Kier Regulatory News (KIE)

20 March 2019

Kier Group plc, a leading infrastructure services, buildings and developments & housing group, announces its results for the six months ended 31 December 2018

Financial summary

· Revenue of £2.2bn (H1 FY18: £2.1bn)

· Underlying operating profit of £51.8m (H1 FY18: £60.6m), after £10m net costs from the Future Proofing Kier programme

· Non-underlying charges of £59.9m

· Net debt position as at 31 December 2018 of £180.5m (December 2017: £238.5m)

· Average month-end net debt for the period of £430m (H1 FY18: c.£350m)

· Rights issue completed in December 2018 to strengthen the balance sheet

· Basic earnings per share of 30.8p (H1 FY18: 40.9p)5

· Interim dividend of 4.9p.5

Future Proofing Kier (FPK) programme

· Delivered savings of £4m, with implementation costs of £14m, in H1 FY19

· FY19 forecast to be earnings and cash flow neutral

· Net savings of £20m anticipated in FY20

· Continued progress on disposal programme; sale of Kier Highways Services Australia completed in December 2018.

Operational highlights

· Order book of c.£10bn (H1 FY18: £9.8bn)

· £2.1bn of new contract wins during the period

· 9 property scheme sales completed in the period

· 842 new residential units delivered (H1 FY18: 965)

· Advanced stages of negotiations to exit significant loss-making waste collection contract.

1. Financial information in the table above relates to continuing operations.

2. Restated to classify Wheldon Contracts & Services as discontinued.

3. Group and share of joint ventures.

4. Stated before non-underlying items - see note 3 to the interim financial statements.

5. Reflecting the adjustment to the number of shares following the rights issue.

Commenting on the outlook, Philip Cox, Executive Chairman, said; "Our regional building and property development businesses continue to operate well, although we are experiencing some volume pressures in the highways, utilities and housing maintenance markets.

The Group has a significantly strengthened balance sheet following the completion of the rights issue in December 2018. The Board continues to focus on simplifying the Group, improving cash flow generation and net debt reduction, and forecasts a net cash position at 30 June 2019.

Whilst the Board notes the current political and economic uncertainty in the UK, and the implications for third party investment, the Group is maintaining its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected."

- ENDS -

There will be a presentation of the results to analysts and investors at 0900 hours GMT on 20 March 2019 at etc.venues St. Pauls, 200 Aldersgate, London, EC1A 4HD and a live webcast: https://www.investis-live.com/kier/5c5c5850cad1ac0c008dab1e/qeqe which will also be recorded and made available later in the day on Kier's website.

For further information, please contact: 

EXECUTIVE CHAIRMAN'S STATEMENT

Overview

Following the announcement on 22 January 2019 that Haydn Mursell would stand down as Chief Executive, I assumed the role of Executive Chairman.

I am pleased to announce the Group's results for the six months ended 31 December 2018. Revenue for the period was £2.2bn (H1 FY18: £2.1bn) and underlying operating profit was £51.8m (H1 FY18: £60.6m). Net debt at 31 December 2018 was £180.5m and average month-end net debt for the period was £430m. These net debt figures include the net proceeds from the December 2018 rights issue (the Rights Issue), which resulted in a reduction in the Group's trade creditors and significantly strengthened its balance sheet. The Group's order book was c.£10bn at 31 December 2018 (H1 FY18: £9.8bn), following c.£2.1bn of awards in the period.

Following its launch in June 2018, the Future Proofing Kier (FPK) programme has continued to progress well. The programme aims to streamline the business, drive operational efficiencies and improve profitability. The costs of implementing the programme in H1 FY19 were £14m, with associated savings of £4m. We continue to expect the FPK programme to be earnings and cash flow neutral in FY19 and anticipate that it will deliver annual savings of £20m in FY20. We continued to make progress on disposals and, in December 2018, completed the sale of Kier Highways Services Australia.

Our safety performance continues to improve, with the Group's accident incidence rate (AIR) at 31 December 2018 being 79, a 40% improvement year-on-year and significantly below the average for the sector.

We are pleased to report that Andrew Davies will join the Group as Chief Executive with effect from 15 April 2019. Andrew was the Chief Executive Officer of Wates Group Limited from 2014 to 2018 and spent over 28 years with BAE Systems plc, undertaking a range of senior operational and corporate roles, including Group Strategy Director and, latterly, Managing Director of the Maritime Division. Andrew brings a strong track record of business leadership and operational experience and, on behalf of the Board, I would like to welcome Andrew to the Group.

