REG-Keller Group PLC: Annual Financial Report
15/04/2020 11:25
15 April 2020
Keller Group plc
Annual Report and Financial Statements for the year ended 31 December 2019 and
Notice of 2020 Annual General Meeting
Keller Group plc, the world’s largest geotechnical specialist contractor,
announces that its Annual General Meeting will be held at 11.00am on Thursday
21 May 2020 at the offices of DLA Piper UK LLP, 160 Aldersgate Street, London
EC1A 4HT.
In connection with this, the following documents have been posted or made
available to shareholders:
· Annual Report and Accounts for the year ended 31 December 2019
("Annual Report")
· Notice of Annual General Meeting
· Proxy Form (in the case of shareholders on the register of
members)
Copies of these documents have been submitted to the Financial Conduct
Authority’s Electronic Submission System.
Copies of the Annual Report and Notice of Annual General Meeting are now
available to view on the Company's corporate website at www.keller.com.
In accordance with DTR 6.3.5, this announcement contains information in the
attached Appendix of the principal risk factors, the directors’
responsibility statement and a note to the accounts on related party
transactions. This information has been extracted in full unedited text
from the Annual Report 2019. References to page numbers and notes in the
Appendix refer to those in the Annual Report 2019. A condensed set of
financial statements was appended to Keller Group plc's preliminary results
announcement issued on 3 March 2020.
For further information, please contact:
Keller Group plc www.keller.com
Kerry Porritt, Group Company Secretary and Legal
Advisor 020 7616 7575
Notes to editors:
Keller is the world's largest geotechnical specialist contractor providing a
wide portfolio of advanced foundation and ground improvement techniques used
across the entire construction sector. With around 10,000 staff and operations
across six continents, Keller tackles an unrivalled 7,000 projects every year,
generating annual revenue of more than £2bn.
LEI number: 549300QO4MBL43UHSN10
Classification: 1.1
Appendix
Unedited extract from Annual Report 2019
Principal risks and uncertainties
The table below lists the principal risks and uncertainties as determined by
the Board that may affect the group and highlights the mitigating actions that
are being taken. The content of the table, however, is not intended to be an
exhaustive list of all the risks and uncertainties that may arise.
Key: Strategy lever
1 Balanced portfolio
2 Engineered solutions
3 Operational excellence
4 Expertise and scale
Key: Movement in risk
Increased risk
Reduced risk
Constant risk
Link to viability
Financial risk
Risk Potential impact Demonstrable mitigation Explanation of risk movement (since 2018)
Inability to finance our business Insufficient levels of funding, whether from operating cash flow or external financing facilities, that are necessary to support the business. Link to strategic lever: 3, 4 A lack of available funds restricts investment in growth opportunities, whether through acquisition or innovation. In an extreme circumstance, the lack of available funds could lead to a failure of the group to continue as a going concern. Mixture of long-term committed debt with varying maturity dates which Constant risk Link to viability
comprise a £375m revolving credit facility with a maturity of November
2024 and a US private placement debt of $125m ($50m note maturing in 2021
and $75m note maturing in 2024). Active and open communication with the
revolving credit facility banking group ensures that it understands the
group’s financial performance and is supportive of funding requirements.
Strong free cash flow profile with the ability to turn off capital
expenditure and reduce dividends. Embedded procedures to monitor the
effective management of cash and debt, including weekly cash reports and
regular cash flow forecasting to ensure compliance with borrowing limits
and lender covenants. Culture focused on actively managing our working
capital; the annual bonus plan is linked to executive remuneration
through an operating cash flow metric. Monitoring of and response to
external factors that may affect funding availability; in anticipation of
a less stable global economic environment, the Board announced in March
2018 reduced leverage guidance from 1.5x-2.0x to 1.0x-1.5x.
