Kier Regulatory News (KIE)

Description

Key mitigations/controls

1.

Safety, health and sustainability

Principal risk: failure to maintain a safe and sustainable environment

The Group's activities are inherently complex and potentially hazardous and require the continuous management of safety, health and sustainability risks.

Failure to do so could result in any of the following:

· an increase in safety or environmental incidents on site;

· the cost of sickness absence not reducing;

· Kier's energy costs not reducing;

· the failure to meet clients' expectations;

· the failure to meet investors' expectations;

· reduced ability to bid for and win new work;

· reputational damage; and

· financial penalties arising from fines, legal action and project delays.

· Continuation of the Group's SHE behavioural change programme;

· Management continuing to undertake visible leadership tours;

· Continued focus on the reduction in lost

time accidents and the resulting cost of

sickness absence;

· Implementation of Kier's energy saving

programme; and

· Continued implementation of various social impact strategies.

2.

Regulation

Principal risk: failure to manage increased scrutiny and oversight and/or comply with new regulations

The Group's operations are subject to increased scrutiny, regulation and oversight due to external factors (for example, corporate failures, the Grenfell Tower fire and Brexit).

The UK construction and services sectors have recently experienced a significant increase in the level of public focus under which they operate. We expect that scrutiny to increase, particularly for major suppliers to the public sector.

These sectors are also subject to increasing regulation and reporting requirements, including new regulations relating to building standards, payments to suppliers and the gender pay gap.

Failure to manage effectively the increased scrutiny and oversight and/or comply with new regulations could result in:

· the loss of business;

· the failure to win new business;

· increased operating costs;

· the Group defending material claims; and

· reputational damage.

· Regular engagement with government and government agencies with respect to the Group's performance and other matters of interest;

· Close monitoring and planning of the impact of new legislation and regulations;

· Establishing strategies and policies to ensure compliance with regulatory requirements; and

· Collaborative engagement with our clients and subcontractors.

3.

Funding

Principal risk: reduced liquidity affects our ability to invest and grow

Political, market or lender sentiment may affect the Group's available funding, thereby reducing its liquidity and restricting its ability to invest in the Property and Residential businesses and deliver plans for future growth.

The Group has a number of committed and uncommitted facilities available to meet its funding needs. Any or all of these facilities could be reduced or removed.

A reduction in or removal of the Group's principal financing facilities could result in:

· a slowdown of investment for future growth, particularly in the Property and Residential businesses;

· reduced profit as a result of the inability to fund growth opportunities; and

· the loss of confidence by stakeholders (for example, investors, clients, subcontractors and employees).

· Focus on cash forecasting and working capital management to generate positive cash flow;

· Maintenance of appropriate levels of committed bank facilities;

· Maintenance of appropriate bank and surety bonding facilities;

· Collaborative engagement with banks, lenders and sureties; and

· Continue to identify appropriate alternative funding structures.

4.

Market and sector performance

Principal risk: market downturn may reduce growth opportunities

Delivery of the Group's strategy depends on the economic performance of the UK, in particular, and the markets and sectors in which the Group operates. Although the Group provides a range of services and operates across a number of diverse market sectors, reduced economic activity and expenditure in public, regulated and private sectors would likely result in lower growth or lower revenue for the Group. In addition, the performance of the Property and Residential businesses relies on successful investments across the market sectors in which they operate.

A downturn in the Group's markets and/or unsuccessful allocation of investment capital could result in:

· a failure to meet the Group's financial targets;

· a failure of one or more of the Group's businesses;

· an increase in the competition for new work; and

· a decrease in stakeholder confidence in the Group.

· Continue to evaluate market performance, including the impact of macro-economic factors and the associated market risk of specific events (for example, Brexit);

· Review the Group's portfolio of businesses to enable management to focus on the Group's core businesses;

· Continue to review its pipeline of future work to identify trends in the Group's core markets; and

· Via the newly-appointed Group Business Development Director, ensure a focused approach to winning new work.

5.

Operating model

Principal risk: efficiency benefits are not achieved

The Group needs to maintain and evolve its operating model so as to build and sustain the long-term confidence of its key stakeholders, deliver sector-leading customer experience and maximise the opportunities for growth. The Group needs to maintain an efficient operating model.

Failure to do so could result in:

· business failure;

· the failure to deliver growth and profitability;

· the failure to remain competitive;

· the failure to reduce costs; and

· the failure to meet the expectations of stakeholders (for example, investors, clients, subcontractors and employees).

· Continue to monitor the long-term prospects, opportunities and risks associated with our key markets and adapt the operating model accordingly;

· Implement the Future Proofing Kier programme to improve productivity, operating margins and cash generation;

· Seek to dispose of non-core operations; and

· Deliver the benefits of the Oracle ERP implementation.

6.

Contract management

Principal risk: ineffective contract management leads to losses

Effective contract management is central to the Group's business model and its continued growth. The Group has a number of large and complex contracts in progress at any one time. Each of these contracts requires careful and effective management, according to a number of factors, including type of work, location, length of contract and form of contract.

Failure to manage contracts effectively could result in:

· a failure to meet the Group's financial targets;

· the Group incurring losses;

· the Group failing to win new work;

· reputational damage to the Group; and

· a loss of confidence of stakeholders (for example, investors, clients, subcontractors and employees).

· Continued use of metrics to provide early warnings of under-performing contracts;

· Completion of the review of the Group's contract risk governance framework; and

· Continued focus on supply-chain procurement.

7.