Outlook

Our regional building and property development businesses continue to operate well, although we are experiencing some volume pressures in the highways, utilities and housing maintenance markets.

The Group has a significantly strengthened balance sheet following the completion of the Rights Issue. The Board continues to focus on simplifying the Group, improving cash flow generation and net debt reduction, and forecasts a net cash position at 30 June 2019.

Whilst the Board notes the current political and economic uncertainty in the UK, and the implications for third party investment, the Group is maintaining its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected.

FINANCIAL REVIEW

Summary of underlying results

The Group's results for the six months ended 31 December 2018 reflect the adoption of IFRS 15 (Revenue from Contracts with Customers) and IFRS 9 (Financial Instruments) and are presented under the Group's new reporting structure.

The Group's underlying revenue, including its share of revenue from joint ventures, for the period was £2.2bn, an increase of 2% compared to the equivalent period in FY18:

· Infrastructure Services' revenue increased by 8%;

· Buildings' revenue increased by 10%; and

· Developments & Housing's revenue reduced by 19%.

The Group's underlying operating profit for the period of £51.8m reflects net costs of £10m relating to the implementation of the FPK programme. In particular:

· In the Infrastructure Services division, margins decreased to 4.3% (H1 FY18: 4.9%), principally as a result of the change in the overall mix of work from maintenance to lower value capital projects;

· In the Buildings division, margins increased to 3.4% (H1 FY18: 2.1% (including c.£8m of non-recurring exit costs relating to the Hong Kong and Caribbean operations));

· In the Developments & Housing division, margins reduced from to 4.3% (H1 FY18: 5%), principally as a result of a reduction of volumes. The businesses reported a ROCE of 14% and 9%, respectively; and

· Central costs increased by 55% to £34.2m, reflecting £14m of gross FPK implementation costs.

Net financing costs

Underlying net financing costs for the period of £12.8m (H1 FY18: £11.2m) increased in line with average month-end net debt for the period.

Taxation

The underlying tax charge for the period of £7.6m (H1 FY18: £8.5m) represents an effective corporation tax rate of 20.5% (H1 FY18: 17%) and includes the effect of joint venture tax.

Non-underlying charges

The Group is reporting the following charges:

· Curtailment of a loss-making waste collection contract: the Group is in the advanced stages of negotiation with respect to the early termination of a significant loss-making waste collection contract. A non-underlying provision of £26m has been made in respect of the anticipated phased settlement payments to be made to the client between FY20 - FY26, which would be more than offset by the savings resulting from the termination.

· Broadmoor Hospital redevelopment project: as announced on 11 March 2019, a £25m non-underlying provision has been taken in respect of future recoveries from the client and other third parties.

· Disposals: in the period, the Group sold its interests in Kier Highways Services Australia, its pension administration business and The Unity Partnership Limited for an aggregate cash consideration of £29.7m and a total loss of £0.8m after the application of non-cash goodwill and contract rights of £17.3m, net of deferred tax.

· Pension: following a court ruling relating to the Guaranteed Minimum Pension in October 2018, the Group's actuaries have recommended the recognition of a £6.1m equalisation charge in respect of the Group's final salary pension schemes. There is no cash impact associated with this charge.

· McNicholas acquisition: the Group has incurred £5.4m of non-recurring costs relating to the integration of the McNicholas business into the Group's utilities business. These costs have been offset by the reversal of a provision for deferred consideration of £5.5m.

The net cash inflow associated with the above items is £17.5m. £16.0m was reported as the net cash balances within the disposed businesses at 30 June 2018.

Earnings per share

Underlying earnings per share from continuing operations (EPS) was 30.8p (H1 FY18: 40.9p). The weighted average number of shares in issue for the period of 103.1m reflects the shares issued in connection with the Rights Issue. EPS for prior periods has been restated to reflect the application of the adjustment factor of 1.0176, being the bonus element of the new shares issued in connection with the Rights Issue.

Net debt

The Group's net debt position of £180.5m at 31 December 2018 (H1 FY18: £238.5m) and average month-end net debt of £430m for the period (H1 FY19: £350m) reflect the net proceeds of the Rights Issue.