Market risk
Risk Potential impact Demonstrable mitigation Explanation of risk movement (since 2018)
A rapid downturn in our markets Inability to maintain a sustainable level of financial performance throughout the construction industry market cycle which grows more than many other industries during periods of economic expansion and falls more harder than many other industries when the economy contracts. Link to strategic lever: 1, 2 Reduction in the demand for our products and services may lead to a significant deterioration in financial performance, including cash flow generation. In an extreme circumstance, reduced cash flow generation could lead to a failure of the group to continue as a going concern. The diverse markets in which the group operates, both in terms of Constant risk Link to viability
geography and market segment, provide protection to individual geographic
or segment slowdowns. Having strong local businesses with in-depth
knowledge of the local markets enables early detection and response to
market trends. Leveraging the global scale of the group, talent and
resources can be redeployed to other parts of the company during
individual market slowdowns. The diverse customer base, with no single
customer more than 5% of group revenue, reduces the potential impact of
individual customer failure caused by an economic downturn.
Strategic risk
Risk Potential impact Demonstrable mitigation Explanation of risk movement (since 2018)
Failure to procure new contracts on satisfactory terms Increasing competition, changing customer requirements or a loss of technological advantage results in a failure to continue to win and retain contracts on satisfactory terms and conditions in our existing and new target markets. Link to strategic lever: 1, 2, 3, 4 Failure to negotiate satisfactory and appropriate contractual terms may result in delays and disputes during project delivery, negatively impacting our relationships with our customers and the group’s reputation for delivering quality products and solutions. Inability to enter into commercially viable contracts may have a negative effect on the profitability of our projects and prevent the group from achieving its targets. A focus on understanding customers’ requirements and competitors’ Constant risk
capabilities. Structured bid review processes in operation throughout the
group with well-defined selection criteria that are designed to ensure we
take on contracts only where we understand and can manage the risks
involved. The Project Lifecycle Management (PLM) Standard has introduced
more rigour into how risks are considered during the opportunity,
contract approval and project execution phases. Sales training, which
includes a focus on contractual and commercial terms.
Losing our market share Inability to achieve sustainable growth, whether through acquisition, new products, new geographies or industry-specific solutions may jeopardise our position as the preferred international geotechnical specialist contractor. Link to strategic lever: 1, 2 Delivering sustainable growth is a key component of our strategy. Failure to deliver on our key strategic objective may result in the loss of confidence and trust of our key stakeholders including investors, financial institutions and customers. A clear business strategy with defined short-, medium- and long-term Constant risk Link to viability
objectives, which is monitored at local, divisional and group level.
Continued analysis of existing and target markets to ensure opportunities
that they offer are understood. An opportunities pipeline covering all
sectors of the construction market. A wide-ranging local branch network
which facilitates customer relationships and helps secure repeat work.
Continually seeking to differentiate our offering through service
quality, value for money and innovation. Minimising the risk of
acquisitions, including getting to know a target company in advance,
often working in joint venture, to understand the operational and
cultural differences and potential synergies. As well as undertaking
these through due diligence and structured and carefully managed
integration plans.
Ethical misconduct and non-compliance with regulations Keller operates in many different jurisdictions and is subject to various rules, regulations and other legal requirements including those related to anti-bribery and anti-corruption. There is a risk that the group fails to maintain the required level of compliance. Link to strategic lever: 3, 4 Non-compliance with relevant laws and regulations could lead to substantial damage to Keller’s reputation and/or large financial penalties. Losing the trust of our customers, suppliers and other stakeholders would have an adverse effect on our ability to deliver against our strategy and business objectives. A Code of Business Conduct that sets out minimum expectations for all Reduced risk Link to viability Strengthened communication of Keller’s tone at the top and a renewed focus on risk management and internal control have decreased the exposure of this risk.
colleagues in respect of ethics, integrity and regulatory requirements
and is backed by a training programme to ensure that it is fully embedded
across the group. A clear and confidential externally run
‘whistleblowing’ facility encouraging employees to report any suspected
misconduct. An Ethics and Compliance Officer at every business unit who
supports the ethics and compliance culture and ensures best practice
developed by the group is communicated and embedded into local business
practices. Regular workshops across the group to ensure compliance risks
are identified and addressed. See page 37 for detailed mitigations of
health and safety risks.
