004’. Through a continuing process of

selective tendering we have developed a higher quality, albeit

smaller, order book both overseas and in the UK.

Support Services

Our Support Services business operates through two divisions:

Building Maintenance and Managed Services, which together

provided £174.3m of turnover, 51.0% ahead of last year. The

growth is largely attributed to the Building Maintenance division

which recorded a full year’s turnover of £64.7m from the 10-year

outsourcing contract for Sheffield City Council. The operation

is providing a greatly improved service to the tenants of the

60,000 housing units we repair and maintain. In addition to

our £640m contract we have been announced as one of the

preferred bidders for a further £1bn of additional work for

Sheffield under the Government’s ‘Decent Homes’ initiative.

We anticipate being awarded one-fifth of the work to be carried

out over six years to 2010.

Although there have been fewer new opportunities for local

authority outsourcing contracts than anticipated we were pleased

to have been selected as preferred bidder on two housing repairs

and maintenance contracts for Leeds South and Leeds North West,

with a combined value of £10m per annum for five years

extendable for a further five years.

The Managed Services division has also seen an increase in

turnover during the year. Contracts have been awarded with Corby

Borough Council, Eastbourne Council and the Department for the

Environment, Food and Rural Affairs and we have retained existing

contracts with key clients. Contracts under the PFI are continuing

to grow in number and value with a further £150m secured during

the year to be carried out over periods of 25 to 30 years. We are

committed to improving margins within this business in what

remains a very competitive market.

Homes

The strong demand for housing continued through the second

half of the year and provided Kier Residential with a 19.8%

increase in turnover to £215.7m (2003: £180.1m) arising from

a 17% increase in housing completions to 1,158 (2003: 990)

and a 2.4% increase in average selling price from £181,900 to

£186,300, with a reduction in average house size generating an

increase in average income per square foot.

Operating profit increased by 20.9% to £31.8m (2003: £26.3m)

lifting the margin to 14.7% (2003: 14.6%). The margin achieved

from private housing increased year on year but was dampened by

an increase in the proportion of lower margin affordable homes

which represented 5% of total unit sales in 2004 (2003: 2%).

During the year £56m was spent on selective land purchases

and in January 2004 we acquired the business of Tudor Homes,

based in Lincolnshire, at market value for £15.5m, providing

350 plots with planning consent and a further 75 strategic plots.

17 Kier Group plc

Annual Report and Accounts 2004

Kier has had another

successful year to 30 June

2004 and has once again

achieved excellent results,

providing compound annual

growth in earnings per share

of 23.5% (before goodwill

amortisation) since its

flotation on the London

Stock Exchange in 1996.

A balanced approach

At 30 June 2004 we held 4,961 consented plots (2003: 3,700

plots) in the land-bank enabling us to achieve our target holding

of over four years’ supply of land. We also control 15,000 plots

of strategic land, mostly under option, which we are progressing

through the planning system. Strategic sites are becoming an

increasing feature with 18% of unit sales emanating from the

strategic land-bank compared with 13% in 2003.

Kier Residential has made progress on a number of sites

during the year including mixed-use and urban regeneration

schemes. In April 2004 it acquired an eight acre site at Aylesbury

for approximately 400 units from a joint venture within Kier Property

and is close to exchanging contracts for a six acre site in Poole

Harbour with Network Rail which will provide 260 residential units

and involve the redevelopment of the railway station and some

commercial development. A combination of Kier Residential, Kier

Rail and Kier Property will develop this site over a four-year period.

Since the year-end, we have seen a lower level of visitors to our

developments than in the same period last year; however reservations

remain at acceptable levels and selling prices are holding up without

the requirement to provide additional incentives. We are selling

units from 18% more sites than at the same period last year. This

has contributed to the order book, together with the number of unit

completions for the two months to 31 August 2004, being 43%

ahead of last year providing a good start to the new financial year.

We anticipate the market returning to lower levels of price

inflation over the forthcoming year which should produce a more

consistent and sustainable market. Our approach to assessing

viability of land for acquisition remains cautious and we have a

land-bank containing good quality sites, held at prudent values,

in desirable locations which will provide us with a product range

for which we believe demand will continue.

Property

The Property division had another very busy year with turnover

growing by 119.8% to £46.6m (2003: £21.2m). Operating profit

increased by 32.8% to £8.1m (2003: £6.1m) including £1.5m of

intra-Group profit made on the sale of land at Aylesbury to Kier

Residential which has been eliminated on consolidation. Good

progress has been made on the office development at Whitehall

which was sold in December 2002 in advance of construction by

Kier Build. Completion will be achieved by the end of September

2004 at which point it will be occupied by the Department for

Environment, Food and Rural Affairs and serviced by Kier Support

Services. Two similarly structured advance sales were achieved in

recent months: one in June 2004 for the sale of a headquarters

office development for a subsidiary of BAe Systems by our property

joint venture with the Bank of Scotland, and the other in July 2004

for a headquarters building for the National Trust being constructed

by Kier Regional and adding an £18m cash advance to Group

funds in July 2004. In total during the last three years advance

property sales have generated over £100m of early cash to the

Group and the joint venture.

In the retail sector we completed the acquisition of six

development sites from J Sainsbury in March 2004 for £32m.

One of the properties was sold in a profitable back-to-back

transaction almost immediately and contracts have been

exchanged on another with completion expected in the autumn.

A regenerative mixed-use scheme is being promoted on a 17-acre

site of a former railway works at Ashford for some 700 residential

units together with leisure and retail uses.

The business continues to benefit from opportunities in

the three main sectors of office, industrial and retail schemes,

including mixed-use and regeneration projects. Good returns

are being achieved and, unusually for property development,

the business was cash positive for most of the year, returning to

overdraft temporarily at 30 June 2004 prior to the cash receipt

on the sale of the National Trust development in July 2004.

Infrastructure Investment

Our Infrastructure Investment business has had a successful year

with PFI awards, having achieved financial close on our second

schools project, this time for Waltham Forest, our fourth hospital

project which is at Hinchingbrooke, Cambridgeshire and our

second library project, at Oldham, with a combined capital value

of £83m, all being constructed and serviced in-house. We were

also selected as preferred bidder on four schools in Sheffield

which will provide Kier Regional with a £50m construction

contract and Kier Support Services with a 25-year service contract.

18 Kier Group plc

Annual Report and Accounts 2004

2004

2000

2001

2002

2003

15.6

6.5

11.1

12.5

12.9

Construction & Services operating profit £m

0 5 10 15 20

2004

2000

2001

2002

2003

38.4

13.2

16.2

22.2

32.4

Homes & Property operating profit £m

010203040

In August 2004 we refinanced our first PFI project, Hairmyres

Hospital which won the ‘Public Private Finance Award’ for ‘Best

Major Hospital in Operation 2004’. After a contribution to the

Lanarkshire Health Board of 30% of the gain, the refinancing

provided us with £8.1m of cash. Although no profit can be

recognised on the gain until a disposal of the investment, costs

of £1.5m have been incurred in connection with the transaction

and charged against profit for the year to 30 June 2004.

Our committed investment to the portfolio of 10 projects is

£18m, with an expected long-term average yield of around 15%.

A secondary market for PFI investments is developing with prices

beginning to reflect values in line with our own assessment.

We remain committed to a focused, cautious approach to

PFI investment and are keen to take advantage of further

opportunities as they emerge.

Health & Safety

Our management teams have focused throughout the year on

continuous improvement in all aspects of health & safety in

the Group. As part of the overall strategy to raise standards and

improve communication within the supply chain we have targeted

areas which are of concern to both the industry and Kier. The

overall commitment and enthusiasm emanating from the Board

and through our management teams ensure the delivery of

high standards of health & safety. This has resulted in a 21%

reduction in our Accident Incidence Rate to 588 per 100,000

staff and subcontractors measured against the Health & Safety

Executive benchmark of 1,172 for the sector.

The achievements of Kier Group companies have been

recognised by the award of 14 gold, four silver and one merit

RoSPA awards and 21 British Safety Council awards. The Group’s

Health & Safety strategy is to continue to raise supply chain

awareness using the ‘Don’t Walk By’ campaign and to ensure that

we reduce accidents and incidents through good communication.

Kier People

I am proud of Kier’s achievements and of everyone in the Group

who has worked hard to make this year a success. Wherever

I go in the Group I am continually impressed by the skills,

commitment, professionalism and ingenuity of our people and

I thank everyone for their efforts in contributing to an excellent

performance, once again, in 2004.

The Board

As announced in July, Colin Busby, the Group’s chairman, has

decided to retire from the Group and will step down from the

Board at the Company’s Annual General Meeting in November.

Colin, who joined Kier in 1969, led the employee buy-out of the

Group in 1992 as chairman and chief executive, and later its

flotation on the London Stock Exchange. Since that time the shape

of the Group has developed from pure contracting to a business

which now includes support services, homes, property and PFI

activities. It has achieved compound annual growth in earnings

per share of 23.5% since flotation and seen equity shareholders’

funds increase from £2.4m to £116.4m.

Colin will leave the Group with a very strong financial base,

providing an excellent foundation for future growth. He has the

Board’s sincere gratitude for his contribution and every good wish

for his retirement.

Summary

The Group is in good shape; the risk profile of the Construction

businesses has been improving over the last few years through a

combination of better contract terms and more focused activities

providing us with higher quality order books; our Support Services

business is growing steadily through an increasing number of

building maintenance contracts and by taking advantage of

government spending on social housing; in Homes we have been

focusing on a product range in line with demand in our traditional

areas of operation, which excludes London, and on selectively

replenishing the land-bank; and in Property there are many

opportunities for non-speculative development in the office,

retail and industrial sectors. Overall the businesses are working

well together on mixed-use development opportunities where

we have a competitive advantage.

With strong order books, plentiful opportunities and talented,

high quality management teams, the Group is well placed to move

forward and to deliver further improved performance and growth.

19 Kier Group plc

Annual Report and Accounts 2004

+17%

Increase in housing completions

+51.0%

Increase in Support Services turnover

52%

Kier Regional negotiated and partnered awards (2003: 42%)

+119.8%

Increase in Property turnover

All companies within the Kier Regional network are well

established, well managed and remain focused on being well

respected locally. As such, they are able to get close to their

supply chains, their clients and the communities in which

they operate.

Kier Regional’s unrivalled UK presence, backed by the

strength of Kier Group, provides a rare, competitive edge

along with the businesses’ ability to share technical expertise

and resources. The Regional businesses are adding value by

working alongside sister companies and other parts of the

Group to offer a total in-house solution for the delivery of

mixed use developments. One of few companies able to do

this, Kier is optimistic that these markets will provide many

more exciting opportunities.

Kier Regional’s strategically placed network is ideally suited

to respond to wider area framework contracting and the company

has been an active member of the NHS ProCure21 healthcare

framework. Based on the Kier Retail model, Kier Health, which

acts as a central co-ordinator for the Regional business, was

selected in September 2003 as one of 12 partners for the NHS

ProCure 21 national framework. This will run for a minimum of

five years and is estimated to involve an annual spend of £1.2bn.

Kier Health currently has 12 healthcare projects at preferred

bidder or awarded status with a value in excess of £100m.

Kier Regional, through Kier Custodial, is also one of eight

preferred constructors for the provision of new-build prisons

and ancillary works, one of the few selected to serve all six

regions throughout England, under an HM Prisons framework.

20 Kier Group plc

Annual Report and Accounts 2004

Another successful year for Kier Regional, whose

unrivalled network of regional construction

businesses saw brisk activity across all main market

sectors and a further increase in negotiated work.

Kier

Regional

+9.4%

Increase in turnover to £862.0m

Left

One in a series of ‘swap shop’

rebrands undertaken by Kier North

West for Morrison, following its

purchase of Safeway.

List of locations

Norwich, Wisbech,

Witham

Loughton

Carlisle, Durham, Leeds,

Sheffield

Liverpool, Manchester

West Malling,

Southampton, Aldridge

Glasgow, Edinburgh

Maple Cross

Southampton

Havant

Bristol, Exeter, Newport,

Plymouth, Truro

Nottingham, Rushden

Birmingham,

Cheltenham,

Newbury

Maidstone, Bromley

Crawley

The company is well placed to benefit from a good proportion

of the £150m spend per annum over the next 10 years and is

anticipating its first prisons framework contract in the near future.

The company-wide objective of Investor in People (IiP)

accreditation made good progress during the year when four

more regional businesses, Moss Construction, Kier Northern,

Kier North West and Kier Western all achieved accreditation. Stage

3 of BS8555 (environmental management) was also accomplished,

placing Kier Regional on track to attain ISO14001 next year.

For each Kier Regional business, being ‘locally grown’

with national resources and the ability to work in collaboration

with other parts of the Group is a unique selling point and one

which has won the division a diverse range of work across all

building sectors. Flexibility is another of the businesses’ strengths

and one which has ensured a steady rise in the level of repeat

business and negotiated work enjoyed across the division.

At the end of the year Kier Build, the Group’s major building

projects arm, joined Kier Regional, bringing an added dimension

to the division whose UK coverage, expertise and flexibility

remains unsurpassed.

The division’s mechanical and electrical business, IEI,

grew its forward order book once again. The highly serviced

buildings demanded by the commercial sector continue to

form the focal point of IEI’s business. Contracts completed for

Zurich Financial Services, Portsmouth University and Orpington

Hospital during the year typify the projects that make up IEI’s

strengthening workload, which also includes work for other

Kier Group companies.

Kier Eastern’s activities exemplify the Group’s unique ability

to combine local and national resources. The company is

currently engaged on two PFI schemes with sister businesses –

building a new treatment centre at Hinchingbrooke Hospital,

Cambridgeshire, under an initiative led by Kier Project Investment,

and working alongside Kier London and Kier Southern in

constructing seven new schools in Waltham Forest, also for

Kier Project Investment.

Elsewhere, Kier Eastern is building a superstore in Newmarket

under a national framework agreement with Waitrose, and a

major retail redevelopment that will transform the Norfolk market

town of Dereham. A new UK operational centre in Biggleswade

has been created for worldwide crane supplier Liebherr, and the

final stage of a major office complex in Chelmsford for

Countryside Properties was handed over during the year.

Long-term partnering contracts with many local authorities

and housing associations have been secured by Kier London

to carry out Decent Homes standard work. The company’s

relationship with University College London has continued with

the completion of a Neuroscience Building and the topping-out

of the Torrington Place Building. New build social housing

contracts with major registered social landlords (RSLs) have

been successfully secured and the commercial property sector

generated a good deal of work during the year. Three care homes

for the elderly were completed on a PFI scheme for the London

Borough of Greenwich on behalf of Kier Project Investment.

The company received a gold Considerate Contractor award

from Westminster City Council for its project at Fenchurch Street.

21 Kier Group plc

Annual Report and Accounts 2004

Left

Australian War Memorial, Hyde Park,

London, built by Wallis.

Right

A new aircraft hangar facility at Glasgow

Prestwick International Airport built by

Kier Scotland for Ryanair.

Left

IEI undertook the M&E design

and installation of Fusion Point in

Cardiff, built by Moss Construction,

for Zurich Financial Services.

Working together

Left

Fitzwilliam College in Cambridge,

completed during the year by

Marriott Construction, was highly

commended in the 2004 ‘Quality

in Construction Awards’.

22 Kier Group plc

Annual Report and Accounts 2004

Kier Northern’s presence in the education, health, retail and

residential sectors remains strong and several mixed-use

developments were carried out in and around the region. The

company completed a number of partnered schools for Doncaster,

Middlesbrough and North Lincolnshire Councils and in Newcastle,

an intensive therapy unit and ear, nose and throat department

was built at the Freeman Hospital. Projects for Pillar Properties

at Birstall Retail Park and the National Trust at Wallington Hall

both received silver Considerate Constructor awards.

Kier North West is continuing a long-standing client

relationship as part of a Group framework agreement by

performing a series of ‘swap shop’ rebrands for Morrison,

following its purchase of Safeway. Work on five stores was

undertaken during the year. The company also completed the

conversion of an existing Morrison store in Southport for use

as a Waitrose supermarket.

During the year Kier Partnership Homes has worked with

several housing associations and RSLs in the provision of

affordable, mixed tenure developments. A new office has been

established in West Malling near Maidstone, from where the

company intends to strengthen its presence in and around

the Thames Gateway. With offices also in Southampton and

Aldridge, the company will be focused on seeking further

growth, increasing its turnover and market share.

Kier Scotland completed a care home for the elderly on behalf

of the world charity Little Sisters of the Poor. Time lost as a result

of the original contractor’s receivership was reclaimed and the

44-bed facility is now fully operational.

Kier Southern’s efforts within the local community have been

acknowledged through several contract awards from national

and local government; the establishment of a number of formal

partnerships and strategic alliances; together with local training

and recruitment initiatives in conjunction with the CITB to

encourage young people to choose a career in construction.

Henry Jones’ project to build Bournemouth Library, a PFI

contract, won The Prime Minister’s Better Public Building award

and ACS, part of Kier Southern, received a bronze Considerate

Constructor award for its project for Three Rivers District Council.

During the year, Brazier Construction established a formal

partnership with Hampshire County Council through which

a steady stream of work is expected.

Kier Western’s Devon and Cornwall operations have been

awarded a four-year framework agreement with the South West

Regional Development Agency to undertake formally negotiated

projects, continuing the company’s philosophy of pursuing longer

term business relationships. The company received a bronze

Considerate Constructor award for its work to extend and

refurbish a Sainsbury store in Swansea.

Work in the higher education sector formed a significant

part of Marriott Construction’s workload. Fitzwilliam College in

Cambridge, completed during the year, was highly commended

in the 2004 Quality in Construction Awards. The company has

been named preferred bidder for extensions to the National

Space Centre in Leicester, a major visitor attraction for the region.

Marriott’s Nottingham office is well positioned to benefit from

significant opportunities in the area.

Left

Kier Northern undertook the remodelling

and fitting out of the Tetley’s Brewery

Museum at Brewery Wharf, Leeds, to

form new offices and retail units.

Left

Care home for the elderly built by

Kier Scotland for the world charity

Little Sisters of the Poor.

23 Kier Group plc

Annual Report and Accounts 2004

Moss Construction completed the striking new Centaur

building at Cheltenham Racecourse in time for the National

Hunt Festival. The facility was handed over on time, defect free

and commissioned for immediate use. The commercial office

market continues to represent a major part of Moss’s workload

with innovative advances in renewable energy sources and

sustainability – the National Trust headquarters in Swindon for

Kier Property being a prime example. The company’s expertise

in office refurbishment and fit-out has been recognised by

Vodafone for a major programme in Newbury and by Zurich

Financial Services in Swindon. Education remains a significant

sector, particularly for the Birmingham office, in continued

partnership with several local authorities including Birmingham

City Council and Worcestershire County Council.

Wallis and Longley successfully completed projects for Pillar

at Dartford, DeVere Hotels & Leisure in Maidstone and Land

Securities in Hastings, together with a number of projects for

Tesco and Waitrose throughout the region. The focus this year

has been to build an unrivalled reputation within all sectors

of the industry, examples of which include the award of a new

headquarters building for a housing association and a Community

College for local government, together with two schemes within

the independent school sector. The interiors market continues

to prosper, particularly with its ongoing framework agreement at

Imperial College London. Prestigious heritage work continues to

thrive with projects at the Tower of London, a new security screen

at the Palace of Westminster and refurbishments & restorations

in Bond Street, Borough Market, Fleet Street and Spitalfields.

This year saw the opening by HM The Queen and the Australian

Prime Minister of the Australian War Memorial at Hyde Park

Corner – a challenging and interesting project which culminated

in Paul Mock being nominated for the 2004 CIOB Construction

Manager of the Year Awards. In 2003 Chris Gooch was awarded

a CIOB Construction Manager of the Year Gold Medal for his

achievement in the successful completion of the Isle of Sheppey

Community Hospital.

Left

A major retail scheme at Beckton by

Kier Build, now part of Kier Regional,

on land remediated by Kier Construction.

women’s medium secure unit in Ealing and a new cardiothoracic

unit in Hull. Other potential awards include a PFI schools

contract in Sheffield on which Kier Project Investment has been

named preferred bidder and two commercial schemes in Bristol

for Crest Nicholson: an office development pre-let to HBOS and

a mixed retail scheme.

Kier Construction

Good progress has been made over the past year in bringing together

the UK civil engineering and international operations under Kier

Construction. The overall strategy of driving risk out of the business

by selectively targeting opportunities has been maintained.