The total net working capital outflow in the period of £220m was materially higher than in prior years. This outflow comprised a £97m reduction in trade payables, an increase in net work-in-progress of £97m arising from a reduction in payments in advance of costs in December 2018 and an increase of £26m in work-in-progress in the Residential business following delays in unit completions. This compares to average working capital outflows of £56m over the first six months of the preceding three financial years.

Supplier utilisation of the Kier supply chain finance facility has increased to an average during the period of £196m (H1 FY18: £176m). The differential between average daily net debt and average month-end net debt during the period was c.£90m.

The Group reported average payment terms (excluding McNicholas) of 55 days for the period under the Reporting on Payment Practices and Performance Regulations, an improvement of two days on the period ended 30 June 2018. The reported figure is based on the volume of transactions processed by the Group.

Financial Reporting Standards

Impact of IFRS 9 (Financial Instruments)

The implementation of IFRS 9 relates primarily to hedge accounting and the classification, measurement and impairment of financial assets.

The adoption of IFRS 9 has had no material impact on the Group's interim financial statements.

Impact of IFRS 15 (Revenue from Contracts and Customers)

The Group has made £43.1m of opening reserves adjustments, net of tax, as a result of the transition to IFRS 15. Whilst IFRS 15 can impact on the timing of revenue and profit recognition on individual contracts in a particular accounting period, it does not change the overall revenue, profit or cash generated over the life of the contract.

These adjustments relate to:

· Transitioning from revenue recognition based on external progress valuation to internal cost (£14.2m);

· Certain claims receivable from non-customer third parties which, under IAS 37, now require recovery to be "virtually certain" (£24.6m);

· Disaggregation of performance criteria relating to a single IT service contract (£3.4m);

· Derecognition of variations on a contract in the Middle East (£9.7m); and

· Less the deferred tax credit on the above at 17% (£8.8m).

The total reversal of these adjustments resulted in a non-cash credit of £10.4m, after tax.

Impact of IFRS 16 (Leases)

The Group continues to work on assessing the impact of IFRS 16, which will be adopted in FY20. The Group will provide an update on the impact of adopting IFRS 16 in due course.

Financial Reporting Council (FRC) Corporate Reporting Review

The Company continues to engage with the FRC with respect to the FRC's letter of 30 July 2018 about the Company's 2017 Annual Report (as referred to on page 78 of the 2018 Annual Report). The principal outstanding issues relate to: (i) the Company's accounting treatment of certain joint ventures in its property and residential businesses, as referred to on page 33 of the Company's Rights Issue prospectus dated 30 November 2018; and (ii) the basis of revenue recognition of certain items.

Order book

The combined order book was c.£10.0bn at 30 June 2018 (H1 2018: £9.8bn (adjusted for the disposal of Kier Highways Service Australia)).

Retirement benefit obligation

The overall pension position has moved from a post-tax surplus of £8m at 30 June 2018 to a deficit of £14m at 31 December 2018. This movement was primarily driven by the recent performance of the schemes' assets and the recognition of the Guaranteed Minimum Pension equalisation charge of £6.1m. The Group's cash contributions in the period to the actuarial deficit were £12m. The revised triennial actuarial valuation of the Group's principal schemes commences on 31 March 2019.

Dividend

An interim dividend of 4.9p (H1 FY18: 23.0p), amounting to £8m, will be paid on 17 May 2019 to shareholders on the register at the close of business on 29 March 2019. As an alternative to the cash dividend, shareholders will be offered the option to participate in a dividend reinvestment plan (DRIP). The deadline for shareholders to submit their instructions to participate in the DRIP is 5.30 p.m. (London time) on 25 April 2019.

Principal risks and uncertainties

The principal risks and uncertainties relating to the Group continue to be those which are set out on pages 38 - 43 of the Group's annual report and accounts relating to the Group for the year ended 30 June 2018. These comprise safety; health and sustainability; regulation; funding; market and sector performance; operating model; contract management; pre-contract governance; people; innovation; cyber-security and the impact of Brexit. In addition, the risks referred to in the section of the Company's Rights Issue prospectus dated 30 November 2018 entitled "Risk factors" continue to apply.

OPERATIONAL REVIEW

The Group is reporting its operations under Infrastructure Services, Buildings and Developments & Housing.