Pre-contract governance

Principal risk: inadequate pre-contract governance fails to identify contract risk

Effective pre-contract governance is essential to ensure that the Group understands the risks associated with projects and has in place appropriate plans to mitigate those risks.

A failure in the Group's pre-contract controls could result in:

· poorly performing contracts;

· the Group incurring losses;

· the failure to meet a client's expectations on cost and quality;

· claims and litigation against the Group;

· a failure to meet the Group's financial targets; and

· the Group failing to win new work.

· Continue to assess contract risk through the Group's standing orders, commercial standards and screening assessment matrix;

· Continue to focus on selective tendering; and

· Share lessons learned across the Group.

8.

People

Principal risk: failure to deliver the Group's people strategy

The Group recognises the importance of a clear people strategy to the delivery of its overall strategy and the need to identify, retain and motivate people with the right skills, experience and behaviours. In particular, the Group recognises the benefits of a diverse workforce which is representative of society.

Failure to deliver the Group's people strategy could result in:

· the failure to deliver a specific business need or contract requirement;

· reputational damage, to both the corporate and the employee brand;

· the failure to develop future leaders;

· the over-reliance on key staff; and

· a failure to meet the Group's financial targets.

· Continue to progress internal targets on gender diversity at all levels;

· Continue to focus on skills development and retention plans for critical skills and the talent pipeline; and

· Embed visible leadership of the balanced business agenda and engagement actions so as to create a fully inclusive work environment.

9.

Innovation

Principal risk: failure to innovate to keep ahead of market and client expectations

The Group operates in an increasingly dynamic and changing environment. To exploit the opportunities that this presents, the Group seeks to embrace innovation and capitalise on technological advancements.

Failure to do so may result in:

· a failure to maintain the Group's market position;

· the failure to reduce cost or increase the speed of delivery for clients;

· the failure to provide visibility of performance; and

· the failure to attract and retain staff.

· Ensure that employees have access to online innovation and idea-sharing platforms;

· Further develop the Group's partnerships with clients and third party organisations to progress its innovation agenda; and

· Monitor, and respond to, prospective market disruptors.

10.

Cyber-security

Principal risk: failure to maintain adequate cyber-security measures

Cyber-attack and data loss is a risk to all organisations and individuals. The Group is at risk because it handles sensitive information of a personal, confidential and commercial nature, its business operations depend upon IT systems and it has an increasing profile with clients, suppliers and other stakeholders.

Failure to manage the cyber-security risk may result in:

· business interruptions and operational delay;

· the loss of data, resulting in confidentiality breaches, financial loss and reputational damage;

· fines from regulatory authorities; and

· reputational damage to the Group.

· Continue to strengthen the Group's dedicated cyber-security team;

· Consider outsourcing elements of the Group's IT systems where it is appropriate to do so; and

· Continue to test information security alongside recognised UK and International standards (for example, ISO27001).

Brexit

The UK will be leaving the EU in March 2019. Kier has established a senior level 'Brexit Taskforce' to consider the potential effect of Brexit on the Group, which will be influenced by the outcome of the negotiations between the UK Government and the European Commission.

We have identified potential risks relating to the supply chain, the workforce and the supply and cost of materials, in particular. The Group is developing contingency plans against a range of scenarios, including one in which the UK leaves the EU without an agreement and, potentially, without a transition period. We are monitoring developments and will amend and update these plans accordingly.

2018£m

2017£m

Emoluments as analysed in the Directors' Remuneration Report

5.6

4.5

Employer's national insurance contributions

0.8

0.7

Total short-term employment benefits

6.4

5.2

Share-based payment charge

0.7

0.4

7.1

5.6

2018£m

20171£m

Construction services and materials

116.9

11.3

Staff and associated costs

8.9

1.3

Management services

4.4

3.9

Interest on loans to joint ventures

0.7

0.8

Plant hire

0.8

-

131.7

17.3

2018£m

2017£m

 Kier Cornwall Street LLP

13.1

-

 Kier Reading LLP

10.5

15.0

 Kier Richmond Limited

9.9

-

 Kier (Southampton) Investment Limited

9.3

-

 Kier (Newcastle) Investment Limited

8.8

-

 Kier Community Living LLP

8.4

-

 Watford Health Campus Partnership LLP

7.7

-

 Kier Sovereign LLP

5.2

0.3

 50 Bothwell Street LLP

4.8

4.7

 Kier Trade City LLP

4.3

10.7

 Lysander Student Properties Investments Limited

3.9

-

 Strawberry Percy LLP

3.3

-

 Easingwold Devco LLP

2.9

-

 Notaro Kier LLP

2.9

-

 Stokesley Devco LLP

2.7

-

 Tri-link 140 LLP

1.4

1.4

 Black Rock Devco LLP

1.2

-

 Winsford Devco LLP

1.1

1.1

 Driffield Devco LLP

0.8

-

 Kier Foley Street LLP

-

20.9

 Staffordshire Property Partnership

-

0.1

102.2

54.2

2018

£m

2017

£m

Hackney Schools for the Future Limited

2.7

-

Driffield Devco LLP

1.4

-

Solum Regeneration (Guildford) LLP

0.9

-

Stokesley Devco LLP

0.5

0.7

Kier (Southampton) Investment Limited

0.3

-

Watford Health Campus Partnership LLP

0.2

-

Kier Community Living LLP

0.2

-

Kier Sydenham LP

0.1

-

Kier Trade City LLP

0.1

-

Team Van Oord Limited

0.1

-

Black Rock Devco LLP

-

1.0

Winsford Devco LLP

-

0.8

6.5

2.5