UK operations

In the UK two major contracts on the Channel Tunnel Rail Link

have progressed well. Tunnel boring on Contract 250 is now

complete and final finishing works are well advanced.

Contract 103 achieved a major milestone when the bridge to

carry the Channel Tunnel lines was slid into position over the

West Coast Main Line during the 2003/04 Christmas period.

The framework agreement with United Utilities has progressed

well and this is being developed for extending into Asset

Management Programme 4.

Activity in the nuclear sector has continued with steady

progress on a project for AWE at Aldermaston and the award

of two contracts for BNFL at Sellafield. A contract to construct

a waste treatment station in West London for Shanks Waste

Management has also been secured.

24 Kier Group plc

Annual Report and Accounts 2004

Left

Kier Construction’s mining division

successfully completed the development

phase on its private opencast coal mine

at Greenburn, East Ayrshire. A new

railhead has been constructed and an

expected five years’ coal production is

now under way.

Kier

National

The National businesses have redefined their risk

profile and consequently seen a reduction in

turnover this year. However, order books are being

rebuilt with higher quality contracts for the future.

Kier Build

Kier Build had another challenging year, largely due to the cost

of completing two demanding projects: the headquarters for TAG

McLaren in Woking and a retail development in Bournemouth for

Hampshire Centre Partnerships; both of which were completed

during the year, the headquarters building for TAG McLaren being

opened by HM The Queen in May.

Other completed projects include a major retail development

at Beckton for Castlemore Securities which had the impressive

safety record of more than 450,000 hours accident free during

the construction process; a new manufacturing facility at

Stevenage for MBDA and an office development in Birmingham

for Richardson Barberry which collected a Built in Quality award

in the commercial buildings catagory from Birmingham City

Council. A major commercial office scheme in Whitehall for

Kier Property was completed on time in September 2004.

Following the previous decision to de-risk the business and

concentrate on negotiated and partnered work, several new major

contracts are now under negotiation. These include two projects

under the government’s new health initiative, ProCure 21, a

The Mining division successfully completed the development

phase on its private opencast coal mine at Greenburn in East

Ayrshire. A new railhead has been constructed and an expected

five years’ coal production is now under way. A number of fixed

price coal sales contracts have already been secured covering a

significant part of the first three years’ production.

International operations

Internationally, the strategy of securing negotiated opportunities

with key clients and avoiding competitive tendering in local

markets has continued. As a result the business has continued to

perform well and has encountered an increasing number of

opportunities.

In Hong Kong, Mei Foo, a major station for the Kowloon

Canton Railway Corporation, is now complete, winning a Quality

in Construction Award for ‘International Performance of the Year’.

Work in Romania on the social housing and water supply

contract is now nearing completion and an extension to the

water supply element is currently under negotiation.

In the Middle East, operations continue to be focused on

Dubai, where the construction market remains strong. Further

drainage contracts have been secured and the company is hopeful

that infrastructure contract awards are imminent. Further new

work has been secured in Jordan on a phosphate extraction

contract for the Jordanian Phosphate Mining Company.

In the Caribbean, the long-term alliance with Alcoa

continues to deliver benefits and this year has seen the

completion of a plant expansion in Jamaica and the start of

another in Suriname. Overall the construction market in the

Caribbean is improving and a number of negotiated opportunities

are currently being pursued.

Kier Plant

Kier Plant continued its growth over the year. The company now

operates from seven depots across the country and supports all

divisions, capitalising on the growth within the Group.

Kier Plant’s latest depot in Glasgow has been well supported

by Kier Scotland and Kier Homes, and continues to attract a

good client base for external hires.

The tower crane division has continued to invest in new

cranes. The fleet now stands at 90 machines, the largest of

which has the capacity to lift three tonnes at 75 metres.

Investment in new equipment will continue into 2005

with new site accommodation, tower cranes, forklifts and

generators along with newly launched crane accessories

available from all depots.

25 Kier Group plc

Annual Report and Accounts 2004

Left

Kier Plant’s tower crane division has

continued to invest in new cranes –

the fleet now stands at 90 machines.

Left

Channel Tunnel Rail Link

Contract 103 achieved a major

milestone when the bridge to carry

the Channel Tunnel lines was slid into

position over the West Coast Main Line

during the 2003/04 Christmas period.

Focused on

the future

Building Maintenance

Caxton Islington, the Group’s 10-year joint venture with the

London Borough of Islington, continues to go from strength to

strength. The company has been selected as one of the Borough’s

key partners to deliver the government’s Decent Homes strategy

under a framework contract which is expected to increase the

order book by circa £30m.

In the London office, the London Borough of Greenwich

has confirmed its satisfaction with Kier Building Maintenance

by committing to a further five year partnership for repairs and

maintenance with the opportunity to develop Decent Homes

workload. Similar success has seen the London Borough of

Ealing award Kier Building Maintenance a rolling five year

contract for the maintenance of half its homes and, again,

the potential to develop Decent Homes work.

Together with a five year partnership with Family Housing

Association and several other social housing contracts, these

partnering arrangements support both the quality and strength

of the order book in the southern region.

Kier Sheffield LLP completed its first full year of trading and

during the period achieved significant progress in establishing

the organisation. The rationalisation programme of moving away

from remote depots was achieved with significant investment in

improving one central depot to meet the needs of the business.

IT systems were renewed and a new van fleet introduced.

Partnering within the supply chain was introduced, securing

investment for the sheltered workshop (Sharrow Industries)

26 Kier Group plc

Annual Report and Accounts 2004

Kier

Support Services

+51.0%

Increase in turnover to £174.3m (2003: £115.4m)

Left

Caxton Facilities Management provides

all central services for Vauxhall in Luton,

one of the company’s many long-term

private sector clients.

Solid progress has been made within the Support

Services division, paving the way for further growth

and opportunities. The public private partnerships

within the building maintenance arm continue to

raise standards in quality of product and service.

Embracing

innovation

Left

Kier Sheffield was appointed one

of five partnering contractors to develop

the investment of £1bn in Decent

Homes for Sheffield. The partnership

will continue to develop its relationships

in and around the city.

by key manufacturers ensuring its viable and sustainable future.

Kier Sheffield was recognised by the industry and its peer

groups for the service it provides, being highly commended

in the Local Government Chronicle Public Private Partnership

Awards and a finalist in the Municipal Journal Awards. Health

& safety has been improved and this has been recognised by

a RoSPA Silver Award and a British Safety Council Award, all

within the first year of trading.

The partnership has placed great emphasis on the relationship

with its stakeholders and customer groups which has developed

into a strong bond for the future success of the organisation.

Having been appointed one of five partnering contractors to

develop the investment of £1bn in Decent Homes for Sheffield,

the partnership will continue to develop its relationships in and

around the city.

Managed Services

Caxton Facilities Management continues to develop its PFI

portfolio through focusing on projects in the healthcare, education

and other public sectors. The scope of services includes a

combination of direct delivery and managed services, including

full life-cycle modelling and management.

This year saw the start of services at Farnham Local Care

Centre, Redbridge Schools, Greenwich Care Homes and the

provision of interim services on the Harrow Schools and Waltham

Forest Schools projects. Financial close has been achieved on

Oldham Library, Hinchingbrooke (Diagnostic Treatment Centre)

and Bexley Schools PFI.

The focus on all schemes has been to fully support the staff

transferring from the public sector and to provide appropriate

training and guidance to help them adapt to the changes in their

working environment. Early involvement and consultation with

trade unions and staff representatives has assisted with the smooth

implementation of these schemes.

In facilities management, Caxton Facilities Management

saw its turnover increase with client retention and sustained

growth in both the public and private sectors. Existing key

contracts have been retained with the London Borough of Bexley,

The Welsh Development Agency, Department for Environment,

Food and Rural Affairs (DEFRA) and PricewaterhouseCoopers.

New contracts have been secured with Corby Borough

Council, Eastbourne Council and DEFRA. The year has seen the

expansion of the Street Services Division and the formation of

Grounds Maintenance / Landscaping and Occupational Health

Support business streams in order to provide added value

to all facilities management clients.

27 Kier Group plc

Annual Report and Accounts 2004

Left

The control centre team at Barking

processes and monitors all Kier

Building Maintenance work in and

around London.

The strengthening of the strategic land team announced earlier

in 2004 is expected to deliver further opportunities for major housing

and mixed use developments.

Following recent interest rate increases, a market with house

price inflation easing back to single figures in percentage terms is

expected. Since the year-end the number of visitors has also returned

to more seasonal levels and customers are thinking more carefully

before committing themselves, given the higher cost of borrowing.

The supply of housing is a national problem and is likely to prevail

for some years to come. Confidence in both product and market

areas remains positive and it is believed that the house type ranges

and styles continue to provide a real difference for customers when

selecting their new homes.

These factors, combined with a stable economy in terms of

low inflation and good employment, should help the division to

further increase market share this year.

The year to June 2005 started with order books at a record high

and at 31 August 2004, the order book plus completions to date

were 43% ahead of last year, providing a solid platform for the

half-year to December 2004. The company remains committed to

expanding the scope and coverage of its housing brands, which

now include the Scottish central belt, the East & West Midlands,

East Anglia, the south and south east of England.

This financial year Kier Homes, operating in Scotland, increased

legal completions by 25% to 198 units with average sales prices

increasing by 21%, an exception in the division. The market

throughout the central belt remained strong during the year and the

28 Kier Group plc

Annual Report and Accounts 2004

Kier

Residential

The commitment of the division’s teams has

successfully delivered unit completions of

1,158, up 17% on 2003.

During this, Kier Residential’s eleventh consecutive year of growth,

the business has capitalised on the market and benefited from

strategic decisions taken in the first quarter to increase outlets

and production.

Unit completions at 1,158 are up 17% on 2003, with pre-tax

profit 23.1% ahead of 2003 at £24.5m. Average sales prices have

increased by 2.4% to £186,300, comprising an 8% increase in

average selling price and a 5% reduction in the average house size.

The division has been selective in replacing and growing its

land-bank. At June 2004 the land-bank with planning consent

increased to 4,961 plots (up 34%) and represents 4.3 years’

trading (2003: 3.7 years). Of this, 34% is brownfield (2003: 29%).

In addition 1,339 plots have been secured, which await detailed

planning consent and a further 1,727 plots, are controlled with

outline planning permission.

Kier Land’s strategic team has grown its portfolio this year to

c 15,000 plots (2003: c 12,000) of which over 2,000 plots

are now allocated for residential development and await outline

planning consent. This strategic land, when consented, will be

acquired at a discount to open market value. The contribution

to unit sales from former strategic sites rose to 18% (2003: 13%).

Left

Legal completions on homes such as

these built by Kier Homes in

East Kilbride, increased by 25%

to 198 units with average sales

prices increasing by 21%.

+17%

Increase in the number of successfully delivered

unit completions

operating profit contribution from Kier Homes increased. During the

year, the management team was strengthened and, with good land

secured and under negotiation, Kier Homes is well positioned for

future planned growth.

Allison Homes, operating throughout Lincolnshire and now in

north Cambridgeshire, has continued to exceed the growth targets

set on acquisition in September 2001. Unit completions were up

32% at 318 including a contribution from the business of Tudor

Homes acquired in January 2004. Average sales prices eased by

3% in line with planned reduction in house sizes. The market

throughout the region was good in the year, with sites north of

Lincoln proving very popular and the operating contribution from

the business also increasing.

Twigden Homes, operating in East Anglia and the West Midlands,

increased unit completions by 17% to 386 units with average

sales prices remaining in line with 2003 at £202,400 per unit.

This is expected to ease back during the year to June 2005 as

the volume of smaller dwellings increases following planning

requirements. In line with its business plan, Twigden increased

the number of trading outlets in the second half of the year to

June 2004 and with land acquired in the year, further outlet growth

is planned throughout its operational area.

Bellwinch Homes, operating in the south and south east, produced

legal completions of 256 units, marginally down on 2003 (260 units)

with operating profit improving. The volumes in this business are

carefully planned and land is acquired on a selective basis. During

the year the highly successful scheme of 145 apartments and houses

at Eastbourne was completed and further land has been acquired in

the year to continue the production of high-quality well-planned

apartment schemes in key areas such as Southampton, Aylesbury

and the Thames Gateway.

Planning changes continue to influence product size and design

and there is an increasing requirement for mixed housing, retail and

commercial schemes. The mixed-use capability of Kier Residential

continues to be promoted. This expertise is deliverable through a

one-stop total solution from remediation and infrastructure through

to construction of dwellings and other uses in partnership with the

Group’s Property and Construction divisions.

The division is actively researching modern building methods,

techniques and forthcoming regulations to identify any future

efficiencies and improved deliverability for the benefit of both the

residential businesses and their customers.

Kier Residential has achieved a further four NHBC Pride in the

Job Awards and for the first time a CIOB Gold Award for project

manager Darren Dockerill at its Eastbourne development. Two

Greenleaf Awards were also received in the year.

29 Kier Group plc

Annual Report and Accounts 2004

Left

Operating throughout Lincolnshire

and now in north Cambridgeshire,

Allison Homes has continued to exceed

the growth targets – unit completions

were up 32% at 318.

Left

Bellwinch Homes acquired land

in 2004 to continue the production

of high-quality well-planned

apartment schemes, such as this

one in Southampton.

Quality and

strength

Kier Developments, the joint venture with the Bank of Scotland,

continued to expand during the year culminating in the

acquisition of six sites from J Sainsbury’s property arm in March.

One of these sites at Kingston has already been sold on, with a

second due to be disposed of by December 2004. The remaining

four sites are being integrated into the company’s growing

development programme.

The Trade City brand name has also continued its success

in Exeter, where a further phase has been completed, with the

recent acquisition of two new sites in Enfield and one in Romford.

Demand for these units on either a leasehold or freehold basis

has been very encouraging, even before construction has started.

At Maidenhead a major retail scheme is due to start shortly –

an 80,000sq ft retail park where Legal & General is providing

interim funding and will purchase the final investment.

Homebase has been signed up as anchor tenant, with strong

interest for the remaining space. The scheme is due to complete

in the autumn of 2005.

Construction of the new AMS headquarters building has

progressed to timetable with occupation by this BAe Systems

subsidiary company expected in spring 2005. In June 2004

the development was sold to a private consortium for over

£38m and generated a significant advance cash receipt.

Transcend, a joint venture with Laing Investments, achieved

residential planning consent for its site in Aylesbury during the

year. The development has been acquired by Bellwinch which

will develop around 400 apartments over the forthcoming years.

30 Kier Group plc

Annual Report and Accounts 2004

Kier

Property

Kier Property has achieved record profits, following

a very busy year. Both parts of the division – Kier

Ventures and Kier Developments – have had

notable success and are increasingly interacting

with other parts of Kier Group to mutual benefit.

Left

One of two bespoke chilled

distribution warehouse units

developed by Kier Property for

Fresh Direct at Bicester as part of

a 360,000sq ft total development.

*Before elimination of intra-Group profit

Long-term

partnerships

119.8%

Increase in turnover to £46.6m (2003: £21.2m)

+32.8%

Increase in operating profit to £8.1m* (2003: £6.1m)

In Kier Ventures, the Group’s wholly owned subsidiary,

development commenced during the year in Swindon on the

National Trust’s new 90,000sq ft central office. Moss Construction

is the main contractor on this scheme which is due to complete

in April 2005. The scheme generated significant interest in the

investment market and as a result the development was sold

in July 2004.

At Waltham Point, agreement has been reached with

J Sainsbury to provide a 100,000sq ft resource recovery unit

adjacent to the 700,000sq ft regional distribution centre

provided earlier by Kier Ventures. Completion is due by the

summer of 2005.

The development at Whitehall for the Department for

Environment, Food and Rural Affairs progressed well during

the year and completed on target in September 2004. In addition

to Kier Build carrying out the construction work, Caxton Facilities

Management has negotiated the provision of facilities

management services to the client.

During the year the company acquired a key site in London,

part of which will be occupied by Kier London as its new

20,000sq ft headquarters. Advanced negotiations are in hand

for the remainder of the site to be occupied by a car dealership.

Kier Ventures has also agreed terms with Electronic Data

Systems UK Limited (EDS) to provide them with a 200,000sq ft

business park in Milton Keynes. This will allow EDS, who are

major providers of IT solutions, to amalgamate some of their

satellite operations into this new complex. Marriott Construction

has been awarded the construction contract and all parties are

liaising closely to ensure a start on site by the end of 2004.

The division remains committed to expanding the commercial

property operations of the Group and seeking innovative solutions

for both occupiers and final purchasers.

31 Kier Group plc

Annual Report and Accounts 2004

Right

Kier Property’s Trade City brand name

has continued its success in Exeter,

where a further phase has been

completed. Demand for these units,

on either a leasehold or freehold

basis, has been very encouraging,

even before construction has started.

Left

Construction of the AMS Headquarters

has progressed to timetable, with

occupation by BAe Systems expected

in spring 2005. In June 2004 the

development was sold to a private

consortium for over £38m and

generated a significant cash receipt.

The portfolio is varied and nine deals have been signed

to date: these include two general hospitals and a treatment

centre, a mental health facility, care homes, two schools

projects and two public libraries. Kier generally has a 50%

investment interest.

KPI continues to pursue new opportunities while playing

an active role in the management and delivery of its existing

projects. Five projects are now fully operational, four are in the

construction phase (two of which are partly operational), one

is at the preferred bidder stage and the company is short-listed

for three further schemes.

During the year, financial close was achieved on three

projects: Hinchingbrooke Treatment Centre, Waltham Schools

and Oldham Library. Preferred bidder status was reached on

Sheffield Schools.

Healthcare

Hairmyres Hospital in East Kilbride continues to perform well

in its third year of operation and won the Public Private Finance

Award for Best Major Hospital in Operation 2004. In South Wales,

the 250-bed Neath Port Talbot Hospital entered its second year

of operation in November 2003. Caxton Facilities Management

is providing non-clinical services and the hospital was awarded

a prestigious Charter Mark during the year. Prospect Park Mental

Health Hospital in Reading has been operational since April 2003

and is delivering a good service.

The Hinchingbrooke Treatment Centre in Cambridgeshire reached

financial close in March 2004 and construction by Kier Eastern

is due for completion in August 2005. These facilities will be

serviced by Caxton Facilities Management.

Libraries

KPI’s first library project in Bournemouth was awarded the Prime

Minister’s Better Public Building Award for 2003. The judges said:

“A privately financed scheme has delivered exactly what the local

authority wanted…. not just a library but a welcoming hub of the

community…. A delighted client, a fine building, first class

delivery and incredible value.” It is also featured on the cover of

the CABE report, Better Public Libraries, 2003 and was listed as

one of CABE’s 10 favourite buildings of 2003 in its Annual Report.

Kier is also to provide a library and lifelong learning centre for

Oldham MBC which will form the second phase of Oldham’s new

cultural quarter. Design again played a major role in the success

of the bid. The project reached financial close in May 2004.

Education

The Tendring Schools project continues to provide services to

twelve primary schools in Essex. In March the company signed

contracts with the London Borough of Waltham Forest to deliver

seven infant and junior schools and one secondary school.

Construction commenced immediately and Caxton Facilities

Management began provision of FM services to the existing

schools in April.

32 Kier Group plc

Annual Report and Accounts 2004

Left

In March the Company signed contracts

with the London Borough of Waltham

Forest to deliver seven infant and junior

schools and one secondary school.

Kier Project

Investment (KPI)

Kier Project Investment manages the Group’s

interests in projects procured under the Private

Finance Initiative. It continues to develop a

portfolio of infrastructure project investments,

yielding long-term income stream returns of

around 15%, while maintaining a flow of

negotiated construction and operational

support services contracts for the Group’s

other operating divisions.

Kier Project Investment – Portfolio

Preferred Short-

Sector Projects Operational Construction Bidder listed

Health Hairmyres Hospital



Neath Port Talbot

Hospital



Prospect Park Hospital

(West Berks)



Hinchingbrooke

Treatment Centre



Ipswich - Garrett

Anderson Medical Centre



Libraries Bournemouth Library



Oldham Library



Newcastle Library



Education Tendring Schools



Waltham Forest Schools



Sheffield Schools



Oldham Schools



Care Homes Greenwich



Care Homes

Kier London completed the construction of three new

neighbourhood resource centres for the London Borough of

Greenwich five weeks ahead of programme. The first of these

homes has been registered and is now fully operational, with the

other two to follow shortly.

Future opportunities

Kier Project Investment is preferred bidder for the Sheffield

Schools PFI Phase 3 Project and is short-listed for the Garrett

Anderson Medical Centre in Ipswich and Newcastle Library. KPI

continues to pursue other opportunities, mainly in the key sectors

of healthcare and education.