Infrastructure Services (Highways, Utilities & Rail and Major Projects - Infrastructure)

Revenues increased by 8% to £867.7m (H1 FY18: £801.5m), generating an underlying operating profit of £37.2m (H1 FY18: £39.3m) and an operating margin of 4.3% (H1 FY18: 4.9%), reflecting the change in mix of revenues. The Infrastructure Services businesses' order book at 31 December 2018 increased to c.£6.0bn (30 June 2018: £5.5bn).

In Highways, Kier was appointed in November 2018 to a new six-year framework to deliver capital schemes for Highways England in the north of England and has continued to deliver four schemes across the M6, M20 and M23, with one scheme nearing completion.

Within the Highways England £17bn five-year Road Investment Strategy (RIS1) programme, the business is experiencing some volume pressures. During the period, the business reported an increase in turnover from capital projects awarded, but a reduction in turnover from maintenance projects.

In Utilities, the Group was awarded the Gigaclear contract for high-speed networks in Devon and Somerset, new contracts totalling c.£250m by Anglian Water, as part of AMP7, and an additional contract by Western Power Distribution. In early March 2019, the business was awarded a place on the five-year £50m Severn Trent Water civils framework.

In Major Projects - Infrastructure, the Group secured new work under the Hinkley Point C framework. In the transport sector, work continues on HS2 where we are working collaboratively with the client to scope the programme while ensuring an appropriate risk allocation for the Group. Work continues on the remaining landscaping and site clearing at the Mersey Gateway project, with the claims recovery process continuing.

Infrastructure Services outlook

In Highways, the business has identified a number of opportunities for new local authority contracts and anticipates a continued change in the mix of work awarded to it by Highways England. In Utilities, although current trading remains positive, the Group anticipates pressure on volumes in the second half of the year.

Buildings (Regional Building, Major Projects - Building, International and Facilities Management)

The Buildings businesses delivered a good performance, with revenue increasing by 10% to £914.7m (H1 FY18: £832.1m), generating an underlying operating profit increase of 74% to £30.8m (H1 FY18: £17.7m). Underlying operating margins were 3.4% (H1 FY18: 2.1%) and the businesses have an order book of c.£3.6bn (30 June 2018: £3.8bn). Over £0.7bn of new contracts were secured during the period, a significant number of which were under frameworks.

Regional Building secured a number of new opportunities across different market sectors, including education and health, principally through frameworks. These include: the Department for Education framework, Priority Schools Building Programme 2 (PSPB), Procure 22, Buildings for Wales, Health Facilities Scotland, Scape, North West Construction Hub, Westworks, Procure North West and the recently secured Southern Construction framework.

In the defence sector, significant contracts awarded to the Group in the period included the £160m F35 Beddown scheme at RAF Lakenheath, in joint venture, and additional work for the Army Basing Programme at MOD Lyneham.

In the Major Projects - Building business, a number of major projects are nearing completion, including the Abcam headquarters in Cambridge and a new University of Cambridge laboratory. In addition, the Group secured a number of new awards in the period, including the £125m office development at King's Cross, London, and has been appointed as the preferred bidder for a major redevelopment for British Land in London.

The first phase of the Broadmoor Hospital redevelopment project is expected to be handed over shortly. A £25m non-underlying provision has been taken in respect of future recoveries from the client and other third parties.

The Facilities Management business continues to focus on seeking to exit under-performing contracts, reducing overhead and recovering work in progress.

In the Middle East, the five-star Saadiyat Beach Rotana hotel, the Nshama Barsha residential project and the Bluewaters island development were completed during the period. Contract awards in the period amounted to £89m and included infrastructure contracts on Expo 2020 and on the Dubai Harbour development.

Buildings outlook

Regional Building has seen a good start to the second half of the financial year, with its breadth of sectors and clients providing the business with resilience. The business has recently secured places on a number of frameworks, such as the £5.2bn Southern Construction framework, and expects to continue to identify opportunities for future growth. 

Developments & Housing (Property Development, Residential House Building, Housing Maintenance and Environmental Services)

Revenues were £419.1m (H1 FY18: £516.3m), generating an underlying operating profit of £18.0m (H1 FY18: £25.7m), principally reflecting reductions in housing completions in the period (as compared to H1 FY18) and housing maintenance volumes. Investment capital in these businesses continues to be capped at £500m.