Inability to maintain our technological advantage Keller has a history of innovation that has given us a technological advantage which is recognised by our clients and competitors. Inability to maintain this advantage through the continued technological advancements in our equipment, products and solutions may impact our position in the market. Link to strategic lever: 1, 2 Without a structured innovation approach, including sufficient investment, Keller may lose its completive advantage. The Keller Innovation Board works closely with business units, divisions New risk Keller’s ability to innovate is essential to its operating model.
and global product teams to ensure a structured approach to innovation is
in place across the group. The Keller Innovation Conference was an
important milestone to help make existing innovation activities not only
more transparent, but also more focused, coordinated and quicker to
implement in the future. KDAQ, a group-wide innovation project, will
bring information together and make it accessible in one simple and
concise platform. It will include all technical information from Keller
and third-party sources at each stage of delivery, including data
analysis and visualisations where possible, and it will also be BIM
-compatible.
Changing environmental factors Changes in environmental legislation and relevant standards that impact our product and service offerings and an increasingly active public response to environmental concerns in the sectors in which we operate. Link to strategic lever: 3 Inability to achieve Keller’s commitment to deliver solutions in an environmentally conscious manner may have a negative impact on our reputation, affect employee morale and lead to loss of confidence from our customers, suppliers and investors. Product offerings become obsolete because they are no longer compliant with environmental standards. We may be required to remediate at our own cost to attain compliance. The group collaborates with the University of Surrey’s Centre for New risk An increasingly active public response to environmental concerns in the sectors in which we operate.
Environment and Sustainability to apply sustainability best practice to
all business functions. A Sustainability Steering Group is responsible
for integrating sustainability targets and measures into the group
business plan to successfully drive changes important to the company.
Further details can be found in the sustainability report on pages 39 to
46.
Operational risk
Risk Potential impact Demonstrable mitigation Explanation of risk movement (since 2018)
Service or solutions failure In designing a product or a solution for customers many factors need to be considered including client requirements, site and loading conditions and local constraints (eg neighbouring buildings, other underground structures). Inadequate design of a customer product and/or solution may lead to an inability to achieve the required standard. Misinterpretation of client requirements or miscommunication of requirements by the client may lead to a poorly designed solution and consequently failure. Link to strategic lever: 2, 4 Failure to meet quality standards could damage our reputation, result in regulatory action and legal liability, and impact financial performance. The liability limitation period of our products is generally 12 years; consequently, a poorly designed product/solution could have an impact on our long-term profitability. Continuing to enhance our technological and operational capabilities Constant risk Link to viability
through investment in our product teams, project managers and our
engineering capabilities. Employing geotechnical engineers that are
focused purely on design. The global product teams set standards, provide
guidance and disseminates best practice across the organisation for our
10 key products. We seek to agree liability limits in our contracts with
customers. Insurance solutions are in place to limit financial exposure
of a potential customer claim.
Ineffective execution of our projects Failure to manage our projects to ensure that they are delivered on time and to budget due to unforeseen ground and site conditions, weather-related delays, unavailability of key materials, workforce shortages or equipment breakdowns. Link to strategic lever: 3, 4 Inability to successfully deliver projects in line with the agreed customer requirements may result in cost overruns, contractual disputes and reputational damage. Ineffective project delivery may also expose the company to long-term obligations including legal action and additional costs to remedy solution failure. Ensuring we understand all of our risks through the bid appraisal process Constant risk Link to viability
and applying rigorous policies and processes to manage and monitor
contract performance. Ensuring we have high-quality people delivering
projects. Keller’s Project Management Academy is designed to create
project managers with a consistent skill set across the entire
organisation. The Academy covers a broad range of topics including
contract management, planning, risk assessment, change management,
decision-making and finance. The new KDAQ system will collect, process
and visualise data from any equipment; enabling comparison of performance
across sites using similar products, identification of areas of best
practice and quickly raising awareness of where improvement is needed.
The PLM Standard introduces a consistent approach to project delivery
with robust controls at every project phase. A formal, structured
approach to LEAN across the organisation is being embedded, which is
improving processes and strengthening Keller’s working culture.