A secondary market for the sale of PFI investments is

beginning to develop at values in excess of book value.

In August 2004 one of the early projects, Hairmyres Hospital,

was refinanced and although no profit can be recognised on this

in the short term, £8.1m of cash was raised by the Group after

30% of the gain was shared with the Lanarkshire Health Board.

33 Kier Group plc

Annual Report and Accounts 2004

Left

Hinchingbrooke Treatment Centre,

Cambridgeshire. An artist’s impression

of the Kier Eastern project due for

completion in August 2005.

Left

Neath Port Talbot Hospital, Wales. This

250-bed hospital entered its second year

of operation in November 2003. Caxton

Facilities Management is providing

non-clinical services and the hospital

was awarded a prestigious Charter Mark

during the year.

A solid performance

The Group has adopted UITF 17 (Revised) and UITF 38 in drawing

up the financial statements, which require investment in own

shares and the provision for share based payments to be shown

within shareholders’ funds. Consequently the balance sheet at

30 June 2003 has been re-presented; £1.5m has been transferred

from fixed assets and £0.8m from creditors and offset as a deduction

against shareholders’ funds. This has resulted in a reduction in

shareholders’ funds at 30 June 2003 from £93.4m to £92.7m.

There have been no other changes to accounting policies

in drawing up these financial statements.

Profit before tax

Profit before tax of £40.6m (2003: £33.3m) is arrived at after

deducting £2.6m relating to goodwill amortisation (2003: £0.9m).

Before deducting goodwill amortisation, profit before tax

increased by 26.3% to £43.2m (2003: £34.2m) with all segments

contributing strongly.

Turnover, orders and land-bank

Group turnover, including share of joint ventures, increased by

2.1% to £1.48bn.

The Construction & Services segment experienced a modest

reduction in turnover; Kier Regional’s turnover of £862.0m was

9.4% ahead of last year; Support Services’ turnover was 51.0%

ahead at £174.3m, with a full year’s contribution of £64.7m from

the 10-year outsourcing building maintenance contract with

Sheffield City Council; and Kier National experienced a 49.6%

reduction in turnover in the year following its strategy to be

more selective and to focus on partnered and negotiated work.

Kier Regional experienced a record order intake of £849m

in the year to 30 June 2004, compared with £760m in 2003,

reflecting a healthy market largely driven by an increase in

public spending. Kier National’s orders were £86m, marginally

higher than the previous year’s orders of £69m, mostly within

Kier Construction.

At 30 June 2004 total confirmed orders in hand were

maintained at £1.75bn, with order intake to date remaining strong

and a healthy pipeline of opportunities awaiting confirmation.

34 Kier Group plc

Annual Report and Accounts 2004

Financial review

The Group has again achieved record results for

the year to 30 June 2004. Basic earnings per share

increased by 17.3% to 81.5p (2003: 69.5p) and

after adding back goodwill amortisation, adjusted

earnings per share increased by 21.8% to 87.2p

(2003: 71.6p). Profit before tax increased by 21.9%

to £40.6m (2003: £33.3m), after deducting £2.6m

(2003: £0.9m) relating to goodwill amortisation.

The cash performance has been in line with

expectation and, whilst there has been an

overall reduction in the Group net funds to

£7.6m (2003: £62.0m), it reflects an increase

in investment in Homes & Property and a

reduction in cash in the National construction

businesses in line with a reduction in turnover

and reflecting the accounting losses booked in

the year to 30 June 2003.

Deena Mattar

Finance Director

+17.3%

Increase in basic earnings per share to 81.5p

(2003: 69.5p)

Turnover in the Homes division increased by 19.8% to £215.7m

(2003: £180.1m) reflecting a 17% increase in unit sales to

1,158 (2003: 990) and a 2.4% increase in average selling price.

The increase in average selling price from £181,900 to £186,300

reflects an 8% increase in selling prices per square foot offset by

a 5% reduction in the average size of units. £72m was spent on

new land in the year, including £15.5m for the acquisition of

land and work in progress, at market value, of Tudor Homes.

This contributed to an increase in the number of plots held with

planning consent to 4,961 (2003: 3,700) representing 4.3 years’

supply. In addition, there are approximately 15,000 plots in the

strategic land-bank, mostly held under option.

At 31 August 2004 the order book, together with unit

completions for the first two months of the year, were 43%

ahead of the same period last year giving the division a good

start to the new financial year.

In Property turnover arose from a number of joint venture

development sales and the sale of an office development in

Whitehall, which is being recognised as construction progresses.

In Infrastructure Investment turnover relates to Kier’s share of

joint venture turnover on Private Finance Initiative (PFI) projects

which have become operational.

Operating profit, margins and return on capital

Group operating profit of £42.6m, including share of joint

ventures and after deducting goodwill amortisation, was 25.7%

ahead of last year’s £33.9m.

Construction & Services achieved a 20.9% increase in operating

profit to £15.6m (2003: £12.9m) and a 31.9% increase to £18.2m

(2003: £13.8m) after adding back goodwill amortisation. The 1.3%

operating margin (after goodwill) compares with 1.0% achieved in

2003 and is well on the way to our short-term target of 1.5%. After

adding back goodwill amortisation the margin is at our targeted level

of 1.5%. A strong performance has been achieved in Kier Regional,

even after taking into account a further, modest loss incurred by the

social housing business, Kier Partnership Homes. In Kier National,

the overseas contribution has returned to more sustainable levels

at £1.9m (2003: £7.8m), reflecting a healthy 4.1% margin.

Within Homes operating margins rose to 14.7% (2003:

14.6%) with an increase in the number of lower margin, social

housing units, offsetting an increase in the margin arising from

private units. Return on capital rose to 16.7% (2003: 16.0%),

reflecting a better capital turn.

In Property the operating profit of £8.1m includes £1.5m

of profit on an intra-Group sale of land to Kier Residential.

This profit has been eliminated on consolidation and will

be recognised as the land is developed based on unit sales.

£3.7m arose from joint ventures and £4.4m from wholly

owned subsidiaries, (before elimination of intra-Group profits).

Infrastructure Investment made an operating loss of £1.9m

(2003: £0.5m) after charging bidding and overhead costs of

£1.9m (2003: £1.6m) and costs relating to refinancing one of

our projects of £1.5m.

Centre costs of £9.5m (2003: £8.6m) include net costs of

bidding and promoting Support Services’ outsourced building

maintenance and PFI projects of £1.9m (2003: £1.5m) and a

provision for the estimated costs of the Long-Term Incentive

Plan of £2.0m (2003: £2.1m).

Taxation

The tax charge of £12.0m (2003: £9.5m) represents an effective

tax rate of 29.5%, 1% greater than for 2003. The Group continues

to benefit from trading losses it acquired, capital allowances and

the benefit of substantial shareholder exemption on a capital gain.

However, a combination of disallowable goodwill amortisation

and permanent differences for taxation has resulted in the increase

in the tax rate compared with last year.

Earnings per share and dividend

Undiluted basic earnings per share of 81.5p represent a 17.3%

increase on 2003’s unadjusted earnings per share of 69.5p and

a 21.8% increase to 87.2p (2003: 71.6p) after adding back

goodwill amortisation.

The proposed final dividend of 13.0p (2003: 11.2p) makes 19.0p

(2003: 16.4p) for the year, an increase of 15.9%, the seventh year

in succession that the dividend has increased by 15% or more.

The dividend is covered 4.3 times by basic earnings per share.

Balance sheet and shareholders’ funds

The balance sheet at 30 June 2004 includes goodwill of £18.6m

(2003: £21.1m) relating to the acquisition of Partnerships First

Limited and the outsourcing contract at Sheffield in 2003. This

is being amortised over a period of 10 years, with £2.6m charged

to profits in 2004 (2003: £0.9m).

Shareholders’ funds have increased by £23.7m to £116.4m

(2003: £92.7m) arising from retained profits of £21.8m, currency

translation of £(0.4m), movements of the share scheme reserve

and the proceeds of the issue of 658,082 new shares, of which

90,551 were issued in lieu of dividends, 540,003 were issued

under the Sharesave Scheme and the remainder to satisfy options

maturing under the Performance Related Option Schemes.

Cash flow, facilities and foreign currency exposure

Net cash outflow from operating activities was £3.7m (2003:

inflow of £53.5m).

At 30 June 2004 net Group funds of £7.6m (2003: £62.0m)

reflect further investment in Homes & Property; a reduction in

the advance cash held at 30 June 2003 in respect of the sale of

a property at Whitehall; a reduction in turnover in Kier National

and an increased investment in fixed assets relating to the costs

of starting up a new private mining opportunity in Scotland.

Since 30 June 2004 Kier Property has sold the headquarters

building for the National Trust to investors in advance of

construction, bringing in £18.2m to Group funds in July 2004.

In August 2004 we refinanced one of our PFI projects, Hairmyres

Hospital, which contributed £8.1m to Group funds, after sharing

30% of the total with the Lanarkshire Health Board. Consequently,

net funds at 31 August 2004 increased by £34.0m to £41.6m.

Cash, net of debt, at 30 June 2004 includes £23.8m (2003:

£25.1m) of cash which is not generally available for Group

purposes, including that held by joint arrangements, overseas

and by the captive insurance company. The liquid cash position

is affected by seasonal, monthly and contract specific cycles.

In order to accommodate these flows the Group maintains a

range of bank facilities. These were renewed in January 2004

and increased by £30m to £80m, representing £12.5m of

overdraft facilities and £67.5m of committed, revolving credit

facilities all on an unsecured basis.

There are minor foreign currency risks arising from operations.

The Group has a number of overseas branches and subsidiaries

operating in several countries and currencies. Currency exposure

to overseas assets is hedged through inter-company balances

and borrowings, such that assets denominated in foreign

currencies are matched, as far as possible, by liabilities. Where

there may be further exposure to foreign currency fluctuations,

forward exchange contracts are entered into to buy and sell

foreign currency.

Pensions

The financial statements reflect the transitional provisions of

FRS 17 ‘Retirement Benefits’. The pension charge has been

calculated in accordance with SSAP 24 and, as in previous

years, it corresponds to the contributions paid by the Group

during the year.

Under FRS 17 calculations there is a net deficit in the

Kier Group Pension Scheme of £67.2m (2003: £79.7m). The

improvement over the prior year represents an 11% increase

in the value of scheme assets, and a 4% increase in liabilities

caused by an upward drift in yields offset by increases in

assumed salary and price inflation.

The Group continues to review its strategy for providing

pension benefit to all of its employees and recent measures to

improve the funding profile have included closing the final salary

section of the Kier Group Pension Scheme to new members,

increases in pension contributions (employers and employees)

and changes to early retirement terms. A new investment strategy

35 Kier Group plc

Annual Report and Accounts 2004

has been adopted during the year which, it is hoped, will provide

improved returns. An analysis of anticipated contributions, income

receipts and benefits indicates that the scheme is likely to experience

positive cash flows for eight years.

The Group also participates in another defined benefit scheme

on behalf of its employees in Kier Sheffield LLP. At 30 June 2004

this scheme showed a surplus, after deferred tax, of £6.4m

(2003: £5.1m).

International Financial Reporting Standards (IFRS)

European Union listed companies are required to prepare their

consolidated financial statements in accordance with IFRS and

International Accounting Standards (IAS) for accounting periods

beginning on or after 1 January 2005. Accordingly the Group

will be required to comply with IFRS for the financial year ending

30 June 2006.

We have established a working party to consider ongoing

developments arising from the International Accounting Standards

Board and have been considering the impact that new IFRSs will

have on Group results compared with UK GAAP. Based on work

performed to date and current International Standards, the

significant differences that have been identified so far are:

Leases

IAS 17 establishes a new methodology to determine whether

leases are to be treated as operating finance leases, particularly

leases over land and buildings which must be analysed into

their constituent parts and assessed separately. A review of the

Group’s portfolio of leases is being undertaken to determine

whether the current operating lease treatment remains appropriate

under IAS 17.

Goodwill

IFRS 3 requires that on acquisition of new businesses after

March 2004, a value is attributed specifically to all separately

identifiable intangible assets. Such amounts are then to be

amortised over periods not exceeding 20 years. The remaining

difference between consideration paid and fair value of net

assets is attributed to goodwill. Goodwill is required to be held

at cost and is not to be amortised, instead it is subjected to

annual impairment tests. Any existing goodwill at 30 June 2005

will be carried at the amortised amount and will be subject to

impairment tests.

Pensions

IAS 19 is similar to FRS 17 under UK GAAP although IAS 19

permits the deferral of actuarial gains and losses in certain

circumstances which is not permitted under FRS 17. Pension

fund surpluses and deficits will be included within the Group

results rather than disclosed by way of a note as is the case

under the current FRS 17 transitional arrangements.

More work is scheduled by the IASB that may have further

impact on the presentation of both the balance sheet and profit

and loss account.

36 Kier Group plc

Annual Report and Accounts 2004

2004

2000

2001

2002

2003

1,477

1,035

1,251

1,383

1,446

Turnover £m

0 375 750 1,125 1,500

2004

2000

2001

2002

2003

19.0

10.7

12.3

14.2

16.4

Dividend per share pence

0 5 10 15 20

2004

2000

2001

2002

2003

40.6

17.7

21.9

28.0

33.3

Profit before tax £m

0 12.5 25 37.5 50

2004

2000

2001

2002

2003

81.5

39.8

48.0

60.4

69.5

Earnings per share pence

0 22.5 45 67.5 90

37 Kier Group plc

Annual Report and Accounts 2004

Kier Engineering Services (KES)

KES, the Group’s in-house engineering design department is

dedicated to supporting Kier companies and joint ventures. It is

led by some of the longest-serving, experienced and most highly

qualified engineers in the Group.

Much of the department’s workload involves the rapid

turn-round of the temporary works schemes essential for the

safe and efficient progress of construction on site. Typical

examples last year include the façade retention of Kier London’s

Eastcheap project and excavation support studies for Kier Build’s

Bristol Harbourside development, as well as a continuing heavy

involvement in Kier Construction’s CTRL contracts.

Permanent works are also designed. The new doctors’

surgery in St. Neots for Kier Eastern is a notable case where,

in addition to the usual role of structural engineer, the

department has undertaken all the architectural detailing.

In the increasingly co-operative environment of the

construction industry there is plenty of scope for value

engineering by an in-house design department working in close

liaison with the construction divisions. An example is the waste

disposal plant being built by Kier Construction alongside the

Thames at Frog Island. As a result of early involvement before

the consultant’s design was finalised, KES has been able to

instigate a number of simplifying changes, bringing savings to

both the client and Kier Group.

Another example in which an in-house design resulted in

significant savings was River Nith Railway Bridge, part of the

infrastructure built this year for Kier Construction’s opencast

mine at Greenburn. The old railway line crossed a dilapidated

wooden bridge which was used in the new scheme as temporary

works for pile driving and shutter support during the construction

of a stronger reinforced concrete bridge.

KES also offers land surveying services and materials and

earthworks advice to Group companies. Senior staff lead training

courses in concrete technology and ground engineering as well

as guide Kier graduates through their design training in the

department towards professional qualifications.

Health & Safety

During the year, the management teams have focused on

continuous improvement of all aspects of health & safety

throughout the business. As part of the overall strategy to

raise standards and improve communication within the supply

chain, key areas of concern to both the industry and Kier have

been targeted.

A core element of the Kier health & safety strategy is the

‘Don’t Walk By’ campaign. The campaign message is broadcast

widely and includes proactive and reactive safety tours and audits,

text messages, van stickers and emails. This wide communication

of the campaign is gathering momentum and all members of the

supply chain are now increasingly ‘thinking’ health & safety

before acting.

The health & safety training programme has been reviewed.

A new suite of training courses has been developed to include

a Safe-Start course for all new Kier staff, inducting them into the

Kier Group health & safety delivery requirements at every level.

This introduction to health & safety in Kier will help ensure we

get it right first time. All Kier Group directors are nominated to

attend a one-day Institution of Occupational Safety & Health

directing health & safety course at the Group’s new purpose-

built health & safety training centre at Chawston in Bedfordshire.

This new centre is the venue for the majority of Kier Group

health & safety training, in particular the five-day health & safety

management course, attended by all construction staff. Also

included in the suite of health & safety training modules are

specialist issues such as construction design & management

regulations, temporary works and lifting operations.

The overall commitment and enthusiasm from the main Board

of Kier Group through its management teams ensure the delivery

of high standards of health & safety and has achieved an Accident

Incidence Rate (AIR) of 588 per 100,000 workers for this period,

measured against a Health & Safety Executive benchmark of

1,172 for the construction sector. The overall AIR has shown a

21% reduction since the last annual reporting period and the

Group is justly proud of this achievement.

Key policies

and services

Right

Allison Homes’ ‘The Nightingales’

development in Sutton Bridge, has

been awarded a Kier Group health

& safety flag.

These are presented to Kier sites

demonstrating outstanding health &

safety standards following random

visits by Kier safety officers.

38 Kier Group plc

Annual Report and Accounts 2004

Kier Group companies have been recognised by RoSPA and the

British Safety Council and this year were awarded 14 gold, four

silver and one merit RoSPA awards and 21 BSC awards.

Kier Group’s health & safety strategy is to continue to raise

supply chain awareness using the ‘Don’t Walk By’ campaign and

to continue to drive down accident and incident rates through

good health & safety management communication.

Training and People Development

The Kier Group has grown its reputation as an employer of

choice, due to its ability to attract, develop and retain top quality

people. This is supported by progressive human resource policies

and robust and clear succession plans. Kier firmly believes that a

policy of attracting new people into the construction industry and

developing people from within the Group will bring long-term

continued success.

Kier has developed a structured career development path

involving training & development programmes from trainee to

director level. These programmes are seen as a key constituent to

develop a customer focused, highly professional, safe workforce,

committed to achieving excellent results and continual

improvement. Kier is committed to its equal opportunities policy

that encourages job applications from all sectors of the

community. This is demonstrated by the diversity of the people

recruited.

At the introductory level of its career development

programme, Kier has recruited its target of 50 new graduates and

50 students to start their professional careers with Kier. Kier offers

an enviable graduate scheme with elements of technical and

managerial training that help motivate people in the Group

to achieve their career goals, and to attract high levels of new

recruits. The Group continues to work with schools, colleges,

universities and careers advisors to promote the construction

industry as a career choice and has over 120 people currently

studying for technical qualifications on various training schemes,

having joined the Group as school leavers. Kier also has over

150 craft apprentices in construction skills including 21 in the

Residential business. This balanced approach to recruiting

and developing new talent will be enhanced further over the

next year.

The Group actively encourages all employees to achieve full

professional membership in their relevant discipline. To support

this, the Group has a well established graduate development

programme enabling graduates to achieve professional

membership. During 2004, Kier introduced a supervisors

programme for front-line managers from craft and non-academic

backgrounds to achieve their professional standards. Kier has

become an accredited NVQ centre, and is recognised by the joint

awarding body ICE/Edexel/CIOB as a model of best practice for

the delivery of NVQs in construction management. The core

management development programmes integrate with these

professional development schemes and specific business and

technical skills training within the Group.

The Group has introduced a new safety training system during

the past year, to support the continual improvement of its excellent

safety record. Appropriate core safety training is available to all

levels of employees to the best industry and national standards,

with specific safety skills also available for different job roles.

Kier has established an executive leadership programme to

provide structured development for senior managers and directors.

Aligned to Kier’s strategy, this aims to further develop leadership

competencies within the Group’s talent bank of senior

management. It also supports the sharing of leadership best

practice across the Group.

Evidence of the Group’s reputation as an employer was

reinforced in March 2004 when, for the second year in

succession, it featured in the list of the Financial Times’ ‘Top 50

Best Workplaces’ in 25th position (2003: 45th). Over half of the

Group companies are now accredited as, or working towards,

‘Investors in People’. The Group consistently exceeds best practice

guidelines for training & development expenditure per head and

training days per person. It aims to further improve its deserved

reputation as a leading employer and developer of people in the

construction industry over the coming year.

Below

Kier Engineering Services helped to

make savings by using the dilapidated

wooden bridge, of the old railway

line, as temporary works for pile

driving and shutter support during the

construction of a stronger reinforced

concrete bridge.

Below

Kier has over 150 craft apprentices

in construction skills.

Below

Caxton Islington recently held its

fourth annual fun day which attracted

a record 3,000 visitors from the

local community.