In Property, revenues were £106m (H1 FY18: £138m) generating an underlying operating profit of £11.6m (H1 FY18: £12.2m) and a ROCE of 14%. The business completed nine (9) sales in the period, as compared to five (5) in the equivalent period in FY18. The majority of the Group's development schemes are outside central London, with opportunities across a range of sectors and regions. During the period, the Group identified opportunities in the industrial, office and residential market sectors. The business has a good pipeline of forward sold work and expects to complete a number of projects in the second half of the financial year. In February 2019, the Group was awarded the £180m contract for the Pall Mall regeneration project in Liverpool by Liverpool City Council.

In Residential, revenues were £151m (H1 FY18: £166m), with an operating profit of £9.1m (H1 FY18: £8.7m). The business reported a sales rate of 0.8 units per sales outlet per week (H1 FY18: 0.7), although unit completions at 842 (H1 FY18: 965) were impacted by delays in planning and on-site start-ups. ROCE was 9% and the landbank comprised 4,739 units at 31 December 2018 (H2 FY18: 3,897).

The housing maintenance market continues to be influenced by the budgetary pressures experienced by housing associations and local authorities. During the period, the Housing Maintenance business experienced a reduction in revenue (as compared to H1 FY18), following the conclusion of the Stoke contract and the imminent in-sourcing of the North Tyneside contract.

In Environmental Services, the Group is in the advanced stages of negotiations with respect to the early termination of a significant loss-making waste collection contract. Please see "Financial Review - non-underlying charges" above for further information.

Developments & Housing outlook

The Property business' forward sold strategy has supported a good performance in the period and the business remains on course to deliver its FY19 financial targets. In Residential, although the business' sales rates remain good, the Group's principal focus in the second half of the financial year will be to deliver the required rate of unit completions, with an increasing number of sites being managed through joint ventures. In the Housing Maintenance business, the focus on streamlining the business and operational efficiency will continue.

For the six months ended 31 December 2018

1 Restated to reclassify Wheldon Contracts & Services as discontinued.

2 Earnings per share for the six months to 31 December 2017 and year to 30 June 2018 restated as a result of the rights issue which completed on 20 December 2018, see note 7 to the financial statements.

3 Stated before non-underlying items, see note 3 to the financial statements.

4 Non-underlying revenue for the six months to 31 December 2017 and year to 30 June 2018 relates exclusively to UK Mining operations. Non-underlying revenue for the six months to 31 December 2018 relating to the UK Mining operations of £2.3m is presented net of a £15.0m revenue adjustment with respect to the Group's Broadmoor Hospital development project (see note 3 for further details).

For the six months ended 31 December 2018

For the six months ended 31 December 2018

The numbers in the table above are shown net of tax as applicable.

Under the terms of a fully underwritten rights issue, ordinary shareholders of the Company on the register at the close of business on 30 November 2018 were offered 64,455,707 new ordinary shares of 1 pence each on the basis of 33 new ordinary shares for every existing 50 ordinary shares held. The new shares were fully subscribed on 20 December 2018, resulting in proceeds on issue of £249.9m, net of expenses of £13.7m that were charged against the share premium account.

At 31 December 2018

1 Prior period restated to move £17.1m from current to non-current other receivables in regard to PFI lifecycle funds.

For the six months ended 31 December 2018

1 Restated to reclassify Wheldon Contracts & Services as discontinued.

1 Basis of preparation

Reporting entity

Kier Group plc (the Company) is a public limited company which is listed on the London Stock Exchange and incorporated and domiciled in the UK. The address of its registered office is Tempsford Hall, Sandy, Bedfordshire, SG19 2BD. The condensed consolidated interim financial statements (interim financial statements) for the six months ended 31 December 2018 comprise the Company and its subsidiaries (together referred to as the Group) and the Group's interest in jointly controlled entities.

These interim financial statements do not comprise statutory financial statements within the meaning of section 434 of the Companies Act 2006. Statutory financial statements for the year ended 30 June 2018 were approved by the Board of Directors on 19 September 2018 and delivered to the Registrar of Companies. The auditor's report on these accounts was unqualified, did not contain an emphasis of matter paragraph and did not contain a statement under section 498 of the Companies Act 2006.

Statement of compliance

These interim financial statements have been prepared in accordance with International Financial Reporting Standard IAS 34 'Interim Financial Reporting' as adopted by the European Union and the Disclosure and Transparency Rules (DTR) of the Financial Conduct Authority. They do not include all of the information required for the full annual financial statements and should be read in conjunction with the financial statements of the Group as at, and for the year ended, 30 June 2018.

These interim financial statements were approved by the directors on 19 March 2019.