Causing a serious injury or fatality to an employee or a member of the public Failure to maintain high standards of health and safety, and an increase in serious injuries or fatalities leading to an erosion of trust of employees and potential clients. Link to strategic lever: 3 Inability to maintain a positive health and safety culture may lead to damage to morale, an increase in employee turnover rates and a decrease in productivity. Deterioration in health and safety performance may lead to loss of customer, supplier and partner confidence and damage to our reputation in an area that we regard as a top priority. A Board-led commitment to drive health and safety programmes and Constant risk Link to viability
performance with a vision of zero harm. An emphasis on safety leadership
to ensure both HSEQ professionals and operational leaders drive
implementation and sustainment of our safety standards through ongoing
site presence, using safety tours, safety audits, safety action groups
and mandatory employee training. Ongoing improvement of existing HSEQ
systems to identify and control known and emerging HSEQ risks, which
conform to internal standards. The new Incident Management Standard and
incident management software will drive a robust and consistent
management process across the organisation that ensures the cause of the
incident is identified and actions are put in place to prevent
recurrence.
Not having the right skills to deliver Inability to attract and develop excellent people to create a high-quality, vibrant, diverse and flexible workforce. Link to strategic lever: 2, 3, 4 Failure to maintain satisfactory performance in respect of our current projects and failure to deliver our strategy and business targets for growth. Continuing to invest in our people and organisation in line with the four Increased risk We are seeing increased competition for skilled construction and engineering resources, in particular in our North American market.
pillars of the Keller People agenda as noted below. Ensuring that the
‘Right Organisation’ is in place with people having clear
accountabilities; each organisational unit is properly configured with a
matrix of line management, functional support, and product expertise. As
industry leader, that Keller is made up of ‘Great People’ that are well
trained, motivated and have opportunities to develop to their full
potential. Project Managers and field employees receive comprehensive
training programmes which cover a broad range of topics including
contract management, planning, risk assessment, change management,
decision?making and finance. A strong focus on the ‘Exceptional
Performance’ of employees in delivering commercial outcomes safely for
Keller based upon project successes for our customers. Business leaders
are incentivised to deliver their annual financial and safety commitments
to the group. The ‘Keller Way’ provides guidance to the company’s
employees and leaders to comply with local laws and work within Keller’s
values and Code of Business Conduct.
Loss of security of our data and systems Information security and cyber threats are a concern across industries worldwide. The introduction of digital solutions such as InSite and KDAQ increases the group’s reliance on IT and its inherent cyber risk exposure. Link to strategic lever: 3, 4 A cyber security breach could result in leakage of proprietary information, operational disruptions, and loss of employee and customer data. A dedicated cyber security team has been established to monitor and New risk The introduction of digital solutions such as InSite and KDAQ increases the group’s reliance on IT and its inherent cyber risk exposure.
respond to potential incidents. Multi-factor authentication for all users
prevents unauthorised access to Keller’s networks and applications.
Advanced threat protection on all IT equipment delivers comprehensive,
ongoing and real-time protection against viruses, malware and spyware. A
data protection framework ensures compliance with the General Data
Protection Regulation.
Responsibility statement of the Directors in respect of the Annual Report and
the financial statements
We confirm that to the best of our knowledge:
* The financial statements, prepared in accordance with the applicable set of
accounting standards, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Company and the undertakings
included in the consolidation as a whole; and
* The Strategic report and Directors’ report, including content contained by
reference, includes a fair review of the development and performance of the
business and the position and performance of the company and the undertakings
included in the consolidation taken as a whole, together with a description of
the principal risks and uncertainties that they face.
The Board confirms that the Annual Report and Accounts, taken as a whole, is
fair, balanced and understandable and provides the information necessary for
shareholders to assess the group’s position and performance, business model
and strategy.
27 Related party transactions
Transactions between the parent, its subsidiaries and joint operations, which
are related parties, have been eliminated on consolidation. Other related
party transactions are disclosed below:
Compensation of key management personnel
The remuneration of the Board and Executive Committee, who are the key
management personnel, comprised:
2019 £m 2018 £m
Short-term employee benefits 5.4 5.1
Post-employment benefits 0.4 0.4
Termination payments 0.2 1.4
6.0 6.9
Other related party transactions
As at the year end there was a net balance of £0.2m owed to (2018: £1.1m
owed by) the joint venture. These amounts are unsecured, have no fixed date of
repayment and are repayable on demand. There were no sales by the group to
joint ventures during the year (2018: none).
During the year two members of management acquired the right to purchase the
Cyntech Anchors business at a fixed price over the next five years at their
option.
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