Open

communication

39 Kier Group plc

Annual Report and Accounts 2004

-21%

Reduction in accident incident rate (AIR)

since last reporting period

Sustainability

The environmental and sustainability steering group, under the

leadership of the chief executive, has focused increasingly on

sustainability issues and on continuing to maintain and improve

the Group’s environmental performance. Sustainability is at the

heart of what Kier Group does as a business, in an industry whose

daily actions can have a major impact upon the world in which

we live. The professionalism with which the project teams operate

forms a sound basis for future success and to positively impact on

the environment and on society.

Kier Group’s record of achievement in sustainability is wide

and varied and includes:

• The funding and construction of a railway link in Scotland

to facilitate the transportation of 3m tonnes of coal to local

power stations. The rail link will remove the requirement

for 100,000 vehicle movements from roads and will benefit

local communities and the environment. Coupled with this

its construction was carried out in harmony with the local

ecology so as not to harm bird and aquatic life along the

route of the rail link.

• Kier Group has taken on chairmanship of a task group

established to develop and implement a sustainability strategy

for construction in the East of England on behalf of the East

of England Regional Assembly.

• Caxton Islington, in partnership with the London Borough of

Islington and the Construction Industry Training Board, is

continuing with the ‘First Start Scheme’ which provides an

introduction to employment within the construction industry

for young people. This project won a workplace development

award in 2003.

• Eight businesses within the Group have now been accredited

with Investor in People status, increased from four last year,

indicating the strength of commitment to people development.

A further four have committed to achieving the standard.

• A learning and development centre has been established

which can now offer managerial NVQs at levels 3, 4 and

5 – accredited by the joint awarding body ICE/Edexel/CIOB.

This is the first such centre in the UK and will provide an

excellent opportunity to further develop management teams.

• Participation in Considerate Constructors/Contractor Schemes,

where appropriate, has brought recognition for several of our

businesses and continuing involvement in these and similar

initiatives will be actively encouraged.

Having set targets a year ago for this year’s performance the

Group is able to report as follows:

Actual Actual Target

02/03 03/04 04/05

Waste as % of construction turnover 0.38% 0.30% 0.28%

Energy use £/m

9.35 9.20 9.00

emissions (t) 8,340 6,862 6,500

Environmental training days 201 421 500

Infringements 7 2 0

1 Colin Busby* Aged 60, led the employee buy-out in 1992 and

was both chairman and chief executive until May 2003 when his

role became exclusively that of chairman. In June 2004 he

became non-executive chairman. His service with the Group

began in 1969 and he held senior appointments in the

international and UK construction divisions between 1978 and

1992. He is chairman of the Nomination Committee and in June

2003 was appointed president of the Chartered Institute of

Building for a 12-month term.

2 John Dodds Aged 59, was appointed chief executive in May

2003 and has been with the Group since 1970. He has spent time

overseas working particularly in Africa and Hong Kong, returning

to the UK to lead the civil engineering business. Following the

buy-out he was responsible for major projects, mining and

international operations and was chairman of Kier Project

Investment. He retains the position of director with overall

responsibility for health & safety and environmental matters.

3 Deena Mattar Aged 39, was appointed to the Board as an

executive director in September 2001. She joined Kier in 1998

from KPMG where she developed an in-depth knowledge of

construction. She held the role of finance director of Kier

National, the Group’s major building and civil engineering

projects arm, until July 2001 and was appointed Group finance

director in November 2001. She is also responsible for the

Group’s infrastructure investment activities.

4 Robert Gregory Aged 50, has extensive knowledge of working

within Kier and during the 1980s spent a number of years on

financial assignments in the UK and in the UAE. He joined Kier

Residential in January 1994 as finance director of Twigden Homes

and was a key player in the Group’s housebuilding acquisitions

and the start-up of housing activities in Scotland. He was

promoted to finance director of Kier Residential in 1998 and to

managing director of Allison Homes following its acquisition in

September 2001. He joined the Board in July 2003 as director

responsible for the Group’s Residential division.

40 Kier Group plc

Annual Report and Accounts 2004

Board members

5 Dick Side Aged 57, joined Wallis in 1983 as managing director

of its Construction division. His 20-year career with the Group

has been spent in regional contracting and he was appointed

managing director of Kier Regional in 2001. In January 2003

he became main Board director responsible for the Group’s

Regional construction division.

6 Dick Simkin Aged 56, joined the Group in 1989 and has made

a significant contribution to strengthening Kier’s presence in the

property sector. He played a key part in the Group’s acquisition of

Laing Property and was appointed to the Board in January 2003 as

director responsible for the Group’s Property division.

7 Peter Berry* Aged 60, is chairman of The Crown Agents for

Oversea Governments and Administrations Limited. He is also

chairman of Martin Currie Portfolio Investment Trust plc, a non-

executive director of Henderson TR Pacific Investment Trust plc

and an advisor to the Corporation of London on international

and economic development. He was appointed to the Board in

1997 and is senior independent director, chairman of the

Remuneration Committee and a member of the Audit and

Nomination Committees.

*Non executive

8 Peter Warry* Aged 55, is chairman of Victrex plc and BSS

Group plc. Previously he was an executive director of British

Energy plc and chief executive of its English generating

company. He was appointed to the Board in 1998 and is

a member of the Audit, Nomination and Remuneration

Committees. He will succeed Colin Busby as non-executive

chairman following the Annual General Meeting in 2004.

9 Simon Leathes* Aged 56, is vice chairman for support services

at Barclays Capital, the investment banking division of Barclays

plc. He previously held senior appointments at Lend Lease

Corporation, Hambros plc and SG Warburg Group plc. He

was appointed to the Board in March 2001 and is chairman

of the Audit Committee and a member of the Nomination and

Remuneration Committees.

41 Kier Group plc

Annual Report and Accounts 2004

42 Kier Group plc

Annual Report and Accounts 2004

43 Directors’ report

44 Corporate governance statement

47 Directors’ remuneration report

53 Statement of directors’

responsibilities

54 Report of the independent auditors

55 Consolidated profit and

loss account

56 Consolidated balance sheet

57 Company balance sheet

58 Consolidated cash flow statement

59 Consolidated statement of total

recognised gains and losses

59 Reconciliation of movements

in shareholders’ funds

60 Notes to the financial statements

78 Principal operating subsidiaries

79 Principal joint arrangements,

joint ventures and associated

undertakings

80 Group principal businesses

82 Financial record

Financial statements

The directors present their annual report and audited financial

statements for the year ended 30 June 2004.

Principal Activities and Business Review

The Group’s principal activities are construction, support

services, residential and commercial development and

infrastructure project investment.

A review of the Group’s business and progress is given

within the Chairman’s Statement, Chief Executive’s Review,

Financial Review and Operating Review on pages 2 to 39.

Results and Dividends

The Group profit for the year after taxation was £28.6m

(2003: £23.8m).

An interim dividend of 6.0p per share (2003: 5.2p)

amounting to £2.2m (2003: £1.8m) was paid on 20 May 2004.

The directors propose a final dividend of 13.0p per share

(2003: 11.2p per share) amounting to £4.6m (2003: £3.8m)

payable on 7 December 2004 to shareholders on the Register

of Members at the close of business on 1 October 2004.

Share Capital

Details of shares allotted by the Company during the year

appear in note 19 to the financial statements.

Directors

The directors of the Company during the year are shown

on pages 40 and 41. The chairman Mr C R W Busby,

became a non-executive director on 14 June 2004.

At the forthcoming Annual General Meeting resolutions

will be proposed for the re-election of Mr P F Berry, Mr P T

Warry and Miss D E Mattar. At that date, the unexpired term of

the contract of employment with the Company of Miss Mattar

will be twelve months. Neither Mr Berry nor Mr Warry has a

service contract.

Details of directors’ interests are disclosed in the Directors’

Remuneration Report on page 50.

Substantial Shareholdings

At 15 September 2004 the Company had been notified of the

following interests in the Ordinary Share Capital of the Company:

Standard Life Investments Limited 4.7%

Legal & General plc 4.3%

Employees

The companies in the Group are equal opportunity employers.

The Group provides relevant information on matters of concern

to employees through newsletters and formal and informal

meetings with local management. The Group encourages and

assists, whenever practicable, the recruitment, training, and

career development of disabled people and the retention of

those who become disabled during the course of their

employment and who can be employed in a safe working

environment. The Company operates a sharesave scheme for

all eligible employees and makes available a dealing service

to enable employees to buy and sell its shares with a minimum

of formality and on attractive commission terms. The Group

also operates an AESOP scheme for all employees.

Combined Code

A statement on corporate governance is set out on pages 44

to 46.

Going Concern Basis

After making enquiries, the directors have a reasonable

expectation that the Group has adequate resources to continue

in operational existence for the foreseeable future. For this

reason they continue to adopt the going concern basis in

preparing the financial statements.

Donations

Group donations to charity in the United Kingdom were

£41,000 (2003: £41,000). No political donations were made

(2003: nil).

Policy on Payment of Creditors

The Group agrees payments with its suppliers and

subcontractors on an individual contract basis rather than

following a standard code. The policy is to abide by these

agreed terms whenever it is satisfied that the suppliers or

subcontractors have provided the goods or services in

accordance with the contract terms and conditions. The

aggregate amount owed to trade creditors by the Company

at the end of the year was nil.

Subsidiary trading companies within the Group, acting

in accordance with the above policy, exhibit creditor days

averaging 39 (2003: 42) in respect of suppliers of invoiced

goods and services and 26 (2003: 25) in respect of certified

amounts due to subcontractors. These figures exclude amounts

not currently due for payment but included within trade

creditors.

Auditors

A resolution for the reappointment of the auditors, KPMG

Audit Plc, will be proposed at the Annual General Meeting.

D E Mattar

Secretary

15 September 2004

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

Directors’ report

43 Kier Group plc

Annual Report and Accounts 2004

The Code

The Board recognises the importance of high standards of

corporate conduct and is committed to managing the Group’s

operations in accordance with the best principles of corporate

governance as contained within Section 1 of the Combined

Code issued by the Committee on Corporate Governance in

June 1998 and has complied with the Code throughout the year.

Following the issue in January 2003 of the reports by

Derek Higgs on the ‘Review of the Role and Effectiveness of

Non-Executive directors’ and by Sir Robert Smith on ‘Audit

Committees – Combined Code Guidance’, a new Combined

Code was issued in July 2003 which will apply for reporting

periods commencing on or after 1 November 2003.

Consequently the first year for which the Company is required

to comply is the year ending 30 June 2005. However, the

Board has carried out a review of the impact of the new

Combined Code on the way the Board and Committees carry

out their responsibilities and confirms that at the date of this

report it would have been in a position to comply with the

provisions of the new Code except for the requirement to

carry out a formal evaluation of the Board, Remuneration

Committee and the directors.

Board of Directors

The Board of Kier Group plc currently comprises five

executive and four non-executive directors, three of whom

are independent, and operates both formally through the

Board and Board Committees and informally through regular

contact between directors as required.

The chairman of the Board is Mr C R W Busby and the

chief executive is Mr J Dodds. The senior independent director

nominated by the Board for the purposes of Provision A.2.1 of

the Combined Code is Mr P F Berry. Details of the directors are

given on pages 40 and 41. All the directors served throughout

the year. Mr C R W Busby became a non-executive director

on 14 June 2004. The Board has a strong and independent

non-executive element, including a recognised senior member,

and a well established and experienced executive element.

This, coupled with clear Board procedures for decision making,

ensures that there is no undue concentration of power in any

one individual.

The Board met 11 times during the year and has a formal

schedule of matters specifically reserved to it for decision.

A table showing attendance at these meetings and at meetings

of the Audit Committee, the Remuneration Committee and

Nomination Committee is set out on page 45.

The Board has responsibility for the strategic and financial

policies of the Group including monitoring and reviewing

business performance. The Board is provided with regular and

timely information on the financial and operational performance

of businesses within the Group. The Board’s authority and

delegation of its authority are set out in Group standing orders.

All directors have access to the advice and services of the

company secretary and the directors are able to seek

independent professional advice, if necessary at the Company’s

expense. Training is available for new directors and subsequently

as necessary. All directors are subject to election by shareholders

at the first Annual General Meeting following their appointment,

and to re-election thereafter at intervals of no more than three

years. Executive directors are required to seek approval from the

Board before accepting any external non-executive positions.

None of the executive directors holds a non-executive

directorship.

Audit Committee

The Audit Committee comprises the three independent

non-executive directors under the chairmanship of Mr S W

Leathes, a chartered accountant. The Committee met four times

during the year in September, December, March and June prior

to Board meetings. The meetings were also attended by the

finance director and the head of internal audit. The KPMG Audit

Plc (KPMG) audit engagement director attended the September,

December and March meetings. The executive directors are also

invited to attend the meetings. The members of the Committee

also had two separate meetings with the KPMG audit engagement

director to discuss the year-end findings and the half-year results

prior to the September and March Audit Committee meetings.

The Committee has clearly defined terms of reference which

outline its objectives and responsibilities relating to financial

reporting, internal controls, risk management and the application

of appropriate accounting policies and procedures. Specific

responsibilities include reviewing and recommending for

approval the annual and interim financial statements, reviewing

the Group’s accounting policies, reviewing the effectiveness of

internal controls and risk management and reviewing the scope

and results of the external audit.

The Audit Committee also has responsibility for overseeing

the Group internal audit function including approval of the

annual risk-based audit plan and monitoring the work,

recommendations and effectiveness of the function. The head

of internal audit reports directly to the chairman of the Audit

Committee.

At each of its meetings the Committee received and reviewed

a report from the head of internal audit which highlighted the

status of the Group risk management processes and audit activity

against the approved plan and the findings from internal audits.

The chairman of the Audit Committee also meets regularly with

the head of internal audit and the Committee has met with the

head of internal audit without the presence of management.

The Committee carried out a review of the effectiveness of the

internal audit function at the June meeting.

The Committee is responsible for monitoring the

independence and objectivity of KPMG, the external auditor,

and agreeing the level of remuneration and extent of non-audit

services. The Committee received a presentation from KPMG

on its audit strategy and scope of work which it agreed and

also discussed the firm’s professional ethical standards. The

Committee reviewed the performance of KPMG and the level

of non-audit fees paid to KPMG during the year which are set

out in note 2 on page 63. The provision of non-audit services,

other than tax compliance and routine taxation advice must be

referred to and agreed by the Committee over a pre-determined

cost threshold and any work costed below that threshold must

be pre-approved by the Group finance director. No consultancy

related work has been carried out by the auditors during the

year. The Committee was satisfied, following its review, that

KPMG’s objectivity and independence had not been impaired.

The Committee agreed and approved the audit fee at the

June meeting following discussions between divisional

management and the divisional KPMG audit teams.

The KPMG audit engagement director is rotating off the

audit at the end of the audit for the year to 30 June 2004

in accordance with regulatory requirements.

Corporate governance statement

44 Kier Group plc

Annual Report and Accounts 2004

The Committee’s terms of reference are reviewed annually

and have been updated in line with the guidance and

recommendations of the revised Combined Code. The terms of

reference are available on request and on the Company’s website.

Remuneration Committee

The Remuneration Committee comprises the three independent

non-executive directors under the chairmanship of Mr P F Berry.

Information about the workings of this Committee is contained

in the Directors’ Remuneration Report on pages 47 to 52.

The Committee makes recommendations to the Board on

the Company’s framework of executive remuneration and the

chairman’s remuneration and determines, on its behalf, specific

remuneration packages for each of the executive directors. In

doing so it takes the advice of independent external consultants.

The terms of reference are available on the Company’s website.

Nomination Committee

The Nomination Committee comprises the chairman and

the independent non-executive directors. It is responsible

for monitoring the composition and balance of the Board

and making recommendations to the Board on new Board

appointments. The Committee met once during the year. The

terms of reference are available on the Company’s website.

Board and Committee Meetings

Details of the number of meetings of, and attendances at, the

Board and the Audit, Remuneration and Nomination Committees

are set out in the table below.

Name of Director Board – (11) Audit – (4) Remuneration – (3) Nomination – (1)

C R W Busby 11 – – 1

J Dodds 11 – – –

R W Gregory 11 – – –

D E Mattar 11 – – –

R W Side 11 – – –

R W Simkin 11 – – –

P F Berry 11 4 3 1

S W Leathes 11 4 3 1

P T Warry 10 4 3 1

Internal Control

The Combined Code introduced a requirement that the directors

review the effectiveness of the Group’s system of internal control.

This extends the directors’ review to cover all controls, including

operational, compliance and risk management, as well as

financial controls. The directors are satisfied that procedures

are in place to ensure that the Group complies with Turnbull

Committee guidance published by the Institute of Chartered

Accountants in England and Wales, and have been applied

during the year.

The Board of directors has overall responsibility for

the Group’s system of internal control and for reviewing its

effectiveness. The Board considers that the Group’s systems and

controls are appropriately designed to ensure that the Group’s

exposure to significant risks is properly managed. However,

such a system is designed to manage rather than eliminate

the risks of failure to achieve business objectives and can only

provide reasonable and not absolute assurance against material

misstatement. In reviewing the effectiveness of internal controls,

which have been developed and refined over many years, the

directors have considered the key risks and exposures within

the Group.

The key features of the Group’s system of internal controls and

principal controls are:

• an established management structure operating throughout

the Group with clearly defined levels of responsibility and

delegation of authorities;

• clearly defined operating guidelines and procedures with

authorisation limits set at appropriate levels. These are set

out in the Group and divisional standing orders;

• a comprehensive budgeting and forecasting system which is

regularly reviewed and updated;

• a formal quarterly review of each division’s year-end forecast,

business performance, risk and internal control matters

is carried out by the directors of each division with the

chief executive and finance director in attendance;

• monthly management reporting including regular comparison

of actual results against latest forecasts;

• established policies and procedures governing the Group’s

investment in land, property and other significant assets,

including acquisitions and disposals. These include detailed

appraisals, appropriate authorisation levels and Board

approval depending on value or perceived exposure;

• investment decisions, including Private Finance Initiative

projects and tenders for contracts are subject to approval

by the Board, the chief executive and finance director or

divisional directors depending on the value and nature of

the investment or contract. Individual tender and project

review procedures are in place prior to bidding and before

contract award;

• internal audits are carried out to assess the adequacy and

effectiveness of internal controls. The scope of the internal audit

work is planned to cover the key risks faced by the business

and supplemented by cyclical reviews of the core financial

process. Internal audit findings are reported to the Audit

Committee and the executive directors on a regular basis;

• risk registers are in place for each business unit which

highlight the key risks facing that business together with an

assessment of the effectiveness of controls to mitigate those

risks. The risk registers are updated regularly and at 31 March;

• an annual process of risk and control self assessment is used

in the Group whereby all operating companies are required

to review and confirm that appropriate internal controls are

in place and operating effectively across the key risk areas

identified in individual company risk registers. This assessment

was carried out on 31 March 2004 and the findings reviewed

by the Audit Committee; and

• regular monitoring, review and reporting of health, safety and

environmental matters.

The Board receives regular reports from all operating units to

monitor their performance and all directors are properly briefed

on issues arising at Board meetings.

45 Kier Group plc

Annual Report and Accounts 2004

During the course of the year members of the Board visit all

companies and monitor the control framework of each business.

The Audit Committee reviews the appropriateness and

effectiveness of internal controls.

Relations with Shareholders

The Board uses the Annual General Meeting to communicate

with shareholders and encourages their attendance and

participation. The chairmen of the Audit Committee and the

Remuneration Committee are available to answer questions

from shareholders. The Group also maintains a regular dialogue

with institutional investors to assist in the understanding of

the Group’s objectives and the Company has a programme of

regular communication with investors, analysts and brokers.

Presentations are made to investors, analysts and the press at the

time of the announcement of the final and half year results and

there are regular meetings with analysts and investors which are

arranged through the Company’s brokers so that the investment

community can be kept informed. The Board is provided with

independent feedback from analysts and institutional

shareholders periodically.

The Kier website (www.kier.co.uk) is also maintained to aid

communication with investors, employees, customers, suppliers

and the general public.

Corporate governance statement

continued

46 Kier Group plc

Annual Report and Accounts 2004

The Remuneration Committee

The Remuneration Committee is a Board Committee consisting

entirely of independent non-executive directors. The following

directors were members of the Committee for the year ended

30 June 2004:

P F Berry (Chairman)

S W Leathes

P T Warry

The secretary of the Committee is Mrs A Sale, the head of

personnel.