Significant accounting policies

Except as described below, the accounting policies applied by the Group in these interim financial statements are consistent with those applied by the Group in its financial statements as at, and for the year ended, 30 June 2018.

The Group has applied IFRS 9 'Financial Instruments' and IFRS 15 'Revenue from Contracts with Customers' effective for the period ending 31 December 2018. Both of these standards have been applied retrospectively at 1 July 2018 by adjusting the opening balance sheet at that date. Further details on the transitional impact on adoption of these standards is described in note 17.

Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual profit or loss.

Estimates and financial risk management

The preparation of interim financial statements requires the directors to make judgements, estimates and assumptions that affect the application of the accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates.

In preparing these interim financial statements, the significant judgements made by the directors in applying the Group's accounting policies and the key sources of uncertainty together with the Group's financial risk management objectives and policies were consistent with those that applied to the financial statements as at, and for the year ended, 30 June 2018, with additional consideration given to the requirements of the new revenue accounting standard IFRS 15 when making certain judgements (see note 17 for further details).

Going concern

The Group has significant financial resources, committed banking facilities, long-term contracts and long-term order books. The directors are satisfied that the Group has sufficient financial resources to continue operating for the foreseeable future and, therefore, have adopted the going concern basis in preparing the Group's 2019 interim financial statements.

Segmental reporting

From 1 July 2018 the Group transitioned to a new reporting format focused on three market positions. This change supports the way the Group works with clients and underpins complementary capabilities. The new reporting segments comprise Infrastructure Services, Buildings and Developments & Housing, and this is the basis on which the Group reports its primary segmental information. Corporate includes unrecovered overheads and the charge for defined benefit pension schemes.

The change in reporting structure has also resulted in a change to the Group's previously reported cash generating units ('CGU'). In accordance with IAS 36 'Impairment of Assets' the Group has reallocated the carrying value of the Group's goodwill as at 1 July 2018 to each of the Group's new CGUs as follows:

Segment information is based on the information provided to the executive chairman, together with the Board, who is the chief operating decision maker. The segments are strategic business units with separate management and have different core customers and offer different services. The segments are discussed in the operational review on pages 6-7.

The accounting policies of the operating segments are the same as those of the Group. The Group evaluates segment information on the basis of profit or loss from operations before non-underlying items, amortisation of intangible contract rights, interest and income tax expense. The segment results that are reported to the chief operating decision maker include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Fair values

The Group's derivatives are measured at fair value. These are classified as level 2 financial instruments as the inputs are observable indirectly and are derived from quoted market prices at the balance sheet date.

Non-underlying items

Certain items are presented separately in the consolidated income statement as non-underlying items where, in the judgement of the directors, they need to be disclosed separately by virtue of their nature, size or incidence in order to obtain a clear and consistent presentation of the Group's underlying business performance.

Examples of material items which may give rise to disclosure as non-underlying items include gains or losses on the disposal of businesses, significant contract provisions, costs of restructuring and reorganisation of existing businesses, change in regulations, integration of newly acquired businesses, asset impairments and acquisition transaction costs and unwind of discounts. They also include reclassification of provisions in respect of such items.

Amortisation of acquired intangible assets is also treated as a non-underlying item so that the underlying profit of the Group can be measured on a comparable basis from period to period.

These are examples, and from time to time it may be appropriate to disclose further items as non-underlying in order to highlight the underlying performance of the Group.

Costs and benefits associated with the Future Proofing Kier programme are included within underlying profit.

Underlying operating profit is one of the key measures used by the Board to monitor the Group's performance.

Discontinued operations

Following its sale in the period to 30 June 2018, the results of Wheldon Contracts & Services Ltd ('Wheldon') have been reclassified to discontinued operations in the comparative period to 31 December 2017.

Assets held for sale

Assets classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Assets are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the assets are available for sale in their present condition.

Standards issued but not yet effective

The Group continues to work on assessing the impact of IFRS 16 'Leases'. As previously disclosed, the main impact of IFRS 16 will be to move the Group's larger, longer-term operating leases, primarily in respect of property, onto the balance sheet, with a consequential increase in non-current assets and finance lease obligations. Operating lease charges included in administrative expenses will be replaced by depreciation and interest costs.

The Group will be adopting IFRS 16 for the first time in the year ended 30 June 2020. We will provide an update to the market on the impact of adopting IFRS 16 in due course.

2 Segmental reporting