Kier Group has posted record results thanks to increased government spending on schools and hospitals.

The contractor and housebuilder reported a 26% rise in pre-tax profit to £43.2m for the year ended 30 June 2004.

The increase was driven mainly by strong performances from its construction, support services and housing divisions.

Turnover in its support services division rose by more than half to £174.3m, which reflected the increasing diversification of the business.

John Dodds, chief executive, was particularly upbeat about the prospects for construction and services, but said that property and housebuilding were also performing well.

He said that the firm intended to sell some of its PFI investments to the secondary market, reinvesting the cash generated into the business.

We remain committed to a focused, cautious approach to PFI

John Dodds, Kier chief executive

“We remain committed to a focused, cautious approach to PFI investment and are keen to take advantage of further opportunities as they emerge,” said Dodds.

Alastair Stewart, analyst at Dresdner Kleinwort Wasserstein, said that he rated Kier as a core buy and described the company as “one of the most consistent performers” in the sector.

Kier recommended a final dividend of 19p a share, up 15.9%.

The results were better than expected and drove Kier’s share price up 10p to 715p after they were announced last Thursday, and up a further 28.5p on Friday.