The Committee meets when necessary, but not less than once

a year. The Committee consults the Group chairman and chief

executive concerning its proposals (except in relation to their

own remuneration) and has access to and, from time to time,

takes external professional advice. In respect of the year ended

30 June 2004 the Committee appointed New Bridge Street

Consultants LLP, its independent remuneration advisors. New

Bridge Street Consultants LLP provide no other service to the

Company. Where necessary, or appropriate, the Committee

instigates consultation with major institutional shareholders

on remuneration matters.

Remuneration Policy

The Committee makes recommendations to the Board on

executive remuneration policy for adoption by the Board and

determines specific remuneration packages for each of the

executive directors on behalf of the Board. Remuneration and

benefits are set at market levels comparable with companies of

similar size and scope of activity in order to be able to attract,

retain and motivate high calibre individuals. The Committee’s

policy is to maintain an appropriate balance between fixed

elements of remuneration (basic salary, benefits in kind and

pension) and performance-related elements (annual bonus and

long-term incentives) and to place much greater emphasis on

rewarding executives by reference to the Group’s long-term

performance rather than its short-term results. The Committee

and Board encourage directors and staff at all levels to acquire

shares in the Company and to hold them for the longer term.

This sense of ownership is an important element of Kier’s

culture and of its focus on long-term performance. As far

as possible the Group prefers to promote individuals from

within. The remuneration received by each of the directors,

together with details of share interests and pension benefits

are set out on pages 49 to 51.

Executive directors’ remuneration consists of a basic salary

together with an annual bonus, benefits in kind, awards under a

Long-Term Incentive Plan (LTIP), and membership of a pension

scheme. The remuneration components are set out below:

Basic salary

Salaries for executive directors take account of external market

data, the individual’s responsibilities, experience and

performance. Salaries are reviewed annually.

Benefits in kind

Benefits in kind comprise membership of private health

insurance, provision of a fuel card and the provision of a

company car or a car allowance.

Annual bonus arrangements

A bonus is paid to all executive directors at a percentage of

annualised basic salary (not exceeding 20% for the years to

30 June 2004 and 30 June 2005) if Group pre-tax profit attains

a target pre-set each year. These targets are agreed by the

Committee; they are not published externally for reasons of

commercial confidentiality.

Retirement benefits

Executive directors participate in the final salary section of

the Kier Group Pension Scheme. In cases where the executive

directors’ pensionable pay is limited by the earnings cap

provisions of the Finance Act 1989, the director is paid a

salary supplement above the earnings cap to reflect the loss of

pension coverage. This supplement is recorded in the directors’

remuneration and is not taken into account in determining

bonuses or any other form of remuneration. Only the base

salary of directors is pensionable. Details of individual directors’

pension arrangements are shown in a separate table on page 49.

Long-term incentives

The Kier Group 1999 LTIP was approved by shareholders on

27 November 1999 and five conditional awards have been

made since then, the latest on 1 October 2003 (the 2004 award).

These awards are subject to the Group achieving the following

adjusted earnings per share growth targets:

• the directors will receive 100% of the award if earnings

per share increase by at least 25% per annum compound

(the maximum target) over the relevant three year period;

• no awards will vest unless earnings per share over the

same period have increased by at least 7.5% per annum

compound (the base target) at which point 25% of the

award will vest; and

• the proportion of the awards which will vest for performance

between the base target and the maximum target will be

calculated on a straight line basis.

Directors’ remuneration report

47 Kier Group plc

Annual Report and Accounts 2004

These targets were selected by the Committee to ensure that

the Group would have to attain a substantial improvement in

underlying financial performance before the awards could vest.

The attainment of the performance targets is verified by the

Remuneration Committee and reviewed by the Company’s

auditors.

26.5% of executive directors’ remuneration for the year

to 30 June 2004 was represented by the award under the LTIP.

Proposals to alter the earnings per share growth targets and

the individual limit will be put to shareholders at the Company’s

Annual General Meeting. The proposed targets are in line with

usual market practice in companies operating on earnings per

share performance conditions in that the targets will be

expressed relative to inflation. 25% of the award would vest for

5% per annum growth in excess of inflation and the full award

would vest for 20% per annum growth in excess of inflation.

Further details will be circulated to shareholders in the notice

of the Annual General Meeting.

The Remuneration Committee has set a policy whereby it

encourages executive directors to build up a shareholding in

the Company equal to at least one times salary over a period

of up to five years.

Prior to the introduction of the LTIP, the Company granted

Performance Related Options to the executive directors. It is

not the Committee’s current intention to make any further

grants of Options.

Service contracts

The Company has service agreements with its executive directors

dated 14 November 1996 for Mr J Dodds, 1 October 2001 for

Miss D E Mattar, 27 June 2003 for Mr R W Side, 30 June 2003

for Mr R W Simkin and 12 August 2003 for Mr R W Gregory.

The notice period is one year for each of the executive directors.

In the event of early termination of their service agreements, the

executive directors are entitled to compensation of up to one

year’s salary.

Non-executive Directors

The remuneration of the non-executive directors is determined

by the Board and reflects their anticipated time commitment

to fulfil their duties. Non-executive directors do not receive

bonuses, long-term incentive awards, pension provision

or compensation on termination of their appointment.

Non-executive directors do not have service agreements.

Total Shareholder Return

The following graph charts total cumulative shareholder return

of the Company over the last five financial years. The index

selected was the FTSE All Share Index as the Company has been

a constituent throughout the period.

The graph shows the value, by 30 June 2004, of £100 invested

in Kier Group plc on 30 June 1999 compared with the value

of £100 invested in the FTSE All Share Index. The other points

plotted are the values at intervening financial year-ends.

Audited Information

Except for the disclosure on directors’ interests the following

information on pages 49 to 52 has been audited by the

Company’s auditors, KPMG Audit Plc.

Directors’ remuneration report

continued

48 Kier Group plc

Annual Report and Accounts 2004

Value (£)

Kier Group

30-Jun-99 30-Jun-00 30-Jun-01 30-Jun-02 30-Jun-03 30-Jun-04

FTSE All-Share Index

100

150

200

250

300

Source: Thomson Financial

Directors’ Emoluments

The value of all emoluments receivable by each director in respect of the year ended 30 June 2004 was as follows:

Total

Salary

& fees Benefits Bonus 2004 2003

£000 £000 £000 £000 £000

C R W Busby (to 14 June 2004)

320 18 68 406 371

C R W Busby (from 14 June 2004)

5––5–

J Dodds 269 14 55 338 255

P F Berry 28 – – 28 26

R W Gregory

(appointed 1 July 2003) 193 9 36 238 –

S W Leathes 28 – – 28 26

D E Mattar

233 19 42 294 249

R W Side (appointed 1 January 2003) 192 11 39 242 108

R W Simkin

(appointed 1 January 2003) 200 12 36 248 100

P T Warry 31 – – 31 28

D Homer (retired 30 June 2003) ––––244

M P W Scarth (retired 7 May 2003) ––––219

1,499 83 276 1,858 1,626

Mr C R W Busby became a non-executive director on 14 June 2004 and his remuneration was adjusted accordingly.

Salary includes a pension-related salary supplement explained in pensions section below. The supplement included above was £15,550 for Mr R W Gregory, £25,960 for Miss D E Mattar

and £22,740 for Mr R W Simkin.

Directors’ Pensions

Pension benefits earned by the directors during the year are disclosed below.

Accumulated Transfer Transfer

Increase Increase Transfer total value of value of

in accrued in accrued value of accrued accrued accrued

pension pension increase pension at pension at Increase pension at

over the over the in accrued 30 June 30 June in transfer 30 June

year year

pension

2004 2003 value

2004

£000 £000 £000 £000 £000 £000 £000

C R W Busby 17 12 187 224 3,552 503 4,082

J Dodds 37 33 535 173 2,187 662 2,870

R W Gregory

13 12 123 43 280 165 453

D E Mattar

4 3 15 20 92 30 130

R W Side 18 15 216 98 1,186 333 1,534

R W Simkin

5 4 38 50 585 109 701

The increase in a member’s accrued pension over the year shown above is the adjusted figure after allowing for inflation during the year.

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

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

As Mr R W Gregory, Miss D E Mattar and Mr R W Simkin joined the Company after 1 June 1989, their benefits from the Kier Group Pension Scheme are capped at an annual salary set in

accordance with Inland Revenue requirements, currently £102,000. Included within the salary and fees of Mr R W Gregory, Miss D E Mattar and Mr R W Simkin in the emoluments table is

an allowance representing 20% of salary in excess of the earnings cap.

49 Kier Group plc

Annual Report and Accounts 2004

Directors’ Interests

The directors of the Company at 30 June 2004 had the following beneficial interest (including interests of dependent family members) in

the Ordinary Shares of the Company:

30 June 2004 1 July 2003

C R W Busby (chairman) 564,018 605,578

J Dodds (chief executive) 566,718 566,465

P F Berry (non-executive) 6,650 5,000

R W Gregory 17,242 15,766

S W Leathes (non-executive) 10,000 5,500

D E Mattar 34,149 29,179

R W Side 150,010 156,112

R W Simkin 265,990 262,209

P T Warry (non-executive) 7,403 7,212

Mr R W Side had a non-beneficial interest in 3,813 Ordinary Shares at 30 June 2004 (1 July 2003: nil).

In addition, the executive directors, as potential beneficiaries of the Kier Group 1999 Employee Benefit Trust, are deemed along with

all other UK employees to have an interest in 267,414 (2003: 421,115) Ordinary Shares with a nominal value of £2,674 (2003: £4,211)

representing 0.75% of the called up share capital of the Company, held by the Trust.

At 15 September 2004 the following directors had acquired beneficial interests in further Ordinary Shares: Mr C R W Busby, 54

shares; Mr J Dodds, 54 shares; Mr R W Gregory, 54 shares; Miss D E Mattar, 54 shares and Mr R W Side, 54 shares. There had been no

changes in the interests of the other directors since 30 June 2004.

Directors’ Share Options

The directors held the following Sharesave Scheme Options over the Ordinary Shares of the Company:

Market

Date of Exercise 1 July price at date 30 June

grant price 2003 Exercised of exercise Granted 2004

C R W Busby 16 May 2000 250p 651 651 500p – –

R W Gregory 16 May 2000 250p 651 651 516p – –

29 Oct 2003 625p–––590590

D E Mattar 16 May 2000 250p 651 651 516p – –

29 Oct 2003 625p–––590590

R W Side 16 May 2000 250p 651 651 516p – –

The Sharesave Scheme Options shown above are, as for all company employees under the scheme, not subject to a performance

condition. The options granted during the year are exercisable from 1 January 2007.

The directors held the following Performance Related Options over the Ordinary Shares of the Company:

Date of grant Exercise price 30 June 2004 1 July 2003

R W Gregory 5 Dec 1996 170.0p 5,882 5,882

14 Oct 1998 189.5p 2,000 2,000

D E Mattar 9 July 1998 250.0p 12,000 12,000

R W Side 5 Dec 1996 170.0p 17,647 17,647

R W Simkin 5 Dec 1996 170.0p 11,764 11,764

14 Oct 1998 189.5p 2,000 2,000

Directors’ remuneration report

continued

50 Kier Group plc

Annual Report and Accounts 2004

No grants of Performance Related Options have been made since the introduction of the LTIP. No Performance Related Options held

by directors were exercised, cancelled or lapsed during the year.

All Performance Related Options become exercisable in full after three years and lapse 10 years after the date they were granted,

subject to the Company’s total shareholder return over any three year period ending on the anniversary of the date of grant

outperforming 75% of a peer group of 20 selected companies in the building and construction sector. Options do not become

exercisable if the Company remains below the median position of the peer group. If the Company reaches but does not exceed the

median position, 50% of the shares could be acquired on exercise of the options; between median and upper quartile the amounts

exercisable are pro-rated. Based on total shareholder return over the three year periods ended July, October and December 2001

directors were entitled to acquire 100% of the shares over which they were granted options in 1996 and 1998.

The market price of the shares at 30 June 2004 was 634p and the range during the year was 500p to 701p. The aggregate gain

on the exercise of the share options in the year was £6,822 (2003: £45,300).

LTIP

Outstanding awards made to executive directors of the Company under the LTIP are in the form of a deferred right to acquire, at no

cost, the following maximum number of Ordinary Shares in the Company:

Cumulative Total

2002 award 2003 award 2004 award 30 June 2004 30 June 2003

C R W Busby 33,519 – – 33,519 84,729

J Dodds 22,346 23,930 21,912 68,188 80,726

R W Gregory 5,000 5,000 14,342 24,342 17,500

D E Mattar 18,994 22,148 16,733 57,875 48,642

R W Side 7,500 10,000 15,537 33,037 25,000

R W Simkin 5,000 5,000 14,342 24,342 17,500

Date of award 2 October 2001 1 October 2002 1 October 2003

Share price 447.5p 451.5p 627.5p

End of performance period 30 June 2004 30 June 2005 30 June 2006

All awards granted to date under the LTIP are subject to the earnings per share performance targets outlined in the policy section of

this report.

For the three year period ended 30 June 2003 earnings per share increased by 22.00% per annum compound. Accordingly the directors

received 85.47% of the 2001 award (granted on 2 October 2000 when the share price was 268.5p) and were entitled to receive a

combination of shares, at no cost, and cash (representing the amount required by each director to settle his tax liability). Shares vested

during the year in executive directors of the Company under the 2001 award of the LTIP, together with the cash element received, were:

2001 Shares Shares Received Market Received Total LTIP

award lapsed vested as shares price as cash award

No. No. No. No. £ £ £

C R W Busby 51,210 7,441 43,769 25,823 6.42 115,213 280,997

J Dodds 34,450 5,006 29,444 17,371 6.42 77,509 189,030

R W Gregory 7,500 1,090 6,410 3,781 6.42 16,878 41,152

D E Mattar 7,500 1,090 6,410 3,781 6.42 16,878 41,152

R W Side 7,500 1,090 6,410 3,781 6.42 16,878 41,152

R W Simkin 7,500 1,090 6,410 3,781 6.42 16,878 41,152

634,635

2003: 639,080

51 Kier Group plc

Annual Report and Accounts 2004

For the three year period ended 30 June 2004 earnings per share increased by 19.30% per annum compound. Accordingly the

directors will receive 73.07% of the 2002 award and will be entitled to receive the number of shares set out below, at no cost, on

30 September 2004 on which income tax and national insurance will be payable.

Number of shares

C R W Busby 24,492

J Dodds 16,328

R W Gregory 3,654

D E Mattar 13,879

R W Side 5,480

R W Simkin 3,654

Approval of Report

As in previous years, Mr P F Berry, chairman of the Remuneration Committee, intends to attend the forthcoming Annual General

Meeting and will be available to answer any questions shareholders may have concerning the Group’s policy on directors’ remuneration.

The Directors’ Remuneration Report will be submitted for approval by the Company at the forthcoming Annual General Meeting.

Signed on behalf of the Board

P F Berry

Chairman Remuneration Committee

Directors’ remuneration report

continued

52 Kier Group plc

Annual Report and Accounts 2004

Company law requires the directors to prepare financial statements

for each financial year which give a true and fair view of the state

of affairs of the Company and the Group and of the profit or loss

for that period. In preparing those financial statements the directors

are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether applicable accounting standards have been

followed, subject to any material departures disclosed and

explained in the financial statements; and

• prepare the financial statements on a going concern basis

unless it is inappropriate to presume that the Group will

continue in business.

The directors are responsible for the maintenance of proper

accounting records which disclose with reasonable accuracy at

any time the financial position of the Company and to enable them

to ensure that the financial statements comply with the Companies

Act 1985. They have general responsibility for taking such steps

as are reasonably open to them to safeguard the assets of the

Group and to prevent and detect fraud and other irregularities.

Statement of directors’ responsibilities

53 Kier Group plc

Annual Report and Accounts 2004

We have audited the financial statements on pages 55 to 77.

We have also audited the information in the Directors’

Remuneration Report that is described as having been audited.

This report is made solely to the Company’s members, as a

body, in accordance with section 235 of the Companies Act

1985. Our audit work has been undertaken so that we might

state to the Company’s members those matters we are required

to state to them in an auditor’s report and for no other purpose.

To the fullest extent permitted by law, we do not accept or

assume responsibility to anyone other than the Company and

the Company’s members as a body for our audit work, for this

report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The directors are responsible for preparing the Annual Report

and the Directors’ Remuneration Report. As described on

page 53, this includes responsibility for preparing the financial

statements in accordance with applicable United Kingdom law

and accounting standards. Our responsibilities, as independent

auditors, are established in the United Kingdom by statute, the

Auditing Practices Board, the Listing Rules of the Financial

Services Authority, and by our profession’s ethical guidance.

We report to you our opinion as to whether the financial

statements give a true and fair view and whether the financial

statements and the part of the Directors’ Remuneration Report

to be audited have been properly prepared in accordance

with the Companies Act 1985. We also report to you if, in our

opinion, the Directors’ Report is not consistent with the financial

statements, if the Company has not kept proper accounting

records, if we have not received all the information and

explanations we require for our audit, or if information specified

by law regarding directors’ remuneration and transactions with

the Group is not disclosed.

We review whether the Corporate Governance Statement

on pages 44 to 46 reflects the Company’s compliance with the

seven provisions of the Combined Code specified for our review

by the Listing Rules, and we report if it does not. We are not

required to consider whether the Board’s statements on internal

control cover all risks and controls, or form an opinion on the

effectiveness of the Group’s corporate governance procedures

or its risk and control procedures.

We read the other information contained in the Annual

Report, including the Corporate Governance Statement and

the unaudited part of the Directors’ Remuneration Report, and

consider whether it is consistent with the audited financial

statements. We consider the implications for our report if we

become aware of any apparent misstatements or material

inconsistencies with the financial statements.

Basis of audit opinion

We conducted our audit in accordance with auditing standards

issued by the Auditing Practices Board. An audit includes

examination, on a test basis, of evidence relevant to the amounts

and disclosures in the financial statements and the part of the

Directors’ Remuneration Report to be audited. It also includes

an assessment of the significant estimates and judgements made

by the directors in the preparation of the financial statements,

and of whether the accounting policies are appropriate to the

Group’s circumstances, consistently applied and adequately

disclosed.

We planned and performed our audit so as to obtain all the

information and explanations which we considered necessary in

order to provide us with sufficient evidence to give reasonable

assurance that the financial statements and the part of the

Directors’ Remuneration Report to be audited are free from

material misstatement, whether caused by fraud or other

irregularity or error. In forming our opinion we also evaluated

the overall adequacy of the presentation of information in the

financial statements and the part of the Directors’ Remuneration

Report to be audited.

Opinion

In our opinion:

• the financial statements give a true and fair view of the state

of affairs of the Company and the Group at 30 June 2004

and of the profit of the Group for the year then ended; and

• the financial statements and the part of the Directors’

Remuneration Report to be audited have been properly

prepared in accordance with the Companies Act 1985.

KPMG Audit Plc

Chartered Accountants

Registered Auditor

London

15 September 2004

Report of the independent auditors

to the members of Kier Group plc

54 Kier Group plc

Annual Report and Accounts 2004

2004 2003

Notes £m £m

Turnover – Continuing operations

Group and share of joint ventures 2 1,476.5 1,445.6

Less share of joint ventures’ turnover (32.4) (27.9)

Group turnover 1,444.1 1,417.7

Cost of sales (1,315.1) (1,307.2)

Gross profit 129.0 110.5

Administrative expenses (89.6) (77.4)

Group operating profit – Continuing operations 39.4 33.1

Share of operating profit – joint ventures 3.2 3.1

Share of operating loss – associates (Belan) – (2.3)

Operating profit: Group and share of joint ventures 2 42.6 33.9

Net interest (payable)/receivable – Group 3 (0.2) 0.6

Net interest payable – joint ventures (1.8) (1.2)

Profit on ordinary activities before taxation 2 40.6 33.3

Taxation on profit on ordinary activities 7 (12.0) (9.5)

Profit for the year 28.6 23.8

Dividends 8 (6.8) (5.6)

Retained profit for the Group

and its share of joint ventures and associates 21.8 18.2

Earnings per Ordinary Share 9

– basic 81.5p 69.5p

– diluted 80.8p 68.2p

Adjusted Earnings per Ordinary Share (excluding goodwill amortisation) 9

– basic 87.2p 71.6p

– diluted 86.4p 70.2p

All items in the profit and loss account relate to operations continuing as at 30 June 2004.

Group operating profit – includes a charge of £2.6m for the amortisation of goodwill (2003: £0.9m).

Consolidated profit and loss account

for the year ended 30 June 2004

55 Kier Group plc

Annual Report and Accounts 2004

Restated

2004 2003

Notes £m £m

Fixed assets

Intangible assets – goodwill 10 18.6 21.1

Tangible assets 11 68.9 53.0

Investments

Investments in joint ventures

Share of gross assets 12 194.8 159.1

Share of gross liabilities 12 (190.7) (155.8)

Loans provided to joint ventures 12 28.1 27.4

Investment in joint ventures 12 32.2 30.7

119.7 104.8

Current assets

Stock 13 328.6 261.3

Debtors 14 231.2 205.2

Cash at bank and in hand 18 41.4 92.5

601.2 559.0

Current liabilities

Creditors – amounts falling due within one year 15 (530.7) (495.3)

Net current assets 70.5 63.7

Total assets less current liabilities 190.2 168.5

Creditors – amounts falling due after more than one year 15 (58.5) (62.7)

Provisions for liabilities and charges 16 (15.3) (13.1)

Net assets 2 116.4 92.7

Capital and reserves

Called up share capital 19 0.4 0.3

Share premium account 20 17.1 15.2

Capital redemption reserve 20 2.7 2.7

Share scheme reserve 20 (0.4) (0.7)

Profit and loss account 20 96.6 75.2

Equity shareholders’ funds 116.4 92.7

The balance sheet at 30 June 2003 has been restated in accordance with UITF 17 (Revised 2003) and UITF 38, which require investment

in own shares and the provision for share based payments to be shown within shareholders’ funds.

Consolidated balance sheet

at 30 June 2004

56 Kier Group plc

Annual Report and Accounts 2004

Restated

2004 2003

Notes £m £m

Fixed assets

Investment in subsidiary undertakings 12 55.3 54.8

Current assets

Debtors 14 24.0 21.9

Cash at bank and in hand 75.8 59.7

99.8 81.6

Current liabilities

Creditors – amounts falling due within one year 15 (84.1) (67.5)

Net current assets 15.7 14.1

Total assets less current liabilities 71.0 68.9

Creditors – amounts falling due after more than one year 15 (40.1) (41.4)

Net assets 30.9 27.5

Capital and reserves

Called up share capital 19 0.4 0.3

Share premium account 20 17.1 15.2

Merger relief reserve 20 1.2 1.2

Capital redemption reserve 20 2.7 2.7

Share scheme reserve 20 (0.8) (1.0)

Profit and loss account 20 10.3 9.1

Equity shareholders’ funds 30.9 27.5

The balance sheet at 30 June 2003 has been restated in accordance with UITF 17 (Revised 2003) and UITF 38, which require investment

in own shares and the provision for share based payments to be shown within shareholders’ funds.

The financial statements were approved by the Board of directors on 15 September 2004 and were signed on its behalf by:

J Dodds

D E Mattar

Directors

Company balance sheet

at 30 June 2004

57 Kier Group plc

Annual Report and Accounts 2004

2004 2003

Notes £m £m

Net cash (outflow)/inflow from operating activities 21 (a) (3.7) 53.5

Dividends received from joint ventures 0.3 1.1

Returns on investments and servicing of finance

Interest received 1.4 0.9

Interest paid (2.8) (1.3)

Interest from joint ventures 2.0 0.7

0.6 0.3

Taxation paid (11.5) (7.7)

Capital expenditure and financial investment

Purchase of tangible fixed assets (21.5) (10.8)

Sale of tangible fixed assets 2.8 2.2

(18.7) (8.6)

Acquisitions and disposals 21 (c) (17.2) (19.0)

Equity dividends paid (5.5) (3.8)

Cash (outflow)/inflow before use of liquid resources and financing (55.7) 15.8

Management of liquid resources

Net decrease/(increase) in short-term bank deposits 20.7 (34.3)

Financing

Issue of ordinary share capital 1.4 0.2

Purchase of own shares (0.1) (0.4)

Net proceeds of private placement of loan notes – 30.1

1.3 29.9

(Decrease)/increase in cash during the year (33.7) 11.4

Reconciliation of net cash flow to movement in net funds

(Decrease)/increase in cash (33.7) 11.4

(Decrease)/increase in liquid resources (20.7) 34.3

Increase in long-term borrowings – (30.1)

Movement in net funds in the year (54.4) 15.6

Cash, net of debt on 1 July 62.0 46.4

Cash, net of debt at 30 June 21 (b) 7.6 62.0

Consolidated cash flow statement

for the year ended 30 June 2004

58 Kier Group plc

Annual Report and Accounts 2004

2004 2003

£m £m

Group profit for the year excluding joint ventures 27.0 22.6

Share of joint ventures’ profit for the year 1.6 1.2

Profit for the year 28.6 23.8

Currency translation (0.4) (0.8)

Total recognised gains and losses for the year 28.2 23.0

Reconciliation of movements in shareholders’ funds

for the year ended 30 June 2004

Group Company

2004 2003 2004 2003

£m £m £m £m

Profit for the year 28.6 23.8 8.0 5.6

Dividends (6.8) (5.6) (6.8) (5.6)

Retained profit for the year 21.8 18.2 1.2 –

Currency translation (0.4) (0.8) – –

Issue of shares 2.0 1.5 2.0 1.5

Movement in share scheme reserve 0.3 – 0.2 0.1

Net additions to shareholders’ funds 23.7 18.9 3.4 1.6

Opening shareholders’ funds as previously reported 93.4 74.5 28.5 27.0

Prior year adjustment (note 1) (0.7) (0.7) (1.0) (1.1)

Opening shareholders’ funds as restated 92.7 73.8 27.5 25.9

Closing shareholders’ funds 116.4 92.7 30.9 27.5

Consolidated statement of total recognised gains and losses

for the year ended 30 June 2004

59 Kier Group plc

Annual Report and Accounts 2004

1 Accounting policies

Convention

The financial statements are prepared under the historical cost

convention and in accordance with applicable accounting

standards. The following accounting policies have been applied

consistently in dealing with items which are considered material

in relation to the Group’s financial statements. The Group has

followed the transitional arrangements of FRS 17 ‘Retirement

Benefits’ in these financial statements.

The Group has adopted UITF 17 (Revised 2003) and UITF 38

which require investment in own shares and the provision for

share based payments to be shown within shareholders’ funds.

This has resulted in a restatement of the Group balance sheet at

30 June 2003 through a transfer of £1.5m from fixed assets, and

£0.8m from creditors resulting in a net restatement of £0.7m to

shareholders’ funds. There is no material difference to the charge

to the profit and loss account under the new and old basis.

The Group has taken advantage of the exemption in UITF 17

(Revised 2003) in relation to Inland Revenue approved SAYE

option schemes.

Consolidation

The Group financial statements consolidate the financial

statements of the Company and its subsidiary undertakings.

The results of subsidiary undertakings acquired or disposed

of during the year are included from or up to the date of

acquisition or disposal. On the acquisition of a subsidiary

undertaking fair values are attributed to the net assets acquired.

Purchased goodwill arising on acquisition is capitalised and

amortised over its useful economic life in accordance with

FRS 10 ‘Goodwill and Intangible Assets’. Purchased goodwill

arising on acquisitions before the implementation of FRS 10 was

written off to reserves in the year of acquisition. On subsequent

disposal any related goodwill previously written off to reserves

is written back through the profit and loss account as part of the

profit or loss on disposal.

As permitted by section 230 of the Companies Act 1985,

a separate profit and loss account dealing with the results of

the Company has not been presented.

Turnover

Turnover arises from increases in valuations on contracts,

the sale of houses, land, commercial property and goods and

services provided, and excludes intra-Group trading and value

added tax.

Profits

Profit on contracts is calculated in accordance with accounting

standards and industry practice and may not relate to turnover.

The principal estimation technique used by the Group in

attributing profit on contracts to a particular accounting period

is the preparation of forecasts on a contract-by-contract basis.

These focus on costs to complete and enable an assessment

to be made of the final outturn on each contract. Consistent

contract review procedures are in place in respect of contract

forecasting.

The general principles for profit recognition are:

• profit in respect of short-term contracts is recognised when

the contract is completed;

• profit in respect of long-term contracts is recognised on a

percentage of completion basis when the contract’s ultimate

outcome can be foreseen with reasonable certainty;

• provision is made for losses incurred or foreseen in bringing

the contract to completion as soon as they become apparent;

and

• claims receivable are recognised as income when received

or certified for payment except that, in preparing contract

forecasts to completion, a prudent and reasonable evaluation

of claims receivable may be included to mitigate foreseeable

losses.

Profit in respect of house sales is taken at the time of legal

completion of the sale. Profit in respect of land sales and land

exchanges is taken on the unconditional exchange of contract.

Profit in respect of property developments is taken on

unconditional exchange of contracts on disposals of finished

developments. Profit taken is subject to any amounts necessary

to cover residual commitments relating to development

performance. Provision is made for any losses foreseen in

completing a development as soon as they become apparent.

Where construction of pre-sold developments is undertaken

directly by the Group, for contracts of more than one year in

duration, turnover and profit are recognised in accordance

with SSAP 9 ‘Stocks and Long-Term Contracts’. Profit in these

circumstances is calculated by reference to the degree of

completion of the contract at the end of each period.

Employee share schemes (LTIP)

The cost to the Group of awards to employees under the Kier

Group LTIP is spread on a straight line basis over the relevant

performance criteria period. The scheme awards a number of

shares to senior employees which will vest after three years if

particular criteria are met. The award may either be taken as

shares or as a combination of shares and cash based on the

share price prevailing when the shares vest. The cost of the share

based payment element of the scheme is based on the market

value of the shares at the date the options are granted, and the

cost of the cash based payment element is based on the market

value of the share options at the balance sheet date. Amounts

charged to the profit and loss account for share based payments

are added to the share scheme reserve.

Shares purchased and held in trust in connection with the

Group’s share schemes are deducted from the share scheme

reserve. No gain or loss is recognised within the profit and loss

account on the market value of these shares compared to the

original cost.

The net balance on the share scheme reserve is included as

a separate item in the balance sheet within shareholders’ funds.

Notes to the financial statements

60 Kier Group plc

Annual Report and Accounts 2004

1 Accounting policies continued

Pre-contract costs

Costs associated with bidding for contracts are written off as

incurred (pre-contract costs). When it is virtually certain that a

contract will be awarded, usually when the Group has secured

preferred bidder status, external costs incurred from that date to

the date of financial close are carried forward in the balance

sheet.

When financial close is achieved on Private Finance

Initiative (PFI) or Public Private Partnership (PPP) contracts,

external costs are recovered from the special purpose vehicle

and pre-contract costs are credited to the profit and loss account,

except to the extent that the Group retains a share in the special

purpose vehicle. The amount not credited is deferred and

recognised over the life of the construction contract to which

the costs relate. Success fees and financing arrangements,

which are not generally material amounts, are deferred in full

and recognised over the life of the financing in place for the

special purpose vehicle.

Tangible fixed assets

Land is not depreciated. In accordance with FRS 15 ‘Tangible

Fixed Assets’, for freehold buildings and other assets,

depreciation is provided in order to write off the cost less

residual value over the estimated lives of the assets. The rates

of depreciation are as follows:

Freehold property 2% to 4% per annum

Leasehold property over the term of the lease

Plant, vehicles and fixtures 10% to 33% per annum

Mining assets

Opencast expenditure incurred prior to the commencement

of operating opencast sites is capitalised and the cost less the

residual value is depreciated over the coaling life of the site on

a coal extraction basis.

The total cost of restoration is recognised as a provision as

soon as the mine becomes operational. The amount provided

represents the present value of the anticipated costs. Costs are

charged against the provision as incurred and the unwinding of

the discount is included within interest payable. A tangible fixed

asset is created for an amount equivalent to the initial provision

and depreciated on a coal extraction basis over the life of the

asset.

Leased assets

Assets acquired under finance leases are capitalised and

appropriately depreciated and the capital element of outstanding

lease rentals is included in creditors. Operating lease rentals are

charged to the profit and loss account on a straight line basis

over the period of the lease.

Stock

Stock and work in progress is stated at the lower of cost, which

includes attributable overheads, and net realisable value.

Property stock, which represents all development land and

work in progress, is included at cost less any losses foreseen

in completing and disposing of the development less any

amounts received or receivable as progress payments or

part disposals. Where a property is being developed, cost

includes cost of acquisition and development to date, including

directly attributable fees, expenses and finance charges net

of rental or other income attributable to the development.

Where development property is not being actively developed,

net rental income and finance costs are taken to the profit and

loss account.

Deferred taxation

In accordance with FRS 19 ‘Deferred Tax’, deferred taxation

is provided fully and on a non-discounted basis at expected

future corporation tax rates in respect of timing differences

between profits computed for taxation and accounts purposes.

No provision is made in respect of tax liabilities which

would arise if fixed asset properties were sold in their existing

state at their book values unless it is intended to dispose of those

assets.

Joint arrangements and joint ventures

Interests in joint arrangements are accounted for by recognising

the Group’s share of assets and liabilities, profits, losses and

cash flows, measured according to the terms of the arrangement.

Investments in joint ventures are accounted for under the gross

equity method.

Foreign currencies

Transactions denominated in foreign currencies are recorded

at the exchange rates in effect when they take place. Resulting

foreign currency denominated assets and liabilities are translated

at the exchange rates ruling at the balance sheet date unless they

are covered by forward foreign exchange contracts, in which

case the contract rates are used. Exchange differences arising

from foreign currency transactions are reflected in the profit

and loss account.

The assets and liabilities of overseas subsidiary undertakings

are translated at the rate of exchange ruling at the balance

sheet date. Trading profits or losses are translated at average

rates prevailing during the accounting period. Differences on

exchange arising from the retranslation of net investments in

overseas subsidiary undertakings at the year-end rates are taken

directly to reserves. All other translation differences are reflected

in the profit and loss account.

Pension costs

The pension costs charged against profits are based on an

actuarial method and actuarial assumptions designed to

spread the anticipated pension costs over the service lives of

the employees in the pension schemes, in a way that seeks to

ensure that the regular pension cost represents a substantially

level percentage of the current and expected future pensionable

salary roll in the light of current actuarial assumptions. Variations

from regular costs are spread over the average remaining service

lives of current employees in the pension schemes.

61 Kier Group plc

Annual Report and Accounts 2004

2 Turnover, profit and segmental information

Segmental analysis of the results is shown below:

Turnover Operating profit Profit before tax

2004 2003 2004 2003 2004 2003

£m £m £m £m £m £m

Construction & Services 1,205.0 1,237.9 15.6 12.9 23.2 21.2

Homes 215.7 180.1 31.8 26.3 24.5 19.9

Property 46.6 21.2 6.6 6.1 5.0 4.6

Infrastructure Investment 9.2 6.4 (1.9) (0.5) (1.3) 0.7

Corporate overhead/finance – – (9.5) (8.6) (10.8) (10.8)

Investment in Belan – – – (2.3) – (2.3)

1,476.5 1,445.6 42.6 33.9 40.6 33.3

Construction & Services operating profit and profit before tax is after deducting £2.6m for the amortisation of goodwill (2003: £0.9m).

Net operating assets Net assets

2004 2003 2004 2003

£m £m £m £m

Construction & Services (122.0) (143.8) 66.3 63.5

Homes 201.3 179.2 53.6 43.5

Property 24.8 (14.2) 8.1 5.3

Infrastructure Investment 9.0 11.1 (1.8) (0.9)

Corporate overhead/finance (4.3) (1.6) (9.8) (18.7)

108.8 30.7 116.4 92.7

Geographical analysis of the results is shown below:

Turnover Operating profit Profit before tax

2004 2003 2004 2003 2004 2003

£m £m £m £m £m £m

United Kingdom 1,430.3 1,368.2 40.7 26.1 38.6 25.4

Rest of World 46.2 77.4 1.9 7.8 2.0 7.9

1,476.5 1,445.6 42.6 33.9 40.6 33.3

Net operating assets Net assets

2004 2003 2004 2003

£m £m £m £m

United Kingdom 114.4 40.7 113.5 86.6

Rest of World (5.6) (10.0) 2.9 6.1

108.8 30.7 116.4 92.7

The above analysis of turnover shows the geographical segments from which the products or services are supplied and is not materially

different from the geographical segments to which products or services are supplied.

Net operating assets represent assets excluding cash, bank overdrafts, long-term borrowings and interest-bearing inter-company

loans (see note 15).

Net operating assets and net assets at 30 June 2003 have been restated in accordance with UITF 17 (Revised 2003) and UITF 38.

Notes to the financial statements

continued

62 Kier Group plc

Annual Report and Accounts 2004

2 Turnover, profit and segmental information continued

Profit on ordinary activities before taxation is stated after charging/(crediting):

2004 2003

£m £m

Remuneration of auditors – audit fees 0.6 0.7

– other fees 0.1 0.2

Hire of plant and machinery 23.1 27.9

Operating lease rentals:

Land and buildings 2.4 1.7

Plant and machinery 9.0 7.7

Goodwill amortisation 2.6 0.9

Depreciation of tangible fixed assets 8.1 8.1

Profit on sale of tangible fixed assets (1.3) (0.8)

Remuneration of the auditors in respect of the Company for audit amounted to £4,300 (2003: £4,100). Other fees payable to auditors

relate to taxation advisory work. No consultancy related work has been carried out by the auditors in either of the two years ended

30 June 2004.

In addition to the above £0.1m of audit fees (2003: £0.1m) and £0.3m of non-audit fees (2003: £0.3m) were payable to the Group

auditors by joint ventures in which the Group has an interest.

3 Net interest (payable)/receivable – Group

2004 2003

£m £m

Interest receivable 3.0 2.1

Interest payable on bank loans and overdrafts (1.2) (0.8)

Interest payable on long-term borrowings (2.0) (0.7)

(0.2) 0.6

4 Information relating to employees

2004 2003

No No

Average number of persons employed during the year including executive directors was:

United Kingdom 6,978 6,192

Rest of World 1,351 1,302

8,329 7,494

£m £m

Group staff costs are as follows:

United Kingdom 220.5 195.8

Rest of World 11.3 18.0

231.8 213.8

Wages and salaries 197.4 185.1

Social security costs 17.1 14.5

Other pension costs (note 6) 17.3 14.2

231.8 213.8

5 Information relating to directors

Information relating to directors’ emoluments, pension entitlements, share options and LTIP interests appears in the Directors’

Remuneration Report on pages 47 to 52.

63 Kier Group plc

Annual Report and Accounts 2004

6 Pensions

a) SSAP 24 ‘Pension Costs’

The principal UK pension scheme is the Kier Group Pension

Scheme which includes a defined benefit section and a defined

contribution plan. The assets of the Scheme are held under trust

separately from those of the Group; the Trustees are responsible

for investing the assets and delegate day-to-day decisions to

independent professional investment managers. Pension costs

are assessed on the advice of an independent qualified actuary

using the projected unit method and the following main

assumptions for the financial year ended 30 June 2004:

• pension liabilities will be discounted at the rates of 7.25%

pre-retirement and 6.25% post-retirement per annum;

• salary increases will be 4.3% to 4.8% per annum; and

• present and future pensions will increase at either 2.7%

per annum or at rates set in the Scheme rules.

The same method and assumptions were used for the last

formal actuarial valuation of the Scheme as at 1 April 2002

which showed that the market value of the Scheme’s assets

was £307.2m and that this represented 94% of the value of

the benefits which had accrued to members, after allowing

for projected future increases in salaries.

The results of the above valuation were rolled forward to

30 June 2002 to determine the pension costs for the financial

years to 30 June 2003 and 30 June 2004 with allowance for

actual investment performance to 30 June 2002 and for the

new early retirement terms which were introduced in 2003.

At 30 June 2002, the market value of the Scheme’s assets

was £296.8m which represented 93% of members’ accrued

benefits after allowing for projected increases in salaries.

The Groups’ pension charge to the defined benefit section

of the Scheme has been calculated on the basis of the above

review and was not materially different from the contribution

paid during the year amounting to £12.3m (2003: £13.0m).

The above pension cost is in respect of the defined benefit

section of the Scheme. This section was closed to new entrants

on 1 January 2002 with most new employees after that date

being offered membership of the Retirement Savings Plan, a

defined contribution arrangement. The Group is required to

pay contributions in respect of those employees in accordance

with the rates specified in the Plan. The contributions paid to

the Retirement Savings Plan during the year, and the pension

charge amounted to £1.2m (2003: £0.5m).

The Group also participates in another defined benefit

scheme through its subsidiary Kier Sheffield LLP which

has participated as an admitted body in the South Yorkshire

Pension Fund since 1 April 2003. As an admitted body,

it was granted a fully funded past service position at that

date and has paid contributions at the rate of 12.5% of

pensionable pay which the Fund’s actuary has determined

is sufficient to meet ongoing benefits. In addition, it has

paid additional contributions to fund certain pension benefits

payable upon redundancy.

Kier Sheffield LLP’s pension costs are assessed on the advice

of an independent qualified actuary using the projected unit

method and the following main assumptions for the financial

year ended 30 June 2004:

• Pension liabilities will be discounted at the rates of 6.5%

per annum;

• Salary increases will be 4.0% per annum;

• Present and future pensions will increase at 2.5% per annum.

The same method and assumptions were used for the last

actuarial valuation of the Fund and the determination of Kier

Sheffield LLP’s contributions. As noted above, Kier Sheffield LLP

was granted a fully funded past service position as at 1 April

2003 with assets and ongoing past service liabilities of £65.0m.

Kier Sheffield’s pension charge for the financial year ended

30 June 2004 has been calculated on the basis of the above

and, given the fully funded past service position, is equal to the

contributions paid during the year which amount to £2.9m

(2003: £0.7m).

The above pension cost is in respect of those employees

who transferred from Sheffield Council’s employment to Kier

Sheffield upon the start of the contract. New employees are

offered membership of the Retirement Savings Plan section of

the Kier Group Pension Scheme. Kier Sheffield LLP is required

to pay contributions in respect of these employees in accordance

with the rates specified in the rules of the Plan.

Contributions are also made in respect of former members

of the Kier Group Retirement Benefit Scheme and hourly paid

operatives, to an industry-wide stakeholder scheme, and in

respect of employees who are members of a local government

pension scheme. The pension costs for these have been taken

as the actual contributions paid over the year.

b) FRS 17 ‘Retirement Benefits’

Details of the Kier Group Pension Scheme and the pension

arrangements for Kier Sheffield LLP, under FRS 17 are

given below:

The valuation used for the FRS 17 disclosure for the Kier Group

Pension Scheme has been based on the most recent actuarial

valuation at 1 April 2002 updated by an independent qualified

actuary to take account of the requirements of FRS 17 in order

to assess the liabilities of the Scheme at 30 June 2004. The

Scheme’s assets are stated at their market values at 30 June 2004.

The numbers disclosed for the Kier Sheffield LLP pension

arrangements have been based on an assessment of Kier

Sheffield LLP’s assets in the South Yorkshire Pension Fund (SYPF)

which has been carried out by an independent qualified actuary

to take account of the requirements of FRS 17. Kier Sheffield

LLP was granted a fully funded past service position in the

SYPF in respect of 1,146 transferring employees who were

active members of the Fund at 31 March 2003. For the period

31 March 2003 to 30 June 2003, the contributions paid of

£0.7m together with the investment returns were estimated

to be more than sufficient to maintain the fully funded past

service position at 30 June 2003. Full disclosure of the pension

arrangements under FRS 17 has been provided with effect from

1 July 2003.

Notes to the financial statements

continued

64 Kier Group plc

Annual Report and Accounts 2004

6 Pensions continued

The financial assumptions used to calculate the disclosure for the Kier Group Pension Scheme of scheme liabilities under FRS 17 are:

2004 2003 2002

% %%

Rate of general increases in salaries 4.3 3.8 4.0

Rate of increase to pensions in payment liable for Limited Price Indexation 2.8 2.5 2.5

Discount rate 5.9 5.5 6.0

Inflation rate 3.0 2.5 2.5

The assets in the Kier Group Pension Scheme and the expected rate of return were:

Long-term rate of return expected Value

2004 2003 2002 2004 2003 2002

% %%£m £m £m

Equities 8.5 8.0 8.0 158.8 162.3 178.5

Corporate bonds 5.5 5.0 6.0 100.8 58.0 53.7

Government bonds 5.0 4.5 5.0 66.2 72.4 64.6

Total market value of assets 325.8 292.7 296.8

Present value of liabilities (421.8) (406.5) (362.9)

Deficit (96.0) (113.8) (66.1)

Related deferred tax asset 28.8 34.1 19.8

Net pension liability (67.2) (79.7) (46.3)

The financial assumptions used to calculate the disclosure for the Kier Sheffield LLP pension liabilities under FRS 17 are:

2004 2003

% %

Rate of general increases in salaries 4.3 3.8

Rate of increase to pensions in payment liable for Limited Price Indexation 3.1 2.6

Discount rate 5.9 5.5

Inflation rate 3.0 2.5

The assets attributable to the Kier Sheffield LLP pension arrangements and the expected rate of return were:

Long-term rate of return expected Value

2004 2003 2004 2003

% % £m £m

Equities 8.5 8.0 60.9 52.2

Corporate bonds 5.5 5.0 5.0 5.2

Government bonds 5.0 4.5 17.2 15.4

Total market value of assets 83.1 72.8

Present value of liabilities (74.0) (65.5)

Surplus 9.1 7.3

Related deferred tax liability (2.7) (2.2)

Net pension asset 6.4 5.1

65 Kier Group plc

Annual Report and Accounts 2004

6 Pensions continued

2004 2003

Kier Group Kier Kier Group

Pension Sheffield Pension

Scheme LLP Total Scheme

£m £m £m £m

Analysis of the amount which would be charged to operating profit under FRS 17

Current service cost (14.2) (2.7) (16.9) (14.4)

Curtailment cost – (0.8) (0.8) –

Total operating charge (14.2) (3.5) (17.7) (14.4)

Analysis of net return on pension scheme assets

Expected return on pension scheme assets 19.1 5.2 24.3 20.9

Interest on pension liabilities (21.9) (3.6) (25.5) (21.3)

Net return (2.8) 1.6 (1.2) (0.4)

Analysis of amount to be recognised in Statement of Total Recognised Gains

and Losses (STRGL) had FRS 17 been operative

Actual return less expected return on assets 12.8 2.3 15.1 (28.5)

Changes in assumptions underlying the present value of liabilities 9.7 (1.5) 8.2 (17.4)

Actuarial gain/(loss) recognised in STRGL 22.5 0.8 23.3 (45.9)

Movement in deficit during the year

(Deficit)/surplus at 1 July (113.8) 7.3 (106.5) (66.1)

Movement in year

Current service cost (14.2) (2.7) (16.9) (14.4)

Contributions 12.3 2.9 15.2 13.0

Past service costs – (0.8) (0.8) –

Other finance (cost)/income (2.8) 1.6 (1.2) (0.4)

Actuarial gain/(loss) 22.5 0.8 23.3 (45.9)

(Deficit)/surplus at 30 June (96.0) 9.1 (86.9) (113.8)

History of experience gains and losses

Difference between expected and actual return on assets 12.8 2.3 15.1 (28.5)

% of assets 4% 3% 4% (10%)

Changes in assumptions underlying the present value of liabilities 9.7 (1.5) 8.2 (17.4)

% of liabilities 2% (2%) 2% (4%)

Total amount recognised in STRGL 22.5 0.8 23.3 (45.9)

% of assets/liabilities 5% 1% 5% (11%)

An analysis of anticipated contribution and income receipts and benefit payments indicates that the Kier Group Pension Scheme is likely

to enjoy positive net cash flows for the next eight years.

Notes to the financial statements

continued

66 Kier Group plc

Annual Report and Accounts 2004

7 Taxation

a) Analysis of the charge in the year

2004 2003

£m £m

Current tax

UK corporation tax on profits for the year at 30% 10.8 9.0

Joint venture tax 0.1 0.3

Overseas tax 0.5 0.9

Adjustments in respect of previous years 0.6 (0.4)

Total current tax (note 7b) 12.0 9.8

Deferred tax

Origination and reversal of timing differences 0.3 (0.2)

Joint venture tax (0.3) 0.4

Adjustments in respect of previous years – (0.5)

Total deferred tax – (0.3)

Total tax on profit on ordinary activities 12.0 9.5

b) Factors affecting the tax charge for the year

The current tax charge for the year is marginally lower than the standard rate of corporation tax in the UK (30%). The differences are

explained below:

2004 2003

£m £m

Profit on ordinary activities before taxation 40.6 33.3

Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% 12.2 10.0

Effects of:

Expenses not deductible for tax purposes 0.5 0.5

Utilisation of tax losses (0.2) (0.1)

Capital gains not taxable (0.3) –

Profits offset by capital losses – (0.2)

Loss on investment in Belan Limited – 0.7

Movement in tax provisions 0.3 (0.5)

Capital allowances in excess of depreciation (1.1) (0.2)

Overseas tax in excess of UK tax relief 0.1 0.3

Joint venture deferred tax 0.3 (0.4)

Other (0.4) 0.1

Adjustments to tax charge in respect of previous years – current tax 0.6 (0.4)

Current tax charge for the year (note 7a) 12.0 9.8

c) Factors that may affect future tax charges

The Group is not aware of any significant factors that may affect future tax charges.

67 Kier Group plc

Annual Report and Accounts 2004

8 Dividends

2004 2003

£m £m

Ordinary Shares

Paid 6.0 pence (2003: 5.2 pence) 2.2 1.8

Proposed 13.0 pence (2003: 11.2 pence) 4.6 3.8

6.8 5.6

9 Earnings per share

Earnings per share is calculated as follows:

2004 2003

Basic Diluted Basic Diluted

£m £m £m £m

Profit after tax 28.6 28.6 23.8 23.8

Add: goodwill amortisation 2.6 2.6 0.9 0.9

Less: tax on goodwill amortisation (0.6) (0.6) (0.2) (0.2)

Adjusted profit after tax 30.6 30.6 24.5 24.5

million million million million

Weighted average number of shares 35.1 35.1 34.2 34.2

Weighted average number of unexercised options

– dilutive effect – 0.1 – 0.3

Weighted average impact of LTIP – 0.2 – 0.4

Weighted average number of shares used for EPS 35.1 35.4 34.2 34.9

pence pence pence pence

Earnings per share 81.5 80.8 69.5 68.2

Adjusted earnings per share (after excluding goodwill amortisation) 87.2 86.4 71.6 70.2

Notes to the financial statements

continued

68 Kier Group plc

Annual Report and Accounts 2004

10 Intangible assets

Goodwill

Group £m

Cost

At 1 July 2003 22.0

Additional fees on past acquisition 0.1

At 30 June 2004 22.1

Amortisation

At 1 July 2003 0.9

Charge for the year 2.6

At 30 June 2004 3.5

Net book value

At 30 June 2004 18.6

At 30 June 2003 21.1

Intangible assets comprise goodwill arising on the acquisition of Partnerships First Limited in 2002, which is being amortised over a

period of 10 years, and on the acquisition by the Group of the business and assets of the Construction and Building Services operation

of Sheffield City Council in 2003, which is being amortised over a period of between 7 and 10 years.

11 Tangible fixed assets

Plant,

Land and vehicles Mining

buildings & fixtures assets Total

Group £m £m £m £m

Cost

At 1 July 2003 22.2 67.3 3.6 93.1

Additions 1.0 10.3 14.1 25.4

Acquisitions – 0.3 – 0.3

Disposals – (8.7) – (8.7)

Currency realignments – (0.3) – (0.3)

At 30 June 2004 23.2 68.9 17.7 109.8

Accumulated depreciation

At 1 July 2003 0.7 39.4 – 40.1

Charge for the year 0.2 7.6 0.3 8.1

Disposals – (7.0) – (7.0)

Currency realignments – (0.3) – (0.3)

At 30 June 2004 0.9 39.7 0.3 40.9

Net book value

At 30 June 2004 22.3 29.2 17.4 68.9

At 30 June 2003 21.5 27.9 3.6 53.0

The net book value of land and buildings comprises freeholds of £21.1m (2003: £20.5m), long leaseholds of £1.0m (2003: £0.7m) and

short leaseholds of £0.2m (2003: £0.3m).

69 Kier Group plc

Annual Report and Accounts 2004

12 Investments

a) Movements in year

Group Company

£m £m

Interest in subsidiary undertakings

At 1 July 2003 – 54.8

Additions – 0.5

At 30 June 2004 – 55.3

Investment in joint ventures

At 1 July 2003 30.7 –

Additions 0.4 –

Share of retained profit 1.6 –

Dividends received (0.3) –

Loan repayments (0.2) –

At 30 June 2004 32.2 –

Total investments 32.2 55.3

b) Analysis of investment in joint ventures

Group

2004 2004 2004 2004 2003

£m £m £m £m £m

Prospect

Kier Healthcare Other

Developments (Hairmyres) joint

Limited Limited ventures Total Total

Investment in joint ventures

Fixed assets – – 0.1 0.1 0.6

Current assets 68.7 45.1 80.9 194.7 158.5

Gross assets 68.7 45.1 81.0 194.8 159.1

Creditors – amounts falling due within one year (16.5) (3.0) (5.8) (25.3) (12.8)

Creditors – amounts falling due after more than one year (51.2) (41.3) (72.9) (165.4) (143.0)

Net external assets 1.0 0.8 2.3 4.1 3.3

Loans provided to joint ventures 18.9 4.3 4.9 28.1 27.4

Total investment in joint ventures 19.9 5.1 7.2 32.2 30.7

Details of the Group’s principal operating subsidiaries are given on page 78. Details of the Group’s interest in joint ventures are given on

page 79.

13 Stock

Group

2004 2003

£m £m

Raw materials and consumables 2.5 1.7

Long-term contract balances 18.3 26.2

Land and work in progress held for development 297.9 225.2

Other work in progress 9.9 8.2

328.6 261.3

Long-term contract balances and other work in progress is stated net of payments receivable on account of £nil (2003: £3.4m).

Notes to the financial statements

continued

70 Kier Group plc

Annual Report and Accounts 2004

14 Debtors

Group Company

2004 2003 2004 2003

£m £m £m £m

Amounts falling due within one year:

Trade debtors 175.8 160.9 – –

Amounts recoverable on contracts 24.5 20.0 – –

Amounts due from subsidiary undertakings – – 21.2 19.2

Amounts receivable from joint ventures 2.5 1.3 – –

Other debtors 6.2 4.1 2.2 1.9

Prepayments and accrued income 6.3 7.0 – –

Corporation tax – – 0.6 0.8

Other taxation 9.7 4.7 – –

225.0 198.0 24.0 21.9

Amounts falling due after one year:

Trade debtors – 0.1 – –

Amounts recoverable on contracts 6.2 7.1 – –

6.2 7.2 – –

Total debtors 231.2 205.2 24.0 21.9

15 Creditors

Group Company

2004 2003 2004 2003

£m £m £m £m

Amounts falling due within one year:

Bank loans and overdrafts 3.7 0.4 57.5 40.7

Payments received on account 1.7 5.3 – –

Trade creditors 360.0 312.9 – –

Amounts due to subsidiary undertakings – – 19.4 19.8

Proposed dividend 4.6 3.8 4.6 3.8

Corporation tax 5.1 4.5 – –

Other taxation and social security costs 13.5 17.5 – –

Other creditors 18.6 38.7 2.6 3.2

Accruals and deferred income 123.5 112.2 – –

530.7 495.3 84.1 67.5

Amounts falling due after more than one year:

Long-term borrowings 30.1 30.1 30.1 30.1

Trade creditors 26.6 20.8 – –

Amounts due to subsidiary undertakings – – 10.0 11.3

Accruals and deferred income 1.8 11.8 – –

58.5 62.7 40.1 41.4

Long-term borrowings due after more than one year comprises borrowings in respect of a 10-year private placement of loan notes

made in February 2003. The borrowings are unsecured and fixed at an interest rate of 6.4% per annum for 10 years.

The amount of £10.0m (2003: £11.3m) due to subsidiary undertakings relates to loans which were made to the Company in

accordance with the provisions of Sections 151 to 158 of the Companies Act 1985. The loans bear interest at 1% over bank base rate

and are fully repayable by 3 July 2006.

71 Kier Group plc

Annual Report and Accounts 2004

16 Provisions for liabilities and charges

Restoration of Deferred Contract

mining sites tax provisions Total

Group £m £m £m £m

At 1 July 2003 – 0.1 13.0 13.1

Utilised – – (7.7) (7.7)

Additions 4.0 0.3 5.6 9.9

At 30 June 2004 4.0 0.4 10.9 15.3

Deferred taxation is fully provided as follows:

2004 2003

£m £m

Accelerated capital allowances 2.3 1.4

Short-term timing differences (0.7) (0.1)

Unrelieved tax losses (1.2) (1.2)

Provision for deferred tax 0.4 0.1

17 Obligations under leasing agreements

The annual instalments under non-cancellable operating leases entered into by the Group are set out below:

Land and buildings Plant and machinery

2004 2003 2004 2003

£m £m £m £m

Operating leases expiring:

Within one year 0.1 0.1 1.3 1.3

Between one and five years 0.6 0.5 6.7 6.2

In five years or more 2.1 1.5 0.5 0.6

2.8 2.1 8.5 8.1

18 Financial instruments

At 30 June 2004, the Group had cash, overdrafts and long-term borrowings denominated in the following currencies:

2004 2003

Financial Financial Financial Financial

assets liabilities Aggregate assets liabilities Aggregate

£m £m £m £m £m £m

Currency

Sterling 35.6 (16.7) 18.9 81.4 (16.7) 64.7

US dollar 2.1 (16.9) (14.8) 2.5 (13.4) (10.9)

Hong Kong dollar 2.5 – 2.5 7.5 – 7.5

Other 1.2 (0.2) 1.0 1.1 (0.4) 0.7

Total 41.4 (33.8) 7.6 92.5 (30.5) 62.0

Notes to the financial statements

continued

72 Kier Group plc

Annual Report and Accounts 2004

18 Financial instruments continued

There is no material difference between the carrying value and fair value of the Group’s aggregate financial assets and liabilities, except

as disclosed below. The maturity of the Group’s financial liabilities is shown in the table below:

2004 2003

£m £m

Due in one year or less (3.7) (0.4)

Due in more than five years (30.1) (30.1)

(33.8) (30.5)

Amounts due in more than five years represent a £17.0m UK sterling loan and a £13.4m US dollar loan, net of £0.3m of capitalised

finance costs, from the private placement of loan notes made in February 2003. The loans are repayable in one payment in February 2013.

The UK sterling loan is at a fixed interest rate of 6.4%. The Group has entered into interest payment and repayment swaps for the US

dollar loan, which give an effective 6.4% fixed interest rate.

The remaining financial assets and liabilities are cash, short-term deposits and overdrafts at floating rates based on LIBOR.

In addition to the financial assets and liabilities stated above, the Group had trade creditors due after more than one year made up

as follows:

2004 2003

£m £m

Land creditors 14.8 9.2

Deferred consideration for acquisition 4.6 5.8

Others 7.2 5.8

26.6 20.8

The weighted average period to maturity of the land creditors is 22 months (2003: 28 months). The fair value of these liabilities is

£13.3m (2003: £8.1m). The discount rate applied is equivalent to the Group’s current incremental borrowing rate.

The deferred consideration for acquisition relates to the balance of consideration payable on the Sheffield acquisition (see note 21c).

In accordance with FRS 7 ‘Fair Values in Acquisition Accounting’ the deferred consideration has been discounted to reflect the fair value of

the Group’s liability.

Other long-term liabilities principally include outstanding sub-contract retentions. There are no other material differences between

book value and fair value of the Group’s other long-term trade creditors.

Currency swaps are entered into to hedge part of the Group’s foreign currency exposure:

Book value Fair value

£m £m

Forward rate contracts – (0.2)

The Group has £67.5m of unsecured committed borrowing facilities due for renewal as follows:

Undrawn facility

£m

2005 15.0

2007 52.5

67.5

In addition the Group has £12.5m of unsecured overdraft facilities repayable on demand.

The Group has taken advantage of the exemption in FRS 13 ‘Derivatives and other Financial Instruments’ to exclude short-term

debtors and creditors from the above analysis. Further information on the Group’s cash flow, facilities and foreign currency exposure is

contained in the Financial Review.

73 Kier Group plc

Annual Report and Accounts 2004

19 Share capital

The share capital of the Company comprises:

2004 2003

No £m No £m

Ordinary Shares of 1p each

Authorised 45,000,000 0.5 45,000,000 0.5

Issued and fully paid 35,525,754 0.4 34,867,672 0.3

During the year 658,082 Ordinary Shares were issued at a total premium of £1.9m, of which 90,551 were issued as a scrip dividend

alternative at a premium of £0.6m and 540,003 were issued under the Sharesave Scheme at a premium of £1.3m.

At 30 June 2004 there were options outstanding to subscribe for Ordinary Shares as follows:

Period Option

No exercisable price

Sharesave 625,504 2007 625p

Performance related 76,468 1999-2006 170p

Performance related 12,000 2001-2008 250p

Performance related 8,000 2001-2008 189.5p

20 Reserves

a) The movement on reserves is as follows:

Merger Capital Share

Share relief redemption scheme Profit &

premium reserve reserve reserve loss

Group £m £m £m £m £m

At 1 July 2003 (as restated) 15.2 – 2.7 (0.7) 75.2

Issue of shares 1.9––––

Movement during the year (note 20b) – – – 0.3 –

Profit for the year ––––28.6

Currency translation ––––(0.4)

Dividends ––––(6.8)

At 30 June 2004 17.1 – 2.7 (0.4) 96.6

The cumulative amount charged direct to profit and loss reserve in respect of goodwill is £9.1m (2003: £9.1m).

Merger Capital Share

Share relief redemption scheme Profit &

premium reserve reserve reserve loss

Company £m £m £m £m £m

At 1 July 2003 (as restated) 15.2 1.2 2.7 (1.0) 9.1

Issue of shares 1.9––––

Movement during the year (note 20b) – – – 0.2 –

Profit for the year ––––8.0

Dividends ––––(6.8)

At 30 June 2004 17.1 1.2 2.7 (0.8) 10.3

Notes to the financial statements

continued

74 Kier Group plc

Annual Report and Accounts 2004

20 Reserves continued

b) Share scheme reserve

This reserve comprises own shares purchased to satisfy awards under the LTIP, net of amounts charged to the profit and loss account for

these share based payments.

Group Company

2004 2003 2004 2003

Own shares held by Kier Group 1999 Employee Benefit Trust

At 1 July (1.5) (1.6) (1.5) (1.6)

Purchases (0.1) (0.4) (0.1) (0.4)

Awards under LTIP 0.4 0.5 0.4 0.5

At 30 June (1.2) (1.5) (1.2) (1.5)

Accrued share based payments

At 1 July 0.8 0.9 0.5 0.5

Awards under the LTIP Plan (0.4) (0.5) (0.3) (0.3)

Charge for the year 0.4 0.4 0.2 0.3

At 30 June 0.8 0.8 0.4 0.5

Net reserve (0.4) (0.7) (0.8) (1.0)

At 30 June 2004 the Kier Group 1999 Employee Benefit Trust held 267,414 Ordinary Shares in Kier Group plc at cost of £1.2m

(2003: 421,115 at a cost of £1.5m). The market value of these shares at 30 June 2004 was £1.7m. The dividends on these shares

have been waived.

All of the above shares have been conditionally awarded to employees through the LTIP, subject to the Group achieving prescribed

earnings per share growth targets. The cost of the LTIP is based on the market value of the shares at the date on which the award was

made. The cost is recognised based on a reasonable expectation to the extent to which performance criteria will be met and is

accounted for over the three year period to which the performance targets relate.

During the year the Kier Group 1999 Employee Benefit Trust acquired a further 20,000 Ordinary Shares in Kier Group plc at a

cost of £0.1m (2003:100,000 Ordinary Shares at a cost of £0.4m) and issued 173,701 shares to directors in satisfaction of the 2001

LTIP award at a cost of £0.4m.

21 Cash flow notes

a) Reconciliation of operating profit to operating cash flows

2004 2003

£m £m

Group operating profit 39.4 33.1

Amortisation of goodwill 2.6 0.9

Depreciation charges 8.1 8.1

Profit on sale of fixed assets (1.3) (0.8)

Increase in stocks (52.1) (5.8)

(Increase)/decrease in debtors (26.2) 13.1

Increase in creditors 27.9 1.5

(Decrease)/increase in provisions (2.1) 3.4

Net cash (outflow)/inflow from operating activities (3.7) 53.5

b) Analysis of changes in net funds

1 July Cash 30 June

2003 flows 2004

£m £m £m

Cash at bank and in hand 41.5 (30.4) 11.1

Bank overdrafts (0.4) (3.3) (3.7)

Short-term bank deposits 51.0 (20.7) 30.3

Long-term borrowings (30.1) – (30.1)

Cash, net of debt 62.0 (54.4) 7.6

Cash, net of debt includes £10.2m (2003: £12.5m) being the Group’s share of cash and liquid resources held by joint arrangements and

£13.6m (2003: £12.6m) of cash not readily available to the Group.

75 Kier Group plc

Annual Report and Accounts 2004

21 Cash flow notes continued

c) Acquisitions and disposals

2004 2003

£m £m

Investment in subsidiary undertakings (17.0) (11.8)

Investment in subsidiary undertaking (overdraft) – (1.9)

Investment in joint ventures (0.2) (5.3)

(17.2) (19.0)

Acquisition of the business and assets of the Construction and Building Services operation of Sheffield City Council

On 31 March 2003 the Group, through its subsidiary Kier Sheffield LLP, acquired the business and assets of the Construction and

Building Services operation of Sheffield City Council. The consideration, payable wholly in cash was £16.7m, representing £0.9m

for the value of net assets acquired and £15.8m for goodwill.

The consideration is payable as follows:

£m

Total consideration payable 16.7

Paid at 30 June 2003 (9.6)

Paid during the year ended 30 June 2004 (1.5)

Unwinding of discount 0.3

Deferred at 30 June 2004 5.9

Due in one year or less 1.3

Due between one and five years 4.6

5.9

Acquisition of Tudor Homes

On 30 January 2004 the Group acquired the business of Tudor Homes. The consideration, payable wholly in cash, was £15.5m

representing the value of the net assets acquired.

The following table sets out the book and fair values of the identifiable assets and liabilities acquired:

Book and

Fair Value

£m

Tangible fixed assets 0.3

Stock and work in progress 15.2

Consideration paid 15.5

The following table summarises the results of Tudor Homes from the date of acquisition to 30 June 2004:

£m

Turnover 5.9

Cost of sales (4.9)

Gross profit 1.0

Administrative expenses (0.3)

Operating profit 0.7

Notes to the financial statements

continued

76 Kier Group plc

Annual Report and Accounts 2004

22 Capital commitments

2004 2003

Group £m £m

Contracted for but not provided in the accounts 2.3 1.5

23 Transactions with related parties

Sales of goods and services to joint arrangements, joint ventures and associates

2004 2003

£m £m

Construction services and materials 36.7 37.4

Staff and associated costs 13.4 9.4

Management services 4.1 2.7

54.2 49.5

Amounts due from related parties are analysed below:

2004 2003

£m £m

Academy Services (Tendring) Limited 0.4 –

ASK (Greenwich) Limited – 1.3

Baglan Moor Healthcare PLC 3.4 3.1

Information Resources (Bournemouth) Limited 0.8 0.8

Prospect Healthcare (Hairmyres) Limited 5.3 5.1

Prospect Healthcare (Reading) Limited 1.9 2.0

Kier Developments Limited 18.8 18.6

30.6 30.9

The wife of Mr R W Gregory, a director of the Company, purchased a residential property from a subsidiary, Allison Homes Eastern

Limited, during the year for the consideration of £159,691. The purchase price was at market value.

24 Contingent liabilities

There are contingent liabilities in respect of performance bonds, guarantees and claims under contracting and other agreements,

including joint arrangements and joint ventures, entered into in the normal course of business, and commitments to support subsidiaries.

77 Kier Group plc

Annual Report and Accounts 2004

Principal operating subsidiaries

78 Kier Group plc

Annual Report and Accounts 2004

Construction & Services

Kier Regional Limited IEI Building Services Engineers

Kier Build

Kier Eastern

Kier London

Kier Northern

Kier North West

Kier Partnership Homes Limited

Kier Scotland

Kier Southern

Kier Western

Marriott Construction

Moss Construction

Wallis

Kier National Limited Kier Construction Limited

Kier Plant Limited

Kier Support Services Caxton Facilities Management Limited

Limited Caxton Islington Limited

Kier Building Maintenance

Kier Sheffield LLP

Homes & Property

Kier Residential Limited Allison Homes Eastern Limited

Bellwinch Homes Limited

Kier Homes Limited

Kier Land Limited

Twigden Homes Limited

Kier Property Limited Kier Ventures Limited

Group Services and Infrastructure Investment

Kier Limited Kier Engineering Services

Kier Project Investment Limited

NOTES:

i Each company is registered in England and Wales and

operates principally within the United Kingdom. Kier

Construction Limited also operates in the Far East, Middle

East, the Caribbean, the Americas and Romania.

ii The ordinary share capital of each company is wholly owned.

Kier Group plc holds directly all the shares of Kier Limited

and Kier Residential Limited. The shares of the other

companies are held by subsidiary undertakings.

iii A full list of the Group’s subsidiaries is included in the

Company’s Annual Return.

Principal joint arrangements,

joint ventures and associated undertakings

79 Kier Group plc

Annual Report and Accounts 2004

Joint arrangements

Building and/or civil engineering construction

The following joint arrangements, in which the Group

participation is between 33% and 50%, operate in England:

Kier/Nuttall a joint arrangement between Kier Construction

and Edmund Nuttall Limited

Nuttall/Wayss a joint arrangement between Edmund Nuttall

& Freytag/Kier Limited, Wayss & Freytag Ingenieurbau and

Kier Construction

Kier/Murphy/ a joint arrangement between Kier Construction,

Interserve J Murphy & Sons Limited and

Interserve Project Services Limited

The following joint arrangements, in which the Group

participation is between 40% and 50%, operate overseas,

in the territory indicated:

Hong Kong

Kier/Zen a joint arrangement between Kier Construction

and Zen Pacific Limited

Suriname

Kier/CCC a joint arrangement between Kier Construction

and Commercial Contracting Company of

San Antonio, Inc.

Jamaica

Kier/CCC a joint arrangement between Kier Construction

and Commercial Contracting Company of

San Antonio, Inc.

Romania

Mivan/Kier a joint arrangement between Mivan Limited

and Kier Construction

United States

Kier/CCC a joint arrangement between Kier Construction

and CCC Group, Inc.

Commercial Property Development

The Group has a 25% participation in a joint arrangement in

England between Kier Property and Norwich Union Life and

Pensions Limited.

Joint ventures

Interest held

Long-term concession holding under

the Private Finance Initiative

Academy Services (Holdings) Limited 50%

Academy Services (Waltham Forest)

(Holdings) Limited 50%

ASK (Holdings) Limited 50%

Baglan Moor (Holdings) Limited 25%

Information Resources (Holdings) Limited 50%

Information Resources (Oldham) Holdings Limited 50%

Prospect Healthcare (Hairmyres) Group Limited 50%

Prospect Healthcare (Hinchingbrooke)

Holdings Limited 50%

Prospect Healthcare (Reading) Holdings Limited 50%

International construction and contract mining

Incorporated and operating in the Hashemite

Kingdom of Jordan

The Jordan Economic Development and

Trading Company Limited 50%

Commercial property development

Kier Developments Limited 50%

Kier Warth Limited 50%

NOTES:

i The terms ‘joint arrangement’ and ‘joint venture’ are defined

by FRS 9 ‘Associates and Joint Ventures’. Joint arrangements

are contracted agreements to co-operate on a specific project

which is an extension of the Group’s existing business. Joint

ventures are ongoing businesses carrying on their own trade.

ii Except where otherwise stated the companies are

incorporated and operate in the United Kingdom.

Kier Regional

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

J Dodds Chairman

R W Side MD

P P J Cullen

M J Desmond

I M Lawson

A D Mullins

M P Sheffield

S A Tilley

M Wright

Kier Build

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

R W Side Chairman

M Dobson MD

T P Davies

J H Fozzard

A J Greenhalgh

W G Merry

M R Whiteley

Kier Eastern

53 South Brink

Wisbech

Cambridgeshire

PE14 0RA

S A Tilley Chairman

N W Meixner MD

I P Greenly

G C Howe

R W Kidger

C J Riley

J D Yates

Kier London

188 High Road

Loughton

Essex

IG10 1DH

M P Sheffield Chairman

P J Everard MD

J W Abbott

D R Avery

G C Garvie

C J Riley

N R Sheppard

Kier Northern

Lyndon House

198 High Street

Boston Spa

West Yorkshire

LS23 6BT

S A Tilley Chairman

W Kay MD

M A Ashton

S Flint

J M Gray

E Hume

C McNeil

Kier North West

Yardley Road

Knowsley Industrial Park

Liverpool

L33 7ST

S A Tilley Chairman

L Wilkinson MD

M A Ashton

I Entwistle

D Jenkins

P A Sloane

P Vickers

Kier Partnership Homes

Beecham Business Park

Northgate

Aldridge

Walsall

WS9 8TZ

I M Lawson Chairman

D L Seal MD

D B Hodson

M F Lewis

Kier Scotland

Campsie House

Buchanan Business Park

Cumbernauld Road

Glasgow

G33 6HZ

P P J Cullen Chairman

J McMenamin MD

A Clark

M M Rooke

Kier Southern

Maple Lodge Close

Maple Cross

Rickmansworth

Hertfordshire

WD3 9SN

M Wright Chairman

P H Durigan MD

D M Brown

S A Byford

N E Elliott

S Mason

M W Orr

G D Willoughby

Kier Western

The Old Mill

Chapel Lane

Warmley

Bristol

BS15 4WW

P P J Cullen Chairman

P R Young MD

J S Edmonds

R W Martini

K Payne

J Prosper

B J Sheen

D J Snell

Marriott Construction

Marriott House

Rushden

Northamptonshire

NN10 6EA

S A Tilley Chairman

R W Murphy MD

P Hawes

J S Henke

A Purvey

M M Rooke

Moss Construction

96 Leckhampton Road

Cheltenham

Gloucestershire

GL53 0BP

P P J Cullen Chairman & MD

R C Butler

B D Clarke

J C Mackman

M M Rooke

P J Turner

Wallis

47 Homesdale Road

Bromley

Kent

BR2 9TN

M Wright Chairman

R H Bush MD

D Evans

J R Gilbert

P B Griffith

F Hill

P Kitchener

Kier National

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

J Dodds Chairman & MD

R A Haller

M P Sheffield

P J Staniland

Kier Construction

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

M P Sheffield Chairman

R A Haller MD

G R Burn

P J Cave

D J Durey

D J Myers

D Rainford

A W Saul

T W Tagg

Kier Plant

The Lane

Chawston

Bedfordshire

MK44 3BH

M P Sheffield Chairman

I D Gordon MD

P J Glynn

D E Salter

N P Thorpe

Group principal businesses

80 Kier Group plc

Annual Report and Accounts 2004

Kier Support

Services

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

J Dodds Chairman

I M Lawson MD

J R Bradley

N J Chidgey

C S Porton

R P Manning

Caxton Facilities Management

Conway House

St Mellons Business Park

Fortran Road

St Mellons

Cardiff

CF3 0LT

I M Lawson Chairman

C S Porton MD

M Davies

M Hill

P C Owen

Caxton Islington

33-37 Brewery Road

Islington

London

N7 7QH

J R Bradley Chairman

J Nelson MD

A Gibbons

R M Jackson

T C Tatham

C Thomas

IEI Building Services

Engineers

Southern Cross

Basing View

Basingstoke

Hampshire

RG21 4HG

I M Lawson Chairman

R P Manning MD

D W Stiff

Kier Building Maintenance

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

I M Lawson Chairman

J R Bradley MD

P Byrnes

J Nelson

D A Sheridan

T C Tatham

C Thomas

Kier Sheffield

Manor Lane Depot

Manor Lane

Sheffield

S2 1TR

J R Bradley Chairman

D A Sheridan MD

A R Gammage

J Roney

C Thomas

L Weaver

Kier Residential

The Shrubbery

Church Street

St Neots

Cambridgeshire

PE19 2BY

J Dodds Chairman

R W Gregory MD

T J Barke

K Dixon

L E Garner

D E Mattar

M O’Farrell

R P Page

W R Reid

Allison Homes Eastern

Holland Place

Wardentree Park

Pinchbeck

Spalding

Lincolnshire

PE11 3ZN

R W Gregory Chairman

M O’Farrell MD

P Adams

L E Garner

M Jessop

M Smith

Bellwinch Homes

Malcolm House

Empire Way

Wembley

Middlesex

HA9 0LW

R W Gregory Chairman

R P Page MD

L E Garner

D F Lomas

J McCormack

J M Nowak

S P White

S J Whitehead

Kier Homes

Merlin House

Mossland Road

Hillington Park

Glasgow

GS2 4XZ

R W Gregory Chairman

W R Reid MD

D Cope

A Duffy

L E Garner

L J Hope

S A McDonagh

M T McGleish

Kier Land

The Shrubbery

Church Street

St Neots

Cambridgeshire

PE19 2BY

R W Gregory Chairman

K Dixon MD

L E Garner

I J Mitchell

R P Page

Twigden Homes

The Shrubbery

Church Street

St Neots

Cambridgeshire

PE19 2BY

R W Gregory Chairman

T J Barke MD

L E Garner

J G Hodgetts

A E Page

D P Seth

A P Walkerdine

A B Walsh

Kier Property

6 Cavendish Place

London

W1G 9BN

J Dodds Chairman

R W Simkin MD

C R Bain

T G Gilman

N A Turner

I P Woods

Kier Project

Investment

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

D E Mattar Chairman

J A J Byrne MD

J Dodds

P R P George

J A N Tibbitts

J A Young

Kier Engineering Services

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

J Dodds

Chairman

R A Haller MD

81 Kier Group plc

Annual Report and Accounts 2004

2004 2003 2002 2001 2000

Year ended 30 June £m £m £m £m £m

Turnover: Group and share of joint ventures 1,476.5 1,445.6 1,382.7 1,251.1 1,034.8

Group operating profit 39.4 33.1 24.8 19.9 15.2

Joint ventures – share of operating profit 3.2 3.1 1.4 1.4 0.4

Total net interest (2.0) (0.6) 1.1 0.6 1.3

Other – (2.3) 0.7 – 0.8

Profit before tax 40.6 33.3 28.0 21.9 17.7

Taxation (12.0) (9.5) (7.7) (5.9) (4.6)

Profit after tax 28.6 23.8 20.3 16.0 13.1

Dividends (6.8) (5.6) (4.8) (4.1) (3.5)

Retained profit for the year 21.8 18.2 15.5 11.9 9.6

Earnings per Ordinary Share

– undiluted 81.5p 69.5p 60.4p 48.0p 39.8p

Dividend per Ordinary Share 19.0p 16.4p 14.2p 12.3p 10.7p

At 30 June £m £m £m £m £m

Shareholders’ funds 116.4 92.7 73.8 57.8 44.5

Net assets per Ordinary Share 327.7p 265.9p 214.2p 170.3p 133.1p

Financial record

82 Kier Group plc

Annual Report and Accounts 2004

Directors

C R W Busby FCA FCIOB Chairman

J Dodds Chief Executive

R W Gregory ACA

D E Mattar BSc FCA

R W Side FCIOB FFB MCMI

R W Simkin BSc MRTPI

P F Berry CMG MA

S W Leathes MA FCA

P T Warry MA LLB

D E Mattar Secretary

Headquarters and Registered Office

Kier Group plc

Tempsford Hall

Sandy

Bedfordshire

SG19 2BD

Tel 01767 640111

www.kier.co.uk

Registered Number

England 2708030

Financial calendar

27 November 2004

Annual General Meeting

7 December 2004

Payment of final dividend for 2003/04

March 2005

Announcement of results for the half year

and interim dividend

May 2005

Payment of interim dividend

September 2005

Announcement of preliminary full year results

and final dividend for 2004/05

Auditors

KPMG Audit Plc

8 Salisbury Square

London

EC4Y 8BB

Bankers

Bank of Scotland

New Uberior House

11 Earl Grey Street

Edinburgh

EH3 9BN

Barclays Bank PLC

54 Lombard Street

London

EC3V 9EX

Royal Bank of Scotland PLC

135 Bishopsgate

London

EC2M 3UR

Registrars

Capita Registrars

The Registry

34 Beckenham Road

Beckenham

Kent

BR3 4TU

Stockbrokers

Panmure Gordon

A division of Lazard & Co., Ltd

50 Stratton Street

London

W1J 8LL

Corporate information

Kier Group plc

Annual Report and Accounts 2004

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Kier Group plc

Tempsford Hall

Sandy

Bedfordshire SG19 2BD

Telephone

01767 640111

Fax

01767 640002

www.kier.co.uk

Kier Group plc

Tempsford Hall

Sandy

Bedfordshire SG19 2BD

Telephone

01767 640111

Fax

01767 640002